CSX Corporation
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
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þ
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 |
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For the fiscal year ended December 30, 2005 |
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OR |
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 |
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For the transition period
from to |
Commission File Number 1-8022
CSX CORPORATION
(Exact name of registrant as specified in its charter)
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Virginia
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62-1051971 |
(State or other jurisdiction of
incorporation or organization) |
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(I.R.S. Employer
Identification No.) |
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500 Water Street,
15th
Floor,
Jacksonville, FL
(Address of principal executive offices) |
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32202
(Zip Code) |
(904) 359-3200
(Telephone number, including area code)
Securities registered pursuant to Section 12(b) of the
Act:
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Title of each class |
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Name of exchange on which registered |
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Common Stock, $1 Par Value |
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New York Stock Exchange |
Securities registered pursuant to Section 12(g) of the
Act:
None
Indicate by check mark if the registrant is a well-known
seasoned issuer (as defined in Rule 405 of the Securities
Act). Yes þ No o
Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or Section 15(d) of the
Act. Yes o No þ
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been
subject to such filing requirements for the past
90 days. Yes þ No o
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of
Regulation S-K is
not contained herein, and will not be contained, to the best of
the registrants knowledge, in definitive proxy or
information statements incorporated by reference in
Part III of this
Form 10-K or any
amendment to this
Form 10-K. o
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer or a non-accelerated
filer (as defined in Exchange Act
Rule 12b-2).
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Large Accelerated Filer þ |
Accelerated Filer o |
Non-accelerated Filer o |
Indicate by check mark whether the registrant is a shell company
(as defined in Exchange Act
Rule 12b-2). Yes o No þ
On July 1, 2005 (which is the last day of the second
quarter and the required date to use), the aggregate market
value of the Registrants voting stock held by
non-affiliates was approximately $7.5 billion (based on the
New York Stock Exchange closing price on such date).
On January 27, 2006, there were 219,431,371 shares of
Common Stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrants Definitive Proxy Statement
(the Proxy Statement) to be filed with respect to
its annual meeting of shareholders scheduled to be held on
May 3, 2006.
CSX CORPORATION
FORM 10-K
TABLE OF CONTENTS
2
CSX CORPORATION
PART I
CSX Corporation (CSX and, together with its
subsidiaries, the Company), based in Jacksonville,
FL, owns companies providing rail, intermodal and
rail-to-truck transload
services that combine to form one of the nations leading
transportation companies, connecting more than 70 ocean, river
and lake ports.
Surface Transportation
CSXs principal operating company, CSX Transportation Inc.
(CSXT), operates the largest railroad in the eastern
United States with approximately
21,000-mile rail
network linking commercial markets in 23 states, the
District of Columbia, and the Canadian provinces of Ontario and
Quebec.
CSX Intermodal Inc. (Intermodal), one of the
nations largest
coast-to-coast
intermodal transportation providers, is a stand-alone,
integrated intermodal company serving customers from origin to
destination with its own truck and terminal operations, plus a
dedicated domestic container fleet. Containers and trailers are
loaded and unloaded from trains, with trucks providing the link
between intermodal terminals and the customer.
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Surface Transportation Businesses |
The rail and intermodal companies are viewed by the Company on a
combined basis as Surface Transportation businesses. Together,
they serve four primary lines of business:
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Merchandise generated approximately 49% of the Companys
total revenue in 2005 with 2.9 million carloads. The
Companys merchandise business is made up of seven market
segments: phosphates and fertilizers; metals; forest products;
food and consumer; agricultural products; chemicals; and
emerging markets. Emerging markets target high-growth business
opportunities in specialized markets such as aggregates,
processed materials (for example, cement), waste, military
cargo, and machinery. |
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Coal, which delivered more than 1.8 million carloads of
coal, coke and iron ore to electric utilities and manufacturers
in 2005, accounted for approximately 24% of the Companys
total 2005 revenue. The Company serves more than 130 coal
mines in nine states, including three of the nations top
four coal-producing states. |
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Intermodal, as described above, offers a cost advantage over
long-haul trucking by combining the better economics of longer
hauls provided by rail with the short-haul flexibility of trucks
through a network of dedicated terminals across North America.
Intermodal accounted for approximately 2.2 million units
and 16% of the Companys total revenue in 2005. |
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Automotive, which serves plants in eight states and delivers
both finished vehicles and auto parts, transported 488,000
carloads generating 10% of the Companys total revenue in
2005. |
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Other revenue, such as demurrage, switching, and other
incidental charges, accounted for 1% of the Companys total
2005 revenue. Demurrage represents charges assessed by railroads
for the retention of cars by shippers or receivers of freight
beyond a specified period of time. Switching revenue is
generated when CSX switches cars between trains for a customer
or other railroad. |
3
Divestitures
In February 2005, CSX sold its International Terminals
business. CSX recognized a gain of $683 million pretax,
$428 million after tax, in the fiscal year ended
December 30, 2005. These amounts are reported as
Discontinued Operations in the Companys Consolidated
Income Statements. All prior activities for this business are
presented as Discontinued Operations. (See Note 4.
Discontinued Operations.)
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Domestic Container Shipping |
In February 2003, CSX conveyed its interest in the Domestic
Container-Shipping business. CSX continues to sublease vessels
and equipment to this former business through 2014. Due to these
continuing obligations, CSX deferred the gain of
$127 million pretax and is amortizing it over the
12-year sub-lease term.
(See Note 3. Divestitures.)
Financial Information about Operating Segments
See Item 7. Managements Discussion and Analysis of
Financial Condition and Results of Operations for operating
revenue, operating income and total assets by segment for each
of the last three fiscal years.
General
The Company makes available, free of charge through its website
at www.csx.com, its annual reports on
Form 10-K,
quarterly reports on
Form 10-Q and
current reports on
Form 8-K, and all
amendments thereto, as soon as reasonably practicable after such
reports are filed with or furnished to the Securities and
Exchange Commission. Additionally, the Company has posted its
code of ethics on its website.
The Company has included the CEO and CFO certifications
regarding the Companys public disclosure required by
Section 302 of the Sarbanes-Oxley Act of 2002 as
Exhibits 31.1 and 31.2 to this report. Additionally, CSX
filed with the NYSE the CEOs certification regarding the
Companys compliance with the NYSEs Corporate
Governance Listing Standards (Listing Standards)
pursuant to Section 303A.12(a) of the Listing Standards,
which was dated May 26, 2005 and indicated that the CEO was
not aware of any violations of the Listing Standards by the
Company.
For additional information concerning business conducted by the
Company during 2005, see Item 7. Managements
Discussion and Analysis of Financial Condition and Results of
Operations and Item 8. Financial Statements and
Supplementary Data Note 20. Business Segments.
Employees
The Companys annual average of employees was approximately
35,000 people in 2005 primarily working to provide
transportation services.
The information set forth in Item 6. Selected Financial
Data is incorporated herein by reference.
Item 1A. Risk
Factors
The information set forth in Item 7. Management Discussion
and Analysis of Financial Condition and Results of Operations
under the caption Risk Factors is incorporated by
reference.
Item 1B. Unresolved
Staff Comments
Not applicable.
4
CSXs properties primarily consist of track and its related
infrastructure, locomotives and freight cars and each category
is described below.
Track and
Infrastructure
Serving 23 states, the District of Columbia, Ontario and
Quebec, the CSXT rail network extends from New York,
Philadelphia and Boston to the Southeast markets of Atlanta,
Miami and New Orleans and to the Midwestern cities of East
St. Louis, Memphis and Chicago.
The Companys track structure includes main thoroughfares
connecting terminals and yards (referred to as mainline track);
track within terminals and switching yards; track adjacent to
the mainlines used for passing trains; and track connecting the
mainline track to customer locations. As of December 30,
2005, the breakdown of these track miles is as follows:
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Track | |
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Miles | |
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Mainline Track
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26,865 |
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Terminals and Switching Yards
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9,774 |
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Passing Sidings and Turnouts
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1,031 |
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Total
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37,670 |
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In addition to its physical track structure, CSXT
operates 36 major yards and terminals, plus a number of smaller
facilities. These sites serve as the links between the Company
and its local customers and as sorting facilities where
shipments are classified and routed to other areas around the
nation. CSXTs train operations are focused around four
major transportation networks: the Coal Network, the
Southeastern Corridor, the Interstate 90 Corridor, and the
Interstate 95 Corridor.
Coal Network
Coal is used to generate more than half of the electricity in
the United States. The CSX coal network connects mining
operations in nine states with industrial areas in the Northeast
as well as many river, lake and seaport facilities. These routes
also support CSXTs strong and growing utility market in
the Southeast.
Southeastern Corridor
This section of the network runs on the western side of
CSXTs system from Chicago and the Western gateways,
through the cities of Atlanta, Nashville and Birmingham to
markets throughout the Southeast. The Southeastern Corridor is a
vital route for CSXTs merchandise and Intermodals
traffic as well as automotive services.
Interstate 90
(I-90) Corridor
Chicago and metropolitan areas in New York and New England are
linked by CSXs
I-90 corridor.
Much of this route has two lanes of track side by side (referred
to as double mainline track) supporting high-speed intermodal
and automotive services. The
I-90 corridor is
also a primary route for import traffic moving across the
country, through Chicago and into the population centers in the
Northeast.
Interstate 95 (I-95)
Corridor
Charleston, Jacksonville, Miami and many other cities throughout
the growing Southeast are connected to the heavily populated
northeastern cities of Baltimore, Philadelphia and New York
5
along CSXTs
I-95 corridor.
This route is used for certain CSX merchandise business, which
primarily includes food and consumer products along with metals
and chemicals.
Locomotives
CSXT operates more than 3,700 locomotives, of which
approximately 500 are under short-term lease arrangements.
Freight locomotives are the power used primarily to pull trains.
Switching locomotives are used in yards to sort rail cars so
that the right rail car gets attached to the right train in
order to get it to its final destination. Auxiliary units are
typically used to provide extra traction for heavy trains in
hilly terrain.
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December 30, 2005 | |
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Owned | |
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Leased | |
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Total | |
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% | |
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Locomotives
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Freight
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2,922 |
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462 |
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3,384 |
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89 |
% |
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Switching
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217 |
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217 |
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6 |
% |
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Auxiliary Units
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189 |
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189 |
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5 |
% |
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Total
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3,328 |
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462 |
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3,790 |
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100 |
% |
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Freight Car Fleet
CSXT provides specialized equipment to safely deliver freight
from the source to distributors or end users:
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Gondolas support CSXTs coal and metals markets and provide
transport for woodchips and other bulk commodities. |
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Open-top hoppers handle heavy dry bulk commodities that are
impervious to weather conditions such as coal, coke, stone,
sand, ores and gravel. |
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Flat Cars for shipping intermodal containers and trailers. |
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Box Cars transport commodities that must be protected from
the weather, such as paper products, appliances and building
materials. Insulated boxcars deliver food products, canned
goods, and certain beverages. |
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Covered hoppers have a permanent roof. Lighter bulk commodities
such as grain, fertilizer, flour, salt, sugar, clay and lime are
shipped in large cars called jumbo covered hoppers. Heavier
commodities like cement, ground limestone and glass sand are
shipped in small cube-covered hoppers. |
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Other cars on the network include but are not limited to center
beam cars for transporting lumber and building products. |
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December 30, 2005 | |
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Owned | |
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Leased | |
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Total | |
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% | |
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Freight Cars
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Gondolas
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22,174 |
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8,070 |
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30,244 |
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29 |
% |
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Open-top Hoppers
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16,354 |
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3,299 |
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19,653 |
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19 |
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Flat Cars
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1,053 |
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18,439 |
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19,492 |
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19 |
% |
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Box Cars
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13,240 |
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2,737 |
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15,977 |
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16 |
% |
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Covered Hoppers
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13,199 |
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3,301 |
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16,500 |
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16 |
% |
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Other Cars
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431 |
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1,017 |
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1,448 |
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1 |
% |
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Total
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66,451 |
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36,863 |
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103,314 |
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100 |
% |
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6
At any point in time, over half of the railcars on the CSXT
system are not owned buy CSXT. Examples of these are railcars
owned by other railroads, which are interchanged to CSXT;
shipper-furnished (private) cars, which are
generally used only in that shippers services; and
multi-level railcars. These multi-level railcars are used to
transport finished motor vehicles, such as sport utility
vehicles and light trucks in
bi-level cars, while
sedans and smaller automobiles are shipped in
try-level cars.
Multi-level railcars
are used jointly by participating railroads, and the fleet is
managed as a nationwide pool to serve the automobile industry.
As noted, in certain markets, CSXT uses railcars supplied by
railroad customers. For example, chemical shippers typically
supply tank cars for the transportation of hazardous and
non-hazardous material.
The information set forth in Item 7. Managements
Discussion and Analysis of Financial Condition and Results of
Operations under the caption Depreciation Policies Under
the Group Life Method, is incorporated herein by reference.
The information set forth in Item 8. Financial Statements
and Supplementary Data, Note 1. Nature of Operations and
Significant Accounting Policies under the caption
Properties, and Note 10. Properties, is
incorporated herein by reference.
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Item 3. |
Legal Proceedings |
The Company is involved in routine litigation incidental to its
business and is a party to a number of legal actions and claims,
various governmental proceedings and private civil lawsuits,
including those related to environmental matters, Federal
Employers Liability Act claims by employees, other
personal injury claims, and disputes and complaints involving
certain transportation rates and charges. Some of the legal
proceedings include claims for compensatory as well as punitive
damages, and others purport to be class actions. While the final
outcome of these matters cannot be predicted with certainty,
considering among other things the meritorious legal defenses
available and liabilities that have been recorded along with
applicable insurance, it is the opinion of CSX management that
none of these items will have a material adverse effect on the
results of operations, financial position or liquidity of the
Company. An unexpected adverse resolution of one or more of
these items, however, could have a material adverse effect on
the results of operations, financial position or liquidity of
the Company in a particular quarter or fiscal year.
See Item 7. Managements Discussion and Analysis of
Financial Condition and Results of Operations under the caption
Critical Accounting Estimates, Casualty, Environmental and
Legal Reserves.
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Item 4. |
Submission of Matters to a Vote of Security Holders |
There were no matters submitted to a vote of security holders in
the fourth quarter of 2005.
Executive Officers of the Registrant
Executive officers of CSX are elected by the CSX Board of
Directors and generally hold office until the next annual
election of officers. There are no family relationships or any
arrangement or
7
understanding between any officer and any other person pursuant
to which such officer was selected. Effective February 23,
2006, the executive officers are as follows:
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Name and Age |
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Business Experience During Past 5 Years |
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Michael J. Ward, 55
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Chairman of the Board, President and Chief Executive Officer of
CSX, having been elected as Chairman and Chief Executive Officer
in January 2003 and as President in July 2002. He has also
served CSX Transportation, Inc., the Companys rail
subsidiary, as President since November 2000 and as President
and Chief Executive Officer since October 2002. Previously,
Mr. Ward served CSX Transportation as Executive Vice
President Operations from April through November
2000, and as Executive Vice President Coal Service
Group from August 1999 to April 2000. |
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Ellen M. Fitzsimmons, 45 |
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Senior Vice President Law and Public Affairs of CSX
and CSX Transportation, Inc. since December 2003. Before
December 2003, Ms. Fitzsimmons served as Senior Vice
President Law and Corporate Secretary from May 2003
and as Senior Vice President Law from February 2001
to May 2003. Prior thereto, she served as General
Counsel Corporate at CSX. |
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Clarence W. Gooden, 54 |
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Executive Vice President and Chief Commercial Officer of CSX and
CSX Transportation, Inc. since April 2004. Before April 2004,
Mr. Gooden served as Senior Vice President
Merchandise Service Group, CSX Transportation, Inc. from 2002.
Prior to 2002, Mr. Gooden served as President of CSX
Intermodal from 2001 to 2002; Senior Vice President
Coal Service Group from 2000 to 2001; and Vice
President System Transportation from 1999 to 2000. |
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Robert J. Haulter, 52 |
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Senior Vice President Human Resources and Labor
Relations of CSX and CSX Transportation, Inc. since December
2003. Before December 2003, Mr. Haulter served as CSX
Senior Vice President Human Resources from July
2002. Before July 2002, he served CSX Transportation, Inc. as
Senior Vice President Human Resources from May 2002
to July 2002; as Vice President Human Resources from
December 2000 to May 2002; as Assistant Vice President of
Operations Support from September 2000 to December 2000; and as
Assistant Vice President Strategic Development from
November 1999 to September 2000. |
8
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Name and Age |
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Business Experience During Past 5 Years |
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Tony L. Ingram, 57 |
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Executive Vice President and Chief Operating Officer of CSX
Transportation, Inc. since March 2004. Before March 2004,
Mr. Ingram served as Senior Vice President
Transportation, Network and Mechanical, Norfolk Southern
Corporation, from February 2003 to March 2004; and Vice
President, Transportation Operations from March 2000
to February 2003. |
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Oscar Munoz, 47 |
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Executive Vice President and Chief Financial Officer of CSX and
CSX Transportation, Inc. since May 2003. Before May 2003,
Mr. Munoz served as Chief Financial Officer and Vice
President, Consumer Services, AT&T Corporation, from January
2001 to May 2003; as Senior Vice President
Finance & Administration, Qwest Communications
International, Inc. from June to December 2000; and as Chief
Financial Officer & Vice President, U.S. West
Retail Markets from April 1999 to May 2000. |
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Carolyn T. Sizemore, 43 |
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Vice President and Controller of CSX and CSX Transportation,
Inc. since April 2002. Prior to April 2002, Ms. Sizemore
served CSX as Assistant Vice President and Assistant Controller
from July 2001 to April 2002, and as Assistant Vice President,
Financial Planning from June 1999 to July 2001. |
9
CSX CORPORATION
PART II
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Item 5. |
Market for Registrants Common Equity, Related
Stockholder Matters and Issuer Purchases of Equity
Securities |
Market Information
CSXs common stock is listed on the New York stock exchange
and trades with unlisted privileges on the Midwest, Boston,
Cincinnati, Pacific and Philadelphia stock exchanges. The
official trading symbol is CSX.
Description of Common and Preferred Stocks
A total of 300 million shares of common stock is
authorized, of which 218,202,519 shares were outstanding as
of December 30, 2005. Each share is entitled to one vote in
all matters requiring a vote of shareholders. There are no
pre-emptive rights. At January 27, 2006, there were 49,859
common stock shareholders of record. Weighted average common
shares outstanding used in the calculation of diluted earnings
per share was approximately 228 million as of
December 30, 2005, and is expected to increase in 2006 due
to anticipated stock option exercises and other incentive
programs. (See Note 15. Earnings Per Share.)
A total of 25 million shares of preferred stock is
authorized, none of which is currently outstanding.
The following table sets forth, for the quarters indicated, the
dividends declared and the high and low share prices of the
Companys common stock. In 2005, the Company increased
dividends by 30% from 10 cents to 13 cents per common
share.
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Quarter | |
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1st | |
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2nd | |
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3rd | |
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4th | |
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Year | |
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2005
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Dividends
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$ |
0.10 |
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$ |
0.10 |
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$ |
0.10 |
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$ |
0.13 |
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$ |
0.43 |
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Common Stock Price
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High
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$ |
43.54 |
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$ |
44.10 |
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$ |
46.89 |
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$ |
51.60 |
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$ |
51.60 |
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Low
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$ |
36.90 |
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$ |
38.01 |
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$ |
42.48 |
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$ |
42.70 |
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$ |
36.90 |
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2004
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Dividends
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$ |
0.10 |
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$ |
0.10 |
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$ |
0.10 |
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$ |
0.10 |
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$ |
0.40 |
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Common Stock Price
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High
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$ |
36.26 |
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$ |
33.04 |
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$ |
34.28 |
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$ |
40.46 |
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$ |
40.46 |
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Low
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$ |
28.80 |
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$ |
29.28 |
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$ |
29.96 |
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$ |
33.09 |
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$ |
28.80 |
|
Issuer Purchases of Equity Securities Information
As required by SEC
Regulation S-K for
the quarter ended December 30, 2005, the following table
summarizes common shares withheld by CSX on behalf of current
and retired employees to
10
settle the employees minimum statutory tax obligation on
the distribution of shares that were formerly deferred and any
restricted stock that has vested.
Issuer Purchases of Equity Securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(d) | |
|
|
|
|
|
|
(c) | |
|
Maximum | |
|
|
|
|
|
|
Total Number of | |
|
Number of | |
|
|
(a) | |
|
|
|
Shares | |
|
Shares that | |
|
|
Total | |
|
(b) | |
|
Purchased as | |
|
May Yet Be | |
|
|
Number of | |
|
Average | |
|
Part of Publicly | |
|
Purchased | |
|
|
Shares | |
|
Price Paid | |
|
Announced Plans | |
|
Under the Plan | |
Period |
|
Purchased | |
|
per Share | |
|
or Programs | |
|
or Programs | |
|
|
| |
|
| |
|
| |
|
| |
October
|
|
|
6,318 |
|
|
$ |
42.07 |
|
|
|
|
|
|
|
|
|
|
(October 1, 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
October 28, 2005)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
November
|
|
|
3,219 |
|
|
|
45.78 |
|
|
|
|
|
|
|
|
|
|
(October 29, 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
November 27, 2005)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December
|
|
|
1,363 |
|
|
|
50.44 |
|
|
|
|
|
|
|
|
|
|
(November 28, 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 30, 2005)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
10,900 |
|
|
$ |
44.21 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11
|
|
Item 6. |
Selected Financial Data |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Years Ended | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
2003 | |
|
2002 | |
|
2001 | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(Dollars in millions, except per share amounts) | |
|
|
(Unaudited) | |
Earnings from Continuing Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Revenue
|
|
$ |
8,618 |
|
|
$ |
8,040 |
|
|
$ |
7,573 |
|
|
$ |
7,916 |
|
|
$ |
7,853 |
|
Operating Expense
|
|
|
7,068 |
|
|
|
7,040 |
|
|
|
7,053 |
|
|
|
6,897 |
|
|
|
7,003 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Income
|
|
$ |
1,550 |
|
|
$ |
1,000 |
|
|
$ |
520 |
|
|
$ |
1,019 |
|
|
$ |
850 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Earnings from Continuing Operations
|
|
$ |
720 |
|
|
$ |
418 |
|
|
$ |
137 |
|
|
$ |
410 |
|
|
$ |
243 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings Per Share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
From Continuing Operations
|
|
$ |
3.33 |
|
|
$ |
1.95 |
|
|
$ |
0.64 |
|
|
$ |
1.93 |
|
|
$ |
1.15 |
|
|
From Continuing Operations, Assuming Dilution
|
|
$ |
3.17 |
|
|
$ |
1.87 |
|
|
$ |
0.63 |
|
|
$ |
1.85 |
|
|
$ |
1.13 |
|
|
From Cumulative Effect of Accounting Change
|
|
$ |
|
|
|
$ |
|
|
|
$ |
0.26 |
|
|
$ |
(0.20 |
) |
|
$ |
|
|
|
From Cumulative Effect of Accounting Change, Assuming Dilution
|
|
$ |
|
|
|
$ |
|
|
|
$ |
0.25 |
|
|
$ |
(0.19 |
) |
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial Position
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash, Cash Equivalents and Short-term Investments
|
|
$ |
602 |
|
|
$ |
859 |
|
|
$ |
368 |
|
|
$ |
264 |
|
|
$ |
618 |
|
Total Assets
|
|
|
24,232 |
|
|
|
24,605 |
|
|
|
21,760 |
|
|
|
20,951 |
|
|
|
20,801 |
|
Long-term Debt
|
|
|
5,093 |
|
|
|
6,248 |
|
|
|
6,886 |
|
|
|
6,519 |
|
|
|
5,839 |
|
Shareholders Equity
|
|
|
7,954 |
|
|
|
6,811 |
|
|
|
6,448 |
|
|
|
6,241 |
|
|
|
6,120 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Data Per Common Share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Dividends
|
|
$ |
0.43 |
|
|
$ |
0.40 |
|
|
$ |
0.40 |
|
|
$ |
0.40 |
|
|
$ |
0.80 |
|
Employees Annual Averages
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rail
|
|
|
32,033 |
|
|
|
32,074 |
|
|
|
32,892 |
|
|
|
33,468 |
|
|
|
35,014 |
|
Other
|
|
|
3,076 |
|
|
|
3,833 |
|
|
|
4,624 |
|
|
|
6,471 |
|
|
|
6,446 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
35,109 |
|
|
|
35,907 |
|
|
|
37,516 |
|
|
|
39,939 |
|
|
|
41,460 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying Consolidated Financial Statements
12
Significant events included in Earnings from Continuing
Operations are as follows:
|
|
2005 |
CSX repurchased $1.0 billion of outstanding debt. CSX
recognized a charge of $192 million pretax,
$123 million after tax, to repurchase the debt, which
primarily reflects the increase in current market value above
original issue value. (See Note 12. Debt and Credit
Agreements.) |
|
|
Ohio enacted legislation to gradually eliminate its corporate
franchise tax. This legislative change resulted in an income tax
benefit of $71 million. (See Note 8. Income Taxes.) |
|
|
CSX updated its assessment of the unasserted liability exposure
for asbestos and other claims, which resulted in recognition of
a $38 million pretax, $23 million after tax, favorable
change in estimate. (See Note 11. Casualty, Environmental,
and Other Reserves.) |
|
2004 |
A charge of $71 million pretax, $44 million after tax,
was recognized for separation expenses related to the management
restructuring at Surface Transportation. (See Note 5.
Management Restructuring.) |
|
|
Revenues, operating expenses and after tax income include
approximately $63 million, $35 million and
$6 million, respectively, representing consolidation of
Four Rivers Transportation (FRT), a short-line
railroad previously accounted for under the equity method, in
conjunction with adoption of FASB Interpretation 46,
Consolidation of Variable Interest Entities. Net equity
earnings of FRT of approximately $4 million were included
in other income in 2003. |
|
|
CSX completed a corporate reorganization of Conrail that
resulted in the direct ownership of certain Conrail assets by
CSXT. This transaction was accounted for at fair value and
resulted in a net gain of $16 million after tax, which is
included in other income. (See Note 2. Investment In and
Integrated Rail Operations with Conrail.) |
|
2003 |
Income of $93 million pretax, $57 million after tax,
was recognized as a cumulative effect of accounting change,
representing the reversal of the accrued liability for crosstie
removal costs in conjunction with the adoption of SFAS 143
Accounting for Asset Retirement Obligations. (See
Note 1. Nature of Operations and Significant Accounting
Policies.) |
|
|
CSX conveyed most of its interest in its domestic
container-shipping subsidiary, CSX Lines, to a new venture
formed with the Carlyle Group for approximately
$300 million in cash and securities. CSX Lines was
subsequently renamed Horizon. A deferred pretax gain of
approximately $127 million resulting from the transaction
is being recognized over the
12-year sub-lease term
during which the Company continues to sublease vessels and
equipment to Horizon. (See Note 3. Divestitures.) |
|
|
A charge of $232 million pretax, $145 million after
tax, was recognized in conjunction with the change in estimate
of casualty reserves to include an estimate of incurred but not
reported claims for asbestos and other occupational injuries to
be received over the next seven years. (See Note 11.
Casualty, Environmental, and Other Reserves.) |
|
|
A charge of $108 million pretax, $67 million after
tax, was recognized to account for CSXs entering into two
settlement agreements with Maersk that resolved all material
disputes pending between the companies arising out of the 1999
sale of the international container-shipping assets. (See
Note 19. Commitments and Contingencies.) |
13
|
|
|
A charge of $34 million pretax, $21 million after tax,
was recognized as the initial charge for separation expenses
related to the management restructuring announced in 2003. In
addition, the Company recorded a credit of $22 million
pretax, $13 million after tax related to revised estimates
for railroad retirement taxes and the amount of benefits that
will be paid to individuals under the 1991 and 1992 separation
plans. The net restructuring charge of $22 million,
$13 million after tax includes these items. (See
Note 5. Management Restructuring.) |
|
2002 |
A charge of $83 million pretax, $43 million after tax,
was recognized to write down indefinite lived intangible assets
as a cumulative effect of an accounting change and consideration
of minority interest. |
|
2001 |
A charge of $60 million pretax, $37 million after tax,
was recognized to account for the settlement of the 1987 New
Orleans tank car fire litigation. |
|
|
Item 7. |
Managements Discussion and Analysis of Financial
Condition and Results of Operations |
EXECUTIVE SUMMARY
2005 Surface
Transportation Highlights and Challenges
Operating Results
CSX follows a 52/53 week fiscal reporting calendar. This
fiscal calendar allows every quarter to consistently end on a
Friday and to be of equal duration (13 weeks). However, in
order to maintain this type of reporting calendar, every sixth
or seventh year (depending on the Gregorian calendar and when
leap year falls), an extra week will be included in one quarter
(a 14 week quarter) and, therefore, the full year will have
53 weeks. Fiscal 2004 included 53 weeks while fiscal
year 2005 had 52 weeks. All comparisons below utilize these
respective years reported results.
Revenue
Surface Transportations revenue in 2005 increased by 7% or
$578 million to a record $8.6 billion while volume
decreased by 2%, or 180,000 units. A portion of this volume
decrease was due to the additional week included in fiscal year
2004. Revenue per unit increased by 10%, or $105, of which
approximately 50% was due to continued pricing efforts and 50%
was due to the Companys fuel surcharge program and traffic
mix.
Revenue increased across all commodities. A strong industrial
economy, coupled with a shortage of rail, truck and barge
capacity allowed for substantial price increases within all
merchandise groups. While North American automotive production
was relatively flat compared to the prior year, automotive
revenue and revenue-per-unit benefited from contractual price
escalations and higher fuel surcharges recoveries. Coal volumes
and revenue improved significantly due to both increased
electrical generation by CSXT-served utilities and price
increases. The overall competitive position of Intermodal
improved compared to the trucking industry due to shortage of
truck capacity and higher fuel prices creating a stronger
pricing environment for Intermodal services.
14
A detailed discussion of significant factors driving changes in
volume and revenue is provided under the caption, Results
of Operations.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended | |
|
|
|
|
|
|
| |
|
|
|
|
|
|
52 Weeks | |
|
53 Weeks | |
|
|
|
|
|
|
2005 | |
|
2004 | |
|
$ Change | |
|
% Change | |
|
|
| |
|
| |
|
| |
|
| |
|
|
(Dollars in millions, except per share amounts) | |
Revenue and Expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Surface Transportation Revenue
|
|
$ |
8,618 |
|
|
$ |
8,040 |
|
|
$ |
578 |
|
|
|
7 |
% |
Operating Expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Labor and Fringe
|
|
|
2,856 |
|
|
|
2,741 |
|
|
|
115 |
|
|
|
4 |
|
|
Materials, Supplies and Other
|
|
|
1,784 |
|
|
|
1,759 |
|
|
|
25 |
|
|
|
1 |
|
|
Depreciation
|
|
|
818 |
|
|
|
702 |
|
|
|
116 |
|
|
|
17 |
|
|
Fuel
|
|
|
783 |
|
|
|
656 |
|
|
|
127 |
|
|
|
19 |
|
|
Building and Equipment Rent
|
|
|
533 |
|
|
|
582 |
|
|
|
(49 |
) |
|
|
(8 |
) |
|
Inland Transportation
|
|
|
230 |
|
|
|
280 |
|
|
|
(50 |
) |
|
|
(18 |
) |
|
Conrail Rents, Fees and Services
|
|
|
65 |
|
|
|
256 |
|
|
|
(191 |
) |
|
|
(75 |
) |
|
Restructuring Charge Net
|
|
|
|
|
|
|
71 |
|
|
|
(71 |
) |
|
|
NM |
|
|
Provision for Casualty Claims
|
|
|
(38 |
) |
|
|
|
|
|
|
(38 |
) |
|
|
NM |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Surface Transportation Expense
|
|
|
7,031 |
|
|
|
7,047 |
|
|
|
(16 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Surface Transportation Operating Income
|
|
$ |
1,587 |
|
|
$ |
993 |
|
|
$ |
594 |
|
|
|
60 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Ratio
|
|
|
81.6 |
% |
|
|
87.6 |
% |
|
|
|
|
|
|
|
|
Prior periods have been reclassified to conform to the current
presentation.
NM not meaningful
Fuel Costs and Fuel Surcharge Program
Fuel expenses increased 19% to $783 million in 2005, net of
$249 million of fuel hedging benefits, due principally to
the rising price per gallon of diesel fuel. Fuel hedging
activity had a $63 million favorable impact on fuel expense
for the fiscal year ended December 31, 2004. The average
price per gallon of diesel fuel, including benefits from
CSXs fuel hedging program, was $1.31 in 2005 versus $1.10
in 2004.
Fuel cost recovery programs are commonly used within the
transportation industry. When the cost of fuel exceeds certain
thresholds, CSX shares a portion of the increase with its
customers through its fuel surcharge program. In 2005,
approximately 50% and 31% of CSXs revenue was subject to
fuel surcharges and cost escalation clauses (which include
a fuel element), respectively. As existing contracts are renewed
or new contracts are executed, CSX is increasing the number of
contracts which include fuel surcharge mechanisms.
Operations
As illustrated in the table below, key service measures show
mixed results in 2005. Average train velocity, system dwell and
recrew performance declined, while on-time train originations
improved compared to the prior year. Cars on line remained
essentially flat, indicating that CSXTs network remained
relatively fluid through 2005.
The Companys Surface Transportation businesses remained
focused on producing continuous improvement through several key
initiatives. In 2004, CSXT instituted a new network operating
plan called the ONE Plan, which defines CSXTs scheduled
train network and is designed to improve service reliability and
efficiency. Although anticipated benefits have not been realized
on a sustained
15
basis, CSXT believes the ONE Plan benefits will be attained and
remains committed to this initiative. Efforts are ongoing to
improve plan execution and to refine the operating plan to
reflect changing traffic volumes, operating capabilities, and
service requirements.
CSXT is investing to ensure that adequate resources are in place
to achieve higher levels of plan execution. CSXT acquired 100
additional locomotives and started implementing a new locomotive
plan in late 2005. Locomotive availability and reliability are
critical to plan execution. CSXT also hired and trained
approximately 2,000 train and engine employees to keep pace with
high attrition rates, particularly conductors and engineers.
Finally, a two-year program to expand capacity in key corridors
commenced in 2005. This expanded capacity will accommodate
future growth, improve service reliability and improve
efficiency on the targeted corridors.
Hurricane Katrina, which struck the Gulf Coast in late August,
had a significant impact on operations in the latter part of
2005. Approximately 100 miles of CSXTs infrastructure
was destroyed by the storm, effectively severing CSXTs
route to and from the New Orleans gateway. CSXT continued
service to customers outside of the storm-affected area by
rerouting rail traffic through alternative western gateways,
including East St. Louis, IL, Memphis, TN, Birmingham, AL,
Mobile, AL, and Montgomery, AL. Rerouted traffic added volume to
busy corridors and resulted in additional network congestion,
which adversely affected overall train velocity and system
dwell. Service to local businesses on the Gulf Coast has been
restored and previously rerouted Merchandise trains have
returned to the New Orleans gateway. Operations should be
normalized to pre-hurricane conditions by the end of the first
quarter of 2006. A description of the corresponding financial
statement implications is presented below under the caption
Hurricane Katrina.
RAIL OPERATING STATISTICS(a)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Years Ended | |
|
|
|
|
| |
|
|
|
|
2005 | |
|
2004 | |
|
% Change | |
|
|
|
|
| |
|
| |
|
| |
Service Measurements
|
|
Average Velocity, All Trains (Miles Per Hour)
|
|
|
19.2 |
|
|
|
20.3 |
|
|
|
(5 |
)% |
|
|
Average System Dwell Time (Hours)(b)
|
|
|
29.7 |
|
|
|
28.7 |
|
|
|
(3 |
) |
|
|
Average Total Cars-On-Line
|
|
|
233,118 |
|
|
|
233,271 |
|
|
|
|
|
|
|
On-Time Originations
|
|
|
51.1 |
% |
|
|
49.0 |
% |
|
|
4 |
|
|
|
On-Time Arrivals
|
|
|
40.1 |
% |
|
|
40.9 |
% |
|
|
(2 |
) |
|
|
Average Recrews (Per Day)
|
|
|
68 |
|
|
|
63 |
|
|
|
(8 |
)% |
|
|
|
(a) |
|
Amounts for 2005 are estimated. |
|
(b) |
|
Beginning in October 2005, the American Association of Railroads
adopted a new dwell calculation in an effort to standardize
reporting across U.S. railroads. Beginning in 2006 and
forward, CSX will adopt this new method. |
Safety
CSXTs continued efforts to reduce the frequency of
personal injuries and train accidents produced significant
positive results in 2005. Continued focus on CSXTs safety
leadership and train accident prevention processes produced
improvements in both its FRA personal injury frequency index and
FRA train accident frequency compared to 2004 results. Both
processes use training, awareness, compliance measurement and
root cause analysis to prevent incidents and create a safer work
environment.
16
RAIL OPERATING STATISTICS(a)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Years Ended | |
|
|
|
|
| |
|
|
|
|
2005 | |
|
2004 | |
|
% Change | |
|
|
|
|
| |
|
| |
|
| |
Service Measurements
|
|
FRA Personal Injury Frequency Index
(Per 200,000 Man Hours)
|
|
|
1.71 |
|
|
|
2.29 |
|
|
|
25 |
% |
|
|
FRA Train Accidents Frequency
(Per Million Train Miles)
|
|
|
3.99 |
|
|
|
4.79 |
|
|
|
17 |
% |
(a) Amounts for 2005 are estimated.
Hurricane Katrina
The following table summarizes the financial impact of Hurricane
Katrina during 2005: (See Note 6. Hurricane Katrina.)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income Statement Impact | |
|
|
| |
|
|
|
|
Net | |
|
|
|
|
Insurance | |
|
Income | |
|
|
|
|
Deductible | |
|
Recoveries | |
|
Statement | |
|
|
Losses | |
|
Recognized | |
|
Recognized(a) | |
|
Impact | |
|
|
| |
|
| |
|
| |
|
| |
|
|
(Dollars in millions) | |
Capital
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed assets damages
|
|
$ |
(41 |
) |
|
$ |
|
|
|
$ |
41 |
|
|
$ |
|
|
Business Interruption
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Incremental expenses
|
|
|
(80 |
) |
|
|
(8 |
) |
|
|
72 |
|
|
|
(8 |
) |
|
Lost profits
|
|
|
(30 |
) |
|
|
|
|
|
|
|
|
|
|
(30 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
(151 |
) |
|
$ |
(8 |
) |
|
$ |
113 |
|
|
$ |
(38 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
Amounts recorded as receivables from insurance companies. See
tables in Note 6. Hurricane Katrina |
As of December 30, 2005, The Company has collected
insurance payments of $70 million. Through February 2006,
the Company has collected an additional $50 million in
insurance recoveries for a total of $120 million.
Capital Investments
Surface Transportation capital expenditures totaled
$1.1 billion and $960 million for fiscal years 2005
and 2004, respectively.
2005 CSX Corporation
Other Items
International Terminals Disposal
In February 2005, CSX sold its International Terminals business
for net cash proceeds of $1,108 billion. CSX recognized a
gain of $683 million pretax, $428 million after tax,
for the fiscal year ended December 30, 2005. (See
Note 4. Discontinued Operations.)
Debt Repurchase
In June 2005, CSX repurchased $1.0 billion of its
publicly-traded notes. The consideration paid for these notes
totaled $1.2 billion, including a pretax charge of
$192 million for costs to repurchase the debt which
primarily reflected the market value above original issue value.
CSX used cash on hand to finance this repurchase. During 2005,
CSX improved its overall financial position by reducing debt
balances from $7.2 billion at December 31, 2004 to
$6.0 billion as of December 30,
17
2005. Corresponding interest expense benefits associated with
lower outstanding debt helped offset rising variable interest
rates. See Note 12. Debt and Credit Agreements.
Free Cash Flow
Free cash flow is considered a non-GAAP financial measure under
SEC Regulation G. Management believes, however, that free
cash flow is important in evaluating its financial performance
and measures an ability to generate cash without incurring
additional external financings. Free cash flow is calculated by
taking cash provided by operating activities less property
additions, other investing activities, and dividends paid plus
Conrail free cash flow and proceeds from sale of businesses.
Free cash flow should be considered in addition to, rather than
a substitute for, cash provided by operating activities. The
following table reconciles free cash flow (non-GAAP measure) to
cash provided by operating activities (GAAP measure):
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Years Ended | |
|
|
| |
|
|
December 30, | |
|
December 31, | |
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
|
(Dollars in millions) | |
Free Cash Flow(a)
|
|
$ |
1,030 |
|
|
$ |
461 |
|
Add (Deduct) Items from Consolidated Cash Flow Statements:
|
|
|
|
|
|
|
|
|
|
Short-term Investments Net(b)
|
|
|
33 |
|
|
|
(247 |
) |
|
Dividends Paid
|
|
|
93 |
|
|
|
86 |
|
|
Net Cash Used in Investing Activities(c)
|
|
|
36 |
|
|
|
1,240 |
|
Add (Deduct) Items Not Included in Consolidated Free Cash
Flow:
|
|
|
|
|
|
|
|
|
|
Conrail Free Cash Flow(d)
|
|
|
(103 |
) |
|
|
(115 |
) |
|
Other Deposits(e)
|
|
|
21 |
|
|
|
21 |
|
|
|
|
|
|
|
|
Net Cash Provided by Operating Activities
|
|
$ |
1,110 |
|
|
$ |
1,446 |
|
|
|
|
|
|
|
|
|
|
(a) |
Free cash flow as of December 30, 2005 includes net cash
proceeds (net of taxes paid) from the International
Terminals disposition of $640 million and net debt
repurchase costs of $123 million. |
|
|
|
(b) |
|
Short-term Investments Net represents the net source
or (use) of cash resulting from sales and purchases of
short-term investments included in the investing section of the
Consolidated Cash Flow Statements. |
|
(c) |
|
Net Cash Used in Investing Activities includes property
additions offset by net cash proceeds (before taxes paid) from
the International Terminals disposition of
$998 million and other investing items. |
|
(d) |
|
Conrail Free Cash Flow represents CSXs 42% economic
interest which is not consolidated in the CSX amounts. |
|
(e) |
|
Other Deposits are not included in the Companys Free Cash
Flow as these deposits represent assets that are set aside for
certain future debt payments. |
2006
Expectations
Revenue
During 2006, CSX expects revenue growth, based in part on
continuance of the robust pricing environment experienced in
2005. In addition, the Company expects volume increases of
2-3%. Longer-term, CSX
expects average annual revenue growth of
4-6% over the next five
years due to
18
continued strong transportation demand, the Companys
emphasis on price, and volume growth. Lower contributory traffic
will continue to be re-priced or replaced by longer haul, more
profitable business. The amount of any revenue and volume
increase will depend on several factors:
|
|
|
Economy: Favorable economic conditions are expected to
continue based on the forecasts for key economic indicators such
as the gross domestic product, industrial production and overall
import levels. Generally, the Companys revenue is fairly
diversified and a large portion is relatively insensitive to
significant fluctuations in the general economy. Changes,
however, in the macroeconomic environment can impact overall
revenue growth. |
|
|
Operational Performance: Service is expected to improve
with more consistent execution of the network operating plan,
which should result in improved average velocity and more
reliable service. Consequently, additional volume may be
captured as freight car availability increases due to improved
asset utilization and reduced transit times. |
|
|
Fuel Prices: Because of the fuel surcharge program and
cost escalation clauses in long-term contracts, which include a
fuel element, a portion of the Companys revenue varies
with the price of fuel. In 2004, CSX suspended entering into new
swaps in its fuel hedge program and fuel surcharges became the
primary vehicle through which CSX manages fuel price volatility.
Consequently, CSX anticipates increases in estimated fuel
expenses to approach $100 million in 2006, depending on
fluctuations in fuel prices. |
Operations
CSXT expects key operating measurements to improve in 2006
versus the prior year as the initiatives mentioned previously
gain momentum, and the emphasis on plan execution continues.
Management believes current resource plans are adequate to
handle anticipated business levels and to keep the network
fluid. CSXT plans to hire approximately 1,860 new train and
engine employees, which include locomotive engineers and
conductors, to offset anticipated attrition. In addition, CSXT
will acquire 100 new high-horsepower locomotives in 2006.
Planned capacity and infrastructure investments will also
support improved service reliability and volume growth as they
are completed throughout the year.
Capital Investments
The Company continues to invest in its rail infrastructure,
locomotives, freight cars and technology to accommodate safe,
efficient and reliable train operations. In anticipation of
future volume growth in key corridors, the Company plans to make
strategic infrastructure investments as profitability targets
are met. Investments include locomotives mentioned previously,
track and terminal infrastructure expansion such as the
Southeastern corridor between Chicago and Florida and the River
Line from Albany to New York City. Investments in the
Southeastern corridor are intended, among other things, to
support Western coal sourcing from the Colorado, Illinois and
Powder River basins, consumer goods shipments from West Coast
ports and merchandise and automobile shipments. Investments in
the River Line are designed to increase long-term capacity for
the I-90 corridor between Chicago and New York.
As a result of these investments and the ongoing needs of the
business, the Company expects capital spending of approximately
$1.4 billion in 2006 and between $1.3 billion and
$1.4 billion in 2007, excluding the impact of Hurricane
Katrina.
Free Cash Flow
CSX will continue to focus on free cash flow in 2006, with a
target of approximately $300 million, including
approximately $100 million in anticipated insurance
recoveries related to Hurricane Katrina.
19
Risk Factors
Enterprise Risk Management
In the provision of transportation services, the Company must
identify, manage and mitigate the inherent business risks that
are an integral component of the Companys business
activities. Financial risk, legal, regulatory, and compliance
issues, operational risk, and workforce planning are primary
risks to the Companys business. In 2005, the Company began
implementation of a formal Enterprise Risk Management
(ERM) program in order to identify, quantify,
monitor, and potentially mitigate these risks. ERM is a
systematic and ongoing process used to help recognize and manage
the critical risks that could impact the Company. ERM assists
managements allocation of financial resources and
mitigation efforts and enhances risk oversight by the Board of
Directors with oversight by the Board or Board Committees,
management is responsible for the development and implementation
of risk mitigation policies and directing
day-to-day risk
management.
The following important risk factors could have a material
adverse effect on the Companys results of operations,
financial condition and liquidity, and could cause those results
to differ materially from those expressed or implied in the
Companys forward-looking statements.
Competition
The Company experiences competition in the form of pricing,
service, reliability and other factors from other transportation
providers including railroads and motor carriers that operate
similar routes across its service area, and to a less
significant extent, barges, ships and pipelines. Transportation
providers such as motor carriers and barges utilize public
rights-of-way that are
built and maintained by governmental entities while CSXT and
other railroads must build and maintain rail networks using
largely internal resources. The Company could be negatively
impacted if the scope and quality of these alternative methods
of transportation materially increase, or if legislation is
passed providing materially greater opportunities for motor
carriers with respect to size or weight restrictions.
Operations and Workforce Planning
In an environment of continued high demand for rail services,
CSXT has experienced some network difficulties, including
congestion and reduced velocity on its rail system. In addition,
changes in demographics, training requirements and the
availability of qualified personnel, could each have a negative
impact on CSXTs ability to meet demand for rail service.
To meet these challenges, CSXT started implementation of the new
network operating plan referred to as the ONE Plan, acquired
additional locomotives, started implementing a new locomotive
plan, and is hiring and training significant numbers of
employees to keep pace with high attrition rates. In 2005, the
Company also commenced a two-year program to expand capacity in
key corridors. Though these steps have been taken, CSXT cannot
be sure that these measures will fully or adequately address the
operational issues. The Company also cannot be sure that it will
not experience other difficulties related to network capacity,
dramatic and unplanned increases in demand for rail service in
one or more of our commodity groups, or other events that could
have a negative impact on our operational efficiency, any one of
which could have a material adverse effect on our results of
operations, financial condition, and liquidity.
Employees and Labor Union Relationships
CSXT considers relations with its unions and union employees
generally to be good. Most of CSXTs employees are
represented by labor unions and are covered by collective
bargaining agreements. The bargaining agreements contain a
moratorium clause that precludes serving new bargaining demands
until a certain date. Generally speaking, these agreements are
bargained nationally by the National Railway Labor Conference,
so all bargaining on agreement changes
20
begins at the same time. The round of bargaining that started in
2000 was recently concluded when agreements were reached with
all of the unions.
Most of the moratoriums negotiated in the 2000 round have
expired and in November 2004 the parties were free under the
collective bargaining agreements to serve new bargaining demands
and start a new round of national bargaining. The current status
of 2004 negotiations is that CSXT and the other railroads
participating in national bargaining are in mediation with eight
unions, are bargaining with four other unions and have not
started bargaining with one union. The railroads had asked the
National Mediation Board for a release from mediation with
respect to seven of the eight unions in mediation, but now have
informed the National Mediation Board that they are voluntarily
withdrawing that request pending a decision in the lawsuit
brought by the United Transportation Union which challenges
certain aspects of the railroads bargaining demands. The
outcome of the 2004 round of negotiations is uncertain at this
time.
In the rail industry, negotiations have generally taken place
over a number of years and previously have not resulted in any
extended work stoppages. The agreements reached in the 2000
round of bargaining will continue to remain in effect until new
agreements are reached. The parties are not permitted to either
strike or lockout until the Railway Labor Acts lengthy
procedures (which include mediation, cooling-off periods, and
the possibility of Presidential intervention) are exhausted.
Environmental Laws and Regulation
The Companys operations are subject to wide-ranging
federal, state and local environmental laws and regulations
concerning, among other things, emissions to the air, discharges
to water, the handling, storage, transportation and disposal of
waste and other materials, and cleanup of hazardous material or
petroleum releases. The Company generates and transports
hazardous and non-hazardous waste and materials in its current
operations, and it has done so in its former operations. In
certain circumstances, environmental liability can extend to
formerly owned or operated properties, leased properties and
properties owned by third parties or Company predecessors, as
well as to properties currently owned and used by the Company.
Environmental liabilities have arisen and may also arise from
claims asserted by adjacent landowners or other third parties in
toxic tort litigation. The Company has been and may be subject
to allegations or findings to the effect that it has violated,
or is strictly liable under, environmental laws or regulations,
and such violations can result in the Companys incurring
fines, penalties or costs relating to the cleanup of
environmental contamination. Although the Company believes it
has appropriately recorded current and long-term liabilities for
known future environmental costs, it could incur significant
costs as a result of any of the foregoing, and may be required
to incur significant expenses to investigate and remediate
known, unknown or future environmental contamination.
Fuel Costs
Fuel costs represent a significant expense of the Companys
Surface Transportation operations. Fuel prices can vary
significantly from period to period and significant increases
may have a material adverse effect on results of operations.
Furthermore, fuel prices and supply are influenced considerably
by international political and economic circumstances. A fuel
surcharge recovery program is in place with a considerable
number of customers. This program has historically permitted the
Companys Surface Transportation businesses to recover a
significant portion of increased fuel costs. Despite the fuel
surcharge program, the Company could be negatively impacted if a
fuel supply shortage were to arise, whether due to OPEC or other
production restrictions, lower refinery outputs, a disruption of
oil imports or otherwise, and any subsequent price increases
could further increase the potential impact.
21
Future Acts of Terrorism or War
Terrorist attacks, such as those that occurred in the United
States in September 2001, in Spain in March 2004, or in England
in July 2005, and any government response thereto or war may
adversely affect results of operations, financial condition and
liquidity. The Companys rail lines and physical plant may
be direct targets or indirect casualties of acts of terror or
war, which could cause significant business interruption and
result in increased costs and liabilities and decreased revenues
and have a material adverse effect on results of operations,
financial condition or liquidity. In addition, insurance
premiums charged for some or all of the coverage currently
maintained by the Company could increase dramatically or the
coverage may no longer be available.
Regulation and Legislation
The Company is subject to various regulatory jurisdictions,
including the Surface Transportation Board (STB) of
the United States Department of Transportation
(DOT), the Federal Railroad Administration of DOT
and other state and federal regulatory agencies for a variety of
economic, health, safety, labor, environmental, tax, legal and
other matters. Legislation passed by Congress or regulations
issued by these agencies can significantly affect the revenues,
costs and profitability of the Companys business.
Moreover, the Company could be negatively affected by failure to
comply with applicable laws and regulations. In addition,
Congressional efforts to reduce or eliminate funding for Amtrak,
if successful, could result in significant costs to CSXT,
including, but not limited to: loss of revenue from trackage
rights; uncertainty relating to operating agreements; loss of
other contractual rights, such as indemnification; adverse
network implications, such as potential coordination with
numerous state commuter rail agencies; and increased payments
into the Railroad Retirement system to supplement lost
contributions from Amtrak and its employees.
In response to the heightened threat of terrorism in the wake of
the September 11, 2001 attacks, federal, state and local
governmental bodies are proposing and beginning to adopt various
legislation and regulations relating to security issues that
impact the transportation industry, including rules and
regulations that affect the transportation of hazardous
materials. For instance, the District of Columbia enacted
legislation that prohibits rail carriers, including CSXT, from
transporting certain hazardous materials through the District.
CSXT, supported by the United States, is currently challenging
the validity of this legislation in the federal courts. Although
CSXT and the Federal Government have secured favorable rulings
from the US Court of Appeals for the District of Columbia
Circuit and the STB, legal proceedings continue, and the
ultimate outcome is uncertain. The extent to which other
governmental bodies will ultimately take similar or related
steps is also uncertain. The Company could be negatively
impacted by any legislation, regulations, or rules enacted by
federal, state or local governmental bodies relating to security
issues that affect rail and intermodal transportation.
Safety
The Company faces inherent business risk from exposure to
property damage and personal injury claims resulting from train
accidents, including derailments. The Company is also subject to
exposure to occupational injury claims. While the Company is
working diligently to enhance its safety programs and to
continue to raise the awareness levels of its employees
concerning safety, the Company cannot ensure that it will not
experience any material property damage or personal injury or
occupational claims in the future or that it will not incur
significant costs to defend such claims. Additionally, the
Company cannot ensure that existing claims will not suffer
adverse development not currently reflected in reserve
estimates, as the ultimate outcome of existing claims is subject
to numerous factors outside of the Companys control. The
Company engages outside parties to assist with the evaluation of
certain of the occupational and personal injury claims, and
believes that it is adequately reserved to cover all potential
claims. Final amounts determined to be due, however, on any
outstanding matters may differ materially from the recorded
reserves.
22
Severe Weather
The Company may face severe weather conditions and other natural
occurrences, including floods, fires, hurricanes and earthquakes
which may cause significant disruptions to the Companys
operations, and result in increased costs and liabilities and
decreased revenues. For information on insurance issues
resulting from the effects of Hurricane Katrina on the
Companys results of operations, financial position or
liquidity, see Note 6. Hurricane Katrina.
FORWARD-LOOKING STATEMENTS
Certain statements in this report and in other materials filed
with the SEC, as well as information included in oral statements
or other written statements made by the Company, are
forward-looking statements within the meaning of the Securities
Act of 1933 and the Securities Exchange Act of 1934. These
forward-looking statements include, among others, statements
regarding:
|
|
|
|
|
Expectations as to results of operations and operational
improvements; |
|
|
|
Expectations as to the effect of claims, lawsuits, environmental
costs, commitments, contingent liabilities, labor negotiations
or agreements on the Companys financial condition; |
|
|
|
Managements plans, goals, strategies and objectives for
future operations and other similar expressions concerning
matters that are not historical facts, and managements
expectations as to future performance and operations and the
time by which objectives will be achieved; and |
|
|
|
Future economic, industry or market conditions or performance. |
Forward-looking statements are typically identified by words or
phrases such as believe, expect,
anticipate, project, and similar
expressions. The Company cautions against placing undue reliance
on forward-looking statements, which reflect its good faith
beliefs with respect to future events and are based on
information currently available to it as of the date the
forward-looking statement is made. Forward-looking statements
should not be read as a guarantee of future performance or
results, and will not necessarily be accurate indications of the
times that, or by which, such performance or results will be
achieved.
Forward-looking statements are subject to a number of risks and
uncertainties and actual performance or results could differ
materially from those anticipated by these forward-looking
statements. The Company undertakes no obligation to update or
revise any forward-looking statement. If the Company does update
any forward-looking statement, no inference should be drawn that
the Company will make additional updates with respect to that
statement or any other forward-looking statements. The following
important factors, in addition to those discussed elsewhere, may
cause actual results to differ materially from those
contemplated by these forward-looking statements:
|
|
|
|
|
The Companys success in implementing its operational
objectives and improving Surface Transportation operating
efficiency; |
|
|
|
Changes in operating conditions and costs or commodity
concentrations; |
|
|
|
Material changes in domestic or international economic or
business conditions, including those affecting the rail industry
such as customer demand, effects of adverse economic conditions
affecting shippers, and adverse economic conditions in the
industries and geographic areas that consume and produce freight; |
|
|
|
Labor costs and labor difficulties, including stoppages
affecting either the Companys operations or the
customers ability to deliver goods to the Company for
shipment; |
|
|
|
The inherent risks associated with safety and security,
including adverse economic or operational effects from terrorist
activities and any governmental response; |
23
|
|
|
|
|
Changes in fuel prices; |
|
|
|
Legislative, regulatory, or legal developments involving
taxation, including the outcome of tax claims and litigation;
the potential enactment of initiatives to re-regulate the rail
industry and the ultimate outcome of shipper and rate claims
subject to adjudication; |
|
|
|
Competition from other modes of freight transportation such as
trucking and competition and consolidation within the
transportation industry generally; |
|
|
|
Natural events such as severe weather conditions, including
floods, fire, hurricanes and earthquakes, or other unforeseen
disruptions of the Companys operations, systems, property
or equipment; and |
|
|
|
The outcome of litigation and claims, including those related to
environmental contamination, personal injuries and occupational
illnesses. |
Additionally, important factors resulting from Hurricane Katrina
that may cause actual results to differ materially from those
contemplated by these forward-looking statements include: the
ability to fully restore service in affected areas of
CSXTs rail network; further assessments of the extent of
storm-related losses; the price and availability of continued
supplies of fuel; the effect of inefficiencies in Company
operations and increased operating expenses resulting from
storm-related disruptions; loss of customers to competitors that
have not been affected by the storm to the same degree in the
same locales; and the extent of insurance coverage for the
Companys losses. Other important assumptions and factors
that could cause actual results to differ materially from those
in the forward-looking statements are specified elsewhere in
this report and in the Companys other SEC reports,
accessible on the SECs website at www.sec.gov and
the Companys website at www.csx.com.
Financial Results of
Operations
2005 vs. 2004 Consolidated
Results of Operations
CSX follows a 52/53 week fiscal reporting calendar. Fiscal
year 2005 consisted of 52 weeks ending on December 30,
2005. Fiscal year 2004 consisted of 53 weeks ending on
December 31, 2004.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated | |
|
|
| |
|
|
52 Weeks | |
|
53 Weeks | |
|
|
|
|
2005 | |
|
2004 | |
|
$ Change | |
|
% Change | |
|
|
| |
|
| |
|
| |
|
| |
|
|
(Dollars in millions) | |
Operating Revenue
|
|
$ |
8,618 |
|
|
$ |
8,040 |
|
|
$ |
578 |
|
|
|
7 |
% |
Operating Expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Labor and Fringe
|
|
|
2,864 |
|
|
|
2,744 |
|
|
|
120 |
|
|
|
4 |
|
Materials, Supplies and Other
|
|
|
1,828 |
|
|
|
1,753 |
|
|
|
75 |
|
|
|
4 |
|
Depreciation
|
|
|
826 |
|
|
|
711 |
|
|
|
115 |
|
|
|
16 |
|
Fuel
|
|
|
783 |
|
|
|
656 |
|
|
|
127 |
|
|
|
19 |
|
Building and Equipment Rent
|
|
|
510 |
|
|
|
569 |
|
|
|
(59 |
) |
|
|
(10 |
) |
Inland Transportation
|
|
|
230 |
|
|
|
280 |
|
|
|
(50 |
) |
|
|
(18 |
) |
Conrail Rents, Fees & Services
|
|
|
65 |
|
|
|
256 |
|
|
|
(191 |
) |
|
|
(75 |
) |
Restructuring Charge Net
|
|
|
|
|
|
|
71 |
|
|
|
(71 |
) |
|
|
NM |
|
Provision for Casualty Claims
|
|
|
(38 |
) |
|
|
|
|
|
|
(38 |
) |
|
|
NM |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Operating Expense
|
|
|
7,068 |
|
|
|
7,040 |
|
|
|
28 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Income
|
|
$ |
1,550 |
|
|
$ |
1,000 |
|
|
$ |
550 |
|
|
|
55 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Prior periods have been reclassified to conform to the current
presentation.
NM not meaningful
24
Operating Revenue increased $578 million for the year ended
December 30, 2005 to $8.6 billion, compared to
$8.0 billion for the prior year as continued yield
management efforts coupled with the Companys fuel
surcharge program drove revenue-per-unit improvements across all
major markets.
Operating Income for the year ended December 30, 2005
increased $550 million to $1.6 billion as a result of
increased operating revenue. Operating expenses remained
relatively flat compared to the prior year.
Despite the absence of the $16 million net gain after tax
related to the Conrail spin-off transaction, Other Income
increased $29 million to $101 million for the year
ended December 30, 2005, primarily as a result of gains
from real estate sales.
Interest Expense decreased $12 million to $423 million
for the year ended December 30, 2005 compared to the prior
year comparable period. In June 2005, CSX repurchased
$1.0 billion of its publicly-traded notes. As a result of
the debt repurchase, interest expense was reduced. The savings
(from June through December) were mostly offset by rising
variable interest rates.
Earnings from Continuing Operations were $720 million, or
$3.17 per diluted share, for the year ended
December 30, 2005 compared to $418 million, or
$1.87 per diluted share for the prior year.
Income tax expense increased $97 million to
$316 million for the year ended December 30, 2005 as a
result of higher Earnings from Continuing Operations.
Additionally, the effective income tax rate decreased from 34%
in 2004 to 30% in 2005 primarily attributable to legislative
changes in Ohio that will gradually eliminate the Ohio corporate
franchise tax.
Income from Discontinued Operations, net of tax, was
$425 million, or $1.87 per diluted share, for the year
ended December 30, 2005 compared to a loss of
$79 million, or 35 cents per diluted share, for the prior
year. CSX recognized income of $683 million pretax,
$428 million after tax, for the fiscal year ended
December 30, 2005 as a result of the sale of its
International Terminals business. Discontinued Operations
for the period ended December 31, 2004, includes
International Terminals net earnings as well as additional
income tax expense of $97 million related to undistributed
foreign earnings.
Net Earnings were $1.1 billion, or $5.04 per diluted
share, for the year ended December 30, 2005, compared to
$339 million, or $1.52 per diluted share, for the
prior year.
25
|
|
|
2004 vs. 2003 Consolidated Results of Operations |
CSX follows a 52/53 week fiscal reporting calendar. Fiscal
year 2004 consisted of 53 weeks ending on December 31,
2004. Fiscal year 2003 consisted of 52 weeks ending on
December 26, 2003.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated | |
|
|
| |
|
|
53 Weeks | |
|
52 weeks | |
|
|
|
|
2004 | |
|
2003 | |
|
$ Change | |
|
% Change | |
|
|
| |
|
| |
|
| |
|
| |
|
|
(Dollars in millions) | |
Operating Revenue
|
|
$ |
8,040 |
|
|
$ |
7,573 |
|
|
$ |
467 |
|
|
|
6 |
% |
Operating Expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Labor and Fringe
|
|
|
2,744 |
|
|
|
2,656 |
|
|
|
88 |
|
|
|
3 |
|
Materials, Supplies and Other
|
|
|
1,753 |
|
|
|
1,622 |
|
|
|
131 |
|
|
|
8 |
|
Depreciation
|
|
|
711 |
|
|
|
620 |
|
|
|
91 |
|
|
|
15 |
|
Fuel
|
|
|
656 |
|
|
|
581 |
|
|
|
75 |
|
|
|
13 |
|
Building and Equipment Rent
|
|
|
569 |
|
|
|
565 |
|
|
|
4 |
|
|
|
1 |
|
Inland Transportation
|
|
|
280 |
|
|
|
305 |
|
|
|
(25 |
) |
|
|
(8 |
) |
Conrail Rents, Fees & Services
|
|
|
256 |
|
|
|
342 |
|
|
|
(86 |
) |
|
|
(25 |
) |
Restructuring Charge Net
|
|
|
71 |
|
|
|
22 |
|
|
|
49 |
|
|
|
223 |
|
Provision for Casualty Claims
|
|
|
|
|
|
|
232 |
|
|
|
(232 |
) |
|
|
NM |
|
Additional Loss on Sale
|
|
|
|
|
|
|
108 |
|
|
|
(108 |
) |
|
|
NM |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Operating Expense
|
|
|
7,040 |
|
|
|
7,053 |
|
|
|
(13 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Income
|
|
$ |
1,000 |
|
|
$ |
520 |
|
|
$ |
480 |
|
|
|
92 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Prior periods have been reclassified to conform to the current
presentation.
NM not meaningful
Operating Revenue increased $467 million for the year ended
December 31, 2004 to $8.0 billion, compared to
$7.6 billion for the prior year primarily due to continued
yield management strategies as all major markets showed
year-over-year improvement in revenue-per-unit coupled with the
Companys fuel surcharge program.
Operating Income for the year ended December 31, 2004
increased $480 million to $1.0 billion, compared to
$520 million in the prior year. Operating expenses
decreased principally due to the absence of charges totaling
$340 million taken in 2003 for (1) the Provision for
Casualty Claims, and (2) the Additional Loss on Sale.
Other Income decreased $21 million to $72 million for
the year ended December 31, 2004, compared to
$93 million for the prior year primarily due to a decline
in income from real estate and resort operations. This decrease
was partially offset by the net gain of $16 million, after
tax, related to the Conrail spin-off transaction.
26
Interest Expense increased $17 million for the year ended
December 31, 2004 compared to the prior year comparable
period due to decreased benefits from interest rate swaps and
the exchange of Conrail debt as a result of the Conrail spin-off
transaction.
Earnings from Continuing Operations were $418 million, or
$1.87 per diluted share, for the year ended
December 31, 2004 compared to $137 million, or 63
cents per diluted share, for the prior year.
Losses from Discontinued Operations, net of tax, were
$79 million, or 35 cents per diluted share, for the
year ended December 31, 2004 compared to earnings of
$52 million, or 23 cents per diluted share, for the
prior year. Discontinued Operations for the period ended
December 31, 2004, include International Terminals
net earnings as well as additional tax expense of
$97 million related to undistributed foreign earnings.
The year ended December 26, 2003 includes an after-tax
cumulative effect of accounting change benefit of
$57 million, related to the adoption of Statement of
Financial Accounting Standard (SFAS) 143,
Accounting for Asset Retirement Obligations
(SFAS 143).
Net Earnings were $339 million, or $1.52 per diluted
share, for the year ended December 31, 2004, compared to
$246 million, or $1.11 per diluted share, for the
prior year.
The increase in the 2004 effective income tax rate compared to
the prior year is primarily attributable to a larger percentage
of total pretax earnings being attributable to Conrail equity
earnings in 2004 than in 2003. Additionally, 2003 income tax
expense was favorably impacted by the cumulative effect of
changes in the Companys deferred effective state income
tax rates.
|
|
|
2005 vs. 2004 Rail Results of Operations |
CSX follows a 52/53 week fiscal reporting calendar. Fiscal
year 2005 consisted of 52 weeks ending on December 30,
2005. Fiscal year 2004 consisted of 53 weeks ending on
December 31, 2004.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rail | |
|
|
| |
|
|
52 Weeks | |
|
53 weeks | |
|
|
|
|
2005 | |
|
2004 | |
|
$ Change | |
|
% Change | |
|
|
| |
|
| |
|
| |
|
| |
|
|
(Dollars in millions) | |
Operating Revenue
|
|
$ |
7,256 |
|
|
$ |
6,694 |
|
|
$ |
562 |
|
|
|
8 |
% |
Operating Expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Labor and Fringe
|
|
|
2,777 |
|
|
|
2,663 |
|
|
|
114 |
|
|
|
4 |
|
Materials, Supplies and Other
|
|
|
1,622 |
|
|
|
1,540 |
|
|
|
82 |
|
|
|
5 |
|
Depreciation
|
|
|
779 |
|
|
|
664 |
|
|
|
115 |
|
|
|
17 |
|
Fuel
|
|
|
783 |
|
|
|
656 |
|
|
|
127 |
|
|
|
19 |
|
Building and Equipment Rent
|
|
|
400 |
|
|
|
428 |
|
|
|
(28 |
) |
|
|
(7 |
) |
Inland Transportation
|
|
|
(433 |
) |
|
|
(421 |
) |
|
|
(12 |
) |
|
|
3 |
|
Conrail Rents, Fees & Services
|
|
|
65 |
|
|
|
256 |
|
|
|
(191 |
) |
|
|
(75 |
) |
Restructuring Charge Net
|
|
|
|
|
|
|
67 |
|
|
|
(67 |
) |
|
|
NM |
|
Provision for Casualty Claims
|
|
|
(38 |
) |
|
|
|
|
|
|
(38 |
) |
|
|
NM |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Operating Expense
|
|
|
5,955 |
|
|
|
5,853 |
|
|
|
102 |
|
|
|
2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Income
|
|
$ |
1,301 |
|
|
$ |
841 |
|
|
$ |
460 |
|
|
|
55 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Ratio
|
|
|
82.1 |
% |
|
|
87.4 |
% |
|
|
|
|
|
|
|
|
Total Assets
|
|
$ |
23,177 |
|
|
$ |
22,927 |
|
|
|
|
|
|
|
|
|
Prior periods have been reclassified to conform to the current
presentation.
NM not meaningful
27
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rail Traffic, Revenue and Revenue per Unit | |
|
|
| |
|
|
Volume | |
|
Revenue | |
|
Revenue Per Unit | |
|
|
| |
|
| |
|
| |
|
|
52 Weeks | |
|
53 Weeks | |
|
52 Weeks | |
|
53 Weeks | |
|
52 Weeks | |
|
53 Weeks | |
|
|
2005 | |
|
2004 | |
|
2005 | |
|
2004 | |
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Volume (thousands); Revenue (dollars in millions), Revenue Per Unit | |
|
|
(dollars) | |
Merchandise
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Phosphates and Fertilizers
|
|
|
444 |
|
|
|
471 |
|
|
$ |
351 |
|
|
$ |
341 |
|
|
$ |
791 |
|
|
$ |
724 |
|
|
Metals
|
|
|
361 |
|
|
|
380 |
|
|
|
570 |
|
|
|
511 |
|
|
|
1,579 |
|
|
|
1,345 |
|
|
Forest Products
|
|
|
439 |
|
|
|
465 |
|
|
|
717 |
|
|
|
681 |
|
|
|
1,633 |
|
|
|
1,465 |
|
|
Food and Consumer
|
|
|
249 |
|
|
|
245 |
|
|
|
438 |
|
|
|
377 |
|
|
|
1,759 |
|
|
|
1,539 |
|
|
Agricultural Products
|
|
|
357 |
|
|
|
356 |
|
|
|
550 |
|
|
|
512 |
|
|
|
1,541 |
|
|
|
1,438 |
|
|
Chemicals
|
|
|
533 |
|
|
|
564 |
|
|
|
1,089 |
|
|
|
1,069 |
|
|
|
2,043 |
|
|
|
1,895 |
|
|
Emerging Markets
|
|
|
505 |
|
|
|
506 |
|
|
|
513 |
|
|
|
504 |
|
|
|
1,016 |
|
|
|
996 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Merchandise
|
|
|
2,888 |
|
|
|
2,987 |
|
|
|
4,228 |
|
|
|
3,995 |
|
|
|
1,464 |
|
|
|
1,337 |
|
Automotive
|
|
|
488 |
|
|
|
507 |
|
|
|
844 |
|
|
|
835 |
|
|
|
1,730 |
|
|
|
1,647 |
|
Coal, Coke and Iron Ore
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Coal
|
|
|
1,726 |
|
|
|
1,659 |
|
|
|
1,992 |
|
|
|
1,714 |
|
|
|
1,154 |
|
|
|
1,033 |
|
|
Coke and Iron Ore
|
|
|
83 |
|
|
|
71 |
|
|
|
88 |
|
|
|
66 |
|
|
|
1,060 |
|
|
|
930 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Coal, Coke and Iron Ore
|
|
|
1,809 |
|
|
|
1,730 |
|
|
|
2,080 |
|
|
|
1,780 |
|
|
|
1,150 |
|
|
|
1,029 |
|
Other
|
|
|
|
|
|
|
|
|
|
|
104 |
|
|
|
84 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Rail
|
|
|
5,185 |
|
|
|
5,224 |
|
|
$ |
7,256 |
|
|
$ |
6,694 |
|
|
$ |
1,399 |
|
|
$ |
1,281 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prior periods have been reclassified to conform to the current
presentation.
CSX categorizes rail revenue in three main lines of business:
merchandise, automotive and coal, coke and iron ore. Overall
revenue increased $562 million, or 8%, to $7.3 billion
in 2005 from $6.7 billion in 2004.
All merchandise markets experienced revenue growth primarily
driven by yield improvement efforts and the Companys fuel
surcharge program. Overall merchandise revenue grew 6% to a
record $4.2 billion while revenue-per-unit also achieved
record levels increasing 9%. Volume declined 3% due to several
factors including an additional week included in the fiscal year
ended December 31, 2004, impacts of Hurricane Katrina and
shedding of low margin traffic. Food and consumer experienced
volume growth due to a continued shift of traffic previously
handled by trucks to rail and the acquisition of newly finished
railcars to other shippers. Despite strong soybean and corn
harvests and increased export demand for grain, volume in
agricultural products was flat due to declines in processed
products such as flour, sweeteners, and vegetable oils. Emerging
markets volumes and revenue were negatively impacted by a
significant reduction in shipments of high revenue per unit
military traffic. While metals volumes decreased by 5%, the
pricing environment remained very favorable and resulted in the
highest revenue per unit growth within merchandise at 17%.
Forest products also experienced high revenue per unit increases
because of both a favorable pricing environment and a favorable
mix shift from short haul low margin traffic towards longer haul
more profitable traffic. In addition to production disruption
from both Hurricanes Katrina and Rita, chemical volumes were
negatively impacted by high natural gas prices and generally
high raw materials inventories. Phosphate and fertilizer volumes
were down due to high international inventories of phosphates
during the first half of the year and several CSX-served plant
curtailments
28
or closures during 2005. Both the chemicals and phosphate and
fertilizer groups experienced high revenue per unit increases of
8% and 9%, respectively.
Overall volume was down 4% as North American light vehicle
production was flat compared to the prior year. However, vehicle
production for the Big 3 was unfavorable 6%, including permanent
closures of three General Motors plants served by the Company.
Growth in new shipments from the newly-opened Hyundai plant in
Montgomery, AL continued to partially offset these declines.
Revenue-per-unit grew 5% on strong yield management and
increases in fuel surcharge rates and coverage resulting in
record revenue-per-unit levels. Revenue-per-unit gains more than
offset volume weakness and drove overall revenue growth of 1%
compared to the prior year.
Revenues increased by 17% to a record $2.1 billion due to
both strong volume growth of 5%, and revenue per unit
improvements of 12% driven by a favorable pricing environment
and the Companys fuel surcharge program. Most markets
experienced strong demand as utility inventory levels remained
below target levels. CSXT also reached a settlement agreement in
a rate case that resulted in an additional $17 million of
revenue in 2005.
Total rail operating expenses increased $102 million, or 2%
for the year ended December 30, 2005, compared to 2004.
Labor and Fringe Expense increased $114 million or 4%
compared to the prior year primarily attributable to increases
in incentive compensation and the effects of inflation.
Materials, Supplies and Other expenses increased
$82 million, or 5%, primarily due to the effects of
inflation, higher reserve requirements for uncollectible
accounts, and increased legal fees resulting from the litigation
and resolution of certain matters.
Depreciation expense increased $115 million or 17% compared
to the prior year primarily attributable to additional assets
received as a result of the Conrail spin-off transaction. The
rail segment had property additions of approximately
$1.1 billion.
Fuel expense increased $127 million or 19% in 2005, net of
$249 million of fuel hedging benefits, compared to the
prior year primarily due to fuel price increases. Fuel hedging
activity had a $63 million favorable impact on fuel expense
for the fiscal year ended December 31, 2004. The average
price per gallon of diesel fuel, including benefits from
CSXs fuel hedging program, was $1.31 in 2005 versus $1.10
in 2004. In addition, the fuel surcharge programs and
contractual cost escalation clauses used in most multi-year
customer contracts partially offset fuel cost increases.
Building and Equipment Rent decreased $28 million or 7% in
2005, compared to the prior year, as a result of decreased
overall volume and lower locomotive lease expense.
Inland transportation, which represents Intermodals use of
the CSXT rail network, decreased $12 million compared to
the prior year. The offsetting expense associated with this
amount is reflected in Intermodals operating expense, and
is thus eliminated at the consolidated level.
Conrail Rents, Fees & Services expense decreased
$191 million or 75% in 2005, compared to the prior year, as
a result of the Conrail spin-off transaction, which decreased
rents paid to Conrail as assets previously leased from Conrail
are now owned directly by CSXT. Additionally, Conrail received a
tax benefit from the resolution of various federal income tax
audit adjustments during 2005, which increases CSXs equity
earnings and offsets Conrail Rents, Fees & Services.
(See Note 2. Investment In and Integrated Rail Operations
with Conrail.)
29
Rail operating expense for the fiscal year ended
December 30, 2005, included net favorable reserve
adjustments of $38 million related to decreasing claim
trends. This adjustment is reflected as Provision for
Casualty Claims in the operating expense detail above.
(See Note 11. Casualty, Environmental and Other Reserves.)
For the fiscal year ended December 31, 2004, the rail
business segment recorded expense of $67 million for
separation expense, pension and postretirement benefit
curtailment charges, stock compensation expense and other
related expenses. (See Note 5. Management Restructuring.)
Operating income increased $460 million to
$1.3 billion in 2005, compared to $841 million in 2004
primarily due to an 8% increase in revenue.
|
|
|
2004 vs. 2003 Rail Results of Operations |
CSX follows a 52/53 week fiscal reporting calendar. Fiscal
year 2004 consisted of 53 weeks ending on December 31,
2004. Fiscal year 2003 consisted of 52 weeks ending on
December 26, 2003.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rail | |
|
|
| |
|
|
53 weeks | |
|
52 weeks | |
|
|
|
|
2004 | |
|
2003 | |
|
$ Change | |
|
% Change | |
|
|
| |
|
| |
|
| |
|
| |
|
|
(Dollars in millions) | |
Operating Revenue
|
|
$ |
6,694 |
|
|
$ |
6,182 |
|
|
$ |
512 |
|
|
|
8 |
% |
Operating Expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Labor and Fringe
|
|
|
2,663 |
|
|
|
2,522 |
|
|
|
141 |
|
|
|
6 |
|
Materials, Supplies and Other
|
|
|
1,540 |
|
|
|
1,358 |
|
|
|
182 |
|
|
|
13 |
|
Depreciation
|
|
|
664 |
|
|
|
579 |
|
|
|
85 |
|
|
|
15 |
|
Fuel
|
|
|
656 |
|
|
|
566 |
|
|
|
90 |
|
|
|
16 |
|
Building and Equipment Rent
|
|
|
428 |
|
|
|
422 |
|
|
|
6 |
|
|
|
1 |
|
Inland Transportation
|
|
|
(421 |
) |
|
|
(399 |
) |
|
|
(22 |
) |
|
|
6 |
|
Conrail Rents, Fees & Services
|
|
|
256 |
|
|
|
342 |
|
|
|
(86 |
) |
|
|
(25 |
) |
Provision for Casualty Claims
|
|
|
|
|
|
|
229 |
|
|
|
(229 |
) |
|
|
NM |
|
Restructuring Charge Net
|
|
|
67 |
|
|
|
22 |
|
|
|
45 |
|
|
|
NM |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Operating Expense
|
|
|
5,853 |
|
|
|
5,641 |
|
|
|
212 |
|
|
|
4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Income
|
|
$ |
841 |
|
|
$ |
541 |
|
|
$ |
300 |
|
|
|
55 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Ratio
|
|
|
87.4 |
% |
|
|
91.2 |
% |
|
|
|
|
|
|
|
|
Total Assets
|
|
$ |
22,927 |
|
|
$ |
16,333 |
|
|
|
|
|
|
|
|
|
Prior periods have been reclassified to conform to the current
presentation.
NM not meaningful
30
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rail Traffic, Revenue and Revenue per Unit | |
|
|
| |
|
|
Volume | |
|
Revenue | |
|
Revenue Per Unit | |
|
|
| |
|
| |
|
| |
|
|
53 Weeks | |
|
52 Weeks | |
|
53 Weeks | |
|
52 Weeks | |
|
53 Weeks | |
|
52 Weeks | |
|
|
2004 | |
|
2003 | |
|
2004 | |
|
2003 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Volume (thousands); Revenue (dollars in millions), Revenue Per Unit | |
|
|
(dollars) | |
Merchandise
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Phosphates and Fertilizers
|
|
|
471 |
|
|
|
460 |
|
|
$ |
341 |
|
|
$ |
329 |
|
|
$ |
724 |
|
|
$ |
715 |
|
|
Metals
|
|
|
380 |
|
|
|
348 |
|
|
|
511 |
|
|
|
435 |
|
|
|
1,345 |
|
|
|
1,250 |
|
|
Forest Products
|
|
|
465 |
|
|
|
459 |
|
|
|
681 |
|
|
|
622 |
|
|
|
1,465 |
|
|
|
1,355 |
|
|
Food and Consumer
|
|
|
245 |
|
|
|
242 |
|
|
|
377 |
|
|
|
351 |
|
|
|
1,539 |
|
|
|
1,450 |
|
|
Agricultural Products
|
|
|
356 |
|
|
|
363 |
|
|
|
512 |
|
|
|
497 |
|
|
|
1,438 |
|
|
|
1,369 |
|
|
Chemicals
|
|
|
564 |
|
|
|
541 |
|
|
|
1,069 |
|
|
|
989 |
|
|
|
1,895 |
|
|
|
1,828 |
|
|
Emerging Markets
|
|
|
506 |
|
|
|
476 |
|
|
|
504 |
|
|
|
471 |
|
|
|
996 |
|
|
|
989 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Merchandise
|
|
|
2,987 |
|
|
|
2,889 |
|
|
|
3,995 |
|
|
|
3,694 |
|
|
|
1,337 |
|
|
|
1,279 |
|
Automotive
|
|
|
507 |
|
|
|
529 |
|
|
|
835 |
|
|
|
853 |
|
|
|
1,647 |
|
|
|
1,612 |
|
Coal, Coke and Iron Ore
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Coal
|
|
|
1,659 |
|
|
|
1,570 |
|
|
|
1,714 |
|
|
|
1,543 |
|
|
|
1,033 |
|
|
|
983 |
|
|
Coke and Iron Ore
|
|
|
71 |
|
|
|
65 |
|
|
|
66 |
|
|
|
57 |
|
|
|
930 |
|
|
|
877 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Coal, Coke and Iron Ore
|
|
|
1,730 |
|
|
|
1,635 |
|
|
|
1,780 |
|
|
|
1,600 |
|
|
|
1,029 |
|
|
|
979 |
|
Other
|
|
|
|
|
|
|
|
|
|
|
84 |
|
|
|
35 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Rail
|
|
|
5,224 |
|
|
|
5,053 |
|
|
$ |
6,694 |
|
|
$ |
6,182 |
|
|
$ |
1,281 |
|
|
$ |
1,223 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prior periods have been reclassified to conform to the
current presentation.
CSXT categorizes revenues in three main areas: merchandise,
automotive and coal, coke and iron ore. Overall revenues were up
$512 million to $6.7 billion in 2004 from
$6.2 billion in 2003.
Merchandise showed strength during 2004 with revenue up 8% on 3%
volume growth. All markets showed year-over-year revenue
improvement due to pricing, yield management strategies and the
Companys fuel surcharge program. All markets, except
agricultural products, experienced increased volumes. Metals
realized the most improvement, with 17% revenue growth on 9%
volume growth. Strong demand existed across all steel commodity
lines as steel production and mill utilization rates were at
high levels. Forest products revenue grew 9% on 1% volume growth
as a result of strength in panel and lumber markets driven by
strong residential construction. Food and consumer revenues grew
7% on 1% volume growth. Food and consumer and forest products
volumes were favorable year-over-year primarily due to the
53 week fiscal reporting calendar in 2004. Chemicals
revenue grew 8% on 4% volume growth driven by strong customer
demand and a rebound in U.S. chemical exports. Emerging
markets revenues grew 7% on 6% volume growth, largely driven by
strength in aggregates, cement, lime and fly ash. New industrial
development is helping serve off rail markets.
Phosphate and fertilizer revenues grew 4% on 2% volume growth.
Fertilizer production levels were mixed as high fertilizer
prices and hurricane disruptions caused curtailments in
production. Although ethanol shipments contributed to growth in
agricultural products, revenue increased 3% on declining volume
due to a decline in export and bean markets.
31
Volumes declined largely due to a 100,000 unit
year-over-year decrease in North American light vehicle
production. Downtime at CSXT-served plants also contributed to
volume weakness. Price increases drove improvements in
revenue-per-unit.
Coal, coke and iron ore revenue increased 11% on 6% volume
growth. All lines of business reflect year-over-year
revenue-per-unit improvements. Volume growth was driven by gains
in export, metallurgical and utility markets. Strength in
exports was due to high demand primarily related to Asian steel
market needs.
Other revenue for the fiscal year 2004 includes $63 million
for FRT, a short-line railroad consolidated in 2004 pursuant to
Financial Accounting Standards Board (FASB)
Interpretation 46 Consolidation of Variable Interest
Entities. Prior to 2004, FRT was accounted for under the
equity method.
Total rail operating expenses increased $212 million, or 4%
for the year ended December 31, 2004, compared to 2003.
Labor and Fringe Expense increased $141 million or 6%
compared to the prior year primarily attributable to the effects
of inflation, consolidation of FRT and increases in incentive
compensation plan and pension costs. These costs were partially
offset by benefits realized from reduced staffing levels.
Materials, Supplies and Other expenses increased
$182 million, or 13%, year-over-year primarily due to
increased maintenance and crew travel costs, property and sales
taxes, coupled with higher track, locomotive, car repair and
other costs. Additionally, due to the adoption of SFAS 143
as discussed below, depreciation expense has been decreased and
materials, supplies and other expense increased to account for
the discontinuance of the accrual of cross-tie removal as a
component of depreciation expense.
Depreciation expense increased $85 million or 15% compared
to the prior year primarily attributable to assets received as a
result of the Conrail spin-off transaction. The rail segment had
property additions of approximately $1 billion, but the
additional depreciation was offset by the reduction in
depreciation associated with the adoption of SFAS 143. In
conjunction with the group-life method of accounting for asset
costs, CSXT historically accrued crosstie removal costs as a
component of depreciation, which is not permitted under
SFAS 143. The effect is to decrease depreciation expense
and increase Materials, Supplies and Other expense.
Fuel expense increased $90 million or 16% in 2004, net of
$63 million of fuel hedging benefits, compared to the prior
year primarily due to fuel price increases, while increased
volumes were also a factor. The average price per gallon of
diesel fuel, including benefits from CSXs fuel hedging
program, was $1.10 in 2004 versus $0.96 in 2003. In addition,
the fuel surcharge programs and contractual cost escalation
clauses used in most multi-year customer contracts partially
offset fuel cost increases.
Building and Equipment Rent remained relatively consistent
year-over-year with the slight increase in 2004 resulting from
unfavorable asset utilization.
Inland transportation, which represents Intermodals use of
the CSXT rail network, reduced operating expense by
$22 million or 6% year-over-year. The offsetting expense
associated with this amount is reflected in Intermodals
operating expense, and thus eliminates at the consolidated level.
32
Conrail Rents, Fees & Services expense decreased
$86 million or 25% in 2004, compared to the prior year, as
a result of the Conrail spin-off transaction, which decreased
rents paid to Conrail as assets previously leased from Conrail
are now owned directly by CSXT. (See Note 2. Investment In
and Integrated Rail Operations with Conrail.)
For the fiscal year ended December 31, 2004, the rail
business segment recorded expense of $67 million for
separation expense, pension and postretirement benefit
curtailment charges, stock compensation expense and other
related expenses. (See Note 5. Management Restructuring.)
Rail operating expense for the fiscal year ended
December 26, 2003, included a charge of $229 million
recorded in conjunction with CSXTs change in estimate for
its casualty reserves to include an estimate of incurred but not
reported claims for asbestos and other occupational injuries
that could be received over the next seven years. This charge is
reflected as Provision for Casualty Claims in the
operating expense detail above. (See Note 11. Casualty,
Environmental and Other Reserves.)
Operating income increased $300 million to
$841 million in 2004, compared to $541 million in 2003
primarily due to an 8% increase in revenue coupled with the
absence of $229 million provision for casualty claims,
offset by $67 million of management restructuring charges
and other expense increases as previously discussed.
|
|
|
2005 vs. 2004 Intermodal Results of Operations |
CSX follows a 52/53 week fiscal reporting calendar. Fiscal
year 2005 consisted of 52 weeks ending on December 30,
2005. Fiscal year 2004 consisted of 53 weeks ending on
December 31, 2004.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intermodal | |
|
|
| |
|
|
52 Weeks | |
|
53 Weeks | |
|
|
|
|
2005 | |
|
2004 | |
|
$ Change | |
|
% Change | |
|
|
| |
|
| |
|
| |
|
| |
|
|
(Dollars in millions) | |
Operating Revenue
|
|
$ |
1,362 |
|
|
$ |
1,346 |
|
|
$ |
16 |
|
|
|
1 |
% |
Operating Expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Labor and Fringe
|
|
|
79 |
|
|
|
78 |
|
|
|
1 |
|
|
|
1 |
|
Materials, Supplies and Other
|
|
|
200 |
|
|
|
219 |
|
|
|
(19 |
) |
|
|
(9 |
) |
Depreciation
|
|
|
39 |
|
|
|
38 |
|
|
|
1 |
|
|
|
3 |
|
Building and Equipment Rent
|
|
|
133 |
|
|
|
154 |
|
|
|
(21 |
) |
|
|
(14 |
) |
Inland Transportation
|
|
|
663 |
|
|
|
701 |
|
|
|
(38 |
) |
|
|
(5 |
) |
Restructuring Charge Net
|
|
|
|
|
|
|
4 |
|
|
|
(4 |
) |
|
|
NM |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Operating Expense
|
|
|
1,114 |
|
|
|
1,194 |
|
|
|
(80 |
) |
|
|
(7 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Income
|
|
$ |
248 |
|
|
$ |
152 |
|
|
$ |
96 |
|
|
|
63 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Ratio
|
|
|
81.8 |
% |
|
|
88.7 |
% |
|
|
|
|
|
|
|
|
Total Assets
|
|
$ |
305 |
|
|
$ |
313 |
|
|
|
|
|
|
|
|
|
Prior periods have been reclassified to conform to the current
presentation.
NM not meaningful
33
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intermodal Traffic, Revenue and Revenue-per-Unit | |
|
|
| |
|
|
Volume | |
|
Revenue | |
|
Revenue Per Unit | |
|
|
| |
|
| |
|
| |
|
|
52 Weeks | |
|
53 Weeks | |
|
52 Weeks | |
|
53 Weeks | |
|
52 Weeks | |
|
53 Weeks | |
|
|
2005 | |
|
2004 | |
|
2005 | |
|
2004 | |
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Volume (thousands); Revenue (dollars in millions), Revenue per unit (dollars) | |
Intermodal
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic
|
|
|
891 |
|
|
|
1,028 |
|
|
$ |
738 |
|
|
$ |
795 |
|
|
$ |
828 |
|
|
$ |
773 |
|
|
International
|
|
|
1,274 |
|
|
|
1,278 |
|
|
|
499 |
|
|
|
501 |
|
|
|
392 |
|
|
|
392 |
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
125 |
|
|
|
50 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Intermodal
|
|
|
2,165 |
|
|
|
2,306 |
|
|
$ |
1,362 |
|
|
$ |
1,346 |
|
|
$ |
629 |
|
|
$ |
584 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prior periods have been reclassified to conform to the current
presentation.
Intermodal revenue improved 1% due to higher fuel surcharge
rates, customer coverage and continued emphasis on multiple
ancillary charges, including premise use and per diem charges
related to asset utilization. In the domestic market, continued
focus on longer hauls in higher density lanes coupled with
sustained strength in pricing increased revenue per unit by 7%.
Overall, domestic volumes were down compared to the prior year
due to ongoing yield management efforts. Strong demand from the
parcel sector partially offset volume declines and increased
revenue. International volumes and revenue remained flat
compared to the prior year. Pricing initiatives were offset by a
reduction in long-haul shipments from the west coast. The shift
of traffic to east coast ports caused an increase in
shorter-haul moves, which negatively impacted revenue per unit.
Intermodal expenses decreased 7% compared to the prior year due
to continued service improvements, an emphasis on equipment
utilization, and decrease in volume as discussed above. A
decline in trucking expenses associated with line-haul moves led
to a significant decrease in operating costs associated with a
reduction in services. Several productivity initiatives within
terminal operations generated efficiencies driving per-unit cost
reductions compared to the prior year.
34
|
|
|
2004 vs. 2003 Intermodal Results of Operations |
CSX follows a 52/53 week fiscal reporting calendar. Fiscal
year 2004 consisted of 53 weeks ending on December 31,
2004. Fiscal year 2003 consisted of 52 weeks ending on
December 26, 2003.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intermodal | |
|
|
| |
|
|
53 Weeks | |
|
52 Weeks | |
|
|
|
|
2004 | |
|
2003 | |
|
$ Change | |
|
% Change | |
|
|
| |
|
| |
|
| |
|
| |
|
|
(Dollars in millions) | |
Operating Revenue
|
|
$ |
1,346 |
|
|
$ |
1,264 |
|
|
$ |
82 |
|
|
|
6 |
% |
Operating Expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Labor and Fringe
|
|
|
78 |
|
|
|
73 |
|
|
|
5 |
|
|
|
7 |
|
Materials, Supplies and Other
|
|
|
219 |
|
|
|
214 |
|
|
|
5 |
|
|
|
2 |
|
Depreciation
|
|
|
38 |
|
|
|
32 |
|
|
|
6 |
|
|
|
19 |
|
Building and Equipment Rent
|
|
|
154 |
|
|
|
147 |
|
|
|
7 |
|
|
|
5 |
|
Inland Transportation
|
|
|
701 |
|
|
|
688 |
|
|
|
13 |
|
|
|
2 |
|
Restructuring Charge Net
|
|
|
4 |
|
|
|
|
|
|
|
4 |
|
|
|
NM |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Operating Expense
|
|
|
1,194 |
|
|
|
1,154 |
|
|
|
40 |
|
|
|
3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Income
|
|
$ |
152 |
|
|
$ |
110 |
|
|
$ |
42 |
|
|
|
38 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Ratio
|
|
|
88.7 |
% |
|
|
91.3 |
% |
|
|
|
|
|
|
|
|
Total Assets
|
|
$ |
313 |
|
|
$ |
400 |
|
|
|
|
|
|
|
|
|
Prior periods have been reclassified to conform to the current
presentation.
NM not meaningful
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intermodal Traffic, Revenue and Revenue Per Unit | |
|
|
| |
|
|
Volume | |
|
Revenue | |
|
Revenue Per Unit | |
|
|
| |
|
| |
|
| |
|
|
53 Weeks | |
|
52 Weeks | |
|
53 Weeks | |
|
52 Weeks | |
|
53 Weeks | |
|
52 Weeks | |
|
|
2004 | |
|
2003 | |
|
2004 | |
|
2003 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Volume (thousands); Revenue (dollars in millions), Revenue Per Unit | |
|
|
(dollars) | |
Intermodal
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic
|
|
|
1,028 |
|
|
|
1,060 |
|
|
$ |
795 |
|
|
$ |
784 |
|
|
$ |
773 |
|
|
$ |
740 |
|
|
International
|
|
|
1,278 |
|
|
|
1,170 |
|
|
|
501 |
|
|
|
469 |
|
|
|
392 |
|
|
|
401 |
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
50 |
|
|
|
11 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Intermodal
|
|
|
2,306 |
|
|
|
2,230 |
|
|
$ |
1,346 |
|
|
$ |
1,264 |
|
|
$ |
584 |
|
|
$ |
567 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prior periods have been reclassified to conform to the current
presentation.
Intermodal revenue improved 6% on a 3% volume increase due to
strength in most business commodities. Strong gains in truck
brokerage continued with the implementation of deal space
technology, which is incorporated into the broader Pegasus
system. Deal space technology is designed as a pricing,
scheduling and capacity reservation system and provides CSX
Trucking solicitors real-time information on costs, competitive
prices, preferred routes and service. The parcel and
international sectors also continued to show year-over-year
strength. The parcel group showed improvement in most markets
while international volume gains were based on general import
growth. The domestic channel did not experience year-over-year
growth due to Intermodals Network Simplification
Initiative which led to overall service improvements across the
network, limited some terminals to containers only and improved
the profitability of the traffic.
35
Intermodal operating expense increased $40 million compared
to the prior year due primarily to increases in volume and
inflationary factors. Operating income increased to
$152 million in 2004, compared to $110 million in the
prior year, a 38% improvement.
Liquidity and Capital
Resources
|
|
|
Cash and Cash Equivalents |
Cash and cash equivalents decreased $213 million to
$309 million at December 30, 2005, from
$522 million at December 31, 2004. The decrease in
cash is primarily due to the net effect of total consolidated
debt repaid of $1.3 billion (see Debt Repurchase below)
offset by the net cash proceeds from the sale of CSXs
International Terminals business of $1.1 billion.
In June 2005, CSX repurchased $1.0 billion of its
publicly-traded notes. The total consideration paid for these
notes totaled $1.2 billion, which includes a pretax charge
of $192 million for costs to repurchase the debt which
primarily reflects the market value above original issue value.
CSX used cash proceeds from the disposition of CSXs
International Terminals business to finance this repurchase.
During 2005, CSX improved its overall financial position by
reducing debt balances from $7.2 billion at
December 31, 2004 to $6.0 billion as of
December 30, 2005. As a result of the debt repurchase, CSX
expects interest expense savings of approximately
$68 million per year. However, these savings will be offset
by rising short-term interest rates associated with
$1.1 billion of variable rate debt which terms are based on
LIBOR. (See Note 12. Debt and Credit Agreements.)
In October 2005, holders had the option to require CSX to
purchase their debentures at a purchase price equal to the
accreted value of $852.48 per $1,000 principal amount at
maturity. As a result, CSX purchased an immaterial aggregate
principal amount at maturity of the debentures with cash on
hand. The debentures allow holders to require CSX to purchase
their debentures in October 2006, October 2008, October 2011,
and October 2016, at a purchase price equal to the accreted
value of the debentures at the time. The debentures are
classified in Current Maturities of Long-term Debt in the
Consolidated Balance Sheets.
In August 2004, CSX issued $300 million of floating rate
notes with a maturity date of August 3, 2006. The notes
bear interest at a rate that varies with LIBOR plus an
applicable spread. These notes are not redeemable prior to
maturity.
Cash provided by operations in 2005 was $1.1 billion,
compared to $1.4 billion for 2004. Earnings from Continuing
Operations were substantially higher than the previous year.
However, the Company made significant tax payments attributable
to these higher earnings as well as related taxes paid on the
sale of CSXs International Terminals business in 2005.
Net cash used by investing activities was $36 million in
2005 compared to $1.2 billion in 2004. Included in
investing activities is cash spent for capital additions of
$1.1 billion and $1.0 billion in 2005 and 2004
respectively. Offsetting the cash spent in 2005, are the net
cash proceeds from the disposition of CSXs International
Terminals business.
36
Financing activities used cash of $1.3 billion during 2005
compared to providing cash of $20 million during 2004
primarily as a result of the debt repurchase completed in June
2005, and an increase in dividends paid, which was partially
offset by the proceeds from the exercise of stock options.
CSX paid $93 million, $86 million, and
$86 million in dividends in fiscal years 2005, 2004 and
2003, respectively. The increase in 2005 is a result of the
Company increasing dividends by 30%, in the fourth quarter, from
10 cents to 13 cents per share.
The Companys working capital at December 30, 2005 was
a deficit of $607 million, compared to a deficit of
$314 million at December 31, 2004, primarily driven by
reductions in cash and cash equivalents and short-term
investments combined with the absence of net assets from
CSXs former International Terminals business. A working
capital deficit is not unusual for the Company and other
railroads and does not indicate a lack of liquidity. The Company
continues to maintain adequate current assets to satisfy current
liabilities and maturing obligations when they come due and has
sufficient financial capacity to manage its
day-to-day cash
requirements and any anticipated obligations arising from legal,
tax and other regulatory rulings.
CSX has a $1.2 billion five-year unsecured revolving credit
facility expiring in May 2009 and a $400 million
364-day unsecured
revolving credit facility expiring in May 2006. The facilities
were entered into in May 2004 and May 2005, respectively, on
terms substantially similar to the facilities they replaced.
Generally, these facilities may be used for general corporate
purposes, to support CSXs commercial paper, and for
working capital. Neither of the credit facilities was drawn on
as of December 30, 2005. Commitment fees and interest rates
payable under the facilities are similar to fees and rates
available to comparably rated investment-grade borrowers. In
2005, CSX paid approximately $2 million for total fees
associated with the undrawn facility. These credit facilities
allow for borrowings at floating (LIBOR-based) rates, plus a
spread, depending upon CSXs senior unsecured debt ratings.
At December 30, 2005, CSX was in compliance with all
covenant requirements under the facilities.
The Board of Directors has authorized CSX to purchase shares of
its common stock from time to time in an amount up to
approximately $150 million in any fiscal year. Pursuant to
this authority, CSX intends to purchase shares of CSX common
stock in the open market or in privately negotiated transactions.
As of December 30, 2005, CSXs long-term unsecured
debt obligations were rated BBB and Baa2 by Standard and
Poors and Moodys Investor Service, respectively. In
May 2005, Standard and Poors raised CSXs short-term
rating from A-3 to
A-2 and revised the
outlook from negative to stable. In July 2004, Moodys
Investor Service reaffirmed CSXs short and long-term
unsecured debt ratings, but adjusted the outlook from stable to
negative. CSXs short-term commercial paper program is
rated A-2 and
P-2 by Standard and
Poors and Moodys Investor Service, respectively. If
CSXs long-term unsecured bond ratings were reduced to BBB-
and Baa3, its undrawn borrowing costs under the
$1.2 billion and $400 million revolving credit
facilities would not materially increase. If CSXs
short-term commercial paper ratings were reduced to
A-3 and
P-3, it would increase
CSXs
37
borrowing costs in the commercial paper market and reduce its
access to this source of funds because of the more limited
demand for lower rated commercial paper. CSX had no commercial
paper outstanding at December 30, 2005 or December 31,
2004.
|
|
|
Shelf Registration Statements |
CSX currently has $900 million of capacity under an
effective shelf registration that may be used, subject to market
conditions and board authorization, to issue debt or equity
securities at CSXs discretion. CSX presently intends to
use the proceeds from the sale of any securities issued under
its shelf registration statement to finance cash requirements,
including refinancing existing debt as it matures. While CSX
seeks to give itself flexibility with respect to meeting such
needs, there can be no assurance that market conditions would
permit CSX to sell such securities on acceptable terms at any
given time, or at all.
Schedule of Contractual
Obligations and Commercial Commitments
The following table sets forth maturities of the Companys
contractual obligations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Type of Obligation |
|
2006 | |
|
2007 | |
|
2008 | |
|
2009 | |
|
2010 | |
|
Thereafter | |
|
Total | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(Dollars in millions)(Unaudited) | |
Long-term Debt (See Note 12)
|
|
$ |
1,016 |
|
|
$ |
595 |
|
|
$ |
633 |
|
|
$ |
296 |
|
|
$ |
94 |
|
|
$ |
3,474 |
|
|
$ |
6,108 |
|
Operating Leases Net (See Note 19)
|
|
|
176 |
|
|
|
165 |
|
|
|
120 |
|
|
|
87 |
|
|
|
75 |
|
|
|
264 |
|
|
|
956 |
|
Agreements with Conrail (See Note 2)
|
|
|
18 |
|
|
|
18 |
|
|
|
16 |
|
|
|
13 |
|
|
|
9 |
|
|
|
17 |
|
|
|
91 |
|
Purchase Obligations (See Note 19)
|
|
|
397 |
|
|
|
423 |
|
|
|
342 |
|
|
|
338 |
|
|
|
353 |
|
|
|
5,855 |
|
|
|
7,708 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Contractual Obligations
|
|
$ |
1,607 |
|
|
$ |
1,201 |
|
|
$ |
1,111 |
|
|
$ |
734 |
|
|
$ |
531 |
|
|
$ |
9,610 |
|
|
$ |
14,863 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table sets forth maturities of the Companys
other commitments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Type of Obligation |
|
2006 | |
|
2007 | |
|
2008 | |
|
2009 | |
|
2010 | |
|
Thereafter | |
|
Total | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(Dollars in millions)(Unaudited) | |
Unused Lines of Credit (See Note 12)
|
|
$ |
400 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
1,200 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
1,600 |
|
Guarantees (See Note 19)
|
|
|
21 |
|
|
|
22 |
|
|
|
16 |
|
|
|
16 |
|
|
|
16 |
|
|
|
26 |
|
|
|
117 |
|
Other
|
|
|
43 |
|
|
|
15 |
|
|
|
|
|
|
|
1 |
|
|
|
|
|
|
|
1 |
|
|
|
60 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Other Commitments
|
|
$ |
464 |
|
|
$ |
37 |
|
|
$ |
16 |
|
|
$ |
1,217 |
|
|
$ |
16 |
|
|
$ |
27 |
|
|
$ |
1,777 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Off-Balance Sheet
Arrangements
There are no off-balance sheet arrangements that are reasonably
likely to have a material effect on the Companys financial
condition, results of operations or liquidity.
Investment In and Integrated Rail Operations with Conrail
See background, accounting and financial reporting effects and
summary financial information in Note 2. Investment In and
Integrated Rail Operations with Conrail.
Critical Accounting
Estimates
The preparation of financial statements in conformity with
accounting principles generally accepted in the United States
requires that management make estimates in reporting the amounts
of certain assets and liabilities, the disclosure of contingent
assets and liabilities at the date of the financial statements
and the reported amount of certain revenues and expenses during
the reporting
38
period. Actual results may differ from those estimates.
Consistent with the prior year, significant estimates using
management judgment are made for the following areas:
|
|
|
|
|
Casualty, Environmental and Legal Reserves |
|
|
|
Pension and Postretirement Medical Plan Accounting |
|
|
|
Depreciation Policies for Assets Under the Group-Life Method |
|
|
|
Income Taxes |
These estimates and assumptions are discussed with the Audit
Committee of the Board of Directors on a regular basis.
Casualty, Environmental and Legal Reserves
Casualty
Casualty reserves represent accruals for personal injury and
occupational injury claims. Currently, none of these claims are
covered by insurance since no individual claim value is expected
to exceed the Companys self-insured retention amount.
Personal injury and occupational claims are presented on a gross
basis in accordance with SFAS 5, Accounting for
Contingencies (SFAS 5). To the extent the
value of an individual claim were to exceed the self-insured
retention amount, CSX would present the liability on a gross
basis with a corresponding receivable for insurance recoveries.
Most of the claims are related to CSXT unless otherwise noted.
CSXT retains an independent actuarial firm to assist management
in assessing the value of CSXTs claims and cases. An
analysis is performed by the independent actuarial firm
semi-annually and is reviewed by management. The methodology
used by the actuary includes a development factor to reflect
growth or reduction in the value of CSXTs personal injury
claims. This methodology is based largely on CSXTs
historical claims and settlement activity. Actual results may
vary from estimates due to the type and severity of the injury,
costs of medical treatments, and uncertainties in litigation.
While the final outcome of casualty-related matters cannot be
predicted with certainty, considering among other things, the
meritorious legal defenses available and liabilities that have
been recorded, it is the opinion of CSX management that none of
these items, when finally resolved, will have a material adverse
effect on the Companys results of operations, financial
condition, or liquidity. However, should a number of these items
occur in the same period, they could have a material adverse
effect on the results of operations, financial condition or
liquidity in a particular quarter or fiscal year.
Occupational claims include allegations of exposure to certain
materials in the work place, such as asbestos, solvents, and
diesel fuel, or alleged physical injuries, such as repetitive
stress injuries, carpal tunnel syndrome or hearing loss.
The Company is party to a number of occupational claims by
employees alleging exposure to asbestos in the workplace. The
heaviest possible exposure for employees was due to work
conducted in and around steam locomotive engines that were
phased out in the 1950s, according to rail industry
statistics. However, other types of exposures, including
exposure from locomotive component parts and building materials,
continued until it was substantially eliminated by 1985.
39
Asbestos claim filings against the Company have been
inconsistent. Accordingly, while the Company had concluded that
a probable loss had occurred, prior to 2003 it did not believe
it could estimate the range of reasonably possible loss because
of the lack of experience with such claims and the lack of
detailed employment records for the population of exposed
employees. Claim filings increased and when they continued into
2003, the Company concluded that an estimate for incurred but
not reported (IBNR) asbestos exposure liability
needed to be recorded. Currently, there is recurring pending
legislation regarding the establishment of an asbestos liability
trust fund. The impact to the Company of this pending
legislation is unknown at this time.
|
|
|
2003 Provision for Asbestos Change in Estimate |
In 2003, the Company changed its estimate of asbestos reserves
to include an estimate of IBNR claims and retained a third party
specialist who has extensive experience in performing asbestos
and other occupational studies to assist in this estimate. The
analysis is performed by the specialist semi-annually and is
reviewed by management. The objective of the analysis is to
determine the number of estimated IBNR claims and the estimated
average cost per claim to be received over the next seven years.
Seven years was determined by management to be the time period
in which probable claim filings and claim values could be
estimated with more certainty.
The Company, with the assistance of the third party specialist,
first determined its potentially exposed population from which
it was able to derive the estimated number of IBNR claims. The
estimated average cost per claim was then determined utilizing
recent actual average cost per claim data and national industry
data. Based on the assessment, in September 2003 the Company
recorded an undiscounted $141 million pre-tax charge for
unasserted asbestos claims. Key elements of the assessment
included the following:
|
|
|
|
|
An estimate was computed using a ratio of Company employee data
to national employment for select years during the period
1938-2001. The Company used railroad industry historical census
data because it did not have detailed employment records in
order to compute the population of potentially exposed employees. |
|
|
|
The projected incidence of disease was estimated based on
epidemiological studies using employees age and the
duration and intensity of potential exposure while employed. |
|
|
|
An estimate of the future anticipated claims filing rate by type
of disease (non-malignant, cancer and mesothelioma) was computed
using the Companys average historical claim filing rates
for a 2-year
calibration period (i.e. the years management felt were
representative of future filing rates). |
|
|
|
An estimate of the future anticipated dismissal rate by type of
claim was computed using the Companys historical average
dismissal rates observed for two years. |
|
|
|
An estimate of the future anticipated settlement by type of
disease was computed using the Companys historical average
of dollars paid per claim for pending and future claims using
the average settlement by type of incident observed during a
3-year time period. |
From these assumptions, the Company projected the incidence of
each type of disease to the estimated population to determine
the total estimated number of employees that could potentially
assert a claim. Historical claim filing rates were applied for
each type of disease to the total number of employees that could
potentially assert a claim to determine the total number of
anticipated claim filings by disease type. Historical dismissal
rates, which represent claims that are closed without payment,
were deducted to calculate the number of future claims by
disease type that would likely require payment by the Company.
Finally, the number of such claims was multiplied by the average
settlement value to estimate the Companys future liability
for IBNR asbestos claims.
Asbestos claim filings are typically sporadic and may include
large batches of claims solicited by law firms. To reflect these
factors, CSX used a
2-year calibration
period during its initial assessment
40
because the Company believed it would be most representative of
its future claim experience. In addition, for non-malignant
claims, the number of future claims to be filed against CSX
declines at a rate consistent with both mortality and age as
there is a decreasing probability of filing claims as the
population ages. CSX believes the average claim values by type
of disease from the historical
2-year period were most
representative of future claim values.
|
|
|
2005 Provision for Asbestos Change in Estimate |
In 2004, management had no changes in estimate for asbestos
liabilities. In 2005, management updated their assessment of the
unasserted liability exposure with the assistance of the third
party specialists, which resulted in recognition of a
$48 million favorable change in estimate associated with
asbestos liabilities. During 2004 and 2005, asbestos related
disease claims filed against CSX dropped substantially,
particularly bulk claims filed by certain law firms. In 2003,
the Company received a significant number of filings. The
Company believes the number was attributable to an attempt to
file before a new, more restrictive venue law took effect in
West Virginia in mid-2003. As a result, management reassessed
the calibration period to a
3-year average,
excluding the surge in claims originating in West Virginia.
Management believes this calibration period provides the best
estimate of future filing rates.
The estimated future filing rates and estimated average claim
values are the most sensitive assumptions for this reserve. A
10% increase or decrease in either the forecasted number of IBNR
claims or the average claim values would result in an
approximate $7 million increase or decrease in the
liability recorded for unasserted asbestos claims.
The Company, with the assistance of the third party specialist,
obtains semi-annual updates of the study. The Company will
monitor actual experience against the number of forecasted
claims to be received and expected claim payments. More periodic
updates to the study will occur if trends necessitate a change.
|
|
|
2003 Provision for Other Occupational Change in
Estimate |
In 2003, the Company changed its estimate of occupational
reserves to include an estimate of IBNR claims for other
occupational injuries as well as asbestos as noted above. The
Company engaged a third party specialist to assist in projecting
the number of other occupational injury claims to be received
over the next seven years. Based on this analysis, the Company
established reserves for the probable and reasonably estimable
other occupational injury liabilities. In 2003, the Company
recorded an undiscounted $65 million pre-tax charge for
IBNR other occupational claims for similar reasons as asbestos
discussed above.
Similar to the asbestos liability estimation process, the key
elements of the assessment included the following:
|
|
|
|
|
An estimate of the potentially exposed population for other
occupational diseases was calculated by projecting active versus
retired work force from 2002 to 2010 using a growth rate
projection for overall railroad employment made by the Railroad
Retirement Board in its June 2003 report. |
|
|
|
An estimate of the future anticipated claims filing rate by type
of injury, employee type, and active versus retired employee was
computed using the Companys average historical claim
filing rates for the
2-year calibration
period for all diseases except hearing loss. Because the filing
rate for hearing loss claims has been decreasing since 1998, the
latest year filing rate was viewed as representative. These
calibration periods are the time periods which management felt
were representative of future filing rates. An estimate was made
to forecast future claims by using the filing rates by disease
and the active and retired CSX population each year. |
41
|
|
|
|
|
An estimate of the future anticipated settlement by type of
injury was computed using the Companys historical average
of dollars paid per claim for pending and future claims using
the average settlement by type of injury observed during a
3-year time period. |
|
|
|
2005 Provision for Other Occupational Change in
Estimate |
In 2004, management had no changes in estimate for other
occupational liabilities. During 2005, CSX experienced an
unfavorable trend in settlement values for repetitive stress and
other injuries, which resulted in the recognition of a
$10 million unfavorable change in estimate associated with
these liabilities. In connection with the semi-annual updates of
the study, the Company will monitor actual experience against
the number of forecasted claims to be received and expected
claim payments. More periodic updates to the study will occur if
trends necessitate a change.
The estimated future filing rates and estimated average claim
values are the most sensitive assumptions for this reserve. A
10% increase or decrease in either the forecasted number of IBNR
claims or the average claim values would result in an
approximate $7 million increase or decrease in the
liability recorded for unasserted other occupational claims.
The amounts recorded by the Company for asbestos and other
occupational liabilities are based upon currently known
information and judgments based upon that information.
Projecting future events, such as the number of new claims to be
filed each year, the average cost of disposing of claims, as
well as the numerous uncertainties surrounding asbestos and
other occupational litigation or legislation in the United
States, could cause the actual costs to be higher or lower than
projected.
While the final outcome of casualty-related matters cannot be
predicted with certainty, considering among other items the
meritorious legal defenses available and the liabilities that
have been recorded, it is the opinion of management that none of
these items, when finally resolved, will have a material effect
on the Companys results of operations, financial position
or liquidity. However, should a number of these items occur in
the same period, they could have a material effect on the
results of operations, financial condition or liquidity in a
particular quarter or fiscal year.
Environmental
The Company is a party to various proceedings, including
administrative and judicial proceedings, involving private
parties and regulatory agencies related to environmental issues.
The Company has been identified as a potentially responsible
party (PRP) at approximately 259 environmentally
impaired sites, many of which are, or may be, subject to
remedial action under the Federal Comprehensive Environmental
Response, Compensation and Liability Act of 1980
(CERCLA), also known as the Superfund Law, or
similar state statutes. A number of these proceedings are based
on allegations that CSX, or its predecessors, sent hazardous
substances to the facilities in question for disposal.
In addition, some of the Companys land holdings are and
have been used for industrial or transportation-related purposes
or leased to commercial or industrial companies whose activities
may have resulted in releases of various regulated materials
onto the property. Therefore, the Company is subject to
environmental cleanup and enforcement actions under the
Superfund law, as well as similar state laws that may impose
joint and several liability for cleanup and enforcement costs on
current and former owners and operators of a site without regard
to fault or the legality of the original conduct, which could be
substantial. In 2004, the Company assumed $6 million of
Conrail environmental liabilities, due to the Conrail spin-off
transaction.
42
At least once each quarter, CSXT reviews its role with respect
to each such location, giving consideration to a number of
factors, including:
|
|
|
|
|
Type of cleanup required; |
|
|
|
Nature of CSXTs alleged connection to the location (e.g.,
generator of waste sent to the site, or owner or operator of the
site); |
|
|
|
Extent of CSXTs alleged connection (e.g., volume of
waste sent to the location and other relevant factors); |
|
|
|
Accuracy and strength of evidence connecting CSXT to the
location; and |
|
|
|
Number, connection, and financial viability of other named and
unnamed PRPs at the location. |
CSXT management estimates its environmental liabilities using
guidance from Statement of Position (SOP) 96-1,
Environmental Remediation Liabilities. Each site is
periodically evaluated and the liability is adjusted to the most
recent estimates made by management. Based on the review
process, the Company has recorded reserves to cover estimated
contingent future environmental costs with respect to such
sites. Environmental costs are charged to expense when they
relate to an existing condition caused by past operations and do
not contribute to current or future revenue generation. The
recorded liabilities for estimated future environmental costs
are undiscounted and include amounts representing the
Companys estimate of unasserted claims, which the Company
believes to be immaterial. The liability includes future costs
for all sites where the Companys obligation is
(1) deemed probable, and (2) where such costs can be
reasonably estimated. The liability includes future costs for
remediation and restoration of sites as well as any significant
ongoing monitoring costs, but excludes any anticipated insurance
recoveries.
Currently, the Company does not possess sufficient information
to reasonably estimate the amounts of additional liabilities, if
any, on some sites until completion of future environmental
studies. In addition, latent conditions at any given location
could result in exposure, the amount and materiality of which
cannot presently be reliably estimated. Based upon information
currently available, however, the Company believes its
environmental reserves are adequate to accomplish remedial
actions to comply with present laws and regulations, and that
the ultimate liability for these matters, if any, will not
materially affect its overall results of operations, financial
condition and liquidity.
Legal
In accordance with SFAS 5, an accrual for a loss
contingency is established if information available prior to
issuance of the financial statements indicates that it is
(1) probable that an asset has been impaired or a liability
has been incurred at the date of the financial statements, and
(2) the amount of loss can be reasonably estimated. If no
accrual is made for a loss contingency because one or both of
these conditions are not met, or if an exposure to loss exists
in excess of the amount accrued, disclosure of the contingency
is made when there is at least a reasonable possibility that a
loss or an additional loss may have been incurred.
The Company evaluates all exposures relating to legal
liabilities twice quarterly and adjusts reserves when
appropriate under the guidance noted above. The amount of a
particular reserve may be influenced by factors that include
official rulings, newly discovered or developed evidence, or
changes in laws, regulations, and evidentiary standards.
Pension and Postretirement Medical Plan Accounting
The Company sponsors defined benefit pension plans, principally
for salaried, management personnel. The plans provide eligible
employees with retirement benefits based predominantly on years
of service and compensation rates near retirement. In addition
to the defined benefit pension
43
plans, the Company sponsors one medical plan and one life
insurance plan that provide benefits to full-time, salaried,
management employees hired prior to January 1, 2003, upon
their retirement if certain eligibility requirements are met.
The postretirement medical plans are contributory (partially
funded by retirees), with retiree contributions adjusted
annually. The life insurance plan is non-contributory.
The accounting for these plans is subject to the guidance
provided in SFAS 87, Employers Accounting for Pensions
(SFAS 87), and SFAS 106,
Employers Accounting for Postretirement Benefits Other
than Pensions (SFAS 106). Both of these
statements require that management make certain assumptions
relating to the following:
|
|
|
|
|
Long-term rate of return of plan assets; |
|
|
|
Discount rates used to measure future obligations and interest
expense; |
|
|
|
Salary scale inflation rates; |
|
|
|
Health care cost trend rates; and |
|
|
|
Other assumptions. |
These assumptions are determined as of the beginning of the
year. As permitted by SFAS 87, the Company has elected to
use a plan measurement date of September 30 to actuarially
value its pension and postretirement plans as it provides for
more timely analysis. The Company engages independent, external
actuaries to compute the amounts of liabilities and expenses
relating to these plans subject to the assumptions that the
Company selects as of the beginning of the plan year. The
Company reviews the discount, salary scale inflation, and health
care cost trend rates on an annual basis and makes modifications
to the assumptions based on current rates and trends as
appropriate. Because the Company reduced its expected long-term
rate of return on assets in 2004, management does not anticipate
revising this assumption for the next several years to maintain
consistency with market cycles.
|
|
|
Long-term Rate of Return on Plan Assets |
The expected long-term rate of return on plan assets reflects
the average rate of earnings expected on the funds invested or
to be invested to provide for benefits included in the projected
benefit obligation. In estimating that rate, the Company gives
appropriate consideration to the returns being earned by the
plan assets in the funds and the rates of return expected to be
available for reinvestment. The expected long-term rate of
return on plan assets is used in conjunction with the
market-related value of assets to compute the expected return on
assets.
The Companys expected long-term average rate of return on
assets considers the current and projected asset mix of the
funds. Management balances market expectations obtained from
various investment managers and economists with both market and
actual plan historical returns to develop a reasonable estimate
of the expected long-term rate of return on assets. As this
assumption is long-term, it is adjusted less frequently than
other assumptions used in pension accounting.
Discount rates affect the amount of liability recorded and the
interest expense component of pension and postretirement
expense. Assumed discount rates reflect the rates at which the
pension and postretirement benefits could be effectively
settled. It is appropriate in estimating those rates to look to
available information about rates implicit in current prices of
annuity contracts that could be used to effect settlement of the
obligation. In making those estimates, employers may also look
to rates of return on high-quality fixed-income investments
currently available and expected to be available during the
period to maturity of the pension benefits. The Company
determines the discount rate based on a hypothetical portfolio
of high quality bonds with cash flows matching the
44
plans expected benefit payments. CSX uses a different
discount rate for pension and postretirement benefits due to the
different time horizons of future payments for each of the plans.
Each year these discount rates are reevaluated and adjusted to
reflect the best estimate of the current effective settlement
rates. If interest rates generally decline or rise, the assumed
discount rates will change.
|
|
|
Salary Scale Inflation Rates |
Salary scale inflation rates are based on current trends and
historical data accumulated by the Company. The Company reviews
recent merit increases and management incentive compensation
payments over the past five years in assessment of salary scale
inflation rates.
|
|
|
Health Care Cost Trend Rates |
Health care cost trend rates are based on recent plan experience
and industry trends. The Company uses actuarial data to
substantiate the inflation assumption for health care costs,
representing increases in total plan costs, which include claims
and administrative fee cost components. The current assumed
health care cost trend rate is 11% for Medicare eligible
participants and 12% for non-Medicare eligible participants and
is expected to increase slightly before decreasing gradually
until reaching 4.5% in 2013 based upon current actuarial
projections.
The calculations made by the actuaries also include assumptions
relating to mortality rates, turnover, and retirement age. These
assumptions are based on historical data and are approved by
management.
|
|
|
2006 Estimated Pension and Postretirement Expense |
As a result of changes in assumptions for fiscal year 2006, net
periodic pension benefit cost and postretirement benefit costs
for 2006 are expected to be approximately $62 million and
$30 million, respectively, compared to $46 million and
$40 million, respectively in 2005. Currently, there is
proposed legislation regarding pension plan funding
requirements. If the proposed legislation is passed, pension
plan funding requirements will be increased. The impact to the
Company of this proposed legislation is unknown at this time.
|
|
|
|
|
|
|
|
|
|
|
|
Increase/ | |
|
|
(Decrease) in 2006 | |
|
|
Estimated Expense | |
|
|
| |
|
|
Pension | |
|
OPEB | |
|
|
| |
|
| |
|
|
(Millions of dollars) | |
Discount Rate:
|
|
|
|
|
|
|
|
|
|
0.25% increase
|
|
$ |
(4 |
) |
|
$ |
|
|
|
0.25% decrease
|
|
|
5 |
|
|
|
|
|
Salary Scale Inflation Rate:
|
|
|
|
|
|
|
|
|
|
0.25% increase
|
|
|
3 |
|
|
|
|
|
|
0.25% decrease
|
|
|
(3 |
) |
|
|
|
|
Health Care Cost Trend Rate:
|
|
|
|
|
|
|
|
|
|
1% increase
|
|
|
N/A |
|
|
|
3 |
|
|
1% decrease
|
|
|
N/A |
|
|
|
(3 |
) |
|
|
|
Medicare Prescription Drug, Improvement and Modernization Act
of 2003 |
The Company is required to estimate and record the effects of
the Medicare Prescription Drug, Improvement and Modernization
Act of 2003 (Act). The Company determined that its
medical
45
plans prescription drug benefit will qualify as
actuarially equivalent to Medicare Part D based upon a
review by the plans health and welfare actuary of the
plans benefit compared with the benefit that would be paid
under Medicare Part D. The reduction in the postretirement
benefit obligation as a result of the Act was approximately
$56 million as of December 31, 2005. (See
Note 18. Employee Benefit Plans.)
The Company has applied for the tax free 28% federal
reimbursement of total prescription drug claims from $250 to
$5,000 paid after January 1, 2006. Combining the financial
implications of both cash receipts and lower tax deductible
business expenses resulting from the subsidy, the Company
expects after tax cash flow savings of approximately
$5 million for fiscal year 2006. Additionally, projected
postretirement benefit expenses for fiscal year 2006 were
reduced by approximately $7 million due to the Act.
Depreciation Policies for Assets Under the Group-Life
Method
CSXT accounts for its rail assets, including main-line track,
locomotives and freight cars, using the group-life method. The
group-life method pools similar assets by type and then
depreciates each group as a whole. Under the group-life method,
the service lives for each group of rail assets are determined
by the performance of periodic life studies and
managements assumptions concerning the service lives of
its properties. These studies, called life studies, are
conducted by a third party expert, analyzed by the
Companys management and approved by the Surface
Transportation Board (STB) of the
U.S. Department of Transportation. Life studies for
equipment assets are completed every three years, whereas road
and track life studies are completed every six years as required
by the STB.
Changes in asset lives due to the results of the life studies
could significantly impact future periods depreciation
expense and thus the Companys results of operations.
Factors taken into account during the life study include:
|
|
|
|
|
Statistical analysis of historical retirements for each group of
property; |
|
|
|
Evaluation of current operations; |
|
|
|
Evaluation of technological advances and maintenance schedules; |
|
|
|
Previous assessment of the condition of the assets and outlook
for their continued use; |
|
|
|
Expected net salvage expected to be received upon
retirement; and |
|
|
|
Comparison of assets to the same asset groups with other
companies. |
The life studies may also indicate that the recorded amount of
accumulated depreciation is deficient (or in excess) of the
appropriate amount indicated by the study. Any such deficiency
(or excess) is amortized as a component of depreciation expense
over the remaining useful life of the asset group until the next
required life study.
Although recent experience with life studies has resulted in
depreciation rate changes, these modifications have not
significantly affected the Companys annual depreciation
expense. In 2003, the Company completed life studies for all of
its rail, equipment and track assets, resulting in an increase
in the average useful lives of equipment and track assets, while
decreasing the average useful lives of many roadway assets. The
combination of these adjustments increased depreciation expense
by $1 million in 2003 with a decrease of approximately
$13 million in 2004. No life studies were required or
completed during 2005.
Assets depreciated under the group-life method comprise 95% of
the Companys total fixed assets of $19.5 billion on a
net basis at December 30, 2005. The Companys
depreciation expense for the year ended December 30, 2005
amounted to $826 million. A one-percentage point increase
(or decrease) in the average life of all group-life assets would
result in an $8 million increase (or decrease) to the
Companys annual depreciation expense.
46
Income Taxes
Management uses factors such as applicable law, current
information and past experience with similar issues in computing
its income tax expense. The Company has not materially changed
its methodology for calculating income tax expense for the years
presented. The Company does not anticipate any material change
in the methodology or assumptions used in determining the
Companys income tax expense.
The Company files a consolidated federal income tax return,
which includes its principal domestic subsidiaries. Examinations
of the federal income tax returns of CSX have been completed
through 1993. Federal income tax returns for 1994 through 2003
currently are under examination. Management believes adequate
provision has been made for any adjustments that might be
assessed. While the final outcome of these matters cannot be
predicted with certainty, it is the opinion of CSX management
that none of these items will have a material adverse effect on
the results of operations, financial position or liquidity of
CSX. An unexpected adverse resolution of one or more of these
items, however, could have a material adverse effect on the
results of operations, financial condition or liquidity in a
particular fiscal quarter or fiscal year. Also, the Company is
party to a number of legal and administrative proceedings, the
resolution of which could result in gain realization in amounts
that could be material to results of operations, financial
condition or liquidity in a particular fiscal quarter or fiscal
year.
New Accounting Pronouncements and Change in Accounting
Policy
See Note 1. Nature of Operations and Significant Accounting
Policies under the caption New Accounting Pronouncements
and Change in Accounting Policy.
|
|
Item 7A. |
Quantitative and Qualitative Disclosures about Market
Risk |
CSX addresses market risk exposure to fluctuations in interest
rates and the risk of volatility in its fuel costs through the
use of derivative financial instruments. CSX does not hold or
issue derivative financial instruments for trading purposes.
CSX addresses its exposure to interest rate market risk through
a controlled program of risk management that includes the use of
interest rate swap agreements. The table below illustrates
CSXs long-term interest rate swap sensitivity.
|
|
|
|
|
|
|
December 30, 2005 | |
|
|
| |
|
|
(Dollars in millions) | |
Interest Rate Swap Agreements
|
|
$ |
600 |
|
Effect of 1% Increase or Decrease in LIBOR Interest Rate
|
|
|
6 |
|
During 2003, CSX began a program to hedge its exposure to fuel
price volatility through swap transactions. As of
December 30, 2005, CSX had hedged approximately 9% of fuel
purchases for 2006. At December 30, 2005, a 1% change in
fuel prices would result in an increase or decrease in the asset
related to the swaps of approximately $1 million.
CSXs rail unit average annual fuel consumption is
approximately 603 million gallons. A one-cent change in the
price per gallon, excluding gallons hedged, of fuel would affect
fuel expense by approximately $5 million annually.
CSX is exposed to loss in the event of non-performance by any
counter-party to the interest rate swap or fuel hedging
agreements. CSX does not anticipate non-performance by such
counter-parties, and no material loss would be expected from
non-performance.
The following table highlights CSXs floating rate debt
outstanding exclusive of derivative contracts that essentially
convert fixed interest rate notes to floating interest rates.
|
|
|
|
|
|
|
December 30, 2005 | |
|
|
| |
|
|
(Dollars in millions) | |
Floating Rate Debt Outstanding
|
|
$ |
378 |
|
Effect of 1% Variance in Interest Rates
|
|
|
4 |
|
47
|
|
Item 8. |
Financial Statements and Supplementary Data |
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
|
|
|
|
|
|
Page | |
|
|
| |
|
|
|
49 |
|
CSX Corporation
|
|
|
|
|
Consolidated Financial Statements and Notes to Consolidated
Financial Statements Submitted Herewith:
|
|
|
|
|
|
|
|
51 |
|
|
December 30, 2005
|
|
|
|
|
|
December 31, 2004
|
|
|
|
|
|
December 26, 2003
|
|
|
|
|
|
|
|
52 |
|
|
December 30, 2005
|
|
|
|
|
|
December 31, 2004
|
|
|
|
|
|
|
|
53 |
|
|
December 30, 2005
|
|
|
|
|
|
December 31, 2004
|
|
|
|
|
|
December 26, 2003
|
|
|
|
|
|
|
|
54 |
|
|
December 30, 2005
|
|
|
|
|
|
December 31, 2004
|
|
|
|
|
|
December 26, 2003
|
|
|
|
|
|
|
|
55 |
|
48
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and Board of Directors of CSX Corporation
We have audited the accompanying consolidated balance sheets of
CSX Corporation and subsidiaries as of December 30, 2005
and December 31, 2004, and the related consolidated
statements of income, cash flows, and changes in
shareholders equity for each of the three fiscal years in
the period ended December 30, 2005. These consolidated
financial statements are the responsibility of the
Companys management. Our responsibility is to express an
opinion on these consolidated financial statements based on our
audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the consolidated financial statements. An audit
also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred
to above present fairly, in all material respects, the
consolidated financial position of CSX Corporation and
subsidiaries at December 30, 2005 and December 31,
2004, and the consolidated results of their operations and their
cash flows for each of the three fiscal years in the period
ended December 30, 2005, in conformity with
U.S. generally accepted accounting principles.
As discussed in Note 1 to the consolidated financial
statements, in 2004 the Company changed its method of
calculating earnings per share, and in 2003 the Company changed
its method of accounting for railroad tie removal costs and
stock-based compensation.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
effectiveness of CSX Corporations internal control over
financial reporting as of December 30, 2005, based on
criteria established in Internal Control Integrated
Framework issued by the Committee of Sponsoring Organizations of
the Treadway Commission and our report dated February 13,
2006, expressed an unqualified opinion thereon.
|
|
|
/s/ Ernst & Young LLP |
|
Independent Certified Public Accountants |
Jacksonville, Florida
February 13, 2006
49
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Shareholders and Board of Directors of CSX Corporation
We have audited managements assessment, included in the
accompanying CSX Corporation Managements Report on
Internal Control Over Financial Reporting appearing under
Item 9A, that CSX Corporation maintained effective internal
control over financial reporting as of December 30, 2005,
based on criteria established in Internal Control
Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (the COSO criteria).
CSX Corporations management is responsible for maintaining
effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over
financial reporting. Our responsibility is to express an opinion
on managements assessment and an opinion on the
effectiveness of the companys internal control over
financial reporting based on our audit.
We conducted our audit in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control
over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of
internal control over financial reporting, evaluating
managements assessment, testing and evaluating the design
and operating effectiveness of internal control, and performing
such other procedures as we considered necessary in the
circumstances. We believe that our audit provides a reasonable
basis for our opinion.
A companys internal control over financial reporting is a
process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles. A companys
internal control over financial reporting includes those
policies and procedures that (1) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions
are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations of
management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the
companys assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
In our opinion, managements assessment that CSX
Corporation maintained effective internal control over financial
reporting as of December 30, 2005, is fairly stated, in all
material respects, based on the COSO criteria. Also, in our
opinion, CSX Corporation maintained, in all material respects,
effective internal control over financial reporting as of
December 30, 2005, based on the COSO criteria.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
2005 consolidated financial statements of CSX Corporation and
our report dated February 13, 2006, expressed an
unqualified opinion thereon.
|
|
|
/s/ Ernst & Young LLP |
|
Independent Certified Public Accountants |
Jacksonville, Florida
February 13, 2006
50
CSX CORPORATION
CONSOLIDATED INCOME STATEMENTS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Years Ended | |
|
|
| |
|
|
December 30, | |
|
December 31, | |
|
December 26, | |
|
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
|
|
(Dollars in millions, except per share amounts) | |
Operating Revenue
|
|
$ |
8,618 |
|
|
$ |
8,040 |
|
|
$ |
7,573 |
|
Operating Expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Labor and Fringe
|
|
|
2,864 |
|
|
|
2,744 |
|
|
|
2,656 |
|
|
Materials, Supplies and Other
|
|
|
1,828 |
|
|
|
1,753 |
|
|
|
1,622 |
|
|
Depreciation
|
|
|
826 |
|
|
|
711 |
|
|
|
620 |
|
|
Fuel
|
|
|
783 |
|
|
|
656 |
|
|
|
581 |
|
|
Building and Equipment Rent
|
|
|
510 |
|
|
|
569 |
|
|
|
565 |
|
|
Inland Transportation
|
|
|
230 |
|
|
|
280 |
|
|
|
305 |
|
|
Conrail Rents, Fees and Services
|
|
|
65 |
|
|
|
256 |
|
|
|
342 |
|
|
Restructuring Charge Net
|
|
|
|
|
|
|
71 |
|
|
|
22 |
|
|
Provision for Casualty Claims
|
|
|
(38 |
) |
|
|
|
|
|
|
232 |
|
|
Additional Loss on Sale
|
|
|
|
|
|
|
|
|
|
|
108 |
|
|
|
|
|
|
|
|
|
|
|
Total Operating Expenses
|
|
|
7,068 |
|
|
|
7,040 |
|
|
|
7,053 |
|
Operating Income
|
|
|
1,550 |
|
|
|
1,000 |
|
|
|
520 |
|
Other Income and Expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Income (Note 7)
|
|
|
101 |
|
|
|
72 |
|
|
|
93 |
|
|
Debt Repurchase Expense (Note 12)
|
|
|
(192 |
) |
|
|
|
|
|
|
|
|
|
Interest Expense
|
|
|
(423 |
) |
|
|
(435 |
) |
|
|
(418 |
) |
|
|
|
|
|
|
|
|
|
|
Earnings
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings before Income Taxes
|
|
|
1,036 |
|
|
|
637 |
|
|
|
195 |
|
|
Income Tax Expense (Note 8)
|
|
|
(316 |
) |
|
|
(219 |
) |
|
|
(58 |
) |
|
|
|
|
|
|
|
|
|
|
|
Earnings from Continuing Operations
|
|
|
720 |
|
|
|
418 |
|
|
|
137 |
|
|
Discontinued Operations Net of Tax (Note 4)
|
|
|
425 |
|
|
|
(79 |
) |
|
|
52 |
|
|
Cumulative Effect of Accounting Change Net of Tax
|
|
|
|
|
|
|
|
|
|
|
57 |
|
|
|
|
|
|
|
|
|
|
|
|
Net Earnings
|
|
$ |
1,145 |
|
|
$ |
339 |
|
|
$ |
246 |
|
|
|
|
|
|
|
|
|
|
|
Per Common Share (Note 15)
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings Per Share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
From Continuing Operations
|
|
$ |
3.33 |
|
|
$ |
1.95 |
|
|
$ |
0.64 |
|
|
|
Discontinued Operations
|
|
|
1.96 |
|
|
|
(0.37 |
) |
|
|
0.24 |
|
|
|
Cumulative Effect of Accounting Change
|
|
|
|
|
|
|
|
|
|
|
0.26 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Earnings
|
|
$ |
5.29 |
|
|
$ |
1.58 |
|
|
$ |
1.14 |
|
|
|
|
|
|
|
|
|
|
|
Earnings Per Share, Assuming Dilution:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
From Continuing Operations
|
|
$ |
3.17 |
|
|
$ |
1.87 |
|
|
$ |
0.63 |
|
|
|
Discontinued Operations
|
|
|
1.87 |
|
|
|
(0.35 |
) |
|
|
0.23 |
|
|
|
Cumulative Effect of Accounting Change
|
|
|
|
|
|
|
|
|
|
|
0.25 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Earnings
|
|
$ |
5.04 |
|
|
$ |
1.52 |
|
|
$ |
1.11 |
|
|
|
|
|
|
|
|
|
|
|
Average Common Shares Outstanding (Thousands)
|
|
|
216,425 |
|
|
|
214,796 |
|
|
|
213,964 |
|
|
|
|
|
|
|
|
|
|
|
Average Common Shares Outstanding, Assuming Dilution (Thousands)
|
|
|
228,024 |
|
|
|
225,030 |
|
|
|
224,328 |
|
|
|
|
|
|
|
|
|
|
|
Cash Dividends Paid Per Common Share
|
|
$ |
0.43 |
|
|
$ |
0.40 |
|
|
$ |
0.40 |
|
|
|
|
|
|
|
|
|
|
|
See accompanying Notes to Consolidated Financial Statements.
51
CSX CORPORATION
CONSOLIDATED BALANCE SHEETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 30, | |
|
December 31, | |
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
|
(Dollars in millions) | |
ASSETS |
|
Current Assets:
|
|
|
|
|
|
|
|
|
|
|
Cash and Cash Equivalents (Note 1)
|
|
$ |
309 |
|
|
$ |
522 |
|
|
|
Short-term Investments
|
|
|
293 |
|
|
|
337 |
|
|
|
Accounts Receivable Net (Note 9)
|
|
|
1,202 |
|
|
|
1,159 |
|
|
|
Materials and Supplies
|
|
|
199 |
|
|
|
165 |
|
|
|
Deferred Income Taxes
|
|
|
225 |
|
|
|
20 |
|
|
|
Other Current Assets
|
|
|
144 |
|
|
|
157 |
|
|
|
International Terminals Assets Held for Sale (Note 4)
|
|
|
|
|
|
|
643 |
|
|
|
|
|
|
|
|
|
|
|
|
Total Current Assets
|
|
|
2,372 |
|
|
|
3,003 |
|
|
Properties
|
|
|
26,538 |
|
|
|
25,852 |
|
|
Accumulated Depreciation
|
|
|
(6,375 |
) |
|
|
(5,907 |
) |
|
|
|
|
|
|
|
|
|
|
Properties Net (Note 10)
|
|
|
20,163 |
|
|
|
19,945 |
|
|
Investment in Conrail (Note 2)
|
|
|
603 |
|
|
|
574 |
|
|
Affiliates and Other Companies
|
|
|
304 |
|
|
|
281 |
|
|
Other Long-term Assets (Note 21)
|
|
|
790 |
|
|
|
802 |
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
$ |
24,232 |
|
|
$ |
24,605 |
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS EQUITY |
|
Current Liabilities:
|
|
|
|
|
|
|
|
|
|
|
Accounts Payable
|
|
$ |
954 |
|
|
$ |
870 |
|
|
|
Labor and Fringe Benefits Payable
|
|
|
565 |
|
|
|
380 |
|
|
|
Casualty, Environmental and Other Reserves (Note 11)
|
|
|
311 |
|
|
|
312 |
|
|
|
Current Maturities of Long-term Debt (Note 12)
|
|
|
936 |
|
|
|
983 |
|
|
|
Short-term Debt (Note 12)
|
|
|
1 |
|
|
|
101 |
|
|
|
Income and Other Taxes Payable
|
|
|
102 |
|
|
|
170 |
|
|
|
Other Current Liabilities
|
|
|
110 |
|
|
|
115 |
|
|
|
International Terminals Liabilities Held for Sale (Note 4)
|
|
|
|
|
|
|
386 |
|
|
|
|
|
|
|
|
|
|
|
|
Total Current Liabilities
|
|
|
2,979 |
|
|
|
3,317 |
|
|
Casualty, Environmental and Other Reserves (Note 11)
|
|
|
653 |
|
|
|
735 |
|
|
Long-term Debt (Note 12)
|
|
|
5,093 |
|
|
|
6,248 |
|
|
Deferred Income Taxes
|
|
|
6,082 |
|
|
|
5,979 |
|
|
Other Long-term Liabilities (Note 21)
|
|
|
1,471 |
|
|
|
1,515 |
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities
|
|
|
16,278 |
|
|
|
17,794 |
|
|
|
|
|
|
|
|
Shareholders Equity:
|
|
|
|
|
|
|
|
|
|
Common Stock, $1 Par Value (Note 14)
|
|
|
218 |
|
|
|
216 |
|
|
Other Capital
|
|
|
1,751 |
|
|
|
1,605 |
|
|
Retained Earnings
|
|
|
6,262 |
|
|
|
5,210 |
|
|
Accumulated Other Comprehensive Loss
|
|
|
(277 |
) |
|
|
(220 |
) |
|
|
|
|
|
|
|
|
|
|
|
Total Shareholders Equity
|
|
|
7,954 |
|
|
|
6,811 |
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities and Shareholders Equity
|
|
$ |
24,232 |
|
|
$ |
24,605 |
|
|
|
|
|
|
|
|
See accompanying Notes to Consolidated Financial Statements.
52
CSX CORPORATION
CONSOLIDATED CASH FLOW STATEMENTS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Years Ended | |
|
|
| |
|
|
December 30, | |
|
December 31, | |
|
December 26, | |
|
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
|
|
(Dollars in millions) | |
Operating Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Earnings
|
|
$ |
1,145 |
|
|
$ |
339 |
|
|
$ |
246 |
|
Adjustments to Reconcile Net Earnings to Net Cash Provided:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
833 |
|
|
|
730 |
|
|
|
643 |
|
|
|
Deferred Income Taxes
|
|
|
(46 |
) |
|
|
240 |
|
|
|
119 |
|
|
|
Gain on Sale of International Terminals Net of Tax
(Note 4)
|
|
|
(428 |
) |
|
|
|
|
|
|
|
|
|
|
Provision for Casualty Reserves (Note 11)
|
|
|
(38 |
) |
|
|
|
|
|
|
232 |
|
|
|
Additional Loss on Sale
|
|
|
|
|
|
|
|
|
|
|
108 |
|
|
|
Cumulative Effect of Accounting Change Net of Tax
|
|
|
|
|
|
|
|
|
|
|
(57 |
) |
|
|
Insurance Proceeds (Note 6)
|
|
|
29 |
|
|
|
|
|
|
|
|
|
|
|
Restructuring Charge (Note 5)
|
|
|
|
|
|
|
71 |
|
|
|
22 |
|
|
|
Net Gain on Conrail spin-off after tax (Note 2)
|
|
|
|
|
|
|
(16 |
) |
|
|
|
|
|
|
Other Operating Activities
|
|
|
(103 |
) |
|
|
(91 |
) |
|
|
(108 |
) |
|
|
Changes in Operating Assets and Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Termination of Sale of Accounts Receivable (Note 9)
|
|
|
|
|
|
|
|
|
|
|
(380 |
) |
|
|
|
Accounts Receivable (Note 9)
|
|
|
(44 |
) |
|
|
(3 |
) |
|
|
19 |
|
|
|
|
Other Current Assets
|
|
|
(29 |
) |
|
|
29 |
|
|
|
40 |
|
|
|
|
Accounts Payable
|
|
|
54 |
|
|
|
(2 |
) |
|
|
49 |
|
|
|
|
Income and Other Taxes Payable
|
|
|
(402 |
) |
|
|
38 |
|
|
|
(23 |
) |
|
|
|
Other Current Liabilities
|
|
|
139 |
|
|
|
111 |
|
|
|
(106 |
) |
|
|
|
|
|
|
|
|
|
|
Net Cash Provided by Operating Activities
|
|
|
1,110 |
|
|
|
1,446 |
|
|
|
804 |
|
|
|
|
|
|
|
|
|
|
|
Investing Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Property Additions
|
|
|
(1,136 |
) |
|
|
(1,030 |
) |
|
|
(1,059 |
) |
Insurance Proceeds (Note 6)
|
|
|
41 |
|
|
|
|
|
|
|
|
|
Net Proceeds from Sale of International Terminals (Note 4)
|
|
|
1,108 |
|
|
|
|
|
|
|
|
|
Purchase of Minority Interest in an International
Terminals Subsidiary (Note 4)
|
|
|
(110 |
) |
|
|
|
|
|
|
|
|
Proceeds from Divestitures (Note 3)
|
|
|
|
|
|
|
55 |
|
|
|
226 |
|
Purchases of Short-term Investments
|
|
|
(2,601 |
) |
|
|
(1,583 |
) |
|
|
(2,128 |
) |
Proceeds from Sale of Short-term Investments
|
|
|
2,634 |
|
|
|
1,336 |
|
|
|
2,197 |
|
Other Investing Activities
|
|
|
28 |
|
|
|
(18 |
) |
|
|
(43 |
) |
|
|
|
|
|
|
|
|
|
|
Net Cash Used in Investing Activities
|
|
|
(36 |
) |
|
|
(1,240 |
) |
|
|
(807 |
) |
|
|
|
|
|
|
|
|
|
|
Financing Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term Debt Net
|
|
|
(99 |
) |
|
|
99 |
|
|
|
(141 |
) |
|
Long-term Debt Issued
|
|
|
105 |
|
|
|
401 |
|
|
|
919 |
|
|
Long-term Debt Repaid
|
|
|
(1,283 |
) |
|
|
(434 |
) |
|
|
(500 |
) |
|
Dividends Paid
|
|
|
(93 |
) |
|
|
(86 |
) |
|
|
(86 |
) |
|
Other Financing Activities
|
|
|
83 |
|
|
|
40 |
|
|
|
(20 |
) |
|
|
|
|
|
|
|
|
|
|
Net Cash (Used In) Provided by Financing Activities
|
|
|
(1,287 |
) |
|
|
20 |
|
|
|
172 |
|
|
|
|
|
|
|
|
|
|
|
Net (Decrease) Increase in Cash and Cash Equivalents
|
|
|
(213 |
) |
|
|
226 |
|
|
|
169 |
|
Cash and Cash Equivalents
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and Cash Equivalents at Beginning of Period
|
|
|
522 |
|
|
|
296 |
|
|
|
127 |
|
|
|
|
|
|
|
|
|
|
|
|
Cash and Cash Equivalents at End of Period
|
|
$ |
309 |
|
|
$ |
522 |
|
|
$ |
296 |
|
|
|
|
|
|
|
|
|
|
|
Supplemental Cash Flow Information
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Paid Net of Amounts Capitalized
|
|
$ |
440 |
|
|
$ |
414 |
|
|
$ |
406 |
|
Income Taxes Paid
|
|
$ |
798 |
|
|
$ |
35 |
|
|
$ |
134 |
|
|
|
|
|
|
|
|
|
|
|
See accompanying Notes to Consolidated Financial Statements.
53
CSX CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS
EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated Other | |
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive Income (Loss) | |
|
|
|
|
Common | |
|
|
|
|
|
|
|
| |
|
|
|
|
Shares | |
|
|
|
|
|
|
|
Minimum | |
|
|
|
|
|
|
Outstanding | |
|
Common | |
|
Other | |
|
Retained | |
|
Pension | |
|
Fuel | |
|
|
|
|
|
|
(Thousands) | |
|
Stock | |
|
Capital | |
|
Earnings | |
|
Liability(a) | |
|
Derivative(b) | |
|
Other | |
|
Total | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(Dollars in millions) | |
Balance December 27, 2002
|
|
|
214,687 |
|
|
$ |
215 |
|
|
$ |
1,547 |
|
|
$ |
4,797 |
|
|
$ |
(318 |
) |
|
$ |
|
|
|
$ |
|
|
|
$ |
6,241 |
|
Comprehensive Earnings:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Earnings
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
246 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
246 |
|
|
Other Comprehensive Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8 |
|
|
|
6 |
|
|
|
1 |
|
|
|
15 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive Earnings
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
261 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(86 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(86 |
) |
Stock Option Exercises and Other
|
|
|
384 |
|
|
|
|
|
|
|
32 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
32 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance December 26, 2003
|
|
|
215,071 |
|
|
|
215 |
|
|
|
1,579 |
|
|
|
4,957 |
|
|
|
(310 |
) |
|
|
6 |
|
|
|
1 |
|
|
|
6,448 |
|
Comprehensive Earnings:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Earnings
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
339 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
339 |
|
|
Other Comprehensive Income (Loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18 |
|
|
|
66 |
|
|
|
(1 |
) |
|
|
83 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive Earnings
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
422 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(86 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(86 |
) |
Stock Option Exercises and Other
|
|
|
458 |
|
|
|
1 |
|
|
|
26 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
27 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance December 31, 2004
|
|
|
215,529 |
|
|
|
216 |
|
|
|
1,605 |
|
|
|
5,210 |
|
|
|
(292 |
) |
|
|
72 |
|
|
|
|
|
|
|
6,811 |
|
Comprehensive Earnings:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Earnings
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,145 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,145 |
|
|
Other Comprehensive (Loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(15 |
) |
|
|
(42 |
) |
|
|
|
|
|
|
(57 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive Earnings
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,088 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(93 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(93 |
) |
Stock Option Exercises and Other
|
|
|
2,674 |
|
|
|
2 |
|
|
|
146 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
148 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance December 30, 2005
|
|
|
218,203 |
|
|
$ |
218 |
|
|
$ |
1,751 |
|
|
$ |
6,262 |
|
|
$ |
(307 |
) |
|
$ |
30 |
|
|
$ |
|
|
|
$ |
7,954 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Net of taxes of $146 million, $161 million, and
$153 million for 2005, 2004, and 2003, respectively. |
|
(b) |
|
Net of taxes of $20 million, $45 million, and
$3 million for 2005, 2004, and 2003, respectively. |
See accompanying Notes to Consolidated Financial Statements.
54
CSX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
NOTE 1. |
Nature of Operations and Significant Accounting Policies |
CSX Corporation (CSX and, together with its
subsidiaries, the Company), based in Jacksonville,
FL, owns companies providing rail, intermodal and
rail-to-truck transload
services that combine to form one of the nations leading
transportation companies, connecting more than 70 ocean, river
and lake ports.
CSXs principal operating company, CSX Transportation Inc.
(CSXT), operates the largest railroad in the eastern
United States with approximately
21,000-mile rail
network linking commercial markets in 23 states, the
District of Columbia, and the Canadian provinces of Ontario and
Quebec.
CSX Intermodal Inc. (Intermodal), one of the
nations largest
coast-to-coast
intermodal transportation providers, is a stand-alone,
integrated intermodal company serving customers from origin to
destination with its own truck and terminal operations, plus a
dedicated domestic container fleet. Containers and trailers are
loaded and unloaded from trains, with trucks providing the link
between intermodal terminals and the customer.
|
|
|
Surface Transportation Businesses |
The rail and intermodal companies are viewed by the Company on a
combined basis as Surface Transportation businesses. Together,
they serve four primary lines of business:
|
|
|
|
|
Merchandise generated approximately 49% of the Companys
total revenue in 2005 with 2.9 million carloads. The
Companys merchandise business is made up of seven market
segments: phosphates and fertilizers; metals; forest products;
food and consumer; agricultural products; chemicals; and
emerging markets. Emerging markets target high-growth business
opportunities in specialized markets such as aggregates,
processed materials (for example, cement), waste, military
cargo, and machinery. |
|
|
|
Coal, which delivered more than 1.8 million carloads of
coal, coke and iron ore to electric utilities and manufacturers
in 2005, accounted for approximately 24% of the Companys
total 2005 revenue. The Company serves more than 130 coal mines
in nine states, including three of the nations top four
coal-producing states. |
|
|
|
Intermodal, as described above, offers a cost advantage over
long-haul trucking by combining the better economics of longer
hauls provided by rail with the short-haul flexibility of trucks
through a network of dedicated terminals across North America.
Intermodal accounted for approximately 2.2 million units
and 16% of the Companys total revenue in 2005. |
|
|
|
Automotive, which serves plants in eight states and delivers
both finished vehicles and auto parts, transported 488,000
carloads generating 10% of the Companys total revenue in
2005. |
|
|
|
Other revenue, such as demurrage, switching, and other
incidental charges, accounted for 1% of the Companys total
2005 revenue. Demurrage represents charges assessed by railroads
for the retention of cars by shippers or receivers of freight
beyond a specified period of time. Switching revenue is
generated when CSX switches cars between trains for a customer
or other railroad. |
In the opinion of management, the accompanying consolidated
financial statements contain all adjustments necessary to fairly
present the financial position of CSX and its subsidiaries at
December 30, 2005 and December 31, 2004, the
Consolidated Income and Cash Flow Statements and Changes in
Shareholders Equity for the fiscal years ended
December 30, 2005, December 31,
55
CSX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
2004 and December 26, 2003, such adjustments being of a
normal, recurring nature. Certain prior-year data have been
reclassified to conform to the 2005 presentation.
CSX follows a 52/53 week fiscal reporting calendar. This
fiscal calendar allows every quarter to consistently end on a
Friday and to be of equal duration (13 weeks). However, in
order to maintain this type of reporting calendar, every sixth
or seventh year (depending on the Gregorian calendar and when
leap year falls), an extra week will be included in one quarter
(a 14 week quarter) and, therefore, the full year will have
53 weeks.
|
|
|
|
|
Fiscal year 2005 consisted of 52 weeks ending on
December 30, 2005 |
|
|
|
Fiscal year 2004 consisted of 53 weeks ending on
December 31, 2004 |
|
|
|
Fiscal year 2003 consisted of 52 weeks ending on
December 26, 2003 |
|
|
|
Principles of Consolidation |
The consolidated financial statements include CSX and its
majority-owned subsidiaries. All significant intercompany
accounts and transactions have been eliminated. Investments in
companies that are not majority-owned are carried at cost (if
less than 20% owned and the Company has no significant
influence) or equity (if the Company has significant influence).
|
|
|
Cash, Cash Equivalents and Short-term Investments |
On a daily basis, cash in excess of current operating
requirements is invested in various highly liquid investments
having a typical maturity date of three months or less at the
date of acquisition. These investments are carried at cost,
which approximates market value, and are classified as Cash
Equivalents. Investments in instruments with maturities less
than one year are classified as Short-term Investments.
CSX holds $268 million and $273 million of auction
rate securities and classifies these investments as available
for sale as of December 30, 2005, and December 31,
2004, respectively. Accordingly, these investments are included
in current assets as Short-term Investments on the Consolidated
Balance Sheets. On the Consolidated Cash Flow Statements,
purchases and sales of these assets are classified within
investing activities.
Materials and supplies consist primarily of fuel and parts used
in the repair and maintenance of CSXTs freight car and
locomotive fleets, equipment, and track structure, which are
carried at average cost.
All properties are stated at cost less an allowance for
accumulated depreciation. Rail assets, including main-line
track, locomotives and freight cars are depreciated using the
group-life method, which pools similar assets by road and
equipment type and then depreciates each group as a whole. The
majority of non-rail property is depreciated using the
straight-line method on a per asset basis. Amortization expense
recorded under capital leases is included in depreciation
expense on the Consolidated Income Statements.
Regulations enforced by the Surface Transportation Board
(STB) of the U.S. Department of Transportation
require periodic formal studies of ultimate service lives for
all railroad assets. Factors taken into account during the life
study include:
|
|
|
|
|
Statistical analysis of historical retirements for each group of
property; |
|
|
|
Evaluation of current operations; |
|
|
|
Evaluation of technological advances and maintenance schedules; |
|
|
|
Previous assessment of the condition of the assets and outlook
for their continued use; |
56
CSX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
Expected net salvage expected to be received upon
retirement; and |
|
|
|
Comparison of assets to the same asset groups with other
companies. |
The results of the life study process determine the service
lives for each asset group under the group-life method. These
studies are conducted by a third party expert and analyzed by
the Companys management. Resulting service life estimates
are subject to review and approval by the STB. Road assets,
including main-line track, have estimated service lives ranging
from 5 years for system roadway machinery to 80 years
for grading. Equipment assets, including locomotives and freight
cars, have estimated service lives ranging from 6 years for
vehicles to 35 years for work equipment.
Changes in asset lives due to the results of the life studies
are applied at the completion of the life study and continue
until the next required life study. The life studies may also
indicate that the recorded amount of accumulated depreciation is
deficient (or in excess) of the amount indicated by the study.
Any such deficiency (or excess) amount is amortized as a
component of depreciation expense over the remaining useful life
of the asset group until the next required life study.
For retirements or disposals of depreciable rail assets that
occur in the ordinary course of business, the asset cost (net of
salvage value or sales proceeds) is charged to accumulated
depreciation and no gain or loss is recognized. For retirements
or disposals of non-rail depreciable assets, infrequent disposal
of rail assets outside the normal course of business and all
dispositions of land, the resulting gains or losses are
recognized at the time of disposal. Expenditures that
significantly increase asset values or extend useful lives are
capitalized. Repair and maintenance expenditures are charged to
operating expense when the work is performed.
Properties and other long-lived assets are reviewed for
impairment whenever events or business conditions indicate the
carrying amount of such assets may not be fully recoverable.
Initial assessments of recoverability are based on estimates of
undiscounted future net cash flows associated with an asset or a
group of assets in accordance with SFAS 144, Accounting
for the Impairment or Disposal of Long-Lived Assets
(SFAS 144). Where impairment is indicated,
the assets are evaluated, and their carrying amount is reduced
to fair value based on undiscounted net cash flows or other
estimates of fair value.
|
|
|
Revenue and Expense Recognition |
The Company recognizes freight revenue using Free-On-Board
(FOB) Origin pursuant to Emerging Issues Task Force
(EITF) 91-9, Revenue and Expense Recognition for
Freight Services in Process. The Company uses method
(5) in the EITF, which provides for the allocation of
revenue between reporting periods based on relative transit time
in each reporting period. Expenses are recognized as incurred.
Certain key estimates are included in the recognition and
measurement of revenue and related accounts receivable under the
policies described above:
|
|
|
|
|
unbilled revenue on shipments that have been delivered; |
|
|
|
revenue associated with shipments in transit; |
|
|
|
future adjustments to revenue or accounts receivable for billing
corrections and bad debts; |
|
|
|
future adjustments to revenue for overcharge claims filed by
customers; and |
|
|
|
incentive-based refunds to customers. |
The Company regularly updates the estimates described above
based on historical experience.
All other revenue, such as demurrage, switching and other
incidental charges are recorded upon completion of the service.
Demurrage represents charges assessed by railroads for the
retention of cars by shippers or receivers of freight beyond a
specified period of time. Switching revenue is generated when
CSX switches cars between trains for a customer or other
railroad.
57
CSX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
As permitted under SFAS 148, Accounting for Stock-Based
Compensation Transition and Disclosure
(SFAS 148), CSX has adopted the fair value
recognition provisions on a prospective basis and, accordingly,
recognized expense for stock options granted in May 2003. No
stock options were granted in 2004 or 2005. In addition to stock
option expense, stock-based employee compensation expense
included in net income consists of restricted stock awards,
stock issued to CSX directors and the Companys Long-term
Incentive Program for all periods presented.
The following table illustrates the pro forma effect on net
earnings and earnings per share as if the fair value based
method had been applied to all outstanding and unvested awards
in each period:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 30, | |
|
December 31, | |
|
December 26, | |
|
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
|
|
(Dollars in millions, except per share amounts) | |
Net Earnings As Reported
|
|
$ |
1,145 |
|
|
$ |
339 |
|
|
$ |
246 |
|
Add: Stock-Based Employee Compensation Expense Included in
Reported Net Income Net of Tax
|
|
|
25 |
|
|
|
13 |
|
|
|
3 |
|
Deduct: Total Stock-Based Employee Compensation Expense
Determined under the Fair Value Based Method for all
Awards Net of Tax
|
|
|
(29 |
) |
|
|
(29 |
) |
|
|
(34 |
) |
|
|
|
|
|
|
|
|
|
|
Pro Forma Net Earnings
|
|
$ |
1,141 |
|
|
$ |
323 |
|
|
$ |
215 |
|
Interest Expense on Convertible Debt Net of Tax
|
|
|
4 |
|
|
|
4 |
|
|
|
4 |
|
|
|
|
|
|
|
|
|
|
|
Pro Forma Net Earnings, If-Converted
|
|
$ |
1,145 |
|
|
$ |
327 |
|
|
$ |
219 |
|
|
|
|
|
|
|
|
|
|
|
Earnings Per Share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic As Reported
|
|
$ |
5.29 |
|
|
$ |
1.58 |
|
|
$ |
1.14 |
|
|
Basic Pro Forma
|
|
$ |
5.27 |
|
|
$ |
1.50 |
|
|
$ |
1.00 |
|
|
Diluted As Reported
|
|
$ |
5.04 |
|
|
$ |
1.52 |
|
|
$ |
1.11 |
|
|
Diluted Pro Forma
|
|
$ |
5.02 |
|
|
$ |
1.45 |
|
|
$ |
0.98 |
|
As discussed in New Accounting Pronouncements and Change
in Accounting Policy below, the Company will comply with
SFAS 123(R), Share-Based Payment
(SFAS 123(R)), effective January 1, 2006.
CSX reports comprehensive earnings (loss) in accordance with
SFAS 130, Reporting Comprehensive Income
(SFAS 130), in the Consolidated Statement
of Changes in Shareholders Equity. Comprehensive earnings
are defined as all changes in shareholders equity during a
period, other than those resulting from investments by and
distributions to shareholders (i.e. issuance of equity
securities and dividends). Accumulated Other Comprehensive Loss
at December 30, 2005 and December 31, 2004 consists
primarily of minimum pension liabilities partially offset by the
fair value of fuel hedging contracts.
|
|
|
Derivative Financial Instruments |
The Company recognizes all derivatives as either assets or
liabilities in the Consolidated Balance Sheets and measures
those instruments at fair value. (See Note 13. Derivative
Financial Instruments.)
58
CSX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
New Accounting Pronouncements and Change in Accounting
Policy |
SFAS 148 was issued in December 2002. SFAS 148 amends
SFAS 123, Accounting for Stock-Based Compensation
(SFAS 123), to provide alternative methods
of transition to SFAS 123s fair value method of
accounting for stock-based employee compensation and require
disclosure of the effects of an entitys accounting policy
with respect to stock-based employee compensation. Effective
beginning with fiscal year 2003, CSX has voluntarily adopted the
fair value recognition provisions of SFAS 123 and adopted
the disclosure requirements of SFAS 148. In accordance with
the prospective method of adoption permitted under
SFAS 148, stock-based awards issued subsequent to fiscal
year 2002 are accounted for under the fair value recognition
provisions of SFAS 123 utilizing the Black-Scholes-Merton
valuation method and, accordingly, are expensed. (See
Note 16. Stock Plans.)
In December 2004, the Financial Accounting Standards Board
(FASB) issued SFAS 123(R), which is a revision
of SFAS 123. Currently, CSX uses the Black-Scholes-Merton
formula to estimate the fair value of stock options granted to
employees and expects to continue to use this acceptable option
valuation model upon the required adoption of SFAS 123(R)
on January 1, 2006. Compensation cost for unvested awards
that were not recognized under SFAS 123 will be recognized
under SFAS 123(R). The new rules must be applied to new and
existing unvested awards on the effective date. CSX adopted
SFAS 123 using the prospective transition method (which
applied only to awards granted, modified or settled after the
adoption date). Had CSX adopted SFAS 123(R) in prior
periods, the impact of SFAS 123 would have been estimated
as described in the disclosure of pro forma net income and
earnings per share above. SFAS 123(R) also requires the
benefits of tax deductions in excess of recognized compensation
cost to be reported as a financing cash flow, rather than as
operating cash flow as required under current literature. This
requirement will reduce net operating cash flows and increase
net financing cash flows in periods after adoption. The Company
is currently evaluating the impact of SFAS 123(R) on its
consolidated financial statements, but does not expect the
impact to be material.
Currently, CSXs stock-based employee compensation expense
is recognized over the amortization period which could continue
beyond the date an employee is eligible for retirement. Upon
adoption of SFAS 123(R), CSX will no longer allow automatic
vesting when an employee becomes retirement eligible.
In 2001, SFAS 143, Accounting for Asset Retirement
Obligations (SFAS 143) was issued. This
statement addresses financial accounting and reporting for legal
obligations associated with the retirement of tangible
long-lived assets and the associated retirement costs. In
conjunction with the group-life method of accounting for asset
costs, the Company historically accrued crosstie removal costs
as a component of depreciation, which is not permitted under
SFAS 143. With the adoption of SFAS 143 in fiscal year
2003, the Company recorded pretax income of $93 million,
$57 million after tax, as a cumulative effect of an
accounting change, representing the reversal of the accrued
liability for crosstie removal costs. The adoption of
SFAS 143 did not have a material effect on prior reporting
periods, and the Company does not believe it will have a
material effect on future earnings. On an ongoing basis,
depreciation expense will be reduced, while labor and fringe and
materials, supplies and other expense will be increased by
approximately $12 million as a result of the adoption of
SFAS 143.
In 2002, the FASB issued Financial Accounting Standard
Interpretation (FASI) 45, Guarantors
Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others. This
statement requires that certain guarantees be recorded at fair
value on the Consolidated Balance Sheets and additional
disclosures be made about guarantees. CSX did not realize a
financial statement impact with the adoption of the accounting
provisions of this
59
CSX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
statement in fiscal year 2003 and does not anticipate a future
impact. (See Note 19. Commitments and Contingencies.)
In 2002, SFAS 144 was issued. This statement requires that
long-lived assets to be disposed of by sale are no longer
measured on a net realizable value basis, and future operating
losses are no longer recognized before they occur. In addition,
this statement modifies the reporting requirements for
discontinued operations. Long-lived assets, whether to be held
for disposition or held and used, should be measured at the
lower of its carrying amount or fair value less cost to dispose.
CSX applied the provisions of this statement relating to the
accounting for the conveyance of its wholly-owned subsidiary,
CSX Lines, to a third party in 2003 (See Note 3.
Divestitures.)
The preparation of financial statements in conformity with
accounting principles generally accepted in the United States
requires that management make estimates in reporting the amounts
of certain assets and liabilities, the disclosure of contingent
assets and liabilities at the date of the financial statements
and the reported amount of certain revenues and expenses during
the reporting period. Actual results may differ from those
estimates. Critical accounting estimates using management
judgment are made for the following areas:
|
|
|
1. Casualty, legal and environmental reserves (See
Note 11. Casualty, Environmental and Other Reserves) |
|
|
2. Pension and postretirement medical plan accounting (See
Note 18. Employee Benefit Plans) |
|
|
3. Depreciation policies for its assets under the
group-life method (See Note 1. Nature of Operations and
Significant Accounting Policies) |
|
|
4. Income taxes (See Note 8. Income Taxes) |
|
|
NOTE 2. |
Investment In and Integrated Rail Operations with Conrail |
Through a limited liability company, CSX and Norfolk Southern
Corporation (NS) jointly own Conrail Inc.
(Conrail), whose primary subsidiary is Consolidated
Rail Corporation (CRC). CSX has a 42% economic
interest and 50% voting interest in the jointly owned entity,
and NS has the remainder of the economic and voting interests.
CSX applies the equity method of accounting to its investment in
Conrail.
In August 2004, CSX, NS and Conrail completed a reorganization
of Conrail (Conrail spin-off transaction), which
established direct ownership and control by CSXT and Norfolk
Southern Railway (NSR) of two former CRC
subsidiaries, New York Central Lines LLC (NYC) and
Pennsylvania Lines LLC (PRR), respectively. Prior to
the Conrail spin-off transaction, CSXT operated the routes and
used the assets of NYC, and NSR operated the routes and used the
assets of PRR, each in accordance with separate operating and
lease agreements. Pursuant to the Conrail spin-off transaction,
the operating and lease agreements were terminated and NYC and
PRR were merged into CSXT and NSR, respectively.
As a part of the Conrail spin-off transaction, the assets and
liabilities of NYC and PRR were distributed to CSXT and NSR,
respectively. In order to facilitate this distribution, Conrail
restructured its existing unsecured and secured public
indebtedness, with the consent of Conrails debt holders.
As a result of the transaction, CSXT and NSR issued new
unsecured debt securities in exchange for Conrail debentures and
entered into leases and subleases with Conrail to support its
secured debt obligations in proportion to their economic
ownership percentages.
In 2004, as a result of the transaction, the Company recognized
a net gain of $16 million, after tax, which is included in
Other Income. This net gain represents the fair value
write-up of the assets
and liabilities (net assets) received in excess of
the book value of the net assets surrendered.
60
CSX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The Company concluded that it was appropriate to use the fair
value of the net assets received as they were more clearly
evident than the fair value of the assets surrendered in
accordance with
EITF 01-2,
Interpretation of APB Opinion 29, paragraph 1.
The fair value was based on an independent appraisal of the
distribution.
After the transaction, CSXs investment in Conrail no
longer includes the amounts related to NYC and PRR. Instead the
assets and liabilities of NYC are reflected in their respective
line items in CSXs Consolidated Balance Sheet.
The following table illustrates the pro forma effect on the
Consolidated Income Statements as if the spin-off transaction
had been completed as of the beginning of the periods.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Years Ended | |
|
|
| |
|
|
December 31, 2004 | |
|
December 26, 2003 | |
|
|
| |
|
| |
|
|
|
|
Effect of | |
|
Unaudited | |
|
As | |
|
Effect of | |
|
Unaudited | |
|
|
As Reported | |
|
Spin-Off | |
|
Pro Forma | |
|
Reported | |
|
Spin-Off | |
|
Pro Forma | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(Dollars in millions, except per share amounts) | |
Operating Revenue
|
|
$ |
8,040 |
|
|
$ |
|
|
|
$ |
8,040 |
|
|
$ |
7,573 |
|
|
$ |
|
|
|
$ |
7,573 |
|
Earnings from Continuing Operations
|
|
|
418 |
|
|
|
21 |
|
|
|
439 |
|
|
|
137 |
|
|
|
24 |
|
|
|
161 |
|
Discontinued Operations
|
|
|
(79 |
) |
|
|
|
|
|
|
(79 |
) |
|
|
52 |
|
|
|
|
|
|
|
52 |
|
Cumulative Effect of Accounting Change
Net of Tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
57 |
|
|
|
|
|
|
|
57 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Earnings
|
|
|
339 |
|
|
|
21 |
|
|
|
360 |
|
|
|
246 |
|
|
|
24 |
|
|
|
270 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings Per Share, Assuming Dilution:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
From Continuing Operations
|
|
|
1.87 |
|
|
|
0.09 |
|
|
|
1.96 |
|
|
|
0.63 |
|
|
|
0.11 |
|
|
|
0.74 |
|
|
Discontinued Operations
|
|
|
(0.35 |
) |
|
|
|
|
|
|
(0.35 |
) |
|
|
0.23 |
|
|
|
|
|
|
|
0.23 |
|
|
Cumulative Effect of Accounting Change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.25 |
|
|
|
|
|
|
|
0.25 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Earnings
|
|
$ |
1.52 |
|
|
$ |
0.09 |
|
|
$ |
1.61 |
|
|
$ |
1.11 |
|
|
$ |
0.11 |
|
|
$ |
1.22 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company recorded this spin-off transaction at fair value
based on the results of an independent appraisal. Since
September 2004, the assets, liabilities, results of operations
and cash flows of NYC have been included in CSXs
Consolidated Balance Sheets and Consolidated Income and Cash
Flow Statements.
Accounting and Financial Reporting Effects
For periods prior to the spin-off transaction, the
Companys rail and intermodal operating revenue included
revenue from traffic moving on the Conrail property. Operating
expenses included costs incurred to handle such traffic and to
operate the Conrail lines. Rail operating expense included an
expense category, Conrail Rents, Fees and Services,
which reflected:
|
|
|
|
1. |
Right-of-way usage fees
to Conrail through August 2004. |
|
|
2. |
Equipment rental payments to Conrail through August 2004. |
|
|
3. |
Transportation, switching and terminal service charges levied by
Conrail in the Shared Assets Areas, which Conrail operates for
the joint benefit of CSXT and NSR. |
|
|
4. |
Amortization of the fair value
write-up arising from
the acquisition of Conrail and certain other adjustments. The
amortization primarily represents the additional after tax
depreciation expense related to the write up of Conrails
fixed assets when the original purchase price, from the 1997
transaction, was allocated based on fair value. |
61
CSX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
5. |
CSXs 42% share of Conrails income before the
cumulative effect of accounting change recognized under the
equity method of accounting. |
Conrail will continue to own, manage and operate the Shared
Assets Areas for the joint benefit of CSXT and NSR. The spin-off
transaction, however, effectively decreased rents paid to
Conrail after the transaction date, as some assets previously
leased from Conrail are now owned by CSXT and NSR.
|
|
|
Detail of Conrail Rents, Fees and Services |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Years Ended | |
|
|
| |
|
|
December 30, | |
|
December 31, | |
|
December 26, | |
|
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
|
|
(Dollars in millions) | |
Rents, Fees and Services
|
|
$ |
97 |
|
|
$ |
280 |
|
|
$ |
357 |
|
Purchase Price Amortization and Other
|
|
|
4 |
|
|
|
35 |
|
|
|
54 |
|
Equity in Income of Conrail
|
|
|
(36 |
) |
|
|
(59 |
) |
|
|
(69 |
) |
|
|
|
|
|
|
|
|
|
|
|
Total Conrail Rents, Fees and Services
|
|
$ |
65 |
|
|
$ |
256 |
|
|
$ |
342 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Conrail Financial Information |
Summary financial information for Conrail is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Years Ended | |
|
|
| |
|
|
December 31, | |
|
December 31, | |
|
December 31, | |
|
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
|
|
(Dollars in millions) | |
Income Statement Information:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$ |
378 |
|
|
$ |
352 |
|
|
$ |
316 |
|
|
Expenses
|
|
|
346 |
|
|
|
370 |
|
|
|
352 |
|
|
|
|
|
|
|
|
|
|
|
|
Operating Income
|
|
$ |
32 |
|
|
$ |
(18 |
) |
|
$ |
(36 |
) |
|
|
|
|
|
|
|
|
|
|
|
Income from Continuing Operations
|
|
|
85 |
|
|
|
22 |
|
|
|
10 |
|
|
Income from Discontinued Operations, Net of Tax
|
|
|
|
|
|
|
119 |
|
|
|
191 |
|
|
Cumulative Effect of Accounting Change, Net of Tax
|
|
|
|
|
|
|
(1 |
) |
|
|
2 |
|
|
|
|
|
|
|
|
|
|
|
|
Net Income
|
|
$ |
85 |
|
|
$ |
140 |
|
|
$ |
203 |
|
|
|
|
|
|
|
|
|
|
|
Discontinued Operations included in the summary income statement
information for Conrail above reflect the results of operations
of NYC and PRR prior to the spin-off transaction.
|
|
|
|
|
|
|
|
|
|
|
|
December 31, | |
|
December 31, | |
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
|
(Dollars in millions) | |
Balance Sheet Information:
|
|
|
|
|
|
|
|
|
|
Current Assets
|
|
$ |
233 |
|
|
$ |
334 |
|
|
Property and Equipment and Other Assets
|
|
|
1,242 |
|
|
|
1,080 |
|
|
|
|
|
|
|
|
|
Total Assets
|
|
$ |
1,475 |
|
|
$ |
1,414 |
|
|
|
|
|
|
|
|
|
Current Liabilities
|
|
$ |
233 |
|
|
$ |
242 |
|
|
Long-term Debt
|
|
|
215 |
|
|
|
266 |
|
|
Other Long-term Liabilities
|
|
|
592 |
|
|
|
545 |
|
|
|
|
|
|
|
|
|
Total Liabilities
|
|
|
1,040 |
|
|
|
1,053 |
|
|
Stockholders Equity
|
|
|
435 |
|
|
|
361 |
|
|
|
|
|
|
|
|
|
Total Liabilities and Stockholders Equity
|
|
$ |
1,475 |
|
|
$ |
1,414 |
|
|
|
|
|
|
|
|
62
CSX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Transactions with Conrail
As listed below, the Company has amounts payable to Conrail
representing expenses incurred under the operating, equipment
and shared area agreements with Conrail. In exchange for the
Conrail advance, the Company has executed two promissory notes
with a subsidiary of Conrail which are included in Long-term
Debt on the Consolidated Balance Sheets.
|
|
|
|
|
|
|
|
|
|
|
|
December 30, | |
|
December 31, | |
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
|
(Dollars in millions) | |
Balance Sheet Information:
|
|
|
|
|
|
|
|
|
CSX Payable to Conrail
|
|
$ |
40 |
|
|
$ |
59 |
|
Promissory Notes Payable to Conrail Subsidiary
|
|
|
|
|
|
|
|
|
|
4.40% CSX Promissory Note due October 2035
|
|
$ |
73 |
|
|
$ |
|
|
|
4.52% CSXT Promissory Note due March 2035
|
|
$ |
23 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Years Ended | |
|
|
| |
|
|
December 30, | |
|
December 31, | |
|
December 26, | |
|
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
|
|
(Dollars in millions) | |
Income Statement Information:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Expense Related to Conrail Advances
|
|
$ |
1 |
|
|
$ |
7 |
|
|
$ |
7 |
|
In February 2003, CSX conveyed its interest in its domestic
container-shipping subsidiary, CSX Lines. In consideration of
its interest in CSX Lines, CSX received $300 million of
proceeds consisting of cash and senior preferred securities. As
a result, CSX had a voting interest of approximately 16% of a
new venture called Horizon Lines (Horizon). The
majority interest was held by a unit of The Carlyle Group.
Horizon is a shipping and logistics company that operates
16 vessels and approximately 22,100 cargo containers while
servicing routes that include Alaska, Hawaii, Puerto Rico and
Guam.
The $300 million of gross proceeds from the conveyance was
comprised of approximately $240 million of gross cash
($214 million net of transaction costs) and
$60 million of senior preferred securities. After the
transaction, CSX accounted for its investment in Horizon using
the cost method of accounting in accordance with APB 18,
The Equity Method for Accounting for Investments in Common
Stock.
CSX continues to sublease vessels and equipment to Horizon.
Through 2014, the Company remains the primary obligor on 4 lease
agreements (3 vessel leases and 1 container lease). The
obligation under these lease agreements totals approximately
$268 million, $248 million and $229 million as of
December 26, 2003, December 31, 2004 and
December 30, 2005, respectively. CSX believes Horizon will
fulfill its contractual commitments with respect to such leases,
and CSX will have no further liabilities for those obligations
after 2014.
In accordance with SAB Topic 5U, Gain Recognition on the
Sale of a Business or Operating Assets to a Highly Leveraged
Entity, CSX has deferred the gain associated with the
conveyance of CSX Lines. In early 2003 a pretax gain of
approximately $127 million was deferred and is being
amortized over the
12-year sub-lease term.
In August 2003, CSX received $15 million in cash from
Horizon. This payment represented $3 million of accrued
interest and $12 million for the partial redemption of
senior preferred securities. After receipt of that payment,
CSXs voting interest was approximately 12%.
In July 2004, CSX received $59 million cash from Horizon.
This payment represented $4 million of accrued interest,
$48 million for the final redemption of senior preferred
securities and $7 million related to a performance payment.
At this time, CSX was fully divested of its interest in Horizon.
63
CSX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
However, CSX and its affiliates will continue to remain the
primary obligor on vessel and equipment leases and will continue
to amortize the deferred gain over the sub-lease term that
expires in 2014. (See Note 19. Commitments and
Contingencies.)
|
|
NOTE 4. |
Discontinued Operations |
In February 2005, CSX sold its International Terminals business,
which included the capital stock of SL Service, Inc.
(SLSI) to Dubai Ports International FZE
(DPI) for gross cash consideration of
$1,142 billion. Of the gross proceeds, approximately
$110 million was paid for the purchase of a minority
interest in an International Terminals subsidiary, which
the Company acquired during the first quarter of 2005 and
divested as part of the sale to DPI. Other related cash
transaction costs amounted to approximately $34 million,
including resolution of working capital and long-term debt
adjustments.
CSX recognized a gain of $683 million pretax,
$428 million after tax, for the fiscal year ended
December 30, 2005 as a result of the sale. Consequently,
amounts related to this business are reported as Discontinued
Operations on the Consolidated Income Statement for all periods
presented. On the 2004 Consolidated Balance Sheet, the amounts
related to this business are shown as International Terminals
Assets/Liabilities Held for Sale.
SLSI also holds certain residual assets and liabilities as a
result of prior divestitures and discontinuances. A wholly-owned
subsidiary of CSX retains the rights to those assets and
indemnifies DPI, SLSI and related entities against those
liabilities pursuant to a separate agreement. CSX guarantees the
obligations of its subsidiary under this separate agreement.
Consequently, the results of operations and financial position
of the Companys International Terminals business are
reported as Discontinued Operations for all periods presented.
|
|
|
|
|
|
|
|
December 31, | |
|
|
2004 | |
|
|
| |
|
|
(Dollars in millions) | |
Balance Sheet Information:
|
|
|
|
|
|
Accounts Receivable Net
|
|
$ |
25 |
|
|
Other Current Assets
|
|
|
3 |
|
|
Properties Net
|
|
|
87 |
|
|
Affiliates and Other Companies
|
|
|
523 |
|
|
Other Long-term Assets
|
|
|
5 |
|
|
|
|
|
|
International Terminals Assets Held for Sale
|
|
$ |
643 |
|
|
|
|
|
|
Current Liabilities
|
|
$ |
26 |
|
|
Short-term Debt
|
|
|
203 |
|
|
Long-term Deferred Income Taxes
|
|
|
16 |
|
|
Other Long-term Liabilities
|
|
|
141 |
|
|
|
|
|
|
International Terminals Liabilities Held for Sale
|
|
$ |
386 |
|
|
|
|
|
64
CSX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Years Ended | |
|
|
| |
|
|
December 30, | |
|
December 31, | |
|
December 26, | |
|
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
|
|
(Dollars in millions) | |
Income Statement Information:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$ |
14 |
|
|
$ |
167 |
|
|
$ |
227 |
|
|
Expenses
|
|
|
21 |
|
|
|
122 |
|
|
|
121 |
|
|
|
|
|
|
|
|
|
|
|
|
Operating Income (Loss)
|
|
$ |
(7 |
) |
|
$ |
45 |
|
|
$ |
106 |
|
|
Other Income (Expense)
|
|
|
|
|
|
|
(20 |
) |
|
|
(36 |
) |
|
Earnings Before Income Taxes
|
|
|
(7 |
) |
|
|
25 |
|
|
|
70 |
|
|
Income Tax Expense
|
|
|
(4 |
) |
|
|
7 |
|
|
|
18 |
|
|
|
|
|
|
|
|
|
|
|
|
Net Income
|
|
$ |
(3 |
) |
|
$ |
18 |
|
|
$ |
52 |
|
|
|
|
|
|
|
|
|
|
|
In 2004, Discontinued Operations on the Consolidated Income
Statements includes International Terminals net earnings
of $18 million as well as additional income tax expense of
$97 million related to undistributed foreign earnings.
Discontinued Operations includes International Terminals
restructuring initiatives of $6 million for the fiscal year
ended December 31, 2004, designed to maintain and improve
productivity standards in light of business conditions at the
time. International Terminals recorded no such charges in 2003.
The restructuring initiatives reduced the International
Terminals workforce by 183 positions, as of
December 31, 2004.
In December 2004, prior to the completion of this transaction,
International Terminals increased its ownership in Asia
Container Terminals Ltd, funded by a loan from DPI of
$203 million, which is included in International Terminals
Liabilities Held for Sale in the Consolidated Balance Sheets.
|
|
NOTE 5. |
Management Restructuring |
Surface Transportation incurred restructuring charges related to
the November 2003 restructuring plan designed to streamline the
management structure, eliminate organizational layers and
realign certain functions. For the fiscal year ended
December 31, 2004, the Company recorded expense of
$71 million for separation expense, pension and
postretirement benefit curtailment charges, stock compensation
expense and other related expenses. Surface Transportation
recorded an initial pretax charge related to this reduction of
$34 million in 2003. The restructuring initiatives reduced
the management Surface Transportation workforce by 863 positions
as of December 31, 2004.
The total cost of the program through the fiscal year
December 31, 2004 was $105 million for Surface
Transportation. The majority of separation benefits were paid
from CSXs qualified pension plan, with the remainder being
paid from general corporate funds.
In 2003, the Company recorded a $22 million pretax credit
related to a favorable change in estimate for railroad
retirement taxes and other benefits included in the 1991 and
1992 separation plans. These plans provided for improvements in
productivity, workforce reductions in train crews from three
persons to two persons, and other cost reductions. Originally
the Company recorded a $1.3 billion charge related to these
obligations in 1991 and 1992. As part of the labor agreements
entered into to facilitate the reduction of train crews, two
payments are due to employees that were either
conductors/foremen or trainmen/switchmen. These agreements
required lump sum payments that were to be distributed
(1) within 30 days of implementation of the 1991 and
1992 labor agreements, and (2) at retirement, death or
resignation. Regardless of the employees continued
service, such employees are entitled to receive the second
payment at the time when the employee/employer relationship is
severed.
65
CSX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Also in 2003, the Company recorded a $10 million
restructuring charge related to another workforce reduction
program, substantially all of which was paid as of
December 26, 2003.
A net $22 million restructuring charge was recorded in
fiscal year 2003 representing the cost of the restructuring
initiatives offset by reductions in 1991 and 1992 separation
reserves. The associated expense is included in operating
expense as Restructuring Charge Net on
the Consolidated Income Statements.
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended | |
|
Fiscal Year Ended | |
|
|
December 31, | |
|
December 26, | |
|
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
|
(Dollars in millions) | |
Management Restructuring:
|
|
|
|
|
|
|
|
|
|
November 2003 management restructuring plan
|
|
$ |
71 |
|
|
$ |
34 |
|
|
Other workforce reductions
|
|
|
|
|
|
|
10 |
|
|
Change in estimate for 1991/1992 charge
|
|
|
|
|
|
|
(22 |
) |
|
|
|
|
|
|
|
Restructuring Charge Net
|
|
$ |
71 |
|
|
$ |
22 |
|
|
|
|
|
|
|
|
The Company did not record any restructuring charges during the
fiscal year ended December 30, 2005.
|
|
NOTE 6. |
Hurricane Katrina |
In August 2005, Hurricane Katrina caused extensive damage to
Company assets on the Gulf Coast. The most significant damage
was concentrated on CSXTs approximately
100-mile route starting
in New Orleans, LA and going east to Pascagoula, MS and includes
damage to track infrastructure and bridges. Service to local
businesses on the Gulf Coast has been restored and previously
rerouted Merchandise trains have returned to the New Orleans
gateway. Operations should be normalized to pre-hurricane
conditions by the end of the first quarter of 2006.
In order to determine the proper accounting treatment for the
damage, the Company reviewed
EITF 01-10,
Accounting for the Impact of the Terrorist Attacks of
September 11, 2001
(EITF 01-10),
specifically Issue 3, of that consensus, in which the Task
Force concluded that insurance recoveries in connection with
property and casualty losses should be recognized when
realization of the claim for recovery of a loss recognized in
the financial statements is deemed probable. Information
regarding the Companys insurance coverage, damage
estimates and the allocation of the insurance deductible is as
follows:
The Company has insurance coverage of $535 million, after a
$25 million deductible (per occurrence), for the following
types of losses:
|
|
|
1. Replacement value of fixed asset
damages CSX is entitled to the current
replacement cost of the damaged assets. If the Company does not
replace the damaged assets, then it is entitled to cash, at a
discounted rate. The Company replaced the damaged assets in like
kind. The Companys bridges and track damaged by Hurricane
Katrina comprised the majority of these types of losses. |
|
|
|
2. Recovery of incremental expenses The
Company is entitled to recover the increased costs incurred to
allow the Company to continue operations and to minimize the
overall business impact to the Company during the period of
indemnity. These increased costs include off-line (third party)
rerouting costs, on-line (internal) rerouting costs, and
other costs. |
66
CSX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
3. Recovery of lost profits The Company
is entitled to recover lost profits, net of associated expenses
during the period of indemnity. The period of indemnity extends
through the date which the railroad network is restored to its
original operations. |
The Companys insurance policies do not prioritize coverage
based on types of losses. As claims are submitted to the
insurance companies, they are reviewed and preliminary payments
made until all losses are incurred and documented. A final
payment will be made once the Company and its insurers agree on
the total measurement value of the claim. As of
December 30, 2005, the Company has collected insurance
payments of $70 million. Through February 2006, the Company
has collected an additional $50 million in insurance
recoveries for a total of $120 million.
The Company estimated damages as follows:
|
|
|
Through air and underwater inspections, along with discussions
with construction and salvage contractors, the Companys
engineers estimated amounts to replace damaged assets. The cost
estimate along the Companys
100-mile impacted route
is based on the replacement value of approximately 39 miles
of continuous track, six major bridges, numerous small bridges,
signal and communication damage, locomotive repair and
facilities damaged throughout the region. |
|
|
|
The Companys incremental expenses relate primarily to
three main areas of anticipated loss; (1) off-line (third
party) rerouting costs, (2) on-line
(internal) rerouting costs and (3) other costs. |
|
|
Off-line rerouting costs were estimated based on projections
made using historical volumes moved on other railroad lines. The
Company is billed by the other railroads at an agreed upon rate
based on the volume of trains or railcars routed to alternative
locations. |
|
|
On-line rerouting costs were determined by comparing estimates
of incremental activity, including railcar miles, railcar days,
gross ton-miles and crew starts incurred on the Companys
network to route volume, before and after Hurricane Katrina,
through alternative locations. The incremental activity was then
used to calculate incremental operating expenses including train
crew labor, railcar rentals, railcar maintenance, locomotive
maintenance and fuel. |
|
|
Other costs include debris removal, maintenance on equipment
damaged by water, supplies, environmental expenses, maintenance
labor and other various items. |
|
|
|
The Companys sales representatives have estimated the
impact on revenue at a location and customer-specific level. In
order to estimate lost profits, for each shipment lost, the
associated expenses for fuel, railcar rentals, locomotive and
railcar maintenance that would have been incurred were estimated
and netted against the lost revenue. |
The Companys insurance policies require its participation
in the first $25 million of each loss event, without regard
to the category of the covered losses. Although the
Companys insurance policies do not specifically apply the
deductible by the types of losses covered, CSX believes it is
inconsistent with the form and economic substance of the
Companys policies to attribute the entire deductible to a
single component of covered losses. Therefore, the Company
allocated the $25 million self-insured retention among the
three categories of losses in proportion to the best estimate of
the total ultimate losses eligible for recovery under the
Companys insurance policies.
67
CSX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
This estimate includes losses incurred at the balance sheet
date, including all three categories and expected future losses
attributable to incremental expenses and lost profits.
As the Company receives additional information regarding costs
and lost revenues, it will continue to refine the estimate for
insurance recoveries. As the estimate changes, the Company will
reallocate and apply the deductible as appropriate. The Company
does not foresee any possible scenario that would result in
anything other than a net gain on insurance recoveries.
Managements estimate of the losses and recoveries by
category is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Expected | |
|
|
|
|
|
|
Losses Eligible | |
|
% of | |
|
Allocation of | |
|
|
for Recovery | |
|
Recoveries | |
|
Deductible | |
|
|
| |
|
| |
|
| |
|
|
(Dollars in millions) | |
Capital
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed asset damages
|
|
$ |
222 |
|
|
|
60 |
% |
|
$ |
(15 |
) |
Business Interruption
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Incremental expenses
|
|
|
118 |
|
|
|
32 |
% |
|
|
(8 |
) |
|
Lost profits
|
|
|
30 |
|
|
|
8 |
% |
|
|
(2 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
370 |
|
|
|
100 |
% |
|
$ |
(25 |
) |
|
|
|
|
|
|
|
|
|
|
Due to the significant difference between the carrying amount of
property damage (net book value of $41 million immediately
prior to Hurricane Katrina) and the estimated replacement cost
of the property ($222 million), the Company estimates that
it will ultimately realize a net gain after an estimated,
allocated deductible of $15 million. Because replacement
value of damaged fixed assets is significantly greater than the
net book value, in 2005 a portion of the gain on the replacement
value, to the extent of the loss, was recognized in the period
in which the loss was recognized. CSX believes the loss
attributable to the allocable deductible will be offset by the
recovery of the replacement value of the property. The remaining
net gain will be recognized when all contingencies related to
the gain are resolved.
Because incremental expenses incurred to date have been easily
quantified shortly after incurrence and CSXs insurance
policies explicitly cover such costs, the Company believes this
coverage is more analogous to property damage coverage. As such,
the Company has concluded recoveries attributable to incremental
costs should be recognized when it is probable the insurance
providers will settle the claim for at least the amount of
recognized losses.
Currently, the financial statements of the Company have been
impacted by lost profits, as the Company did not earn revenues
associated with covered losses. No amounts have been reflected
for estimated insurance recoveries in the Companys
financial statements. The Company believes lost profits are
recoverable based on the insurance policy terms. However,
because the insurance coverage associated with the recovery of
lost profits is similar to a contingent gain due to the
subjective nature of the coverage and longer time periods
utilized to measure the lost profits as compared to other types
of coverage, all contingencies related to the timing and amount
of recovery must be resolved prior to recognition in earnings or
at the time cash is received. At this time, CSX does not yet
believe these amounts meet the probable recovery criterion in
EITF 01-10 due to
uncertainties associated with the ultimate measurement of the
lost profits and expected negotiations with the Companys
insurers. The Company estimates 2005 operating income was
impacted by an estimated $30 million of lost profit.
68
CSX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Gain contingencies subject to FIN 30, Accounting for
Involuntary Conversions of Nonmonetary Assets to Monetary Assets
and SFAS 5, Accounting for Contingencies
(SFAS 5), are not recognized until the
period in which all contingencies are resolved. The probable
insurance recovery of the replacement cost of fixed assets in
excess of book value and the recovery of lost profits are
considered to be gain contingencies. The Company believes it is
appropriate to defer the net gain (after consideration of the
insurance deductible) until all contingencies related to the
gain are resolved. Therefore, in measuring the losses incurred
at December 30, 2005, attributable to Hurricane Katrina,
the Company considered the actual losses reflected in the
financial statements, the allocable deductible (based on
expected total recoveries from insured losses), and recorded a
receivable for the difference based on probable insurance
recoveries. The insurance receivable, after insurance proceeds,
amounted to $43 million at December 30, 2005 and is
included in Accounts Receivable Net in the
Companys Consolidated Balance Sheet.
The Company believes insurance recoveries, which are included in
Materials, Supplies and Other and Labor expense in the
Companys consolidated income statement, are probable and
it does not believe there are solvency issues with the
Companys insurers. In accordance with SFAS 95,
Statement of Cash Flows (SFAS 95), cash
proceeds received from insurers will be presented as
Insurance Proceeds, in either cash flows from
operating activities or cash flows from investing activities
based on the type of cost to which the proceeds relate.
The following table summarizes the financial impact of Hurricane
Katrina during 2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income Statement Impact | |
|
|
| |
|
|
|
|
Net | |
|
|
|
|
Insurance | |
|
Income | |
|
|
|
|
Deductible | |
|
Recoveries | |
|
Statement | |
|
|
Losses | |
|
Recognized | |
|
Recognized(a) | |
|
Impact | |
|
|
| |
|
| |
|
| |
|
| |
|
|
(Dollars in millions) | |
Capital
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed assets damages
|
|
$ |
(41 |
) |
|
$ |
|
|
|
$ |
41 |
|
|
$ |
|
|
Business Interruption
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Incremental expenses
|
|
|
(80 |
) |
|
|
(8 |
) |
|
|
72 |
|
|
|
(8 |
) |
|
Estimated Lost profits
|
|
|
(30 |
) |
|
|
|
|
|
|
|
|
|
|
(30 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
(151 |
) |
|
$ |
(8 |
) |
|
$ |
113 |
|
|
$ |
(38 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
Amounts recorded as receivables from insurance companies. (See
table below) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance Sheet Impact | |
|
|
| |
|
|
Insurance | |
|
Insurance | |
|
Net | |
|
|
Recoveries | |
|
Proceeds | |
|
Insurance | |
|
|
Receivables | |
|
Received | |
|
Receivable | |
|
|
| |
|
| |
|
| |
|
|
(Dollars in millions) | |
Capital
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed assets damages
|
|
$ |
41 |
|
|
$ |
41 |
|
|
$ |
|
|
Business Interruption
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Incremental expenses
|
|
|
72 |
|
|
|
29 |
|
|
|
43 |
|
|
Lost profits
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
113 |
|
|
$ |
70 |
|
|
$ |
43 |
|
|
|
|
|
|
|
|
|
|
|
69
CSX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
NOTE 7. |
Other Income and Supplemental Data |
Other Income and Supplemental Data consists of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Years Ended | |
|
|
| |
|
|
December 30, | |
|
December 31, | |
|
December 26, | |
|
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
|
|
(Dollars in millions) | |
Interest Income
|
|
$ |
38 |
|
|
$ |
21 |
|
|
$ |
21 |
|
Income from Real Estate and Resort Operations
|
|
|
85 |
|
|
|
47 |
|
|
|
95 |
|
Discounts on Sales of Accounts Receivable
|
|
|
|
|
|
|
|
|
|
|
(10 |
) |
Net Gain on Conrail Spin-off, after tax
|
|
|
|
|
|
|
16 |
|
|
|
|
|
Minority Interest
|
|
|
(19 |
) |
|
|
(16 |
) |
|
|
(6 |
) |
Miscellaneous
|
|
|
(3 |
) |
|
|
4 |
|
|
|
(7 |
) |
|
|
|
|
|
|
|
|
|
|
|
Total Other Income
|
|
$ |
101 |
|
|
$ |
72 |
|
|
$ |
93 |
|
|
|
|
|
|
|
|
|
|
|
Gross Revenue from Real Estate and Resort Operations Included in
Other Income above
|
|
$ |
262 |
|
|
$ |
217 |
|
|
$ |
274 |
|
|
|
|
|
|
|
|
|
|
|
Operating Expense included Selling, General &
Administrative Expenses of $524 million, $557 million
and $549 million for fiscal years 2005, 2004, and 2003,
respectively.
Earnings from Continuing Operations before Income Taxes of
$1.0 billion, $637 million, and $195 million for
fiscal years 2005, 2004, and 2003, respectively represent
earnings from domestic operations.
The significant components of deferred tax assets and
liabilities include:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 30, 2005 | |
|
December 31, 2004 | |
|
|
| |
|
| |
|
|
Assets | |
|
Liabilities | |
|
Assets | |
|
Liabilities | |
|
|
| |
|
| |
|
| |
|
| |
|
|
(Dollars in millions) | |
Productivity/ Restructuring Charges
|
|
$ |
48 |
|
|
$ |
|
|
|
$ |
73 |
|
|
$ |
|
|
Employee Benefit Plans
|
|
|
429 |
|
|
|
|
|
|
|
358 |
|
|
|
|
|
Accelerated Depreciation
|
|
|
|
|
|
|
6,324 |
|
|
|
|
|
|
|
6,665 |
|
Other
|
|
|
482 |
|
|
|
493 |
|
|
|
832 |
|
|
|
609 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
959 |
|
|
$ |
6,817 |
|
|
$ |
1,263 |
|
|
$ |
7,274 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Deferred Tax Liabilities
|
|
|
|
|
|
$ |
5,858 |
|
|
|
|
|
|
$ |
6,011 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The primary factors in the change in year-end net deferred
income tax liability balances include:
|
|
|
|
|
Annual provision for deferred income tax expense; |
|
|
|
Deferred income taxes attributable to Discontinued
Operations; and |
|
|
|
Adjustments to Accumulated Other Comprehensive Loss. |
In conjunction with the sale of all the issued and outstanding
stock of SL Service, Inc., the Company accrued $97 million
of deferred U.S. income tax liability related to
undistributed foreign earnings of its foreign subsidiaries that
are no longer considered indefinitely invested in offshore
operations. This U.S. income tax expense is reflected as a
component of Discontinued Operations Net of Tax on
the 2004 Consolidated Income Statements.
Included in the net deferred tax liabilities above are
$16 million of deferred taxes included in International
Terminals Liabilities Held for Sale in the Consolidated Balance
Sheets as of December 31, 2004. (See Note 4.
Discontinued Operations.)
The Company files a consolidated federal income tax return,
which includes its principal domestic subsidiaries. Examinations
of the federal income tax returns of CSX have been completed
70
CSX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
through 1993. Federal income tax returns for 1994 through 2003
currently are under examination. Management believes adequate
provision has been made for any adjustments that might be
assessed.
The breakdown of income tax expense (benefit) between current
and deferred is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Years Ended | |
|
|
| |
|
|
December 30, | |
|
December 31, | |
|
December 26, | |
|
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
|
|
(Dollars in millions) | |
Current:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$ |
350 |
|
|
$ |
66 |
|
|
$ |
(66 |
) |
|
State
|
|
|
12 |
|
|
|
14 |
|
|
|
7 |
|
|
|
|
|
|
|
|
|
|
|
|
Total Current
|
|
$ |
362 |
|
|
$ |
80 |
|
|
$ |
(59 |
) |
Deferred:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$ |
33 |
|
|
$ |
139 |
|
|
$ |
125 |
|
|
State
|
|
|
(79 |
) |
|
|
|
|
|
|
(8 |
) |
|
|
|
|
|
|
|
|
|
|
|
Total Deferred
|
|
$ |
(46 |
) |
|
$ |
139 |
|
|
$ |
117 |
|
|
Total
|
|
$ |
316 |
|
|
$ |
219 |
|
|
$ |
58 |
|
|
|
|
|
|
|
|
|
|
|
Income tax expense reconciled to the tax computed at statutory
rates is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December | |
|
|
|
|
|
|
|
|
|
|
30, 2005 | |
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
December | |
|
|
|
|
|
|
|
|
31, 2004 | |
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
Fiscal Years Ended | |
|
|
| |
|
|
|
|
December | |
|
|
|
|
26, 2003 | |
|
|
|
|
| |
|
|
) | |
|
|
(Dollars in millions | |
Tax at Statutory Rates
|
|
$ |
362 |
|
|
|
35 |
% |
|
$ |
223 |
|
|
|
35 |
% |
|
$ |
68 |
|
|
|
35 |
% |
State Income Taxes
|
|
|
(44 |
) |
|
|
-4 |
% |
|
|
9 |
|
|
|
1 |
% |
|
|
|
|
|
|
0 |
% |
Equity in Conrail Earnings
|
|
|
(9 |
) |
|
|
-1 |
% |
|
|
(16 |
) |
|
|
-3 |
% |
|
|
(9 |
) |
|
|
-5 |
% |
Other Items
|
|
|
7 |
|
|
|
0 |
% |
|
|
3 |
|
|
|
1 |
% |
|
|
(1 |
) |
|
|
0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income Tax Expense/ Rate
|
|
$ |
316 |
|
|
|
30 |
% |
|
$ |
219 |
|
|
|
34 |
% |
|
$ |
58 |
|
|
|
30 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The decrease in the 2005 effective income tax rate compared to
the prior year is primarily attributable to legislative changes
in Ohio that will gradually eliminate the Ohio corporate
franchise tax. The 2004 effective income tax rate was higher
than the 2003 effective income tax rate because equity in
Conrail earnings represented a larger percentage of pretax
earnings in 2003 than 2004. Also, 2003 included a favorable
state income tax benefit attributable to changes in the
Companys deferred effective state income tax rate.
|
|
NOTE 9. |
Accounts Receivable |
|
|
|
Allowance for Doubtful Accounts |
The Company maintains an allowance for doubtful accounts for the
estimated probable losses on uncollectible accounts and other
receivables. The allowance is based upon the creditworthiness of
customers, historical experience, the age of the receivable and
current market and economic conditions. Uncollectible amounts
are charged against the allowance account. The allowance for
doubtful accounts is maintained against current accounts
receivable. Allowances for doubtful accounts of
$108 million and $95 million are included in the
Consolidated Balance Sheets as of December 30, 2005 and
December 31, 2004.
|
|
|
Sale of Accounts Receivable |
As of June 2003, CSXT discontinued its accounts receivable
securitization program. Prior to that, CSXT sold, without
recourse, a revolving pool of accounts receivable to CSX Trade
Receivables Corporation (CTRC), a wholly-owned,
bankruptcy-remote subsidiary. CTRC transferred the accounts
receivable to a master trust and caused the trust to issue
multiple series of certificates representing undivided interests
in the receivables. The certificates issued by the master trust
were
71
CSX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
sold to investors, and the proceeds from those sales were paid
to CSXT. Net losses associated with the sale of receivables were
$10 million for the fiscal year ended December 26,
2003 and was included in Other Income.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 30, 2005 | |
|
December 31, 2004 | |
|
|
| |
|
| |
|
|
|
|
Accumulated | |
|
|
|
|
|
Accumulated | |
|
|
|
|
Cost | |
|
Depreciation | |
|
Net | |
|
Cost | |
|
Depreciation | |
|
Net | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(Dollars in millions) | |
Rail:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Road
|
|
$ |
18,861 |
|
|
$ |
3,208 |
|
|
$ |
15,653 |
|
|
$ |
18,367 |
|
|
$ |
2,923 |
|
|
$ |
15,444 |
|
|
Equipment
|
|
|
6,357 |
|
|
|
2,482 |
|
|
|
3,875 |
|
|
|
6,181 |
|
|
|
2,363 |
|
|
|
3,818 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Rail
|
|
|
25,218 |
|
|
|
5,690 |
|
|
|
19,528 |
|
|
|
24,548 |
|
|
|
5,286 |
|
|
|
19,262 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intermodal
|
|
|
528 |
|
|
|
284 |
|
|
|
244 |
|
|
|
506 |
|
|
|
247 |
|
|
|
259 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Surface Transportation
|
|
|
25,746 |
|
|
|
5,974 |
|
|
|
19,772 |
|
|
|
25,054 |
|
|
|
5,533 |
|
|
|
19,521 |
|
Other
|
|
|
792 |
|
|
|
401 |
|
|
|
391 |
|
|
|
798 |
|
|
|
374 |
|
|
|
424 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Properties
|
|
$ |
26,538 |
|
|
$ |
6,375 |
|
|
$ |
20,163 |
|
|
$ |
25,852 |
|
|
$ |
5,907 |
|
|
$ |
19,945 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOTE 11. |
Casualty, Environmental and Other Reserves |
Activity related to casualty, environmental and other reserves
is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Casualty | |
|
Separation | |
|
Environmental | |
|
Other | |
|
|
|
|
Reserves | |
|
Liabilities | |
|
Reserves | |
|
Reserves | |
|
Total | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(Dollars in millions) | |
Balance December 27, 2002
|
|
$ |
463 |
|
|
$ |
216 |
|
|
$ |
35 |
|
|
$ |
136 |
|
|
$ |
850 |
|
Charged to Expense
|
|
|
226 |
|
|
|
38 |
|
|
|
23 |
|
|
|
87 |
|
|
|
374 |
|
Change in Estimate
|
|
|
232 |
|
|
|
(22 |
) |
|
|
|
|
|
|
|
|
|
|
210 |
|
Payments
|
|
|
(209 |
) |
|
|
(24 |
) |
|
|
(13 |
) |
|
|
(72 |
) |
|
|
(318 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance December 26, 2003
|
|
|
712 |
|
|
|
208 |
|
|
|
45 |
|
|
|
151 |
|
|
|
1,116 |
|
Charged to Expense
|
|
|
217 |
|
|
|
16 |
|
|
|
29 |
|
|
|
84 |
|
|
|
346 |
|
Payments
|
|
|
(214 |
) |
|
|
(20 |
) |
|
|
(21 |
) |
|
|
(107 |
) |
|
|
(362 |
) |
Conrail Spin-off(a)
|
|
|
|
|
|
|
|
|
|
|
6 |
|
|
|
|
|
|
|
6 |
|
Reclassifications(b)
|
|
|
(10 |
) |
|
|
(49 |
) |
|
|
|
|
|
|
|
|
|
|
(59 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance December 31, 2004
|
|
|
705 |
|
|
|
155 |
|
|
|
59 |
|
|
|
128 |
|
|
|
1,047 |
|
Charged to Expense
|
|
|
181 |
|
|
|
|
|
|
|
32 |
|
|
|
47 |
|
|
|
260 |
|
Change in Estimate
|
|
|
(38 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(38 |
) |
Payments
|
|
|
(173 |
) |
|
|
(34 |
) |
|
|
(20 |
) |
|
|
(78 |
) |
|
|
(305 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance December 30, 2005
|
|
$ |
675 |
|
|
$ |
121 |
|
|
$ |
71 |
|
|
$ |
97 |
|
|
$ |
964 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
In 2004, the Company assumed $6 million of Conrail
environmental liabilities, due to the Conrail Spin-off
transaction. |
|
(b) |
|
The majority of this line represents obligations arising from
the management restructuring program. Most of this liability was
paid from CSXs qualified pension plan and therefore was
reclassified to pension liabilities which are included in Other
Long-term Liabilities. |
72
CSX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Casualty, environmental and other reserves are provided for in
the Consolidated Balance Sheets as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 30, 2005 | |
|
December 31, 2004 | |
|
|
| |
|
| |
|
|
Current | |
|
Long-term | |
|
Total | |
|
Current | |
|
Long-term | |
|
Total | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(Dollars in millions) | |
Casualty
|
|
$ |
227 |
|
|
$ |
448 |
|
|
$ |
675 |
|
|
$ |
230 |
|
|
$ |
475 |
|
|
$ |
705 |
|
Separation
|
|
|
20 |
|
|
|
101 |
|
|
|
121 |
|
|
|
20 |
|
|
|
135 |
|
|
|
155 |
|
Environmental
|
|
|
20 |
|
|
|
51 |
|
|
|
71 |
|
|
|
20 |
|
|
|
39 |
|
|
|
59 |
|
Other
|
|
|
44 |
|
|
|
53 |
|
|
|
97 |
|
|
|
42 |
|
|
|
86 |
|
|
|
128 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
311 |
|
|
$ |
653 |
|
|
$ |
964 |
|
|
$ |
312 |
|
|
$ |
735 |
|
|
$ |
1,047 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Casualty
Casualty reserves represent accruals for personal injury and
occupational injury claims. Currently, none of these claims are
covered by insurance since no individual claim value is expected
to exceed the Companys self-insured retention amount.
Personal injury and occupational claims are presented on a gross
basis in accordance with SFAS 5. To the extent the value of
an individual claim were to exceed the self-insured retention
amount, CSX would present the liability on a gross basis with a
corresponding receivable for insurance recoveries. Most of the
claims are related to CSXT unless otherwise noted.
CSXT retains an independent actuarial firm to assist management
in assessing the value of CSXTs claims and cases. An
analysis is performed by the independent actuarial firm
semi-annually and is reviewed by management. The methodology
used by the actuary includes a development factor to reflect
growth or reduction in the value of CSXTs personal injury
claims. This methodology is based largely on CSXTs
historical claims and settlement activity. Actual results may
vary from estimates due to the type and severity of the injury,
costs of medical treatments, and uncertainties in litigation. In
conjunction with the change in estimate during 2003, the Company
recorded a charge of $26 million for personal injury
liabilities. Reserves for personal injury claims are
$421 million and $383 million at December 30,
2005 and December 31, 2004, respectively.
While the final outcome of casualty-related matters cannot be
predicted with certainty, considering among other things, the
meritorious legal defenses available and liabilities that have
been recorded, it is the opinion of CSX management that none of
these items, when finally resolved, will have a material adverse
effect on the Companys results of operations, financial
condition, or liquidity. However, should a number of these items
occur in the same period, they could have a material adverse
effect on the results of operations, financial condition or
liquidity in a particular quarter or fiscal year.
Occupational claims include allegations of exposure to certain
materials in the work place, such as asbestos, solvents, and
diesel fuel, or alleged physical injuries, such as repetitive
stress injuries, carpal tunnel syndrome or hearing loss.
Reserves for asbestos related claims are $141 million and
$212 million at December 30, 2005 and
December 31, 2004, respectively. Reserves for other
occupational claims are $113 million and $110 million
at December 30, 2005 and December 31, 2004,
respectively.
The Company is party to a number of occupational claims by
employees alleging exposure to asbestos in the workplace. The
heaviest possible exposure for employees was due to work
conducted in and around steam locomotive engines that were
phased out in the 1950s, according to
73
CSX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
rail industry statistics. However, other types of exposures,
including exposure from locomotive component parts and building
materials, continued until it was substantially eliminated by
1985.
Asbestos claim filings against the Company have been
inconsistent. Accordingly, while the Company had concluded that
a probable loss had occurred, prior to 2003 it did not believe
it could estimate the range of reasonably possible loss because
of the lack of experience with such claims and the lack of
detailed employment records for the population of exposed
employees. Claim filings increased and when they continued into
2003, the Company concluded that an estimate for incurred but
not reported (IBNR) asbestos exposure liability
needed to be recorded. Currently, there is recurring pending
legislation regarding the establishment of an asbestos liability
trust fund. The impact to the Company of this pending
legislation is unknown at this time.
|
|
|
2003 Provision for Asbestos Change in Estimate |
In 2003, the Company changed its estimate of asbestos reserves
to include an estimate of IBNR claims and retained a third party
specialist who has extensive experience in performing asbestos
and other occupational studies to assist in this estimate. The
analysis is performed by the specialist semi-annually and is
reviewed by management. The objective of the analysis is to
determine the number of estimated IBNR claims and the estimated
average cost per claim to be received over the next seven years.
Seven years was determined by management to be the time period
in which probable claim filings and claim values could be
estimated with more certainty.
The Company, with the assistance of the third party specialist,
first determined its potentially exposed population from which
it was able to derive the estimated number of IBNR claims. The
estimated average cost per claim was then determined utilizing
recent actual average cost per claim data and national industry
data. Based on the assessment, in September 2003 the Company
recorded an undiscounted $141 million pre-tax charge for
unasserted asbestos claims. Key elements of the assessment
included the following:
|
|
|
|
|
An estimate was computed using a ratio of Company employee data
to national employment for select years during the period
1938-2001. The Company used railroad industry historical census
data because it did not have detailed employment records in
order to compute the population of potentially exposed employees. |
|
|
|
The projected incidence of disease was estimated based on
epidemiological studies using employees age and the
duration and intensity of potential exposure while employed. |
|
|
|
An estimate of the future anticipated claims filing rate by type
of disease (non-malignant, cancer and mesothelioma) was computed
using the Companys average historical claim filing rates
for a 2-year
calibration period (i.e. the years management felt were
representative of future filing rates). |
|
|
|
An estimate of the future anticipated dismissal rate by type of
claim was computed using the Companys historical average
dismissal rates observed for two years. |
|
|
|
An estimate of the future anticipated settlement by type of
disease was computed using the Companys historical average
of dollars paid per claim for pending and future claims using
the average settlement by type of incident observed during a
3-year time period. |
From these assumptions, the Company projected the incidence of
each type of disease to the estimated population to determine
the total estimated number of employees that could potentially
assert a claim. Historical claim filing rates were applied for
each type of disease to the total number of employees that could
potentially assert a claim to determine the total number of
anticipated claim filings by disease type. Historical dismissal
rates, which represent claims that are closed without payment,
were deducted to calculate the number of future claims by
disease type that would likely require payment by the Company.
Finally, the number of such claims was multiplied by the average
settlement value to estimate the Companys future liability
for IBNR asbestos claims.
74
CSX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Asbestos claim filings are typically sporadic and may include
large batches of claims solicited by law firms. To reflect these
factors, CSX used a
2-year calibration
period during its initial assessment because the Company
believed it would be most representative of its future claim
experience. In addition, for non-malignant claims, the number of
future claims to be filed against CSX declines at a rate
consistent with both mortality and age as there is a decreasing
probability of filing claims as the population ages. CSX
believes the average claim values by type of disease from the
historical 2-year
period were most representative of future claim values.
|
|
|
2005 Provision for Asbestos Change in Estimate |
In 2004, management had no changes in estimate for asbestos
liabilities. In 2005, management updated their assessment of the
unasserted liability exposure with the assistance of the third
party specialists, which resulted in recognition of a
$48 million favorable change in estimate associated with
asbestos liabilities. During 2004 and 2005, asbestos related
disease claims filed against CSX dropped substantially,
particularly bulk claims filed by certain law firms. In 2003,
the Company received a significant number of filings. The
Company believes the number was attributable to an attempt to
file before a new, more restrictive venue law took effect in
West Virginia in mid-2003. As a result, management reassessed
the calibration period to a
3-year average,
excluding the surge in claims originating in West Virginia.
Management believes this calibration period provides the best
estimate of future filing rates.
The estimated future filing rates and estimated average claim
values are the most sensitive assumptions for this reserve. A
10% increase or decrease in either the forecasted number of IBNR
claims or the average claim values would result in an
approximate $7 million increase or decrease in the
liability recorded for unasserted asbestos claims.
The Company, with the assistance of the third party specialist,
obtains semi-annual updates of the study. The Company will
monitor actual experience against the number of forecasted
claims to be received and expected claim payments. More periodic
updates to the study will occur if trends necessitate a change.
Undiscounted liabilities recorded related to asbestos claims are
as follows:
|
|
|
|
|
|
|
|
|
|
|
December 30, | |
|
December 31, | |
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
|
(Dollars in millions) | |
Asbestos
|
|
|
|
|
|
|
|
|
Incurred but not reported claims
|
|
$ |
54 |
|
|
$ |
132 |
|
Asserted claims
|
|
|
87 |
|
|
|
80 |
|
|
|
|
|
|
|
|
Total liability
|
|
$ |
141 |
|
|
$ |
212 |
|
|
|
|
|
|
|
|
Current liability
|
|
$ |
37 |
|
|
$ |
37 |
|
|
|
|
|
|
|
|
Defense and processing costs, which historically have been and
are anticipated in the future to be insignificant, are not
included in the recorded liability. The Company is presently
self-insured for asbestos-related claims.
|
|
|
2003 Provision for Other Occupational Change in Estimate |
In 2003, the Company changed its estimate of occupational
reserves to include an estimate of IBNR claims for other
occupational injuries as well as asbestos as noted above. The
Company engaged a third party specialist to assist in projecting
the number of other occupational injury claims to be received
over the next seven years. Based on this analysis, the Company
established reserves for the probable and reasonably estimable
other occupational injury liabilities. In 2003, the Company
recorded an undiscounted $65 million pre-tax charge for
IBNR other occupational claims for similar reasons as asbestos
discussed above.
75
CSX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Similar to the asbestos liability estimation process, the key
elements of the assessment included the following:
|
|
|
|
|
An estimate of the potentially exposed population for other
occupational diseases was calculated by projecting active versus
retired work force from 2002 to 2010 using a growth rate
projection for overall railroad employment made by the Railroad
Retirement Board in its June 2003 report. |
|
|
|
An estimate of the future anticipated claims filing rate by type
of injury, employee type, and active versus retired employee was
computed using the Companys average historical claim
filing rates for the
2-year calibration
period for all diseases except hearing loss. Because the filing
rate for hearing loss claims has been decreasing since 1998, the
latest year filing rate was viewed as representative. These
calibration periods are the time periods which management felt
were representative of future filing rates. An estimate was made
to forecast future claims by using the filing rates by disease
and the active and retired CSX population each year. |
|
|
|
An estimate of the future anticipated settlement by type of
injury was computed using the Companys historical average
of dollars paid per claim for pending and future claims using
the average settlement by type of injury observed during a
3-year time period. |
|
|
|
2005 Provision for Other Occupational Change in Estimate |
In 2004, management had no changes in estimate for other
occupational liabilities. During 2005, CSX experienced an
unfavorable trend in settlement values for repetitive stress and
other injuries, which resulted in the recognition of a
$10 million unfavorable change in estimate associated with
these liabilities. In connection with the semi-annual updates of
the study, the Company will monitor actual experience against
the number of forecasted claims to be received and expected
claim payments. More periodic updates to the study will occur if
trends necessitate a change.
The estimated future filing rates and estimated average claim
values are the most sensitive assumptions for this reserve. A
10% increase or decrease in either the forecasted number of IBNR
claims or the average claim values would result in an
approximate $7 million increase or decrease in the
liability recorded for unasserted other occupational claims.
Undiscounted recorded liabilities related to occupational claims
are as follows:
|
|
|
|
|
|
|
|
|
|
|
December 30, | |
|
December 31, | |
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
|
(Dollars in millions) | |
Other Occupational
|
|
|
|
|
|
|
|
|
Incurred But Not Reported Claims
|
|
$ |
63 |
|
|
$ |
56 |
|
Asserted Claims
|
|
|
50 |
|
|
|
54 |
|
|
|
|
|
|
|
|
Total Liability
|
|
$ |
113 |
|
|
$ |
110 |
|
|
|
|
|
|
|
|
Current Liability
|
|
$ |
18 |
|
|
$ |
18 |
|
|
|
|
|
|
|
|
Defense and processing costs, which historically have been and
are anticipated in the future to be insignificant, are not
included in the recorded liability. The Company is presently
self-insured for other occupational-related claims.
76
CSX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
A summary of asbestos and other occupational claims activity is
as follows:
|
|
|
|
|
|
|
|
|
|
|
Fiscal Years Ended | |
|
|
| |
|
|
December 30, | |
|
December 31, | |
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
Asserted Claims
|
|
|
|
|
|
|
|
|
Open Claims Beginning of Period
|
|
|
11,461 |
|
|
|
13,479 |
|
New Claims Filed
|
|
|
765 |
|
|
|
1,178 |
|
Claims Settled
|
|
|
(1,206 |
) |
|
|
(2,758 |
) |
Claims Dismissed
|
|
|
(381 |
) |
|
|
(438 |
) |
|
|
|
|
|
|
|
Open Claims End of Period
|
|
|
10,639 |
|
|
|
11,461 |
|
|
|
|
|
|
|
|
Approximately 6,000 of the open claims at December 30, 2005
are asbestos claims against the Companys previously owned
international container-shipping business. Because these claims
are against multiple vessel owners, the Companys reserves
reflect its portion of those claims. The Company had
approximately $11 million and $13 million reserved for
those shipping business claims at December 30, 2005 and
December 31, 2004, respectively. The remaining open claims
have been asserted against CSXT.
The amounts recorded by the Company for asbestos and other
occupational liabilities are based upon currently known
information and judgments based upon that information.
Projecting future events, such as the number of new claims to be
filed each year, the average cost of disposing of claims, as
well as the numerous uncertainties surrounding asbestos and
other occupational litigation or legislation in the United
States, could cause the actual costs to be higher or lower than
projected.
While the final outcome of casualty-related matters cannot be
predicted with certainty, considering among other items the
meritorious legal defenses available and the liabilities that
have been recorded, it is the opinion of management that none of
these items, when finally resolved, will have a material effect
on the Companys results of operations, financial position
or liquidity. However, should a number of these items occur in
the same period, they could have a material effect on the
results of operations, financial condition or liquidity in a
particular quarter or fiscal year.
Separation
Separation liabilities at December 30, 2005 and
December 31, 2004 provide for the estimated costs of
implementing workforce reductions, improvements in productivity
and other cost reductions at the Companys major
transportation units since 1991. These liabilities are expected
to be paid out over the next 15 to 20 years from general
corporate funds.
Environmental
The Company is a party to various proceedings, including
administrative and judicial proceedings, involving private
parties and regulatory agencies related to environmental issues.
The Company has been identified as a potentially responsible
party (PRP) at approximately 259 environmentally
impaired sites, many of which are, or may be, subject to
remedial action under the Federal Comprehensive Environmental
Response, Compensation and Liability Act of 1980
(CERCLA), also known as the Superfund Law, or
similar state statutes. A number of these proceedings are based
on allegations that CSX, or its predecessors, sent hazardous
substances to the facilities in question for disposal.
In addition, some of the Companys land holdings are and
have been used for industrial or transportation-related purposes
or leased to commercial or industrial companies whose activities
may have resulted in releases of various regulated materials
onto the property. Therefore, the Company is subject to
environmental cleanup and enforcement actions under the
Superfund law, as
77
CSX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
well as similar state laws that may impose joint and several
liability for cleanup and enforcement costs on current and
former owners and operators of a site without regard to fault or
the legality of the original conduct, which could be
substantial. In 2004, the Company assumed $6 million of
Conrail environmental liabilities, due to the Conrail spin-off
transaction.
At least once a quarter, the Company reviews its role with
respect to each site identified. Based on the review process,
the Company has recorded reserves to cover estimated contingent
future environmental costs with respect to such sites.
Environmental costs are charged to expense when they relate to
an existing condition caused by past operations and do not
contribute to current or future revenue generation. The recorded
liabilities for estimated future environmental costs are
undiscounted and include amounts representing the Companys
estimate of unasserted claims, which the Company believes to be
immaterial. The liability includes future costs for all sites
where the Companys obligation is (1) deemed probable,
and (2) where such costs can be reasonably estimated. The
liability includes future costs for remediation and restoration
of sites as well as any significant ongoing monitoring costs,
but excludes any anticipated insurance recoveries.
Currently, the Company does not possess sufficient information
to reasonably estimate the amounts of additional liabilities, if
any, on some sites until completion of future environmental
studies. In addition, latent conditions at any given location
could result in exposure, the amount and materiality of which
cannot presently be reliably estimated. Based upon information
currently available, however, the Company believes its
environmental reserves are adequate to accomplish remedial
actions to comply with present laws and regulations, and that
the ultimate liability for these matters, if any, will not
materially affect its overall results of operations, financial
condition and liquidity.
Other
Other reserves of $97 million include liabilities for
various claims, such as longshoremen disability claims, freight
claims, and claims for property, automobile and general
liability. As liabilities become known, the Company accrues the
estimable and probable amount, in accordance with SFAS 5.
Longshoremen disability reserves represent liability for
assessments under Section 8f of the United States Longshore
and Harbor Workers Compensation Act. These reserves have
amounts accrued for second injury fund liabilities, which
represent the non-medical portion of employee claims which are
paid by the United States Department of Labor and are
attributable to an earlier injury to the same employee.
Freight claims represent claims for both freight loss and damage
and freight rate disputes. Freight loss and damage claims are
liabilities that resulted in lost or damaged customer freight
while being handled by the Companys transportation
services. Freight rate disputes represent liabilities for
customer claims regarding the rate charged by the Company for
its transportation services. Liabilities for freight rate
disputes are recorded as a reduction of revenue.
The Company accrues for losses related to property, automobile
and general liability. Property and automobile claims represent
primary liability and state mandated coverages required
satisfying financial responsibility requirements for company
property and vehicle fleets. General liability is coverage for
liability arising from operations of non-rail CSX subsidiaries.
78
CSX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
NOTE 12. |
Debt and Credit Agreements |
Debt is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average | |
|
|
|
|
|
|
|
|
Interest | |
|
|
|
|
|
|
|
|
Rates at | |
|
|
|
|
|
|
|
|
December 30, | |
|
December 30, | |
|
December 31, | |
|
|
Maturity | |
|
2005 | |
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
| |
|
| |
|
|
(Dollars in millions) | |
Notes
|
|
|
2006-2043 |
|
|
|
6.9 |
% |
|
$ |
4,891 |
|
|
$ |
5,870 |
|
Convertible Debentures, net of $80 and $85 discount, respectively
|
|
|
2021 |
|
|
|
1.0 |
% |
|
|
468 |
|
|
|
463 |
|
Equipment Obligations
|
|
|
2006-2015 |
|
|
|
6.6 |
% |
|
|
549 |
|
|
|
651 |
|
Other Obligations, Including Capital Leases
|
|
|
2006-2015 |
|
|
|
7.3 |
% |
|
|
121 |
|
|
|
247 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Current Maturities and Long- term Debt
|
|
|
|
|
|
|
|
|
|
|
6,029 |
|
|
|
7,231 |
|
Less Debt Due within One Year
|
|
|
|
|
|
|
|
|
|
|
(936 |
) |
|
|
(983 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Long Term Debt
|
|
|
|
|
|
|
|
|
|
$ |
5,093 |
|
|
$ |
6,248 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In June 2005, CSX repurchased $1.0 billion of its
publicly-traded notes listed below.
|
|
|
|
|
|
|
|
|
|
|
|
|
Aggregate Principal | |
|
|
|
|
Amount of | |
|
|
|
|
Tendered Notes | |
|
|
Principal Amount | |
|
Accepted for | |
Notes |
|
Outstanding | |
|
Purchase | |
|
|
| |
|
| |
|
|
(Dollars in millions) | |
CSX 2.75% Notes due 2006
|
|
$ |
200 |
|
|
$ |
186 |
|
CSX 9% Notes due 2006
|
|
|
300 |
|
|
|
206 |
|
CSX Floating Rate Notes due 2006
|
|
|
300 |
|
|
|
58 |
|
CSX 8.625% Notes due 2022
|
|
|
200 |
|
|
|
84 |
|
CSX 7.95% Notes due 2027
|
|
|
500 |
|
|
|
227 |
|
CSX 8.10% Notes due 2022
|
|
|
150 |
|
|
|
57 |
|
CSX 7.25% Notes due 2027
|
|
|
250 |
|
|
|
167 |
|
CSX 7.90% Notes due 2017
|
|
|
400 |
|
|
|
15 |
|
|
|
|
|
|
|
|
|
|
$ |
2,300 |
|
|
$ |
1,000 |
|
|
|
|
|
|
|
|
The consideration paid for these notes totaled
$1.2 billion, including a pretax charge of
$192 million for costs to repurchase the debt which
primarily reflects the market value above original issue value.
CSX used net cash proceeds from the disposition of CSXs
International Terminals business, along with cash on hand, to
finance this repurchase.
In February 2004, CSX executed a $100 million bank
financing that matured on February 25, 2005, which bore
interest at a rate that varied with LIBOR plus an applicable
spread. As of December 31, 2004, CSX had $100 million
in aggregate principal amount outstanding under this agreement.
CSX settled this obligation with cash at maturity.
In June 2004, CSX executed a $300 million bank financing
with a maturity date of December 29, 2004, which bore
interest at a rate that varied with LIBOR plus an applicable
spread. As of December 31, 2004, CSX repaid the entire
aggregate principal amount outstanding under this agreement and
terminated this agreement.
79
CSX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
In August 2004, CSX issued $300 million of floating rate
notes with a maturity date of August 3, 2006. The notes
bear interest at a rate that varies with LIBOR plus an
applicable spread. These notes are not redeemable prior to
maturity.
In October 2001, CSX issued $564 million aggregate
principal amount at maturity in unsubordinated zero coupon
convertible debentures (the debentures) due
October 30, 2021 for an initial offering price of
approximately $462 million. The carrying value of
outstanding debentures was $468 million and
$463 million, at December 30, 2005 and
December 31, 2004, respectively. These debentures accrete
(increase) in value at a yield to maturity of 1% per year.
The accretion rate may be reset on October 30, 2007,
October 30, 2011, and October 30, 2016 to a rate based
on five-year United States Treasury Notes minus 2.8%. In no
event, however, will the yield to maturity be reset below 1% or
above 3% per annum. Accretion in value on the debentures is
recorded for each period, but will not be paid prior to maturity.
In October 2005, holders had the option to require CSX to
purchase their debentures at a purchase price equal to the
accreted value of $852.48 per $1,000 principal amount at
maturity. As a result, CSX purchased an immaterial aggregate
principal amount at maturity of the debentures with cash on
hand. Similarly, the debentures allow holders to require CSX to
purchase their debentures in October 2006, October 2008, October
2011, and October 2016, at a purchase price equal to the
accreted value of the debentures at the time. The debentures are
classified in Current Maturities of Long-term Debt in the
Consolidated Balance Sheets. CSX may redeem the debentures for
cash at any time on or after October 30, 2008, at a
redemption price equal to the accreted value of the debentures.
CSX amended the terms of these debentures during the third
quarter of 2004 to surrender its right to pay the purchase
price, in whole or in part, in shares of CSXs common stock
for debentures tendered to CSX at the option of holders on
certain specified purchase dates. As a result, if CSX is
required to purchase any of the debentures on any of such dates,
CSX will be required to pay the purchase price for such
debentures on such specified purchase dates in cash.
Holders may in addition convert their debentures into shares of
CSXs common stock at a conversion rate of 17.75 common
shares per debenture, subject to customary anti-dilution
adjustments, if any of the following conditions are satisfied:
|
|
|
|
|
If the closing sale price of CSXs common stock for at
least 20 trading days in the 30 trading day period ending on the
trading day before the conversion date is more than 120% (which
percentage will decline over the life of the debentures to 110%
in accordance with the terms of the debentures) of the accreted
conversion price per share of CSXs common stock at that
preceding trading day; |
|
|
|
If CSXs senior unsecured credit ratings are downgraded by
Moodys Investors Service, Inc. to below Ba1 and by
Standard & Poors Rating Services to below BB+; |
|
|
|
If CSX has called the debentures for redemption (which may occur
no sooner than October 30, 2008); or |
|
|
|
Upon the occurrence of specified corporate transactions. |
The accreted conversion price of the debentures at
December 30, 2005 was $853.98 and the threshold price to be
met in order to convert the debentures into common stock was
$56.79 per common share.
80
CSX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
Short-term Debt Balances and Rates |
|
|
|
|
|
|
|
|
|
|
|
December 30, | |
|
December 31, | |
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
|
(Dollars in millions) | |
Short-term Debt
|
|
$ |
1 |
|
|
$ |
101 |
|
Weighted Average Interest Rates
|
|
|
4.47 |
% |
|
|
1.10 |
% |
|
|
|
Long-term Debt Maturities |
|
|
|
|
|
Fiscal Years Ending |
|
(Dollars in millions) | |
|
|
| |
2006
|
|
$ |
1,016 |
|
2007
|
|
|
595 |
|
2008
|
|
|
633 |
|
2009
|
|
|
296 |
|
2010
|
|
|
94 |
|
2011 and Thereafter
|
|
|
3,474 |
|
|
|
|
|
Total Long-term Debt Maturities
|
|
|
6,108 |
|
Unamortized discount on convertible bonds included in Current
Maturities of Long-term Debt
|
|
|
(80 |
) |
Fair market value of interest rate swap included in Long-term
Debt
|
|
|
1 |
|
|
|
|
|
Total Current Maturities and Long-term Debt
|
|
$ |
6,029 |
|
|
|
|
|
Certain of CSXs rail unit properties are pledged as
security for various rail-related long-term debt issues. In
addition, the Company has approximately $68 million in
assets, which are specifically designated to fund an equal
amount of long-term debt.
CSX has a $1.2 billion five-year unsecured revolving credit
facility expiring in May 2009 and a $400 million
364-day unsecured
revolving credit facility expiring in May 2006. The facilities
were entered into in May 2004 and May 2005, respectively, on
terms substantially similar to the facilities they replaced.
Generally, these facilities may be used for general corporate
purposes, to support CSXs commercial paper, and for
working capital. Neither of the credit facilities was drawn on
as of December 30, 2005. Commitment fees and interest rates
payable under the facilities are similar to fees and rates
available to comparably rated investment-grade borrowers. In
2005, CSX paid approximately $2 million for total fees
associated with the undrawn facility. These credit facilities
allow for borrowings at floating (LIBOR-based) rates, plus a
spread, depending upon CSXs senior unsecured debt ratings.
At December 30, 2005, CSX was in compliance with all
covenant requirements under the facilities.
|
|
NOTE 13. |
Derivative Financial Instruments |
CSX uses derivative financial instruments to manage its overall
exposure to fluctuations in interest rates and fuel costs.
CSX has entered into various interest rate swap agreements on
the following fixed rate notes:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Variable Rate at | |
|
Variable Rate at | |
|
|
|
|
Fixed Interest | |
|
December 30, | |
|
December 31, | |
Maturity Date |
|
Notional Amount | |
|
Rate | |
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
| |
|
| |
|
|
(Dollars in | |
|
|
|
|
|
|
|
|
millions) | |
|
|
|
|
|
|
May 1, 2007
|
|
$ |
450 |
|
|
|
7.45 |
% |
|
|
7.65 |
% |
|
|
5.50 |
% |
May 1, 2032
|
|
|
150 |
|
|
|
8.30 |
% |
|
|
5.84 |
% |
|
|
3.75 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total/ Average
|
|
$ |
600 |
|
|
|
7.66 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
81
CSX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Under these agreements, CSX will pay variable interest based on
LIBOR in exchange for a fixed rate, effectively transforming the
notes to floating rate obligations. The interest rate swap
agreements are designated and qualify as fair value hedges and
the gain or loss on the derivative instrument, as well as the
offsetting gain or loss on the fixed rate note attributable to
the hedged risk, are recognized in current earnings during the
period of change in fair values. Hedge effectiveness is measured
at least quarterly based on the relative change in fair value of
the derivative contract in comparison with changes over time in
the fair value of the fixed rate notes. Any change in fair value
resulting from ineffectiveness, as defined by SFAS 133,
Accounting For Derivative Instruments and Hedging Activities
(SFAS 133), is recognized immediately in
earnings. CSXs interest rate swaps qualify as perfectly
effective fair value hedges, as defined by SFAS 133. As
such, there was no ineffective portion to the hedge recognized
in earnings during the current or prior year periods. Long-term
debt has been increased by $1 million and $26 million
for the fair market value of the interest rate swap agreements
based upon quoted market prices at December 30, 2005 and
December 31, 2004, respectively. Fair value adjustments are
non-cash transactions and, accordingly, have no cash impact on
the Consolidated Cash Flow Statements.
The differential to be paid or received under these agreements
is accrued based on the terms of the agreements and is
recognized in interest expense over the term of the related
debt. The related amounts payable to or receivable from
counterparties are included in other current liabilities or
assets. Cash flows related to interest rate swap agreements are
classified as Operating Activities in the Consolidated Cash Flow
Statements. For the fiscal years ended December 30, 2005
and December 31, 2004, CSX reduced interest expense by
approximately $12 million and $32 million,
respectively, as a result of the interest rate swap agreements
that were in place during each period.
The counterparties to the interest rate swap agreements expose
CSX to credit loss in the event of non-performance. CSX does not
anticipate non-performance by the counterparties.
Fuel Hedging
In 2003, CSX began a program to hedge a portion of CSXTs
future diesel fuel purchases. This program was established to
manage exposure to fuel price fluctuations. In order to minimize
this risk, CSX has entered into a series of swaps in order to
fix the price of a portion of CSXTs estimated future fuel
purchases.
Following is a summary of outstanding fuel swaps:
|
|
|
|
|
|
|
December 30, 2005 | |
|
|
| |
Approximate Gallons Hedged (Millions)
|
|
|
57 |
|
Average Price Per Gallon
|
|
|
$0.84 |
|
Swap Maturities
|
|
|
January 2006-July 2006 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006 | |
|
|
| |
|
|
Q1 | |
|
Q2 | |
|
Q3 | |
|
|
| |
|
| |
|
| |
Estimated % of Future Fuel Purchases
Hedged at December 30, 2005
|
|
|
25 |
% |
|
|
11 |
% |
|
|
1 |
% |
The program limits fuel hedges to a
24-month duration and a
maximum of 80% of CSXTs average monthly fuel purchased for
any month within the
24-month period, and
places the hedges among selected counterparties. Fuel hedging
activity favorably impacted fuel expense for the fiscal year
ended December 30, 2005 and December 31, 2004 by
$249 million and $63 million, respectively. Fuel
hedging activity had no impact on fuel expense for the fiscal
year ended December 26, 2003. Ineffectiveness, or the
extent to which changes in the fair values of the fuel swaps did
not offset changes in the fair values of the expected fuel
purchases, was immaterial.
These instruments qualify, and are designated by management, as
cash-flow hedges of variability in expected future cash flows
attributable to fluctuations in fuel prices. The fair values of
82
CSX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
fuel derivative instruments are determined based upon current
fair market values as quoted by third party dealers and are
recorded on the Consolidated Balance Sheets with offsetting
adjustments to Accumulated Other Comprehensive Loss, a component
of Shareholders Equity. Amounts are reclassed from
Accumulated Other Comprehensive Loss as the underlying fuel that
was hedged is consumed by rail operations. The fair value of
fuel derivative instruments based upon quoted market prices was
$51 million and $118 million as of December 30,
2005 and December 31, 2004. Fair value adjustments are
non-cash transactions and, accordingly, have no cash impact on
the Consolidated Cash Flow Statements.
CSX suspended entering into new swaps in its fuel hedge program
since the third quarter of 2004. CSX will continue to monitor
and assess the global fuel marketplace to decide if and when to
resume hedging under the program.
The counterparties to the fuel hedge agreements expose CSX to
credit loss in the event of non-performance. CSX does not
anticipate non-performance by the counterparties.
|
|
NOTE 14. |
Shareholders Equity |
|
|
|
Common and Preferred Stocks |
Common and Preferred Stock consists of:
|
|
|
|
|
|
|
December 30, | |
Common Stock, $1 Par Value |
|
2005 | |
|
|
| |
|
|
(In thousands) | |
Common Shares Authorized
|
|
|
300,000 |
|
Common Shares Issued and Outstanding
|
|
|
218,203 |
|
|
|
|
|
|
|
|
December 30, | |
Preferred Stock |
|
2005 | |
|
|
| |
|
|
(In thousands) | |
Preferred Shares Authorized
|
|
|
25,000 |
|
Preferred Shares Outstanding
|
|
|
|
|
Holders of Common Stock are entitled to one vote on all matters
requiring a vote for each share held. Preferred Stock is senior
to common stock with respect to dividends and upon liquidation
of CSX.
Prior to October 2003, 3,000,000 shares had been designated
as Series B Preferred Stock in conjunction with CSXs
Shareholder Rights Plan. In October 2003, the expiration date of
the shareholder rights under the Shareholder Rights Plan was
accelerated, resulting in the effective termination of the Plan,
and CSXs Articles of Incorporation were amended to
eliminate the designation of shares for Series B Preferred.
83
CSX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
NOTE 15. |
Earnings Per Share |
The following table sets forth the computation of basic earnings
per share and earnings per share, assuming dilution:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Years Ended | |
|
|
| |
|
|
December 30, | |
|
December 31, | |
|
December 26, | |
|
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
Numerator (Millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings from Continuing Operations
|
|
$ |
720 |
|
|
$ |
418 |
|
|
$ |
137 |
|
|
Interest Expense on Convertible Debt Net of Tax
|
|
|
4 |
|
|
|
4 |
|
|
|
4 |
|
|
|
|
|
|
|
|
|
|
|
|
Net Earnings from Continuing Operations, If- Converted
|
|
|
724 |
|
|
|
422 |
|
|
|
141 |
|
|
Discontinued Operations Net of Tax
|
|
|
425 |
|
|
|
(79 |
) |
|
|
52 |
|
|
Cumulative Effect of Accounting Change Net of Tax
|
|
|
|
|
|
|
|
|
|
|
57 |
|
|
|
|
|
|
|
|
|
|
|
|
Net Earnings, If-Converted
|
|
|
1,149 |
|
|
|
343 |
|
|
|
250 |
|
|
Interest Expense on Convertible Debt Net of Tax
|
|
|
(4 |
) |
|
|
(4 |
) |
|
|
(4 |
) |
|
|
|
|
|
|
|
|
|
|
|
Net Earnings
|
|
$ |
1,145 |
|
|
$ |
339 |
|
|
$ |
246 |
|
|
|
|
|
|
|
|
|
|
|
Denominator (Thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average Common Shares Outstanding
|
|
|
216,425 |
|
|
|
214,796 |
|
|
|
213,964 |
|
|
Convertible Debt
|
|
|
9,728 |
|
|
|
9,728 |
|
|
|
9,932 |
|
|
Stock Options
|
|
|
1,406 |
|
|
|
360 |
|
|
|
328 |
|
|
Other Potentially Dilutive Common Shares
|
|
|
465 |
|
|
|
146 |
|
|
|
104 |
|
|
|
|
|
|
|
|
|
|
|
|
Average Common Shares Outstanding, Assuming Dilution
|
|
|
228,024 |
|
|
|
225,030 |
|
|
|
224,328 |
|
|
|
|
|
|
|
|
|
|
|
Earnings Per Share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from Continuing Operations
|
|
$ |
3.33 |
|
|
$ |
1.95 |
|
|
$ |
0.64 |
|
|
Discontinued Operations
|
|
|
1.96 |
|
|
|
(0.37 |
) |
|
|
0.24 |
|
|
Cumulative Effect of Accounting Change
|
|
|
|
|
|
|
|
|
|
|
0.26 |
|
|
|
|
|
|
|
|
|
|
|
|
Net Earnings
|
|
$ |
5.29 |
|
|
$ |
1.58 |
|
|
$ |
1.14 |
|
|
|
|
|
|
|
|
|
|
|
Earnings Per Share, Assuming Dilution:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from Continuing Operations
|
|
$ |
3.17 |
|
|
$ |
1.87 |
|
|
$ |
0.63 |
|
|
Discontinued Operations
|
|
|
1.87 |
|
|
|
(0.35 |
) |
|
|
0.23 |
|
|
Cumulative Effect of Accounting Change
|
|
|
|
|
|
|
|
|
|
|
0.25 |
|
|
|
|
|
|
|
|
|
|
|
|
Net Earnings
|
|
$ |
5.04 |
|
|
$ |
1.52 |
|
|
$ |
1.11 |
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share are based on the weighted-average
number of common shares outstanding. Earnings per share,
assuming dilution, is based on the weighted-average number of
common shares outstanding adjusted for the effect of potentially
dilutive common shares from convertible debt and employee stock
options and awards. The following table provides information
about stock options exercised.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Years Ended | |
|
|
| |
|
|
December 30, | |
|
December 31, | |
|
December 26, | |
|
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
|
|
(Thousands) | |
Number of Stock Options Exercised
|
|
|
2,764 |
|
|
|
517 |
|
|
|
293 |
|
84
CSX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Certain potentially dilutive stock options as of the fiscal
years ended 2005, 2004 and 2003 were excluded from the
computation of earnings per share, assuming dilution, since
their related option exercise prices were greater than the
average market price of the common shares during the period. The
following table provides information about potentially dilutive
stock options excluded from the computation of earnings per
share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Years Ended | |
|
|
| |
|
|
December 30, | |
|
December 31, | |
|
December 26, | |
|
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
Number of Shares (Thousands)
|
|
|
2,213 |
|
|
|
16,374 |
|
|
|
18,497 |
|
Average Exercise Price
|
|
$ |
53.11 |
|
|
$ |
42.88 |
|
|
$ |
42.41 |
|
A substantial increase in the fair market value of CSXs
stock price could trigger contingent conditions for conversion
allowing holders to convert their debentures into CSX common
stock, as well as causing an increase in the exercise of stock
options. Thus, both could negatively impact basic earnings per
share.
The Company adopted the fair value based method of accounting
for share-based payments effective fiscal year 2003 using the
prospective method described in SFAS 148. (See Note 1.
Nature of Operations and Significant Accounting Policies under
the caption Share-Based Compensation.)
Total compensation expense associated with share-based
compensation was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Years Ended | |
|
|
| |
|
|
December 30, | |
|
December 31, | |
|
December 26, | |
|
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
|
|
(Dollars in millions) | |
Stock Based Compensation Expense
|
|
$ |
39 |
|
|
$ |
20 |
|
|
$ |
5 |
|
CSX stock option and award plans provide primarily
(1) stock options, (2) restricted stock awards to
eligible officers and employees, (3) Long-term incentive
plans, (4) stock plans for directors, and (5) other
plans. Awards granted under the various plans are determined by
the Board of Directors.
At December 30, 2005, there were 3,334 current or former
employees with grants outstanding under the various plans. A
total of approximately 39 million shares were reserved for
issuance under the plans of which 6 million were available
for new grants. The remaining shares are assigned to outstanding
stock options and stock awards.
The fair value of $8.93 for stock options granted in 2003 was
estimated as of the date of grant using the Black-Scholes-Merton
option model and incorporating assumptions as listed below. No
stock options were granted in 2004 or 2005.
|
|
|
|
|
|
|
|
December 26, | |
|
|
2003 | |
|
|
| |
Black-Scholes Assumptions:
|
|
|
|
|
|
Expected Dividend Yield
|
|
|
1.10 |
% |
|
Risk-free Interest Rate
|
|
|
2.53 |
% |
|
Expected Stock Volatility
|
|
|
28 |
% |
|
Expected Term Until Exercise
|
|
|
6 years |
|
Stock options have been granted with
10-year terms. Options
outstanding at December 30, 2005, are generally exercisable
three to ten years after date of grant. The exercise price for
options granted equals the market price of the underlying stock
on the date of grant. A summary of CSXs
85
CSX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
stock option activity and related information for the fiscal
years ended December 30, 2005, December 31, 2004 and
December 26, 2003 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 30, 2005 | |
|
December 31, 2004 | |
|
December 26, 2003 | |
|
|
| |
|
| |
|
| |
|
|
Weighted- | |
|
|
|
Weighted- | |
|
2004 | |
|
Weighted- | |
|
|
|
|
Average | |
|
Average | |
|
Average | |
|
Average | |
|
Average | |
|
Average | |
|
|
Shares | |
|
Exercise | |
|
Shares | |
|
Exercise | |
|
Shares | |
|
Exercise | |
|
|
(000s) | |
|
Price | |
|
(000s) | |
|
Price | |
|
(000s) | |
|
Price | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Outstanding at Beginning of Year
|
|
|
20,594 |
|
|
$ |
39.83 |
|
|
|
23,297 |
|
|
$ |
39.27 |
|
|
|
26,022 |
|
|
$ |
40.45 |
|
Granted
|
|
|
|
|
|
$ |
|
|
|
|
|
|
|
$ |
|
|
|
|
3,477 |
|
|
$ |
38.14 |
|
Expired or Canceled
|
|
|
(883 |
) |
|
$ |
39.97 |
|
|
|
(2,186 |
) |
|
$ |
37.83 |
|
|
|
(5,909 |
) |
|
$ |
39.91 |
|
Exercised
|
|
|
(2,764 |
) |
|
$ |
35.56 |
|
|
|
(517 |
) |
|
$ |
23.29 |
|
|
|
(293 |
) |
|
$ |
22.42 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at End of Year
|
|
|
16,947 |
|
|
$ |
40.30 |
|
|
|
20,594 |
|
|
$ |
39.83 |
|
|
|
23,297 |
|
|
$ |
39.27 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at End of Year
|
|
|
8,497 |
|
|
$ |
42.15 |
|
|
|
7,758 |
|
|
$ |
41.18 |
|
|
|
7,104 |
|
|
$ |
41.13 |
|
The following table summarizes information about stock options
outstanding at December 30, 2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Outstanding | |
|
Options Exercisable | |
|
|
| |
|
| |
|
|
|
|
Weighted- | |
|
|
|
|
|
|
|
|
Average | |
|
Weighted- | |
|
|
|
Weighted- | |
|
|
Number | |
|
Remaining | |
|
Average | |
|
Number | |
|
Average | |
|
|
Outstanding | |
|
Contractual | |
|
Exercise | |
|
Outstanding | |
|
Exercise | |
Exercise Price |
|
(000s) | |
|
Life (Years) | |
|
Price | |
|
(000s) | |
|
Price | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
$20 to $29
|
|
|
713 |
|
|
|
4.20 |
|
|
$ |
24.02 |
|
|
|
713 |
|
|
$ |
24.02 |
|
|
$30 to $39
|
|
|
9,523 |
|
|
|
6.28 |
|
|
$ |
36.58 |
|
|
|
2,838 |
|
|
$ |
39.15 |
|
|
$40 to $49
|
|
|
4,509 |
|
|
|
2.47 |
|
|
$ |
44.48 |
|
|
|
3,571 |
|
|
$ |
44.58 |
|
|
$50 to $59
|
|
|
2,202 |
|
|
|
0.89 |
|
|
$ |
53.12 |
|
|
|
1,375 |
|
|
$ |
51.43 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
16,947 |
|
|
|
4.48 |
|
|
$ |
40.30 |
|
|
|
8,497 |
|
|
$ |
42.15 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted stock awards vest over a three to five-year
employment period. The following table provides information
about outstanding restricted stock awards.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Years Ended | |
|
|
| |
|
|
December 30, | |
|
December 31, | |
|
December 26, | |
|
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
Number of Restricted Stock Awards Outstanding (Thousands)
|
|
|
275 |
|
|
|
259 |
|
|
|
249 |
|
Weighted Average Fair Value at Grant Date
|
|
$ |
32.72 |
|
|
$ |
31.21 |
|
|
$ |
30.97 |
|
Restricted Stock Award Expense (Millions)
|
|
$ |
2 |
|
|
$ |
2 |
|
|
$ |
2 |
|
|
|
|
Long-term Incentive Programs |
The CSX Long-term Incentive Program, introduced in 2004, is
designed to reward participants for the attainment of certain
CSX financial and strategic initiatives designed to align
shareholder and employee interests. The objective of the plan is
to motivate and reward key members of management and executives
for achieving and exceeding a two-year modified free cash flow
goal. The award is payable in cash and CSX common stock. The
current plan expired on December 30, 2005, and CSX issued
756 thousand shares in 2006 as a result of the achievement of
performance targets for the two preceding fiscal years.
Additionally, CSX recognized $75 million and
$10 million in expense associated with this program for the
fiscal years ended December 30, 2005 and December 31,
2004, respectively.
86
CSX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The Company intends to continue to motivate and reward key
members of management and executive officers for achieving
certain performance criteria through the use of long-term
incentive compensation plans at least partially payable in CSX
common stock.
The Stock Plan for Directors, approved by the shareholders in
1992, governs in part the manner in which directors fees
and retainers are paid. In 2004, the minimum retainer to be paid
in CSX common stock increased from 40% to 50%. In addition, each
director may elect to receive up to 100% of the remaining
retainer and fees in the form of common stock of CSX. In 1997,
shareholders approved amendments to the Plan that would permit
additional awards of stock or stock options. The following table
provides information about shares issued to directors.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Years Ended | |
|
|
| |
|
|
December 30, | |
|
December 31, | |
|
December 26, | |
|
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
Shares Issued to Directors (Thousands)
|
|
|
37 |
|
|
|
41 |
|
|
|
36 |
|
Expense (Millions)
|
|
$ |
2 |
|
|
$ |
1 |
|
|
$ |
1 |
|
For 2005, the Plan permits each director, in accordance with
Internal Revenue Code Section 409A, to defer receipt of
fees. Deferred fee amounts are credited to an unfunded account
and may be invested in eight investment choices, including a CSX
common stock equivalent fund. Distributions are made in
accordance with elections made by the directors consistent with
the terms of the Plan. At December 30, 2005, there were 593
thousand shares of common stock reserved for issuance under this
plan.
|
|
|
Employee Stock Purchase Plan |
The 2001 Employee Stock Purchase Plan (ESPP) allowed
eligible employees to purchase CSX common stock at a discount.
Specifically, participating employees were able to purchase CSX
stock at the lower of 85% of fair market value on
December 1 (beginning of the annual offering period) or 85%
of fair market value on November 30 of the following year
(end of the annual offering period). In effect, employees
received a 12-month
stock option to purchase CSX stock. Once purchased, the shares
were unrestricted and could generally be sold or transferred at
any time. Employees purchased approximately 540,000 shares
under this plan during 2003. This plan was not extended beyond
2003.
|
|
|
Shareholder Dividend Reinvestment Plan |
CSX maintains the Shareholder Dividend Reinvestment Plan under
which shareholders may purchase additional shares of stock. The
following table provides information about shares available for
issuance under this plan as of December 30, 2005,
December 31, 2004 and December 26, 2003.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 30, | |
|
December 31, | |
|
December 26, | |
|
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
|
|
(Thousands) | |
Number of Shares Available for Issuance
|
|
|
4,734 |
|
|
|
4,947 |
|
|
|
4,626 |
|
The Board of Directors has authorized CSX to purchase shares of
its common stock from time to time in an amount up to
approximately $150 million in any fiscal year. Pursuant to
this authority, CSX intends to purchase shares of CSX common
stock in the open market or in privately negotiated transactions.
|
|
NOTE 17. |
Fair Value of Financial Instruments |
Fair values of the Companys financial instruments are
estimated by reference to quoted prices from market sources and
financial institutions, as well as other valuation techniques.
Long-term debt is the only financial instrument of the Company
with fair values significantly different from their
87
CSX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
carrying amounts. The fair value of long-term debt has been
estimated using discounted cash flow analysis based upon the
Companys current incremental borrowing rates for similar
types of financing arrangements
|
|
|
|
|
|
|
|
|
|
|
|
December 30, | |
|
December 31, | |
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
|
(Dollars in billions) | |
Long Term Debt Including Current Maturities:
|
|
|
|
|
|
|
|
|
|
Fair Value
|
|
$ |
6.7 |
|
|
$ |
7.7 |
|
|
Carrying Value
|
|
$ |
6.0 |
|
|
$ |
7.2 |
|
|
|
NOTE 18. |
Employee Benefit Plans |
The Company sponsors defined benefit pension plans principally
for salaried, management personnel. The plans provide eligible
employees with retirement benefits based predominantly on years
of service and compensation rates near retirement. Under the CSX
pension plan, employees hired after December 31, 2002 are
covered by a cash formula. The cash balance formula provides
benefits by utilizing interest and pay credits based upon age,
service and compensation.
In addition to the defined benefit pension plans, CSX sponsors
one postretirement medical plan and one life insurance plan that
provide benefits to full-time, salaried, management employees
hired prior to January 1, 2003, upon their retirement if
certain eligibility requirements are met. The postretirement
medical plan is contributory (partially funded by retirees),
with retiree contributions adjusted annually. The life insurance
plan is non-contributory.
|
|
|
|
|
|
|
|
|
|
|
Summary of Participants as of | |
|
|
January 1, 2005 | |
|
|
| |
|
|
Pension Plans | |
|
Postretirement Plan | |
|
|
| |
|
| |
Active Employees
|
|
|
6,654 |
|
|
|
4,325 |
|
Retirees and Beneficiaries
|
|
|
11,079 |
|
|
|
11,295 |
|
Other
|
|
|
5,980 |
|
|
|
265 |
|
|
|
|
|
|
|
|
Total
|
|
|
23,713 |
|
|
|
15,885 |
|
|
|
|
|
|
|
|
As permitted by SFAS 87, Employers Accounting for
Pensions (SFAS 87), the Company has elected
to use a plan measurement date of September 30 to
actuarially value its pension and postretirement plans as it
provides for more timely analysis. The Company engages
independent, external actuaries to compute the amounts of
liabilities and expenses relating to these plans subject to the
assumptions that the Company selects as of the beginning of the
plan year.
The benefit obligation for these plans represents the liability
of the Company for current and retired employees and is affected
primarily by the following:
|
|
|
|
|
Service cost (benefits attributed to employee service during the
period) |
|
|
|
Interest cost (interest on the liability due to the passage of
time) |
|
|
|
Actuarial gains/losses (experience during the year different
from that assumed and changes in plan assumptions) |
|
|
|
Benefits paid to participants |
Currently, there is proposed legislation regarding pension plan
funding requirements. If the proposed legislation is passed,
pension plan funding requirements will be increased. The impact
to the Company of this proposed legislation is unknown at this
time.
Plan assets are amounts that have been segregated and restricted
to provide benefits, and include amounts contributed by the
Company and amounts earned from investing contributions, less
88
CSX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
benefits paid. The Company funds the cost of the postretirement
medical and life insurance benefits on a pay-as-you go basis.
CSX expects to make cash contributions of approximately
$9 million to its pension plans in 2006. The benefits as of
December 30, 2005 expected to be paid in each of the next
five fiscal years, and in the aggregate for the five fiscal
years thereafter are as follows:
|
|
|
|
|
|
|
|
|
|
|
Expected Cashflows | |
|
|
| |
|
|
Pension | |
|
Postretirement | |
|
|
Benefits | |
|
Benefits | |
|
|
| |
|
| |
|
|
(Dollars in millions) | |
2006
|
|
$ |
147 |
|
|
$ |
47 |
|
2007
|
|
|
143 |
|
|
|
46 |
|
2008
|
|
|
143 |
|
|
|
45 |
|
2009
|
|
|
144 |
|
|
|
43 |
|
2010
|
|
|
142 |
|
|
|
42 |
|
Thereafter
|
|
|
738 |
|
|
|
177 |
|
|
|
|
|
|
|
|
Total
|
|
$ |
1,457 |
|
|
$ |
400 |
|
|
|
|
|
|
|
|
Asset management for the pension fund is founded upon an asset
allocation strategy that was developed using asset return
simulation in conjunction with projected plan liabilities. The
allocation seeks maximization of returns within the constraints
of acceptable risks considering the long-term investment
horizon. CSX has established a target allocation of 60% equity
and 40% fixed income investments. The goal is to maintain assets
at or above benefit obligations (long-term liabilities) without
corporate contributions.
The distribution of pension plan assets as of the measurement
date is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, | |
|
September 30, | |
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
|
|
|
Percent of | |
|
|
|
Percent of | |
|
|
Amount | |
|
Total Assets | |
|
Amount | |
|
Total Assets | |
|
|
| |
|
| |
|
| |
|
| |
|
|
(Dollars in millions) | |
Common Stocks
|
|
$ |
928 |
|
|
|
60 |
% |
|
$ |
865 |
|
|
|
59 |
% |
Fixed Income
|
|
|
591 |
|
|
|
39 |
% |
|
|
581 |
|
|
|
40 |
% |
Cash and Cash Equivalents
|
|
|
17 |
|
|
|
1 |
% |
|
|
12 |
|
|
|
1 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
1,536 |
|
|
|
100 |
% |
|
$ |
1,458 |
|
|
|
100 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company provides investment guidelines to both the
plans fixed income and equity fund managers. Within the
broad asset classes that comprise the plans investments,
common stocks are diversified based on allocations to domestic
and foreign stocks as mandated by the Company. Allocations are
maintained at within 3% of targets. The U.S. stock segment
includes style diversification among managers of large
capitalization stocks and small capitalization stocks. The
Company limits industry sectors, outlines individual stock
issuer concentration and monitors the use or prohibition of
derivatives and CSX securities.
Fixed income securities are diversified across fund managers and
investment style and are benchmarked to a long duration index.
The Company specifies the types of allowable investments such as
government, corporate and asset-backed bonds, and limits
diversification between domestic and foreign investments and the
use of derivatives. Additionally, the Company stipulates minimum
credit quality constraints and any prohibited securities.
Individual investments or fund managers are selected in
accordance with standards of prudence as it applies to asset
diversification and investment suitability. Monitoring fund
investment performance is ongoing. Acceptable performance is
determined in the context of the long-term return objectives of
the fund and appropriate asset class benchmarks.
89
CSX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
Benefit Obligation and Plan Asset Information |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits | |
|
Postretirement Benefits | |
|
|
| |
|
| |
|
|
December 30, | |
|
December 31, | |
|
December 30, | |
|
December 31, | |
|
|
2005 | |
|
2004 | |
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
| |
|
| |
|
|
(Dollars in millions) | |
Actuarial Present Value of Benefit Obligation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated Benefit Obligation
|
|
$ |
1,947 |
|
|
$ |
1,825 |
|
|
|
N/A |
|
|
|
N/A |
|
|
Projected Benefit Obligation
|
|
|
2,078 |
|
|
|
1,941 |
|
|
$ |
444 |
|
|
$ |
509 |
|
Change in Projected Benefit Obligation:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Projected Benefit Obligation at Beginning of Plan Year
|
|
$ |
1,941 |
|
|
$ |
1,916 |
|
|
$ |
509 |
|
|
$ |
513 |
|
Service Cost
|
|
|
34 |
|
|
|
37 |
|
|
|
8 |
|
|
|
9 |
|
Interest Cost
|
|
|
107 |
|
|
|
111 |
|
|
|
24 |
|
|
|
25 |
|
Impact of Plan Changes/ Special Termination Benefits
|
|
|
2 |
|
|
|
51 |
|
|
|
|
|
|
|
20 |
|
Plan Participants Contributions
|
|
|
|
|
|
|
|
|
|
|
14 |
|
|
|
12 |
|
Actuarial (Gain)/ Loss
|
|
|
141 |
|
|
|
12 |
|
|
|
(58 |
) |
|
|
(20 |
) |
Benefits Paid
|
|
|
(147 |
) |
|
|
(186 |
) |
|
|
(53 |
) |
|
|
(50 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit Obligation at End of Plan Year
|
|
$ |
2,078 |
|
|
$ |
1,941 |
|
|
$ |
444 |
|
|
$ |
509 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits | |
|
Postretirement Benefits | |
|
|
| |
|
| |
|
|
December 30, | |
|
December 31, | |
|
December 30, | |
|
December 31, | |
|
|
2005 | |
|
2004 | |
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
| |
|
| |
|
|
(Dollars in millions) | |
Change in Plan Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value of Plan Assets at Beginning of Plan Year
|
|
$ |
1,458 |
|
|
$ |
1,451 |
|
|
|
N/A |
|
|
|
N/A |
|
Actual Return on Plan Assets
|
|
|
210 |
|
|
|
165 |
|
|
|
N/A |
|
|
|
N/A |
|
Employer Contributions
|
|
|
15 |
|
|
|
28 |
|
|
$ |
39 |
|
|
$ |
38 |
|
Plan Participants Contributions
|
|
|
|
|
|
|
|
|
|
|
14 |
|
|
|
12 |
|
Benefits Paid
|
|
|
(147 |
) |
|
|
(186 |
) |
|
|
(53 |
) |
|
|
(50 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value of Plan Assets at End of Plan Year
|
|
$ |
1,536 |
|
|
$ |
1,458 |
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funded Status
|
|
$ |
(542 |
) |
|
$ |
(483 |
) |
|
$ |
(444 |
) |
|
$ |
(509 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funded Status and Amounts Recognized in Consolidated
Balance Sheets |
The funded status, or amount by which the benefit obligation
exceeds the fair value of plan assets, represents a liability.
At December 30, 2005, the status of CSX plans is as follows:
|
|
|
|
|
|
|
|
|
|
|
Aggregate | |
|
Aggregate | |
|
|
Projected Benefit | |
|
Fair Value of | |
|
|
Obligation | |
|
Plan Assets | |
|
|
| |
|
| |
For plans with a projected benefit obligation in excess of plan
assets
|
|
$ |
2.1 billion |
|
|
$ |
1.5 billion |
|
For plans with an accumulated benefit obligation in excess of
plan assets
|
|
$ |
1.9 billion |
|
|
$ |
1.5 billion |
|
90
CSX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following table shows the reconciliation of the funded
status of the plans with the amount recorded in the Consolidated
Balance Sheets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits | |
|
Postretirement Benefits | |
|
|
| |
|
| |
|
|
December 30, | |
|
December 31, | |
|
December 30, | |
|
December 31, | |
|
|
2005 | |
|
2004 | |
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
| |
|
| |
|
|
(Dollars in millions) | |
Funded Status
|
|
$ |
(542 |
) |
|
$ |
(483 |
) |
|
$ |
(444 |
) |
|
$ |
(509 |
) |
Unrecognized Actuarial Loss
|
|
|
477 |
|
|
|
448 |
|
|
|
114 |
|
|
|
184 |
|
Unrecognized Prior Service Cost
|
|
|
23 |
|
|
|
27 |
|
|
|
(14 |
) |
|
|
(19 |
) |
Fourth Quarter Activity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employer Contributions to Pension Plans
|
|
|
4 |
|
|
|
3 |
|
|
|
|
|
|
|
|
|
|
Net Postretirement Benefits Paid
|
|
|
|
|
|
|
|
|
|
|
11 |
|
|
|
10 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Amount Recognized in Consolidated Balance Sheet
|
|
$ |
(38 |
) |
|
$ |
(5 |
) |
|
$ |
(333 |
) |
|
$ |
(334 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
A liability is recognized if net periodic pension cost (cost of
a pension plan for a period, including service cost, interest
cost, actual return on plan assets, gain or loss, amortization
of unrecognized prior service cost) recognized exceeds amounts
the employer has contributed to the plan. An asset is recognized
if net periodic pension cost is less than amounts the employer
has contributed to the plan.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits | |
|
Postretirement Benefits | |
|
|
| |
|
| |
|
|
December 30, | |
|
December 31, | |
|
December 30, | |
|
December 31, | |
|
|
2005 | |
|
2004 | |
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
| |
|
| |
|
|
(Dollars in millions) | |
Accrued Benefit Liability
|
|
$ |
(462 |
) |
|
$ |
(422 |
) |
|
$ |
(333 |
) |
|
$ |
(334 |
) |
Intangible Asset
|
|
|
23 |
|
|
|
26 |
|
|
|
N/A |
|
|
|
N/A |
|
Accumulated Other Comprehensive Loss
|
|
|
401 |
|
|
|
391 |
|
|
|
N/A |
|
|
|
N/A |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Amount Recognized in Consolidated Balance Sheet
|
|
$ |
(38 |
) |
|
$ |
(5 |
) |
|
$ |
(333 |
) |
|
$ |
(334 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Periodic Benefit Expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Postretirement | |
|
|
Pension Benefits | |
|
Benefits | |
|
|
| |
|
| |
|
|
Fiscal Years Ended | |
|
Fiscal Years Ended | |
|
|
| |
|
| |
|
|
2005 | |
|
2004 | |
|
2003 | |
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(Dollars in millions) | |
Service Cost
|
|
$ |
34 |
|
|
$ |
37 |
|
|
$ |
38 |
|
|
$ |
8 |
|
|
$ |
9 |
|
|
$ |
11 |
|
Interest Cost
|
|
|
107 |
|
|
|
111 |
|
|
|
113 |
|
|
|
24 |
|
|
|
25 |
|
|
|
25 |
|
Expected Return on Plan Assets
|
|
|
(120 |
) |
|
|
(130 |
) |
|
|
(137 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of Prior Service Cost
|
|
|
4 |
|
|
|
4 |
|
|
|
4 |
|
|
|
(5 |
) |
|
|
(6 |
) |
|
|
(5 |
) |
Amortization of Net Loss
|
|
|
21 |
|
|
|
14 |
|
|
|
|
|
|
|
13 |
|
|
|
15 |
|
|
|
14 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Periodic Benefit Cost
|
|
$ |
46 |
|
|
$ |
36 |
|
|
$ |
18 |
|
|
$ |
40 |
|
|
$ |
43 |
|
|
$ |
45 |
|
Special Termination Benefits Workforce Reduction
Program/ Curtailments
|
|
|
|
|
|
|
6 |
|
|
|
13 |
|
|
|
|
|
|
|
18 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Periodic Benefit Expense Including Termination Benefits
|
|
$ |
46 |
|
|
$ |
42 |
|
|
$ |
31 |
|
|
$ |
40 |
|
|
$ |
61 |
|
|
$ |
45 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
91
CSX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Due to the termination of employees under the management
restructuring plan (see Note 5. Management Restructuring),
a curtailment occurred in CSXs pension plan and
postretirement medical plan. The estimated cost of the
curtailments of $24 million was included in the management
restructuring charge for the fiscal year ended December 31,
2004. Due to the curtailments, the Company was required to
update its measurement of the assets and obligations of these
plans, which affected the net periodic benefit costs beginning
in the second quarter of 2004. A substantial portion of benefits
provided under the management restructuring initiatives was paid
from assets of the Companys defined benefit pension plans.
The $13 million termination charge in 2003 represents a
curtailment charge associated with the retirement of the
Companys former Chairman and Chief Executive Officer.
|
|
|
Additional Minimum Liability |
During 2005 and 2004, CSX recorded changes in its minimum
pension liability and its shares of changes in Conrails
minimum pension liability. These changes did not affect net
earnings, but are a component of Accumulated Other Comprehensive
Loss on an after tax basis.
|
|
|
|
|
|
|
|
|
|
|
December 30, | |
|
December 31, | |
|
|
2005 | |
|
2004 | |
Components of Accumulated Other Comprehensive Loss |
|
Increase (Decrease) | |
|
Increase (Decrease) | |
|
|
| |
|
| |
|
|
(Dollars in millions) | |
Minimum Pension Liability
|
|
$ |
(10 |
) |
|
$ |
(26 |
) |
Accumulated Effect Net of Taxes
|
|
|
(6 |
) |
|
|
19 |
|
Conrail Effect Net of Taxes
|
|
|
(9 |
) |
|
|
(1 |
) |
Weighted-average assumptions used in accounting for the plans
are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits | |
|
Postretirement Benefits | |
|
|
| |
|
| |
|
|
December 30, | |
|
December 31, | |
|
December 30, | |
|
December 31, | |
|
|
2005 | |
|
2004 | |
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
| |
|
| |
Expected Long-term Return on Plan Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit Cost for Plan Year
|
|
|
8.50 |
% |
|
|
8.90 |
% |
|
|
N/A |
|
|
|
N/A |
|
|
Benefit Obligation at End of Plan Year
|
|
|
8.50 |
% |
|
|
8.50 |
% |
|
|
N/A |
|
|
|
N/A |
|
Discount Rates:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit Cost for Plan Year
|
|
|
5.75 |
% |
|
|
6.00 |
% |
|
|
5.00 |
% |
|
|
5.00 |
% |
|
Benefit Obligation at End of Plan Year
|
|
|
5.25 |
% |
|
|
5.75 |
% |
|
|
5.00 |
% |
|
|
5.00 |
% |
Salary Scale Inflation
|
|
|
3.60 |
% |
|
|
3.20 |
% |
|
|
3.60 |
% |
|
|
3.20 |
% |
The net postretirement benefit obligation was determined using
the following assumptions for health care cost trend rate for
medical plans.
|
|
|
|
|
|
|
|
|
|
|
|
Postretirement Benefits | |
|
|
| |
|
|
December 30, | |
|
December 31, | |
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
Health Care Cost Trend Rate
|
|
|
|
|
|
|
|
|
|
Components of Benefit Cost: Pre-65
|
|
|
12% decreasing to 4.5% |
|
|
|
11% decreasing to 4.5% |
|
|
Components of Benefit Cost: Post-65
|
|
|
13% decreasing to 4.5% |
|
|
|
11% decreasing to 4.5% |
|
|
Benefit Obligations: Pre-65
|
|
|
11% decreasing to 4.5% |
|
|
|
12% decreasing to 4.5% |
|
|
Benefit Obligations: Post-65
|
|
|
12% decreasing to 4.5% |
|
|
|
13% decreasing to 4.5% |
|
92
CSX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
A 1% change in the assumed health care cost trend rate would
have the following effects:
|
|
|
|
|
|
|
|
|
|
|
1% Increase | |
|
1% Decrease | |
|
|
| |
|
| |
|
|
(Dollars in millions) | |
Effect on postretirement benefits service and interest cost
|
|
$ |
1 |
|
|
$ |
(2 |
) |
Effect on postretirement benefit obligation
|
|
$ |
18 |
|
|
$ |
(16 |
) |
|
|
|
Medicare Prescription Drug, Improvement and Modernization
Act of 2003 |
The Company is required to estimate and record the effects of
the Medicare Prescription Drug, Improvement and Modernization
Act of 2003 (Act). The Company determined that its
medical plans prescription drug benefit will qualify as
actuarially equivalent to Medicare Part D based upon a
review by the plans health and welfare actuary of the
plans benefit compared with the benefit that would be paid
under Medicare Part D. The reduction in the postretirement
benefit obligation as a result of the Act was approximately
$56 million as of December 30, 2005.
CSX has applied for the tax free 28% federal reimbursement of
total prescription drug claims from $250 to $5,000 paid after
January 1, 2006.
The Company maintains savings plans for virtually all full-time
salaried employees and certain employees covered by collective
bargaining agreements. Expense associated with these plans was
$19 million, $15 million and $16 million for
2005, 2004 and 2003, respectively.
Under collective bargaining agreements, the Company participates
in a number of multiemployer medical insurance plans providing
health insurance coverage to its contract employees. The
participating employers make contributions on a pay-as-you-go
basis generally based upon the number of its employees
participating in the plan. Total contributions of
$376 million, $368 million and $360 million were
made to these plans in 2005, 2004 and 2003, respectively.
|
|
NOTE 19. |
Commitments and Contingencies |
The Company has various lease agreements with other parties with
terms up to 27 years. Non-cancelable, long-term leases
generally include provisions for maintenance, options to
purchase and options to extend the terms.
At December 30, 2005, minimum building and equipment
rentals and commitments for vessels under these operating leases
are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating | |
|
Sublease | |
|
Net Lease | |
Years |
|
Leases | |
|
Income | |
|
Commitments | |
|
|
| |
|
| |
|
| |
|
|
(Dollars in millions) | |
2006
|
|
$ |
232 |
|
|
$ |
56 |
|
|
$ |
176 |
|
2007
|
|
|
236 |
|
|
|
71 |
|
|
|
165 |
|
2008
|
|
|
170 |
|
|
|
50 |
|
|
|
120 |
|
2009
|
|
|
124 |
|
|
|
37 |
|
|
|
87 |
|
2010
|
|
|
106 |
|
|
|
31 |
|
|
|
75 |
|
Thereafter
|
|
|
375 |
|
|
|
111 |
|
|
|
264 |
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
1,243 |
|
|
$ |
356 |
|
|
$ |
887 |
|
|
|
|
|
|
|
|
|
|
|
Operating leases and an equal portion of sublease income include
approximately $229 million relating to ongoing operating
lease commitments for vessels and equipment, which have been
subleased to Horizon. CSX believes Horizon will fulfill its
contractual commitments with respect to such leases, and CSX
will have no further liabilities for those obligations.
93
CSX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
In addition to the commitments in the following table, the
Company also has agreements covering equipment leased from
Conrail. (See Note 2. Investment In and Integrated Rail
Operations with Conrail, for a description of these commitments.)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For Years Ended | |
|
|
| |
|
|
December 30, | |
|
December 31, | |
|
December 26, | |
|
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
|
|
(Dollars in millions) | |
Rent Expense on Operating Leases
|
|
$ |
523 |
|
|
$ |
567 |
|
|
$ |
556 |
|
The majority of rent expense on operating leases relates to net
daily rental charges on railroad operating equipment which are
not long-term commitments.
The Company recognizes rent expense associated with operating
leases that include escalations over their term using the
straight-line method.
|
|
|
Matters Arising Out of Sale of International
Container-Shipping Assets |
In 2003, CSX finalized a settlement agreement with Maersk
resolving all remaining material disputes pending directly
between the two companies, consisting predominantly of two major
disputes. The first dispute involved a post-closing working
capital adjustment to the sale price for which the Company had
recorded a receivable of approximately $70 million. The
second dispute involved a claim of 425 million Dutch
Guilders (approximately $180 million at then prevailing
currency exchange rates) plus interest by European Container
Terminals (ECT) alleging breaches of contract by the
Company at the Rotterdam container terminal facility owned by
ECT.
Also in 2003, CSX entered into a final settlement agreement with
Maersk allocating responsibility between the two companies for
third party claims and litigation relating to the assets
acquired by Maersk. The two settlements reduced the
Companys 2003 earnings by $108 million pretax,
$67 million after tax. This charge is reflected in
Operating Expense as an Additional Loss on the Sale of the
international container-shipping assets. Neither settlement had
a material impact on cash flows.
CSXT has a commitment under a long-term maintenance program that
currently covers 43% of CSXTs fleet of locomotives. The
agreement is based on the maintenance cycle for each locomotive
and is currently predicted to expire no earlier than 2026 and as
late as 2031, depending upon when additional locomotives are
placed in service. The costs expected to be incurred through the
duration of the agreement fluctuate as locomotives are placed
into or removed from service or as required maintenance is
adjusted. CSXT may terminate the agreement at its option after
2012 though such action will trigger certain liquidated damages
provisions. Under the program, CSXT paid $170 million,
$151 million and $130 million during the fiscal years
ended 2005, 2004 and 2003, respectively.
As a result of agreements executed in August 2005 and February
2006, CSXT has purchase obligations supporting a multi-year plan
to acquire additional locomotives between 2006 and 2011. The
amount of the ultimate purchase commitment depends upon the
model of locomotive acquired and the timing of delivery.
94
CSX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Annual payments under the long-term maintenance program and
locomotive purchase obligations are estimated as follows:
|
|
|
|
|
Years |
|
Payments | |
|
|
| |
|
|
(Dollars in millions) | |
2006
|
|
$ |
361 |
|
2007
|
|
|
392 |
|
2008
|
|
|
340 |
|
2009
|
|
|
338 |
|
2010
|
|
|
353 |
|
2011-2031
|
|
|
5,855 |
|
|
|
|
|
Total
|
|
$ |
7,639 |
|
|
|
|
|
Additionally, the Company has various commitments to purchase
technology and communications services. The terms for the
various agreements call for the Company to pay $36 million,
$31 million and $2 million for the fiscal years ending
2006, 2007 and 2008, respectively. The largest purchase
obligation is for communications services of $24 million
per year for the years 2006 through 2007.
In 2001 Duke Energy Corporation (Duke) filed a
complaint before the STB alleging that certain CSXT common
carrier coal rates were unreasonably high. CSXT and Duke reached
a settlement agreement pursuant to which Duke dismissed the STB
proceedings with prejudice. Consequently, the Company reversed a
$17 million reserve which increased coal, coke and iron ore
revenue. Resolution of this matter in 2005 did not have a
material impact on the Companys financial condition,
results of operations or liquidity for any period presented.
Duke and CSXT have entered into a transportation contract
establishing commercial terms for the future transportation of
coal to Duke power plants served by CSXT.
The Company maintains numerous insurance programs, most notably
for third-party casualty liability and for Company property
damage and business interruption with substantial limits. A
specific amount of risk ($25 million per occurrence) is
retained by the Company on the casualty program and
noncatastrophic property damage. The Company retains
$50 million of risk per occurrence for its catastrophic
property coverage. For information on insurance issues resulting
from the effects of Hurricane Katrina on the Companys
operations and assets, see Note 6 Hurricane Katrina.
CSX and its subsidiaries are contingently liable individually
and jointly with others as guarantors of approximately
$117 million in obligations principally relating to leased
equipment, vessels and joint facilities used by the Company in
its business operations. Utilizing the Companys guarantee
for these obligations allows the obligor to take advantage of
lower interest rates and obtain other favorable terms.
Guarantees are contingent commitments issued by the Company that
could require CSX or one of its affiliates to make payment to or
to perform certain actions for the beneficiary of the guarantee
based on another entitys failure to perform.
|
|
|
1. Guarantee of approximately $85 million of
obligations of a former subsidiary, CSX Energy, in connection
with a sale-leaseback transaction. CSX is, in turn, indemnified
by several subsequent owners of the subsidiary against payments
made with respect to this guarantee. CSX management does not
expect that CSX will be required to make any payments under this
guarantee for which CSX will not be reimbursed. |
95
CSX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
2. Guarantee of approximately $16 million relating to
leases assumed as part of the conveyance of its interest in a
former subsidiary, CSX Lines, subsequently renamed Horizon Lines
LLC (Horizon). CSX believes Horizon will fulfill its
contractual commitments with respect to such leases, and CSX
will have no further liabilities for those obligations. |
|
|
3. Guarantee of approximately $13 million of lease
commitments assumed by A.P. Moller-Maersk (Maersk)
for which CSX is contingently liable. CSX believes Maersk will
fulfill its contractual commitments with respect to such lease
commitments, and CSX will have no further liabilities for those
obligations. |
As of December 30, 2005, the Company has not recognized any
liabilities in its financial statements in connection with any
guarantees arrangements. The maximum amount of future payments
CSX could be required to make under these guarantees is the
amount of the guarantees themselves.
The Company is involved in routine litigation incidental to its
business and is a party to a number of legal actions and claims,
various governmental proceedings and private civil lawsuits,
including those related to environmental matters, Federal
Employers Liability Act claims by employees, other
personal injury claims, and disputes and complaints involving
certain transportation rates and charges. Some of the legal
proceedings include claims for compensatory as well as punitive
damages, and others purport to be class actions. While the final
outcome of these matters cannot be predicted with certainty,
considering among other things the meritorious legal defenses
available and liabilities that have been recorded along with
applicable insurance, it is the opinion of CSX management that
none of these items will have a material adverse effect on the
results of operations, financial position or liquidity of the
Company. An unexpected adverse resolution of one or more of
these items, however, could have a material adverse effect on
the results of operations, financial position or liquidity of
the Company in a particular quarter or fiscal year.
|
|
NOTE 20. |
Business Segments |
The Company operates primarily in two business segments: rail
and intermodal. The rail segment provides rail freight
transportation over a network of approximately 21,000 route
miles in 23 states, the District of Columbia and two
Canadian provinces. The intermodal segment provides integrated
rail and truck transportation services and operates a network of
dedicated intermodal facilities across North America. The
Companys segments are strategic business units that offer
different services and are managed separately. The rail and
intermodal segments are also viewed on a combined basis as
Surface Transportation operations.
The Company evaluates performance and allocates resources based
on several factors, of which the primary financial measure is
business segment operating income. The accounting policies of
the segments are the same as those described in Nature of
Operations and Significant Accounting Policies (See Note 1.
Nature of Operations and Significant Accounting Policies.)
Consolidated operating income includes the results of operations
of Surface Transportation and other operating income. Other
operating income includes the gain amortization on the CSX Lines
conveyance, net sublease income from assets formerly included in
the Companys Marine Services segment, and other items.
The International Terminals business segment has been
reclassified to Discontinued Operations. (See Note 4.
Discontinued Operations.)
96
CSX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Business segment information for the fiscal years ended
December 30, 2005, December 31, 2004 and
December 26, 2003 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Surface Transportation | |
|
|
|
|
|
|
| |
|
|
|
|
|
|
Rail | |
|
Intermodal | |
|
Total | |
|
Other | |
|
Total | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(Dollars in millions) | |
2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues from External Customers
|
|
$ |
7,256 |
|
|
$ |
1,362 |
|
|
$ |
8,618 |
|
|
$ |
|
|
|
$ |
8,618 |
|
Segment Operating Income
|
|
|
1,301 |
|
|
|
248 |
|
|
|
1,549 |
|
|
|
1 |
|
|
|
1,550 |
|
Assets
|
|
|
23,177 |
|
|
|
305 |
|
|
|
23,482 |
|
|
|
|
|
|
|
23,482 |
|
Depreciation Expense
|
|
|
779 |
|
|
|
39 |
|
|
|
818 |
|
|
|
|
|
|
|
818 |
|
Property Additions
|
|
|
1,091 |
|
|
|
25 |
|
|
|
1,116 |
|
|
|
1 |
|
|
|
1,117 |
|
2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues from External Customers
|
|
$ |
6,694 |
|
|
$ |
1,346 |
|
|
$ |
8,040 |
|
|
$ |
|
|
|
$ |
8,040 |
|
Segment Operating Income
|
|
|
841 |
|
|
|
152 |
|
|
|
993 |
|
|
|
7 |
|
|
|
1,000 |
|
Assets
|
|
|
22,927 |
|
|
|
313 |
|
|
|
23,240 |
|
|
|
552 |
|
|
|
23,792 |
|
Depreciation Expense
|
|
|
664 |
|
|
|
38 |
|
|
|
702 |
|
|
|
|
|
|
|
702 |
|
Property Additions
|
|
|
973 |
|
|
|
22 |
|
|
|
995 |
|
|
|
8 |
|
|
|
1,003 |
|
2003
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues from External Customers
|
|
$ |
6,182 |
|
|
$ |
1,264 |
|
|
$ |
7,446 |
|
|
$ |
127 |
|
|
$ |
7,573 |
|
Intersegment Revenues
|
|
|
|
|
|
|
4 |
|
|
|
4 |
|
|
|
|
|
|
|
4 |
|
Segment Operating Income
|
|
|
541 |
|
|
|
110 |
|
|
|
651 |
|
|
|
|
|
|
|
651 |
|
Assets
|
|
|
16,333 |
|
|
|
400 |
|
|
|
16,733 |
|
|
|
614 |
|
|
|
17,347 |
|
Depreciation Expense
|
|
|
579 |
|
|
|
32 |
|
|
|
611 |
|
|
|
|
|
|
|
611 |
|
Property Additions
|
|
|
974 |
|
|
|
47 |
|
|
|
1,021 |
|
|
|
21 |
|
|
|
1,042 |
|
A reconciliation of the totals reported for the business
segments to the applicable line items in the consolidated
financial statements is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Years Ended | |
|
|
| |
|
|
December 30, | |
|
December 31, | |
|
December 26, | |
|
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
|
|
(Dollars in millions) | |
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
Total External Revenues for Business Segments
|
|
$ |
8,618 |
|
|
$ |
8,040 |
|
|
$ |
7,573 |
|
Intersegment Revenues for Business Segments
|
|
|
|
|
|
|
|
|
|
|
4 |
|
Elimination of Intersegment Revenues
|
|
|
|
|
|
|
|
|
|
|
(4 |
) |
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Consolidated Revenues
|
|
$ |
8,618 |
|
|
$ |
8,040 |
|
|
$ |
7,573 |
|
|
|
|
|
|
|
|
|
|
|
Operating Income:
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Operating Income for Business Segments
|
|
$ |
1,550 |
|
|
$ |
1,000 |
|
|
$ |
651 |
|
Unallocated Corporate Expenses
|
|
|
|
|
|
|
|
|
|
|
(23 |
) |
Additional Loss on Sale
|
|
|
|
|
|
|
|
|
|
|
(108 |
) |
|
|
|
|
|
|
|
|
|
|
|
Total Consolidated Operating Income
|
|
$ |
1,550 |
|
|
$ |
1,000 |
|
|
$ |
520 |
|
|
|
|
|
|
|
|
|
|
|
97
CSX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Years Ended | |
|
|
| |
|
|
December 30, | |
|
December 31, | |
|
December 26, | |
|
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
|
|
(Dollars in millions) | |
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets for Business Segments
|
|
$ |
23,482 |
|
|
$ |
23,792 |
|
|
$ |
17,347 |
|
Investment in Conrail
|
|
|
603 |
|
|
|
574 |
|
|
|
4,678 |
|
Elimination of Intersegment Payables (Receivables)
|
|
|
(83 |
) |
|
|
(61 |
) |
|
|
(44 |
) |
Non-segment Assets (Liabilities)
|
|
|
230 |
|
|
|
300 |
|
|
|
(221 |
) |
|
|
|
|
|
|
|
|
|
|
|
Total Consolidated Assets
|
|
$ |
24,232 |
|
|
$ |
24,605 |
|
|
$ |
21,760 |
|
|
|
|
|
|
|
|
|
|
|
Depreciation Expense
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation for Business Segments
|
|
$ |
818 |
|
|
$ |
702 |
|
|
$ |
611 |
|
Non-Segment Depreciation
|
|
|
8 |
|
|
|
9 |
|
|
|
9 |
|
|
|
|
|
|
|
|
|
|
|
|
Total Consolidated Depreciation Expense
|
|
$ |
826 |
|
|
$ |
711 |
|
|
$ |
620 |
|
|
|
|
|
|
|
|
|
|
|
Property Additions
|
|
|
|
|
|
|
|
|
|
|
|
|
Property Additions for Business Segments
|
|
$ |
1,117 |
|
|
$ |
1,003 |
|
|
$ |
1,042 |
|
Non-segment Property Additions
|
|
|
19 |
|
|
|
27 |
|
|
|
17 |
|
|
|
|
|
|
|
|
|
|
|
Total Consolidated Property Additions
|
|
$ |
1,136 |
|
|
$ |
1,030 |
|
|
$ |
1,059 |
|
|
|
|
|
|
|
|
|
|
|
|
|
NOTE 21. |
Other Long-term Assets and Other Long-term Liabilities |
Other Long-term Assets at December 30, 2005 and
December 31, 2004 consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Years Ended | |
|
|
| |
|
|
December 30, | |
|
December 31, | |
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
|
(Dollars in millions) | |
Pension Plan Assets
|
|
$ |
127 |
|
|
$ |
162 |
|
Long Term Deposits
|
|
|
77 |
|
|
|
68 |
|
Other Long-term Assets
|
|
|
69 |
|
|
|
146 |
|
Available for Sale Securities
|
|
|
65 |
|
|
|
50 |
|
Goodwill
|
|
|
64 |
|
|
|
64 |
|
Real Estate Development Costs
|
|
|
37 |
|
|
|
37 |
|
Debt Issuance Costs
|
|
|
31 |
|
|
|
42 |
|
Long-term Income Taxes Receivable
|
|
|
320 |
|
|
|
233 |
|
|
|
|
|
|
|
|
|
Total Other Long-term Assets
|
|
$ |
790 |
|
|
$ |
802 |
|
|
|
|
|
|
|
|
98
CSX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
Other Long-term Liabilities |
Other Long-term Liabilities at December 30, 2005 and
December 31, 2004 consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Years Ended | |
|
|
| |
|
|
December 30, | |
|
December 31, | |
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
|
(Dollars in millions) | |
Long-term Pension Plan Liability
|
|
$ |
554 |
|
|
$ |
547 |
|
Postretirement Benefit Liability
|
|
|
287 |
|
|
|
289 |
|
Long-term Deferred Gains
|
|
|
203 |
|
|
|
226 |
|
Other Long-term Liabilities
|
|
|
132 |
|
|
|
148 |
|
Accrued Deferred Compensation
|
|
|
84 |
|
|
|
105 |
|
Minority Interest
|
|
|
68 |
|
|
|
54 |
|
Deferred Lease Payments
|
|
|
35 |
|
|
|
37 |
|
Accrued Sick Leave
|
|
|
23 |
|
|
|
28 |
|
Long-term Income Taxes Payable
|
|
|
85 |
|
|
|
81 |
|
|
|
|
|
|
|
|
|
Total Other Long-term Liabilities
|
|
$ |
1,471 |
|
|
$ |
1,515 |
|
|
|
|
|
|
|
|
99
CSX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
NOTE 22. |
Quarterly Financial Data (Unaudited)(a)(b) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
Quarter |
|
1st | |
|
2nd(f) | |
|
3rd | |
|
4th(g) | |
|
1st(c) | |
|
2nd(d) | |
|
3rd(e) | |
|
4th | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(Dollars in millions, except per share amounts) | |
Operating Revenue
|
|
$ |
2,108 |
|
|
$ |
2,166 |
|
|
$ |
2,125 |
|
|
$ |
2,219 |
|
|
$ |
1,920 |
|
|
$ |
1,997 |
|
|
$ |
1,943 |
|
|
$ |
2,180 |
|
Operating Expense
|
|
|
1,754 |
|
|
|
1,735 |
|
|
|
1,772 |
|
|
|
1,807 |
|
|
|
1,768 |
|
|
|
1,715 |
|
|
|
1,693 |
|
|
|
1,863 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Income
|
|
|
354 |
|
|
|
431 |
|
|
|
353 |
|
|
|
412 |
|
|
|
152 |
|
|
|
282 |
|
|
|
250 |
|
|
|
317 |
|
Other Income (Expense)
|
|
|
(2 |
) |
|
|
30 |
|
|
|
11 |
|
|
|
62 |
|
|
|
(4 |
) |
|
|
5 |
|
|
|
32 |
|
|
|
38 |
|
Debt Repurchase Expense
|
|
|
|
|
|
|
(192 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Expense
|
|
|
(114 |
) |
|
|
(110 |
) |
|
|
(100 |
) |
|
|
(99 |
) |
|
|
(108 |
) |
|
|
(109 |
) |
|
|
(106 |
) |
|
|
(112 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings from Continuing Operations before Income Taxes
|
|
|
238 |
|
|
|
159 |
|
|
|
264 |
|
|
|
375 |
|
|
|
40 |
|
|
|
178 |
|
|
|
176 |
|
|
|
243 |
|
Income Tax (Expense) Benefit
|
|
|
(84 |
) |
|
|
6 |
|
|
|
(100 |
) |
|
|
(138 |
) |
|
|
(13 |
) |
|
|
(60 |
) |
|
|
(62 |
) |
|
|
(84 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings from Continuing Operations
|
|
|
154 |
|
|
|
165 |
|
|
|
164 |
|
|
|
237 |
|
|
|
27 |
|
|
|
118 |
|
|
|
114 |
|
|
|
159 |
|
Discontinued Operations Net of Tax
|
|
|
425 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3 |
|
|
|
1 |
|
|
|
9 |
|
|
|
(93 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Earnings
|
|
$ |
579 |
|
|
$ |
165 |
|
|
$ |
164 |
|
|
$ |
237 |
|
|
$ |
30 |
|
|
$ |
119 |
|
|
$ |
123 |
|
|
$ |
66 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings Per Share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
From Continuing Operations
|
|
$ |
0.72 |
|
|
$ |
0.76 |
|
|
$ |
0.75 |
|
|
$ |
1.09 |
|
|
$ |
0.13 |
|
|
$ |
0.55 |
|
|
$ |
0.53 |
|
|
$ |
0.74 |
|
Discontinued Operations
|
|
|
1.97 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.01 |
|
|
|
|
|
|
|
0.04 |
|
|
|
(0.43 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Earnings
|
|
$ |
2.69 |
|
|
$ |
0.76 |
|
|
$ |
0.75 |
|
|
$ |
1.09 |
|
|
$ |
0.14 |
|
|
$ |
0.55 |
|
|
$ |
0.57 |
|
|
$ |
0.31 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings Per Share Assuming Dilution:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
From Continuing Operations
|
|
$ |
0.68 |
|
|
$ |
0.73 |
|
|
$ |
0.72 |
|
|
$ |
1.03 |
|
|
$ |
0.13 |
|
|
$ |
0.53 |
|
|
$ |
0.51 |
|
|
$ |
0.71 |
|
Discontinued Operations
|
|
|
1.88 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.01 |
|
|
|
|
|
|
|
0.04 |
|
|
|
(0.41 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Earnings
|
|
$ |
2.56 |
|
|
$ |
0.73 |
|
|
$ |
0.72 |
|
|
$ |
1.03 |
|
|
$ |
0.14 |
|
|
$ |
0.53 |
|
|
$ |
0.55 |
|
|
$ |
0.30 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividend Per Share
|
|
$ |
0.10 |
|
|
$ |
0.10 |
|
|
$ |
0.10 |
|
|
$ |
0.13 |
|
|
$ |
0.10 |
|
|
$ |
0.10 |
|
|
$ |
0.10 |
|
|
$ |
0.10 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Market Price
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
High
|
|
$ |
43.54 |
|
|
$ |
44.10 |
|
|
$ |
46.89 |
|
|
$ |
51.60 |
|
|
$ |
36.26 |
|
|
$ |
33.04 |
|
|
$ |
34.28 |
|
|
$ |
40.46 |
|
|
Low
|
|
$ |
36.90 |
|
|
$ |
38.01 |
|
|
$ |
42.48 |
|
|
$ |
42.70 |
|
|
$ |
28.80 |
|
|
$ |
29.28 |
|
|
$ |
29.96 |
|
|
$ |
33.09 |
|
|
|
|
(a) |
|
Periods presented are
13-week quarters,
except for the fourth quarter of 2004, which was 14 weeks. |
|
(b) |
|
All periods presented have been restated for Discontinued
Operations. |
|
(c) |
|
A charge of $53 million pretax for separation expenses
related to the management restructuring announced in November
2003 at the Companys Surface Transportation units. (See
Note 5. Management Restructuring.) |
|
(d) |
|
A charge of $15 million pretax for separation expenses
related to the management restructuring announced in November
2003 at the Companys Surface Transportation units. (See
Note 5. Management Restructuring.) |
|
(e) |
|
CSX completed a corporate reorganization of Conrail that
resulted in the direct ownership of certain Conrail assets by
CSXT. This transaction was accounted for at fair value and
resulted in a net gain of $16 million after tax, which is
included in other income. (See Note 2. Investment In and
Integrated Rail Operations with Conrail.) |
|
(f) |
|
Ohio enacted legislation to gradually eliminate its corporate
franchise tax. This legislative change resulted in an income tax
benefit of $71 million. (See Note 8. Income Taxes.) |
|
(g) |
|
CSX updated its assessment of the unasserted liability exposure,
which resulted in recognition of a $38 million pretax,
favorable change in estimate. (See Note 11. Casualty,
Environmental, and Other Reserves.) |
100
|
|
Item 9. |
Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure |
None.
|
|
Item 9A. |
Controls and Procedures |
Evaluation of Disclosure Controls and Procedures
As of December 30, 2005, under the supervision and with the
participation of CSXs Chief Executive Officer
(CEO) and Chief Financial Officer (CFO),
management has evaluated the effectiveness of the design and
operation of the Companys disclosure controls and
procedures, as such term is defined in Exchange Act
Rules 13a-15(e)
and 15d-15(e). Based on
that evaluation, the CEO and CFO concluded that the
Companys disclosure controls and procedures were effective
as of December 30, 2005. There were no changes in the
Companys internal controls over financial reporting during
the fourth quarter of 2005 that have materially affected or are
reasonably likely to materially affect the Companys
internal control over financial reporting.
Managements Report on Internal Control over Financial
Reporting
CSXs management is responsible for establishing and
maintaining adequate internal control over financial reporting,
as such term is defined in Exchange Act
Rules 13a-15(f)
and 15d-15(f). Under
the supervision and with the participation of the management of
CSX, including CSXs CEO and CFO, CSX conducted an
evaluation of the effectiveness of the Companys internal
control over financial reporting as of December 30, 2005
based on the framework in Internal Control
Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO).
Based on that evaluation, management of CSX concluded that the
Companys internal control over financial reporting was
effective as of December 30, 2005.
Managements assessment of the effectiveness of the
Companys internal control over financial reporting as of
December 30, 2005 has been audited by Ernst &
Young LLP, an independent registered public accounting firm, as
stated in their report which is included elsewhere herein.
Changes in Internal Control over Financial Reporting
There were no material changes in the Companys internal
control over financial reporting.
|
|
Item 9B. |
Other Information |
None.
101
CSX CORPORATION
PART III
|
|
Item 10. |
Directors and Executive Officers of the Registrant |
In accordance with Instruction G(3) of
Form 10-K, the
information required by this Item is incorporated herein by
reference to the Proxy Statement, except for the information
regarding the executive officers of the Registrant which is
included in Part I of this report under the caption
Executive Officers of the Registrant.
|
|
Item 11. |
Executive Compensation |
In accordance with Instruction G(3) of
Form 10-K, the
information required by this Item is incorporated herein by
reference to the Proxy Statement.
|
|
Item 12. |
Security Ownership of Certain Beneficial Owners and
Management |
In accordance with Instruction G(3) of
Form 10-K, the
information required by this Item is incorporated herein by
reference to the Proxy Statement.
|
|
Item 13. |
Certain Relationships and Related Transactions |
In accordance with Instruction G(3) of
Form 10-K, the
information required by this Item is incorporated herein by
reference to the Proxy Statement.
|
|
Item 14. |
Principal Accounting Fees and Services |
In accordance with Instruction G(3) of
Form 10-K, the
information required by this Item is incorporated herein by
reference to the Proxy Statement.
102
CSX CORPORATION
PART IV
|
|
Item 15. |
Exhibits and Financial Statement Schedules |
(a)(1) Financial Statements
See Index to Consolidated Financial Statements on page 56.
(2) Financial Statement Schedules
The information required by
Rule 3-09 is
included in Note 2 to the Consolidated Financial
Statements, Investment In and Integrated Rail Operations with
Conrail and the Unaudited and Audited Consolidated Financial
Statements of Conrail, Inc., filed herewith as
Exhibit 99.3*. The information required by Schedule II
is included in Note 11 to the Consolidated Financial
Statements, Casualty, Environmental and Other Reserves. All
other financial statement schedules are not applicable.
(3) Exhibits
|
|
|
|
|
|
2 |
.1 |
|
Distribution Agreement, dated as of July 26, 2004, by and
among CSX Corporation, CSX Transportation, Inc., CSX Rail
Holding Corporation, CSX Northeast Holding Corporation, Norfolk
Southern Corporation, Norfolk Southern Railway Company, CRR
Holdings LLC, Green Acquisition Corp., Conrail Inc.,
Consolidated Rail Corporation, New York Central Lines LLC,
Pennsylvania Lines LLC, NYC Newco, Inc. and PRR Newco, Inc.
(incorporated herein by reference to Exhibit 2.1 to the
Registrants Current Report on Form 8-K filed with the
Commission on September 2, 2004) |
|
3 |
.1 |
|
Amended and Restated Articles of Incorporation of the Registrant
(incorporated herein by reference to Exhibit 3.1 to the
Registrants Current Report on Form 8-K filed with the
Commission on December 14, 2004) |
|
|
3 |
.2 |
|
Bylaws of the Registrant, amended effective as of May 3,
2006 (incorporated herein by reference to Exhibit 3.2 of
the Registrants Current Report on Form 8-K filed with
the Commission on February 13, 2006) |
|
|
4 |
.1(a) |
|
Indenture, dated August 1, 1990, between the Registrant and
The Chase Manhattan Bank, as Trustee (incorporated herein by
reference to the Registrants Form SE, dated
September 7, 1990, filed with the Commission) |
|
|
4 |
.1(b) |
|
First Supplemental Indenture, dated as of June 15, 1991,
between the Registrant and The Chase Manhattan Bank, as Trustee
(incorporated herein by reference to Exhibit 4(c) to the
Registrants Form SE, dated May 28, 1992, filed with
the Commission) |
|
|
4 |
.1(c) |
|
Second Supplemental Indenture, dated as of May 6, 1997,
between the Registrant and The Chase Manhattan Bank, as Trustee
(incorporated herein by reference to Exhibit 4.3 to the
Registrants Registration Statement on Form S-4
(Registration No. 333-28523) filed with the Commission on
June 5, 1997) |
|
|
4 |
.1(d) |
|
Third Supplemental Indenture, dated as of April 22, 1998,
between the Registrant and The Chase Manhattan Bank, as Trustee
(incorporated herein by reference to Exhibit 4.2 to the
Registrants Current Report on Form 8-K filed with the
Commission on May 12, 1998) |
|
4 |
.1(e) |
|
Fourth Supplemental Indenture, dated as of October 30,
2001, between the Registrant and The Chase Manhattan Bank, as
Trustee (incorporated herein by reference to Exhibit 4.1 to
the Registrants Report on Form 10-Q filed with the
Commission on November 7, 2001) |
|
|
4 |
.1(f) |
|
Fifth Supplemental Indenture, dated as of October 27, 2003
between the Registrant and The Chase Manhattan Bank, as Trustee
(incorporated herein by reference to Exhibit 4.1 to the
Registrants Report on Form 8-K filed with the
Commission on October 27, 2003) |
|
|
4 |
.1(g) |
|
Sixth Supplemental Indenture, dated as of September 23,
2004 between the Registrant and JP Morgan Chase Bank, formerly
The Chase Manhattan Bank, as Trustee (incorporated herein by
reference to Exhibit 4.1 to the Registrants Report on
Form 10-Q filed with the Commission on November 3,
2004) |
Pursuant to
Regulation S-K,
Item 601(b)(4)(iii), instruments that define the rights of
holders of the Registrants long-term debt securities,
where the long-term debt securities authorized under
103
each such instrument do not exceed 10% of the Registrants
total assets, have been omitted and will be furnished to the
Commission upon request.
|
|
|
|
|
|
10.1** |
|
|
CSX Stock Plan for Directors (as amended through January 1,
2004) (incorporated herein by reference to Exhibit 10.1 to
the Registrants Annual Report on Form 10-K filed with
the Commission on March 10, 2004) |
|
|
10.2** |
|
|
Corporate Director Deferred Compensation Plan (as amended
through January 1, 2004) (incorporated herein by reference
to Exhibit 10.2 to the Registrants Annual Report on
Form 10-K filed with the Commission on March 10, 2004) |
|
|
10.3** |
|
|
CSX Corporation 2002 Corporate Director Deferred Compensation
Plan (as amended through January 1, 2004) (incorporated
herein by reference to Exhibit 10.3 to the
Registrants Annual Report on Form 10-K filed with the
Commission on March 10, 2004) |
|
|
10.4** |
|
|
CSX Directors Charitable Gift Plan, as amended
(incorporated herein by reference to Exhibit 10.4 to the
Registrants Annual Report on Form 10-K filed with the
Commission on March 4, 1994) |
|
|
10.5** |
|
|
CSX Directors Matching Gift Plan (as amended through
December 31, 2003) (incorporated herein by reference to
Exhibit 10.5 to the Registrants Annual Report on
Form 10-K filed with the Commission on March 10, 2004) |
|
|
10.6** |
|
|
Special Employment Agreement with M. J. Ward (incorporated
herein by reference to Exhibit 10.6 to the
Registrants Report on Form 10-Q filed with the
Commission on November 7, 2001) |
|
|
10.7** |
|
|
Restricted Stock Award Agreement with M. J. Ward (incorporated
herein by reference to Exhibit 10.7 to the
Registrants Report on Form 10-Q filed with the
Commission on November 7, 2001) |
|
|
10.8** |
|
|
Railroad Retirement Benefits Agreement with M. J. Ward
(incorporated herein by reference to Exhibit 10.13 to the
Registrants Report on Form 10-K filed with the
Commission on February 26, 2003) |
|
|
10.9** |
|
|
Employment Agreement with O. Munoz (incorporated herein by
reference to Exhibit 10.1 to the Registrants Report
on Form 10-Q filed with the Commission on July 30,
2003) |
|
|
10.10** |
|
|
Restricted Stock Award Agreement with O. Munoz (incorporated
herein by reference to Exhibit 10.2 to the
Registrants Report on Form 10-Q filed with the
Commission on July 30, 2003) |
|
|
10.11** |
|
|
Form of Employment Agreement with executive officers
(incorporated herein by reference to Exhibit 10.1 of the
Registrants Current Report on Form 8-K filed with the
Commission on January 6, 2005) |
|
|
10.12** |
|
|
Form of Stock Option Agreement (incorporated herein by reference
to Exhibit 10.17 of the Registrants Report on
Form 10-K filed with the Commission on March 4, 2002) |
|
|
10.13** |
|
|
1987 Long-term Performance Stock Plan, as Amended and Restated
effective April 25, 1996 (as amended through
February 7, 2003) (incorporated herein by reference to
Exhibit 10.24 to the Registrants Annual Report on
Form 10-K filed with the Commission on March 10, 2004) |
|
|
10.14** |
|
|
Deferred Compensation Program for Executives of CSX Corporation
and Affiliated Companies (as amended through January 1,
1998) (incorporated herein by reference to Exhibit 10.25 to
the Registrants Annual Report on Form 10-K filed with
the Commission on March 10, 2004) |
|
|
10.15** |
|
|
2002 Deferred Compensation Plan of CSX Corporation and
Affiliated Corporations (as amended through February 7,
2003) (incorporated herein by reference to Exhibit 10.26 to
the Registrants Annual Report on Form 10-K filed with
the Commission on March 10, 2004) |
|
|
10.16** |
|
|
Supplementary Savings Plan and Incentive Award Deferral Plan for
Eligible Executives of CSX Corporation and Affiliated Companies
(as Amended through February 7, 2003) (incorporated herein
by reference to Exhibit 10.27 to the Registrants
Annual Report on Form 10-K filed with the Commission on
March 10, 2004) |
|
|
10.17** |
|
|
Special Retirement Plan of CSX Corporation and Affiliated
Companies (as amended through February 14, 2001)
(incorporated herein by reference to Exhibit 10.23 to the
Registrants Report on Form 10-K filed with the
Commission on March 4, 2002) |
104
|
|
|
|
|
|
|
10.18** |
|
|
Supplemental Retirement Benefit Plan of CSX Corporation and
Affiliated Companies (as amended through February 14, 2001)
(incorporated herein by reference to Exhibit 10.24 of the
Registrants Report on Form 10-K filed with the
Commission on March 4, 2002) |
|
|
10.19** |
|
|
Senior Executive Incentive Compensation Plan (incorporated
herein by reference to Appendix B to the Registrants
Definitive Proxy Statement filed with the Commission on
March 17, 2000) |
|
|
10.20* |
|
|
CSX Omnibus Incentive Plan (as Amended through December 8,
2004) (incorporated herein by reference to Exhibit 10.26 to
the Registrants Report on Form 10-K filed with the
Commission on March 4, 2002) |
|
|
10.21** |
|
|
1990 Stock Award Plan as Amended and Restated Effective
February 14, 1996 (as amended through September 8,
1999) (incorporated herein by reference to Exhibit 10.24 to
the Registrants Annual Report on Form 10-K filed with
the Commission on March 7, 2000) |
|
|
10 |
.22 |
|
Transaction Agreement, dated as of June 10, 1997, by and
among CSX Corporation, CSX Transportation, Inc., Norfolk
Southern Corporation, Norfolk Southern Railway Company, Conrail
Inc., Consolidated Rail Corporation, and CRR Holdings LLC, with
certain schedules thereto (incorporated herein by reference to
Exhibit 10 to the Registrants Current Report on
Form 8-K filed with the Commission on July 8, 1997) |
|
|
10 |
.23 |
|
Amendment No. 1, dated as of August 22, 1998, to the
Transaction Agreement, dated as of June 10, 1997, by and
among CSX Corporation, CSX Transportation, Inc., Norfolk
Southern Corporation, Norfolk Southern Railway Company, Conrail
Inc., Consolidated Rail Corporation, and CRR Holdings LLC
(incorporated herein by reference to Exhibit 10.1 to the
Registrants Current Report on Form 8-K filed with the
Commission on June 11, 1999) |
|
|
10 |
.24 |
|
Amendment No. 2, dated as of June 1, 1999, to the
Transaction Agreement, dated as of June 10, 1997, by and
among CSX Corporation, CSX Transportation, Inc., Norfolk
Southern Corporation, Norfolk Southern Railway Company, Conrail
Inc., Consolidated Rail Corporation, and CRR Holdings, LLC
(incorporated herein by reference to Exhibit 10.2 to the
Registrants Current Report on Form 8-K filed with the
Commission on June 11, 1999) |
|
|
10 |
.25 |
|
Amendment No. 3, dated as of August 1, 2000, to the
Transaction Agreement, dated as of June 10, 1997, by and
among CSX Corporation, CSX Transportation, Inc., Norfolk
Southern Corporation, Norfolk Southern Railway Company, Conrail
Inc., Consolidated Rail Corporation, and CRR Holdings LLC
(incorporated herein by reference to Exhibit 10.34 to the
Registrants Annual Report on Form 10-K filed with the
Commission on March 1, 2001) |
|
|
10 |
.26 |
|
Amendment, dated and effective as of June 1, 1999, and
executed in April 2004, to the Transaction Agreement, dated as
of June 10, 1997, by and among CSX Corporation, CSX
Transportation, Inc., Norfolk Southern Corporation, Norfolk
Southern Railway Company, Conrail Inc., Consolidated Rail
Corporation, and CRR Holdings LLC (incorporated herein by
reference to Exhibit 99.1 to the Registrants Current
Report on Form 8-K filed with the Commission on
August 6, 2004) |
|
|
10 |
.27 |
|
Amendment No. 5, dated as of August 27, 2004, to the
Transaction Agreement, dated as of June 10, 1997, by and
among CSX Corporation, CSX Transportation, Inc., Norfolk
Southern Corporation, Norfolk Southern Railway Company, Conrail
Inc., Consolidated Rail Corporation and CRR Holdings LLC
(incorporated herein by reference to Exhibit 10.1 to the
Registrants Current Report on Form 8-K filed with the
Commission on September 2, 2004) |
|
|
10 |
.28 |
|
Operating Agreement Termination Agreement, dated as of
August 27, 2004, between New York Central Lines LLC and CSX
Transportation, Inc. (incorporated herein by reference to
Exhibit 10.3 to the Registrants Current Report on
Form 8-K filed with the Commission on September 2,
2004) |
|
|
10 |
.29 |
|
Shared Assets Area Operating Agreement for North Jersey, dated
as of June 1, 1999, by and among Consolidated Rail
Corporation, CSX Transportation, Inc. and Norfolk Southern
Railway Company, with exhibit thereto (incorporated herein by
reference to Exhibit 10.4 to the Registrants Current
Report on Form 8-K filed with the Commission on
June 11, 1999) |
|
|
10 |
.30 |
|
Shared Assets Area Operating Agreement for Southern
Jersey/Philadelphia, dated as of June 1, 1999, by and among
Consolidated Rail Corporation, CSX Transportation, Inc. and
Norfolk Southern Railway Company, with exhibit thereto
(incorporated herein by reference to Exhibit 10.5 to the
Registrants Current Report on Form 8-K filed with the
Commission on June 11, 1999) |
105
|
|
|
|
|
|
|
10 |
.31 |
|
Shared Assets Area Operating Agreement for Detroit, dated as of
June 1, 1999, by and among Consolidated Rail Corporation,
CSX Transportation, Inc. and Norfolk Southern Railway
Corporation, with exhibit thereto (incorporated herein by
reference to Exhibit 10.6 to the Registrants Current
Report on Form 8-K filed with the Commission on
June 11, 1999) |
|
|
10 |
.32 |
|
Monongahela Usage Agreement, dated as of June 1, 1999, by
and among CSX Transportation, Inc., Norfolk Southern Railway
Company, Pennsylvania Lines LLC and New York Central Lines LLC,
with exhibit thereto (incorporated herein by reference to
Exhibit 10.7 to the Registrants Current Report on
Form 8-K filed with the Commission on June 11, 1999) |
|
|
10 |
.33 |
|
Tax Allocation Agreement, dated as of August 27, 2004, by
and among CSX Corporation, Norfolk Southern Corporation, Green
Acquisition Corp., Conrail Inc., Consolidated Rail Corporation,
New York Central Lines LLC and Pennsylvania Lines LLC
(incorporated herein by reference to Exhibit 10.2 to the
Registrants Current Report on Form 8-K filed with the
Commission on September 2, 2004) |
|
|
10.34** |
|
|
Employment Agreement with T. L. Ingram, dated as of
March 15, 2004 (incorporated herein by reference to
Exhibit 10.1 to the Registrants Report on
Form 10-Q filed with the Commission on April 30, 2004) |
|
|
10.35** |
|
|
Restricted Stock Award Agreement with T. L. Ingram (incorporated
herein by reference to Exhibit 10.1 to the
Registrants Report on Form 10-Q filed with the
Commission on July 29, 2004) |
|
|
10 |
.36 |
|
Stock Purchase Agreement, dated as of December 8, 2004, by
and between CSX Corporation and Dubai Ports International FZE.
(incorporated herein by reference to Exhibit 2.1 to the
Registrants Current Report on Form 8-K filed with the
Commission on December 13, 2004) |
|
|
10.37** |
|
|
Special Employment Agreement with A.B. Fogarty, dated as of
December 13, 2004 (incorporated herein by reference to
Exhibit 10.1 to the Registrants Current Report on
Form 8-K filed with the Commission on December 14,
2004) |
|
|
10.38** |
|
|
Amendment No. 1, dated as of December 13, 2004, to
Employment Agreement with T. L. Ingram, dated as of
March 15, 2004 (incorporated herein by reference to
Exhibit 10.2 to the Registrants Current Report on
Form 8-K filed with the Commission on December 14,
2004) |
|
|
10 |
.39 |
|
Omnibus Closing Agreement, by and between CSX Corporation and
Dubai Ports International FZE dated February 22, 2005
(incorporated herein by reference to Exhibit 2.1 to the
Registrants Current Report on Form 8-K filed with the
Commission on February 25, 2005) |
|
|
10 |
.40* |
|
Restricted Stock Award Agreement with Clarence W. Gooden |
|
|
10 |
.41* |
|
Restricted Stock Award Agreement with Ellen M. Fitzsimmons |
|
|
14 |
|
|
Code of Ethics (incorporated herein by reference to
Exhibit 14 to the Registrants Annual Report on
Form 10-K filed with the Commission on March 10, 2004) |
|
|
21* |
|
|
Subsidiaries of the Registrant |
|
|
23 |
.1* |
|
Consent of Ernst & Young LLP |
|
|
23 |
.2* |
|
Consent of Ernst & Young LLP and KPMG LLP |
|
|
24* |
|
|
Powers of Attorney |
|
|
31 |
.1* |
|
Rule 13a-14(a) Certification of Principal Executive Officer |
|
|
31 |
.2* |
|
Rule 13a-14(a) Certification of Principal Financial Officer |
|
|
32 |
.1* |
|
Rule 13a-14(b) Certification of Principal Executive Officer |
|
|
32 |
.2* |
|
Rule 13a-14(b) Certification of Principal Financial Officer |
|
|
99 |
.3* |
|
Unaudited Consolidated Financial Statements of Conrail Inc. for
the Years Ended December 31, 2004 and December 31,
2005 and Audited Consolidated Financial Statements of Conrail
Inc. for the Year Ended December 31, 2003 |
|
|
* |
Filed herewith |
|
** |
Management Contract or Compensatory Plan or Arrangement |
106
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
|
|
|
CSX CORPORATION
|
|
(Registrant) |
|
|
|
|
By: |
/s/ CAROLYN T. SIZEMORE
|
|
|
|
|
|
Carolyn T. Sizemore |
|
Vice President and Controller |
|
(Principal Accounting Officer) |
Dated: February 21, 2006
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons
on behalf of the Registrant and in the capacities indicated on
February 21, 2006.
|
|
|
|
|
Signature |
|
Title |
|
|
|
|
*
Michael J. Ward |
|
Chairman of the Board, President, Chief Executive Officer and
Director (Principal Executive Officer) |
|
*
Oscar Munoz |
|
Executive Vice President and Chief Financial Officer (Principal
Financial Officer) |
|
/s/ CAROLYN T. SIZEMORE
Carolyn T. Sizemore |
|
Vice President and Controller
(Principal Accounting Officer) |
|
*By: |
|
/s/ ELLEN M.
FITZSIMMONS
Ellen M. Fitzsimmons |
|
Senior Vice President Law and Public Affairs
Attorney-in-Fact |
|
*
Elizabeth E. Bailey |
|
Director |
|
*
John B. Breaux |
|
Director |
|
*
Edward J. Kelly III |
|
Director |
|
*
Robert D. Kunisch |
|
Director |
|
*
Southwood J. Morcott |
|
Director |
|
*
David M. Ratcliffe |
|
Director |
|
*
Charles E. Rice |
|
Director |
107
|
|
|
|
|
Signature |
|
Title |
|
|
|
|
*
William C. Richardson |
|
Director |
|
*
Frank S. Royal M.D. |
|
Director |
|
*
Donald J. Shepard |
|
Director |
108