SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 8-K

 

CURRENT REPORT

PURSUANT TO SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934

Date of Report (Date of earliest event reported): July 18, 2006

 

CSX CORPORATION

(Exact name of registrant as specified in its charter)

 

Virginia

(State or other jurisdiction of

incorporation or organization)

 

1-8022   62-1051971
(Commission File No.)   (I.R.S. Employer Identification No.)

500 Water Street, 15 th Floor, Jacksonville, FL 32202

(Address of principal executive offices) (Zip Code)

Registrant’s telephone number, including area code:

(904) 359-3200

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

 

¨

Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

 

¨

Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

 

¨

Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

 

¨

Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 

Item 2.02. Disclosure of results of operations and financial condition.

On July 18, 2006, CSX Corporation (“CSX” and, together with its subsidiaries, the “company”) issued a press release and its quarterly Flash document on financial and operating results for the second quarter ended June 30, 2006. A copy of the press release is attached hereto as Exhibit 99.1, and a copy of the Flash document is attached hereto as Exhibit 99.2.

Item 5.03. Amendments to articles of incorporation or bylaws.

On July 18, 2006, CSX filed an amendment to its Amended and Restated Articles of Incorporation (the “Amendment”). The Amendment increases CSX’s authority to issue shares of its common stock, par value $1.00 per share (“Common Stock”), from 300,000,000 shares to 600,000,000 shares. The Amendment was filed in connection with and will effect the two-for-one split of the Common Stock described in Item 7.01 below. The effective time of the Amendment shall be 5:00 p.m. on August 3, 2006. A copy of the Amendment is attached hereto as Exhibit 3.1.

Item 7.01. Regulation FD Disclosure.

On July 18, 2006, the Board of Directors (the “Board”) approved a two-for-one split of the Common Stock (the “Stock Split”). Each holder of record at the close of business on August 3, 2006, will receive one additional share of CSX Common Stock for each share of CSX Common Stock held on that date. The additional shares resulting from the Stock Split will be distributed on August 15, 2006. Stockholders will receive a direct registration (book-entry) statement for the additional shares of Common Stock to be issued in the Stock Split and will not need to exchange existing stock certificates.

Also on July 18, 2006, the Board authorized a $500 million share buyback program that the company intends to complete over the next twelve months.

On July 18, 2006, the Board also approved a $0.10 per share quarterly cash dividend on the post-split shares, representing a 54% increase. The increased quarterly dividend to shareholders of record as of August 25, 2006, is payable on September 15, 2006.

A copy of the press release announcing the Stock Split, share buyback program and quarterly cash dividend is attached as Exhibit 99.1.

The information contained in this Current Report on Form 8-K under Items 2.02 and 7.01, including Exhibits 99.1 and 99.2 hereto, has been “furnished” and shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to liability under that section. The information in this Current Report under Items 2.02 and 7.01 shall not be incorporated by reference into any filing or other document pursuant to the Securities Act of 1933, as amended, except as shall be expressly set forth by specific reference in such filing or document.

Item 9.01. Exhibits.

 

(d)

The following exhibits are being filed or furnished herewith:

 

Exhibit No.

 

Description

3.1  

Articles of Amendment to CSX Corporation’s Amended and Restated Articles of Incorporation. Filed herewith.

99.1  

Press Release dated July 18, 2006 from CSX Corporation. Furnished herewith.*

99.2  

Quarterly Flash Document. Furnished herewith.*

*

Any internet addresses provided in this exhibit are for informational purposes only and are not intended to be hyperlinks.

Signature

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 

CSX CORPORATION

By:

 

/s/ CAROLYN T. SIZEMORE

 

Carolyn T. Sizemore

 

Vice President and Controller

 

(Principal Accounting Officer)

Date: July 18, 2006

Exhibit 3.1

ARTICLES OF AMENDMENT TO THE

AMENDED AND RESTATED ARTICLES OF INCORPORATION

OF

CSX CORPORATION

The undersigned, desiring to amend its Amended and Restated Articles of Incorporation under the provisions of Section 13.1-710 of Chapter 9 of Title 13.1 of the Code of Virginia of 1950, as amended, sets forth the following:

 

 

1.

Name . The name of the corporation is CSX Corporation.

 

 

2.

The Amendment . Section 3.1 of Article III of the Amended and Restated Articles of Incorporation is struck out and the following is substituted therefor:

3.1  Number and Designation . The Corporation shall have authority to issue six hundred million (600,000,000) shares of Common Stock, par value $1.00 per share, and twenty-five million (25,000,000) shares of Serial Preferred Stock, without par value.

 

 

3.

Stock Split . At the Effective Time (as defined below), each issued and each unissued authorized share of Common Stock existing immediately prior to the Effective Time shall be automatically changed into two shares of Common Stock. The Corporation has only shares of Common Stock outstanding.

 

 

4.

Directors Action . The foregoing amendment was adopted on July 18, 2006, by the Board of Directors of the Corporation acting pursuant to § 13.1-706(3) of the Code of Virginia without shareholder action. Shareholder approval of the amendment was not required as the Corporation has no shares of Preferred Stock issued and outstanding.

 

 

5.

Effective Time . These Articles of Amendment shall be effective as of 5:00 p.m. on August 3, 2006 (the “Effective Time”).

Dated: July 18, 2006

 

CSX CORPORATION

By:

 

/s/ ELLEN M. FITZSIMMONS

 

Senior Vice President-Law and Public Affairs

Exhibit 99.1

CSX Announces Strong Earnings, Stock Split,

Dividend Increase, Share Buyback

Highlights:

 

•

 

Record Surface Transportation revenues and operating income

 

•

 

2-for-1 stock split for shareholders, effective August 3, 2006

 

•

 

$0.10 quarterly dividend on the post-split shares, a 54 percent increase

 

•

 

$500 million share buyback program intended to be completed in 12 months

Jacksonville, Florida (July 18, 2006) – CSX Corporation [NYSE: CSX] today reported second quarter 2006 net earnings of $390 million, or $1.66 per share. Earnings for the second quarter included insurance recoveries related to Hurricane Katrina and benefits associated with the resolution of tax matters with a combined impact of $0.50 per share. Last year’s second quarter earnings were $165 million, or $0.73 per share, which included costs related to a debt repurchase of $0.54 per share, partially offset by a state income tax benefit of $0.31 per share. On a comparable basis, the company’s earnings per share for the second quarter of 2006 were $1.16, a 21 percent increase, compared to $0.96 for the same period last year. (See table below for reconciliation of all items to reported numbers.)

“These financial gains are a result of momentum in our operations, improvements in productivity and service, and our ability to capture price in a strong market environment,” said Michael J. Ward, chairman and chief executive officer of CSX Corporation. “Our strategy remains on track, the team is driving performance, and we are well positioned for profitable growth.”

The company posted record Surface Transportation revenues of $2.4 billion, which represented a 12 percent increase from the second quarter last year. Surface Transportation operating income was $645 million, including the insurance recoveries, compared to $422 million for the same period last year. On a comparable basis, 2006 second quarter operating income was a record $519 million, a 23 percent increase over last year, and reflected an operating ratio of 78.6 percent.

In addition, the company announced its board of directors has approved a 2-for-1 stock split for shareholders and a $0.10 quarterly dividend on the post-split shares, representing a 54% increase. The board also authorized a $500 million share buyback program that the company intends to complete over the next 12 months.

“We are confident in our ability to achieve double digit growth in operating income, earnings and free cash flow over the next five years,” said Ward. “The decision by our board to split our stock, increase the dividend and authorize the share buyback program reflects our strong balance sheet, and follows record operating performance as well as new investments to expand network capacity.”

The stock split will be for all shareholders of record on August 3, 2006 with a distribution date of August 15, 2006.

The $0.10 post-split quarterly dividend on the company’s common stock to shareholders of record as of August 25, 2006, is payable on September 15, 2006.

The new share buyback program is authorized to begin on July 24, 2006. Under the program, the company may purchase shares from time to time on the open market, through block trades or otherwise.

 

GAAP RECONCILIATION

(Dollars in millions, except per share amounts)

 

 

 

 

The company reports its financial results in accordance with generally accepted accounting principles (“GAAP”). However, management believes that certain non-GAAP financial measures used in managing the company’s business that fall within the meaning of Reg G by the Securities and Exchange Commission may provide users of the financial information with additional meaningful comparisons to prior reported results.

 

     

       Second Quarter  
       2006     2005  

Surface Transportation Operating Income

   $ 645     $ 422  

Less Gain on Insurance Recoveries

 

     (126 )     -  

 

Comparable Surface Transportation Operating Income

   $ 519     $ 422  
   

Earnings Per Share

   $ 1.66     $ 0.73  

Less Gain on Insurance Recoveries After Tax

     (0.33 )     -  

Plus Debt Repurchase Expense After Tax

     -       0.54  

Less Income Tax Benefits

 

     (0.17 )     (0.31 )

 

Comparable Earnings Per Share

   $ 1.16     $ 0.96  

CSX Corporation, based in Jacksonville, Fla., is a leading transportation company providing rail, intermodal and rail-to-truck transload services. The company’s transportation network spans approximately 21,000 miles with service to 23 eastern states and the District of Columbia, and connects to more than 70 ocean, river and lake ports.

This earnings announcement, as well as a package of detailed financial information, is contained in the CSX Flash report available on the company’s Web site at www.csx.com and on Form 8-K with the Securities and Exchange Commission (SEC).

CSX executives will conduct a quarterly earnings conference call with the investment community on July 19, 2006 at 8:30 a.m. ET. Investors, media and the public may listen to the conference call by dialing 888-327-6279 (888-EARN-CSX) and asking for the CSX earnings call. (Callers outside the U.S., dial 773-756-0199). Participants should dial in 10 minutes prior to the call.

A webcast of the live conference call will be available at www.csx.com in the Investors section. Following the earnings call, an internet replay of the presentation will be available. In addition, the replay will be available for download to a portable audio player or computer as an MP3 - or podcast - file. Both the replay and MP3 file can be found at www.csx.com in the Investors section and will be archived on the site for at least 30 days following the call for those unable to listen in real time.

###

This press release and other statements by the company contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act with respect to, among other items: projections and estimates of earnings, revenues, cost-savings, expenses, or other financial items; statements of management’s plans, strategies and objectives for future operation, and management’s expectations as to future performance and operations and the time by which objectives will be achieved; statements concerning proposed new products and services; and statements regarding 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. Forward looking statements speak only as of the date they are made, and 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.

Forward-looking statements are subject to a number of risks and uncertainties, and actual performance or results could differ materially from that anticipated by these forward-looking statements. Factors that may cause actual results to differ materially from those contemplated by these forward-looking statements include, among others: (i) the company’s success in implementing its financial and operational initiatives, (ii) changes in domestic or international economic or business conditions, including those affecting the rail industry (such as the impact of industry competition, conditions, performance and consolidation); (iii) legislative or regulatory changes; (iv) the inherent business risks associated with safety and security; and (v) the outcome of claims and litigation involving or affecting the company.

Other important assumptions and factors that could cause actual results to differ materially from those in the forward-looking statements are specified in the company’s SEC reports, accessible on the SEC’s website at www.sec.gov and the company’s website at www.csx.com .

CONTACTS:

INVESTOR RELATIONS

David Baggs

904-359-4812

MEDIA

Garrick Francis

904-359-1708

Table of Contents

Exhibit 99.2

 

LOGO

 

CSX

CORPORATION

CSX FLASH

QUARTERLY FINANCIAL REPORT

SECOND QUARTER 2006

Table of Contents

LOGO

CSX Announces Strong Earnings, Stock Split,

Dividend Increase, Share Buyback

Highlights:

 

•

 

Record Surface Transportation revenues and operating income

 

•

 

2-for-1 stock split for shareholders, effective August 3, 2006

 

•

 

$0.10 quarterly dividend on the post-split shares, a 54 percent increase

 

•

 

$500 million share buyback program intended to be completed in 12 months

Jacksonville, Florida (July 18, 2006) – CSX Corporation [NYSE: CSX] today reported second quarter 2006 net earnings of $390 million, or $1.66 per share. Earnings for the second quarter included insurance recoveries related to Hurricane Katrina and benefits associated with the resolution of tax matters with a combined impact of $0.50 per share. Last year’s second quarter earnings were $165 million, or $0.73 per share, which included costs related to a debt repurchase of $0.54 per share, partially offset by a state income tax benefit of $0.31 per share. On a comparable basis, the company’s earnings per share for the second quarter of 2006 were $1.16, a 21 percent increase, compared to $0.96 for the same period last year. (See table below for reconciliation of these items to reported numbers.)

“These financial gains are a result of momentum in our operations, improvements in productivity and service, and our ability to capture price in a strong market environment,” said Michael J. Ward, chairman and chief executive officer of CSX Corporation. “Our strategy remains on track, the team is driving performance, and we are well positioned for profitable growth.”

The company posted record Surface Transportation revenues of $2.4 billion, which represented a 12 percent increase from the second quarter last year. Surface Transportation operating income was $645 million, including the insurance recoveries, compared to $422 million for the same period last year. On a comparable basis, 2006 second quarter operating income was a record $519 million, a 23 percent increase over last year, and reflected an operating ratio of 78.6 percent.

In addition, the company announced its board of directors has approved a 2-for-1 stock split for shareholders and a $0.10 quarterly dividend on the post-split shares, representing a 54% increase. The board also authorized a $500 million share buyback program that the company intends to complete over 12 months.

“We are confident in our ability to achieve double digit growth in operating income, earnings and free cash flow over the next five years,” said Ward. “The decision by our board to split our stock, increase the dividend and authorize the share buyback program reflects our strong balance sheet, and follows record operating performance as well as new investments to expand network capacity.”

The stock split will be for all shareholders of record on August 3, 2006 with a distribution date of August 15, 2006.

The $0.10 post-split quarterly dividend on the company’s common stock to shareholders of record as of August 25, 2006, is payable on September 15, 2006.

The new share buyback program is authorized to begin on July 24, 2006. Under the program, the company may purchase shares from time to time on the open market, through block trades or otherwise.

 

Table of Contents

     

The accompanying

unaudited financial

information should be read in

conjunction with the

company’s most recent

Annual Report on Form

10-K, Quarterly Reports on

Form 10-Q, and any Current

Reports on Form 8-K.

  

CSX CORPORATION    

  

CONTACT:

 

 

Consolidated Financial Statements .......p.3

Surface Transportation Information .......p.7  

Other Information ...................................p.12

        

500 Water Street

15th Floor, C900

Jacksonville, FL

32202

http://www.csx.com

  

 

INVESTOR RELATIONS

David Baggs

(904) 359-4812

 

MEDIA

Garrick Francis

(904) 359-1708

 

1

Table of Contents

LOGO

 

GAAP RECONCILIATION

(Dollars in millions, except per share amounts)

 

 
 

The company reports its financial results in accordance with generally accepted accounting principles
(“GAAP”). However, management believes that certain non-GAAP financial measures used in managing
the company’s business that fall within the meaning of Reg G by the Securities and Exchange Commission
may provide users of the financial information with additional meaningful comparisons to prior reported
results.

 

 
       Second Quarter  
       2006     2005  

Surface Transportation Operating Income

   $ 645     $ 422  

Less Gain on Insurance Recoveries

     (126 )     -  

Comparable Surface Transportation Operating Income

   $ 519     $ 422  
   

Earnings Per Share

   $ 1.66     $ 0.73  

Less Gain on Insurance Recoveries After Tax

     (0.33 )     -  

Plus Debt Repurchase Expense After Tax

     -       0.54  

Less Income Tax Benefits

     (0.17 )     (0.31 )

Comparable Earnings Per Share

   $ 1.16     $ 0.96  

CSX Corporation, based in Jacksonville, Fla., is a leading transportation company providing rail, intermodal and rail-to-truck transload services. The company’s transportation network spans approximately 21,000 miles with service to 23 eastern states and the District of Columbia, and connects to more than 70 ocean, river and lake ports.

This earnings announcement, as well as a package of detailed financial information, is contained in the CSX Flash report available on the company’s Web site at www.csx.com and on Form 8-K with the Securities and Exchange Commission (SEC).

CSX executives will conduct a quarterly earnings conference call with the investment community on July 19, 2006 at 8:30 a.m. ET. Investors, media and the public may listen to the conference call by dialing 888-327-6279 (888-EARN-CSX) and asking for the CSX earnings call. (Callers outside the U.S., dial 773-756-0199). Participants should dial in 10 minutes prior to the call.

A webcast of the live conference call will be available at www.csx.com in the Investors section. Following the earnings call, an internet replay of the presentation will be available. In addition, the replay will be available for download to a portable audio player or computer as an MP3 - or podcast - file. Both the replay and MP3 file can be found at www.csx.com in the Investors section and will be archived on the site for at least 30 days following the call for those unable to listen in real time.

###

This press release and other statements by the company contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act with respect to, among other items: projections and estimates of earnings, revenues, cost-savings, expenses, or other financial items; statements of management’s plans, strategies and objectives for future operation, and management’s expectations as to future performance and operations and the time by which objectives will be achieved; statements concerning proposed new products and services; and statements regarding 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. Forward looking statements speak only as of the date they are made, and 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.

Forward-looking statements are subject to a number of risks and uncertainties, and actual performance or results could differ materially from that anticipated by these forward-looking statements. Factors that may cause actual results to differ materially from those contemplated by these forward-looking statements include, among others: (i) the company’s success in implementing its financial and operational initiatives, (ii) changes in domestic or international economic or business conditions, including those affecting the rail industry (such as the impact of industry competition, conditions, performance and consolidation); (iii) legislative or regulatory changes; (iv) the inherent business risks associated with safety and security; and (v) the outcome of claims and litigation involving or affecting the company.

Other important assumptions and factors that could cause actual results to differ materially from those in the forward-looking statements are specified in the company’s SEC reports, accessible on the SEC’s website at www.sec.gov and the company’s website at www.csx.com .

 

2

Table of Contents

CSX Corporation

CONSOLIDATED STATEMENT OF EARNINGS (Unaudited)

(Dollars in Millions, Except Per Share Amounts)

 

         Quarters Ended           Six Months Ended        
                      
         June 30,
2006 		    July 1,
2005 		    $ Change     June 30,
2006 		    July 1,
2005 		    $ Change  
                  

Surface

  

Revenue

  $ 2,421     $ 2,166     $ 255     $ 4,752     $ 4,274     $ 478  

Transportation

  

Expense

           
  

Labor and Fringe

    715       706       9       1,433       1,400       33  
  

Materials, Supplies and Other

    468       441       27       931       913       18  
  

Depreciation

    216       203       13       427       406       21  
  

Fuel

    288       176       112       541       355       186  
  

Building and Equipment Rent

    132       137       (5 )     256       272       (16 )
  

Inland Transportation

    62       62       -       118       116       2  
  

Conrail Rents, Fees and Services

    21       19       2       40       39       1  
  

Gain on Insurance Recoveries (Note a)

    (126 )     -       (126 )     (126 )     -       (126 )
                  
  

Total Expense

    1,776       1,744       32       3,620       3,501       119  
                  
  

Surface Transportation
Operating Income

    645       422       223       1,132       773       359  
  

Other Operating Income

    1       9       (8 )     10       12       (2 )
                  

Consolidated

  

Consolidated Operating Income

    646       431       215       1,142       785       357  
  

Other Income - Net

    11       30       (19 )     8       28       (20 )
  

Debt Repurchase Expense (Note c)

    -       (192 )     192       -       (192 )     192  
  

Interest Expense

    (98 )     (110 )     12       (196 )     (224 )     28  
                  
  

Earnings From Continuing Operations
Before Income Taxes

    559       159       400       954       397       557  
  

Income Tax (Expense) Benefit
(Note b)

    (169 )     6       (175 )     (319 )     (78 )     (241 )
                  
  

Earnings From Continuing Operations

    390       165       225       635       319       316  
  

Discontinued Operations - Net of Tax
(Note d)

    -       -       -       -       425       (425 )
                  
  

Net Earnings

  $ 390     $ 165     $ 225     $ 635     $ 744     $ (109 )
                  

Earnings Per

Common Share

  

Earnings Per Share, Assuming
Dilution:

           
  

From Continuing Operations

  $ 1.66     $ 0.73     $ 0.93     $ 2.73     $ 1.41     $ 1.32  
  

Discontinued Operations

    -       -       -       -       1.88       (1.88 )
                  
  

Net Earnings

  $ 1.66     $ 0.73     $ 0.93     $ 2.73     $ 3.29     $ (0.56 )
                  
  

Average Diluted Common Shares
Outstanding (Thousands )

    235,103       227,453         233,642       226,850    
  

Cash Dividends Paid Per
Common Share

  $ 0.13     $ 0.10       $ 0.26     $ 0.20    

See accompanying Notes to Consolidated Financial Statements on page 6.

 

3

Table of Contents

CSX Corporation

CONSOLIDATED BALANCE SHEET

(Dollars in Millions)

 

          (Unaudited)
June 30,
2006 		    Dec. 30,
2005 		 
           

Assets

  

Cash and Cash Equivalents

   $ 320     $ 309  
  

Short-term Investments

     362       293  
  

Accounts Receivable - Net

     1,204       1,202  
  

Materials and Supplies

     202       199  
  

Deferred Income Taxes

     241       225  
  

Other Current Assets

     66       144  
           
  

Total Current Assets

     2,395       2,372  
  

Properties

     27,229       26,538  
  

Accumulated Depreciation

     (6,672 )     (6,375 )
           
  

Properties - Net

     20,557       20,163  
  

Investment in Conrail

     609       603  
  

Affiliates and Other Companies

     318       304  
  

Other Long-term Assets

     719       790  
           
  

Total Assets

   $ 24,598     $ 24,232  
           

Liabilities and

  

Accounts Payable

   $ 917     $ 954  

Shareholders’ Equity

  

Labor and Fringe Benefits Payable

     457       565  
  

Casualty, Environmental and Other Reserves

     306       311  
  

Current Maturities of Long-term Debt

     1,375       936  
  

Short-term Debt

     3       1  
  

Income and Other Taxes Payable

     113       102  
  

Other Current Liabilities

     89       110  
           
  

Total Current Liabilities

     3,260       2,979  
  

Casualty, Environmental and Other Reserves

     649       653  
  

Long-term Debt

     4,567       5,093  
  

Deferred Income Taxes

     6,079       6,082  
  

Other Long-term Liabilities

     1,440       1,471  
           
  

Total Liabilities

     15,995       16,278  
           
  

Shareholders’ Equity:

    
  

Common Stock $1 Par Value

     222       218  
  

Other Capital

     1,848       1,751  
  

Retained Earnings

     6,841       6,262  
  

Accumulated Other Comprehensive Loss

     (308 )     (277 )
           
  

Total Shareholders’ Equity

     8,603       7,954  
           
  

Total Liabilities and Shareholders’ Equity

   $ 24,598     $ 24,232  
           

See accompanying Notes to Consolidated Financial Statements on page 6.

 

4

Table of Contents

CSX Corporation

CONSOLIDATED CASH FLOW STATEMENT (Unaudited)

(Dollars in Millions)

 

          Six Months Ended  
           
          June 30,
2006 		    July 1,
2005 		 
           

Operating Activities

  

Net Earnings

   $ 635     $ 744  
  

Adjustments to Reconcile Net Earnings to Net Cash Provided:

    
  

Depreciation

     430       418  
  

Deferred Income Taxes

     6       (51 )
  

Gain on Sale of International Terminals- Net of Tax (Note d)

     -       (428 )
  

Gain on Insurance Recoveries (Note a)

     (126 )     -  
  

Insurance Proceeds

     92       -  
  

Other Operating Activities

     (26 )     (124 )
  

Changes in Operating Assets and Liabilities:

    
  

Accounts Receivable

     (63 )     41  
  

Other Current Assets

     66       (45 )
  

Accounts Payable

     2       16  
  

Income and Other Taxes Payable

     (21 )     (226 )
  

Other Current Liabilities

     (141 )     (16 )
           
  

Net Cash Provided by Operating Activities

     854       329  
           

Investing Activities

  

Property Additions

     (879 )     (381 )
  

Insurance Proceeds

     115       -  
  

Net Proceeds from Sale of International Terminals

     -       1,108  
  

Purchase of Minority Interest in International

    
  

    Terminals Subsidiary

     -       (110 )
  

Purchase of Short-term Investments

     (761 )     (1,576 )
  

Proceeds from Sales of Short-term Investments

     718       1,679  
  

Other Investing Activities

     (15 )     3  
           
  

Net Cash (Used in) Provided by Investing Activities

     (822 )     723  
           

Financing Activities

  

Short-term Debt - Net

     2       (98 )
  

Long-term Debt Issued

     63       27  
  

Long-term Debt Repaid

     (143 )     (1,213 )
  

Dividends Paid

     (57 )     (44 )
  

Stock Options Exercised

     224       52  
  

Shares Repurchased

     (149 )     -  
  

Other Financing Activities

     39       3  
           
  

Net Cash Used in Financing Activities

     (21 )     (1,273 )
           

Cash and Cash
Equivalents

  

Net Increase (Decrease) in Cash and Cash Equivalents

     11       (221 )
  

Cash and Cash Equivalents at Beginning of Period

     309       522  
           
  

Cash and Cash Equivalents at End of Period

   $ 320     $ 301  
           

See accompanying Notes to Consolidated Financial Statements on page 6.

 

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CSX Corporation

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Prior periods have been reclassified to conform to the current year presentation.

 

(a)

Gain on Insurance Recoveries:

In the second quarter of 2006, CSX recognized a gain of $126 million before tax, or $78 million after tax, on insurance recoveries from claims related to Hurricane Katrina. The gain represents insurance recoveries related to property damage and lost profits. Additional gains are expected in future periods as more cash is collected.

 

(b)

Income Tax:

 

 

•

 

In the second quarter of 2006, CSX recognized a tax benefit of $41 million principally related to the resolution of certain tax matters. As issue are resolved in future periods, additional adjustments may occur.

 

 

•

 

In the second quarter of 2005, Ohio enacted legislation to gradually eliminate its corporate franchise tax. This legislative change resulted in an income tax benefit of $71 million associated with eliminating deferred income tax liabilities.

 

(c)

Debt Repurchase Expense:

In the second quarter of 2005, CSX repurchased $1.0 billion of outstanding debt. CSX recognized $192 million of before-tax costs, or $123 million of after-tax costs, to repurchase the debt, which primarily reflects the increase in current market value above original issue value.

 

(d)

Discontinued Operations:

In the first quarter of 2005, CSX sold its International Terminals business for net cash proceeds of $998 million. As a result, CSX recognized earnings from discontinued operations of $425 million after tax, which includes $428 million of after tax gain on sale and a $3 million after tax first quarter 2005 loss on operations of the International Terminals business.

 

 

 

 

Subsequent Event

The company’s board of directors approved a 2-for-1 stock split for shareholders effective August 3, 2006, a $0.10 quarterly dividend on the post-split shares effective in September 2006, and a $500 million share buyback program that the company intends to complete over the next 12 months.

All earnings per share information for the second quarter of 2006 is on a pre-split basis. Beginning in the third quarter of 2006, the company will be required to retrospectively apply the stock split. If the company had applied the stock split for this quarter, EPS assuming dilution would have been $.83 and $.36, for the quarters ended 2006 and 2005, respectively.

 

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CSX Corporation

SURFACE TRANSPORTATION DETAIL (Unaudited)

(Dollars in Millions)

Quarters Ended June 30, 2006 and July 1, 2005

 

      Rail     Intermodal     Surface
Transportation 		       
      2006     2005     2006     2005     2006     2005     $ Change  

Revenue

  $ 2,065     $ 1,836     $ 356     $ 330     $ 2,421     $ 2,166     $ 255  

Expense

                        

Labor and Fringe

    695       687       20       19       715       706       9  

Materials, Supplies and Other

    414       394       54       47       468       441       27  

Depreciation

    206       193       10       10       216       203       13  

Fuel

    288       176       -       -       288       176       112  

Building and Equipment Rent

    99       104       33       33       132       137       (5 )

Inland Transportation

    (116 )     (104 )     178       166       62       62       -  

Conrail Rents, Fees and Services

    21       19       -       -       21       19       2  

Gain on Insurance Recoveries

    (124 )     -       (2 )     -       (126 )     -       (126 )
         

Total Expense

    1,483       1,469       293       275       1,776       1,744       32  
         

Surface Transportation
Operating Income

  $ 582     $ 367     $ 63     $ 55     $ 645     $ 422     $ 223  
         

Surface Transportation
Operating Ratio

    71.8 %     80.0 %     82.3 %     83.3 %     73.4 %     80.5 %    

Other Operating Income

          $ 1     $ 9      
                     

Consolidated Operating Income

          $ 646     $ 431      
                     

Six Months Ended June 30, 2006 and July 1, 2005

 

 

      Rail     Intermodal     Surface
Transportation 		       
      2006     2005     2006     2005     2006     2005     $ Change  

Revenue

  $ 4,062     $ 3,615     $ 690     $ 659     $ 4,752     $ 4,274     $ 478  

Expense

                        

Labor and Fringe

    1,393       1,361       40       39       1,433       1,400       33  

Materials, Supplies and Other

    833       812       98       101       931       913       18  

Depreciation

    407       386       20       20       427       406       21  

Fuel

    541       355       -       -       541       355       186  

Building and Equipment Rent

    192       205       64       67       256       272       (16 )

Inland Transportation

    (227 )     (209 )     345       325       118       116       2  

Conrail Rents, Fees and Services

    40       39       -       -       40       39       1  

Gain on Insurance Recoveries

    (124 )     -       (2 )     -       (126 )     -       (126 )
         

Total Expense

    3,055       2,949       565       552       3,620       3,501       119  
         

Surface Transportation
Operating Income

  $ 1,007     $ 666     $ 125     $ 107     $ 1,132     $ 773     $ 359  
         

Surface Transportation
Operating Ratio

    75.2 %     81.6 %     81.9 %     83.8 %     76.2 %     81.9 %    

Other Operating Income

          $ 10     $ 12      
                     

Consolidated Operating Income

          $ 1,142     $ 785      
                     

 

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CSX Corporation

SURFACE TRANSPORTATION VOLUME AND REVENUE (Unaudited)

Volume (Thousands); Revenue (Dollars in Millions); Revenue Per Unit (Dollars)

Quarters Ended June 30, 2006, and July 1, 2005

 

     Volume         Revenue         Revenue Per Unit
     2006    2005    % Change         2006    2005    % Change         2006    2005    % Change

Chemicals

   134    135    (1)%       $ 305    $ 270    13%       $ 2,276    $ 2,000    14%

Emerging Markets

   144    136    6              158      137    15             1,097      1,007    9    

Forest Products

   103    113    (9)             194      181    7            1,883      1,602    18    

Agricultural Products

   96    87    10             164      133    23            1,708      1,529    12    

Metals

   95    92    3              173      140    24            1,821      1,522    20    

Phosphates and Fertilizers

   94    117    (20)             93      91    2            989      778    27    

Food and Consumer

   63    63    -              120      109    10            1,905      1,730    10    

Total Merchandise

   729    743    (2)             1,207      1,061    14            1,656      1,428    16    

Coal

   446    438    2              562      519    8              1,260      1,185    6    

Coke and Iron Ore

   24    21    14              31      22    41            1,292      1,048    23    

Total Coal

   470    459    2               593      541    10            1,262      1,179    7    

Automotive

   124    124    -              223      211    6            1,798      1,702    6    

Other

   -    -    -              42      23    83            -      -    -    

Total Rail

   1,323    1,326    -              2,065      1,836    12            1,561      1,385    13    

International

   326    320    2              148      134    10            454      419    8    

Domestic

   221    223    (1)             198      190    4            896      852    5    

Other

   -    -    -              10      6    67            -      -    -    

Total Intermodal

   547    543    1              356      330    8            651      608    7    

Total Surface Transportation

   1,870    1,869    -%        $ 2,421    $ 2,166    12%       $ 1,295    $ 1,159    12%
Six Months Ended June 30, 2006, and July 1, 2005
     Volume         Revenue         Revenue Per Unit
     2006    2005    % Change         2006    2005    % Change         2006    2005    % Change

Chemicals

   269    275    (2)%       $ 600    $ 546    10%       $ 2,230    $ 1,985    12%

Emerging Markets

   268    251    7             292      254    15            1,090      1,012    8    

Forest Products

   209    226    (8)              385      357    8             1,842      1,580    17    

Agricultural Products

   192    179    7             321      270    19            1,672      1,508    11    

Metals

   189    185    2             337      278    21            1,783      1,503    19    

Phosphates and Fertilizers

   182    234    (22)              183      181    1            1,005      774    30    

Food and Consumer

   127    126    1             238      213    12            1,874      1,690    11    

Total Merchandise

   1,436    1,476    (3)              2,356      2,099    12            1,641      1,422    15    

Coal

   902    875    3             1,114      1,001    11            1,235      1,144    8    

Coke and Iron Ore

   44    42    5             58      46    26            1,318      1,095    20    

Total Coal

   946    917    3             1,172      1,047    12            1,239      1,142    8    

Automotive

   251    249    1             454      419    8            1,809      1,683    7    

Other

   -    -    -             80      50    60            -      -    -    

Total Rail

   2,633    2,642    -             4,062      3,615    12            1,543      1,368    13    

International

   628    636    (1)             280      266    5            446      418    7    

Domestic

   435    435    -             384      363    6            883      834    6    

Other

   -    -    -             26      30    (13)            -      -    -    

Total Intermodal

   1,063    1,071    (1)             690      659    5            649      615    6    

Total Surface Transportation

   3,696    3,713    -%       $ 4,752    $ 4,274    11%       $ 1,286    $ 1,151    12%

 

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CSX Corporation

REVENUE

Rail Operating Revenue

Second quarter Surface Transportation revenue represents the 17 th consecutive quarter of year-over-year revenue growth. All four major markets experienced revenue gains as a result of continued traffic re-pricing and the fuel surcharge program.

Merchandise

Chemicals  – Revenue and revenue per unit improved by capitalizing on a continued strong pricing environment. While shipments of plastics increased, overall volume was down slightly because high raw material costs continued to negatively affect the U.S. chemical industry’s competitiveness and in turn, CSX’s volumes.

Emerging Markets – Continued strength in the building and highway construction markets in the southeast propelled demand for aggregate products, such as rock, sand, and cement. Shipments of municipal waste and construction and demolition debris from the metropolitan areas in the northeast also continued to show significant growth.

Forest Products – Volume declined due to weakness in the printing market as electronic media continued to reduce the demand for printed paper. A favorable pricing environment improved revenue per unit in all segments, which was led by lumber, plywood and brown packaging paper. Yield management efforts also negatively affected packaging paper shipments. A general focus on longer and more profitable shipments favorably affected revenue per unit.

Agricultural Products – Increased demand for ethanol as a fuel additive continued to be a key reason for strong volume growth. In addition, strong export demand for grain and increased shipments of beans due to lower producer prices helped volume growth.

Metals – Domestic steel demand continued to drive high levels of production and volume gains. Pricing actions also contributed to a record revenue quarter and growth compared to last year.

Phosphates and Fertilizers – Short-haul export phosphate volume, which has lower revenue per unit, decreased significantly as increased international production caused plant shutdowns. The loss of this short-haul traffic and an increase in longer-haul domestic phosphate volume together had a significant favorable impact on revenue per unit.

Food and Consumer – Volume in this segment (which includes the transportation of refrigerated products, canned goods, building products and transportation equipment) was flat. Growth in deliveries of customer-owned freight cars, roofing granules (used to make shingles), and rice was offset by softness in shipments of ores (used in paint products), clay, and canned goods. Also, a focus on shipments that are more profitable and are moved longer distances favorably affected revenue per unit.

Coal

Revenue and volume were up on continued strong utility demand. Utility inventory levels were estimated to be at target levels at the end of the second quarter. Increased fuel surcharge coverage and a favorable pricing environment resulted in revenue-per-unit increases. Also, the second quarter of 2005 included an additional $17 million of revenue from a rate case settlement.

Automotive

Volume was flat due to a slight reduction in North American light vehicle production. Consistent with the overall automotive market, CSX’s volumes continued to shift from the Big 3 to foreign brands produced domestically. Revenue per unit was favorable due to price increases and fuel surcharge.

Intermodal Operating Revenue

International – Overall volume increased due to import activity from several key international customers, partially offset by continued yield management initiatives. Revenue per unit increased as a result of a strong pricing environment and fuel surcharge.

Domestic – Volume declined slightly from fewer shipments from the west coast that are transported by other rail carriers, partially offset by growth in the parcel and truckload markets. Additionally, the pricing environment continued to remain favorable.

 

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CSX Corporation

EXPENSE

Surface Transportation expenses increased $32 million from last year’s second quarter, despite $126 million of insurance recoveries related to Hurricane Katrina. Significant variances are described below.

Labor and Fringe expenses increased $9 million due to the effects of higher inflation partially offset by lower incentive compensation because of new long-term incentive plans.

Materials, Supplies and Other expenses increased $27 million primarily due to inflation and a prior year supplier reimbursement that was not repeated. These increases were partially offset by productivity gains from improved operations, such as better usage of locomotives and fewer train accidents and related costs.

Depreciation expense increased $13 million due to an increasing asset base related to higher capital spending.

Fuel expense increased $112 million from higher fuel prices and less hedge benefit.

Building and Equipment Rent decreased $5 million due to a reduction in railcar lease expense. This was a direct result of the improvement in operational fluidity, which drove improvements in shipment cycle-time and reduced the number of cars-on-line.

Gain on Insurance Recoveries of $126 million represented cash received for lost profits and higher replacement value of property compared to the value of the property that was damaged, after consideration of the company’s insurance deductible.

 

 

 

Other Operating Income decreased $8 million primarily because of less equipment leasing activity related to the company’s former container shipping business. Also included in other operating income are gain amortization on the company’s conveyance of its former CSX lines subsidiary, some remaining net sublease income from assets formerly included in the marine service segment, and other items.

 

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CSX Corporation

RAIL OPERATING STATISTICS (Estimated)

 

         Second Quarter     Six Months  
              
         2006     2005     % Change     2006     2005     % Change  
              

Coal

  

Domestic:

           

(Millions of Tons)

  

    Utility

  39.4     37.6     5%     79.8     74.7     7%  
  

    Other

  4.9     5.5     (11)       10.0     10.8     (7)    
              
  

        Total Domestic

  44.3     43.1     3        89.8     85.5     5     
  

Export

  3.2     3.4     (6)       6.4     7.2     (11)    
              
  

        Total

  47.5     46.5     2        96.2     92.7     4     
              

Revenue Ton-Miles

  

Merchandise

  35.3     34.7     2        70.5     69.3     2     

(Billions)

  

Automotive

  2.2     2.2     -        4.4     4.4     -     
  

Coal

  21.0     20.4     3        42.4     41.1     3     
  

Intermodal

  5.3     5.2     2        10.3     10.2     1     
              
  

        Total

  63.8     62.5     2        127.6     125.0     2     
              

Gross Ton-Miles

  

Total Gross Ton-Miles

           

(Billions)

  

(Excludes locomotive

gross ton-miles)

  118.5     117.2     1     237.6     233.7     2  

Service Measurements

  

Personal Injury

Frequency Index (Per

200,000 Man Hours)

  1.37     1.88     27     1.36     1.76     23  
  

FRA Train Accidents

Frequency (Per Million

Train Miles)

  3.29     3.62     9     3.41     4.32     21  
  

On -Time Originations

  76.5 %   47.7 %   60     75.5 %   48.8 %   55  
  

On -Time Arrivals

  60.3 %   36.2 %   67     60.8 %   36.9 %   65  
  

Average System Dwell

Time (Hours) (a)

  25.5     30.4     16     26.1     30.2     14  
  

Average Total Cars-

On-Line

  223,349     235,819     5     223,822     235,019     5  
  

Average Velocity, All

Trains (Miles Per Hour)

  19.5     19.1     2     19.7     19.3     2  
  

Average Recrews (Per

Day)

  63     67     6     60     66     9 %

Resources

  

Route Miles

  21,244     21,794     (3 )      
  

Locomotives (Owned

and long-term leased)

  3,850     3,694     4        
  

Freight Cars (Owned and

long-term leased)

  102,975     103,544     (1 )%      

(a) Beginning October 2005, the Association of American Railroads adopted a new dwell calculation in an effort to standardize reporting across U.S. railroads. Beginning in 2007 and going forward, CSXT will adopt this new method. If CSXT had used this new method in the second quarter and first six months of 2006, average system dwell time would have been 25.1 and 25.6 hours for those periods, respectively.

SURFACE TRANSPORTATION FUEL STATISTICS

 

     Second Quarter     Six Months  
                
     2006     2005     2006     2005  
                

Diesel No. 2:

        

Estimated Fuel Consumption (Millions of Gallons)

     147.6       147.7       304.5       305.0  

Price Per Gallon (Dollars)

   $ 1.9516     $ 1.1905     $ 1.7754     $ 1.1643  

Impact of Year-to-Year Price Variance on Operating Expense (Dollars in Millions)

   $ (112 )   $ (22 )   $ (186 )   $ (41 )
                

 

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CSX Corporation

OTHER INCOME (EXPENSE) (Unaudited)

 

     Quarters Ended           Six Months Ended        
                    
     June 30,
2006 		    July 1,
2005 		    $ Change     June 30,
2006 		    July 1,
2005 		    $ Change  
                

Interest Income

   $ 10     $ 15     $ (5 )   $ 19     $ 22     $ (3 )

Income from Real Estate and Resort Operations

     2       24       (22 )     (7 )     16       (23 )

Minority Interest Expense

     (6 )     (7 )     1       (11 )     (10 )     (1 )

Miscellaneous

     5       (2 )     7       7       -       7  
                

Total

   $ 11     $ 30     $ (19 )   $ 8     $ 28     $ (20 )
                

 

 

 

EMPLOYEE COUNTS (Estimated)

 

    

May

2006

  

May

2005

   Change  
      

Surface Transportation

        

Rail

   33,143    32,005    1,138  

Intermodal

   1,016    1,076    (60 )

Technology and Corporate

   559    549    10  
      

Total Surface Transportation

   34,718    33,630    1,088  
      

Other

   1,471    1,546    (75 )
      

Total

   36,189    35,176    1,013  
      

 

12