EX-99.2 3 qfr_q32017.htm Q3 2017 QUARTERLY FINANCIAL REPORT Exhibit
Exhibit 99.2

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CSX Corporation Announces Third Quarter Earnings
JACKSONVILLE, Fla. - October 17, 2017 - CSX Corporation (Nasdaq: CSX) today announced third quarter 2017 net earnings of $459 million, or $0.51 per share, up from $455 million, or $0.48 per share, in the same period last year. Excluding a $1 million restructuring charge in this year’s third quarter results, adjusted earnings per share remain at $0.51 as shown in the table below.
Reconciliation of GAAP to Non-GAAP Measures
For the Quarter ended September 30, 2017
(in millions, except operating ratio and EPS)
Operating Income
Operating Ratio
Net Earnings
Net Earnings
Per Share, Assuming Dilution
GAAP Operating Results
$
876

68.1
 %
$
459

$
0.51

Restructuring Charge
 
1

(0.1
)%
 
4

—

Adjusted Operating Results (non-GAAP)
$
877

68.0
 %
$
463

$
0.51


“The company’s results for the third quarter reflect the resiliency of Precision Scheduled Railroading, even during times of transition,” said E. Hunter Harrison, president and chief executive officer. "With that transition largely behind us, we are now intensely focused on driving superior service for our customers and lasting value for our shareholders.”
Revenue for the third quarter increased 1 percent when compared to the previous year, supported by core pricing gains and offset by the impact of unfavorable mix. Expenses declined $2 million year over year with efficiency gains of $95 million more than offsetting the cost of inflation and fuel costs that were 19 percent higher on a per gallon basis when compared to the same quarter last year.
Total volume for the quarter was stable, while operating income improved 4 percent to $876 million and the operating ratio improved 90 basis points to 68.1 percent. Given the significant progress made to date, the company has completed the $1.5 billion share repurchase program that was announced in April 2017 and upsized in July 2017, reflecting management’s confidence in the company’s future.
As CSX advances the implementation of Precision Scheduled Railroading, it remains on track to achieve record efficiency gains. Adjusting for restructuring charges, CSX expects to deliver a full-year operating ratio around the high end of the mid-60s, earnings per share growth of 20-25 percent off the 2016-reported base of $1.81, and free cash flow before dividends of around $1.5 billion (see non-GAAP statements below).






Table of Contents
The accompanying unaudited
CSX CORPORATION
CONTACTS:
 
financial information should be
500 Water Street, C900
INVESTOR RELATIONS
read in conjunction with the
Jacksonville, FL 32202
David Baggs
Company’s most recent
www.csx.com
(904) 359-4812
Annual Report on Form 10-K,
 
MEDIA
 
Quarterly Reports on Form 10-Q, and
 
Rob Doolittle
 
any Current Reports on Form 8-K.
 
(202) 626-4939

1

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CSX executives will conduct a conference call with the investment community this morning, October 17, from 8:30 a.m. to 9:30 a.m. Eastern time. Investors, media and the public may listen to the conference call by dialing 1-888-EARN-CSX (888-327-6279) and asking for the CSX earnings call. Callers outside the U.S., dial 1-773-756-0199. Participants should dial in 10 minutes prior to the call. In conjunction with the call, a live webcast will be accessible and presentation materials will be posted on the company's website at http://investors.csx.com. Following the earnings call, an internet replay of the presentation will be archived on the company website.
This earnings announcement, as well as additional detailed financial information, is contained in the CSX Quarterly Financial Report available through the company’s website at http://investors.csx.com and on Form 8-K with the Securities and Exchange Commission.
About CSX and its Disclosures
CSX, based in Jacksonville, Florida, is a premier transportation company. It provides rail, intermodal and rail-to-truck transload services and solutions to customers across a broad array of markets, including energy, industrial, construction, agricultural, and consumer products. For over 190 years, CSX has played a critical role in the nation's economic expansion and industrial development. Its network connects every major metropolitan area in the eastern United States, where nearly two-thirds of the nation's population resides. It also links more than 240 short-line railroads and more than 70 ocean, river and lake ports with major population centers and farming towns alike.
This announcement, as well as additional financial information, is available on the company's website at http://investors.csx.com. CSX also uses social media channels to communicate information about the company. Although social media channels are not intended to be the primary method of disclosure for material information, it is possible that certain information CSX posts on social media could be deemed to be material. Therefore, we encourage investors, the media, and others interested in the company to review the information we post on Twitter (http://twitter.com/CSX) and on Slideshare (http://www.slideshare.net/HowTomorrowMoves). The social media channels used by CSX may be updated from time to time.
More information about CSX Corporation and its subsidiaries is available at www.csx.com and on Facebook (http://www.facebook.com/OfficialCSX).
Non-GAAP Disclosure
CSX reports its financial results in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP). CSX also uses certain non-GAAP measures that fall within the meaning of Securities and Exchange Commission Regulation G and Regulation S-K Item 10(e), which may provide users of the financial information with additional meaningful comparison to prior reported results. Non-GAAP measures do not have standardized definitions and are not defined by U.S. GAAP. Therefore, CSX’s non-GAAP measures are unlikely to be comparable to similar measures presented by other companies. The presentation of these non-GAAP measures should not be considered in isolation from, as a substitute for, or as superior to the financial information presented in accordance with GAAP. Reconciliations of non-GAAP measures to corresponding GAAP measures are above.
Forward-looking Statements
This information and other statements by the company may 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, margins, volumes, rates, cost-savings, expenses, taxes, liquidity, capital expenditures, dividends, share repurchases or other financial items, statements of management's plans, strategies and objectives for future operations, and management's expectations as to future performance and operations and the time by which objectives will be achieved, statements concerning proposed new services, and statements regarding future economic, industry or market conditions or performance. Forward-looking statements are typically identified by words or phrases such as “will,” “should,” “believe,” “expect,” “anticipate,” “project,” “estimate,” “preliminary” 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 updates 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 any forward-looking statements. Factors that may cause actual results to differ materially from those contemplated by any 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, political or business conditions, including those affecting the transportation 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; (v) the outcome of claims and litigation involving or affecting the company; (vi) natural events such as severe weather conditions or pandemic health crises; and (vii) the inherent uncertainty associated with projecting economic and business conditions.
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

CSX Corporation


CONSOLIDATED INCOME STATEMENTS (Unaudited)
(Dollars in millions, except per share amounts)


 
Quarters Ended
 
Nine Months Ended
 
Sep. 30, 2017 (a)
Sep. 23, 2016
$ Change
% Change
 
Sep. 30, 2017 (a)
Sep. 23, 2016
$ Change
% Change
 
 
 
 
 
 
 
 
 
 
Revenue
$
2,743

$
2,710

$
33

1
 %
 
$
8,545

$
8,032

$
513

6
 %
Expense
 
 
 
 
 
 
 
 
 
Labor and Fringe
717

762

45

6

 
2,249

2,307

58

3

Materials, Supplies and Other
516

507

(9
)
(2
)
 
1,573

1,576

3

—

Depreciation
331

321

(10
)
(3
)
 
978

953

(25
)
(3
)
Fuel
205

174

(31
)
(18
)
 
621

496

(125
)
(25
)
Equipment and Other Rents
97

105

8

8

 
282

315

33

10

Restructuring Charge (b)
1

—

(1
)
—

 
296

—

(296
)
—

Total Expense
1,867

1,869

2

—

 
5,999

5,647

(352
)
(6
)
 
 
 
 
 
 
 
 
 
 
Operating Income
876

841

35

4

 
2,546

2,385

161

7

 
 
 
 
 
 
 
 
 
 
Interest Expense
(132
)
(139
)
7

5

 
(406
)
(423
)
17

4

Other Income - Net
6

13

(7
)
(54
)
 
19

28

(9
)
32

Earnings Before Income Taxes
750

715

35

5

 
2,159

1,990

169

8

 
 
 
 
 
 
 
 
 
 
Income Tax Expense
(291
)
(260
)
(31
)
(12
)
 
(828
)
(734
)
(94
)
(13
)
Net Earnings
$
459

$
455

$
4

1
 %
 
$
1,331

$
1,256

$
75

6
 %
 
 
 
 
 
 
 
 
 
 
Operating Ratio
68.1
%
69.0
%
 
 
 
70.2
%
70.3
%
 
 
 
 
 
 
 
 
 
 
 
 
Per Common Share
 
 
 
 
 
 
 
 
 
Net Earnings Per Share, Assuming Dilution
$
0.51

$
0.48

$
0.03

6
 %
 
$
1.45

$
1.32

$
0.13

10
 %
 
 
 
 
 
 
 
 
 
 
Average Shares Outstanding, Assuming Dilution (millions)
906

943

 
 
 
919

953

 
 
 
 
 
 
 
 
 
 
 
 
Cash Dividends Paid Per Common Share
$
0.20

$
0.18

 
 
 
$
0.58

$
0.54

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


3
CSX Corporation

CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in millions)


 
(Unaudited)
 
 
Sep. 30, 2017 (a)
Dec. 30, 2016
ASSETS
 
 
 
Cash and Cash Equivalents
$
591

$
603

Short-term Investments
113

417

Other Current Assets
1,468

1,467

Properties - Net
31,579

31,150

Investment in Affiliates and Other Companies
1,506

1,459

Other Long-term Assets
316

318

Total Assets
$
35,573

$
35,414

 
 
 
 
 
 
LIABILITIES AND SHAREHOLDERS' EQUITY
 
 
 
Current Maturities of Long-term Debt
$
19

$
331

Other Current Liabilities
2,056

1,709

Long-term Debt
11,788

10,962

Deferred Income Taxes
9,789

9,596

Other Long-term Liabilities
1,019

1,122

Total Liabilities
24,671

23,720

 
 
 
Total Shareholders' Equity
10,902

11,694

Total Liabilities and Shareholders' Equity
$
35,573

$
35,414




4
CSX Corporation

CONDENSED CONSOLIDATED CASH FLOW STATEMENTS (Unaudited)
(Dollars in millions)


 
Nine Months Ended
 
Sep. 30, 2017 (a)
Sep. 23, 2016
OPERATING ACTIVITIES
 
 
Net Earnings
$
1,331

$
1,256

Depreciation
978

953

Restructuring Charge (b)
296

—

Cash Payments for Restructuring Charge
(147
)
—

Deferred Income Taxes
161

312

Other Operating Activities - Net (c)
242

(33
)
Net Cash Provided by Operating Activities
2,861

2,488

 
 
 
INVESTING ACTIVITIES
 
 
Property Additions
(1,462
)
(1,590
)
Purchase of Short-term Investments
(645
)
(410
)
Proceeds from Sales of Short-term Investments
957

1,070

Other Investing Activities
71

37

Net Cash Used in Investing Activities
(1,079
)
(893
)
 
 
 
FINANCING ACTIVITIES
 
 
Long-term Debt Issued
850

—

Long-term Debt Repaid
(332
)
(19
)
Dividends Paid
(530
)
(513
)
Shares Repurchased (d)
(1,763
)
(778
)
Other Financing Activities - Net (e)
(19
)
(310
)
Net Cash Used in Financing Activities
(1,794
)
(1,620
)
 
 
 
Net Decrease in Cash and Cash Equivalents
(12
)
(25
)
 
 
 
CASH AND CASH EQUIVALENTS
 
 
Cash and Cash Equivalents at Beginning of Period
603

628

Cash and Cash Equivalents at End of Period
$
591

$
603

 
 
 





5
CSX Corporation

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)


a)
Fiscal Year: As previously announced, effective in the third quarter 2017, CSX changed the fiscal reporting calendar from a 52/53 week year ending on the last Friday of December to a calendar year ending on December 31 each year. As a result, the third quarter 2017 includes one more day of business results than third quarter 2016, the fourth quarter 2017 will include six fewer days than fourth quarter 2016, and fiscal year 2017 will include five fewer days than fiscal year 2016. The calendar year change will be made on a prospective basis as it will not materially impact comparability of the Company’s financial results.
b)
Restructuring Charge: Through an involuntary separation program with enhanced benefits to further its strategic objectives, CSX reduced its management workforce by approximately 950 employees. The Company has been focused on driving efficiencies through process improvement and responding to business mix shifts. These management reductions were designed to further streamline general and administrative and operating support functions to speed decision making and further control costs. In April 2017, the involuntary separation program was essentially completed. This program extends separation benefits for certain members of management that could result in additional charges through the first quarter of 2018.    
The majority of separation benefits are being paid from general corporate funds while certain benefits are being paid through CSX’s qualified pension plans. Additionally, in first quarter 2017, the former CEO and President of the Company announced their retirements, and the terms of their unvested equity awards were modified to permit prorated vesting through May 31, 2018.
In June 2017, the Company and the Company's President and Chief Executive Officer, E. Hunter Harrison, executed a letter agreement providing for certain reimbursement arrangements. Pursuant to the letter agreement, the Company made a reimbursement payment to MR Argent Advisor LLC ("Mantle Ridge") of $55 million for funds previously paid to Mr. Harrison by Mantle Ridge. Further, the Company assumed Mantle Ridge’s obligation to pay Mr. Harrison, prior to March 15, 2018, a lump sum cash amount of $29 million in respect of other forfeited compensation from his previous employer, Canadian Pacific Railway Limited.
The restructuring charge was $1 million for the third quarter, and on a year-to-date basis amounted to $296 million pre-tax and $193 million or $0.21 cents per share after-tax. The restructuring charge includes costs related to the management workforce reduction, reimbursement arrangements, the proration of equity awards and other advisory costs related to the leadership transition.
(Dollars in millions)
First Quarter
 
Second Quarter
 
Third Quarter
 
Year to Date
Severance
$
81

 
$
10

 
$
—

 
$
91

Pension, Other Post-retirement Benefit and Other Non-cash Charges
68

 
10

 
—

 
78

Relocation
6

 
2

 
—

 
8

Subtotal Management Workforce Reduction
155

 
22

 
—

 
177

Reimbursement Arrangements
—

 
84

 
—

 
84

Non-Cash Executive Equity Awards Proration
8

 
16

 
—

 
24

Other Charges Including Fees Related to Shareholder Matters
10

 
—

 
1

 
11

Total Restructuring Charge
$
173

 
$
122

 
$
1

 
$
296


c)
Other Operating Activities - Net: Cash increased primarily due to a temporary tax payment extension for companies in areas affected by Hurricane Irma.
d)
Shares Repurchased: During the third quarter and nine months ended of 2017 and 2016, the Company repurchased the following number of shares:     
 
Quarters Ended
 
Nine Months Ended
 
Sep. 30, 2017
Sep. 23, 2016
 
Sep. 30, 2017
Sep. 23, 2016
Shares Repurchased (Millions)
20

10

 
35

30

Cost of Shares (Dollars in millions)
$
1,006

$
263

 
$
1,763

$
778

e)
Other Financing Activities - Net: Prior year includes payments of $307 million for locomotives which were purchased using seller financing in 2015.

6
CSX Corporation

VOLUME AND REVENUE (Unaudited)
Volume (Thousands of units); Revenue (Dollars in millions); Revenue Per Unit (Dollars)
 
Quarters Ended September 30, 2017 and September 23, 2016
 
 
 
 
 
 
 
 
 
 
Volume
 
 
Revenue
 
 
Revenue Per Unit
 
 
2017
2016
% Change
 
2017
2016
% Change
 
2017
2016
% Change
Agricultural
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Agricultural and Food Products
106

109

(3
)%
 
 
$
288

$
295

(2
)%
 
 
$
2,717

$
2,706

—
 %
 
Fertilizers
68

72

(6
)
 
 
106

104

2

 
 
1,559

1,444

8

 
Industrial
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Chemicals
164

173

(5
)
 
 
546

542

1

 
 
3,329

3,133

6

 
Automotive
105

115

(9
)
 
 
269

304

(12
)
 
 
2,562

2,643

(3
)
 
Metals and Equipment
64

63

2

 
 
178

180

(1
)
 
 
2,781

2,857

(3
)
 
Housing and Construction
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Minerals
80

86

(7
)
 
 
120

125

(4
)
 
 
1,500

1,453

3

 
Forest Products
64

68

(6
)
 
 
181

191

(5
)
 
 
2,828

2,809

1

 
Total Merchandise
651

686

(5
)
 
 
1,688

1,741

(3
)
 
 
2,593

2,538

2

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Coal
218

207

5

 
 
514

467

10

 
 
2,358

2,256

5

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Intermodal
718

681

5

 
 
446

425

5

 
 
621

624

—

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Other
—

—

—

 
 
95

77

23

 
 
—

—

—

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total
1,587

1,574

1
 %
 
 
$
2,743

$
2,710

1
 %
 
 
$
1,728

$
1,722

—
 %
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Nine Months Ended September 30, 2017 and September 23, 2016
 
 
 
 
 
 
 
 
 
 
Volume
 
 
Revenue
 
 
Revenue Per Unit
 
 
2017
2016
% Change
 
2017
2016
% Change
 
2017
2016
% Change
Agricultural
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Agricultural and Food Products
341

346

(1
)%
 
 
$
941

$
925

2
 %
 
 
$
2,760

$
2,673

3
 %
 
Fertilizers
223

220

1

 
 
353

345

2

 
 
1,583

1,568

1

 
Industrial
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Chemicals
508

520

(2
)
 
 
1,664

1,622

3

 
 
3,276

3,119

5

 
Automotive
340

349

(3
)
 
 
892

907

(2
)
 
 
2,624

2,599

1

 
Metals and Equipment
201

196

3

 
 
546

531

3

 
 
2,716

2,709

—

 
Housing and Construction
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Minerals
233

230

1

 
 
362

345

5

 
 
1,554

1,500

4

 
Forest Products
198

204

(3
)
 
 
567

572

(1
)
 
 
2,864

2,804

2

 
Total Merchandise
2,044

2,065

(1
)
 
 
5,325

5,247

1

 
 
2,605

2,541

3

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Coal
631

602

5

 
 
1,566

1,282

22

 
 
2,482

2,130

17

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Intermodal
2,124

2,053

3

 
 
1,328

1,249

6

 
 
625

608

3

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Other
—

—

—

 
 
326

254

28

 
 
—

—

—

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total
4,799

4,720

2
 %
 
 
$
8,545

$
8,032

6
 %
 
 
$
1,781

$
1,702

5
 %
 

7
CSX Corporation

VOLUME AND REVENUE
Revenue for the third quarter increased $33 million or one percent when compared to the previous year. This growth was primarily driven by gains in coal and intermodal, partially offset by declines in the majority of the merchandise markets.
Same Store Sales Pricing
Year-Over-Year Change
 
% Change
 
All-In
3.5%
 
Merchandise and Intermodal
2.2%
 
Same store sales is defined as customer shipments with the same commodity and car type, and the same origin and destination.
 

Revenue per unit was flat in the quarter as pricing gains and higher fuel recoveries were offset by mix.

Same store sales pricing was led by temporal strength in export coal as well as stable merchandise and intermodal pricing.


MERCHANDISE

Agricultural Sector
Volume (Thousands of units); Revenue (Dollars in millions); Revenue Per Unit (Dollars)
Volume
 
 
Revenue
 
 
Revenue Per Unit
 
2017
2016
% Change
 
2017
2016
% Change
 
2017
2016
% Change
174

181

(4
)
 
 
$
394

$
399

(1
)
 
 
$
2,264

$
2,204

3
 
% of Carloads
qfr_q32017xchart-50975.jpg












 





Agricultural and Food Products - Volume declined due to challenges in the export market as well as a large southeastern grain crop leading to local truck sourcing to feed mills. These declines were partially offset by gains in ethanol driven by higher production levels and new business wins.

Fertilizers - Volume declined predominantly due to Hurricane Irma's impact on Central Florida phosphate operations causing reduced production levels and supply chain disruptions.

8
CSX Corporation

MERCHANDISE cont'd

Industrial Sector
Volume (Thousands of units); Revenue (Dollars in millions); Revenue Per Unit (Dollars)
Volume
 
 
Revenue
 
 
Revenue Per Unit
 
2017
2016
% Change
 
2017
2016
% Change
 
2017
2016
% Change
333

351

(5
)
 
 
$
993

$
1,026

(3
)
 
 
$
2,982

$
2,923

2
 

% of Carloads
qfr_q32017xchart-52025.jpg
 



Chemicals - Volume fell, primarily reflecting sustained challenges in the Eastern crude-by-rail market. This decline offset an increase in shipments of frac sand and petroleum gases due to growth in drilling activity.

Automotive - Volume declined as North American vehicle production fell. Dealership inventory ended the quarter consistent with the prior four-year average.

Metals and Equipment - Volume increased slightly as an increase in equipment moves more than offset declines in steel sheet and scrap.
Housing and Construction Sector
Volume (Thousands of units); Revenue (Dollars in millions); Revenue Per Unit (Dollars)
Volume
 
 
Revenue
 
 
Revenue Per Unit
 
2017
2016
% Change
 
2017
2016
% Change
 
2017
2016
% Change
144

154

(6
)
 
 
$
301

$
316

(5
)
 
 
$
2,090

$
2,052

2
 

% of Carloads
qfr_q32017xchart-53168.jpg
 





Minerals - Volume fell, reflecting short-term competitive losses to other modes as the Company transitions its customers to the new operating plan.

Forest Products - Volume declined as mill closures and truck competition negatively impacted shipments of paper products. Additionally, lumber shipments were challenged due to the enforcement of duties on Canadian lumber.






9
CSX Corporation

COAL
        
Volume (Thousands of units); Revenue (Dollars in millions); Revenue Per Unit (Dollars)
Volume
 
 
Revenue
 
 
Revenue Per Unit
 
2017
2016
% Change
 
2017
2016
% Change
 
2017
2016
% Change
218

207

5
 
 
$
514

$
467

10
 
 
$
2,358

$
2,256

5
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

% of Tons
qfr_q32017xchart-54029.jpg
 




Domestic Utility Coal - Volume declined reflecting the competitive loss of short-haul interchange traffic and challenges from Hurricane Irma, which caused outages at southeastern customer facilities.

Domestic Coke, Iron Ore and Other - Volume was down, primarily driven by iron ore shipments, as a large customer continued to idle its production.

Export Coal - Volume increased as global supply levels and pricing conditions supported strong growth in U.S. coal exports.
 
 
Quarters Ended
 
Nine Months Ended
 
 
Sep. 30, 2017
Sep. 23, 2016 (a)
% Change
 
Sep. 30, 2017
Sep. 23, 2016 (a)
% Change
(Millions of Tons)
 
 
 
 
 
 
 
 
Domestic
 
 
 
 
 
 
 
 
Utility
 
11.7

13.2

(11
)%
 
33.7

36.6

(8
)%
Coke, Iron Ore and Other
 
4.4

5.0

(12
)
 
12.3

14.3

(14
)
Total Domestic
 
16.1

18.2

(12
)
 
46.0

50.9

(10
)
Export
 
 
 
 
 
 
 
 
Metallurgical
 
5.0

4.0

25

 
16.3

12.8

27

Thermal
 
3.8

1.5

153

 
9.4

4.8

96

Total Export
 
8.8

5.5

60

 
25.7

17.6

46

 
 
 
 
 
 
 
 
 
Total Coal
 
24.9

23.7

5
 %
 
71.7

68.5

5
 %
(a) Prior year coal tonnage was corrected by an immaterial amount of 1%.


10
CSX Corporation

INTERMODAL
        
Volume (Thousands of units); Revenue (Dollars in millions); Revenue Per Unit (Dollars)
Volume
 
 
Revenue
 
 
Revenue Per Unit
 
2017
2016
% Change
 
2017
2016
% Change
 
2017
2016
% Change
718

681

5
 
 
$
446

$
425

5
 
 
$
621

$
624

—

 

% of Units
qfr_q32017xchart-55545.jpg
 






Domestic - Volume increased one percent as growth with existing customers and ongoing success of CSX’s highway-to-rail conversion initiative more than offset a prior year short-haul competitive loss which cycled mid-quarter and other competitive losses as the Company transitions its customers to the new operating plan.

International - Volume was up 11 percent driven by new customers and strong performance with existing customers as eastern port volumes increased.
OTHER REVENUE
Other revenue increased $18 million versus the prior year primarily due to higher incidental charges and lower volume-based refunds.

FUEL SURCHARGE
Fuel surcharge revenue is included in the individual markets. Fuel lag is the estimated difference between highway diesel prices in the quarter and the prices used for fuel surcharge, which are generally on a two month lag.
 
Quarters Ended
 
Nine Months Ended
(Dollars in millions)
Sep. 30, 2017
Sep. 23, 2016
$ Change
 
Sep. 30, 2017
Sep. 23, 2016
$ Change
Fuel Surcharge Revenue
$
83

$
65

$
18

 
$
256

$
153

$
103

Fuel Lag Benefit (Expense)
$
(7
)
$
(1
)
$
(6
)
 
$
(11
)
$
7

$
(18
)




11
CSX Corporation

EXPENSE
    
Expenses of approximately $1.9 billion remained relatively consistent, decreasing $2 million year over year. This decrease was due to efficiency savings of $95 million and lower volume related costs of $13 million due to a decrease in gross ton-miles, nearly offset by inflation of $53 million, fuel price increases of $32 million and other items.

qfr_q32017xchart-50253.jpg
LABOR AND FRINGE
qfr_q32017xchart-52142.jpg
 




•
Inflation of $43 million was driven primarily by increased health and welfare and wage increases.
•
Efficiency savings of $73 million were driven by reduced management headcount as a result of the 2017 restructuring initiative, as well as lower operating support costs.
•
Volume-related costs decreased by $4 million.
•
Other costs decreased by $11 million primarily due to a decrease in pension expense partially offset by other items, none of which were individually significant.
 
AVERAGE EMPLOYEE COUNTS (Estimated)(a)
 
 
 
 
 
 
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
2017
26,504
25,785
24,608
Data not available
2016
28,305
27,936
27,275
27,178
Change
(1,801)
(2,151)
(2,667)
Data not available
(a) Beginning in the third quarter of 2017, employee counts include employees on leave. Prior period counts were updated to reflect this change.


12
CSX Corporation

MATERIALS, SUPPLIES AND OTHER
qfr_q32017xchart-53651.jpg
 

•
Additional expense of $13 million resulted from train accidents during the quarter.
•
Inflation resulted in $8 million of additional cost.
•
Technology-related asset impairment charges were $5 million.
•
Efficiency savings of $30 million were primarily related to lower maintenance costs from the reduction in the active locomotive fleet and a reduction in contingent workers.
•
Volume-related costs decreased by $4 million.
•
Other costs increased $17 million due to relocation costs and other items, none of which were individually significant.
DEPRECIATION
Depreciation expense increased $10 million primarily due to a larger asset base.

FUEL
qfr_q32017xchart-55107.jpg
 






•
A 19 percent price increase drove $32 million in additional fuel expense.
•
Efficiency savings were $1 million.



 
 
 
 
 
 
 
 
 
Quarters Ended
 
Nine Months Ended
(Dollars and Gallons in Millions, Except Price per Gallon)
 
Sep. 30, 2017
Sep. 23, 2016
Fav /
(Unfav)
 
Sep. 30, 2017
Sep. 23, 2016
Fav /
(Unfav)
Estimated Locomotive Fuel Consumption (Gallons)
 
100.0

100.3

0.3

 
319.7

319.5

(0.2
)
Price per Gallon (Dollars)
 
$
1.87

$
1.57

$
(0.30
)
 
$
1.77

$
1.41

$
(0.36
)
Total Locomotive Fuel Expense
 
$
187

$
157

$
(30
)
 
$
566

$
450

$
(116
)
Other
 
18

17

(1
)
 
55

46

(9
)
Total Fuel Expense
 
$
205

$
174

$
(31
)
 
$
621

$
496

$
(125
)


13
CSX Corporation

EQUIPMENT AND OTHER RENTS
qfr_q32017xchart-56379.jpg




 


•
Efficiency losses of $9 million were due to increased days per load for automotive and merchandise markets.
•
Inflation resulted in $2 million of additional cost due to higher rates across most car types.
•
Volume-related costs were $5 million lower.
•
Other costs decreased $14 million primarily due to rental income that was previously classified as other income in the prior years being reclassified to operating expense in the current year as well as other items, none of which were individually significant.

OPERATING STATISTICS (Estimated)
SAFETY AND SERVICE
In order to more accurately represent the Company’s operating performance, CSX has revised the way it calculates train velocity and dwell effective third quarter 2017. These revisions are consistent with the principles of Precision Scheduled Railroading. Updated definitions for each key performance measure are included beneath the Operating Statistics table and are disclosed at www.csx.com/servicemetrics. Prior periods have been restated to conform to the current methodology. Details of the changes are as follows:

•
Train velocity has been expanded to include intermediate dwell, now measuring end-to-end transit time.
•
Dwell has been expanded to include car dwell time at terminals on through trains, now measuring all car dwell time on an end-to-end trip.

These updated definitions differ from the methodology prescribed by the Surface Transportation Board for reporting train velocity and dwell. In addition, CSX will continue to report train velocity and dwell, using the prescribed methodology, to the Surface Transportation Board.


14
CSX Corporation

OPERATING STATISTICS (Estimated) cont'd

CSX’s operating performance declined in the third quarter of 2017 compared to 2016 due to network fluidity challenges, train accidents and the impacts from Hurricane Irma. Network fluidity was unfavorably impacted early in the quarter as the Company's operations adjusted to the implementation of a new, balanced train plan. The Company expects to improve its level of performance through increased efficiency within terminals and refinement of the operating plan.
CSX’s FRA reportable personal injury frequency index of 1.41 for the third quarter of 2017 was 11 percent unfavorable to the prior year as a decline in overall injuries was offset by a significant decline in man-hours from fewer employees. The FRA train accident frequency rate of 3.82 for the quarter was 46 percent unfavorable to the prior year. CSX remains committed to ongoing safety improvement, with a focus on reducing injury severity and avoiding catastrophic events.  
 
 
Quarters Ended
 
Nine Months Ended
 
 
Sep. 30, 2017
Sep. 23, 2016
Improvement / (Deterioration)
 
Sep. 30, 2017
Sep. 23, 2016
Improvement / (Deterioration)
Operations Performance
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Train Velocity (Miles per hour) (a)
 
14.0

14.9

(6
)%
 
14.7

15.2

(3
)%
Dwell (Hours) (a)
 
12.1

11.2

(8
)%
 
11.5

11.2

(3
)%
 
 
 
 
 
 
 
 
 
Revenue Ton-Miles (b) (Billions)
 
 
 
 
 
 
 
 
Merchandise
 
31.9

32.3

(1
)%
 
100.3

99.4

1
 %
Coal
 
12.2

11.5

6
 %
 
35.9

31.6

14
 %
Intermodal
 
7.4

6.7

10
 %
 
21.8

20.2

8
 %
Total Revenue Ton-Miles
 
51.5

50.5

2
 %
 
158.0

151.2

4
 %
 
 
 
 
 
 
 
 
 
Total Gross Ton-Miles (c) (Billions)
 
96.4

96.9

(1
)%
 
298.2

291.2

2
 %
On-Time Originations
 
74
%
84
%
(12
)%
 
81
%
84
%
(4
)%
On-Time Arrivals (c)
 
48
%
54
%
(11
)%
 
57
%
56
%
2
 %
 
 
 
 
 
 
 
 
 
Safety
 
 
 
 
 
 
 
 
FRA Personal Injury Frequency Index
 
1.41

1.27

(11
)%
 
1.17

1.04

(13
)%
FRA Train Accident Rate
 
3.82

2.61

(46
)%
 
2.99

2.69

(11
)%
Certain operating statistics are estimated and can continue to be updated as actuals settle.
(a) The methodology for calculating train velocity and dwell differs from that prescribed by the Surface Transportation Board. CSX will continue to report train velocity and dwell, using the prescribed methodology, to the Surface Transportation Board.
(b) Prior year revenue ton-miles were corrected by immaterial amounts.
(c) Beginning in the third quarter, the calculation of gross ton-miles and on-time arrivals has changed. Prior year periods have been restated to conform to this change.
•
Gross ton-miles now includes actual gross ton-miles for all shipments. Previously, the last few weeks of the quarter were estimated using shipment details which were later adjusted to actuals.
•
On-time arrivals now eliminates the two-hour window which was previously allowed in order for a train to be considered "on time".

Key Performance Measures Definitions
Train Velocity - Average train speed between origin and destination in miles per hour (does not include locals, yard jobs, work trains or passenger trains).
Dwell - Average amount of time in hours between car arrival to and departure from the yard.
Revenue Ton-Miles (RTM's) - The movement of one revenue-producing ton of freight over a distance of one mile.
Gross Ton-Miles (GTM's) - The movement of one ton of train weight over one mile. GTM's are calculated by multiplying total train weight by distance the train moved. Total train weight is comprised of the weight of the freight cars and their contents.
On-Time Originations - Percent of scheduled road trains that depart the origin yard on-time or ahead of schedule.
On-Time Arrivals - Percent of scheduled road trains that arrive at the destination yard on-time.
FRA Personal Injury Frequency Index - Number of FRA-reportable injuries per 200,000 man-hours.
FRA Train Accident Rate - Number of FRA-reportable train accidents per million train-miles.

15
CSX Corporation

Non-GAAP Measures - Unaudited
CSX reports its financial results in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP). CSX also uses certain non-GAAP measures that fall within the meaning of Securities and Exchange Commission Regulation G and Regulation S-K Item 10(e), which may provide users of the financial information with additional meaningful comparison to prior reported results.  Non-GAAP measures do not have standardized definitions and are not defined by U.S. GAAP.  Therefore, CSX’s non-GAAP measures are unlikely to be comparable to similar measures presented by other companies.  The presentation of these non-GAAP measures should not be considered in isolation from, as a substitute for, or as superior to the financial information presented in accordance with GAAP. Reconciliations of non-GAAP measures to corresponding GAAP measures are below.
Adjusted Operating Results
Management believes that adjusted operating income, adjusted operating ratio, adjusted net earnings and adjusted net earnings per share, assuming dilution are important in evaluating the Company’s operating performance and for planning and forecasting future business operations and future profitability. These non-GAAP measures provide meaningful supplemental information regarding operating results because they exclude certain significant items that are not considered indicative of future financial trends. The restructuring charge was tax effected using rates reflective of the applicable tax amounts for each component of the restructuring charge, including an adjustment for the non-deductibility of executive compensation.
 
 
For the Quarter Ended September 30, 2017
(in millions, except operating ratio and net earnings per share, assuming dilution)
 
Operating Income
 
Operating Ratio
 
Net Earnings
 
Net Earnings Per Share, Assuming Dilution
 
 
 
 
 
 
 
 
 
GAAP Operating Results
 
$
876

 
68.1
 %
 
$
459

 
$
0.51

Restructuring Charge
 
1

 
(0.1
)%
 
4

 
—

Adjusted Operating Results (non-GAAP)
 
$
877

 
68.0
 %
 
$
463

 
$
0.51

 
 
 
 
 
 
 
 
 
 
 
For the Nine Months Ended September 30, 2017
(in millions, except operating ratio and net earnings per share, assuming dilution)
 
Operating Income
 
Operating Ratio
 
Net Earnings
 
Net Earnings Per Share, Assuming Dilution
 
 
 
 
 
 
 
 
 
GAAP Operating Results
 
$
2,546

 
70.2
 %

$
1,331


$
1.45

Restructuring Charge
 
296

 
(3.5
)%

193


0.21

Adjusted Operating Results (non-GAAP)
 
$
2,842

 
66.7
 %

$
1,524


$
1.66

 
 
 
 
 
 
 
 
 
Free Cash Flow
Management believes that free cash flow is supplemental information useful to investors as it is important in evaluating the Company’s financial performance. More specifically, free cash flow measures cash generated by the business after reinvestment. This measure represents cash available for both equity and bond investors to be used for dividends, share repurchases or principal reduction on outstanding debt. Free cash flow should be considered in addition to, rather than a substitute for, cash provided by operating activities. Free cash flow is calculated by using net cash from operations and adjusting for property additions and certain other investing activities.
The following table reconciles cash provided by operating activities (GAAP measure) to adjusted free cash flow after restructuring, before dividends (non-GAAP measure). The restructuring charge impact to free cash flow was tax effected using the applicable tax rate of the charge.
 
Nine Months Ended
(Dollars in Millions)
September 30, 2017
September 23, 2016
Net cash provided by operating activities
$
2,861

$
2,488

Property additions
(1,462
)
(1,590
)
Other investing activities
71

37

Free Cash Flow (before payment of dividends)
1,470

935

Add back: Cash Payments for Restructuring Charge (after-tax) (a)
96

—

Adjusted Free Cash Flow Before Dividends (non-GAAP)
$
1,566

$
935


(a) Through the third quarter 2017 the Company made cash payments of $147 million related to the restructuring charge. The Company also made $7 million in payments to the former CEO and President for previously accrued non-qualified pension benefits that are not included in the restructuring charge.

16