UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q
 
(X)QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
  
For the quarterly period ended September 28, 2012March 29, 2013
 
OR
 
( )TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from __________ to __________
Commission File Number 1-8022
           
CSX CORPORATION
(Exact name of registrant as specified in its charter)
Virginia       62-1051971  
(State or other jurisdiction of incorporation or organization)       (I.R.S. Employer Identification No.)  
           
500 Water Street, 15th Floor, Jacksonville, FL     32202 (904) 359-3200  
(Address of principal executive offices)     (Zip Code) (Telephone number, including area code)  
           
    No Change      
(Former name, former address and former fiscal year, if changed since last report.)

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 (X) No ( )
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes (X) No ( )
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer", "accelerated filer” and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (check one)
Large Accelerated Filer (X) Accelerated Filer ( )
Non-accelerated Filer ( ) Smaller Reporting Company ( )
 
Indicate by a check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ( ) No (X)
There were 1,031,377,9191,021,960,630 shares of common stock outstanding on September 28, 2012March 29, 2013 (the latest practicable date that is closest to the filing date).

1


CSX CORPORATION
FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 28, 2012MARCH 29, 2013
INDEX

   Page
PART I.FINANCIAL INFORMATION  
Item 1.
Financial Statements
 
3
    
 
Consolidated Income Statements (Unaudited) -
Quarters Ended March 29, 2013 and Nine Months Ended September 28,March 30, 2012 and September 30, 2011
 
3
    
 
Consolidated Comprehensive Income Statements (Unaudited) -
Quarters Ended March 29, 2013 and Nine Months Ended September 28,March 30, 2012 and September 30, 2011
 
3
    
 
Consolidated Balance Sheets -
At September 28, 2012March 29, 2013 (Unaudited) and December 30, 201128, 2012
 
4
    
 
Consolidated Cash Flow Statements (Unaudited) -
NineThree Months Ended September 28,March 29, 2013 and March 30, 2012 and September 30, 2011
 
5
    
 
Notes to Consolidated Financial Statements (Unaudited)
 
6
    
Item 2.
Management's Discussion and Analysis of Financial Condition and Results of Operations
 
2726
    
Item 3.
Quantitative and Qualitative Disclosures about Market Risk
 
4340
    
Item 4.
Controls and Procedures
 
4340
    
PART II.OTHER INFORMATION  
Item 1.
Legal Proceedings
 
4341
    
Item 1A.
Risk Factors
 
4341
    
Item 2.
CSX Purchases of Equity Securities
 
4441
    
Item 3.
Defaults upon Senior Securities
 
4441
    
Item 4.
Mine Safety Disclosures
 
4441
    
Item 5.
Other Information
 
4441
    
Item 6.
Exhibits
 
4441
    
Signature
  
4442


2
Table of Contents

CSX CORPORATION

PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED INCOME STATEMENTS (Unaudited)  
(Dollars in millions, except per share amounts)
Third Quarters Nine MonthsFirst Quarters
20122011 2012201120132012
    
Revenue$2,894
$2,963
 $8,872
$8,792
$2,958
$2,966
Expense    
Labor and Fringe754
765
 2,268
2,294
767
770
Materials, Supplies and Other525
562
 1,617
1,649
507
542
Fuel397
412
 1,251
1,245
444
444
Depreciation268
251
 788
740
270
257
Equipment and Other Rents96
95
 295
287
95
97
Total Expense2,040
2,085
 6,219
6,215
2,083
2,110
    
Operating Income854
878
 2,653
2,577
875
856
    
Interest Expense(138)(138) (421)(412)(147)(144)
Other Income - Net (Note 8)5
6
 14
11
Other (Expense) Income - Net(3)4
Earnings Before Income Taxes721
746
 2,246
2,176
725
716
    
Income Tax Expense(266)(282) (830)(811)(266)(267)
Net Earnings$455
$464
 $1,416
$1,365
$459
$449
    
Per Common Share (Note 2)    
Net Earnings Per Share, Basic$0.44
$0.43
 $1.36
$1.25
$0.45
$0.43
Net Earnings Per Share, Assuming Dilution$0.44
$0.43
 $1.36
$1.24
$0.45
$0.43
    
    
Average Shares Outstanding (In millions)
1,038
1,071
 1,042
1,094
1,022
1,047
Average Shares Outstanding, Assuming Dilution (In millions)
1,040
1,077
 1,044
1,100
1,023
1,049
    
    
Cash Dividends Paid Per Common Share$0.14
$0.12
 $0.40
$0.33
$0.14
$0.12


CONSOLIDATED COMPREHENSIVE INCOME STATEMENTS  

Total Comprehensive Earnings (Note 1)$471
$473
 $1,458
$1,398


Total Comprehensive Earnings (Note 10)$476
$458

See accompanying notes to consolidated financial statements.

3
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CSX CORPORATION
ITEM 1. FINANCIAL STATEMENTS


CONSOLIDATED BALANCE SHEETS
(Dollars in millions, except per share amounts)
 (Unaudited) 
 September 28,
2012		December 30,
2011
ASSETS
Current Assets  
Cash and Cash Equivalents$693
$783
Short-term Investments35
523
Accounts Receivable - Net (Note 1)1,163
1,129
Materials and Supplies264
240
Deferred Income Taxes134
182
Other Current Assets104
78
  Total Current Assets2,393
2,935
   
Properties35,020
33,704
Accumulated Depreciation(9,088)(8,730)
  Properties - Net25,932
24,974
   
Investment in Conrail693
678
Affiliates and Other Companies502
493
Other Long-term Assets410
393
  Total Assets$29,930
$29,473
   
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities  
Accounts Payable$1,197
$1,147
Labor and Fringe Benefits Payable416
541
Casualty, Environmental and Other Reserves (Note 4)169
167
Current Maturities of Long-term Debt (Note 7)806
507
Income and Other Taxes Payable261
129
Other Current Liabilities172
196
  Total Current Liabilities3,021
2,687
   
Casualty, Environmental and Other Reserves (Note 4)319
352
Long-term Debt (Note 7)8,257
8,734
Deferred Income Taxes8,018
7,601
Other Long-term Liabilities1,284
1,631
  Total Liabilities20,899
21,005
   
Common Stock $1 Par Value1,031
1,049
Other Capital20
6
Retained Earnings8,798
8,275
Accumulated Other Comprehensive Loss (Note 1)(833)(875)
Noncontrolling Interest15
13
Total Shareholders' Equity9,031
8,468
Total Liabilities and Shareholders' Equity$29,930
$29,473

Certain prior year data has been reclassified to conform to the current presentation.
 (Unaudited) 
 March 29,
2013		December 28,
2012
ASSETS
Current Assets:  
Cash and Cash Equivalents$705
$784
Short-term Investments367
587
Accounts Receivable - Net (Note 1)976
962
Materials and Supplies283
274
Deferred Income Taxes133
119
Other Current Assets103
75
  Total Current Assets2,567
2,801
   
Properties35,674
35,279
Accumulated Depreciation(9,386)(9,229)
  Properties - Net26,288
26,050
   
Investment in Conrail703
695
Affiliates and Other Companies512
511
Other Long-term Assets516
514
  Total Assets$30,586
$30,571
   
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:  
Accounts Payable$1,043
$1,014
Labor and Fringe Benefits Payable376
468
Casualty, Environmental and Other Reserves (Note 4)139
140
Current Maturities of Long-term Debt (Note 7)572
780
Income and Other Taxes Payable206
85
Other Current Liabilities138
140
  Total Current Liabilities2,474
2,627
   
Casualty, Environmental and Other Reserves (Note 4)323
337
Long-term Debt (Note 7)8,846
9,052
Deferred Income Taxes8,202
8,096
Other Long-term Liabilities1,393
1,457
  Total Liabilities21,238
21,569
   
Shareholders' Equity:  
Common Stock $1 Par Value1,022
1,020
Other Capital36
28
Retained Earnings9,191
8,876
Accumulated Other Comprehensive Loss (Note 10)(919)(936)
Noncontrolling Interest18
14
Total Shareholders' Equity9,348
9,002
Total Liabilities and Shareholders' Equity$30,586
$30,571

See accompanying notes to consolidated financial statements.

4
Table of Contents
CSX CORPORATION
ITEM 1. FINANCIAL STATEMENTS

CONSOLIDATED CASH FLOW STATEMENTS (Unaudited)
(Dollars in millions)
Nine MonthsFirst Quarters
2012201120132012
  
OPERATING ACTIVITIES  
Net Earnings$1,416
$1,365
$459
$449
Adjustments to Reconcile Net Earnings to Net Cash Provided by Operating Activities:  
Depreciation788
740
270
257
Deferred Income Taxes456
486
82
195
Contributions to Qualified Pension Plans(275)—
—
(275)
Gain on Property Dispositions(30)(19)
Other Operating Activities(111)(6)(57)(37)
Changes in Operating Assets and Liabilities:  
Accounts Receivable—
(149)(42)(36)
Other Current Assets(57)(37)(38)(52)
Accounts Payable60
117
48
83
Income and Other Taxes Payable148
83
127
30
Other Current Liabilities(121)(14)(88)(151)
Net Cash Provided by Operating Activities2,304
2,585
731
444
  
INVESTING ACTIVITIES  
Property Additions(1,830)(1,436)(491)(469)
Purchase of Short-term Investments(78)(14)(290)(53)
Proceeds from Sales of Short-term Investments573
66
534
437
Other Investing Activities10
(17)(18)8
Net Cash Used in Investing Activities(1,325)(1,401)(265)(77)
  
FINANCING ACTIVITIES  
Long-term Debt Issued (Note 7)300
600
—
300
Long-term Debt Repaid (Note 7)(481)(595)(413)(413)
Dividends Paid(415)(354)(143)(125)
Stock Options Exercised (Note 3)11
27
6
8
Shares Repurchased(500)(1,564)—
(300)
Other Financing Activities16
(10)5
7
Net Cash Used in Financing Activities(1,069)(1,896)(545)(523)
  
Net Decrease in Cash and Cash Equivalents(90)(712)(79)(156)
  
CASH AND CASH EQUIVALENTS  
Cash and Cash Equivalents at Beginning of Period783
1,292
784
783
Cash and Cash Equivalents at End of Period$693
$580
$705
$627
  

Certain amounts have been reclassified to conform to the current year presentation.

See accompanying notes to consolidated financial statements.

5
Table of Contents

CSX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

NOTE 1.Nature of Operations and Significant Accounting Policies

Background

CSX Corporation (“CSX”), and together with its subsidiaries (the “Company”), based in Jacksonville, Florida, is one of the nation's leading transportation companies. The Company provides rail-based transportation services including traditional rail service and the transport of intermodal containers and trailers.

CSX's principal operating subsidiary, CSX Transportation, Inc. (“CSXT”), provides an important link to the transportation supply chain through its approximately 21,000 route mile rail network, which serves major population centers in 23 states east of the Mississippi River, the District of Columbia and the Canadian provinces of Ontario and Quebec. The Company's intermodal business, also part of CSXT, links customers to railroads via trucks and terminals.

Other entities

In addition to CSXT, the Company’s subsidiaries include CSX Intermodal Terminals, Inc. (“CSX Intermodal Terminals”), Total Distribution Services, Inc. (“TDSI”), Transflo Terminal Services, Inc. (“Transflo”), CSX Technology, Inc. (“CSX Technology”) and other subsidiaries. CSX Intermodal Terminals owns and operates a system of intermodal terminals, predominantly in the eastern United States and also performs drayage services (the pickup and delivery of intermodal shipments) for certain CSXT customers and trucking dispatch operations. TDSI serves the automotive industry with distribution centers and storage locations. Transflo connects non-rail served customers to the many benefits of rail by transferring products from rail to trucks. Today, the biggest Transflo markets are chemicals and agriculture, such as minerals and ethanol. CSX Technology and other subsidiaries provide support services for the Company.
    
CSX’s other holdings include CSX Real Property, Inc., a subsidiary responsible for the Company’s real estate sales, leasing, acquisition and management and development activities. These activities are classified in other income - net because they are not considered to be operating activities by the Company. Results of these activities fluctuate with the timing of non-operating real estate transactions.

Basis of Presentation

In the opinion of management, the accompanying consolidated financial statements contain all normal, recurring adjustments necessary to fairly present the following:
  
Consolidated income statements for the quarters andended nine months endedSeptember 28, 2012March 29, 2013 and SeptemberMarch 30, 20112012;
Consolidated comprehensive income statements for the quarters andended nine months endedSeptember 28, 2012March 29, 2013 and SeptemberMarch 30, 20112012;
Consolidated balance sheets at September 28, 2012March 29, 2013 and December 30, 201128, 2012; and
Consolidated cash flow statements for the quarters ended nine months endedSeptember 28, 2012March 29, 2013 and SeptemberMarch 30, 20112012.


6
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CSX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

NOTE 1.
Nature of Operations and Significant Accounting Policies, continued

Pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”), certain information and disclosures normally included in the notes to the annual financial statements prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) have been omitted from these interim financial statements. CSX suggests that these financial statements be read in conjunction with the audited financial statements and the notes included in CSX's most recent annual report on Form 10-K and any subsequently filed current reports on Form 8-K.

Fiscal Year

CSX follows a 52/53 week fiscal reporting calendar with the last day of each reporting period ending on a Friday:
 
The thirdfirst fiscal quarters of 20122013 and 20112012 consisted of 13 weeks ending on September 28, 2012March 29, 2013 and SeptemberMarch 30, 2011, respectively.
The nine month periods of 2012 and 2011 consisted of 39 weeks ending on September 28, 2012 and September 30, 2011, respectively.
Fiscal year 20122013 and 20112012 will each consist of 52 weeks ending on December 28, 201227, 2013 and December 30, 201128, 2012, respectively.
    
Except as otherwise specified, references to “thirdfirst quarter(s)” or “ninethree months” indicate CSX's fiscal periods ending September 28, 2012March 29, 2013 and SeptemberMarch 30, 20112012, and references to "year-end" indicate the fiscal year ended December 30, 201128, 2012.

Comprehensive Earnings

CSX reports comprehensive earnings or loss in accordance with the Comprehensive Income Topic in the Accounting Standards Codification (“ASC”). Total comprehensive earnings are defined as all changes in shareholders' equity during a period, other than those resulting from investments by and distributions to shareholders (e.g., issuance of equity securities and dividends).  Generally, for CSX, total comprehensive earnings equals net earnings plus or minus adjustments for pension and other post-retirement liabilities. Total comprehensive earnings represent the activity for a period net of tax and were $471 million and $473 million for third quarters 2012 and 2011, respectively, and $1.5 billion and $1.4 billion for nine months 2012 and 2011, respectively.

While total comprehensive earnings is the activity in a period and is largely driven by net earnings in that period, accumulated other comprehensive income or loss (“AOCI”) represents the cumulative balance of other comprehensive income or loss, net of tax, as of the balance sheet date.  For CSX, AOCI is primarily the cumulative balance related to pension and other post-retirement adjustments and reduced overall equity by $833 million and $875 million as of the end of third quarter 2012 and December 2011, respectively.

See the New Accounting Pronouncements section below for information related to the change in presentation requirements.


7
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CSX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

NOTE 1.
Nature of Operations and Significant Accounting Policies, continued

Allowance for Doubtful Accounts

The Company maintains an allowance for doubtful accounts on uncollectible amounts related to freight receivables, government reimbursement receivables, claims for damages and other various receivables. The allowance is based upon the credit worthiness of customers, historical experience, the age of the receivable and current market and economic conditions. Uncollectible amounts are charged against the allowance account. Allowance for doubtful accounts of $3637 million and $4336 million is included in the consolidated balance sheets as of the end of thirdfirst quarter 20122013 and December 20112012, respectively.

New Accounting Pronouncements

In 2011,February 2013, the Financial Accounting Standards Board ("FASB") issued an Accounting Standards Update to the Comprehensive Income Topic in the ASC aimed at increasingAccounting Standards Codifications ("ASC"). This update requires separate presentation of the prominencecomponents that are reclassified out of items reported inaccumulated other comprehensive income either on the face of the financial statements or in the notes to the financial statements. This requirementupdate also requires companies to disclose the income statement line items impacted by any significant reclassifications, such as the amortization of pension and other post-employment benefits adjustments. These items are required for both interim and annual reporting for public companies and became effective for CSX beginning with the first quarter 20122013 Form 10-Q filing. This update required companies to present comprehensive income in a single statement below net income or in a separate statement




7
Table of comprehensive income immediately following the income statement. This update required retrospective application for all periods presented.Contents
CSX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

NOTE 1. Nature of Operations and Significant Accounting Policies, continued

Other Items

Share repurchasesRepurchases and Dividend Increase

In third quarter 2012, CSX repurchasedApril 2013, the Company announced a 7 percent increase in the quarterly dividends to $200 million0.15 in shares. In accordance with the per common share and announced a new $Equity Topic in the ASC, the excess of repurchase price over par value is recorded in retained earnings. Generally, retained earnings is only impacted by net earnings and dividends. As of September 2012, the Company had remaining authority of $234 million under the $21 billion share repurchase program, which is expected to be used to complete purchases bycompleted in the end of 2012, based on market and business conditions.next 24 months. There were no share repurchases during first quarter 2013.

Amortization of Gain from Property Disposition

In November 2011, the Company sold approximately 61 miles of operating rail corridor to the Florida Department of Transportation for a new commuter rail operation known as SunRail. As part of the transaction, the Company received $173 million in proceeds and will receive up to $$259 million in government grants for a total of $432 million. This agreement also obligated the Company to invest a total of $$500 million in routine capital expenditures and maintenance related to transportation capacity, facilities or equipment in Florida, including diversion and relocation costs related to this transaction within the eight year period following the transaction.
        

8
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CSX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

NOTE 1. Nature of Operations and Significant Accounting Policies, continued

In accordance with the Real Estate Sales Topic in the ASC, the sale of real estate resulted in a deferred gain of $160 million. The deferred gain is recognized into income ratably as the investment obligation is fulfilled. The Company recognized a gain of $3029 million and $6919 million in the thirdfirst quarterquarters of 2013 and nine months period ended September 2012, respectively. This gain is included in materials, supplies and other in the consolidated income statements. The deferred gain balance included in the consolidated balance sheets is presented in the table below.
 Deferred gain as of Deferred gain as of
(Dollars in Millions) September 2012December 2011 March 2013December 2012
Current portion, included in Other Current Liabilities $68
$95
 $23
$43
Long term portion, included in Other Long-Term Liabilities 9
37
 —
9
Total $77
$132
 $23
$52



















8
Table of Contents
CSX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

NOTE 2.    Earnings Per Share

The following table sets forth the computation of basic earnings per share and earnings per share, assuming dilution:
Third Quarters Nine MonthsFirst Quarters
20122011 2012201120132012
Numerator (Dollars in millions):
    
Net Earnings$455
$464
 $1,416
$1,365
$459
$449
    
Denominator (Units in millions):
    
Average Common Shares Outstanding1,038
1,071
 1,042
1,094
1,022
1,047
Other Potentially Dilutive Common Shares(a)
2
6
 2
6
1
2
Average Common Shares Outstanding,
Assuming Dilution
1,040
1,077
 1,044
1,100
1,023
1,049
    
Net Earnings Per Share, Basic$0.44
$0.43
 $1.36
$1.25
$0.45
$0.43
Net Earnings Per Share, Assuming Dilution$0.44
$0.43
 $1.36
$1.24
$0.45
$0.43

(a) Other potentially dilutive common shares include convertible debt, stock options, common stock equivalents and performance units granted under a long-term management incentive compensation plan.

Basic earnings per share is based on the weighted-average number of common sharesstock outstanding. Earnings per share, assuming dilution, is based on the weighted-average number of shares of common sharesstock outstanding adjusted for the effects of common stock that may be issued as a result of the following types of potentially dilutive instruments:

convertible debt;

employee stock options; and

other equity awards, which include long-term incentive awards.

    

9
Table of Contents
CSX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

NOTE 2.    Earnings Per Share, continued

The Earnings Per Share Topic in the ASC requires CSX to include additional shares in the computation of earnings per share, assuming dilution. The additional shares included in diluted earnings per share represent the number of shares that would be issued if all of the above potentially dilutive instruments were converted into CSX common stock.

When calculating diluted earnings per share, the Earnings Per Share Topic in the ASC requires CSX to include the potential shares that would be outstanding if all outstanding stock options were exercised. This is offset by shares CSX could repurchase using the proceeds from these hypothetical exercises to obtain the common stock equivalent. This number is different from outstanding stock options, which is included in Note 3, Share-Based Compensation. All stock options were dilutive for the periods presented; therefore, no stock options were excluded from the diluted earnings per share calculation.

Diluted shares outstanding are not impacted when debentures are converted into CSX common stock because those shares were already included in the diluted shares calculation. Shares outstanding for basic earnings per share, however, are impacted on a weighted-average basis when conversions occur.  DuringAn immaterial amount of conversions occurred during thirdfirst quarters 20122013 and 20112012, approximately $62 thousand and $700 thousand of face value convertible debentures were converted into 7 thousand and 73 thousand shares of CSX common stock, respectively.. As of the end of thirdfirst quarter 20122013, approximately $2 million of convertible debentures at face value remained outstanding, which are convertible into approximately 245 thousand shares of CSX common stock.

NOTE 3.Share-Based Compensation

Under CSX's share-based compensation plans, awards primarily consist of performance grants, restricted stock awards, restricted stock units, stock options and stock grants for directors. CSX has not granted stock options since 2003. Awards granted under the various programs are determined and approved by the Compensation Committee of the Board of Directors or, in certain circumstances, by the Chief Executive Officer for awards to management employees other than senior executives. The Board of Directors approves awards granted to the Company's non-management directors upon recommendation of the Governance Committee.

Total pre-tax benefit associated with all share-based compensation and the related income tax expense are as follows:

 First Quarters
(Dollars in millions)20132012
   
Share-Based Compensation Benefit (a)
$(3)$—
Income Tax Expense1
—
In May
(a) Share-based compensation was a benefit in first quarter 2013 and was zero in first quarter 2012 approximately 1.3 million performance units were granted to key members of management under a newdriven by lower anticipated payouts on long-term incentive plan ("LTIP") adopted under the CSX Stock and Incentive Award Plan.  This LTIP provides for a three-year cycle ending in fiscal year 2014.  Similar to the two existing plans, the financial target upon which payments are based is operating ratio, which is defined as operating expenses divided by operating revenue and is calculated excluding certain non-recurring items.  Grants were made in performance units, with each unit being equivalent to one share of CSX common stock, and payouts will be made in CSX common stock.  The payout range for participants will be between 0% and 200% of the original grant based upon CSX's attainment of pre-established operating ratio targets for fiscal year 2014.  Payouts to certain senior executive officers are subject to a reduction of up to 30% at the discretion of the Compensation Committee of the Board of Directors based upon Company performance against certain CSX strategic initiatives.compensation.
    

10
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CSX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

NOTE 3. Share-Based Compensation, continued

Additionally, as part of the 2012 long-term incentive compensation program, the Company granted approximately 433 thousand time-based restricted stock units to key members of management.  The restricted stock units vest three years after the date of grant and participants receive cash dividend equivalents on the unvested shares during the restriction period.  These awards are time-based and support retention objectives.
     For information related to the Company's other outstanding long-term incentive compensation, see CSX's most recent annual report on Form 10-K.
Total pre-tax expense associated with all share-based compensation and the related income tax benefit are as follows:
 Third Quarters Nine Months
(Dollars in millions)20122011 20122011
      
Share-Based Compensation Expense$6
$7
 $10
$30
Income Tax Benefit3
3
 4
11
The following table provides information about stock options exercised and expired.
Third Quarters Nine MonthsFirst Quarters
(In thousands)20122011 2012201120132012
    
Number of Stock Options Exercised273
589
 1,891
4,543
1,191
1,299
Number of Stock Options Expired—
6
 15
27
—
15

As of December 2009, all outstanding options were vested, and therefore, there will be no future expense related to these options.  As of the end of thirdfirst quarter 2012,2013, CSX had approximately 2.2 million481 thousand stock options outstanding. 

NOTE 4.Casualty, Environmental and Other Reserves
Casualty, environmental and other reserves are considered critical accounting estimates due to the need for significant management judgments. They are provided for in the consolidated balance sheets as follows:
 September 28, 2012 December 30, 2011
(Dollars in millions)CurrentLong-termTotal CurrentLong-termTotal
        
Casualty:       
Personal Injury$93
$151
$244
 $93
$168
$261
Occupational6
31
37
 6
37
43
Asbestos11
52
63
 11
57
68
     Total Casualty110
234
344
 110
262
372
Environmental39
40
79
 31
52
83
Other(a)
20
45
65
 26
38
64
     Total$169
$319
$488
 $167
$352
$519
(a) Separation liabilities and freight rate dispute reserves have been reclassified to other current and long-term liabilities.

11
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CSX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

NOTE 4. Casualty, Environmental and Other Reserves, continued
 March 29, 2013 December 28, 2012
(Dollars in millions)CurrentLong-termTotal CurrentLong-termTotal
        
Casualty:       
Personal Injury$75
$152
$227
 $75
$158
$233
Occupational5
23
28
 5
31
36
Asbestos8
48
56
 8
48
56
     Total Casualty88
223
311
 88
237
325
Environmental33
56
89
 33
55
88
Other18
44
62
 19
45
64
     Total$139
$323
$462
 $140
$337
$477

These liabilities are accrued when estimable and probable in accordance with the Contingencies Topic in the ASC. Actual settlements and claims received could differ. The final outcome of these matters cannot be predicted with certainty. Considering the legal defenses currently available, the liabilities that have been recorded and other factors, it is the opinion of management that none of these items individually, when finally resolved, will have a material effect on the Company's financial condition, results of operations or liquidity. Should a number of these items occur in the same period, however, they could have a material effect on the Company's financial condition, results of operations or liquidity in that particular period.


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CSX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

NOTE 4. Casualty, Environmental and Other Reserves, continued

Casualty
 
Casualty reserves of $311 million for the first quarter 2013 represent accruals for personal injury, occupational injury and asbestos claims. During 2010, the Company increased itsThe Company's self-insured retention amount for these claims from $25 million tois $50 million per occurrence for claims occurring on or after June 1, 2010.occurrence. Currently, no individual claim is expected to exceed the self-insured retention amount. In accordance with the Contingencies Topic in the ASC, to the extent the value of an individual claim exceeds the self-insured retention amount, the Company would present the liability on a gross basis with a corresponding receivable for insurance recoveries. These reserves fluctuate based upon the timing of payments as well as changes in independent third-party estimates, which are reviewed by management. Actual results may vary from estimates due to the number, type and severity of the injury, costs of medical treatments and uncertainties in litigation. Most of the claims relate to CSXT unless otherwise noted below. Defense and processing costs, which historically have been insignificant and are anticipated to be insignificant in the future, are not included in the recorded liabilities.
 
Personal Injury
Personal injury reserves represent liabilities for employee work-related and third-party injuries. Work-related injuries for CSXT employees are primarily subject to the Federal Employers’ Liability Act (“FELA”). In addition to FELA liabilities, current or former employees of other CSX subsidiaries are covered by various state workers’ compensation laws, the Federal Longshore and Harbor Workers’ Compensation Program or the Maritime Jones Act.
    
CSXT retains an independent actuarial firm to assist management in assessing the value of personal injury claims. An analysis is performed by the independent actuarial firm quarterly and is reviewed by management. The methodology used by the actuary includes a development factor to reflect growth or reduction in the value of these personal injury claims. It is based largely on CSXT's historical claims and settlement experience.

Occupational and& Asbestos
Occupational claims arise from allegations of exposures to certain materials in the workplace, such as solvents, soaps, chemicals (collectively referred to as “irritants”) and diesel fuels (like exhaust fumes) or allegations of chronic physical injuries resulting from work conditions, such as repetitive stress injuries, carpal tunnel syndrome and hearing loss. The Company is also party to a number of asbestos claims by current or former employees alleging exposure to asbestos in the workplace.
        

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

NOTE 4. Casualty, Environmental and Other Reserves, continued

An analysis of occupational claims is performed quarterly by an independent third-party actuarial firm and reviewed by management. Management performs a quarterly review of asserted asbestos claims, and an analysis is performed annually by an independent third-party specialist and reviewed by management. The objective of the occupational and asbestos claims analyses performed by the third-party actuarial firm and specialist (the "third-party specialists") is to determine the number of incurred but not reported (“IBNR”) claims. The third-party specialists analyze CSXT's historical claim filings, settlement amounts, and dismissal rates to determine future anticipated claim filing rates and average settlement values for occupational and asbestos claims reserves. The potentially exposed population is estimated by using CSX's employment records and industry data. From this analysis, the third-party specialists provide an estimate of the IBNR claims liability.


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CSX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

NOTE 4. Casualty, Environmental and Other Reserves, continued

Environmental

Environmental reserves were $89 million for the first quarter 2013. The Company is a party to various proceedings related to environmental issues, including administrative and judicial proceedings involving private parties and regulatory agencies. The Company has been identified as a potentially responsible party at approximately 256250 environmentally impaired sites. Many of these are, or may be, subject to remedial action under the federal Comprehensive Environmental Response, Compensation and Liability Act of 1980, or CERCLA, also known as the Superfund Law, or similar state statutes. Most of these proceedings arose from environmental conditions on properties used for ongoing or discontinued railroad operations. A number of these proceedings, however, are based on allegations that the Company, or its predecessors, sent hazardous substances to facilities owned or operated by others for treatment, recycling or disposal. In addition, some of the Company's land holdings were leased to others for commercial or industrial uses that may have resulted in releases of hazardous substances or other regulated materials onto the property and could give rise to proceedings against the Company.

In any such proceedings, the Company is subject to environmental clean-up and enforcement actions under the Superfund Law, as well as similar state laws that may impose joint and several liability for clean-up and enforcement costs on current and former owners and operators of a site without regard to fault or the legality of the original conduct. These costs could be substantial.

In accordance with the Asset Retirement and Environmental Obligations Topic in the ASC, the Company reviews its role with respect to each site identified at least quarterly, giving consideration to a number of factors such as:
 
type of clean-up required;
nature of the Company's alleged connection to the location (e.g., generator of waste sent to the site or owner or operator of the site);
extent of the Company's alleged connection (e.g., volume of waste sent to the location and other relevant factors); and
number, connection and financial viability of other named and unnamed potentially responsible parties at the location.


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CSX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

NOTE 4.    Casualty, Environmental and Other Reserves, continued

Based on the review process, the Company has recorded amounts to cover contingent anticipated future environmental remediation costs with respect to each site to the extent such costs are estimable and probable. The recorded liabilities for estimated future environmental costs are undiscounted. 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. Payments related to these liabilities are expected to be made over the next several years.

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, conditions that are currently unknown could, at any given location, result in additional exposure, the amount and materiality of which cannot presently be reliablyreasonably estimated. Based upon information currently available, however, the Company believes its environmental reserves are adequate to coveraccurately reflect the cost of remedial actions to comply with present lawscurrently required.


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CSX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

NOTE 4. Casualty, Environmental and regulations.Other Reserves, continued

Other

Other reserves of $62 million for the first quarter 2013 include liabilities for various claims, such as longshoremen disability claims, and claims for property, automobile and general liability.Separation liabilities and freight rate dispute reserves have been reclassified to other current and long-term liabilities.

NOTE 5.    Commitments and Contingencies

Insurance

The Company maintains numerous insurance programs with substantial limits for property damage (which includes business interruption) and third-party liability.  A certain amount of risk is retained by the Company on each of the liability and property programs.  The Company has a $25 million retention per occurrence for the non-catastrophic property program (such as a derailment) and a $50 million retention per occurrence for the liability and catastrophic property programs (such as hurricanes and floods).
 
While the Company believes its current insurance coverage is adequate to cover its damages, future claims could exceed existing insurance coverage or insurance may not continue to be available at commercially reasonable rates.

Legal
 
The Company is involved in 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, but not limited to, those related to fuel surcharge, environmental and hazardous material exposure matters, FELA claims by employees, other personal injury or property 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 are, or are purported to be, class actions. While the final outcome of these matters cannot be reasonably determined, considering, among other things, the legal defenses available and liabilities that have been recorded along with applicable insurance, it is currently the opinion of CSX management that none of these pending items will have a material adverse effect on the Company's financial condition, results of operations or liquidity. An unexpected adverse resolution of one or more of these items, however, could have a material adverse effect on the Company's financial condition, results of operations or liquidity in that particular period.

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CSX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

NOTE 5.    Commitments and Contingencies, continued
The Company is able to estimate a range of possible loss for certain legal proceedings for which a loss is reasonably possible in excess of reserves established. The Company has estimated this range to be $23 million to approximately $20 million in aggregate at September 28, 2012March 29, 2013. This estimated aggregate range is based upon currently available information and is subject to significant judgment and a variety of assumptions. Accordingly, the Company's estimate will change from time to time, and actual losses may vary significantly from the current estimate.
    

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CSX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

NOTE 5.    Commitments and Contingencies, continued

Fuel Surcharge Antitrust Litigation

In May 2007, class action lawsuits were filed against CSXT and three other U.S.-based Class I railroads alleging that the defendants' fuel surcharge practices relating to contract and unregulated traffic resulted from an illegal conspiracy in violation of antitrust laws. The suit seeks treble damages allegedly sustained by purported class members as well as attorneys' fees and other relief. While we believe the case is without merit and recovery unlikely, plaintiffs are expected to allege damages at least equal to the fuel surcharges at issue. In November 2007, the class action lawsuits were consolidated and are now pending in federal court in the District of Columbia. The suit seeks treble damages allegedly sustained by purported class members as well as attorneys' fees and other relief. Plaintiffs are expected to allege damages at least equal to the fuel surcharges at issue.

On June 21, 2012, the court certified the case as a class action. The decision was not a ruling on the merits of plaintiffs' claims, rather a decision to allow the plaintiffs to seek to prove the case as a class. The defendant railroads have petitioned the U.S. Court of Appeals for the D.C. Circuit for permission to appeal the District Court's class certification decision. On August 28, 2012, the Court of Appeals referred the petition to a merits panel, and directed that the parties to the case submit briefs addressing both the petition and the merits of the appeal. The Court of Appeals set oral arguments on the appeal for May 2013. The District Court currently is deciding whetherstayed dissemination of notice to stay some or all proceedingsmembers of the class certified pending the appellate court's decision onoutcome of the defendants' petition for an appeal.

CSXT believes that its fuel surcharge practices were arrived at and applied lawfully and that the case is without merit. Accordingly, the Company intends to defend itself vigorously. However, penalties for violating antitrust laws can be severe, and an unexpected adverse decision on the merits could have a material adverse effect on the Company's financial condition, results of operations or liquidity in that particular period or for the full year.
    
NOTE 6.    Employee Benefit Plans

The Company sponsors defined benefit pension plans principally for salaried, management personnel.  For employees hired on or before December 31, 2002, the plans provide eligible employees with retirement benefits based predominantly on years of service and compensation rates near retirement.  For employees hired in 2003 or thereafter, benefits are determined based on a cash balance formula, which provides benefits by utilizing interest and pay credits based upon age, service and compensation. 

In addition to these plans, the Company sponsors a self-insured, post-retirement medical plan and a 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.  Medicare-eligible retirees are covered by a health reimbursement arrangement, which is an employer-funded account that can be used for reimbursement of eligible medical expenses. Non-Medicare eligible retirees will continue to be covered by the existing self-insured program.  The life insurance plan is non-contributory.


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CSX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

NOTE 6.    Employee Benefit Plans,, continued

The Company engages independent actuaries to compute the amounts of liabilities and expenses relating to these plans subject to the assumptions that the Company selects.  These amounts are reviewed by management.  The following table describes the components of expense / (income) related to net benefit expense:
 Pension Benefits
(Dollars in millions)Third Quarters Nine Months
 20122011 20122011
Service Cost$11
$10
 $33
$30
Interest Cost31
30
 92
90
Expected Return on Plan Assets(43)(39) (124)(118)
Amortization of Net Loss21
18
 62
54
Total Expense$20
$19
 $63
$56

Other Post-retirement BenefitsPension Benefits Other Post-retirement Benefits
(Dollars in millions)Third Quarters Nine MonthsFirst Quarters First Quarters
20122011 2012201120132012 20132012
Service Cost$1
$1
 $3
$3
$12
$11
 $1
$1
Interest Cost4
4
 12
10
27
31
 3
4
Expected Return on Plan Assets(40)(39) —
—
Amortization of Net Loss2
2
 7
5
25
20
 3
2
Amortization of Prior Service Costs—
—
 (1)(1)
Total Expense$7
$7
 $21
$17
$24
$23
 $7
$7

Qualified pension plan obligations are funded in accordance with prescribed regulatory requirements and with an objective of meeting minimum funding requirements necessary to avoid restrictions on flexibility of plan operation and benefit payments.  During first quarter 2012, the Company made a contribution of $275 million to its qualified pension plans, of which $25 million was the required minimum contribution. At this time, the Company anticipates that no further contributions to its qualified pension plans will be required in 2012. For further details, see Note 8, Employee Benefit Plans, in CSX's most recent annual report on Form 10-K.2013.

NOTE 7.    Debt and Credit Agreements

Total activity related to long-term debt as of the end of thirdfirst quarter 20122013 was as follows:
(Dollars in millions)Current PortionLong-term PortionTotal
Long-term debt as of December 2011$507
$8,734
$9,241
2012 activity:   
Long-term debt issued—
300
300
Long-term debt repaid(481)—
(481)
Reclassifications781
(781)—
Capital lease additions—
8
8
Debt conversions to CSX stock(1)—
(1)
Discount and premium activity—
(4)(4)
Long-term debt as of the end of third quarter 2012$806
$8,257
$9,063

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CSX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

NOTE 7.    Debt and Credit Agreements, continued
(Dollars in millions)Current PortionLong-term PortionTotal
Long-term debt as of December 2012$780
$9,052
$9,832
2013 activity:   
Long-term debt repaid(413)—
(413)
Reclassifications205
(205)—
Discount and premium activity—
(1)(1)
Long-term debt as of first quarter 2013$572
$8,846
$9,418

For fair value information related to the Company's long-term debt, see Note 10,9, Fair Value Measurements.

Debt Issuance

During first quarter 2012, CSX issued $300 million of 4.4% notes due 2043. These notes are included in the consolidated balance sheets under long-term debt and may be redeemed by the Company at any time. The net proceeds from the issuance were used primarily in connection with a $275 million contribution to the Company's qualified pension plan.

Credit Facility
    
CSX has a $1 billion unsecured, revolving credit facility backed by a diverse syndicate of banks. This facility expires in September 2016, and as of the date of this filing, the Company has no outstanding balances under this facility. The facility allows borrowings at floating (LIBOR-based) interest rates, plus a spread, depending upon CSX's senior unsecured debt ratings. LIBOR is the London Interbank Offered Rate which is a daily reference rate based on the interest rates at which banks offer to lend unsecured funds. As of thirdfirst quarter 20122013, CSX was in compliance with all covenant requirements under this facility.


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CSX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

NOTE 7.    Debt and Credit Agreements, continued

Receivables Securitization Facility

The Company's $250 million receivables securitization facility has a 364-day term and expires in JuneDecember 2013. The Company's intention is to continue to renew this facility prior to its expiration. The purpose of this facility is to provide an alternative to commercial paper and a low cost source of short-term liquidity. As of the date of this filing, the Company has no outstanding balances under this facility.

NOTE 8.    Other Income - Net

The Company derives income from items that are not considered operating activities. Income from these items is reported net of related expense. Other income - net consisted of the following:
 Third Quarters Nine Months
(Dollars in millions)20122011 20122011
Interest Income$1
$1
 $4
$3
Income from Real Estate9
6
 17
14
Miscellaneous Income (Expense)(5)(1) (7)(6)
Total Other Income - Net$5
$6
 $14
$11

Note 9.    Income Taxes

There have been no material changes to the balance of unrecognized tax benefits during the thirdfirst quarter 20122013 and 2011.





2012.



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CSX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

NOTE 10.9.    Fair Value Measurements

The Financial Instruments Topic in the ASC requires disclosures about fair value of financial instruments in annual reports as well as in quarterly reports. For CSX, this statement applies to certain investments and long-term debt. Disclosure of the fair value of pension plan assets is only required annually. Also, this rule clarifies the definition of fair value for financial reporting, establishes a framework for measuring fair value and requires additional disclosures about the use of fair value measurements.

Various inputs are considered when determining the value of the Company's investments, pension plan assets and long-term debt. The inputs or methodologies used for valuing securities are not necessarily an indication of the risk associated with investing in these securities. These inputs are summarized in the three broad levels listed below.

Level 1 - observable market inputs that are unadjusted quoted prices for identical assets or liabilities in active markets

Level 2 - other significant observable inputs (including quoted prices for similar securities, interest rates, credit risk, etc.)

Level 3 - significant unobservable inputs (including the Company's own assumptions in determining the fair value of investments)
 
The valuation methods described below may produce a fair value calculation that ismay not be indicative of net realizable value or reflective of future fair values. Furthermore, while the Company believes its valuation methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different fair value measurement at the reporting date.

Investments
 
The Company's investment assets, valued with the assistance offrom a third-party trustee, consist of certificates of deposits, corporate bonds, U.S. government securities and auction rate securities and are carried at fair value on the consolidated balance sheet per the Fair Value Measurements and Disclosures Topic in the ASC. There are several valuation methodologies used for those assets as described below.

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CSX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

NOTE 9.    Fair Value Measurements, continued

Certificates of Deposit and Commercial Paper (Level 2): Valued by discounting the related cash flows based on current yields of similar instruments with comparable durations.
Corporate Bonds and U.S. Treasury ObligationsGovernment Securities (Level 2): Valued using price evaluations reflecting the bid and/or ask sides of the market for a similar investment as of the last day of the fiscal period.calendar plan year.
Auction Rate Securities (Level 3): Valued using a discounted cash flow model, because there is currently no active market for trading.

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CSX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

NOTE 10.    Fair Value Measurements, continued
The Company's investment assets are carried at fair value on the consolidated balance sheets as summarized in the tablestable below. Additionally, the amortized cost basis of these investments was $168524 million and $643742 million as of September 28, 2012March 29, 2013 and December 30, 201128, 2012, respectively.
September 2012 December 2011March 2013 December 2012
(Dollars in Millions)Level 1Level 2Level 3Total Level 1Level 2Level 3TotalLevel 1Level 2Level 3Total Level 1Level 2Level 3Total
Certificates of Deposit$—
$—
$—
$—
 $—
$477
$—
$477
Certificates of Deposit and Commercial Paper$—
$330
$—
$330
 $—
$555
$—
$555
Corporate Bonds—
123
—
123
 —
98
—
98
—
130
—
130
 —
122
—
122
U.S. Treasury Obligations—
31
—
31
 —
53
—
53
U.S. Government Securities—
51
—
51
 —
51
—
51
Auction Rate Securities—
—
15
15
 —
—
15
15
—
—
15
15
 —
—
15
15
Total investments at fair value$—
$154
$15
$169
 $—
$628
$15
$643
$—
$511
$15
$526
 $—
$728
$15
$743

Certain prior year amounts have been reclassified to conform to the current year presentation.

These investments have the following maturities:
(Dollars in millions)September 28,
2012		 December 30, 2011March 29,
2013		 December 28, 2012
Less than 1 year$35
 $523
$362
 $587
1 - 2 years56
 32
46
 61
2 - 5 years58
 73
99
 76
Greater than 5 years20
 15
19
 19
Total$169
 $643
$526
 $743

Long-term Debt
Long-term debt is reported at carrying amount on the consolidated balance sheets and is the Company's only financial instrument with fair values significantly different from their carrying amounts. The majority of the Company's long-term debt is valued with the assistance offrom an independent third party who utilizes closing transactions, market quotes or market values of comparable debt. For those instruments not valued by the third party, the fair value has been estimated by applying market rates of similar instruments to the scheduled contractual debt payments and maturities. These market rates are provided by the same third party. All of the inputs used to determine the fair value of the Company's long-term debt are Level 2 inputs.


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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

NOTE 9.    Fair Value Measurements, continued

The fair value of outstanding debt fluctuates with changes in a number of factors. Such factors include, but are not limited to, interest rates, market conditions, values of similar financial instruments, size of the transaction, cash flow projections and comparable trades. Fair value will exceed carrying value when the current market interest rate is lower than the interest rate at which the debt was originally issued. The fair value of a company's debt is a measure of its current value under present market conditions. It does not impact the financial statements under current accounting rules.


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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

NOTE 10.    Fair Value Measurements, continued

The fair value and carrying value of the Company's long-term debt is as follows:

(Dollars in millions)September 28,
2012		 December 30, 2011March 29,
2013		 December 28, 2012
Long-term Debt Including
Current Maturities:
   
Long-term Debt (Including Current Maturities):   
Fair Value$10,870
 $10,708
$10,940
 $11,562
Carrying Value$9,063
 $9,241
$9,418
 $9,832

NOTE 10. Other Comprehensive Income

CSX reports comprehensive earnings or loss in accordance with the Comprehensive Income Topic in the ASC in the Consolidated Comprehensive Income Statement. Total comprehensive earnings are defined as all changes in shareholders' equity during a period, other than those resulting from investments by and distributions to shareholders (e.g. issuance of equity securities and dividends). Generally, for CSX, total comprehensive earnings equals net earnings plus or minus adjustments for pension and other post-retirement liabilities. Total comprehensive earnings represent the activity for a period net of tax and were $476 million and $458 million for first quarters 2013 and 2012, respectively.

While total comprehensive earnings is the activity in a period and is largely driven by net earnings in that period, accumulated other comprehensive income or loss (“AOCI”) represents the cumulative balance of other comprehensive income, net of tax, as of the balance sheet date. For CSX, AOCI is primarily the cumulative balance related to pension and other post-retirement benefit adjustments and CSX's share of AOCI of equity method investees. Changes in the AOCI balance by component are shown in the table below.
 Pension and Other Post-Employment Benefits
Other (b)
Accumulated Other Comprehensive Income (Loss)
(Dollars in millions)   
Balance December 28, 2012, Net of Tax$(851)$(85)$(936)
Other Comprehensive Income (Loss)   
Loss (Income) Reclassified to Net Earnings (a)
28
(1)27
Tax Expense(10)—
(10)
Total Other Comprehensive Income (Loss)18
(1)17
Balance March 29, 2013, Net of Tax$(833)$(86)$(919)

(a) Pension and Other Post-Employment Benefit reclassifications to net earnings primarily relate to the amortization of actuarial losses of $28 million in first quarter 2013 and are included in labor and fringe on the consolidated income statements. See Note 6. Employee Benefit Plans for further information.

(b) Other primarily represents CSX's share of AOCI of equity method investees. Amounts reclassified to net earnings are included in other income - net on the consolidated income statements.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

NOTE 11.    Summarized Consolidating Financial Data

In 2007, CSXT sold secured equipment notes maturing in 2023, and in 2008, CSXT sold additional secured equipment notes maturing in 2014 in registered public offerings. CSX has fully and unconditionally guaranteed the notes. In connection with the notes, the Company is providing the following condensed consolidating financial information in accordance with SEC disclosure requirements. Each entity in the consolidating financial information follows the same accounting policies as described in the consolidated financial statements, except for the use of the equity method of accounting to reflect ownership interests in subsidiaries which are eliminated upon consolidation and the allocation of certain expenses of CSX incurred for the benefit of its subsidiaries.
Condensed consolidating financial information for the obligor, CSXT, and parent guarantor, CSX, is as follows:


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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

NOTE 11.    Summarized Consolidating Financial Data, continued

Consolidating Income Statements (Dollars in millions)
Third Quarter 2012 CSX Corporation CSX Transportation Eliminations and Other Consolidated
First Quarter 2013 CSX Corporation CSX Transportation Eliminations and Other Consolidated
Revenue$—
$2,941
$17
$2,958
Expense(93)2,217
(41)2,083
Operating Income93
724
58
875
 
Equity in Earnings of Subsidiaries486
(1)(485)—
Interest (Expense) / Benefit(134)(17)4
(147)
Other Income / (Expense) - Net(1)2
(4)(3)
 
Earnings Before Income Taxes444
708
(427)725
Income Tax Benefit / (Expense)15
(262)(19)(266)
Net Earnings$459
$446
$(446)$459
 
Total Comprehensive Earnings$476
$446
$(446)$476
 
First Quarter 2012 CSX Corporation CSX Transportation Eliminations and Other Consolidated
Revenue$—
$2,878
$16
$2,894
$—
$2,950
$16
$2,966
Expense(90)2,166
(36)2,040
(87)2,229
(32)2,110
Operating Income90
712
52
854
87
721
48
856
  
Equity in Earnings of Subsidiaries478
—
(478)—
477
(1)(476)—
Interest (Expense) / Benefit(126)(17)5
(138)(130)(19)5
(144)
Other Income / (Expense) - Net(1)2
4
5
(1)3
2
4
  
Earnings Before Income Taxes441
697
(417)721
433
704
(421)716
Income Tax (Expense) / Benefit14
(262)(18)(266)16
(263)(20)(267)
Net Earnings$455
$435
$(435)$455
$449
$441
$(441)$449
  
Total Comprehensive Earnings$471
$437
$(437)$471
$458
$438
$(438)$458
 
Third Quarter 2011 CSX Corporation CSX Transportation Eliminations and Other Consolidated
Revenue$—
$2,946
$17
$2,963
Expense(77)2,220
(58)2,085
Operating Income77
726
75
878
 
Equity in Earnings of Subsidiaries500
(1)(499)—
Interest (Expense) / Benefit(123)(19)4
(138)
Other Income / (Expense) - Net—
6
—
6
 
Earnings Before Income Taxes454
712
(420)746
Income Tax (Expense) / Benefit10
(266)(26)(282)
Net Earnings$464
$446
$(446)$464
 
Total Comprehensive Earnings$473
$448
$(448)$473


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CSX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

NOTE 11.    Summarized Consolidating Financial Data, continued

 Consolidating Income Statements
 (Dollars in millions)
Nine Months Ended September 28, 2012 CSX Corporation CSX Transportation Eliminations and Other Consolidated
 Revenue$—
$8,823
$49
$8,872
 Expense(266)6,587
(102)6,219
 Operating Income266
2,236
151
2,653
     
 Equity in Earnings of Subsidiaries1,512
(1)(1,511)—
 Interest (Expense) / Benefit(381)(53)13
(421)
 Other Income / (Expense) - Net(3)6
11
14
     
 Earnings Before Income Taxes1,394
2,188
(1,336)2,246
 Income Tax (Expense) / Benefit22
(795)(57)(830)
 Net Earnings$1,416
$1,393
$(1,393)$1,416
     
Total Comprehensive Earnings$1,458
$1,393
$(1,393)$1,458
     
Nine Months Ended September 30, 2011 CSX Corporation CSX Transportation Eliminations and Other Consolidated
 Revenue$—
$8,743
$49
$8,792
 Expense(210)6,584
(159)6,215
 Operating Income210
2,159
208
2,577
     
 Equity in Earnings of Subsidiaries1,472
2
(1,474)—
 Interest (Expense) / Benefit(370)(64)22
(412)
 Other Income / (Expense) - Net3
8
—
11
     
 Earnings Before Income Taxes1,315
2,105
(1,244)2,176
 Income Tax (Expense) / Benefit50
(782)(79)(811)
 Net Earnings$1,365
$1,323
$(1,323)$1,365
     
Total Comprehensive Earnings$1,398
$1,325
$(1,325)$1,398
     



 Consolidating Balance Sheet
 (Dollars in millions)
As of First Quarter 2013 CSX Corporation CSX Transportation Eliminations and Other Consolidated
     
 ASSETS
 Current Assets    
 Cash and Cash Equivalents$445
$208
$52
$705
 Short-term Investments330
—
37
367
 Accounts Receivable - Net—
383
593
976
 Receivable from Affiliates1,113
1,939
(3,052)—
 Materials and Supplies—
283
—
283
 Deferred Income Taxes57
71
5
133
 Other Current Assets12
89
2
103
   Total Current Assets1,957
2,973
(2,363)2,567
     
 Properties8
33,690
1,976
35,674
 Accumulated Depreciation(8)(8,353)(1,025)(9,386)
 Properties - Net—
25,337
951
26,288
     
 Investments in Conrail—
—
703
703
 Affiliates and Other Companies(39)594
(43)512
 Investments in Consolidated Subsidiaries19,093
—
(19,093)—
 Other Long-term Assets185
367
(36)516
   Total Assets$21,196
$29,271
$(19,881)$30,586
     
 LIABILITIES AND SHAREHOLDERS' EQUITY
 Current Liabilities    
 Accounts Payable$163
$855
$25
$1,043
 Labor and Fringe Benefits Payable33
315
28
376
 Payable to Affiliates2,801
473
(3,274)—
 Casualty, Environmental and Other Reserves—
123
16
139
 Current Maturities of Long-term Debt500
72
—
572
 Income and Other Taxes Payable(181)377
10
206
 Other Current Liabilities—
135
3
138
   Total Current Liabilities3,316
2,350
(3,192)2,474
     
 Casualty, Environmental and Other Reserves—
250
73
323
 Long-term Debt7,806
1,040
—
8,846
 Deferred Income Taxes(154)8,224
132
8,202
 Other Long-term Liabilities898
625
(130)1,393
   Total Liabilities$11,866
$12,489
$(3,117)$21,238
     
 Shareholders' Equity    
 Common Stock, $1 Par Value$1,022
$181
$(181)$1,022
 Other Capital36
5,074
(5,074)36
 Retained Earnings9,191
11,607
(11,607)9,191
 Accumulated Other Comprehensive Loss(919)(102)102
(919)
 Noncontrolling Interest—
22
(4)18
 Total Shareholders' Equity$9,330
$16,782
$(16,764)$9,348
 Total Liabilities and Shareholders' Equity$21,196
$29,271
$(19,881)$30,586

22
Table of Contents
CSX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

NOTE 11.    Summarized Consolidating Financial Data, continued

Consolidating Balance Sheet
(Dollars in millions)
As of Third Quarter 2012 CSX Corporation CSX Transportation Eliminations and Other Consolidated
 
Consolidating Balance Sheet
(Dollars in millions)
Consolidating Balance Sheet
(Dollars in millions)
As of December 2012 CSX Corporation CSX TransportationEliminations and Other Consolidated
ASSETS
Current Assets  
Cash and Cash Equivalents$458
$153
$82
$693
$481
$235
$68
$784
Short-term Investments—
—
35
35
555
—
32
587
Accounts Receivable - Net1
559
603
1,163
3
427
532
962
Receivable from Affiliates992
1,636
(2,628)—
993
1,798
(2,791)—
Materials and Supplies—
264
—
264
—
274
—
274
Deferred Income Taxes65
74
(5)134
52
62
5
119
Other Current Assets14
78
12
104
11
64
—
75
Total Current Assets1,530
2,764
(1,901)2,393
2,095
2,860
(2,154)2,801
  
Properties8
33,146
1,866
35,020
8
33,333
1,938
35,279
Accumulated Depreciation(8)(8,106)(974)(9,088)(8)(8,225)(996)(9,229)
Properties - Net—
25,040
892
25,932
—
25,108
942
26,050
  
Investments in Conrail—
—
693
693
—
—
695
695
Affiliates and Other Companies(39)584
(43)502
(39)593
(43)511
Investments in Consolidated Subsidiaries18,515
—
(18,515)—
Investment in Consolidated Subsidiaries18,783
—
(18,783)—
Other Long-term Assets172
300
(62)410
186
368
(40)514
Total Assets$20,178
$28,688
$(18,936)$29,930
$21,025
$28,929
$(19,383)$30,571
  
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities  
Accounts Payable$150
$1,004
$43
$1,197
$133
$846
$35
$1,014
Labor and Fringe Benefits Payable36
345
35
416
35
391
42
468
Payable to Affiliates2,488
364
(2,852)—
2,679
411
(3,090)—
Casualty, Environmental and Other Reserves—
153
16
169
—
124
16
140
Current Maturities of Long-term Debt700
105
1
806
700
80
—
780
Income and Other Taxes Payable(40)308
(7)261
(262)334
13
85
Other Current Liabilities(1)172
1
172
(1)139
2
140
Total Current Liabilities3,333
2,451
(2,763)3,021
3,284
2,325
(2,982)2,627
  
Casualty, Environmental and Other Reserves—
247
72
319
—
256
81
337
Long-term Debt7,208
1,049
—
8,257
8,005
1,047
—
9,052
Deferred Income Taxes(149)8,067
100
8,018
(153)8,131
118
8,096
Other Long-term Liabilities770
605
(91)1,284
901
656
(100)1,457
Total Liabilities$11,162
$12,419
$(2,682)$20,899
$12,037
$12,415
$(2,883)$21,569
  
Shareholders' Equity  
Common Stock, $1 Par Value$1,031
$181
$(181)$1,031
$1,020
$181
$(181)$1,020
Other Capital20
5,669
(5,669)20
28
5,672
(5,672)28
Retained Earnings8,798
10,475
(10,475)8,798
8,876
10,740
(10,740)8,876
Accumulated Other Comprehensive Loss(833)(79)79
(833)(936)(102)102
(936)
Noncontrolling Interest—
23
(8)15
Noncontrolling Minority Interest—
23
(9)14
Total Shareholders' Equity$9,016
$16,269
$(16,254)$9,031
$8,988
$16,514
$(16,500)$9,002
Total Liabilities and Shareholders' Equity$20,178
$28,688
$(18,936)$29,930
$21,025
$28,929
$(19,383)$30,571

23
Table of Contents
CSX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

NOTE 11.    Summarized Consolidating Financial Data, continued
Consolidating Balance Sheet
(Dollars in millions)
As of December 2011 CSX Corporation CSX TransportationEliminations and Other Consolidated
 ASSETS
 Current Assets    
 Cash and Cash Equivalents$549
$154
$80
$783
 Short-term Investments475
—
48
523
 Accounts Receivable - Net4
468
657
1,129
 Receivable from Affiliates1,025
1,772
(2,797)—
 Materials and Supplies—
240
—
240
 Deferred Income Taxes10
173
(1)182
 Other Current Assets17
64
(3)78
   Total Current Assets2,080
2,871
(2,016)2,935
     
 Properties8
31,958
1,738
33,704
 Accumulated Depreciation(8)(7,795)(927)(8,730)
 Properties - Net—
24,163
811
24,974
     
 Investments in Conrail—
—
678
678
 Affiliates and Other Companies(39)574
(42)493
 Investment in Consolidated Subsidiaries17,519
—
(17,519)—
 Other Long-term Assets176
109
108
393
   Total Assets$19,736
$27,717
$(17,980)$29,473
     
 LIABILITIES AND SHAREHOLDERS' EQUITY
 Current Liabilities    
 Accounts Payable$114
$978
$55
$1,147
 Labor and Fringe Benefits Payable41
458
42
541
 Payable to Affiliates2,566
374
(2,940)—
 Casualty, Environmental and Other Reserves—
151
16
167
 Current Maturities of Long-term Debt400
105
2
507
 Income and Other Taxes Payable(60)189
—
129
 Other Current Liabilities(1)194
3
196
   Total Current Liabilities3,060
2,449
(2,822)2,687
     
 Casualty, Environmental and Other Reserves—
284
68
352
 Long-term Debt7,609
1,124
1
8,734
 Deferred Income Taxes(246)7,800
47
7,601
 Other Long-term Liabilities858
667
106
1,631
   Total Liabilities$11,281
$12,324
$(2,600)$21,005
     
 Shareholders' Equity    
 Common Stock, $1 Par Value$1,049
$181
$(181)$1,049
 Other Capital6
5,652
(5,652)6
 Retained Earnings8,275
9,618
(9,618)8,275
 Accumulated Other Comprehensive Loss(875)(79)79
(875)
 Noncontrolling Minority Interest—
21
(8)13
   Total Shareholders' Equity$8,455
$15,393
$(15,380)$8,468
   Total Liabilities and Shareholders' Equity$19,736
$27,717
$(17,980)$29,473

24
Table of Contents
CSX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

NOTE 11.Summarized Consolidating Financial Data, continued
Consolidating Cash Flow Statements(Dollars in millions)
Nine months ended September 28, 2012
CSX
Corporation
CSX
Transportation
Eliminations and OtherConsolidated
First Quarter 2013
CSX
Corporation
CSX
Transportation
Eliminations and OtherConsolidated
Operating Activities  
Net Cash Provided by (Used in) Operating Activities$429
$2,202
$(327)$2,304
$272
$689
$(230)$731
Investing Activities 
  
 
Property Additions—
(1,669)(161)(1,830)—
(458)(33)(491)
Purchases of Short-term Investments(50)—
(28)(78)(285)—
(5)(290)
Proceeds from Sales of Short-term Investments525
—
48
573
510
—
24
534
Other Investing Activities(6)78
(62)10
—
(63)45
(18)
Net Cash Provided by (Used in) Investing Activities469
(1,591)(203)(1,325)225
(521)31
(265)
Financing Activities  
Long-term Debt Issued300
—
—
300
Long-term Debt Repaid(400)(79)(2)(481)(400)(13)—
(413)
Dividends Paid(415)(536)536
(415)(143)(182)182
(143)
Stock Options Exercised11
—
—
11
6
—
—
6
Shares Repurchased(500)—
—
(500)
Other Financing Activities15
3
(2)16
4
—
1
5
Net Cash Provided by (Used in) Financing Activities(989)(612)532
(1,069)(533)(195)183
(545)
Net Increase (Decrease) in Cash and Cash Equivalents(91)(1)2
(90)(36)(27)(16)(79)
Cash and Cash Equivalents at Beginning of Period549
154
80
783
481
235
68
784
Cash and Cash Equivalents at End of Period$458
$153
$82
$693
$445
$208
$52
$705



2524
Table of Contents
CSX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

NOTE 11.    Summarized Consolidating Financial Data, continued

Consolidating Cash Flow Statements(Dollars in millions)
Nine months ended September 30, 2011
 CSX
Corporation
CSX
Transportation
Eliminations and OtherConsolidated
First Quarter 2012
 CSX
Corporation
CSX
Transportation
Eliminations and OtherConsolidated
Operating Activities  
Net Cash Provided by (Used in) Operating Activities$1,054
$2,014
$(483)$2,585
$(23)$641
$(174)$444
Investing Activities  
Property Additions—
(1,285)(151)(1,436)—
(435)(34)(469)
Purchases of Short-term Investments—
—
(14)(14)(50)—
(3)(53)
Proceeds from Sales of Short-term Investments—
—
66
66
425
—
12
437
Other Investing Activities(19)(90)92
(17)1
(13)20
8
Net Cash Provided by (Used in) Investing Activities(19)(1,375)(7)(1,401)376
(448)(5)(77)
Financing Activities  
Long-term Debt Issued600
—
—
600
300
—
—
300
Long-term Debt Repaid(507)(86)(2)(595)(400)(13)—
(413)
Dividends Paid(354)(510)510
(354)(125)(179)179
(125)
Stock Options Exercised27
—
—
27
8
—
—
8
Shares Repurchased(1,564)—
—
(1,564)(300)—
—
(300)
Other Financing Activities30
(21)(19)(10)—
4
3
7
Net Cash Provided by (Used in) Financing Activities(1,768)(617)489
(1,896)(517)(188)182
(523)
Net Increase (Decrease) in Cash and Cash Equivalents(733)22
(1)(712)(164)5
3
(156)
Cash and Cash Equivalents at Beginning of Period1,100
118
74
1,292
549
154
80
783
Cash and Cash Equivalents at End of Period$367
$140
$73
$580
$385
$159
$83
$627


2625
Table of Contents

CSX CORPORATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

STRATEGIC OVERVIEW
CSX provides rail-based freight transportation services including traditional rail service and the transport of intermodal containers and trailers.trailers with its approximately 32,000 dedicated employees. The Company and the rail industry provide customers with access to an expansive and interconnected transportation network that plays a key role in North American commerce and is critical to the economic success and global competitiveness of the United States. This global competitiveness and the expected continued growth in manufacturing is beneficial to the rail industry. TheOver the long-term, the U.S. demand to move more goods by rail is expected to rise along with the need to reduce highway congestion and greenhouse gas emissions. CSX and freight railroads areprovide the best waymost environmentally-efficient and economical means to meet this demand while reducing environmental impacts.growing demand. CSX can move a ton of freight almost 500approximately 450 miles on one gallon of fuel and, ondiesel fuel. Shipping freight by rail also alleviates highway congestion. On average, over three timestrains are more fuel efficient than trucks. Also,trucks as one rail car can move the equivalent of 3 truckloads which aids in alleviating highway congestion.three truckloads.

CSX's network is positioned to reach nearly two-thirds of Americans, who account for the majority of the nation's consumption of goods. Through this network, the Company transports a diverse portfolio of productscommodities and commoditiesproducts to meet the country's needs. These products range from agricultural goods, such as grains, to chemicals, automobiles, metals, building materials, paper, consumer products, and energy sources like coal, ethanol and crude oil, to automobiles, chemicals, building materials, paper, metals, grains and consumer products.oil. The Company categorizes these products into three primary lines of business: merchandise, coalintermodal and intermodal.coal. CSX's transportation solutions connect industries across the United States with each other and with global markets by meeting the transportation needs of port facilities, energy producers, manufacturers, industrial producers, construction companies, farmers and feed mills, wholesalers and retailers and the United States armed forces.

CSX services are delivered by dedicated employees whose jobs cannot be exported overseas. Railroad jobs are amongThe rebirth of the U.S. automotive industry and the development of new domestic energy sources have led to increased volume in some of CSX's merchandise markets, specifically in shipments of automobiles, frac sand, crude oil and pipe.  The increase in foreign labor costs, as well as lower domestic energy prices resulting from the nation's highest paying. In 2011, CSX hired more than 4,000 new employees. Additionally,increase in 2012, the supply of natural gas, helped to contribute to the recent growth in U.S. manufacturing. These, among other economic and supply chain factors are encouraging manufacturers to expand or move production back to the U.S. The Company has been hiring and expects new employees for the full yearcontinues to reach nearly 2,500. This hiring is primarily offsetting attrition.position itself to secure volume related to growth in these markets.

Strategic Growth Initiatives

As CSX continues to strengthen its core business, theThe Company is focusing on three key strategic growth initiatives related to intermodal, export coal and an initiative to enhance customer service quality also known to CSX as Total Service Integration. The Company believes these initiativesopportunities will allow it to capturegain additional domestic and international volume, while improving service offerings to its customers in a cost-effective manner.

Intermodal

The Company's intermodal business is an economical, environmentally-friendly alternative to transporting freight on highways via truck. CSX is capitalizing on this opportunity by building new terminals and increasing network capacity. Major terminal expansion projects in Winter Haven, Florida, Worcester, Massachusetts and Columbus, Ohio are currently underway. During 2012, the Company completed construction of a new intermodal terminal in Louisville, Kentucky. These investments are in addition to the Company's new Northwest Ohio intermodal terminal that became operational in 2011. This high-capacity terminal, which is part of CSX's National Gateway initiative discussed below, expands service offerings to customers as well as improves market access to and from east coast ports.

2726
Table of Contents

Export Coal

Economic expansion in developing countries has generated a growth cycle in export coal demand.    Over the long term, demand for coal in these countries is expected to remain high due to rising consumption as they become more urbanized, which is increasing the need for electric power generation and steel production.  These increases in global coal demand are likely to be met by shipments from coal producing countries, including the U.S.  In addition to the Company's ready access to large U.S. coal suppliers and multiple port facilities, CSX continues to enhance the capacity and operating efficiency of its export coal network, which favorably positions the Company to capitalize on this growth opportunity. In the long term, this export coal demand is expected to partially offset declines in utility coal volume that has resulted from low natural gas prices and environmental regulation.  Although the Company expects long-term growth in the export coal market, CSX export traffic volumes will be subject to a high degree of volatility as a result of changes in the global economy and competition from foreign coal producers. 

Total Service Integration
CSX's Total Service Integration (“TSI”) initiative, which was launched in 2006, supports growth by improving service, optimizing train size, and increasing asset utilization for unit train shipments from origin to destination. CSX is now advancing this initiative to enhance service quality for customers who ship by the carload. This program, TSI Carload, focuses where the customer is impacted most - during the first and last mile of service. These enhancements aim to improve service levels and reliability of rail transportation over other modes of transportation. These improvements to operational processes, customer communication and service will better align the Company's operating capabilities with customers' needs.

Balanced Approach to Capital Deployment

CSX remains highly committed to delivering value to shareholders through a balanced approach to deploying capital that includes investments in infrastructure, dividend growth and share repurchases. In 2011, the Company invested $2.3 billion to further enhance the capacity, quality, safety and flexibility of its network. Included in this amount is approximately $100 million of investments related to reimbursable public-private partnerships where reimbursements may not be fully received in a given year. In addition, CSX continues to return value to its shareholders in the form of dividends and share repurchases. The Company has increased its quarterly cash dividend ten times over the last seven years which represents a 32 percent compounded annual growth rate. Also during 2011, CSX announced a new $2 billion share repurchase authority expected to be completed by the end of 2012 based on market and business conditions. While delivering shareholder value through this balanced approach to capital deployment, the Company remains committed to an improving investment grade credit profile.

Public-Private Partnerships

Expanding capacity on U.S. rail networks will provide substantial public benefits including job creation, increased business activity at U.S. ports, reduced highway congestion and lower air emissions. Therefore, CSX and its government partners are working jointly to invest in multi-year rail infrastructure projects such as the National Gateway. This initiative is a public-private partnership which will increase intermodal capacity on key corridors between Mid-Atlantic ports and the Midwest. Current projects related to the National Gateway include the expansion of the Virginia Avenue Tunnel in Washington, D.C. and construction for double-stack train clearances in Ohio, West Virginia, Pennsylvania, Maryland and the District of Columbia.

28
Table of Contents

CSX is engaged in another major partnership initiative with the Commonwealth of Massachusetts to expand freight and commuter rail service. Currently, CSX provides service to and from New England. To further improve that service offering to customers, CSX is expanding its intermodal terminal footprint in Worcester, Massachusetts and, with the Commonwealth, is clearing the route from Worcester to the New York state line for double-stack intermodal service. At the beginning of fourth quarter 2012, CSX sold its corridor between Boston and Worcester to the Commonwealth, while retaining the right to utilize this corridor for freight service.  The Commonwealth intends to expand commuter rail service in the greater Boston area. 

In 2011, CSX entered into a transaction with the state of Florida to help alleviate highway congestion through a new commuter rail operation known as SunRail. CSX sold a portion of its track to the state for its new commuter rail and will invest the proceeds in additional freight rail capacity and infrastructure within the state. CSX retains the right to utilize this corridor with freight service to serve its customers. This includes a new automotive and intermodal facility in central Florida.

In summary, these long-term investments discussed above provide a foundation for volume growth and productivity improvement, enhanced customer service and continued advancements in the safety and reliability of operations. To continue these types of investments, the Company must be able to operate in an environment in which it can generate adequate returns and drive shareholder value. CSX will continue to advocate for a fair and balanced regulatory environment to ensure that the value of the Company's rail service would be reflected in any potential new legislation or policies.






29
Table of Contents
CSX CORPORATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS


Intermodal

The Company's intermodal business is an economical, environmentally-friendly alternative to transporting freight on highways via truck. CSX is capitalizing on this opportunity by building new terminals and increasing network capacity to broaden its market presence in key growth areas. The Company's Northwest Ohio intermodal terminal, which became operational in 2011, is part of CSX's National Gateway initiative discussed below. This high-capacity terminal expands service offerings to customers, improves market access to and from east coast ports and consumption centers and enhances the fluidity of the network. During 2012, the Company completed construction of new intermodal terminals in Louisville, Kentucky and Worcester, Massachusetts and completed major terminal expansion projects in Charlotte, North Carolina and Columbus, Ohio. In addition, the Company began construction on a new intermodal terminal in Winter Haven, Florida in 2012. These projects further enhance the Company's intermodal offering and support the growth the Company experienced over the last few years.
Export Coal
Economic expansion in China, India and Brazil and other developing countries has generated a growth cycle in export coal demand. Over the long term, demand for coal in these countries is expected to remain high due to rising consumption as they become more urbanized, which is increasing the need for electric power generation and steel production. These increases in global coal demand are likely to be met by shipments from coal producing countries, including the U.S., which has abundant coal deposits. In addition to the Company's ready access to large U.S. coal suppliers and multiple port facilities, CSX continues to enhance the capacity and operating efficiency of its export coal network, which favorably positions the Company to capitalize on this growth opportunity. In the long term, this export coal demand is expected to partially offset declines in domestic utility coal volume that has resulted from low natural gas prices and environmental regulation. Although the Company expects long-term growth in the export coal market, CSX export traffic volume and pricing will be subject to a high degree of volatility as a result of changes in the global economy and competition from foreign coal producers.
Total Service Integration

CSX's Total Service Integration (“TSI”) initiative supports growth through improved service, optimized train size, and increased asset utilization for unit train shipments from origin to destination. Building on this momentum, CSX is now focusing on another initiative to enhance service quality for customers who ship by the carload. This program, TSI Carload, focuses where the customer is impacted most - during the first and last mile of service. These enhancements aim to improve service levels and reliability of rail transportation over other modes of transportation. These improvements to operational processes, customer communication and service are better aligning CSX's operating capabilities with customers' needs and enabling the Company to capitalize on the growth opportunities described above. During 2012, CSX implemented new technology and processes to provide customers with proactive and transparent communications. These tools include real time notifications of departures and work to be completed, proactive alerts for cars that may be delayed and notices for work that will not be performed.


27
Table of Contents
CSX CORPORATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS


Public-Private Partnerships
Expanding capacity on U.S. rail networks provides substantial public benefits including job creation, increased business activity at U.S. ports, reduced highway congestion and lower air emissions. Therefore, CSX and its government partners are working jointly to invest in multi-year rail infrastructure projects such as the National Gateway. This initiative is a public-private partnership which will increase intermodal capacity and create substantial environmental and efficiency advantages by clearing key corridors between Mid-Atlantic ports and the Midwest for double-stack intermodal trains.
CSX is engaged in another major partnership initiative with the Commonwealth of Massachusetts to expand freight and commuter rail service. This partnership provided an expanded intermodal terminal footprint, relocation of bulk commodity operations and double-stack intermodal clearance from Worcester to the New York state line. In 2012, CSX sold its corridor between Boston and Worcester to the Commonwealth to allow increased commuter rail service while retaining the right to utilize this corridor for freight service.

CSX entered into a transaction with the state of Florida in 2011 to help alleviate highway congestion through a new commuter rail operation, known as SunRail. CSX sold a portion of its track to the state of Florida for its new commuter rail and will invest the proceeds in additional freight rail capacity and infrastructure within the state.

Balanced Approach to Cash Deployment

CSX remains highly committed to delivering value to shareholders through a balanced approach to deploying cash that includes investments in the business, dividend growth and share repurchases. In 2012, the Company invested $2.3 billion to further enhance the capacity, quality, safety and flexibility of its network. Included in this amount is $166 million of investments related to reimbursable public-private partnerships where reimbursements may not be fully received in a given year. In addition, CSX continues to return value to its shareholders in the form of dividends and share repurchases. In 2012, CSX completed a $2 billion share repurchase program that was announced in 2011.
In April 2013, the Company announced a 7 percent increase in the quarterly cash dividend to $0.15 per common share and announced a new $1 billion share repurchase program which is expected to be completed in the next 24 months. The Company has increased its quarterly cash dividend 11 times over the last eight years, including the recently announced increase, which represents a 29 percent compounded annual growth rate. While delivering shareholder value through this balanced approach to cash deployment, the Company remains committed to an improving investment grade credit profile.

In summary, these strategic initiatives and long-term investments discussed above provide a foundation for volume growth and productivity improvement, enhanced customer service and continued advancements in the safety and reliability of operations. To continue these types of investments, the Company must be able to operate in an environment in which it can generate adequate returns and drive shareholder value.  CSX will continue to advocate for a fair and balanced regulatory environment to ensure that the value of the Company's rail service would be reflected in any potential new legislation or policies.






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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS


ThirdFirst Quarter 20122013 Highlights

Revenue of decreased$69 million3.0 billion to $2.9 billion.was essentially flat.

Expenses decreased $4527 million or 2%1% to $2.02.1 billion.

Operating income decreasedincreased $2419 million or 3%2% to $854875 million., a first quarter record.

Operating ratio increaseddecreased to 70.5%70.4%., a first quarter record.

Third Quarters Nine MonthsFirst Quarters
(In thousands)20122011 2012201120132012
Volume1,600
1,619
 4,842
4,857
1,578
1,602
    
(In millions)    
Revenue$2,894
$2,963
 $8,872
$8,792
$2,958
$2,966
Expense2,040
2,085
 6,219
6,215
2,083
2,110
Operating Income$854
$878
 $2,653
$2,577
$875
$856
    
Operating Ratio70.5%70.4% 70.1%70.7%70.4%71.1%

Total revenue for the Company declined 2%was essentially flat year-over-year due to lower volume primarily in coal, lower fuel surcharge recoveries partially offset by pricing gains. Expenses decreased 2%1% versus the prior year reflecting the continuedas a result of efficiency and volume-related savings as well as recognition of a deferred gaingains. These decreases were partially offset by inflation and lower fuel costs related to volume and efficiency. Additionally, overtime crew savings were realized from improvements in network efficiency.depreciation.

For additional information, refer to Results of Operations discussed on pages 3332 through 38.35.


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In addition to the financial highlights described above, the Company measures and reports safety and service performance.  The Company strives for continuous improvement in these measures through training, initiativesinnovation and investment. For example, the Company's safety and train accident prevention programs rely on broadthe latest tools, programs and employee involvement. The programs utilize operating rules training, compliance measurement, root cause analysis and communicationparticipation that are intendedstrengthen the safety culture in a supportive environment that allows each employee to create a safer environment for employees and the public.be successful at CSX. Continued capital investment in the Company's assets, including track, bridges, signals, equipment and detection technology also supports safety performance. CSX safety programs are designed to prevent incidents that can impact employees, customers and the communities we serve.

The Company routinely collaborates with the Federal Railroad Administration ("FRA") and industry organizations as well as federal, state and local governments on the development and implementation of safety programs and initiatives. For example, CSX, Operation Lifesaver, Inc., the U.S. Department of Transportation and other major railroads from across the country have partnered in the Common Sense campaign to reduce the number of injuries and deaths around tracks and trains. In addition to these initiatives, CSXT also has an ongoing public safety program to clear-cut trees and vegetation at public passive highway-rail intersections (crossings with no flashing lights or gates) to improve the public's ability to discern rail hazards.

At CSX, operational success is built on employee commitment to customer service while at the same time maintaining a constant focus on safety. During thirdfirst quarter 2012, both2013, key safety measures improved versus 2011.the previous year. The FRA reportable personal injury frequency index significantly improved by 3518 percent year over year to 0.70,0.66, showing extraordinary employee dedication to the Company's safety initiative.  The reported FRA train accident frequency rate also improved 331 percent year over year to 1.94.1.54.

NetworkEmployees also showed a high commitment to customer service by setting new records for all network reliability and service metrics showed strong improvements during the third quarter 2012.this quarter. On-time originations improved 252 percent to a record 9091 percent, and on-time arrivals improved 3110 percent to 8085 percent.  Average train velocity increased 105 percent to 22.623.4 miles per hour, whileand dwell improved 98 percent to 23.222.2 hours.





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AND RESULTS OF OPERATIONS


Operating Statistics (Estimated)

 Third Quarters First Quarters
 20122011Improvement 20132012Improvement
      
Safety and Service MeasurementsFRA Personal Injury Frequency Index0.70
1.07
35%FRA Personal Injury Frequency Index0.66
0.80
18%
FRA Train Accident Rate1.94
1.99
3%FRA Train Accident Rate1.54
2.24
31%
   On-Time Train Originations91%89%2%
On-Time Train Originations90%72%25%On-Time Destination Arrivals85%77%10%
On-Time Destination Arrivals80%61%31%Dwell22.2
24.0
8%
   Cars-On-Line183,223
194,454
6%
Dwell23.2
25.5
9%Train Velocity23.4
22.3
5%
Cars-On-Line188,907
204,649
8%   
     Increase
Train Velocity22.6
20.6
10%
   
  Increase
ResourcesRoute Miles21,007
21,043
—%Route Miles20,752
20,823
—%
Locomotives (owned and long-term leased)4,164
4,069
2%Locomotives (owned and long-term leased)4,192
4,128
2%
Freight Cars (owned and long-term leased)70,368
67,289
5%Freight Cars (owned and long-term leased)69,057
68,635
1%


Key Performance Measures Definitions

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.

On-Time Train Originations - Average percentPercent of scheduled road trains that depart the origin yard on-time or ahead of schedule.

On-Time Destination Arrivals - Average percentPercent of scheduled road trains that arrive at the destination yard on-time to two hours late (30 minutes for intermodal trains).

Dwell - Average amount of time in hours between car arrival at and departure from the yard. It does not include cars moving through the yard on the same train.

Cars-On-Line - An average count of all cars on the network (does not include locomotives, cabooses, trailers, containers or maintenance equipment).

Train Velocity - Average train speed between terminals in miles per hour (does not include locals, yard jobs, work trains or passenger trains).


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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS


FINANCIAL RESULTS OF OPERATIONS
Third Quarters Nine MonthsFirst Quarters
20122011$ Change% Change 20122011$ Change% Change20132012$ Change% Change
      
Revenue$2,894
$2,963
$(69)(2)% $8,872
$8,792
$80
1%$2,958
$2,966
$(8)—%
Expense      
Labor and Fringe754
765
11
1 2,268
2,294
26
1767
770
3
—
Materials, Supplies and Other525
562
37
7 1,617
1,649
32
2507
542
35
6
Fuel397
412
15
4 1,251
1,245
(6)—444
444
—
—
Depreciation268
251
(17)(7) 788
740
(48)(6)270
257
(13)(5)
Equipment and Other Rents96
95
(1)(1) 295
287
(8)(3)95
97
2
2
Total Expense2,040
2,085
45
2 6,219
6,215
(4)—2,083
2,110
27
1
Operating Income854
878
(24)(3) 2,653
2,577
76
3875
856
19
2
Interest Expense(138)(138)—
— (421)(412)(9)(2)(147)(144)(3)(2)
Other Income - Net5
6
(1)— 14
11
3
27
Other (Expense) Income - Net(3)4
(7)(175)
Income Tax Expense(266)(282)16
6 (830)(811)(19)(2)(266)(267)1
—
Net Earnings$455
$464
$(9)(2) $1,416
$1,365
$51
4%$459
$449
$10
2
      
Earnings Per Diluted Share$0.44
$0.43
$0.01
2% $1.36
$1.24
$0.12
10%$0.45
$0.43
$0.02
5%
      
Operating Ratio70.5%70.4%(10) bps 70.1%70.7%60
 bps70.4%71.1%70
 bps
 
Volume and Revenue (Unaudited)Volume (Thousands of units); Revenue (Dollars in millions); Revenue Per Unit (Dollars)
Third Quarters
First QuartersFirst Quarters
          
Volume Revenue Revenue Per UnitVolume Revenue Revenue Per Unit
20122011% Change 20122011% Change 20122011% Change20132012% Change 20132012% Change 20132012% Change
Agricultural                
Agricultural Products88
96
(8)% $220
$234
(6)% $2,500
$2,438
3 %95
108
(12)% $241
$275
(12)% $2,537
$2,546
— %
Phosphates and Fertilizers80
80
—
 123
118
5
 1,538
1,475
4
84
80
5
 144
131
10
 1,714
1,638
6
Food and Consumer25
24
2
 67
64
5
 2,680
2,667
3
24
25
(3) 68
67
1
 2,833
2,680
4
Industrial
  
     
  
     
Chemicals118
116
2
 424
407
4
 3,593
3,509
3
130
117
11
 468
415
13
 3,600
3,547
1
Automotive100
86
17
 270
228
18
 2,700
2,651
1
105
105
—
 293
281
4
 2,790
2,676
4
Metals64
66
(3) 155
155
—
 2,422
2,348
3
66
72
(8) 161
171
(5) 2,439
2,375
3
Housing and Construction
  
     
  
     
Emerging Markets107
116
(8) 168
180
(7) 1,570
1,552
1
Forest Products73
73
—
 182
179
2
 2,493
2,452
2
73
73
1
 189
181
4
 2,589
2,479
3
Minerals (a)
57
57
—
 96
94
2
 1,684
1,649
2
Waste and Equipment (a)
32
34
(7) 57
60
(5) 1,781
1,765
2
Total Merchandise655
657
—
 1,609
1,565
3
 2,456
2,382
3
666
671
(1) 1,717
1,675
2
 2,578
2,496
3
              
Coal323
386
(16) 791
957
(17) 2,449
2,479
(1)297
331
(10) 726
832
(13) 2,444
2,514
(3)
              
Intermodal (a)
622
576
8
 399
363
10
 641
630
2
Intermodal615
600
3
 404
389
4
 657
648
1
              
Other—
—
—
 95
78
23
 —
—
—
—
—
—
 111
70
60
 —
—
—
              
Total1,600
1,619
(1)% $2,894
$2,963
(2)% $1,809
$1,830
(1)%1,578
1,602
(2)% $2,958
$2,966
— % $1,875
$1,851
1 %

((a)a) 2011 Prior periods have been reclassified to conform to current presentation.


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AND RESULTS OF OPERATIONS


First Quarter 2013 Results of Operations

Volume and Revenue
Volume declined 2% year-over-year as lower coal and agricultural products shipments were partially offset by growth in chemicals and intermodal revenue has been reduced by $6 million for the quarter ended September 30, 2011 from what was previously reported to correct for certain interline business and the corresponding intermodalvolume. Pricing gains drove increases in revenue per unit has been reducedin nearly all markets. As a result, total revenue was essentially flat year-over-year due to lower volume, offset by pricing gains, other revenue gains and higher fuel recoveries.

Merchandise

Agricultural

Agricultural Products - Volume decreased due to lower shipments of feed grain and ethanol. Shipments for thisanimal feed declined due to low supplier inventories caused by last year's drought and increased competition from imports. Ethanol shipments were lower as well.a result of a continued reduction in gasoline demand in the U.S. and increased competition from imports.

Phosphates and Fertilizers - Volume increased as the reopening of a mine led to more short haul phosphate rock shipments to fertilizer production facilities. Fertilizer volume also grew as producers advanced shipments of fertilizer in anticipation of an expected increase in application by farms.

Food and Consumer - Volume declined due to a reduction in alcoholic beverage shipments. This reduction was primarily driven by consolidation within a customer's distribution network that resulted in lower shipments for CSX.

Industrial

Chemicals - Volume growth was driven by an increase in energy-related markets that include crude oil, liquefied petroleum gas (LPG) and frac sand. The offsetting adjustment is presentedrise in other revenue.crude oil shipments was due to increased supply of low-cost crude from shale drilling activity, resulting in new shipments to east coast refineries.

Automotive - Although North American light vehicle production was flat, vehicle shipments increased due to the restart of a production facility. This increase was offset by competitive losses in the automotive parts business.

Metals - Volume decreased due to lower shipments of scrap metals and sheet steel. The decline in scrap metals was driven by lower global demand for domestic steel production and exported scrap metals, while sheet steel was negatively impacted by a source shift and competitive losses.

Housing and Construction

Forest Products - Volume was flat due to an increase in building products which was offset by the decline in paper shipments. The recovery of the residential housing market increased the demand for building products, while electronic substitution of print media continues to drive contraction in the paper market.


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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS


Third Quarter 2012Minerals Results of Operations
- Volume declined 1%was flat year-over-year as lower coalgrowth in salt shipments were partiallyand aggregates (which include crushed stone, sand and gravel) was offset by a reduction in cement shipments. Salt shipments grew as a more severe winter resulted in increased application of salt to roads, and aggregates increased from the increasecontinued recovery in intermodal and automotive volume. Pricing gains drove increases in revenue per unit in nearly all markets. Total revenue for the Companyconstruction activity. Cement volume declined 2% year-over-year due to lower volume, lower fuel surcharge recoveries, partially offset by pricing gains.

Merchandise

Agriculturalsource shifts and a plant closure.

Agricultural ProductsWaste and Equipment - Volume decreased in equipment primarily due to lower shipmentsthe cycling of corn and ethanol. Corn shipments for animal feed declined as the extreme droughtprior year surge in the Midwest impacted harvest levels and drove corn prices higher. Further contributing to this decline, customers in the Southeast took advantagemoves of a strong local crop which was delivered by truck. Ethanol shipments were lowerthird-party coal cars into storage as a result of a reductioncoal market declines. This decrease was partially offset by growth in gasoline demand.waste shipments due to continued clean-up efforts from Superstorm Sandy.
Coal

PhosphatesShipments of domestic coal declined due to utility stockpiles above target levels and Fertilizers - Fertilizerlow natural gas prices. Export declines were driven by decreased shipments of U.S. thermal coal primarily to Europe where demand for electrical generation declined due to the overall softening of the economy.

Intermodal

Domestic volume was driven by highway-to-rail conversions, expanded service offerings and growth with existing customers. International volume was flat as increased domestic shipmentsnew services were offset by lower export volume. Domestic shipmentsrecent carrier port shifts.

Other

Other revenue increased as some business shifted to rail from barge transportationprimarily due to the low river levels. Increased shipments to domestic markets limited the availabilityhigher revenue of fertilizer for exports.

Food and Consumer - Volume increased due to a larger year-over-year potato crop and increased rail shipments of western apples to replace the weak crop in the Midwest which is typically moved by truck to customers.

Industrial

Chemicals - Volume growth was driven by an increase in plastics shipments to support growth in a broad base of end-use markets including packaging and automotive. Additionally, frac sand and petroleum oil shipments increased$32 million from shale drilling related activity.

Automotive - Automotive volume grew as North American light vehicle production increased tocustomers who did not meet pent up demand as the average vehicle age in the U.S. reached record highs.

Metals - Scrap volume declined due to lower steel mill utilization rates resulting from decreased demand and falling scrap prices.minimum contractual volumes.


Housing and ConstructionExpense

Emerging MarketsExpenses in the first quarter 2013 decreased$27 million - Volume declined due to reduced shipments of salt as inventories remain high due to reduced road application duringfrom the previous mild winter. Additionally, waste volume declined due to the conclusion of several remediation projects and an increase of local landfill disposal options that favor truck.prior year's first quarter. Significant variances are described below.

Forest ProductsLabor and Fringeexpense decreased$3 million - Strengthdue to the following:

Efficiency and volume-related labor costs decreased $20 million due to the year-over-year improvement in building productscrew starts and overtime, as well as training and other labor savings.

Wage expense increased $13 million as a result of inflation.

Various other costs increased $4 million during the quarter.

Materials, Supplies and Other expense decreased$35 million due to the following:

Deferred gains increased year-over-year by $30 million.  During the quarter, a deferred gain of $20 million was recognized due to a closure arrangement reached during the quarter related to a prior conveyance of a formerly-owned company.  Additionally, the recognition of the deferred gain from the slowly-recovering demand for housing and construction was offset by weakness in2011 sale of an operating rail corridor to the paper markets, which continue to be affected by electronic media substitution.state of Florida increased $10 million year-over-year.


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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS


Coal

Shipments of utility coal declinedEfficiency and volume-related expenses decreased $22 million primarily driven by low natural gas prices and utility stockpiles above target levels. This decrease was partially offset by higher export volume driven by increased shipments of U.S. thermal coal primarily to Europe.

Intermodal

Domestic growth was driven by highway-to-rail conversions, the addition of service lanes and growth with existing business partners. International growth was driven by a new customer and growth from expanded service offerings primarily enabled by the Northwest Ohio terminal.

Other

Other revenue increased duerelated to lower volume-based incentives paid to customersmaterial and higher revenue from customers who did not meet minimum contractual volumes.

Expense

Expenses in the quarter decreased$45 million from last year's third quarter. Significant variances are described below.

Labor and Fringeexpense decreased$11 millionrepair costs due to the following:reduction of active locomotives and other savings.

Cycling of prior year expense of $14 million for guarantee payments for a closed facility.
Lower crew costs of $7 million due to improvements in network efficiency that generated a reduction of overtime hours and relief crews.
Offsetting these decreases:
◦Inflation-related expenses increased $7Inflation-related expenses increased $11 million.
◦Other related costs increased $3 million

Materials, Supplies and Other expense decreased$37 million due to the following:

Recognition of $30 million of the deferred gain from the November 2011 sale of an operating rail corridor to the state of Florida.Various other costs increased $6 million.
Casualty and freight loss expenses decreased $18 million primarily due to improved safety that lowered personal injury claim trends and accident rates.
Offsetting these decreases:
◦Volume-related expenses increased $8 million due to terminal-related costs associated with the growth of intermodal, export coal and automotive businesses.
◦Inflation and other related expenses increased $3 million.

Fuel expense decreased$15 millionremained flat primarily due toas volume and efficiency partially offset by a 1%the 3% increase in the average price per gallon for locomotive fuel.

Depreciation expense increased $1713 million due to a larger asset base.

Consolidated Results of Operations

Interest Expense
Interest expense increased$3 million to $147 million primarily due to higher average debt balances during first quarter 2013 partially offset by lower average interest rates.

Other (Expense) Income - Net

Other income-net decreased$7 million to $(3) million primarily due to higher non-operating expenses.

Income Tax Expense

Income tax expense decreased$1 million to $266 million primarily due the extension of certain prior year tax credits partially offset by higher earnings.

Net Earnings

Net earnings increased$10 million to $459 million and earnings per diluted share increased$0.02 to $0.45 due to the factors mentioned above. Lower average shares outstanding also had a positive impact on earnings per diluted share.



















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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS


Consolidated Results of Operations

Interest Expense
Interest expense of $138 million was flat primarily due to higher average debt balances offset by lower interest rates.

Other Income - Net

Other income-net decreased$1 million to $5 million primarily due to higher non-operating expenses partially offset by higher real estate sales.

Income Tax Expense

Income tax expense decreased$16 million to $266 million primarily due to lower earnings in third quarter 2012.

Net Earnings

Net earnings decreased$9 million to $455 million driven by the after-tax impact of business results as discussed above. Earnings per diluted share increased$0.01 to $0.44 as the decrease in business results were offset by lower outstanding shares in the quarter versus a year ago.





























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AND RESULTS OF OPERATIONS


Volume and Revenue (Unaudited)
Volume (Thousands of units); Revenue (Dollars in millions); Revenue Per Unit (Dollars)
Nine Months
      
 Volume Revenue Revenue Per Unit
 20122011% Change 20122011% Change 20122011% Change
Agricultural           
Agricultural Products297
314
(5)% $756
$767
(1)% $2,545
$2,443
4%
Phosphates and Fertilizers239
243
(2) 379
373
2
 1,586
1,535
3
Food and Consumer75
76
(1) 202
197
3
 2,693
2,592
4
Industrial
   
      
Chemicals355
352
1
 1,269
1,214
5
 3,575
3,449
4
Automotive316
262
21
 853
673
27
 2,699
2,569
5
Metals203
201
1
 489
461
6
 2,409
2,294
5
Housing and Construction
   
      
Emerging Markets304
328
(7) 500
504
(1) 1,645
1,537
7
Forest Products217
212
2
 547
514
6
 2,521
2,425
4
Total Merchandise2,006
1,988
1
 4,995
4,703
6
 2,490
2,366
5
            
Coal985
1,159
(15) 2,443
2,794
(13) 2,480
2,411
3
            
Intermodal (a)
1,851
1,710
8
 1,196
1,059
13
 646
619
4
            
Other—
—
—
 238
236
1
 —
—
—
            
Total4,842
4,857
— % $8,872
$8,792
1 % $1,832
$1,810
1%
(a) 2011 intermodal revenue has been reduced by $18 million for the nine months ended September 30, 2011 from what was previously reported to correct for certain interline business and the corresponding intermodal revenue per unit has been reduced for this as well. The offsetting adjustment is presented in other revenue.

Nine Months Results of Operations

Consolidated Results of Operations

Revenue
Revenue increased$80 million to $8,872 million as strong intermodal and automotive volume growth and strong pricing more than offset the volume declines in coal.

Operating Income
Operating income increased$76 million to $2,653 million primarily due to higher revenue as described above as well as the continued recognition of a deferred gain, lower incentive compensation, and productivity gains. These increases were partially offset by higher inflation and depreciation costs.

Interest Expense
Interest expense increased$9 million to $421 million primarily due to higher average debt balances partially offset by lower interest rates.

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AND RESULTS OF OPERATIONS


Other Income - Net

Other income-net increased$3 million to $14 million primarily due to higher real estate activity.

Income Tax Expense

Income tax expense increased$19 million to $830 million primarily due to higher earnings in 2012.

Net Earnings

Net earnings increased$51 million to $1,416 million and earnings per diluted share increased$0.12 to $1.36 driven by the after-tax impact of business results as discussed above. Earnings per diluted share was also impacted by lower shares outstanding versus a year ago.


LIQUIDITY AND CAPITAL RESOURCES

The following are material changes in the consolidated balance sheets and sources of liquidity and capital, which provide an update to the discussion included in CSX's most recent annual report on Form 10-K.

Material Changes in Consolidated Balance Sheets and Significant Cash Flows

Consolidated Balance Sheets

Total assets increased $45715 million from year end primarily driven bydue to the increase in net properties of $958$238 million resulting from capital spending as well as the increase in other current assets. These increases were partially offset by netthe decline in cash outflows (including short-term investment activity) of $578$299 million.
    
Total liabilities and shareholders' equity combined increased $45715 million from year end. This increase was mostly due to growth in retainednet earnings of $523$459 million from net earnings partially offset by share repurchases and dividends paid. Additionally, deferred income tax liabilities increased $417 million resulting from the net impactincreases in current taxes payable of bonus depreciation.$121 million. Partially offsetting these increases was a pension plan contributionwere debt repayments of $275$413 million as well as incentive compensation paymentsdividends paid of $121$143 million.

Significant Cash Flows

Cash and cash equivalents decreased $90$79 million during the ninethree months ended 20122013 versus the decrease of $712$156 million for the same period in the prior year primarily due to the following items:

LowerNo debt issued versus $300 million in the prior year

No share repurchases of approximately $1.1 billionversus $300 million in the prior year

No pension plan contribution versus $275 million in the prior year

Higher proceeds from net salespurchases of short-term investments of $443$140 million

Higher capital expendituresdividends paid of $394$18 million
Pension plan contribution of $275 million
Higher debt repayments of $186 million (net of debt issued)



    

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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS


Planned capital investments for 20122013 are $2.25 billion.$2.3 billion, including expected spending of approximately $325 million for Positive Train Control ("PTC"). This amount excludes investments related to partially or wholly reimbursable public-private partnerships where reimbursements may not be fully received in a given year. Over half of the 2013 investment will be used to sustain the core infrastructure. The remaining amounts will be allocated to locomotives, freight cars, high return projects that drive growth and productivity such as intermodal terminal capacity and major track expansion along the River Line between northern New Jersey and the Albany, N.Y., region. CSX intends to fund capital investments through cash generated from operations.  Also,

Over the long term, the Company expects to incur significant capital costs in connection with the implementation of Positive Train Control ("PTC").PTC. CSX now estimates that the total multi-year cost of PTC implementation will be at least $1.7 billion. This estimate includes costs for installing the new system along tracks, upgrading locomotives, adding communication equipment and developing new technologies. Total PTC spending life-to-date through September 2012March 2013 was approximately $500$643 million.

Liquidity and Working Capital

As of the end of first quarter nine months 20122013, CSX had $7281,072 million of cash, cash equivalents and short-term investments. CSX has a $1 billion unsecured revolving credit facility backed by a diverse syndicate of banks. This facility expires in September 2016 and as of the date of this filing, the Company has no outstanding balances under this facility. CSX uses current cash balances for general corporate purposes, which may include reduction or refinancing of outstanding indebtedness, capital expenditures, working capital requirements, improvements in productivity, dividendscontributions to shareholders, debt repaymentsthe Company's qualified pension plan, redemptions and repurchases of CSX common stock.stock and dividends to shareholders. See Note 7, Debt and Credit Agreements.

The Company's $250 million receivables securitization facility has a 364-day term and expires in JuneDecember 2013. The Company's intention is to continue to renew this facility prior to its expiration. The purpose of this facility is to provide an alternative to commercial paper and a low cost source of short-term liquidity. As of the date of this filing, the Company has no outstanding balances under this facility.

Working capital can also be considered a measure of a company's ability to meet its short-term needs. CSX had a working capital deficitsurplus of $62893 million and $174 million as of September 2012March 2013 and a working capital surplus of $248 million as of December 20112012., respectively. This decline since year end is primarily due to cash used for property additions, share repurchases, pension plan contributionscapital investments and dividend paymentslong-term debt repaid which more than offset cash from operations. A working capital deficit is not unusual for CSX or other companies in the industry and does not indicate a lack of liquidity.

The Company's working capital balance varies due to factors such as the timing of scheduled debt payments and changes in cash and cash equivalent balances as discussed above. The Company continues to maintain adequate current assets to satisfy current liabilities and maturing obligations when they come due. Furthermore, CSX has sufficient financial capacity, including its revolving credit facility, trade receivable facility and shelf registration statement to manage its day-to-day cash requirements and any anticipated obligations. The Company from time to time accesses the credit markets for additional liquidity.    





















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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS


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 certain revenues and expenses during the reporting period. Actual results may differ from those estimates. These estimates and assumptions are discussed with the Audit Committee of the Board of Directors on a regular basis. Consistent with the prior year, significant estimates using management judgment are made for the following areas:
 
casualty, environmental and otherlegal reserves;
pension and post-retirement medical plan accounting;
depreciation policies for assets under the group-life method; and
income taxes.

For further discussion of CSX's critical accounting estimates, see the Company's most recent annual report on Form 10-K.


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. The Company intends for all such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and the provisions of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These forward-looking statements within the meaning of the Private Securities Litigation Reform Act may contain, among others, statements regarding:
projections and estimates of earnings, revenues, margins, volumes, rates, cost-savings, expenses, taxes or other financial items;
expectations as to results of operations and operational initiatives;
expectations as to the effect of claims, lawsuits, environmental costs, commitments, contingent liabilities, labor negotiations or agreements on the Company's financial condition, results of operations or liquidity;
management's plans, strategies and objectives for future operations, capital expenditures, dividends, share repurchases, safety and service performance, proposed new services and other matters that are not historical facts, and management's 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 and their effect on the Company's financial condition, results of operations or liquidity.
    

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Forward-looking statements are typically identified by words or phrases such as "will," "should," “believe,” “expect,” “anticipate,” “project,” “estimate,” “preliminary” 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 timing when, 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 any 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 in Part II, Item 1A (Risk Factors) of CSX's most recent annual report on Form 10-K and elsewhere in this report, may cause actual results to differ materially from those contemplated by any forward-looking statements:

legislative, regulatory or legal developments involving transportation, including rail or intermodal transportation, the environment, hazardous materials, taxation, and initiatives to further regulate the rail industry;
the outcome of litigation, claims and claims,other contingent liabilities, including, but not limited to, those related to fuel surcharge, environmental matters, taxes, shipper and rate claims subject to adjudication, personal injuries and occupational illnesses;
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) and the level of demand for products carried by CSXT;
natural events such as severe weather conditions, including floods, fire, hurricanes and earthquakes, a pandemic crisis affecting the health of the Company's employees, its shippers or the consumers of goods, or other unforeseen disruptions of the Company's operations, systems, property or equipment;
competition from other modes of freight transportation, such as trucking and competition and consolidation within the transportation industry generally;
the cost of compliance with laws and regulations that differ from expectations (including those associated with Positive Train Control implementation) and costs, penalties and operational impacts associated with noncompliance with applicable laws or regulations;
the impact of increased passenger activities in capacity-constrained areas, including potential effects of high speed rail initiatives, or regulatory changes affecting when CSXT can transport freight or service routes;
unanticipated conditions in the financial markets that may affect timely access to capital markets and the cost of capital, as well as management's decisions regarding share repurchases;
changes in fuel prices, surcharges for fuel and the availability of fuel;
the impact of natural gas prices on coal-fired electricity generation;

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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
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the impact of natural gas prices on coal-fired electricity generation;
availability of insurance coverage at commercially reasonable rates or insufficient insurance coverage to cover claims or damages;
the inherent business risks associated with safety and security, including a cybersecurity attack which would threaten the availability and vulnerability of information technology, adverse economic or operational effects from actual or threatened war or terrorist activities and any governmental response;
labor and benefit costs and labor difficulties, including stoppages affecting either the Company's operations or customers' ability to deliver goods to the Company for shipment;
the Company's success in implementing its strategic, financial and operational initiatives;
changes in operating conditions and costs or commodity concentrations; and
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 elsewhere in this report and in CSX's other SEC reports, which are accessible on the SEC's website at www.sec.gov and the Company's website at www.csx.com. The information on the CSX website is not part of this quarterly report on Form 10-Q.

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PART I

Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

There have been no material changes in market risk from the information provided under Part II, Item 7A (Quantitative and Qualitative Disclosures about Market Risk) of CSX's most recent annual report on Form 10-K.

Item 4. CONTROLS AND PROCEDURES

As of September 28, 2012March 29, 2013, under the supervision and with the participation of CSX's Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), management has evaluated the effectiveness of the design and operation of the Company's disclosure controls and procedures. Based on that evaluation, the CEO and CFO concluded that, as of September 28, 2012March 29, 2013, the Company's disclosure controls and procedures were effective at the reasonable assurance level in timely alerting them to material information required to be included in CSX's periodic SEC reports. There were no changes in the Company's internal controls over financial reporting during the thirdfirst quarter of 20122013 that have materially affected or are reasonably likely to materially affect the Company's internal control over financial reporting.















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PART II - OTHER INFORMATION

Item 1. Legal Proceedings

Fuel Surcharge Antitrust Litigation

For further details, please refer to Note 5. Commitments and Contingencies of this quarterly report on Form 10-Q.
        

Item 1A. RISK FACTORSRisk Factors

For information regarding factors that could affect the Company's results of operations, financial condition and liquidity, see the risk factors discussed under Part II, Item 7 (Management's Discussion and Analysis of Financial Condition and Results of Operations) of CSX's most recent annual report on Form 10-K. See also Part I, Item 2 (Forward-Looking Statements) of this quarterly report on Form 10-Q. There have been no material changes from the risk factors previously disclosed in CSX's most recent annual report on Form 10-K.



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PART II



Item 2. CSX Purchases of Equity Securities

CSX is required to disclose any purchases of its own common stock for the most recent quarter. CSX purchases its own shares for two primary reasons: to further its goals under its share repurchase program and to fund the Company’s contribution required to be paid in CSX common stock under a 401(k) plan which covers certain union employees.None     
In May 2011, CSX announced a new $2 billion share repurchase program. Under this program, the Company may purchase shares from time to time on the open market, through block trades or otherwise. CSX expects to complete these repurchases by the end of 2012 based on market and business conditions.
Share repurchase activity of $200 million for the third quarter 2012 was as follows:
 
 CSX Purchases of Equity Securities
for the Quarter
 
     
Third Quarter (a)
Total Number of Shares PurchasedAverage Price Paid per ShareTotal Number of Shares Purchased as Part of Publicly Announced Plans or ProgramsApproximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs
     
Beginning Balance   $433,742,153
     
July—
$—
—
433,742,153
     
August4,100,000
22.81
4,100,000
340,217,384
     
September4,773,830
22.33
4,773,830
233,631,506
     
Ending Balance8,873,830
$22.55
8,873,830
$233,631,506

(a) Third quarter 2012 consisted of the following fiscal periods: July (June 30, 2012 - July 27, 2012), August (July 28, 2012 - August 24, 2012), September (August 25, 2012 - September 28, 2012).
Item 3. Defaults Upon Senior Securities

None

Item 4. Mine Safety Disclosures

Not Applicable

Item 5. Other Information
 
None


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Item 6. Exhibits

Exhibits

12.1*    Computation of Ratio of Earnings to Fixed Charges

31*     Rule 13a-14(a) Certifications

32*     Section 1350 Certifications

101*    The following financial information from CSX Corporation's Quarterly Report on Form 10-Q for the quarter ended September 28, 2012March 29, 2013 filed with the SEC on OctoberApril 16, 20122013, formatted in XBRL includes: (i) consolidated income statements for the fiscal periods ended September 28, 2012March 29, 2013 and SeptemberMarch 30, 20112012, (ii) consolidated comprehensive income statements for the fiscal periods ended March 29, 2013 and March 30, 2012, (iii) consolidated balance sheets at September 28, 2012March 29, 2013 and December 30, 201128, 2012, (iii)(iv) consolidated cash flow statements for the fiscal periods ended September 28, 2012March 29, 2013 and SeptemberMarch 30, 20112012, and (iv)(v) the notes to consolidated financial statements.

* Filed herewith








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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 thereunto duly authorized.

CSX CORPORATION
(Registrant)

By: /s/ Carolyn T. Sizemore
Carolyn T. Sizemore
Vice President and Controller
(Principal Accounting Officer)

Dated: OctoberApril 16, 20122013


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