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Nature of Operations and Significant Accounting Policies | 6 Months Ended
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Jun. 30, 2018
Organization, Consolidation and Presentation of Financial Statements [Abstract] |
Nature of Operations and Significant Accounting Policies | Nature of Operations and Significant Accounting Policies Background CSX Corporation (“CSX”), 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 links customers to railroads via trucks and terminals. After a merger on July 1, 2017 with CSX Real Property, Inc., a former wholly-owned CSX subsidiary, CSXT is now responsible for the Company's real estate sales, leasing, acquisition and management and development activities. In addition, as substantially all real estate sales, leasing, acquisition and management and development activities are focused on supporting railroad operations, all results of these activities are included in operating income beginning in 2017. Previously, the results of these activities were classified as operating or non-operating based on the nature of the activity and were not material for any periods presented. 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 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. The biggest Transflo markets are chemicals and agriculture, which include shipments of plastics and ethanol. CSX Technology and other subsidiaries provide support services for the Company. 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 quarter and six months ended June 30, 2018 and June 30, 2017;
• | Condensed consolidated comprehensive income statements for the quarter and six months ended June 30, 2018 and June 30, 2017;
• | Consolidated balance sheets at June 30, 2018 and December 31, 2017; and
• | Consolidated cash flow statements for the six months ended June 30, 2018 and June 30, 2017.
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 Through the second quarter 2017, CSX followed a 52/53 week fiscal reporting calendar with the last day of each reporting period ending on a Friday. On July 7, 2017 the Board of Directors of CSX approved a change in the fiscal reporting calendar from a 52/53 week year ending on the last Friday of December to a calendar year ending on December 31 each year, effective beginning with fiscal third quarter 2017. Related to the change in the fiscal calendar:
• | Fiscal year 2018 (January 1, 2018 through December 31, 2018) will contain 365 days, and fiscal year 2017 (December 31, 2016 through December 31, 2017) contained 366 days
• | Fiscal first quarter 2018 (January 1, 2018 through March 31, 2018) contained 90 days, and fiscal first quarter 2017 (December 31, 2016 through March 31, 2017) contained 91 days
• | Fiscal second quarter 2018 (April 1, 2018 through June 30, 2018) contained 91 days, and fiscal second quarter 2017 (April 1, 2017 through June 30, 2017) contained 91 days
This change did not materially impact the comparability of the Company’s financial results. Accordingly, the change to a calendar fiscal year was made on a prospective basis and operating results for prior periods were not adjusted. The Company was not required to file a transition report because this change was not deemed a change in fiscal year for purposes of reporting subject to Rule 13a-10 or Rule 15d-10 of the Securities Exchange Act of 1934 as the new fiscal year commenced with the end of the prior fiscal year end and within seven days of the prior fiscal year end. Except as otherwise specified, references to “second quarter(s)” or “six months” indicate CSX's fiscal periods ending June 30, 2018 and June 30, 2017, and references to "year-end" indicate the fiscal year ended December 31, 2017. New Accounting Pronouncements Pronouncements adopted in 2018 In February 2018, the FASB issued Accounting Standard Update ("ASU") Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income, which permits entities to reclassify tax effects stranded in accumulated other comprehensive income as a result of tax reform to retained earnings. Companies that elect to reclassify these amounts must reclassify stranded tax effects for all items accounted for in accumulated other comprehensive income. The Company adopted this standard update in first quarter 2018 and applied it prospectively. Adoption resulted in the reclassification of $107 million in tax effects related to employee benefit plans from accumulated other comprehensive loss, increasing retained earnings by the same amount. NOTE 1. Nature of Operations and Significant Accounting Policies, continued In March 2017, the FASB issued ASU Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost, which requires that only the service cost component of net periodic benefit costs be recorded as compensation cost in operating expense on the consolidated income statement. All other components of net periodic benefit cost (interest cost, expected return on plan assets, amortization of net loss, special termination benefits and settlement and curtailment effects) should be presented as non-operating charges on the consolidated income statement. These non-operating charges are presented as restructuring charge - non-operating, if related to prior year restructuring activities, or as other income - net as appropriate. The Company adopted the provisions of this standard during first quarter 2018 and applied them retrospectively. The retrospective impact of adoption for second quarter and six months 2017 is shown in the following table.
| Second Quarter 2017 |  | Six Months 2017
(Dollars in millions) | As Previously Reported | Reclass | As Reclassified |  | As Previously Reported | Reclass | As Reclassified
Operating Expense: |  |  |  |  |  |  |
Labor and Fringe | $ | 743 |  | $ | 8 |  | $ | 751 |  |  | $ | 1,532 |  | $ | 14 |  | $ | 1,546 |
Restructuring Charge | 122 |  | (7 | ) | 115 |  |  | 295 |  | (70 | ) | 225 |
Non-Operating Income (Expense): |  |  |  |  |  |  |
Restructuring Charge - Non-Operating | $ | — |  | $ | (7 | ) | $ | (7 | ) |  | $ | — |  | $ | (70 | ) | $ | (70 | )
Other Income - Net | 6 |  | 8 |  | 14 |  |  | 13 |  | 14 |  | 27 |
In May 2014, the FASB issued ASU Revenue from Contracts with Customers, which supersedes previous revenue recognition guidance. The new standard requires that a company recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration the company expects to receive in exchange for those goods or services. In-depth reviews of commercial contracts were completed and changes to processes and internal controls to meet the standard’s reporting and disclosure requirements were implemented. The Company adopted the guidance effective January 1, 2018 using the modified retrospective approach. The adoption did not affect the Company’s financial condition, results of operations or liquidity. Disclosures related to the nature, amount and timing of revenue and cash flows arising from contracts with customers are included in Note 11, Revenues. NOTE 1. Nature of Operations and Significant Accounting Policies, continued Pronouncements to be adopted In February 2016, the FASB issued ASU, Leases, which will require lessees to recognize most leases on their balance sheets as a right-of-use asset with a corresponding lease liability, and lessors to recognize a net lease investment. Additional qualitative and quantitative disclosures will also be required. This standard update is effective for CSX beginning with the first quarter 2019 and currently requires the use of a modified retrospective adoption approach. In March 2018, the FASB tentatively approved a new, optional transition method that would instead allow companies to adopt using a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. The Company plans to elect the cumulative-effect adjustment transition method. Changes to processes and internal controls to meet the standard’s reporting and disclosure requirements have been identified and are being implemented. Software has been implemented that will assist in the recognition of additional assets and liabilities to be included on the balance sheet related to leases currently classified as operating leases with durations greater than twelve months, with certain allowable exceptions. In addition to lease agreements, service contracts and other agreements are also being reviewed to determine if they contain an embedded lease. The Company continues to evaluate the expected impact of this standard update on disclosures, but does not anticipate any material changes to operating results or liquidity as a result of right-of-use assets and corresponding lease liabilities that will be recorded. In January 2018, the FASB issued ASU Leases - Land Easement Practical Expedient, which permits entities to forgo the evaluation of existing land easement arrangements to determine if they contain a lease as part of the adoption of the Leases ASU issued in February 2016. Accordingly, the Company’s accounting treatment of existing land easements will not change. CSX will adopt this standard update concurrently with the Leases ASU issued in February 2016. New land easement arrangements, or modifications to existing arrangements, after the adoption of the standard update will still be evaluated to determine if they meet the definition of a lease. In March 2017, the FASB issued ASU Simplifying the Test for Goodwill Impairment, which eliminates step two, the calculation of the implied fair value of goodwill, from the goodwill impairment test. Impairment will be quantified in step one of the test as the amount by which the carrying amount exceeds the fair value. This standard update is effective beginning first quarter 2020 and must be applied prospectively. The Company does not believe this standard update will have a material effect on its financial condition, results of operations or liquidity. NOTE 1. Nature of Operations and Significant Accounting Policies, continued Restructuring Charge The prior year restructuring charge includes costs related to the management workforce reduction program completed in 2017, reimbursement arrangements with MR Argent Advisor LLC (“Mantle Ridge”) and the Company’s former President and Chief Executive Officer, E. Hunter Harrison, the proration of equity awards and other advisory costs related to the leadership transition. Payments related to the 2017 restructuring charge were substantially complete as of March 31, 2018. For further details on the charge, see the Company's most recent annual report on Form 10-K. Expenses related to the management workforce reduction and other costs are shown in the following table.
| Second Quarter 2017
(Dollars in millions) | As Previously Reported |  | Operating Restructuring Charge |  | Non-Operating Restructuring Charge
Severance and Pension | $ | 13 |  |  | $ | 10 |  |  | $ | 3 |
Other Post-Retirement Benefits Curtailment | 4 |  |  | — |  |  | 4 |
Employee Equity Awards Proration and Other | 5 |  |  | 5 |  |  | — |
Subtotal Management Workforce Reduction | $ | 22 |  |  | $ | 15 |  |  | $ | 7 |
Reimbursement Arrangements | 84 |  |  | 84 |  |  | — |
Executive Equity Awards Proration | 16 |  |  | 16 |  |  | — |
Total Restructuring Charge | $ | 122 |  |  | $ | 115 |  |  | $ | 7 |
| Six Months 2017
(Dollars in millions) | As Previously Reported |  | Operating Restructuring Charge |  | Non-Operating Restructuring Charge
Severance and Pension | $ | 144 |  |  | $ | 91 |  |  | $ | 53 |
Other Post-Retirement Benefits Curtailment | 17 |  |  | — |  |  | 17 |
Employee Equity Awards Proration and Other | 16 |  |  | 16 |  |  | — |
Subtotal Management Workforce Reduction | $ | 177 |  |  | $ | 107 |  |  | $ | 70 |
Reimbursement Arrangements | 84 |  |  | 84 |  |  | — |
Executive Equity Awards Proration | 24 |  |  | 24 |  |  | — |
Advisory Fees Related to Shareholder Matters | 10 |  |  | 10 |  |  | — |
Total Restructuring Charge | $ | 295 |  |  | $ | 225 |  |  | $ | 70 |

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- Definition The entire disclosure for the organization, consolidation and basis of presentation of financial statements disclosure, and significant accounting policies of the reporting entity. May be provided in more than one note to the financial statements, as long as users are provided with an understanding of (1) the significant judgments and assumptions made by an enterprise in determining whether it must consolidate a VIE and/or disclose information about its involvement with a VIE, (2) the nature of restrictions on a consolidated VIE's assets reported by an enterprise in its statement of financial position, including the carrying amounts of such assets, (3) the nature of, and changes in, the risks associated with an enterprise's involvement with the VIE, and (4) how an enterprise's involvement with the VIE affects the enterprise's financial position, financial performance, and cash flows. Describes procedure if disclosures are provided in more than one note to the financial statements. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 205 -URI http://asc.fasb.org/topic&trid=2122149 Reference 2: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 810 -URI http://asc.fasb.org/topic&trid=2197479 Reference 3: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 235 -URI http://asc.fasb.org/topic&trid=2122369 Reference 4: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 275 -URI http://asc.fasb.org/topic&trid=2134479 + Details
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