Attached files
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 March 26, 2010
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, or a non-accelerated filer. See definition of
“accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange
Act. (check one)
Large
Accelerated Filer
(X) Accelerated
Filer
( ) Non-accelerated
Filer ( )
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
389,225,965 shares of common stock outstanding on March 26, 2010 (the latest
practicable date that is closest to the filing date).
1
CSX
CORPORATION
|
|||
FORM
10-Q
|
|||
FOR
THE QUARTERLY PERIOD ENDED MARCH 26, 2010
|
|||
Page
|
|||
PART
I.
|
FINANCIAL
INFORMATION
|
||
Item
1.
|
Financial
Statements
|
||
3
|
|||
Quarters
Ended March 26, 2010 and March 27, 2009
|
|||
4
|
|||
At
March 26, 2010 (Unaudited) and December 25, 2009
|
|||
5
|
|||
Quarters
Ended March 26, 2010 and March 27, 2009
|
|||
6
|
|||
Item
2.
|
28
|
||
Item
3.
|
40
|
||
Item
4.
|
40
|
||
PART
II.
|
OTHER
INFORMATION
|
||
Item
1.
|
40
|
||
Item
1A.
|
40
|
||
Item
2.
|
41
|
||
Item
3.
|
42
|
||
Item
4.
|
42
|
||
Item
5.
|
42
|
||
Item
6.
|
42
|
||
43
|
(Dollars
in Millions, Except Per Share Amounts)
First
Quarters
|
||||
2010
|
2009
|
|||
Revenue
|
$2,491
|
$2,247
|
||
Expense
|
||||
Labor
and Fringe
|
729
|
662
|
||
Materials,
Supplies and Other
|
453
|
477
|
||
Fuel
|
283
|
191
|
||
Depreciation
|
229
|
224
|
||
Equipment
and Other Rents
|
100
|
113
|
||
Inland
Transportation
|
63
|
58
|
||
Total
Expense
|
1,857
|
1,725
|
||
Operating
Income
|
634
|
522
|
||
Interest
Expense
|
(142)
|
(141)
|
||
Other
Income - Net (Note 8)
|
11
|
3
|
||
Earnings
From Continuing Operations
|
||||
Before
Income Taxes
|
503
|
384
|
||
Income
Tax Expense (Note 9)
|
(197)
|
(130)
|
||
Earnings
From Continuing Operations
|
306
|
254
|
||
Discontinued
Operations (Note 10)
|
-
|
(8)
|
||
Net
Earnings
|
$306
|
$246
|
||
Per
Common Share (Note 2)
|
||||
Net
Earnings Per Share, Basic
|
||||
Continuing
Operations
|
$0.78
|
$0.65
|
||
Discontinued
Operations
|
-
|
(0.02)
|
||
Net
Earnings
|
$0.78
|
$0.63
|
||
Net
Earnings Per Share, Assuming Dilution
|
||||
Continuing
Operations
|
$0.78
|
$0.64
|
||
Discontinued
Operations
|
-
|
(0.02)
|
||
Net
Earnings
|
$0.78
|
$0.62
|
||
Average
Shares Outstanding (Thousands)
|
391,079
|
391,160
|
||
Average
Shares Outstanding,
|
||||
Assuming
Dilution (Thousands)
|
394,323
|
394,101
|
||
Cash
Dividends Paid Per Common Share
|
$0.24
|
$0.22
|
See accompanying notes to consolidated
financial statements.
(Dollars
in Millions)
(Unaudited)
|
||||
March
26,
|
December
25,
|
|||
2010
|
2009
|
|||
ASSETS
|
||||
Current
Assets:
|
||||
Cash
and Cash Equivalents
|
$993
|
$1,029
|
||
Short-term
Investments
|
57
|
61
|
||
Accounts
Receivable - Net (Note 1)
|
971
|
995
|
||
Materials
and Supplies
|
218
|
203
|
||
Deferred
Income Taxes
|
184
|
158
|
||
Other
Current Assets
|
78
|
124
|
||
Total
Current Assets
|
2,501
|
2,570
|
||
Properties
|
31,276
|
31,081
|
||
Accumulated
Depreciation
|
(7,986)
|
(7,868)
|
||
Properties
- Net
|
23,290
|
23,213
|
||
Investment
in Conrail
|
654
|
650
|
||
Affiliates
and Other Companies
|
442
|
438
|
||
Other
Long-term Assets
|
306
|
165
|
||
Total
Assets
|
$27,193
|
$27,036
|
||
LIABILITIES
AND SHAREHOLDERS' EQUITY
|
||||
Current
Liabilities:
|
||||
Accounts
Payable
|
$931
|
$967
|
||
Labor
and Fringe Benefits Payable
|
376
|
383
|
||
Casualty,
Environmental and Other Reserves (Note 4)
|
185
|
190
|
||
Current
Maturities of Long-term Debt (Note 7)
|
617
|
113
|
||
Income
and Other Taxes Payable
|
162
|
112
|
||
Other
Current Liabilities
|
117
|
100
|
||
Total
Current Liabilities
|
2,388
|
1,865
|
||
Casualty,
Environmental and Other Reserves (Note 4)
|
553
|
547
|
||
Long-term
Debt (Note 7)
|
7,372
|
7,895
|
||
Deferred
Income Taxes
|
6,668
|
6,585
|
||
Other
Long-term Liabilities
|
1,327
|
1,284
|
||
Total
Liabilities
|
18,308
|
18,176
|
||
Shareholders'
Equity:
|
||||
Common
Stock $1 Par Value
|
389
|
393
|
||
Other
Capital
|
-
|
80
|
||
Retained
Earnings
|
9,279
|
9,182
|
||
Accumulated
Other Comprehensive Loss (Note 1)
|
(798)
|
(809)
|
||
Noncontrolling
Interest
|
15
|
14
|
||
Total
Shareholders' Equity
|
8,885
|
8,860
|
||
Total
Liabilities and Shareholders' Equity
|
$27,193
|
$27,036
|
See accompanying notes to consolidated
financial statements.
(Dollars in
Millions)
First
Quarters
|
||||||
2010
|
2009
|
|||||
OPERATING
ACTIVITIES
|
||||||
Net
Earnings
|
$306
|
$246
|
||||
Adjustments
to Reconcile Net Earnings to Net Cash Provided
|
||||||
by
Operating Activities:
|
||||||
Depreciation
|
229
|
224
|
||||
Deferred
Income Taxes
|
47
|
79
|
||||
Other
Operating Activities
|
64
|
(65)
|
||||
Changes
in Operating Assets and Liabilities:
|
||||||
Accounts
Receivable
|
24
|
132
|
||||
Other
Current Assets
|
(34)
|
(76)
|
||||
Accounts
Payable
|
(26)
|
(36)
|
||||
Income
and Other Taxes Payable
|
125
|
31
|
||||
Other
Current Liabilities
|
12
|
(86)
|
||||
Net
Cash Provided by Operating Activities
|
747
|
449
|
||||
INVESTING
ACTIVITIES
|
||||||
Property
Additions (Note 1)
|
(331)
|
(309)
|
||||
Other
Investing Activities
|
18
|
37
|
||||
Net
Cash Used in Investing Activities
|
(313)
|
(272)
|
||||
FINANCING
ACTIVITIES
|
||||||
Long-term
Debt Issued (Note 7)
|
-
|
500
|
||||
Long-term
Debt Repaid (Note 7)
|
(17)
|
(26)
|
||||
Dividends
Paid
|
(93)
|
(86)
|
||||
Stock
Options Exercised (Note 3)
|
6
|
2
|
||||
Shares
Repurchased
|
(229)
|
-
|
||||
Other
Financing Activities (Note 1)
|
(137)
|
(180)
|
||||
Net
Cash (Used in) Provided by Financing Activities
|
(470)
|
210
|
||||
Net
(Decrease) Increase in Cash and Cash Equivalents
|
(36)
|
387
|
||||
CASH
AND CASH EQUIVALENTS
|
||||||
Cash
and Cash Equivalents at Beginning of Period
|
1,029
|
669
|
||||
Cash
and Cash Equivalents at End of Period
|
$993
|
$1,056
|
See
accompanying notes to consolidated financial statements.
Background
CSX
Corporation (“CSX”), and together with its subsidiaries (the “Company”), based
in Jacksonville, Florida, is one of the nation's leading transportation
suppliers. The Company’s rail and intermodal businesses provide
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. CSX Intermodal, Inc. (“Intermodal”) is a
stand-alone, integrated intermodal transportation provider linking customers to
railroads via trucks and terminals.
Other
entities
In
addition to CSXT, the rail segment includes non-railroad subsidiaries Total
Distribution Services, Inc. (“TDSI”), Transflo Terminal Services, Inc.
(“Transflo”), CSX Technology, Inc. (“CSX Technology”) and other
subsidiaries. TDSI serves the automotive industry with distribution
centers and storage locations, while Transflo provides logistical solutions for
transferring products from rail to trucks. 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
by the Company to be operating activities. Results of these
activities fluctuate with the timing of real estate sales.
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 ended March 26, 2010 and March 27,
2009;
|
·
|
Consolidated
balance sheets at March 26, 2010 and December 25, 2009;
and
|
·
|
Consolidated
cash flow statements for the quarters ended March 26, 2010 and March 27,
2009.
|
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 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 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
first fiscal quarter of 2010 and 2009 consisted of 13 weeks ending on
March 26, 2010 and March 27, 2009,
respectively.
|
·
|
Fiscal
year 2009 consisted of 52 weeks ending on December 25,
2009.
|
·
|
Please
note that fiscal year 2010 consists of 53 weeks ending on December 31,
2010.
|
Except as otherwise specified,
references to quarters indicate CSX’s fiscal periods ending March 26, 2010 and
March 27, 2009, and references to year-end indicate the fiscal year ended
December 25, 2009.
CSX reports comprehensive earnings or
loss in accordance with the Comprehensive Income Topic in
the Accounting Standards Codification (“ASC”) in the Consolidated Statement of
Changes in Shareholders' Equity. 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 related tax effects and were $318
million and $246 million for first quarters 2010 and 2009,
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 adjustments. Overall equity was reduced by
$798 million and $809 million as of March 2010 and December 2009, respectively,
primarily as a result of normal quarterly pension reclassifications. In general, for CSX, AOCI
is not materially impacted by other items.
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, public project receivables (work done by the Company on
behalf of a government agency), 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 $47 million is included
in the consolidated balance sheets as of March 2010 and December
2009.
Capital
Expenditures
Property
additions, which are classified as investing activities on the consolidated cash
flow statements, consisted of $331 million and $309 million for first quarters
2010 and 2009, respectively. Total capital expenditures for 2009 included
purchases of new assets using seller financing of approximately $160 million,
for which payments are included in other financing activities on the
consolidated cash flow statements. There were no purchases of new
assets under seller financing agreements during first quarter
2010. The Company plans to spend $1.7 billion for total capital
expenditures in 2010.
Retained
Earnings
During first
quarter 2010, CSX's other capital balance was reduced to zero as a result of
share repurchases. In accordance with the Equity Topic in the ASC, other capital cannot be
negative. Therefore, a reclassification of $116 million was made
between retained earnings and other capital to bring the other capital balance
to zero. Generally, retained earnings is only impacted by net earnings and
dividends.
Other
Items
Dividend
Increase
On February 10, 2010, CSX announced a 9 percent increase to its quarterly
cash dividend to 24 cents per share payable on March 15, 2010 to shareholders of
record on February 26, 2010. With this dividend increase, CSX more
than tripled its quarterly dividend since the end of 2005.
Subsequent
Event – Share Repurchases
In first
quarter 2010, CSX completed $229 million of share repurchases. Subsequent
to the end of first quarter, through the date of this filing, the Company
completed an additional $34 million of share repurchases pursuant to the
outstanding Board authority. Since March 2008, CSX has completed $1.5
billion in share repurchases and has remaining authority of $1.5 billion.
Future share repurchases will be based on market and business
conditions.
The following table sets forth the
computation of basic earnings per share and earnings per share, assuming
dilution:
First
Quarters
|
|||
2010
|
2009
|
||
Numerator
(Dollars in
millions):
|
|||
Earnings
from Continuing Operations
|
$306
|
$254
|
|
Discontinued
Operations - Net of Tax (a)
|
-
|
(8)
|
|
Net
Earnings
|
306
|
246
|
|
Denominator
(Units in
thousands):
|
|||
Average
Common Shares Outstanding
|
391,079
|
391,160
|
|
Convertible
Debt
|
1,042
|
1,118
|
|
Stock
Option Common Stock Equivalents (b)
|
2,131
|
1,823
|
|
Other
Potentially Dilutive Common Shares
|
71
|
-
|
|
Average
Common Shares Outstanding, Assuming Dilution
|
394,323
|
394,101
|
|
Net
Earnings Per Share, Basic:
|
|||
Continuing
Operations
|
$0.78
|
$0.65
|
|
Discontinued
Operations (a)
|
-
|
(0.02)
|
|
Net
Earnings
|
$0.78
|
$0.63
|
|
Net
Earnings Per Share, Assuming Dilution:
|
|||
Continuing
Operations
|
$0.78
|
$0.64
|
|
Discontinued
Operations (a)
|
-
|
(0.02)
|
|
Net
Earnings
|
$0.78
|
$0.62
|
(a)
|
For
additional information regarding discontinued operations, see Note 10,
Discontinued Operations.
|
(b)
|
When calculating diluted
earnings per share for stock option common stock equivalents, 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.
|
NOTE 2. Earnings Per Share, continued
Basic earnings per share is based on
the weighted-average number of shares of common stock
outstanding. Earnings per share, assuming dilution, is based on the
weighted-average number of shares of common stock 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.
|
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 represents the number of shares that would be issued
if all of CSX’s outstanding convertible debentures were converted into CSX
common stock.
As a result, 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.
During first quarter 2010, $3 million of face value of convertible debentures
were converted into 95 thousand shares of CSX common stock. There
were no conversions of convertible debentures during first quarter
2009. As of March 2010, approximately $28 million of convertible
debentures at face value remained outstanding, which are convertible into
approximately 1 million shares of CSX common stock.
CSX
share-based compensation plans primarily include performance grants, restricted
stock awards, stock options and stock plans for directors. CSX has
not granted stock options since 2003. Awards granted under the
various plans 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 expense associated with share-based compensation and its related income
tax benefit is as follows:
First
Quarters
|
||
(Dollars
in millions)
|
2010
|
2009
|
Share-Based
Compensation Expense (a)
|
$23
|
$(8)
|
Income
Tax Benefit / (Expense)
|
9
|
(3)
|
(a)
Share-based compensation expense may fluctuate with estimates of the
number of performance-based awards that are expected to be awarded in
future periods.
|
NOTE 3. Share-Based Compensation,
continued
The following table provides
information about stock options exercised.
First
Quarters
|
||
(In
thousands)
|
2010
|
2009
|
Number
of Stock Options Exercised
|
359
|
74
|
As of
December 2009, all outstanding options are vested and therefore, there will be
no future expense related to these options. As of March 2010, CSX had
approximately 5 million stock options outstanding. However, the impact of
options to diluted earnings per share is much smaller (see footnote b to the
table in Note 2, Earnings Per Share for more information).
Casualty, environmental and other
reserves were determined to be critical accounting estimates due to the need for
significant management judgments. They are provided for in the consolidated
balance sheets as follows:
March
2010
|
December
25, 2009
|
|||||||
(Dollars
in millions)
|
Current
|
Long-term
|
Total
|
Current
|
Long-term
|
Total
|
||
Casualty:
|
||||||||
Personal
Injury
|
$78
|
$220
|
$298
|
$85
|
$215
|
$300
|
||
Occupational
|
28
|
132
|
160
|
27
|
132
|
159
|
||
Total
Casualty
|
106
|
352
|
458
|
112
|
347
|
459
|
||
Separation
|
15
|
54
|
69
|
16
|
57
|
73
|
||
Environmental
|
37
|
60
|
97
|
37
|
60
|
97
|
||
Other
|
27
|
87
|
114
|
25
|
83
|
108
|
||
Total
|
$185
|
$553
|
$738
|
$190
|
$547
|
$737
|
Details
with respect to each type of reserve are described below. Actual
settlements and claims received could differ. The final outcome of
these matters cannot be predicted with certainty. Considering the
legal defenses available, the liabilities that have been recorded and other
factors, it is the opinion of management that none of these items, 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
financial condition, results of operations or liquidity in that particular
period.
NOTE 4. Casualty, Environmental and Other
Reserves, continued
Casualty
Casualty
reserves represent accruals for personal injury and occupational injury
claims. Currently, no individual claim is expected to exceed the
Company’s self-insured retention amount of $25 million per injury. 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. 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 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, employees of other CSX subsidiaries or former 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 and cases. An analysis is performed by the
independent actuarial firm semi-annually and is reviewed by management. The
methodology used by the actuary includes a development factor to reflect growth
or reduction in the value of these personal injury claims. It is based largely
on CSXT’s historical claims and settlement experience. Actual results
may vary from estimates due to the number, type and severity of the injury,
costs of medical treatments and uncertainties in litigation.
Occupational
claims arise from allegations of exposure to certain materials in the workplace,
such as asbestos, solvents (which include soaps and chemicals) and diesel fuels
or allegations of chronic physical injuries resulting from work conditions, such
as repetitive stress injuries, carpal tunnel syndrome and hearing
loss.
An
analysis of occupational claims is performed semi-annually by an independent
third party and reviewed by management. The methodology used includes
an estimate of future anticipated incurred but not reported claims based on the
Company’s trends in average historical claim filing rates, future anticipated
dismissal rates and settlement rates. Actual claims may vary from
estimates due to the number, type and severity of the injury, costs of medical
treatments and uncertainties in litigation.
NOTE 4. Casualty, Environmental and Other
Reserves, continued
Separation
Separation
liabilities provide for the estimated benefits provided to certain union
employees as a result of implementing workforce reductions, improvements in
productivity and certain other cost reductions at the Company's major
transportation units since 1991. These liabilities are expected to be paid out
over the next 10 to 15 years from general corporate funds and may fluctuate
depending on the timing of payments and associated taxes.
Environmental
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 251 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 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.
|
NOTE 4. Casualty, Environmental and Other
Reserves, continued
Based on
the review process, the Company has recorded amounts to cover anticipated
contingent 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. Environmental remediation costs are included in materials,
supplies and other on the consolidated income statement.
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 exposure, the amount
and materiality of which cannot presently be reliably
estimated. Based upon information currently available, however, the
Company believes its environmental reserves are adequate to fund remedial
actions to comply with present laws and regulations, and that the ultimate
liability for these matters, if any, will not materially affect its overall
financial condition, results of operations or liquidity.
Other
Other reserves include
liabilities for various claims, such as longshoremen disability claims primarily
associated with former subsidiaries’ activities, freight claims and claims for
property, automobile and general liability. These liabilities are
accrued at the estimable and probable amount in accordance with the Contingencies Topic in the
ASC.
Insurance
The Company maintains numerous
insurance programs with substantial limits for third-party casualty liability
and Company property damage and business interruption. A certain
amount of risk is retained by the Company on each of the casualty and property
programs. For the first event in any given year, the Company has a $25
million deductible for each of the casualty and non-catastrophic property
programs and a $50 million deductible for the catastrophic property
program.
While the Company’s 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.
NOTE 5. Commitments and Contingencies,
continued
Guarantees
CSX and certain of its subsidiaries are
contingently liable, individually and jointly with others, as guarantors of
approximately $41 million in obligations principally relating to leased
equipment, vessels and joint facilities used by the Company in its current and
former business operations. Utilizing the Company’s guarantee for
these obligations allows the obligor to take advantage of lower interest rates
and to obtain other favorable terms. Guarantees are contingent
commitments issued by the Company that could require CSX or one of its
affiliates to make payment to, or to perform certain actions for, the
beneficiary of the guarantee based on another entity’s failure to
perform.
At March
2010, the Company’s guarantees primarily related to the following:
·
|
Guarantee
of approximately $37 million of obligations of a former subsidiary, CSX
Energy, in connection with a sale-leaseback transaction. CSX is, in
turn, indemnified by several subsequent owners of the subsidiary against
payments made with respect to this guarantee. Management does not
expect that CSX will be required to make any payments under this guarantee
for which CSX will not be reimbursed. CSX’s obligation for this guarantee
will be completed in 2012.
|
·
|
Guarantee
of approximately $4 million of lease commitments assumed by A.P.
Moller-Maersk (“Maersk”) for which CSX is contingently liable. CSX
believes Maersk will fulfill its contractual commitments with respect to
such lease commitments, and CSX will have no further liabilities for those
obligations. CSX’s obligation under this guarantee will be
completed in 2011.
|
As of
March 2010, the Company had not recognized any liabilities in its financial
statements in connection with any guarantee arrangements. The maximum
amount of future payments the Company could be required to make under these
guarantees is the sum of the guaranteed amounts.
For
information related to CSX’s guarantee of CSXT’s secured equipment notes, see
Note 13, Summarized Consolidating Financial Data.
Legal
Proceedings
There
were no material developments during the quarter concerning the fuel surcharge
antitrust litigation or the Seminole Electric Cooperative, Inc. rate
case. For further details, see Note 7, Commitments and Contingencies,
in CSX’s most recent Annual Report on Form 10-K.
NOTE 5. Commitments and Contingencies,
continued
In addition to the matters referenced
above, 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
environmental matters, FELA claims by employees, other personal injury claims
and disputes and complaints involving certain transportation rates and
charges. Some of the legal proceedings include claims for
compensatory as well as punitive damages and others are, or are purported to be,
class actions. While the final outcome of these matters cannot be
predicted with certainty, 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
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 a
particular quarter or fiscal year.
The
Company sponsors defined benefit pension plans principally for salaried,
management personnel. The plans provide eligible employees with
retirement benefits based predominantly on years of service and compensation
rates near retirement. For employees hired after December 31, 2002,
benefits are determined based on a cash balance formula, which provides benefits
by utilizing interest and pays credits based upon age, service and
compensation.
In
addition to these plans, the Company sponsors a post-retirement medical plan and
a life insurance plan that provide benefits to full-time, salaried, management
employees hired on or before December 31, 2002 upon their retirement if certain
eligibility requirements are met. The post-retirement medical plan is
contributory (partially funded by retirees), with retiree contributions adjusted
annually. The life insurance plan is non-contributory.
The
Company engages independent, external actuaries to compute the amounts of
liabilities and expenses relating to these plans subject to the assumptions that
the Company selects. The following table describes the components of
expense/(income) related to net periodic benefit cost:
Pension
Benefits
|
Other
Post-retirement Benefits
|
|||||
(Dollars
in millions)
|
First
Quarters
|
First
Quarters
|
||||
2010
|
2009
|
2010
|
2009
|
|||
Service
Cost
|
$10
|
$8
|
$1
|
$1
|
||
Interest
Cost
|
31
|
32
|
5
|
6
|
||
Expected
Return on Plan Assets
|
(41)
|
(37)
|
-
|
-
|
||
Amortization
of Prior Service Cost
|
1
|
1
|
-
|
-
|
||
Amortization
of Net Loss
|
15
|
7
|
2
|
1
|
||
Net
Periodic Benefit Cost
|
$16
|
$11
|
$8
|
$8
|
NOTE 6. Employee Benefit Plans, continued
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. The Company made pension plan contributions of $250 million
to its qualified defined benefit pension plans in 2009. At the
current time, the Company anticipates that no contributions to its qualified
pension plans will be required in 2010. For further details, see Note
8, Employee Benefit Plans, in CSX’s most recent Annual Report on Form
10-K.
NOTE
7. Debt and Credit Agreements
Total
activity related to long-term debt as of March 2010 was as follows:
(Dollars
in millions)
|
Current
Portion
|
Long-term
Portion
|
Total
Long-term Debt Activity
|
Total
long-term debt at December 2009
|
$113
|
$7,895
|
$8,008
|
2010
activity:
|
|||
Issued
|
-
|
-
|
-
|
Repaid
|
(17)
|
-
|
(17)
|
Reclassifications
|
523
|
(523)
|
-
|
Converted
into CSX stock
|
(2)
|
-
|
(2)
|
Total
long-term debt at March 2010
|
$617
|
$7,372
|
$7,989
|
Debt
Exchange
On
March 24, 2010, CSX exchanged $660 million of notes (the “Existing Notes”),
bearing interest at an average rate of 7.74% with maturities ranging from 2017
to 2038. These Existing Notes were exchanged for $660 million of debt
securities (the “New Notes”) bearing interest at 6.22% and due April 30,
2040. In addition, CSX paid approximately $141 million to the
debtholders as cash consideration. CSX also paid the debtholders any
accrued and unpaid interest on the Existing Notes. In accordance with
the Debt
Topic in the ASC, this transaction has been accounted for as a debt
exchange. As such, the $141 million of cash consideration paid to the
debtholders is included in other long-term assets. This cash
consideration and the unamortized discount and issue costs from the Existing
Notes will be amortized as an adjustment of interest expense over the term of
the New Notes. There were no gain or loss recognized as a result of
this exchange. However, all costs related to the debt exchange and
due to parties other than the debtholders, were included in interest expense
during the quarter. These costs totaled approximately $3
million.
Pursuant
to a registration rights agreement entered into in connection with the exchange
offer, CSX has agreed to offer to exchange the New Notes for notes registered
under the Securities Act of 1933, as amended. If CSX fails to satisfy
this obligation under the registration rights agreement within the specified
time periods, it will be required to pay additional interest to holders of the
New Notes.
NOTE 7. Debt
and Credit Agreements, continued
For
fair value information related to the Company’s long-term debt, see Note 11,
Fair Value Measurements.
Revolving
Credit Facility
CSX
has a $1.25 billion unsecured revolving credit facility with a syndicate of
banks. The facility allows borrowings at floating rates based on the London
interbank offered rate ("LIBOR"), plus a spread, depending upon CSX’s
senior unsecured debt ratings. The facility requires CSX to
maintain a ratio of total debt to total capitalization below a prescribed
limit. The facility does not require CSX to post collateral under any
circumstances. As of March 2010, this facility was not drawn on, and CSX
was in compliance with all covenant requirements under the
facility. This facility expires in 2012.
Receivables
Securitization Facility
In
2009, the Company entered into a $250 million receivables securitization
facility. The purpose of this facility is to provide an alternative
to commercial paper and a low cost source of short-term liquidity. This facility
has a 364-day term and expires on September 27, 2010. As of the date
of this filing, the Company has not drawn on this facility. Under the
terms of this facility, CSX Transportation and CSX Intermodal transfer eligible
third-party receivables to CSX Trade Receivables, a bankruptcy-remote special
purpose subsidiary. A separate subsidiary of CSX will service the
receivables. Upon transfer, the receivables become assets of CSX
Trade Receivables and are not available to the creditors of CSX or any of its
other subsidiaries. In the event CSX Trade Receivables draws under this
facility, the Company will record an equivalent amount of debt on its
consolidated financial statements.
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. Miscellaneous income (expense) includes equity earnings or
losses, investment gains and losses and other non-operating
activities. Other income – net consisted of the
following:
First
Quarters
|
|||
(Dollars
in Millions)
|
2010
|
2009
|
|
Interest
Income
|
$1
|
$4
|
|
Income
from Real Estate
|
7
|
1
|
|
Miscellaneous
Income (Expense)
|
3
|
(2)
|
|
Total
Other Income - Net
|
$11
|
$3
|
NOTE
9. Income Taxes
During
the first quarter of 2010, the Patient Protection and Affordable Care Act was
enacted and signed into law. This Act included a provision
eliminating the tax deductibility of retiree health care costs to the extent of
federal subsidies received by plan sponsors that provide retiree prescription
drug benefits equivalent to Medicare Part D coverage. As a result of
this legislation and the Health Care and Education Reconciliation Act of 2010,
the Company recorded tax expense of $7 million.
During
the first quarter of 2009, as a result of the expiration of statutes of
limitations and the resolution of other income tax matters the Company recorded
an income tax benefit of $13 million.
There
have been no material changes to the balance of unrecognized tax benefits as
reported at December 2009.
NOTE
10. Discontinued
Operations
The
Greenbrier
In the
second quarter of 2009, CSX sold the stock of a subsidiary that indirectly owned
Greenbrier Hotel Corporation (“GHC” or “The Greenbrier”) to Justice Family
Group, LLC (“JFG”) for approximately $21 million in cash. CSX
recognized a gain on the sale of $25 million which included a tax benefit of $3
million in the second quarter of 2009.
Previously,
all amounts associated with the operations of The Greenbrier were included in
Other Income – Net. All prior periods have been reclassified to
reflect discontinued operations. In first quarter 2009, The
Greenbrier had revenue of $7 million and pre-tax losses of $12
million. There was no activity in 2010.
NOTE
11. 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. In addition, disclosure of the fair
value of pension plan assets is only required annually.
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 may 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 are
valued by a third-party trustee, consist primarily of corporate bonds and are
carried at fair value on the consolidated balance sheet per the Fair Value
Measurements and Disclosures Topic in the ASC. Level 2 inputs were
used to determine fair value of the Company’s investment assets. The
fair value and amortized cost of these bonds are as
follows:
(Dollars
in Millions)
|
March
2010
|
December
2009
|
||||||
Fair
Value
|
$91
|
$96
|
||||||
Amortized
Cost
|
$88
|
$91
|
NOTE 11. Fair
Value Measurements, continued
Long-term
Debt
Long-term
debt is reported at carrying amount on the consolidated balance sheet 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 by an independent third party. For those instruments not
valued by the third party, the fair value has been estimated using discounted
cash flow analysis based upon the yields provided by the same independent third
party. All inputs used to determine the fair value of the Company’s
long-term debt qualify as level 2 inputs.
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, the value 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. The fair value and carrying value of the
Company’s long-term debt are as follows:
(Dollars
in Millions)
|
March
2010
|
December
2009
|
||||||
Long-term
Debt Including Current Maturities:
|
||||||||
Fair
Value
|
$8,720
|
$8,780
|
||||||
Carrying
Value
|
$7,989
|
$8,008
|
The
Company’s consolidated operating income results are comprised of two business
segments: Rail and Intermodal. The Rail segment provides rail freight
transportation over a network of approximately 21,000 route miles in 23 states,
the District of Columbia and the Canadian provinces of Ontario and Quebec. The
Intermodal segment provides integrated rail and truck transportation services
and operates a network of dedicated intermodal facilities across North
America. These segments are strategic business units that offer
different services and are managed separately. Performance of the
segment is evaluated and resources are allocated based on several factors, of
which the principal financial measures are business segment operating income and
operating ratio. The accounting policies of the segments are the same
as those described in Note 1, Nature of Operations and Significant Accounting
Policies and Note 6, Properties, in CSX’s most recent Annual Report on Form
10-K. Business segment information is as follows:
First
Quarters
|
|||||||
CSX
|
|||||||
(Dollars
in millions)
|
Rail (a)
|
Intermodal
|
Consolidated
|
||||
2010
|
2009
|
2010
|
2009
|
2010
|
2009
|
$
Change
|
|
Revenues
from External Customers
|
$2,168
|
$1,977
|
$323
|
$270
|
$2,491
|
$2,247
|
$244
|
Segment
Operating Income
|
595
|
498
|
39
|
24
|
634
|
522
|
112
|
(a)
|
In
addition to CSXT, the rail segment includes non-railroad subsidiaries
TDSI, Transflo, CSX Technology and other
subsidiaries.
|
Intermodal
entered into a new jointly-marketed domestic interline container program called
UMAX with Union Pacific Corporation. This agreement which became effective
beginning in the second quarter is expected to result in revenue loss to
Intermodal of $40 million to $50 million on a quarterly basis with a similar
reduction expected in inland transportation expense. The impact on
operating income is expected to be neutral in the near-term and positive
long-term. Additionally, financial consideration was provided that
will be amortized over the term of the agreement, which is not material to any
period.
NOTE
13. 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:
NOTE 13. Summarized Consolidating Financial
Data, continued
Consolidating
Income Statements
|
||||||
(Dollars
in Millions)
|
||||||
Quarter
Ended March 2010
|
CSX
Corporation
|
CSX
Transportation
|
Other
|
Eliminations
|
Consolidated
|
|
Operating
Revenue
|
$-
|
$2,152
|
$365
|
$(26)
|
$2,491
|
|
Operating
Expense
|
(37)
|
1,605
|
315
|
(26)
|
1,857
|
|
Operating
Income
|
$37
|
$547
|
$50
|
$-
|
$634
|
|
Equity
in Earnings of Subsidiaries
|
398
|
-
|
(36)
|
(362)
|
-
|
|
Interest
Expense
|
(126)
|
(28)
|
(6)
|
18
|
(142)
|
|
Other
Income - Net
|
6
|
18
|
5
|
(18)
|
11
|
|
Earnings
From Continuing Operations
|
||||||
Before
Income Taxes
|
$315
|
$537
|
$13
|
$(362)
|
$503
|
|
Income
Tax Benefit (Expense)
|
(9)
|
(210)
|
22
|
-
|
(197)
|
|
Earnings
From Continuing Operations
|
$306
|
$327
|
$35
|
$(362)
|
$306
|
|
Discontinued
Operations
|
-
|
-
|
-
|
-
|
-
|
|
Net
Earnings
|
$306
|
$327
|
$35
|
$(362)
|
$306
|
|
Quarter
Ended March 2009
|
CSX
Corporation
|
CSX
Transportation
|
Other
|
Eliminations
|
Consolidated
|
|
Operating
Revenue
|
$-
|
$1,960
|
$313
|
$(26)
|
$2,247
|
|
Operating
Expense
|
(79)
|
1,563
|
265
|
(24)
|
1,725
|
|
Operating
Income
|
$79
|
$397
|
$48
|
$(2)
|
$522
|
|
Equity
in Earnings of Subsidiaries
|
549
|
-
|
(294)
|
(255)
|
-
|
|
Interest
Expense
|
(124)
|
(31)
|
(1)
|
15
|
(141)
|
|
Other
Income - Net
|
8
|
6
|
2
|
(13)
|
3
|
|
Earnings
From Continuing Operations
|
||||||
Before
Income Taxes
|
$512
|
$372
|
$(245)
|
$(255)
|
$384
|
|
Income
Tax Benefit (Expense)
|
(266)
|
(140)
|
276
|
-
|
(130)
|
|
Earnings
From Continuing Operations
|
$246
|
$232
|
$31
|
$(255)
|
$254
|
|
Discontinued
Operations
|
-
|
-
|
(8)
|
-
|
(8)
|
|
Net
Earnings
|
$246
|
$232
|
$23
|
$(255)
|
$246
|
NOTE 13. Summarized Consolidating Financial
Data, continued
Consolidating
Balance Sheet
|
|||||||
(Dollars
in Millions)
|
|||||||
CSX
|
CSX
|
||||||
As
of March 2010
|
Corporation
|
Transportation
|
Other
|
Eliminations
|
Consolidated
|
||
ASSETS
|
|||||||
Current
Assets
|
|||||||
Cash
and Cash Equivalents
|
$839
|
$61
|
$93
|
$-
|
$993
|
||
Short-term
Investments
|
-
|
-
|
57
|
-
|
57
|
||
Accounts
Receivable - Net
|
152
|
896
|
(77)
|
-
|
971
|
||
Materials
and Supplies
|
-
|
219
|
(1)
|
-
|
218
|
||
Deferred
Income Taxes
|
15
|
154
|
15
|
-
|
184
|
||
Other
Current Assets
|
20
|
62
|
569
|
(573)
|
78
|
||
Total
Current Assets
|
$1,026
|
$1,392
|
$656
|
$(573)
|
$2,501
|
||
Properties
|
4
|
29,916
|
1,356
|
-
|
31,276
|
||
Accumulated
Depreciation
|
(6)
|
(7,137)
|
(843)
|
-
|
(7,986)
|
||
Properties
- Net
|
$(2)
|
$22,779
|
$513
|
$-
|
$23,290
|
||
Investments
in Conrail
|
-
|
-
|
654
|
-
|
654
|
||
Affiliates
and Other Companies
|
-
|
572
|
(130)
|
-
|
442
|
||
Investments
in Consolidated Subsidiaries
|
15,700
|
-
|
47
|
(15,747)
|
-
|
||
Other
Long-term Assets
|
183
|
75
|
91
|
(43)
|
306
|
||
Total
Assets
|
$16,907
|
$24,818
|
$1,831
|
$(16,363)
|
$27,193
|
||
LIABILITIES
AND SHAREHOLDERS' EQUITY
|
|||||||
Current
Liabilities
|
|||||||
Accounts
Payable
|
$99
|
$933
|
$(101)
|
$-
|
$931
|
||
Labor
and Fringe Benefits Payable
|
34
|
314
|
28
|
-
|
376
|
||
Payable
to Affiliates
|
952
|
358
|
(774)
|
(536)
|
-
|
||
Casualty,
Environmental and Other Reserves
|
-
|
170
|
15
|
-
|
185
|
||
Current
Maturities of Long-term Debt
|
507
|
107
|
3
|
-
|
617
|
||
Income
and Other Taxes Payable
|
143
|
247
|
(228)
|
-
|
162
|
||
Other
Current Liabilities
|
2
|
107
|
44
|
(36)
|
117
|
||
Total
Current Liabilities
|
$1,737
|
$2,236
|
$(1,013)
|
$(572)
|
$2,388
|
||
Casualty,
Environmental and Other Reserves
|
-
|
451
|
102
|
-
|
553
|
||
Long-term
Debt
|
6,048
|
1,320
|
4
|
-
|
7,372
|
||
Deferred
Income Taxes
|
(317)
|
6,928
|
57
|
-
|
6,668
|
||
Long-term
Payable to Affiliates
|
-
|
-
|
44
|
(44)
|
-
|
||
Other
Long-term Liabilities
|
570
|
516
|
241
|
-
|
1,327
|
||
Total
Liabilities
|
$8,038
|
$11,451
|
$(565)
|
$(616)
|
$18,308
|
||
Shareholders'
Equity
|
|||||||
Common
Stock, $1 Par Value
|
$389
|
$181
|
$-
|
$(181)
|
$389
|
||
Other
Capital
|
-
|
5,572
|
1,968
|
(7,540)
|
-
|
||
Retained
Earnings
|
9,278
|
7,666
|
448
|
(8,113)
|
9,279
|
||
Accumulated
Other Comprehensive Loss
|
(798)
|
(75)
|
(63)
|
138
|
(798)
|
||
Noncontrolling
Interest
|
-
|
23
|
43
|
(51)
|
15
|
||
Total
Shareholders' Equity
|
$8,869
|
$13,367
|
$2,396
|
$(15,747)
|
$8,885
|
||
Total
Liabilities and Shareholders' Equity
|
$16,907
|
$24,818
|
$1,831
|
$(16,363)
|
$27,193
|
NOTE 13. Summarized Consolidating Financial
Data, continued
Consolidating
Balance Sheet
|
|||||||
(Dollars
in Millions)
|
|||||||
CSX
|
CSX
|
||||||
As
of December 2009
|
Corporation
|
Transportation
|
Other
|
Eliminations
|
Consolidated
|
||
ASSETS
|
|||||||
Current
Assets
|
|||||||
Cash
and Cash Equivalents
|
$918
|
$30
|
$81
|
$-
|
$1,029
|
||
Short-term
Investments
|
-
|
-
|
61
|
-
|
61
|
||
Accounts
Receivable - Net
|
4
|
888
|
103
|
-
|
995
|
||
Materials
and Supplies
|
-
|
203
|
-
|
-
|
203
|
||
Deferred
Income Taxes
|
13
|
137
|
8
|
-
|
158
|
||
Other
Current Assets
|
19
|
32
|
533
|
(460)
|
124
|
||
Total
Current Assets
|
$954
|
$1,290
|
$786
|
$(460)
|
$2,570
|
||
Properties
|
4
|
29,739
|
1,338
|
-
|
31,081
|
||
Accumulated
Depreciation
|
(6)
|
(7,036)
|
(826)
|
-
|
(7,868)
|
||
Properties
- Net
|
$(2)
|
$22,703
|
$512
|
-
|
$23,213
|
||
Investments
in Conrail
|
-
|
-
|
650
|
-
|
650
|
||
Affiliates
and Other Companies
|
-
|
566
|
(128)
|
-
|
438
|
||
Investments
in Consolidated Subsidiaries
|
15,474
|
-
|
47
|
(15,521)
|
-
|
||
Other
Long-term Assets
|
46
|
75
|
87
|
(43)
|
165
|
||
Total
Assets
|
$16,472
|
$24,634
|
$1,954
|
$(16,024)
|
$27,036
|
||
LIABILITIES
AND SHAREHOLDERS' EQUITY
|
|||||||
Current
Liabilities
|
|||||||
Accounts
Payable
|
$111
|
$628
|
$228
|
$-
|
$967
|
||
Labor
and Fringe Benefits Payable
|
37
|
307
|
39
|
-
|
383
|
||
Payable
to Affiliates
|
625
|
786
|
(962)
|
(449)
|
-
|
||
Casualty,
Environmental and Other Reserves
|
-
|
168
|
22
|
-
|
190
|
||
Current
Maturities of Long-term Debt
|
-
|
110
|
3
|
-
|
113
|
||
Income
and Other Taxes Payable
|
32
|
182
|
(102)
|
-
|
112
|
||
Other
Current Liabilities
|
1
|
97
|
13
|
(11)
|
100
|
||
Total
Current Liabilities
|
$806
|
$2,278
|
$(759)
|
$(460)
|
$1,865
|
||
Casualty,
Environmental and Other Reserves
|
-
|
449
|
98
|
-
|
547
|
||
Long-term
Debt
|
6,557
|
1,334
|
4
|
-
|
7,895
|
||
Deferred
Income Taxes
|
(337)
|
6,871
|
51
|
-
|
6,585
|
||
Long-term
Payable to Affiliates
|
-
|
-
|
44
|
(44)
|
-
|
||
Other
Long-term Liabilities
|
600
|
522
|
162
|
-
|
1,284
|
||
Total
Liabilities
|
$7,626
|
$11,454
|
$(400)
|
$(504)
|
$18,176
|
||
Shareholders'
Equity
|
|||||||
Common
Stock, $1 Par Value
|
$393
|
$181
|
$ -
|
$(181)
|
$393
|
||
Other
Capital
|
80
|
5,569
|
1,951
|
(7,520)
|
80
|
||
Retained
Earnings
|
9,182
|
7,485
|
415
|
(7,900)
|
9,182
|
||
Accumulated
Other Comprehensive Loss
|
(809)
|
(77)
|
(54)
|
131
|
(809)
|
||
Noncontrolling Interest
|
-
|
22
|
42
|
(50)
|
14
|
||
Total
Shareholders' Equity
|
$8,846
|
$13,180
|
$2,354
|
$(15,520)
|
$8,860
|
||
Total
Liabilities and Shareholders' Equity
|
$16,472
|
$24,634
|
$1,954
|
$(16,024)
|
$27,036
|
NOTE 13. Summarized Consolidating Financial
Data, continued
Consolidating
Cash Flow Statements
|
||||||
(Dollars
in Millions)
|
||||||
CSX
|
CSX
|
|||||
Quarter
Ended March 2010
|
Corporation
|
Transportation
|
Other
|
Eliminations
|
Consolidated
|
|
Operating
Activities
|
||||||
Net
Cash Provided by Operating Activities
|
$98
|
$597
|
$52
|
$-
|
$747
|
|
Investing
Activities
|
||||||
Property
Additions
|
$ -
|
$(311)
|
$(20)
|
$-
|
$(331)
|
|
Other
Investing Activities
|
2
|
(79)
|
7
|
88
|
18
|
|
Net
Cash Provided by (Used in) Investing Activities
|
$2
|
$(390)
|
$(13)
|
$88
|
$(313)
|
|
Financing
Activities
|
||||||
Long-term
Debt Repaid
|
$ -
|
$(16)
|
$(1)
|
$-
|
$(17)
|
|
Dividends
Paid
|
(95)
|
-
|
2
|
-
|
(93)
|
|
Stock
Options Exercised
|
6
|
-
|
-
|
-
|
6
|
|
Shares
Repurchased
|
(229)
|
-
|
-
|
-
|
(229)
|
|
Other
Financing Activities
|
139
|
(160)
|
(28)
|
(88)
|
(137)
|
|
Net
Cash Used in Financing Activities
|
$(179)
|
$(176)
|
$(27)
|
$(88)
|
$(470)
|
|
Net
Increase (Decrease) in Cash and Cash Equivalents
|
$(79)
|
$31
|
$12
|
$-
|
$(36)
|
|
Cash
and Cash Equivalents at Beginning of Period
|
918
|
30
|
81
|
-
|
1,029
|
|
Cash
and Cash Equivalents at End of Period
|
$839
|
$61
|
$93
|
$-
|
$993
|
|
CSX
|
CSX
|
|||||
Quarter
Ended March 2009
|
Corporation
|
Transportation
|
Other
|
Eliminations
|
Consolidated
|
|
Operating
Activities
|
||||||
Net
Cash Provided by (Used in) Operating Activities
|
$(162)
|
$370
|
$241
|
$-
|
$449
|
|
Investing
Activities
|
||||||
Property
Additions
|
$(1)
|
$(299)
|
$(9)
|
$-
|
$(309)
|
|
Purchases
of Short-term Investments
|
-
|
-
|
-
|
-
|
-
|
|
Proceeds
from Sales of Short-term Investments
|
-
|
-
|
-
|
-
|
-
|
|
Other
Investing Activities
|
11
|
28
|
5
|
(7)
|
37
|
|
Net
Cash Provided by (Used in) Investing Activities
|
$10
|
$(271)
|
$(4)
|
$(7)
|
$(272)
|
|
Financing
Activities
|
||||||
Long-term
Debt Issued
|
$500
|
$-
|
$-
|
$-
|
$500
|
|
Long-term
Debt Repaid
|
-
|
(25)
|
(1)
|
-
|
(26)
|
|
Dividends
Paid
|
(88)
|
-
|
2
|
-
|
(86)
|
|
Stock
Options Exercised
|
2
|
-
|
-
|
-
|
2
|
|
Shares
Repurchased
|
-
|
-
|
-
|
-
|
-
|
|
Other
Financing Activities
|
107
|
(67)
|
(227)
|
7
|
(180)
|
|
Net
Cash Provided by (Used in) Financing Activities
|
$521
|
$(92)
|
$(226)
|
$7
|
$210
|
|
Net
Increase (Decrease) in Cash and Cash Equivalents
|
$369
|
$7
|
$11
|
$-
|
$387
|
|
Cash
and Cash Equivalents at Beginning of Period
|
559
|
63
|
47
|
-
|
669
|
|
Cash
and Cash Equivalents at End of Period
|
$928
|
$70
|
$58
|
$-
|
$1,056
|
27
CSX
CORPORATION
ITEM
2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
CSX and the rail industry
provide customers with access to an expansive and interconnected transportation
network that plays a key role in North American commerce. CSX’s
network is positioned to reach more than two-thirds of Americans, who account
for about three-quarters of the nation’s consumption of
goods. Through this network, the Company transports a broad portfolio
of products, ranging from coal and new energy sources, like biodiesel and
ethanol, to automobiles, chemicals, military equipment and consumer
products.
In 2009,
the Company and the rail industry experienced significant freight rail volume
declines. During this period the Company, nonetheless, was able to
make financial and operational improvements by maintaining a focus on safety,
train operations and cost control. With these concentrated efforts,
the Company believes it is positioned to benefit from the economy as it
continues to strengthen in 2010. CSX expects to deliver strong
double-digit earnings per share growth for 2010. This expectation is
supported by strong volume and revenue growth, including export coal shipments
of about 30 million tons this year, and strong operating ratio improvement as
well.
Additionally,
the Company continues to invest in its network to further enhance safety and
improve service and reliability for its customers. The Company plans
to spend $1.7 billion for total capital expenditures in 2010, including $170
million for the implementation of a positive train control system (“PTC”) which
is discussed below. To adequately continue these 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 will be reflected in new legislation and
policy.
As an example
of the Company’s commitment to investing in its network and improving the flow
of freight, the Company launched the National Gateway, a multi-year
public-private infrastructure initiative which will significantly improve the
efficiency of the freight network between the Mid-Atlantic ports and the
Midwest. Total project costs are approximately $850 million, of which CSX
expects to contribute approximately $400 million. A portion of the public funds
needed to complete the National Gateway have been secured and CSX is working
with its state partners to apply for the additional funding needed to complete
the project. When completed, the National Gateway is expected to reduce truck
traffic and increase intermodal capacity on key corridors without increasing the
number of trains. As a result, the Company’s customers will benefit from
improved service and reliability, reduced transport times and expanded access to
rail services.
In 2008, Congress enacted the Rail Safety Improvement Act. The legislation includes a mandate that all Class I freight railroads implement PTC by December 31, 2015. PTC must be installed on all lines with passenger and commuter operations as well as all main lines over which toxic-by-inhalation hazardous materials (“TIH”) are transported. Significant capital costs are anticipated with the implementation of PTC as well as ongoing operating expenses. Currently, CSX estimates that the total multi-year cost of PTC implementation will be at least $1.2 billion for the Company.
28
CSX
CORPORATION
ITEM
2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
FIRST
QUARTER 2010 HIGHLIGHTS
·
|
Revenue
increased $244 million or 11% to $2.5 billion driven by increases in
volume and core pricing gains.
|
·
|
Expenses
increased $132 million or 8% to $1.9 billion driven by higher fuel prices
and labor-related costs.
|
·
|
Operating
income increased $112 million or 21% to $634 million and operating
ratio improved to 74.5%, a first quarter
record.
|
·
|
Employee
safety drives a record in the personal injuries frequency index of
0.81.
|
CSX first
quarter results reflect strong year-over-year volume and revenue growth as a
result of the gradual and steady growth in the economy. Revenue
increased 11% from the prior year, to nearly $2.5 billion, with gains across
most of the company’s markets. These gains were driven by a 5%
increase in volume, ongoing yield management initiatives and higher fuel
recovery associated with the increase in fuel prices.
Expenses
increased by $132 million, or 8%, versus the prior year. This increase was
driven by a rise in fuel costs due to higher fuel prices, higher incentive
compensation and labor-related inflation partially offset by lower staffing
levels.
For
additional information, refer to Rail and Intermodal Results of Operations
discussed on pages 32 through 33.
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, initiatives and
investment. For example, the Company’s safety and train accident
prevention programs rely on broad employee involvement. The programs
utilize operating rules training, compliance measurement, root cause analysis
and communication to create a safer environment for employees and the
public. Continued capital investment in Company assets, including
track, bridges, signals, equipment and detection technology also supports safety
performance.
During
first quarter 2010, the Company continued to advance its efforts on safety and
operating performance. CSXT delivered all-time record results in Federal
Railroad Administration (“FRA”) personal injuries in first quarter
2010. The FRA personal injuries index improved to 0.81, a 38%
improvement. This represents a new record for CSX, surpassing the one
established in the fourth quarter of 2009. Reported FRA train accident frequency
also improved 14% to 3.13.
29
CSX
CORPORATION
ITEM
2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Key
service metrics declined in the quarter primarily due to more challenging
weather conditions versus the prior year. On-time train originations and
arrivals both declined to 69% and 67%, respectively. Dwell time rose to
25.8 hours from 24.1 hours in same quarter of 2009. Average train
velocity declined 3% to 20.9 miles per hour. The Company strives to
sustain key operating measures and service reliability at high levels, while
increasing operational efficiency.
First
Quarters
|
||||||
2010
|
2009
|
Improvement/
(Decline)
|
%
|
|||
Safety
and
|
FRA
Personal Injuries Frequency Index
|
0.81
|
1.30
|
38
|
%
|
|
Service
|
||||||
Measurements
|
FRA
Train Accident Rate
|
3.13
|
3.62
|
14
|
%
|
|
On-Time
Train Originations
|
69%
|
83%
|
(17)
|
%
|
||
On-Time
Destination Arrivals
|
67%
|
79%
|
(15)
|
%
|
||
Dwell
|
25.8
|
24.1
|
(7)
|
%
|
||
Cars-On-Line
|
214,845
|
218,863
|
2
|
%
|
||
System
Train Velocity
|
20.9
|
21.6
|
(3)
|
%
|
||
Increase/
|
||||||
(Decrease)
|
||||||
Resources
|
Route
Miles
|
21,189
|
21,178
|
-
|
%
|
|
Locomotives
(owned and long-term leased)
|
4,067
|
4,129
|
(2)
|
%
|
||
Freight
Cars (owned and long-term leased)
|
82,452
|
90,027
|
(8)
|
%
|
Key
Performance Measures Definitions
FRA Personal Injuries
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 – Percent of scheduled road trains that depart the origin
yard on-time or ahead of schedule.
On-Time Destination
Arrivals – Percent 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).
System Train Velocity
– Average train speed between terminals in miles per hour (does not include
locals, yard jobs, work trains or passenger trains).
30
CSX
CORPORATION
ITEM
2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
FINANCIAL
RESULTS OF OPERATIONS
Results of
Operations(Unaudited)
|
|||||||||||
(Dollars
in Millions)
|
|||||||||||
First
Quarters
|
|||||||||||
CSX
|
|||||||||||
Rail
(a)
|
Intermodal
|
Consolidated
|
|||||||||
2010
|
2009
|
2010
|
2009
|
2010
|
2009
|
$
Change
|
%
Change
|
||||
Revenue
|
$2,168
|
$1,977
|
$323
|
$270
|
$2,491
|
$2,247
|
$244
|
11
|
%
|
||
Expense
|
|||||||||||
Labor
and Fringe
|
710
|
644
|
19
|
18
|
729
|
662
|
(67)
|
(10)
|
|||
Materials,
Supplies and Other
|
403
|
432
|
50
|
45
|
453
|
477
|
24
|
5
|
|||
Fuel
|
282
|
190
|
1
|
1
|
283
|
191
|
(92)
|
(48)
|
|||
Depreciation
|
223
|
218
|
6
|
6
|
229
|
224
|
(5)
|
(2)
|
|||
Equipment
and Other Rents
|
71
|
88
|
29
|
25
|
100
|
113
|
13
|
12
|
|||
Inland
Transportation
|
(116)
|
(93)
|
179
|
151
|
63
|
58
|
(5)
|
(9)
|
|||
Total
Expense
|
1,573
|
1,479
|
284
|
246
|
1,857
|
1,725
|
(132)
|
(8)
|
|||
Operating
Income
|
$595
|
$498
|
$39
|
$24
|
$634
|
$522
|
$112
|
21
|
%
|
||
Operating
Ratio
|
72.6%
|
74.8%
|
87.9%
|
91.1%
|
74.5%
|
76.8%
|
|
(a)
In addition to CSXT, the rail segment includes non-railroad subsidiaries
TDSI, Transflo, CSX Technology and other
subsidiaries.
|
Volume
(Thousands of units); Revenue (Dollars in millions); Revenue Per Unit
(Dollars)
|
|||||||||||||||
First
Quarters
|
|||||||||||||||
Volume
|
Revenue
|
Revenue
Per Unit
|
|||||||||||||
2010
|
2009
|
%
Change
|
2010
|
2009
|
%
Change
|
2010
|
2009
|
%
Change
|
|||||||
Chemicals
|
112
|
105
|
7
|
%
|
$351
|
$308
|
14
|
%
|
$3,134
|
$2,933
|
7
|
%
|
|||
Emerging
Markets
|
85
|
91
|
(7)
|
130
|
134
|
(3)
|
1,529
|
1,473
|
4
|
||||||
Forest
Products
|
63
|
65
|
(3)
|
140
|
140
|
-
|
2,222
|
2,154
|
3
|
||||||
Agricultural
Products
|
114
|
109
|
5
|
267
|
249
|
7
|
2,342
|
2,284
|
3
|
||||||
Metals
|
61
|
48
|
27
|
128
|
97
|
32
|
2,098
|
2,021
|
4
|
||||||
Phosphates
and Fertilizers
|
79
|
60
|
32
|
123
|
87
|
41
|
1,557
|
1,450
|
7
|
||||||
Food
and Consumer
|
25
|
25
|
-
|
59
|
60
|
(2)
|
2,360
|
2,400
|
(2)
|
||||||
Total
Merchandise
|
539
|
503
|
7
|
1,198
|
1,075
|
11
|
2,223
|
2,137
|
4
|
||||||
Coal
|
354
|
415
|
(15)
|
701
|
713
|
(2)
|
1,980
|
1,718
|
15
|
||||||
Coke
and Iron Ore
|
19
|
16
|
19
|
35
|
31
|
13
|
1,842
|
1,938
|
(5)
|
||||||
Total
Coal
|
373
|
431
|
(13)
|
736
|
744
|
(1)
|
1,973
|
1,726
|
14
|
||||||
Automotive
|
74
|
45
|
64
|
170
|
95
|
79
|
2,297
|
2,111
|
9
|
||||||
Other
|
-
|
-
|
-
|
64
|
63
|
2
|
-
|
-
|
-
|
||||||
Total
Rail
|
986
|
979
|
1
|
2,168
|
1,977
|
10
|
2,199
|
2,019
|
9
|
||||||
Domestic
|
281
|
254
|
11
|
217
|
184
|
18
|
772
|
724
|
7
|
||||||
International
|
219
|
186
|
18
|
102
|
83
|
23
|
466
|
446
|
4
|
||||||
Other
|
-
|
-
|
-
|
4
|
3
|
33
|
-
|
-
|
-
|
||||||
Total
Intermodal
|
500
|
440
|
14
|
323
|
270
|
20
|
646
|
614
|
5
|
||||||
Total
|
1,486
|
1,419
|
5
|
%
|
$2,491
|
$2,247
|
11
|
%
|
$1,676
|
$1,584
|
6
|
%
|
Certain data within Merchandise
categories have been reclassified to conform to the current year
presentation.
31
CSX
CORPORATION
ITEM
2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
First
Quarter 2010 Results of Operations
CSX first
quarter results reflect strong year-over-year volume and revenue growth as a
result of the gradual and steady growth in the economy as compared to the level
of economic activity last year. The greatest volume increases
occurred in the automotive, phosphates, metals, and intermodal
markets. Ongoing yield management initiatives and higher fuel
recovery associated with the increase in fuel prices drove revenue-per-unit
increases in most markets. These gains more than offset continued
weakness in utility coal and construction related markets.
Rail
Revenue
Merchandise
Chemicals – Volume
growth was primarily driven by increased shipments of plastics due to the
improvement in demand from the automotive and consumer goods markets, and by
growth in shipments of fractionating sand used in natural gas
drilling.
Emerging Markets,
Forest
Products, and Food and Consumer –
Volume weakness in building products, appliances, aggregates (which include
crushed stone, sand and gravel) was due to the continued softness in residential
construction.
Agricultural Products
– Volume growth was due to increased shipments of feed ingredients to export
markets driven by greater global demand for meat products. In
addition, domestic volume increased as a result of continued growth in the
ethanol market.
Metals – Strong
volume growth was driven by rebounding steel consumption consistent with the
ongoing economic recovery. Improving demand from automotive and
energy markets, combined with low inventories pushed domestic steel production
higher.
Phosphates and
Fertilizers – Significant volume growth occurred in the quarter with
increased production to meet both export and domestic demand as buyers rebuilt
inventories of fertilizer in anticipation of the spring planting
season.
Coal
Revenue
and volume declines were driven by lower shipments to utility customers as a
result of continued high stockpile levels. This decline was partially
offset by growth in the export market due to greater Chinese demand for U.S.
metallurgical coal. The increase in revenue per unit was driven by improved
yield, longer length of haul, and higher fuel recovery.
Automotive
Strong
volume and revenue growth was due to a significant increase in North American
light vehicle production driven by an increase in automotive
sales.
32
CSX
CORPORATION
ITEM
2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Expenses
increased $94 million from last year’s quarter. Significant variances
are described below.
Labor and Fringe expense increased $66
million. This increase was driven by higher incentive compensation,
inflation and several other items. These increases were partially
offset by lower staffing levels.
Materials, Supplies and
Other expense decreased $29 million. This decrease was
primarily driven by insurance and legal recoveries of $17 million in addition to
ongoing benefits from safety improvements.
Fuel expense increased $92
million primarily due to higher prices.
Depreciation expense
increased $5 million due to a larger asset base related to higher capital
spending, partially offset by lower depreciation rates resulting from the
previous periodic review of asset useful lives.
Equipment and Other
Rents expense decreased $17 million primarily due to current quarter’s
cost savings associated with improved asset utilization and higher prior year
settlement expenses with other railroads. These decreases were partially offset
by increased rents due to higher volume.
First
Quarter Intermodal Results of Operations
Intermodal
Revenue
Domestic – Volume
growth was driven by continued strength in truckload conversions and expanded
service offerings. Revenue per unit was higher due to increased fuel recovery
and a modestly improved competitive truck pricing environment.
International –
Volume increased as U.S. inventory replenishments and improving U.S. exports
drove significant growth compared to depressed prior year
volume. Revenue per unit was higher due to increased fuel recovery
and contract price increases.
Intermodal
entered into a new jointly-marketed domestic interline container program called
UMAX with Union Pacific Corporation. This agreement which became effective
beginning in the second quarter is expected to result in revenue loss to
Intermodal of $40 million to $50 million on a quarterly basis with a similar
reduction expected in inland transportation expense. The impact on
operating income is expected to be neutral in the near-term and positive
long-term. Additionally, financial consideration was provided that
will be amortized over the term of the agreement, which is not material to any
period.
Intermodal
Expense
Intermodal
expense increased primarily due to higher volume during first quarter
2010.
33
CSX
CORPORATION
ITEM
2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Interest
Expense
Interest expense increased $1 million
to $142 million primarily due to expenses related to the first quarter 2010 debt
exchange. This increase was partially offset by lower average debt
balances.
Other
Income - Net
Other
income increased $8 million to $11 million driven primarily by real estate
gains.
Income
Tax Expense
Income
tax expense increased $67 million primarily due to higher earnings in first
quarter 2010. In addition, the Company recorded tax expense of $7 million
as a result of the Patient Protection and Affordable Care Act that was signed
into law during the quarter. Also adding to this increase were $13 million of
certain favorable tax adjustments included in last year’s quarter that were not
repeated.
Net earnings increased $60 million to
$306 million and earnings per diluted share increased $0.16 to $0.78 primarily
due to higher revenue partially offset by higher income tax
expense.
34
CSX
CORPORATION
ITEM
2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
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
Property
increased $195 million due to planned capital spending. Other long-term
assets increased $141 million as a result of cash consideration paid in the
exchange of debt securities (see Note 7, Debt and Credit Agreements).
Stockholder’s equity was reduced as a result of $229 million of share
repurchases during first quarter 2010.
Consolidated
Cash Flow Statements
Cash
provided by operating activities increased $298 million due in part to higher
pre-tax earnings and lower incentive compensation payouts for 2009, which were
paid in 2010. Cash used in investing activities increased $41 million
due to an increase in property additions during 2010. Cash used in financing
activities increased $680 million as a result of share repurchases and cash paid
related to the exchange of debt securities during first quarter 2010 (see Note
7, Debt and Credit Agreements).
As of the
end of the first quarter, CSX had $993 million of cash and cash
equivalents. CSX also has available a $1.25 billion credit facility
with a diverse syndicate of banks that was not drawn on. CSX uses current
cash balances for general corporate purposes, which may include capital
expenditures, working capital requirements, improvements in productivity and
repurchases of CSX common stock.
In 2009, the
Company entered into a $250 million receivables securitization
facility. The purpose of this facility is to provide an alternative
to commercial paper and a low cost source of short-term liquidity. This facility
has a 364-day term and expires on September 27, 2010. As of the date
of this filing, the Company has not drawn on this facility. Under the
terms of this facility, CSX Transportation and CSX Intermodal transfer eligible
third-party receivables to CSX Trade Receivables, a bankruptcy-remote special
purpose subsidiary. A separate subsidiary of CSX will service the
receivables. Upon transfer, the receivables become assets of CSX
Trade Receivables and are not available to the creditors of CSX or any of its
other subsidiaries. In the event CSX Trade Receivables draws under this
facility, the Company will record an equivalent amount of debt on its
consolidated financial statements.
35
CSX
CORPORATION
ITEM
2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Working
capital can also be considered a measure of a company’s ability to meet its
short-term needs. CSX had a working capital surplus of $113 million
and $705 million at March 2010 and December 2009, respectively. The
decline since December 2009 is primarily due to a $508 million reclassification
from long-term debt to current maturities of long-term debt for amounts owed
within the next twelve months.
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 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.
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 legal 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.
36
CSX
CORPORATION
ITEM
2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
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, 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, proposed new services and other similar expressions
concerning 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.
|
Forward-looking statements are
typically identified by words or phrases such as “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.
37
CSX
CORPORATION
ITEM
2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
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 this quarterly
report on Form 10-Q, 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, including the outcome of tax claims and
litigation, the potential enactment of initiatives to further regulate the
rail industry and the ultimate outcome of shipper and rate claims subject
to adjudication;
|
·
|
the
outcome of litigation and claims, including, but not limited to, those
related to fuel surcharge, environmental contamination, 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);
|
·
|
worsening
conditions in the financial markets that may affect timely access to
capital markets, as well as the cost of
capital;
|
·
|
availability
of insurance coverage at commercially reasonable rates or insufficient
insurance coverage to cover claims or
damages;
|
·
|
changes
in fuel prices, surcharges for fuel and the availability of
fuel;
|
·
|
the
impact of increased passenger activities in capacity-constrained areas or
regulatory changes affecting when CSXT can transport freight or service
routes;
|
·
|
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;
|
·
|
noncompliance
with applicable laws or
regulations;
|
38
CSX
CORPORATION
ITEM
2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
·
|
the
inherent business risks associated with safety and security, including the
availability and cost of insurance, 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 the customers’ ability to deliver goods
to the Company for shipment;
|
·
|
competition
from other modes of freight transportation, such as trucking and
competition and consolidation within the transportation industry
generally;
|
·
|
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 full year 2010 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, 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.
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.
As of March 26, 2010, 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 March 26, 2010, 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 first quarter 2010 that have materially
affected, or are reasonably likely to materially affect, the Company’s internal
control over financial reporting.
PART
II OTHER INFORMATION
For information relating to the
Company’s legal proceedings, see Note 5, Commitments and Contingencies under
Part I, Item 1 (Financial Statements) of this Quarterly Report on Form
10-Q.
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.
CSX is required to disclose any
purchases of its common stock for the most recent quarter. CSX purchases
its 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 that covers certain union
employees.
In first
quarter 2010, CSX completed $229 million of share repurchases. Subsequent
to the end of first quarter, through the date of this filing, the Company
completed an additional $34 million of share repurchases pursuant to the
outstanding Board authority. Since March 2008, CSX has completed
$1.5 billion in share repurchases and has remaining authority of
$1.5 billion. Future share repurchases will be based on market and
business conditions.
CSX
Purchases of Equity Securities
for
the Quarter
|
||||||
First
Quarter
|
Total Number of Shares
Purchased
|
Average
Price Paid per Share
|
Total Number of Shares
Purchased as Part of Publicly Announced Plans or Programs
|
Approximate
Dollar Value of Shares that May Yet Be Purchased Under the Plans or
Programs
|
||
Beginning
Balance
|
$1,750,065,626
|
|||||
January
|
||||||
(December
26, 2009 - January 22, 2010)
|
-
|
$-
|
-
|
1,750,065,626
|
||
February
|
||||||
(January
23, 2010 - February 19, 2010)
|
4,483,955
|
45.21
|
4,483,955
|
1,547,355,648
|
||
March
|
||||||
(February
20, 2010 - March 26, 2010)
|
572,274
|
45.86
|
572,274
|
1,521,108,801
|
||
Total/Ending
Balance
|
5,056,229
|
$45.28
|
5,056,229
|
$1,521,108,801
|
None
|
None
|
None
ITEM
6. EXHIBITS
Exhibits
|
4.1*
|
Eighth
Supplemental Indenture, dated as of March 24, 2010 between the Registrant
and The Bank of New York Mellon Trust Company, N.A. (as successor to JP
Morgan Chase Bank), as Trustee.
|
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 March 26, 2010 filed with the SEC on
April 19, 2010, formatted in XBRL includes: (i) Consolidated Income
Statements for the fiscal periods ended March 26, 2010 and March 27, 2009,
(ii) Consolidated Balance Sheets at March 26, 2010 and December
25, 2009, (iii) Consolidated Cash Flow Statements for the fiscal periods
ended March 26, 2010 and March 27, 2009, and (iv) the Notes to
Consolidated Financial Statements, tagged as blocks of
text.
|
* Filed herewith
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:
April 19, 2010
43