UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
FORM
10-K
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(X)
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ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
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For the
fiscal year ended December 25, 2009
OR
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TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
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For
the transition period from __________ to
__________
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Commission
File Number 1-8022
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CSX
CORPORATION
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(Exact name of registrant as
specified in its charter)
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Virginia
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62-1051971
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(State
or other jurisdiction of incorporation or organization)
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(I.R.S.
Employer Identification No.)
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500
Water Street, 15th Floor, Jacksonville, FL
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32202
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(904)
359-3200
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(Address
of principal executive offices)
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(Zip
Code)
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(Telephone
number, including area code)
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Securities
registered pursuant to Section 12(b) of the Act:
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Title
of each class
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Name
of exchange on which registered
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Common
Stock, $1 Par Value
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New
York Stock Exchange
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Securities registered pursuant to
Section 12(g) of the Act: None
Indicate by check mark if the
registrant is a well-known seasoned issuer (as defined in Rule 405 of the
Securities Act).
Yes (X)
No ( )
Indicate by check mark if the
registrant is not required to file reports pursuant to Section 13 or Section
15(d) of the Act.
Yes
( ) No (X)
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 if disclosure of
delinquent filers pursuant to Item 405 of Regulation S-K is not contained
herein, and will not be contained, to the best of the registrant’s knowledge, in
definitive proxy or information statements incorporated by reference in Part III
of this Form 10-K or any amendment to this Form 10-K. (
)
Indicate by check mark whether the
registrant is a large accelerated filer, an accelerated filer or a
non-accelerated filer (as defined in Exchange Act Rule 12b-2).
Large
Accelerated Filer
(X) Accelerated
Filer
( ) Non-accelerated
Filer ( )
Indicate by check mark whether the
registrant is a shell company (as defined in Exchange Act Rule
12b-2).
Yes
( ) No (X)
On June 26, 2009 (which is the last day
of the second quarter and the required date to use), the aggregate market value
of the Registrant’s voting stock held by non-affiliates was approximately $13.5
billion (based on the New York Stock Exchange closing price on such
date).
There were 390,035,435 shares of Common
Stock outstanding on February 5, 2010 (the latest practicable date that is
closest to the filing date).
DOCUMENTS
INCORPORATED BY REFERENCE
Portions of the Registrant’s Definitive
Proxy Statement (the “Proxy Statement”) to be filed no later than 120 days after
the end of the fiscal year with respect to its annual meeting of shareholders
scheduled to be held on May 4, 2010.
1
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FORM
10-K
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TABLE
OF CONTENTS
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Item No.
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Page
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PART
I
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1.
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3
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9
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15
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2.
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15
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3.
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22
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4.
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22
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22
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PART
II
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5.
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25
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6.
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27
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7.
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29
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29
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30
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34
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37
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48
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51
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52
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52
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7A.
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64
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8.
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67
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9.
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134
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9A.
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134
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9B.
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136
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PART
III
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10.
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137
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11.
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137
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12.
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137
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13.
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137
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14.
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PART
IV
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15.
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138
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145
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CSX
Corporation (“CSX”) 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.
Rail
CSX
Transportation, Inc.
CSX’s
principal operating company, 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. It serves over 70 ocean, river and
lake ports along the Atlantic and Gulf Coasts, the Mississippi River, the Great
Lakes and the St. Lawrence Seaway. CSXT also serves thousands of
production and distribution facilities through track connections to more than
240 short-line and regional railroads.
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.
Intermodal
CSX
Intermodal, Inc. (“Intermodal”) is a stand-alone, integrated intermodal
transportation provider linking customers to railroads via trucks and
terminals. Containers
and trailers are loaded and unloaded from trains, and trucks provide the link
between intermodal terminals and the customer.
Lines
of Business
Together,
the rail and intermodal segments generated $9 billion of revenue during 2009 and
served four primary lines of business:
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·
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The
merchandise business is the most diverse market with nearly 2.1 million
carloads per year of aggregates (which includes crushed stone, sand and
gravel), metal, phosphate, fertilizer, food, consumer (manufactured goods
and appliances), agricultural, paper and chemical products. The
merchandise business generated approximately 48% of the Company’s revenue
in 2009 and 36% of volume.
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·
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Coal,
which delivered approximately 1.6 million carloads of coal, coke and iron
ore to electricity generating power plants, ocean, river and lake piers
and terminals, steel makers and industrial plants, accounted for
approximately 30% of the Company’s revenue in 2009 and 27% of
volume. The Company transports almost one-third of every ton of
coal used for generating electricity in the areas it
serves.
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·
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Automotive,
which delivers finished vehicles and auto parts, generated approximately
6% of the Company’s revenue and 4% of the Company’s volume in
2009. The Company delivers approximately 30% of North America’s
light vehicles, serving both domestic manufacturers and the increasing
number of global manufacturers that produce cars in the United
States.
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·
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Intermodal,
which combines the superior economics of rail transportation with the
short-haul flexibility of trucks, offers a competitive cost advantage over
long-haul trucking. Through its network of more than 50 terminals,
Intermodal serves all major markets east of the Mississippi and transports
mainly manufactured consumer goods in containers, providing customers with
truck-like service for longer shipments. For 2009, Intermodal
accounted for approximately 13% of the Company’s total revenue and 33% of
volume.
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Other revenue, which includes revenue
from regional subsidiary railroads, demurrage, switching and other incidental
charges, accounted for 3% of the Company’s total 2009
revenue. Revenue from regional railroads includes shipments by
railroads that the Company does not directly operate. Demurrage
represents charges assessed when freight cars are held beyond a specified period
of time. Switching revenue is generated when CSXT switches cars
between trains for a customer or another railroad.
Other
Businesses
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. In 2009, CSX sold the stock of a subsidiary that
indirectly owned Greenbrier Hotel Corporation, owner of The Greenbrier
resort. These results are now classified as discontinued
operations. For more information, see Note 14, Discontinued
Operations.
Financial
Information about Operating Segments
See Item
7. Management’s Discussion and Analysis of Financial Condition and Results of
Operations for operating revenue, operating income and total assets by segment
for each of the last three fiscal years.
Company
History
A leader
in freight rail transportation for more than 180 years, the Company’s roots date
back to the early nineteenth century when The Baltimore and Ohio Railroad
Company (“B&O”) – the nation’s first common carrier – was chartered in 1827.
Since that time, the Company has built on the foundation laid by early pioneers
who had a vision to create a railroad that could safely and reliably service the
ever-increasing demands of a growing nation.
Since its founding, numerous railroads
have combined with the former B&O through merger and consolidation to create
what has become CSX. Each of the railroads that combined into the CSX
family brought unique and valuable geographical reach to new markets, gateways,
cities, ports and transportation corridors.
CSX was
incorporated in 1978 under Virginia law. In 1980, the Company completed the
merger of the Chessie System (“Chessie”) and Seaboard Coast Line Industries
(“Seaboard”) into CSX. The merger allowed the Company to connect
northern population centers and Appalachian coal fields to growing southeastern
markets. In 1986, the Chessie and Seaboard operating entities were transferred
to the rail entity CSXT, which was created through the
merger. Intermodal was originally formed in 1986 in order to provide
nationwide, door-to-door intermodal service.
In 1997,
CSXT and Norfolk Southern Railway jointly acquired the rights to operate
Conrail, Inc. (“Conrail”) and then in 2004, CSXT acquired an allocated portion
of Conrail’s assets, which CSXT operated. Conrail was formed in 1976
from several financially troubled northeast railroads to restructure and revive
the region’s railroads. The Company’s acquisition of key portions of
Conrail allows CSXT to link the northeast, including New England and the New
York metropolitan area, with Chicago, midwest markets and the growing areas in
the southeast that were already served by CSXT. This current rail
network allows the Company to directly serve every major market in the eastern
United States with safe, dependable, environmentally friendly and fuel efficient
freight transportation and intermodal service.
Regulatory
Environment
The
Company's operations are subject to various federal, state and local laws and
regulations, generally applicable to many businesses in the United States.
The railroad operations conducted by the Company's subsidiaries, including CSXT,
are subject in many respects to the regulatory jurisdiction of the Surface
Transportation Board (“STB”), the Federal Railroad Administration (“FRA”), and
its sister agency within the U.S. Department of Transportation (“DOT”), the
Pipeline and Hazardous Materials Safety Administration
(“PHMSA”). Together, FRA and PHMSA have broad jurisdiction over
railroad operating standards and practices, including track, freight cars and
locomotives, and hazardous materials requirements. Additionally, the
Transportation Security Administration (“TSA”), a component of the Department of
Homeland Security (“DHS”), has broad authority over railroad operating practices
that may include homeland security implications.
Decisions
and rulemaking by these and other agencies can significantly affect the
Company’s operations and profitability. For example, in 2008, both
DOT and TSA issued rules that apply to the transportation of certain kinds of
highly hazardous materials. The DOT rules require railroads to
analyze routes used to transport these products and to apply specific criteria
in selecting routes to be used. The new TSA rules place significant
new security and safety requirements on passenger and freight railroad carriers,
rail transit systems, and facilities that ship hazardous materials by rail. In
some cases, state and local laws and regulations can be preempted in their
application to railroads by the operation of these and other federal
authorities.
Although
the Staggers Act of 1980 significantly deregulated rail rates and much of the
rail traffic of the Company's subsidiaries is currently exempt from rate
regulation by agency decision, the STB has broad jurisdiction over railroad
commercial practices, including some railroad rates, routes, fuel surcharges,
conditions of service and the extension or abandonment of rail
lines. This includes jurisdiction over freight car charges, the
transfer, extension or abandonment of rail lines, rates charged on certain
regulated rail traffic and any acquisition of control over rail common
carriers.
In 2008,
Congress enacted the Rail Safety Improvement Act. The legislation
includes a mandate that all Class I freight railroads implement a positive train
control system (“PTC”) by December 31, 2015. PTC must be installed on
all main lines with passenger and commuter operations as well as those over
which toxic-by-inhalation hazardous materials (“TIH”) are
transported. Implementation of a PTC system is designed to prevent
train-to-train collisions, over-speed derailments, incursions into established
work-zone limits, and a train from diverting off-course onto another set of
tracks through a switch left in a wrong position. Significant capital
costs are anticipated with the implementation of PTC as well as ongoing
operating expenses. CSX estimates that the total cost of PTC
implementation will likely exceed $750 million for the
Company.
In
December 2009, a proposed bill called the “Surface Transportation Board
Reauthorization Act of 2009” (“STB Reauthorization Bill”) was introduced in the
Senate. If adopted as proposed, this bill could have a material
adverse effect on commercial practices and railroad operations. The
current proposal in the Senate contains fundamental changes in laws that were
designed to sustain the railroads. Some of the proposed changes in the STB
Reauthorization Bill are not yet clearly defined, and others call for new and
broad government involvement into railroad operations. CSX believes
the bill, in its current form, could have a material adverse effect on the
Company’s revenue and operations, as well as the ability to invest in enhancing
and maintaining vital infrastructure. CSX will continue to work
diligently with the Senate staff, as well as with Senators, to forge a balanced
regulatory approach.
For
further discussion on regulatory risks to the Company, see Item 1A. Risk
Factors.
Competition
The business environment in which the
Company operates is highly competitive. Shippers typically select
transportation providers that offer the most compelling combination of service
and price. Service requirements, both in terms of transit time and
reliability, vary by shipper and commodity. As a result, the Company’s primary
competition varies by commodity, geographic location and mode of available
transportation.
CSXT’s
primary rail competitor is Norfolk Southern Railway, which operates throughout
much of the Company’s territory. Other railroads also operate in parts of
the Company’s territory. Depending on the specific market, competing
railroads and deregulated motor carriers may exert pressure on price and service
levels. For further discussion on the risk of competition to the
Company, see Item 1A. Risk Factors.
Other
Information
CSX makes available on its website
www.csx.com,
free of charge, its annual reports on Form 10-K, quarterly reports on Form 10-Q,
current reports on Form 8-K and all amendments to those reports as soon as
reasonably practicable after such reports are filed with or furnished to the
Securities and Exchange Commission (“SEC”). The information on the CSX website
is not part of this annual report on Form 10-K. Additionally, the
Company has posted its code of ethics on its website, which is also available to
any shareholder who requests it. This Form 10-K and other SEC filings
made by CSX are also accessible through the SEC’s website at www.sec.gov.
CSX has included the certifications of
its Chief Executive Officer (“CEO”) and the Chief Financial Officer (“CFO”)
required by Section 302 of the Sarbanes-Oxley Act of 2002 (“the Act”) as Exhibit
31, as well as Section 906 of the Act as Exhibit 32 to this Form 10-K report.
Additionally, on May 29, 2009, CSX filed its annual CEO certification with the
New York Stock Exchange (“NYSE”) confirming CSX’s compliance with the NYSE
Corporate Governance Listing Standards. The CEO was not aware of any
violations of these standards by CSX as of February 5, 2010 (the latest
practicable date that is closest to the filing of this Form
10-K). This certification is also included as Exhibit 99 to this Form
10-K.
The
Company’s annual average number of employees was approximately 30,000 in 2009,
which includes approximately 26,000 union employees. Most of the
Company’s employees provide or support transportation services. The
information set forth in Item 6. Selected Financial Data is incorporated herein
by reference.
For
additional information concerning business conducted by the Company during 2009,
see Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations and Item 8. Financial Statements and Supplementary Data -
Note 17, Business Segments.
The
following risk factors could have a materially adverse effect on the Company’s
financial condition, results of operations or liquidity, and could cause those
results to differ materially from those expressed or implied in the Company’s
forward-looking statements. Additional risks and uncertainties not
currently known to the Company or that the Company currently does not deem to be
material also may materially impact the Company’s financial condition, results
of operations or liquidity.
New
legislation or regulatory changes could impact the Company’s earnings or
restrict its ability to independently negotiate prices.
Legislation
passed by Congress or new regulations issued by federal agencies can
significantly affect the revenues, costs and profitability of the Company’s
business. For instance, legislation proposed in the Senate in
December 2009, if adopted, would significantly change the federal regulatory
framework of the railroad industry. Several of the changes under
consideration could have a significant negative impact on the Company’s ability
to determine prices for rail services, meet service standards and would likely
force a reduction in capital spending. Statutes imposing price
constraints or affecting rail-to-rail competition could adversely affect the
Company’s profitability. Also, additional regulations related to
environmental matters such as greenhouse gas emissions could increase the
Company’s operating costs or reduce operating efficiencies or negatively impact
the business of CSX customers.
Government
regulation and compliance risks may adversely affect the Company’s operations
and financial results.
The
Company is subject to the jurisdiction of various regulatory agencies, including
the STB, the FRA and other state and federal regulatory agencies for a variety
of economic, health, safety, labor, environmental, tax, legal and other
matters. New rules or regulations by these agencies could increase
the Company’s operating costs or reduce operating efficiencies. For
example, the Rail Safety Improvement Act of 2008 (“RSIA”) imposes limits on
employee work hours and may result in higher operating costs for the
Company. The RSIA also mandated the installation by December 31, 2015
of Positive Train Control (PTC) on main lines that carry certain hazardous
materials and on lines that have commuter or passenger operations. The FRA
issued its final rule in January 2010 on the design, operational requirements
and implementation of the new technology. The final rule is expected to
impose significant new costs on CSX and the rail
industry. Noncompliance with these and other applicable laws or
regulations could erode public confidence in the Company and can subject the
Company to fines, penalties and other legal or regulatory
sanctions.
Climate
change legislation and regulation could adversely affect the Company’s
operations and financial results.
Regulation
or legislation that potentially imposes restrictions, caps, taxes, or other
controls on emissions of greenhouse gas could adversely affect operations
and financial results. More specifically, increased energy costs
resulting from legislative or regulatory actions could adversely impact CSX by:
(1) making it difficult for CSX’s customers in the U.S. to produce products in a
cost competitive manner (particularly in the absence of similar regulations in
countries like India and China); (2) increasing CSX’s fuel costs and hurting
fuel efficiency; and (3) reducing the consumption of coal as an energy resource
in the United States. Any of these factors could reduce the amount of
traffic handled and have a material adverse effect on the
Company's financial condition, results of operations or
liquidity.
CSXT,
as a common carrier by rail, is required by law to transport hazardous
materials, which could expose the Company to significant costs and
claims.
Under federal regulations, CSXT is
required to transport hazardous materials under its common carrier
obligation. A train accident involving the transport of hazardous
materials could result in significant claims arising from personal injury,
property damage, and environmental penalties and remediation. Such
claims could exceed existing insurance coverage or insurance may not continue to
be available at commercially reasonable rates. CSXT is also required
to comply with regulations regarding the handling of hazardous
materials.
In
November 2008, the TSA issued final rules placing significant new security and
safety requirements on passenger and freight railroad carriers, rail transit
systems, and facilities that ship hazardous materials by
rail. Noncompliance with these rules can subject the Company to
significant penalties and could be a factor in litigation arising out of a train
accident. Finally, legislation preventing the transport of hazardous
materials through certain cities could result in network congestion and increase
the length of haul for hazardous substances, which could result in increased
operating costs, reduced operating efficiency or increase the risk of an
accident involving the transport of hazardous materials.
The
Company is subject to environmental laws and regulations that may result in
significant costs.
The Company’s operations are subject to
wide-ranging federal, state and local environmental laws and regulations
concerning, among other things, emissions into the air, discharges
into water, the handling, storage, transportation and disposal of waste and
other materials and clean-up of hazardous material or petroleum
releases. In certain circumstances, environmental liability can
extend to formerly owned or operated properties, leased properties, adjacent
properties and properties owned by third parties or Company predecessors, as
well as to properties currently owned and used by the Company.
The
Company has been, and may be subject to, allegations or findings to the effect
that it has violated, or is strictly liable under, environmental laws or
regulations, and such violations can result in the Company’s incurring fines,
penalties or costs relating to the clean-up of environmental contamination.
Although the Company believes it has appropriately recorded current and
long-term liabilities for known future environmental costs, it could incur
significant costs that exceed reserves or require unanticipated cash
expenditures as a result of any of the foregoing. The Company also
may be required to incur significant expenses to investigate and remediate
known, unknown or future environmental contamination.
General
economic conditions could negatively affect demand for commodities and other
freight.
The
current economic environment has adversely affected demand for rail and
intermodal services. Further decline in general domestic and
global economic
conditions that affect demand for the commodities the Company carries could
reduce revenues or have other adverse effects.
Weaknesses
in the capital and credit markets could negatively impact the Company’s access
to capital.
The
Company is in a capital intensive industry that requires continuing
infrastructure improvements and acquisition of capital assets. The
Company from time to time accesses the credit markets for additional
liquidity. Adverse conditions in the credit markets could increase
the Company’s costs associated with issuing debt, limit the Company’s ability to
sell debt securities on acceptable terms and impede the Company’s ability to
revise its current debt arrangements as contemplated.
Network
congestion could have a negative impact on service and operating
efficiency.
CSXT may
experience rail network difficulties related to increased passenger activities
in capacity-constrained areas or regulatory changes impacting when CSXT
can transport freight or service routes that could have a negative effect on
CSXT’s operational fluidity, leading to deterioration of service, asset
utilization and overall efficiency.
The
Company relies on the stability and availability of its technology systems to
operate its business.
The
Company relies on information technology in all aspects of its
business. A significant disruption or failure of the Company’s
information technology systems, including computer hardware, software and
communications equipment, could result in a service interruption, safety
failure, security breach or other operational difficulties. The
performance and reliability of the Company’s technology systems are critical to
its ability to operate and compete safely and effectively.
Disruption
of the supply chain could negatively affect operating efficiency and increase
costs.
The
capital intensive nature and sophistication of core rail equipment (including
rolling stock equipment, locomotives, rail, and ties) limits the number of
railroad equipment suppliers. If any of the current manufacturers
stops production or experiences a supply shortage, CSXT could experience a
significant cost increase or material shortage. In addition, a few
critical railroad suppliers are foreign and, as such, adverse developments in
international relations, new trade regulations, disruptions in international
shipping, or increases in global demand could make procurement of these supplies
more difficult or increase CSXT’s operating costs.
Additionally,
if a fuel supply shortage were to arise, whether due to the Organization of the
Petroleum Exporting Countries or other production restrictions, lower refinery
outputs, a disruption of oil imports or otherwise, the Company would be
negatively impacted.
Failure
to complete negotiations on collective bargaining agreements could result in
strikes and/or work stoppages.
Most of CSXT's employees are
represented by labor unions and are covered by collective bargaining agreements.
Generally speaking, these agreements are bargained nationally by the National
Carriers Committee. In the rail industry, negotiations have generally
taken place over a number of years and previously have not resulted in any
extended work stoppages. If CSXT is unable to negotiate acceptable
agreements, however, it could result in strikes by the affected workers, loss of
business and increased operating costs as a result of higher wages or benefits
paid to union members. Under the Railway Labor Act’s procedures
(which include mediation, cooling-off periods and the possibility of
Presidential intervention), neither party may take action until the procedures
are exhausted.
The
Company faces competition from other transportation providers.
The
Company experiences competition in the form of pricing, service, reliability and
other factors from various transportation providers including railroads and
motor carriers that operate similar routes across its service area and, to a
less significant extent, barges, ships and pipelines. Transportation providers
such as motor carriers and barges utilize public rights-of-way that are built
and maintained by governmental entities while CSXT and other railroads must
build and maintain rail networks using largely internal resources. Any future
improvements or expenditures materially increasing the quality or reducing the
cost of alternative modes of transportation, or legislation providing for less
stringent size or weight restrictions on trucks, could negatively impact the
Company’s competitive position.
Future
acts of terrorism, war or regulatory changes to combat the risk of terrorism may
cause significant disruptions in the Company’s operations.
Terrorist
attacks, along with any government response to those attacks, may adversely
affect the Company’s financial condition, results of operations or
liquidity. CSXT’s rail lines or other key infrastructure may be
direct targets or indirect casualties of acts of terror or war. This
risk could cause significant business interruption and result in increased costs
and liabilities and decreased revenues. In addition, premiums charged
for some or all of the insurance coverage currently maintained by the Company
could increase dramatically or the coverage may no longer be
available.
Furthermore,
in response to the heightened risk of terrorism, federal, state and local
governmental bodies are proposing and, in some cases, have adopted legislation
and regulations relating to security issues that impact the transportation
industry. For example, the Department of Homeland Security adopted
regulations that require freight railroads to implement additional security
protocols when transporting hazardous materials. Complying with these
regulations could continue to increase the Company’s operating costs and reduce
operating efficiencies.
Severe
weather or other natural occurrences could result in significant business
interruptions and expenditures in excess of available insurance
coverage.
The
Company’s operations may be affected by external factors such as severe weather
and other natural occurrences, including floods, fires, hurricanes and
earthquakes. As a result, the Company’s rail network may be damaged,
its workforce may be unavailable, fuel costs may rise and significant business
interruptions could occur. In addition, the performance of
locomotives and railcars could be adversely affected by extreme weather
conditions. Insurance maintained by the Company to protect against
loss of business and other related consequences resulting from these natural
occurrences is subject to coverage limitations, depending on the nature of the
risk insured. This insurance may not be sufficient to cover all of the Company’s
damages or damages to others and this insurance may not continue to be available
at commercially reasonable rates. Even with insurance, if any natural occurrence
leads to a catastrophic interruption of service, the Company may not be able to
restore service without a significant interruption in operations.
The
Company may be subject to various claims and lawsuits that could result in
significant expenditures.
The
Company is subject to various claims and lawsuits, including putative class
action litigation alleging violations of antitrust laws. The Company
may experience material judgments or incur significant costs to defend existing
and future lawsuits. Additionally, existing litigation may suffer
adverse developments not currently reflected in the Company’s reserve estimates
as the ultimate outcome of existing litigation is subject to numerous factors
outside of the Company’s control. While the Company uses its best
efforts to evaluate existing litigation, the final judgments or settlement
amounts may differ materially from the recorded reserves.
Increases
in the number and magnitude of property damage and personal injury claims could
adversely affect the Company’s operating results.
The Company faces inherent business
risk from exposure to occupational and personal injury claims, property
damage, including storm damage, and claims related to train accidents. The
Company may incur significant costs to defend such claims.
Existing claims may suffer adverse
developments not currently reflected in reserve estimates, as the ultimate
outcome of existing claims is subject to numerous factors outside of the
Company’s control. Although the Company establishes reserves and maintains
insurance to cover these types of claims, final amounts determined to be due on
any outstanding matters may differ materially from the recorded reserves and
exceed the Company’s insurance coverage.
None.
Rail
Property
CSXT’s properties primarily consist of
track and its related infrastructure, locomotives and freight
cars. These categories and the geography of the network are described
below.
Track
and Infrastructure
Serving
23 states, the District of Columbia, and the Canadian provinces of Ontario and
Quebec, the CSXT rail network serves, among other markets, New York,
Philadelphia and Boston in the northeast and mid-Atlantic, the southeast markets
of Atlanta, Miami and New Orleans, and the midwestern cities of St. Louis,
Memphis and Chicago.
CSXT’s
track structure includes main thoroughfares, connecting terminals and yards
(known as mainline track), track within terminals and switching yards, track
adjacent to the mainlines used for passing trains, track connecting the mainline
track to customer locations and track that diverts trains from one track to
another known as turnouts. Total track miles are greater than CSXT’s
approximately 21,000 route miles, which reflect the size of CSXT’s rail network
that connects markets, customers and western railroads. At December
2009, the breakdown of track miles was as follows:
|
Track
|
|
|
Miles
|
|
|
Mainline
track
|
26,743
|
|
Terminals
and switching yards
|
9,578
|
|
Passing
sidings and turnouts
|
958
|
|
Total
|
37,279
|
In
addition to its physical track structure, CSXT operates numerous yards and
terminals. These serve as the hubs between CSXT and its local customers
and as sorting facilities where rail cars often are received, re-sorted and
placed onto new outbound trains.
The
following 36 terminals are identified as key to the CSXT system (listed in
alphabetical order by state):
|
Rail
Yards or Terminals
|
|
|
Birmingham,
AL
|
Detroit,
MI
|
|
Mobile,
AL
|
Hamlet,
NC
|
|
Montgomery,
AL
|
Rocky
Mount, NC
|
|
Moncrief
(Jacksonville), FL
|
Buffalo,
NY
|
|
Tampa,
FL
|
Selkirk,
NY
|
|
Atlanta,
GA
|
Syracuse,
NY
|
|
East
Savannah, GA
|
Cincinnati,
OH
|
|
Waycross,
GA
|
Cleveland,
OH
|
|
Chicago,
IL
|
Columbus,
OH
|
|
Danville,
IL
|
Stanley
(Toledo), OH
|
|
Avon
(Indianapolis), IN
|
Walbridge
(Toledo), OH
|
|
Evansville,
IN
|
Willard,
OH
|
|
Louisville,
KY
|
Greenwich
(Philadelphia), PA
|
|
Russell,
KY
|
Charleston,
SC
|
|
New
Orleans, LA
|
Florence,
SC
|
|
Cumberland,
MD
|
Erwin,
TN
|
|
Curtis
Bay (Baltimore), MD
|
Nashville,
TN
|
|
Locust
Point (Baltimore), MD
|
Richmond,
VA
|
For a
list of Intermodal’s terminals, see page 21.
Network
Geography
CSXT’s
rail operations are primarily focused on four major transportation networks and
corridors which are defined geographically and by commodity flows
below.
Coal Network –
The CSXT coal network connects the coal mining operations in the Appalachian
region with industrial areas in the northeast and mid-Atlantic, as well as many
river, lake, and deep water port facilities. Coal is used to generate
more than half of the electricity in the United States. CSXT’s coal network is
well positioned to supply utility markets in both the northeast and
southeast.
Interstate 90 (I-90)
Corridor – This CSXT corridor links Chicago and the Midwest to
metropolitan areas in New York and New England. This route, also
known as the “waterlevel route”, has minimal hills and grades and nearly all of
it has two main tracks (referred to as double track). These superior
engineering attributes permit the corridor to support consistent, high-speed
intermodal, automotive and merchandise service. This corridor is a
primary route for import traffic moving eastward across the country, through
Chicago and into the population centers in the northeast. The I-90
Corridor is also a critical link between ports in New York, New Jersey, and
Pennsylvania and consumption markets in the midwest.
Interstate 95 (I-95)
Corridor – The CSXT I-95 Corridor connects Charleston, Jacksonville,
Miami and many other cities throughout the southeast with the heavily populated
northeastern cities of Baltimore, Philadelphia and New York. CSXT
primarily transports food and consumer products, as well as metals and chemicals
along this line. It is the only rail corridor along the eastern
seaboard south of Washington, D.C., and provides access to major eastern
ports.
Southeastern Corridor
– This critical part of the network runs between CSXT’s western gateways of
Chicago, St. Louis and Memphis through the cities of Nashville, Birmingham, and
Atlanta and markets in the southeast. The Southeastern Corridor is
the premier rail route connecting these key cities, gateways, and markets
and positions CSXT to efficiently handle projected traffic volumes of
intermodal, automotive and general merchandise traffic. The corridor
also provides direct rail service between the coal reserves of the southern
Illinois basin and the increasing demand for coal in the southeast.
See the
following page for a map of the CSX Rail Network.
CSX
Rail Network
18
CSX
CORPORATION
PART
I
Locomotives
CSXT focuses on maximum use of its
fleet and prudent investment in new units to drive the rail
network. Better locomotive management can help CSXT move freight more
efficiently, while continued investment in CSXT’s power source can enable CSXT
to operate more locomotives better.
CSXT
operates more than 4,000 locomotives, of which over 95% are owned by
CSXT. Freight locomotives are the power source used primarily to pull
trains. Switching locomotives are used in yards to sort railcars so
that the right railcar is attached to the right train in order to deliver it to
its final destination. Auxiliary units are typically used to provide
extra traction for heavy trains in hilly terrain. At December 2009,
CSXT’s fleet of owned and long-term leased locomotives consisted of the
following types of locomotives:
|
Locomotives
|
%
|
||
|
Freight
|
3,539
|
87%
|
|
|
Switching
|
311
|
8%
|
|
|
Auxiliary
Units
|
221
|
5%
|
|
|
Total
|
4,071
|
100%
|
|
The table
below indicates the number and year built for locomotives owned or on long-term
lease at December 2009.
|
Year
Built
|
Locomotives
|
%
|
||
|
1989
and before
|
1,947
|
48%
|
||
|
1990
- 1994
|
541
|
13%
|
||
|
1995
- 1999
|
601
|
15%
|
||
|
2000
- 2004
|
380
|
10%
|
||
|
2005
|
100
|
2%
|
||
|
2006
|
100
|
2%
|
||
|
2007
|
184
|
5%
|
||
|
2008
|
216
|
5%
|
||
|
2009
|
2
|
0%
|
||
|
Total
|
4,071
|
100%
|
As of
December 2009, 566 locomotives, or 14%, were held in temporary storage due to
significant declines in volume. As volume returns, these locomotives
will be placed back into service after restorative maintenance procedures are
performed. These locomotives can be brought back into service within
a week.
Freight
Car Fleet
The
average daily fleet of cars-on-line consists of approximately 216,000 cars but,
at any time, over half of the railcars on the CSXT system are not owned or
leased by CSXT. Examples of these are: railcars owned by other
railroads (which are utilized by CSXT), shipper-furnished or private cars (which
are generally used only in that shipper’s service) and multi-level
railcars.
CSXT’s
freight car fleet consists of six main types of cars:
Gondolas – Support
CSXT’s metals markets and provide transport for woodchips and other bulk
commodities. Some gondolas are equipped with special hoods for
protecting products like coil and sheet steel.
Open-top hoppers –
Transport heavy dry bulk commodities such as coal, coke, stone, sand, ores and
gravel that are resistant to weather conditions.
Box cars – Include a
variety of tonnages, sizes, door configurations and heights to accommodate a
wide range of finished products, including paper, auto parts, appliances and
building materials. Insulated box cars deliver food products, canned
goods, beer and wine.
Covered hoppers –
Have a permanent roof and are segregated based upon commodity
density. Lighter bulk commodities such as grain, fertilizer, flour,
salt, sugar, clay and lime are shipped in large cars called jumbo covered
hoppers. Heavier commodities like cement, ground limestone and glass
sand are shipped in small cube covered hoppers.
Multi-level flat cars
– Transport finished automobiles and are differentiated by the number of levels:
bi-levels for large vehicles such as pickup trucks and SUVs and tri-levels for
sedans and smaller automobiles.
Flat cars – Used for
shipping intermodal containers and trailers or bulk and finished goods, such as
lumber, pipe, plywood, drywall and pulpwood.
Other
cars owned or leased on the network include, but are not limited to, center beam
cars for transporting lumber and building products.
CSXT owns
more than 60% of its freight cars. At December 2009, CSXT’s owned and
long-term leased freight car fleet consisted of the following:
|
Freight
Cars
|
%
|
||
|
Gondolas
|
25,182
|
30%
|
|
|
Open-top
hoppers
|
17,237
|
21%
|
|
|
Box
cars
|
11,995
|
14%
|
|
|
Covered
hoppers
|
11,689
|
14%
|
|
|
Multi-level
flat cars
|
10,473
|
12%
|
|
|
Flat
cars
|
7,041
|
8%
|
|
|
Other
cars
|
665
|
1%
|
|
|
Total
|
84,282
|
100%
|
|
As of
December 2009, 22,952 freight cars, or 29%, were held in temporary storage due
to significant declines in volume. As volume returns, these freight
cars will be placed back into service. These freight cars can be
brought back into service within a week.
Intermodal
Property
Infrastructure
Intermodal serves 57 terminals in 22
states. These terminals serve as a transfer point between rail and trucks. If
the city or state has more than one terminal, it is indicated by the number next
to it (listed in alphabetical order by state).
|
Intermodal
Terminals
|
|
|
Bessemer,
AL
|
Detroit,
MI
|
|
Mobile,
AL
|
Kansas
City, MO
|
|
Lathrop,
CA
|
Charlotte,
NC
|
|
Los
Angeles/Long Beach, CA (3)
|
Buffalo,
NY
|
|
Oakland,
CA
|
Syracuse,
NY
|
|
Jacksonville,
FL (2)
|
New
York/New Jersey (6)
|
|
Miami,
FL
|
Cincinnati,
OH
|
|
Orlando,
FL
|
Cleveland,
OH
|
|
Tampa,
FL
|
Columbus,
OH (2)
|
|
Atlanta,
GA (2)
|
Marion,
OH
|
|
Savannah,
GA (2)
|
Portland,
OR
|
|
Chicago,
IL (3)
|
Chambersburg,
PA
|
|
East
St. Louis, IL (2)
|
Philadelphia,
PA
|
|
Evansville,
IN
|
Charleston,
SC
|
|
Indianapolis,
IN
|
Memphis,
TN (2)
|
|
New
Orleans, LA
|
Nashville,
TN
|
|
Boston,
MA
|
Dallas,
TX
|
|
Springfield,
MA
|
Houston,
TX
|
|
Worcester,
MA (3)
|
Portsmouth,
VA
|
|
Baltimore,
MD
|
Seattle,
WA
|
Equipment
Intermodal
equipment consists primarily of containers, chassis and other equipment (such as
lift equipment). Containers are weather-proof boxes used for bulk
shipment of freight, and chassis are the wheeled support framework for a
container that allows it to be attached to a tractor. All of
Intermodal’s chassis are leased. Intermodal also has other types of
equipment such as doublestack railcars, which are railcars that allow for two
containers to be mounted one above the other.
At
December 2009, Intermodal’s owned or long-term leased equipment consisted of the
following:
|
Equipment
|
%
|
||
|
Containers
|
16,850
|
51%
|
|
|
Chassis
|
15,591
|
47%
|
|
|
Other
|
553
|
2%
|
|
|
Total
|
32,994
|
100%
|
The Company is subject to various legal
proceedings and claims that arise in the ordinary course of
business. For more information on legal proceedings, see Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of
Operations under the caption “Critical Accounting Estimates – Casualty,
Environmental and Legal Reserves” and Item 8. Financial Statements and
Supplementary Data - Note 7, Commitments and Contingencies under the caption
“Other Legal Proceedings.”
There were no matters submitted to a
vote of security holders in the fourth quarter of 2009.
Executive officers of the Company are
elected by the CSX Board of Directors and generally hold office until the next
annual election of officers. There are no family relationships or any
arrangement or understanding between any officer and any other person pursuant
to which such officer was elected. As of the date of this filing, the
executive officers’ names, ages and business experience are:
|
Name and Age
|
Business Experience During Past 5
Years
|
|
Michael
J. Ward, 59
Chairman,
President and Chief Executive Officer
|
A
32-year veteran of the Company, Ward has served as Chairman, President and
Chief Executive Officer of CSX since January 2003. In 2000, he
was named President of CSXT, and he was later appointed President of CSX
and elected to the Board of Directors in 2002.
Ward’s
distinguished railroad career has included key executive positions in
nearly all aspects of the Company’s business, including sales and
marketing, operations and finance.
|
|
Oscar
Munoz, 51
Executive
Vice President and Chief Financial Officer
|
Munoz
has served as Executive Vice President and Chief Financial Officer of CSX
and CSXT since May 2003 and is responsible for management and oversight of
all financial, strategic planning, information technology, purchasing and
real estate activities of CSX.
Munoz
brings to the Company more than 25 years of experience from a variety of
industries. Before joining CSX in 2003, Munoz served as Chief
Financial Officer and Vice President of AT&T Consumer
Services. He has also held key executive positions within the
telecommunication and beverage industries, including the Coca-Cola Company
and Pepsico Corporation.
|
|
Name and Age
|
Business Experience During Past 5
Years
|
|
David
A. Brown, 50
Executive
Vice President and Chief Operating Officer
|
Brown
assumed the role of Executive Vice President and Chief Operating Officer
of CSXT in January 2010 and manages all aspects of the Company’s
operations across its 21,000 mile network, including transportation,
service design, customer service, engineering and mechanical.
Prior
to joining CSXT in 2006, Brown spent 24 years at Norfolk Southern
Railway where he served as Vice President of Strategic Planning from 2005
– 2006 and General Manager, Northern Region, from 2000 –
2005.
|
| Clarence
W. Gooden, 58
Executive
Vice President of Sales and Marketing and Chief Commercial
Officer
|
Gooden
has been the Executive Vice President and Chief Commercial Officer of CSX
and CSXT since April 2004 and is responsible for generating customer
revenue, forecasting business trends and developing CSX’s model for future
revenue growth.
A
member of the Company for more than 35 years, Gooden has held key
executive positions in both operations and sales and marketing, including
President of CSX Intermodal in 2001 and Senior Vice President of the
Merchandise Service Group in 2002.
|
|
Ellen
M. Fitzsimmons, 49
Senior
Vice President of Law and Public Affairs, General Counsel and Corporate
Secretary
|
Fitzsimmons
has been the Senior Vice President of Law and Public Affairs, General
Counsel, and Corporate Secretary since December 2003. She
serves as the Company’s chief legal officer and oversees all government
relations and public affairs activities.
During
her 18-year tenure with the Company, her broad responsibilities have
included key roles in major risk and corporate governance-related
areas.
|
|
Name and Age
|
Business Experience During Past 5
Years
|
|
Lisa
A. Mancini, 50
Senior
Vice President of Human Resources and Labor Relations
|
Mancini
has been the Senior Vice President of Human Resources and Labor Relations
since January 2009 and is responsible for employee compensation and
benefits, labor relations, organizational development and transformation,
recruitment, training and various administrative
activities. She previously served as Vice President-Strategic
Infrastructure Initiatives from 2007 to 2009 and, prior to that, Vice
President – Labor Relations.
Prior
to joining CSX in 2003, Mancini served as Chief Operating Officer of the
San Francisco Municipal Railway and held executive positions at the San
Francisco Municipal Transportation Authority and Southeastern Pennsylvania
Transportation Authority.
|
|
Carolyn
T. Sizemore, 47
Vice
President and Controller
|
Sizemore
has served as Vice President and Controller of CSX and CSXT since April
2002 and is responsible for financial and regulatory reporting, freight
billing and collections, payroll for the Company’s 30,000 employees,
accounts payable and various other accounting processes.
Sizemore’s
responsibilities during her 20-year tenure with the Company have included
roles in finance and audit-related areas including a variety of positions
in accounting, finance strategies, budgets and performance
analysis.
|
Market
Information
CSX’s common stock is listed on the NYSE, which is its principal trading
market, and is traded over-the-counter and on exchanges
nationwide. The official trading symbol is “CSX.”
Description
of Common and Preferred Stock
A total of 600 million shares of common
stock are authorized, of which 393,460,376 shares were outstanding as of
December 2009. Each share is entitled to one vote in all matters
requiring a vote of shareholders. There are no pre-emptive rights,
which are privileges extended to select shareholders that allow them to purchase
additional shares before other members of the general public in the
event of an offering. At February 5, 2010, the latest
practicable date, there were 39,364 common stock shareholders of
record. The weighted average of common shares outstanding, which was
used in the calculation of diluted earnings per share, was approximately 396
million as of December 25, 2009. (See Note 2, Earnings Per
Share.)
A total of 25 million shares of
preferred stock is authorized, none of which is currently
outstanding.
The following table sets forth, for the
quarters indicated, the dividends declared and the high and low share prices of
CSX common stock as required by SEC Regulation S-K.
|
Quarter
|
||||||||
|
1st
|
2nd
|
3rd
|
4th
|
Year
|
||||
|
2009
|
||||||||
|
Dividends
|
$0.22
|
$0.22
|
$0.22
|
$0.22
|
$0.88
|
|||
|
Common
Stock Price
|
||||||||
|
High
|
$36.82
|
$36.57
|
$48.85
|
$50.80
|
$50.80
|
|||
|
Low
|
$20.70
|
$25.09
|
$30.25
|
$40.67
|
$20.70
|
|||
|
2008
|
||||||||
|
Dividends
|
$0.15
|
$0.18
|
$0.22
|
$0.22
|
$0.77
|
|||
|
Common
Stock Price
|
||||||||
|
High
|
$58.10
|
$70.70
|
$69.50
|
$56.35
|
$70.70
|
|||
|
Low
|
$39.87
|
$55.04
|
$50.50
|
$30.61
|
$30.61
|
|||
Stock
Performance Graph
The cumulative shareholder returns,
assuming reinvestment of dividends, on $100 invested at December 31, 2004 are
illustrated on the graph below. The Company references the Standard
& Poor 500 Stock Index (“S&P 500”) and the Dow Jones U.S. Transportation
Average Index, which provide comparisons to a broad-based market index and other
companies in the transportation industry. As shown in the graph,
CSX’s five-year stock returns significantly outpaced those of the S&P
500.
* The S&P 500 is a registered trademark of the McGraw-Hill Companies, Inc.
CSX
Purchases of Equity Securities
CSX is required to disclose any purchases of its own common stock for the most
recent quarter. CSX purchases its own shares for two primary reasons: to
further its goals under its share repurchase program and to fund the Company’s
contribution required to be paid in CSX common stock under a 401(k) plan which
covers certain union employees.
In 2008,
CSX announced an increase to its share repurchase program, prospectively
targeting $3 billion in shares. While there was no share repurchase
activity in 2009, as of December 2009, CSX has cumulatively completed
approximately $1.25 billion of that targeted share repurchase amount and has
remaining authority of $1.75 billion. In 2010, through the date of
this filing, the Company completed approximately $229 million of additional
share repurchases. Additional repurchases will be considered as
part of the Company’s evaluation of how best to deploy its capital resources
among alternatives while considering changes in market and business
conditions.
Selected financial data and significant
events related to the Company’s financial results for the last five fiscal years
are listed below.
|
Fiscal
Years
|
|||||||
|
(Dollars
in Millions, Except Per Share Amounts)
|
2009
|
2008
|
2007
|
2006
|
2005
|
||
|
Earnings
From Continuing Operations
|
|||||||
|
Operating
Revenue
|
$9,041
|
$11,255
|
$10,030
|
$9,566
|
$8,618
|
||
|
Operating
Expense
|
6,756
|
8,487
|
7,770
|
7,417
|
7,062
|
||
|
Operating
Income
|
$2,285
|
$2,768
|
$2,260
|
$2,149
|
$1,556
|
||
|
Earnings
from Continuing Operations (a)
|
$1,137
|
$1,495
|
$1,236
|
$1,318
|
$716
|
||
|
Earnings
Per Share: (a)
|
|||||||
|
From
Continuing Operations
|
$2.90
|
$3.73
|
$2.88
|
$3.00
|
$1.66
|
||
|
From
Continuing Operations, Assuming Dilution
|
2.87
|
3.66
|
2.77
|
2.84
|
1.58
|
||
|
Financial
Position
|
|||||||
|
Cash,
Cash Equivalents and Short-term Investments
|
$1,090
|
$745
|
$714
|
$900
|
$602
|
||
|
Total
Assets
|
27,036
|
26,288
|
25,534
|
25,129
|
24,232
|
||
|
Long-term
Debt
|
7,895
|
7,512
|
6,470
|
5,362
|
5,093
|
||
|
Shareholders'
Equity (b)
|
8,860
|
8,068
|
8,706
|
9,031
|
8,022
|
||
|
Other
Data Per Common Share
|
|||||||
|
Dividend
Per Share
|
$0.88
|
$0.77
|
$0.54
|
$0.33
|
$0.215
|
||
|
Employees
-- Annual Averages
|
|||||||
|
Rail
|
28,572
|
31,664
|
32,477
|
32,987
|
32,033
|
||
|
Other
|
1,516
|
2,699
|
2,966
|
3,018
|
3,076
|
||
|
Total
|
30,088
|
34,363
|
35,443
|
36,005
|
35,109
|
||
|
(a)
|
Prior
year amounts have been reclassified to reflect discontinued
operations. For further information, see Note 14, Discontinued
Operations.
|
|
(b)
|
Prior
year amounts have been reclassified to reflect noncontrolling interest
expense as a component of Stockhoders’ Equity. See New
Accounting Pronouncements in Note 1, Nature of Operations and Significant
Accounting Policies for further
information.
|
Significant
Events
|
2008
|
--
|
Recorded
a non-cash adjustment to income of $30 million pre-tax, or $19 million
after-tax, to correct equity earnings from a non-consolidated
subsidiary.
|
|
2006
|
--
|
Two-for-one
split of the Company’s common stock effective 2006. All periods
have been retroactively restated to reflect the stock
split.
|
|
|
--
|
Recognized
gains of $168 million pre-tax, or $104 million after-tax, on insurance
recoveries from claims related to Hurricane
Katrina.
|
|
|
--
|
Recognized
an income tax benefit of $151 million primarily related to the resolution
of certain tax matters, including resolution of ordinary course
federal income tax audits for 1994 –
1998.
|
|
|
--
|
Recognized
a $26 million after-tax non-cash gain on additional Conrail property
received.
|
|
2005
|
--
|
Recognized
a charge of $192 million pre-tax, or $123 million after-tax, to repurchase
$1.0 billion of outstanding debt, for costs of the increase in current
market value above original issue value. (See Note 9, Debt and
Credit Agreements.)
|
|
|
--
|
Recognized
an income tax benefit of $71 million for the Ohio legislative change to
gradually eliminate its corporate franchise
tax.
|
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. The CSX rail network spans 21,000 miles of track with
service to 23 states and the District of Columbia, and connects more than 70
ocean, river, and lake ports with major manufacturing and distribution centers
in the Northeast, Midwest and South. 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,
CSX and the rail industry experienced significant freight rail volume
declines. During this period CSX, nonetheless, was able to make
financial and operational improvements by maintaining a focus on safety, train
operations and cost control. CSX took aggressive actions to manage
costs and right-size resources to match demand conditions. These
actions included right-sizing the labor force through furloughs to match
decreasing volumes, adjusting the ONE Plan to reduce the size of its scheduled
train network, adjusting the unit train network in order to conserve resources
and reducing the number of active locomotives and freight cars to reduce
maintenance costs. In addition to controlling resources, the Company
stayed focus on striving for high safety standards and continuing to provide
strong customer service. The Company also continues to advance its
Total Service Integration (“TSI”) initiative, which aims to optimize train size
and increase asset utilization while delivering more reliable service to
customers.
In
addition to a commitment to strengthening operational efficiency and
productivity, CSX continues to invest in its network to further enhance safety
and improve service and reliability for its customers. 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. To that end, CSX will continue to advocate for a fair and
balanced regulatory environment to ensure that the value of CSX’s rail service
will be reflected in new legislation and policy.
As an
example of CSX’s commitment to investing in its network and improving the flow
of freight, the Company launched the National Gateway, a multi-million dollar
public-private infrastructure initiative which will significantly improve the
efficiency of the freight network between the Mid-Atlantic ports and the
Midwest. 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.
With a
blend of improved safety trends, productivity gains, pricing and prudent
investment in the train network and rail efficiency, the Company has positioned
itself to benefit from the gradual economic recovery. The Company
expects to deliver double-digit earnings per share growth for 2010. This
expectation is supported by strong volume and revenue growth, including export
coal shipments that could approach 30 million tons this year, and strong
operating ratio improvement as well.
|
·
|
Revenue
decreased $2.2 billion or 20% to $9.0 billion as declines in volume and
lower fuel surcharge revenue more than offset core pricing
gains.
|
|
·
|
Expenses
decreased $1.7 billion or 20% to $6.8 billion, reflecting a sharp decline
in the price of fuel as well as productivity gains and right-sizing
efforts.
|
|
·
|
Operating
income decreased $483 million or 17% to $2.3
billion.
|
|
·
|
Operating
ratio improved to 74.7%, an all-time
record.
|
Even with
a severe, broad-based economic recession, CSX delivered solid financial
results. Revenues were down 20% from the prior year, as a 6.2%
increase in core pricing was offset by a 15% decline in volume and lower fuel
surcharge recovery (associated with the sharp decline in fuel
prices). Year-over-year volume declines were experienced across all
markets with the exception of the domestic intermodal segment. In
this challenging environment, the Company continued to achieve pricing gains
primarily due to improved service and the overall cost advantages that
rail-based solutions provide to customers versus other modes of
transportation.
At the
same time, CSX was able to reduce expenses by $1.7 billion, or 20%, versus the
prior year. These expense reductions helped partially offset the
revenue decline and were a combined result of lower fuel expense, ongoing
productivity initiatives and overall cost management efforts. Because
of the Company’s continued focus on cost control, CSX was able to achieve a
record operating ratio of 74.7%.
For
additional information, refer to Rail and Intermodal Results of Operations
discussed on pages 39 through 42.
In
addition to the financial highlights described above, the Company measures and
reports safety and service performance. CSX 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
2009, the Company continued to advance its efforts on safety and operating
performance. CSXT delivered improved year-over-year results in both FRA
personal injuries and train accidents. The FRA personal injury index
declined to 1.19, a 2% improvement. Reported FRA train accident frequency
declined to 2.77, for a 5% improvement. The same results over a five year
period show a 49% improvement in the FRA personal injury frequency index and a
43% improvement in the FRA train accident rate which is attributable to the
Company’s continuous focus on safety.
Key
service metrics remained strong in the year. On-time train originations and
arrivals were 81% and 80%, respectively, for the year. CSXT reduced the
number of train starts in response to lower demand which resulted in an increase
in average dwell to 24.1. Average cars-on-line declined to 216,013,
also primarily due to lower demand levels. Average train velocity improved to
21.8 miles per hour, as the network remained fluid. CSXT aims to maintain key
operating measures and service reliability at high levels, while reducing
resource utilization in response to current business
conditions.
|
Rail
Operating Statistics (Estimated)
|
Fiscal
Years
|
Improvement/
|
|||
|
2009
|
2008
|
(Decline)
|
%
|
||
|
Service
|
|||||
|
Measurements
|
FRA
Personal Injuries Frequency Index
|
1.19
|
1.22
|
2
|
%
|
|
FRA
Train Accident Rate
|
2.77
|
2.92
|
5
|
||
|
On-Time
Train Originations
|
81%
|
79%
|
3
|
||
|
On-Time
Destination Arrivals
|
80%
|
70%
|
14
|
||
|
Dwell
|
24.1
|
23.3
|
(3)
|
||
|
Cars-On-Line
|
216,013
|
223,577
|
3
|
||
|
Train
Velocity
|
21.8
|
20.5
|
6
|
||
|
Increase/
|
|||||
|
(Decrease)
|
|||||
|
Resources
|
Route
Miles
|
21,190
|
21,205
|
-
|
%
|
|
Locomotives
(owned and long-term leased)
|
4,071
|
4,143
|
(2)
|
||
|
Freight
Cars (owned and long-term leased)
|
84,282
|
91,350
|
(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).
Train Velocity –
Average train speed between terminals in miles per hour (does not include
locals, yard jobs, work trains or passenger trains).
In
addition to producing strong financial, safety and service results, CSX
continued to invest in its business to create long-term value for
shareholders. In 2009 property additions of $1.4 billion as well as $160
million of new assets purchased using seller financing were slightly lower than
prior year. (These items are reflected in the investing and financing
sections of the cash flow statement, respectively.) The Company remains
committed to maintaining and improving its existing infrastructure and to
positioning itself for long-term growth through expanding network and terminal
capacity. As described below, free cash flow before dividends decreased
$551 million to $670 million. This decrease was primarily driven by
decreased cash from operations as a result of lower earnings. Partially
offsetting this decrease were fewer property additions in 2009 compared to the
prior year. CSX also maintained the quarterly dividend of $0.22 throughout
2009.
Free
Cash Flow (Non-GAAP Measure)
Free cash flow is considered a non-GAAP
financial measure under SEC Regulation G, Disclosure of Non-GAAP
Measures. Management believes, however, that free cash flow is important
in evaluating the Company’s financial performance and measures an ability to
generate cash without incurring additional external financing. Free cash flow
should be considered in addition to, rather than a substitute for, cash provided
by operating activities.
Free cash flow is calculated by using
net cash from operations and adjusting for property additions and certain other
investing activities. Also, added to free cash flow is the Company’s
42% economic interest in Conrail’s free cash flow which is not consolidated in
CSX amounts.
The following table reconciles cash
provided by operating activities (GAAP measure) to free cash flow (non-GAAP
measure).
|
Fiscal
Years
|
|||
|
2009
|
2008
|
2007
|
|
|
(Dollars
in Millions)
|
|||
|
Net
cash provided by operating activities
|
$2,060
|
$2,914
|
$2,184
|
|
Property
additions (a)
|
(1,447)
|
(1,740)
|
(1,773)
|
|
Other
investing activities and Conrail free cash flow
|
57
|
47
|
(35)
|
|
Free
Cash Flow (before payment of dividends)
|
$670
|
$1,221
|
$376
|
|
|
(a)
As shown on the cash flow statement under supplemental cash flow
information, seller financed assets included new assets purchased as well
as lease buyouts. New assets purchased included in this amount
were $160 million and $54 million for 2009 and 2008,
respectively. No new assets were purchased during 2007 using
seller financing.
|
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, 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, 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.
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
conjunction with those discussed in Item 1A (Risk Factors) 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 re-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;
|
|
·
|
material
changes in domestic or international economic, political or business
conditions, including those affecting the transportation industry such as
access to capital markets, ability to revise debt arrangements as
contemplated, customer demand, customer acceptance of price increases,
effects of adverse economic conditions affecting shippers and adverse
economic conditions in the industries and geographic areas that consume
and produce freight;
|
|
·
|
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;
|
|
·
|
the
inherent 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
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 plans and operational
objectives and improving operating
efficiency;
|
|
·
|
changes
in operating conditions and costs or commodity concentrations;
and
|
|
·
|
the
inherent uncertainty associated with projecting full year 2010 economic
and business conditions at an early point in the year and in the economic
recovery.
|
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 annual report on Form
10-K.
2009
vs. 2008 Results of Operations
|
(Dollars
in Millions)
|
||||||||||||
|
Fiscal
Years
|
||||||||||||
|
CSX
|
||||||||||||
|
Rail (a)
|
Intermodal
|
Consolidated (a)
|
||||||||||
|
2009
|
2008
|
2009
|
2008
|
2009
|
2008
|
$
Change
|
%
Change
|
|||||
|
Revenue
|
$7,837
|
$9,789
|
$1,204
|
$1,466
|
$9,041
|
$11,255
|
$(2,214)
|
(20)
|
%
|
|||
|
Operating
Expense:
|
||||||||||||
|
Labor
and Fringe
|
2,561
|
2,879
|
68
|
76
|
2,629
|
2,955
|
326
|
11
|
||||
|
Materials,
Supplies and Other
|
1,530
|
1,933
|
185
|
200
|
1,715
|
2,133
|
418
|
20
|
||||
|
Fuel
|
845
|
1,810
|
4
|
7
|
849
|
1,817
|
968
|
53
|
||||
|
Depreciation
|
883
|
879
|
25
|
25
|
908
|
904
|
(4)
|
-
|
||||
|
Equipment
and Other Rents
|
289
|
317
|
102
|
108
|
391
|
425
|
34
|
8
|
||||
|
Inland
Transportation
|
(394)
|
(507)
|
658
|
760
|
264
|
253
|
(11)
|
(4)
|
||||
|
Total
Expense
|
5,714
|
7,311
|
1,042
|
1,176
|
6,756
|
8,487
|
1,731
|
20
|
||||
|
Operating
Income
|
$2,123
|
$2,478
|
$162
|
$290
|
$2,285
|
$2,768
|
$(483)
|
(17)
|
||||
|
Interest
Expense
|
(558)
|
(519)
|
(39)
|
(8)
|
||||||||
|
Other
Income - Net
|
34
|
100
|
(66)
|
(66)
|
||||||||
|
Income
Tax Expense
|
(624)
|
(854)
|
230
|
27
|
||||||||
|
Earnings
from Continuing Operations
|
1,137
|
1,495
|
(358)
|
(24)
|
||||||||
|
Discontinued
Operations (b)
|
15
|
(130)
|
145
|
112
|
||||||||
|
Net
Earnings
|
$1,152
|
$1,365
|
$(213)
|
(16)
|
||||||||
|
Earnings
Per Diluted Share
|
||||||||||||
|
From
Continuing Operations
|
$2.87
|
$3.66
|
$(0.79)
|
(22)
|
||||||||
|
Discontinued
Operations
(b)
|
0.04
|
(0.32)
|
0.36
|
113
|
||||||||
|
Net
Earnings
|
$2.91
|
$3.34
|
$(0.43)
|
(13)
|
%
|
|||||||
|
Operating
Ratio
|
72.9%
|
74.7%
|
86.5%
|
80.2%
|
74.7%
|
75.4%
|
||||||
|
(a)
|
In
addition to CSXT, the Rail segment includes non-railroad subsidiaries such
as Total Distribution Services, Inc., Transflo Terminal Services, Inc.,
CSX Technology, Inc. and other
subsidiaries.
|
|
(b)
|
In
2009, CSX sold the stock of a subsidiary that indirectly owned Greenbrier
Hotel Corporation, owner of The Greenbrier resort. The results
are now classified as discontinued operations. For more
information, see Note 14, Discontinued
Operations.
|
|
Volume
(Thousands of Units); Revenue (Dollars in Millions); Revenue Per Unit
(Dollars)
|
||||||||||||||
|
Fiscal
Years
|
||||||||||||||
|
Volume
|
Revenue
|
Revenue
Per Unit
|
||||||||||||
|
2009
|
2008
|
%
Change
|
2009
|
2008
|
%
Change
|
2009
|
2008
|
%
Change
|
||||||
|
Chemicals
|
424
|
493
|
(14)
|
%
|
$1,267
|
$1,454
|
(13)
|
%
|
$2,988
|
$2,949
|
1
|
%
|
||
|
Emerging
Markets
|
405
|
487
|
(17)
|
585
|
714
|
(18)
|
1,444
|
1,466
|
(2)
|
|||||
|
Forest
Products
|
258
|
344
|
(25)
|
547
|
793
|
(31)
|
2,120
|
2,305
|
(8)
|
|||||
|
Agricultural
Products
|
428
|
432
|
(1)
|
960
|
1,010
|
(5)
|
2,243
|
2,338
|
(4)
|
|||||
|
Metals
|
200
|
337
|
(41)
|
399
|
752
|
(47)
|
1,995
|
2,231
|
(11)
|
|||||
|
Phosphates
and Fertilizers
|
289
|
334
|
(13)
|
373
|
461
|
(19)
|
1,291
|
1,380
|
(6)
|
|||||
|
Food
and Consumer
|
100
|
109
|
(8)
|
233
|
281
|
(17)
|
2,330
|
2,578
|
(10)
|
|||||
|
Total
Merchandise
|
2,104
|
2,536
|
(17)
|
4,364
|
5,465
|
(20)
|
2,074
|
2,155
|
(4)
|
|||||
|
Coal
|
1,487
|
1,779
|
(16)
|
2,615
|
3,110
|
(16)
|
1,759
|
1,748
|
1
|
|||||
|
Coke
and Iron Ore
|
66
|
100
|
(34)
|
112
|
175
|
(36)
|
1,697
|
1,750
|
(3)
|
|||||
|
Total
Coal
|
1,553
|
1,879
|
(17)
|
2,727
|
3,285
|
(17)
|
1,756
|
1,748
|
-
|
|||||
|
Automotive
|
234
|
343
|
(32)
|
511
|
784
|
(35)
|
2,184
|
2,286
|
(4)
|
|||||
|
Other
|
-
|
-
|
-
|
235
|
255
|
(8)
|
-
|
-
|
-
|
|||||
|
Total
Rail
|
3,891
|
4,758
|
(18)
|
7,837
|
9,789
|
(20)
|
2,014
|
2,057
|
(2)
|
|||||
|
International
|
780
|
1,000
|
(22)
|
353
|
509
|
(31)
|
453
|
509
|
(11)
|
|||||
|
Domestic
|
1,122
|
1,069
|
5
|
831
|
927
|
(10)
|
741
|
867
|
(15)
|
|||||
|
Other
|
-
|
-
|
-
|
20
|
30
|
(33)
|
-
|
-
|
-
|
|||||
|
Total
Intermodal
|
1,902
|
2,069
|
(8)
|
1,204
|
1,466
|
(18)
|
633
|
709
|
(11)
|
|||||
|
Total
|
5,793
|
6,827
|
(15)
|
%
|
$9,041
|
$11,255
|
(20)
|
%
|
$1,561
|
$1,649
|
(5)
|
%
|
||
Certain
data within Merchandise categories have been reclassified to conform to the
current year presentation.
2009
vs. 2008 Rail Results of Operations
Rail
Revenue
Rail
revenue, which excludes Intermodal, is categorized by three main lines of
business: merchandise, coal and automotive. Rail revenue decreased
$2.0 billion, or 20%, to $7.8 billion from the prior year driven by an 18%
decline in volume and lower fuel cost recovery associated with the sharp decline
in fuel prices. The broad-based economic recession drove
year-over-year volume declines across all major markets. In this
challenging environment, CSXT continued to achieve pricing gains primarily due
to improved service and the overall cost advantages that rail-based solutions
provide to customers versus other modes of transportation.
Merchandise
Chemicals – Volume
declined as weakness in the housing, automotive and consumer goods markets
significantly reduced demand for chemical products related to those markets.
Revenue per unit was flat as yield management efforts were offset by lower fuel
recovery.
Emerging Markets –
Volume was down as a result of declines in aggregate shipments, such as crushed
stone, sand and gravel, caused by a continued weakness in both residential and
non-residential construction.
Forest Products – A
weak housing market drove the decline in lumber and building products. Paper
volume continued to be soft due to electronic media substitution and less
packaging being used as a result of lower consumer spending.
Agricultural Products
- Volume was down slightly as the growth in ethanol and export grain was more
than offset by lower poultry production which negatively impacted the feed grain
and ingredient markets.
Metals – The largest
decline in volume was experienced in metals driven by weak global and domestic
steel demand in the automotive and construction industries. The
decline in demand moderated during the year due to replenishment of low
inventories and an improvement in automotive production.
Phosphates and
Fertilizers – International and domestic shipments declined due to lower
phosphate and potash soil application by farmers in reaction to lower prices for
grain and the tight credit environment.
Food and Consumer
–Weakness in residential construction caused reduced shipments of appliances and
other consumer goods. Yet, basic needs markets such as food products
were less severely impacted by the economic conditions.
Coal
Volume
declines were driven by lower demand from electric utilities and a decrease in
exports compared to 2008. Domestic coal demand for generating
electricity was down due to natural gas substitution and lower industrial
production, resulting in continued high stock pile levels. The 2009 export
market decline was a result of both lower steel production in Europe reducing
the need for metallurgical coal (used to produce steel) and less expensive
alternative global sources for European utilities. Overall revenue
per unit for the Coal market improved as yield management efforts more than
offset lower fuel recovery.
For 2010,
domestic utility demand is expected to remain weak through the first half of the
year. However, export market conditions are improving due to
increasing global steel production. Export coal shipments could
approach 30 million tons in 2010. This increase in demand is expected to more
than offset the
forecasted domestic
utility coal weakness, potentially producing full year gains in overall coal,
coke and iron ore shipments.
Automotive
Volume
declined due to a reduction in light vehicle production, several plant closures
and lower vehicle sales driven by the weak economy and a tight credit
environment. Volume, however, improved in the second half of the year
as inventories stabilized and the Cash for Clunkers program helped spur sales.
Revenue per unit was negatively impacted by lower fuel recovery associated with
the sharp decline in fuel prices.
Rail
Expense
Total
rail expenses for 2009 decreased 22% or $1.6 billion to $5.7 billion compared to
the prior year. The description of what is included in each category
as well as significant year over year changes is described below.
Labor and Fringe expenses
include employee compensation and benefit programs. These expenses
are primarily affected by inflation, headcount, wage rates, incentives earned,
healthcare plan costs, and pension and other post-retirement plan
expenses. These expenses decreased $318 million primarily driven by
labor productivity initiatives, such as employee furloughs and reduced crew
overtime. Lower incentive compensation was partially offset by
inflation and other items.
Materials, Supplies and
Other expenses
consist primarily of materials and contracted services to maintain
infrastructure and equipment and for terminal services at automotive
facilities. This category also includes costs related to casualty
claims, environmental remediation, train accidents, utilities, property and
sales taxes and professional services. Materials, supplies and other
expenses decreased by $403 million in 2009. This decrease is driven by several
items, the largest impact being a decline in volume-related
expenses. Improving trends in safety and a decrease in overall
casualty claims drove a net favorable adjustment to casualty reserves during
2009. Prior year storm and proxy-related items not repeated in the
current year also added to this decrease. Lastly, improved
collections and a stabilizing economic environment caused a decrease in bad debt
expense. This decrease was partially offset by an increase in
inflation-related items in 2009.
Fuel expense includes
locomotive diesel fuel as well as non-locomotive fuel. This expense
is driven by the market price and locomotive consumption of diesel
fuel. Fuel expense decreased $965 million primarily due to sharply
lower fuel prices and lower volume.
Depreciation expense
primarily relates to recognizing the cost of a capital asset, such as
locomotives, railcars and track structure, over its useful life. This
expense is impacted primarily by the capital expenditures made each
year. Depreciation expense increased $4 million primarily due to a
slightly larger asset base. This increase was largely offset by lower
depreciation rates resulting from periodic asset life studies.
Equipment and Other
Rents primarily includes
rent paid for freight cars owned by other railroads or private companies, net of
rents received by CSXT for use of CSXT equipment. This category of
expenses also includes lease expenses primarily for locomotives, railcars,
containers and trailers, office and other rentals. These expenses decreased $28
million mainly due to lower volume and fewer locomotive leases.
Inland
Transportation expenses
included in the rail segment are primarily for amounts paid to CSXT from
Intermodal for shipments on CSXT’s network. These intercompany
charges are eliminated in consolidated results. The remaining
consolidated amount which fluctuates with volume is expense paid by Intermodal
to other transportation companies.
2009
vs. 2008 Intermodal Results of Operations
Intermodal
operating income decreased $128 million, or 44%, to $162 million in 2009.
Intermodal revenue declined $262 million, or 18%, to $1.2 billion, due to an 8%
reduction in volume and an 11% decline in revenue per unit. The volume decline
was led by a decrease in international traffic due to the economy which was
partially offset by domestic growth in railroad provided container shipments,
over-the-road truckload conversions, and expanded service offerings. Revenue per
unit was lower primarily due to decreased fuel recovery and competitive truck
pricing.
Intermodal
operating expense decreased 11%, or $134 million, to $1.0 billion driven
primarily by a decline in volume and lower fuel prices. Purchased transportation
expense increased over 2008 due to increased volume in domestic transcontinental
traffic.
2009
vs. 2008 Consolidated Results
Interest
Expense
Interest
expense increased $39 million to $558 million due to higher average debt
balances in 2009.
Other
Income – Net
Other
income decreased $66 million to $34 million in 2009. Last year’s
results included a $30 million non-cash adjustment to correct equity earnings
from a non-consolidated subsidiary that was not repeated in the current
year. This decrease also included lower average cash and investment
balances and a lower average rate of return as well as lower income from real
estate sales.
Income
Tax Expense
Income
tax expense decreased $230 million to $624 million primarily due to lower
earnings in 2009.
Net
Earnings
Net
earnings decreased $213 million to $1.2 billion and earnings per diluted share
decreased $.43 to $2.91 in 2009. This decrease was primarily due to
the following factors:
|
·
|
Operating
income decreased $483 million primarily due to lower
revenue.
|
|
·
|
Offsetting
this decrease was a $145 million increase in income from discontinued
operations as 2008 included an impairment loss related to The Greenbrier
as well as a $230 million decrease in tax
expense.
|
2008 vs. 2007 Results of
Operations
|
(Dollars
in Millions)
|
||||||||||||
|
Fiscal
Year
|
||||||||||||
|
CSX
|
||||||||||||
|
Rail (a)
|
Intermodal
|
Consolidated
|
||||||||||
|
2008
|
2007
|
2008
|
2007
|
2008
|
2007
|
$
Change
|
%
Change
|
|||||
|
Revenue
|
$9,789
|
$8,674
|
$1,466
|
$1,356
|
$11,255
|
$10,030
|
$1,225
|
12
|
%
|
|||
|
Operating
Expense:
|
||||||||||||
|
Labor
and Fringe
|
2,879
|
2,905
|
76
|
81
|
2,955
|
2,986
|
31
|
1
|
||||
|
Materials,
Supplies and Other
|
1,933
|
1,720
|
200
|
178
|
2,133
|
1,898
|
(235)
|
(12)
|
||||
|
Fuel
|
1,810
|
1,307
|
7
|
5
|
1,817
|
1,312
|
(505)
|
(38)
|
||||
|
Depreciation
|
879
|
849
|
25
|
34
|
904
|
883
|
(21)
|
(2)
|
||||
|
Equipment
and Other Rents
|
317
|
341
|
108
|
110
|
425
|
451
|
26
|
6
|
||||
|
Inland
Transportation
|
(507)
|
(448)
|
760
|
688
|
253
|
240
|
(13)
|
(5)
|
||||
|
Total
Expense
|
7,311
|
6,674
|
1,176
|
1,096
|
8,487
|
7,770
|
(717)
|
(9)
|
||||
|
Operating
Income
|
$2,478
|
$2,000
|
$290
|
$260
|
$2,768
|
$2,260
|
$508
|
22
|
||||
|
Interest
Expense
|
(519)
|
(417)
|
(102)
|
(24)
|
||||||||
|
Other
Income - Net
|
100
|
105
|
(5)
|
(5)
|
||||||||
|
Income
Tax Expense
|
(854)
|
(712)
|
(142)
|
(20)
|
||||||||
|
Earnings
from Continuing Operations
|
1,495
|
1,236
|
259
|
21
|
||||||||
|
Discontinued
Operations (b)
|
(130)
|
100
|
(230)
|
(230)
|
||||||||
|
Net
Earnings
|
$1,365
|
$1,336
|
$29
|
2
|
||||||||
|
Earnings
Per Diluted Share
|
||||||||||||
|
From
Continuing Operations
|
$3.66
|
$2.77
|
$0.89
|
32
|
||||||||
|
Discontinued
Operations (b)
|
(0.32)
|
0.22
|
(0.54)
|
(245)
|
||||||||
|
Net
Earnings
|
$3.34
|
$2.99
|
$0.35
|
12
|
%
|
|||||||
|
Operating
Ratio
|
74.7%
|
76.9%
|
80.2%
|
80.8%
|
75.4%
|
77.5%
|
||||||
|
(a)
|
In
addition to CSXT, the Rail segment includes non-railroad subsidiaries such
as TDSI, Transflo, CSX Technology and other
subsidiaries.
|
|
(b)
|
In
2009, CSX sold the stock of a subsidiary that indirectly owned Greenbrier
Hotel Corporation, owner of The Greenbrier resort. The results
are now classified as discontinued operations. For more
information, see Note 14, Discontinued
Operations.
|
|
VOLUME AND REVENUE (Unaudited)
|
||||||||||||||
|
Volume
(Thousands of Units); Revenue (Dollars in Millions); Revenue Per Unit
(Dollars)
|
||||||||||||||
|
Fiscal
Years
|
||||||||||||||
|
Volume
|
Revenue
|
Revenue
Per Unit
|
||||||||||||
|
2008
|
2007
|
%
Change
|
2008
|
2007
|
%
Change
|
2008
|
2007
|
%
Change
|
||||||
|
Chemicals
|
493
|
527
|
(6)
|
%
|
$1,454
|
$1,331
|
9
|
%
|
$2,949
|
$2,526
|
17
|
%
|
||
|
Emerging
Markets
|
487
|
546
|
(11)
|
714
|
684
|
4
|
1,466
|
1,253
|
17
|
|||||
|
Forest
Products
|
344
|
385
|
(11)
|
793
|
803
|
(1)
|
2,305
|
2,086
|
10
|
|||||
|
Agricultural
Products
|
432
|
410
|
5
|
1,010
|
786
|
28
|
2,338
|
1,917
|
22
|
|||||
|
Metals
|
337
|
355
|
(5)
|
752
|
702
|
7
|
2,231
|
1,977
|
13
|
|||||
|
Phosphates
and Fertilizers
|
334
|
363
|
(8)
|
461
|
421
|
10
|
1,380
|
1,160
|
19
|
|||||
|
Food
and Consumer
|
109
|
118
|
(8)
|
281
|
263
|
7
|
2,578
|
2,229
|
16
|
|||||
|
Total
Merchandise
|
2,536
|
2,704
|
(6)
|
5,465
|
4,990
|
10
|
2,155
|
1,845
|
17
|
|||||
|
Coal
|
1,779
|
1,771
|
-
|
3,110
|
2,483
|
25
|
1,748
|
1,402
|
25
|
|||||
|
Coke
and Iron Ore
|
100
|
91
|
10
|
175
|
120
|
46
|
1,750
|
1,319
|
33
|
|||||
|
Total
Coal
|
1,879
|
1,862
|
1
|
3,285
|
2,603
|
26
|
1,748
|
1,398
|
25
|
|||||
|
Automotive
|
343
|
439
|
(22)
|
784
|
839
|
(7)
|
2,286
|
1,911
|
20
|
|||||
|
Other
|
-
|
-
|
-
|
255
|
242
|
5
|
-
|
-
|
-
|
|||||
|
Total
Rail
|
4,758
|
5,005
|
(5)
|
9,789
|
8,674
|
13
|
2,057
|
1,733
|
19
|
|||||
|
International
|
1,000
|
1,132
|
(12)
|
509
|
525
|
(3)
|
509
|
464
|
10
|
|||||
|
Domestic
|
1,069
|
979
|
9
|
927
|
807
|
15
|
867
|
824
|
5
|
|||||
|
Other
|
-
|
-
|
-
|
30
|
24
|
25
|
-
|
-
|
-
|
|||||
|
Total
Intermodal
|
2,069
|
2,111
|
(2)
|
1,466
|
1,356
|
8
|
709
|
642
|
10
|
|||||
|
Total
|
6,827
|
7,116
|
(4)
|
%
|
$11,255
|
$10,030
|
12
|
%
|
$1,649
|
$1,409
|
17
|
%
|
||
Prior
periods have been reclassified to conform to the current
presentation.
2008
vs. 2007 Rail Results of Operations
Rail
Revenue
Rail
revenue, which excludes Intermodal, is categorized by three main lines of
business: merchandise, coal and automotive. Rail revenue increased
$1.1 billion, or 13%, to $9.8 billion in 2008 as compared to prior year. CSXT
was able to achieve continued pricing gains predominantly due to the overall
cost and service advantages that the Company’s rail based solutions provide to
customers versus other modes of transportation. Higher fuel cost recovery,
coupled with favorable pricing, more than offset volume losses driven by the
weakening economy.
Merchandise
Chemicals – Revenue
and revenue-per-unit improved due to a continued favorable pricing environment
and fuel recoveries. Volume was down as a result of declines in plastic and
plastic feedstock shipments, driven by weakness in housing, automotive and
consumer goods markets.
Emerging Markets –
Revenue and revenue-per-unit grew due to continued yield management efforts and
favorable fuel recovery. Volume was down as a result of declines in aggregate
shipments, such as crushed stone, sand and gravel, caused by a continued
weakness in both residential and non-residential construction. These
declines more than offset growth in shipments of scrubber limestone and
transportation equipment.
Forest Products –
Revenue was flat and volume declined as shipments of building products slowed
due to the decline in residential housing starts. Further driving
volume declines was a reduction in printing paper and newsprint as a combination
of electronic media substitution and reduced advertising pages affected
demand.
Agricultural Products
– Revenue and volume increased due to continued growth in ethanol shipments and
strong domestic demand in feed ingredients. Revenue-per-unit grew as a result of
continued focus on yield management and increased fuel recovery.
Metals – Revenue and
revenue-per-unit increased due to higher fuel recovery and continued pricing
actions. Lower demand for steel due to continued weakness in construction
and automobile production resulted in volume declines. These declines
more than offset growth in shipments of pipe which were driven by increases in
drilling activity and pipeline construction.
Phosphates and
Fertilizers – Volume declined in phosphate shipments as weak
international and domestic demand resulted in plant
curtailments. Revenue-per-unit increases were driven primarily by
yield initiatives and increased fuel recovery.
Food and Consumer –
Volume declined with decreased demand for building products, appliances and
consumer goods driven by the weakening economy and housing
market. Revenue-per-unit growth resulted from favorable fuel
recoveries and yield initiatives.
Coal
Favorable
pricing and fuel recovery positively influenced revenue and revenue-per-unit.
Volumes were slightly up as strength in the export and river markets were offset
by weakness in electric utility shipments.
Automotive
Volume
and revenue declined due to a reduction in light vehicle production, several
plant closures, and lower vehicle sales driven by the slowing economy and tight
credit environment. Consistent with the overall automotive market, volumes
continued to shift to foreign brands produced domestically. Revenue-per-unit
improved due to yield initiatives and higher fuel recoveries.
Rail
Expense
Total
rail operating expenses for 2008 increased 10% or $637 million to $7.3 billion
compared to the prior year. The description of what is included in
each category is included in the current year’s rail expense section on the
previous pages. The significant year over year changes are described
below.
Labor and Fringe expenses
decreased $26 million primarily driven by reduced staffing levels and lower
benefit costs which were mostly offset by wage inflation.
Materials, Supplies and
Other expenses
increased by $213 million in 2008 primarily due to favorable personal injury
reserve benefits in the prior year. Additionally, these costs also
increased as a result of inflation, proxy-related items and other
items.
Fuel expense
increased $503 million due to higher fuel prices during most of the year which
more than offset increased fuel efficiency.
Depreciation expense
increased $30 million primarily due to a larger asset base as a result of higher
capital spending. This increase was partially offset by lower
depreciation rates resulting from periodic asset life studies.
Equipment and Other
Rents expenses
decreased $24 million due mainly to lower volume and fewer locomotive
leases.
2008
vs. 2007 Intermodal Results of Operations
Intermodal
operating income increased to $290 million, an increase of 12% or $30 million
versus last year. Improved fuel recovery and a favorable traffic mix boosted
revenue per unit and allowed for an 8% increase in revenue despite 2% fewer
loads. The volume impact of the continued deceleration of
international traffic was somewhat offset by domestic growth in railroad
provided container shipments, over-the-road truckload conversion, and short-haul
moves in the Southeast.
Intermodal
operating expense increased 7% or $80 million to $1.2 billion driven primarily
by higher fuel prices and increased purchased transportation expense linked to
growth in domestic transcontinental traffic. Additionally,
depreciation decreased based on the results of a periodic review of asset useful
lives that was completed a year ago.
2008
vs. 2007 Consolidated Results of Operations
Interest
Expense
Interest expense increased $102 million
in 2008 to $519 million due primarily to higher average debt balances in
2008.
Other
Income – Net
Other
income was flat with a decrease of $5 million to $100 million in
2008. Lower income from real estate sales as well as lower cash and
investment balances in 2008 were offset by a $30 million non-cash adjustment to
correct equity earnings from a non-consolidated subsidiary.
Income
Tax Expense
Income tax expense increased $142
million to $854 million which was driven by higher operating income in
2008. This increase was partially offset by an $18 million income tax
benefit during 2008 principally related to the settlement of federal income tax
audits and certain other tax matters.
Net
Earnings
Net earnings increased $29
million to $1.4 billion and earnings per diluted share increased $0.35 to $3.34
in 2008. This increase was primarily due to the following
factors:
|
·
|
Operating
income increased $508 million primarily driven by higher
revenues. This increase in operating income was partially
offset by higher interest expense due to higher debt
levels.
|
|
·
|
Almost
entirely offsetting this increase was a 2008 impairment loss related to
The Greenbrier and a 2007 tax benefit associated with the sale of CSX’s
International Terminals business that was not
repeated.
|
Liquidity is a company’s ability to
generate adequate amounts of cash to meet both current and future needs for
obligations as they mature and to provide for planned capital expenditures,
including those to implement regulatory and legislative
initiatives. In order to have a complete picture of a company’s
liquidity, its balance sheet, sources and uses of cash flow and external factors
should be reviewed.
Material
Changes in the Consolidated Balance Sheets and Significant Cash
Flows
Consolidated
Balance Sheets
CSX’s
balance sheet reflects its strong capital base and the impact of CSX’s balanced
approach in deploying its capital for the benefit of its shareholders, which
includes reinvestment in the Company’s existing infrastructure, investments in
the network and dividends.
Net
properties increased $525 million since December 2008 due to planned
capital expenditures. Additionally, overall long-term debt obligations had
a net increase of $177 million due to the new debt issuance of $500 million
offset by payments of $323 million during the current year.
Total
shareholders’ equity increased $792 million during 2009. This increase was
mainly attributable to net earnings partially offset by dividend payments of
$345 million.
Sources
and Uses of Cash
The
Company has multiple sources of cash. First, the Company generates cash
from operations. In 2009, the Company generated $2.1 billion of cash from
operating activities which represented an $854 million decrease from the prior
year. This decrease was primarily driven by less cash generated from rail
and intermodal operations and higher pension contributions in 2009 versus 2008.
Second, CSX has access to numerous financing sources including a $1.25
billion five-year unsecured revolving credit facility that expires in May
2012. This facility can be increased by an additional $500 million to
$1.75 billion with the approval of the lending banks. See Note 9, Debt and
Credit Agreements for more information.
CSX will
also file its shelf registration statement with the SEC on February 19,
2010. This shelf registration statement is unlimited as to
amount and may be used, subject to market conditions and CSX Board
authorization, to issue debt or equity securities at CSX’s discretion. While CSX
seeks to give itself flexibility with respect to cash requirements, there can be
no assurance that market conditions would permit CSX to sell such debt
securities on acceptable terms at any given time, or at all.
In 2009,
the Company entered into a $250 million receivables securitization facility. For
further details, see page 50.
Among
other things, the Company uses cash for scheduled payments of debt and leases
and to pay dividends to shareholders, as declared by the Board of
Directors. CSX paid dividends of $345 million in 2009, which was $37
million more than prior year. This increase was primarily due to an
increase in the quarterly dividend to $0.22 per share midway through
2008. Net cash used in financing activities decreased primarily as a
result of $1.6 billion of prior year share repurchases that were not repeated in
2009 and was partially offset by less cash received from debt issued in 2009 as
compared to 2008.
Net cash
used in investing activities during 2009 was driven by $1.4 billion of property
additions. (In addition, capital expenditures for 2009 also included $160
million of new assets purchased using seller financing, which are included in
financing activities on the cash flow statement). Funds used for
property additions are further described below.
|
Fiscal
Years
|
|||
|
Property Additions (Dollars in millions)
(a)
|
2009
|
2008
|
2007
|
|
Track
|
$768
|
$720
|
$630
|
| Bridges, Signals and Other | 216 | 213 | 191 |
|
Locomotives
and Freight Cars
|
107
|
454
|
458
|
|
Capacity
and Commercial Facilities
|
169
|
147
|
272
|
|
Hurricanes
Katrina / Gustav Asset Replacement
|
2
|
42
|
24
|
|
Other
|
185
|
164
|
198
|
|
Total
|
$1,447
|
$1,740
|
$1,773
|
|
(a)
|
As
shown on the cash flow statement under supplemental cash flow information,
seller financed assets included new assets purchased as well as lease
buyouts. New assets purchased included in this amount were $160
million and $54 million for 2009 and 2008, respectively. No new
assets were purchased during 2007 using seller
financing.
|
Capital
spending programs are and have been designed to assure the ability to provide
safe, efficient and reliable transportation services. For 2010, CSX
plans to spend $1.7 billion of capital of which 68% will be used to sustain the
core infrastructure. Approximately $200 million, or 12%, of total
capital spending will be applied toward the implementation of unfunded required
regulatory projects such as Positive Train Control (“PTC”) which is
approximately $170 million. CSX intends to fund these capital
investments through funds from operations. The remaining 20% will be
allocated to locomotives, freight cars and high return, growth or productivity
investments such as the National Gateway (a public-private infrastructure
initiative to improve network capacity between Mid-Atlantic ports and the
Midwest).
CSX is
continually evaluating market and regulatory conditions that could affect the
Company’s ability to generate sufficient returns on capital investments.
CSX may revise this estimate as a result of changes in business conditions, tax
legislation or the enactment of new laws or regulations.
Although
new legislation or regulations, such as the STB Reauthorization Bill or climate
change legislation, could have a material adverse effect on the
Company’s operations and financial performance in the future (see Risk
Factors under Item 1A of this Form 10-K), it is too early to predict the
manner or severity of such impact. However, the Company continues to take steps
and explore opportunities to reduce the impact of its operations on the
environment, including investments in new technologies, reducing fuel
consumption and increasing fuel efficiency and lowering emissions.
Liquidity
and Working Capital
Currently,
CSX is well positioned from a liquidity standpoint. The Company ended the
year with over $1 billion of cash, cash equivalents and short-term
investments. CSX also has a $1.25 billion credit facility with a diverse
syndicate of banks that was not drawn on. Additionally, in 2009, the
Company took advantage of an improvement in capital market conditions and issued
$500 million of new debt.
Also, 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, CSX 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. The cash received in exchange for these receivables when CSX
Trade Receivables monetizes them by selling them to third-party lenders will be
recorded as debt on CSX’s consolidated financial statements due to certain
optional reduction or prepayment provisions.
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 $705 million
and a working capital deficit of $13 million at December 2009 and 2008,
respectively. The favorable change is primarily due to increased cash
balances as a result of new debt issued during 2009.
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. A working capital deficit is not unusual for CSX or
other companies in the industry and does not indicate a lack of liquidity. The
Company 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.
Credit
Ratings
Credit
ratings reflect an independent agency’s judgment on the likelihood that a
borrower will repay a debt obligation at maturity. The ratings
reflect many considerations, such as the nature of the borrower’s industry and
its competitive position, the size of the company, its liquidity and access to
capital and the sensitivity of a company’s cash flows to changes in the
economy. The two largest rating agencies, Standard & Poor’s
(“S&P”) and Moody’s Investors Service (“Moody’s”), use alphanumeric codes to
designate their ratings. The highest quality rating for long-term
credit obligations is AAA+ and Aaa1 for S&P and Moody’s,
respectively. A credit rating is not a recommendation to buy, sell or
hold securities and may be subject to revision or withdrawal at any time by the
assigning rating agency.
Ratings
of BBB- and Baa3 or better by S&P and Moody’s, respectively, reflect ratings
on debt obligations that fall within a band of credit quality considered to be
“investment grade.” Currently, CSX’s long-term ratings fall within
this category. If CSX's credit ratings were to decline to lower
levels, the Company could experience significant increases in its interest cost
for new debt. In addition, the market’s demand, and thus the
Company’s ability to readily issue new debt, could become further influenced by
the economic and credit market environment.
The
following tables set forth maturities of the Company's contractual obligations
and other commitments:
|
Type
of Obligation
|
2010
|
2011
|
2012
|
2013
|
2014
|
Thereafter
|
Total
|
|
|
(Dollars
in Millions) (Unaudited)
|
||||||||
|
Contractual Obligations
|
||||||||
|
Long-term
Debt (See Note 9)
|
$113
|
$605
|
$507
|
$779
|
$526
|
$5,478
|
$8,008
|
|
|
Operating
Leases - Net (See Note 7) (a)
|
74
|
65
|
58
|
35
|
19
|
140
|
391
|
|
|
Agreements
with Conrail (a)
|
5
|
3
|
3
|
3
|
4
|
3
|
21
|
|
|
Purchase
Obligations (See Note 7)
|
386
|
434
|
320
|
271
|
272
|
3,853
|
5,536
|
|
|
Total
Contractual Obligations
|
$578
|
$1,107
|
$888
|
$1,088
|
$821
|
$9,474
|
$13,956
|
|
| Other Commitments | ||||||||
|
Guarantees
(See Note 7)
|
$16
|
$13
|
$12
|
$-
|
$-
|
$-
|
$41
|
|
|
Other(b)
|
129
|
-
|
-
|
-
|
-
|
-
|
129
|
|
|
Total
Other Commitments
|
$145
|
$13
|
$12
|
$-
|
$-
|
$-
|
$170
|
|
|
(a)
|
Agreements
with Conrail (for information about Conrail see Note 13, Related Party
Transactions) represent minimum future lease payments of $21 million for
freight cars and locomotives. This amount plus total operating leases-net
of $391 million above equals total net lease commitments of $412 million
disclosed in Note 7, Commitments and
Contingencies.
|
|
(b)
|
Other
commitments of $129 million consisted of surety bonds and letters of
credit. Surety bonds are issued by a third-party as an
assurance that CSX will fulfill certain obligations and are typically a
contract, state, federal or court
requirement.
|
For detailed
information about the Company’s guarantees, operating leases and purchase
obligations, see Note 7, Commitments and Contingencies.
There are no
off-balance sheet arrangements that are reasonably likely to have a material
effect on the Company’s financial condition, results of operations or
liquidity.
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
|
Casualty, Environmental and Legal Reserves
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
FASB Accounting Standards Codification (“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.
Critical Accounting Estimates,
continued
Personal
Injury
Personal
injury reserves represent liabilities for employee work-related and third-party
injuries. Work-related injuries for CSXT employees are primarily
subject to the Federal Employers’ Liability Act (“FELA”). In addition
to FELA liabilities, employees of other CSX subsidiaries are covered by various
state workers’ compensation laws, the Federal Longshore and Harbor Workers’
Compensation Program or the Maritime Jones Act.
CSXT
retains an independent actuarial firm to assist management in assessing the
value of personal injury claims 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.
Claims
have shown a continued downward trend in the number of injuries, resulting in a
continued reduction of the Company’s FRA personal injury rate. This
reduction is a direct result of the Company’s improvement in
safety. Additionally, the trend in the severity of injuries has
significantly declined. During 2009, the Company reduced personal
injury reserves by $84 million based on management’s review of the actuarial
analysis performed by an independent actuarial firm. These reductions
were included in materials, supplies and other in the consolidated income
statements.
Occupational
Occupational
claims arise from allegations of exposures 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.
Asbestos
The
Company is party to a number of occupational claims by employees alleging
exposure to asbestos in the workplace. The heaviest possible exposure
for employees resulted from work conducted in and around steam locomotive
engines that were largely phased out beginning around the
1950s. Other types of exposures, however, including exposure from
locomotive component parts and building materials, continued until it was
substantially eliminated by 1985. Additionally, the Company has
retained liability for asbestos claims filed against the previously owned
international container shipping business. Diseases associated with
asbestos typically have long latency periods (amount of time between exposure to
a disease and onset of the disease) which can range from 10 years to 40
years.
Critical Accounting Estimates,
continued
The
Company retains a third-party specialist with extensive experience in performing
asbestos and other occupational studies to assist management in assessing the
value of the Company’s reserves. The analysis is performed by the specialist
semi-annually and is reviewed by management. The objective of the
analysis is to determine the number of estimated incurred but not reported
(“IBNR”) claims and the estimated average cost per claim to be received over the
next seven years. Seven years was determined by management to be the
time period in which probable claim filings and claim values could be estimated
with more certainty.
The
Company, with the assistance of the third-party specialist, determines its
potentially exposed population and it is then able to derive the estimated
number of IBNR claims. The estimated average cost per claim is then determined
utilizing recent actual average cost per claim data and national industry data.
Key elements of the assessment include the following:
|
·
|
An
estimate is computed using a ratio of Company employee data to national
employment for select years during the period 1938-2001. The
Company uses railroad industry historical census data because it does not
have detailed employment records in order to compute the population of
potentially exposed employees.
|
|
·
|
The
projected incidence of disease is estimated based on epidemiological
studies using employees’ ages and the duration and intensity of potential
exposure while employed. Epidemiology is the medical science
that deals with the incidence, distribution and control of diseases in a
population.
|
|
·
|
An
estimate of the future anticipated claims filing rate by type of disease
(non-malignant, cancer and mesothelioma) is computed using the Company’s
average historical claim filing rates for a three-year calibration
period.
|
|
·
|
An
estimate of the future anticipated dismissal rate by type of claim is
computed using the Company’s historical average dismissal rates observed
during a period that management feels is representative of future
dismissal rates. This period may differ from the current
calibration period and is dependent upon disease type and other
determining factors.
|
|
·
|
An
estimate of the future anticipated settlement by type of disease is
computed using the Company’s historical average dollars paid per claim
using the average settlement by type of incident observed during a period
that management feels is representative of future settlement
amounts. This period may differ from the current calibration
period and is dependent upon disease type and other determining
factors.
|
Critical Accounting Estimates,
continued
From
these assumptions, the Company projects the incidence of each type of disease to
the estimated population to determine the total estimated number of employees
that could potentially assert a claim. Historical claim filing rates are applied
for each type of disease to the total number of employees that could potentially
assert a claim to determine the total number of anticipated claim filings by
disease type. Historical dismissal rates, which represent claims that were
closed without payment, are used to calculate the number of future claims by
disease type that should be deducted from the total number of anticipated
claims. Finally, the number of such claims was multiplied by the
average settlement value to estimate the Company’s future liability for IBNR
asbestos claims.
The
estimated future filing rates and estimated average claim values were the most
sensitive assumptions for this reserve. A 1% increase or decrease in
either the forecasted number of IBNR claims or the average claim values would
result in less than a $1 million increase or decrease in the liability recorded
for unasserted asbestos claims.
Other
Occupational
For all
other occupational claims such as 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, the Company retains a third-party specialist with extensive
experience in performing other occupational studies to assist management in
assessing the value of the Company’s reserves. The analysis is performed by the
specialist semi-annually and is reviewed by management. The objective
of the analysis is to determine the number of IBNR claims and the estimated
average cost per claim to be paid in future periods. With the
exception of carpal tunnel, management has determined that seven years is the
most probable period in which claim filing and claim values could be estimated
with more certainty. Carpal tunnel claims use a three-year period to estimate
the reserve due to the shorter latency period for these types of
injuries. Similar to the asbestos liability estimation process, the
key elements of the assessment include the following:
|
·
|
An
estimate of the potentially exposed population for other occupational
diseases is calculated by projecting active versus retired workforce from
2009 to 2016 based upon information obtained from the Railroad Retirement
Board in its 2009 report.
|
|
·
|
An
estimate of the future anticipated claims filing rate by type of injury,
employee type, and active versus retired employee is computed using the
Company’s average historical claim filing rates for the calibration
periods management felt were representative of future filing
rates. For carpal tunnel and repetitive stress injuries, the
current calibration period is a two-year average of claim
filings. All other diseases or injuries use a three-year
calibration period. An estimate is made to forecast future
claims by using the filing rates by disease and the active and retired
employee population each year.
|
Critical Accounting Estimates,
continued
|
·
|
An
estimate of the future anticipated dismissal rate by type of claim is
computed using the Company’s historical average dismissal rates during a
period that management feels is representative of future dismissal rates.
This period may differ from the current calibration period and is
dependent upon injury type and other determining
factors.
|
|
·
|
An
estimate of the future anticipated settlement by type of injury is
computed using the Company’s historical average of dollars paid per claim
for type of injury observed during a period that management feels is
representative of future settlement amounts. This period may
differ from the current calibration period and is dependent upon injury
type and other determining factors.
|
From
these assumptions, the Company projects the incidence of each type of disease to
the estimated population to determine the total estimated number of employees
that could potentially assert a claim. Historical claim filing rates are applied
for each type of disease to the total number of employees that could potentially
assert a claim to determine the total number of anticipated claim filings by
disease type. Historical dismissal rates, which represent claims that were
closed without payment, are used to calculate the number of future claims by
disease type that should be deducted from the total number of anticipated
claims. Finally, the number of such claims was multiplied by the
average settlement value to estimate the Company’s future liability for IBNR
asbestos claims.
The
estimated future filing rates and estimated average claim values were the most
sensitive assumptions for this reserve. A 1% increase or decrease in
either the forecasted number of IBNR claims or the average claim values would
result in less than a $1 million increase or decrease in the liability recorded
for unasserted other occupational claims.
During
2009, the Company reduced its reserves for asbestos and occupational injuries by
$43 million. Asbestos reserve reductions of $24 million were
primarily related to approximately 1,500 claims that were based on unreliable
medical evidence and therefore have been determined to have no
value. The remaining reduction is attributable to a decrease in
carpal tunnel and repetitive stress injury claims.
Critical Accounting Estimates,
continued
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 257 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.
|
Based on
the review process, the Company has recorded amounts to cover contingent
anticipated future environmental remediation costs with respect to each site to
the extent such costs are estimable and probable. The recorded
liabilities for estimated future environmental costs are
undiscounted. The liability includes future costs for remediation and
restoration of sites as well as any significant ongoing monitoring costs, but
excludes any anticipated insurance recoveries. Payments related to
these liabilities are expected to be made over the next several
years. Environmental remediation costs are included in materials,
supplies and other on the consolidated income statement.
Critical Accounting Estimates,
continued
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.
Legal
In
accordance with the Contingencies Topic in the
ASC, an accrual for a loss contingency is established if information available
prior to issuance of the financial statements indicates that it is probable that
an asset has been impaired or a liability has been incurred at the date of the
financial statements, and the amount of loss can be reasonably
estimated. If no accrual is made for a loss contingency because one
or both of these conditions are not met, or if an exposure to loss exists in
excess of the amount accrued, disclosure of the contingency is made when there
is at least a reasonable possibility that a loss or an additional loss may have
been incurred.
The
Company evaluates all exposures relating to legal liabilities at least quarterly
and adjusts reserves when appropriate under the guidance noted
above. The amount of a particular reserve may be influenced by
factors that include official rulings, newly discovered or developed evidence,
or changes in laws, regulations and evidentiary standards.
Pension and Post-retirement Medical Plan Accounting
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 in 2003 or thereafter,
benefits are determined based on a cash balance formula, which provides benefits
by utilizing interest and pay credits based upon age, service and
compensation. CSX made pension plan contributions of $250 million and
$102 million to its qualified defined benefit pension plans in 2009 and 2008,
respectively.
In
addition to these plans, CSX sponsors a post-retirement medical plan and one
life insurance plan that provide benefits to full-time, salaried, management
employees hired prior to 2003, 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.
Critical Accounting Estimates,
continued
The
accounting for these plans is subject to the guidance provided in the Compensation—Retirement Benefits
Topic in the ASC.
This rule requires
that management make certain assumptions relating to the following:
|
·
|
long-term
rate of return on plan assets;
|
|
·
|
discount
rates used to measure future obligations and interest
expense;
|
|
·
|
salary
scale inflation rates;
|
|
·
|
health
care cost trend rates; and
|
|
·
|
other
assumptions.
|
These
assumptions are determined as of the beginning of the year. As
permitted by the Compensation-Retirement Benefits
Topic the Company previously used a plan measurement date of September 30
to actuarially value its pension and post-retirement plans. During
2008, CSX changed its measurement date to its fiscal year-end in accordance with
the topic noted above. The effect of the change was a $13 million
after-tax reduction to retained earnings. 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 Company reviews the long-term rate of return, discount,
salary scale inflation and health care cost trend rates on an annual basis and
makes modifications to the assumptions based on current rates and trends as
appropriate.
Long-term
Rate of Return on Plan Assets
The
expected long-term average rate of return on plan assets reflects the average
rate of earnings expected on the funds invested, or to be invested, to provide
for benefits included in the projected benefit obligation. In estimating that
rate, the Company gives appropriate consideration to the returns being earned by
the plan assets in the funds and the rates of return expected to be available
for reinvestment.
The
Company's expected long-term average rate of return on assets considers the
current and projected asset mix of the funds. Management balances
market expectations obtained from various investment managers and economists
with both market and actual plan historical returns to develop a reasonable
estimate of the expected long-term rate of return on assets. As this
assumption is long-term, it is adjusted less frequently than other assumptions
used in pension accounting. The long-term rate of return on plan
assets used by the Company to value its 2009 and 2008 pension obligation was
8.5%.
Critical Accounting Estimates,
continued
Discount
Rates
Discount
rates affect the amount of liability recorded and the interest expense component
of pension and post-retirement expense. Discount rates reflect the
rates at which pension and other post-retirement benefits could be effectively
settled, or in other words, how much it would cost the Company to buy enough
high quality bonds to generate cash flow equal to the Company’s expected future
benefit payments. The Company determines the discount rate based on
the market yield as of year end for high quality corporate bonds whose
maturities match the plans’ expected benefit payments.
The
discount rates used by the Company to value its 2009 pension and post-retirement
obligations are 5.25% and 4.75%, respectively. For 2008, the discount
rate used by the company to value its pension and post-retirement obligations
was 6.5%. Discount rates may differ for pension and post-retirement
benefits due to the different time horizons of future payments for each of the
plans. As of December 2009, the time horizon for pensions is
approximately 11 years, while, for post-retirement, the time horizon is
approximately 7 years.
Each
year, these discount rates are reevaluated and adjusted to reflect the best
estimate of the current effective settlement rates. If interest rates
generally decline or rise, the assumed discount rates will change.
Salary Scale Inflation
Rates
Salary
scale inflation rates are based on current trends and historical data
accumulated by the Company. The Company reviews recent wage increases
and management incentive compensation payments over the past five years in its
assessment of salary scale inflation rates. The Company used a salary
scale rate of 4.0% and 3.8% to value its 2009 and 2008 pension obligation,
respectively.
Health
Care Cost Trend Rates
Health
care cost trend rates are based on recent plan experience and industry
trends. The Company uses actuarial data to substantiate the inflation
assumption for health care costs, representing increases in total plan costs
(which include claims and administrative fee cost components). The
2009 assumed health care cost trend rate for benefit obligations is 8.5% for
non-Medicare-eligible participants and 8.0% for Medicare-eligible participants
which is expected to decrease gradually until reaching 5% in 2017, based upon
current actuarial projections. However, the year-to-year comparisons
may fluctuate. For 2008, the assumed health care cost trend rate for
benefit obligations was 9.5% for non-Medicare-eligible participants and 10.5%
for Medicare-eligible participants.
Critical
Accounting Estimates, continued
Other
Assumptions
The
calculations made by the actuaries also include assumptions relating to
mortality rates, turnover and retirement age. These assumptions are
based upon historical data and are selected by management.
2010
Estimated Pension and Post-retirement Expense
Net
pension and post-retirement benefits expense for 2010 is expected to be
approximately $60 million and $31 million, respectively, compared to $35 million
and $34 million, respectively, in 2009. The increase in the pension
expense is primarily related to the decrease in the discount rate (which causes
expense to increase) and additional amortization of the losses incurred by the
pension plan assets during 2008. These increases in expense were
partially offset by the 2009 contributions.
The following sensitivity analysis
illustrates the effect of changes in certain assumptions like discount rates,
salaries and health care costs on the 2010 estimated pension and post-retirement
expense:
|
(Dollars
in Millions)
|
Pension
|
OPEB
|
|
|
Discount
Rate 0.25% change
|
$5
|
$1
|
|
|
Salary
Inflation 0.25% change
|
$10
|
$
-
|
|
|
Health
Care Cost 1% change
|
N/A
|
$1
|
|
Depreciation
Policies for Assets Utilizing the Group-Life Method
The
Company depreciates its rail assets, including main-line track, locomotives and
freight cars, using the group-life method of accounting. Assets
depreciated under the group-life method comprise over 90% of total fixed assets
of $31 billion on a gross basis at December 2009. All other assets of
the Company are depreciated on a straight line basis. The group-life method
aggregates assets with similar lives and characteristics into groups and
depreciates each of these groups as a whole. When using the
group-life method, an underlying assumption is that each group of assets, as a
whole, is used and depreciated to the end of its recoverable life.
The
Company currently utilizes more than 250 different depreciable asset categories
to account for depreciation expense for the railroad assets that are depreciated
under group life. Examples of depreciable asset categories include 18
different categories for crossties due to the different combinations of density
classifications and asset types. By utilizing various depreciable
categories, the Company can more accurately account for the use of its
assets.
Critical Accounting Estimates,
continued
The Company
believes the group-life method of depreciation closely approximates the
straight-line method of depreciation. Additionally, due to the nature
of most of its assets (e.g. track is one contiguous, connected asset), the
Company believes that this is the most effective way to properly depreciate its
assets.
Under
group-life, the service lives and salvage values for each group of assets are
determined by completing periodic life studies and applying management's
assumptions regarding the service lives of its properties. A life
study is the periodic review of asset lives for group assets conducted by a
third-party expert, analyzed by the Company’s management and approved by the
Surface Transportation Board (“STB”), the regulatory board that has broad
jurisdiction over railroad practices. The STB requires life studies
be performed for equipment assets every three years and for road (e.g. bridges
and signals) and track (e.g., rail, ties and ballast) assets every six
years. The Company believes the frequency currently required by the
STB provides adequate review of asset lives and that a more frequent review
would not result in a material change due to the long-lived nature of most of
the assets.
Changes
in asset lives due to the results of the life studies are applied on a
prospective basis and could significantly impact future periods’ depreciation
expense, and thus, the Company's results of operations.
There are
several factors taken into account during the life study and they
include:
|
·
|
statistical
analysis of historical life and salvage data for each group of
property;
|
|
·
|
statistical
analysis of historical retirements for each group of
property;
|
|
·
|
evaluation
of current operations;
|
|
·
|
evaluation
of technological advances and maintenance
schedules;
|
|
·
|
previous
assessment of the condition of the assets and outlook for their continued
use;
|
|
·
|
expected
net salvage to be received upon retirement;
and
|
|
·
|
comparison
of assets to the same asset groups with other
companies.
|
Critical Accounting Estimates,
continued
For
retirements or disposals of depreciable rail assets that occur in the ordinary
course of business, the asset cost (net of salvage value or sales proceeds) is
charged to accumulated depreciation and no gain or loss is
recognized. As individual assets within a specific group are retired,
resulting gains and losses are recorded in accumulated
depreciation. As part of the life study, an assessment of the
recorded amount of accumulated depreciation is made to determine if it is
deficient (or in excess) of the appropriate amount indicated by the study. Any
such deficiency (or excess), including any deferred gains or losses, is
amortized as a component of depreciation expense over the remaining useful life
of the asset group until the next required life study. Since the overall
assumption with group-life is that the assets within the group on average have
the same life and characteristics, it is therefore concluded that the deferred
gains and losses offset over time.
In the
event that large groups of assets are removed from service as a result of
unusual acts or sales, resulting gains and losses are recognized immediately.
These acts are not considered to be in the normal course of business and are
therefore recognized when incurred. Examples of such acts would be
the major destruction of assets due to significant storm damage (e.g. major
hurricanes), the sale of a rail line segment to another railroad or the disposal
of an entire class of assets (e.g. disposal of all refrigerated freight
cars).
Recent
experience with life studies has resulted in depreciation rate changes, which
did not materially affect the Company’s annual depreciation expense of $908
million and $904 million for 2009 and 2008 respectively. A 1% change
in the average life of all group-life assets would result in a $9 million change
to the Company’s annual depreciation expense. The Company completed
life studies for its equipment assets in 2009 and concluded life studies for its
road, track and equipment assets in 2008 resulting in a reduction in
depreciation expense of $18 million in 2009 and $ 32 million in
2008.
Income
Taxes
In 2007,
CSX adopted accounting guidance in accordance with the Income Taxes Topic in the ASC
that addressed how tax benefits claimed or expected to be claimed on a tax
return should be recorded in the financial statements. Under this
topic, the Company must recognize the tax benefit from an uncertain tax position
only if it is more likely than not that the tax position will be sustained on
examination by the taxing authorities based on the technical merits of the
position. The tax benefits recognized in the financial statements
from such a position are measured based on the largest benefit that has a
greater than 50 percent likelihood of being realized upon ultimate
resolution. The Company’s reassessment of its tax positions did not
have a material impact on the Company’s financial condition, results of
operations or liquidity.
Critical Accounting Estimates,
continued
CSX files
a consolidated federal income tax return, which includes its principal domestic
subsidiaries. Examinations of the federal income tax returns of CSX
have been completed through 2003 and for 2007. Federal income tax
returns for 2004 through 2006 currently are under appeal. Management
believes adequate provision has been made for any adjustments that might be
assessed. While the final outcome of these matters cannot be
predicted with certainty, it is the opinion of CSX management that none of these
items will have a material adverse effect on the financial condition, results of
operations or liquidity of CSX. An unexpected adverse resolution of
one or more of these items, however, could have a material adverse effect on the
results of operations in a particular fiscal quarter or fiscal
year. Also, the Company is party to a number of legal and
administrative proceedings, the resolution of which could result in gain
realization in amounts that could be material to results of operations in a
particular fiscal quarter or fiscal year.
New
Accounting Pronouncements and Change in Accounting Policy
See Note
1, Nature of Operations and Significant Accounting Policies under the caption,
“New Accounting Pronouncements and Changes in Accounting Policy.”
CSX does
not hold or issue derivative financial instruments for trading
purposes. Historically, the Company has used derivative financial
instruments to address market risk exposure to fluctuations in interest rates
and the risk of volatility in its fuel costs. As of December 2009,
the Company had $20 million outstanding in interest rate swap
agreements. A 1% fluctuation in interest rates on these swaps would
cause less than a $1 million change in interest expense.
At
December 2009, CSX had $78 million of outstanding floating rate debt obligations
outstanding. A 1% fluctuation in interest rates on these notes would
cause a $1 million change in interest expense.
64
CSX
CORPORATION
PART
II
Item
8. Financial Statements and Supplementary Data
|
INDEX
TO CONSOLIDATED FINANCIAL STATEMENTS
|
|||
|
Page
|
|||
|
Report
of Independent Registered Public Accounting Firm
|
66
|
||
|
CSX
Corporation
|
|||
|
Consolidated
Financial Statements and Notes to Consolidated Financial
|
|||
|
Statements
Herewith:
|
|||
|
Consolidated
Income Statements for the Fiscal Years Ended:
|
67
|
||
|
December
25, 2009
|
|||
|
December
26, 2008
|
|||
|
December
28, 2007
|
|||
|
Consolidated
Balance Sheets as of:
|
68
|
||
|
December
25, 2009
|
|||
|
December
26, 2008
|
|||
|
Consolidated
Cash Flow Statements for Fiscal Years Ended:
|
69
|
||
|
December
25, 2009
|
|||
|
December
26, 2008
|
|||
|
December
28, 2007
|
|||
|
Consolidated
Statements of Changes in Shareholders' Equity:
|
70
|
||
|
December
25, 2009
|
|||
|
December
26, 2008
|
|||
|
December
28, 2007
|
|||
|
Notes
to Consolidated Financial Statements
|
71
|
||
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the
Shareholders and Board of Directors of CSX Corporation
We
have audited the accompanying consolidated balance sheets of CSX Corporation and
subsidiaries as of December 25, 2009 and December 26, 2008, and the related
consolidated statements of income, cash flows, and changes in shareholders'
equity for each of the three fiscal years in the period ended December 25, 2009.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our
opinion, the financial statements referred to above present fairly, in all
material respects, the consolidated financial position of CSX Corporation and
subsidiaries at December 25, 2009 and December 26, 2008, and the consolidated
results of their operations and their cash flows for each of the three fiscal
years in the period ended December 25, 2009, in conformity with U.S. generally
accepted accounting principles.
We also
have audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), CSX Corporation’s internal control over
financial reporting as of December 25, 2009, based on criteria established in
Internal Control – Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission and our report dated February 19, 2010
expressed an unqualified opinion thereon.
/s/ Ernst & Young
LLP
Independent
Certified Public Accountants
Jacksonville,
Florida
February
19, 2010
(Dollars
in Millions, Except Per Share Amounts)
|
Fiscal
Years
|
||||||
|
2009
|
2008
|
2007
|
||||
|
Revenue
|
$9,041
|
$11,255
|
$10,030
|
|||
|
Expense
|
||||||
|
Labor
and Fringe
|
2,629
|
2,955
|
2,986
|
|||
|
Materials,
Supplies and Other
|
1,715
|
2,133
|
1,898
|
|||
|
Fuel
|
849
|
1,817
|
1,312
|
|||
|
Depreciation
|
908
|
904
|
883
|
|||
|
Equipment
and Other Rents
|
391
|
425
|
451
|
|||
|
Inland
Transportation
|
264
|
253
|
240
|
|||
|
Total
Expense
|
6,756
|
8,487
|
7,770
|
|||
|
Operating
Income
|
2,285
|
2,768
|
2,260
|
|||
|
Interest
Expense
|
(558)
|
(519)
|
(417)
|
|||
|
Other
Income - Net (Note 10)
|
34
|
100
|
105
|
|||
|
Earnings
From Continuing Operations
|
||||||
|
Before
Income Taxes
|
1,761
|
2,349
|
1,948
|
|||
|
Income
Tax Expense (Note 12)
|
(624)
|
(854)
|
(712)
|
|||
|
Earnings
From Continuing Operations
|
1,137
|
1,495
|
1,236
|
|||
|
Discontinued
Operations (Note 14)
|
15
|
(130)
|
100
|
|||
|
Net
Earnings
|
$1,152
|
$1,365
|
$1,336
|
|||
|
Per
Common Share (Note 2)
|
||||||
|
Net
Earnings Per Share, Basic
|
||||||
|
Continuing
Operations
|
$2.90
|
$3.73
|
$2.88
|
|||
|
Discontinued
Operations
|
0.04
|
(0.32)
|
0.23
|
|||
|
Net
Earnings
|
$2.94
|
$3.41
|
$3.11
|
|||
|
Net
Earnings Per Common Share, Assuming Dilution
|
||||||
|
Continuing
Operations
|
$2.87
|
$3.66
|
$2.77
|
|||
|
Discontinued
Operations
|
0.04
|
(0.32)
|
0.22
|
|||
|
Net
Earnings
|
$2.91
|
$3.34
|
$2.99
|
|||
|
Average
Common Shares Outstanding (Thousands)
|
392,127
|
400,740
|
430,433
|
|||
|
Average
Common Shares Outstanding,
|
395,686
|
408,620
|
448,341
|
|||
|
Assuming
Dilution (Thousands)
|
||||||
|
Cash
Dividends Paid Per Common Share
|
$0.88
|
$0.77
|
$0.54
|
|||
See accompanying Notes to Consolidated
Financial Statements
CONSOLIDATED BALANCE
SHEETS
(Dollars
in Millions)
|
December
25,
|
December
26,
|
||
|
2009
|
2008
|
||
|
ASSETS
|
|||
|
Current
Assets:
|
|||
|
Cash
and Cash Equivalents (Note 1)
|
$1,029
|
$669
|
|
|
Short-term
Investments
|
61
|
76
|
|
|
Accounts
Receivable - Net (Note 1)
|
995
|
1,107
|
|
|
Materials
and Supplies
|
203
|
217
|
|
|
Deferred
Income Taxes
|
158
|
203
|
|
|
Other
Current Assets
|
124
|
119
|
|
|
Total Current Assets
|
2,570
|
2,391
|
|
|
Properties
|
31,081
|
30,208
|
|
|
Accumulated
Depreciation
|
(7,868)
|
(7,520)
|
|
|
Properties - Net (Note 6)
|
23,213
|
22,688
|
|
|
Investment
in Conrail (Note 13)
|
650
|
609
|
|
|
Affiliates
and Other Companies
|
438
|
406
|
|
|
Other
Long-term Assets (Note 11)
|
165
|
194
|
|
|
Total Assets
|
$27,036
|
$26,288
|
|
|
LIABILITIES
AND SHAREHOLDERS' EQUITY
|
|||
|
Current
Liabilities:
|
|||
|
Accounts
Payable
|
$967
|
$973
|
|
|
Labor
and Fringe Benefits Payable
|
383
|
465
|
|
|
Casualty,
Environmental and Other Reserves (Note 5)
|
190
|
236
|
|
|
Current
Maturities of Long-term Debt (Note 9)
|
113
|
319
|
|
|
Income
and Other Taxes Payable
|
112
|
125
|
|
|
Other
Current Liabilities
|
100
|
286
|
|
|
Total Current Liabilities
|
1,865
|
2,404
|
|
|
Casualty,
Environmental and Other Reserves (Note 5)
|
547
|
643
|
|
|
Long-term
Debt (Note 9)
|
7,895
|
7,512
|
|
|
Deferred
Income Taxes (Note 12)
|
6,585
|
6,235
|
|
|
Other
Long-term Liabilities (Note 11)
|
1,284
|
1,426
|
|
|
Total Liabilities
|
18,176
|
18,220
|
|
|
Shareholders'
Equity:
|
|||
|
Common
Stock, $1 Par Value (Note 3)
|
393
|
391
|
|
|
Other
Capital
|
80
|
-
|
|
|
Retained
Earnings (Note 1)
|
9,182
|
8,398
|
|
|
Accumulated
Other Comprehensive Loss (Note 1)
|
(809)
|
(741)
|
|
|
Noncontrolling
Minority Interest
|
14
|
20
|
|
|
Total Shareholders' Equity
|
8,860
|
8,068
|
|
|
Total Liabilities and Shareholders' Equity
|
$27,036
|
$26,288
|
|
See accompanying Notes to Consolidated
Financial Statements
CONSOLIDATED
CASH FLOW STATEMENTS
(Dollars
in Millions)
|
Fiscal
Years
|
|||||
|
2009
|
2008
|
2007
|
|||
|
OPERATING
ACTIVITIES
|
|||||
|
Net
Earnings
|
$1,152
|
$1,365
|
$1,336
|
||
|
Adjustments
to Reconcile Net Earnings to Net Cash Provided
|
|||||
|
by
Operating Activities:
|
|||||
|
Depreciation
|
908
|
918
|
890
|
||
|
Deferred
Income Taxes
|
436
|
435
|
272
|
||
|
Non-cash
Discontinued Operations (Note 14)
|
-
|
166
|
(110)
|
||
|
Contributions
to Qualified Pension Plans (Note 8)
|
(250)
|
(102)
|
(266)
|
||
|
Other
Operating Activities
|
(182)
|
65
|
(91)
|
||
|
Changes
in Operating Assets and Liabilities:
|
|||||
|
Accounts Receivable
|
92
|
74
|
(50)
|
||
|
Other Current Assets
|
28
|
37
|
(41)
|
||
|
Accounts Payable
|
(4)
|
(3)
|
48
|
||
|
Income and Other Taxes Payable
|
(9)
|
(46)
|
234
|
||
|
Other Current Liabilities
|
(111)
|
5
|
(38)
|
||
|
Net Cash Provided by Operating Activities
|
2,060
|
2,914
|
2,184
|
||
|
INVESTING
ACTIVITIES
|
|||||
|
Property
Additions
|
(1,447)
|
(1,740)
|
(1,773)
|
||
|
Purchases
of Short-term Investments
|
-
|
(25)
|
(2,338)
|
||
|
Proceeds
from Sales of Short-term Investments
|
-
|
280
|
2,459
|
||
|
Other
Investing Activities
|
54
|
36
|
(41)
|
||
|
Net Cash Used in Investing Activities
|
(1,393)
|
(1,449)
|
(1,693)
|
||
|
FINANCING
ACTIVITIES
|
|||||
|
Long-term
Debt Issued (Note 9)
|
500
|
1,351
|
2,381
|
||
|
Long-term
Debt Repaid (Note 9)
|
(323)
|
(642)
|
(785)
|
||
|
Dividends
Paid
|
(345)
|
(308)
|
(231)
|
||
|
Stock
Options Exercised (Note 4)
|
34
|
83
|
153
|
||
|
Shares
Repurchased (Note 1)
|
-
|
(1,570)
|
(2,174)
|
||
|
Other
Financing Activities
|
(173)
|
(78)
|
72
|
||
|
Net Cash Used in Financing Activities
|
(307)
|
(1,164)
|
(584)
|
||
|
Net
Increase (Decrease) in Cash and Cash Equivalents
|
360
|
301
|
(93)
|
||
|
CASH
AND CASH EQUIVALENTS
|
|||||
|
Cash
and Cash Equivalents at Beginning of Period
|
669
|
368
|
461
|
||
|
Cash and Cash Equivalents at End of Period
|
$1,029
|
$669
|
$368
|
||
|
SUPPLEMENTAL
CASH FLOW INFORMATION
|
|||||
|
Interest
Paid - Net of Amounts Capitalized
|
$560
|
$509
|
$411
|
||
|
Income
Taxes Paid
|
$201
|
$276
|
$235
|
||
|
Seller
Financed Assets
|
$160
|
$310
|
$52
|
||
See accompanying Notes to Consolidated
Financial Statements
CONSOLIDATED
STATEMENTS OF CHANGES
IN
SHAREHOLDERS’ EQUITY
(Dollars
in Millions)
|
Accumulated
Other
|
|||||||||
|
Common
|
Comprehensive
Income (Loss)
|
||||||||
|
Shares
|
Pension
|
||||||||
|
Outstanding
|
Common
|
Other
|
Retained
|
and
OPEB
|
Noncontrolling
|
||||
|
(Thousands)
|
Stock
|
Capital
|
Earnings
|
Adjustments(a)
|
Other
|
Interest
(b)
|
Total
|
||
|
Balance
December 29, 2006
|
437,764
|
$438
|
$1,469
|
$7,427
|
$(392)
|
$ -
|
$89
|
$9,031
|
|
|
Comprehensive
Earnings:
|
|||||||||
|
Net
Earnings
|
-
|
-
|
-
|
1,336
|
-
|
-
|
-
|
1,336
|
|
|
Other
Comprehensive
|
-
|
-
|
-
|
-
|
63
|
4
|
-
|
67
|
|
|
Income
(Loss)
|
|||||||||
|
Comprehensive
Earnings
|
1,403
|
||||||||
|
Adjustment
for initial adoption
|
|||||||||
|
of
Income Taxes Topic
in ASC (c)
|
-
|
-
|
-
|
33
|
-
|
-
|
-
|
33
|
|
|
Income
and expense recognized
|
|||||||||
|
directly in
equity
|
-
|
-
|
-
|
-
|
-
|
-
|
(68)
|
(68)
|
|
|
Dividends
|
-
|
-
|
-
|
(231)
|
-
|
-
|
-
|
(231)
|
|
|
Share
Repurchases
|
(50,917)
|
(51)
|
(2,123)
|
-
|
-
|
-
|
-
|
(2,174)
|
|
|
Bond
Conversions(d)
|
13,296
|
13
|
339
|
-
|
-
|
-
|
-
|
352
|
|
|
Subsidiary
Equity Restructuring
|
-
|
-
|
72
|
-
|
-
|
-
|
-
|
72
|
|
|
Stock
Option Exercises and Other
|
7,721
|
8
|
280
|
-
|
-
|
-
|
-
|
288
|
|
|
Balance
December 28, 2007
|
407,864
|
408
|
37
|
8,565
|
(329)
|
4
|
21
|
8,706
|
|
|
Comprehensive
Earnings:
|
|||||||||
|
Net
Earnings
|
-
|
-
|
-
|
1,365
|
-
|
-
|
-
|
1,365
|
|
|
Other
Comprehensive
|
-
|
-
|
-
|
-
|
(411)
|
(5)
|
-
|
(416)
|
|
|
Income
(Loss)
|
|||||||||
|
Comprehensive
Earnings
|
949
|
||||||||
|
Dividends
|
-
|
-
|
-
|
(308)
|
-
|
-
|
(1)
|
(309)
|
|
|
Share
Repurchases
|
(28,486)
|
(28)
|
(1,542)
|
-
|
-
|
-
|
-
|
(1,570)
|
|
|
Other
Capital Reclass
|
-
|
-
|
1,211
|
(1,211)
|
-
|
-
|
-
|
-
|
|
|
Bond
Conversions (d)
|
5,042
|
5
|
116
|
-
|
-
|
-
|
-
|
121
|
|
|
Adjustment
for Compensation
-
|
|||||||||
|
Retirement Benefits Topic
in ASC
|
-
|
-
|
-
|
(13)
|
-
|
-
|
-
|
(13)
|
|
|
Stock
Option Exercises and Other
|
6,106
|
6
|
178
|
-
|
-
|
-
|
-
|
184
|
|
|
Balance
December 26, 2008
|
390,526
|
391
|
-
|
8,398
|
(740)
|
(1)
|
20
|
8,068
|
|
|
Comprehensive
Earnings:
|
|||||||||
|
Net
Earnings
|
-
|
-
|
-
|
1,152
|
-
|
-
|
-
|
1,152
|
|
|
Other
Comprehensive
|
-
|
-
|
-
|
-
|
(74)
|
6
|
-
|
(68)
|
|
|
Income
(Loss)
|
|||||||||
|
Comprehensive
Earnings
|
1,084
|
||||||||
|
Income
and expense recognized
|
|||||||||
|
directly in
equity
|
-
|
-
|
-
|
-
|
-
|
-
|
(5)
|
(5)
|
|
|
Dividends
|
-
|
-
|
-
|
(345)
|
-
|
-
|
(1)
|
(346)
|
|
|
Other
Capital Reclass
|
-
|
-
|
23
|
(23)
|
-
|
-
|
-
|
-
|
|
|
Bond
Conversions (d)
|
22
|
-
|
1
|
-
|
-
|
-
|
-
|
1
|
|
|
Stock
Option Exercises and Other
|
2,912
|
2
|
56
|
-
|
-
|
-
|
-
|
58
|
|
|
Balance
December 25, 2009
|
393,460
|
$393
|
$80
|
$9,182
|
$(814)
|
$5
|
$14
|
$8,860
|
|
|
(a)
|
Pension
and other postretirement benefits balances are net of taxes of $166
million, $375 million and $426 million for 2007,
2008 and 2009, respectively.
|
|
(b)
|
Noncontrolling
interest - Prior year amounts have been reclassified to reflect
noncontrolling interest expense as a component of Stockhoders’
Equity. See New Accounting Pronouncements in Note 1, Nature of
Operations and Significant Accounting Policies for further
information.
|
|
(c)
|
Adjustment
for initial adoption of Income Taxes Topic in ASC - see Note 12, Income
Taxes
|
|
(d)
|
Bond
Conversions - see Note 2, Earnings Per Share and Note 9, Debt and Credit
Agreements
|
See
accompanying Notes to Consolidated Financial Statements
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE
1. Nature of Operations and Significant Accounting
Policies
Nature
of Operations
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.
Rail
CSX
Transportation, Inc.
CSX’s
principal operating company, 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. It serves over 70 ocean, river and lake
ports along the Atlantic and Gulf Coasts, the Mississippi River, the Great Lakes
and the St. Lawrence Seaway. CSXT also serves thousands of production
and distribution facilities through track connections to more than 240
short-line and regional railroads.
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.
Intermodal
CSX
Intermodal, Inc. (“Intermodal”) is a stand-alone, integrated intermodal
transportation provider linking customers to railroads via trucks and
terminals. Containers
and trailers are loaded and unloaded from trains, and trucks provide the link
between intermodal terminals and the customer.
Lines
of Business
Together,
the rail and intermodal segments generated $9 billion of revenue during 2009 and
served four primary lines of business:
NOTE 1. Nature of
Operations and Significant Accounting Policies, continued
|
·
|
The
merchandise business is the most diverse market with nearly 2.1 million
carloads per year of aggregates, which includes crushed stone, sand and
gravel, metal, phosphate, fertilizer, food, consumer (manufactured goods
and appliances), agricultural, paper and chemical products. The
merchandise business generated approximately 48% of the Company’s revenue
in 2009 and 36% of volume.
|
|
·
|
Coal,
which delivered approximately 1.6 million carloads of coal, coke and iron
ore to electricity generating power plants, ocean, river and lake piers
and terminals, steel makers and industrial plants, accounted for
approximately 30% of the Company’s revenue in 2009 and 27% of
volume. CSXT transports almost one-third of every ton of coal
used for generating electricity in the areas it
serves.
|
|
·
|
Automotive,
which delivers finished vehicles and auto parts, generated approximately
6% of the Company’s revenue and 4% of the Company’s volume in
2009. The Company delivers approximately 30% of North America’s
light vehicles, serving both domestic manufacturers and the increasing
number of global manufacturers that produce cars in the United
States.
|
|
·
|
Intermodal,
which combines the superior economics of rail transportation with the
short-haul flexibility of trucks, offers a competitive cost advantage over
long-haul trucking. Through its network of more than 50 terminals,
Intermodal serves all major markets east of the Mississippi and transports
mainly manufactured consumer goods in containers, providing customers with
truck-like service for longer shipments. For 2009, Intermodal
accounted for approximately 13% of the Company’s total revenue and 33% of
volume.
|
Other revenue, which includes revenue
from regional subsidiary railroads, demurrage, switching and other incidental
charges, accounted for 3% of the Company’s total 2009
revenue. Revenue from regional railroads includes shipments by
railroads that the Company does not directly operate. Demurrage
represents charges assessed when freight cars are held beyond a specified period
of time. Switching revenue is generated when CSXT switches cars
between trains for a customer or another railroad.
Other
Businesses
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. In 2009, CSX sold the stock of a subsidiary that
indirectly owned Greenbrier Hotel Corporation, owner of The Greenbrier
resort. These results are now classified as discontinued operations.
For more information, see Note 14, Discontinued Operations.
NOTE 1. Nature of
Operations and Significant Accounting Policies, continued
Basis
of Presentation
In the
opinion of management, the accompanying consolidated financial statements
contain all normal, recurring adjustments necessary to present fairly the
financial position of CSX and its subsidiaries at December 2009 and December
2008, and the consolidated statements of income, cash flows and changes in
shareholders’ equity for fiscal years 2009, 2008 and 2007.
In
addition, management has evaluated and disclosed all material events occurring
subsequent to the date of the financial statements up to the date this annual
report is filed on Form 10-K.
Fiscal
Year
CSX
follows a 52/53 week fiscal reporting calendar. This fiscal calendar
allows every quarter to consistently end on a Friday and to be of equal duration
(13 weeks), resulting in a 52 week fiscal year. To maintain this type
of reporting calendar, however, every sixth or seventh year (depending on the
Gregorian calendar and when leap year falls), an extra week will be included in
the fourth quarter (a 14-week fiscal quarter) and, therefore, that full fiscal
year will have 53 weeks. The next 53 week fiscal year will be 2010,
which will end on December 31, 2010.
Fiscal
years 2009, 2008 and 2007 each consisted of 52 weeks ending on December 25,
2009, December 26, 2008 and December 28, 2007, respectively. Except
as otherwise specified, references to full year indicate CSX’s fiscal periods
ended on these dates.
Principles
of Consolidation
The consolidated financial statements include results of operations of CSX and subsidiaries over which CSX has majority ownership or financial control. All significant intercompany accounts and transactions have been eliminated. Most investments in companies that were not majority-owned were carried at cost (if less than 20% owned and the Company has no significant influence) or equity (if the Company has significant influence).
NOTE 1. Nature of
Operations and Significant Accounting Policies, continued
Cash,
Cash Equivalents and Short-term Investments
On
a daily basis, cash in excess of current operating requirements is invested in
various highly liquid investments having a typical maturity date of three months
or less at the date of acquisition. These investments were carried at cost,
which approximated market value, and were classified as cash equivalents.
Investments in instruments with maturities greater than three months but less
than one year were classified as short-term investments.
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 and $70 million is included in
the consolidated balance sheets as of December 2009 and December 2008,
respectively. The decrease in the allowance was primarily driven by
improved collections and a stabilizing economic environment.
Materials
and Supplies
Materials and supplies in the
consolidated balance sheets are carried at average costs and consist primarily
of fuel and parts used in the repair and maintenance of CSXT’s freight car and
locomotive fleets, equipment and track structure.
Revenue
and Expense Recognition
The Company recognizes freight revenue
using Free-On-Board (“FOB”) Origin pursuant to the Revenue Recognition Topic in
the Accounting Standards Codification ("ASC"). Accounting guidance in
this topic provides for the allocation of revenue between reporting periods
based on relative transit time in each reporting period. Expenses are
recognized as incurred.
The
certain key estimates included in the recognition and measurement of revenue and
related accounts receivable under the policies described above are as
follows:
|
·
|
revenue
associated with shipments in transit, which are based on historical
freight car movement data as well as average cycle times to move
commodities from their origin to their final destination or
interchange;
|
|
·
|
future
adjustments to revenue or accounts receivable for billing corrections,
billing discounts, bad debts and allowances for doubtful
accounts;
|
|
|
|
|
|
|
NOTE 1. Nature of
Operations and Significant Accounting Policies, continued
|
·
|
future
adjustments to revenue for overcharge claims filed by customers, which are
based on historical cash paid to customers for rate overcharges as a
percentage of total billing; and
|
|
·
|
incentive-based
refunds to customers, which are primarily based on customers achieving
certain volume thresholds and are recorded as a reduction to revenue on
the basis of management’s best estimate of the projected
liability. This estimate is based on historical activity,
current volume levels and a forecast of future
volume.
|
The
Company regularly updates the estimates described above based on historical
experience. All other revenue, such as demurrage, switching and other
incidental charges are recorded upon completion of the service.
Comprehensive
Earnings
CSX
reports comprehensive earnings or loss in accordance with the Comprehensive Income Topic in
the 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 represents
the activity for a period net of related tax effects and were $1.1 billion, $949
million and $1.4 billion for 2009, 2008 and 2007, 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 the pension and other post-retirement adjustments
and reduced overall equity by $809 million, $741 million and $325 million as of
December 2009, 2008 and 2007, respectively. (See Note 8, Employee
Benefit Plans).
Derivative
Financial Instruments
CSX
recognizes all derivatives as either assets or liabilities in the consolidated
balance sheets and measures those instruments at fair value. (See
Note 16, Derivative Financial Instruments).
NOTE 1. Nature of
Operations and Significant Accounting Policies, continued
New
Accounting Pronouncements and Changes in Accounting Policy
In 2009,
the Financial Accounting Standards Board (“FASB”) issued Statement of Financial
Accounting Standard (“SFAS”) No. 168, The FASB Accounting Standards
Codification and the Hierarchy of Generally Accepted Accounting Principles, a
replacement of FASB Statement No. 162. This statement modifies the
Generally Accepted Accounting Principles (“GAAP”) hierarchy by establishing only
two levels of GAAP, authoritative and nonauthoritative accounting literature.
The FASB Accounting Standards Codification (“ASC”), also known collectively as
the “Codification,” is considered the single source of authoritative U.S.
accounting and reporting standards, except for additional authoritative rules
and interpretive releases issued by the Securities and Exchange Commission
("SEC"). Nonauthoritative guidance and literature would include, among
other things, FASB Concepts Statements, American Institute of Certified Public
Accountants Issue Papers and Technical Practice Aids and accounting textbooks.
The Codification was developed to organize GAAP pronouncements by topic so that
users can more easily access authoritative accounting guidance. It is
organized by topic, subtopic, section, and paragraph, each of which is
identified by a numerical designation. This statement was effective
in third quarter 2009. All accounting references have been updated,
and therefore SFAS references have been replaced with each respective ASC
topic.
In 2009,
the Financial Instruments
Topic in the ASC requires disclosures about fair value of financial
instruments in quarterly reports as well as in annual reports. For
CSX, this statement applies to certain investments, pension assets and long-term
debt. (See Note 15, Fair Value Measurements.) This standard built
upon guidance related to fair value disclosures issued during
2007. These statements define fair value, provide guidance on fair
value measurement and give companies the option to either report financial
instruments and certain other items at fair value or disclose the fair value
versus the carrying value in the footnotes for these items. CSX was
not materially impacted by these statements.
In 2009,
the Consolidation Topic
in the ASC revised the accounting treatment for noncontrolling interests
of partially-owned subsidiaries. Noncontrolling interests represent
the portion of earnings that is not within the parent company’s control. These
amounts are now required to be reported as equity instead of as a liability on
the balance sheet. This change resulted in a $20 million
reclassification from other long-term liabilities to shareholders’ equity on the
December 2008 consolidated balance sheet and is primarily related to CSX’s
investments in Four Rivers Transportation Inc. and The Indiana Rail Road
Company. Additionally, this statement requires net income from
noncontrolling interests to be shown separately on the consolidated income
statements. These amounts are not material for CSX, and therefore are
not shown separately.
NOTE 1. Nature of
Operations and Significant Accounting Policies, continued
CSX
adopted the Income Taxes Topic
in the ASC at the beginning of fiscal year 2007. This topic
addressed the determination of how tax benefits claimed or expected to be
claimed on an income tax return should be recorded in the financial
statements. Also, under this topic, the Company must recognize the
tax benefit from an uncertain tax position only if it is more likely than not
that the tax position will be sustained upon examination by the taxing
authorities, based on the technical merits of the position. These tax
benefits recognized in the financial statements are measured based on the
largest benefit that has a greater than 50 percent likelihood of being
realized upon ultimate resolution. The impact of the Company’s
reassessment of its tax positions did not have a material impact on the
financial condition, results of operations or liquidity. (See Note
12, Income Taxes).
Use
of 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 the reported amount of certain revenues
and expenses during the reporting period. Actual results may differ
from those estimates. Critical accounting estimates using management
judgment are made for the following areas:
|
·
|
casualty,
environmental and legal reserves (see Note 5, Casualty, Environmental and
Other Reserves);
|
|
·
|
pension
and post-retirement medical plan accounting (see Note 8, Employee Benefit
Plans);
|
|
·
|
depreciation
policies for assets under the group-life method (see Note 6, Properties);
and
|
|
·
|
income
taxes (see Note 12, Income Taxes).
|
Other
Items – Subsequent Events
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 will have more
than tripled its quarterly dividend since the end of 2005.
NOTE 1. Nature of
Operations and Significant Accounting Policies, continued
Share
Repurchases
In 2008,
CSX announced an increase to its share repurchase program, prospectively
targeting $3 billion in shares. While there was no share repurchase
activity in 2009, as of December 2009, CSX has cumulatively completed
approximately $1.25 billion of that targeted share repurchase amount and has
remaining authority of $1.75 billion. In 2010, through the date of
this filing, the Company completed approximately $229 million of additional
share repurchases. Additional repurchases will be considered as
part of the Company’s evaluation of how best to deploy its capital resources
among alternatives while considering changes in market and business
conditions.
NOTE
2. Earnings Per Share
The following table sets forth the
computation of basic earnings per share and earnings per share, assuming
dilution:
|
Fiscal
Years
|
||||
|
2009
|
2008
|
2007
|
||
|
Numerator
(Dollars in
Millions):
|
||||
|
Earnings
from Continuing Operations
|
$1,137
|
$1,495
|
$1,236
|
|
|
Interest
Expense on Convertible Debt - Net of Tax
|
-
|
1
|
2
|
|
|
Net
Earnings from Continuing Operations, If-Converted
|
1,137
|
1,496
|
1,238
|
|
|
Discontinued
Operations - Net of Tax
(a)
|
15
|
(130)
|
100
|
|
|
Net
Earnings, If-Converted
|
1,152
|
1,366
|
1,338
|
|
|
Interest
Expense on Convertible Debt - Net of Tax
|
-
|
(1)
|
(2)
|
|
|
Net
Earnings
|
$1,152
|
$1,365
|
$1,336
|
|
|
Denominator
(Units in
Thousands):
|
||||
|
Average
Common Shares Outstanding
|
392,127
|
400,740
|
430,433
|
|
|
Convertible
Debt
|
1,114
|
2,989
|
11,469
|
|
|
Stock
Options Common Stock Equivalents (b)
|
2,144
|
3,751
|
5,010
|
|
|
Other
Potentially Dilutive Common Shares
|
301
|
1,140
|
1,429
|
|
|
Average
Common Shares Outstanding, Assuming Dilution
|
395,686
|
408,620
|
448,341
|
|
|
Net
Earnings Per Share, Basic:
|
||||
|
Continuing
Operations
|
$2.90
|
$3.73
|
$2.88
|
|
|
Discontinued
Operations (a)
|
0.04
|
(0.32)
|
0.23
|
|
|
Net
Earnings
|
$2.94
|
$3.41
|
$3.11
|
|
|
Net
Earnings Per Share, Assuming Dilution:
|
||||
|
Continuing
Operations
|
$2.87
|
$3.66
|
$2.77
|
|
|
Discontinued
Operations (a)
|
0.04
|
(0.32)
|
0.22
|
|
|
Net
Earnings
|
$2.91
|
$3.34
|
$2.99
|
|
(a) See Note 14,
Discontinued Operations for
additional information.
|
(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 4, Stock Plans and 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 2009 and 2008, $629 thousand and $142 million, respectively, of face
value convertible debentures were converted into approximately 22 thousand and 5
million shares of CSX common stock, respectively. As of December
2009, approximately $31 million of convertible debentures at face value remained
outstanding, which are convertible into 1 million shares of CSX common
stock.
NOTE
3. Shareholders’ Equity
Common
and preferred stock consists of the following:
|
December
25,
|
||
|
Common
Stock, $1 Par Value
|
2009
|
|
|
(Units
in Thousands)
|
||
|
Common
Shares Authorized
|
600,000
|
|
|
Common
Shares Issued and Outstanding
|
393,460
|
|
|
Preferred
Stock
|
||
|
Preferred
Shares Authorized
|
25,000
|
|
|
Preferred
Shares Issued and Outstanding
|
-
|
|
Holders
of common stock are entitled to one vote on all matters requiring a vote for
each share held. Preferred stock is senior to common stock with
respect to dividends and upon liquidation of CSX.
NOTE
4. Stock Plans and Share-Based Compensation
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.
As of December 2009, there were 731
current or former employees with stock options outstanding under the various
plans. Most stock option awards were granted under the authorization
provided in the CSX Omnibus Incentive Plan. As of December 2009, an
additional 11 million shares of stock could be issued under this
plan.
The Compensation-Stock Compensation
Topic in the ASC requires the cash flows resulting from income tax
deductions in excess of compensation costs to be classified as financing cash
flows. This requirement resulted in reduced net operating cash flows
and increased net financing cash flows of approximately $12 million, $69 million
and $61 million for fiscal years 2009, 2008 and 2007, respectively.
The Compensation-Stock Compensation
Topic also requires the disclosure of total compensation costs for
share-based payment arrangements and the related tax benefits recognized in
income. Total pre-tax expense associated with share-based compensation and its
related income tax benefit is as follows:
|
Fiscal
Years
|
||||
|
(Dollars
in Millions)
|
2009
|
2008
|
2007
|
|
|
Share-Based
Compensation Expense
|
$17
|
$38
|
$73
|
|
|
Income
Tax Benefit
|
6
|
14
|
27
|
|
Stock
Options
Stock
options were granted with 10-year terms. Options outstanding as of
December 2009 are generally exercisable three to ten years after date of
grant. The exercise price for options granted equals the market price
of the underlying stock on the grant date. A summary of CSX's stock
option activity and related information for the fiscal years 2009, 2008 and 2007
is as follows:
NOTE 4. Stock Plans and Share-Based
Compensation, continued
|
Fiscal
Years
|
||||||||||||
|
2009
|
2008
|
2007
|
||||||||||
|
Weighted-
|
Weighted-
|
Weighted- |
|
|||||||||
|
Options
|
Average
|
Options
|
Average
|
Options
|
Average
|
|||||||
|
Outstanding
|
Exercise
|
Outstanding
|
Exercise
|
Outstanding
|
Exercise
|
|||||||
|
(000s)
|
Price
|
(000s)
|
Price
|
(000s)
|
Price
|
|||||||
|
Outstanding
at Beginning of
Year
|
7,309
|
$17.93
|
11,771
|
$18.25
|
19,420
|
$18.96
|
||||||
|
Expired
or Cancelled
|
(94)
|
$22.26
|
(21)
|
$19.03
|
(44)
|
$18.05
|
||||||
|
Exercised
|
(1,820)
|
$18.70
|
(4,441)
|
$18.76
|
(7,605)
|
$20.08
|
||||||
|
Outstanding
at End of Year
|
5,395
|
$17.60
|
7,309
|
$17.93
|
11,771
|
$18.25
|
||||||
|
Exercisable
at End of Year
|
5,395
|
$17.60
|
7,309
|
$17.93
|
9,612
|
$18.73
|
||||||
The
following table summarizes information about stock options outstanding at
December 2009:
|
Weighted-
|
|||||||
|
Average
|
Weighted-
|
Aggregate
|
|||||
|
Number
|
Remaining
|
Average
|
Intrinsic
|
||||
|
Outstanding
|
Contractual
|
Exercise
|
Value
(a)
|
||||
|
Exercise
Price
|
(000s)
|
Life
(Years)
|
Price
|
(Millions)
|
|||
|
Options
Outstanding:
|
|||||||
|
$10
to $15
|
174
|
0.35
|
$12.41
|
$6
|
|||
|
$15
to $20
|
5,221
|
2.56
|
$17.77
|
$151
|
|||
|
Total
|
5,395
|
$157
|
|
|
(a)
Aggregate intrinsic value represents the amount employees would have
received if the options were exercised as of December 25,
2009.
|
The total
intrinsic value of options exercised, which represents the value realized by
current and former employees who exercised options for fiscal years ended 2009,
2008, and 2007 was $41 million, $165 million, and $163 million,
respectively.
As of
December 2009, all options are vested and therefore there will be no future
expense related to these options.
NOTE 4. Stock Plans and Share-Based
Compensation, continued
Restricted
Stock Awards
Restricted
stock awards vest over an employment period of up to five years. The
following table provides information about outstanding restricted stock
awards.
|
Fiscal
Years
|
|||
|
2009
|
2008
|
2007
|
|
|
Number
of Restricted Stock Awards Outstanding (Thousands)(a)
|
269
|
39
|
92
|
|
Weighted-Average
Fair Value at Grant Date
|
$33.18
|
$29.61
|
$24.26
|
|
Restricted
Stock Award Expense (Millions) (a)
|
$2
|
$1
|
$1
|
|
(a)
|
In
May 2009, 219,000 time-based restricted stock units were granted to a
certain layer of management under a new Long-term Incentive Plan as
described below. These units vest over three years, therefore
only a partial amount of expense was recognized in
2009.
|
Long-term
Incentive Plans
The CSX
Long-term Incentive Plans (“LTIP”) were adopted under the CSX Omnibus Incentive
Plan. The objective of these long-term incentive plans is to motivate and reward
key members of management and executives for achieving and exceeding certain
financial and strategic initiatives. Total expense incurred due to
long-term incentive plans was $13 million, $33 million and $67 million for
fiscals years 2009, 2008 and 2007, respectively.
In May of
2007, 2008 and 2009, target performance units were granted to key layers of
management under three separate LTIP plans covering a three-year cycle ending in
fiscal years 2009, 2010 and 2011, respectively. The key financial target for the
2007-2009 (“2009”) plan is Surface Transportation operating ratio, which is
defined as annual operating expenses divided by revenue of the Company’s rail
and intermodal businesses. The key financial target for the 2008-2010
(“2010”) and 2009-2011 (“2011”) plans is consolidated operating ratio, which is
defined as annual operating expenses divided by revenue. The key
targets for all three plans are calculated excluding certain non-recurring
items. The target grants were made in performance units, with each
unit being equivalent to one share of CSX stock, and payouts will be made in CSX
common stock. The payout range for participants will be between 0%
and 200% of the original target grant based upon CSX’s attainment of
pre-established operating ratio targets. Payouts to certain senior
executive officers are subject to a reduction of up to 30% at the discretion of
the Compensation Committee of the Board of Directors based upon Company
performance against certain CSX strategic initiatives. In the 2009
plan, certain senior executives’ payouts are subject to an additional 20%
increase or decrease based upon certain pre-established financial
targets.
NOTE 4. Stock Plans and Share-Based
Compensation, continued
As part
of the 2011 plan, time-based restricted stock units were granted to a certain
layer of management. The restricted stock units vest three years
after the date of grant and participants receive cash dividend equivalents on
the unvested shares during the restriction period plan. These awards
are not based upon CSX’s attainment of operational targets.
|
LTIP
Plan (Plan Ended In)
|
|||
|
2009
|
2010
|
2011
|
|
|
Number
of target units granted (Thousands)
|
510
|
340
|
658
|
|
Weighted-Average
Fair Value at Grant Date (a)
|
$43.52
|
$63.79
|
$31.50
|
|
Restricted
stock units (Thousands)
|
-
|
-
|
219
|
|
(a)
|
Weighted-average
for value of these units includes the value of both the initial grants and
subsequent, smaller grants issued at different prices based on grant date
fair value to new or promoted employees not previously
included.
|
The 2009
plan ended on December 25, 2009, and CSX issued 347 thousand net shares in
January 2009 as a result of the achievement of performance targets for the three
preceding fiscal years, which has a net market value of $18
million.
As of
December 2009, there was $12 million of total unrecognized compensation cost
related to these plans that is expected to be recognized over a weighted-average
period of approximately 1.5 years. The activity related to each of
the outstanding long-term incentive plans is summarized as follows:
|
2008
- 2010
|
2009
- 2011
|
|
|
Plan
Units
|
Plan
Units
|
|
|
Outstanding
|
Outstanding
|
|
|
(000s)
|
(000s)
|
|
|
Unvested
at December 28, 2007
|
-
|
-
|
|
Granted
in 2008
|
350
|
-
|
|
Forfeited
in 2008
|
(10)
|
-
|
|
Unvested
at December 26, 2008
|
340
|
-
|
|
Granted
in 2009
|
10
|
673
|
|
Forfeited
in 2009
|
(24)
|
(49)
|
|
Unvested
at December 25, 2009
|
326
|
624
|
NOTE 4. Stock Plans and
Share-Based Compensation, continued
Stock
Plan for Directors
The Stock
Plan for Directors, approved by the shareholders in 1992, governs in part the
manner in which directors' fees and retainers are paid. At the end of
2009, the minimum retainer to be paid in CSX common stock was 50% of the annual
retainer, but each director may elect to receive the entire retainer and fees in
CSX common stock. In addition, each director receives an annual
payment made entirely in CSX common stock. However, in 2008, the Board of
Directors elected to change the date of issue from December 2008 to February
2009. Therefore these shares were not issued before year-end
2008. The following table provides information about shares issued to
directors.
|
Fiscal
Years
|
||||
|
2009
|
2008
|
2007
|
||
|
Shares
Issued to Directors (Thousands)
|
74
|
10
|
68
|
|
|
Expense
(Millions)
|
$2
|
$1
|
$3
|
|
|
Grant
Date Stock Price
|
$30.89
|
$53.40
|
$43.36
|
|
The plan permits each director, in
accordance with Internal Revenue Code Section 409A, to defer receipt of
fees. Deferred cash amounts were credited to an account and invested
in a choice of eight investment selections, including a CSX common stock
equivalent fund. Distributions were made in accordance with elections
made by the directors, consistent with the terms of the Plan. At
December 2009, there were approximately 1 million shares of common stock
reserved for issuance under this Plan.
Shareholder
Dividend Reinvestment Plan
CSX
maintains the Shareholder Dividend Reinvestment Plan under which shareholders
may use dividends paid on CSX common stock held in the plan to purchase
additional shares of stock. The following table provides information
about shares available for issuance under this plan at the end of fiscal years
2009, 2008 and 2007.
|
Fiscal
Years
|
||||
|
2009
|
2008
|
2007
|
||
|
Number
of Shares Available for Issuance (Thousands)
|
11,090
|
11,101
|
10,906
|
|
NOTE
5. Casualty, Environmental and Other Reserves
Activity related to casualty,
environmental and other reserves is as follows:
|
Casualty
|
Separation
|
Environmental
|
Other
|
||
|
(Dollars
in Millions)
|
Reserves
|
Liabilities
|
Reserves
|
Reserves
|
Total
|
|
Balance
December 29, 2006
|
$637
|
$120
|
$71
|
$93
|
$921
|
|
Charged
to Expense(a)
|
141
|
-
|
76
|
79
|
296
|
|
Change
in Estimate
|
(99)
|
-
|
-
|
-
|
(99)
|
|
Payments(a)
|
(133)
|
(17)
|
(47)
|
(50)
|
(247)
|
|
Balance
December 28, 2007
|
$546
|
$103
|
$100
|
$122
|
$871
|
|
Charged
to Expense
|
115
|
-
|
38
|
57
|
210
|
|
Payments
|
(95)
|
(16)
|
(38)
|
(53)
|
(202)
|
|
Balance
December 26, 2008
|
$566
|
$87
|
$100
|
$126
|
$879
|
|
Charged
to Expense(b)
|
111
|
-
|
26
|
26
|
163
|
|
Change
in Estimate(c)
|
(127)
|
-
|
-
|
-
|
(127)
|
|
Payments
|
(91)
|
(14)
|
(29)
|
(44)
|
(178)
|
|
Balance
December 25, 2009
|
$459
|
$73
|
$97
|
$108
|
$737
|
(a)
Charges to expense and payments for environmental reserves were higher in 2007
primarily due to clean-up costs associated with an increase in significant train
accidents.
(b)
Charges to expense for other reserves were lower in 2009 primarily due to a
reduction in freight loss and damage claims as a result of volume
declines.
(c)
Personal injury accounted for $84 million of the total $127 million change in
estimate. The remaining $43 million is attributable to occupational
reserves.
NOTE 5. Casualty,
Environmental and Other Reserves, continued
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:
|
December
25, 2009
|
December
26, 2008
|
|||||||
|
(Dollars
in Millions)
|
Current
|
Long-term
|
Total
|
Current
|
Long-term
|
Total
|
||
|
Casualty:
|
||||||||
|
Personal
Injury
|
$85
|
$215
|
$300
|
$104
|
$258
|
$362
|
||
|
Occupational
|
27
|
132
|
159
|
32
|
172
|
204
|
||
|
Total
Casualty
|
112
|
347
|
459
|
136
|
430
|
566
|
||
|
Separation
|
16
|
57
|
73
|
16
|
71
|
87
|
||
|
Environmental
|
37
|
60
|
97
|
42
|
58
|
100
|
||
|
Other
|
25
|
83
|
108
|
42
|
84
|
126
|
||
|
Total
|
$190
|
$547
|
$737
|
$236
|
$643
|
$879
|
||
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.
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.
NOTE 5. Casualty,
Environmental and Other Reserves, continued
Personal
Injury
Personal
injury reserves represent liabilities for employee work-related and third-party
injuries. Work-related injuries for CSXT employees are primarily
subject to the Federal Employers’ Liability Act (“FELA”). In addition
to FELA liabilities, employees of other CSX subsidiaries are covered by various
state workers’ compensation laws, the Federal Longshore and Harbor Workers’
Compensation Program or the Maritime Jones Act.
CSXT
retains an independent actuarial firm to assist management in assessing the
value of personal injury claims 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.
Claims
have shown a continued downward trend in the number of injuries, resulting in a
continued reduction of the Company’s Federal Railroad Administration ("FRA")
personal injury rate. This reduction is a direct result of the
Company’s improvement in safety. Additionally, the trend in the
severity of injuries has significantly declined. During 2009, the
Company reduced personal injury reserves by $84 million based on management’s
review of the actuarial analysis performed by an independent actuarial
firm. These reductions were included in materials, supplies and other
in the consolidated income statements.
Occupational
Occupational claims arise from allegations of exposures 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.
Asbestos
The
Company is party to a number of occupational claims by employees alleging
exposure to asbestos in the workplace. The heaviest possible exposure
for employees resulted from work conducted in and around steam locomotive
engines that were largely phased out beginning around the 1950s. Other types of
exposures, however, including exposure from locomotive component parts and
building materials, continued until it was substantially eliminated by
1985. Additionally, the Company has retained liability for asbestos
claims filed against its previously owned international container shipping
business. Diseases associated with asbestos typically have long latency periods
(amount of time between exposure to a disease and the onset of the disease)
which can range from 10 years to 40 years after exposure.
NOTE 5. Casualty,
Environmental and Other Reserves, continued
The
Company retains a third-party specialist with extensive experience in performing
asbestos and other occupational studies to assist management in assessing the
value of the Company’s reserves. The analysis is performed by the specialist
semi-annually and is reviewed by management. The objective of the
analysis is to determine the number of estimated incurred but not reported
(“IBNR”) claims and the estimated average cost per claim to be received over the
next seven years. Seven years was determined by management to be the
time period in which probable claim filings and claim values could be estimated
with more certainty.
The
Company, with the assistance of the third-party specialist, determines its
potentially exposed population and is then able to derive the estimated number
of IBNR claims. The estimated average cost per claim is then determined
utilizing recent actual average cost per claim data and national industry data.
Key elements of the assessment include the following:
|
·
|
An
estimate is computed using a ratio of Company employee data to national
employment for select years during the period 1938-2001. The
Company uses railroad industry historical census data because it does not
have detailed employment records in order to compute the population of
potentially exposed employees.
|
|
·
|
The
projected incidence of disease is estimated based on epidemiological
studies using employees’ ages and the duration and intensity of potential
exposure while employed. Epidemiology is the medical science
that deals with the incidence, distribution and control of diseases in a
population.
|
|
·
|
An
estimate of the future anticipated claims filing rate by type of disease
(non-malignant, cancer and mesothelioma) is computed using the Company’s
average historical claim filing rates for a three-year calibration
period.
|
|
·
|
An
estimate of the future anticipated dismissal rate by type of claim is
computed using the Company’s historical average dismissal rates observed
during a period that management feels is representative of future
dismissal rates. This period may differ from the current
calibration period and is dependent upon disease type and other
determining factors.
|
|
·
|
An
estimate of the future anticipated settlement by type of disease is
computed using the Company’s historical average dollars paid per claim
using the average settlement by type of incident observed during a period
that management feels is representative of future settlement
amounts. This period may differ from the current calibration
period and is dependent upon disease type and other determining
factors.
|
NOTE 5. Casualty,
Environmental and Other Reserves, continued
From
these assumptions, the Company projects the incidence of each type of disease to
the estimated population to determine the total estimated number of employees
that could potentially assert a claim. Historical claim filing rates are applied
for each type of disease to the total number of employees that could potentially
assert a claim to determine the total number of anticipated claim filings by
disease type. Historical dismissal rates, which represent claims that were
closed without payment, are used to calculate the number of future claims by
disease type that should be deducted from the total number of anticipated
claims. Finally, the number of such claims was multiplied by the
average settlement value to estimate the Company’s future liability for IBNR
asbestos claims.
The
estimated future filing rates and estimated average claim values were the most
sensitive assumptions for this reserve. A 1% increase or decrease in
either the forecasted number of IBNR claims or the average claim values would
result in less than a $1 million increase or decrease in the liability recorded
for unasserted asbestos claims.
Undiscounted liabilities recorded related to asbestos claims were as
follows:
|
December
|
December
|
||
|
(Dollars
in Millions)
|
2009
|
2008
|
|
|
Asbestos:
|
|||
|
Incurred
but not reported claims
|
$43
|
$54
|
|
|
Asserted
claims
|
53
|
70
|
|
|
Total
liability
|
96
|
124
|
|
|
Current
liability
|
$10
|
$11
|
Other
Occupational
For all
other occupational claims such as 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, the Company retains a third-party specialist with extensive
experience in performing other occupational studies to assist management in
assessing the value of the Company’s reserves. The analysis is performed by the
specialist semi-annually and is reviewed by management. The objective
of the analysis is to determine the number of IBNR claims and the estimated
average cost per claim to be paid in future periods. With the
exception of carpal tunnel, management has determined that seven years is the
most probable period in which claim filing and claim values could be estimated
with more certainty. Carpal tunnel claims use a three-year period to estimate
the reserve due to the shorter latency period for these types of
injuries. Similar to the asbestos liability estimation process, the
key elements of the assessment include the following:
NOTE 5. Casualty,
Environmental and Other Reserves, continued
|
·
|
An
estimate of the potentially exposed population for other occupational
diseases is calculated by projecting active versus retired workforce from
2009 to 2016 based upon information obtained from the Railroad Retirement
Board in its 2009 report.
|
|
·
|
An
estimate of the future anticipated claims filing rate by type of injury,
employee type, and active versus retired employee is computed using the
Company’s average historical claim filing rates for the calibration
periods management felt were representative of future filing
rates. For carpal tunnel and repetitive stress injuries, the
current calibration period is a two-year average of claim
filings. All other diseases or injuries use a three-year
calibration period. An estimate is made to forecast future
claims by using the filing rates by disease and the active and retired
employee population each year.
|
|
·
|
An
estimate of the future anticipated dismissal rate by type of claim is
computed using the Company’s historical average dismissal rates during a
period that management feels is representative of future dismissal rates.
This period may differ from the current calibration period and is
dependent upon injury type and other determining
factors.
|
|
·
|
An
estimate of the future anticipated settlement by type of injury is
computed using the Company’s historical average of dollars paid per claim
for type of injury observed during a period that management feels is
representative of future settlement amounts. This period may
differ from the current calibration period and is dependent upon injury
type and other determining factors.
|
From
these assumptions, the Company projects the incidence of each type of disease to
the estimated population to determine the total estimated number of employees
that could potentially assert a claim. Historical claim filing rates are applied
for each type of disease to the total number of employees that could potentially
assert a claim to determine the total number of anticipated claim filings by
disease type. Historical dismissal rates, which represent claims that were
closed without payment, are used to calculate the number of future claims by
disease type that should be deducted from the total number of anticipated
claims. Finally, the number of such claims was multiplied by the
average settlement value to estimate the Company’s future liability for IBNR
asbestos claims.
The estimated future filing rates and
estimated average claim values were the most sensitive assumptions for this
reserve. A 1% increase or decrease in either the forecasted number of
IBNR claims or the average claim values would result in less than a $1 million
increase or decrease in the liability recorded for unasserted other occupational
claims.
NOTE 5. Casualty,
Environmental and Other Reserves, continued
Undiscounted
recorded liabilities related to other occupational claims were as
follows:
|
December
|
December
|
||
|
(Dollars
in Millions)
|
2009
|
2008
|
|
|
Other
Occupational:
|
|||
|
Incurred
but not reported claims
|
$29
|
$46
|
|
|
Asserted
claims
|
34
|
34
|
|
|
Total
liability
|
63
|
80
|
|
|
Current
liability
|
$17
|
$21
|
A summary
of asbestos and other occupational claims activity is as follows:
|
Fiscal
Years
|
||
|
2009
|
2008
|
|
|
Asserted
Claims
|
||
|
Open
Claims - Beginning of Year
|
4,904
|
10,988
|
|
New
Claims Filed
|
298
|
400
|
|
Claims
Settled
|
(184)
|
(392)
|
|
Claims
Dismissed
|
(1,236)
|
(6,092)
|
|
Open
Claims - End of Year
|
3,782
|
4,904
|
In the
prior year, approximately 5,700 of the dismissed claims were asbestos claims
related to the Company’s previously owned international container shipping
business. The claims were administratively dismissed for lack of
medical evidence. The remaining open asbestos claims related to the
shipping business are approximately 117. Because these claims were
against multiple vessel owners, the Company’s reserves reflect its portion of
those claims. The Company had approximately $3 million reserved for
these shipping business claims at December 2009 and 2008,
respectively. The remaining open claims were asserted against
CSXT.
During 2009, the Company reduced its
reserves for asbestos and occupational injuries by $43
million. Asbestos reserve reductions of $24 million were primarily
related to approximately 1,500 claims that were deemed to have no medical merit
and therefore have been determined to have no value. The remaining
reduction is attributable to a decrease in the number of carpal tunnel and
repetitive stress injuries claims.
Reserves for asbestos related claims
were $96 million and $124 million at December 2009 and December 2008,
respectively. Reserves for all other occupational claims were $63
million and $80 million at December 2009 and December 2008,
respectively.
NOTE 5. 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 257 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:
NOTE 5. Casualty,
Environmental and Other Reserves, continued
|
·
|
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.
|
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 of $108 million and $126 million for 2009 and 2008, respectively,
include liabilities for various claims, such as longshoremen disability claims,
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.
Longshoremen
disability claims represent liability for assessments under Section 8f of the
United States Longshore and Harbor Workers’ Compensation
Program. These reserves, of $50 million and $75 million for 2009 and
2008, respectively, have amounts accrued for second injury fund liabilities,
which represent the non-medical portion of employee claims which are paid by the
United States Department of Labor and are attributed to an earlier injury to the
same employee. These claims relate to a shipping business formerly
owned by CSX.
NOTE 5. Casualty,
Environmental and Other Reserves, continued
Freight
claims represent claims for both freight loss and damage and freight rate
disputes. Freight loss and damage claims are liabilities that
resulted from the loss or damage of customer freight while being handled by the
Company’s transportation services. Freight rate disputes represent
liabilities for customer claims regarding the rates charged by the Company for
its transportation services. Liabilities for freight rate disputes
are recorded as a reduction of revenue.
The
Company accrues for claims related to property, automobile and general liability
as noted above. The Company is also required to maintain primary and
state mandated insurance coverage for Company property and vehicle
fleets. General liability is coverage for liability arising from
operations of non-rail subsidiaries.
NOTE
6. Properties
Railroad
Assets
The
Company depreciates its rail assets, including main-line track, locomotives and
freight cars, using the group-life method of accounting. Assets
depreciated under the group-life method comprise over 90% of total fixed assets
of $31 billion on a gross basis at December 2009. All other assets of
the Company are depreciated on a straight line basis. The group-life method
aggregates assets with similar lives and characteristics into groups and
depreciates each of these groups as a whole. When using the
group-life method, an underlying assumption is that each group of assets, as a
whole, is used and depreciated to the end of its recoverable life.
The
Company currently utilizes more than 250 different depreciable asset categories
to account for depreciation expense for the railroad assets that are depreciated
under group life. Examples of depreciable asset categories include 18
different categories for crossties due to the different combinations of density
classifications and asset types. By utilizing various depreciable
categories, the Company can more accurately account for the use of its
assets.
The
Company believes the group-life method of depreciation closely approximates the
straight-line method of depreciation. Additionally, due to the nature
of most of its assets (e.g. track is one contiguous, connected asset) the
Company believes that this is the most effective way to properly depreciate its
assets.
Under
group-life, the service lives and salvage values for each group of assets are
determined by completing periodic life studies and applying management's
assumptions regarding the service lives of its properties. A life
study is the periodic review of asset lives for group assets conducted by a
third-party expert, analyzed by the Company’s management and approved by the
Surface Transportation Board (“STB”), the regulatory board that has broad
jurisdiction over railroad practices. The STB requires life studies
be performed for equipment assets every three years and for road (e.g. bridges
and signals) and track (e.g., rail, ties and ballast) assets every six
years. The Company believes the frequency currently required by the
STB provides adequate review of asset lives and that a more frequent review
would not result in a material change due to the long-lived nature of most of
the assets.
NOTE 6. Properties,
continued
The
results of the life study process determine the service lives for each asset
group under the group-life method. Road assets, including main-line
track, have estimated service lives ranging from 6 years for system roadway
machinery to 75 years for tunnels. Equipment assets, including
locomotives and freight cars, have estimated service lives ranging from 6 years
for technology assets to 35 years for work equipment. Resulting
changes in service life estimates are subject to review and approval by the
STB.
Changes
in asset lives due to the results of the life studies are applied on a
prospective basis and could significantly impact future periods’ depreciation
expense, and thus, the Company's results of operations.
There are
several factors taken into account during the life study and they
include:
|
·
|
statistical
analysis of historical life and salvage data for each group of
property;
|
|
·
|
statistical
analysis of historical retirements for each group of
property;
|
|
·
|
evaluation
of current operations;
|
|
·
|
evaluation
of technological advances and maintenance
schedules;
|
|
·
|
previous
assessment of the condition of the assets and outlook for their continued
use;
|
|
·
|
expected
net salvage to be received upon retirement;
and
|
|
·
|
comparison
of assets to the same asset groups with other
companies.
|
For
retirements or disposals of depreciable rail assets that occur in the ordinary
course of business, the asset cost (net of salvage value or sales proceeds) is
charged to accumulated depreciation and no gain or loss is
recognized. As individual assets within a specific group are retired,
resulting gains and losses are recorded in accumulated
depreciation. As part of the life study, an assessment of the
recorded amount of accumulated depreciation is made to determine if it is
deficient (or in excess) of the appropriate amount indicated by the study. Any
such deficiency (or excess), including any deferred gains or losses, is
amortized as a component of depreciation expense over the remaining useful life
of the asset group until the next required life study. Since the overall
assumption with group-life is that the assets within the group on average have
the same life and characteristics, it is therefore concluded that the deferred
gains and losses offset over time.
NOTE 6. Properties,
continued
In the
event that large groups of assets are removed from service as a result of
unusual acts or sales, resulting gains and losses are recognized immediately.
These acts are not considered to be in the normal course of business and are
therefore recognized when incurred. Examples of such acts would be
the major destruction of assets due to significant storm damage (e.g. major
hurricanes), the sale of a rail line segment to another railroad or the disposal
of an entire class of assets (e.g. disposal of all refrigerated freight
cars).
Recent
experience with life studies has resulted in depreciation rate changes, which
did not materially affect the Company’s annual depreciation expense of $908
million and $904 million for 2009 and 2008 respectively. The Company
completed life studies for its equipment assets in 2009 and concluded life
studies for its road, track and equipment assets in 2008 resulting in a
reduction in depreciation expense of $18 million in 2009 and $ 32 million in
2008.
Non-Railroad
Assets
The
majority of non-railroad property is depreciated using the straight-line method
on a per asset basis. The depreciable lives of this property are
periodically reviewed by the Company and any changes are applied on a
prospective basis. Amortization expense recorded under capital leases
is included in depreciation expense on the consolidated income
statements.
For
retirements or disposals of non-railroad depreciable assets and all dispositions
of land, the resulting gains or losses are recognized at the time of disposal,
because the assets are individually identified.
Impairment
Review
Properties
and other long-lived assets are reviewed for impairment whenever events or
business conditions indicate the carrying amount of such assets may not be fully
recoverable. Initial assessments of recoverability are based on estimates of
undiscounted future net cash flows associated with an asset or a group of assets
in accordance with the Property, Plant, and Equipment Topic in the
ASC. Where impairment is indicated, the assets are evaluated and
their carrying amount is reduced to fair value based on discounted net cash
flows or other estimates of fair value.
Capital
Expenditures
The
Company’s capital spending includes purchased or self-constructed assets and
property additions that substantially extend the service life or increase the
utility of those assets. Indirect costs that can be specifically
traced to capital projects are also capitalized. The Company is
committed to maintaining and improving its existing infrastructure and expanding
its network for long-term growth. Rail operations are capital
intensive and CSX accounts for these costs in accordance with GAAP and the
Company’s capitalization policy. All properties were stated at
historical cost less an allowance for accumulated depreciation.
NOTE 6. Properties,
continued
A detail
of the Company’s net properties are as follows:
|
Annual
|
Estimated
|
|||||
|
(Dollars
in Millions)
|
Accumulated
|
Net
Book
|
Depreciation
|
Useful
|
||
|
As
of December 2009
|
Cost
|
Depreciation
|
Value
|
Rate
(a)
|
Life
|
|
|
Road
|
||||||
|
Rail
and Other Track Material
|
$5,580
|
$(895)
|
$4,685
|
2.7%
|
||
|
Ties
|
3,678
|
(748)
|
2,930
|
3.7%
|
||
|
Ballast
|
2,279
|
(585)
|
1,694
|
2.5%
|
||
|
Other
|
8,650
|
(1,829)
|
6,821
|
3.0%
|
||
|
Total
Road
|
$20,187
|
$(4,057)
|
$16,130
|
6 -
80 years
|
||
|
Equipment
|
||||||
|
Locomotive
|
$4,358
|
$(1,716)
|
$2,642
|
3.5%
|
||
|
Freight
Cars
|
2,672
|
(1,142)
|
1,530
|
3.5%
|
||
|
Work
Equipment and Other
|
436
|
(180)
|
256
|
7.4%
|
||
|
Total
Equipment
|
$7,466
|
$(3,038)
|
$4,428
|
6 -
35 years
|
||
|
Land
|
$1,899
|
N/A
|
$1,899
|
N/A
|
N/A
|
|
|
Intermodal
|
716
|
(397)
|
319
|
N/A
|
5 -
30 years
|
|
|
Computer
Hardware/Software and Other
|
485
|
(376)
|
109
|
16.7%
|
4 -
30 years
|
|
|
Construction
In Progress
|
328
|
-
|
328
|
N/A
|
N/A
|
|
|
Total
Properties
|
31,081
|
(7,868)
|
23,213
|
|||
|
Annual
|
Estimated
|
|||||
|
(Dollars
in Millions)
|
Accumulated
|
Net
Book
|
Depreciation
|
Useful
|
||
|
As
of December 2008
|
Cost
|
Depreciation
|
Value
|
Rate
(a)
|
Life
|
|
|
Road
|
||||||
|
Rail
and Other Track Material
|
$5,324
|
$(822)
|
$4,502
|
2.9%
|
||
|
Ties
|
3,503
|
(685)
|
2,818
|
4.2%
|
||
|
Ballast
|
2,181
|
(601)
|
1,580
|
2.7%
|
||
|
Other
|
8,449
|
(1,715)
|
6,734
|
3.0%
|
||
|
Total
Road
|
$19,457
|
$(3,823)
|
$15,634
|
6 -
80 years
|
||
|
Equipment
|
||||||
|
Locomotive
|
$4,335
|
$(1,610)
|
$2,725
|
3.6%
|
||
|
Freight
Cars
|
2,777
|
(1,212)
|
1,565
|
3.8%
|
||
|
Work
Equipment and Other
|
356
|
(170)
|
186
|
7.9%
|
||
|
Total
Equipment
|
$7,468
|
$(2,992)
|
$4,476
|
6 -
35 years
|
||
|
Land
|
$1,907
|
N/A
|
$1,907
|
N/A
|
N/A
|
|
|
Intermodal
|
672
|
(372)
|
300
|
N/A
|
5 -
30 years
|
|
|
Computer
Hardware/Software and Other
|
443
|
(333)
|
110
|
16.7%
|
4 -
30 years
|
|
|
Construction
In Progress
|
261
|
-
|
261
|
N/A
|
N/A
|
|
|
Total
Properties
|
30,208
|
(7,520)
|
22,688
|
|||
|
(a)
|
Composite
depreciation rates, which are used in group life depreciation, apply
to railroad assets which account for more than 90% of total
properties. All other property is depreciated on a straight line
basis over the asset’s useful
life.
|
NOTE 6. Properties,
continued
The
Company’s largest category of capital spending is track assets which are
typically completed by CSXT employees. Costs for track projects that
are capitalized include:
|
·
|
labor
costs, because many of the assets are
self-constructed;
|
|
·
|
costs
to purchase or construct new track or to prepare ground for the laying of
track;
|
|
·
|
welding
(rail, field and plant) which are processes used to connect segments of
rail;
|
|
·
|
rail
grinding which is a procedure for removing ridges and defects in a rail
surface to restore rail to its original shape and extend its useful
life;
|
|
·
|
ballast,
which is gravel and crushed stone that holds track in
line;
|
|
·
|
fuels
and lubricants associated with tie, rail and surfacing work which is the
process of raising track to a designated elevation over an extended
distance;
|
|
·
|
cross,
switch and bridge ties which are the braces that support the rails on a
track;
|
|
·
|
gauging
which is the process of standardizing the distance between
rails;
|
|
·
|
handling
costs associated with installing ties or ballast;
and
|
|
·
|
other
track materials.
|
Normal
repairs and maintenance costs of track materials are expensed as
incurred. These costs include repairs made to track such as spot
replacement of broken or worn rail, ties or ballast, handling costs associated
with the removal of ties and other costs of track materials.
Capital
spending related to locomotives and freight cars comprises the second largest
category of the Company’s capital assets. This category includes
purchase costs of locomotives and freight cars as well as certain equipment
leases that are considered to be capital leases in accordance with the Leases Topic in the
ASC. In addition, costs to modify or rebuild these assets are
capitalized if the spending incurred extends the asset’s useful life or improves
utilization. Improvement projects must meet specified dollar
thresholds to be capitalized and are reviewed by management to determine proper
accounting treatment. Routine equipment maintenance activities and
repairs are expensed as incurred.
NOTE
7. Commitments and Contingencies
Lease
Commitments
The Company has various lease
agreements with other parties with terms up to 30 years. Non-cancelable,
long-term leases generally include provisions for maintenance, options to
purchase and options to extend the terms. The Company uses the
straight-line method to recognize rent expense associated with operating leases
that include escalations over their terms.
|
Fiscal
Years
|
|||
|
(Dollars
in Millions)
|
2009
|
2008
|
2007
|
|
Net
Daily Rental Charges (a)
|
$307
|
$323
|
$310
|
|
Rent
Expense on Operating Leases
|
84
|
102
|
141
|
|
Equipment
and Other Rents
|
$391
|
$425
|
$451
|
(a) Net daily rental charges
are not long-term commitments.
At December 2009, minimum building and
equipment rentals and commitments for vessels (utilized in a shipping business
formerly owned by CSX) under these operating leases were as
follows:
|
(Dollars
in Millions)
|
|||
|
Operating
|
Sublease
|
Net
Lease
|
|
|
Years
|
Leases
|
Income
|
Commitments
|
|
2010
|
$110
|
$(31)
|
$79
|
|
2011
|
85
|
(17)
|
68
|
|
2012
|
82
|
(21)
|
61
|
|
2013
|
64
|
(26)
|
38
|
|
2014
|
72
|
(49)
|
23
|
|
Thereafter
|
143
|
-
|
143
|
|
Total
|
$556
|
$(144)
|
$412
|
Operating leases and an equal portion
of sublease income include approximately $120 million relating to ongoing
operating lease commitments for vessels and equipment, which have been subleased
to Horizon Lines, Inc. (“Horizon”), a former subsidiary previously named CSX
Lines. CSX believes Horizon will fulfill its contractual commitments
with respect to such leases and CSX will have no further liability for those
obligations. The Company also has agreements covering equipment
leased from Conrail, Inc. (“Conrail”), which are included in the table
above.
NOTE 7. Commitments and
Contingencies, continued
Purchase
Commitments
CSXT has a commitment under a long-term
maintenance program that currently covers 47% of CSXT’s fleet of
locomotives. The agreement is based on the maintenance cycle for each
locomotive. Under CSXT’s current obligations, the agreement will
expire no earlier than 2028 and may last until 2031 depending upon when certain
locomotives are placed in service. The costs expected to be incurred
throughout the duration of the agreement fluctuate as locomotives are placed
into, or removed from, service or as required maintenance schedules are
revised. The decrease in costs shown below is a direct result of retiring
and storing locomotives in 2009.
The following table summarizes the
number of locomotives covered and CSXT’s payments under the long-term
maintenance program:
|
Fiscal
Years
|
|||
|
(Dollars
in Millions)
|
2009
|
2008
|
2007
|
|
Amounts
Paid
|
$237
|
$253
|
$217
|
|
Number
of Locomotives
|
1,891
|
1,958
|
1,843
|
As a result of agreements executed in
2005 and 2006, CSXT has remaining purchase obligations to acquire 50 additional
locomotives by year-end 2011. The amount of the ultimate purchase
commitment depends upon the model of locomotive acquired and the timing of
delivery.
Annual payments related to the
locomotive purchase obligations, including amounts that would be payable under
the long-term maintenance program, are estimated in the table
below.
|
Payments
|
|
|
(Dollars
in Millions)
|
|
|
2010
|
$231
|
|
2011
|
347
|
|
2012
|
252
|
|
2013
|
260
|
|
2014
|
269
|
|
Thereafter
|
3,851
|
|
Total
|
$5,210
|
NOTE 7. Commitments and
Contingencies, continued
Additionally,
the Company has various other commitments to purchase technology,
communications, railcar maintenance and other services from various
suppliers. Total annual payments under all of these additional
purchase commitments are estimated as follows:
|
Payments
|
|
|
(Dollars
in Millions)
|
|
|
2010
|
$155
|
|
2011
|
87
|
|
2012
|
68
|
|
2013
|
11
|
|
2014
|
3
|
|
Thereafter
|
2
|
|
Total
|
$326
|
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.
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.
NOTE 7. Commitments and
Contingencies, continued
At
December 2009, 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 December 2009, 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.
Fuel
Surcharge Antitrust Litigation
Since
2007, 31 putative class action suits have been filed in various federal district
courts against CSXT and three other U.S.-based Class I railroads. The
lawsuits contain substantially similar allegations to the effect that the
defendants’ fuel surcharge practices relating to contract and unregulated
traffic resulted from an illegal conspiracy in violation of antitrust
laws. The suits seek unquantified treble damages (three times the
amount of actual damages) allegedly sustained by purported class members,
attorneys’ fees and other relief. All but three of the lawsuits purport to
be filed on behalf of a class of shippers that allegedly purchased rail freight
transportation services from the defendants through the use of contracts or
through other means exempt from rate regulation during defined periods
commencing as early as June 2003 and that were assessed fuel
surcharges. Three of the lawsuits purport to be on behalf of indirect
purchasers of rail services. The court denied the defendants’ motion
to dismiss the direct purchasers’ claims; however, the court dismissed all of
the indirect purchasers’ causes of action seeking money damages, but did not
dismiss their request for injunctive relief. The indirect purchasers
have appealed that decision, and oral arguments were heard and the Company is
awaiting a decision.
NOTE 7. Commitments and
Contingencies, continued
The class
action suits have been consolidated in federal court in the District of
Columbia. The court denied the railroads’ request to first proceed
with discovery relating to the appropriateness of class certification, and then
permit merits discovery only if a class is certified. The court,
however, agreed with the railroads that class certification should be decided as
early as possible, rejecting plaintiffs’ proposal that certification be
determined after the close of discovery and close to trial.
The case
is now in the discovery phase. Plaintiffs are scheduled to file their
Motion for Class Certification in March 2010. Defendants’ opposition
is due in June. The hearing on class certification is scheduled for
September. All fact discovery must be completed by mid-November
2010.
One
additional lawsuit was filed, but not served, by an individual
shipper. CSXT entered into a tolling agreement with this shipper
whereby the shipper agreed to dismiss the lawsuit against CSXT without prejudice
and CSXT agreed to extend the statute of limitations for the claims asserted
until the end of 2010.
CSXT
believes that its fuel surcharge practices are lawful. Accordingly,
CSXT intends to vigorously defend itself against the purported class actions,
which it believes are without merit. CSXT cannot predict the outcome
of the private lawsuits at this time, or of any government investigations,
charges or additional litigation that may be filed in the
future. Penalties for violating antitrust laws can be severe,
involving both potential criminal and civil liability. CSXT is unable
to assess at this time the possible financial impact of this
litigation. CSXT has not accrued any liability for an adverse outcome
in the litigation. If a material adverse outcome were to occur and be
sustained, it could have a material adverse impact on the Company’s financial
condition, results of operations or liquidity.
NOTE 7. Commitments and
Contingencies, continued
STB
Rate Case
During 2008, Seminole Electric
Cooperative, Inc. (“Seminole”) filed a complaint before the STB against
CSXT. CSXT and Seminole were parties to a railroad transportation contract
that expired on December 31, 2008. Seminole contests tariff rates that
went into effect on January 1, 2009 for movements of coal to its power
generating facility in Putnam County, Florida. Seminole requests that the
STB impose rates covering a ten-year period, retroactive to January 1, 2009 for
such movements. As set forth in its January 19, 2010 STB filing, CSXT
believes that its tariff rates are reasonable. The Company will continue
to consider and pursue all available legal defenses in this matter. A
decision in the case is expected in early 2011.
Other
Legal Proceedings
In addition to the matters described
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.
NOTE
8. Employee Benefit Plans
General
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 pay 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.
NOTE 8. Employee Benefit
Plans, continued
|
Summary
of Participants
|
|||
|
as
of January 1, 2009
|
|||
|
Pension
Plans
|
Post-retirement
Medical Plan
|
||
|
Active
Employees (a)
|
6,256
|
3,189
|
|
|
Retirees
and Beneficiaries
|
10,804
|
9,867
|
|
|
Other
(b)
|
6,131
|
268
|
|
|
Total
|
23,191
|
13,324
|
|
|
(a)
|
Active
employees for 2009 included approximately 1,400 former employees of The
Greenbrier, since CSX maintained the obligation for their pension
liabilities.
|
|
(b)
|
For
pension plans, the other category consists mostly of terminated but vested
former employees. For post-retirement plans, the other category
consists of employees on long-term disability that have not yet
retired.
|
Effective
fiscal year 2008, under the provisions of Compensation—Retirement Benefits
Topic in the ASC, CSX changed the measurement date for pension and
post-retirement benefit plans from September 30 to the last day of the Company’s
fiscal year. The Company engages independent, external actuaries to compute the
amounts of liabilities and expenses related to these plans subject to the
assumptions that the Company selects.
The
benefit obligation for these plans represents the liability of the Company for
current and retired employees and is affected primarily by the
following:
|
·
|
service
cost (benefits attributed to employee service during the
period),
|
|
·
|
interest
cost (interest on the liability due to the passage of
time),
|
|
·
|
actuarial
gains/losses (experience during the year different from that assumed and
changes in plan assumptions) and
|
|
·
|
benefits
paid to participants.
|
NOTE 8. Employee Benefit Plans, continued
Cash
Flows
Plan
assets are amounts that have been segregated and restricted to provide benefits
and include amounts contributed by the Company and amounts earned from invested
contributions, net of benefits paid. The Company funds the cost of the
post-retirement medical and life insurance benefits as well as nonqualified
pension benefits on a pay-as-you go basis. 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. At the current time, the Company anticipates that no
contributions to its qualified pension plans will be required in
2010.
Future expected benefit payments are as
follows:
|
Expected
Cash Flows
|
|||
|
(Dollars
in Millions)
|
Pension
Benefits
|
Post-retirement
Benefits(a)
|
|
|
2010
|
$154
|
$42
|
|
|
2011
|
158
|
41
|
|
|
2012
|
160
|
40
|
|
|
2013
|
162
|
38
|
|
|
2014
|
166
|
36
|
|
|
2015-2019
|
869
|
164
|
|
|
Total
|
$1,669
|
$361
|
|
|
|
(a)
The post-retirement benefit payments include an estimated annual reduction
of $6 million due to the Medicare Part D
Subsidy.
|
Plan
Assets
The CSX
Investment Committee (“the Investment Committee”), whose members were selected
by the Chief Financial Officer (“CFO”) and approved by the Chief Executive
Officer (“CEO”), is responsible for oversight and investment of pension plan
assets. The Investment Committee utilizes an investment asset
allocation strategy that was developed using asset return simulation in
conjunction with projected plan liabilities. The allocation seeks
maximization of returns within the constraints of acceptable risks considering
the long-term investment horizon. A target allocation of 60% equity
and 40% fixed income investments was established. Equity investments
further target 45% of total plan assets in domestic equity and 15% in
international equity. These allocations are managed to be within 3%
of the planned allocation, with re-allocations occurring
quarterly.
NOTE 8. Employee Benefit
Plans, continued
The
distribution of pension plan assets as of the measurement date is shown in the
table below, and these assets are netted against the pension liabilities on the
balance sheet. The funded status, or amount by which the benefit obligation
exceeds the fair value of plan assets, represents a liability. At December 2009,
both the accumulated benefit obligation and the projected benefit obligation
exceeded the plan assets of each pension plan.
|
December
2009
|
December
2008
|
||||||
|
Percent
of
|
Percent
of
|
||||||
|
(Dollars
in Millions)
|
Amount
|
Total
Assets
|
Amount
|
Total
Assets
|
|||
|
Equity
|
$1,019
|
57
|
%
|
$714
|
54
|
%
|
|
|
Fixed
Income
|
696
|
39
|
600
|
45
|
|||
|
Cash
and Cash Equivalents
|
66
|
4
|
17
|
1
|
|||
|
Total
|
$1,781
|
100
|
%
|
$1,331
|
100
|
%
|
|
Under the
supervision of the Investment Committee, individual investments or fund managers
are selected in accordance with standards of prudence applicable to asset
diversification and investment suitability. The Company also selects
fund managers with differing investment styles and benchmarks their investment
returns against appropriate indices. Fund investment performance is
continuously monitored. Acceptable performance is determined in the
context of the long-term return objectives of the fund and appropriate asset
class benchmarks.
Within
the Company’s equity funds, the U.S. stock segment includes diversification
among large and small capitalization stocks. Guidelines established
with individual managers limit investment by industry sectors, individual stock
issuer concentration and the use of derivatives and CSX securities.
Fixed
income securities guidelines established with individual managers specify the
types of allowable investments, such as government, corporate and asset-backed
bonds, and limit diversification between domestic and foreign investments and
the use of derivatives. Additionally, guidelines stipulate minimum
credit quality constraints and any prohibited securities.
For
detailed information regarding the fair value of pension assets, see Note 15,
Fair Value Measurements.
NOTE 8. Employee Benefit
Plans, continued
Benefit
Obligation, Plan Assets and Funded Status
As a
result of the change in valuation date during 2008, calendar plan year 2008
consisted of fifteen months beginning October 1, 2007 and ending December 31,
2008. Changes in benefit obligation and the fair value of plan assets
for the 2009 and 2008 calendar plan years are as follows:
|
Pension
Benefits
|
Post-retirement
Benefits
|
||||
|
Plan
Year
|
Plan
Year
|
Plan
Year
|
Plan
Year
|
||
|
|
2009
|
2008
|
2009
|
2008
|
|
| (Dollars in Millions) | |||||
|
Actuarial
Present Value of Benefit Obligation
|
|||||
|
Accumulated
Benefit Obligation
|
$2,238
|
$1,950
|
N/A
|
N/A
|
|
|
Projected
Benefit Obligation
|
2,395
|
2,062
|
$406
|
$373
|
|
|
Change
in Projected Benefit Obligation:
|
|||||
|
Projected
Benefit Obligation at Beginning of Plan
Year
|
$2,062
|
$2,067
|
$373
|
$404
|
|
|
Service
Cost
|
32
|
41
|
5
|
7
|
|
|
Interest
Cost
|
129
|
149
|
23
|
27
|
|
|
Plan
Participants' Contributions
|
-
|
-
|
19
|
22
|
|
|
Actuarial
(Gain)/Loss
|
323
|
(12)
|
37
|
(15)
|
|
|
Benefits
Paid
|
(151)
|
(183)
|
(51)
|
(72)
|
|
|
Benefit
Obligation at End of Plan Year
|
$2,395
|
$2,062
|
$406
|
$373
|
|
|
Change
in Plan Assets:
|
|||||
|
Fair
Value of Plan Assets at Beginning of Plan Year
|
$1,320
|
$1,607
|
$-
|
$-
|
|
|
Actual
Return on Plan Assets
|
349
|
(466)
|
-
|
-
|
|
|
Qualified
Employer Contributions(a)
|
250
|
347
|
-
|
-
|
|
|
Non-qualified
Employer Contributions
|
13
|
15
|
32
|
50
|
|
|
Plan
Participants' Contributions
|
-
|
-
|
19
|
22
|
|
|
Benefits
Paid
|
(151)
|
(183)
|
(51)
|
(72)
|
|
|
Fair
Value of Plan Assets at End of Plan Year
|
$1,781
|
$1,320
|
$-
|
$-
|
|
|
Funded
Status at End of Plan Year
|
$(614)
|
$(742)
|
$(406)
|
$(373)
|
|
|
(a)
|
As a result of the change in
valuation date during 2008, it included 15 months instead of the normal 12
months. CSX made contributions of $347 million to its
qualified defined benefit pension plans. The components of this
include $245 million of contributions made in fourth quarter 2007 plus
$102 million of contributions made during fiscal year
2008.
|
|
|
|
NOTE 8. Employee Benefit
Plans, continued
For qualified plan funding purposes,
assets and discounted liabilities are measured in accordance with the Pension
Protection Act of 2006, and the Worker, Retiree and Employer Recovery Act of
2008 as well as other related provisions of the Internal Revenue Code and
related regulations. Under these funding provisions and the
alternative measurements available thereunder, the Company estimates its
unfunded obligation for qualified plans on an annual basis.
In accordance with Compensation—Retirement Benefits
Topic in the ASC, an employer must recognize the funded status of a
pension or other postretirement benefit plan by recording a liability
(underfunded plan) or asset (overfunded plan) for the difference between the
projected benefit obligation (or the accumulated postretirement benefit
obligation for a postretirement benefit plan) and the fair value of plan assets
at the plan measurement date. Amounts related to pension and
post-retirement benefits recorded on the balance sheet are as
follows:
|
Pension
Benefits
|
Post-retirement
Benefits
|
||||
|
December
|
December
|
December
|
December
|
||
|
|
2009
|
2008
|
2009
|
2008
|
|
| (Dollars in Millions) | |||||
|
Amounts
Recorded in Consolidated
|
|||||
|
Balance
Sheets:
|
|||||
|
Long-term
Assets
|
$-
|
$-
|
$-
|
$-
|
|
|
Current
Liabilities
|
(11)
|
(12)
|
(42)
|
(42)
|
|
|
Long-term
Liabilities
|
(603)
|
(730)
|
(364)
|
(331)
|
|
|
Net
Amount Recognized in
|
|||||
|
Consolidated
Balance Sheet
|
$(614)
|
$(742)
|
$(406)
|
$(373)
|
|
CSX has a
liability for the amount by which the benefit obligation exceeds the fair value
of plan assets. At December 2009, both the accumulated benefit obligation and
the projected benefit obligation exceeded the plan assets of each pension
plan.
Net
Benefit Expense
The
following table describes the components of expense/(income) related to net
benefit expense.
|
Pension
Benefits
|
Post-retirement
Benefits
|
||||||
|
Fiscal
Years
|
Fiscal
Years
|
||||||
|
(Dollars
in Millions)
|
2009
|
2008
|
2007
|
2009
|
2008
|
2007
|
|
|
Service
Cost
|
$32
|
$32
|
$33
|
$5
|
$5
|
$6
|
|
|
Interest
Cost
|
129
|
119
|
115
|
25
|
21
|
20
|
|
|
Expected
Return on Plan Assets
|
(154)
|
(145)
|
(119)
|
-
|
-
|
-
|
|
|
Amortization
of Net Loss
|
26
|
22
|
30
|
4
|
6
|
3
|
|
|
Amortization
of Prior Service Cost
|
2
|
3
|
3
|
-
|
(2)
|
(5)
|
|
|
Net
Periodic Benefit Expense
|
$35
|
$31
|
$62
|
$34
|
$30
|
$24
|
|
NOTE 8. Employee Benefit
Plans, continued
Pension
and Other Post-Employment Benefits Adjustments
The
following table shows the pre-tax change in other comprehensive income (loss)
attributable to the components of net expense and the change in benefit
obligation for CSX for pension and other post-employment benefits.
|
Pension
Benefits
|
Post-retirement
Benefits
|
||||||
|
(Dollars
in Millions)
Components
of Other Comprehensive Loss (Income)
|
December
|
December
|
December
|
December
|
|||
|
2009
|
2008
|
2009
|
2008
|
||||
|
|
|||||||
|
Recognized
in the balance sheet
|
|||||||
|
Losses
(Gains)
|
$128
|
$624
|
$37
|
$(16)
|
|||
|
Expense
(Income) recognized in the income statement
|
|||||||
|
Amortization
of net losses
|
26
|
22
|
4
|
6
|
|||
|
Amortization
of prior service costs (credits)
|
2
|
3
|
-
|
(2)
|
|||
The
estimated amount to be expensed for 2010 is $58 million and $8 million for
pension benefits and post-retirement benefits, respectively. The increase in the
pension expense is primarily related to additional amortization of the losses
incurred by the pension plan assets during 2008. The estimated amount
to be expensed for prior service costs for 2010 is $3 million for pension
benefits. There are no remaining prior service costs to be expensed
in 2010 for post-retirement benefits.
At
December 2009, the balances of pre-tax amounts to be amortized that are included
in accumulated other comprehensive loss (a component of shareholders’ equity)
are as follows:
| Post-retirement | |||
|
Pension
Benefits
|
Benefits
|
||
|
Losses
|
$1,056
|
$100
|
|
|
Prior
Service Costs
|
10
|
-
|
|
|
Total
|
$1,066
|
$100
|
NOTE 8. Employee Benefit
Plans, continued
Assumptions
Weighted-average
assumptions used in accounting for the plans were as follows:
|
Pension
Benefits
|
Post-retirement
Benefits
|
|||||
|
2009
|
2008
|
2009
|
2008
|
|||
|
Expected
Long-term Return on Plan Assets:
|
||||||
|
Benefit
Cost for Plan Year
|
8.50%
|
8.50%
|
N/A
|
N/A
|
||
|
Benefit
Obligation at End of Plan Year
|
8.50%
|
8.50%
|
N/A
|
N/A
|
||
|
Discount
Rates:
|
||||||
|
Benefit
Cost for Plan Year
|
6.50%
|
6.00%
|
6.50%
|
5.75%
|
||
|
Benefit
Obligation at End of Plan Year
|
5.25%
|
6.50%
|
4.75%
|
6.50%
|
||
|
Salary
Scale Inflation
|
4.00%
|
3.80%
|
4.00%
|
3.80%
|
||
The net
post-retirement benefit obligation for salaried, management personnel was
determined using the following assumptions for the health care cost trend rate
for medical plans. While it is expected that rates will be 5% by 2017, there may
be yearly fluctuations. Additionally, there are cost differentials between
Medicare and Non-Medicare eligible individuals which are reflected
below.
|
Post-retirement
Benefits
|
||||
|
2009
|
2008
|
|||
|
Health
Care Cost Trend Rate
|
||||
|
Components
of Benefit Cost: Non-Medicare Eligible
|
9.5%
|
9.0%
|
||
|
Components
of Benefit Cost: Medicare Eligible
|
10.5%
|
10.0%
|
||
|
Benefit
Obligations: Non-Medicare Eligible
|
8.5%
|
9.5%
|
||
|
Benefit
Obligations: Medicare Eligible
|
8.0%
|
10.5%
|
||
For every
1% change in the assumed health care cost trend rate, service and interest cost
will change $1 million on a pre-tax basis (consolidated income statement
impact). For every 1% increase in the health care cost trend rate, the Company’s
benefit obligation will increase by $14 million, and for every 1% decrease, the
Company’s benefit obligation will decrease by $13 million (consolidated balance
sheet impact). An increase in rates has a greater effect on the
Company’s benefit obligation due to the impact of compounding on future
years.
NOTE 8. Employee Benefit
Plans, continued
Medicare
Prescription Drug, Improvement and Modernization Act of 2003
As
required by the Medicare Prescription Drug, Improvement and Modernization Act of
2003 (the “Act”), the Company has determined that its medical plan’s
prescription drug benefit qualifies as actuarially equivalent to the benefit
that would be paid under the Act. The Company has received $3 million
and $2 million in tax free federal reimbursement for prescription drug claims in
both 2009 and 2008, respectively.
Other
Plans
Under
collective bargaining agreements, the Company participates in a multi-employer
benefit plan, which provides certain post-retirement health care and life
insurance benefits to eligible contract employees. Premiums under this plan are
expensed as incurred and amounted to $35 million, $36 million and $31 million in
2009, 2008 and 2007, respectively.
The
Company maintains savings plans for virtually all full-time salaried employees
and certain employees covered by collective bargaining
agreements. Expense associated with these plans was $24 million, $26
million and $24 million for 2009, 2008 and 2007, respectively.
NOTE
9. Debt and Credit Agreements
Debt was as follows:
|
Average
|
|||||
|
Interest
|
|||||
|
Rates
at
|
|||||
|
December
|
December
|
December
|
|||
|
|
Maturity
|
2009
|
2009
|
2008
|
|
| (Dollars in Millions) | |||||
|
Notes
|
2010-2043
|
6.7%
|
$7,038
|
$6,756
|
|
|
Convertible
Debentures, net of $3 discount
|
2021
|
2.1%
|
28
|
28
|
|
|
Equipment
Obligations
|
2010-2023
|
7.0%
|
911
|
1,002
|
|
|
Capital
Leases
|
2010-2015
|
6.4%
|
31
|
45
|
|
|
Total
Long-term Debt (including current portion)
|
8,008
|
7,831
|
|||
|
Less
Debt Due within One Year
|
(113)
|
(319)
|
|||
|
Long-term
Debt (excluding current portion)
|
$7,895
|
$7,512
|
|||
For
information regarding the fair value of debt, see Note 15, Fair Value
Measurements.
NOTE 9. Debt and Credit
Agreements, continued
Debt
Issuance
In 2009, CSX issued $500 million of
7.375% notes due 2019. These notes were included in the consolidated
balance sheets under long-term debt and may be redeemed by the Company at any
time. The net proceeds from the sale of the notes will be used for
general corporate purposes, which may include repurchases of CSX common stock,
capital expenditures, working capital requirements, improvements in productivity
and other cost reductions at the Company's major transportation
units.
Convertible
Debentures
In 2001,
CSX issued $564 million aggregate principal amount at maturity in unsubordinated
zero coupon convertible debentures (the "debentures") due in 2021 for an initial
offering price of approximately $462 million. The carrying value of
outstanding debentures was $28 million, both at December 2009 and December
2008. From their date of issuance, these debentures had accreted
(increased) in value at a rate of 1% per year. In 2007, the accretion
rate was reset to 2.1%. The accretion rate may be reset again in
October 2011 and October 2016 to a rate based on five-year United States
Treasury Notes minus 2.8%. In no event will the yield to maturity be
reset below 1% or above 3% per annum. Accretion in value on the
debentures is recorded in each month but will not be paid prior to
maturity.
The
debentures allow holders to require CSX to purchase their debentures in October
2011 and October 2016, at a purchase price equal to the accreted value of the
debentures at the time. CSX may redeem the debentures for cash at any
time at a redemption price equal to the accreted value of the
debentures.
Holders
currently may convert their debentures into shares of CSX common stock at a
conversion rate of 35.49 common shares per $1,000 principal amount at maturity
of debentures. During 2008, $142 million face value of debentures was
converted into 5 million shares of CSX common stock. There were no
material conversions during 2009. At December 2009, $31 million face
value debentures remained outstanding, convertible into approximately 1 million
shares of CSX common stock.
NOTE 9. Debt and Credit
Agreements, continued
Long-term
Debt Maturities
|
(Dollars
in Millions)
|
Maturities
as of
December
2009
|
|||
|
Fiscal Years Ending
|
||||
|
2010
|
$113
|
|||
|
2011
|
605
|
|||
|
2012
|
507
|
|||
|
2013
|
779
|
|||
|
2014
|
526
|
|||
|
2015
and Thereafter
|
5,478
|
|||
|
Total
Long-term Debt Maturities (including current portion)
|
$8,008
|
|||
Credit
Facilities
In 2006,
the Company entered into a $1.25 billion five-year unsecured revolving credit
facility and a $15 million secured revolving credit facility expiring in
2011. In 2007, with the consent of the lenders and in accordance with
the facility’s terms, CSX extended the maturity date of the $1.25 billion
facility an additional year, to 2012.
Additionally,
with the approval of the lending banks, CSX may increase its total borrowing
capacity under the $1.25 billion facility by $500 million, from $1.25 billion to
up to $1.75 billion. The facility was not
drawn on as of December 2009. Commitment fees and interest rates
payable under the facility were similar to fees and rates available to
comparably rated investment-grade borrowers.
In 2009,
CSX paid approximately $2 million in total fees associated with the undrawn
facilities. These credit facilities allow for borrowings at floating
(LIBOR-based) interest rates, plus a spread, depending upon CSX’s senior
unsecured debt ratings. LIBOR is the London Interbank Offered Rate which is a
daily reference rate based on the interest rates at which banks offer to lend
unsecured funds. At December 2009, CSX was in compliance with all covenant
requirements under the facilities.
NOTE 9. Debt and Credit
Agreements, continued
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, CSX 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. The cash received in exchange for these receivables when CSX
Trade Receivables monetizes them by selling them to third-party lenders will be
recorded as debt on CSX’s consolidated financial statements due to certain
optional reduction or prepayment provisions.
NOTE
10. 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:
|
Fiscal
Years
|
||||
|
(Dollars
in Millions)
|
2009
|
2008
|
2007
|
|
|
Interest
Income
|
$11
|
$37
|
$55
|
|
|
Income
from Real Estate
|
31
|
39
|
58
|
|
|
Miscellaneous
Income (Expense)(a)
|
(8)
|
24
|
(8)
|
|
|
Total
Other Income - Net
|
$34
|
$100
|
$105
|
|
|
Gross
Revenue from Real Estate
|
||||
|
Operations
included above
|
$60
|
$77
|
$95
|
|
|
(a)
|
In
2008, CSX recorded additional income of $30 million for an adjustment to
correct equity earnings from a non-consolidated
subsidiary. For
the year 2007, CSX recorded expense of $10 million related to an early
redemption premium and the write-off of debt issuance
costs.
|
Previously,
the results of operations from The Greenbrier resort were included in other
income – net. In 2009, CSX sold the stock of a subsidiary that
indirectly owned Greenbrier Hotel Corporation, owner of The Greenbrier
resort. The results of this resort are now presented in discontinued
operations on the consolidated income statements and all prior periods have been
reclassified. For more information, see Note 14, Discontinued
Operations.
NOTE
11. Other Long-term Assets and Other Long-term
Liabilities
Other
Long-term Assets
Other
Long-term Assets consisted of the following:
|
December
|
||||
|
|
2009
|
2008
|
||
| (Dollars in Millions) | ||||
|
Goodwill (a)
|
$64
|
$64
|
||
|
Available
for Sale Securities (b)
|
35
|
48
|
||
|
Debt
Issuance Costs
|
35
|
36
|
||
|
Other
Long-term Assets
|
31
|
46
|
||
|
Total
Other Long-term Assets
|
$165
|
$194
|
||
|
(a)
|
Goodwill
related to subsidiaries of CSXT, primarily Four Rivers Transportation,
represents purchase price in excess of fair
value.
|
|
(b)
|
Available
for Sale Securities include investments in marketable
securities.
|
Other
Long-term Liabilities
Other
Long-term Liabilities consisted of the following:
|
December
|
||||
|
|
2009
|
2008
|
||
| (Dollars in Millions) | ||||
|
Pension
Plan Liability (a)
|
$603
|
$730
|
||
|
Post-retirement
Benefit Liability (a)
|
364
|
331
|
||
|
Deferred
Gains
|
143
|
160
|
||
|
Accrued
Deferred Compensation
|
79
|
77
|
||
|
Accrued
Sick Leave
|
17
|
24
|
||
|
Deferred
Lease Payments
|
18
|
21
|
||
|
Income
Taxes Payable
|
-
|
9
|
||
|
Other
Long-term Liabilities
|
60
|
74
|
||
|
Total
Other Long-term Liabilities
|
$1,284
|
$1,426
|
||
|
|
(a) See
Note 8, Employee Benefit Plans, for explanation on changes in pension and
post-retirement benefit
liabilities.
|
NOTE
12. Income Taxes
Earnings
from continuing operations before income taxes of $1.8 billion, $2.3 billion and
$1.9 billion for fiscal years 2009, 2008, and 2007, respectively, represent
earnings from domestic operations.
The significant components of deferred
tax assets and liabilities include:
|
2009
|
2008
|
|||||
|
(Dollars
in Millions)
|
Assets
|
Liabilities
|
Assets
|
Liabilities
|
||
|
Pension
Plans
|
$223
|
$-
|
$282
|
$-
|
||
|
Other
Employee Benefit Plans
|
303
|
-
|
317
|
-
|
||
|
Accelerated
Depreciation
|
-
|
7,184
|
-
|
6,882
|
||
|
Other
|
365
|
135
|
469
|
218
|
||
|
Total
|
$891
|
$7,319
|
$1,068
|
$7,100
|
||
|
Net
Deferred Tax Liabilities
|
$6,428
|
$6,032
|
||||
The
primary factors in the change in year-end net deferred income tax liability
balances include:
|
·
|
Annual
provision for deferred income tax
expense;
|
|
·
|
Deferred
income taxes attributable to discontinued operations;
and
|
|
·
|
Accumulated
other comprehensive loss and other capital
adjustments;
|
The
breakdown of income tax expense between current and deferred is as
follows:
|
(Dollars
in Millions)
|
Fiscal
Years
|
|||
|
Current:
|
2009(a)
|
2008(b)
|
2007
|
|
|
Federal
|
$151
|
$284
|
$398
|
|
|
State
|
37
|
73
|
46
|
|
|
Total
Current
|
188
|
357
|
444
|
|
|
Deferred:
|
||||
|
Federal
|
413
|
477
|
233
|
|
|
State
|
23
|
20
|
35
|
|
|
Total
Deferred
|
436
|
497
|
268
|
|
|
Total
|
$624
|
$854
|
$712
|
|
|
(a)
|
The
decrease in current tax expense during 2009 is primarily due to the
decrease to pre-tax earnings.
|
|
(b)
|
The
increase in deferred tax expense during 2008 is primarily due to the bonus
depreciation provision of the Economic Stimulus Act of 2008 which had an
impact of approximately $200 million. Likewise, 2009 deferred
tax expense was impacted by approximately $160 million related to bonus
depreciation.
|
NOTE 12. Income Taxes,
continued
Income
tax expense reconciled to the tax computed at statutory rates is presented in
the table below. The change in the 2008 effective income tax rate
compared to the prior year is primarily attributed to prior year audit
resolutions. The change in the 2009 effective income tax rate
compared to the prior year is primarily attributed to a state tax benefit
recorded for the change in the apportionment of state taxes.
|
Fiscal
Years
|
|||||||||
|
(Dollars
In Millions)
|
2009
|
2008
|
2007
|
||||||
|
Federal
Income Taxes
|
$616
|
35
|
%
|
$822
|
35
|
%
|
$682
|
35
|
%
|
|
State
Income Taxes
|
37
|
2
|
59
|
3
|
50
|
3
|
|||
|
Prior
Year Audit Resolutions
|
(15)
|
(1)
|
(18)
|
(1)
|
5
|
-
|
|||
|
Other
Items(a)
|
(14)
|
(1)
|
(9)
|
(1)
|
(25)
|
(1)
|
|||
|
Income
Tax Expense/Rate
|
$624
|
35
|
%
|
$854
|
36
|
%
|
$712
|
37
|
%
|
(a)
Other items primarily include tax impacts from equity in Conrail and other
partially owned subsidiaries’ earnings.
CSX adopted the Income Taxes Topic in the
ASC, at the beginning of fiscal year 2007. As a result of the
implementation, the Company recognized a $31 million decrease to reserves for
uncertain tax positions. This decrease, along with a $2 million
reduction for unconsolidated subsidiaries accounted for under the equity method
of accounting, was recorded as a cumulative effect adjustment to the beginning
balance of retained earnings on the balance sheet.
The
change to the total gross unrecognized tax benefits of the Company during the
fiscal year ended December 2009 is reconciled as follows:
|
Uncertain
Tax Positions:
|
Fiscal
Year
|
|
|
(Dollars
in Millions)
|
2009
|
2008
|
|
Beginning
Balance
|
$57
|
$58
|
|
Additions
based on tax positions related to current year
|
1
|
3
|
|
Additions
based on tax positions related to prior year
|
6
|
14
|
|
Settlements
with taxing authorities
|
(1)
|
(16)
|
|
Lapse
of statute of limitations
|
(13)
|
(2)
|
|
Balance
at December 2009
|
$50
|
$57
|
NOTE 12. Income Taxes,
continued
As of
December 2009 and 2008, the Company had approximately $50 million and $57
million, respectively, of total unrecognized tax benefits. After
consideration of the impact of federal tax benefits, $41 million and $50
million, respectively, could favorably affect the effective income tax
rate. The Company estimates that approximately $42 million of the
unrecognized tax benefits as of December 2009 for various state and federal
income tax matters will be resolved over the next 12 months.
The
Company files a consolidated federal income tax return, which includes its
principal domestic subsidiaries. CSX and its subsidiaries are subject to U.S.
federal income tax as well as income tax of multiple state
jurisdictions. During 2009, the Company participated in a
contemporaneous IRS audit of tax years 2008 and 2009. During
2008, the Internal Revenue Service (“IRS”) completed its examination of tax
years 2004 through 2007. The Company has appealed a tax adjustment
proposed by the IRS for the tax year 2005. The appeals process is
expected to last less than one year. Federal examinations of original
federal income tax returns for all years through 2007 are otherwise
resolved.
During
fourth quarter 2009, the Company resolved the final issue on the 2004 – 2006 IRS
Audit Appeal. The result of this resolution is currently awaiting
Joint Committee of Taxation review and approval. The Company
estimates the settlement of this audit cycle could reduce gross unrecognized tax
benefits by approximately $28 million and will result in a net tax benefit of
approximately $16 million plus interest. Approximately $6 million of
the gross unrecognized tax benefits total would be closed upon the expiration of
statutes of limitations. The final outcome of these uncertain tax
positions, however, is not yet determinable.
CSX’s
continuing practice is to recognize net interest and penalties related to income
tax matters in income tax expense. Included in the consolidated income
statements are benefits of $6 million, $2 million and $8 million for fiscal
years 2009, 2008 and 2007, respectively, for the reduction to reserves for
interest and penalties for all prior year tax positions. Benefits for
interest and penalties are due to favorable tax settlements of prior period tax
audits where the Company had previously accrued a liability for interest and
penalties. The Company had $6 million and $2 million accrued for
interest and penalties for 2009 and 2008, respectively, for all prior year tax
positions. The increase for interest and penalties during 2009 is
primarily related to the credit of interest overpayments against tax liability
amounts due to the IRS by the Company.
NOTE
13. Related Party Transactions
Through a
limited liability company, CSX and Norfolk Southern Corporation (“NS”) jointly
own Conrail. CSX has a 42% economic interest and 50% voting interest in the
jointly owned entity and NS has the remainder of the economic and voting
interests. Pursuant to the Investments-Equity Method and Joint
Venture Topic in the ASC, CSX applies the equity method of accounting to
its investment in Conrail.
Conrail owns and operates rail
infrastructure for the joint benefit of CSX and NS. This is known as
the shared asset area. Conrail charges fees for right-of way usage, equipment
rentals and transportation, switching and terminal service charges in the shared
asset area. These expenses are included in materials, supplies
and other on the consolidated income statements.
Also
included in materials, supplies and other are CSX’s 42% share of Conrail’s
income and its amortization of the fair value write-up arising from the
acquisition of Conrail and certain other adjustments. The
amortization primarily represents the additional after-tax depreciation expense
related to the write-up of Conrail’s fixed assets when the original purchase
price, from the 1997 acquisition of Conrail, was allocated based on fair
value.
The following table details the related
Conrail amounts included in materials, supplies and other in the Company’s
consolidated income statements:
|
Fiscal
Years
|
||||||
|
(Dollars
in Millions)
|
2009
|
2008
|
2007
|
|||
|
Rents,
Fees and Services
|
$104
|
$112
|
$97
|
|||
|
Purchase
Price Amortization and Other
|
4
|
4
|
4
|
|||
|
Equity
in Income of Conrail
|
(27)
|
(23)
|
(35)
|
|||
|
Total
Conrail Rents, Fees and Services
|
$81
|
$93
|
$66
|
|||
Interest
expense from the promissory notes payable to a Conrail subsidiary was as
follows:
|
Fiscal
Years
|
||||||
|
(Dollars
in Millions)
|
2009
|
2008
|
2007
|
|||
|
Interest
Expense Related to Conrail
|
$4
|
$4
|
$4
|
|||
As required
by the Related Party
Disclosures Topic in the ASC, the Company has identified amounts below
owed to Conrail, or its subsidiaries, representing liabilities under the
operating, equipment and shared area agreements with Conrail. The
Company also executed two promissory notes with a subsidiary of Conrail which
were included in long-term debt on the consolidated balance
sheets.
NOTE 13. Related Party
Transactions, continued
|
December
25,
|
December
26,
|
|||
|
(Dollars
in Millions)
|
2009
|
2008
|
||
|
Balance
Sheet Information:
|
||||
|
CSX
Payable to Conrail (a)
|
$65
|
$63
|
||
|
Promissory
Notes Payable to Conrail Subsidiary
|
||||
|
4.40%
CSX Promissory Note due October 2035 (b)
|
$73
|
$73
|
||
|
4.52%
CSXT Promissory Note due March 2035 (b)
|
$23
|
$23
|
||
|
(a)
Included on the consolidated balance sheet of CSX as accounts payable
because it is short term in nature.
|
||||
|
(b)
Included on the consolidated balance sheet of CSX as long-term
debt.
|
||||
The
Greenbrier
In 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. The gain was calculated using cash proceeds, net book value,
deal-related costs incurred and tax benefits. CSX has retained responsibility
for certain pre-closing Greenbrier pension obligations. Additionally
in 2009, The Greenbrier recognized a pre-tax operating loss of $17 million or
$10 million after tax.
In 2008,
prior to JFG purchasing The Greenbrier, CSX identified impairment indicators,
including a significant decrease in the market value associated with The
Greenbrier, which caused the Company to review the carrying amount of the assets
of the resort. Based on level 3 inputs within the fair value
hierarchy, this review resulted in a write-down of the assets. The
2008 impairment and operating loss had a pre-tax impact of $203 million or $130
million after tax.
The 2008
impairment and operating loss and the 2009 transaction are reported as
discontinued operations under the subsection Impairment or Disposal of Long-Lived
Assets in the ASC. Therefore, the gain on sale as well as
losses from operations is reported as discontinued
operations. Previously, all amounts associated with the operations of
The Greenbrier were included in Other Income - Net. All prior periods
have been reclassified to reflect this change.
International
Terminals
Discontinued
operations for 2007 included an income tax benefit related to the 2005 sale of
CSX’s International Terminals business. The Company recorded a tax
benefit of $110 million which was primarily associated with the 2007 resolution
of income tax matters related to former activities of the marine service
businesses, including the International Terminals business. This 2007
tax benefit was recorded in discontinued operations as the Company no longer
operates in these businesses. This tax benefit was associated with
tax basis adjustments, foreign dividends and foreign tax credits from operations
over a multi-year period.
NOTE 14. Discontinued Operations, continued
Income
statement information:
|
Fiscal
Years
|
|||
|
(Dollars
in Millions)
|
2009
|
2008
|
2007
|
|
Net
Loss From Operations, After Tax
|
$(10)
|
$(130)
|
$(10)
|
|
Gain
on Sale, After Tax
|
25
|
-
|
-
|
|
Income
Tax Benefit
|
-
|
-
|
110
|
|
Net
Income (Loss) From Discontinued Operations
|
$15
|
$(130)
|
$100
|
|
Earnings
Per Share
|
|||
|
From
Discontinued Operations, Assuming Dilution
|
$0.04
|
$(0.32)
|
$0.22
|
NOTE
15. Fair
Value Measurements
Beginning
in 2009, 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,
pension plan assets and long-term debt. Also, the Fair Value Measurements and
Disclosures Topic in the ASC clarifies the
definition of fair value for financial reporting, establishes a framework for
measuring fair value and requires additional disclosures about the use of fair
value measurements.
Various
inputs are considered when determining the value of the Company’s investments,
pension plan assets and long-term debt. The inputs or methodologies
used for valuing securities are not necessarily an indication of the risk
associated with investing in these securities. These inputs are
summarized in the three broad levels listed below.
|
·
|
Level
1 – observable market inputs that are unadjusted quoted prices for
identical assets or liabilities in active
markets
|
|
·
|
Level
2 – other significant observable inputs (including quoted prices for
similar securities, interest rates, credit risk,
etc.)
|
|
·
|
Level
3 – significant unobservable inputs (including the Company’s own
assumptions in determining the fair value of
investments)
|
The
valuation methods described below may produce a fair value calculation that 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.
NOTE 15. Fair Value Measurements, continued
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. As of
December 2009, these bonds had a fair value of $96 million and an amortized cost
basis of $91 million. Level 2 inputs were used to determine fair
value of the Company’s investment assets.
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. Level 2 inputs were used to determine the fair value of the
Company’s long-term debt.
The fair
value of outstanding debt fluctuates with changes in a number of
factors. Such factors include, but are not limited to, interest
rates, market conditions, values of similar financial instruments, size of the
transaction, cash flow projections, and comparable trades. Fair value
will exceed carrying value when the current market interest rate is lower than
the interest rate at which the debt was originally issued. The fair
value of a company’s debt is a measure of its current value under present market
conditions. It does not impact the financial statements under current
accounting rules. The fair value and carrying value of the Company’s
long-term debt is as follows:
|
(Dollars
in Millions)
|
December
2009
|
December
2008
|
||||||
|
Long-term
Debt Including Current Maturities:
|
||||||||
|
Fair
Value
|
$8,780
|
$7,415
|
||||||
|
Carrying
Value
|
$8,008
|
$7,831
|
||||||
NOTE 15. Fair Value Measurements, continued
Pension
Plan Assets
The Investment Committee targets an
allocation of pension assets to be generally 60% equity and 40% fixed
income. There are several valuation methodologies used for those
assets as described below.
|
·
|
Common stock: Valued at
the closing price reported on the active market on which the individual
securities are traded on the last day of the calendar plan
year.
|
|
·
|
Common trust funds:
Valued at the net asset value of shares held by the Master Trust at year
end as determined by the issuer of the
fund.
|
|
·
|
Corporate bonds, U.S.
Government securities, and asset-backed securities: Valued using
price evaluations reflecting the bid and/or ask sides of the market for an
investment as of the last day of the calendar plan
year.
|
|
·
|
Partnerships: Private
equity valued using the market values associated with the underlying
investments at year end as determined by the issuer of the
fund.
|
The
pension plan assets at fair value by level, within the fair value hierarchy, as
of calendar plan year 2009:
|
(Dollars
in Millions)
|
Level
1
|
Level
2
|
Level
3
|
Total
|
|
Common
Stock
|
$536
|
$-
|
$-
|
$536
|
|
Common
Trust Funds
|
-
|
454
|
-
|
454
|
|
Corporate
Bonds
|
-
|
546
|
-
|
546
|
|
U.S.
Government Securities
|
-
|
120
|
-
|
120
|
|
Asset-backed
Securities
|
-
|
30
|
-
|
30
|
|
Partnerships
|
-
|
-
|
95
|
95
|
|
Total
Investments at Fair Value
|
$536
|
$1,150
|
$95
|
$1,781
|
For
additional information related to pension assets, see Note 8, Employee Benefit
Plans.
The
summary of changes in the fair value of the Company’s level 3 pension plan
assets for the calendar plan year 2009:
|
(Dollars
in Millions)
|
Partnerships
|
|
Balance,
Beginning of Year
|
$53
|
|
Purchases
|
27
|
|
Unrealized
Gains
|
15
|
|
Balance,
End of Year
|
$95
|
NOTE
16. Derivative Financial Instruments
Interest
Rate Swaps
CSX uses
derivative financial instruments to manage its overall exposure to fluctuations
in interest rates. During 2007, CSX repaid $450 million of debentures
that matured and called $150 million of debentures due in 2032. As a
result, CSX also settled the interest rate swaps related to those
debentures. CSX had $20 million and $30 million of additional
outstanding interest rate swaps as of December 2009 and 2008,
respectively. The impact of the interest rate swaps on interest
expense was $1 million in each of those years. The interest rate swap
agreements were designated and qualified as fair value hedges. CSX’s
interest rate swaps qualified as perfectly effective, as defined by the Derivatives and Hedging Topic
in the ASC. As such, there was no ineffective portion to the
hedge recognized in earnings during the current or prior year
periods.
NOTE
17. Business Segments
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.
NOTE 17. Business
Segments, continued
Certain
segment information has been reclassified to conform to current year
presentation. Business segment information was as
follows:
|
Fiscal
Years
|
|||||
|
(Dollars
in Millions)
|
2009
|
2008
|
2007
|
||
|
Revenue
from External Customers:
|
|||||
|
Rail
|
$7,837
|
$9,789
|
$8,674
|
||
|
Intermodal
|
1,204
|
1,466
|
1,356
|
||
|
Consolidated
|
$9,041
|
$11,255
|
$10,030
|
||
|
Operating
Income:
|
|||||
|
Rail
|
$2,123
|
$2,478
|
$2,000
|
||
|
Intermodal
|
162
|
290
|
260
|
||
|
Consolidated
|
$2,285
|
$2,768
|
$2,260
|
||
|
Assets:
|
|||||
|
Rail
|
$26,107
|
$25,343
|
$24,502
|
||
|
Intermodal
|
359
|
321
|
283
|
||
|
Investment
in Conrail
|
650
|
609
|
639
|
||
|
Elimination
of Intersegment Payables (Receivables)
(a)
|
(511)
|
(8)
|
(121)
|
||
|
Non-segment
Assets (a)
|
431
|
23
|
231
|
||
|
Consolidated
|
$27,036
|
$26,288
|
$25,534
|
||
|
Depreciation
Expense:
|
|||||
|
Rail
|
$883
|
$879
|
$849
|
||
|
Intermodal
|
25
|
25
|
34
|
||
|
Consolidated
|
$908
|
$904
|
$883
|
||
|
Property
Additions:
|
|||||
|
Rail
|
$1,403
|
$1,672
|
$1,678
|
||
|
Intermodal
|
44
|
62
|
60
|
||
|
Non-Segment
|
-
|
6
|
35
|
||
|
Consolidated
|
$1,447
|
$1,740
|
$1,773
|
||
|
(a)
|
The
increase from 2008 is a result of the transfer of intercompany receivables
to CSX Trade Receivables. For more information on the receivables
securitization facility, see Note 9, Debt and Credit
Agreements.
|
NOTE
18. Quarterly Financial Data (Unaudited)
Pursuant
to Article 3 of the SEC’s Regulation S-X, the following are selected
quarterly financial data:
|
2009
|
||||||||
|
Quarters
|
||||||||
|
|
1st
|
2nd
|
3rd
|
4th
|
Full
Year
|
|||
|
(Dollars
in Millions, Except Per Share Amounts)
|
||||||||
|
Operating
Revenue
|
$2,247
|
$2,185
|
$2,289
|
$2,320
|
$9,041
|
|||
|
Operating
Income
|
522
|
582
|
598
|
583
|
2,285
|
|||
|
Earnings
from Continuing Operations
|
254
|
285
|
293
|
305
|
1,137
|
|||
|
Discontinued
Operations (a)
|
(8)
|
23
|
-
|
-
|
15
|
|||
|
Net
Earnings
|
$246
|
$308
|
$293
|
$305
|
$1,152
|
|||
|
Earnings
Per Share, Basic:
|
||||||||
|
Continuing
Operations
|
$0.65
|
$0.73
|
$0.75
|
$0.77
|
$2.90
|
|||
|
Discontinued
Operations (a)
|
(0.02)
|
0.06
|
-
|
-
|
0.04
|
|||
|
Net
Earnings
|
$0.63
|
$0.79
|
$0.75
|
$0.77
|
$2.94
|
|||
|
Earnings
Per Share, Assuming Dilution:
|
||||||||
|
Continuing
Operations
|
$0.64
|
$0.72
|
$0.74
|
$0.77
|
$2.87
|
|||
|
Discontinued
Operations (a)
|
(0.02)
|
0.06
|
-
|
-
|
0.04
|
|||
|
Net
Earnings
|
$0.62
|
$0.78
|
$0.74
|
$0.77
|
$2.91
|
|||
|
Dividend
Per Share
|
$0.22
|
$0.22
|
$0.22
|
$0.22
|
$0.88
|
|||
|
2008
|
||||||||
|
Quarters
|
||||||||
|
|
1st
|
2nd
|
3rd
|
4th
|
Full
Year
|
|||
|
(Dollars
in Millions, Except Per Share Amounts)
|
||||||||
|
Operating
Revenue
|
$2,713
|
$2,907
|
$2,961
|
$2,674
|
$11,255
|
|||
|
Operating
Income
|
626
|
717
|
733
|
692
|
2,768
|
|||
|
Earnings
from Continuing Operations (b)
|
362
|
392
|
380
|
361
|
1,495
|
|||
|
Discontinued
Operations (a)
|
(11)
|
(7)
|
2
|
(114)
|
(130)
|
|||
|
Net
Earnings
|
$351
|
$385
|
$382
|
$247
|
$1,365
|
|||
|
Earnings
Per Share, Basic:
|
||||||||
|
Continuing
Operations
|
$0.90
|
$0.97
|
$0.94
|
$0.92
|
$3.73
|
|||
|
Discontinued
Operations (a)
|
(0.03)
|
(0.02)
|
0.01
|
(0.29)
|
(0.32)
|
|||
|
Net
Earnings
|
$0.87
|
$0.95
|
$0.95
|
$0.63
|
$3.41
|
|||
|
Earnings
Per Share, Assuming Dilution:
|
||||||||
|
Continuing
Operations
|
$0.88
|
$0.95
|
$0.93
|
$0.92
|
$3.66
|
|||
|
Discontinued
Operations (a)
|
(0.03)
|
(0.02)
|
0.01
|
(0.29)
|
(0.32)
|
|||
|
Net
Earnings
|
$0.85
|
$0.93
|
$0.94
|
$0.63
|
$3.34
|
|||
|
Dividend
Per Share
|
$0.15
|
$0.18
|
$0.22
|
$0.22
|
$0.77
|
|||
|
Prior
periods have been reclassified to conform to the current
presentation.
|
|
(a)
|
Discontinued Operations
- Included in fourth quarter 2008, discontinued operations amount is an
impairment loss of $107 million after-tax on CSX’s former investment in
The Greenbrier resort.
|
|
|
|
(b)
|
Earnings
from Continuing Operations - In first quarter 2008, CSX recorded a non-cash
adjustment of $30 million to correct equity earnings from a non-consolidated
subsidiary resulting in additional
income.
|
NOTE
19. 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 19. Summarized
Consolidating Financial Data, continued
Consolidating
Income Statements
(Dollars
in Millions)
|
Fiscal
Year Ended December 25, 2009
|
CSX
Corporation
|
CSX
Transportation
|
Other
|
Eliminations
|
Consolidated
|
|||||
|
Operating
Revenue
|
$-
|
$7,776
|
$1,362
|
$(97)
|
$9,041
|
|||||
|
Operating
Expense
|
(279)
|
5,968
|
1,164
|
(97)
|
6,756
|
|||||
|
Operating
Income
|
279
|
1,808
|
198
|
-
|
2,285
|
|||||
|
Equity
in Earnings of Subsidiaries
|
1,569
|
-
|
-
|
(1,569)
|
-
|
|||||
|
Interest
Expense
|
(500)
|
(116)
|
(11)
|
69
|
(558)
|
|||||
|
Other
Income - Net
|
63
|
28
|
12
|
(69)
|
34
|
|||||
|
Earnings
from Continuing Operations
|
||||||||||
|
Before
Income Taxes
|
1,411
|
1,720
|
199
|
(1,569)
|
1,761
|
|||||
|
Income
Tax Benefit (Expense)
|
(291)
|
(630)
|
297
|
-
|
(624)
|
|||||
|
Earnings
from Continuing Operations
|
1,120
|
1,090
|
496
|
(1,569)
|
1,137
|
|||||
|
Discontinued
Operations
|
32
|
-
|
(17)
|
-
|
15
|
|||||
|
Net
Earnings
|
$1,152
|
$1,090
|
$479
|
$(1,569)
|
$1,152
|
|||||
|
Fiscal
Year Ended December 26, 2008
|
CSX
Corporation
|
CSX
Transportation
|
Other
|
Eliminations
|
Consolidated
|
|||||
|
Operating
Revenue
|
$-
|
$9,712
|
$1,675
|
$(132)
|
$11,255
|
|||||
|
Operating
Expense
|
(193)
|
7,511
|
1,289
|
(120)
|
8,487
|
|||||
|
Operating
Income
|
193
|
2,201
|
386
|
(12)
|
2,768
|
|||||
|
Equity
in Earnings of Subsidiaries
|
1,500
|
-
|
-
|
(1,500)
|
-
|
|||||
|
Interest
Expense
|
(544)
|
(155)
|
(22)
|
202
|
(519)
|
|||||
|
Other
Income - Net
|
110
|
118
|
62
|
(190)
|
100
|
|||||
|
Earnings
from Continuing Operations
|
||||||||||
|
Before
Income Taxes
|
1,259
|
2,164
|
426
|
(1,500)
|
2,349
|
|||||
|
Income
Tax Benefit (Expense)
|
106
|
(733)
|
(227)
|
-
|
(854)
|
|||||
|
Earnings
from Continuing Operations
|
1,365
|
1,431
|
|
199
|
(1,500)
|
1,495
|
||||
|
Discontinued
Operations
|
-
|
-
|
(130)
|
-
|
(130)
|
|||||
|
Net
Earnings
|
$1,365
|
$1,431
|
$69
|
$(1,500)
|
$1,365
|
|||||
|
Fiscal
Year Ended December 28, 2007
|
CSX
Corporation
|
CSX
Transportation
|
Other
|
Eliminations
|
Consolidated
|
|||||
|
Operating
Revenue
|
$-
|
$8,591
|
$1,546
|
$(107)
|
$10,030
|
|||||
|
Operating
Expense
|
(203)
|
6,894
|
1,176
|
(97)
|
7,770
|
|||||
|
Operating
Income
|
203
|
1,697
|
370
|
(10)
|
2,260
|
|||||
|
Equity
in Earnings of Subsidiaries
|
1,363
|
-
|
-
|
(1,363)
|
-
|
|||||
|
Interest
Expense
|
(568)
|
(238)
|
(46)
|
435
|
(417)
|
|||||
|
Other
Income - Net
|
166
|
154
|
210
|
(425)
|
105
|
|||||
|
Earnings
from Continuing Operations
|
||||||||||
|
Before
Income Taxes
|
1,164
|
1,613
|
534
|
(1,363)
|
1,948
|
|||||
|
Income
Tax Benefit (Expense)
|
62
|
(614)
|
(160)
|
-
|
(712)
|
|||||
|
Earnings
from Continuing Operations
|
1,226
|
999
|
374
|
(1,363)
|
1,236
|
|||||
|
Discontinued
Operations
|
110
|
-
|
(10)
|
-
|
100
|
|||||
|
Net
Earnings
|
$1,336
|
$999
|
$364
|
$(1,363)
|
$1,336
|
NOTE 19. Summarized
Consolidating Financial Data, continued
Consolidating
Balance Sheets
(Dollars
in Millions)
|
December
25, 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
Minority 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 19. Summarized
Consolidating Financial Data, continued
Consolidating
Balance Sheets
(Dollars
in Millions)
|
CSX
|
CSX
|
||||||
|
December
26, 2008
|
Corporation
|
Transportation
|
Other
|
Eliminations
|
Consolidated
|
||
|
ASSETS
|
|||||||
|
Current
Assets
|
|||||||
|
Cash
and Cash Equivalents
|
$559
|
$63
|
$47
|
$-
|
$669
|
||
|
Short-term
Investments
|
-
|
-
|
76
|
-
|
76
|
||
|
Accounts
Receivable - Net
|
5
|
1,046
|
56
|
-
|
1,107
|
||
|
Materials
and Supplies
|
-
|
217
|
-
|
-
|
217
|
||
|
Deferred
Income Taxes
|
11
|
187
|
5
|
-
|
203
|
||
|
Other
Current Assets
|
112
|
34
|
52
|
(79)
|
119
|
||
|
Total
Current Assets
|
687
|
1,547
|
236
|
(79)
|
2,391
|
||
|
Properties
|
6
|
28,958
|
1,244
|
-
|
30,208
|
||
|
Accumulated
Depreciation
|
(9)
|
(6,758)
|
(753)
|
-
|
(7,520)
|
||
|
Properties
- Net
|
(3)
|
22,200
|
491
|
-
|
22,688
|
||
|
Investments
in Conrail
|
-
|
-
|
609
|
-
|
609
|
||
|
Affiliates
and Other Companies
|
-
|
527
|
(121)
|
-
|
406
|
||
|
Investments
in Consolidated Subsidiaries
|
14,566
|
-
|
41
|
(14,607)
|
-
|
||
|
Other
Long-term Assets
|
52
|
76
|
109
|
(43)
|
194
|
||
|
Total
Assets
|
$15,302
|
$24,350
|
$1,365
|
$(14,729)
|
$26,288
|
||
|
LIABILITIES
AND SHAREHOLDERS' EQUITY
|
|||||||
|
Current
Liabilities
|
|||||||
|
Accounts
Payable
|
$99
|
$739
|
$135
|
$-
|
$973
|
||
|
Labor
and Fringe Benefits Payable
|
40
|
366
|
59
|
-
|
465
|
||
|
Payable
to Affiliates
|
455
|
765
|
(1,153)
|
(67)
|
-
|
||
|
Casualty,
Environmental and Other Reserves
|
-
|
211
|
25
|
-
|
236
|
||
|
Current
Maturities of Long-term Debt
|
200
|
116
|
3
|
-
|
319
|
||
|
Income
and Other Taxes Payable
|
(2)
|
208
|
(81)
|
-
|
125
|
||
|
Other
Current Liabilities
|
2
|
271
|
24
|
(11)
|
286
|
||
|
Total
Current Liabilities
|
794
|
2,676
|
(988)
|
(78)
|
2,404
|
||
|
Casualty,
Environmental and Other Reserves
|
1
|
547
|
95
|
-
|
643
|
||
|
Long-term
Debt
|
6,058
|
1,447
|
7
|
-
|
7,512
|
||
|
Deferred
Income Taxes
|
(629)
|
6,591
|
273
|
-
|
6,235
|
||
|
Long-term
Payable to Affiliates
|
-
|
-
|
44
|
(44)
|
-
|
||
|
Other
Long-term Liabilities
|
1,010
|
493
|
(36)
|
(41)
|
1,426
|
||
|
Total
Liabilities
|
7,234
|
11,754
|
(605)
|
(163)
|
18,220
|
||
|
Shareholders'
Equity
|
|||||||
|
Common
Stock, $1 Par Value
|
391
|
181
|
-
|
(181)
|
391
|
||
|
Other
Capital
|
-
|
5,566
|
1,923
|
(7,489)
|
-
|
||
|
Retained
Earnings
|
8,398
|
6,870
|
148
|
(7,018)
|
8,398
|
||
|
Accumulated
Other Comprehensive Loss
|
(741)
|
(41)
|
(104)
|
145
|
(741)
|
||
|
Noncontrolling
Minority Interest
|
20
|
20
|
3
|
(23)
|
20
|
||
|
Total
Shareholders' Equity
|
8,068
|
12,596
|
1,970
|
(14,566)
|
8,068
|
||
|
Total
Liabilities and Shareholders' Equity
|
$15,302
|
$24,350
|
$1,365
|
$(14,729)
|
$26,288
|
||
NOTE 19. Summarized
Consolidating Financial Data, continued
Consolidating
Cash Flow Statements
(Dollars
in Millions)
|
CSX
|
CSX
|
|||||||||
|
Fiscal
Year Ended December 25, 2009
|
Corporation
|
Transportation
|
Other
|
Eliminations
|
Consolidated
|
|||||
|
Operating
Activities
|
||||||||||
|
Net
Cash Provided by (Used in) Operating Activities
|
$109
|
$3,004
|
$(94)
|
$(959)
|
$2,060
|
|||||
|
Investing
Activities
|
||||||||||
|
Property
Additions
|
-
|
(1,352)
|
(95)
|
-
|
(1,447)
|
|||||
|
Purchases
of Short-term Investments
|
-
|
-
|
-
|
-
|
-
|
|||||
|
Proceeds
from Sales of Short-term Investments
|
-
|
-
|
-
|
-
|
-
|
|||||
|
Other
Investing Activities
|
(87)
|
(360)
|
26
|
475
|
54
|
|||||
|
Net
Cash Provided by (Used in) Investing Activities
|
(87)
|
(1,712)
|
(69)
|
475
|
(1,393)
|
|||||
|
Financing
Activities
|
||||||||||
|
Long-term
Debt Issued
|
500
|
-
|
-
|
-
|
500
|
|||||
|
Long-term
Debt Repaid
|
(200)
|
(120)
|
(3)
|
-
|
(323)
|
|||||
|
Dividends
Paid
|
(352)
|
(475)
|
(2)
|
484
|
(345)
|
|||||
|
Stock
Options Exercised
|
34
|
-
|
-
|
-
|
34
|
|||||
|
Other
Financing Activities
|
355
|
(730)
|
202
|
-
|
(173)
|
|||||
|
Net
Cash Provided by (Used in) Financing Activities
|
337
|
(1,325)
|
197
|
484
|
(307)
|
|||||
|
Net
Increase (Decrease) in Cash and Cash Equivalents
|
359
|
(33)
|
34
|
-
|
360
|
|||||
|
Cash
and Cash Equivalents at Beginning of Period
|
559
|
63
|
47
|
-
|
669
|
|||||
|
Cash
and Cash Equivalents at End of Period
|
$918
|
$30
|
$81
|
$-
|
$1,029
|
|
CSX
|
CSX
|
|||||||||
|
Fiscal
Year Ended December 26, 2008
|
Corporation
|
Transportation
|
Other
|
Eliminations
|
Consolidated
|
|||||
|
Operating
Activities
|
||||||||||
|
Net
Cash Provided by (Used in) Operating Activities
|
$1,093
|
$2,390
|
$139
|
$(708)
|
$2,914
|
|||||
|
Investing
Activities
|
||||||||||
|
Property
Additions
|
-
|
(1,635)
|
(105)
|
-
|
(1,740)
|
|||||
|
Purchases
of Short-term Investments
|
(25)
|
-
|
-
|
-
|
(25)
|
|||||
|
Proceeds
from Sales of Short-term Investments
|
280
|
-
|
-
|
-
|
280
|
|||||
|
Other
Investing Activities
|
569
|
124
|
136
|
(793)
|
36
|
|||||
|
Net
Cash Provided by (Used in) Investing Activities
|
824
|
(1,511)
|
31
|
(793)
|
(1,449)
|
|||||
|
Financing
Activities
|
||||||||||
|
Long-term
Debt Issued
|
1,000
|
351
|
-
|
-
|
1,351
|
|||||
|
Long-term
Debt Repaid
|
(518)
|
(121)
|
(3)
|
-
|
(642)
|
|||||
|
Dividends
Paid
|
(314)
|
(325)
|
(27)
|
358
|
(308)
|
|||||
|
Stock
Options Exercised
|
83
|
-
|
-
|
-
|
83
|
|||||
|
Shares
Repurchased
|
(1,570)
|
-
|
-
|
-
|
(1,570)
|
|||||
|
Other
Financing Activities
|
(337)
|
(776)
|
(108)
|
1,143
|
(78)
|
|||||
|
Net
Cash Provided by (Used in) Financing Activities
|
(1,656)
|
(871)
|
(138)
|
1,501
|
(1,164)
|
|||||
|
Net
Increase (Decrease) in Cash and Cash Equivalents
|
261
|
8
|
32
|
-
|
301
|
|||||
|
Cash
and Cash Equivalents at Beginning of Period
|
298
|
55
|
15
|
-
|
368
|
|||||
|
Cash
and Cash Equivalents at End of Period
|
$559
|
$63
|
$47
|
$-
|
$669
|
NOTE 19. Summarized
Consolidating Financial Data, continued
Consolidating
Cash Flow Statements
(Dollars
in Millions)
|
CSX
|
CSX
|
|||||||||
|
Fiscal
Year Ended December 28, 2007
|
Corporation
|
Transportation
|
Other
|
Eliminations
|
Consolidated
|
|||||
|
Operating
Activities
|
||||||||||
|
Net
Cash Provided by (Used in) Operating Activities
|
$(871)
|
$2,321
|
$919
|
$(185)
|
$2,184
|
|||||
|
Investing
Activities
|
||||||||||
|
Property
Additions
|
(2)
|
(1,632)
|
(139)
|
-
|
(1,773)
|
|||||
|
Purchases
of Short-term Investments
|
(2,338)
|
-
|
-
|
-
|
(2,338)
|
|||||
|
Proceeds
from Sales of Short-term Investments
|
2,459
|
-
|
-
|
-
|
2,459
|
|||||
|
Other
Investing Activities
|
513
|
235
|
(781)
|
(8)
|
(41)
|
|||||
|
Net
Cash Provided by (Used in) Investing Activities
|
632
|
(1,397)
|
(920)
|
(8)
|
(1,693)
|
|||||
|
Financing
Activities
|
||||||||||
|
Long-term
Debt Issued
|
2,000
|
381
|
-
|
-
|
2,381
|
|||||
|
Long-term
Debt Repaid
|
(620)
|
(142)
|
(23)
|
-
|
(785)
|
|||||
|
Dividends
Paid
|
(236)
|
(120)
|
(27)
|
152
|
(231)
|
|||||
|
Stock
Options Exercised
|
153
|
-
|
-
|
-
|
153
|
|||||
|
Shares
Repurchased
|
(2,174)
|
-
|
-
|
-
|
(2,174)
|
|||||
|
Other
Financing Activities
|
998
|
(1,005)
|
38
|
41
|
72
|
|||||
|
Net
Cash Provided by (Used in) Financing Activities
|
121
|
(886)
|
(12)
|
193
|
(584)
|
|||||
|
Net
Increase (Decrease) in Cash and Cash Equivalents
|
(118)
|
38
|
(13)
|
-
|
(93)
|
|||||
|
Cash
and Cash Equivalents at Beginning of Period
|
416
|
17
|
28
|
-
|
461
|
|||||
|
Cash
and Cash Equivalents at End of Period
|
$298
|
$55
|
15
|
$-
|
$368
|
None.
Evaluation
of Disclosure Controls and Procedures
As of
December 25, 2009, 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 December 25, 2009, the Company's disclosure controls and
procedures were effective at the reasonable assurance level in timely alerting
them to material information required to be included in CSX’s periodic SEC
reports. There were no changes in the Company's internal controls over financial
reporting during the fourth quarter of 2009 that have materially affected or are
reasonably likely to materially affect the Company's internal control over
financial reporting.
Management's
Report on Internal Control over Financial Reporting
CSX’s
management is responsible for establishing and maintaining adequate internal
control over financial reporting, as such term is defined in Exchange Act Rules
13a-15(f) and 15d-15(f). Under the supervision and with the participation of the
management of CSX, including CSX’s CEO and CFO, CSX conducted an evaluation of
the effectiveness of the Company’s internal control over financial reporting as
of December 25, 2009 based on the framework in Internal Control – Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission which is also referred to as COSO. Based on that evaluation,
management of CSX concluded that the Company’s internal control over financial
reporting was effective as of December 25, 2009. Management's
assessment of the effectiveness of internal control over financial reporting is
expressed at the level of reasonable assurance because a control system, no
matter how well designed and operated, can provide only reasonable, but not
absolute, assurance that the control system's objectives will be
met.
The
Company’s internal control over financial reporting as of December 25, 2009 has
been audited by Ernst & Young LLP, an independent registered public
accounting firm, as stated in their report which is included elsewhere
herein.
Report
of Independent Registered Public Accounting Firm
The Board
of Directors and Shareholders of CSX Corporation
We have
audited CSX Corporation’s internal control over financial reporting as of
December 25, 2009, based on criteria established in Internal Control—Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission (the COSO criteria). CSX Corporation’s management is responsible for
maintaining effective internal control over financial reporting, and for its
assessment of the effectiveness of internal control over financial reporting
included in the accompanying Management’s Report on Internal Control over
Financial Reporting. Our responsibility is to express an opinion on the
company’s internal control over financial reporting based on our
audit.
We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether effective
internal control over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of internal control over
financial reporting, assessing the risk that a material weakness exists, testing
and evaluating the design and operating effectiveness of internal control based
on the assessed risk, and performing such other procedures as we considered
necessary in the circumstances. We believe that our audit provides a reasonable
basis for our opinion.
A
company’s internal control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles. A company’s internal control over
financial reporting includes those policies and procedures that (1) pertain to
the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company; (2)
provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of
the company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the company’s
assets that could have a material effect on the financial
statements.
Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Also, projections of any evaluation
of effectiveness to future periods are subject to the risk that controls may
become inadequate because of changes in conditions, or that the degree of
compliance with the policies or procedures may deteriorate.
In our
opinion, CSX Corporation maintained, in all material respects, effective
internal control over financial reporting as of December 25, 2009, based on the
COSO criteria.
We also
have audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the 2009 consolidated financial statements of
CSX Corporation and our report dated February 19, 2010 expressed an unqualified
opinion thereon.
/s/ Ernst &
Young
LLP
Independent Certified
Public Accountants
Jacksonville,
Florida
February
19, 2010
Changes
in Internal Control over Financial Reporting
There
were no material changes in the Company’s internal control over financial
reporting.
None
In
accordance with Instruction G(3) of Form 10-K, the information required by this
item is incorporated herein by reference to the Proxy Statement. The
Proxy Statement will be filed not later than April 24, 2010 with respect to its
2010 annual meeting of shareholders, except for the information regarding the
executive officers of the Company. Information regarding
executive officers is included in Part I of this report under the caption
"Executive Officers of the Registrant."
In
accordance with Instruction G(3) of Form 10-K, the information required by this
Item is incorporated herein by reference to the Proxy Statement (see Item 10
above).
In
accordance with Instruction G(3) of Form 10-K, the information required by this
Item is incorporated herein by reference to the Proxy Statement (see Item 10
above).
In
accordance with Instruction G(3) of Form 10-K, the information required by this
Item is incorporated herein by reference to the Proxy Statement (see Item 10
above).
In accordance with Instruction G(3) of Form 10-K, the information required by this Item is incorporated herein by reference to the Proxy Statement (see Item 10 above).
(a)
(1) Financial Statements
See Index
to Consolidated Financial Statements on page 65.
(2) Financial Statement
Schedules
The
information required by Schedule II, Valuation and Qualifying
Accounts, is included in Note 5 to the Consolidated Financial Statements,
Casualty, Environmental and Other Reserves. All other financial
statement schedules are not applicable.
(3) Exhibits
|
2.1
|
Distribution
Agreement, dated as of July 26, 2004, by and among CSX Corporation, CSX
Transportation, Inc., CSX Rail Holding Corporation, CSX Northeast Holding
Corporation, Norfolk Southern Corporation, Norfolk Southern Railway
Company, CRR Holdings LLC, Green Acquisition Corp., Conrail Inc.,
Consolidated Rail Corporation, New York Central Lines LLC, Pennsylvania
Lines LLC, NYC Newco, Inc. and PRR Newco, Inc. (incorporated herein by
reference to Exhibit 2.1 to the Registrant’s Current Report on Form 8-K
filed with the Commission on September 2,
2004)
|
|
3.1
|
Amended
and Restated Articles of Incorporation of the Registrant (incorporated
herein by reference to Exhibit 3.1 to the Registrant's Current Report on
Form 8-K filed with the Commission on December 14,
2004)
|
|
3.1(a)
|
Articles
of Amendment to CSX Corporation’s Amended and Restated Articles of
Incorporation of the Registrant (incorporated herein by reference to
Exhibit 5.03 to the Registrant's Current Report on Form 8-K filed with the
Commission on July 18, 2006)
|
|
3.2
|
Bylaws
of the Registrant, amended effective as of September 24, 2008
(incorporated herein by reference to Exhibit 3.2 of the Registrant's
Current Report on Form 8-K filed with the Commission on September 25,
2008)
|
|
|
Instruments Defining
the Rights of Security Holders, Including
Debentures:
|
|
4.1(a)
|
Indenture,
dated August 1, 1990, between the Registrant and The Chase Manhattan Bank,
as Trustee (incorporated herein by reference to the Registrant's Form SE,
dated September 7, 1990, filed with the
Commission)
|
|
4.1(b)
|
First
Supplemental Indenture, dated as of June 15, 1991, between the Registrant
and The Chase Manhattan Bank, as Trustee (incorporated herein by reference
to Exhibit 4(c) to the Registrant's Form SE, dated May 28, 1992, filed
with the Commission)
|
|
4.1(c)
|
Second
Supplemental Indenture, dated as of May 6, 1997, between the Registrant
and The Chase Manhattan Bank, as Trustee (incorporated herein by reference
to Exhibit 4.3 to the Registrant's Registration Statement on Form S-4
(Registration No. 333-28523) filed with the Commission on June 5,
1997)
|
|
4.1(d)
|
Third
Supplemental Indenture, dated as of April 22, 1998, between the Registrant
and The Chase Manhattan Bank, as Trustee (incorporated herein by reference
to Exhibit 4.2 to the Registrant's Current Report on Form 8-K filed with
the Commission on May 12, 1998)
|
|
4.1(e)
|
Fourth
Supplemental Indenture, dated as of October 30, 2001, between the
Registrant and The Chase Manhattan Bank, as Trustee (incorporated herein
by reference to Exhibit 4.1 to the Registrant's Report on Form 10-Q filed
with the Commission on November 7,
2001)
|
|
4.1(f)
|
Fifth
Supplemental Indenture, dated as of October 27, 2003 between the
Registrant and The Chase Manhattan Bank, as Trustee (incorporated herein
by reference to Exhibit 4.1 to the Registrant's Report on Form 8-K filed
with the Commission on October 27,
2003)
|
|
4.1(g)
|
Sixth
Supplemental Indenture, dated as of September 23, 2004 between the
Registrant and JP Morgan Chase Bank, formerly The
Chase Manhattan Bank, as Trustee (incorporated herein by
reference to Exhibit 4.1 to the Registrant’s Report on Form 10-Q filed
with the Commission on November 3,
2004)
|
|
4.1(h)
|
Seventh
Supplemental Indenture, dated as of April 25, 2007, between the Registrant
and The Bank of New York (as successor to JP Morgan Chase Bank), as
Trustee (incorporated herein by reference to Exhibit 4.4 to the
Registrant's Report on Form 8-K filed with the Commission on April 26,
2007).
|
Pursuant
to Regulation S-K, Item 601(b)(4)(iii), instruments that define the rights of
holders of the Registrant's long-term debt securities, where the long-term debt
securities authorized under each such instrument do not exceed 10% of the
Registrant's total assets, have been omitted and will be furnished to the
Commission upon request.
Material
Contracts:
|
10.1**
|
CSX
Stock Plan for Directors (as amended through January 1, 2004)
(incorporated herein by reference to Exhibit 10.1 to the Registrant's
Annual Report on Form 10-K filed with the Commission on March 10,
2004)
|
|
10.2*
**
|
CSX
Directors’ Pre-2005 Deferred Compensation Plan (as amended through January
8, 2008)
|
|
10.3*
**
|
CSX
Directors’ Deferred Compensation Plan effective January 1,
2005
|
|
10.4**
|
CSX
Directors' Charitable Gift Plan, as amended (incorporated herein by
reference to Exhibit 10.4 to the Registrant's Annual Report on Form 10-K
filed with the Commission on March 4,
1994)
|
|
10.5**
|
CSX
Directors' Matching Gift Plan (as amended through December 31, 2003)
(incorporated herein by reference to Exhibit 10.5 to the Registrant's
Annual Report on Form 10-K filed with the Commission on March 10,
2004)
|
|
10.6**
|
Railroad
Retirement Benefits Agreement with M. J. Ward (incorporated herein by
reference to Exhibit 10.13 to the Registrant's Report on Form 10-K filed
with the Commission on February 26,
2003)
|
|
10.7**
|
Employment
Agreement with O. Munoz (incorporated herein by reference to Exhibit 10.1
to the Registrant's Report on Form 10-Q filed with the Commission on July
30, 2003)
|
|
10.8**
|
Form
of Employment Agreement with executive officers (incorporated herein by
reference to Exhibit 10.1 of the Registrant's Current Report on Form 8-K
filed with the Commission on January 6,
2005)
|
|
10.9**
|
Form
of Stock Option Agreement (incorporated herein by reference to Exhibit
10.17 of the Registrant's Report on Form 10-K filed with the Commission on
March 4, 2002)
|
|
10.10**
|
1987
Long-term Performance Stock Plan, as Amended and Restated effective April
25, 1996 (as amended through February 7, 2003) (incorporated herein by
reference to Exhibit 10.24 to the Registrant's Annual Report on Form 10-K
filed with the Commission on March 10,
2004)
|
|
10.11**
|
Deferred
Compensation Program for Executives of CSX Corporation and Affiliated
Companies (as amended through January 1, 1998) (incorporated herein by
reference to Exhibit 10.25 to the Registrant's Annual Report on Form 10-K
filed with the Commission on March 10,
2004)
|
|
10.12**
|
2002
Deferred Compensation Plan of CSX Corporation and Affiliated Corporations
(as amended through February 7, 2003) (incorporated herein by reference to
Exhibit 10.26 to the Registrant's Annual Report on Form 10-K filed with
the Commission on March 10, 2004)
|
|
10.13**
|
Supplementary
Savings Plan and Incentive Award Deferral Plan for Eligible Executives of
CSX Corporation and Affiliated Companies (as Amended through February 7,
2003) (incorporated herein by reference to Exhibit 10.27 to the
Registrant's Annual Report on Form 10-K filed with the Commission on March
10, 2004)
|
|
10.14**
|
Special
Retirement Plan of CSX Corporation and Affiliated Companies (as amended
through February 14, 2001) (incorporated herein by reference to Exhibit
10.23 to the Registrant's Report on Form 10-K filed with the Commission on
March 4, 2002)
|
|
10.15**
|
Supplemental
Retirement Benefit Plan of CSX Corporation and Affiliated Companies (as
amended through February 14, 2001) (incorporated herein by reference to
Exhibit 10.24 of the Registrant's Report on Form 10-K filed with the
Commission on March 4, 2002)
|
|
10.16**
|
Senior
Executive Incentive Compensation Plan (incorporated herein by reference to
Appendix B to the Registrant's Definitive Proxy Statement filed with the
Commission on March 17, 2000)
|
|
10.17*
**
|
CSX
Omnibus Incentive Plan (as Amended through December 12,
2007)
|
|
10.18
|
Transaction
Agreement, dated as of June 10, 1997, by and among CSX Corporation, CSX
Transportation, Inc., Norfolk Southern Corporation, Norfolk Southern
Railway Company, Conrail Inc., Consolidated Rail Corporation and CRR
Holdings LLC, with certain schedules thereto (incorporated herein by
reference to Exhibit 10 to the Registrant’s Current Report on Form 8-K
filed with the Commission on July 8,
1997)
|
|
10.19
|
Amendment
No. 1, dated as of August 22, 1998, to the Transaction Agreement, dated as
of June 10, 1997, by and among CSX Corporation, CSX Transportation, Inc.,
Norfolk Southern Corporation, Norfolk Southern Railway Company, Conrail
Inc., Consolidated Rail Corporation and CRR Holdings LLC (incorporated
herein by reference to Exhibit 10.1 to the Registrant's Current Report on
Form 8-K filed with the Commission on June 11,
1999)
|
|
10.20
|
Amendment
No. 2, dated as of June 1, 1999, to the Transaction Agreement, dated as of
June 10, 1997, by and among CSX Corporation, CSX Transportation, Inc.,
Norfolk Southern Corporation, Norfolk Southern Railway Company, Conrail
Inc., Consolidated Rail Corporation and CRR Holdings, LLC (incorporated
herein by reference to Exhibit 10.2 to the Registrant's Current Report on
Form 8-K filed with the Commission on June 11,
1999)
|
|
10.21
|
Amendment
No. 3, dated as of August 1, 2000, to the Transaction Agreement
by and among CSX Corporation, CSX Transportation, Inc., Norfolk Southern
Corporation, Norfolk Southern Railway Company, Conrail Inc., Consolidated
Rail Corporation, and CRR Holdings LLC. (incorporated herein by reference
to Exhibit 10.34 to the Registrant’s Annual Report on Form 10-K
dated March 1, 2001)
|
|
10.22
|
Amendment
No. 4, dated and effective as of June 1, 1999, and executed in April
2004, to the Transaction Agreement, dated as of June 10, 1997, by and
among CSX Corporation, CSX Transportation, Inc., Norfolk Southern
Corporation, Norfolk Southern Railway Company, Conrail Inc., Consolidated
Rail Corporation, and CRR Holdings LLC (incorporated herein by reference
to Exhibit 99.1 to the Registrant’s Current Report on Form 8-K
filed with the Commission on August 6,
2004)
|
|
10.23
|
Amendment
No. 5, dated as of August 27, 2004, to the Transaction
Agreement, dated as of June 10, 1997, by and among CSX Corporation,
CSX Transportation, Inc., Norfolk Southern Corporation, Norfolk Southern
Railway Company, Conrail Inc., Consolidated Rail Corporation and CRR
Holdings LLC (incorporated herein by reference to Exhibit 10.1 to the
Registrant’s Current Report on Form 8-K filed with the Commission on
September 2, 2004)
|
|
10.24
|
Shared
Assets Area Operating Agreement for Detroit, dated as of June 1, 1999, by
and among Consolidated Rail Corporation, CSX Transportation, Inc. and
Norfolk Southern Railway Corporation, with exhibit thereto (incorporated
herein by reference to Exhibit 10.6 to the Registrant's Current Report on
Form 8-K filed with the Commission on June 11,
1999)
|
|
10.25
|
Shared
Assets Area Operating Agreement for North Jersey, dated as of June 1,
1999, by and among Consolidated Rail Corporation, CSX Transportation, Inc.
and Norfolk Southern Railway Company, with exhibit thereto (incorporated
herein by reference to Exhibit 10.4 to the Registrant's Current Report on
Form 8-K filed with the Commission on June 11,
1999)
|
|
10.26
|
Shared
Assets Area Operating Agreement for southern Jersey/Philadelphia, dated as
of June 1, 1999, by and among Consolidated Rail Corporation, CSX
Transportation, Inc. and Norfolk Southern Railway Company, with exhibit
thereto (incorporated herein by reference to Exhibit 10.5 to the
Registrant's Current Report on Form 8-K filed with the Commission on June
11, 1999)
|
|
10.27
|
Monongahela
Usage Agreement, dated as of June 1, 1999, by and among CSX
Transportation, Inc., Norfolk Southern Railway Company, Pennsylvania Lines
LLC and New York Central Lines LLC, with exhibit thereto (incorporated
herein by reference to Exhibit 10.7 to the Registrant's Current Report on
Form 8-K filed with the Commission on June 11,
1999)
|
|
10.28
|
Tax
Allocation Agreement, dated as of August 27, 2004, by and among CSX
Corporation, Norfolk Southern Corporation, Green Acquisition Corp.,
Conrail Inc., Consolidated Rail Corporation, New York Central Lines LLC
and Pennsylvania Lines LLC (incorporated herein by reference to Exhibit
10.2 to the Registrant's Current Report on Form 8-K filed with the
Commission on September 2, 2004)
|
|
10.29**
|
Employment
Agreement with David A. Brown, dated as of January 1,
2010
|
|
10.30**
|
Restricted
Stock Award Agreement with David A.
Brown
|
|
10.31**
|
Restricted
Stock Award Agreement with Lisa A.
Mancini
|
|
10.32
|
Revolving
Credit Agreement, dated May 4, 2006 (incorporated herein by reference to
Exhibit 99.1 to the Registrant's Current Report on Form 8-K filed with the
Commission on May 9, 2006)
|
|
10.33**
|
Long-term
Incentive Plan, dated May 6, 2008 (incorporated herein by reference to
Exhibit 10.1 to the Registrant's Current Report on Form 8-K filed with the
Commission on May 9, 2008)
|
|
10.34
|
Long-term
Incentive Plan, dated May 5, 2009 (incorporated herein by reference to
Exhibit 10.1 to the Registrant's Current Report on Form 8-K filed with the
Commission on May 11, 2009)
|
|
21*
|
Subsidiaries
of the Registrant
|
|
23*
|
Consent
of Independent Registered Public Accounting
Firm
|
|
24*
|
Powers
of Attorney
|
| 31* | Rule 13a-14(a) Certifications |
143
| 32* | Section 1350 Certifications |
|
99
*
|
Annual CEO Certification pursuant to NYSE Rule
303A.12(a).
|
|
|
* Filed
herewith
|
|
|
**
Management Contract or Compensatory Plan or
Arrangement
|
|
|
Note:
Items not filed herewith have been submitted in previous SEC
filings.
|
Pursuant
to the requirements of Section 13 or 15(d) 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:
February 18, 2010
Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the Registrant and in the
capacities indicated on February 18, 2010.
|
Signature
|
Title
|
|
|
Chairman
of the Board, President, Chief
|
||
|
/s/
MICHAEL J. WARD
|
Executive
Officer and Director
|
|
|
Michael
J. Ward
|
(Principal
Executive Officer)
|
|
|
/s/
OSCAR MUNOZ
|
Executive
Vice President and Chief Financial
|
|
|
Oscar
Munoz
|
Officer
(Principal Financial Officer)
|
|
|
/s/
CAROLYN T. SIZEMORE
|
Vice
President and Controller
|
|
|
Carolyn
T. Sizemore
|
(Principal
Accounting Officer)
|
|
|
/s/
ELLEN M. FITZSIMMONS
|
Senior
Vice President - Law and Public Affairs
|
|
|
Ellen
M. Fitzsimmons
|
*Attorney-in-Fact
|
|
Signature
|
Title
|
|
|
*
|
Director
|
|
|
Donna
M. Alvarado
|
||
|
*
|
Director
|
|
|
Alexandre
Behring
|
||
|
*
|
Director
|
|
|
John
B. Breaux
|
||
|
*
|
Director
|
|
|
Steven
T. Halverson
|
||
|
*
|
Director
|
|
|
Edward
J. Kelly, III
|
||
|
*
|
Director
|
|
|
Gilbert
H. Lamphere
|
||
|
*
|
Director
|
|
|
John
D. McPherson
|
||
|
*
|
Director
|
|
|
Timothy
T. O'Toole
|
||
|
*
|
Director
|
|
|
David
M. Ratcliffe
|
||
|
*
|
Director
|
|
|
Donald
J. Shepard
|
146