CSX Corporation — FY 2009 Form 10-K
Reporting period: Fiscal year ended December 25, 2009 (52 weeks). The filing also reports fourth-quarter results; the company’s fiscal 2010 is expected to include 53 weeks. CSX operates rail freight and intermodal transportation businesses, principally across the eastern United States.
Financial performance
| Metric | FY 2009 | FY 2008 |
|---|---|---|
| Revenue | $9.041 billion | $11.255 billion |
| Operating expenses | $6.756 billion | $8.487 billion |
| Operating income | $2.285 billion | $2.768 billion |
| Operating ratio | 74.7% | 75.4% |
| Earnings from continuing operations | $1.137 billion | $1.495 billion |
| Net earnings | $1.152 billion | $1.365 billion |
| Diluted EPS, continuing operations | $2.87 | $3.66 |
| Diluted EPS, total | $2.91 | $3.34 |
| Operating cash flow | $2.060 billion | $2.914 billion |
| Property additions | $1.447 billion | $1.740 billion |
| Free cash flow before dividends (non-GAAP) | $670 million | $1.221 billion |
| Cash, cash equivalents and short-term investments | $1.090 billion | $745 million |
| Total debt, including current maturities | $8.008 billion | $7.831 billion |
FY 2009 revenue fell 20%, reflecting a 15% decline in volume and lower fuel-surcharge revenue, partly offset by 6.2% core pricing gains. Expenses fell 20%, chiefly due to lower fuel costs, productivity measures and reduced resources. The operating ratio improved to a company record 74.7%. Merchandise revenue was $4.364 billion, coal $2.727 billion, automotive $511 million and intermodal $1.204 billion.
Fourth-quarter revenue was $2.320 billion, operating income $583 million, continuing-operations earnings $305 million and net earnings $305 million. Diluted EPS was $0.77 from continuing operations and $0.77 total. In Q4 2008, the corresponding figures were $2.674 billion, $692 million, $361 million and $247 million, with diluted EPS of $0.92 from continuing operations and $0.63 total.
At year-end, total assets were $27.036 billion and shareholders’ equity was $8.860 billion. Working capital was a $705 million surplus, compared with a $13 million deficit a year earlier. CSX had an undrawn $1.25 billion revolving credit facility, expandable to $1.75 billion with lender approval, and an undrawn $250 million receivables facility. The company paid $345 million in dividends and declared $0.88 per share for the year.
Changes, unusual items and management commentary
- Rail volume declined 18%; intermodal volume declined 8%. All major rail markets weakened, with domestic intermodal the exception to broad-based declines. Metals, automotive and forest products were particularly weak.
- Operating cash flow decreased $854 million, partly because of lower earnings and higher pension contributions. CSX contributed $250 million to qualified pension plans in 2009, versus $102 million in 2008.
- Greenbrier resort operations were classified as discontinued operations after CSX sold the owning subsidiary for approximately $21 million in cash. CSX recorded a $25 million after-tax sale gain and a $10 million after-tax operating loss in 2009, producing $15 million of discontinued-operations income. CSX retained certain pre-closing pension obligations.
- Reserve estimate changes reduced 2009 casualty expenses by $127 million, including $84 million for personal injury and $43 million for occupational claims. Management attributed reductions to improved safety and claim trends.
- Management cited improved safety and service measures: the FRA personal-injury index improved 2%, train-accident frequency improved 5%, and on-time destination arrivals rose to 80% from 70%. Average dwell increased to 24.1 hours from 23.3.
Outlook, risks and contingencies
- Management expected double-digit EPS growth in 2010, supported by volume and revenue growth and operating-ratio improvement. Export coal shipments could approach 30 million tons, potentially offsetting weak domestic utility demand.
- Planned 2010 capital spending was $1.7 billion, with 68% for core infrastructure and approximately $200 million for required regulatory projects, including about $170 million for Positive Train Control (PTC). CSX estimated total PTC implementation costs would likely exceed $750 million.
- Management identified the recession and freight demand, fuel prices and surcharge recovery, competition, network capacity, labor costs, severe weather, technology and supply-chain disruptions, hazardous-material transportation, and environmental requirements as significant risks.
- A proposed Senate rail-regulation bill could materially affect pricing, operations and capital spending if adopted. Greenhouse-gas rules could raise costs or reduce coal traffic.
- CSX faced fuel-surcharge antitrust class actions seeking unquantified treble damages. The company said it could not estimate the possible financial impact and had recorded no liability. A separate STB rate case involving Seminole Electric was expected to receive a decision in early 2011.
- Environmental liabilities were recorded at $97 million; CSX was identified as a potentially responsible party at approximately 257 sites. The company said reserves were adequate, but noted that additional exposure at some sites could not yet be estimated. Total casualty, environmental and other reserves were $737 million.
- Long-term debt maturities totaled $8.008 billion, including $113 million due in 2010 and $5.478 billion thereafter. Contractual obligations also included $5.536 billion of purchase obligations, principally locomotive-related commitments.
- Ernst & Young issued unqualified opinions on the consolidated financial statements and internal control over financial reporting; management concluded disclosure controls and internal controls were effective.
Key facts for investors to verify
- Whether the anticipated 2010 double-digit diluted EPS growth and export coal volumes materialized, and how much reflected the extra fiscal week.
- Whether volume recovery and core pricing offset fuel-surcharge changes, and whether the record operating ratio was sustained without impairing service or safety.
- Cash generation versus capital spending, pension funding needs, debt maturities and the use of revolving or receivables financing.
- Developments, potential exposure and any reserve changes in the fuel-surcharge litigation, Seminole rate case and environmental proceedings.
- Actual PTC implementation costs and timing, and any effects of regulatory or climate-related changes on rail operations and coal demand.