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| CSX > SEC Filings for CSX > Form 10-Q on 20-Oct-2009 | All Recent SEC Filings |
20-Oct-2009
Quarterly Report
The Company provides customers with access to an interconnected transportation network that links ports, production facilities and distribution centers to markets in the Northeast, Midwest and southern states. The Company serves all major markets in the eastern United States and has direct access to all significant Atlantic and Gulf Coast ports, as well as the Mississippi River, the Great Lakes and the St. Lawrence Seaway. The Company also has access to Pacific ports through commercial arrangements with western railroads.
The Company transports a broad portfolio of products, such as coal, forest products, ethanol, automobiles, chemicals and consumer-related products. Those goods are transported across the country in a way that, compared to alternative modes of transportation, reduces the impact on the environment, takes traffic off an already congested highway system and reduces fuel consumption and transportation costs.
The global recession that intensified in late 2008 has continued to impact CSX's business in 2009. Beginning in late 2008, the Company began taking aggressive actions to manage costs and right-size resources. The Company will continue to stay focused on managing costs and resources and believes it is well positioned to take advantage of the early stages of an economic recovery.
· Revenue decreased $672 million or 23% to $2.3 billion as declines in volume and lower fuel surcharge revenue more than offset core pricing gains.
· Expenses decreased $537 million or 24% to $1.7 billion, reflecting the Company's productivity gains and right-sizing efforts.
· Operating income decreased $135 million or 18% to $598 million.
· Operating ratio improved to 73.9%, a third quarter record.
CSX experienced another quarter of significant year-over-year volume and revenue declines caused by the broad-based weakness in the economy. Third quarter revenues of $2.3 billion were down 23% from the prior year, driven 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. Despite a challenging environment, the Company continued to achieve pricing gains primarily due to the overall cost advantages that rail-based solutions provide to customers versus other modes of transportation. However, lower fuel recovery more than offset the Company's ongoing yield management initiatives.
At the same time, CSX was able to reduce expenses by $537 million, or 24%, 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 third quarter record operating ratio of 73.9%.
For additional information, refer to Rail and Intermodal Results of Operations discussed on pages 35 through 36.
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.
In third quarter 2009, the Company continued its focus on safety and operating performance. CSX delivered improved quarterly results in both Federal Railroad Administration ("FRA") personal injuries and train accidents. The FRA personal injury index declined to 1.09, a 7% improvement in the quarter. Reported FRA train accident frequency declined to 2.47, a 21% improvement compared to the same quarter of 2008.
Key service metrics improved significantly in the quarter versus a year ago.
On-time train originations and arrivals were 82% and 79%, respectively, during
the quarter. Average dwell declined slightly to 24.0 hours and average
cars-on-line declined to 214,987 primarily due to lower demand levels. Average
train velocity improved to 21.8 miles per hour, as the network remained fluid.
The Company aims to maintain key operating measures and service reliability at
high levels, while reducing resource utilization in response to current business
conditions.
CSX CORPORATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RAIL OPERATING STATISTICS (Estimated)
Third Quarters
2009 2008 Improvement %
Safety and Service Measurements
FRA Personal Injuries Frequency Index 1.09 1.17 7 %
FRA Train Accident Rate 2.47 3.14 21 %
On-Time Train Originations 82% 77% 6 %
On-Time Destination Arrivals 79% 67% 18 %
Dwell 24.0 24.1 - %
Cars-On-Line 214,987 226,444 5 %
System Train Velocity 21.8 20.1 8 %
Increase/
Resources (Decrease)
Route Miles 21,190 21,203 - %
Locomotives (owned and long-term leased) 4,092 4,133 (1) %
Freight Cars (owned and long-term leased) 85,223 91,833 (7) %
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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 - 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 - A count of all cars on the network (does not include locomotives, cabooses, trailers, containers or maintenance equipment)
System Train Velocity - Average train speed between terminals in miles per hour
(does not include locals, yard jobs, work trains or passenger trains)
CSX CORPORATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
FINANCIAL RESULTS OF OPERATIONS
Results of Operations (Unaudited)
(Dollars in Millions)
Third Quarters
CSX
Rail (a) Intermodal Consolidated
2009 2008 2009 2008 2009 2008 $ Change % Change
Revenue $1,986 $2,562 $303 $399 $2,289 $2,961 $(672) (23) %
Expense
Labor and Fringe 635 735 18 19 653 754 101 13
Materials, Supplies
and Other 381 521 47 47 428 568 140 25
Fuel 223 506 - 2 223 508 285 56
Depreciation 222 221 6 6 228 227 (1) -
Equipment and Other
Rents 66 78 26 28 92 106 14 13
Inland
Transportation (100) (135) 167 200 67 65 (2) (3)
Total Expense 1,427 1,926 264 302 1,691 2,228 537 24
Operating Income $559 $636 $39 $97 $598 $733 $(135) (18) %
Operating Ratio 71.9% 75.2% 87.1% 75.7% 73.9% 75.2%
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(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.
Volume and Revenue (Unaudited)
Volume (Thousands of units); Revenue (Dollars in millions); Revenue Per Unit
Third Quarters
Volume Revenue Revenue Per Unit
2009 2008 % Change 2009 2008 % Change 2009 2008 % Change
Chemicals 110 125 (12) % $332 $385 (14) % $3,018 $3,080 (2) %
Emerging
Markets 109 126 (13) 159 193 (18) 1,459 1,532 (5)
Forest
Products 67 90 (26) 140 216 (35) 2,090 2,400 (13)
Agricultural
Products 101 106 (5) 223 258 (14) 2,208 2,434 (9)
Metals 55 92 (40) 111 215 (48) 2,018 2,337 (14)
Phosphates and
Fertilizers 77 87 (11) 94 117 (20) 1,221 1,345 (9)
Food and
Consumer 26 27 (4) 57 73 (22) 2,192 2,704 (19)
Total
Merchandise 545 653 (17) 1,116 1,457 (23) 2,048 2,231 (8)
Coal 365 440 (17) 653 802 (19) 1,789 1,823 (2)
Coke and Iron
Ore 17 28 (39) 27 48 (44) 1,588 1,714 (7)
Total Coal 382 468 (18) 680 850 (20) 1,780 1,816 (2)
Automotive 57 79 (28) 127 195 (35) 2,228 2,468 (10)
Other - - - 63 60 5 - - -
Total Rail 984 1,200 (18) 1,986 2,562 (22) 2,018 2,135 (5)
International 201 258 (22) 92 137 (33) 458 531 (14)
Domestic 280 274 2 207 255 (19) 739 931 (21)
Other - - - 4 7 (43) - - -
Total
Intermodal 481 532 (10) 303 399 (24) 630 750 (16)
Total 1,465 1,732 (15) % $2,289 $2,961 (23) % $1,562 $1,710 (9) %
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Certain data within Merchandise categories have been reclassified to conform to the current year presentation.
Third Quarter Results of Operations
CSX experienced another quarter of significant year-over-year volume and revenue declines caused by the broad-based weakness in the economy. The greatest volume declines occurred in coal, automotive, construction and consumer-related markets. Lower fuel recovery associated with the sharp decline in fuel prices more than offset the Company's ongoing yield management initiatives. Compared to the second quarter, the rate of volume decline moderated during third quarter 2009.
Rail Revenue
Merchandise
The merchandise business is the most diverse market and includes aggregates, metal, phosphate, fertilizer, food, consumer, agricultural, paper and chemical products. Continued weakness in the housing and construction, automotive and consumer goods markets has significantly reduced demand for most merchandise markets. Additional information on other drivers is provided below.
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 quarter due to low inventories and an improvement in automotive production.
Agricultural Products - Volume was down slightly as the continuing growth in ethanol was more than offset by lower production of poultry which negatively impacted the feed grain, soybean and feed ingredient markets.
Phosphates and Fertilizers - Strong demand for export phosphate was more than offset by declines in domestic shipments. Additionally, farmers are continuing to cut back on levels of phosphate and potash application in reaction to lower commodity prices for grain.
Coal
Volume declines were driven by lower demand from electric utilities and a weaker export market. The demand for domestic electrical generation from coal was down due to natural gas substitution and lower industrial production resulting in a further building of utility stockpiles to record levels. Current inventories represent over two times the monthly rate of consumption. As a result, utility coal demand is expected to remain weak well into 2010. The export market decline was a result of both lower steel production in Europe reducing the need for metallurgical coal (coal used to produce steel), and cheaper alternative global sources for European utilities.
Automotive
Revenue and volume were down as lower consumer demand and inventory corrections within the auto industry reduced new car production. Volume improved slightly compared to the prior quarter as the Cash for Clunkers program, a part of the government stimulus plan that has ended, helped spur sales.
Rail Expense
Expenses decreased $499 million from last year's quarter. Significant variances are described below.
Labor and Fringe expense decreased $100 million. This decrease was primarily driven by labor productivity initiatives, such as employee furloughs and reduced crew overtime, and lower incentive compensation. These decreases were partially offset by inflation and cycling of favorable prior year items.
Materials, Supplies and Other expense decreased $140 million. This decrease was due to the current year decline in volume-related expenses, prior year storm and proxy-related items not repeated in the current year. Additional savings were realized through improved safety and various other items, the majority of which were favorable current quarter items that are not expected to repeat next quarter.
Fuel expense decreased $283 million primarily due to lower fuel prices and lower volume.
Equipment and Other Rents expense decreased $12 million primarily due to cost savings associated with lower volume.
Intermodal Revenue
International - Volume continued to be down due to both weak imports and exports. However, volume improved throughout the quarter due to some signs of stabilization and slight improvement in the global economy. Revenue-per-unit was lower on significantly decreased fuel recovery, partially offset by contract price increases.
Domestic - Volume was up as continued truck conversion and expanded service offerings helped offset the decline in other segments of the domestic market. Revenue-per-unit was lower on decreased fuel recovery and a continued competitive truck pricing environment.
Intermodal Expense
Intermodal operating expense decreased in the third quarter of 2009, primarily driven by lower overall volume and a decline in fuel price.
Consolidated Results of Operations
Other Income
Other income was flat as higher real estate sales offset lower cash and investment balances and their associated returns in third quarter 2009.
Interest Expense
Interest expense increased $9 million to $140 million due to higher average debt balances in third quarter 2009.
Income Tax Expense
Income tax expense decreased $56 million to $171 million primarily due to lower earnings in third quarter 2009.
Net Earnings
Net earnings decreased $89 million to $293 million and earnings per diluted share decreased $.20 to $.74 in third quarter 2009 as a result of lower earnings.
CSX CORPORATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Results of Operations(Unaudited)
(Dollars in Millions)
Nine Months Ended
Operating
Rail(a) Intermodal Income
2009 2008 2009 2008 2009 2008 $ Change % Change
Revenue $5,857 $7,449 $864 $1,132 $6,721 $8,581 $(1,860) (22) %
Expense
Labor and Fringe 1,917 2,175 52 57 1,969 2,232 263 12
Materials,
Supplies and Other 1,137 1,439 136 147 1,273 1,586 313 20
Fuel 597 1,481 2 5 599 1,486 887 60
Depreciation 662 658 19 18 681 676 (5) (1)
Equipment and
Other Rents 228 248 75 81 303 329 26 8
Inland
Transportation (287) (394) 481 590 194 196 2 1
Total Expense 4,254 5,607 765 898 5,019 6,505 1,486 23
Operating Income $1,603 $1,842 $99 $234 $1,702 $2,076 $(374) (18) %
Operating Ratio 72.6% 75.3% 88.5% 79.3% 74.7% 75.8%
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(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.
Volume and Revenue (Unaudited)
Volume (Thousands of units); Revenue (Dollars in millions); Revenue Per Unit
Nine Months Ended
Volume Revenue Revenue Per Unit
2009 2008 % Change 2009 2008 % Change 2009 2008 % Change
Chemicals 320 385 (17) % $948 $1,128 (16) % $2,963 $2,930 1 %
Emerging Markets 306 374 (18) 440 545 (19) 1,438 1,457 (1)
Forest Products 196 267 (27) 413 613 (33) 2,107 2,296 (8)
Agricultural
Products 316 323 (2) 705 739 (5) 2,231 2,288 (2)
Metals 148 280 (47) 295 623 (53) 1,993 2,225 (10)
Phosphates and
Fertilizers 211 268 (21) 275 375 (27) 1,303 1,399 (7)
Food and Consumer 76 82 (7) 176 208 (15) 2,316 2,537 (9)
Total Merchandise 1,573 1,979 (21) 3,252 4,231 (23) 2,067 2,138 (3)
Coal 1,141 1,330 (14) 2,005 2,299 (13) 1,757 1,729 2
Coke and Iron Ore 47 78 (40) 81 137 (41) 1,723 1,756 (2)
Total Coal 1,188 1,408 (16) 2,086 2,436 (14) 1,756 1,730 2
Automotive 156 267 (42) 335 602 (44) 2,147 2,255 (5)
Other - - - 184 180 2 - - -
Total Rail 2,917 3,654 (20) 5,857 7,449 (21) 2,008 2,039 (2)
International 570 773 (26) 256 397 (36) 449 514 (13)
Domestic 808 797 1 595 715 (17) 736 897 (18)
Other - - - 13 20 (35) - - -
Total Intermodal 1,378 1,570 (12) 864 1,132 (24) 627 721 (13)
Total 4,295 5,224 (18) % $6,721 $8,581 (22) % $1,565 $1,643 (5) %
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Certain data within Merchandise categories have been reclassified to conform to the current year presentation.
Nine Month Results of Operations
Consolidated Results of Operations
Operating Revenue
Operating revenue decreased $1.9 billion to $6.7 billion as a result of significant volume declines caused by the economic crisis as well as lower fuel recovery associated with the sharp decline in fuel prices since 2008.
Operating Income
Operating income decreased $374 million to $1.7 billion as a result of lower operating revenue partially offset by lower fuel expense and the Company's continued efforts to control costs.
Other Income
Other income decreased $75 million to $19 million in 2009 due to lower income from real estate sales and a prior year $30 million benefit to correct equity earnings from a non-consolidated subsidiary. Lower cash and investment balances, and their associated returns, also contributed to this decrease.
Interest Expense
Interest expense increased $37 million to $420 million primarily due to higher average debt balances in 2009.
Income Tax Expense
Income tax expense decreased $184 million to $469 million primarily due to lower earnings in 2009.
Net Earnings
Net earnings decreased $271 million to $847 million and earnings per diluted share decreased $.57 to $2.14 in 2009 primarily as a result of lower earnings partially offset by a $25 million after-tax gain related to the sale of The Greenbrier resort in 2009.
The following are material changes in the consolidated balance sheets and sources of liquidity and capital, which provide an update to the discussion included in CSX's most recent Annual Report on Form 10-K.
Material Changes in Consolidated Balance Sheets and Significant Cash Flows
Consolidated Balance Sheets
Total long-term debt increased $394 million driven by a $500 million debt issuance during 2009. Additionally, property additions increased $352 million since December 2008 due to planned capital spending. These increases were partially offset by a $179 million decrease in accounts receivable due to volume declines and a $207 million decrease in other long-term liabilities primarily driven by pension contributions made during 2009.
Consolidated Cash Flow Statements
Cash provided by operating activities decreased $587 million due in part to lower pre-tax earnings. Higher pension contributions, as mentioned above, and higher incentive compensation payouts for 2008, which were paid in 2009, also contributed to this decrease. Cash used in investing activities decreased due to lower property investments during nine months 2009 which were partially offset by a reduction in the purchases and sales of short-term investments and marketable securities. For 2009, the Company plans to spend $1.6 billion for total capital expenditures. Furthermore, cash used in financing activities decreased $600 million primarily because the Company had no share repurchases in 2009.
Liquidity and Working Capital
As of the end of the third quarter, CSX had $1.3 billion of cash, cash equivalents and short-term investments. CSX also has available a $1.25 billion credit facility with a diverse syndicate of banks that was not drawn on. CSX uses current cash balances for general corporate purposes, which may include capital expenditures, working capital requirements, improvements in productivity and repurchases of CSX common stock.
On September 28, 2009, following the end of the fiscal quarter, 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. 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.
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 $694 million at September 2009 and a working capital deficit of $13 million at December 2008. The favorable change since December 2008 is primarily due to increased cash balances as a result of new debt issued during the first quarter.
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