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 31, 2010
OR
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( )
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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. (X)
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 25, 2010 (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 $17
billion (based on the New York Stock Exchange closing price on such
date).
There were 370,373,995 shares of Common
Stock outstanding on January 28, 2011 (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, 2011.
1
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CSX CORPORATION
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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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7
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12
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2.
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12
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3.
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18
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4.
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19
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20
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PART
II
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5.
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23
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6.
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26
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7.
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27
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27
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28
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32
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35
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44
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47
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47
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48
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7A.
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58
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8.
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59
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9.
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121
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9A.
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121
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9B.
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123
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PART
III
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10.
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124
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11.
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124
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12.
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124
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13.
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124
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14.
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124
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PART
IV
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15.
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125
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131
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Item 1. Business
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 provides rail-based transportation services
including traditional rail service and the transport of intermodal containers
and trailers.
CSX
Transportation, Inc.
CSX’s
principal operating subsidiary, CSX Transportation, Inc. (“CSXT”), provides an
important link to the transportation supply chain through its approximately
21,000 route mile rail network, which serves major population centers in 23
states east of the Mississippi River, the District of Columbia and the Canadian
provinces of Ontario and Quebec. 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 approximately 240
short-line and regional railroads.
Lines
of Business
During
2010, CSXT’s transportation services generated $10.6 billion of revenue and
served three primary lines of business:
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·
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The
merchandise business shipped nearly 2.6 million carloads and generated
approximately 54% of revenue and 40% of volume in 2010. The Company’s
merchandise business is the most diverse market and transports aggregates
(which includes crushed stone, sand and gravel), metal, phosphate,
fertilizer, food, consumer (manufactured goods and appliances),
agricultural, automotive, paper and chemical
products.
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·
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The
coal business shipped 1.6 million carloads and accounted for 31% of
revenue and 25% of volume in 2010. The Company transports
utility, industrial and export coal to electricity-generating power
plants, steel manufacturers, industrial plants and deep-water port
facilities. Roughly three of every four tons of domestic coal
and almost half of the export coal that the Company transports is used for
generating electricity.
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·
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The
intermodal business accounted for approximately 12% of revenue and 35% of
volume in 2010. The intermodal line of business combines the superior
economics of rail transportation with the short-haul flexibility of trucks
and offers a competitive cost advantage over long-haul trucking.
Through its network of more than 50 terminals, the intermodal business
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.
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Other
revenue accounted for 3% of the Company’s total revenue in 2010. This
revenue category includes revenue from regional subsidiary railroads, demurrage,
revenue for customer volume commitments not met, switching and other incidental
charges. 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
Entities
In
addition to CSXT, the Company’s subsidiaries include CSX Intermodal Terminals,
Inc. (“CSX Intermodal Terminals”), Total Distribution Services, Inc. (“TDSI”),
Transflo Terminal Services, Inc. (“Transflo”), CSX Technology, Inc. (“CSX
Technology”) and other subsidiaries. The Company’s intermodal business
links customers to railroads via trucks and terminals. CSX Intermodal
Terminals owns and operates a system of intermodal terminals, predominantly in
the eastern United States and also performs drayage services (the pickup and
delivery of intermodal shipments) and trucking dispatch operations.
TDSI serves the automotive industry with distribution centers and storage
locations. Transflo connects non-rail served customers to the many
benefits of rail by transferring products, such as ethanol and minerals, from
rail to trucks. CSX Technology and other subsidiaries provide support
services for the Company.
CSX’s
other holdings include CSX Real Property, Inc., a subsidiary responsible for the
Company’s real estate sales, leasing, acquisition and management and development
activities. These activities are classified in other income because they
are not considered by the Company to be operating activities. Results
of these activities fluctuate with the timing of non-operating real estate
sales.
CSX
Intermodal, Inc. (“Intermodal”) was a subsidiary of CSX until it merged with
CSXT during 2010. Prior to the merger, Intermodal was the parent company
of CSX Intermodal Terminals, and conducted the sales and marketing activities
associated with intermodal transportation service now provided by CSXT.
The Company no longer reflects the intermodal business as a separate
segment. CSX’s president views intermodal similarly to merchandise
and coal. Intermodal revenue will continue to be viewed as a separate
revenue group; however, a separate income statement and operating ratio are no
longer prepared and business segment disclosures are no longer
required. All prior period disclosures have been revised to reflect
this change.
This
change was a result of certain management realignments, a strategic business
review and a change in the Company’s intermodal service associated with the
start of the UMAX program. The UMAX program, which began during 2010, is a
domestic interline container program jointly marketed by CSX and Union Pacific
Corporation. Through the UMAX program, the Company provides 53 foot
containers to customers for local domestic shipments or transcontinental service
provided jointly by CSX and Union Pacific Corporation.
Financial
Information
See Item
7. Management’s Discussion and Analysis of Financial Condition and Results of
Operations for operating revenue, operating income and total assets for each of
the last three fiscal years.
Company
History
A leader in
freight rail transportation for more than 180 years, the Company’s heritage
dates 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 this foundation 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. Later, the Company’s acquisition of key portions of Conrail,
Inc. allowed CSXT to link the northeast, including New England and the New York
metropolitan area, with Chicago and midwestern markets as well as the growing
areas in the southeast 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 responsible and fuel
efficient freight transportation and intermodal service.
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.
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 have
homeland security implications.
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 “RSIA”). 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. Currently, CSX estimates that the total
multi-year cost of PTC implementation will be at least $1.2 billion for the
Company.
In December
2009, a proposed bill called the “Surface Transportation Board Reauthorization
Act of 2009” was introduced in the Senate but not advanced. In January 2011, the
bill now referred to as the Surface Transportation Board Reauthorization Act of
2011 (“STB Reauthorization Bill”) was reintroduced. The STB Reauthorization
Bill, if adopted, could increase government involvement in railroad pricing,
service and operations. The proposed legislation also includes provisions that
would reduce the ability to price at market levels, and open a carrier’s
privately-owned and maintained rail network to competitors where certain
conditions are met.
If adopted as
proposed, this bill 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. Prior to the reintroduction
of the STB Reauthorization Bill, the STB had already announced two new
hearings; one
on February 24, 2011 to review the utility of boxcar, intermodal, automotive and
other exemptions, and the other on June 22, 2011 to explore the current state of
competition in the railroad industry.
For further
discussion on regulatory risks 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 June 2, 2010, 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 14,
2011 (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 2010, 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 2010,
see Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Item 1A. Risk Factors
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, and reintroduced in January 2011 (see Regulatory Environment in
Part I for further details), if adopted, could 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 could
force a reduction in capital spending. Statutes imposing price
constraints or affecting rail-to-rail competition could adversely affect the
Company’s profitability.
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 RSIA 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 the Company 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.
Climate
change legislation or regulation has been proposed and, in some cases adopted,
on the federal, state, provincial (Canada) and local levels. These
final and proposed laws and regulations take the form of restrictions, caps,
taxes or other controls on greenhouse gas (“GHG”) emissions. In
particular, the U.S. Environmental Protection Agency (“EPA”) has issued various
regulations targeting GHG emissions, including rules and standards governing GHG
emissions from certain stationary sources and from vehicles.
Any of these
pending or proposed laws or regulations could adversely affect CSX and its
customers’ business, operations and financial results by, among other
things: (1) increasing energy costs generally, making it difficult for the
Company’s customers in the U.S. and Canada to produce products in a cost
competitive manner (particularly in the absence of similar regulations in
countries like India and China); (2) increasing the Company’s fuel and other
operating costs and negatively affecting operating and fuel efficiencies; and
(3) reducing the consumption of coal as a viable energy resource in the United
States. Any of these factors could reduce the amount of
traffic the Company handles and have a material adverse effect on the
Company's financial condition, results of operations or
liquidity.
Capacity
constraints could have a negative impact on service and operating
efficiency.
CSXT may
experience rail network difficulties related to: (i) increased passenger
activities, including high-speed rail, in capacity-constrained areas, or (ii)
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.
General
economic conditions could negatively affect demand for commodities and other
freight.
The economic
recession adversely affected demand for rail and intermodal services.
Although traffic improved in 2010, a 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.
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 or natural resource damage, and environmental penalties and
remediation obligations. Such claims, if insured, 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
is subject to wide-ranging federal, state, provincial (Canada) and local
environmental laws and regulations concerning, among other things, emissions
into the air, ground and water, the handling, storage, use,
generation, transportation and disposal of waste and other materials, the
clean-up of hazardous material and petroleum releases, and the health and safety
of our employees. If we violate or fail to comply with these laws and
regulations, we could be fined or otherwise sanctioned by
regulators. We can also be held liable for consequences arising out
of human exposure to any hazardous substances for which we are
responsible. 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, leased or used by the
Company.
The Company
has been, and may in the future, 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 and estimable 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.
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, process 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 Conference 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. 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.
Item 1B. Unresolved Staff Comments
None.
Item 2. Properties
The Company’s
properties primarily consist of track and its related infrastructure,
locomotives and freight cars and equipment. 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 network that
connects markets, customers and western railroads. At December 2010,
the breakdown of track miles was as follows:
|
Track
|
|
|
Miles
|
|
|
Mainline
track
|
26,642
|
|
Terminals
and switching yards
|
9,561
|
|
Passing
sidings and turnouts
|
928
|
|
Total
|
37,131
|
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
Company’s ten largest yards and terminals based on annual volume (number of rail
cars or intermodal containers processed) are listed below:
|
Yards
and Terminals
|
Annual
Volume
(number
of units processed)
|
|
Chicago,
IL
|
904,451
|
|
Waycross,
GA
|
644,415
|
|
Selkirk,
NY
|
552,865
|
|
Willard,
OH
|
529,872
|
|
Indianapolis,
IN
|
499,977
|
|
Cincinnati,
OH
|
497,611
|
|
Nashville,
TN
|
496,085
|
|
Hamlet,
NC
|
473,045
|
|
Birmingham,
AL
|
368,774
|
|
Louisville,
KY
|
350,467
|
Network
Geography
CSXT’s
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
mountain region with industrial areas in the Northeast and Mid-Atlantic, as well
as many river, lake, and deep water port facilities. CSXT’s coal
network is well positioned to supply utility markets in both the Northeast and
Southeast and to transport coal shipments for exports outside of the
U.S. Roughly three of every four tons of domestic coal and almost
half of the export coal that the Company transports is used for generating
electricity.
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 coming from the far east through western ports
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. This route carries consumer goods from all three of
the Company’s major markets – merchandise, coal and intermodal.
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
Locomotives
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 2010,
CSXT’s fleet of owned and long-term leased locomotives consisted of the
following types of locomotives:
|
Average
Age
(years)
|
||||
|
Locomotives
|
%
|
|||
|
Freight
|
3,533
|
87%
|
20
|
|
|
Switching
|
314
|
8%
|
32
|
|
|
Auxiliary
Units
|
225
|
5%
|
50
|
|
|
Total
|
4,072
|
100%
|
22
|
As of
December 2010, approximately 500 locomotives or 12% were held in temporary
storage. As volume continues to return, these locomotives will be
placed back into service after restorative maintenance procedures are
performed. Of these, over 200 locomotives can be brought back
immediately.
Equipment
In 2010, the
average daily fleet of cars on line consisted of approximately 211,000. At any
time over half of the railcars on the CSXT system are not owned or leased by the
Company. 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 used to
transport automobiles (which are shared between railroads).
The Company’s
equipment consists of freight cars, containers and chassis.
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.
Containers -
Weather-proof boxes used for bulk shipment of freight.
Chassis - Wheeled
support framework for a container that allows it to be attached to a
tractor. All of the Company’s chassis are leased.
Other cars
owned or leased on the network include, but are not limited to, center beam cars
for transporting lumber and building products. The Company also has
other types of equipment such as lift equipment and doublestack railcars, which
allow for two containers to be mounted one above the other.
17
CSX
CORPORATION
PART
I
At December 2010, the Company’s owned
and long-term leased equipment consisted of the
following:
|
Number
of Units
|
|||||
|
Equipment
|
%
|
||||
|
Gondolas
|
25,558
|
32%
|
|||
|
Open-top
hoppers
|
14,440
|
18%
|
|||
|
Box
cars
|
11,660
|
14%
|
|||
|
Covered
hoppers
|
11,097
|
14%
|
|||
|
Multi-level
flat cars
|
10,089
|
12%
|
|||
|
Flat
cars
|
6,965
|
9%
|
|||
|
Other
cars
|
493
|
1%
|
|||
|
Subtotal
freight cars
|
80,302
|
100%
|
|||
|
Containers
|
15,198
|
52%
|
|||
|
Chassis
|
13,669
|
47%
|
|||
|
Other
|
297
|
1%
|
|||
|
Subtotal
equipment
|
29,164
|
100%
|
|||
|
Total
equipment
|
109,466
|
||||
As of
December 31, 2010, approximately 11,000 freight cars or 14% were held in
temporary storage. These freight cars can be placed back into service
immediately as volume returns.
Item 3. Legal Proceedings
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
class action suits have been consolidated in federal court in the District of
Columbia. The court has not yet ruled on whether it is appropriate to
certify the case as a class action.
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. The court dismissed
all of the indirect purchasers’ causes of action seeking money damages, but did
not dismiss their request for injunctive relief. The dismissal was
upheld on appeal. Plaintiffs then petitioned the United States
Supreme Court to hear the case. The Supreme Court denied the petition in
December 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. That agreement has been extended to the end of 2011.
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. While CSXT cannot predict the
outcome of the private lawsuits, or of any government investigations, charges or
additional litigation that may be filed in the future, we currently believe that
these matters will not have a material adverse effect on any of our results of
operations, financial condition and liquidity. Penalties for
violating antitrust laws can be severe, involving both potential criminal and
civil liability. 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.
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 and hazardous material
exposure 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
pending 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 that particular period.
Item 4. (Removed and Reserved)
Executive Officers of the Registrant
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, 60
Chairman,
President and Chief Executive Officer
|
A
33-year veteran of the Company, Ward has served as Chairman, President and
Chief Executive Officer of CSX since January 2003.
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, 52
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, 51
Executive
Vice President and Chief Operating Officer
|
Brown
has been the Executive Vice President and Chief Operating Officer of CSXT
since January 2010. He manages all aspects of the Company’s
operations across its 21,000-mile network, including transportation,
service design, customer service, engineering and
mechanical. Brown served as Chief Transportation Officer of
CSXT from 2006-2009.
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.
|
|
Clarence
W. Gooden, 59
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. He is responsible for generating customer
revenue, forecasting business trends and developing CSX’s model for future
revenue growth.
A
member of the Company for 40 years, Gooden has held key executive
positions in both operations and sales and marketing.
|
|
Ellen
M. Fitzsimmons, 50
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 19-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, 51
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. She 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.
|
|
Carolyn
T. Sizemore, 48
Vice
President and Controller
|
Sizemore
has served as Vice President and Controller of CSX and CSXT since April
2002. She 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 21-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.
|
Item 5. Market for Registrant’s Common Equity,
Related Stockholder Matters and Issuer Purchases of Equity
Securities
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 370,342,302 shares
were outstanding as of December 2010. 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 January 28, 2011, the
latest practicable date, there were 37,585 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 386
million as of December 31, 2010. (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
|
||||
|
2010
|
||||||||
|
Dividends
|
$0.24
|
$0.24
|
$0.24
|
$0.26
|
$0.98
|
|||
|
Common
Stock Price
|
||||||||
|
High
|
$52.83
|
$62.00
|
$56.80
|
$64.80
|
$64.80
|
|||
|
Low
|
$42.05
|
$48.00
|
$46.51
|
$53.95
|
$42.05
|
|||
|
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
|
|||
Stock
Performance Graph
The
cumulative shareholder returns, assuming reinvestment of dividends, on $100
invested at December 31, 2005 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.
Since
March 2008, CSX has completed approximately $2.7 billion of its current $3
billion share repurchase program. During fourth quarter 2010, CSX completed
approximately $347 million of total share repurchases. The Company
expects to repurchase approximately $300 million of its shares in the first
quarter of this year, which will complete the remainder of its current
program.
|
CSX
Purchases of Equity Securities
for
the Quarter
|
||||||
|
Fourth
Quarter
|
Total
Number of Shares Purchased
|
Average
Price Paid per Share
|
Total
Number of Shares Purchased as Part of Publicly Announced Plans or
Programs
|
Approximate
Dollar Value of Shares that May Yet Be Purchased Under the Plans or
Programs
|
||
|
Beginning
Balance
|
$645,208,174
|
|||||
|
October
|
||||||
|
(September
25, 2010 - October 22, 2010)
|
849,400
|
$59.27
|
849,400
|
594,868,312
|
||
|
November
|
||||||
|
(October
23, 2010 - November 26, 2010)
|
2,840,481
|
61.06
|
2,840,481
|
421,433,217
|
||
|
December
|
||||||
|
(November
27, 2010 - December 31, 2010)
|
1,951,670
|
63.10
|
1,951,670
|
298,286,880
|
||
|
Ending
Balance
|
5,641,551
|
$61.49
|
5,641,551
|
$298,286,880
|
||
Note: There were no
share repurchases during fourth quarter 2010 to fund the Company’s contribution
to a 401(k) plan that covers certain union employees.
Item
6. Selected Financial Data
Selected financial data and significant
events related to the Company’s financial results for the last five fiscal years
are listed below.
|
Fiscal Years(a)
|
|||||||
|
(Dollars
in Millions, Except Per Share Amounts)
|
2010
|
2009
|
2008
|
2007
|
2006
|
||
|
Financial
Performance
|
|||||||
|
Revenue
|
$10,636
|
$9,041
|
$11,255
|
$10,030
|
$9,566
|
||
|
Expense
|
7,565
|
6,771
|
8,504
|
7,784
|
7,429
|
||
|
Operating
Income
|
$3,071
|
$2,270
|
$2,751
|
$2,246
|
$2,137
|
||
|
Net
Earnings from Continuing Operations
|
$1,563
|
$1,128
|
$1,485
|
$1,227
|
$1,311
|
||
|
Earnings
Per Share:
|
|||||||
|
From
Continuing Operations, Basic
|
$4.10
|
$2.88
|
$3.71
|
$2.86
|
$2.98
|
||
|
From
Continuing Operations, Assuming Dilution
|
4.06
|
2.85
|
3.64
|
2.75
|
2.82
|
||
|
Average
Common Shares Outstanding
|
381,108
|
392,127
|
400,740
|
430,270
|
440,084
|
||
|
Average
Common Shares Outstanding, Assuming Dilution
|
384,509
|
395,686
|
408,620
|
448,280
|
465,934
|
||
|
Operating
Ratio
|
71.1%
|
74.9%
|
75.6%
|
77.6%
|
77.7%
|
||
|
Financial
Position
|
|||||||
|
Cash,
Cash Equivalents and Short-term Investments
|
$1,346
|
$1,090
|
$745
|
$714
|
$900
|
||
|
Total
Assets
|
28,141
|
26,887
|
26,154
|
25,417
|
25,026
|
||
|
Long-term
Debt
|
8,051
|
7,895
|
7,512
|
6,470
|
5,362
|
||
|
Shareholders'
Equity
|
8,700
|
8,768
|
7,985
|
8,612
|
8,878
|
||
|
Dividend
Per Share
|
$0.98
|
$0.88
|
$0.77
|
$0.54
|
$0.33
|
||
|
Additional
Data
|
|||||||
|
Capital
Expenditures (Dollars in
Billions) (b)
|
$1.8
|
$1.6
|
$1.8
|
$1.7
|
$1.4
|
||
|
Employees
-- Annual Averages
|
29,916
|
30,088
|
34,363
|
35,443
|
36,005
|
||
|
(a)
|
Certain
amounts have been adjusted for the retrospective change in accounting
policy for rail grinding, see Note 1, Nature of Operations and Significant
Accounting Policies.
|
|
(b)
|
Capital
Expenditures - In addition to property additions of $1,427 million and
$1,719 million in 2009 and 2008, respectively, shown in investing
activities on the consolidated cash flow statements, capital expenditures
included cash payments for purchases of new assets using seller financing
of approximately $160 million and $54 million,
respectively. These payments are included in other financing
activities on the consolidated cash flow
statements.
|
Significant
Events
|
2006
|
--
|
Two-for-one
split of the Company’s common stock effective
2006.
|
|
|
--
|
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.
|
Item 7. Management's Discussion and
Analysis of Financial Condition and Results of Operations
STRATEGIC OVERVIEW
The
Company and the rail industry provide customers with access to an expansive and
interconnected transportation network that plays a key role in North American
commerce. The Company’s network is positioned to reach more than
two-thirds of Americans, who account for about three-quarters of the nation’s
consumption of goods. Through this network, the Company transports a broad
portfolio of products, ranging from coal and new energy sources, like biodiesel
and ethanol, to automobiles, chemicals, and consumer
products.
CSX
remains highly committed to delivering value to shareholders through a balanced
approach to deploying capital that includes investments in infrastructure,
dividend improvements and share repurchases. In 2011, the
Company plans to invest $2.0 billion to sustain core
infrastructure and rolling stock, support various strategic investments and
fund Positive Train Control (“PTC”) implementation costs. Key terminal
expansions and infrastructure projects are important components of CSX’s
investment strategy. Strategic investments through public-private
partnerships, including the National Gateway initiative and the Massachusetts
and Florida projects will provide enhanced transit times and improved service
for customers.
The
National Gateway is a multi-year infrastructure initiative which will increase
intermodal capacity on key corridors between Mid-Atlantic ports and the
Midwest. Total project costs are approximately $850 million, of which
the Company expects to contribute approximately $400 million. A key
component of this initiative is the Company’s new Northwest Ohio intermodal
terminal that is scheduled to become operational in the first half of 2011. This
high-capacity terminal will expand service offerings to customers as well as
improve market access to east coast ports. Once complete, the new terminal will
be the most environmentally friendly, technologically advanced intermodal
terminal in existence.
These
long-term investments provide a foundation for volume growth, productivity as
well as safe and reliable operations. To continue these types of
investments, the Company must be able to operate in an environment in which it
can generate adequate returns and drive shareholder value. CSX will
continue to advocate for a fair and balanced regulatory environment to ensure
that the value of the Company’s rail service will be reflected in any potential
new legislation and policy.
In
addition to investing in its network, CSX increased its quarterly cash dividend
twice from 22 cents to 26 cents per share during 2010. These
were the seventh and eighth dividend increases over a five-year period and
represents a 35 percent compounded annual growth rate. CSX also
expects to repurchase approximately $300 million in shares by the end of the
first quarter, representing the remainder of its existing $3 billion share
repurchase program.
2010 HIGHLIGHTS
|
·
|
Revenue
increased $1.6 billion or 18% to $10.6 billion primarily driven by
increases in volume and core pricing
gains.
|
|
·
|
Expenses
increased $794 million or 12% to $7.6 billion driven primarily by higher
labor-related costs, an increase in volume-related costs and higher fuel
prices.
|
|
·
|
Operating
income increased $801 million or 35% to $3.1 billion and operating ratio
improved to 71.1%, both being all-time annual
records.
|
|
Fiscal
Years
|
|||
|
(in
thousands)
|
2010
|
2009
|
2008
|
|
Volume
|
6,384
|
5,793
|
6,827
|
|
(in
millions)
|
|||
|
Revenue
|
$10,636
|
$9,041
|
$11,255
|
|
Expense
|
7,565
|
6,771
|
8,504
|
|
Operating
Income
|
$3,071
|
$2,270
|
$2,751
|
|
Operating
Ratio
|
71.1%
|
74.9%
|
75.6%
|
2010
results reflect strong year-over-year volume and revenue growth as a result
of the improving economy. Revenue increased 18% from the prior year, to
nearly $10.6 billion, with gains across all of the Company’s markets with
particular growth in automotive and metals. Overall gains were driven by a
10% increase in volume, continued pricing above rail inflation and higher fuel
recovery associated with the increase in fuel prices. The Company achieved
pricing gains primarily due to improved service and the overall cost advantages
that rail-based solutions provide to customers versus other modes of
transportation.
As volume
increased, expenses increased by $794 million, or only 12%, from the prior year.
This increase was driven primarily by higher labor-related costs including
inflation and incentive compensation, an increase in volume-related costs and
higher fuel expense due to a rise in fuel prices. Although expenses
increased year-over-year, CSX was able to achieve a record operating ratio of
71.1% due to the Company’s continued focus on cost control and productivity
initiatives. Fiscal year 2010 results include an extra week of activity as
compared to fiscal year 2009. This activity did not have a material
impact on the Company’s full year results of operations.
For
additional information, refer to Results of Operations discussed on pages 35
through 39.
In
addition to the financial highlights described above, the Company measures and
reports safety and service performance. Over the last five years, CSX has
improved its safety and service measures by more than 50% and generated nearly
$1 billion in total productivity gains. In effect, CSX has worked to
create a culture of accountability, which focuses on delivering enhanced
performance by communicating a focus on leadership, discipline and
execution.
During
2010, the Company again demonstrated great improvements related
to safety and operating performance. For 2010, the Federal Railroad
Administration (“FRA”) personal injury rate improved 17% to 1.01, compared to
1.20 in 2009. This is a record full-year personal injury performance for
the full year at CSX. The 2010 reported FRA train accident frequency rate
improved 9% to 2.68, compared to 2.94 in 2009. These excellent results
were achieved through a sustained commitment to safety.
Key
service metrics in 2010 declined slightly as volume increased 10% from last
year. On-time train originations and arrivals declined to 75% and 69%,
respectively. Dwell time increased to 25.0 hours from 24.1 hours in
2009. Average train velocity declined 4% to 21.0 miles per hour.
While these key measures declined, they remain within the ranges experienced
over the last several years and continue to support efficient and reliable train
operations for CSX’s customers.
Operating Statistics
(Estimated)
|
Fiscal
Years
|
Improvement/
|
||||
|
2010
|
2009
|
(Decline)
|
%
|
||
|
Safety
and
|
FRA
Personal Injury Frequency Index
|
1.01
|
1.20
|
16
|
%
|
|
Service
|
|||||
|
Measurements
|
FRA
Train Accident Rate
|
2.68
|
2.94
|
9
|
|
|
On-Time
Train Originations
|
75%
|
81%
|
(7)
|
||
|
On-Time
Destination Arrivals
|
69%
|
80%
|
(14)
|
||
|
Dwell
|
25.0
|
24.1
|
(4)
|
||
|
Cars-On-Line
|
210,984
|
216,013
|
2
|
||
|
Train
Velocity
|
21.0
|
21.8
|
(4)
|
||
|
Increase/
|
|||||
|
(Decrease)
|
|||||
|
Resources
|
Route
Miles
|
21,084
|
21,190
|
-
|
%
|
|
Locomotives
(owned and long-term leased)
|
4,072
|
4,071
|
-
|
||
|
Freight
Cars (owned and long-term leased)
|
80,302
|
84,282
|
(5)
|
%
|
|
Definitions
FRA Personal Injury
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).
Capital
Expenditures
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 2010 capital expenditures increased to $1.8 billion from
$1.6 billion in 2009. (The 2009 amount includes $160 million of cash
payments for new assets purchased in the prior year using seller financing.
These payments are reflected in the financing section of the consolidated
cash flow statement.) The Company is committed to maintaining and
improving its existing infrastructure and to positioning itself for long-term
growth through expanding network and terminal capacity.
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. 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. As described below, free cash flow before dividends
increased $823 million to $1.5 billion.
The following table reconciles cash
provided by operating activities (GAAP measure) to free cash flow (non-GAAP
measure).
|
Fiscal
Years
|
|||
|
2010
|
2009
|
2008
|
|
|
(Dollars
in Millions)
|
|||
|
Net
cash provided by operating activities
|
$3,246
|
$2,040
|
$2,893
|
|
Property
additions (a)
|
(1,825)
|
(1,427)
|
(1,719)
|
|
Other
investing activities (b)
|
69
|
54
|
36
|
|
Free
Cash Flow (before payment of dividends)
|
$1,490
|
$667
|
$1,210
|
|
|
(a) In
addition to property additions of $1,427 million and $1,719 million in
2009 and 2008, respectively, total capital expenditures included cash
payments for purchases of new assets using seller financing of
approximately $160 million and $54 million, respectively. There
were none in 2010. These payments are shown in financing
activities on the consolidated cash flow statement. Property
additions are shown in investing activities on the consolidated cash flow
statement.
|
|
|
(b) Other investing activities no
longer include Conrail free cash flow as these amounts are
immaterial.
|
FORWARD-LOOKING STATEMENTS
Certain
statements in this report and in other materials filed with the SEC, as well as
information included in oral statements or other written statements made by the
Company, are forward-looking statements. The Company intends for all
such forward-looking statements to be covered by the safe harbor provisions for
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995 and the provisions of Section 27A of the
Securities Act of 1933 and Section 21E of the Securities Exchange Act of
1934. These forward-looking statements within the meaning of the
Private Securities Litigation Reform Act may contain, among others, statements
regarding:
|
·
|
projections
and estimates of earnings, revenues, volumes, rates, cost-savings,
expenses, taxes or other financial
items;
|
|
·
|
expectations
as to results of operations and operational
initiatives;
|
|
·
|
expectations
as to the effect of claims, lawsuits, environmental costs, commitments,
contingent liabilities, labor negotiations or agreements on the Company’s
financial condition, results of operations or
liquidity;
|
|
·
|
management’s
plans, strategies and objectives for future operations, capital
expenditures, share repurchases, 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.
32
CSX CORPORATION
PART II
Forward-looking
statements are subject to a number of risks and uncertainties and actual
performance or results could differ materially from those anticipated by any
forward-looking statements. The Company undertakes no obligation to update or
revise any forward-looking statement. If the Company does update any
forward-looking statement, no inference should be drawn that the Company will
make additional updates with respect to that statement or any other
forward-looking statements. The following important factors, in
addition to those discussed in Part II, Item 1A (Risk Factors) of this annual
report on Form 10-K and elsewhere in this report, may cause actual results to
differ materially from those contemplated by any forward-looking
statements:
|
·
|
legislative,
regulatory or legal developments involving transportation, including rail
or intermodal transportation, the environment, hazardous
materials, taxation, including the outcome of tax claims and
litigation, the potential enactment of initiatives to further regulate the
rail industry and the ultimate outcome of shipper and rate claims subject
to adjudication;
|
|
·
|
the
outcome of litigation and claims, including, but not limited to, those
related to fuel surcharge, environmental contamination, taxes, personal
injuries and occupational
illnesses;
|
|
·
|
changes
in domestic or international economic, political or business conditions,
including those affecting the transportation industry (such as the impact
of industry competition, conditions, performance and consolidation) and
the level of demand for products carried by
CSXT;
|
|
·
|
unanticipated
conditions in the financial markets that may affect timely access to
capital markets and the cost of capital, as well as management’s decisions
regarding share repurchases;
|
|
·
|
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,
including potential effects of high speed rail initiatives, 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;
|
|
·
|
the
cost of compliance with laws and regulations that differ from expectations
(including those associated with PTC implementation) and costs, penalties
and operational impacts associated with noncompliance with applicable laws
or regulations;
|
|
·
|
the
inherent business risks associated with safety and security, including the
availability and vulnerability of information technology, adverse economic
or operational effects from actual or threatened war or terrorist
activities and any governmental
response;
|
|
·
|
labor
and benefit costs and labor difficulties, including stoppages affecting
either the Company’s operations or the customers’ ability to deliver goods
to the Company for shipment;
|
|
·
|
competition
from other modes of freight transportation, such as trucking and
competition and consolidation within the transportation industry
generally;
|
|
·
|
the
Company’s success in implementing its strategic, financial and operational
initiatives;
|
|
·
|
changes
in operating conditions and costs or commodity concentrations;
and
|
|
·
|
the
inherent uncertainty associated with projecting economic and business
conditions.
|
Other
important assumptions and factors that could cause actual results to differ
materially from those in the forward-looking statements are specified elsewhere
in this report and in CSX’s other SEC reports, accessible on the SEC’s website
at www.sec.gov
and the Company’s website at www.csx.com. The
information on the CSX website is not part of this annual report on Form
10-K.
FINANCIAL RESULTS OF OPERATIONS
2010
vs. 2009 Results of Operations
|
Fiscal
Years
|
||||||||
|
2010
|
2009
|
$
Change
|
%
Change
|
|||||
|
(Adjusted)
(a)
|
||||||||
|
Revenue
|
$10,636
|
$9,041
|
$1,595
|
18
|
%
|
|||
|
Expense
|
||||||||
|
Labor
and Fringe
|
2,957
|
2,629
|
328
|
12
|
||||
|
Materials,
Supplies and Other
|
2,075
|
1,999
|
76
|
4
|
||||
|
Fuel
|
1,212
|
849
|
363
|
43
|
||||
|
Depreciation
|
947
|
903
|
44
|
5
|
||||
|
Equipment
and Other Rents
|
374
|
391
|
(17)
|
(4)
|
||||
|
Total
Expense
|
7,565
|
6,771
|
794
|
12
|
||||
|
Operating
Income
|
$3,071
|
$2,270
|
$801
|
35
|
||||
|
Interest
Expense
|
(557)
|
(558)
|
1
|
-
|
||||
|
Other
Income - Net
|
32
|
34
|
(2)
|
(6)
|
||||
|
Income
Tax Expense
|
(983)
|
(618)
|
(365)
|
59
|
||||
|
Earnings
From Continuing Operations
|
1,563
|
1,128
|
435
|
39
|
||||
|
Discontinued
Operations
|
-
|
15
|
(15)
|
(100)
|
||||
|
Net
Earnings
|
$1,563
|
$1,143
|
$420
|
37
|
||||
|
Earnings
Per Diluted Share:
|
||||||||
|
From
Continuing Operations
|
$4.06
|
$2.85
|
$1.21
|
42
|
||||
|
Discontinued
Operations
|
-
|
0.04
|
(0.04)
|
(100)
|
||||
|
Net
Earnings
|
$4.06
|
$2.89
|
$1.17
|
40
|
%
|
|||
|
Operating
Ratio
|
71.1%
|
74.9%
|
380
bps
|
|||||
(a)
Certain amounts have been adjusted for the retrospective change in accounting
policy for rail grinding, see Note 1, Nature of Operations and Significant
Accounting Policies.
|
Volume and
Revenue (Unaudited)
|
|||||||||||||||
|
Volume
(Thousands of units); Revenue (Dollars in millions); Revenue Per Unit
(Dollars)
|
|||||||||||||||
|
Fiscal
Years
|
|||||||||||||||
|
Volume
|
Revenue
|
Revenue
Per Unit
|
|||||||||||||
|
2010
|
2009
|
%
Change
|
2010
|
2009
|
%
Change
|
2010
|
2009
|
%
Change
|
|||||||
|
Agricultural
|
|||||||||||||||
|
Agricultural
Products
|
446
|
428
|
4
|
%
|
$1,056
|
$960
|
10
|
%
|
$2,368
|
$2,243
|
6
|
%
|
|||
|
Phosphates
and Fertilizers
|
313
|
289
|
8
|
465
|
373
|
25
|
1,486
|
1,291
|
15
|
||||||
|
Food
and Consumer
|
102
|
100
|
2
|
245
|
233
|
5
|
2,402
|
2,330
|
3
|
||||||
|
Industrial
|
|||||||||||||||
|
Chemicals
|
461
|
424
|
9
|
1,485
|
1,267
|
17
|
3,221
|
2,988
|
8
|
||||||
|
Automotive
|
340
|
234
|
45
|
800
|
511
|
57
|
2,353
|
2,184
|
8
|
||||||
|
Metals
|
243
|
200
|
22
|
520
|
399
|
30
|
2,140
|
1,995
|
7
|
||||||
|
Housing and Construction
|
|||||||||||||||
|
Emerging
Markets
|
418
|
405
|
3
|
615
|
585
|
5
|
1,471
|
1,444
|
2
|
||||||
|
Forest
Products
|
265
|
258
|
3
|
600
|
547
|
10
|
2,264
|
2,120
|
7
|
||||||
|
Total
Merchandise
|
2,588
|
2,338
|
11
|
5,786
|
4,875
|
19
|
2,236
|
2,085
|
7
|
||||||
|
Coal
|
1,573
|
1,553
|
1
|
3,267
|
2,727
|
20
|
2,077
|
1,756
|
18
|
||||||
|
Intermodal(b)
|
2,223
|
1,902
|
17
|
1,291
|
1,184
|
9
|
581
|
623
|
(7)
|
||||||
|
Other
|
-
|
-
|
-
|
292
|
255
|
15
|
-
|
-
|
-
|
||||||
|
Total
|
6,384
|
5,793
|
10
|
%
|
$10,636
|
$9,041
|
18
|
%
|
$1,666
|
$1,561
|
7
|
%
|
|||
(a)
CSX follows a 52/53 week fiscal reporting calendar and 2010 included 53
weeks. The revenue impact for the extra week was $171
million.
(b)
The revenue-per-unit decline was primarily driven by the continued impact of
terminating the prior purchased transportation agreement. See the
explanation for intermodal variances for further information.
2010
vs. 2009 Results of Operations
CSX full
year results reflect continued strong year-over-year volume and revenue growth
as a result of the improving economy. Ongoing emphasis on pricing
above rail inflation, along with higher fuel recovery associated with the
increase in fuel prices, drove revenue-per-unit increases in most
markets. Fiscal year 2010 results include an extra week of activity
as compared to fiscal year 2009.
Volume
and Revenue
Merchandise
Agricultural
Agricultural Products
– Volume grew with increased shipments of feed grains and
ethanol. Shipments of feed grains improved with expanded meat
production and lower wheat imports. Ethanol shipments grew as the
amount of ethanol in fuel continued to increase.
Phosphates and
Fertilizers – Volume increased as a result of strength in demand for
domestic fertilizers due to a strong planting season and due to replenishment of
low inventories.
Food and Consumer –
Volume increased slightly as strength in refrigerated products, primarily fruits
and vegetables, and alcoholic beverages were partially offset by weakness in
demand for appliances.
Industrial
Chemicals – Growth
occurred across most markets reflecting improvement in demand for intermediate
products used in manufacturing automobiles and consumer goods. Many
plastics and chemicals are key inputs in the production of both durable and
nondurable goods, as well as packaging.
Automotive – Strong
growth was driven by an increase in North American light-vehicle production in
response to increased demand in the improving economy.
Metals – Volume
growth was driven by increased shipments of sheet steel for auto production,
increases in scrap steel resulting from higher steel production and increases in
energy-related products.
Housing
and Construction
Emerging Markets –
Shipments increased in limestone, transportation equipment and aggregates (which
include crushed stone, sand and gravel) as a result of overall market growth due
to the improving economy.
Forest Products –
Volume increased with strength in shipments of pulp board and paper used in
packaging for consumer products. Volume also increased
slightly in construction-related markets.
Coal
Volume
was basically flat as increased export shipments were offset by weakness in
utility shipments. Higher export shipments were due to greater demand
for U.S. metallurgical coal in Asia and steam coal in
Europe. Shipments to utility customers were down as high utility
stockpiles were reduced throughout the year and are approaching targeted
levels. The increase in revenue per unit was driven by improved
yield, higher fuel recovery and longer length of haul. Total coal
volume is expected to increase as the Company expects to ship approximately 35 –
40 million tons of export coal and projects increases in utility coal volume in
2011.
Intermodal
International
and domestic shipment growth resulted from U.S. inventory replenishment,
improved U.S. exports, new business, truckload conversions, and new UMAX and
door-to-door service offerings.
The
revenue-per-unit decline was driven by the impact of switching from a purchased
transportation arrangement to a domestic interline program at the start of
second quarter. This program, known as UMAX, provides customers with
containers for local shipments or transcontinental service provided jointly by
CSX and Union Pacific Corporation. This revenue-per-unit decline was
partly offset by increased fuel recovery and an improved pricing
environment.
Other
Revenue gains
were primarily driven by benefits for contract volume commitments not
met.
Expense
Total
expenses for 2010 increased 12% or $794 million to $7.6 billion compared to the
prior year. Descriptions of each expense category as well as
significant year-over-year changes are described below.
Labor and Fringe
expenses include employee wages and related payroll taxes, health and
welfare costs, pension, other post-retirement benefits and incentive
compensation. These expenses increased $328 million primarily driven
by inflation and higher incentive compensation.
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. In addition, this category
includes amounts paid to other transportation companies. Total
materials, supplies and other expense increased by $76 million in 2010. This
increase was primarily driven by the following:
|
·
|
Volume
increases drove higher operating and maintenance costs at automotive
facilities, coal piers and intermodal terminals. In addition,
maintenance expenses increased as locomotives previously held in storage
during 2009 due to lower volume were placed back into service during 2010.
Higher travel costs for train crews and other volume-related
expenses also contributed to this
increase.
|
|
·
|
As
safety and occupational claim trends have continued to improve, changes in
estimate were recorded in both years - $49 million in 2010 and $105
million in 2009. This resulted in a year-over-year increase in casualty
expense of $56 million.
|
|
·
|
An
operating property transaction with the Commonwealth of Massachusetts
closed during 2010 and resulted in a $30 million net book loss on a
pre-tax basis. This property is a former Conrail-acquired property. The
Company received $50 million of cash related to this
transaction.
|
|
·
|
The
above increases to expense were offset by $126 million of reduced
purchased transportation costs as a result of switching from a purchased
transportation agreement to the UMAX domestic interline program during
2010 in the intermodal business.
|
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 increased $363 million primarily due to higher
fuel prices and higher volume. Average fuel price per gallon
increased $0.55 or 32% from $1.71 in 2009 to $2.26 in 2010.
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 $44 million
in 2010 primarily due to a larger asset base.
Equipment and Other
includes rent paid for freight cars owned by other railroads or private
companies, net of rents received by CSXT for use of its
equipment. This category of expenses also includes lease expenses for
locomotives, railcars, containers and trailers, office and other
rentals. These expenses decreased $17 million primarily due to cost
savings associated with improved asset utilization and lower lease expense,
partially offset by volume-related increases.
Other
Interest
Expense
Interest
expense decreased $1 million to $557 million primarily due to lower average debt
balances during 2010.
Other
Income – Net
Other
income decreased $2 million to $32 million primarily related to lower interest
income caused by lower cash and investment balances and lower interest rates in
2010.
Income
Tax Expense
Income
tax expense increased $365 million to $983 million primarily due to higher
earnings during 2010.
Net
Earnings
Net
earnings increased $420 million to $1.6 billion and earnings per diluted share
increased $1.17 to $4.06 in 2010. This increase was primarily due to
higher operating income net of income taxes in 2010.
2009
vs. 2008 Results of Operations (a)
|
Fiscal
Years
|
||||||||
|
2009
|
2008
|
$
Change
|
%
Change
|
|||||
|
(Adjusted)
|
(Adjusted)
|
|||||||
|
Revenue
|
$9,041
|
$11,255
|
$(2,214)
|
(20)
|
%
|
|||
|
Expense
|
||||||||
|
Labor
and Fringe
|
2,629
|
2,955
|
(326)
|
(11)
|
||||
|
Materials,
Supplies and Other
|
1,999
|
2,407
|
(408)
|
(17)
|
||||
|
Fuel
|
849
|
1,817
|
(968)
|
(53)
|
||||
|
Depreciation
|
903
|
900
|
3
|
-
|
||||
|
Equipment
and Other Rents
|
391
|
425
|
(34)
|
(8)
|
||||
|
Total
Expense
|
6,771
|
8,504
|
(1,733)
|
(20)
|
||||
|
Operating
Income
|
2,270
|
2,751
|
(481)
|
(17)
|
||||
|
Interest
Expense
|
(558)
|
(519)
|
(39)
|
8
|
||||
|
Other
Income - Net
|
34
|
100
|
(66)
|
(66)
|
||||
|
Income
Tax Expense
|
(618)
|
(847)
|
229
|
(27)
|
||||
|
Earnings
From Continuing Operations
|
1,128
|
1,485
|
(357)
|
(24)
|
||||
|
Discontinued
Operations
|
15
|
(130)
|
145
|
(112)
|
||||
|
Net
Earnings
|
$1,143
|
$1,355
|
$(212)
|
(16)
|
||||
|
Earnings
Per Diluted Share:
|
||||||||
|
Continuing
Operations
|
$2.85
|
$3.64
|
$(0.79)
|
(22)
|
||||
|
Discontinued
Operations
|
0.04
|
(0.32)
|
0.36
|
(113)
|
||||
|
Net
Earnings
|
$2.89
|
$3.32
|
$(0.43)
|
(13)
|
%
|
|||
|
Operating
Ratio
|
74.9%
|
75.6%
|
70
bps
|
|||||
(a)
Certain amounts have been adjusted for the retrospective change in accounting
policy for rail grinding, see Note 1, Nature of Operations and Significant
Accounting Policies.
|
Volume and
Revenue (Unaudited)
|
|||||||||||||||
|
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
|
|||||||
|
Agricultural
|
|||||||||||||||
|
Agricultural
Products
|
428
|
432
|
(1)
|
%
|
$960
|
$1,010
|
(5)
|
%
|
$2,243
|
$2,338
|
(4)
|
%
|
|||
|
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)
|
||||||
|
Industrial
|
|||||||||||||||
|
Chemicals
|
424
|
493
|
(14)
|
1,267
|
1,454
|
(13)
|
2,988
|
2,949
|
1
|
||||||
|
Automotive
|
234
|
343
|
(32)
|
511
|
784
|
(35)
|
2,184
|
2,286
|
(4)
|
||||||
|
Metals
|
200
|
337
|
(41)
|
399
|
752
|
(47)
|
1,995
|
2,231
|
(11)
|
||||||
|
Housing
and Construction
|
|||||||||||||||
|
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)
|
||||||
|
Total
Merchandise
|
2,338
|
2,879
|
(19)
|
4,875
|
6,249
|
(22)
|
2,085
|
2,171
|
(4)
|
||||||
|
Coal
|
1,553
|
1,879
|
(17)
|
2,727
|
3,285
|
(17)
|
1,756
|
1,748
|
-
|
||||||
|
Intermodal(b)
|
1,902
|
2,069
|
(8)
|
1,184
|
1,466
|
(19)
|
623
|
709
|
(12)
|
||||||
|
Other
|
-
|
-
|
-
|
255
|
255
|
-
|
-
|
-
|
-
|
||||||
|
Total
|
5,793
|
6,827
|
(15)
|
%
|
$9,041
|
$11,255
|
(20)
|
%
|
$1,561
|
$1,649
|
(5)
|
%
|
|||
Prior
periods have been reclassified to conform to the current
presentation.
2009
vs. 2008 Results of Operations
Volume
and Revenue
Revenue
decreased $2.2 billion, or 20%, to $9.0 billion from the prior year driven by a
15% 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 the 2009
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.
Merchandise
Agricultural
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.
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.
Industrial
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.
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. However, volume 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.
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.
Housing
and Construction
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.
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.
Intermodal
Volume
decline was driven 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.
Expense
Total
expenses for 2009 decreased 20% or $1.7 billion to $6.8 billion compared to the
prior year. Significant year-over-year changes are described
below.
Labor and Fringe expenses
decreased $326 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
decreased by $408 million in 2009. This decrease is driven by several
items:
|
·
|
Volume-related
expenses decreased as a result of lower operating costs at automotive
facilities and terminals. In addition, maintenance expenses
decreased as locomotives were placed into storage as a result of reduced
shipments during 2009. Lower travel costs for train crews and other
volume-related expenses also contributed to this
decrease.
|
|
·
|
As
safety and occupational claim trends have continued to improve, changes in
estimate were recorded in both years - $105 million in 2009 and $10
million in 2008. This resulted in a year-over-year reduction in casualty
expense of $95 million.
|
|
·
|
Prior
year storm and proxy-related items not repeated in the current year
accounted for approximately $74 million of this
decrease.
|
|
·
|
Improved
collections and a stabilizing economic environment caused a $25 million
decrease in bad debt expense.
|
|
·
|
The
decreases described above were partially offset by an increase in
inflation-related items in 2009.
|
Fuel expense
decreased $968 million primarily due to sharply lower fuel prices and lower
volume. Average fuel prices per gallon decreased $1.37 or 44% from
$3.08 in 2008 to $1.71 in 2009.
Depreciation expense
increased $3 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 expense
decreased $34 million mainly due to lower volume and fewer locomotive
leases.
Other
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. 2008 results
included a $30 million non-cash adjustment to correct equity earnings from a
non-consolidated subsidiary that was not repeated in 2009. Reduced
interest income as a result of lower average cash and investment balances also
contributed to this decrease. In addition, real estate sales declined
during 2009.
Income
Tax Expense
Income
tax expense decreased $229 million to $618 million primarily due to lower
earnings in 2009.
Net
Earnings
Net
earnings decreased $212 million to $1.1 billion and earnings per diluted share
decreased $0.43 to $2.89 in 2009. This decrease was primarily due to
the following factors:
|
·
|
Operating
income decreased $481 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 $229 million decrease in tax
expense.
|
LIQUIDITY AND CAPITAL RESOURCES
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 investments in infrastructure, dividend improvement and share
repurchases.
Total
assets increased $1.3 billion from the previous year. This was driven
by net properties which increased $735 million since December 2009 due to
planned capital expenditures. Other long-term assets increased $188 million as a
result of cash consideration paid in the exchange of debt securities (see Note
9, Debt and Credit Agreements). On the liability side, the Company
increased net debt by $656 million due to additional
borrowings. Deferred income tax liability also increased by $525
million due to the impact of accelerated depreciation and bonus depreciation.
Bonus depreciation increased from 50% to 100% due to legislative changes that
became effective in September 2010 and will continue in
2011. Finally, shareholders’ equity decreased $68 million as a result
of $1.5 billion of share repurchases since December 2009 which was offset by
increased earnings during 2010.
Sources
of Cash
The
Company has multiple sources of cash. First, the Company generates cash
from operations. In 2010, the Company generated $3.2 billion of cash from
operating activities which represented a $1.2 billion increase from the prior
year. This increase was primarily driven by higher earnings in 2010.
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. As of the date of this filing, the
Company has not drawn on this facility. See Note 9, Debt and Credit
Agreements for more information.
CSX filed
its shelf registration statement with the SEC in February
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.
Uses
of Cash
Net cash
used in investing activities during 2010 was driven by $1.8 billion of property
additions. Funds used for property additions are further described
below.
|
Fiscal
Years
|
|||
|
Capital Expenditures
(Dollars in
millions) (a)
|
2010
|
2009
|
2008
|
|
Track
|
$777
|
$748
|
$701
|
|
Bridges,
Signals and Other
|
475
|
363
|
401
|
|
Total
Infrastructure
|
1,252
|
1,111
|
1,102
|
|
Capacity
and Commercial Facilities
|
258
|
169
|
189
|
|
Locomotives
|
25
|
19
|
247
|
|
Freight
Cars
|
157
|
71
|
160
|
|
Regulatory
(including PTC)
|
133
|
57
|
21
|
|
Total
Property Additions
|
1,825
|
1,427
|
1,719
|
|
Cash
paid for new assets purchased using seller financing (b)
|
-
|
160
|
54
|
|
Total
Capital Expenditures
|
$1,825
|
$1,587
|
$1,773
|
|
|
(a)
Certain amounts have been adjusted for the retrospective change in
accounting policy for rail grinding, see Note 1, Nature of Operations and
Significant Accounting Policies.
|
|
|
(b)
Cash paid for new assets purchased using seller financing are included in
other financing activities on the consolidated cash flow
statements.
|
Among
other things, the Company uses cash for scheduled payments of debt and leases
and to pay dividends to shareholders. CSX paid dividends of $372
million in 2010, which was $27 million more than prior year. This
increase was primarily due to an increase in the quarterly dividend to $0.24 per
share at the beginning of 2010 and then to $0.26 in fourth quarter
2010. Net cash used in financing activities was $1.3 billion which
increased $920 million primarily as a result of $1.5 billion of share
repurchases offset by net debt in 2010.
Capital
spending programs are and have been designed to assure the ability to provide
safe, efficient and reliable transportation services. For 2011, CSX
plans to spend $2.0 billion of capital of which over half will be used to
sustain the core infrastructure. Approximately $260 million
(including PTC), or 13%, of 2011 total capital spending will be applied toward
the implementation of unfunded required regulatory projects. CSX
intends to fund these capital investments through cash generated from
operations. The remaining amounts will be allocated to locomotives,
freight cars and high return and growth or productivity investments such as the
new intermodal terminal located in Northwest Ohio.
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 its future estimates for capital spending 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 $1.3 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
2010, the Company issued $800 million of new long-term debt.
The
Company also has a $250 million receivables securitization facility with a
364-day term and expires in December 2011. The purpose of this
facility is to provide an alternative to commercial paper and a low cost source
of short-term liquidity. As of the date of this filing, the Company
has no outstanding balances drawn on this facility. Under the terms
of this facility, CSXT transfers eligible third-party receivables to CSX Trade
Receivables, a bankruptcy-remote special purpose subsidiary. A
separate subsidiary of CSX will service the receivables. Upon
transfer, the receivables become assets of CSX Trade Receivables and are not
available to the creditors of CSX or any of its other subsidiaries. In the event
CSX Trade Receivables draws under this facility, the Company will record an
equivalent amount of debt on its consolidated financial statements.
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 $318 million
and $705 million at December 2010 and 2009, respectively. The decline
since December 2009 is primarily due to a $500 million reclassification from
long-term debt to current maturities of long-term debt for amounts due within
the next twelve months.
The
Company’s working capital balance varies due to factors such as the timing of
scheduled debt payments and changes in cash and cash equivalent balances as
discussed above. Although the Company currently has a surplus, 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, the Company 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 at the
lower end of 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, a decline in CSX’s credit
ratings could adversely affect the market’s demand, and thus the Company’s
ability to readily issue new debt.
SCHEDULE OF CONTRACTUAL OBLIGATIONS AND
COMMERCIAL COMMITMENTS
The
following tables set forth maturities of the Company's contractual obligations
and other commitments:
|
Type
of Obligation
|
2011
|
2012
|
2013
|
2014
|
2015
|
Thereafter
|
Total
|
|
|
(Dollars
in Millions) (Unaudited)
|
||||||||
|
Contractual Obligations
|
||||||||
|
Long-term
Debt (See Note 9)
|
$613
|
$507
|
$780
|
$526
|
$628
|
$5,610
|
$8,664
|
|
|
Purchase
Obligations (See Note 7)
|
429
|
330
|
319
|
309
|
319
|
3,850
|
5,556
|
|
|
Operating
Leases - Net (See Note 7) (a)
|
77
|
67
|
38
|
21
|
21
|
154
|
378
|
|
|
Agreements
with Conrail (a)
|
2
|
3
|
3
|
4
|
1
|
1
|
14
|
|
|
Total
Contractual Obligations
|
$1,121
|
$907
|
$1,140
|
$860
|
$969
|
$9,615
|
$14,612
|
|
|
Other
Commitments(b)
|
$
125
|
$
-
|
$
-
|
$
-
|
$
-
|
$
-
|
$
125
|
|
|
(a)
|
Agreements
with Conrail represent minimum future lease payments of $14 million for
freight cars and locomotives (see Note 13, Related Party Transactions).
This amount plus total operating leases-net of $378 million above equals
total net lease commitments of $392 million disclosed in Note 7,
Commitments and Contingencies.
|
|
(b)
|
Other
commitments of $125 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.
|
OFF-BALANCE SHEET ARRANGEMENTS
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.
CRITICAL ACCOUNTING ESTIMATES
The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires that management make estimates
in reporting the amounts of certain assets and liabilities, the disclosure of
contingent assets and liabilities at the date of the financial statements and
certain revenues and expenses during the reporting period. Actual
results may differ from those estimates. These estimates and assumptions are
discussed with the Audit Committee of the Board of Directors on a regular
basis. Consistent with the prior year, significant estimates using
management judgment are made for the following areas:
|
·
|
casualty,
environmental and legal reserves;
|
|
·
|
pension
and post-retirement medical plan
accounting;
|
|
·
|
depreciation
policies for assets under the group-life method;
and
|
|
·
|
income taxes
|
Casualty,
Environmental and Legal Reserves
Casualty
Casualty
reserves represent accruals for personal injury, occupational injury claims and
asbestos. During 2010 the Company increased its self-insured
retention amount for these claims from $25 million to $50 million per injury for
claims occurring on or after June 1, 2010. Currently, no individual
claim is expected to exceed the Company’s self-insured retention
amount. 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.
As of
December 2010, the Company had $375 million in casualty reserves. See
below for details regarding changes in estimate for casualty
reserves.
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.
During
2010 and 2009, the Company reduced personal injury reserves by $24 million and
$84 million respectively. These reductions were based on management’s
review of the actuarial analysis performed by an independent actuarial
firm. In recent years, the Company has experienced a continued
downward trend in the number of injuries which has resulted in a continued
reduction of the CSXT’s Federal Railroad Administration (“FRA”) personal injury
rate. These reductions in reserves are a direct result of the
Company’s improvement in safety and were included in materials, supplies and
other in the consolidated income statements.
Occupational
& Asbestos
Occupational
claims arise from allegations of exposures to certain materials in the
workplace, such as solvents, soaps, chemicals (collectively referred to as
“irritants”) 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 is also party to a number of asbestos 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 these exposures were 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 to 40 years after exposure.
Critical Accounting Estimates,
continued
CSXT
retains a third-party specialist to assist management in assessing the value of
the Company’s occupational and asbestos 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 incurred but not
reported (“IBNR”) claims. With the exception of carpal tunnel,
management and third-party specialists have determined that seven years is the
most probable time period in which unasserted claim filings and claim values can
be estimated. Carpal tunnel claims use a three-year period to
estimate the reserve due to the shorter latency period for these types of
injuries.
The third
party specialist analyzes CSXT’s historical claim filings, settlement amounts,
and dismissal rates to determine future anticipated claim filing rates and
average settlement values. The potentially exposed population is
estimated by using CSX employment records and industry data from the Railroad
Retirement 2009 report. From this analysis, the specialist provides
an estimate of the IBNR claims liability.
The
estimated future filing rates and estimated average claim values are the most
sensitive assumptions for this reserve. A 1% increase or decrease in
either the forecasted number of occupational and asbestos IBNR claims or the
average claim values would result in approximately a $1 million increase or
decrease in the liability recorded for unasserted occupational and asbestos
claims.
During
2010 and 2009, the Company reduced occupational reserves by $12 million and $19
million respectively. The 2010 reduction is primarily attributable to
a decrease in the number of repetitive stress injury claims and lower settlement
values for irritant claims. The 2009 reduction is attributable to a
decrease in the number of carpal tunnel and repetitive stress injury
claims. This reduction was included in materials, supplies and other
in the consolidated income statements.
During
2010 and 2009, the Company reduced its reserves for asbestos claims by $13
million and $24 million, respectively. The 2010 reduction was
primarily related to some claims that were determined to have no value due to
lack of sufficient medical evidence as well as a decrease in the estimate of
future claim filings. The 2009 reduction was also primarily related
to a significant number of claims that were determined to have no value due to
lack of sufficient medical evidence. These reductions in reserves
were included in materials, supplies and other in the consolidated income
statements.
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 247 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, recycling 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.
|
As of
December 2010, the Company had $107 million in environmental
reserves. These recorded liabilities for estimated future
environmental costs are undiscounted and include future costs for remediation
and restoration of sites as well as any significant ongoing monitoring costs,
but exclude any anticipated insurance recoveries. 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. 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 additional 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. As of December 2010, the projected benefit obligation
for the Company’s pension plans was $2.5 billion. CSX made pension plan
contributions of $250 million to its qualified defined benefit pension plans in
2009 and none in 2010.
In
addition to these plans, the Company sponsors a self-insured post-retirement
medical plan and a life insurance plan that provide benefits to full-time,
salaried, management employees, hired prior to January 1, 2003, upon their
retirement if certain eligibility requirements are met. Prior to 2011, the
post-retirement medical plan was partially funded by all participating retirees,
with retiree contributions adjusted annually. Beginning in 2011,
Medicare-eligible retirees will be covered by a health reimbursement
arrangement, which is an employer-funded account that can be used for
reimbursement of eligible medical expenses. Non-Medicare eligible retirees will
continue to be covered by the existing self-insured program. The life
insurance plan is non-contributory.
Critical Accounting Estimates,
continued
For
information related to the funded status of the Company’s pension and other
post-retirement benefit plans, see Note 8, Employee Benefit Plans.
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:
|
·
|
discount
rates used to measure future obligations and interest
expense;
|
|
·
|
long-term
rate of return on plan assets;
|
|
·
|
salary
scale inflation rates;
|
|
·
|
health
care cost trend rates; and
|
|
·
|
other
assumptions.
|
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 discount, long-term rate
of return, 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.
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 2010 pension and post-retirement
obligations are 5.0% and 4.5%, respectively. For 2009, the
discount rate used by the company to value its pension and post-retirement
obligations was 5.25% and 4.75%, respectively. 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
2010, 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.
Critical Accounting Estimates,
continued
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 as well as 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 pension obligation was 8.25% and 8.5% in
2010 and 2009, respectively.
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% to value its 2010 and 2009 pension obligations.
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
2010 and 2009 assumed health care cost trend rate for benefit obligations was
8.5% for non-Medicare-eligible participants and 8.0% for Medicare-eligible
participants which is expected to decrease gradually until reaching 5% in 2018,
based upon current actuarial projections. However, the year-to-year
comparisons may fluctuate.
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.
Critical Accounting Estimates,
continued
2011
Estimated Pension and Post-retirement Expense
Net
pension and post-retirement benefits expense for 2011 is expected to be
approximately $75 million and $26 million, respectively, compared to $54 million
and $32 million, respectively, in 2010. The increase in the pension
expense is primarily related to additional amortization of the losses incurred
by the pension plan assets during 2008 and the decrease in the discount rate
(which causes expense to increase).
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 1% decrease
|
$
|
23
|
$
|
1
|
|
Discount
Rate 1% increase
|
$
|
(22)
|
$
|
(1)
|
|
Long-term
Rate of Return 1% decrease
|
$
|
19
|
N/A
|
|
|
Long-term
Rate of Return 1% increase
|
$
|
(19)
|
N/A
|
|
|
Salary
Inflation 1% decrease
|
$
|
(9)
|
N/A
|
|
|
Salary
Inflation 1% increase
|
$
|
10
|
N/A
|
|
|
Health
Care Cost 1% change
|
N/A
|
$
|
0
|
|
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 87% of total fixed assets
of $32 billion on a gross basis at December 2010. 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 130 different depreciable asset categories
to account for depreciation expense for the railroad assets that are depreciated
under the group-life method of accounting. 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 the
group-life method of accounting, 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 specialist, 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 $947
million and $903 million for 2010 and 2009, 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 $11 million in 2010 and $18 million in
2009.
Income
Taxes
CSX
accounts for income taxes in accordance with the Income Taxes Topic in the ASC
that addresses 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.
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 2008. The federal income tax return for 2009
currently is under review. During 2010, the Company participated in a
contemporaneous Internal Revenue Service (“IRS”) audit of tax year
2010. 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. As of December 2010, the Company’s uncertain tax
positions were $20 million.
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.”
Item 7A. Quantitative and Qualitative Disclosures
about Market Risk
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 2010,
the Company had $10 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 2010, CSX had $67 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.
|
INDEX TO CONSOLIDATED FINANCIAL
STATEMENTS
|
||
|
Page
|
||
|
Report
of Independent Registered Public Accounting Firm
|
60
|
|
|
CSX
Corporation
|
||
|
Consolidated
Financial Statements and Notes to Consolidated Financial
Statements
|
||
|
Herewith:
|
||
|
|
||
|
Consolidated
Income Statements for the Fiscal Years Ended:
|
61
|
|
|
December
31, 2010
|
||
|
December
25, 2009
|
||
|
December
26, 2008
|
||
|
Consolidated
Balance Sheets as of:
|
62
|
|
|
December
31, 2010
|
||
|
December
25, 2009
|
||
|
Consolidated
Cash Flow Statements for Fiscal Years Ended:
|
63
|
|
|
December
31, 2010
|
||
|
December
25, 2009
|
||
|
December
26, 2008
|
||
|
Consolidated
Statements of Changes in Shareholders' Equity:.
|
64
|
|
|
December
31, 2010
|
||
|
December
25, 2009
|
||
|
December
26, 2008
|
||
|
Notes
to Consolidated Financial Statements
|
65
|
|
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 as of
December 31, 2010 and December 25, 2009, 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 31, 2010. 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 at
December 31, 2010 and December 25, 2009, and the consolidated results of its
operations and its cash flows for each of the three fiscal years in the period
ended December 31, 2010, 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 31, 2010, 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 18, 2011
expressed an unqualified opinion thereon.
/s/ Ernst & Young
LLP
Certified
Public Accountants
Jacksonville,
Florida
February
18, 2011
CONSOLIDATED
INCOME STATEMENTS
(Dollars
in Millions, Except Per Share Amounts)
|
Fiscal
Years
|
||||||
|
2010
|
2009
|
2008
|
||||
|
(Adjusted)
(a)
|
(Adjusted)
(a)
|
|||||
|
Revenue
|
$10,636
|
$9,041
|
$11,255
|
|||
|
Expense
|
||||||
|
Labor
and Fringe
|
2,957
|
2,629
|
2,955
|
|||
|
Materials,
Supplies and Other
|
2,075
|
1,999
|
2,407
|
|||
|
Fuel
|
1,212
|
849
|
1,817
|
|||
|
Depreciation
|
947
|
903
|
900
|
|||
|
Equipment
and Other Rents
|
374
|
391
|
425
|
|||
|
Total
Expense
|
7,565
|
6,771
|
8,504
|
|||
|
Operating
Income
|
3,071
|
2,270
|
2,751
|
|||
|
Interest
Expense
|
(557)
|
(558)
|
(519)
|
|||
|
Other
Income - Net (Note 10)
|
32
|
34
|
100
|
|||
|
Earnings
From Continuing Operations
|
||||||
|
Before
Income Taxes
|
2,546
|
1,746
|
2,332
|
|||
|
Income
Tax Expense (Note 12)
|
(983)
|
(618)
|
(847)
|
|||
|
Earnings
From Continuing Operations
|
1,563
|
1,128
|
1,485
|
|||
|
Discontinued
Operations (Note 14)
|
-
|
15
|
(130)
|
|||
|
Net
Earnings
|
$1,563
|
$1,143
|
$1,355
|
|||
|
Per
Common Share (Note 2)
|
||||||
|
Net
Earnings Per Share, Basic
|
||||||
|
Continuing
Operations
|
$4.10
|
$2.88
|
$3.71
|
|||
|
Discontinued
Operations
|
-
|
0.04
|
(0.32)
|
|||
|
Net
Earnings
|
$4.10
|
$2.92
|
$3.39
|
|||
|
Net
Earnings Per Common Share, Assuming Dilution
|
||||||
|
Continuing
Operations
|
$4.06
|
$2.85
|
$3.64
|
|||
|
Discontinued
Operations
|
-
|
0.04
|
(0.32)
|
|||
|
Net
Earnings
|
$4.06
|
$2.89
|
$3.32
|
|||
|
Average
Common Shares Outstanding (Thousands)
|
381,108
|
392,127
|
400,740
|
|||
|
Average
Common Shares Outstanding,
|
384,509
|
395,686
|
408,620
|
|||
|
Assuming
Dilution (Thousands)
|
||||||
|
Cash
Dividends Paid Per Common Share
|
$0.98
|
$0.88
|
$0.77
|
|||
|
(a)
|
Certain
amounts have been adjusted for the retrospective change in accounting
policy for rail grinding, see Note 1, Nature of Operations and Significant
Accounting Policies.
|
See accompanying Notes to Consolidated
Financial Statements
CONSOLIDATED BALANCE
SHEETS
(Dollars
in Millions)
|
December
|
December
|
||
|
2010
|
2009
|
||
|
(Adjusted) (a)
|
|||
|
ASSETS
|
|||
|
Current
Assets:
|
|||
|
Cash
and Cash Equivalents (Note 1)
|
$1,292
|
$1,029
|
|
|
Short-term
Investments
|
54
|
61
|
|
|
Accounts
Receivable - Net (Note 1)
|
993
|
995
|
|
|
Materials
and Supplies
|
218
|
203
|
|
|
Deferred
Income Taxes
|
192
|
158
|
|
|
Other
Current Assets
|
106
|
124
|
|
|
Total
Current Assets
|
2,855
|
2,570
|
|
|
Properties
|
32,065
|
30,907
|
|
|
Accumulated
Depreciation
|
(8,266)
|
(7,843)
|
|
|
Properties
- Net (Note 6)
|
23,799
|
23,064
|
|
|
Investment
in Conrail (Note 13)
|
673
|
650
|
|
|
Affiliates
and Other Companies
|
461
|
438
|
|
|
Other
Long-term Assets (Note 11)
|
353
|
165
|
|
|
Total
Assets
|
$28,141
|
$26,887
|
|
|
LIABILITIES
AND SHAREHOLDERS' EQUITY
|
|||
|
Current
Liabilities:
|
|||
|
Accounts
Payable
|
$1,046
|
$967
|
|
|
Labor
and Fringe Benefits Payable
|
520
|
383
|
|
|
Casualty,
Environmental and Other Reserves (Note 5)
|
176
|
190
|
|
|
Current
Maturities of Long-term Debt (Note 9)
|
613
|
113
|
|
|
Income
and Other Taxes Payable
|
85
|
112
|
|
|
Other
Current Liabilities
|
97
|
100
|
|
|
Total
Current Liabilities
|
2,537
|
1,865
|
|
|
Casualty,
Environmental and Other Reserves (Note 5)
|
502
|
547
|
|
|
Long-term
Debt (Note 9)
|
8,051
|
7,895
|
|
|
Deferred
Income Taxes (Note 12)
|
7,053
|
6,528
|
|
|
Other
Long-term Liabilities (Note 11)
|
1,298
|
1,284
|
|
|
Total
Liabilities
|
19,441
|
18,119
|
|
|
Shareholders'
Equity:
|
|||
|
Common
Stock, $1 Par Value (Note 3)
|
370
|
393
|
|
|
Other
Capital
|
-
|
80
|
|
|
Retained
Earnings (Note 1)
|
9,087
|
9,090
|
|
|
Accumulated
Other Comprehensive Loss (Note 1)
|
(771)
|
(809)
|
|
|
Noncontrolling
Minority Interest
|
14
|
14
|
|
|
Total
Shareholders' Equity
|
8,700
|
8,768
|
|
|
Total
Liabilities and Shareholders' Equity
|
$28,141
|
$26,887
|
|
|
(a)
|
Certain
amounts have been adjusted for the retrospective change in accounting
policy for rail grinding, see Note 1, Nature of Operations and Significant
Accounting Policies
|
See accompanying Notes to Consolidated
Financial Statements
CONSOLIDATED
CASH FLOW STATEMENTS
(Dollars
in Millions)
|
Fiscal
Years
|
|||||||
|
2010
|
2009
|
2008
|
|||||
|
(Adjusted) (a)
|
(Adjusted) (a)
|
||||||
|
OPERATING
ACTIVITIES
|
|||||||
|
Net
Earnings
|
$1,563
|
$1,143
|
$1,355
|
||||
|
Adjustments
to Reconcile Net Earnings to Net Cash Provided
|
|||||||
|
by
Operating Activities:
|
|||||||
|
Depreciation
|
947
|
903
|
914
|
||||
|
Deferred
Income Taxes
|
474
|
430
|
428
|
||||
|
Non-cash
Discontinued Operations (Note 14)
|
-
|
-
|
166
|
||||
|
Contributions
to Qualified Pension Plans (Note 8)
|
-
|
(250)
|
(102)
|
||||
|
Other
Operating Activities
|
52
|
(182)
|
65
|
||||
|
Changes
in Operating Assets and Liabilities:
|
|||||||
|
Accounts
Receivable
|
2
|
92
|
74
|
||||
|
Other
Current Assets
|
(22)
|
28
|
37
|
||||
|
Accounts
Payable
|
79
|
(4)
|
(3)
|
||||
|
Income
and Other Taxes Payable
|
28
|
(9)
|
(46)
|
||||
|
Other
Current Liabilities
|
123
|
(111)
|
5
|
||||
|
Net
Cash Provided by Operating Activities
|
3,246
|
2,040
|
2,893
|
||||
|
INVESTING
ACTIVITIES
|
|||||||
|
Property
Additions
|
(1,825)
|
(1,427)
|
(1,719)
|
||||
|
Purchases
of Short-term Investments
|
-
|
-
|
(25)
|
||||
|
Proceeds
from Sales of Short-term Investments
|
-
|
-
|
280
|
||||
|
Other
Investing Activities
|
69
|
54
|
36
|
||||
|
Net
Cash Used in Investing Activities
|
(1,756)
|
(1,373)
|
(1,428)
|
||||
|
FINANCING
ACTIVITIES
|
|||||||
|
Long-term
Debt Issued (Note 9)
|
800
|
500
|
1,351
|
||||
|
Long-term
Debt Repaid (Note 9)
|
(113)
|
(323)
|
(642)
|
||||
|
Dividends
Paid
|
(372)
|
(345)
|
(308)
|
||||
|
Stock
Options Exercised (Note 4)
|
42
|
34
|
83
|
||||
|
Shares
Repurchased
|
(1,452)
|
-
|
(1,570)
|
||||
|
Other
Financing Activities
|
(132)
|
(173)
|
(78)
|
||||
|
Net
Cash Used in Financing Activities
|
(1,227)
|
(307)
|
(1,164)
|
||||
|
Net
Increase in Cash and Cash Equivalents
|
263
|
360
|
301
|
||||
|
CASH
AND CASH EQUIVALENTS
|
|||||||
|
Cash
and Cash Equivalents at Beginning of Period
|
1,029
|
669
|
368
|
||||
|
Cash
and Cash Equivalents at End of Period
|
$1,292
|
$1,029
|
$669
|
||||
|
SUPPLEMENTAL
CASH FLOW INFORMATION
|
|||||||
|
Interest
Paid - Net of Amounts Capitalized
|
$564
|
$560
|
$509
|
||||
|
Income
Taxes Paid
|
$421
|
$201
|
$276
|
||||
(a) Certain
amounts have been adjusted for the retrospective change in accounting policy for
rail grinding, see Note 1, Nature of Operations and Significant Accounting
Policies
See
accompanying Notes to Consolidated Financial Statements
CONSOLIDATED
STATEMENTS OF CHANGES
IN
SHAREHOLDERS’ EQUITY (a)
(Dollars
in Millions)
|
Common Shares Outstanding
(Thousands)
|
Common
Stock and Paid-in Capital
|
Retained
Earnings(b)
|
Accumulated
Other
Comprehensive
Income
(Loss) (c)
|
Noncontrolling
Interest
|
Total
Shareholders' Equity
|
|||
|
Balance
December 28, 2007
|
407,864
|
$445
|
$8,492
|
$(325)
|
$21
|
$8,633
|
||
|
Comprehensive
Earnings:
|
||||||||
|
Net
Earnings
|
-
|
-
|
1,355
|
-
|
-
|
1,355
|
||
|
Other
Comprehensive Loss
|
-
|
-
|
-
|
(416)
|
-
|
(416)
|
||
|
Total
Comprehensive Earnings
|
939
|
|||||||
|
Common
stock dividends, $0.77 per share
|
-
|
-
|
(308)
|
-
|
(1)
|
(309)
|
||
|
Share
Repurchases
|
(28,486)
|
(359)
|
(1,211)
|
-
|
-
|
(1,570)
|
||
|
Bond
Conversions (Notes 2 and 9)
|
5,042
|
121
|
-
|
-
|
-
|
121
|
||
|
Adjustment
for Compensation
-
|
-
|
|||||||
|
Retirement Benefits Topic
in ASC
|
-
|
-
|
(13)
|
-
|
-
|
(13)
|
||
|
Stock
Option Exercises and Other
|
6,106
|
184
|
-
|
-
|
-
|
184
|
||
|
Balance
December 26, 2008
|
390,526
|
391
|
8,315
|
(741)
|
20
|
7,985
|
||
|
Comprehensive
Earnings:
|
||||||||
|
Net
Earnings
|
-
|
-
|
1,143
|
-
|
-
|
1,143
|
||
|
Other
Comprehensive Loss
|
-
|
-
|
-
|
(68)
|
-
|
(68)
|
||
|
Total
Comprehensive Earnings
|
1,075
|
|||||||
|
Common
stock dividends, $0.88 per share
|
-
|
-
|
(345)
|
-
|
(1)
|
(346)
|
||
|
Bond
Conversions (Notes 2 and 9)
|
22
|
1
|
-
|
-
|
-
|
1
|
||
|
Stock
Option Exercises and Other
|
2,912
|
81
|
(23)
|
-
|
(5)
|
53
|
||
|
Balance
December 25, 2009
|
393,460
|
473
|
9,090
|
(809)
|
14
|
8,768
|
||
|
Comprehensive
Earnings:
|
||||||||
|
Net
Earnings
|
-
|
-
|
1,563
|
-
|
-
|
1,563
|
||
|
Other
Comprehensive Income
|
-
|
-
|
-
|
39
|
-
|
39
|
||
|
Total
Comprehensive Earnings
|
1,602
|
|||||||
|
Common
stock dividends, $0.98 per share
|
-
|
-
|
(372)
|
-
|
-
|
(372)
|
||
|
Share
Repurchases
|
(26,677)
|
(255)
|
(1,197)
|
-
|
-
|
(1,452)
|
||
|
Bond
Conversions (Notes 2 and 9)
|
737
|
19
|
-
|
-
|
-
|
19
|
||
|
Stock
Option Exercises and Other
|
2,822
|
133
|
3
|
(1)
|
-
|
135
|
||
|
Balance
December 31, 2010
|
370,342
|
$370
|
$9,087
|
$(771)
|
$14
|
$8,700
|
||
(a)
CSX follows a 52/53 week fiscal reporting calendar which allows every year to
consistently end on a Friday. Fiscal years 2010, 2009, 2008 and 2007 ended on
December 31, 2010, December 25, 2009, December 26, 2008 and December 28,
2007. See Note 1, Nature of Operations and Significant Accounting
Policies for additional information.
(b)Retained
Earnings - Certain amounts have been adjusted for the retrospective change in
accounting policy for rail grinding, see Note 1, Nature of Operations
and Significant Accounting Policies.
(c)
Accumulated Other Comprehensive Loss includes changes in pension and other
postretirement benefit adjustments. These year-end balances shown
above are net of tax. The associated taxes were $375 million, $426
million and $413 million for 2008, 2009 and 2010, respectively.
See
accompanying Notes to Consolidated Financial Statements
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE
1. Nature of Operations and Significant Accounting
Policies
Business
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 provides rail-based transportation services
including traditional rail service and the transport of intermodal containers
and trailers.
CSX
Transportation, Inc.
CSX’s
principal operating subsidiary, CSX Transportation, Inc. (“CSXT”), provides an
important link to the transportation supply chain through its approximately
21,000 route mile rail network, which serves major population centers in 23
states east of the Mississippi River, the District of Columbia and the Canadian
provinces of Ontario and Quebec. 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 approximately 240
short-line and regional railroads.
Lines
of Business
During
2010, CSXT’s transportation services generated $10.6 billion of revenue and
served three primary lines of business:
|
·
|
The
merchandise business shipped nearly 2.6 million carloads and generated
approximately 54% of revenue and 40% of volume in 2010. The Company’s
merchandise business is the most diverse market and transports aggregates
(which includes crushed stone, sand and gravel), metal, phosphate,
fertilizer, food, consumer (manufactured goods and appliances),
agricultural, automotive, paper and chemical
products.
|
|
·
|
The
coal business shipped 1.6 million carloads and accounted for 31% of
revenue and 25% of volume in 2010. The Company transports
utility, industrial and export coal to electricity-generating power
plants, steel manufacturers, industrial plants and deep-water port
facilities. Roughly three of every four tons of domestic coal
and almost half of the export coal that the Company transports is used for
generating electricity.
|
NOTE 1. Nature of
Operations and Significant Accounting Policies, continued
|
·
|
The
intermodal business accounted for approximately 12% of revenue and 35% of
volume in 2010. The intermodal line of business combines the superior
economics of rail transportation with the short-haul flexibility of trucks
and offers a competitive cost advantage over long-haul trucking.
Through its network of more than 50 terminals, the intermodal business
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.
|
Other
revenue accounted for 3% of the Company’s total revenue in 2010. This
revenue category includes revenue from regional subsidiary railroads, demurrage,
revenue for customer volume commitments not met, switching and other incidental
charges, 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
Entities
In
addition to CSXT, the Company’s subsidiaries include CSX Intermodal Terminals,
Inc. (“CSX Intermodal Terminals”), Total Distribution Services, Inc. (“TDSI”),
Transflo Terminal Services, Inc. (“Transflo”), CSX Technology, Inc. (“CSX
Technology”) and other subsidiaries. CSX Intermodal Terminals owns and
operates a system of intermodal terminals, predominantly in the eastern United
States and arranges delivery of intermodal shipments for certain CSXT
customers. TDSI serves the automotive industry with distribution
centers and storage locations, while Transflo provides logistical solutions for
transferring products from rail to trucks. CSX Technology and other
subsidiaries provide support services for the Company.
CSX’s
other holdings include CSX Real Property, Inc., a subsidiary responsible for the
Company’s real estate sales, leasing, acquisition and management and development
activities. These activities are classified in other income because they
are not considered by the Company to be operating activities. Results
of these activities fluctuate with the timing of non-operating real estate
sales.
CSX
Intermodal, Inc. (“Intermodal”) was a subsidiary of CSX until it merged with
CSXT during 2010. Prior to the merger, Intermodal was the parent company
of CSX Intermodal Terminals, and conducted the sales and marketing activities
associated with intermodal transportation service now provided by CSXT. In
addition, Intermodal performed drayage services (the pickup and delivery of
intermodal shipments and trucking dispatch operations) which are now provided by
CSX Intermodal Terminals.
NOTE 1. Nature of
Operations and Significant Accounting Policies, continued
The
Company no longer reflects the intermodal business as a separate
segment. This change was a result of the strategic business review
and change in the Company’s intermodal service associated with the start of the
UMAX program as well as certain management realignments. The UMAX program, which
began during 2010, is a domestic interline container program. CSX’s
president views intermodal similarly to merchandise and
coal. Intermodal revenue will continue to be viewed as a separate
revenue group; however, a separate income statement and operating ratio are no
longer prepared and business segment disclosures are no longer
required. All prior period disclosures have been revised to reflect
this change.
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 2010 and December
2009, and the consolidated statements of income, cash flows and changes in
shareholders’ equity for fiscal years 2010, 2009 and 2008.
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 typically, to be of
equal duration (13 weeks), resulting in a 52 week fiscal year. To
maintain this type of reporting calendar every fifth or sixth 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. This extra week was added to fourth
quarter 2010. Therefore, the fiscal fourth quarter 2010 consisted of
14 weeks and fiscal year 2010 consisted of 53 weeks ending on December
31.
Fiscal
years 2009 and 2008 each consisted of 52 weeks ending on December 25, 2009 and
December 26, 2008 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, government reimbursement receivables, 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 $38 million
and $47 million is included in the consolidated balance sheets as of December
2010 and December 2009, respectively.
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;
|
|
·
|
adjustments
to revenue for billing corrections, billing discounts and bad debts or to
accounts receivable for allowances for doubtful
accounts;
|
NOTE 1. Nature of
Operations and Significant Accounting Policies, continued
|
·
|
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;
|
|
·
|
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);
and
|
|
·
|
revenue
for customer volume commitments not
met.
|
The
Company regularly updates the estimates described above based on historical
experience and current conditions. 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 represent
the activity for a period net of tax and were $1.6 billion, $1.1 billion and
$939 million for 2010, 2009 and 2008, 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 $771 million, $809 million and $741 million as of
December 2010, 2009 and 2008, respectively. (See Note 8, Employee
Benefit Plans).
NOTE 1. Nature of
Operations and Significant Accounting Policies, continued
New
Accounting Pronouncements and Changes in Accounting Policy
Effective
in the second quarter of 2010, CSX changed the accounting policy for rail
grinding costs from a capitalization method, under which the cost of rail
grinding was capitalized and then depreciated, to a direct expense method, under
which rail grinding costs are expensed as incurred. This represents a change
from an acceptable method under GAAP to a preferable method, and is consistent
with recent changes in industry practice.
The
direct expense method eliminates the subjectivity in determining the period of
benefit over which to depreciate the capitalized costs associated with rail
grinding. The application of the change in accounting policy is presented
retrospectively to all periods presented.
The
balance sheet effects of the adjustments as of the beginning of fiscal year 2008
resulted in a decrease in net properties, deferred income taxes, and
shareholders’ equity by $117 million, $44 million, and $73 million,
respectively. The tables on the following pages show the effects of the
change in policy for rail grinding costs on the consolidated financial
statements. The effect of this change is not material to the
financial condition, results of operations or liquidity for any of the periods
presented.
NOTE 1. Nature of Operations and Significant
Accounting Policies, continued
The
following tables show the effects of the change in policy for rail grinding
costs on the consolidated financial statements. The Accounting Changes and Error
Corrections Topic in the ASC requires CSX to present both prior period
amounts that have been previously reported as well as current period amounts as
computed under both the prior method and as reported.
|
Dollars
in Millions, Except Per Share Amounts
|
2010
|
2009
|
||||||
|
Consolidated
Income Statements
|
Computed
under Prior Method
|
Impact
of Adjustment
|
As
Reported
|
Computed
under Prior Method
|
Impact
of Adjustment
|
As
Reported
|
||
|
Materials,
Supplies and Other (a)
|
$2,055
|
$20
|
$2,075
|
$1,979
|
$20
|
$1,999
|
||
|
Depreciation
|
952
|
(5)
|
947
|
908
|
(5)
|
903
|
||
|
Total
Expense
|
7,550
|
15
|
7,565
|
6,756
|
15
|
6,771
|
||
|
Operating
Income
|
3,086
|
(15)
|
3,071
|
2,285
|
(15)
|
2,270
|
||
|
Earnings
from Continuing Operations
|
||||||||
|
Before
Taxes
|
2,561
|
(15)
|
2,546
|
1,761
|
(15)
|
1,746
|
||
|
Income
Tax Expense
|
(989)
|
6
|
(983)
|
(624)
|
6
|
(618)
|
||
|
Earnings
from Continuing Operations
|
1,572
|
(9)
|
1,563
|
1,137
|
(9)
|
1,128
|
||
|
Net
Earnings
|
1,572
|
(9)
|
1,563
|
1,152
|
(9)
|
1,143
|
||
|
Net
Earnings Per Share, Basic
|
||||||||
|
Continuing
Operations
|
$4.12
|
$(0.02)
|
$4.10
|
$2.90
|
$(0.02)
|
$2.88
|
||
|
Net
Earnings
|
$4.12
|
$(0.02)
|
$4.10
|
$2.94
|
$(0.02)
|
$2.92
|
||
|
Net
Earnings Per Share, Assuming Dilution
|
||||||||
|
Continuing
Operations
|
$4.08
|
$(0.02)
|
$4.06
|
$2.87
|
$(0.02)
|
$2.85
|
||
|
Net
Earnings
|
$4.08
|
$(0.02)
|
$4.06
|
$2.91
|
$(0.02)
|
$2.89
|
||
|
Dollars
in Millions, Except Per Share Amounts
|
2008
|
|||||||
|
Consolidated
Income Statements
|
Computed
under Prior Method
|
Impact
of Adjustment
|
As
Reported
|
|||||
|
Materials,
Supplies and Other (a)
|
$2,386
|
$21
|
$2,407
|
|||||
|
Depreciation
|
904
|
(4)
|
900
|
|||||
|
Total
Expense
|
8,487
|
17
|
8,504
|
|||||
|
Operating
Income
|
2,768
|
(17)
|
2,751
|
|||||
|
Earnings
from Continuing Operations
|
||||||||
|
Before
Taxes
|
2,349
|
(17)
|
2,332
|
|||||
|
Income
Tax Expense
|
(854)
|
7
|
(847)
|
|||||
|
Earnings
from Continuing Operations
|
1,495
|
(10)
|
1,485
|
|||||
|
Net
Earnings
|
1,365
|
(10)
|
1,355
|
|||||
|
Net
Earnings Per Share, Basic
|
||||||||
|
Continuing
Operations
|
$3.73
|
$(0.02)
|
$3.71
|
|||||
|
Net
Earnings
|
$3.41
|
$(0.02)
|
$3.39
|
|||||
|
Net
Earnings Per Share, Assuming Dilution
|
||||||||
|
Continuing
Operations
|
$3.66
|
$(0.02)
|
$3.64
|
|||||
|
Net
Earnings
|
$3.34
|
$(0.02)
|
$3.32
|
|||||
(a) Materials, supplies and
other expense now includes amounts paid to other transportation companies that
were previously reported in inland transportation
expense.
NOTE 1. Nature of
Operations and Significant Accounting Policies, continued
|
Dollars
in Millions
|
2010
|
2009
|
||||||
|
Consolidated
Balance Sheets
|
Computed
under Prior Method
|
Impact
of Adjustment
|
As
Reported
|
As
Previously Reported
|
Impact
of Adjustment
|
As
Adjusted
|
||
|
Properties
- Net
|
$23,962
|
$(163)
|
$23,799
|
$23,213
|
$(149)
|
$23,064
|
||
|
Total
Assets
|
28,304
|
(163)
|
28,141
|
27,036
|
(149)
|
26,887
|
||
|
Deferred
Income Taxes
|
7,115
|
(62)
|
7,053
|
6,585
|
(57)
|
6,528
|
||
|
Total
Liabilities
|
19,503
|
(62)
|
19,441
|
18,176
|
(57)
|
18,119
|
||
|
Retained
Earnings
|
9,188
|
(101)
|
9,087
|
9,182
|
(92)
|
9,090
|
||
|
Total
Shareholders' Equity
|
8,801
|
(101)
|
8,700
|
8,860
|
(92)
|
8,768
|
||
|
Total
Liabilities and Shareholders' Equity
|
28,304
|
(163)
|
28,141
|
27,036
|
(149)
|
26,887
|
||
|
Consolidated
Cash Flow Statements
|
||||||||
|
Net
Earnings
|
$1,572
|
$(9)
|
$1,563
|
$1,152
|
$(9)
|
$1,143
|
||
|
Depreciation
|
952
|
(5)
|
947
|
908
|
(5)
|
903
|
||
|
Deferred
Income Taxes
|
480
|
(6)
|
474
|
436
|
(6)
|
430
|
||
|
Net
Cash Provided by Operating Activities
|
3,266
|
(20)
|
3,246
|
2,060
|
(20)
|
2,040
|
||
|
Property
Additions
|
(1,845)
|
20
|
(1,825)
|
(1,447)
|
20
|
(1,427)
|
||
|
Net
Cash Used in Investing Activities
|
(1,776)
|
20
|
(1,756)
|
(1,393)
|
20
|
(1,373)
|
||
|
2008
|
||||||||
|
Consolidated
Cash Flow Statements
|
As
Previously Reported
|
Impact
of Adjustment
|
As
Adjusted
|
|||||
|
Net
Earnings
|
$1,365
|
$(10)
|
$1,355
|
|||||
|
Depreciation
|
918
|
(4)
|
914
|
|||||
|
Deferred
Income Taxes
|
435
|
(7)
|
428
|
|||||
|
Net
Cash Provided by Operating Activities
|
2,914
|
(21)
|
2,893
|
|||||
|
Property
Additions
|
(1,740)
|
21
|
(1,719)
|
|||||
|
Net
Cash Used in Investing Activities
|
(1,449)
|
21
|
(1,428)
|
|||||
|
Dollars
in Millions
|
2008
|
2007
|
||||||
|
Statement
of Changes in Shareholders' Equity
|
As
Previously Reported
|
Impact
of Adjustment
|
As
Adjusted
|
As
Previously Reported
|
Impact
of Adjustment
|
As
Adjusted
|
||
|
Retained
Earnings
|
$8,398
|
$(83)
|
$8,315
|
$8,565
|
$(73)
|
$8,492
|
||
NOTE 1. Nature of
Operations and Significant Accounting Policies, continued
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).
|
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
|
||||
|
2010
|
2009
|
2008
|
||
|
Numerator
(Dollars in
Millions):
|
(Adjusted)
(a)
|
(Adjusted)
(a)
|
||
|
Earnings
from Continuing Operations
|
$1,563
|
$1,128
|
$1,485
|
|
|
Interest
Expense on Convertible Debt - Net of Tax
|
-
|
-
|
1
|
|
|
Net
Earnings from Continuing Operations, If Converted
|
1,563
|
1,128
|
1,486
|
|
|
Denominator
(Units in
Thousands):
|
||||
|
Average
Common Shares Outstanding
|
381,108
|
392,127
|
400,740
|
|
|
Other
Potentially Dilutive Common Shares (b)
|
3,401
|
3,559
|
7,880
|
|
|
Average
Common Shares Outstanding, Assuming Dilution
|
384,509
|
395,686
|
408,620
|
|
|
Earnings
Per Share, Continuing Operations, Basic
|
$4.10
|
$2.88
|
$3.71
|
|
|
Earnings
Per Share, Continuing Operations, Assuming Dilution
|
$4.06
|
$2.85
|
$3.64
|
|
|
|
(a) Certain
amounts have been adjusted for the retrospective change in accounting
policy for rail grinding, see Note 1, Nature of Operations and
Significant Accounting Policies.
|
|
|
(b) Other
potentially dilutive common shares includes convertible debt, stock
options common stock equivalents and other potentially dilutive common
shares.
|
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 2010 and 2009, $21 million and, $629 thousand respectively, of face value
convertible debentures were converted into approximately 737 thousand shares and
22 thousand shares of CSX common stock, respectively. As of December
2010, approximately $10 million of convertible debentures at face value remained
outstanding, which are convertible into 359 thousand shares of CSX common
stock.
NOTE
3. Shareholders’ Equity
Common
and preferred stock consists of the following:
|
December
31,
|
||
|
Common
Stock, $1 Par Value
|
2010
|
|
|
(Units
in Thousands)
|
||
|
Common
Shares Authorized
|
600,000
|
|
|
Common
Shares Issued and Outstanding
|
370,342
|
|
|
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
Under CSX
share-based compensation plans, awards primarily consist of performance grants,
restricted stock awards, restricted stock units, stock options and stock grants
for directors. 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.
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 $38 million, $12 million
and $69 million for fiscal years 2010, 2009 and 2008, 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. Share-based compensation expense is measured at the fair market value of
the Company’s stock on the grant date and is recognized on a straight-line basis
over the service period of the respective award. Total pre-tax
expense associated with share-based compensation and its related income tax
benefit is as follows:
|
Fiscal
Years
|
||||
|
(Dollars
in Millions)
|
2010
|
2009
|
2008
|
|
|
Share-Based
Compensation Expense (a)
|
$62
|
$17
|
$38
|
|
|
Income
Tax Benefit
|
$24
|
$6
|
$14
|
|
(a)
The increase in expense is due to the increase in payout for the Company’s
long-term incentive plans as the operating ratio continues to
improve.
Stock
Options
Stock
options have not been granted since 2003. As of December 2010, there
were 544 current or former employees with stock options outstanding under the
CSX Omnibus Incentive Plan (the “Omnibus Plan”). Outstanding stock
options were granted with 10-year terms and all are fully vested and
exercisable, therefore there is no current or future expense related to these
options. 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 2010, 2009
and 2008 is as follows:
NOTE 4. Stock Plans and Share-Based
Compensation, continued
|
Fiscal
Years
|
|||||||||||
|
2010
|
2009
|
2008
|
|||||||||
|
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
|
5,411
|
$17.60
|
7,325
|
$17.93
|
11,787
|
$18.25
|
|||||
|
Expired
or Cancelled
|
(2)
|
$18.31
|
(94)
|
$22.26
|
(21)
|
$19.03
|
|||||
|
Exercised
|
(2,372)
|
$17.80
|
(1,820)
|
$18.70
|
(4,441)
|
$18.76
|
|||||
|
Outstanding
& Exercisable at End
of
Year
|
3,037
|
$17.45
|
5,411
|
$17.60
|
7,325
|
$17.93
|
|||||
The
following table summarizes information about stock options outstanding at
December 2010:
|
Weighted-
|
|||||||
|
Average
|
Weighted-
|
Aggregate
|
|||||
|
Number
|
Remaining
|
Average
|
Intrinsic
|
||||
|
Outstanding
|
Contractual
|
Exercise
|
Value
|
||||
|
Exercise
Price
|
(000s)
|
Life
(Years)
|
Price
|
(Millions)
|
|||
|
$15
to $20
|
3,037
|
1.98
|
$17.45
|
$110
|
The aggregate
intrinsic value represents the amount employees would have received if the
options were exercised as of December 31, 2010 at a closing market price of
$64.61. The total intrinsic value of options exercised for fiscal
years ended 2010, 2009, and 2008 was $88 million, $41 million, and $165 million,
respectively. This value represents the value realized by current and former
employees who exercised options.
Restricted
Stock Awards
Restricted
stock awards, other than restricted stock units, generally vest over an
employment period of up to five years. The following table provides
information about outstanding restricted stock awards. As of December
2010, unrecognized compensation expense for restricted stock awards was
approximately $10 million, which will be expensed over an average remaining
vesting period of two years.
|
Fiscal
Years
|
|||
|
2010
|
2009
|
2008
|
|
|
Number
of Restricted Stock Awards Outstanding (Thousands)(a)
|
391
|
269
|
39
|
|
Weighted-Average
Fair Value at Grant Date
|
$41.00
|
$33.18
|
$29.61
|
|
Restricted
Stock Award Expense (Millions) (a)
|
4
|
2
|
1
|
|
Number
of Unvested Restricted Stock Awards Outstanding (Thousands)
|
234
|
204
|
-
|
|
Weighted-Average
Fair Value of Unvested Awards Outstanding
|
$44.07
|
$33.58
|
$35.72
|
|
(a) In
2010 and 2009, 134,000 and 219,000, respectively, time-based restricted
stock units were granted to key members 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 2010 and 2009,
respectively.
|
NOTE 4.Stock Plans and Share-Based
Compensation, continued
Long-term
Incentive Plans
The CSX
Long-term Incentive Plans (“LTIP”) were adopted under either the Omnibus Plan or
the 2010 CSX Stock and Incentive Award Plan. The Omnibus Plan expired pursuant
to its terms in April 2010, and as such no new awards will be granted under this
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.
In May of
2008, 2009 and 2010, target performance units were granted to key members of
management under three separate LTIP plans covering three-year cycles: the
2008-2010 (“2010 LTIP”), 2009-2011 (“2011 LTIP”) and 2010-2012 (“2012 LTIP”)
plans (collectively, the “Plans”). The key financial target for all three plans
is consolidated operating ratio, which is defined as annual operating expenses
divided by revenue, and excludes 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. 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. Total
expense incurred due to long-term incentive plans was $56 million, $13 million
and $33 million for fiscal years 2010, 2009 and 2008, respectively.
The 2010
plan ended on December 31, 2010, and CSX issued 259 thousand net shares in
January 2011 as a result of the achievement of applicable performance targets
for the three preceding fiscal years.
As part
of the 2011 and 2012 plans, 219 thousand and 134 thousand time-based restricted
stock units, respectively, were granted. 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. The restricted stock units and expenses are included in the
information as shown in the table above.
|
LTIP
Plan (Plan Ended In)
|
|||
|
2010
|
2011
|
2012
|
|
|
Number
of target units outstanding (Thousands) (a)
|
333
|
658
|
406
|
|
Weighted-average
fair value at grant date (a)
|
$63.07
|
$32.79
|
$53.82
|
|
Payout
Range
|
0%
to 200%
|
0%
to 233%
|
0%
to 200%
|
(a)
Number of target units granted and weighted-average fair value calculations
above include the value of both initial grants and subsequent, smaller grants
issued at different prices based on grant date fair value to new or promoted
employees not previously included.
NOTE 4.Stock Plans and Share-Based
Compensation, continued
As of
December 2010, there was $37 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:
|
Weighted-Average
Fair Value at Grant Date
|
||||
|
LTIP
Plan (Plan Ended In)
|
||||
|
(Units
in thousands)
|
2010
Units
Outstanding
|
2011
Units
Outstanding
|
2012
Units
Outstanding
|
|
|
Unvested
at December 26, 2008
|
310
|
-
|
-
|
$64.81
|
|
Granted
in 2009
|
12
|
673
|
-
|
32.29
|
|
Forfeited
in 2009
|
(1)
|
(68)
|
-
|
32.75
|
|
Unvested
at December 25, 2009
|
321
|
605
|
-
|
47.60
|
|
Granted
in 2010
|
12
|
53
|
412
|
49.26
|
|
Forfeited
in 2010
|
-
|
-
|
(6)
|
53.85
|
|
Vested
at December 31, 2010
|
333
|
-
|
-
|
63.07
|
|
Unvested
at December 31, 2010
|
-
|
658
|
406
|
$43.30
|
Stock
Awards for Directors
CSX’s
non-management directors receive an annual retainer of $75,000 to be paid
quarterly in cash, unless the director chooses to receive the retainer in the
form of CSX common stock. In 2009, the non-management director’s
compensation was changed from an annual stock grant denominated in shares to an
annual grant of common stock in the amount of $150,000 based on the average
closing price of CSX stock in the months of November, December and
January. The following table provides information about shares issued
to directors.
|
Fiscal
Years
|
||||
|
2010
|
2009
|
2008 (a)
|
||
|
Shares
Issued to Directors (Thousands)
|
38
|
74
|
10
|
|
|
Expense
(Millions)
|
$2
|
$2
|
$1
|
|
|
Weighted
Average Grant Date Stock Price
|
$45.49
|
$30.89
|
$53.40
|
|
(a)
In 2008, the Board of Directors elected to change the date of issue from
December to February. Therefore these shares were not issued before
year-end 2008.
NOTE 4.Stock Plans and Share-Based
Compensation, continued
The
directors may elect to defer receipt of their fees, in accordance with Internal
Revenue Code Section 409A. 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 2010, 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
2010, 2009 and 2008.
|
Fiscal
Years
|
||||
|
2010
|
2009
|
2008
|
||
|
Number
of Shares Available for Issuance (Thousands)
|
10,834
|
11,090
|
11,101
|
|
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(b)
|
Total
|
|
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
|
111
|
-
|
26
|
26
|
163
|
|
Change
in Estimate(a)
|
(127)
|
-
|
-
|
-
|
(127)
|
|
Payments
|
(91)
|
(14)
|
(29)
|
(44)
|
(178)
|
|
Balance
December 25, 2009
|
$459
|
$73
|
$97
|
$108
|
$737
|
|
Charged
to Expense
|
70
|
-
|
36
|
77
|
183
|
|
Change
in Estimate(a)
|
(49)
|
-
|
-
|
-
|
(49)
|
|
Payments
|
(105)
|
(13)
|
(26)
|
(49)
|
(193)
|
|
Balance
December 31, 2010
|
$375
|
$60
|
$107
|
$136
|
$678
|
|
(a)
|
Changes
in estimates are the result of continued safety improvements and
decreasing claim trends for both personal injury and occupational
injuries. See below for more detailed discussion regarding
these changes in estimates.
|
|
(b)
|
Other
reserve accruals were higher in 2010 due to an increase in freight rate
reserves related to various rate disputes. These accruals were
lower in 2009 primarily due to a reduction in freight loss and damage
claims as a result of volume declines. These amounts are
recorded as a reduction in revenue rather than expense because they
represent liabilities for customer claims regarding the rates charged by
the Company for its transportation
services.
|
NOTE 5. Casualty,
Environmental and Other Reserves, continued
These reserves are considered critical
accounting estimates due to the need for significant management judgments. They
are provided for in the consolidated balance sheets as follows:
|
December
31, 2010
|
December
25, 2009
|
|||||||
|
(Dollars
in Millions)
|
Current
|
Long-term
|
Total
|
Current
|
Long-term
|
Total
|
||
|
Casualty:
|
||||||||
|
Personal
Injury
|
$78
|
$176
|
$254
|
$85
|
$215
|
$300
|
||
|
Occupational
|
10
|
30
|
40
|
17
|
46
|
63
|
||
|
Asbestos
|
9
|
72
|
81
|
10
|
86
|
96
|
||
|
Total
Casualty
|
97
|
278
|
375
|
112
|
347
|
459
|
||
|
Separation
|
16
|
44
|
60
|
16
|
57
|
73
|
||
|
Environmental
|
37
|
70
|
107
|
37
|
60
|
97
|
||
|
Other
|
26
|
110
|
136
|
25
|
83
|
108
|
||
|
Total
|
$176
|
$502
|
$678
|
$190
|
$547
|
$737
|
||
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, occupational injury claims and
asbestos. During 2010 the Company increased its self-insured
retention amount for these claims from $25 million to $50 million per injury for
claims occurring on or after June 1, 2010. Currently, no individual
claim is expected to exceed the Company’s self-insured retention
amount. 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.
During
2010 and 2009, the Company reduced casualty reserves by $49 million and $127
million, respectively. The after-tax effect on earnings from
continuing operations and net earnings was $30 million and $79 million for 2010
and 2009, respectively. The after-tax effect on earnings per share for 2010 and
2009 was $0.08 and $0.20, respectively.
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.
During
2010 and 2009, the Company reduced personal injury reserves by $24 million and
$84 million respectively. These reductions were based on management’s
review of the actuarial analysis performed by an independent actuarial
firm. In recent years, the Company has experienced a continued
downward trend in the number of injuries which has resulted in a continued
reduction of the CSXT’s Federal Railroad Administration (“FRA”) personal injury
rate. These reductions in reserves are a direct result of the
Company’s improvement in safety and were included in materials, supplies and
other in the consolidated income statements.
Occupational
& Asbestos
Occupational claims arise from
allegations of exposures to certain materials in the workplace, such as
solvents, soaps, chemicals (collectively referred to as “irritants”) 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 is also party to a number of asbestos 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 these exposures were 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 to 40 years after exposure.
NOTE 5. Casualty,
Environmental and Other Reserves, continued
CSXT
retains a third-party specialist to assist management in assessing the value of
the Company’s occupational and asbestos 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 incurred but not
reported (“IBNR”) claims. With the exception of carpal tunnel,
management and third-party specialists have determined that seven years is the
most probable time period in which unasserted claim filings and claim values can
be estimated. Carpal tunnel claims use a three-year period to
estimate the reserve due to the shorter latency period for these types of
injuries.
The third
party specialist analyzes CSXT’s historical claim filings, settlement amounts,
and dismissal rates to determine future anticipated claim filing rates and
average settlement values. The potentially exposed population is
estimated by using CSXT’s employment records and industry data from the 2009
Railroad Retirement report. From this analysis, the specialist
provides an estimate of the IBNR claims liability.
Undiscounted
liabilities recorded related to occupational and asbestos claims were as
follows:
|
December
|
December
|
||
|
(Dollars
in Millions)
|
2010
|
2009
|
|
|
Occupational:
|
|||
|
Incurred
but not reported claims
|
$25
|
$29
|
|
|
Asserted
claims
|
15
|
34
|
|
|
Total
liability
|
$40
|
$63
|
|
|
Asbestos:
|
|||
|
Incurred
but not reported claims
|
$40
|
$43
|
|
|
Asserted
claims
|
41
|
53
|
|
|
Total
liability
|
$81
|
$96
|
A summary
of occupational and asbestos claims activity is as follows:
|
Fiscal
Years
|
||
|
2010
|
2009
|
|
|
Asserted
Claims
|
||
|
Open
Claims - Beginning of Year
|
3,782
|
4,904
|
|
New
Claims Filed
|
250
|
298
|
|
Claims
Settled
|
(287)
|
(184)
|
|
Claims
Dismissed
|
(2,369)
|
(1,236)
|
|
Open
Claims - End of Year
|
1,376
|
3,782
|
During
2010 and 2009, the Company reduced occupational reserves by $12 million and $19
million respectively. The 2010 reduction is primarily attributable to
a decrease in the number of repetitive stress injury claims and lower settlement
values for irritant claims. The 2009 reduction is attributable to a
decrease in the number of carpal tunnel and repetitive stress injury
claims. These reductions in reserves were included in materials,
supplies and other in the consolidated income statements.
NOTE 5. Casualty,
Environmental and Other Reserves, continued
During
2010 and 2009, the Company reduced its reserves for asbestos claims by $13
million and $24 million, respectively. The 2010 reduction was
primarily related to some claims that were determined to have no value due to
lack of sufficient medical evidence as well as a decrease in the estimate of
future claim filings. The 2009 reduction was also primarily related
to a significant number of claims that were determined to have no value due to
lack of sufficient medical evidence. These reductions in reserves
were included in materials, supplies and other in the consolidated income
statements.
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 247 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,
recycling 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.
NOTE 5. Casualty,
Environmental and Other Reserves, continued
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 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 additional 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 $136 million and $108 million for 2010 and 2009, respectively,
include liabilities for various claims, such as longshoremen disability claims,
freight claims and claims for property, automobile and general
liability. Freight claims include claims for both freight loss and
damage and freight rate disputes. Freight rate disputes are recorded
as a reduction of revenue rather than an expense because they represent
liabilities for customer claims regarding the rates charged by the Company for
its transportation services. These liabilities are accrued at the
estimable and probable amount in accordance with the Contingencies Topic in the
ASC.
NOTE
6. Properties
A detail
of the Company’s net properties are as follows:
|
Annual
|
Estimated
|
||||||
|
(Dollars
in Millions)
|
Accumulated
|
Net
Book
|
Depreciation
|
Depreciation
|
Useful
|
||
|
As
of December 2010
|
Cost
|
Depreciation
|
Value
|
Rate
(a)
|
Method
|
Life
|
|
|
Road
|
|||||||
|
Rail
and Other Track Material
|
$5,568
|
$(937)
|
$4,631
|
2.7%
|
Group
Life
|
||
|
Ties
|
3,896
|
(807)
|
3,089
|
3.7%
|
Group
Life
|
||
|
Grading
|
2,368
|
(348)
|
2,020
|
1.3%
|
Group
Life
|
||
|
Ballast
|
2,372
|
(605)
|
1,767
|
2.5%
|
Group
Life
|
||
|
Bridges,
Trestles, and Culverts
|
1,815
|
(170)
|
1,645
|
1.4%
|
Group
Life
|
||
|
Signals
and Interlockers
|
1,610
|
(183)
|
1,427
|
3.3%
|
Group
Life
|
||
|
Buildings
|
750
|
(253)
|
497
|
2.5%
|
Group
Life
|
||
|
Other
|
2,527
|
(1,014)
|
1,513
|
3.0%
|
Group
Life
|
||
|
Total
Road
|
$20,906
|
$(4,317)
|
$16,589
|
5-80
years
|
|||
|
Equipment
|
|||||||
|
Locomotive
|
$4,354
|
$(1,852)
|
$2,502
|
3.5%
|
Group
Life
|
||
|
Freight
Cars
|
2,653
|
(1,096)
|
1,557
|
3.5%
|
Group
Life
|
||
|
Work
Equipment and Other
|
436
|
(199)
|
237
|
7.3%
|
Group
Life
|
||
|
Total
Equipment
|
$7,443
|
$(3,147)
|
$4,296
|
5-35
years
|
|||
|
Land
|
$1,875
|
N/A
|
$1,875
|
N/A
|
N/A
|
N/A
|
|
|
Construction
In Progress
|
529
|
N/A
|
529
|
N/A
|
N/A
|
N/A
|
|
|
Other
|
1,312
|
(802)
|
510
|
N/A
|
Straight
Line
|
4-30
years
|
|
|
Total
Properties
|
$32,065
|
$(8,266)
|
$23,799
|
||||
|
Annual
|
Estimated
|
||||||
|
(Dollars
in Millions)
|
Accumulated
|
Net
Book
|
Depreciation
|
Depreciation
|
Useful
|
||
|
As
of December 2009
|
Cost
|
Depreciation
|
Value
|
Rate
(a)
|
Method
|
Life
|
|
|
Road
|
|||||||
|
Rail
and Other Track Material
|
$5,406
|
$(870)
|
$4,536
|
2.7%
|
Group
Life
|
||
|
Ties
|
3,678
|
(748)
|
2,930
|
3.7%
|
Group
Life
|
||
|
Grading
|
2,351
|
(283)
|
2,068
|
1.3%
|
Group
Life
|
||
|
Ballast
|
2,279
|
(585)
|
1,694
|
2.5%
|
Group
Life
|
||
|
Bridges,
Trestles, and Culverts
|
1,765
|
(116)
|
1,649
|
1.4%
|
Group
Life
|
||
|
Signals
and Interlockers
|
1,565
|
(232)
|
1,333
|
3.3%
|
Group
Life
|
||
|
Buildings
|
715
|
(187)
|
528
|
2.5%
|
Group
Life
|
||
|
Other
|
2,254
|
(1,011)
|
1,243
|
3.0%
|
Group
Life
|
||
|
Total
Road
|
$20,013
|
$(4,032)
|
$15,981
|
5-80
years
|
|||
|
Equipment
|
|||||||
|
Locomotive
|
$4,358
|
$(1,716)
|
$2,642
|
3.5%
|
Group
Life
|
||
|
Freight
Cars
|
2,672
|
(1,142)
|
1,530
|
3.5%
|
Group
Life
|
||
|
Work
Equipment and Other
|
436
|
(180)
|
256
|
7.4%
|
Group
Life
|
||
|
Total
Equipment
|
$7,466
|
$(3,038)
|
$4,428
|
5-35
years
|
|||
|
Land
|
$1,937
|
N/A
|
$1,937
|
N/A
|
N/A
|
N/A
|
|
|
Construction
In Progress
|
336
|
-
|
336
|
N/A
|
N/A
|
N/A
|
|
|
Other
|
1,155
|
(773)
|
382
|
N/A
|
Straight
Line
|
4-30
years
|
|
|
Total
Properties
|
$30,907
|
$(7,843)
|
$23,064
|
||||
|
(a)
|
Composite
depreciation rates, which are used in group life depreciation, apply
to railroad assets which account for more than 87% of total
properties. All other property is depreciated on a straight line
basis over the asset’s useful
life.
|
NOTE 6. Properties,
continued
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 of accounting comprise over 87% of total
fixed assets of $32 billion on a gross basis at December 2010. 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 130 different depreciable asset categories
to account for depreciation expense for the railroad assets that are depreciated
under the group-life method of accounting. 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. All assets of the Company are depreciated on a time or
life basis.
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 the
group-life method of accounting, 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 specialist, 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.
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 six years for system roadway
machinery to 75 years for tunnels. Equipment assets, including
locomotives and freight cars, have estimated service lives ranging from six
years for technology assets to 35 years for work equipment.
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.
NOTE 6. Properties,
continued
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
or disposed of, 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 the group-life method of accounting 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.
Since the
rail network is one contiguous, connected network it is impractical to maintain
specific identification records for these assets. For road assets
(such as rail and track related items), CSX utilizes a first-in, first-out
approach to asset retirements. The historical cost of these replaced
assets is estimated using inflation indices published by the Bureau of Labor
Statistics applied to the replacement value based on the age of the retired
asset. The indices are used because they closely correlate with the
major cost of the materials comprising the applicable road assets.
Equipment
assets (such as locomotives and freight cars) are specifically
identified. When an equipment asset is retired that has been
depreciated using group life method, the cost is reduced from the cost base and
classified into accumulated depreciation.
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). Abnormal gains and losses were $30 million loss for 2010, zero
for 2009, and $24 million loss for 2008.
Recent
experience with life studies has resulted in depreciation rate changes, which
did not materially affect the Company’s annual depreciation expense of $947
million and $908 million for 2010 and 2009 respectively. The Company
completed life studies for its equipment assets in 2009 and for its road, track
and equipment assets in 2008 resulting in a reduction in depreciation expense of
$11 million in 2010, and $18 million in 2009.
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 in earnings at the time of disposal. These gains and
losses were not material for any period presented.
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.
NOTE 6. Properties,
continued
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.
The
Company’s largest category of capital spending is the replacement of track
assets and the acquisition or construction of new assets that enable CSX to
enhance its operations or provide new capacity offerings to its
customers. These construction projects are typically completed by
CSXT employees. Costs for track asset replacement and capacity
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;
|
|
·
|
new
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.
|
NOTE 6. Properties,
continued
The
primary cost in self-constructed track replacement work is
labor. CSXT engineering employees directly charge their labor to the
track replacement project (the capitalized depreciable property). These
employees concurrently perform deconstruction and installation of rail. Because
of this concurrent process, CSX must estimate the amount of labor that is
related to deconstruction versus installation.
Through
analysis of CSXT’s track replacement process, CSX determined that approximately
20% of labor costs associated with rail installation is related to the
deconstruction of old track and 80% is associated with the installation of new
track.
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
repairs and maintenance costs, for all asset categories, 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. Net daily
rental charges on railroad equipment are not long-term
commitments. 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)
|
2010
|
2009
|
2008
|
|
Net
Daily Rental Charges
|
$307
|
$307
|
$323
|
|
Rent
Expense on Operating Leases
|
67
|
84
|
102
|
|
Equipment
and Other Rents
|
$374
|
$391
|
$425
|
NOTE 7. Commitments and
Contingencies, continued
At
December 2010, minimum building and equipment rentals and commitments for
vessels (utilized in a shipping business formerly owned by CSX) under operating
leases are disclosed in the table below. Also included in these
amounts are agreements covering equipment leased from Conrail, Inc.
(“Conrail”).
|
(Dollars
in Millions)
|
|||
|
Operating
|
Sublease
|
Net
Lease
|
|
|
Years
|
Leases
|
Income
|
Commitments
|
|
2011
|
$96
|
$(17)
|
$79
|
|
2012
|
91
|
(21)
|
70
|
|
2013
|
67
|
(26)
|
41
|
|
2014
|
74
|
(49)
|
25
|
|
2015
|
22
|
-
|
22
|
|
Thereafter
|
156
|
(1)
|
155
|
|
Total
|
$506
|
$(114)
|
$392
|
Operating leases and an equal portion
of sublease income include approximately $96 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. If Horizon were to experience operational or financial difficulties
and default on its obligations, CSX would be liable for all remaining
payments. CSX does not believe such an event would have a material adverse
effect on the Company’s financial condition, results of operations or liquidity
in a fiscal year; however, it could have a material adverse effect on the
results of operations in a particular fiscal quarter. CSX continues to
monitor Horizon’s financial condition. The cash obligation remaining as of
the date of this filing was $86 million.
Purchase
Commitments
CSXT has a
commitment under a long-term maintenance program that currently covers 46% 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 table below includes both active and inactive locomotives
covered under this agreement. The increase in costs is due to more
active locomotives in response to higher volume levels in 2010.
The following table summarizes the
number of locomotives covered and CSXT’s payments under the long-term
maintenance program.
|
Fiscal
Years
|
|||
|
(Dollars
in Millions)
|
2010
|
2009
|
2008
|
|
Amounts
Paid
|
$252
|
$237
|
$253
|
|
Number
of Locomotives
|
1,869
|
1,891
|
1,958
|
NOTE 7. Commitments and
Contingencies, continued
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)
|
|
|
2011
|
$365
|
|
2012
|
273
|
|
2013
|
282
|
|
2014
|
291
|
|
2015
|
301
|
|
Thereafter
|
3,850
|
|
Total
|
$5,363
|
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)
|
|
|
2011
|
$64
|
|
2012
|
57
|
|
2013
|
37
|
|
2014
|
18
|
|
2015
|
18
|
|
Thereafter
|
-
|
|
Total
|
$193
|
Insurance
The Company maintains numerous
insurance programs with substantial limits for property damage (which includes
business interruption) and third-party liability. A certain amount of risk
is retained by the Company on each of the liability and property programs.
The Company has a $25 million retention per occurrence for the non-catastrophic
property program and a $50 million retention per occurrence for the liability
and catastrophic property programs.
While the Company’s current insurance coverage is adequate to cover its damages,
future claims could exceed existing insurance coverage or insurance may not
continue to be available at commercially reasonable
rates.
NOTE 8. Employee Benefit
Plans
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 self-insured post-retirement
medical plan and a life insurance plan that provide benefits to full-time,
salaried, management employees, hired prior to January 1, 2003, upon their
retirement if certain eligibility requirements are met. Prior to
2011, the post-retirement medical plan was partially funded by all participating
retirees, with retiree contributions adjusted annually. Beginning in
2011, Medicare-eligible retirees will be covered by a health reimbursement
arrangement, which is an employer-funded account that can be used for
reimbursement of eligible medical expenses. Non-Medicare eligible retirees will
continue to be covered by the existing self-insured program. The life insurance
plan is non-contributory.
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. In order to perform this valuation, the actuary is provided with the details of the population covered at the beginning of the year, summarized in the table below, and projects that population forward to the end of the year.
|
Summary
of Participants
|
|||
|
as
of January 1, 2010
|
|||
|
Pension
Plans
|
Post-retirement
Medical Plan
|
||
|
Active
Employees
|
4,771
|
2,915
|
|
|
Retirees
and Beneficiaries (a)
|
11,226
|
12,155
|
|
|
Other(b)
|
6,512
|
253
|
|
|
Total
|
22,509
|
15,323
|
|
(a)
Retirees and beneficiaries in the post-retirement medical plan increased as
changes in the plan resulted in a change in assumptions regarding the number of
spouses of participants who would opt-in for coverage.
(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.
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 qualified
pension plan benefits and include amounts contributed by the Company and amounts
earned from invested contributions, net of benefits paid. 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 2011. 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 and
assets are segregated or restricted for purposes of meeting these
obligations. 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 qualified pension plan contributions will
be required in 2011.
Future
expected benefit payments are as follows:
|
Expected
Cash Flows
|
|||
|
(Dollars
in Millions)
|
Pension Benefits
|
Post-retirement
Benefits
|
|
|
2011
|
$162
|
$41
|
|
|
2012
|
167
|
40
|
|
|
2013
|
167
|
38
|
|
|
2014
|
171
|
36
|
|
|
2015
|
174
|
35
|
|
|
2016-2020
|
886
|
149
|
|
|
Total
|
$1,727
|
$339
|
|
NOTE 8. Employee Benefit Plans, continued
Plan
Assets
The CSX
Investment Committee (the “Investment Committee”), whose members were selected
by the Chief Financial Officer and approved by the Chief Executive Officer, is
responsible for oversight and investment of plan assets. The Investment
Committee utilizes an investment asset allocation strategy that is monitored on
an ongoing basis and that is updated periodically in consideration of plan or
employee changes, or changing market conditions. These studies provide an
extensive modeling of asset investment return in conjunction with projected plan
liabilities and seek to evaluate how to maximize return within the constraints
of acceptable risk. The current asset allocation targets 60% equity
investments and 40% fixed income investments. Within equity, a
further target is currently established for 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 reallocations occurring
quarterly.
At
December 2010, both the accumulated benefit obligation and the projected benefit
obligation exceeded the plan assets of each pension plan. 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.
|
December
2010
|
December
2009
|
||||||
|
Percent
of
|
Percent
of
|
||||||
|
(Dollars
in Millions)
|
Amount
|
Total
Assets
|
Amount
|
Total
Assets
|
|||
|
Equity
|
$1,126
|
61
|
%
|
$1,019
|
57
|
%
|
|
|
Fixed
Income
|
717
|
39
|
696
|
39
|
|||
|
Cash
and Cash Equivalents
|
8
|
-
|
66
|
4
|
|||
|
Total
|
$1,851
|
100
|
%
|
$1,781
|
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.
NOTE 8. Employee Benefit Plans, continued
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
Changes
in benefit obligation and the fair value of plan assets for the 2010 and 2009
calendar plan years are as follows:
|
Pension
Benefits
|
Post-retirement
Benefits
|
||||
|
Plan
Year
|
Plan
Year
|
Plan
Year
|
Plan
Year
|
||
|
(Dollars
in Millions)
|
2010
|
2009
|
2010
|
2009
|
|
|
Actuarial
Present Value of Benefit Obligation
|
|||||
|
Accumulated
Benefit Obligation
|
$2,354
|
$2,238
|
N/A
|
N/A
|
|
|
Projected
Benefit Obligation
|
2,487
|
2,395
|
$383
|
$406
|
|
|
Change
in Projected Benefit Obligation:
|
|||||
|
Projected
Benefit Obligation at Beginning of Plan
Year
|
$2,395
|
$2,062
|
$406
|
$373
|
|
|
Service
Cost
|
41
|
32
|
5
|
5
|
|
|
Interest
Cost
|
121
|
129
|
20
|
25
|
|
|
Plan
Participants' Contributions
|
-
|
-
|
16
|
19
|
|
|
Plan
Amendments
|
(9)
|
-
|
(6)
|
-
|
|
|
Actuarial
(Gain)/Loss
|
92
|
323
|
(11)
|
35
|
|
|
Benefits
Paid
|
(153)
|
(151)
|
(47)
|
(51)
|
|
|
Benefit
Obligation at End of Plan Year
|
$2,487
|
$2,395
|
$383
|
$406
|
|
|
Change
in Plan Assets:
|
|||||
|
Fair
Value of Plan Assets at Beginning of Plan Year
|
$1,781
|
$1,320
|
$-
|
$-
|
|
|
Actual
Return on Plan Assets
|
210
|
349
|
-
|
-
|
|
|
Qualified
Employer Contributions
|
-
|
250
|
-
|
-
|
|
|
Non-qualified
Employer Contributions
|
13
|
13
|
31
|
32
|
|
|
Plan
Participants' Contributions
|
-
|
-
|
16
|
19
|
|
|
Benefits
Paid
|
(153)
|
(151)
|
(47)
|
(51)
|
|
|
Fair
Value of Plan Assets at End of Plan Year
|
$1,851
|
$1,781
|
$-
|
$-
|
|
|
Funded
Status at End of Plan Year
|
$(636)
|
$(614)
|
$(383)
|
$(406)
|
|
NOTE 8. Employee Benefit
Plans, continued
For qualified plan funding purposes,
assets and discounted liabilities are measured in accordance with ERISA, 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 post-retirement benefit plan by recording a liability
(underfunded plan) or asset (overfunded plan) for the difference between the
projected benefit obligation (or the accumulated post-retirement 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
|
||
|
(Dollars
in Millions)
|
2010
|
2009
|
2010
|
2009
|
|
|
Amounts
Recorded in Consolidated
|
|||||
|
Balance
Sheets:
|
|||||
|
Current
Liabilities
|
$(13)
|
$(11)
|
$(41)
|
$(42)
|
|
|
Long-term
Liabilities
|
(623)
|
(603)
|
(342)
|
(364)
|
|
|
Net
Amount Recognized in
|
|||||
|
Consolidated
Balance Sheet
|
$(636)
|
$(614)
|
$(383)
|
$(406)
|
|
CSX has a
liability for the amount by which the benefit obligation exceeds the fair value
of plan assets. At December 2010, 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)
|
2010
|
2009
|
2008
|
2010
|
2009
|
2008
|
|
|
Service
Cost
|
$41
|
$32
|
$32
|
$5
|
$5
|
$5
|
|
|
Interest
Cost
|
122
|
129
|
119
|
20
|
25
|
21
|
|
|
Expected
Return on Plan Assets
|
(165)
|
(154)
|
(145)
|
-
|
-
|
-
|
|
|
Amortization
of Net Loss
|
58
|
26
|
22
|
7
|
4
|
6
|
|
|
Amortization
of Prior Service Cost
|
-
|
2
|
3
|
-
|
-
|
(2)
|
|
|
Net
Periodic Benefit Expense
|
$56
|
$35
|
$31
|
$32
|
$34
|
$30
|
|
|
Settlement
Gain(a)
|
(2)
|
-
|
-
|
-
|
-
|
-
|
|
|
Total
Expense
|
$54
|
$35
|
$31
|
$32
|
$34
|
$30
|
|
(a)
In 2010, in one of the company's pension plans, the lump-sum payments exceeded
the sum of the service cost and interest cost recognized. As such,
the company was required to recognize a portion of its accumulated other
comprehensive income related to that plan into earnings.
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.
|
(Dollars
in Millions)
|
Pension
Benefits
|
Post-retirement
Benefits
|
|||||
|
Components
of Other Comprehensive
|
December
|
December
|
December
|
December
|
|||
|
Loss
(Income)
|
2010
|
2009
|
2010
|
2009
|
|||
|
Recognized
in the balance sheet
|
|||||||
|
Losses
(Gains)
|
$48
|
$128
|
$(9)
|
$37
|
|||
|
Prior
service credits
|
$(9)
|
$-
|
$(6)
|
$-
|
|||
|
Expense
(Income) recognized in the income statement
|
|||||||
|
Amortization
of net losses (a)
|
$58
|
$26
|
$7
|
$4
|
|||
|
Settlement
gain
|
$(2)
|
$-
|
$-
|
$-
|
|||
|
Amortization
of prior service costs (b)
|
$-
|
$2
|
$-
|
$-
|
|||
|
(a)
|
The
estimated amount to be expensed for 2011 is $73 million and $7 million for
pension benefits and post-retirement benefits, respectively. The increase
in the pension expense is largely related to additional amortization of
the losses incurred by the pension plan assets during
2008.
|
|
(b)
|
Remaining
prior service costs to be expensed in 2011 are less than $1 million. The
estimated post-retirement benefits amount to be credited to expense for
2011 is $1 million.
|
At
December 2010, 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:
|
Pension
|
Post-retirement
|
||
|
Benefits
|
Benefits
|
||
|
Losses
|
$1,047
|
$84
|
|
|
Prior
Service Costs (Credits)
|
1
|
(6)
|
|
|
Total
|
$1,048
|
$78
|
NOTE 8. Employee Benefit
Plans, continued
Assumptions
Weighted-average
assumptions used in accounting for the plans were as follows:
|
Pension
Benefits
|
Post-retirement
Benefits
|
|||||
|
2010
|
2009
|
2010
|
2009
|
|||
|
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
|
8.25%
|
8.50%
|
N/A
|
N/A
|
||
|
Discount
Rates:
|
||||||
|
Benefit
Cost for Plan Year
|
5.25%
|
6.50%
|
4.75%
|
6.50%
|
||
|
Benefit
Obligation at End of Plan Year
|
5.00%
|
5.25%
|
4.50%
|
4.75%
|
||
|
Salary
Scale Inflation
|
4.00%
|
4.00%
|
N/A
|
4.00%
|
||
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 decrease to 5% by 2018,
there may be yearly fluctuations. Additionally, there are cost differentials
between Medicare and Non-Medicare eligible individuals which are reflected
below.
|
Post-retirement
Benefits
|
||||
|
2010
|
2009
|
|||
|
Health
Care Cost Trend Rate
|
||||
|
Components
of Benefit Cost: Non-Medicare Eligible
|
8.5%
|
9.5%
|
||
|
Components
of Benefit Cost: Medicare Eligible
|
8.0%
|
10.5%
|
||
|
Benefit
Obligations: Non-Medicare Eligible
|
8.5%
|
8.5%
|
||
|
Benefit
Obligations: Medicare Eligible
|
8.0%
|
8.0%
|
||
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 on the consolidated income statements.
For every 1% change in the health care cost trend rate, the Company’s benefit
obligation will change by $1 million on the consolidated balance
sheets.
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 $5 million
and $3 million in tax free federal reimbursement for prescription drug claims in
2010 and 2009, respectively.
NOTE 8. Employee Benefit
Plans, continued
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 $45 million, $35 million and $36 million in
2010, 2009 and 2008, 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 $28 million, $24
million and $26 million for 2010, 2009 and 2008, respectively.
NOTE
9. Debt and Credit Agreements
Debt was as follows:
|
Average
|
|||||
|
Interest
|
|||||
|
Rates
at
|
|||||
|
December
|
December
|
December
|
|||
|
(Dollars
in Millions)
|
Maturity
|
2010
|
2010
|
2009
|
|
|
Notes
|
2011-2043
|
6.3%
|
$7,817
|
$7,038
|
|
|
Equipment
Obligations
|
2011-2023
|
7.1%
|
823
|
911
|
|
|
Capital
Leases
|
2011-2017
|
7.2%
|
15
|
31
|
|
|
Convertible
Debentures (a)
|
2021
|
2.1%
|
9
|
28
|
|
|
Total
Long-term Debt (including current portion)
|
8,664
|
8,008
|
|||
|
Less
Debt Due within One Year
|
(613)
|
(113)
|
|||
|
Long-term
Debt (excluding current portion)
|
$8,051
|
$7,895
|
|||
(a)
Convertible debentures are net of $1 million discount in 2010 and $3 million in
2009.
For
information regarding the fair value of debt, see Note 15, Fair Value
Measurements.
Debt
Issuance
In 2010, CSX issued $500 million of 3.7%
notes due 2020 and $300 million of 5.5% notes due 2041. 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
repayment of indebtedness outstanding from time to time, repurchases of CSX’s
common stock, capital expenditures, working capital requirements, improvements
in productivity and other cost reductions at CSX’s major transportation
units.
NOTE 9. Debt and Credit
Agreements, continued
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 $9 million and $28 million, at December 2010 and
December 2009, respectively. 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
2010, $21 million face value of debentures was converted into 1 million shares
of CSX common stock. There were no material conversions during
2009. At December 2010, $10 million face value debentures remained
outstanding, convertible into 359 thousand shares of CSX common
stock.
Long-term
Debt Maturities
|
(Dollars in
Millions)
|
Maturities
as of December 2010
|
|
|
Fiscal Years Ending
|
||
|
2011
|
$613
|
|
|
2012
|
507
|
|
|
2013
|
780
|
|
|
2014
|
526
|
|
|
2015
|
628
|
|
|
2016
and Thereafter
|
5,610
|
|
|
Total
Long-term Debt Maturities (including current portion)
|
$8,664
|
|
NOTE 9. Debt and Credit
Agreements, continued
Debt
Exchange
In March
2010, CSX exchanged $660 million of notes of multiple series (the “Existing
Notes”), bearing interest at an average annual rate of 7.74% with maturities
ranging from 2017 to 2038. These Existing Notes were exchanged for
$660 million of debt securities (the “New Notes”) bearing interest at 6.22% and
due April 30, 2040. In addition, CSX paid approximately $141 million
to the debtholders as cash consideration. CSX also paid the
debtholders any accrued and unpaid interest on the Existing Notes. In
accordance with the Debt
Topic in the ASC, this transaction has been accounted for as a debt
exchange. As such, the $141 million of cash consideration paid to the
debtholders was recorded in other long-term assets. This cash
consideration and the unamortized discount and issue costs from the Existing
Notes are being amortized as an adjustment of interest expense over the term of
the New Notes. There was no gain or loss recognized as a result of
this exchange. However, all costs related to the debt exchange and
due to parties other than the debtholders were included in interest expense
during first quarter 2010. These costs totaled approximately $3
million.
In July
2010, CSX exchanged the New Notes for substantially identical notes registered
under the Securities Act of 1933, as amended, pursuant to a registration rights
agreement entered into in connection with the exchange offer.
Credit
Facilities
In 2006,
the Company entered into a $1.25 billion five-year unsecured revolving credit
facility. 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 2010. Commitment fees and interest rates
payable under the facility were similar to fees and rates available to
comparably rated investment-grade borrowers.
In 2010,
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 2010, CSX was in compliance with all covenant
requirements under the facilities.
NOTE 9. Debt and Credit
Agreements, continued
Receivables
Securitization Facility
The
Company’s $250 million receivables securitization facility has a 364-day term
and expires in December 2011. The purpose of this facility is to
provide an alternative to commercial paper and a low cost source of short-term
liquidity. As of the date of this filing, the Company has not drawn
on this facility. Under the terms of this facility, CSX
Transportation transfers eligible third-party receivables to CSX Trade
Receivables, a bankruptcy-remote special purpose subsidiary. A
separate subsidiary of CSX will service the receivables. Upon
transfer, the receivables become assets of CSX Trade Receivables and are not
available to the creditors of CSX or any of its other subsidiaries. In the event
CSX Trade Receivables draws under this facility, the Company will record an
equivalent amount of debt on its consolidated financial statements.
NOTE
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. Income from real estate includes the results of operations of the
Company’s non-operating real estate sales, leasing, acquisition and management
and development activities and may fluctuate as a function of timing of real
estate sales. Miscellaneous income (expense) includes equity earnings or losses,
investment gains and losses and other non-operating activities and may fluctuate
due to timing. Other income – net consisted of the
following:
|
Fiscal
Years
|
||||
|
(Dollars
in Millions)
|
2010
|
2009
|
2008
|
|
|
Interest
Income
|
$6
|
$11
|
$37
|
|
|
Income
from Real Estate Operations
|
30
|
31
|
39
|
|
|
Miscellaneous
Income (Expense)
(a)
|
(4)
|
(8)
|
24
|
|
|
Total
Other Income - Net
|
$32
|
$34
|
$100
|
|
|
Gross
Revenue from Real Estate
|
||||
|
Operations
included above
|
$54
|
$60
|
$77
|
|
(a)
The decrease from 2008 is attributable to additional income of $30 million for
an adjustment to correct equity earnings from a non-consolidated
subsidiary.
NOTE
11. Other Long-term Assets and Other Long-term
Liabilities
Other
Long-term Assets
Other
Long-term Assets consisted of the following:
|
December
|
||||
|
(Dollars
in Millions)
|
2010
|
2009
|
||
|
Debt
Issuance Costs (a)
|
$170
|
$35
|
||
|
Goodwill (b)
|
70
|
64
|
||
|
Available
for Sale Securities
|
69
|
35
|
||
|
Other
|
44
|
31
|
||
|
Total
Other Long-term Assets
|
$353
|
$165
|
||
|
(a)
|
Majority
of debt issuance costs relate to premium paid in March 2010 for exchange
of debt.
|
|
(b)
|
Goodwill
related to subsidiaries of CSXT, primarily Four Rivers Transportation
Inc., represents purchase price in excess of fair
value.
|
Other
Long-term Liabilities
Other
Long-term Liabilities consisted of the following:
|
December
|
||||
|
(Dollars
in Millions)
|
2010
|
2009
|
||
|
Pension
Plan Liabilities (Note 8)
|
$623
|
$603
|
||
|
Post-retirement
Benefit Liabilities (Note 8)
|
342
|
364
|
||
|
Deferred
Gains
|
160
|
143
|
||
|
Accrued
Deferred Compensation
|
78
|
79
|
||
|
Deferred
Lease Payments
|
17
|
18
|
||
|
Accrued
Sick Leave
|
17
|
17
|
||
|
Other
|
61
|
60
|
||
|
Total
Other Long-term Liabilities
|
$1,298
|
$1,284
|
||
NOTE
12. Income Taxes
Earnings from continuing operations before income taxes of $2.5 billion, $1.8 billion and $2.3 billion for fiscal years 2010, 2009 and 2008, respectively, represent earnings from domestic operations.
The
breakdown of income tax expense between current and deferred is as
follows:
|
(Dollars
in Millions)
|
Fiscal
Years
|
|||
|
Current:
|
2010
|
2009
|
2008
|
|
|
Federal
|
$451
|
$151
|
$284
|
|
|
State
|
58
|
37
|
73
|
|
|
Total
Current
|
509
|
188
|
357
|
|
|
Deferred:
|
||||
|
Federal
|
372
|
407
|
470
|
|
|
State
|
102
|
23
|
20
|
|
|
Total
Deferred
|
474
|
430
|
490
|
|
|
Total
|
$983
|
$618
|
$847
|
|
Income tax expense
reconciled to the tax computed at statutory rates is presented in the table
below. The change in the 2010 effective income tax rate compared to
the prior year is primarily attributed to an income tax charge of $16 million
related to the merger of the Company’s former Intermodal subsidiary with
CSXT. 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)
|
2010
|
2009
|
2008
|
||||||
|
Federal
Income Taxes
|
$891
|
35.0
|
%
|
$610
|
35.0
|
%
|
$815
|
35.0
|
%
|
|
State
Income Taxes
|
85
|
3.4
|
37
|
2.1
|
59
|
2.5
|
|||
|
Corporate
Reorganization
|
16
|
0.6
|
-
|
-
|
-
|
-
|
|||
|
Other
Items(a)
|
(9)
|
(0.4)
|
(29)
|
(1.6)
|
(27)
|
(1.1)
|
|||
|
Income
Tax Expense/Rate
|
$983
|
38.6
|
%
|
$618
|
35.5
|
%
|
$847
|
36.4
|
%
|
(a) Other items primarily include
tax impacts from equity in Conrail and other partially owned subsidiaries’
earnings.
The
significant components of deferred income tax assets and liabilities
include:
|
2010
|
2009
|
|||||
|
(Dollars
in Millions)
|
Assets
|
Liabilities
|
Assets
|
Liabilities
|
||
|
Pension
Plans
|
$243
|
$-
|
$223
|
$-
|
||
|
Other
Employee Benefit Plans
|
311
|
-
|
303
|
-
|
||
|
Accelerated
Depreciation
|
-
|
7,557
|
-
|
7,126
|
||
|
Other
|
353
|
211
|
365
|
135
|
||
|
Total
|
$907
|
$7,768
|
$891
|
$7,261
|
||
|
Net
Deferred Income Tax Liabilities
|
$6,861
|
$6,370
|
||||
NOTE 12. Income
Taxes, continued
The primary factors in
the change in year-end net deferred income tax liability balances
include:
|
·
|
Annual
provision for deferred income tax expense;
and
|
|
·
|
Accumulated
other comprehensive loss and other capital
adjustments.
|
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. CSX participated in a contemporaneous Internal Revenue
Service (“IRS”) audit of tax years 2009 and 2010. During 2010, the
Company resolved the final issue on the 2008 IRS Audit Appeal. This
settlement had no material impact on the financial
statements. Federal examinations of original federal income tax
returns for all years through 2008 are otherwise resolved.
|
Uncertain
Tax Positions:
|
Fiscal
Year
|
|
|
(Dollars
in Millions)
|
2010
|
2009
|
|
Balance
at beginning of the year
|
$50
|
$57
|
|
Additions
based on tax positions related to current year
|
3
|
1
|
|
Additions
based on tax positions related to prior years
|
17
|
6
|
|
Reductions
based on tax positions related to prior years
|
(41)
|
-
|
|
Settlements
with taxing authorities
|
-
|
(1)
|
|
Lapse
of statute of limitations
|
(9)
|
(13)
|
|
Balance
at end of the year
|
$20
|
$50
|
As of
December 2010 and 2009, the Company had approximately $20 million and $50
million, respectively, of total unrecognized tax benefits. After
consideration of the impact of federal tax benefits, $15 million and $41
million, respectively, could favorably affect the effective income tax
rate. The Company estimates that approximately $6 million of the
unrecognized tax benefits as of December 2010 for various state and federal
income tax matters will be resolved over the next 12 months. The
change to the total gross unrecognized tax benefits and prior year audit
resolutions of the Company during the fiscal year ended December 2010 is
reconciled as follows:
Approximately
$2 million of the gross unrecognized tax benefits would be closed upon the
expiration of statutes of limitations during 2011. 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 expense or (benefits) of $7 million, $(6) million and $(2)
million for fiscal years 2010, 2009 and 2008, respectively, for the reduction to
reserves for interest and penalties for all prior year tax
positions. Prior year 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 accrued for interest and penalties for both 2010 and 2009
for all prior year tax positions.
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 rail infrastructure and
operates 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)
|
2010
|
2009
|
2008
|
|||
|
Rents,
Fees and Services
|
$112
|
$104
|
$112
|
|||
|
Purchase
Price Amortization and Other
|
4
|
4
|
4
|
|||
|
Equity
in Income of Conrail
|
(21)
|
(27)
|
(23)
|
|||
|
Total
Conrail Rents, Fees and Services
|
$95
|
$81
|
$93
|
|||
Interest
expense from the promissory notes payable to a Conrail subsidiary was as
follows:
|
Fiscal
Years
|
||||||
|
(Dollars
in Millions)
|
2010
|
2009
|
2008
|
|||
|
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
|
December
|
||
|
(Dollars
in Millions)
|
2010
|
2009
|
|
|
Balance
Sheet Information:
|
|||
|
CSX
Payable to Conrail (a)
|
$84
|
$65
|
|
|
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.
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 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.
Income
statement information:
|
Fiscal
Years
|
||
|
(Dollars
in Millions)
|
2009
|
2008
|
|
Revenue
|
$33
|
$91
|
|
Pre-Tax
Income (Loss)
|
5
|
(203)
|
|
Net
Loss, After Tax
|
(10)
|
(130)
|
|
Gain
on Sale, After Tax
|
25
|
-
|
|
Net
Income (Loss) From Discontinued Operations
|
$15
|
$(130)
|
|
Earnings
Per Share
|
||
|
From
Discontinued Operations, Assuming Dilution
|
$0.04
|
$(0.32)
|
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.
Investments
The
Company’s investment assets are valued by a third-party trustee, consist
primarily of corporate bonds and are carried at fair value on the consolidated
balance sheet per the Fair
Value Measurements and Disclosures Topic in the ASC. Level 1
inputs were used to determine fair value of the Company’s investment
assets.
|
(Dollars
in Millions)
|
December
2010
|
December
2009
|
|||||
|
Fair
Value
|
$123
|
$96
|
|||||
|
Amortized
Cost
|
$121
|
$91
|
|||||
NOTE 15. Fair Value Measurements, continued
These
investments have the following maturities:
|
(Dollars
in Millions)
|
December
2010
|
December
2009
|
||||
|
Less
than 1 year
|
$44
|
$20
|
||||
|
1 -
2 years (a)
|
45
|
45
|
||||
|
2 -
5 years (b)
|
31
|
31
|
||||
|
Greater
than 5 years
|
3
|
-
|
||||
|
Total
|
$123
|
$96
|
||||
|
(a)
|
The
1-2 year category includes callable bonds of approximately $5 million and
$31 million in 2010 and 2009, respectively, which are classified as
short-term investments on the consolidated balance
sheet.
|
|
(b)
|
The
2-5 year category includes callable bonds of approximately $5 million and
$9 million in 2010 and 2009, respectively, which are classified as
short-term investments on the consolidated balance
sheet.
|
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
2010
|
December
2009
|
|||||
|
Long-term
Debt Including Current Maturities:
|
|||||||
|
Fair
Value
|
$9,624
|
$8,780
|
|||||
|
Carrying
Value
|
$8,664
|
$8,008
|
|||||
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.
NOTE 15.Fair Value Measurements, continued
|
·
|
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 years 2010 and 2009:
|
Fiscal
Years
|
|||||||||
|
2010
|
2009
|
||||||||
|
(Dollars
in Millions)
|
Level
1
|
Level
2
|
Level
3
|
Total
|
Level
1
|
Level
2
|
Level
3
|
Total
|
|
|
Common
Stock:
|
|||||||||
|
Information
technology
|
$161
|
$-
|
$-
|
$161
|
$138
|
$-
|
$-
|
$138
|
|
|
Consumer
discretionary
|
109
|
-
|
-
|
109
|
70
|
-
|
-
|
70
|
|
|
Industrials
|
70
|
-
|
-
|
70
|
53
|
-
|
-
|
53
|
|
|
Health
care
|
68
|
-
|
-
|
68
|
71
|
-
|
-
|
71
|
|
|
Financials
|
65
|
-
|
-
|
65
|
76
|
-
|
-
|
76
|
|
|
Energy
|
63
|
-
|
-
|
63
|
47
|
-
|
-
|
47
|
|
|
Consumer
staples
|
33
|
-
|
-
|
33
|
36
|
-
|
-
|
36
|
|
|
Materials
|
25
|
-
|
-
|
25
|
18
|
-
|
-
|
18
|
|
|
Other
|
20
|
-
|
-
|
20
|
27
|
-
|
-
|
27
|
|
|
Corporate
securities
|
-
|
613
|
-
|
613
|
-
|
546
|
-
|
546
|
|
|
Common
trust funds
|
-
|
419
|
-
|
419
|
-
|
454
|
-
|
454
|
|
|
Derivatives
liabilities
|
-
|
(211)
|
-
|
(211)
|
-
|
(250)
|
-
|
(250)
|
|
|
Derivatives
assets
|
-
|
211
|
-
|
211
|
-
|
250
|
-
|
250
|
|
|
Partnerships
|
-
|
-
|
101
|
101
|
-
|
-
|
95
|
95
|
|
|
Government
securities
|
-
|
88
|
-
|
88
|
-
|
120
|
-
|
120
|
|
|
Asset-backed
securities
|
-
|
16
|
-
|
16
|
-
|
30
|
-
|
30
|
|
|
Total
investments at
fair
value
|
$614
|
$1,136
|
$101
|
$1,851
|
$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 2010 is shown below.
|
(Dollars
in Millions)
|
Partnerships
|
|
Balance,
Beginning of Year
|
$95
|
|
Unrealized
Gains
|
6
|
|
Balance,
End of Year
|
$101
|
NOTE
16. Quarterly Financial Data (Unaudited)
Pursuant
to Article 3 of the SEC’s Regulation S-X, the following are selected quarterly
financial data:
|
2010
|
||||||||
|
Quarters
|
||||||||
|
(Dollars
in Millions, Except Per Share Amounts) (a)
|
1st
|
2nd
|
3rd
|
4th
|
Full
Year
|
|||
|
Revenue
|
$2,491
|
$2,663
|
$2,666
|
$2,816
|
$10,636
|
|||
|
Operating
Income
|
632
|
768
|
825
|
846
|
3,071
|
|||
|
Net
Earnings
|
$305
|
$414
|
$414
|
$430
|
$1,563
|
|||
|
Earnings
Per Share, Basic
|
$0.78
|
$1.08
|
$1.09
|
$1.15
|
$4.10
|
|||
|
Earnings
Per Share, Assuming Dilution
|
$0.78
|
$1.07
|
$1.08
|
$1.14
|
$4.06
|
|||
|
Dividend
Per Share
|
$0.24
|
$0.24
|
$0.24
|
$0.26
|
$0.98
|
|||
|
2009
|
||||||||
|
Quarters
|
||||||||
|
(Dollars
in Millions, Except Per Share Amounts) (a)
|
1st
|
2nd
|
3rd
|
4th
|
Full
Year
|
|||
|
Revenue
|
$2,247
|
$2,185
|
$2,289
|
$2,320
|
$9,041
|
|||
|
Operating
Income
|
520
|
577
|
594
|
579
|
2,270
|
|||
|
Earnings
from Continuing Operations
|
253
|
282
|
290
|
303
|
1,128
|
|||
|
Discontinued
Operations (b)
|
(8)
|
23
|
-
|
-
|
15
|
|||
|
Net
Earnings
|
$245
|
$305
|
$290
|
$303
|
$1,143
|
|||
|
Earnings
Per Share, Basic:
|
||||||||
|
Continuing
Operations
|
$0.65
|
$0.72
|
$0.74
|
$0.77
|
$2.88
|
|||
|
Discontinued
Operations
(b)
|
(0.02)
|
0.06
|
-
|
-
|
0.04
|
|||
|
Net
Earnings
|
$0.63
|
$0.78
|
$0.74
|
$0.77
|
$2.92
|
|||
|
Earnings
Per Share, Assuming Dilution:
|
||||||||
|
Continuing
Operations
|
$0.64
|
$0.71
|
$0.73
|
$0.77
|
$2.85
|
|||
|
Discontinued
Operations (b)
|
(0.02)
|
0.06
|
-
|
-
|
0.04
|
|||
|
Net
Earnings
|
$0.62
|
$0.77
|
$0.73
|
$0.77
|
$2.89
|
|||
|
Dividend
Per Share
|
$0.22
|
$0.22
|
$0.22
|
$0.22
|
$0.88
|
|||
|
(a)
|
Certain
amounts have been adjusted for the retrospective change in accounting
policy for rail grinding, see Note 1, Nature of Operations and Significant
Accounting Policies.
|
|
(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.
|
NOTE
17. 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 17. Summarized
Consolidating Financial Data, continued
Consolidating
Income Statements
(Dollars
in Millions)
|
Fiscal
Year Ended December 2010
|
CSX
Corporation
|
CSX
Transportation
|
Other
|
Eliminations
|
Consolidated
|
|||||
|
Revenue
|
$-
|
$9,939
|
$806
|
$(109)
|
$10,636
|
|||||
|
Expense
|
(166)
|
7,110
|
730
|
(109)
|
7,565
|
|||||
|
Operating
Income
|
166
|
2,829
|
76
|
-
|
3,071
|
|||||
|
Equity
in Earnings of Subsidiaries
|
1,931
|
-
|
-
|
(1,931)
|
-
|
|||||
|
Interest
Expense
|
(499)
|
(101)
|
(28)
|
71
|
(557)
|
|||||
|
Other
Income - Net
|
15
|
25
|
63
|
(71)
|
32
|
|||||
|
Earnings
from Continuing Operations
|
||||||||||
|
Before
Income Taxes
|
1,613
|
2,753
|
111
|
(1,931)
|
2,546
|
|||||
|
Income
Tax Benefit (Expense)
|
(50)
|
(1,064)
|
131
|
-
|
(983)
|
|||||
|
Earnings
from Continuing Operations
|
1,563
|
1,689
|
242
|
(1,931)
|
1,563
|
|||||
|
Discontinued
Operations
|
-
|
-
|
-
|
-
|
-
|
|||||
|
Net
Earnings
|
$1,563
|
$1,689
|
$242
|
$(1,931)
|
$1,563
|
|||||
|
Fiscal Year Ended December
2009(a)
|
CSX
Corporation
|
CSX
Transportation
|
Other
|
Eliminations
|
Consolidated
|
|||||
|
Revenue
|
$-
|
$7,776
|
$1,362
|
$(97)
|
$9,041
|
|||||
|
Expense
|
(279)
|
5,983
|
1,164
|
(97)
|
6,771
|
|||||
|
Operating
Income
|
279
|
1,793
|
198
|
-
|
2,270
|
|||||
|
Equity
in Earnings of Subsidiaries
|
1,560
|
-
|
-
|
(1,560)
|
-
|
|||||
|
Interest
Expense
|
(500)
|
(116)
|
(11)
|
69
|
(558)
|
|||||
|
Other
Income - Net
|
63
|
28
|
12
|
(69)
|
34
|
|||||
|
Earnings
from Continuing Operations
|
||||||||||
|
Before
Income Taxes
|
1,402
|
1,705
|
199
|
(1,560)
|
1,746
|
|||||
|
Income
Tax Benefit (Expense)
|
(291)
|
(624)
|
297
|
-
|
(618)
|
|||||
|
Earnings
from Continuing Operations
|
1,111
|
1,081
|
496
|
(1,560)
|
1,128
|
|||||
|
Discontinued
Operations
|
32
|
-
|
(17)
|
-
|
15
|
|||||
|
Net
Earnings
|
$1,143
|
$1,081
|
$479
|
$(1,560)
|
$1,143
|
|||||
|
Fiscal Year Ended December
2008(a)
|
CSX
Corporation
|
CSX
Transportation
|
Other
|
Eliminations
|
Consolidated
|
|||||
|
Revenue
|
$-
|
$9,712
|
$1,675
|
$(132)
|
$11,255
|
|||||
|
Expense
|
(193)
|
7,528
|
1,289
|
(120)
|
8,504
|
|||||
|
Operating
Income
|
193
|
2,184
|
386
|
(12)
|
2,751
|
|||||
|
Equity
in Earnings of Subsidiaries
|
1,490
|
-
|
-
|
(1,490)
|
-
|
|||||
|
Interest
Expense
|
(544)
|
(155)
|
(22)
|
202
|
(519)
|
|||||
|
Other
Income - Net
|
110
|
118
|
62
|
(190)
|
100
|
|||||
|
Earnings
from Continuing Operations
|
||||||||||
|
Before
Income Taxes
|
1,249
|
2,147
|
426
|
(1,490)
|
2,332
|
|||||
|
Income
Tax Benefit (Expense)
|
106
|
(726)
|
(227)
|
-
|
(847)
|
|||||
|
Earnings
from Continuing Operations
|
1,355
|
1,421
|
199
|
(1,490)
|
1,485
|
|||||
|
Discontinued
Operations
|
-
|
-
|
(130)
|
-
|
(130)
|
|||||
|
Net
Earnings
|
$1,355
|
$1,421
|
$69
|
$(1,490)
|
$1,355
|
|
|
(a)
Certain amounts have been adjusted for the retrospective change in
accounting policy for rail grinding, see Note 1, Nature of Operations and
Significant Accounting
Policies.
|
NOTE 17. Summarized
Consolidating Financial Data, continued
Consolidating
Balance Sheets
(Dollars
in Millions)
|
CSX
|
CSX
|
||||||
|
As
of December 2010
|
Corporation
|
Transportation
|
Other
|
Eliminations
|
Consolidated
|
||
|
ASSETS
|
|||||||
|
Current
Assets
|
|||||||
|
Cash
and Cash Equivalents
|
$1,100
|
$118
|
$74
|
$-
|
$1,292
|
||
|
Short-term
Investments
|
-
|
-
|
54
|
-
|
54
|
||
|
Accounts
Receivable - Net
|
5
|
903
|
618
|
(533)
|
993
|
||
|
Materials
and Supplies
|
-
|
218
|
-
|
-
|
218
|
||
|
Deferred
Income Taxes
|
15
|
171
|
6
|
-
|
192
|
||
|
Other
Current Assets
|
46
|
56
|
36
|
(32)
|
106
|
||
|
Total
Current Assets
|
1,166
|
1,466
|
788
|
(565)
|
2,855
|
||
|
Properties
|
8
|
30,557
|
1,500
|
-
|
32,065
|
||
|
Accumulated
Depreciation
|
(8)
|
(7,405)
|
(853)
|
-
|
(8,266)
|
||
|
Properties
- Net
|
-
|
23,152
|
647
|
-
|
23,799
|
||
|
Investments
in Conrail
|
-
|
-
|
673
|
-
|
673
|
||
|
Affiliates
and Other Companies
|
-
|
595
|
(134)
|
-
|
461
|
||
|
Investment
in Consolidated Subsidiaries
|
16,278
|
-
|
53
|
(16,331)
|
-
|
||
|
Other
Long-term Assets
|
174
|
110
|
602
|
(533)
|
353
|
||
|
Total
Assets
|
$17,618
|
$25,323
|
$2,629
|
$(17,429)
|
$28,141
|
||
|
LIABILITIES
AND SHAREHOLDERS' EQUITY
|
|||||||
|
Current
Liabilities
|
|||||||
|
Accounts
Payable
|
$116
|
$904
|
$28
|
$(2)
|
$1,046
|
||
|
Labor
and Fringe Benefits Payable
|
42
|
431
|
47
|
(531)
|
(11)
|
||
|
Payable
to Affiliates
|
894
|
(86)
|
(277)
|
-
|
531
|
||
|
Casualty,
Environmental and Other Reserves
|
-
|
161
|
15
|
-
|
176
|
||
|
Current
Maturities of Long-term Debt
|
517
|
94
|
2
|
-
|
613
|
||
|
Income
and Other Taxes Payable
|
377
|
109
|
(401)
|
-
|
85
|
||
|
Other
Current Liabilities
|
-
|
96
|
33
|
(32)
|
97
|
||
|
Total
Current Liabilities
|
1,946
|
1,709
|
(553)
|
(565)
|
2,537
|
||
|
Casualty,
Environmental and Other Reserves
|
-
|
411
|
91
|
-
|
502
|
||
|
Long-term
Debt
|
6,815
|
1,235
|
1
|
-
|
8,051
|
||
|
Deferred
Income Taxes
|
(293)
|
7,228
|
118
|
-
|
7,053
|
||
|
Long-term
Payable to Affiliates
|
-
|
-
|
533
|
(533)
|
-
|
||
|
Other
Long-term Liabilities
|
464
|
525
|
309
|
-
|
1,298
|
||
|
Total
Liabilities
|
$8,932
|
$11,108
|
$499
|
$(1,098)
|
$19,441
|
||
|
Shareholders'
Equity
|
|||||||
|
Common
Stock, $1 Par Value
|
370
|
181
|
-
|
(181)
|
370
|
||
|
Other
Capital
|
-
|
5,634
|
1,978
|
(7,612)
|
-
|
||
|
Retained
Earnings
|
9,087
|
8,443
|
165
|
(8,608)
|
9,087
|
||
|
Accumulated
Other Comprehensive Loss
|
(771)
|
(65)
|
(61)
|
126
|
(771)
|
||
|
Noncontrolling
Minority Interest
|
-
|
22
|
48
|
(56)
|
14
|
||
|
Total
Shareholders' Equity
|
8,686
|
14,215
|
2,130
|
(16,331)
|
8,700
|
||
|
Total
Liabilities and Shareholders' Equity
|
$17,618
|
$25,323
|
$2,629
|
$(17,429)
|
$28,141
|
||
NOTE 17. Summarized
Consolidating Financial Data, continued
Consolidating
Balance Sheets
(Dollars
in Millions)
|
CSX
|
CSX
|
||||||
|
As
of December 2009(a)
|
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
|
29,565
|
1,338
|
-
|
30,907
|
||
|
Accumulated
Depreciation
|
(6)
|
(7,011)
|
(826)
|
-
|
(7,843)
|
||
|
Properties
- Net
|
(2)
|
22,554
|
512
|
-
|
23,064
|
||
|
Investments
in Conrail
|
-
|
-
|
650
|
-
|
650
|
||
|
Affiliates
and Other Companies
|
-
|
566
|
(128)
|
-
|
438
|
||
|
Investment
in Consolidated Subsidiaries
|
15,382
|
-
|
139
|
(15,521)
|
-
|
||
|
Other
Long-term Assets
|
46
|
75
|
87
|
(43)
|
165
|
||
|
Total
Assets
|
$16,380
|
$24,485
|
$2,046
|
$(16,024)
|
$26,887
|
||
|
LIABILITIES
AND SHAREHOLDERS' EQUITY
|
|||||||
|
Current
Liabilities
|
|||||||
|
Accounts
Payable
|
$111
|
$782
|
$74
|
$-
|
$967
|
||
|
Labor
and Fringe Benefits Payable
|
37
|
307
|
39
|
-
|
383
|
||
|
Payable
to Affiliates
|
625
|
632
|
(808)
|
(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)
|
6,814
|
51
|
-
|
6,528
|
||
|
Long-term
Payable to Affiliates
|
-
|
-
|
44
|
(44)
|
-
|
||
|
Other
Long-term Liabilities
|
600
|
522
|
162
|
-
|
1,284
|
||
|
Total
Liabilities
|
$7,626
|
$11,397
|
$(400)
|
$(504)
|
$18,119
|
||
|
Shareholders'
Equity
|
|||||||
|
Common
Stock, $1 Par Value
|
393
|
181
|
-
|
(181)
|
393
|
||
|
Other
Capital
|
80
|
5,569
|
1,951
|
(7,520)
|
80
|
||
|
Retained
Earnings
|
9,090
|
7,393
|
507
|
(7,900)
|
9,090
|
||
|
Accumulated
Other Comprehensive Loss
|
(809)
|
(77)
|
(54)
|
131
|
(809)
|
||
|
Noncontrolling
Minority Interest
|
-
|
22
|
42
|
(50)
|
14
|
||
|
Total
Shareholders' Equity
|
8,754
|
13,088
|
2,446
|
(15,520)
|
8,768
|
||
|
Total
Liabilities and Shareholders' Equity
|
$16,380
|
$24,485
|
$2,046
|
$(16,024)
|
$26,887
|
||
|
|
(a) Certain
amounts have been adjusted for the retrospective change in accounting
policy for rail grinding, see Note 1, Nature of Operations and Significant
Accounting Policies.
|
NOTE 17. Summarized
Consolidating Financial Data, continued
Consolidating
Cash Flow Statements
(Dollars
in Millions)
|
CSX
|
CSX
|
|||||
|
Fiscal
Year Ended December 2010
|
Corporation
|
Transportation
|
Other
|
Eliminations
|
Consolidated
|
|
|
Operating
Activities
|
||||||
|
Net
Cash Provided by (Used in) Operating Activities
|
$592
|
$3,014
|
$230
|
$(590)
|
$3,246
|
|
|
Investing
Activities
|
||||||
|
Property
Additions
|
-
|
(1,571)
|
(254)
|
-
|
(1,825)
|
|
|
Purchases
of Short-term Investments
|
-
|
-
|
-
|
-
|
-
|
|
|
Proceeds
from Sales of Short-term Investments
|
-
|
-
|
-
|
-
|
-
|
|
|
Other
Investing Activities
|
301
|
(3)
|
(502)
|
273
|
69
|
|
|
Net
Cash Provided by (Used in) Investing Activities
|
301
|
(1,574)
|
(756)
|
273
|
(1,756)
|
|
|
Financing
Activities
|
||||||
|
Long-term
Debt Issued
|
800
|
-
|
-
|
-
|
800
|
|
|
Long-term
Debt Repaid
|
-
|
(111)
|
(2)
|
-
|
(113)
|
|
|
Dividends
Paid
|
(379)
|
(590)
|
7
|
590
|
(372)
|
|
|
Stock
Options Exercised
|
42
|
-
|
-
|
-
|
42
|
|
|
Shares
Repurchased
|
(1,452)
|
-
|
-
|
-
|
(1,452)
|
|
|
Other
Financing Activities
|
278
|
(651)
|
514
|
(273)
|
(132)
|
|
|
Net
Cash Provided by (Used in) Financing Activities
|
(711)
|
(1,352)
|
519
|
317
|
(1,227)
|
|
|
Net
Increase (Decrease) in Cash and Cash Equivalents
|
182
|
88
|
(7)
|
-
|
263
|
|
|
Cash
and Cash Equivalents at Beginning of Period
|
918
|
30
|
81
|
-
|
1,029
|
|
|
Cash
and Cash Equivalents at End of Period
|
$1,100
|
$118
|
$74
|
$-
|
$1,292
|
|
CSX
|
CSX
|
|||||
|
Fiscal Year Ended December
2009(a)
|
Corporation
|
Transportation
|
Other
|
Eliminations
|
Consolidated
|
|
|
Operating
Activities
|
||||||
|
Net
Cash Provided by (Used in) Operating Activities
|
$109
|
$2,984
|
$(94)
|
$(959)
|
$2,040
|
|
|
Investing
Activities
|
||||||
|
Property
Additions
|
-
|
(1,332)
|
(95)
|
-
|
(1,427)
|
|
|
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)
|
(1,692)
|
(69)
|
475
|
(1,373)
|
|
|
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
|
|
|
Shares
Repurchased
|
-
|
-
|
-
|
-
|
-
|
|
|
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
|
|
|
(a) Certain
amounts have been adjusted for the retrospective change in accounting
policy for rail grinding, see Note 1, Nature of Operations and Significant
Accounting Policies.
|
NOTE 17. Summarized
Consolidating Financial Data, continued
Consolidating
Cash Flow Statements
(Dollars
in Millions)
|
CSX
|
CSX
|
|||||
|
Fiscal Year Ended December
2008(a)
|
Corporation
|
Transportation
|
Other
|
Eliminations
|
Consolidated
|
|
|
Operating
Activities
|
||||||
|
Net
Cash Provided by (Used in) Operating Activities
|
$1,093
|
$2,369
|
$139
|
$(708)
|
$2,893
|
|
|
Investing
Activities
|
||||||
|
Property
Additions
|
-
|
(1,614)
|
(105)
|
-
|
(1,719)
|
|
|
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
|
(1,490)
|
31
|
(793)
|
(1,428)
|
|
|
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
|
|
|
(a) Certain
amounts have been adjusted for the retrospective change in accounting
policy for rail grinding, see Note 1, Nature of Operations and Significant
Accounting Policies.
|
Item 9. Changes in and Disagreements with
Accountants on Accounting and Financial Disclosure
None.
Item 9A. Controls and
Procedures
Evaluation
of Disclosure Controls and Procedures
As of
December 31, 2010, under the supervision and with the participation of CSX's
Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), management
has evaluated the effectiveness of the design and operation of the Company's
disclosure controls and procedures. Based on that evaluation, the CEO and CFO
concluded that, as of December 31, 2010, the Company's disclosure controls and
procedures were effective at the reasonable assurance level in timely alerting
them to material information required to be included in CSX’s periodic SEC
reports. There were no changes in the Company's internal controls over financial
reporting during the fourth quarter of 2010 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 31, 2010 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 31, 2010. 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 31, 2010 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 31, 2010, 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 31, 2010, based on the
COSO criteria.
We also
have audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the 2010 consolidated financial statements of
CSX Corporation and our report dated February 18, 2011 expressed an unqualified
opinion thereon.
/s/ Ernst
& Young LLP
Certified
Public Accountants
Jacksonville,
Florida
February
18, 2011
Changes
in Internal Control over Financial Reporting
There
were no material changes in the Company’s internal control over financial
reporting.
Item 9B. Other Information
On February
9, 2011, the Compensation Committee of the Board of Directors approved
amendments to the CSX Policy Regarding Shareholder Approval of Severance
Agreements and authorized management to enter into amended change-in-control
agreements with certain executive officers. On February 14, 2011, the Company
entered into amended and restated Change-in-Control Agreements (the
“Agreements”) with certain of the executive officers identified in Part I of
this Form 10-K and will execute agreements with the others in due course. In
connection with the Agreements, each of the executive officers agreed to
terminate existing change-in-control agreements. The Agreements limit severance
amounts to 2.99 times base salary and target annual bonus upon termination of
employment in connection with a change-in-control. In addition, the Agreements
prohibit reimbursement of any income or excise taxes payable by the executive.
The Agreements are effective March 1, 2011 and expire on February 28, 2014. The
Company expects to enter into amended and restated agreements with other members
of senior management. A form Agreement is attached hereto as Exhibit
10.35.
Item 10. Directors, Executive Officers of
the Registrant and Corporate Governance
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 March 24, 2011 with respect to its
2011 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."
Item 11. Executive Compensation
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).
Item 12. Security Ownership of Certain
Beneficial Owners and Management and Related Stockholder Matters
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).
Item 13. Certain Relationships and
Related Transactions, and Director Independence
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).
Item 14. Principal Accounting Fees and
Services
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).
Item 15. Exhibits, Financial Statement
Schedules
(a)(1)
Financial Statements
See Index
to Consolidated Financial Statements on page 59.
(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:
|
10.2**
|
CSX
Directors’ Pre-2005 Deferred Compensation Plan (as amended through January
8, 2008) (incorporated herein by reference to Exhibit 10.2 to the
Registrant’s Annual Report on Form 10-K filed with the Commission on
February 22, 2008)
|
|
10.3**
|
CSX
Directors’ Deferred Compensation Plan effective January 1, 2005
(incorporated herein by reference to Exhibit 10.3 to the Registrant’s
Annual Report on Form 10-K filed with the Commission on February 22,
2008)
|
|
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 February 9,
2011)
|
|
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 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)
|
|
|
|
10.9**
|
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)
|
|
10.10**
|
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)
|
|
10.11**
|
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)
|
|
10.12**
|
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)
|
|
10.13**
|
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)
|
|
10.14**
|
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)
|
|
10.15**
|
CSX
Omnibus Incentive Plan (as Amended through December 12, 2007)(incorporated
herein by reference to Exhibit 10.17 to the Registrant’s Annual
Report on Form 10-K filed with the Commission on February 22,
2008)
|
|
10.16
|
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)
|
|
10.17
|
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)
|
|
10.18
|
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)
|
|
10.19
|
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)
|
|
10.20
|
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)
|
|
10.21
|
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)
|
|
10.22
|
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)
|
|
10.23
|
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)
|
|
10.24
|
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)
|
|
10.25
|
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)
|
|
10.26
|
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)
|
|
10.27**
|
Employment
Agreement with David A. Brown, dated as of January 1,
2010 (incorporated herein by reference to Exhibit 10.29 to the
Registrant's Annual Report on Form 10-K filed with the Commission on
February 19, 2010)
|
|
10.28**
|
Restricted
Stock Award Agreement with David A. Brown (incorporated herein by
reference to Exhibit 10.30 to the Registrant's Annual Report on Form 10-K
filed with the Commission on February 19,
2010)
|
|
10.29**
|
Restricted
Stock Award Agreement with Lisa A. Mancini (incorporated herein by
reference to Exhibit 10.31 to the Registrant's Annual Report on Form 10-K
filed with the Commission on February 19,
2010)
|
|
10.30
|
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)
|
|
10.31**
|
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)
|
|
10.32
|
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)
|
|
10.33
|
Long-term
Incentive Plan effective May 5, 2010 (incorporated herein by reference to
Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed with the
Commission on May 7, 2010
|
|
10.34
|
CSX
Stock and Incentive Award Plan (incorporated herein by reference to
Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed with the
Commission on May 7, 2010)
|
|
10.35*
|
2010
Form of Change-in-Control Agreement with executive
officers
|
|
21*
|
Subsidiaries
of the Registrant
|
|
23*
|
Consent
of Independent Registered Public Accounting
Firm
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24*
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Powers
of Attorney
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31*
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Rule 13a-14(a)
Certifications
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32*
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Section 1350
Certifications
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| 99* |
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Annual CEO Certification
pursuant to NYSE Rule 303A.12(a)
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101*
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The
following financial information from CSX Corporation’s Annual Report on
Form 10-K for the year ended December 31, 2010 filed with the SEC on
February 18, 2011, formatted in XBRL includes: (i) Consolidated Income
Statements for the fiscal periods ended December 31, 2010, December 25,
2009 and December 26, 2008, (ii) Consolidated Balance Sheets at December
31, 2010 and December 25, 2009, (iii) Consolidated Cash Flow Statements
for the fiscal periods ended December 31, 2010, December 25, 2009 and
December 26, 2008 and (iv) the Notes to Consolidated Financial
Statements.
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* Filed
herewith
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**
Management Contract or Compensatory Plan or
Arrangement
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Note:
Items not filed herewith have been submitted in previous SEC
filings.
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SIGNATURES
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
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Vice
President and Controller
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(Principal
Accounting Officer)
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Dated:
February 18, 2011
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, 2011.
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Signature
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Title
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Chairman
of the Board, President, Chief
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||
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/s/
MICHAEL J. WARD
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Executive
Officer and Director
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Michael
J. Ward
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(Principal
Executive Officer)
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/s/
OSCAR MUNOZ
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Executive
Vice President and Chief Financial
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Oscar
Munoz
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Officer
(Principal Financial Officer)
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/s/
CAROLYN T. SIZEMORE
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Vice
President and Controller
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Carolyn
T. Sizemore
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(Principal
Accounting Officer)
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/s/
ELLEN M. FITZSIMMONS
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Senior
Vice President - Law and Public Affairs
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Ellen
M. Fitzsimmons
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*Attorney-in-Fact
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Signature
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Title
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*
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Director
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Donna
M. Alvarado
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||
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*
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Director
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Alexandre
Behring
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||
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*
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Director
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John
B. Breaux
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||
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*
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Director
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Pamela
L. Carter
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||
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*
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Director
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Steven
T. Halverson
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||
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*
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Director
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Edward
J. Kelly, III
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||
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*
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Director
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Gilbert
H. Lamphere
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||
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*
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Director
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John
D. McPherson
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||
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*
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Director
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Timothy
T. O'Toole
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||
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*
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Director
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David
M. Ratcliffe
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||
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*
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Director
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Donald
J. Shepard
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