More on the Treasury pick, and this will make you puke>
AHEAD OF THE TAPE
By JESSE EISINGER
WSJ
Mr. Snow's Job
Wall Street was unimpressed by President Bush's appointment of John Snow for Treasury secretary. But in one way, the chairman and chief executive of CSX is a great Wall Street friend.
CSX has been raising money steadily from investors because it doesn't generate enough of its own. While CSX's operating income is rising and net income has looked positive, the railroad company actually has been bleeding cash. For the first nine months of this year, cash flow from operations totaled $693 million and capital expenditure was $743 million, for a $50 million hole. (In that period, operating income rose.) The company has shown net income for the past five years. But in those five years, according to a calculation in an October report from the accounting watchdog Center for Financial Research and Analysis, CSX has had cumulative free cash flow -- which is the amount of cash left after taking out capital expenditures and money needed to run the business -- of negative $1.18 billion.
And so CSX must rely on the good graces of Wall Street, raising debt even as cash is dwindling. Net debt has risen steadily to $6.82 billion from $5.85 billion in the third quarter of 2000 and is at its highest level in seven years, according to CFRA. Cash is less that half of what it was during the third quarter of 2000. Mr. Snow is clearly a guy who understands deficit spending.
Just like most companies that don't generate free cash, CSX used a variety of complicated accounting maneuvers that became standard during the 1990s bull market. CSX has a complex corporate structure relating to its bitter takeover battle with Norfolk Southern over Conrail.
CSX securitizes its accounts receivables, a standard financial transaction, but one that should raise eyebrows. The use of such special purposing indicates the company is willing to pay a little for cash today, instead of waiting a couple of months to collect the full value of its customers' bills. In the most recent quarter, it managed an earnings boost from lowering its tax rate. In 2001, CSX reduced its reserves for things like future environmental and employee-injury claims, resulting in a boost to operating income.
In the past decade under Mr. Snow's stewardship, CSX's stock price has fallen 17%, while the S&P 500 has risen 111%. John Snow, in other words, didn't preside over a company with a stellar record of clear and strong financial performance. The markets will need a better job from him at Treasury.
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He also gets a $3.3 million walkaway from CSX,
based I am sure on his brilliant business savvy....
American business, ain't it great? |
