CSX CORPORATION SECOND QUARTER 2020 HIGHLIGHTS
•Revenue decreased$806 million , or 26% year over year. •Expenses decreased$329 million , or 19% year over year. •Operating income of$828 million decreased$477 million year over year. •Operating ratio of 63.3% increased 590 basis points versus last year's quarter. •Earnings per diluted share of$0.65 decreased$0.43 , or 40% year over year. Second Quarters Six Months Fav / Fav / 2020 2019 (Unfav) % Change 2020 2019 (Unfav) % Change Volume (in thousands) 1,257 1,581 (324) (20)% 2,771 3,112 (341) (11)% (in millions) Revenue$ 2,255 $ 3,061 $ (806) (26)$ 5,110 $ 6,074 $(964) (16) Expense 1,427 1,756 329 19 3,104 3,550 446 13 Operating Income$ 828 $ 1,305 $ (477) (37)%$ 2,006 $ 2,524 $(518) (21)% Operating Ratio 63.3 % 57.4 % (590) bps 60.7 % 58.4 % (230) bps Earnings Per Diluted Share$ 0.65 $ 1.08 $ (0.43) (40)%$ 1.65 $ 2.10 $(0.45) (21)% CSX Q2 2020 Form 10-Q p.27
--------------------------------------------------------------------------------
Table of Contents
CSX CORPORATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Weaker global economic conditions, including the effects of the novel
coronavirus ("COVID-19") global pandemic, have significantly impacted and will
continue to impact the Company's results of operations. Demand for rail services
has been affected by the disruption of global manufacturing, supply chains and
consumer spending as a result of the COVID-19 pandemic. While operating cash
flows have also been impacted by these economic conditions, the Company
maintains a strong cash balance and access to committed funding sources and
other sources of external liquidity if required. As this is a dynamic situation,
it is difficult to determine the future impacts of the pandemic. The ultimate
magnitude of COVID-19, including the extent of its impact on the Company's
financial and operating results, will be determined by the length of time that
the pandemic continues, its effect on the demand for the Company's
transportation services and the supply chain, as well as the effect of
governmental regulations imposed in response to the pandemic.
CSX will continue to adapt its business operations to ensure safety while
providing a high level of service for customers as efficient and reliable rail
service is essential to keeping supply chains fluid in response to this
challenge. A cross-functional task force continues to monitor and coordinate the
Company's response to COVID-19. Policies and procedures established to protect
the health and safety of employees and customers and to safeguard CSX operations
include rigorous cleaning regimens for equipment and facilities, provision of
sanitation supplies, distribution of disposable face coverings, facilitation of
social distancing measures and administration of temperature testing at certain
facilities. Additionally, remote work assignments have been arranged where
possible in order to reduce the density of employees in a single location, and
alternative locations for key functions, such as dispatch, have been utilized as
needed.
On March 27, 2020 , the Coronavirus Aid, Relief, and Economic Security Act
("CARES Act") was enacted to provide relief to businesses in response to the
COVID-19 pandemic. The most significant impacts to the Company include the
deferral of federal estimated tax payments to third quarter 2020 and the
deferral of certain payroll tax payments to 2021 and 2022. The provisions of the
CARES Act are not expected to have an impact on CSX's results of operations or
effective tax rate.
CSX Q2 2020 Form 10-Q p.28--------------------------------------------------------------------------------
Table of Contents
CSX CORPORATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONSVolume and Revenue (Unaudited)
Volume (Thousands of units); Revenue (Dollars in Millions); Revenue Per Unit (Dollars)
Second Quarters
Volume Revenue Revenue Per Unit
2020 2019 % Change 2020 2019 % Change 2020 2019 % Change
Chemicals(a) 152 173 (12) % $ 531 $ 592 (10) % $ 3,493 $ 3,422 2 %
Agricultural and Food Products 102 118 (14) 311 358 (13) 3,049 3,034 -
Minerals(a) 83 90 (8) 134 147 (9) 1,614 1,633 (1)
Forest Products(a) 64 71 (10) 194 218 (11) 3,031 3,070 (1)
Fertilizers 60 61 (2) 103 112 (8) 1,717 1,836 (6)
Metals and Equipment(a) 48 63 (24) 142 188 (24) 2,958 2,984 (1)
Automotive 35 121 (71) 93 329 (72) 2,657 2,719 (2)
Total Merchandise 544 697 (22) 1,508 1,944 (22) 2,772 2,789 (1)
Coal 127 226 (44) 287 557 (48) 2,260 2,465 (8)
Intermodal 586 658 (11) 359 436 (18) 613 663 (8)
Other - - - 101 124 (19) - - -
Total 1,257 1,581 (20) % $ 2,255 $ 3,061 (26) % $ 1,794 $ 1,936 (7) %
Six Months
Volume Revenue Revenue Per Unit
2020 2019 % Change 2020 2019 % Change 2020 2019 % Change
Chemicals(a) 330 340 (3) % $ 1,157 $ 1,180 (2) % $ 3,506 $ 3,471 1 %
Agricultural and Food Products 223 232 (4) 676 702 (4) 3,031 3,026 -
Minerals(a) 157 160 (2) 261 272 (4) 1,662 1,700 (2)
Forest Products(a) 135 141 (4) 411 430 (4) 3,044 3,050 -
Fertilizers 118 123 (4) 215 222 (3) 1,822 1,805 1
Metals and Equipment(a) 115 127 (9) 341 377 (10) 2,965 2,969 -
Automotive 139 236 (41) 374 640 (42) 2,691 2,712 (1)
Total Merchandise 1,217 1,359 (10) 3,435 3,823 (10) 2,823 2,813 -
Coal 308 438 (30) 692 1,095 (37) 2,247 2,500 (10)
Intermodal 1,246 1,315 (5) 781 864 (10) 627 657 (5)
Other - - - 202 292 (31) - - -
Total 2,771 3,112 (11) % $ 5,110 $ 6,074 (16) % $ 1,844 $ 1,952 (6) %
(a) In first quarter 2020, changes were made in the categorization of certain
lines of business, impacting Chemicals, Forest Products, Metals and Equipment,
and Minerals. The impacts were not material and prior periods have been
reclassified to conform to the current presentation.
CSX Q2 2020 Form 10-Q p.29--------------------------------------------------------------------------------
Table of Contents
CSX CORPORATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Second Quarter 2020
Revenue
The effects of the COVID-19 pandemic significantly impacted overall volume in the second quarter 2020. Total revenue decreased 26% in second quarter 2020 when compared to second quarter 2019 due to volume declines, unfavorable mix, decreases in fuel recovery, declines in coal pricing and lower other revenue. These decreases were partially offset by pricing gains in merchandise and intermodal. Merchandise Volume Chemicals - Decreased due to lower shipments of industrial chemicals, energy and waste.
Agricultural and Food Products - Declined due to lower shipments of food and consumer products, grain and feed, and ethanol.
Minerals - Decreased due to lower shipments of cement, lime and limestone, and other minerals.
Forest Products - Declined due to lower shipments of building products and printing paper, partially offset by higher shipments of pulpboard.
Fertilizers - Decreased due to lower long-haul fertilizer shipments, which was partially offset by higher short-haul phosphate shipments.
Metals and Equipment - Declined due to reduced metals shipments driven by lower automotive and industrial production.
Automotive - Declined due to lower North American vehicle production primarily associated with plant closures resulting from COVID-19. Coal Volume
Domestic coal declined due to lower shipments of utility coal as a result of
continued competition from natural gas and reduced electrical demand, as well as
lower steel and industrial shipments due to lower industrial production. Export
coal declined due to reduced international shipments of thermal and
metallurgical coal as a result of lower global benchmark prices.
Intermodal Volume
Declines in both domestic and international shipments were primarily driven by the global economic impacts from COVID-19.
Other Revenue
Other revenue decreased
CSX Q2 2020 Form 10-Q p.30--------------------------------------------------------------------------------
Table of Contents
CSX CORPORATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONSExpenses
Expenses of
Labor and Fringe expense decreased$141 million due to the following: •Volume and efficiency savings of$109 million primarily resulted from reduced crew starts and lower headcount. •Total incentive compensation decreased$39 million primarily due to lower expected payouts on existing plans. •Other costs increased$7 million primarily due to$10 million of severance expense in the quarter, partially offset by other non-significant items. Materials, Supplies and Other expense decreased$38 million due to the following: •Volume and efficiency savings of$84 million primarily resulted from lower recurring operating support costs, lower terminal costs and reduced equipment maintenance expenses. •Gains from real estate and line sales were$11 million in 2020 compared to$37 million in 2019. •All other costs increased$20 million primarily driven by$9 million for COVID-19 supplies and other non-significant items including asset impairments and inflation.
Depreciation expense increased
Fuel expense decreased
Equipment and Other Rents expense decreased
Interest Expense
Interest expense increased
Other Income - Net Other income - net decreased$10 million primarily due to lower interest rates associated with changes in asset holdings from short-term investments to cash, partially offset by higher average cash and short-term investment balances. Income Tax Expense Income tax expense decreased$123 million primarily due to lower earnings before income taxes. CSX Q2 2020 Form 10-Q p.31
--------------------------------------------------------------------------------
Table of Contents
CSX CORPORATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONSSix Months Results of Operations
Revenue decreased$964 million due to volume declines, unfavorable mix, lower other revenue, decreases in fuel recovery and declines in coal pricing. These decreases were partially offset by pricing gains in merchandise and intermodal.
Total expense decreased
Interest expense increased
Other income - net decreased$11 million primarily due to lower interest rates associated with changes in asset holdings from short-term investments to cash, partially offset by higher average cash and short-term investment balances.
Income tax expense decreased
CSX Q2 2020 Form 10-Q p.32--------------------------------------------------------------------------------
Table of Contents
CSX CORPORATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONSNon-GAAP Measures - Unaudited
CSX reports its financial results in accordance with accounting principles
generally accepted in the United States of America (U.S. GAAP). CSX also uses
certain non-GAAP measures that fall within the meaning of Securities and
Exchange Commission Regulation G and Regulation S-K Item 10(e), which may
provide users of the financial information with additional meaningful comparison
to prior reported results. Non-GAAP measures do not have standardized
definitions and are not defined by U.S. GAAP. Therefore, CSX's non-GAAP measures
are unlikely to be comparable to similar measures presented by other companies.
The presentation of these non-GAAP measures should not be considered in
isolation from, as a substitute for, or as superior to the financial information
presented in accordance with GAAP. Reconciliations of non-GAAP measures to
corresponding GAAP measures are below.
Free Cash Flow
Management believes that free cash flow is supplemental information useful
to investors as it is important in evaluating the Company's financial
performance. More specifically, free cash flow measures cash generated by the
business after reinvestment. This measure represents cash available for both
equity and bond investors to be used for dividends, share repurchases or
principal reduction on outstanding debt. Free cash flow is calculated by using
net cash from operations and adjusting for property additions and certain other
investing activities, which includes proceeds from property dispositions. Free
cash flow should be considered in addition to, rather than a substitute for,
cash provided by operating activities. The decrease in free cash flow before
dividends from the prior year of $242 million is primarily due to lower proceeds
from property dispositions and lower net cash provided by operating activities.
The following table reconciles cash provided by operating activities (GAAP measure) to free cash flow, before dividends (non-GAAP measure).
Six Months
(Dollars in millions) 2020 2019
Net cash provided by operating activities $ 2,184 $ 2,267
Property Additions (801) (769)
Other Investing Activities 3 130
Free Cash Flow (before payment of dividends) $ 1,386 $ 1,628
Operating Statistics (Estimated)
The Company strives for continuous improvement in safety and service performance
through training, innovation and investment. Investment in training and
technology also is designed to allow the Company's employees to have an
additional layer of protection that can detect and avoid many types of human
factor incidents. Safety programs are designed to prevent incidents that can
adversely impact employees, customers and communities. Continued capital
investment in the Company's assets, including track, bridges, signals, equipment
and detection technology also supports safety performance.
Train velocity, terminal dwell and cars online in the following table are
calculated using methodologies that differ from those prescribed by the Surface
Transportation Board ("STB") as the Company believes these numbers more
accurately reflect railroad performance. These metrics will continue to be
reported, using the prescribed methodology, to the STB on a weekly basis. See
additional discussion on the Company's website.
CSX Q2 2020 Form 10-Q p.33--------------------------------------------------------------------------------
Table of Contents
CSX CORPORATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Train velocity increased by 6% year over year while car dwell increased 2%.
The Company remains focused on executing the operating plan to deliver service
gains, improved transit times and increased asset utilization while continuing
to control costs.
From a safety perspective, CSX had an all-time low number of FRA-reportable
train accidents in the second quarter of 2020. This improvement was outpaced by
a significant reduction in train miles, which caused the FRA train accident rate
to degrade 9% year over year to 2.33. The FRA personal injury frequency index of
1.16 in the second quarter degraded 40% versus the prior year as an increase in
FRA-reportable personal injuries was compounded by lower man-hours in the
quarter. The Company is committed to continuous safety improvement and remains
focused on reducing risk and enhancing the overall safety of its employees,
customers and communities in which the Company operates.
Second Quarters Six Months
Improvement/ Improvement/
2020 2019 (Deterioration) 2020 2019 (Deterioration)
Operations Performance
Train Velocity (Miles per hour) 21.2 20.0 6 % 21.2 20.2 5 %
Dwell (Hours) 8.9 8.7 (2) % 8.6 8.6 - %
Cars Online 98,606 120,919 18 % 104,703 119,959 13 %
Revenue Ton-Miles (Billions)
Merchandise 27.8 33.0 (16) % 60.9 64.6 (6) %
Coal 6.0 10.9 (45) % 14.6 21.4 (32) %
Intermodal 6.1 6.8 (10) % 12.9 13.3 (3) %
Total Revenue Ton-Miles 39.9 50.7 (21) % 88.4 99.3 (11) %
Total Gross Ton-Miles (Billions) 77.0 99.9 (23) % 172.3 196.6 (12) %
On-Time Originations 88 % 88 % - % 90 % 85 % 6 %
On-Time Arrivals(a) 84 % 73 % 15 % 84 % 77 % 9 %
Safety
FRA Personal Injury Frequency
Index 1.16 0.83 (40) % 0.86 0.81 (6) %
FRA Train Accident Rate 2.33 2.13 (9) % 2.19 2.47 11 %
Certain operating statistics are estimated and can continue to be updated as
actuals settle.
(a) Beginning in the third quarter 2019, the calculation of on-time arrivals has
changed to consider a train "on time" if it is delivered within two hours of
scheduled arrival. Prior year periods have been restated to conform to this
change.
Key Performance Measures Definitions
Train Velocity - Average train speed between origin and destination in miles per
hour (does not include locals, yard jobs, work trains or passenger trains).
Train velocity measures the profiled schedule of trains (from departure to
arrival and all interim time), and train profiles are periodically updated to
align with a changing operation.
Dwell - Average amount of time in hours between car arrival to and departure
from the yard.
Cars Online - Average number of active freight rail cars on lines operated by
CSX, excluding rail cars that are being repaired, in storage, those that have
been sold, or private cars dwelling at a customer location more than one day.
Revenue Ton-Miles (RTM's) - The movement of one revenue-producing ton of freight
over a distance of one mile.
Gross Ton-Miles (GTM's) - The movement of one ton of train weight over one mile.
GTM's are calculated by multiplying total train weight by distance the train
moved. Total train weight is comprised of the weight of the freight cars and
their contents.
On-Time Originations - Percent of scheduled road trains that depart the origin
yard on-time or ahead of schedule.
On-Time Arrivals - Percent of scheduled road trains that arrive at the
destination yard on-time to within two hours of scheduled arrival.
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.
CSX Q2 2020 Form 10-Q p.34--------------------------------------------------------------------------------
Table of Contents
CSX CORPORATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
The following are material changes in the significant cash flows, sources of
cash and liquidity, capital investments, consolidated balance sheets and working
capital, which provide an update to the discussion included in CSX's most recent
annual report on Form 10-K.
Material Changes in Significant Cash Flows
Significant Cash Flows
The following chart highlights the components of the net increase of
[[Image Removed: csx-20200630_g2.jpg]] [[Image Removed: csx-20200630_g3.jpg]] [[Image Removed: csx-20200630_g4.jpg]] •Cash provided by operating activities decreased$83 million primarily driven by lower cash-generating income, partially offset by favorable changes in working capital including the impacts of tax payment deferrals available under the CARES Act. •Cash used in investing activities decreased$1.3 billion primarily as a result of decreased purchases and increased sales of short-term investments, partially offset by lower proceeds from property dispositions. •Cash used in financing activities decreased$268 million driven by lower share repurchases, partially offset by lower proceeds from debt issuances and higher debt repayments. Sources of Cash and Liquidity and Uses of Cash As of the end of second quarter 2020, CSX had$2.6 billion of cash, cash equivalents and short-term investments. CSX uses current cash balances for general corporate purposes, which may include reduction or refinancing of outstanding indebtedness, capital expenditures, working capital requirements, contributions to the Company's qualified pension plan, redemptions and repurchases of CSX common stock and dividends to shareholders. See Note 7, Debt and Credit Agreements. The Company has multiple sources of liquidity, including cash generated from operations and financing sources. The Company filed a shelf registration statement with theSEC onFebruary 12, 2019 , which is unlimited as to amount and may be used to issue debt or equity securities at CSX's discretion, subject to market conditions and CSX Board authorization. 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 securities on acceptable terms at any given time, or at all. During six months ended 2020, CSX issued a total of$500 million of new long-term debt. CSX Q2 2020 Form 10-Q p.35
--------------------------------------------------------------------------------
Table of Contents
CSX CORPORATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
CSX has a $1.2 billion unsecured, revolving credit facility backed by a diverse
syndicate of banks that expires in March 2024 . At June 30, 2020 , the Company had
no outstanding balances under this facility. The Company also has a commercial
paper program, backed by the revolving credit facility, under which the Company
may issue unsecured commercial paper notes up to a maximum aggregate principal
amount of $1.0 billion outstanding at any one time. At June 30, 2020 , the
Company had no outstanding debt under the commercial paper program.
Planned capital investments for 2020 are expected to be between $1.6 billion
and $1.7 billion . Of the total 2020 investment, over half will be used to
sustain the core infrastructure and the remaining amounts will be allocated to
projects supporting service enhancements, productivity initiatives and
profitable growth. CSX intends to fund capital investments through cash
generated from operations.
Of the total 2020 investment, approximately $50 million is planned to fund
Positive Train Control ("PTC") implementation. PTC implementation is essentially
complete at a total cost of $2.4 billion which included installing the new
system along tracks, upgrading locomotives, adding communication equipment and
developing new technologies. While the Company expects ongoing PTC costs, future
PTC implementation costs are not expected to be material.
Material Changes in the Consolidated Balance Sheets and Working Capital Consolidated Balance Sheets
Total assets increased $647 million from year end primarily due to the net
increase of $640 million in cash and short-term investments driven by cash from
operations of $2.2 billion and proceeds from the issuance of $500 million of
long-term debt, partially offset by property additions of $801 million , share
repurchases of $616 million , dividends paid of $400 million and debt repayments
of $227 million .
Total liabilities increased $347 million from year end primarily due to the
issuance of $500 million of long-term debt and an increase in income and other
taxes payable of $311 million driven by tax payment deferrals available under
the CARES Act. These increases were partially offset by debt repayments of $227
million , a decrease in labor and fringe benefit payable of $137 million
primarily resulting from the payment of incentive compensation and a decrease in
accounts payable of $83 million . Total shareholders' equity increased $300
million from year end primarily driven by net earnings of $1.3 billion ,
partially offset by share repurchases of $616 million and dividends paid of $400
million .
Working capital is considered a measure of a company's ability to meet its
short-term needs. CSX had a working capital surplus of $1.4 billion and $1.1
billion as of June 30, 2020 and December 31, 2019 , respectively. The increase in
working capital since year end of $317 million is primarily due to the net
increase of $640 million in cash and short-term investments described above as
well as the decreases in labor and fringe benefit payable of $137 million and
accounts payable of $83 million . These favorable changes were partially offset
by an increase in income taxes payable of $311 million , an increase in current
maturities of long-term debt of $133 million and a decrease in accounts
receivable of $126 million commensurate with lower revenues resulting from the
COVID-19 pandemic.
CSX Q2 2020 Form 10-Q p.36--------------------------------------------------------------------------------
Table of Contents
CSX CORPORATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
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. The Company continues to maintain adequate liquidity to satisfy
current liabilities and maturing obligations when they come due. CSX has
sufficient financial capacity, including its revolving credit facility,
commercial paper program 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.
CSX is committed to returning cash to shareholders and maintaining an investment
grade credit profile. Capital structure, capital investments and cash
distributions, including dividends and share repurchases, are reviewed at least
annually by the Board of Directors. Management's assessment of market conditions
and other factors guides the timing and volume of repurchases. Future share
repurchases are expected to be funded by cash on hand, cash generated from
operations and debt issuances.
Guaranteed Notes Issued By CSXT
In March 2020 , the SEC adopted amendments to reduce and simplify the financial
disclosure requirements for guarantors and issuers of guaranteed registered
securities effective January 4, 2021 , with early voluntary compliance permitted.
CSX has elected to comply with these amendments effective second quarter 2020.
As a result, separate condensed consolidating financial information for
wholly-owned subsidiaries who issued or guaranteed notes will no longer be
included in the footnotes to the financial statements in Quarterly and Annual
Reports on Form 10-Q and Form 10-K. Also in accordance with the amendments, CSX
is not required to present combined summary financial information regarding such
subsidiary issuers and guarantors because the assets, liabilities and results of
operations of the combined issuers and guarantors of the notes are not
materially different than the corresponding amounts presented in the
consolidated financial statements.
In 2007, CSXT, a wholly-owned subsidiary of CSX Corporation , issued $381 million
of secured equipment notes maturing in 2023 in a registered public offering. CSX
Corporation has fully and unconditionally guaranteed the notes. At CSXT's
option, CSXT may redeem any or all of the notes, in whole or in part, at any
time, at the redemption price including premium. In the case of loss or
destruction of any item of equipment securing the notes, if CSXT does not
substitute another item of equipment for the item suffering such loss or
destruction, CSXT will be required to redeem the notes in part at par. The
guarantee of the notes will rank equally in right of payment with all existing
and future senior obligations of CSX Corporation and will be effectively
subordinated to all future secured indebtedness of CSX Corporation to the extent
of the assets securing such indebtedness. The guarantee is subject to release in
limited circumstances only upon the occurrence of certain customary conditions.
At June 30, 2020 , the principal balance of these secured equipment notes was
$178 million .
CSX Q2 2020 Form 10-Q p.37--------------------------------------------------------------------------------
Table of Contents
CSX CORPORATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
LABOR AGREEMENTS
Approximately 15,000 of the Company's nearly 19,000 employees are members of
a labor union. In November 2019 , notices were served to the 13 rail unions that
participate in national bargaining to begin negotiations for benefits, wages and
work rules for the next labor bargaining round for 2020. Current agreements
remain in place until modified by these negotiations. Typically, such
negotiations take several years before agreements are reached.
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 areas below. For further discussion of CSX's critical accounting
estimates, see the Company's most recent annual report on Form 10-K.
•personal injury, environmental and legal reserves; •pension and post-retirement medical plan accounting; and •depreciation policies for assets under the group-life method.
CSX Q2 2020 Form 10-Q p.38--------------------------------------------------------------------------------
Table of Contents
CSX CORPORATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
FORWARD-LOOKING STATEMENTS
Certain statements in this report and in other materials filed with the
Securities and Exchange Commission , 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, margins, 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, workforce levels, dividends, share repurchases, safety and service
performance, proposed new services and other 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 "will," "should," "believe," "expect," "anticipate," "project," "estimate,"
"preliminary" and similar expressions. The Company cautions against placing
undue reliance on forward-looking statements, which reflect its good faith
beliefs with respect to future events and are based on information currently
available to it as of the date the forward-looking statement is made.
Forward-looking statements should not be read as a guarantee of future
performance or results and will not necessarily be accurate indications of the
timing when, or by which, such performance or results will be achieved.
Forward-looking statements are subject to a number of risks and
uncertainties and actual performance or results could differ materially from
those anticipated by any forward-looking statements. The Company undertakes no
obligation to update or revise any forward-looking statement. If the Company
does update any forward-looking statement, no inference should be drawn that the
Company will make additional updates with respect to that statement or any other
forward-looking statements. The following important factors, in addition to
those discussed in Part I, Item 1A Risk Factors of CSX's most recent 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, international trade and initiatives to further regulate the
rail industry;
•the outcome of litigation, claims and other contingent liabilities, including,
but not limited to, those related to fuel surcharge, environmental matters,
taxes, shipper and rate claims subject to adjudication, personal injuries and
occupational illnesses;
CSX Q2 2020 Form 10-Q p.39--------------------------------------------------------------------------------
Table of Contents
CSX CORPORATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
•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;
•natural events such as severe weather conditions, including floods, fire,
hurricanes and earthquakes, a pandemic crisis, including the recent outbreak of
the coronavirus COVID-19, 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, equipment or supply chain;
•competition from other modes of freight transportation, such as trucking and
competition and consolidation or financial distress within the transportation
industry generally;
•the cost of compliance with laws and regulations that differ from expectations
(including those associated with PTC implementation) as well as costs, penalties
and operational and liquidity impacts associated with noncompliance with
applicable laws or regulations;
•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;
•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;
•changes in fuel prices, surcharges for fuel and the availability of fuel;
•the impact of natural gas prices on coal-fired electricity generation;
•the impact of global supply and price of seaborne coal on CSXT's export coal
market;
•availability of insurance coverage at commercially reasonable rates or
insufficient insurance coverage to cover claims or damages;
•the inherent business risks associated with safety and security, including the
transportation of hazardous materials or a cybersecurity attack which would
threaten the availability and vulnerability of information technology;
•adverse economic or operational effects from actual or threatened war or
terrorist activities and any governmental response;
•loss of key personnel or the inability to hire and retain qualified employees;
•labor and benefit costs and labor difficulties, including stoppages affecting
either the Company's operations or customers' ability to deliver goods to the
Company for shipment;
•the Company's success in implementing its strategic, financial and operational
initiatives;
•the impact of conditions in the real estate market on the Company's ability to
sell assets;
•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, which are 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 quarterly report on Form
10-Q.
CSX Q2 2020 Form 10-Q p.40--------------------------------------------------------------------------------
Table of Contents
CSX CORPORATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS© Edgar Online, source
