CSX CORPORATION SECOND QUARTER 2021 HIGHLIGHTS
•Revenue increased$735 million , or 33% year over year. •Expenses decreased$128 million , or 9% year over year. •Operating income of$1.7 billion increased$863 million , or 104%, year over year. •Operating ratio of 43.4% improved 1,990 basis points versus last year's quarter. •Earnings per diluted share of$0.52 increased$0.30 , or 136% year over year. Second Quarters Six Months Fav / Fav / 2021(a) 2020 (Unfav) % Change 2021(a) 2020 (Unfav) % Change Volume (in thousands) 1,591 1,257 334 27% 3,120 2,771 349 13% (in millions) Revenue$ 2,990 $ 2,255 $ 735 33$ 5,803 $ 5,110 $ 693 14 Expense 1,299 1,427 128 9 3,011 3,104 93 3 Operating Income$ 1,691 $ 828 $ 863 104%$ 2,792 $ 2,006 $ 786 39% Operating Ratio 43.4 % 63.3 % 1,990 bps 51.9 % 60.7 % 880 bps Earnings Per Diluted Share$ 0.52 $ 0.22 $ 0.30 136%$ 0.82 $ 0.55 $ 0.27 49% (a) Operating results for second quarter and six months 2021 include the impact of a$349 million gain related to the conveyance of a permanent land easement to theCommonwealth of Virginia . Demand for rail services has improved from steep declines in the first half of 2020, but the effects of the disruption of global manufacturing, supply chains and consumer spending as a result of the COVID-19 global pandemic are ongoing. Future impacts of the pandemic on the Company's financial and operating results will be determined by its duration, effects on the demand for the Company's transportation services and the supply chain, as well as the effect of governmental regulations imposed and legislative stimulus packages passed in response to the pandemic. The duration of the pandemic is dependent on several factors, including the impacts of virus mutations and case resurgences across the country. CSX employees that provide efficient and reliable rail service are essential to keeping supply chains fluid in response to this challenge. Accordingly, business operations have been modified to ensure the safety of employees across the network while continuing to provide a high level of service to customers. A cross-functional task force continues to monitor and coordinate the Company's response to COVID-19. CSX Q2 2021 Form 10-Q p.29
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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
2021 2020 % Change 2021 2020 % Change 2021 2020 % Change
Chemicals 167 152 10 % $ 606 $ 531 14 % $ 3,629 $ 3,493 4 %
Agricultural and Food Products 117 102 15 370 311 19 3,162 3,049 4
Minerals 87 83 5 152 134 13 1,747 1,614 8
Automotive 77 35 120 216 93 132 2,805 2,657 6
Forest Products(a) 75 66 14 233 197 18 3,107 2,985 4
Metals and Equipment 71 48 48 204 142 44 2,873 2,958 (3)
Fertilizers(a) 62 58 7 122 100 22 1,968 1,724 14
Total Merchandise 656 544 21 1,903 1,508 26 2,901 2,772 5
Intermodal 752 586 28 511 359 42 680 613 11
Coal 183 127 44 423 287 47 2,311 2,260 2
Other - - - 153 101 51 - - -
Total 1,591 1,257 27 % $ 2,990 $ 2,255 33 % $ 1,879 $ 1,794 5 %
Six Months
Volume Revenue Revenue Per Unit
2021 2020 % Change 2021 2020 % Change 2021 2020 % Change
Chemicals 330 330 - % $ 1,186 $ 1,157 3 % $ 3,594 $ 3,506 3 %
Agricultural and Food Products 233 223 4 719 676 6 3,086 3,031 2
Automotive 164 139 18 452 374 21 2,756 2,691 2
Minerals 154 157 (2) 277 261 6 1,799 1,662 8
Forest Products(a) 148 139 6 453 416 9 3,061 2,993 2
Metals and Equipment 139 115 21 390 341 14 2,806 2,965 (5)
Fertilizers(a) 119 114 4 244 210 16 2,050 1,842 11
Total Merchandise 1,287 1,217 6 3,721 3,435 8 2,891 2,823 2
Intermodal 1,478 1,246 19 979 781 25 662 627 6
Coal 355 308 15 807 692 17 2,273 2,247 1
Other - - - 296 202 47 - - -
Total 3,120 2,771 13 % $ 5,803 $ 5,110 14 % $ 1,860 $ 1,844 1 %
(a) Effective first quarter 2021, changes were made in the categorization of
certain lines of business, impacting Forest Products and Fertilizers. The
impacts were not material and prior periods have been reclassified to conform to
the current presentation.
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CSX CORPORATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Second Quarter 2021
Revenue
Total revenue increased 33% in second quarter 2021 when compared to second quarter 2020 due to volume growth, higher fuel recovery, increases in other revenue and pricing gains. Volumes in second quarter 2020 were significantly impacted by the effects of the COVID-19 pandemic.
Merchandise Volume Chemicals - Increased due to higher shipments of plastics, waste and other core chemicals, partially offset by lower shipments of crude oil.
Agricultural and Food Products - Increased as a result of higher shipments of ethanol, food and consumer products, domestic grain, and feed ingredients.
Minerals - Increased primarily as a result of higher shipments of cement, lime and limestone.
Automotive - Increased due to higher North American vehicle production, which was unfavorably impacted in second quarter 2020 by temporary plant closures resulting from COVID-19.
Forest Products - Increased primarily due to higher shipments of building products and pulpboard.
Metals and Equipment - Increased due to higher shipments across the metals markets, partially offset by reduced equipment shipments.
Fertilizers - Increased due to higher long-haul fertilizer shipments, partially offset by lower short-haul phosphate shipments.
Intermodal Volume Increases in both domestic and international shipments resulted from tight truck capacity, inventory replenishments and growth in rail volumes from east coast ports. Coal Volume The increase in export coal was driven by higher international shipments of both thermal coal and metallurgical coal. Domestic coal increased due to higher shipments of utility coal as well as higher steel and industrial shipments. Other Revenue Other revenue increased$52 million versus prior year due to increases in revenue for intermodal storage and equipment usage as well as higher affiliate revenue. CSX Q2 2021 Form 10-Q p.31
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CSX CORPORATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONSExpenses
Expenses of
Labor and Fringe expense increased$89 million due to the following: •Higher volume and inflation resulted in$75 million of increased expenses. •Total incentive compensation increased$60 million primarily due to higher expected annual incentive award payouts in the current year compared with downward adjustments in the prior year. •Efficiency savings of$22 million were primarily driven by operating support, terminal, and train crew productivity. •Other expenses decreased$24 million primarily due to$10 million of severance expense in the prior year as well as other non-significant items. Materials, Supplies and Other expense increased$23 million due to the following: •Higher volume and inflation resulted in$54 million of increased expenses. •Efficiency savings of$17 million resulted from asset maintenance and terminal cost productivity. •Other savings of$14 million were primarily due to$9 million in COVID-19 supplies expense in the prior year.
Depreciation expense increased
Fuel expense increased
Equipment and Other Rents expense increased$9 million as higher volumes resulted in increased car hire costs, which were partially offset by higher net earnings at TTX. Gains on Property Dispositions increased$356 million primarily due to a$349 million gain recognized related to the conveyance of a land easement to theCommonwealth of Virginia . Interest Expense Interest expense decreased$10 million primarily due to lower average interest rates and lower average debt balances.
Other Income - Net
Other income - net increased
Income Tax Expense
Income tax expense increased
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CSX CORPORATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONSSix Months Results of Operations
Revenue increased
Total expense decreased
Interest expense decreased
Other income - net increased
Income tax expense increased
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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 inthe 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 byU.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 increase in free cash flow before dividends from the prior year of$485 million is primarily due to higher cash from operating activities and increased proceeds from property dispositions. For the six months 2021, other investing activities include$200 million related to the conveyance of a permanent land easement to theCommonwealth of Virginia .
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) 2021 2020
Net cash provided by operating activities $ 2,399 $ 2,184
Property Additions (754) (801)
Other Investing Activities 226 3
Free Cash Flow (before payment of dividends) $ 1,871 $ 1,386
Operating Statistics (Estimated)
The Company is committed to continuous improvement in safety and service
performance through training, innovation and investment. Training and safety
programs are designed to prevent incidents that can adversely impact employees,
customers and communities. Technological innovations that can detect and avoid
many types of human factor incidents are designed to serve as an additional
layer of protection for the Company's employees. Continued capital investment in
the Company's assets, including track, bridges, signals, equipment and detection
technology also supports safety performance.
In second quarter 2021, velocity decreased by 16% and dwell increased by 18%
versus prior year results. CSX expects network fluidity to improve throughout
the year commensurate with ongoing hiring efforts.
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CSX CORPORATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The FRA train accident rate of 1.98 in second quarter 2021 improved 34% year
over year. The personal injury frequency index of 1.00 improved 13% versus the
prior year. Safety remains a top priority at CSX, and the Company is committed
to reducing risk and enhancing the overall safety of its employees, customers
and communities in which the Company operates.
Second Quarters Six Months
Improvement/ Improvement/
2021 2020 (Deterioration) 2021 2020 (Deterioration)
Operations Performance
Train Velocity (Miles per
hour)(a) 17.9 21.2 (16) % 18.4 21.2 (13) %
Dwell (Hours)(a) 10.5 8.9 (18) % 10.6 8.6 (23) %
Cars Online(a) 131,000 98,606 (33) % 129,984 104,703 (24) %
On-Time Originations 78 % 88 % (11) % 79 % 90 % (12) %
On-Time Arrivals 67 % 84 % (20) % 68 % 84 % (19) %
Carload Trip Plan Performance 69 % 81 % (15) % 68 % 81 % (16) %
Intermodal Trip Plan
Performance 89 % 94 % (5) % 87 % 95 % (8) %
Fuel Efficiency 0.96 0.96 - % 0.97 0.99 2 %
Revenue Ton-Miles (Billions)
Merchandise 32.1 27.8 15 % 63.4 60.9 4 %
Coal 9.2 6.0 53 % 18.0 14.6 23 %
Intermodal 8.1 6.1 33 % 15.8 12.9 22 %
Total Revenue Ton-Miles 49.4 39.9 24 % 97.2 88.4 10 %
Total Gross Ton-Miles
(Billions) 96.0 77.0 25 % 189.4 172.3 10 %
Safety
FRA Personal Injury Frequency
Index 1.00 1.15 13 % 0.98 0.87 (13) %
FRA Train Accident Rate 1.98 2.98 34 % 2.54 2.57 1 %
(a) The methodologies for calculating train velocity, dwell and cars online
differ from those prescribed by the STB as the Company believes these numbers
more accurately reflect railroad performance. CSXT will continue to report these
metrics, using the prescribed methodology, to the STB on a weekly basis. See
additional discussion on the Company's website.
Certain operating statistics are estimated and can continue to be updated as
actuals settle.
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.
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. Carload Trip
Plan Performance - Percent of measured cars destined for a customer that arrive
at or ahead of the original estimated time of arrival, notification or
interchange (as applicable).
Intermodal Trip Plan Performance - Percent of measured containers destined for a
customer that arrive at or ahead of the original estimated time of arrival,
notification or interchange (as applicable).
Fuel Efficiency - Gallons of locomotive fuel per 1,000 gross ton-miles.
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.
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.
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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 operating, investing and financing
components of the net decrease of
[[Image Removed: csx-20210630_g2.jpg]] [[Image Removed: csx-20210630_g3.jpg]] [[Image Removed: csx-20210630_g4.jpg]] •Cash provided by operating activities increased$215 million primarily driven by higher cash-generating income, partially offset by lower net favorable working capital activities. •Cash used in investing activities increased$524 million primarily as a result of decreased net sales of short-term investments, partially offset by higher proceeds from property dispositions. For the six months ended 2021, proceeds from property dispositions include$200 million in proceeds related to the conveyance of a permanent land easement to theCommonwealth of Virginia .
•Cash used in financing activities increased
Sources of Cash and Liquidity and Uses of Cash As of the end of second quarter 2021, CSX had nearly$3.0 billion of cash, cash equivalents and short-term investments. CSX uses current cash balances for general corporate purposes, which may include capital expenditures, working capital requirements, reduction or refinancing of outstanding indebtedness, 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 the six months ended 2021, CSX did not issue any new long-term debt. CSX Q2 2021 Form 10-Q p.36
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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, 2021 , 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, 2021 , the
Company had no outstanding debt under the commercial paper program.
Planned capital investments for 2021 are expected to be between $1.7 billion
and $1.8 billion . Of the total 2021 investment, the majority 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.
Material Changes in the Consolidated Balance Sheets and Working Capital Consolidated Balance Sheets
Total assets increased$222 million from year end primarily due to an increase in accounts receivable of$280 million driven by a$168 million receivable related to the conveyance of an easement to theCommonwealth of Virginia and increased trade accounts receivable commensurate with higher revenue. This increase was offset by a$143 million decrease in cash described above. Total liabilities decreased$102 million from year end primarily due to debt repayments of$360 million , partially offset by an increase in income and other taxes payable of$169 million primarily driven by the timing of estimated income tax payments. Total shareholders' equity increased$324 million from year end primarily driven by total comprehensive earnings of$1.9 billion , mostly offset by share repurchases of$1.3 billion and dividends paid of$425 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$2.6 billion as ofJune 30, 2021 and$2.4 billion as ofDecember 31, 2020 , an increase of$200 million since year end. The increase in current assets was primarily due to a$280 million increase in accounts receivable driven by a$168 million receivable related to the conveyance of an easement to theCommonwealth of Virginia , partially offset by the$143 million net reduction of cash and cash equivalents described above. The decrease in current liabilities was primarily the result of a$279 million decrease in current maturities of long-term debt, partially offset by a$169 million increase in income and other taxes payable. 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. CSX Q2 2021 Form 10-Q p.37
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CSX CORPORATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONSCompleted and Pending Transactions
Proposed Acquisition ofPan Am Systems, Inc. OnNovember 30, 2020 , CSX signed a definitive agreement to acquirePan Am Systems, Inc. ("Pan Am") which is the parent company ofPan Am Railways, Inc. who jointly ownsPan Am Southern, LLC with a subsidiary of Norfolk Southern Corporation. Pan Am owns and operates a highly integrated, nearly 1,200-mile rail network and has a joint interest in the more than 600-mile Pan Am Southern system. This acquisition, if approved, will expand CSX's reach inConnecticut ,New York andMassachusetts while addingVermont ,New Hampshire andMaine to its existing network. Assets and facilities to be acquired as part of the proposed transaction include road and track assets, work equipment, land, buildings and other assets. OnFebruary 25, 2021 , the Company began the process, which can take up to a year or more, of seeking approval from theSurface Transportation Board ("STB"). This proposed acquisition is not expected to be material with respect to the Company's financial statements when reviewed under the quantitative and qualitative considerations of Regulation S-X Article 11 and ASC 805, Business Combinations. Sale of Property Rights to theCommonwealth of Virginia OnMarch 26, 2021 , the Company entered into a comprehensive agreement to sell certain property rights in three CSX-owned line segments to theCommonwealth of Virginia ("Commonwealth") over three phases for a total of$525 million . OnApril 14, 2021 , in the first phase of the transaction, the Company closed on the conveyance of a permanent land easement for passenger rail operations, resulting in a$349 million gain recognized in gains on property dispositions on the consolidated income statement. Upon closing of this phase, cash proceeds of$200 million were received, with proceeds of$168 million to be collected in fourth quarter 2021. Additional future proceeds and related gains attributable to this conveyance are subject to state funding. The Company anticipates closing on the remaining conveyances over the next two years, which will result in future cash proceeds and gains. The timing of future gain recognition is dependent upon the timing of future conveyances as well as collectability. As ofJune 30, 2021 , the carrying values of the remaining assets subject to this transaction were not material. Acquisition ofQuality Carriers, Inc. OnMay 12, 2021 , CSX entered into a definitive agreement to acquireQuality Carriers, Inc. (Quality Carriers"), the largest provider of bulk liquid chemicals truck transportation inNorth America , fromQuality Distribution, Inc. Through a network of over 100 company-owned and affiliate terminals and facilities in key locations throughoutthe United States ,Canada andMexico , Quality Carriers provides transportation services to many of the leading chemical producers and shippers inNorth America . Assets and facilities acquired included tractors and trailers, equipment, land, buildings, and other assets. This transaction, which closed onJuly 1, 2021 , is expected to create a unique multimodal chemicals transportation solution. The purchase price was$546 million in cash, subject to certain customary purchase price adjustments. This acquisition is not material with respect to the Company's financial statements when reviewed under the quantitative and qualitative considerations of Regulation S-X Article 11 and ASC 805, Business Combinations. CSX Q2 2021 Form 10-Q p.38
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CSX CORPORATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Guaranteed Notes Issued By CSXT
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, 2021 , the principal balance of these secured equipment notes was
$160 million .
In accordance with SEC rules, including amendments adopted in 2020, CSX is not
required to present separate condensed consolidating financial information for
wholly-owned subsidiaries who issued or guaranteed notes. Additionally,
presentation of combined summary financial information regarding subsidiary
issuers and guarantors is not required because the assets, liabilities and
results of operations of the combined issuers and guarantors of the notes are
not materially different from the corresponding amounts presented in the
consolidated financial statements.
LABOR AGREEMENTS
Approximately 15,500 of the Company's approximately 19,000 employees are
members of a labor union. For the 13 rail unions that participate in national
bargaining, a round of negotiations for benefits, wages and work rules is
underway. Typically, these negotiations take several years. Current agreements
remain in place until modified by new agreements.
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CSX CORPORATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
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.
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.
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CSX CORPORATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
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;
•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 outbreak of
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
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;
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CSX CORPORATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
•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;
•the continued and uncertain impact of the COVID-19 pandemic; 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 2021 Form 10-Q p.42--------------------------------------------------------------------------------
Table of Contents
CSX CORPORATION
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