THIRD QUARTER 2021 HIGHLIGHTS
•Revenue increased$644 million , or 24% year over year. •Expenses increased$349 million , or 23% year over year. •Operating income of$1.4 billion increased$295 million , or 26%, year over year. •Operating ratio of 56.4% improved 50 basis points versus last year's quarter. •Earnings per diluted share of$0.43 increased$0.11 , or 34% year over year. Third Quarters Nine Months Fav / Fav / 2021 2020 (Unfav) % Change 2021 2020 (Unfav) % Change Volume (in thousands) 1,563 1,522 41 3% 4,683 4,293 390 9% (in millions) Revenue$ 3,292 $ 2,648 $ 644 24$ 9,095 $ 7,758 $ 1,337 17 Expense 1,856 1,507 (349) (23) 4,867 4,611 (256) (6) Operating Income$ 1,436 $ 1,141 $ 295 26%$ 4,228 $ 3,147 $ 1,081 34% Operating Ratio 56.4 % 56.9 % 50 bps 53.5 % 59.4 % 590 bps Earnings Per Diluted Share$ 0.43 $ 0.32 $ 0.11 34%$ 1.26 $ 0.87 $ 0.39 45% Acquisition ofQuality Carriers, Inc. OnJuly 1, 2021 , CSX acquiredQuality Carriers, Inc. ("Quality Carriers"). Accordingly, the consolidated third quarter and nine months 2021 results include the results of Quality Carriers' operations after the acquisition date. For further details, refer to Note 12, Business Combinations. COVID-19 Update 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. The Company is strongly encouraging employees to get vaccinated. A cross-functional task force continues to monitor and coordinate the Company's response to COVID-19. CSX Q3 2021 Form 10-Q p.30
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CSX CORPORATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Volume and Revenue (Unaudited)
Volume (Thousands of
units); Revenue (Dollars in Millions); Revenue Per Unit (Dollars)
Third Quarters Volume Revenue Revenue Per Unit 2021 2020 % Change 2021 2020 % Change 2021 2020 % Change Chemicals 166 165 1 %$ 624 $ 566 10 %$ 3,759 $ 3,430 10 % Agricultural and Food Products 109 115 (5) 343 335 2 3,147 2,913 8 Minerals 90 86 5 162 144 13 1,800 1,674 8 Automotive 75 102 (26) 209 271 (23) 2,787 2,657 5 Forest Products(a) 75 70 7 231 209 11 3,080 2,986 3 Metals and Equipment 70 58 21 206 159 30 2,943 2,741 7 Fertilizers(a) 54 54 - 106 93 14 1,963 1,722 14 Total Merchandise 639 650 (2) 1,881 1,777 6 2,944 2,734 8 Intermodal 744 717 4 509 445 14 684 621 10 Coal 180 155 16 460 330 39 2,556 2,129 20 Trucking(b) - - - 200 - NM - - - Other - - - 242 96 152 - - - Total 1,563 1,522 3 %$ 3,292 $ 2,648 24 %$ 2,106 $ 1,740 21 % Nine Months Volume Revenue Revenue Per Unit 2021 2020 % Change 2021 2020 % Change 2021 2020 % Change Chemicals 496 495 - %$ 1,810 $ 1,723 5 %$ 3,649 $ 3,481 5 % Agricultural and Food Products 342 338 1 1,062 1,011 5 3,105 2,991 4 Minerals 244 243 - 439 405 8 1,799 1,667 8 Automotive 239 241 (1) 661 645 2 2,766 2,676 3 Forest Products(a) 223 209 7 684 625 9 3,067 2,990 3 Metals and Equipment 209 173 21 596 500 19 2,852 2,890 (1) Fertilizers(a) 173 168 3 350 303 16 2,023 1,804 12 Total Merchandise 1,926 1,867 3 5,602 5,212 7 2,909 2,792 4 Intermodal 2,222 1,963 13 1,488 1,226 21 670 625 7 Coal 535 463 16 1,267 1,022 24 2,368 2,207 7 Trucking(b) - - - 200 - NM - - - Other - - - 538 298 81 - - - Total 4,683 4,293 9 %$ 9,095 $ 7,758 17 %$ 1,942 $ 1,807 7 % NM - not meaningful (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. (b) Effective third quarter 2021, Trucking revenue is comprised of revenue from the operations of Quality Carriers, which was acquired by CSX effectiveJuly 1, 2021 . CSX Q3 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 OPERATIONS Third Quarter 2021
Revenue
Total revenue increased 24% in third quarter 2021 when compared to third quarter 2020 due to the inclusion of Quality Carriers' results, increases in other revenue, higher fuel recovery, pricing gains and volume growth.
Merchandise Volume Chemicals - Increased due to higher shipments of plastics, sand, waste, and other core chemicals, partially offset by lower shipments of crude oil.
Agricultural and Food Products - Decreased as a result of lower shipments of export grain and ethanol.
Minerals - Increased as a result of higher shipments of aggregates, cement, lime and limestone.
Automotive - Decreased due to lower North American vehicle production, which continues to be impacted by shortages of semi-conductors and other parts.
Forest Products - Increased primarily due to higher shipments of pulpboard, woodpulp and building products.
Metals and Equipment - Increased as growth across the metals markets was partially offset by reduced equipment shipments.
Fertilizers - Increased long-haul fertilizer shipments were offset by declines in short-haul phosphate shipments.
Intermodal Volume Increased due to higher international shipments as a result of strong demand, inventory replenishments and growth in rail volumes from east coast ports. Coal Volume Domestic coal increased due to higher shipments of utility coal as well as higher steel and industrial shipments. The increase in export coal was driven by higher international shipments of both thermal and metallurgical coal. Trucking Revenue Trucking revenue increased$200 million versus prior year due to the inclusion of Quality Carriers' results. Other Revenue Other revenue increased$146 million versus prior year due to increases in revenue for intermodal storage and equipment usage as well as higher demurrage and affiliate revenue. CSX Q3 2021 Form 10-Q p.32
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CSX CORPORATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Expenses
Expenses of
Labor and Fringe expense increased$57 million due to the following: •The acquisition of Quality Carriers resulted in increased costs of$30 million . •Inflation and higher volume resulted in$23 million of increased expenses. •Other expenses increased$4 million primarily driven by$16 million in costs for hiring and retention programs, partially offset by other non-significant items. Purchased Services and Other expense increased$195 million due to the following: •The inclusion of Quality Carriers' operations drove$126 million of additional costs. •Higher operating support costs, primarily due to an increased locomotive fleet, as well as higher intermodal terminal costs drove an increase of$31 million . •Other costs increased$38 million due to$14 million of acquisition-related costs, inflation and other non-significant items.
Depreciation expense increased
Fuel expense increased
Equipment and Other Rents expense was$6 million higher primarily due to the addition of Quality Carriers' costs as increased car hire was offset by other items.
Gains on Property Dispositions increased to
Interest Expense Interest expense decreased$10 million primarily due to lower average interest rates.
Other Income - Net
Other income - net increased
Income Tax Expense Income tax expense increased$79 million primarily due to higher earnings before income taxes. CSX Q3 2021 Form 10-Q p.33
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CSX CORPORATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Nine Months Results of Operations
Revenue increased$1.3 billion primarily due to volume growth, increases in other revenue driven by intermodal storage and equipment usage, trucking revenue from the acquisition of Quality Carriers, pricing gains across all markets, and higher fuel recovery. Total expense increased$256 million primarily driven by rising fuel prices, the inclusion of Quality Carriers' operations, higher volume-related costs and increased incentive compensation, partially offset by higher gains on property dispositions.
Interest expense decreased
Other income - net increased
Income tax expense increased
CSX Q3 2021 Form 10-Q p.34
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CSX CORPORATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Non-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$958 million is primarily due to higher cash from operating activities and increased proceeds from property dispositions. For the nine months 2021, other investing activities include$200 million of proceeds related to the conveyance of a permanent land easement to theCommonwealth of Virginia .
The following table reconciles cash provided by operating activities (GAAP measure) to free cash flow, before dividends (non-GAAP measure).
Nine Months (Dollars in millions) 2021 2020 Net cash provided by operating activities$ 3,819 $ 3,128 Property Additions (1,220)
(1,209)
Other Investing Activities 297 19 Free Cash Flow (before payment of dividends)$ 2,896 $ 1,938 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 third quarter 2021, velocity decreased by 10% and dwell increased by 8% versus prior year. Both metrics were consistent with second quarter 2021 levels. Intermodal trip plan performance remained strong at 88% and carload trip plan performance of 68% was consistent with second quarter 2021 levels. CSX expects both network fluidity and trip plan performance to improve commensurate with ongoing hiring efforts and actions being taken to offset the current supply chain challenges. CSX Q3 2021 Form 10-Q p.35
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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 3.09 in third quarter 2021 improved 7% year over year. The personal injury frequency index of 0.85 degraded 12% 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. Third Quarters Nine Months Improvement/ Improvement/ 2021 2020 (Deterioration) 2021 2020 (Deterioration) Operations Performance Train Velocity (Miles per hour)(a) 17.7 19.6 (10) % 18.1 20.7 (13) % Dwell (Hours)(a) 10.5 9.7 (8) % 10.6 9.0 (18) % Cars Online(a) 130,841 115,823 (13) % 130,273 108,437 (20) % On-Time Originations 71 % 85 % (16) % 76 % 88 % (14) % On-Time Arrivals 62 % 71 % (13) % 66 % 80 % (18) % Carload Trip Plan Performance 68 % 73 % (7) % 68 % 78 % (13) % Intermodal Trip Plan Performance 88 % 87 % 1 % 87 % 92 % (5) % Fuel Efficiency 0.92 0.93 1 % 0.96 0.97 1 % Revenue Ton-Miles (Billions) Merchandise 30.8 31.0 (1) % 94.2 91.9 3 % Coal 8.9 7.1 25 % 26.9 21.7 24 % Intermodal 7.8 7.4 5 % 23.6 20.3 16 % Total Revenue Ton-Miles 47.5 45.5 4 % 144.7 133.9 8 % Total Gross Ton-Miles (Billions) 92.9 90.3 3 % 282.3 262.6 8 % Safety FRA Personal Injury Frequency Index 0.85 0.76 (12) % 0.94 0.84 (12) % FRA Train Accident Rate 3.09 3.31 7 % 2.81 2.83 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. CSX Q3 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 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-20210930_g2.jpg]] [[Image Removed: csx-20210930_g3.jpg]] [[Image Removed: csx-20210930_g4.jpg]] •Cash provided by operating activities increased$691 million primarily driven by higher cash-generating income and higher net favorable working capital. •Cash used in investing activities increased$1.3 billion primarily as a result of decreased net sales of short-term investments and net cash paid to acquire Quality Carriers, partially offset by higher proceeds from property dispositions. •Cash used in financing activities increased$2.3 billion driven by higher share repurchases, lower proceeds from debt issuances and increased long-term debt repayments. Sources of Cash and Liquidity and Uses of Cash As of the end of third quarter 2021, CSX had nearly$2.2 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, redemptions and repurchases of CSX common stock, dividends to shareholders, acquisitions and other business opportunities, and contributions to the Company's qualified pension plan. 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 nine months ended 2021, CSX did not issue any new long-term debt. CSX Q3 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 OPERATIONS CSX has a$1.2 billion unsecured, revolving credit facility backed by a diverse syndicate of banks that expires inMarch 2024 . AtSeptember 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. AtSeptember 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$336 million from year end primarily due to a$414 million increase in accounts receivable, the recognition of$390 million of goodwill and intangible assets related to the acquisition of Quality Carriers and net property increases of$370 million , partially offset by the$950 million decrease in cash described above. The increase in accounts receivable was driven by theVirginia easement conveyance and increased trade accounts receivable commensurate with higher revenue, including trucking. Of the increase in net property,$225 million was the result of consolidating Quality Carriers' properties. See Note 12, Business Combinations, for more details on purchase accounting. Total liabilities increased$274 million from year end primarily due to an increase in income and other taxes payable of$165 million driven by the timing of estimated income tax payments, an increase in accounts payable of$163 million and a$130 million increase in deferred tax liabilities primarily driven by accelerated tax depreciation. These increases were offset by debt repayments of$390 million . Total shareholders' equity increased$62 million from year end primarily driven by total comprehensive earnings of$2.9 billion , mostly offset by share repurchases of$2.3 billion and dividends paid of$633 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$1.6 billion as ofSeptember 30, 2021 and$2.4 billion as ofDecember 31, 2020 , a decrease of$793 million since year end. The decrease in current assets was primarily due to the$950 million decrease in cash, partially offset by a$414 million increase in accounts receivable described above. The increase in current liabilities was primarily the result of a$165 million increase in income and other taxes payable and a$163 million increase in accounts payable, partially offset by$190 million decrease in current maturities of long term debt. 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 Q3 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 Completed and Pending Transactions Acquisition ofQuality Carriers, Inc. OnJuly 1, 2021 , CSX acquiredQuality Carriers, Inc. fromQuality Distribution, Inc. for a purchase price of$546 million in cash, subject to certain customary purchase price adjustments. This transaction was funded by cash on hand. For further details, please refer to Note 12, Business Combinations. 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 in theNortheastern United States . 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 of seeking approval from the STB with a decision expected byApril 1, 2022 . 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 . InApril 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 the first phase, cash proceeds of$200 million were received and a receivable was recorded in the amount of$168 million . The Company expects to collect proceeds of$200 million in fourth quarter 2021, partly attributable to the first phase with the remainder towards the next phase. Additional future proceeds and related gains attributable to this conveyance are subject to state funding. The Company anticipates closing on the remaining conveyances by the end of 2022, 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 ofSeptember 30, 2021 , the carrying values of the remaining assets subject to this transaction were not material. CSX Q3 2021 Form 10-Q p.39
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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 ofCSX Corporation , issued in a registered public offering$381 million of secured equipment notes maturing in 2023.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 ofCSX Corporation and will be effectively subordinated to all future secured indebtedness ofCSX 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. As ofSeptember 30, 2021 , the principal balance of these secured equipment notes was$149 million . In accordance withSEC 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 20,500 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. CSX Q3 2021 Form 10-Q p.40
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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 inthe 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 theSecurities 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. CSX Q3 2021 Form 10-Q p.41
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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; CSX Q3 2021 Form 10-Q p.42
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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, including acquisitions; •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 otherSEC reports, which are accessible on theSEC'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 Q3 2021 Form 10-Q p.43
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CSX CORPORATION
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