# CSX Corp: Form 10-Q for the period ended Jun 30, 2020

- Company: [CSX Corp](/companies/csx.md) (CIK 277948)
- Form: 10-Q
- Filed: 2020-07-23
- Accepted by EDGAR: Jul 22, 2020, 18:12 ET
- Period: 2020-06-30
- Accession: 0000277948-20-000032
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/277948/000027794820000032/csx-20200630.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/277948/000027794820000032/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2020-06-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2020-04-01 to 2020-06-30 | $2.25bn | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Revenue | 6 months, 2020-01-01 to 2020-06-30 | $5.11bn | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Operating income | 3 months, 2020-04-01 to 2020-06-30 | $828.0m | us-gaap:OperatingIncomeLoss |
| Operating income | 6 months, 2020-01-01 to 2020-06-30 | $2.01bn | us-gaap:OperatingIncomeLoss |
| Income tax | 3 months, 2020-04-01 to 2020-06-30 | $153.0m | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 6 months, 2020-01-01 to 2020-06-30 | $396.0m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2020-04-01 to 2020-06-30 | $499.0m | us-gaap:NetIncomeLoss |
| Net income | 6 months, 2020-01-01 to 2020-06-30 | $1.27bn | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2020-04-01 to 2020-06-30 | $0.65 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 6 months, 2020-01-01 to 2020-06-30 | $1.65 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2020-04-01 to 2020-06-30 | $0.65 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 6 months, 2020-01-01 to 2020-06-30 | $1.65 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2020-04-01 to 2020-06-30 | 767,000,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 6 months, 2020-01-01 to 2020-06-30 | 770,000,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 6 months, 2020-01-01 to 2020-06-30 | $2.18bn | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 6 months, 2020-01-01 to 2020-06-30 | $801.0m | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Dividends paid | 6 months, 2020-01-01 to 2020-06-30 | $400.0m | us-gaap:PaymentsOfDividendsCommonStock |
| Share repurchases | 3 months, 2020-04-01 to 2020-06-30 | $39.0m | us-gaap:PaymentsForRepurchaseOfCommonStock |
| Share repurchases | 6 months, 2020-01-01 to 2020-06-30 | $616.0m | us-gaap:PaymentsForRepurchaseOfCommonStock |
| Current assets | at 2020-06-30 | $3.79bn | us-gaap:AssetsCurrent |
| Total assets | at 2020-06-30 | $38.90bn | us-gaap:Assets |
| Current liabilities | at 2020-06-30 | $2.35bn | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2020-06-30 | $26.74bn | us-gaap:Liabilities |
| Shareholders' equity | at 2020-06-30 | $12.16bn | us-gaap:StockholdersEquityIncludingPortionAttributableToNoncontrollingInterest |
| Shares outstanding | at 2020-06-30 | 765,052,549 shares | dei:EntityCommonStockSharesOutstanding |

## Management's discussion and analysis

As filed, 32,548 characters.

*Volume and Revenue (Unaudited)*

*Volume (Thousands of units); Revenue (Dollars in Millions); Revenue Per Unit (Dollars)*

*Second Quarters*

|  | Volume 2020 2019 % Change | Revenue 2020 2019 % Change | Revenue Per Unit 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.*

### 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 $23 million versus prior year primarily due to lower affiliate revenue as well as declines in demurrage and intermodal storage.

### Expenses

Expenses of $1.4 billion decreased $329 million, or 19% in second quarter 2020 when compared to second quarter 2019 primarily driven by volume and efficiency savings as well as lower fuel costs.

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 $7 million primarily due to the results of a 2019 equipment depreciation study.

Fuel expense decreased $143 million due to a 50% price decrease, lower volumes and record fuel efficiency.

Equipment and Other Rents expense decreased $14 million primarily driven by reduced freight car rents on significantly lower volume levels.

### Interest Expense

Interest expense increased $7 million primarily due to higher average debt balances, partially offset by lower average interest rates.

### 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.

### Six 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 $446 million driven by lower volume-related costs; savings from labor, fuel and other operational efficiencies; fuel price savings and decreased incentive compensation costs. These decreases were partially offset by lower gains from real estate and line sales as well as inflation.

Interest expense increased $16 million primarily due to higher average debt balances, partially offset by lower average interest rates.

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 $110 million primarily due to lower earnings before income taxes, partially offset by lower benefits from the impacts of option exercises and the vesting of other equity awards.

### Non-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).

*(Dollars in millions)*

|  | Six Months 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.

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.

| Operations Performance | Second Quarters 2020 | 2019 | Improvement/ (Deterioration) | Six Months 2020 | 2019 | Improvement/ (Deterioration) |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| 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.

### 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 $1.4 billion and net decrease of $5 million in cash and cash equivalents for operating, investing and financing activities for six months ended 2020 and 2019, respectively.

- 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 the SEC on February 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 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.

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.

### 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.

### 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;
- 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.

## Market risk

As filed, 1,498 characters.

There have been no material changes in market risk from the information provided under Part II, Item 7A (Quantitative and Qualitative Disclosures about Market Risk) of CSX's most recent annual report on Form 10-K except as provided below.

Changes in interest rates may impact the cost of future long-term debt issued by the Company, and as a result, represent interest rate risk to the Company. In an effort to manage this risk, CSX may use certain financial instruments such as interest rate forward contracts. The following information, together with information included in Note 7, Debt and Credit Agreements, describes the key aspects of such contracts and the related market risk to CSX.

On April 29, 2020, the Company executed a forward starting interest rate swap with an aggregate notional value of $250 million. The purpose of this swap, designated as a cash flow hedge, is to hedge against changes in the benchmark interest rate associated with future interest payments related to the anticipated refinancing of notes due 2027. The Company recognized an unrealized gain of $9 million, net of tax, in the consolidated statements of comprehensive income during the quarter ended June 30, 2020 with the related asset on the balance sheet as of June 30, 2020. Upon settlement of the swap, which expires in 2027, the unrealized gain or loss in AOCI will be recognized in earnings as an adjustment to interest expense over the same period during which the hedged transaction affects earnings.

## Controls and procedures

As filed, 800 characters.

As of June 30, 2020, under the supervision and with the participation of CSX's Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), management has evaluated the effectiveness of the design and operation of the Company's disclosure controls and procedures. Based on that evaluation, the CEO and CFO concluded that, as of June 30, 2020, the Company's disclosure controls and procedures were effective at the reasonable assurance level in timely alerting them to material information required to be included in CSX's periodic SEC reports. There were no changes in the Company's internal controls over financial reporting during the second quarter of 2020 that have materially affected or are reasonably likely to materially affect the Company's internal control over financial reporting.

## Risk factors

As filed, 429 characters.

For information regarding factors that could affect the Company's results of operations, financial condition and liquidity, see the risk factors discussed under Part I, Item 1A (Risk Factors) of CSX's most recent annual report on Form 10-K and under Part II, Item 1A of the Company’s quarterly report on Form 10-Q for first quarter 2020. See also Part I, Item 2 (Forward-Looking Statements) of this quarterly report on Form 10-Q.

Filed Jul 23, 2020.
Source: SEC EDGAR, the filing index for accession 0000277948-20-000032. Last ingested by Listed: Nov 4, 2026, 17:13 ET. No prices; not investment advice.