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

- Company: [CSX Corp](/companies/csx.md) (CIK 277948)
- Form: 10-Q
- Filed: 2020-10-22
- Accepted by EDGAR: Oct 21, 2020, 17:55 ET
- Period: 2020-09-30
- Accession: 0000277948-20-000048
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/277948/000027794820000048/csx-20200930.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/277948/000027794820000048/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2020-09-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2020-07-01 to 2020-09-30 | $2.65bn | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Revenue | 9 months, 2020-01-01 to 2020-09-30 | $7.76bn | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Operating income | 3 months, 2020-07-01 to 2020-09-30 | $1.14bn | us-gaap:OperatingIncomeLoss |
| Operating income | 9 months, 2020-01-01 to 2020-09-30 | $3.15bn | us-gaap:OperatingIncomeLoss |
| Income tax | 3 months, 2020-07-01 to 2020-09-30 | $232.0m | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 9 months, 2020-01-01 to 2020-09-30 | $628.0m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2020-07-01 to 2020-09-30 | $736.0m | us-gaap:NetIncomeLoss |
| Net income | 9 months, 2020-01-01 to 2020-09-30 | $2.00bn | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2020-07-01 to 2020-09-30 | $0.96 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 9 months, 2020-01-01 to 2020-09-30 | $2.61 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2020-07-01 to 2020-09-30 | $0.96 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 9 months, 2020-01-01 to 2020-09-30 | $2.61 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2020-07-01 to 2020-09-30 | 767,000,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 9 months, 2020-01-01 to 2020-09-30 | 769,000,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 9 months, 2020-01-01 to 2020-09-30 | $3.13bn | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 9 months, 2020-01-01 to 2020-09-30 | $1.21bn | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Dividends paid | 9 months, 2020-01-01 to 2020-09-30 | $599.0m | us-gaap:PaymentsOfDividendsCommonStock |
| Share repurchases | 3 months, 2020-07-01 to 2020-09-30 | $48.0m | us-gaap:PaymentsForRepurchaseOfCommonStock |
| Share repurchases | 9 months, 2020-01-01 to 2020-09-30 | $664.0m | us-gaap:PaymentsForRepurchaseOfCommonStock |
| Current assets | at 2020-09-30 | $4.23bn | us-gaap:AssetsCurrent |
| Total assets | at 2020-09-30 | $39.44bn | us-gaap:Assets |
| Current liabilities | at 2020-09-30 | $2.29bn | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2020-09-30 | $26.72bn | us-gaap:Liabilities |
| Shareholders' equity | at 2020-09-30 | $12.73bn | us-gaap:StockholdersEquityIncludingPortionAttributableToNoncontrollingInterest |
| Shares outstanding | at 2020-09-30 | 764,774,958 shares | dei:EntityCommonStockSharesOutstanding |

## Management's discussion and analysis

As filed, 31,754 characters.

*Volume and Revenue (Unaudited)*

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

*Third Quarters*

|  | Volume 2020 2019 % Change | Revenue 2020 2019 % Change | Revenue Per Unit 2020 2019 % Change |
| --- | ---: | ---: | ---: |
| Chemicals(a) | **165** 166 (1)% | **$566** $590 (4)% | **$3,430** $3,554 (3)% |
| Agricultural and Food Products | **115** 119 (3) | **335** 354 (5) | **2,913** 2,975 (2) |
| Automotive | **102** 110 (7) | **271** 297 (9) | **2,657** 2,700 (2) |
| Minerals(a) | **86** 90 (4) | **144** 147 (2) | **1,674** 1,633 3 |
| Forest Products(a) | **67** 73 (8) | **206** 222 (7) | **3,075** 3,041 1 |
| Metals and Equipment(a) | **58** 65 (11) | **159** 195 (18) | **2,741** 3,000 (9) |
| Fertilizers | **57** 60 (5) | **96** 101 (5) | **1,684** 1,683 — |
| **Total Merchandise** | **650** 683 (5) | **1,777** 1,906 (7) | **2,734** 2,791 (2) |
| **Coal** | **155** 213 (27) | **330** 516 (36) | **2,129** 2,423 (12) |
| **Intermodal** | **717** 673 7 | **445** 447 — | **621** 664 (6) |
| **Other** | **—** — — | **96** 109 (12) | **—** — — |
| **Total** | **1,522** 1,569 (3)% | **$2,648** $2,978 (11)% | **$1,740** $1,898 (8)% |
| **Nine Months** |  |  |  |
|  | **Volume** | **Revenue** | **Revenue Per Unit** |
|  | **2020** 2019 % Change | **2020** 2019 % Change | **2020** 2019 % Change |
| Chemicals(a) | **495** 506 (2)% | **$1,723** $1,770 (3)% | **$3,481** $3,498 —% |
| Agricultural and Food Products | **338** 351 (4) | **1,011** 1,056 (4) | **2,991** 3,009 (1) |
| Automotive | **241** 346 (30) | **645** 937 (31) | **2,676** 2,708 (1) |
| Minerals(a) | **243** 250 (3) | **405** 419 (3) | **1,667** 1,676 (1) |
| Forest Products(a) | **202** 214 (6) | **617** 652 (5) | **3,054** 3,047 — |
| Metals and Equipment(a) | **173** 192 (10) | **500** 572 (13) | **2,890** 2,979 (3) |
| Fertilizers | **175** 183 (4) | **311** 323 (4) | **1,777** 1,765 1 |
| **Total Merchandise** | **1,867** 2,042 (9) | **5,212** 5,729 (9) | **2,792** 2,806 — |
| **Coal** | **463** 651 (29) | **1,022** 1,611 (37) | **2,207** 2,475 (11) |
| **Intermodal** | **1,963** 1,988 (1) | **1,226** 1,311 (6) | **625** 659 (5) |
| **Other** | **—** — — | **298** 401 (26) | **—** — — |
| **Total** | **4,293** 4,681 (8)% | **$7,758** $9,052 (14)% | **$1,807** $1,934 (7)% |

*(a) In first quarter 2020, changes were made in the categorization of certain lines of business, impacting Chemicals, Minerals, Forest Products, and Metals and Equipment. The impacts were not material and prior periods have been reclassified to conform to the current presentation.*

### Third Quarter 2020

### Revenue

The COVID-19 pandemic continued to impact volumes during the quarter. Total revenue decreased 11% in third quarter 2020 when compared to third quarter 2019 due to volume declines in merchandise and coal, decreases in fuel recovery and declines in coal pricing resulting from lower global benchmark prices. These decreases were partially offset by pricing gains in merchandise and intermodal as well as intermodal volume growth.

### Merchandise Volume

Chemicals - Declined due to lower shipments of frac sand and other industrial chemicals, partially offset by increases in crude oil and plastics shipments.

Agricultural and Food Products - Declined due to lower shipments of grain and feed, partially offset by increases in ethanol shipments.

Automotive - Declined as a result of lower vehicle production at plants served by CSX.

Minerals - Decreased due to lower shipments of aggregates and other minerals.

Forest Products - Declined due to lower shipments of printing paper, wood pulp and building products.

Metals and Equipment - Declined as a result of reduced equipment shipments as well as reduced sheet steel and pipe shipments.

Fertilizers - Decreased due to lower shipments of phosphate and sulfur.

### Coal Volume

The decline in domestic coal was driven by 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

Increases in both domestic and international shipments resulted from tightening truck capacity, inventory replenishments and growth in rail volumes from east coast ports.

### Other Revenue

Other revenue decreased $13 million versus prior year primarily due to lower affiliate revenue and declines in demurrage.

### Expenses

Expenses of $1.5 billion decreased $184 million, or 11% in third quarter 2020 when compared to third quarter 2019 primarily driven by efficiency and volume savings as well as lower fuel prices, partially offset by lower gains from real estate sales.

Labor and Fringe expense decreased $64 million due to the following:

- Efficiency and volume savings of $71 million primarily resulted from reduced crew starts and lower headcount.
- Other costs increased $7 million primarily due to inflation.

Materials, Supplies and Other expense decreased $29 million due to the following:

- Efficiency and volume savings of $58 million primarily resulted from lower operating support costs, lower terminal costs and reduced equipment maintenance expenses.
- Other costs decreased $33 million primarily due to a $22 million non-railroad asset impairment in the prior year related to an intermodal terminal sale agreement and other non-significant items.
- Partially offsetting these decreases, gains from real estate sales of $3 million in 2020 were lower than gains of $65 million in 2019.

Depreciation expense increased $10 million primarily due to the results of a 2019 equipment depreciation study.

Fuel expense decreased $104 million driven by a 36% price decrease, lower volumes and record fuel efficiency in the current year as well as a $15 million net expense in prior year related to state fuel tax matters.

Equipment and Other Rents expense increased $3 million primarily resulting from higher intermodal volumes and inflation.

### Interest Expense

Interest expense increased $1 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, partially offset by higher average cash and short-term investment balances.

### Income Tax Expense

Income tax expense decreased $37 million primarily due to lower earnings before income taxes.

### Nine Months Results of Operations

Revenue decreased $1.3 billion due to volume declines in merchandise and coal, decreases in fuel recovery, declines in coal pricing resulting from lower global benchmark prices and lower other revenue. These decreases were partially offset by pricing gains in merchandise and intermodal.

Total expense decreased $630 million primarily due to savings from labor, operating support and fuel efficiencies; lower volume-related costs; fuel price savings and decreased incentive compensation costs. These decreases were partially offset by lower gains from real estate and line sales, inflation and increased depreciation.

Interest expense increased $17 million primarily driven by higher average debt balances, partially offset by lower average interest rates.

Other income - net decreased $21 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 $147 million as a result of 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 $845 million is primarily due to lower net cash provided by operating activities and lower proceeds from property dispositions.

The following table reconciles cash provided by operating activities (GAAP measure) to free cash flow, before dividends (non-GAAP measure).

*(Dollars in millions)*

|  | Nine Months 2020 | 2019 |
| --- | ---: | ---: |
| **Net cash provided by operating activities** | **$3,128** | **$3,737** |
| Property Additions | (1,209) | (1,191) |
| Other Investing Activities | 19 | 237 |
| Free Cash Flow (before payment of dividends) | $1,938 | $2,783 |

#### 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.

In third quarter 2020, train velocity decreased by 3% and car dwell increased 9% relative to the prior year period. The Company remains focused on executing the operating plan to deliver improved reliability, faster transit times and increased asset utilization while continuing to control costs.

From a safety perspective, CSX saw a third quarter record low number of FRA reportable injuries as well as a third quarter record low number of FRA reportable train accidents. The personal injury frequency index of 0.77 improved 9% versus the prior year, representing a new third quarter record low level. The FRA train accident rate of 2.66 increased 12% compared to the third quarter of 2019. Despite a reduction in the number of incident versus third quarter 2019, the reduction of accidents did not offset the reduction in train miles. The Company is committed to 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 | Third Quarters 2020 | 2019 | Improvement/ (Deterioration) | Nine Months 2020 | 2019 | Improvement/ (Deterioration) |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Train Velocity (Miles per hour) | **19.6** | 20.3 | (3)% | **20.7** | 20.2 | 2% |
| Dwell (Hours) | **9.7** | 8.9 | (9)% | **9.0** | 8.7 | (3)% |
| Cars Online | **115,823** | 118,787 | 2% | **108,437** | 119,564 | 9% |
| Revenue Ton-Miles (Billions) |  |  |  |  |  |  |
| Merchandise | **31.0** | 32.1 | (3)% | **91.9** | 96.7 | (5)% |
| Coal | **7.1** | 10.3 | (31)% | **21.7** | 31.7 | (32)% |
| Intermodal | **7.4** | 6.7 | 10% | **20.3** | 20.0 | 2% |
| Total Revenue Ton-Miles | **45.5** | **49.1** | (7)% | **133.9** | 148.4 | (10)% |
| Total Gross Ton-Miles (Billions) | **90.3** | 97.1 | (7)% | **262.6** | 293.7 | (11)% |
| On-Time Originations | **85%** | 93% | (9)% | **88%** | 88% | —% |
| On-Time Arrivals | **71%** | 79% | (10)% | **80%** | 77% | 4% |
| **Safety** |  |  |  |  |  |  |
| FRA Personal Injury Frequency Index | **0.77** | 0.85 | 9% | **0.82** | 0.82 | —% |
| FRA Train Accident Rate | **2.66** | 2.37 | (12)% | **2.47** | 2.43 | (2)% |

*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.

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 increases of $1.9 billion and $663 million in cash and cash equivalents for operating, investing and financing activities for nine months ended 2020 and 2019, respectively.

- Cash provided by operating activities decreased $609 million primarily driven by lower cash-generating income and lower net favorable working capital activities.
- Cash used in investing activities decreased $1.5 billion primarily as a result of decreased purchases of short-term investments, partially offset by lower proceeds from property dispositions.
- Cash used in financing activities decreased $350 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 third quarter 2020, CSX had $2.9 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 nine 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 September 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 September 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 $1.2 billion from year end primarily due to the net increase of $945 million in cash and short-term investments and net property additions of $213 million. The increase in cash and short-term investments was driven by cash from operations of $3.1 billion and proceeds from the issuance of $500 million of long-term debt, partially offset by capital expenditures of $1.2 billion, share repurchases of $664 million, dividends paid of $599 million and debt repayment of $245 million.

Total liabilities increased $322 million from year end primarily due to the issuance of $500 million of long-term debt and a $126 million increase in deferred tax liabilities, partially offset by debt repayments of $245 million. Total shareholders' equity increased $864 million from year end primarily driven by net earnings of $2 billion, partially offset by share repurchases of $664 million and dividends paid of $599 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 $1.9 billion and $1.1 billion as of September 30, 2020 and December 31, 2019, respectively. The increase in working capital since year end of $807 million is primarily due to the net increase of $945 million in cash and short-term investments described above, partially offset by an increase in current maturities of long-term debt of $126 million. 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 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 is no longer 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 from 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 September 30, 2020, the principal balance of these secured equipment notes was $160 million.

### LABOR AGREEMENTS

Approximately 16,000 of the Company's approximately 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 2020 labor bargaining round. 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 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, 1,817 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 both April 29, 2020, and July 9, 2020, the Company executed a forward starting interest rate swap with a notional value of $250 million for an aggregate notional value of $500 million. These swaps were effected to hedge the benchmark interest rate associated with future interest payments related to the anticipated refinancing of notes due in 2027. The Company recognized an unrealized gain of $25 million net of tax during the quarter and $34 million net of tax during the nine months ended September 30, 2020 in the consolidated statements of comprehensive income with the related asset on the balance sheet as of September 30, 2020. Upon settlement of the swaps, which expire 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.

Changes in interest rates could impact the fair value of the Company's forward starting interest rate swap. As of September 30, 2020, the potential change in fair value resulting from a hypothetical 10% change in interest rates would not be material.

## Controls and procedures

As filed, 809 characters.

As of September 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 September 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 third 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 Oct 22, 2020.
Source: SEC EDGAR, the filing index for accession 0000277948-20-000048. Last ingested by Listed: Nov 4, 2026, 17:13 ET. No prices; not investment advice.