CSX Corporation — 2021 Form 10-K
Business context and reporting period. CSX is a freight transportation company whose principal railroad, CSX Transportation, operates approximately 19,500 route miles across the eastern United States and parts of Canada. This annual report covers the fiscal year ended December 31, 2021, with comparison to 2020. Fourth-quarter figures are included below where relevant. CSX acquired bulk-chemical trucking provider Quality Carriers on July 1, 2021.
Financial and operating performance
| Metric | 2021 | 2020 | Change |
|---|---|---|---|
| Revenue | $12.522 billion | $10.583 billion | Up 18% |
| Operating income | $5.594 billion | $4.362 billion | Up 28% |
| Operating ratio | 55.3% | 58.8% | Improved 350 basis points |
| Net earnings | $3.781 billion | $2.765 billion | Up 37% |
| Diluted EPS | $1.68 | $1.20 | Up 40% |
| Operating cash flow | $5.099 billion | $4.263 billion | Up $836 million |
| Free cash flow before dividends, non-GAAP | $3.833 billion | $2.646 billion | Up $1.187 billion |
Revenue growth reflected higher volume, pricing gains, Quality Carriers, higher fuel recovery, and increased other revenue. Merchandise generated $7.539 billion, intermodal $2.039 billion, coal $1.790 billion, trucking $410 million, and other revenue $744 million. Expenses rose 11% to $6.928 billion; fuel expense increased $372 million, primarily reflecting a 55% rise in locomotive fuel prices and the trucking acquisition. Earnings also benefited from $454 million of property-disposition gains, compared with $35 million in 2020.
Fourth quarter: Revenue was $3.427 billion, operating income $1.366 billion, and net earnings $934 million; diluted EPS was $0.42. In fourth-quarter 2020, those figures were $2.825 billion, $1.215 billion, $760 million, and $0.33, respectively.
Cash, debt, and liquidity: Year-end cash and cash equivalents were $2.239 billion, with another $77 million in short-term investments. Long-term debt, including current maturities, finance leases, and equipment obligations, totaled $16.366 billion; the company issued no new long-term debt in 2021. It had no outstanding borrowings under its $1.2 billion revolving credit facility or $1.0 billion commercial-paper program. Working capital surplus was $1.6 billion. Capital expenditures were $1.791 billion, and the company paid $839 million in dividends and repurchased $2.886 billion of shares. Its credit ratings remained BBB+ (S&P) and Baa1 (Moody’s), both stable.
Material changes versus 2020
- Revenue and operating income increased, while the operating ratio improved; higher fuel, labor, and purchased-service costs partly offset revenue growth.
- Volume rose 6% overall. Intermodal volume increased 9% and coal volume 11%; merchandise volume increased 1%. Automotive shipments declined 8%, primarily amid semiconductor and parts shortages.
- Service measures weakened: train velocity fell 11%, dwell increased 15%, and on-time originations declined from 87% to 75%. The FRA personal-injury frequency index worsened 12%, while the train-accident rate improved 8%.
- Operating cash flow increased, but cash and cash equivalents fell by $890 million, primarily reflecting higher repurchases and investing outlays. Share repurchases rose to $2.886 billion from $867 million.
Outlook, commentary, risks, and unusual items
- CSX planned approximately $2.0 billion of capital investment for 2022, with more than 80% expected to sustain core infrastructure and operating equipment; management expected to fund investment from operating cash flow. No formal earnings or revenue guidance is provided in the supplied filing text.
- Management expected network fluidity to improve with hiring efforts and more normal supply-chain conditions, after pandemic-related disruption, labor and equipment constraints, and service deterioration.
- The Virginia property-rights agreement provides for total proceeds of $525 million. CSX recognized a $349 million gain in April 2021; additional conveyances and proceeds were expected, with a $20 million gain from a January 2022 closing to be recognized in the first quarter of 2022.
- The proposed Pan Am Systems acquisition remained subject to Surface Transportation Board approval; a decision was expected by mid-April 2022. Management said the transaction was not expected to be material to the financial statements.
- Key risks include COVID-19 and supply-chain disruption, service and workforce constraints, ongoing national labor negotiations, fuel and economic volatility, competition and regulation, cybersecurity, severe weather, hazardous-material incidents, and environmental liabilities. Environmental reserves were $108 million; CSX had been identified as a potentially responsible party at approximately 220 sites. The filing notes that some additional exposure cannot presently be reasonably estimated.
- For certain legal proceedings with reasonably possible losses above recorded reserves, the estimated aggregate range was $2 million to $25 million. CSX stated that an adverse resolution of certain matters, including individual fuel-surcharge antitrust claims, could nonetheless be material in a particular period.
- The financial statements received an unqualified audit opinion, and the auditor also reported effective internal control over financial reporting. The auditor identified group-life depreciation estimates as a critical audit matter; these methods apply to 86% of gross fixed assets.
Most important facts for investors to verify
- How much of earnings and free-cash-flow growth is repeatable after excluding the Virginia property gain and considering acquisition contributions.
- Whether hiring and operating changes restore service reliability and improve velocity, dwell, and on-time performance.
- Quality Carriers’ ongoing contribution to revenue, costs, cash flow, and assumed liabilities.
- Execution of the 2022 capital-investment plan alongside dividends, repurchases, and debt obligations.
- Developments in Pan Am approval, labor negotiations, fuel-surcharge litigation, environmental exposure, and other contingencies.