CSX CORP

Liquidity is a company’s ability to generate adequate amounts of cash to meet both current and future needs for obligations as they mature and to provide for planned capital expenditures, including those to address regulatory and legislative requirements. To have a complete picture of a company’s liquidity, its sources and uses of cash, balance sheet and external factors should be reviewed.

Significant Cash Flows

The following charts highlight the operating, investing and financing components of the change in cash and cash equivalents for operating, investing and financing activities for full years 2024 and 2023.

CSX 2024 Form 10-K p.38

In 2024, the Company generated $267 million less cash from operating activities compared to prior year, primarily driven by the previously-discussed $387 million of federal and state tax payments related to the 2023 tax year. The 2024 results also reflect lower cash-generating net earnings as well as non-cash impacts of $429 million of federal and state tax payments postponed to 2025, as previously discussed. Cash from operating activities in the prior year includes the payment of $238 million for retroactive wages and bonuses, and associated taxes, related to finalized labor agreements. CSX used $378 million more cash for investing activities in 2024 compared to 2023, primarily as a result of higher property additions consistent with planned capital expenditures as well as the beginning of the Blue Ridge subdivision rebuild resulting from impacts of Hurricane Helene. The Company used $805 million less cash for financing activities compared to the prior year primarily due to lower share repurchases, partially offset by higher net debt repayments.

Sources of Cash and Liquidity

The Company has multiple sources of liquidity, including cash generated from operations and financing sources. The Company intends to file a shelf registration statement with the SEC, which 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. In 2024, CSX issued $550 million of long-term debt. See Note 10, Debt and Credit Agreements for more information.

CSX has access to a $1.2 billion five-year unsecured revolving credit facility backed by a diverse syndicate of banks that expires in February 2028. As of December 31, 2024, 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. As of December 31, 2024, the Company had no outstanding debt under the commercial paper program.

Uses of Cash

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.

In 2024, CSX continued to invest in its business to create long-term value for shareholders. The Company is committed to maintaining and improving its existing infrastructure and to positioning itself for long-term, profitable growth through optimizing network and terminal capacity. Funds used for property additions are further described below.

(a) See Note 20, Revision of Prior Period Financial Statements. To conform with current year presentation, 2023 amounts have also been updated to reflect PTC expenditures in the "Bridges, Signals, PTC and Other" line item.

CSX 2024 Form 10-K p.39

Capital expenditures above include approximately $50 million in 2024 related to rebuilding the Blue Ridge subdivision as a result of impacts from Hurricane Helene. Planned capital investments for 2025 are expected to be consistent with 2024, except for additional costs to rebuild the Blue Ridge subdivision. Spending on the Blue Ridge rebuild is currently estimated to exceed $400 million in total. Spending to sustain core infrastructure with a focus on safety and reliability will be a top priority. In addition, management is committed to investments that promote profitable growth, including projects supporting service enhancements and productivity initiatives, including investments in locomotives and freight cars. CSX intends to fund capital investments primarily through cash generated from operations.

CSX is continually evaluating market and regulatory conditions that could affect the Company’s ability to generate sufficient returns on capital investments. CSX may revise its future estimates for capital spending as a result of changes in business conditions, tax legislation or the enactment of new laws or regulations, which could have a material adverse effect on the Company’s operations and financial performance in the future (see Risk Factors under Item 1A of this Form 10-K).

CSX is committed to returning cash to shareholders. Capital structure, capital investments and cash distributions, including dividends and share repurchases, are reviewed at least annually by the Board of Directors. On February 12, 2025, the Company's Board of Directors authorized an 8% increase in the quarterly cash dividend to $0.13 per common share effective March 2025. The 2025 dividend increase is the 21 st consecutive increase in CSX's annual dividend. 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.

Material Changes in the Consolidated Balance Sheets and Working Capital

CSX's balance sheet reflects its strong capital base and the impact of CSX's balanced approach in deploying capital for the benefit of its shareholders, which includes investments in infrastructure, dividend payments and share repurchases. Further, CSX is well positioned from a liquidity standpoint. The Company ended the year with $1.0 billion of cash, cash equivalents and short-term investments.

Total assets as well as total liabilities and shareholders' equity increased $552 million from prior year end. The increase in total assets was primarily due to a $937 million increase in net properties consistent with planned capital expenditures and a $123 million increase in investments in affiliates and other companies. These increases were partially offset by a $420 million decrease in cash and cash equivalents as noted above and a $108 million impairment of Quality Carriers' goodwill.

Total liabilities increased $30 million from prior year end primarily due to the issuance of $550 million in long-term debt and the deferral of $429 million of federal and state tax payments related to the 2024 tax year postponed under tax relief announcements for those impacted by the 2024 hurricane season. These increases were partially offset by debt repayments of $558 million and $387 million of federal and state tax payments related to the 2023 tax year that were previously postponed under tax relief announcements for those impacted by Hurricane Idalia. Total shareholders' equity increased $522 million from prior year end primarily driven by net earnings of $3.5 billion, partially offset by share repurchases of $2.2 billion and dividends paid of $930 million.

Working capital is considered a measure of a company’s ability to meet its short-term needs. CSX had a working capital deficit of $456 million at December 2024 and a surplus of $136 million at December 2023. This decrease of $592 million since year end is primarily driven by a $420 million decrease in cash as property additions of $2.5 billion, share repurchases of $2.2 billion, and dividend payments of $930 million more than offset $5.2 billion in cash generated by operating activities.

CSX 2024 Form 10-K p.40

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. A working capital deficit is not unusual for CSX or other companies in the industry and does not indicate a lack of liquidity. The Company continues to maintain adequate current assets to satisfy current liabilities and maturing obligations when they come due. Furthermore, CSX has sufficient financial capacity, including its revolving credit facility, commercial paper program and its ability to file and use shelf registration statements 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.

Completed Transactions

Acquisition of Pan Am Systems, Inc.

On June 1, 2022, CSX completed its acquisition of Pan Am. The closing price of $600 million was funded through a combination of common stock valued at $422 million and cash totaling $178 million. Total cash consideration paid to acquire the business includes a $30 million deposit paid in fourth quarter 2020. For further details, refer to Note 17, Business Combinations.

Sale of Property Rights to the Commonwealth of Virginia

On March 26, 2021, the Company entered into a comprehensive agreement to sell certain property rights in three CSX-owned line segments to the Commonwealth of Virginia over three phases. Over the course of the transaction, which was completed in 2022, total proceeds of $525 million were collected and total gains of $493 million were recognized. This includes $125 million of proceeds collected and $144 million of gains recognized in 2022. For further details, refer to Note 6, Properties.

CSX 2024 Form 10-K p.41

Credit Ratings

Credit ratings reflect an independent agency’s judgment on the likelihood that a borrower will repay a debt obligation at maturity. The ratings reflect many considerations, such as the nature of the borrower’s industry and its competitive position, the size of the company, its liquidity and access to capital and the sensitivity of a company’s cash flows to changes in the economy. The three largest rating agencies, Standard & Poor’s Ratings Services (“S&P”), Moody’s Investors Service (“Moody’s”), and Fitch Ratings ("Fitch"), use alphanumeric codes to designate their ratings. The highest quality rating for long-term credit obligations is AAA for S&P and Fitch and is Aaa for Moody’s. A credit rating is not a recommendation to buy, sell or hold securities and may be subject to revision or withdrawal at any time by the assigning rating agency.

CSX's credit ratings remained stable during 2024 with no changes in the Company's S&P or Moody's ratings from prior year. Additionally, Fitch published a new first time rating of A- in April 2024. The Company's credit ratings as of December 31, 2024 are summarized below:

The cost and availability of unsecured financing are materially affected by CSX's long-term credit ratings. Ratings of BBB- by S&P and Fitch and Baa3 by Moody’s, or better, reflect ratings on debt obligations that fall within a band of credit quality considered to be investment grade. If CSX's credit ratings were to decline to below investment-grade levels, the Company could experience significant increases in its interest cost for new debt. In addition, a decline in CSX’s credit ratings to below investment grade levels could adversely affect the market’s demand, and thus the Company’s ability to readily issue new debt. The Company is committed to maintaining an investment-grade credit profile.

CSX 2024 Form 10-K p.42