10-Q 1 csx-20220930.htm 10-Q csx-20220930
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q
()    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2022
OR
()    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
    For the transition period from __________ to __________
Commission File Number 1-8022
csx-20220930_g1.jpg
CSX CORPORATION
(Exact name of registrant as specified in its charter)
Virginia62-1051971
(I.R.S. Employer Identification No.)
500 Water Street15th FloorJacksonvilleFL32202904359-3200
(Address of principal executive offices)(Zip Code)(Telephone number, including area code)
No Change
(Former name, former address and former fiscal year, if changed since last report.)
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of exchange on which registered
Common Stock, $1 Par ValueCSXNasdaq Global Select Market
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes (X) No ( )
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Yes (X) No ( )
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company (as defined in Exchange Act Rule 12b-2).
Large Accelerated Filer (X)     Accelerated Filer ( )    Non-accelerated Filer ( )    Smaller Reporting Company () Emerging growth company ()

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ( )

Indicate by a check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes () No (X)
There were 2,102,408,729 shares of common stock outstanding on September 30, 2022 (the latest practicable date that is closest to the filing date).
CSX Q3 2022 Form 10-Q p.1


CSX CORPORATION
FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2022
INDEX
Page
PART I.FINANCIAL INFORMATION
Item 1.
Quarters and Nine Months Ended September 30, 2022 and September 30, 2021
Quarters and Nine Months Ended September 30, 2022 and September 30, 2021
At September 30, 2022 (Unaudited) and December 31, 2021
Nine Months Ended September 30, 2022 and September 30, 2021
Quarters and Nine Months Ended September 30, 2022 and September 30, 2021
Item 2.
Item 3.
Item 4.
PART II.OTHER INFORMATION
Item 1.
Item 1A.
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.
CSX Q3 2022 Form 10-Q p.2

CSX CORPORATION
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED INCOME STATEMENTS (Unaudited)
(Dollars in millions, except per share amounts)
Third QuartersNine Months
2022202120222021
Revenue$3,895 $3,292 $11,123 $9,095 
Expense
Labor and Fringe759 631 2,135 1,847 
Purchased Services and Other664 577 1,986 1,490 
Fuel438 247 1,215 631 
Depreciation and Amortization378 367 1,107 1,060 
Equipment and Other Rents104 94 299 269 
Gains on Property Dispositions(27)(60)(183)(430)
Total Expense2,316 1,856 6,559 4,867 
Operating Income1,579 1,436 4,564 4,228 
Interest Expense(193)(177)(543)(542)
Other Income - Net37 20 89 60 
Earnings Before Income Taxes1,423 1,279 4,110 3,746 
Income Tax Expense(312)(311)(962)(899)
Net Earnings$1,111 $968 $3,148 $2,847 
Per Common Share (Note 2)
Net Earnings Per Share, Basic$0.52 $0.43 $1.46 $1.26 
Net Earnings Per Share, Assuming Dilution$0.52 $0.43 $1.46 $1.26 
Average Shares Outstanding (In millions)
2,122 2,237 2,156 2,263 
Average Shares Outstanding, Assuming Dilution (In millions)
2,126 2,242 2,161 2,268 


CONDENSED CONSOLIDATED COMPREHENSIVE INCOME STATEMENTS (Unaudited)
(Dollars in millions)
Third QuartersNine Months
2022202120222021
Total Comprehensive Earnings (Note 10)$1,129 $985 $3,236 $2,911 


See accompanying notes to consolidated financial statements.
CSX Q3 2022 Form 10-Q p.3

CSX CORPORATION
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS
(Dollars in millions)
(Unaudited)
September 30,
2022
December 31,
2021
ASSETS
Current Assets:
Cash and Cash Equivalents$2,311 $2,239 
Short-term Investments88 77 
Accounts Receivable - Net (Note 8)1,467 1,148 
Materials and Supplies365 339 
Other Current Assets79 70 
  Total Current Assets4,310 3,873 
Properties47,734 46,505 
Accumulated Depreciation(13,778)(13,490)
  Properties - Net33,956 33,015 
Investment in Affiliates and Other Companies2,289 2,099 
Right-of-Use Lease Asset 506 501 
Goodwill and Other Intangible Assets - Net537 451 
Other Long-term Assets644 592 
  Total Assets$42,242 $40,531 
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts Payable$1,152 $963 
Labor and Fringe Benefits Payable727 630 
Casualty, Environmental and Other Reserves (Note 4)113 118 
Current Maturities of Long-term Debt (Note 7)155 181 
Income and Other Taxes Payable156 134 
Other Current Liabilities205 207 
  Total Current Liabilities2,508 2,233 
Casualty, Environmental and Other Reserves (Note 4)317 250 
Long-term Debt (Note 7)17,895 16,185 
Deferred Income Taxes - Net7,632 7,383 
Long-term Lease Liability 487 478 
Other Long-term Liabilities 520 502 
  Total Liabilities29,359 27,031 
Shareholders' Equity:
Common Stock, $1 Par Value
2,102 2,202 
Other Capital555 66 
Retained Earnings10,537 11,630 
Accumulated Other Comprehensive Loss (Note 10)(320)(408)
Non-controlling Minority Interest9 10 
Total Shareholders' Equity12,883 13,500 
Total Liabilities and Shareholders' Equity$42,242 $40,531 
See accompanying notes to consolidated financial statements.
CSX Q3 2022 Form 10-Q p.4

CSX CORPORATION
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED CASH FLOW STATEMENTS (Unaudited)
(Dollars in millions)
Nine Months
20222021
OPERATING ACTIVITIES
Net Earnings$3,148 $2,847 
Adjustments to Reconcile Net Earnings to Net Cash Provided by Operating Activities:
Depreciation and Amortization1,107 1,060 
Deferred Income Taxes125 109 
Gains on Property Dispositions(183)(430)
Other Operating Activities(52)10 
Changes in Operating Assets and Liabilities:
Accounts Receivable(143)(153)
Other Current Assets(32)(4)
Accounts Payable166 132 
Income and Other Taxes Payable22 174 
Other Current Liabilities97 74 
Net Cash Provided by Operating Activities4,255 3,819 
INVESTING ACTIVITIES
Property Additions(1,437)(1,220)
Purchases of Short-term Investments(19) 
Proceeds from Sales of Short-term Investments9 3 
Proceeds and Advances from Property Dispositions51 297 
Business Acquisition, Net of Cash Acquired(223)(543)
Other Investing Activities(25) 
Net Cash Used In Investing Activities(1,644)(1,463)
FINANCING ACTIVITIES
Long-term Debt Issued (Note 7)2,000  
Long-term Debt Repaid (Note 7)(178)(390)
Dividends Paid(645)(633)
Shares Repurchased(3,710)(2,316)
Other Financing Activities(6)33 
Net Cash Used in Financing Activities(2,539)(3,306)
Net Increase/(Decrease) in Cash and Cash Equivalents72 (950)
CASH AND CASH EQUIVALENTS
Cash and Cash Equivalents at Beginning of Period2,239 3,129 
Cash and Cash Equivalents at End of Period$2,311 $2,179 
SUPPLEMENTAL CASH FLOW INFORMATION
Issuance of Common Stock as Consideration for Acquisition$422 $ 

See accompanying notes to consolidated financial statements.
CSX Q3 2022 Form 10-Q p.5

CSX CORPORATION
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED STATEMENTS OF CHANGES
IN SHAREHOLDERS' EQUITY (Unaudited)
(Dollars in millions)
Nine Months 2022
Common Shares Outstanding
(Thousands)
Common Stock and Other CapitalRetained Earnings
Accumulated Other Comprehensive Income (Loss)(a)
Non-controlling Minority InterestTotal Shareholders' Equity
Balance December 31, 20212,201,787 $2,268 $11,630 $(408)$10 $13,500 
Comprehensive Earnings:
Net Earnings— — 859 — — 859 
Other Comprehensive Income — — — 31 — 31 
Total Comprehensive Earnings890 
Common stock dividends, $0.10 per share
— — (218)— — (218)
Share Repurchases(29,365)(29)(987)— — (1,016)
Stock Option Exercises and Other1,831 38  — 1 39 
Balance March 31, 20222,174,253 $2,277 $11,284 $(377)$11 $13,195 
Comprehensive Earnings:
Net Earnings— — 1,178 — — 1,178 
Other Comprehensive Income— — — 39 — 39 
Total Comprehensive Earnings1,217 
Common stock dividends, $0.10 per share
— — (215)— — (215)
Share Repurchases(46,508)(47)(1,452)— — (1,499)
Issuance of common stock for acquisition of Pan Am Systems, Inc.13,173 422 — — — 422 
Stock Option Exercises and Other314 23 (1)— (1)21 
Balance June 30, 20222,141,232 $2,675 $10,794 $(338)$10 $13,141 
Comprehensive Earnings:
Net Earnings— — 1,111 — — 1,111 
Other Comprehensive Income (Note 10)— — — 18 — 18 
Total Comprehensive Earnings1,129 
Common stock dividends, $0.10 per share
— — (212)— — (212)
Share Repurchases(39,924)(40)(1,155)— — (1,195)
Stock Option Exercises and Other514 22 (1)— (1)20 
Balance September 30, 20222,101,822 $2,657 $10,537 $(320)$9 $12,883 

(a) Accumulated Other Comprehensive Loss balances shown above are net of tax. The associated taxes were $107 million as of December 31, 2021; $99 million as of March 31, 2022; $88 million as of June 30, 2022; and $85 million as of September 30, 2022. For additional information, see Note 10, Other Comprehensive Income.

See accompanying notes to consolidated financial statements.

CSX Q3 2022 Form 10-Q p.6

CSX CORPORATION
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED STATEMENTS OF CHANGES
IN SHAREHOLDERS' EQUITY (Unaudited)
(Dollars in millions)
Nine Months 2021
Common Shares Outstanding (Thousands)
Common Stock and Other CapitalRetained Earnings
Accumulated Other Comprehensive Income (Loss)(a)
Non-controlling Minority InterestTotal Shareholders' Equity
Balance December 31, 20202,287,587 $2,440 $11,259 $(598)$9 13,110 
Comprehensive Earnings:
Net Earnings— — 706 — — 706 
Other Comprehensive Income— — — 68 — 68 
Total Comprehensive Earnings774 
Common stock dividends, $0.093 per share
— — (213)— — (213)
Share Repurchases(18,389)(18)(533)— — (551)
Stock Option Exercises and Other3,003 37 3 — — 40 
Balance March 31, 20212,272,201 2,459 11,222 (530)9 13,160 
Comprehensive Earnings:
Net Earnings— — 1,173 — — 1,173 
Other Comprehensive Income— — — (21)— (21)
Total Comprehensive Earnings1,152 
Common stock dividends, $0.093 per share
— — (212)— — (212)
Share Repurchases(18,345)(19)(682)— — (701)
Stock Option Exercises and Other640 (186)222 — (1)35 
Balance June 30, 20212,254,496 2,254 11,723 (551)8 13,434 
Comprehensive Earnings:
Net Earnings— — 968 — — 968 
Other Comprehensive Income (Note 10)— — — 17 — 17 
Total Comprehensive Earnings985 
Common stock dividends, $0.093 per share
— — (209)— — (209)
Share Repurchases(37,217)(37)(1,027)— — (1,064)
Stock Option Exercises and Other704 25 — — 1 26 
Balance September 30, 20212,217,983 $2,242 $11,455 $(534)$9 $13,172 

(a) Accumulated Other Comprehensive Loss balances shown above are net of tax. The associated taxes were $156 million as of December 31, 2020; $137 million as of March 31, 2021; $142 million as of June 30, 2021; and $136 million as of September 30, 2021. For additional information, see Note 10, Other Comprehensive Income.

See accompanying notes to consolidated financial statements.
CSX Q3 2022 Form 10-Q p.7

CSX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

NOTE 1.    Nature of Operations and Significant Accounting Policies

Background
CSX Corporation together with its subsidiaries ("CSX" or the “Company”), based in Jacksonville, Florida, is one of the nation's leading transportation companies. The Company provides rail-based transportation services including traditional rail service, the transport of intermodal containers and trailers, as well as other transportation services such as rail-to-truck transfers and bulk commodity operations.

    CSX's principal operating subsidiary, CSX Transportation, Inc. (“CSXT”), provides an important link to the transportation supply chain through its approximately 20,000 route mile rail network and serves major population centers in 26 states east of the Mississippi River, the District of Columbia and the Canadian provinces of Ontario and Quebec. The Company's intermodal business links customers to railroads via trucks and terminals. On June 1, 2022, CSX completed its acquisition of Pan Am Systems, Inc. (“Pan Am”) which is the parent company of Pan Am Railways, Inc. This acquisition expands CSXT’s reach in the Northeastern United States.

CSXT is also responsible for the Company's real estate sales, leasing, acquisition and management and development activities. Substantially all of these activities are focused on supporting railroad operations.

Other entities
    In addition to CSXT, the Company’s subsidiaries include Quality Carriers, Inc. ("Quality Carriers"), CSX Intermodal Terminals, Inc. (“CSX Intermodal Terminals”), Total Distribution Services, Inc. (“TDSI”), Transflo Terminal Services, Inc. (“Transflo”), CSX Technology, Inc. (“CSX Technology”) and other subsidiaries. Quality Carriers is the largest provider of bulk liquid chemicals truck transportation in North America. CSX Intermodal Terminals owns and operates a system of intermodal terminals, predominantly in the eastern United States and also performs drayage services (the pickup and delivery of intermodal shipments) for certain customers. TDSI serves the automotive industry with distribution centers and storage locations. Transflo connects non-rail served customers to the many benefits of rail by transferring products from rail to trucks. The biggest Transflo markets are chemicals and agriculture, which includes shipments of plastics and ethanol. CSX Technology and other subsidiaries provide support services for the Company.

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 (“Commonwealth”) over three phases for a total of $525 million. The timing and amount of gains recognized are based on the allocation of fair value to each conveyance, the timing of future conveyances and collectability. In April 2021, upon closing of the first phase of the agreement, the Company collected $200 million in proceeds and recognized a $349 million gain. In fourth quarter 2021, the Company collected additional proceeds of $200 million, a portion of which was attributable to the first phase with the remainder attributable to the second phase. The second phase closed in January 2022, which resulted in a $20 million gain in first quarter 2022. During June 2022, the final $125 million of proceeds was approved by the Commonwealth, which resulted in a $122 million gain in second quarter 2022 related to property rights previously conveyed. To date, total proceeds of $400 million have been collected and total gains of $491 million have been recognized.

CSX Q3 2022 Form 10-Q p.8

CSX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1.    Nature of Operations and Significant Accounting Policies, continued

The remaining proceeds are expected to be collected during fourth quarter 2022 upon closing of the third phase and future gains are not expected to be material. As of September 30, 2022, the carrying values of the remaining assets subject to this transaction were not material. There were no proceeds or gains related to this agreement during third quarter 2022 or 2021. Amounts related to the nine months 2022 and 2021 are summarized in the following table.
Nine Months
(Dollars in millions)20222021
Gains$142 $349 
Proceeds200

Basis of Presentation
In the opinion of management, the accompanying consolidated financial statements contain all normal, recurring adjustments necessary to fairly present the consolidated financial statements and accompanying notes. Where applicable, prior year information has been reclassified to conform to the current presentation. Pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”), certain information and disclosures normally included in the notes to the annual financial statements prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) have been omitted from these interim financial statements. CSX suggests that these financial statements be read in conjunction with the audited financial statements and the notes included in CSX's most recent annual report on Form 10-K and any subsequently filed current reports on Form 8-K.

Fiscal Year
The Company's fiscal periods are based upon the calendar year. Except as otherwise specified, references to “third quarter(s)” or “nine months” indicate CSX's fiscal periods ending September 30, 2022 and September 30, 2021, and references to "year-end" indicate the fiscal year ended December 31, 2021.

New Accounting Pronouncements
In March 2020, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2020-04, Facilitation of the Effects of Reference Rate Reform on Financial Reporting. As the London Interbank Offered Rate ("LIBOR") will no longer be available beginning July 2023, this standard update provides practical expedients for contract modifications made as part of the transition from LIBOR to alternative reference rates. CSX's revolving line of credit currently uses LIBOR as a reference rate. This standard update can be adopted prospectively through December 31, 2022. The Company does not anticipate that adoption will have a material impact on the Company's results of operations or financial position.

In November 2021, the FASB issued ASU 2021-10, Disclosure by Business Entities about Government Assistance. This standard update requires annual disclosure of the nature of any government assistance received, accounting policies related to such assistance and the effect of that assistance on the entity’s financial statements. The Company will adopt this guidance effective year end 2022 and the standard update will not impact the Company's results of operations or financial position as the update only impacts disclosures.

CSX Q3 2022 Form 10-Q p.9

CSX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 2.    Earnings Per Share

    The following table sets forth the computation of basic earnings per share and earnings per share, assuming dilution.
Third QuartersNine Months
2022202120222021
Numerator (Dollars in millions):
Net Earnings
$1,111 $968 $3,148 $2,847 
Denominator (Units in millions):
Average Common Shares Outstanding2,122 2,237 2,156 2,263 
Other Potentially Dilutive Common Shares4 5 5 5 
Average Common Shares Outstanding, Assuming Dilution
2,126 2,242 2,161 2,268 
Net Earnings Per Share, Basic
$0.52 $0.43 $1.46 $1.26 
Net Earnings Per Share, Assuming Dilution
$0.52 $0.43 $1.46 $1.26 
    
Basic earnings per share is based on the weighted-average number of shares of common stock outstanding. Earnings per share, assuming dilution, is based on the weighted-average number of shares of common stock outstanding and common stock equivalents adjusted for the effects of common stock that may be issued as a result of potentially dilutive instruments. CSX's potentially dilutive instruments are made up of equity awards including performance units and employee stock options.

When calculating diluted earnings per share, the potential shares that would be outstanding if all outstanding stock options were exercised are included. This number is different from outstanding stock options because it is offset by shares CSX could repurchase using the proceeds from these hypothetical exercises to obtain the common stock equivalent. The total average outstanding stock options that were excluded from the diluted earnings per share calculation because their effect was antidilutive is in the table below.
Third QuartersNine Months
2022202120222021
Antidilutive Stock Options Excluded from Diluted EPS (Millions)
3232
CSX Q3 2022 Form 10-Q p.10

CSX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 2.    Earnings Per Share, continued

Share Repurchases    
    During July 2022, the share repurchase program announced in October 2020 was completed and the Company began repurchasing shares under the $5 billion share repurchase program approved on July 19, 2022. Total repurchase authority remaining was $4.3 billion as of September 30, 2022. Previously, shares were repurchased under a program announced in January 2019 that was completed in June 2021.

During third quarters and nine months ended 2022 and 2021, the Company engaged in the following repurchase activities:
Third QuartersNine Months
2022202120222021
Shares Repurchased (Millions)
40 34 116 74 
Cost of Shares (Dollars in millions)
$1,195 $1,064 $3,710 $2,316 

Share repurchases may be made through a variety of methods including, but not limited to, open market purchases, purchases pursuant to Rule 10b5-1 plans, accelerated share repurchases and negotiated block purchases. The timing of share repurchases depends upon management's assessment of marketplace conditions and other factors, and the program remains subject to the discretion of the Board of Directors. Future share repurchases are expected to be funded by cash on hand, cash generated from operations and debt issuances. Shares are retired immediately upon repurchase. In accordance with the Equity Topic in the Accounting Standards Codification ("ASC"), the excess of repurchase price over par value is recorded in retained earnings.

Dividend Increase
In February 2022, the Company's Board of Directors authorized a 7% increase in the quarterly cash dividend to $0.10 per common share.

CSX Q3 2022 Form 10-Q p.11

CSX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 3.     Stock Plans and Share-Based Compensation

Under CSX's share-based compensation plans, awards consist of performance units, stock options, restricted stock units and restricted stock awards for management and stock grants for directors. Awards granted under the various programs are determined and approved by the Compensation and Talent Management Committee of the Board of Directors. Awards to the Chief Executive Officer are approved by the full Board and awards to senior executives are approved by the Compensation and Talent Management Committee. In certain circumstances, the Chief Executive Officer or delegate approves awards to management employees other than senior executives. The Board of Directors approves awards granted to CSX's non-management directors upon recommendation of the Governance and Sustainability Committee.

Share-based compensation expense for awards under share-based compensation plans and purchases made as part of the employee stock purchase plan is measured using the fair value of the award on the grant date and is recognized on a straight-line basis over the service period of the respective award. Alternatively, expense is recognized upon death or upon grant date to certain retirement-eligible employees whose agreements allow for continued vesting upon retirement. Forfeitures are recognized as they occur. Total pre-tax expense and income tax benefits associated with share-based compensation are shown in the table below. Income tax benefits include impacts from option exercises and the vesting of other equity awards.

Third QuartersNine Months
(Dollars in millions)2022202120222021
Share-Based Compensation Expense:
Performance Units$1 $6 $27 $44 
Stock Options3 3 13 13 
Restricted Stock Units and Awards2 3 11 10 
Employee Stock Purchase Plan2 1 4 3 
Stock Awards for Directors  2 2 
Total Share-Based Compensation Expense$8 $13 $57 $72 
Income Tax Benefit$3 $4 $15 $19 

CSX Q3 2022 Form 10-Q p.12

CSX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 3.     Stock Plans and Share-Based Compensation, continued

Long-term Incentive Plan
    In February 2022, the Company granted 494 thousand performance units to certain employees under a new long-term incentive plan ("LTIP") for the years 2022 through 2024, which was adopted under the CSX 2019 Stock and Incentive Award Plan.

    Payouts of performance units for the cycle ending with fiscal year 2024 will be based on the achievement of goals related to both operating income growth and CSX Cash Earnings ("CCE"), in each case excluding non-recurring items as defined in the plan. The average annual operating income growth percentage and CCE measures over the plan period will each comprise 50% of the payout and will be measured independently of the other. As defined under the plan, CCE is a cash-flow based measure that incentivizes strategic investments earning more than the required return. CCE equals CSX’s gross cash earnings (after-tax EBITDA) minus the required return on gross operating assets.

    Grants were made in performance units, with each unit representing the right to receive one share of CSX common stock, and payouts will be made in CSX common stock. The payout range for participants will be between 0% and 200% of the target awards depending on Company performance against predetermined goals. Payouts for certain executive officers are subject to formulaic upward or downward adjustment by up to 25%, capped at an overall payout of 250%, based upon the Company's total shareholder return relative to specified comparable groups over the performance period. Participants will receive stock dividend equivalents declared over the performance period based on the number of performance units paid upon vesting. Other immaterial grants of performance units were made during third quarters 2022 and 2021. The fair values of the performance units awarded during the third quarters and nine months 2022 and 2021 were primarily calculated using a Monte-Carlo simulation model with the following weighted-average assumptions:

Third QuartersNine Months
2022202120222021
Weighted-Average Assumptions Used:
Risk-free Interest Rate4.3 %N/A2.3 %0.2 %
Annualized Volatility33.2 %N/A33.0 %33.6 %
Expected Life (in years)
2.3N/A2.72.9

Stock Options
In February 2022, the Company granted approximately 1.6 million stock options along with the corresponding LTIP. The fair value of stock options was calculated using the Black-Scholes valuation model. These stock options were granted with ten-year terms and vest over three years in equal installments each year on the anniversary of the grant date. The exercise price for stock options granted equals the closing market price of the underlying stock on the date of grant. These awards are time-based and are not based upon attainment of performance goals. During third quarters 2022 and 2021, there were additional immaterial grants of stock options to certain members of management.

CSX Q3 2022 Form 10-Q p.13

CSX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 3.     Stock Plans and Share-Based Compensation, continued

    The fair values of all stock option awards during the quarters and nine months ended September 30, 2022 and September 30, 2021 were estimated at the grant date with the following weighted average assumptions:

Third QuartersNine Months
2022202120222021
Weighted-Average Grant Date Fair Value$9.96$8.86$10.12$7.94
Weighted-Average Assumptions Used:
Annual Dividend Yield1.3 %1.2 %1.1 %1.2 %
Risk-Free Interest Rate3.3 %1.0 %2.0 %0.7 %
Annualized Volatility30.2 %30.7 %30.1 %31.2 %
Expected Life (in years)6.36.36.06.0
Other Pricing Model Inputs:
Weighted-Average Grant Date Market Price of CSX Stock (strike price)$31.61$32.18$35.12$29.65

Restricted Stock Units
    In February 2022, the Company granted 452 thousand restricted stock units along with the corresponding LTIP. The restricted stock units vest three years after the date of grant. Participants will receive stock dividend equivalents on the vested shares upon vesting. These awards are time-based and are not based upon CSX's attainment of operational targets. Restricted stock units are paid out in CSX common stock on a one-for-one basis. During third quarters 2022 and 2021, there were additional immaterial grants of restricted stock units.

For more information related to the Company's outstanding long-term incentive compensation, see CSX's most recent annual report on Form 10-K.

Employee Stock Purchase Plan
In May 2018, shareholders approved the 2018 CSX Employee Stock Purchase Plan (“ESPP”) for the benefit of Company employees. The Company registered 12 million shares of common stock that may be issued pursuant to this plan. Under the ESPP, employees may contribute between 1% and 10% of base compensation, after-tax, to purchase up to $25,000 of market value CSX common stock per year at 85% of the closing market price on either the grant date or the last day of the six-month offering period, whichever is lower. During the third quarter and nine months ended September 30, 2022 and September 30, 2021, the Company issued the following shares:

Third QuartersNine Months
2022202120222021
Shares Issued (in thousands)400 334 726 730 
Weighted Average Purchase Price per Share$24.70 $24.93 $25.93 $21.90 
CSX Q3 2022 Form 10-Q p.14

CSX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 4.    Casualty, Environmental and Other Reserves

Personal injury and environmental reserves are considered critical accounting estimates due to the need for management judgment. Casualty, environmental and other reserves are provided for in the consolidated balance sheets as shown in the table below.

September 30, 2022December 31, 2021
(Dollars in millions)CurrentLong-termTotalCurrentLong-termTotal
Casualty:
Personal Injury$31 $95 $126 $37 $81 $118 
Occupational7 57 64 7 55 62 
     Total Casualty38 152 190 44 136 180 
Environmental40 116 156 37 71 108 
Other35 49 84 37 43 80 
     Total$113 $317 $430 $118 $250 $368 

These liabilities are accrued when probable and reasonably estimable in accordance with the Contingencies Topic in the ASC. Actual settlements and claims received could differ, and final outcomes of these matters cannot be predicted with certainty. Considering the legal defenses currently available, the liabilities that have been recorded and other factors, it is the opinion of management that none of these items individually, when finally resolved, will have a material adverse effect on the Company's financial condition, results of operations or liquidity. Should a number of these items occur in the same period, however, their combined effect could be material in that particular period.

Casualty
     Casualty reserves of $190 million and $180 million as of September 30, 2022 and December 31, 2021, respectively, represent accruals for personal injury, occupational disease and occupational injury claims primarily related to railroad operations. Beginning June 1, 2021, the Company's self-insured retention amount for these claims increased from $75 million to $100 million per occurrence. Currently, no individual claim is expected to exceed the self-insured retention amount. In accordance with the Contingencies Topic in the ASC, to the extent the value of an individual claim exceeds the self-insured retention amount, the Company would present the liability on a gross basis with a corresponding receivable for insurance recoveries. These reserves fluctuate based upon the timing of payments as well as changes in estimate. Actual results may vary from estimates due to the number, type and severity of the injury, costs of medical treatments and uncertainties in litigation. Most of the Company's casualty claims relate to CSXT. Defense and processing costs, which historically have been insignificant and are anticipated to be insignificant in the future, are not included in the recorded liabilities.

Personal Injury
    Personal injury reserves represent liabilities for employee work-related and third-party injuries. Work-related injuries for CSXT employees are primarily subject to the Federal Employers’ Liability Act (“FELA”). CSXT retains an independent actuary to assist management in assessing the value of personal injury claims. An analysis is performed by the actuary quarterly and is reviewed by management. This analysis did not result in a material adjustment to the personal injury reserve in the quarters and nine months ended September 30, 2022 or September 30, 2021. The methodology used by the actuary includes a development factor to reflect growth or reduction in the value of these personal injury claims based largely on CSXT's historical claims and settlement experience.
CSX Q3 2022 Form 10-Q p.15

CSX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 4.    Casualty, Environmental and Other Reserves, continued

Occupational
    Occupational reserves represent liabilities arising from allegations of exposure to certain materials in the workplace (such as solvents, soaps, chemicals and diesel fumes), past exposure to asbestos or allegations of chronic physical injuries resulting from work conditions (such as repetitive stress injuries). The Company retains an independent actuary to analyze the Company’s historical claim filings, settlement amounts, and dismissal rates to assist in determining future anticipated claim filing rates and average settlement values. This analysis is performed by the actuary and reviewed by management quarterly. The analysis did not result in a material adjustment to the occupational reserve in the quarters or nine months ended September 30, 2022 or September 30, 2021.

Environmental
Environmental reserves were $156 million and $108 million as of September 30, 2022, and December 31, 2021, respectively. These reserves as of September 30, 2022, include $32 million of liabilities assumed as a result of the Company's acquisition of Pan Am. The Company is a party to various proceedings related to environmental issues, including administrative and judicial proceedings involving private parties and regulatory agencies. The Company has been identified as a potentially responsible party at approximately 230 environmentally impaired sites. Many of these are, or may be, subject to remedial action under the federal Comprehensive Environmental Response, Compensation and Liability Act of 1980 ("CERCLA"), also known as the Superfund Law, or similar state statutes. Most of these proceedings arose from environmental conditions on properties used for ongoing or discontinued railroad operations. A number of these proceedings, however, are based on allegations that the Company, or its predecessors, sent hazardous substances to facilities owned or operated by others for treatment, recycling or disposal. In addition, some of the Company's land holdings were leased to others for commercial or industrial uses that may have resulted in releases of hazardous substances or other regulated materials onto the property and could give rise to proceedings against the Company.

In any such proceedings, the Company is subject to environmental clean-up and enforcement actions under the Superfund Law, as well as similar state laws that may impose joint and several liability for clean-up and enforcement costs on current and former owners and operators of a site without regard to fault or the legality of the original conduct. These costs could be substantial.

In accordance with the Asset Retirement and Environmental Obligations Topic in the ASC, the Company reviews its role with respect to each site identified at least quarterly, giving consideration to a number of factors such as:

type of clean-up required;
nature of the Company's alleged connection to the location (e.g., generator of waste sent to the site or owner or operator of the site);
extent of the Company's alleged connection (e.g., volume of waste sent to the location and other relevant factors); and
number, connection and financial viability of other named and unnamed potentially responsible parties at the location.

CSX Q3 2022 Form 10-Q p.16

CSX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 4.    Casualty, Environmental and Other Reserves, continued

    Based on management's review process, amounts have been recorded to cover contingent anticipated future environmental remediation costs with respect to each site to the extent such costs are reasonably estimable and probable. The recorded liabilities for estimated future environmental costs are undiscounted. The liability includes future costs for remediation and restoration of sites as well as any significant ongoing monitoring costs, but excludes any anticipated insurance recoveries. Payments related to these liabilities are expected to be made over the next several years. Environmental remediation costs are included in purchased services and other on the consolidated income statements.

Currently, the Company does not possess sufficient information to reasonably estimate the amounts of additional liabilities, if any, on some sites until completion of future environmental studies. In addition, conditions that are currently unknown could, at any given location, result in additional exposure, the amount and materiality of which cannot presently be reasonably estimated. Based upon information currently available, however, the Company believes its environmental reserves accurately reflect the estimated cost of remedial actions currently required.

Other
Other reserves were $84 million and $80 million as of September 30, 2022 and December 31, 2021, respectively. Other reserves include liabilities for various claims, such as automobile, property, general liability and workers' compensation. Also included in other reserves are longshoremen disability claims related to a previously owned international shipping business (these claims are in runoff) as well as claims for current port employees.

NOTE 5.    Commitments and Contingencies

Insurance
    The Company maintains insurance programs with substantial limits for property damage, including resulting business interruption, and third-party liability. A certain amount of risk is retained by the Company on each insurance program. Under its property insurance program, the Company retains all risk up to $100 million per occurrence for losses from floods and named windstorms and up to $75 million per occurrence for other property losses. For third-party liability claims, the Company retains all risk up to $100 million per occurrence. As CSX negotiates insurance coverage above its full self-retention amounts, it retains a percentage of risk at various layers of coverage. While the Company believes its insurance coverage is adequate, future claims could exceed existing insurance coverage or insurance may not continue to be available at commercially reasonable rates.
CSX Q3 2022 Form 10-Q p.17

CSX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 5.    Commitments and Contingencies, continued

Legal
    The Company is involved in litigation incidental to its business and is a party to a number of legal actions and claims, various governmental proceedings and private civil lawsuits, including, but not limited to, those related to fuel surcharge practices, tax matters, environmental and hazardous material exposure matters, FELA and labor claims by current or former employees, other personal injury or property claims and disputes and complaints involving certain transportation rates and charges. Some of the legal proceedings include claims for compensatory as well as punitive damages and others are, or are purported to be, class actions. While the final outcome of these matters cannot be predicted with certainty, considering, among other things, the legal defenses available and liabilities that have been recorded along with applicable insurance, it is currently the opinion of management that none of these pending items is likely to have a material adverse effect on the Company's financial condition, results of operations or liquidity. An unexpected adverse resolution of one or more of these items, however, could have a material adverse effect on the Company's financial condition, results of operations or liquidity in that particular period.

    The Company is able to estimate a range of possible loss for certain legal proceedings for which a loss is reasonably possible in excess of reserves established. The Company has estimated this range to be $3 million to $22 million in aggregate at September 30, 2022. This estimated aggregate range is based upon currently available information and is subject to significant judgment and a variety of assumptions. Accordingly, the Company's estimate will change from time to time, and actual losses may vary significantly from the current estimate.

Fuel Surcharge Antitrust Litigation
    In May 2007, class action lawsuits were filed against CSXT and three other U.S.-based Class I railroads alleging that the defendants' fuel surcharge practices relating to contract and unregulated traffic resulted from an illegal conspiracy in violation of antitrust laws. The class action lawsuits were consolidated into one case in federal court in the District of Columbia. In 2017, the District Court issued its decision denying class certification. On August 16, 2019, the U.S. Court of Appeals for the D.C. Circuit affirmed the District Court’s ruling.

The consolidated case is now moving forward without class certification. Although the class was not certified, individual shippers have since brought claims against the railroads, which have been consolidated into a separate case.

    CSXT believes that its fuel surcharge practices were arrived at and applied lawfully and that the case is without merit. Accordingly, the Company intends to defend itself vigorously. However, penalties for violating antitrust laws can be severe, and resolution of these matters individually or when aggregated could have a material adverse effect on the Company's financial condition, results of operations or liquidity in that particular period.
CSX Q3 2022 Form 10-Q p.18

CSX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 5.    Commitments and Contingencies, continued

Environmental
    CSXT is indemnifying Pharmacia LLC, formerly known as Monsanto Company, ("Pharmacia") for certain liabilities associated with real estate located in Kearny, New Jersey along the Lower Passaic River (the “Property”). The Property, which was formerly owned by Pharmacia, is now owned by CSXT. CSXT's indemnification and defense duties arise with respect to several matters. The U.S. Environmental Protection Agency ("EPA"), using its CERCLA authority, seeks the investigation and cleanup of hazardous substances in the 17-mile Lower Passaic River Study Area (the "Study Area”). CSXT, on behalf of Pharmacia, and a significant number of other potentially responsible parties are together conducting a Remedial Investigation and Feasibility Study of the Study Area pursuant to an Administrative Settlement Agreement and Order on Consent with the EPA. Pharmacia’s share of responsibility, indemnified by CSXT, for the investigation and cleanup costs of the Study Area may be determined through various mechanisms including (a) an allocation and settlement with EPA; (b) litigation brought by EPA against non-settling parties; or (c) litigation among the responsible parties.

For the lower 8 miles of the Study Area, EPA issued its Record of Decision detailing the agency’s mandated remedial process in March 2016. Approximately 80 parties, including Pharmacia, are participating in an EPA-directed allocation and settlement process to assign responsibility for the remedy selected for the lower 8 miles of the Study Area. CSXT is participating in the EPA-directed allocation and settlement process on behalf of Pharmacia.

For the remainder of the Study Area, EPA has selected an interim remedy in a Record of Decision dated September 28, 2021. Settlement discussions are also ongoing for the selected interim remedy. On March 2, 2022, EPA issued a Notice Letter to Pharmacia, Occidental Chemical Corporation and eight other parties alleging they are liable under Section 107(a) of CERCLA for releases or threatened releases of hazardous substances and requesting each party, individually or collectively, submit good faith offers to EPA in connection with the Study Area. CSX, on behalf of Pharmacia, responded to the Notice Letter and submitted a good faith offer to EPA on June 27, 2022, following meetings with a mediator from EPA’s Conflict Prevention and Resolution Center. Negotiations with EPA and other parties to resolve this matter continue.

    CSXT is also defending and indemnifying Pharmacia with regard to the Property in litigation filed by Occidental Chemical Corporation, which is seeking to recover various costs. These costs include costs for the remedial design of the lower 8 miles of the Study Area, as well as anticipated costs associated with the future remediation of the entire Study Area. Alternatively, Occidental seeks to compel some, or all of the defendants to participate in the remediation of the Study Area. Pharmacia is one of approximately 110 defendants in this federal lawsuit filed by Occidental on June 30, 2018.

    CSXT is also defending and indemnifying Pharmacia in a cooperative natural resource damages assessment process related to the Property. Based on currently available information, the Company does not believe its share of remediation costs as determined by the EPA-directed allocation with respect to the Property and the Study Area would be material to the Company's financial condition, results of operations or liquidity.
CSX Q3 2022 Form 10-Q p.19

CSX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 6.    Employee Benefit Plans

The Company sponsors defined benefit pension plans principally for salaried, management personnel. Beginning in 2020, the CSX Pension Plan was closed to new participants.

CSX also sponsors a post-retirement medical plan and a life insurance plan that provide certain benefits to eligible employees hired prior to January 1, 2003. Beginning in 2019, both the life insurance benefit for eligible active management employees and health savings account contributions made by the Company to eligible retirees younger than 65 were eliminated for those retiring on or after January 1, 2019. Beginning in 2020, the employer-funded health reimbursement arrangements and life insurance benefit for eligible retirees 65 years or older were eliminated.

Independent actuaries compute the amounts of liabilities and expenses relating to these plans subject to the assumptions that the Company determines are appropriate based on historical trends, current market rates and future projections. These amounts are reviewed by management. Only the service cost component of net periodic benefit costs is included in labor and fringe expense on the consolidated income statement. All other components of net periodic benefit cost are included in other income - net.

Pension Benefits Cost
Third QuartersNine Months
(Dollars in millions)2022202120222021
Service Cost Included in Labor and Fringe$8 $10 $24 $28 
Interest Cost16 13 48 40 
Expected Return on Plan Assets(47)(46)(141)(139)
Amortization of Net Loss12 18 37 55 
Total Included in Other Income - Net(19)(15)(56)(44)
Net Periodic Benefit Credit$(11)$(5)$(32)$(16)
Other Post-retirement Benefits Cost
Third QuartersNine Months
(Dollars in millions)2022202120222021
Service Cost Included in Labor and Fringe$ $1 $ $1 
Interest Cost  1 1 
Amortization of Prior Service Credits(2)(2)(5)(6)
Total Included in Other Income - Net(2)(2)(4)(5)
Net Periodic Benefit Credit$(2)$(1)$(4)$(4)
    
    Qualified pension plan obligations are funded in accordance with regulatory requirements and with an objective of meeting or exceeding minimum funding requirements necessary to avoid restrictions on flexibility of plan operation and benefit payments. No contributions to the Company's qualified pension plans are expected in 2022.

CSX Q3 2022 Form 10-Q p.20

CSX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 7.    Debt and Credit Agreements

Total activity related to long-term debt as of the end of third quarter 2022 is shown in the table below. For fair value information related to the Company's long-term debt, see Note 9, Fair Value Measurements.

(Dollars in millions)Current PortionLong-term PortionTotal
Long-term Debt as of December 31, 2021
$181 $16,185 $16,366 
2022 Activity:
Long-term Debt Issued 2,000 2,000 
Long-term Debt Repaid(178) (178)
Reclassifications150 (150) 
Hedging, Discount, Premium and Other Activity2 (140)(138)
Long-term Debt as of September 30, 2022
$155 $17,895 $18,050 

Debt Issuance
On July 28, 2022, CSX issued $950 million of 4.1% notes due 2032, $900 million of 4.5% notes due 2052 and $