10-Q 1 csx-20210930.htm 10-Q csx-20210930
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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, 2021
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-20210930_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 2,217,983,411 shares of common stock outstanding on September 30, 2021 (the latest practicable date that is closest to the filing date).
CSX Q3 2021 Form 10-Q p.1


CSX CORPORATION
FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2021
INDEX
Page
PART I.FINANCIAL INFORMATION
Item 1.
Quarters and Nine Months Ended September 30, 2021 and September 30, 2020
Quarters and Nine Months Ended September 30, 2021 and September 30, 2020
At September 30, 2021 (Unaudited) and December 31, 2020
Nine Months Ended September 30, 2021 and September 30, 2020
Quarters and Nine Months Ended September 30, 2021 and September 30, 2020
Item 2.
Item 3.
Item 4.
PART II.OTHER INFORMATION
Item 1.
Item 1A.
Item 2.
Item 3.
Defaults upon Senior Securities
Item 4.
Mine Safety Disclosures
Item 5.
Other Information
Item 6.
Exhibits
CSX Q3 2021 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
2021202020212020
Revenue$3,292 $2,648 $9,095 $7,758 
Expense
Labor and Fringe631 574 1,847 1,687 
Purchased Services and Other577 382 1,490 1,272 
Depreciation367 348 1,060 1,036 
Fuel247 119 631 402 
Equipment and Other Rents94 88 269 247 
Gains on Property Dispositions(60)(4)(430)(33)
Total Expense1,856 1,507 4,867 4,611 
Operating Income1,436 1,141 4,228 3,147 
Interest Expense(177)(187)(542)(565)
Other Income - Net20 14 60 51 
Earnings Before Income Taxes1,279 968 3,746 2,633 
Income Tax Expense(311)(232)(899)(628)
Net Earnings$968 $736 $2,847 $2,005 
Per Common Share (Note 2)
Net Earnings Per Share, Basic$0.43 $0.32 $1.26 $0.87 
Net Earnings Per Share, Assuming Dilution$0.43 $0.32 $1.26 $0.87 
Average Shares Outstanding (In millions)
2,237 2,295 2,263 2,302 
Average Shares Outstanding, Assuming Dilution (In millions)
2,242 2,300 2,268 2,307 

Beginning third quarter 2021, the Company changed the name of Materials, Supplies and Other expense to Purchased Services and Other, which better describes the composition of this expense amount. This change in naming convention does not impact previously reported results.
All prior period share and per share data has been retroactively adjusted to reflect the stock split effective June 28, 2021. Certain prior year data has been reclassified to conform to the current presentation.

CONDENSED CONSOLIDATED COMPREHENSIVE INCOME STATEMENTS (Unaudited)
(Dollars in millions)
Third QuartersNine Months
2021202020212020
Total Comprehensive Earnings (Note 11)$985 $770 $2,911 $2,062 


See accompanying notes to consolidated financial statements.
CSX Q3 2021 Form 10-Q p.3

CSX CORPORATION
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS
(Dollars in millions)
(Unaudited)
September 30,
2021
December 31,
2020
ASSETS
Current Assets:
Cash and Cash Equivalents$2,179 $3,129 
Accounts Receivable - Net (Note 8)1,326 912 
Materials and Supplies303 302 
Other Current Assets89 98 
  Total Current Assets3,897 4,441 
Properties46,226 45,530 
Accumulated Depreciation(13,412)(13,086)
  Properties - Net32,814 32,444 
Investment in Affiliates and Other Companies2,059 1,985 
Right-of-Use Lease Asset 508 472 
Goodwill and Other Intangible Assets - Net451 63 
Other Long-term Assets400 388 
  Total Assets$40,129 $39,793 
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts Payable$972 $809 
Labor and Fringe Benefits Payable548 482 
Casualty, Environmental and Other Reserves (Note 4)117 90 
Current Maturities of Long-term Debt (Note 7)211 401 
Income and Other Taxes Payable238 73 
Other Current Liabilities182 164 
  Total Current Liabilities2,268 2,019 
Casualty, Environmental and Other Reserves (Note 4)252 224 
Long-term Debt (Note 7)16,182 16,304 
Deferred Income Taxes - Net7,298 7,168 
Long-term Lease Liability 482 455 
Other Long-term Liabilities 475 513 
  Total Liabilities26,957 26,683 
Shareholders' Equity:
Common Stock, $1 Par Value
2,218 2,288 
Other Capital24 152 
Retained Earnings11,455 11,259 
Accumulated Other Comprehensive Loss (Note 11)(534)(598)
Non-controlling Minority Interest9 9 
Total Shareholders' Equity13,172 13,110 
Total Liabilities and Shareholders' Equity$40,129 $39,793 
Certain prior year data has been retroactively adjusted to reflect the stock split effective June 28, 2021 or reclassified to conform to the current presentation. See accompanying notes to consolidated financial statements.
CSX Q3 2021 Form 10-Q p.4

CSX CORPORATION
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED CASH FLOW STATEMENTS (Unaudited)
(Dollars in millions)
Nine Months
20212020
OPERATING ACTIVITIES
Net Earnings$2,847 $2,005 
Adjustments to Reconcile Net Earnings to Net Cash Provided by Operating Activities:
Depreciation1,060 1,036 
Deferred Income Taxes109 117 
Gains on Property Dispositions(430)(33)
Other Operating Activities10 (30)
Changes in Operating Assets and Liabilities:
Accounts Receivable(153)12 
Other Current Assets(4)(37)
Accounts Payable132 (6)
Income and Other Taxes Payable174 98 
Other Current Liabilities74 (34)
Net Cash Provided by Operating Activities3,819 3,128 
INVESTING ACTIVITIES
Property Additions(1,220)(1,209)
Proceeds from Property Dispositions297 51 
Purchases of Short-term Investments (426)
Proceeds from Sales of Short-term Investments3 1,423 
Business Acquisition, Net of Cash Acquired(543) 
Other Investing Activities (32)
Net Cash Used In Investing Activities(1,463)(193)
FINANCING ACTIVITIES
Shares Repurchased(2,316)(664)
Dividends Paid(633)(599)
Long-term Debt Repaid (Note 7)(390)(245)
Long-term Debt Issued (Note 7) 500 
Other Financing Activities33 13 
Net Cash Used in Financing Activities(3,306)(995)
Net (Decrease)/Increase in Cash and Cash Equivalents(950)1,940 
CASH AND CASH EQUIVALENTS
Cash and Cash Equivalents at Beginning of Period3,129 958 
Cash and Cash Equivalents at End of Period$2,179 $2,898 

See accompanying notes to consolidated financial statements.
CSX Q3 2021 Form 10-Q p.5

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 Loss— — (21)— (21)
Total Comprehensive Earnings1,152 
Common stock dividends, $0.093 per share
— (212)— — (212)
Share Repurchases(18,345)(19)(682)— — (701)
Bond Conversions— — — —  
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 11)— — — 17 — 17 
Total Comprehensive Earnings985 
Common stock dividends, $0.093 per share
— — (209)— — (209)
Share Repurchases(37,217)(37)(1,027)— — (1,064)
Bond Conversions— — — — —  
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 $137 million, $142 million, and $136 million as of first, second, and third quarters 2021, respectively. For additional information, see Note 11, Other Comprehensive Income.


All prior period share and per share data along with certain other prior period data has been retroactively adjusted to reflect the stock split effective June 28, 2021. See accompanying notes to consolidated financial statements.
CSX Q3 2021 Form 10-Q p.6

CSX CORPORATION
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED STATEMENTS OF CHANGES
IN SHAREHOLDERS' EQUITY (Unaudited)
(Dollars in millions)
Nine Months 2020
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, 20192,320,414 $2,412 $10,111 $(675)$15 11,863 
Comprehensive Earnings:
Net Earnings— — 770 — — 770 
Other Comprehensive Income— — — 3 — 3 
Total Comprehensive Earnings773 
Common stock dividends, $0.087 per share
— — (201)— — (201)
Share Repurchases(26,718)(27)(550)— — (577)
Stock Option Exercises and Other2,680 21 7 — 2 30 
Balance March 31, 20202,296,376 2,406 10,137 (672)17 11,888 
Comprehensive Earnings:
Net Earnings— — 499 — — 499 
Other Comprehensive Income— — — 20 — 20 
Total Comprehensive Earnings519 
Common stock dividends, $0.087 per share
— — (199)— — (199)
Share Repurchases(1,739)(2)(37)— — (39)
Bond Conversions— — — — —  
Stock Option Exercises and Other522 (4)2 — (4)(6)
Balance June 30, 20202,295,159 2,400 10,402 (652)13 12,163 
Comprehensive Earnings:
Net Earnings— — 736 — — 736 
Other Comprehensive Income (Note 11)— — — 34 — 34 
Total Comprehensive Earnings770 
Common stock dividends, $0.087 per share
— — (199)— — (199)
Share Repurchases(2,115)(2)(46)— — (48)
Bond Conversions— — — — —  
Stock Option Exercises and Other1,281 40 — — 1 41 
Balance September 30, 20202,294,325 $2,438 $10,893 $(618)$14 $12,727 

a) Accumulated Other Comprehensive Loss balances shown above are net of tax. The associated taxes were $183 million, $178 million, and $165 million as of first, second, and third quarters 2020, respectively. For additional information, see Note 11, Other Comprehensive Income.


All prior period share and per share data along with certain other prior period data has been retroactively adjusted to reflect the stock split effective June 28, 2021. See accompanying notes to consolidated financial statements.
CSX Q3 2021 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 19,500 route mile rail network, which serves major population centers in 23 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.

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. Effective July 1, 2021, CSX acquired Quality Carriers, the largest provider of bulk liquid chemicals truck transportation in North America, from Quality Distribution, Inc. For further details, refer to Note 12, Business Combinations. 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.

In April 2021, in the first phase of the transaction, the Company closed on the conveyance of a permanent land easement for passenger rail operations, resulting in a $349 million gain recognized in gains on property dispositions on the consolidated income statement. Upon closing of the first phase, cash proceeds of $200 million were received and a receivable was recorded in the amount of $168 million. The Company expects to collect proceeds of $200 million in fourth quarter 2021, partly attributable to the first phase with the remainder towards the next phase. Additional future proceeds and related gains attributable to this conveyance are subject to state funding.

The Company anticipates closing on the remaining conveyances by the end of 2022, which will result in future cash proceeds and gains. The timing of future gain recognition is dependent upon the timing of future conveyances as well as collectability. As of September 30, 2021, the carrying values of the remaining assets subject to this transaction were not material.

CSX Q3 2021 Form 10-Q p.8

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

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.

Common Stock Split
On June 4, 2021, CSX announced a three-for-one split of the Company’s common stock in the form of a stock dividend. Each shareholder of record on June 18, 2021, received two additional shares of common stock for each share held as of this record date. The new shares were distributed after close of trading on June 28, 2021. All prior period share and per share amounts, common stock, other capital, and retained earnings presented herein have been retroactively adjusted to reflect the impact of the stock split. Proportional adjustments were also made to outstanding awards under the Company's stock-based compensation plans.

Other Capital
As a result of the stock split during second quarter 2021, CSX's common stock balance was increased and its other capital balance was reduced commensurately. Because this adjustment brought the other capital balance below zero, $1.0 billion was reclassified from retained earnings to other capital to bring the other capital balance to zero as of June 30, 2021. Prior period amounts have also been retroactively adjusted as needed to bring the other capital balance to zero.

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, 2021 and September 30, 2020, and references to "year-end" indicate the fiscal year ended December 31, 2020.

New Accounting Pronouncements
In March 2020, the FASB issued ASU 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 continues to evaluate the impact of this standard update, but does not anticipate that adoption will have a material impact on the Company's results of operations or financial position.

CSX Q3 2021 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
2021202020212020
Numerator (Dollars in millions):
Net Earnings
$968 $736 $2,847 $2,005 
Denominator (Units in millions):
Average Common Shares Outstanding2,237 2,295 2,263 2,302 
Other Potentially Dilutive Common Shares5 5 5 5 
Average Common Shares Outstanding, Assuming Dilution
2,242 2,300 2,268 2,307 
Net Earnings Per Share, Basic
$0.43 $0.32 $1.26 $0.87 
Net Earnings Per Share, Assuming Dilution
$0.43 $0.32 $1.26 $0.87 
    
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
2021202020212020
Antidilutive Stock Options Excluded from Diluted EPS (Millions)
2626
CSX Q3 2021 Form 10-Q p.10

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

Share Repurchases    
    In January 2019, the Company announced a $5 billion share repurchase program. During June 2021, this program was completed, and the Company began repurchasing shares under the $5 billion share repurchase program announced on October 21, 2020. Total repurchase authority remaining was $3.6 billion as of September 30, 2021. During third quarters and nine months ended 2021 and 2020, the Company engaged in the following repurchase activities:

Third QuartersNine Months
2021202020212020
Shares Repurchased (Millions)
34 2 74 31 
Cost of Shares (Dollars in millions)
$1,064 $48 $2,316 $664 

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.

Periodically, CSX enters into structured agreements for the repurchase of CSX shares. Upon execution of each agreement, the Company pays a fixed amount of cash in exchange for the right to receive either CSX stock or a predetermined amount of cash, including a premium. Shares acquired through these structured share repurchase agreements were recorded in common stock and retained earnings and are included in the share repurchases table above. Premiums received were not material. As a result of entering into and settling structured share repurchase agreements, the Company paid a net total of approximately $150 million and received approximately 5 million shares during the third quarter 2021 and paid a net total of approximately $378 million and received approximately 12 million shares during the nine months ended 2021. As of September 30, 2021, no such agreements were outstanding.

Dividend Increase
In February 2021, the Company's Board of Directors authorized an 8% increase in the quarterly cash dividend effective March 2021. The current split-adjusted quarterly dividend on the Company's common stock is $0.093 per common share. The dividend will be carried out to six decimal places to most closely approximate the $0.28 per share dividend amount prior to the three-for-one stock split that occurred on June 28, 2021.

CSX Q3 2021 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 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)2021202020212020
Share-Based Compensation Expense:
Performance Units$6 $14 44 $6 
Stock Options3 3 13 16 
Restricted Stock Units and Awards3 2 10 5 
Employee Stock Purchase Plan1 1 3 3 
Stock Awards for Directors  2 2 
Total Share-Based Compensation Expense$13 $20 $72 $32 
Income Tax Benefit$4 $6 $19 $17 

CSX Q3 2021 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 2021, the Company granted 566 thousand (split-adjusted) performance units to certain employees under a new long-term incentive plan ("LTIP") for the years 2021 through 2023, which was adopted under the CSX 2019 Stock and Incentive Award Plan.

    Payouts of performance units for the cycle ending with fiscal year 2023 will be based on the achievement of goals related to both operating income and free cash flow, in each case excluding non-recurring items as disclosed in the Company's financial statements. The average annual operating income growth percentage and cumulative free cash flow measures over the plan period will each comprise 50% of the payout and will be measured independently of the other.

    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 quarter 2021. No grants were made during third quarter 2020. The fair values of the performance units awarded during the nine months ended 2021 and 2020 were primarily calculated using a Monte-Carlo simulation model with the following weighted-average assumptions:

Nine Months
20212020
Weighted-Average Assumptions Used:
Annual Dividend YieldN/AN/A
Risk-free Interest Rate0.2 %1.4 %
Annualized Volatility33.6 %24.5 %
Expected Life (in years)
2.92.9

Stock Options
    In February 2021, the Company granted approximately 1,831 thousand (split-adjusted) 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 quarter 2021, there were additional immaterial grants of stock options. No options were granted during third quarter 2020.

CSX Q3 2021 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, 2021 and September 30, 2020 were estimated at the grant date with the following weighted average assumptions:

Third QuartersNine Months
2021202020212020
Weighted-Average Grant Date Fair Value$8.86N/A$7.94$6.29
Weighted-Average Assumptions Used:
Annual Dividend Yield1.2 %N/A1.2 %1.2 %
Risk-Free Interest Rate1.0 %N/A0.7 %1.4 %
Annualized Volatility30.7 %N/A31.2 %26.0 %
Expected Life (in years)6.3N/A6.06.0
Other Pricing Model Inputs:
Weighted-Average Grant Date Market Price of CSX Stock (strike price)$32.18N/A$29.65$26.49

Restricted Stock Units
    In February 2021, the Company granted 490 thousand (split-adjusted) 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 quarter 2021, there were additional immaterial grants of restricted stock units. For information related to the Company's other 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 (split-adjusted) 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, 2021 and September 30, 2020, the Company issued the following shares under this program:

Third QuartersNine Months
2021202020212020
Shares issued (in thousands)334 360 730 726 
Weighted average purchase price per share$24.93 $19.76 $21.90 $20.13 
CSX Q3 2021 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, 2021December 31, 2020
(Dollars in millions)CurrentLong-termTotalCurrentLong-termTotal
Casualty:
Personal Injury$44 $82 $126 $38 $93 $131 
Occupational7 57 64 11 54 65 
     Total Casualty51 139 190 49 147 196 
Environmental (a)
36 72 108 23 53 76 
Other (a)
30 41 71 18 24 42 
     Total$117 $252 $369 $90 $224 $314 
(a) The fair values of liabilities assumed as a result of the Company's acquisition of Quality Carriers on July 1, 2021, are included in environmental and other reserves as of September 30, 2021. See Note 12, Business Combinations.
    
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 $196 million as of September 30, 2021 and December 31, 2020, respectively, represent accruals for personal injury, occupational disease and occupational injury claims. Beginning June 1, 2021, the Company's self-insured retention amount for these claims increased 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 quarter ended September 30, 2021 or September 30, 2020. 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 2021 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). Beginning in second quarter 2020, 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. Previously, the quarterly analysis was performed by management. There were no material adjustments to the occupational reserve in the quarter ended September 30, 2021 or September 30, 2020.

Environmental
Environmental reserves were $108 million and $76 million as of September 30, 2021 and December 31, 2020, respectively. 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 240 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 2021 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 $71 million and $42 million as of September 30, 2021 and December 31, 2020, respectively. These reserves include liabilities for various claims, such as property, automobile and general liability. 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 $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 2021 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 $27 million in aggregate at September 30, 2021. 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 a class was not certified, shippers other than those who brought the original lawsuit in 2007 must decide whether to bring their own individual claim against one or more railroads. Individual shipper claims filed to date 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 2021 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.

In March 2016, EPA issued its Record of Decision detailing the agency’s mandated remedial process for the lower 8 miles of the Study Area. 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. At a later date, EPA will select a remedy for the remainder of the Study Area and is expected to again seek the participation of private parties to implement the selected remedy using EPA’s CERCLA authority to compel such participation, if necessary.

CSXT is also defending and indemnifying Pharmacia with regard to the Property in litigation filed by Occidental Chemical Corporation ("Occidental"), 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 lower 8 miles of the Study Area and potentially 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 any indemnification or remediation costs potentially allocable to CSXT 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 2021 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 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)2021202020212020
Service Cost Included in Labor and Fringe$10 $10 $28 $30 
Interest Cost13 20 40 61 
Expected Return on Plan Assets(46)(43)(139)(130)
Amortization of Net Loss18 15 55 43 
Total Included in Other Income - Net(15)(8)(44)(26)
Net Periodic Benefit (Credit)/Cost$(5)$2 $(16)$4 
Other Post-retirement Benefits Cost
Third QuartersNine Months
(Dollars in millions)2021202020212020
Service Cost Included in Labor and Fringe$1 $ $1 $1 
Interest Cost 1 1 2 
Amortization of Prior Service Credits(2)(2)(6)(5)
Total Included in Other Income - Net(2)(1)(5)(3)
Net Periodic Benefit Credit$(1)$(1)$(4)$(2)
    
    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 2021.

CSX Q3 2021 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 2021 is shown in the table below. For fair value information related to the Company's long-term debt, see Note 10, Fair Value Measurements.

(Dollars in millions)Current PortionLong-term PortionTotal
Long-term Debt as of December 31, 2020
$401 $16,304 $16,705 
2021 Activity:
Long-term Debt Repaid(390) (390)
Reclassifications175 (175) 
Finance Lease Obligations and Debt Assumed (a)
25 43 68 
Discount, Premium and Other Activity 10 10 
Long-term Debt as of September 30, 2021
$211 $16,182 $16,393 
(a) In third quarter 2021, finance lease obligations an