10-Q 1 csx-20220630.htm 10-Q csx-20220630
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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 June 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-20220630_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 2,141,241,136 shares of common stock outstanding on June 30, 2022 (the latest practicable date that is closest to the filing date).
CSX Q2 2022 Form 10-Q p.1


CSX CORPORATION
FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2022
INDEX
Page
PART I.FINANCIAL INFORMATION
Item 1.
Quarters and Six Months Ended June 30, 2022 and June 30, 2021
Quarters and Six Months Ended June 30, 2022 and June 30, 2021
At June 30, 2022 (Unaudited) and December 31, 2021
Six Months Ended June 30, 2022 and June 30, 2021
Quarters and Six Months Ended June 30, 2022 and June 30, 2021
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 Q2 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)
Second QuartersSix Months
2022202120222021
Revenue$3,815 $2,990 $7,228 $5,803 
Expense
Labor and Fringe684 596 1,376 1,216 
Purchased Services and Other647 441 1,322 913 
Fuel446 194 777 384 
Depreciation and Amortization369 348 729 693 
Equipment and Other Rents95 87 195 175 
Gains on Property Dispositions(129)(367)(156)(370)
Total Expense2,112 1,299 4,243 3,011 
Operating Income1,703 1,691 2,985 2,792 
Interest Expense(171)(181)(350)(365)
Other Income - Net26 20 52 40 
Earnings Before Income Taxes1,558 1,530 2,687 2,467 
Income Tax Expense(380)(357)(650)(588)
Net Earnings$1,178 $1,173 $2,037 $1,879 
Per Common Share (Note 2)
Net Earnings Per Share, Basic$0.55 $0.52 $0.94 $0.83 
Net Earnings Per Share, Assuming Dilution$0.54 $0.52 $0.94 $0.82 
Average Shares Outstanding (In millions)
2,158 2,270 2,173 2,276 
Average Shares Outstanding, Assuming Dilution (In millions)
2,163 2,275 2,178 2,281 

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.


CONDENSED CONSOLIDATED COMPREHENSIVE INCOME STATEMENTS (Unaudited)
(Dollars in millions)
Second QuartersSix Months
2022202120222021
Total Comprehensive Earnings (Note 10)$1,217 $1,152 $2,107 $1,926 


See accompanying notes to consolidated financial statements.
CSX Q2 2022 Form 10-Q p.3

CSX CORPORATION
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS
(Dollars in millions)
(Unaudited)
June 30,
2022
December 31,
2021
ASSETS
Current Assets:
Cash and Cash Equivalents$724 $2,239 
Short-term Investments88 77 
Accounts Receivable - Net (Note 8)1,489 1,148 
Materials and Supplies379 339 
Other Current Assets104 70 
  Total Current Assets2,784 3,873 
Properties47,446 46,505 
Accumulated Depreciation(13,802)(13,490)
  Properties - Net33,644 33,015 
Investment in Affiliates and Other Companies2,252 2,099 
Right-of-Use Lease Asset 489 501 
Goodwill and Other Intangible Assets - Net557 451 
Other Long-term Assets640 592 
  Total Assets$40,366 $40,531 
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts Payable$1,055 $963 
Labor and Fringe Benefits Payable615 630 
Casualty, Environmental and Other Reserves (Note 4)113 118 
Current Maturities of Long-term Debt (Note 7)236 181 
Income and Other Taxes Payable177 134 
Other Current Liabilities197 207 
  Total Current Liabilities2,393 2,233 
Casualty, Environmental and Other Reserves (Note 4)290 250 
Long-term Debt (Note 7)15,974 16,185 
Deferred Income Taxes - Net7,592 7,383 
Long-term Lease Liability 473 478 
Other Long-term Liabilities 503 502 
  Total Liabilities27,225 27,031 
Shareholders' Equity:
Common Stock, $1 Par Value
2,141 2,202 
Other Capital534 66 
Retained Earnings10,794 11,630 
Accumulated Other Comprehensive Loss (Note 10)(338)(408)
Non-controlling Minority Interest10 10 
Total Shareholders' Equity13,141 13,500 
Total Liabilities and Shareholders' Equity$40,366 $40,531 
See accompanying notes to consolidated financial statements.
CSX Q2 2022 Form 10-Q p.4

CSX CORPORATION
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED CASH FLOW STATEMENTS (Unaudited)
(Dollars in millions)
Six Months
20222021
OPERATING ACTIVITIES
Net Earnings$2,037 $1,879 
Adjustments to Reconcile Net Earnings to Net Cash Provided by Operating Activities:
Depreciation and Amortization729 693 
Deferred Income Taxes106 66 
Gains on Property Dispositions(156)(370)
Other Operating Activities(14)28 
Changes in Operating Assets and Liabilities:
Accounts Receivable(198)(127)
Other Current Assets(71)(4)
Accounts Payable61 73 
Income and Other Taxes Payable43 181 
Other Current Liabilities(7)(20)
Net Cash Provided by Operating Activities2,530 2,399 
INVESTING ACTIVITIES
Property Additions(811)(754)
Purchases of Short-term Investments(19) 
Proceeds from Sales of Short-term Investments9 1 
Proceeds and Advances from Property Dispositions29 227 
Business Acquisition, Net of Cash Acquired(208) 
Other Investing Activities(19)(1)
Net Cash Used In Investing Activities(1,019)(527)
FINANCING ACTIVITIES
Long-term Debt Repaid (Note 7)(93)(360)
Dividends Paid(433)(425)
Shares Repurchased(2,515)(1,252)
Other Financing Activities15 22 
Net Cash Used in Financing Activities(3,026)(2,015)
Net Decrease in Cash and Cash Equivalents(1,515)(143)
CASH AND CASH EQUIVALENTS
Cash and Cash Equivalents at Beginning of Period2,239 3,129 
Cash and Cash Equivalents at End of Period$724 $2,986 
SUPPLEMENTAL CASH FLOW INFORMATION
Issuance of common stock as consideration for acquisition$422 $ 

See accompanying notes to consolidated financial statements.
CSX Q2 2022 Form 10-Q p.5

CSX CORPORATION
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED STATEMENTS OF CHANGES
IN SHAREHOLDERS' EQUITY (Unaudited)
(Dollars in millions)
Six 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 

(a) Accumulated Other Comprehensive Loss balances shown above are net of tax. The associated taxes were $99 million and $88 million as of first and second quarters 2022, respectively. For additional information, see Note 10, Other Comprehensive Income.

See accompanying notes to consolidated financial statements.
CSX Q2 2022 Form 10-Q p.6

CSX CORPORATION
ITEM 1. FINANCIAL STATEMENTS
Six 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 

(a) Accumulated Other Comprehensive Loss balances shown above are net of tax. The associated taxes were $137 million and $142 million as of first and second quarters 2021, respectively. For additional information, see Note 10, Other Comprehensive Income.

See accompanying notes to consolidated financial statements.
CSX Q2 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. 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 11, 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. 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. These proceeds are expected to be collected during fourth quarter 2022 upon closing of the third phase. As of June 30, 2022, the carrying values of the remaining assets subject to this transaction were not material.
CSX Q2 2022 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.

Fiscal Year
The Company's fiscal periods are based upon the calendar year. Except as otherwise specified, references to “second quarter(s)” or “six months” indicate CSX's fiscal periods ending June 30, 2022 and June 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 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.

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 Q2 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.
Second QuartersSix Months
2022202120222021
Numerator (Dollars in millions):
Net Earnings
$1,178 $1,173 $2,037 $1,879 
Denominator (Units in millions):
Average Common Shares Outstanding2,158 2,270 2,173 2,276 
Other Potentially Dilutive Common Shares5 5 5 5 
Average Common Shares Outstanding, Assuming Dilution
2,163 2,275 2,178 2,281 
Net Earnings Per Share, Basic
$0.55 $0.52 $0.94 $0.83 
Net Earnings Per Share, Assuming Dilution
$0.54 $0.52 $0.94 $0.82 
    
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.
Second QuartersSix Months
2022202120222021
Antidilutive Stock Options Excluded from Diluted EPS (Millions)
3232
CSX Q2 2022 Form 10-Q p.10

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

Share Repurchases    
    The Company continues to repurchase shares under the $5 billion share repurchase program announced in October 2020. Total repurchase authority remaining was $488 million as of June 30, 2022. Previously, shares were repurchased under a program announced in January 2019 that was completed in June 2021. On July 19, 2022, a new incremental $5 billion share repurchase program was approved.

During second quarters and six months ended 2022 and 2021, the Company engaged in the following repurchase activities:
Second QuartersSix Months
2022202120222021
Shares Repurchased (Millions) (a)
47 22 76 40 
Cost of Shares (Dollars in millions)
$1,499 $701 $2,515 $1,252 
(a) For second quarter and six months 2021, shares repurchased includes 3 million shares that were purchased in June 2021, but were not retired until July 1st, 2021, due to timing of the stock split that occurred on June 28, 2021. These shares are reflected as outstanding as of June 30, 2021, on the consolidated statement of changes in shareholder's equity.

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 Q2 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.

Second QuartersSix Months
(Dollars in millions)2022202120222021
Share-Based Compensation Expense:
Performance Units$6 $20 $26 $38 
Stock Options3 4 10 10 
Restricted Stock Units and Awards3 2 9 7 
Stock Awards for Directors  2 2 
Employee Stock Purchase Plan1 1 2 2 
Total Share-Based Compensation Expense$13 $27 $49 $59 
Income Tax Benefit$3 $6 $12 $15 

CSX Q2 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 second quarters 2022 and 2021. The fair values of the performance units awarded during the second quarters and six months 2022 and 2021 were primarily calculated using a Monte-Carlo simulation model with the following weighted-average assumptions:

Second QuartersSix Months
2022202120222021
Weighted-Average Assumptions Used:
Risk-free Interest Rate2.8 %0.2 %1.8 %0.2 %
Annualized Volatility33.8 %34.3 %33.0 %33.6 %
Expected Life (in years)
2.72.62.92.9

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 second quarters 2022 and 2021, there were additional immaterial grants of stock options to certain members of management.

CSX Q2 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 six months ended June 30, 2022 and June 30, 2021 were estimated at the grant date with the following weighted average assumptions:

Second QuartersSix Months
2022202120222021
Weighted-Average Grant Date Fair Value$10.65$9.18$10.13$7.89
Weighted-Average Assumptions Used:
Annual Dividend Yield1.1 %1.1 %1.1 %1.2 %
Risk-Free Interest Rate2.7 %1.0 %1.9 %0.7 %
Annualized Volatility30.3 %31.0 %30.1 %31.2 %
Expected Life (in years)6.16.06.06.0
Other Pricing Model Inputs:
Weighted-Average Grant Date Market Price of CSX Stock (strike price)$35.07$33.35$35.15$29.53

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 second quarters 2022 and 2021, there were additional immaterial grants of restricted stock units. For 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. Under this program, no shares were issued during second quarters 2022 and 2021. During the six months ended June 30, 2022 and June 30, 2021, the Company issued the following shares:

Six Months
20222021
Shares issued (in thousands)326 396 
Weighted average purchase price per share$27.44 $19.33 
CSX Q2 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.

June 30, 2022December 31, 2021
(Dollars in millions)CurrentLong-termTotalCurrentLong-termTotal
Casualty:
Personal Injury$31 $95 $126 $37 $81 $118 
Occupational7 55 62 7 55 62 
     Total Casualty38 150 188 44 136 180 
Environmental40 93 133 37 71 108 
Other35 47 82 37 43 80 
     Total$113 $290 $403 $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 $188 million and $180 million as of June 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 six months ended June 30, 2022 or June 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 Q2 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 and six months ended June 30, 2022 or June 30, 2021.

Environmental
Environmental reserves were $133 million and $108 million as of June 30, 2022 and December 31, 2021, 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 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 Q2 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 $82 million and $80 million as of June 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 Q2 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 $2 million to $20 million in aggregate at June 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 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 Q2 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 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 Q2 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
Second QuartersSix Months
(Dollars in millions)2022202120222021
Service Cost Included in Labor and Fringe$8 $9 $16 $18 
Interest Cost16 13 32 27 
Expected Return on Plan Assets(47)(47)(94)(93)
Amortization of Net Loss13 19 25 37 
Total Included in Other Income - Net(18)(15)(37)(29)
Net Periodic Benefit Credit$(10)$(6)$(21)$(11)
Other Post-retirement Benefits Cost
Second QuartersSix Months
(Dollars in millions)2022202120222021
Service Cost Included in Labor and Fringe$ $ $ $ 
Interest Cost1 1 1 1 
Amortization of Prior Service Credits(2)(3)(3)(4)
Total Included in Other Income - Net(1)(2)(2)(3)
Net Periodic Benefit Credit$(1)$(2)$(2)$(3)
    
    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 Q2 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 second 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 Repaid(93) (93)
Reclassifications147 (147) 
Hedging, Discount, Premium and Other Activity1 (64)(63)
Long-term Debt as of June 30, 2022
$236 $15,974 $16,210 

Interest Rate Derivatives
In first quarter 2022, CSX entered into five separate fixed-to-floating interest rate swaps classified as fair value hedges. The swaps are designed to hedge 10 years of interest rate risk associated with market fluctuations attributable to the Secured Overnight Financing Rate on a cumulative $800 million of fixed rate outstanding notes which are due between 2036 and 2040. As of June 30, 2022, the fair value of these swaps was a $72 million liability, which is included in other long-term liabilities on the consolidated balance sheet. The associated cumulative adjustment to the hedged notes is included in long-term debt. Gains and losses resulting from changes in fair value of the interest rate swaps offset changes in the fair value of the hedged portion of the underlying debt so no gain or loss has been recognized due to hedge ineffectiveness. Differences on the fixed-to-floating legs of the derivatives are recognized in interest expense and were not material in second quarter or six months ended 2022. The swaps will expire in 2032. If settled early, the remaining liability or asset will be amortized over the remaining life of the associated notes. The amounts recorded in long-term debt on the consolidated balance sheet related to these fair value hedges is summarized in the table below.
(Dollars in millions)June 30, 2022
Notional Value of Hedged Notes$800 
Cumulative Fair Value Adjustment to Hedged Notes(72)
Carrying Amount of Hedged Notes$728 

In 2020, the Company executed forward starting interest rate swaps, classified as cash flow hedges, with aggregate notional value of $500 million. These swaps were effected to hedge the benchmark interest rate associated with future interest payments related to the anticipated refinancing of $850 million of 3.25% notes due in 2027. As of June 30, 2022 and December 31, 2021, the asset value of the forward starting interest rate swaps was $162 million and $91 million, respectively, and was recorded in other long-term assets on the consolidated balance sheet. Unrealized gains or losses associated with changes in the fair value of the hedge are recorded net of tax in accumulated other comprehensive income (“AOCI”) on the consolidated balance sheet. Unless settled early, the swaps will expire in 2027 and the unrealized gain or loss in AOCI will be recognized in earnings as an adjustment to interest expense over the same period during which the hedged transaction affects earnings. Unrealized amounts, recorded net of tax in other comprehensive income, related to the hedge were a gain of $33 million and a loss of $35 million for second quarters ended 2022 and 2021 and gains of $54 million and $21 million for the six months 2022 and 2021, respectively.
CSX Q2 2022 Form 10-Q p.21

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

Credit Facility
    CSX has a $1.2 billion unsecured, revolving credit facility backed by a diverse syndicate of banks. This facility allows same-day borrowings at floating interest rates, based on LIBOR or an agreed-upon replacement reference rate, plus a spread that depends upon CSX's senior unsecured debt ratings. This facility expires in March 2024, and at June 30, 2022, the Company had no outstanding balances under this facility.

    Commitment fees and interest rates payable under the facility were similar to fees and rates available to comparably rated investment-grade borrowers. As of second quarter 2022, CSX was in compliance with all covenant requirements under this facility.

Commercial Paper
    Under its commercial paper program, which is backed by the revolving credit facility, the Company may issue unsecured commercial paper notes up to a maximum aggregate principal amount of $1.0 billion outstanding at any one time. Proceeds from issuances of the notes are expected to be used for general corporate purposes. At June 30, 2022, the Company had no outstanding debt under the commercial paper program.

NOTE 8.     Revenues

The Company’s revenues are primarily derived from the transportation of freight as performance obligations that arise from its contracts with customers are satisfied. The following table presents the Company’s revenues disaggregated by market as this best depicts how the nature, amount, timing and uncertainty of revenue and cash flows are affected by economic factors:

Second QuartersSix Months
(Dollars in millions)2022202120222021
Chemicals$666 $606 $1,284 $1,186 
Agricultural and Food Products412 370 799 719 
Automotive268 216 495 452 
Forest Products251 233 479 453 
Metals and Equipment216 204 413 390 
Minerals170 152 314 277 
Fertilizers118 122 238 244 
Total Merchandise2,101 1,903 4,022 3,721 
Intermodal602 511 1,129 979 
Coal651 423 1,184 807 
Trucking(a)
259  489  
Other202 153 404 296 
Total$3,815 $2,990 $7,228 $