Fair Value Measurements

12 Months Ended

Dec. 28, 2012

Fair Value Disclosures [Abstract]

Fair Value Measurements

Fair Value Measurements

The Financial Instruments Topic in the ASC requires disclosures about fair value of financial instruments in annual reports as well as in quarterly reports.  For CSX, this statement applies to certain investments, pension plan assets and long-term debt.  Also, the Fair Value Measurements and Disclosures Topic in the ASC clarifies the definition of fair value for financial reporting, establishes a framework for measuring fair value and requires additional disclosures about the use of fair value measurements.   

Various inputs are considered when determining the value of the Company's investments, pension plan assets and long-term debt.  The inputs or methodologies used for valuing securities are not necessarily an indication of the risk associated with investing in these securities.  These inputs are summarized in the three broad levels listed below.

• Level 1 – observable market inputs that are unadjusted quoted prices for identical assets or liabilities in active markets

• Level 2 – other significant observable inputs (including quoted prices for similar securities, interest rates, credit risk, etc.)

• Level 3 – significant unobservable inputs (including the Company’s own assumptions in determining the fair value of investments)

The valuation methods described below may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. Furthermore, while the Company believes its valuation methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different fair value measurement at the reporting date.

Investments

The Company's investment assets, valued with assistance from a third-party trustee, consist of certificates of deposits, corporate bonds, U.S. government securities and auction rate securities and are carried at fair value on the consolidated balance sheet per the Fair Value Measurements and Disclosures Topic in the ASC. There are several valuation methodologies used for those assets as described below.

• Certificates of Deposit (Level 2): Valued by discounting the related cash flows based on current yields of similar instruments with comparable durations.

• Corporate Bonds and U.S. Treasury Obligations (Level 2): Valued using price evaluations reflecting the bid and/or ask sides of the market for a similar investment as of the last day of the calendar plan year.

• Auction Rate Securities (Level 3): Valued using a discounted cash flow model, because there is currently no active market for trading.

NOTE 13.  Fair Value Measurements, continued

The Company's investment assets are carried at fair value on the consolidated balance sheets as summarized in the table below. Additionally, the amortized cost basis of investments was $742 million and $643 million as of December 28, 2012 and December 30, 2011, respectively.

	Fiscal Years
	2012								2011
(Dollars in Millions)	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
Certificates of Deposit	$	—	$	555	$	—	$	555	$	—	$	477	$	—	$	477
Corporate Bonds	—		142		—		142		—		98		—		98
U.S. Treasury Obligations	—		31		—		31		—		53		—		53
Auction Rate Securities	—		—		15		15		—		—		15		15
Total investments at fair value	$	—	$	728	$	15	$	743	$	—	$	628	$	15	$	643

These investments have the following maturities:

(Dollars in Millions)	December 2012		December 2011
Less than 1 year	$	587	$	523
1 - 2 years	61		32
2 - 5 years	76		73
Greater than 5 years	19		15
Total investments at fair value	$	743	$	643

Long-term Debt

Long-term debt is reported at carrying amount on the consolidated balance sheet and is the Company's only financial instrument with fair values significantly different from their carrying amounts.  The majority of the Company's long-term debt is valued with assistance from an independent third party.  For those instruments not valued by the third party, the fair value has been estimated by applying market rates of similar instruments to the scheduled contractual debt payments and maturities. These market rates are provided by the same third party.  All of the inputs used to determine the fair value of the Company's long-term debt are Level 2 inputs.

NOTE 13.  Fair Value Measurements, continued

The fair value of outstanding debt fluctuates with changes in a number of factors.  Such factors include, but are not limited to, interest rates, market conditions, values of similar financial instruments, size of the transaction, cash flow projections and comparable trades.  Fair value will exceed carrying value when the current market interest rate is lower than the interest rate at which the debt was originally issued.  The fair value of a company's debt is a measure of its current value under present market conditions.  It does not impact the financial statements under current accounting rules.  The fair value and carrying value of the Company's long-term debt is as follows:

(Dollars in Millions)	December 2012		December 2011
Long-term Debt (Including Current Maturities):
Fair Value	$	11,562	$	10,708
Carrying Value	$	9,832	$	9,241

Pension Plan Assets

Pension plan assets are reported at fair value on the consolidated balance sheet. The Investment Committee targets an allocation of pension assets to be generally 60% equity and 40% fixed income.  There are several valuation methodologies used for those assets as described below.

• Common stock (Level 1): Valued at the closing price reported on the active market on which the individual securities are traded on the last day of the plan year and classified in level 1 of the fair value hierarchy.

• Mutual funds (Level 1): Valued at the net asset value of shares held at year end based on quoted market prices determined in an active market. These assets are classified in level 1 of the fair value hierarchy.

• Common collective trust funds (Level 2): This class consists of private funds that invest in government and corporate securities and various short-term debt instruments. The net asset value of the investments is determined by reference to the fair value of the underlying securities of the trust, which are valued primarily through the use of directly or indirectly observable inputs. These assets are classified in level 2 of the fair value hierarchy.

• Corporate bonds, derivatives, government securities, and asset-backed securities (Level 2): Valued using price evaluations reflecting the bid and/or ask sides of the market for a similar investment as of the last day of the calendar plan year. Asset-backed securities include commercial mortgage-backed securities and collateralized mortgage obligations. These assets are classified in level 2 of the fair value hierarchy.

• Partnerships (Level 2): Valued using the fair market values associated with the underlying investments at year end using net asset per share and is classified in level 2 of the fair value hierarchy.

NOTE 13.  Fair Value Measurements, continued

The pension plan assets at fair value by level, within the fair value hierarchy, as of calendar plan years 2012 and 2011:

	Fiscal Years
	2012								2011
(Dollars in Millions)	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
Common Stock:
Information technology	$	169	$	—	$	—	$	169	$	137	$	—	$	—	$	137
Consumer discretionary	125		—		—		125		88		—		—		88
Health care	96		—		—		96		70		—		—		70
Financials	83		—		—		83		53		—		—		53
Industrials	78		—		—		78		65		—		—		65
Energy	58		—		—		58		61		—		—		61
Consumer staples	55		—		—		55		42		—		—		42
Materials	25		—		—		25		24		—		—		24
Other	33		—		—		33		16		—		—		16
Mutual funds	17		—		—		17		15		—		—		15
Corporate bonds	—		606		—		606		—		595		—		595
Common trust funds	—		426		—		426		—		367		—		367
Partnerships	—		296		—		296		—		175		—		175
Government securities	—		178		—		178		—		126		—		126
Asset-backed securities	—		28		—		28		—		10		—		10
Cash equivalents	—		20		—		20		—		—		—		—
Derivatives and other	—		1		—		1		—		6		—		6
Total investments at     fair value	$	739	$	1,555	$	—	$	2,294	$	571	$	1,279	$	—	$	1,850

Certain prior year amounts have been reclassified to conform to the current presentation.

For additional information related to pension assets, see Note 8, Employee Benefit Plans.