Share-Based Compensation

9 Months Ended

Sep. 27, 2013

Under CSX's share-based compensation plans, awards primarily consist of performance grants, restricted stock awards, restricted stock units, stock options and stock grants for directors. CSX has not granted stock options since 2003. Awards granted under the various programs are determined and approved by the Compensation Committee of the Board of Directors or, in certain circumstances, by the Chief Executive Officer for awards to management employees other than senior executives. The Board of Directors approves awards granted to the Company's non-management directors upon recommendation of the Governance Committee.

On May 7, 2013, approximately 1.3 million performance units were granted to certain employees under a new long-term incentive plan ("LTIP") adopted under the CSX Stock and Incentive Award Plan. This LTIP provides for a three-year cycle ending in fiscal year 2015. Payouts of performance units will be based on the achievement of goals related to both operating ratio (operating expense divided by operating revenue) and return on assets (tax-adjusted operating income divided by net property) excluding non-recurring items as disclosed in the Company's financial statements. Operating ratio and return on assets will each comprise 50% of the payout and are measured independently of the other.

NOTE 3. Share-Based Compensation, continued

Grants were made in performance units, with each unit being equivalent to 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 for the three-year cycle ending with fiscal year 2015. Payouts for certain executive officers are subject to downward adjustment by up to 30% based upon total shareholder return relative to specified comparable groups.

Additionally, as part of the 2013 LTIP, the Company granted approximately 439 thousand restricted stock units to certain employees on May 7, 2013. The restricted stock units vest three years after the date of grant. Participants receive cash dividend equivalents on the unvested shares during the restriction period. These awards are time-based and are not based upon CSX's attainment of operational targets.

Both performance units and restricted stock units require participants to be employed through the final day of the respective vesting period except in the case of death, disability or retirement. For information related to the Company's other outstanding long-term incentive compensation, see CSX's most recent annual report on Form 10-K.

Total pre-tax expense associated with all share-based compensation and the related income tax benefit are as follows:



	Third Quarters				Nine Months
(Dollars in millions)	2013		2012		2013		2012

Share-Based Compensation Expense	$	7	$	6	$	9	$	10
Income Tax Benefit	3		3		4		4

The following table provides information about stock options exercised and expired.



	Third Quarters		Nine Months
(In thousands)	2013	2012	2013	2012

Number of Stock Options Exercised	—	273	—	1,891
Number of Stock Options Expired	—	—	—	15

As of December 2009, all outstanding options were vested, and therefore, there will be no future expense related to these options. As of the end of third quarter 2013, CSX had no stock options outstanding, as all remaining stock options expired in May 2013.

- Definition

The entire disclosure for compensation-related costs for equity-based compensation, which may include disclosure of policies, compensation plan details, allocation of equity compensation, incentive distributions, equity-based arrangements to obtain goods and services, deferred compensation arrangements, employee stock ownership plan details and employee stock purchase plan details.

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