csx-20200630

Table of Contents

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, 2020

(☐) 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 CORPORATION

(Exact name of registrant as specified in its charter)

Virginia

62-1051971

(I.R.S. Employer Identification No.)

500 Water Street

15th Floor

Jacksonville

32202

904

359-3200

(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 class

Trading Symbol(s)

Name of exchange on which registered

Common Stock, $1 Par Value

CSX

Nasdaq 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 765,052,549 shares of common stock outstanding on June 30, 2020 (the latest practicable date that is closest to the filing date).

CSX Q2 2020 Form 10-Q p.1

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CSX CORPORATION

FORM 10-Q

FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2020

INDEX


		Page
PART I.	FINANCIAL INFORMATION
Item 1.	Financial Statements	3

	Consolidated Income Statements (Unaudited) - Quarters and Six Months Ended June 30, 2020 and June 30, 2019	3

	Condensed Consolidated Comprehensive Income Statements (Unaudited) - Quarters and Six Months Ended June 30, 2020 and June 30, 2019	3

	Consolidated Balance Sheets - At June 30, 2020 (Unaudited) and December 31, 2019	4

	Consolidated Cash Flow Statements (Unaudited) - Six Months Ended June 30, 2020 and June 30, 2019	5

	Consolidated Statement of Changes in Shareholders' Equity - Quarters and Six Months Ended June 30, 2020 and June 30, 2019	6

	Notes to Consolidated Financial Statements (Unaudited)	8

Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	27

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	40

Item 4.	Controls and Procedures	41

PART II.	OTHER INFORMATION
Item 1.	Legal Proceedings	42

Item 1A.	Risk Factors	42

Item 2.	CSX Purchases of Equity Securities	42

Item 3.	Defaults upon Senior Securities	42

Item 4.	Mine Safety Disclosures	42

Item 5.	Other Information	42

Item 6.	Exhibits	43

Signature		44

CSX Q2 2020 Form 10-Q p.2

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CSX CORPORATION

PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

CONSOLIDATED INCOME STATEMENTS (Unaudited)

(Dollars in millions, except per share amounts)


	Second Quarters						Six Months
	2020		2019		2020		2019

Revenue	$	2,255	$	3,061	$	5,110	$	6,074
Expense
Labor and Fringe	507		648		1,113		1,320
Materials, Supplies and Other	407		445		861		916
Depreciation	344		337		688		667
Fuel	91		234		283		467
Equipment and Other Rents	78		92		159		180


Total Expense	1,427		1,756		3,104		3,550

Operating Income	828		1,305		2,006		2,524

Interest Expense	(191)		(184)		(378)		(362)

Other Income - Net	15		25		37		48
Earnings Before Income Taxes	652		1,146		1,665		2,210

Income Tax Expense	(153)		(276)		(396)		(506)
Net Earnings	$	499	$	870	$	1,269	$	1,704

Per Common Share (Note 2)
Net Earnings Per Share, Basic	$	0.65	$	1.08	$	1.65	$	2.10
Net Earnings Per Share, Assuming Dilution	$	0.65	$	1.08	$	1.65	$	2.10


Average Shares Outstanding (In millions)	766		805		769		810
Average Shares Outstanding, Assuming Dilution (In millions)	767		807		770		812

CONDENSED CONSOLIDATED COMPREHENSIVE INCOME STATEMENTS (Unaudited)

(Dollars in millions)


	Second Quarters						Six Months
	2020		2019		2020		2019
Total Comprehensive Earnings (Note 11)	$	519	$	874	$	1,292	$	1,710

Certain prior year data has been reclassified to conform to the current presentation.

See accompanying notes to consolidated financial statements.

CSX Q2 2020 Form 10-Q p.3

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CSX CORPORATION

ITEM 1. FINANCIAL STATEMENTS

CONSOLIDATED BALANCE SHEETS

(Dollars in millions)


	(Unaudited)
	June 30, 2020		December 31, 2019
ASSETS
Current Assets:
Cash and Cash Equivalents	$	2,391	$	958
Short-term Investments	203		996
Accounts Receivable - Net (Note 8)	860		986
Materials and Supplies	246		261

Other Current Assets	91		77
Total Current Assets	3,791		3,278

Properties	45,327		45,100
Accumulated Depreciation	(13,066)		(12,932)
Properties - Net	32,261		32,168

Investment in Conrail	1,001		982
Affiliates and Other Companies	920		897
Right-of-Use Lease Asset	512		532
Other Long-term Assets	419		400
Total Assets	$	38,904	$	38,257

LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts Payable	$	960	$	1,043
Labor and Fringe Benefits Payable	352		489
Casualty, Environmental and Other Reserves (Note 4)	103		100

Current Maturities of Long-term Debt (Note 7)	378		245
Income and Other Taxes Payable	380		69
Other Current Liabilities	174		205
Total Current Liabilities	2,347		2,151

Casualty, Environmental and Other Reserves (Note 4)	203		205
Long-term Debt (Note 7)	16,128		15,993
Deferred Income Taxes - Net	7,028		6,961
Long-term Lease Liability	481		493
Other Long-term Liabilities	554		591
Total Liabilities	26,741		26,394

Shareholders' Equity:
Common Stock, $1 Par Value	765		773
Other Capital	361		346
Retained Earnings	11,676		11,404
Accumulated Other Comprehensive Loss (Note 11)	(652)		(675)
Noncontrolling Interest	13		15
Total Shareholders' Equity	12,163		11,863
Total Liabilities and Shareholders' Equity	$	38,904	$	38,257

See accompanying notes to consolidated financial statements.

CSX Q2 2020 Form 10-Q p.4

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CSX CORPORATION

ITEM 1. FINANCIAL STATEMENTS

CONSOLIDATED CASH FLOW STATEMENTS (Unaudited)

(Dollars in millions)


	Six Months
	2020		2019

OPERATING ACTIVITIES
Net Earnings	$	1,269	$	1,704
Adjustments to Reconcile Net Earnings to Net Cash Provided by Operating Activities:
Depreciation	688		667
Deferred Income Taxes	61		97
Gain on Property Dispositions	(29)		(64)




Other Operating Activities	(25)		(61)
Changes in Operating Assets and Liabilities:
Accounts Receivable	120		(61)
Other Current Assets	(24)		41
Accounts Payable	(85)		39
Income and Other Taxes Payable	338		89
Other Current Liabilities	(129)		(184)
Net Cash Provided by Operating Activities	2,184		2,267

INVESTING ACTIVITIES
Property Additions	(801)		(769)
Proceeds from Property Dispositions	45		146
Purchases of Short-term Investments	(426)		(1,427)
Proceeds from Sales of Short-term Investments	1,221		810
Other Investing Activities	(42)		(16)
Net Cash Used In Investing Activities	(3)		(1,256)

FINANCING ACTIVITIES

Long-term Debt Issued (Note 7)	500		1,000
Long-term Debt Repaid (Note 7)	(227)		—
Dividends Paid	(400)		(388)

Shares Repurchased	(616)		(1,656)

Other Financing Activities	(5)		28
Net Cash Used in Financing Activities	(748)		(1,016)

Net Increase (Decrease) in Cash and Cash Equivalents	1,433		(5)

CASH AND CASH EQUIVALENTS
Cash and Cash Equivalents at Beginning of Period	958		858
Cash and Cash Equivalents at End of Period	$	2,391	$	853

Certain prior year data has been reclassified to conform to the current presentation.

See accompanying notes to consolidated financial statements.

CSX Q2 2020 Form 10-Q p.5

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CSX CORPORATION

ITEM 1. FINANCIAL STATEMENTS

CONSOLIDATED STATEMENTS OF CHANGES

IN SHAREHOLDERS' EQUITY

(Dollars in Millions)


Six Months 2020	Common Shares Outstanding (Thousands)	Common Stock and Other Capital		Retained Earnings		Accumulated Other Comprehensive Income (Loss)^(a)		Non-controlling Interest		Total Shareholders' Equity

Balance December 31, 2019	773,471	$	1,119	$	11,404	$	(675)	$	15	$	11,863
Comprehensive Earnings:
Net Earnings	—	—		770		—		—		770
Other Comprehensive Income (Note 11)	—	—		—		3		—		3
Total Comprehensive Earnings										773

Common stock dividends, $0.26 per share	—	—		(201)		—		—		(201)
Share Repurchases	(8,906)	(9)		(568)		—		—		(577)

Stock Option Exercises and Other	894	21		7		—		2		30
Balance March 31, 2020	765,459	$	1,131	$	11,412	$	(672)	$	17	$	11,888
Comprehensive Earnings:
Net Earnings	—	—		499		—		—		499
Other Comprehensive Income (Note 11)	—	—		—		20		—		20
Total Comprehensive Earnings										519

Common stock dividends, $0.26 per share	—	—		(199)		—		—		(199)
Share Repurchases	(580)	(1)		(38)		—		—		(39)

Stock Option Exercises and Other	174	(4)		2		—		(4)		(6)
Balance June 30, 2020	765,053	$	1,126	$	11,676	$	(652)	$	13	$	12,163

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

See accompanying notes to consolidated financial statements.

CSX Q2 2020 Form 10-Q p.6

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CSX CORPORATION

ITEM 1. FINANCIAL STATEMENTS

CONSOLIDATED STATEMENTS OF CHANGES

IN SHAREHOLDERS' EQUITY

(Dollars in Millions)


Six Months 2019	Common Shares Outstanding (Thousands)	Common Stock and Other Capital		Retained Earnings		Accumulated Other Comprehensive Income (Loss)^(a)		Non-controlling Interest		Total Shareholders' Equity

Balance December 31, 2018	818,180	$	1,067	$	12,157	$	(661)	$	17	12,580
Comprehensive Earnings:
Net Earnings	—	—		834		—		—		834
Other Comprehensive Income (Note 11)	—	—		—		2		—		2
Total Comprehensive Earnings										836

Common stock dividends, $0.24 per share	—	—		(195)		—		—		(195)
Share Repurchases	(11,540)	(12)		(784)		—		—		(796)

Stock Option Exercises and Other	2,524	21		(1)		—		—		20
Balance March 31, 2019	809,164	1,076		12,011		(659)		17		12,445
Comprehensive Earnings:
Net Earnings	—	—		870		—		—		870
Other Comprehensive Income (Note 11)	—	—		—		4		—		4
Total Comprehensive Earnings										874

Common stock dividends, $0.24 per share	—	—		(193)		—		—		(193)
Share Repurchases	(11,266)	(11)		(849)		—		—		(860)

Stock Option Exercises and Other	278	23		4		—		(3)		24
Balance June 30, 2019	798,176	$	1,088	$	11,843	$	(655)	$	14	$	12,290

a) Accumulated Other Comprehensive Loss balances shown above are net of tax. The associated taxes were $179 million and $177 million as of first and second quarters 2019, respectively. For additional information, see Note 11, Other Comprehensive Income.

See accompanying notes to consolidated financial statements.

CSX Q2 2020 Form 10-Q p.7

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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, 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 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. 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 and trucking dispatch operations. 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.

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, 2020 and June 30, 2019, and references to "year-end" indicate the fiscal year ended December 31, 2019.

CSX Q2 2020 Form 10-Q p.8

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CSX CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 1.Nature of Operations and Significant Accounting Policies, continued

New Accounting Pronouncements

In June 2016, the FASB issued ASU Measurement of Credit Losses on Financial Instruments, which replaces current methods for evaluating impairment of financial instruments not measured at fair value, including trade accounts receivable and certain debt securities, with a current expected credit loss model. CSX adopted this new standard update effective January 1, 2020, and it did not have a material effect on the Company's results of operations.

In August 2018, the FASB issued ASU Changes to the Disclosure Requirements for Defined Benefit Plans as part of its disclosure effectiveness initiative, which modifies the disclosure requirements for employer-sponsored defined benefit pension and other postretirement plans. This update is effective for the Company beginning January 1, 2021 and adoption of the standard is not expected to significantly impact the Company's disclosures.

NOTE 2. Earnings Per Share

The following table sets forth the computation of basic earnings per share and earnings per share, assuming dilution:


	Second Quarters						Six Months
	2020		2019		2020		2019
Numerator (Dollars in millions):
Net Earnings	$	499	$	870	$	1,269	$	1,704



Denominator (Units in millions):
Average Common Shares Outstanding	766		805		769		810
Other Potentially Dilutive Common Shares	1		2		1		2
Average Common Shares Outstanding, Assuming Dilution	767		807		770		812

Net Earnings Per Share, Basic	$	0.65	$	1.08	$	1.65	$	2.10
Net Earnings Per Share, Assuming Dilution	$	0.65	$	1.08	$	1.65	$	2.10

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.

CSX Q2 2020 Form 10-Q p.9

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CSX CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 2. Earnings Per Share, continued

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. Approximately 2.4 million and 900 thousand of total average outstanding stock options for the quarters ended June 30, 2020 and June 30, 2019, respectively, and 1.8 million and 800 thousand for the six months ended June 30, 2020 and June 30, 2019, respectively, were excluded from the diluted earnings per share calculation because their effect was antidilutive.

Share Repurchases

In January 2019, the Company announced a $5 billion share repurchase program. At June 30, 2020, approximately $1.1 billion of authority remained under this program. During the second quarter and six months ended 2020 and 2019, the Company engaged in the following repurchase activities:


	Second Quarters						Six Months
	2020		2019		2020		2019
Shares Repurchased (Millions)	1		11		10		23
Cost of Shares (Dollars in millions)	$	39	$	860	$	616	$	1,656

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 2020, the Company's Board of Directors authorized an 8% increase in the quarterly cash dividend to $0.26 per common share.

CSX Q2 2020 Form 10-Q p.10

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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 or, in certain circumstances, by the full Board for awards to the Chief Executive Officer and by the Chief Executive Officer for 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 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. The credit to share-based compensation expense for performance units in second quarter and six months ended 2020 is due to lower expected payouts on existing plans.


	Second Quarters						Six Months
(Dollars in millions)	2020		2019		2020		2019

Share-Based Compensation Expense:
Performance Units	$	(17)	$	9	(8)		$	15
Stock Options	3		5		13		7
Restricted Stock Units and Awards	1		2		3		4
Employee Stock Purchase Plan	1		1		2		2
Stock Awards for Directors	—		—		2		2
Total Share-Based Compensation (Benefit) Expense	$	(12)	$	17	$	12	$	30
Income Tax Benefit	$	2	$	7	$	11	$	35

CSX Q2 2020 Form 10-Q p.11

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CSX CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 3. Stock Plans and Share-Based Compensation, continued

Long-term Incentive Plan

In February 2020, the Company granted 218 thousand performance units to certain employees under a new long-term incentive plan ("LTIP") for the years 2020 through 2022, which was adopted under the CSX 2019 Stock and Incentive Award Plan.

Payouts of performance units for the cycle ending with fiscal year 2022 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 cumulative operating income 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. No grants were made during second quarters 2020 and 2019. The fair values of the performance units awarded during the six months ended 2020 and 2019 were primarily calculated using a Monte-Carlo simulation model with the following weighted-average assumptions:


	Six Months
	2020		2019
Weighted-average assumptions used:
Annual dividend yield	N/A		1.4	%
Risk-free interest rate	1.4	%	2.5	%
Annualized volatility	24.5	%	27.6	%
Expected life (in years)	2.9		2.9

Stock Options

In February 2020, the Company granted approximately 1.3 million stock options along with the corresponding LTIP. The fair value of stock options on the date of grant was $18.88 per option, which 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 2020 and 2019, there were additional immaterial grants of stock options to certain members of management.

CSX Q2 2020 Form 10-Q p.12

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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, 2020 and June 30, 2019 were estimated at the grant date with the following weighted average assumptions:


	Second Quarters									Six Months
	2020			2019			2020			2019
Weighted-average grant-date fair value	$	17.77		$	20.51		$	18.87		$	18.00

Stock options valuation assumptions:
Annual dividend yield	1.5		%	1.2		%	1.2		%	1.3		%
Risk-free interest rate	0.5		%	2.4		%	1.4		%	2.5		%
Annualized volatility	30.1		%	25.4		%	26.0		%	25.7		%
Expected life (in years)	6.5			6.5			6.0			6.1

Other pricing model inputs:
Weighted-average grant-date market price of CSX stock (strike price)	$	70.87		$	78.58		$	79.48		$	69.97

Restricted Stock Units

In February 2020, the Company granted 91 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. 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 4 million shares of common stock that may be issued pursuant to this plan. Under the ESPP, employees may contribute between 1% and 10% of base compensation, after-tax, to purchase up to $25,000 of market value CSX common stock per year at 85% of the closing market price on either the grant date or the last day of the six-month offering period, whichever is lower. During six months ended June 30, 2020 and June 30, 2019, 122 thousand and 105 thousand shares of CSX stock were issued at a weighted average purchase price of $61.51 and $52.81 per share, respectively.

CSX Q2 2020 Form 10-Q p.13

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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, 2020										December 31, 2019
(Dollars in millions)	Current		Long-term		Total		Current		Long-term		Total

Casualty:
Personal Injury	$	44	$	83	$	127	$	42	$	87	$	129
Occupational	9		52		61		6		52		58
Total Casualty	53		135		188		48		139		187
Environmental	30		45		75		31		43		74
Other	20		23		43		21		23		44
Total	$	103	$	203	$	306	$	100	$	205	$	305

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 $187 million as of June 30, 2020 and December 31, 2019, respectively, represent accruals for personal injury, occupational disease and occupational injury claims. The Company's self-insured retention amount for these claims is $75 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 June 30, 2020 or June 30, 2019. 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 2020 Form 10-Q p.14

Table of Contents

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 June 30, 2020 or June 30, 2019.

Environmental

Environmental reserves were $