Leases

12 Months Ended

Dec. 31, 2020

At inception, the Company determines if an arrangement contains a lease and whether that lease meets the classification criteria of a finance or operating lease. Some of the Company’s lease arrangements contain lease components (e.g., minimum rent payments) and non-lease components (e.g., maintenance, labor charges, etc.). The Company generally accounts for each component separately based on the estimated standalone price of each component. For certain equipment leases, such as freight car, vehicles and work equipment, the Company accounts for the lease and non-lease components as a single lease component.

Certain of the Company’s lease agreements include rental payments that are adjusted periodically for an index or rate. The leases are initially measured using the projected payments adjusted for the index or rate in effect at the commencement date. The Company’s lease agreements do not contain any material residual value guarantees or material restrictive covenants.

Operating Leases

Operating leases are included in right-of-use lease assets, other current liabilities and long-term lease liabilities on the consolidated balance sheets. These assets and liabilities are recognized at the commencement date based on the present value of remaining lease payments over the lease term using the Company’s secured incremental borrowing rates or implicit rates, when readily determinable. Short-term operating leases, which have an initial term of 12 months or less, are not recorded on the balance sheet.

The Company has various lease agreements with other parties with terms up to 50 years. Non-cancelable, long-term leases may include provisions for maintenance, options to purchase and options to extend the terms. These options are included in the lease term when it is reasonably certain that the option will be exercised. Lease expense for operating leases, including leases with escalations over their terms, is recognized on a straight-line basis over the lease term. Variable lease expense is recognized in the period in which the obligation for those payments is incurred. Lease expense is included in equipment and other rents on the consolidated income statements and is reported net of lease income. Lease income was not material to the results of operations for 2020, 2019 or 2018.

NOTE 7. Leases, continued

CSX has a significant operating lease with the State of Georgia for approximately 137 miles of right-of-way with integral equipment for a term of 50 years with an annual 2.5% increase. The following table presents information about the amount, timing and uncertainty of cash flows arising from all of the Company’s operating leases as of December 31, 2020.


(Dollars in Millions)	December 2020
Maturity of Lease Liabilities	Lease Payments
2021	47
2022	43
2023	36
2024	36
2025	35
Thereafter	1,172
Total undiscounted operating lease payments	$	1,369
Less: Imputed interest	(869)
Present value of operating lease liabilities	$	500


(Dollars in Millions)	2020			2019
Balance Sheet Classification
Right of use asset	$	472		$	532

Current lease liabilities (recorded in other current liabilities)	$	45		$	57
Long-term lease liabilities	455			493
Total operating lease liabilities	$	500		$	550

Other Information
Weighted-average remaining lease term for operating leases	35 years			33 years
Weighted-average discount rate for operating leases	5.0		%	5.0		%

Cash Flows

As of December 2020 and 2019, the Company's right-of-use asset was valued at $472 million and $532 million, respectively. An initial asset of $534 million was recognized as a non-cash asset addition upon adoption of the new lease accounting standard effective January 1, 2019. Additional right-of-use assets of $11 million and $51 million were recognized as non-cash asset additions that resulted from new operating lease liabilities during the years ended 2020 and 2019, respectively. Cash paid for amounts included in the present value of operating lease liabilities was $59 million and $60 million during the years ended 2020 and 2019, respectively, and is included in operating cash flows.

Operating Lease Costs

These costs are primarily related to long-term operating leases, but also include immaterial amounts for variable leases and short-term leases with terms greater than 30 days. These amounts are shown in the table below.


	Fiscal Years
(Dollars in Millions)	2020		2019		2018
Rent Expense on Operating Leases	$	82	$	84	$	66

NOTE 7. Leases, continued

Finance Leases

Finance leases are included in properties - net and long-term debt on the consolidated balance sheets and were not material as of December 2020 or December 2019. The associated amortization expense and interest expense are included in depreciation and interest expense, respectively, on the consolidated income statements and were not material to the results of operations for 2020, 2019 or 2018.