UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

(☒) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2021

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 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	FL		32202	904	359-3200
(Address of principal executive offices)					(Zip Code)	(Telephone number, including area code)
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

Securities registered pursuant to Section 12(g) of the Act:  None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

Yes (X) No (  )

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.

Yes (  ) No (X)

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 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 check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report (☒)

Indicate by check mark whether the registrant is a shell company (as defined in Exchange Act Rule 12b-2).

Yes (☐) No (X)

On June 30, 2021 (which is the last day of the second quarter and the required date to use), the aggregate market value of the Registrant’s voting stock held by non-affiliates was approximately $72 billion (based on the close price as reported on the NASDAQ National Market System on such date).

There were 2,193,389,444 shares of Common Stock outstanding on January 31, 2022 (the latest practicable date that is closest to the filing date).

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Registrant’s Definitive Proxy Statement (the “Proxy Statement”) to be filed no later than 120 days after the end of the fiscal year with respect to its 2020 annual meeting of shareholders.

CSX 2021 Form 10-K p.1

CSX CORPORATION
FORM 10-K
TABLE OF CONTENTS
Item No.			Page
PART I
1.	Business		3
	1A. Risk Factors		7
	1B. Unresolved Staff Comments		12
2.	Properties		13
3.	Legal Proceedings		17
4.	Mine Safety Disclosures		17
	Executive Officers of the Registrant		18
PART II
5.	Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities		20
6.	Reserved		21
7.	Management's Discussion and Analysis of Financial Condition and Results of Operations		22
		·  Terms Used by CSX	22
		·  2021 Highlights	24
		·  Results of Operations	24
		·  Liquidity and Capital Resources	34
		·  Contractual Obligations, Other Commitments and Off-Balance Sheet Arrangements	39
		·  Labor Agreements	40
		·  Critical Accounting Estimates	40
		·  Forward-Looking Statements	45
7A.	Quantitative and Qualitative Disclosures about Market Risk		47
8.	Financial Statements and Supplementary Data		48
9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure		110
9A.	Controls and Procedures		110
9B.	Other Information		113
9C.	Disclosure Regarding Foreign Jurisdictions that Prevent Inspections		113
PART III
10.	Directors, Executive Officers of the Registrant and Corporate Governance		113
11.	Executive Compensation		113
12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters		113
13.	Certain Relationships and Related Transactions, and Director Independence		113
14.	Principal Accounting Fees and Services		113
PART IV
15.	Exhibits, Financial Statement Schedules		114
Signatures			118

 

CSX 2021 Form 10-K p.2

CSX CORPORATION

PART I

Item 1.  Business

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 freight 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 and the rail industry provide customers with access to an expansive and interconnected transportation network that plays a key role in North American commerce and is critical to the long-term economic success and improved global competitiveness of the United States. In addition, freight railroads provide the most economical and environmentally efficient means to transport goods over land.

CSX Transportation, Inc.

CSX’s principal operating subsidiary, CSX Transportation, Inc. (“CSXT”), provides an important link to the transportation supply chain through its approximately 19,500 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. It has access to over 70 ocean, river and lake port terminals along the Atlantic and Gulf Coasts, the Mississippi River, the Great Lakes and the St. Lawrence Seaway. This access allows the Company to meet the dynamic transportation needs of manufacturers, industrial producers, the automotive industry, construction companies, farmers and feed mills, wholesalers and retailers, and energy producers. The Company’s intermodal business links customers to railroads via trucks and terminals. CSXT also serves thousands of production and distribution facilities through track connections with other Class I railroads and more than 230 short-line and regional railroads.

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 17, Business Combinations. CSX Intermodal Terminals owns and operates a system of intermodal terminals, predominantly in the eastern United States, and also provides 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.

Operating Model

The Company is focused on developing and strictly maintaining a scheduled service plan with an emphasis on optimizing assets. When this operating model is executed effectively, customer service is improved, enabling the Company to better compete for an increased share of the U.S. freight market. Further, this model leads to reduced costs and strong free cash flow generation.

CSX 2021 Form 10-K p.3

CSX CORPORATION

PART I

Lines of Business

During 2021, the Company's services generated $12.5 billion of revenue and served four primary lines of business: merchandise, intermodal, coal and trucking.

•The merchandise business shipped 2.6 million carloads (41% of volume) and generated 60% of revenue in 2021. The Company’s merchandise business is comprised of shipments in the following diverse markets: chemicals, agricultural and food products, minerals, automotive, forest products, metals and equipment, and fertilizers.

•The intermodal business shipped 3.0 million units (48% of volume) and generated 16% of revenue in 2021. The intermodal business combines the superior economics of rail transportation with the flexibility of trucks and offers a cost and environmental advantage over long-haul trucking. Through a network of approximately 30 terminals, the intermodal business serves all major markets east of the Mississippi River and transports mainly manufactured consumer goods in containers, providing customers with truck-like service for longer shipments.

•The coal business shipped 706 thousand carloads (11% of volume) and generated 14% of revenue in 2021. The Company transports domestic coal, coke and iron ore to electricity-generating power plants, steel manufacturers and industrial plants as well as export coal to deep-water port facilities. Approximately one-quarter of export coal and the majority of the domestic coal that the Company transports is used for generating electricity or industrial purposes.

•The trucking business generated 3% of revenue in 2021. Trucking revenue includes revenue from the operations of Quality Carriers, which was acquired by CSX effective July 1, 2021.

Other revenue accounted for 7% of the Company’s total revenue in 2021. This category includes revenue from regional subsidiary railroads and incidental charges, including intermodal storage and equipment usage, demurrage and switching. Revenue from regional subsidiary railroads includes shipments by railroads that the Company does not directly operate. Intermodal storage represents charges for customer storage of containers at an intermodal terminal, ramp facility or offsite location beyond a specified period of time. Demurrage represents charges assessed when freight cars are held by a customer beyond a specified period of time. Switching represents charges assessed when a railroad switches cars for a customer or another railroad.

CSX's Committed Workforce

Most of the Company’s employees provide or support transportation services. The Company had more than 20,900 employees as of December 2021, which includes approximately 16,500 employees that are members of a labor union. For the 13 rail unions that participate in national bargaining, a round of negotiations for benefits, wages and work rules is underway. Typically, these negotiations take several years. Current agreements remain in place until modified by new agreements.

CSX prioritizes workplace safety for employees and is committed to continued improvement through enhanced processes, training, technology, communication, and continuous collaboration with customers and peers across the railroad industry. Training programs and processes are focused on injury and accident prevention as well as emergency preparedness. The attainment of key safety targets is a component of management's annual incentive program. The FRA Personal Injury Frequency Index, a measure of the number of FRA-reportable injuries per 200,000 man-hours, was 0.92 in 2021 and 0.82 in 2020, representing a 12% increase year over year.

CSX 2021 Form 10-K p.4

CSX CORPORATION

PART I

In response to the novel coronavirus ("COVID-19") pandemic, additional policies and procedures were developed to protect the health and safety of employees. A cross-functional task force continues to monitor the situation to ensure that appropriate safety measures are being taken.

The Compensation and Talent Management Committee of the Board of Directors is charged with oversight of CSX's workforce. The Company is committed to developing a culture that promotes workforce diversity and inclusion and encourages ethical behavior. As of December 31, 2021, approximately 20% of CSX's overall workforce and 37% of management was diverse, calculated as the percentage of males of color and all females. In 2021, CSX was recognized as a “Best Place to Work for Disability Inclusion” by Disability:IN and the American Association of People with Disabilities for a third consecutive year after receiving a top score on their disability equality index. The CSX Code of Ethics serves as a guiding standard for ethical behavior and covers many types of matters, including discrimination and harassment as well as safety. Annually, all management employees are required, and union employees are highly encouraged, to complete ethics training.

Company History

A leader in freight rail transportation for more than 190 years, the Company’s heritage dates back to the early nineteenth century when The Baltimore and Ohio Railroad Company (“B&O”), the nation’s first common carrier, was chartered in 1827. Since that time, the Company has built on this foundation to create a railroad that could safely and reliably service the ever-increasing demands of a growing nation. Since its founding, numerous railroads have combined with the former B&O through merger and consolidation to create what has become CSX. Each of the railroads that combined into the CSX family brought new geographical reach to valuable markets, gateways, cities, ports and transportation corridors.

CSX Corporation was incorporated in 1978 under Virginia law. In 1980, the Company completed the merger of the Chessie System and Seaboard Coast Line Industries into CSX. The merger allowed the Company to connect northern population centers and Appalachian coal fields to growing southeastern markets. Later, the Company’s acquisition of key portions of Conrail, Inc. ("Conrail") allowed CSXT to link the northeast, including New England and the New York metropolitan area, with Chicago and midwestern markets as well as the growing areas in the Southeast already served by CSXT. This current rail network allows the Company to directly serve every major market in the eastern United States with safe, dependable, environmentally responsible and fuel efficient freight transportation and intermodal service.

Competition

    The business environment in which the Company operates is highly competitive. Shippers typically select transportation providers that offer the most compelling combination of service and price. Service requirements, both in terms of transit time and reliability, vary by shipper and commodity. As a result, the Company’s primary competition varies by commodity, geographic location and mode of available transportation and includes other railroads, motor carriers that operate similar routes across its service area and, to a less significant extent, barges, ships and pipelines.

    CSXT’s primary rail competitor is Norfolk Southern Railway, which operates throughout much of the Company’s territory. Other railroads also operate in parts of the Company’s territory. Depending on the specific market, competing railroads and deregulated motor carriers may exert pressure on price and service levels. For further discussion on the risk of competition to the Company, see Item 1A. Risk Factors.

CSX 2021 Form 10-K p.5

CSX CORPORATION

PART I

Regulatory Environment

    The Company's operations are subject to various federal, state, provincial (Canada) and local laws and regulations generally applicable to businesses operating in the United States and Canada. In the U.S., the railroad operations conducted by the Company's subsidiaries, including CSXT, are subject to the regulatory jurisdiction of the Surface Transportation Board (“STB”), the Federal Railroad Administration (“FRA”), and its sister agency within the U.S. Department of Transportation ("DOT"), the Pipeline and Hazardous Materials Safety Administration (“PHMSA”). Together, FRA and PHMSA have broad jurisdiction over railroad operating standards and practices, including track, freight cars, locomotives and hazardous materials requirements. In addition, the U.S. Environmental Protection Agency (“EPA”) has regulatory authority with respect to matters that impact the Company's properties and operations. 

    The Transportation Security Administration (“TSA”), a component of the Department of Homeland Security, has broad authority over railroad operating practices that may have homeland security implications. In Canada, the railroad operations conducted by the Company’s subsidiaries, including CSXT, are subject to the regulatory jurisdiction of the Canadian Transportation Agency.

    Although the Staggers Act of 1980 significantly deregulated the U.S. rail industry, the STB has broad jurisdiction over rail carriers. The STB regulates routes, fuel surcharges, conditions of service, rates for non-exempt traffic, acquisitions of control over rail common carriers and the transfer, extension or abandonment of rail lines, among other railroad activities. Any new rules from the STB regarding, among other things, competitive access or revenue adequacy could have a material adverse effect on the Company's financial condition, results of operations and liquidity as well as its ability to invest in enhancing and maintaining vital infrastructure. For further discussion on regulatory risks to the Company, see Item 1A. Risk Factors.

Financial Information

Information regarding the Company's results of operations and financial position can be found in Item 7. Management’s Discussion and Analysis of Financial Condition.

Other Information

    CSX makes available on its website www.csx.com, free of charge, its annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and all amendments to those reports as soon as reasonably practicable after such reports are filed with or furnished to the Securities and Exchange Commission (“SEC”). The information on the CSX website is not part of this annual report on Form 10-K. Additionally, the Company has posted its code of ethics on its website, which is also available to any shareholder who requests it. This Form 10-K and other SEC filings made by CSX are also accessible through the SEC’s website at www.sec.gov.

    CSX has included the certifications of its Chief Executive Officer (“CEO”) and the Chief Financial Officer (“CFO”) required by Section 302 of the Sarbanes-Oxley Act of 2002 (“the Act”) as Exhibit 31, as well as Section 906 of the Act as Exhibit 32 to this Form 10-K report.

For additional information concerning business conducted by the Company during 2021, see Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.

CSX 2021 Form 10-K p.6

CSX CORPORATION

PART I

Item 1A.  Risk Factors

    The risks set forth in the following risk factors could have a material adverse effect on the Company's financial condition, results of operations or liquidity, and could cause those results to differ materially from those expressed or implied in the Company's forward-looking statements. Additional risks and uncertainties not currently known to the Company or that the Company currently does not deem to be material also may materially impact the Company's financial condition, results of operations or liquidity.

Regulatory, Legislative and Legal

New legislation or regulatory changes could impact the Company's earnings or restrict its ability to independently negotiate prices.

Legislation passed by Congress, new regulations issued by federal agencies or executive orders issued by the President of the United States could significantly affect the revenues, costs, including income taxes, and profitability of the Company's business. In addition, statutes or regulations imposing price constraints or affecting rail-to-rail competition could adversely affect the Company's profitability.

Government regulation and compliance risks may adversely affect the Company's operations and financial results.

The Company is subject to the jurisdiction of various regulatory agencies, including the STB, FRA, PHMSA, TSA, EPA and other state, provincial and federal regulatory agencies for a variety of economic, health, safety, labor, environmental, tax, legal and other matters. New or modified rules or regulations by these agencies could increase the Company's operating costs, adversely impact revenue or reduce operating efficiencies and affect service performance. Noncompliance with applicable laws or regulations could erode public confidence in the Company and can subject the Company to fines, penalties and other legal or regulatory sanctions.

CSXT, as a common carrier by rail, is required by law to transport hazardous materials, which could expose the Company to significant costs and claims.

A train accident involving the transport of hazardous materials could result in significant claims arising from personal injury, property or natural resource damage, environmental penalties and remediation obligations. Such claims, if insured, could exceed existing insurance coverage or insurance may not continue to be available at commercially reasonable rates. Under federal regulations, CSXT is required to transport hazardous materials under the legal duty referred to as the common carrier mandate.

CSXT is also required to comply with regulations regarding the handling of hazardous materials. In November 2008, the TSA issued final rules placing significant new security and safety requirements on passenger and freight railroad carriers, rail transit systems and facilities that ship hazardous materials by rail. Noncompliance with these rules can subject the Company to significant penalties and could be a factor in litigation arising out of a train accident. Finally, legislation preventing the transport of hazardous materials through certain cities could result in network congestion and increase the length of haul for hazardous substances, which could increase operating costs, reduce operating efficiency or increase the risk of an accident involving the transport of hazardous materials.

CSX 2021 Form 10-K p.7

CSX CORPORATION

PART I

The Company may be subject to various claims and lawsuits that could result in significant expenditures.

As part of its railroad and other operations, the Company is subject to various claims and lawsuits related to disputes over commercial practices, labor and unemployment matters, occupational and personal injury claims, property damage, environmental and other matters. The Company may experience material judgments or incur significant costs to defend existing and future lawsuits. Although the Company maintains insurance to cover some of these types of claims and establishes reserves when appropriate, final amounts determined to be due on any outstanding matters may exceed the Company's insurance coverage or differ materially from the recorded reserves. Additionally, the Company could be impacted by adverse developments not currently reflected in the Company's reserve estimates.

Operational, Safety and Business Disruption

An epidemic or pandemic, including the ongoing COVID-19 pandemic, and the initiatives to reduce its transmission could adversely affect the Company's business.

The Company could be materially and adversely affected by a public health crisis, including a widespread epidemic or pandemic. As COVID-19 and its variant strains have spread globally, including significant impacts in the United States, CSX continues to take a variety of measures to ensure the availability of its transportation services, promote the safety and security of its employees and support the communities in which it operates. However, public and private sector policies and initiatives to reduce the transmission of COVID-19, such as closures of businesses and manufacturing facilities, the promotion of social distancing, the adoption of working from home by companies and institutions, and travel restrictions could continue to adversely affect demand for the commodities and products that the Company transports, including import and export volume.

In addition, COVID-19 and the related initiatives to reduce transmission have resulted in greater supply chain disruption, which could continue to impact volumes and make it more difficult for the Company to serve its customers. The extent to which COVID-19 continues to impact operations will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the duration of the outbreak, its effects on demand for the Company’s transportation services and the supply chain, as well as the effect of governmental regulations imposed in response to the pandemic. The duration of the pandemic is dependent on several factors, including the impacts of virus variants and case resurgences across the country. Moreover, operations are negatively affected when a significant number of employees are quarantined as the result of exposure to a contagious illness. To the extent COVID-19 adversely affects the Company's business and financial results, it may also have the effect of heightening many of the other risks described herein.

The Company relies on the security, stability and availability of its technology systems to operate its business.

The Company relies on information technology in all aspects of its business. The security, stability and availability of the Company’s and its key third-party vendors’ technology systems are critical to its ability to operate safely and effectively and to compete within the transportation industry. A successful data breach, cyber-attack, or the occurrence of any similar incident that impacts the Company’s or its key third-party vendors’ information technology systems could result in a service interruption, train accident, misappropriation of confidential or proprietary information (including personal information), process failure, or other operational difficulties. A disruption or compromise of the Company’s information technology systems, even for short periods of time, and any resulting theft or compromise of Company confidential or proprietary information (including personal information), could adversely affect the Company’s business or reputation, create significant legal, regulatory or financial exposure and have a material adverse impact on CSX’s business, financial condition or operations.

CSX 2021 Form 10-K p.8

CSX CORPORATION

PART I

The Company, its third-party vendors and other companies in the rail and transportation industries have been subject to, and are likely to continue to be the target of, data breaches, cyber-attacks and other similar incidents. These incidents may include, among other things, malware, ransomware, distributed denial of service attacks, social engineering, phishing, theft, malfeasance or improper access by employees or third-party vendors, human error, fraud, or other modes of attack or disruption. Attacks of these nature are increasing in frequency, levels of persistence, intensity and sophistication. Further, the Company may be at increased risk of a cyber-attack as a result of being a component of the critical U.S. infrastructure. As cybersecurity threats continue to evolve, the Company may be required to expend significant additional resources to continue to modify or enhance its protective measures or to investigate and remediate any information security vulnerabilities, data breaches, cyber-attacks or other similar incidents. The ongoing COVID-19 pandemic also increases the risk that the Company or its third-party vendors may experience cybersecurity incidents as a result of employees, third-party vendors and other third parties with which they interact working remotely on less secure systems and environments.

Despite the Company’s efforts to protect its information technology systems, it may not be able to prevent or anticipate all data breaches, cyber-attacks or other similar incidents, detect or react to such incidents in a timely manner or adequately remediate any such incident. While CSX’s security protocols have detected attempts to gain unauthorized access to the Company’s information technology systems, none of such attempts have resulted in any material breach of or disruption to the Company’s systems. For example, CSX has experienced distributed denial of service attacks that have resulted in brief system disruptions, but none have resulted in access to CSX systems. Additionally, despite routine security assessment of the Company’s key third-party vendors, some vendors have experienced cyber-attacks in the past, but none of such attacks have had a material adverse impact on CSX’s business or operations. Due to applicable laws and regulations or contractual obligations, CSX may be held responsible for data breaches, cyber-attacks or other similar incidents attributed to its third-party vendors as they relate to the information CSX shares with them.

Network or supply chain constraints could have a negative impact on service, operating efficiency or volume of shipments.

CSXT could experience rail network difficulties related to: (i) unpredictable increases in demand; (ii) locomotive or crew shortages; (iii) labor shortages or other service disruptions in the supply chain affecting trucking, ports, handling facilities, customer facilities or other railroads; (iv) reductions in availability of pooled equipment, including chassis; (v) extreme weather conditions; (vi) impacts from changes in yard capacity, or network structure or composition, including train routes; (vii) increased passenger activities; or (viii) regulatory changes resulting in forced access or impacting where and how fast CSXT can transport freight or maintain routes, which could impact CSXT's operational fluidity, leading to deterioration of service, asset utilization and overall efficiency.

Future acts of terrorism, war or regulatory changes to combat the risk of terrorism may cause significant disruptions in the Company's operations.

Terrorist attacks, along with any government response to those attacks, may adversely affect the Company's financial condition, results of operations or liquidity. CSXT's rail lines, other key infrastructure and information technology systems may be targets or indirect casualties of acts of terror or war. This risk could cause significant business interruption and result in increased costs and liabilities and decreased revenues. In addition, premiums charged for some or all of the insurance coverage currently maintained by the Company could increase dramatically, or the coverage may no longer be available.

CSX 2021 Form 10-K p.9

CSX CORPORATION

PART I

Furthermore, in response to the heightened risk of terrorism, federal, state and local governmental bodies are proposing and, in some cases, have adopted legislation and regulations relating to security issues that impact the transportation industry. For example, the Department of Homeland Security adopted regulations that require freight railroads to implement additional security protocols when transporting hazardous materials. Complying with these or future regulations could continue to increase the Company's operating costs and reduce operating efficiencies.

Severe weather or other natural occurrences could result in significant business interruptions and expenditures in excess of available insurance coverage.

The Company's operations may be affected by external factors such as severe weather and other natural occurrences, including floods, fires, hurricanes and earthquakes. As a result, the Company's rail network may be damaged, its workforce may be unavailable, fuel costs may rise and significant business interruptions could occur. In addition, the performance of locomotives and railcars could be adversely affected by extreme weather conditions. Insurance maintained by the Company to protect against loss of business and other related consequences resulting from these natural occurrences is subject to coverage limitations, depending on the nature of the risk insured. This insurance may not be sufficient to cover all of the Company's damages or damages to others, and this insurance may not continue to be available at commercially reasonable rates. Even with insurance, if any natural occurrence leads to a catastrophic interruption of service, the Company may not be able to restore service without a significant interruption in operations.

Competitive, Economic and Financial

The Company faces competition from other transportation providers.

The Company experiences competition in pricing, service, reliability and other factors from various transportation providers including railroads and motor carriers that operate similar routes across its service area and, to a less significant extent, barges, ships and pipelines. Other transportation providers generally use public rights-of-way that are built and maintained by governmental entities, while CSXT and other railroads must build and maintain rail networks largely using internal resources. Any future improvements or expenditures materially increasing the quality or reducing the cost of alternative modes of transportation such as through the use of automation, autonomy or electrification, or legislation providing for less stringent size or weight restrictions on trucks, could negatively impact the Company's competitive position. Additionally, any future consolidation in the rail industry could materially affect the regulatory and competitive environment in which the Company operates.

Global economic conditions could negatively affect demand for commodities and other freight.

A decline or disruption in general domestic and global economic conditions that affects demand for the commodities and products the Company transports, including import and export volume, could reduce revenues or have other adverse effects on the Company's cost structure and profitability. For example, slower rates of economic growth in Asia, contraction of European economies, and changes in the global supply of seaborne coal or price of seaborne coal have adverse impacts on U.S. export coal volume and result in lower coal revenue for CSX. Additionally, changes to trade agreements or policies could result in reduced import and export volumes due to increased tariffs and lower consumer demand. If the Company experiences significant declines in demand for its transportation services with respect to one or more commodities and products, the Company may experience reduced revenue and increased operating costs, workforce adjustments, and other related activities, which could have a material adverse effect on the Company's financial condition, results of operations and liquidity.

CSX 2021 Form 10-K p.10

CSX CORPORATION

PART I

Changing dynamics in the U.S. and global energy markets could negatively impact profitability.

Over time, changing dynamics in the U.S. and global energy markets have resulted in lower energy production from coal-fired power plants in CSX's service territory. Changes in natural gas prices, or other factors impacting demand for electricity, could impact future power generation at coal-fired plants, which would affect the Company's domestic coal volumes and revenues.

Weaknesses in the capital and credit markets could negatively impact the Company’s access to capital.

The Company regularly relies on capital markets for the issuance of long-term debt instruments, commercial paper and bank financing from time to time. Instability or disruptions of the capital markets, including credit markets, or the deterioration of the Company’s financial condition due to internal or external factors, could restrict or prohibit access and could increase financing costs. A significant deterioration of the Company’s financial condition could also reduce credit ratings and could limit or affect its access to external sources of capital and increase the costs of short and long-term debt financing.

Availability of Critical Supplies and Labor

The unavailability of critical resources could adversely affect the Company’s operational efficiency and ability to meet demand.

Marketplace conditions for resources like locomotives as well as the availability of qualified personnel, particularly engineers and conductors, could each have a negative impact on the Company’s ability to meet demand for rail service. Although the Company strives to maintain adequate resources and personnel for the current business environment, unpredictable increases in demand for rail services or extreme weather conditions may exacerbate such risks, which could have a negative impact on the Company’s operational efficiency and otherwise have a material adverse effect on the Company’s financial condition, results of operations, or liquidity in a particular period.

Disruption to a key railroad industry supplier could negatively affect operating efficiency and increase costs.

The capital intensive and unique nature of core rail equipment (including rail, ties, rolling stock equipment and locomotives) limits the number of railroad equipment suppliers. If any of the current manufacturers stops production or experiences a supply shortage, CSXT could experience a significant cost increase or material shortage. In addition, a few critical railroad suppliers are foreign and, as such, adverse developments in international relations, new trade regulations, disruptions in international shipping or increases in global demand could make procurement of these supplies more difficult or increase CSXT's costs. Additionally, if a fuel supply shortage were to arise, the Company would be negatively impacted.

Failure to complete negotiations on collective bargaining agreements could result in strikes and/or work stoppages.

Most of CSX's employees are represented by labor unions and are covered by collective bargaining agreements. These agreements are either bargained for nationally by the National Carriers Conference Committee or locally between CSX and the union. Such agreements are negotiated over the course of several years and previously have not resulted in any extended work stoppages. Under the Railway Labor Act's procedures (which include mediation, cooling-off periods and the possibility of an intervention by the President of the United States), during negotiations neither party may take action until the procedures are exhausted. If, however, CSX is unable to negotiate acceptable agreements, the employees covered by the Railway Labor Act could strike, which could result in loss of business and increased operating costs as a result of higher wages or benefits paid to union members. 

CSX 2021 Form 10-K p.11

CSX CORPORATION

PART I

Climate Change and Environmental

The Company’s operations and financial results could be negatively impacted by climate change and regulatory and legislative responses to climate change.

There is potential for operational impacts from changing weather patterns or rising sea levels in the Company's operational territory, which could impact the Company's network or other assets. Climate change and other emissions-related laws and regulations have been proposed and, in some cases adopted, on the federal, state, provincial and local levels. These final and proposed laws and regulations take the form of restrictions, caps, taxes or other controls on emissions. In particular, the EPA has issued various regulations and may issue additional regulations targeting emissions, including rules and standards governing emissions from certain stationary sources and from vehicles.

Any of these pending or proposed laws or regulations, including any proposed or implemented under the Biden administration, could adversely affect the Company's operations and financial results by, among other things: (i) reducing coal-fired electricity generation due to mandated emission standards; (ii) reducing the consumption of coal as a viable energy resource in the United States and Canada; (iii) increasing the Company's fuel, capital and other operating costs and negatively affecting operating and fuel efficiencies; and (iv) making it difficult for the Company's customers in the U.S. and Canada to produce products in a cost competitive manner. Any of these factors could reduce the amount of shipments the Company handles and have a material adverse effect on the Company's financial condition, results of operations or liquidity.

The Company is subject to environmental laws and regulations that may result in significant costs.

The Company is subject to wide-ranging federal, state, provincial and local environmental laws and regulations concerning, among other things, emissions into the air, ground and water; the handling, storage, use, generation, transportation and disposal of waste and other materials; the clean-up of hazardous material and petroleum releases and the health and safety of our employees. If the Company violates or fails to comply with these laws and regulations, CSX could be fined or otherwise sanctioned by regulators. The Company can also be held liable for consequences arising out of human exposure to any hazardous substances for which CSX is responsible. In certain circumstances, environmental liability can extend to formerly owned or operated properties, leased properties, adjacent properties and properties owned by third parties or Company predecessors, as well as to properties currently owned, leased or used by the Company.

The Company has been, and may in the future be, subject to allegations or findings to the effect that it has violated, or is strictly liable under, environmental laws or regulations, and such violations can result in the Company's incurring fines, penalties or costs relating to the cleanup of environmental contamination. Although the Company believes it has appropriately recorded current and long-term liabilities for known and reasonably estimable future environmental costs, it could incur significant costs that exceed reserves or require unanticipated cash expenditures as a result of any of the foregoing. The Company also may be required to incur significant expenses to investigate and remediate known, unknown or future environmental contamination.

Item 1B.  Unresolved Staff Comments

None

CSX 2021 Form 10-K p.12

CSX CORPORATION

PART I

Item 2.  Properties

The Company’s properties primarily consist of track and its related infrastructure, locomotives and freight cars and equipment. These categories and the geography of the network are described below.

Track and Infrastructure

Serving 23 states, the District of Columbia, and the Canadian provinces of Ontario and Quebec, the CSXT rail network serves, among other markets, New York, Philadelphia and Boston in the Northeast and Mid-Atlantic, the southeast markets of Atlanta, Miami and New Orleans, and the midwestern markets of St. Louis, Memphis and Chicago.

CSXT’s track structure includes mainline track, connecting terminals and yards, track within terminals and switching yards, sidings used for passing trains, track connecting CSXT's track to customer locations and turnouts that divert trains from one track to another. Total track miles, which reflect the size of CSXT’s network that connects markets, customers and western railroads, are greater than CSXT’s approximately 19,500 route miles. At December 2021, the breakdown of track miles was as follows:

	Track
	Miles
Single mainline track	19,433
Other mainline track	5,707
Terminals and switching yards	9,278
Passing sidings and turnouts	887
Total	35,305

In addition to its physical track structure, the Company operates numerous yards and terminals for rail and intermodal service. These serve as points of connectivity between the Company and its local customers and as sorting facilities where railcars and intermodal containers are received, classed for destination and placed onto outbound trains, or arrive and are delivered to the customer. The Company’s largest yards and terminals based on 2021 volume (number of railcars or intermodal containers processed) are listed below.

Yards and Terminals	Annual Volume
Waycross, GA	930,621
Bedford Park Intermodal Terminal (Chicago)	916,805
Avon, IN (Indianapolis)	671,856
Nashville, TN	660,424
Cincinnati, OH	644,679
Selkirk, NY	620,526
Walbridge, OH (Toledo)	407,205
Fairburn, GA Intermodal Terminal (Atlanta)	392,688
Louisville, KY	336,211
Chicago 59th St. Intermodal Terminal	313,870

CSX 2021 Form 10-K p.13

CSX CORPORATION

PART I

Network Geography

    CSXT’s operations are primarily focused on four major transportation networks and corridors that are defined geographically and by commodity flows below.

Interstate 90 (I-90) Corridor – This CSXT corridor links Chicago and the Midwest to metropolitan areas in New York and New England. This route, also known as the “waterlevel route,” has minimal hills and grades and nearly all of it has two main tracks (referred to as double track). These engineering attributes permit the corridor to support high-speed service across intermodal, automotive and merchandise commodities. This corridor is a primary route for import traffic coming from the far east through western ports moving eastward across the country, through Chicago and into the population centers in the Northeast. The I-90 Corridor is also a critical link between ports in New York, New Jersey, and Pennsylvania and consumption markets in the Midwest. This route carries goods from all three of the Company’s major markets – merchandise, intermodal and coal.

Interstate 95 (I-95) Corridor – The CSXT I-95 Corridor connects Charleston, Jacksonville, Miami and many other cities throughout the Southeast with the heavily populated mid-Atlantic and northeastern cities of Baltimore, Philadelphia and New York. CSXT primarily transports food and consumer products, as well as metals and chemicals along this line. It is the leading rail corridor along the eastern seaboard south of the District of Columbia and provides access to major eastern ports.

Southeastern Corridor – This critical part of the network runs between CSXT’s western gateways of Chicago, St. Louis and Memphis through the cities of Nashville, Birmingham, and Atlanta and markets in the Southeast. The Southeastern Corridor is the premier rail route connecting these key cities, gateways, and markets and positions CSXT to efficiently handle projected traffic volumes of intermodal, automotive and general merchandise traffic. The corridor also provides direct rail service between the coal reserves of the southern Illinois basin and the demand for coal in the Southeast.

Coal Network – The CSXT coal network connects the coal mining operations in the Appalachian mountain region and Illinois basin with industrial areas in the Southeast, Northeast and Mid-Atlantic, as well as many river, lake, and deep water port facilities. The domestic coal market has declined significantly over the last decade and export coal remains subject to a high degree of volatility. CSXT’s coal network remains well positioned to supply utility markets in both the Northeast and Southeast and to transport coal shipments for export outside of the U.S. Approximately one-quarter of export coal and the majority of the domestic coal that the Company transports is used for generating electricity or industrial purposes.

    See the following page for a map of the CSX Rail Network. Also included on the map, "CSX Operating Agreement" indicates areas within which CSX can operate through trackage rights beyond the CSX network.

CSX 2021 Form 10-K p.14

CSX CORPORATION

PART I

CSX Rail Network

CSX 2021 Form 10-K p.15

CSX CORPORATION

PART I

Locomotives

As of December 2021, CSXT owns or long-term leases more than 3,500 locomotives. From time to time, the Company also short-term leases locomotives based on business needs. Freight locomotives are used primarily to pull trains while switching locomotives are used in yards. Auxiliary units are typically used to provide extra traction for heavy trains in hilly terrain. Of owned locomotives, approximately 68% were in active service as of December 31, 2021, and the remainder were in storage to be utilized as needed. Storing locomotives and equipment allows the Company to quickly adjust its active fleet based on demand and other factors while avoiding delays due to supply limitations or excessive lead times to acquire additional equipment. As of December 2021, CSXT’s fleet of owned or long-term leased locomotives consisted of the following types:

	Locomotives	%		Average Age (years)
Freight	3,126	89	%	22
Switching	212	6	%	43
Auxiliary units	178	5	%	29
Total locomotives	3,516	100	%	22

Equipment

The Company owns or long-term leases rail equipment, including several types of freight cars and intermodal containers. Of total owned and long-term leased equipment, approximately 87% was in active service as of December 31, 2021, and the remainder were in storage to be utilized as needed. As of December 2021, the Company’s owned and long-term leased equipment consisted of the following:

Equipment	Number of Units	%
Gondolas	18,394	38	%
Multi-level flat cars	10,910	23	%
Covered hoppers	7,187	15	%
Open-top hoppers	6,610	14	%
Box cars	3,926	8	%
Flat cars	622	1	%
Other cars	384	1	%
Subtotal freight cars	48,033	100	%
Containers	17,147
Total equipment	65,180

At any time, approximately two-thirds of the railcars on the CSXT system are not owned or leased by the Company. Examples of these include railcars owned by other railroads (which are utilized by CSXT), shipper-furnished or private cars (which are generally used only in that shipper’s service), multi-level railcars used to transport automobiles (which are shared between railroads) and double-stack railcars, or well cars (which are industry pooled), that allow for two intermodal containers to be loaded one above the other.

CSX 2021 Form 10-K p.16

CSX CORPORATION

PART I

    The Company’s revenue-generating equipment, either owned or long-term leased, primarily consists of freight cars and containers as described below.

Gondolas – Support CSXT’s metals markets and provide transport for woodchips and other bulk commodities.  Some gondolas are equipped with special hoods for protecting products like coil and sheet steel.

Multi-level flat cars – Transport finished automobiles and are differentiated by the number of levels: bi-levels for large vehicles such as pickup trucks and SUVs and tri-levels for sedans and smaller automobiles.

Covered hoppers – Have a permanent roof and are segregated based upon commodity density. Lighter bulk commodities such as grain, fertilizer, flour, salt, sugar, clay and lime are shipped in large cars called jumbo covered hoppers. Heavier commodities like cement, ground limestone and industrial sand are shipped in small cube covered hoppers.

Open-top hoppers – Transport heavy dry bulk commodities such as coal, coke, stone, sand, ores and gravel that are resistant to weather conditions.

Box cars – Include a variety of tonnages, sizes, door configurations and heights to accommodate a wide range of finished products, including paper, auto parts, appliances and building materials.  Insulated box cars deliver food products, canned goods, beer and wine.

Flat cars – Used for shipping intermodal containers and trailers or bulk and finished goods, such as lumber, pipe, plywood, drywall and pulpwood.

Other cars – Primarily leased refrigerator cars and slab steel cars.

Containers – Weather-proof boxes used for bulk shipment of freight.

Item 3.  Legal Proceedings

    For further details, please refer to Note 8. Commitments and Contingencies of this annual report on Form 10-K.

Item 4.  Mine Safety Disclosure

Not Applicable

CSX 2021 Form 10-K p.17

CSX CORPORATION

PART I

Executive Officers of the Registrant

    Executive officers of the Company are elected by the CSX Board of Directors and generally hold office until the next annual election of officers. There are no family relationships or any arrangement or understanding between any officer and any other person pursuant to which such officer was elected. As of the date of this filing, the executive officers’ names, ages and business experience are:

Name and Age	Business Experience During Past Five Years
James M. Foote, 68 President and Chief Executive Officer	Foote has served as President and Chief Executive Office since December 2017. He joined CSX in October 2017 as Chief Operating Officer, with responsibility for both operations and sales and marketing. Mr. Foote has more than 40 years of railroad industry experience. Most recently, he was President and Chief Executive Officer of Bright Rail Energy. Before heading Bright Rail, he was Executive Vice President, Sales and Marketing with Canadian National Railway Company. At Canadian National, Mr. Foote also served as Vice President – Investor Relations and Vice President Sales and Marketing – Merchandise.
Sean R. Pelkey, 42 Executive Vice President and Chief Financial Officer	Pelkey was named Executive Vice President and Chief Financial Officer in January 2022 after serving as Vice President and Acting Chief Financial Officer since June 2021. Prior to these roles, Pelkey held the role of Vice President Finance & Treasury since 2017. In his current role, he is responsible for all financial aspects of the Company's business including financial and economic analysis, accounting, tax, treasury, real estate and purchasing activities. Prior to 2017, he has held the positions of AVP Capital Markets and Director Performance Analysis. During his 16 years with CSX, Mr. Pelkey has held a variety of other roles, including financial planning and technology finance.
Kevin S. Boone, 44 Executive Vice President and Chief Sales & Marketing Officer	Boone was named Executive Vice President and Chief Sales & Marketing Officer in June 2021 after serving as Chief Financial Officer since May 2019. In his current role, he is responsible for the commercial organization. Mr. Boone has more than 20 years of experience in finance, accounting, mergers and acquisitions, and transportation performance analysis. He joined CSX in September 2017 as Vice President of Corporate Affairs and Chief Investor Relations Officer and was later named Vice President, Marketing and Strategy leading research and data analysis to advance growth strategies for CSX. Before joining CSX in 2017, Mr. Boone worked as a Senior Equity Research Analyst at Janus Capital. He also served as a Vice President at Morgan Stanley in equity research and an associate at Merrill Lynch in the mergers and acquisitions group.
Jamie J. Boychuk, 44 Executive Vice President of Operations	Boychuk has served as CSXT's Executive Vice President of Operations since October 2019. In this role, he is responsible for mechanical, engineering, transportation and network operations, including terminals. Since joining CSXT in 2017, he has held the positions of Senior Vice President of Network, Engineering, Mechanical and Intermodal Operations; Vice President of Scheduled Railroading; and Assistant Vice President of Transportation Support. Mr. Boychuk previously worked at Canadian National Railway, where he served for 20 years in various operational roles of increasing responsibility, including sub-region General Manager.

CSX 2021 Form 10-K p.18

CSX CORPORATION

PART I

Name and Age	Business Experience During Past Five Years
Nathan D. Goldman, 64 Executive Vice President and Chief Legal Officer	Goldman has served as Executive Vice President and Chief Legal Officer, and Corporate Secretary of CSX since November 2017. In this role, he directs the Company’s legal affairs, government relations, corporate communications, risk management, public safety, environmental, and audit functions. During his 18 years with the Company, Mr. Goldman has previously served as Vice President of Risk Compliance and General Counsel and has overseen work in compliance, risk management and safety programs.
Diana B. Sorfleet, 57 Executive Vice President and Chief Administrative Officer	Sorfleet was named Executive Vice President and Chief Administrative Officer in July 2018. In this role, her responsibilities include human resources, information technology, labor relations, people systems and analytics, total rewards and aviation. During her 10 years with the Company, Ms. Sorfleet has previously served as Chief Human Resources Officer. Prior to joining CSX, she worked in human resources for 20 years.
Angela C. Williams, 47 Vice President and Chief Accounting Officer	Williams has served as Vice President and Chief Accounting Officer of CSX since March 2018. She is responsible for financial and regulatory reporting, freight billing and collections, payroll, accounts payable and various other accounting processes. During her 18 years with the Company, she previously served as Assistant Vice President - Assistant Controller and in other various accounting roles. With more than 24 years of experience, Williams held various accounting and auditing positions prior to joining CSX. Ms. Williams is a Certified Public Accountant.

CSX 2021 Form 10-K p.19

CSX CORPORATION

PART II

Item 5.  Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Market Information

CSX’s common stock is listed on the Nasdaq Global Select Market, which is its principal trading market, and is traded over-the-counter and on exchanges nationwide. The official trading symbol is “CSX.” 

Description of Common and Preferred Stock

    A total of 5.4 billion shares of common stock are authorized, of which 2,201,787,404 shares were outstanding as of December 31, 2021. Each share is entitled to one vote in all matters requiring a vote of shareholders. There are no preemptive rights, which are privileges extended to select shareholders that would allow them to purchase additional shares before other members of the general public in the event of an offering. At January 31, 2022, the latest practicable date that is closest to the filing date, there were 23,137 common stock shareholders of record. The weighted average of common shares outstanding, which was used in the calculation of diluted earnings per share, was 2,255 million as of December 31, 2021. (See Note 2, Earnings Per Share.) A total of 25 million shares of preferred stock is authorized, none of which is currently outstanding.

    The following table sets forth, for the quarters indicated, the dividends declared on CSX common stock.

	Quarter
	1st		2nd		3rd		4th		Year
2021	$	0.093	$	0.093	$	0.093	$	0.093	$	0.372
2020	$	0.087	$	0.087	$	0.087	$	0.087	$	0.348

Stock Performance Graph

    The cumulative shareholder returns, assuming reinvestment of dividends, on $100 invested at December 31, 2016 are illustrated on the graph below. The Company references the Standard & Poor's 500 Stock Index (“S&P 500 ®”), and the Dow Jones U.S. Transportation Average Index, which provide comparisons to a broad-based market index and other companies in the transportation industry.

CSX 2021 Form 10-K p.20

CSX CORPORATION

PART II

CSX Purchases of Equity Securities

    The Company continues to repurchase shares under the $5 billion program announced in October 2020. Total repurchase authority remaining as of December 31, 2021 was $3.0 billion. For more information about share repurchases, see Note 2, Earnings Per Share. Share repurchase activity of $570 million for the fourth quarter 2021 was as follows:

CSX Purchases of Equity Securities for the Quarter
Fourth Quarter	Total Number of Shares Purchased	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs
Beginning Balance					$	3,572,838,310
October 1 - October 31, 2021	5,194,579	$	31.56	5,194,579		3,408,904,138
November 1 - November 30, 2021	4,300,579		35.60	4,300,579		3,255,785,536
December 1 - December 31, 2021	6,984,577		36.17	6,984,577		3,003,170,964
Ending Balance	16,479,735	$	34.57	16,479,735	$	3,003,170,964

Item 6.  Reserved

CSX 2021 Form 10-K p.21

CSX CORPORATION

PART II

Item 7.  Management's Discussion and Analysis of Financial Condition and Results of Operations

TERMS USED BY CSX

    When used in this report, unless otherwise indicated by the context, these terms are used to mean the following:

Car hire - A charge paid by one railroad for its use of cars belonging to another railroad or car owner.

Class I freight railroad - One of the largest line haul freight railroads as determined based on operating revenue; the exact revenue required to be in each class is periodically adjusted for inflation by the Surface Transportation Board. Smaller railroads are classified as Class II or Class III.

Common carrier mandate - A federal mandate that requires U.S. railroads to accommodate reasonable requests from shippers to carry any freight, including hazardous materials.

Demurrage - A charge assessed by railroads for the use of rail cars by shippers or receivers of freight beyond a specified free time.

Department of Transportation ("DOT") - A U.S. government agency with jurisdiction over matters of all modes of transportation.

Depreciation study - Conducted by a third-party specialist and analyzed by management, a periodic statistical analysis of fixed asset service lives, salvage values, accumulated depreciation, and other factors for group assets along with a comparison of similar asset groups at other companies.

Double-stack - Stacking containers two-high on specially equipped cars.

Environmental Protection Agency (“EPA”) - A U.S. government agency that has regulatory authority with respect to environmental law.

Federal Railroad Administration ("FRA") - The branch of the DOT that is responsible for developing and enforcing railroad safety regulations, including safety standards for rail infrastructure and equipment.

Free cash flow - The calculation of a non-GAAP measure by using net cash provided by operating activities and adjusting for property additions and certain other investing activities. Free cash flow is a measure of cash available for paying dividends, share repurchases and principal reduction on outstanding debt.

Group-life depreciation - A type of depreciation in which assets with similar useful lives and characteristics are aggregated into groups. Instead of calculating depreciation for individual assets, depreciation is calculated as a whole for each group.

Incidental charges - Charges for switching, demurrage, storage, etc.

Intermodal - A flexible way of transporting freight over highway, rail and water without being removed from the original transportation equipment, namely a container or trailer.

Mainline - The main track thoroughfare, exclusive of terminals, yards, sidings and turnouts.

CSX 2021 Form 10-K p.22

CSX CORPORATION

PART II

Pipeline and Hazardous Materials Safety Administration (“PHMSA”) - An agency within the DOT that, together with the FRA, has broad jurisdiction over railroad operating standards and practices, including hazardous materials requirements. 

Positive Train Control ("PTC") - An interoperable train control system designed to prevent train-to-train collisions, over-speed derailments, incursions into established work-zone limits, and train diversions onto another set of tracks.

Revenue adequacy - The achievement of a rate of return on investment at least equal to the industry cost of investment capital, as measured by the STB.

Shipper - A customer shipping freight via rail.

Siding - Track adjacent to the mainline used for passing trains.

Staggers Act of 1980 - Congressional law that significantly deregulated the rail industry, replacing the regulatory structure in existence since the 1887 Interstate Commerce Act. Where previously rates were controlled by the Interstate Commerce Commission, the Staggers Act allowed railroads to establish their own rates for shipments, enhancing their ability to compete with other modes of transportation.

Surface Transportation Board ("STB") - An independent governmental adjudicatory body administratively housed within the DOT, responsible for the economic regulation of interstate surface transportation within the United States.

Switching - Putting cars in a specific order, placing cars for loading, retrieving empty cars or adding or removing cars from a train at an intermediate point. 

Terminal - A facility, typically owned by a railroad, for the handling of freight and for the breaking up, making up, forwarding and servicing of trains.

Transportation Security Administration (“TSA”) - A component of the Department of Homeland Security with broad authority over railroad operating practices that may have homeland security implications.

TTX Company ("TTX") - A company that provides its owner-railroads with standardized fleets of intermodal, automotive and general use railcars at time and mileage rates. CSX owns about 20 percent of TTX's common stock, and the remainder is owned by the other leading North American railroads and their affiliates.

Turnout - A track that diverts trains from one track to another. 

Yard - A system of tracks, other than main tracks and sidings, used for making up trains, storing cars and other purposes.

CSX 2021 Form 10-K p.23

CSX CORPORATION

PART II

2021 HIGHLIGHTS

• Revenue of $12.5 billion increased $1.9 billion or 18% versus the prior year.

• Expenses of $6.9 billion increased $707 million or 11% year over year.

• Operating income of $5.6 billion increased $1.2 billion or 28% year over year.

• Operating ratio of 55.3% improved 350 basis points from 58.8%.

• Earnings per diluted share of $1.68 increased $0.48 or 40% year over year.

RESULTS OF OPERATIONS

The following section generally discusses the Company's results of operations and financial condition for the year ended December 31, 2021, compared to the year ended December 31, 2020. A discussion regarding results of operations and financial condition for the year ended December 31, 2020, compared to the year ended December 31, 2019, except as provided herein, can be found in Part II, Item 7 of CSX's Annual Report on Form 10-K for fiscal year 2020, filed with the Securities and Exchange Commission on February 10, 2021.

2021 vs. 2020 Results of Operations

	Fiscal Years
	2021			2020			$ Change		% Change
(Dollars in Millions)
Revenue	$	12,522		$	10,583		$	1,939	18	%
Expense
Labor and Fringe	2,550			2,275			(275)		(12)
Purchased Services and Other(a)	2,135			1,719			(416)		(24)
Depreciation	1,420			1,383			(37)		(3)
Fuel	913			541			(372)		(69)
Equipment and Other Rents	364			338			(26)		(8)
Gains on Property Dispositions	(454)			(35)			419		NM
Total Expense	6,928			6,221			(707)		(11)
Operating Income	5,594			4,362			1,232		28
Interest Expense	(722)			(754)			32		4
Other Income - Net	79			19			60		316
Income Tax Expense	(1,170)			(862)			(308)		(36)
Net Earnings	$	3,781		$	2,765		$	1,016	37
Earnings Per Diluted Share(b)	$	1.68		$	1.20		$	0.48	40	%
Operating Ratio	55.3		%	58.8		%			350		bps

(a) 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.

(b) All prior period share and per share data has been retroactively adjusted to reflect the stock split effective June 28, 2021. Certain prior year data has been reclassified to conform to the current presentation.

CSX 2021 Form 10-K p.24

CSX CORPORATION

PART II

Acquisition of Quality Carriers, Inc.

On July 1, 2021, CSX acquired Quality Carriers, Inc. from Quality Distribution, Inc. for a purchase price of $544 million in cash, which is presented on the statement of cash flows net of $3 million cash acquired. This transaction was funded by cash on hand. For further details, refer to Note 17, Business Combinations.

COVID-19 Update

Demand for rail services has improved from steep declines in the first half of 2020, but the effects of the disruption of global manufacturing, supply chains and consumer spending as a result of the COVID-19 global pandemic are ongoing. Future impacts of the pandemic on the Company’s financial and operating results will be determined by its duration, effects on the demand for the Company’s transportation services and the supply chain, as well as the effect of governmental regulations imposed and legislative stimulus packages passed in response to the pandemic. The duration of the pandemic is dependent on several factors, including the impacts of virus mutations and case resurgences across the country.

CSX employees that provide efficient and reliable rail service are essential to keeping supply chains fluid in response to this challenge. Accordingly, business operations have been modified to ensure the safety of employees across the network while continuing to provide a high level of service to customers. The Company is strongly encouraging employees to get vaccinated. A cross-functional task force continues to monitor and coordinate the Company’s response to COVID-19.

CSX 2021 Form 10-K p.25

CSX CORPORATION

PART II

Volume and Revenue (Unaudited)
Volume (Thousands of units); Revenue (Dollars in Millions); Revenue Per Unit (Dollars)
	Volume				Revenue						Revenue Per Unit
	2021	2020	% Change		2021		2020		% Change		2021		2020		% Change
Chemicals	659	664	(1)	%	$	2,421	$	2,309	5	%	$	3,674	$	3,477	6	%
Agricultural and Food Products	467	463	1	%	1,461		1,386		5	%	3,128		2,994		4	%
Minerals	325	321	1	%	587		538		9	%	1,806		1,676		8	%
Automotive	318	344	(8)	%	886		920		(4)	%	2,786		2,674		4	%
Forest Products (a)	296	278	6	%	918		834		10	%	3,101		3,000		3	%
Metals and Equipment	277	239	16	%	796		675		18	%	2,874		2,824		2	%
Fertilizers (a)	229	226	1	%	470		414		14	%	2,052		1,832		12	%
Total Merchandise	2,571	2,535	1	%	7,539		7,076		7	%	2,932		2,791		5	%
Intermodal	2,976	2,720	9	%	2,039		1,702		20	%	685		626		9	%
Coal	706	637	11	%	1,790		1,397		28	%	2,535		2,193		16	%
Trucking (b)	—	—	—	%	410		—		NM		—		—		—	%
Other	—	—	—	%	744		408		82	%	—		—		—	%
Total	6,253	5,892	6	%	$	12,522	$	10,583	18	%	$	2,003	$	1,796	12	%

NM - not meaningful

(a) Effective first quarter 2021, changes were made in the categorization of certain lines of business, impacting Forest Products and Fertilizers. The impacts were not material and prior periods have been reclassified to conform to the current presentation.

(b) Effective third quarter 2021, Trucking revenue is comprised of revenue from the operations of Quality Carriers, which was acquired by CSX effective July 1, 2021.

CSX 2021 Form 10-K p.26

CSX CORPORATION

PART II

Revenue

    Total revenue increased $1.9 billion in 2021, or 18%, when compared to the previous year due to higher volume, the inclusion of Quality Carriers' results, pricing gains, increases in other revenue and higher fuel recovery.

Merchandise Volume

Chemicals - Decreased due to lower shipments of crude oil and other energy-related commodities, partially offset by higher shipments of core chemicals and waste.

Agricultural and Food Products - Increased as a result of higher shipments of vegetable oils, ethanol, and food and consumer products.

Minerals - Increased as a result of higher shipments of cement, lime and limestone.

Automotive - Decreased due to lower vehicle production at plants served by CSX, which were impacted by shortages of semiconductors and other parts.

Forest Products - Increased primarily due to higher shipments of pulpboard, woodpulp and building products.

Metals and Equipment - Increased as growth across the metals markets was partially offset by reduced equipment shipments.

Fertilizers - Increased due to higher long-haul fertilizer shipments, partially offset by lower short-haul phosphate shipments.

Intermodal Volume

Increases in both domestic and international shipments resulted from strong demand, tight truck capacity, inventory replenishments and growth in rail volumes from east coast ports.

Coal Volume

The increase in export coal was driven by higher international shipments of both thermal coal and metallurgical coal. Domestic coal increased due to higher shipments of utility coal as well as higher steel and industrial shipments.

Trucking Revenue

Trucking revenue increased $410 million versus prior year due to the inclusion of Quality Carriers' results.

Other

Other revenue increased $336 million versus prior year due to increases in revenue for intermodal storage and equipment usage as well as higher affiliate and demurrage revenue.

CSX 2021 Form 10-K p.27

CSX CORPORATION

PART II

Expense

    In 2021, total expenses increased $707 million, or 11%, compared to prior year. Descriptions of each expense category as well as significant year-over-year changes are described below.

Labor and Fringe expenses include employee wages and related payroll taxes, health and welfare costs, pension, other post-retirement benefits and incentive compensation. These expenses increased $275 million due to the following items:

•Inflation and higher volume resulted in $133 million of increased expenses.

•Incentive compensation increased $123 million primarily due to higher expected payouts in the current year, including accelerated expense for certain employees.

•The acquisition of Quality Carriers resulted in increased costs of $61 million.

•Other costs decreased $42 million primarily due to efficiency savings, lower severance expenses and other non-significant items, partially offset by expenses related to increased hiring and new retention programs of $38 million.

Purchased Services and Other expenses consist primarily of contracted services to maintain infrastructure and equipment, terminal and pier services, purchased trucking and other transportation, and professional services. This category also includes costs related to materials, travel, casualty claims, environmental remediation, train accidents, property and sales tax, utilities and other items. Total purchased services and other expenses increased $416 million driven by the following:

•The inclusion of Quality Carriers' operations drove $257 million of additional costs.

•Higher operating support costs, primarily due to an increased active locomotive fleet, as well as higher intermodal terminal costs drove an increase of $80 million.

•All other costs increased $79 million primarily due to inflation and other non-significant costs, including $17 million in expenses related to the acquisition of Quality Carriers.

Depreciation expense primarily relates to recognizing the costs of capital assets, such as locomotives, railcars and track structure, over their respective useful lives, which are reviewed periodically as part of depreciation studies. This expense is impacted primarily by the capital expenditures made each year. Depreciation expense increased $37 million primarily due to a larger net asset base, which includes Quality Carriers' assets, partially offset by the impacts of the 2020 road and track depreciation study.

Fuel expense includes locomotive diesel fuel as well as non-locomotive fuel. This expense is largely driven by the market price and locomotive consumption of diesel fuel. Fuel expense increased $372 million primarily due to a 55% price increase in locomotive fuel prices and the inclusion of non-locomotive fuel used for trucking.

Equipment and Other Rents expense includes rent paid for freight cars owned by other railroads or private companies, net of rents received by CSXT for use of its equipment. This category of expenses also includes expenses for short-term and long-term leases of locomotives, railcars, containers, tractors and trailers, offices and other rentals. These expenses increased $26 million primarily due to increased car hire costs driven by higher days per load and the addition of Quality Carriers' costs, partially offset by other non-significant items.

Gains on Property Dispositions increased to $454 million in 2021 from $35 million in 2020 primarily due to the conveyance of a permanent land easement to the Commonwealth of Virginia that resulted in a $349 million gain in April 2021 as well as other property dispositions throughout 2021.

CSX 2021 Form 10-K p.28

CSX CORPORATION

PART II

Interest Expense

Interest Expense includes interest on long-term debt, equipment obligations and finance leases. Interest expense decreased $32 million as a result of lower average interest rates and a lower average debt balance.

Other Income - Net

Other Income - Net includes investment gains, losses and interest income, as well as components of net periodic pension and post-retirement benefit cost and other non-operating activities. Other income increased $60 million primarily due to $48 million debt repurchase expense in the prior year and an increase in net pension benefit credits during 2021, partially offset by lower interest income.

Income Tax Expense

Income Tax Expense increased $308 million primarily due to higher earnings before income taxes, partially offset by favorable state legislative changes and adjustments to deferred taxes as a result of filing of the 2020 state tax returns.

Net Earnings and Earnings per Diluted Share

Net Earnings increased $1 billion to $3.8 billion, and earnings per diluted share increased $0.48 to $1.68, due to the factors mentioned above. Average shares outstanding was lower as a result of share repurchase activity during the year and had a favorable impact on earnings per diluted share.

CSX 2021 Form 10-K p.29

CSX CORPORATION

PART II

2020 vs. 2019 Results of Operations

    See below for discussion regarding operating expenses and earnings per share for the year ended December 31, 2020, compared to the year ended December 31, 2019. These discussion items have been updated to conform to the current presentation due to the reclassification of gains on property dispositions from the Purchased Services and Other caption to Gain on Property Dispositions, which had no impact on operating income, as well as the three-for-one stock split effective June 28, 2021.

Expense

    In 2020, total expenses decreased $751 million, or 11%, compared to 2019. Descriptions of each expense category as well as significant year-over-year changes are described below.

Labor and Fringe expenses include employee wages and related payroll taxes, health and welfare costs, pension, other post-retirement benefits and incentive compensation. These expenses decreased $341 million due to the following items:

•Efficiency and volume savings of $288 million primarily resulted from structural changes to the train plan that resulted in reduced crew starts as well as lower headcount.

•Incentive compensation decreased $86 million primarily due to lower expected annual incentive payouts as well as higher prior year accelerated stock compensation expense for certain retirement-eligible employees.

•Other costs increased $33 million primarily due to inflation and several other non-significant items, including severance costs.

Purchased Services and Other expenses consist primarily of contracted services to maintain infrastructure and equipment, terminal and pier services and professional services. This category also includes costs related to materials, travel, casualty claims, environmental remediation, train accidents, property and sales tax, utilities and other items. Total purchased services and other expenses decreased $181 million driven by the following:

•Efficiency and volume savings of $185 million primarily resulted from lower operating support costs, lower terminal costs as a result of record productivity levels at intermodal terminals, and reduced equipment maintenance expenses.

•All other costs increased $4 million primarily due to inflation and other non-significant costs that were mostly offset by a $22 million non-railroad asset impairment in the prior year related to an intermodal terminal sale agreement.

Depreciation expense primarily relates to recognizing the costs of capital assets, such as locomotives, railcars and track structure, over their respective useful lives, which are reviewed periodically as part of depreciation studies. This expense is impacted primarily by the capital expenditures made each year. Depreciation expense increased $34 million primarily due to the impacts of the 2019 equipment depreciation study as well as a larger net asset base.

CSX 2021 Form 10-K p.30

CSX CORPORATION

PART II

Fuel expense includes locomotive diesel fuel as well as non-locomotive fuel. This expense is largely driven by the market price and locomotive consumption of diesel fuel. Fuel expense decreased $365 million primarily due to a 31% price decrease that drove savings of $243 million, volume savings and a 5% improvement in fuel efficiency.

Equipment and Other Rents expense includes rent paid for freight cars owned by other railroads or private companies, net of rents received by CSXT for use of its equipment. This category of expenses also includes expenses for short-term and long-term leases of locomotives, railcars, containers, tractors and trailers, offices and other rentals. These expenses decreased $14 million primarily due to volume savings, partially offset by higher days per load for automotive and other merchandise markets that resulted in increased car hire costs.

Gains on Property Dispositions decreased to $35 million in 2020 from $151 million in 2019.

Net Earnings and Earnings per Diluted Share

Net Earnings decreased $566 million to $2.8 billion, and earnings per diluted share decreased $0.19 to $1.20. Average shares outstanding was lower as a result of share repurchase activity during the year and had a favorable impact on earnings per diluted share.

CSX 2021 Form 10-K p.31

CSX CORPORATION

PART II

NON-GAAP MEASURES (Unaudited)

    CSX reports its financial results in accordance with United States generally accepted accounting principles ("GAAP"). CSX also uses certain non-GAAP measures that fall within the meaning of Securities and Exchange Commission Regulation G and Regulation S-K Item 10(e), which may provide users of the financial information with additional meaningful comparison to prior reported results. Non-GAAP measures do not have standardized definitions and are not defined by GAAP. Therefore, CSX’s non-GAAP measures are unlikely to be comparable to similar measures presented by other companies. The presentation of these non-GAAP measures should not be considered in isolation from, as a substitute for, or as superior to the financial information presented in accordance with GAAP. Reconciliations of non-GAAP measures to corresponding GAAP measures are below.

Free Cash Flow

    Management believes that free cash flow is useful to investors as it is important in evaluating the Company’s financial performance. More specifically, free cash flow measures cash generated by the business after reinvestment. This measure represents cash available for both equity and bond investors to be used for dividends, share repurchases or principal reduction on outstanding debt. Free cash flow is calculated by using net cash from operations and adjusting for property additions and certain other investing activities, which includes proceeds from property dispositions. This measure should be considered in addition to, rather than a substitute for, cash provided by operating activities. Free cash flow before dividends increased $1.2 billion year-over-year to $3.8 billion primarily due to higher net cash provided by operating activities and higher proceeds and advances from property dispositions, including $400 million of proceeds related to the conveyance of a permanent land easement to the Commonwealth of Virginia in 2021. These increases were partially offset by higher property additions.

    The following table reconciles cash provided by operating activities (GAAP measure) to free cash flow and adjusted free cash flow (both non-GAAP measures).

	Fiscal Years
	2021		2020
(Dollars in Millions)
Net cash provided by operating activities (a)	$	5,099	$	4,263
Property additions	(1,791)		(1,626)
Other investing activities (b)	525		9
Free Cash Flow, before dividends (non-GAAP)	$	3,833	$	2,646

(a) Net cash provided by operating activities for the year ended December 31, 2020, includes the impact of $21 million paid to settle a liability for non-controlling interest in an affiliate.

(b) For the year ended December 31, 2020, certain other investing activities used in the calculation of free cash flow do not include the impact of a $30 million deposit paid by the Company related to its signed definitive agreement to acquire Pan Am Railways, Inc. This transaction remains subject to regulatory review and approval by the Surface Transportation Board. This deposit is included in the other investing activities total on the consolidated cash flow statement for the year ended December 31, 2020.

CSX 2021 Form 10-K p.32

CSX CORPORATION

PART II

OPERATING STATISTICS (Estimated)

	Fiscal Years
	2021		2020		Improvement/ (Deterioration)
Operations Performance
Train Velocity (Miles per hour)(a)	17.9		20.2		(11)	%
Dwell (Hours)(a)	10.7		9.3		(15)	%
Cars Online(a)	131,564		112,718		(17)	%
On-Time Originations	75	%	87	%	(14)	%
On-Time Arrivals	66	%	77	%	(14)	%
Carload Trip Plan Performance	69	%	77	%	(10)	%
Intermodal Trip Plan Performance	87	%	90	%	(3)	%
Fuel Efficiency	0.96		0.96		—	%
Revenue Ton-Miles (Billions)
Merchandise	126.3		124.4		2	%
Coal	35.4		30.1		18	%
Intermodal	31.5		28.1		12	%
Total Revenue Ton-Miles	193.2		182.6		6	%
Total Gross Ton-Miles (Billions)	376.0		358.3		5	%
Safety
FRA Personal Injury Frequency Index	0.92		0.82		(12)	%
FRA Train Accident Rate	2.90		3.16		8	%

(a) The methodologies for calculating train velocity, dwell and cars online differ from those prescribed by the STB as the Company believes these numbers more accurately reflect railroad performance. CSXT will continue to report these metrics, using the prescribed methodology, to the STB on a weekly basis. See additional discussion on the Company's website.

Certain operating statistics are estimated and can continue to be updated as actuals settle.

Key Performance Measures Definitions:

Train Velocity - Average train speed between origin and destination in miles per hour (does not include locals, yard jobs, work trains or passenger trains). Train velocity measures the profiled schedule of trains (from departure to arrival and all interim time), and train profiles are periodically updated to align with a changing operation.

Dwell - Average amount of time in hours between car arrival to and departure from the yard.

Cars Online - Average number of active freight rail cars on lines operated by CSX, excluding rail cars that are being repaired, in storage, those that have been sold, or private cars dwelling at a customer location more than one day.

On-Time Originations - Percent of scheduled road trains that depart the origin yard on-time or ahead of schedule.

On-Time Arrivals - Percent of scheduled road trains that arrive at the destination yard on-time to within two hours of scheduled arrival. Carload Trip Plan Performance - Percent of measured cars destined for a customer that arrive at or ahead of the original estimated time of arrival, notification or interchange (as applicable).

Intermodal Trip Plan Performance - Percent of measured containers destined for a customer that arrive at or ahead of the original estimated time of arrival, notification or interchange (as applicable).

Fuel Efficiency - Gallons of locomotive fuel per 1,000 gross ton-miles.

Revenue Ton-Miles (RTM's) - The movement of one revenue-producing ton of freight over a distance of one mile.

Gross Ton-Miles (GTM's) - The movement of one ton of train weight over one mile. GTM's are calculated by multiplying total train weight by distance the train moved. Total train weight is comprised of the weight of the freight cars and their contents.

FRA Personal Injury Frequency Index - Number of FRA-reportable injuries per 200,000 man-hours.

FRA Train Accident Rate - Number of FRA-reportable train accidents per million train-miles.

CSX 2021 Form 10-K p.33

CSX CORPORATION

PART II

    The Company is committed to continuous improvement in safety and service performance through training, innovation and investment. Training and safety programs are designed to prevent incidents that can adversely impact employees, customers and communities. Technological innovations that can detect and avoid many types of human factor incidents are designed to serve as an additional layer of protection for the Company's employees. Continued capital investment in the Company's assets, including track, bridges, signals, equipment and detection technology also supports safety performance.

    Despite the operating challenges presented by global supply disruptions and the ongoing COVID-19 pandemic, the Company remained focused on safety, service, and controlling costs. Train velocity declined 11% relative to 2020. Dwell increased by 15% and cars online increased 17% in 2021. Compared to 2020, carload and intermodal trip plan performance decreased 10% and 3%, respectively. CSX expects network fluidity to improve commensurate with ongoing hiring efforts and a return to more normal supply chain conditions.

From a safety perspective, the FRA personal injury index increased by 12% while the train-accident rate improved by 8% from the prior year. Safety remains a top priority at CSX, and the Company is committed to reducing risk and enhancing the overall safety of its employees, customers and communities in which the Company operates.

LIQUIDITY AND CAPITAL RESOURCES

    Liquidity is a company’s ability to generate adequate amounts of cash to meet both current and future needs for obligations as they mature and to provide for planned capital expenditures, including those to address regulatory and legislative requirements. To have a complete picture of a company’s liquidity, its sources and uses of cash, balance sheet and external factors should be reviewed.

Significant Cash Flows

    The following charts highlight the operating, investing and financing components of the change in cash and cash equivalents for operating, investing and financing activities for full years 2021 and 2020.

    In 2021, the Company generated $5.1 billion of cash from by operating activities, which was $836 million higher than prior year primarily driven by higher cash-generating income and favorable working capital activities. Net cash used in investing activities was $1.9 billion, an increase in net spend of $1.2 billion from the prior year primarily as a result of decreased net sales of short-term investments and cash paid to acquire Quality Carriers, partially offset by higher proceeds and advances from property dispositions. Net cash used in financing activities was $4.1 billion, which represents an increase in net spend of $2.7 billion from the prior year primarily driven by higher share repurchases and lower proceeds from debt issuances, partially offset by lower debt repayments.

CSX 2021 Form 10-K p.34

CSX CORPORATION

PART II

Sources of Cash and Liquidity

    The Company has multiple sources of liquidity, including cash generated from operations and financing sources. Simultaneous with the filing of this Form 10-K, the Company intends to file a new shelf registration statement, which may be used to issue debt or equity securities at CSX’s discretion, subject to market conditions and CSX Board authorization. While CSX seeks to give itself flexibility with respect to cash requirements, there can be no assurance that market conditions would permit CSX to sell such securities on acceptable terms at any given time, or at all. In 2021, CSX did not issue any new long-term debt.

    CSX has access to a $1.2 billion five-year unsecured revolving credit facility backed by a diverse syndicate of banks that expires in March 2024. As of December 31, 2021, the Company had no outstanding balances under this facility. See Note 10, Debt and Credit Agreements for more information. The Company also has a commercial paper program, backed by the revolving credit facility, under which the Company may issue unsecured commercial paper notes up to a maximum aggregate principal amount of $1.0 billion outstanding at any one time. As of December 31, 2021, the Company had no outstanding debt under the commercial paper program.

Uses of Cash

    CSX uses current cash balances for general corporate purposes, which may include capital expenditures, working capital requirements, reduction or refinancing of outstanding indebtedness, redemptions and repurchases of CSX common stock, dividends to shareholders, acquisitions and other business opportunities, and contributions to the Company's qualified pension plan.

    In 2021, CSX continued to invest in its business to create long-term value for shareholders. The Company is committed to maintaining and improving its existing infrastructure and to positioning itself for long-term, profitable growth through optimizing network and terminal capacity. Funds used for property additions are further described below.

	Fiscal Years
Capital Expenditures (Dollars in Millions)	2021		2020
Track	$	876	$	858
Bridges, Signals and Other	567		508
Total Infrastructure	1,443		1,366
Strategic Projects and Commercial Facilities	194		143
Locomotives	89		57
Regulatory (including PTC)	36		39
Freight Cars	29		21
Total Capital Expenditures	$	1,791	1,626

Planned capital investments for 2022 are expected to be approximately $2.0 billion. Of the 2022 investment, over 80% is expected to be used to sustain the core infrastructure and operating equipment. The remaining amounts will be used to promote profitable growth, including projects supporting service enhancements and productivity initiatives. CSX intends to fund capital investments through cash generated from operations.

    CSX is continually evaluating market and regulatory conditions that could affect the Company’s ability to generate sufficient returns on capital investments. CSX may revise its future estimates for capital spending as a result of changes in business conditions, tax legislation or the enactment of new laws or regulations, which could have a material adverse effect on the Company’s operations and financial performance in the future (see Risk Factors under Item 1A of this Form 10-K).

CSX 2021 Form 10-K p.35

CSX CORPORATION

PART II

CSX is committed to returning cash to shareholders. Capital structure, capital investments and cash distributions, including dividends and share repurchases, are reviewed at least annually by the Board of Directors. On February 16, 2022, the Company's Board of Directors authorized a 7% increase in the quarterly cash dividend to $0.10 per common share effective March 2022. Management's assessment of market conditions and other factors guides the timing and volume of repurchases. Future share repurchases are expected to be funded by cash on hand, cash generated from operations and debt issuances.

Material Changes in the Consolidated Balance Sheets and Working Capital

    CSX's balance sheet reflects its strong capital base and the impact of CSX's balanced approach in deploying capital for the benefit of its shareholders, which includes investments in infrastructure, dividend payments and share repurchases. Further, CSX is well positioned from a liquidity standpoint. The Company ended the year with $2.3 billion of cash, cash equivalents and short-term investments.

    Total assets as well as total liabilities and shareholders' equity increased $738 million from prior year end. The increase in total assets was primarily due to a net increase in property of $571 million attributable to capital expenditures and the consolidation of Quality Carrier's properties, the recognition of $393 million of goodwill and intangible assets related to the acquisition of Quality Carriers, a $236 million increase in accounts receivable commensurate with higher revenue and a $226 million increase in net assets for qualified pension plans primarily driven by favorable discount rates. These increases were partially offset by the $890 million decrease in cash described above.

Total liabilities increased $348 million from year end primarily due to an increase in deferred tax liabilities of $215 million driven by accelerated tax depreciation, an increase in accounts payable of $154 million due to the timing of payments, an increase in labor and fringe benefit payable of $148 million partly due higher expected incentive compensation payouts, the assumption of $68 million in debt as a result of the acquisition of Quality Carriers, and an increase in income and other taxes payable of $61 million. These and other increases were offset by debt repayments of $426 million. Total shareholders' equity increased $390 million from year end primarily driven by net earnings of nearly $3.8 billion, mostly offset by share repurchases of $2.9 billion and dividends paid of $839 million.

    Working capital is considered a measure of a company’s ability to meet its short-term needs. CSX had a working capital surplus of $1.6 billion at December 2021 and $2.4 billion at December 2020, a decrease of $782 million. The decrease in current assets was primarily driven by the net decrease in cash described above, partially offset by the increase in accounts receivable. The increase in current liabilities was due to higher accounts payable and labor and fringe payable, partially offset by lower current maturities of long-term debt.

    The Company’s working capital balance varies due to factors such as the timing of scheduled debt payments and changes in cash and cash equivalent balances. Although the Company currently has a surplus, a working capital deficit is not unusual for CSX or other companies in the industry and does not indicate a lack of liquidity. The Company continues to maintain adequate current assets to satisfy current liabilities and maturing obligations when they come due. Furthermore, CSX has sufficient financial capacity, including its revolving credit facility, commercial paper program and shelf registration statement to manage its day-to-day cash requirements and any anticipated obligations. The Company from time to time accesses the credit markets for additional liquidity.

CSX 2021 Form 10-K p.36

CSX CORPORATION

PART II

Completed and Pending Transactions

Acquisition of Quality Carriers, Inc.

On July 1, 2021, CSX acquired Quality Carriers, Inc. from Quality Distribution, Inc. for a purchase price of $544 million in cash, which is presented on the statement of cash flows net of $3 million cash acquired. This transaction was funded by cash on hand. For further details, refer to Note 17, Business Combinations.

Proposed Acquisition of Pan Am Systems, Inc.

On November 30, 2020, CSX signed a definitive agreement to acquire Pan Am Systems, Inc. (“Pan Am”) which is the parent company of Pan Am Railways, Inc. who jointly owns Pan Am Southern, LLC with a subsidiary of Norfolk Southern Corporation. Pan Am owns and operates a highly integrated, nearly 1,200-mile rail network and has a joint interest in the more than 600-mile Pan Am Southern system. This acquisition, if approved, will expand CSX’s reach in the Northeastern United States. Assets and facilities to be acquired as part of the proposed transaction include road and track assets, work equipment, land, buildings and other assets. On February 25, 2021, the Company began the process of seeking approval from the STB. On January 13 and 14, 2022, the Company participated in a hearing before the STB to discuss the proposed transaction and a decision is expected by mid-April 2022. This proposed acquisition is not expected to be material with respect to the Company's financial statements when reviewed under the quantitative and qualitative considerations of Regulation S-X Article 11 and ASC 805, Business Combinations.

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 remaining attributable to the second phase. There was no gain recognized in fourth quarter 2021 related to this agreement. As the second phase closed on January 10, 2022, the resulting $20 million gain will be recognized in first quarter 2022.

The Company anticipates closing on the remaining conveyances by the end of 2022, which will result in future cash proceeds and gains. As of December 31, 2021, the carrying values of the remaining assets subject to this transaction were not material.

CSX 2021 Form 10-K p.37

CSX CORPORATION

PART II

Credit Ratings

    Credit ratings reflect an independent agency’s judgment on the likelihood that a borrower will repay a debt obligation at maturity. The ratings reflect many considerations, such as the nature of the borrower’s industry and its competitive position, the size of the company, its liquidity and access to capital and the sensitivity of a company’s cash flows to changes in the economy. The two largest rating agencies, Standard & Poor’s Ratings Services (“S&P”) and Moody’s Investors Service (“Moody’s”), use alphanumeric codes to designate their ratings. The highest quality rating for long-term credit obligations is AAA and Aaa for S&P and Moody’s, respectively. A credit rating is not a recommendation to buy, sell or hold securities and may be subject to revision or withdrawal at any time by the assigning rating agency.

    The cost and availability of unsecured financing are materially affected by CSX's long-term credit ratings. CSX's credit ratings remained stable during 2021. As of December 2021 and December 2020, S&P's long-term rating on CSX was BBB+ (Stable), and Moody's was Baa1 (Stable). Ratings of BBB- and Baa3 or better by S&P and Moody’s, respectively, reflect ratings on debt obligations that fall within a band of credit quality considered to be investment grade. If CSX's credit ratings were to decline to below investment-grade levels, the Company could experience significant increases in its interest cost for new debt. In addition, a decline in CSX’s credit ratings to below investment grade levels could adversely affect the market’s demand, and thus the Company’s ability to readily issue new debt. The Company is committed to maintaining an investment-grade credit profile.

Guaranteed Notes Issued By CSXT

In 2007, CSXT, a wholly-owned subsidiary of CSX Corporation, issued in a registered public offering $381 million of secured equipment notes maturing in 2023. CSX Corporation has fully and unconditionally guaranteed the notes. At CSXT’s option, CSXT may redeem any or all of the notes, in whole or in part, at any time, at the redemption price including premium. In the case of loss or destruction of any item of equipment securing the notes, if CSXT does not substitute another item of equipment for the item suffering such loss or destruction, CSXT will be required to redeem the notes in part at par. The guarantee of the notes will rank equally in right of payment with all existing and future senior obligations of CSX Corporation and will be effectively subordinated to all future secured indebtedness of CSX Corporation to the extent of the assets securing such indebtedness. The guarantee is subject to release in limited circumstances only upon the occurrence of certain customary conditions. As of December 31, 2021, the principal balance of these secured equipment notes was $149 million.

In accordance with SEC rules, including amendments adopted in 2020, CSX is not required to present separate condensed consolidating financial information for wholly-owned subsidiaries who issued or guaranteed notes. Additionally, presentation of combined summary financial information regarding subsidiary issuers and guarantors is not required because the assets, liabilities and results of operations of the combined issuers and guarantors of the notes are not materially different from the corresponding amounts presented in the consolidated financial statements.

CSX 2021 Form 10-K p.38

CSX CORPORATION

PART II

CONTRACTUAL OBLIGATIONS, OTHER COMMITMENTS AND OFF-BALANCE SHEET ARRANGEMENTS

Contractual Obligations

CSX is party to contractual arrangements that obligate the Company to make future cash payments. These obligations impact the Company’s liquidity and capital resource needs. The Company’s contractual obligations primarily consist of long-term debt and related interest payments, purchase commitments, leases, other-post employment benefits and agreements with Conrail.

•As of December 31, 2021, the Company had outstanding fixed-rate notes with varying maturities. See Note 10, Debt and Credit Agreements, for additional information related to future debt payments. Future interest payments associated with outstanding debt total $13.5 billion, with $699 million payable in 2022.

•Purchase commitments consist of CSX’s long-term locomotive maintenance program and other commitments to purchase technology, communications, railcar maintenance and other services. See Note 8, Commitments and Contingencies, for additional information about future payments related to purchase commitments.

•The Company’s leases include property, equipment, and line leases. See Note 7, Leases, for additional information about future payments related to leases.

•Other post-employment benefits include estimated other post-retirement medical and life insurance payments and payments under non-qualified pension plans that are unfunded. See Note 9, Employee Benefit Plans, for additional information about future payments under such plans.

•Conrail owns rail infrastructure and operates for the joint benefit of CSX and NS. This is known as the shared asset area. Conrail charges fees for right-of-way usage, equipment rentals and transportation, switching and terminal service charges in the shared asset area. See Note 15, Investment in Affiliates and Related-Party Transactions, for additional information about future payments related to agreements with Conrail.

Other Commitments and Off-Balance Sheet Arrangements

Other commitments total $153 million and primarily consist of guarantees, letters of credit and surety bonds, none of which are individually significant. These off-balance sheet arrangements are not reasonably likely to have a material effect on the Company's financial condition, results of operations or liquidity.

CSX 2021 Form 10-K p.39

CSX CORPORATION

PART II

LABOR AGREEMENTS

    Approximately 16,500 of the Company's over 20,900 employees are members of a labor union. For the 13 rail unions that participate in national bargaining, a round of negotiations for benefits, wages and work rules is underway. Typically, these negotiations take several years. Current agreements remain in place until modified by new agreements.

CRITICAL ACCOUNTING ESTIMATES

    The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires that management make estimates in reporting the amounts of certain assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and certain revenues and expenses during the reporting period. Actual results may differ from those estimates. These estimates and assumptions are discussed with the Audit Committee of the Board of Directors on a regular basis. Significant estimates using management judgment are made for the following areas:

•personal injury and environmental reserves;

•pension and post-retirement medical plan accounting;

•depreciation policies for assets under the group-life method; and

•goodwill and other intangible assets.

Personal Injury and Environmental Reserves

Personal Injury

    Personal Injury reserves of $118 million and $131 million for 2021 and 2020, respectively, represent liabilities for employee work-related and third-party injuries. CSXT retains an independent actuary to assist management in assessing the value of personal injury claims. The methodology used by the actuary includes a development factor to reflect growth or reduction in the value of these personal injury claims. It is based largely on CSXT's historical claims and settlement experience. Actual results may vary from estimates due to the number, type and severity of the injury, costs of medical treatments and uncertainties in litigation. For additional details, including a description of our related accounting policies, see Note 5, Casualty, Environmental and Other Reserves, in the consolidated financial statements.

Environmental

    Environmental reserves were $108 million and $76 million in 2021 and 2020, 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 220 environmentally impaired sites. The Company reviews its potential liability with respect to each site identified, 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 2021 Form 10-K p.40

CSX CORPORATION

PART II

Critical Accounting Estimates, continued    

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. For additional details, including a description of our related accounting policies, see Note 5, Casualty, Environmental and Other Reserves, in the consolidated financial statements.

Pension and Post-retirement Medical Plan Accounting

    The Company sponsors defined benefit pension plans principally for salaried, management personnel. For employees hired prior to 2003, the plans provide eligible employees with retirement benefits based predominantly on years of service and compensation rates near retirement. For employees hired between 2003 and 2019, benefits are determined based on a cash balance formula, which provides benefits by utilizing interest and pay credits based upon age, service and compensation. Beginning in 2020, the CSX Pension Plan was closed to new participants. As of December 2021, the projected benefit obligation for the Company’s pension plans was $3.0 billion.

In addition to these plans, the Company sponsors a post-retirement medical plan and a life insurance plan that provide certain benefits to full-time, salaried, management employees hired prior to 2003 upon their retirement if certain eligibility requirements are met. 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. Beginning in 2020, the employer-funded health reimbursement arrangements for eligible retirees 65 years or older were eliminated. As of December 2021, the projected benefit obligation for the Company’s other post-retirement benefit plans was $81 million.

For information related to the funded status of the Company's pension and other post-retirement benefit plans, see Note 9, Employee Benefit Plans.

    The accounting for these plans is subject to the guidance provided in the Compensation-Retirement Benefits Topic in the ASC. This rule requires that management make certain assumptions relating to the following:

•discount rates used to measure future obligations and interest expense;

•long-term rate of return on plan assets;

•salary scale inflation rates; and

•other assumptions.

    The Company engages independent actuaries to 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.

CSX 2021 Form 10-K p.41

CSX CORPORATION

PART II

Critical Accounting Estimates, continued

Discount Rates

    Discount rates affect the amount of liability recorded and the service and interest cost components of pension and post-retirement expense. Discount rates reflect the rates at which pension and other post-retirement benefits could be effectively settled, or in other words, how much it would cost the Company to buy enough high quality bonds to generate cash flow equal to the Company's expected future benefit payments. The Company determines the discount rate based on the market yield as of year-end for high quality corporate bonds whose maturities match the plans' expected benefit payments.

    The Company measures the service and interest cost components of the net pension and post-retirement benefits expense by using individual spot rates matched with separate cash flows for each future year. Under the spot rate approach, individual spot discount rates along the same high quality corporate bonds yield curve used to measure the pension and post-retirement benefit liabilities are applied to the relevant projected cash flows at the relevant maturity.

The weighted average discount rates used by the Company to value its 2021 pension and post-retirement obligations are 2.78% and 2.51%, respectively. For 2020, the weighted average discount rates used by the Company to value its pension and post-retirement obligations were 2.43% and 2.07%, respectively. Discount rates may differ for pension and post-retirement benefits due to varying duration of the liabilities for projected payments for each plan. As of December 2021, the estimated duration of pensions and post-retirement benefits is approximately 12 years and 8 years, respectively.

    Each year, these discount rates are reevaluated and adjusted using the current market interest rates for high quality corporate bonds to reflect the best estimate of the current effective settlement rates. In general, if interest rates decline or rise, the assumed discount rates will change.

Long-term Rate of Return on Plan Assets

    The expected long-term average rate of return on plan assets reflects the average rate of earnings expected on the funds invested, or to be invested, to provide for benefits included in the projected benefit obligation. In estimating that rate, the Company gives appropriate consideration to the returns being earned by the plan assets in the funds and the rates of return expected to be available for reinvestment as well as the current and projected asset mix of the funds. Management, with the assistance of an outsourced investment manager, balances market expectations obtained from various investment managers with both market and actual plan historical returns to develop a reasonable estimate of the expected long-term rate of return on assets. As this assumption is long term, the annual review may result in less frequent adjustment than other assumptions used in pension accounting. The long-term rate of return on plan assets used by the Company to value its benefit cost for the subsequent plan year was 6.75% in both 2021 and 2020.

Salary Scale Inflation Rates

    Salary scale inflation rates are based on current trends and historical data accumulated by the Company. The Company reviews recent wage increases and management incentive compensation payments over the past five years in its assessment of salary scale inflation rates. The Company used a salary scale rate of 4.60% in both 2021 and 2020 to value its pension obligations.

Other Assumptions

    The calculations made by the actuaries also include assumptions relating to health care cost trend rates, mortality rates, turnover and retirement age. These assumptions are based upon historical data, recent plan experience and industry trends and are determined by management.

CSX 2021 Form 10-K p.42

CSX CORPORATION

PART II

Critical Accounting Estimates, continued

2022 Estimated Pension and Post-retirement Expense

    Net periodic pension and post-retirement benefits expenses for 2022 are expected to be credits of $42 million and $5 million, respectively. Net periodic pension and post-retirement benefits expenses for 2022 are expected to include service cost expense of $32 million and $1 million, respectively. Service cost expense is included in labor and fringe on the consolidated income statement and all other components of net pension expense and post-retirement benefits expense are included in other income - net. Net periodic pension expense and post-retirement benefits expense in 2021 were credits of $17 million and $5 million, respectively. The net increase in the expected credit is primarily due to impacts from the increase in discount rates and recent favorable pension asset experience.

The following sensitivity analysis illustrates the effects of a 1% change in certain assumptions like discount rates, long-term rate of return and salaries on the 2022 estimated pension and post-retirement expense:

(Dollars in Millions)	Pension Expense		Post-Retirement Expense
Discount Rate	$	20	$	1
Long-term Rate of Return	$	28	N/A
Salary Inflation	$	4	N/A

Depreciation Policies for Assets Utilizing the Group-Life Method

    The depreciable assets of the Company are depreciated using either the group-life or straight-line method of accounting, which are both acceptable depreciation methods in accordance with GAAP. The Company depreciates its railroad assets, including main-line track, locomotives and freight cars, using the group-life method of accounting. Assets depreciated under the group-life method comprise 86% of total fixed assets of $46.5 billion on a gross basis at December 31, 2021. The remaining depreciable assets of the Company, including non-railroad assets and assets under finance leases, are depreciated using the straight-line method on a per asset basis. Land is not depreciated.

    Management performs a review of depreciation expense and useful lives on a regular basis. Under the group-life method, the service lives and salvage values for each group of assets are determined by completing periodic depreciation studies and applying management’s methods to determine the service lives of its properties. There are several factors taken into account during the depreciation study and they include:

•statistical analysis of historical life and salvage data for each group of property;

•statistical analysis of historical retirements for each group of property;

•evaluation of current operations;

•evaluation of technological advances and maintenance schedules;

•previous assessment of the condition of the assets;

•management's outlook on the future use of certain asset groups;

•expected net salvage to be received upon retirement; and

•comparison of assets to the same asset groups with other companies.

CSX 2021 Form 10-K p.43

CSX CORPORATION

PART II

Critical Accounting Estimates, continued    

The STB requires depreciation studies be performed every three years for equipment assets (e.g., locomotives and freight cars) and every six years for road and track assets (e.g., bridges, signals, rail, ties, and ballast). The Company completed a depreciation study for its road and track assets in 2020 and for equipment assets in 2019, both of which resulted in changes to accumulated depreciation, service lives, salvage values, and other related factors for certain assets. Recent experience with depreciation studies has resulted in changes to accumulated depreciation and depreciation rates that did not materially affect the Company's depreciation expense of $1.4 billion, $1.4 billion and $1.3 billion for 2021, 2020 and 2019, respectively. A 1% change in the average estimated useful life of all group-life assets would result in an approximate $12 million change to the Company’s annual depreciation expense. For additional details, including a more detailed description of our related accounting policies, see Note 6, Properties, in the consolidated financial statements.

Goodwill and Intangible Assets

As of December 2021, the Company had $451 million of Goodwill and Other Intangibles - Net. CSX recognized $213 million of goodwill and $180 million of intangible assets as a result of the Quality Carriers acquisition effective July 1, 2021.

In applying the acquisition method of accounting for business combinations, management must determine the fair value of assets acquired and liabilities assumed in order to properly allocate purchase price consideration between depreciable and amortizable assets and goodwill. The fair values assigned to tangible and intangible assets acquired and liabilities assumed are based on management’s estimates and assumptions, as well as other information compiled by management, including valuations that utilize customary valuation procedures and techniques. Estimates and assumptions include, but are not limited to, the cash flows that an asset is expected to generate in the future and the appropriate weighted-average cost of capital.

CSX evaluates goodwill and intangible assets for impairment on an annual basis, or sooner if indicators of impairment exist. In performing the qualitative impairment assessment, CSX considers relevant events and conditions, including but not limited to: macroeconomic trends, industry and market conditions, overall financial performance, company-specific events, and legal and regulatory factors. If the qualitative assessments indicate that it is more likely than not that the fair value of the reporting unit or intangible assets are less than their carrying amounts, the Company would perform a quantitative impairment test. If the carrying amount of the reporting unit's goodwill or intangible asset exceeded the fair value under the quantitative test, an impairment loss would be recorded. Measurement of the fair value of a reporting unit could be based on one or more of the following fair value measures: amounts at which the unit as a whole could be bought or sold in a current transaction between willing parties, present value techniques of estimated future cash flows, valuation techniques based on multiples of earnings or revenue, or a similar performance measure.

New Accounting Pronouncements and Changes in Accounting Policy

    See Note 1, Nature of Operations and Significant Accounting Policies under the caption “New Accounting Pronouncements and Changes in Accounting Policy.”

CSX 2021 Form 10-K p.44

CSX CORPORATION

PART II

FORWARD-LOOKING STATEMENTS

    Certain statements in this report and in other materials filed with the Securities and Exchange Commission, as well as information included in oral statements or other written statements made by the Company, are forward-looking statements. The Company intends for all such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and the provisions of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These forward-looking statements within the meaning of the Private Securities Litigation Reform Act may contain, among others, statements regarding:

•projections and estimates of earnings, revenues, margins, volumes, rates, cost-savings, expenses, taxes or other financial items;

•expectations as to results of operations and operational initiatives;

•expectations as to the effect of claims, lawsuits, environmental costs, commitments, contingent liabilities, labor negotiations or agreements on the Company's financial condition, results of operations or liquidity;

•management's plans, strategies and objectives for future operations, capital expenditures, workforce levels, dividends, share repurchases, safety and service performance, proposed new services and other matters that are not historical facts, and management's expectations as to future performance and operations and the time by which objectives will be achieved; and

•future economic, industry or market conditions or performance and their effect on the Company's financial condition, results of operations or liquidity.

    Forward-looking statements are typically identified by words or phrases such as "will," "should," “believe,” “expect,” “anticipate,” “project,” “estimate,” “preliminary” and similar expressions. The Company cautions against placing undue reliance on forward-looking statements, which reflect its good faith beliefs with respect to future events and are based on information currently available to it as of the date the forward-looking statement is made.  Forward-looking statements should not be read as a guarantee of future performance or results and will not necessarily be accurate indications of the timing when, or by which, such performance or results will be achieved.

    Forward-looking statements are subject to a number of risks and uncertainties and actual performance or results could differ materially from those anticipated by any forward-looking statements. The Company undertakes no obligation to update or revise any forward-looking statement. If the Company does update any forward-looking statement, no inference should be drawn that the Company will make additional updates with respect to that statement or any other forward-looking statements.

    The following important factors, in addition to those discussed in Part II, Item 1A. Risk Factors and elsewhere in this report, may cause actual results to differ materially from those contemplated by any forward-looking statements:

•legislative, regulatory or legal developments involving transportation, including rail or intermodal transportation, the environment, hazardous materials, taxation, international trade and initiatives to further regulate the rail industry;

•the outcome of litigation, claims and other contingent liabilities, including, but not limited to, those related to fuel surcharge, environmental matters, taxes, shipper and rate claims subject to adjudication, personal injuries and occupational illnesses;

•changes in domestic or international economic, political or business conditions, including those affecting the transportation industry (such as the impact of industry competition, conditions, performance and consolidation, as well as the impact of international trade agreements and tariffs) and the level of demand for products carried by CSXT;

CSX 2021 Form 10-K p.45

CSX CORPORATION

PART II

•natural events such as severe weather conditions, including floods, fire, hurricanes and earthquakes, a pandemic crisis affecting the health of the Company's employees, its shippers or the consumers of goods, or other unforeseen disruptions of the Company's operations, systems, property, equipment or supply chain;

•competition from other modes of freight transportation, such as trucking, and competition and consolidation or financial distress within the transportation industry generally;

•the cost of compliance with laws and regulations that differ from expectations as well as costs, penalties and operational and liquidity impacts associated with noncompliance with applicable laws or regulations;

•the impact of increased passenger activities in capacity-constrained areas, including potential effects of high speed rail initiatives, or regulatory changes affecting when CSXT can transport freight or service routes;

•unanticipated conditions in the financial markets that may affect timely access to capital markets and the cost of capital, as well as management's decisions regarding share repurchases;

•changes in fuel prices, surcharges for fuel and the availability of fuel;

•the impact of natural gas prices on coal-fired electricity generation;

•the impact of global supply and price of seaborne coal on CSX's export coal market;

•availability of insurance coverage at commercially reasonable rates or insufficient insurance coverage to cover claims or damages;

•the inherent business risks associated with safety and security, including the transportation of hazardous materials or a cybersecurity attack which would threaten the availability and vulnerability of information technology;

•adverse economic or operational effects from actual or threatened war or terrorist activities and any governmental response;

•loss of key personnel or the inability to hire and retain qualified employees;

•labor and benefit costs and labor difficulties, including stoppages affecting either the Company's operations or customers' ability to deliver goods to the Company for shipment;

•the Company's success in implementing its strategic, financial and operational initiatives, including acquisitions;

•the impact of conditions in the real estate market on the Company's ability to sell assets;

•changes in operating conditions and costs or commodity concentrations;

•the continued and uncertain impact of the COVID-19 pandemic; and

•the inherent uncertainty associated with projecting economic and business conditions.

    Other important assumptions and factors that could cause actual results to differ materially from those in the forward-looking statements are specified elsewhere in this report and in CSX's other SEC reports, which are accessible on the SEC's website at www.sec.gov and the Company's website at www.csx.com. The information on the CSX website is not part of this annual report on Form 10-K.

CSX 2021 Form 10-K p.46

CSX CORPORATION

PART II

Item 7A.  Quantitative and Qualitative Disclosures about Market Risk

Changes in interest rates may impact the cost of future long-term debt issued by the Company, and as a result, represent interest rate risk to the Company. In an effort to manage this risk, CSX may use certain financial instruments such as interest rate forward contracts. The following information, together with information included in Note 10, Debt and Credit Agreements, describes the key aspects of such contracts and the related market risk to CSX.

Changes in interest rates could impact the fair value of the Company's forward starting interest rate swap. On both April 29, 2020, and July 9, 2020, the Company executed a forward starting interest rate swap with a notional value of $250 million for an 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 notes due in 2027. The Company recognized an unrealized gain of $8 million and $62 million net of tax during the years ended December 31, 2021 and 2020, respectively, in the consolidated statements of comprehensive income with the related asset on the balance sheet as of December 31, 2021. Upon settlement of the swaps, which expire in 2027, 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. As of December 31, 2021, the potential change in fair value resulting from a hypothetical 10% change in interest rates would not be material.

As of December 31, 2021, CSX has no floating rate debt obligations outstanding. However, changes in interest rates could impact the fair value (but not the carrying value) of the Company's fixed rate long-term debt. The potential decrease in fair value of the Company's fixed rate long-term debt resulting from a hypothetical 10% increase in U.S. Treasury rates, or approximately 15 basis points, is estimated to be $448 million as of December 31, 2021 and $428 million as of December 31, 2020. The underlying fair values of the Company's long-term debt were estimated based on quoted market prices or on the current rates offered for debt with similar terms and maturities.

CSX 2021 Form 10-K p.47

CSX CORPORATION

PART II

Item 8. Financial Statements and Supplementary Data

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
		Page
Report of Independent Registered Public Accounting Firm (PCAOB ID: 42)		49
CSX Corporation
Consolidated Financial Statements and Notes to Consolidated Financial Statements
	Herewith:
Consolidated Income Statements for the Fiscal Years Ended:		51
	December 31, 2021
	December 31, 2020
	December 31, 2019
Consolidated Comprehensive Income Statements for the Fiscal Years Ended:		52
	December 31, 2021
	December 31, 2020
	December 31, 2019
Consolidated Balance Sheets as of:		53
	December 31, 2021
	December 31, 2020
Consolidated Cash Flow Statements for Fiscal Years Ended:		54
	December 31, 2021
	December 31, 2020
	December 31, 2019
Consolidated Statements of Changes in Shareholders' Equity:		55
	December 31, 2021
	December 31, 2020
	December 31, 2019
Notes to Consolidated Financial Statements		56

CSX 2021 Form 10-K p.48

CSX CORPORATION

PART II

Item 8. Financial Statements and Supplementary Data

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Shareholders and the Board of Directors of CSX Corporation

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of CSX Corporation (the Company) as of December 31, 2021 and 2020, and the related consolidated statements of income, comprehensive income, cash flows, and changes in shareholders’ equity for each of the three years in the period ended December 31, 2021, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2021, in conformity with U.S. generally accepted accounting principles.

We also have audited, in accordance with standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework), and our report dated February 16, 2022 expressed an unqualified opinion thereon.

Basis for Opinion

These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matters

The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below providing a separate opinion on the critical audit matter or on the accounts or disclosure to which it relates.

CSX 2021 Form 10-K p.49

CSX CORPORATION

PART II

Item 8. Financial Statements and Supplementary Data

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM, continued

	Depreciation Policies for Assets Utilizing the Group-Life Method
Description of the Matter	At December 31, 2021, assets depreciated under the group-life method comprised 86% of total gross fixed assets of $46.5 billion. As discussed in Note 6 of the consolidated financial statements, the group-life method aggregates assets with similar lives and characteristics into groups and depreciates each of these groups as a whole. When using the group-life method, an underlying assumption is that each group of assets, as a whole, is used and depreciated to the end of the group’s recoverable life. The Company utilizes different depreciable asset categories to account for depreciation expense for the railroad assets that are depreciated under the group-life method. Under the group-life method, depreciation studies are completed to review asset service lives, salvage values, accumulated depreciation and other factors related to group assets. Depreciation studies are performed every three years for equipment assets and every six years for road and track assets. A depreciation study was performed in 2019 for equipment assets and 2020 for road and track assets. The most recent depreciation studies are reviewed by management each year through an annual data review to determine if there have been significant factors that result in changes to the group-life method key assumptions. Auditing depreciation expense for assets subject to the group-life method was complex and required the involvement of specialists due to the nature of the methods used in the depreciation studies to determine the useful service lives and salvage values of the Company’s assets. These methods have a significant effect on depreciation expense.
How We Addressed the Matter in Our Audit	We obtained an understanding, evaluated the design and tested the operating effectiveness of controls over the Company’s process related to the assessment of periodic depreciation studies and annual data reviews of its group-life assets. For example, we tested controls over management’s review of asset activity and assumptions that could impact the most recent depreciation study of equipment and road and track assets. To test the estimated useful lives and salvage values of the Company’s group-life assets, we performed audit procedures that included, among others: obtaining the periodic depreciation studies and annual data reviews provided by the Company’s third-party specialist; assessing the completeness and accuracy of the data provided by management to the third-party specialist; and including a specialist on our team to evaluate the methods used by the third-party specialist and management in determining the average service lives and salvage values of assets to perform the depreciation studies and any changes to the service lives and salvage values, if any, resulting from the annual data reviews. We compared the significant methods used by management to those used throughout the industry and within other depreciation studies. We assessed the historical accuracy of management’s estimates via retrospective review and independently calculated the current year depreciation rates.

/s/ Ernst & Young LLP

We have served as the Company’s auditor since 1981.

Jacksonville, Florida

February 16, 2022

CSX 2021 Form 10-K p.50

CSX CORPORATION

PART II

Item 8. Financial Statements and Supplementary Data

CONSOLIDATED INCOME STATEMENTS

(Dollars in Millions, Except Per Share Amounts)

	Fiscal Years
	2021		2020		2019
Revenue	$	12,522	$	10,583	$	11,937
Expense
Labor and Fringe	2,550		2,275		2,616
Purchased Services and Other	2,135		1,719		1,900
Depreciation	1,420		1,383		1,349
Fuel	913		541		906
Equipment and Other Rents	364		338		352
Gains on Property Dispositions	(454)		(35)		(151)
Total Expense	6,928		6,221		6,972
Operating Income	5,594		4,362		4,965
Interest Expense	(722)		(754)		(737)
Other Income - Net (Note 14)	79		19		88
Earnings Before Income Taxes	4,951		3,627		4,316
Income Tax Expense (Note 12)	(1,170)		(862)		(985)
Net Earnings	$	3,781	$	2,765	$	3,331
Per Common Share (Note 2)
Net Earnings Per Share
Basic	$	1.68	$	1.20	$	1.39
Assuming Dilution	$	1.68	$	1.20	$	1.39
Average Common Shares Outstanding (Millions)
Basic	2,250		2,300		2,389
Assuming Dilution	2,255		2,305		2,395

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.

All prior period share and per share data has been retroactively adjusted to reflect the stock split effective June 28, 2021. Certain prior year data has been reclassified to conform to the current presentation.

See accompanying Notes to Consolidated Financial Statements.

CSX 2021 Form 10-K p.51

CSX CORPORATION

PART II

Item 8. Financial Statements and Supplementary Data

CONSOLIDATED COMPREHENSIVE INCOME STATEMENTS

(Dollars in Millions)

	Fiscal Years
	2021		2020		2019
Net Earnings	$	3,781	$	2,765	$	3,331
Other Comprehensive Income (Loss) - Net of Tax:
Pension and Other Post-Employment Benefits	167		21		(15)
Interest Rate Derivatives	8		62		—
Other	15		(6)		1
Total Other Comprehensive Income (Loss) (Note 16)	190		77		(14)
Comprehensive Earnings	$	3,971	$	2,842	$	3,317

See accompanying Notes to Consolidated Financial Statements.

CSX 2021 Form 10-K p.52

CSX CORPORATION

PART II

Item 8. Financial Statements and Supplementary Data

CONSOLIDATED BALANCE SHEETS

(Dollars in Millions)

	December		December
	2021		2020
ASSETS
Current Assets:
Cash and Cash Equivalents	$	2,239	$	3,129
Short-term Investments	77		2
Accounts Receivable - Net (Note 11)	1,148		912
Materials and Supplies	339		302
Other Current Assets	70		96
Total Current Assets	3,873		4,441
Properties	46,505		45,530
Accumulated Depreciation	(13,490)		(13,086)
Properties - Net (Note 6)	33,015		32,444
Investment in Affiliates and Other Companies (Note 15)	2,099		1,985
Right of Use Lease Asset (Note 7)	501		472
Goodwill and Other Intangible Assets - Net (Note 18)	451		63
Other Long-term Assets	592		388
Total Assets	$	40,531	$	39,793
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts Payable	$	963	$	809
Labor and Fringe Benefits Payable	630		482
Casualty, Environmental and Other Reserves (Note 5)	118		90
Current Maturities of Long-term Debt (Note 10)	181		401
Income and Other Taxes Payable	134		73
Other Current Liabilities	207		164
Total Current Liabilities	2,233		2,019
Casualty, Environmental and Other Reserves (Note 5)	250		224
Long-term Debt (Note 10)	16,185		16,304
Deferred Income Taxes - Net (Note 12)	7,383		7,168
Long-term Lease Liability (Note 7)	478		455
Other Long-term Liabilities	502		513
Total Liabilities	27,031		26,683
Shareholders' Equity:
Common Stock, $1 Par Value (Note 3)	2,202		2,288
Other Capital	66		152
Retained Earnings	11,630		11,259
Accumulated Other Comprehensive Loss (Note 16)	(408)		(598)
Non-controlling Minority Interest	10		9
Total Shareholders' Equity	13,500		13,110
Total Liabilities and Shareholders' Equity	$	40,531	$	39,793

Certain prior year data has been retroactively adjusted to reflect the stock split effective June 28, 2021 and reclassified to conform to the current presentation. See accompanying Notes to Consolidated Financial Statements.

CSX 2021 Form 10-K p.53

CSX CORPORATION

PART II

Item 8. Financial Statements and Supplementary Data

CONSOLIDATED CASH FLOW STATEMENTS

(Dollars in Millions)

	Fiscal Years
	2021		2020		2019
OPERATING ACTIVITIES
Net Earnings	$	3,781	$	2,765	$	3,331
Adjustments to Reconcile Net Earnings to Net Cash
Provided by Operating Activities:
Depreciation	1,420		1,383		1,349
Deferred Income Taxes	167		180		273
Gains on Property Dispositions	(454)		(35)		(151)
Other Operating Activities	12		(32)		(69)
Changes in Operating Assets and Liabilities:
Accounts Receivable	(141)		83		45
Other Current Assets	(25)		(75)		68
Accounts Payable