Item 8. Financial Statements and Supplementary Data

NOTE 13. Fair Value Measurements, continued

The pension plan assets at fair value by level, within the fair value hierarchy, as of calendar plan years 2020 and 2019 are shown in the table below. For additional information related to pension assets, see Note 9, Employee Benefit Plans.

			Fiscal Years
			2020																		2019
(Dollars in Millions)			Level 1						Level 2												Total						Level 1						Level 2												Total
Common Stock			$	337					$	—											$	337					$	823					$	—											$	823
Mutual funds			21						—												21						78						—												78
Cash and cash equivalents			387						—												387						229						—												229
Corporate bonds			—						1,026												1,026						—						588												588
Government securities			—						164												164						—						217												217
Asset-backed securities, derivatives and other			—						85												85						—						17												17
Total investments in the fair value hierarchy			$	745					$	1,275											$	2,020					$	1,130					$	822											$	1,952
Investments measured at net asset value (a)			n/a						n/a												$	980					n/a						n/a												$	873
Investments at fair value			$	745					$	1,275											$	3,000					$	1,130					$	822											$	2,825

(a) Investments measured at net asset value represent certain investments that have been measured at net asset value per share (or its equivalent) and thus are not classified in the fair value hierarchy. In accordance with ASC 820, Fair Value Measurements, the fair value amounts presented in this table are intended to permit reconciliation of the fair value hierarchy to the pension assets disclosed in Note 9, Employee Benefit Plans.

NOTE 14. Other Income - Net

The Company derives income from items that are not considered operating activities. Income from these items is reported net of related expense. All components of net periodic pension and post-retirement benefit costs, excluding service cost, are included in other income - net on the consolidated income statement. Miscellaneous income (expense) may fluctuate due to timing and includes investment gains, losses and interest income as well as other non-operating activities.

Interest income decreased from 2019 to 2020 primarily as a result of lower interest rates, partially offset by higher average investment balances. Interest income increased from 2018 to 2019 primarily as a result of higher average cash and short-term investment balances. Debt repurchase expense increased from 2019 to 2020 primarily as a result of long-term debt being redeemed earlier relative to maturity date. Other income – net consisted of the following:

			Fiscal Years
(Dollars in Millions)			2020						2019						2018
Net Periodic Pension and Post-retirement Benefit Credit (a)			$	42					$	43					$	38
Interest Income			17						48						32
Debt Repurchase Expense			(48)						(10)						—
Miscellaneous Income			8						7						4
Total Other Income - Net			$	19					$	88					$	74

(a) Excludes the service cost component of net periodic benefit cost.

CSX 2020 Form 10-K p.96

CSX CORPORATION

PART II

Item 8. Financial Statements and Supplementary Data

NOTE 15. Investment in Affiliates and Related-Party Transactions

CSX's investments in affiliates are included on the consolidated balance sheet as investments in affiliates and other companies.

			December						December
(Dollars in Millions)			2020						2019
Equity-method investments:
Conrail			$	1,025					$	982
TTX			796						743
Other			164						154
Total			$	1,985					$	1,879

Conrail

Through a limited liability company, CSX and Norfolk Southern Corporation (“NS”) jointly own Conrail. CSX has a 42% economic interest and 50% voting interest in the jointly-owned entity, and NS has the remainder of the economic and voting interests. Pursuant to the Investments-Equity Method and Joint Venture Topic in the ASC, CSX applies the equity method of accounting to its investment in Conrail.

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. These expenses are included in materials, supplies and other on the consolidated income statements. Future payments due to Conrail under the shared asset area agreements are shown in the table below.

(Dollars in Millions)			Conrail Shared
Years			Asset Agreement
2021			$	30
2022			30
2023			30
2024			22
2025			—
Thereafter			—
Total			$	112

Also, included in equity earnings of affiliates are CSX’s 42 percent share of Conrail’s income and its amortization of the fair value write-up arising from the acquisition of Conrail and certain other adjustments. The amortization primarily represents the additional after-tax depreciation expense related to the write-up of Conrail’s fixed assets when the original purchase price, from the 1997 acquisition of Conrail, was allocated based on fair value. This write-up of fixed assets resulted in a difference between CSX's investment in Conrail and its share of Conrail's underlying net equity, which is $335 million as of December 2020.

CSX 2020 Form 10-K p.97

CSX CORPORATION

PART II

Item 8. Financial Statements and Supplementary Data

NOTE 15. Investment in Affiliates and Related-Party Transactions, continued

The following table discloses amounts related to Conrail. All amounts in the table below are included in materials, supplies and other expenses on the Company’s consolidated income statements.

			Fiscal Years
(Dollars in Millions)			2020						2019						2018
Rents, fees and services			$	126					$	119					$	117
Purchase price amortization and other			4						4						4
Equity earnings of Conrail			(49)						(42)						(43)
Total Conrail Expense			$	81					$	81					$	78

As required by the Related Party Disclosures Topic in the ASC, the Company has identified amounts below owed to Conrail, or its subsidiaries, representing liabilities under the operating, equipment and shared area agreements with Conrail. In 2014, the Company executed two promissory notes with a subsidiary of Conrail which were included in long-term debt on the consolidated balance sheets. Interest expense from these promissory notes was $6 million in each 2020, 2019 and 2018.

			December						December
(Dollars in Millions)			2020						2019
Balance Sheet Information:
CSX accounts payable to Conrail			$	50					$	213
Promissory notes payable to Conrail subsidiary
1.31% CSX Promissory Note due December 2050			73						—
1.31% CSXT Promissory Note due December 2050			368						—
2.89% CSX Promissory Note due October 2044			—						73
2.89% CSXT Promissory Note due October 2044			—						151

In December 2020, the Company completed a non-cash conversion of its existing payable balance of approximately $217 million and $224 million, 2.89% notes due 2044 into new notes. The new notes for operation of the shared asset area are $441 million, 1.31% notes due 2050.

TTX Company

TTX Company ("TTX") is a privately-held corporation engaged in the business of providing 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 remaining is owned by the other leading North American railroads and their affiliates. Pursuant to the Investments-Equity Method topic in the ASC, CSX applies the equity method of accounting to its investment in TTX.

CSX 2020 Form 10-K p.98

CSX CORPORATION

PART II

Item 8. Financial Statements and Supplementary Data

NOTE 15. Investment in Affiliates and Related-Party Transactions, continued

As required by the Related Party Disclosures Topic in the ASC, the following table discloses amounts related to TTX. Car hire rents and equity earnings are included in equipment and other rents expense on the Company’s consolidated income statement.

			Fiscal Years
(Dollars in Millions)			2020						2019						2018
Income statement information:
Car hire rents			$	219					$	223					$	223
Equity earnings of TTX			(51)						(56)						(60)
Total TTX expense			$	168					$	167					$	163

Also included below is balance sheet information related to CSX's payable to TTX, which represents car rental liabilities.

			December						December
Balance sheet information:			2020						2019
CSX payable to TTX			$	40					$	34

Other Related Party Transactions

On October 17, 2019, the Company repurchased 4.7 million shares for $319 million from MR Argent Advisor LLC, a CSX shareholder on behalf of certain limited partners of its affiliated funds. See additional discussion in Note 2, Earnings Per Share.

NOTE 16. Other Comprehensive Income / (Loss)

CSX reports comprehensive earnings or loss in accordance with the Comprehensive Income Topic in the ASC in the consolidated comprehensive income statement. Total comprehensive earnings are defined as all changes in shareholders' equity during a period, other than those resulting from investments by and distributions to shareholders (e.g., issuance of equity securities and dividends). Generally, for CSX, total comprehensive earnings equal net earnings plus or minus adjustments for pension and other post-retirement liabilities as well as other adjustments. Total comprehensive earnings represent the activity for a period net of tax and were $2.8 billion, $3.3 billion and $3.1 billion for 2020, 2019 and 2018, respectively.

While total comprehensive earnings is the activity in a period and is largely driven by net earnings in that period, accumulated other comprehensive income or loss (“AOCI”) represents the cumulative balance of other comprehensive income, net of tax, as of the balance sheet date. For CSX, AOCI is primarily the cumulative balance related to pension and other post-retirement benefit adjustments, interest rate derivatives and CSX's share of AOCI of equity method investees.

CSX 2020 Form 10-K p.99

CSX CORPORATION

PART II

Item 8. Financial Statements and Supplementary Data

NOTE 16. Other Comprehensive Income / (Loss), continued

Changes in the AOCI balance by component are shown in the following table. Amounts reclassified in pension and other post-employment benefits to net earnings relate to the amortization of actuarial losses and are included in other income-net on the consolidated income statements. See Note 9. Employee Benefit Plans for further information. Interest rate derivatives consist of forward starting interest rate swaps classified as cash flow hedges. See Note 10, Debt and Credit Agreements for further information. Other primarily represents CSX's share of AOCI of equity method investees. Amounts reclassified in other to net earnings are included in materials, supplies, and other or equipment and other rents on the consolidated income statements.

			Pension and Other Post-Employment Benefits			Interest Rate Derivatives			Other			Accumulated Other Comprehensive Income (Loss)
(Dollars in millions)
Balance December 31, 2017 - Net of Tax			$	(440)		$	—		$	(46)		$	(486)
Other Comprehensive Income (Loss)
Reclassification of Stranded Tax Effects (a)			(108)			—			1			(107)
Loss Before Reclassifications			(111)			—			(8)			(119)
Amounts Reclassified to Net Earnings			38			—			(6)			32
Tax Benefit			17			—			2			19
Total Other Comprehensive Loss			(164)			—			(11)			(175)
Balance December 31, 2018 - Net of Tax			(604)			—			(57)			(661)
Other Comprehensive Income (Loss)
Loss Before Reclassifications			(43)			—			(5)			(48)
Amounts Reclassified to Net Earnings			23			—			8			31
Tax Benefit (Expense)			5			—			(2)			3
Total Other Comprehensive (Loss) Income			(15)			—			1			(14)
Balance December 31, 2019 - Net of Tax			(619)			—			(56)			(675)
Other Comprehensive Income (Loss)
(Loss) Income Before Reclassifications			(17)			80			(10)			53
Amounts Reclassified to Net Earnings			47			—			5			52
Tax Expense			(9)			(18)			(1)			(28)
Total Other Comprehensive Income (Loss)			21			62			(6)			77
Balance December 31, 2020 - Net of Tax			$	(598)		$	62		$	(62)		$	(598)

(a) As the result of a standard update adopted in 2018, certain tax effects stranded in accumulated other comprehensive income as a result of tax reform were reclassified to retained earnings.

CSX 2020 Form 10-K p.100

CSX CORPORATION

PART II