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 2021 and 2020 are shown in the table below. For additional information related to pension assets, see Note 9, Employee Benefit Plans.

			Fiscal Years
			2021																		2020
(Dollars in Millions)			Level 1						Level 2												Total						Level 1						Level 2												Total
Common Stock			$	487					$	—											$	487					$	337					$	—											$	337
Mutual funds			14						—												14						21						—												21
Cash and cash equivalents			108						—												108						387						—												387
Corporate bonds			—						1,013												1,013						—						1,026												1,026
Government securities			—						173												173						—						164												164
Asset-backed securities, derivatives and other			—						98												98						—						85												85
Total investments in the fair value hierarchy			$	609					$	1,284											$	1,893					$	745					$	1,275											$	2,020
Investments measured at net asset value (a)			n/a						n/a												$	1,123					n/a						n/a												$	980
Investments at fair value			$	609					$	1,284											$	3,016					$	745					$	1,275											$	3,000

(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.

For discussion of the drivers of changes in net periodic pension and post-retirement benefit credit from 2020 to 2021 and from 2019 to 2020, refer to Note 9, Employee Benefit Plans. 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)			2021						2020						2019
Net Periodic Pension and Post-retirement Benefit Credit (a)			$	64					$	42					$	43
Interest Income			7						17						48
Debt Repurchase Expense			—						(48)						(10)
Miscellaneous Income			8						8						7
Total Other Income - Net			$	79					$	19					$	88

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

CSX 2021 Form 10-K p.101

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)			2021						2020
Equity-method investments:
Conrail			$	1,083					$	1,025
TTX			849						796
Other			167						164
Total			$	2,099					$	1,985

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 purchased services 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
2022			$	31
2023			31
2024			23
2025			—
2026			—
Thereafter			—
Total			$	85

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 $331 million as of December 2021.

CSX 2021 Form 10-K p.102

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 purchased services and other expenses on the Company’s consolidated income statements.

			Fiscal Years
(Dollars in Millions)			2021						2020						2019
Rents, fees and services			$	128					$	126					$	119
Purchase price amortization and other			4						4						4
Equity earnings of Conrail			(44)						(49)						(42)
Total Conrail Expense			$	88					$	81					$	81

As required by the Related Party Disclosures Topic in the ASC, the Company has disclosed 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. 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. Interest expense from these promissory notes was $6 million in each 2021, 2020 and 2019.

			December						December
(Dollars in Millions)			2021						2020
Balance Sheet Information:
CSX accounts payable to Conrail			$	100					$	50
Promissory notes payable to Conrail subsidiary
1.31% CSX Promissory Note due December 2050			73						73
1.31% CSXT Promissory Note due December 2050			368						368

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 2021 Form 10-K p.103

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)			2021						2020						2019
Income statement information:
Car hire rents			$	221					$	219					$	223
Equity earnings of TTX			(52)						(51)						(56)
Total TTX expense			$	169					$	168					$	167

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

			December						December
Balance sheet information:			2021						2020
CSX payable to TTX			$	35					$	40

Other Related Party Transactions

On October 17, 2019, the Company repurchased 14.1 million (split-adjusted) 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 $4.0 billion, $2.8 billion and $3.3 billion for 2021, 2020 and 2019, 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 2021 Form 10-K p.104

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. Items classified as other primarily represent CSX's share of AOCI of equity method investees. Amounts reclassified in other to net earnings are included in purchased services 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, 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			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 Before Reclassifications			(17)			80			(10)			53
Amounts Reclassified to Net Earnings			47			—			5			52
Tax Benefit (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)
Other Comprehensive Income (Loss)
(Loss) Income Before Reclassifications			147			11			—			158
Amounts Reclassified to Net Earnings			66			—			15			81
Tax Expense			(46)			(3)			—			(49)
Total Other Comprehensive Income			$	167		$	8		$	15		$	190
Balance December 31, 2021 - Net of Tax			$	(431)		$	70		$	(47)		$	(408)

CSX 2021 Form 10-K p.105

CSX CORPORATION

PART II

Item 8. Financial Statements and Supplementary Data

NOTE 17. Business Combinations

Acquisition of Quality Carriers, Inc.

On July 1, 2021, the Company completed its acquisition of Quality Carriers, the largest provider of bulk liquid chemicals truck transportation in North America, for $544 million in cash, which is presented on the statement of cash flows net of $3 million cash acquired. Through a network of over 100 company-owned and affiliate terminals and facilities in key locations throughout the United States, Canada and Mexico, Quality Carriers provides transportation services to many of the leading chemical producers and shippers in North America. The results of Quality Carriers' operations and its cash flows were consolidated prospectively.

The Company accounted for the transaction using the acquisition method in accordance with ASC Topic 805, Business Combinations. The purchase price allocation was finalized as of December 31, 2021, and total measurement period adjustments to the preliminary allocation were immaterial. The allocation of total consideration to the fair values of the acquired assets and liabilities of Quality Carriers is summarized in the table below.

(Dollars in millions)			July 1, 2021
Assets Acquired:
Cash and Cash Equivalents			$	3
Accounts Receivable, net			113
Properties and Equipment, net			225
Goodwill			213
Intangible Assets			180
Other Assets			9
Total Assets Acquired			$	743
Liabilities Assumed:
Accounts Payable and Accrued Liabilities			$	48
Finance Lease Obligations and Notes Payable			68
Casualty, Environmental and Other Reserves			62
Other Long-term Liabilities			21
Total Liabilities Assumed			$	199
Fair Value of Assets Acquired, Net of Liabilities Assumed:			$	544

CSX 2021 Form 10-K p.106

CSX CORPORATION

PART II

Item 8. Financial Statements and Supplementary Data

NOTE 17. Business Combinations, continued

Cash paid to acquire the business, net of acquired cash and cash equivalents of $3 million, is included in investing activities on the Company's consolidated statement of cash flows. Properties and equipment of $225 million include tractors and trailers, equipment, land, buildings and other assets. For information about Goodwill and intangible assets, see Note 18, Goodwill and Other Intangible Assets.

The Company incurred costs related to this acquisition of approximately $17 million. All acquisition-related costs were expensed as incurred and have been recorded in purchased services and other in the accompanying consolidated income statements.

This acquisition is not 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 Topic 805. As the acquisition is not material, CSX has not provided pro forma information relating to the pre-acquisition period.

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 Topic 805.

CSX 2021 Form 10-K p.107

CSX CORPORATION

PART II

Item 8. Financial Statements and Supplementary Data

NOTE 18. Goodwill and Other Intangible Assets

The following table presents goodwill and other intangible asset balances and adjustments to those balances for the years ended December 31, 2021 and 2020:

			Goodwill						Intangible Assets
(Dollars in millions)			Net Carrying Amount						Cost			Accumulated Amortization			Net Carrying Amount						Total Goodwill and Other Intangible Assets - Net
Balance at December 31, 2019			$	63					$	—		$	—		$	—					$	63
Additions			—						—			—			—						—
Amortization			—						—			—			—						—
Balance at December, 31, 2020			$	63					$	—		$	—		$	—					$	63
Additions			213						180			—			180						393
Amortization			—						—			(5)			(5)						(5)
Balance at December, 31, 2021			$	276					$	180		$	(5)		$	175					$	451

As a result of the acquisition of Quality Carriers, Inc. on July 1, 2021, CSX recognized goodwill and intangible assets. The goodwill of $213 million was calculated as the excess of the consideration paid over the fair value of net assets assumed as of July 1, 2021 and relates primarily to the ability of CSX to extend the reach of its network and gain access to new products, markets, and regions through a unique and competitive multimodal solution that leverages the reach of truck transportation with the cost advantage of rail-based services. Goodwill recognized in the acquisition is deductible for tax purposes. Prior to 2021, the Company's goodwill balance related to affiliates of CSXT, primarily P&L Transportation, Inc.

Intangible assets of $180 million consist of $150 million of customer relationships and $30 million of trade names that will be amortized over a weighted-average period of 20 years and 15 years, respectively.

In fourth quarter 2021, CSX performed its annual evaluation of each reporting unit's goodwill and intangible assets for impairment. No impairment was recorded as a result of this evaluation.

CSX 2021 Form 10-K p.108

CSX CORPORATION

PART II

Item 8. Financial Statements and Supplementary Data

NOTE 19. Quarterly Financial Data (Unaudited)

The following selected quarterly financial data has been adjusted for the three-for-one stock split effective June 28, 2021.

Fiscal Year Ended December 2021			Quarters
(Dollars in Millions, Except Per Share Amounts)			1st			2nd			3rd			4th			Full Year
Revenue			$	2,813		$	2,990		$	3,292		$	3,427		$	12,522
Operating Income			1,101			1,691			1,436			1,366			5,594
Net Earnings			706			1,173			968			934			3,781
Net Earnings Per Share, Basic			$	0.31		$	0.52		$	0.43		$	0.42		$	1.68
Net Earnings Per Share, Assuming Dilution			$	0.31		$	0.52		$	0.43		$	0.42		$	1.68
Fiscal year Ended December 2020
Revenue			$	2,855		$	2,255		$	2,648		$	2,825		$	10,583
Operating Income			1,178			828			1,141			1,215			4,362
Net Earnings			770			499			736			760			2,765
Net Earnings Per Share, Basic			$	0.33		$	0.22		$	0.32		$	0.33		$	1.20
Net Earnings Per Share, Assuming Dilution			$	0.33		$	0.22		$	0.32		$	0.33		$	1.20

CSX 2021 Form 10-K p.109

CSX CORPORATION

PART II