CSX 10-Q 2022-09-30

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

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

For the quarterly period ended September 30, 2022

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)
															No Change
(Former name, former address and former fiscal year, if changed since last report.)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class															Trading Symbol(s)												Name of exchange on which registered
Common Stock, $1 Par Value															CSX												Nasdaq Global Select Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes (X) No ( )

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

Yes (X) No ( )

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company (as defined in Exchange Act Rule 12b-2).

Large Accelerated Filer (X) Accelerated Filer ( ) Non-accelerated Filer ( ) Smaller Reporting Company (☐) Emerging growth company (☐)

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ( )

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

Yes (☐) No (X)

There were 2,102,408,729 shares of common stock outstanding on September 30, 2022 (the latest practicable date that is closest to the filing date).

CSX Q3 2022 Form 10-Q p.1

CSX CORPORATION

FORM 10-Q

FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2022

INDEX

									Page
PART I.			FINANCIAL INFORMATION
Item 1.			Financial Statements						3
			Consolidated Income Statements (Unaudited) - Quarters and Nine Months Ended September 30, 2022 and September 30, 2021						3
			Condensed Consolidated Comprehensive Income Statements (Unaudited) - Quarters and Nine Months Ended September 30, 2022 and September 30, 2021						3
			Consolidated Balance Sheets - At September 30, 2022 (Unaudited) and December 31, 2021						4
			Consolidated Cash Flow Statements (Unaudited) - Nine Months Ended September 30, 2022 and September 30, 2021						5
			Consolidated Statement of Changes in Shareholders' Equity (Unaudited) - Quarters and Nine Months Ended September 30, 2022 and September 30, 2021						6
			Notes to Consolidated Financial Statements (Unaudited)						8
Item 2.			Management's Discussion and Analysis of Financial Condition and Results of Operations						31
Item 3.			Quantitative and Qualitative Disclosures about Market Risk						45
Item 4.			Controls and Procedures						45
PART II.			OTHER INFORMATION
Item 1.			Legal Proceedings						46
Item 1A.			Risk Factors						46
Item 2.			CSX Purchases of Equity Securities						46
Item 3.			Defaults Upon Senior Securities						46
Item 4.			Mine Safety Disclosures						46
Item 5.			Other Information						46
Item 6.			Exhibits						47
Signature									48

CSX Q3 2022 Form 10-Q p.2

CSX CORPORATION

PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

CONSOLIDATED INCOME STATEMENTS (Unaudited)

(Dollars in millions, except per share amounts)

			Third Quarters									Nine Months
			2022			2021						2022			2021
Revenue			$	3,895		$	3,292					$	11,123		$	9,095
Expense
Labor and Fringe			759			631						2,135			1,847
Purchased Services and Other			664			577						1,986			1,490
Fuel			438			247						1,215			631
Depreciation and Amortization			378			367						1,107			1,060
Equipment and Other Rents			104			94						299			269
Gains on Property Dispositions			(27)			(60)						(183)			(430)
Total Expense			2,316			1,856						6,559			4,867
Operating Income			1,579			1,436						4,564			4,228
Interest Expense			(193)			(177)						(543)			(542)
Other Income - Net			37			20						89			60
Earnings Before Income Taxes			1,423			1,279						4,110			3,746
Income Tax Expense			(312)			(311)						(962)			(899)
Net Earnings			$	1,111		$	968					$	3,148		$	2,847
Per Common Share (Note 2)
Net Earnings Per Share, Basic			$	0.52		$	0.43					$	1.46		$	1.26
Net Earnings Per Share, Assuming Dilution			$	0.52		$	0.43					$	1.46		$	1.26
Average Shares Outstanding (In millions)			2,122			2,237						2,156			2,263
Average Shares Outstanding, Assuming Dilution (In millions)			2,126			2,242						2,161			2,268

CONDENSED CONSOLIDATED COMPREHENSIVE INCOME STATEMENTS (Unaudited)

(Dollars in millions)

			Third Quarters									Nine Months
			2022			2021						2022			2021
Total Comprehensive Earnings (Note 10)			$	1,129		$	985					$	3,236		$	2,911

See accompanying notes to consolidated financial statements.

CSX Q3 2022 Form 10-Q p.3

CSX CORPORATION

ITEM 1. FINANCIAL STATEMENTS

CONSOLIDATED BALANCE SHEETS

(Dollars in millions)

			(Unaudited)
			September 30, 2022			December 31, 2021
ASSETS
Current Assets:
Cash and Cash Equivalents			$	2,311		$	2,239
Short-term Investments			88			77
Accounts Receivable - Net (Note 8)			1,467			1,148
Materials and Supplies			365			339
Other Current Assets			79			70
Total Current Assets			4,310			3,873
Properties			47,734			46,505
Accumulated Depreciation			(13,778)			(13,490)
Properties - Net			33,956			33,015
Investment in Affiliates and Other Companies			2,289			2,099
Right-of-Use Lease Asset			506			501
Goodwill and Other Intangible Assets - Net			537			451
Other Long-term Assets			644			592
Total Assets			$	42,242		$	40,531
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts Payable			$	1,152		$	963
Labor and Fringe Benefits Payable			727			630
Casualty, Environmental and Other Reserves (Note 4)			113			118
Current Maturities of Long-term Debt (Note 7)			155			181
Income and Other Taxes Payable			156			134
Other Current Liabilities			205			207
Total Current Liabilities			2,508			2,233
Casualty, Environmental and Other Reserves (Note 4)			317			250
Long-term Debt (Note 7)			17,895			16,185
Deferred Income Taxes - Net			7,632			7,383
Long-term Lease Liability			487			478
Other Long-term Liabilities			520			502
Total Liabilities			29,359			27,031
Shareholders' Equity:
Common Stock, $1 Par Value			2,102			2,202
Other Capital			555			66
Retained Earnings			10,537			11,630
Accumulated Other Comprehensive Loss (Note 10)			(320)			(408)
Non-controlling Minority Interest			9			10
Total Shareholders' Equity			12,883			13,500
Total Liabilities and Shareholders' Equity			$	42,242		$	40,531

See accompanying notes to consolidated financial statements.

CSX Q3 2022 Form 10-Q p.4

CSX CORPORATION

ITEM 1. FINANCIAL STATEMENTS

CONSOLIDATED CASH FLOW STATEMENTS (Unaudited)

(Dollars in millions)

			Nine Months
			2022			2021
OPERATING ACTIVITIES
Net Earnings			$	3,148		$	2,847
Adjustments to Reconcile Net Earnings to Net Cash Provided by Operating Activities:
Depreciation and Amortization			1,107			1,060
Deferred Income Taxes			125			109
Gains on Property Dispositions			(183)			(430)
Other Operating Activities			(52)			10
Changes in Operating Assets and Liabilities:
Accounts Receivable			(143)			(153)
Other Current Assets			(32)			(4)
Accounts Payable			166			132
Income and Other Taxes Payable			22			174
Other Current Liabilities			97			74
Net Cash Provided by Operating Activities			4,255			3,819
INVESTING ACTIVITIES
Property Additions			(1,437)			(1,220)
Purchases of Short-term Investments			(19)			—
Proceeds from Sales of Short-term Investments			9			3
Proceeds and Advances from Property Dispositions			51			297
Business Acquisition, Net of Cash Acquired			(223)			(543)
Other Investing Activities			(25)			—
Net Cash Used In Investing Activities			(1,644)			(1,463)
FINANCING ACTIVITIES
Long-term Debt Issued (Note 7)			2,000			—
Long-term Debt Repaid (Note 7)			(178)			(390)
Dividends Paid			(645)			(633)
Shares Repurchased			(3,710)			(2,316)
Other Financing Activities			(6)			33
Net Cash Used in Financing Activities			(2,539)			(3,306)
Net Increase/(Decrease) in Cash and Cash Equivalents			72			(950)
CASH AND CASH EQUIVALENTS
Cash and Cash Equivalents at Beginning of Period			2,239			3,129
Cash and Cash Equivalents at End of Period			$	2,311		$	2,179
SUPPLEMENTAL CASH FLOW INFORMATION
Issuance of Common Stock as Consideration for Acquisition			$	422		$	—

See accompanying notes to consolidated financial statements.

CSX Q3 2022 Form 10-Q p.5

CSX CORPORATION

ITEM 1. FINANCIAL STATEMENTS

CONSOLIDATED STATEMENTS OF CHANGES

IN SHAREHOLDERS' EQUITY (Unaudited)

(Dollars in millions)

Nine Months 2022			Common Shares Outstanding (Thousands)			Common Stock and Other Capital			Retained Earnings			Accumulated Other Comprehensive Income (Loss)****(a)			Non-controlling Minority Interest			Total Shareholders' Equity
Balance December 31, 2021			2,201,787			$	2,268		$	11,630		$	(408)		$	10		$	13,500
Comprehensive Earnings:
Net Earnings			—			—			859			—			—			859
Other Comprehensive Income			—			—			—			31			—			31
Total Comprehensive Earnings																		890
Common stock dividends, $0.10 per share			—			—			(218)			—			—			(218)
Share Repurchases			(29,365)			(29)			(987)			—			—			(1,016)
Stock Option Exercises and Other			1,831			38			—			—			1			39
Balance March 31, 2022			2,174,253			$	2,277		$	11,284		$	(377)		$	11		$	13,195
Comprehensive Earnings:
Net Earnings			—			—			1,178			—			—			1,178
Other Comprehensive Income			—			—			—			39			—			39
Total Comprehensive Earnings																		1,217
Common stock dividends, $0.10 per share			—			—			(215)			—			—			(215)
Share Repurchases			(46,508)			(47)			(1,452)			—			—			(1,499)
Issuance of common stock for acquisition of Pan Am Systems, Inc.			13,173			422			—			—			—			422
Stock Option Exercises and Other			314			23			(1)			—			(1)			21
Balance June 30, 2022			2,141,232			$	2,675		$	10,794		$	(338)		$	10		$	13,141
Comprehensive Earnings:
Net Earnings			—			—			1,111			—			—			1,111
Other Comprehensive Income (Note 10)			—			—			—			18			—			18
Total Comprehensive Earnings																		1,129
Common stock dividends, $0.10 per share			—			—			(212)			—			—			(212)
Share Repurchases			(39,924)			(40)			(1,155)			—			—			(1,195)
Stock Option Exercises and Other			514			22			(1)			—			(1)			20
Balance September 30, 2022			2,101,822			$	2,657		$	10,537		$	(320)		$	9		$	12,883

(a) Accumulated Other Comprehensive Loss balances shown above are net of tax. The associated taxes were $107 million as of December 31, 2021; $99 million as of March 31, 2022; $88 million as of June 30, 2022; and $85 million as of September 30, 2022. For additional information, see Note 10, Other Comprehensive Income.

See accompanying notes to consolidated financial statements.

CSX Q3 2022 Form 10-Q p.6

CSX CORPORATION

CONSOLIDATED STATEMENTS OF CHANGES

IN SHAREHOLDERS' EQUITY (Unaudited)

(Dollars in millions)

Nine Months 2021			Common Shares Outstanding (Thousands)			Common Stock and Other Capital			Retained Earnings			Accumulated Other Comprehensive Income (Loss)****(a)			Non-controlling Minority Interest			Total Shareholders' Equity
Balance December 31, 2020			2,287,587			$	2,440		$	11,259		$	(598)		$	9		13,110
Comprehensive Earnings:
Net Earnings			—			—			706			—			—			706
Other Comprehensive Income			—			—			—			68			—			68
Total Comprehensive Earnings																		774
Common stock dividends, $0.093 per share			—			—			(213)			—			—			(213)
Share Repurchases			(18,389)			(18)			(533)			—			—			(551)
Stock Option Exercises and Other			3,003			37			3			—			—			40
Balance March 31, 2021			2,272,201			2,459			11,222			(530)			9			13,160
Comprehensive Earnings:
Net Earnings			—			—			1,173			—			—			1,173
Other Comprehensive Income			—			—			—			(21)			—			(21)
Total Comprehensive Earnings																		1,152
Common stock dividends, $0.093 per share			—			—			(212)			—			—			(212)
Share Repurchases			(18,345)			(19)			(682)			—			—			(701)
Stock Option Exercises and Other			640			(186)			222			—			(1)			35
Balance June 30, 2021			2,254,496			2,254			11,723			(551)			8			13,434
Comprehensive Earnings:
Net Earnings			—			—			968			—			—			968
Other Comprehensive Income (Note 10)			—			—			—			17			—			17
Total Comprehensive Earnings																		985
Common stock dividends, $0.093 per share			—			—			(209)			—			—			(209)
Share Repurchases			(37,217)			(37)			(1,027)			—			—			(1,064)
Stock Option Exercises and Other			704			25			—			—			1			26
Balance September 30, 2021			2,217,983			$	2,242		$	11,455		$	(534)		$	9		$	13,172

(a) Accumulated Other Comprehensive Loss balances shown above are net of tax. The associated taxes were $156 million as of December 31, 2020; $137 million as of March 31, 2021; $142 million as of June 30, 2021; and $136 million as of September 30, 2021. For additional information, see Note 10, Other Comprehensive Income.

See accompanying notes to consolidated financial statements.

CSX Q3 2022 Form 10-Q p.7

CSX CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 1. Nature of Operations and Significant Accounting Policies

Background

CSX Corporation together with its subsidiaries ("CSX" or the “Company”), based in Jacksonville, Florida, is one of the nation's leading transportation companies. The Company provides rail-based transportation services including traditional rail service, the transport of intermodal containers and trailers, as well as other transportation services such as rail-to-truck transfers and bulk commodity operations.

CSX's principal operating subsidiary, CSX Transportation, Inc. (“CSXT”), provides an important link to the transportation supply chain through its approximately 20,000 route mile rail network and serves major population centers in 26 states east of the Mississippi River, the District of Columbia and the Canadian provinces of Ontario and Quebec. The Company's intermodal business links customers to railroads via trucks and terminals. On June 1, 2022, CSX completed its acquisition of Pan Am Systems, Inc. (“Pan Am”) which is the parent company of Pan Am Railways, Inc. This acquisition expands CSXT’s reach in the Northeastern United States.

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. Quality Carriers is the largest provider of bulk liquid chemicals truck transportation in North America. CSX Intermodal Terminals owns and operates a system of intermodal terminals, predominantly in the eastern United States and also performs drayage services (the pickup and delivery of intermodal shipments) for certain customers. 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.

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

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Volume and Revenue (Unaudited)
Volume (Thousands of units); Revenue (Dollars in Millions); Revenue Per Unit (Dollars)
Third Quarters
			Volume																		Revenue																		Revenue Per Unit
			2022						2021						% Change						2022						2021						% Change						2022						2021						% Change
Chemicals			162						166						(2)		%				$	678					$	624					9		%				$	4,185					$	3,759					11		%
Agricultural and Food Products			120						109						10						428						343						25						3,567						3,147						13
Minerals			91						90						1						180						162						11						1,978						1,800						10
Automotive			85						75						13						274						209						31						3,224						2,787						16
Forest Products			75						75						—						264						231						14						3,520						3,080						14
Metals and Equipment			67						70						(4)						211						206						2						3,149						2,943						7
Fertilizers			48						54						(11)						108						106						2						2,250						1,963						15
Total Merchandise			648						639						1						2,143						1,881						14						3,307						2,944						12
Intermodal			762						744						2						604						509						19						793						684						16
Coal			177						180						(2)						624						460						36						3,525						2,556						38
Trucking			—						—						—						251						200						26						—						—						—
Other			—						—						—						273						242						13						—						—						—
Total			1,587						1,563						2		%				$	3,895					$	3,292					18		%				$	2,454					$	2,106					17		%
Nine Months
			Volume																		Revenue																		Revenue Per Unit
			2022						2021						% Change						2022						2021						% Change						2022						2021						% Change
Chemicals			488						496						(2)		%				$	1,962					$	1,810					8		%				$	4,020					$	3,649					10		%
Agricultural and Food Products			358						342						5						1,227						1,062						16						3,427						3,105						10
Minerals			253						244						4						494						439						13						1,953						1,799						9
Automotive			248						239						4						769						661						16						3,101						2,766						12
Forest Products			219						223						(2)						743						684						9						3,393						3,067						11
Metals and Equipment			202						209						(3)						624						596						5						3,089						2,852						8
Fertilizers			158						173						(9)						346						350						(1)						2,190						2,023						8
Total Merchandise			1,926						1,926						—						6,165						5,602						10						3,201						2,909						10
Intermodal			2,243						2,222						1						1,733						1,488						16						773						670						15
Coal			510						535						(5)						1,808						1,267						43						3,545						2,368						50
Trucking (a)			—						—						—						740						200						NM						—						—						—
Other			—						—						—						677						538						26						—						—						—
Total			4,679						4,683						—		%				$	11,123					$	9,095					22		%				$	2,377					$	1,942					22		%

NM - not meaningful

(a) 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 Q3 2022 Form 10-Q p.32

CSX CORPORATION

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Third Quarter 2022

Revenue

Total revenue increased 18% in third quarter 2022 when compared to third quarter 2021 due to higher fuel recovery, pricing gains that include the benefit of higher export coal benchmark rates, increases in trucking revenue, volume growth and increases in other revenue.

Merchandise Volume

Chemicals - Decreased due to lower shipments of waste and other energy-related commodities, including crude oil.

Agricultural and Food Products - Increased as a result of higher shipments of grain, ethanol, sweeteners and vegetable oils.

Minerals - Increased due to higher shipments of aggregates driven by construction demand.

Automotive - Increased due to higher North American vehicle production as semiconductor availability has improved.

Forest Products - Higher shipments of paper products and lumber were offset by lower shipments of pulpboard.

Metals and Equipment - Decreased primarily due to lower steel shipments, partially offset by higher scrap shipments.

Fertilizers - Decreased due to declines in short-haul and long-haul phosphate shipments.

Intermodal Volume

Increased international shipments were partially offset by lower domestic shipments due to continued supply-side constraints and a more typical seasonal slowdown than prior year.

Coal Volume

Export coal increased due to higher shipments of metallurgical coal. Domestic coal decreased due to lower shipments of utility coal including the impacts of limited coal availability during mine disruptions.

Trucking Revenue

Trucking revenue increased $51 million versus prior year primarily due to price gains and higher fuel surcharge.

Other Revenue

Other revenue was $31 million higher than prior year driven by increases in revenue for intermodal storage and equipment usage.

CSX Q3 2022 Form 10-Q p.33

CSX CORPORATION

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Expenses

Expenses of $2.3 billion increased $460 million, or 25%, in third quarter 2022 when compared to third quarter 2021.

Labor and Fringe expense increased $128 million due to the following:

• The impacts of tentative agreements reached with labor unions in September 2022 as well as inflation totaled $97 million. Of the total, $42 million relates to labor and benefits in prior periods.

• Other costs increased $31 million, including the impacts of Pan Am's operations, higher volume and other non-significant items.

Purchased Services and Other expense increased $87 million due to the following:

• Operating support costs were $57 million higher primarily as a result of inflation, a larger active locomotive fleet, increased intermodal terminal costs and higher volume.

• Other costs increased $30 million due to several items including higher legal costs associated with regulatory activity, the inclusion of Pan Am's operations and increased trucking-related expenses, partially offset by acquisition-related costs in the prior year.

Fuel expense increased $191 million primarily resulting from a 71% increase in locomotive fuel prices.

Depreciation and Amortization expense increased $11 million primarily due to a larger asset base.

Equipment and Other Rents expense was $10 million higher primarily due to increased car hire costs driven by higher days per load across all markets.

Gains on Property Dispositions decreased to $27 million from $60 million in the prior year.

Interest Expense

Interest expense increased $16 million primarily due to higher average debt balances.

Other Income - Net

Other income - net increased $17 million primarily due to higher interest income.

Income Tax Expense

Income tax expense increased $1 million as higher earnings before income taxes were mostly offset by $37 million in tax benefits primarily due to a favorable state legislative change.

CSX Q3 2022 Form 10-Q p.34

CSX CORPORATION

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Nine Months Results of Operations

Revenue increased $2.0 billion primarily due to higher fuel recovery, pricing gains across all markets, the inclusion of Quality Carriers' results and increases in other revenue driven by intermodal storage and equipment usage.

Total expense increased $1.7 billion primarily driven by higher fuel prices, the inclusion of costs related to Quality Carriers' operations, lower gains on property dispositions and higher operating support costs including inflation.

Interest expense increased $1 million primarily as a result of higher average debt balances partially offset by lower average interest rates.

Other income - net increased $29 million primarily due to higher interest income and an increase in net pension benefit credits.

Income tax expense increased $63 million primarily due to higher earnings before income taxes, partially offset by favorable impacts of state legislative changes in the current year.

CSX Q3 2022 Form 10-Q p.35

CSX CORPORATION

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Non-GAAP Measures - Unaudited

CSX reports its financial results in accordance with accounting principles generally accepted in the United States of America (U.S. 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 U.S. 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 supplemental information 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 proceeds and advances from property dispositions. Free cash flow should be considered in addition to, rather than a substitute for, cash provided by operating activities. The decrease in free cash flow before dividends from the prior year of $27 million is due to a decrease in proceeds from property dispositions and higher property additions, partially offset by an increase in cash from operating activities.

The following table reconciles cash provided by operating activities (GAAP measure) to free cash flow, before dividends (non-GAAP measure).

			Nine Months
(Dollars in millions)			2022			2021
Net cash provided by operating activities			$	4,255		$	3,819
Property Additions			(1,437)			(1,220)
Proceeds and Advances from Property Dispositions			51			297
Other Investing Activities (a)			n/a			—
Free Cash Flow (before payment of dividends)			$	2,869		$	2,896

(a) Effective first quarter 2022, the results of other investing activities are no longer included in free cash flow. Prior year has not been restated as the change is immaterial.

Operating Statistics (Estimated)

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.

In third quarter 2022, velocity decreased by 11% and dwell increased by 12% versus prior year. Carload trip plan performance decreased by 16% while intermodal trip plan performance improved by 2%. The Company continues to prioritize hiring and training, while remaining focused on executing the operating plan to deliver safe, reliable and efficient service to customers.

CSX Q3 2022 Form 10-Q p.36

CSX CORPORATION

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The FRA train accident rate improved 21% year over year. The personal injury frequency index increased 9% versus 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.

			Third Quarters												Nine Months
			2022			2021			Improvement/ (Deterioration)						2022			2021			Improvement/ (Deterioration)
Operations Performance
Train Velocity (Miles per hour) (a)			15.8			17.7			(11)		%				15.7			18.1			(13)		%
Dwell (Hours) (a)			11.8			10.5			(12)		%				11.6			10.6			(9)		%
Cars Online (a)			141,911			130,841			(8)		%				140,461			130,273			(8)		%
On-Time Originations (a)			58		%	71		%	(18)		%				62		%	76		%	(18)		%
On-Time Arrivals (a)			46		%	62		%	(26)		%				51		%	66		%	(23)		%
Carload Trip Plan Performance (a)			57		%	68		%	(16)		%				60		%	68		%	(12)		%
Intermodal Trip Plan Performance (a)			90		%	88		%	2		%				89		%	87		%	2		%
Fuel Efficiency			0.99			0.92			(8)		%				0.99			0.96			(3)		%
Revenue Ton-Miles (Billions)
Merchandise			31.7			30.8			3		%				95.0			94.2			1		%
Coal			8.6			8.9			(3)		%				24.6			26.9			(9)		%
Intermodal			7.6			7.8			(3)		%				22.9			23.6			(3)		%
Total Revenue Ton-Miles			47.9			47.5			1		%				142.5			144.7			(2)		%
Total Gross Ton-Miles (Billions)			95.3			92.9			3		%				281.7			282.3			—		%
Safety
FRA Personal Injury Frequency Index (a)			0.99			0.91			(9)		%				0.95			0.97			2		%
FRA Train Accident Rate (a)			2.76			3.49			21		%				2.99			3.05			2		%

(a) These metrics do not include results from the network acquired from Pan Am. These metrics will be updated to include the Pan Am network results as data becomes available.

Certain operating statistics are estimated and can continue to be updated as actuals settle. The methodology for calculating train velocity, dwell, cars online and trip plan performance differs from that used by the Surface Transportation Board. The Company will continue to report these metrics to the Surface Transportation Board using the prescribed methodology.

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 Q3 2022 Form 10-Q p.37

CSX CORPORATION

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

LIQUIDITY AND CAPITAL RESOURCES

The following are material changes in the significant cash flows, sources of cash and liquidity, capital investments, consolidated balance sheets and working capital, which provide an update to the discussion included in CSX's most recent annual report on Form 10-K.

Material Changes in Significant Cash Flows

Significant Cash Flows

The following chart highlights the operating, investing and financing components of the net increase of $72 million and decrease of $950 million in cash and cash equivalents for nine months ended 2022 and 2021, respectively.

• Cash provided by operating activities increased $436 million primarily driven by higher cash-generating income, partially offset by less favorable changes in working capital.

• Cash used in investing activities increased $181 million primarily as a result of higher property additions and lower proceeds from property dispositions, partially offset by decreased business acquisition costs.

• Cash used in financing activities decreased $767 million driven by the issuance of long-term debt, partially offset by higher share repurchases.

Sources of Cash and Liquidity and Uses of Cash

As of the end of third quarter 2022, CSX had $2.4 billion of cash, cash equivalents and short-term investments. 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. See Note 7, Debt and Credit Agreements.

The Company has multiple sources of liquidity, including cash generated from operations and financing sources. The Company filed a shelf registration statement with the SEC on February 16, 2022, 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. During the nine months ended 2022, CSX issued a total of $2.0 billion of long-term debt.

CSX Q3 2022 Form 10-Q p.38

CSX CORPORATION

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

CSX has a $1.2 billion unsecured, revolving credit facility backed by a diverse syndicate of banks that expires in March 2024. At September 30, 2022, the Company had no outstanding balances under this facility. 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. At September 30, 2022, the Company had no outstanding debt under the commercial paper program.

Planned capital investments for 2022 are expected to be approximately $2 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 primarily through cash generated from operations.

Material Changes in the Consolidated Balance Sheets and Working Capital

Consolidated Balance Sheets

Total assets increased $1.7 billion from year end primarily due to a $941 million increase in net properties, a $319 million increase in accounts receivable, a $190 million increase in investments in affiliates and other companies and an $86 million increase in goodwill and other intangible assets. The increase in net property was primarily attributable to $581 million in fixed assets acquired as part of the Pan Am transaction as well as capital expenditures. Of the increase in accounts receivables, $124 million relates to the sale of property rights to the Commonwealth of Virginia and the remainder was commensurate with the increase in revenue. In addition, higher investments in affiliates and other companies includes the impact of the acquired interest in Pan Am Southern, LLC as well as increases in the values of several affiliates. See Note 11, Business Combinations, and Note 12, Goodwill and Other Intangibles, for more details.

Total liabilities increased $2.3 billion from year end primarily due to the issuance of $2.0 billion in long-term debt, a $249 million increase in deferred taxes due to accelerated tax depreciation and the impact of the Pan Am acquisition, as well as an increase in accounts payable of $189 million. The increase in accounts payable was driven by higher debt interest payable and increased trade payables mostly due to the timing of payments. These increases were partially offset by debt repayments of $178 million. Total shareholders' equity decreased $617 million from year end primarily driven by share repurchases of $3.7 billion and dividends paid of $645 million, partially offset by net earnings of $3.1 billion and common stock issued to acquire Pan Am of $422 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 $1.8 billion as of September 30, 2022 and $1.6 billion as of December 31, 2021. This increase of $162 million since year end was primarily due to the $319 million increase in accounts receivable, partially offset by the $189 million increase in accounts payable. 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 as discussed above. The Company continues to maintain adequate liquidity to satisfy current liabilities and maturing obligations when they come due. 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 Q3 2022 Form 10-Q p.39

CSX CORPORATION

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

CSX is committed to returning cash to shareholders and maintaining an investment-grade credit profile. Capital structure, capital investments and cash distributions, including dividends and share repurchases, are reviewed at least annually by the Board of Directors. 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.

Completed and Pending Transactions

Acquisition of Pan Am Systems, Inc.

On June 1, 2022, CSX acquired Pan Am for a purchase price of $601 million funded through a combination of common stock and cash, subject to certain customary purchase price adjustments. For further details, refer to Note 11, 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 remainder attributable to the second phase. The second phase closed in January 2022, which resulted in a $20 million gain in first quarter 2022. During June 2022, the final $125 million of proceeds was approved by the Commonwealth, which resulted in a $122 million gain in second quarter 2022 related to property rights previously conveyed. To date, total proceeds of $400 million have been collected and total gains of $491 million have been recognized.

The remaining proceeds are expected to be collected during fourth quarter 2022 upon closing of the third phase and future gains are not expected to be material. As of September 30, 2022, the carrying values of the remaining assets subject to this transaction were not material. There were no proceeds or gains related to this agreement during third quarter 2022 or 2021. Amounts related to the nine months 2022 and 2021 are summarized in the following table.

						Nine Months
(Dollars in millions)						2022			2021
Gains						$	142		$	349
Proceeds						—			200

CSX Q3 2022 Form 10-Q p.40

CSX CORPORATION

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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 September 30, 2022, the principal balance of these secured equipment notes was $139 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.

LABOR AGREEMENTS

Approximately 16,700 of the Company’s employees are members of a labor union. The U.S. Class I railroads and rail labor unions were engaged in direct negotiations from January 2020 through June 2022. In accordance with the Railway Labor Act, a Presidential Emergency Board issued its report and recommendations to settle the bargaining disputes on August 16, 2022. Tentative agreements based on these recommendations were reached with all labor unions in September 2022. As of the date of this filing, six unions representing approximately 17% of unionized rail employees have ratified those agreements. On October 10, 2022, one labor union voted against ratification of the tentative agreement. Ratification results for the remaining unions are scheduled to be announced through November 2022.

CSX Q3 2022 Form 10-Q p.41

CSX CORPORATION

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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. Consistent with the prior year, significant estimates using management judgment are made for the areas below. For further discussion of CSX's critical accounting estimates, see the Company's most recent annual report on Form 10-K.

• 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.

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.

CSX Q3 2022 Form 10-Q p.42

CSX CORPORATION

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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 I, Item 1A Risk Factors of CSX's most recent annual report on Form 10-K 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) and the level of demand for products carried by CSXT;

• natural events such as severe weather conditions, including floods, fire, hurricanes and earthquakes, a pandemic crisis, including the outbreak of COVID-19, 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 CSXT's export coal market;

CSX Q3 2022 Form 10-Q p.43

CSX CORPORATION

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

• 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, including the impacts of inflation, 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 quarterly report on Form 10-Q.

CSX Q3 2022 Form 10-Q p.44

CSX CORPORATION

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK