10-Q 1 csx06241610-q.htm Q2 2016 FORM 10-Q
Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q

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

For the quarterly period ended June 24, 2016
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 |  |
(State or other jurisdiction of incorporation or organization) |  |  |  |  |  |  |  | (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.)

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 and posted on its corporate Web site, if any, 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 and post such files).
Yes (X) No ( )
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer", "accelerated filer” and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (check one)

Large Accelerated Filer (X) |  | Accelerated Filer ( )
Non-accelerated Filer ( ) |  | Smaller Reporting Company ( )

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 945,990,945 shares of common stock outstanding on June 24, 2016 (the latest practicable date that is closest to the filing date).

| CSX Q2 2016 Form 10-Q p.1 |

Table of Contents
CSX CORPORATION
FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED JUNE 24, 2016
INDEX

|  |  | Page
PART I. | FINANCIAL INFORMATION |  |
Item 1. | Financial Statements |  | 3
| Consolidated Income Statements (Unaudited) - Quarters Ended June 24, 2016 and June 26, 2015 |  | 3
| Consolidated Comprehensive Income Statements (Unaudited) - Quarters Ended June 24, 2016 and June 26, 2015 |  | 3
| Consolidated Balance Sheets - At June 24, 2016 (Unaudited) and December 25, 2015 |  | 4
| Consolidated Cash Flow Statements (Unaudited) - Six Months Ended June 24, 2016 and June 26, 2015 |  | 5
| Notes to Consolidated Financial Statements (Unaudited) |  | 6
Item 2. | Management's Discussion and Analysis of Financial Condition and Results of Operations |  | 26
Item 3. | Quantitative and Qualitative Disclosures about Market Risk |  | 36
Item 4. | Controls and Procedures |  | 36
PART II. | OTHER INFORMATION |  |
Item 1. | Legal Proceedings |  | 36
Item 1A. | Risk Factors |  | 36
Item 2. | CSX Purchases of Equity Securities |  | 37
Item 3. | Defaults upon Senior Securities |  | 37
Item 4. | Mine Safety Disclosures |  | 37
Item 5. | Other Information |  | 37
Item 6. | Exhibits |  | 38
Signature |  |  | 39

| CSX Q2 2016 Form 10-Q p.2 |

Table of Contents
CSX CORPORATION
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED INCOME STATEMENTS (Unaudited)
(Dollars in millions, except per share amounts)

| Second Quarters |  | Six Months
| 2016 | 2015 |  | 2016 | 2015
Revenue | $ | 2,704 |  | $ | 3,064 |  |  | $ | 5,322 |  | $ | 6,091 |
Expense |  |  |  |  |
Labor and Fringe | 749 |  | 825 |  |  | 1,545 |  | 1,704 |
Materials, Supplies and Other | 519 |  | 559 |  |  | 1,069 |  | 1,186 |
Fuel | 172 |  | 263 |  |  | 322 |  | 533 |
Depreciation | 319 |  | 299 |  |  | 632 |  | 594 |
Equipment and Other Rents | 105 |  | 101 |  |  | 210 |  | 214 |
Total Expense | 1,864 |  | 2,047 |  |  | 3,778 |  | 4,231 |
Operating Income | 840 |  | 1,017 |  |  | 1,544 |  | 1,860 |
Interest Expense | (141 | ) | (134 | ) |  | (284 | ) | (268 | )
Other Income - Net | 8 |  | 4 |  |  | 15 |  | 6 |
Earnings Before Income Taxes | 707 |  | 887 |  |  | 1,275 |  | 1,598 |
Income Tax Expense | (262 | ) | (334 | ) |  | (474 | ) | (603 | )
Net Earnings | $ | 445 |  | $ | 553 |  |  | $ | 801 |  | $ | 995 |
Per Common Share (Note 2) |  |  |  |  |
Net Earnings Per Share, Basic | $ | 0.47 |  | $ | 0.56 |  |  | $ | 0.84 |  | $ | 1.01 |
Net Earnings Per Share, Assuming Dilution | $ | 0.47 |  | $ | 0.56 |  |  | $ | 0.84 |  | $ | 1.00 |
Average Shares Outstanding (In millions) | 952 |  | 988 |  |  | 957 |  | 989 |
Average Shares Outstanding, Assuming Dilution (In millions) | 952 |  | 989 |  |  | 958 |  | 990 |
Cash Dividends Paid Per Common Share | $ | 0.18 |  | $ | 0.18 |  |  | $ | 0.36 |  | $ | 0.34 |

CONSOLIDATED COMPREHENSIVE INCOME STATEMENTS (Unaudited)
(Dollars in millions, except per share amounts)

| Second Quarters |  | Six Months
| 2016 | 2015 |  | 2016 | 2015
Total Comprehensive Earnings (Note 10) | $ | 454 |  | $ | 565 |  |  | $ | 817 |  | $ | 1,005 |

See accompanying notes to consolidated financial statements.

| CSX Q2 2016 Form 10-Q p.3 |

Table of Contents
CSX CORPORATION
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS
(Dollars in millions)

| (Unaudited) |
| June 24, 2016 | December 25, 2015
ASSETS
Current Assets: |  |
Cash and Cash Equivalents | $ | 566 |  | $ | 628 |
Short-term Investments | 262 |  | 810 |
Accounts Receivable - Net (Note 1) | 912 |  | 982 |
Materials and Supplies | 399 |  | 350 |
Other Current Assets | 89 |  | 70 |
Total Current Assets | 2,228 |  | 2,840 |
Properties | 42,345 |  | 41,574 |
Accumulated Depreciation | (11,738 | ) | (11,400 | )
Properties - Net | 30,607 |  | 30,174 |
Investment in Conrail | 818 |  | 803 |
Affiliates and Other Companies | 595 |  | 591 |
Other Long-term Assets | 302 |  | 337 |
Total Assets | $ | 34,550 |  | $ | 34,745 |
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities: |  |
Accounts Payable | $ | 766 |  | $ | 764 |
Labor and Fringe Benefits Payable | 464 |  | 490 |
Casualty, Environmental and Other Reserves (Note 4) | 133 |  | 131 |
Current Maturities of Long-term Debt (Note 7) | 632 |  | 20 |
Income and Other Taxes Payable | 137 |  | 108 |
Other Current Liabilities | 150 |  | 439 |
Total Current Liabilities | 2,282 |  | 1,952 |
Casualty, Environmental and Other Reserves (Note 4) | 246 |  | 269 |
Long-term Debt (Note 7) | 9,905 |  | 10,515 |
Deferred Income Taxes - Net | 9,355 |  | 9,179 |
Other Long-term Liabilities | 1,137 |  | 1,162 |
Total Liabilities | 22,925 |  | 23,077 |
Shareholders' Equity: |  |
Common Stock, $1 Par Value | 946 |  | 966 |
Other Capital | 116 |  | 113 |
Retained Earnings | 11,199 |  | 11,238 |
Accumulated Other Comprehensive Loss (Note 10) | (649 | ) | (665 | )
Noncontrolling Interest | 13 |  | 16 |
Total Shareholders' Equity | 11,625 |  | 11,668 |
Total Liabilities and Shareholders' Equity | $ | 34,550 |  | $ | 34,745 |

Certain prior year data has been reclassified to conform to the current presentation.
See accompanying notes to consolidated financial statements.

| CSX Q2 2016 Form 10-Q p.4 |

Table of Contents
CSX CORPORATION
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED CASH FLOW STATEMENTS (Unaudited)
(Dollars in millions)

| Six Months
| 2016 | 2015
OPERATING ACTIVITIES |  |
Net Earnings | $ | 801 |  | $ | 995 |
Adjustments to Reconcile Net Earnings to Net Cash Provided by Operating Activities: |  |
Depreciation | 632 |  | 594 |
Deferred Income Taxes | 165 |  | 33 |
Gain on Property Dispositions | — |  | (19 | )
Other Operating Activities | (27 | ) | 65 |
Changes in Operating Assets and Liabilities: |  |
Accounts Receivable | 66 |  | 101 |
Other Current Assets | (61 | ) | (52 | )
Accounts Payable | — |  | (68 | )
Income and Other Taxes Payable | 27 |  | 78 |
Other Current Liabilities | (11 | ) | (145 | )
Net Cash Provided by Operating Activities | 1,592 |  | 1,582 |
INVESTING ACTIVITIES |  |
Property Additions | (1,066 | ) | (1,288 | )
Purchase of Short-term Investments | (260 | ) | (775 | )
Proceeds from Sales of Short-term Investments | 810 |  | 390 |
Proceeds from Property Dispositions | 8 |  | 47 |
Other Investing Activities | 27 |  | 52 |
Net Cash Used in Investing Activities | (481 | ) | (1,574 | )
FINANCING ACTIVITIES |  |
Long-term Debt Issued (Note 7) | — |  | 600 |
Long-term Debt Repaid (Note 7) | — |  | (210 | )
Dividends Paid | (344 | ) | (336 | )
Shares Repurchased | (515 | ) | (284 | )
Other Financing Activities | (314 | ) | (9 | )
Net Cash Used in Financing Activities | (1,173 | ) | (239 | )
Net Decrease in Cash and Cash Equivalents | (62 | ) | (231 | )
CASH AND CASH EQUIVALENTS |  |
Cash and Cash Equivalents at Beginning of Period | 628 |  | 669 |
Cash and Cash Equivalents at End of Period | $ | 566 |  | $ | 438 |

See accompanying notes to consolidated financial statements.

| CSX Q2 2016 Form 10-Q p.5 |

Table of Contents
CSX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

NOTE 1. | Nature of Operations and Significant Accounting Policies

Background
CSX Corporation (“CSX”), together with its subsidiaries (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 and the transport of intermodal containers and trailers.
CSX's principal operating subsidiary, CSX Transportation, Inc. (“CSXT”), provides an important link to the transportation supply chain through its approximately 21,000 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. The Company's intermodal business, also part of CSXT, links customers to railroads via trucks and terminals.
Other entities
In addition to CSXT, the Company’s subsidiaries include 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. 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 and trucking dispatch operations. 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 include shipments of plastics and ethanol. CSX Technology and other subsidiaries provide support services for the Company.
CSX’s other holdings include CSX Real Property, Inc., a subsidiary responsible for the Company’s operating and non-operating real estate sales, leasing, acquisition and management and development activities. These activities are classified in either operating income or other income - net depending upon the nature of the activity. Results of these activities fluctuate with the timing of real estate transactions.
Basis of Presentation
In the opinion of management, the accompanying consolidated financial statements contain all normal, recurring adjustments necessary to fairly present the following:

• | Consolidated income statements for the six months ended June 24, 2016 and June 26, 2015;

• | Consolidated comprehensive income statements for the six months ended June 24, 2016 and June 26, 2015;

• | Consolidated balance sheets at June 24, 2016 and December 25, 2015; and

• | Consolidated cash flow statements for the six months ended June 24, 2016 and June 26, 2015.

Pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”), certain information and disclosures normally included in the notes to the annual financial statements prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) have been omitted from these interim financial statements. CSX suggests that these financial statements be read in conjunction with the audited financial statements and the notes included in CSX's most recent annual report on Form 10-K and any subsequently filed current reports on Form 8-K.

| CSX Q2 2016 Form 10-Q p.6 |

Table of Contents
CSX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1. Nature of Operations and Significant Accounting Policies, continued
Fiscal Year
CSX follows a 52/53 week fiscal reporting calendar with the last day of each reporting period ending on a Friday:

• | The second fiscal quarters of 2016 and 2015 consisted of 13 weeks ending on June 24, 2016 and June 26, 2015, respectively.

• | Fiscal year 2016 will consist of 53 weeks ending on December 30, 2016.

• | Fiscal year 2015 consisted of 52 weeks ending on December 25, 2015.

Except as otherwise specified, references to “second quarter(s)” or “six months” indicate CSX's fiscal periods ending June 24, 2016 and June 26, 2015, and references to "year-end" indicate the fiscal year ended December 25, 2015.
Allowance for Doubtful Accounts
The Company maintains an allowance for doubtful accounts on uncollectible amounts related to freight receivables, government reimbursement receivables, claims for damages and other various receivables. The allowance is based upon the creditworthiness of customers, historical experience, the age of the receivable and current market and economic conditions. Uncollectible amounts are charged against the allowance account. Allowance for doubtful accounts of $30 million and $37 million is included in the consolidated balance sheets as of the end of second quarter 2016 and December 25, 2015, respectively.
New Accounting Pronouncements
In March 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU"), Improvements to Employee Share-based Payment Accounting, which requires excess tax benefits and deficiencies to be recorded as income tax expense or benefit in the income statement rather than being recorded in additional paid-in capital. The Company adopted the provisions of this ASU during the second quarter of 2016 which did not have a material effect on the Company's financial condition, results of operations or liquidity.
In November 2015, the FASB issued ASU, Balance Sheet Classification of Deferred Taxes, which requires that all deferred income taxes be classified as noncurrent in the balance sheet, rather than being separated into current and noncurrent amounts. The Company adopted the provisions of this ASU during second quarter 2016 and applied them retrospectively. Current deferred income tax assets of $132 million and $126 million as of the end of the second quarter 2016 and December 25, 2015, respectively, are reclassified and reported as a reduction of deferred income tax liabilities on the balance sheet. Adoption did not have a material effect on the Company's financial condition, results of operations or liquidity.
In February 2016, the FASB issued ASU, Leases, which will require lessees to recognize most leases on their balance sheets as a right-of-use asset with a corresponding lease liability, and lessors to recognize a net lease investment. Additional qualitative and quantitative disclosures will also be required. This standard is effective for fiscal years beginning after December 15, 2018. While the Company is still assessing the impact of this standard, CSX does not believe this standard will have a material effect on the Company's financial condition, results of operations or liquidity.

| CSX Q2 2016 Form 10-Q p.7 |

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CSX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 2. Earnings Per Share
The following table sets forth the computation of basic earnings per share and earnings per share, assuming dilution:

| Second Quarters |  | Six Months
| 2016 | 2015 |  | 2016 | 2015
Numerator (Dollars in millions): |  |  |  |  |
Net Earnings | $ | 445 |  | $ | 553 |  |  | $ | 801 |  | $ | 995 |
Dividend Equivalents on Restricted Stock | — |  | — |  |  | (1 | ) | — |
Net Earnings, Attributable to Common Shareholders | $ | 445 |  | 553 |  |  | $ | 800 |  | 995 |
Denominator (Units in millions): |  |  |  |  |
Average Common Shares Outstanding | 952 |  | 988 |  |  | 957 |  | 989 |
Other Potentially Dilutive Common Shares | — |  | 1 |  |  | 1 |  | 1 |
Average Common Shares Outstanding, Assuming Dilution | 952 |  | 989 |  |  | 958 |  | 990 |
Net Earnings Per Share, Basic | $ | 0.47 |  | $ | 0.56 |  |  | $ | 0.84 |  | $ | 1.01 |
Net Earnings Per Share, Assuming Dilution | $ | 0.47 |  | $ | 0.56 |  |  | $ | 0.84 |  | $ | 1.00 |

Basic earnings per share is based on the weighted-average number of shares of common stock outstanding. Earnings per share, assuming dilution, is based on the weighted-average number of shares of common stock equivalents outstanding adjusted for the effects of common stock that may be issued as a result of potentially dilutive instruments. CSX's potentially dilutive instruments are made up of equity awards, which include long-term incentive awards, and employee stock options.
The Earnings Per Share Topic in the FASB's Accounting Standards Codification ("ASC") requires CSX to include additional shares in the computation of earnings per share, assuming dilution. The additional shares included in diluted earnings per share represent the number of shares that would be issued if all of the above potentially dilutive instruments were converted into CSX common stock.
When calculating diluted earnings per share, the Earnings Per Share Topic in the ASC requires CSX to include the potential shares that would be outstanding if all outstanding stock options were exercised. This number is different from outstanding stock options, which is included in Note 3, Share-Based Compensation, because it is offset by shares CSX could repurchase using the proceeds from these hypothetical exercises to obtain the common stock equivalent. Outstanding stock options were excluded from the diluted earnings per share calculation as the effect of their inclusion currently would be anti-dilutive.
Share Repurchases
In April 2015, the Company announced a new $2 billion share repurchase program, which is expected to be completed by April 2017. During the second quarters of 2016 and 2015, the Company repurchased approximately $266 million, or ten million shares, and $157 million, or four million shares, respectively. During the six months of 2016 and 2015, the Company repurchased $515 million, or 20 million shares, and $284 million, or eight million shares, respectively. Shares are retired immediately upon repurchase. 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. In accordance with the Equity Topic in the ASC, the excess of repurchase price over par value is recorded in retained earnings. Generally, retained earnings is only impacted by net earnings and dividends.

| CSX Q2 2016 Form 10-Q p.8 |

Table of Contents
CSX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 3. Share-Based Compensation
Under CSX's share-based compensation plans, awards consist of performance units, restricted stock awards, restricted stock units and stock options for management and stock grants for directors. Awards granted under the various programs are determined and approved by the Compensation Committee of the Board of Directors or, in certain circumstances, by the Chief Executive Officer for awards to management employees other than senior executives. The Board of Directors approves awards granted to the Company's non-management directors upon recommendation of the Governance Committee.
In February 2016, the Company granted performance units, restricted stock units and stock options as part of the Company's long-term share-based compensation plans.
Long-term Incentive Plan
Approximately 839 thousand performance units were granted to certain employees under a new long-term incentive plan ("2016-2018 LTIP"). The 2016-2018 LTIP was adopted under the CSX Stock and Incentive Award Plan. Payouts of performance units for the cycle ending with fiscal year 2018 will be based on the achievement of goals related to both operating ratio and return on assets in each case excluding non-recurring items as disclosed in the Company's financial statements. The cumulative operating ratio and average return on assets over the plan period will each comprise 50% of the payout and will be measured independently of the other.
Grants were made in performance units, with each unit representing the right to receive one share of CSX common stock, and payouts will be made in CSX common stock. The payout range for participants will be between 0% and 200% of the target awards depending on Company performance against predetermined goals. Payouts for certain executive officers are subject to downward adjustment by up to 30% based upon total shareholder return relative to specified comparable groups.
Restricted Stock Units
The Company granted approximately 419 thousand restricted stock units. The restricted stock units vest three years after the date of grant. Participants receive cash dividend equivalents on the unvested shares during the restriction period. These awards are time-based and are not based upon attainment of performance goals.

| CSX Q2 2016 Form 10-Q p.9 |

Table of Contents
CSX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 3. Share-Based Compensation, continued
Stock Options
The Company granted approximately 2.4 million stock options. The fair value of stock options on the date of grant was $4.68 per share which was estimated using the Black-Scholes valuation model. Stock options have been granted with ten-year terms and vest three years after the date of grant. The exercise price for stock options granted equals the closing market price of the underlying stock on the date of grant. These awards are time-based and are not based upon attainment of performance goals.
The terms of performance units, restricted stock units and stock options all require participants to be employed through the final day of the respective performance or vesting period as applicable, except in the case of death, disability or retirement. For information related to the Company's other outstanding long-term incentive compensation, see CSX's most recent annual report on Form 10-K.
Total pre-tax expense associated with all share-based compensation and the related income tax benefit are as follows:

| Second Quarters |  | Six Months
(Dollars in millions) | 2016 | 2015 |  | 2016 | 2015
Share-Based Compensation Expense | $ | 7 |  | $ | 10 |  |  | $ | 15 |  | $ | 18 |
Income Tax Benefit | 3 |  | 4 |  |  | 6 |  | 7 |

NOTE 4. | Casualty, Environmental and Other Reserves

Casualty, environmental and other reserves are considered critical accounting estimates due to the need for significant management judgment. They are provided for in the consolidated balance sheets as shown in the table below:

| June 24, 2016 |  | December 25, 2015
(Dollars in millions) | Current | Long-term | Total |  | Current | Long-term | Total
Casualty: |  |  |  |  |  |  |
Personal Injury | $ | 57 |  | $ | 134 |  | $ | 191 |  |  | $ | 57 |  | $ | 147 |  | $ | 204 |
Asbestos | 12 |  | 34 |  | 46 |  |  | 9 |  | 44 |  | 53 |
Occupational | 4 |  | 5 |  | 9 |  |  | 3 |  | 9 |  | 12 |
Total Casualty | 73 |  | 173 |  | 246 |  |  | 69 |  | 200 |  | 269 |
Environmental | 41 |  | 43 |  | 84 |  |  | 42 |  | 40 |  | 82 |
Other | 19 |  | 30 |  | 49 |  |  | 20 |  | 29 |  | 49 |
Total | $ | 133 |  | $ | 246 |  | $ | 379 |  |  | $ | 131 |  | $ | 269 |  | $ | 400 |

These liabilities are accrued when estimable and probable in accordance with the Contingencies Topic in the ASC. Actual settlements and claims received could differ, and final outcomes of these matters cannot be predicted with certainty. Considering the legal defenses currently available, the liabilities that have been recorded and other factors, it is the opinion of management that none of these items individually, when finally resolved, will have a material effect on the Company's financial condition, results of operations or liquidity. Should a number of these items occur in the same period, however, they could have a material effect on the Company's financial condition, results of operations or liquidity in that particular period.

| CSX Q2 2016 Form 10-Q p.10 |

Table of Contents
CSX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 4. Casualty, Environmental and Other Reserves, continued
Casualty
Casualty reserves of $246 million and $269 million as of June 24, 2016 and December 25, 2015, respectively, represent accruals for personal injury, asbestos and occupational injury claims. The Company's self-insured retention amount for these claims is $50 million per occurrence. Currently, no individual claim is expected to exceed the self-insured retention amount. In accordance with the Contingencies Topic in the ASC, to the extent the value of an individual claim exceeds the self-insured retention amount, the Company would present the liability on a gross basis with a corresponding receivable for insurance recoveries. These reserves fluctuate based upon the timing of payments as well as changes in estimate. Actual results may vary from estimates due to the number, type and severity of the injury, costs of medical treatments and uncertainties in litigation. Most of the Company's casualty claims relate to CSXT unless otherwise noted below. Defense and processing costs, which historically have been insignificant and are anticipated to be insignificant in the future, are not included in the recorded liabilities.
Personal Injury
Personal injury reserves represent liabilities for employee work-related and third-party injuries. Work-related injuries for CSXT employees are primarily subject to the Federal Employers’ Liability Act (“FELA”). In addition to FELA liabilities, employees of other current or former CSX subsidiaries are covered by various state workers’ compensation laws, the Federal Longshore and Harbor Workers’ Compensation Program or the Maritime Jones Act.
CSXT retains an independent actuary to assist management in assessing the value of personal injury claims. An analysis is performed by the actuary quarterly and is reviewed by management. This analysis for the quarter resulted in an immaterial adjustment to the personal injury reserve. 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.
Asbestos & Occupational
The Company is party to a number of asbestos claims by employees alleging exposure to asbestos in the workplace. Management reviews asserted asbestos claims quarterly. Unasserted or incurred but not reported ("IBNR") asbestos claims are analyzed by a third-party specialist and reviewed by management annually.
CSXT’s historical claim filings, settlement amounts, and dismissal rates are analyzed to determine future anticipated claim filing rates and average settlement values for asbestos claims reserves. The potentially exposed population is estimated by using CSXT’s employment records and industry data. From this analysis, the specialist estimates the IBNR claims liabilities.
Occupational claims arise from allegations of exposure to certain materials in the workplace, such as solvents, soaps, chemicals (collectively referred to as “irritants”) and diesel fuels (like exhaust fumes) or allegations of chronic physical injuries resulting from work conditions, such as repetitive stress injuries, carpal tunnel syndrome and hearing loss.

| CSX Q2 2016 Form 10-Q p.11 |

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CSX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 4. Casualty, Environmental and Other Reserves, continued
Environmental
Environmental reserves were $84 million and $82 million as of June 24, 2016 and December 25, 2015, 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 232 environmentally impaired sites. Many of these are, or may be, subject to remedial action under the federal Comprehensive Environmental Response, Compensation and Liability Act of 1980 ("CERCLA"), also known as the Superfund Law, or similar state statutes. Most of these proceedings arose from environmental conditions on properties used for ongoing or discontinued railroad operations. A number of these proceedings, however, are based on allegations that the Company, or its predecessors, sent hazardous substances to facilities owned or operated by others for treatment, recycling or disposal. In addition, some of the Company's land holdings were leased to others for commercial or industrial uses that may have resulted in releases of hazardous substances or other regulated materials onto the property and could give rise to proceedings against the Company.
In any such proceedings, the Company is subject to environmental clean-up and enforcement actions under the Superfund Law, as well as similar state laws that may impose joint and several liability for clean-up and enforcement costs on current and former owners and operators of a site without regard to fault or the legality of the original conduct. These costs could be substantial.
In accordance with the Asset Retirement and Environmental Obligations Topic in the ASC, the Company reviews its role with respect to each site identified at least quarterly, 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.

Based on the review process, the Company has recorded amounts to cover contingent anticipated future environmental remediation costs with respect to each site to the extent such costs are estimable and probable. The recorded liabilities for estimated future environmental costs are undiscounted. The liability includes future costs for remediation and restoration of sites as well as any significant ongoing monitoring costs, but excludes any anticipated insurance recoveries. Payments related to these liabilities are expected to be made over the next several years. Environmental remediation costs are included in materials, supplies and other on the consolidated income statement.
Currently, the Company does not possess sufficient information to reasonably estimate the amounts of additional liabilities, if any, on some sites until completion of future environmental studies. In addition, 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. Based upon information currently available, however, the Company believes its environmental reserves accurately reflect the estimated cost of remedial actions currently required.

| CSX Q2 2016 Form 10-Q p.12 |

Table of Contents
CSX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 4. Casualty, Environmental and Other Reserves, continued
Other
Other reserves of $49 million as of June 24, 2016 and December 25, 2015, include liabilities for various claims, such as property, automobile and general liability. Also included in other reserves are longshoremen disability claims related to a previously owned international shipping business (these claims are in runoff) as well as claims for current port employees.
NOTE 5. Commitments and Contingencies
Insurance
The Company maintains numerous insurance programs with substantial limits for property damage (which includes business interruption) and third-party liability. A certain amount of risk is retained by the Company on each of the property and liability programs. The Company has a $25 million retention per occurrence for the non-catastrophic property program (such as a derailment) and a $50 million retention per occurrence for the liability and catastrophic property programs (such as hurricanes and floods). While the Company believes its insurance coverage is adequate, future claims could exceed existing insurance coverage or insurance may not continue to be available at commercially reasonable rates.
Legal
The Company is involved in litigation incidental to its business and is a party to a number of legal actions and claims, various governmental proceedings and private civil lawsuits, including, but not limited to, those related to fuel surcharge practices, tax matters, environmental and hazardous material exposure matters, FELA and labor claims by current or former employees, other personal injury or property claims and disputes and complaints involving certain transportation rates and charges. Some of the legal proceedings include claims for compensatory as well as punitive damages and others are, or are purported to be, class actions. While the final outcome of these matters cannot be reasonably determined, considering, among other things, the legal defenses available and liabilities that have been recorded along with applicable insurance, it is currently the opinion of management that none of these pending items is likely to have a material adverse effect on the Company's financial condition, results of operations or liquidity. An unexpected adverse resolution of one or more of these items, however, could have a material adverse effect on the Company's financial condition, results of operations or liquidity in that particular period.
The Company is able to estimate a range of possible loss for certain legal proceedings for which a loss is reasonably possible in excess of reserves established. The Company has estimated this range to be $2 million to $101 million in aggregate at June 24, 2016. This estimated aggregate range is based upon currently available information and is subject to significant judgment and a variety of assumptions. Accordingly, the Company's estimate will change from time to time, and actual losses may vary significantly from the current estimate.

| CSX Q2 2016 Form 10-Q p.13 |

Table of Contents
CSX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 5. Commitments and Contingencies, continued
Fuel Surcharge Antitrust Litigation
In May 2007, class action lawsuits were filed against CSXT and three other U.S.-based Class I railroads alleging that the defendants' fuel surcharge practices relating to contract and unregulated traffic resulted from an illegal conspiracy in violation of antitrust laws. In November 2007, the class action lawsuits were consolidated in federal court in the District of Columbia, where they are now pending. The suit seeks treble damages allegedly sustained by purported class members as well as attorneys' fees and other relief. Plaintiffs are expected to allege damages at least equal to the fuel surcharges at issue.
In June 2012, the District Court certified the case as a class action. The decision was not a ruling on the merits of plaintiffs' claims, but rather a decision to allow the plaintiffs to seek to prove the case as a class. The defendant railroads petitioned the U.S. Court of Appeals for the D.C. Circuit for permission to appeal the District Court's class certification decision. In August 2013, the D.C. Circuit issued a decision vacating the class certification decision and remanded the case to the District Court to reconsider its class certification decision. The District Court remand proceedings are underway and a class certification hearing is scheduled for September 2016. The District Court has delayed proceedings on the merits of the case pending the outcome of the class certification remand proceedings.
CSXT believes that its fuel surcharge practices were arrived at and applied lawfully and that the case is without merit. Accordingly, the Company intends to defend itself vigorously. However, penalties for violating antitrust laws can be severe, and resolution of this matter or an unexpected adverse decision on the merits could have a material adverse effect on the Company's financial condition, results of operations or liquidity in that particular period.
Environmental
CSXT is indemnifying Pharmacia LLC (formerly known as Monsanto Company) for certain liabilities associated with real estate located in Kearny, New Jersey along the Lower Passaic River (the “Property”). The Property, which was formerly owned by Pharmacia, is now owned by CSXT. CSXT's indemnification and defense duties arise with respect to several matters. The U.S. Environmental Protection Agency ("EPA"), using its CERCLA authority, seeks cleanup and removal costs and other damages associated with the presence of hazardous substances in the 17-mile Lower Passaic River Study Area (the "Study Area”). CSXT, on behalf of Pharmacia, and a significant number of other potentially responsible parties are together conducting a Remedial Investigation and Feasibility Study of the Study Area pursuant to an Administrative Settlement Agreement and Order on Consent with the EPA.
In March 2016, EPA issued its Record of Decision detailing the agency’s mandated remedial process for the lower 8 miles of the Study Area, which was based on a Focused Feasibility Study. EPA has estimated that it will take the potentially responsible parties approximately ten years to complete the work. At a later date, EPA will select a remedy for the remainder of the Study Area and is expected to again seek the participation of private parties to implement the selected remedy using EPA’s CERCLA authority to compel such participation, if necessary.
CSXT is also defending and indemnifying Pharmacia in a cooperative natural resource damages assessment process related to the Property. Based on currently available information, the Company does not believe any indemnification or remediation costs potentially allocable to CSXT with respect to the Property and the Study Area would be material to the Company's financial condition, results of operations or liquidity.

| CSX Q2 2016 Form 10-Q p.14 |

Table of Contents
CSX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 6. Employee Benefit Plans
The Company sponsors defined benefit pension plans principally for salaried, management personnel. For employees hired prior to January 1, 2003, the plans provide eligible employees with retirement benefits based predominantly on years of service and compensation rates near retirement. For employees hired in 2003 or thereafter, benefits are determined based on a cash balance formula, which provides benefits by utilizing interest and pay credits based upon age, service and compensation.
In addition to these plans, the Company sponsors a post-retirement medical plan and a life insurance plan that provide benefits to full-time, salaried, management employees, hired prior to January 1, 2003, upon their retirement if certain eligibility requirements are met. Eligible retirees who are age 65 years or older (Medicare-eligible) are covered by a health reimbursement arrangement, which is an employer-funded account that can be used for reimbursement of eligible medical expenses. Eligible retirees younger than 65 years (non-Medicare eligible) are covered by a self-insured program partially funded by participating retirees. The life insurance plan is non-contributory.
The Company engages independent actuaries to compute the amounts of liabilities and expenses relating to these plans subject to the assumptions that the Company selects. These amounts are reviewed by management. The following table describes the components of expense / (income) related to net benefit expense recorded in labor and fringe on the income statement.

| Pension Benefits
(Dollars in millions) | Second Quarters |  | Six Months
| 2016 | 2015 |  | 2016 | 2015
Service Cost | $ | 12 |  | $ | 11 |  |  | $ | 24 |  | $ | 22 |
Interest Cost | 30 |  | 29 |  |  | 60 |  | 58 |
Expected Return on Plan Assets | (40 | ) | (41 | ) |  | (79 | ) | (81 | )
Amortization of Net Loss | 12 |  | 18 |  |  | 24 |  | 35 |
Net Periodic Benefit Cost | 14 |  | 17 |  |  | 29 |  | 34 |
Special Termination Benefits – Workforce Reduction Program(a) | — |  | — |  |  | — |  | 7 |
Total Expense | $ | 14 |  | $ | 17 |  |  | $ | 29 |  | $ | 41 |
| Other Post-retirement Benefits
(Dollars in millions) | Second Quarters |  | Six Months
| 2016 | 2015 |  | 2016 | 2015
Service Cost | $ | 1 |  | $ | — |  |  | $ | 1 |  | $ | 1 |
Interest Cost | 3 |  | 3 |  |  | 6 |  | 7 |
Amortization of Net Loss | — |  | 1 |  |  | 1 |  | 2 |
Total Expense | $ | 4 |  | $ | 4 |  |  | $ | 8 |  | $ | 10 |

(a) Special termination benefits were charges in 2015 that resulted from a management workforce reduction program initiated in 2014.
Qualified pension plan obligations are funded in accordance with regulatory requirements and with an objective of meeting minimum funding requirements necessary to avoid restrictions on flexibility of plan operation and benefit payments. No required contributions to the Company's qualified pension plans are expected in 2016.

| CSX Q2 2016 Form 10-Q p.15 |

Table of Contents
CSX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 7. Debt and Credit Agreements
Total activity related to long-term debt as of the end of second quarter 2016 is shown in the table below. For fair value information related to the Company's long-term debt, see Note 9, Fair Value Measurements.

(Dollars in millions) | Current Portion | Long-term Portion | Total
Long-term debt as of December 2015 (a) | $ | 20 |  | $ | 10,515 |  | $ | 10,535 |
2016 activity: |  |  |
Reclassifications | 612 |  | (612 | ) | — |
Discount and premium activity | — |  | (2 | ) | (2 | )
Debt issue cost activity | — |  | 4 |  | 4 |
Long-term debt as of second quarter 2016 | $ | 632 |  | $ | 9,905 |  | $ | 10,537 |

(a) Long-term debt as of December 2015 includes debt issue costs of $168 million that were reclassed from long-term assets to long-term debt on the consolidated balance sheet as a result of ASU, Interest - Imputation of Interest, which became effective for CSX during first quarter 2016.
Credit Facility
CSX has a $1 billion unsecured, revolving credit facility backed by a diverse syndicate of banks. This facility expires in May 2020, and as of the date of this filing, the Company has no outstanding balances under this facility. The facility allows borrowings at floating (LIBOR-based) interest rates, plus a spread, depending upon CSX's senior unsecured debt ratings. LIBOR is the London Interbank Offered Rate which is a daily reference rate based on the interest rates at which banks offer to lend unsecured funds. As of second quarter 2016, CSX was in compliance with all covenant requirements under this facility.
Receivables Securitization Facility
The Company has a receivables securitization facility with a three-year term scheduled to expire in June 2017, however, the Company intends to renew and modify this facility before the end of 2016. The purpose of this facility is to provide an alternative to commercial paper and a low cost source of short-term liquidity of up to $250 million, depending on eligible receivables balances. As of the date of this filing, the Company has no outstanding balances under this facility.
NOTE 8. Income Taxes
There have been no material changes to the balance of unrecognized tax benefits on the consolidated balance sheet during second quarters 2016 and 2015.
NOTE 9. Fair Value Measurements
The Financial Instruments Topic in the ASC requires disclosures about fair value of financial instruments in annual reports as well as in quarterly reports. For CSX, this statement applies to certain investments and long-term debt. Disclosure of the fair value of pension plan assets is only required annually. Also, this rule clarifies the definition of fair value for financial reporting, establishes a framework for measuring fair value and requires additional disclosures about the use of fair value measurements.

| CSX Q2 2016 Form 10-Q p.16 |

Table of Contents
CSX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 9. Fair Value Measurements, continued
Various inputs are considered when determining the value of the Company's investments, pension plan assets and long-term debt. The inputs or methodologies used for valuing securities are not necessarily an indication of the risk associated with investing in these securities. These inputs are summarized in the three broad levels listed below.

• | Level 1 - observable market inputs that are unadjusted quoted prices for identical assets or liabilities in active markets;

• | Level 2 - other significant observable inputs (including quoted prices for similar securities, interest rates, credit risk, etc.); and

• | Level 3 - significant unobservable inputs (including the Company's own assumptions about the assumptions market participants would use in determining the fair value of investments).

The valuation methods described below may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. Furthermore, while the Company believes its valuation methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different fair value measurement at the reporting date.
Investments
The Company's investment assets, valued with assistance from a third-party trustee, consist of certificates of deposits, commercial paper, corporate bonds, government securities and auction rate securities and are carried at fair value on the consolidated balance sheet per the Fair Value Measurements and Disclosures Topic in the ASC. There are several valuation methodologies used for those assets as described below.

• | Certificates of Deposit and Commercial Paper (Level 2): Valued at amortized cost, which approximates fair value;

• | Corporate Bonds and Government Securities (Level 2): Valued using broker quotes that utilize observable market inputs; and

• | Auction Rate Securities (Level 3): Valued using pricing models for which the assumptions utilize management’s estimates of market participant assumptions, because there is currently no active market for trading.

The Company's investment assets are carried at fair value on the consolidated balance sheets as summarized in the table below. Additionally, the amortized cost basis of these investments was $335 million and $920 million as of June 24, 2016 and December 25, 2015, respectively.

| June 24, 2016 |  | December 25, 2015
(Dollars in Millions) | Level 1 | Level 2 | Level 3 | Total |  | Level 1 | Level 2 | Level 3 | Total
Certificates of Deposit and Commercial Paper | $ | — |  | $ | 260 |  | $ | — |  | $ | 260 |  |  | $ | — |  | $ | 810 |  | $ | — |  | $ | 810 |
Corporate Bonds | — |  | 61 |  | — |  | 61 |  |  | — |  | 73 |  | — |  | 73 |
Government Securities | — |  | 16 |  | — |  | 16 |  |  | — |  | 32 |  | — |  | 32 |
Auction Rate Securities | — |  | — |  | — |  | — |  |  | — |  | — |  | 4 |  | 4 |
Total investments at fair value | $ | — |  | $ | 337 |  | $ | — |  | $ | 337 |  |  | $ | — |  | $ | 915 |  | $ | 4 |  | $ | 919 |

| CSX Q2 2016 Form 10-Q p.17 |

Table of Contents
CSX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 9. Fair Value Measurements, continued
These investments have the following maturities:

(Dollars in millions) | June 24, 2016 |  | December 25, 2015
Less than 1 year | $ | 262 |  |  | $ | 810 |
1 - 2 years | 7 |  |  | 9 |
2 - 5 years | 3 |  |  | 27 |
Greater than 5 years | 65 |  |  | 73 |
Total | $ | 337 |  |  | $ | 919 |

Long-term Debt
Long-term debt is reported at carrying amount on the consolidated balance sheets and is the Company's only financial instrument with fair values significantly different from their carrying amounts. The majority of the Company's long-term debt is valued with assistance from an independent third party adviser that utilizes closing transactions, market quotes or market values of comparable debt. For those instruments not valued by the independent adviser, the fair value has been estimated by applying market rates of similar instruments to the scheduled contractual debt payments and maturities. These market rates are provided by the same independent adviser. All of the inputs used to determine the fair value of the Company's long-term debt are Level 2 inputs.
The fair value of outstanding debt fluctuates with changes in a number of factors. Such factors include, but are not limited to, interest rates, market conditions, credit ratings, values of similar financial instruments, size of the transaction, cash flow projections and comparable trades. Fair value will exceed carrying value when the current market interest rate is lower than the interest rate at which the debt was originally issued. The fair value of a company's debt is a measure of its current value under present market conditions. It does not impact the financial statements under current accounting rules.
The fair value and carrying value of the Company's long-term debt is as follows:

(Dollars in millions) | June 24, 2016 |  | December 25, 2015
Long-term Debt (Including Current Maturities): |  |  |
Fair Value | $ | 12,174 |  |  | $ | 11,340 |
Carrying Value | 10,537 |  |  | 10,535 |

| CSX Q2 2016 Form 10-Q p.18 |

Table of Contents
CSX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 10. 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. Total comprehensive earnings represent the activity for a period net of tax and were $454 million and $565 million for second quarters, and $817 million and $1 billion for six months 2016 and 2015, 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 and CSX's share of AOCI of equity method investees.
Changes in the AOCI balance by component are shown in the table below. Amounts reclassified in pension and other post-employment benefits to net earnings relate to the amortization of actuarial losses and are included in labor and fringe on the consolidated income statements. See Note 6. Employee Benefit Plans 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 on the consolidated income statements.

| Pension and Other Post-Employment Benefits | Other | Accumulated Other Comprehensive Income (Loss)
(Dollars in millions) |  |  |
Balance December 25, 2015, Net of Tax | $ | (601 | ) | $ | (64 | ) | $ | (665 | )
Other Comprehensive Income (Loss) |  |  |
Loss Before Reclassifications | — |  | (1 | ) | (1 | )
Amounts Reclassified to Net Earnings | 25 |  | 3 |  | 28 |
Tax Expense | (9 | ) | (2 | ) | (11 | )
Total Other Comprehensive Income (Loss) | 16 |  | — |  | 16 |
Balance June 24, 2016, Net of Tax | $ | (585 | ) | $ | (64 | ) | $ | (649 | )

NOTE 11. Summarized Consolidating Financial Data
In 2007, CSXT, a wholly-owned subsidiary of CSX Corporation, sold secured equipment notes maturing in 2023 in a registered public offering. CSX has fully and unconditionally guaranteed the notes. In connection with the notes, the Company is providing the following condensed consolidating financial information in accordance with SEC disclosure requirements. Each entity in the consolidating financial information follows the same accounting policies as described in the consolidated financial statements, except for the use of the equity method of accounting to reflect ownership interests in subsidiaries which are eliminated upon consolidation and the allocation of certain expenses of CSX incurred for the benefit of its subsidiaries. Condensed consolidating financial information for the obligor, CSXT, and parent guarantor, CSX, is shown in the tables below.

| CSX Q2 2016 Form 10-Q p.19 |

Table of Contents
CSX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 11. Summarized Consolidating Financial Data, continued

Consolidating Income Statements
(Dollars in millions)
Second Quarter 2016 | CSX Corporation | CSX Transportation | Eliminations and Other | Consolidated
Revenue | $ | — |  | $ | 2,685 |  | $ | 19 |  | $ | 2,704 |
Expense | (67 | ) | 1,961 |  | (30 | ) | 1,864 |
Operating Income | 67 |  | 724 |  | 49 |  | 840 |
Equity in Earnings of Subsidiaries | 493 |  | — |  | (493 | ) | — |
Interest (Expense) / Benefit | (141 | ) | (10 | ) | 10 |  | (141 | )
Other Income / (Expense) - Net | — |  | 8 |  | — |  | 8 |
Earnings Before Income Taxes | 419 |  | 722 |  | (434 | ) | 707 |
Income Tax Benefit / (Expense) | 26 |  | (269 | ) | (19 | ) | (262 | )
Net Earnings | $ | 445 |  | $ | 453 |  | $ | (453 | ) | $ | 445 |
Total Comprehensive Earnings | $ | 454 |  | $ | 454 |  | $ | (454 | ) | $ | 454 |
Second Quarter 2015 | CSX Corporation | CSX Transportation | Eliminations and Other | Consolidated
Revenue | $ | — |  | $ | 3,045 |  | $ | 19 |  | $ | 3,064 |
Expense | (146 | ) | 2,239 |  | (46 | ) | 2,047 |
Operating Income | 146 |  | 806 |  | 65 |  | 1,017 |
Equity in Earnings of Subsidiaries | 546 |  | — |  | (546 | ) | — |
Interest (Expense) / Benefit | (132 | ) | (9 | ) | 7 |  | (134 | )
Other Income / (Expense) - Net | (2 | ) | 7 |  | (1 | ) | 4 |
Earnings Before Income Taxes | 558 |  | 804 |  | (475 | ) | 887 |
Income Tax (Expense) / Benefit | (5 | ) | (305 | ) | (24 | ) | (334 | )
Net Earnings | $ | 553 |  | $ | 499 |  | $ | (499 | ) | $ | 553 |
Total Comprehensive Earnings | $ | 565 |  | $ | 499 |  | $ | (499 | ) | $ | 565 |

| CSX Q2 2016 Form 10-Q p.20 |

Table of Contents
CSX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 11. Summarized Consolidating Financial Data, continued

Consolidating Income Statements
(Dollars in millions)
Six Months 2016 | CSX Corporation | CSX Transportation | Eliminations and Other | Consolidated
Revenue | $ | — |  | $ | 5,283 |  | $ | 39 |  | $ | 5,322 |
Expense | (139 | ) | 4,025 |  | (108 | ) | 3,778 |
Operating Income | 139 |  | 1,258 |  | 147 |  | 1,544 |
Equity in Earnings of Subsidiaries | 894 |  | — |  | (894 | ) | — |
Interest (Expense) / Benefit | (284 | ) | (20 | ) | 20 |  | (284 | )
Other Income / (Expense) - Net | 1 |  | 15 |  | (1 | ) | 15 |
Earnings Before Income Taxes | 750 |  | 1,253 |  | (728 | ) | 1,275 |
Income Tax (Expense) / Benefit | 51 |  | (467 | ) | (58 | ) | (474 | )
Net Earnings | $ | 801 |  | $ | 786 |  | $ | (786 | ) | $ | 801 |
Total Comprehensive Earnings | $ | 817 |  | $ | 786 |  | $ | (786 | ) | $ | 817 |
Six Months 2015 | CSX Corporation | CSX Transportation | Eliminations and Other | Consolidated
Revenue | $ | — |  | $ | 6,052 |  | $ | 39 |  | $ | 6,091 |
Expense | (294 | ) | 4,583 |  | (58 | ) | 4,231 |
Operating Income | 294 |  | 1,469 |  | 97 |  | 1,860 |
Equity in Earnings of Subsidiaries | 986 |  | — |  | (986 | ) | — |
Interest (Expense) / Benefit | (265 | ) | (16 | ) | 13 |  | (268 | )
Other Income / (Expense) - Net | (3 | ) | 13 |  | (4 | ) | 6 |
Earnings Before Income Taxes | 1,012 |  | 1,466 |  | (880 | ) | 1,598 |
Income Tax (Expense) / Benefit | (17 | ) | (551 | ) | (35 | ) | (603 | )
Net Earnings | $ | 995 |  | $ | 915 |  | $ | (915 | ) | $ | 995 |
Total Comprehensive Earnings | $ | 1,005 |  | $ | 912 |  | $ | (912 | ) | $ | 1,005 |

| CSX Q2 2016 Form 10-Q p.21 |

Table of Contents
CSX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 11. Summarized Consolidating Financial Data, continued

Consolidating Balance Sheet
(Dollars in millions)
June 24, 2016 | CSX Corporation | CSX Transportation | Eliminations and Other | Consolidated
ASSETS
Current Assets |  |  |  |
Cash and Cash Equivalents | $ | 420 |  | $ | 127 |  | $ | 19 |  | $ | 566 |
Short-term Investments | 260 |  | — |  | 2 |  | 262 |
Accounts Receivable - Net | (1 | ) | 182 |  | 731 |  | 912 |
Receivable from Affiliates | 1,088 |  | 2,268 |  | (3,356 | ) | — |
Materials and Supplies | — |  | 399 |  | — |  | 399 |
Other Current Assets | 7 |  | 66 |  | 16 |  | 89 |
Total Current Assets | 1,774 |  | 3,042 |  | (2,588 | ) | 2,228 |
Properties | 1 |  | 39,727 |  | 2,617 |  | 42,345 |
Accumulated Depreciation | (1 | ) | (10,343 | ) | (1,394 | ) | (11,738 | )
Properties - Net | — |  | 29,384 |  | 1,223 |  | 30,607 |
Investments in Conrail | — |  | — |  | 818 |  | 818 |
Affiliates and Other Companies | (39 | ) | 618 |  | 16 |  | 595 |
Investments in Consolidated Subsidiaries | 23,322 |  | — |  | (23,322 | ) | — |
Other Long-term Assets | 3 |  | 400 |  | (101 | ) | 302 |
Total Assets | $ | 25,060 |  | $ | 33,444 |  | $ | (23,954 | ) | $ | 34,550 |
LIABILITIES AND SHAREHOLDERS' EQUITY |  |
Current Liabilities |  |  |  |
Accounts Payable | $ | 108 |  | $ | 633 |  | $ | 25 |  | $ | 766 |
Labor and Fringe Benefits Payable | 36 |  | 394 |  | 34 |  | 464 |
Payable to Affiliates | 3,304 |  | 407 |  | (3,711 | ) | — |
Casualty, Environmental and Other Reserves | — |  | 117 |  | 16 |  | 133 |
Current Maturities of Long-term Debt | 613 |  | 19 |  | — |  | 632 |
Income and Other Taxes Payable | (334 | ) | 445 |  | 26 |  | 137 |
Other Current Liabilities | — |  | 148 |  | 2 |  | 150 |
Total Current Liabilities | 3,727 |  | 2,163 |  | (3,608 | ) | 2,282 |
Casualty, Environmental and Other Reserves | — |  | 197 |  | 49 |  | 246 |
Long-term Debt | 9,125 |  | 780 |  | — |  | 9,905 |
Deferred Income Taxes - Net | (197 | ) | 9,317 |  | 235 |  | 9,355 |
Other Long-term Liabilities | 793 |  | 469 |  | (125 | ) | 1,137 |
Total Liabilities | $ | 13,448 |  | $ | 12,926 |  | $ | (3,449 | ) | $ | 22,925 |
Shareholders' Equity |  |  |  |
Common Stock, $1 Par Value | $ | 946 |  | $ | 181 |  | $ | (181 | ) | $ | 946 |
Other Capital | 116 |  | 5,092 |  | (5,092 | ) | 116 |
Retained Earnings | 11,199 |  | 15,259 |  | (15,259 | ) | 11,199 |
Accumulated Other Comprehensive Loss | (649 | ) | (31 | ) | 31 |  | (649 | )
Noncontrolling Interest | — |  | 17 |  | (4 | ) | 13 |
Total Shareholders' Equity | $ | 11,612 |  | $ | 20,518 |  | $ | (20,505 | ) | $ | 11,625 |
Total Liabilities and Shareholders' Equity | $ | 25,060 |  | $ | 33,444 |  | $ | (23,954 | ) | $ | 34,550 |

Certain prior year data has been reclassified to conform to the current presentation.

| CSX Q2 2016 Form 10-Q p.22 |

Table of Contents
CSX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 11. Summarized Consolidating Financial Data, continued

Consolidating Balance Sheet (Dollars in millions)
December 25, 2015 | CSX Corporation | CSX Transportation | Eliminations and Other | Consolidated
ASSETS
Current Assets |  |  |  |
Cash and Cash Equivalents | $ | 444 |  | $ | 175 |  | $ | 9 |  | $ | 628 |
Short-term Investments | 810 |  | — |  | — |  | 810 |
Accounts Receivable - Net | 1 |  | 198 |  | 783 |  | 982 |
Receivable from Affiliates | 1,092 |  | 2,038 |  | (3,130 | ) | — |
Materials and Supplies | — |  | 350 |  | — |  | 350 |
Other Current Assets | (59 | ) | 120 |  | 9 |  | 70 |
Total Current Assets | 2,288 |  | 2,881 |  | (2,329 | ) | 2,840 |
Properties | 1 |  | 38,964 |  | 2,609 |  | 41,574 |
Accumulated Depreciation | (1 | ) | (10,016 | ) | (1,383 | ) | (11,400 | )
Properties - Net | — |  | 28,948 |  | 1,226 |  | 30,174 |
Investments in Conrail | — |  | — |  | 803 |  | 803 |
Affiliates and Other Companies | (39 | ) | 658 |  | (28 | ) | 591 |
Investment in Consolidated Subsidiaries | 22,755 |  | — |  | (22,755 | ) | — |
Other Long-term Assets | 8 |  | 399 |  | (70 | ) | 337 |
Total Assets | $ | 25,012 |  | $ | 32,886 |  | $ | (23,153 | ) | $ | 34,745 |
LIABILITIES AND SHAREHOLDERS' EQUITY |  |
Current Liabilities |  |  |  |
Accounts Payable | $ | 108 |  | $ | 626 |  | $ | 30 |  | $ | 764 |
Labor and Fringe Benefits Payable | 36 |  | 407 |  | 47 |  | 490 |
Payable to Affiliates | 2,954 |  | 437 |  | (3,391 | ) | — |
Casualty, Environmental and Other Reserves | — |  | 115 |  | 16 |  | 131 |
Current Maturities of Long-term Debt | 1 |  | 19 |  | — |  | 20 |
Income and Other Taxes Payable | (87 | ) | 183 |  | 12 |  | 108 |
Other Current Liabilities | — |  | 437 |  | 2 |  | 439 |
Total Current Liabilities | 3,012 |  | 2,224 |  | (3,284 | ) | 1,952 |
Casualty, Environmental and Other Reserves | — |  | 219 |  | 50 |  | 269 |
Long-term Debt | 9,732 |  | 783 |  | — |  | 10,515 |
Deferred Income Taxes - Net | (188 | ) | 9,141 |  | 226 |  | 9,179 |
Other Long-term Liabilities | 804 |  | 484 |  | (126 | ) | 1,162 |
Total Liabilities | $ | 13,360 |  | $ | 12,851 |  | $ | (3,134 | ) | $ | 23,077 |
Shareholders' Equity |  |  |  |
Common Stock, $1 Par Value | $ | 966 |  | $ | 181 |  | $ | (181 | ) | $ | 966 |
Other Capital | 113 |  | 5,091 |  | (5,091 | ) | 113 |
Retained Earnings | 11,238 |  | 14,774 |  | (14,774 | ) | 11,238 |
Accumulated Other Comprehensive Loss | (665 | ) | (31 | ) | 31 |  | (665 | )
Noncontrolling Minority Interest | — |  | 20 |  | (4 | ) | 16 |
Total Shareholders' Equity | $ | 11,652 |  | $ | 20,035 |  | $ | (20,019 | ) | $ | 11,668 |
Total Liabilities and Shareholders' Equity | $ | 25,012 |  | $ | 32,886 |  | $ | (23,153 | ) | $ | 34,745 |

Certain prior year data has been reclassified to conform to the current presentation.

| CSX Q2 2016 Form 10-Q p.23 |

Table of Contents
CSX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 11. Summarized Consolidating Financial Data, continued

Consolidating Cash Flow Statements
(Dollars in millions)
Six Months 2016 | CSX Corporation | CSX Transportation | Eliminations and Other | Consolidated
Operating Activities |  |  |  |
Net Cash Provided by (Used in) Operating Activities | $ | 295 |  | $ | 1,449 |  | $ | (152 | ) | $ | 1,592 |
Investing Activities |  |  |  |
Property Additions | — |  | (994 | ) | (72 | ) | (1,066 | )
Purchases of Short-term Investments | (260 | ) | — |  | — |  | (260 | )
Proceeds from Sales of Short-term Investments | 810 |  | — |  | — |  | 810 |
Proceeds from Property Dispositions | — |  | 8 |  | — |  | 8 |
Other Investing Activities | (2 | ) | 96 |  | (67 | ) | 27 |
Net Cash Provided by (Used in) Investing Activities | 548 |  | (890 | ) | (139 | ) | (481 | )
Financing Activities |  |  |  |
Long-term Debt Issued | — |  | — |  | — |  | — |
Long-term Debt Repaid | — |  | — |  | — |  | — |
Dividends Paid | (344 | ) | (300 | ) | 300 |  | (344 | )
Stock Options Exercised | — |  | — |  | — |  | — |
Shares Repurchased | (515 | ) | — |  | — |  | (515 | )
Other Financing Activities | (8 | ) | (307 | ) | 1 |  | (314 | )
Net Cash Provided by (Used in) Financing Activities | (867 | ) | (607 | ) | 301 |  | (1,173 | )
Net Increase (Decrease) in Cash and Cash Equivalents | (24 | ) | (48 | ) | 10 |  | (62 | )
Cash and Cash Equivalents at Beginning of Period | 444 |  | 175 |  | 9 |  | 628 |
Cash and Cash Equivalents at End of Period | $ | 420 |  | $ | 127 |  | $ | 19 |  | $ | 566 |

| CSX Q2 2016 Form 10-Q p.24 |

Table of Contents
CSX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 11. Summarized Consolidating Financial Data, continued

Consolidating Cash Flow Statements
(Dollars in millions)
Six Months 2015 | CSX Corporation | CSX Transportation | Eliminations and Other | Consolidated
Operating Activities |  |  |  |
Net Cash Provided by (Used in) Operating Activities | $ | 367 |  | $ | 1,530 |  | $ | (315 | ) | $ | 1,582 |
Investing Activities |  |  |  |
Property Additions | — |  | (1,215 | ) | (73 | ) | (1,288 | )
Purchases of Short-term Investments | (775 | ) | — |  | — |  | (775 | )
Proceeds from Sales of Short-term Investments | 355 |  | — |  | 35 |  | 390 |
Proceeds from Property Dispositions | — |  | 46 |  | 1 |  | 47 |
Other Investing Activities | (11 | ) | 72 |  | (9 | ) | 52 |
Net Cash Provided by (Used in) Investing Activities | (431 | ) | (1,097 | ) | (46 | ) | (1,574 | )
Financing Activities |  |  |  |
Long-term Debt Issued | 600 |  | — |  | — |  | 600 |
Long-term Debt Repaid | (200 | ) | (10 | ) | — |  | (210 | )
Dividends Paid | (336 | ) | (375 | ) | 375 |  | (336 | )
Stock Options Exercised |  |  |  |  | — |  | — |
Shares Repurchased | (284 | ) | — |  | — |  | (284 | )
Other Financing Activities | 7 |  | (4 | ) | (12 | ) | (9 | )
Net Cash Provided by (Used in) Financing Activities | (213 | ) | (389 | ) | 363 |  | (239 | )
Net Increase (Decrease) in Cash and Cash Equivalents | (277 | ) | 44 |  | 2 |  | (231 | )
Cash and Cash Equivalents at Beginning of Period | 510 |  | 100 |  | 59 |  | 669 |
Cash and Cash Equivalents at End of Period | $ | 233 |  | $ | 144 |  | $ | 61 |  | $ | 438 |

| CSX Q2 2016 Form 10-Q p.25 |

Table of Contents
CSX CORPORATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
SECOND QUARTER 2016 HIGHLIGHTS

• | Revenue declined $360 million to $2.7 billion or 12 percent from a year ago.

• | Expenses of $1.9 billion decreased $183 million or 9 percent year over year.

• | Operating income of $840 million decreased $177 million or 17 percent year over year.

• | Operating ratio of 68.9% increased 210 basis points versus last year's quarter.

• | Earnings per share of $0.47 decreased $0.09 or 16 percent year over year.

| Second Quarters |  | Six Months
| 2016 | 2015 | Fav / (Unfav) | % Change |  | 2016 | 2015 | Fav / (Unfav) | % Change
Volume (in thousands) | 1,595 |  | 1,759 |  | (164 | ) | (9)% |  | 3,146 |  | 3,394 |  | (248 | ) | (7)%
(in millions) |  |  |  |  |  |  |  |  |
Revenue | $ | 2,704 |  | $ | 3,064 |  | $ | (360 | ) | (12)% |  | $ | 5,322 |  | $ | 6,091 |  | $ | (769 | ) | (13)%
Expense | 1,864 |  | 2,047 |  | 183 |  | 9% |  | 3,778 |  | 4,231 |  | 453 |  | 11%
Operating Income | $ | 840 |  | $ | 1,017 |  | $ | (177 | ) | (17)% |  | $ | 1,544 |  | $ | 1,860 |  | $ | (316 | ) | (17)%
Operating Ratio | 68.9 | % | 66.8 | % | (210 | ) | bps |  | 71.0 | % | 69.5 | % | (150 | ) | bps
Earnings Per Diluted Share | $ | 0.47 |  | $ | 0.56 |  | $ | (0.09 | ) | (16)% |  | $ | 0.84 |  | $ | 1.00 |  | $ | (0.16 | ) | (16)%

For additional information, refer to Results of Operations discussed on pages 27 through 30.

| CSX Q2 2016 Form 10-Q p.26 |

Table of Contents
CSX CORPORATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS

Volume and Revenue (Unaudited)
Volume (Thousands of units); Revenue (Dollars in Millions); Revenue Per Unit (Dollars)
Second Quarters
| Volume |  | Revenue |  | Revenue Per Unit
| 2016 |  | 2015 |  | % Change |  | 2016 |  | 2015 |  | % Change |  | 2016 |  | 2015 |  | % Change
Agricultural |  |  |  |  |  |  |  |  |
Agricultural Products | 93 |  |  | 101 |  |  | (8 | )% |  | $ | 243 |  |  | $ | 266 |  |  | (9 | )% |  | $ | 2,613 |  |  | $ | 2,634 |  |  | (1 | )%
Phosphates and Fertilizers | 72 |  |  | 78 |  |  | (8 | ) |  | 114 |  |  | 122 |  |  | (7 | ) |  | 1,583 |  |  | 1,564 |  |  | 1 |
Food and Consumer | 23 |  |  | 24 |  |  | (4 | ) |  | 64 |  |  | 68 |  |  | (6 | ) |  | 2,783 |  |  | 2,833 |  |  | (2 | )
Industrial |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Chemicals | 138 |  |  | 158 |  |  | (13 | ) |  | 478 |  |  | 530 |  |  | (10 | ) |  | 3,464 |  |  | 3,354 |  |  | 3 |
Automotive | 121 |  |  | 120 |  |  | 1 |  |  | 313 |  |  | 313 |  |  | — |  |  | 2,587 |  |  | 2,608 |  |  | (1 | )
Metals | 56 |  |  | 61 |  |  | (8 | ) |  | 146 |  |  | 156 |  |  | (6 | ) |  | 2,607 |  |  | 2,557 |  |  | 2 |
Housing and Construction |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Forest Products | 68 |  |  | 74 |  |  | (8 | ) |  | 192 |  |  | 202 |  |  | (5 | ) |  | 2,824 |  |  | 2,730 |  |  | 3 |
Minerals | 95 |  |  | 84 |  |  | 13 |  |  | 137 |  |  | 123 |  |  | 11 |  |  | 1,442 |  |  | 1,464 |  |  | (2 | )
Waste and Equipment | 40 |  |  | 41 |  |  | (2 | ) |  | 85 |  |  | 78 |  |  | 9 |  |  | 2,125 |  |  | 1,902 |  |  | 12 |
Total Merchandise | 706 |  |  | 741 |  |  | (5 | ) |  | 1,772 |  |  | 1,858 |  |  | (5 | ) |  | 2,510 |  |  | 2,507 |  |  | — |
Coal | 195 |  |  | 295 |  |  | (34 | ) |  | 416 |  |  | 630 |  |  | (34 | ) |  | 2,133 |  |  | 2,136 |  |  | — |
Intermodal | 694 |  |  | 723 |  |  | (4 | ) |  | 419 |  |  | 450 |  |  | (7 | ) |  | 604 |  |  | 622 |  |  | (3 | )
Other |  |  |  |  |  |  | — |  |  | 97 |  |  | 126 |  |  | (23 | ) |  | — |  |  | — |  |  | — |
Total | 1,595 |  |  | 1,759 |  |  | (9 | )% |  | $ | 2,704 |  |  | $ | 3,064 |  |  | (12 | )% |  | $ | 1,695 |  |  | $ | 1,742 |  |  | (3 | )%
Six Months
| Volume |  | Revenue |  | Revenue Per Unit
| 2016 |  | 2015 |  | % Change |  | 2016 |  | 2015 |  | % Change |  | 2016 |  | 2015 |  | % Change
Agricultural |  |  |  |  |  |  |  |  |
Agricultural Products | 192 |  |  | 210 |  |  | (9 | )% |  | $ | 506 |  |  | $ | 557 |  |  | (9 | )% |  | $ | 2,635 |  |  | $ | 2,652 |  |  | (1 | )%
Phosphates and Fertilizers | 148 |  |  | 156 |  |  | (5 | ) |  | 241 |  |  | 258 |  |  | (7 | ) |  | 1,628 |  |  | 1,654 |  |  | (2 | )
Food and Consumer | 45 |  |  | 47 |  |  | (4 | ) |  | 124 |  |  | 132 |  |  | (6 | ) |  | 2,756 |  |  | 2,809 |  |  | (2 | )
Industrial |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Chemicals | 288 |  |  | 313 |  |  | (8 | ) |  | 979 |  |  | 1,064 |  |  | (8 | ) |  | 3,399 |  |  | 3,399 |  |  | — |
Automotive | 234 |  |  | 221 |  |  | 6 |  |  | 603 |  |  | 580 |  |  | 4 |  |  | 2,577 |  |  | 2,624 |  |  | (2 | )
Metals | 106 |  |  | 122 |  |  | (13 | ) |  | 284 |  |  | 310 |  |  | (8 | ) |  | 2,679 |  |  | 2,541 |  |  | 5 |
Housing and Construction |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Forest Products | 136 |  |  | 147 |  |  | (7 | ) |  | 381 |  |  | 400 |  |  | (5 | ) |  | 2,801 |  |  | 2,721 |  |  | 3 |
Minerals | 157 |  |  | 144 |  |  | 9 |  |  | 237 |  |  | 226 |  |  | 5 |  |  | 1,510 |  |  | 1,569 |  |  | (4 | )
Waste and Equipment | 73 |  |  | 72 |  |  | 1 |  |  | 151 |  |  | 140 |  |  | 8 |  |  | 2,068 |  |  | 1,944 |  |  | 6 |
Total Merchandise | 1,379 |  |  | 1,432 |  |  | (4 | ) |  | 3,506 |  |  | 3,667 |  |  | (4 | ) |  | 2,542 |  |  | 2,561 |  |  | (1 | )
Coal | 395 |  |  | 584 |  |  | (32 | ) |  | 815 |  |  | 1,268 |  |  | (36 | ) |  | 2,063 |  |  | 2,171 |  |  | (5 | )
Intermodal | 1,372 |  |  | 1,378 |  |  | — |  |  | 824 |  |  | 865 |  |  | (5 | ) |  | 601 |  |  | 628 |  |  | (4 | )
Other | — |  |  | — |  |  | — |  |  | 177 |  |  | 291 |  |  | (39 | ) |  | — |  |  | — |  |  | — |
Total | 3,146 |  |  | 3,394 |  |  | (7 | )% |  | $ | 5,322 |  |  | $ | 6,091 |  |  | (13 | )% |  | $ | 1,692 |  |  | $ | 1,795 |  |  | (6 | )%

| CSX Q2 2016 Form 10-Q p.27 |

Table of Contents
CSX CORPORATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Second Quarter 2016
Revenue
Revenue was down $360 million to $2.7 billion from the prior year's second quarter as price gains were more than offset by volume declines, lower fuel surcharge revenue and negative business mix.
Merchandise
Agricultural Sector
Agricultural Products - Volume decreased in products used for animal feeding due to high inventories and a strong U.S. dollar that both challenged export moves and allowed for more import displacement of domestic product. Additionally, ethanol market dynamics favored Gulf region destinations for storage and export, which precluded CSX participation in shipments from Western origins.
Phosphates and Fertilizers - Volume declines were concentrated in phosphate due to customer production curtailments that reflect an anticipated weaker market for phosphate rock and sulfur inputs, partially a result of import phosphate displacement.
Food and Consumer - Lower volume was a result of weaker Western fruit and vegetable crop yields, which reduced refrigerated product moves. This decline was partially offset by increased alcoholic beverage volume reflecting increased demand for Mexican beer and growth in an expedited rail product into the Northeast.
Industrial Sector
Chemicals - While non-energy related chemicals volume increased slightly, low prices of crude oil and gas products led to significant volume decline in energy-related markets, including crude oil and frac sand.
Automotive - Volume increased, consistent with North American light vehicle production, with growth across several customers. Volume mix continued to favor trucks and SUV’s over passenger cars aligned with consumer buying patterns.
Metals - Despite continued sequential improvement, volume remained challenged versus last year due to domestic mill closures brought on by steel import levels that remain above average reflecting a strong U.S. dollar.
Housing and Construction Sector
Forest Products - Volume declined in paper products due to continued industry consolidation, electronic substitution and near-term losses to truck as a result of excess capacity and low prices. Further, a strong U.S. dollar challenged exports and increased imports that do not move by rail.
Minerals - Growth in volume resulted from the continued onboarding of shipments in fly ash, a by-product of burning coal that requires environmental remediation, and ongoing strength in aggregates used in construction.
Waste and Equipment - Volume decreased as the cycling of prior year soil remediation projects more than offset increased equipment and military moves.

| CSX Q2 2016 Form 10-Q p.28 |

Table of Contents
CSX CORPORATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Coal
Domestic Utility Coal - Volume declined as natural gas prices continued to favor gas burn and kept utility inventory levels of coal high.
Domestic Coke, Iron Ore and Other - Lower volume resulted from an oversupplied coke market driven by softer domestic integrated steel production and the idling of a customer facility.
Export Coal - Volume decreased as a result of a strong U.S. dollar and global oversupply which impacted U.S. competitiveness in the world market for both metallurgical and thermal coal.
Intermodal
Domestic - Volume increased 5 percent driven by growth with existing customers, ongoing success with CSX’s highway-to-rail conversion program, and network service offerings enhanced by service levels and investment.
International - Volume decreased 16 percent as a result of prior competitive losses in international accounts, difficult comparisons from cycling the 2015 West Coast port recovery and the weaker global freight environment.
Other
Other revenue decreased $29 million primarily due to lower incidental charges and affiliate coal-related revenue.
Expenses
Expenses decreased $183 million to $1.9 billion year over year, primarily driven by efficiency savings and lower volume-related costs. Variances versus the prior year's second quarter are described below.
Labor and Fringe expense decreased $76 million due to the following:

• | Inflation resulted in $19 million of additional cost driven by increased health and welfare costs.

• | Volume-related costs were $53 million lower.

• | Efficiency savings of $50 million were driven by lower operating and non-operating support costs driven by structural changes, the Company’s train length initiative that began in the second quarter of the prior year, lower overtime and reduced crew training.

• | Other costs increased $8 million.

Materials, Supplies and Other expense decreased $40 million due to the following:

• | Inflation resulted in $9 million of additional cost.

• | Efficiency savings of $32 million were primarily related to lower operating support costs driven by structural changes and broad cost containment.

• | Volume-related costs were $7 million lower.

• | Other costs decreased $10 million primarily due to the continuing decline in the severity of injuries in addition to various other cost reductions, which more than offset a prior year real estate gain of $17 million.

Fuel expense decreased $91 million due to the following:

• | A 25 percent price decline was the primary driver for $56 million in fuel expense savings.

• | Volume-related costs were $27 million lower.

• | Efficiency savings of $8 million were primarily related to locomotive fuel reduction technology and process improvement.

Depreciation expense increased $20 million due to a larger asset base.

| CSX Q2 2016 Form 10-Q p.29 |

Table of Contents
CSX CORPORATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Equipment and Other Rents expense increased $4 million due to the following:

• | Inflation resulted in $5 million additional cost primarily related to rates on automotive cars.

• | Volume-related costs were $1 million higher due to increases in automotive activity.

• | Efficiency savings of $6 million were due to improved car cycle times.

• | Other costs increased $4 million.

Interest expense increased $7 million primarily due to higher average debt balances partially offset by lower average interest rates.
Other income - net increased $4 million due to several non-operating items, none of which were individually significant.
Income tax expense decreased $72 million primarily due to lower earnings.
Six Months Results of Operations
Revenue decreased $769 million reflecting significant volume declines, lower fuel recoveries and a $93 million year-over-year decline in other revenue related to payments received in 2015 from customers that did not meet volume commitments. These impacts more than offset pricing gains across nearly all markets.
Expenses were lower by $453 million driven by efficiency savings of $229 million and lower volume-related costs of $150 million as CSX reduced its cost structure in the face of the challenging market environment. In addition, the reduction in the price of fuel resulted in an expense decline of $134 million year to date.
Operating income decreased $316 million primarily due to volume declines, partially offset by efficiency savings.
Interest expense increased $16 million primarily due to higher average debt balances partially offset by lower average interest rates.
Other income - net increased $9 million due to several non-operating items, none of which were individually significant.
Income tax expense decreased $129 million primarily due to lower earnings.

| CSX Q2 2016 Form 10-Q p.30 |

Table of Contents
CSX CORPORATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Operating Statistics (Estimated)

| Second Quarters |  | Six Months
| 2016 | 2015 | Improvement/ (Deterioration) |  | 2016 | 2015 | Improvement/ (Deterioration)
Safety and Service Measurements |  |  |  |  |  |  |
FRA Personal Injury Frequency Index | 0.90 |  | 0.79 |  | (14 | )% |  | 0.90 |  | 0.80 |  | (13 | )%
FRA Train Accident Rate | 1.88 |  | 2.09 |  | 10 | % |  | 2.37 |  | 2.33 |  | (2 | )%
On-Time Originations | 88 | % | 66 | % | 33 | % |  | 84 | % | 58 | % | 45 | %
On-Time Arrivals | 69 | % | 48 | % | 44 | % |  | 67 | % | 45 | % | 49 | %
Train Velocity | 21.1 |  | 20.3 |  | 4 | % |  | 21.1 |  | 20.2 |  | 4 | %
Dwell | 25.0 |  | 25.0 |  | — | % |  | 25.5 |  | 26.3 |  | 3 | %
Cars-On-Line | 205,945 |  | 205,239 |  | — | % |  | 206,651 |  | 207,088 |  | — | %

Certain operating statistics are estimated and can continue to be updated as actuals settle.
Key Performance Measures Definitions
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.
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 two hours late (30 minutes for intermodal trains).
Train Velocity - Average train speed between terminals in miles per hour (does not include locals, yard jobs, work trains or passenger trains).
Dwell - Average amount of time in hours between car arrival at and departure from the yard. It does not include cars moving through the yard on the same train.
Cars-On-Line - An average count of all cars on the network (does not include locomotives, cabooses, trailers, containers or maintenance equipment).
The Company measures and reports safety and service performance. The Company strives for continuous improvement in these measures through training, innovation and investment. CSX's safety and train accident prevention programs rely on the latest tools, programs and employee participation that are designed to continuously strengthen the safety culture. Increased investment in training and technology also is designed to allow CSX employees to have an additional layer of protection that can detect and avoid many types of human factor incidents. The Company's safety programs are designed to prevent incidents that can adversely impact employees, customers and communities.
Continued capital investment in the Company's assets, including track, bridges, signals, equipment and detection technology also supports safety performance. CSX has established formal relationships with industry groups, leading universities and suppliers to develop, implement and deploy the latest technology that can detect infrastructure problems before they happen. To illustrate, through a waiver granted by the Federal Railroad Administration ("FRA"), CSX is using advanced continuous rail testing methods that are being adopted by other railroads as the system’s value is proven.
The Company constantly collaborates with the FRA and industry organizations as well as federal, state and local governments on safety innovations and initiatives. For example, CSX and other freight railroads have actively worked with the U.S. Department of Transportation and other key stakeholders to evaluate and implement far-reaching safety enhancements for transportation of certain flammable materials, including essential energy products, on the nation’s freight railroad network.

| CSX Q2 2016 Form 10-Q p.31 |

Table of Contents
CSX CORPORATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
CSX’s FRA train accident rate of 1.88 for the quarter improved 10 percent from the prior year, while the FRA reportable personal injury frequency index of 0.90 is 14 percent unfavorable due to the significant decline in man-hours. The Company remains committed to ongoing improvement, with a focus on avoiding catastrophic events.
CSX’s operating performance continues to improve. On-time originations increased to 88 percent and on-time arrivals increased to 69 percent. Average train velocity was 21.1 miles per hour, up 4 percent versus last year, and terminal dwell was 25.0 hours, or flat to the prior year. The Company expects to sustain or improve this level of performance while continuing to drive productivity and resource efficiency.
LIQUIDITY AND CAPITAL RESOURCES
The following are material changes in the consolidated balance sheets and sources of liquidity and capital, which provide an update to the discussion included in CSX's most recent annual report on Form 10-K.
Material Changes in Consolidated Balance Sheets and Significant Cash Flows
Consolidated Balance Sheets
Total assets as well as total liabilities and shareholders' equity decreased $195 million from year end primarily driven by $307 million repayment of seller-financed assets.
Significant Cash Flows
The following table highlights net cash activity for operating, investing and financing activities for six months ended 2016 and 2015.

| Six Months |  |
Dollars in millions | 2016 | 2015 |  | $ Var
Net cash provided by operating activities | $ | 1,592 |  | $ | 1,582 |  |  | $ | 10 |
Net cash used in investing activities | (481 | ) | (1,574 | ) |  | 1,093 |
Net cash used in financing activities | (1,173 | ) | (239 | ) |  | (934 | )
Net decrease in cash and cash equivalents | $ | (62 | ) | $ | (231 | ) |  | $ | 169 |

The year-over-year net change in cash flows was $169 million higher than prior year primarily due to the following:

• | Cash provided by operating activities increased $10 million primarily driven by lower incentive compensation payments partially offset by working capital activities and other items.

• | Cash used in investing activities declined $1,093 million primarily driven by more net proceeds from short-term investments, which was partially offset by lower capital investment.

• | Cash used in financing activities was $934 million more due to no issuance or repayment of debt, the repayment of seller-financed assets and higher share repurchases.

| CSX Q2 2016 Form 10-Q p.32 |

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CSX CORPORATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Projected capital investments for 2016 are now expected to be $2.7 billion, including approximately $300 million for Positive Train Control ("PTC"). Projected capital spending has increased $275 million from the initial plan as CSX now anticipates paying for locomotives delivered throughout 2016 under a long-term commitment. The Company originally intended to finance these locomotives with payment in 2017. This $2.7 billion excludes investments related to partially or wholly reimbursable public-private partnerships where reimbursements may not be fully received in the year the reimbursement obligation arises. Of the 2016 investment, approximately 40 percent will be used to sustain the core infrastructure. The remaining amounts will be allocated to locomotives, freight cars and high return projects supporting long-term profitable growth, productivity initiatives and service improvements. CSX intends to fund capital investments through cash generated from operations.
The Company has incurred significant capital costs in connection with the implementation of PTC and has substantial work ahead. CSX estimates that the total multi-year cost of PTC implementation will be approximately $2.2 billion. This estimate includes costs for installing the new system along tracks, upgrading locomotives, adding communication equipment and developing new technologies. Total PTC spending through June 2016 was $1.6 billion.
Liquidity and Working Capital
As of the end of second quarter 2016, CSX had $828 million of cash, cash equivalents and short-term investments. CSX has a $1 billion unsecured revolving credit facility backed by a diverse syndicate of banks. This facility expires in May 2020 and as of the date of this filing, the Company has no outstanding balances under this facility. CSX uses current cash balances for general corporate purposes, which may include reduction or refinancing of outstanding indebtedness, capital expenditures, working capital requirements, contributions to the Company's qualified pension plan, redemptions and repurchases of CSX common stock and dividends to shareholders. See Note 7, Debt and Credit Agreements.
The Company has a receivables securitization facility with a three-year term scheduled to expire in June 2017, however, the Company intends to renew and modify this facility before the end of 2016. The purpose of this facility is to provide an alternative to commercial paper and a low cost source of short-term liquidity of up to $250 million, depending on eligible receivables balances. As of the date of this filing, the Company has no outstanding balances under this facility.
Working capital can also be considered a measure of a company's ability to meet its short-term needs. CSX had a working capital deficit of $54 million and surplus of $888 million as of June 2016 and December 2015, respectively. While this is a large change since year end, cash generated from operations of $1,592 million has been more than offset by cash used for capital investments of $1,066 million, share repurchases of $515 million and dividends of $344 million. Also, long-term debt maturing in the next 12 months of $612 million was reclassified to current liabilities.
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. Furthermore, CSX has sufficient financial capacity, including its revolving credit facility, trade receivable facility 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 Q2 2016 Form 10-Q p.33 |

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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.

• | casualty, environmental and legal reserves;

• | pension and post-retirement medical plan accounting;

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

• | income taxes.

FORWARD-LOOKING STATEMENTS
Certain statements in this report and in other materials filed with the SEC, 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, 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 Q2 2016 Form 10-Q p.34 |

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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 II, 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 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 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 or equipment;

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

• | the cost of compliance with laws and regulations that differ from expectations (including those associated with PTC implementation), 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;

• | 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;

| CSX Q2 2016 Form 10-Q p.35 |

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

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

• | 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;

• | changes in operating conditions and costs or commodity concentrations; 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.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There have been no material changes in market risk from the information provided under Part II, Item 7A (Quantitative and Qualitative Disclosures about Market Risk) of CSX's most recent annual report on Form 10-K.
ITEM 4. CONTROLS AND PROCEDURES
As of June 24, 2016, under the supervision and with the participation of CSX's Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), management has evaluated the effectiveness of the design and operation of the Company's disclosure controls and procedures. Based on that evaluation, the CEO and CFO concluded that, as of June 24, 2016, the Company's disclosure controls and procedures were effective at the reasonable assurance level in timely alerting them to material information required to be included in CSX's periodic SEC reports. There were no changes in the Company's internal controls over financial reporting during the second quarter of 2016 that have materially affected or are reasonably likely to materially affect the Company's internal control over financial reporting.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
For further details, please refer to Note 5. Commitments and Contingencies of this quarterly report on Form 10-Q. Also refer to Part I, Item 3. Legal Proceedings in CSX's most recent annual report on Form 10-K.
Item 1A. Risk Factors
For information regarding factors that could affect the Company's results of operations, financial condition and liquidity, see the risk factors discussed under Part II, Item 7 (Management's Discussion and Analysis of Financial Condition and Results of Operations) of CSX's most recent annual report on Form 10-K. See also Part I, Item 2 (Forward-Looking Statements) of this quarterly report on Form 10-Q.

| CSX Q2 2016 Form 10-Q p.36 |

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CSX CORPORATION
PART II
Item 2. CSX Purchases of Equity Securities
CSX purchases its own shares for two primary reasons: (1) to further its goals under its share repurchase program and (2) to fund the Company’s contribution required to be paid in CSX common stock under a 401(k) plan that covers certain union employees.
In April 2015, the Company announced a new $2 billion share repurchase program, which is expected to be completed by April 2017. During the second quarter of 2016 , the Company repurchased approximately $266 million, or ten million shares. Shares are retired immediately upon repurchase. 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. In accordance with the Equity Topic in the ASC, the excess of repurchase price over par value is recorded in retained earnings. Generally, retained earnings are only impacted by net earnings and dividends.
Share repurchase activity for the second quarter 2016 was as follows:

| CSX Purchases of Equity Securities for the Quarter |
Second Quarter (a) | Total Number of Shares Purchased | Average Price Paid per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (b) | Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs
Beginning Balance |  |  |  | $ | 1,076,922,513 |
April | 3,268,580 |  | $ | 25.60 |  | 3,248,400 |  | 993,760,310 |
May | 3,137,100 |  | 26.51 |  | 3,137,000 |  | 910,602,147 |
June | 3,792,484 |  | 26.31 |  | 3,792,484 |  | 810,810,259 |
Ending Balance | 10,198,164 |  | $ | 26.15 |  | 10,177,884 |  | $ | 810,810,259 |

(a) Second quarter 2016 consisted of the following fiscal periods: April (March 26, 2016 - April 22, 2016), May (April 23, 2016 - May 20, 2016), June(May 21, 2016 - June 24, 2016).
(b) The difference of 20,280 shares between the "Total Number of Shares Purchased" and the "Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs" for the quarter represents shares purchased to fund the Company's contribution to a 401(k) plan that covers certain union employees.
Item 3. Defaults Upon Senior Securities
None
Item 4. Mine Safety Disclosures
Not Applicable
Item 5. Other Information
None

| CSX Q2 2016 Form 10-Q p.37 |

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CSX CORPORATION
PART II
Item 6. Exhibits

Exhibit designation | Nature of exhibit | Previously filed as exhibit to
Officer certifications:
31* | Rule13a-14(a) Certifications |
32* | Section 1350 Certifications |
Interactive data files:
101* | The following financial information from CSX Corporation's Quarterly Report on Form 10-Q for the quarter ended June 24, 2016 filed with the SEC on July 14, 2016, formatted in XBRL includes: (i) consolidated income statements for the fiscal periods ended June 24, 2016 and June 26, 2015, (ii) consolidated comprehensive income statements for the fiscal periods ended June 24, 2016 and June 26, 2015, (iii) consolidated balance sheets at June 24, 2016 and December 25, 2015, (iv) consolidated cash flow statements for the fiscal periods ended June 24, 2016 and June 26, 2015, and (v) the notes to consolidated financial statements. |
* Filed herewith |  |

| CSX Q2 2016 Form 10-Q p.38 |

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CSX CORPORATION
PART II
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
CSX CORPORATION
(Registrant)
By: /s/ Carolyn T. Sizemore
Carolyn T. Sizemore
Vice President and Controller
(Principal Accounting Officer)
Dated: July 14, 2016

| CSX Q2 2016 Form 10-Q p.39 |