CSX CORP

The following section generally discusses the Company's results of operations and financial condition for the year ended December 31, 2024, compared to the year ended December 31, 2023. A discussion regarding results of operations and financial condition for the year ended December 31, 2023, compared to the year ended December 31, 2022, can be found in Part II, Item 7 of CSX's Annual Report on Form 10-K for the year ended 2023, filed with the Securities and Exchange Commission on February 14, 2024.

This discussion should be read in conjunction with the Consolidated Financial Statements and the related notes that appear elsewhere in this Form 10-K. The Company revised certain prior period financial statements for misstatements between the balance sheet and expense that were determined to be immaterial to previously issued financial statements. See Note 20, Revision of Prior Period Financial Statements in Item 8 of this Form 10-K.

2024 vs. 2023 Results of Operations

NM - "Not Meaningful"

CSX 2024 Form 10-K p.28

CSX 2024 Form 10-K p.29

Revenue

Total revenue decreased by $117 million in 2024, or 1%, when compared to the previous year primarily due to lower fuel recovery and lower coal revenue, which includes the impact of lower global benchmark rates. These decreases were partially offset by pricing gains in merchandise as well as higher merchandise and intermodal volumes.

Merchandise Volume

Chemicals - Increased due to higher shipments of plastics, crude oil, natural gas liquids, and other industrial chemicals.

Agricultural and Food Products – Decreased due to lower shipments of food and consumer products, as well as wheat and export grains, partially offset by higher shipments of domestic feed grain and its ingredients, and ethanol.

Automotive - Increased due to new business wins, which were partially offset by lower North American vehicle production.

Minerals - Increased due to higher shipments of cement, partially offset by lower shipments of aggregates.

Forest Products – Increased due to higher shipments of pulpboard, paper, and building products.

Metals and Equipment - Decreased primarily due to lower steel and scrap shipments.

Fertilizers - Decreased primarily due to declines in short-haul phosphates shipments.

Intermodal Volume

Intermodal volume increased primarily due to international shipments driven by higher imports through east coast ports and inventory replenishments. Domestic shipments also increased due to growth with key customers despite a soft trucking environment.

Coal Volume

Export coal increased due to higher shipments of metallurgical and thermal coal. Domestic coal decreased primarily due to lower shipments of coal to utility plants, as well as lower shipments to river and lake terminals.

Trucking Revenue

Trucking revenue decreased $38 million versus the prior year due to lower fuel and capacity surcharges.

Other Revenue

Other revenue was $79 million lower, primarily resulting from lower carload demurrage and other items.

CSX 2024 Form 10-K p.30

Expense

In 2024, total expenses increased $137 million, or 1%, compared to prior year. Descriptions of each expense category as well as significant year-over-year changes are described below.

Labor and Fringe expenses include employee wages and related payroll taxes, health and welfare costs, pension, other post-retirement benefits and incentive compensation. These expenses increased $113 million due to the following items:

•An increase of $96 million was driven by inflation.

•An increase of $62 million was due to the impacts of higher headcount and union employee vacation and sick benefits.

•Incentive compensation costs decreased $46 million primarily due to lower expected payouts.

•Net other costs increased by $1 million due to non-significant items.

Purchased Services and Other expenses consist primarily of contracted services to maintain infrastructure and equipment, terminal and pier services, purchased trucking and other transportation, and professional services. This category also includes costs related to materials, travel, casualty claims, environmental remediation, train accidents, property and sales tax, utilities and other items. Total purchased services and other expenses increased $50 million driven by the following:

•An increase of $17 million was due to impairments of technology and non-rail equipment, partially offset by prior year inventory adjustments.

•An increase of $17 million was due to higher operating support costs, which were primarily due to inflation and higher intermodal volumes. These increases were partially offset by efficiency savings.

•All other costs increased $16 million as a result of $37 million lower insurance recoveries, other inflation impacts, and non-significant increases, which were partially offset by a $20 million favorable legal settlement and other cost savings.

Depreciation expense primarily relates to recognizing the costs of capital assets, such as locomotives, railcars and track structure, over their respective useful lives, which are reviewed periodically as part of depreciation studies. This expense is impacted primarily by the capital expenditures made each year. Depreciation expense increased $51 million primarily due to a larger net asset base.

Fuel expense includes locomotive diesel fuel as well as non-locomotive fuel. This expense is largely driven by the market price and locomotive consumption of diesel fuel. Fuel expense decreased $209 million primarily due to a 13% decrease in locomotive fuel prices and improved efficiency.

Equipment and Other Rents expense includes rent paid for freight cars owned by other railroads or private companies, net of rents received by CSXT for use of its equipment. This category of expenses also includes expenses for short-term and long-term leases of locomotives, railcars, containers, tractors and trailers, offices and other rentals. These expenses increased $1 million primarily due to increased net car hire costs offset by other non-significant items.

Goodwill Impairment expense for Quality Carriers was $108 million for 2024.

Gains on Property Dispositions decreased to $11 million in 2024 from $34 million in 2023.

CSX 2024 Form 10-K p.31

Interest Expense

Interest Expense includes interest on long-term debt and related fair value hedges, equipment obligations and finance leases. Interest expense increased $23 million primarily as a result of higher average debt balances.

Other Income - Net

Other Income - Net includes investment gains, losses, interest income, components of net periodic pension and post-retirement benefit cost and other non-operating activities. Other income increased $3 million primarily due to increases in net pension benefit credits partially offset by lower income related to customer finance charges and a decrease in investment gains.

Income Tax Expense

Income Tax Expense decreased $76 million primarily due to lower earnings before income taxes.

Net Earnings and Earnings per Diluted Share

Net Earnings decreased $198 million to $3.5 billion, and earnings per diluted share decreased $0.03 to $1.79, due to the factors mentioned above. Average shares outstanding was lower as a result of share repurchase activity during the year and had a favorable impact on earnings per diluted share.

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NON-GAAP MEASURES(Unaudited)

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

Adjusted Operating Results

Management believes that adjusted operating income, adjusted operating margin, adjusted net earnings, and adjusted net earnings per share, assuming dilution are important in evaluating the Company's performance and for planning and forecasting future business operations and future profitability. These non-GAAP measures provide meaningful supplemental information regarding operating results because they exclude the fourth quarter 2024 non-cash impairment of Quality Carriers' goodwill, which is a significant item that is not considered indicative of future financial trends. The goodwill impairment was tax effected using rates reflective of the applicable tax amounts related to the impairment charge. These adjusted results should be considered in addition to, rather than as a substitute for, the Company's GAAP operating results.

The following tables reconcile the Company's GAAP operating results for the year ended December 31, 2024 to adjusted operating results (non-GAAP measures).

CSX 2024 Form 10-K p.33

Economic Profit

Management believes Economic Profit (also referred to as CSX Cash Earnings or CCE) provides an additional perspective to investors about financial returns generated by the business by representing a measure showing profit generated over and above the cost of capital used by the business to generate that profit. Economic Profit is designed to incentivize strategic investments that earn more than management’s desired minimum required return and is broadly utilized by management to make investment decisions. Therefore, disclosing Economic Profit on how management performs in this regard provides additional useful information to investors regarding the Company’s performance compared to its goals.

Economic Profit should be considered in addition to, rather than a substitute for, operating income, which is the most directly comparable GAAP measure. Economic Profit is defined by the Company as Gross Cash Earnings (“GCE”) minus the Capital Charge on Gross Operating Assets (“GOA”). Increases in Economic Profit indicate that the Company is effectively allocating capital and rewarding shareholders by generating returns in excess of the incremental cost of capital associated with reinvestment in the business.

GCE is calculated as operating income plus depreciation, amortization and operating lease expense, less unusual items and taxes. The Capital Charge uses a minimum required return multiplied by the GOA. CSX's GOAs include gross properties and other non-cash assets, net of non-interest bearing liabilities. The Company used a 15% tax rate and an 8% required return, for both periods presented, which is consistent with rates used for investment decisions and performance evaluation within those same periods. The tax rate is the approximate equivalent of the Company’s actual income tax expense as a percentage of pre-tax GCE. The required return rate represents management’s desired minimum return on any investment. CSX annually re-evaluates these rates to ensure they accurately represent taxes and a required return in light of internal and external factors and would adjust the rate if the annual review resulted in a preset deviation from the current rates. This focuses the Economic Profit measure on value generated by management instead of external factors, such as legislative tax policy or interest rate volatility.

CSX 2024 Form 10-K p.34

The following table reconciles operating income (the most directly comparable GAAP measure) to Economic Profit (non-GAAP measure).

(b) Unusual items are defined by management as unique events with greater than $100 million full year operating income impact, consistent with the terms of the Company's long-term incentive plan agreements. The Quality Carriers goodwill impairment was an unusual item for 2024.

(c) The tax percentage rate was 15% for both periods presented. This rate is applied to the sum of operating income, depreciation, amortization and operating lease expense, and unusual items.

(d) Gross operating assets reflects an average of the year-to-date quarters reported for each year presented.

(e) The capital charge of 8% for both years is calculated as the minimum return multiplied by gross operating assets.

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Free Cash Flow

Management believes free cash flow ("FCF") is useful to investors as it is important in evaluating the Company’s financial performance. More specifically, FCF measures cash generated by the business after reinvestment. This measure represents cash available for both equity and bond investors to be used for dividends, share repurchases or principal reduction on outstanding debt. FCF is calculated by using net cash from operations and adjusting for property additions and proceeds and advances from property dispositions. This measure should be considered in addition to, rather than a substitute for, cash provided by operating activities. FCF before dividends decreased $561 million year-over-year to $2.8 billion primarily due to higher property additions and less cash from operating activities. Cash from operating activities in 2024 includes the impact of $387 million of federal and state tax payments related to the 2023 tax year that were previously postponed under tax relief announcements for those impacted by Hurricane Idalia. 2024 results also reflect non-cash impacts of $429 million of federal and state tax payments postponed to 2025 under tax relief announcements for those impacted by the 2024 hurricane season. Cash from operating activities in the prior year period includes the payment of $238 million for retroactive wages and bonuses, and associated taxes, related to finalized labor agreements.

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

CSX 2024 Form 10-K p.36

OPERATING STATISTICS(Estimated)

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

(a) Beginning second quarter 2023, all operations performance metrics include results from the network acquired from Pan Am. The impact of including Pan Am data was insignificant.

(b) Effective January 1, 2024, safety metrics include results from the Pan Am network. The impact was insignificant.

Key Performance Measures Definitions:

Train Velocity - Average train speed between origin and destination in miles per hour (does not include locals, yard jobs, work trains or passenger trains). Train velocity measures actual train miles and times of a train movement on CSX's network.

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

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

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

On-Time Arrivals - Percent of scheduled road trains that arrive at the destination yard on-time to within two hours of scheduled arrival.

Carload Trip Plan Performance - Percent of measured cars (excludes unit trains and other non-scheduled service as well as empty automotive shipments) destined for a customer that complete their scheduled plan at or ahead of the original estimated time of arrival or interchange (as applicable).

Intermodal Trip Plan Performance - Percent of measured containers (excludes port shipments along with empty containers and other non-scheduled service) destined for a customer that complete their scheduled plan at or ahead of the original estimated time of arrival, notification or interchange (as applicable).

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

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

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

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

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

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

The Company remains focused on safety, service, and controlling costs. Velocity improved by 2% while dwell increased by 10%, respectively, relative to 2023. Carload trip plan performance decreased to 79% compared to 84%, while intermodal trip plan performance decreased to 91% compared to 95%, relative to 2023. The Company continues to focus on operational improvements and executing the operating plan to deliver safe, reliable and efficient service to customers.

While the personal injury frequency increased in 2024 compared to the prior year, the FRA train accident rate decreased. Safety is a top priority at CSX, and the Company is committed to reducing risk and enhancing the overall safety of its employees, customers, and communities in which the Company operates.