(Exact name of registrant as specified in its charter) Virginia 54-6000720 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 500 Water Street, Jacksonville, FL. 32202 (Address of principal executive offices) (Zip Code) Registrant's

Securities registered pursuant to Section 12(b) of the Act: Name of each exchange on which each Title of each class class is registered - ---------------------------------- ------------------------------------- Hocking Valley Railroad Company First Consolidated Mortgage 4-1/2% Bonds, due July 1, 1999 New York Stock Exchange Louisville and Nashville Railroad Company First and Refunding Mortgage 3-3/8% Bonds, Series F, due April 1, 2003 New York Stock Exchange Louisville and Nashville Railroad Company First and Refunding Mortgage 2-7/8% Bonds, Series G, due April 1, 2003 New York Stock Exchange Monon Railroad 6% Income Debentures, due January 1, 2007 New York Stock Exchange

REGISTRANT MEETS THE CONDITIONS SET FORTH IN GENERAL INSTRUCTION JI (1) (a) AND (b) OF FORM 10-K AND IS THEREFORE FILING THIS FORM WITH THE REDUCED DISCLOSURE FORMAT. ~~- 1 - PAGE 2~~

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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. (X)

Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 126-2). Yes ( ) No (X)

State the aggregate market value of the voting stock held by nonaffiliates of the registrant. The aggregate market value of the voting stock at ~~March 9, 1995,~~June 28, 2002, was $-0-, excluding the voting stock held by the parent of the registrant.

Indicate the number of shares outstanding of each of the ~~registrant's~~registrant’s classes of common stock, as of the latest practicable date. The registrant has 9,061,038 shares of common stock, par value $20.00, outstanding at ~~March 9, 1995. - 2 - PAGE 3~~ January 24, 2003.

PART I 1. Business 4 2. Properties 4 3. Legal Proceedings 5 4. Submission of Matters to a Vote of Security Holders 5 PART II 5. Market for Registrant's Common Stock and Related Stockholder Matters 5 6. Selected Financial Data 5 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 6 8. Financial Statements and Supplementary Data 6 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 6 PART III 10. Directors, Executive Officers, Promoters and Control Persons of the Registrant 6 11. Executive Compensation 6 12. Security Ownership of Certain Beneficial Owners and Management 6 13. Certain Relationships and Related Transactions 6 PART IV 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K 6 Signatures 8 Index to Financial Statements 9 - 3 - PAGE 4 PART I Items

CSX Transportation Inc. ~~(CSXT)~~(“CSXT” or “Company”) is ~~engaged principally~~the largest rail network in the ~~business~~Eastern United States, providing rail freight transportation over a network of ~~railroad transportation and operates a system comprising 18,759~~more than 23,000 route miles ~~of first main line track~~ in 2023 states, ~~principally east of the Mississippi River (exclusive of New England), southern Ontario and~~ the District of Columbia, ~~employing an average of 28,773 employees. It~~and two Canadian provinces. Headquartered in Jacksonville, Florida, CSXT conducts railroad operations in its own name and through railroad ~~subsidiaries.~~ subsidiaries, employing an average of approximately 33,500 employees during its most recent fiscal year.

CSXT is a wholly-owned subsidiary of CSX Corporation ~~(CSX)~~(“CSX”). CSX is a publicly-owned ~~Virginia~~ corporation with headquarters at ~~One James Center, 901 East Cary~~500 Water Street, ~~Richmond, Virginia, 23219-4031. Also in the~~15^th Floor, Jacksonville, Florida 32202. CSX also owns other transportation ~~field, CSX controls Sea-Land Service, Inc., an ocean container-shipping company,~~businesses, including CSX Intermodal Inc., an intermodal and trucking company; CSX World Terminals LLC, a container-freight terminal company; and CSX Lines LLC, a domestic container-shipping company ~~American Commercial~~which is the subject of an agreement under which CSX would convey most of its interest in CSX Lines ~~Inc., which engages~~LLC in ~~inland barging~~return for cash and ~~other marine-related businesses, and Customized Transportation, Inc.,~~securities of a ~~contract logistics service supplier.~~new venture, Horizon Lines LLC. CSX also has interests in real estate, ~~holdings,~~resorts and resort ~~management and operations, and information technology.~~ management.

For information concerning business ~~done~~conducted by CSXT during ~~1994,~~2002, see ~~"Management's~~“Management’s Narrative Analysis ~~and~~of the Results of ~~Operations"~~Operations” on pages ~~33 through 40. Roadway -------~~ 38-47.

On December ~~30, 1994, CSXT's~~27, 2002, CSXT’s consolidated railroad system consisted of ~~32,462~~40,299 miles of track as follows: Track Miles ----- First Main 18,759 Second Main 2,945 Passing, Crossovers and Turnouts 2,436 Way and Yard Switching 8,322 ------ Total 32,462 ====== consisting of the following:

Included in the above are ~~886 miles of leased track, 2,856 miles~~the following arrangements for use of track ~~under trackage rights agreements with other railroads and 185 miles of track under operating contracts. - 4 - PAGE 5~~ not owned by CSXT:

On December ~~30, 1994,~~27, 2002, CSXT and subsidiaries owned or leased the following: Owned Leased Total ----- ------ ------ Locomotives Freight 1,895 567 2,462 Switching 143 15 158 Auxiliary Units 165 --- 165 ------- ------- ------- Total 2,203 582 2,785 ======= ======= ======= Freight Cars Open Top Hoppers 24,931 10,678 35,609 Gondolas 6,744 13,879 20,623 Covered Hoppers 11,246 7,543 18,789 Box Cars 9,454 5,264 14,718 Flat Cars 476 10,789 11,265 Other 2,236 1,591 3,827 ------- ------- ------- Total 55,087 49,744 104,831 ======= ======= ======= Item

Included in leased equipment are 518 locomotives and 17,130 freight cars leased from Conrail.

Please see the information set forth on pages 43 of ~~legal actions, other than the environmental matters described below, are pending against CSXT~~this document in which claims are made in substantial amounts. Management does not currently expect that these matters will have a material adverse effect on the consolidated financial position, results of operations and cash flows“Management’s Narrative Analysis of the ~~Company. CSXT has been identified, together with other parties, as a potentially responsible party in a number~~Results of ~~governmental investigations~~Operations,” under the caption “Casualty, Legal and actions relating to environmentally impaired sites. Such sites frequently involve other waste generators and disposal companies to whom costs associated with site investigation and cleanup may be allocated or from whom such costs may be recovered. Due to the number of parties involved at many of these sites, the wide range of costs of possible remediation alternatives, changing cleanup technology, the length of time over which these matters develop and evolving governmental standards, it is not always possible to estimate precisely the Company's liability for the costs associated with the assessment and remediation of contaminated sites. CSXT maintained reserves for 106 environmental sites at year-end 1994. CSXT periodically reviews its environmental reserves to determine whether additional provisions are necessary. Based on current information, CSXT believes its reserves are adequate to meet remedial actions to comply with present laws and regulations. Although CSXT's financial results could be significantly affected in any future quarterly reporting period in which CSXT incurred substantial remedial expenses at a number of these and other sites, CSXT believes the ultimate liability for these matters will not materially affect its overall financial position, results of operations and cash flows. - 5 - PAGE 6 ItemEnvironmental Reserves”.

ITEM 4. ~~Submission of Matters to a Vote of Security Holders.~~ SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

ITEM 5. ~~Market for Registrant's Common Stock~~MARKET FOR REGISTRANT’S COMMON STOCK AND RELATED STOCKHOLDER MATTERS

CSXT is a wholly-owned subsidiary of CSX, and ~~Related Stockholder Matters. There~~accordingly, there is no market for ~~CSXT's~~its common ~~stock as CSXT is a wholly- owned subsidiary of CSX.~~stock. During the years ~~1994, 1993~~2002, 2001 and ~~1992,~~2000, CSXT paid dividends to CSX on its common stock ~~aggregating $28~~of $200 million, ~~$28~~$212 million and ~~$74~~$220 million, respectively. ~~Item~~

Information omitted in accordance with General Instruction ~~J(2)~~I(2)(a). ~~However, included as part of "Management's Narrative Analysis and Results of Operations" on page 33 is various selected financial and statistical information. Item~~

ITEM 7. ~~Management's Discussion and Analysis of Financial Condition and Results of Operations.~~ MANAGEMENT’S DISCUSSION AND ANALYSIS

Information omitted in accordance with General Instruction ~~J(2)~~I(2)(a). However, in compliance with said Instruction, see ~~"Management's~~“Management’s Narrative Analysis ~~and~~of the Results of ~~Operations"~~Operations” on pages ~~33 through 40. Item~~38-47.

The Company is subject to risk relating to changes in the price of diesel fuel. At the end of 2002, the Company had not entered into any long-term commitments for forward fuel purchases. The Company’s average annual fuel consumption is approximately 570 million gallons. A one-cent change in the price per gallon of fuel would impact fuel expense by approximately $6 million.

CSXT participates in the CSX cash management plan, under which excess cash is advanced to CSX for investment. CSX than makes cash funds available to CSXT as needed for use in its operations. CSXT and CSX are committed to repay all amounts due on demand should circumstances require. CSXT is charged for borrowings or compensated for investments based on returns earned by the plan portfolio. At December 27, 2002 and December 28, 2001, CSXT had deficit balances of $1.3 billion and $1.1 billion, respectively, relating to its participation in the CSX cash management plan, which is included in Due to Parent Company in the Statement of Financial Position. A 1% change in interest rates would have impacted annual interest expense on the plan by approximately $13 million in 2002 and $11 million in 2001.

CSXT had $101 million and $108 million of floating rate debt outstanding at December 27, 2002 and December 28, 2001, respectively. A 1% change in interest rates would have impacted annual interest expense on floating-rate debt by approximately $1 million in 2002 and 2001.

ITEM 8. ~~Financial Statements and Supplementary Data.~~ FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The consolidated financial statements of CSXT and notes thereto required in response to this item are included herein (refer to Index to Consolidated Financial Statements on page 9)12). ~~Item~~

ITEM 9. ~~Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.~~ CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

PART III ~~Item 10. Directors, Executive Officers, Promoters and Control Persons of the Registrant.~~

ITEM10. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS OF THE REGISTRANT

Information omitted in accordance with General Instruction ~~J(2)~~I(2)(c). ~~Item~~

Information omitted in accordance with General Instruction ~~J(2)~~I(2)(c). ~~- 6 - PAGE 7 Item~~

ITEM 12. ~~Security Ownership of Certain Beneficial Owners and Management.~~ SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

Information omitted in accordance with General Instruction ~~J(2)~~I(2)(c). ~~Item~~

ITEM 13. ~~Certain Relationships and Related Transactions.~~ CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

As of February 18, 2002, under the supervision and with the participation of the Company’s Chief Executive Officer (CEO) and the Chief Financial ~~Statement Schedules~~Officer (CFO), management has evaluated the effectiveness of the design and ~~Reports~~operation of the Company’s disclosure controls and procedures. Based on ~~Form 8-K. (a) 1. Financial Statements.~~ that evaluation, the CEO and CFO, concluded that the Company’s disclosure controls and procedures were effective as of February 18, 2002. There were no significant changes in the Company’s internal controls or in the other factors that could significantly affect those controls subsequent to the date of the evaluation.

See Index to Consolidated Financial Statements on page ~~9. 2. Financial Statement Schedules.~~12.

The information required by Schedule II is included in Note 9, “Casualty, Environmental and Other Reserves,” to the consolidated financial statements. All other financial statement schedules are ~~omitted because~~not applicable.

Pursuant to Regulation S-K, Item 601 (b)(4)(iii), instruments that define the rights of holders of the ~~absence~~Registrant’s long-term debt securities, where the long-term debt securities authorized under each instrument do not exceed 10% of the ~~conditions under which they are required or because~~Registrants’ total assets, have been omitted and will be furnished to the required information is set forth in the financial statements or related notes thereto. 3. Exhibits. (3.1) Articles of Incorporation, as amended, incorporated herein by reference from Registrant's report on Form 10-K for the year ended December 31, 1987. (3.2) By-laws of the Registrant, incorporated herein by reference from Registrant's report on Form 10-K for the year ended December 31, 1992. (b) Reports on Form 8-K. None. - 7 - PAGE 8 Signatures Commission upon request.

(10.1)

Transaction Agreement, dated as of June 10, 1997, by and among CSX Corporation, CSX Transportation, Inc., Norfolk Southern Corporation, Norfolk Southern Railway Company, Conrail Inc., Consolidated Rail Corporation, and CRR Holdings LLC, with certain schedules thereto (incorporated by reference to Exhibit 10.1 to Form 8-K dated June 11, 1999)

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K, Continued

(10.2)		Amendment No. 1, dated as of August 22, 1998, to the Transaction Agreement, dated as of June 10, 1997, by and among CSX Corporation, CSX Transportation, Inc., Norfolk Southern Corporation, Norfolk Southern Railway Company, Conrail Inc., Consolidated Rail Corporation, and CRR Holdings LLC (incorporated by reference to Exhibit 10.2 to Form 8-K dated June 11, 1999)

(10.3)		Amendment No. 2, dated as of June 1, 1999, to the Transaction Agreement, dated June 10, 1997, by and among CSX Corporation, CSX Transportation, Inc., Norfolk Southern Corporation, Norfolk Southern Railway Company, Conrail Inc., Consolidated Rail Corporation, and CRR Holdings, LLC (incorporated by reference to Exhibit 10.3 to Form 8-K dated June 11, 1999)

(10.4)		Amendment No. 3, dated as of August 1, 2000, to the Transaction Agreement by and among CSX Corporation, CSX Transportation, Inc., Norfolk Southern Corporation, Norfolk Southern Railway Company, Conrail Inc., Consolidated Rail Corporation, and CRR Holdings LLC.

(10.5)		Operating Agreement, dated as of June 1, 1999, by and between New York Central Lines LLC and CSX Transportation, Inc. (incorporated by reference to Exhibit 10.4 to Form 8-K dated June 11, 1999)

(10.6)		Shared Assets Area Operating Agreement for North Jersey, dated as of June 1, 1999, by and among Consolidated Rail Corporation, CSX Transportation, Inc., and Norfolk Southern Railway Company, with exhibit thereto (incorporated by reference to Exhibit 10.5 to Form 8-K dated June 11, 1999)

(10.7)		Shared Assets Area Operating Agreement for Southern Jersey/Philadelphia, dated as of June 1, 1999, by and among Consolidated Rail Corporation, CSX Transportation, Inc., and Norfolk Southern Railway Company, with exhibit thereto (incorporated by reference to Exhibit 10.6 to Form 8-K dated June 11, 1999)

(10.8)		Shared Assets Area Operating Agreement for Detroit, dated as of June 1, 1999, by and among Consolidated Rail Corporation, CSX Transportation, Inc., and Norfolk Southern Railway Corporation, with exhibit thereto (incorporated by reference to Exhibit 10.7 to Form 8-K dated June 11, 1999)

(10.9)		Monongahela Usage Agreement, dated as of June 1, 1999, by and among CSX Transportation, Inc., Norfolk Southern Railway Company, Pennsylvania Lines LLC, and New York Central Lines LLC, with exhibit thereto (incorporated by reference to Exhibit 10.8 to Form 8-K dated June 11, 1999)

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K, Continued

(21)		Omitted in accordance with General Instruction I(2)(c)

(24)*		Powers of Attorney

(99.1)*		CEO Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

(99.2)*		CFO Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

Pursuant to the requirements of Section 13 or 15(d) 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, on the ~~18th~~25th day of January, 1996. CSX TRANSPORTATION, INC. /s/ GREGORY R. WEBER ------------------------------ Gregory R. Weber (Principal Accounting Officer) February, 2003.


CSX TRANSPORTATION, INC.

/S/ CAROLYN T. SIZEMORE
Carolyn T. Sizemore (Principal Accounting Officer)

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. Signatures Title - ----------------------- ------------------------------------- /s/ John W. Snow Chairman of the Board and Director - ----------------- John W. Snow* /s/ Alvin R. Carpenter President and Chief Executive Officer - ----------------------- (Principal Executive Officer) and Alvin R. Carpenter* Director /s/ Gerald L. Nichols Executive Vice-President and Chief - ---------------------- Operating Officer and Director Gerald L. Nichols* /s/ Mark G. Aron Director - ----------------- Mark G. Aron* /s/ James Ermer Director - ---------------- James Ermer* /s/ Paul R. Goodwin Director - -------------------- Paul R. Goodwin* /s/

I, Michael J. Ward, ~~Senior Vice President-Finance - -------------------- (Principal Finance Officer)~~ certify that:

/s/ MICHAEL J. WARD

Michael J. Ward

Principal Executive Officer

I, Frederick J. Ward* /s/ PATRICIA J. AFTOORA - ----------------------- *Patricia J. Aftoora (Attorney-in-Fact) January 18, 1996 - 8 - PAGE 9 Favorite Jr., certify that:

/s/ FREDERICK J. FAVORITE JR.

Frederick J. Favorite Jr.

Principal Financial Officer

Index to Consolidated Financial Statements Page ---- Report of Independent Auditors 10 CSX Transportation, Inc. and Subsidiaries: Consolidated Financial Statements and Notes to Consolidated Financial Statements Submitted Herewith: Consolidated Statement of Earnings - Fiscal Years Ended December 30, 1994, and December 31, 1993 and 1992 11 Consolidated Statement of Cash Flows - Fiscal Years Ended December 30, 1994, and December 31, 1993 and 1992 12 Consolidated Statement of Financial Position - December 30, 1994 and December 31, 1993 14 Consolidated Statement of Retained Earnings - Fiscal Years Ended December 30, 1994 and December 31, 1993 and 1992 15 Notes to Consolidated Financial Statements 16 - 9 - PAGE 10

REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS ~~-------------------------------------------------~~

We have audited the accompanying consolidated ~~statement~~statements of financial position of CSX Transportation Inc. and subsidiaries as of December ~~30, 1994~~27, 2002 and December ~~31, 1993,~~28, 2001, and the related consolidated statements of earnings, cash flows, and retained earnings for each of the three fiscal years in the period ended December ~~30, 1994.~~27, 2002. These financial statements are the responsibility of the ~~Company's~~Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted ~~auditing standards.~~in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above ~~(appearing on pages 11-32)~~ present fairly, in all material respects, the consolidated financial position of CSX Transportation Inc. and subsidiaries at December ~~30, 1994~~27, 2002 and December ~~31, 1993,~~28, 2001, and the consolidated results of their operations and their cash flows for each of the three fiscal years in the period ended December ~~30, 1994,~~27, 2002, in conformity with accounting principles generally accepted ~~accounting principles. /s/~~in the United States.

/s/ ERNST & YOUNG LLP --------------------- Ernst & Young LLP Richmond, Virginia January 27, 1995 - 10 - PAGE

CSX TRANSPORTATION INC. AND SUBSIDIARIES ~~CONSOLIDATED STATEMENT OF EARNINGS (Millions~~

(Millions of Dollars) Fiscal Year Ended -------------------------------- Dec. 30, Dec. 31, Dec. 31, 1994 1993 1992 ------- ------- ------- OPERATING REVENUE Merchandise $ 3,048 $ 2,909 $ 2,770 Coal 1,465 1,363 1,565 Other 112 108 99 ------- ------- ------- Transportation 4,625 4,380 4,434 Non-Transportation 78 64 74 ------- ------- ------- Total 4,703 4,444 4,508 ------- ------- ------- OPERATING EXPENSE Labor and Fringe Benefits 1,856 1,809 1,830 Materials, Supplies and Other 1,022 1,011 973 Equipment Rent 392 387 383 Depreciation 371 371 354 Fuel 251 253 262 Productivity Charge --- --- 664 ------- ------- ------- Transportation 3,892 3,831 4,466 Non-Transportation 31 22 20 ------- ------- ------- Total 3,923 3,853 4,486 ------- ------- ------- OPERATING INCOME 780 591 22 Other Income 49 11 1 Interest Expense 45 60 73 ------- ------- ------- EARNINGS (LOSS) BEFORE INCOME TAXES 784 542 (50) Income Tax Expense (Benefit) 289 234 (33) ------- ------- ------- NET EARNINGS (LOSS) $ 495 $ 308 $ (17) ======= ======= =======

CSX TRANSPORTATION INC. AND SUBSIDIARIES ~~CONSOLIDATED STATEMENT OF CASH FLOWS (Millions~~

Consolidated Statement of Dollars) Fiscal Year Ended --------------------------- Dec. 30, Dec. 31, Dec. 31, 1994 1993 1992 -------- -------- ------- OPERATING ACTIVITIES Net Earnings (Loss) $ 495 $ 308 $ (17) Adjustments to Reconcile Net Earnings (Loss) to Cash Provided Depreciation 371 371 354 Deferred Income Taxes (Benefit) 171 183 (52) Productivity Charge - Provision --- --- 664 - Payments (129) (245) (353) Proceeds from Real Estate Sales 42 28 41 (Gain) Loss on Investment Transactions 26 (26) --- Gain on Sale of South Florida Track (91) (20) (7) Gain from Disposition of Properties (38) (25) (38) Other Operating Activities 40 12 (31) Changes in Operating Assets and Liabilities Accounts Receivable (27) 27 30 Sale of Accounts Receivable-Net 20 6 200 Materials and Supplies (1) (4) 10 Other Current Assets 32 22 20 Accounts Payable and Other Current Liabilities (15) (7) (96) ------- ------- ------- Cash Provided by Operating Activities 896 630 725 ------- ------- ------- INVESTING ACTIVITIES Property Additions (676) (569) (539) Proceeds from Property Dispositions 18 36 41 Affiliated Company Activity (37) --- --- Proceeds/(Loss) from Investment Transactions (26) 26 --- Proceeds from Sale of South Florida Track 130 26 10 Other Investing Activities (9) 3 (18) ------- ------- ------- Cash Used by Investing Activities (600) (478) (506) ------- ------- ------- - 12 - PAGE 13 CSX TRANSPORTATION, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CASH FLOWS, CONTINUED (MillionsFlows

(Millions of Dollars) Fiscal Year Ended --------------------------- Dec. 30, Dec. 31, Dec. 31, 1994 1993 1992 -------- -------- ------- FINANCING ACTIVITIES Long-Term Debt Issued 92 80 148 Long-Term Debt Repaid (93) (160) (213) Cash Dividends Paid (28) (28) (74) Parent Company Advances Issued --- --- 30 Parent Company Advances Repaid (86) (18) (153) Other Financing Activities (1) (2) 4 ------- ------- ------- Cash Used by Financing Activities (116) (128) (258) ------- ------- ------- CASH AND CASH EQUIVALENTS Increase (Decrease) in Cash and Cash Equivalents 180 24 (39) Cash and Cash Equivalents at Beginning of Year 272 248 287 ------- ------- ------- Cash and Cash Equivalents at End of Year $ 452 $ 272 $ 248 ======= ======= =======

CSX TRANSPORTATION INC. AND SUBSIDIARIES ~~CONSOLIDATED STATEMENT OF FINANCIAL POSITION (Millions~~

Consolidated Statement of Dollars) Dec. 30, Dec. 31, 1994 1993 -------- -------- ASSETS Current Assets Cash and Cash Equivalents $ 452 $ 272 Accounts and Notes Receivable 93 98 Materials and Supplies 117 116 Deferred Income Taxes 241 103 Other Current Assets 57 43 ------- ------ Total Current Assets 960 632 ------- ------ Properties and Other Assets Properties-Net 8,897 8,631 Affiliates and Other Companies 189 155 Other Assets 195 235 ------- ------ Total Properties and Other Assets 9,281 9,021 ------- ------ Total Assets $10,241 $9,653 ======= ====== LIABILITIES Current Liabilities Accounts Payable and Other Current Liabilities $ 1,159 $1,111 Current MaturitiesFinancial Position

(Millions of Long-Term Debt 89 87 Due to Parent Company 23 40 ------- ------ Total Current Liabilities 1,271 1,238 ------- ------ Long-Term Debt 591 593 ------- ------ Due to Parent Company --- 69 ------- ------ Deferred Income Taxes 2,246 1,937 ------- ------ Casualty, Environmental and Other Reserves 724 965 ------- ------ Other Liabilities and Deferred Gains 757 666 ------- ------ SHAREHOLDER'S EQUITY Common Stock, $20 Par Value; Authorized 10,000,000 Shares; 9,061,038 Shares Issued and Outstanding 181 181 Other Capital 1,047 1,047 Retained Earnings 3,424 2,957 ------- ------ Total Shareholder's Equity 4,652 4,185 ------- ------ Total Liabilities and Shareholder's Equity $10,241 $9,653 ======= ====== Dollars)

CSX TRANSPORTATION INC. AND SUBSIDIARIES ~~CONSOLIDATED STATEMENT OF RETAINED EARNINGS (Millions~~

(Millions of Dollars) Dec. 30, Dec. 31, Dec. 31, 1994 1993 1992 ------ ------ ------ Beginning Balance $2,957 $2,675 $2,764 Net Earnings (Loss) 495 308 (17) Dividends - Common (28) (28) (74) Minimum Pension Liability Adjustments and Other --- 2 2 ------ ------ ------ Ending Balance $3,424 $2,957 $2,675 ====== ====== ======

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ~~(All Tables in Millions of Dollars)~~

CSX Transportation Inc. (“CSXT” or “Company”) is the largest rail network in the Eastern United States, providing rail freight transportation over a network of more than 23,000 route miles in 23 states, the District of Columbia and two Canadian provinces. CSXT is a wholly-owned subsidiary of CSX Corporation (“CSX”).

Rail shipments include merchandise, automotive products, and coal, coke and iron ore. Shipments as a percent of rail revenue are as follows:

Coal shipments originate mainly from mining locations in the Eastern United States and primarily supply domestic utility and export markets

The ~~Consolidated Financial Statements reflect the results of operations, cash flows and~~consolidated financial ~~position of~~statements include CSXT and its majority-owned ~~subsidiaries as a single entity.~~subsidiaries. All significant intercompany accounts and transactions have been eliminated. ~~CSXT is a wholly-owned subsidiary of CSX Corporation (CSX).~~ Investments in companies that are not majority-owned are carried at ~~either~~ cost (if less than 20% owned and the Company has no significant influence) or equity ~~depending on~~(if the ~~extent of control. Change in~~ Company has significant influence).

Fiscal ~~Reporting Periods Effective January 1, 1994, the company changed its~~Year

CSXT follows a 52/53 week fiscal reporting ~~period from a calendar year to a~~calendar. Fiscal years 2002, 2001 and 2000 consisted of 52 weeks. A 52-week fiscal year ~~ending on~~has four 13-week quarters. A 53-week year occurs periodically, with the ~~last Friday~~next one occurring in ~~December. The financial statements presented are for the fiscal~~2004. Fiscal years 2002, 2001 and 2000 ended ~~December 30, 1994, and December 31, 1993 and 1992.~~ on:

Cash, ~~and~~ Cash Equivalents ~~Cash~~ and ~~cash equivalents primarily represent amounts due from CSX for CSXT's participation~~Short-term Investments

CSXT participates in the CSX cash management plan, ~~and are net of outstanding checks~~under which are funded daily as presented for payment. Accounts Receivable CSXT has an ongoing agreement to sell without recourse, on a revolving basis each month, an undivided percentage ownership interest in all freight accounts receivableexcess cash is advanced to CSX ~~Trade Receivable Corporation (CTRC), a wholly-owned subsidiary~~for investment. CSX then makes cash available to CSXT as needed. Cash, cash equivalents and short-term investments consists of ~~CSX.~~cash in banks and highly liquid investments having an original maturity of three months or less at the date of acquisition. At December ~~30, 1994, December 31, 1993 and December 31, 1992, accounts receivable sold under~~28, 2001, this ~~agreement totaled $579~~included $220 million ~~$556 million and $600 million, respectively. In addition, CSXT has an agreement~~of deposits relating to ~~sell with recourse on a monthly basis, an undivided ownership interest~~the New Orleans litigation settlement that was paid in all miscellaneous accounts receivable to a financial institution. At December 30, 1994 and December 31, 1993, accounts receivable sold under this agreement totaled $46 million and $50 million, respectively. The sales of receivables have been reflected as reductions of "Accounts and Notes Receivable" in the Consolidated Statement of Financial Position. The discounts on the sales of the receivables and related servicing costs were $45 million in 1994, $44 million in 1993 and $17 million in 1992. These costs have been reported in "Other Income" in the Consolidated Statement of Earnings. 2002.

Materials and supplies consist primarily of fuel and items for replacement and maintenance of track and equipment, and are carried at average cost.

All properties are stated at cost, less an allowance for accumulated depreciation. Rail assets, including main-line track, locomotives and freight cars are depreciated using the group-life method. This method pools similar assets by road and equipment type and then depreciates each group as a whole. The majority of the Company’s total property is accounted for under the group-life method. Other property is depreciated using the straight-line method on a group basis using a unit-of- - 16 - PAGE 17 CSX TRANSPORTATION, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED NOTE 1. SIGNIFICANT ACCOUNTING POLICIES, Continued production method. All other property and equipment are depreciated on a straight-line basis over their estimated useful livesper asset basis. Regulations enforced by the Surface Transportation Board (“STB”) of ~~seven to 42 years. Interstate Commerce Commission (ICC) regulations~~the United States Department of Transportation require periodic formal studies of ultimate service lives for all railroad assets. Resulting service life estimates are subject to review and approval by the ~~ICC. Significant premature~~STB. Road assets, including main-line track, have estimated service lives ranging from 7 to 81 years. Equipment assets, including locomotives and freight cars, have estimated service lives ranging from 5 to 28 years.

For retirements ~~which would include major casualty losses, abandonments,~~or disposals of depreciable rail assets that occur in the ordinary course of business, the asset cost (net of salvage value or sales proceeds) is charged to accumulated depreciation and ~~obsolescence~~no gain or loss is recognized. For retirements or disposals of non-rail depreciable assets, ~~are recorded as~~infrequent disposal of rail assets outside the normal course of business and for all dispositions of land, the resulting gains or losses are recognized at the time of ~~their occurrence.~~disposal. Expenditures ~~which~~that significantly increase asset values or extend useful lives are capitalized. Repair and maintenance expenditures are charged to operating expense when the work is performed. ~~All properties are stated at cost. CSXT uses the specific identification method to assess potential impairment of properties~~

Properties and other ~~assets. CSXT compares~~long-lived assets are reviewed for impairment whenever events or business conditions indicate the ~~estimated recoverable value~~carrying amount of ~~a specific asset to its book value. If the recoverable value~~such assets may not be fully recoverable. Initial assessments of recoverability are based on estimates of undiscounted future net cash flows associated with an asset or a group of assets. Where impairment is ~~less than its book~~indicated, the assets are evaluated, and their carrying amount is reduced to fair value ~~the asset is considered for write-down to its recoverable~~based on discounted net cash flows or other estimates of fair value.

Transportation revenue and expense is recognized proportionately as ~~a shipment~~freight moves from origin to ~~destination on~~destination. Other revenue, which includes switching, demurrage and incidental service charges, as well as interline switching settlements, is recognized when the ~~CSXT system.~~ service is performed.

The Company incurs costs for environmental corrective efforts, such as the study and clean-up of environmental contamination. Environmental costs ~~that~~are charged to expense when they relate to ~~current operations are expensed or capitalized as appropriate. Expenditures that relate to remediating~~ an existing condition caused by past operations and ~~which~~ do not contribute to current or future revenue ~~generation, are expensed.~~generation. Liabilities for environmental corrective efforts are recorded when ~~CSXT's~~CSXT’s responsibility ~~for environmental remedial efforts~~ is (1) deemed probable, and (2) the ~~costs~~amount can be reasonably estimated. Generally, the timing of these accruals coincides with the completion of a feasibility study or ~~CSXT's~~the Company’s commitment to a formal plan of action. ~~Financial Instruments The company does not and has not traded in derivative financial instruments and there were no significant derivative financial instruments outstanding~~Environmental reserves at December ~~30, 1994.~~ 27, 2002 and December 28, 2001 were $35 million and $32 million, respectively.

Casualty reserves represent accruals for the uninsured portion of personal injury, occupational injury (asbestos, carpal tunnel, etc.) and accident claims. These reserves are recorded upon the first reporting of a claim, and estimates are updated as information develops. The amount of liability accrued is based on the type and severity of the claim and an estimate of future claims development based on current trends and historical data. The Company believes it has recorded liabilities in sufficient amounts to cover all identified claims and estimates of incurred but not reported personal injury and accident claims. Unreported occupational injuries are not subject to reasonable estimation, thus no provision is made for incurred but not reported occupational injuries. Personal injury, occupational injury and accident liabilities amount to $395 million and $435 million at December 27, 2002 and December 28, 2001, respectively.

There have been no changes in common stock during the last three years. ~~Prior Year~~

In 2002, Statement of Financial Accounting Standards (SFAS) No. 143, “Accounting for Asset Retirement Obligations,” was issued. This statement addresses financial accounting and reporting for legal obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. CSXT is required to adopt this statement for fiscal year 2003. Under the group-life method, the Company accrues removal costs as part of its depreciation expense. This effectively results in establishing a liability in accumulated depreciation in excess of any salvage value for cross ties. The Company is assessing the effect of adopting this statement and expects that it will record a cumulative effect of accounting change to remove any such liability accrued to date in the first quarter of 2003. On an ongoing basis, depreciation expense will be reduced, while material supplies and other expenses will be increased. The change in operating income is expected to be immaterial.

Certain prior-year data ~~have~~has been reclassified to conform to the ~~1994~~2002 presentation. ~~- 17 - PAGE 18~~

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 the reported amount of certain revenues and expenses during the reporting period. Actual results may differ from those estimates. Significant estimates using management judgment are made for the following areas:

CSX and Norfolk Southern Corporation (“Norfolk Southern”) completed the acquisition of Conrail Inc. (“Conrail”) in May 1997. Conrail owns the primary freight railroad system serving the Northeastern United States, and its rail network extends throughout several Midwestern states and into Canada. CSX and Norfolk Southern, through a jointly owned acquisition entity, hold economic interests in Conrail of 42% and 58%, respectively, and voting interests of 50% each. CSX and Norfolk Southern operate over allocated portions of the Conrail lines.

CSXT and Norfolk Southern Railway Company (“Norfolk Southern Railway”), the rail subsidiary of Norfolk Southern, operate their respective portions of the Conrail system pursuant to various operating agreements. Under these agreements, the railroads pay operating fees to Conrail for the use of right-of-way and rent for the use of equipment. Conrail continues to provide rail services in certain shared geographic areas (“Shared Asset Areas”) for the joint benefit of CSXT and Norfolk Southern Railway, for which it is compensated on the basis of usage by the respective railroads.

CSXT’s operating revenue includes revenue from traffic previously moving on Conrail. Operating expenses include costs incurred to handle that traffic and operate the former Conrail lines. Operating expense includes an expense category, “Conrail Operating Fees, Rents and Services,” which reflects:

NOTE 2. ~~PRODUCTIVITY CHARGES. In~~INTEGRATED RAIL OPERATIONS WITH CONRAIL, Continued

As a result of the ~~fourth quarter~~integration, a number of ~~1991,~~employees’ positions at Conrail were eliminated and certain duplicate facilities were closed. Under the agreements among the parties, CSXT ~~recorded a pretax charge~~and Norfolk Southern Railway assumed various obligations related to ~~provide~~these actions. During 2002, 2001, and 2000, CSXT incurred approximately $30, $35, and $42 million, respectively, of costs related to lease payments on certain Conrail facilities no longer being used after the integration, and separation and relocation costs of Conrail employees. These costs are reflected in “Materials, Supplies and Other” expense in the consolidated statement of earnings.

As listed below, CSXT has amounts payable to Conrail, representing expenses incurred under the operating, equipment and shared area agreements.

The agreement under which CSXT operates its allocated portion of the Conrail route system has an initial term of 25 years and may be renewed at CSXT’s option for two five-year terms. Operating fees paid to Conrail under the agreement are subject to adjustment every six years based on the fair value of the underlying system. Lease agreements for the ~~estimated~~Conrail equipment operated by CSXT cover varying terms. CSXT is responsible for all costs of ~~implementing work force reductions, improvements in productivity~~operating, maintaining, and ~~other cost reductions. The charge amounted~~improving the routes and equipment under these agreements. On December 27, 2002, future minimum payments to ~~$647 million on a pretax basis~~Conrail under the operating, equipment and reduced 1991 net earnings by $409 million. In the second quarter of 1992, CSXT recorded a charge principally to recognize the estimated additional costs of buying out certain trip-based compensation elements paid to train crew employees. These compensation elementsshared area agreements were based upon collective bargaining agreements with train crew employees. The additional pretax charge amounted to $664 million and reduced net earnings for 1992 by $427 million. The $1.3 billion in combined charges includes $1.2 billion for reductions from three- to two-member train crews and for buying out productivity funds and short-crew allowances. CSXT has reached labor agreements across all portions of its rail system where it is allowed to operate trains with two- member crews. The trip-based compensation amounts vary by labor agreement. Upon ratification of the labor agreements, each affected employee received a cash payment. Each employee then elected to receive the remainder of their negotiated settlement in the form of a lump-sum payment or deferral to be paid upon resignation, retirement or death. CSXT expects 90% of the payments will have been made by the year 2019. As of December 30, 1994, payments totaling $637 million have been recorded as a reduction of the aggregate liabilities for the productivity charges. The remaining liability consists of $376 million for employee separations and associated costs (see Note 9). Based upon current negotiated agreements, CSXT expects the remaining liability of $376 million to be adequate. NOTE 3. SUPPLEMENTAL STATEMENT OF EARNINGS FINANCIAL DATA. 1994 1993 1992 ------ ------ ------ Selling, General and Administrative Expense (a) $849 $802 $673 ==== ==== ==== (a) Selling, general and administrative expense during 1994 increased $47 million over 1993 and $176 million over 1992 primarily due to an increase in the management service fee charged by CSX and increases in certain employee related incentive costs. - 18 - PAGE 19 follows:

NOTE 4. OTHER ~~INCOME. 1994 1993 1992 ---- ---- ---- Interest Income -~~ INCOME (EXPENSE)

Other $ 20 $ 16 $ 18 Interest Income - CSX Cash Management Plan 13 12 9 Gain (Loss) on Investment Transactions (26) 26 --- Gain on South Florida Track Sale (a) 91 20 7 Fees Related to Accounts Receivable Sold (45) (44) (17) Miscellaneous (4) (19) (16) ---- ---- ---- Total $ 49 $ 11 $ 1 ==== ==== ==== (a) In May 1988, CSXT sold approximately 80 miles of track and right of way in Broward, Dade and Palm Beach counties to the state of Florida for $264 million subject to annual appropriations which were accounted for on an installment basis. On December 1, 1994, the state of Florida elected to satisfy its remaining unfunded obligation issued in 1988 to consummate the purchase of track and right of way. The transaction resulted in cash proceeds of $102 million and a pretax gain of $69 million. The scheduled payment resulted in a $22 million gain in 1994. NOTE 5. INCOME TAXES. Effective January 1, 1993, CSXT adopted Statement of Financial Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes." SFAS No. 109 superseded SFAS No. 96, "Accounting for Income Taxes," which CSXT adopted in 1987. SFAS No. 109 requires that deferred income ~~tax assets and liabilities be classified as current or non-current based upon the classification~~(expense) consists of the related asset or liability for financial reporting. Net earnings for 1993 were not impacted by the adoption of SFAS No. 109. As permitted under the new rules, prior-year financial statements have not been restated. Income tax expense (benefit) information is as follows: 1994 1993 1992 ------- ------- ------- Current Federal $106 $ 47 $ 17 State and Foreign 12 4 2 ---- ---- ---- Total Current 118 51 19 ---- ---- ---- Deferred Federal 164 166 (48) State 7 17 (4) ---- ---- ---- Total Deferred 171 183 (52) ---- ---- ---- Total Expense (Benefit) $289 $234 $(33) ==== ==== ==== - 19 - PAGE 20 following:

The breakdown of income tax expense (benefit) between current and deferred is as follows:

Income tax expense ~~(benefit)~~ reconciled to the tax computed at statutory ~~rate~~rates is as follows: 1994 1993 1992 ----------- ----------- ----------- Tax at Statutory Rates $274 35% $190 35 % $(17) (34)% State Income Taxes 13 2 13 2 (2) (4) Prior Years' Income Taxes --- -- (15) (3) (10) (20) Increase in Statutory Rate (a) --- -- 46 9 --- -- Other 2 -- --- -- (4) (9) ---- -- ---- -- ---- -- Total Expense (Benefit) $289 37% $234 43 % $(33) (67)% ==== == ==== == ==== == (a) CSXT revised its annual effective tax rate in 1993 to reflect the change in the federal statutory rate from 34 to 35 percent. The effect of this change was to increase deferred income tax expense by $46 million related to applying the newly enacted statutory income tax rate to deferred tax balances as of January 1, 1993.

The significant components of deferred tax assets and liabilities ~~after considering~~include amounts associated with:

The primary factor in the adoption of SFAS No. 109 include: December 30, December 31, January 1, 1994 1993 1993 ------ ------ ------ Deferred Tax Assets Productivity Charge $ 227 $ 289 $ 356 Employee Benefit Plans 151 167 143 Investment Tax Credits --- 100 126 Alternative Minimum Tax Credits 166 168 148 Other 268 215 206 ------ ------ ------ Total 812 939 979 ------ ------ ------ Deferred Tax Liabilities Accelerated Depreciation 2,600 2,556 2,455 Other 217 217 173 ------ ------ ------ Total 2,817 2,773 2,628 ------ ------ ------ Net Deferred Tax Liabilities $2,005 $1,834 $1,649 ====== ====== ====== In addition tochange in year-end net deferred income tax liability balances is the annual provision for deferred income tax expense, the change in the year-end net deferred income tax liability balances included the income tax benefit for the minimum pension liability adjustments in 1993. - 20 - PAGE 21 expense.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED In late 1994, an additional income tax payment was made for $50 million for prepayment of 1995 tax liabilities. Income tax payments during 1994, 1993 and 1992 totaled $192 million, $80 million and $56 million, respectively.

CSXT and its subsidiaries are included in the consolidated federal income tax return filed by CSX. The consolidated current federal income tax expense or benefit is allocated to CSXT and its subsidiaries as though CSXT had filed a separate consolidated federal return. Income taxes due to CSX are included in current liabilities as follows:

Examinations of the federal income tax returns of CSX ~~and its principal subsidiaries~~ have been completed through ~~1987. Returns~~1993. Tax returns for ~~1988-1990~~1994 through 1998 are currently under examination. Management believes adequate provision has been made for any adjustments that might be assessed.

At December ~~30, 1994~~27, 2002 and December ~~31, 1993, includes $510 million~~28, 2001, CSXT had $1.3 billion and ~~$336 million,~~$1.1 billion deficit balances, respectively ~~representing amounts due from CSX for CSXT's~~relating to CSXT’s participation in the CSX cash management plan. The amount is included in Due to Parent Company in the statement of financial position. Under this plan, excess cash is advanced to CSX for investment and CSX makes cash funds available to its subsidiaries as needed for use in their operations. CSXT and CSX isare committed to repay all amounts due each other on demand should circumstances require. The companies are charged for borrowings or compensated for investments based on returns earned by the plan ~~portfolio. Effective January 1, 1994,~~ portfolio, which was 1.46% and 3.36% at December 27, 2002 and December 28, 2001, respectively. Interest expense related to this plan was $33 million, $30 million and $13 million in 2002, 2001 and 2000, respectively.

Detail of Related Party Service Fees (as included in the Statement of Earnings)

Detail Of Due to Affiliate (as included in the Statement of Financial Position)

CSXT ~~entered into a loan agreement with Customized Transportation, Inc. ("CTI"~~and CSX Insurance Company (“CSX Insurance”), a wholly-owned subsidiary of CSX, have entered into a loan agreement whereby ~~CTI borrowed $40~~CSXT may borrow up to $125 million from ~~CSXT.~~CSX Insurance. The loan is payable in full on demand. At December 27, 2002, and December 28, 2001, $115 million and $125 million, respectively, was outstanding under the agreement. Interest on the loan is ~~due from CTI semi- annually commencing June 30, 1994, with~~payable monthly at 0.45% over the ~~entire principal amount due on January 1,~~LIBOR rate, and was 1.46% at December 27, 2002 and 2.56% at December 28, 2001. Interest ~~income~~expense related to the ~~CTI~~ loan was $2 million. During 1992, CSXT entered into an agreement with CTRC to sell, on a revolving basis, without recourse, all existing accounts receivable to CTRC. In 1993, this agreement was amended to sell only freight accounts receivable to CTRC. As of December 30, 1994 and December 31, 1993, CSXT had sold $579 million and $556 million, respectively, of accounts receivable to CTRC. During 1994, CSXT repaid the remaining formal long-term borrowings from CSX outstanding at December 31, 1993. Interest expense on borrowings from CSX was $3 million, $9$6 million and ~~$11~~$7 million in 1994, 1993 and 1992, respectively. During 1989, CSXT's pension plan for salaried employees was merged with the CSX Corporation Plan, and all assets of CSXT's plan were transferred to the CSX merged plan. Since the plans were merged, CSX has allocated to CSXT a portion of the net pension expense for the ~~CSX Corporation Plan based on CSXT's relative level of participation in the merged plan which considers the assets~~fiscal years ended December 27, 2002, December 28, 2001, and personnel previously in the CSXT plan. The allocated expense from the CSX Corporation Plan amounted to $42 million in 1994, $32 million in 1993 and $23 million in 1992. - 21 - PAGE 22 December 29, 2000, respectively.

NOTE 6. RELATED PARTIES, Continued Included in Materials, Supplies and Other expense are amounts related to a management service fee charged by CSX, data processing related charges from CSX Technology, Inc., and the reimbursement, under an operating agreement, from CSX Intermodal, Inc. (CSXI), for costs incurred by

CSXT related to intermodal operations. The management service fee charged by CSX represents compensation for certain corporate services provided to CSXT. These services include development of corporate policy and long-range strategic plans, allocation of capital, placement of debt, maintenance of employee benefit plans, internal audit and tax administration. The data processing related charges are compensation to CSX Technology, Inc. for the development, implementation and maintenance of computer systems, software and associated documentation for the day to day operations of CSXT. CSX Technology and CSXI are wholly-owned subsidiaries of CSX. Materials, Supplies and Other expense includes net expense of $192 million, $214 million and $128 million in 1994, 1993 and 1992, respectively, relating to the above arrangements. The $86 million increase from 1992 to 1993 was predominately the result of an increase in the management fee charged by CSX and a one-time intercompany transfer to CSXI in 1992. During 1991, CSXT entered into an operating lease agreementparticipates with CSXI for 3,400 rebuilt coal gondola cars. The cars, which were previously owned and rebuilt by CSXT, were sold to CSXI for $117 million which resulted in no gain. These cars are presently being leased by CSXT through March 2006. In addition, CSXT is leasing 65 locomotives from CSXI pursuant to a pre-existing operating lease agreement acquired by CSXI from a third party at year-end 1992. These locomotives are being leased by CSXT through May 2008. The minimum lease payments for the locomotives and coal gondola cars discussed above are approximately $18 million annually. These lease payments are included in the minimum lease payments as discussed in Note 13. During 1988, CSXT participated with Sea-LandSL Service Inc. ~~(Sea-Land)~~(“SL Service”), a wholly-owned subsidiary of CSX, in ~~four~~ sale-leaseback arrangements. Under these arrangements, ~~Sea-Land~~SL Service sold equipment to a third party and CSXT leased the equipment and assigned the lease to ~~Sea-Land. Sea-Land~~SL Service. SL Service is obligated for all lease payments and other associated equipment expenses. If ~~Sea-Land~~SL Service defaults on its obligations under the arrangements, CSXT would assume the asset lease rights and obligations of ~~$161~~approximately $37 million at December ~~30, 1994, under the arrangements. CSX purchases futures and options contracts~~27, 2002. These leases were assumed by Maersk as ~~a partial hedge against fluctuations in fuel oil prices on behalf~~part of ~~CSXT and other CSX subsidiaries. Gains and losses related to hedges of existing assets or liabilities are deferred and recognized over the expected remaining life~~its purchase of the ~~related~~CSX international liner business and will be assumed by Horizon Lines LLC (formerly CSX Lines) as part of its ongoing domestic shipping business. CSXT believes that Maersk and Horizon Lines will fulfill their contractual commitments with respect to such leases and that CSXT will have no further liability for those obligations

CSXT sells, generally without recourse, a revolving pool of accounts receivable to CSX Trade Receivables Corporation, a bankruptcy-remote (special purpose) entity, wholly-owned by CSX. Once these receivables are sold they are no longer on the Company’s statement of financial position.

CSXT has retained responsibility for servicing the accounts receivables held by the master trust. The average servicing period is less than one month. No servicing asset or ~~liability. Gains~~liability has been recorded since the fees CSXT receives approximate its related costs.

The accounts receivable program is accounted for in accordance with SFAS No. 140, “Accounting for Transfers and ~~losses related to hedges~~Servicing of ~~anticipated transactions are also deferred~~Financial Assets and recognized in income in the same period as the hedged transaction. CSX had no significant hedging or derivative financial instruments employed at December 30, 1994 and December 31, 1993. - 22 - PAGE 23 Extinguishments of Liabilities.”

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED NOTE 7. PROPERTIES. Balance Retirement, Balance at Beginning Sales and at End of Year Additions Other Changes of Year ------------ --------- ------------- ------- 1994 Property: Transportation Road $ 9,026 $ 394 $(224) $ 9,196 Equipment 3,615 254 (143) 3,726 ------- ------ ----- ------- 12,641 648 (367) 12,922 Non-Transportation 63 28 (2) 89 ------- ------ ----- ------- Total $12,704 $ 676 $(369) $13,011 ======= ====== ===== ======= Accumulated Depreciation: Transportation Road $ 2,617 $ 211 $(219) $ 2,609 Equipment 1,452 160 (111) 1,501 ------- ------ ----- ------- 4,069 371 (330) 4,110 Non-Transportation 4 --- --- 4 ------- ------ ----- ------- Total $ 4,073 $ 371 $(330) $ 4,114 ======= ====== ===== ======= Properties - December 30, 1994 $ 8,897 ======= - 23 - PAGE 24 CSX TRANSPORTATION, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED NOTE 7. PROPERTIES, Continued Balance Retirement, Balance at Beginning Sales and at End of Year Additions Other Changes of Year ------------ --------- ------------- ------- 1993 Property: Transportation Road $ 9,074 $ 323 $(371) $ 9,026 Equipment 3,567 243 (195) 3,615 ------- ------ ----- ------- 12,641 566 (566) 12,641 Non-Transportation 61 3 (1) 63 ------- ------ ----- ------- Total $12,702 $ 569 $(567) $12,704 ======= ====== ===== ======= Accumulated Depreciation: Transportation Road $ 2,781 $ 209 $(373) $ 2,617 Equipment 1,453 162 (163) 1,452 ------- ------ ----- ------- 4,234 371 (536) 4,069 Non-Transportation 5 --- (1) 4 ------- ------ ----- ------- Total $ 4,239 $ 371 $(537) $ 4,073 ======= ====== ===== ======= Properties - December 31, 1993 $ 8,631 =======

NOTE 8. ACCOUNTS PAYABLE AND OTHER CURRENT LIABILITIES. Dec. 30, Dec. 31, 1994 1993 ------ ------ Trade Accounts Payable $ 511 $ 457 Labor and Fringe Benefits(a) 374 337 Interest, Taxes and Other 141 180 Casualty Reserves 133 137 ------ ------ Total $1,159 $1,111 ====== ====== (a) Labor and Fringe Benefits includes separation liabilitiesPROPERTIES

Properties consist of $10 million for 1994 and $26 million for 1993. - 24 - PAGE 25 CSX TRANSPORTATION, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED the following:

Casualty Environmental Separation Reserves(a) Reserves(a) Liabilities(a) ----------- ------------ ----------- Balance 12/31/92 $ 369 $ 77 $ 917 Charged to Expense and Other Additions 189(b) 63 --- Payments and Other Reductions (179) (9) (295)(c) ----- ----- ----- Balance 12/31/93 379 131 622 Charged to Expense and Other Additions 159(b) 32 --- Payments and Other Reductions (184) (23) (228)(c) ----- ----- ----- Balance 12/30/94 $ 354 $ 140 $ 394 ===== ===== ===== (a) Balances include currentReserves

Casualty reserves represent accruals for the uninsured portion of ~~casualty~~personal injury, occupational injury (asbestos, carpal tunnel, etc.) and environmental reserves and separation liabilities, respectively, of $133 million, $20 million and $14 million at December 30, 1994 and $137 million, $1 million and $26 million at December 31, 1993. (b) Casualtyaccident claims. These reserves are ~~estimated based~~recorded upon the first reporting of ~~an accident or personal injury to an employee. Liabilities for accidents~~a claim, and estimates are updated as information develops. The amount of liability accrued is based ~~upon field reports and liabilities for personal injuries are based upon~~on the type and severity of the ~~injury~~claim, and ~~the use~~an estimate of future claims development based on current trends and historical data. ~~(c) Includes~~The Company believes it has recorded liabilities in sufficient amounts to cover all identified claims and estimates of incurred but not reported, personal injury and accident claims. Unreported occupational injuries are not subject to reasonable estimation, thus no provision is made for incurred but not reported occupational injuries.

Separation liabilities at December 27, 2002 relate to productivity charges recorded in 1991 and 1992 to provide for the ~~transfer~~estimated costs of ~~$156 million~~implementing workforce reductions, improvements in ~~1994~~productivity and other cost reductions. The remaining liabilities are expected to a separation-related pension obligation and the reallocation of $95 million in 1993 to other negotiated settlements contemplated by the 1991 Productivity Charge. The transfer for 1994 represents the future cost of a pension obligation for certain train crew employees arising from the 1992 buyout of trip-based compensation (see Note 2). The 1993 reallocation adjusted for anbe paid out over accrual of separation liabilities and an under accrual of amounts recorded for other negotiated settlements. - 25 - PAGE 26 CSX TRANSPORTATION, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED NOTE 10. LONG-TERM DEBT. Type Average (Maturity Dates) Interest Rates 1994 1993 - ----------------- -------------- ------ ------ Equipment Obligations (1995-2009) 9% $ 381 $ 417 Mortgage Bonds (1998-2003) 3% 78 84 Other Obligations (1995-2021) 8% 221 179 ------ ------ Total 7% 680 680 Less Debt Due Within One Year 89 87 ------ ------ Total Long-Term Debt $ 591 $ 593 ====== ====== CSXT has long-term debt maturities during the next five years aggregating $89 million in 1995, $68 million in 1996, $49 million in 1997, $47 million in 1998 and $63 million in 1999. Substantially all of the properties and certain other assets of CSXT and its subsidiaries are pledged as security for various long-term debt issues. Interest payments, net of amounts capitalized, totaled $53 million, $74 million and $85 million, respectively, for 1994, 1993 and 1992. NOTE 11. FAIR VALUE OF FINANCIAL INSTRUMENTS. The following table presents the carrying amounts and estimated fair values of financial instruments as required by SFAS No. 107, "Disclosures about Fair Value of Financial Instruments." SFAS 107 defines the fair value of a financial instrument as the amount at which the instrument could be exchanged in a current transaction between willing parties. 1994 1993 ---------------- ---------------- Carrying Fair Carrying Fair Amount Value Amount Value -------- ----- -------- ----- Assets: Cash and Cash Equivalents $452 $452 $272 $272 Accounts and Notes Receivable 93 93 98 98 Liabilities: Accounts Payable 511 511 457 457 Long-Term Debt 680 650 680 714 - 26 - PAGE 27 CSX TRANSPORTATION, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED NOTE 11. FAIR VALUE OF FINANCIAL INSTRUMENTS, Continued The following methods and assumptions were used by the company in estimating fair values for financial instruments: Cash and Cash Equivalents The carrying amounts approximate fair value because of the short-term maturity of the instruments. Current Assets and Current Liabilities The carrying amounts reported in the statement of financial position for current assets and current liabilities qualifying as financial instruments approximate their fair values. Long-Term Debt The fair values of the company's long-term debt have been estimated using discounted cash flow analyses based upon the company's current incremental borrowing rates for similar types of borrowing arrangements. NOTE 12. EMPLOYEE BENEFIT PLANS. Pension Plans CSX and its subsidiaries, including CSXT, have defined benefit pension plans principally for salaried employees. The plans provide for eligible employees to receive benefits primarily based on years of service and compensation rates near retirement. Contributions to the plans are made on the basis of not less than the minimum funding standards set forth in the Employee Retirement Income Security Act of 1974, as amended. See Note 6 for the allocated pension expense from the CSX Corporation Plan. Savings Plans CSXT has established savings plans for virtually all full-time salaried employees and certain employees covered by collective bargaining units of CSXT and subsidiary companies. Eligible employees may contribute from 1% to 15% of their annual compensation in 1% multiples to these plans. CSXT matches eligible employees' contributions in an amount equal to the lesser of 50% of each participating employees' contribution or 3% of their annual compensation. In addition CSXT contributes fixed amounts for each participating employee covered by a collective bargaining agreement. Expense for these plans was $22 million for each of the years 1994, 1993 and 1992. - 27 - PAGE 28 CSX TRANSPORTATION, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED NOTE 12. EMPLOYEE BENEFIT PLANS, Continued Other Post-Retirement Benefit Plans In addition to the CSX defined benefit pension plans, CSXT participates in two defined benefit post-retirement plans along with CSX and other affiliates which cover most full-time salaried employees. One plan provides medical benefits and another provides life insurance benefits. The post-retirement health care plan is contributory, with retiree contributions adjusted annually, and contains other cost-sharing features such as deductibles and coinsurance. The accounting for the health care plan anticipates future cost-sharing changes to the written plan that are consistent with the company's expressed intent to increase the retiree contribution rate annually for the expected medical inflation rate for that year. The life insurance plan is non- contributory. The company's current policy is to fund the cost of the post- retirement health care and life insurance benefits on a pay-as-you-go basis, as in prior years. The following table shows the two plans' combined status reconciled with the amounts recognized in CSXT's statement of financial position: Life Medical Insurance Plan Plan 1994 1993 1994 1993 ---- ---- ---- ---- Accumulated Post-Retirement Benefit Obligation: Retirees $144 $154 $61 $67 Fully Eligible Active Participants 12 13 2 2 Other Active Participants 18 20 1 2 ---- ---- --- --- Accumulated Post-Retirement Benefit Obligation 174 187 64 71 Unrecognized Prior Service Cost 13 17 4 4 Unrecognized Net Loss (22) (40) (5) (10) ---- ---- --- --- Net Post-Retirement Benefit Obligation $165 $164 $63 $65 ==== ==== === === Net periodic post-retirement benefit expense for 1994, 1993 and 1992 was $21 million, $16 million and $22 million, respectively. - 28 - PAGE 29 CSX TRANSPORTATION, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED NOTE 12. EMPLOYEE BENEFIT PLANS, Continued Other Post-Retirement Benefit Plans, Continued The weighted-average annual assumed rate of increase in the per capita cost of covered benefits (i.e., health care cost trend rate) for the medical plan is 11% for 1994-1995 and is assumed to decrease gradually to 5.5% by 2005 and remain at that level thereafter. The health care cost trend rate assumption has a significant effect on the amounts reported. For example, increasing the assumed health care cost trend rates by one percentage point in each year would increase the accumulated post-retirement benefit obligation for the medical plan as of December 31, 1994 by 9%, and the aggregate of the service and interest cost components of net periodic post-retirement benefit expense for 1994 by $3 million. The weighted-average discount rate used in determining the accumulated post-retirement benefit obligation was 8.25% and 7.25% at December 30, 1994 and December 31, 1993, respectively. Other Plans Under collective bargaining agreements, the company participates in a number of union-sponsored, multi-employer benefit plans. Payments to these plans are made as part of aggregate assessments generally based on hours worked, tonnage moved or a combination thereof. The administrators of the multi- employer plans generally allocate funds received from participating companies to various health and welfare benefit plans and pension plans. Current information regarding such allocations has not been provided by the administrators. Total contributions of $125 million, $139 million and $125 million were made to these plans in 1994, 1993 and 1992, respectively. Certain officers and key employees of CSXT participate in stock purchase, performance and award plans of CSX. CSXT is allocated its share of any cost to participate in these plans. NOTE 13. SUMMARY OF COMMITMENTS AND CONTINGENCIES. Lease Commitments CSXT leases equipment under agreements with terms up15 to 20 years. Non-cancelable, long-term leases generally include provisions for maintenance, and options to purchase at fair value and to extend the terms. At December 30, 1994, minimum equipment rentals under non-cancelable operating leases totaled approximately $178 million for 1995, $171 million for 1996, $173 million for 1997, $176 million for 1998, $160 million for 1999 and $1.5 billion thereafter. Rent expense on equipment operating leases, including net daily rental charges on railroad operating equipment of $220 million, $214 million and $204 million in 1994, 1993 and 1992, respectively, amounted to $392 million in 1994, $387 million in 1993 and $383 million in 1992. Deferred gains arising from sale-leaseback transactions are being amortized over periods not exceeding 20 years and have reduced rent expense by $6 million in 1994, 1993 and 1992, respectively. - 29 - PAGE 30 CSX TRANSPORTATION, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED NOTE 13. SUMMARY OF COMMITMENTS AND CONTINGENCIES, Continued Purchase Commitment CSXT entered into an agreement to purchase 300 locomotives. This large single order covers CSXT's normal locomotive replacement needs for 1994 through 1997. This purchase agreement will introduce alternating current traction technology to CSXT's locomotive fleet. CSXT took delivery of 50 direct current and 30 alternating current locomotives in 1994, and the remaining 220 alternating current units will be delivered during 1995-1997. Contingent Liabilities and Long-Term Operating Agreements CSXT and its subsidiaries are contingently liable individually and jointly with others principally as guarantors of long-term debt and obligations, primarily related to leased properties, joint ventures and joint facilities. These contingent obligations amounted to approximately $185 million at December 30, 1994. CSXT has various long-term railroad operating agreements that allow for exclusive operating rights over various railroad lines. Under these agreements, CSXT is obligated to pay usage fees of approximately $10 million annually. The terms of these agreements range from 30 to 40 years.

CSXT is a party into various proceedings involving private parties and regulatory agencies related to environmental issues. CSXT has been identified as a potentially responsible party ~~in a number of investigations and actions relating to 106~~(“PRP”) at approximately 94 environmentally impaired sites that are, or may be subject to remedial action under the Federal Superfund Statute ~~("Superfund"~~(“Superfund”) or ~~corresponding~~similar state statutes. ~~Many~~A number of these proceedings are based on allegations that CSXT, or its railroad predecessors, sent hazardous substances to the facilities in question for disposal. Such proceedings arising under Superfund or ~~corresponding~~similar state statutes ~~typically~~can involve numerous other waste generators and disposal companies and seek to allocate or recover costs associated with site investigation and cleanup, which could be substantial. ~~The assessment~~

CSXT is involved in a number of administrative and judicial proceedings and other clean-up efforts at approximately 230 sites, which include the ~~required response and remedial costs associated with most~~94 Superfund sites noted previously where it is ~~extremely complex. Cost estimates are based on information available for each site, financial viability~~participating in the study or clean-up of other potentially responsible parties, where available, and existing technology, laws and regulations. CSXT's best estimate of the allocation method and percentage of liability when other potentially responsible parties are involved are based on assessments by consultants, agreements among potentially responsible parties, or determinations by the EPA or other regulatory agencies.alleged environmental contamination. At least once each quarter, CSXT reviews its role, if any, with respect to each such location, giving consideration to the nature of ~~CSXT's~~CSXT’s alleged connection to the location ~~(e.g.,~~(e.g, generator of waste sent to the site or owner or ~~operator)~~operator of the site), the extent of ~~CSXT's~~CSXT’s alleged connection ~~(e.g.,~~(e.g, volume of waste sent to the location and other relevant factors), the accuracy and strength of evidence connecting CSXT to the location, - 30 - PAGE 31 CSX TRANSPORTATION, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED NOTE 13. SUMMARY OF COMMITMENTS AND CONTINGENCIES, Continued and the number, connection, and financial ~~position~~viability of other named and unnamed ~~potentially responsible parties~~PRPs at the location. ~~The ultimate liability for remediation is difficult to determine with certainty because of~~

Based upon the ~~number of and creditworthiness of PRPs involved. Through the assessment~~review process, CSXT ~~monitors the creditworthiness of such PRPs in determining ultimate liability. Based upon such reviews and updates of the sites with which it is involved, CSXT~~ has recorded ~~and at least quarterly reviews for adequacy,~~ reserves to cover estimated contingent future environmental costs with respect to such sites. The recorded liabilities for estimated future environmental costs at December ~~30, 1994~~27, 2002 and December ~~31, 1993~~28, 2001, were ~~$140~~$35 million and ~~$131~~$32 million, respectively. These recorded liabilities, which are undiscounted, include amounts representing ~~CSXT's~~CSXT’s estimate of unasserted claims, which CSXT believes to be immaterial. ~~The~~A liability has been accrued for future costs ~~for~~of all sites where the ~~company's~~Company’s obligation is (1) deemed probable and (2) where such costs can be reasonably estimated. The liability includes ~~the estimated~~ future costs for remediation and restoration of sites as well as any significant ongoing monitoring costs, but excludes any anticipated insurance recoveries. The majority of the December ~~30, 1994~~27, 2002 environmental liability is expected to be paid out over the next ~~five~~seven years, funded by cash generated from operations.

The ~~company~~Company does not currently possess sufficient information to reasonably estimate the amounts of additional liabilities, if any, on some sites until completion of future environmental studies. In addition, latent conditions at any given location could result in exposure, the amount and materiality of which cannot presently be reliably estimated. ~~Based upon~~However, based on information currently available ~~however,~~ the ~~company~~Company believes ~~that~~ its environmental reserves are adequate to accomplish remedial actions to comply with present laws and ~~regulations. The company believes~~regulations, and that the ultimate liability for these matters will not materially affect its overall results of operations and financial condition.

Certain of CSXT’s properties are pledged as security for various long-term debt issues.

Fair values of the Company’s financial instruments are estimated by reference to quoted prices from market sources and financial institutions, as well as other valuation techniques. Long-term debt is the only financial instrument of the Company with a fair value significantly different from its carrying amount. At December 27, 2002, the fair value of long-term debt, including current maturities, was $1.2 billion, compared with a carrying amount of $1.1 billion. At December 28, 2001, the fair value of long-term debt, including current maturities, was $1.3 billion, compared with a carrying amount of $1.2 billion. The fair value of long-term debt has been estimated using discounted cash flow analyses based upon the Company’s current incremental borrowing rates for similar types of financing arrangements.

CSXT, in conjunction with CSX and its subsidiaries, sponsors defined benefit pension plans principally for salaried employees. The plans provide eligible employees with retirement benefits based principally on years of service and compensation rates near retirement. CSX allocates to CSXT a portion of the pension expense or benefit for the CSX pension plans based on CSXT’s relative level of participation. The allocated expense from the various CSX pension plans amounted to credits of $4 million in 2002, $3 million in 2001 and $2 million in 2000.

In addition to the defined benefit pension plans, CSXT participates with CSX and other affiliates in two plans that provide medical and life insurance benefits to most full-time salaried employees upon their retirement. The postretirement medical plan is contributory (partially funded by retiree), with retiree contributions adjusted annually. The life insurance plan is non-contributory. CSX allocates to CSXT a portion of the expense for these plans based on CSXT’s relative level of participation. The allocated expense amounted to $41 million in 2002, $31 million in 2001, and $22 million in 2000.

CSXT maintains savings plans for virtually all full-time salaried employees and certain employees covered by collective bargaining agreements of CSXT and subsidiary companies. Expense associated with these plans was $12 million for 2002, $13 million for 2001, and $14 million for 2000.

Under collective bargaining agreements, the Company participates in a number of union-sponsored, multi-employer benefit plans. Payments to these plans are made as part of aggregate assessments generally based on number of employees covered, hours worked, tonnage moved or a combination thereof. Total contributions of $312 million, $285 million, and $242 million, respectively, were made to these plans in 2002, 2001 and 2000.

Certain officers and key employees of CSXT participate in stock purchase, performance and award plans of CSX. CSXT is allocated its share of any cost to participate in these plans.

The Company has various equipment leases with other parties under agreements with terms of up to 29 years. Non-cancelable, long-term leases generally include provisions for maintenance, options to purchase at fair value and options to extend the terms. Lease arrangements allow the Company to efficiently gain the use of equipment which it does not wish to own. At December 27, 2002, minimum equipment rentals under these operating leases are as follows:

Rent expense for operating leases totaled $406 million in 2002, $413 million in 2001, and $517 million in 2000. These amounts include net daily rental charges on railroad operating equipment of $294 million, $289 million and $369 million in 2002, 2001, and 2000, respectively, which are not long-term commitments. In addition to these commitments, the Company also has agreements covering routes and equipment leased from Conrail. See Note 2, Integrated Operations with Conrail, for a description of these commitments.

The Company has a commitment under a long-term maintenance program for approximately 40% of its fleet of locomotives. The agreement expires in 2026 and totals $2.8 billion. Minimum payments under this agreement are as follows:

The long-term maintenance program assures CSXT access to efficient, high-quality locomotive maintenance services at settled price levels through the term of the program. Under this program CSX paid $124 million, $126 million and $121 million in fiscal years 2002, 2001 and 2000, respectively.

In addition to its contractual arrangement to operate specified portions of Conrail’s rail system, CSXT has various long-term railroad operating agreements that allow for exclusive operating rights over various railroad lines. Under these agreements, CSXT is obligated to pay usage fees of approximately $10 million annually. The terms of these agreements range from 30 to 40 years.

The Company obtains substantial amounts of commercial insurance for potential losses for third-party liability and property damages. Reasonable levels of risk ($35 million for property and $25 million for liability per occurrence) are also retained on a self-insurance basis. Using a combination of third party and self-insurance allows the Company to realize savings on insurance premium costs and preserves flexibility in achieving the best insurance solutions for various categories of risks.

In July 2002, the Company received $44 million as the first of two payments to settle a contract dispute. During 2002, the Company recognized approximately $7 million of this first payment in other income as this amount related to prior periods. The remaining $37 million will be recognized ratably over the contract period which ends in 2020.The second payment of $23 million was received on January 2, 2003 and will be recognized over the contract period which ends in 2020. The results of this settlement will provide approximately $3 million in annual pretax earnings through 2020.

A number of other legal actions ~~other than environmental,~~ are pending against CSXT in which claims are made in substantial amounts. While the ultimate results of ~~environmental investigations, lawsuits and claims involving CSXT~~these legal actions cannot be predicted with certainty, management does not currently expect that the resolution of these matters will have a material adverse effect on ~~the~~CSXT’s consolidated financial position, results of operations or cash flows. The Company is also party to a number of actions, the resolution of which could result in gain realization in amounts that could be material to results of operations in the quarter received.

For information regarding environmental proceedings see Note 9, Casualty, Environmental and ~~cash flows of the company. - 31 - PAGE 32~~ Other Reserves.

NOTE 14. QUARTERLY DATA (Unaudited). 1994(a) ----------------------------------------- 1st 2nd 3rd 4th(b) ------ ------ ------ ------ Operating Revenue $1,127 $1,190 $1,173 $1,213 Operating Income 135 230 184 231 Net Earnings 73 136 105 181 1993 ----------------------------------------- 1st 2nd 3rd(c) 4th(d) ------ ------ ------ ------ Operating Revenue $1,094 $1,134 $1,081 $1,135 Operating Income 105 172 123 191 Net Earnings 56 131 19 102 1992 ----------------------------------------- 1st 2nd(e) 3rd 4th ------ ------ ------ ------ Operating Revenue $1,123 $1,123 $1,104 $1,158 Operating Income (Loss) 125 (498) 149 246 Net Earnings (Loss) 65 (322) 80 160 ^{(a) Effective January 1, 1994, the company changed its fiscal reporting
periods from four calendar quarters to four 13-week quarters. Fiscal
1994 began on January 1, 1994, and included 52 weeks. The four 13-
week quarters ended on April 1, July 1, September 30 and December 30,
1994.

(b) On December 1, 1994, the state of Florida elected to satisfy its
remaining unfunded obligation issued in 1988 to consummate the
purchase of 80 miles of track and right of way. The transaction
resulted in cash proceeds of $102 million and a pretax gain of $69
million.

(c) CSXT revised its estimated annual effective tax rate in the third
quarter of 1993 to reflect the change in the federal statutory rate
from 34 to 35 percent. The effect of this change was to increase
income tax expense for the third quarter of 1993 by $50 million. Of
this amount, $46 million related to applying the newly enacted
statutory income tax rate to deferred tax balances as of January 1,
1993.

(d) The quarterly results were affected by certain adjustments, including
credits of $12 million for favorable experience on health and welfare
benefits. Other adjustments were not significant to the operating
results for the quarter.

(e) Includes impact of $664 million pretax productivity charge, $427
million after tax, to reflect the estimated costs of implementing
work-force reductions.

- 32 -

PAGE 33}

MANAGEMENT’S NARRATIVE ANALYSIS ~~AND~~OF THE RESULTS OF OPERATIONS ~~(Millions~~

Overall rail revenues were down $79 million to $6.0 billion in 2002, with increases in merchandise and automotive revenues being offset by lower coal revenues. CSXT’s pricing programs and product mix helped overcome a 3% decrease in carloads in 2002.

Overall merchandise revenues were up 1%, or $47 million in 2002 over 2001. Improvements in phosphates and fertilizers, chemicals, emerging markets, metals and paper and forest products more than offset decreases in minerals, agricultural products and food and consumer products. Pricing programs and favorable mix helped the Company offset a small decrease in merchandise carloads in 2002 as compared to 2001.

Automotive revenues improved 6%, or $51 million in 2002 as a result of ~~Dollars) The following information should be read in conjunction with all other items in this report including "Business"~~yield improvement driven by favorable mix and extended linehauls. Year-over-year volume increases were driven by higher light truck production levels and aggressive manufacturer incentives that stimulated automobile sales during 2002.

Coal revenues had a significant impact on 2002 financial results. Coal revenue was down 9%, "Properties" and "Financial Statements and Supplementary Data." Selected Financial & Statistical Information -------------------------------------------- 1994 1993 1992(a) 1991(b)(c) 1990 ------- ------ ----- ----- ----- Selected Earnings Data: Operating Revenue $ 4,703 $4,444 $4,508 $4,424 $4,551 Operating Expense 3,923 3,853 3,822 3,886 3,929 Productivity Charge --- --- 664 647 --- ------- ------ ------ ------ ------ Operating Income (Loss) 780 591 22 (109) 622 Other Income 49 11 1 20 --- Interest Expense 45 60 73 87 111 Income Tax Expense (Benefit) Productivity Charge --- --- (237) (238) --- Other 289 234 204 167 164 Cumulative Effect of Change in Accounting --- --- --- (159) --- ------- ------ ------ ------ ------ Net Earnings (Loss) $ 495 $ 308 $ (17) $ (264) $ 347 ======= ====== ====== ====== ====== Selected Cash Flow Data: Cash Provided by Operating Activities $ 896 $ 630 $ 725 $ 525 $ 814 Cash Used by Investing Activities $ (600) $ (478) $ (506) $ (395) $ (394) Cash Used by Financing Activities $ (116) $ (128) $ (258) $ (86) $ (364) Selected Financial Position Data: Cash and Cash Equivalents $ 452 $ 272 $ 248 $ 287 $ 243 Working Capital (Deficit) $ (311) $ (606) $ (931) $ (773) $ (707) Total Assets $10,191 $9,653 $9,475 $9,629 $9,510 Long-Term Debt $ 591 $ 593 $ 646 $ 639 $ 742 Dueor $143 million from 2001’s strong performance due to Parent Company: Long-Term Advances $ --- $ 69 $ 86 $ 178 $ 157 Shareholder's Equity $ 4,652 $4,185 $3,903 $3,992 $4,368 (a) Includes impact of $664 million pretax productivity charge, $427 million after tax. (b) Includes impact of $647 million pretax productivity charge, $409 million after tax. (c) Net earnings for 1991reduced volumes. Export movements were ~~decreased by $159 million by the cumulative effect~~down significantly as a result of the ~~change~~reduced competitive standing of U.S. coal in ~~accounting related~~the international market. Also, metallurgical and industrial markets were down in the second half of 2002.

Other revenue decreased $35 million in 2002 as compared to ~~the adoption of SFAS No. 106. - 33 - PAGE 34~~ 2001 primarily because there were lower fuel surcharges billed to customers.

MANAGEMENT’S NARRATIVE ANALYSIS ~~AND~~OF THE RESULTS OF OPERATIONS, ~~Results~~CONTINUED

Total operating expenses decreased $197 million, or 4% in 2002 as compared to 2001. Cost reductions in most expense categories were somewhat offset by increases in depreciation. Also, 2001 included $60 million relating to the New Orleans litigation settlement.

Fuel costs decreased $76 million in 2002, of ~~Operations --------------------- CSXT posted three consecutive quarters of record~~which $69 million is attributable to lower fuel prices. The net impact on operating income of reduced fuel price was $44 million since $25 million of fuel surcharge revenue was discontinued.

Labor and fringe costs decreased $21 million year-over-year including savings from reductions in ~~1994.~~overall employment. These ~~results~~savings were offset by increased labor costs relating to cost of living wage increases. Employee count was approximately 950 lower at the end of 2002 as compared to 2001.

Building and equipment costs were down $7 million mainly due to ~~strong traffic across virtually all merchandise commodities~~continued reductions in car hire, as the railroad took cars offline and continued success in cost reductions. CSXT also rebounded from the 1993 coal strikes to yield notable increases in domestic coal tonnage. These results were achieved in spite of lower export coal loadings. CSXTran more efficiently.

Conrail operating ~~income in 1994 totaled $780 million, $189 million above 1993's $591 million~~fees, rents and $94 million above 1992's comparable $686 million. This latter figure excludes a net productivity charge of $664 million associated with labor reductions. Including this charge, rail operating income was $22services decreased $7 million in 1992. CSXT COMMODITIES BY CARLOADS AND REVENUE Market Share (a) Carloads Revenue (Percent) (Thousands) (Millions of Dollars) --------- -------------------- ---------------------- 1994 1994 1993 1992 1994 1993 1992 ---- ----- ----- ----- ----- ------ ------ Automotive 28 354 326 288 $ 493 $ 461 $ 413 Chemicals 39 386 371 356 685 652 619 Minerals 38 419 374 345 365 332 310 Food2002, compared to 2001. Decreased costs in operating the shared asset areas, tax settlements, efficiency improvements and Consumer 33 176 166 161 204 196 196 Agricultural Products 28 263 284 264 318 327 297 Metals 28 292 258 225 285 243 219 Forest Products 33 442 435 441 444 442 448 Phosphatesadjustments to reflect lower reserve requirements for car hire, overcharges, interline and Fertilizer 76 470 423 457 254 256 268 Coal 40 1,678 1,566 1,760 1,465 1,363 1,565 ----- ----- ----- ----- ------ ------ Total 4,480 4,203 4,297 4,513 4,272 4,335 ===== ===== ===== Other Revenue 112 108 99 ------ ------ ------ Total Transportation Operating Revenue $4,625 $4,380 $4,434 ====== ====== ====== (a) Market share is definedother claims all reduced this expense.

Materials, supplies and other costs were down $48 million in 2002 as CSXT carloads versus carloads handled by all major Eastern railroads. - 34 - PAGE 35 PRODUCTIVITY CHARGES -------------------- (Millions of Dollars) 1992 1991 ---- ---- Provision: Severance Costs $664 $583 Exit, Settlement and Other Costs --- 64 ---- ---- Total Provision 664 647 ---- ---- Payments and Other Reductions: Severance Costs (288) (583) Exit, Settlement and Other Costs --- (64) ---- ---- Balance December 30, 1994 $376 $--- ==== ==== Transportation operating revenue rosecompared to $4.63 billion, a 6% increase from 1993 and a 4% increase over 1992, driven primarily by a rebound in domestic coal tonnage and exceptional merchandise traffic. Transportation operating revenue totaled $4.38 billion in 1993 and $4.43 billion in 1992. CSXT overcame severe winter conditions in early 1994 and weaker than expected export coal traffic2001, due to increase coal tonnage to 153.7 million tons vs. 144.1 million tons in 1993. Domestic coal shipments rose 8% as utility demand, driven by the need to rebuild stockpiles depleted from the 1993 strikes and the harsh winter weather, surged during the year. CSXT's export shipments faced a number of market obstacles, including decreased demand and increased foreign competition. In 1994, export coal shipments decreased to 16 million tons from 16.7 million tons in 1993. CSXT anticipates a modest recovery in the U.S. export coal market and slightly better domestic coal loadings in 1995. The implementation of Phase I of the Clean Air Act in 1995 is expected to provide a net tonnage gain for CSXT, as an increase in the production of high-quality, low-sulfur coal at CSXT-served mines should more than offset any displacement caused by the Act. CSXT's total merchandise carloads and revenue increased 6% and 5%, respectively, over 1993 levels, reflecting the strength of the U.S. economy and successful efforts to expand market share. These same figures both rose 10% vs. 1992's volume and revenue. CSXT's automotive carloads increased 9% from a strong 1993 traffic base. This growth, driven by increased U.S. auto production, soaring consumer demand and improved service, pushed automotive revenue up 7% in 1994. Demand for plastic products from the auto industry, housing construction and the consumer goods market helped spur a 4% carload growth in the chemicals market. Bulk Intermodal Distribution (BIDS) terminals, where customers transfer and store bulk chemicals, gave CSXT a significant competitive advantage in this market. The customer response to this service is reflected in the 5% increase in chemicals revenue for 1994. - 35 - PAGE 36 Minerals traffic and revenue for the year improved 12% and 10%, respectively, propelled by growth in highway construction and demand for sand used in auto castings. Shipments in the food and consumer category, which includes government traffic and consumer durables, increased 6%, reflecting strong industrial production, particularly in appliances. Agricultural products experienced a surge in export grain traffic late in the year, but it was not enough to offset the devastating effect of the 1993 floods that caused a short supply of grain through the first three quarters of 1994. Strong domestic feed grain loadings to the Southeast poultry farms provided a solid base of traffic during the year. Carloads declined 7%, while revenue decreased only 3%reduced transportation costs, fewer accidents as a result of vigorous safety initiatives and adjustments to estimated state and local tax liabilities to reflect actual assessments. These decreases were offset by higher legal fees and maintenance costs, and $40 million in favorable ~~yield and mix changes. The metals industry enjoyed one~~insurance settlements received in 2001 that were not repeated in 2002.

Depreciation expense increased $21 million compared to 2001, as a result of ~~its best years ever,~~a higher depreciable asset base.

Operating income increased by $118 million to $577 million in 2002 as ~~strong demand from steel mini-mills led~~compared to a 13% carload increase in 1994. New service packages offered by CSXT improved market share and contributed to a 17% gain in revenue. Forest products traffic, which includes lumber, paper and construction materials, improved 2%2001, due to ~~continued housing demand~~operating expense decreases noted previously and ~~steady recovery~~the New Orleans litigation provision, which adversely affected 2001 operating income. Excluding the 2001 charge for the New Orleans litigation provision, operating income was up $58 million or 11% for the year.

The Company is subject to risk relating to changes in the price of diesel fuel. At the end of 2002, the Company had not entered into any commitments for forward fuel purchases. The Company’s average annual fuel consumption is approximately 570 million gallons. A one-cent change in the price per gallon of fuel would impact fuel expense by approximately $6 million.

CSX and Norfolk Southern Corporation (“Norfolk Southern”) completed the acquisition of Conrail Inc. (“Conrail”) in May 1997. Conrail owns the primary freight railroad system serving the Northeastern United States, and its rail network extends throughout several Midwestern states and into Canada. CSX and Norfolk Southern, through a jointly owned acquisition entity, hold ownership interests in Conrail of 42% and 58%, respectively, and voting interests of 50% each. CSX and Norfolk Southern operate over allocated portions of the ~~paper business. CSXT's market position~~Conrail lines.

CSXT and Norfolk Southern Railway Company (“Norfolk Southern Railway”), the rail subsidiary of Norfolk Southern, operate their respective portions of the Conrail system pursuant to various operating agreements. Under these agreements, the railroads pay operating fees to Conrail for the use of right-of-way and rent for the use of equipment. Conrail continues to provide rail services in ~~lumber was aided~~certain shared geographic areas (“Shared Asset Areas”) for the joint benefit of CSXT and Norfolk Southern Railway for which it is compensated on the basis of usage by the ~~addition~~respective railroads.

CSXT’s operating revenue includes revenue from traffic previously moving on Conrail. Operating expenses reflect corresponding increases for costs incurred to handle the new traffic and operate the former Conrail lines. Operating expense includes an expense category, “Conrail Operating Fees, Rents and Services,” which reflects:

The preparation of ~~several new lumber distribution centers.~~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 the reported amount of certain revenues and expenses during the reporting period. Actual results may differ from those estimates. Significant estimates using management judgment are made for the following areas:

Casualty reserves represent accruals for the uninsured portion of personal injury, occupational injury (asbestos, carpal tunnel, etc.) and accident claims. These reserves are recorded upon the first reporting of a claim, and estimates are updated as information develops. The ~~phosphates~~amount of liability accrued is based on the type and ~~fertilizer category experienced an 11% growth~~severity of the claim and estimate of future claims development based on current trends and historical data. The Company believes it has recorded liabilities in ~~traffic as export loads rose with increased foreign demand. The distance CSXT hauls export shipments~~sufficient amounts to cover all identified claims and estimates of ~~phosphate from Florida's Bone Valley~~incurred but not reported personal injury and accident claims. Unreported occupational injuries are not subject to reasonable estimation, thus no provision is made for incurred but not reported occupational injuries.

Estimates for all of these claims are subject to significant uncertainty relating to the ~~Port~~outcomes of ~~Tampa is far less than~~negotiated settlements and other developments. As facts and circumstances change, the Company may have to change its estimates, and changes could have a material impact on the Company’s financial results. The Company reviews its reserves quarterly and makes adjustments accordingly. Adverse verdicts, catastrophic accidents and legal settlements are events that ~~for domestic moves~~have caused the Company to ~~the U.S. Midwest, leading to lower revenue-per-carload comparisons. Although merchandise traffic experienced significant gains in 1994, CSXT anticipates continued strength~~revise estimates in the ~~principal markets it serves~~past. Occupational injury, personal injury and accident liabilities amount to $395 million and $435 million at December 27, 2002 and December 28, 2001, respectively. The net decrease of this liability in 2002 is the ~~U.S. industrial sector~~result of cash payments being greater than expense recorded.

See additional information in ~~1995. Combined~~Note 9, Casualty, Environmental and Other Reserves.

In accordance with ~~selective price increases,~~SFAS 5, “Accounting for Contingencies,” an accrual for a ~~modest improvement~~loss contingency is ~~expected in merchandise traffic and revenue in 1995. CSXT undertook an effort~~established if information available prior to re-engineer key components of its service delivery to meet customer needs better and enhance service reliability in 1994. In the future, the unit hopes to strengthen traffic levels in the various commodity groups by further satisfying customers through improved performance. CSXT transportation operating expense for 1994 was $3.9 billion, a 2% increase over 1993 and 1992, excluding the previously mentioned 1992 productivity charge. These results reflect the continuing effortsissuance of the ~~rail unit~~financial statements indicates that it is (1) probable that an asset has been impaired or a liability has been incurred at the date of the financial statements, and (2) the amount of loss can be reasonably estimated. If no accrual is made for a loss contingency because one or both of these conditions is not met, or if an exposure to ~~reduce expenses~~loss exists in excess of the amount accrued, disclosure of the contingency is made when there is at least a reasonable possibility that a loss or an additional loss may have been incurred. The Company evaluates all exposures relating to legal liabilities on an ongoing basis and ~~control costs while retaining its customer focus. Labor and fringe benefits expense~~records reserves when appropriate under the guidance noted above. The Company increased 3%a reserve in 2001 to ~~$1.86 billion, vs. $1.8 billion in 1993 and $1.83 billion in 1992. Despite the increased traffic levels, which required a greater number of crew starts, and~~account for the impact of the negotiated settlement of the New Orleans tank car fire. This negotiation resulted in the Company recording an additional charge of $60 million pretax, $43 million after tax in 2001.

CSXT is a ~~4% wage increase,~~party to various proceedings involving private parties and regulatory agencies related to environmental issues. CSXT ~~controlled labor~~has been identified as a potentially responsible party (“PRP”) at approximately 94 environmentally impaired sites that are, or may be, subject to remedial action under the Federal Superfund Statute (“Superfund”) or similar state statutes. A number of these proceedings are based on allegations that CSXT, or its railroad predecessors, sent hazardous substances to the facilities in question for disposal. Such proceedings arising under Superfund or similar state statutes can involve numerous other waste generators and ~~fringe benefits expense.~~disposal companies and seek to allocate or recover costs associated with site investigation and cleanup, which could be substantial.

CSXT is involved in a number of administrative and judicial proceedings and other clean-up efforts at approximately 230 sites, which include the 94 Superfund sites noted above where it is participating in the study or clean-up of alleged environmental contamination. At least once each quarter, CSXT reviews its role, if any, with respect to each such location, giving consideration to the nature of CSXT’s alleged connection to the location (e.g., generator of waste sent to the site, or owner or operator of the site), the extent of CSXT’s alleged connection (e.g., volume of waste sent to the location and other relevant factors), the accuracy and strength of evidence connecting CSXT to the location, and the number, connection, and financial viability of other named and unnamed PRPs at the location.

Based upon the review process, CSXT has recorded reserves to cover estimated contingent future environmental costs with respect to such sites. The ~~company will continue~~recorded liabilities for estimated future environmental costs at December 27, 2002 and December 28, 2001, were $35 million and $32 million, respectively. These liabilities, which are undiscounted, include amounts representing CSXT’s estimate of unasserted claims, which CSXT believes to ~~implement work-force reductions~~be immaterial. A liability has been accrued for future costs of all sites where the Company’s obligation is (1) deemed probable and (2) where such costs can be reasonably estimated. 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. The majority of the December 27, 2002 environmental liability is expected to be paid out over the next ~~few years. - 36 - PAGE 37 As~~seven years, funded by cash generated from operations.

The Company does not currently possess sufficient information to reasonably estimate the ~~implementation~~amounts of ~~two-member crews extends throughout the rail system, the average crew size continues to fall. At year-end 1994, the average crew size was 2.5 members.~~additional liabilities, if any, on some sites until completion of future environmental studies. In ~~the next few years, reductions in yard and local crews will~~addition, latent conditions at any given location could result in ~~an average crew size~~exposure, the amount and materiality of ~~2.25 members. CSXT, as a participant in national bargaining, is actively engaged in contract negotiations~~which cannot presently be reliably estimated. However, based on information currently available the Company believes its environmental reserves are adequate to accomplish remedial actions to comply with ~~rail labor organizations. CSXT seeks to improve~~present laws and regulations, and that the ~~future competitiveness~~ultimate liability for these matters will not materially affect its overall results of its labor force through these negotiations. CSXT continued to reduce accidents and injuries in 1994, and it remains one of the safest railroads in the industry. Reportable injuries to employees were reduced 20% and train accidents fell 21% by year-end, helping CSXT maintain one of the highest rankings among Class I railroads. The company's progress in safety not only continues to save lives, but increases the quality and reliability of rail service while driving out unnecessary expense. Performance Improvement Team initiatives reduced expenses by more than $350 million from 1991 through 1994. Besides shrinking the cost base, this program has helped conserve capital as improvements are realized in reliability, performance and efficiency throughout the system. All areas of rail operations and ~~administration - from repair~~financial condition. The Company has not had any material changes in estimates relating to environmental reserves in 2002, 2001 or 2000 and ~~maintenance of~~has spent $18 million, $1 million and no amount, respectively, in these years.

2. Establishing depreciation policies for its assets under the group-life method

The Company accounts for its rail assets, including main-line track, locomotives and freight cars, ~~to purchases of office supplies - were targeted. Further savings of more than $100 million have been targeted by CSXT for each of~~using the next three years. CSXT will continue to lower its cost base in 1995 and beyond through increased asset utilization, crew-size reductions, improved safety and continued Performance Improvement Team savings. CSXT's property additions for 1994 increased to $676 million from 1993's $569 million and 1992's $539 million. Expenditures for roadway improvements totaled $404 million, or 60% of the total. CSXT's maintenance-of- way program installed or replaced 289 miles of rail in 1994, compared with 400 miles in both 1993 and 1992. The remaining rail property additions included $131 million for locomotives and $109 million for the car fleet. Property Additions --------------------- (Millions of Dollars) Property Additions 1994 1993 1992 - ------------------ ---- ---- ---- Merchandise Cars $105 $ 68 $ 45 Coal Cars 4 5 4 ---- ---- ---- Total Freight Cars 109 73 49 ---- ---- ---- Locomotives 131 120 134 Roadway 404 323 306 Other Equipment and Properties 32 53 50 ---- ---- ---- Total Property Additions $676 $569 $539 ==== ==== ==== - 37 - PAGE 38 CSXT reduced its locomotive fleet size by 1% to 2,785 in 1994. Eighty new locomotives were added to the fleet, including 30 alternating-current (AC) locomotives. This new AC technology, which provides substantially better tractive effort, or pulling power, will allow CSXT to replace an average of two older units in its existing fleet with each new unit.group-life method. These AC locomotives are the first of 250 fuel-efficient units to be delivered to CSXT through 1997. In late 1994, CSXT resumed repairing and rebuilding freight cars at its Raceland Car Shop in Kentucky. The facility plans to refurbish or rebuild 4,000 coal hopper cars in 1995. Notwithstanding this program, enhanced utilization through improved car turn times will yield a net reduction in the overall car fleet. CSXT is engaged in preliminary negotiations to obtain all its telecommunication services from AT&T. The goal of this transaction would be to provide CSXT with the strategic opportunity to obtain state-of-the-art technology, equipment and services from AT&T, without diverting CSXT's capital and management resources from its core business. The arrangement, if consummated, would enable CSXT to leverage technological enhancements as they become available in the rapidly changing telecommunications industry. The transaction could result in a significant future charge to cover the writedown of certain telecommunications assets ~~and labor separation costs. In 1995, CSXT expects to improve equipment utilization further and increase capital expenditures by approximately 10%,~~comprise the majority of the Company’s total fixed assets at December 27, 2002. Under the group-life method, the useful lives of rail assets are determined by the performance of a life-study which ~~will go~~includes:

The results of the life study process determine the service lives for each asset group. These studies are conducted by a third party expert and analyzed by the Company’s management. Changes in asset lives due to the Raceland car program. - 38 - PAGE 39 Financial Condition Liquidityresults of the life studies could significantly impact future periods depreciation expense and ~~Capital Resources ------------------------------- Cash provided by operating activities totaled $896 million, an increase~~thus the Company’s results of $266 million from 1993 and an increase of $171 million from 1992. Cash provided by operating activities included an increase of $20 million for 1994, an increase of $6 million for 1993 and an increase of $200 million for 1992,operations. Events that could cause the Company to change its estimates relating to the lives of its asset groups could be changes in historical results, technological improvements and changes in specific assets. The Company is currently completing life studies on road, track and equipment and will reflect the results in its 2003 financial statements.

CSXT is allocated expense relating to pension and postretirement medical plans sponsored by its parent, CSX Corporation. The accounting for these plans at the CSX Corporation level is subject to the guidance provided in SFAS No. 87, “Employers Accounting for Pensions,” and SFAS No. 106, “Employers Accounting for Postretirement Benefits Other than Pensions.” Both of these statements require CSX to make certain assumptions relating to the following:

All of these assumptions and estimates can have a significant impact on CSX’s accounting for these plans and the amount of ~~accounts receivable sold.~~ expense recorded in a reporting period.

For further discussion of CSX’s pension and postretirement assumptions, see CSX Corporation’s Form 10-K for the year ended December 27, 2002.

In ~~addition, cash provided by operating activities included payments~~2002, Statement of Financial Accounting Standards (SFAS) No. 143, “Accounting for ~~productivity~~Asset Retirement Obligations,” was issued. This statement addresses financial accounting and ~~restructuring charges~~reporting for legal obligations associated with the retirement of ~~$129 million, $245 million~~tangible long-lived assets and ~~$353 million~~the associated asset retirement costs. CSXT is required to adopt this statement for ~~1994, 1993 and 1992, respectively. Excluding~~fiscal year 2003. Under the group-life method, the Company accrued removal costs as part of its depreciation expense. This effectively resulted in establishing a liability in accumulated depreciation in excess of any salvage value for cross ties. The Company is assessing the effect of adopting this statement and expects that it will record a cumulative effect of accounting change to remove any such liability accrued to date in the ~~sale~~first quarter of ~~receivables~~2003. On an ongoing basis, depreciation expense will be reduced, while material supplies and other expenses will be increased. The change in operating expense is expected to be immaterial.

This Annual Report contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act with respect to, among other items: projections and estimates of earnings, revenues, cost-savings, expenses, or other financial items; statements of management’s plans, strategies and objectives for future operations, and management’s expectations as to future performance and operations and the ~~productivity charge payments, cash provided~~time by ~~operating activities would have been $1,005 million in 1994, $869 million in 1993~~which objectives will be achieved; statements concerning proposed new products and ~~$878 million in 1992. Cash used~~services; and statements regarding future economic, industry or market conditions or performance. Forward-looking statements are typically identified by ~~investing activities was $600 million which was $122 million higher than the $478 million used in 1993~~words or phrases such as “believe”, “expect”, “anticipate”, “project”, and $94 million higher than the $506 million used in 1992. Property additions of $676 million in 1994 increased $107 million from $569 million in 1993, and $137 million from $539 million in 1991. In the late 1980's, the company launched a major roadway, equipment and locomotive improvement program. Completion of this program has allowed a return to a normalized capital budget that assures the required level of routine maintenance, customer service and safe operation. Cash used by financing activities decreased to $116 million in 1994 from $128 million in 1993 and decreased $142 million from $258 million in 1992. The 1994 decrease in cash used was primarily the result of lower repayments of public and affiliated company debt. Cash and cash equivalents increased $180 million during 1994 to a level of $452 million versus $272 million at the end of 1993 and increased $204 million over the 1992 level of $248 million. Working capital increased by $295 million to a year-end deficit of $311 million in 1994, compared to $606 million in 1993 and $931 million in 1991. A working capital deficit is not unusual for CSXT and does not indicate a lack of liquidity. CSXT maintains adequate current assets to satisfy current liabilities when they are due and has sufficient financial resource capacity, primarily from access to advances from CSX, to manage its day-to-day cash requirements. Environmental concerns have drawn considerable attention. CSXT, like many American companies today, faces the challenge of dealing with this issue and is addressing its environmental responsibilities and managing the related expenditures. Environmental management is an important part of CSXT's strategic planning, which includes promotion of policies and procedures that emphasize environmental awareness throughout the company. - 39 - PAGE 40 The following financial ratios are measures of the condition of CSXT and its subsidiariessimilar expressions. Forward-looking statements speak only as of the respective year ends: 1994 1993 1992 ---- ---- ---- Current Ratio .7 .5 .4 Debt-to-Total Capitalization Ratio 11.3% 13.7% 15.8% Returndate they are made, and 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.

Forward-looking statements are subject to a number of risks and uncertainties, and actual performance or results could differ materially from that anticipated by these forward-looking statements. Factors that may cause actual results to differ materially from those contemplated by these forward-looking statements include, among others: (i) the Company’s success in implementing its financial and operational initiatives, (ii) changes in domestic or international economic or business conditions, including those affecting the rail industry (such as the impact of industry competition, conditions, performance and consolidation); (iii) legislative or regulatory changes; and (iv) the outcome of claims and litigation involving or affecting the Company. 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 Annual Report and in the Company’s other SEC reports, accessible on Assets 4.9% 3.2% (0.2)% Return on Equity 10.6% 7.4% (0.4)% Ratio of Earnings to Fixed Charges 7.1X 4.8X 0.6x Excluding the ~~impacts of~~SEC’s website at www.sec.gov and the 1992 productivity charge, the 1992 measures would have been as follows: 1992 ---- Current Ratio .4 Debt-to-Total Capitalization Ratio 14.5% Return on Assets 4.3% Return on Equity 9.5% Ratio of Earnings to Fixed Charges 4.6X - 40 -

		Track Miles
Leased Track		6,565
Track Under Trackage Right Agreements (including 5,631 miles of Conrail track)		6,505
Track Under Operating Contracts		256

	Owned	Leased	Total
Locomotives
Freight	2,349	844	3,193
Switching	159	29	188
Auxiliary Units	181	11	192

Total	2,689	884	3,573

Freight Cars
Gondolas	15,503	15,867	31,370
Open Top Hoppers	13,774	8,441	22,215
Box Cars	10,086	7,931	18,017
Covered Hoppers	10,849	6,880	17,729
Flat Cars	917	18,918	19,835
Other	643	6	649

Total	51,772	58,043	109,815

(3.1)		Articles of Incorporation, as amended (incorporated by reference to Exhibit 3.1 to Form 10-K dated March 8, 1996)

(3.2)*		By-laws of the Registrant, as amended

(4.1)		Articles of Incorporation, as amended (See Exhibit 3.1)

(4.2)*		By-laws of the Registrant, as amended (See Exhibit 3.2)

Name		Title

/S/ MICHAEL J. WARD Michael J. Ward*		Chairman of the Board, President and Chief Executive Officer and Director (Principal Executive Officer)

/S/ ALAN F. CROWN Alan F. Crown*		Executive Vice President Transportation and Director

/S/ ANDREW B. FOGARTY Andrew B. Fogarty*		Director

/S/ P. MICHAEL GIFTOS P. Michael Giftos*		Executive Vice President and Chief Commercial Officer and Director

/S/ PAUL R. GOODWIN Paul R. Goodwin*		Director

/S/ FREDERICK J. FAVORITE Frederick J. Favorite*		Senior Vice-President-Finance (Principal Finance Officer)

	December 27, 2002			December 28, 2001			December 29, 2000
Beginning Balance	$	3,952		$	3,961		$	4,084
Net Earnings		296			203			97
Dividends—Common		(200	)		(212	)		(220	)

Ending Balance	$	4,048		$	3,952		$	3,961

Virginia		54-6000720
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

500 Water Street, Jacksonville, FL.		32202
(Address of principal executive offices)		(Zip Code)

Title of each class		Name of each exchange on which each class is registered
Louisville and Nashville Railroad Company First and Refunding Mortgage 3³/8% Bonds, Series F, due April 1, 2003		New York Stock Exchange

Louisville and Nashville Railroad Company First and Refunding Mortgage 2⁷/8% Bonds, Series G, due April 1, 2003		New York Stock Exchange

Monon Railroad 6% Income Debentures, due January 1, 2007		New York Stock Exchange

Exhibit Index can be found on page 8.

Item No.		Page

PART I
1.	Business	4
2.	Properties	4
3.	Legal Proceedings	5
4.	Submission of Matters to a Vote of Security Holders	5

PART II
5.	Market for Registrant’s Common Stock and Related Stockholder Matters	6
6.	Selected Financial Data	6
7.	Management’s Discussion and Analysis	6
7.A.	Quantitative and Qualitative Disclosures About Market Risk	6
8.	Financial Statements and Supplementary Data	6
9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	6

PART III
10.	Directors, Executive Officers, Promoters and Control Persons of the Registrant	7
11.	Executive Compensation	7
12.	Security Ownership of Certain Beneficial Owners and Management	7
13.	Certain Relationships and Related Transactions	7

PART IV
14.	Controls and Procedures	8
15.	Exhibits, Financial Statement Schedules and Reports on Form 8-K	8

	Signatures	11

	Certifications	12

	Index to Consolidated Financial Statements	14

		Track Miles
First Main		23,160
Second Main		5,506
Passing, Crossovers and Turnouts		2,865
Way and Yard Switching		8,768

Total		40,299

		Page
Report of Independent Auditors		15

CSX Transportation Inc. and Subsidiaries

Consolidated Financial Statements and Notes to Consolidated Financial Statements Submitted Herewith:

Consolidated Statement of Earnings—Fiscal Years Ended December 27, 2002, December 28, 2001 and December 29, 2000		16

Consolidated Statement of Cash Flows—Fiscal Years Ended December 27, 2002, December 28, 2001 and December 29, 2000		17

Consolidated Statement of Financial Position—December 27, 2002 and December 28, 2001		18

Consolidated Statement of Retained Earnings Fiscal Years Ended December 27, 2002, December 28, 2001 and December 29, 2000		19

Notes to Consolidated Financial Statements		20

	Fiscal Years Ended
	December 27, 2002		December 28, 2001			December 29, 2000
OPERATING REVENUE
Merchandise	$	3,507	$	3,460		$	3,513
Automotive		845		794			869
Coal, Coke and Iron Ore		1,597		1,739			1,623
Other		54		89			70

Total		6,003		6,082			6,075

OPERATING EXPENSE
Labor and Fringe		2,443		2,464			2,463
Materials, Supplies and Other		1,052		1,100			1,102
Conrail Operating Fees, Rents and Services		346		353			383
Related Party Service Fees		187		186			214
Building & Equipment Rent		406		413			517
Depreciation		543		522			494
Fuel		449		525			577
New Orleans Litigation Provision		—		60			—

Total		5,426		5,623			5,750

OPERATING INCOME		577		459			325
Other Income (Expense)		15		(5	)		(35	)
Interest Expense		113		130			120

EARNINGS BEFORE INCOME TAXES		479		324			170
Income Tax Expense		183		121			73

NET EARNINGS	$	296	$	203		$	97

	December 27, 2002			December 28, 2001
ASSETS
Current Assets
Cash, Cash Equivalents and Short-term Investments	$	—		$	247
Accounts Receivable—Net		235			289
Notes Receivable		—			62
Materials and Supplies		171			181
Deferred Income Taxes		110			142
Other Current Assets		18			32

Total Current Assets		534			953
Properties		17,354			16,644
Accumulated Depreciation		(4,730	)		(4,427	)

Properties—Net		12,624			12,217
Affiliates and Other Companies		217			198
Other Long-term Assets		627			567

Total Assets	$	14,002		$	13,935

LIABILITIES
Current Liabilities
Accounts Payable	$	618		$	736
Labor and Fringe Benefits Payable		319			320
Casualty, Environmental and Other Reserves		173			178
Current Maturities of Long-term Debt		213			170
Income and Other Taxes Payable		98			114
Due to Parent Company		1,297			1,107
Due to Affiliate		200			209
Other Current Liabilities		132			196

Total Current Liabilities		3,050			3,030
Casualty, Environmental and Other Reserves		467			532
Long-term Debt		873			1,033
Deferred Income Taxes		3,424			3,250
Other Long-term Liabilities		579			577

Total Liabilities		8,393			8,422

SHAREHOLDER’S EQUITY
Common Stock, $20 Par Value:
Authorized 10,000,000 Shares;
Issued and Outstanding 9,061,038 Shares		181			181
Other Capital		1,380			1,380
Retained Earnings		4,048			3,952

Total Shareholder’s Equity		5,609			5,513

Total Liabilities and Shareholder’s Equity	$	14,002		$	13,935

	Fiscal Years Ended
	2002		2001
Merchandise	58	%	57	%
Automotive	14	%	13	%
Coal, Coke and Iron Ore	27	%	29	%
Other	1	%	1	%

Total	100	%	100	%

Phosphates and Fertilizer		Metals
Food and Consumer		Agricultural
Paper and Forest		Chemicals
Minerals		Emerging Markets

	Fiscal Years Ended
(millions of dollars)	2002		2001		2000
Operating Fees, Rents and Services	$	346	$	353	$	383

(millions of dollars)	Future Minimum Payments
2003	$	251
2004		253
2005		245
2006		234
2007		227
Thereafter		3,311

Total	$	4,521

	Fiscal Year Ended
(millions of dollars)	2002		2001		2000
Discounts on Accounts Receivable Sold	$	75	$	78	$	77

(millions of dollars)	Casualty Reserves			Separation Liabilities			Environmental Reserves			Total
Balance December 31, 1999	$	435		$	269		$	53		$	757
Charged to Expense		209			—			—			209
Payments		(187	)		(12	)		(12	)		(211	)

Balance December 29, 2000		457			257			41			755
Charged to Expense		155			—			1			156
Payments		(177	)		(14	)		(10	)		(201	)

Balance December 28, 2001		435			243			32			710
Charged to Expense		166			—			18			184
Payments		(206	)		(33	)		(15	)		(254	)

Balance December 27, 2002	$	395		$	210		$	35		$	640

(millions of dollars)	Maturity	Average Interest Rates at December 27, 2002	December 27, 2002		December 28, 2001
Equipment Obligations	2003-2015	7.1%	$	855	$	950
Capital Leases	2003-2009	8.2%		125		147
Mortgage Bonds	2003	3.2%		55		55
Other Obligations	2007-2021	6.2%		51		51

Total				1,086		1,203
Less Debt Due Within One Year				213		170

Total Long-Term Debt			$	873	$	1,033

(millions of dollars)	Operating Leases		Sublease Income		Net Lease Commitments
2003	$	148	$	15	$	133
2004		144		15		129
2005		141		15		126
2006		117		15		102
2007		118		16		102
Thereafter		470		19		451

Total	$	1,138	$	95	$	1,043

(millions of dollars)	Minimum Payments
2003	$	130
2004		132
2005		138
2006		166
2007		171
Thereafter		2,036

Total	$	2,773

	Quarter
(millions of dollars)	1st		2nd		3rd		4th^(b)
*2002*
Operating Revenue	$	1,486	$	1,538	$	1,473	$	1,506
Operating Income	$	89	$	148	$	167	$	173
Net Earnings	$	47	$	64	$	97	$	88

*2001*
Operating Revenue	$	1,532	$	1,556	$	1,495	$	1,499
Operating Income	$	98	$	152	$	124	$	85
Net Earnings	$	31	$	84	$	57	$	31

	Carloads			Revenue
	(Thousands)			(Millions of Dollars)
	2002	2001	2000	2002		2001		2000
Merchandise
Phosphates and Fertilizer	463	441	486	$	324	$	306	$	316
Metals	319	319	344		401		395		407
Food and Consumer	162	163	157		217		218		206
Paper and Forest	477	478	523		637		633		657
Agricultural	358	372	361		489		501		483
Chemicals	500	499	523		907		883		922
Minerals	88	92	101		135		140		154
Emerging Markets	424	435	430		397		384		368

Total Merchandise	2,791	2,799	2,925		3,507		3,460		3,513

Automotive	538	516	586		845		794		869

Coal, Coke and Iron Ore
Coal	1,573	1,722	1,660		1,528		1,671		1,546
Coke	34	39	46		49		46		47
Iron Ore	36	38	49		20		22		30

Total Coal, Coke and Iron Ore	1,643	1,799	1,755		1,597		1,739		1,623

Other	—	—	—		54		89		70

Total	4,972	5,114	5,266	$	6,003	$	6,082	$	6,075

	Pension Benefits				Postretirement Benefits
	2002		2001		2002		2001
Expected long-term return on plan assets:
Benefit cost for plan year	9.50	%	9.50	%	n/a		n/a
Benefit obligation at end of plan year	8.90	%	9.50	%	n/a		n/a
Discount rates:
Benefit cost for plan year	7.25	%	7.75	%	7.25	%	7.75	%
Benefit obligation at end of plan year	6.50	%	7.25	%	5.50	%	7.25	%
Salary scale inflation	3.30	%	4.50	%	3.30	%	4.50	%