~~FORM 10-Q~~

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

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

For the quarter ended ~~March 28,~~June 27, 2003

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

For the transition period from to

Commission File Number 1-8022

CSX CORPORATION

(Exact name of registrant as specified in its charter)

Virginia

62-1051971

(State or other jurisdiction of

~~(I.R.S. Employer~~

incorporation or organization)

(I.R.S. Employer

Identification No.)


500 Water Street, ~~15th~~15^th Floor, Jacksonville, FL		32202
(Address of principal executive offices)		(Zip Code)

(904) 359-3200

(Registrant’s telephone number, including area code)

~~901 East Cary Street, Richmond, Virginia, 23219-4031~~No Change

(Former name, former address and former fiscal year, if changed since last report.)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yesx No¨

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of ~~March 28,~~June 27, 2003: ~~213,718,513~~213,964,090 shares.

CSX CORPORATION

FORM 10-Q

FOR THE QUARTERLY PERIOD ENDED ~~MARCH 28,~~JUNE 27, 2003

INDEX


			Page Number

PART I.I:	FINANCIAL INFORMATION

Item 1:	Financial Statements

		~~Consolidated Income Statements (Unaudited)—Quarters Ended March 28, 2003 and March 29, 2002~~		3

	Consolidated ~~Cash Flow~~Income Statements (Unaudited)~~—Quarters~~-Quarters and Six Months Ended ~~March 28,~~June 27, 2003 and ~~March 29,~~June 28, 2002		4 3

	Consolidated Balance ~~Sheets—At March 28,~~Sheets-At June 27, 2003 (Unaudited) and December 27, 2002		5 4

	Consolidated Cash Flow Statements (Unaudited)-Six Months Ended June 27, 2003 and June 28, 2002		5

	Notes to Consolidated Financial Statements (Unaudited)		6

Item 2:	6

~~Item 2:~~	Management’s Discussion and Analysis of Results of Operations and Financial Condition		28

Item 3:	25

~~Item 3:~~	Quantitative and Qualitative Disclosures About Market Risk		40

Item 4:	36 Disclosure Controls and Procedures		40

~~Item 4:~~PART II:	~~Disclosure Controls and Procedures~~		36

~~PART II.~~	OTHER INFORMATION

Item 6:5:	Submission of Matters to a Vote of Security Holders		41

Item 6:	Exhibits and Reports on Form 8-K		37 42

Signature			37

~~Certifications~~			38 43

~~-2-~~2

CSX CORPORATION AND SUBSIDIARIES

ITEM 1: FINANCIAL STATEMENTS

Consolidated Income Statements

~~(Dollars in Millions, Except Per Share Amounts)~~

	(Unaudited) Quarters Ended						(Unaudited)
(Dollars in Millions, Except Per Share Amounts)							Quarter Ended					Six Months Ended
	March 28, 2003			March 29, 2002			June 27, 2003			June 28, 2002		June 27, 2003		June 28, 2002
Operating Revenue	$	2,016		$	1,964		$	1,942		$	2,073	$	3,958	$	4,037
Operating Expense		1,839			1,752			1,657	��		1,752		3,496		3,504

Operating Income		177			212			285			321		462		533
Other (Expense) Income		(10	)		9

Other Income								19			4		9		13
Interest Expense		103			114			105			116		208		230

Earnings before Income Taxes and Cumulative Effect of Accounting Change		64			107			199			209		263		316

Income Tax Expense		22			39			72			74		94		113

Earnings before Cumulative Effect of Accounting Change		42			68			127			135		169		203
Cumulative Effect of Accounting Change – Net of Tax		57			(43	)

Cumulative Effect of Accounting Change-Net of Tax								—			—		57		(43	)

Net Earnings	$	99		$	25		$	127		$	135	$	226	$	160

Earnings Per Share:
Before Cumulative Effect of Accounting Change	$	0.20		$	0.32		$	0.59		$	0.63	$	0.79	$	0.95
Cumulative Effect of Accounting Change		0.26			(0.20	)		—			—		0.26		(0.20	)

Including Cumulative Effect of Accounting Change	$	0.46		$	0.12		$	0.59		$	0.63	$	1.05	$	0.75


Earnings Per Share, Assuming Dilution:
Before Cumulative Effect of Accounting Change	$	0.20		$	0.32		$	0.59		$	0.63	$	0.79	$	0.95
Cumulative Effect of Accounting Change		0.26			(0.20	)		—			—		0.26		(0.20	)

Including Cumulative Effect of Accounting Change	$	0.46			0.12		$	0.59		$	0.63	$	1.05	$	0.75

Average Common Shares Outstanding (Thousands)		213,866			212,053			213,849			212,555		213,857		212,303

Average Common Shares Outstanding, Assuming Dilution (Thousands)		214,164			213,190			214,297			213,541		214,230		213,364

Cash Dividends Paid Per Common Share	$	0.10		$	0.10		$	0.10		$	0.10	$	0.20	$	0.20

See accompanying Notes to Consolidated Financial Statements.

~~-3-~~3

CSX CORPORATION AND SUBSIDIARIES

ITEM 1: FINANCIAL STATEMENTS

Consolidated ~~Cash Flow Statements~~

~~(Dollars in Millions)~~Balance Sheets

(Unaudited)
Quarters Ended


March 28, 2003

March 29, 2002

OPERATING ACTIVITIES

Net Earnings

$
99


$
25

Adjustments to Reconcile Net Earnings to Net Cash Provided:

Depreciation


160



155

Deferred Income Taxes


18



20

Cumulative Effect of Accounting Change—Net of Tax


(57
)


43

Other Operating Activities


22



5

Changes in Operating Assets and Liabilities:

Accounts Receivable


(73
)


34

Other Current Assets


(31
)


(43
)
Accounts Payable


51



(26
)
Other Current Liabilities


(145
)


(53
)


Net Cash Provided by Operating Activities


44



160



INVESTING ACTIVITIES

Property Additions


(150
)


(162
)
Short-term Investments – Net


(1
)


(158
)
Net Proceeds from Divestitures


214



—

Other Investing Activities


(32
)


(11
)


Net Cash Provided (Used) by Investing Activities


31



(331
)


FINANCING ACTIVITIES

Short-term Debt – Net


12



—

Long-term Debt Issued


67



450

Long-term Debt Repaid


(95
)


(267
)
Dividends Paid


(21
)


(21
)
Other Financing Activities


(6
)


12



Net Cash (Used) Provided by Financing Activities


(43
)


174



Net Increase in Cash and Cash Equivalents


32



3

CASH, CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS

Cash and Cash Equivalents at Beginning of Period


127



137



Cash and Cash Equivalents at End of Period


159



140

Short-term Investments at End of Period


135



641



Cash, Cash Equivalents and Short-term

Investments at End of Period

$
294


$
781

(Dollars in Millions)	(Unaudited) June 27, 2003			December 27, 2002
ASSETS
Current Assets:
Cash, Cash Equivalents and Short-term Investments	$	311		$	264
Accounts Receivable-Net		1,219			799
Materials and Supplies		178			180
Deferred Income Taxes		139			128
Other Current Assets		185			155
Domestic Container-Shipping Assets Held for Disposition		—			263

Total Current Assets		2,032			1,789
Properties		18,892			18,560
Accumulated Depreciation		5,388			5,274

Properties-Net		13,504			13,286
Investment in Conrail		4,658			4,653
Affiliates and Other Companies		487			381
Other Long-term Assets		858			842

Total Assets	$	21,539		$	20,951

LIABILITIES
Current Liabilities:
Accounts Payable	$	768		$	802
Labor and Fringe Benefits Payable		402			457
Casualty, Environmental and Other Reserves		223			246
Current Maturities of Long-term Debt		586			391
Short-term Debt		704			143
Income and Other Taxes Payable		102			144
Other Current Liabilities		135			167
Domestic Container-Shipping Liabilities Held for Disposition		—			104

Total Current Liabilities		2,920			2,454
Long-term Debt		6,204			6,519
Deferred Income Taxes		3,715			3,567
Casualty, Environmental and Other Reserves		629			604
Other Long-term Liabilities		1,635			1,566

Total Liabilities		15,103			14,710

SHAREHOLDERS’ EQUITY
Common Stock, $1 Par Value		215			215
Other Capital		1,554			1,547
Retained Earnings		4,981			4,797
Accumulated Other Comprehensive Loss		(314	)		(318	)

Total Shareholders’ Equity		6,436			6,241

Total Liabilities and Shareholders’ Equity	$	21,539		$	20,951

See accompanying Notes to Consolidated Financial Statements.

~~-4-~~4

CSX CORPORATION AND SUBSIDIARIES

ITEM 1: FINANCIAL STATEMENTS

Consolidated ~~Balance Sheets~~

~~(Dollars in Millions)~~Cash Flow Statements

(Unaudited)


March 28, 2003

December 27, 2002

ASSETS

Current Assets:

Cash, Cash Equivalents and Short-term Investments

$
294


$
264

Accounts Receivable—Net


847



799

Materials and Supplies


187



180

Deferred Income Taxes


130



128

Other Current Assets


164



155

Domestic Container Assets Held for Disposition


—



263



Total Current Assets


1,622



1,789

Properties


18,636



18,560

Accumulated Depreciation


5,285



5,274



Properties—Net


13,351



13,286

Investment in Conrail


4,655



4,653

Affiliates and Other Companies


467



381

Other Long-term Assets


864



842



Total Assets

$
20,959


$
20,951



LIABILITIES

Current Liabilities:

Accounts Payable


839


$
802

Labor and Fringe Benefits Payable


392



457

Casualty, Environmental and Other Reserves


254



246

Current Maturities of Long-term Debt


362



391

Short-term Debt


155



143

Income and Other Taxes Payable


99



144

Other Current Liabilities


141



167

Liabilities Held for Disposition


—



104



Total Current Liabilities


2,242



2,454

Casualty, Environmental and Other Reserves


590



604

Long-term Debt


6,527



6,519

Deferred Income Taxes


3,630



3,567

Other Long-term Liabilities


1,647



1,566



Total Liabilities


14,636



14,710



SHAREHOLDERS’ EQUITY

Common Stock, $1 Par Value


216



215

Other Capital


1,549



1,547

Retained Earnings


4,875



4,797

Accumulated Other Comprehensive Loss


(317
)


(318
)


Total Shareholders’ Equity


6,323



6,241



Total Liabilities and Shareholders’ Equity

$
20,959


$
20,951

(Dollars in Millions)	(Unaudited) Six Months Ended
	June 27, 2003			June 28, 2002
OPERATING ACTIVITIES
Net Earnings	$	226		$	160
Adjustments to Reconcile Net Earnings to Net Cash Provided:
Depreciation		322			312
Deferred Income Taxes		98			50
Cumulative Effect of Accounting Change-Net of Tax		(57	)		43
Other Operating Activities		16			(13	)
Changes in Operating Assets and Liabilities:
Accounts Receivable		(65	)		17
Termination of Sale of Receivables		(380	)		—
Other Current Assets		(42	)		(34	)
Accounts Payable		(15	)		(54	)
Other Current Liabilities		(138	)		30

Net Cash (Used) Provided by Operating Activities		(35	)		511

INVESTING ACTIVITIES
Property Additions		(479	)		(431	)
Net Proceeds from Divestitures		214			—
Other Investing Activities		(20	)		2

Net Cash Used by Investing Activities		(285	)		(429	)

FINANCING ACTIVITIES
Short-term Debt – Net		561			576
Long-term Debt Issued		83			474
Long-term Debt Repaid		(218	)		(991	)
Dividends Paid		(43	)		(43	)
Other Financing Activities		(16	)		16

Net Cash Provided by Financing Activities		367			32

Net Increase in Cash and Cash Equivalents		47			114
CASH, CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS
Cash and Cash Equivalents at Beginning of Period		127			137

Cash and Cash Equivalents at End of Period		174			251
Short-term Investments at End of Period		137			480

Cash, Cash Equivalents and Short-term Investments at End of Period	$	311		$	731

See accompanying Notes to Consolidated Financial Statements.

~~-5-~~5

CSX CORPORATION AND SUBSIDIARIES

ITEM 1: FINANCIAL STATEMENTS

Notes to Consolidated Financial Statements (Unaudited)

NOTE 1. BASIS OF PRESENTATION

In the opinion of management, the accompanying consolidated financial statements contain all adjustments necessary to fairly present the financial position of CSX Corporation and subsidiaries (“CSX” or the “Company”) at ~~March 28,~~June 27, 2003 and December 27, 2002, ~~and~~ the results of its operations for the quarters and six months ended June 27, 2003 and June 28, 2002, and its cash flows for the ~~three~~six months ended ~~March 28,~~June 27, 2003 and ~~March 29,~~June 28, 2002, such adjustments being of a normal recurring nature. Certain prior-year data have been reclassified to conform to the 2003 presentation.

The Company believes that the disclosures presented are accurate and not misleading, and suggests that these financial statements be read in conjunction with the financial statements and the notes included in the Company’s most recent Annual Report and Form ~~10-K.~~10-K, 2003 Quarterly Reports on Form 10-Q, and any Current Reports on Form 8-K.

CSX follows a 52/53 week fiscal reporting calendar. Fiscal years 2003 and 2002 consist of 52 weeks ending on December 26, 2003 and December 27, 2002, respectively. The financial statements presented are for the 13-week quarters ended ~~March 28,~~June 27, 2003 and ~~March 29,~~June 28, 2002, the 26-week periods ended June 27, 2003 and June 28, 2002, and as of December 27, 2002.

Comprehensive income approximates net earnings for all periods presented in the accompanying consolidated income statements.

NOTE 2. EARNINGS PER SHARE

The following table sets forth the computation of basic earnings per share and earnings per share, assuming dilution:

	Quarters Ended				Quarters Ended				Six Months Ended
	March 28, 2003		March 29, 2002		June 27, 2003		June 28, 2002		June 27, 2003		June 28, 2002
Numerator (millions):
Numerator (Millions):
Net Earnings Before Cumulative Effect of Accounting Change	$	42	$	68	$	127	$	135	$	169	$	203
Denominator (thousands):
Denominator (Thousands):
Average Common Shares Outstanding		213,866		212,053		213,849		212,555		213,857		212,303
Effect of Potentially Dilutive Common Shares		298		1,137		448		986		373		1,061

Average Common Shares Outstanding, Assuming Dilution		214,164		213,190		214,297		213,541		214,230		213,364

Earnings Per Share:
Before Cumulative Effect of Accounting Change	$	0.20	$	0.32	$	0.59	$	0.63	$	0.79	$	0.95
Assuming Dilution, Before Cumulative Effect of Accounting Change	$	0.20	$	0.32	$	0.59	$	0.63	$	0.79	$	0.95

CSX CORPORATION AND SUBSIDIARIES

ITEM 1: FINANCIAL STATEMENTS

Notes to Consolidated Financial Statements (Unaudited)

NOTE 2. EARNINGS PER SHARE, Continued

Earnings per share are based on the weighted-average number of common shares outstanding. Earnings per share, assuming dilution, are based on the weighted-average number of common shares outstanding adjusted for the effect of potentially dilutive common shares, ~~outstanding,~~ mainly arising from employee stock options. Potentially dilutive common shares at CSX include stock options and awards, and common stock that would be issued relating to convertible long-term debt. During the ~~quarters~~quarter and six months ended ~~March 28,~~June 27, 2003, 174,451 and ~~March 29, 2002, no shares and 0.7 million shares,~~175,645 options, respectively, were ~~issued for~~exercised. During the quarter and six months ended June 28, 2002, 324,205 and 1,020,161 options, respectively, were exercised.

~~-6-~~

~~CSX CORPORATION AND SUBSIDIARIES~~

~~Notes to Consolidated Financial Statements (Unaudited)~~

~~NOTE 2. EARNINGS PER SHARE, Continued~~

Certain potentially dilutive common shares at ~~March 28,~~June 27, 2003 and ~~March 29,~~June 28, 2002 were not included in the computation of earnings per share, assuming dilution, since their exercise or conversion prices were greater than the average market price of the common shares during the period and, therefore, their effect is antidilutive. These potentially dilutive common shares were as follows:

	Quarters Ended				Quarters Ended
	March 28, 2003		March 29, 2002		June 27, 2003		June 28, 2002
Number of Shares (millions)		34		30
Number of Shares (Thousands)						34,480		33,249
Average Exercise / Conversion Price	$	46.33	$	47.32	$	45.83	$	46.56

A substantial increase in the fair market value of the Company’s stock price could negatively impact earnings per share if the ~~34 million~~ shares were to become dilutive.

NOTE 3. DIVESTITURES

OnIn February ~~27,~~ 2003, CSX conveyed most of its interest in its domestic container-shipping subsidiary, CSX Lines LLC (“CSX Lines”), to a new venture formed with the Carlyle Group for approximately $300 million (gross cash proceeds of approximately $240 million, $214 million net of transaction costs and $60 million of securities). CSX Lines was subsequently renamed Horizon Lines LLC (“Horizon”). Horizon has subleased equipment from certain affiliates of CSX covering ~~CSX’s~~the primary financial obligations related to $319 million of vessel and equipment leases under which CSX or one of its affiliates will remain a ~~lessee.~~lessee or guarantor. A deferred pretax gain of approximately $127 million as a result of the transaction will be recognized over the 12 year sub-lease term. ~~Less than $1~~Approximately $3 million of this gain was recognized in the ~~first quarter.~~second quarter, with $4 million being recognized year to date. The $60 million of securities have a term of 7 years and a preferred return feature. CSX will account for the investment under the cost method.

CSX CORPORATION AND SUBSIDIARIES

ITEM 1: FINANCIAL STATEMENTS

Notes to Consolidated Financial Statements (Unaudited)

NOTE 4. NEW ACCOUNTING PRONOUNCEMENTS AND CUMULATIVE EFFECT OF ACCOUNTING CHANGES

~~In 2001,~~ Statement of Financial Accounting Standard (“SFAS”) 143, “Accounting for Asset Retirement Obligations” was ~~issued.~~issued in 2001. This statement addresses financial accounting and reporting for legal obligations associated with the retirement of tangible long-lived assets and the associated retirement costs. In conjunction with the group-life method of accounting for asset costs, the Company historically accrued crosstie removal costs as a component of depreciation, which is not permitted under SFAS 143. With the adoption of SFAS 143 in ~~the first quarter of~~fiscal year 2003, CSX recorded pretax income of $93 million, $57 million after tax, or 26 cents per share, as a cumulative effect of an accounting change in the first quarter, representing the reversal of the accrued liability for crosstie removal costs. The adoption of SFAS 143 did not have a material effect on prior reporting periods, and the Company does not believe it will have a material effect on future earnings. On an ongoing basis, depreciation expense will be reduced, while labor and fringe and materials, supplies and other expense will be increased.

~~-7-~~

~~CSX CORPORATION AND SUBSIDIARIES~~

~~Notes to Consolidated Financial Statements (Unaudited)~~

~~NOTE 4. NEW ACCOUNTING PRONOUNCEMENTS AND CUMULATIVE EFFECT OF ACCOUNTING CHANGES, Continued~~

~~In December 2002,~~ SFAS 148, “Accounting for Stock-Based Compensation – Transition and Disclosure” was ~~issued.~~issued in December 2002. SFAS 148 amends SFAS 123, “Accounting for Stock-Based Compensation,” to provide alternative methods of transition to Statement 123’s fair value method of accounting for stock-based employee compensation and require disclosure of the effects of an entity’s accounting policy with respect to stock-based employee compensation. Effective beginning with fiscal year 2003, CSX has voluntarily adopted the fair value recognition provisions of SFAS 123, “Accounting for Stock-Based Compensation,” and adopted the disclosure requirements of SFAS 148, “Accounting for Stock-Based Compensation – Transition and Disclosure – an amendment of SFAS 123.” In accordance with the prospective method of adoption permitted under SFAS 148, ~~any future~~ stock-based ~~compensation will be~~awards issued subsequent to fiscal year 2002 are accounted for under the fair value recognition provisions of SFAS 123 utilizing the Black-Scholes valuation method and, accordingly, ~~will be~~are expensed. (See Note 10, Stock Based Compensation)

In 2002, the FASB issued Financial Accounting Standard Interpretation (“FASI”) No. 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others.” This statement requires that certain guarantees entered into be recorded at fair value on the balance sheet and additional disclosures be made about guarantees. CSX is required to adopt the accounting provisions of this statement in fiscal year 2003.

~~In 2001,~~ SFAS 142, “Goodwill and Other Intangible Assets,” was ~~issued.~~issued in 2001. Under the provisions of SFAS 142, goodwill and other indefinite lived intangible assets are no longer amortized, but are reviewed for impairment on a periodic basis. The Company adopted this standard inat the ~~first quarter~~beginning of fiscal year 2002, and incurred a pretax charge of $83 million, $43 million after tax and consideration of minority interest, 20 cents per share, as a cumulative effect of an accounting change, which represents the difference between book value and the fair value of indefinite lived intangible assets. These indefinite lived intangible assets are permits and licenses that the Company holds relating to a proposed pipeline to transfer natural gas from Alaska’s north slope to the port in Valdez, Alaska. The fair value was determined using a discount method of projected future cash flows relating to these assets. The carrying value of these assets is now approximately $3 million. The adoption of SFAS 142 did not have a material effect on prior reporting periods, and it ~~will~~does not have a material effect on future earnings.

NOTE 5. INVESTMENT IN AND INTEGRATED RAIL OPERATIONS WITH CONRAIL

Background

CSX and Norfolk Southern Corporation (“Norfolk Southern”) acquired 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.

CSX CORPORATION AND SUBSIDIARIES

ITEM 1: FINANCIAL STATEMENTS

Notes to Consolidated Financial Statements (Unaudited)

NOTE 5. INVESTMENT IN AND INTEGRATED RAIL OPERATIONS WITH CONRAIL, Continued

Background, Continued

The rail subsidiaries of CSX and Norfolk Southern each operate ~~their respective~~separate 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 CSX and Norfolk Southern, for which it is compensated on the basis of usage by the respective railroads.

~~-8-~~

In June 2003, CSX, ~~CORPORATION AND SUBSIDIARIES~~

~~Notes~~Norfolk Southern and Conrail jointly filed a petition with the Surface Transportation Board (STB) to ~~Consolidated Financial Statements (Unaudited)~~

~~NOTE 5. INVESTMENT IN AND INTEGRATED RAIL OPERATIONS WITH CONRAIL, Continued~~establish direct ownership and control by CSX Transportation Inc. (“CSXT”) and Norfolk Southern Railway of their portions of the Conrail system. Conrail would continue to own, manage and operate the Shared Assets Areas as previously approved by the STB. CSX, Norfolk Southern and Conrail also jointly filed a ruling request with the Internal Revenue Service to qualify the transaction as a non-taxable disposition. The proposed transaction is subject to a number of conditions, including, among others, STB approval and a favorable IRS ruling. If all necessary conditions are satisfied, Conrail intends to restructure its existing $800 million of unsecured public debt and $400 million of secured debt. It is currently contemplated that guaranteed debt securities of two newly formed subsidiaries of CSXT and Norfolk Southern Railway would be offered in a 42%/58% ratio in exchange for Conrail’s unsecured debentures. The debt securities would be fully and unconditionally guaranteed by CSXT and Norfolk Southern Railway. Upon completion of the proposed transaction, the new debt securities would become direct unsecured obligations of CSXT and Norfolk Southern Railway. Conrail’s secured debt and lease obligations will remain obligations of Conrail and are expected to be supported by new leases and subleases which, upon completion of the proposed transaction, would be the direct lease and sublease obligations of CSXT or Norfolk Southern Railway. This transaction would significantly impact the balance sheet by increasing debt and fixed assets, while reducing the investment in Conrail. There would not be a material impact on earnings per share.

Accounting and Financial Reporting Effects

CSX’s rail and intermodal operating revenue includes revenue from traffic moving on Conrail property. Operating expenses include costs incurred to handle ~~that~~such traffic and operate the Conrail lines. Rail operating expense includes an expense category, “Conrail,” which reflects:

Right-of-way usage fees to ~~Conrail~~Conrail.

Equipment rental payments to ~~Conrail~~Conrail.

Transportation, switching, and terminal service charges provided by Conrail in the Shared Asset Areas that Conrail operates for the joint benefit of CSX and Norfolk ~~Southern~~Southern.

Amortization of the fair value write-up arising from the acquisition of Conrail and certain other adjustments

CSX’s 42% share of Conrail’s net income before cumulative effect of accounting change recognized under the equity method of ~~accounting~~accounting.

~~Detail of Conrail~~

Quarters Ended


March 28, 2003

March 29, 2002


(dollars in millions)

Rents and Services

$
87


$
88

Purchase Price Amortization and Other


15



14

Equity in Income of Conrail


(16
)


(15
)


Total Conrail Operating Fees, Rents and Services

$
86


$
87

~~Conrail Financial Information~~

~~Summary financial information for Conrail is as follows:~~

Quarters Ended
March 31,

2003

2002

(dollars in millions)
Income Statement Information:

Revenues

$
226

$
225
Expenses


163


164


Operating Income

$
63

$
61


Net Income Before Cumulative Effect of Accounting Change

$
37

$
36


Cumulative Effect of Accounting Change—Net of Tax


40


—


Net Income

$
77

$
36

~~-9-~~9

CSX CORPORATION AND SUBSIDIARIES

ITEM 1: FINANCIAL STATEMENTS

Notes to Consolidated Financial Statements (Unaudited)

NOTE 5. INVESTMENT IN AND INTEGRATED RAIL OPERATIONS WITH CONRAIL, Continued

March 31, 2003

December 31, 2002

(dollars in millions)
Balance Sheet Information:

Current Assets

$
280

$
300
Property and Equipment and Other Assets


7,957


7,857


Total Assets

$
8,237

$
8,157


Current Liabilities

$
354

$
329
Long-term Debt


1,113


1,123
Other Long-term Liabilities


2,467


2,479


Total Liabilities


3,934


3,931
Stockholders’ Equity


4,303


4,226


Total Liabilities and Stockholders’ Equity

$
8,237

$
8,157

Detail of Conrail

(Dollars in Millions)
	Quarters Ended						Six Months Ended
	June 27, 2003			June 28, 2002			June 27, 2003			June 28, 2002
Rents and Services	$	89		$	87		$	176		$	174
Purchase Price Amortization and Other		14			10			29			25
Equity in Income of Conrail		(16	)		(18	)		(32	)		(33	)

Total Conrail	$	87		$	79		$	173		$	166

Conrail Financial Information

Summary financial information for Conrail for its fiscal periods ended June 30, 2003 and 2002, and at December 31, 2002, is as follows:

(Dollars in Millions)
	Quarters Ended				Six Months Ended
	2003		2002		2003		2002
Income Statement Information:
Revenues	$	231	$	222	$	457	$	447
Expenses		165		158		328		322

Operating Income	$	66	$	64	$	129	$	125

Net Income Before Cumulative Effect of Accounting Change	$	39	$	42	$	76	$	78

Cumulative Effect of Accounting Change-Net of Tax		—		—		40		—

Net Income	$	39	$	42	$	116	$	78

CSX CORPORATION AND SUBSIDIARIES

ITEM 1: FINANCIAL STATEMENTS

Notes to Consolidated Financial Statements (Unaudited)

NOTE 5. INVESTMENT IN AND INTEGRATED RAIL OPERATIONS WITH CONRAIL, Continued

(Dollars in Millions)
	June 30, 2003		December 31, 2002
Balance Sheet Information:
Current Assets	$	279	$	300
Property and Equipment and Other Assets		7,912		7,857

Total Assets	$	8,191	$	8,157

Current Liabilities	$	301	$	329
Long-term Debt		1,104		1,123
Other Long-term Liabilities		2,443		2,479

Total Liabilities		3,848		3,931
Stockholders’ Equity		4,343		4,226

Total Liabilities and Stockholders’ Equity	$	8,191	$	8,157

Transactions with Conrail

As listed below, CSX has amounts payable to Conrail, representing expenses incurred under the operating, equipment and shared asset area agreements. Also, Conrail advances its available cash balances to CSX and Norfolk Southern under variable-rate notes, with CSX’s note maturing on March 28, 2007.

	March 28, 2003			December 27, 2002
(Dollars in Millions)
	(dollars in millions)										June 27, 2003			December 27, 2002
CSX Payable to Conrail	$	60		$	69						$	68		$	69
Conrail Advances to CSX	$	437		$	371						$	450		$	371
Interest Rates on Conrail Advances to CSX		1.56	%		1.82	%						1.48	%		1.82	%

	Quarters Ended						Quarters Ended				Six Months Ended
	March 28, 2003			December 27, 2002			June 27, 2003		June 28, 2002		June 27, 2003			June 28, 2002
Interest Expense Related to Conrail Advances	$	2		$	2		$	2	$	2	$	4		$	4

The agreement under which CSX operates its allocated portion of the Conrail route system has an initial term of 25 years and may be renewed at CSX’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 Conrail equipment operated by CSX cover varying terms. CSX is responsible for all costs of operating, maintaining, and improving the routes and equipment under these agreements.

~~-10-~~11

CSX CORPORATION AND SUBSIDIARIES

ITEM 1: FINANCIAL STATEMENTS

Notes to Consolidated Financial Statements (Unaudited)

NOTE 6. ACCOUNTS RECEIVABLE

Sale of Accounts Receivable

~~CSX Transportation Inc. (“CSXT”) sells, generally~~As of June 27, 2003, CSXT discontinued the sale of accounts receivable, which resulted in a $380 million increase in accounts receivable and increased borrowing of commercial paper balances included in short-term debt. Prior to June 27, 2003, CSXT sold, without recourse, a revolving pool of accounts receivable to CSX Trade Receivables Corporation (“CTRC”), a bankruptcy-remote ~~(special purpose)~~ entity wholly-owned by CSX Corporation. CTRC ~~transfers~~transferred the accounts receivable to a master trust and ~~causes~~caused the trust to issue two series of certificates representing undivided interests in the ~~receivables, which are~~receivables. The certificates issued by the master trust were sold to investors, ~~for proceeds.~~and the proceeds from those sales were paid to CSXT.

Two series of certificates ~~issued by the trust~~ were outstanding as of ~~March 28, 2003 and~~ December 27, 2002. One series ~~issued~~in the amount of $300 million was sold to investors in 1998 ~~for $300 million to the public matures~~and matured in June ~~2003 and bears interest payable to the investors at 6% annually.~~2003. A second series in the amount of $200 million was ~~issued~~sold to a private ~~special purpose~~ entity in 2000 ~~which funded the purchase through a bank-supported commercial paper program. This second series of certificates was issued for a one-year maturity,~~ and ~~as currently amended matures~~matured in June 2003 as well. ~~The private series~~As of ~~certificates bears interest at a floating rate based upon~~December 27, 2002, the ~~program’s commercial paper rates. The yield on~~amount invested by the private ~~certificates at March 28, 2003~~entity was ~~1.33%.~~

$80 million. Accounts receivable related amounts ~~for the current period are~~were as follows:

	March 28, 2003		December 27, 2002
(Dollars in Millions)
	(dollars in millions)				June 27, 2003		December 27, 2002
Amounts sold under:
Public Series of Certificates	$	300	$	300	$	—	$	300
Private Series of Certificates		80		80		—		80

Total	$	380	$	380	$	—	$	380

Retained Interest in Master Trust	$	476	$	534	$	—	$	534

The fair value of retained interests ~~approximates~~approximated book value as the receivables ~~are~~were collected in approximately one month.

Quarters Ended

March 28, 2003

March 29, 2002

(dollars in millions)
Discounts on Sales of Accounts Receivable

$
6

$
7

Net losses associated with the sale of receivables are as follows:

(Dollars in Millions)	Quarters Ended				Six Months Ended
	June 27, 2003		June 28, 2002		June 27, 2003		June 28, 2002
Discounts on Sales of Accounts Receivable	$	4	$	7	$	10	$	14

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

~~-11-~~12

CSX CORPORATION AND SUBSIDIARIES

ITEM 1: FINANCIAL STATEMENTS

Notes to Consolidated Financial Statements (Unaudited)

NOTE 6. ACCOUNTS RECEIVABLE, Continued

Allowance for Doubtful Accounts

The Company maintains an allowance for doubtful accounts based on the expected collectibility of all accounts receivable, including receivables transferred to the master trust that could be subsequently sold to outside parties with recourse. The allowance for doubtful accounts is included in the balance sheet as follows:

March 28, 2003

December 27, 2002

(dollars in millions)
Allowance for Doubtful Accounts

$
95

$
125

(Dollars in Millions)
	June 27, 2003		December 27, 2002
Allowance for Doubtful Accounts	$	86	$	125

The decrease in the allowance for doubtful accounts was primarily due to the write-off of uncollectible ~~receivables.~~receivables during 2003.

NOTE 7. OPERATING EXPENSE

Operating expense consists of the following:

	Quarters Ended
(Dollars in Millions)
	March 28, 2003		March 29, 2002		Quarters Ended				Six Months Ended
	(dollars in millions)				June 27, 2003		June 28, 2002		June 27, 2003		June 28, 2002
Labor and Fringe	$	739	$	730	$	677	$	713	$	1,416	$	1,439
Materials, Supplies and Other		446		433		388		446		834		883
Conrail		86		87		87		79		173		166
Building and Equipment Rent		146		148		130		154		276		302
Inland Transportation		92		86		79		77		171		163
Depreciation		157		152		160		155		317		307
Fuel		173		116		136		128		309		244

Total	$	1,839	$	1,752	$	1,657	$	1,752	$	3,496	$	3,504

~~-12-~~Operating expenses include amounts from the Company’s domestic container-shipping subsidiary, CSX Lines for fiscal year 2002 and through February of 2003, when most of CSX’s interest in the entity was conveyed to a new venture. See note 3, “Divestitures.”

CSX CORPORATION AND SUBSIDIARIES

ITEM 1: FINANCIAL STATEMENTS

Notes to Consolidated Financial Statements (Unaudited)

NOTE 8. OTHER INCOME

Other income (expense) consists of the following:

	Quarters Ended
(Dollars in Millions)
	March 28, 2003			March 29, 2002			Quarters Ended						Six Months Ended
	(dollars in millions)						June 27, 2003			June 28, 2002			June 27, 2003			June 28, 2002
Interest Income	$	4		$	7		$	4		$	8		$	8		$	15
Income from Real Estate and Resort Operations		1			32			32			11			33			43
Discounts on Sales of Accounts Receivable		(6	)		(7	)		(4	)		(7	)		(10	)		(14	)
Minority Interest		(11	)		(8	)		(9	)		(10	)		(20	)		(18	)
Equity Loss of Other Affiliates		—			(6	)
Miscellaneous		2			(9	)		(4	)		2			(2	)		(13	)

Total	$	(10	)	$	9		$	19		$	4		$	9		$	13

Gross Revenue from Real Estate and Resort Operations Included in Other Income	$	35		$	63		$	75		$	51		$	110		$	114

NOTE 9. DERIVATIVE FINANCIAL INSTRUMENTS

CSX has entered into various interest rate swap agreements on the following fixed rate notes:

Maturity Date	Notional Amount (millions)		Fixed Interest Rate		Notional Amount (Millions)		Fixed Interest Rate
December 1, 2003	$	150	5.85	%	$	150	5.85	%
May 1, 2004		300	7.25	%		300	7.25	%
June 22, 2005		50	6.46	%		50	6.46	%
August 15, 2006		300	9.00	%		300	9.00	%
May 1, 2007		450	7.45	%		450	7.45	%
May 1, 2032		150	8.30	%		150	8.30	%

Total/Average	$	1,400	7.62	%	$	1,400	7.62	%

These agreements were entered for purposes of managing interest rate risk exposure ~~management purposes~~ and mature at the time the related notes are due. Under these agreements, the Company will pay variable interest based on LIBOR in exchange for a fixed rate, effectively transforming the notes to floating rate obligations. ~~Accordingly, the~~The instruments qualify, and are designated, as fair value hedges.

~~-13-~~14

CSX CORPORATION AND SUBSIDIARIES

ITEM 1: FINANCIAL STATEMENTS

Notes to Consolidated Financial Statements (Unaudited)

NOTE 9. DERIVATIVE FINANCIAL INSTRUMENTS, Continued

For derivative instruments that are designated and qualify as a fair value hedge, the gain or loss on the derivative instrument, as well as the offsetting gain or loss on the hedged item, in this case long-term fixed rate notes, attributable to the hedged risk, are recognized in current earnings during the period of change in fair values. The accounting for hedge effectiveness is measured at least quarterly based on the relative change in fair value between the derivative contract and the hedged item over time. Any change in fair value resulting from ineffectiveness, as defined by SFAS 133, “Accounting For Derivative Instruments and Hedging Activities,” is recognized immediately in earnings. The Company’s interest rate swaps qualify as perfectly effective fair value hedges, as defined by SFAS 133. As such, there was no ineffective portion to the hedge recognized in earnings during the current or prior year periods. Long-term debt has been increased by ~~$85~~$90 million and $78 million for the fair market value of the interest rate swap agreements at ~~March 28,~~June 27, 2003 and December 27, 2002, respectively.

The differential to be paid or received under these agreements is accrued based on the terms of the agreements and is recognized in interest expense over the term of the related debt. The related amounts payable to, or receivable from, counterparties are included in other current liabilities or assets. Cash flows related to interest rate swap agreements are classified as “Operating Activities” in the Consolidated Cash Flow Statement. For the three month and six month periods ended ~~March 28,~~June 27, 2003, ~~and March 29, 2002,~~ the Company reduced interest expense by approximately $11 million and $7$22 million, respectively, as a result of the interest rate swap agreements that were in place during that period. For the quarter and six month periods ended June 28, 2002, the Company reduced interest expense by approximately $8 million and $16 million, respectively.

The Company is exposed to credit loss in the event of nonperformance by the other parties to the interest rate swap agreements. However, the Company does not anticipate nonperformance by the counterparties.

NOTE 10. ~~STOCK BASED~~STOCK-BASED COMPENSATION

Effective beginning with fiscal year 2003, CSX has voluntarily adopted the fair value recognition provisions of SFAS 123, “Accounting for Stock-Based Compensation,” and adopted the disclosure requirements of SFAS 148, “Accounting for Stock-Based Compensation – Transition and Disclosure – an amendment of SFAS 123.” In accordance with the prospective method of adoption permitted under SFAS 148, ~~any future stock-based compensation will be accounted for under~~the Company has adopted the fair value recognition provisions ~~of SFAS 123 utilizing the Black-Scholes valuation method~~on a prospective basis and accordingly, ~~will be expensed.~~expense of $1 million was recognized in the quarter and six months ended June 27, 2003 for stock options granted in May 2003.

~~-14-~~15

CSX CORPORATION AND SUBSIDIARIES

ITEM 1: FINANCIAL STATEMENTS

Notes to Consolidated Financial Statements (Unaudited)

NOTE 10. STOCK BASED COMPENSATION, Continued

~~Had compensation expense been determined based upon fair values at~~The following table illustrates the ~~date of grant, consistent with the methods of SFAS 123 for all past compensation awards, the Company’s~~pro forma effect on net ~~earnings~~income and earnings per share ~~would have~~as if the fair value based method had been ~~reduced~~applied to ~~the pro forma amounts indicated below:~~all outstanding and unvested awards in each period:

Quarters Ended


March 28, 2003

March 29, 2002


(dollars in millions, except per share amounts)

Net Earnings—As Reported

$
99


$
25

Add (Deduct): Stock Based Employee Compensation Expense (Credit) Included in Reported

Net Income—Net of Related Tax Effects


(2
)


1

Deduct: Total Stock Based Employee Compensation Expense Determined Under the Fair

Value Based Method For all Awards—Net of Related Tax Effects


(5
)


(7
)


Pro Forma Net Earnings

$
92


$
19



Earnings Per Share:

Basic—As Reported

$
0.46


$
0.12

Basic—Pro Forma

$
0.43


$
0.09

Diluted—As Reported

$
0.46


$
0.12

Diluted—Pro Forma

$
0.43


$
0.09

(Dollars in Millions, Except Per Share Amounts)
	Quarters Ended						Six Months Ended
	June 27, 2003			June 28, 2002			June 27, 2003			June 28, 2002
Net Earnings - As Reported	$	127		$	135		$	226		$	160
Add (Deduct): Stock Based Employee Compensation Expense (Credit) Included in Reported Net Income - Net of Related Tax Effects		1			1			(1	)		2
Deduct: Total Stock Based Employee Compensation Expense Determined Under the Fair Value Based Method For all Awards - Net of Related Tax Effects		(9	)		(8	)		(14	)		(15	)

Pro Forma Net Earnings	$	119		$	128		$	211		$	147

Earnings Per Share:
Basic - As Reported	$	0.59		$	0.63		$	1.05		$	0.75
Basic - Pro Forma	$	0.56		$	0.60		$	0.99		$	0.69
Diluted - As Reported	$	0.59		$	0.63		$	1.05		$	0.75
Diluted - Pro Forma	$	0.56		$	0.60		$	0.98		$	0.69

NOTE 11. CASUALTY, ENVIRONMENTAL AND OTHER RESERVES

Casualty, environmental and other reserves are provided for in the balance sheet as follows:

(Dollars in Millions)
	March 28, 2003						December 27, 2002						June 27, 2003						December 27, 2002
	Current		Long-term		Total		Current		Long-term		Total		Current		Long-term		Total		Current		Long-term		Total
Casualty and Other	$	224	$	379	$	603	$	216	$	389	$	605	$	193	$	421	$	614	$	216	$	389	$	605
Separation														15		188		203		15		195		210
Environmental		15		20		35		15		20		35		15		20		35		15		20		35
Separation		15		191		206		15		195		210

Total	$	254	$	590	$	844	$	246	$	604	$	850	$	223	$	629	$	852	$	246	$	604	$	850

~~-15-~~16

CSX CORPORATION AND SUBSIDIARIES

ITEM 1: FINANCIAL STATEMENTS

Notes to Consolidated Financial Statements (Unaudited)

NOTE 11. CASUALTY, ENVIRONMENTAL AND OTHER RESERVES, Continued

Casualty Reserves

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 an incident, and estimates are updated as information develops. The amount of liability accrued is based on the type and severity of 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. Accruals for occupational injury, personal injury and accident liabilities amount to ~~$603~~$614 million and $605 million at ~~March 28,~~June 27, 2003 and December 27, 2002, respectively. This increase is primarily related to new asbestos claims filed in West Virginia during the second quarter of 2003.

Environmental Reserves

CSX is a party to various proceedings involving private parties and regulatory agencies related to environmental issues. CSXT has been identified as a potentially responsible party (“PRP”) at approximately 9098 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 disposal companies and seek to allocate or recover costs associated with site investigation and cleanup, which could be substantial.

CSXT is involved in administrative and judicial proceedings, and other clean-up efforts at approximately ~~210~~209 sites, which include the 9098 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 a number of factors, including 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 on the review process, CSXT has recorded reserves to cover estimated contingent future environmental costs with respect to such sites. The recorded liabilities for estimated future environmental costs at ~~March 28,~~June 27, 2003, and December 27, 2002 were $35 million. These liabilities, which are undiscounted, include amounts representing CSXT’s estimate of unasserted claims, which CSXT believes to be immaterial. The liability includes future costs for 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 ~~March 28,~~June 27, 2003 environmental liability is expected to be paid out over the next seven years, funded by cash generated from operations.

~~-16-~~17

CSX CORPORATION AND SUBSIDIARIES

ITEM 1: FINANCIAL STATEMENTS

Notes to Consolidated Financial Statements (Unaudited)

NOTE 11. CASUALTY, ENVIRONMENTAL AND OTHER RESERVES, Continued

The 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 information currently available, however, the Company believes its environmental reserves are adequate to accomplish remedial actions to comply with present laws and regulations, and that the ultimate liability for these matters will not materially affect its overall results of operations and financial condition.

NOTE 12. COMMITMENTS AND CONTINGENCIES

Purchase Commitments

The Company has a commitment under a long-term maintenance program for approximately 40% of CSXT’s fleet of locomotives. The agreement expires in 2026 and ~~totals~~approximates $2.7 billion. The long-term maintenance program assures CSX access to efficient, high-quality locomotive maintenance services at fixed price levels through the term of the program. Under the program, CSX paid $33 million and ~~$31~~$66 million in the ~~quarters~~quarter and six month periods ended ~~March~~June 27, 2003. In the quarter and six month periods ended June 28, ~~2003~~2002, $31 million and ~~March 29, 2002, respectively.~~$62 million, respectively was paid.

Self-Insurance

The Company obtains substantial amounts of commercial insurance for potential losses for third-party liability and property damages. Reasonable levels of risk (up to $35 million for property and $25 million for liability per occurrence) are 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 risk.

Guarantees

The Company and its subsidiaries are contingently liable individually and jointly with others as guarantors of obligations principally relating to leased equipment, joint ventures and joint facilities used by CSX in its business operations. Utilizing a CSX guarantee for these obligations allows CSX to take advantage of lower interest rates and obtain other favorable terms when negotiating leases or financing debt. Guarantees are contingent commitments issued by the Company that could require CSX to make payment to the guaranteed party based on another entity’s failure to perform. CSX’s guarantees can be segregated into three main categories:

Guarantees of approximately $511 million of lease commitments assumed by A.P. Moller-Maersk (“Maersk”) for which the Company is contingently liable. CSX believes that Maersk will fulfill its contractual commitments with respect to such leases and that CSX will have no further liabilities for those obligations.

Guarantees of approximately ~~$150~~$105 million relating to a construction ~~guarantee~~and cash deficiency support guarantees at ~~one~~several of the Company’s international terminals ~~segment’s locations.~~locations under development. The non-performance of one of its partners, or cost overruns or non-compliance with financing loan covenants could cause the Company to have to perform under ~~this guarantee.~~these guarantees.

~~-17-~~18

CSX CORPORATION AND SUBSIDIARIES

ITEM 1: FINANCIAL STATEMENTS

Notes to Consolidated Financial Statements (Unaudited)

NOTE 12. COMMITMENTS AND CONTINGENCIES, Continued

As discussed in Note 3, Divestitures, CSX conveyed most of its interest in CSX Lines in February 2003. CSX guarantees approximately $47 million relating to leases assumed as part of this conveyance.

The maximum amount of future payments the Company could be required to make under these guarantees is the amount of the guarantees themselves.

Matters Arising Out of Sale of International Container-Shipping Assets

In conjunction with the sale of the international container shipping assets to Maersk, CSX ~~has~~ received a claim ~~amounting~~of 425 million Dutch Guilders plus interest (amounting to approximately $180 million plus interest under then prevailing currency exchange rates) from Europe Container Terminals bv (“ECT”), owner of the Rotterdam Container Terminal formerly operated by Sea-Land Service Inc. (“Sea-Land”). ECT has claimed that the December 1999 sale of the international liner business to Maersk resulted in a breach of the Sea-Land terminal agreement with ECT. An initial arbitration panel of the Netherlands Arbitration Institute ruled onin February ~~10,~~ 2003, that CSX was in breach of the terminal agreement. The ruling by the panel dealt only with the existence of liability for a breach, and did not address the level of ECT damages, if any, which will be the subject of a second hearing before the same panel sometime in 2003. CSX disputes ~~this~~ECT’s claim for damages and believes it does not reflect the mitigating benefits ECT gained from its ability to service other customers at the former Sea-Land facility. Management believes that valid defenses ~~to this claim~~ exist on damages, but cannot estimate what loss, if any, may result from this matter. CSX believes that Maersk is responsible for any damages that may result from this dispute and has taken preliminary steps to initiate an arbitration against Maersk under the purchase and sale agreement with Maersk.

The purchase and sale agreement with Maersk provides for a post-closing working capital adjustment to the sales price based on the change in working capital, as defined in the agreement, between June 25, 1999, and December 10, 1999. The Company has recorded a receivable of approximately $70 million in connection with the post-closing adjustment and this amount is currently in dispute. This matter, together with other disputed issues relating to the contractual obligations of the Company, has been submitted to arbitration.

Although management believes it will prevail in some or all of the Maersk and ECT disputes and arbitrations, it can give no assurance in this regard. An adverse outcome could have a material effect on the determination of the final loss on sale of Sea-Land’s International Liner business and the financial results and cash flows in future reporting periods.

Other Legal Proceedings

A number of other legal actions are pending against CSX and certain subsidiaries in which claims are made in substantial amounts. While the ultimate results of these legal actions cannot be predicted with certainty, management does not currently expect that the resolution of these matters will have a material effect on CSX’s consolidated balance sheet, income statement 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.

~~-18-~~19

CSX CORPORATION AND SUBSIDIARIES

ITEM 1: FINANCIAL STATEMENTS

Notes to Consolidated Financial Statements (Unaudited)

NOTE 13. BUSINESS SEGMENTS

The Company operates in three business segments: rail, intermodal, and international terminals. The rail segment provides rail freight transportation over a network of more than 23,000 route miles in 23 states, the District of Columbia and two Canadian provinces. The intermodal segment provides transcontinental intermodal transportation services and operates a network of dedicated intermodal facilities across North America. The international terminals segment operates container freight terminal facilities and related businesses in Asia, Europe, Australia, Latin America and the United States. The Company’s segments are strategic business units that offer different services and are managed separately based on the differences in these services. Because of their close interrelationship, the rail and intermodal segments are viewed on a combined basis as Surface Transportation operations.

The Company evaluates performance and allocates resources based on several factors, of which the primary financial measure is business segment operating income, defined as income from operations, excluding the effects of non-recurring charges and gains. The accounting policies of the segments are the same as those described in the summary of significant accounting policies (Note 1) in the CSX Annual Report on Form 10-K, except that for segment reporting purposes, CSX includes minority interest expense on the international terminals segment’s joint venture businesses in operating expense. These amounts are reclassified through eliminations in CSX’s consolidated financial statements to other income. Intersegment sales and transfers are generally accounted for as if the sales or transfers were to third parties, at current market prices.

Business segment information for the quarters ended ~~March 28,~~June 27, 2003 and ~~March 29,~~June 28, 2002 is as follows:

Quarter ended ~~March 28,~~June 27, 2003:

	Surface Transportation						International Terminals			Other			Total
(Dollars in Millions)										Other
	Rail		Intermodal		Total		International Terminals		International Terminals			Other			Total		Surface Transportation						International Terminals		Other ⁽¹⁾		Total
	(dollars in millions)								International Terminals			Other		Rail	Total		Intermodal		Total				International Terminals		Other ⁽¹⁾		Total
Revenues from external customers	$	1,531	$	298	$	1,829	$	56		$	131		$	2,016	$	1,573	$	314	$	1,887	$	54	$	1	$	1,942
Intersegment revenues		—		4		4		—			—			4		—		—		—		—		—		—
Segment operating income		147		22		169		15			1			185		232		27		259		17		—		276
Assets		12,663		544		13,207		961			—			14,168		13,530		566		14,096		984		—		15,080

Quarter ended ~~March 29,~~June 28, 2002:

	Surface Transportation						International Terminals			Other			Total
(Dollars in Millions)										Other
	Rail		Intermodal		Total		International Terminals		International Terminals			Other			Total		Surface Transportation						International Terminals		Other ⁽¹⁾		Total
	(dollars in millions)								International Terminals			Other		Rail	Total		Intermodal		Total				International Terminals		Other ⁽¹⁾		Total
Revenues from external customers	$	1,486	$	257	$	1,743	$	58		$	163		$	1,964	$	1,538	$	288	$	1,826	$	58	$	189	$	2,073
Intersegment revenues		—		5		5		—			1			6		—		8		8		—		—		8
Segment operating income		177		17		194		11			1			206		244		49		293		16		9		318
Assets		12,734		437		13,171		895			482			14,548		12,711		496		13,207		929		477		14,613

~~-19-~~20

CSX CORPORATION AND SUBSIDIARIES

ITEM 1: FINANCIAL STATEMENTS

Notes to Consolidated Financial Statements (Unaudited)

NOTE 13. BUSINESS SEGMENTS, Continued

~~Prior to the disposition~~Six Months ended June 27, 2003:

(Dollars in Millions)
	Surface Transportation						International Terminals		Other ⁽¹⁾		Total
	Rail		Intermodal		Total		International Terminals		Other ⁽¹⁾		Total
Revenues from external customers	$	3,104	$	616	$	3,720	$	110	$	128	$	3,958
Intersegment revenues		—		4		4		—		—		4
Segment operating income		379		49		428		32		1		461
Assets		13,530		566		14,096		984		—		15,080

Six Months ended June 28, 2002:

(Dollars in Millions)
	Surface Transportation						International Terminals		Other ⁽¹⁾		Total
	Rail		Intermodal		Total		International Terminals		Other ⁽¹⁾		Total
Revenues from external customers	$	3,024	$	545	$	3,569	$	116	$	352	$	4,037
Intersegment revenues		—		13		13		—		—		13
Segment operating income		421		66		487		27		10		524
Assets		12,711		496		13,207		929		477		14,613

⁽¹⁾

Prior to the conveyance of CSX Lines, it was a segment of CSX and was presented with international terminals on a combined basis, as the Marine Services operations of the Company. Results for CSX Lines are now presented in the other column.

CSX CORPORATION AND SUBSIDIARIES

ITEM 1: FINANCIAL STATEMENTS

Notes to Consolidated Financial Statements (Unaudited)

NOTE 13. BUSINESS SEGMENTS, Continued

A reconciliation of the totals reported for the business segments to the applicable line items in the consolidated financial statements is as follows:

(Dollars in Millions)
	March 28, 2003			March 29, 2002			Quarters Ended					Six Months Ended
	(dollars in millions)						June 27, 2003		June 28, 2002			June 27, 2003			June 28, 2002
Revenues:
Total external revenues for business segments	$	2,016		$	1,964		$	1,942	$	2,073		$	3,958		$	4,037
Intersegment revenues for business segments		4			6			—		8			4			13
Elimination of intersegment revenues		(4	)		(6	)		—		(8	)		(4	)		(13	)

Total consolidated revenues	$	2,016		$	1,964		$	1,942	$	2,073		$	3,958		$	4,037

Operating Income:
Total operating income for business segments	$	185		$	206		$	276	$	318		$	461		$	524
Reclassification of minority interest expense for
International Terminals segment		10			8
Reclassification of minority interest expense for International Terminals segment								9		9			19			17
Unallocated corporate expenses		(18	)		(2	)		—		(6	)		(18	)		(8	)

Total consolidated operating income	$	177		$	212		$	285	$	321		$	462		$	533

Assets:
Assets for Business Segments	$	14,168		$	14,548
Investment in Conrail		4,655			4,656
Elimination of intersegment receivables		(130	)		(231	)
Non-segment assets		2,266			1,869

Total consolidated assets	$	20,959		$	20,842

	June 27, 2003			June 28, 2002
Assets:
Assets for Business Segments	$	15,080		$	14,613
Investment in Conrail		4,658			4,663
Elimination of intersegment receivables		(141	)		(225	)
Non-segment assets		1,942			1,869

Total consolidated assets	$	21,539		$	20,920

~~-20-~~

CSX CORPORATION AND SUBSIDIARIES

ITEM 1: FINANCIAL STATEMENTS

Notes to Consolidated Financial Statements (Unaudited)

NOTE 14. SUMMARIZED CONSOLIDATING FINANCIAL DATA

During 1987, the predecessor company to CSX Lines entered into agreements to sell and lease back by charter three new U.S.-built, U.S.-flag, D-7 class container ships. CSX guaranteed the obligations of CSX Lines pursuant to the related charters which, along with the container ships, serve as collateral for debt securities registered with the Securities and Exchange Commission (“SEC”). On February 27, 2003, CSX conveyed most of its interest in CSX Lines to a new venture. A newly formed CSX subsidiary, CSX Vessel Leasing, will retain certain vessel obligations, with CSX remaining as the guarantor. These ~~obligations~~vessels have been subleased to Horizon. CSX believes that Horizon will fulfill its contractual commitments with respect to such leases and that CSX will have no further liabilities for these obligations. The ~~March 28,~~June 27, 2003 consolidating schedules reflect CSX Vessel Leasing as the obligor, while the ~~March 29,~~June 28, 2002, and December 27, 2002 consolidating schedules reflect CSX Lines as the obligor. In accordance with SEC disclosure requirements, consolidating financial information for the parent and obligor are as follows:

Consolidating Income Statement

CSX Corporation

CSX Vessel Leasing

Other

Eliminations

Consolidated


(millions of dollars)

Quarter ended March 28, 2003

Operating Revenue

$
—


$
—

$
2,049

$
(33
)

$
2,016

Operating Expense


(36
)


—


1,905


(30
)


1,839






Operating Income (Loss)


36



—


144


(3
)


177

Other Income (Expense)


145



—


3


(158
)


(10
)
Interest Expense


91



—


22


(10
)


103






Earnings before Income Taxes and Cumulative Effect of

Accounting Change


90



—


125


(151
)


64

Income Tax Expense (Benefit)


(19
)


—


41


—



22






Earnings Before Cumulative Effect of Accounting Change


109



—


84


(151
)


42

Cumulative Effect of Accounting Change—Net of Tax


—



—


57


—



57






Net Earnings

$
109


$
—

$
141

$
(151
)

$
99

Quarter ended March 29, 2002	CSX Corporation			CSX Lines		Other			Eliminations			Consolidated
(Dollars in Millions)															CSX Corporation			CSX Vessel Leasing		Other		Eliminations			Consolidated
Quarter ended June 27, 2003
Operating Revenue	$	—		$	161	$	1,916		$	(113	)	$	1,964		$	—		$	—	$	1,955	$	(13	)	$	1,942
Operating Expense		(67	)		160		1,769			(110	)		1,752			(40	)		—		1,708		(11	)		1,657

Operating Income (Loss)		67			1		147			(3	)		212			40			—		247		(2	)		285

Other Income (Expense)		48			2		24			(65	)		9			169			1		30		(181	)		19
Interest Expense		100			2		27			(15	)		114			91			—		21		(7	)		105

Earnings before Income Taxes and Cumulative Effect of
Accounting Change		15			1		144			(53	)		107
Earnings before Income Taxes and Cumulative Effect of Accounting Change																118			1		256		(176	)		199
Income Tax Expense (Benefit)		(11	)		1		49			—			39			(17	)		—		89		—			72

Earnings Before Cumulative Effect of Accounting Change		26			—		95			(53	)		68
Cumulative Effect of Accounting Change—Net of Tax		—			—		(43	)		—			(43	)

Net Earnings	$	26		$	—	$	52		$	(53	)	$	25		$	135		$	1	$	167	$	(176	)	$	127


															CSX Corporation			CSX Lines		Other		Eliminations			Consolidated
Quarter ended June 28, 2002
Operating Revenue															$	—		$	189	$	1,995	$	(111	)	$	2,073
Operating Expense																(69	)		180		1,749		(108	)		1,752

Operating Income (Loss)																69			9		246		(3	)		321

Other Income (Expense)																169			2		16		(183	)		4
Interest Expense																103			3		23		(13	)		116

Earnings before Income Taxes																135			8		239		(173	)		209
Income Tax Expense (Benefit)																(11	)		3		82		—			74

Net Earnings															$	146		$	5	$	157	$	(173	)	$	135

~~-21-~~23

CSX CORPORATION AND SUBSIDIARIES

ITEM 1: FINANCIAL STATEMENTS

Notes to Consolidated Financial Statements (Unaudited)

NOTE 14. SUMMARIZED CONSOLIDATING FINANCIAL DATA, Continued

Consolidating ~~Cash Flow~~Income Statement

CSX Corporation

CSX Vessel Leasing

Other

Eliminations

Consolidated


(millions of dollars)

Three Months Ended March 28, 2003

Operating Activities

Net Cash Provided (Used) by Operating Activities

$
(28
)

$


$
132


$
(60
)

$
44

Investing Activities

Property Additions


—



(15
)0


—



(150
)
Short-term Investments—Net


(1
)


—



—



(1
)
Net Proceeds from Divestitures


—



214



—



214

Other Investing Activities


11



(11
)


(32
)


(32
)





Net Cash Provided (Used) by Investing Activities


10



53



(32
)


31






Financing Activities

Short-term Debt-Net


10



2



—



12

Long-term Debt Issued


66



1



—



67

Long-term Debt Repaid


—



(95
)


—



(95
)
Cash Dividends Paid


(22
)


(59
)


60



(21
)
Other Financing Activities


10



45


(93
)


32



(6
)





Net Cash Provided (Used) by Financing Activities


64



45


(244
)


92



(43
)
Net Increase (Decrease) in Cash and Cash Equivalents


46



45


(59
)


—



32

Cash and Cash Equivalents at Beginning of Period


264



—


(137
)


—



127






Cash and Cash Equivalents at End of Period

$
310


$
45

$
(196
)

$
—


$
159

Three Months Ended March 29, 2002

CSX Corporation

CSX Lines

Other

Eliminations

Consolidated

Operating Activities

Net Cash Provided (Used) by Operating Activities

$
103


$
(9
)

$
127


$
(61
)

$
160






Investing Activities

Property Additions


—



(6
)


(156
)


—



(162
)
Short-term Investments-net


(288
)


(3
)


133



—



(158
)
Other Investing Activities


3



(1
)


(1
)


(12
)


(11
)





Net Cash Used by Investing Activities


(285
)


(10
)


(24
)


(12
)


(331
)





Financing Activities

Long-term Debt Issued


450



—



—



—



450

Long-term Debt Repaid


(200
)


—



(67
)


—



(267
)
Cash Dividends Paid


(22
)


—



(52
)


53



(21
)
Other Financing Activities


20



—



(28
)


20



12






Net Cash Provided (Used) by Financing Activities


248



—



(147
)


73



174

Net Increase (Decrease) in Cash and Cash Equivalents


66



(19
)


(44
)


—



3

Cash and Cash Equivalents at Beginning of Period


156



52



(71
)


—



137






Cash and Cash Equivalents at End of Period

$
222


$
33


$
(115
)

$
—


$
140

(Dollars in Millions)	CSX Corporation			CSX Vessel Leasing		Other			Eliminations			Consolidated
Six Months ended June 27, 2003
Operating Revenue	$	—		$	—	$	4,003		$	(45	)	$	3,958
Operating Expense		(77	)		—		3,614			(41	)		3,496

Operating Income (Loss)		77			—		389			(4	)		462

Other Income (Expense)		314			1		33			(339	)		9
Interest Expense		183			—		42			(17	)		208

Earnings before Income Taxes and Cumulative Effect of Accounting Change		208			1		380			(326	)		263
Income Tax Expense (Benefit)		(36	)		—		130			—			94

Earnings Before Cumulative Effect of Accounting Change		244			1		250			(326	)		169
Cumulative Effect of Accounting Change - Net of Tax		—			—		57			—			57

Net Earnings	$	244		$	1	$	307		$	(326	)	$	226


	CSX Corporation			CSX Lines		Other			Eliminations			Consolidated
Six Months ended June 28, 2002
Operating Revenue	$	—		$	350	$	3,911		$	(224	)	$	4,037
Operating Expense		(136	)		340		3,519			(219	)		3,504

Operating Income (Loss)		136			10		392			(5	)		533

Other Income (Expense)		217			4		40			(248	)		13
Interest Expense		203			5		50			(28	)		230

Earnings before Income Taxes and Cumulative Effect of Accounting Change		150			9		382			(225	)		316
Income Tax Expense (Benefit)		(21	)		3		131			—			113

Earnings Before Cumulative Effect of Accounting Change		171			6		251			(225	)		203
Cumulative Effect of Accounting Change - Net of Tax		—			—		(43	)		—			(43	)

Net Earnings	$	171		$	6	$	208		$	(225	)	$	160

~~-22-~~24

CSX CORPORATION AND SUBSIDIARIES

ITEM 1: FINANCIAL STATEMENTS

Notes to Consolidated Financial Statements (Unaudited)

NOTE 14. SUMMARIZED CONSOLIDATING FINANCIAL DATA, Continued

Consolidating Balance Sheet

	CSX Corporation			CSX Vessel Leasing		Other			Eliminations			Consolidated
	(millions of dollars)
March 28, 2003
(Dollars in Millions)															CSX Corporation			CSX Vessel Leasing		Other			Eliminations			Consolidated
June 27, 2003
ASSETS
Current Assets
Cash, Cash Equivalents and Short-term Investments	$	427		$	45	$	(178	)	$	—		$	294		$	1,259		$	45	$	(993	)	$	—		$	311
Accounts Receivable—Net		72			2		867			(94	)		847
Accounts Receivable - Net																38			8		1,323			(150	)		1,219
Materials and Supplies		—			—		187			—			187			—			—		178			—			178
Deferred Income Taxes		—			—		130			—			130			—			—		139			—			139
Other Current Assets		3			—		298			(137	)		164			6			—		316			(137	)		185

Total Current Assets		502			47		1,304			(231	)		1,622			1,303			53		963			(287	)		2,032

Properties		28			—		18,608			—			18,636			29			—		18,863			—			18,892
Accumulated Depreciation		(24	)		—		(5,261	)		—			(5,285	)		(24	)		—		(5,364	)		—			(5,388	)

Properties, net		4			—		13,347			—			13,351
Properties - Net																5			—		13,499			—			13,504
Investment in Conrail		339			—		4,316			—			4,655			337			—		4,321			—			4,658
Affiliates and Other Companies		—			—		501			(34	)		467			—			—		521			(34	)		487
Investment in Consolidated Subsidiaries		12,824			—		396			(13,220	)		—			12,693			—		396			(13,089	)		—
Other Long-term assets		1,209			—		284			(629	)		864			1,262			—		233			(637	)		858

Total Assets	$	14,878		$	47	$	20,148		$	(14,114	)	$	20,959		$	15,600		$	53	$	19,933		$	(14,047	)	$	21,539

LIABILITIES
Current Liabilities
Accounts Payable	$	101		$	—	$	831		$	(93	)	$	839		$	76		$	—	$	838		$	(146	)	$	768
Labor and Fringe Benefits Payable		11			—		381			—			392			17			—		385			—			402
Payable to Affiliates		—			9		128			(137	)		—			—			—		137			(137	)		—
Casualty, Environmental and Other Reserves		1			—		253			—			254			1			—		222			—			223
Current Maturities of Long-term Debt		150			—		212			—			362			450			—		136			—			586
Short-term Debt		150			—		5			—			155			700			—		4			—			704
Income and Other Taxes Payable		1,461			—		(1,362	)		—			99			1,478			—		(1,376	)		—			102
Other Current Liabilities		28			13		101			(1	)		141			28			8		103			(4	)		135

Total Current Liabilities		1,902			22		549			(231	)		2,242			2,750			8		449			(287	)		2,920
Casualty, Environmental and Other reserves		—			—		590			—			590

Long-term Debt		5,584			—		943			—			6,527			5,307			—		897			—			6,204
Deferred Income Taxes		—			—		3,630			—			3,630			—			—		3,715			—			3,715
Casualty, Environmental and Other reserves																—			—		629			—			629
Long-term Payable to Affiliates		396			—		147			(543	)		—			396			—		147			(543	)		—
Other Long-term Liabilities		687			23		1,056			(119	)		1,647			728			42		992			(127	)		1,635

Total Liabilities		8,569			45		6,915			(893	)		14,636			9,181			50		6,829			(957	)		15,103

SHAREHOLDER’S EQUITY
Preferred Stock		—			—		396			(396	)		—			—			—		396			(396	)		—
Common Stock		216			—		209			(209	)		216			215			—		209			(209	)		215
Other Capital		1,549			2		8,280			(8,282	)		1,549			1,554			2		8,050			(8,052	)		1,554
Retained Earnings		4,875			—		4,334			(4,334	)		4,875			4,981			1		4,432			(4,433	)		4,981
Accumulated Other Comprehensive Loss		(331	)		—		14						(317	)		(331	)		—		17			—			(314	)

Total Shareholders’ Equity		6,309			2		13,233			(13,221	)		6,323			6,419			3		13,104			(13,090	)		6,436

Total Liabilities and Shareholders’ Equity	$	14,878		$	47	$	20,148		$	(14,114	)	$	20,959		$	15,600		$	53	$	19,933		$	(14,047	)	$	21,539

~~-23-~~25

CSX CORPORATION AND SUBSIDIARIES

ITEM 1: FINANCIAL STATEMENTS

Notes to Consolidated Financial Statements (Unaudited)

NOTE 14. SUMMARIZED CONSOLIDATING FINANCIAL DATA, Continued

Consolidating Balance Sheet

	CSX Corporation			CSX Lines			Other			Eliminations			Consolidated
	(millions of dollars)
(Dollars in Millions)																CSX Corporation			CSX Lines			Other			Eliminations			Consolidated
December 27, 2002
ASSETS
Current Assets
Cash, Cash Equivalents and Short-term Investments	$	379		$	37		$	(152	)	$	—		$	264		$	379		$	37		$	(152	)	$	—		$	264
Accounts Receivable—Net		43			—			902			(146	)		799
Accounts Receivable - Net																	43			—			902			(146	)		799
Materials and Supplies		—			—			180			—			180			—			—			180			—			180
Deferred Income Taxes		—			—			128			—			128			—			—			128			—			128
Assets Held For Disposition		—			263			—			—			263
Domestic Container-Shipping Assets Held For Disposition																	—			263			—			—			263
Other Current Assets		5			—			287			(137	)		155			5			—			287			(137	)		155

Total Current Assets		427			300			1,345			(283	)		1,789			427			300			1,345			(283	)		1,789

Properties		33			11			18,516			—			18,560			33			11			18,516			—			18,560
Accumulated Depreciation		(29	)		(2	)		(5,243	)		—			(5,274	)		(29	)		(2	)		(5,243	)		—			(5,274	)

Properties, net		4			9			13,273			—			13,286
Properties - Net																	4			9			13,273			—			13,286

Investment in Conrail		342			—			4,311			—			4,653			342			—			4,311			—			4,653
Affiliates and Other Companies		—			—			414			(33	)		381			—			—			414			(33	)		381
Investment in Consolidated Subsidiaries		12,761			—			396			(13,157	)		—			12,761			—			396			(13,157	)		—
Other Long-term assets		1,192			—			273			(623	)		842			1,192			—			273			(623	)		842

Total Assets	$	14,726		$	309		$	20,012		$	(14,096	)	$	20,951		$	14,726		$	309		$	20,012		$	(14,096	)	$	20,951

LIABILITIES
Current Liabilities
Accounts Payable	$	77		$	20		$	848		$	(143	)	$	802		$	77		$	20		$	848		$	(143	)	$	802
Labor and Fringe Benefits Payable		49			11			397			—			457			49			11			397			—			457
Payable to Affiliates		—			—			137			(137	)		—			—			—			137			(137	)		—
Casualty, Environmental and Other Reserves		1			—			245			—			246			1			—			245			—			246
Current Maturities of Long-term Debt		150			—			241			—			391			150			—			241			—			391
Short-term Debt		140			—			3			—			143			140			—			3			—			143
Liabilities Held For Disposition		—			104			—			—			104
Domestic Container-Shipping Liabilities Held For Disposition																	—			104			—			—			104
Income and Other Taxes Payable		1,458			9			(1,284	)		(39	)		144			1,458			9			(1,284	)		(39	)		144
Other Current Liabilities		28			4			99			36			167			28			4			99			36			167

Total Current Liabilities		1,903			148			686			(283	)		2,454			1,903			148			686			(283	)		2,454
Casualty, Environmental and Other reserves		4			1			599			—			604

Long-term Debt		5,510			—			1,009			—			6,519			5,510			—			1,009			—			6,519
Deferred Income Taxes		—			3			3,564			—			3,567			—			3			3,564			—			3,567
Casualty, Environmental and Other reserves																	4			1			599			—			604
Long-term Payable to Affiliates		396			—			148			(544	)		—			396			—			148			(544	)		—
Other Long-term Liabilities		685			49			925			(93	)		1,566			685			49			925			(93	)		1,566

Total Liabilities		8,498			201			6,931			(920	)		14,710			8,498			201			6,931			(920	)		14,710

SHAREHOLDER’S EQUITY
Preferred Stock		—			—			396			(396	)		—			—			—			396			(396	)		—
Common Stock		215			—			209			(209	)		215			215			—			209			(209	)		215
Other Capital		1,547			73			8,238			(8,311	)		1,547			1,547			73			8,238			(8,311	)		1,547
Retained Earnings		4,797			35			4,225			(4,260	)		4,797			4,797			35			4,225			(4,260	)		4,797
Accumulated Other Comprehensive Loss		(331	)		—			13						(318	)		(331	)		—			13						(318	)

Total Shareholders’ Equity		6,228			108			13,081			(13,176	)		6,241			6,228			108			13,081			(13,176	)		6,241

Total Liabilities and Shareholders’ Equity	$	14,726		$	309		$	20,012		$	(14,096	)	$	20,951		$	14,726		$	309		$	20,012		$	(14,096	)	$	20,951

~~-24-~~26

CSX CORPORATION AND SUBSIDIARIES

ITEM 1: FINANCIAL STATEMENTS

Notes to Consolidated Financial Statements (Unaudited)

NOTE 14. SUMMARIZED CONSOLIDATING FINANCIAL DATA, Continued

Consolidating Cash Flow Statements

(Dollars in Millions)
	CSX Corporation			CSX Vessel Leasing			Other			Eliminations			Consolidated
Six Months Ended June 27, 2003
Operating Activities
Net Cash Provided (Used) by Operating Activities	$	26		$	—		$	60		$	(121	)	$	(35	)

Investing Activities
Property Additions		—			—			(479	)		—			(479	)
Net Proceeds from Divestitures		214			—			—			—			214
Other Investing Activities		24			—			217			(261	)		(20	)

Net Cash Provided (Used) by Investing Activities		238			—			(262	)		(261	)		(285	)

Financing Activities
Short-term Debt-Net		560			—			1			—			561
Long-term Debt Issued		82			—			1			—			83
Long-term Debt Repaid		—			—			(218	)		—			(218	)
Cash Dividends Paid		(44	)		—			(119	)		120			(43	)
Other Financing Activities		15			45			(338	)		262			(16	)

Net Cash Provided (Used) by Financing Activities		613			45			(673	)		382			367

Net Increase (Decrease) in Cash and Cash Equivalents		877			45			(875	)		—			47
Cash and Cash Equivalents at Beginning of Period		264			—			(137	)		—			127

Cash and Cash Equivalents at End of Period	$	1,141		$	45		$	(1,012	)	$	—		$	174


	CSX Corporation			CSX Lines			Other			Eliminations			Consolidated
Six Months Ended June 28, 2002
Operating Activities
Net Cash Provided (Used) by Operating Activities	$	117		$	(45	)	$	559		$	(120	)	$	511

Investing Activities
Property Additions		(4	)		(13	)		(414	)		—			(431	)
Short-term Investments-net		(138	)		(1	)		137			—			(2	)
Other Investing Activities		—			25			(9	)		(12	)		4

Net Cash Provided (Used) by Investing Activities		(142	)		11			(286	)		(12	)		(429	)

Financing Activities
Short-term Debt - Net		575			—			1			—			576
Long-term Debt Issued		473			—			1			—			474
Long-term Debt Repaid		(850	)		—			(141	)		—			(991	)
Dividends Paid		(43	)		—			(105	)		105			(43	)
Other Financing Activities		29			—			(41	)		28			16

Net Cash Provided (Used) by Financing Activities		184			—			(285	)		133			32

Net Increase (Decrease) in Cash and Cash Equivalents		159			(34	)		(12	)		1			114
Cash and Cash Equivalents at Beginning of Period		156			52			(71	)		—			137

Cash and Cash Equivalents at End of Period	$	315		$	18		$	(83	)	$	1		$	251

CSX CORPORATION AND SUBSIDIARIES

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS

OF OPERATIONS AND FINANCIAL CONDITION

RESULTS OF OPERATIONS

CSX follows a 52/53-week fiscal reporting calendar. Fiscal years 2003 and 2002 consist of 52 weeks ending on December 26, 2003 and December 27, 2002, respectively. The financial statements presented are for the 13-week quarters and six months ended ~~March 28,~~June 27, 2003 and ~~March 29,~~June 28, 2002, and as of December 27, 2002.

Quarter ended June 27, 2003 Compared to June 28, 2002

Consolidated Results

Operating Revenue

Operating revenue ~~increased $52~~decreased $131 million to $1,942 million in the quarter ended ~~March 28,~~June 27, 2003, ~~from~~as compared to the ~~quarter ended March 29, 2002.~~2002 quarter. Surface Transportation revenue increased ~~$85~~$53 million quarter-over-quarter, but was offset by the elimination of revenue from the domestic container-shipping business as a majority of CSX’s interest in CSX Lines was conveyed during the first quarter of 2003 (See Note 3, Divestitures).

Operating Income

Operating income for the quarter ended June 27, 2003 was down $36 million to $285 million, compared to $321 million in the 2002 quarter. The decline is a result of increased operating expenses at the Surface Transportation Segments, primarily due to increased fuel prices, and labor and fringe benefit expense.

Other Income (Expense)

Other income increased $15 million in the second quarter of 2003, as compared to the same period of the prior year. The increase is primarily the result of the gain on a significant real estate transaction during the current year quarter.

Interest Expense

Interest expense decreased $11 million in the quarter ended June 27, 2003, as compared to the prior year quarter. Lower interest rates on floating rate debt and the favorable impact of interest rate swaps (see Note 9, Derivative Financial Instruments) continue to benefit the Company.

Net Earnings

Net earnings was $127 million, or 59 cents per share, in the quarter ended June 27, 2003, compared to $135 million, or 63 cents per share for the same period of the prior year.

CSX CORPORATION AND SUBSIDIARIES

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS

OF OPERATIONS AND FINANCIAL CONDITION

Segment Results

The following tables provide a detail of operating revenue and expense by segment:

(Dollars in Millions) (Unaudited)⁽¹⁾

Quarters Ended June 27, 2003 and June 28, 2002

	Rail						Intermodal						Surface Transportation						International Terminals						Eliminations/ Other⁽²⁾						Total
	2003			2002			2003			2002			2003			2002			2003			2002			2003			2002			2003			2002
Operating Revenue	$	1,573		$	1,538		$	314		$	296		$	1,887		$	1,834		$	54		$	58		$	1		$	181		$	1,942		$	2,073
Operating Expense
Labor and Fringe		645			625			18			16			663			641			13			15			1			57			677			713
Materials, Supplies and Other		331			325			47			44			378			369			16			18			2			64			396			451
Conrail		87			79			—			—			87			79			—			—			—			—			87			79
Building and Equipment Rent		92			107			39			33			131			140			2			2			(3	)		12			130			154
Inland Transportation		(98	)		(92	)		175			146			77			54			2			1			—			22			79			77
Depreciation		148			138			8			8			156			146			2			2			2			7			160			155
Fuel		136			112			—			—			136			112			—			—			—			16			136			128
Miscellaneous		—			—			—			—			—			—			2			4			(10	)		(9	)		(8	)		(5	)

Total Operating Expense		1,341			1,294			287			247			1,628			1,541			37			42			(8	)		169			1,657			1,752

Operating Income	$	232		$	244		$	27		$	49		$	259		$	293		$	17		$	16		$	9		$	12		$	285		$	321

Operating Ratio		85.3	%		84.1	%		91.4	%		83.4	%		86.3	%		84.0	%		68.5	%		72.4	%

*Six Months Ended June 27, 2003 and June 28, 2002*

	Rail						Intermodal						Surface Transportation						International Terminals						Eliminations/ Other⁽²⁾						Total
	2003			2002			2003			2002			2003			2002			2003			2002			2003			2002			2003			2002
Operating Revenue	$	3,104		$	3,024		$	616		$	558		$	3,720		$	3,582		$	110		$	116		$	128		$	339		$	3,958		$	4,037
Operating Expense
Labor and Fringe		1,293			1,265			37			33			1,330			1,298			26			31			60			110			1,416			1,439
Materials, Supplies and Other		670			649			96			85			766			734			35			40			49			119			850			893
Conrail		173			166			—			—			173			166			—			—			—			—			173			166
Building and Equipment Rent		199			209			70			64			269			273			4			4			3			25			276			302
Inland Transportation		(197	)		(178	)		348			295			151			117			4			3			16			43			171			163
Depreciation		293			276			16			15			309			291			4			4			4			12			317			307
Fuel		294			216			—			—			294			216			—			—			15			28			309			244
Miscellaneous		—			—			—			—			—			—			5			7			(21	)		(17	)		(16	)		(10	)

Total Operating Expense		2,725			2,603			567			492			3,292			3,095			78			89			126			320			3,496			3,504

Operating Income	$	379		$	421		$	49		$	66		$	428		$	487		$	32		$	27		$	2		$	19		$	462		$	533

Operating Ratio		87.8	%		86.1	%		92.0	%		88.2	%		88.5	%		86.4	%		70.9	%		76.7	%

(1)

Prior periods have been reclassified to conform to the current presentation.

(2)

Eliminations / Other consists of the following:

(a)

Reclassification of International Terminals minority interest expense

(b)

Operations of CSX Lines and gain amortization

(c)

Expenses related to the 2003 retirement of the Company’s former Chairman and Chief Executive Officer

(d)

Other items

CSX CORPORATION AND SUBSIDIARIES

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS

OF OPERATIONS AND FINANCIAL CONDITION

Surface Transportation Results

The following tables provide Surface Transportation carload and revenue data by service group and commodity:

Quarters ended June 27, 2003 and June 28, 2002

	Carloads (Thousands)				Revenue (Dollars in Millions)
	2003	2002	*% Change*		2003		2002		*% Change*
Merchandise
Phosphates and Fertilizer	113	119	(5	) %	$	85	$	83	2	%
Metals	87	80	9			108		100	8
Forest and Industrial Products	153	152	1			207		197	5
Agricultural and Food	113	110	3			165		159	4
Chemicals	134	140	(4	)		244		246	(1	)
Emerging Markets	125	115	9			118		107	10


Total Merchandise	725	716	1			927		892	4

Automotive	139	148	(6	)		224		231	(3	)

Coal, Coke & Iron Ore
Coal	400	391	2			401		380	6
Coke and Iron Ore	18	18	—			15		19	(21	)

Total Coal, Coke & Iron Ore	418	409	2			416		399	4

Other	—	—	—			6		16	(63	)

Total Rail	1,282	1,273	1			1,573		1,538	2

Intermodal
Domestic	265	242	10			192		168	14
International	300	295	2			121		124	(2	)
Other	—	—	—			1		4	(75	)

Total Intermodal	565	537	5			314		296	6

Total Surface Transportation	1,847	1,810	2	%	$	1,887	$	1,834	3	%

CSX CORPORATION AND SUBSIDIARIES

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS

OF OPERATIONS AND FINANCIAL CONDITION

Six Months ended June 27, 2003 and June 28, 2002

	Carloads (Thousands)				Revenue (Dollars in Millions)
	2003	2002	% Change		2003		2002		% Change
Merchandise
Phosphates and Fertilizer	230	238	(3	)%	$	172	$	172	—	%
Metals	175	157	11			218		198	10
Forest and Industrial Products	301	296	2			402		386	4
Agricultural and Food	227	225	1			332		325	2
Chemicals	272	275	(1	)		495		484	2
Emerging Markets	226	208	9			230		195	18

Total Merchandise	1,431	1,399	2			1,849		1,760	5

Automotive	270	277	(3	)		432		431	—

Coal, Coke & Iron Ore
Coal	773	784	(1	)		771		761	1
Coke and Iron Ore	30	30	—			28		35	(20	)

Total Coal, Coke & Iron Ore	803	814	(1	)		799		796	—

Other	—	—	—			24		37	(35	)

Total Rail	2,504	2,490	1			3,104		3,024	3

Intermodal
Domestic	512	462	11			375		320	17
International	579	556	4			234		234	—
Other	—	—	—			7		4	75

Total Intermodal	1,091	1,018	7			616		558	10

Total Surface Transportation	3,595	3,508	2	%	$	3,720	$	3,582	4	%

CSX CORPORATION AND SUBSIDIARIES

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS

OF OPERATIONS AND FINANCIAL CONDITION

Rail

Operating Revenue

Rail revenue increased $35 million, or 2% in the quarter ended June 27, 2003, as compared to the quarter ended June 28, 2002.

Merchandise

Merchandise revenue in the second quarter of 2003 was up 4% on 1% volume growth as compared to the 2002 quarter. All markets realized increased revenue except chemicals, which was negatively impacted by high oil and natural gas prices and weak demand. Emerging markets showed the greatest improvement due to continued growth in waste and military shipments. Modal conversions contributed to revenue increases in metals and forest and industrial products.

Automotive

Automotive revenue decreased $7 million or 3%. Vehicle production declined 9% versus 2002. Haul extensions on existing business, and new business activities partially mitigated the impact of reduced vehicle production.

Coal, Coke and Iron Ore

Coal, coke and iron ore revenue increased 4% quarter-over-quarter on 2% volume growth. Strong utility demand and modal conversion initiatives drove performance. Favorable yield was due to improved mix and continued pricing success.

Operating Expense

•

Labor and Fringe expenses were up $20 million in the second quarter of 2003, as compared to the prior year quarter. The effects of inflation continue to drive labor and fringe expense increases, while greater labor needs associated with diminished network fluidity and volume increased expenses. Costs related to variable deferred compensation plans tied to market performance also contributed to the quarter-over-quarter increase.

•

Materials, Supplies and Other increased $6 million period-over-period. Increased occupational and personal injury claims, including a charge relating to new asbestos claims filed in West Virginia during the second quarter of 2003, were primary drivers of the increase. These increases were offset, in part, by favorable resolution of property tax litigation in the state of New York.

•

Conrail expenses increased $8 million in the second quarter as compared to the prior year period due primarily to less favorable claims experience on personal injury and occupational reserves and increased usage charges on the Shared Asset Areas.

CSX CORPORATION AND SUBSIDIARIES

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS

OF OPERATIONS AND FINANCIAL CONDITION

Rail, Continued

•

Building and Equipment Rent decreased $15 million quarter-over-quarter because of favorable mix and due to renegotiated carhire rates which more than offset unfavorable utilization due to the network fluidity decline.

•

Depreciation expense increased $10 million in the second quarter, as compared to the same period of 2002. The increase is primarily due to property additions, but was also negatively impacted by higher depreciation rates resulting from an asset life study. These increases were somewhat offset by a decrease in the depreciation of crossties due to the adoption of SFAS 143 in the first quarter of 2003.

•

Fuel expense increased $24 million quarter-over-quarter. Fuel prices increased expense by $23 million, but the net impact on operating income was $12 million, as $11 million in fuel surcharges were billed to customers.

Operating Income

Operating income decreased $12 million, or 5% quarter-over-quarter to $232 million in the second quarter of 2003, compared to $244 million in 2002.

Intermodal

Operating Revenue

Intermodal revenue increased $18 million in the quarter ended June 27, 2003, as compared to the same quarter of the prior year. Improvement is attributed to the domestic business, which experienced double digit growth, attributed to transloading of international container imports into domestic equipment, new 53-foot containers, and strength in load board volumes.

Operating Expense

Intermodal operating expense increased $40 million, or 16% compared to the prior year quarter. The prior quarter included a favorable $15 million contract settlement. The remaining increase is due primarily to increased volume, and was also affected by volume, traffic mix and inflationary factors.

Operating Income

Operating income decreased to $27 million in the second quarter of 2003, compared to $49 million in the prior year quarter. The decrease is attributed to cost increases offsetting the benefit of increased revenues as well as the prior year favorable $15 million contract settlement.

CSX CORPORATION AND SUBSIDIARIES

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS

OF OPERATIONS AND FINANCIAL CONDITION

International Terminals Results

Operating Revenue

Revenue decreased $4 million, or 7% to $54 million for the 2003 quarter, compared to $58 million in the prior year quarter, primarily due to the discontinuance of transpacific operations by one of Hong Kong’s major customers.

Operating Expense

Expense decreased $5 million to $37 million for the second quarter, compared to $42 million for the 2002 quarter. Reduced labor and fringe and materials, supplies and other costs were also due to reduced volume at its Hong Kong operations.

Operating Income

Operating income increased $1 million for the 2003 quarter, as compared to the 2002 quarter as strong performance in several operating units and aggressive cost focus more than offset the revenue decline in Hong Kong.

Six Months ended June 27, 2003 Compared to June 28, 2002

Consolidated Results

Operating Revenue

Operating revenue decreased $79 million for the six months ended June 27, 2003, as compared to the six months ended 2002. The majority of the decline results from a reduction of revenue ~~from~~in the domestic container-shipping segment as a majority of CSX’s interest in CSX Lines was conveyed during the first quarter ~~(see~~of 2003 (See Note 3, Divestitures).

Operating Income

Operating income for the six months ended June 27, 2003 was ~~$177~~down $71 million to $462 million, compared to $533 million for the ~~quarter ended March 28, 2003, as compared to $212 million for~~same period of the prior ~~year quarter.~~year. The ~~$35 million~~ decrease ~~is a result of~~resulted primarily from increased ~~operating expenses, primarily~~costs at the ~~rail segment, from~~Surface Transportation segments, which reflected increased fuel prices, ~~and~~ abnormally harsh winter weather ~~that burdened operations~~ during the first quarter ~~of 2003. The quarter ended March 28, 2003 was also impacted by~~and increased liabilities for personal injury and occupational claims. Also affecting operating income were $16 million in expenses relating to the retirement of ~~John Snow,~~ the Company’s former Chairman and Chief Executive ~~Officer, to become Secretary of the Treasury for the United States.~~Officer.

Other Income (Expense)

Other income decreased ~~$19~~$4 million to ~~a net expense~~$9 million for the six months ended June 27, 2003, compared to $13 million for the same period of ~~$10 million in~~ the ~~quarter ended March 28, 2003. Income~~prior year. The decline primarily results from real estate ~~and resort operations was down $31 million, primarily due to a large real estate transaction that was completed~~gains in the 2002 six-month period being larger than those during the ~~first quarter of 2002. This decrease was offset by lower losses primarily relating to equity investments.~~2003 period.

CSX CORPORATION AND SUBSIDIARIES

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS

OF OPERATIONS AND FINANCIAL CONDITION

Interest Expense

Interest expense ~~was down $11~~decreased $22 million infor the ~~first quarter of~~six months ended June 27, 2003, as compared to the ~~prior-year quarter, primarily from the impact of lower~~prior year period. Lower interest rates on ~~floating-rate~~floating rate debt and the favorable impact of interest rate swaps (see ~~note~~Note 9, Derivative Financial Instruments). continue to benefit the Company.

Net Earnings

~~CSX reported net~~Net earnings was $226 million, or $1.05 per share, for the ~~quarter~~six months ended ~~March 28,~~June 27, 2003, ~~of $99~~compared to $160 million, 46or 75 cents per share ~~compared with $25~~for the same period of the prior year. The six months ended June 27, 2003 included a cumulative effect of accounting change benefit of $57 million, 12or 26 cents per share, inwhile the ~~quarter ended March 29, 2002.~~

~~CSX CORPORATION AND SUBSIDIARIES~~

~~ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS~~

~~OF OPERATIONS AND FINANCIAL CONDITION~~comparable period of the prior year included an unfavorable charge of $43 million, or 20 cents per share.

~~RESULTS OF OPERATIONS, Continued~~Earnings before the cumulative effect of accounting changes were $169 million and $203 million for the six months ended June 27, 2003 and June 28, 2002, respectively.

~~Consolidated Results, Continued~~Divestitures

In ~~2001, SFAS~~February 2003, CSX conveyed most of its interest in its domestic container-shipping subsidiary, CSX Lines LLC (“CSX Lines”), to a new venture formed with the Carlyle Group for approximately $300 million (gross cash proceeds of approximately $240 million, $214 million net of transaction costs and $60 million of securities). CSX Lines was subsequently renamed Horizon Lines LLC (“Horizon”). Horizon has subleased equipment from certain affiliates of CSX covering the primary financial obligations related to $319 million of vessel and equipment leases under which CSX or one of its affiliates will remain a lessee or guarantor. A deferred pretax gain of approximately $127 million as a result of the transaction will be recognized over the 12 year sub-lease term. Approximately $3 million of this gain was recognized in the second quarter, with $4 million being recognized year to date. The $60 million of securities have a term of 7 years and a preferred return feature. CSX will account for the investment under the cost method.

New Accounting Pronouncements and Cumulative Effect of Accounting Change

Statement of Financial Accounting Standard (“SFAS”) 143, “Accounting for Asset Retirement Obligations” was ~~issued.~~issued in 2001. This statement addresses financial accounting and reporting for legal obligations associated with the retirement of tangible long-lived assets and the associated retirement costs. In conjunction with the group-life method of accounting for asset costs, the Company historically accrued crosstie removal costs as a component of depreciation, which is not permitted under SFAS 143. With the adoption of SFAS 143 in ~~the first quarter of~~fiscal year 2003, CSX recorded pretax income of $93 million, $57 million after tax, or 26 cents per share, as a cumulative effect of an accounting change in the first quarter, representing the reversal of the accrued liability for crosstie removal costs. The adoption of SFAS 143 did not have a material effect on prior reporting periods, and the Company does not believe it will have a material effect on future earnings. On an ongoing basis, depreciation expense will be reduced, while labor and fringe and materials, supplies and other expense will be increased.

CSX CORPORATION AND SUBSIDIARIES

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS

OF OPERATIONS AND FINANCIAL CONDITION

New Accounting Pronouncements and Cumulative Effect of Accounting Change, Continued

SFAS 148, “Accounting for Stock-Based Compensation – Transition and Disclosure” was issued in December 2002. SFAS 148 amends SFAS 123, “Accounting for Stock-Based Compensation,” to provide alternative methods of transition to Statement 123’s fair value method of accounting for stock-based employee compensation and require disclosure of the effects of an entity’s accounting policy with respect to stock-based employee compensation. Effective beginning with fiscal year 2003, CSX has voluntarily adopted the fair value recognition provisions of SFAS 123, “Accounting for Stock-Based Compensation,” and adopted the disclosure requirements of SFAS 148, “Accounting for Stock-Based Compensation – Transition and Disclosure – an amendment of SFAS 123.” In ~~2001,~~ accordance with the prospective method of adoption permitted under SFAS 148, stock-based awards issued subsequent to fiscal year 2002 are accounted for under the fair value recognition provisions of SFAS 123 utilizing the Black-Scholes valuation method and, accordingly, are expensed. (See Note 10, Stock Based Compensation)

SFAS 142, “Goodwill and Other Intangible Assets,” was ~~issued.~~issued in 2001. Under the provisions of SFAS 142, goodwill and other indefinite lived intangible assets are no longer amortized, but are reviewed for impairment on a periodic basis. The Company adopted this standard inat the ~~first quarter~~beginning of fiscal year 2002, and incurred a pretax charge of $83 million, $43 million after tax and consideration of minority interest, 20 cents per share, as a cumulative effect of an accounting change, which represents the difference between book value and the fair value of indefinite lived intangible assets. These indefinite lived intangible assets are permits and licenses that the Company holds relating to a proposed pipeline to transfer natural gas from Alaska’s north slope to the port in Valdez, Alaska. The fair value was determined using a discount method of projected future cash flows relating to these assets. The carrying value of these assets is now approximately $3 million. The adoption of SFAS 142 did not have a material effect on prior reporting periods, and it ~~will~~does not have a material effect on future earnings.

Earnings before the cumulative effect of accounting changes were $42 million and $68 million for the quarters ended March 28, 2003 and March 29, 2002, respectively. This $26 million decrease results primarily from the decrease in operating income and other income, partially offset by a decrease in income tax expense.

~~Divestitures~~

On February 27, 2003, CSX conveyed most of its interest in its domestic container-shipping subsidiary, CSX Lines, to a new venture formed with the Carlyle Group for approximately $300 million (gross cash proceeds of approximately $240 million, $214 million net of transaction costs, and $60 million of securities). CSX Lines was subsequently renamed Horizon Lines LLC (“Horizon”). Horizon has subleased equipment from CSX covering CSX’s primary financial obligations related to $319 million of vessel and equipment leases under which CSX will remain a lessee. A deferred pretax gain of approximately $127 million as a result of the transaction will be recognized over the 12 year sub-lease term. Less than $1 million of this gain was recognized in the first quarter. The $60 million of securities have a term of 7 years and a preferred return feature. CSX will account for the investment under the cost method.

~~CSX CORPORATION AND SUBSIDIARIES~~

~~ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS~~

~~OF OPERATIONS AND FINANCIAL CONDITION~~

~~RESULTS OF OPERATIONS, Continued~~

~~Segment Results~~

~~The following table provides a detail of operating revenue and expense by segment:~~

~~Quarters Ended March 28, 2003 and March 29, 2002~~⁽¹⁾

~~(Dollars in Millions) (Unaudited)~~

Rail

Intermodal

Surface Transportation

International Terminals

Eliminations/ Other (2)

Total


2003

2002

2003

2002

2003

2002

2003

2002

2003

2002

2003

2002

Operating Revenue

$
1,531


$
1,486


$
302


$
262


$
1,833


$
1,748


$
56


$
58


$
127


$
158


$
2,016


$
1,964

Operating Expense

Labor and Fringe


648



640



19



17



667



657



13



16



59



57



739



730

Materials, Supplies and Other


339



324



49



41



388



365



19



22



47



51



454



438

Conrail


86



87



—



—



86



87



—



—



—



—



86



87

Building and Equipment Rent


107



102



31



31



138



133



2



2



6



13



146



148

Inland Transportation


(99
)


(86
)


173



149



74



63



2



2



16



21



92



86

Depreciation


145



138



8



7



153



145



2



2



2



5



157



152

Fuel


158



104



—



—



158



104



—



—



15



12



173



116

Miscellaneous


—



—



—



—



—



—



3



3



(11
)


(8
)


(8
)


(5
)












Total Operating Expense


1,384



1,309



280



245



1,664



1,554



41



47



134



151



1,839



1,752













Operating Income

$
147


$
177


$
22


$
17


$
169


$
194


$
15


$
11


$
(7
)

$
7


$
177


$
212

Operating Ratio


90.4
%


88.1
%


92.7
%


93.5
%


90.8
%


88.9
%


73.2
%


81.0
%

~~(1)~~

~~Prior periods have been reclassified to conform to the current presentation.~~

~~(2)~~

~~Eliminations/Other consists of the following:~~

Operating Income


2003

2002

(a) expenses related to the retirement of John Snow, the Company’s former Chairman and Chief Executive Officer

(16
)

—

(b) the reclassification of international terminals minority interest expense

10


8

(c) the operations of CSX Lines through Feb. 27, 2003, when it was conveyed to a new entity, and gain amortization on the conveyance

2


1

(d) other items

(3
)

(2
)


Total

(7
)

7

~~CSX CORPORATION AND SUBSIDIARIES~~

~~ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS~~

~~OF OPERATIONS AND FINANCIAL CONDITION~~

~~RESULTS OF OPERATIONS, Continued~~

~~Surface Transportation Results~~

~~The following table provides Surface Transportation carload and revenue data by service group and commodity for the quarters ended March 28, 2003 and March 29, 2002:~~

Carloads
(Thousands)

Revenue
(Dollars in Millions)


2003

2002

%Change

2003

2002

%Change

Merchandise

Phosphates and Fertilizer

117

119

(2
)%

$
87

$
89

(2
)%
Metals

88

77

14
%


110


98

12
%
Forest and Industrial Products

148

144

3
%


195


189

3
%
Agricultural and Food

114

115

(1
)%


167


166

1
%
Chemicals

138

135

2
%


251


238

5
%
Emerging Markets

101

93

9
%


112


88

27
%






Total Merchandise

706

683

3
%


922


868

6
%
Automotive

131

129

2
%


208


200

4
%
Coal, Coke & Iron Ore

Coal

373

393

(5
)%


370


381

(3
)%
Coke and Iron Ore

12

12

—
%


13


16

(19
)%






Total Coal, Coke & Iron Ore

385

405

(5
)%


383


397

(4
)%
Other

—

—

—
%


18


21

(14
)%






Total Rail

1,222

1,217

—
%


1,531


1,486

3
%






Intermodal

Domestic

247

220

12
%


183


152

20
%
International

279

261

7
%


113


110

3
%
Other

—

—

—
%


6


—

NM







Total Intermodal

526

481

9
%


302


262

15
%






Total Surface Transportation

1,748

1,698

3
%

$
1,833

$
1,748

5
%

~~CSX CORPORATION AND SUBSIDIARIES~~

~~ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS~~

~~OF OPERATIONS AND FINANCIAL CONDITION~~

~~RESULTS OF OPERATIONS, Continued~~

~~Rail~~

~~Operating Revenue~~

~~Rail revenue increased $45 million in the quarter ended March 28, 2003, as compared to the quarter ended March 29, 2002.~~

~~Merchandise~~

Overall merchandise revenues were up 6 percent on 3 percent volume growth. Emerging markets, chemicals, metals and forest and industrial products’ revenue levels increased over the prior year quarter, while phosphates and fertilizers had a slight decrease. The positive performance in emerging markets was driven by continued strength in military shipments during the first quarter of 2003.

~~Automotive~~

Automotive revenues grew $8 million or 4% over the prior year quarter. Growth was driven by increased vehicle production while extended linehauls resulted in yield improvements. Light truck and remarketed vehicles revenues are up year over year due to shifts to sports utility and crossover vehicles and aggressive manufacturer incentives.

~~Coal~~

Coal revenues were down $11 million or 3 percent from prior year. Abnormally harsh winter weather adversely affected lake loadings, as lakes were frozen and, therefore, inaccessible. Additionally, weakness in exports continued due to the reduced competitive standing of United States coal in the international market. These two factors more than offset the strength in utility coal shipments that occurred in the latter part of the quarter.

~~Operating Expense~~

Operating expenses increased to $1.4 billion from $1.3 billion for the quarters ended March 28, 2003 and March 29, 2002, respectively. The $75 million increase was primarily due to higher fuel prices, operational inefficiencies due to severe winter weather during 2003, and increased personal injury claims.

~~Labor and Fringe~~ expenses were up $8 million in the first quarter of 2003 versus prior year. The Company experienced higher crew costs during the first quarter of 2003 due to inflation, higher volumes and costs related to the slowdown of the network caused by weather issues during the quarter. Expenses were also affected upon the adoption of SFAS 143 by the inclusion of approximately $2 million of costs relating to the removal of retired crossties, which were previously provided for through depreciation expense.

~~Materials, Supplies and Other~~ expenses increased $15 million period over period, primarily due to increased personal injuries and derailments and other costs relating to the weather in the first quarter of 2003. Expenses were also affected, upon the adoption of SFAS 143 by the inclusion of approximately $2 million of costs relating to the removal of retired crossties from the system that were previously provided for through depreciation expense.

~~CSX CORPORATION AND SUBSIDIARIES~~

~~ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS~~

~~OF OPERATIONS AND FINANCIAL CONDITION~~

~~RESULTS OF OPERATIONS, Continued~~

~~Rail, Continued~~

~~Conrail~~ ~~expenses were relatively flat, decreasing $1 million quarter-over-quarter to $86 million in 2003.~~

~~Building and Equipment Rent~~ ~~increased $5 million, primarily due to increased car hire expenses caused partially by the network slowdown relating to abnormally harsh winter weather.~~

~~Depreciation~~ expense increased $7 million dollars net, primarily due to asset additions. Reductions in depreciation expense relating to the discontinuation of accruals for the removal of crossties upon the adoption of SFAS 143 were offset by the impact of reductions of certain asset lives as part of a group depreciation life study.

~~Fuel~~ expenses were up significantly in the first quarter of 2003 as compared to 2002. Fuel prices increased expense by $50 million, but the net impact on operating income was $44, since $6 million in fuel surcharges were billed to customers. The remaining $4 million increase was the result of volume and efficiency issues related to the severe winter weather during the first quarter of 2003.

~~Operating Income~~

Operating income was $147 million for the quarter ended March 28, 2003, as compared to $177 million for the quarter ended March 29, 2002. This $30 million decrease resulted from the large increase in fuel and other operating expenses more than offsetting the benefit of higher revenues.

~~Intermodal~~

~~Operating Revenue~~

Intermodal operating revenues increased $40 million in the quarter ended March 28, 2003, as compared to the quarter ended March 29, 2002. Revenue per unit improved due to increased length of haul, a favorable price environment and growth in higher priced door-to-door traffic. The increase in revenue included $7 million of fuel surcharges in 2003.

~~Operating Expense~~

~~Intermodal operating expenses increased $35 million over the prior year quarter, primarily due to increased lift costs and inland transportation charges associated with higher volumes.~~

~~Operating Income~~

~~Intermodal operating income was $22 million for the quarter ended March 28, 2003, as compared to $17 million for the quarter ended March 29, 2002.~~

~~CSX CORPORATION AND SUBSIDIARIES~~

~~ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS~~

~~OF OPERATIONS AND FINANCIAL CONDITION~~

~~RESULTS OF OPERATIONS, Continued~~

~~International Terminals Results~~

~~Operating Revenue~~

International Terminals operating revenue decreased to $56 million for the 2003 quarter, from $58 million in the prior year quarter. This decrease was primarily a result of the discontinuance from the Transpacific trade by one of the major Hong Kong customers.

~~Operating Expense~~

Operating expenses decreased to $41 million for the quarter, from $47 million in the prior year quarter, due to cost reduction initiatives implemented during the second half of 2002 and decreased volumes.

~~Operating Income~~

~~Operating income increased to $15 million for the quarter, from $11 million for the prior year quarter.~~

~~CSX CORPORATION AND SUBSIDIARIES~~

~~ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS~~

~~OF OPERATIONS AND FINANCIAL CONDITION~~

LIQUIDITY AND CAPITAL RESOURCES

Cash, cash equivalents and ~~short-term~~short term investments ~~totaled $294~~increased $47 million ~~at March 28, 2003, an increase of $30~~to $311, from $264 million ~~since~~at December 27, 2002.

Primary sources of cash and cash equivalents during the ~~three~~six months ended ~~March 28,~~June 27, 2003 ~~were~~include $214 million of net proceeds from the divestiture of CSX Lines LLC (see Note 3, Divestitures)~~, $67~~ and $561 million from short-term borrowings on commercial paper. Commercial paper proceeds were then used to replace proceeds from the sale of ~~debt issued and~~accounts receivable which was discontinued as of June 27, 2003 (see Note 6, Accounts Receivable). Remaining amounts from short-term borrowings as well as operating cash ~~from general operations. Primary uses of cash and cash equivalents~~was used to pay down long-term debt. Property additions were ~~$150~~$479 million of property additions, $95 million of debt repayments, and approximately $56 million related to payments made and related taxes due to the retirement of John Snow, the Company’s former Chairman and Chief Executive Officer, in the first quarter of 2003. The quarterly dividend for the ~~current~~six months ended June 27, 2003 and ~~prior year period was 10 cents per share, and amounted to $21 million in~~$431 for the ~~first quarter of 2003.~~six months ended June 28, 2002.

CSX’s working capital deficit at ~~March 28,~~June 27, 2003 was ~~$620~~$888 million, ~~down~~up from $665 million at December 27, 2002. A working capital deficit is not unusual for the Company and does not indicate a lack of liquidity. The Company continues to maintain adequate current assets to satisfy current liabilities and maturing obligations when they come due and has sufficient financial capacity to manage its day-to-day cash requirements and any obligations arising from legal, tax and other regulatory rulings.

~~FINANCIAL DATA~~

March 28,

December 27,


2003

2002


(Dollars in Millions)

Cash, Cash Equivalents and Short-Term Investments

$
294


$
264

Working Capital (Deficit)

$
(620
)

$
(665
)
Current Ratio


0.7



0.7

Debt Ratio


51
%


52
%
Ratio of Earnings to Fixed Charges


1.5
x


2.3
x

CSX CORPORATION AND SUBSIDIARIES

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS

OF OPERATIONS AND FINANCIAL CONDITION

FINANCIAL DATA

(Dollars in Millions)
	June 27, 2003			December 27, 2002
Cash, Cash Equivalents and Short-Term Investments	$	311		$	264
Working Capital (Deficit)	$	(888	)	$	(665	)

Current Ratio		0.7			0.7
Debt Ratio		52	%		52	%
Ratio of Earnings to Fixed Charges		2.0	x		2.3	x

FACTORS EXPECTED TO INFLUENCE 2003

Fuel expenses fluctuate and are a significant cost ~~but~~of CSX Surface Transportation operations. Fuel prices can vary significantly from period to period and impact future results. Although the Company ~~expects that~~is in the ~~impact~~implementation stage of a fuel price ~~variance~~hedging program, it will ~~be less~~remain subject to fuel price fluctuation over the remainder of 2003. Economic factors also influence results and it is still uncertain whether significant improvements in the industrial sector will come in the second ~~quarter~~half of ~~2003 than~~2003. The Company underwent staffing reductions that were announced in mid-July. Amounts to be expensed relating to this involuntary program will be approximately $8 million in the ~~$50 million impact during the first~~third quarter of 2003. ~~The full year impact of fuel expenses cannot be estimated with reasonable certainty.~~

INVESTMENT IN AND INTEGRATED RAIL OPERATIONS WITH CONRAIL

See background, accounting and financial reporting effects and summary financial information in Note 5, Investment In and Integrated Rail Operations with Conrail.

Conrail’s Results of Operations

Conrail reported net income ~~before cumulative effect~~ of ~~accounting change of $37~~$39 million in the ~~first~~second quarter of 2003, compared to ~~$36~~$42 million in the prior year quarter. Operating revenues increased $1$9 million to ~~$226~~$231 million for the 2003 quarter, while operating expenses ~~decreased $1 million to $163~~increased $7 million for the same period.

In June 2003, CSX, Norfolk Southern and Conrail jointly filed a petition with the Surface Transportation Board (STB) to establish direct ownership and control by CSXT and Norfolk Southern Railway of their portions of the Conrail system. CSX, Norfolk Southern and Conrail also jointly filed a ruling request with the Internal Revenue Service to qualify the transaction as a non-taxable disposition. See Note 5, “Investment and Integrated Rail Operations With Conrail.”

CSX CORPORATION AND SUBSIDIARIES

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS

OF OPERATIONS AND FINANCIAL CONDITION

OTHER MATTERS

Critical Accounting Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires that management make estimates in reporting the amounts of certain assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of certain revenues and expenses during the reporting period. Actual results may differ from those estimates. For information regarding CSX’s significant estimates using management judgment, see management’s discussion and analysis of financial condition and results of operations on page 26 of the 2002 Annual Report. As of ~~March 28,~~June 27, 2003, there have been no significant changes to these estimates.

Matters Arising From Sale of International Container-Shipping Assets

In conjunction with the sale of the international container shipping assets to Maersk, CSX ~~has~~ received a claim ~~amounting~~of 425 million Dutch Guilders plus interest (amounting to approximately $180 million plus interest under then prevailing currency exchange rates) from Europe Container Terminals bv (“ECT”), owner of the Rotterdam Container Terminal formerly operated by Sea-Land Service Inc. (“Sea-Land”). ECT has claimed that the December 1999 sale of the international liner business to Maersk resulted in a breach of the Sea-Land terminal agreement with ECT. An initial arbitration panel of the Netherlands Arbitration Institute ruled on February ~~10,~~ 2003, that CSX was in breach of the terminal agreement. The ruling by the panel dealt only with the existence of liability for a breach, and did not address the level of ECT damages, if any, which will be the subject of a second hearing before the same panel sometime in 2003. CSX disputes this claim and believes it does not reflect the mitigating benefits ECT gained from its ability to service other customers at the former Sea-Land facility. Management ~~believes that valid defenses to this claim exist but~~ cannot estimate what ~~if any,~~ loss may result from this ~~matter.~~matter, but believes that damages are below the levels asserted by ECT. CSX believes that Maersk is responsible for any damages that may result from this dispute and has taken preliminary steps to initiate an arbitration against Maersk under the purchase and sale agreement with Maersk.

~~CSX CORPORATION AND SUBSIDIARIES~~

~~ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS~~

~~OF OPERATIONS AND FINANCIAL CONDITION~~

~~OTHER MATTERS, Continued~~

~~Matters Arising From Sale of International Container-Shipping Assets, Continued~~

CSX CORPORATION AND SUBSIDIARIES

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS

OF OPERATIONS AND FINANCIAL CONDITION

FORWARD LOOKING STATEMENTS

This Quarterly 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 time by which objectives will be achieved; statements concerning proposed new products and services; and statements regarding future economic, industry or market conditions or performance. Forward-looking statements are typically identified by words or phrases such as “believe”, “expect”, “anticipate”, “project”, and similar expressions. Forward-looking statements speak only as of the date 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 report, and in the Company’s other SEC reports, accessible on the ~~Sec’s~~SEC’s website atwww.sec.gov and at the Company’s website at www.csx.com.

CSX CORPORATION AND SUBSIDIARIES

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

~~We address our~~The Company addresses its exposure to market risks, principally the market risk of changes in interest rates, through a controlled program of risk management that includes the use of interest rate swap agreements. ~~We do~~The Company does not hold or issue derivative financial instruments for trading purposes. In the event of a 1% increase or decrease in the LIBOR interest rate, the interest expense related to these agreements would increase or decrease approximately ~~$1.4~~$14 million on an annual basis.

The Company is exposed to credit loss in the event of non-performance by any counter-party to the interest rate swap agreements. The Company does not anticipate non-performance by such counter-parties, and no material loss would be expected from non-performance.

At ~~March 28,~~June 27, 2003 and December 27, 2002, CSX had approximately ~~$790 million~~$1.4 billion and $709 million, respectively, of floating rate debt outstanding. A 1% variance in interest rates would effect annual interest expense by approximately $8$14 million.

The Company is subject to risk relating to changes in the price of diesel fuel. A one cent change in the price per gallon of fuel would impact annual fuel expense by approximately $6 million.

While the Company’s international terminals segment does business in several foreign countries, a substantial portion of its revenue and expenses are transacted in U.S. dollars, or currencies with little fluctuation against the U.S. dollar. For this reason, CSX does not believe its foreign currency market risk is significant.

A substantial increase in the fair market value of the Company’s stock price could negatively impact earnings per share due to the dilutive effect of stock options and convertible debt.

ITEM 4. DISCLOSURE CONTROLS AND PROCEDURES

As of ~~April 28,~~June 27, 2003, under the supervision and with the participation of the Company’s Chief Executive Officer (CEO) and the Chief Financial Officer (CFO), management has evaluated the effectiveness of the design and operation of the Company’s disclosure controls and procedures. Based on that evaluation, the CEO and CFO, concluded that the Company’s disclosure controls and procedures were effective as of ~~April 28,~~June 27, 2003. There were no significant changes in the Company’s internal controls during the fiscal quarter covered by this quarterly report that has materially affected or inis reasonably likely to materially affect the ~~other factors that could significantly affect those controls subsequent to the date of the evaluation.~~Company’s internal control over financial reporting.

~~-36-~~40

CSX CORPORATION AND SUBSIDIARIES

ITEM 5. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

(a)

Annual meeting held May 7, 2003.

(b)

Not applicable.

(c)

There were 214,436,430 shares of CSX common stock outstanding as of March 7, 2003, the record date for the 2003 annual meeting of shareholders. A total of 189,612,437 shares were voted. All of the nominees for directors of the corporation were elected with the following vote:

Nominee	Votes For	Votes Withheld	Broker Non-Votes
Elizabeth E. Bailey	133,171,539	56,440,898	—
Robert L. Burrus, Jr.	128,980,530	60,631,907	—
Bruce C. Gottwald	133,007,709	56,604,728	—
Edward J. Kelly III	180,218,815	9,393,622	—
Robert D. Kunisch	134,020,642	55,591,795	—
Southwood J. Morcott	133,832,019	55,780,418	—
David M. Ratcliffe	176,276,474	13,335,963	—
Charles E. Rice	133,862,024	55,750,413	—
William C. Richardson	133,142,885	56,469,552	—
Frank S. Royal	134,025,710	55,586,727	—
Donald J. Shepard	180,567,492	9,044,945	—
Michael J. Ward	135,281,321	54,331,116	—

The appointment of Ernst & Young LLP as independent auditors to audit and report on CSX’s financial statements for the year 2003 was ratified by the shareholders with the following vote:

Votes For

Votes

Against

Abstentions

Broker

Non-Votes

182,533,601

5,591,503

1,487,033

300

The shareholder proposal regarding poison pill provisions was approved with the following vote:

Votes For

Votes

Against

Abstentions

Broker

Non-Votes

119,385,720

41,892,892

3,559,259

24,774,566

CSX CORPORATION AND SUBSIDIARIES

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a)

Exhibits


3.2*		Bylaws of the Registrant, Amended as of May 7, 2003

10.1*		~~Retirement and Consulting Agreement dated as of April 1, 2003, between CSX Corporation and Paul R. Goodwin~~ Employment agreement with O. Munoz


10.2*		99.1*Restricted Stock Award Agreement with O. Munoz

10.3*		Form of Stock Option Agreement

31.1*		Principal Executive Officer Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2*		Principal Financial Officer Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32.1*		Principal Executive Officer Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

	99.2*
32.2*		Principal Financial Officer Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

(b)

Reports on Form 8-K

Form 8-K filed on ~~February 6,~~April 30, 2003 to report as an ~~Item~~“Item 5: Other ~~Event~~Event” the ~~January 31, 2003~~ press release ~~announcing~~and its Quarterly Flash document on financial and operating results for the ~~election of Michael J. Ward as chairman and chief executive officer of CSX Corporation by the CSX Board of Directors~~first quarter ended March 28, 2003.

Form 8-K filed on ~~January 31,~~June 5, 2003 to report as an ~~Item~~“Item 5: Other ~~Event~~Event” the June 4, 2003 joint press release announcing that CSX Corporation (CSX), Norfolk Southern Corporation (NS) and ~~its quarterly Flash document on financial~~Consolidated Rail Corporation (Conrail) made a joint filing of a petition with the Surface Transportation Board to establish direct ownership and ~~operating results for~~control by CSX Transportation, Inc. and Norfolk Southern Railway Company, the ~~fourth quarter~~railroad subsidiaries of CSX and ~~year ended December 27, 2002.~~NS, respectively, of two Conrail subsidiaries - New York Central Lines LLC and Pennsylvania Lines LLC.

Form 8-K filed on June 27, 2003 to report as an “Item 5: Other Event” the June 26, 2003 press release announcing the second quarter impact relating to West Virginia asbestos suits

Form 8-K filed on June 27, 2003 to report as an “Item 5: Other Event” the June 26, 2003 press release announcing the completion of a real estate transaction with Triangle Transit Authority for the sale of 52 acres of land in North Carolina.

Filed herewith

CSX CORPORATION AND SUBSIDIARIES

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

		CSX CORPORATION
		(Registrant)


By:		/s/ CAROLYN T. SIZEMORE

		Carolyn T. Sizemore
		Vice President and Controller
		(Principal Accounting Officer)

Dated: ~~April 30, 2002~~

~~-37-~~

~~CERTIFICATE OF CHIEF EXECUTIVE OFFICER~~

~~I, Michael J. Ward, certify that:~~

~~I have reviewed this quarterly report on Form 10-Q of CSX Corporation;~~

Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

~~evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and~~

~~presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;~~

The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent function):

all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and

~~any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and~~

The registrant’s other certifying officers and I have indicated in this quarterly report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

~~Date: April~~July 30, 2003

~~/s/ MICHAEL J. WARD~~

~~Michael J. Ward~~

~~Chairman, President and Chief Executive Officer~~

~~-38-~~43

~~CERTIFICATE OF CHIEF FINANCIAL OFFICER~~

~~I, Paul R. Goodwin, certify that:~~

~~I have reviewed this quarterly report on Form 10-Q of CSX Corporation;~~

~~evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and~~

~~presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;~~

~~any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and~~

~~Date: April 30, 2003~~

~~/s/ PAUL R. GOODWIN~~

~~Paul R. Goodwin~~

~~Vice Chairman and Chief Financial Officer~~

~~-39-~~

	Quarters Ended March 31,
	2003		2002
	(dollars in millions)
Income Statement Information:
Revenues	$	226	$	225
Expenses		163		164

Operating Income	$	63	$	61

Net Income Before Cumulative Effect of Accounting Change	$	37	$	36

Cumulative Effect of Accounting Change—Net of Tax		40		—

Net Income	$	77	$	36

	March 31, 2003		December 31, 2002
	(dollars in millions)
Balance Sheet Information:
Current Assets	$	280	$	300
Property and Equipment and Other Assets		7,957		7,857

Total Assets	$	8,237	$	8,157

Current Liabilities	$	354	$	329
Long-term Debt		1,113		1,123
Other Long-term Liabilities		2,467		2,479

Total Liabilities		3,934		3,931
Stockholders’ Equity		4,303		4,226

Total Liabilities and Stockholders’ Equity	$	8,237	$	8,157

Three Months Ended March 29, 2002	CSX Corporation			CSX Lines			Other			Eliminations			Consolidated
Operating Activities
Net Cash Provided (Used) by Operating Activities	$	103		$	(9	)	$	127		$	(61	)	$	160

Investing Activities
Property Additions		—			(6	)		(156	)		—			(162	)
Short-term Investments-net		(288	)		(3	)		133			—			(158	)
Other Investing Activities		3			(1	)		(1	)		(12	)		(11	)

Net Cash Used by Investing Activities		(285	)		(10	)		(24	)		(12	)		(331	)

Financing Activities
Long-term Debt Issued		450			—			—			—			450
Long-term Debt Repaid		(200	)		—			(67	)		—			(267	)
Cash Dividends Paid		(22	)		—			(52	)		53			(21	)
Other Financing Activities		20			—			(28	)		20			12

Net Cash Provided (Used) by Financing Activities		248			—			(147	)		73			174
Net Increase (Decrease) in Cash and Cash Equivalents		66			(19	)		(44	)		—			3
Cash and Cash Equivalents at Beginning of Period		156			52			(71	)		—			137

Cash and Cash Equivalents at End of Period	$	222		$	33		$	(115	)	$	—		$	140

	March 28,			December 27,
	2003			2002
	(Dollars in Millions)
Cash, Cash Equivalents and Short-Term Investments	$	294		$	264
Working Capital (Deficit)	$	(620	)	$	(665	)
Current Ratio		0.7			0.7
Debt Ratio		51	%		52	%
Ratio of Earnings to Fixed Charges		1.5	x		2.3	x