CSX CORPORATION AND SUBSIDIARIES
PART I: FINANCIAL INFORMATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

~~NOTE 3. Discontinued Operations, Continued~~

~~The following table provides information about amounts classified as International Terminals Assets and Liabilities Held for Sale within the Consolidated Balance Sheets.~~

December 31,
2004
(Dollars in Millions)
Balance Sheet Information:
Accounts Receivable — Net $ 25
Other Current Assets 3
Properties — Net 87
Affiliates and Other Companies 523
Other Long-term Assets 5

International Terminals Assets Held for Sale $ 643

Current Liabilities $ 26
Short-term Debt 203
Long-term Deferred Income Taxes 16
Other Long-term Liabilities 141

International Terminals Liabilities Held for Sale $ 386

~~The following table provides information about amounts classified in Discontinued Operations within the Consolidated Income Statements.~~

Quarters Ended
April 1, March 26,
2005 2004
(Dollars in Millions) (Unaudited)
Income Statement Information:
Revenues $ 14 $ 48
Expenses 21 39

Operating Income $ (7 ) $ 9

Other Expense — (5 )

(Loss) Earnings Before Income Taxes (7 ) 4
Income Tax (Benefit) Expense (4 ) 1

Net (Loss) Income $ (3 ) $ 3

~~Discontinued Operations for the three months ended April 1, 2005 includes the results of operations from January 1, 2005 to the closing date of the transaction on February 22, 2005.~~

Discontinued Operations for the three months ended March 26, 2004 includes International Terminals restructuring initiatives of $6 million for the quarter ended March 26, 2004, in an effort to maintain and improve productivity standards.

~~CSX CORPORATION~~
~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~
~~(Unaudited)~~

NOTE 4. Debt and Credit Agreements

In February 2004, the Company executed a $100 million bank financing that matured February 25, 2005, which bore interest at a rate that varied with LIBOR plus an applicable spread. The Company settled this obligation with cash at maturity.

In December 2003, CSX executed a $75 million revolving loan facility with a maturity date in 2005. Borrowings under the facility bore interest at a rate that fluctuated with LIBOR. In addition, the Company paid an annual commitment fee of 0.15% for the period the facility was not drawn. As of December 31, 2004, the Company had $75 million in aggregate principal amount outstanding under this borrowing. In JanuaryJune 2005, the Company repurchased $1.0 billion of its publicly-traded notes listed below pursuant to offers to purchase that commenced in May 2005, and expired in June 2005.

(Dollars in Millions)


			Aggregate Principal
			Amount of Tendered
	Principal Amount		Notes Accepted for
Notes	Outstanding		Purchase

CSX 2.75% Notes due 2006	$	200	$	186
CSX 9% Notes due 2006		300		206
CSX Floating Rate Notes due 2006		300		58
CSX 8.625% Notes due 2022		200		84
CSX 7.95% Notes due 2027		500		227
CSX 8.10% Notes due 2022		150		57
CSX 7.25% Notes due 2027		250		167
CSX 7.90% Notes due 2017		400		15

	$	2,300	$	1,000

The total consideration paid for these notes totaled $1.2 billion, which includes a pretax charge of $192 million for costs to repurchase the debt which primarily reflects the market value above original issue value. The Company used cash on hand to finance this ~~obligation in full with cash.~~

repurchase.

The Company has a $1.2 billion five-year unsecured revolving credit facility expiring in May 2009 and a $400 million 364-day unsecured revolving credit facility expiring in May ~~2005, which the Company expects to renew for an additional 364-day period.~~2006. The facilities were entered into in May 2004 and May 2005, respectively, on terms substantially similar to the facilities they replaced: ~~a $345 million unsecured revolving credit facility that expired in May 2004 and~~ a $1.0 billion unsecured revolving credit facility that would have expired in May ~~2006.~~2006 and a $400 million unsecured revolving credit facility that would have expired in May 2005. Generally, these facilities may be used for general corporate purposes, to support the Company’s commercial paper, and for working capital. Neither of the credit facilities was drawn on as of ~~April~~July 1, 2005. Commitment fees and interest rates payable under the facilities are similar to fees and rates available to comparably rated investment-grade borrowers. ~~Similar to the credit facilities they replaced, these~~These credit facilities allow for borrowings at floating (LIBOR-based) rates, plus a spread, depending upon our senior unsecured debt ratings. At ~~April~~July 1, 2005, the Company was in compliance with all covenant requirements under the facilities.

CSX CORPORATION AND SUBSIDIARIES
PART I: FINANCIAL INFORMATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

NOTE 5. ~~Divestitures~~

~~In February 2003, CSX conveyed most of its interest~~Share-Based Compensation

As permitted under SFAS 148, the Company has adopted the fair value recognition provisions on a prospective basis and, accordingly, recognized expense for stock options granted in ~~its domestic container-shipping subsidiary, CSX Lines, to a new venture formed~~May 2003.


(Dollars in Millions)	Quarters Ended				Six Months Ended
	July 1,		June 25,		July 1,		June 25,
	2005		2004		2005		2004
Stock Option Compensation Expense	$	1	$	2	$	2	$	9

Stock compensation expense includes $5 million recorded in conjunction with ~~The Carlyle Group. CSX Lines was subsequently renamed Horizon Lines LLC. Horizon subleased vessels and equipment from certain affiliates of CSX covering~~ the ~~primary financial obligations~~Company’s management restructuring for the six-month period ended June 25, 2004 related to ~~$249 million~~recognition of ~~leases under which CSX or one~~unamortized expense for 2003 stock option awards retained by terminated employees (see Note 15. Management Restructuring). In addition to stock option expense, stock-based employee compensation expense included in reported net income consists of ~~its affiliates will remain a lessee / sublessor or guarantor. A deferred pretax gain of approximately $127 million~~restricted stock awards, stock issued to directors and the Company’s long-term incentive compensation program for all periods presented.

The following table illustrates the pro forma effect on net earnings and earnings per share as ~~a result of~~if the ~~transaction is being recognized over the 12-year sublease term. The securities contained a term of 7 years~~fair value based method had been applied to all outstanding and ~~a preferred return feature. During the third quarter of 2003, CSX received a $15 million payment from Horizon Lines, which included $3 million of interest,~~unvested awards in ~~return of a portion of its investment in Horizon.~~

In July 2004, Horizon was acquired by an unrelated third party, and CSX received $59 million, which included $48 million for the purchase of its ownership interest in Horizon, $4 million of interest, and a performance payment of $7 million, which will also be recognized over the 12-year sub-lease term. However, CSX and one of its affiliates will continue to remain a lessee / sublessor or guarantor on certain vessels and equipment as long as the subleases remain in effect. (See Note 13. Commitments and Contingencies.)

~~CSX sold its International Terminals business on February 22, 2005. (See Note 3. Discontinued Operations.)~~

each period:


(Dollars in Millions, Except Per Share Amounts)	Quarters Ended						Six Months Ended
	July 1,			June 25,			July 1,			June 25,
	2005			2004			2005			2004
Net Earnings — As Reported	$	165		$	119		$	744		$	149
Add: Stock-Based Employee Compensation Expense Included in Reported Net Income — Net of Tax		7			3			11			8
Deduct: Total Stock-Based Employee Compensation Expense Determined under the Fair Value Based Method for All Awards — Net of Tax		(8	)		(5	)		(14	)		(19	)


Pro Forma Net Earnings	$	164		$	117		$	741		$	138
Interest Expense on Convertible Debt — Net of Tax		1			1			2			2

Pro Forma Net Earnings, If-Converted	$	165		$	118		$	743		$	140


Earnings Per Share:
Basic — As Reported	$	0.76		$	0.55		$	3.45		$	0.69
Basic — Pro Forma	$	0.76		$	0.54		$	3.43		$	0.64

Diluted — As Reported	$	0.73		$	0.53		$	3.29		$	0.67
Diluted — Pro Forma	$	0.73		$	0.52		$	3.28		$	0.62

CSX CORPORATION AND SUBSIDIARIES
PART I: FINANCIAL INFORMATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

NOTE 6. New Accounting Pronouncements

~~SFAS 148, “Accounting for Stock-Based Compensation – Transition and Disclosure — an amendment of SFAS 123” was issued in~~

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 requires 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 and adopted the disclosure requirements of SFAS 148. In 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-Merton valuation method and, accordingly, are expensed.

The Company recognized pretax expense of $1 million and $7 million in fiscal quarters ended April 1, 2005, and March 26, 2004, respectively, for stock options granted in May 2003. Stock compensation expense for the fiscal quarter ended March 26, 2004 includes $5 million pretax recorded in conjunction with the Company’s management restructuring related to recognition of unamortized expense for 2003 stock option awards retained by terminated employees (see Note 16. Management Restructuring). In addition to stock option expense, stock-based employee compensation expense included in reported net income consists of restricted stock awards, stock issued to directors and the Company’s long-term incentive compensation program for all periods presented.

~~The following table illustrates the pro forma effect on net earnings and earnings per share as if the fair value based method had been applied to all outstanding and unvested awards in each period:~~

April 1, March 26,
Dollars in Millions, Except Per Share Amounts 2005 2004
Net Earnings — As Reported $ 579 $ 30
Add: Stock-Based Employee Compensation Expense Included in Reported Net Income — Net of Tax 4 5
Deduct: Total Stock-Based Employee Compensation Expense Determined under the Fair Value Based Method for All Awards — Net of Tax (6 ) (14 )

Pro Forma Net Earnings $ 577 $ 21
Interest Expense on Convertible Debt — Net of Tax 1 1

Pro Forma Net Earnings, If-Converted $ 578 $ 22

Earnings Per Share:
Basic — As Reported $ 2.69 $ 0.14
Basic — Pro Forma $ 2.68 $ 0.10
Diluted — As Reported $ 2.56 $ 0.14
Diluted — Pro Forma $ 2.55 $ 0.10

~~As discussed below, the Company will comply with SFAS 123(R), “Share-Based Payment”, effective January 1, 2006.~~

~~CSX CORPORATION~~
~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~
~~(Unaudited)~~

~~NOTE 6. New Accounting Pronouncements, Continued~~

~~On December 16,~~ 2004, the Financial Accounting Standards Board (“FASB”) issued SFAS 123(R), “Share-Based Payment”, which is a revision of SFAS 123, “Accounting for Stock-Based Compensation”. Currently, the Company uses the Black-Scholes-Merton formula to estimate the value of stock options granted to employees and expects to continue to use this acceptable option valuation model upon the required adoption of SFAS 123(R) on January 1, 2006. ~~Because~~Compensation cost for unvested awards that were not recognized under SFAS 123 will be recognized under SFAS 123(R). The new rules must be applied ~~not only~~ to new and existing unvested awards ~~but to previously granted awards that are not fully vested~~ on the effective ~~date, and because the~~date. The Company adopted SFAS 123 using the prospective transition method (which applied only to awards granted, modified or settled after the adoption date)~~, compensation cost for some previously granted awards that were not recognized under SFAS 123 will be recognized under SFAS 123(R)~~. ~~However, had~~Had CSX adopted SFAS 123(R) in prior periods, the impact ~~of that standard~~ would have ~~approximated~~estimated the impact of SFAS 123 as described in the disclosure of pro forma net income and earnings per share ~~above.~~in Note 5. Share-Based Compensation. SFAS 123(R) also requires the benefits of tax deductions in excess of recognized compensation cost to be reported as a financing cash flow, rather than as an operating cash flow as required under current literature. This requirement will reduce net operating cash flows and increase net financing cash flows in periods after adoption. The Company is currently evaluating the impact of SFAS 123(R) on its consolidated financial statements, but does not expect the impact to be material.

~~In 2003,~~

Currently, the ~~FASB issued Interpretation No. 46, “Consolidation of Variable Interest Entities,”~~Company’s stock-based employee compensation expense is recognized over the amortization period which ~~requires a variable interest entity (“VIE”) to be consolidated by a company that~~could continue beyond the date an employee is subject to a majority of the risk of loss from the VIE’s activities or is entitled to receive a majority of the entity’s residual returns, or both. Interpretation No. 46 also requires disclosures about VIEs that a company is not required to consolidate but in which it has a significant variable interest. Also in 2003, Interpretation 46 (“46R”), a revision to FASB Interpretation No. 46, was issued to clarify some of the provisions of, and to exempt certain entities from, Interpretation 46 requirements. Under the rules of the new guidance, CSX consolidated Four Rivers Transportation (“FRT”), a shortline railroad, into its financial statements at the beginning of fiscal year 2004. Theeligible for retirement. Upon adoption of ~~Interpretation No. 46~~SFAS 123(R), if the Company allows retirement eligibility (which is based on age and years of service) for new stock awards granted, the expense recognition period for these awards will not ~~have~~extend beyond the date an employee is eligible for retirement, resulting in the Company recognizing this expense over a ~~material impact on results~~shorter period of ~~operations in future reporting periods. Previously, FRT was accounted for under the equity method of accounting.~~

time.

~~CSX CORPORATION~~
~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~
~~(Unaudited)~~

NOTE 7. Investment in and Integrated Rail Operations with Conrail

In August 2004, the ownership of portions of the Conrail Inc. (“Conrail”) system already operated by CSX Transportation, ~~Inc~~Inc. (“CSXT”) and Norfolk Southern Railway Company (“NSR”), were transferred to and therefore directly owned by CSXT and NSR, and the parties consummated an exchange offer of new unsecured securities for unsecured securities of Conrail. Conrail’s secured debt and lease obligations are supported by new leases and subleases which became the direct lease and sublease obligations of CSXT and NSR.

The Company recorded this spin-off transaction at fair value based on the results of an independent valuation. Since September 2004, the impact of the transaction has been included in the Company’s Consolidated Balance Sheets and Consolidated Income Statements.

As a result of the transaction, the assets and liabilities transferred to CSXT are reflected in their respective line items in CSX’s Consolidated Balance Sheet.

Additional information about this transaction is included in the Company’s annual report on Form 10-K for the year ended December 31, 2004.

~~Accounting and Financial Reporting Effects~~

Prior to the spin-off transaction, CSX’s rail and intermodal operating revenue includes revenue from traffic moving on Conrail property. Operating expenses include costs incurred to handle such traffic and operate the Conrail lines. Rail operating expense includes an expense category, “Conrail Rents, Fees and Services,” which reflects:

1.   ~~Right-of-way usage fees to Conrail through August 2004.~~
2.   ~~Equipment rental payments to Conrail through August 2004.~~
3.   ~~Transportation, switching, and terminal service charges provided by Conrail in the Shared Assets Areas that Conrail operates for the joint benefit of CSX and NSR.~~
4.   ~~Amortization of the fair value write-up arising from the acquisition of Conrail and certain other adjustments.~~
5.   ~~CSX’s 42% share of Conrail’s income before the cumulative effect of accounting change recognized under the equity method of accounting.~~

Conrail will continue to own, manage, and operate the Shared Assets Areas for the joint benefit of CSXT and NSR. However, the spin-off transaction effectively decreased rents paid to Conrail after the transaction date, as some assets previously leased from Conrail are now owned by CSXT.

1311

CSX CORPORATION AND SUBSIDIARIES
PART I: FINANCIAL INFORMATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

NOTE 7. Investment in and Integrated Rail Operations with Conrail, Continued

Accounting and Financial Reporting Effects

For periods prior to the spin-off transaction, CSX’s rail and intermodal operating revenue included revenue from traffic moving on the Conrail property. Operating expenses included costs incurred to handle such traffic and to operate the Conrail lines. Rail operating expense included an expense category, “Conrail Rents, Fees and Services,” which reflected:

	1.		Right-of-way usage fees paid to Conrail through August 2004.

	2.		Equipment rental payments to Conrail through August 2004.

	3.		Transportation, switching, and terminal service charges levied by Conrail in the Shared Assets Areas that Conrail operates for the joint benefit of CSXT and NSR.

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

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

Transactions with Conrail

As listed below, CSX ~~has~~owes certain amounts ~~payable~~ to Conrail representing expenses incurred under the operating, equipment and ~~shared area~~Shared Assets Area agreements with Conrail.

Periods Ended
April 1, December 31,
2005 2004
(Dollars in Millions)
CSX Payable to Conrail $ 53 $ 59

Quarters Ended
April 1, March 26,
2005 2004
(Dollars in Millions)
Interest Expense Related to Conrail Advances $ — $ 2


(Dollars in Millions)	Periods Ended
	July 1,		December 31,
	2005		2004
CSX Payable to Conrail	$	39	$	59

As a result of the spin-off transaction, liabilities associated with Conrail advances to CSX were transferred to CSXT. Consequently, there is no longer an advance between CSX and Conrail. For the quarter and six months ended June 25, 2004, interest expense on Conrail advances amounts to $2 million and $4 million, respectively.

In March ~~31,~~ 2005, CSXT executed a long-term promissory note with a subsidiary of Conrail for $23 million, which is included in Long-term Debt in the Company’s Consolidated Balance Sheet as of April 1, 2005. The note bears interest at 4.52% and matures onin March ~~31,~~ 2035.

The agreement under which CSXT operated its allocated portion of the Conrail route system was terminated upon consummation of the spin-off transaction as CSXT then became the direct owner of its allocated portion of the Conrail system. ~~Agreements for subleasing~~Leases and subleases of Conrail equipment operated by CSXT cover varying terms. CSXT is responsible for all costs of operating, maintaining, and improving the equipment under these agreements.

CSX CORPORATION AND SUBSIDIARIES
PART I: FINANCIAL INFORMATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

NOTE 8. Allowance for Doubtful Accounts

The Company maintains an allowance for doubtful accounts for the estimated probable losses on uncollectible accounts and other receivables. The allowance is based upon the ~~credit worthiness~~creditworthiness of customers, historical experience, the age of the receivable and current market and economic conditions. Uncollectible amounts are charged against the allowance account. The allowance for doubtful accounts is maintained against both current and long-term asset accounts. Allowance for doubtful accounts of ~~$118~~$123 million and $95 million is included in the Consolidated Balance Sheets as of ~~April~~July 1, 2005 and December 31, 2004.

NOTE 9. Other Income — Net

Other Income — Net consists of the following:


(Dollars in Millions)	Quarters Ended						Six Months Ended
	July 1,			June 25,			July 1,			June 25,
	2005			2004			2005			2004
Interest Income	$	15		$	5		$	22		$	8
Income (Loss) from Real Estate and Resort Operations		24			5			16			(2	)
Minority Interest		(7	)		(4	)		(10	)		(7	)
Miscellaneous		(2	)		(1	)		—			2

Other Income — Net	$	30		$	5		$	28		$	1

1413

CSX CORPORATION AND SUBSIDIARIES
PART I: FINANCIAL INFORMATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

~~NOTE 9. Operating Expense~~

~~CSX consolidated Operating Expense consists of the following:~~

Quarters Ended
April 1, March 26,
2005 2004
(Dollars in Millions)
Labor and Fringe $ 704 $ 686
Materials, Supplies and Other 461 416
Depreciation 205 162
Fuel 179 154
Building and Equipment Rent 132 137
Inland Transportation 56 74
Conrail Rents, Fees and Services 20 87
Miscellaneous (3 ) (1 )
Restructuring Charges — 53

Total $ 1,754 $ 1,768

~~NOTE 10. Other Income (Expense)~~

~~Other Income (Expense) consists of the following:~~

Quarters Ended
April 1, March 26,
2005 2004
(Dollars in Millions)
Interest Income $ 7 $ 3
Loss from Real Estate and Resort Operations (8 ) (7 )
Minority Interest (3 ) (3 )
Miscellaneous 2 3

Other Income (Expense) $ (2 ) $ (4 )

~~CSX CORPORATION~~
~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~
~~(Unaudited)~~

NOTE ~~11.~~10. Derivative Financial Instruments

CSX uses derivative financial instruments to manage its overall exposure to fluctuations in interest rates and fuel costs.

Interest Rate Swaps

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

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

Total/Average $ 950 8.02 %

(Dollars in Millions)


Maturity Date	Notional Amount		Fixed Interest Rate
August 15, 2006	$	94		9.00	%
May 1, 2007		450		7.45	%
May 1, 2032		150		8.30	%

Total/Average	$	694		7.84	%

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. The interest rate swap agreements are designated and qualify as fair value hedges and the gain or loss on the derivative instrument, as well as the offsetting gain or loss on the fixed rate note attributable to the hedged risk, are recognized in current earnings during the period of change in fair values. Hedge effectiveness is measured at least quarterly based on the relative change in fair value of the derivative contract in comparison with changes over time in the fair value of the fixed rate notes. 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 ~~$14~~$11 million and $26 million for the fair market value of the interest rate swap agreements at ~~April~~July 1, 2005 and December 31, 2004, 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 Statements. For the ~~quarters~~quarter and six months ended ~~April~~July 1, 2005, ~~and March 26, 2004,~~ the Company reduced interest expense by approximately $5$3 million and ~~$13~~$8 million, respectively, as a result of the interest rate swap agreements that were in place during each period. For the quarter and six-month period ended June 25, 2004, the Company reduced interest expense by approximately $8 million and $21 million, respectively. Fair value adjustments are non-cash transactions and, accordingly, have no cash impact on the Consolidated Cash Flow Statements.

In June 2005, the Company purchased $206 million in aggregate principal amount of its publicly-traded 9% Notes due 2006 (see Note 4. Debt and Credit Agreements), and settled an identical portion of the corresponding interest rate swap agreement. The partial settlement of this interest rate swap agreement resulted in no effect on results of operations for the quarter ended July 1, 2005.

The counterparties to the interest rate swap agreements expose the Company to credit loss in the event of non-performance. The Company does not anticipate non-performance by the counterparties.

1614

CSX CORPORATION AND SUBSIDIARIES
PART I: FINANCIAL INFORMATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

NOTE ~~11.~~10. Derivative Financial Instruments, Continued

Fuel Hedging

In ~~the third quarter of~~ 2003, CSX began a program to hedge a portion of its future locomotive fuel purchases. This program was established to manage exposure to fuel price fluctuations. In order to minimize this risk, CSX has entered into a series of swaps in order to fix the price of a portion of its estimated future fuel purchases.

Following is a summary of outstanding fuel swaps:

April 1,
2005
Approximate Gallons Hedged (Millions) 271
Average Price Per Gallon $ 0.80
Swap Maturities April 2005 - July 2006

2005 2006
Estimated % of Future Fuel Purchases Hedged at April 1, 2005 47 % 9 %


		July 1,
		2005
Approximate Gallons Hedged (Millions)		187
Average Price Per Gallon		$0.81
Swap Maturities		July 2005 — July 2006


	2005			2006

Estimated % of Future Fuel Purchases Hedged at end of period		43	%		9	%

The program limits fuel hedges to a 24-month duration and a maximum of 80% of CSX’s average monthly fuel purchased for any month within the 24-month period, and places the hedges among selected counterparties. Fuel hedging activity favorably impacted fuel expense for the quarter and six months ended ~~April~~July 1, 2005 by ~~$51 million. There was no material impact on~~$63 million and $114 million, respectively. Fuel hedging activity favorably impacted fuel expense for the quarter and six months ended ~~March 26, 2004.~~June 25, 2004 by $4 million. Ineffectiveness, or the extent to which changes in the fair values of the fuel swaps did not offset changes in the fair values of the expected fuel purchases, was immaterial.

These instruments qualify, and are designated by management, as cash-flow hedges of variability in expected future cash flows attributable to fluctuations in fuel prices. The fair values of fuel derivative instruments are determined based upon current fair market values as quoted by third party dealers and are recorded on the Consolidated Balance Sheets with offsetting adjustments to Accumulated Other Comprehensive Loss, a component of Shareholders’ Equity. Amounts are reclassified from Accumulated Other Comprehensive Loss as the underlying fuel that was hedged is consumed by rail operations. Fair value adjustments are non-cash transactions and, accordingly, have no cash impact on the Consolidated Cash Flow Statements. See Note 1. Basis of Presentation, for the impact of fuel hedging activity on Accumulated Other Comprehensive Loss.

The Company has temporarily suspended entering into new swaps in its fuel hedge program since the third quarter of 2004. The Company will continue to monitor and assess the current issues facing the global fuel ~~market place~~marketplace to decide whether and when to resume hedging under the program.

The counterparties to the fuel hedge agreements expose the Company to credit loss in the event of non-performance. The Company does not anticipate non-performance by the counterparties.

1715

CSX CORPORATION AND SUBSIDIARIES
PART I: FINANCIAL INFORMATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

NOTE ~~12.~~11. Casualty, Environmental and Other Reserves

Casualty, environmental and other reserves are provided for in the Consolidated Balance Sheets as follows:


	April 1, 2005						December 31, 2004
	Current		Long-term		Total		Current		Long-term		Total
(Dollars in Millions)													July 1, 2005						December 31, 2004
	(Dollars in Millions)												Current		Long-term		Total		Current		Long-term		Total
Casualty and Other	$	274	$	556	$	830	$	272	$	561	$	833	$	275	$	543	$	818	$	272	$	561	$	833
Separation		20		130		150		20		135		155		20		114		134		20		135		155
Environmental		20		40		60		20		39		59		20		40		60		20		39		59

Total	$	314	$	726	$	1,040	$	312	$	735	$	1,047	$	315	$	697	$	1,012	$	312	$	735	$	1,047

Casualty Reserves

Casualty reserves represent accruals for the uninsured portion of personal injury and occupational injury claims.

Personal Injury

CSX retains an independent actuarial firm to assist management in assessing the value of CSX’s personal injury portfolio. An analysis is performed by the independent actuarial firm semi-annually. The methodology used by the actuary includes a development factor to reflect growth in the value of the Company’s personal injury claims. This methodology is based largely on CSX’s historical claims and settlement activity. Actual results may vary from estimates due to the type and severity of the injury, costs of medical treatments, and uncertainties surrounding the litigation process. Reserves for personal injury claims are ~~$388~~$401 million and $383 million at ~~April~~July 1, 2005 and December 31, 2004, respectively.

While the final outcome of casualty-related matters cannot be predicted with certainty, considering among other things the meritorious legal defenses available and liabilities that have been recorded, it is the opinion of CSX management that none of these items, when finally resolved, will have a material adverse effect on the Company’s financial position or liquidity. However, should a number of these items occur in the same period, it could have a material adverse effect on the results of operations in a particular quarter or fiscal year.

Occupational

Occupational claims include allegations of exposure to certain materials in the work place, such as asbestos, solvents, and diesel fuel, or alleged physical injuries, such as carpal tunnel syndrome or hearing loss.

Reserves for asbestos related claims are $198 million and $212 million at July 1, 2005 and December 31, 2004, respectively. Reserves for other occupational related claims are $108 million and $110 million at July 1, 2005 and December 31, 2004, respectively.

The Company is party to a number of occupational claims by employees exposed to asbestos in the workplace. The heaviest exposure for CSX employees was due to work conducted in and around the use of steam locomotive engines that were phased out between the early 1950’s and late 1960’s. However, other types of exposures, including exposure from locomotive component parts and building materials, continued after 1967, until it was substantially eliminated by 1985.

1816

CSX CORPORATION AND SUBSIDIARIES
PART I: FINANCIAL INFORMATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

NOTE ~~12.~~11. Casualty, Environmental and Other Reserves, Continued
Asbestos and other occupational claim filings against the Company have been inconsistent. Accordingly, while the Company had concluded that a probable loss had occurred, it did not believe it could estimate the range of reasonably possible loss because of the lack of experience with such claims and the lack of detailed employment records for the population of exposed employees. Claim filings increased and when they continued into 2003, the Company concluded that an estimate for incurred but not reported asbestos exposure liability needed to be recorded.

CSX engaged a third party specialist, who has extensive experience in performing asbestos and other occupational studies, to assist in assessing the unasserted liability exposure. The analysis is performed by the specialist semi-annually. The objective of the analysis is to determine the number of estimated incurred but not reported claims and the estimated average cost per claim to be received over the next seven years. Seven years was determined by management to be the time period in which claim filings and claim values could be estimated with more certainty.

The methodology used by the ~~specialists~~specialist includes an estimate of future anticipated claims based on the Company’s average historical claim filing rates, future anticipated dismissal rates and settlement rates. CSX’s future liability for incurred but not reported claims is estimated by multiplying the future anticipated claims by the average settlement values.

In review of asbestos claims, the Company has observed that recent filing rates have declined. A trend in declining filing rates could result in a reduction of the reserve for asbestos related claims. Because the pace of asbestos claim filings have been inconsistent, the Company has not yet determined the decline to be a trend.

A summary of existing asbestos and other occupational claims activity is as follows:


	Quarter Ended			Year Ended			Six Months Ended			Twelve Months Ended
	April 1, 2005			December 31, 2004			July 1, 2005			December 31, 2004
Asserted Claims:
Asserted Claims:
Open Claims — Beginning of Period		11,460			13,478			11,460			13,478
New Claims Filed		273			1,178			432			1,178
Claims Settled		(354	)		(2,758	)		(746	)		(2,758	)
Claims Dismissed		(40	)		(438	)		(304	)		(438	)

Open Claims — End of Period		11,339			11,460			10,842			11,460

Approximately 6,000 of the open claims at July 1, 2005 are asbestos claims against the Company’s previously owned international container-shipping business, Sea-Land. Because the Sea-Land claims are against multiple vessel owners, the Company’s reserves reflect its portion of those claims. The remaining open claims have been asserted against CSXT. The Company had approximately $13 million reserved for the Sea-Land claims at July 1, 2005 and December 31, 2004.

The amounts recorded by CSX for the occupational liabilities are based upon currently known facts. Projecting future events, such as the number of new claims to be filed each year, the average cost of disposing of claims, as well as the numerous uncertainties surrounding asbestos and other occupational litigation in the United States, could cause the actual costs to be higher or lower than projected.

While the final outcome of casualty-related matters cannot be predicted with certainty, considering among other things the meritorious legal defenses available and liabilities that have been recorded, it is the opinion of CSX management that none of these items, when finally resolved, will have a materially adverse effect on the Company’s financial position or liquidity. However, should a number of these items occur in the same period, it could have a materially adverse effect on the results of operations in a particular quarter or fiscal year.

CSX CORPORATION AND SUBSIDIARIES
PART I: FINANCIAL INFORMATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

NOTE 11. Casualty, Environmental and Other Reserves, ~~for asbestos related claims are $205 million and $212 million~~Continued

Separation Liability

Separation liabilities at ~~April~~July 1, 2005 and December 31, 2004 ~~respectively. Reserves~~provide for the estimated costs of implementing workforce reductions, improvements in productivity and other ~~occupational related claims~~cost reductions at the Company’s major transportation units since 1991. These liabilities are ~~$108 million and $110 million at April 1, 2005 and December 31, 2004, respectively.~~

expected to be paid out over the next 15 to 20 years from general corporate funds.

~~CSX CORPORATION~~
~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~
~~(Unaudited)~~

~~NOTE 12. Casualty, Environmental and Other Reserves, Continued~~

Environmental Reserves

CSX is a party to various proceedings, including administrative and judicial proceedings, involving private parties and regulatory agencies related to environmental issues. CSX has been identified as a ~~PRP~~potentially responsible party (“PRP”) at approximately ~~251~~262 environmentally impaired sites, many of which are, or may be, subject to remedial action under the Federal Comprehensive Environmental Response, Compensation and Liability Act of 1980 (“CERCLA”), also known as the Superfund law, or similar state statutes. A number of these proceedings are based on allegations that CSX, or its railroad predecessors, sent hazardous substances to the facilities in question for disposal.

In addition, some of CSX’s land holdings are and have been used for industrial or transportation-related purposes or leased to commercial or industrial companies whose activities may have resulted in releases onto the property. Therefore, CSX is subject to environmental cleanup and enforcement actions ~~including~~ under ~~the Federal Comprehensive Environmental Response, Compensation and Liability Act of 1980 (CERCLA), also known as~~ the Superfund law, as well as similar state laws that may impose joint and several liability for cleanup and enforcement costs on current and former owners and operators of a site without regard to fault or the legality of the original conduct, which could be substantial. ~~In the fourth quarter of 2004, CSX added $6 million of Conrail environmental claims, due to the Conrail spin-off transaction.~~

At least once a quarter, CSX reviews its role with respect to each site identified. Based on the review process, CSX has recorded reserves to cover estimated contingent future environmental costs with respect to such sites. Environmental costs are charged to expense when they relate to an existing condition caused by past operations and do not contribute to current or future revenue generation. The recorded liabilities for estimated future environmental costs at ~~April~~July 1, 2005 and December 31, 2004 were $60 million and $59 million, respectively. These liabilities, which are undiscounted, include amounts representing CSX’s estimate of unasserted claims, which CSX 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 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, if any, will not materially affect its overall results of operations and financial condition.

~~Separation Liability~~

Separation liabilities at April 1, 2005 and December 31, 2004 provide for the estimated costs of implementing workforce reductions, improvements in productivity and other cost reductions at the Company’s major transportation units since 1991. These liabilities are expected to be paid out over the next 15 to 20 years through general corporate funds.

~~CSX CORPORATION~~
~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~
~~(Unaudited)~~

NOTE ~~13.~~12. Commitments and Contingencies

Purchase Commitments

The Company has a commitment under a long-term maintenance program for approximately 40% of CSX’s fleet of locomotives. The agreement expires in 2026 and ~~approximates~~the costs expected to be incurred under the agreement approximate $5.8 billion. The long-term maintenance program is intended to provide CSX access to efficient, high-quality locomotive maintenance services at fixed price levels through the term of the program. Under the program, CSX paid ~~$41~~$43 million and ~~$37~~$84 million for the ~~quarters~~quarter and six months ending ~~April~~July 1, 2005, respectively. The Company paid $38 million and ~~March 26,~~$75 million during the quarter and six months ended June 25, 2004, respectively.

The Company has various commitments to purchase technology and communications services. The terms for the various agreements call for CSX to pay $36 million, $29 million and $26 million for the fiscal years ending 2005, 2006 and 2007, respectively. The largest obligation is for purchased communications services of $24 million per year for the years 2005 through 2007.

~~STB Proceeding~~

In 2001 Duke Energy Corporation (“Duke”) filed a complaint before the STB alleging that certain CSX common carrier coal rates were unreasonably high. In February 2004, the STB issued a decision finding that the CSX common carrier rates were reasonable. While approving the rate levels, the STB also invited Duke to request a phase-in of rate increases over some time period. The nature and amount of any such phase-in is uncertain, and would only apply to billings subsequent to December 2001. In October 2004, the STB issued a decision denying Duke’s petition for reconsideration of its February 2004 ruling. In November 2004, Duke advised the STB that it would request phase-in relief, and filed a Petition for Review of the STB’s decisions in the United States Court of Appeals for the District of Columbia Circuit. CSX will continue to consider and pursue all available legal defenses in this matter. Administrative proceedings and legal appeals could take several years to resolve. A favorable outcome could result in gain realization in amounts that could be material to results of operations in the quarters received.

~~Self-Insurance~~

The Company uses a combination of third-party and self-insurance, obtaining substantial amounts of commercial insurance for potential losses for third-party liability and property damages. Specified levels of risk (up to $35 million for property and $25 million for liability per occurrence) are retained on a self-insurance basis.

2118

CSX CORPORATION AND SUBSIDIARIES
PART I: FINANCIAL INFORMATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

NOTE ~~13.~~12. Commitments and Contingencies, Continued

STB Proceeding

In 2001 Duke Energy Corporation (“Duke”) filed a complaint before the STB alleging that certain CSXT common carrier coal rates were unreasonably high. In June 2005, CSXT and Duke reached a settlement agreement pursuant to which Duke dismissed the STB proceedings with prejudice. Consequently, the Company reversed a $17 million reserve which increased coal, coke and iron ore revenue in the second quarter of 2005. Duke and CSXT have entered into a transportation contract establishing commercial terms for the future transportation of coal to Duke power plants served by CSXT.

Insurance

The Company maintains numerous insurance programs, most notably for third party casualty liability and the CSX property damage and business interruption property insurance with substantial limits; a specific amount of risk ($25 million per occurrence) is retained by the Company on both programs.

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 the Company in its business operations. Utilizing the Company’s guarantee for these obligations allows the obligor to take advantage of lower interest rates and obtain other favorable terms. Guarantees are contingent commitments issued by the Company that could require CSX or one of its affiliates to make payment to or to perform certain actions for the guaranteed party based on another entity’s failure to perform. As of ~~April~~July 1, 2005, the Company’s three main guarantees ~~can be segregated into two main categories:~~

are as follows:

1.		Guarantees of approximately ~~$314~~$249 million relating to leases assumed as part of the conveyance of its interest in a former subsidiary, CSX Lines, (subsequently renamed to Horizon Lines LLC “Horizon”). CSX guarantees approximately $249 million relating to leases assumed as part of this conveyance. CSX believes Horizon will fulfill its contractual commitments with respect to such leases, and CSX will have no further liabilities for those obligations.

2.		Guarantee of approximately $87 million of obligations of a former subsidiary, CSX Energy, in connection with a sale-leaseback transaction. The Company is, in turn, indemnified by several subsequent owners of the subsidiary against payments made with respect to this guarantee. CSX management does not expect that the Company will be required to make any payments under this guarantee for which CSX will not be reimbursed.

3.		Guarantee of approximately $13 million of lease commitments assumed by A.P. Moller-Maersk (“Maersk”) for which the Company is contingently liable. CSX believes Maersk will fulfill its contractual commitments with respect to such ~~leases,~~lease, and CSX will have no further liabilities for those obligations.

2.	~~Guarantees~~ During the second quarter of 2005, Maersk assumed and the Company was consequently released from approximately ~~$249~~$301 million ~~relating to leases assumed as part of CSX’s conveyance~~ of its ~~interest in CSX Lines in February 2003, as discussed in Note 5. Divestitures.~~obligation for other lease commitments.

Upon consummation of the sale of the International Terminals business in the first quarter of 2005, the Company was no longer liable for the guarantees related to construction and cash deficiency support at several of the Company’s international terminals locations under development.

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

CSX CORPORATION AND SUBSIDIARIES
PART I: FINANCIAL INFORMATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

NOTE 12. Commitments and Contingencies, Continued

Other Legal Proceedings

CSX is involved in routine litigation incidental to its business and is a party to a number of legal actions and claims, various governmental proceedings and private civil lawsuits, including those related to environmental matters, Federal Employers’ Liability Act claims by employees, other personal injury claims, and disputes and complaints involving certain transportation rates and charges. Some of the legal proceedings include claims for compensatory as well as punitive damages, and others purport to be class actions. While the final outcome of these matters cannot be predicted with certainty, considering among other things, the meritorious legal defenses available and liabilities that have been recorded along with applicable insurance, it is the opinion of CSX management that none of these items will have a ~~material~~materially adverse effect on the results of operations, financial position or liquidity of CSX. However, an unexpected adverse resolution of one or more of these items could have a ~~material~~materially adverse effect on the results of operations in a particular quarter or fiscal year. 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 quarters received.

2220

CSX CORPORATION AND SUBSIDIARIES
PART I: FINANCIAL INFORMATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

NOTE ~~14.~~13. Business Segments

The Company operates primarily in two business segments: rail and intermodal. The rail segment provides rail freight transportation over a network of more than 22,000 route miles in 23 states, the District of Columbia and two Canadian provinces. The intermodal segment provides integrated rail and truck transportation services and operates a network of dedicated intermodal facilities across North America. The Company’s segments are strategic business units that offer different services and are managed separately. The rail and intermodal segments are also 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. The accounting policies of the segments are the same as those described in Nature of Operations and Significant Accounting Policies (Note 1) in the CSX 2004 Annual Report on Form 10-K. ~~Intersegment sales~~

Prior to the conveyance of CSX Lines, it was a segment of CSX and ~~transfers~~was presented with International Terminals on a combined basis as the Marine Services operations of the Company. Results for CSX Lines are ~~generally accounted for~~now presented in the Other column, which primarily represents the pretax gain amortization of approximately $127 million as ifa result of the ~~sales or transfers were to third parties, at current market prices.~~

conveyance being recognized over the 12-year sublease term. The Other column also includes net sublease income from assets formerly included in the Marine Services segment and other items.

The International Terminals business segment has been reclassified to Discontinued Operations. (See Note 3. Discontinued Operations.)

Business segment information for the quarters ended ~~April~~July 1, 2005 and ~~March 26,~~June 25, 2004 is as follows:

Surface Transportation
Rail Intermodal Total Other Total
(Dollars in Millions)
Quarter Ended April 1, 2005

Revenues from External Customers $ 1,779 $ 329 2,108 $ — $ 2,108
Intersegment Revenues — — — — —
Segment Operating Income 299 52 351 3 354
Assets 20,265 747 21,012 — 21,012

Quarter Ended March 26, 2004

Revenues from External Customers $ 1,605 $ 315 $ 1,920 $ — $ 1,920
Intersegment Revenues — — — — —
Segment Operating Income 132 19 151 1 152
Assets 12,848 590 13,438 1,035 14,473
(Dollars in Millions)

	Surface Transportation
	Rail		Intermodal		Total		Other		Total

Quarter Ended July 1, 2005
Revenues from External Customers	$	1,836	$	330	$	2,166	$	—	$	2,166
Segment Operating Income		367		55		422		9		431
Assets		20,401		797		21,198		—		21,198

Quarter Ended June 25, 2004
Revenues from External Customers	$	1,672	$	325	$	1,997	$	—	$	1,997
Segment Operating Income		249		31		280		2		282
Assets		13,119		623		13,742		1,045		14,787

Six Months Ended July 1, 2005
Revenues from External Customers	$	3,615	$	659	$	4,274	$	—	$	4,274
Segment Operating Income		666		107		773		12		785
Assets		20,401		797		21,198		—		21,198

Six Months Ended June 25, 2004
Revenues from External Customers	$	3,277	$	640	$	3,917	$	—	$	3,917
Segment Operating Income		381		50		431		3		434
Assets		13,119		623		13,742		1,045		14,787

2321

CSX CORPORATION AND SUBSIDIARIES
PART I: FINANCIAL INFORMATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

NOTE ~~14.~~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)
Quarters Ended
April 1, March 26,
2005 2004
Revenues:

Total External Revenues for Business Segments $ 2,108 $ 1,920
Intersegment Revenues for Business Segments — —
Elimination of Intersegment Revenues — —

Total Consolidated Revenues $ 2,108 $ 1,920

Operating Income:

Total Operating Income for Business Segments $ 354 $ 152
Unallocated Corporate Expenses — —

Total Consolidated Operating Income $ 354 $ 152

Assets:

Assets for Business Segments $ 21,012 $ 14,473
Investment in Conrail 577 4,683
Elimination of Intersegment Payables (Receivables) (593 ) 100
Non-segment Assets 4,096 2,817

Total Consolidated Assets $ 25,092 $ 22,073

(Dollars in Millions)

~~CSX CORPORATION~~
~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~
~~(Unaudited)~~

	Quarter Ended
	July 1,			June 25,
	2005			2004

Assets:
Assets for Business Segments	$	21,223		$	14,787
Investment in Conrail		583			4,691
Elimination of Intersegment Payables (Receivables)		(622	)		131
Non-segment Assets		2,566			2,843

Total Consolidated Assets	$	23,750		$	22,452

NOTE ~~15.~~14. Employee Benefit Plans

The Company sponsors defined benefit pension plans, principally for salaried, non-contract personnel. The plans provide eligible employees with retirement benefits based predominantly on years of service and compensation rates near retirement.

In addition to the defined benefit pension plans, the Company sponsors one medical plan and one life insurance plan that provide benefits to full-time, salaried, non-contract employees hired prior to January 1, 2003, upon their retirement if certain eligibility requirements are met. The postretirement medical plans are contributory (partially funded by retirees), with retiree contributions adjusted annually. The life insurance plan is non-contributory.

CSX CORPORATION AND SUBSIDIARIES
PART I: FINANCIAL INFORMATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

NOTE 14. Employee Benefit Plans, Continued

The following table presents components of net periodic benefit cost:


													Quarters Ended
(Dollars in Millions)	Pension Benefits						Other Benefits						Pension Benefits						Other Benefits
	April 1,			March 26,			April 1,			March 26,
	2005			2004			2005			2004			July 1, 2005			June 25, 2004			July 1, 2005			June 25, 2004
Service Cost	$	8		$	11		$	2		$	2		$	8		$	9		$	2		$	2
Interest Cost		27			28			6			6			27			28			6			6
Expected Return on Plan Assets		(30	)		(34	)		(1	)		—			(30	)		(33	)		—			—
Amortization of Prior Service Cost		1			1			3			(1	)		1			1			(1	)		(1	)
Amortization of Net Loss		6			3			—			4			6			4			3			4


Net Periodic Benefit Cost	$	12		$	9		$	10		$	11		$	12		$	9		$	10		$	11


SFAS 88 Curtailment Charges		—			6			—			15			—			—			—			3


Net Periodic Benefit Cost, Including Termination Benefits	$	12		$	15		$	10		$	26		$	12		$	9		$	10		$	14


	Six Months Ended
(Dollars in Millions)	Pension Benefits						Other Benefits
	July 1, 2005			June 25, 2004			July 1, 2005			June 25, 2004
Service Cost	$	16		$	20		$	4		$	4
Interest Cost		54			56			12			12
Expected Return on Plan Assets		(60	)		(67	)		—			—
Amortization of Prior Service Cost		2			2			(2	)		(2	)
Amortization of Net Loss		12			7			6			8


Net Periodic Benefit Cost	$	24		$	18		$	20		$	22

SFAS 88 Curtailment Charges		—			6			—			18

Net Periodic Benefit Cost, Including Termination Benefits	$	24		$	24		$	20		$	40

The Company expects to contribute $2 million to its pension ~~plan~~plans in 2005.

As of July 1, 2005, CSX has contributed approximately $1 million to its pension plans.

Due to the termination of employees under the management restructuring plan (see Note ~~16.~~15. Management Restructuring), a curtailment occurred in the Company’s defined benefit pension plans and postretirement medical plan. The estimated cost of the curtailments of ~~$21~~$24 million was included in the management restructuring charge for the ~~quarter~~six months ended ~~March 26,~~June 25, 2004.

The Company is required to estimate and record the effects of the Medicare Prescription Drug, Improvement and Modernization Act of 2003 (“Act”). The Company believes its medical plan’s prescription drug benefit will qualify as actuarially equivalent to Medicare Part D based upon a review by the plan’s health and welfare actuary of the plan’s prescription drug benefit compared with the prescription drug benefit that would be paid under Medicare Part D beginning in 2006.

CSX CORPORATION AND SUBSIDIARIES
PART I: FINANCIAL INFORMATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

NOTE ~~16.~~15. Management Restructuring

During 2004, Surface Transportation incurred restructuring charges related to ~~the November 2003~~ management restructuring ~~plan~~plans to streamline the structure, eliminate organizational layers and realign certain functions. For the quarter and six months ended ~~March 26,~~June 25, 2004, the Company recorded expense of ~~$53~~$15 million and $68 million, respectively, for separation expense, pension and ~~post-retirement~~postretirement benefit curtailment charges, stock compensation expense and other related expenses.

~~CSX CORPORATION~~
~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~
~~(Unaudited)~~

NOTE ~~17.~~16. Summarized Consolidating Financial Data

During 1987, a subsidiary of the Company entered into agreements to sell and lease back, by charter, three new ~~U.S.–built, U.S.–flag,~~U.S.-built, U.S.-flag, D-7 class container ships. CSX has guaranteed certain obligations which, along with the container ships, serve as collateral for debt securities registered with the Securities and Exchange Commission (“SEC”). Another CSX entity became the obligor in 2003. In accordance with SEC disclosure requirements, consolidating summarized financial information for the parent and obligor follows. Certain prior year amounts have been reclassified to conform to the current presentation.

Consolidating Income Statement

CSX CSX Vessel
(Dollars in Millions) Corporation Leasing Other Eliminations Consolidated
Quarter ended April 1, 2005

Operating Revenue $ — $ — $ 2,108 $ — $ 2,108
Operating Expense (48 ) — 1,802 — 1,754

Operating Income 48 — 306 — 354

Equity in Earnings of Subsidiaries 142 — — (142 ) —
Other Income (Expense) 46 1 (28 ) (21 ) (2 )
Interest Expense 93 — 42 (21 ) 114

Earnings from Continuing Operations before Income Taxes 143 1 236 (142 ) 238
Income Tax Expense (Benefit) (8 ) — 92 — 84

Earnings from Continuing Operations 151 1 144 (142 ) 154
Discontinued Operations — Net of Tax 428 — (3 ) — 425

Net Earnings (Loss) $ 579 $ 1 $ 141 $ (142 ) $ 579

Quarter ended March 26, 2004

Operating Revenue $ — $ — $ 1,920 $ — $ 1,920
Operating Expense (23 ) — 1,791 — 1,768

Operating Income 23 — 129 — 152

Equity in Earnings of Subsidiaries 88 — — (88 ) —
Other Income (Expense) (10 ) 1 12 (7 ) (4 )
Interest Expense 97 — 18 (7 ) 108

Earnings from Continuing Operations before Income Taxes 4 1 �� 123 (88 ) 40
Income Tax Expense (Benefit) (26 ) — 39 — 13

Earnings from Continuing Operations 30 1 84 (88 ) 27
Discontinued Operations — Net of Tax — — 3 — 3

Net Earnings (Loss) $ 30 $ 1 $ 87 $ (88 ) $ 30

(Dollars in Millions)

	CSX Corporation			CSX Vessel Leasing		Other			Eliminations			Consolidated
Quarter Ended July 1, 2005
Operating Revenue	$	—		$	—	$	2,166		$	—		$	2,166
Operating Expense		(26	)		—		1,761			—			1,735

Operating Income		26			—		405			—			431

Equity in Earnings of Subsidiaries		272			—		—			(272	)		—
Other Income — Net		89			1		(4	)		(56	)		30
Debt Repurchase Expense		(192	)		—		—			—			(192	)
Interest Expense		(117	)		—		(49	)		56			(110	)


Earnings (Loss) from Continuing Operations before Income Taxes		78			1		352			(272	)		159
Income Tax (Benefit) Expense		(97	)		—		91			—			(6	)

Net Earnings (Loss)	$	175		$	1	$	261		$	(272	)	$	165


	CSX Corporation			CSX Vessel Leasing		Other			Eliminations			Consolidated
Quarter Ended June 25, 2004
Operating Revenue	$	—		$	—	$	1,997		$	—		$	1,997
Operating Expense		(38	)		—		1,753			—			1,715

Operating Income		38			—		244			—			282

Equity in Earnings of Subsidiaries		169			—		—			(169	)		—
Other Income — Net		(8	)		2		22			(11	)		5
Interest Expense		(101	)		—		(16	)		8			(109	)


Earnings (Loss) from Continuing Operations before Income Taxes		98			2		250			(172	)		178
Income Tax (Benefit) Expense		(21	)		—		81			—			60


Earnings from Continuing Operations		119			2		169			(172	)		118
Discontinued Operations — Net of Tax		—			—		1			—			1

Net Earnings (Loss)	$	119		$	2	$	170		$	(172	)	$	119

2624

CSX CORPORATION AND SUBSIDIARIES
PART I: FINANCIAL INFORMATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

NOTE ~~17.~~16. Summarized Consolidating Financial Data, Continued

Consolidating Income Statement

(Dollars in Millions)

	CSX Corporation			CSX Vessel Leasing		Other			Eliminations			Consolidated
Six Months Ended July 1, 2005
Operating Revenue	$	—		$	—	$	4,274		$	—		$	4,274
Operating Expense		(74	)		—		3,563			—			3,489

Operating Income		74			—		711			—			785

Equity in Earnings of Subsidiaries		414			—		—			(414	)		—
Other Income — Net		90			2		13			(77	)		28
Debt Repurchase Expense		(192	)		—		—			—			(192	)
Interest Expense		(210	)		—		(91	)		77			(224	)


Earnings (Loss) from Continuing Operations before Income Taxes		176			2		633			(414	)		397
Income Tax (Benefit) Expense		(110	)		—		188			—			78


Earnings from Continuing Operations		286			2		445			(414	)		319
Discontinued Operations — Net of Tax		428			—		(3	)		—			425

Net Earnings (Loss)	$	714		$	2	$	442		$	(414	)	$	744


	CSX Corporation			CSX Vessel Leasing		Other			Eliminations			Consolidated
Six Months Ended June 25, 2004
Operating Revenue	$	—		$	—	$	3,917		$	—		$	3,917
Operating Expense		(61	)		—		3,544			—			3,483

Operating Income		61			—		373			—			434

Equity in Earnings of Subsidiaries		257			—		—			(257	)		—
Other Income — Net		(18	)		2		35			(18	)		1
Interest Expense		(198	)		—		(34	)		15			(217	)


Earnings (Loss) from Continuing Operations before Income Taxes		102			2		374			(260	)		218
Income Tax Expense (Benefit)		(47	)		—		120			—			73


Earnings from Continuing Operations		149			2		254			(260	)		145
Discontinued operations — Net of Tax		—			—		4			—			4

Net Earnings (Loss)	$	149		$	2	$	258		$	(260	)	$	149

CSX CORPORATION AND SUBSIDIARIES
PART I: FINANCIAL INFORMATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

NOTE 16. Summarized Consolidating Financial Data, Continued

Consolidating Balance Sheet

CSX Vessel
April 1, 2005 CSX Corporation Leasing Other Eliminations Consolidated
(Dollars in Millions)
ASSETS

Current Assets
Cash, Cash Equivalents and Short-term Investments $ 1,978 $ 46 $ (201 ) $ — $ 1,823
Accounts Receivable — Net (503 ) 8 1,676 (18 ) 1,163
Materials and Supplies — — 190 — 190
Deferred Income Taxes 9 — 106 — 115
Other Current Assets 1 — 413 (126 ) 288
International Terminals Assets Held for Sale — — — — —

Total Current Assets 1,485 54 2,184 (144 ) 3,579

Properties 25 — 25,939 — 25,964
Accumulated Depreciation 24 — 6,058 — 6,082

Properties — Net 1 — 19,881 — 19,882
Investment in Conrail — — 577 — 577
Affiliates and Other Companies — — 302 — 302
Investment in Consolidated Subsidiaries 12,808 — — (12,808 ) —
Other Long-term Assets 1,439 — (582 ) (105 ) 752

Total Assets $ 15,733 $ 54 $ 22,362 $ (13,057 ) $ 25,092

LIABILITIES AND SHAREHOLDERS’ EQUITY

Current Liabilities
Accounts Payable $ 134 $ 4 $ 819 $ (18 ) $ 939
Labor and Fringe Benefits Payable 15 — 337 — 352
Payable to Affiliates — — — — —
Casualty, Environmental and Other Reserves — — 440 (126 ) 314
Current Maturities of Long-term Debt 765 — 147 — 912
Short-term Debt — — 3 — 3
Income and Other Taxes Payable 401 — 62 — 463
Other Current Liabilities 17 — 62 — 79
International Terminals Assets Held for Sale — — — — —

Total Current Liabilities 1,332 4 1,870 (144 ) 3,062

Casualty, Environmental and Other Reserves — — 726 — 726
Long-term Debt 5,010 — 1,198 — 6,208
Deferred Income Taxes — — 6,080 — 6,080
Long-term Payable to Affiliates — — 105 (105 ) —
Other Long-term Liabilities 1,903 40 (416 ) 1 1,528

Total Liabilities $ 8,245 $ 44 $ 9,563 $ (248 ) $ 17,604

SHAREHOLDERS’ EQUITY

Common Stock 217 — 181 (181 ) 217
Other Capital 1,657 1 8,084 (8,085 ) 1,657
Retained Earnings 5,768 9 4,395 (4,404 ) 5,768
Accumulated Other Comprehensive Loss (154 ) — 139 (139 ) (154 )

Total Shareholders’ Equity 7,488 10 12,799 (12,809 ) 7,488

Total Liabilities and Shareholders’ Equity $ 15,733 $ 54 $ 22,362 $ (13,057 ) $ 25,092

(Dollars in Millions)

	CSX Corporation			CSX Vessel Leasing		Other			Eliminations			Consolidated
July 1, 2005
ASSETS
Current Assets:
Cash, Cash Equivalents and Short-term Investments	$	415		$	46	$	52		$	—		$	513
Accounts Receivable — Net		—			15		1,121			(13	)		1,123
Other Current Assets		—			—		695			(127	)		568

Total Current Assets		415			61		1,868			(140	)		2,204
Properties — Net		1			—		19,880			—			19,881
Investment in Consolidated Subsidiaries		12,985			—		—			(12,985	)		—
Other Long-term Assets		1,465			—		303			(103	)		1,665

Total Assets	$	14,866		$	61	$	22,051		$	(13,228	)	$	23,750


LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities:
Accounts Payable	$	619		$	20	$	260		$	(14	)	$	885
Other Current Liabilities		2,051			—		(301	)		(126	)		1,624

Total Current Liabilities		2,670			20		(41	)		(140	)		2,509
Other Long-term Liabilities		4,579			30		9,118			(103	)		13,624

Total Liabilities	$	7,249		$	50	$	9,077		$	(243	)	$	16,133

Shareholders’ Equity:
Common Stock		217			—		181			(181	)		217
Other Capital		1,678			1		8,084			(8,085	)		1,678
Retained Earnings		5,912			10		4,606			(4,616	)		5,912
Accumulated Other Comprehensive Loss		(190	)		—		103			(103	)		(190	)

Total Shareholders’ Equity		7,617			11		12,974			(12,985	)		7,617

Total Liabilities and Shareholders’ Equity	$	14,866		$	61	$	22,051		$	(13,228	)	$	23,750

	CSX Corporation			CSX Vessel Leasing		Other			Eliminations			Consolidated
December 31, 2004
ASSETS
Current Assets:
Cash, Cash Equivalents and Short-term Investments	$	1,110		$	46	$	(297	)	$	—		$	859
Accounts Receivable — Net		(482	)		19		1,631			(25	)		1,143
Other Current Assets		9			—		1,246			(270	)		985

Total Current Assets		637			65		2,580			(295	)		2,987
Properties — Net		1			—		19,944			—			19,945
Investment in Consolidated Subsidiaries		13,078			—		—			(13,078	)		—
Other Long-term Assets		1,345			—		553			(224	)		1,674

Total Assets	$	15,061		$	65	$	23,077		$	(13,597	)	$	24,606


LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities:
Accounts Payable	$	88		$	19	$	796		$	(24	)	$	879
Other Current Liabilities		1,034			—		1,540			(136	)		2,438

Total Current Liabilities		1,122			19		2,336			(160	)		3,317
Other Long-term Liabilities		7,128			37		7,560			(247	)		14,478

Total Liabilities	$	8,250		$	56	$	9,896		$	(407	)	$	17,795

Shareholders’ Equity:
Common Stock		216			—		296			(296	)		216
Other Capital		1,605			1		8,107			(8,108	)		1,605
Retained Earnings		5,210			8		4,706			(4,714	)		5,210
Accumulated Other Comprehensive Loss		(220	)		—		72			(72	)		(220	)

Total Shareholders’ Equity		6,811			9		13,181			(13,190	)		6,811

Total Liabilities and Shareholders’ Equity	$	15,061		$	65	$	23,077		$	(13,597	)	$	24,606

CSX CORPORATION AND SUBSIDIARIES
PART I: FINANCIAL INFORMATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

NOTE 16. Summarized Consolidating Financial Data, Continued

Consolidating Cash Flow Statements

(Dollars in Millions)


	CSX Corporation			CSX Vessel Leasing		Other			Eliminations			Consolidated
Six Months Ended July 1, 2005
Operating Activities
Net Cash Provided (Used) by Operating Activities	$	(453	)	$	—	$	918		$	(136	)	$	329


Investing Activities
Property Additions		—			—		(381	)		—			(381	)
Net Proceeds from Sale of International Terminals		1,110			—		—			—			1,110
Purchase of Minority Interest in an International Terminals’ Subsidiary		(110	)		—		—			—			(110	)
Purchases of Short Term Investments		(1,576	)		—		—			—			(1,576	)
Proceeds from Sale of Short-term Investments		1,679			—		—			—			1,679
Other Investing Activities		75			—		241			(315	)		1

Net Cash Provided (Used) by Investing Activities		1,178			—		(140	)		(315	)		723


Financing Activities
Short-term Debt — Net		(100	)		—		2			—			(98	)
Long-term Debt Issued		—			—		27			—			27
Long-term Debt Repaid		(1,125	)		—		(88	)		—			(1,213	)
Cash Dividends Paid		(44	)		—		(118	)		118			(44	)
Other Financing Activities		(48	)		—		(230	)		333			55

Net Cash Provided (Used) by Financing Activities		(1,317	)		—		(407	)		451			(1,273	)
Net Increase (Decrease) in Cash and Cash Equivalents		(592	)		—		371			—			(221	)
Cash and Cash Equivalents at Beginning of Period		816			46		(340	)		—			522

Cash and Cash Equivalents at End of Period	$	224		$	46	$	31		$	—		$	301



	CSX Corporation			CSX Vessel Leasing		Other			Eliminations			Consolidated
Six Months Ended June 25, 2004
Operating Activities
Net Cash Provided (Used) by Operating Activities	$	10		$	—	$	610		$	(101	)	$	519


Investing Activities
Property Additions		—			—		(484	)		—			(484	)
Purchases of Short-term Investments		(82	)				(637	)		—			(719	)
Proceeds from Sales of Short-term Investments		—			—		644			—			644
Other Investing Activities		(4	)		—		(23	)		(10	)		(37	)

Net Cash Provided (Used) by Investing Activities		(86	)		—		(500	)		(10	)		(596	)


Financing Activities
Short-term Debt — Net		701			—		1			—			702
Long-term Debt Issued		62			—		—			—			62
Long-term Debt Repaid		(300	)		—		(79	)		—			(379	)
Dividends Paid		(43	)		—		(99	)		99			(43	)
Other Financing Activities		6			1		(16	)		12			3

Net Cash Provided (Used) by Financing Activities		426			1		(193	)		111			345

Net Increase (Decrease) in Cash and Cash Equivalents		350			1		(83	)		—			268
Cash and Cash Equivalents at Beginning of Period		1,163			45		(912	)		—			296

Cash and Cash Equivalents at End of Period	$	1,513		$	46	$	(995	)	$	—		$	564

CSX CORPORATION
~~NOTES TO CONSOLIDATED~~PART I: FINANCIAL ~~STATEMENTS~~
~~(Unaudited)~~INFORMATION

~~NOTE 17. Summarized Consolidating Financial Data, Continued~~

~~Consolidating Balance Sheet~~

CSX CSX Vessel
December 31, 2004 Corporation Leasing Other Eliminations Consolidated
(Dollars in Millions)
ASSETS

Current Assets:
Cash, Cash Equivalents and Short-term Investments $ 1,110 $ 46 $ (297 ) $ — $ 859
Accounts Receivable — Net (482 ) 19 1,631 (25 ) 1,143
Materials and Supplies — — 165 — 165
Deferred Income Taxes 9 — 11 — 20
Other Current Assets — — 283 (126 ) 157
International Terminals Assets Held for Sale — — 787 (144 ) 643

Total Current Assets 637 65 2,580 (295 ) 2,987

Properties 25 — 25,827 — 25,852
Accumulated Depreciation (24 ) — (5,883 ) — (5,907 )

Properties — Net 1 — 19,944 — 19,945

Investment in Conrail — — 574 — 574
Affiliates and Other Companies — — 306 (10 ) 296
Investment in Consolidated Subsidiaries 13,078 — — (13,078 ) —
Other Long-term Assets 1,345 — (352 ) (214 ) 779

Total Assets $ 15,061 $ 65 $ 23,052 $ (13,597 ) $ 24,581

LIABILITIES AND SHAREHOLDERS’ EQUITY

Current Liabilities:
Accounts Payable $ 88 $ 19 $ 796 $ (24 ) $ 879
Labor and Fringe Benefits Payable 23 — 348 — 371
Payable to Affiliates — — 126 (126 ) —
Casualty, Environmental and Other Reserves — — 312 — 312
Current Maturities of Long-term Debt 839 — 144 — 983
Short-term Debt 100 — 1 — 101
Income and Other Taxes Payable 54 — 116 — 170
Other Current Liabilities 18 — 98 (1 ) 115
International Terminals Assets Held for Sale — — 395 (9 ) 386

Total Current Liabilities 1,122 19 2,336 (160 ) 3,317

Casualty, Environmental and Other Reserves — — 735 — 735
Long-term Debt 5,021 — 1,213 — 6,234
Deferred Income Taxes — — 5,979 — 5,979
Long-term Payable to Affiliates 107 — 108 (215 ) —
Other Long-term Liabilities 2,000 37 (500 ) (32 ) 1,505

Total Liabilities $ 8,250 $ 56 $ 9,871 $ (407 ) $ 17,770

Shareholders’ Equity:
Preferred Stock — — 107 (107 ) —
Common Stock 216 — 189 (189 ) 216
Other Capital 1,605 1 8,107 (8,108 ) 1,605
Retained Earnings 5,210 8 4,706 (4,714 ) 5,210
Accumulated Other Comprehensive Loss (220 ) — 72 (72 ) (220 )

Total Shareholders’ Equity 6,811 9 13,181 (13,190 ) 6,811

Total Liabilities and Shareholders’ Equity $ 15,061 $ 65 $ 23,052 $ (13,597 ) $ 24,581

~~CSX CORPORATION~~
~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~
~~(Unaudited)~~

~~NOTE 17. Summarized Consolidating Financial Data, Continued~~

~~Consolidating Cash Flow Statements~~

CSX CSX
(Dollars in Millions) Corporation Vessel Leasing Other Eliminations Consolidated
Three Months Ended April 1, 2005

Operating Activities
Net Cash Provided (Used) by Operating Activities $ 48 $ — $ 378 $ (117 ) $ 309

Investing Activities
Property Additions — — (167 ) — (167 )
Net Proceeds from Sale of International Terminals 1,110 — — — 1,110
Purchase of Minority Interest in an International Terminals Subsidiary (110 ) — — — (110 )
Purchases of Short-term Investments (782 ) — (311 ) — (1,093 )
Proceeds from Sales of Short-term Investments — — 305 — 305
Other Investing Activities 74 — 238 (314 ) (2 )

Net Cash Provided (Used) by Investing Activities 292 — 65 (314 ) 43

Financing Activities
Short-term Debt — Net (100 ) — 3 — (97 )
Long-term Debt Issued — — 26 — 26
Long-term Debt Repaid (75 ) — (37 ) — (112 )
Cash Dividends Paid (22 ) — (59 ) 59 (22 )
Other Financing Activities (58 ) — (273 ) 372 41

Net Cash Provided (Used) by Financing Activities (255 ) — (340 ) 431 (164 )

Net Increase in Cash and Cash Equivalents 85 — 103 — 188
Cash and Cash Equivalents at Beginning of Period 816 46 (340 ) — 522

Cash and Cash Equivalents at End of Period $ 901 $ 46 $ (237 ) $ — $ 710

~~CSX CORPORATION~~
~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~
~~(Unaudited)~~

~~NOTE 17. Summarized Consolidating Financial Data, Continued~~

~~Consolidating Cash Flow Statements~~

CSX CSX
(Dollars in Millions) Corporation Vessel Leasing Other Eliminations Consolidated
Three Months Ended March 26, 2004

Operating Activities
Net Cash Provided (Used) by Operating Activities $ 5 $ 1 $ 249 $ (51 ) $ 204

Investing Activities
Property Additions — — (264 ) — (264 )
Purchases of Short-term Investments (131 ) — (212 ) — (343 )
Proceeds from Sales of Short-term Investments — — 211 — 211
Other Investing Activities (1 ) — (24 ) — (25 )

Net Cash Used by Investing Activities (132 ) — (289 ) — (421 )

Financing Activities
Short-term Debt — Net 150 — 2 — 152
Long-term Debt Issued 50 — — — 50
Long-term Debt Repaid — — (32 ) — (32 )
Cash Dividends Paid (21 ) — (51 ) 50 (22 )
Other Financing Activities 21 — (19 ) 1 3

Net Cash Provided (Used) by Financing Activities 200 — (100 ) 51 151

Net Increase (Decrease) in Cash and Cash Equivalents 73 1 (140 ) — (66 )
Cash and Cash Equivalents at Beginning of Period 1,163 45 (912 ) — 296

Cash and Cash Equivalents at End of Period $ 1,236 $ 46 $ (1,052 ) $ — $ 230

~~CSX CORPORATION~~

ITEM 2: MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
~~AND~~ FINANCIAL CONDITION

EXECUTIVE SUMMARY

2005 Surface Transportation Highlights and Challenges

Revenue

The ~~first~~second quarter of 2005 marked the ~~12th~~13th consecutive quarter of year-over-year revenue growth. Revenue increased ~~10%~~8% or ~~$188~~$169 million compared to the second quarter of 2004. Merchandise revenue increased 7% through continued yield management efforts and the Company’s fuel surcharge program. Within the merchandise market, all lines of business posted year-over-year ~~driven~~revenue growth led by strong gains in metals and food and consumer products. Automotive revenue declined due to a reduction in production levels, primarily by ~~increased~~traditional domestic manufacturers. Price increases and fuel surcharges in automotive helped to partially offset the lower demand for ~~coal due to both increased~~rail services. Coal experienced the most significant revenue gains as demand for transportation services was driven by higher electricity generation and rebuilding of utility stockpile ~~inventory. In addition, demand created from a generally strong industrial economy, continued yield management strategies and~~inventories. Intermodal revenue was slightly favorable as revenue per unit increases largely offset the ~~Company’s fuel surcharge program, drove the merchandise market to record revenue levels.~~

year-over-year volume decline.

Volume

Overall volume during the ~~first~~second quarter of 2005 ~~increased 1%~~decreased 2% versus ~~last year.~~the prior year comparable quarter. Volume growth ~~achieved~~in coal could not overcome volume declines in other markets. Merchandise carloads fell 2% versus the prior year comparable quarter. Automotive volume levels declined due to lower production levels by ~~coal traffic was partially offset by~~traditional domestic manufacturers and diversions related to service problems. In addition, Intermodal experienced overall volume ~~decreases from CSXI’s~~declines primarily attributable to the Network Simplification Initiative (“NSI”). ~~NSI~~In an effort to concentrate on more profitable business, Intermodal eliminated 26 weekly train starts in July 2004 through NSI creating an ~~effort to improve overall contribution by consolidating volumes on fewer trains.~~

unfavorable year-over-year volume comparison.

Fuel Costs and Fuel Surcharge Program

Fuel expenses increased ~~16%~~17% to ~~$179~~$176 million in the ~~first~~second quarter, net of ~~$51~~$63 million ofin fuel hedging benefits, due principally to the rising price per gallon of diesel fuel. The average price per gallon of diesel fuel, including benefits from CSX’s fuel hedging program, was ~~$1.1397~~$1.1905 in the ~~first~~second quarter of 2005 versus ~~$1.0171~~$1.0410 in the ~~first~~second quarter of 2004. In addition, the fuel surcharge programs within Surface Transportation and contractual cost escalation clauses used in most multi-year customer contracts partially offset fuel cost increases.

~~Operations~~

CSX CORPORATION
PART I: FINANCIAL INFORMATION
ITEM 2: MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION

Operations

As illustrated in the table below, key measures of network performance ~~declined~~were mixed versus prior year. ~~The Company continued to refine the~~Management believes these measures are good indicators of relative performance, encompassing drivers of both service reliability and operating network plan through the execution of the ONE Plan. While automotive network performance improved during the first quarter, overall service measurements declined. CSX remains focused on improving its operating performance through this process, which ultimately is expected to result in more reliable service and lower operating costs.

efficiency.

RAIL OPERATING STATISTICS^(a)

First Quarter
2005 2004 % Change
Service Measurements Average Velocity, All Trains (Miles Per Hour) 19.5 20.9 (7) %
Average System Dwell Time (Hours) 30.0 27.2 (10)
Average Total Cars-On-Line 234,209 230,746 (2)
On -Time Originations 49.9 % 52.8 % (5)
On -Time Arrivals 37.7 % 47.4 % (20)
Average Recrews (Per Day) 65 60 (8) %


		Second Quarter
								%
								Improvement/
		2005			2004			(Decline)

Service Measurements	Average Velocity, All Trains (Miles Per Hour)		19.1			19.5			(2)	%
	Average System Dwell Time (Hours)		30.4			29.3			(4)
	Average Total Cars-On-Line		235,819			235,688			(0)
	On-Time Originations		47.7	%		39.3	%		21
	On-Time Arrivals		36.2	%		34.1	%		6
	Average Recrews (Per Day)		67			73			8	%

~~(a)~~
Amounts for 2005 are estimated.

The Company is focused on producing continuous improvement through several key initiatives. In the third quarter of 2004, CSX instituted a new network operating plan called the ONE Plan. The ONE Plan defines CSX’s scheduled train network and is designed to improve service reliability and efficiency. Although anticipated benefits have not been realized on a sustained basis, CSX remains committed to the ONE Plan. Efforts to refine the operating plan and raise the level of execution are ongoing. Adjustments are made as required to reflect changing traffic volumes and operating capabilities.

In addition, CSX is working to improve its locomotive planning process. Locomotive availability and reliability is critical to the ONE Plan execution. The Company is also working to improve the performance of its major terminals and rail yards in 2005. The Standardized Terminal Processes (“STP”) initiative seeks to improve the process capability of CSX’s major terminals by documenting and analyzing terminal sub-processes. Primary activities in CSX terminals include switching rail cars to and from trains, fueling and servicing locomotives, and inspecting and repairing rail cars. Employee roles and responsibilities will be clearly documented and aligned across functional departments. These initiatives, combined with increased focus on training and development of operating managers, seek to develop a CSX culture that drives toward higher levels of plan execution.

Capital Investment

CSX continues to invest in its infrastructure, locomotives, freight cars and technology to accommodate safe, efficient and reliable train operations. In anticipation of future volume growth in key corridors, the Company will continue to make strategic investments to increase its capacity as profitability targets are met. Investments under consideration include locomotives and track and terminal infrastructure expansion.

3129

CSX CORPORATION
PART I: FINANCIAL INFORMATION
ITEM 2: MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
~~AND~~ FINANCIAL CONDITION

~~Expenses~~

~~The table below provides operating revenues and expenses by category for the three months ended April 1, 2005, compared to the three months ended March 26, 2004.~~

~~Surface~~
~~Transportation~~

April 1, March 26
(Dollars in Millions) 2005 2004 $ Change
Operating Revenue
$ 2,108 $ 1,920 $ 188

Operating Expense

Labor and Fringe 702 685 17
Materials, Supplies and Other 462 416 46
Depreciation 203 160 43
Fuel 179 154 25
Building and Equipment Rent 135 140 (5 )
Inland Transportation 56 74 (18 )
Conrail Rents, Fees and Services 20 87 (67 )
Restructuring Charge — Net — 53 (53 )

Total Operating Expense
1,757 1,769 (12 )

Operating Income
$ 351 $ 151 $ 200

Operating Ratio
83.3 % 92.1 %

~~(a)~~

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

~~International Terminals Divestiture~~

CSX recognized income of $683 million pretax, $428 million after tax, for the quarter ended April 1, 2005 as a result of the sale of its International Terminals business in February 2005. Discontinued Operations for the three months ended April 1, 2005 also includes an after-tax loss on operations of $3 million from the International Terminals business.

~~CSX CORPORATION~~
~~ITEM 2: MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS~~
~~AND FINANCIAL CONDITION~~

2005 Expectations

Revenue

Revenue growth is expected to continue to outpace volume growth inthrough 2005 due to a continued emphasis on ~~price.~~price and fuel surcharge. Lower contributory traffic is either being re-priced or replaced by longer haul, more profitable business. The amount of any revenue and volume increase depends on several factors:

Economy:Favorable economic conditions are expected based on the forecasts for key economic indicators such as the gross domestic product, industrial ~~and automotive~~ production ~~as well as~~and overall import levels. Generally, CSX’s revenue is fairly diversified and a large portion is relatively insensitive to significant fluctuations in the general economy. However, changes in the macro economic environment do impact overall revenue growth.

Operational Performance:Service is expected to improve with more consistent execution of the ONE Plan, which should result in improved average velocity and a more reliable service product. Consequently, additional volume may be captured as freight car availability increases due to improved asset utilization and reduced transit times. If service does not improve, volume growth could be flat to slightly negative.

Fuel Prices:Because of the fuel surcharge program and cost escalation clauses in long-term contracts, which include a fuel element, a portion of CSX’s revenue varies with the price of ~~fuel, but these mechanisms only partially offset the inflation in fuel prices.~~

fuel.

Operations

~~Improvement in~~

The Company expects key operating measurements ~~is targeted in~~to show consistent improvement through the second half of 2005. ~~Several factors~~In addition to the success of the initiatives outlined above, availability of resources can affect overall network performance and service ~~levels:~~

~~Availability of Resources:~~levels. Locomotive and train and engine (“T&E”) employee availability are critical to operating plan execution. Management believes current resource plans, which include the hiring ~~additional~~of significant numbers of train and engine employees and the acquisition of 100 new locomotives in the second half of 2005, will be sufficient to ~~manage anticipated volume while improving service levels.~~

support improved plan execution.

~~Volume:~~If volume growth significantly exceeds management’s expectations, additional train crew hiring and locomotive resources may be required, depending on the type and location of the volume growth. Deployment of additional resources could lag any surge in demand by several months due to the time required to hire and train employees or secure additional locomotives, subject to availability, which could negatively impact overall service levels during that period.

3330

CSX CORPORATION
PART I: FINANCIAL INFORMATION
ITEM 2: MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
~~AND~~ FINANCIAL CONDITION

Risk Factors

Competition

The Company experiences competition from other transportation providers including railroads and motor carriers that operate similar routes across its service area, and to a less significant extent barges, ships and pipelines. Transportation providers such as motor carriers and barges utilize public rights-of-way that are built and maintained by governmental entities while CSX and other railroads must build and maintain rail networks through the utilization of internal resources. If the scope and quality of these alternative methods of transportation are materially increased, or if legislation is passed providing materially greater opportunity for motor carriers with respect to size or weight restrictions, there could be a material adverse effect on the Company’s results of operations, financial condition and liquidity.

Employees and Labor Union Relationships

The Company considers employee relations with most of its unions generally to be good. Most of ~~CSX’s~~CSXT’s employees are represented by labor unions and are covered by collective bargaining agreements. The bargaining agreements contain a moratorium clause that precludes serving new bargaining demands until a certain date. These agreements, which usually are bargained nationally by the National Railway Labor Conference, ~~(“NRLC”),~~ normally contain the same moratorium date so all bargaining on agreement changes generally begins at approximately the same time. A round of bargaining started in 2000 when the moratorium provisions expired. Agreements have been reached with all but one of the unions. ~~Negotiations~~The Company has recently reached a tentative agreement with the union representing machinists, which awaits ratification by the machinists are in mediation. The machinists have asked the National Mediation Board to be released from mediation and the railroads have opposed that request. The machinists have sued the National Mediation Board seeking an order directing their release from mediation.

union members.

Also, the agreements which were concluded in the 2000 bargaining round are now open for renegotiation. The process of renegotiating these agreements commenced in early November 2004 when the parties were free to serve their bargaining demands. Negotiations with eight of thirteen unions are in mediation. The outcome of the 2004 round of negotiations is uncertain at this time.

In the rail industry, negotiations have generally taken place over a number of years and previously have not resulted in any extended work stoppages. The existing agreements continue to remain in effect until new agreements are reached. The parties are not permitted to either strike or lockout until the Railway Labor Act’s lengthy procedures (which include mediation, cooling-off periods, and the possibility of Presidential intervention) are exhausted.

3431

CSX CORPORATION
PART I: FINANCIAL INFORMATION
ITEM 2: MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
~~AND~~ FINANCIAL CONDITION

RISK FACTORS, Continued

Environmental Laws and Regulation

The Company’s operations are subject to wide-ranging federal, state and local environmental laws and regulations concerning, among other things, emissions to the air, discharges to water and the handling, storage, transportation and disposal of waste and other materials and cleanup of hazardous material or petroleum releases. The Company generates and transports hazardous and non-hazardous waste and materials in its current operations, and it has done so in its former operations. In certain circumstances, environmental liability can extend to formerly owned or operated properties, leased properties and properties owned by third parties, as well as to properties currently owned and used by the Company. Environmental liabilities have arisen and may also arise from claims asserted by adjacent landowners or other third parties in toxic tort litigation. The Company has been and may be subject to allegations or findings to the effect that it has violated, or is strictly liable under, environmental laws or regulations, and such violations can result in the ~~Company’s~~Company incurring fines, penalties or costs relating to the cleanup of environmental contamination. Although the Company has appropriately recorded current and long-term liabilities for known future environmental costs, it could incur significant costs as a result of any of the foregoing, and may be required to incur significant expenses to investigate and remediate known, unknown or future environmental contamination, which could have a material adverse effect on results of operations, financial condition and liquidity.

Fuel Costs

Fuel costs represent a significant expense of the Company’s Surface Transportation operations. Fuel prices can vary significantly from period to period and significant increases may have a material adverse effect on the Company’s operating results. Furthermore, fuel prices and supply are influenced considerably by international political and economic circumstances. IfThe Company has fuel surcharge revenue programs in place with a considerable number of customers. These programs have historically permitted the Company to recover a portion of increased fuel costs. Despite the Company’s fuel surcharge programs, if a fuel supply shortage arose from OPEC production restrictions, lower refinery outputs, a disruption of oil imports or otherwise, fuel shortages, higher fuel prices and any subsequent price increases could ~~despite the Company’s fuel surcharge programs,~~ materially adversely affect our operating results, financial condition and liquidity.

Future Acts of Terrorism or War

Terrorist attacks, such as those that occurred on September 11, 2001, or in Madrid, Spain onin March ~~11,~~ 2004, or in London, England in July 2005, and any government response thereto or war may adversely affect results of operations, financial condition and liquidity. The Company’s rail lines and physical plant may be direct targets or indirect casualties of acts of terror, which could cause significant business interruption and result in increased costs and liabilities and decreased revenues and have a material adverse effect on operating results, financial condition or liquidity. In addition, insurance premiums charged for some or all of the coverage currently maintained by the Company could increase dramatically or the coverage may no longer be available.

3532

CSX CORPORATION
PART I: FINANCIAL INFORMATION
ITEM 2: MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
~~AND~~ FINANCIAL CONDITION

RISK FACTORS, Continued

Regulation and Legislation

The Company is subject to the regulatory jurisdiction of the Surface Transportation Board (“STB”) of the United States Department of Transportation (“DOT”), the Federal Railroad Administration of DOT and other state and federal regulatory agencies ~~as to rail operations and~~ for a variety of economic, health, safety, labor, environmental and other matters. Legislation passed by Congress or regulations issued by these ~~organizations~~agencies can significantly affect the revenues, costs and profitability of the Company’s business. ~~In addition,~~Moreover, the failure to comply with applicable laws and regulations could have a material adverse effect on the Company.

In addition, Congressional efforts to reduce or eliminate funding for Amtrak, if successful, could result in significant costs to the Company, including, but not limited to: loss of revenue from trackage rights; uncertainty relating to operating agreements; loss of other contractual rights, such as indemnification; adverse network implications, such as potential coordination with numerous state commuter rail agencies; and increased payments into the Railroad Retirement system to supplement lost contributions from Amtrak and its employees.

In response to the heightened threat of terrorism in the wake of the September 11, 2001 attacks, federal, state and local governmental bodies are proposing and beginning to adopt various legislation and regulations relating to security issues that affect the transportation industry, including rules and regulations that affect the transportation of hazardous materials. For instance, the District of Columbia recently enacted legislation that prohibits rail carriers, including CSXT, from transporting certain hazardous materials through the city. The Company, supported by the United States, is currently challenging the validity of this legislation in the federal courts. Although the Company and the Federal Government ~~has~~have secured favorable ~~filings~~rulings from the US Court of Appeals for the District of Columbia Circuit and the Surface Transportation Board, legal proceedings continue and the ultimate outcome is uncertain. The extent to which other governmental bodies will ultimately take similar or related steps is also uncertain. Any legislation, regulations, or rules enacted by federal, state or local governmental bodies relating to security issues that affect rail and intermodal transportation have the potential to materially adversely affect the Company’s operations and costs.

Safety

The Company faces inherent business risk of exposure to property damage and personal injury claims in the event of train accidents, including derailments. The Company is also subject to exposure to occupational injury claims. While the Company is working diligently to enhance its safety programs and to continue to raise the awareness levels of its employees concerning safety, the Company cannot ensure that it will not experience any material property damage, personal or occupational claims in the future or that it will not incur significant costs to defend such claims. Additionally, the Company cannot ensure that existing claims will not suffer adverse development not currently reflected in reserve estimates, as the ultimate outcome of existing claims is subject to numerous factors ~~that are~~ outside of the Company’s control. The Company engages outside parties to assist with the evaluation of certain of the occupational and personal injury claims, and believes that it is adequately reserved to cover all potential claims. However, final amounts determined to be due on any outstanding matters may differ materially from the recorded reserves.

CSX CORPORATION
PART I: FINANCIAL INFORMATION
ITEM 2: MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION

RISK FACTORS, Continued

Severe Weather

The Company may face severe weather conditions and other natural occurrences, including floods, fires, hurricanes and earthquakes which may cause significant disruptions to the Company’s operations, and result in increased costs and liabilities and decreased revenues which could have a material adverse effect on operating results, financial condition and liquidity.

~~CSX CORPORATION~~
~~ITEM 2: MANAGEMENT’S DISCUSSION AND ANALYSIS OF~~ RESULTS OF OPERATIONS
~~AND FINANCIAL CONDITION~~

~~RESULTS OF OPERATIONS~~

Quarter Ended ~~April~~July 1, 2005 Compared to Quarter Ended ~~March 26,~~June 25, 2004

CSX follows a 52/53 week fiscal reporting calendar. Fiscal year 2005 consists of ~~a 52-week year~~52 weeks ending on December 30, 2005. Fiscal year 2004 consisted of a 53-week year ending on December 31, 2004. The financial statements presented are for the 13-week quarters ended ~~April~~July 1, 2005 and ~~March 26,~~June 25, 2004, the 26-week periods ended July 1, 2005 and June 25, 2004 and as of December 31, 2004. In 2004, the fourth quarter ~~ended~~ending December 31, 2004, consisted of 14 weeks.


	CONSOLIDATED (a)(b)									CONSOLIDATED^(a)(b)
	April 1,			March 26,			$			July 1,			June 25,			$
	2005			2004			Change
(Dollars in Millions)										2005			2004			Change
	(Dollars in Millions)(Unaudited)												(Unaudited)
Operating Revenue	$	2,108		$	1,920		$	188		$	2,166		$	1,997		$	169
Operating Expense
Labor and Fringe		704			686			18			707			665			42
Materials, Supplies and Other		461			416			45			438			435			3
Depreciation		205			162			43			205			159			46
Fuel		179			154			25			176			151			25
Building and Equipment Rent		132			137			(5	)		127			140			(13	)
Inland Transportation		56			74			(18	)		64			70			(6	)
Conrail Rents, Fees & Services		20			87			(67	)		19			82			(63	)
Restructuring Charge											—			15			(15	)
Miscellaneous		(3	)		(1	)		(2	)		(1	)		(2	)		1
Restructuring Charge		—			53			(53	)


Total Operating Expense		1,754			1,768			(14	)		1,735			1,715			20


Operating Income	$	354		$	152		$	202		$	431		$	282		$	149


(a)		Prior periods have been reclassified to conform to the current presentation.

(b)		Consolidated operating income includes the operating results of Surface Transportation illustrated on page 36 and other operating income. Other operating income includes the gain amortization on the CSX Lines conveyance, net sublease income from assets formerly included in the Marine Services segment, and other ~~items.~~items and amounted to $9 million and $2 million for the quarters ended July 1, 2005 and June 25, 2004, respectively.

~~Consolidated Operating Revenue~~

The three months ended April 1, 2005 demonstrated revenue growth increasing 10% or $188 million compared to the prior year comparable quarter primarily driven by yield management success, strong demand and the Company’s fuel surcharge program.

~~Consolidated Operating Income~~

Consolidated operating expenses remained relatively flat as decreases in Conrail Rents, Fees and Services and the absence of the restructuring charges offset increases in other expense items. Overall consolidated operating income increased $202 million or 133% quarter over quarter.

3734

CSX CORPORATION
PART I: FINANCIAL INFORMATION
ITEM 2: MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
~~AND~~ FINANCIAL CONDITION

RESULTS OF OPERATIONS, Continued

Consolidated Operating Revenue

The quarter ended July 1, 2005 demonstrated revenue growth increasing 8% or $169 million compared to the prior year comparable quarter as efforts to increase price, asset prioritization and utilization and fuel surcharge customer coverage continue across all lines of business.

Consolidated Operating Income

Consolidated operating expenses increased slightly due to higher incentive compensation and fuel expenses partially offset by the net positive effect of the Conrail spin-off transaction and the absence of restructuring charges. Overall consolidated operating income increased $149 million or 53% compared to the prior year quarter.

Interest Expense

Interest expense remained relatively consistent with the prior year comparable quarter.

Income Tax Expense

The income tax expense for the quarter ended July 1, 2005 decreased $66 million. The decrease was driven by a net income tax benefit of $71 million resulting from Ohio tax legislation changes enacted during the second quarter of 2005, partially offset by an increase in the overall effective state income tax rate.

Net Earnings

CSX consolidated net earnings for the quarter ended July 1, 2005 increased $46 million compared to the prior year comparable quarter as increases in consolidated operating revenue and tax benefits derived from Ohio tax legislation changes were offset by debt repurchase expense.

CSX CORPORATION
PART I: FINANCIAL INFORMATION
ITEM 2: MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION

RESULTS OF OPERATIONS, Continued

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

CSX Corporation and Subsidiaries

BUSINESS SEGMENTS (Unaudited)
(Dollars in Millions)

Quarters Ended July 1, 2005, and June 25, 2004


																			Surface
	Rail									Intermodal									Transportation
	2005			2004			Change			2005			2004			Change			2005			2004			Change

Operating Revenue	$	1,836		$	1,672		$	164		$	330		$	325		$	5		$	2,166		$	1,997		$	169
Operating Expense
Labor and Fringe		687			646			41			19			18			1			706			664			42
Materials, Supplies and Other		394			382			12			45			52			(7	)		439			434			5
Depreciation		193			148			45			10			9			1			203			157			46
Fuel		176			151			25			—			—			—			176			151			25
Building and Equipment Rent		104			103			1			33			41			(8	)		137			144			(7	)
Inland Transportation		(104	)		(103	)		(1	)		168			173			(5	)		64			70			(6	)
Conrail Rents, Fees and Services		19			82			(63	)		—			—			—			19			82			(63	)
Restructuring Charge		—			14			(14	)		—			1			(1	)		—			15			(15	)

Total Operating Expense		1,469			1,423			46			275			294			(19	)		1,744			1,717			27

Operating Income	$	367		$	249		$	118		$	55		$	31		$	24		$	422		$	280		$	142

Operating Ratio		80.0	%		85.1	%					83.3	%		90.5	%					80.5	%		86.0	%

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

CSX CORPORATION
PART I: FINANCIAL INFORMATION
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:

SURFACE TRANSPORTATION TRAFFIC AND REVENUE
Loads (Thousands); Revenue (Dollars in Millions)


	Second Quarter Loads							Second Quarter Revenue
	2005		2004		% Change			2005		2004		% Change

Merchandise
Phosphates and Fertilizers		117		121		(3	)%	$	91	$	88		3	%
Metals		92		95		(3	)		140		125		12
Forest Products		113		115		(2	)		181		166		9
Food and Consumer		63		61		3			109		92		18
Agricultural Products		87		89		(2	)		133		127		5
Chemicals		135		140		(4	)		270		264		2
Emerging Markets		136		134		1			137		129		6

Total Merchandise		743		755		(2	)		1,061		991		7

Automotive		124		135		(8	)		211		220		(4	)

Coal, Coke and Iron Ore
Coal		438		410		7			519		426		22
Coke and Iron Ore		21		17		24			22		16		38

Total Coal, Coke and Iron Ore		459		427		7			541		442		22
Other		—		—		—			23		19		21


Total Rail		1,326		1,317		1			1,836		1,672		10


Intermodal
Domestic		223		267		(16	)		185		199		(7	)
International		320		322		(1	)		124		124		—
Other		—		—		—			21		2	NM

Total Intermodal		543		589		(8	)		330		325		2

Total Surface Transportation		1,869		1,906		(2	)%	$	2,166	$	1,997		8	%

Prior periods have been reclassified to conform to the current presentation.
NM — Not Meaningful

CSX CORPORATION
PART I: FINANCIAL INFORMATION
ITEM 2: MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION

RESULTS OF OPERATIONS, Continued

Rail

Rail Operating Revenue

Merchandise

The second quarter of 2005 represents the 13^th consecutive quarter of year-over-year merchandise revenue growth, as well as record revenue-per-car results. All markets experienced quarter-over-quarter revenue and revenue-per-car gains as a result of continued yield management and fuel surcharges. Efforts to increase price and fuel surcharge customer coverage continue across all lines of business. CSX experienced slight volume declines in five of seven markets. However emerging markets and food and consumer, both of which include new business opportunities, delivered quarter-over-quarter volume growth.

Agricultural — The large corn crop harvested in 2004 continues to allow feed mills in the east to draw on local supplies, resulting in reduced traffic. Agricultural exports and ethanol shipments continued to show quarter-over-quarter strength.

Food and Consumer — Volume was favorable quarter over quarter due to strength in the movement of transportation equipment, such as new freight cars, alcoholic beverages and canned goods. Aggressive yield management resulted in significant revenue per car increases.

Forest Products — A quarter-over-quarter drop in newsprint demand, from conversion to electronic media and the use of lighter papers, more than offset the favorable impact from the continued strong housing market.

Metals — Overall demand was unfavorable quarter over quarter due to weakness in scrap and sheet metal resulting from high inventories in both markets. Volume was favorable quarter over quarter in semi-finished products and structural steel. Price increases coupled with asset prioritization focus resulted in revenue-per-car increases of 16%.

Emerging Markets — Volume was favorable quarter over quarter due to strong demand for shipments in lime, waste and aggregates lines of business. Military shipments were down quarter over quarter due to fewer military equipment deployments.

Chemicals — Unfavorable quarter-over-quarter volume was driven by high raw materials inventories and energy prices. Reduced automotive production has unfavorably impacted raw material shipments for tires, specialty plastic and automotive glass.

Phosphate and Fertilizer — Volume fell as a result of lower rail shipments of export and domestic phosphate and potash. Reduced fertilizer application lowered domestic phosphate demand by nearly 10%. International phosphate producer inventories were at a 10-year high at the end of March, which led to lower export phosphate shipments in April and early May.

CSX CORPORATION
PART I: FINANCIAL INFORMATION
ITEM 2: MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION

RESULTS OF OPERATIONS, Continued

Coal, Coke and Iron Ore

Record revenue and revenue-per-car levels were achieved for the quarter. Strong demand continues across coal sub-markets, with a mild softening noted only in steel related traffic. Utility inventories remain below target levels intensifying the demand for coal shipments. The Company reached a settlement agreement in a rate case that resulted in an additional $17 million of revenue in the second quarter of 2005.

Automotive

Volume was down 8% as vehicle production by traditional domestic manufacturers was unfavorable by 10% quarter over quarter. Overall, North American light vehicle production was unfavorable by 1% quarter over quarter. Field inventory levels were down 14 days quarter over quarter to 58 days, which remains at or slightly above target levels. Volume declines from GM permanently closing three plants served by CSX were partially offset by rail shipments beginning at the CSX-served Montgomery, AL, Hyundai plant.

Rail Operating Expense

Labor and Fringeincreased $41 million or 6% for the quarter ended July 1, 2005 compared to the quarter ended June 25, 2004. Higher incentive compensation costs are the primary driver of the higher expense as well as the effects of inflation.

Materials, Supplies and Otherincreased $12 million or 3% for the quarter ended July 1, 2005 compared to the quarter ended June 25, 2004 primarily due to inflation and increased legal fees which were mostly offset by a supplier cost reimbursement.

Depreciationincreased $45 million or 30% for the quarter ended July 1, 2005 compared to the quarter ended June 25, 2004, mainly attributable to the Conrail spin-off transaction completed in the third quarter of 2004, as assets previously leased from Conrail are now owned directly by CSXT, as well as higher expenses resulting from an increase in the asset base.

Fuelincreased $25 million or 17% for the quarter ended July 1, 2005 compared to the quarter ended June 25, 2004, due to higher fuel prices, net of hedging benefits. Also, recoveries in the second quarter of 2004 associated with foreign line fuel billing settlements were not repeated. Lower volume and efficiency gains partially offset this change.

Conrail Rents, Fees and Servicesdecreased $63 million for the quarter versus the prior year comparable quarter due to the Conrail transaction completed in the third quarter of 2004. This transaction decreased rents paid to Conrail, as assets previously leased from Conrail are now owned directly by CSXT.

Restructuring Chargeof $14 million represents the 2004 charge for separation expenses related to the management restructuring announced in November 2003 at the Company’s Surface Transportation units.

CSX CORPORATION
PART I: FINANCIAL INFORMATION
ITEM 2: MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION

RESULTS OF OPERATIONS, Continued

Rail Operating Income

Operating income was $367 million for the quarter ended July 1, 2005 compared to $249 million for the quarter ended June 25, 2004.

Intermodal

Intermodal Operating Revenue

Domestic- The Network Simplification Initiative (“NSI”), which led to overall service improvements across the network and reduced unprofitable traffic, resulted in lower volume. The quarter ended July 1, 2005 is the last quarter of period over period variance due to NSI as the Company has cycled through the impacts of this initiative. Continued re-pricing and improved cargo selection coupled with tight capacity across all modes of transportation partially offset volume reduction.

International- Second quarter volumes remained essentially flat due to sustained focus on eliminating less profitable traffic. Price increases were offset by unfavorable traffic mix changes.

Other- Higher fuel surcharge rates and increased customer coverage, terminal storage charge increases and a reduction in volume refund incentives all drove favorable quarter over quarter revenue comparisons.

Intermodal Operating Expense

Intermodal operating expense decreased $19 million, or 6%, compared to the prior year quarter as a result of reduced volume primarily attributable to NSI.

Intermodal Operating Income

Intermodal operating income increased $24 million, or 77%, compared to the prior year quarter due to higher fuel surcharge rates and increased customer coverage, reduction of volume incentive refund programs, increases in terminal storage charges relating to equipment, and expense savings from NSI.

CSX CORPORATION
PART I: FINANCIAL INFORMATION
ITEM 2: MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION

RESULTS OF OPERATIONS, Continued

Six Months Ended July 1, 2005 Compared to Six Months Ended June 25, 2004


	CONSOLIDATED^(a)(b)
	July 1,			June 25,			$
(Dollars in Millions)	2005			2004			Change

	(Unaudited)

Operating Revenue	$	4,274		$	3,917		$	357
Operating Expense
Labor and Fringe		1,403			1,343			60
Materials, Supplies and Other		907			859			48
Depreciation		410			321			89
Fuel		355			305			50
Building and Equipment Rent		259			277			(18	)
Inland Transportation		120			144			(24	)
Conrail Rents, Fees & Services		39			169			(130	)
Restructuring Charge		—			68			(68	)
Miscellaneous		(4	)		(3	)		(1	)


Total Operating Expense		3,489			3,483			6


Operating Income	$	785		$	434		$	351


(a)		Prior periods have been reclassified to conform to the current presentation.

(b)		Consolidated operating income includes the operating results of Surface Transportation illustrated on page 36 and other operating income. Other operating income includes the gain amortization on the CSX Lines conveyance, net sublease income from assets formerly included in the Marine Services segment, and other items and amounted to $12 million and $3 million for the six months ended July 1, 2005 and June 25, 2004, respectively.

Consolidated Operating Revenue

The six months ended July 1, 2005 demonstrated revenue growth increasing 9% or $357 million compared to the prior year comparable period primarily driven by continued yield management success and the Company’s fuel surcharge program.

Consolidated Operating Income

Consolidated operating expenses for the six months ended July 1, 2005 remained relatively consistent with the prior year comparable period. Overall consolidated operating income increased $351 million or 81% primarily derived from increases in operating revenue.

Interest Expense

Interest expense increased $6$7 million compared to the prior year comparable period due to the higher interest rate ofapplicable to the Conrail debt included in the Consolidated Balance Sheets as a result of the Conrail asset transfer in August 2004 combined with rising short-term interest rates and decreased benefit from the Company’s interest rate swaps.

CSX CORPORATION
PART I: FINANCIAL INFORMATION
ITEM 2: MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION

RESULTS OF OPERATIONS, Continued

Income Tax Expense

The income tax expense for the six-month period ended ~~April~~July 1, 2005 increased ~~$71~~$5 million compared to the prior year comparable ~~quarter, which is~~period. The principal elements of the ~~result~~$5 million variance are: (i) the income tax impact of ~~higher consolidated operating~~increased pretax earnings, (ii) an increase in the overall effective state income tax rate, and (iii) offset by ~~a one-time, non-cash deferred income~~the $71 million tax ~~expense reduction stemming~~benefit resulting from ~~the enactment of income~~Ohio tax legislation ~~in one jurisdiction~~changes enacted during the ~~period.~~

second quarter of 2005.

Net Earnings

CSX consolidated net earnings for the six-month period ended ~~April~~July 1, 2005 increased ~~$549~~$595 million compared to the prior year comparable ~~quarter~~period as the Company recognized income of ~~$683 million pretax,~~ $428 million after tax as a result of the sale of its International Terminals business.

Otherwise, increases in consolidated operating revenue and tax benefits derived from Ohio tax legislation changes where offset by debt repurchase expense.

3842

CSX CORPORATION
PART I: FINANCIAL INFORMATION
ITEM 2: MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
~~AND~~ FINANCIAL CONDITION

RESULTS OF OPERATIONS, Continued

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

RAIL
April 1, March 26, $
2005 2004 Change
(Dollars in Millions)(Unaudited)
Operating Revenue
$ 1,779 $ 1,605 $ 174
Operating Expense

Labor and Fringe 682 666 16
Materials, Supplies and Other 410 365 45
Depreciation 193 150 43
Fuel 179 154 25
Building and Equipment Rent 101 102 (1 )
Conrail Rents, Fees & Services 20 87 (67 )
Inland Transportation (105 ) (101 ) (4 )
Restructuring Charge – Net — 50 (50 )

Total Operating Expense
1,480 1,473 7

Operating Income
$ 299 $ 132 $ 167

Operating Ratio
83.2 % 91.8 %

INTERMODAL
April 1, March 26, $
2005 2004 Change
(Dollars in Millions)(Unaudited)
Operating Revenue
$ 329 $ 315 $ 14
Operating Expense

Inland Transportation 161 175 (14 )
Materials, Supplies and Other 52 51 1
Building and Equipment Rent 34 38 (4 )
Labor and Fringe 20 19 1
Depreciation 10 10 —
Restructuring Charge – Net — 3 (3 )

Total Operating Expense
277 296 (19 )

Operating Income
$ 52 $ 19 $ 33

Operating Ratio
84.2 % 94.0 %
CSX Corporation and Subsidiaries

BUSINESS SEGMENTS (Unaudited)
(Dollars in Millions)

Six Months Ended July 1, 2005, and June 25, 2004


																			Surface
	Rail									Intermodal									Transportation
	2005			2004			Change			2005			2004			Change			2005			2004			Change

Operating Revenue	$	3,615		$	3,277		$	338		$	659		$	640		$	19		$	4,274		$	3,917		$	357
Operating Expense
Labor and Fringe		1,361			1,304			57			39			37			2			1,400			1,341			59
Materials, Supplies and Other		812			755			57			97			103			(6	)		909			858			51
Depreciation		386			298			88			20			19			1			406			317			89
Fuel		355			305			50			—			—			—			355			305			50
Building and Equipment Rent		205			205			—			67			79			(12	)		272			284			(12	)
Inland Transportation		(209	)		(204	)		(5	)		329			348			(19	)		120			144			(24	)
Conrail Rents, Fees and Services		39			169			(130	)		—			—			—			39			169			(130	)
Restructuring Charge		—			64			(64	)		—			4			(4	)		—			68			(68	)

Total Operating Expense		2,949			2,896			53			552			590			(38	)		3,501			3,486			15

Operating Income	$	666		$	381		$	285		$	107		$	50		$	57		$	773		$	431		$	342

Operating Ratio		81.6	%		88.4	%					83.8	%		92.2	%					81.9	%		89.0	%

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

~~(a)~~

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

3943

CSX CORPORATION
PART I: FINANCIAL INFORMATION
ITEM 2: MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
~~AND~~ FINANCIAL CONDITION

RESULTS OF OPERATIONS, Continued

Surface Transportation Results, Continued

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

SURFACE TRANSPORTATION TRAFFIC AND REVENUE^(a)
Loads (Thousands); Revenue (Dollars in Millions)

First Quarter Loads First Quarter Revenue
2005 2004 % Change 2005 2004 % Change
Merchandise

Phosphates and Fertilizers 117 120 (3) % $ 90 $ 89 1 %
Metals 93 94 (1 ) 138 119 16
Forest Products 113 114 (1 ) 176 159 11
Food and Consumer 63 59 7 105 88 19
Agricultural Products 92 92 — 137 131 5
Chemicals 140 139 1 275 256 7
Emerging Markets 115 112 3 117 116 1

Total Merchandise
733 730 0 1,038 958 8

Automotive
125 125 — 208 202 3

Coal, Coke and Iron Ore

Coal 437 403 8 482 405 19
Coke and Iron Ore 21 17 24 24 17 41

Total Coal, Coke and Iron Ore
458 420 9 506 422 20
Other
— — — 27 23 17

Total Rail
1,316 1,275 3 1,779 1,605 11

Intermodal

Domestic 212 254 (17 ) 167 192 (13 )
International 316 295 7 124 117 6
Other — — — 38 6 533

Total Intermodal
528 549 (4 ) 329 315 4

Total Surface Transportation
1,844 1,824 1 % $ 2,108 $ 1,920 10 %


	Six Months Loads							Six Months Revenue
	2005		2004		% Change			2005		2004		% Change

Merchandise
Phosphates and Fertilizers		234		241		(3	)%	$	181	$	177		2	%
Metals		185		189		(2	)		278		244		14
Forest Products		226		229		(1	)		357		325		10
Food and Consumer		126		120		5			213		179		19
Agricultural Products		179		181		(1	)		270		258		5
Chemicals		275		279		(1	)		546		520		5
Emerging Markets		251		246		2			254		246		3

Total Merchandise		1,476		1,485		(1	)		2,099		1,949		8

Automotive		249		260		(4	)		419		422		(1	)

Coal, Coke and Iron Ore
Coal		875		813		8			1,001		831		20
Coke and Iron Ore		42		34		24			46		33		39

Total Coal, Coke and Iron Ore		917		847		8			1,047		864		21
Other		—		—		—			50		42		19


Total Rail		2,642		2,592		2			3,615		3,277		10


Intermodal
Domestic		435		521		(17	)		352		391		(10	)
International		636		617		3			247		241		2
Other		—		—		—			60		8	NM

Total Intermodal		1,071		1,138		(6	)		659		640		3

Total Surface Transportation		3,713		3,730		(0	)%	$	4,274	$	3,917		9	%

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

NM — Not Meaningful

~~(a)~~

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

4044

CSX CORPORATION
PART I: FINANCIAL INFORMATION
ITEM 2: MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
~~AND~~ FINANCIAL CONDITION

~~RESULTS OF OPERATIONS, Continued~~

~~Rail~~

~~Rail Operating Revenue~~

~~Rail revenue increased $174 million or 11% for the quarter ended April 1, 2005 compared to the quarter ended March 26, 2004.~~

~~Merchandise~~

Merchandise revenue was up 8% on relatively flat volume during the first quarter of 2005. All markets showed year-over-year improvement in revenue per car due to continued price increases and the Company’s fuel surcharge program.

•
~~Phosphates and Fertilizers~~– Strength in revenue yield offset volume weakness and mix changes, as overall revenue grew 1%. Domestic phosphate demand was soft, causing interior phosphate revenue to fall by 24% while shorter haul export phosphate revenue grew 15%.
•   ~~Metals~~– Despite a 1% decline in volume, metals revenue grew 16% due to market pricing and favorable mix changes. Strong demand continues to sustain high levels of steel production, but the sources of the strength are beginning to shift from automotive to construction. Imports have also been strong.
•   ~~Forest Products~~– Paper markets produced significantly higher revenue despite lower volume in several lines of business. Volume strength in lumber and panel markets was offset by declines in several paper markets. U.S. newsprint demand dropped over 4% during the first two months of the year, while imports continue to affect domestic paper production.
•   ~~Food and Consumer~~– Volume was favorable by 7%, led by gains in building products and alcoholic beverages. Even stronger revenue gains of 19% were driven by continued yield management success and gains in transportation equipment.
•   ~~Agricultural Products~~– Volume was flat due to weakness in domestic beans and processed products markets. However, revenue was favorable on strength in export and ethanol shipments, as well as revenue per car increases in feed ingredients, sweeteners and flour.
•   ~~Chemicals~~– Revenue grew 7% on relatively flat volume. Gains were strongest in textile chemicals, bleach/paper chemicals, and petroleum products. The plastics market experienced volatility during the quarter as buyers reduced existing inventories; but revenue still grew 4%. Sand shipments were down due to car shortages and losses of marginal traffic.
•   ~~Emerging Markets~~– Volume was favorable overall as strength in most lines of business offset weakness in military shipments. Volume strength was primarily driven by growth in northern aggregates of 32% and salt of 23%. An unfavorable military mix impact, drove an overall decline in revenue per car.

~~CSX CORPORATION~~
~~ITEM 2: MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS~~
~~AND FINANCIAL CONDITION~~

~~RESULTS OF OPERATIONS, Continued~~

~~Automotive~~

Revenue increased 3% on flat volume as a result of yield improvements. North American light vehicle production decreased 179,285 units, or roughly 4%, year over year. Inventory levels remain high, at 69 days for most manufacturers and 79 days for the Big 3. Manufacturers are using production downtime and incentives to address excess inventory.

~~Coal, Coke and Iron Ore~~

Overall coal, coke and iron ore revenues were favorable 20% year over year. Volume was favorable 9% or 38,000 carloads. Growth was driven by volume gains in export, industrial, coke, and northern utility markets. Revenue per car growth was the result of market price increases and the Company’s fuel surcharge program offsetting slightly unfavorable mix. All lines of business reflect favorable year over year revenue-per-car gains.

~~Rail Operating Expense~~

~~Labor and Fringe~~expenses increased $16 million in the first quarter of 2005 versus the prior year quarter. The effects of inflation continue to drive labor and fringe expense increases, along with increases in incentive compensation. These costs were partially offset by benefits realized from reduced staffing levels.

~~Materials, Supplies and Other~~expenses increased $45 million during the first quarter of 2005 as compared to the prior year quarter. The increase is associated with volume and inflation related expenses as well as an increase in expenses related to the resolution of certain legal matters and higher reserve requirements for non-trade uncollectible accounts.

~~Depreciation~~increased $43 million for the first quarter of 2005 due to an increased depreciation base, mainly attributable to the Conrail transaction, as assets previously leased from Conrail are now owned directly by CSX.

~~Fuel~~~~increased $25 million for the quarter versus the prior year due to higher fuel prices, net of hedging benefits.~~

~~Conrail Rents, Fees and Services~~decreased $67 million for the quarter primarily due to the Conrail transaction completed in the third quarter of 2004. This transaction decreased rents paid to Conrail, as assets previously leased from Conrail are now owned directly by CSX.

~~Restructuring Charge~~~~of $50 million represents the 2004 charge for separation expenses related to the management restructuring announced in November 2003 at Surface Transportation.~~

~~Rail Operating Income~~

~~Operating income was $299 million for the quarter ended April 1, 2005 compared to $132 million for the quarter ended March 26, 2004.~~

~~CSX CORPORATION~~
~~ITEM 2: MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS~~
~~AND FINANCIAL CONDITION~~

~~RESULTS OF OPERATIONS, Continued~~

~~Intermodal~~

~~Intermodal Operating Revenue~~

~~Domestic~~

The Network Simplification Initiative (NSI), severe west coast weather and service issues led to a 17% decrease in volume. Market rate increases partially offset the volume reduction and significantly improved revenue per unit.

~~International~~

Revenue gains were largely driven by increases in traffic on the core network. Decreases in off-core and transcontinental traffic were impacted by marketing changes and the west coast embargo which was caused by severe weather.

~~Other~~

~~Overall revenue strength was driven by favorable changes in incentive refund programs, fuel surcharge and an increase in per-diem and supplemental charges related to asset utilization.~~

~~Intermodal Operating Expense~~

Intermodal operating expense decreased $19 million, or 6%, compared to the prior year quarter, resulting primarily from reduction in volume associated with NSI and western linehaul routes unfavorably impacted by the significant weather on the west coast.

~~Intermodal Operating Income~~

Intermodal operating income increased $33 million, or 174%, compared to the prior year quarter due to favorable changes in incentive refund programs, fuel surcharge and an increase in per-diem and supplemental charges related to asset utilization. Continued yield improvements in the domestic business segment are also driving the increase.

~~CSX CORPORATION~~
~~ITEM 2: MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS~~
~~AND FINANCIAL CONDITION~~

LIQUIDITY AND CAPITAL RESOURCES

Cash, cash equivalents and short-term investments ~~increased $964~~decreased $346 million to ~~$1.8 billion~~$513 million at ~~April~~July 1, 2005, from $859 million at December 31, 2004. Net cash proceeds from the disposition of the Company’s International Terminals business iswas the primary source of cash and cash equivalents ~~during the three months ended April 1, 2005. The Company is considering options regarding the use~~used to repurchase approximately $1 billion of ~~net cash proceeds including reduction of debt and other corporate purposes.~~

publicly-traded notes.

Other current assets increased ~~$131~~$95 million to ~~$288~~$252 million as of ~~April~~July 1, 2005 as rising fuel prices continue to increase the Company’s fuel hedge asset.

~~Other current liabilities decreased $36 million to $79 million primarily due to payments for the purchase of freight cars.~~

~~See Note 4. Debt and Credit Agreements, for discussion of the Company’s revolving credit agreements.~~

As of ~~April~~July 1, 2005, CSX’s long-term unsecured debt obligations were rated BBB and Baa2 by Standard and Poor’s and Moody’s Investor Service, respectively. ~~On March 30, 2004,~~In May 2005, Standard and Poor’s ~~lowered~~raised the Company’s short-term rating from ~~A-2~~A-3 to ~~A-3~~A-2 and revised the outlook from ~~stable~~negative to ~~negative. On~~stable. In July 6, 2004, Moody’s Investor Service reaffirmed the Company’s short and long-term unsecured debt ratings, but adjusted the outlook from stable to negative. The Company’s short-term commercial paper program is rated ~~A-3~~A-2 and P-2 by Standard and Poor’s and Moody’s Investor Service, respectively. ~~This increases the Company’s borrowing costs in the commercial paper market and reduces the Company’s access to these funds because of the limited demand for A-3 commercial paper.~~ If CSX’s long-term unsecured bond ratings were reduced to BBB- and Baa3, the Company’s undrawn borrowing costs under the $1.2 billion and $400 million revolving credit facilities would not materially increase.

If CSX’s short-term commercial paper ratings were reduced to A-3 and P-3, it would increase the Company’s borrowing costs in the commercial paper market and reduce the Company’s access to this source of funds because of the more limited demand for lower rated commercial paper.

The Company had no commercial paper outstanding at ~~April~~July 1, 2005 or December 31, 2004.

CSX’s working capital at ~~April~~July 1, 2005 was ~~$517~~a deficit of $305 million, compared to a deficit of $330 million at December 31, ~~2004. This change is~~2004, primarily driven by ~~the net cash proceeds from the disposition~~a reduction of ~~the Company’s International Terminals business and a decrease in~~ debt ~~that will become~~ due within ~~12 months. The Company believes that in future periods working capital will return to a deficit.~~one year offset by lower cash, cash equivalents and short-term investments. A working capital deficit is not unusual for the Company and other companies in the industry 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.

See Note 4. Debt and Credit Agreements, for discussion of the Company’s revolving credit facilities and repurchase of debt.

Shelf Registration Statements

CSX currently has $900 million of capacity under an effective shelf registration that may be used, subject to market conditions and board authorization, to issue debt or equity securities at the Company’s discretion. The Company presently intends to use the proceeds from the sale of any securities issued under its shelf registration statement to finance cash requirements, including refinancing existing debt as it matures. While the Company seeks to give itself flexibility with respect to meeting such needs, there can be no assurance that market conditions would permit the Company to sell such securities on acceptable terms at any given time, or at all.

4445

CSX CORPORATION
PART I: FINANCIAL INFORMATION
ITEM 2: MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
~~AND~~ FINANCIAL CONDITION

~~LIQUIDITY AND CAPITAL RESOURCES, Continued~~

~~FINANCIAL DATA~~

(Dollars in Millions)
April 1, December 31,
2005 2004
Current Ratio 1.2 0.9
Debt Ratio 41 % 48 %
Ratio of Earnings to Fixed Charges 2.0x 2.0 x

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. Significant estimates using management judgment are made for the following areas:

	•		Casualty, Environmental and Legal Reserves

	•		Pension and Postretirement Medical Plan Accounting

	•		Depreciation Policies for Assets Under the Group-Life Method

	•		Income Taxes

These estimates and assumptions are discussed with the Audit Committee of the Board of Directors on a regular basis.

4546

CSX CORPORATION
PART I: FINANCIAL INFORMATION
ITEM 2: MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
~~AND~~ FINANCIAL CONDITION

FORWARD LOOKING STATEMENTS

Certain statements in this report and in other materials filed with the Securities and Exchange Commission, as well as information included in oral statements or other written statements made by the Company, are forward-looking statements within the meaning of the Securities Act of 1933 and the Securities Exchange Act of 1934. These forward-looking statements include, among others, statements regarding:

	•		Expectations as to operating results and operational improvements;

	•		Expectations as to the effect of claims, lawsuits, environmental costs, commitments, contingent liabilities, labor negotiations or agreements on our financial condition;

	•		Management’s plans, goals, strategies and objectives for future operations and other similar expressions concerning matters that are not historical facts, and management’s expectations as to future performance and operations and the time by which objectives will be achieved; and

	•		Future economic, industry or market conditions or performance.

Forward-looking statements are typically identified by words or phrases such as “believe”, “expect”, “anticipate”, “project”, and similar expressions. The Company cautions against placing undue reliance on forward-looking statements, which reflect its good faith beliefs with respect to future events and are based on information currently available to it as of the date the forward-looking statement is ~~made. Forward-looking~~made.Forward-looking statements should not be read as a guarantee of future performance or results, and will not necessarily be accurate indications of the times that, or by which, such performance or results will be achieved.

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. The Company undertakes no obligation to update or revise any forward-looking statement. If the Company does update any forward-looking statement, no inference should be drawn that the Company will make additional updates with respect to that statement or any other forward-looking statements. The following important factors, in addition to those discussed elsewhere, may cause actual results to differ materially from those contemplated by these forward-looking statements:

	•		The Company’s success in implementing its operational objectives and improving Surface Transportation operating efficiency;

	•		Changes in operating conditions and costs or commodity concentrations;

	•		Material changes in domestic or international economic or business conditions, including those affecting the rail industry such as customer demand, effects of adverse economic conditions affecting shippers, and adverse economic conditions in the industries and geographic areas that consume and produce freight;

	•		Labor costs and labor difficulties, including stoppages affecting either the Company’s operations or the customers’ ability to deliver goods to the Company for shipment;

	•		The inherent risks associated with safety and security, including adverse economic or operational effects from terrorist activities and any governmental response;

	•		Changes in fuel prices;

4647

CSX CORPORATION
PART I: FINANCIAL INFORMATION
ITEM 2: MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
~~AND~~ FINANCIAL CONDITION

FORWARD LOOKING STATEMENTS, Continued

	•		Legislative, regulatory, or legal developments involving taxation, including the outcome of tax claims and litigation; the potential enactment of initiatives to re-regulate the rail industry and the ultimate outcome of shipper and rate claims subject to adjudication;

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

	•		Natural events such as extreme weather conditions, fire, floods, earthquakes, or other unforeseen disruptions of the Company’s operations, systems, property or equipment; and

	•		The outcome of litigation and claims, including those related to environmental contamination, personal injuries and occupational illnesses.

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 website atwww.sec.gov and the Company’s website atwww.csx.com.

4748

CSX CORPORATION
PART I: FINANCIAL INFORMATION
ITEM 3: ~~QUANTATIVE~~QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

CSX addresses market risk exposure to fluctuations in interest rates and the risk of volatility in its fuel costs through the use of derivative financial instruments. The Company does not hold or issue derivative financial instruments for trading purposes.

The Company addresses its exposure to interest rate market risk through a controlled program of risk management that includes the use of interest rate swap agreements. ~~As of April 1, 2005, the Company had various~~The table below illustrates our interest rate swap ~~agreements on $950 million~~position as of ~~its fixed rate outstanding notes payable. In the event of a 1% increase or decrease~~July 1, 2005.

(Dollars in ~~the LIBOR interest rate, the interest expense related to these agreements would increase or decrease approximately $10 million on an annual basis.~~

Millions)

	July 1,
	2005
Interest Rate Swap Agreements	$	694
Effect of 1% Increase or Decrease in LIBOR Interest Rate	$	7

During 2003, the Company began a program to hedge its exposure to fuel price volatility through swap transactions. As of ~~April~~July 1, 2005, CSX had hedged approximately ~~47%~~43% and 9% of fuel purchases for 2005 and 2006, respectively. At ~~April~~July 1, 2005, a 1% change in fuel prices would result in an increase or decrease in the asset related to the swaps of approximately $3$2 million. The Company’s rail unit average annual fuel consumption is approximately ~~607~~606 million gallons. A one-cent change in the price per gallon of fuel would affect fuel expense by approximately $3$4 million annually.

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

~~Exclusive~~

The following table highlights our floating rate debt outstanding exclusive of derivative contracts that swap fixed interest rate notes to floating interest ~~rates, CSX had approximately $434 million of floating rate debt outstanding at April 1, 2005. A 1% variance~~rates.

(Dollars in ~~interest rates would on average affect annual interest expense by approximately $4 million.~~
Millions)

	July 1,
	2005
Floating Rate Debt Outstanding	$	370
Effect of 1% Variance in Interest Rates	$	4

4849

CSX CORPORATION
PART I: FINANCIAL INFORMATION
ITEM 4: CONTROLS AND PROCEDURES

As of ~~April~~July 1, 2005, 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~~July 1, 2005. There were no changes in the Company’s internal controls over financial reporting during the fiscal quarter covered by this quarterly report that have materially affected or are reasonably likely to materially affect the Company’s internal control over financial reporting.

4950

CSX CORPORATION
PART II: OTHER INFORMATION

ITEM 1: LEGAL PROCEEDINGS

For information relating to CSX’s settlements and other legal proceedings, see Note ~~13.~~12.

ITEM 2: UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

None.

ITEM 3: DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

	(a)		Annual meeting held May 4, 2005

	(b)		Not applicable

	(c)		There were 215,916,402 shares of CSX common stock outstanding as of March 4, 2005, the record date for the 2005 annual meeting of shareholders. A total of 188,595,880 shares were voted. All of the nominees for directors of the corporation were elected with the following vote:


	Votes	Votes
Nominee	For	Withheld

Elizabeth E. Bailey	182,339,153	6,256,727
John B. Breaux	183,232,590	5,363,290
Edward J. Kelly III	179,489,361	9,106,519
Robert D. Kunisch	182,270,542	6,325,338
Southwood J. Morcott	182,252,294	6,343,586
David M. Ratcliffe	181,422,683	7,173,197
Charles E. Rice	181,596,295	6,999,585
William C. Richardson	182,264,510	6,331,370
Frank S. Royal	181,717,480	6,878,400
Donald J. Shepard	183,657,178	4,938,702
Michael J. Ward	182,234,468	6,361,412

The appointment of Ernst & Young LLP as independent auditors to audit and report on CSX’s financial statements for the year 2005 was ratified by the shareholders with the following vote:


	Votes				Broker
Votes For	Against		Abstentions		Non-Votes

183,383,311		3,670,429		1,542,140		—

~~None.~~

CSX CORPORATION
PART II: OTHER INFORMATION

ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS, CONTINUED

The shareholder proposal regarding non-deductible executive compensation was declined with the following vote:


	Votes				Broker
Votes For	Against		Abstentions		Non-Votes

12,808,601		152,114,061		2,560,640		21,112,578

The shareholder proposal regarding majority vote was approved with the following vote:


	Votes				Broker
Votes For	Against		Abstentions		Non-Votes

125,425,384		39,507,833		2,550,085		21,112,578

ITEM 5: OTHER INFORMATION

CSX Corporation’s Board of Directors (“Board”) has adopted, upon recommendation from the Governance Committee of the Board, Stock Ownership Guidelines to further ensure alignment of the interests of non-employee directors (“Director”) with the interests of stockholders. This action reflects the growing trend among large, publicly-held companies to require directors to hold prescribed amounts of company stock. In addition, the Board requires that each Director receive 50 percent of his or her respective annual retainer in the form of Company stock.

These guidelines require that all Directors own shares of common stock in CSX Corporation. Within five years of election to the Board of Directors, a Director must acquire and hold an amount of CSX common stock equal in value to five times the amount of such Director’s annual retainer. The minimum number of CSX shares to be held by Directors will be calculated on June 1 of each calendar year based on the average of the high and low price of CSX common stock on the New York Stock Exchange (“NYSE”) on that date. In the event that June 1 is not a day on which the NYSE is open for trading, this calculation will occur on the first trading day immediately following June 1. Any subsequent change in the value of the shares will not affect the amount of stock Directors must hold during that year. In the event the annual retainer increases, the Directors will have five years from the time of the increase to acquire any additional shares needed to meet these guidelines.

~~None.~~

CSX CORPORATION
PART II: OTHER INFORMATION

ITEM 6. EXHIBITS
~~Exhibits~~

Exhibits

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.

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.


*		Filed herewith

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)~~


		CSX CORPORATION (Registrant)
	By:	/s/ CAROLYN T. SIZEMORE
		Carolyn T. Sizemore
		Vice President and Controller ~~(Principal~~ (Principal Accounting Officer)

Dated: ~~May 2,~~August 1, 2005

5153


		Page Number
PART I:	FINANCIAL INFORMATION

Item 1:	Financial Statements

	Consolidated Income Statements (Unaudited) — Quarters and Six Months Ended ~~April~~July 1, 2005 and ~~March 26,~~June 25, 2004		3

	Consolidated Balance Sheets ~~(Unaudited)~~ — At ~~April~~July 1, 2005 (Unaudited) and December 31, 2004		4

	Consolidated Cash Flow Statements (Unaudited) — ~~Quarters~~Six Months Ended ~~April~~July 1, 2005 and ~~March 26,~~June 25, 2004		5

	Notes to Consolidated Financial Statements (Unaudited)		6

Item 2:	Management’s Discussion and Analysis of Results of Operations and Financial Condition		3128

Item 3:	Quantitative and Qualitative Disclosures about Market Risk		4849

Item 4:	Controls and Procedures		4950


PART II:	OTHER INFORMATION

Item 1:	Legal Proceedings		5051

Item 2:	Unregistered Sales of Equity Securities and Use of Proceeds		5051

Item 3:	Defaults upon Senior Securities		5051

Item 4:	Submission of Matters to a Vote of Security Holders		5051

Item 5:	Other Information		5052

Item 6:	Exhibits		5053

Signature			5153
Section 302 ~~Principal Executive Officer~~ Certification of Chairman and CEO
Section 302 ~~Principal Financial Officer~~ Certification of Executive VP & CFO
Section 906 ~~Principal Executive Officer~~ Certification of Chairman and CEO
Section 906 ~~Principal Financial Officer~~ Certification of Executive VP & CFO


	Quarters Ended
	April 1, 2005		March 26, 2004
Number of Shares (Thousands)		7,431		18,400
Average Exercise / Conversion Price	$	47.16	$	42.43


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


o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 ~~For the transition period from~~to


Virginia (State or other jurisdiction of incorporation or organization)		62-1051971 (I.R.S. Employer Identification No.)


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


	Balance			Net Gain			Balance
(Dollars in Millions)	December 31, 2004			(Loss)			April 1, 2005
Minimum Pension Liability
(net of $161 of taxes as of December 31, 2004 and April 1, 2005)	$	(292	)	$	—		$	(292	)
Fair Value of Fuel Derivatives		72			67			139
(net of $45 and $88 of taxes as of December 31, 2004 and April 1, 2005, respectively)
Other		—			(1	)		(1	)


Total	$	(220	)	$	66		$	(154	)


	Quarters Ended
	July 1, 2005		June 25, 2004
Number of Shares (Millions)		7		22
Average Exercise / Conversion Price	$	47.61	$	40.82


	April 1,			March 26,
Dollars in Millions, Except Per Share Amounts	2005			2004
Net Earnings — As Reported	$	579		$	30
Add: Stock-Based Employee Compensation Expense Included in Reported Net Income — Net of Tax		4			5
Deduct: Total Stock-Based Employee Compensation Expense Determined under the Fair Value Based Method for All Awards — Net of Tax		(6	)		(14	)


Pro Forma Net Earnings	$	577		$	21
Interest Expense on Convertible Debt — Net of Tax		1			1

Pro Forma Net Earnings, If-Converted	$	578		$	22


Earnings Per Share:
Basic — As Reported	$	2.69		$	0.14
Basic — Pro Forma	$	2.68		$	0.10
Diluted — As Reported	$	2.56		$	0.14
Diluted — Pro Forma	$	2.55		$	0.10

	1.	~~Right-of-way usage fees to Conrail through August 2004.~~

	2.	~~Equipment rental payments to Conrail through August 2004.~~

	3.	~~Transportation, switching, and terminal service charges provided by Conrail in the Shared Assets Areas that Conrail operates for the joint benefit of CSX and NSR.~~

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

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


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

Total/Average	$	950		8.02	%


	CSX			CSX Vessel
(Dollars in Millions)	Corporation			Leasing			Other			Eliminations			Consolidated
Quarter ended April 1, 2005
Operating Revenue	$	—		$	—		$	2,108		$	—		$	2,108
Operating Expense		(48	)		—			1,802			—			1,754

Operating Income		48			—			306			—			354

Equity in Earnings of Subsidiaries		142			—			—			(142	)		—
Other Income (Expense)		46			1			(28	)		(21	)		(2	)
Interest Expense		93			—			42			(21	)		114


Earnings from Continuing Operations before Income Taxes		143			1			236			(142	)		238
Income Tax Expense (Benefit)		(8	)		—			92			—			84


Earnings from Continuing Operations		151			1			144			(142	)		154
Discontinued Operations — Net of Tax		428			—			(3	)		—			425

Net Earnings (Loss)	$	579		$	1		$	141		$	(142	)	$	579


Quarter ended March 26, 2004
Operating Revenue	$	—		$	—		$	1,920		$	—		$	1,920
Operating Expense		(23	)		—			1,791			—			1,768

Operating Income		23			—			129			—			152

Equity in Earnings of Subsidiaries		88			—			—			(88	)		—
Other Income (Expense)		(10	)		1			12			(7	)		(4	)
Interest Expense		97			—			18			(7	)		108


Earnings from Continuing Operations before Income Taxes		4			1	��		123			(88	)		40
Income Tax Expense (Benefit)		(26	)		—			39			—			13


Earnings from Continuing Operations		30			1			84			(88	)		27
Discontinued Operations — Net of Tax		—			—			3			—			3

Net Earnings (Loss)	$	30		$	1		$	87		$	(88	)	$	30


	CSX			CSX
(Dollars in Millions)	Corporation			Vessel Leasing		Other			Eliminations			Consolidated
Three Months Ended April 1, 2005
Operating Activities
Net Cash Provided (Used) by Operating Activities	$	48		$	—	$	378		$	(117	)	$	309


Investing Activities
Property Additions		—			—		(167	)		—			(167	)
Net Proceeds from Sale of International Terminals		1,110			—		—			—			1,110
Purchase of Minority Interest in an International Terminals Subsidiary		(110	)		—		—			—			(110	)
Purchases of Short-term Investments		(782	)		—		(311	)		—			(1,093	)
Proceeds from Sales of Short-term Investments		—			—		305			—			305
Other Investing Activities		74			—		238			(314	)		(2	)

Net Cash Provided (Used) by Investing Activities		292			—		65			(314	)		43


Financing Activities
Short-term Debt — Net		(100	)		—		3			—			(97	)
Long-term Debt Issued		—			—		26			—			26
Long-term Debt Repaid		(75	)		—		(37	)		—			(112	)
Cash Dividends Paid		(22	)		—		(59	)		59			(22	)
Other Financing Activities		(58	)		—		(273	)		372			41

Net Cash Provided (Used) by Financing Activities		(255	)		—		(340	)		431			(164	)

Net Increase in Cash and Cash Equivalents		85			—		103			—			188
Cash and Cash Equivalents at Beginning of Period		816			46		(340	)		—			522

Cash and Cash Equivalents at End of Period	$	901		$	46	$	(237	)	$	—		$	710


		First Quarter
		2005			2004			% Change
Service Measurements	Average Velocity, All Trains (Miles Per Hour)		19.5			20.9			(7)	%
	Average System Dwell Time (Hours)		30.0			27.2			(10)
	Average Total Cars-On-Line		234,209			230,746			(2)
	On -Time Originations		49.9	%		52.8	%		(5)
	On -Time Arrivals		37.7	%		47.4	%		(20)
	Average Recrews (Per Day)		65			60			(8)	%


	April 1,			March 26
(Dollars in Millions)	2005			2004			$ Change
Operating Revenue	$	2,108		$	1,920		$	188

Operating Expense
Labor and Fringe		702			685			17
Materials, Supplies and Other		462			416			46
Depreciation		203			160			43
Fuel		179			154			25
Building and Equipment Rent		135			140			(5	)
Inland Transportation		56			74			(18	)
Conrail Rents, Fees and Services		20			87			(67	)
Restructuring Charge — Net		—			53			(53	)

Total Operating Expense		1,757			1,769			(12	)

Operating Income	$	351		$	151		$	200


Operating Ratio		83.3	%		92.1	%


	First Quarter Loads							First Quarter Revenue
	2005		2004		% Change			2005		2004		% Change
Merchandise
Phosphates and Fertilizers		117		120		(3)	%	$	90	$	89		1	%
Metals		93		94		(1	)		138		119		16
Forest Products		113		114		(1	)		176		159		11
Food and Consumer		63		59		7			105		88		19
Agricultural Products		92		92		—			137		131		5
Chemicals		140		139		1			275		256		7
Emerging Markets		115		112		3			117		116		1

Total Merchandise		733		730		0			1,038		958		8

Automotive		125		125		—			208		202		3

Coal, Coke and Iron Ore
Coal		437		403		8			482		405		19
Coke and Iron Ore		21		17		24			24		17		41

Total Coal, Coke and Iron Ore		458		420		9			506		422		20
Other		—		—		—			27		23		17


Total Rail		1,316		1,275		3			1,779		1,605		11


Intermodal
Domestic		212		254		(17	)		167		192		(13	)
International		316		295		7			124		117		6
Other		—		—		—			38		6		533

Total Intermodal		528		549		(4	)		329		315		4

Total Surface Transportation		1,844		1,824		1	%	$	2,108	$	1,920		10	%

	•	~~Phosphates and Fertilizers~~– Strength in revenue yield offset volume weakness and mix changes, as overall revenue grew 1%. Domestic phosphate demand was soft, causing interior phosphate revenue to fall by 24% while shorter haul export phosphate revenue grew 15%.

	•	~~Metals~~– Despite a 1% decline in volume, metals revenue grew 16% due to market pricing and favorable mix changes. Strong demand continues to sustain high levels of steel production, but the sources of the strength are beginning to shift from automotive to construction. Imports have also been strong.

	•	~~Forest Products~~– Paper markets produced significantly higher revenue despite lower volume in several lines of business. Volume strength in lumber and panel markets was offset by declines in several paper markets. U.S. newsprint demand dropped over 4% during the first two months of the year, while imports continue to affect domestic paper production.

	•	~~Food and Consumer~~– Volume was favorable by 7%, led by gains in building products and alcoholic beverages. Even stronger revenue gains of 19% were driven by continued yield management success and gains in transportation equipment.

	•	~~Agricultural Products~~– Volume was flat due to weakness in domestic beans and processed products markets. However, revenue was favorable on strength in export and ethanol shipments, as well as revenue per car increases in feed ingredients, sweeteners and flour.

	•	~~Chemicals~~– Revenue grew 7% on relatively flat volume. Gains were strongest in textile chemicals, bleach/paper chemicals, and petroleum products. The plastics market experienced volatility during the quarter as buyers reduced existing inventories; but revenue still grew 4%. Sand shipments were down due to car shortages and losses of marginal traffic.

	•	~~Emerging Markets~~– Volume was favorable overall as strength in most lines of business offset weakness in military shipments. Volume strength was primarily driven by growth in northern aggregates of 32% and salt of 23%. An unfavorable military mix impact, drove an overall decline in revenue per car.


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.


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.