~~FORM 10-Q~~

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q


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

For the ~~quarter~~quarterly period ended ~~September 30, 2005~~March 31, 2006


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

For the transition period from __________ to __________

Commission File Number 1-8022

CSX CORPORATION

(Exact name of registrant as specified in its charter)


Virginia		62-1051971

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

500 Water Street, 15^th15th Floor, Jacksonville, FL	32202	(904) 359-3200

(Address of principal executive offices)	~~32202~~ (Zip Code)

~~(904) 359-3200~~
~~(Registrant’s telephone~~(Telephone number, including area code)

No Change
(Former name, former address and former fiscal year, if changed since last report.)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yesþx Noo¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, ~~(as defined~~or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange ~~Act Rule 12b-2).~~Act. (check one)

Large Accelerated Filer Yesþx NoAccelerated Filero¨ Non-accelerated Filer¨

Indicate by a check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange ~~Act Rule 12b-2)~~Act).

Yeso¨ Noþx

Indicate the number of shares outstanding of each of the issuer’s classes of common stock,
as of ~~September 30, 2005: 217,239,119~~
the latest practicable date, March 31, 2006: 221,586,156 shares.

~~CSX CORPORATION AND SUBSIDIARIES~~

PART I:1: FINANCIAL INFORMATION

CSX CORPORATION

ITEM 1: FINANCIAL STATEMENTS

CONSOLIDATED INCOME STATEMENTS(Unaudited)

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


(Dollars in Millions, Except Per Share Amounts)	Quarters Ended						Nine Months Ended
	Sept. 30,			Sept. 24,			Sept. 30,			Sept. 24,			First Quarters
	2005			2004			2005			2004			2006			2005
Operating Revenue	$	2,125		$	1,943		$	6,399		$	5,860		$	2,331		$	2,108
Operating Expense
Operating Expense:
Labor and Fringe		727			671			2,130			2,014			720			696
Materials, Supplies and Other		462			410			1,365			1,266			453			468
Depreciation		207			172			617			493			211			205
Fuel		188			162			543			467			253			179
Building and Equipment Rent		124			140			383			417			123			132
Inland Transportation		55			72			175			216			56			54
Conrail Rents, Fees and Services		9			63			48			232			19			20
Restructuring Charge		—			3			—			71

Total Operating Expenses		1,772			1,693			5,261			5,176
Total Operating Expense														1,835			1,754

Operating Income		353			250			1,138			684			496			354

Other Income (Expense)
Other Income — Net (Note 10)		11			32			39			33
Debt Repurchase Expense (Note 5)		—			—			(192	)		—
Other Income (Expense) — Net (Note 8)														(3	)		(2	)
Interest Expense		(100	)		(106	)		(324	)		(323	)		(98	)		(114	)

Earnings from Continuing Operations before Income Taxes														395			238

Earnings
Earnings from Continuing Operations before Income Taxes		264			176			661			394
Income Tax Expense		(100	)		(62	)		(178	)		(135	)		(150	)		(84	)

Earnings from Continuing Operations														245			154

Earnings from Continuing Operations		164			114			483			259
Discontinued Operations — Net of Tax (Note 4)		—			9			425			13

Discontinued Operations — Net of Tax (Note 3)														—			425

Net Earnings	$	164		$	123		$	908		$	272		$	245		$	579


Per Common Share
Earnings Per Share (Note 3):
Income from Continuing Operations	$	0.75		$	0.53		$	2.23		$	1.21
Earnings Per Common Share
Earnings Per Share (Note 2):
From Continuing Operations													$	1.12		$	0.72
Discontinued Operations		—			0.04			1.97			0.06			—			1.97


Net Earnings	$	0.75		$	0.57		$	4.20		$	1.27		$	1.12		$	2.69


Earnings Per Share, Assuming Dilution (Note 3):
Income from Continuing Operations	$	0.72		$	0.51		$	2.12		$	1.16
Earnings Per Share, Assuming Dilution (Note 2):
From Continuing Operations													$	1.06		$	0.68
Discontinued Operations		—			0.04			1.88			0.06			—			1.88


Net Earnings	$	0.72		$	0.55		$	4.00		$	1.22		$	1.06		$	2.56


Average Common Shares Outstanding (Thousands)		216,705			214,821			216,160			214,740			219,681			215,356


Average Common Shares Outstanding, Assuming Dilution (Thousands)		228,423			224,980			227,374			224,911			232,182			226,246


Cash Dividends Paid Per Common Share	$	0.10		$	0.10		$	0.30		$	0.30		$	0.13		$	0.10

CSX CORPORATION ~~AND SUBSIDIARIES~~
~~PART I: FINANCIAL INFORMATION~~
ITEM 1: FINANCIAL STATEMENTS

CONSOLIDATED BALANCE SHEETS

(Unaudited)
(Dollars in Millions) Sept. 30, 2005 Dec. 31, 2004

ASSETS

Current Assets:
Cash, Cash Equivalents and Short-term
Investments (Note 1) $ 590 $ 859
Accounts Receivable — Net (Note 9) 1,274 1,159
Materials and Supplies 203 165
Deferred Income Taxes 141 20
Other Current Assets — Net (Note 9) 239 157
International Terminals Assets Held for Sale (Note 4) — 643

Total Current Assets 2,447 3,003

Properties 26,275 25,852
Accumulated Depreciation (6,300 ) (5,907 )

Properties — Net 19,975 19,945

Investment in Conrail (Note 8) 603 574
Affiliates and Other Companies 317 296
Other Long-term Assets 679 802

Total Assets $ 24,021 $ 24,620

LIABILITIES AND SHAREHOLDERS’ EQUITY

Current Liabilities:
Accounts Payable $ 930 $ 879
Labor and Fringe Benefits Payable 513 371
Casualty, Environmental and Other Reserves (Note 13) 312 312
Current Maturities of Long-term Debt 947 983
Short-term Debt 3 101
Income and Other Taxes Payable 341 170
Other Current Liabilities 94 115
International Terminals Liabilities Held for Sale (Note 4) — 386

Total Current Liabilities 3,140 3,317

Casualty, Environmental and Other Reserves (Note 13) 703 735
Long-term Debt 5,058 6,248
Deferred Income Taxes 6,011 5,979
Other Long-term Liabilities 1,347 1,530

Total Liabilities 16,259 17,809

Shareholders’ Equity:
Common Stock, $1 Par Value 217 216
Other Capital 1,698 1,605
Retained Earnings 6,053 5,210
Accumulated Other Comprehensive Loss (Note 2) (206 ) (220 )

Total Shareholders’ Equity 7,762 6,811

Total Liabilities and Shareholders’ Equity $ 24,021 $ 24,620

(Dollars in Millions)


	(Unaudited)
	March 31,			December 30,
	2006			2005
ASSETS
Current Assets:
Cash and Cash Equivalents	$	376		$	309
Short-term Investments		337			293
Accounts Receivable — Net		1,202			1,202
(net of allowance for doubtful accounts of $111 million and $108 million, respectively)
Materials and Supplies		208			199
Deferred Income Taxes		217			225
Other Current Assets		107			144

Total Current Assets		2,447			2,372

Properties		26,850			26,538
Accumulated Depreciation		(6,565	)		(6,375	)

Properties — Net		20,285			20,163

Investment in Conrail (Note 6)		607			603
Affiliates and Other Companies		311			304
Other Long-term Assets		769			790

Total Assets	$	24,419		$	24,232


LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities:
Accounts Payable	$	965		$	954
Labor and Fringe Benefits Payable		433			565
Casualty, Environmental and Other Reserves (Note 10)		309			311
Current Maturities of Long-term Debt		912			936
Short-term Debt		4			1
Income and Other Taxes Payable		237			102
Other Current Liabilities		94			110

Total Current Liabilities		2,954			2,979

Casualty, Environmental and Other Reserves (Note 10)		678			653
Long-term Debt		5,045			5,093
Deferred Income Taxes		6,081			6,082
Other Long-term Liabilities		1,386			1,471

Total Liabilities		16,144			16,278


Shareholders’ Equity:
Common Stock, $1 Par Value		222			218
Other Capital		1,871			1,751
Retained Earnings		6,479			6,262
Accumulated Other Comprehensive Loss (Note 7)		(297	)		(277	)

Total Shareholders’ Equity		8,275			7,954

Total Liabilities and Shareholders’ Equity	$	24,419		$	24,232

See accompanying Notes to Consolidated Financial Statements.

CSX CORPORATION ~~AND SUBSIDIARIES~~
~~PART I: FINANCIAL INFORMATION~~
ITEM 1: FINANCIAL STATEMENTS

CONSOLIDATED CASH FLOW STATEMENTS(Unaudited)

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


(Dollars in Millions)	Nine Months Ended
	Sept. 30,			Sept. 24,			First Quarters
	2005			2004			2006			2005
OPERATING ACTIVITIES
Net Earnings	$	908		$	272		$	245		$	579
Adjustments to Reconcile Net Earnings to Net Cash Provided:
Depreciation		620			511			212			209
Deferred Income Taxes		(132	)		115			26			8
Gain on Sale of International Terminals — Net of Tax (Note 4)		(428	)		—
Restructuring Charge (Note 17)		—			71
Net Gain on Conrail Spin-off After Tax		—			(16	)
Gain on Sale of International Terminals — Net of Tax (Note 3)								—			(428	)
Insurance Proceeds								50			—
Other Operating Activities		27			(105	)		50			(59	)
Changes in Operating Assets and Liabilities:
Accounts Receivable		(74	)		2			(70	)		(14	)
Other Current Assets		(37	)		4			2			(41	)
Accounts Payable		62			(1	)		42			84
Income and Other Taxes Payable								39			31
Other Current Liabilities		(168	)		12			(151	)		(60	)

Net Cash Provided by Operating Activities		778			865			445			309


INVESTING ACTIVITIES
Property Additions		(726	)		(734	)		(367	)		(167	)
Net Proceeds from Sale of International Terminals (Note 4)		1,108			—
Purchase of Minority Interest in an International Terminals’ Subsidiary (Note 4)		(110	)		—
Proceeds from Divestitures		—			55
Net Proceeds from Sale of International Terminals (Note 3)								—			1,108
Purchase of Minority Interest in an International Terminals’ Subsidiary (Note 3)								—			(110	)
Purchases of Short-term Investments		(2,041	)		(1,285	)		(416	)		(1,093	)
Proceeds from Sale of Short-term Investments		2,050			936
Proceeds from Sales of Short-term Investments								378			305
Other Investing Activities		26			(24	)		(15	)		—

Net Cash Provided by (Used in) Investing Activities		307			(1,052	)
Net Cash (Used in) Provided by Investing Activities								(420	)		43


FINANCING ACTIVITIES
Short-term Debt — Net		(98	)		101			2			(97	)
Long-term Debt Issued		29			412			3			26
Long-term Debt Repaid		(1,239	)		(385	)		(71	)		(112	)
Dividends Paid		(65	)		(64	)		(29	)		(22	)
Stock Options Exercised								129			38
Other Financing Activities		44			18			8			3

Net Cash (Used in) Provided by Financing Activities		(1,329	)		82
Net Cash Provided by (Used in) Financing Activities								42			(164	)


Net (Decrease) Increase in Cash and Cash Equivalents		(244	)		(105	)
Net Increase in Cash and Cash Equivalents								67			188

CASH, CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS
CASH AND CASH EQUIVALENTS
Cash and Cash Equivalents at Beginning of Period		522			296			309			522

Cash and Cash Equivalents at End of Period							$	376		$	710

Cash and Cash Equivalents at End of Period		278			191
Short-term Investments at End of Period		312			438


Cash, Cash Equivalents and Short-term Investments at End of Period	$	590		$	629

CSX CORPORATION ~~AND SUBSIDIARIES~~
~~PART I: FINANCIAL INFORMATION~~

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 1. Significant Accounting Policies

Basis of Presentation

In the opinion of management, the accompanying consolidated financial statements contain all adjustments necessary to fairly present the ~~financial position~~Consolidated Balance Sheets of CSX Corporation (“CSX”) and, ~~subsidiaries (CSX,~~ together with ~~such~~its subsidiaries, the “Company”) at ~~September~~March 31, 2006, and December 30, 2005, ~~and December 31, 2004,~~ and the Consolidated Income ~~Statements for the quarters~~ and ~~nine months ended September 30, 2005 and September 24, 2004, and Consolidated~~ Cash Flow Statements for the ~~nine months~~fiscal quarters ended ~~September 30,~~March 31, 2006, and April 1, 2005, ~~and September 24, 2004,~~ such adjustments being of a normal, recurring nature. Certain prior-year data have been reclassified to conform to the ~~2005~~2006 presentation.

~~These~~CSX suggests that these financial statements ~~should~~ be read in conjunction with the audited financial statements and the notes included in ~~its~~CSX’s most recent Annual Report ~~and~~on Form 10-K ~~the unaudited financial statements and the notes included in its 2005 First and Second Quarterly Reports on Form 10-Q~~ and any Current Reports on Form 8-K. ~~The Company’s SEC reports are accessible on the SEC’s website at~~

~~www.sec.gov~~Fiscal Year ~~and the Company’s website atwww.csx.com~~.

~~The Company~~CSX follows a 52/53 week fiscal reporting calendar. Fiscal year 2005 consists of 52 weeks ending on December 30, 2005. Fiscal year 2004 consisted of 53 weeks ending on December 31, 2004. The financial statements presented are for the 13-weekcalendar:

	•		The first fiscal quarter of 2006 consisted of 13 weeks ending on March 31, 2006

	•		The first fiscal quarter of 2005 consisted of 13 weeks ending on April 1, 2005

	•		Fiscal year 2006 consisted of 52 weeks ending on December 29, 2006

	•		Fiscal year 2005 consisted of 52 weeks ending on December 30, 2005

Except as otherwise specified, references to quarters ~~ended September 30, 2005 and September 24, 2004, the 39-week periods ended September 30, 2005 and September 24, 2004 and as of December 31, 2004. In 2004, the fourth~~indicate CSX’s fiscal quarter ending ~~December~~March 31, ~~2004, consisted~~2006, or ending April 1, 2005 of ~~14 weeks.~~

~~CSX acquires auction rate securities~~the year referenced and ~~classifies these investments as available for sale. Accordingly, these investments~~comparisons are ~~included in current assets as Short-term Investments on~~to the ~~Consolidated Balance Sheets. On~~corresponding period of the ~~Consolidated Cash Flow Statements, purchases and sales of these assets are classified as investing activities.~~

~~NOTE 2. Accumulated Other Comprehensive Loss~~

Other comprehensive loss for the quarter ended September 30, 2005 was $16 million, after tax, resulting from a decrease in the quantity of fuel derivative contracts outstanding. CSX has suspended entering into new swaps in its fuel hedge program since the third quarter of 2004. (See Note 12. Derivative Financial Instruments.)

Other comprehensive income for the nine months ended September 30, 2005 was $14 million, after tax. Despite a decline in the quantity of outstanding contracts, the fair value of fuel derivative instruments continues to rise with the price of fuel.

Balance Net Gain Balance
(Dollars in Millions) Dec. 31, 2004 (Loss) Sept. 30, 2005
Minimum Pension Liability $ (292 ) $ — $ (292 )
Fair Value of Fuel Derivatives 72 15 87
Other — (1 ) (1 )

Total $ (220 ) $ 14 $ (206 )

Other comprehensive income for the quarter ended September 24, 2004 was $60 million, after tax, resulting from the increase in fair value of fuel derivative instruments primarily derived from higher fuel prices.

Other comprehensive income for the nine months ended September 24, 2004 was $155 million after tax resulting from the increase in fair value of fuel derivative instruments and a reduction in the Company’s additional minimum pension liability.prior year.

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

NOTE 2. Earnings Per Share

The following table sets forth the computation of basic Earnings Per Share and Earnings Per Share, Assuming Dilution:


	First Quarters
	2006			2005
Numerator (Millions):
Earnings from Continuing Operations	$	245		$	154
Interest Expense on Convertible Debt — Net of Tax		1			1

Net Earnings from Continuing Operations, If-Converted		246			155
Discontinued Operations — Net of Tax		—			425

Net Earnings, If-Converted		246			580
Interest Expense on Convertible Debt — Net of Tax		(1	)		(1	)

Net Earnings	$	245		$	579


Denominator (Thousands):
Average Common Shares Outstanding		219,681			215,356
Convertible Debt		9,728			9,728
Stock Options		2,715			980
Other Potentially Dilutive Common Shares		58			182

Average Common Shares Outstanding, Assuming Dilution		232,182			226,246


Earnings Per Share:
Income from Continuing Operations	$	1.12		$	0.72
Discontinued Operations		—			1.97

Net Earnings	$	1.12		$	2.69


Earnings Per Share, Assuming Dilution:
Income from Continuing Operations	$	1.06		$	0.68
Discontinued Operations		—			1.88

Net Earnings	$	1.06		$	2.56

Basic Earnings Per Share is based upon the weighted-average number of common shares outstanding. Earnings Per Share, Assuming Dilution, is based on the weighted-average number of common shares outstanding adjusted for the effect of potentially dilutive common shares from convertible debt and employee stock options and awards.

The following table provides information about stock options exercised:


	First Quarters
	2006		2005
Number of Stock Options Exercised (Thousands)		2,866		1,084

CSX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

NOTE 3.2. Earnings Per Share,

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

(Dollars In Millions, Except Per Share Amounts) Quarters Ended Nine Months Ended
Sept. 30, Sept. 24, Sept. 30, Sept. 24,
2005 2004 2005 2004
Numerator: ��
Earnings from Continuing Operations $ 164 $ 114 $ 483 $ 259
Interest Expense on Convertible Debt — Net of Tax 1 1 3 3

Net Earnings from Continuing Operations, If-Converted 165 115 486 262

Discontinued Operations — Net of Tax — 9 425 13

Net Earnings, If-Converted 165 124 911 275
Interest Expense on Convertible Debt — Net of Tax (1 ) (1 ) (3 ) (3 )

Net Earnings $ 164 $ 123 $ 908 $ 272

Denominator (Thousands):
Average Common Shares Outstanding 216,705 214,821 216,160 214,740
Convertible Debt 9,728 9,728 9,728 9,728
Stock Options 1,585 282 1,230 305
Other Potentially Dilutive Common Shares 405 149 256 138

Average Common Shares Outstanding, Assuming Dilution 228,423 224,980 227,374 224,911

Earnings Per Share:
Income from Continuing Operations $ 0.75 $ 0.53 $ 2.23 $ 1.21
Discontinued Operations — 0.04 1.97 0.06

Net Earnings $ 0.75 $ 0.57 $ 4.20 $ 1.27

Earnings Per Share, Assuming Dilution:
Income from Continuing Operations $ 0.72 $ 0.51 $ 2.12 $ 1.16
Discontinued Operations — 0.04 1.88 0.06

Net Earnings $ 0.72 $ 0.55 $ 4.00 $ 1.22

Basic earnings per share are based on the weighted-average number of common shares outstanding. Earnings per share, assuming dilution, is based on the weighted-average number of common shares outstanding adjusted for the effect of potentially dilutive common shares from convertible debt and employee stock options and awards.

(In Thousands) Quarters Ended Nine Months Ended
Sept. 30, 2005 Sept. 24, 2004 Sept. 30, 2005 Sept. 24, 2004
Number of Stock Options Exercised 316 67 1,802 259

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

~~NOTE 3. Earnings Per Share, Continued~~ continued

Certain ~~potentially dilutive~~ stock options ~~at September 30, 2005, and September 24, 2004~~ were excluded from the computation of ~~earnings per share, assuming dilution,~~Earnings Per Share, Assuming Dilution, since their related option exercise prices were greater than the average market price of the common shares during the period. The following table ~~indicates~~presents information about potentially dilutive ~~stock options~~common shares excluded from the computation of earnings per share:

Quarters Ended
Sept. 30, 2005 Sept. 24, 2004
Number of Shares (Thousands) 6,006 20,801
Average Exercise / Conversion Price $ 48.34 $ 40.92

The CSX Long Term Incentive Program is designed to reward participants for the attainment of CSX financial and certain strategic initiatives leading to share price appreciation for shareholders and employees. The objective of the plan is to motivate and reward key members of management and executives for achieving and exceeding a two-year modified free cash flow goal, at which time the award is payable in cash and CSX common stock. If the Company achieves the maximum payout under the program by the end of 2005, approximately 1,196 thousand shares could be issued under the plan


	First Quarters
	2006		2005
Number of Shares (Thousands)		620		7,431
Average Exercise / Conversion Price	$	57.00	$	47.16

In ~~addition,~~accordance with the Emerging Issues Task Force ~~(“EITF”) reached a consensus on~~ Issue No. 04-8, ~~“The~~The Effect of Contingently Convertible Debt on Diluted Earnings Per ~~Share” in September 2004. The~~ Share(“EITF ~~states that contingently convertible debt instruments are subject to the “if-converted” method under SFAS 128, Earnings Per Share, regardless of fulfillment of any of the contingent features~~04-8”), CSX included ~~in the instrument. Consequently, CSX is required to include~~ approximately 10 million shares underlying its contingently convertible debentures ~~using the “if-converted” method~~ in the computation of Earnings Per Share, Assuming Dilution.

As a result of the recent increase in the price of CSX common stock, these debentures became convertible on April 12, 2006. As noted, however, EITF 04-8 required CSX to include the underlying shares in the computation of Earnings Per Share, Assuming Dilution. Any further dilutive effects resulting from actual conversion of the debentures would be reflected in the basic earnings per share ~~assuming dilution. Additionally, earnings per share, assuming dilution, has been restated for all prior periods presented.~~calculation upon conversion. If the price of CSX common stock falls, however, these debentures may no longer meet the conversion requirements.

A substantial increase in ~~the fair market value of~~ CSX’s stock price could ~~trigger contingent conditions for conversion allowing holders to convert their debentures into CSX common stock, as well as causing~~cause an increase in the exercise of stock ~~options. Thus, both could~~options, also negatively ~~impact~~impacting basic earnings per share. However, the Board of Directors has authorized CSX to purchase shares of its common stock from time to time in an amount up to approximately $150 million in any fiscal year. CSX has purchased shares pursuant to this authority in the second quarter of fiscal year 2006.

NOTE 3. Discontinued Operations

In February 2005, CSX sold its International Terminals business, which included the capital stock of SL Service, Inc. (“SLSI”) to Dubai Ports International FZE (“DPI”) for gross cash consideration of $1.142 billion. Of the gross proceeds, approximately $110 million was paid for the purchase of a minority interest in an International Terminals’ subsidiary, which the Company acquired during the first quarter of 2005 and divested as part of the sale to DPI. Other related cash transaction costs amounted to approximately $34 million, including resolution of working capital and long-term debt adjustments.

CSX recognized income of $683 million pretax, $428 million after tax, for the quarter ended April 1, 2005, as a result of the sale. Consequently, amounts related to this business are reported as Discontinued Operations on the Consolidated Income Statement for fiscal year 2005.

CSX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

NOTE 4.3. Discontinued Operations, continued

CSX sold its International Terminals business, which included the capital stock of SL Service, Inc. (“SLSI”), in February 2005 to Dubai Ports International FZE (“DPI”) for closing cash consideration of $1.142 billion. Of the gross proceeds, approximately $110 million was paid for the purchase of a minority interest in an International Terminals’ subsidiary, acquired during the first quarter of 2005 and divested as part of the sale to DPI. Other related cash transaction costs amounted to approximately $34 million, including resolution of working capital and long-term debt adjustments. CSX has paid and expects to make additional substantial income tax payments attributable to the transaction.

CSX recognized income of $683 million pretax, $428 million after tax, for the nine months ended September 30, 2005 as a result of the sale. Discontinued Operations for the nine months ended September 30, 2005 also includes revenue of $14 million and an after-tax loss on operations of $3 million from the International Terminals business through the closing date of the transaction in February 2005. Discontinued Operations for the quarter and nine months ended September 24, 2004 include revenue of $42 million and $128 million, respectively.

SLSI also ~~held~~holds certain residual assets and liabilities as a result of prior divestitures and discontinuances. ~~The Company retained~~A wholly-owned subsidiary of CSX retains the rights to those assets and indemnifies DPI, SLSI and related entities against those liabilities pursuant to a separate agreement. CSX guarantees the obligations of its subsidiary under this separate agreement. ~~(See Note 14. Commitments and Contingencies.)~~

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

~~NOTE 4. Discontinued Operations, Continued~~

The results of operations and financial position of CSX’s former International Terminals business are reported as Discontinued Operations and International Terminals Assets and Liabilities Held for Sale for all periods presented on the Consolidated Income Statements and Balance Sheets, respectively. Additional information about the sale is included in CSX’s Annual Report on Form 10-K for the year ended December 30, 2005.

NOTE 4. Debt and Credit Agreements

CSX 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 2006. The facilities were entered into in May 2004 and May 2005, respectively, on terms substantially similar to the facilities they replaced. Generally, these facilities may be used for general corporate purposes, to support CSX’s commercial paper and for working capital. Neither of the credit facilities was drawn on as of March 31, ~~2004.~~2006. Commitment fees and interest rates payable under the facilities are similar to fees and rates available to comparably rated investment-grade borrowers. These credit facilities allow for borrowings at floating (LIBOR-based) interest rates, plus a spread, depending upon CSX’s senior unsecured debt ratings. As of March 31, 2006, CSX’s long-term unsecured debt obligations were rated BBB and Baa2 by Standard and Poor’s and Moody’s Investor Service, respectively. Commitment fees similarly depend on such ratings and are 15 and 11 basis points per annum, respectively, under the $1.2 billion and $400 million revolving credit facilities. At March 31, 2006, CSX was in compliance with all covenant requirements under the facilities.

CSX expects to replace both facilities during May 2006 with a single five-year facility of approximately $1.25 billion and with terms substantially similar to those in the current facilities.

NOTE 5. ~~Debt and Credit Agreements~~

~~In June 2005, CSX 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. CSX used cash on hand to finance this repurchase.

Pursuant to the terms of CSX’s Zero Coupon Convertible Debentures (“Debentures”) due October 30, 2021, the holders of such Debentures have the right to require CSX to purchase their Debentures on October 30, 2005. CSX notified these holders of this right on September 30, 2005. Holders must submit notice for purchase by October 24, 2005 and have the right to withdraw such notice by October 27, 2005. If any of the Debentures are required to be purchased by CSX, they will be purchased for cash. As of September 30, 2005, the Company’s cash and short-term investments balance was $590 million, which is more than adequate to fund the potential purchase of the Debentures if CSX is required to do so on October 30, 2005. As of September 30, 2005, the aggregate value of the Debentures is approximately $467 million and is included in Current Maturities of Long-term Debt within the Consolidated Balance Sheets.

CSX 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 2006. The facilities were entered into in May 2004 and May 2005, respectively, on terms substantially similar to the facilities they replaced. Generally, these facilities may be used for general corporate purposes, to support CSX’s commercial paper, and for working capital. Neither of the credit facilities was drawn on as of September 30, 2005. Commitment fees and interest rates payable under the facilities are similar to fees and rates available to comparably rated investment-grade borrowers. These credit facilities allow for borrowings at floating (LIBOR-based) rates, plus a spread, depending upon CSX’s senior unsecured debt ratings. At September 30, 2005, CSX was in compliance with all covenant requirements under the facilities.

(Dollars in Millions) Quarters Ended Nine Months Ended
Sept. 30, Sept. 24, Sept. 30, Sept. 24,
2005 2004 2005 2004
Stock Option Compensation Expense $ 1 $ 2 $ 3 $ 11

CSX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

NOTE 5. Share-Based Compensation, continued

~~Stock~~Effective December 31, 2005 (which is the first day of fiscal year 2006), the Company adopted the fair value recognition provisions of SFAS 123(R),Share-Based Payment(“SFAS 123(R)”), using the modified-prospective-transition method. Under that transition method, compensation ~~expense includes $5 million recorded~~costs recognized in ~~conjunction~~the first quarter of 2006 include compensation costs for all share-based payments granted prior to, but not yet vested, as of December 31, 2005. The amount of compensation costs recognized is based upon the grant date fair value estimated under the Black-Scholes-Merton formula in accordance with the original provisions of SFAS 123,Accounting for Stock-Based Compensation (“SFAS 123”). This method results in the recognition of additional compensation costs from the unvested portion of options granted prior to 2003. Results for prior periods have not been restated, as it is not required, and the adoption of SFAS 123(R) did not result in a material impact to the Company’s ~~management restructuring for the nine-month period ended September 24, 2004~~Consolidated Income Statement or Earnings Per Share. CSX will recognize approximately $3 million in additional compensation cost related to ~~recognition~~nonvested awards as a result of ~~unamortized expense for 2003 stock option awards retained by terminated employees (see Note 17. Management Restructuring).~~adopting SFAS 123(R), the majority of which will be recognized in fiscal year 2006.

In addition to stock option expense, stock-based employee compensation expense included in ~~reported~~ net income consists of restricted stock awards, stock issued to CSX directors and stock issued to employees under the Company’s ~~Long Term~~Long-term Incentive ~~Program~~Program. These awards were accounted for under the estimated grant date fair value method for both SFAS 123(R) and SFAS 123; therefore, compensation costs related to these types of awards are consistently reported for all periods presented. Upon adoption of SFAS 123(R), CSX no longer allows automatic vesting when an employee becomes retirement eligible.

Prior to the adoption of SFAS 123(R), CSX presented all tax benefits from deductions resulting from compensation costs as operating cash flows in the Consolidated Cash Flow Statement. SFAS 123(R) requires the cash flows resulting from tax deductions in excess of compensation costs recognized to be classified as financing cash flows. This requirement resulted in reduced net operating cash flows and increased net financing cash flows of approximately $16 million for the first quarter of 2006.

Total pre-tax compensation expense associated with share-based compensation is as follows:


	First Quarters
(Dollars in Millions)	2006		2005
Share-Based Compensation Expense	$	3	$	7

CSX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

NOTE 5. Share-Based Compensation, continued

The following table illustrates the pro forma effect on ~~net earnings~~Net Earnings and ~~earnings per share as if~~Earnings Per Share prior to the adoption of
SFAS 123(R). This table only shows last year’s first quarter pro forma amounts since in the first quarter of 2006 the Company adopted the fair value ~~based method had been applied~~recognition provisions of SFAS 123(R) and therefore, compensation expenses are recognized in the Consolidated Income Statement for all share-based payments granted prior to, ~~all outstanding~~but not yet vested as of December 31, 2005. Consequently, the table below is no longer required to show pro forma amounts for 2006 and ~~unvested awards in each period:~~forward.


													First Quarter
(Dollars in Millions, Except Per Share Amounts)	Quarters Ended						Nine Months Ended						2005
	Sept. 30,			Sept. 24,			Sept. 30,			Sept. 24,
	2005			2004			2005			2004
Net Earnings — As Reported	$	164		$	123		$	908		$	272		$	579
Add: Stock-Based Employee Compensation Expense Included in Reported Net Income — Net of Tax		7			2			18			10			4
Deduct: Total Stock-Based Employee Compensation Expense Determined under the Fair Value Based Method for All Awards — Net of Tax		(8	)		(5	)		(22	)		(24	)		(6	)


Pro Forma Net Earnings	$	163		$	120		$	904		$	258		$	577
Interest Expense on Convertible Debt — Net of Tax		1			1			3			3			1

Pro Forma Net Earnings, If-Converted	$	164		$	121		$	907		$	261		$	578


Earnings Per Share:
Basic — As Reported	$	0.75		$	0.57		$	4.20		$	1.27		$	2.69
Basic — Pro Forma	$	0.75		$	0.56		$	4.18		$	1.20		$	2.68

Diluted — As Reported	$	0.72		$	0.55		$	4.00		$	1.22		$	2.56
Diluted — Pro Forma	$	0.72		$	0.54		$	3.99		$	1.16		$	2.55

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

NOTE ~~7. New Accounting Pronouncements~~

In December 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, CSX 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. 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 to new and existing unvested awards on the effective date. CSX adopted SFAS 123 using the prospective transition method (which applied only to awards granted, modified or settled after the adoption date). Had CSX adopted SFAS 123(R) in prior periods, the impact of SFAS 123 would have been estimated as described in the disclosure of pro forma net income and earnings per share in Note 6. 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.

Currently, CSX’s stock-based employee compensation expense is recognized over the amortization period which could continue beyond the date an employee is eligible for retirement. Upon adoption of SFAS 123(R), if CSX allows vesting beyond 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 extend beyond the date an employee is eligible for retirement, resulting in CSX’s recognizing this expense over a shorter period of time.

~~NOTE 8.~~ Investment in ~~and Integrated Rail Operations with~~ Conrail

~~In August 2004, the ownership of portions of the~~CSX and Norfolk Southern Corporation (“NS”) jointly own Conrail Inc. (“Conrail”) ~~system already operated by~~through a limited liability company. CSX has a 42% economic interest and 50% voting interest in the jointly-owned entity, and NS has the remainder of the economic and voting interests. CSX applies the equity method of accounting to its investment in Conrail.

Conrail owns, manages and operates certain properties (the “Shared Assets Areas”) for the joint benefit of CSX’s wholly-owned rail subsidiary, CSX Transportation, Inc. (“CSXT”), and NS’s wholly-owned subsidiary, Norfolk Southern Railway ~~Company~~ (“NSR”)~~, were transferred to and therefore directly owned by CSXT and NSR, and~~. Operating Expense includes 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.

CSX 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 CSX’s Consolidated Balance Sheets and Consolidated Income and Cash Flow 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 CSX’s annual report on Form 10-K for the year ended December 31, 2004.~~

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

~~NOTE 8. Investment in and Integrated Rail Operations with Conrail, Continued~~

~~Accounting and Financial Reporting Effects~~

For periods prior to the spin-off transaction, the Company’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,”~~Services” which ~~reflected:~~reflects:

	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~~Areas; and ~~NSR.~~

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

	5.2.		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. The spin-off transaction, however, effectively decreased rents paid to Conrail after the transaction date, as some assets previously leased from Conrail are now owned by CSXT or NSR.

Transactions with Conrail

As listed below, ~~CSXT owes certain~~the Company has amounts owed to Conrail or its affiliates representing expenses incurred under the operating, equipment and ~~Shared Assets Area~~shared area agreements with Conrail.

(Dollars in Millions) Periods Ended
Sept. 30, Dec. 31,
2005 2004
CSXT Payable to Conrail $ 45 $ 59

In ~~March 2005, CSXT~~exchange for the Conrail advance, the Company has executed ~~a long-term~~two promissory ~~note~~notes with a subsidiary of Conrail ~~for $23 million,~~ which isare included in Long-term Debt inon the ~~Company’s~~ Consolidated Balance ~~Sheet as of September~~Sheets.


	March 31,		December 30,
(Dollars in Millions)	2006		2005
Balance Sheet Information:
CSX Payable to Conrail	$	32	$	40
Promissory Notes Payable to Conrail Subsidiary
4.40% CSX Promissory Note due October 2035		73		73
4.52% CSXT Promissory Note due March 2035		23		23


	First Quarters
(Dollars in Millions)	2006		2005
Income Statement Information:
Interest Expense Related to Conrail Advances	$	1	$	—

Additional information about the Investment in Conrail is included in CSX’s Annual Report on Form 10-K for the year ended December 30, 2005. ~~The note bears interest at 4.52% and matures in March 2035. Interest expense on this promissory note was not material for the quarter or nine months ended September 30, 2005.~~

As a result of the spin-off transaction, liabilities associated with Conrail advances to CSX were transferred to CSXT. As of September 30, 2005, there was no advance between CSX and Conrail or any related interest expense. For the quarter and nine months ended September 24, 2004, interest expense on Conrail advances amounted to $3 million and $7 million, respectively.

~~In October 2005, CSX executed a long-term promissory note with a subsidiary of Conrail for $73 million. The note bears interest at 4.40% and matures in October 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 the railroad assets comprising its allocated portion of the Conrail system. 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 ~~9. Allowance for Doubtful Accounts~~7. Accumulated Other Comprehensive Loss

~~The Company maintains an allowance for doubtful accounts for the estimated probable~~Other comprehensive income (loss) refers to revenues, expenses, gains and losses that under generally accepted accounting principles are included in comprehensive income, which is similar to, but excluded from net income. Under existing accounting standards, other comprehensive income includes foreign currency items, minimum pension liability adjustments, unrealized gains and losses on ~~uncollectible accounts~~certain investments in debt and equity securities and accounting for derivative financial instruments designated as cash flow hedges. Additional classifications, or additional items within current classifications, may result from future accounting standards.

Accumulated Other Comprehensive Loss represents the total of other ~~receivables. The allowance~~comprehensive income (loss) for a period and is ~~based upon the creditworthiness~~a component 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 current asset accounts. Allowance for doubtful accounts of $118 million and $95 million is included inShareholders’ Equity within the Consolidated Balance ~~Sheets as~~Sheets. Accumulated Other Comprehensive Loss consists of ~~September 30,~~the following:


				Net
				After-Tax
(Dollars in Millions)	December 30, 2005			(Loss)			March 31, 2006
Minimum Pension Liability	$	(307	)	$	—		$	(307	)
Fair Value of Fuel Derivatives		30			(19	)		11
Other		—			(1	)		(1	)

Total	$	(277	)	$	(20	)	$	(297	)

Other comprehensive loss for the first quarter of 2006 resulted from a decrease in the quantity of fuel derivative contracts outstanding. CSX has suspended entering into new swaps in its fuel hedge program since the third quarter of 2004. (See Note 9, Derivative Financial Instruments.)

Other comprehensive income for the first quarter of 2005 ~~and December 31, 2004.~~was $66 million, after tax. Despite a decline in the quantity of outstanding fuel hedging contracts, the fair value of these contracts continued to rise with the price of fuel.

CSX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

NOTE ~~10.~~8. Other Income —(Expense) – Net

Other Income —(Expense) – Net consists of the following:

(Dollars in Millions) Quarters Ended Nine Months Ended
Sept. 30, Sept. 24, Sept. 30, Sept. 24,
2005 2004 2005 2004
Interest Income $ 7 $ 5 $ 30 $ 13
Income from Real Estate and Resort Operations 10 19 26 17
Minority Interest Expense (4 ) (5 ) (14 ) (12 )
Net Gain on Conrail Spin-off — After Tax — 16 — 16
Miscellaneous (2 ) (3 ) (3 ) (1 )

Other Income — Net $ 11 $ 32 $ 39 $ 33


	First Quarters
(Dollars in Millions)	2006			2005
Interest Income	$	9		$	7
Loss from Real Estate and Resort Operations		(9	)		(8	)
Minority Interest		(5	)		(3	)
Miscellaneous		2			2

Other Income (Expense) — Net	$	(3	)	$	(2	)

Loss from Real Estate and Resort Operations includes the results of operations from the CSX-owned resort called the Greenbrier, located in White Sulphur Springs, West Virginia, as well as the results of the Company’s real estate sales, leasing and development activities.

NOTE ~~11. Hurricane Katrina~~

In late August 2005, Hurricane Katrina caused extensive damage to Company assets on the Gulf Coast. The most significant damage is concentrated on CSXT’s approximately 100-mile route starting in New Orleans, LA and going east to Pascagoula, MS and includes damage to track infrastructure and bridges.

The Company incurred losses resulting from damage to the rail infrastructure, business interruption and other incremental expenses associated with storm damage. The Company expects that insurance over its self-insured retention of $25 million will be adequate to cover these losses. Subject to the foregoing deductible, the Company’s limits for insurance coverage are expected to exceed the storm losses, currently estimated to be approximately $250 million. Actual covered expenses from Hurricane Katrina could differ materially from current estimates. The Company has multiple applicable layers of insurance coverage and received its first insurance payment for Hurricane Katrina damage in October 2005. Further insurance recovery payments are expected to be paid as claims are incurred, submitted and the appropriate documentation becomes available for review by the Company’s insurers.

In the third quarter of 2005, the net book values of damaged assets as a result of Hurricane Katrina are currently estimated at $41 million and have been recognized as a loss within the Consolidated Income Statements. Accordingly, these damaged assets are no longer being depreciated, which resulted in an immaterial effect on depreciation expense for the quarter. Other incremental expenses incurred as a result of the storm amounted to $19 million for the third quarter. The Company recognized corresponding insurance recoveries of $55 million, which represents recovery of these losses less $5 million of the $25 million self-insured deductible, which has been allocated in proportion to the estimated insurance recoveries. The remaining self-insured deductible will be applied and recognized in the Company’s results of operations as expected gains from insurance recoveries relating to fixed asset losses and business interruption lost profits are recognized.

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

~~NOTE 11. Hurricane Katrina, Continued~~

~~Materials, Supplies and Other expenses within the Consolidated Income Statements include losses and insurance recoveries for the quarter ended September 30, 2005 as follows:~~

~~(Dollars in Millions)~~

Net
Insurance Loss
Loss Recovery Recognized

Fixed Asset Impairment $ (41 ) $ 41 $ —
Incremental Business Expenses (19 ) 14 (5 )

Totals $ (60 ) $ 55 $ (5 )

While management expects losses above the self-insured deductible will be covered, certain insurance recoveries related to business interruption lost profits will be recognized in the Company’s results of operations as settlements are reached with the Company’s insurers. Also, the Company believes replacement value for damaged fixed assets may exceed book value, which could result in gain realization in accordance with FASB Interpretation No. 30, “Accounting for Involuntary Conversions of Nonmonetary Assets to Monetary Assets.” These gains could be material to results of operations in the quarters received.

~~NOTE 12.~~9. 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 ~~long-term~~ interest rate swap agreements on the following ~~fixed rate~~fixed-rate notes:

~~(Dollars in Millions)~~


						Notional		Fixed
			Fixed Interest			Amount		Interest
Maturity Date	Notional Amount		Rate			(Millions)		Rate
May 1, 2007	$	450		7.45	%	$	450		7.45	%
May 1, 2032		150		8.30	%		150		8.30	%

Total/Average	$	600		7.66	%	$	600		7.66	%

CSX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

NOTE 9. Derivative Financial Instruments, continued

CSX’s interest rate swaps qualify as perfectly effective fair value hedges, as defined by SFAS 133. The gain or loss on the interest rate swap exactly offsets the loss or gain on the underlying fixed-rate notes. 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~~decreased by ~~$8 million and $26~~$3 million for the fair market value of the interest rate swap agreements based upon quoted market prices at ~~September~~March 31, 2006. Long-term debt has been increased by $1 million for the fair market value of the interest rate swap agreements based upon quoted market prices at December 30, 2005. Fair value adjustments are non-cash transactions and accordingly have no cash impact on the Consolidated Cash Flow Statements.

The differential to be paid or received under these agreements is accrued based upon 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 Assets or Liabilities.

Cash flows related to interest rate swap agreements are classified as Operating Activities in the Consolidated Cash Flow Statements. Interest rate swap contracts had no material impact on interest expense for the quarter ended March 31, 2005. For the quarter ended April 1, 2005, CSX reduced interest expense by approximately $5 million, as a result of the interest rate swap agreements that were in place during the period.

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

Fuel Hedging

In 2003, CSX began a program to hedge a portion of CSXT’s future locomotive fuel purchases. This program was established to manage exposure to fuel price fluctuations. To minimize this risk, CSX entered into a series of swaps in order to fix the price of a portion of CSXT’s estimated future fuel purchases. The program limits fuel hedges to a 24-month duration and ~~December~~a maximum of 80% of CSXT’s average monthly fuel purchased for any month within the 24-month period, and places the hedges among selected counterparties.

CSX suspended entering into new swaps in its fuel hedge program in the third quarter of 2004. Current swap maturities will expire on July 31, ~~2004, respectively.~~2006. CSX will continue to monitor and assess the global fuel marketplace to decide if and when to resume hedging under the program.

1415

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

NOTE 9. Derivative Financial Instruments, continued

Following is a summary of outstanding fuel swaps:


	March 31,
	2006
Remaining Gallons Hedged (Millions)		18
Average Price Per Gallon	$	0.85


	2006
	Q2			Q3
Estimated % of Future Fuel Purchases Hedged		12	%		1	%

Fuel hedging activity reduced fuel expense for the first quarters of 2006 and 2005 by $35 million and $51 million, respectively. 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 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. (See Note 7, Accumulated Other Comprehensive Loss.) The fair value of fuel derivative instruments based upon quoted market prices was $18 million and $51 million as of March 31, 2006, and December 30, 2005, respectively. 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.

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

CSX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

NOTE ~~12. Derivative Financial Instruments, Continued~~

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 quarter and nine months ended September 30, 2005, CSX reduced interest expense by approximately $3 million and $11 million, respectively, as a result of the interest rate swap agreements that were in place during each period. For the quarter and nine-month period ended September 24, 2004, CSX reduced interest expense by approximately $5 million and $26 million, respectively. Fair value adjustments are non-cash transactions and, accordingly, have no cash impact on the Consolidated Cash Flow Statements.

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

~~Fuel Hedging~~

In 2003, CSX began a program to hedge a portion of CSXT’s future diesel 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 CSXT’s estimated future fuel purchases.

~~Following is a summary of outstanding fuel swaps:~~

Sept. 30,
2005
Approximate Gallons Hedged (Millions) 115
Average Price Per Gallon $ 0.83
Swap Maturities October 2005 - July 2006

2005 2006
Q4 Q1 Q2 Q3
Estimated % of Future Fuel Purchases Hedged at end of period 37 % 25 % 11 % 1 %

The program limits fuel hedges to a 24-month duration and a maximum of 80% of CSXT’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 nine months ended September 30, 2005 by $77 million and $191 million, respectively. Fuel hedging activity favorably impacted fuel expense for the quarter and nine months ended September 24, 2004 by $13 million and $17 million, respectively. 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. The fair value of fuel derivative instruments was $142 million and $118 million as of September 30, 2005 and December 31, 2004, respectively. 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.

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

~~NOTE 12. Derivative Financial Instruments, Continued~~

CSX suspended entering into new swaps in its fuel hedge program since the third quarter of 2004. CSX will continue to monitor and assess the global fuel marketplace to decide if and when to resume hedging under the program.

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

~~NOTE 13.~~10. Casualty, Environmental and Other Reserves

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


(Dollars in Millions)	Sept. 30, 2005						Dec. 31, 2004						March 31, 2006						December 30, 2005
	Current		Long-term		Total		Current		Long-term		Total		Current		Long-term		Total		Current		Long-term		Total
Casualty	$	228	$	494	$	722	$	230	$	475	$	705
Casualty:
Personal Injury													$	161	$	274	$	435	$	172	$	249	$	421
Occupational														56		186		242		55		199		254

Total Casualty														217		460		677		227		448		675
Separation		19		111		130		20		135		155		21		120		141		20		101		121
Environmental		20		40		60		20		40		60		30		43		73		20		51		71
Other		45		58		103		42		85		127		41		55		96		44		53		97

Total	$	312	$	703	$	1,015	$	312	$	735	$	1,047	$	309	$	678	$	987	$	311	$	653	$	964

CSX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

NOTE 10. Casualty, Environmental and Other Reserves, continued

Personal Injury

Personal injury reserves represent liabilities for employee work-related and third party injuries. Employee work-related injuries are subject to ~~CSXT unless otherwise noted.~~

~~Personal Injury~~

the Federal Employers’ Liability Act (“FELA”). CSXT retains an independent actuarial firm to assist management in assessing the value of ~~CSXT’s~~these personal injury claims and cases. An analysis is performed by the independent actuarial firm semi-annually and is reviewed by management. The methodology used by the actuary includes a development factor to reflect growth in the value of ~~CSXT’s~~these personal injury claims. This methodology is based largely on CSXT’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 in litigation. ~~Reserves for personal injury claims are $420 million and $383 million at September 30, 2005 and December 31, 2004, respectively.~~

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 repetitive stress injury, carpal tunnel syndrome or hearing loss.

~~Reserves for~~ The Company retains a third party specialist, who has extensive experience in performing occupational studies, to assist in assessing the unasserted liability exposure. The analysis is performed semi-annually. The methodology used by the specialist includes an estimate of future anticipated claims based on the Company’s trends of average historical claim filing rates, future anticipated dismissal rates and settlement rates. 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 ~~related claims are $195 million~~ and ~~$212 million at September 30, 2005 and December 31, 2004, respectively. Reserves for~~ other occupational ~~related claims~~litigation in the United States, could cause the actual costs to be higher or lower than projected.

Separation

Separation liabilities 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 ~~$107 million and $110 million at September 30, 2005 and December 31, 2004, respectively.~~expected to be paid out over the next 15 to 20 years from general corporate funds.

1618

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

NOTE 10. Casualty, Environmental and Other Reserves, continued

Environmental

The Company is a party to various proceedings, including administrative and judicial proceedings, involving private parties and regulatory agencies related to environmental issues. The Company has been identified as a potentially responsible party (“PRP”) at approximately 260 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 CSXT, or its railroad predecessors, sent hazardous substances to the facilities in question for disposal.

At least once a quarter, the Company reviews its role with respect to each site identified. Based on the review process, the Company has recorded reserves, excluding anticipated insurance recoveries, 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 are undiscounted and include amounts representing the Company’s estimate of unasserted claims, which the Company believes to be immaterial. The liability includes future costs for all sites where the Company’s obligation is deemed probable, and where such costs can be reasonably estimated.

The Company does not currently possess sufficient information to reasonably estimate the amount 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, financial condition or liquidity.

Other

Other reserves include liabilities for various claims, such as longshoremen disability claims, freight claims, and claims for property, automobile and general liability. As liabilities become known, the Company accrues the estimable and probable amount in accordance with SFAS 5.

CSX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

NOTE ~~13. Casualty, Environmental~~11. Hurricane Katrina

In August 2005, Hurricane Katrina caused extensive damage to Company assets on the Gulf Coast. The most significant damage was concentrated on CSXT’s route between New Orleans, LA and ~~Other Reserves, Continued~~Pascagoula, MS. The Company has insurance coverage of $535 million, after a $25 million deductible (per occurrence), for fixed asset replacement and business interruption (which includes incremental expenses and lost profits).

Management’s current loss estimate is approximately $450 million, which is an increase from earlier estimates. The Gulf Coast region remains challenged by scarce resources and massive recovery requirements which have affected the price and availability of resources to the Company. At this time, the CSXT route and bridgework is substantially complete and operational, with remaining work primarily consisting of salvage and debris removal.

The Company’s insurance policies do not prioritize coverage based on types of losses. As claims are submitted to the insurance companies, they are reviewed and preliminary payments made until all losses are incurred and documented. However, no claim payments are guaranteed until cash is received. A final payment will be made once the Company and its insurers agree on the total measurement value of the claim. The Company has collected insurance payments of:


	Amount
(Dollars in Millions)	Collected
Fourth Quarter 2005	$	70

First Quarter 2006		50
Second Quarter 2006 - to date		97


Total Collected to Date	$	217

The insurance receivable, net of cash insurance proceeds, amounted to $15 million and $43 million at March 31, 2006, and December 30, 2005, respectively, and is ~~party to a number of occupational claims by employees exposed to asbestos~~included in Accounts Receivable — Net in the ~~workplace. According to rail industry statistics, the heaviest exposure for employees was due to work conducted in and around the use of steam locomotive engines that~~Company’s Consolidated Balance Sheets. These receivables 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 until it was substantially eliminated by 1985.

The Company retains 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 probable claim filings and claim values could be estimated with more certainty.

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

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

Nine Months Ended Sept. Twelve Months Ended
30, 2005 Dec. 31, 2004
Asserted Claims:
Open Claims — Beginning of Period 11,461 13,479
New Claims Filed 551 1,178
Claims Resolved (973 ) (2,758 )
Claims Dismissed (350 ) (438 )

Open Claims — End of Period 10,689 11,461

Approximately 6,000 of the open claims at September 30, 2005 are asbestos claims against the Company’s previously owned international container shipping business. Because these claims are against multiple vessel owners, the Company’s reserves reflect its portion of those claims. The Company had approximately $11 million and $13 million reserved for those shipping business claims at September 30, 2005 and December 31, 2004, respectively. The remaining open claims have been asserted against CSXT.

The amounts recorded by the Company for asbestos and other occupational liabilities are based upon currently known information and judgements based upon that information. 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. Recent asbestos filing rates have declined. Continued declining filing rates could become a trend that would result in a reduction of Labor and Fringe and Materials, Supplies and Other expenses in the ~~reserve for asbestos related claims. Because~~Company’s Consolidated Income Statement.

When cash is received in excess of the ~~pace of asbestos claim filings has been inconsistent,~~receivable, the Company ~~has not yet determined the decline to be a trend.~~

While the final outcome of casualty-related matters cannot be predicted with certainty, considering among other items the meritorious legal defenses available and the liabilities that have been recorded, it is the opinion of management that none of these items, when finally resolved, will ~~have a material adverse effect on the Company’s results of operations, financial position or liquidity. Should a number of these items occur~~record gains in the ~~same period, however, they could have~~income statement. These gains will be recorded separately as a ~~materially adverse effect on~~reduction of operating expenses. The Company currently estimates cash proceeds in excess of the ~~results~~receivable beginning in the second quarter of ~~operations~~2006.

In accordance with SFAS95,Statement of Cash Flows(“SFAS 95”), cash proceeds received from insurers will be presented as “Insurance Proceeds” in ~~a particular quarter~~either cash flows from operating activities or ~~fiscal year.~~cash flows from investing activities based upon the type of cost to which the proceeds relate.

1720

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

~~NOTE 13. Casualty, Environmental and Other Reserves, Continued~~

~~Separation~~

Separation liabilities at September 30, 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 from general corporate funds.

~~Environmental~~

The Company is a party to various proceedings, including administrative and judicial proceedings, involving private parties and regulatory agencies related to environmental issues. The Company has been identified as a potentially responsible party (“PRP”) at approximately 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 CSXT, or its railroad predecessors, sent hazardous substances to the facilities in question for disposal.

In addition, some of the Company’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 of various regulated materials onto the property. Therefore, the Company is subject to environmental cleanup and enforcement actions under 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.

At least once a quarter, the Company reviews its role with respect to each site identified. Based on the review process, the Company 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 are undiscounted and include amounts representing the Company’s estimate of unasserted claims, which the Company 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.

~~Other~~

~~Other claims include amounts reserved for longshoremen disability claims, freight loss and damage, and other related injuries and losses.~~

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

NOTE ~~14.~~12. Commitments and Contingencies

Purchase Commitments

CSXT has a commitment under a long-term maintenance program that currently covers ~~approximately 40%~~39% of CSXT’s fleet of locomotives. The agreement is based onupon the maintenance cycle for each locomotive and is currently predicted to expire no earlier than 2026 and as late as 2031, depending upon when additional locomotives are placed in ~~2026.~~service. The costs expected to be incurred ~~through~~throughout the duration of the agreement ~~total approximately $6.8 billion.~~fluctuate as locomotives are placed into, or removed from, service or as required maintenance is adjusted. CSXT may terminate the agreement at its ~~convenience~~option after 2012, though such action ~~might~~would trigger certain liquidated damages ~~provisions that could result in damages adjusted over the predicted term of the agreement.~~provisions. Under the program, CSXT paid ~~$43 million and $127~~$41 million for both the ~~quarter~~first quarters of 2006 and ~~nine months ending September 30, 2005, respectively. CSXT paid $39 million and $114 million during the quarter and nine months ended September 24, 2004, respectively.~~2005.

Insurance

The Company maintains numerous insurance programs, most notably for ~~third party~~third-party casualty liability and for Company property damage and business interruption ~~property insurance~~ with substantial ~~limits; a~~limits. A specific amount of risk ($25 million per occurrence) is retained by the Company on ~~both programs.~~the casualty program and non-catastrophic property damage. The Company retains $50 million of risk per occurrence for its catastrophic property coverage, an increase of $25 million from the prior year. For information on insurance issues resulting from the effects of Hurricane Katrina on the Company’s results of operations, ~~and assets,~~ see Note ~~11.~~11, Hurricane Katrina.

Guarantees

CSX ~~and its subsidiaries are~~is contingently liable, individually and jointly with others, as ~~guarantors~~guarantor of approximately ~~$351~~$109 million in obligations principally relating to leased equipment, ~~joint ventures~~vessels and joint facilities used by the Company in its former 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~~beneficiary of the guarantee based onupon another entity’s failure to perform. As of ~~September 30, 2005,~~March 31, 2006, the Company’s ~~three main~~ guarantees ~~are~~can be summarized as follows:

	1.		Guarantee of approximately ~~$245~~$85 million ~~relating to leases assumed as part of the conveyance of its interest~~ in a former subsidiary, CSX Lines, subsequently renamed Horizon Lines LLC (“Horizon”). 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 expiring in 2012 of a former subsidiary, CSX Energy, in connection with a sale-leaseback transaction. CSX is, in turn, indemnified by several subsequent owners of the subsidiary against payments made with respect to ~~this guarantee.~~these leases. CSX ~~management~~ does not expect that ~~CSX~~it will be required to make any payments under this guarantee for which ~~CSX~~it will not be reimbursed.

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

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

1921

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

NOTE ~~14.~~12. Commitments and Contingencies, ~~Continued~~continued

2. Guarantee of approximately $13 million in lease commitments assumed by A.P. Moller-Maersk (“Maersk”) for which CSX is contingently liable until 2011. The Company believes Maersk will fulfill its contractual commitments with respect to these lease commitments and that CSX will have no further liabilities for those obligations.
3. Guarantee of approximately $8 million relating to leases assumed as part of the conveyance of CSX’s interest in a former subsidiary, CSX Lines. CSX believes the former subsidiary will fulfill its contractual commitments with respect to these leases, which expire in 2007, and CSX will have no further liabilities for those obligations.

As of March 31, 2006, the Company has not recognized any liabilities in its financial statements in connection with any guarantee arrangements as FASB Interpretation No. 45,Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Othersdoes not apply to these obligations. The maximum amount of future payments CSX could be required to make under these guarantees is the amount of the guarantees themselves.

Other Legal Proceedings

The Company 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~~FELA 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 materially adverse effect on the results of operations, financial position or liquidity of the Company. An unexpected adverse resolution of one or more of these items, however, could have a materially adverse effect on the results of operations, financial condition or liquidity 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.

2022

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

NOTE ~~15.~~13. Business Segments

The Company operates ~~primarily~~ in two business segments: rail and intermodal. ~~The~~Surface Transportation, which includes the Company’s rail ~~segment~~and intermodal businesses, provides rail-based transportation services including traditional rail ~~freight transportation over~~service and the transport of intermodal containers and trailers. CSX’s principal operating company, CSX Transportation Inc. (“CSXT”), operates the largest railroad in the eastern United States with a 21,000-mile rail network ~~of approximately 22,000 route miles~~linking markets in 23 states, the District of Columbia, and ~~two~~the Canadian ~~provinces. The~~provinces of Ontario and Quebec. CSX Intermodal Inc. (“Intermodal”), one of the nation’s largest coast-to-coast intermodal ~~segment provides~~transportation providers, is a stand-alone, integrated ~~rail~~intermodal company linking customers to railroads via trucks 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.terminals.

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 “Note 1. Nature of Operations and Significant Accounting Policies, ~~(Note 1)~~” in the CSX ~~2004~~2005 Annual Report on Form 10-K.

Consolidated ~~operating income~~Operating Income includes the results of operations of Surface Transportation 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 Company’s Marine Services segment and other items.

~~The International Terminals business segment has been reclassified to Discontinued Operations (see Note 4. Discontinued Operations).~~

Business segment information for the quarters ended ~~September 30,~~2006 and 2005 ~~and September 24, 2004~~ is as follows:

~~(Dollars in Millions)~~


	Surface Transportation											Surface Transportation
	Rail		Intermodal		Total		Other			Total
Quarter Ended September 30, 2005
(Dollars in Millions)												Rail		Intermodal		Total		Other		Total
Quarter Ended March 31, 2006
Revenues from External Customers	$	1,788	$	337	$	2,125	$	—		$	2,125	$	1,997	$	334	$	2,331	$	—	$	2,331
Segment Operating Income		293		68		361		(8	)		353		425		62		487		9		496

Quarter Ended September 24, 2004
Quarter Ended April 1, 2005
Revenues from External Customers	$	1,616	$	327	$	1,943	$	—		$	1,943	$	1,779	$	329	$	2,108	$	—	$	2,108
Segment Operating Income		216		31		247		3			250		299		52		351		3		354

Nine Months Ended September 30, 2005
Revenues from External Customers	$	5,403	$	996	$	6,399	$	—		$	6,399
Segment Operating Income		959		175		1,134		4			1,138
Assets		20,719		861		21,580		—			21,580

Nine Months Ended September 24, 2004
Revenues from External Customers	$	4,893	$	967	$	5,860	$	—		$	5,860
Segment Operating Income		597		81		678		6			684
Assets		19,929		651		20,580		1,065			21,645

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

NOTE ~~15. 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)~~

Quarter Ended
Sept. 30, Sept. 24,
2005 2004
Assets:

Assets for Business Segments $ 21,580 $ 21,645
Investment in Conrail 603 567
Elimination of Intersegment Payables (Receivables) (581 ) (499 )
Non-segment Assets 2,419 2,652

Total Consolidated Assets $ 24,021 $ 24,365

~~NOTE 16.~~14. Employee Benefit Plans

The Company sponsors defined benefit pension plans principally for salaried, management personnel. The plans provide eligible employees with retirement benefits based predominantly onupon years of service and compensation rates near retirement. Employees hired after December 31, 2002 are covered by a cash balance plan. The cash balance plan provides benefits by utilizing interest and pay credits based upon age, service and compensation.

In addition to the defined benefit pension plans, CSX sponsors one ~~post-retirement~~postretirement medical plan and one life insurance plan that provide benefits to full-time, salaried, management employees hired prior to ~~December 31, 2002,~~January 1, 2003, upon their retirement, if certain eligibility requirements are met. The ~~post-retirement~~postretirement medical plan is 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 16. Employee Benefit Plans, Continued~~

The following table presents components of net periodic benefit cost:

Quarters Ended
(Dollars in Millions) Pension Benefits Other Benefits
Sept. 30, 2005 Sept. 24, 2004 Sept. 30, 2005 Sept. 24, 2004

Expense/(Income) Components

Service Cost $ 8 $ 9 $ 2 $ 2
Interest Cost 27 28 6 6
Expected Return on Plan Assets (30 ) (33 ) N/A N/A
Amortization of Prior Service Cost 1 1 (1 ) (1 )
Amortization of Net Loss 6 4 3 4

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


	Nine Months Ended												Pension Benefits						Other Benefits
(Dollars in Millions)	Pension Benefits						Other Benefits						First Quarters						First Quarters
	Sept. 30, 2005			Sept. 24, 2004			Sept. 30, 2005			Sept. 24, 2004			2006			2005			2006			2005

Expense/(Income) Components
Service Cost	$	24		$	29		$	6		$	6		$	9		$	8		$	2		$	2
Interest Cost		81			84			18			18			26			27			5			6
Expected Return on Plan Assets		(90	)		(100	)		N/A			N/A			(29	)		(30	)		—			—
Amortization of Prior Service Cost		3			3			(3	)		(3	)		1			1			(1	)		(1	)
Amortization of Net Loss		18			11			9			12			9			6			2			3

Net Periodic Benefit Cost	$	36		$	27		$	30		$	33		$	16		$	12		$	8		$	10

SFAS 88 Curtailment Charges		—			6			—			18
Net Periodic Benefit Cost, Including Termination Benefits	$	36		$	33		$	30		$	51

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

~~NOTE 17. Management Restructuring~~

~~During 2004,~~ Combining the financial implications of both cash receipts and lower tax-deductible business expenses resulting from the subsidy, the Company ~~incurred restructuring charges related~~expects after-tax cash flow savings of approximately $5 million for fiscal year 2006 to ~~management restructuring plans to streamline~~begin in the structure, eliminate organizational layers and realign certain functions. For the quarter and nine months ended September 24, 2004, the Company recorded expense of $3 million and $71 million, respectively, for separation expense, pension and postretirement benefit curtailment charges, stock compensation expense and other related expenses.

~~NOTE 18. Summarized Consolidating Financial Data~~

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

~~Consolidating Income Statement~~

(Dollars in Millions)
CSX
Corporation Vessel Leasing Other Eliminations Consolidated
Quarter Ended September 30, 2005

Operating Revenue $ — $ — $ 2,125 $ — $ 2,125
Operating Expense (19 ) — 1,791 — 1,772

Operating Income 19 — 334 — 353

Equity in Earnings of Subsidiaries 272 — — (272 ) —
Other Income — Net (40 ) 1 112 (62 ) 11
Debt Repurchase Expense — — — — —
Interest Expense (106 ) — (56 ) 62 (100 )

Earnings (Loss) from Continuing Operations before Income Taxes 145 1 390 (272 ) 264
Income Tax (Benefit) Expense (19 ) — 119 — 100

Net Earnings (Loss) $ 164 $ 1 $ 271 $ (272 ) $ 164

CSX
Corporation Vessel Leasing Other Eliminations Consolidated
Quarter Ended September 24, 2004

Operating Revenue $ — $ — $ 1,943 $ — $ 1,943
Operating Expense (39 ) — 1,732 — 1,693

Operating Income 39 — 211 — 250

Equity in Earnings of Subsidiaries 166 — — (166 ) —
Other Income — Net (13 ) 1 50 (6 ) 32
Interest Expense (88 ) — (17 ) (1 ) (106 )

Earnings (Loss) from Continuing Operations before Income Taxes 104 1 244 (173 ) 176
Income Tax (Benefit) Expense (19 ) — 81 — 62

Earnings from Continuing Operations 123 1 163 (173 ) 114
Discontinued Operations — Net of Tax — — 9 — 9

Net Earnings (Loss) $ 123 $ 1 $ 172 $ (173 ) $ 123

third quarter.

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

~~NOTE 18. Summarized Consolidating Financial Data, Continued~~

~~Consolidating Income Statement~~

(Dollars in Millions)
CSX Vessel
Corporation Leasing Other Eliminations Consolidated
Nine Months Ended September 30, 2005

Operating Revenue $ — $ — $ 6,399 $ — $ 6,399
Operating Expense (94 ) — 5,355 — 5,261

Operating Income 94 — 1,044 — 1,138

Equity in Earnings of Subsidiaries 686 — — (686 ) —
Other Income — Net 91 3 83 (138 ) 39
Debt Repurchase Expense (192 ) — — — (192 )
Interest Expense (317 ) — (145 ) 138 (324 )

Earnings (Loss) from Continuing Operations before Income Taxes 362 3 982 (686 ) 661
Income Tax (Benefit) Expense (118 ) — 296 — 178

Earnings from Continuing Operations 480 3 686 (686 ) 483
Discontinued Operations — Net of Tax 428 — (3 ) — 425

Net Earnings (Loss) $ 908 $ 3 $ 683 $ (686 ) $ 908

CSX Vessel
Corporation Leasing Other Eliminations Consolidated
Nine Months Ended September 24, 2004

Operating Revenue $ — $ — $ 5,860 $ — $ 5,860
Operating Expense (103 ) — 5,279 — 5,176

Operating Income 103 — 581 — 684

Equity in Earnings of Subsidiaries 420 — — (420 ) —
Other Income — Net (32 ) 3 86 (24 ) 33
Interest Expense (285 ) — (52 ) 14 (323 )

Earnings (Loss) from Continuing Operations before Income Taxes 206 3 615 (430 ) 394
Income Tax (Benefit) Expense (66 ) — 201 — 135

Earnings from Continuing Operations 272 3 414 (430 ) 259
Discontinued Operations — Net of Tax — — 13 — 13

Net Earnings (Loss) $ 272 $ 3 $ 427 $ (430 ) $ 272

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

~~NOTE 18. Summarized Consolidating Financial Data, Continued~~

~~Consolidating Balance Sheet~~

(Dollars in Millions)
CSX Vessel
Corporation Leasing Other Eliminations Consolidated
September 30, 2005

ASSETS

Current Assets:

Cash, Cash Equivalents and Short-term Investments $ 291 $ 47 $ 252 $ — $ 590
Accounts Receivable — Net — 16 1,278 (20 ) 1,274
Other Current Assets — Net — — 710 (127 ) 583

Total Current Assets 291 63 2,240 (147 ) 2,447
Properties — Net 1 — 19,974 — 19,975
Investment in Consolidated Subsidiaries 13,183 — — (13,183 ) —
Other Long-term Assets 1,377 — 325 (103 ) 1,599

Total Assets
$ 14,852 $ 63 $ 22,539 $ (13,433 ) $ 24,021

LIABILITIES AND SHAREHOLDERS’ EQUITY

Current Liabilities:

Accounts Payable $ 584 $ 19 $ 348 $ (21 ) $ 930
Other Current Liabilities 2,287 — 49 (126 ) 2,210

Total Current Liabilities 2,871 19 397 (147 ) 3,140
Other Long-term Liabilities 4,219 31 8,972 (103 ) 13,119

Total Liabilities 7,090 50 9,369 (250 ) 16,259

Shareholders’ Equity:

Common Stock, $1 Par Value 217 — 181 (181 ) 217
Other Capital 1,698 1 8,090 (8,091 ) 1,698
Retained Earnings 6,053 12 4,812 (4,824 ) 6,053
Accumulated Other Comprehensive Loss (206 ) — 87 (87 ) (206 )

Total Shareholders’ Equity 7,762 13 13,170 (13,183 ) 7,762

Total Liabilities and Shareholders’ Equity
$ 14,852 $ 63 $ 22,539 $ (13,433 ) $ 24,021

CSX Vessel
Corporation 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 1,647 (25 ) 1,159
Other Current Assets — Net 9 — 1,246 (270 ) 985

Total Current Assets 637 65 2,596 (295 ) 3,003
Properties — Net 1 — 19,944 — 19,945
Investment in Consolidated Subsidiaries 13,078 — — (13,078 ) —
Other Long-term Assets 1,345 — 551 (224 ) 1,672

Total Assets
$ 15,061 $ 65 $ 23,091 $ (13,597 ) $ 24,620

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 7,574 (247 ) 14,492

Total Liabilities 8,250 56 9,910 (407 ) 17,809

Shareholders’ Equity:

Common Stock, $1 Par Value 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 $ 23,091 $ (13,597 ) $ 24,620

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

~~NOTE 18. Summarized Consolidating Financial Data, Continued~~

~~Consolidating Cash Flow Statements~~

(Dollars in Millions)
CSX Vessel
Corporation Leasing Other Eliminations Consolidated
Nine Months Ended September 30, 2005

Operating Activities
Net Cash Provided by (Used in) Operating Activities $ (554 ) $ — $ 1,535 $ (203 ) $ 778

Investing Activities
Property Additions — — (726 ) — (726 )
Net Proceeds from Sale of International Terminals 1,110 — (2 ) — 1,108
Purchase of Minority Interest in an International Terminals’ Subsidiary (110 ) — — — (110 )
Purchases of Short-term Investments (2,010 ) — (31 ) — (2,041 )
Proceeds from Sale of Short-term Investments 2,041 — 9 — 2,050
Other Investing Activities 75 — 266 (315 ) 26

Net Cash Provided by (Used in) Investing Activities 1,106 — (484 ) (315 ) 307

Financing Activities
Short-term Debt — Net (100 ) — 2 — (98 )
Long-term Debt Issued — — 29 — 29
Long-term Debt Repaid (1,125 ) — (114 ) — (1,239 )
Dividends Paid (66 ) — (175 ) 176 (65 )
Other Financing Activities (49 ) 1 (250 ) 342 44

Net Cash Provided by (Used in) Financing Activities (1,340 ) 1 (508 ) 518 (1,329 )

Net (Decrease) Increase in Cash and Cash Equivalents (788 ) 1 543 — (244 )
Cash and Cash Equivalents at Beginning of Period 816 46 (340 ) — 522

Cash and Cash Equivalents at End of Period $ 28 $ 47 $ 203 $ — $ 278

CSX Vessel
Corporation Leasing Other Eliminations Consolidated
Nine Months Ended September 24, 2004

Operating Activities
Net Cash Provided by (Used in) Operating Activities $ 31 $ — $ 983 $ (149 ) $ 865

Investing Activities
Property Additions — — (734 ) — (734 )
Proceeds from Divestitures — — 55 — 55
Purchases of Short-term Investments (1,253 ) — (32 ) — (1,285 )
Proceeds from Sales of Short-term Investments 927 — 9 — 936
Other Investing Activities (3 ) — (11 ) (10 ) (24 )

Net Cash Provided by (Used in) Investing Activities (329 ) — (713 ) (10 ) (1,052 )

Financing Activities
Short-term Debt — Net 100 — 1 — 101
Long-term Debt Issued 412 — — — 412
Long-term Debt Repaid (300 ) — (85 ) — (385 )
Dividends Paid (66 ) — (147 ) 149 (64 )
Other Financing Activities 27 1 (20 ) 10 18

Net Cash Provided by (Used in) Financing Activities 173 1 (251 ) 159 82

Net (Decrease) Increase in Cash and Cash Equivalents (125 ) 1 19 — (105 )
Cash and Cash Equivalents at Beginning of Period 1,163 45 (912 ) — 296

Cash and Cash Equivalents at End of Period $ 1,038 $ 46 $ (893 ) $ — $ 191

~~CSX CORPORATION~~
~~PART I: FINANCIAL INFORMATION~~

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

~~FINANCIAL CONDITION~~COMPANY OVERVIEW

~~EXECUTIVE SUMMARY~~ CSX Corporation (“CSX” and, together with its subsidiaries, the “Company”), based in Jacksonville, FL, is one of the nation’s leading transportation companies. Surface Transportation, which includes the Company’s rail and intermodal businesses, provides rail-based transportation services including traditional rail service and the transport of intermodal containers and trailers. CSX’s principal operating company, CSX Transportation Inc. (“CSXT”), operates the largest railroad in the eastern United States with a 21,000-mile rail network linking markets in 23 states, the District of Columbia, and the Canadian provinces of Ontario and Quebec. CSX Intermodal Inc. (“Intermodal”), one of the nation’s largest coast-to-coast intermodal transportation providers, is a stand-alone, integrated intermodal company linking customers to railroads via trucks and terminals.

~~2005~~First Quarter 2006 Surface Transportation Highlights ~~and Challenges~~

~~Revenue~~

	•		Revenue grew 11% to $2.3 billion.

	•		Operating income increased 39% to a record $487 million.

	•		Operating ratio improved 4.2 points to 79.1%.

	•		Service and safety measurements improved across the board.

~~The third quarter of 2005 marked the 14th consecutive quarter of year-over-year revenue growth. Revenue~~Revenues increased ~~9% or $182 million compared to the third quarter of 2004. Coal, coke and iron ore continued to experience significant revenue gains of 17% as demand for transportation services was~~11%, driven by higher electricity generation and rebuilding of utility stockpile inventories. Additionally, the coal pricing environment continues to be favorable. Merchandise revenue increased 8% through continued yield management efforts and the Company’s fuel surcharge program. Within the merchandise market, all lines of business posted year-over-year revenue growth led by strong gainsa 12% improvement in ~~agricultural products and food and consumer products. Automotive revenue increased by 8% due to higher volume, price and fuel surcharge increases. Intermodal revenue was up slightly as~~ revenue per unit ~~increases offset~~on slightly lower volumes. Along with the ~~year-over-year~~fuel surcharge program, the increase in revenue per unit was primarily driven by the Company’s continued pricing efforts and traffic mix, which accounted for approximately 45% and 20% of the increase, respectively. Lower volume ~~decline. The Company estimates that Hurricane Katrina adversely affected revenues in the quarter by approximately $17 million primarily related to the chemicals and Intermodal markets.~~

~~Volume~~

~~Overall volume during the third quarter of 2005~~ was flat versus the prior year comparable quarter. Volume growth in coal and automotive overcame volume declines in the other markets. Overall, merchandise carloads fell slightly versus the prior year comparable quarter. Automotive volume levels increased primarily due to the ~~success of the domestic manufacturer’s employee discount pricing promotion. In addition,~~merchandise market’s reduction in short-haul export phosphate volume, resulting from reduced international fertilizer demand, and lower Intermodal ~~volumes declined~~volume, as the Company continued its yield management ~~efforts.~~

~~Fuel Costs~~efforts and ~~Fuel Surcharge Program~~focus on profitability. Partially offsetting these decline were increases in coal volume due to continued strong utility demand and in automotive volume due to increased North American light vehicle production.

~~Fuel expenses increased~~For additional information, refer to Rail and Intermodal Results of Operations discussions on pages 30 and 32, respectively.

Operating performance improved significantly during the first quarter, with all key measures registering solid to significant improvement. Two key measures – safety and on-time performance – showed the greatest improvement, with personal injuries and train accidents declining 16% ~~to $188 million in~~and 28%, respectively, and with on-time originations and on-time arrivals improving 49% and 63%, respectively. This performance was driven by the ~~third quarter, net~~Company’s continued focus on safety leadership and improved execution of ~~$77 million in 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 the fuel hedging program, was $1.34 in the third quarter of 2005 versus $1.14 in the third quarter of 2004. The fuel surcharge program within Surface Transportation offset a significant portion of fuel cost increases.ONE Plan.

2825

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

~~Operations~~

As illustrated in the table below, key measures of network performance were mixed versus prior year. Management believes these measures are indicators of relative performance, encompassing drivers of both service reliability and operating efficiency.

RAIL OPERATING STATISTICS^(a)(Estimated)


		Third Quarter
								%
								Improvement				First Quarters
		2005			2004			(Decline)										*% Increase*
												2006			2005			*(Decrease)*
Service Measurements	Personal Injury Frequency Index (Per 100 Employees)		1.91			2.42			21	%	Personal Injury Frequency Index (Per 200,000 Man Hours)		1.38			1.65			16
	FRA Train Accidents Frequency (Per Million Train Miles)		3.85			4.43			13		FRA Train Accidents Frequency (Per Million Train Miles)		3.61			5.02			28
	Average Velocity, All Trains (Miles Per Hour)		19.7			20.1			(2	)
	Average System Dwell Time (Hours)^(b)		29.0			28.8			(1	)	On-Time Originations		74.4	%		49.9	%		49
	Average Total Cars-On-Line		232,324			233,469		—			On-Time Arrivals		61.3	%		37.7	%		63
	On -Time Originations		51.1	%		50.9	%	—
	On -Time Arrivals		43.1	%		40.6	%		6		Average System Dwell Time (Hours) ^(a)		26.6			30.0			11
	Average Recrews (Per Day)		63			62			(2	)	Average Total Cars-On-Line		224,299			234,209			4
											Average Velocity, All Trains (Miles Per Hour)		20.0			19.5			3
											Average Recrews (Per Day)		58			65			11

Resources	Route Miles		21,687			22,316			(3	)	Route Miles		21,287			21,884			(3	)
	Locomotives^(c)		3,759			3,702			2		Locomotives (Owned and Long-term Leased)		3,780			3,708			2
	Freight Cars^(c)		103,308			104,446			(1	)%	Freight Cars (Owned and Long-term Leased)		102,794			104,735			(2	)

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

~~Operations, Continued~~

CSXT is continuing freight transportation service to customers outside of the storm-affected area by rerouting rail traffic through well-established western gateways, including East St. Louis, IL, Memphis, TN, Birmingham, AL, Mobile, AL, and Montgomery, AL. Service to customers within the affected area is expected to be restored by year-end. All repairs are expected to be completed by the end of the first quarter of 2006, ~~with most expected to be finished by year-end 2005. The rerouted trains are expected to be returned to their original gateway of New Orleans when all major repairs are completed.~~

~~Capital Investment~~

CSXT continues to invest in its rail 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 plans to make strategic infrastructure investmentsaverage system dwell time would have been 26.1 hours for that period versus 26.6 hours as profitability targets are met. Investments under consideration include locomotives, track and terminal infrastructure expansion such as the Southeastern corridor between Chicago and Florida and the River Line from Albany to New York City. Investments in the Southeastern corridor are intended among other things to support Western coal sourcing from the Colorado, Illinois and Powder River basins as well as consumer goods shipments from West Coast ports and merchandise and automobile shipments. Investments in the River Line are designed to increase long-term capacity for the I-90 corridor between Chicago and New York.

As a result of these investments and the ongoing needs of the business, the Company expects incremental 2006 and 2007 capital spending of approximately $300 million to $400 million, excluding the impact of Hurricane Katrina, above its recent annual averages of approximately $1.0 billion.

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

~~2005~~2006 Surface Transportation Expectations

~~Revenue~~

~~Despite the affects of Hurricane Katrina, revenue growth~~ The Company’s performance in 2006 is expected to support its five-year financial targets of double-digit annual growth in Surface Transportation operating income, earnings and free cash flow. In 2006, CSX expects strong revenue growth, driven by a continuing robust pricing environment and volume growth. In addition, lower margin traffic will continue to outpace volume growth through 2005 due to a continued strong transportation demand, as well as CSX’s emphasis on price, fuel surcharge coverage and service improvement. Lower contributory traffic is either beingbe re-priced or replaced by longer haul, more profitable business. ~~The amount of any revenue~~

Improvements in service and ~~volume increase depends on several factors:~~

~~Economy:~~~~Favorable economic conditions are expected based~~safety performance combined with planned investments in locomotives, employees and capacity will build on the ~~forecasts for key economic indicators such as the gross domestic product, industrial production~~momentum established in 2005 and ~~overall import levels. Generally, the Company’s revenue is fairly diversified and a large portion is less sensitive to significant fluctuations~~continued in the ~~general economy. Changes, however, in the macro economic environment do impact overall revenue growth.~~

~~Operational Performance:~~Service is expected to improve with more consistent execution of the network operating plan, which should result in improved average velocity and more reliable service. 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 the Company’s revenue varies with the price of fuel.~~

~~Operations~~

~~CSXT expects key operating measurements to show consistent improvement through the fourth~~first quarter ~~of 2005 and into~~ 2006. In addition to the success of the initiatives outlined above, availability of resources can affect overall network performance and service levels. Locomotive and train and engine (“T&E”) employee availability are critical to operating plan execution. Management believes current resource plans will support anticipated business levels and maintain network fluidity. Those plans include hiring new train and engine employees, which ~~include the hiring~~consist of ~~approximately 2,000 T&E employees~~locomotive engineers and conductors, to offset anticipated attrition. A two-year capacity expansion and infrastructure investment plan is also designed to drive improved service reliability and volume growth as projects are completed. The first expansion projects will be completed during 2006, and the ~~acquisition of 100 new locomotives in 2005, will be sufficient to support improved plan execution.~~remaining projects are on target for completion during 2007.

3126

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

~~RISK FACTORS~~FINANCIAL RESULTS OF OPERATIONS

~~Competition~~First Quarter Consolidated Results of Operations

The ~~Company experiences competition from other transportation providers including railroads~~financial statements presented are for the 13-week fiscal quarters ended March 31, 2006 and ~~motor carriers that operate similar routes across its service area, and~~April 1, 2005. Except as otherwise specified, references 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 CSXT and other railroads must build and maintain rail networks using 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 onyears indicate the Company’s ~~results of operations, financial condition and liquidity.~~fiscal quarter ended as noted previously.

~~Employees and Labor Union Relationships~~


	CONSOLIDATED

	First Quarters				*Increase/*
(Dollars in Millions)	2006		2005		*(Decrease)*
Operating Revenue	$	2,331	$	2,108	$	223
Operating Expense:
Labor and Fringe		720		696		24
Materials, Supplies and Other		453		468		(15	)
Depreciation		211		205		6
Fuel		253		179		74
Building and Equipment Rent		123		132		(9	)
Inland Transportation		56		54		2
Conrail Rents, Fees & Services		19		20		(1	)

Total Operating Expense		1,835		1,754		81


Operating Income	$	496	$	354	$	142


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

Consolidated Operating Revenue

CSXT considers employee relations with most of its unions generally to be good. Most of 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 nationallyRevenue increases were driven by the ~~National Railway Labor Conference, normally contain~~Company’s continued pricing efforts, the ~~same moratorium date so all bargaining on agreement changes generally begins at approximately the same time. A round~~fuel surcharge program and traffic mix.

Consolidated Operating Income

Improvement in Consolidated Operating Income was driven by increased Operating Revenue, partially offset by increases in Operating Expenses, primarily as a result of ~~bargaining started in 2000 when the moratorium provisions expired. Agreements have been reached with all of the unions.~~

Also, the agreements which were concluded in the 2000 bargaining round are now open for renegotiation. The process of renegotiating these agreements commenced in 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~~higher fuel prices 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.lower fuel hedge benefit.

3227

CSX CORPORATION
~~PART I: FINANCIAL INFORMATION~~
ITEM 2: MANAGEMENT’S DISCUSSION AND ANALYSIS OF ~~RESULTS OF OPERATIONS 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 incurring fines, penalties or costs relating to the cleanup of environmental contamination. Although the Company believes it 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 results of operations. Furthermore, fuel prices and supply are influenced considerably by international political and economic circumstances. A fuel surcharge revenue program is in place with a considerable number of customers. This program has historically permitted the Company’s Surface Transportation businesses to recover a significant portion of increased fuel costs. Despite the fuel surcharge program, 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 materially adversely affect our results of operations, financial condition and liquidity.

~~Future Acts of Terrorism or War~~

Terrorist attacks, such as those that occurred in the United States in September 2001, in Spain in March 2004, or in 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 results of operations, 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.

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

~~RISK FACTORS, Continued~~

~~Regulation and Legislation~~

The Company is subject to various regulatory jurisdictions, including 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 for a variety of economic, health, safety, labor, environmental, tax, legal and other matters. Legislation passed by Congress or regulations issued by these agencies can significantly affect the revenues, costs and profitability of the Company’s business. 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 CSXT, 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. CSXT, supported by the United States, is currently challenging the validity of this legislation in the federal courts. Although CSXT and the Federal Government have secured favorable rulings from the US Court of Appeals for the District of Columbia Circuit and the STB, 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 and thus its results of operations, financial condition and liquidity.

~~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 or 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 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. Final amounts determined to be due, however, 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 results of operations, financial condition and liquidity. For information on insurance issues resulting from the effects of Hurricane Katrina on the Company’s operations and assets, see Note 11. Hurricane Katrina.

RESULTS OF OPERATIONS

~~Quarter Ended September 30, 2005 Compared to Quarter Ended September 24, 2004~~

The Company follows a 52/53 week fiscal reporting calendar. Fiscal year 2005 consists of 52 weeks ending on December 30, 2005. Fiscal year 2004 consisted of 53 weeks ending on December 31, 2004. The financial statements presented are for the 13-week quarters ended September 30, 2005 and September 24, 2004, the 39-week periods ended September 30, 2005 and September 24, 2004 and as of December 31, 2004. In 2004, the fourth quarter ending December 31, 2004, consisted of 14 weeks.

CONSOLIDATED^(a)(b)
Sept. 30, Sept. 24, $
(Dollars in Millions) 2005 2004 Change
(Unaudited)
Operating Revenue
$ 2,125 $ 1,943 $ 182
Operating Expense

Labor and Fringe 727 671 56
Materials, Supplies and Other 462 410 52
Depreciation 207 172 35
Fuel 188 162 26
Building and Equipment Rent 124 140 (16 )
Inland Transportation 55 72 (17 )
Conrail Rents, Fees & Services 9 63 (54 )
Restructuring Charge — 3 (3 )

Total Operating Expense
1,772 1,693 79

Operating Income
$ 353 $ 250 $ 103


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

~~(b)~~		Consolidated operating income includes the results of operations of Surface Transportation shown on page 37 and other operating income. Other operating results include the gain amortization on the CSX Lines conveyance, net sublease income from assets formerly included in the Company’s Marine Services segment, and other items which amounted to a loss of ($8) million and income of $3 million for the quarters ended September 30, 2005 and September 24, 2004, respectively.

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

~~RESULTS OF OPERATIONS, Continued~~

~~Consolidated Operating Revenue~~

Revenue increased 9% or $182 million compared to the prior year comparable quarter as efforts to increase price, asset prioritization and utilization and fuel surcharge customer coverage continued across all lines of business.

~~Consolidated Operating Income~~

Consolidated operating expenses increased 5% or $79 million due to higher incentive compensation and fuel expenses partially offset by the net positive effect of the Conrail spin-off transaction. Overall consolidated operating income increased $103 million or 41% compared to the prior year quarter.

Additionally, the Company estimates results of operations for the quarter ended September 30, 2005 were negatively affected by $19 million as a result of Hurricane Katrina which includes business interruption lost profits of $14 million and $5 million from the application of insurance deductibles related to other expenses incurred.

Interest Expense

Interest ~~expense~~Expense decreased ~~$6 million~~ compared to the prior year comparable quarter as a result of the repurchase of $1.0 billion of the Company’s publicly-traded notes in June ~~2005 offset by a reduced benefit from the Company’s interest rate swaps.~~2005.

Income Tax Expense

Income Tax Expense increased $66 million as a result of higher Consolidated Operating Income combined with last year’s first quarter rate reduction stemming from the enactment of state income tax expense for the quarter ended September 30, 2005 increased $38 million, primarily driven by increased pretax earnings. The effective tax rate for the quarter ended September 24, 2004 was lower than the Company’s historical effective tax rate due to an increase in pretax earnings attributable to Conrail.legislation.

Net Earnings

~~The Company’s consolidated net earnings~~Consolidated Net Earnings were higher by $334 million for the first quarter ~~ended September 30,~~of 2005, ~~increased $41~~due to a $428 million ~~compared to~~after-tax gain from the ~~prior year comparable~~Company’s discontinued operations. Discontinued Operations for the first quarter ~~as increases in consolidated operating revenue were offset by corresponding increases in operating and income tax expenses.~~of 2005 also included an after-tax loss on operations of $3 million from the International Terminals business.

3628

CSX CORPORATION
~~PART I: FINANCIAL INFORMATION~~
ITEM 2: MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND 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 September 30, 2005, and September 24, 2004~~

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

Operating Revenue
$ 1,788 $ 1,616 $ 172 $ 337 $ 327 $ 10 $ 2,125 $ 1,943 $ 182
Operating Expense

Labor and Fringe 705 652 53 20 19 1 725 671 54
Materials, Supplies and Other 408 359 49 46 53 (7 ) 454 412 42
Depreciation 195 161 34 9 9 — 204 170 34
Fuel 188 162 26 — — — 188 162 26
Building and Equipment Rent 99 104 (5 ) 30 39 (9 ) 129 143 (14 )
Inland Transportation (109 ) (104 ) (5 ) 164 176 (12 ) 55 72 (17 )
Conrail Rents, Fees and Services 9 63 (54 ) — — — 9 63 (54 )
Restructuring Charge — 3 (3 ) — — — — 3 (3 )

Total Operating Expense
1,495 1,400 95 269 296 (27 ) 1,764 1,696 68

Operating Income
$ 293 $ 216 $ 77 $ 68 $ 31 $ 37 $ 361 $ 247 $ 114

Operating Ratio
83.6 % 86.6 % 79.8 % 90.5 % 83.0 % 87.3 %

~~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 volume, revenue and revenue per unit by service group and commodity:~~

SURFACE TRANSPORTATION ~~TRAFFIC~~DETAIL(Unaudited)
(Dollars in Millions)
First Quarter


													Surface
	Rail						Intermodal						Transportation
																			*Increase/*
	2006			2005			2006			2005			2006			2005			*(Decrease)*
Revenue	$	1,997		$	1,779		$	334		$	329		$	2,331		$	2,108		$	223
Operating Expense:
Labor and Fringe		698			674			20			20			718			694			24
Materials, Supplies and Other		419			418			44			54			463			472			(9	)
Depreciation		201			193			10			10			211			203			8
Fuel		253			179			—			—			253			179			74
Building and Equipment Rent		93			101			31			34			124			135			(11	)
Inland Transportation		(111	)		(105	)		167			159			56			54			2
Conrail Rents, Fees and Services		19			20			—			—			19			20			(1	)

Total Expense		1,572			1,480			272			277			1,844			1,757			87

Surface Transportation Operating Income	$	425		$	299		$	62		$	52		$	487		$	351		$	136


Surface Transportation Operating Ratio		78.7	%		83.2	%		81.4	%		84.2	%		79.1	%		83.3	%

SURFACE TRANSPORTATION VOLUME AND REVENUE
Volume (Thousands); Revenue (Dollars in Millions),; Revenue Per Unit (Dollars)
First Quarter


	Volume							Revenue							Revenue Per Unit
	2006		2005		% Change			2006		2005		%Change			2006		2005		*% Change*
Chemicals		135		140		(4	)%	$	295	$	275		7	%	$	2,185	$	1,964		11	%
Emerging Markets		124		115		8			134		117		15			1,081		1,017		6
Forest Products		106		113		(6	)		191		176		9			1,802		1,558		16
Agricultural Products		96		92		4			157		137		15			1,635		1,489		10
Metals		94		93		1			164		138		19			1,745		1,484		18
Phosphates and Fertilizers		88		117		(25	)		90		90		—			1,023		769		33
Food and Consumer		64		63		2			118		105		12			1,844		1,667		11

Total Merchandise		707		733		(4	)		1,149		1,038		11			1,625		1,416		15
Coal		456		437		4			552		482		15			1,211		1,103		10
Coke and Iron Ore		20		21		(5	)		27		24		13			1,350		1,143		18

Total Coal		476		458		4			579		506		14			1,216		1,105		10
Automotive		127		125		2			231		208		11			1,819		1,664		9
Other		—		—		—			38		27		41			—		—		—

Total Rail		1,310		1,316		—			1,997		1,779		12			1,524		1,352		13

International		302		316		(4	)		132		132		—			437		418		5
Domestic		214		212		1			186		173		8			869		816		6
Other		—		—		—			16		24		(33	)		—		—		—

Total Intermodal		516		528		(2	)		334		329		2			647		623		4

Total Surface Transportation		1,826		1,844		(1	)%	$	2,331	$	2,108		11	%	$	1,277	$	1,143		12	%

Volume Revenue Revenue Per Unit
Third Quarter 2005 2004 % Change 2005 2004 % Change 2005 2004 % Change
Merchandise

Phosphates and Fertilizers 111 107 4 % $ 83 $ 75 11 % $ 748 $ 701 7
Metals 88 95 (7 ) 142 129 10 1,614 1,358 19
Forest Products 107 115 (7 ) 177 171 4 1,654 1,487 11
Food and Consumer 62 59 5 110 93 18 1,774 1,576 13
Agricultural Products 88 82 7 133 117 14 1,511 1,427 6
Chemicals 131 139 (6 ) 269 266 1 2,053 1,914 7
Emerging Markets 132 126 5 135 120 13 1,023 952 7

Total Merchandise
719 723 (1 ) 1,049 971 8 1,459 1,343 9

Automotive
114 112 2 200 185 8 1,754 1,652 6

Coal, Coke and Iron Ore

Coal 422 406 4 491 423 16 1,164 1,042 12
Coke and Iron Ore 20 17 18 21 15 40 1,050 882 19

Total Coal, Coke and Iron Ore
442 423 4 512 438 17 1,158 1,035 12
Other
— — — 27 22 23 — — —

Total Rail
1,275 1,258 1 1,788 1,616 11 1,402 1,285 9

Intermodal

Domestic 216 239 (10 ) 180 184 (2 ) 833 770 8
International 328 320 3 130 127 2 396 397 —
Other — — — 27 16 69 — — —

Total Intermodal
544 559 (3 ) 337 327 3 619 585 6

Total Surface Transportation
1,819 1,817 — % $ 2,125 $ 1,943 9 % $ 1,168 $ 1,069 9

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

3829

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

~~RESULTS OF OPERATIONS, Continued~~First Quarter Rail Results of Operations

~~Rail~~

~~The following discussion compares the 13-week quarters ended September 30, 2005 and September 24, 2004.~~

Rail Operating Revenue

~~Third quarter 2005 results represent the 14~~^th consecutive quarter of revenue growth as well as record revenue-per-unit results. All markets experienced revenue and revenue-per-unit gains as a result of continued traffic re-pricing and the fuel surcharge program.

Merchandise

~~Phosphates and Fertilizers~~Chemicals – Volume ~~grew by 4%~~largely returned to pre-hurricane levels but was still below the prior year comparable quarter as high raw material costs continue to be a ~~result of strong export phosphate demand from India and Pakistan. Rail service improvements in central Florida also contributed to volume growth. In addition, demand improved~~concern for ~~shipments of ammonia, nitrogen, and potash.~~domestic producers.

~~Metals~~Emerging Markets – ~~Despite a 7% decline~~Strong demand for aggregate products, such as rock, salt, and sand, and movement of municipal waste propelled volume increases partially offset by lower volumes in ~~volume, revenue grew 10%, predominantly~~cement due to yield management efforts to increase allocation of railcars from short to longer-haul traffic. These efforts and general price increases resulted in revenue-per-unit increases of 19%, the highest percent increase of the merchandise markets.production interruptions.

Forest Products – Volume ~~was unfavorable 7%~~declined due to weakness in the printing market as well as production downtimes at several brown paper mills. Substitution effects from newsprint to electronic media continues to reduce the demand for paper. These declines were partially offset by strength in the lumber market as warm weather helped increase housing starts despite recent signs of slowing housing activities.

Agricultural Products – Both volumes and revenues improved due to increased movements of soybeans. In addition, volume of ethanol moving into the Northeast increased as there was higher demand for this fuel additive.

Metals – Domestic demand continued ~~decline~~to drive strong steel production throughout the quarter. Slight volume gains, strong pricing actions, and fuel surcharge coverage increases delivered 19% revenue growth.

Phosphate and Fertilizer – Short haul, lower revenue per car, phosphate volume decreased significantly due to temporary plant shutdowns resulting from lower international demand. The loss of this short haul traffic, and an increase in ~~newsprint demand~~longer haul domestic phosphate volume, combined for a favorable impact on revenue per unit and ~~a buildup in lumber and panel inventories. Yield management emphasis, which includes re-pricing of low margin traffic, contributed to revenue-per-unit gains of 11%.~~flat overall revenue.

Food and Consumer – Volume ~~was favorable 5%~~in this segment (which includes the transportation of refrigerated products, canned goods, building products and transportation equipment) increased due to strong growth of shipments of canned goods, rice, beans, beer and wine and strength in ~~movement~~deliveries of ~~transportation equipment~~newly finished customer freight cars.

Coal

Revenue and ~~canned goods. This strength more than offset a decline~~volume were up on strong demand across all markets, except for the export market. Electricity generation was down 1% in ~~volume~~CSXT-served markets due to ~~the hurricane impact.~~

~~Agricultural Products– Volume was up 7% based on strength of export grain, soybeans, feed ingredients and ethanol. An anticipated strong 2005 harvest encouraged farmers~~warmer weather conditions; however, volume increased as utilities continued to ~~sell larger amounts of soybeans to forward processors during July and August.~~

~~Chemicals~~ ~~– Unfavorable volume versus 2004 was driven by high raw materials inventory, high energy prices, and hurricane impacts. Several chemical plants along the Mississippi coast remain closed.~~

~~Emerging Markets~~ ~~– Volume was favorable 5% due to continued growth in waste, lime, fly ash and aggregates lines of business. Military shipments were down due to fewer military equipment deployments.~~rebuild inventories.

3930

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

~~RESULTS OF OPERATIONS, Continued~~

Automotive

– North American light vehicle production was ~~favorable by 1%, primarily driven by~~favorable. Market share continues to shift from the ~~success of~~Big 3 to the new domestic ~~manufacturer’s employee discount pricing promotion. In addition, reduction in downtime at CSXT-served plants also contributed~~manufacturers (foreign brands produced domestically). Automotive revenue per unit increased due to ~~an overall 2% increase in volumes.~~

~~Coal, Coke~~price escalation and ~~Iron Ore~~

~~Revenue was up 17% and volume was up 4% on strong demand across coal markets. Utility inventories remain below target levels, continuing the high demand for coal shipments.~~fuel surcharge.

Rail Operating Expense

Labor and Fringeexpenses increased ~~$53 million. Higher incentive compensation costs are the primary driver of increased labor and fringe expenses~~due to higher staffing levels as well as the ~~effects~~impact of increased inflation. Other labor and fringe expense increases were more than offset by improved productivity in train operations, as overtime and other crew expenses were reduced with the improved operational fluidity.

Materials, Supplies and Otherexpenses ~~increased $49 million which is primarily attributable to~~were flat as material and other inflation ~~related expenses, higher reserve requirements for uncollectible accounts, property taxes,~~was largely offset by productivity gains (for instance, as railroad measurements improve locomotives from other railroads are used less and ~~deductibles for hurricane losses.~~therefore drive down expense).

Depreciation~~increased $34 million, which~~ is ~~mainly attributable~~higher due 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 ~~$26 million,~~ due to higher fuel prices ~~net~~and less fuel hedge benefit versus the first quarter of ~~hedging benefits, which was partially offset by lower volume and efficiency gains.~~last year.

Building and Equipment Rentdecreased ~~$5 million primarily~~ due to a reduction in railcar lease expense. This was a direct result of the improvement in operational fluidity, which drove improvements in shipment cycle-time and ~~locomotive leases.~~

~~Conrail Rents, Fees and Services~~~~decreased $54 million due to~~reduced the ~~Conrail spin-off transaction completed in the third quarter~~number of 2004. This transaction decreased rents paid to Conrail, as assets previously leased from Conrail are now owned directly by CSXT. During the third quarter Conrail received a tax benefit from the resolution of various federal income tax audit adjustments, which increases CSX’s equity earnings and offsets Conrail Rents, Fees and Services.

~~Restructuring Charge~~~~of $3 million represents the 2004 charge for separation expenses related to the management restructuring announced in November 2003 at the Company’s Surface Transportation units.~~cars-on-line.

4031

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

~~RESULTS OF OPERATIONS, Continued~~First Quarter Intermodal Results of Operations

~~Rail Operating Income~~

~~Operating income was $293 million for the quarter ended September 30, 2005 compared to $216 million for the quarter ended September 24, 2004.~~

~~Intermodal~~

~~The following discussion compares the 13-week quarters ended September 30, 2005 and September 24, 2004.~~

Intermodal Operating Revenue

~~Domestic~~ —International – Although volume improved with several international customers, overall volume decreased predominantly due to the merger of two key accounts and continued yield management initiatives. Continued ~~emphasis on longer hauls in higher density lanes coupled with sustained~~ strength in pricing is partially offsetting the loss of higher revenue per unit traffic in long-haul markets.

Domestic – Volume was up due to strength in the truckload market offsetting some known reductions in the parcel segment. The strong pricing environment continues, resulting in increased revenue per unit ~~by 8%. Volumes were down due to a steady focus on yield management efforts.~~

~~International~~~~— Volumes were up 3%. Revenue per car declined as a result~~ of ~~rate increases only partially offsetting unfavorable traffic mix changes.~~

~~Other —~~~~Higher fuel surcharge rates and continued emphasis on multiple ancillary charges, including premise use increases, drove other revenue increases.~~6%.

Intermodal Operating Expense

Intermodal ~~operating expense~~Operating Expense decreased ~~$27 million, which is primarily attributable to a decrease in western network traffic, and is reflected in Inland Transportation expense.~~

~~Intermodal Operating Income~~

Intermodal operating income increased $37 million, or 119%, due to higher fuel surcharge, increases in per diem and supplemental charges related to asset utilization, and expense savings from decreased volume and improved terminal productivity.

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

~~RESULTS OF OPERATIONS, Continued~~

~~Nine Months Ended September 30, 2005 Compared to Nine Months Ended September 24, 2004~~

CONSOLIDATED ^(a)(b)
Sept. 30, Sept. 24, $
(Dollars in Millions) 2005 2004 Change
(Unaudited)
Operating Revenue
$ 6,399 $ 5,860 $ 539
Operating Expense

Labor and Fringe 2,130 2,014 116
Materials, Supplies and Other 1,365 1,266 99
Depreciation 617 493 124
Fuel 543 467 76
Building and Equipment Rent 383 417 (34 )
Inland Transportation 175 216 (41 )
Conrail Rents, Fees & Services 48 232 (184 )
Restructuring Charge — 71 (71 )

Total Operating Expense
5,261 5,176 85

Operating Income
$ 1,138 $ 684 $ 454


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

~~(b)~~		Consolidated operating income includes the results of operations of Surface Transportation shown on page 43 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 Company’s Marine Services segment, and other items which amounted to $4 million and $6 million for the nine months ended September 30, 2005 and September 24, 2004, respectively.

~~Consolidated Operating Revenue~~

The nine months ended September 30, 2005 demonstrated revenue growth increasing 9% or $539 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 nine months ended September 30, 2005 increased 2% compared to the prior year comparable period. Overall consolidated operating income increased $454 million or 66% primarily derived from increases in operating revenue.

~~Interest Expense~~

~~Interest expense remained relatively consistent with the prior year comparable period.~~

~~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 nine-month period ended September 30, 2005 increased $43 million compared to the prior year comparable period. The principal elements of this increase are:~~

	~~(a)~~		~~the income tax impact of increased pretax earnings,~~

	~~(b)~~		~~an increase in the overall effective state income tax rate, and offset by~~

	~~(c)~~		~~a $71 million net income tax benefit resulting from Ohio tax legislation changes enacted during the second quarter of 2005.~~

~~Net Earnings~~

CSX consolidated net earnings for the nine-month period ended September 30, 2005 increased $636 million compared to the prior year comparable period as the Company recognized income of $428 million after tax as a result of ~~the sale of its International Terminals business. Otherwise, increases~~improved terminal operations, efficient equipment utilization and costs in ~~consolidated operating revenue~~last year’s first quarter that were not repeated this quarter related to sales tax and ~~income tax benefits derived from Ohio tax legislation changes were offset by debt repurchase expense.~~

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

~~CSX Corporation and Subsidiaries~~

~~BUSINESS SEGMENTS (Unaudited)~~

~~(Dollars in Millions)~~

~~NIne Months Ended September 30, 2005, and September 24, 2004~~

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

Operating Revenue
$ 5,403 $ 4,893 $ 510 $ 996 $ 967 $ 29 $ 6,399 $ 5,860 $ 539
Operating Expense

Labor and Fringe 2,066 1,956 110 59 56 3 2,125 2,012 113
Materials, Supplies and Other 1,220 1,114 106 143 156 (13 ) 1,363 1,270 93
Depreciation 581 459 122 29 28 1 610 487 123
Fuel 543 467 76 — — — 543 467 76
Building and Equipment Rent 304 309 (5 ) 97 118 (21 ) 401 427 (26 )
Inland Transportation (318 ) (308 ) (10 ) 493 524 (31 ) 175 216 (41 )
Conrail Rents, Fees and Services 48 232 (184 ) — — — 48 232 (184 )
Restructuring Charge — 67 (67 ) — 4 (4 ) — 71 (71 )

Total Operating Expense
4,444 4,296 148 821 886 (65 ) 5,265 5,182 83

Operating Income
$ 959 $ 597 $ 362 $ 175 $ 81 $ 94 $ 1,134 $ 678 $ 456

Operating Ratio
82.3 % 87.8 % 82.4 % 91.6 % 82.3 % 88.4 %

~~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, Continued~~

~~The following table provides Surface Transportation volume, revenue and revenue per unit by service group and commodity:~~

~~SURFACE TRANSPORTATION TRAFFIC AND REVENUE~~
~~Volume (Thousands); Revenue (Dollars in Millions), Revenue Per Unit (Dollars)~~

Volume Revenue Revenue Per Unit
Nine Months 2005 2004 % Change 2005 2004 % Change 2005 2004 % Change

Merchandise

Phosphates and Fertilizers 345 348 (1 )% $ 264 $ 252 5 % $ 765 $ 724 6 %
Metals 273 284 (4 ) 420 373 13 1,538 1,313 17
Forest Products 333 344 (3 ) 534 496 8 1,604 1,442 11
Food and Consumer 188 179 5 323 272 19 1,718 1,520 13
Agricultural Products 267 263 2 403 375 7 1,509 1,426 6
Chemicals 406 418 (3 ) 815 786 4 2,007 1,880 7
Emerging Markets 383 372 3 389 366 6 1,016 984 3

Total Merchandise
2,195 2,208 (1 ) 3,148 2,920 8 1,434 1,322 8

Automotive
363 372 (2 ) 619 607 2 1,705 1,632 4

Coal, Coke and Iron Ore

Coal 1,297 1,219 6 1,492 1,254 19 1,150 1,029 12
Coke and Iron Ore 62 51 22 67 48 40 1,081 941 15

Total Coal, Coke and Iron Ore
1,359 1,270 7 1,559 1,302 20 1,147 1,025 12
Other
— — — 77 64 20 — — —

Total Rail
3,917 3,850 2 5,403 4,893 10 1,379 1,271 8

Intermodal

Domestic 651 760 (14 ) 532 575 (7 ) 817 757 8
International 964 937 3 378 368 3 392 393 —
Other — — — 86 24 NM — — —

Total Intermodal
1,615 1,697 (5 ) 996 967 3 617 570 8

Total Surface Transportation
5,532 5,547 — % $ 6,399 $ 5,860 9 % $ 1,157 $ 1,056 10 %

~~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~~other items.

LIQUIDITY AND CAPITAL RESOURCES

~~Cash, cash equivalents and short-term investments decreased $269 million to $590 million at September 30, 2005, from $859 million at December 31, 2004. Net cash proceeds from the disposition~~The following is a summary of ~~the Company’s International Terminals business were the primary source of cash and cash equivalents used to repurchase publicly-traded notes.~~

~~Other current assets increased $82 million to $239 million as of September 30, 2005 as rising fuel prices continue to increase the fair value of the Company’s fuel hedge swap asset.~~

As of September 30, 2005, CSX’s long-term unsecured debt obligations were rated BBB and Baa2 by Standard and Poor’s and Moody’s Investor Service, respectively. In May 2005, Standard and Poor’s raised CSX’s short-term rating from A-3 to A-2 and revised the outlook from negative to stable. In July 2004, Moody’s Investor Service reaffirmed CSX’s short and long-term unsecured debt ratings, but adjusted the outlook from stable to negative. CSX’s short-term commercial paper program is rated A-2 and P-2 by Standard and Poor’s and Moody’s Investor Service, respectively. If CSX’s long-term unsecured bond ratings were reduced to BBB- and Baa3, its 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 CSX’s borrowing costsmaterial changes in the ~~commercial paper market~~Consolidated Balance Sheets and ~~reduce its access~~sources of liquidity and capital. This summary provides an update to ~~this source~~the discussion included in CSX’s most recent Annual Report on Form 10-K.

Cash, Cash Equivalents and Short-term Investments increased $111 million, or 18%, as a result of ~~funds because~~higher cash provided by operations offset by increased property additions.

Labor and Fringe Benefits Payable decreased $132 million, or 23%, due to management incentive compensation payments in the first quarter of ~~the more limited demand for lower rated commercial paper. CSX had no commercial paper outstanding at September 30, 2005~~2006.

Income and Other Taxes Payable increased $135 million, or ~~December 31, 2004.~~132%, due to increases in federal tax liabilities associated with higher Consolidated Operating Income.

CSX’s working capital at ~~September 30, 2005~~March 31, 2006, was a deficit of ~~$693~~$507 million, compared to a deficit of ~~$314~~$607 million at December ~~31, 2004,~~30, 2005. This change is primarily driven by ~~a reduction~~increases in cash ~~cash equivalents and short-term investments combined with the absence of net assets from the Company’s former International Terminals business.~~balances. A working capital deficit is not unusual for ~~CSX and~~the Company (or other ~~railroads~~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, including the Company’s revolving credit agreements, to manage its day-to-day cash requirements and any ~~anticipated~~ obligations arising from legal, tax and other regulatory rulings.

~~See~~ (See Note 5.4, Debt and Credit ~~Agreements, for discussion of the Company’s revolving credit facilities and repurchase of debt.~~Agreements.)

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

~~LIQUIDITY AND CAPITAL RESOURCES, Continued~~

As previously reported, the Board of September 30, 2005, CSXT’s long-term unsecured debt obligations were rated BBB and Baa2 by Standard and Poor’s and Moody’s Investor Service, respectively, and CSXT’s long-term secured debt obligations were rated A and A1, respectively. Selected financial data for CSXT is as follows:Directors has authorized CSX to purchase shares of its common stock from time to time in an amount up to approximately $150 million in any fiscal year. CSX has purchased shares pursuant to this authority in the second quarter of fiscal year 2006.

~~CSX Transportation, Inc.~~

(Dollars in Millions) Periods Ended

Sept. 30 Dec. 31,
2005 2004

Current Maturities of Long-term Debt
Unsecured $ 1 $ —
Secured 105 121

Total $ 106 $ 121

Long-term Debt
Unsecured $ 454 $ 431
Secured 615 711

Total $ 1,069 $ 1,142

Shareholder’s Equity $ 10,115 $ 9,765

(Dollars-in-Millions) Quarters-Ended Nine-Months Ended

Sept. 30, Sept. 24, Sept. 30, Sept. 24,
2005 2004 2005 2004

Depreciation Expense $ 187 $ 153 $ 559 $ 435

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~~Consistent with the prior year, 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.

4633

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

FORWARD-LOOKING STATEMENTS

Certain statements in this report and in other materials filed with the ~~SEC,~~Securities and Exchange Commission (“SEC”), 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 results of operations and operational improvements;

	•		Expectations as to the effect of claims, lawsuits, environmental costs, commitments, contingent liabilities, labor negotiations or agreements on ~~our~~the Company’s 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”,~~“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 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~~those 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 access to capital markets, ability to revise debt arrangements as contemplated, customer demand, customer acceptance of price increases, effects of adverse economic ~~conditions affecting shippers, and adverse economic conditions in the industries and geographic areas that consume and produce freight;~~

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

~~FORWARD LOOKING STATEMENTS, Continued~~


	•		Legislative, regulatory or legal developments involving transportation, including rail or intermodal transportation, the environment, hazardous materials or 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 severe weather conditions, including floods, fire, hurricanes and 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.

Additionally, important factors resulting from Hurricane Katrina that may cause actual results to differ materially from those contemplated by these forward-looking statements include: the ability to restore service in affected areas of CSXT’s rail network; further assessments of the extent of storm-related losses; the price and availability of continued supplies of fuel; the effect of inefficiencies in Company operations and increased operating expenses resulting from storm-related disruptions; loss of customers to competitors that have not been affected by the storm to the same degree in the same locales; and the extent of insurance coverage for the Company’s losses. 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~~CSX’s other SEC reports, accessible on the SEC’s website atwww.sec.gov and the Company’s website atwww.csx.com.

4835

CSX CORPORATION
~~PART I: FINANCIAL INFORMATION~~

ITEM 3: ~~QUANTITATIVE~~QUANTATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

~~The Company addresses~~There have been no material changes in market risk ~~exposure to fluctuations~~from the information provided under “Quantitative and Qualitative Disclosures about Market Risk” in ~~interest rates and~~Item 7A of CSX’s Annual Report on Form 10-K for 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.~~

CSX addresses its exposure to interest rate market risk through a controlled program of risk management that includes the use of interest rate swap agreements. The table below illustrates CSX’s long-term interest rate swap position as of Septemberfiscal year ended December 30, 2005.

(Dollars in Millions)
Sept. 30,
2005
Interest Rate Swap Agreements $ 600
Effect of 1% Increase or Decrease in LIBOR Interest Rate 6

During 2003, the Company began a program to hedge its exposure to fuel price volatility through swap transactions. As of September 30, 2005, CSX had hedged approximately 37% and 9% of fuel purchases for 2005 and 2006, respectively. At September 30, 2005, a 1% change in fuel prices would result in an increase or decrease in the asset related to the swaps of approximately $1 million. CSXT’s rail unit average annual fuel consumption is approximately 600 million gallons. A one-cent change in the price per gallon of fuel would affect fuel expense by approximately $4 million annually.

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

~~The following table highlights our floating rate debt outstanding exclusive of derivative contracts that swap fixed interest rate notes to floating interest rates.~~

(Dollars in Millions)
Sept. 30,
2005
Floating Rate Debt Outstanding $ 364
Effect of 1% Variance in Interest Rates 4

CSX CORPORATION

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

~~None.~~As required by SEC Regulation S-K for the quarter ended March 31, 2006, the following table summarizes:

	•		Common shares withheld by CSX on behalf of current and retired employees to settle the employee’s minimum statutory tax obligation on the distribution of shares that were formerly deferred or any restricted stock that has vested; and

	•		Common shares purchased on the open market to fund the estimated Company contribution required to be paid in CSX common stock under the Capital Builder Plan which covers certain union employees.

Issuer Purchases of Equity Securities

(d) Maximum

Number of

Shares that

(b)

Purchased as

May Yet Be

(a) Total

Average

Part of Publicly

Purchased

Number of

Price

Announced

Under the

Paid per

Plans or

Plan or

Period

Purchased

Programs

Programs*

January

(December 31, 2005 -
January 27, 2006)

397

53.28

—

February

(January 28, 2006 -
February 24, 2006)

229,381

52.16

—

March

(February 25, 2006 -
March 31, 2006)

12,223

54.51

—

Total

242,001

52.28

—

As disclosed in its most recent Annual Report on Form 10-K filed on February 24, 2006, CSX publicly announced that its Board of Directors has authorized the Company to purchase shares of its common stock from time to time. The dollar amount that can be purchased in any fiscal year is established by a formula that depends on the Company’s common stock dividend rate and the number of outstanding shares of common stock. Based on information as of March 31, 2006, the Company could purchase approximately $150 million of its common stock under this authorization during fiscal year 2006.


				Page ~~Number~~
PART I:	1: FINANCIAL INFORMATION

Item 1:	Financial Statements

	Consolidated Income Statements (Unaudited) -
	— Quarters Ended March 31, 2006 and ~~Nine Months Ended September 30,~~April 1, 2005 ~~and September 24, 2004~~		3

	Consolidated Balance Sheets -
	— At ~~September 30, 2005~~March 31, 2006 (Unaudited) and December ~~31, 2004~~30, 2005		4

	Consolidated Cash Flow Statements (Unaudited) -
	~~Nine Months~~— Quarters Ended ~~September 30,~~March 31, 2006 and April 1, 2005 ~~and September 24, 2004~~		5

	Notes to Consolidated Financial Statements (Unaudited)		6

Item 2:	Management’s Discussion and Analysis of Financial Condition and Results of Operations ~~and Financial Condition~~		2825

Item 3:	Quantitative and Qualitative Disclosures about Market Risk		4936

Item 4:	Controls and Procedures		5036

PART ~~II:~~	2: OTHER INFORMATION

Item 1: Legal Proceedings		36

Item 1:1A: Risk Factors	~~Legal Proceedings~~		5136

Item 2:	Unregistered Sales of Equity Securities and Use of Proceeds		5137

Item 3:	Defaults upon Senior Securities		5138

Item 4:	Submission of Matters to a Vote of Security Holders		5138

Item 5:	Other Information		5138

Item 6: Exhibits	~~Exhibits~~		5238

Signature			5238
Section 302 Certification of ~~PEO~~CEO
Section 302 Certification of ~~PFO~~CFO
Section 906 Certification of ~~PEO~~CEO
Section 906 Certification of ~~PFO~~CFO


(a)		~~Amounts are estimated.~~

~~(b)~~		~~Amounts represent the Company’s historical method for calculating average system dwell time.~~ Beginning October 1, 2005, ~~CSX adopted a new dwell calculation in response to AAR efforts to standardize reporting across U.S. railroads.~~

~~(c)~~		~~Represents a combination of owned and long-term leased assets~~


	(Unaudited)
(Dollars in Millions)	Sept. 30, 2005			Dec. 31, 2004

ASSETS
Current Assets:
Cash, Cash Equivalents and Short-term
Investments (Note 1)	$	590		$	859
Accounts Receivable — Net (Note 9)		1,274			1,159
Materials and Supplies		203			165
Deferred Income Taxes		141			20
Other Current Assets — Net (Note 9)		239			157
International Terminals Assets Held for Sale (Note 4)		—			643

Total Current Assets		2,447			3,003

Properties		26,275			25,852
Accumulated Depreciation		(6,300	)		(5,907	)

Properties — Net		19,975			19,945

Investment in Conrail (Note 8)		603			574
Affiliates and Other Companies		317			296
Other Long-term Assets		679			802

Total Assets	$	24,021		$	24,620


LIABILITIES AND SHAREHOLDERS’ EQUITY

Current Liabilities:
Accounts Payable	$	930		$	879
Labor and Fringe Benefits Payable		513			371
Casualty, Environmental and Other Reserves (Note 13)		312			312
Current Maturities of Long-term Debt		947			983
Short-term Debt		3			101
Income and Other Taxes Payable		341			170
Other Current Liabilities		94			115
International Terminals Liabilities Held for Sale (Note 4)		—			386

Total Current Liabilities		3,140			3,317

Casualty, Environmental and Other Reserves (Note 13)		703			735
Long-term Debt		5,058			6,248
Deferred Income Taxes		6,011			5,979
Other Long-term Liabilities		1,347			1,530

Total Liabilities		16,259			17,809


Shareholders’ Equity:
Common Stock, $1 Par Value		217			216
Other Capital		1,698			1,605
Retained Earnings		6,053			5,210
Accumulated Other Comprehensive Loss (Note 2)		(206	)		(220	)

Total Shareholders’ Equity		7,762			6,811

Total Liabilities and Shareholders’ Equity	$	24,021		$	24,620


	Balance			Net Gain			Balance
(Dollars in Millions)	Dec. 31, 2004			(Loss)			Sept. 30, 2005
Minimum Pension Liability	$	(292	)	$	—		$	(292	)
Fair Value of Fuel Derivatives		72			15			87
Other		—			(1	)		(1	)


Total	$	(220	)	$	14		$	(206	)


			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


(Dollars in Millions)	Periods Ended
	Sept. 30,		Dec. 31,
	2005		2004
CSXT Payable to Conrail	$	45	$	59


						Net
				Insurance		Loss
	Loss			Recovery		Recognized

Fixed Asset Impairment	$	(41	)	$	41	$	—
Incremental Business Expenses		(19	)		14		(5	)

Totals	$	(60	)	$	55	$	(5	)


	Sept. 30,
	2005
Approximate Gallons Hedged (Millions)		115
Average Price Per Gallon	$	0.83
Swap Maturities	October 2005 - July 2006


	Nine Months Ended Sept.			Twelve Months Ended
	30, 2005			Dec. 31, 2004
Asserted Claims:
Open Claims — Beginning of Period		11,461			13,479
New Claims Filed		551			1,178
Claims Resolved		(973	)		(2,758	)
Claims Dismissed		(350	)		(438	)

Open Claims — End of Period		10,689			11,461

	2.		Guarantee of approximately $13 million in lease commitments assumed by A.P. Moller-Maersk (“Maersk”) for which CSX is contingently liable until 2011. The Company believes Maersk will fulfill its contractual commitments with respect to these lease commitments and that CSX will have no further liabilities for those obligations.

	3.		Guarantee of approximately $8 million relating to leases assumed as part of the conveyance of CSX’s interest in a former subsidiary, CSX Lines. CSX believes the former subsidiary will fulfill its contractual commitments with respect to these leases, which expire in 2007, and CSX will have no further liabilities for those obligations.



	Quarter Ended
	Sept. 30,			Sept. 24,
	2005			2004
Assets:
Assets for Business Segments	$	21,580		$	21,645
Investment in Conrail		603			567
Elimination of Intersegment Payables (Receivables)		(581	)		(499	)
Non-segment Assets		2,419			2,652

Total Consolidated Assets	$	24,021		$	24,365


(Dollars in Millions)
	CSX
	Corporation			Vessel Leasing		Other			Eliminations			Consolidated
Quarter Ended September 30, 2005
Operating Revenue	$	—		$	—	$	2,125		$	—		$	2,125
Operating Expense		(19	)		—		1,791			—			1,772

Operating Income		19			—		334			—			353

Equity in Earnings of Subsidiaries		272			—		—			(272	)		—
Other Income — Net		(40	)		1		112			(62	)		11
Debt Repurchase Expense		—			—		—			—			—
Interest Expense		(106	)		—		(56	)		62			(100	)


Earnings (Loss) from Continuing Operations before Income Taxes		145			1		390			(272	)		264
Income Tax (Benefit) Expense		(19	)		—		119			—			100

Net Earnings (Loss)	$	164		$	1	$	271		$	(272	)	$	164


(Dollars in Millions)
	CSX			Vessel
	Corporation			Leasing		Other			Eliminations			Consolidated
Nine Months Ended September 30, 2005
Operating Revenue	$	—		$	—	$	6,399		$	—		$	6,399
Operating Expense		(94	)		—		5,355			—			5,261

Operating Income		94			—		1,044			—			1,138

Equity in Earnings of Subsidiaries		686			—		—			(686	)		—
Other Income — Net		91			3		83			(138	)		39
Debt Repurchase Expense		(192	)		—		—			—			(192	)
Interest Expense		(317	)		—		(145	)		138			(324	)


Earnings (Loss) from Continuing Operations before Income Taxes		362			3		982			(686	)		661
Income Tax (Benefit) Expense		(118	)		—		296			—			178


Earnings from Continuing Operations		480			3		686			(686	)		483
Discontinued Operations — Net of Tax		428			—		(3	)		—			425

Net Earnings (Loss)	$	908		$	3	$	683		$	(686	)	$	908


	CONSOLIDATED^(a)(b)
	Sept. 30,		Sept. 24,		$
(Dollars in Millions)	2005		2004		Change
	(Unaudited)
Operating Revenue	$	2,125	$	1,943	$	182
Operating Expense
Labor and Fringe		727		671		56
Materials, Supplies and Other		462		410		52
Depreciation		207		172		35
Fuel		188		162		26
Building and Equipment Rent		124		140		(16	)
Inland Transportation		55		72		(17	)
Conrail Rents, Fees & Services		9		63		(54	)
Restructuring Charge		—		3		(3	)

Total Operating Expense		1,772		1,693		79


Operating Income	$	353	$	250	$	103


	CONSOLIDATED ^(a)(b)
	Sept. 30,		Sept. 24,		$
(Dollars in Millions)	2005		2004		Change
	(Unaudited)
Operating Revenue	$	6,399	$	5,860	$	539
Operating Expense
Labor and Fringe		2,130		2,014		116
Materials, Supplies and Other		1,365		1,266		99
Depreciation		617		493		124
Fuel		543		467		76
Building and Equipment Rent		383		417		(34	)
Inland Transportation		175		216		(41	)
Conrail Rents, Fees & Services		48		232		(184	)
Restructuring Charge		—		71		(71	)

Total Operating Expense		5,261		5,176		85


Operating Income	$	1,138	$	684	$	454


(Dollars in Millions)		Periods Ended

		Sept. 30		Dec. 31,
		2005		2004

Current Maturities of Long-term Debt
	Unsecured	$	1	$	—
	Secured		105		121

	Total	$	106	$	121


Long-term Debt
	Unsecured	$	454	$	431
	Secured		615		711

	Total	$	1,069	$	1,142


Shareholder’s Equity		$	10,115	$	9,765


(Dollars-in-Millions)	Quarters-Ended				Nine-Months Ended

	Sept. 30,		Sept. 24,		Sept. 30,		Sept. 24,
	2005		2004		2005		2004

Depreciation Expense	$	187	$	153	$	559	$	435

	•		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 the availability and cost of insurance, the availability and vulnerability of information technology, adverse economic or operational effects from actual or threatened war or terrorist activities and any governmental response;

	•		Changes in fuel ~~prices;~~prices, surcharges for fuel and the availability of fuel;


~~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.


	CSX CORPORATION (Registrant)
	By:	/s/ CAROLYN T. SIZEMORE
				~~CSX CORPORATION~~ ~~(Registrant)~~	Carolyn T. Sizemore

		~~By:~~	~~/s/ CAROLYN T. SIZEMORE~~

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

~~Dated: October 26, 2005~~