CSX Corporation 12-26-2003

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

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

Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2). Yes þ No o

On June 27, 2003, the aggregate market value of the Registrant’s voting stock held by non-affiliates was approximately $5.3 billion (based on the New York Stock Exchange closing price on such date).

Portions of the Registrant’s Definitive Proxy Statement to be filed with respect to its annual meeting of shareholders scheduled to be held on May 5, 2004 (“Proxy Statement”)

Following are the operating revenue and operating income by segment at December 26, 2003 (see Management’s Discussion and Analysis for prior year data):


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

(2)	Eliminations/ Other consists of the following:


•	Charge incurred upon entering into settlement agreements with Maersk
•	Reclassification of International Terminals minority interest expense
•	Operations of CSX Lines and gain amortization
•	Expenses related to the 2003 retirement of the Company’s former Chairman and Chief Executive Officer
•	Other items

CSX Transportation Inc. (“CSXT”) is the largest rail network in the eastern United States, providing rail freight transportation over a network of more than 23,000 route miles in 23 states, the District of Columbia and two Canadian provinces. Headquartered in Jacksonville, Florida, CSXT accounted for 79% of CSX’s operating revenue and 86% of operating income in 2003.

CSX Intermodal Inc. (“CSXI”) is the nation’s only transcontinental intermodal transportation service provider, operating a network of dedicated intermodal facilities across North America. The CSXI network runs approximately 450 dedicated trains between its 45 terminals weekly. CSXI accounted for 16% of CSX’s operating revenue and 18% of operating income in 2003. Its headquarters are located in Jacksonville, Florida.

CSX World Terminals LLC (“CSX World Terminals”) operates container-freight terminal facilities in Asia, Europe, Australia, Latin America and the United States. CSX World Terminals accounted for 3% of CSX’s operating revenues and 11% of operating income in 2003. CSX World Terminals is headquartered in Charlotte, North Carolina.

The Greenbrier is a AAA Five-Diamond resort located in White Sulphur Springs, West Virginia. CSX Real Property Inc. is responsible for sales, leasing and development of CSX-owned properties, and is headquartered in Jacksonville, Florida.

CSX employed an average of 37,516 employees during 2003. The Company considers employee relations to be good. Most of CSX’s employees are represented by labor unions and are covered by collective bargaining agreements. Some of these agreements are scheduled to expire in 2004. CSX is in the process of renegotiating most of these agreements, but the outcome of these negotiations is uncertain at this time. For rail employees negotiations have generally taken place over a number of years and previously have not resulted in any extended work stoppages. The existing agreements have remained in effect and will continue to remain in effect until new agreements are reached or the Railway Labor Act’s procedures (which include mediation, cooling-off periods, and the possibility of Presidential intervention) are exhausted.

The Company makes available free of charge through its website at www.csx.com, its annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K, and all amendments thereto, as soon as reasonably practicable after such reports are filed with or furnished to the Securities and Exchange Commission.

For additional information concerning business conducted by CSX during 2003, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and Note 19 to the Financial Statements under the caption “Business Segments.”

In response to this Item, see the information set forth on page 32 under the caption “Depreciation Policies Under the Group Life Method,” in Note 1 to the Financial Statements under the caption “Nature of Operations and Significant Accounting Policies,” and in Note 9 to the Financial Statements under the caption “Properties.”

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

In further response to this Item, see the information set forth in “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” of this document under the caption “Casualty, Legal and Environmental Reserves” and under the caption “Commitments and Contingencies.”

There were no matters submitted to a vote of security holders in the fourth quarter of 2003.

Executive officers of CSX Corporation are elected by the CSX Board of Directors and generally hold office until the next annual election of officers. Officers of CSX business units are elected annually by the respective Boards of Directors of the business units. There are no family relationships or any arrangement or understanding between any officer and any other person pursuant to which such officer was selected. Effective March 31, 2004 our executive officers will be as follows:

CSX’s common stock is listed on the New York, London and Swiss stock exchanges and trades with unlisted privileges on the Midwest, Boston, Cincinnati, Pacific and Philadelphia stock exchanges. The official trading symbol is “CSX.”

A total of 300 million shares of common stock are authorized, of which 215,071,005 shares were outstanding as of December 26, 2003. Each share is entitled to one vote in all matters requiring a vote of shareholders. There are no pre-emptive rights. At December 26, 2003, there were 56,331 registered common stock shareholders.

A total of 25 million shares of preferred stock are authorized, none of which are currently outstanding. CSX previously issued Series A preferred stock consisting of 250,000 shares of $7 Cumulative Convertible Preferred Stock. All outstanding shares of Series A Preferred Stock were redeemed as of July 31, 1992. Prior to October 2003, 3,000,000 shares of preferred stock had been designated as Series B Preferred Stock in conjunction with the Company’s Shareholder Rights Plan. In October 2003, the expiration date of the shareholder rights under the Shareholder Rights Plan was accelerated, resulting in the effective termination of the Plan. The Company’s Articles of Incorporation were amended to eliminate the designation of shares for Series B Preferred.

The following table summarizes the equity compensation plans under which CSX Corporation common stock may be issued as of December 26, 2003.


(1)	The number of shares remaining available for future issuance under plans approved by shareholders includes 59,038 shares available for employee purchase pursuant to the 2002 Employee Stock Purchase Plan; 642,192 shares available for stock option grants, payment of director compensation, and stock grants pursuant to the CSX Stock Plan for Directors; and 6,358,934 shares available for grant in the form of stock options, performance units, restricted stock, stock appreciation rights, and stock awards pursuant to the CSX Omnibus Incentive Plan.

(2)	The 1990 Stock Award Plan (“1990 Plan”) is the only CSX equity compensation plan that has not been approved by shareholders. Upon approval of the CSX Omnibus Incentive Plan by shareholders in 2000, the plan was closed to further grants. No options have been granted under the 1990 Plan since 1999.

The following table sets forth, for the quarters indicated, the dividends declared and the high and low sales prices of the Company’s common stock:

CSX Corporation (“CSX” or the “Company”) operates one of the largest rail networks in the United States and also arranges for and provides integrated rail and truck (“intermodal”) transportation services across the United States and key markets in Canada and Mexico. Surface Transportation, which includes CSX’s rail and intermodal units, generated revenue of $7.4 billion in 2003 compared to $7.2 billion in 2002. Operating income for Surface Transportation was $651 million in 2003 compared to $995 million in 2002. CSX’s marine operations include an international terminal services company, which operates and develops container terminals,

distribution facilities and related terminal activities. In February 2003, CSX conveyed most of its interest in its domestic container-shipping subsidiary, CSX Lines, to a new venture formed with the Carlyle Group. CSX also owns and operates the Greenbrier, a AAA Five-Diamond resort located in White Sulphur Springs, West Virginia.

In 2003, revenue and volume grew in response to strategies to persuade new customers to ship via a combination of rail and truck, the introduction of new customer services, and the economic recovery. However, as discussed below increased costs and operating inefficiency in the rail network decreased CSX’s overall profitability.

CSX’s rail system is a network, defined by its more than 23,000 route miles, through which goods and services flow. The inefficiency of any one element in that network can have an effect on other components, and ultimately affect the operating efficiency of the entire network. The decline in CSX’s operating efficiency, coupled with the increased price of fuel and other higher costs, reduced CSX’s profit in 2003.

In addition to reviewing various financial measures, CSX management uses non-financial indicators to monitor performance and operating efficiency of its network. Those include:

The decline in these non-financial performance measures contributed to higher operating expenses and resulted in a higher operating ratio for Surface Transportation, which increased to 91.2% in 2003 from 86.1% in 2002. The number of injuries per 100 employees increased by 11%, while the number of FRA-reportable train accidents per million train miles showed a 31% increase from 2002 to 2003. Average train velocity, which is a measure of efficiency, decreased 6% from 22.5 miles per hour in 2002 to 21.1 miles per hour in 2003. The average system dwell time, which measures the amount of time between car arrival and departure from yards, increased 9% from 2002 to 2003. The percent of scheduled trains departing the origin station at or prior to the scheduled departure time and the percent of scheduled trains arriving at the destination station within two hours of the scheduled arrival time both showed year-over-year declines. The number of relief crews called per day on average, which is an indicator of efficiency in the use of crews, showed the largest percent decline, increasing from 26 to 50.

CSX management is taking steps to identify the source of operating inefficiencies and reduce operating expenses. Management also is evaluating ways to restore the network operating efficiency, while maintaining volume. This includes reducing both gross ton-miles and the number of times a railcar is handled, or switched, en route to its final destination. Because American industry has changed significantly in recent years. Management believes there are portions of CSX’s non-core network that could be more efficiently used by third parties. The Company is currently evaluating the lease or sale of up to 3,000 miles of its non-core network. This would allow CSX to return approximately 50 locomotives to the core network, reduce capital outlays and decrease operating expenses.

These changes will allow for and require organizational improvements. CSX is undertaking a major management restructuring that began in November 2003 and is expected to conclude near the end of the first quarter of 2004. Management believes that the conveyance of CSX Lines in February of 2003 and the resolution of the disputes with Maersk relating to the 1999 sale of the international container shipping assets will allow management to focus on its core surface transportation segment.

CSX World Terminals’ (“CSXWT”) Hong Kong terminal accounted for approximately 67% of CSXWT’s revenues and 62% of operating income in 2003. The Hong Kong terminal showed a year-over-year volume decrease of 7.2%, which corresponded with a 5.8% decrease in revenue versus 2002. Competitive pressures are rising as customers are shifting their traffic from facilities in Hong Kong to newly opened terminals in South China’s Guangdong region. This shift will also translate into reduced volumes and revenue. A significant customer of CSXWT announced that it would terminate its marine terminal services contract during the first quarter of 2004. This is expected to negatively impact CSXWT’s 2004 operating income by approximately $29 million and cash flow by approximately $21 million. In December 2004, another contract is scheduled to expire. Negotiations are in process to maintain this contract, but if negotiations are unsuccessful, 2005 operating income may be negatively impacted by $20 million. CSXWT expects that it will be able to replace all or substantially all of the lost volume with new customers representing long and short-term commercial commitments. However, due to the increased competitive pressures, it is possible that the profit margins achieved in the past will not be realized in the near term.

Recognizing its need to diversify beyond the Hong Kong terminal, CSXWT has been expanding its capacity and market reach. During 2003, CSX’s minority owned terminal operation located in the Shandong Province of the People’s Republic of China commenced operations. CSXWT has also completed the first phase of its terminal construction in Caucedo, which is located in the Dominican Republic. The Caucedo terminal company is an unconsolidated entity of CSXWT that began operations in December 2003. In response to competition in the South China Guangdong region, CSXWT has initiatives in process to maintain and improve its productivity standards.

In addition to volume, CSXWT monitors terminal productivity or lifts per hour. For the years ended December 26, 2003 and December 27, 2002, lifts per hour for some of the main terminals was as follows:

Overall, terminal productivity remained relatively stable in 2003 compared to 2002.

CSX follows a 52/53-week fiscal reporting calendar. Fiscal years 2003 and 2002 consisted of 52 weeks ending on December 26, 2003 and December 27, 2002, respectively.

Operating revenue decreased $359 million for the year ended December 26, 2003 to $7.8 billion, compared to $8.2 billion for the prior year. A $627 million decline in consolidated revenue resulted from a reduction of revenue in the domestic container-shipping segment as a majority of CSX’s interest in CSX Lines was conveyed during the first quarter of 2003 (See Note 3, Divestitures). Excluding revenue from this conveyance, revenue increased $268 million primarily due to an increase in Surface Transportation revenue.

Operating income for the year ended December 26, 2003 was down $501 million to $626 million, compared to $1.1 billion in the prior year. The prior year included $38 million of operating income of CSX Lines, which was conveyed to a new venture formed with the Carlyle Group in the first quarter of 2003. Excluding operating income from this conveyance, 2003 operating income decreased $463 million.

The decrease in operating income is primarily the result of two charges taken during 2003 totaling $340 million. The Company recorded a $232 million charge in conjunction with the change in estimate for casualty reserves, which is reflected in operating expense as “Provision for Casualty Claims” (See Note 10, Casualty, Environmental and Other Reserves). Also, CSX entered into two settlement agreements, which together resolve all material outstanding disputes with Maersk. This decreased the Company’s operating income by $108 million, and is reflected in operating expense as the additional loss on sale of international container-shipping assets (See Note 18, Commitments and Contingencies).

The Company also recorded $34 million pretax as the initial charge for separation expenses related to the management restructuring announced in November 2003. In addition, the Company recorded a credit of $22 million pretax related to revised estimates for railroad retirement taxes and the amount of benefits that will ultimately be paid to individuals under the $1.3 billion charges for separation plans initially recorded in 1991 and 1992. For the year, the Company has recorded a net restructuring charge of $22 million that includes these items and additional separation charges that were included in the third quarter results. (See Note 4, Restructuring).

Materials, supplies and other expenses decreased $62 million, or 4%, year-over-year, as a result of the conveyance of most of the Company’s interest in its domestic container-shipping subsidiary, CSX Lines. Excluding the $244 million of expenses of CSX Lines, materials, supplies and other increased $193 million year-over-year. Approximately $80 million of this increase relates to increased costs for personal injuries and safety issues. An additional $20 million of the expense deterioration is due to increased cost of derailments. The remaining increase results from volume increases, inflationary effects and general operational inefficiencies, as reflected by the decline in the non-financial performance indicators.

Fuel expense for Surface Transportation operations increased $117 million in 2003, as compared to the prior year. The expense increase is primarily due to $102 million in fuel price increases, while increased volumes were also a factor. The average price per gallon of fuel was 96 cents per gallon for 2003 compared to 78 cents per gallon for 2002. In order to minimize future exposure to fuel price fluctuation risk, during 2003 the Company entered into a series of swaps in order to fix the price on a portion of its estimated future fuel purchases. As of December 26, 2003, 18% and 21% of 2004 and 2005, respectively, estimated fuel purchases were hedged. Fuel swaps did not have an effect on fuel expense for the year ended December 26, 2003.

Favorably impacting expense was the absence of a management bonus at its Surface Transportation companies in 2003, as approximately $45 million of such expense was recorded in 2002.

Other income increased $16 million to $57 million for the year ended December 26, 2003, compared to $41 million for the prior year. A decrease in discounts on sales of accounts receivable due to the discontinuance of this program and a loss on sale in 2002 that did not recur in 2003 had a favorable impact, but were partially offset by lower interest income and reduced real estate gains.

Interest expense decreased $27 million for the year ended December 26, 2003 as compared to the prior year. Lower interest rates on floating rate debt and the favorable impact of interest rate swaps (see Note 12, Derivative Financial Instruments) continued to benefit the Company.

Net earnings were $246 million, or $1.14 per share, for the year ended December 26, 2003, compared to $424 million, or $1.99 per share for the prior year.

The year ended December 26, 2003 included an after-tax cumulative effect of accounting change benefit of $57 million, 26 cents per share, related to the adoption of Statement of Financial Accounting Standard (“SFAS”) 143, “Accounting for Asset Retirement Obligations,” while the year ended December 27, 2002 included an after-tax cumulative effect of accounting change charge of $43 million, 20 cents per share, related to the adoption of SFAS 142, “Goodwill and Other Intangible Assets.”

Earnings before the cumulative effect of accounting changes were $189 million and $467 million for the years ended December 26, 2003 and December 27, 2002, respectively. The $278 million year-over-year decrease in net earnings primarily results from a $145 million after-tax charge to increase the Company’s provision for casualty reserves, a $67 million after-tax charge to record the loss on sale of international container-shipping assets and a $21 million after-tax charge to record amounts associated with the management restructuring.

The remaining decrease results from the decline in operating income as discussed above, somewhat offset by the favorable impact of decreased interest expenses and income taxes.

Fiscal year 2001 consisted of 52 weeks ending on December 28, 2001. Operating revenue of $8.2 billion in 2002 was slightly higher than 2001, resulting mainly from an increase in revenues at the Company’s domestic container-shipping unit, CSX Lines, which offset a small decrease at the Company’s Surface Transportation units.

Operating expense of $7.0 billion in 2002 was 2% lower due mainly to lower fuel and labor costs at the Company’s Surface Transportation business. The effect on 2001 of the $60 million New Orleans litigation settlement contributed to the favorable year-to-year comparison.

Other income was up $32 million in 2002 as compared to 2001, due mainly to reduced losses relating to equity investments and other favorable miscellaneous items, offset by lower interest income.

Interest expense was reduced by $73 million in 2002 as compared to 2001, due to refinancing fixed-rate maturities at lower interest rates, and to a greater percentage of outstanding debt during 2002 bearing a floating rate of interest through the use of interest rate swap agreements.

The Company reported net earnings for 2002 of $424 million, $1.99 per share, compared to $293 million, $1.38 per share in 2001. Results for 2002 include the write-down of indefinite lived intangible assets as a cumulative effect of accounting change, which reduced net earnings $43 million after tax. Results for 2001 include a provision to account for the settlement of the New Orleans tank car fire litigation, which reduced net earnings by $37 million after tax. Excluding the cumulative effect of the accounting change and the New Orleans litigation provision, net earnings were $467 million for 2002, compared with $330 million for 2001. This increase is the result of increased operating income on a consolidated basis of $110 million (excluding the pretax charge of $60 million in 2001 for the New Orleans litigation provision), higher other income of $32 million and lower interest expense of $73 million.

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


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

(2)	Eliminations/Other consists of the following:


	•	Charge incurred upon entering into settlement agreements with Maersk

	•	Reclassification of International Terminals minority interest expense

	•	Operations of CSX Lines and gain amortization

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

	•	Other items


(3)	Represents 2003 charges recorded in connection with the Company’s change in estimating casualty reserves, which impacted Surface Transportation operating income by $229 million. (See Note 10, Casualty, Environmental and Other Reserves.)

(4)	Represents 2003 charges incurred upon entering into settlement agreements with Maersk. (See Note 18, Commitments and Contingencies.)

(5)	Includes the 2003 restructuring charge recorded in connection with the management restructuring and the favorable change in estimate of benefits to be paid under 1991 and 1992 separation plans. (See Note 4, Restructuring.)

(6)	Represents a 2001 charge to account for the settlement of the 1987 New Orleans tank car fire litigation. This charge reduced operating income by $60 million.

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

Fiscal Years Ended December 26, 2003, December 27, 2002 and December 28, 2001


	•	Phosphates and Fertilizers
	•	Metals
	•	Forest and Industrial
	•	Agricultural and Food
	•	Chemicals
	•	Emerging Markets

Merchandise showed strength during 2003 with revenue up 5% on 4% volume growth. All markets showed year-over-year revenue improvement, and all except phosphates and fertilizers experienced increased volumes. Emerging markets realized the most improvement, with 18% revenue growth on 12% volume growth. Aggregates and cement traffic grew faster than average industry growth rates due to new industrial development and increased conversion of truck traffic to rail. Ammunition volumes increased throughout the year and strength continued in waste markets. The metals sector also showed strength in 2003. Revenue improved 8% on 9% volume growth, driven by strong global steel demand, particularly for scrap and sheet steel. Other factors contributing to improvement include strength in semi-finish metals and continued increases in modal conversions. Demand for building products, lumber and paper products resulted in an increase in forest and industrial revenue of 5% on 2% volume growth. The agricultural and food and chemical sectors also realized revenue increases, while volumes remained consistent with 2002. Phosphates and fertilizers revenues increased slightly year-over-year despite decreased volume, due to domestic phosphates and ammonia strength.

Volume declined largely due to a 200,000 unit year-over-year decrease in North American light vehicle production. Haul extensions and price increases drove improvements in revenue per car.

Coal, coke and iron ore volumes and revenue remained consistent with results in the prior year. Export moves were strong due to high European steam coal demand for electricity generation. Steel related traffic was weak throughout the year, but showed renewed strength during the fourth quarter due to consolidation in the steel industry and shifts in scrap metal demands that resulted in increased traffic and revenue for CSX. Utility revenue was favorable due to pricing initiatives and higher average length of haul. Improvements in these areas were offset by abnormally harsh winter weather during the first quarter which adversely affected lake loadings, as lakes were frozen.

Total rail operating expenses increased $492 million, or 10% in 2003 as compared to 2002. Increases in most expense categories were somewhat offset by decreases in building and equipment rent.

The primary component of the expense increase was a charge of $229 million recorded in conjunction with the Company’s change in estimate for its casualty reserves to include an estimate of incurred but not reported claims for asbestos and other occupational injuries that could be received over the next seven years. This charge is reflected as “Provision for Casualty Claims” in the financial statements. (See Note 10, Casualty, Environmental and Other Reserves.)

Labor and fringe expense remained relatively consistent year-over-year. The cost of labor inflation was offset by December-over-December reductions in staff of approximately 1,200 and the favorable impact of the absence of a management bonus in 2003, as approximately $45 million of such expense was recorded in 2002.

Materials, supplies and other expenses increased $117 million, or 10%, year-over-year. One of the primary drivers was approximately $80 million of increased cost for personal injury and related safety issues. An additional $20 million of the expense deterioration is due to increased cost of derailments. Additionally, due to the adoption of Statement of Financial Accounting Standard (“SFAS”) 143, “Accounting for Asset Retirement Obligations,” as discussed below, depreciation expense has been decreased and materials, supplies and other increased to account for the discontinuation of the accrual of cross-tie removal as a component of depreciation expense. The remaining increase results from volume increases, inflationary effects and general operational inefficiencies.

Conrail rents, fees & services expense increased $20 million in 2003, as compared to the prior year, as a result of increased usage of Shared Asset Areas, a contractual increase in the rental fee for Shared Area facilities, and a favorable tax adjustment in the prior year. (See Note 2, Investment In and Integrated Rail Operations With Conrail.)

Building and equipment rent decreased $7 million in 2003 compared to the prior year principally as a result of reduced car rentals from other railroads.

Inland transportation, which represents CSXI’s use of the CSXT rail networks, remained relatively consistent year-over-year. The offsetting expense associated with this amount is reflected in CSXI’s operating expense, and thus eliminates on a Surface Transportation level.

Depreciation remained consistent year-over-year. The rail segment had capital additions of approximately $1 billion, but the additional depreciation was offset by the reduction in depreciation associated with the adoption of SFAS 143, “Accounting for Asset Retirement Obligations.” In conjunction with the group-life method of accounting for asset costs, the Company historically accrued crosstie removal costs as a component of depreciation, which is not permitted under SFAS 143. The effect is to decrease depreciation expense and increase material, supplies and other expense.

Fuel expense increased $117 million in 2003, as compared to the prior year. The expense increase is primarily due to $102 million in fuel price increases, while increased volumes were also a factor. The average price per gallon of fuel was 96 cents per gallon for 2003 compared to 78 cents per gallon for 2002. In order to minimize future exposure to fuel price fluctuation risk, during 2003 the Company entered into a series of swaps in order to fix the price of a portion of its estimated future fuel purchases. As of December 26, 2003, 18% and 21% of 2004 and 2005, respectively, estimated fuel purchases were hedged. Fuel swaps did not have an effect on fuel expense for the year ended December 26, 2003.

The net $22 million restructuring charge in 2003 represents the cost of CSX’s reorganization charges offset by reductions in 1991/1992 separation reserves. (See Note 4, Restructuring.)

Operating income decreased $313 million to $541 million in 2003, compared to $854 million in 2002 primarily due to the $229 million provision for casualty claims, the $22 million net restructuring charge and other expense increases as previously discussed. Excluding the provision for casualty claims and net restructuring charge, operating income would have been $792 million.

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

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

Automotive revenues improved 6%, or $51 million in 2002 as a result of yield improvement driven by favorable mix and extended linehauls. Year-over-year volume increases were driven by higher light truck production levels and aggressive manufacturer incentives that stimulated automobile sales during 2002.

Coal revenues had a significant impact on the rail segment’s 2002 financial results. Coal revenue was down 9%, or $143 million from 2001’s strong performance due to reduced volumes. Export carloads were down significantly as a result of the reduced competitive standing of U.S. coal in the international market, while metallurgical and industrial markets were down in the second half of 2002.

Other revenue decreased $35 million in 2002 as compared to 2001 primarily because there were lower fuel surcharges billed to customers.

Total rail operating expenses decreased $190 million, or 4% in 2002 as compared to 2001. Reductions in most expense categories were somewhat offset by increases in depreciation and reduced intercompany volume with CSX Intermodal. Also, 2001 included $60 million relating to the New Orleans litigation settlement. Fuel costs decreased $76 million in 2002, of which $69 million is attributable to lower fuel prices. The net impact on operating income of reduced fuel price was $44 million since $25 million of fuel surcharge revenue was discontinued.

Labor and fringe costs decreased $44 million year-over-year including savings from reductions in overall employment. These savings were offset by increased labor costs relating to cost of living wage increases. Employee count was approximately 950 lower at the end of 2002 as compared to 2001.

Building and equipment costs were down $17 million mainly due to continued reduction in car hire as the railroad took cars offline and ran more efficiently.

Conrail operating fees, rents and services decreased $14 million in 2002 as compared to 2001. Decreased costs in operating the shared asset areas, tax settlements, efficiency improvements and adjustments to reflect lower reserve requirements for car hire, overcharges, interline and other claims all reduced this expense.

Materials, supplies and other costs at the rail unit were down $11 million in 2002, as compared to 2001, due to reduced transportation costs, fewer accidents and adjustments to estimated state and local tax liabilities to reflect actual assessments. These decreases were offset by higher legal fees and maintenance costs, and $40 million in favorable insurance settlements received in 2001 that were not repeated in 2002.

Depreciation expense increased $26 million as compared to 2001, as a result of a higher depreciable asset base.

Rail operating income increased by $111 million to $854 million in 2002 as compared to 2001, due to operating expense decreases noted previously and the New Orleans litigation provision. Excluding the 2001 charge for the New Orleans litigation provision, operating income was up $51 million or 6% for the year.

CSX Intermodal domestic revenue improved 13% on 8% volume increase due to increased unloading and loading (“transloading”) of international containers into domestic containers and new programs. Strength in truck brokerage continued due to the rollout of the new Pegasus information management system, which provides real-time information regarding driver availability and location, service quality tracking and financial performance. The parcel sector also showed year-over-year strength. International strength in general import growth was partially offset by continued international import/export diversions of freight carried entirely via water routes from west coast ports to east coast ports. These diversions have resulted in volume declines, shorter hauls and lower per-unit revenue.

Intermodal operating expense increased $108 million compared to the prior year. The increase is due primarily to traffic mix and inflationary factors. Additionally, the Company recognized a $15 million positive contract settlement in 2002. Operating income decreased to $110 million in 2003, compared to $141 million in the prior year.

CSXI reported operating revenue of $1.2 billion in 2002, as compared to $1.1 billion in 2001. The increase was primarily due to continued success in efforts to convert truck traffic onto the intermodal network.

CSXI operating expense increased $31 million in 2002. This increase was the result of $32 million in higher inland transportation costs due to increased volumes handled during 2002. Also, due to volume increases, building and equipment rent increased $8 million, and materials, supplies and other increased $6 million. The increase was partially offset by a $15 million positive contract settlement. Other costs were relatively flat year-over-year.

CSXI operating income was up $37 million in 2002 as compared to 2001, due to the $68 million increase in revenues, offset by a $31 million increase in operating expenses. These results were also impacted by the $15 million positive contract settlement noted above.

CSXWT’s revenue decreased $10 million, or 4% to $226 million for 2003, compared to $236 million in the prior year, primarily due to weakness in the Hong Kong market. Expense decreased to $157 million for the year, compared to $167 million for 2002, partially attributable to reduced labor and fringe costs associated with reduced volume at its Hong Kong operations and a $6 million gain related to the divestiture of a portion of the Caucedo terminal ownership interest, which offset other miscellaneous expenses in 2002. Operating income remained consistent at $69 million in 2003 and 2002.

During 2003, a significant customer of CSXWT announced that it would terminate its marine terminal services contract during the first quarter of 2004. This is expected to negatively impact CSXWT’s 2004 operating income by approximately $29 million and cash flow by approximately $21 million. In December 2004, another contract is scheduled to expire. Negotiations are in process to maintain this contract, but if negotiations are unsuccessful, 2005 operating income may be negatively impacted by $20 million. CSXWT expects that it will be able to replace all or substantially all of the lost volume with new customers representing long and short-term commercial commitments. However, due to the increased competitive pressures, it is possible that the profit margins achieved in the past will not be realized in the near term. Under the provisions of FASB Statement No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets,” companies are required to review their assets for potential impairment losses if there are certain impairment indicators present. Given these indicators, the Company evaluated the undiscounted cash flows estimated to be generated by this terminal, whose long-lived assets are recorded at $59 million, and concluded that the forecasted future undiscounted cash flows exceeded the book value of the assets; therefore no impairment write-down is necessary at this time.

CSX World Terminals’ operating revenues were flat at $236 million in 2002 and 2001. Operating expenses were up $2 million in 2002 over 2001 due to lower earnings from equity investments. Miscellaneous operating expenses in 2002 and 2001 include $6 million and $3 million gains, respectively, from transactions relating to equity investments. Operating income was $69 million for 2002, a $2 million decrease from $71 million in 2001.

Cash provided by operations for 2003 was $804 million, compared to $1.1 billion for 2002, and $827 million in 2001. The $323 million decrease in 2003, as compared to the prior year, reflects the $380 million termination of the accounts receivable facility. (See Note 8, Accounts Receivable). Excluding that, cash provided by operating activities was slightly higher than 2002, at $1.2 billion. Real estate activities contributed $122 million to operating cash flow, as compared to $137 million provided in 2002.

In 2002 cash provided from operations was $1.1 billion, a $300 million increase over 2001. Higher operating income, lower interest expense and significant cash flow relating to real estate activities contributed to the increase, while there was a $85 million negative effect attributable to the New Orleans tank car fire settlement payment.

Net cash used by investing activities was $807 million in 2003 compared to $775 million in 2002 and $965 million in 2001. While 2003 capital expenditures approximated 2002 levels,

reduced proceeds from maturities of short-term investments led to the increase in cash used for investing activities. Proceeds of $214 million from the sale of CSX Lines in the first quarter of 2003 (See Note 3, Divestitures) helped to offset the impact of reduced short-term investment proceeds.

Property additions totaled $1.1 billion in 2003 and 2002 and $930 million in 2001. The 2003 and 2002 increases over 2001 were related to replacement of cars and locomotives. Of Surface Transportation’s $1 billion in 2003 capital expenditures, substantially all related to replacing track, locomotives and other costs necessary to maintain the Company’s rail system. 2004 capital expenditures are expected to be approximately $1 billion.

Financing activities provided cash of $172 million during 2003 and $15 million in 2001, compared to a $362 million use of cash during 2002. In 2003, net issuances of $419 million in long-term debt were principally used to repay short-term obligations incurred as a result of the termination of the Company’s accounts receivable sales program.

In December 2003, CSX executed a $75 million revolving loan facility that matures in 2005. Borrowings under the facility will bear interest at a rate that fluctuates with LIBOR. In addition, the Company pays an annual commitment fee of 0.15% for the period the facility is not drawn. This debt may be redeemed at any time after May 2004, with additional borrowings allowed through the maturity of the facility. As of December 26, 2003, the Company had $75 million in aggregate principal amount outstanding under this borrowing.

In November 2003, CSX issued $200 million aggregate principal amount of the Company’s Notes due 2014 and $200 million aggregate principal amount of the Company’s Notes due 2006. The 2014 Notes bear interest at the rate of 5.30% per year and mature on February 15, 2014. The 2006 Notes bear interest at the rate of 2.75% per year and mature on February 15, 2006. The 2014 Notes may be redeemed by the Company at any time, but the 2006 Notes cannot be redeemed before maturity.

In August 2003, the Company issued $300 million aggregate principal amount Notes due 2013. These Notes bear interest at the rate of 5.50% and mature on August 1, 2013. The Notes may be redeemed by the Company at any time.

CSX increased its borrowings from Conrail by approximately $144 million year-over-year in 2003 in addition to the $146 million increase in 2002. Also, during 2002 the Conrail note was extended to a five year term.

During 2002, CSX issued $200 million of 4.88% notes due in 2009 and $400 million of 6.30% notes due in 2012.

The Company has a $1 billion five-year revolving credit facility and a $345 million 364-day revolving credit facility. Generally, these facilities may be used to support the Company’s commercial paper, working capital and other general corporate purposes. Under the 364-day facility, the Company pays an annual fee to the participating banks of .125% of total commitment. Under the five-year facility, the Company pays annual fees to the participating banks that may range from 0.08% to 0.23% of total commitment, depending on the Company’s credit rating. As of December 26, 2003, the Company had no borrowings outstanding under these facilities and there were no commercial paper borrowings outstanding. CSX had commercial paper borrowings supported by these credit facilities of approximately $140 million at the end of 2002.

CSX repaid long-term debt of $500 million in 2003, $1.2 billion in 2002, and $266 million in 2001. The Company also paid a net $141 million in short-term debt during 2003. The primary sources of 2003 repayments were the $214 million of proceeds from the conveyance of CSX Lines (see Note 3, Divestitures) and the issuance of new debt.

Long-term and short-term debt at December 26, 2003 and December 27, 2002, totaled $7.3 billion and $7.1 billion, respectively. The ratio of debt to total capitalization was 51% at the end of 2003, and 52% at the end of 2002 and 2001.

In October 2001, CSX issued $564 million aggregate principal amount at maturity in unsubordinated zero coupon convertible debentures (the “debentures”) due October 30, 2021 for an initial offering price of approximately $462 million. At December 26, 2003 and December 27, 2002, outstanding debentures are included in long-term debt, at a carrying value of $447 million and $467 million, respectively. These debentures accrete (increase) in value at a yield to maturity of 1% per year. The accretion rate may be reset on October 30, 2007, October 30, 2011, and October 30, 2016 to a rate based on five-year United States Treasury Notes minus 2.8%. In no event, however, will the yield to maturity be reset below 1% or above 3% per annum. Accretion in value on the debentures is recorded for each period, but will not be paid prior to maturity.

Under the terms of the debentures, holders had the option to require the Company to purchase their debentures at a purchase price equal to the accreted value of the debentures in October 2003. CSX purchased $15 million aggregate principal amount at maturity of the debentures at an aggregate cost of $13 million. In November 2003, the Company made a one-time cash payment of $23.00 per $1,000 aggregate principal amount at maturity to holders who did not require the Company to purchase their debentures. This resulted in a $13 million cash payment, which will be amortized over the remaining term of the debentures. In addition, the terms of the debentures were amended to permit holders to cause the Company to purchase the debentures on October 30, 2005, at their accreted value of $852.48 per $1,000 principal amount at maturity, in addition to the purchase dates provided under the terms of the debentures. Similarly, the debentures allow holders to require the Company to purchase their debentures in October 2006, October 2008, October 2011, and October 2016, at a purchase price equal to the accreted value of the debentures. In 2005, 2006 and 2008, CSX may elect to pay the purchase price in cash and/or shares of common stock, while CSX may pay the purchase price only in cash on the last two purchase dates. CSX may redeem the debentures for cash at any time on or after October 30, 2008, at a redemption price equal to the accreted value of the debentures.

Holders may convert debentures into CSX common stock if certain requirements defined in the debentures and the related indenture are met. Holders may convert if the closing sale price of CSX common stock for at least 20 of the 30 preceding trading days is more than the applicable percentage (which is initially 120% and will decline over the life of the debentures to 110%) of the accreted conversion price per share of the Company’s common stock. The “accreted conversion price” per share of common stock is the quotient of the accreted value of a debenture divided by the number of shares of common stock issuable upon conversion of that debenture. Holders may also convert if the Company’s senior long-term unsecured credit ratings are downgraded by Moody’s Investors Service Inc. to below Ba1 and by Standard & Poor’s Rating Services to below BB+, if the debentures have been called for redemption, if the Company makes specified distributions to holders of CSX common stock, or if the company is a party to specified consolidations, mergers, or transfers or leases of all or substantially all of the Company’s assets. For each debenture surrendered for conversion, a holder will initially receive 17.75 shares of CSX common stock, which is equivalent to an initial conversion price of $46.16

per share. The initial conversion rate will be adjusted for reasons specified in the indenture, but will not be adjusted for accretion. Instead, accretion on the debentures will be deemed paid by the common stock received by the holder on conversion.

CSX has $600 million of remaining capacity under a shelf registration that may be used, subject to market conditions, to issue debt or other securities at the Company’s discretion. The Company presently intends to use the proceeds from the sale of any securities issued under its shelf registration statements to finance cash requirements, including refinancing existing debt as it matures. While the Company seeks to give itself flexibility with respect to meeting such needs, there can be no assurance that market conditions would permit the Company to sell such securities on acceptable terms at any given time, or at all.

In mid-year 2001, the board of directors announced that the regular quarterly dividend payable would be reduced to 10 cents per share. CSX had paid a regular quarterly dividend of 30 cents per share since the fourth quarter of 1997 and did so through June of 2001. Dividends paid in 2003, 2002 and 2001 were as follows:

The Company’s working capital deficit at December 26, 2003, was $307 million, as compared to $665 million at December 27, 2002. A working capital deficit is not unusual for the Company and other companies in the industry and does not indicate a lack of liquidity. The Company continues to maintain adequate current assets to satisfy current liabilities and maturing obligations when they come due and has sufficient financial capacity to manage its day-to-day cash requirements and any obligations arising from legal, tax and other regulatory rulings.

As of December 26, 2003, CSX Corporation’s long-term unsecured debt obligations were rated BBB and Baa2 by Standard and Poor’s and by Moody’s Investor Service, respectively. In the event CSX’s long-term unsecured bond ratings were reduced to BBB- and Baa3, the Company’s drawn and undrawn borrowing costs under the $1.0 billion and $345 million revolving credit facilities would not materially increase. However, at year-end 2003, the Company had no borrowings outstanding under these credit facilities. The Company’s short-term commercial paper program is rated A-2 and P-2 by Standard and Poor’s and Moody’s Investor Service, respectively. Should these ratings decline to A-3 and P-3, the company’s cost and access to the commercial paper markets could be adversely affected. At year-end 2003, the Company had no commercial paper borrowings outstanding.

The following table sets forth maturities of the Company’s contractual obligations:

The following table sets forth the maturities of the Company’s other commitments:


(a)	The fair market value of the interest rate swap agreements of $55 million, which is included in long-term debt on the balance sheet, is not included on the debt maturity schedule. Capital leases of $206 million are included in long-term debt.

(b)	CSX has entered into various operating lease agreements primarily for rail transportation equipment.

(c)	Agreements with Conrail represents commitments to pay Conrail per various agreements.

(d)	Commercial commitments consists of a $2.6 billion maintenance program which expires in 2026 relating to CSX’s fleet of locomotives. This program replaced an internal maintenance program.

(e)	Approximately $440 million of these guarantees relate to certain lease obligations that CSX remains contingently liable for that were assumed by Maersk. Accordingly, CSX has collateral liens on the assets relating to these leases and indemnities provided by Maersk that it will fulfill the commitments. CSX believes that Maersk will fulfill its contractual commitments with respect to such leases and that CSX will have no further liabilities relating to these obligations. Approximately $97 million relates to construction and cash deficiency support guarantees at one of the Company’s equity investments. CSX guarantees approximately $300 million relating to leases assumed as part of CSX’s conveyance of its interest in CSX Lines.

There are no off-balance sheet arrangements, except as noted above, that are reasonably likely to have an effect on our financial condition or results of operations.

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

The Company addresses its exposure to interest rate market risk through a controlled program of risk management that includes the use of interest rate swap agreements. As of December 26, 2003, the Company had various interest rate swap agreements on $1.3 billion of its outstanding notes payable. In the event of a 1% increase or decrease in the LIBOR interest rate, the interest expense related to these agreements would increase or decrease approximately $13 million on an annual basis.

During 2003, the Company began a program to hedge its exposure to fuel price volatility through swap transactions. As of December 26, 2003, CSX has hedged approximately 18% and 21% of expected requirements for 2004 and 2005, respectively. The Company expects that by the end of 2004 the programs will result in an increase in the amount of fuel hedged to approximately 76% of 2005 annual purchases. At December 26, 2003, a 1% change in fuel prices would result in an increase or decrease in the asset related to the swaps of approximately $1 million. The Company is subject to risk relating to changes in the price of diesel fuel. At the end of 2003, the Company had not entered into any long-term commitments for forward fuel purchases. The Company’s rail unit average annual fuel consumption is approximately 570 million gallons. A one-cent change in the price per gallon of fuel would impact fuel expense by approximately $6 million.

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

Exclusive of derivative contracts that swap fixed rate notes to floating interest rates, at December 26, 2003 and December 27, 2002, CSX had approximately $714 million and $709 million, respectively, of floating rate debt outstanding. A 1% variance in interest rates would on average effect annual interest expense by approximately $7 million.

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

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

See background, accounting and financial reporting effects and summary financial information in Note 2, Investment In and Integrated Rail Operations with Conrail.

Conrail Inc. (“Conrail”) reported net income of $203 million in 2003, which included a cumulative effect of accounting change benefit of $40 million. Excluding the cumulative effect of accounting change, net income was $163 million, as compared with $180 million in 2002. Operating revenues were up $25 million to $918 million from the prior year. However, operating expenses were up 6% to $659 million.

In June 2003, CSX, Norfolk Southern Corporation (“NS”) and Conrail jointly filed a petition with the Surface Transportation Board (“STB”) to establish direct ownership and control by CSX’s and NS’ respective subsidiaries, CSX Transportation Inc. (“CSXT”) and Norfolk Southern Railway (“NSR”) of their portions of the Conrail system already operated by them separately and independently under various agreements. These portions of the Conrail system are currently owned by Conrail’s subsidiaries, New York Central Lines LLC (“NYC”) and Pennsylvania Lines LLC (“PRR”). The ownership of NYC and PRR would be transferred (“spun off”) to CSXT and NSR, respectively. Conrail would continue to own, manage and operate the Shared Asset Areas as previously approved by the STB. STB approval to proceed with the spin-off transaction and a favorable ruling from the IRS qualifying the

If all necessary conditions are satisfied, unsecured debt securities of newly formed subsidiaries of CSXT and NSR would be offered in a 42%/58% ratio in exchange for Conrail’s unsecured debentures. The debt securities issued by its respective subsidiary would be fully and unconditionally guaranteed by CSXT or NSR. Upon completion of the proposed transaction, the subsidiaries would be merged into CSXT and NSR, respectively, and the new debt securities thus would become direct unsecured obligations of CSXT or NSR. Conrail’s secured debt and lease obligations will remain obligations of Conrail and are expected to be supported by new leases and subleases which, upon completion of the proposed transaction, would be the direct lease and sublease obligations, also on a 42%/58% ratio, of CSXT and NSR. CSX will record the proposed transaction at fair value based on the results of an independent valuation of NYC, with any difference from carrying value resulting in a gain or loss. The Company can not predict the outcome of the valuation and the impact on the Company’s financial statements.

CSX, NS and Conrail are working to complete the spin-off transaction in 2004. Upon consummation of the proposed transaction, CSX’s investment in Conrail will no longer include the amounts related to NYC and PRR. Instead the assets and liabilities of NYC will be reflected in their respective line items in CSX’s consolidated balance sheet. Conrail will continue to own, manage and operate the Shared Asset Areas.

Conrail reported net income of $180 million in 2002, compared with $174 million in 2001. Operating revenues were down $10 million to $893 million in 2002, while operating expenses were favorable $16 million year-over-year. Lower costs in the Shared Asset Areas, tax settlements and lower reserve requirements for car hire, overcharges, interline and other claims helped improve 2002 results.

Conrail’s operating activities provided cash of $412 million in 2003, compared with $423 million in 2002 and $502 million in 2001. The decrease in cash provided by operations in 2003 is a result of decreased operating income. The decrease in cash provided by operations in 2002 compared to 2001 reflected large payments of casualty claims. Cash generated from operations is the principal source of liquidity and is primarily used for debt repayments and capital expenditures.

Debt repayments totaled $57 million, $59 million and $61 million in 2003, 2002 and 2001, respectively. Capital expenditures were $35 million, $23 million and $47 million in 2003, 2002 and 2001, respectively. Total cash used for financing activities was $360 million, most of which results from an increase in the amount receivable from CSX and Norfolk Southern under their respective notes (See Note 2, Investment In and Integrated Rail Operations with Conrail).

Conrail had working capital deficits of $22 million and $29 million at December 26, 2003 and December 27, 2002, respectively. A working capital deficit is not unusual for the Company and does not indicate a lack of liquidity. The Company continues to maintain adequate current assets to satisfy current liabilities and maturing obligations when they come due and has sufficient financial capacity to manage its day-to-day cash requirements and any obligations arising from legal, tax and other regulatory rulings.

Horizon Lines LLC (“Horizon”). Horizon has subleased equipment and/or assigned vessel leases from certain affiliates of CSX covering the primary financial obligations related to $300 million of leases under which CSX or one of its affiliates will remain a lessee/ sublessor or guarantor. A deferred pretax gain of approximately $127 million as a result of the transaction will be recognized over the 12-year sub-lease term. Approximately $9 million of this gain was recognized during 2003. The securities have a term of 7 years and a preferred return feature. During the third quarter, CSX received a $15 million payment from Horizon Lines, which included $3 million of interest, in return of a portion of its investment in Horizon and now holds $48 million of securities.

In 2003, CSX finalized a settlement agreement with Maersk resolving all remaining material disputes pending directly between the two companies, consisting predominantly of two major disputes. The first dispute involved a post-closing working capital adjustment to the sale price for which the Company had recorded a receivable of approximately $70 million. The second dispute involved a claim of 425 million Dutch Guilders (approximately $180 million at then prevailing currency exchange rates) plus interest by Europe Container Terminals BV (“ECT”) alleging breaches of contract by the Company at the Rotterdam container terminal facility owned by ECT.

Also in 2003, CSX entered into a final settlement agreement with Maersk allocating responsibility between the two companies for third party claims and litigation relating to the assets acquired by Maersk.

The two settlements reduced the Company’s 2003 earnings by $108 million pretax, $67 million after tax. This charge is reflected in the financial statements as an additional loss on the sale of the international container-shipping assets. Neither settlement has a material impact on cash flows.

In November 2003, the Company announced a management restructuring plan to streamline the structure at a number of its companies, eliminate organizational layers and realign certain functions. The initiative will reduce the non-union workforce by 800 to 1,000 positions over the last quarter of 2003 and the first half of 2004. As of December 26, 2003, 20 employees have been terminated under this program. The Company recorded an initial charge related to this reduction of $34 million pretax, in 2003, to record the lowest amount of expense to be incurred under this program. The total estimated cost of the program is expected to be in the range of $60 million to $80 million. The majority of separation benefits will be paid from CSX’s qualified pension plans, with the remainder being paid from general corporate funds.

Also in 2003, the Company recorded a $10 million restructuring charge related to another workforce reduction program. Substantially all of this amount had been paid out at December 27, 2003.

In 2003, the Company recorded a $22 million pretax credit related to a favorable change in estimate related to the 1991 and 1992 separation plans. These plans provided for workforce reductions, improvements in productivity and other cost reductions. The reduction in estimate for these plans results from lower railroad retirement taxes and other benefits than had been built into the initial $1.3 billion charge.

A net $22 million restructuring charge was recorded representing the cost of the restructuring initiatives offset by reductions in 1991/1992 separation reserves. The associated expense is included in operating expense on the Income Statement as “Restructuring Charge — Net.”

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires that management make estimates in reporting the amounts of certain assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of certain revenues and expenses during the reporting period. Actual results may differ from those estimates. Significant estimates using management judgment are made for the following areas:


	1. Casualty, legal and environmental reserves

	2. Pension and postretirement medical plan accounting

	3. Depreciation policies for its assets under the group-life method

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

Casualty reserves represent accruals for the uninsured portion of occupational injury and personal injury claims. These reserves are recorded upon the first reporting of a claim, and estimates are updated as information develops. The amount of liability accrued is based on the type and severity of the claim, and an estimate of future claims development based on current trends and historical data. The Company believes it has recorded liabilities in sufficient amounts to cover all identified claims and estimates of incurred but not reported personal injury claims for the next seven years. During 2003, the Company retained third party professionals to work with it to project the number of asbestos and other occupational injury claims to be received over the next seven years and the related costs. Based on this analysis the Company established reserves for the probable and reasonably estimable asbestos and other occupational injury liabilities. Other occupational claims include allegations of exposure to certain materials in the work place, such as solvents and diesel fuel, or alleged physical injuries, such as carpal tunnel syndrome or hearing loss. In conjunction with the change in estimate, in 2003 the Company recorded a charge of $206 million to increase its provision for these claims. Approximately $141 million of this amount relates to asbestos claims. Additionally, the provision for personal injury claims was increased by $26 million as a result of a change in estimate.

Estimates for all of these claims are subject to significant uncertainty relating to the outcomes of negotiated settlements and other developments and are not suited to subjecting to a sensitivity analysis. As facts and circumstances change, the Company may have to change its estimates, and changes could have a material impact on the Company’s financial results. Events such as adverse verdicts, catastrophic accidents and legal settlements will cause the Company to revise its estimated liabilities, which the Company reviews and appropriately adjusts quarterly. Personal and occupational injury liabilities amount to $864 million and $605 million at December 26, 2003 and December 27, 2002, respectively. (See Note 10, Casualty, Environmental and Other Reserves).

In accordance with SFAS 5, “Accounting for Contingencies,” an accrual for a loss contingency is established if information available prior to issuance of the financial statements indicates that it is (1) probable that an asset has been impaired or a liability has been incurred at the date of the financial statements, and (2) the amount of loss can be reasonably estimated. If no accrual is made for a loss contingency because one or both of these conditions are not met, or if an exposure to loss exists in excess of the amount accrued, disclosure of the

contingency is made when there is at least a reasonable possibility that a loss or an additional loss may have been incurred. The Company evaluates all exposures relating to legal liabilities on an ongoing basis and records reserves when appropriate under the guidance noted above.

In 2003, CSX finalized a settlement agreement with Maersk resolving all remaining material disputes pending directly between the two companies, consisting predominantly of two major disputes. The two settlements reduced the Company’s 2003 earnings by $108 million pretax, $67 million after tax. This charge is reflected in the financial statements as an additional loss on the sale of the international container-shipping assets. Neither settlement has a material impact on cash flows.

In 2001 Duke Energy Corporation (“Duke”) filed a complaint before the U.S. Surface Transportation Board alleging that certain CSXT common carrier coal rates are unreasonably high. In February 2004, the STB issued a decision finding that the CSXT common carrier rates were reasonable. While approving the rate levels, the STB also invited Duke to request a phase-in of rate increases over some time period. The nature and amount of any such phase-in is uncertain, and would only apply to billings subsequent to December 2001. CSXT will continue to consider and pursue all available legal defenses in this matter. Administrative and legal appeals are possible, and could take several years to resolve. An unfavorable outcome to this complaint would not have a material effect on the Company.

The Company increased a reserve in 2001 to account for the impact of the negotiated settlement of the New Orleans tank car fire. This negotiation resulted in the Company recording an additional charge of $60 million pretax, $37 million after tax in 2001.

CSXT is a party to various proceedings, including administrative and judicial proceedings, involving private parties and regulatory agencies related to environmental issues. CSXT 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 Superfund statute (“Superfund”) or similar state statutes. A number of these proceedings are based on allegations that CSXT, or its railroad predecessors, sent hazardous substances to the facilities in question for disposal. Some of the proceedings involve property formerly or currently owned by CSXT or its railroad predecessors. Proceedings arising under Superfund or similar state statutes can involve numerous other companies who generated the waste or owned or operated the property and involve the allocation of liability for costs associated with site investigation and cleanup, which could be substantial.

At least once each quarter, CSXT reviews its role with respect to each such location, giving consideration to a number of factors, including:


	•	the type of cleanup required,

	•	the nature of CSXT’s alleged connection to the location (e.g., generator of waste sent to the site, or owner or operator of the site),

	•	the extent of CSXT’s alleged connection (e.g., volume of waste sent to the location and other relevant factors),

	•	the accuracy and strength of evidence connecting CSXT to the location,

	•	and the number, connection, and financial viability of other named and unnamed PRP’s at the location.

$35 million, respectively. These liabilities, which are undiscounted, include amounts representing CSXT’s estimate of unasserted claims, which CSXT believes to be immaterial. The liability includes future costs for all sites where the Company’s obligation is (1) deemed probable and (2) 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. During 2003, the Company increased its estimate for environmental liabilities by a net $10 million due to continuing evaluation of the adequacy of the reserve. The majority of the December 26, 2003 environmental liability is expected to be paid out over the next seven years.

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. Also, changes in federal and state laws and regulations may impact, favorably or unfavorably, the effort required to remediate sites. 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.

The Company sponsors defined benefit pension plans, principally for salaried personnel. The plans provide eligible employees with retirement benefits based principally on years of service and compensation rates near retirement. In addition to the defined benefit pension plans, the Company sponsors three plans that provide medical and life insurance benefits to most full-time salaried employees upon their retirement. The postretirement medical plans are contributory (partially funded by retirees), with retiree contributions adjusted annually. The life insurance plan is non-contributory. The benefit obligation for these plans represents the liability of the Company for current and retired employees and is affected primarily by the following:


	1. Service cost (benefits attributed to employee service during the period)

	2. Interest cost (interest on the liability due to the passage of time)

	3. Actuarial gains/losses (experience during the year different from that assumed and changes in plan assumptions)

	4. Benefits paid to participants

Plan assets are amounts that have been segregated and restricted to provide benefits, and include amounts contributed by the Company and amounts earned from investing contributions, less benefits paid. The pension plans are funded at not less than the minimum funding standards set forth in the Employee Retirement Income Security Act of 1974. Plan assets consist primarily of common stocks, corporate bonds and cash and cash equivalents. The Company funds the cost of the postretirement medical and life insurance benefits on a pay-as-you-go basis. The accounting for these plans is subject to the guidance provided in SFAS No. 87, “Employers Accounting for Pensions,” and SFAS No. 106, “Employers’ Accounting for Postretirement Benefits Other than Pensions.” Both of these statements require that management make certain assumptions relating to the following:


	1. Long-term rate of return of plan assets

	2. Discount rates used to measure future obligations and interest expense

	3. Salary scale inflation rates

	4. Health care cost trend rates and other assumptions

All of these assumptions and estimates can have a significant impact on the Company’s accounting for these plans and the amount of expense recorded in a reporting period. These assumptions are made as of the beginning of the year. The Company uses a plan year of Oct. 1 through Sept. 30 to value its pension and postretirement plans on an actuarial basis. As permitted by SFAS 87, the Company has elected to use this fiscal year as it provides for more timely analysis. The Company engages third-party actuaries to compute the amounts of liabilities and expenses relating to these plans subject to the assumptions that the Company selects for its plans. The Company reviews its actuarial assumptions on an annual basis and makes modifications to the assumptions based on current rates and trends when appropriate. Additionally, as CSX expects a curtailment (event that impacts the future service, and therefore benefits, to be earned by employees under the plan), to occur in the first quarter of 2004 as a result of the Management Restructuring, and accordingly, will review actuarial assumptions as required by SFAS 88 and SFAS 106. The impact of the curtailment is expected to be immaterial. Currently, the Company does not expect any significant changes to its assumptions.

The expected return on the Company’s pension plan assets is based on the Company’s expectation of the long-term average rate of return on assets in the pension funds (based on a composite yield of AA-rated corporate bonds), which is reflective of the current and projected asset mix of the funds. As this estimate is long-term, it is not adjusted as frequently as other assumptions used in pension accounting. However, the impact of the last few years’ overall market returns did cause CSX to reevaluate the rate used in calculating its liability at September 30, 2002 (the end of the measurement period for 2002) and adjust it from 9.5% to 8.9%. This change will increase the amount of pension expense reported in future periods. The Company evaluated the investment performance during 2003 as well as future expectations and determined that an adjustment to the long-term rate of return is not warranted. CSX will continue to evaluate its performance on an ongoing basis and if appropriate will adjust the long-term rate of return. A 1% change in the rate of return assumption would change pension expense by $15 million.

Discount rates are based on comparable rates for long-term liabilities that reflect a similar time horizon to payments that the Company will make for pension and postretirement medical payments. These rates are analyzed every year and adjusted accordingly. As such, management has minimal discretion with respect to the discount rates used. The discount rate impacts the amount of liability recorded and also the amount of the interest expense component of pension and postretirement expense. CSX’s assumed discount rates used in calculating the liability at September 30, 2003 and September 30, 2002, respectively, were 6.0% and 6.5% for the pension liabilities and 5.0% and 5.5% for postretirement medical benefits. The difference between the rate used for pension vs. postretirement is due to the different time horizon of future payments.

Salary scale inflation rates are based on current trends and historical data accumulated by the Company. The Company reviews this assumption on a regular basis and makes adjustments when appropriate. CSX lowered this rate from 4.5% in 2001 to 3.3% for 2002 and 2003.

The health care cost trend rate is based on current trends and historical data. Due to the increasing costs of providing health care benefits, the Company increased the inflation assumption for health care costs for the 2002 year. No changes were deemed necessary to the health care cost trend rate in 2003. The current assumed rate is 11% decreasing gradually until

The calculations made by the actuaries also include assumptions relating to mortality rates, turnover, and retirement age. These assumptions are based on historical data and are approved by management. As a result of changes in assumptions for fiscal year 2004, net periodic pension benefit cost and postretirement benefit costs for 2004 are expected to increase approximately $7 million.

In December 2003, the President of the United States signed into law the “Medicare Prescription Drug, Improvement and Modernization Act of 2003” (“the Act”), which introduces a prescription drug benefit under Medicare Part D as well as a federal subsidy to sponsors of retiree health care benefit plans that provide a benefit that is actuarially equivalent to Medicare Part D. SFAS 106 requires that changes in the law that take effect in the future and affect future benefit coverage shall be considered in current-period benefit measurements. However, as significant uncertainties exist for how to account for the subsidy a plan sponsor may not have sufficient information available to measure effects of the Act, prepare related actuarial valuations, and ensure proper accounting. Therefore, FASB has issued staff position No. FAS 106-1 which allows a plan sponsor to elect to defer recognizing the effects of the Act until authoritative guidance on the accounting for the federal subsidy is issued, or until certain other events occur. When the guidance is issued, it may cause CSX to revise previously reported information. CSX is currently evaluating how this legislation may impact its postretirement benefit plans. (See Note 17, “Employee Benefit Plans.”)

The Company accounts for its rail assets, including main-line track, locomotives and freight cars, using the group-life method. This method pools similar assets by road and equipment type and then depreciates each group as a whole. These assets represent 94% of the Company’s total fixed assets and amounted to $12.9 billion on a net basis at December 26, 2003. Under the group-life method, the useful lives of rail assets are determined by the performance of a life-study which includes:


	•	statistical analysis of historical retirements for each group of property

	•	evaluation of the current operations

	•	previous assessment of the condition of the assets and outlook for their continued use

	•	comparison of assets to the same asset groups with other companies.

The results of the life study process determine the service lives for each asset group. These studies are conducted by a third party expert and analyzed by the Company’s management. Changes in asset lives due to the results of the life studies could significantly impact future periods depreciation expense and thus the Company’s results of operations. Events that could cause the Company to change its estimates relating to the lives of its asset groups could be changes in historical results, technological improvements and changes in specific assets. In 2003, the Company completed life studies for all of its rail assets. The effect of theses studies was to increase the average useful lives on its equipment and track assets, while decreasing the average useful lives on many of the roadway assets. These changes in average useful lives of the assets will have minimal net reduction on depreciation expense in the future. As a result, the net increase in depreciation expense was $1 million in 2003, while the impact will be a decrease of approximately $13 million in 2004 and thereafter.

Additionally, with the adoption of Statement of Financial Accounting Standard (“SFAS”) 143, “Accounting for Asset Retirement Obligations” in 2003, CSX recorded pretax income of $93 million, $57 million after tax as a cumulative effect of an accounting change, representing the reversal of the accrued liability for crosstie removal costs. On an ongoing basis, depreciation expense will be reduced, while labor and fringe and materials, supplies and other expense will be increased by approximately $12 million annually.

In 2003, the Accounting Standards Executive Committee (AcSEC) of the American Institute of Certified Public Accountants voted to approve the Statement of Position (SOP) Accounting for Certain Costs and Activities related to Property, Plant and Equipment and presented it to the Financial Accounting Standards Board (FASB) for approval. If the FASB causes the SOP to be applicable, certain costs and activities that are currently capitalized may require immediate recognition and alternatively, some costs and activities that are currently expensed may require capitalization. In addition, the SOP will require additional refinement in asset componentization, potentially altering the amount of depreciation expense recognized. While the Company is evaluating the proposal, it has not yet determined what effect it may have if passed by the FASB. However, the effect could be material.

SFAS 143, “Accounting for Asset Retirement Obligations” was issued in 2001. This statement addresses financial accounting and reporting for legal obligations associated with the retirement of tangible long-lived assets and the associated retirement costs. In conjunction with the group-life method of accounting for asset costs, the Company historically accrued crosstie removal costs as a component of depreciation, which is not permitted under SFAS 143. As noted above, with the adoption of SFAS 143 in fiscal year 2003, CSX recorded pretax income of $93 million, $57 million after tax as a cumulative effect of an accounting change, representing the reversal of the accrued liability for crosstie removal costs. The adoption of SFAS 143 did not have a material effect on prior reporting periods, and the Company does not believe it will have a material effect on future earnings. On an ongoing basis, depreciation expense will be reduced, while labor and fringe and materials, supplies and other expense will be increased by approximately $12 million annually.

SFAS 148, “Accounting for Stock-Based Compensation — Transition and Disclosure” was issued in December 2002. SFAS 148 amends SFAS 123, “Accounting for Stock-Based Compensation,” to provide alternative methods of transition to Statement 123’s fair value method of accounting for stock-based employee compensation and require disclosure of the effects of an entity’s accounting policy with respect to stock-based employee compensation. Effective beginning with fiscal year 2003, CSX has voluntarily adopted the fair value recognition provisions of SFAS 123, “Accounting for Stock-Based Compensation,” and adopted the disclosure requirements of SFAS 148, “Accounting for Stock-Based Compensation — Transition and Disclosure — an amendment of SFAS 123.” In accordance with the prospective method of

adoption permitted under SFAS 148, stock-based awards issued subsequent to fiscal year 2002 are accounted for under the fair value recognition provisions of SFAS 123 utilizing the Black-Scholes valuation method and, accordingly, are expensed. (See Note 15, Stock Plans.)

In 2003, the Financial Accounting Standards Board (“FASB”) issued Interpretation No. 46, “Consolidation of Variable Interest Entities,” which requires a variable interest entity (“VIE”) to be consolidated by a company that is subject to a majority of the risk of loss from the variable interest entity’s activities or is entitled to receive a majority of the entity’s residual returns, or both. Interpretation No. 46 also requires disclosures about VIEs that the company is not required to consolidate but in which it has a significant variable interest. Also in 2003, Interpretation 46 (“46R”), a revision to FASB Interpretation No. 46 was issued, to clarify some of the provisions of, and to exempt certain entities from Interpretation 46 requirements. Under the new guidance, CSX will consolidate Four Rivers Transportation, Inc. (“FRT”), a shortline railroad, into its financial statements at the beginning of fiscal 2004. Presently, FRT is accounted for under the equity method of accounting. The adoption of Interpretation No. 46 will not have a material impact on results of operations in future reporting periods.

In 2002, the FASB issued Financial Accounting Standard Interpretation (“FASI”) No. 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others.” This statement requires that certain guarantees be recorded at fair value on the statement of financial position and additional disclosures be made about guarantees. CSX did not realize a financial statement impact with the adoption of the accounting provisions of this statement in fiscal year 2003 and does not anticipate a future impact. (See Note 18, Commitments and Contingencies.)

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

In 2002, SFAS 144, “Accounting for the Impairment or Disposal of Long-Lived Assets,” was issued. This statement requires that long-lived assets to be disposed of by sale are no longer measured on a net realizable value basis, and future operating losses are no longer recognized before they occur. In addition, this statement modifies the reporting requirements for discontinued operations. Long-lived assets, whether to be held for disposition or held and used, should be measured at the lower of its carrying amount or fair value less cost to dispose. The Company applied the provisions of this statement relating to the accounting for the conveyance of its wholly-owned subsidiary, CSX Lines, to a third party in 2003 (See Note 3, Divestitures). In addition, another of the Company’s subsidiaries, CSX World Terminals, was notified of a significant customer loss for 2004 and possible customer loss for 2005. Given these indicators, the Company evaluated the undiscounted cash flows estimated to be generated by this terminal, whose long-lived assets are recorded at $59 million and concluded that the forecasted future undiscounted cash flows exceeded the book value of its long-lived assets, therefore no impairment write-down is necessary at this time.

Rail operations are subject to the regulatory jurisdiction of the Surface Transportation Board (“STB”) of the United States Department of Transportation (“DOT”), the Federal Railroad Administration of DOT and other state and regulatory agencies. The regulation and legislation passed by these organization can significantly affect the costs and profitability of the Company’s business.

In response to the heightened threat of terrorism in the wake of the September 2001 attacks on the World Trade Center, Pentagon and airline infrastructure, federal, state and local regulatory agencies are evaluating various proposals with respect to the transportation industry. Some of these proposals relate to the transport of hazardous material. Certain metropolitan areas considered at high risk for a terrorist attack may be the subject of future regulation. The ultimate legislation passed by federal, state and local regulators related to issues of security has the potential to severely affect CSX’s operations and costs.

During the upcoming year, there are several key areas which continue to affect the operations and profitability of CSX. Management believes that the Company must remain focused on improving the efficiency of its rail network, reducing its operating expense and restoring higher service levels. General economic factors, including the cost of fuel, may also influence 2004 operating results.

Improving operating efficiency in Surface Transportation while maintaining volume is critical to success in lowering the operating ratio, and in turn improving financial performance. To do so, management believes that CSX must optimize its network routing, including a reduction in both gross ton miles and the number of times a car is handled or switched en route to the final destination. CSX is utilizing internal and external consultants to assist with the network optimization effort.

Fuel represents a significant expense of CSX Surface Transportation operations and was a factor in 2003 expense increases. Fuel prices can vary significantly from period to period and significantly impact future results. Although CSX has implemented a fuel price hedging program, it will remain subject to fuel price fluctuations for the majority of 2004 fuel purchases. Approximately 18% of 2004 fuel purchases are currently hedged at an average cost of 70 cents per gallon, exclusive of taxes and transportation costs. Each month, the Company is systematically increasing its hedged amount so that in July of 2005, 76% of the estimated fuel purchases should be hedged for a 24 month period.

CSX 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 CSX is working diligently to enhance its safety programs and to continue to raise the awareness levels of its employees concerning safety, the Company cannot ensure that it will not experience any material property damage, personal or occupational claims in the future or that we 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 which are outside of CSX’s control. CSX engages outside parties to assist with the evaluation of certain of the occupational and personal injury claims, and believes that it is adequately reserved to cover all potential claims. However, final amounts determined to be due to any outstanding matters may differ materially from the recorded reserves.

The ability of the Company to effectively implement the management restructuring will be an important factor in future success. Once complete, the organization of the Company should be conducive to enhanced accountability, faster, more reliable communication, better decision

making and a more competitive cost structure. Executing the restructuring while minimizing the impact of the possible disruption associated with the elimination of a significant portion of the Company’s existing management will be critical to the Company’s short-term success.

The ability of the Company to replace, in both the long and short-term, the business lost due to competitive pressures in the Hong Kong terminals market will have a direct impact on the profitability of the Company’s International Terminals segment. While management is diligently working to attract new customers, there can be no guarantee that new customers will be gained. Also, it is likely that the margins experienced in the past at the Company’s Hong Kong terminal operations will not continue for the near term, even if the lost volume is replaced. The International Terminals segment’s revenue and operating income represented approximately 3% and 11% of the Company’s consolidated revenues and operating income, respectively for 2003.

This Form 10-K contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act with respect to, among other items:


	•	projections and estimates of earnings, revenues, cost-savings, expenses, or other financial items;

	•	statements of management’s plans, strategies and objectives for future operations, and management’s expectations as to future performance and operations and the time by which objectives will be achieved;

	•	statements concerning proposed new products and services; and

	•	statements regarding future economic, industry or market conditions or performance.

Forward-looking statements are typically identified by words or phrases such as “believe”, “expect”, “anticipate”, “project”, and similar expressions. The Company cautions against placing undue reliance on forward-looking statements, which reflect its current beliefs and are based on information currently available to it as of the date the forward-looking statement is made. The Company undertakes no obligation to update or revise any forward-looking statement. If the Company does update any forward-looking statement, no inference should be drawn that the Company will make additional updates with respect to that statement or any other forward-looking statements.

Forward-looking statements are subject to a number of risks and uncertainties, and actual performance or results could differ materially from that anticipated by these forward-looking statements. Factors that may cause actual results to differ materially from those contemplated by these forward-looking statements include, among others:


	•	Operating factors — the Company’s success in implementing its financial and operational initiatives, the extent to which the Company is successful in gaining long-term relationships with new customers or retaining existing relationships with current customers, changes in operating conditions and costs, competition, commodity concentrations, computer viruses, changes in labor costs and labor difficulties including stoppages affecting either the Company’s operations or our customers’ ability to deliver goods to the Company for shipment, loss of essential services such as electricity, and natural occurrences such as extreme weather conditions, floods and earthquakes or other disruptions of the Company’s operations, systems, property or equipment;

	•	General economic and industry factors — material changes in domestic or international economic or business conditions, including those affecting the rail industry such as customer demand, effects of adverse economic conditions affecting shippers, adverse economic conditions in the industries and geographic areas that consume and produce freight, competition from other modes of freight transportation such as trucking,


		competition and consolidation within the transportation industry generally, changes in fuel prices and changes in securities and capital markets;

	•	Legal and regulatory factors — developments and changes in laws and regulations, the ultimate outcome of shipper and rate claims subject to adjudication, environmental investigations or proceedings and the outcome of other types of claims and litigation involving or affecting the Company.

Other important assumptions and factors that could cause actual results to differ materially from those in the forward-looking statements are specified elsewhere in this Annual Report and in the Company’s other SEC reports, accessible on the SEC’s website at www.sec.gov and the Company’s website at www.csx.com.

The information required by this item is included in Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” under the heading “Market Risk.”

We have audited the accompanying consolidated balance sheet of CSX Corporation and subsidiaries as of December 26, 2003 and December 27, 2002, and the related consolidated statements of income, cash flows, and changes in shareholders’ equity for each of the three fiscal years in the period ended December 26, 2003. These consolidated financial statements are the responsibility of the company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

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

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of CSX Corporation and subsidiaries at December 26, 2003 and December 27, 2002, and the consolidated results of their operations and their cash flows for each of the three fiscal years in the period ended December 26, 2003, in conformity with accounting principles generally accepted in the United States.

As discussed in Note 1 to the consolidated financial statements, in 2003 the Company changed its method of accounting for railroad tie removal costs and stock-based compensation, and in 2002 the Company changed its method of accounting for indefinite lived intangible assets.

CSX Corporation, including its majority-owned subsidiaries (collectively, “CSX” or “Company”), is a freight transportation company with principal business units providing rail, intermodal and international terminal services.


	•	Rail transportation services are provided principally throughout the Eastern United States and accounted for 79% of the Company’s 2003 operating revenue.

	•	Intermodal services are provided through a dedicated network of terminals and facilities across North America and accounted for 16% of operating revenue in 2003.

	•	International terminal operations are located in Asia, Europe, Australia and Latin America and accounted for 3% of operating revenues in 2003.

In 2003, CSX conveyed most of its interest in its domestic container-shipping subsidiary, CSX Lines LLC (“CSX Lines”), to a new venture formed with the Carlyle Group for approximately $300 million (gross cash proceeds of approximately $240 million, $214 million net of transaction costs and $60 million of securities). (See Note 3, Divestitures.)

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

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

The consolidated financial statements include CSX and its majority-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated. Investments in companies that are not majority-owned are carried at cost (if less than 20% owned and the Company has no significant influence) or equity (if the Company has significant influence).

CSX follows a 52/53 week fiscal reporting calendar. Fiscal years 2003, 2002 and 2001 consisted of 52 weeks. A 52-week fiscal year has four 13-week quarters. A 53-week year occurs periodically with the next one occurring in 2004. Fiscal years 2003, 2002 and 2001 ended on:

Basic earnings per share is calculated by dividing income available to common stockholders by the weighted-average number of common shares outstanding during the period. Earnings per share, assuming dilution, starts with the basic calculation described above and adjusts the denominator for the effect of potential dilution of common shares during the period, mainly from employee stock options. This difference increases the denominator for the additional common shares that would have been outstanding if these shares had been issued. Potentially dilutive common shares at CSX include stock options and awards, and shares that would be issued relating to convertible long-term debt. References to earnings per share in the Notes to Consolidated Financial Statements assume dilution.

On a daily basis, cash in excess of current operating requirements is invested in various highly liquid investments having a maturity of three months or less at the date of acquisition. These investments are carried at cost, which approximates market value, and are classified as cash equivalents.

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

All properties are stated at cost less an allowance for accumulated depreciation. Rail assets, including main-line track, locomotives and freight cars are depreciated using the group-life method. This method pools similar assets by road and equipment type and then depreciates each group as a whole. These assets represent approximately 94% of the Company’s total fixed assets and amounted to $12.9 billion on a net basis at December 26, 2003. The majority of other property is depreciated using the straight-line method on a per asset basis.

Regulations enforced by the Surface Transportation Board (“STB”) of the U.S. Department of Transportation require periodic formal studies of ultimate service lives for all railroad assets, which include:


	•	statistical analysis of historical retirements for each group of property

	•	evaluation of the current operations

	•	previous assessment of the condition of the assets and outlook for their continued use

	•	comparison of assets to the same asset groups with other companies.

The results of the life study process determine the service lives for each asset group under the group-life method. These studies are conducted by a third party expert and analyzed by the Company’s management. Resulting service life estimates are subject to review and approval by the STB. Road assets, including main-line track, have estimated service lives ranging from 5 (system roadway machinery) to 80 (grading) years. Equipment assets, including locomotives and freight cars, have estimated service lives ranging from 6 (vehicles) to 29 (work equipment) years.

Changes in asset lives due to the results of the life studies could significantly impact future periods depreciation expense and thus the Company’s results of operations. Events that could cause the Company to change its estimates relating to the lives of its asset groups could be changes in historical results, technological improvements and changes in specific assets. The Company completed life studies on road, track and equipment in 2003 and has partially reflected the results in its 2003 financial statements. As a result, the net increase in depreciation expense was $1 million in 2003, while the impact will be a decrease of approximately $13 million in 2004 and thereafter.

For retirements or disposals of depreciable rail assets that occur in the ordinary course of business, the asset cost (net of salvage value or sales proceeds) is charged to accumulated depreciation and no gain or loss is recognized. For retirements or disposals of non-rail depreciable assets, infrequent disposal of rail assets outside the normal course of business and for all dispositions of land, the resulting gains or losses are recognized at the time of disposal. Expenditures that significantly increase asset values or extend useful lives are capitalized. Repair and maintenance expenditures are charged to operating expense when the work is performed.

Properties and other long-lived assets are reviewed for impairment whenever events or business conditions indicate the carrying amount of such assets may not be fully recoverable. Initial assessments of recoverability are based on estimates of undiscounted future net cash flows associated with an asset or a group of assets in accordance with SFAS 144. Where impairment is indicated, the assets are evaluated, and their carrying amount is reduced to fair value based on undiscounted net cash flows or other estimates of fair value.

The FASB is currently considering the proposed Statement of Position (SOP), “Accounting for Certain Costs and Activities related to Property, Plant and Equipment” If this SOP is issued, certain costs and activities that are currently capitalized may require immediate expense recognition and alternatively, some costs and activities that are currently expensed may require capitalization. In addition, the SOP would require additional refinement in asset componentization. potentially altering the amount of depreciation expense recognized. The Company is currently evaluating the potential impact on the financial statements, but is not yet in a position to determine what effect it may have if passed by the FASB. However, the effect could be material.

Surface Transportation (rail and intermodal) revenue and expense are recognized proportionately as freight moves from origin to destination. Prior to the conveyance of CSX Lines in 2003, container-shipping revenue, and a corresponding accrual for the estimated cost to complete delivery, was recorded when cargo first sailed from its port of origin. International Terminals revenue and expense are recognized when vessels depart from the terminal. All other revenue is recorded upon completion of service.

Casualty reserves represent accruals for the uninsured portion of occupational injury and personal injury claims. These reserves are recorded upon the first reporting of a claim, and estimates are updated as information develops. The amount of liability accrued is based on the type and severity of the claim and an estimate of future claims development based on current trends and historical data. The Company believes it has recorded liabilities in sufficient amounts to cover all identified claims and estimates of incurred but not reported personal injury and accident claims. In 2003, the Company changed its estimate of casualty reserves to also include an estimate of incurred but not reported claims for asbestos and other occupational injuries to be received over the next seven years. Other occupational claims include allegations of exposure to certain materials in the work place, such as solvents and diesel fuel, or alleged physical injuries, such as carpal tunnel syndrome or hearing loss. In conjunction with the change in estimate, in 2003 the Company recorded a charge of $206 million to increase its provision for these claims. Approximately $141 million of this amount relates to asbestos claims. Additionally, the provision for personal injury claims was increased by $26 million as a result of a change in estimate.

Personal and occupational injury liabilities amount to $864 million and $605 million at December 26, 2003 and December 27, 2002, respectively.

The Company incurs costs for environmental corrective efforts, such as the study and clean-up of environmental contamination. 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. Liabilities for environmental corrective efforts are recorded when CSX’s responsibility is (1) deemed probable and (2) the amount can be reasonably estimated. Generally, the timing of these accruals coincides with the completion of a feasibility study or the Company’s commitment to a formal plan of action. Environmental reserves at December 26, 2003 and December 27, 2002 were $45 million and $35 million, respectively.

Effective beginning with fiscal year 2003, CSX voluntarily adopted the fair value recognition provisions of SFAS 123, “Accounting for Stock-Based Compensation,” and adopted the disclosure requirements of SFAS 148, “Accounting for Stock-Based Compensation — Transition and Disclosure — an amendment of SFAS 123.” In accordance with the prospective method of adoption permitted under SFAS 148, the Company has adopted the fair value recognition provisions on a prospective basis and accordingly, expense of $5 million was recognized in the year ended December 26, 2003 for stock options granted in May 2003. Additionally, $3 million of other stock-based compensation was recorded pursuant to other stock compensation arrangements, but was offset by an expense reversal related to a retirement. The following table sets forth net earnings and the pro-forma computation of basic earnings per share and earnings per

share, assuming dilution had stock compensation expense been determined based on the fair values of stock awards at the date of grant:

CSX reports comprehensive earnings (loss) in accordance with SFAS 130, “Reporting Comprehensive Income,” in the Consolidated Statement of Changes in Shareholders’ Equity. Comprehensive earnings is defined as all changes in shareholders’ equity during a period, other than those resulting from investments by and distributions to shareholders (i.e. issuance of equity securities and dividends). Accumulated other comprehensive loss at December 26, 2003 and December 27, 2002 consists primarily of minimum pension liabilities.

The Company recognizes all derivatives as either assets or liabilities in the statement of financial position and measures those instruments at fair value.

The Company has entered into several interest rate swaps as part of its program to address interest rate market risk exposure. CSX’s interest rate swaps are designated and qualify as fair value hedges under SFAS 133, “Accounting for Derivative Instruments and Hedging Activities.” For derivative instruments that are designated and qualify as a fair value hedge, the gains and losses on the derivative instrument, as well as the offsetting gain or loss on the hedged item attributable to the hedged risk, are recognized in current earnings during the period of change in fair values. If the change in the value of the hedging instrument offsets the change in the value of the hedged item, the hedge is considered perfectly effective. The accounting for hedge effectiveness is measured at least quarterly based on the relative change in fair value between the derivative contract and the hedged item over time. Any change in fair value resulting from ineffectiveness, the amount by which the change in the value of the hedge does not exactly offset the change in the value of the hedged item, is recognized immediately in earnings. The Company’s interest rate swaps qualify as perfectly effective fair value hedges. As such, there is

no ineffective portion to the hedge recognized in earnings. Adjustments to the fair value of the interest rate swap agreements are recorded in other assets and other liabilities.

The differential to be paid or received under these agreements is accrued consistently with 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 liabilities or assets. Cash flows related to interest rate swap agreements are classified as “Operating activities” in the Cash Flow Statement.

In 2003, CSX began a program to hedge a portion of its 2004 and 2005 locomotive fuel purchases. In order to minimize exposure to fuel price fluctuation risk, the Company has entered into a series of swaps in order to fix the price of a portion of its estimated future fuel purchases.

The program limits fuel hedges to a 24-month duration and a maximum of 80% of CSX’s average monthly fuel purchased for any month within the 24-month period, and places the hedges among selected counterparties. Fuel hedging activity did not have an effect on fuel expense for the year ended December 26, 2003. 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, is recorded in fuel expense and is 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 quoted market prices and are recorded on the balance sheet with offsetting adjustments to Accumulated Other Comprehensive Income, a component of Shareholders’ Equity. This amount was approximately $6 million as of December 26, 2003. Fair value adjustments are noncash transactions, and accordingly, are excluded from the Cash Flow Statement.

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

Statement of Financial Accounting Standard (“SFAS”) 143, “Accounting for Asset Retirement Obligations” was issued in 2001. This statement addresses financial accounting and reporting for legal obligations associated with the retirement of tangible long-lived assets and the associated retirement costs. In conjunction with the group-life method of accounting for asset costs, the Company historically accrued crosstie removal costs as a component of depreciation, which is not permitted under SFAS 143. With the adoption of SFAS 143 in fiscal year 2003, CSX recorded pretax income of $93 million, $57 million after tax as a cumulative effect of an accounting change, representing the reversal of the accrued liability for crosstie removal costs. The adoption of SFAS 143 did not have a material effect on prior reporting periods, and the Company does not believe it will have a material effect on future earnings. On an ongoing basis, depreciation expense will be reduced, while labor and fringe and materials, supplies and other expense will be increased by approximately $12 million annually.

entity’s accounting policy with respect to stock-based employee compensation. Effective beginning with fiscal year 2003, CSX has voluntarily adopted the fair value recognition provisions of SFAS 123, “Accounting for Stock-Based Compensation,” and adopted the disclosure requirements of SFAS 148, “Accounting for Stock-Based Compensation — Transition and Disclosure — an amendment of SFAS 123.” In accordance with the prospective method of adoption permitted under SFAS 148, stock-based awards issued subsequent to fiscal year 2002 are accounted for under the fair value recognition provisions of SFAS 123 utilizing the Black-Scholes valuation method and, accordingly, are expensed. (See Note 15, Stock Plans.)

In 2003, the Financial Accounting Standards Board (“FASB”) issued Interpretation No. 46, “Consolidation of Variable Interest Entities,” requires a variable interest entity (“VIE”) to be consolidated by a company that is subject to a majority of the risk of loss from the variable interest entity’s activities or is entitled to receive a majority of the entity’s residual returns, or both. Interpretation No. 46 also requires disclosures about VIEs that the company is not required to consolidate but in which it has a significant variable interest. Also in 2003, Interpretation 46 (“46R”), a revision to FASB Interpretation No. 46, to clarify some of the provisions of, and to exempt certain entities from Interpretation 46 requirements. Under the new guidance, CSX will consolidate Four Rivers Transportation, Inc. (“FRT”), a short-line railroad, into its financial statements beginning December 27, 2003. Presently, FRT is accounted for under the equity method of accounting. The adoption of Interpretation No. 46 will not have a material impact on future reporting periods.

In 2002, the FASB issued Financial Accounting Standard Interpretation (“FASI”) No. 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others.” This statement requires that certain guarantees be recorded at fair value on the statement of financial position and additional disclosures be made about guarantees. CSX adopted the accounting provisions of this statement in fiscal year 2003. (See Note 18, Commitments and Contingencies.)

addition, another of the Company’s subsidiaries, CSX World Terminals, was notified of a significant customer loss for 2004 and possible customer loss for 2005. Given these indicators, the Company evaluated the undiscounted cash flows estimated to be generated by this terminal, whose long-lived assets are recorded at $59 million and concluded that the forecasted future undiscounted cash flows exceeded the book value of its long-lived assets, therefore no impairment write-down is necessary at this time.

Certain prior-year data has been reclassified to conform to the 2003 presentation.

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


	1.	Casualty, legal and environmental reserves

	2.	Pension and postretirement medical plan accounting

	3.	Depreciation polices for its assets under the group-life method

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

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

In June 2003, CSX, Norfolk Southern Corporation (“NS”) and Conrail jointly filed a petition with the Surface Transportation Board (“STB”) to establish direct ownership and control by CSX’s and NS’ respective subsidiaries, CSX Transportation Inc. (“CSXT”) and Norfolk Southern Railway (“NSR”) of their portions of the Conrail system already operated by them separately and independently under various agreements. These portions of the Conrail system are currently owned by Conrail’s subsidiaries, New York Central Lines (“NYC”) and Pennsylvania Lines LLC (“PRR”). The ownership of NYC and PRR would be transferred (“spun off”) to CSXT and NSR, respectively. Conrail would continue to own, manage and operate the Shared Asset Areas as previously approved by the STB. STB approval to proceed with the spin-off transaction and a

favorable ruling from the IRS qualifying the transaction as a non-taxable disposition were received in November 2003. The transaction remains subject to a number of other conditions.

CSX, NSR and Conrail are working to complete all necessary steps to consummate the spin-off transaction in 2004. Upon consummation of the proposed transaction, CSX’s investment in Conrail will no longer include the amounts related to NYC and PRR. Instead the assets and liabilities or NYC will be reflected in their respective line items in CSX’s consolidated balance sheet. Conrail will continue to own, manage and operate the Shared Asset Areas.

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


	1. Right of way usage fees and equipment rental payments to Conrail

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

	3. Amortization of the fair value write-up arising from the acquisition of Conrail

	4. CSX’s 42% share of Conrail’s net income recognized under the equity method of accounting

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

The agreement under which CSXT operates its allocated portion of the Conrail route system has an initial term of 25 years and may be renewed at CSXT’s option for two five-year terms.

Operating fees paid to Conrail under the agreement are subject to adjustment every six years based on the fair value of the underlying system. Lease agreements for the Conrail equipment operated by CSXT cover varying terms. CSXT is responsible for all costs of operating, maintaining, and improving the routes and equipment under these agreements.

On December 26, 2003, future minimum payments to Conrail under the operating, equipment and shared area agreements were as follows:

In the event of the consummation of the spin-off transaction, the future minimum payments will be reduced.

In February 2003, CSX conveyed most of its interest in its domestic container-shipping subsidiary, CSX Lines LLC (“CSX Lines”), to a new venture formed with the Carlyle Group for approximately $300 million (gross cash proceeds of approximately $240 million, $214 million net of transaction costs and $60 million of securities). CSX Lines was subsequently renamed Horizon Lines LLC (“Horizon”). Horizon has subleased vessel and equipment from certain affiliates of CSX covering the primary financial obligations related to $300 million of leases under which CSX or one of its affiliates will remain a lessee/ sublessor or guarantor. A deferred pretax gain of approximately $127 million as a result of the transaction will be recognized over the 12-year sub-lease term. Approximately $9 million of this gain was recognized in 2003. The securities have a term of 7 years and a preferred return feature. During the third quarter, CSX received a $15 million payment from Horizon Lines, which included $3 million of interest, in return of a portion of its investment in Horizon and now holds $48 million of securities.

Also in 2003, the Company recorded a $10 million restructuring charge related to another workforce reduction program. Substantially all of this amount had been paid out at December 26, 2003.

Earnings from domestic and foreign operations and related income tax expense are as follows:

The primary factors in the change in year-end net deferred income tax liability balances include:


	•	Annual provision for deferred income tax expense

	•	Minimum pension liability

	•	Cumulative effects of accounting changes

The Company has not recorded domestic deferred or additional foreign income taxes related to undistributed earnings of foreign subsidiaries that are considered to be indefinitely reinvested. These earnings amounted to $387 million, $341 million and $291 million at December 26, 2003, December 27, 2002 and December 28, 2001, respectively. These amounts may become taxable upon their remittance as dividends or upon the sale or liquidation of these foreign subsidiaries. It is not practical to determine the amount of net additional income tax that may be payable if such earnings were repatriated.

The Company files a consolidated federal income tax return, which includes its principal domestic subsidiaries. Examinations of the federal income tax returns of CSX have been completed through 1993. Tax returns for 1994 through 2002 currently are under examination. Management believes adequate provision has been made for any adjustments that might be assessed.

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

Income tax expense reconciled to the tax computed at statutory rates is as follows:

The decrease in the effective income tax rate is attributable to a larger portion of the Company’s earnings being earned in foreign jurisdictions with statutory income tax rates below the U.S. statutory income tax rate and the cumulative impact of adjustments to the deferred effective state income tax rate due to favorable state tax regulations.

During 2003, CSXT discontinued the sale of accounts receivable, which resulted in a $380 million increase in accounts receivable. Previously, CSXT sold, without recourse, a revolving pool of accounts receivable to CSX Trade Receivables Corporation (“CTRC”), a bankruptcy-remote entity wholly-owned by CSX Corporation. CTRC transferred the accounts receivable to a master trust and caused the trust to issue multiple series of certificates representing undivided interests in the receivables. The certificates issued by the master trust were sold to investors, and the proceeds from those sales were paid to CSXT.

Two series of certificates were outstanding as of December 27, 2002. One series in the amount of $300 million was sold to investors in 1998 and matured in June 2003. A second series of $200 million was sold to a private entity in 2000 and matured in June 2003 as well. As of December 27, 2002, the amounts sold under the private and public series were $80 million and $300 million respectively. The amount retained in the master trust at December 27, 2002 was $534 million. The fair value of retained interests approximated book value as the receivables were collected in approximately one month.

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

The Company maintains an allowance for doubtful accounts based on the expected collectibility of all accounts receivable. The allowance for doubtful accounts is included in the balance sheet as follows:

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

Casualty reserves represent accruals for the uninsured portion of occupational injury and personal injury claims. In the third quarter of 2003, the Company changed its estimate of casualty reserves to include an estimate of incurred but not reported claims for asbestos and other occupational injuries to be received over the next seven years. Other occupational claims include allegations of exposure to certain materials in the work place, such as solvents and diesel fuel, or alleged physical injuries, such as carpal tunnel syndrome or hearing loss.

In conjunction with the 2003 change in estimate, the Company recorded a charge of $232 million to increase its provision for casualty reserves. Approximately $141 million relates to asbestos claims.

During 2003, the Company retained third party professionals to work with it to project the number of asbestos and other occupational injury claims to be received over the next seven years and the related costs. Based on this analysis the Company established reserves for the probable and reasonably estimable asbestos and other occupational injury liabilities.

The methodology used by the third party to project future occupational injury claims was based largely on CSX’s recent experience, including claim-filing and settlement rates, injury and disease mix, open claims and claim settlement costs. However, projecting future occupational injury claims and settlements costs is subject to numerous variables that are difficult to predict. In addition to the significant uncertainties surrounding the number of claims that might be received, other variables, including the type and severity of the injury or disease alleged by each claimant, the long latency period associated with exposure, dismissal rates, costs of medical treatment, uncertainties surrounding the litigation process from jurisdiction to jurisdiction and from case to case and the impact of changes in legislative or judicial standards, may cause actual results to differ significantly from estimates. Furthermore, predictions with respect to these variables are subject to greater uncertainty as the projection period lengthens. In light of these uncertainties, CSX believes that seven years is the most reasonable period for estimating future claims, and that claims received after that period are not reasonably estimable.

CSX increased its reserve for asbestos and other occupational claims by a net $206 million to cover the estimate of incurred but not reported claims to be filed during the next seven years. Reflecting the additional provisions, CSX’s reserve for asbestos and other occupational claims on

an undiscounted basis amounted to $345 million at December 26, 2003, compared to $171 million at December 27, 2002.

Approximately 5,500 of the open claims above are asbestos claims against the Company’s previously owned international container-shipping business, Sea-Land. Because the Sea-Land claims are claims against multiple vessel owners, the Company’s reserves reflect its portion of those claims. The remaining open claims have been asserted against CSX Transportation. At December 26, 2003 and December 27, 2002, the Company had approximately $13 million and $10 million reserved for the Sea-Land claims.

Estimates for these claims are subject to significant uncertainty relating to the outcomes of negotiated settlements and other developments. As facts and circumstances change, the Company may have to change its estimates, and changes could have a material impact on the Company’s financial results. Such events as adverse verdicts, catastrophic accidents and legal settlements will cause the Company to revise its estimated liabilities, which the Company reviews and appropriately adjusts quarterly.

During 2003, CSX retained an independent actuarial firm to assess the value of CSX’s personal injury portfolio. This firm’s methods and procedures yielded a slightly higher valuation for personal injury claims than previously recognized by CSX due to a higher estimated cost for adverse development. Utilizing the analysis provided, CSX increased its reserves for alleged personal injury claims by $26 million.

Separation liabilities at December 26, 2003, include productivity charges recorded in 1991 and 1992 to provide for the estimated costs of implementing workforce reductions, improvements in productivity and other cost reductions at the Company’s major transportation units. The remaining separation liabilities are expected to be paid out over the next 15 to 20 years.

In 2003, the Company recorded a $22 million pretax credit related to revised estimates for railroad retirement taxes and the amount of benefits that will be paid to individuals under the $1.3 billion charges initially recorded in 1991 and 1992. This amount is netted with separation expenses related to the 2003 Management Restructuring, as discussed in Note 4.

At least once each quarter, CSXT reviews its role with respect to each such location, giving consideration to a number of factors, including the type of cleanup required, the nature of CSXT’s alleged connection to the location (e.g., generator of waste sent to the site, or owner or operator of the site), the extent of CSXT’s alleged connection (e.g., volume of waste sent to the location and other relevant factors), the accuracy and strength of evidence connecting CSXT to the location, and the number, connection, and financial viability of other named and unnamed PRP’s at the location.

Based on the review process, CSXT has recorded reserves to cover estimated contingent future environmental costs with respect to such sites. The recorded liabilities for estimated future environmental costs at December 26, 2003, and December 27, 2002 were $45 million and $35 million, respectively. These liabilities, which are undiscounted, include amounts representing CSXT’s estimate of unasserted claims, which CSXT believes to be immaterial. The liability includes future costs for all sites where the Company’s obligation is (1) deemed probable and (2) where such costs can be reasonably estimated. The liability includes future costs for remediation and restoration of sites as well as any significant ongoing monitoring costs, but excludes any anticipated insurance recoveries. The majority of the December 26, 2003 environmental liability is expected to be paid out over the next seven years.

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.

In December 2003, CSX executed a $75 million revolving loan that matures in 2005. Borrowings under the facility will bear interest at a rate that fluctuates with LIBOR. In addition, the Company pays an annual commitment fee of 0.15% for the period the facility is not drawn. This debt may be redeemed at any time after May 2004, with additional borrowings allowed through the maturity of the facility. As of December 26, 2003, the Company had $75 million in aggregate principal amount outstanding under this borrowing.

In November 2003, CSX issued $200 million aggregate principal amount of the Company’s Notes due 2014 and $200 million aggregate principal amount of the Company’s Notes due 2006. The 2014 Notes bear interest at the rate of 5.30% per year and mature on February 15, 2014. The 2006 Notes bear interest at the rate of 2.75% per year and will mature on February 15, 2006. The 2014 Notes may be redeemed by the Company at any time, but the 2006 Notes cannot be redeemed before maturity.

In August 2003, the Company issued $300 million aggregate principal amount Notes due in 2013. These Notes bear interest at the rate of 5.5% and mature on August 1, 2013. The Notes may be redeemed by the Company at any time.

During 2002, CSX issued $200 million of 4.88% notes due in 2009 and $400 million of 6.30% notes due in 2012.

The Company has a $1 billion five-year revolving credit facility and a $345 million 364-day revolving credit facility. Generally these facilities may be used to support the Company’s

commercial paper, working capital and other general corporate purposes. Under the 364-day facility, the Company pays an annual fee to the participating banks of .125% of total commitment. Under the five-year facility, the Company pays annual fees to the participating banks that may range from 0.08% to 0.23% of total commitment, depending on the Company’s credit rating. As of December 26, 2003, the Company had no borrowings outstanding under these facilities. CSX had commercial paper borrowings supported by these credit facilities of $140 million at the end of 2002.

In October 2001, CSX issued $564 million aggregate principal amount at maturity in unsubordinated zero coupon convertible debentures (the “debentures”) due October 30, 2021 for an initial offering price of approximately $462 million. At December 26, 2003 and December 27, 2002, outstanding debentures are included in long-term debt, at a carrying value of $447 million and $467 million, respectively. These debentures accrete in value at a yield to maturity of 1% per year. The accretion rate may be reset on October 30, 2007, October 30, 2011, and October 30, 2016 to a rate based on five-year United States Treasury Notes minus 2.8%. In no event, however, will the yield to maturity be reset below 1% or above 3% per annum. Accretion in value on the debentures is recorded for each period, but will not be paid prior to maturity.


(a)	The fair market value of the interest rate swap agreements of $55 million, which is included in long-term debt on the balance sheet, is not included on the debt maturity schedule.

Certain of CSX’s rail unit properties are pledged as security for various rail-related long-term debt issues. In addition, the Company has approximately $111 million in assets which are specifically designated to fund an equal amount of long-term debt.

CSX has entered into various interest rate swap agreements to hedge the fair value of the following fixed rate notes:

Under these agreements, the Company will pay variable interest based on LIBOR in exchange for a fixed rate, effectively transforming the notes to floating rate obligations. The instruments qualify, and are designated, as fair value hedges.

The interest rate swap agreements are designated and qualify as fair value hedges and the gain or loss on the derivative instrument, as well as the offsetting gain or loss on the fixed rate note attributable to the hedged risk, are recognized in current earnings during the period of change in fair values. Hedge effectiveness is measured at least quarterly based on the relative change in fair value of the derivative contract in comparison with changes over time in the fair value of the fixed rate notes. Any change in fair value resulting from ineffectiveness, as defined by SFAS 133, “Accounting For Derivative Instruments and Hedging Activities,” is recognized immediately in earnings. The Company’s interest rate swaps qualify as perfectly effective fair value hedges, as defined by SFAS 133. As such, there was no ineffective portion to the hedge recognized in earnings during the current or prior year periods. Long-term debt has been increased by $55 million and $78 million for the fair market value of the interest rate swap agreements at December 26, 2003 and December 27, 2002, respectively.

The differential to be paid or received under these agreements is accrued based on the terms of the agreements and is recognized in interest expense over the term of the related debt. The related amounts payable to, or receivable from, counterparties are included in other current liabilities or assets. Cash flows related to interest rate swap agreements are classified as “Operating Activities” in the Consolidated Cash Flow Statement. For the years ended December 26, 2003 and December 27, 2002, the Company reduced interest expense by approximately $44 million and $34 million, respectively, as a result of the interest rate swap agreements that were in place during that year.

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

In 2003, CSX began a program to hedge a portion of its 2004 and 2005 locomotive fuel purchases. This program was established to manage exposure to fuel price fluctuations. In order

to minimize this risk, CSX has entered into a series of swaps in order to fix the price of a portion of its estimated future fuel purchases.

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 quoted marked prices and are recorded on the balance sheet with offsetting adjustments to Accumulated Other Comprehensive Income, a component of Shareholders’ Equity. As of December 26, 2003 this component was $6 million after tax. The amounts recorded in accumulated other comprehensive income will be recorded in earnings in the period in which the hedged fuel is consumed. Fair value adjustments are noncash transactions, and accordingly, are excluded from the Cash Flow Statement.

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

Holders of Common Stock are entitled to one vote on all matters requiring a vote for each share held. Preferred Stock is senior to common stock with respect to dividends and upon liquidation of the Company.

Prior to October 2003, 3,000,000 shares had been designated as Series B Preferred Stock in conjunction with the Company’s Shareholder Rights Plan. In October 2003, the expiration date of the shareholder rights under the Shareholder Rights Plan was accelerated, resulting in the effective termination of the Plan, and the Company’s Articles of Incorporation were amended to eliminate the designation of shares for Series B Preferred.

Accumulated other comprehensive loss in the Consolidated Statement of Changes in Shareholders’ Equity consists of the following:

Other comprehensive income in 2002 and 2001 represented adjustments to the minimum pension liability, net of taxes of $152 million and $10 million, respectively.

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

Earnings per share are based on the weighted average number of common shares outstanding. Earnings per share, assuming dilution, are based on the weighted average number of common shares outstanding adjusted for the effect of potential common shares outstanding during the period, mainly arising from the exercise of employee stock options. Potential common shares at CSX include stock options and awards and shares that would be issued relating to convertible long-term debt.

Certain potential common shares (convertible debt and stock options) for all three years shown were not included in the computation of earnings per share, assuming dilution, since their exercise or conversion prices were greater than the average market price of the common shares during the period and, therefore, their effect is antidilutive. These potential common shares were as follows:

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

The Company maintains several stock option and award plans designed to encourage ownership of its stock and provide incentives for employees to contribute to its success.

Effective beginning with fiscal year 2003, CSX voluntarily adopted the fair value recognition provisions of SFAS 123, “Accounting for Stock-Based Compensation,” and adopted the disclosure requirements of SFAS 148, “Accounting for Stock-Based Compensation — Transition and Disclosure — an amendment of SFAS 123.” Under SFAS 123, all stock based awards will be expensed at fair value. In accordance with the prospective method of adoption permitted under SFAS 148, the Company has adopted the fair value recognition provisions on a prospective basis. Previously, the Company accounted for stock-based compensation under the intrinsic-value method of Accounting Principles Board Opinion (APB) No. 25, “Accounting to Stock Issued to Employees.” Under APB 25, CSX expensed amounts associated with stock-based awards and disclosures were required for any stock option awards.

Total compensation expense associated with stock based compensation was $5 million, $6 million and $9 million in 2003, 2002 and 2001, respectively.

CSX stock option and award plans provide primarily (1) stock options and (2) restricted stock awards (“RSAs”) to eligible officers and employees. Awards granted under the various plans are determined by the board of directors.

At December 26, 2003, there were 3,554 current or former employees with grants outstanding under the various plans. A total of approximately 39 million shares were reserved for issuance under the plans of which 9 million were available for new grants. The remaining shares are assigned to outstanding stock options and stock awards.

The fair value of options granted in 2003, 2002 and 2001 was estimated as of the dates of grant using the Black-Scholes option model.

The majority of stock options have been granted with 10-year terms. Options outstanding at December 26, 2003, are generally exercisable three to ten years after date of grant. The exercise price for options granted equals the market price of the underlying stock on the date of grant. A summary of the Company’s stock option activity and related information for the fiscal years ended December 26, 2003, December 27, 2002 and December 28, 2001 follows:

The following table summarizes information about stock options outstanding at December 26, 2003:

During the years ended December 26, 2003 and December 27, 2002, 0.3 million and 1.0 million options, respectively, were exercised.

At December 26, 2003 and December 27, 2002, 248,500 and 469,500 RSAs, respectively were outstanding. The RSA’s outstanding at December 26, 2003, vest over a three- to five-year employment period. The weighted-average fair value of RSAs was $30.97 as of the date of grant. Approximately $2 million, $6 million and $9 million was expensed in 2003, 2002 and 2001, respectively, in connection with restricted stock awards.

The Stock Purchase and Loan Plan (“SPLP”) provided for the purchase of common stock and related rights by eligible officers and key employees of the Company and entitled them to obtain loans with respect to the shares purchased. There were no shares issued, withdrawn, exchanged or cancelled under the SPLP in 2003, 2002 or 2001. The Plan expired in 2003. There were approximately 70,000 shares outstanding in 2002 and 2001, respectively, under this program.

The 2001 Employee Stock Purchase Plan (“ESPP”) allows eligible employees to purchase CSX common stock at a discount. Specifically, participating employees were able to purchase CSX stock at the lower of 85% of fair market value on December 1 (beginning of the annual offering period) or 85% of fair market value on November 30 of the following year (end of the annual offering period). In effect, employees received a 12-month stock option to purchase Company stock. Once purchased, the shares were unrestricted and could generally be sold or transferred at any time. Approximately 540,000 shares and 570,000 shares were purchased by employees under this plan during 2003 and 2002, respectively. This plan was not extended for 2004.

The predecessor to the 2001 ESPP was the 1991 Employee Stock Purchase and Dividend Reinvestment Plan. Employees purchased 25,565 shares under the plan in 2001 at a weighted-average market price of $30.43.

The Company maintains the Shareholder Dividend Reinvestment Plan under which shareholders may purchase additional shares of stock. At December 26, 2003, there were 4,626,035 shares available for issuance under this plan.

The Stock Plan for Directors, approved by the shareholders in 1992, governs in part the manner in which directors’ fees and retainers are paid. A minimum of 40% of the retainers must be paid in common stock of the Company. In 2004, the minimum retainer to be paid in stock increases to 50%. In addition, each director may elect to receive up to 100% of the remaining retainer and fees in the form of common stock of the Company. In 1997, shareholders approved amendments to the Plan that would permit additional awards of stock or stock options. In 2003, 36,219 shares of stock were issued to the directors, resulting in $1 million of expense. In 2002, 45,195 shares of stock were issued to the directors, resulting in $1 million of expense. In 2001, 52,000 stock options were granted with an exercise price of $35.08. The Plan permits each director to elect to transfer stock into a trust that will hold the shares until the participant’s death,

disability, retirement as a director, other cessation of services as a director, or change in control of the Company. At December 26, 2003, there were 0.6 million shares of common stock reserved for issuance under this Plan.

Fair values of the Company’s financial instruments are estimated by reference to quoted prices from market sources and financial institutions, as well as other valuation techniques. Long-term debt is the only financial instrument of the Company with fair values significantly different from their carrying amounts. At December 26, 2003, the fair value of long-term debt, including current maturities, was $7.8 billion, compared with a carrying amount of $7.3 billion. At December 27, 2002, the fair value of long-term debt, including current maturities, was $7.4 billion, compared with a carrying amount of $6.9 billion. The fair value of long-term debt has been estimated using discounted cash flow analysis based upon the Company’s current incremental borrowing rates for similar types of financing arrangements. The Company’s interest rate swap agreements at December 26, 2003 and December 27, 2002 had a positive value of $55 and $78 million, respectively. The Company’s fuel hedging agreements at December 26, 2003 had a positive value of $9 million. CSX had no fuel hedge agreements at December 27, 2002.

In addition to the defined benefit pension plans, the Company sponsors three plans that provide medical and life insurance benefits to most full-time salaried employees upon their retirement. The postretirement medical plans are contributory (partially funded by retiree), with retiree contributions adjusted annually. The life insurance plan is non-contributory.

The benefit obligation for these plans represents the liability of the Company for current and retired employees and is affected primarily by the following:


	1.	Service cost (benefits attributed to employee service during the period)

	2.	Interest cost (interest on the liability due to the passage of time)

	3.	Actuarial gains/losses (experience during the year different from that assumed and changes in plan assumptions)

	4.	Benefits paid to participants

Plan assets are amounts that have been segregated and restricted to provide benefits, and include amounts contributed by the Company and amounts earned from investing contributions, less benefits paid. The Company uses a plan year of October 1 through September 30 to value its pension and postretirement plans on an actuarial basis. The Company funds the cost of the postretirement medical and life insurance benefits on a pay-as-you go basis. The pension plans are funded at not less than the minimum funding standards set forth in the Employee Retirement

Income Security Act of 1974. The distribution of pension plan assets as of the September 30, 2003 measurement date is as follows:

CSX has established a target allocation of 60% equity and 40% fixed income investments. Further diversification and risk control is achieved by policy allocations to various equity styles and investment managers. Allocations are maintained at within 3% of targets. No leverage or investment in CSX securities is allowed. The goal is to maintain assets at or above benefit obligations (long-term liabilities) without corporate contributions.

CSX expects to make cash contributions of $14 million to its pension plan in 2004.


(1)	Postretirement benefits reflects the impact of changing the plan benefit for individuals retiring after February 2003 which caps the employer cost at $8,000 (plus $7,000 for spouses).

The funded status, or amount by which the benefit obligation exceeds the fair value of plan assets, represents a liability. At December 26, 2003, the status of CSX plans is as follows:

The following table shows the reconciliation of the funded status of the plan with the amount recorded in the statement of financial position:

A liability is recognized if net periodic pension cost (cost of a pension plan for a period, including service cost, interest cost, actual return on plan assets, gain or loss, amortization of unrecognized prior service cost) recognized exceeds amounts the employer has contributed to the plan. An asset is recognized if net periodic pension cost is less than amounts the employer has contributed to the plan.

The $13 million termination charge in 2003 represents a curtailments charge associated with the retirement of the Company’s former Chairman and Chief Executive Officer. The $10 million charge was the result of a workforce reduction program that occurred in 2001.

During 2003 and 2002, CSX recorded changes in its minimum pension liability. These changes did not affect net earnings, but are a component of accumulated other comprehensive loss on an after-tax basis. In 2003, the minimum pension liability increased by $6 million, reducing accumulated other comprehensive income by $3 million after tax. In 2002, the minimum pension liability increased by $398 million, reducing accumulated other comprehensive income by $248 million after tax. The Company also recorded $10 million and $25 million after tax effect of accumulated other comprehensive income, relating to Conrail’s minimum pension liability for December 26, 2003 and December 27, 2002, respectively.

The net postretirement benefit obligation was determined using the assumption that the health care cost trend rate for medical plans was 11% for 2003 and 2002, decreasing gradually to 4.5% by 2012 and remaining at that level thereafter. A 1% change in the assumed health care cost trend rate would have the following effects:

The Company maintains savings plans for virtually all full-time salaried employees and certain employees covered by collective bargaining agreements. Expense associated with these plans was $15 million, $15 million and $16 million for 2003, 2002 and 2001, respectively.

Under collective bargaining agreements, the Company participates in a number of union-sponsored, multi-employer benefit plans. Payments to these plans are made as part of aggregate assessments generally based on number of employees covered, hours worked, tonnage moved or a combination thereof. Total contributions of $360 million, $315 million and $292 million were made to these plans in 2003, 2002 and 2001, respectively.

The Company has various lease agreements with other parties with terms up to 42 years. Non-cancelable, long-term leases generally include provisions for maintenance, options to purchase and options to extend the terms.

At December 26, 2003, minimum building and equipment rentals under these operating leases are as follows:

Rent expense on operating leases totaled $564 million in 2003, $605 million in 2002 and $629 million in 2001. These amounts include net daily rental charges on railroad operating equipment aggregating $297 million, $295 million, and $289 million in 2003, 2002 and 2001, respectively which are not long-term commitments. In addition to these commitments, the Company also has agreements covering routes and equipment leased from Conrail. See Note 2, Investment In and Integrated Rail Operations with Conrail, for a description of these commitments.

The Company has a commitment under a long-term maintenance program for approximately 40% of CSXT’s fleet of locomotives. The agreement expires in 2026 and totals $2.6 billion. Minimum payments under this agreement are as follows:

The long-term maintenance program assures CSX access to efficient, high-quality locomotive maintenance services at settled price levels through the term of the program. Under the program, CSX paid $130 million, $124 million and $126 million in fiscal years 2003, 2002 and 2001, respectively.

The Company and its subsidiaries are contingently liable individually and jointly with others as guarantors of obligations principally relating to leased equipment, joint ventures and joint facilities used by CSX in its business operations. Utilizing a CSX guarantee for these obligations allows CSX to take advantage of lower interest rates and obtain other favorable terms when negotiating leases or financing debt. Guarantees are contingent commitments issued by the Company that could require CSX or one of its affiliates to make payment to or to perform certain actions for the guaranteed party based on another entity’s failure to perform. Upon the adoption of FIN 45 in 2003, the Company’s evaluation of its guarantees did not result in any amounts for guarantees being recorded on the balance sheet. CSX’s guarantees can be segregated into three main categories:


	1. Guarantees of approximately $440 million of lease commitments assumed by A.P. Moller-Maersk (“Maersk”) for which the Company is contingently liable. CSX believes that Maersk will fulfill its contractual commitments with respect to such leases and that CSX will have no further liabilities for those obligations.

	2. Guarantees of approximately $97 million relating to construction and cash deficiency support guarantees at several of the Company’s international terminal locations under development. The non-performance of one of its partners, cost overruns or non-compliance with financing loan covenants could cause the Company to have to perform under these guarantees.

	3. CSX guarantees of approximately $300 million relating to leases assumed as part of CSX’s conveyance of its interest in CSX Lines in February 2003, as discussed in Note 3, Divestitures.

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

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

In 2001 Duke Energy Corporation (“Duke”) filed a complaint before the U.S. Surface Transportation Board (“STB”) alleging that certain CSXT common carrier coal rates are unreasonably high. In February 2004, the STB issued a decision finding that the CSXT common carrier rates were reasonable. While approving the rate levels, the STB also invited Duke to request a phase-in of rate increases over some time period. The nature and amount of any such phase-in is uncertain, and would only apply to billings subsequent to December 2001. CSXT will continue to consider and pursue all available legal defenses in this matter. Administrative and legal appeals are possible, and could take several years to resolve. An unfavorable outcome to this complaint would not have a material effect on the Company.

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

The Company operates in three business segments: rail, intermodal, and international terminals. The rail segment provides rail freight transportation over a network of more than 23,000 route miles in 23 states, the District of Columbia and two Canadian provinces. The intermodal segment provides transcontinental intermodal transportation services and operates a network of dedicated intermodal facilities across North America. The international terminals segment operates container freight terminal facilities and related businesses in Asia, Europe,

Australia, Latin America and the United States. The Company’s segments are strategic business units that offer different services and are managed separately based on the differences in these services. Because of their close interrelationship, the rail and intermodal segments are viewed on a combined basis as Surface Transportation operations.

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

Business segment information for the years ended December 26, 2003, December 27, 2002 and December 28, 2001 is as follows:


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

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


(a)	International Terminals minority interest expense which is reclassified to other income in consolidation.

(b)	Non-segment assets include corporate cash and cash equivalents and assets of non-transportation businesses and discontinued operations. Non-segment depreciation and property additions are primarily attributable to non-transportation businesses and discontinued operations. Principal non-transportation businesses include real estate and resort operations.

Revenues in the United States comprise more than 95% of total consolidated revenues. Approximately 95% of the Company’s long-lived assets are located in the United States. The Company does not have a single external customer that represents 10% or more of its consolidated revenue.

Note 20. Summarized Consolidating Financial Data — CSX Vessel Leasing (formerly Sea-Land)

During 1987, Sea-Land entered into agreements to sell and lease back, by charter, three new U.S.-built , U.S.-flag, D-7 class container ships. The ships were not included in the sale of international liner assets to Maersk in December 1999 and the related debt remains an obligation of CSX Lines. CSX has guaranteed the obligations of CSX Lines pursuant to the related charters which, along with the container ships, serve as collateral for debt securities registered with the Securities and Exchange Commission (SEC). As noted in Note 3 of the Annual Report, Divestitures, CSX agreed to convey certain assets of CSX Lines to Horizon Lines LLC. These obligations are not part of this transaction and another CSX entity became the obligor in 2003. In accordance with SEC disclosure requirements, consolidating summarized financial information for

the parent and obligor are as follows (certain prior year amounts have been reclassified to conform to the 2003 presentation):


(a)	Periods presented are 13 week quarters.
(b)	Included in the first quarter of 2003 is a credit of $57 million after tax, 26 cents per share, resulting from the cumulative effect of an accounting change for asset retirement obligations.
(c)	Included in the third quarter of 2003 is a charge of $232 million reflecting a change in estimate of casualty reserves. Also included in the third quarter of 2003 is a charge of


	$108 million to account for the Company entering into two settlement agreements with Maersk that resolved all material disputes between the two companies arising out of the 1999 sale of international container shipping assets to Maersk.
(d)	Included in the fourth quarter of 2003 is a charge of $34 million representing the initial charge for separation expenses related to the management restructuring announced in November 2003. Also, in the fourth quarter of 2003, the Company recorded a credit of $22 million related to revised estimates for amounts to be paid to individuals under separation plans initially recorded in 1991 and 1992.
(e)	Included in the first quarter of 2002 is a charge of $83 million ($43 million after tax and minority interest) to write-down indefinite lived intangible assets, resulting from the cumulative effect of an accounting change.

As of December 26, 2003, under the supervision and with the participation of the Company’s Chief Executive Officer (CEO) and the Chief Financial Officer (CFO), management has evaluated the effectiveness of the design and operation of the Company’s disclosure controls and procedures. Based on that evaluation, the CEO and CFO concluded that the Company’s disclosure controls and procedures were effective as of December 26, 2003. There were no changes in the Company’s internal controls over financial reporting during the fourth quarter of 2003 that have materially affected or are reasonably likely to materially affect the Company’s internal control over financial reporting.

In accordance with Instruction G(3) of Form 10-K, the information required by this Item is incorporated herein by reference to the Proxy Statement, except for the information regarding the executive officers of the Registrant which is included in Part I of this report under the caption “Executive Officers of the Registrant.”

In accordance with Instruction G (3) of Form 10-K, the information required by this Item is incorporated herein by reference to the Proxy Statement.

The information required by Rule 3-09 is included in Note 2 to the consolidated financial statements, “Investment in and Integrated Rail Operations with Conrail” and the Audited Consolidated Financial Statements of Conrail Inc., filed herewith as exhibit 99.3. The information required by Schedule II is included in Note 9 to the consolidated financial statements, “Casualty, Environmental and Other Reserves.” All other financial statement schedules are not applicable.

Pursuant to Regulation S-K, Item 601(b)(4)(iii), instruments that define the rights of holders of the Registrant’s long-term debt securities, where the long-term debt securities authorized under each such instrument do not exceed 10% of the Registrant’s total assets, have been omitted and will be furnished to the Commission upon request.


	•	Form 8-K filed on October 2, 2003, to report as an “Item 5: Other Item” the issuance of a press release announcing its intention to satisfy in cash its obligation to purchase its Zero Coupon Convertible Debentures due October 30, 2021.

	•	Form 8-K filed on October 10, 2003, to report as an “Item 5: Other Item” Board of Director approval of Amendment No. 2 to the Rights Agreement between the Company and Harris Trust and Savings Bank, to change the final expiration date of the Rights Agreement from June 8, 2008 to October 10, 2003 and to effectively cause the expiration of the preferred stock purchase rights granted under the Rights Agreement on October 10, 2003.

	•	Form 8-K filed on October 27, 2003, to report as an “Item 5: Other Item” the announcement that it would make a one-time cash payment of $23.00 per $1,000 aggregate principal amount at maturity to holders of its Zero Coupon Convertible Debentures due 2021 (the “Debentures”) who do not require the Corporation to purchase their Debentures on October 30, 2003 and were holders of record as of the close of business on October 31, 2003. In addition, the Corporation announced that effective as of October 27, 2003, it amended the terms of the Debentures to permit holders of the Debentures, at their option, to cause the Corporation to purchase the Debentures on October 30, 2005, at their accreted value of $852.48 per $1,000 principal amount at maturity.

	•	Form 8-K filed on November 10, 2003, to report as an “Item 5: Other Item” the issuance of a press release announcing streamlining of management structure.

	•	Form 8-K filed on November 14, 2003, to report as an “Item 5: Other Item” entering into an Underwriting Agreement for the public offering of $200,000,000 aggregate principal amount of the Company’s 5.30% Notes due 2014 and $200,000,000 aggregate principal amount of the Company’s 2.75% Notes due 2006.

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


	By:	/s/ CAROLYN T. SIZEMORE



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

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities indicated on March 10, 2004.

100 EX-10.1 3 g87590exv10w1.txt EX-10.1 STOCK PLAN FOR DIRECTORS EXHIBIT 10.1 AMENDED AND RESTATED CSX CORPORATION STOCK PLAN FOR DIRECTORS (APPROVED APRIL 17, 1997) 1. NAME OF PLAN. This plan shall be known as the "Amended and Restated CSX Corporation Stock Plan for Directors" (the "Plan".) 2. PURPOSE OF PLAN. The purpose of the Plan is to enable CSX Corporation, a Virginia corporation (the "Company"), to attract and retain persons of exceptional ability to serve as directors and to solidify the common interests of its directors and shareholders in enhancing the value of the Company's Stock. The Plan provides for grants of Stock, grants of options to acquire Stock, and payment of directors' retainers and fees in Stock. 3. EFFECTIVE DATE AND TERM AND SHARES SUBJECT TO PLAN. The Plan shall be effective as of the date it is adopted by the Board of Directors of the Company, subject, however, to approval by at least a majority of the outstanding shares of Stock present or represented and entitled to vote at a meeting of shareholders of the Company not later than April 17, 1997, and shall remain in effect until amended or terminated by action of the Board. Of the 1,000,000 shares subject to the Plan as of May 1, 1992, the date of original approval by shareholders of the Company, 956,728 shares remain unissued and subject to the Plan as of March 18, 1997. 4. ELIGIBLE PARTICIPANTS. Each member of the Board from time to time who is not a full-time employee of the Company or any of its subsidiaries shall be a participant ("Participant") in the Plan. 5. DEFINITIONS. (a) "Annual Meeting" means the Company's Annual Meeting of Shareholders. (b) "Board of Directors" or "Board" means the Board of Directors of CSX Corporation. (c) "Business Day" means, if relevant to a determination of the value of Stock, a day on which shares of Stock are or could be traded on the New York Stock Exchange (or other national stock exchange, or if not so listed, could be traded over-the-counter). In all other cases, the term means a day on which the offices of the Company are open for the conduct of business in the normal course. (d) "Payment Date" means the fifteenth day of the last month of each quarter of the Corporation's fiscal year or, if the fifteenth day of such month is not a Business Day, on the next Business Day following the fifteenth day of such month. (e) "Fair Market Value" means, as of any given date, the mean between the high and low selling prices of the Stock per share on the New York Stock Exchange on such date (or, if there is no reported sale on such date, on the last preceding date on which any reported sale occurred). (f) "Stock" means the Common Stock of the Company and rights, options or warrants for the purchase of securities of the Company which may be issued with shares of Stock pursuant, and subject, to plans or agreements adopted or entered into from time to time by the Company. If the par value of Stock is changed, or in the event of a change in the capital structure of the Company, the shares resulting from such a change shall be deemed to be Stock within the meaning the Plan. 6. SHARES AND STOCK OPTIONS. (a) Commencing May 1, 1992, the annual retainer payable to each Participant for service on the Board shall be payable in part in shares of Stock subject to any applicable deferrals and restrictions set forth in Section 8 hereof. Subject to paragraphs (b) and (c) below, each Participant shall be paid 40 percent of the annual retainer payable to each Participant for service on the Board (the "Designated Percentage") in shares of Stock. The shares shall be deducted at their Fair Market Value, determined as of the Business Day immediately preceding the date of the Company's Annual Meeting of Shareholders ("Annual Meeting"), from the Participant's annual retainer. (b) Any person who becomes a non-employee director following the Company's Annual Meeting, whether by appointment or election as a director or by change in status from a full-time employee, shall receive shares of Stock as a portion of the compensation to be paid to such Participant until the next Annual Meeting. The number of shares of Stock issued to such Participant shall be determined by dividing the product of the pro rata portion of the annual retainer to be paid to such director and the Designated Percentage by the Fair Market Value on the day such person becomes a Participant. A Participant who becomes a non-employee director following the Company's Annual Meeting may, at the beginning of such term, make his or her Annual Election as set forth in paragraph (c) below regardless of the number of months remaining until the next Annual Meeting. (c) Each Participant may also make one election during the period from Annual Meeting to the next Annual Meeting (the "Annual Election") to receive up to 100 percent of his or her retainers and/or fees in shares of Stock, subject to any applicable deferrals and restrictions set forth in Section 8 hereof. The Annual Election must be in writing and shall be delivered to the Corporate Secretary of the Company no later than six months prior to the next Annual Meeting. The Annual Election shall be irrevocable in respect of the year to which it pertains and shall specify the applicable percentage of the annual retainers and/or fees above the Designated Percentage that such Participant wishes to receive in shares of Stock. The Annual Election shall not be effective until at least six months and one day following its execution and receipt by the Company. (d) In addition to the awards described in the previous provisions of this Section 6, the Board may make additional awards of Stock or options to acquire Stock to Participants upon such terms as it deems fit; provided, however, that options to acquire Stock ("Stock Options") shall be subject to the restrictions in Section 10. 7. PAYMENT OF SHARES. Payments to directors of Stock or Stock Options pursuant to this Plan shall be made as follows, subject to any applicable deferrals and restrictions pursuant to Section 8 of this Plan: 2 (a) Shares payable as the Designated Percentage pursuant to Section 6 of the Plan shall be payable immediately following the Company's Annual Meeting. (b) Following payment of the Designated Percentage, the balance of each director's retainers to be paid in Stock, if any, shall be prorated and paid on the Payment Dates remaining until the next Annual Meeting. (c) Unless otherwise specified by resolution of the Board of Directors, any compensation to be paid in Stock and any grant of Stock shall be made on or as of the Payment Date next succeeding the date on which such payments have been earned or are otherwise payable or issuable. (d) The number of shares to be issued in payment of retainers and fees denominated in dollars shall be calculated on the basis of the Fair Market Value on the Payment Date as of which such shares are issued. 8. DEFERRALS AND RESTRICTIONS ON PAYMENT. Payment of shares issuable under Section 6 shall, at the Participant's election (which election must be in writing and shall be delivered to the Corporate Secretary of the Company no later than six months prior to the next Annual Meeting), be deferred in accordance with a deferral election made by the Participant and filed with the Company. The Company shall transfer shares of Stock or other assets equal in value to a number of shares as to which payment is deferred to a trust to secure the Company's obligation to pay shares of Stock to the Participant in the future, but any assets transferred shall remain subject to the claims of the Company's creditors and any interest the Participant may be deemed to have in the trust may not be sold, hypothecated or transferred (including, without limitation, transfer by gift or donation). The Company shall distribute Stock deferred pursuant to this Section 8 in accordance with elections made by each participant on forms approved by the Board; provided, however, that upon a Change of Control, as hereinafter defined, all Stock previously deferred shall be issued immediately, except that a Participant may elect that shares which would be distributed to him or to her upon a Change of Control may continue to be held in trust for distribution in accordance with this Section 8. Such election with respect to Change of Control described in the preceding sentence shall be effective no earlier than the Annual Meeting following such election. The Participant's right to receive the shares issued under Section 6 shall not be affected by a termination of the trust described herein. 9. SHARE CERTIFICATES, VOTING AND OTHER RIGHTS. The certificates for shares issued hereunder shall be issued in the name of the Participant or the trustee of the trust described in Section 8, as the case may be, and shall be held by such Participant or such trustee; provided, however, that each Participant shall be entitled to all rights of a shareholder with respect to Stock for all such shares issued in his name, including the right to vote the shares, and the Participant or the trustee, as the case may be, shall receive all dividends and other distributions paid or made with respect thereto. 10. PROCEDURES WITH RESPECT TO STOCK OPTIONS. (a) Each Stock Option granted pursuant to the Plan: (i) will consist of an option to purchase shares of Stock at a purchase price not less than 100 percent of the Fair Market Value of the Stock on the date of grant; 3 (ii) will be exercisable during the time period specified in the terms of the grant and reflected in an agreement entered into with a Participant, but such exercise shall not be earlier than one year after the date of grant of the Stock Option and not later than 15 years after the date of grant of the Stock Option, with the determination of the final date of exercise of the Stock Option to be made at the time of grant. (b) In the event of the death of a Participant who holds unexercised Stock Options awarded under the Plan, the Stock Option may be exercised by a beneficiary designated by the Participant prior to his death, or if no beneficiary is designated, by the executor or executrix of the Participant's estate or by the person or persons to whom the Participant's rights have passed by will or the laws of descent and distribution, such exercise to be in accordance with the provisions of the Plan and to the same extent as though the Participant were then living. 11. FRACTIONS OF SHARES. The Company shall not issue fractions of shares. Whenever under the terms of the Plan a fractional share would otherwise be required to be issued, the Participant or the trustee of the trust described in Section 8, as the case may be, shall be paid in cash for such fractional share based upon the same Fair Market Value which was utilized to determine the number of shares to be issued on the relevant Payment Date. 12. CHANGE OF CONTROL. "CHANGE OF CONTROL" SHALL MEAN ANY OF THE FOLLOWING: (a) Stock Acquisition. The acquisition, by any individual, entity or group [within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")] (a "Person") of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 20 percent or more of either (i) the then outstanding shares of Stock of the Company, or (ii) the combined voting power of the then outstanding voting securities of the Company entitled to vote generally in the election of directors (the "Outstanding Company Voting Securities"); provided, however, that for purposes of this subsection (a), the following acquisitions shall not constitute a Change of Control: (i) any acquisition directly from the Company; (ii) any acquisition by the Company; (iii) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any corporation controlled by the Company; or (iv) any acquisition by any corporation pursuant to a transaction which complies with clauses (i), (ii) and (iii) of subsection (c) of this Section 12; or (b) Board Composition. Individuals who, as of the date hereof, constitute the Board of Directors (the "Incumbent Board") cease for any reason to constitute at least a majority of the Board of Directors; provided, however, that any individual becoming a director subsequent to the date hereof whose election or nomination for election by the Company's shareholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board of Directors; or 4 (c) Business Combination. Approval by the shareholders of the Company of a reorganization, merger, consolidation or sale or other disposition of all or substantially all of the assets of the Company or its principal subsidiary that is not subject, as a matter of law or contract, to approval by the Surface Transportation Board or any successor agency or regulatory body having jurisdiction over such transactions (the "Agency") (a "Business Combination"), in each case, unless, following such Business Combination: (i) all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Stock and Outstanding Company Voting Securities immediately prior to such Business Combination beneficially own, directly or indirectly, more than 50 percent of, respectively, the then outstanding shares of common stock and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the corporation resulting from such Business Combination (including, without limitation, a corporation which as a result of such transaction owns the Company or its principal subsidiary or all or substantially all of the assets of the Company or its principal subsidiary either directly or through one or more subsidiaries) in substantially the same proportions as their ownership, immediately prior to such Business Combination of the Stock and Outstanding Company Voting Securities, as the case may be; (ii) no Person (excluding any corporation resulting from such Business Combination or any employee benefit plan (or related trust) of the Company or such corporation resulting from such Business Combination) beneficially owns, directly or indirectly, 20% or more of, respectively, the then outstanding shares of common stock of the corporation resulting from such Business Combination or the combined voting power of the then outstanding voting securities of such corporation except to the extent that such ownership existed prior to the Business Combination; and (iii) at least a majority of the members of the Board resulting from such Business Combination were members of the Incumbent Board at the time of the execution of the initial agreement, or of the action of the Board of Directors, providing for such Business Combination; or (d) Regulated Business Combination. Approval by the shareholders of the Company of a Business Combination that is subject, as a matter of law or contract, to approval by the Agency (a "Regulated Business Combination") unless such Business Combination complies with clauses (i), (ii) and (iii) of subsection (c) of this Section 12; or (e) Liquidation or Dissolution. Approval by the shareholders of the Company of a complete liquidation or dissolution of the Company or its principal subsidiary. 13. WITHHOLDING TAXES. Whenever the Company proposes or is required to issue or to transfer shares of Stock under the Plan, or whenever the Company is required to withhold taxes upon exercise of Stock Options under the Plan, a Participant: (a) Shall remit to the Company an amount sufficient to satisfy any federal, state or local withholding tax liability prior to the delivery of any certificate or certificates for such shares; or 5 (b) To the extent permitted by applicable laws, including regulations promulgated under the Securities Exchange Act of 1934, such federal, state or local withholding tax liability may be satisfied prior to the delivery of any certificate or certificates for the shares by an adjustment, equal in value to such liability, in the number of shares to be transferred to the Participant. 14. AMENDMENT. This Plan may be amended by action of a majority of the Board of Directors, and approval by shareholders shall not be required for any amendment which does not authorize additional shares to be subject to the Plan. 15. ADMINISTRATION. The Plan will be administered by the Board. Except as otherwise specifically provided in the Plan, the Board will have the entire authority to interpret and administer the Plan, including the power and complete discretion with respect to any award of Stock or Stock Options to determine the terms and conditions of the award, the number of shares of Stock to be covered by the award, the time or times when an award will be granted, when Stock Options may be exercised, and the manner in which payment may be made upon the exercise of Stock Options. If the Board determines that a spin-off, stock dividend or other distribution not in the form of cash or Stock, consolidation, merger, dissolution, liquidation or other similar corporate transaction or event affects a Stock Option such that an adjustment is appropriate to preserve the intended benefits of a Stock Option, the Board may make such equitable changes or adjustments in the Stock Option as it deems necessary or appropriate. The Board may adopt rules and regulations for carrying out the Plan. The interpretation and construction of any provision of the Plan by the Board will be final and conclusive. 6 AMENDMENT TO THE AMENDED AND RESTATED CSX CORPORTION STOCK PLAN FOR DIRECTORS The Plan is amended, effective January 1, 2004, as follows: 1. Section 6(a) of the Plan is amended by adding the following sentence as the penultimate sentence thereof: "Effective January 1, 2004, the Designated Percentage of the annual retainer paid in shares of Stock shall be 50 percent." 2. Section 11 of the Plan is amended, effective January 1, 2004, by adding the following sentence to the end thereof: "Notwithstanding the foregoing, in the event that the recordkeeping system for the Plan is able to properly account for fractional shares, fractional shares may be issued instead of cash." EX-10.2 4 g87590exv10w2.txt EX-10.2 CORPORATE DIRECTOR DEFERRED COMP. PLAN EXHIBIT 10.2 CSX CORPORATION CORPORATE DIRECTOR DEFERRED COMPENSATION PLAN EFFECTIVE NOVEMBER 1. 1980 As Amended and Restated Effective January 1, 1995 (As Amended through December 31, 1997) 1. Purpose The purpose of this Plan is to permit members of the Board of Directors of CSX Corporation to elect deferred receipt of director's fees. This Plan is intended to constitute a deferred compensation plan for corporate director's fees in accordance with Revenue Ruling 71-419. Cumulative Bulletin 1971-2, page 220. 2. Definitions The following words or terms used herein shall have the following meanings: (a) "Administrator. -- means CSX Corporation (i) Prior to a Change of Control, the Administrator shall be responsible for the general administration of the Plan, claims review, and for carrying out its provisions. Administration of the Plan shall be carried out consistent with the terms of the Plan. (ii) Following a Change of Control, the Benefits Trust Committee may remove and/or replace the Administrator. (iii) The Administrator shall have sole and absolute discretion to interpret the Plan and determine eligibility for and benefits hereunder. Decisions of the Administrator regarding participation in and the calculation of benefits under the Plan shall at all times be binding and conclusive on Participants, their beneficiaries, heirs and assigns. (iv) Notwithstanding subsection (iii) above, following a Change of Control, final benefit determinations for Participants, their beneficiaries, heirs and assigns and decisions regarding benefit claims under the Plan shall rest with the Benefits Trust Committee or its delegate in its sole judgment and absolute discretion. (b) "Benefits Trust Committee" -- means the committee established pursuant to the CSX Corporation and Affiliated Companies Benefits Assurance Trust document. (c) "Board" -- means the Board of Directors of CSX (c) "Change of Control" -- means any of the following: (i) Stock Acquisition. The acquisition, by any individual, entity or group [within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")](a "Person") of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 20% or more of either (A) the then outstanding shares of common stock of the Corporation (the "Outstanding Corporation Common Stock"), or (B) the combined voting power of the then outstanding voting securities of the Corporation entitled to vote generally in the election of directors (the "Outstanding Corporation Voting Securities"); provided, however, that for purposes of this subsection(i), the following acquisitions shall not constitute a Change of Control (A) any acquisition directly from the Corporation; (B) any acquisition by the Corporation; (C) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Corporation or any corporation controlled by the Corporation; or (D) any acquisition by any corporation pursuant to a transaction which complies with clauses (A), (B) and (C) of subsection (iii) of this Section 2(d); or (ii) Board Composition. Individuals who, as of the date hereof, constitute the Board of Directors (the "Incumbent Board") cease for any reason to constitute at least a majority of the Board of Directors; provided, however, that any individual becoming a director subsequent to the date hereof whose election or nomination for election by the Corporation's shareholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board of Directors; or (iii) Business Combination. Approval by the shareholders of the Corporation of a reorganization, merger, consolidation or sale or other disposition of all or substantially all of the assets of the Corporation or its principal subsidiary that is not subject, as a matter of law or contract, to approval by the Interstate Commerce Commission or any successor agency or regulatory body having jurisdiction over such transactions (the "Agency") (a "Business Combination"), in each case, unless, following such Business Combination: (A) all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Corporation Common Stock and Outstanding Corporation Voting Securities immediately prior to such Business Combination beneficially own, directly or indirectly, more than 50% of respectively, the then outstanding shares of common stock and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the corporation resulting from such Business Combination (including, without limitation, a corporation which as a result of such transaction owns the Corporation or its principal subsidiary or all or substantially all of the assets of the Corporation or its principal subsidiary either directly or through one or more subsidiaries) in substantially the same proportions as their ownership, immediately prior to such Business Combination of the Outstanding Corporation Common Stock and Outstanding Corporation Voting Securities, as the case may be; (B) no Person (excluding any corporation resulting from such Business Combination or any employee benefit plan (or related trust) of the Corporation or such corporation resulting from such Business Combination) beneficially owns, directly or indirectly. 20% or more of, respectively, the then outstanding shares of common stock of the corporation resulting from such Business Combination or the combined voting power of the then outstanding voting securities of such corporation - 2 - except to the extent that such ownership existed prior to the Business Combination, and (C) at least a majority of the members of the board of directors resulting from such Business Combination were members of the Incumbent Board at the time of the execution of the initial agreement, or of the action of the Board of Directors, providing for such Business Combination; or (iv) Regulated Business Combination. Approval by the shareholders of the Corporation of a Business Combination that is subject, as a matter of law or contract, to approval by the Agency (a "Regulated Business Combination") unless such Business Combination complies with clauses (A), (B) and (C) of subsection (iii) of this Section 2(d); or (v) Liquidation or Dissolution. Approval by the shareholders of the Corporation of a complete liquidation or dissolution of the Corporation or its principal subsidiary. (e) "CSX" or "Corporation" -- means CSX Corporation (f) "CSX's Accountants" -- means the independent accountants, actuaries, benefits consulting firm or other entity engaged by CSX to provide Participant's accounting services for the Plan and, if selected or changed following a Change of Control, approved by the Benefits Trust Committee. (g) "Director's Fees" -- means any compensation, whether for Board meetings or for Committee meetings or otherwise, earned by a Member for services rendered as a Member during a particular calendar year in which he has elected to be a Participant (h) "Member" -- means any person duly elected to the Board (i) "Participant" -- means any Member who elects to participate in the Plan (j) "Plan" -- means Corporate Director Deferred Compensation Plan (k) "Secretary" -- means the Corporate Secretary of CSX (l) "Trust" -- means the trust created under the CSX and Affiliated Companies Benefits Assurance Trust Agreement or a grantor trust or trusts established by CSX which will substantially conform to the terms of the Internal Revenue Service model trust as described in Revenue Procedure 92-64, 1992-2 C.B. 422. Except as provided in Section 10. CSX is not obligated to make any contribution to the Trust. (m) "Valuation Date" - means the last day of each calendar quarter and such other dates as the Administrator deems necessary or appropriate to value the Participants' benefits under this Plan. However, following a Change of Control, - 3 - the selection of a Valuation Date other than the last day of each calendar quarter shall be subject to the approval of the Benefits Trust Committee. In any instance in which the male gender is used herein, it shall also include persons of the female gender in appropriate circumstances. 3. Merger Provisions Any person who was a Participant under the Chessie System, Inc. Corporate Director Deferred Compensation Plan or who was a director and had made an election under the Seaboard Coast Line Industries, Inc. Nonfunded Deferred Compensation Plan for Directors shall automatically become a Participant under this Plan effective upon the merger of Chessie System, Inc. and Seaboard Coast Line Industries, Inc. into the Corporation, provided that such a person shall be a Member as defined in this Plan. Director's Fees deferred previously under the terms of the aforesaid director deferred compensation plans of Chessie System, Inc. and Seaboard Coast Line Industries, Inc. shall remain subject to the terms and conditions respectively provided therein, and the terms of this Plan shall only govern as to Director's Fees earned on and after the date of merger into the Corporation. 4. Participation A Member may become a Participant for any calendar year by filing a written Election to Participate in the Plan with the Secretary not later than December 31 immediately prior to the year in which Director's Fees are to be earned. Following a Change of Control, all Elections to Participate are subject to the approval of the Benefits Trust Committee. An Election to Participate may be made with respect to all or any part of Director's Fees to be earned for any year or years to which such Election to Participate may relate. An Election to Participate, once filed, shall apply to Director's Fees earned in subsequent years in which a Participant shall serve as a Member, unless amended or revoked by written request to the Secretary. Any person who becomes a Member and who was not a Member on the preceding December 31 may file an Election to Participate before his term as a Member begins. 5. Deferral of Director's Fees CSX shall, during any year in which a Participant has an Election to Participate on file with the Secretary, withhold and defer payment of all or any specified part of Participant's Director's Fees in accordance with his Election to Participate. Prior to the beginning of any year, a Participant can elect to have all or any portion of the amounts withheld, including all earnings thereon, or to be withheld, credited to an interest-accruing account ("Interest Account") and/or to an enhanced interest-accruing account for calendar years 1986, 1987, 1989 and 1990 ("Enhanced Interest Account"), and/or to a CSX Phantom Stock Account ("Stock Account"). Such deferral election can be made or changed before the beginning of any year. - 4 - Interest shall accrue on the Interest Account from the date the deferred Director's Fee would otherwise have been paid to the Participant until it is actually paid, such interest to be credited to the Participant's account and compounded quarterly at the end of each calendar quarter. The rate of interest will be reviewed periodically, provided, however, following a Change of Control, any change in the rate of interest is subject to the approval of the Benefits Trust Committee. Interest shall accrue on the Enhanced Interest Account from the first day of the month following the deferral and shall compound thereafter at an annual rate of 16% until all amounts are finally paid to the Participant. Credits to the Stock Account shall be in full and fractional units based on the closing price for CSX common stock as reported on the New York Stock Exchange - Composite Listing ("NYSE") on the date the fees would otherwise have been paid to the Participant. Dividends shall be credited in full and fractional units to the account based on the number of units in the account on the record date and calculated based on the closing price for CSX common stock on the dividend payment date. A Participant, while a Member, may elect prior to the beginning of any year to transfer all or any portion of amounts deferred, including all earnings thereon, to an Enhanced Interest Account, an Interest Account and/or a Stock Account, provided, however, that no transfer may be made out of an Enhanced Interest Account. 6. Distribution of Deferred Director's Fees Amounts deferred under the Plan and credited to an Interest Account or Stock Account shall be distributed to a Participant from the account(s) maintained in respect of his account in a lump sum at the beginning of the year following the year in which a Participant ceases to be a Member, unless he shall elect installments as provided below. Amounts deferred and credited to an Enhanced Interest Account shall be distributed over an installment period elected by the Participant. The value of a Participant's Interest Account shall be the sum of amounts deferred and all interest accrued thereon. The value of an Enhanced Interest Account shall be the sum of amounts deferred and all interest accrued thereon. The value of a Stock Account shall be the value of the units in a Participant's account based on the closing price for CSX common stock as reported on the NYSE on the last business day of the year in which a Participant ceases to be a Member, unless he shall elect annual or quarterly installments as provided below. The value of a Stock Account will fluctuate in value in line with the fluctuation in the price of CSX common stock. There can be no assurance on the market value of the phantom units either at the time of acquisition or at any time during the distribution period, nor can there be any assurance as to the continuation of dividends. Distribution of Deferred amounts shall begin with either the first day of the calendar year immediately following the year in which a Participant shall cease to be a Member for any reason other than death, or the first day of the calendar year immediately following the year in which a Participant shall cease to be a Member and shall have attained age 65, as the Member may elect. If installment payments are elected for Interest or Stock Accounts, payments shall be made, as the Participant may elect, for either (a) five years, (b) ten years, or (c) any other designated period which shall be not less than the period he was a Participant nor exceed ten years. For Enhanced Interest Accounts, the Participant may elect to receive payments over (a) five years, (b) ten years, or (c) fifteen years. - 5 - For Interest Accounts and Stock Accounts, installments shall be on an annual or quarterly basis as the Member may elect. The amount of each installment shall be determined by multiplying the value of the Participant's account at the end of the calendar quarter immediately preceding the installment date by a fraction, the numerator of which shall be one (1) and the denominator of which shall be the number of installment payments over which payment of such amount is to be made, less the number of installment payments theretofore made. For Enhanced Interest Accounts, payments shall be in level installments on a monthly basis over the number of years (five, ten, or fifteen) as elected by the Member. The elections provided in this Section 6 shall be made in writing in a Participant's Election to Participate and shall be subject to all other provisions of the Plan relating thereto and to the deferral of receipt of Director's Fees. In the event a Participant shall die while he is a Member, the amount appearing as the credit balance of his account, or the value of the units in his Stock Account, shall be paid in either a lump sum or installments (consistent with the election made by the Participant as described in this Section 6) to his Designated Beneficiary. Each Participant may file with the Secretary a Designation of Beneficiary for this purpose. In the event a Participant shall die after he ceases to be a Member and before he has received complete distribution from his account, any credit balance of his account, including interest, or the value of the units in his Stock Account, shall be paid to his Designated Beneficiary consistent with the election made by the Participant as described in this Section 6. In the event a Participant shall not file a Designation of Beneficiary, or his Designated Beneficiary is not living at the Participant's death, the balance credited to his account, including interest, shall be paid in full to his estate not later than the tenth day of the calendar year following his date of death. 7. Death Benefit For Participants electing to have deferred Director's Fees credited to an Enhanced Interest Account who die while a Member, a death benefit equal to the greater of three times the amount of Director's Fees deferred or the amount of Director's Fees deferred plus accumulated interest will be paid to the Member's Designated Beneficiary. For Participants in an Enhanced Interest Account who die after ceasing to be a Member, a lump sum death benefit of $10,000 will be paid to the Designated Beneficiary. This death benefit shall apply only to Director's Fees deferred after December 31, 1985 and which have been credited to an Enhanced Interest Account. This death benefit shall not apply to any amounts credited to an Enhanced Interest Account by reason of transfer from an Interest Account and/or a Stock Account. In the event a Participant shall not file a Designation of Beneficiary, or the Designated Beneficiary is not living at the Participant's death, the death benefit shall be paid to the Participant's estate. 8. Amendment or Termination of Election to Participate A Participant may amend or terminate his Election to Participate by written request to the Secretary, which shall become effective for the calendar year following the year in which his request is - 6 - made; provided, however, that no amendment shall be made to contravene the deferral of Director's Fees previously made under the provisions of this Plan. In the event a Participant amends or terminates his Election to Participate and remains a Member, he shall not be entitled to receive any distribution from his account until he ceases to be a Member, and distributions shall be made only as provided in Section 6 of this Plan. 9. Obligation of Csx This Plan shall be unfunded and credits to the memorandum account(s) of each Participant shall not be set apart for him nor otherwise made available so that he may draw upon it at any time, except as provided in this Plan. Neither any Participant nor his Designated Beneficiary shall have any right, title, or interest in such credits or any claim against them. Payments may only be made at such times and in the manner expressly provided in this Plan. CSX's contractual obligation is to make the payments when due. No notes or security for the payment of any Participant's account shall be issued by CSX. 10. Change of Control 10.1 If a Change of Control has occurred, the Administrator shall cause CSX to contribute to the Trust, within 7 days of such Change of Control, a lump sum payment equal to the unfunded aggregate value of the amount each Participant would be eligible to receive (determined under 10.2 below) as of the latest Valuation Date coinciding with or preceding the date of Change of Control to the extent such amounts are not already in the Trust. The aggregate value of the amount of the lump sum to be contributed to the Trust pursuant to this Section 10 shall be determined by CSX's Accountants after consultation with the entity then maintaining the Plan's records. Thereafter, CSX's Accountants shall annually determine as of a Valuation Date for each Participant not receiving a lump sum payment pursuant to Section 10.2, below, the amounts which would be payable under such subsection were a Change of Control to occur at the date of such determination. To the extent that the value of the assets held in the Trust relating to this Plan do not equal the aggregate amount described in the preceding sentence, at the time of the valuation, as determined by CSX's Accountants, CSX shall make a lump sum contribution to the Trust equal to the difference. In no event, however, shall the Company's contribution to the Trust be less than the amount that would have been contributed thereto with respect to liabilities relating to the Plan (including related administrative and investment expenses), pursuant to and at the time and in the manner provided under Section l(h) of the Trust. 10.2 In the event a Change of Control has occurred, the trustee of the Trust shall, within 45 days of such Change of Control, pay to each Participant not making an election under 10.3 below, a lump sum payment equal to the amount the Participant would have been entitled to receive determined under Section 6 had he ceased to be a Member and selected an immediate lump sum payment. The amount of each Participant's lump sum payment shall be determined by CSX's Accountants. 10.3 Each Participant may elect in a time and manner determined by the Administrator but in no event later than December 31, 1996, or the occurrence of a Change of Control, if earlier, to have amounts and benefits determined and payable under the terms of the Plan as if a Change of Control had not occurred. New Participants in the Plan may elect in a time and - 7 - manner determined by the Administrator, but in no event later than 90 days after becoming a Participant, to have amounts and benefits determined and payable under the terms of the Plan as if a Change of Control had not occurred. A Participant who has made an election, as set forth in the two preceding sentences, may, at any time and from time to time, change that election; provided, however, a change of election that is made within one year of a Change of Control shall be invalid. 10.4 Notwithstanding anything in the Plan to the contrary, each Participant who has made an election under Section 10.3, above, may elect within 90 days following a Change of Control, in a time and manner determined by the Administrator, to receive a lump sum payment calculated under the provisions of 10.3, above, determined as of the Valuation Date next preceding such payment, except that such calculated amount shall be reduced by 5% and such reduction shall be irrevocably forfeited to CSX by the Participant. Furthermore, as a result of such election, the Participant shall no longer be eligible to participate or otherwise benefit from the Plan. Payments under this Section 10.4 shall be made not later than 7 days following receipt by CSX of the Participant's election. The Administrator shall, no later than 7 days after a Change of Control has occurred, give written notification to each Participant eligible to make an election under this Section 10.4, that a Change of Control has occurred and informing such Participant of the availability of the election. 11. Claims Against Participant's Account No credits to the account of any Participant under this Plan shall be subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance, or charge, and any attempt to do so shall be void. Nor shall any credit be subject to attachment or legal process for debts or other obligations. Nothing contained in this Plan shall give any Participant any interest, lien, or claim against any specific asset of CSX. No Participant or his Designated Beneficiary shall have any rights other than as a general creditor of CSX. 12. Competition by Participant In the event a Participant ceases to be a Member and becomes a proprietor, officer, partner, employee, director, or otherwise becomes affiliated with any business that is in competition with the Corporation, the entire balance credited to his account, including interest, or the value of the units in his Stock Account, if prior to a Change of Control, may, if directed by the Board in its sole discretion, be paid immediately to him in a lump sum. Following a Change of Control, such a decision by the Board is subject to the approval of the Benefits Trust Committee. 13. Payment of Credit Balance to Participant's Account Notwithstanding anything herein to the contrary, prior to a Change of Control, the Board may, in its sole discretion, direct payment in a lump sum of any or all of the credit balance appearing at the time in the account of a Participant, and/or of the value of the units in his Stock Account. Following a Change of Control, such action by the Board is subject to the approval of the Benefits Trust Committee. Further, the obligations of CSX and the benefit due any Participant or Designated Beneficiary under the Plan shall be reduced by any amount received in regard thereto under the Trust or any similar trust or other vehicle. - 8 - 14. Joint and Several Obligation To the extent reflected by resolutions of the applicable boards of directors, obligations for benefits under this Plan shall be joint and several. 15. Amendment or Termination Prior to a Change of Control, this Plan may be altered, amended, suspended, or terminated at any time by the Board, on the recommendation of the Compensation Committee of the Board, provided, however, that no alteration, amendment, suspension, or termination shall be made to this Plan which would result in the distribution of amounts credited to the accounts of all Participants in any manner other than is provided in this Plan without the consent of all Participants. - 9 - AMENDMENT TO THE CSX CORPORATION CORPORATE DIRECTOR DEFERRED COMPENSATION PLAN WHEREAS, CSX Corporation (the "Company") sponsors the CSX Corporation Corporate Director Deferred Compensation Plan (the "Plan"), effective as of November 1, 1980 for the benefit of members of the Company's Board of Directors (the "Board"); and WHEREAS, pursuant to Section 15, the Board has the right to amend the Plan; and WHEREAS, the Board desires to amend the Plan. NOW, THEREFORE, the Plan is amended, effective January 1, 2004, as follows: Section 5 of the Plan is amended by adding the following sentence to the third paragraph thereof: "Notwithstanding the foregoing sentence, effective January 1, 2004, interest will be credited at the rate of 10-year U.S. Treasury bonds as published by the Wall Street Journal on the last day of the preceding calendar year. Such rate will be reviewed and updated annually." EX-10.3 5 g87590exv10w3.txt EX-10.3 '02 CORPORATE DIRECTOR DEFERRED COMP. PLAN EXHIBIT 10.3 CSX CORPORATION 2002 CORPORATE DIRECTOR DEFERRED COMPENSATION PLAN EFFECTIVE JANUARY 1, 2003 The purpose of this Plan is to permit members of the Board of Directors of CSX Corporation to elect deferred receipt of director's fees. This Plan is intended to constitute a deferred compensation plan for corporate director's fees. This Plan is not intended to replace or supercede any prior Director's deferral plans. 1. Definitions The following words or terms used herein shall have the following meanings: (a) "Account" or "Accounts"-- means the bookkeeping account(s) maintained for each Participant to record the amount of Director's Fees he has elected to defer, as adjusted pursuant to Section 4. (b) "Administrator" -- means CSX Corporation (i) Prior to a Change of Control, the Administrator shall be responsible for the general administration of the Plan, claims review, and for carrying out its provisions. Administration of the Plan shall be carried out consistent with the terms of the Plan. (ii) Following a Change of Control, the Benefits Trust Committee may remove and/or replace the Administrator. (iii) The Administrator shall have sole and absolute discretion to interpret the Plan and determine eligibility for and benefits hereunder. Decisions of the Administrator regarding participation in and the calculation of benefits under the Plan shall at all times be binding and conclusive on Participants, their beneficiaries, heirs and assigns. (iv) Notwithstanding subsection (iii) above, following a Change of Control, final benefit determinations for Participants, their beneficiaries, heirs and assigns and decisions regarding benefit claims under the Plan shall rest with the Benefits Trust Committee or its delegate in its sole judgment and absolute discretion. (c) "Benefits Trust. Committee" -- means the committee established pursuant to the CSX Corporation and Affiliated Companies Benefits Assurance Trust document. (d) "Board" -- means the Board of Directors of CSX. (e) "Change -of Control" -- means any of the following: (i) Stock Acquisition. The acquisition, by any individual, entity or group within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")(a "Person") of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 20% or more of either (A) the then outstanding shares of common stock of the Corporation (the "Outstanding Corporation Common Stock"), or (B) the combined voting power of the then outstanding voting securities of the Corporation entitled to vote generally in the election of directors (the "Outstanding Corporation Voting Securities"); provided, however, that for purposes of this subsection (i), the following acquisitions shall not constitute a Change -of Control: (A) any acquisition directly from the Corporation; (B) any acquisition by the Corporation; (C) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Corporation or any corporation controlled by the Corporation; or (D) any acquisition by any corporation pursuant to a transaction which complies with clauses (A), (B) and (C) of subsection (iii) of this Section 2(d); or (ii) Board Composition. Individuals who, as of the date hereof, constitute the Board of Directors (the "Incumbent Board") cease for any reason to constitute at least a majority of the Board of Directors; provided, however, that any individual becoming a director subsequent to the date hereof whose election or nomination for election by the Corporation's shareholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board of Directors; or (iii) Business Combination. Approval by the shareholders of the Corporation of a reorganization, merger, consolidation or sale or other disposition of all or substantially all of the assets of the Corporation or its principal subsidiary that is not subject, as a matter of law or contract, to approval by the Interstate Commerce Commission or any successor agency or regulatory body having jurisdiction over such transactions (the "Agency") (a "Business Combination"), in each case, unless, following such Business Combination: (A) all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Corporation Common Stock and Outstanding Corporation Voting Securities immediately prior to such Business Combination beneficially own, directly or indirectly, more than 50% of, respectively, the then outstanding shares of common stock and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the corporation resulting from such Business Combination (including, without limitation, a corporation which as a result of such transaction owns the Corporation or its principal subsidiary or all or substantially all of the assets of the Corporation or its principal subsidiary either directly or through one or more subsidiaries) in substantially the same proportions as their ownership, immediately prior to such Business Combination of the Outstanding Corporation Common Stock and Outstanding Corporation Voting Securities, as the case may be; - 2 - (B) no Person (excluding any corporation resulting from such Business Combination or any employee benefit plan (or related trust) of the Corporation or such corporation resulting from such Business Combination) beneficially owns, directly or indirectly, 20% or more of, respectively, the then outstanding shares of common stock of the corporation resulting from such Business Combination or the combined voting power of the then outstanding voting securities of such corporation except to the extent that such ownership existed prior to the Business Combination; and (C) at least a majority of the members of the board of directors resulting from such Business Combination were members of the Incumbent Board at the time of the execution of the initial agreement, or of the action of the Board of Directors, providing for such Business Combination; or (iv) Regulated Business Combination. Approval by the shareholders of the Corporation of a Business Combination that is subject, as a matter of law or contract, to approval by the Agency (a "Regulated Business Combination") unless such Business Combination complies with clauses (A), (B) and (C) of subsection (iii) of this Section 2(d); or (v) Liquidation or Dissolution. Approval by the shareholders of the Corporation of a complete liquidation or dissolution of the Corporation or its principal subsidiary. (f) "CSX" or "Corporation" -- means CSX Corporation (g) "CSX's Accountants" -- means the independent accountants, actuaries, benefits consulting firm or other entity engaged by CSX to provide Participant's accounting services for the Plan and, if selected or changed following a Change -of Control, approved by the Benefits Trust Committee. (h) "Deferral Agreement" -- means an agreement between a Participant and CSX under which the Participant agrees to defer Director's Fees under the Plan. The Deferral Agreement shall be on a form prescribed by the Administrator and shall include any amendments, attachments or appendices. (i) "Director's Fees" -- means any compensation, whether for retainer, for Board meetings or for Committee meetings or otherwise, payable either in cash or in stock, earned by a Member for services rendered as a Member. (j) "Distribution Event" -- means any of the events listed in Section 1(e), "Change -of Control," with the following modification: the words "Approval by the shareholders of the Corporation of," in the first line of Sections 1(e)(iii) and 1(e)(iv) are replaced for purposes of this Section 1(j) with the words, "Consummation of, i.e., actual change in ownership of Outstanding Corporation Common Stock, Outstanding Corporation Voting Securities, and/or assets of the Corporation or its principal subsidiary by reason of,". - 3 - (k) "Effective Date" -- means January 1, 2003. (l) "Enrollment Form" -- means the form prescribed by the Administrator that a Member who has previously made deferrals under a prior CSX deferral plan for Directors may file pursuant to Section 4 in order to become a Participant in the Plan. (m) "Form of Payment Election" -- means the election by the Participant of the form of distribution (lump sum or installments) he will receive from his Account pursuant to Section 6. (n) "Member" -- means any person duly elected to the Board. (o) "Partial Distribution Election" -- means a Distribution Election for a portion of a Participant's Account under Section 5. (p) "Participant" -- means any Member who elects to participate in the Plan. (q) "Plan" -- means the CSX Corporation 2002 Corporate Director Deferred Compensation Plan. (r) "Secretary" -- means the Corporate Secretary of CSX. (s) "Trust" -- means the trust created under the CSX and Affiliated Companies Benefits Assurance Trust Agreement or a grantor trust or trusts established by CSX which will substantially conform to the terms of the Internal Revenue Service model trust as described in Revenue Procedure 92-64, 1992-2 C.B. 422. Except as provided in Section 9, CSX is not obligated to make any contribution to the Trust. (t) "Term" -- means the annual term for which a Member is elected to serve on the Board of Directors of CSX. (u) "Valuation Date" -- means the last day of each calendar quarter and such other dates as the Administrator deems necessary or appropriate to value the Participants' benefits under this Plan. However, following a Change -of Control, the selection of a Valuation Date other than the last day of each calendar quarter shall be subject to the approval of the Benefits Trust Committee. In any instance in which the male gender is used herein, it shall also include persons of the female gender in appropriate circumstances. 2. Participation A Member may elect to become a Participant for any Term by filing an initial Deferral Agreement or an Enrollment Form with the Secretary not later than (i) the Effective date or (ii) a date six months prior to the Annual Meeting for the Term for which Director's Fees are to be earned, whichever is - 4 - later. Such Deferral Agreement shall be effective for purposes of deferring Director's Fees only as provided in Section 3. Such Enrollment Form shall be effective for purposes of transferring balances previously deferred under a prior Company deferral plan to the Participant's Accounts only as provided in Section 4. Following a Change -of Control, all Deferral Elections are subject to the approval of the Benefits Trust Committee. 3. Deferral of Director's Fees (a) CSX shall, during any year in which a Participant has a Deferral Election on file with the Secretary, withhold and defer payment of all or any specified part of Participant's Director's Fees in accordance with his Deferral Election. A Participant may elect to change the amount of Director's Fees he elects to defer, modify a Deferral Agreement or revoke a Deferral Agreement by filing a new Deferral Agreement with the Secretary not later than (i) a date six months prior to the Annual Meeting for the Term for which Director's Fees are to be earned or (ii) November 1 of the calendar year immediately prior to the Annual Meeting for the Term for which Director's Fees are to be earned, whichever is later. (b) Any person who becomes a Member and who was not a Member six months prior to the beginning of his Term as a Member may file a Deferral Election during the first thirty (30) days he is a Member. 4. Participant's Accounts (a) A Participant may elect on a Deferral Agreement to have all or any portion of the eligible deferred Director's Fees credited to an interest-accruing account ("Interest Account") and/or to a CSX Phantom Stock Account ("Phantom Stock Account"). (b) A Participant who is eligible to receive a portion of his Director's Fees in CSX common stock pursuant to the CSX Corporation Stock Plan for Directors may file with the Secretary a Deferral Agreement with respect to such CSX common stock. A Participant's Stock Account ("Stock Account") will be created when he files his initial Deferral Agreement with respect to Director's Fees payable in CSX common stock. (c) Interest shall accrue on the Interest Account from the first day of the month following the deferred Director's Fee would otherwise have been paid to the Participant until it is actually paid, such interest to be credited to the Participant's Account and compounded quarterly at the end of each calendar quarter. The rate of interest will be reviewed periodically, provided, however, following a Change -of Control, any change in the rate of interest is subject to the approval of the Benefits Trust Committee. (d) Credits to the Phantom Stock Account and the Stock Account shall be in full and fractional units based on the average of the high and low price for CSX common stock as reported on the New York Stock Exchange - Composite Listing ("NYSE") on the date the Director's Fees would otherwise have been paid to the Participant. - 5 - (e) Dividends shall be credited in full and fractional units to the Phantom Stock Account based on the number of units in the Account on the record date and calculated based on the average of the high and low price for CSX common stock on the dividend payment date. (f) Dividends shall be credited in full and fractional units to the Stock Account based on the number of units in the Account on the record date and calculated based on (i) the actual purchase price of CSX common stock acquired to the extent shares are actually purchased by the trustee of the Director's Stock Trust or a successor trust, or (ii) the number of units in the Account on the record date and calculated based on the average of the high and low price for CSX common stock on the dividend payment date. (g) A Participant, while a Member, may elect at any time to transfer all or any portion of amounts deferred, including all earnings thereon, between an Interest Account and a Phantom Stock Account. No transfer may be made into or out of a Stock Account. (h) A Member who has previously deferred shares of CSX common stock granted pursuant to the CSX Corporation Stock Plan for Directors ("Stock Plan") may elect to have a Stock Account created for him in the Plan on the Effective Date by filing an Enrollment Form with the Secretary on or before the Effective Date. Filing the Enrollment Form will cause the transfer of such previously deferred share balances to the Participant's Stock Account on the Effective Date, and the Member will enjoy all rights and privileges of a Participant including the ability to file initial Distribution Elections and Form of Payment Elections. A properly filed Enrollment Form will cause all prior elections made with respect to such previously deferred shares to be void immediately, unless otherwise stated in this Section 4. (i) A Member who is a participant in the CSX Corporation Corporate Director Deferred Compensation Plan ("Director Plan") may elect to have an Interest Account or a Phantom Stock Account created for him in the Plan on the Effective Date by filing an Enrollment Form with the Secretary on or before the Effective Date. Filing the Enrollment Form will cause the transfer of balances previously deferred to the Participant's Accounts on the Effective Date, and the Member will enjoy all rights and privileges of a Participant including the ability to file initial Distribution Elections and Form of Payment Elections and to transfer shares between an Interest Account and a Phantom Stock Account. A properly filed Enrollment Form will cause all prior elections made under the Director Plan to be void immediately, unless otherwise stated in this Section 4. (j) With respect to transfers to a Participant's Accounts of amounts previously deferred pursuant to Sections 4(i) and 4(j): (i) No initial Distribution Election made with respect to such previously deferred amounts which designates distribution upon attainment of a designated age under Section 5 that will be attained within 12 months following the Effective Date shall be filed. (ii) No initial Distribution Election made with respect to such previously deferred amounts which designates distribution upon the Participant's retirement from the Board under Section 5 shall be effective if distribution would occur within 12 months following the Effective Date. - 6 - (iii) Any prior election made with respect to such previously deferred amounts which designates distribution upon the Participant's retirement from the Board shall remain in effect for 12 months following the Effective Date, and shall be void thereafter. (k) The value of a Participant's Interest Account shall be the sum of amounts deferred and all interest accrued thereon. The value of a Phantom Stock Account or Stock Account shall be the value of the units in a Participant's Account based on the average of the high and low price for CSX common stock as reported on the NYSE on the last business day prior to the date of any lump sum or installment distribution. The value of a Phantom Stock Account or Stock Account will fluctuate in value in line with the fluctuation in the price of CSX common stock. There can be no assurance on the market value of CSX common stock either at the time of crediting to a Participant's Account or at any time during the distribution period, nor can there be any assurance as to the continuation of dividends. 5. Distribution of Deferred Director's Fees (a) Amounts deferred under the Plan and credited to an Account shall be distributed to a Participant from such Account in a lump sum one year following the date in which a Participant ceases to be a Member, unless he shall file a Distribution Election as provided in this Section 5 or a Form of Payment Election as provided in Section 6. (b) A Participant may file with the Secretary a Distribution Election for the distribution from an Account upon: (i) attainment of a designated age, however, he shall not elect an age that he will attain less than one year subsequent to his Distribution Election; or (ii) retirement from the Board. (c) A Participant may file a Distribution Election or change a Distribution Election at any time prior to: (i) a date that is 30 days subsequent to the date of his retirement from the Board in the case of his initial Distribution Election; or (ii) one year prior to the date distribution is to commence under his Distribution Election then in effect, after which time no Distribution Election shall be filed. (e) A Participant may make a Partial Distribution Election with respect to any portion of a Participant's Account, provided no Distribution Election shall be made for a portion of an Account less than $2,000, as determined as of the date the election is made. No Participant shall have more than two Distribution Elections in effect for an Account at any time. (f) Except in the event of retirement from the board, distribution made pursuant to a - 7 - Distribution Election shall not commence prior to a date that is three years subsequent to the date the Participant first makes a Deferral under either this Plan or a predecessor plan which provides for the deferral of Director's Fees (g) Any Distribution Election made in proper form by a Participant shall be effective and distribution shall commence pursuant to such Distribution Election. Any Distribution Election not made in proper form shall be void. Distributions from a Participant's Stock Account shall be made only in shares of CSX common stock. (h) A Participant may request and receive a withdrawal from his Account at any time without filing a Distribution Election under this Section 5. Any such withdrawal shall result in the forfeiture of an amount equal to the portion of the Participant's Account that is withdrawn, multiplied by the Mid-term Applicable Federal Rate determined as of the Valuation Date upon which the withdrawal is effective. Notwithstanding the preceding, following a Change of Control, any decisions or determinations by the Administrator under this Section 5 shall be subject to the approval of the Benefits Trust Committee. (i) A Participant may make one additional election to defer (but not accelerate) commencement of payment under the Plan at any time six months before payments are to have commenced ("Re-deferral Election). Such Re-deferral Election shall be made in a form prescribed by the Administrator. If such Re-deferral Election is to a designated age the re-deferral shall be for a period not less than one year from the date the Re-deferral Election is made. 6. Form of Payment The Form of Payment Elections provided in this Section 6 shall be made in writing and may be changed at any time prior to a date that is six months prior to the date distribution is to commence, after which time the Form of Payment Election shall be irrevocable. If installment payments are elected for an Account, payments shall be made, as the Participant may elect, for either (a) five years, (b) ten years, or (c) fifteen years. Installments shall be on an annual or quarterly basis as the Participant may elect. The amount of each installment shall be determined by multiplying the value of the Participant's account at the end of the calendar quarter immediately preceding the installment date by a fraction, the numerator of which shall be one (1) and the denominator of which shall be the number of installment payments over which payment of such amount is to be made, less the number of installment payments theretofore made. In the case of installments from a Stock Account, fractional share amounts shall be rounded up to the next highest whole share amount, except in the case of the final installment, in which case a cash payment will be made for any fractional shares. 7. Death of a Participant (a) In the event a Participant shall die while he is a Member, the balance of his Accounts shall be paid in either a lump sum or installments (consistent with the Form of Payment Elections made by the Participant as described in Section 6) to his Designated Beneficiary. Each Participant may file with the Secretary a Designation of Beneficiary for this purpose. - 8 - (b) In the event a Participant shall die after he ceases to be a Member and before he has received complete distribution from his Account, the balance credited to his Account, (including applicable interest) shall be paid to his Designated Beneficiary consistent with the Form of Payment Elections made by the Participant as described in Section 6. (c) In the event a Participant shall not file a Designation of Beneficiary, or his Designated Beneficiary is not living at the Participant's death, the balance credited to his Accounts, (including applicable interest) shall be paid in full to his estate not later than the tenth day of the calendar year following his date of death. 8. Obligation of CSX This Plan shall be unfunded and credits to the Accounts of each Participant shall not be set apart for him nor otherwise made available so that he may draw upon it at any time, except as provided in this Plan. Neither any Participant nor his Designated Beneficiary shall have any right, title, or interest in such credits or any claim against them. Payments may only be made at such times and in the manner expressly provided in this Plan. CSX's contractual obligation is to make the payments when due. No notes or security for the payment of any Participant's account shall be issued by CSX. 9. Change of Control (a) If a Change of Control has occurred, the Administrator shall cause CSX to contribute to the Trust, within 7 days of such Change of Control, a lump sum payment equal to the unfunded aggregate value of the amount each Participant would be eligible to receive under 9(b) below (but calculated with respect to the Valuation Date described in this sentence, rather than the date of the applicable Distribution Event) as of the latest Valuation Date coinciding with or preceding the date of Change of Control to the extent such amounts are not already in the Trust. The aggregate value of the amount of the lump sum to be contributed to the Trust pursuant to this Section 9 shall be determined by CSX's Accountants after consultation with the entity then maintaining the Plan's records. Thereafter, CSX's Accountants shall annually determine as of a Valuation Date for each Participant not receiving a lump sum payment pursuant to Section 9(b), below, the amounts which would be payable under such subsection were a Distribution Event to occur at the date of such determination. To the extent that the value of the assets held in the Trust relating to this Plan do not equal the aggregate amount described in the preceding sentence, at the time of the valuation, as determined by CSX's Accountants, CSX shall make a lump sum contribution to the Trust equal to the difference. In no event, however, shall the Company's contribution to the Trust be less than the amount that would have been contributed thereto with respect to liabilities relating to the Plan (including related administrative and investment expenses), pursuant to and at the time and in the manner provided under Section l(h) of the Trust. (b) In the event a Distribution Event has occurred, the trustee of the Trust shall, within 45days of such Distribution Event, pay to each Participant not making an election under 9(c) below, a lump sum payment equal to the amount the Participant would have been entitled to receive determined under Section 6 had he ceased to be a Member and selected an immediate lump sum payment. The amount of each Participant's lump sum payment shall be determined by CSX's Accountants. - 9 - (c) New Participants in the Plan may elect in a time and manner determined by the Administrator, but in no event later than 90 days after becoming a Participant, to have amounts and benefits determined and payable under the terms of the Plan as if a Distribution Event had not occurred. A Participant who has made an election, as set forth in the two preceding sentences, may, at any time and from time to time, change that election; provided, however, a change of election that is made within one year of a Distribution Event shall be invalid. (d) Notwithstanding anything in the Plan to the contrary, each Participant who has made an election under Section 9(c), above, may elect within 90 days following a Distribution Event, in a time and manner determined by the Administrator, to receive a lump sum payment calculated under the provisions of 9(c), above, determined as of the Valuation Date next preceding such payment, except that such calculated amount shall be reduced by 5% and such reduction shall be irrevocably forfeited to CSX by the Participant. Furthermore, as a result of such election, the Participant shall no longer be eligible to participate or otherwise benefit from the Plan. Payments under this Section 9(d)shall be made not later than 7 days following receipt by CSX of the Participant's election. The Administrator shall, no later than 7 days after a Distribution Event has occurred, give written notification to each Participant eligible to make an election under this Section 9(d), that a Distribution Event has occurred and informing such Participant of the availability of the election. 10. Claims Against Participant's Account No credits to the account of any Participant under this Plan shall be subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance, or charge, and any attempt to do so shall be void. Nor shall any credit be subject to attachment or legal process for debts or other obligations. Nothing contained in this Plan shall give any Participant any interest, lien, or claim against any specific asset of CSX. No Participant or his Designated Beneficiary shall have any rights other than as a general creditor of CSX. 11. Competition by Participant In the event a Participant ceases to be a Member and becomes a proprietor, officer, partner, employee, director, or otherwise becomes affiliated with any business that is in competition with the Corporation, the entire balance credited to his account, including interest, or the value of the units in his Phantom Stock Account or Stock Account, if prior to a Change of Control, may, if directed by the Board in its sole discretion, be paid immediately to him in a lump sum. Following a Change of Control, such a decision by the Board is subject to the approval of the Benefits Trust Committee. 12. Payment of Credit Balance to Participant's Account Notwithstanding anything herein to the contrary, prior to a Change of Control, the Board may, in its sole discretion, direct payment in a lump sum, of any or all of the credit balance appearing at the time in the account of a Participant, and/or of the value of the units in his Phantom Stock Account or Stock - 10 - Account. Following a Change of Control, such action by the Board is subject to the approval of the Benefits Trust Committee. Further, the obligations of CSX and the benefit due any Participant or Designated Beneficiary under the Plan shall be reduced by any amount received in regard thereto under the Trust or any similar trust or other vehicle. 13. Joint and Several Obligation To the extent reflected by resolutions of the applicable boards of directors, obligations for benefits under this Plan shall be joint and several. 14. Amendment or Termination Prior to a Change of Control, this Plan may be altered, amended, suspended, or terminated at any time by the Board, on the recommendation of the Compensation Committee of the Board, provided, however, that no alteration, amendment, suspension, or termination shall be made to this Plan which would result in the distribution of amounts credited to the accounts of all Participants in any manner other than is provided in this Plan without the consent of all Participants. 15. Impact of Future Legislation or Regulation (a) This Section 15 shall become operative upon the enactment of any change in applicable statutory law or the promulgation by the Internal Revenue Service of a final regulation or other pronouncement having the force of law, which statutory law, as changed, or final regulation or pronouncement, as promulgated, would cause any Participant to include in his federal gross income amounts accrued by the Participant under the Plan on a date (an "Early Taxation Event") prior to the date on which such amounts are made available to him or her hereunder. (b) Notwithstanding any other Section of this Plan to the contrary (but subject to subsection (c), below), as of an Early Taxation Event, the feature or features of this Plan, or the election by a Participant that would cause the Early Taxation Event shall be null and void, to the extent, and only to the extent, required to prevent the Participant from being required to include in his federal gross income amounts accrued by the Participant under the Plan prior to the date on which such amounts are made available to him hereunder. By way of example, but not by way of limiting the generality of the foregoing, if a statute is enacted that would require a Participant to include in his or her federal gross income amounts accrued by the Participant under the Plan prior to the date on which such amounts are made available to him or her because of the Participant's right to receive a distribution of a portion of his Account under Section 6(h), the right of all Participants to receive distributions under Section 6(h) shall be null and void as of the effective date of that statute. If only a portion of a Participant's Account is impacted by the change in the law, then only such portion shall be subject to this Section, with the remainder of the Account not so affected being subject to such rights and features as if the law were not changed. If the law only impacts Participants who have a certain status with respect to the - 11 - Company, then only such Participants shall be subject to this Section. (c) Notwithstanding Section 15(b) above, if an Early Taxation Event occurs (e.g., if a change in law is retroactive), , the amounts that become taxable on the Early Taxation Event shall be distributed to each Participant as soon as practicable following such Early Taxation Event or if later, the date of enactment or promulgation. - 12 - AMENDMENT TO THE 2002 DIRECTOR DEFERRED COMPENSATION PLAN Effective January 1, 2004, interest will be credited at the rate of 10-year U.S. Treasury bonds as published by the Wall Street Journal on the last day of the preceding calendar year. Such rate will be reviewed and updated annually. EX-10.5 6 g87590exv10w5.txt EX-10.5 DIRECTORS' MATCHING GIFT PLAN PAGE 1 EXHIBIT 10.5 CSX CORPORATION DIRECTORS' MATCHING GIFT PROGRAM DIRECTORS' MATCHING GIFT PROGRAM CSX Corporation's Matching Gift Program is part of the Company's commitment to higher education. An educated population benefits the Company and the communities in which it does business. The Employee Matching Gift Program provides an opportunity for employees to determine directly the recipients of some of the Company's charitable donations. Directors and retired Directors of the company are entitled to participate in the Matching Gift program under the "Directors' Matching Gift Program," Gifts by Directors or retired Directors may be made jointly with a spouse. The participant need not be an alumnus of the eligible educational institution receiving the gift. ELIGIBLE INSTITUTIONS Colleges, including junior colleges, technical schools or other educational institutions above the high school level, universities, graduate end professional schools, or a state association of independent colleges and universities or other national association, foundation or fund which collects an distributes donations to independent colleges and universities, which is: 1. Located within the United States or one of its territories: 2. Public or private; 3. Non-profit, non-proprietary; 4. Accredited or approved by a recognized national or regional accrediting association; and 5. Recognized by the Internal Revenue Service as an organization to which contributions are tax deductible. CONTRIBUTIONS/CONDITIONS - - Individual contributions, with a minimum of $25 and a maximum of $5,000 per institution, per calendar year, will be matched, with a maximum annual Company match of $25,000 per Director. The matching rate is one to one. - - Contributions must be a personal gift from the Director's own funds, paid in cash or securities, and not a pledged gift. - - Funds will not be matched for extra-curricular programs or any other non-educational purposes such as sports, alumni capital improvement projects, dues, subscriptions, insurance premiums, or other such non-direct payments. PROGRAM ADMINISTRATION The program is administered by the Corporate Secretary of CSX Corporation, and may be suspended, revoked, terminated or amended by the Company at any time. Questions as to interpretation, application, administration or other aspects of the program shall be decided by the Corporate Secretary. - 1 - PAGE 2 The Corporate Secretary reserves the right to determine eligibility of an institution to receive matching funds under this program. INSTRUCTIONS - - Part A of the Application in this folder should be completed by the Director and the entire folder should accompany the Director's gift to an eligible institution. - - The qualifying institution, upon receipt of the gift and this folder, should complete Part B of the Application and return the entire folder to the Contributions Coordinator at the address below. - - Upon request, the beneficiary institution will provide evidence of its tax exempt status under section 501 (c) (3) of the Internal Revenue Code. - - All applications for matching gifts received during any calendar year will be paid when administratively convenient but not less than semi-annually. - - Additional forms may be secured from the Contributions Coordinator. Requests for information and all correspondence relating to the Directors' Matching Gift Program should be addressed to: Contributions Coordinator CSX Corporation P.O. Box 85629 Richmond, VA 23285-5629 - 2 - PAGE 3 Part A-Director's Section (To be completed by Director, who is to send this entire pamphlet, together with gift, to educational institution) Date__________________ Enclosed is my personal donation of $______________________________ to_______________________________________ Name of Educational Institution I hereby authorize the institution named above to report this gift to the Contributions Coordinator of CSX Corporation, for the purpose of qualifying for a contribution in accordance with the provisions of the Company's Matching Gift Program. ______________________________________________________________________ Director's Name (print in full) ______________________________________________________________________ Director's Address ______________________________________________________________________ City State Zip ______________________________________________________________________ Director's Signature - 3 - PAGE 4 Part 5-Beneficiary's Section (To be completed by an appropriate financial officer of the educational institution, and returned to Matching Gifts Administrator, P.O. Box 85629, Richmond, VA 23285-5629 I hereby certify that a donation of $____________________ was received on______ 18___, from ____________________________________ in favor of this institution; Name of Donor And I further certify that this institution meets all the requirements for eligibility as set forth in CSX Corporation's Matching Gift Program. Contributions to the beneficiary institution shown are tax deductible by CSX Corporation pursuant to Section 50l(c)(3) of the Internal Revenue Code, and that the beneficiary institution will provide evidence of this status upon request. _______________________________________ ____________________________ Name of Educational Institution Signature _______________________________________ ____________________________ Address of Educational Institution Name (print or type in full) _______________________________________ ____________________________ Title _______________________________________ ____________________________ Date - 4 - EX-10.24 7 g87590exv10w24.txt EX-10.24 1987 LONG TERM PERFORMANCE STOCK PLAN EXHIBIT 10.24 CSX CORPORATION 1987 LONG-TERM PERFORMANCE STOCK PLAN As Amended and Restated Effective April 25, 1996 (As Amended through September 8, 1999) 1. PURPOSE. The purpose of the CSX Corporation Long-Term Performance Stock Plan (the "Plan") is to attract and retain outstanding individuals as officers and key employees of CSX Corporation and its subsidiaries, to furnish motivation for the achievement of long-term performance objectives by providing such persons opportunities to acquire ownership of common shares of the Company, monetary payments based on the value of such shares or the financial performance of the Company; or both, on terms as herein provided. It is intended that the Incentives provided under this Plan will be treated as qualified performance-based compensation within the meaning of Section 162(m) of the Code. The Company believes there are circumstances, however, where the provision of compensation that is not fully deductible may be more consistent with the compensation philosophy of the Company and/or may be in the Company's and its shareholders' best interests. The Company reserves the right to exercise discretion and retain flexibility in this regard and in certain circumstances to provide incentives that do not qualify as deductible under Section 162(m). 2. DEFINITIONS. Whenever the following words are capitalized and used in the Plan, they shall have the respective meanings set forth below, unless a different meaning is expressly provided. Unless the context clearly indicates to the contrary, in reading this document the singular shall include the plural and the masculine shall include the feminine. a. "Beneficiary": The term Beneficiary shall mean the person designated by the Participant, on a form provided by the Company, to exercise the Participant's rights in accordance with Section 14 of the Plan in the event of his death. b. "Benefits Trust Committee": The term Benefits Trust Committee means the committee established pursuant to the CSX Corporation and Affiliated Companies Benefits Assurance Trust. c. "Board of Directors": The term Board of Directors or Board means the Board of Directors of CSX Corporation. d. "Cause": The term Cause means (i) an act or acts of personal dishonesty of a Participant intended to result in substantial personal enrichment of the Participant at the expense of the Company or any of its subsidiaries, (ii) violation of the management responsibilities by the Participant which is demonstrably willful and deliberate on the Participant's part and which is not remedied in a reasonable period of time after receipt of written notice from the Company or a subsidiary, or (iii) the conviction of the Participant of a felony involving moral turpitude. e. "Change in Control": The term Change in Control is defined in Section 22. f. "Code": The term Code means the Internal Revenue Code of 1986, as amended. g. "Committee": The term Committee means the Compensation Committee of the Board of Directors. h. "Company": The term Company means CSX Corporation. i. "Completed Month": The term Completed Month shall mean a period beginning on the monthly anniversary date of a grant of an Incentive and ending on the day before the next monthly anniversary. j. "Covered Employee": The term Covered Employee shall mean the chief executive officer of the Company or any other individual who is among the four (4) highest compensated officers or who is otherwise a "covered employee" within the meaning of Section 162(m) of the Code, as determined by the Committee. k. "Disability": The term Disability means long-term disability as determined under the Company's Salary Continuance and Long-Term Disability Plan. 1. "Divisive Transaction": The term Divisive Transaction means a transaction in which the Participant's employer ceases to be a Subsidiary or there is a sale of substantially all of the assets of the Subsidiary. m. "Exchange Act": The term Exchange Act means the Securities Exchange Act of 1934, as amended. n. "Exercisability Requirements": The term Exercisability Requirements used with respect to any grant of options means such restrictions or conditions on the exercise of such options that the Committee may, in its discretion, add to the one-year holding requirement contained in Sections 7 and 8. o. "Fair Market Value": The term Fair Market Value shall be deemed to be the mean between the highest and lowest quoted selling prices of the stock per share as reported under New York Stock Exchange-Composite Transactions on the day of reference to any event to which the term is pertinent, or, if there is no sale that day, on the last previous day on which any such sale occurred. p. "Functional Group": The term Functional Group means a group of employees, identified by the Compensation Committee, in its sole discretion, to be subject to a common set of Performance Objectives. q. "Incentive": The term Incentive means any incentive under the Plan described in Section 6. r. "Objective Standard": The term Objective Standard means a formula or standard by which a third party, having knowledge of the relevant performance results, could calculate the amount to be paid to a Participant. Such formula or standard shall specify the individual -2- employees or class of employees to which it applies, and shall preclude discretion to increase the amount payable that would otherwise be due upon attainment of the objective. s. "Participant": The term Participant means an individual designated by the Committee as a Participant pursuant to Section 5. t. "Performance Objective": The term Performance Objective shall mean a performance objective established in writing by the Committee within ninety (90) days of the commencement of the Performance Period to which the Performance Objective relates and at a time when the outcome of such objective is substantially uncertain. Each Performance Objective shall be established in such a way that a third party having knowledge of the relevant facts could determine whether the objective is met. A Performance Objective may be based on one or more business criteria that apply to the individual Participant, a business unit or the Company as a whole, and shall state, in terms of an Objective Standard, the method of computing the amount payable to the Participant if the Performance Objective is attained. With respect to Incentives granted to Covered Employees, the material terms of the Performance Objective shall be disclosed to, and must be subsequently approved by, a vote of the shareholders of the Company, consistent with the requirements of Section 162(m) of the Code and the regulations thereunder. The Performance Objectives for any Performance Period shall be based on one or more of the following measures, as determined by the Committee in writing within ninety (90) days of the commencement of the Performance Period: 1. The achievement by the Company or business unit of specific levels of Return on Invested Capital ("ROIC"). ROIC for the Company or business unit means its results of operations divided by its capital. 2. The generation by the Company or business unit of free cash flow. 3. The creation by the Company or business unit of specific levels of Economic Value Added ("EVA"). EVA for the Company or business unit means its ROIC less its cost of capital multiplied by its capital. 4. The creation by the Company of specific levels of Total Shareholder Return ("TSR"). TSR for the Company means total return to shareholders as measured by stock price appreciation plus dividends. u. "Performance Period": The term Performance Period means a fixed period of time, established by the Committee, during which a Participant performs service for the Company and during which Performance Objectives may be achieved. v. "Plan": The term Plan means this CSX Corporation 1987 Long-Term Performance Stock Plan as amended or restated from time to time. w. "Retirement": The term Retirement means a termination of employment after age 55 with eligibility to begin immediately receiving retirement benefits under the Company's defined benefit pension plan. x. "Separation From Employment": The term Separation From Employment means an employee's separation from employment with the Company or a Subsidiary as a result of -3- Retirement, death, Disability, or termination of employment (voluntarily or involuntarily). A Participant in receipt of periodic severance payments shall be considered separated from employment on the day preceding the day such severance payments commenced. y. "Subsidiary": The term Subsidiary means, with respect to any corporation, or corporation more than 50% of whose voting shares are owned directly or indirectly by the Company. z. "Trust": The term Trust means the CSX Corporation and Affiliated Companies Executives' Stock Trust or such other trust or trusts which substantially conforms to the terms of the Internal Revenue Service model trust as described in Revenue Procedure 92-64, 1992-2 C.B. 422. 3. NUMBER OF SHARES. Subject to the provisions of Section 19 of this Plan, the maximum number of shares which may be issued pursuant to the Incentives shall be 21,000,000 shares of the Company's common stock, par value $1.00 per share. The maximum number of such shares that may be issued pursuant to any type of Incentive shall be 17,500,000 shares. The remaining 3,500,000 shares may be issued only pursuant to grants of Incentive Stock Options, Non-Qualified Stock Options, and Stock Appreciation Rights. Such shares shall be authorized and unissued shares of the Company's common stock. Subject to the provisions of Section 19, if any Incentive granted under the Plan shall terminate or expire for any reason without having been exercised in full, the unissued shares subject thereto shall again be available for the purposes of the Plan. Similarly, shares which have been issued, but which the Company retains or which the Participant tenders to the Company in satisfaction of income and payroll tax withholding obligations or in satisfaction of the exercise price of any option shall remain authorized and shall again be available for the purposes of the Plan, provided, however, that any such previously issued shares shall not be the subject of any grant under the Plan to any officer of the Company who, at the time of such grant, is subject to the short-swing trading provisions of Section 16 of the Exchange Act. 4. ADMINISTRATION. a. Prior to a Change of Control, the Plan shall be administered by the Committee. The Committee shall consist of three or more members of the Board of Directors. No member of the Committee shall be eligible to receive any Incentives under the Plan while a member of the Committee. A majority of the Committee shall constitute a quorum. The Committee shall recommend to the Board individuals to receive Incentives, including the type and amount thereof, unless the Board shall have delegated to the Committee the authority and power to select persons to whom Incentives may be granted, to establish the type and amount thereof, and to make such grants. Subject to the express provisions of the Plan, the Committee shall have authority to construe any agreements entered into with any person in respect of any Incentive or Incentives, to prescribe, amend and rescind rules and regulations relating to the Plan, to determine the terms and provisions of any such agreements and to make all other determinations necessary or advisable for administering the Plan. The Committee may correct any defect or supply any omission or reconcile any inconsistency in the Plan or in any agreement under the Plan in the manner and to the extent it shall deem expedient to carry it into effect, and it shall be the sole and final judge of such expedience. Any determination of the Committee under the Plan may be made without notice of meeting of the Committee by a writing signed by a majority of the Committee members. The determinations of the Committee on the matters referred to in this Section 4 shall be conclusive. -4- b. Following a Change of Control, the Benefits Trust Committee may remove and/or replace the Committee as the Plan Administrator. Additionally, following a Change of Control, any and all final benefit determinations for Participants, their beneficiaries, heirs and assigns and decisions regarding benefit claims under this Plan shall rest with the Benefits Trust Committee or its delegate in its sole judgment and absolute discretion. 5. ELIGIBILITY AND PARTICIPATION. Incentives may be granted only to officers and key employees of the Company and of its Subsidiaries at the time of such grant as the Committee in its sole discretion may designate from time to time to receive an Incentive or Incentives. An officer or key employee who is so designated shall become a Participant. A director of the Company or of a Subsidiary who is not also an officer or employee of the Company or of such Subsidiary will not be eligible to receive an Incentive. The Committee's designation of an individual to receive an Incentive at any time shall not require the Committee to designate such person to receive an Incentive at any other time. The Committee shall consider such factors as it deems pertinent in selecting Participants and in determining the type and amount of their respective Incentives, including without limitation (a) the financial condition of the Company, (b) anticipated financial results for the current or future years, including return on invested capital, (c) the contribution by the Participant to the profitability and development of the Company through achievement of established strategic objectives, and (d) other compensation provided to Participants. 6. INCENTIVES. Incentives may be granted in any one or a combination of (a) Incentive Stock Options; (b) Non-Qualified Stock Options; (c) Stock Appreciation Rights; (d) Performance Shares; (e) Performance Units; (f) Restricted Stock; and (g) Incentive Compensation Program Shares, all as described below and pursuant to the terms set forth in Sections 3 and 7-12 hereof. With respect to Items (a)-(c), the maximum number of shares of common stock of the Company with respect to which these Incentives may be granted in any Plan Year to any Participant will be 750,000. With respect to Items (d)-(f), the maximum number of shares of common stock of the Company with respect to which these Incentives may be granted during any Plan Year to any Participant will be 150,000. 7. INCENTIVE STOCK OPTIONS. Incentive Stock Options (ISOs) will consist of options to purchase shares of the Company's common stock at purchase prices not less than 100 percent of the Fair Market Value of such common stock on the date of grant. ISOs will be exercisable upon the date or dates specified in an option agreement entered into with a Participant but not earlier than one year after the date of grant of the options and not later than 10 years after the date of grant of the options; provided, however, that whether or not the one-year holding requirement is satisfied, any Exercisability Requirements must be satisfied. For options granted after December 31, 1986, the aggregate Fair Market Value, determined at the date of grant, of shares for which ISOs are exercisable for the first time by a Participant during any calendar year shall not exceed $100,000. Notwithstanding the provisions of Section 5 of this Plan, no individual will be eligible for or granted an ISO if that individual owns stock of the Company possessing more than 10 percent of the total combined voting power of all classes of the stock of the Company or its Subsidiaries. -5- Any Participant who is an option holder may exercise his option to purchase stock in whole or in part upon the date or dates specified in the option agreement offered to him. In no case may an option be exercised for a fraction of a share. Except as set forth in this Section 7, Section 12 and in Sections 14 through 16, no option holder may exercise an option unless at the time of exercise he has been in the continuous employ of the Company or one of its Subsidiaries since the grant of such option. An option holder under this Plan shall have no rights as a shareholder with respect to any shares subject to such option until such shares have been issued. For purposes of this Section 7, written notice of exercise must be received by the Corporate Secretary of the Company not less than one year nor more than 10 years after the option is granted. Such notice must state the number of shares being exercised and must be accompanied by payment of the full purchase price of such shares. Payment for the shares for which an option is exercised may be made by (1) a personal check or money order payable to CSX Corporation; (2) a tender by the employee (in accordance with procedures established by the Company) of shares of the Company's common stock having a Fair Market Value on the date of tender equaling the purchase price of the shares for which the option is being exercised; or (3) any combination of (1) and (2). 8. NON-QUALIFIED STOCK OPTIONS. NQSOs will be exercisable upon the date or dates specified in an option agreement entered into with a Participant but not earlier than one year after the date of grant of the options and not later than 10 years after the date of grant of the options (15 years if the NQSO grant was a 15-year grant); provided, however, that whether or not the one-year holding requirement is satisfied, any Exercisability Requirements must be satisfied. Any Participant may exercise an option to purchase stock upon the date or dates specified in the option agreement offered to him. In no case may an option be exercised for a fraction of a share. Except as set forth in this Section 7, Section 12 and in Sections 14 through 16, no option holder may exercise an option unless at the time of exercise he has been in the continuous employ of the Company or one of its Subsidiaries since the grant of his option. An option holder under this Plan shall have no rights as a shareholder with respect to any shares subject to such option until such shares have been issued. For purposes of this Section 8, written notice of exercise must be received by the Corporate Secretary of the Company, not earlier than one year nor later than 10 years after the option is granted; provided, however, effective for grants of options after December 31, 1998, the term of the option may be 15 years instead of 10 years. Such notice must state the number of shares being exercised and must be accompanied by payment of the full purchase price of such shares. Payment for the shares for which an option is exercised may be made by (1) a personal check or money order payable to CSX Corporation; (2) a tender by the employee (in accordance with procedures established by the Company) of shares of the Company's common stock having a Fair Market Value on the date of tender equaling the purchase price of the shares for which the option is being exercised; (3) the delivery of a properly executed exercise notice, together with irrevocable instructions to a broker to promptly deliver to the Company either sale proceeds of shares sold to pay the purchase price or the amount loaned by the broker to pay the purchase price; or (4) any combination of (1), (2) and (3). Non-Qualified Stock Options (NQSOs) will consist of options to purchase shares of the Company's common stock at purchase prices not less than 100 percent of the Fair Market Value of such common stock on the date of grant; provided, further, effective for grants of options after December 31, 1998, the term of the option may be 15 years instead of 10 years. -6- 9. Stock Appreciation Rights. Any option granted under the Plan may include a stock appreciation right (SAR) by which the participant may surrender to the Company all or a portion of the option to the extent exercisable at the time of surrender and receive in exchange a payment equal to the excess of the Fair Market Value of the shares covered by the option portion surrendered over the aggregate option price of such shares. Such payment shall be made in shares of Company common stock, in cash, or partly in shares and partly in cash, as the Committee in its sole discretion shall determine, but in no event shall the number of shares of common stock delivered upon a surrender exceed the number the option holder could then purchase upon exercise of the option. Such rights may be granted by the Committee concurrently with the option or thereafter by amendment upon such terms and conditions as the Committee may determine. The Committee may also grant, in addition to, or in lieu of options to purchase stock, SARs which will entitle the Participant to receive a payment upon surrender of that right, or portion of that right in accordance with the provisions of the Plan, equaling the difference between the Fair Market Value of a stated number of shares of Company common stock on the date of the grant and the Fair Market Value of a comparable number of shares of Company common stock on the day of surrender, adjusted for stock dividends declared between the time of the grant of the SAR and its surrender. The Committee shall have the right to limit the amount of appreciation with respect to any or all of the SARs granted. Payment made upon the exercise of the SARs may be in cash or shares of Company common stock, or partly in shares and partly in cash, as the Committee in its sole discretion shall determine. For purposes of this Section 9, written notice must be received by the Corporate Secretary of the Company not earlier than one year nor later than 10 years after the SAR is granted. Such notice must state the number of SARs being surrendered and the method of settlement desired within the guidelines established from time to time by the Committee. The SAR holder will receive settlement based on the Fair Market Value on the day the written request is received by the Corporate Secretary of the Company. In certain situations as determined by the Committee, for purposes of this Section 9, written notice must be received by the Corporate Secretary of the Company between the third and twelfth business days after the public release of the Company's quarterly earnings report, or between such other, different period as may hereinafter be established by the Securities and Exchange Commission. For such settlements, a Participant subject to a restricted exercise period shall receive settlement based on the highest Fair Market Value during the period described in the foregoing sentence. The Committee may not grant an SAR or other rights under this Section 9 in connection with an incentive stock option if such grant would cause the option or the Plan not to qualify under Section 422 of the Code or if it is prohibited by such section or Treasury regulations issued thereunder. Any grant of an SAR or other rights which would disqualify either the option as an ISO or the Plan, or which is prohibited by Section 422 of the Code or Treasury regulations issued thereunder, is and will be considered as void and vesting no rights in the grantee. It is a condition for eligibility for the benefits of the option and of the Plan that the Participant agree that in the event an SAR or other right granted should be determined to be void as provided by the foregoing, the Participant has no right or cause of action against the Company. 10. Performance Unit Awards and Performance Share Awards. The Committee may grant Performance Unit Awards (PUAs) and Performance Share Awards (PSAs) under which payment shall be made in shares of the Company's common stock, in cash, or partly in shares and partly in cash, as the Committee in its sole discretion shall determine. PUAs and PSAs may be awarded to individual Participants or to a Functional Group. Awards to a Functional Group shall be subject -7- to distribution by the Chief Executive Officer of the Company, or by his designees, to individuals within such group. At the time of the grant, the Committee shall establish in writing and communicate to Participants, and to members of a Functional Group who can be identified, Performance Objectives to be achieved during the Performance Period. Awards of PUAs and PSAs may be determined by the average level of attainment of Performance Objectives over multiple Performance Periods. Prior to the payment of PUAs and PSAs, the Committee shall determine the extent to which Performance Objectives have been attained during the Performance Period or Performance Periods in order to determine the level of payment to be made, if any, and shall record such results in the minutes of the meeting of the Committee. In no instance will payment be made if the Performance Objectives are not attained. Payment, if any, shall be made in a lump sum or in installments, in cash or shares of Company common stock, as determined by the Committee, commencing as promptly as feasible following the end of the Performance Period, except that (a) payments to be made in cash may be deferred subject to such terms and conditions as may be prescribed by the Company, and (b) payments to be made in Company common stock may be deferred pursuant to an election filed on forms prescribed and provided by and filed with the Company. A Participant may elect annually to defer to a date certain, or the occurrence of an event, as provided in the form, the receipt of all or any part of shares of Company common stock he may subsequently become entitled to receive. On forms provided by and filed with the Company, the Participant shall also specify whether, when the deferral period expires or when the restrictions below lapse, payment will be in a lump sum or installments over a period not exceeding twenty (20) years. The Committee shall prescribe the time periods during which the election must be filed in order to be effective. Elections to defer, once effective, are irrevocable. Changes regarding the date of payment, the period over which payments are to be made and the method of payment are subject to substantial penalties. However, a One-Time Change of Distribution Election may be made to change the timing or the form of payment without penalty. Any such election which changes a distribution election on "termination of employment" or "the earlier of termination or a specified age" shall be void in the event the Participant's employment terminates within twelve (12) months following the date of the election. If a Participant has made an effective election to defer the payment of shares of common stock, the Company shall, within a reasonable period of time after the deferral election is made, transfer shares of common stock or other assets equal in value to the number of shares as to which payment is deferred to the Trust to secure the Company's obligation to pay shares of common stock to the Participant in the future. However, in any event, the Company shall make any previously deferred payment of shares to the Participant upon: a. the death of the Participant; b. the Disability of the Participant; c. the Participant's termination of employment with the Company or a subsidiary of the Company, subject to the Participant's deferral election; d. A Divisive Transaction, subject to the Participant's deferral election; or e. a Change in Control. If a former Participant who has not received distribution of his entire deferred payment under this Section is reemployed and again becomes a Participant in the Plan, he may suspend payment of any remaining amounts deferred, by notifying the Company in writing, and make a new deferral election, without penalty, with respect to those amounts and new amounts deferred so long as such change does not accelerate the timing of any payment to the Participant; provided, however, distributions shall -8- continue if the commencement of distribution was because the Participant chose a specific age for the commencement of benefits and that age has been attained. Notwithstanding a Participant's election to defer the payment of shares of common stock pursuant to this Section 10, the Company shall make cash payments to Participants following each common stock dividend payment date equal to the dividends payable on the number of shares of Company common stock credited to the Participant's account as of the dividend record date (including shares for which an election to defer has been made and any reinvested dividends thereon). A Participant may elect to defer receipt of the cash payments pursuant to election forms prescribed and provided by and filed with the Company. Such deferred cash payments shall be credited to the Participant's account and reinvested in shares of Company common stock as of the dividend payment date. An election to defer, once effective, shall be irrevocable for the calendar year, and shall continue in effect with respect to subsequent calendar years until changed by a timely filed new election. Any dividends paid on shares of Company common stock held in the Trust shall be paid to the Trust and shall be reinvested in shares of Company common stock, or other assets equal in value, to secure the Company's obligation to pay shares of common stock to Participants in the future. 11. RESTRICTED STOCK. A Restricted Stock Award (RSA) shall entitle the Participant, subject to his continued employment during the restriction period determined by the Committee and his complete satisfaction of any other conditions, restrictions and limitations imposed in accordance with the Plan, to the unconditional ownership of the shares of the Company's common stock covered by the grant without payment therefore. The Committee may grant RSAs at any time or from time to time to a Participant selected by the Committee in its sole discretion. The Committee shall establish at the time of grant of each RSA a Performance Period and Performance Objectives to be achieved during the Performance Period. At the time of grant, the Performance Period and Performance Objectives shall be set forth either in agreements or in guidelines communicated to the Participant in such form consistent with this Plan as the Committee shall approve from time to time. Following the conclusion of each Performance Period and prior to payment, the Committee shall determine the extent to which Performance Objectives have been attained or a degree of achievement between maximum and minimum Performance Objectives during the Performance Period in order to determine the level of payment to be made, if any, and shall record such results in the minutes of the meeting of the Committee. In no instance will payment be made if the Performance Objectives are not attained. At the time that an RSA is granted, the Committee shall establish in the written agreement a restriction period applicable to all shares covered by such grant. Subject to the provisions of the next following paragraph, the Participant shall have all of the rights of a stockholder of record with respect to the shares covered by the grant to receive dividends or other distributions in respect of such shares (provided, however, that any shares of stock of the Company distributed with respect to such shares shall be subject to all of the restrictions applicable to such shares) and to vote such shares on all matters submitted to the stockholders of the Company, but such shares shall not be sold, exchanged, pledged, hypothecated or otherwise disposed of at any time prior to the expiration of the restriction period, including by operation of law, and any purported disposition, including by operation of law, shall result in automatic forfeiture of any such shares. -9- Except as hereinafter provided, if, during the restriction period applicable to such grant, a Separation From Employment of a Participant occurs for any reason other than death, Disability or Retirement, all shares covered by such grant shall be forfeited to the Company automatically. If the Participant's Separation From Employment is because of Retirement or death, or in the event of Disability, the Participant or his successor in interest shall be entitled to unconditional ownership of a fraction of the total number of shares covered by such grant of which the numerator is the number of whole calendar months in the period commencing with the first whole calendar month following the date of grant and ending with the whole calendar month including the date of death, Disability or Retirement, and of which the denominator is the number of whole calendar months in the applicable restriction period. Any fractional shares shall be disregarded. The Committee may, at the time of granting any RSA, impose such other conditions, restrictions or limitations upon the rights of the Participants during the restriction period or upon the Participant's right to acquire unconditional ownership of shares as the Committee may, in its discretion, determine and set forth in the written agreement. At the time of grant of an RSA, the Company shall cause to be issued and registered in the name of the Participant a stock certificate representing the full number of shares covered thereby, which certificate shall bear an appropriate legend referring to the terms, conditions and restrictions applicable to such grant, and the grantee shall execute and deliver to the Company a stock power endorsed in blank covering such shares. Such stock certificate and stock power shall be held by the Company or its designee until the expiration of the restriction period, at which time the same shall be delivered to the Participant or his designee if all of the conditions and restrictions of the grant have been satisfied, or until the forfeiture of such shares, at which time the same shall be cancelled and the shares shall be returned to the status of unissued shares. 12. INCENTIVE COMPENSATION PROGRAM SHARES. A Participant who receives base compensation in excess of a dollar level to be determined by the Committee and who is eligible to receive an award under the Company's Incentive Compensation Program ("ICP") may elect, by filing the prescribed election form with the Company in accordance with rules established by the Committee, to receive all or part of his annual ICP award in shares of the Company's common stock, rather than cash; provided, however, the Participant must agree that his receipt of the stock will be deferred until his retirement or termination of employment, with a minimum deferral period of three (3) years. Elections to defer are irrevocable. A Participant who makes such election shall, at the time that the stock is deferred, receive an additional award of stock equal to a percentage, established by the Committee from time to time, of the amount that he elected to have deferred, but not to exceed 25% (the "Stock Premium"). The Participant's election to defer shall also apply to the Stock Premium. If a Participant made an effective election to defer the payment of shares of common stock and receive the Stock Premium, the Company shall, within a reasonable period of time after the deferral election is made, transfer shares of common stock or other assets equal in value to the number of shares as to which payment is deferred to the Trust to secure the Company's obligation to pay shares of common stock to the Participant in the future. However, in any event, the Company shall make any previously deferred payment of shares to the Participant upon: a. the death of the Participant; b. the Disability of the Participant; -10- c. the Participant's termination of employment with the Company or a subsidiary of the Company, subject to the Participant's deferral election and the three (3) year deferral requirement; d. a Divisive Transaction, subject to the Participant's deferral election; or e. a Change in Control. Notwithstanding any provisions of this Plan to the contrary, upon the occurrence of a Divisive Transaction, the three (3) year holding requirement of the stock premium for deferred ICP shares shall be deemed satisfied. Notwithstanding a Participant's election to defer the payment of shares of common stock pursuant to this Section 12, the Company shall make cash payments to Participants following each common stock dividend payment date equal to the dividends payable on the number of shares of Company common stock credited to the Participant's account as of the dividend record date (including shares for which an election to defer has been made and any reinvested dividends thereon). A Participant may elect to defer receipt of the cash payments pursuant to election forms prescribed and provided by and filed with the Company. Such deferred cash payments shall be credited to the Participant's account and reinvested in shares of Company common stock as of the dividend payment date. An election to defer, once effective, shall be irrevocable for the calendar year, and shall continue in effect with respect to subsequent calendar years until changed by a timely filed new election. 13. CONTRIBUTIONS TO THE TRUST. a. The Company shall make contributions to the Trust to secure a source of future payments with respect to Participant's deferral elections pursuant to Sections 10 and 12. The Trustee shall be responsible only for contributions actually received by it hereunder and the Trustee shall have no duty or responsibility with respect to the timing, amounts and sufficiency of the contributions made or to be made by the Company hereunder. b. The Company may make contributions to the Trust in Common Stock. c. A separate bookkeeping account (an "Account") shall be established by the Trustee for each Participant covered by the Trust pursuant to the Plan, as directed in writing by the Company. A Participant may have more than one Account. Each account is intended to represent the amount of a Participant's deferred and unpaid benefit under the related provisions of the Plan. The value of a Participant's Account at any time will equal the fair market value of the number of shares of Common Stock owed to a Participant under the affected provisions of this Plan at such time. The number of shares owed at any time will equal the number of shares of Common Stock which were originally deferred by the Participant (including any applicable Stock Premium), plus, the number of Common Stock Shares which would have been acquired if dividends subsequently declared by the Company had been paid with respect to such shares and reinvested in Common Stock. "Account" may also mean individual sub-accounts which have been or may be established under this Plan from time to time. d. Within sixty days following the close of each calendar year, or more frequently or at such other time as may be required by the Trust Agreement, the Trustee shall provide the Company and each Participant with a written statement of the Account of each Participant. -11- 14. SEPARATION FROM EMPLOYMENT AND DIVISIVE TRANSACTIONS. If the Participant's Separation From Employment is because of Disability or death, the right of the Participant or his successor in interest to exercise an ISO. NQSO or SAR shall terminate not later than five years after the date of such Disability or death, but in no event later than 10 years from the date of grant (15 years if the NQSO grant was a 15-year grant); provided, however, that if such Participant is eligible to retire with the ability to begin immediately receiving retirement benefits under the Company's pension plan, his or his successor in interest's right to exercise any ISOs, NQSOs or SARs shall be determined as if his Separation From Employment was because of Retirement. If the Participant's Separation From Employment is because of his Retirement, the right of the Participant or his successor in interest to exercise an ISO, NQSO or SAR shall terminate not later than 10 years from the date of grant (15 years if the NQSO grant was a 15-year grant). Unless the Committee deems it necessary in individual cases (except with respect to Covered Employees) to extend a Participant's exercise period, if a Participant's Separation From Employment is for any reason other than Retirement, Disability or death, the right of the Participant to exercise an ISO, NQSO or SAR shall terminate not later than one year from the date of Separation From Employment, but in no event later than 10 years after the date of grant (15 years if the NQSO grant was a 15-year grant). For any ISO, NQSO or SAR granted after December 31, 1998, the Participant must exercise within 30 days instead of one year. At the time of his Separation From Employment for any reason other than Cause, a Participant shall vest in a portion of any Incentives granted under Sections 7 (ISOs), 8 (NQSOs) or 9 (SARs) that he has held for less than one year from the date of the grant. The portion of such Incentives in which the Participants shall vest shall be determined by multiplying all shares subject to such Incentives by a fraction, the numerator of which shall be the number of Completed Months of employment following the date of grant and the denominator of which shall be twelve. A Participant who vests in any Incentives under the preceding paragraph may not exercise such Incentives prior to the satisfaction of the one-year holding requirement and the Exercisability Requirements pertaining to such Incentives. Any Incentives vested under the preceding paragraph must be exercised within one year from the date of the Participant's Separation From Employment. If the Participant's employer is a Subsidiary involved in a Divisive Transaction or if the Participant's employment is terminated with the consent of the Company (as a result of a business transaction or a reduction in force or any other circumstances approved by the Committee), the right of the Participant or his successor in interest to exercise an ISO, NQSO or SAR shall terminate not less than three years after the date of the closing of such Divisive Transaction or after the date the Participant's employment is terminated with the consent of the Company, but in no event later than 10 years from the date of grant (15 years if the NQSO grant was a 15-year grant); provided, however, that if such Participant is eligible to retire with the ability to begin immediately receiving retirement benefits under the Company's pension plan, his or his successor in interest's right to exercise any ISO, NQSO' or SAR' shall be determined as if he had retired. Notwithstanding anything to the contrary in this paragraph, a Participant may not exercise such Incentives prior to satisfaction of the one year holding requirement and the Exercisability Requirements pertaining to such Incentives. In the event of a Divisive Transaction, employees of Sea-Land Service, Inc., hired by that corporation prior to January 1, 1986, shall be deemed eligible to retire upon termination of employment after age 50 with 20 years of service and eligibility to begin immediately receiving retirement benefits under the Company's defined benefit pension plan. -12- As to PUAs or PSAs, in the event of a Participant's Separation from Employment because of his Retirement, Disability or death prior to the end of the applicable Performance Period, or if the Participant's employer is a Subsidiary involved in a Divisive Transaction prior to the end of the applicable Performance Period, payment, if any, to the extent earned under the applicable Performance Objectives and awarded by the Committee, shall be payable at the end of the Performance Period in proportion to the active service of the Participant during the Performance Period, as determined by the Committee. If the Separation From Employment prior to the end of the Performance Period is for any other reason, the Participant's participation in Section 10 of the Plan shall immediately terminate, his agreement shall become void and the PUA or PSA shall be canceled. Notwithstanding anything to the contrary in this Plan, if a Participant or former Participant (a) becomes the owner, director or employee of a competitor of the Company or its subsidiaries, (b) has his employment terminated by the Company or one of its subsidiaries on account of actions by the Participant which are detrimental to the interests of the Company or its subsidiaries, or (c) engages in conduct subsequent to the termination of his employment with the Company or its subsidiaries which the Committee determines to be detrimental to the interests of the Company or its subsidiaries then the Committee may, in its sole discretion, pay the Participant or former Participant a single sum payment equal to the amount of his unpaid benefits which were awarded and deferred under Sections 10 or 12 of the Plan; provided, however, if the deferral has been for less than three (3) years under Section 12, the Participant shall not be eligible to receive the Stock Premium. The single sum payment shall be made as soon as practicable following the date the Participant or former Participant becomes an owner, director or employee of a competitor, his termination of employment or the Committee's determination of detrimental conduct, as the case may be, and shall be in lieu of all other benefits which may be payable to the Participant or former Participant under this Plan. Effective for Incentives granted after December 31, 1998, notwithstanding anything to the contrary in this Plan, if a Participant or former Participant (a) becomes associated with, recruits or solicits customers or other employees of the Company or its Subsidiaries for, is employed by, renders services to, or owns any interest in (other than any nonsubstantial interest, as determined by the Committee) any business that is in competition with the Company or one of its subsidiaries, (b) has his employment terminated by the Company or one of its subsidiaries for Cause or on account of actions, by the Participant which are detrimental to the interests of the Company or its subsidiaries, or (c) engages in, or has engaged in, conduct at the time of or subsequent to the termination of his employment with the Company or its subsidiaries which the Committee determines to be detrimental to the interests of the Company or its subsidiaries then the Committee may, in its sole discretion, except following a Change of Control, cancel all outstanding Incentives of the Participant, including immediately terminating any Options held by the Participant, regardless of whether then exercisable. 15. INCENTIVES NON-ASSIGNABLE AND NON-TRANSFERABLE. Any Incentive granted under this Plan shall be non-assignable and non-transferable other than as provided in Section 16 and shall be exercisable (including any action of surrender and exercise of rights under Section 9) during the Participant's lifetime only by the Participant who is the holder of the Incentive or by his guardian or legal representative. 16. DEATH OF OPTION HOLDER. In the event of the death of a Participant who is an Incentive holder under the Plan while employed by the Company or one of its subsidiaries or prior to exercise of all rights under an Incentive, the Incentive theretofore granted may be exercised (including any action of surrender and exercise of rights under -13- Section 9) by the Participant's Beneficiary or, if no Beneficiary is designated, by the executor or executrix of the Participant's estate or by the person or persons to whom rights under the Incentive shall pass by will or the laws of descent and distribution in accordance with the provisions of the Plan and of the option and to the same extent as though the Participant were then living. 17. NO RIGHT TO CONTINUED EMPLOYMENT. Notwithstanding any other provisions of this Plan to the contrary, it is a condition for eligibility for any benefit or right under this Plan that each individual agrees that his or her designation as a Participant and any grant made under the Plan may be rescinded and determined to be void and forfeited entirely in the absolute and sole discretion of the Committee in the event that such individual is discharged for Cause. Incentives granted under the Plan shall not be affected by any change of employment so long as the Incentive holder has not suffered a Separation From Employment. A leave of absence granted by the Company or one of its subsidiaries shall not constitute Separation From Employment unless so determined by the Committee. Nothing in the Plan or in any Incentive granted pursuant to the Plan shall confer on any individual any right to continue in the employ of the Company or one of its subsidiaries or interfere in any way with the right of the Company or such subsidiary to terminate employment at any time. 18. FUNDING METHOD. To the extent reflected by resolutions of the applicable boards of directors, obligations for benefits under this Plan shall be joint and several. 19. ADJUSTMENT OF SHARES. a. In the event of any change (through recapitalization, merger, consolidation, stock dividend, split-up, combination or exchanges of shares or otherwise) in the character or amount of the Company's common stock prior to exercise of any Incentive granted under this Plan, the Incentives, to the extent not exercised, shall entitle the Participant who is the holder to such number and kind of securities as he would have been entitled to had he actually owned the stock subject to the Incentives at the time of the occurrence of such change. If any such event should occur, prior to exercise of an Incentive granted hereunder, which shall increase or decrease the amount of common stock outstanding and which the Committee, in its sole discretion, shall determine equitably requires an adjustment in the number of shares which the Incentive holder should be permitted to acquire, such adjustment as the Committee shall determine may be made, and when so made shall be effective and binding for all purposes of the Plan. b. Incentives may also be granted having terms and provisions which vary from those specified in the Plan provided that any Incentives granted pursuant to this paragraph are granted in substitution for, or in connection with the assumption of, then existing Incentives granted by another corporation and assumed or otherwise agreed to be provided for by the Company pursuant to or by reason of a transaction involving a corporate merger, consolidation, acquisition of property or stock, separation, reorganization or liquidation to which the Company or a subsidiary corporation is a party. c. The obligations of the Company or any of its affiliated corporations and the benefit due any Participant, surviving spouse or beneficiary hereunder shall be reduced by any amount received in regard thereto under the CSX Corporation and Affiliated Companies Executives' Stock Trust or any similar trust or trusts or other vehicle. -14- d. Notwithstanding the preceding, following a Change of Control, the authority to delay payment of a Participant's benefits rests solely with the Benefits Trust Committee 20. LOANS TO OPTION HOLDERS. The Committee may adopt programs and procedures pursuant to which the Company may lend money to any Participant who is an Incentive holder for the purpose of assisting the Participant to acquire or carry shares of common stock issued upon the exercise of Incentives granted under the Plan. 21. TERMINATION AND AMENDMENT OF PLAN. a. Unless the Plan shall have been previously terminated as hereinafter provided, the Plan shall terminate on April 27, 2000, and no Incentives under it shall be granted thereafter. The Board of Directors, without further approval of the company's shareholders, may at any time prior to that date terminate the Plan, and thereafter no further Incentives may be granted under the Plan. However, Incentives previously granted thereunder may continue to be exercised in accordance with the terms thereof. Following a Change of Control, all amendments to this Plan are subject to the approval of the Benefits Trust Committee. b. Prior to a Change of Control, the Board of Directors, without further approval of the shareholders, may, on the recommendation of the Compensation Committee of the Board, amend the Plan from time to time in such respects as the Board may deem advisable; provided, however, that no amendment shall become effective without prior approval of the shareholders which would: (i) increase (except in accordance with Section 19) the maximum number of shares for which Incentives may be granted under the Plan; (ii) reduce (except in accordance with Section 19) the Incentive price below the Fair Market Value of the Company's common stock on the date of grant of the Incentive; (iii) extend the term of the Plan beyond April 27, 2000; (iv) change the standards of eligibility prescribed by Section 5; or (v) increase the maximum awards identified in Sections 7, 8, 9, 10 and 11. Following a Change of Control, all amendments to this Plan are subject to the approval of the Benefits Trust Committee. c. No termination or amendment of the Plan may, without the consent of a Participant who is a holder of an Incentive then existing, terminate his or her Incentive or materially and adversely affect his or her rights under the Incentive. 22. CHANGE IN CONTROL. a. Notwithstanding any provision of this Plan to the contrary, upon the occurrence of a Change in Control as set forth in subsection b., below: (i) all stock options then outstanding under this Plan shall become fully exercisable as of the date of the Change in Control, whether or not then otherwise exercisable; (ii) all SARs which have been outstanding for at least six months shall become fully exercisable as of the date of the Change in Control, whether or not then otherwise exercisable; (iii) all terms and conditions of RSAs then outstanding shall be deemed satisfied as of the date of the Change in Control; (iv) all PUAs and PSAs then outstanding shall be deemed to have been fully earned and to be immediately payable in cash as of the date of the Change of Control, however, Participants may defer those cash payments, as stock, into the Trust, consistent with the deferral provisions of Section 10; and (v) the three (3) year holding requirement of the Stock Premium for deferred ICP shall be deemed satisfied. -15- b. A "Change in Control" shall mean any of the following: (i) Stock Acquisition. The acquisition, by any individual, entity or group [within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")] (a "Person") of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 20% or more of either (A) the then outstanding shares of common stock of the Company (the "Outstanding Company Common Stock"), or (B) the combined voting power of the then outstanding voting securities of the Company entitled to vote generally in the election of directors (the "Outstanding Company Voting Securities"); provided, however, that for purposes of this subsection (i), the following acquisitions shall not constitute a Change of Control: (A) any acquisition directly from the Company; (B) any acquisition by the Company; (C) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any corporation controlled by the Company; or (D)any acquisition by any corporation pursuant to a transaction which complies with clauses (A), (B) and (C) of subsection (iii) of this Section 22(b); or (ii) Board Composition. Individuals who, as of the date hereof, constitute the Board of Directors (the "Incumbent Board") cease for any reason to constitute at least a majority of the Board of Directors; provided, however, that any individual becoming a director subsequent to the date hereof whose election or nomination for election by the Company's shareholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board of Directors; or (iii) Business Combination. Approval by the shareholders of the Company of a reorganization, merger, consolidation or sale or other disposition of all or substantially all of the assets of the Company or its principal subsidiary that is not subject, as a matter of law or contract, to approval by the Interstate Commerce Commission or any successor agency or regulatory body having jurisdiction over such transactions (the "Agency") (a "Business Combination"), in each case, unless, following such Business Combination: (A) all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Company Common Stock and Outstanding Company Voting Securities immediately prior to such Business Combination beneficially own, directly or indirectly, more than 50% of, respectively, the then outstanding shares of common stock and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the corporation resulting from such Business Combination (including, without limitation, a corporation which as a result of such transaction owns the Company or its principal subsidiary or all or substantially all of the assets of the Company or its principal subsidiary either directly or through one or more subsidiaries) in substantially the same proportions as -16- their ownership, immediately prior to such Business Combination of the Outstanding Company Common Stock and Outstanding Company Voting Securities, as the case may be; (B) no Person (excluding any corporation resulting from such Business Combination or any employee benefit plan (or related trust) of the Company or such corporation resulting from such Business Combination) beneficially owns, directly or indirectly, 20% or more of, respectively, the then outstanding shares of common stock of the corporation resulting from such Business Combination or the combined voting power of the then outstanding voting securities of such corporation except to the extent that such ownership existed prior to the Business Combination; and (C) at least a majority of the members of the board of directors resulting from such Business Combination were members of the Incumbent Board at the time of the execution of the initial agreement, or of the action of the Board of Directors, providing for such Business Combination; or (iv) Regulated Business Combination. Approval by the shareholders of the Company of a Business Combination that is subject, as a matter of law or contract, to approval by the Agency (a "Regulated Business Combination") unless such Business Combination complies with clauses (A), (B) and (C) of subsection (iii) of this Section 22(b); or (v) Liquidation or Dissolution. Approval by the shareholders of the Company of a complete liquidation or dissolution of the Company or its principal subsidiary. c. Each Participant who has elected to defer the payment of PSAs pursuant to Section 10 or an ICP award pursuant to Section 12, may elect in a time and manner determined by the Committee, but in no event later than December 31, 1996 or the occurrence of a Change in Control, if earlier, to have amounts and benefits currently deferred, and to be deferred, under the Plan determined and payable under the terms of the Plan as if a Change in Control had not occurred. New Participants in the Plan may elect in a time and manner determined by the Committee, but in no event later than ninety (90) days after becoming a Participant, to have amounts and benefits currently deferred, and to be deferred, under the Plan determined and payable under the terms of the Plan as if a Change in Control had not occurred. A Participant who has made an election, as set forth in the two preceding sentences, may at any time and from time to time, change that election; provided, however, a change of election that is made within one year of a Change in Control shall be invalid. d. Upon a Change of Control, the Company or Subsidiary shall, as soon as possible, but in no event more than seven (7) days following the Change of Control make an irrevocable contribution to the Trust in an amount that is sufficient to pay each Participant or beneficiary of this Plan the benefits to which Participants of this Plan or their beneficiaries would be entitled based on elections under Sections 10 and 12 (including any applicable Stock Premium), and for which the Company is liable pursuant to the terms of this Plan as of the date on which the Change of Control occurred. The amount of the Company's irrevocable contributions shall be based on the actuarial valuation and accounting for the most recent calendar year or more recent period for the Plan, as approved by the independent actuary engaged by the Company prior to the Change of Control and approved by the Benefits Trust Committee if selected or changed following a Change of Control (the "Actuary"), and shall include an amount deemed necessary to pay estimated administrative expenses for the following five (5) years. The Benefits Trust Committee shall -17- cause such actuarial valuations or accountings to be updated, using Participant data supplied to the Actuary by the Company, through a date no earlier than the date of the initial contribution and shall notify the Company of the amount of additional contributions required as soon as practicable. 23. COMPLIANCE WITH REGULATORY AUTHORITIES. Any shares purchased or distributed pursuant to any Incentives granted under this Plan must be held for investment and not with a view to the distribution or resale thereof. Each person who shall exercise an Incentive granted under this Plan may be required to give satisfactory assurances to such effect to the Company as a condition to the issuance to him or to her of shares pursuant to such exercise; provided, however, that the Company may waive such condition if it shall determine that such resale or distribution may be otherwise lawfully made without registration under the Securities Act of 1933, or if satisfactory arrangements for such registration are made. Each Incentive granted under this Plan is further subject to the condition that if at any time the Board shall in its sole discretion determine that the listing, registration or qualification of the shares covered by such Incentive upon any securities exchange or under any state or federal law, or the consent or approval of any governmental regulatory body, is necessary or desirable as a condition of or in connection with the granting of such Incentives or the purchase or transfer of shares thereunder, the delivery of any or all shares of stock pursuant to exercise of the Incentive may be withheld unless and until such listing, registration, qualification, consent or approval shall have been effected or obtained free of any conditions not acceptable to the Board. 24. WITHHOLDING TAX. Whenever the Company proposes or is required to issue or transfer shares of common stock under the Plan, a Participant shall remit to the Company an amount sufficient to satisfy any federal, state or local income and payroll tax withholding liability prior to the delivery of any certificate or certificates for such shares. Alternatively, to the extent permitted by applicable laws, such federal, state or local income and payroll tax withholding liability may be satisfied prior to the delivery of any certificate or certificates for the shares by an adjustment, equal in value to such liability, in the number of shares to be transferred to the Participant. Whenever under the Plan payments are to be made in cash, such payments shall be net of an amount sufficient to satisfy any federal, state or local income and payroll tax withholding liability. 25. NON-UNIFORM DETERMINATIONS. Determinations by the Committee under the Plan, including, without limitation, determinations of the persons to receive Incentives and the form, amount and timing of such Incentives, and the terms and provisions of such Incentives and the agreements evidencing the same need not be uniform, and may be made by the Committee selectively among persons who receive, or are eligible to receive, Incentives under the Plan, whether or not such persons are similarly situated. Without amending the Plan, Incentives may be granted to eligible employees who are foreign nationals or who are employed outside the United States or both, on such terms and conditions different from those specified in the Plan as may, in the judgment of the Committee, be necessary or desirable to further the purposes of the Plan. Such different terms and conditions may be reflected in Addenda to the Plan. 26. CONSTRUCTION. The Plan shall be governed by the laws of the Commonwealth of Virginia. -18- ADDENDUM. Addendum I Pursuant to Sections 4a and 8 of the Plan, with respect to any Non-Qualified Stock Option ("NQSO") granted to any Participant who may be subject to taxation in The Netherlands at any time during the term of such NQSO, the Committee shall have the authority to impose additional conditions on the exercise of the NQSO. Effective for any NQSO granted after December 31, 1997, the Committee may, in addition to any other conditions specified in the option agreement, require that the NQSO is granted conditionally. Such conditions shall include that the NQSO can be exercised only with the approval of the Participant's Senior Vice President - Human Resources ("SVP-HR"). Such approval shall be granted at the discretion of the SVP-HR, which shall not be unreasonably refused. Approval may be refused for reasons which shall be set forth in the option agreement such as, but not limited to, the following: (i) termination of employment for willful or gross misconduct or receipt of notice of termination for such conduct; (ii) disclosure of confidential information; or (iii) rendering services to a competitor. Once approval has been obtained, the Participant must immediately exercise the NQSO. If approval is refused or if the NQSO is not exercised immediately upon receipt of approval, it shall be forfeited. -19- AMENDMENT CSX CORPORATION 1987 LONG-TERM PERFORMANCE STOCK PLAN Pursuant to Section 21 of the CSX Corporation 1987 Long-Term Performance Stock Plan as Amended Through September 8, 1999 (the "Plan"), the Plan is amended effective February 7, 2003 as follows: The penultimate paragraph of Section 14 is amended to read as follows: "Notwithstanding anything to the contrary in the Plan, if a Participant or former Participant (a) becomes the owner, director or employee of a competitor of the Company or its subsidiaries; (b) has his employment terminated by the Company or one of its subsidiaries on account of actions by the Participant which are detrimental to the interests of the Company or its subsidiaries, (c) engages in conduct subsequent to the termination of his employment with the Company or its subsidiaries which the Committee determines to be detrimental to the interests of the Company or its subsidiaries; or (d) is required to divest his or her interest under the Plan under applicable law, regulation or rules, then the Committee may, in its sole discretion, pay the Participant or former Participant a single sum payment equal to the amount of his unpaid benefits which were awarded and deferred under Sections 10 or 12 of the Plan; provided, however, if the deferral has been for less than three (3) years under Section 12, the Participant or former Participant shall not be eligible to receive the Stock Premium. The single sum payment shall be made as soon as practicable following the date the Participant or former Participant is affected by one of the circumstances described in this Section 14 and such payment shall be in lieu of all other benefits which may be payable to the Participant or former Participant under this Plan." EX-10.25 8 g87590exv10w25.txt EX-10.25 1985 DEFERRED COMPENSATION PROGRAM EXHIBIT 10.25 DEFERRED COMPENSATION PROGRAM FOR EXECUTIVES OF CSX CORPORATION AND AFFILIATED COMPANIES As Amended and Restated January 1, 1998 1. Purpose The purpose of this Program is to provide eligible executives with an opportunity to supplement their retirement income. This Program is intended to benefit a select group of management or highly compensated employees. 2. Definitions 2.1 "Administrator" means the Corporation. The duties of the administrator shall be performed by a person or persons designated by the Chief Executive Officer of the Corporation to perform such duties. 2.2 "Affiliated Company" means the Corporation and any company or corporation directly or indirectly controlled by the Corporation which the Compensation Committee designates for participation in this Program in accordance with Section 15.2. 2.3 "Award" means, for any year, the amount awarded to an employee of an Affiliated Company for that year and, in the absence of a Deferral Agreement with respect to such amount, payable to him in the succeeding year under the MICP, including any special incentive award. 2.4 "Benefits Trust Committee" means the committee created pursuant to the CSX Corporation and Affiliated Companies Benefits Assurance Trust Agreement. 2.5 "Board" means the Board of Directors of the Corporation. 2.6 "Change of Control" shall mean any of the following: (a) Stock Acquisition. The acquisition, by any individual, entity or group [within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")] (a "Person") of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 20% or more of either (i) the then outstanding shares of common stock of the Corporation (the "Outstanding Corporation Common Stock"), or (ii) the combined voting power of the then outstanding voting securities of the Corporation entitled to vote generally in the election of directors (the "Outstanding Corporation Voting Securities"); provided, however, that for purposes of this subsection (a), the following acquisitions shall not constitute a Change of Control: (i) any acquisition directly from the Corporation; (ii) any acquisition by the Corporation; (iii) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Corporation or any corporation controlled by the Corporation; or (iv) any acquisition by any corporation pursuant to a transaction which complies with clauses (i), (ii) and (iii) of subsection (c) of this Section 2.6; or (b) Board Composition. Individuals who, as of the date hereof, constitute the Board of Directors (the "Incumbent Board") cease for any reason to constitute at least a majority of the Board of Directors; provided, however, that any individual becoming a director subsequent to the date hereof whose election or nomination for election by the Corporation's shareholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board of Directors; or (c) Business Combination. Approval by the shareholders of the Corporation of a reorganization, merger, consolidation or sale or other disposition of all or substantially all of the assets of the Corporation or its principal subsidiary that is not subject, as a matter of law or contract, to approval by the Interstate Commerce Commission or any successor agency or regulatory body having jurisdiction over such transactions (the "Agency") (a "Business Combination"), in each case, unless, following such Business Combination: (i) all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Corporation Common Stock and Outstanding Corporation Voting Securities immediately prior to such Business Combination beneficially own, directly or indirectly, more than 50% of, respectively, the then outstanding shares of common stock and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the corporation resulting from such Business Combination (including, without limitation, a corporation which as a result of such transaction owns the Corporation or its principal subsidiary or all or substantially all of the assets of the Corporation or its principal subsidiary either directly or through one or more subsidiaries) in substantially the same proportions as their ownership, immediately prior to such Business Combination of the Outstanding Corporation Common Stock and Outstanding Corporation Voting Securities, as the case may be; (ii) no Person (excluding any corporation resulting from such Business Combination or any employee benefit plan (or related trust) of the Corporation or such corporation resulting from such Business Combination) beneficially owns, directly or indirectly, 20% or more of, respectively, the then outstanding shares of common stock of the corporation resulting from such Business Combination or the combined voting power of the then outstanding voting securities of such corporation except to the extent that such ownership existed prior to the Business Combination; and (iii) at least a majority of the members of the board of directors resulting from such Business Combination were members of the -2- Incumbent Board at the time of the execution of the initial agreement, or of the action of the Board of Directors, providing for such Business Combination; or (d) Regulated Business Combination. Approval by the shareholders of the Corporation of a Business Combination that is subject, as a matter of law or contract, to approval by the Agency (a "Regulated Business Combination") unless such Business Combination complies with clauses (i), (ii) and (iii) of subsection (c) of this Section XI(5); or (e) Liquidation or Dissolution. Approval by the shareholders of the Corporation of a complete liquidation or dissolution of the Corporation or its principal subsidiary. 2.7 "Compensation Committee" means the Compensation Committee of the Board. 2.8 "Corporation" means CSX Corporation, a Virginia corporation, and any successor thereto by merger, purchase or otherwise. 2.9 "Corporation's Accountant's" means the independent accountant or accountants engaged by the Corporation and, if selected or changed following a Change of Control, approved by the Benefits Trust Committee. 2.10 "Deferral Agreement" means a completed agreement, including any attachments and appendices thereto, in the form determined by the Administrator, between an Eligible Executive and the Affiliated Company of which he is an employee, under which the Eligible Executive agrees to defer all or a portion of his Award in accordance with the provisions of Section 3. 2.11 "Deferral Date" means with respect to any Deferral Agreement entered into by an Eligible Executive, the first day of the month in which the Award subject to the Deferral Agreement would be payable to the Eligible Executive in the absence of such Deferral Agreement. 2.12 "Divisive Transaction" means a transaction in which the Participant's employer ceases to be a Subsidiary or there is a sale of substantially all of the assets of the Subsidiary. 2.13 "Eligible Executive" means, for any year, an employee of an Affiliated Company who is in salary grades 22 through 40 as of (a) December 30th of such year or (b) for calendar years beginning on or after January 1, 1986, the date in such year he retired from the Affiliated Companies or terminated on account of disability, as determined by the Administrator, provided, however, that the Administrator, in its sole discretion, may designate any other employee of an Affiliated Company as an Eligible Executive for such year. Notwithstanding the preceding, following a Change of Control, such action by the Administrator is subject to the approval of the Benefits Trust Committee. 2.14 "Equivalent" means of equal present or accumulated value based on the interest rates set forth in the applicable Deferral Agreements. In determining Equivalent values, only the value of benefits for which the eligibility requirements have been met shall be included. 2.15 "MICP" means the Affiliated Companies' Management Incentive Compensation Plans, as from time to time in effect. -3- 2.16 "Normal Retirement Date" means the later of: (a) the last day of the month in which a Participant's 62nd birthday occurs, or (b) the earlier of (i) the last day of the month preceding the 2nd anniversary of the Participant's earliest Deferral Date or (ii) the last day of the month in which a Participant's 65th birthday occurs. 2.17 "Participant" means an Eligible Executive who elects to defer a portion of his Award in accordance with the provisions of Section 3. 2.18 "Program" means this Deferred Compensation Program for Executives of CSX Corporation and Affiliated Companies. 2.19 "Service" means an employee's months of continuous employment with the Affiliated Companies. In the event the employee has a break in his continuous employment, his period of employment prior to the break shall be credited to the employee in accordance with the rules governing breaks in service under the CSX Pension Plan. 2.20 "Subsidiary" means a corporation more than 50% of the voting shares of which are owned directly or indirectly by the Corporation. 2.21 "Trust" means the CSX Corporation and Affiliated Companies Benefits Assurance Trust. Except as provided in Section 18, the Corporation is not obligated to make any contribution to the Trust. 2.22 "Valuation Date" means the last day of each calendar quarter and such other dates as the Administrator deems necessary or appropriate to value the Participants' benefits under this Program. Following a Change of Control, the Benefits Trust Committee shall have final approval over any date selected other than the last day of each calendar year. 3. Deferral of Awards 3.1 At any time prior to the close of business on December 30 in any calendar year, an Eligible Executive may elect to defer all or a portion of his Award, if any, for that year. Such election shall be made by filing a Deferral Agreement with the Administrator on or before the close of business on December 30 of the calendar year for which the Award is made. In the event that December 30 does not fall on a weekday, such filing must be made by the close of business on the last prior business day. 3.2 Subject to the provisions of Sections 3.3 and 3.4: (a) an Eligible Executive in 1985 may elect to defer up to 100% of his 1985 Award; (b) an Eligible Executive in 1986 may elect to defer up to 100% of his 1986 Award; -4- (c) an Eligible Executive in 1988 may elect to defer up to 100% of his 1988 Award; and (d) an Eligible Executive in 1989 may elect to defer up to 100% of his 1989 Award. 3.3 The minimum amount which an Eligible Executive may defer in any year shall be the lesser of $5,000 or the maximum amount determined under Section 3.2. If an Eligible Executive elects to defer less than this amount, his election shall not be effective. 3.4 In its sole discretion, the Compensation Committee may, at any time, impose additional limits on the maximum amount which an Eligible Executive may elect to defer under this Program in any year or may impose additional requirements on the Eligible Executive's right to defer the maximum amount under this Program in any year. 3.5 An Eligible Executive's election to defer all or a portion of his Award shall be effective on the last day such deferral may be elected, under Section 3.1, for the year for which the Award is made. An Eligible Executive may revoke or change his election to defer all or a portion of his Award at any time prior to the date the election becomes effective. Any such revocation or change shall be made in a form and manner determined by the Administrator. 3.6 Notwithstanding the preceding, following a Change of Control, any discretionary decisions made by the Compensation Committee or the Administrator with respect to this Section 3 shall be subject to the approval of the Benefits Trust Committee. 4. Normal Retirement Benefit A Participant who retires from employment with the Affiliated Companies on his Normal Retirement Date shall receive a benefit Equivalent to the sum of the amounts set forth in the Participant's Deferral Agreement(s) plus accrued interest. The benefit shall be paid in 180 equal monthly installments commencing on the first day of the month next following the Participant's retirement date, but in no event prior to the first day of the month next following the Participant's last Deferral Date, unless the Participant elects to receive his benefit in accordance with Section 9 of this Program. 5. Delayed Retirement Benefit A Participant who retires or otherwise terminates his employment with the Affiliated Companies after his Normal Retirement Date shall receive a benefit equal to the benefit he would have received under Section 4 had his benefit commenced on his Normal Retirement Date, increased by 5/6 of 1% for each complete calendar month between his Normal Retirement Date and the date his benefit commences. The benefit shall be paid in 180 equal monthly installments commencing on the first day of the month next following the Participant's termination of employment, but in no event prior to the first day of the month next following the Participant's last Deferral Date, unless the Participant elects to receive his benefit in accordance with Section 9 of this Program. 6. Early Retirement Benefit A Participant who has attained age 55, has completed 120 months of Service and terminates his employment with the Affiliated Companies prior to his Normal Retirement Date shall receive a benefit -5- commencing on the first day of the month following his Normal Retirement Date but in no event prior to the first day of the month following the Participant's last Deferral Date. The Participant's benefit shall be equal to the benefit the Participant would have received under Section 4 had he terminated his employment on his Normal Retirement Date. However, the Participant may elect a lump sum under Section 9 or may elect, in a time and manner determined by the Administrator, to have payment of his benefit commence on the first day of any month preceding his Normal Retirement Date, and following the latest of (i) his termination of employment, (ii) 24 months after his earliest Deferral Date and (iii) the first of the month following his last Deferral Date, in which event the amount of his benefit shall be reduced by 5/6 of 1% for each complete calendar month between the date his benefit commences and the first day of the month next following his Normal Retirement Date. However, in no event shall the monthly benefit be less than an amount Equivalent to the Participant's deferrals with accrued interest. Benefits under this Section 6 shall be paid in 180 equal monthly installments, unless the Participant elects to receive his benefit in accordance with Section 9 of this Program. 7. Separation Benefit 7.1 A Participant who terminates his employment with the Affiliated Companies prior to being eligible for a benefit under Sections 4 or 6, but after having completed 120 months of Service, shall receive a monthly benefit commencing on the first day of the month next following his Normal Retirement Date; provided, however, that a Participant shall not be eligible for a benefit under this Section 7.1 if the Participant terminates employment without the consent of the Affiliated Companies. The benefit shall be equal to the monthly benefit the Participant would have received under Section 4 had he terminated employment on his Normal Retirement Date. However, the Participant may elect a lump sum pursuant to Section 9, or may elect, in a time and manner determined by the Administrator, to have monthly benefits commence on the first day of any month, prior to his Normal Retirement Date, and following the latest of (i) his termination of employment with the Affiliated Companies, (ii) his 55th birthday or (iii) the last day of the month prior to the 2nd anniversary of his earliest Deferral Date, in which event the amount of his benefit shall be reduced by 5/6 of 1% for each complete calendar month between the date his benefit commences and the first day of the month next following his Normal Retirement Date. However, in no event shall the monthly benefit be less than an amount Equivalent to the Participant's deferred amounts with accrued interest. Monthly benefits under this Section 7.1 shall be paid in 180 equal monthly installments. For purposes of this program and particularly this Section 7, if a Participant's employer is involved in a Divisive Transaction, the Participant will be deemed to have terminated his employment with an Affiliated Company with the consent of the Affiliated Company. 7.2 A Participant who terminates his employment with the Affiliated Companies, other than on account of death, and is not eligible for a benefit under Section 7.1 shall receive a single sum payment equal to the sum of the amounts the Participant deferred under his Deferral Agreements plus accrued interest. However, if the Participant terminates his employment with the Affiliated Companies on account of a disability within the meaning of Section 8.1, he shall receive a benefit under this Section 7.2 only if the Participant elects, in a time and manner determined by the Administrator, to receive such benefit and to cease accruing Service under Section 8.1. The single sum payment shall be made on the first day of the month next following the Participant's termination of employment, or as soon as practicable thereafter. The Participant shall not receive any other benefits under this Program. 8. Disability 8.1 A Participant who, in the sole judgment of the Administrator, becomes totally and permanently disabled prior to his termination of employment with the Affiliated Companies, and does -6- not make an election under Section 7.2 to receive a benefit under such Section, shall continue to accrue Service during his period of disability as if he remained an active employee. Such a Participant shall be eligible to receive a benefit under Sections 4, 6 or 7.1 when he meets the age and Service requirements for such a benefit, provided that following a Change of Control, any decisions of the Administrator pursuant to this Section 8.1 is subject to the approval of the Benefits Trust Committee. 8.2 The Administrator may, in its sole discretion, require a Participant to submit to a medical examination by a physician approved by the Administrator, or present other evidence satisfactory to the Administrator, to establish the existence or continuance of his disability. The Administrator may require such medical examination or other evidence not more than once per year. A Participant who refuses to submit to any required medical examination or to present any other required evidence under this Section 8.2 shall not be disabled for purposes of this Program and shall only be eligible to receive the benefit he would have received under the Program had he terminated his employment with the Affiliated Companies immediately prior to the date of such request. Notwithstanding the preceding, following a Change of Control, any decision by the Administrator made pursuant to this Section 8.2 is subject to approval by the Benefits Trust Committee. 9. Single Sum Payments A Participant who is eligible to receive a benefit under Sections 4, 5, 6, 7.1 or 8.1 of the Program but whose benefits hereunder have not yet commenced may, with the consent of the Administrator, elect, in a time and manner determined by the Administrator, to receive his benefit in the form of a single sum. The single sum shall be in the amount of the Participant's deferred amounts plus accrued interest, provided that, in the case of a Participant then eligible for immediate commencement of monthly benefits, such single sum shall not be less than an amount Equivalent to the value of such monthly benefits. Such single sum shall be paid on the first day of the fourth month following the later of (i) the Participant's termination of employment with the Affiliated Companies, or (ii) the date such election is received by the Administrator. Notwithstanding any other provision hereof, such amount shall be determined as of a date three months prior to the date of payment and shall not accrue interest beyond such earlier date. Furthermore, following a Change of Control, any decision of the Administrator made pursuant to this Section 8.2 is subject to approval by the Benefits Trust Committee. 10. Hardship Withdrawal 10.1 While employed by the Affiliated Companies, a Participant may, in the event of a severe financial hardship, request a withdrawal of an amount which does not exceed the single sum amount determined in Section 9. The withdrawal shall be made in a time and manner determined by the Administrator, and shall not be for a greater amount than the amount required to meet the financial hardship, and shall be subject to approval by the Administrator. 10.2 For purposes of this Section 10, financial hardship shall include: (a) Education of a dependent child where the Participant can show that without the withdrawal under this Section 10 the education would be unavailable to the child; (b) Illness of the Participant or his dependents, resulting in severe financial hardship to the Participant; -7- (c) The loss of the Participant's home or it contents, to the extent not reimbursable by insurance or otherwise, if such loss results in a severe financial hardship to the Participant; and (d) Any other extraordinary circumstances of the Participant approved by the Administrator if such circumstances would result in a present or impending critical financial need which the Participant is unable to satisfy with funds reasonably available from other sources. 10.3 If a Participant makes a withdrawal under this Section 10, any other benefit which he may be entitled to under this Program on his termination of employment shall be appropriately adjusted to take into account the amount the Participant received under this Section 10. 10.4 Following a Change of Control, any decision by the Administrator made pursuant to this Section 10 is subject to the approval of the Benefits Trust Committee. 11. Death Benefits 11.1 Except as provided in Section 11.10(b), if a Participant dies while employed by an Affiliated Company, his beneficiary shall be eligible to receive a single sum benefit equal to the greatest of: (a) three times the sum of the amount(s) the Participant deferred under his Deferral Agreement(s); (b) the amounts the Participant deferred under his Deferral Agreement(s) plus accrued interest; or (c) an amount Equivalent to the monthly benefit the Participant could have received under the Program, if any, had he terminated his employment with the Affiliated Companies on the day immediately preceding his death and elected to begin receiving the benefit on the first day of the following month. The benefit is payable on the first day of the month next following the date of the Participant's death, and shall be in lieu of all other benefits payable under this Program, other than any benefit payable under Section 11.6. 11.2 If a Participant who has terminated his employment with the Affiliated Companies after becoming eligible for a benefit under Sections 4, 5 or 6, dies prior to the commencement of any benefit under this Program, his beneficiary shall receive a benefit under Section 11.1 11.3 If a Participant who is totally and permanently disabled under Section 8.1 dies prior to receiving a benefit under this Program, his beneficiary shall receive a benefit under Section 11.1 11.4 If a Participant who is eligible for a benefit under Section 7.1 dies prior to receiving a benefit, his beneficiary will receive a benefit based on the greater of the amounts determined under Sections 11.1(b)and 11.1(c). -8- 11.5 If a Participant dies after commencing to receive a benefit, other than a benefit under Section 7.2, but prior to receiving all remaining benefits due, the remaining benefits shall be paid to the Participant's beneficiary or contingent beneficiary, whichever is applicable. 11.6 In addition to any other benefit payable under this Section 11, in the case of a Participant (i) who dies while employed by an Affiliated Company after becoming eligible for benefits under Sections 4, 5, or 6 hereof, or (ii) who terminates employment while eligible for a benefit under Section 4, 5 or 6 of the Program and then dies, his beneficiary shall be eligible to receive a benefit of $10,000, payable in a single sum. This benefit shall be payable as soon as practicable following the presentation to the Administrator, and the Administrator's examination and approval of, any information or material, including proof of death of the Participant, the Administrator may request. Notwithstanding anything to the contrary, a benefit shall not be payable on account of the death of a Participant who received a single sum benefit under Sections 12 or 16 of the Program. 11.7 A Participant may, in a time and manner determined by the Administrator, designate a beneficiary and one or more contingent beneficiaries (which may include the Participant's estate) to receive any benefits which may be payable under this Section 11. If the Participant fails to designate a beneficiary or contingent beneficiary, or if the beneficiary and the contingent beneficiaries do not survive the Participant, such benefits shall be paid to the Participant's estate. The Participant may also designate a remainder beneficiary to receive any benefits which may be payable under Section 11.9. 11.8 A Participant may revoke or change any designation made under Section 11.7 in a time and manner determined by the Administrator. 11.9 If, pursuant to Section 11.7, payments commence to a beneficiary or contingent beneficiary and if such beneficiary or contingent beneficiary dies prior to receiving all payments due under this Program, any remaining payments shall be made to the Participant's remainder beneficiary. If, at the date of such death, there is no surviving remainder beneficiary, the remaining benefits hereunder shall be paid to the estate of the beneficiary or contingent beneficiary previously in receipt of benefits hereunder. 11.10 (a) If any benefits are payable under this Section 11 to an individual other than the Participant's spouse or child under age 21 (or child under age 25 who is a full- time student at an accredited institution of higher education), the benefit shall be paid in the form of a single sum. (b) If benefits become payable to the Participant's spouse or his child under age 21 (or his child under age 25 who is a full-time student at an accredited institute of higher education), such benefits (other than benefits under Section 11.6) shall be payable in 180 monthly installments Equivalent to the single sum amount determined under Section 11.1 through 11.5 hereof, as applicable. Monthly benefits shall commence on the first day of the month following the Participant's death. The Participant may elect, in a time and manner determined by the Administrator to have any amounts which may be payable under the Program paid in accordance with Section 11.10(a). (c) Notwithstanding anything to the contrary in this Program, if a Participant's child under age 21 (or child under age 25 who is a full-time student at an accredited institute of higher education) is receiving a benefit under this Program in the form of installment payments, upon his attaining age 21 (or age 25 or ceasing to be a -9- full-time student at an accredited institute of higher education) he shall receive a single sum Equivalent to his remaining installments in lieu of receiving such remaining installments. 12. Special Distribution Rules 12.1 Notwithstanding anything to the contrary in this Program, if (a) a Participant becomes the owner, director or employee of a competitor of the Affiliated Companies, (b) his employment is terminated by an Affiliated Company on account of actions by the Participant which are detrimental to the interests of any Affiliated Company, or (c) he engages in conduct subsequent to the termination of his employment with the Affiliated Companies which the Administrator determines to be detrimental to the interests of an Affiliated Company, then the Administrator may, in its sole discretion, pay a Participant a single sum payment equal to the sum of the amounts the Participant deferred under his Deferral Agreements plus accrued interest, reduced by an amount Equivalent to any payments the Participant may already have received under this Program. However, if the Participant is receiving a benefit under the Program, or could be receiving an immediate benefit under the Program, the single sum shall not be less than an amount Equivalent to the remaining monthly benefit the Participant is, or could be, receiving. The single sum payment shall be made as soon as practicable following the Participant's becoming an owner, director or employee of a competitor, his termination of employment or the Administrator's determination of detrimental conduct, as the case may be, and shall be in lieu of all other benefits which may be payable to the Participant under this Program. 12.2 Notwithstanding anything to the contrary contained herein, the Corporation may delay payment of a benefit under this Program to any Participant who is determined to be among the top five most highly paid executives for the year the benefit under this Program would otherwise be paid; provided, however, if a Participant's payment is delayed, the benefit to which he is entitled will not decrease after the date it would otherwise be distributed. 12.3 Notwithstanding the preceding, following a Change of Control, the Administrator's authority to make decisions under this Section 12 is subject to the approval of the Benefits Trust Committee. 13. Benefit Determinations Following a Change of Control 13.1 Following a Change of Control, final benefit determinations for Participants, their beneficiaries, heirs and assigns and decisions regarding benefits under this Program shall rest with the Benefits Trust Committee or its delegate in its sole and absolute discretion. 14. Funding 14.1 To the extent reflected by resolutions of the applicable boards of directors, obligations for benefits under this Program shall be joint and several. 14.2 The obligations of the Corporation and any of its affiliated corporations and the benefit due any Participant, surviving spouse or beneficiary hereunder shall be reduced by any amount received in regard thereto under the Benefits Assurance Trust or any similar trust or other vehicle. 15.. Administration -10- 15.1 This Program shall be administered by the Corporation. Certain administrative functions, as set forth in this Program, shall be the responsibility of the Administrator. The Administrator shall interpret the Program, establish regulations to further the purposes of the Program and take any other action necessary to the proper operation of the Program. Following a Change of Control, the Benefits Trust Committee may remove and/or replace the Administrator. 15.2 Prior to a Change of Control, the Compensation Committee, in its sole discretion and upon such terms as it may prescribe, may permit any company or corporation directly or indirectly controlled by the Corporation to participate in the Program for such periods as it may determine. Following a Change of Control, no entity shall become or cease to be a participating company without the consent of the Benefits Trust Committee. 15.3 The Administrator shall provide adequate notice in writing to any Participant, beneficiary, contingent beneficiary or remainder beneficiary whose claim for benefits under this Program has been denied, setting forth the specific reasons for such denial. A reasonable opportunity shall be afforded to any such Participant, beneficiary, contingent beneficiary or remainder beneficiary for a full and fair review by the Administrator of its decision denying the claim. Prior to a Change of Control, the Administrator's decision on any such review shall be final and binding on the Participant, beneficiary, contingent beneficiary, remainder beneficiary and all other interested persons. All acts and decisions of the Administrator shall be final and binding upon all Participants and employees of the Affiliated Companies. 15.4 Following a Change of Control, all benefit determinations for Participants, their beneficiaries, heirs and assigns and decisions regarding benefit claims under this Program shall rest with the Benefits Trust Committee or its delegate in its sole and absolute discretion. 16. Termination and Amendment of the Program 6.1 Prior to a Change of Control, the Board may, in its sole discretion, terminate this Program and the related Deferral Agreement(s) at any time. Following a Change of Control, this Program may not be terminated without the approval of the Benefits Trust Committee. In the event the Program and related Deferral Agreement(s) are terminated. Participants shall receive a single sum payment equal to the sum of the amounts they deferred under their Deferral Agreements plus accrued interest, reduced by an amount Equivalent to any payments the Participant may already have received under this Program. However, if the Participant is receiving a benefit under the Program, or could be receiving an immediate benefit under the Program, the single sum shall not be less than an amount Equivalent to the monthly benefit the Participant is, or could be, receiving. The single sum payment shall be made as soon as practicable following the date the Program is terminated and shall be in lieu of any other benefit which may be payable to the Participant under this Program. 16.2 Prior to a Change of Control, the Board, in its sole discretion, may amend this Program and the related Deferral Agreements in any way on thirty (30) days prior notice to the Participants. Following a Change of Control, all amendments are subject to the approval of the Benefits Trust Committee. If any amendment to this Program or to the Deferral Agreements shall adversely affect the rights of a Participant, the Participant must consent in writing to such amendment prior to its effective date. If the Participant does not consent to the amendment, the Program, shall be deemed to be terminated with respect to the Participant and he shall receive a single sum payment in accordance with Section 16.1. -11- 16.3 Notwithstanding anything to the contrary' in this Section 16, prior to a Change of Control, the Board must act to terminate or amend the Program or the Deferral Agreements in a uniform and nondiscriminatory manner. Following a Change of Control, such actions are subject to the approval of the Benefits Trust Committee 17. Miscellaneous 17.1 The existence of this Program or a Deferral Agreement does not constitute a contract for continued employment between an Eligible Executive or a Participant and an Affiliated Company. The Affiliated Companies reserve the right to modify an Eligible Executive's or Participant's compensation and to terminate the employment of an Eligible Executive or a Participant for any reason and at any time, notwithstanding the existence of this Program or of a Deferral Agreement. The Affiliated Companies reserve the right not to grant Awards to Eligible Executives and Participants for any reason. 17.2 A Participant's rights to benefit payments under the Program are not subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance, attachment or garnishment by creditors of the Participant, his beneficiary, contingent beneficiaries, remainder beneficiary, heirs or personal representative. 17.3 Except for Section 18 herein, nothing contained in this Program or in a Deferral Agreement shall require the Affiliated Companies to segregate any monies from their general funds, or to create any trusts, or to make any special deposits for any amounts to be paid to any Participant, beneficiary, contingent beneficiary or remainder beneficiary. Neither the Participant, his beneficiary, contingent beneficiaries, remainder beneficiary, heirs or personal representatives shall have any right, title or interest in or to any funds of the Affiliated Companies on account of this Program or on account of having completed a Deferral Agreement. 17.4 All payments under this Program shall be net of an amount sufficient to satisfy any federal, state or local withholding and payroll tax requirements. 17.5 Prior to paying any benefit under this Program, the Administrator may require the Participant, beneficiary, contingent beneficiary or remainder beneficiary to provide such information or material as the Administrator, in its sole discretion, shall deem necessary for it to make any determination it may be required to make under this Program. The Administrator may withhold payment of any benefit under this Program until it receives all such information and material and is reasonably satisfied of its correctness and genuineness. 17.6 Each Participant shall have the status of a general unsecured creditor of the Affiliated Companies, and this Program constitutes a mere promise by the Affiliated Companies to make benefit payments in the future. 17.7 The Program is intended to be unfunded for tax purposes and for purposes of Title I of ERISA. 17.8 The masculine pronoun shall mean the feminine pronoun and all singular shall include the plural wherever appropriate. 17.9 The terms of this Program and any Deferral Agreement shall be governed by the laws of the Commonwealth of Virginia. -12- 17.10 The invalidity or unenforceability of any provision of this Program or of a Deferral Agreement shall in no way affect the validity or enforceability of any other provision. 18. Change of Control 18.1 If a Change of Control has occurred, the Corporation shall contribute to the Trust, within 7 days of such Change of Control, a lump sum payment equal to the greater of (i) the aggregate value of the amount each Participant would be eligible to receive (determined under Section 18.2 below) as of a Valuation Date coinciding with or next preceding the date of Change of Control or (ii) the amount determined under Section l(h) of the Trust attributable to liabilities relating to the Program, to the extent such amounts are not already in the Trust. The aggregate value of the amount of the lump sum to be contributed to the Trust pursuant to this Section 18 shall be determined by the Corporation's Accountants after consultation with the entity then maintaining the Program's records. Thereafter, the Corporation's Accountants shall annually determine for each Participant not receiving a lump sum payment pursuant to subsection 18.2 below the amount which would be payable under such subsection were a Change of Control to occur at the date of such determination. To the extent that the value of the assets held in the Trust relating to this Program do not equal the amount described in the preceding sentence, at the time of the valuation, as determined by the Corporation's Accountants, the Corporation shall make a lump sum contribution to the Trust equal to the difference. 18.2 In the event a Change of Control has occurred, the trustee of the Trust shall, within 45 days of such Change of Control, pay to each Participant not making an election under 18.3 below, a lump sum payment equal to the amount the Participant would have been entitled to receive determined under Section 6 had he retired early and selected a lump sum payment. The amount of each Participant's lump sum payment shall be determined by the Corporation's Accountants after consultation with the entity then maintaining the Program's records. 18.3 Each Participant may elect in a time and manner determined by the Administrator, but in no event later than December 31, 1996, or the occurrence of a Change of Control, if earlier, to have amounts and benefits determined and payable under the terms of the Program as if a Change of Control had not occurred. New Participants in the Program may elect in a time and manner determined by the Administrator, but in no event later than 90 days after becoming a Participant, to have amounts and benefits determined and payable under the terms of the Program as if a Change of Control had not occurred. A Participant who has made an election, as set forth in the two preceding sentences, may, at any time and from time to time, change that election; provided, however, a change of election that is made within one year of a Change of Control shall be invalid. 18.4 Notwithstanding anything in this Program to the contrary, each Participant who has made an election under 18.3 above may elect within 90 days following a Change of Control, in a time and manner determined by the Benefits Trust Committee, to receive a lump sum payment calculated under the provisions of 18.2 above, except that such calculated amount shall be reduced by 5% and such reduction shall be irrevocably forfeited to the Corporation by the Participant. Furthermore, as a result of such election, the Participant shall no longer be eligible to participate or otherwise benefit from the Program. Payments under this subsection 18.4 shall be made not later than 7 days following receipt by the Corporation of the Participant's election. The Benefits Trust Committee shall, no later than 7 days after a Change of Control has occurred, give written notification to each Participant eligible to make an election under this subsection 18.4, that a Change of Control has occurred and informing such Participant of the availability of the election. -13- EX-10.26 9 g87590exv10w26.txt EX-10.26 2002 DEFERRED COMPENSATION PLAN EXHIBIT 10.26 2002 DEFERRED COMPENSATION PLAN OF CSX CORPORATION AND AFFILIATED COMPANIES . . . TABLE OF CONTENTS

i ARTICLES 3. DEFERRAL AGREEMENTS................................................. 7 3.1 Deferral Agreement....................................................... 7 3.2 Modification of Deferral Agreement....................................... 8 ARTICLE 4. AWARD DEFERRAL PROGRAM............................................... 8 4.1 Filing Requirements...................................................... 8 4.2 Amount of Deferral....................................................... 9 4.3 Crediting to Account..................................................... 9 ARTICLES 5. SALARY DEFERRAL PROGRAM............................................. 9 5.1 Filing Requirements...................................................... 9 5.2 Salary Deferral Agreement................................................ 9 5.3 Amount of Salary Deferrals............................................... 10 5.4 Effect of Hardship Withdrawal............................................ 10 5.5 Certain Additional Credits............................................... 10 ARTICLE 6. EXECUTIVE STOCK DEFERRAL PROGRAM..................................... 11 6.1 Stock Awards............................................................. 11 6.2 Executive Stock Account.................................................. 11 6.3 Dividend Reinvestment.................................................... 12 ARTICLE 7. MAINTENANCE OF ACCOUNTS.............................................. 12 7.1 Creation of Account...................................................... 12 7.2 Adjustment of Account.................................................... 13 7.3 Investment Performance Elections......................................... 13 7.4 Changing Investment Performance Elections................................ 14 7.5 Vesting of Account....................................................... 14 7.6 Action Following a Change of Control..................................... 14 ARTICLE 8. DISTRIBUTION OF BENEFITS............................................. 14 8.1 Commencement of Distribution............................................. 14 8.2 Distribution Election.................................................... 14 8.3 Delay of Payment......................................................... 15 8.4 Account Adjustment....................................................... 16 8.5 Hardship Withdrawal, Forfeiture.......................................... 16 8.6 Designation of Beneficiary............................................... 17 8.7 Special Distribution Rules............................................... 17 8.8 Status of Account Pending Distribution................................... 17 8.9 One-time Re-deferral Election............................................ 17 8.10 Change of Control....................................................... 18 ARTICLE 9. FORM OF PAYMENT...................................................... 19 9.1 Timing of Distribution................................................... 19 9.2 Form of Payment Election................................................. 19 9.3 Installments and Withdrawals Pro-Rata.................................... 20 ARTICLE 10. AMENDMENT OR TERMINATION............................................ 20 10.1 Right to Terminate...................................................... 20 10.2 Right to Amend.......................................................... 20 10.3 Uniform Action.......................................................... 21

ii ARTICLE 11. GENERAL PROVISIONS.................................................. 21 11.1 No Funding.............................................................. 21 11.2 Obligation.............................................................. 21 11.3 No Contract of Employment............................................... 21 11.4 Withholding Taxes....................................................... 21 11.5 Nonalienation........................................................... 21 11.6 Administration.......................................................... 22 11.7 Impact of Future Legislation or Regulation.............................. 23 11.8 Construction............................................................ 23

iii INTRODUCTION This 2002 Deferred Compensation Plan of CSX Corporation and Affiliated Companies (the "Plan") was adopted July 9, 2002. This Plan is generally intended to provide certain executives eligible to participate in the Tax Savings Thrift Plan for Employees of CSX Corporation and Affiliated Companies (the "Savings Plan") with an opportunity to defer the receipt of a portion of their salary, and/or award(s) under the various incentive compensation plans and programs of CSX that may be offered from time to time and to restore employer matching contributions lost under the Savings Plan because of the application of Sections 401(a)(17), 401 (k), 401 (m) and 415 of the Internal Revenue Code of 1986, as amended. Eligible executives may, if they so elect, designate all or a portion of such deferrals to be used for payment of education expenses for one or more members of their families. The Plan is unfunded and is maintained by CSX Corporation and Affiliated Companies primarily for the purpose of providing deferred compensation for a select group of management or highly-compensated employees. ARTICLE 1. DEFINITIONS 1.1 ACCOUNT means the bookkeeping account maintained for each Member to record his Salary Deferrals, Matching Credits and the amount of Awards he has elected to defer, as adjusted pursuant to Article 7. 1.2 ADMINISTRATOR means the Corporation. The duties of the Administrator shall be performed by a person or persons designated by the Chief Executive Officer of the Corporation to perform such duties. 1.3 AFFILIATED COMPANY means the Corporation and any company or corporation directly or indirectly controlled by the Corporation. 1.4 AWARD means the amount other than salary awarded to an employee of an Affiliated Company under the various incentive compensation plans and programs of CSX that may be offered from time to time, and which has been designated by the Administrator as eligible for deferral under the Plan, including but not limited to ICP Awards, stock awards, stock options and special incentive awards. 1.5 AWARD DEFERRAL AGREEMENT means a Deferral Agreement filed in accordance with the Award deferral program described in Article 4. 1.6 BENEFITS TRUST COMMITTEE means the committee created pursuant to the CSX Corporation and Affiliated Companies Benefits Assurance Trust Agreement. 1.7 BOARD OF DIRECTORS or "Board" means the Board of Directors of the Corporation. 1.8 CHANGE OF CONTROL means any of the following: (a) Stock Acquisition. The acquisition, by any individual, entity or group [within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")] (a "Person") of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 20% or more of either (i) the then outstanding shares of common stock of the Corporation (the "Outstanding Corporation Common Stock"), or (ii) the combined voting power of the then outstanding voting securities of the Corporation entitled to vote generally in the election of directors (the "Outstanding Corporation Voting Securities"); provided, however, that for purposes of this subsection (a), the following acquisitions shall not constitute a Change of Control: (i) any acquisition directly from the Corporation; (ii) any acquisition by the Corporation; (iii) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Corporation or any corporation controlled by the Corporation; or (iv) any acquisition by any corporation pursuant to a transaction which complies with clauses (i), (ii) and (iii) of subsection (c) of this Section 1.8; or (b) Board Composition. Individuals who, as of the date hereof, constitute the Board of Directors (the "Incumbent Board") cease for any reason to constitute at least a majority of the Board of Directors; provided, however, that any individual becoming a director subsequent to the date hereof whose election or nomination for election by the Corporation's shareholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board of Directors; or (c) Business Combination. Approval by the shareholders of the Corporation of a reorganization, merger, consolidation or sale or other disposition of all or substantially all of the assets of the Corporation or its principal subsidiary that is not subject, as a matter of law or contract, to approval by the Interstate Commerce Commission or any successor agency or regulatory body having jurisdiction over such transactions (the "Agency") (a "Business Combination"), in each case, unless, following such Business Combination: (i) all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Corporation Common Stock and Outstanding Corporation Voting Securities immediately prior to such Business Combination beneficially own, directly or indirectly, more than 50% of, respectively, the then outstanding shares of common stock and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the corporation resulting from such Business Combination (including, without limitation, a corporation which as a result of such transaction owns the Corporation or its principal subsidiary or all or substantially all of the assets of the Corporation or its principal subsidiary either directly or through one or more subsidiaries) in substantially the same proportions as their ownership, immediately prior to such Business Combination of the Outstanding Corporation Common 2 Stock and Outstanding Corporation Voting Securities, as the case may be; (ii) no Person (excluding any corporation resulting from such Business Combination or any employee benefit plan (or related trust) of the Corporation or such corporation resulting from such Business Combination) beneficially owns, directly or indirectly, 20% or more of, respectively, the then outstanding shares of common stock of the corporation resulting from such Business Combination or the combined voting power of the then outstanding voting securities of such corporation except to the extent that such ownership existed prior to the Business Combination; and (iii) at least a majority of the members of the board of directors resulting from such Business Combination were members of the Incumbent Board at the time of the execution of the initial agreement, or of the action of the Board of Directors, providing for such Business Combination; or (d) Regulated Business Combination. Approval by the shareholders of the Corporation of a Business Combination that is subject, as a matter of law or contract, to approval by the Agency (a "Regulated Business Combination") unless such Business Combination complies with clauses (i), (ii) and (iii) of subsection (c) of this Section 1.8; or (e) Liquidation or Dissolution. Approval by the shareholders of the Corporation of a complete liquidation or dissolution of the Corporation or its principal subsidiary. 1.9 CODE means the Internal Revenue Code of 1986, as amended from time to time. 1.10 COMMITTEE means the Compensation Committee of the Board of Directors of CSX Corporation. 1.11 COMPANY STOCK means the common stock of the Corporation. 1.12 COMPENSATION means the "Base Compensation" of an Eligible Executive as defined in the Tax Savings Thrift Plan, determined prior to: (a) any Salary Deferrals under Article 5; and (b) any limit on compensation imposed by Section 401(a)(17) of the Code. 1.13 CORPORATION means CSX Corporation, a Virginia corporation, and any successor thereto by merger, purchase or otherwise. 1.14 DEFERRAL AGREEMENT means an agreement between an Eligible Executive and a Participating Company of which he is an employee under which the Eligible Executive agrees to defer an Award or make Salary Deferrals under the Plan, as the case may be. The Deferral Agreement shall be on a form prescribed by the Administrator and shall include any amendments, attachments or appendices. 3 1.15 DISTRIBUTION ELECTION means the election by the Member of the event triggering the commencement of distribution under Section 8.2. 1.16 DISTRIBUTION EVENT means any of the events listed in Section 1.8, "Change of Control," with the following modification: the words, "Approval by the shareholders of the Corporation of," in the first line of Sections 1.8(c) and 1.8(d) are replaced for purposes of this Section 1.16 with the words, "Consummation of, i.e., actual change in ownership of Outstanding Corporation Common Stock, Outstanding Corporation Voting Stock, and/or assets of the Corporation or its principal subsidiary by reason of,". 1.17 DIVISIVE TRANSACTION means a transaction in which the Eligible Executive's employer ceases to be a Subsidiary or there is a sale of substantially all of the assets of the Subsidiary. 1.18 EFFECTIVE DATE means November 30, 2002 or with respect to the Eligible Executives of a company which adopts the Plan, it means the date such company becomes a Participating Company. 1.19 ELIGIBLE EXECUTIVE means an employee of a Participating Company, provided that: (a) For purposes of the award deferral program described in Article 4: (i) Such employee is employed by a Participating Company in salary band 6 or above as of December 30 of the calendar year for which the Award is made (or in the case of a multiple-year Award, December 30 of the last calendar year for which the Award is made); and (ii) (A) is employed by a Participating Company and is receiving Compensation of one hundred thousand dollars ($100,000) or more per year; or (B) retired from the Participating Companies or terminated employment with the Participating Companies on account of disability as determined by the Administrator, and was receiving compensation of one hundred thousand dollars ($100,000) or more per year at the time of such retirement or termination. (b) For purposes of the salary deferral program described in Article 5, such employee is: (i) eligible for membership in the Tax Savings Thrift Plan; and (ii) employed in salary band 6 or above; and (iii) receiving Compensation of one hundred thousand dollars ($100,000) or more per year. (c) The Compensation amount set forth in subsections (a)(ii) and (b)(ii) shall be adjusted no more frequently than annually, based on (i) changes in the Consumer Price Index ("CPI"), such adjustment to be made in increments of ten thousand dollars ($10,000) only, rounded to next lowest increment as 4 indicated by the CPI, or (ii) in the discretion of the Chief Executive Officer, a review of data regarding eligibility to participate in this type of program. An employee who is eligible to participate because his Compensation satisfies the requirements of subsection (a)(ii) or (b)(iii) above, and is excluded from participation only because of a subsequent increase in the Compensation requirement shall continue to be eligible to participate. (d) The Chief Executive Officer of the Corporation or his designee may designate any other employee or former employee of an Affiliated Company as an Eligible Executive, including an employee or former employee who has previously made deferrals under a prior Company deferral plan; provided, however, only those employees or former employees considered to be a select group of management or highly compensated may be designated as Eligible Executives under this Plan. Notwithstanding the preceding, following a Change of Control, such designations are subject to the approval of the Benefits Trust Committee. 1.20 ENROLLMENT FORM means the form prescribed by the Administrator that an Eligible Executive who has previously made deferrals under a prior Company deferral plan may file pursuant to Section 2.1 in order to become a Member and participate in the Plan. 1.21 EXECUTIVE STOCK ACCOUNT means the bookkeeping account maintained for each Member to record his deferral of Stock Awards pursuant to Article 6. 1.22 FORM OF PAYMENT ELECTION means the election by the Member of the form of distribution he will receive from his Account or Executive Stock Account pursuant to Section 9.2. 1.23 ICP AWARD means the Participating Companies' Incentive Compensation Program, including but not limited to the Management Incentive Compensation Program ("MICP") and the Senior Management Incentive Compensation Program ("SMICP"). 1.24 INDEPENDENT ACCOUNTANT means the independent accountants engaged by the Corporation and, if selected or changed following a Change of Control, approved by the Benefits Trust Committee. 1.25 MATCHING CREDITS means amounts credited to the Account of a Member pursuant to Section 5.5. 1.26 MEMBER means, except as otherwise provided in Article 2, each Eligible Executive who has executed an initial Deferral Agreement or Enrollment Form as described in Section 2.1. 1.27 PARTIAL DISTRIBUTION ELECTION means a Distribution Election for a portion of a Member's Account under Section 8.2(d). 1.28 PARTICIPATING COMPANY means the Corporation and any company or corporation directly or indirectly controlled by the Corporation, which the Committee designates as eligible to participate in the Plan in accordance with Section 11.6(e). 5 1.29 PLAN means this 2002 Deferred Compensation Plan of CSX Corporation and Affiliated Companies, as amended from time to time. 1.30 SALARY DEFERRALS means the amounts credited to a Member's Account under Section 5.3. 1.31 SALARY DEFERRAL AGREEMENT means a Deferral Agreement filed in accordance with the salary deferral program described in Article 5. 1.32 STOCK AWARD means an Award that is or will be payable in Company Stock issued pursuant to the CSX Omnibus Incentive Plan ("COIP") or another of the Corporation's stock incentive plans, including but not limited to Performance Shares, nonqualified stock options, Incentive Stock Options, restricted stock and stock appreciation rights. 1.33 SUBSIDIARY means a corporation more than 50% of the voting shares of which are owned directly or indirectly by the Corporation. 1.34 TAX SAVINGS THRIFT PLAN means the Tax Savings Thrift Plan for Employees of CSX Corporation and Affiliated Companies, as amended from time to time. 1.35 TRUST means the CSX Corporation and Affiliated Companies Benefits Assurance Trust. 1.36 VALUATION DATE means the last business day of each calendar month following the Effective Date. ARTICLE 2. MEMBERSHIP 2.1 IN GENERAL: (a) An Eligible Executive shall become a Member as of the date he files his initial Deferral Agreement or an Enrollment Form with the Administrator. Such Deferral Agreement shall be effective for purposes of deferring an Award or making Salary Deferrals only as provided in Articles 4 and 5. Such Enrollment Form shall be effective for purposes of transferring balances previously deferred under a prior Company deferral plan to the Member's Account or Executive Stock Account only as provided in Articles 6 and 7. (b) As a condition of membership, the Administrator may require such other information as it deems appropriate. 2.2 TERMINATION OF EMPLOYMENT; RE-EMPLOYMENT: (a) Subject to Section 2.4, membership shall not cease upon a Member's termination of employment. In the event that a Member ceases to be employed by an Affiliated Company, his Salary Deferrals and Matching Credits shall thereupon be suspended until such time as he shall be re-employed as an Eligible Executive by an Affiliated Company. 6 (b) In the event that a Member ceases to be employed by an Affiliated Company he shall continue to be a Member of the Plan but shall not be eligible to defer any portion of any future Awards until such time as he shall be re-employed as an Eligible Executive by an Affiliated Company. (c) Upon re-employment as an Eligible Executive a Member may participate in the Plan as follows: (i) in the case of a Member who prior to re-employment received the balance in his Account or Executive Stock Account, by executing a Deferral Agreement or Enrollment Form as provided in Section 2.1 as though for all purposes of the Plan the Affiliated Companies had never employed the Member; (ii) in the case of a Member who prior to re-employment did not receive the balance in his Account or Executive Stock Account, by executing a Deferral Agreement or Enrollment Form as provided in Section 2.1, provided his Distribution Elections and beneficiary designation shall remain in effect. (iii) distributions shall cease if the commencement of distribution was because of the Member's termination of employment (including retirement); (iv) distributions shall continue if the commencement of distribution was because the Member chose a specific date or age for the commencement of benefits and that date or age has been attained. 2.3 CHANGE IN STATUS: (a) In the event that a Member ceases to be an Eligible Executive with respect to Salary Deferrals but continues to be employed by an Affiliated Company, his Salary Deferrals and Matching Credits shall thereupon be suspended until such time as he shall once again become an Eligible Executive. All other provisions of his Salary Deferral Agreement shall remain in force and he shall continue to be a Member of the Plan. (b) In the event that a Member ceases to be an Eligible Executive with respect to the deferral of Awards hereunder but continues to be employed by an Affiliated Company, he shall continue to be a Member of the Plan but shall not be eligible to defer any portion of any future Awards until such time as he shall once again become an Eligible Executive. 2.4 MEMBERSHIP FOLLOWING A CHANGE OF CONTROL: Following a Change of Control, any membership determinations or discretionary actions pursuant to this Article 2 shall be subject to the approval of the Benefits Trust Committee. ARTICLE 3. DEFERRAL AGREEMENTS 3.1 DEFERRAL AGREEMENT: A Deferral Agreement shall be in a form, including electronic form approved by the Administrator, which shall be the sole judge of the 7 proper completion thereof. Such Agreement shall provide for the deferral of an Award or for Salary Deferrals and may include such other provisions as the Administrator deems appropriate. 3.2 MODIFICATION OF DEFERRAL AGREEMENT: A Member may elect to change, modify or revoke a Deferral Agreement as follows by filing a new Deferral Agreement: (a) A Member may change the amount of Award he elects to defer on an Award Deferral Agreement prior to the Agreement's effective date as provided in Article 4. (b) A Member may change the rate of his Salary Deferrals or suspend his Salary Deferrals as provided in Article 5. ARTICLE 4. AWARD DEFERRAL PROGRAM 4.1 FILING REQUIREMENTS: (a) With respect to an ICP Award made for a calendar year or multiple years and determined and paid in the following calendar year, an Eligible Executive may elect, subject to Section 4.2(a) to defer all or a portion of his Award, if any, for that year. Such election shall be made by filing an Award Deferral Agreement with the Administrator on or before the close of business on November 15 of the calendar year (or, in the case of a multiple-year Award, the last calendar year) for which the Award is earned. An election to defer a portion of an Award shall be an integral percentage of such Award. (b) With respect to an ICP Award, notwithstanding Section 4.1 (a), an individual who becomes an Eligible Executive after November 15 of the calendar year for which an Award is made, but prior to the first day of the month in which such Award is determined including required action by the Board, may elect, subject to Section 4.2(a) to defer all or a portion of that Award in accordance with this Section 4.1(b). Such election shall be made by filing an Award Deferral Agreement during the 30 day or shorter period beginning on the date the individual becomes an Eligible Executive and ending no later than the last day of the month preceding the month in which the Award is determined. (c) With respect to an ICP Award, an Eligible Executive's election to defer all or a portion of his Award shall be effective on the last day that such deferral may be elected under Section 4.1 (a) or 4.1 (b) and shall be effective only for the Award in question. An Eligible Executive may revoke or change his election to defer all or a portion of his Award at any time prior to the date the election becomes effective, as described in the preceding sentence. Any such revocation or change shall be made in a form and manner determined by the Administrator. (d) With respect to an Award other than an ICP Award, an Eligible Executive shall be entitled to defer an Award by filing an Award Deferral Agreement with the Administrator on or before the close of business on November 15 of the calendar year immediately prior to the year in which the 8 Award is paid or made available to the Eligible Executive. Such Award Deferral Agreement shall be effective only for the Award in question. (e) The Committee in its sole discretion may require that certain Awards must be deferred, in which case no Award Deferral Agreement shall be required to be filed. 4.2 AMOUNT OF DEFERRAL: (a) With respect to an ICP Award, prior to a Change of Control, the Committee in its sole discretion, may establish such maximum limit on the amount of Award an Eligible Executive may defer for a calendar year as the Committee deems appropriate. Such maximum limit shall appear on the Eligible Executive's Award Deferral Agreement for the year. Following a Change of Control, the Committee's decision is subject to the final approval of the Benefits Trust Committee. (b) With respect to an ICP Award there shall be no minimum amount of deferral allowed unless otherwise designated by the Administrator. (c) With respect to an Award other than an ICP Award there shall be neither minimum nor maximum amount of deferral allowed unless otherwise designated by the Administrator. 4.3 CREDITING TO ACCOUNT: The amount of Award which an Eligible Executive has elected to defer shall be credited to his Account on the date coincident with or as soon as reasonably practicable following the date the Award would have been paid to the Eligible Executive. ARTICLE 5. SALARY DEFERRAL PROGRAM 5.1 FILING REQUIREMENTS: (a) An individual who is an Eligible Executive immediately prior to the Effective Date may file a Salary Deferral Agreement or an Enrollment Form with the Administrator, within such period prior to the Effective Date and in such manner as the Administrator may prescribe. (b) An individual who becomes an Eligible Executive on or after the Effective Date may file a Salary Deferral Agreement with the Administrator during the calendar month he becomes an Eligible Executive, in such manner as the Administrator may prescribe. (c) An Eligible Executive who fails to file a Salary Deferral Agreement with the Administrator as provided in Sections 5.1 (a) and 5.1 (b) may file a Salary Deferral Agreement in any subsequent month of December. 5.2 SALARY DEFERRAL AGREEMENT: (a) A Member's Salary Deferral Agreement shall authorize a reduction in his base pay with respect to his Salary Deferrals under the Plan. Such salary 9 reduction shall be an integral percentage not in excess of fifty (50%) percent. The Agreement shall be effective for payroll periods beginning on or after the later of: (i) the Effective Date; or (ii) the first day of the month following the date the Salary Deferral Agreement is filed with the Administrator in accordance with Section 5.1. Paychecks applicable to said payroll periods shall be reduced accordingly. (b) A Salary Deferral Agreement shall not be revoked or modified with respect to prior deferrals and shall remain in effect until such time as the Member files with the Administrator a new Salary Deferral Agreement. (c) A Member who is a participant in the Tax Savings Thrift Plan will have his salary deferral election under the Tax Savings Thrift Plan serve as his Salary Deferral Agreement under this Plan, and will not file a separate Salary Deferral Agreement. 5.3 AMOUNT OF SALARY DEFERRALS: On each pay date, or as soon as reasonably practicable thereafter, following the effective date of an Eligible Executive's Salary Deferral Agreement, his Account shall be credited with an amount of Salary Deferral, if any, for the payroll period ending thereon, as he elects in his Salary Deferral Agreement, provided, however, that no Salary Deferral shall be made under this Plan for any payroll period unless the Eligible Executive is prevented from making elective deferrals under the Tax Savings Thrift Plan for such payroll period as a result of Section 402(g) and/or 401 (k)(3) of the Code, and provided further that, for the payroll period in which such Salary Deferral is first made, it shall be limited to the excess of the amount otherwise determined for such payroll period under this Section 5.3 over the Eligible Executive's elective deferrals under the Tax Savings Thrift Plan for such payroll period. 5.4 EFFECT OF HARDSHIP WITHDRAWAL: In the event a Member makes a Hardship Withdrawal under Section 8.5 of the Plan, his Salary Deferrals under the Plan will be automatically suspended. The Member may apply to the Administrator to resume his Salary Deferrals with respect to payroll periods beginning on or after the January 1 following the date of suspension, at a time and in a manner determined by the Administrator; provided, that the Administrator shall approve such resumption only if the Administrator determines that the Member is no longer incurring such hardship. Notwithstanding the preceding, following a Change of Control, such action by the Administrator is subject to approval by the Benefits Trust Committee. 5.5 CERTAIN ADDITIONAL CREDITS: On each pay date, or as soon as reasonably practicable thereafter, there shall be credited Matching Credits to the Account of a Member determined as follows: the greater of (a) or (b), minus (c), where (a) is the employer matching contributions the Member would have received under the Tax Savings Thrift Plan if the provisions of Sections 401 (k)(3), 401(m)(9) and 415 of the Code had not applied to the Tax Savings Thrift Plan; and (b) is the employer matching contributions the Member would have received under the Tax Savings Thrift Plan if his deferrals under this Plan had 10 been contributed to the Tax Savings Thrift Plan (in addition to those amounts actually contributed to that Plan), based on Compensation as defined in this Plan and as if the provisions of Sections 401(a)(17), 401(k)(3), 401(m)(2), 401(m)(9) and 415 of the Code had not applied to the Tax Savings Thrift Plan; and (c) is the employer matching contributions made on his behalf for the applicable period to the Tax Savings Thrift Plan. ARTICLE 6. EXECUTIVE STOCK DEFERRAL PROGRAM 6.1 STOCK AWARDS: An Eligible Executive who is eligible to receive a Stock Award, the terms of which permit its deferral, may file with the Administrator an Award Deferral Agreement with respect to a Stock Award, pursuant to Article 4. 6.2 EXECUTIVE STOCK ACCOUNT: (a) A Member's Executive Stock Account will be created when he files his initial Award Deferral Agreement with respect to a Stock Award. An Executive Stock Account will be credited based upon the performance of Company Stock. No Member shall make an Investment Performance Election with respect to his Executive Stock Account. (b) A Member shall be eligible to file Distribution Elections pursuant to Article 8 and Form of Payment Elections pursuant to Article 9 with respect to his Executive Stock Account. If a Member has not filed a Distribution Election distribution of his Executive Stock Account will be made pursuant to Section 8.1. If a Member has not filed a Form of Payment Election distribution of his Executive Stock Account will be made pursuant to Section 9.1. Distributions from a Member's Executive Stock Account shall be made only in shares of Company Stock. (c) An Eligible Executive who has previously deferred shares of Company Stock granted pursuant to the CSX Omnibus Incentive Plan ("COIP") or another of the Corporation's stock incentive plans may elect to have an Executive Stock Account created for him in the Plan on the Effective Date by filing an Enrollment Form with the Administrator on or before the Effective Date. Filing the Enrollment Form will cause the transfer of such previously deferred share balances to the Member's Executive Stock Account on the Effective Date, and the Member will enjoy all rights and privileges of a Member including the ability to file initial Distribution Elections and Form of Payment Elections. A properly filed Enrollment Form will cause all prior elections made with respect to such previously deferred shares to be void immediately, unless otherwise stated in this Section 6.2. (i) No initial Distribution Election made pursuant to this Section 6.2 with respect to such previously deferred shares which designates distribution upon attainment of a designated age under Section 8.2(a)(i) that is within one year after the Effective Date shall be filed. 11 (ii) No initial Distribution Election made pursuant to this Section 6.2 with respect to such previously deferred shares which designates distribution upon the Member's termination of employment with the Affiliated Companies under Section 8.2(a)(ii) shall be effective if distribution would occur within one year after the Effective Date. (iii) Any prior election made with respect to such previously deferred shares which designates distribution upon the Member's termination of employment with the Affiliated Companies shall remain in effect until one year after the Effective Date, and shall be void thereafter. 6.3 DIVIDEND REINVESTMENT: A Member may elect annually, at such time as the Administrator may prescribe prior to the close of business on November 15 in any calendar year, in the form and manner prescribed by the Administrator to receive credit in his Executive Stock Account for dividends paid on Company Stock, in the amount with which such Executive Stock Account would have been credited assuming it had been invested in Company Stock ("Dividend Equivalents"). Absent such an election, Dividend Equivalents will be paid currently to the Member by the Company. ARTICLE 7. MAINTENANCE OF ACCOUNTS 7.1 CREATION OF ACCOUNT: (a) A Member's Account will be created when he files his initial Deferral Agreement. (b) An Eligible Executive who is a Member of the Supplementary Savings And Incentive Award Deferral Plan For Eligible Executives Of CSX Corporation And Affiliated Companies (the "SSP") may elect to have an Account created for him in the Plan on the Effective Date by filing an Enrollment Form with the Administrator on or before the Effective Date. Filing the Enrollment Form will cause the transfer of balances previously deferred under the SSP to the Member's Account on the Effective Date, and the Member will enjoy all rights and privileges of a Member including the ability to file initial Investment Performance Elections, Distribution Elections and Form of Payment Elections. A properly filed Enrollment Form will cause all prior elections made under the SSP to be void immediately, unless otherwise stated in this Section 7.1, however the Member's investment fund allocations under the SSP shall remain in effect for transferred balances until such time as the Member reallocates the current balance of his Account pursuant to section 7.4(b). (i) No initial Distribution Election made pursuant to this Section 7.1 with respect to such previously deferred amounts which designates distribution upon attainment of a designated age under Section 8.2(a)(i) that is within one year after the Effective Date shall be filed. (ii) No initial Distribution Election made pursuant to this Section 7.1 with respect to such previously deferred amounts which designates distribution upon the Member's termination of employment 12 with the Affiliated Companies under Section 8.2(a)(ii) shall be effective if distribution would occur within one year after the Effective Date. (iii) Any prior election made under the SSP which designates distribution upon the Member's termination of employment with the Affiliated Companies shall remain in effect until one year after the Effective Date, and shall be void thereafter. (c) A Member shall be eligible to file Distribution Elections pursuant to Article 8 and Form of Payment Elections pursuant to Article 9 with respect to his Account. If a Member has not filed a Distribution Election distribution of his Account will be made pursuant to Section 8.1. If a Member has not filed a Form of Payment Election distribution of his Account will be made pursuant to Section 9.1. 7.2 ADJUSTMENT OF ACCOUNT: (a) As of each pay date, or as soon as reasonably practicable thereafter, each Account shall be credited or debited with the amount of earnings or losses with which such Account would have been credited or debited, assuming it had been invested in one or more investment funds, or earned the rate of return of one or more indices of investment performance, designated by the Administrator and elected by the Member, for purposes of measuring the investment performance of his Account. (b) The Administrator shall designate at least one investment fund or index of investment performance and may designate other investment funds or investment indices to be used to measure the investment performance of Accounts. The designation of any such investment funds or indices shall not require the Affiliated Companies to invest or earmark their general assets in any specific manner. The Administrator may change the designation of investment funds or indices from time to time, in its sole discretion, and any such change shall not be deemed to be an amendment affecting Members' rights under Section 10.2. (c) For purposes of Section 7.2(a), the portion of a Member's Account attributable to Matching Credits shall initially be credited based upon the performance of "Fund E" (CSX Stock Fund) under the Tax Savings Thrift Plan. 7.3 INVESTMENT PERFORMANCE ELECTIONS: In the event the Administrator designates more than one investment fund or index of investment performance under Section 7.2, each Member shall file an initial investment performance election with the Administrator with respect to the investment of his Account. The election shall designate the investment fund or funds or index or indices of investment performance, which shall be used to measure the investment performance of the Member's Account. The election shall be made within such time period and on such form as the Administrator may prescribe and shall be in integral percentages of the Member's Account balance or deferral. The election shall be effective as of the beginning of the payroll period next following the date the election is filed. In the event a Member does not file an investment performance election, his Account shall be credited with earnings and losses 13 as if the Account had earned the same rate of return as the Stable Value Fund under the Tax Savings Thrift Plan. 7.4 CHANGING INVESTMENT PERFORMANCE ELECTIONS: (a) A Member may change his election in Section 7.3 with respect to his Account by filing an appropriate written notice with the Administrator. The notice shall be effective as of the beginning of the first payroll period following the date the notice is filed with the Administrator. (b) A Member may reallocate the current balance of his Account, thereby changing the investment fund or funds or index or indices of investment performance used to measure the future investment performance of his existing Account balance, by filing an appropriate notice with the Administrator. Such notice shall be effective as soon as administratively practicable following its receipt by the Administrator. A Member may not reallocate the balance of his Executive Stock Account to any investment other than Company Stock. 7.5 VESTING OF ACCOUNT: Each Member shall be fully vested in his Account or Executive Stock Account. 7.6 ACTION FOLLOWING A CHANGE OF CONTROL: Following a Change of Control, any action taken by the Administrator pursuant to this Article 7 is subject to the approval of the Benefits Trust Committee. ARTICLE 8. DISTRIBUTION OF BENEFITS 8.1 COMMENCEMENT OF DISTRIBUTION: The distribution of the Member's Account or Executive Stock Account shall commence on the date that is one year following the Member's termination of employment with the Affiliated Companies, or at such time as may be designated by the Member on a Distribution Election pursuant to Section 8.2. 8.2 DISTRIBUTION ELECTION (a) A Member may file with the Administrator a Distribution Election for the distribution upon: (i) attainment of a designated age not earlier than age 50 nor later than age 70-1/2, however he shall not elect an age less than one year subsequent to his current age; or (ii) termination of employment with the Affiliated Companies. (b) A Member may file with the Administrator a Partial Distribution Election for the distribution on attainment of a designated age for the payment of the expenses directly or indirectly arising from enrollment in a college, university, another post-secondary institution of higher learning or a secondary educational institution in the name of one or more of: 14 (i) each of the Member's children, (ii) each of the Member's brothers, sisters, their spouses, the Member's spouse, or (iii) each of the foregoing's lineal descendants. (c) A Member may file a Distribution Election or change a Distribution Election at any time prior to: (i) a date that is 30 days subsequent to the date of his termination of employment in the case of his initial Distribution Election; or (ii) one year prior to the date distribution is to commence under his Distribution Election then in effect, after which time no Distribution Election shall be filed. (d) A Member may make a Partial Distribution Election with respect to any portion of his Account or Executive Stock Account, provided no Distribution Election shall be made for a portion of an Account or Executive Stock Account less than $2,000, as determined as of the date the election is made. No Member shall have more than four Distribution Elections in effect at any time. (e) In no event may distribution made pursuant to a Distribution Election commence prior to a date that is three years subsequent to the date the Member first makes a Salary Deferral or Award Deferral under either this Plan, the SSP, the COIP or another of the Corporation's stock incentive plans for which an Executive Stock Account has been established. (f) For purposes of this Plan and particularly this Article 8, if the Member's employer is involved in a Divisive Transaction, the Member will be considered to have terminated his employment with an Affiliated Company on the closing date of the Divisive Transaction, provide the Member's employment with his employer has not otherwise terminated prior to that date. (g) Notwithstanding anything in Section 8.1 or 8.2 to the contrary, upon death of a Member, the balance of his Account or Executive Stock Account shall be distributed to his beneficiary as soon as administratively practicable following the January 1 coincident with or next following his date of death. (h) Any Distribution Election made in proper form by a Member shall be effective and distribution shall commence pursuant to such Distribution Election. Any Distribution Election not made in proper form shall be void. 8.3 DELAY OF PAYMENT (a) Notwithstanding the foregoing, prior to a Change of Control, the Corporation may delay payment of a benefit under this Plan to any Member who is determined to be among the top five most highly paid executives for the year the benefit under this Plan would otherwise be paid; provided, however, if a 15 Member's payment is delayed, the benefit to which he is entitled will not decrease after the date it would otherwise be distributed. (b) Notwithstanding the preceding, following a Change of Control, the authority to delay payment of a Member's Account or Executive Stock Account rests solely with the Benefits Trust Committee. 8.4 ACCOUNT ADJUSTMENT: The obligations of the Corporation or any of its affiliated corporations and the benefits due any Member, surviving spouse or beneficiary hereunder shall be reduced by any amount received in regard thereto under the Benefits Assurance Trust or any similar trust or other vehicle. 8.5 HARDSHIP WITHDRAWAL, FORFEITURE: (a) While employed by the Participating Companies, a. Member may, in the event of a severe financial hardship, request a withdrawal from his Account or Executive Stock Account without filing a Distribution Election under Section 8.2. The request shall be made in a time and manner determined by the Administrator, shall not be for a greater amount than the amount required to meet the financial hardship, and shall be subject to approval by the Administrator. The Administrator shall consider any requests for payment under this Section 8.5 on a uniform and nondiscriminatory basis and in accordance with the standards of interpretation described in section 457 of the Code and the regulations thereunder. The circumstances that will constitute a severe financial hardship will depend upon the facts of each case, but, in any case, no withdrawal may be made to the extent that such hardship is or may be relieved: (i) through reimbursement or compensation by available insurance or otherwise or (ii) by liquidation of the Member's assets, to the extent the liquidation of such assets would not itself cause severe financial hardship. (b) For purposes of this Section 8.5 severe financial hardship may include any of the following circumstances: (i) illness or injury of the Member or his dependents, (ii) the loss of the Member's home or its contents due to casualty, or (iii) any other extraordinary and unforeseeable circumstances of the Member approved by the Administrator, as long as those circumstances result in a present or impending critical financial need, including the inability to educate the Member's dependent child(ren). (c) Notwithstanding the preceding, a Member may request and receive a withdrawal from his Account or Executive Stock Account at any time without filing a Distribution Election under Section 8.2. Any such withdrawal which is not determined by the Administrator to be a hardship withdrawal under this Section 8.5 shall result in the forfeiture of an amount equal to the portion of the Member's Account or Executive Stock Account, as applicable, that is withdrawn, 16 multiplied by the Mid-term Applicable Federal Rate determined as of the Valuation Date upon which the withdrawal is effective. (d) Notwithstanding the preceding, following a Change of Control, any decisions or determinations by the Administrator under this Section 8.5 shall be subject to the approval of the Benefits Trust Committee. 8.6 DESIGNATION OF BENEFICIARY: A Member may, at a time and in a manner determined by the Administrator, designate a beneficiary and one or more contingent beneficiaries (which may include the Member's estate) to receive any benefits which may be payable under this Plan upon his death. If the Member does not designate a beneficiary or contingent beneficiary, or if the beneficiary and the contingent beneficiaries do not survive the Member, such benefits shall be paid to the Member's estate. A Member may revoke or change any designation made under this Section 8.6 in a time and manner determined by the Administrator. 8.7 SPECIAL DISTRIBUTION RULES: Notwithstanding anything to the contrary in this Plan, if (a) a Member becomes the owner, director or employee of a competitor of the Affiliated Companies, (b) his employment is terminated by an Affiliated Company on account of actions by the Member which are detrimental to the interests of the Affiliated Company, or (c) he engages in conduct subsequent to the termination of his employment with the Affiliated Companies which the Administrator determines to be detrimental to the interests of an Affiliated Company, then the Administrator may, in its sole discretion, pay the Member a single sum payment or, in the case of an Executive Stock Account, a distribution in shares of Company Stock equal to the balance in his Account or Executive Stock Account. The single sum payment or distribution of shares shall be made as soon as practicable following the date the Member becomes an owner, director or employee of a competitor, his termination of employment or the Administrator's determination of detrimental conduct, as the case may be, and shall be in lieu of all other benefits which may be payable to the Member under this Plan. 8.8 STATUS OF ACCOUNT PENDING DISTRIBUTION: (a) Pending distribution, a Member's Account shall continue to be credited with earnings and losses as provided in Section 7.2. The Member shall be entitled to change his investment elections under Section 7.3 or apply for Hardship withdrawals under Section 8.5. In the event of the death of a Member, his Account shall be credited with earnings and losses as if the Account had earned the same rate of return as the CSX Corporation Cash Pool Earnings Rate or, in the sole discretion of the Administrator, the rate of return of such other index of investment performance or investment fund which may be designated by the Administrator as a measure for investment performance of Members' Accounts commencing with the Valuation Date coincident with or next following the Member's date of death. (b) Pending distribution, a Member's Executive Stock Account shall continue to be credited based on the performance of Company Stock as provided in Section 6.2. 8.9 ONE-TIME RE-DEFERRAL ELECTION: A Member may make one additional election to defer (but not accelerate) commencement of payment under the Plan at any 17 time six months before payments are to have commenced pursuant to Section 8.1 or 8.2 ("Re-deferral Election). Such Re-deferral Election shall be made in a form prescribed by the Administrator. If such Re-deferral Election is to a designated age the re-deferral shall be for a period not less than one year from the date the Re-deferral Election is made. 8.10 CHANGE OF CONTROL: (a) A Member shall be eligible to make a separate Distribution Election which shall be effective only in the event of a Change of Control. (b) If a Change of Control has occurred, the Corporation and Participating Companies shall contribute to the Trust within 7 days of such Change of Control, a lump sum payment equal to the greater of (i) the aggregate value of the amount each Member would be eligible to receive (determined under (b) below) as of the latest Valuation Date coinciding with or preceding the date of Change of Control or (ii) the amount determined under Section 1(h) of the Trust attributable to liabilities relating to the Plan to the extent such amounts are not already in the Trust. The aggregate value of the amount of the lump sum to be contributed to the Trust pursuant to this Section 8.10 shall be determined by the Independent Accountants after consultation with the entity then maintaining the Plan's records, and shall be projected, if necessary, to such Valuation Date from the last valuation of Members' Accounts or Executive Stock Accounts for which information is readily available. Thereafter, the Independent Accountants shall annually determine as of a Valuation Date for each Member not receiving a lump sum payment pursuant to subsection (c) below the value of each Member's Accounts or Executive Stock Accounts. To the extent that the value of the assets held in the Trust relating to this Plan do not equal the aggregate amount described in the preceding sentence, at the time of the valuation, as determined by the Independent Accountants, the Corporation and Participating Companies shall make a lump sum contribution to the Trust equal to the difference. (c) In the event a Distribution Event has occurred, the trustee of the Trust shall, within 45 days of such Distribution Event, pay to each Member not making an election under (d) below, a lump sum payment or, in the case of an Executive Stock Account, a distribution in shares of Company Stock equal to the value of the Member's Account or Executive Stock Account (determined under Article 6) as of the Valuation Date coinciding with or next preceding the date of such Distribution Event. The amount of each Member's lump sum payment or Company Stock distribution shall be determined by the Independent Accountants after consultation with the entity then maintaining the Plan's records, and shall be projected, if necessary, to such Valuation Date from the last valuation of Member's Account or Executive Stock Account for which information is readily available. (d) Each Member may elect in a time and manner determined by the Administrator, but in no event later than 90 days following the Effective Date, to have amounts and benefits determined and payable under the terms of the Plan as if a Distribution Event had not occurred. New Members of the Plan may elect in a time and manner determined by the Administrator, but in no event later than 90 days after becoming a Member, to have amounts and benefits determined 18 and payable under the terms of the Plan as if a Distribution Event had not occurred. A Member who has made an election, as set forth in the two preceding sentences, may, at any time and from time to time, change that election; provided, however, a change of election that is made within one year of a Distribution Event shall be invalid. (e) Notwithstanding anything in the Plan to the contrary, each Member who has made an election under (d) above may elect within 90 days following a Distribution Event, in a time and manner determined by the Benefits Trust Committee, to receive a lump sum payment or, in the case of an Executive Stock Account, a distribution in shares of Company Stock, calculated under the provisions of (b) above determined as of the Valuation Date next preceding such payment, except that such calculated amount shall be reduced by an amount equal to such calculated amount, multiplied by the Mid-term Applicable Federal Rate determined as of the Valuation Date next preceding such payment and such reduction shall be irrevocably forfeited by the Member. Furthermore, as a result of such election, the Member shall no longer be eligible to participate or otherwise benefit from the Plan. Payments under this subsection (e) shall be made not later than 7 days following receipt by the Corporation of a Member's election. The Benefits Trust Committee shall, no later than 7 days after a Distribution Event has occurred, give written notification to each Member eligible to make an election under this subsection (e), that a Distribution Event has occurred and informing such Member of the availability of the election. ARTICLE 9. FORM OF PAYMENT 9.1 TINNING OF DISTRIBUTION: Unless a Form of Payment Election is made pursuant to Section 9.2 below, (a) a Member's Account shall be distributed to him, or in the event of his death to his Beneficiary, in a cash single sum payment as provided in Section 8.1. (b) a Member's Executive Stock Account shall be distributed to him, or in the event of his death to his Beneficiary, in a single distribution of shares as provided in Section 8.1. 9.2 FORM OF PAYMENT ELECTION (a) A Member may make a Form of Payment Election to receive distribution of his Account or Executive Stock Account in semi-annual installments over a period not to exceed twenty (20) years. Installments shall be determined as of each January 15 and July 15 (or in the case of an Executive Stock Account, December 30 and June 30) and shall be paid as soon as administratively practicable thereafter. The amount of each installment shall equal the balance in the Account or Executive Stock Account as of the Valuation Date of determination, divided by the number of remaining installments (including the installment being determined). If a Member dies before payment of the entire balance of his Account or Executive Stock Account, the remaining balance shall be paid in a single sum to his beneficiary as soon as administratively practicable following his date of death. Lump sum payments shall be determined and paid 19 as soon as administratively practicable following the date the Member incurs the distributable event elected on a Distribution Election under Section 8.2. (b) A Member may make a separate Form of Payment Election with respect to any portion of his Account for which a Partial Distribution Election has been made pursuant to Section 8.2(d). (c) A Member may change his Form of Payment Election at any time prior to a date that is six months prior to the date the distribution is to commence, after which time the Form of Payment Election shall be irrevocable. 9.3 INSTALLMENTS AND WITHDRAWALS PRO-RATA: In the event of any payment other than a single lump-sum, such as installment payment, partial distribution or hardship withdrawal, such payment or withdrawal shall be made on a pro-rata basis from the portions of the Member's existing Account balance which are subject to different measures of investment performance. ARTICLE 10. AMENDMENT OR TERMINATION 10.1 RIGHT TO TERMINATE: (a) Prior to a Change of Control, the Board may, in its sole discretion, terminate this Plan and the related Deferral Agreements at any time. Following a Change of Control, this Plan may not be terminated without the approval of the Benefits Trust Committee. (b) Prior to a Change of Control, the Committee may terminate an Affiliated Company's participation as a Participating Company in this Plan for any reason at any time. Following a Change of Control, an Affiliated Company may not be terminated from participation as a Participating Company without the consent of the Benefits Trust Committee. (c) Prior to a Change of Control, an Affiliated Company's board of directors may terminate that Affiliated Company's participation as a Participating Company for any reason at any time. Following a Change of Control, an Affiliated Company's participation as a Participating Company may not be terminated without the consent of the Benefits Trust Committee. (d) In the event the Plan and related Deferral Agreements are terminated, each Member and Beneficiary shall receive a single sum payment, or, in the case of an Executive Stock Account, a distribution in shares of Company Stock equal to the balance in his Account or Executive Stock Account. The single sum payment shall be made as soon as practicable following the date the Plan is terminated and shall be in lieu of any other benefit which may be payable to the Member or beneficiary under this Plan. 10.2 RIGHT TO AMEND: Prior to a Change of Control, the Board may, in its sole discretion, amend this Plan and the related Deferral Agreements and Enrollment Forms on 30 days prior notice to the Members. Following a Change of Control, all amendments to this Plan are subject to the approval of the Benefits Trust Committee. If any amendment to this Plan or to the Deferral Agreements or Enrollment Forms shall 20 adversely affect the rights of a Member, such Member must consent in writing to such amendment prior to its effective date. If such Member does not consent to the amendment, the Plan and related Deferral Agreements and Enrollment Forms shall be deemed to be terminated with respect to such Member and he shall receive a single sum payment of his Account, or, in the case of an Executive Stock Account, a distribution in shares of Company Stock, as soon thereafter as is practicable. Notwithstanding the foregoing, the Administrator's change in any investment funds or investment index under Section 7.2(b) or the restriction of future deferrals under the salary deferral program or award deferral program shall not be deemed to adversely affect any Member's rights. 10.3 UNIFORM ACTION: Notwithstanding anything in the Plan to the contrary, any action to amend or terminate the Plan or the Deferral Agreements or Enrollment Forms must be taken in a uniform and nondiscriminatory manner. Notwithstanding the preceding, any such action taken by the Administrator following a Change of Control is subject to the approval of the Benefits Trust Committee. ARTICLE 11. GENERAL PROVISIONS 11.1 NO FUNDING: Nothing contained in this Plan or in a Deferral Agreement shall cause this Plan to be a funded retirement plan. Neither the Member, his beneficiary, contingent beneficiaries, heirs or personal representatives shall have any right, title or interest in or to any funds of the Trust or the Affiliated Companies on account of this Plan or on account of having completed a Deferral Agreement or Enrollment Form. The assets held in the Trust shall be subject to the claims of creditors of the Corporation, and the Trust's assets shall be used to discharge said claims in the event of the Corporation's insolvency. Each Member shall have the status of a general unsecured creditor of the Affiliated Companies and this Plan constitutes a mere promise by the Affiliated Companies to make benefit payments in the future. 11.2 OBLIGATION: To the extent reflected by resolutions of the applicable boards of directors, obligations for benefits under this Plan shall be joint and several. 11.3 NO CONTRACT OF EMPLOYMENT: The existence of this Plan, a Deferral Agreement or an Enrollment Form does not constitute a contract for continued employment between an Eligible Executive or a Member and an Affiliated Company. The Affiliated Companies reserve the right to modify an Eligible Executive's or Member's remuneration and to terminate an Eligible Executive or a Member for any reason and at any time, notwithstanding the existence of this Plan, a Deferral Agreement or an Enrollment Form. 11.4 WITHHOLDING TAXES: All applicable FICA, RRTA or other employment taxes due on deferrals under this Plan shall be withheld from non-deferred salary, Awards or other earnings. All payments under this Plan shall be net of an amount sufficient to satisfy any federal, state or local income tax withholding requirements. 11.5 NONALIENATION: The right to receive any benefit under this Plan may not be transferred, assigned, pledged or encumbered by a Member, beneficiary or contingent beneficiary in any manner and any attempt to do so shall be void. No such benefit shall be subject to garnishment, attachment or other legal or equitable process without the prior written consent of the Affiliated Companies. Notwithstanding the 21 preceding, following a Change of Control, the Administrator shall not implement such action without the consent of the Benefits Trust Committee. 11.6 ADMINISTRATION: (a) Prior to a Change of Control, the Administrator of the Plan shall be responsible for the general administration of the Plan, claims review, and for carrying out its provisions. Administration of the Plan shall be carried out consistent with the terms and conditions of the Plan. (b) Following a Change of Control, the Benefits Trust Committee may remove and/or replace the Administrator. (c) The Administrator shall have sole and absolute discretion to interpret the Plan, determine eligibility for and benefits due hereunder. Decisions of the Administrator regarding benefits under the Plan shall at all times be binding and conclusive on Members, their beneficiaries, heirs and assigns. Notwithstanding the preceding, following a Change of Control, final benefit determinations for Members, their beneficiaries, heirs and assigns and decisions regarding benefit claims under the Plan shall rest with the Benefits Trust Committee or its delegate in its sole and absolute discretion. (d) Prior to paying any benefit under this Plan, the Administrator may require the Member, beneficiary or contingent beneficiary to provide such information or material as the Administrator, in its sole discretion, shall deem necessary for it to make any determination it may be required to make under this Plan. The Administrator may withhold payment of any benefit under this Plan until it receives all such information and material and is reasonably satisfied of its correctness and genuineness. The Administrator shall provide adequate notice in writing to any Member, beneficiary or contingent beneficiary whose claim for benefits under this Plan has been denied, setting forth the specific reasons for such denial. A reasonable opportunity shall be afforded to any such Member, beneficiary or contingent beneficiary for a full and fair review by the Administrator of its decision denying the claim. The Administrator's decision on any such review shall be final and binding on the Member, beneficiary or contingent beneficiary and all other interested persons. All acts and decisions of the Administrator shall be final and binding upon all Members, beneficiaries, contingent beneficiaries and employees of the Affiliated Companies. Notwithstanding the preceding, following a Change of Control, any and all decisions by the Administrator are subject to the approval of the Benefits Trust Committee. (e) Prior to a Change of Control, the Committee in its sole discretion and upon such terms as it may prescribe, may permit any company or corporation directly or indirectly controlled by the Corporation to participate in the Plan. After a Change of Control, such permission must be approved by the Benefits Trust Committee. 22 11.7 IMPACT OF FUTURE LEGISLATION OR REGULATION (a) This Section 11.7 shall become operative upon the enactment of any change in applicable statutory law or the promulgation by the Internal Revenue Service of a final regulation or other pronouncement having the force of law, which statutory law, as changed, or final regulation or pronouncement, as promulgated, would cause any Member to include in his or her federal gross income amounts accrued by the Member under the Plan on a date (an "Early Taxation Event") prior to the date on which such amounts are made available to him or her hereunder. (b) Notwithstanding any other Section of this Plan to the contrary (but subject to subsection (c), below), as of an Early Taxation Event, the feature or features of this Plan, or the election by a Member that would cause the Early Taxation Event shall be null and void, to the extent, and only to the extent, required to prevent the Member from being required to include in his federal gross income amounts accrued by the Member under the Plan prior to the date on which such amounts are made available to him hereunder. By way of example, but not by way of limiting the generality of the foregoing, if a statute is enacted that would require a Member to include in his or her federal gross income amounts accrued by the Member under the Plan prior to the date on which such amounts are made available to him or her because of the Member's right to receive a distribution of a portion of his Account under Section 8.5, the right of all Members to receive distributions under Section 8.5 shall be null and void as of the effective date of that statute. If only a portion of a Member's Account is impacted by the change in the law, then only such portion shall be subject to this Section, with the remainder of the Account not so affected being subject to such rights and features as if the law were not changed. If the law only impacts Members who have a certain status with respect to the Company, then only such Members shall be subject to this Section. (c) Notwithstanding Section 11.7(b) above, if an Early Taxation Event occurs (e.g., if a change in law is retroactive), the amounts that become taxable on the Early Taxation Event shall be distributed to each Participant as soon as practicable following such Early Taxation Event or if later, the date or enactment or promulgation. 11.8 CONSTRUCTION: (a) The Plan is intended to constitute an unfunded deferred compensation arrangement for a select group of management or highly compensated employees and all rights hereunder shall be governed by and construed in accordance with the laws of the Commonwealth of Virginia to the extent not preempted by federal law. (b) The masculine pronoun means the feminine wherever appropriate. (c) The captions inserted herein are inserted as a matter of convenience and shall not affect the construction of the Plan. 23 AMENDMENT 2002 DEFERRED COMPENSATION PLAN OF CSX CORPORATION AND AFFILIATED COMPANIES Pursuant to Section 10.2 of the 2002 Deferred Compensation Plan of CSX Corporation and Affiliated Companies (the "Plan"), the Plan is amended effective February 7, 2003 as follows: Section 8.7 is amended to read as follows: "Notwithstanding anything to the contrary in this Plan, if (a) a Member becomes the owner, director or employee of a competitor of the Affiliated Companies; (b) his employment is terminated by an Affiliated Company on account of actions by the Member which are detrimental to the interests of the Affiliated Company; (c) he engages in conduct subsequent to the termination of his employment with the Affiliated Companies which the Administrator determines to be detrimental to the interests of an Affiliated Company; or (d) is required to divest his or her interest under the Plan under applicable law, regulation or rules, then the Administrator may, in its sole discretion, pay the Member a single sum payment equal to the balance in his Account. In such event, the single sum payment shall be made as soon as practicable following the date the Member is affected by one of the circumstances described in this Section 8.7 and such payment shall be in lieu of all other benefits which may be payable to the Member under this Plan." EX-10.27 10 g87590exv10w27.txt EX-10.27 SUPPLEMENTARY SAVINGS PLAN EXHIBIT 10.27 SUPPLEMENTARY SAVINGS AND INCENTIVE AWARD DEFERRAL PLAN FOR ELIGIBLE EXECUTIVES OF CSX CORPORATION AND AFFILIATED COMPANIES As Amended and Restated January 1, 1995 (As Amended through September 8, 1999) TABLE OF CONTENTS
Page ---- ARTICLE 1. DEFINITIONS.......................................................... 1 1.1 Account ....................................................... 1 1.2 Administrator.................................................. 1 1.3 Affiliated Company............................................. 1 1.4 Award ......................................................... 1 1.5 Award Deferral Agreement....................................... 1 1.6 Benefits Trust Committee...................................... 2 1.7 Board of Directors............................................ 2 1.8 Change of Control............................................. 2 1.9 Code.......................................................... 3 1.10 Committee...................................................... 3 1.11 Compensation.................................................. 3 1.12 Corporation.................................................... 3 1.13 Deferral Agreement............................................. 3 1.14 Distribution Option(s)........................................ 4 1.15 Divisive Transaction........................................... 4 1.16 Effective Date................................................. 4 1.17 Eligible Executive............................................. 4 1.18 Independent Accountant......................................... 4 1.19 Matching Credits............................................... 4 1.20 Member ........................................................ 4 1.21 MICP .......................................................... 4 1.22 Participating Company.......................................... 4 1.23 Plan .......................................................... 5 1.24 Salary Deferrals............................................... 5 1.25 Salary Deferral Agreement...................................... 5 1.26 Salary Deferral Percentage..................................... 5 1.27 SMICP ......................................................... 5 1.28 Subsidiary..................................................... 5 1.29 Tax Savings Thrift Plan........................................ 5 1.30 Trust ......................................................... 5 1.31 Valuation Date................................................. 5 ARTICLE 2. MEMBERSHIP AND DEFERRAL AGREEMENTS................................... 5 2.1 In General..................................................... 5 2.2 Modification of Initial Deferral Agreement..................... 6 2.3 Termination of Membership; Re-employment....................... 6 2.4 Change in Status............................................... 7 2.5 Membership Following a Change in Control....................... 7 ARTICLE 3. AWARD DEFERRAL PROGRAM............................................... 7 3.1......Filing Requirements............................................ 7 3.2 Amount of Deferral............................................. 8 3.3 Crediting to Account........................................... 8

Page ---- ARTICLE 4. SALARY DEFERRAL PROGRAM.............................................. 9 4.1 Filing Requirements............................................ 9 4.2 Salary Deferral Agreement...................................... 9 4.3 Amount of Salary Deferrals..................................... 9 4.4 Changing Salary Deferrals...................................... 10 4.5 Certain Additional Credits..................................... 10 ARTICLE 5. MAINTENANCE OF ACCOUNTS.............................................. 11 5.1 Adjustment of Account.......................................... 11 52 Investment Performance Elections............................... 12 5.3 Changing Investment Elections.................................. 12 5.4 Vesting of Account............................................. 12 5.5 Individual Accounts............................................ 13 5.6 Action Following a Change of Control........................... 13 ARTICLE 6. PAYMENT OF BENEFITS.................................................. 13 6.1 Commencement of Payment........................................ 13 6.2 Method of Payment.............................................. 15 6.3 Applicability.................................................. 16 6.4 Hardship Withdrawal............................................ 16 6.5 Designation of Beneficiary..................................... 16 6.6 Special Distribution Rules..................................... 17 6.7 Status of Account Pending Distribution......................... 17 6.8 Installments and Withdrawals Pro-Rata.......................... 17 6.9 Change of Control.............................................. 18 ARTICLE 7. AMENDMENT OR TERMINATION............................................. 19 7.1 Right to Terminate............................................. 19 7.2 Right to Amend................................................. 19 7.3 Uniform Action................................................. 20 ARTICLE 8. GENERAL PROVISIONS................................................... 20 8.1 No Funding..................................................... 20 8.2 Obligation..................................................... 20 8.3 No Contract of Employment...................................... 20 8.4 Withholding Taxes.............................................. 20 8.5 Nonalienation.................................................. 20 8.6 Administration................................................. 20 8.7 Construction................................................... 21 ARTICLE 9. POST-SECONDARY EDUCATION SUB-ACCOUNTS................................ 21 9.1......Post-Secondary Education Sub-accounts.......................... 21 9.2 Distribution of Post-Secondary Education Sub-accounts.......... 22 9.3 Construction................................................... 23
INTRODUCTION This Supplementary Savings and Incentive Award Deferral Plan for Eligible Executives of CSX Corporation and Affiliated Companies (the "Plan") was adopted October 1, 1987 and has been subsequently amended from time to time. This restatement of the Plan is effective January 1, 1995. This Plan is generally intended to provide certain executives eligible to participate in the Tax Savings Thrift Plan for Employees of CSX Corporation and Affiliated Companies (the "Savings Plan") with an opportunity to defer a portion of their salary, and/or award(s) under the Management Incentive Compensation Program ("MICP") and/or the Senior Management Incentive Compensation Program ("SMICP") until their retirement or other termination of employment and to restore employer matching contributions lost under the Savings Plan because of the application of Sections 401(aX17), 401(k), 401(m) and 415 of the Internal Revenue Code of 1986, as amended. Commencing with respect to MICP awards paid and salary earned after 1990, eligible executives may, if they so elect, designate all or a portion of such deferrals to be used for payment of education expenses for one or more members of their families. The Plan is unfunded and is maintained by CSX Corporation and Affiliated Companies primarily for the purpose of providing deferred compensation for a select group of management or highly-compensated employees. The Plan as restated effective January 1, 1995 (and amended through December 31, 1997) reads as hereinafter set forth. ARTICLE I. DEFINITIONS 1.1 ACCOUNT MEANS the bookkeeping account maintained for each Member to record his Salary Deferrals, Matching Credits and the amount of Awards he has elected to defer, as adjusted pursuant to Article 5. The Account shall consist of the "Education Sub-accounts", if any, established pursuant to Article 9 and all amounts not in those accounts shall be allocated to one or more "Retirement Sub- accounts". The Administrator may establish a maximum number of "Retirement Sub-accounts" which a Member may have at any time. In addition to any Retirement Sub-accounts established by the Administrator, an additional Retirement Sub-account known as the Cash Plan Retirement Sub-account shall be established for deferrals of payments from the CSX Market Value Cash Plan. The Administrator also may establish such other sub-accounts within a Member's Account as it deems necessary to implement the provisions of the Plan. 1.2 ADMINISTRATOR means the Corporation. The duties of the Administrator shall be performed by a person or persons designated by the Chief Executive Officer of the Corporation to perform such duties. 13 AFFILIATED Company means the Corporation and any company or corporation directly or indirectly controlled by the Corporation. 1.4 AWARD means for any year (i) the amount awarded to an employee of an Affiliated Company for that year (including any special incentive award) and, in the absence of an Award Deferral Agreement with respect to such amount, payable in the succeeding year under the MICP and/or SMICP or other incentive award otherwise payable in cash as determined by the Committee; and (ii) the amount paid from the CSX Market Value Cash Plan with respect to such year and, in the absence of an Award Deferral Agreement with respect to such amount and with respect to such year, payable in cash under the CSX Market Value Cash Plan. 1.5 AWARD DEFERRAL AGREEMENT means a Deferral Agreement filed in accordance with the award deferral program described in Article 3. -1- 1.6 BENEFITS TRUST Committee means the committee created pursuant to the CSX Corporation and Affiliated Companies Benefits Assurance Trust Agreement. 1.7 BOARD OF DIRECTORS or "Board" means the Board of Directors of the Corporation. 1.8 CHANGE OF CONTROL means any of the following: (a) Stock Acquisition. The acquisition, by any individual, entity or group [within the meaning of Section 13(dX3) or 14(dX2) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")] (a "Person") of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 20% or more of either (i) the then outstanding shares of common stock of the Corporation (the "Outstanding Corporation Common Stock"), or (ii) the combined voting power of the then outstanding voting securities of the Corporation entitled to vote generally in the election of directors (the "Outstanding Corporation Voting Securities"); provided, however, that for purposes of this subsection (a), the following acquisitions shall not constitute a Change of Control: (i) any acquisition directly from the Corporation; (ii) any acquisition by the Corporation; (iii) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Corporation or any corporation controlled by the Corporation; or (iv) any acquisition by any corporation pursuant to a transaction which complies with clauses (i), (ii) and (iii) of subsection (c) of this Section 1.8; or (b) Board Composition. Individuals who, as of the date hereof, constitute the Board of Directors (the "Incumbent Board") cease for any reason to constitute at least a majority of the Board of Directors; provided, however, that any individual becoming a director subsequent to the date hereof whose election or nomination for election by the Corporation's shareholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board of Directors; or (c) Business Combination. Approval by the shareholders of the Corporation of a reorganization, merger, consolidation or sale or other disposition of all or substantially all of the assets of the Corporation or its principal subsidiary that is not subject, as a matter of law or contract, to approval by the Interstate Commerce Commission or any successor agency or regulatory body having jurisdiction over such transactions (the "Agency") (a "Business Combination"), in each case, unless, following such Business Combination: (i) all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Corporation Common Stock and Outstanding Corporation Voting Securities immediately prior to such Business Combination beneficially own, directly or indirectly, more than 50% of, respectively, the then outstanding shares of common stock and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the corporation resulting from such Business Combination (including, without limitation, a corporation which as a result of such transaction owns the Corporation or its principal subsidiary or all or substantially all of the assets of the Corporation or its principal subsidiary either directly or -2- through one or more subsidiaries) in substantially the same proportions as their ownership, immediately prior to such Business Combination of the Outstanding Corporation Common Stock and Outstanding Corporation Voting Securities, as the case may be; (ii) no Person (excluding any corporation resulting from such Business Combination or any employee benefit plan (or related trust) of the Corporation or such corporation resulting from such Business Combination) beneficially owns, directly or indirectly, 20% or more of, respectively, the then outstanding shares of common stock of the corporation resulting from such Business Combination or the combined voting power of the then outstanding voting securities of such corporation except to the extent that such ownership existed prior to the Business Combination; and (iii) at least a majority of the members of the board of directors resulting from such Business Combination were members of the Incumbent Board at the time of the execution of the initial agreement, or of the action of the Board of Directors, providing for such Business Combination; or (d) Regulated Business Combination. Approval by the shareholders of the Corporation of a Business Combination that is subject, as a matter of law or contract, to approval by the Agency (a "Regulated Business Combination") unless such Business Combination complies with clauses (i), (ii) and (iii) of subsection (c) of this Section 1.8; or (e) Liquidation or Dissolution. Approval by the shareholders of the Corporation of a complete liquidation or dissolution of the Corporation or its principal subsidiary. 1.9 CODE means the Internal Revenue Code of 1986, as amended from time to time. 1.10 COMMITTEE means the Compensation Committee of the Board of Directors of CSX Corporation. 1.11 COMPENSATION means the "Base Compensation" of an Eligible Executive as defined in the Tax Savings Thrift Plan, determined prior to: (a) any Salary Deferrals under Article 4; and (b) any limit on compensation imposed by Section 401(a)(17) of the Code. 1.12 CORPORATION means CSX Corporation, a Virginia corporation, and any successor thereto by merger, purchase or otherwise. 1.13 Deferral Agreement means either an Award Deferral Agreement or a Salary Deferral Agreement, or both if the context so requires. A Deferral Agreement shall be a completed agreement between an Eligible Executive and a Participating Company of which he is an employee under which the Eligible Executive agrees to defer an Award or make Salary Deferrals under the Plan, as the case may be. The Deferral Agreement shall be on a form prescribed by the Administrator and shall include any amendments, attachments or appendices. 1.14 DISTRIBUTION OPTION(S) means, with respect to each sub-account under the Plan, the election by the Member of (i) the event triggering the commencement of distribution, and (ii) the form of 1.11 -3- payment. Distribution Option elections are made on the initial Deferral Agreement with respect to any sub-account. 1.15 DIVISIVE TRANSACTION means a transaction in which the Eligible Executive's employer ceases to be a Subsidiary or there is a sale of substantially all of the assets of the Subsidiary. 1.16 EFFECTIVE DATE means October 1, 1987 or with respect to the Eligible Executives of a company which adopts the Plan, it means the date such company becomes a Participating Company. 1.17 ELIGIBLE EXECUTIVE means an employee of a Participating Company, provided that: (a) For purposes of the award deferral program described in Article 3: (i) prior to January 1, 1995, such employee is employed by a Participating Company in salary grades 21 through 40 inclusive, as of December 30 of the calendar year in question; or (ii) on and after January 1, 1995 and before January 1, 1999, such employee: (A) is employed by a Participating Company and is receiving Compensation of one hundred thousand dollars ($100,000) or more per year; or (B) retired from the Participating Companies or terminated employment with the Participating Companies on account of disability as determined by the Administrator, and was receiving compensation of one hundred thousand dollars ($100,000) or more per year at the time of such retirement or termination; or (iii) on and after January 1, 1999, such employee: (A) is employed by a Participating Company and is receiving compensation of one hundred twenty five thousand dollars ($125,000) or more per year; or (B) retired from the Participating Companies or terminated employment with the Participating Companies on account of disability as determined by the Administrator, and was receiving Compensation of one hundred twenty five thousand dollars ($125,000) or more per year at the time of such retirement or termination. An employee who, in 1998, was eligible to participate because his Compensation satisfied the requirements of subsection (ii), and is excluded from participation only because of the increase in the Compensation requirement in this subsection (iii), shall continue to be eligible to participate. (b) For purposes of the salary deferral program described in Article 4, such employee is eligible for membership in the Tax Savings Thrift Plan, and; (i) Prior to January 1, 1995, such employee is employed in salary grades 21 through 40 inclusive; or -4- (ii) Compensation of one hundred thousand dollars ($100,000) or more per year; or (iii) on and after January 1, 1999, is receiving Compensation of one hundred twenty five thousand dollars ($125,000) or more per year. An employee who, in 1998, was eligible to participate because his Compensation satisfied the requirements of subsection (ii), but is excluded from participation only because of the increase in the Compensation requirement in this subsection (iii), shall continue to be eligible to participate. (c) After January 1, 1999, the compensation amount set forth in subsections (a)(iii) and (b)(iii) may, in the discretion of the Chief Executive Officer, be adjusted no more frequently than annually, based on a review of data regarding eligibility to participate in this type of program. (d) The Chief Executive Officer of the Corporation or his designee may designate any other employee or former employee of an Affiliated Company as an Eligible Executive; provided, however, only those employees or former employees considered to be a select group of management or highly compensated may be designated as Eligible Executives under this Plan. Notwithstanding the preceding, following a Change of Control, such designations are subject to the approval of the Benefits Trust Committee. 1.18 INDEPENDENT ACCOUNTANT means the independent accountants engaged by the Corporation and, if selected or changed following a Change of Control, approved by the Benefits Trust Committee. 1.19 Matching Credits means amounts credited to the Account of a Member pursuant to Section 4.5. 1.20 MEMBER means, except as otherwise provided in Article 2, each Eligible Executive who has executed an initial Deferral Agreement as described in Section 2.1. 1.21 MICP means the Participating Companies' Management Incentive Compensation Program. 1.22 PARTICIPATING COMPANY means the Corporation and any company or corporation directly or indirectly controlled by the Corporation, which the Committee designates as eligible to participate in the Plan in accordance with Section 8.6(e). 1.23 PLAN means this Supplementary Savings and Incentive Award Deferral Plan for Eligible Executives of CSX Corporation and Affiliated Companies, as amended from time to time. 1.24 SALARY DEFERRALS means the amounts credited to a Member's Account under Section 4.3. 1.25 SALARY DEFERRAL AGREEMENT means a Deferral Agreement filed in accordance with the salary deferral program described in Article 4. -5- 1.26 SALARY DEFERRAL PERCENTAGE means a percentage of an Eligible Executive's Base Compensation elected in a Salary Deferral Agreement, pursuant to Section 4.1 hereof, and shall be an integral percentage not in excess of fifty (50%) percent. 1.27 SMICP means the Participating Companies' Senior Management Incentive Compensation Program. 128 SUBSIDIARY means a corporation more than 50% of the voting shares of which are owned directly or indirectly by the Corporation. 1.29 TAX SAVINGS THRIFT PLAN means the Tax Savings Thrift Plan for Employees of CSX Corporation and Affiliated Companies, as amended from time to time. 1.30 Trust means the CSX Corporation and Affiliated Companies Benefits Assurance Trust. 1.31 Valuation Date means the last business day of each calendar month following the Effective Date. ARTICLE 2. MEMBERSHIP AND DEFERRAL AGREEMENTS 2.1 IN GENERAL: (a) An Eligible Executive shall become a Member as of the date he files his initial Deferral Agreement with the Administrator. However, such Deferral Agreement shall be effective for purposes of deferring an Award or making Salary Deferrals only as provided in Articles 3 and 4. (b) A Deferral Agreement shall be in writing and properly completed upon a form approved by the Administrator, which shall be the sole judge of the proper completion thereof. Except as provided in Section 4.1(d), such Agreement shall provide for the deferral of an Award or for Salary Deferrals, shall specify the Distribution Options, and may include such other provisions as the Administrator deems appropriate. A Deferral Agreement shall not be revoked or modified with respect to the allocation of prior deferrals except pursuant to the establishment of an Education Sub-account as provided in Article 9. Distribution Options elected may not be modified or revoked except as provided in Section 6.1 or 6.2. (c) As a condition of membership, the Administrator may require such other information as it deems appropriate. 2.2 MODIFICATION OF INITIAL DEFERRAL AGREEMENT: (a) A Member may elect to change, modify or revoke a Deferral Agreement as follows: (i) A Member may change the amount of Award he elects to defer on an Award Deferral Agreement prior to the Agreement's effective date as provided in Article 3. (ii) A Member may change the rate of his Salary Deferrals, or suspend his Salary Deferrals on account of severe financial hardship, as provided in Article 4. -6- (iii) A Member may change the event entitling him to distribution, as designated on his election of Distribution Options, as provided in Section 6.1(c)(i). (iv) A Member may change the event entitling him to distribution as designated on his election of Distribution Options, subject to the five percent (5%) penalty described in Section 6. l(c)(ii). (v) A Member may change the form of payment, as designated on his election of Distribution Options, as provided in Section 6.2(c)(i). (vi) A Member may change the form of payment as designated on his election of Distribution Options, subject to the five percent (5%) penalty described in Section 6.2(c)(ii). (b) Notwithstanding any provision in Section 2.2(a) to the contrary, the establishment of an Education Sub-account with respect to future Salary Deferrals and Awards as provided in Article 9 shall not be deemed a change for the purposes of Section 2.2(a). 2.3 TERMINATION OF MEMBERSHIP; RE-EMPLOYMENT: (a) Membership shall cease, subject to Section 2.4, upon a Member's termination of employment; provided that if a former Eligible Executive is receiving severance payments under a Participating Company's severance pay program or is eligible to defer an Award under Article 3, he shall not be deemed to have terminated employment until the later of the date the severance payments cease or the date the Award would have been paid. Membership shall be continued during a leave of absence approved by the Participating Companies. (b) Upon re-employment as an Eligible Executive, a former Member may become a Member again as follows: (i) in the case of a former Member who prior to re-employment received the balance in his Account, by executing a Deferral Agreement under Section 2.1 as though for all purposes of the Plan the Affiliated Companies had never employed the former Member, (ii) in the case of a former Member who prior to re-employment did not receive the balance in his Account, by executing a Deferral Agreement under Section 2.1; provided his Distribution Options and beneficiary designation shall remain in effect. (c) If a former Member is reemployed as an Eligible Executive and becomes a Member again pursuant to (b)(ii): (i) upon notice to the Administrator by the Participant, distributions from a Retirement Sub-account shall cease if the commencement of distribution was because of the Member's termination of employment (including retirement); (ii) distributions from a Retirement Sub-account shall continue if the commencement of distribution was because the Member chose a specific age for the commencement of benefits and that age has been attained. Except for distributions which must continue pursuant to (c)(ii), a reemployed Member may change Distribution Option elections with respect to his Retirement Sub-accounts without penalty so long as such change does not accelerate the timing of any payment to the Member. -7- 2.4 CHANGE IN STATUS: (a) In the event that a Member ceases to be an Eligible Executive with respect to Salary Deferrals but continues to be employed by an Affiliated Company, his Salary Deferrals and Matching Credits shall thereupon be suspended until such time as he shall once again become an Eligible Executive. All other provisions of his Salary Deferral Agreement shall remain in force and he shall continue to be a Member of the Plan. (b) In the event that a Member ceases to be an Eligible Executive with respect to the deferral of Awards hereunder but continues to be employed by an Affiliated Company, he shall continue to be a Member of the Plan but shall not be eligible to defer any portion of any future Awards until such time as he shall once again become an Eligible Executive. 2.5 MEMBERSHIP FOLLOWING A CHANGE OF CONTROL: Following a Change of Control, any membership determinations or discretionary actions pursuant to this Article 2 shall be subject to the approval of the Benefits Trust Committee. ARTICLE 3. AWARD DEFERRAL PROGRAM 3.1 FILING REQUIREMENTS: (a) With respect to an Award identified in Section 1.4(i), at such time as the Administrator may prescribe prior to the close of business on December 30 in any calendar year, an Eligible Executive may elect to defer all or a portion of his Award, if any, for that year. Such Award is determined and paid in the following calendar year. Such election shall be made by filing an Award Deferral Agreement with the Administrator on or before the close of business on December 30 of the calendar year for which the Award is made. In the event that December 30 does not fall on a weekday, such filing must be made by the close of business on the last prior business day. (b) With respect to an Award identified in Section 1.4(i), notwithstanding Section 3.1(a), an individual who becomes an Eligible Executive after the calendar year for which an Award is made, but prior to the first day of the month in which such Award is determined including required action by the Board, may elect to defer all or a portion of that Award in accordance with this Section 3.1(b). Such election shall be made by filing an Award Deferral Agreement during the 30 day or shorter period beginning on the date the individual becomes an Eligible Executive and ending no later than the last day of the month preceding the month in which the Award is determined. (c) With respect to an Award identified in Section 1.4(i), an Eligible Executive's election to defer all or a portion of his Award shall be effective on the last day that such deferral may be elected under Section 3.1(a) or 3. l(b) and shall be effective only for the Award in question. An Eligible Executive may revoke or change his election to defer all or a portion of his Award at any time prior to the date the election becomes effective, as described in the preceding sentence. Any such revocation or change shall be made in a form and manner determined by the Administrator. (d) With respect to an Award identified in Section 1.4(ii), at such time and in accordance with such rules as the Administrator may prescribe prior to the close of business on -8- December 30 in any calendar year, an Eligible Executive may elect to defer all or a portion of any such Award. Awards identified in Section 1.4(ii) may not be deferred into Education Sub-accounts. (e) An Eligible Executive shall not be entitled to defer an Award on or after attaining the age, if any, which he has designated under Section 6.1(c) or 6.1(d) for the purpose of commencing distribution of his Account (or, if applicable, his Retirement Sub-account). In the event a Member establishes an Education Sub-account pursuant to Article 9, he shall not be entitled to defer all or any portion of an Award into such a Sub-account after attaining the age which he has designated for the purpose of commencing distribution from that Sub-account. (f) An Eligible Executive shall not be entitled to defer an Award if he is eligible to defer his award under another nonqualified program of deferred compensation maintained by an Affiliated Company. 3.2 AMOUNT OF DEFERRAL: (a) With respect to an Award identified in Section 1.4(i), prior to a Change of Control, in its sole discretion, the Committee may establish such maximum limit on the amount of Award an Eligible Executive may defer for a calendar year as the Committee deems appropriate. Such maximum limit shall appear on the Eligible Executive's Award Deferral Agreement for the year. Following a Change of Control, the Committee's decision is subject to the final approval of the Benefits Trust Committee. (b) With respect to an Award identified in Section l.4(i), the minimum amount which an Eligible Executive may defer in any year shall be the lesser of $5,000 or the maximum amount determined under Section 3.2(a) above. If an Eligible Executive elects to defer less than this amount, his election shall not be effective. (c) With respect to an Award identified in Section 1.4(ii), there shall be no minimum nor maximum amount of deferral allowed. 3.3 CREDITING TO ACCOUNT: (a) The amount of Award which an Eligible Executive has elected to defer for a calendar year shall be credited to his Account as of the Valuation Date coincident with or next following the date the Award would have been paid to the Eligible Executive. (b) An additional credit shall be made to the Account as of the Valuation Date described in Section 3.3(a) above, determined as if the amount of Award deferred had earned the same rate of return as the CSX Cash Pool Earnings Rate from the date the Award would have been paid until the Valuation Date it is credited to the Eligible Executive's Account. In lieu of the CSX Corporation Cash Pool Earnings Rate, the Committee may designate, prior to a Change of Control, from time to time, such other indices of investment performance or investment funds as the measure of investment performance under this Section 3.3(b). Following a Change of Control, the Committee's decision is subject to final approval of the Benefits Trust Committee. ARTICLE 4. SALARY DEFERRAL PROGRAM -9- 4.1 FILING REQUIREMENTS: (a) An individual who is an Eligible Executive immediately prior to the Effective Date may file a Salary Deferral Agreement with the Administrator, within such period prior to the Effective Date and in such manner as the Administrator may prescribe. (b) An individual who becomes an Eligible Executive on or after the Effective Date may file a Salary Deferral Agreement with the Administrator during the calendar month he becomes an Eligible Executive, in such manner as the Administrator may prescribe. (c) An Eligible Executive who fails to file a Salary Deferral Agreement with the Administrator as provided in Sections 4.1 (a) and 4.1(b) may file a Salary Deferral Agreement in any subsequent month of December. (d) An Eligible Executive who has not otherwise Filed a Deferral Agreement shall file a Salary Deferral Agreement under Sections 4. l(a) or 4. l(b), whichever applies, in order to receive the Matching Credits described in Section 4.5, provided that such agreement need not provide for Salary Deferrals. 4.2 SALARY DEFERRAL AGREEMENT: An Eligible Executive's Salary Deferral Agreement shall authorize a reduction in his base pay with respect to his Salary Deferrals under the Plan. The Agreement shall be effective for payroll periods beginning on or after the later of: (a) the Effective Date; or (b) the first day of the month following the date the Salary Deferral Agreement is filed with the Administrator in accordance with Section 4.1. Paychecks applicable to said payroll periods shall be reduced accordingly. 4.3 AMOUNT OF SALARY DEFERRALS: (a) On each Valuation Date following the effective date of an Eligible Executive's Salary Deferral Agreement, his Sub-accounts shall be credited with an amount of Salary Deferral, if any, for the payroll period ending thereon, as he elects in his Salary Deferral Agreement. Such Salary Deferral for any payroll period shall be determined as the sum of his Basic Salary Deferral for such payroll period determined under subparagraph (i) and his Additional Salary Deferral for such month, determined under subparagraph (ii) as follows: (i) An Eligible Executive's Basic Salary Deferral shall be determined by multiplying his Compensation for a payroll period by the excess of his Salary Deferral Percentage over the percentage determined in subparagraph (ii) below (ii) An Eligible Executive's Additional Salary Deferral shall be determined by multiplying his Compensation for a payroll period by a percentage determined as (A) the excess of his Salary Deferral Percentage over 15%, divided by (B) .85. provided, however, that no Basic Salary Deferral shall be made under this Plan for any payroll period unless the Eligible Executive is prevented from making elective deferrals under the Tax Savings Thrift Plan for such payroll period as a result of Section 402(g) and/or 401(k)(3) of the Code, and provided further that, for the payroll period in which such Basic Salary Deferral is first made, it shall be limited to the excess of the amount otherwise determined for such payroll period under Section 4.3(a)(i) over the Eligible Executive's elective deferrals under the Tax Savings Thrift -10- Plan for such payroll period. If applicable, Additional Salary Deferrals shall be made for each payroll period of the year to which the Salary Deferral Agreement applies, without regard to whether the Eligible Executive makes elective deferrals under the Tax Savings Thrift Plan and without regard to any Basic Salary Deferrals under this Plan. (b) An Eligible Executive shall not be entitled to make Salary Deferrals on or after attaining the age, if any, which he has designated under Section 6.1(c) or 6. l(d) for the purpose of commencing distribution of his Account (or, if applicable, his Retirement Sub-account). In the event a Member establishes an Education Sub-account pursuant to Article 9, he shall not be entitled to make Salary Deferrals into such Sub-account after attaining the age which he has designated for the purpose of commencing distribution from that Sub-account. 4.4 CHANGING SALARY DEFERRALS: (a) An Eligible Executive's election on his Salary Deferral Agreement of the rate at which he authorizes Salary Deferrals under the Plan shall remain in effect in subsequent calendar years unless he files with the Administrator an amendment to his Salary Deferral Agreement modifying or revoking such election. The amendment shall be filed by December 30 and shall be effective for payroll periods beginning on or after the following January 1. (b) Notwithstanding Section 4.4(a), an Eligible Executive may, in the event of a severe financial hardship, request a suspension of his Salary Deferrals under the Plan. The request shall be made at a time and in a manner determined by the Administrator, and shall be effective as of such date as the Administrator prescribes. The Administrator shall apply standards, to the extent applicable, identical to those described in Section 6.3 in making its determination. The Eligible Executive may apply to the Administrator to resume his Salary Deferrals with respect to payroll periods beginning on or after the January 1 following the date of suspension, at a time and in a manner determined by the Administrator; provided, that the Administrator shall approve such resumption only if the Administrator determines that the Eligible Executive is no longer incurring such hardship. Notwithstanding the preceding, following a Change of Control, such action by the Administrator is subject to approval by the Benefits Trust Committee. 4.5 CERTAIN ADDITIONAL CREDITS: On each Valuation Date, there shall be credited Matching Credits to the Retirement Sub-account(s) of an Eligible Executive determined as follows: (a) For payroll periods prior to the inception of Basic Salary Deferrals hereunder, the greater of (b)(i) or (ii) (b) For payroll periods during which Basic Salary Deferrals are effective, the greater of (i) or (iii), minus (iv), where (i) is the employer matching contributions the Eligible Executive would have received under the Tax Savings Thrift Plan if the provisions of Sections 401(k)(3), 401(m)(9) and 415 of the Code had not applied to the Tax Savings Thrift Plan; and (ii) is an amount determined as 3% of the Eligible Executive's additional Salary Deferrals; and -11- (iii) is the employer matching contributions the Eligible Executive would have received under the Tax Savings Thrift Plan if his deferrals under this Plan had been contributed to the Tax Savings Thrift Plan (in addition to those amounts actually contributed to that Plan), based on "Compensation" as defined in this Plan and as if the provisions of Sections 401(a)(17), 40l(k)(3), 401(m)(2), 40l(m)(9) and 415 of the Code had not applied to the Tax Savings Thrift Plan; and (iv) is the employer matching contributions made on his behalf for the applicable period to the Tax Savings Thrift Plan. No Matching Credits shall be credited to a Member's Education Sub-account. ARTICLE 5. MAINTENANCE OF ACCOUNTS 5.1 ADJUSTMENT OF ACCOUNT: (a) As of each Valuation Date each Account (and, if applicable, each Sub-account) shall be credited or debited with the amount of earnings or losses with which such Sub-account would have been credited or debited, assuming it had been invested in one or more investment funds, or earned the rate of return of one or more indices of investment performance, designated by the Administrator and, if applicable, elected by the Member or former Member, for purposes of measuring the investment performance of his Sub-accounts. (b) The Administrator shall designate at least one investment fund or index of investment performance and may designate other investment funds or investment indices to be used to measure the investment performance of Accounts. The designation of any such investment funds or indices shall not require the Affiliated Companies to invest or earmark their general assets in any specific manner. The Administrator may change the designation of investment funds or indices from time to time, in its sole discretion, and any such change shall not be deemed to be an amendment affecting Members' or former Members' rights under Section 7.2. (c) For purposes of Section 5. l(a), the portion of a Member's Retirement Sub-accounts attributable to Matching Credits shall be credited or debited with earnings or losses based upon the performance of "Fund E" (CSX Stock Fund) under the Tax Savings Thrift Plan. (d) As of February 1, 1989, there shall be credited to the Account of each Eligible Executive who participated in the Supplemental Benefit Plan of Sea-Land Corporation and Affiliated Companies the amount of deferred compensation under that plan as of January 31, 1989 attributable to amounts credited under that plan for the purpose of restoring contributions to a defined contribution plan which were limited by Section 415 of the Code. Such amounts shall be treated as Salary Deferrals under the Plan, and unless transferred pursuant to Section 5.3(a), shall earn the same rate of return as the CSX Cash Pool Earnings Rate. 5.2 INVESTMENT PERFORMANCE ELECTIONS: (a) In the event the Administrator designates more than one investment fund or index of investment performance under Section 5.1, each Member and, if applicable, former Member, shall file an initial investment election with the Administrator with respect to the investment of his -12- Salary Deferrals within such time period and on such form as the Administrator may prescribe. The election shall designate the investment fund or funds or index or indices of investment performance which shall be used to measure the investment performance of the Member's Salary Deferrals. The election shall be effective as of the beginning of the payroll period next following the date the election is filed. The election shall be in increments of 1%. (b) In the event the Administrator designates more than one investment fund or index under Section 5.1, each Member shall file an initial investment election each calendar year in which he defers an Award with respect to the amount deferred. The election shall be made within such time period and on such form as the Administrator prescribes and shall be in increments of 1% of the amount deferred. The election shall be effective on the Valuation Date on which the amount determined is credited to the Member's Account. (c) A Member may not elect separate investment funds or indices of investment performance with respect to each Sub-account. 5.3 CHANGING INVESTMENT ELECTIONS: (a) A Member may change his election in Section 5.2(a) with respect to his future Salary Deferrals, no more than once each calendar quarter, by filing an appropriate written notice with the Administrator. The notice shall be effective as of the beginning of the first payroll period following the date the notice is filed with the Administrator. (b) A Member or, if applicable, former Member may reallocate the current balance of his Retirement and/or Education Sub-accounts, thereby changing the investment fund or funds or index or indices of investment performance used to measure the future investment performance of his existing Account balance, by filing an appropriate written notice with the Administrator. Each Retirement or Education Sub-account may be reallocated separately. The election shall be effective as of the last business day of the calendar quarter following the month in which the notice is filed. No election under this Section 5.3(b) shall apply to the portion of a Member's Account attributable to Matching Credits. 5.4 VESTING OF ACCOUNT: EACH MEMBER SHALL BE FULLY VESTED IN HIS ACCOUNT. 5.5 INDIVIDUAL ACCOUNTS: The Administrator shall maintain, or cause to be maintained, records showing the individual balances of each Account and each Sub-account. At least once a year, each Member and, if applicable, former Member shall be furnished with a statement setting forth the value of his Account and his Sub-accounts. 5.6 ACTION FOLLOWING A CHANGE OF CONTROL: Following a Change of Control, any action taken by the Administrator pursuant to this Article 5 is subject to the approval of the Benefits Trust Committee. ARTICLE 6. PAYMENT OF BENEFITS 6.1 COMMENCEMENT OF PAYMENT: (a) The distribution of the Member's or former Member's Account shall commence, pursuant to Section 6.2, on or after the occurrence of (i), (ii), (iii) or (iv) below, as designated by the Member as a Distribution Option election: -13- (i) the Member's termination of employment with the Affiliated Companies, (ii) attainment of a designated age not earlier than age 59-1/2 (on or after January 1, 1995 age 50) nor later than age 70-1/2, (iii) the earlier of (i) or (ii) above, or (iv) the later of (i) or (ii) above. In the event a Member elects either (ii) or (iii) above, he may not elect an age less than three years subsequent to his current age. If a Member elects to defer an Award identified in Section 1.4(ii) (a payment from the CSX Market Value Cash Plan), such deferral must extend the commencement of distribution beyond December 31, 2004. A Member or former Member shall not change his Distribution Option election of the designation of the event which entitles him to distribution of his Account, except as provided in Section 6.1(c) below; provided, however, no change in Distribution Option election shall be allowed if it results in changing the deferral of commencement of distribution of an Award identified in Section 1.4(ii) to a time before January I, 2005. For purposes of this Plan and particularly this Section 6.l(a), if the Member's employer is involved in a Divisive Transaction, the Member will not be considered to have terminated his employment with an Affiliated Company until his employment with his employer terminates. (b) Effective January 1, 1995, a Member or former Member shall, pursuant to Section 6.9, be eligible to make a Distribution Option election of the designation of the event which entitles him to distribution of his Account in the event of a Change of Control. (c) A Member or former Member may change his Distribution Option election of the designation of the events which entitle him to distribution of his Account under Section 6.1 (a) and Section 6.l(b), as follows: (i) A Member or former Member may make a request in writing to the Administrator to defer the Member's designated distribution event under Section 6.1 (a). The requests must be filed with the Administrator at least one year prior to when distribution would commence based on the current designation. The deferral requests must specify a distribution event described in Section 6.1 (a), shall be subject to approval of the Administrator and, if approved, shall be effective as of the date that is one year after the request is filed with the Administrator. If the Member's current distribution event will occur upon his termination of employment and the Member's employment terminates within one year after the deferral request is made, the deferral request shall not be effective. A deferral request under this Section 6.1(c)(i) shall not result in a forfeiture of the Member's or former Member's Account. (ii) Notwithstanding Section 6.1(c)(i), a Member or former Member may change his designated distribution event under Section 6.1 (a) or 6.1(b), no more frequently than once in any calendar year, by filing with the Administrator an amendment to his Distribution Option election on or before December 30 (or the last preceding business day if December 30 is not a weekday). The change shall be limited to those events entitling a -14- Member to a distribution that are described in Section 6.1(a), shall be subject to approval of the Administrator and, if approved, shall be effective as of the last Valuation Date of the calendar year in which the change is filed. Unless the election complies with the requirements of Section 6.1(c)(i), or unless the provisions of Section 6.1(e) apply, an election under this Section 6.1(c)(ii) shall result in the forfeiture of five percent (5%) of the Member's or former Member's Account, determined as of the Valuation Date upon which the election is effective. If the Member or former Member changes the form in which his Account is to be distributed under Section 6.2(c)(ii) at the same time as he changes his designated distribution event under this Section 6.1(c)(ii), the combined forfeitures will be five percent (5%) of the Member's or former Member's Account, determined as of the Valuation Date upon which the election is effective. (d) Notwithstanding anything in this Section 6.1 or Article 9 to the contrary, a Member's Account shall be distributed upon his death. (e) A Member may not change the designation of the event which entitles him to distribution of one or more Education Sub-accounts, except that a Member may transfer the entire amount in any Education Sub-account to one or more other Education Sub-accounts and one or more of his Retirement Sub-accounts, or any combination thereof, subject to a possible forfeiture of five percent (5%) of the Sub-account so transferred, as provided in Article 9. (f) Notwithstanding the foregoing, prior to a Change of Control, the Corporation may delay payment of a benefit under this Plan to any Member who is determined to be among the top five most highly paid executives for the year the benefit under this Plan would otherwise be paid; provided, however, if a Member's payment is delayed, the benefit to which he is entitled will not decrease after the date it would otherwise be distributed. (g) Notwithstanding the preceding, following a Change of Control, the authority to delay payment of a Member's or former Member's Account rests solely with the Benefits Trust Committee. 6.2 METHOD OF PAYMENT: (a) A Member's or former Member's Retirement Sub-account(s) shall be distributed to him, or in the event of his death to his Beneficiary, in a cash single sum payment as soon as administratively practicable following the January 1 coincident with or next following the date the Member incurs the Distribution Option elected under Section 6.1 or his date of death, as the case may be. Matching Credits earned in respect to periods following the date of such distributable event shall be paid directly to the Member in cash as soon as practical. Notwithstanding the foregoing, a Member or former Member may make a Distribution Option election to receive distribution of his Account in semi-annual installments over a period not to exceed twenty (20) years. Installments shall be determined as of each June 30 and December 31 and shall be paid as soon as administratively practicable thereafter. Installments shall commence as of the July 1 or January 1 coincident with or next following the date the Member incurs the distributable event elected as a Distribution Option under Section 6.1, or as soon as administratively practicable thereafter. The amount of each installment shall equal the balance in the Account as of the Valuation Date of determination, divided by the number of remaining installments (including the -15- installment being determined). The Distribution Option election shall be irrevocable except as provided in Section 6.2(c) below. If a Member or former Member dies before payment of the entire balance of his Account, the remaining balance shall be paid in a single sum to his Beneficiary as soon as administratively practicable following the January 1 coincident with or next following his date of death. (b) Effective January 1, 1995, a Member or former Member shall, pursuant to Section 6.9, be eligible to make a separate Distribution Option election of the form of payment of his Account in the event of a Change of Control. (c) Notwithstanding Section 6.2(a) and Section 6.2(b), a Member or former Member may change the Distribution Option election of the form in which his Account is distributed, as follows: (i) A Member or former Member may make a one-time request to the Administrator to change the form in which his Account is to be distributed under Section 6.2(a). A Member or former Member may also make a onetime request to change the form in which his Account is to be distributed under Section 6.2(b). The request must be filed in writing with the Administrator at least one year prior to when distribution would commence based on the current designation. The requests must specify a form of distribution described in Section 6.2(a), shall be subject to approval of the Administrator and, if approved, shall be effective as of the date that is one year after the request is filed with the Administrator. If the Member's distribution event will occur upon his termination of employment and the Member's employment terminates within one year after the request is filed, the request shall not be effective. A request under this Section 6.2(c)(i) shall not result in a forfeiture of the Member's or former Member's Account. (ii) Notwithstanding Section 6,2(cXD, a Member or former Member may change the form in which his Account is to be distributed under Section 6.2(a) or 6.2(b), no more frequently than once in any calendar year, by filing with the Administrator an amendment to his Distribution Option election on or before December 30 (or the last preceding business day if December 30 is not a weekday). The change shall be limited to those forms of distribution described in Section 6.2(a), shall be subject to approval of the Administrator and, if approved, shall be effective as of the last Valuation Date of the calendar year in which it is filed. Unless the election complies with the requirements for a one-time request under Section 6.2(c)(i), or unless the provisions of Section 6.2(d) apply, an election under this Section 6.2(c)(ii) shall result in the forfeiture of five percent (5%) of the Member's or former Member's Account, determined as of the Valuation Date upon which the election is effective. If the Member or former Member changes his designated distribution event under this Section 6.2(c)(ii) at the same time as he changes the form in which his Account is to be distributed under Section 6.1(c)(ii), the combined forfeiture will be five percent (5%) of the Member's or former Member's Account, determined as of the Valuation Date upon which the election is effective. -16- (d) In the event the Member's Account consists of one or more Retirement Sub-accounts and one or more Education Sub-accounts, the provisions of this Section 6.2 shall apply exclusively to the Member's Retirement Sub-accounts. A Member may not change the form in which his Education Sub-accounts are distributed, except that a Member may transfer the entire amount in any Education Sub-account to one or more other Education Sub-accounts and one or more Retirement Sub-accounts, or any combination thereof, subject to a possible forfeiture of five percent (5%) of the Sub-account so transferred, as provided in Article 9. 6.3 APPLICABILITY: In the event the Member's Account consists of one or more Retirement Sub-accounts and one or more Education Sub-accounts, the provisions of Sections 6.1 (a) and 6.1(c) and 6.2 shall apply exclusively to the Member's Retirement Sub-accounts. 6.4 ACCOUNT ADJUSTMENT: The obligations of the Corporation or any of its affiliated corporations and the benefits due any Member, former Member, surviving spouse or beneficiary hereunder shall be reduced by any amount received in regard thereto under the Benefits Assurance Trust or any similar trust or other vehicle. 6.5 HARDSHIP WITHDRAWAL: (a) While employed by the Participating Companies, a Member or former Member may, in the event of a severe financial hardship, request a withdrawal from his Account. The request shall be made in a time and manner determined by the Administrator, shall not be for a greater amount than the amount required to meet the financial hardship, and shall be subject to approval by the Administrator. (b) For purposes of this Section 6.5 financial hardship shall include: (i) education of a dependent child where the Member or former Member shows that without the withdrawal under this Section the education would be unavailable to the child; (ii) illness of the Member or former Member or his dependents, resulting in severe financial hardship to the Member or former Member; (iii) the loss of the Member's or former Member's home or its contents, to the extent not reimbursable by insurance or otherwise, if such loss results in a severe financial hardship to the Member or former Member; (iv) any other extraordinary circumstances of the Member or former Member approved by the Administrator if such circumstances would result in a present or impending critical financial need which the Member or former Member is unable to satisfy with funds reasonably available from other sources. (c) Notwithstanding the preceding, following a Change of Control, any decisions or determinations by the Administrator under this Section 6.5 shall be subject to the approval of the Benefits Trust Committee. 6.6 DESIGNATION OF BENEFICIARY: A Member or former Member may, at a time and in a manner determined by the Administrator, designate a beneficiary and one or more contingent beneficiaries -17- (which may include the Member's or former Member's estate) to receive any benefits which may be payable under this Plan upon his death. If the Member or former Member do not designate a beneficiary or contingent beneficiary, or if the beneficiary and the contingent beneficiaries do not survive the Member or former Member, such benefits shall be paid to the Member's or former Member's estate. A Member or former Member may revoke or change any designation made under this Section 6.6 in a time and manner determined by the Administrator. 6.7 SPECIAL DISTRIBUTION RULES: Notwithstanding anything to the contrary in this Plan, if (a) a Member or former Member becomes the owner, director or employee of a competitor of the Affiliated Companies, (b) his employment is terminated by an Affiliated Company on account of actions by the Member Which are detrimental to the interests of the Affiliated Company, or (c) he engages in conduct subsequent to the termination of his employment with the Affiliated Companies which the Administrator determines to be detrimental to the interests of an Affiliated Company, then the Administrator may, in its sole discretion, pay the Member or former Member a single sum payment equal to the balance in his Account. The single sum payment shall be made as soon as practicable following the date the Member or former Member becomes an owner, director or employee of a competitor, his termination of employment or the Administrator's determination of detrimental conduct, as the case may be, and shall be in lieu of all other benefits which may be payable to the Member or former Member under this Plan. 6.8 STATUS OF ACCOUNT PENDING DISTRIBUTION: Pending distribution, a former Member's Account (and, if applicable, a former Member's Sub-accounts) shall continue to be credited with earnings and losses as provided in Section 5.1. The former Member shall be entitled to change his investment elections under Section 5.3 or apply for Hardship withdrawals under Section 6.5 to the same extent as if he were a Member of the Plan. In the event of the death of a Member or former Member, his Sub-accounts shall be credited with earnings and losses as if the Sub-accounts had earned the same rate of return as the CSX Corporation Cash Pool Earnings Rate or, in the sole discretion of the Administrator, the rate of return of such other index of investment performance or investment fund which may be designated by the Administrator as a measure for investment performance of Members' or former Members' Accounts (and, if applicable, their Sub-accounts), commencing with the Valuation Date coincident with or next following the Member's or former Member's date of death. 6.9 INSTALLMENTS AND WITHDRAWALS PRO-RATA: In the event of an installment payment or hardship withdrawal, such payment or withdrawal shall be made on a pro-rata basis from the portions of the Member's or former Member's existing Account balance which are subject to different measures of investment performance. In the event of a hardship withdrawal, the withdrawal shall be made on a pro-rata basis from all of the Member's or former Member's Sub-accounts. 6.10 Change of Control: 6.10 CHANGE OF CONTROLS: (a) If a Change of Control has occurred, the Corporation and Participating Companies shall contribute to the Trust within 7 days of such Change of Control, a lump sum payment equal to the greater of (i) the aggregate value of the amount each Member or former Member would be eligible to receive (determined under (b) below) as of the latest Valuation Date coinciding with or preceding the date of Change of Control or (ii) the amount determined under Section l(h) of the Trust attributable to liabilities relating to the Plan to the extent such amounts are not already in the Trust. The aggregate value of the amount of the lump sum to be contributed to the Trust pursuant to this Section 6.10 shall be determined by the Independent Accountants after consultation with the entity then maintaining the Plan's records, and shall be projected, if necessary, to such Valuation Date from the last valuation of Members' or former Members' Accounts for which information is readily available. Thereafter, the Independent Accountants shall annually determine as of a -18- Valuation Date for each Member or former Member not receiving a lump sum payment pursuant to subsection (b) below the value of each Member or former Member's Accounts. To the extent that the value of the assets held in the Trust relating to this Plan do not equal the aggregate amount described in the preceding sentence, at the time of the valuation, as determined by the Independent Accountants, the Corporation and Participating Companies shall make a lump sum contribution to the Trust equal to the difference. (b) In the event a Change of Control has occurred, the trustee of the Trust shall, within 45 days of such Change of Control, pay to each Member or former Member not making an election under (c) below, a lump sum payment equal to the value of the Member's or former Member's Accounts (determined under Article 5) as of the Valuation Date coinciding with or next preceding the date of such Change of Control. The amount of each Member's or former Member's lump sum payment shall be determined by the Independent Accountants after consultation with the entity then maintaining the Plan's records, and shall be projected, if necessary, to such Valuation Date from the last valuation of Member's or former Member's Accounts for which information is readily available. (c) Each Member or former Member may elect in a time and manner determined by the Administrator, but in no event later than December 31, 1996, or the occurrence of a Change of Control, if earlier, to have amounts and benefits determined and payable under the terms of the Plan as if a Change of Control had not occurred. New Members of the Plan may elect in a time and manner determined by the Administrator, but in no event later than 90 days after becoming a Member, to have amounts and benefits determined and payable under the terms of the Plan as if a Change of Control had not occurred. A Member or former Member who has made an election, as set forth in the two preceding sentences, may, at any time and from time to time, change that election; provided, however, a change of election that is made within one year of a Change of Control shall be invalid. (d) Notwithstanding anything in the Plan to the contrary, each Member or former Member who has made an election under (c) above may elect within 90 days following a Change of Control, in a time and manner determined by the Benefits Trust Committee, to receive a lump sum payment calculated under the provisions of (b) above determined as of the Valuation Date next preceding such payment, except that such calculated amount shall be reduced by 5% and such reduction shall be irrevocably forfeited by the Member or former Member. Furthermore, as a result of such election, the Member or former Member shall no longer be eligible to participate or otherwise benefit from the Plan. Payments under this subsection (d) shall be made not later than 7 days following receipt by the Corporation of a Member's or former Member's election. The Benefits Trust Committee shall, no later than 7 days after a Change of Control has occurred, give written notification to each Member or former Member eligible to make an election under this subsection (d), that a Change of Control has occurred and informing such Member or former Member of the availability of the election. -19- ARTICLE 7. AMENDMENT OR TERMINATION 7.1 RIGHT TO TERMINATE: (a) Prior to a Change of Control, the Board may, in its sole discretion, terminate this Plan and the related Deferral Agreements at any time. Following a Change of Control, this Plan may not be terminated without the approval of the Benefits Trust Committee. (b) Prior to a Change of Control, the Committee may terminate an Affiliated Company's participation as a Participating Company in this Plan for any reason at any time. Following a Change of Control, an Affiliated Company may not be terminated from participation as a Participating Company without the consent of the Benefits Trust Committee. (c) Prior to a Change of Control, an Affiliated Company's board of directors may terminate that Affiliated Company's participation as a Participating Company for any reason at any time. Following a Change of Control, an Affiliated Company's participation as a Participating Company may not be terminated without the consent of the Benefits Trust Committee. (d) In the event the Plan and related Deferral Agreements are terminated, each Member, former Member and Beneficiary shall receive a single sum payment equal to the balance in his Account. The single sum payment shall be made as soon as practicable following the date the Plan is terminated and shall be in lieu of any other benefit which may be payable to the Member, former Member or Beneficiary under this Plan. 7.2 RIGHT TO AMEND: Prior to a Change of Control, the Board may, in its sole discretion, amend this Plan and the related Deferral Agreements on 30 days prior notice to the Members and, where applicable, former Members. Following a Change of Control, all amendments to this Plan are subject to the approval of the Benefits Trust Committee. If any amendment to this Plan or to the Deferral Agreements shall adversely affect the rights of a Member or former Member, such individual must consent in writing to such amendment prior to its effective date. If such individual does not consent to the amendment, the Plan and related Deferral Agreements shall be deemed to be terminated with respect to such individual and he shall receive a single sum payment of his Account as soon thereafter as is practicable. Notwithstanding the foregoing, the Administrator's change in any investment funds or investment index under Section 5.1(b) or the restriction of future deferrals under the salary deferral program or award deferral program shall not be deemed to adversely affect any Member's or former Member's rights. 7.3 UNIFORM ACTION: Notwithstanding anything in the Plan to the contrary, any action to amend or terminate the Plan or the Deferral Agreements must be taken in a uniform and nondiscriminatory manner. Notwithstanding the preceding, any such action taken by the Administrator following a Change of Control is subject to the approval of the Benefits Trust Committee. ARTICLE 8. GENERAL PROVISIONS 8.1 NO FUNDING: Nothing contained in this Plan or in a Deferral Agreement shall cause this Plan to be a funded retirement plan. Neither the Member, former Member, his beneficiary, contingent beneficiaries, heirs or personal representatives shall have any right, title or interest in or to any funds of the Trust or the Affiliated Companies on account of this Plan or on account of having completed a Deferral Agreement. The assets held in the Trust shall be subject to the claims of creditors of the Corporation, and the Trust's assets shall be used to discharge said claims in the event of the Corporation's insolvency. Each -20- Member or former Member shall have the status of a general unsecured creditor of the Affiliated Companies and this Plan constitutes a mere promise by the Affiliated Companies to make benefit payments in the future. 8.2 OBLIGATION: To the extent reflected by resolutions of the applicable boards of directors, obligations for benefits under this Plan shall be joint and several. 8.3 NO CONTRACT OF EMPLOYMENT: The existence of this Plan or of a Deferral Agreement does not constitute a contract for continued employment between an Eligible Executive or a Member and an Affiliated Company. The Affiliated Companies reserve the right to modify an Eligible Executive's or Member's remuneration and to terminate an Eligible Executive or a Member for any reason and at any time, notwithstanding the existence of this Plan or of a Deferral Agreement. 8.4 WITHHOLDING TAXES: All payments under this Plan shall be net of an amount sufficient to satisfy any federal, state or local withholding and payroll tax requirements. 8.5 NONALIENATION: The right to receive any benefit under this Plan may not be transferred, assigned, pledged or encumbered by a Member, former Member, beneficiary or contingent beneficiary in any manner and any attempt to do so shall be void. No such benefit shall be subject to garnishment, attachment or other legal or equitable process without the prior written consent of the Affiliated Companies. Notwithstanding the preceding, following a Change of Control, the Administrator shall not implement such action without the consent of the Benefits Trust Committee. 8.6 ADMINISTRATION: (a) Prior to a Change of Control, the Administrator of the Plan shall be responsible for the general administration of the Plan, claims review, and for carrying out its provisions. Administration of the Plan shall be carried out consistent with the terms and conditions of the Plan. (b) Following a Change of Control, the Benefits Trust Committee may remove and/or replace the Administrator. (c) The Administrator shall have sole and absolute discretion to interpret the Plan, determine eligibility for and benefits due hereunder. Decisions of the Administrator regarding benefits under the Plan shall at all times be binding and conclusive on Members, their beneficiaries, heirs and assigns. Notwithstanding the preceding, following a Change of Control, final benefit determinations for Members, their beneficiaries, heirs and assigns and decisions regarding benefit claims under the Plan shall rest with the Benefits Trust Committee or its delegate in its sole and absolute discretion. (d) Prior to paying any benefit under this Plan, the Administrator may require the Member or former Member, beneficiary or contingent beneficiary to provide such information or material as the Administrator, in its sole discretion, shall deem necessary for it to make any determination it may be required to make under this Plan. The Administrator may withhold payment of any benefit under this Plan until it receives all such information and material and is reasonably satisfied of its correctness and genuineness. The Administrator shall provide adequate notice in writing to any Member, former Member, beneficiary or contingent beneficiary whose claim for benefits under this Plan has been denied, setting forth the specific reasons for such denial. A reasonable opportunity shall be afforded to any such Member, former Member, beneficiary or contingent beneficiary for a full and fair review by the Administrator of its decision denying the -21- claim. The Administrator's decision on any such review shall be final and binding on the Member, former Member, beneficiary or contingent beneficiary and all other interested persons. All acts and decisions of the Administrator shall be final and binding upon all Members, former Members, beneficiaries, contingent beneficiaries and employees of the Affiliated Companies. Notwithstanding the preceding, following a Change of Control, any and all decisions by the Administrator are subject to the approval of the Benefits Trust Committee. (e) Prior to a Change of Control, the Committee in its sole discretion and upon such terms as it may prescribe, may permit any company or corporation directly or indirectly controlled by the Corporation to participate in the Plan. After a Change of Control, such permission must be approved by the Benefits Trust Committee. 8.7 CONSTRUCTION: (a) The Plan is intended to constitute an unfunded deferred compensation arrangement for a select group of management or highly compensated employees and all rights hereunder shall be governed by and construed in accordance with the laws of the Commonwealth of Virginia to the extent not preempted by federal law. (b) The masculine pronoun means the feminine wherever appropriate. (c) The captions inserted herein are inserted as a matter of convenience and shall not affect the construction of the Plan. ARTICLE 9. EDUCATION SUB-ACCOUNTS 9.1 EDUCATION SUB-ACCOUNTS: (a) Notwithstanding any provision of this Plan to the contrary, with respect to amounts deferred under Salary Deferral Agreements and Award Deferral Agreements effective on or after December 31, 1990, a Member may direct the Administrator to establish a separate sub-account in the name of one or more of: (i) each of the Member's children, (ii) each of the Member's brothers, sisters, their spouses, the Member's spouse, or (iii) each of the foregoing's lineal descendants, for the payment of their expenses directly or indirectly arising from enrollment in a college, university, another post-secondary institution of higher learning or a secondary educational institution. Each sub-account established pursuant to this Section 9.1(a) shall be referred to as an "Education Sub-account." (b) The Member may instruct the Administrator to allocate all or a portion of any amount deferred under an Award Deferral Agreement in respect to an Award granted after December 31, 1990 to one or more of the Education Sub-accounts established pursuant to Section 9.1(a). -22- (c) A Member may instruct the Administrator to allocate all or any portion of the amount he defers for periods commencing after December 31, 1990 pursuant to his Salary Deferral Agreement to one or more of the Education Sub-accounts established pursuant to Section 9.l(a). (d) Any elections pursuant to Sections 9.1 (a) and 9.1(b) shall be made in whole percentages. (e) No Matching Credits shall be allocated to any Education Sub-account. 9.2 DISTRIBUTION OF EDUCATION SUB-ACCOUNTS: (a) Amounts allocated to one or more of a Member's Education Sub-accounts shall be distributed to the Member upon the attainment of the certain age of the Member, specifically designated by the Member for this purpose with regard to that Sub-account. (b) A Member or former Member may transfer the entire amount but not less than that amount in any Education Sub-account to one or more other Education Sub-accounts, a Retirement Sub-account, or any combination thereof, by filing the appropriate form or forms with the Administrator not later than the last business day of the calendar year preceding the calendar year in which distribution of that Education Sub-account was to begin; provided, however, if such transfer accelerates the timing of the payment to the Member, there shall be a forfeiture of five percent (5%) of the Member's or former Member's Sub-account so transferred, determined as of the Valuation Date upon which the transfer is effective. In no event may a Member transfer all or any portion of the amount in a Retirement Sub-account to his Education Sub-accounts. Except as provided in this Section 9.2(b) or 9.2(c) below, a Member or former Member may not change the time or form of distribution of his Education Sub-accounts. (c) In the event that the individual for whom an Education Sub-account is established dies while funds remain in that Sub-account, a Member or former Member may transfer without penalty the entire amount but not less than that amount in that Sub-account in accordance with the provisions of (i) or (ii) below: (i) to one or more existing Education Sub-accounts and/or a new Education Sub-account established in accordance with the provisions of Section 9.1 hereof; or (ii) to a Retirement Sub-account. If a Member or former Member elects to transfer funds in accordance with (ii) and he has not previously established a Retirement Sub-account, such a Sub-account shall be established automatically and the Member or former Member promptly thereafter will be required to execute an amendment to his Deferral Agreement which shall specify the option under Section 6.1 (a) which will entitle him to distribution of the Retirement Sub-account and the form of distribution under Section 6.2(a). (d) A Member's or former Member's Education Sub-accounts shall be distributed to him, or in the event of his death to his Beneficiary, in a cash single sum payment as soon as administratively practicable following the January 1 coincident with or next following the date the Member incurs the distributable event or events elected under Section 9.2(a) or his date of death, as the case may be. Notwithstanding the foregoing, a Member or former Member may elect to receive -23- distribution of one or more of his Education Sub-accounts in semi-annual installments over a period not to exceed six (6) years. Installments shall be determined as of each June 30 and December 31 and shall be paid as soon as administratively practicable thereafter. Installments shall commence as of the June 30 or December 31 coincident with or next following the date the Member incurs the distributable event elected under Section 9.2(a) with regard to a Sub-account, or as soon as administratively practicable thereafter. The amount of each installment shall equal the balance in the applicable Education Sub-account as of the Valuation Date of determination, divided by the number of remaining installments (including the installment being determined). If a Member or former Member dies before payment of the entire balance of all of his Education Sub-accounts, the remaining balance or balances, as the case may be, shall be paid in a single sum to his Beneficiary as soon as administratively practicable following the January 1 coincident with or next following his date of death. 9.3 CONSTRUCTION: To the extent any provision in this Article 9 is inconsistent with any other provision of this Plan, the provisions in Article 9 shall govern. -24- AMENDMENT SUPPLEMENTARY SAVINGS AND INCENTIVE AWARD DEFERRAL PLAN FOR ELIGIBLE EXECUTIVES OF CSX CORPORATION AND AFFILIATED COMPANIES Pursuant to Section 7.2 of the Supplementary Savings and Incentive Award Deferral Plan for Eligible Executives of CSX Corporation and Affiliated Companies, as Amended and Restated Through February 14, 2001 (the "Plan"), the Plan is amended effective February 7, 2003 as follows: Section 6.7 is amended to read as follows: "Notwithstanding anything to the contrary in the Plan, if (a) a Member or former Member becomes the owner, director or employee of a competitor of the Affiliated Companies; (b) his employment is terminated by an Affiliated Company on account of actions by the Member which are detrimental to the interests of the Affiliated Company; (c) he engages in conduct subsequent to the termination of his employment with the Affiliated Companies which the Administrator determines to be detrimental to the interests of an Affiliated Company; or (d) is required to divest his or her interest under the Plan under applicable law, regulation or rules, then the Administrator may, in its sole discretion, pay the Member or former Member a single sum payment equal to the balance in his Account. In such event, the single sum payment shall be made as soon as practicable following the date the Member or former Member or is affected by one of the circumstances described in this Section 6.7 and such payment shall be in lieu of all other benefits which may be payable to the Member or former Member under this Plan." EX-10.45 11 g87590exv10w45.txt EX-10.45 FIVE YEAR REVOLVING CREDIT AGREEMENT Exhibit 10.45 EXECUTION COPY SECOND AMENDMENT SECOND AMENDMENT, dated as of May 14, 2003 (this "AMENDMENT"), to the FIVE-YEAR REVOLVING CREDIT AGREEMENT, dated as of June 8, 2001 (as amended, supplemented or otherwise modified, the "CREDIT AGREEMENT"), among CSX CORPORATION, a Virginia corporation, as Borrower, the LENDERS parties thereto, CITIBANK, N.A. and THE BANK OF NOVA SCOTIA, as Co-Syndication Agents, CREDIT SUISSE FIRST BOSTON and MIZUHO CORPORATE BANK, LTD., as Co-Documentation Agents, and JPMORGAN CHASE BANK (formerly known as THE CHASE MANHATTAN BANK), as Administrative Agent. W I T N E S S E T H: - - - - - - - - - - WHEREAS, pursuant to the Credit Agreement, the Lenders have agreed to make certain loans and other extensions of credit to the Borrower; and WHEREAS, the Borrower has requested and, upon this Amendment becoming effective, the Lenders have agreed, to amend certain provisions of the Credit Agreement upon the terms and conditions set forth herein. NOW, THEREFORE, in consideration of the premises and the mutual agreements contained herein, the parties hereto agree as follows: SECTION 1. DEFINITIONS 1.1 DEFINED TERMS. Unless otherwise defined herein, terms defined in the Credit Agreement and used herein shall have the meanings given such terms in the Credit Agreement. SECTION 2. AMENDMENTS TO CREDIT AGREEMENT 2.1 AMENDMENT TO SECTION 5.01. Section 5.01 of the Credit Agreement is hereby amended by adding at the end of such Section the following new paragraph: Information required to be delivered pursuant to this Section 5.01 shall be deemed to have been delivered to the Lenders on the date on which the Borrower provides written notice to the Lenders that such information has been posted on the Borrower's website on the Internet at http://www.csx.com or is available on the website of the SEC at http://www.sec.gov (to the extent such information has been posted or is available as described in such notice). Information required to be delivered pursuant to this Section 5.01 may also be delivered by electronic communication pursuant to procedures approved by the Administrative Agent pursuant to Section 9.01(b) hereto. 2.2 AMENDMENT TO SECTION 9.01. Section 9.01 of the Credit Agreement is hereby amended by adding at the end of such Section the following new paragraph: (d) Notices and other communications to the Lenders hereunder may be delivered or furnished by electronic communications pursuant to procedures approved by the Administrative Agent (upon any such procedures' approval, the Administrative Agent shall provide notice thereof to the applicable Lender); PROVIDED that the foregoing shall not apply to notices pursuant to Article II unless otherwise agreed by the Administrative Agent and the applicable Lender. The Administrative Agent or the Borrower may, in its discretion, agree to accept notices and other communications to it hereunder by electronic communications pursuant to procedures approved by it prior to such communication (upon any such procedures' approval, the Administrative Agent shall provide notice thereof to the Lenders); PROVIDED that approval of such procedures may be limited to particular notices or communications. SECTION 3. MISCELLANEOUS 3.1 LIMITED EFFECT. Except as expressly amended, modified and supplemented hereby, the Credit Agreement is, and shall remain, in full force and effect in accordance with its terms. 3.2 EFFECTIVENESS. This Amendment shall become effective as of the date hereof upon receipt by the Administrative Agent of a counterpart hereof duly executed by the Borrower and the Majority Lenders on or prior to 5:00 p.m., New York City time, on May 14, 2003. 3.3 REPRESENTATIONS AND WARRANTIES. On and as of the date hereof and after giving effect to this Amendment, the Borrower hereby confirms, reaffirms and restates the representations and warranties set forth in Article III of the Credit Agreement MUTATIS MUTANDIS, except to the extent that such representations and warranties expressly relate to a specific earlier date in which case the Borrower hereby confirms, reaffirms and restates such representations and warranties as of such earlier date. 3.4 COUNTERPARTS. This Amendment may be executed by one or more of the parties hereto on any number of separate counterparts, and all of said counterparts taken together shall be deemed to constitute one and the same instrument. A set of the copies of this Amendment signed by all the parties shall be lodged with the Borrower and the Administrative Agent. This Amendment may be delivered by facsimile transmission of the relevant signature pages hereof. 3.5 GOVERNING LAW. THIS AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO THE CONFLICTS OF LAW PRINCIPLES THEREOF. 2 IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed and delivered by their proper and duly authorized officers as of the day and year first above written. CSX CORPORATION, as Borrower By: /s/ DAVID A. BOOR ----------------------------------- Title: Vice President and Treasurer JPMORGAN CHASE BANK, as Administrative Agent and as a Lender, By: /s/ ROBERT P. KELLAS ----------------------------------- Title: Vice President CITIBANK, N.A., as Co-Syndication Agent and as a Lender, By: /s/ DAVID L. HARRIS ----------------------------------- Title: Vice President THE BANK OF NOVA SCOTIA, as Co-Syndication Agent and as a Lender, By: /s/ TODD S. MELLER ----------------------------------- Title: Managing Director CREDIT SUISSE FIRST BOSTON, as Co-Documentation Agent and as a Lender, By: /s/ JOSEPH ADIPIETRO ----------------------------------- Title: Director By: /s/ CASSANDRA DROOGAN ----------------------------------- Title: Associate 3 MIZUHO CORPORATE BANK, LTD., as Co-Documentation Agent and as a Lender, By: /s/ RAYMOND VENTURA ----------------------------------- Title: S.V.P. PNC BANK, NATIONAL ASSOCIATION By: /s/ DOUGLAS WINTERS ----------------------------------- Title: Sr. Vice President BANK OF TOKYO-MITSUBISHI TRUST COMPANY By: /s/ J.W. RHODES ----------------------------------- Title: VP--Manager THE BANK OF NEW YORK By: /s/ STEVEN P. CAVALUZZO ----------------------------------- Title: Vice President BANK ONE, NA By: /s/ ----------------------------------- Title: Managing Director WACHOVIA BANK, NATIONAL ASSOCIATION By: /s/ FRITZ BLUMER ----------------------------------- Title: Vice President 4 FLEET NATIONAL BANK By: /s/ DAVID J. DOUCETTE ----------------------------------- Title: Vice President SUNTRUST BANK, A GEORGIA BANK By: /s/ MARK FLATIN ----------------------------------- Title: Director UBS AG, CAYMAN ISLANDS BRANCH By: /s/ ----------------------------------- Title: Director By: /s/ ----------------------------------- Title: Associate Director DEUTSCHE BANK AG NEW YORK BRANCH By: /s/ CHRIS HOWE ----------------------------------- Title: Director By: /s/ HARALD MILDNER ----------------------------------- Title: Vice President THE MITSUBISHI TRUST AND BANKING CORPORATION By: ----------------------------------- Title: THE NORTHERN TRUST COMPANY By: /s/ ERIC DYBING ----------------------------------- Title: Second Vice President 5 FIFTH THIRD BANK By: /s/ ANDREW L. BUSCHLE ----------------------------------- Title: Vice President UFJ BANK LIMITED By: /s/ JOHN T. FEENEY ----------------------------------- Title: Vice President 6 EX-12 12 g87590exv12.txt EX-12 COMPUTATION OF EARNINGS TO FIXED CHARGES EXHIBIT 12 Computation of Earnings to Fixed Charges CSX Corporation Ratio of Earnings to Fixed Charges (Millions of Dollars)
FOR THE FISCAL YEARS ENDED ------------------------------------------------------------------------------------- DEC. 26, 2003 DEC. 27, 2002 DEC. 28, 2001 DEC. 29, 2000 DEC. 31, 1999 ------------- ------------- ------------- ------------- ------------- Earnings: Earnings Before Income Taxes $ 265 $ 723 $ 448 $ 277 $ 104 Interest Expense 418 445 518 550 528 Amortization of debt discount -- -- -- 1 -- Interest Portion of Fixed Rent 62 77 88 109 151 Undistributed earnings of unconsolidated subsidiaries (40) (44) (2) (18) (58) ------------- ------------ ------------ ------------ ------------ Earnings, as Adjusted $ 705 $ 1,201 $ 1,052 $ 919 $ 725 ------------- ------------ ------------ ------------ ------------ Fixed Charges: Interest Expense $ 418 $ 445 $ 518 $ 550 $ 528 Capitalized Interest 3 3 7 6 8 Amortization of Debt Discount -- -- -- 1 -- Interest Portion of Fixed Rent 62 77 88 109 151 ------------- ------------ ------------ ------------ ------------ Fixed Charges $ 483 $ 525 $ 613 $ 666 $ 687 ------------- ------------ ------------ ------------ ------------ ------------- ------------ ------------ ------------ ------------ Ration of Earnings to Fixed Charges 1.5x 2.3x 1.7x 1.4x 1.1x ------------- ------------ ------------ ------------ ------------
EX-14 13 g87590exv14.txt EX-14 CODE OF ETHICS EXHIBIT 14 CSX CODE OF ETHICS LETTER FROM THE PRESIDENT, CHAIRMAN & CEO February 2004 Dear CSX Colleague: Enclosed is a copy of CSX Corporation's updated and revised Code of Ethics. The Code is intended to inform all employees in the CSX family of companies of the Company's expectations and of employees' legal and ethical responsibilities and obligations. CSX and its affiliated companies strive to apply high ethical, moral and legal principles in every aspect of business conduct. That is what "Right results, right way" means. Our corporate vision is to be the safest, most progressive North American railroad, relentless in the pursuit of customer and employee excellence. At its core, the Code of Ethics expresses the fundamental values that must drive our behavior. At CSX, we believe that living by a set of core values will guide the way we treat each other and how we make business decisions. These shared values are vital to securing and maintaining respect from our shareholders, employees, Government officials and the public at large. We regard the quality of our products and services, the safety of our employees and customers, and our integrity in business dealings among our most valuable assets. Our daily performance can add to, or detract from, our company's reputation and value as a freight transportation company, an employer, a member of our local communities and a national corporate citizen. Although some of the policies included in this Code of Ethics may not apply to you, I ask that you read the entire booklet and agree to abide by its terms, as it applies to you. Each year, I will ask you to re-read the Code of Ethics. Thank you for your part in maintaining our role as a leader in the marketplace and in making us a leader in legal and ethical behavior. Sincerely, Michael J. Ward CSX Corporation Chairman, President and Chief Executive Officer CSX Ethics Information Hotline: 1-800-737-1663 CSX's ETHICS AND COMPLIANCE PROGRAM CSX Corporation and its affiliated companies (referred to herein as "CSX" or the "Company") are committed to maintaining high ethical and legal standards in every aspect of its business conduct. CSX's reputation for adherence to laws, regulations and its written Code of Ethics is more important than the position or personal advancement of any one officer or employee. CSX's continued success and, most importantly, the lives and safety of its employees and customers, depends on the strength of the Company's efforts to detect, prevent and promptly remedy any actual or suspected misconduct. CSX operates a corporate-wide program to coordinate, implement and monitor compliance with corporate values; laws and regulations applicable to the Company's business operations; and Company policies and procedures. Oversight of the Ethics and Compliance Program is the responsibility of Audit and Advisory Services. CSX expects its directors, officers and employees to understand and abide by all legal requirements governing the Company's business and operations. The Company provides ongoing education and guidance concerning applicable laws and regulations. Employees who wish to obtain more information on these issues should talk with their supervisor or call the CSX Ethics Information Hotline at 1-800-737-1663. Complying with the law, however, is just part of what we must do. Directors, officers and employees should continually try to avoid even the appearance of impropriety in matters involving legal obligations, the Company's Code of Ethics or other Company policies and procedures. CSX CODE OF ETHICS CSX Corporation has in place a Code of Ethics applicable to all directors, officers and employees of the corporation and its subsidiaries, wherever located.(1) The Code covers conflicts of interest, insider trading, protection of confidential information and proper use of company assets, and compliance with laws and regulations applicable to the Company's business operations, among other issues central to our business and operations. This Code of Ethics provides the framework for the rules and policies of the subsidiary for which you work. Copies of those rules are available from your supervisor or Human Resources representative. Depending on your job description, you may be subject to additional and more specific rules covering one or more of the topics discussed in this Code of Ethics. It is important for you to understand that: - - You are personally responsible for your own conduct in complying with all provisions of this Code of Ethics and for promptly reporting known or suspected violations of this Code of Ethics to your supervisor, manager or the CSX Ethics Information Hotline (1-800-737-1663). - - If you are a supervisor or manager, you are responsible and accountable for ensuring that your employees understand and comply with this Code of Ethics; - ------------------------------ (1) CSX Corporation is comprised of principal business units, other transportation business units and non-transportation units. Principal business units of CSX Corporation are CSX Transportation, CSX Intermodal and CSX World Terminals LLC. Other transportation business units include CSX Technology; CSX Real Property; TRANSFLO; Total Distribution Services, Inc; and BridgePoint. Non-transportation business units are The Greenbrier resort hotel and Yukon Pacific Corporation. CSX Ethics Information Hotline: 1-800-737-1663 - - No one in this Company has the authority or right to order, request or even influence you to violate this Code of Ethics or the law; - - You will not be excused for violating this Code of Ethics for any reason, even at the request of another person, including your supervisors, managers or Company officers; - - Any attempt by any person to have another violate this Code of Ethics, whether successful or not, is itself a violation and may be a violation of the law; - - Any retaliation or threat of retaliation against any person for refusing to violate this Code of Ethics or for reporting in good faith a violation or suspected violation of this Code of Ethics is itself a violation and may be a violation of the law; - - Every reported violation of this Code of Ethics will be investigated, and every actual violation will constitute a basis for disciplinary action involving the person violating this Code of Ethics and may result in civil or criminal action against that person; and - - Any employee who acts contrary to this Code of Ethics, or who knowingly gives a false report regarding a violation of this Code, may be subject to disciplinary action, up to and including termination of employment. As part of CSX's commitment to ethics and compliance, all directors, officers and employees of CSX and its affiliated companies have a duty to promptly report any actual or suspected misconduct. Failure to fulfill this duty is a violation of CSX's Code of Ethics and may result in disciplinary measures up to and including dismissal in appropriate cases. Failure to report actual or suspected misconduct also may expose the Company and its directors, officers, and employees to potential criminal and civil penalties, and damages to the Company's reputation. If you have questions about this Code of Ethics or concerns about someone's workplace conduct, first contact your manager. If you do not feel comfortable doing this, you may contact other CSX resources available to you: - - Law Department - - The CSX Ethics Information Hotline THE CSX ETHICS INFORMATION HOTLINE (1-800-737-1663) In support of its Code of Ethics and to facilitate reporting of any suspected misconduct, CSX maintains a toll-free CSX ETHICS INFORMATION HOTLINE, which is available 24 hours a day, 7 days a week at 1-800-737-1663, for individuals to report actual or suspected misconduct, ask questions, or raise concerns about business ethics and compliance matters, without fear of retaliation. CSX has a non-retaliation policy that prohibits retaliation against an employee for raising a concern or reporting actual or suspected misconduct in good faith. Anyone may contact the CSX Ethics Information Hotline if they have compliance questions or concerns, and callers have the right to remain anonymous, if they wish. Investigations will be conducted in as confidential a manner as possible, depending upon the circumstances presented. At the direction of CSX's management, the CSX Ethics Information Hotline is administered by CSX's Senior Director, Ethics & Compliance and is staffed by members of the Ethics & Compliance Group in Audit and Advisory Services, who are responsible for receiving and handling calls made to the CSX Ethics Information Hotline. The Senior Director, Ethics & Compliance and members of the Ethics & Compliance Group under his direction have been appropriately trained on CSX's hotline procedures, including interviewing and investigative techniques. All reports to the Hotline will be reviewed and investigated promptly and appropriate CSX Ethics Information Hotline: 1-800-737-1663 remedial measures will be undertaken. The Director, Ethics & Compliance will report periodically to the Audit Committee on calls received by the Ethics Information Hotline, including reports concerning financial and accounting issues. CSX VALUES At CSX, we believe that living by a set of fundamental core values help define the true measure of a company - they guide the way we treat each other and how we make business decisions. When all employees are aligned to fundamental guiding principles, companies consistently deliver superior financial results that ensure long-term success. At CSX, we have developed a core ideology that is the foundation for everything we do and is embodied in the motto: "Right results, right way." This creates an environment that allows us to maintain a focus on what is important, while challenging everything else in a drive for continuous improvement. There is nothing magical about this concept. It is the discipline of execution that distinguishes great companies. It is about building an organization that has purpose, focus and alignment; that lives its values every day; and that creates an environment that allows employees to grow and to produce superior results. This core ideology - our vision, purpose and values - is the heart and soul of our Company. We believe that adhering to this core ideology will help us become an even stronger and sustainable organization - a leader in an evolving business world. For more information about CSX values, visit our web site at http://www.csx.com/index.cfm?fuseaction=company.values. GUIDE TO BUSINESS CONDUCT CSX is committed to maintaining high ethical and legal standards in its business conduct. We expect every director, officer, and employee to conduct himself or herself in accordance with the following Guide to Business Conduct. CONDUCT INVOLVING OURSELVES AND OUR FELLOW EMPLOYEES The basis of our values is dignity and mutual respect. These fundamental values drive our business. MANAGEMENT RESPONSIBILITY At CSX, leaders must show a commitment to CSX's values through their actions. They must also promote an environment where compliance is expected and ethical behavior is the norm. All CSX directors, officers and employees must comply with the Company's values and principles. No one may ask any CSX director, officer or employee to break the law or violate the Company's policies, procedures and values. RESPECT AND FAIR TREATMENT CSX is firmly committed to the principles of equality of opportunity in employment and human relationships. Each CSX employee is expected to treat fellow employees with respect and dignity. CSX offers employment, training, compensation and advancement on the basis of qualification, merit and business needs, regardless of race, color, religion, sex (including pregnancy, childbirth or related medical conditions), age, national origin or ancestry, physical or mental disability, veteran status, secular orientation or any status protected by law not listed here. Fulfillment of our commitment to equal employment opportunity requires action by all employees throughout CSX. We all have a responsibility to promote equal employment opportunities. CSX is pledged CSX Ethics Information Hotline: 1-800-737-1663 to affirmative action programs that provides employment and promotional opportunities for minorities, women, individuals with disabilities and veterans. Employees are encouraged to contact their Human Resources representative to review the Affirmative Action Plan for the CSX company for which they work. Similarly, business relationships with competitors, suppliers and customers of CSX must always be conducted free of discrimination based on race, color, religion, sex (including pregnancy, childbirth, or related medical conditions), age, national origin or ancestry, physical or mental disability, veteran status, sexual orientation, marital status or any status protected by law not listed here. All CSX employees are responsible for implementing CSX's policy of non-discrimination. This may require special affirmative action by all levels of executive, managerial and supervisory personnel to seek out competent persons and business entities entitled to the benefits of the broad CSX commitment to equal opportunity. Employees are encouraged to review the Equal Employment Opportunity policy for the CSX company for which they work and to direct any questions or complaints to the appropriate individuals designated in that policy. HARASSMENT Our policy is to provide a work environment that is pleasant, professional and free from intimidation, hostility or other offenses that might interfere with work performance. CSX does not tolerate any form of harassment - verbal, physical or visual - by supervisors, other employees, customers, vendors, agents or other third parties. Harassment is personally offensive, lowers morale and interferes with the ability to work cooperatively. Accordingly, CSX companies have a zero tolerance for harassment based on sex, race, color, religion, national origin, age physical or mental disability, veteran status, or any other status protected by applicable federal or state law. Employees are encouraged to review the Policy on Harassment for the CSX company for which they work and to direct any questions or complaints to the appropriate individuals designated in that policy. EMPLOYEE PRIVACY CSX companies respect the privacy of all employees. CSX will only use employee records as necessary for business needs, and will share employee information only for business reasons consistent with applicable laws. Some personal employee information is very sensitive and cannot be made public under many laws. This includes certain payroll records and medical history records. CONDUCT INVOLVING OUR BUSINESS PARTNERS Our values, honesty and standards of conduct do not stop with our actions, or at our doors. We expect the same from our suppliers, customers and others with whom we do business. FAIR COMPETITION AND ANTITRUST REQUIREMENTS All business activities of the CSX companies are highly competitive, and it is the policy of CSX to compete aggressively, but fairly. A major part of CSX's commitment to compete fairly is a commitment to comply with the antitrust laws. In general, these complex laws prohibit any form of agreement or understanding - whether formal or informal, written or oral, express or implied - between or among competitors that unreasonably limits or restricts competition between them. Breaking these laws can bring very severe penalties (civil and criminal) to both the Company and the individual. CSX's commitment to compliance with the antitrust laws includes the following guidelines: CSX Ethics Information Hotline: 1-800-737-1663 - - CSX employees may not discuss, or enter into a formal or informal agreement with competitors about prices other than joint line rates (sometimes called "through rates"). This includes agreements about matters affecting price such as demurrage terms, credit terms and other "price-like" commercial terms. - - CSX employees may not discuss, or enter into a formal or informal agreement with competitors about dividing customers, sales territories, or lines of business between themselves. - - This policy also prohibits any unfair or untrue disparagement of a CSX competitor. - - Absent compelling special circumstances, CSX companies should select all vendors and contractors on the basis of competitive bids. GATHERING AND USING COMPETITIVE INFORMATION To compete in the marketplace, it is necessary and legal to gather competitive information. CSX employees may only gather information through lawful means. Information about competitors' rates and other actions in the marketplace can almost always be freely received from CSX customers. Employees should maintain the confidentiality of information entrusted to them by the Company or its customers, except when disclosure is authorized or legally mandated. CSX employees must never use any illegal or unethical means to obtain information about other companies. CSX employees should not share confidential information from suppliers or customers with anyone outside CSX without written permission. Confidential information includes all non-public information that is shared with you in the reasonable expectation that it will be kept confidential and that might be of use to that company's competitors, or harmful to CSX or CSX customers, if disclosed. If agreements are signed to protect information, be sure to follow their terms and conditions. Do not steal trade secret information, and do not suggest or ask others to disclose trade secrets, especially new employees hired from a competitor. New hires may not bring papers or computer records from prior employers, if those papers or records contain proprietary or confidential information belonging to their prior employer. ACCURATE AND COMPLETE BOOKS, RECORDS AND ACCOUNTING A company's credibility is judged in many ways - one fundamental way is the integrity of its books, records and accounting. In addition to our own commitment to accurately report financial performance, CSX companies are required by securities laws to report financial information in accordance with generally accepted accounting principles. Every CSX director, officer and employee must help ensure that reporting of business and financial information - computerized, paper or otherwise - is accurate, complete and timely. This includes accurate recording of costs, revenues, time sheets, vouchers, bills, payroll and benefits records, and regulatory data, among other business information. In addition, all directors, officers and employees of CSX companies must: - - Follow all laws, accounting requirements and company procedures for reporting financial information; - - Never deliberately make a false or misleading entry in any report or record; - - Never suppress, alter or destroy company records without authorization; CSX Ethics Information Hotline: 1-800-737-1663 - - Never sell, transfer or dispose of company assets without proper documentation and authorization; - - Cooperate with our internal and outside auditors; - - Contact the accounting or auditing organization with any questions about the proper recording of business and financial transactions; and - - Contact the Law Department with any legal questions you may have relating to these topics. DOING BUSINESS WITH THE GOVERNMENT Each year, CSX companies do substantial business with the U.S. and other Governments. While integrity is the foundation for our dealing with all customers, special rules apply when the Government is our customer, which are very different from those that govern our dealings with private sector companies. Violations of Government procurement laws can result in criminal and civil penalties, loss of contracts and ineligibility from doing further business with the Government. Under the civil False Claims Act, in particular, the Government can impose liability on a contractor for the submission of false claims to the Government, or a false statement in support of a claim, including the costs of the lawsuit, triple the amount of its actual damages, and a civil penalty of between $5,000 and $10,000 for each false claim. A "claim" is a request or demand for money or property submitted by a contractor to the Government, such as an invoice or contract billing. For this reason, it is important that all invoices or billings submitted by CSX to the Government be accurate and complete. Those involved in bidding or providing products or services under a Government contract need to know these special rules, which include, but are not limited to, the following: - - Never seek or accept from any federal agency, or from any other source, a competitor's confidential bid or proposal information or an agency's source selection information prior to the award of the agency contract to which the information relates. - - Know the special rules on offering or providing gifts, gratuities or entertainment to Government employees, and obtain any advance approvals required by Company procedures. - - When dealing with a quasi-governmental body, know whether government procurement laws and/or ethics rules apply to your dealings with them. - - Know and follow the anti-kickback rules, including restrictions on gifts by those seeking business from the Government and from Government contractors. - - Understand "most favored customer" pricing and disclosure requirements and verify compliance. - - Conform strictly to the contract specifications, and all quality, quantity, delivery and testing requirements. - - Charging and allocation of costs, including employee time and overhead, provision of any cost or pricing data and billings to the Government must always be accurate, complete and in full compliance with applicable procurement rules and regulations. - - Be truthful, accurate, current and complete in all representations and certifications made to Government agencies. CSX Ethics Information Hotline: 1-800-737-1663 - - Do not falsify any document or provide any misleading information relating to the award, performance or payment under any Government contract or subcontract. - - Know your Government customer's rules and regulations, including the requirements of standard contract clauses incorporated in the contract, either directly or by reference. - - Refrain from initiating any employment discussions with any current or former Government employee without first consulting with the Legal Department. If you are involved with any aspect of a Government contract, you must not take any action that would violate any of these requirements. DEALING WITH SUPPLIERS CSX's Purchasing and Materials group handles the procurement, materials management and transport of items and services necessary for running a railroad and the Company, including investment recovery activities. The relationships we establish with our suppliers are important to us. The values of CSX are applicable in all of our dealings with suppliers, including a commitment to achieving the right results in the right way. CSX's policy is to base all procurement decisions on the best value received by CSX. CSX companies will not knowingly use suppliers who participate in any of the following activities: supply unsafe products or services; violate laws or regulations; or use child labor or forced labor. Good procurement conduct - which is required of any CSX employee in any department who has dealings with supplier or vendors - includes the following: - - Use established corporate-wide or regional supply (leveraged) agreements; - - Whenever possible, obtain competitive bids when leveraged agreements do not exist; - - Ensure the overall performance capability of the supplier, including delivery, quality and financial status; - - Make sure that purchase agreements clearly state the services or products to be provided, the basis for earning payment, and the applicable rate or fee; - - The fee or price paid for goods and services by CSX must represent the value of the goods or services provided; - - Avoid reciprocal agreements; - - Encourage support for minority and women-owned businesses; and - - Purchase in support of CSX's Environmental, Safety and Health values and policies. RELATIONSHIPS AND CONFLICTS OF INTEREST Fair Dealing: Each CSX employee should endeavor to deal fairly with the Company's customers, suppliers, competitors and employees. No CSX director, officer or employee should take unfair advantage of anyone through manipulation, concealment, abuse of privileged information, misrepresentation of material facts or any other unfair-dealing practice. CSX Ethics Information Hotline: 1-800-737-1663 Conflicts of Interest: A "conflict of interest" occurs when an individual's private interest interferes in any way - or even just appears to interfere - with the interests of the Company as a whole. A conflict situation can arise when a director, officer or employee takes actions or has interests that may make it difficult to perform his or her company work objectively and effectively. Conflicts of interest also arise when a director, officer or employee, or a friend or member of his or her family, receives improper personal benefits as a result of his or her position in the Company. Loans to, or guarantees of obligations of, such persons are of special concern. It is CSX policy that no director, officer or employee - or any member of his or her immediate family - should acquire a financial interest in, or accept employment by, an entity doing business with a CSX company if the interest or employment would conflict with the employee's performance of his or her duties. Similarly, no CSX director, officer or employee should take any business action for personal benefit, or to benefit a friend or relative. Corporate Opportunities: Pursuant to CSX's policy prohibiting conflicts of interest, CSX directors, officers and employees are expected to make decisions in the best interests of the Company, and not for personal gain. CSX directors, officers and employees are prohibited from: (1) taking for themselves personally opportunities that are discovered through the use of corporate property, information or position; (2) using corporate property, information or position for personal gain; and (3) competing with the Company. Directors, officers and employees owe a duty to the Company to advance its legitimate interests when the opportunity to do so arises. CSX directors, officers and employees also have a duty to report to the CSX Ethics Information Hotline any situation that may appear to present a conflict of interest. ENTERTAINMENT AND GIFTS Ethical considerations are extremely important in supplier, competitor and customer relationships. CSX's position is clear: no gift, favor, hospitality or entertainment should be accepted or provided if it will create a feeling of obligation, compromise judgement or appear to influence the recipient. Kickbacks, bribes, rebates or other forms of illegal consideration are never acceptable, and should never be given or accepted by anyone acting on behalf of a CSX company. Receiving or giving gifts of cash or cash equivalents, including gift certificates, prepaid credit or charge cards, or gift cards, is never permitted. To help ensure that your decisions are the right ones, ask yourself the following questions when giving or receiving any form of business entertainment or gift: - - Is it legal, customary and in good taste? - - Is it clearly related to the conduct of CSX business? - - Would you feel comfortable giving or receiving the entertainment or gift in a public setting? - - Could the offer influence or appear to influence your business judgement in any way? If any doubt exists as to the impact that giving or receiving entertainment or gifts could have on the reputation of the Company or your personal reputation, the entertainment or gift should not be offered or accepted. Because these judgements sometimes can be difficult, CSX has established certain standards for exchanging entertainment and gifts which are described below. Your organization may choose to establish entertainment and gift policies that are more restrictive than those described below. CSX Ethics Information Hotline: 1-800-737-1663 It is generally accepted business practice to provide and accept meals and entertainment that occur in conjunction with business meetings and conferences provided the meals and entertainment are not lavish. It is also acceptable to accompany a supplier or customer to recreational or social outings that have a clear business goal or charitable purpose. Invitations that involve customer or supplier provided overnight accommodations may be accepted only with the prior written approval of the department head. Employees should never solicit entertainment from suppliers or customers. Gifts are defined as items, products or services given to an employee by a competitor, supplier, customer or any other party with whom CSX does business. Tickets to sporting or other events where the supplier or customer has no intention of accompanying the employee are considered gifts. Employees may accept nominal gifts defined as having a value of up to $100 per year from a single organization. Employees may not solicit gifts. No gift may be offered in violation of another organization's standards. CSX employees dealing with Government officials should be particularly alert to the special rules that may limit or prohibit giving gifts, gratuities, entertainment or other favors to Government officials. In conducting business with Government officials, CSX will abide by all existing regulations and laws. Specific questions regarding Government officials should be directed to Government Affairs, the Law Department or the Ethics Information Hotline. CONDUCT INVOLVING OUR BUSINESS RESOURCES CSX is committed to protecting its business resources. We expect every director, officer and employee to follow the standards set for the in the following Conduct Involving our Business Resources. RESPONSIBLE USE OF COMPANY ASSETS CSX employees should respect Company property and use Company assets, including computers and related information technology assets, only in accordance with established company policies, including the CSX Information Users Policy. Theft, carelessness, misuse and waste of company property have a direct impact on the Company's profitability. Company assets and resources should be used only to conduct company business, and not for personal gain or any non-business purpose. DOCUMENT AND RECORDS MANAGEMENT CSX's records and information are Company assets. The Company's Records and Information Management program assists employees in managing these assets efficiently and in accordance with Company policy. Records and information can exist in many ways, such as documents, files, graphs, and databases, and may be kept in hard copy, electronically or on film. In order to ensure that valuable business information is well-organized and available when needed, employees should properly label and carefully handle confidential and proprietary information in accordance with procedures set forth in the CSX Records and Information Management Manual. The Company's Record and Information Management program includes records retention policies and procedures. Check with your supervisor or the Company's Record Manager for policies regarding the retention of documents and other records that you handle, if any. Keep in mind that certain records and information pertaining to our business must be maintained for specific periods of time for legal reasons or for review by regulatory authorities. CSX Ethics Information Hotline: 1-800-737-1663 In addition, from time to time, we receive requests from Government agencies or other third parties for documents and records relating to our business. Once we have received such a request, we are often prohibited by law from destroying documents or information responsive to that request. CSX companies have developed a policy to suspend records disposition when such circumstances arise. This policy, known as a "Legal Hold Policy," is designed to ensure that all affected personnel and departments are promptly notified and relevant documents and information are identified, segregated and preserved when a legal obligation arises to preserve or retain them. If you are advised that the Company has received any such document request, you must not destroy any requested or related documents or records until you have been advised by the Law Department that you are permitted to do so. INSIDER TRADING In the course of your employment with CSX, you may become aware of material information about CSX or other companies that has not been made public. The use of such "inside information" about CSX or another company for your financial or other benefit is not only unethical, but also may be a violation of strict Federal laws against "insider trading" in securities (for example, stocks, bonds and options). "Inside information" means information that: - - Is not available to the public, and - - Is "material." "Material information" means information that a reasonable investor would likely consider important in deciding whether to buy or sell a security. Many of our employees may have inside information simply by virtue of their positions. Inside information might include, for example: - - The purchase or sale of a major asset; - - Changes in dividend policy; - - Mergers, acquisitions and joint ventures; - - Significant changes in operations or business plans; - - Major developments in litigation; - - The financial condition or operating results of a company, including earnings statements and forecasts; and - - Regulatory developments. If you have knowledge of any of these kinds of information - and the information is non-public - it is inside information, and no CSX employee may buy or sell securities while aware of inside information. Inside information can also be information you obtained confidentially during the course of your work about another company - for example, from a customer or supplier. You should also be aware that the insider trading prohibition applies to people outside of CSX companies who obtain the information from one of our employees (for example, an employee's spouse, friends or broker). This means you must never give someone outside your company a "tip" regarding non-public inside information - this includes discussions on Internet "chat rooms." If you do, and the person you provided the information to uses it to trade, both you an the person you provided the information to are subject to action under the Federal securities law. CSX Ethics Information Hotline: 1-800-737-1663 Securities law violations are taken very seriously and can be prosecuted even when the amount involved is small, or the "tipper" makes no profit at all. Government agencies regularly monitor trading activities through computerized searches. CSX employees (and outsiders they are associated with) who have inside information can lawfully trade in the market once the information is made public through established channels and enough time has passed for the information to be absorbed by the public. If you have questions or concerns about your responsibilities under the insider trading laws, contact the Law Department or the CSX Ethics Information Hotline for further guidance. ACCURACY OF BOOKS, RECORDS AND FINANCIAL REPORTING Investors count on CSX to use and provide accurate information so they can make informed decisions. All CSX officers and employees must properly record many kinds of business information. All financial books, records and reports must correctly reflect transactions and events on a timely basis. These records must meet both generally accepted accounting principles and CSX's internal control requirements. The following are examples of activities that are not allowed: - - Failing to record or disclose funds or assets that should be recorded in a timely manner; - - Making false claims on an expense report, time sheet or any other report; - - Giving false or misleading quality or safety results or reports; - - Understating or overstating known liabilities or assets; - - Delaying the entry of items that should be current expenses; - - Hiding the true nature of any transaction; or - - Providing inaccurate or misleading information for Company benefit programs. CSX directors, officers and employees must be sure that any document they prepare or sign is correct and truthful. INTELLECTUAL PROPERTY CSX's intellectual property - patents, trade secrets, trademarks, copyrights and other proprietary information - is considered a valuable Company asset. It is CSX's policy to establish, protect, maintain and defend its rights in all commercially significant intellectual property and to use those rights in responsible ways. All CSX employees must take steps to safeguard those assets. In addition to protecting CSX's intellectual property rights, CSX respects the valid intellectual property rights of others. Unauthorized use of the intellectual property rights of others may expose CSX to civil lawsuits and damages. Theft and misappropriation of trade secrets, proprietary information or other intellectual property may result in significant fines and criminal penalties to both CSX and to the individual. New CSX products, services (including e-commerce initiatives), processes and software, and any proposed use of the intellectual property of others, should be timely and reasonably reviewed for infringement. USE OF COMPUTER RESOURCES CSX companies have specific policies concerning employee use of Company e-mail, the Internet and Company intranet, and other electronic information sources while on Company time or using CSX Ethics Information Hotline: 1-800-737-1663 Company computers. E-mail and the Internet are powerful communication tools and valuable business assets. However, improper use of e-mail, Internet and Company intranet services can waste time and resources, and create legal liabilities and embarrassment for our employees and our Company. CSX's Information Users Policy explains what employees can and cannot do when using the Company's computer resources and includes policies pertaining to use of e-mail, the Internet and Company intranet, and the export of software and other information through CSX computer resources. CSX employees should use extreme caution when using e-mail to transmit information that may contain our company trade secrets, business plans or any other confidential or proprietary information (including the confidential or proprietary information of others). CSX employees must not send e-mail messages or otherwise use our e-mail or Internet systems in connection with: - - Engaging in illegal, fraudulent or malicious activities; - - Copying or distributing copyrighted material - for example, software, database files, MP3 files, documentation or copyrighted articles using our Company e-mail systems; - - Engaging in activities on behalf of organizations with no professional or business affiliation with our Company; - - Sending or storing offensive, sexually explicit, obscene or defamatory material; - - Annoying or harassing other people; - - Using another person's identity without explicit authorization; - - Attempting to test, circumvent or defeat security or auditing systems, without prior authorization; - - Permitting any unauthorized person to access our company e-mail systems; or - - Distributing chain letters, solicitations or offers to buy or sell goods. CSX does allow limited personal use of our Company e-mail and Internet systems, so long as such use is reasonable, does not violate any provision of this Code of Ethics or copyright laws, and does not interfere with your productivity or the productivity of your co-workers. You must assume that an e-mail message may be disclosed to or read by individuals other than the intended recipient(s), since messages can easily be forwarded to other individuals and retained indefinitely. Therefore, you should never create an e-mail message that you or the Company would not want used as evidence in any dispute, investigation or lawsuit. Finally, because e-mail messages can often be read out of context, it is extremely important that you avoid writing any e-mail message that even appears to violate any provision of the law or this Code of Ethics. CONDUCT INVOLVING OUR COMMUNITIES At CSX, we are deeply committed to enhancing the quality of life in the communities we serve. ENVIRONMENTAL POLICY As a global transportation leader, CSX is committed to protecting the environment and ensuring the safety and health of our employees and the public. We back our commitment by promoting best practices in environmental stewardship. Daily decisions and actions at CSX are guided by the following environmental principles: CSX Ethics Information Hotline: 1-800-737-1663 - - Comply with applicable environmental laws and regulations; - - Make operations safe for employees, customers and the environment; - - Minimize waste, prevent pollution, and incorporate recycling in all practices and operations; - - Strive to eliminate releases that impact the environment; - - Employ sound environmental practices to address and redevelop environmentally impacted property; - - Encourage open and candid communication with employees, customers, and the public regarding the Company's environmental program and any hazard that may arise from its operations; - - Strive continually to improve environmental performance. SAFETY POLICY The safe operation of CSX activities is always a primary goal. All CSX officers and employees, without exception, are responsible for ensuring that CSX operations are conducted safely. We are committed to provide transportation services in a manner that will ensure the safety of our employees, our customers and the communities we serve. Employees are expected to observe all safety rules and practices and to follow instructions concerning safe and efficient work practices. All employees should advise their supervisor or other management representatives immediately if they see a work practice or activity they consider to be conducted in an unsafe or careless manner. CSX provides emergency planning assistance and training to local fire, police and emergency response personnel in communities served by our Company. POLITICAL CONTRIBUTIONS AND PUBLIC SERVICE INVOLVEMENT CSX and its subsidiaries work hard to earn and maintain the respect of the communities in which they operate. As good neighbors and good corporate citizens, we seek to support the efforts of our many employee-volunteers who contribute time and talent to local organizations. At the same time, we support a wide variety of regional and national organizations dedicated to improving the health, safety and well-being of our nation's citizens. CSX employees are encouraged to speak out on important community issues. Employees must be careful, however, not to give the impression that they are speaking on behalf of a CSX company unless they are actually authorized to do so. No CSX company is permitted to contribute, directly or indirectly, to any Federal political campaign. Employees may not use company expense accounts to pay for any personal political contributions or seek any other form of company reimbursement. In addition, employees should not use company facilities or resources for the benefit of any party or candidate, including an employee individually running for office. Employees are encouraged to contribute to properly established political action committees. THE U.S. FOREIGN CORRUPT PRACTICES ACT ("FCPA") The FCPA prohibits the giving or offering of money or anything of value, either directly or through a third party, to an official of a foreign government, foreign government agency or instrumentality (which may include government monopolies, corporations, etc.) or to any foreign political party, CSX Ethics Information Hotline: 1-800-737-1663 party official or candidate, except for certain narrow exceptions as discussed below. The FCPA prohibits bribes and other improper payment regardless of the fact that they may be widely accepted or even seem necessary in the foreign country in question. A violation is a serious criminal offense for both companies and individuals, and may result in fines, loss of export privileges and imprisonment for individuals. CSX's policy with respect to foreign corrupt practices and irregular transactions is to respect and adhere to the FCPA and laws of each country in which it does, and never to engage in bribery. In certain circumstances, so-called "facilitating payments" - small payments to foreign government officials for routine governmental actions - are permissible under the FCPA. The purpose of such payments is to expedite the performance of a duty that the Government official is otherwise required to perform, and is distinguishable from a bribe, which is a payment given to persuade an official to give favorable treatment or exercise his discretion in favor of a payment-giver. CSX policy requires written pre-approval by the Law Department of any facilitating payment. INTERNATIONAL BUSINESS CSX policy is to fully comply with the specific laws and regulations of all countries where we do business, and with all U.S. laws affecting international trade, such as anti-boycott, trade sanction, export control and foreign corrupt practices laws. Violations of these laws carry stiff civil and criminal penalties for individuals and the Company, and could cause serious damage not only to our corporate reputation, but also to the public at large. Employees involved in foreign operations should be aware of these laws, and should always consult with the Law Department to ensure that CSX companies do not violate any relevant laws. - ----------------- CSX Ethics Information Hotline: 1-800-737-1663 EX-21 14 g87590exv21.txt EX-21 SUBSIDIARIES EXHIBIT 21 SUBSIDIARIES OF THE REGISTRANT As of December 26, 2003, the Registrant was the beneficial owner of 100% of the common stock of the following significant subsidiaries: CSX Transportation, Inc. (a Virginia corporation) CSX Rail Holding Corporation (a Delaware corporation) CSX Intermodal, Inc. (a Delaware corporation) CSX Technology, Inc. (a Virginia corporation) CSX Residual Company (a Delaware corporation) SL Service, Inc. (a Delaware corporation) As of December 26, 2003, none of the other subsidiaries included in the Registrant's consolidated financial statements constitute a significant subsidiary. EX-23.1 15 g87590exv23w1.txt EX-23.1 CONSENT OF ERNST & YOUNG LLP EXHIBIT 23.1 Consent of Independent Auditors We consent to the incorporation by reference in each Form S-3 Registration Statement or Post-Effective Amendment (Registration Nos. 33-2084, 333-54700 and 333-60134) and in each Form S-8 Registration Statement (Registration Nos. 33-16230, 33-25537, 33-29136, 33-37449, 33-41498, 33-41499, 33-41735, 33-41736, 33-57029, 333-09213, 333-73427, 333-73429, 333-32008, 333-43382, 333-48896 and 333-66604) of our report dated February 10, 2004, with respect to the consolidated financial statements of CSX Corporation included in this Annual Report (Form 10-K) for the fiscal year ended December 26, 2003. /s/ Ernst & Young LLP Jacksonville, Florida March 9, 2004 EX-23.2 16 g87590exv23w2.txt EX-23.2 CONSENT OF ERNST & YOUNG LLP AND KPMG LLP EXHIBIT 23.2 Consent of Independent Auditors We consent to the use of our report dated January 27, 2004, with respect to the consolidated financial statements of Conrail Inc. and subsidiaries as of December 31, 2003 in this Annual Report (Form 10-K) of CSX Corporation and subsidiaries (CSX). We also consent to the incorporation by reference in each Form S-3 Registration Statement or Post-Effective Amendment (Registration Nos. 33-2084, 333-54700 and 333-60134) and in each Form S-8 Registration Statement (Registration Nos. 33-16230, 33-25537, 33-29136, 33-37449, 33-41498, 33-41499, 33-41735, 33-41736, 33-57029, 333-09213, 333-73427, 333-73429, 333-32008, 333-43382, 333-48896 and 333-66604) of our report dated January 27, 2004, with respect to the consolidated financial statements of Conrail Inc. and subsidiaries as of December 31, 2003 included in this Annual Report (Form 10-K) of CSX for the fiscal year ended December 26, 2003. /s/ Ernst & Young LLP /s/ KPMG LLP Jacksonville, Florida Norfolk, Virginia March 9, 2004 March 9, 2004 EX-24 17 g87590exv24.txt EX-24 POWERS OF ATTORNEY EXHIBIT 24 POWER OF ATTORNEY KNOW ALL PERSONS BY THESE PRESENTS that each of the undersigned officers and directors of CSX CORPORATION, a Virginia Corporation, which is to file with the Securities and Exchange Commission, Washington, D. C., a Form 10-K (Annual Report), hereby constitutes and appoints Carolyn T. Sizemore and Ellen M. Fitzsimmons his true and lawful attorneys-in-fact and agents, for him and in his name, place and stead to sign said Form 10-K, and any and all amendments thereto, with power where appropriate to affix the corporate seal of CSX Corporation thereto and to attest said seal, and to file said Form 10-K, and any and all other documents in connection therewith, with the Securities and Exchange Commission, hereby granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform any and all acts and things requisite and necessary to be done in and about the premises as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or either of them, may lawfully do or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned have hereunto set their hands this 9th day of March 2004. /s/ ELIZABETH E. BAILEY /s/ CHARLES E. RICE - -------------------------------------------- -------------------------------------------- Elizabeth E. Bailey Charles E. Rice /s/ ROBERT L. BURRUS, JR /s/ WILLIAM C. RICHARDSON - -------------------------------------------- -------------------------------------------- Robert L. Burrus, Jr. William C. Richardson /s/ BRUCE C. GOTTWALD /s/ FRANK S. ROYAL - -------------------------------------------- -------------------------------------------- Bruce C. Gottwald Frank S. Royal /s/ EDWARD J. KELLY, III /s/ DONALD J. SHEPARD - -------------------------------------------- -------------------------------------------- Edward J. Kelly, III Donald J. Shepard /s/ ROBERT D. KUNISCH /s/ MICHAEL J. WARD - -------------------------------------------- -------------------------------------------- Robert D. Kunisch Michael J. Ward /s/ SOUTHWOOD J. MORCOTT /s/ OSCAR MUNOZ - -------------------------------------------- -------------------------------------------- Southwood J. Morcott Oscar Munoz /s/ DAVID M. RATCLIFFE - -------------------------------------------- David M. Ratcliffe

EX-31.1 18 g87590exv31w1.txt EX-31.1 SECTION 302 CEO CERTIFICATION EXHIBIT 31.1 CERTIFICATE OF CHIEF EXECUTIVE OFFICER I, Michael J. Ward, certify that: 1. I have reviewed this annual report on Form 10-K of CSX Corporation; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) [omitted pursuant to the guidance of Release No. 33-8283 (June 5, 2003)] c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: March 9, 2004 /s/ MICHAEL J. WARD -------------------------------------- Michael J. Ward Chairman, President and Chief Executive Officer EX-31.2 19 g87590exv31w2.txt EX-31.2 SECTION 302 CFO CERTIFICATION EXHIBIT 31.2 CERTIFICATE OF CHIEF FINANCIAL OFFICER I, Oscar Munoz, certify that: 1. I have reviewed this annual report on Form 10-K of CSX Corporation; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) [omitted pursuant to the guidance of Release No. 33-8283 (June 5, 2003)] c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: March 9, 2004 /s/ OSCAR MUNOZ -------------------------------------- Oscar Munoz Executive Vice President and Chief Financial Officer EX-32.1 20 g87590exv32w1.txt EX-32.1 SECTION 906 CEO CERTIFICATION EXHIBIT 32.1 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Annual Report of CSX Corporation on Form 10-K for the period ending December 26, 2003 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Michael J. Ward, Chief Executive Officer of the registrant, certify, pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, to my knowledge, that: 1. The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and 2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the registrant. Date: March 9, 2004 /s/ MICHAEL J. WARD -------------------------------------- Michael J. Ward Chairman and Chief Executive Officer EX-32.2 21 g87590exv32w2.txt EX-32.2 SECTION 906 CFO CERTIFICATION EXHIBIT 32.2 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Annual Report of CSX Corporation on Form 10-K for the period ending December 26, 2003 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Oscar Munoz, Chief Financial Officer of the registrant, certify, pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, to my knowledge, that: 1. The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and 2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the registrant. Date: March 9, 2004 /s/ OSCAR MUNOZ -------------------------------------- Oscar Munoz Executive Vice President and Chief Financial Officer EX-99.3 22 g87590exv99w3.txt EX-99.3 FINANCIAL STATEMENTS OF CONRAIL EXHIBIT 99.3 REPORT OF MANAGEMENT THE STOCKHOLDERS CONRAIL INC. Management is responsible for the preparation, integrity and objectivity of the Company's consolidated financial statements. The consolidated financial statements are prepared in conformity with accounting principles generally accepted in the United States of America and include amounts based on management's best estimates and judgment. The Company maintains a system of internal accounting controls and procedures, which is continually reviewed and supported by written policies and guidelines and supplemented by internal audit services. The system provides reasonable assurance that assets are safeguarded against loss from unauthorized use and that the books and records reflect the transactions of the Company and are reliable for the preparation of financial statements. The concept of reasonable assurance recognizes that the cost of a system of internal accounting controls should not exceed the benefits derived and also recognizes that the evaluation of these factors necessarily requires estimates and judgments by management. The Company's consolidated financial statements are audited by its independent accountants. Their audit is conducted in accordance with auditing standards generally accepted in the United States of America and considers the Company's system of internal accounting controls to determine the nature, timing and extent of the auditing procedures required for expressing an opinion on the Company's financial statements. The Company's Board of Directors, which is comprised of an equal number of directors from Norfolk Southern Corporation ("NSC") and CSX Corporation ("CSX"), pursues its oversight responsibilities for the consolidated financial statements and corporate conduct through periodic meetings with and written reports from the Company's management. /s/ Gregory R. Weber - ------------------------- Gregory R. Weber Chief Executive Officer /s/ Joseph W. Rogers - ------------------------- Joseph W. Rogers Chief Financial Officer January 27, 2004 INDEPENDENT AUDITORS' REPORT THE STOCKHOLDERS AND BOARD OF DIRECTORS CONRAIL INC.: We have audited the accompanying consolidated balance sheets of Conrail Inc. and subsidiaries as of December 31, 2003 and 2002, and the related consolidated statements of income, stockholders' equity and cash flows for each of the years in the three-year period ended December 31, 2003. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Conrail Inc. and subsidiaries as of December 31, 2003 and 2002, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2003, in conformity with accounting principles generally accepted in the United States of America. As discussed in Note 1 to the consolidated financial statements, effective January 1, 2003 the Company adopted Financial Accounting Standards Board Statement No. 143, "Accounting for Asset Retirement Obligations." /s/ KPMG LLP /s/ Ernst & Young LLP - --------------------- ------------------------ KPMG LLP Ernst & Young LLP Norfolk, Virginia Jacksonville, Florida January 27, 2004 2 CONRAIL INC. CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, ----------------------------- ($ In Millions) 2003 2002 2001 ----- ----- ----- REVENUES - NSC/CSX (NOTE 2) $ 836 $ 813 $ 823 REVENUES - THIRD PARTIES 82 80 80 ----- ----- ----- Total operating revenues 918 893 903 ----- ----- ----- OPERATING EXPENSES (NOTE 3) Compensation and benefits 168 151 158 Fuel 7 6 7 Material, services and rents 119 125 143 Depreciation and amortization 329 322 325 Casualties and insurance 17 2 (13) Other 19 17 19 ----- ----- ----- Total operating expenses 659 623 639 ----- ----- ----- Income from operations 259 270 264 Interest expense (99) (104) (109) Other income, net (Note 10) 96 94 103 ----- ----- ----- Income from continuing operations before income taxes and accounting change 256 260 258 Provision for income taxes (Note 7) 93 80 84 ----- ----- ----- Income from continuing operations before accounting change 163 180 174 Cumulative effect of change in accounting principle, net of taxes (Note 1) 40 -- -- ----- ----- ----- NET INCOME $ 203 $ 180 $ 174 ===== ===== =====
See accompanying notes to the consolidated financial statements. 3 CONRAIL INC. CONSOLIDATED BALANCE SHEETS DECEMBER 31, --------------------- ($ In Millions) 2003 2002 ------- ------- ASSETS CURRENT ASSETS Cash and cash equivalents $ 18 $ 23 Accounts receivable, net 34 35 Due from NSR/CSXT (Note 2) 136 158 Material and supplies 8 8 Deferred tax assets (Note 7) 45 65 Other current assets 16 11 ------- ------- Total current assets 257 300 PROPERTY AND EQUIPMENT, NET (NOTE 4) 6,119 6,382 NOTES RECEIVABLE FROM NSC/CSX (NOTE 2) 1,231 892 OTHER ASSETS 609 583 ------- ------- Total assets $ 8,216 $ 8,157 ======= ======= LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Accounts payable 37 33 Current maturities of long-term debt (Note 6) 58 57 Due to NSC/CSX (Note 2) 5 9 Wages and employee benefits 31 31 Casualty reserves 39 69 Accrued and other current liabilities (Note 5) 109 130 ------- ------- Total current liabilities 279 329 LONG-TERM DEBT (NOTE 6) 1,067 1,123 CASUALTY RESERVES 125 119 DEFERRED INCOME TAXES (NOTE 7) 1,836 1,822 OTHER LIABILITIES 455 538 ------- ------- Total liabilities 3,762 3,931 ------- ------- COMMITMENTS AND CONTINGENCIES (NOTE 11) STOCKHOLDERS' EQUITY (NOTES 3 AND 9) Common stock ($1 par value; 100 shares authorized, issued and outstanding) -- -- Additional paid-in capital 2,221 2,221 Retained earnings 2,337 2,134 Accumulated other comprehensive loss (104) (129) ------- ------- Total stockholders' equity 4,454 4,226 ------- ------- Total liabilities and stockholders' equity $ 8,216 $ 8,157 ======= ======= See accompanying notes to the consolidated financial statements. 4 CONRAIL INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY ($ in Millions)
Accumulated Additional Unearned Other Paid-In ESOP Retained Comprehensive Capital Compensation Earnings Loss Total ------- ------------ -------- --------------- --------- BALANCE, JANUARY 1, 2001 $ 2,222 $ (20) $ 1,780 $ -- $ 3,982 Comprehensive income - 2001 Net Income -- -- 174 -- 174 Minimum pension liability, net of $45 million income taxes (Note 8) -- -- -- (70) (70) ------- Total comprehensive income 104 ------- Allocation of unearned ESOP compensation (1) 20 -- -- 19 ------- ------- ------- ------- ------- BALANCE, DECEMBER 31, 2001 2,221 -- 1,954 (70) 4,105 Comprehensive income - 2002 Net Income -- -- 180 -- 180 Minimum pension liability, net of $39 million income taxes (Note 8) -- -- -- (59) (59) ------- Total comprehensive income 121 ------- ------- ------- ------- ------- BALANCE, DECEMBER 31, 2002 2,221 -- 2,134 (129) 4,226 Comprehensive income - 2003 Net Income -- -- 203 -- 203 Minimum pension liability, net of $16 million income taxes (Note 8) -- -- -- 25 25 ------- Total comprehensive income 228 ------- ------- ------- ------- ------- BALANCE, DECEMBER 31, 2003 $ 2,221 $ -- $ 2,337 ($ 104) $ 4,454 ======= ======= ======= ======= =======
See accompanying notes to the consolidated financial statements. 5 CONRAIL INC. CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, ----------------------------------- ($ In Millions) 2003 2002 2001 ----- ----- ----- CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 203 $ 180 $ 174 Adjustments to reconcile net income to net cash provided by operating activities: Net cumulative effect of change in accounting principle (40) -- -- Depreciation and amortization 329 322 325 Deferred income taxes (12) (9) (18) Equity in earnings of affiliates (19) (19) (24) Gains from sales of property (7) (3) (2) Pension credit (4) (17) (19) Changes in: Accounts receivable 1 (3) 1 Accounts and wages payable 4 (14) (32) Due from NSR/CSXT 22 14 60 Due to NSC/CSX (4) (3) (19) Other (61) (25) 56 ----- ----- ----- Net cash provided by operating activities 412 423 502 ----- ----- ----- CASH FLOWS FROM INVESTING ACTIVITIES Property and equipment acquisitions (35) (23) (47) Notes receivable from NSC/CSX (339) (377) (424) Proceeds from disposal of property and equipment 12 14 14 Other 2 11 -- ----- ----- ----- Net cash used in investing activities (360) (375) (457) ----- ----- ----- CASH FLOWS FROM FINANCING ACTIVITIES Payment of long-term debt (57) (59) (61) ----- ----- ----- Net cash used in financing activities (57) (59) (61) ----- ----- ----- NET DECREASE IN CASH AND CASH EQUIVALENTS (5) (11) (16) CASH AND CASH EQUIVALENTS At beginning of year 23 34 50 ----- ----- ----- At end of year $ 18 $ 23 $ 34 ===== ===== =====
See accompanying notes to the consolidated financial statements. 6 CONRAIL INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES DESCRIPTION OF BUSINESS Conrail Inc. ("Conrail") is a holding company whose principal subsidiary is Consolidated Rail Corporation ("CRC"), the major freight railroad in the Northeast. Norfolk Southern Corporation ("NSC") and CSX Corporation ("CSX"), the major railroads in the Southeast, jointly control Conrail through their ownership interests in CRR Holdings LLC ("CRR"), whose primary subsidiary is Green Acquisition Corporation ("Green Acquisition"), which owns Conrail. NSC and CSX have equity interests in CRR of 58% and 42%, respectively, and voting interests of 50% each. Under operating and lease agreements, NSC and CSX operate a substantial portion of the Conrail properties through their railroad subsidiaries, Norfolk Southern Railway Company ("NSR") and CSX Transportation, Inc. ("CSXT")(Note 2). PRINCIPLES OF CONSOLIDATION The consolidated financial statements include Conrail and majority-owned subsidiaries. Investments in 20% to 50% owned companies are accounted for by the equity method. All significant intercompany accounts and transactions have been eliminated. CASH EQUIVALENTS Cash equivalents consist of highly liquid securities purchased with a maturity of three months or less, and are stated at cost which approximates market value. MATERIAL AND SUPPLIES Material and supplies consist of maintenance material valued at the lower of cost or market. PROPERTY AND EQUIPMENT Property and equipment are recorded at cost. Depreciation is provided using the composite straight-line method over estimated service lives. Expenditures, including those on leased assets that extend an asset's useful life or increase its utility, are capitalized. Maintenance expense is recognized when repairs are performed. The cost (net of salvage) of depreciable property retired or replaced in the ordinary course of business is charged to accumulated depreciation and no gain or loss is recognized. In 2003, the overall depreciation rate averaged 3.4% for all roadway and equipment. During 2003, the Company completed a study to update the estimated useful lives of its roadway and track property and the associated accumulated depreciation reserves. This review did not have a material impact on the Company's consolidated financial statements. 7 CONRAIL INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) ASSET IMPAIRMENT Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Expected future cash flows from the use and disposition of long-lived assets are compared to the current carrying amounts to determine the potential impairment loss. NEW ACCOUNTING PRONOUNCEMENTS The Company adopted Financial Accounting Standards Board (FASB) Statement of Financial Accounting Standards (SFAS) No. 143, "Accounting for Asset Retirement Obligations", effective January 1, 2003. Pursuant to SFAS 143, companies are precluded from accruing removal cost expenses that are not legal obligations. Previously, Conrail and most other railroads had accrued removal costs as a component of depreciation expense. In the first quarter of 2003, the Company recorded income of $40 million for the cumulative effect of this change ($65 million before taxes). Effective with this pronouncement, removal cost are expensed as incurred. This change did not have a material impact on the Company's consolidated financial statements. Also in 2003, the FASB issued Interpretation No. 46, "Consolidation of Variable Interest Entities" (FIN 46) which requires that a variable interest entity be consolidated by the company that is subject to a majority of the economic risks and/or rewards of that entity. The FASB delayed until 2004, the implementation of FIN 46 for certain variable entities that existed prior to February 1, 2003. The Company has a fifty percent non-controlling interest in Locomotive Management Services (LMS), an unconsolidated partnership established in 1994, which will likely be consolidated pursuant to FIN 46. LMS, a locomotive leasing venture, had assets totaling $37 million as of December 31, 2003, consisting primarily of depreciable equipment property. Total liabilities as of December 31, 2003 totaled $40 million, including $30 million in long-term debt installments maturing in 2012. If consolidation is required, the impact on the consolidated financial statements will be immaterial -(Note 11). REVENUE RECOGNITION The Company's major sources of revenues are from NSC and CSX, primarily in the form of rental revenues and operating fees, which are recognized when earned (Note 2). Conrail also has third party revenues, which are recognized when earned, related to the operations of Indiana Harbor Belt Railroad Company, a 51% owned terminal railroad subsidiary. 8 CONRAIL INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) USE OF ESTIMATES The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Management reviews its estimates, including those related to the recoverability and useful lives of assets as well as liabilities for litigation, environmental remediation, casualty claims, income taxes and pension and postretirement benefits. Changes in facts and circumstances may result in revised estimates. RECLASSIFICATIONS Certain amounts in the consolidated financial statements and notes thereto have been reclassified to conform to the 2003 presentation. 2. RELATED PARTIES TRANSACTIONS BACKGROUND On May 23, 1997, NSC and CSX completed their joint acquisition of Conrail stock. On June 17, 1997, NSC and CSX executed an agreement that generally outlines the methods of governing and operating Conrail and its subsidiaries ("Transaction Agreement"). On July 23, 1998, the Surface Transportation Board ("STB") issued a written opinion that permitted NSC and CSX to exercise operating control of Conrail beginning August 22, 1998. On June 1, 1999, NSC and CSX began to operate over certain Conrail lines. OPERATIONS BY NSR AND CSXT The majority of CRC's routes and assets are segregated into separate subsidiaries of CRC, Pennsylvania Lines LLC ("PRR") and New York Central Lines LLC ("NYC"). PRR and NYC have separate but identical operating and lease agreements with NSR and CSXT, respectively, (the "Operating Agreements") which govern substantially all nonequipment assets to be used by NSR and CSXT and have initial 25-year terms, renewable at the options of NSR and CSXT for two 5-year terms. Payments made under the Operating Agreements are based on appraised values that are subject to adjustment every six years. NSR and CSXT have also leased or subleased certain equipment assets at rentals based on appraised values for varying term lengths from PRR and NYC, respectively, as well as from CRC. NSC and CSX also have agreements with CRC governing other Conrail properties that continue to be owned and operated by Conrail ("the Shared Assets Areas"). NSR and CSXT pay CRC a fee for joint and exclusive access to the Shared Assets Areas. In addition, NSR and CSXT pay, based on usage, the costs incurred by CRC to operate the Shared Assets Areas plus a profit factor. 9 CONRAIL INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Payments made by NSR to Conrail under the Shared Assets agreements were $135 million and $115 million during 2003 and 2002, respectively, of which $31 million and $23 million, were minimum rents. Payments made by CSXT to Conrail under the Shared Assets agreements were $124 million and $92 million during 2003 and 2002, respectively, of which $24 million and $17 million, were minimum rents. Payments from NSR under the Operating Agreements to PRR amounted to $348 million and $339 million during 2003 and 2002, respectively. Payments from CSXT under the Operating Agreements to NYC amounted to $253 million and $248 million during 2003 and 2002, respectively. In addition, costs necessary to operate and maintain the related assets under these agreements, including leasehold improvements, are borne by NSR and CSXT. Future minimum lease payments to be received from NSR/CSXT are as follows: $ IN MILLIONS
NSR NSR CSXT CSXT TO PRR TO CRC TO NYC TO CRC TOTAL ------- ------- ------- ------- ------- 2004 $ 342 $ 32 $ 237 $ 23 $ 634 2005 321 33 223 24 601 2006 307 34 212 24 577 2007 295 34 205 24 558 2008 290 34 200 24 548 2009 and Beyond 4,128 551 2,740 378 7,797 ------- ------- ------- ------- ------- TOTAL $ 5,683 $ 718 $ 3,817 $ 497 $10,715 ------- ------- ------- ------- -------
RELATED PARTY BALANCES AND TRANSACTIONS "Due from NSR/CSXT" at December 31, 2003 and 2002, is primarily comprised of amounts due for the above-described operating and rental activities. PRR and NYC have interest-bearing notes receivable due from NSC and CSX. As of December 31, 2003, the notes receivable due from NSC and CSX included in noncurrent assets were $716 million and $515 million, respectively. At December 31, 2002, the notes receivable balances from NSC and CSX included in noncurrent assets were $513 million and $379 million, respectively. The interest rates on the notes receivable from NSC and CSX are variable and were both 1.66% at December 31, 2003. Interest income related to the PRR and NYC notes receivable was $16 million in 2003, $18 million in 2002 and $13 million in 2001. 10 CONRAIL INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) "Due to NSC/CSX" includes amounts payable for property and equipment rentals, as well as amounts related to service provider agreements with both NSC and CSX to provide certain general and administrative support to CRC. A summary of the "Due to NSC and CSX" activity for the services described above follows:
$ IN MILLIONS PAYMENTS PAYMENTS TO NSC TO CSX ---------------- ---------------- 2003 2002 2003 2002 ---- ---- ---- ---- Service Provider Agreements $ 7 $ 5 $ 3 $- Material purchases 18 20 -- -- Rental of locomotives, equipment and facilities 5 5 4 4 Capital Project activities 6 5 -- -- --- --- --- --- TOTAL PAYMENTS $36 $35 $ 7 $ 4 --- --- --- --- 2003 2002 2003 2002 --- --- --- --- Due to "NSC and CSX" at December 31 $ 3 $ 7 $ 2 $ 2
From time to time, NSC and CSX, as the indirect owners of Conrail, may need to provide some of Conrail's cash requirements through capital contributions, loans or advances. Through December 31, 2003 there have been no transactions under these arrangements. PROPOSED SPIN-OFF OF PRR AND NYC In June 2003, Conrail together with NSC and CSX, filed a joint petition with the STB to establish direct ownership and control by NSR and CSXT of PRR and NYC, respectively. The proposed transaction would replace the existing operating agreements and allow NSR and CSXT to operate PRR and NYC, respectively, via direct ownership. The proposed transaction does not involve the Shared Assets Areas. The proposed transaction is subject to a number of conditions, including STB approval, an Internal Revenue Service 11 CONRAIL INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (IRS) ruling qualifying it as a nontaxable distribution and obtaining consents from Conrail's debt holders. (In 2003, the IRS issued a ruling that the reorganization would qualify as a tax-free distribution. Also in 2003, the STB granted its authorization to carry out the proposed transaction, subject to certain conditions.) As a part of the proposed transaction, Conrail would undertake a restructuring of its existing unsecured and secured public indebtedness. Currently the Company has two series of unsecured public debentures with an outstanding principal amount of $800 million at December 31, 2003 and 13 series of secured debt with an outstanding principal amount of approximately $321 million at December 31, 2003. It is currently contemplated that guaranteed debt securities of two newly formed corporate subsidiaries of NSR and CSXT would be offered in a 58%/42% ratio in exchange for Conrail's unsecured debentures. Upon completion of the proposed transaction, the new debt securities would become direct unsecured obligations of NSR and CSXT, respectively. Conrail's secured debt and lease obligations will remain obligations of Conrail and are expected to be supported by new leases and subleases which, upon completion of the proposed transaction, would be the direct lease and sublease obligations of NSR or CSXT. Conrail, NS and CSX are working to complete all steps necessary to consummate the spin-off in 2004. A valuation of NYC and PRR will be performed prior to effecting the spin-off transaction. The results of the valuation could impact the carrying value of the assets of NYC and PRR. Upon consummation of the proposed transaction, the Company's primary source of revenue will be related to the operation of the Shared Assets Areas instead of the operating and equipment rental activities of PRR and NYC. The Company's future operating expenses will also reflect this change in operations. Accordingly, the Company's prospective operating results will be significantly different than those currently reported. 3. TRANSITION, ACQUISITION-RELATED AND OTHER ITEMS During the first quarter of 2002 and the fourth quarter of 2001, the Company received cash proceeds totaling $4 million and $42 million respectively, from several London-based insurance carriers as settlement for current and future exposures related to personal injury, occupational, environmental and other claims. The Company recognized pretax gains of $4 million and $14 million, respectively, which is included in the "Casualties and insurance" line item of the income statement for 2002 and 2001. During 2002, accrued termination payments totaling $1 million were made to 6 non-union employees whose non-executive positions were eliminated as a result of the joint acquisition of Conrail. During 2001 accrued termination payments of $15 million were made. Most of these termination 12 CONRAIL INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) payments have been made in the form of supplemental retirement benefits from the Company's pension plan. As of December 31, 2003, the remaining amount of this liability is less than $1 million. During the second quarter of 2001, the Company received a $50 million cash payment for transferring to a third party certain of its rights to license, manage and market signboard advertising on the Company's property for 25 years. The payment is being recognized into other income on a straight-line basis over the 25 year contract period. Also during 2001, the Company made final settlement of a long-term liability related to the non-union Employee Stock Ownership (ESOP) termination, which did not require use of the Company's cash for settlement. The liability, the balance of which was $20 million at December 31, 2000, was settled as the remaining cash proceeds held by the ESOP as a result of selling its ESOP preferred stock in conjunction with the joint acquisition, were allocated to eligible participants. The Company has a long-term liability in connection with employment "change in control" agreements with certain current and former executives, which became operative as a result of the joint acquisition of Conrail. Payments were $4 million in 2003, $1 million in 2002 and $9 million in 2001 and were made primarily from the Company's pension plan. The remaining amount, approximately $24 million at December 31, 2003, will be paid out at the discretion of the participants in the program. 4. PROPERTY AND EQUIPMENT DECEMBER 31, 2003 2002 ------- ------- (IN MILLIONS) Roadway $ 7,400 $ 7,476 Equipment 1,544 1,511 Less: Accumulated depreciation (3,029) (2,828) ------- ------- 5,915 6,159 ------- ------- Capital leases (primarily equipment) 416 496 Accumulated amortization (212) (273) ------- ------- 204 223 ------- ------- $ 6,119 $ 6,382 ======= ======= 13 CONRAIL INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Substantially all assets are leased to NSR or CSXT (Note 2). 5. ACCRUED AND OTHER CURRENT LIABILITIES DECEMBER 31, ----------------- 2003 2002 ---- ---- (IN MILLIONS) Operating leases $ 47 $ 47 Income and other taxes 36 47 Other 26 36 ---- ---- $109 $130 ==== ==== 6. LONG-TERM DEBT AND LEASES LONG-TERM DEBT Long-term debt outstanding, including the weighted average interest rates at December 31, 2003, is composed of the following: DECEMBER 31, ------------------------ 2003 2002 ------- ------- (IN MILLIONS) Capital leases $ 157 $ 192 Debentures payable,7.88%,due 2043 250 250 Debentures payable,9.75%,due 2020 550 550 Equipment and other obligations,6.97% 168 188 ------- ------- 1,125 1,180 Less current portion (58) (57) ------- ------- $ 1,067 $ 1,123 ======= ======= Interest payments were $100 million in 2003, $105 million in 2002 and $113 million in 2001. Equipment and other obligations mature in 2004 through 2043 and are collateralized by assets with a net book value of $208 million at December 31, 2003. Maturities of long-term debt other than capital leases are $21 million in 2004, $20 million in 2005, $21 million in 2006, $43 million in 2007, $18 million in 2008 and $845 million in total from 2009 through 2043. LEASES The Company's noncancelable long-term leases generally include options to purchase at fair value and to extend the terms. Certain lease obligations are payable in Japanese yen, which require the maintenance of yen-denominated deposits sufficient to satisfy the yen-denominated obligation. These deposits are included in the "Other assets" line item of the balance sheet and totaled $43 million and $45 million at December 31, 14 CONRAIL INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 2003 and December 31, 2002, respectively. Capital leases have been discounted at rates ranging from 3.09% to 14.26% and are collateralized by assets with a net book value of $204 million at December 31, 2003. Minimum commitments, exclusive of executory costs borne by the Company, are: CAPITAL OPERATING LEASES LEASES ------- ---------- (IN MILLIONS) 2004 $ 54 $ 58 2005 38 58 2006 25 56 2007 27 55 2008 15 51 2009 - 2025 39 271 ----- ---- Total 198 $549 ==== Less interest portion (41) ----- Present value $ 157 ===== Operating lease rent expense was $60 million in 2003, $62 million in 2002 and $70 million in 2001. 7. INCOME TAXES The provisions for income taxes are composed of the following: 2003 2002 2001 ----- ----- ----- (IN MILLIONS) Current Federal $ 94 $ 81 $ 77 State 11 8 25 ----- ----- ----- 105 89 102 ----- ----- ----- Deferred Federal (21) (20) (22) State 9 11 4 ----- ----- ----- (12) (9) (18) ----- ----- ----- $ 93 $ 80 $ 84 ===== ===== ===== 15 CONRAIL INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Reconciliation of the U.S. statutory tax rates with the effective tax rates is as follows:
2003 2002 2001 ------ ------ ------ Statutory tax rate 35.0% 35.0% 35.0% State income taxes, net of federal benefit 4.24.2 4.2 Settlement of IRS audit -- (5.6) -- Settlement of state tax issues -- -- (3.5) Other (2.9) (2.8) (3.1) ------ ------ ------ Effective tax rate 36.3% 30.8% 32.6% ====== ====== ======
The Company has reached final settlements with the Internal Revenue Service ("IRS") related to all of the audits of the Company's consolidated federal income tax returns through the fiscal year May 23,1997. As a result of the settlement Conrail received tax refunds of $24 million and reduced tax expense by $14 million during 2002. The Company's consolidated income tax returns for the short tax year period May 24, 1997-December 31, 1997 and calender year periods 1998 through 2001 are currently being examined by the IRS. Federal and state income tax payments were $129 million in 2003, $113 million in 2002 and $86 million in 2001. Significant components of the Company's deferred income tax assets (liabilities) are as follows: DECEMBER 31, ------------------------ 2003 2002 ------- ------- (IN MILLIONS) Current assets $ 1 $ 5 Current liabilities 44 60 ------- ------- CURRENT DEFERRED TAX ASSET, NET $ 45 $ 65 ======= ======= Noncurrent liabilities: Property and equipment (1,970) (2,000) Other (117) (112) ------- ------- (2,087) (2,112) ------- ------- Noncurrent assets: Nondeductible reserves and other liabilities 251 290 ------- ------- DEFERRED INCOME TAX LIABILITIES, NET $(1,836) $(1,822) ======= ======= The Company has not recorded a valuation allowance, as management believes that it is more likely than not that the results of future operations will generate sufficient taxable income to realize the deferred tax assets. 16 CONRAIL INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 8. PENSION AND POSTRETIREMENT BENEFITS The Company and its subsidiaries sponsor several qualified and nonqualified pension plans and other postretirement benefit plans for its employees. PENSION PLAN ASSET MANAGEMENT Six investment firms manage the Company's defined benefit pension plan's assets under investment guidelines approved by a pension fund investment committee. Investments are allocated among domestic fixed income investments, and domestic and international equity investments. Limitations restrict investment concentration and use of certain derivative instruments. Fixed income investments must have an average rating of `AA' or better. Equity investments must be in liquid securities listed on national exchanges. However no direct investment is permitted in the securities of either NSC or CSX. Equity investment managers have specific equity strategies and their returns are expected to exceed selected market indices by prescribed margins. The target asset allocation range is for equity allocations to be between 44% and 56% of the fund's assets with approximately 10% of the assets allocated to international equity investments. The asset allocation on December 31, 2003, was 45% in fixed income investments and 55% in equity investments including 13% in international equities. This compared to 54% fixed income and 46% equity including 9% international equity as of December 31, 2002. The plan's assumed future returns are based principally on the asset allocation and the historic returns for the plan's asset classes determined from both the actual plan returns and, over longer time periods, the market returns for those asset classes. 17 CONRAIL INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) MEDICARE CHANGES The Medicare Prescription Drug, Improvement and Modernization Act of 2003 (the Act) was signed into law in December 2003. The Act introduces a prescription drug benefit under Medicare Part D as well as a federal subsidy to sponsors of retiree health care benefit plans that provide a benefit that is at least actuarially equivalent to Medicare Part D. Because significant uncertainties exist regarding the measurement and disclosure requirements of the Act, the FASB has issued staff position No. FAS 106.1, which allows a plan sponsor to recognize or defer accounting for the effects of the Act in their 2003 financial statements. The Company has elected the deferral option and is currently evaluating how the Act may impact its postretirement benefit obligations. Specific authoritative guidance on the accounting for the Act's subsidy is pending, and that guidance, when issued, could require the Company to change previously reported information. The following tables provide a reconciliation of the changes in the plans' benefit obligations and fair value of assets over the two-year period ending December 31, 2003, and a statement of the funded status as of December 31 of both years:
OTHER POSTRETIREMENT PENSION BENEFITS BENEFITS -------------------- -------------------- (IN MILLIONS) 2003 2002 2003 2002 ----- ----- ----- ----- CHANGE IN BENEFIT OBLIGATION Net benefit obligation at beginning of year $ 646 $ 662 $ 37 $ 36 Service cost 1 1 -- -- Interest cost 41 44 2 3 Plan participants' contributions -- -- 4 6 Actuarial losses 32 5 4 2 Benefits paid (65) (66) (10) (10) ----- ----- ----- ----- Net benefit obligation at end of year $ 655 $ 646 $ 37 $ 37 CHANGE IN PLAN ASSETS Fair value of plan assets at beginning of year $ 522 $ 613 $ 7 $ 8 Actual return on plan assets 117 (28) -- 1 Employer contributions 2 3 5 2 Plan participants' contributions -- -- 4 6 Benefits paid (65) (66) (10) (10) ----- ----- ----- ----- Fair value of plan assets at end of year $ 576 $ 522 $ 6 $ 7 Funded status at end of year $ (79) $(124) $ (31) $ (30) Unrecognized prior service cost 7 8 (1) (1) Unrecognized actuarial (gains)losses 168 206 (5) (9) ----- ----- ----- ----- Net amount recognized at year end $ 96 $ 90 $ (37) $ (40) ===== ===== ===== =====
18 CONRAIL INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) The following amounts have been recognized in the balance sheets as of December 31:
OTHER POSTRETIREMENT PENSION BENEFITS BENEFITS -------------------- ------------------- (IN MILLIONS) 2003 2002 2003 2002 ----- ----- ----- ---- Prepaid pension cost $ 131 $ 126 -- -- Accrued benefit cost (214) (257) $ (37) $(40) Intangible asset 7 8 -- -- Accumulated other comprehensive loss 172 213 -- -- ----- ----- ----- ---- $ 96 $ 90 $ (37) $(40) ===== ===== ===== ====
All of the Company's plans for postretirement benefits other than pensions have no plan assets except for the retiree life insurance plan, which has $6 million and $7 million of assets in 2003 and 2002, respectively. The aggregate benefit obligation for the postretirement plans other than pensions was $37 million at, both December 31, 2003 and 2002, respectively. The projected benefit obligation, accumulated benefit obligation and fair value of plan assets for the pension plans with accumulated benefit obligations in excess of plan assets were $648 million, $641 million and $566 million, respectively, as of December 31, 2003 and $639 million, $635 million and $514 million, respectively as of December 31, 2002. As required by Statement of Financial Accounting Standard No. 87 "Employers'Accounting for Pensions", the Company has recorded an additional minimum liability of $179 million and $220 million at December 31, 2003 and December 31, 2002, respectively. The additional liability was partially offset by an intangible asset to the extent of previously unrecognized prior service costs of $7 million at both December 31, 2003 and December 31, 2002. The remaining amounts, $104 million as of December 31, 2003 and $129 million as of December 31, 2002, are recorded as a component of stockholders' equity, net of related tax benefits as "Accumulated Other Comprehensive Loss". 19 CONRAIL INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) The assumptions used in the measurement of the Company's benefit obligation are as follows:
OTHER POSTRETIREMENT PENSION BENEFITS BENEFITS --------------------- --------------------- 2003 2002 2003 2002 ---- ---- ---- ---- FUNDED STATUS: Discount rate 6.25% 6.75% 6.25% 6.75% Rate of compensation increase 5.00% 5.00% 5.00% 5.00% PENSION COST: Discount rate 6.75% 7.25% 6.75% 7.25% Expected return on plan assets 9.00% 9.00% 8.00% 8.00% Rate of compensation increase 5.00% 5.00% 5.00% 5.00%
A 10% annual rate of increase in the per capita cost of covered health care benefits was assumed for 2003, gradually decreasing to 5% by the year 2006. Assumed health care cost trend rates affect amounts reported for the health care plans. The effect of a one percentage point increase and (decrease) in the assumed health care cost trend rate on the accumulated postretirement benefit obligation is $1 million and $(1) million, respectively. The components of the Company's net periodic benefit cost for the plans are as follows:
OTHER POSTRETIREMENT PENSION BENEFITS BENEFITS -------------------------------- ------------------------------- (IN MILLIONS) 2003 2002 2001 2003 2002 2001 ---- ---- ---- ---- ---- ---- Service cost $ 1 $ 1 $ 2 $ -- $ -- $ -- Interest cost 41 44 45 2 3 3 Expected return on assets (52) (62) (66) -- (1) (1) Amortization of: Transition asset -- -- (1) -- -- -- Prior service cost 1 1 1 -- -- -- Actuarial (gain)loss 5 (1) (1) -- -- (1) ---- ---- ---- ---- ---- ---- $ (4) $(17) $(20) $ 2 $ 2 $ 1 ==== ==== ==== ==== ==== ====
20 CONRAIL INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) CONTRIBUTIONS FOR PENSION AND OTHER POSTRETIREMENT BENEFITS The Company expects to contribute approximately $2 million to the pension plans and $3 million to the other postretirement benefit plans in 2004. SAVINGS PLANS The Company and certain subsidiaries provide 401(k) savings plans for union and non-union employees. For the non-union savings plan, the Company matches a portion of employee contributions, subject to the applicable limitations. Savings plan expense related to the non-union savings plan was $1 million in each of the years 2003, 2002 and 2001. There is no Company match provision under the union employee plan except for certain unions, which negotiated a Company match as part of their contract provisions. INCENTIVE COMPENSATION PLANS The Company has an incentive compensation plan for all non-union employees in which employees receive targeted cash awards upon attainment of certain performance criteria established by the Company's Board of Directors. Compensation expense under this plan was $3 million in 2003 and 2002 and $2 million in 2001. The Company also has a long-term incentive plan under which phantom stock options are granted to officers and other key non-union employees. The option price for the phantom shares is equal to the blended fair market value of NSC and CSX common stock at the date of grant. Options will vest one year after grant date and the option term may not exceed ten years. Upon exercise, eligible participants will receive cash payments equal to the appreciation on the composite NSC and CSX common stock fair values. Compensation expense for this plan was $2 million in 2003, less than $1 million in 2002 and $2 million in 2001. 9. STOCKHOLDERS' EQUITY COMMON STOCK On May 23, 1997, the NSC/CSX joint tender offer for the remaining outstanding shares of Conrail's common and preferred stock was concluded, and on June 2, 1997, Conrail became the surviving corporation in a merger with Green Merger Corp. and remained the only subsidiary of Green Acquisition, an entity jointly-owned by NSC and CSX. As a result, the remaining outstanding capital stock of Conrail was acquired by NSC and CSX and Green Acquisition was issued 100 shares of Conrail's common stock. 21 CONRAIL INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) UNDISTRIBUTED EARNINGS OF EQUITY INVESTEES "Retained earnings" includes undistributed earnings of equity investees of $218 million, $199 million and $180 million at December 31, 2003, 2002 and 2001, respectively. 10. OTHER INCOME, NET 2003 2002 2001 ---- ---- ---- (IN MILLIONS) Interest income $ 20 $ 23 $ 21 Rental income 46 45 47 Property sales 7 3 2 Equity in earnings of affiliates 19 19 24 Other, net 4 4 9 ---- ---- ---- $ 96 $ 94 $103 ==== ==== ==== 11. COMMITMENTS AND CONTINGENCIES ENVIRONMENTAL The Company is subject to various federal, state and local laws and regulations regarding environmental matters. CRC is a party to various proceedings brought by both regulatory agencies and private parties under federal, state and local laws, including Superfund laws, and has also received inquiries from governmental agencies with respect to other potential environmental issues. At December 31, 2003, CRC has received, together with other companies, notices of its involvement as a potentially responsible party or requests for information under the Superfund laws with respect to cleanup and/or removal costs due to its status as an alleged transporter, generator or property owner at 37 locations. Due to the number of parties involved at many of these sites, the wide range of costs of possible remediation alternatives, the changing technology and the length of time over which these matters develop, it is often not possible to estimate CRC's liability for the costs associated with the assessment and remediation of contaminated sites. 22 CONRAIL INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Although the Company's operating results and liquidity could be significantly affected in any quarterly or annual reporting period if CRC were held principally liable in certain of these actions, at December 31, 2003, the Company had accrued $61 million, an amount it believes is sufficient to cover the probable liability and remediation costs that will be incurred at Superfund sites and other sites based on known information and using various estimating techniques. The Company anticipates that much of this liability will be paid out over five years; however some costs will be paid out over a longer period. The Company believes the ultimate liability for these matters will not materially affect its consolidated financial condition. The Company spent $5 million in 2003, $6 million in 2002 and $10 million in 2001 for environmental remediation and related costs. In addition, the Company's capital expenditures for environmental control and abatement projects were less than $1 million in each of the years 2001 thru 2003. CASUALTY The Company is involved in various legal actions, principally relating to occupational health claims, personal injuries, casualties and property damage. The casualty claim liability is determined using the aid of an independent actuarial firm based upon claims filed and an estimate of claims incurred but not yet reported. The Company is generally self-insured for casualty claims. Claims in excess of self-insurance levels are insured up to excess coverage limits. While the ultimate amounts of claims incurred are dependent upon future developments, in management's opinion, the recorded liability is adequate to cover expected probable payments. Expense recognized for casualty claims is included in the "Casualties and insurance" line item of the income statement. For 2003, the expense recognized was consistent with actuarial estimates. During both 2002 and 2001, the Company, based on favorable claims development, recognized actuarial determined gains of $16 million and $12 million respectively. LABOR CRC had 1,346 employees at December 31, 2003; approximately 89% of whom are represented by 11 different labor organizations and are covered by 16 separate collective bargaining agreements. These agreements remain in effect until changed pursuant to the Railway Labor Act. The Company was engaged in collective bargaining at December 31, 2003 with labor organizations representing approximately 6% of its labor force. GUARANTEES CRC currently guarantees the principal and interest payments in the amount of $27 million on Equipment Trust Certificates for LMS. In addition, CRC is also contingently liable as guarantor with respect to $3 million of indebtedness for an affiliate company, Triple Crown Services. No liability has been recorded related to these guarantees. 23 CONRAIL INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Also the Company is contingently liable under indemnification provisions related to the sale of tax benefits. This liability is recorded in the "Other liability" line item of the balance sheet and totaled $13 million at both December 31, 2003 and December 31, 2002. 12. FAIR VALUES OF FINANCIAL INSTRUMENTS The fair values of "Cash and cash equivalents," "Accounts receivable," "Notes receivable from NSC/CSX" and "Accounts payable" approximate the carrying values of these financial instruments at December 31, 2003 and 2002. Using current market prices when available, or a valuation based on the yield to maturity of comparable debt instruments having similar characteristics, credit rating and maturity, the total fair value of the Company's long-term debt, including the current portion, but excluding capital leases, is $1,260 million and $1,254 million at December 31, 2003 and 2002, respectively, compared with carrying values of $968 million and $988 million at December 31, 2003 and 2002. 24 -----END PRIVACY-ENHANCED MESSAGE-----


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

		For the fiscal year ended December 26, 2003
OR

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

		For the transition period from to


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

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


Title of each class		Name of exchange on which registered

Common Stock, $1 Par Value		New York Stock Exchange


						Surface			International			Eliminations/
	Rail		Intermodal			Transportation			Terminals			Other(2)			Total


	(Dollars in Millions) (Unaudited)(1)
Operating Revenue	$	6,182	$	1,257		$	7,439		$	226		$	128		$	7,793
		79%		16	%		95	%		3	%		2	%		100	%
Operating Income (Loss)	$	541	$	110		$	651		$	69		$	(94	)	$	626
		86%		18	%		104	%		11	%		(15	)%		100	%


Name and Age		Business Experience During Past 5 Years

Michael J. Ward, 53		Chairman of the Board, President and Chief Executive Officer of CSX, having been elected as Chairman and Chief Executive Officer in January 2003 and as President in July 2002. He has served CSX Transportation, Inc., the Company’s rail subsidiary, as President since November 2000 and as President and Chief Executive Officer since October 2002. Previously, Mr. Ward served CSX Transportation as Executive Vice President — Operations from April through November 2000, as Executive Vice President — Coal Service Group from August 1999 to April 2000, and prior to that as Executive Vice President — Coal and Merger Planning from October 1998 to August 1999.

Andrew B. Fogarty, 58		President and Chief Executive Officer, CSX World Terminals, LLC, since January 2004. Before January 2004, Mr. Fogarty served as Senior Vice President — Corporate Services of CSX since May 2003 and as Executive Vice President — Corporate Services of CSX from July 2001 to May 2003. Before that, he served as Senior Vice President — Corporate Services.

Ellen M. Fitzsimmons, 43		Senior Vice President — Law and Public Affairs since December 2003. Before December 2003, Ms. Fitzsimmons served as Senior Vice President — Law and Corporate Secretary since May 2003 and as Senior Vice President — Law from February 2001 to May 2003. Prior thereto, she served as General Counsel — Corporate.

Clarence W. Gooden, 52		Senior Vice President — Merchandise Service Group, CSX Transportation since 2002. Prior to 2002, Mr. Gooden served as President of CSX Intermodal from 2001 to 2002; Senior Vice President — Coal Service Group from 2000 to 2001; Vice President — System Transportation from 1999 to 2000; Vice President — Transportation Field Operations from 1998 to 1999.


Item No.			Page

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

PART II
	5.	Market for Registrant’s Common Equity and Related Stockholder Matters		6
	6.	Selected Financial Data		8
	7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		9
	7A.	Quantitative and Qualitative Disclosures About Market Risk		38
	8.	Financial Statements and Supplementary Data		39
	9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure		92
	9A.	Controls and Procedures		93

PART III
	10.	Directors and Executive Officers of the Registrant		93
	11.	Executive Compensation		93
	12.	Security Ownership of Certain Beneficial Owners and Management		93
	13.	Certain Relationships and Related Transactions		93
	14.	Principal Accounting Fees and Services		93

PART IV
	15.	Exhibits, Financial Statement Schedules and Reports on Form 8-K		94
Signatures				99


Item 4.	*Submission of Matters to a Vote of Security Holders*


Name and Age		Business Experience During Past 5 Years

Robert J. Haulter, 50		Senior Vice President — Human Resources and Labor Relations since December 2003. Before December 2003, Mr. Haulter served as CSX Senior Vice President — Human Resources since July 2002. Before July 2002, he served CSX Transportation, Inc., as Senior Vice President — Human Resources from May 2002 to July 2002; as Vice President — Human Resources from December 2000 to May 2002; as Assistant Vice President of Operations Support from September 2000 to December 2000; as Assistant Vice President — Strategic Development from November 1999 to September 2000; and as Assistant Vice President — Integration Planning before November 1999.
Oscar Munoz, 44		Executive Vice President and Chief Financial Officer since May 2003. Before May 2003, Mr. Munoz served as Chief Financial Officer and Vice President, Consumer Services, AT&T Corporation, from January 2001 to May 2003; as Senior Vice President — Finance & Administration, Qwest Communications International, Inc. from June to December 2000; as Chief Financial Officer & Vice President, U.S. West Retail Markets from April 1999 to May 2000; and before April 1999 as Controller and Vice President, USWEST Communications, Inc.
Carolyn T. Sizemore, 41		Vice President and Controller of CSX since April 2002. Prior to April 2002, Ms. Sizemore served as Assistant Vice President and Assistant Controller from July 2001 to April 2002; Assistant Vice President Financial Planning from June 1999 to July 2001; and prior to June 1999, as Senior Director — Financial and Strategic Measurement.


Item 5.	*Market for Registrant’s Common Equity and Related Stockholder Matters*



			Quarter

			1st		2nd		3rd		4th

2003
	Dividends		$	0.10	$	0.10	$	0.10	$	0.10
	Common Stock Price:
		High	$	30.85	$	33.16	$	32.99	$	36.29
		Low	$	25.50	$	28.20	$	28.92	$	29.07

2002
	Dividends		$	0.10	$	0.10	$	0.10	$	0.10
	Common Stock Price:
		High	$	41.40	$	37.90	$	36.77	$	30.12
		Low	$	34.81	$	32.41	$	25.75	$	25.09


		2003			2002			2001			2000			1999


		(Dollars in Millions, Except Per Share Amounts)
Earnings from Continuing Operations
Operating Revenue		$	7,793		$	8,152		$	8,110		$	8,191		$	10,375
Operating Expense			7,167			7,025			7,153			7,386			9,802

Operating Income		$	626		$	1,127		$	957		$	805		$	573

Net Earnings from Continuing Operations		$	246		$	424		$	293		$	186		$	32

Earnings Per Share:
	From Continuing Operations	$	1.14		$	2.00		$	1.39		$	0.88		$	0.15
	From Continuing Operations, Assuming Dilution	$	1.14		$	1.99		$	1.38		$	0.88		$	0.15

Financial Position
Cash, Cash Equivalents and Short-term Investments		$	368		$	264		$	618		$	686		$	974
Working Capital Deficit		$	(307	)	$	(665	)	$	(1,023	)	$	(1,231	)	$	(910	)
Total Assets		$	21,745		$	20,951		$	20,801		$	20,548		$	20,828
Long-term Debt		$	6,886		$	6,519		$	5,839		$	5,896		$	6,304
Shareholders’ Equity		$	6,453		$	6,241		$	6,120		$	6,017		$	5,756

Other Data Per Common Share
Cash Dividends		$	0.40		$	0.40		$	0.80		$	1.20		$	1.20
Book Value		$	30.01		$	29.07		$	28.64		$	28.28		$	26.35
Market Price
	High	$	36.29		$	41.40		$	41.30		$	33.44		$	53.94
	Low	$	25.50		$	25.09		$	24.81		$	19.50		$	28.81
Employees — Annual Averages
Rail			32,892			33,468			35,014			35,496			31,952
Other			4,624			6,471			6,446			9,955			16,998

	Total		37,516			39,939			41,460			45,451			48,950


2003	—	Pretax income of $93 million, $57 million after tax, or 26 cents per share, as a cumulative effect of accounting change, representing the reversal of the accrued liability for crosstie removal costs in conjunction with the adoption of SFAS 143, “Accounting for Asset Retirement Obligations.” (See Note 1, Nature of Operations and Significant Accounting Policies)
	—	A charge of $232 million pretax, $145 million after tax in conjunction with the change in estimate of casualty reserves to include an estimate of incurred but not reported claims for asbestos and other occupational injuries to be received over the next seven years. (See Note 10, Casualty, Environmental, and Other Reserves)
	—	A charge of $108 million pretax, $67 after tax to account for the Company entering into two settlement agreements with Maersk that resolved all material disputes pending between the companies arising out of the 1999 sale of the international container-shipping assets. (See Note 18, Commitments and Contingencies).
	—	A charge of $34 million pretax, $21 million after tax as the initial charge for separation expenses related to the management restructuring announced in November 2003. In addition, the Company recorded a credit of $22 million pretax, $13 million after tax related to revised estimates for railroad retirement taxes and the amount of benefits that will be paid to individuals under the $1.3 billion charges for separation plans initially recorded in 1991 and 1992. For the year, the Company has recorded a net restructuring charge of $22 million, $13 million after tax that includes these items and additional separation charges that were included in the third quarter results. (See Note 4, Restructuring)
2002	—	A charge to write-down indefinite lived intangible assets as a cumulative effect of accounting change, which reduced earnings $83 million pretax, $43 million after tax and consideration of minority interest, 20 cents per share (See Note 1, Nature of Operations and Significant Accounting Policies).
2001	—	A charge of $60 million pretax, $37 million after tax to account for the settlement of the 1987 New Orleans tank car fire litigation.
1999	—	A loss on the sale of international container-shipping assets net of a related benefit from discontinuing depreciation of those assets from the date they were classified as “held for disposition.” The net effect of the loss and the depreciation benefit reduced earnings by $360 million pretax, $271 million after tax.
	—	A charge of $55 million pretax, $34 million after tax to recognize the cost of a workforce reduction program at the Company’s rail and intermodal units.
	—	A gain of $27 million pretax, $17 million after tax on the sale of the Company’s Grand Teton Lodge resort subsidiary.


Item 7.	*Management’s Discussion and Analysis of Financial Condition and Results of Operations*


							% Improvement
Key Non-Financial Performance Indicators	2003			2002			(Decline)

Personal Injury Frequency Index (Per 100 Employees)		2.20			1.98			(11	)%
FRA Train Accidents Frequency (Per Million Train Miles)		4.37			3.34			(31	)
Average Velocity, All Trains (Miles Per Hour)		21.1			22.5			(6	)
Average System Dwell Time (Hours)		25.3			23.2			(9	)
Average Total Cars-On-Line		229,926			229,609			—
On-Time Originations		62.0	%		76.4	%		(19	)
On-Time Arrivals		56.9	%		76.9	%		(26	)
Average Recrews (Per Day)		50			26			(92	)%



				Lifts Per Hour
	Port’s %
	of CSXWT							% Improvement
Terminal	Operating Income			2003		2002		(Decline)

Hong Kong, China		62	%		40.4		39.1		3	%
Adelaide, Australia		5	%		22.3		21.6		3	%
Germershiem, Germany		5	%		23.7		25.2		(6	)%
Rio Haina, Dominican Republic		5	%		25.8		26.1		(1	)%


Item 1.	*Business*


	*Surface Transportation*


	CSX Transportation Inc.


	CSX Intermodal Inc.



		Carloads						Revenue

		2003		2002		2001		2003		2002		2001


		(Thousands)						(Dollars in Millions)
Merchandise
	Phosphates and Fertilizer		460		463		441	$	329	$	324	$	306
	Metals		348		319		320		435		401		395
	Forest and Industrial		604		590		596		806		771		777
	Agricultural and Food		457		452		467		660		648		661
	Chemicals		544		542		540		993		964		937
	Emerging Markets		476		424		435		471		398		384

	Total Merchandise		2,889		2,790		2,799		3,694		3,506		3,460
Automotive			529		538		516		853		845		794
Coal, Coke and Iron Ore
	Coal		1,570		1,574		1,722		1,543		1,529		1,671
	Coke and Iron Ore		65		70		77		57		69		68

	Total Coal, Coke and Iron Ore		1,635		1,644		1,799		1,600		1,598		1,739
Other			—		—		—		35		54		89

Total Rail			5,053		4,972		5,114		6,182		6,003		6,082

Intermodal
	Domestic		1,060		982		901		784		696		625
	International		1,170		1,137		1,103		469		476		470
	Other		—		—		—		4		8		17

Total Intermodal			2,230		2,119		2,004		1,257		1,180		1,112

Total Surface Transportation			7,283		7,091		7,118	$	7,439	$	7,183	$	7,194


Type of Obligation	2004		2005		2006		2007		2008		Thereafter		Total


					(Millions of Dollars)
Long-term Debt (see Note 11)(a)	$	426	$	247	$	598	$	1,080	$	615	$	4,291	$	7,257
Operating Leases — Net (see Note 18)(b)		150		138		112		117		98		516		1,131
Agreements with Conrail (see Note 2)(c)		260		247		236		229		224		3,118		4,314
Purchase Obligations (see Note 18)(d)		132		138		166		171		171		1,866		2,644

Total Contractual Obligations	$	968	$	770	$	1,112	$	1,597	$	1,108	$	9,791	$	15,346


Type of Commitment	2004		2005		2006		2007		2008		Thereafter		Total

Unused Lines of Credit (see Note 11)	$	345	$	—	$	1,000	$	—	$	—	$	—	$	1,345
Guarantees (see Note 18)(e)		140		122		98		140		102		240		842
Other		99		14		8		—		—		36		157

Total Other Commitments	$	584	$	136	$	1,106	$	140	$	102	$	276	$	2,344



						Postretirement
		Pension Benefits				Benefits

		2003		2002		2003		2002


		(Dollars in Millions)
Expected Long-term Return on Plan Assets:
	Benefit Cost for Plan Year		8.90%		9.50%		n/a		n/a
	Benefit Obligation at End of Plan Year		8.90%		8.90%		n/a		n/a
Discount Rates:
	Benefit Cost for Plan Year		6.50%		7.25%		5.50%		7.25%
	Benefit Obligation at End of Plan Year		6.00%		6.50%		5.00%		5.50%
Salary Scale Inflation			3.30%		3.30%		3.30%		3.30%


			Page

Report of Independent Certified Public Accountants				40
CSX Corporation
	Consolidated Financial Statements and Notes to Consolidated Financial Statements Submitted Herewith:
		Consolidated Income Statement — Fiscal Years Ended December 26, 2003, December 27, 2002 and December 28, 2001		41
		Consolidated Balance Sheet — December 26, 2003 and December 27, 2002		42
		Consolidated Cash Flow Statement — Fiscal Years Ended December 26, 2003, December 27, 2002 and December 28, 2001		43
		Consolidated Statement of Changes in Shareholders’ Equity — Fiscal Years Ended December 26, 2003, December 27, 2002 and December 28, 2001		44
Notes to Consolidated Financial Statements				45



		For Fiscal Years Ended

		Dec. 26, 2003		Dec. 27, 2002			Dec. 28, 2001


		(Dollars in Millions,
		Except Per Share Amounts)
Operating Income
	Operating Revenue	$	7,793	$	8,152		$	8,110
	Operating Expense		7,167		7,025			7,153

	Operating Income		626		1,127			957
Other Income and Expense
	Other Income		57		41			9
	Interest Expense		418		445			518

Earnings
	Earnings Before Income Taxes		265		723			448
	Income Tax Expense		76		256			155

	Earnings before Cumulative Effect of Accounting Change		189		467			293
	Cumulative Effect of Accounting Change, Net of Taxes		57		(43	)		—

	Net Earnings	$	246	$	424		$	293

Per Common Share
Earnings Per Share:
	Before Cumulative Effect of Accounting Change	$	0.88	$	2.20		$	1.39
	Cumulative Effect of Accounting Change		0.26		(0.20	)		—

	Including Cumulative Effect of Accounting Change	$	1.14	$	2.00		$	1.39

Earnings Per Share, Assuming Dilution:
	Before Cumulative Effect of Accounting Change	$	0.88	$	2.19		$	1.38
	Cumulative Effect of Accounting Change		0.26		(0.20	)		—

	Including Cumulative Effect of Accounting Change	$	1.14	$	1.99		$	1.38

Average Common Shares Outstanding (Thousands)			213,964		212,729			211,668
Average Common Shares Outstanding,
	Assuming Dilution (Thousands)		214,396		213,512			212,409
Cash Dividends Paid Per Common Share		$	0.40	$	0.40		$	0.80



			Fiscal Years Ended

			Dec. 26, 2003			Dec. 27, 2002			Dec. 28, 2001


			(Dollars in Millions)
Operating Activities
Net Earnings			$	246		$	424		$	293
Adjustments to Reconcile Net Earnings to Net Cash Provided:
	Depreciation			643			649			622
	Deferred Income Taxes			119			172			197
	Cumulative Effect of Accounting Change, Net of Tax			(57	)		43			—
	Additional Loss on Sale			108			—			—
	Provision for Casualty Reserves			232			—			—
	Restructuring — Net			22			—			—
	Other Operating Activities			(108	)		(108	)		(13	)
	Changes in Operating Assets and Liabilities:
		Termination of Sale of Receivables		(380	)		—			—
		Accounts Receivable		19			30			7
		Other Current Assets		40			23			(17	)
		Accounts Payable		49			(83	)		(51	)
		Other Current Liabilities		(129	)		(23	)		(211	)

Net Cash Provided by Operating Activities				804			1,127			827

Investing Activities
Property Additions				(1,059	)		(1,080	)		(930	)
Net Proceeds from Divestitures and Sale of Assets				214			—			—
Short-term Investments — Net				68			350			(51	)
Other Investing Activities				(30	)		(45	)		16

Net Cash Used by Investing Activities				(807	)		(775	)		(965	)

Financing Activities
Short-term Debt — Net				(141	)		140			(524	)
Long-term Debt Issued				919			748			962
Long-term Debt Repaid				(500	)		(1,159	)		(266	)
Dividends Paid				(86	)		(86	)		(171	)
Other Financing Activities				(20	)		(5	)		14

Net Cash Provided (Used) by Financing Activities				172			(362	)		15

Net Decrease in Cash and Cash Equivalents				169			(10	)		(123	)
Cash, Cash Equivalents and Short-term Investments
Cash and Cash Equivalents at Beginning of Year				127			137			260

Cash and Cash Equivalents at End of Year				296			127			137
Short-term Investments at End of Year				72			137			481

Cash, Cash Equivalents and Short-term Investments at End of Year			$	368		$	264		$	618

Supplemental Cash Flow Information
Interest Paid — Net of Amounts Capitalized			$	415		$	448		$	509
Income Taxes Paid			$	134		$	44		$	250


		Common									Accumulated
		Shares									Other
		Outstanding		Common		Other		Retained			Comprehensive
		(Thousands)		Stock		Capital		Earnings			Loss			Total


		(Dollars in Millions)
Balance Dec. 29, 2000			212,738	$	213	$	1,467	$	4,337		$	—		$	6,017
Comprehensive Earnings:
	Net Earnings		—		—		—		293			—			293
	Other Comprehensive Income (See Note 13)		—		—		—		—			(45	)		(45	)

	Comprehensive Earnings														248

Dividends			—		—		—		(171	)		—			(171	)
Common Stock Issued (Repurchased) — Net			950		1		25		—			—			26

Balance Dec. 28, 2001			213,688		214		1,492		4,459			(45	)		6,120
Comprehensive Earnings:
	Net Earnings		—		—		—		424			—			424
	Other Comprehensive Income (See Note 13)		—		—		—		—			(273	)		(273	)

	Comprehensive Earnings														151

Dividends			—		—		—		(86	)		—			(86	)
Common Stock Issued (Repurchased) — Net			999		1		55		—			—			56

Balance Dec. 27, 2002			214,687		215		1,547		4,797			(318	)		6,241
Comprehensive Earnings:
	Net Earnings		—		—		—		246			—			246
	Other Comprehensive Income (See Note 13)		—		—		—		—			20			20

	Comprehensive Earnings														266

Dividends			—		—		—		(86	)		—			(86	)
Common Stock Issued (Repurchased) — Net			384		—		32		—			—			32

Balance Dec. 26, 2003			215,071	$	215	$	1,579	$	4,957		$	(298	)	$	6,453


Note 1.	Nature of Operations and Significant Accounting Policies



		Fiscal Years
		Ended

		2003		2002

Merchandise			60%		58%
Automotive			14%		14%
Coal, Coke and Iron Ore			26%		27%
Other			—		1%

	Total		100%		100%


• Phosphates and Fertilizer		• Agricultural and Food
• Metals		• Chemicals
• Forest and Industrial		• Emerging Markets


	•	December 26, 2003

	•	December 27, 2002

	•	December 28, 2001


		December 26,			December 27,			December 28,
		2003			2002			2001


		(Dollars in Millions, Except Per Share Amounts)
Net Earnings (Loss) — As Reported		$	246		$	424		$	293
Add: Stock Based Employee Compensation Expense Included in Reported Net Income — Net of Related Tax Effects			3			4			6
Deduct: Total Stock Based Employee Compensation Expense Determined under the Fair Value Based Method for all Awards — Net of Related Tax Effects			(34	)		(29	)		(19	)

Pro Forma Net Earnings		$	215		$	399		$	280

Earnings (Loss) Per Share:
	Basic — As Reported	$	1.14		$	2.00		$	1.39
	Basic — Pro Forma	$	1.00		$	1.87		$	1.32
	Diluted — As Reported	$	1.14		$	1.99		$	1.38
	Diluted — Pro Forma	$	1.00		$	1.86		$	1.32



			Dec. 31,

			2003		2002


			(Dollars in
			Millions)
Balance Sheet Information:
	Current Assets		$	257	$	300
	Property and Equipment and Other Assets			7,959		7,857

		Total Assets	$	8,216	$	8,157

	Current Liabilities		$	279	$	329
	Long-term Debt			1,067		1,123
	Other Liabilities			2,416		2,479

		Total Liabilities		3,762		3,931
		Stockholders’ Equity		4,454		4,226

		Total Liabilities and Stockholders’ Equity	$	8,216	$	8,157


		Future Minimum Payments

		(Dollars in Millions)
2004		$	260
2005			247
2006			236
2007			229
2008			224
Thereafter			3,118

	Total	$	4,314



		Dec. 26, 2003				Dec. 27, 2002

		Assets		Liabilities		Assets		Liabilities


		(Dollars in Millions)
Productivity/Restructuring Charges		$	79	$	—	$	80	$	—
Employee Benefit Plans			336		—		445		—
Accelerated Depreciation			—		4,047		—		3,812
Other			917		901		741		893

	Total	$	1,332	$	4,948	$	1,266	$	4,705

Net Deferred Tax Liabilities				$	3,616			$	3,439


	Casualty and Other			Separation
	Reserves			Liabilities			Environmental Reserves			Total


	(Dollars in Millions)
Balance Dec. 29, 2000	$	698		$	256		$	41		$	995
Charged to Expense		234			—			1			235
Payments		(271	)		(14	)		(10	)		(295	)

Balance Dec. 28, 2001		661			242			32			935
Charged to Expense		231			—			17			248
Payments		(287	)		(32	)		(14	)		(333	)

Balance Dec. 27, 2002		605			210			35			850
Charged to Expense		307			44			23			374
Changes in Estimate		232			(22	)		—			210
Payments		(280	)		(25	)		(13	)		(318	)

Balance Dec. 26, 2003	$	864		$	207		$	45		$	1,116



	Fiscal Year Ended

	Dec. 26, 2003			Dec. 27, 2002

Asserted Claims:
Open Claims — Beginning of Period		14,278			15,365
New Claims Filed		2,368			2,095
Claims Settled		(3,382	)		(2,877	)
Claims Dismissed		(360	)		(305	)

Open Claims — End of Period		12,904			14,278


			Average Interest
			Rates at
			December 26,			December 26,		December 27,
	Maturity		2003			2003		2002


			(Dollars in Millions)
Convertible Debentures, net of $91 and $97 discount, respectively		2021		1.0	%	$	447	$	467
Notes		2004–2032		6.8	%		5,956		5,285
Equipment Obligations		2004–2015		7.0	%		703		855
Mortgage Bonds		N/A		N/A			—		55
Other Obligations, Including Capital Leases		2004–2010		2.9	%		206		248

Total							7,312		6,910
Less Debt Due Within One Year							426		391

Total Long-Term Debt						$	6,886	$	6,519


	Notional		Fixed
	Amount		Interest			Variable Rate at
Maturity Date	(Millions)		Rate			December 26, 2003

May 1, 2007	$	450		7.45	%		4.42	%
May 4, 2004		300		7.25	%		3.91	%
August 15, 2006		300		9.00	%		6.09	%
May 1, 2032		150		8.30	%		2.76	%
June 22, 2005		50		6.46	%		2.66	%

Total/Average	$	1,250		7.00	%		3.95	%