10-K

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

þ	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the fiscal year ended December 30, 2005
OR
o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the transition period from          to

Commission File Number 1-8022

CSX CORPORATION

(Exact name of registrant as specified in its charter)

Virginia	62-1051971
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
500 Water Street, 15th Floor, Jacksonville, FL (Address of principal executive offices)	32202 (Zip Code)

(904) 359-3200

(Telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Name of exchange on which registered
Common Stock, $1 Par Value	New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act:

None

      Indicate by check mark if the registrant is a well-known seasoned issuer (as defined in Rule 405 of the Securities Act).    Yes þ         No o

      Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.    Yes o         No þ

      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.    o

      Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer or a non-accelerated filer (as defined in Exchange Act Rule 12b-2).

         Large Accelerated Filer    þ Accelerated Filer    o Non-accelerated Filer    o         

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

      On July 1, 2005 (which is the last day of the second quarter and the required date to use), the aggregate market value of the Registrant’s voting stock held by non-affiliates was approximately $7.5 billion (based on the New York Stock Exchange closing price on such date).

      On January 27, 2006, there were 219,431,371 shares of Common Stock outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

      Portions of the Registrant’s Definitive Proxy Statement (the “Proxy Statement”) to be filed with respect to its annual meeting of shareholders scheduled to be held on May 3, 2006.

CSX CORPORATION

FORM 10-K

TABLE OF CONTENTS

Item No.			Page
PART I
1.	Business			3
1A.	Risk Factors			4
1B.	Unresolved Staff Comments			4
2.	Properties			5
3.	Legal Proceedings			7
4.	Submission of Matters to a Vote of Security Holders			7
PART II
5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities			10
6.	Selected Financial Data			12
7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations			14
	• Executive Summary			14
		• 2005 Surface Transportation Highlights and Challenges		14
		• 2006 Expectations		18
		• Risk Factors		20
	• Forward-Looking Statements			23
	• Financial Results of Operations			24
	• Liquidity and Capital Resources			36
	• Schedule of Contractual Obligations and Commercial Commitments			38
	• Off-Balance Sheet Arrangements			38
	• Critical Accounting Estimates			38
7A.	Quantitative and Qualitative Disclosures about Market Risk			47
8.	Financial Statements and Supplementary Data			48
9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure			101
9A.	Controls and Procedures			101
9B.	Other Information			101
PART III
10.	Directors and Executive Officers of the Registrant			102
11.	Executive Compensation			102
12.	Security Ownership of Certain Beneficial Owners and Management			102
13.	Certain Relationships and Related Transactions			102
14.	Principal Accounting Fees and Services			102
PART IV
15.	Exhibits and Financial Statement Schedules			103
Signatures				107
Omnibus Incentive Plan as amended
Restricted Stock Award Certificate
Restricted Stock Award Agreement
Subsidiaries
Consent of Ernst & Young LLP
Consent of Ernst & Young LLP and KPMG LLP
Powers of Attorney
Section 302 Certification of PEO
Section 302 Certification of PFO
Section 906 Certification of PEO
Section 906 Certification of PFO
Unaudited Consolidated Financial Statements

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CSX CORPORATION

PART I

Item 1. Business

      CSX Corporation (“CSX” and, together with its subsidiaries, the “Company”), based in Jacksonville, FL, owns companies providing rail, intermodal and rail-to-truck transload services that combine to form one of the nation’s leading transportation companies, connecting more than 70 ocean, river and lake ports.

Surface Transportation

CSX Transportation Inc.

      CSX’s principal operating company, CSX Transportation Inc. (“CSXT”), operates the largest railroad in the eastern United States with approximately 21,000-mile rail network linking commercial markets in 23 states, the District of Columbia, and the Canadian provinces of Ontario and Quebec.

CSX Intermodal Inc.

      CSX Intermodal Inc. (“Intermodal”), one of the nation’s largest coast-to-coast intermodal transportation providers, is a stand-alone, integrated intermodal company serving customers from origin to destination with its own truck and terminal operations, plus a dedicated domestic container fleet. Containers and trailers are loaded and unloaded from trains, with trucks providing the link between intermodal terminals and the customer.

Surface Transportation Businesses

      The rail and intermodal companies are viewed by the Company on a combined basis as Surface Transportation businesses. Together, they serve four primary lines of business:

•  Merchandise generated approximately 49% of the Company’s total revenue in 2005 with 2.9 million carloads. The Company’s merchandise business is made up of seven market segments: phosphates and fertilizers; metals; forest products; food and consumer; agricultural products; chemicals; and emerging markets. Emerging markets target high-growth business opportunities in specialized markets such as aggregates, processed materials (for example, cement), waste, military cargo, and machinery.

•  Coal, which delivered more than 1.8 million carloads of coal, coke and iron ore to electric utilities and manufacturers in 2005, accounted for approximately 24% of the Company’s total 2005 revenue. The Company serves more than 130 coal mines in nine states, including three of the nation’s top four coal-producing states.

•  Intermodal, as described above, offers a cost advantage over long-haul trucking by combining the better economics of longer hauls provided by rail with the short-haul flexibility of trucks through a network of dedicated terminals across North America. Intermodal accounted for approximately 2.2 million units and 16% of the Company’s total revenue in 2005.

•  Automotive, which serves plants in eight states and delivers both finished vehicles and auto parts, transported 488,000 carloads generating 10% of the Company’s total revenue in 2005.

•  Other revenue, such as demurrage, switching, and other incidental charges, accounted for 1% of the Company’s total 2005 revenue. Demurrage represents charges assessed by railroads for the retention of cars by shippers or receivers of freight beyond a specified period of time. Switching revenue is generated when CSX switches cars between trains for a customer or other railroad.

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Divestitures

International Terminals

      In February 2005, CSX sold its International Terminals business. CSX recognized a gain of $683 million pretax, $428 million after tax, in the fiscal year ended December 30, 2005. These amounts are reported as Discontinued Operations in the Company’s Consolidated Income Statements. All prior activities for this business are presented as Discontinued Operations. (See Note 4. Discontinued Operations.)

Domestic Container Shipping

      In February 2003, CSX conveyed its interest in the Domestic Container-Shipping business. CSX continues to sublease vessels and equipment to this former business through 2014. Due to these continuing obligations, CSX deferred the gain of $127 million pretax and is amortizing it over the 12-year sub-lease term. (See Note 3. Divestitures.)

Financial Information about Operating Segments

      See Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations for operating revenue, operating income and total assets by segment for each of the last three fiscal years.

General

      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. Additionally, the Company has posted its code of ethics on its website.

      The Company has included the CEO and CFO certifications regarding the Company’s public disclosure required by Section 302 of the Sarbanes-Oxley Act of 2002 as Exhibits 31.1 and 31.2 to this report. Additionally, CSX filed with the NYSE the CEO’s certification regarding the Company’s compliance with the NYSE’s Corporate Governance Listing Standards (“Listing Standards”) pursuant to Section 303A.12(a) of the Listing Standards, which was dated May 26, 2005 and indicated that the CEO was not aware of any violations of the Listing Standards by the Company.

      For additional information concerning business conducted by the Company during 2005, see Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations and Item 8. Financial Statements and Supplementary Data — Note 20. Business Segments.

Employees

      The Company’s annual average of employees was approximately 35,000 people in 2005 primarily working to provide transportation services.

      The information set forth in Item 6. Selected Financial Data is incorporated herein by reference.

Item 1A.     Risk Factors

      The information set forth in Item 7. Management Discussion and Analysis of Financial Condition and Results of Operations under the caption “Risk Factors” is incorporated by reference.

Item 1B.     Unresolved Staff Comments

      Not applicable.

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Item 2. Properties

      CSX’s properties primarily consist of track and its related infrastructure, locomotives and freight cars and each category is described below.

     Track and Infrastructure

      Serving 23 states, the District of Columbia, Ontario and Quebec, the CSXT rail network extends from New York, Philadelphia and Boston to the Southeast markets of Atlanta, Miami and New Orleans and to the Midwestern cities of East St. Louis, Memphis and Chicago.

      The Company’s track structure includes main thoroughfares connecting terminals and yards (referred to as mainline track); track within terminals and switching yards; track adjacent to the mainlines used for passing trains; and track connecting the mainline track to customer locations. As of December 30, 2005, the breakdown of these track miles is as follows:

	Track
	Miles
Mainline Track		26,865
Terminals and Switching Yards		9,774
Passing Sidings and Turnouts		1,031
Total		37,670

      In addition to its physical track structure, CSXT operates 36 major yards and terminals, plus a number of smaller facilities. These sites serve as the links between the Company and its local customers and as sorting facilities where shipments are classified and routed to other areas around the nation. CSXT’s train operations are focused around four major transportation networks: the Coal Network, the Southeastern Corridor, the Interstate 90 Corridor, and the Interstate 95 Corridor.

Coal Network

      Coal is used to generate more than half of the electricity in the United States. The CSX coal network connects mining operations in nine states with industrial areas in the Northeast as well as many river, lake and seaport facilities. These routes also support CSXT’s strong and growing utility market in the Southeast.

Southeastern Corridor

      This section of the network runs on the western side of CSXT’s system from Chicago and the Western gateways, through the cities of Atlanta, Nashville and Birmingham to markets throughout the Southeast. The Southeastern Corridor is a vital route for CSXT’s merchandise and Intermodal’s traffic as well as automotive services.

Interstate 90 (I-90) Corridor

      Chicago and metropolitan areas in New York and New England are linked by CSX’s I-90 corridor. Much of this route has two lanes of track side by side (referred to as double mainline track) supporting high-speed intermodal and automotive services. The I-90 corridor is also a primary route for import traffic moving across the country, through Chicago and into the population centers in the Northeast.

Interstate 95 (I-95) Corridor

      Charleston, Jacksonville, Miami and many other cities throughout the growing Southeast are connected to the heavily populated northeastern cities of Baltimore, Philadelphia and New York

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along CSXT’s I-95 corridor. This route is used for certain CSX merchandise business, which primarily includes food and consumer products along with metals and chemicals.

     Locomotives

      CSXT operates more than 3,700 locomotives, of which approximately 500 are under short-term lease arrangements. Freight locomotives are the power used primarily to pull trains. Switching locomotives are used in yards to sort rail cars so that the right rail car gets attached to the right train in order to get it to its final destination. Auxiliary units are typically used to provide extra traction for heavy trains in hilly terrain.

		December 30, 2005
		Owned		Leased		Total		%
Locomotives
	Freight		2,922		462		3,384		89	%
	Switching		217		—		217		6	%
	Auxiliary Units		189		—		189		5	%
	Total		3,328		462		3,790		100	%

     Freight Car Fleet

      CSXT provides specialized equipment to safely deliver freight from the source to distributors or end users:

•  Gondolas support CSXT’s coal and metals markets and provide transport for woodchips and other bulk commodities.

•  Open-top hoppers handle heavy dry bulk commodities that are impervious to weather conditions such as coal, coke, stone, sand, ores and gravel.

•  Flat Cars for shipping intermodal containers and trailers.

•  Box Cars transport commodities that must be protected from the weather, such as paper products, appliances and building materials. Insulated boxcars deliver food products, canned goods, and certain beverages.

•  Covered hoppers have a permanent roof. Lighter bulk commodities such as grain, fertilizer, flour, salt, sugar, clay and lime are shipped in large cars called jumbo covered hoppers. Heavier commodities like cement, ground limestone and glass sand are shipped in small cube-covered hoppers.

•  Other cars on the network include but are not limited to center beam cars for transporting lumber and building products.

		December 30, 2005
		Owned		Leased		Total		%
Freight Cars
	Gondolas		22,174		8,070		30,244		29	%
	Open-top Hoppers		16,354		3,299		19,653		19	%
	Flat Cars		1,053		18,439		19,492		19	%
	Box Cars		13,240		2,737		15,977		16	%
	Covered Hoppers		13,199		3,301		16,500		16	%
	Other Cars		431		1,017		1,448		1	%
	Total		66,451		36,863		103,314		100	%

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      At any point in time, over half of the railcars on the CSXT system are not owned buy CSXT. Examples of these are railcars owned by other railroads, which are interchanged to CSXT; shipper-furnished (“private”) cars, which are generally used only in that shipper’s services; and multi-level railcars. These multi-level railcars are used to transport finished motor vehicles, such as sport utility vehicles and light trucks in bi-level cars, while sedans and smaller automobiles are shipped in try-level cars. Multi-level railcars are used jointly by participating railroads, and the fleet is managed as a nationwide pool to serve the automobile industry. As noted, in certain markets, CSXT uses railcars supplied by railroad customers. For example, chemical shippers typically supply tank cars for the transportation of hazardous and non-hazardous material.

      The information set forth in Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations under the caption “Depreciation Policies Under the Group Life Method”, is incorporated herein by reference.

      The information set forth in Item 8. Financial Statements and Supplementary Data, Note 1. Nature of Operations and Significant Accounting Policies under the caption “Properties”, and Note 10. Properties, is incorporated herein by reference.

Item 3. Legal Proceedings

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

      See Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations under the caption “Critical Accounting Estimates, Casualty, Environmental and Legal Reserves.”

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

      There were no matters submitted to a vote of security holders in the fourth quarter of 2005.

Executive Officers of the Registrant

      Executive officers of CSX are elected by the CSX Board of Directors and generally hold office until the next annual election of officers. There are no family relationships or any arrangement or

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understanding between any officer and any other person pursuant to which such officer was selected. Effective February 23, 2006, the executive officers are as follows:

Name and Age	Business Experience During Past 5 Years
Michael J. Ward, 55	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 also 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, and as Executive Vice President — Coal Service Group from August 1999 to April 2000.
Ellen M. Fitzsimmons, 45	Senior Vice President — Law and Public Affairs of CSX and CSX Transportation, Inc. since December 2003. Before December 2003, Ms. Fitzsimmons served as Senior Vice President — Law and Corporate Secretary from May 2003 and as Senior Vice President — Law from February 2001 to May 2003. Prior thereto, she served as General Counsel — Corporate at CSX.
Clarence W. Gooden, 54	Executive Vice President and Chief Commercial Officer of CSX and CSX Transportation, Inc. since April 2004. Before April 2004, Mr. Gooden served as Senior Vice President — Merchandise Service Group, CSX Transportation, Inc. from 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; and Vice President — System Transportation from 1999 to 2000.
Robert J. Haulter, 52	Senior Vice President — Human Resources and Labor Relations of CSX and CSX Transportation, Inc. since December 2003. Before December 2003, Mr. Haulter served as CSX Senior Vice President — Human Resources from 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; and as Assistant Vice President — Strategic Development from November 1999 to September 2000.

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Name and Age	Business Experience During Past 5 Years
Tony L. Ingram, 57	Executive Vice President and Chief Operating Officer of CSX Transportation, Inc. since March 2004. Before March 2004, Mr. Ingram served as Senior Vice President — Transportation, Network and Mechanical, Norfolk Southern Corporation, from February 2003 to March 2004; and Vice President, Transportation — Operations from March 2000 to February 2003.
Oscar Munoz, 47	Executive Vice President and Chief Financial Officer of CSX and CSX Transportation, Inc. 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; and as Chief Financial Officer & Vice President, U.S. West Retail Markets from April 1999 to May 2000.
Carolyn T. Sizemore, 43	Vice President and Controller of CSX and CSX Transportation, Inc. since April 2002. Prior to April 2002, Ms. Sizemore served CSX as Assistant Vice President and Assistant Controller from July 2001 to April 2002, and as Assistant Vice President, Financial Planning from June 1999 to July 2001.

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CSX CORPORATION

PART II

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Market Information

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

Description of Common and Preferred Stocks

      A total of 300 million shares of common stock is authorized, of which 218,202,519 shares were outstanding as of December 30, 2005. Each share is entitled to one vote in all matters requiring a vote of shareholders. There are no pre-emptive rights. At January 27, 2006, there were 49,859 common stock shareholders of record. Weighted average common shares outstanding used in the calculation of diluted earnings per share was approximately 228 million as of December 30, 2005, and is expected to increase in 2006 due to anticipated stock option exercises and other incentive programs. (See Note 15. Earnings Per Share.)

      A total of 25 million shares of preferred stock is authorized, none of which is currently outstanding.

      The following table sets forth, for the quarters indicated, the dividends declared and the high and low share prices of the Company’s common stock. In 2005, the Company increased dividends by 30% from 10 cents to 13 cents per common share.

			Quarter
			1st		2nd		3rd		4th		Year
2005
	Dividends		$	0.10	$	0.10	$	0.10	$	0.13	$	0.43
	Common Stock Price
		High	$	43.54	$	44.10	$	46.89	$	51.60	$	51.60
		Low	$	36.90	$	38.01	$	42.48	$	42.70	$	36.90
2004
	Dividends		$	0.10	$	0.10	$	0.10	$	0.10	$	0.40
	Common Stock Price
		High	$	36.26	$	33.04	$	34.28	$	40.46	$	40.46
		Low	$	28.80	$	29.28	$	29.96	$	33.09	$	28.80

Issuer Purchases of Equity Securities Information

      As required by SEC Regulation S-K for the quarter ended December 30, 2005, the following table summarizes common shares withheld by CSX on behalf of current and retired employees to

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settle the employee’s minimum statutory tax obligation on the distribution of shares that were formerly deferred and any restricted stock that has vested.

Issuer Purchases of Equity Securities

								(d)
						(c)		Maximum
						Total Number of		Number of
		(a)				Shares		Shares that
		Total		(b)		Purchased as		May Yet Be
		Number of		Average		Part of Publicly		Purchased
		Shares		Price Paid		Announced Plans		Under the Plan
Period		Purchased		per Share		or Programs		or Programs
October			6,318	$	42.07		—		—
	(October 1, 2005 –
	October 28, 2005)
November			3,219		45.78		—		—
	(October 29, 2005 –
	November 27, 2005)
December			1,363		50.44		—		—
	(November 28, 2005
	December 30, 2005)
Total			10,900	$	44.21		—		—

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Item 6. Selected Financial Data

		Fiscal Years Ended
		2005		2004		2003		2002			2001
		(Dollars in millions, except per share amounts)
		(Unaudited)
Earnings from Continuing Operations
Operating Revenue		$	8,618	$	8,040	$	7,573	$	7,916		$	7,853
Operating Expense			7,068		7,040		7,053		6,897			7,003
Operating Income		$	1,550	$	1,000	$	520	$	1,019		$	850
Net Earnings from Continuing Operations		$	720	$	418	$	137	$	410		$	243
Earnings Per Share:
	From Continuing Operations	$	3.33	$	1.95	$	0.64	$	1.93		$	1.15
	From Continuing Operations, Assuming Dilution	$	3.17	$	1.87	$	0.63	$	1.85		$	1.13
	From Cumulative Effect of Accounting Change	$	—	$	—	$	0.26	$	(0.20	)	$	—
	From Cumulative Effect of Accounting Change, Assuming Dilution	$	—	$	—	$	0.25	$	(0.19	)	$	—
Financial Position
Cash, Cash Equivalents and Short-term Investments		$	602	$	859	$	368	$	264		$	618
Total Assets			24,232		24,605		21,760		20,951			20,801
Long-term Debt			5,093		6,248		6,886		6,519			5,839
Shareholders’ Equity			7,954		6,811		6,448		6,241			6,120
Other Data Per Common Share
Cash Dividends		$	0.43	$	0.40	$	0.40	$	0.40		$	0.80
Employees — Annual Averages
Rail			32,033		32,074		32,892		33,468			35,014
Other			3,076		3,833		4,624		6,471			6,446
Total			35,109		35,907		37,516		39,939			41,460

See accompanying Consolidated Financial Statements

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Significant events included in Earnings from Continuing Operations are as follows:

2005 —	CSX repurchased $1.0 billion of outstanding debt. CSX recognized a charge of $192 million pretax, $123 million after tax, to repurchase the debt, which primarily reflects the increase in current market value above original issue value. (See Note 12. Debt and Credit Agreements.)
—	Ohio enacted legislation to gradually eliminate its corporate franchise tax. This legislative change resulted in an income tax benefit of $71 million. (See Note 8. Income Taxes.)
—	CSX updated its assessment of the unasserted liability exposure for asbestos and other claims, which resulted in recognition of a $38 million pretax, $23 million after tax, favorable change in estimate. (See Note 11. Casualty, Environmental, and Other Reserves.)
2004 —	A charge of $71 million pretax, $44 million after tax, was recognized for separation expenses related to the management restructuring at Surface Transportation. (See Note 5. Management Restructuring.)
—	Revenues, operating expenses and after tax income include approximately $63 million, $35 million and $6 million, respectively, representing consolidation of Four Rivers Transportation (“FRT”), a short-line railroad previously accounted for under the equity method, in conjunction with adoption of FASB Interpretation 46, Consolidation of Variable Interest Entities. Net equity earnings of FRT of approximately $4 million were included in other income in 2003.
—	CSX completed a corporate reorganization of Conrail that resulted in the direct ownership of certain Conrail assets by CSXT. This transaction was accounted for at fair value and resulted in a net gain of $16 million after tax, which is included in other income. (See Note 2. Investment In and Integrated Rail Operations with Conrail.)
2003 —	Income of $93 million pretax, $57 million after tax, was recognized 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.)
—	CSX conveyed most of its interest in its domestic container-shipping subsidiary, CSX Lines, to a new venture formed with the Carlyle Group for approximately $300 million in cash and securities. CSX Lines was subsequently renamed Horizon. A deferred pretax gain of approximately $127 million resulting from the transaction is being recognized over the 12-year sub-lease term during which the Company continues to sublease vessels and equipment to Horizon. (See Note 3. Divestitures.)
—	A charge of $232 million pretax, $145 million after tax, was recognized 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 11. Casualty, Environmental, and Other Reserves.)
—	A charge of $108 million pretax, $67 million after tax, was recognized to account for CSX’s 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 19. Commitments and Contingencies.)

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—	A charge of $34 million pretax, $21 million after tax, was recognized as the initial charge for separation expenses related to the management restructuring announced in 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 1991 and 1992 separation plans. The net restructuring charge of $22 million, $13 million after tax includes these items. (See Note 5. Management Restructuring.)
2002 —	A charge of $83 million pretax, $43 million after tax, was recognized to write down indefinite lived intangible assets as a cumulative effect of an accounting change and consideration of minority interest.
2001 —	A charge of $60 million pretax, $37 million after tax, was recognized to account for the settlement of the 1987 New Orleans tank car fire litigation.

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

EXECUTIVE SUMMARY

2005 Surface Transportation Highlights and Challenges

Operating Results

      CSX follows a 52/53 week fiscal reporting calendar. This fiscal calendar allows every quarter to consistently end on a Friday and to be of equal duration (13 weeks). However, in order to maintain this type of reporting calendar, every sixth or seventh year (depending on the Gregorian calendar and when leap year falls), an extra week will be included in one quarter (a 14 week quarter) and, therefore, the full year will have 53 weeks. Fiscal 2004 included 53 weeks while fiscal year 2005 had 52 weeks. All comparisons below utilize these respective years’ reported results.

Revenue

      Surface Transportation’s revenue in 2005 increased by 7% or $578 million to a record $8.6 billion while volume decreased by 2%, or 180,000 units. A portion of this volume decrease was due to the additional week included in fiscal year 2004. Revenue per unit increased by 10%, or $105, of which approximately 50% was due to continued pricing efforts and 50% was due to the Company’s fuel surcharge program and traffic mix.

      Revenue increased across all commodities. A strong industrial economy, coupled with a shortage of rail, truck and barge capacity allowed for substantial price increases within all merchandise groups. While North American automotive production was relatively flat compared to the prior year, automotive revenue and revenue-per-unit benefited from contractual price escalations and higher fuel surcharges recoveries. Coal volumes and revenue improved significantly due to both increased electrical generation by CSXT-served utilities and price increases. The overall competitive position of Intermodal improved compared to the trucking industry due to shortage of truck capacity and higher fuel prices creating a stronger pricing environment for Intermodal services.

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      A detailed discussion of significant factors driving changes in volume and revenue is provided under the caption, “Results of Operations”.

		Years Ended
		52 Weeks			53 Weeks
		2005			2004			$ Change			% Change
		(Dollars in millions, except per share amounts)
Revenue and Expense
	Surface Transportation Revenue	$	8,618		$	8,040		$	578			7	%
Operating Expense
	Labor and Fringe		2,856			2,741			115			4
	Materials, Supplies and Other		1,784			1,759			25			1
	Depreciation		818			702			116			17
	Fuel		783			656			127			19
	Building and Equipment Rent		533			582			(49	)		(8	)
	Inland Transportation		230			280			(50	)		(18	)
	Conrail Rents, Fees and Services		65			256			(191	)		(75	)
	Restructuring Charge — Net		—			71			(71	)		NM
	Provision for Casualty Claims		(38	)		—			(38	)		NM
Surface Transportation Expense			7,031			7,047			(16	)		—
Surface Transportation Operating Income		$	1,587		$	993		$	594			60	%
Operating Ratio			81.6	%		87.6	%

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

NM — not meaningful

Fuel Costs and Fuel Surcharge Program

      Fuel expenses increased 19% to $783 million in 2005, net of $249 million of fuel hedging benefits, due principally to the rising price per gallon of diesel fuel. Fuel hedging activity had a $63 million favorable impact on fuel expense for the fiscal year ended December 31, 2004. The average price per gallon of diesel fuel, including benefits from CSX’s fuel hedging program, was $1.31 in 2005 versus $1.10 in 2004.

      Fuel cost recovery programs are commonly used within the transportation industry. When the cost of fuel exceeds certain thresholds, CSX shares a portion of the increase with its customers through its fuel surcharge program. In 2005, approximately 50% and 31% of CSX’s revenue was subject to fuel surcharges and cost escalation clauses (which include a fuel element), respectively. As existing contracts are renewed or new contracts are executed, CSX is increasing the number of contracts which include fuel surcharge mechanisms.

Operations

      As illustrated in the table below, key service measures show mixed results in 2005. Average train velocity, system dwell and recrew performance declined, while on-time train originations improved compared to the prior year. Cars on line remained essentially flat, indicating that CSXT’s network remained relatively fluid through 2005.

      The Company’s Surface Transportation businesses remained focused on producing continuous improvement through several key initiatives. In 2004, CSXT instituted a new network operating plan called the ONE Plan, which defines CSXT’s scheduled train network and is designed to improve service reliability and efficiency. Although anticipated benefits have not been realized on a sustained

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basis, CSXT believes the ONE Plan benefits will be attained and remains committed to this initiative. Efforts are ongoing to improve plan execution and to refine the operating plan to reflect changing traffic volumes, operating capabilities, and service requirements.

      CSXT is investing to ensure that adequate resources are in place to achieve higher levels of plan execution. CSXT acquired 100 additional locomotives and started implementing a new locomotive plan in late 2005. Locomotive availability and reliability are critical to plan execution. CSXT also hired and trained approximately 2,000 train and engine employees to keep pace with high attrition rates, particularly conductors and engineers. Finally, a two-year program to expand capacity in key corridors commenced in 2005. This expanded capacity will accommodate future growth, improve service reliability and improve efficiency on the targeted corridors.

      Hurricane Katrina, which struck the Gulf Coast in late August, had a significant impact on operations in the latter part of 2005. Approximately 100 miles of CSXT’s infrastructure was destroyed by the storm, effectively severing CSXT’s route to and from the New Orleans gateway. CSXT continued service to customers outside of the storm-affected area by rerouting rail traffic through alternative western gateways, including East St. Louis, IL, Memphis, TN, Birmingham, AL, Mobile, AL, and Montgomery, AL. Rerouted traffic added volume to busy corridors and resulted in additional network congestion, which adversely affected overall train velocity and system dwell. Service to local businesses on the Gulf Coast has been restored and previously rerouted Merchandise trains have returned to the New Orleans gateway. Operations should be normalized to pre-hurricane conditions by the end of the first quarter of 2006. A description of the corresponding financial statement implications is presented below under the caption “Hurricane Katrina”.

RAIL OPERATING STATISTICS(a)

		Fiscal Years Ended
		2005			2004			% Change
Service Measurements	Average Velocity, All Trains (Miles Per Hour)		19.2			20.3			(5	)%
	Average System Dwell Time (Hours)(b)		29.7			28.7			(3	)
	Average Total Cars-On-Line		233,118			233,271			—
	On-Time Originations		51.1	%		49.0	%		4
	On-Time Arrivals		40.1	%		40.9	%		(2	)
	Average Recrews (Per Day)		68			63			(8	)%

(a)	Amounts for 2005 are estimated.
(b)	Beginning in October 2005, the American Association of Railroads adopted a new dwell calculation in an effort to standardize reporting across U.S. railroads. Beginning in 2006 and forward, CSX will adopt this new method.

Safety

      CSXT’s continued efforts to reduce the frequency of personal injuries and train accidents produced significant positive results in 2005. Continued focus on CSXT’s safety leadership and train accident prevention processes produced improvements in both its FRA personal injury frequency index and FRA train accident frequency compared to 2004 results. Both processes use training, awareness, compliance measurement and root cause analysis to prevent incidents and create a safer work environment.

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RAIL OPERATING STATISTICS(a)

		Fiscal Years Ended
		2005		2004		% Change
Service Measurements	FRA Personal Injury Frequency Index (Per 200,000 Man Hours)		1.71		2.29		25	%
	FRA Train Accidents Frequency (Per Million Train Miles)		3.99		4.79		17	%

(a) Amounts for 2005 are estimated.

Hurricane Katrina

      The following table summarizes the financial impact of Hurricane Katrina during 2005: (See Note 6. Hurricane Katrina.)

			Income Statement Impact
											Net
									Insurance		Income
						Deductible			Recoveries		Statement
			Losses			Recognized			Recognized(a)		Impact
			(Dollars in millions)
Capital
	Fixed assets damages		$	(41	)	$	—		$	41	$	—
Business Interruption
	Incremental expenses			(80	)		(8	)		72		(8	)
	Lost profits			(30	)		—			—		(30	)
		Total	$	(151	)	$	(8	)	$	113	$	(38	)

(a)  Amounts recorded as receivables from insurance companies. See tables in Note 6. Hurricane Katrina

      As of December 30, 2005, The Company has collected insurance payments of $70 million. Through February 2006, the Company has collected an additional $50 million in insurance recoveries for a total of $120 million.

Capital Investments

      Surface Transportation capital expenditures totaled $1.1 billion and $960 million for fiscal years 2005 and 2004, respectively.

2005 CSX Corporation Other Items

International Terminals Disposal

      In February 2005, CSX sold its International Terminals business for net cash proceeds of $1,108 billion. CSX recognized a gain of $683 million pretax, $428 million after tax, for the fiscal year ended December 30, 2005. (See Note 4. Discontinued Operations.)

Debt Repurchase

      In June 2005, CSX repurchased $1.0 billion of its publicly-traded notes. The consideration paid for these notes totaled $1.2 billion, including a pretax charge of $192 million for costs to repurchase the debt which primarily reflected the market value above original issue value. CSX used cash on hand to finance this repurchase. During 2005, CSX improved its overall financial position by reducing debt balances from $7.2 billion at December 31, 2004 to $6.0 billion as of December 30,

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2005. Corresponding interest expense benefits associated with lower outstanding debt helped offset rising variable interest rates. See Note 12. Debt and Credit Agreements.

Free Cash Flow

      Free cash flow is considered a non-GAAP financial measure under SEC Regulation G. Management believes, however, that free cash flow is important in evaluating its financial performance and measures an ability to generate cash without incurring additional external financings. Free cash flow is calculated by taking cash provided by operating activities less property additions, other investing activities, and dividends paid plus Conrail free cash flow and proceeds from sale of businesses. Free cash flow should be considered in addition to, rather than a substitute for, cash provided by operating activities. The following table reconciles free cash flow (non-GAAP measure) to cash provided by operating activities (GAAP measure):

		Fiscal Years Ended
		December 30,			December 31,
		2005			2004
		(Dollars in millions)
Free Cash Flow(a)		$	1,030		$	461
Add (Deduct) Items from Consolidated Cash Flow Statements:
	Short-term Investments — Net(b)		33			(247	)
	Dividends Paid		93			86
	Net Cash Used in Investing Activities(c)		36			1,240
Add (Deduct) Items Not Included in Consolidated Free Cash Flow:
	Conrail Free Cash Flow(d)		(103	)		(115	)
	Other Deposits(e)		21			21
Net Cash Provided by Operating Activities		$	1,110		$	1,446

(a)  Free cash flow as of December 30, 2005 includes net cash proceeds (net of taxes paid) from the International Terminals’ disposition of $640 million and net debt repurchase costs of $123 million.

(b)	Short-term Investments — Net represents the net source or (use) of cash resulting from sales and purchases of short-term investments included in the investing section of the Consolidated Cash Flow Statements.
(c)	Net Cash Used in Investing Activities includes property additions offset by net cash proceeds (before taxes paid) from the International Terminals’ disposition of $998 million and other investing items.
(d)	Conrail Free Cash Flow represents CSX’s 42% economic interest which is not consolidated in the CSX amounts.
(e)	Other Deposits are not included in the Company’s Free Cash Flow as these deposits represent assets that are set aside for certain future debt payments.

2006 Expectations

Revenue

      During 2006, CSX expects revenue growth, based in part on continuance of the robust pricing environment experienced in 2005. In addition, the Company expects volume increases of 2-3%. Longer-term, CSX expects average annual revenue growth of 4-6% over the next five years due to

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continued strong transportation demand, the Company’s emphasis on price, and volume growth. Lower contributory traffic will continue to be re-priced or replaced by longer haul, more profitable business. The amount of any revenue and volume increase will depend on several factors:

      Economy: Favorable economic conditions are expected to continue based on the forecasts for key economic indicators such as the gross domestic product, industrial production and overall import levels. Generally, the Company’s revenue is fairly diversified and a large portion is relatively insensitive to significant fluctuations in the general economy. Changes, however, in the macroeconomic environment can impact overall revenue growth.

      Operational Performance: Service is expected to improve with more consistent execution of the network operating plan, which should result in improved average velocity and more reliable service. Consequently, additional volume may be captured as freight car availability increases due to improved asset utilization and reduced transit times.

      Fuel Prices: Because of the fuel surcharge program and cost escalation clauses in long-term contracts, which include a fuel element, a portion of the Company’s revenue varies with the price of fuel. In 2004, CSX suspended entering into new swaps in its fuel hedge program and fuel surcharges became the primary vehicle through which CSX manages fuel price volatility. Consequently, CSX anticipates increases in estimated fuel expenses to approach $100 million in 2006, depending on fluctuations in fuel prices.

Operations

      CSXT expects key operating measurements to improve in 2006 versus the prior year as the initiatives mentioned previously gain momentum, and the emphasis on plan execution continues. Management believes current resource plans are adequate to handle anticipated business levels and to keep the network fluid. CSXT plans to hire approximately 1,860 new train and engine employees, which include locomotive engineers and conductors, to offset anticipated attrition. In addition, CSXT will acquire 100 new high-horsepower locomotives in 2006. Planned capacity and infrastructure investments will also support improved service reliability and volume growth as they are completed throughout the year.

Capital Investments

      The Company continues to invest in its rail infrastructure, locomotives, freight cars and technology to accommodate safe, efficient and reliable train operations. In anticipation of future volume growth in key corridors, the Company plans to make strategic infrastructure investments as profitability targets are met. Investments include locomotives mentioned previously, track and terminal infrastructure expansion such as the Southeastern corridor between Chicago and Florida and the River Line from Albany to New York City. Investments in the Southeastern corridor are intended, among other things, to support Western coal sourcing from the Colorado, Illinois and Powder River basins, consumer goods shipments from West Coast ports and merchandise and automobile shipments. Investments in the River Line are designed to increase long-term capacity for the I-90 corridor between Chicago and New York.

      As a result of these investments and the ongoing needs of the business, the Company expects capital spending of approximately $1.4 billion in 2006 and between $1.3 billion and $1.4 billion in 2007, excluding the impact of Hurricane Katrina.

Free Cash Flow

      CSX will continue to focus on free cash flow in 2006, with a target of approximately $300 million, including approximately $100 million in anticipated insurance recoveries related to Hurricane Katrina.

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Risk Factors

Enterprise Risk Management

      In the provision of transportation services, the Company must identify, manage and mitigate the inherent business risks that are an integral component of the Company’s business activities. Financial risk, legal, regulatory, and compliance issues, operational risk, and workforce planning are primary risks to the Company’s business. In 2005, the Company began implementation of a formal Enterprise Risk Management (“ERM”) program in order to identify, quantify, monitor, and potentially mitigate these risks. ERM is a systematic and ongoing process used to help recognize and manage the critical risks that could impact the Company. ERM assists management’s allocation of financial resources and mitigation efforts and enhances risk oversight by the Board of Directors with oversight by the Board or Board Committees, management is responsible for the development and implementation of risk mitigation policies and directing day-to-day risk management.

      The following important risk factors could have a material adverse effect on the Company’s results of operations, financial condition and liquidity, and could cause those results to differ materially from those expressed or implied in the Company’s forward-looking statements.

Competition

      The Company experiences competition in the form of pricing, service, reliability and other factors from other transportation providers including railroads and motor carriers that operate similar routes across its service area, and to a less significant extent, barges, ships and pipelines. Transportation providers such as motor carriers and barges utilize public rights-of-way that are built and maintained by governmental entities while CSXT and other railroads must build and maintain rail networks using largely internal resources. The Company could be negatively impacted if the scope and quality of these alternative methods of transportation materially increase, or if legislation is passed providing materially greater opportunities for motor carriers with respect to size or weight restrictions.

Operations and Workforce Planning

      In an environment of continued high demand for rail services, CSXT has experienced some network difficulties, including congestion and reduced velocity on its rail system. In addition, changes in demographics, training requirements and the availability of qualified personnel, could each have a negative impact on CSXT’s ability to meet demand for rail service. To meet these challenges, CSXT started implementation of the new network operating plan referred to as the ONE Plan, acquired additional locomotives, started implementing a new locomotive plan, and is hiring and training significant numbers of employees to keep pace with high attrition rates. In 2005, the Company also commenced a two-year program to expand capacity in key corridors. Though these steps have been taken, CSXT cannot be sure that these measures will fully or adequately address the operational issues. The Company also cannot be sure that it will not experience other difficulties related to network capacity, dramatic and unplanned increases in demand for rail service in one or more of our commodity groups, or other events that could have a negative impact on our operational efficiency, any one of which could have a material adverse effect on our results of operations, financial condition, and liquidity.

Employees and Labor Union Relationships

      CSXT considers relations with its unions and union employees generally to be good. Most of CSXT’s employees are represented by labor unions and are covered by collective bargaining agreements. The bargaining agreements contain a moratorium clause that precludes serving new bargaining demands until a certain date. Generally speaking, these agreements are bargained nationally by the National Railway Labor Conference, so all bargaining on agreement changes

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begins at the same time. The round of bargaining that started in 2000 was recently concluded when agreements were reached with all of the unions.

      Most of the moratoriums negotiated in the 2000 round have expired and in November 2004 the parties were free under the collective bargaining agreements to serve new bargaining demands and start a new round of national bargaining. The current status of 2004 negotiations is that CSXT and the other railroads participating in national bargaining are in mediation with eight unions, are bargaining with four other unions and have not started bargaining with one union. The railroads had asked the National Mediation Board for a release from mediation with respect to seven of the eight unions in mediation, but now have informed the National Mediation Board that they are voluntarily withdrawing that request pending a decision in the lawsuit brought by the United Transportation Union which challenges certain aspects of the railroads’ bargaining demands. The outcome of the 2004 round of negotiations is uncertain at this time.

      In the rail industry, negotiations have generally taken place over a number of years and previously have not resulted in any extended work stoppages. The agreements reached in the 2000 round of bargaining will continue to remain in effect until new agreements are reached. The parties are not permitted to either strike or lockout until the Railway Labor Act’s lengthy procedures (which include mediation, cooling-off periods, and the possibility of Presidential intervention) are exhausted.

Environmental Laws and Regulation

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

Fuel Costs

      Fuel costs represent a significant expense of the Company’s Surface Transportation operations. Fuel prices can vary significantly from period to period and significant increases may have a material adverse effect on results of operations. Furthermore, fuel prices and supply are influenced considerably by international political and economic circumstances. A fuel surcharge recovery program is in place with a considerable number of customers. This program has historically permitted the Company’s Surface Transportation businesses to recover a significant portion of increased fuel costs. Despite the fuel surcharge program, the Company could be negatively impacted if a fuel supply shortage were to arise, whether due to OPEC or other production restrictions, lower refinery outputs, a disruption of oil imports or otherwise, and any subsequent price increases could further increase the potential impact.

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Future Acts of Terrorism or War

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

Regulation and Legislation

      The Company is subject to various regulatory jurisdictions, including the Surface Transportation Board (“STB”) of the United States Department of Transportation (“DOT”), the Federal Railroad Administration of DOT and other state and federal regulatory agencies for a variety of economic, health, safety, labor, environmental, tax, legal and other matters. Legislation passed by Congress or regulations issued by these agencies can significantly affect the revenues, costs and profitability of the Company’s business. Moreover, the Company could be negatively affected by failure to comply with applicable laws and regulations. In addition, Congressional efforts to reduce or eliminate funding for Amtrak, if successful, could result in significant costs to CSXT, including, but not limited to: loss of revenue from trackage rights; uncertainty relating to operating agreements; loss of other contractual rights, such as indemnification; adverse network implications, such as potential coordination with numerous state commuter rail agencies; and increased payments into the Railroad Retirement system to supplement lost contributions from Amtrak and its employees.

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

Safety

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

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Severe Weather

      The Company may face severe weather conditions and other natural occurrences, including floods, fires, hurricanes and earthquakes which may cause significant disruptions to the Company’s operations, and result in increased costs and liabilities and decreased revenues. For information on insurance issues resulting from the effects of Hurricane Katrina on the Company’s results of operations, financial position or liquidity, see Note 6. Hurricane Katrina.

FORWARD-LOOKING STATEMENTS

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

•  Expectations as to results of operations and operational improvements;

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

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

•  Future economic, industry or market conditions or performance.

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

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

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

•  Changes in operating conditions and costs or commodity concentrations;

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

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

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

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•  Changes in fuel prices;

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

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

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

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

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

Financial Results of Operations

     2005 vs. 2004 Consolidated Results of Operations

      CSX follows a 52/53 week fiscal reporting calendar. Fiscal year 2005 consisted of 52 weeks ending on December 30, 2005. Fiscal year 2004 consisted of 53 weeks ending on December 31, 2004.

		Consolidated
		52 Weeks			53 Weeks
		2005			2004		$ Change			% Change
		(Dollars in millions)
Operating Revenue		$	8,618		$	8,040	$	578			7	%
Operating Expense
Labor and Fringe			2,864			2,744		120			4
Materials, Supplies and Other			1,828			1,753		75			4
Depreciation			826			711		115			16
Fuel			783			656		127			19
Building and Equipment Rent			510			569		(59	)		(10	)
Inland Transportation			230			280		(50	)		(18	)
Conrail Rents, Fees & Services			65			256		(191	)		(75	)
Restructuring Charge — Net			—			71		(71	)		NM
Provision for Casualty Claims			(38	)		—		(38	)		NM
	Total Operating Expense		7,068			7,040		28			—
Operating Income		$	1,550		$	1,000	$	550			55	%

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

NM — not meaningful

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Operating Revenue

      Operating Revenue increased $578 million for the year ended December 30, 2005 to $8.6 billion, compared to $8.0 billion for the prior year as continued yield management efforts coupled with the Company’s fuel surcharge program drove revenue-per-unit improvements across all major markets.

Operating Income

      Operating Income for the year ended December 30, 2005 increased $550 million to $1.6 billion as a result of increased operating revenue. Operating expenses remained relatively flat compared to the prior year.

Other Income

      Despite the absence of the $16 million net gain after tax related to the Conrail spin-off transaction, Other Income increased $29 million to $101 million for the year ended December 30, 2005, primarily as a result of gains from real estate sales.

Interest Expense

      Interest Expense decreased $12 million to $423 million for the year ended December 30, 2005 compared to the prior year comparable period. In June 2005, CSX repurchased $1.0 billion of its publicly-traded notes. As a result of the debt repurchase, interest expense was reduced. The savings (from June through December) were mostly offset by rising variable interest rates.

Net Earnings

      Earnings from Continuing Operations were $720 million, or $3.17 per diluted share, for the year ended December 30, 2005 compared to $418 million, or $1.87 per diluted share for the prior year.

      Income tax expense increased $97 million to $316 million for the year ended December 30, 2005 as a result of higher Earnings from Continuing Operations. Additionally, the effective income tax rate decreased from 34% in 2004 to 30% in 2005 primarily attributable to legislative changes in Ohio that will gradually eliminate the Ohio corporate franchise tax.

      Income from Discontinued Operations, net of tax, was $425 million, or $1.87 per diluted share, for the year ended December 30, 2005 compared to a loss of $79 million, or 35 cents per diluted share, for the prior year. CSX recognized income of $683 million pretax, $428 million after tax, for the fiscal year ended December 30, 2005 as a result of the sale of its International Terminals’ business. Discontinued Operations for the period ended December 31, 2004, includes International Terminals’ net earnings as well as additional income tax expense of $97 million related to undistributed foreign earnings.

      Net Earnings were $1.1 billion, or $5.04 per diluted share, for the year ended December 30, 2005, compared to $339 million, or $1.52 per diluted share, for the prior year.

25

2004 vs. 2003 Consolidated Results of Operations

      CSX follows a 52/53 week fiscal reporting calendar. Fiscal year 2004 consisted of 53 weeks ending on December 31, 2004. Fiscal year 2003 consisted of 52 weeks ending on December 26, 2003.

		Consolidated
		53 Weeks		52 weeks
		2004		2003		$ Change			% Change
		(Dollars in millions)
Operating Revenue		$	8,040	$	7,573	$	467			6	%
Operating Expense
Labor and Fringe			2,744		2,656		88			3
Materials, Supplies and Other			1,753		1,622		131			8
Depreciation			711		620		91			15
Fuel			656		581		75			13
Building and Equipment Rent			569		565		4			1
Inland Transportation			280		305		(25	)		(8	)
Conrail Rents, Fees & Services			256		342		(86	)		(25	)
Restructuring Charge — Net			71		22		49			223
Provision for Casualty Claims			—		232		(232	)		NM
Additional Loss on Sale			—		108		(108	)		NM
	Total Operating Expense		7,040		7,053		(13	)		—
Operating Income		$	1,000	$	520	$	480			92	%

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

NM — not meaningful

Operating Revenue

      Operating Revenue increased $467 million for the year ended December 31, 2004 to $8.0 billion, compared to $7.6 billion for the prior year primarily due to continued yield management strategies as all major markets showed year-over-year improvement in revenue-per-unit coupled with the Company’s fuel surcharge program.

Operating Income

      Operating Income for the year ended December 31, 2004 increased $480 million to $1.0 billion, compared to $520 million in the prior year. Operating expenses decreased principally due to the absence of charges totaling $340 million taken in 2003 for (1) the Provision for Casualty Claims, and (2) the Additional Loss on Sale.

Other Income

      Other Income decreased $21 million to $72 million for the year ended December 31, 2004, compared to $93 million for the prior year primarily due to a decline in income from real estate and resort operations. This decrease was partially offset by the net gain of $16 million, after tax, related to the Conrail spin-off transaction.

26

Interest Expense

      Interest Expense increased $17 million for the year ended December 31, 2004 compared to the prior year comparable period due to decreased benefits from interest rate swaps and the exchange of Conrail debt as a result of the Conrail spin-off transaction.

Net Earnings

      Earnings from Continuing Operations were $418 million, or $1.87 per diluted share, for the year ended December 31, 2004 compared to $137 million, or 63 cents per diluted share, for the prior year.

      Losses from Discontinued Operations, net of tax, were $79 million, or 35 cents per diluted share, for the year ended December 31, 2004 compared to earnings of $52 million, or 23 cents per diluted share, for the prior year. Discontinued Operations for the period ended December 31, 2004, include International Terminals’ net earnings as well as additional tax expense of $97 million related to undistributed foreign earnings.

      The year ended December 26, 2003 includes an after-tax cumulative effect of accounting change benefit of $57 million, related to the adoption of Statement of Financial Accounting Standard (“SFAS”) 143, Accounting for Asset Retirement Obligations (“SFAS 143”).

      Net Earnings were $339 million, or $1.52 per diluted share, for the year ended December 31, 2004, compared to $246 million, or $1.11 per diluted share, for the prior year.

      The increase in the 2004 effective income tax rate compared to the prior year is primarily attributable to a larger percentage of total pretax earnings being attributable to Conrail equity earnings in 2004 than in 2003. Additionally, 2003 income tax expense was favorably impacted by the cumulative effect of changes in the Company’s deferred effective state income tax rates.

2005 vs. 2004 Rail Results of Operations

      CSX follows a 52/53 week fiscal reporting calendar. Fiscal year 2005 consisted of 52 weeks ending on December 30, 2005. Fiscal year 2004 consisted of 53 weeks ending on December 31, 2004.

		Rail
		52 Weeks			53 weeks
		2005			2004			$ Change			% Change
		(Dollars in millions)
Operating Revenue		$	7,256		$	6,694		$	562			8	%
Operating Expense
Labor and Fringe			2,777			2,663			114			4
Materials, Supplies and Other			1,622			1,540			82			5
Depreciation			779			664			115			17
Fuel			783			656			127			19
Building and Equipment Rent			400			428			(28	)		(7	)
Inland Transportation			(433	)		(421	)		(12	)		3
Conrail Rents, Fees & Services			65			256			(191	)		(75	)
Restructuring Charge — Net			—			67			(67	)		NM
Provision for Casualty Claims			(38	)		—			(38	)		NM
	Total Operating Expense		5,955			5,853			102			2
Operating Income		$	1,301		$	841		$	460			55	%
Operating Ratio			82.1	%		87.4	%
Total Assets		$	23,177		$	22,927

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

NM — not meaningful

27

		Rail Traffic, Revenue and Revenue per Unit
		Volume				Revenue				Revenue Per Unit
		52 Weeks		53 Weeks		52 Weeks		53 Weeks		52 Weeks		53 Weeks
		2005		2004		2005		2004		2005		2004
		Volume (thousands); Revenue (dollars in millions), Revenue Per Unit
		(dollars)
Merchandise
	Phosphates and Fertilizers		444		471	$	351	$	341	$	791	$	724
	Metals		361		380		570		511		1,579		1,345
	Forest Products		439		465		717		681		1,633		1,465
	Food and Consumer		249		245		438		377		1,759		1,539
	Agricultural Products		357		356		550		512		1,541		1,438
	Chemicals		533		564		1,089		1,069		2,043		1,895
	Emerging Markets		505		506		513		504		1,016		996
Total Merchandise			2,888		2,987		4,228		3,995		1,464		1,337
Automotive			488		507		844		835		1,730		1,647
Coal, Coke and Iron Ore
	Coal		1,726		1,659		1,992		1,714		1,154		1,033
	Coke and Iron Ore		83		71		88		66		1,060		930
Total Coal, Coke and Iron Ore			1,809		1,730		2,080		1,780		1,150		1,029
Other			—		—		104		84		—		—
Total Rail			5,185		5,224	$	7,256	$	6,694	$	1,399	$	1,281

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

Operating Revenue

      CSX categorizes rail revenue in three main lines of business: merchandise, automotive and coal, coke and iron ore. Overall revenue increased $562 million, or 8%, to $7.3 billion in 2005 from $6.7 billion in 2004.

Merchandise

      All merchandise markets experienced revenue growth primarily driven by yield improvement efforts and the Company’s fuel surcharge program. Overall merchandise revenue grew 6% to a record $4.2 billion while revenue-per-unit also achieved record levels increasing 9%. Volume declined 3% due to several factors including an additional week included in the fiscal year ended December 31, 2004, impacts of Hurricane Katrina and shedding of low margin traffic. Food and consumer experienced volume growth due to a continued shift of traffic previously handled by trucks to rail and the acquisition of newly finished railcars to other shippers. Despite strong soybean and corn harvests and increased export demand for grain, volume in agricultural products was flat due to declines in processed products such as flour, sweeteners, and vegetable oils. Emerging markets volumes and revenue were negatively impacted by a significant reduction in shipments of high revenue per unit military traffic. While metals volumes decreased by 5%, the pricing environment remained very favorable and resulted in the highest revenue per unit growth within merchandise at 17%.

      Forest products also experienced high revenue per unit increases because of both a favorable pricing environment and a favorable mix shift from short haul low margin traffic towards longer haul more profitable traffic. In addition to production disruption from both Hurricanes Katrina and Rita, chemical volumes were negatively impacted by high natural gas prices and generally high raw materials inventories. Phosphate and fertilizer volumes were down due to high international inventories of phosphates during the first half of the year and several CSX-served plant curtailments

28

or closures during 2005. Both the chemicals and phosphate and fertilizer groups experienced high revenue per unit increases of 8% and 9%, respectively.

Automotive

      Overall volume was down 4% as North American light vehicle production was flat compared to the prior year. However, vehicle production for the Big 3 was unfavorable 6%, including permanent closures of three General Motors plants served by the Company. Growth in new shipments from the newly-opened Hyundai plant in Montgomery, AL continued to partially offset these declines. Revenue-per-unit grew 5% on strong yield management and increases in fuel surcharge rates and coverage resulting in record revenue-per-unit levels. Revenue-per-unit gains more than offset volume weakness and drove overall revenue growth of 1% compared to the prior year.

Coal, Coke & Iron Ore

      Revenues increased by 17% to a record $2.1 billion due to both strong volume growth of 5%, and revenue per unit improvements of 12% driven by a favorable pricing environment and the Company’s fuel surcharge program. Most markets experienced strong demand as utility inventory levels remained below target levels. CSXT also reached a settlement agreement in a rate case that resulted in an additional $17 million of revenue in 2005.

Operating Expense

      Total rail operating expenses increased $102 million, or 2% for the year ended December 30, 2005, compared to 2004.

      Labor and Fringe Expense increased $114 million or 4% compared to the prior year primarily attributable to increases in incentive compensation and the effects of inflation.

      Materials, Supplies and Other expenses increased $82 million, or 5%, primarily due to the effects of inflation, higher reserve requirements for uncollectible accounts, and increased legal fees resulting from the litigation and resolution of certain matters.

      Depreciation expense increased $115 million or 17% compared to the prior year primarily attributable to additional assets received as a result of the Conrail spin-off transaction. The rail segment had property additions of approximately $1.1 billion.

      Fuel expense increased $127 million or 19% in 2005, net of $249 million of fuel hedging benefits, compared to the prior year primarily due to fuel price increases. Fuel hedging activity had a $63 million favorable impact on fuel expense for the fiscal year ended December 31, 2004. The average price per gallon of diesel fuel, including benefits from CSX’s fuel hedging program, was $1.31 in 2005 versus $1.10 in 2004. In addition, the fuel surcharge programs and contractual cost escalation clauses used in most multi-year customer contracts partially offset fuel cost increases.

      Building and Equipment Rent decreased $28 million or 7% in 2005, compared to the prior year, as a result of decreased overall volume and lower locomotive lease expense.

      Inland transportation, which represents Intermodal’s use of the CSXT rail network, decreased $12 million compared to the prior year. The offsetting expense associated with this amount is reflected in Intermodal’s operating expense, and is thus eliminated at the consolidated level.

      Conrail Rents, Fees & Services expense decreased $191 million or 75% in 2005, compared to the prior year, as a result of the Conrail spin-off transaction, which decreased rents paid to Conrail as assets previously leased from Conrail are now owned directly by CSXT. Additionally, Conrail received a tax benefit from the resolution of various federal income tax audit adjustments during 2005, which increases CSX’s equity earnings and offsets Conrail Rents, Fees & Services. (See Note 2. Investment In and Integrated Rail Operations with Conrail.)

29

      Rail operating expense for the fiscal year ended December 30, 2005, included net favorable reserve adjustments of $38 million related to decreasing claim trends. This adjustment is reflected as “Provision for Casualty Claims” in the operating expense detail above. (See Note 11. Casualty, Environmental and Other Reserves.)

      For the fiscal year ended December 31, 2004, the rail business segment recorded expense of $67 million for separation expense, pension and postretirement benefit curtailment charges, stock compensation expense and other related expenses. (See Note 5. Management Restructuring.)

Operating Income

      Operating income increased $460 million to $1.3 billion in 2005, compared to $841 million in 2004 primarily due to an 8% increase in revenue.

2004 vs. 2003 Rail Results of Operations

      CSX follows a 52/53 week fiscal reporting calendar. Fiscal year 2004 consisted of 53 weeks ending on December 31, 2004. Fiscal year 2003 consisted of 52 weeks ending on December 26, 2003.

		Rail
		53 weeks			52 weeks
		2004			2003			$ Change			% Change
		(Dollars in millions)
Operating Revenue		$	6,694		$	6,182		$	512			8	%
Operating Expense
Labor and Fringe			2,663			2,522			141			6
Materials, Supplies and Other			1,540			1,358			182			13
Depreciation			664			579			85			15
Fuel			656			566			90			16
Building and Equipment Rent			428			422			6			1
Inland Transportation			(421	)		(399	)		(22	)		6
Conrail Rents, Fees & Services			256			342			(86	)		(25	)
Provision for Casualty Claims			—			229			(229	)		NM
Restructuring Charge — Net			67			22			45			NM
	Total Operating Expense		5,853			5,641			212			4
Operating Income		$	841		$	541		$	300			55	%
Operating Ratio			87.4	%		91.2	%
Total Assets		$	22,927		$	16,333

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

NM — not meaningful

30

		Rail Traffic, Revenue and Revenue per Unit
		Volume				Revenue				Revenue Per Unit
		53 Weeks		52 Weeks		53 Weeks		52 Weeks		53 Weeks		52 Weeks
		2004		2003		2004		2003		2004		2003
		Volume (thousands); Revenue (dollars in millions), Revenue Per Unit
		(dollars)
Merchandise
	Phosphates and Fertilizers		471		460	$	341	$	329	$	724	$	715
	Metals		380		348		511		435		1,345		1,250
	Forest Products		465		459		681		622		1,465		1,355
	Food and Consumer		245		242		377		351		1,539		1,450
	Agricultural Products		356		363		512		497		1,438		1,369
	Chemicals		564		541		1,069		989		1,895		1,828
	Emerging Markets		506		476		504		471		996		989
Total Merchandise			2,987		2,889		3,995		3,694		1,337		1,279
Automotive			507		529		835		853		1,647		1,612
Coal, Coke and Iron Ore
	Coal		1,659		1,570		1,714		1,543		1,033		983
	Coke and Iron Ore		71		65		66		57		930		877
Total Coal, Coke and Iron Ore			1,730		1,635		1,780		1,600		1,029		979
Other			—		—		84		35		—		—
Total Rail			5,224		5,053	$	6,694	$	6,182	$	1,281	$	1,223

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

Operating Revenue

      CSXT categorizes revenues in three main areas: merchandise, automotive and coal, coke and iron ore. Overall revenues were up $512 million to $6.7 billion in 2004 from $6.2 billion in 2003.

Merchandise

      Merchandise showed strength during 2004 with revenue up 8% on 3% volume growth. All markets showed year-over-year revenue improvement due to pricing, yield management strategies and the Company’s fuel surcharge program. All markets, except agricultural products, experienced increased volumes. Metals realized the most improvement, with 17% revenue growth on 9% volume growth. Strong demand existed across all steel commodity lines as steel production and mill utilization rates were at high levels. Forest products revenue grew 9% on 1% volume growth as a result of strength in panel and lumber markets driven by strong residential construction. Food and consumer revenues grew 7% on 1% volume growth. Food and consumer and forest products volumes were favorable year-over-year primarily due to the 53 week fiscal reporting calendar in 2004. Chemicals revenue grew 8% on 4% volume growth driven by strong customer demand and a rebound in U.S. chemical exports. Emerging markets revenues grew 7% on 6% volume growth, largely driven by strength in aggregates, cement, lime and fly ash. New industrial development is helping serve off — rail markets. Phosphate and fertilizer revenues grew 4% on 2% volume growth. Fertilizer production levels were mixed as high fertilizer prices and hurricane disruptions caused curtailments in production. Although ethanol shipments contributed to growth in agricultural products, revenue increased 3% on declining volume due to a decline in export and bean markets.

31

Automotive

      Volumes declined largely due to a 100,000 unit year-over-year decrease in North American light vehicle production. Downtime at CSXT-served plants also contributed to volume weakness. Price increases drove improvements in revenue-per-unit.

Coal, Coke and Iron Ore

      Coal, coke and iron ore revenue increased 11% on 6% volume growth. All lines of business reflect year-over-year revenue-per-unit improvements. Volume growth was driven by gains in export, metallurgical and utility markets. Strength in exports was due to high demand primarily related to Asian steel market needs.

Other

      Other revenue for the fiscal year 2004 includes $63 million for FRT, a short-line railroad consolidated in 2004 pursuant to Financial Accounting Standards Board (“FASB”) Interpretation 46 Consolidation of Variable Interest Entities. Prior to 2004, FRT was accounted for under the equity method.

Operating Expense

      Total rail operating expenses increased $212 million, or 4% for the year ended December 31, 2004, compared to 2003.

      Labor and Fringe Expense increased $141 million or 6% compared to the prior year primarily attributable to the effects of inflation, consolidation of FRT and increases in incentive compensation plan and pension costs. These costs were partially offset by benefits realized from reduced staffing levels.

      Materials, Supplies and Other expenses increased $182 million, or 13%, year-over-year primarily due to increased maintenance and crew travel costs, property and sales taxes, coupled with higher track, locomotive, car repair and other costs. Additionally, due to the adoption of SFAS 143 as discussed below, depreciation expense has been decreased and materials, supplies and other expense increased to account for the discontinuance of the accrual of cross-tie removal as a component of depreciation expense.

      Depreciation expense increased $85 million or 15% compared to the prior year primarily attributable to assets received as a result of the Conrail spin-off transaction. The rail segment had property additions of approximately $1 billion, but the additional depreciation was offset by the reduction in depreciation associated with the adoption of SFAS 143. In conjunction with the group-life method of accounting for asset costs, CSXT 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 Materials, Supplies and Other expense.

      Fuel expense increased $90 million or 16% in 2004, net of $63 million of fuel hedging benefits, compared to the prior year primarily due to fuel price increases, while increased volumes were also a factor. The average price per gallon of diesel fuel, including benefits from CSX’s fuel hedging program, was $1.10 in 2004 versus $0.96 in 2003. In addition, the fuel surcharge programs and contractual cost escalation clauses used in most multi-year customer contracts partially offset fuel cost increases.

      Building and Equipment Rent remained relatively consistent year-over-year with the slight increase in 2004 resulting from unfavorable asset utilization.

      Inland transportation, which represents Intermodal’s use of the CSXT rail network, reduced operating expense by $22 million or 6% year-over-year. The offsetting expense associated with this amount is reflected in Intermodal’s operating expense, and thus eliminates at the consolidated level.

32

      Conrail Rents, Fees & Services expense decreased $86 million or 25% in 2004, compared to the prior year, as a result of the Conrail spin-off transaction, which decreased rents paid to Conrail as assets previously leased from Conrail are now owned directly by CSXT. (See Note 2. Investment In and Integrated Rail Operations with Conrail.)

      For the fiscal year ended December 31, 2004, the rail business segment recorded expense of $67 million for separation expense, pension and postretirement benefit curtailment charges, stock compensation expense and other related expenses. (See Note 5. Management Restructuring.)

      Rail operating expense for the fiscal year ended December 26, 2003, included a charge of $229 million recorded in conjunction with CSXT’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 operating expense detail above. (See Note 11. Casualty, Environmental and Other Reserves.)

Operating Income

      Operating income increased $300 million to $841 million in 2004, compared to $541 million in 2003 primarily due to an 8% increase in revenue coupled with the absence of $229 million provision for casualty claims, offset by $67 million of management restructuring charges and other expense increases as previously discussed.

2005 vs. 2004 Intermodal Results of Operations

      CSX follows a 52/53 week fiscal reporting calendar. Fiscal year 2005 consisted of 52 weeks ending on December 30, 2005. Fiscal year 2004 consisted of 53 weeks ending on December 31, 2004.

		Intermodal
		52 Weeks			53 Weeks
		2005			2004			$ Change			% Change
		(Dollars in millions)
Operating Revenue		$	1,362		$	1,346		$	16			1	%
Operating Expense
Labor and Fringe			79			78			1			1
Materials, Supplies and Other			200			219			(19	)		(9	)
Depreciation			39			38			1			3
Building and Equipment Rent			133			154			(21	)		(14	)
Inland Transportation			663			701			(38	)		(5	)
Restructuring Charge — Net			—			4			(4	)		NM
	Total Operating Expense		1,114			1,194			(80	)		(7	)
Operating Income		$	248		$	152		$	96			63	%
Operating Ratio			81.8	%		88.7	%
Total Assets		$	305		$	313

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

NM — not meaningful

33

		Intermodal Traffic, Revenue and Revenue-per-Unit
		Volume				Revenue				Revenue Per Unit
		52 Weeks		53 Weeks		52 Weeks		53 Weeks		52 Weeks		53 Weeks
		2005		2004		2005		2004		2005		2004
		Volume (thousands); Revenue (dollars in millions), Revenue per unit (dollars)
Intermodal
	Domestic		891		1,028	$	738	$	795	$	828	$	773
	International		1,274		1,278		499		501		392		392
	Other		—		—		125		50		—		—
Total Intermodal			2,165		2,306	$	1,362	$	1,346	$	629	$	584

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

Operating Revenue

      Intermodal revenue improved 1% due to higher fuel surcharge rates, customer coverage and continued emphasis on multiple ancillary charges, including premise use and per diem charges related to asset utilization. In the domestic market, continued focus on longer hauls in higher density lanes coupled with sustained strength in pricing increased revenue per unit by 7%. Overall, domestic volumes were down compared to the prior year due to ongoing yield management efforts. Strong demand from the parcel sector partially offset volume declines and increased revenue. International volumes and revenue remained flat compared to the prior year. Pricing initiatives were offset by a reduction in long-haul shipments from the west coast. The shift of traffic to east coast ports caused an increase in shorter-haul moves, which negatively impacted revenue per unit.

Operating Expense

      Intermodal expenses decreased 7% compared to the prior year due to continued service improvements, an emphasis on equipment utilization, and decrease in volume as discussed above. A decline in trucking expenses associated with line-haul moves led to a significant decrease in operating costs associated with a reduction in services. Several productivity initiatives within terminal operations generated efficiencies driving per-unit cost reductions compared to the prior year.

34

2004 vs. 2003 Intermodal Results of Operations

      CSX follows a 52/53 week fiscal reporting calendar. Fiscal year 2004 consisted of 53 weeks ending on December 31, 2004. Fiscal year 2003 consisted of 52 weeks ending on December 26, 2003.

		Intermodal
		53 Weeks			52 Weeks
		2004			2003			$ Change		% Change
		(Dollars in millions)
Operating Revenue		$	1,346		$	1,264		$	82		6	%
Operating Expense
Labor and Fringe			78			73			5		7
Materials, Supplies and Other			219			214			5		2
Depreciation			38			32			6		19
Building and Equipment Rent			154			147			7		5
Inland Transportation			701			688			13		2
Restructuring Charge — Net			4			—			4		NM
	Total Operating Expense		1,194			1,154			40		3
Operating Income		$	152		$	110		$	42		38	%
Operating Ratio			88.7	%		91.3	%
Total Assets		$	313		$	400

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

NM — not meaningful

		Intermodal Traffic, Revenue and Revenue Per Unit
		Volume				Revenue				Revenue Per Unit
		53 Weeks		52 Weeks		53 Weeks		52 Weeks		53 Weeks		52 Weeks
		2004		2003		2004		2003		2004		2003
		Volume (thousands); Revenue (dollars in millions), Revenue Per Unit
		(dollars)
Intermodal
	Domestic		1,028		1,060	$	795	$	784	$	773	$	740
	International		1,278		1,170		501		469		392		401
	Other		—		—		50		11		—		—
Total Intermodal			2,306		2,230	$	1,346	$	1,264	$	584	$	567

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

Operating Revenue

      Intermodal revenue improved 6% on a 3% volume increase due to strength in most business commodities. Strong gains in truck brokerage continued with the implementation of deal space technology, which is incorporated into the broader Pegasus system. Deal space technology is designed as a pricing, scheduling and capacity reservation system and provides CSX Trucking solicitors real-time information on costs, competitive prices, preferred routes and service. The parcel and international sectors also continued to show year-over-year strength. The parcel group showed improvement in most markets while international volume gains were based on general import growth. The domestic channel did not experience year-over-year growth due to Intermodal’s Network Simplification Initiative which led to overall service improvements across the network, limited some terminals to containers only and improved the profitability of the traffic.

35

Operating Expense

      Intermodal operating expense increased $40 million compared to the prior year due primarily to increases in volume and inflationary factors. Operating income increased to $152 million in 2004, compared to $110 million in the prior year, a 38% improvement.

Liquidity and Capital Resources

Cash and Cash Equivalents

      Cash and cash equivalents decreased $213 million to $309 million at December 30, 2005, from $522 million at December 31, 2004. The decrease in cash is primarily due to the net effect of total consolidated debt repaid of $1.3 billion (see Debt Repurchase below) offset by the net cash proceeds from the sale of CSX’s International Terminals business of $1.1 billion.

Debt Repurchase

      In June 2005, CSX repurchased $1.0 billion of its publicly-traded notes. The total consideration paid for these notes totaled $1.2 billion, which includes a pretax charge of $192 million for costs to repurchase the debt which primarily reflects the market value above original issue value. CSX used cash proceeds from the disposition of CSX’s International Terminals business to finance this repurchase. During 2005, CSX improved its overall financial position by reducing debt balances from $7.2 billion at December 31, 2004 to $6.0 billion as of December 30, 2005. As a result of the debt repurchase, CSX expects interest expense savings of approximately $68 million per year. However, these savings will be offset by rising short-term interest rates associated with $1.1 billion of variable rate debt which terms are based on LIBOR. (See Note 12. Debt and Credit Agreements.)

Convertible Debentures

      In October 2005, holders had the option to require CSX to purchase their debentures at a purchase price equal to the accreted value of $852.48 per $1,000 principal amount at maturity. As a result, CSX purchased an immaterial aggregate principal amount at maturity of the debentures with cash on hand. The debentures allow holders to require CSX 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 at the time. The debentures are classified in Current Maturities of Long-term Debt in the Consolidated Balance Sheets.

Debt Issuances

      In August 2004, CSX issued $300 million of floating rate notes with a maturity date of August 3, 2006. The notes bear interest at a rate that varies with LIBOR plus an applicable spread. These notes are not redeemable prior to maturity.

Operating Activities

      Cash provided by operations in 2005 was $1.1 billion, compared to $1.4 billion for 2004. Earnings from Continuing Operations were substantially higher than the previous year. However, the Company made significant tax payments attributable to these higher earnings as well as related taxes paid on the sale of CSX’s International Terminals business in 2005.

Investing Activities

      Net cash used by investing activities was $36 million in 2005 compared to $1.2 billion in 2004. Included in investing activities is cash spent for capital additions of $1.1 billion and $1.0 billion in 2005 and 2004 respectively. Offsetting the cash spent in 2005, are the net cash proceeds from the disposition of CSX’s International Terminals business.

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Financing Activities

      Financing activities used cash of $1.3 billion during 2005 compared to providing cash of $20 million during 2004 primarily as a result of the debt repurchase completed in June 2005, and an increase in dividends paid, which was partially offset by the proceeds from the exercise of stock options.

Dividends

      CSX paid $93 million, $86 million, and $86 million in dividends in fiscal years 2005, 2004 and 2003, respectively. The increase in 2005 is a result of the Company increasing dividends by 30%, in the fourth quarter, from 10 cents to 13 cents per share.

Working Capital

      The Company’s working capital at December 30, 2005 was a deficit of $607 million, compared to a deficit of $314 million at December 31, 2004, primarily driven by reductions in cash and cash equivalents and short-term investments combined with the absence of net assets from CSX’s former International Terminals business. A working capital deficit is not unusual for the Company and other railroads 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 anticipated obligations arising from legal, tax and other regulatory rulings.

Credit Facilities

      CSX has a $1.2 billion five-year unsecured revolving credit facility expiring in May 2009 and a $400 million 364-day unsecured revolving credit facility expiring in May 2006. The facilities were entered into in May 2004 and May 2005, respectively, on terms substantially similar to the facilities they replaced. Generally, these facilities may be used for general corporate purposes, to support CSX’s commercial paper, and for working capital. Neither of the credit facilities was drawn on as of December 30, 2005. Commitment fees and interest rates payable under the facilities are similar to fees and rates available to comparably rated investment-grade borrowers. In 2005, CSX paid approximately $2 million for total fees associated with the undrawn facility. These credit facilities allow for borrowings at floating (LIBOR-based) rates, plus a spread, depending upon CSX’s senior unsecured debt ratings. At December 30, 2005, CSX was in compliance with all covenant requirements under the facilities.

Stock Repurchases

      The Board of Directors has authorized CSX to purchase shares of its common stock from time to time in an amount up to approximately $150 million in any fiscal year. Pursuant to this authority, CSX intends to purchase shares of CSX common stock in the open market or in privately negotiated transactions.

Credit Ratings

      As of December 30, 2005, CSX’s long-term unsecured debt obligations were rated BBB and Baa2 by Standard and Poor’s and Moody’s Investor Service, respectively. In May 2005, Standard and Poor’s raised CSX’s short-term rating from A-3 to A-2 and revised the outlook from negative to stable. In July 2004, Moody’s Investor Service reaffirmed CSX’s short and long-term unsecured debt ratings, but adjusted the outlook from stable to negative. CSX’s short-term commercial paper program is rated A-2 and P-2 by Standard and Poor’s and Moody’s Investor Service, respectively. If CSX’s long-term unsecured bond ratings were reduced to BBB- and Baa3, its undrawn borrowing costs under the $1.2 billion and $400 million revolving credit facilities would not materially increase. If CSX’s short-term commercial paper ratings were reduced to A-3 and P-3, it would increase CSX’s

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borrowing costs in the commercial paper market and reduce its access to this source of funds because of the more limited demand for lower rated commercial paper. CSX had no commercial paper outstanding at December 30, 2005 or December 31, 2004.

Shelf Registration Statements

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

Schedule of Contractual Obligations and Commercial Commitments

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

Type of Obligation	2006		2007		2008		2009		2010		Thereafter		Total
	(Dollars in millions)(Unaudited)
Long-term Debt (See Note 12)	$	1,016	$	595	$	633	$	296	$	94	$	3,474	$	6,108
Operating Leases — Net (See Note 19)		176		165		120		87		75		264		956
Agreements with Conrail (See Note 2)		18		18		16		13		9		17		91
Purchase Obligations (See Note 19)		397		423		342		338		353		5,855		7,708
Total Contractual Obligations	$	1,607	$	1,201	$	1,111	$	734	$	531	$	9,610	$	14,863

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

Type of Obligation	2006		2007		2008		2009		2010		Thereafter		Total
	(Dollars in millions)(Unaudited)
Unused Lines of Credit (See Note 12)	$	400	$	—	$	—	$	1,200	$	—	$	—	$	1,600
Guarantees (See Note 19)		21		22		16		16		16		26		117
Other		43		15		—		1		—		1		60
Total Other Commitments	$	464	$	37	$	16	$	1,217	$	16	$	27	$	1,777

Off-Balance Sheet Arrangements

      There are no off-balance sheet arrangements that are reasonably likely to have a material effect on the Company’s financial condition, results of operations or liquidity.

Investment In and Integrated Rail Operations with Conrail

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

Critical Accounting Estimates

      The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires that management make estimates in reporting the amounts of certain assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of certain revenues and expenses during the reporting

38

period. Actual results may differ from those estimates. Consistent with the prior year, significant estimates using management judgment are made for the following areas:

•  Casualty, Environmental and Legal Reserves

•  Pension and Postretirement Medical Plan Accounting

•  Depreciation Policies for Assets Under the Group-Life Method

•  Income Taxes

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

Casualty, Environmental and Legal Reserves

Casualty

      Casualty reserves represent accruals for personal injury and occupational injury claims. Currently, none of these claims are covered by insurance since no individual claim value is expected to exceed the Company’s self-insured retention amount. Personal injury and occupational claims are presented on a gross basis in accordance with SFAS 5, Accounting for Contingencies (“SFAS 5”). To the extent the value of an individual claim were to exceed the self-insured retention amount, CSX would present the liability on a gross basis with a corresponding receivable for insurance recoveries. Most of the claims are related to CSXT unless otherwise noted.

Personal Injury

      CSXT retains an independent actuarial firm to assist management in assessing the value of CSXT’s claims and cases. An analysis is performed by the independent actuarial firm semi-annually and is reviewed by management. The methodology used by the actuary includes a development factor to reflect growth or reduction in the value of CSXT’s personal injury claims. This methodology is based largely on CSXT’s historical claims and settlement activity. Actual results may vary from estimates due to the type and severity of the injury, costs of medical treatments, and uncertainties in litigation.

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

Occupational

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

Occupational — Asbestos

      The Company is party to a number of occupational claims by employees alleging exposure to asbestos in the workplace. The heaviest possible exposure for employees was due to work conducted in and around steam locomotive engines that were phased out in the 1950’s, according to rail industry statistics. However, other types of exposures, including exposure from locomotive component parts and building materials, continued until it was substantially eliminated by 1985.

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      Asbestos claim filings against the Company have been inconsistent. Accordingly, while the Company had concluded that a probable loss had occurred, prior to 2003 it did not believe it could estimate the range of reasonably possible loss because of the lack of experience with such claims and the lack of detailed employment records for the population of exposed employees. Claim filings increased and when they continued into 2003, the Company concluded that an estimate for incurred but not reported (“IBNR”) asbestos exposure liability needed to be recorded. Currently, there is recurring pending legislation regarding the establishment of an asbestos liability trust fund. The impact to the Company of this pending legislation is unknown at this time.

2003 Provision for Asbestos Change in Estimate

      In 2003, the Company changed its estimate of asbestos reserves to include an estimate of IBNR claims and retained a third party specialist who has extensive experience in performing asbestos and other occupational studies to assist in this estimate. The analysis is performed by the specialist semi-annually and is reviewed by management. The objective of the analysis is to determine the number of estimated IBNR claims and the estimated average cost per claim to be received over the next seven years. Seven years was determined by management to be the time period in which probable claim filings and claim values could be estimated with more certainty.

      The Company, with the assistance of the third party specialist, first determined its potentially exposed population from which it was able to derive the estimated number of IBNR claims. The estimated average cost per claim was then determined utilizing recent actual average cost per claim data and national industry data. Based on the assessment, in September 2003 the Company recorded an undiscounted $141 million pre-tax charge for unasserted asbestos claims. Key elements of the assessment included the following:

•  An estimate was computed using a ratio of Company employee data to national employment for select years during the period 1938-2001. The Company used railroad industry historical census data because it did not have detailed employment records in order to compute the population of potentially exposed employees.

•  The projected incidence of disease was estimated based on epidemiological studies using employees’ age and the duration and intensity of potential exposure while employed.

•  An estimate of the future anticipated claims filing rate by type of disease (non-malignant, cancer and mesothelioma) was computed using the Company’s average historical claim filing rates for a 2-year calibration period (i.e. the years management felt were representative of future filing rates).

•  An estimate of the future anticipated dismissal rate by type of claim was computed using the Company’s historical average dismissal rates observed for two years.

•  An estimate of the future anticipated settlement by type of disease was computed using the Company’s historical average of dollars paid per claim for pending and future claims using the average settlement by type of incident observed during a 3-year time period.

      From these assumptions, the Company projected the incidence of each type of disease to the estimated population to determine the total estimated number of employees that could potentially assert a claim. Historical claim filing rates were applied for each type of disease to the total number of employees that could potentially assert a claim to determine the total number of anticipated claim filings by disease type. Historical dismissal rates, which represent claims that are closed without payment, were deducted to calculate the number of future claims by disease type that would likely require payment by the Company. Finally, the number of such claims was multiplied by the average settlement value to estimate the Company’s future liability for IBNR asbestos claims.

      Asbestos claim filings are typically sporadic and may include large batches of claims solicited by law firms. To reflect these factors, CSX used a 2-year calibration period during its initial assessment

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because the Company believed it would be most representative of its future claim experience. In addition, for non-malignant claims, the number of future claims to be filed against CSX declines at a rate consistent with both mortality and age as there is a decreasing probability of filing claims as the population ages. CSX believes the average claim values by type of disease from the historical 2-year period were most representative of future claim values.

2005 Provision for Asbestos Change in Estimate

      In 2004, management had no changes in estimate for asbestos liabilities. In 2005, management updated their assessment of the unasserted liability exposure with the assistance of the third party specialists, which resulted in recognition of a $48 million favorable change in estimate associated with asbestos liabilities. During 2004 and 2005, asbestos related disease claims filed against CSX dropped substantially, particularly bulk claims filed by certain law firms. In 2003, the Company received a significant number of filings. The Company believes the number was attributable to an attempt to file before a new, more restrictive venue law took effect in West Virginia in mid-2003. As a result, management reassessed the calibration period to a 3-year average, excluding the surge in claims originating in West Virginia. Management believes this calibration period provides the best estimate of future filing rates.

      The estimated future filing rates and estimated average claim values are the most sensitive assumptions for this reserve. A 10% increase or decrease in either the forecasted number of IBNR claims or the average claim values would result in an approximate $7 million increase or decrease in the liability recorded for unasserted asbestos claims.

      The Company, with the assistance of the third party specialist, obtains semi-annual updates of the study. The Company will monitor actual experience against the number of forecasted claims to be received and expected claim payments. More periodic updates to the study will occur if trends necessitate a change.

Other Occupational

2003 Provision for Other Occupational Change in Estimate

      In 2003, the Company changed its estimate of occupational reserves to include an estimate of IBNR claims for other occupational injuries as well as asbestos as noted above. The Company engaged a third party specialist to assist in projecting the number of other occupational injury claims to be received over the next seven years. Based on this analysis, the Company established reserves for the probable and reasonably estimable other occupational injury liabilities. In 2003, the Company recorded an undiscounted $65 million pre-tax charge for IBNR other occupational claims for similar reasons as asbestos discussed above.

      Similar to the asbestos liability estimation process, the key elements of the assessment included the following:

•  An estimate of the potentially exposed population for other occupational diseases was calculated by projecting active versus retired work force from 2002 to 2010 using a growth rate projection for overall railroad employment made by the Railroad Retirement Board in its June 2003 report.

•  An estimate of the future anticipated claims filing rate by type of injury, employee type, and active versus retired employee was computed using the Company’s average historical claim filing rates for the 2-year calibration period for all diseases except hearing loss. Because the filing rate for hearing loss claims has been decreasing since 1998, the latest year filing rate was viewed as representative. These calibration periods are the time periods which management felt were representative of future filing rates. An estimate was made to forecast future claims by using the filing rates by disease and the active and retired CSX population each year.

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•  An estimate of the future anticipated settlement by type of injury was computed using the Company’s historical average of dollars paid per claim for pending and future claims using the average settlement by type of injury observed during a 3-year time period.

2005 Provision for Other Occupational Change in Estimate

      In 2004, management had no changes in estimate for other occupational liabilities. During 2005, CSX experienced an unfavorable trend in settlement values for repetitive stress and other injuries, which resulted in the recognition of a $10 million unfavorable change in estimate associated with these liabilities. In connection with the semi-annual updates of the study, the Company will monitor actual experience against the number of forecasted claims to be received and expected claim payments. More periodic updates to the study will occur if trends necessitate a change.

      The estimated future filing rates and estimated average claim values are the most sensitive assumptions for this reserve. A 10% increase or decrease in either the forecasted number of IBNR claims or the average claim values would result in an approximate $7 million increase or decrease in the liability recorded for unasserted other occupational claims.

Summary

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

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

Environmental

      The Company is a party to various proceedings, including administrative and judicial proceedings, involving private parties and regulatory agencies related to environmental issues. The Company has been identified as a potentially responsible party (“PRP”) at approximately 259 environmentally impaired sites, many of which are, or may be, subject to remedial action under the Federal Comprehensive Environmental Response, Compensation and Liability Act of 1980 (“CERCLA”), also known as the Superfund Law, or similar state statutes. A number of these proceedings are based on allegations that CSX, or its predecessors, sent hazardous substances to the facilities in question for disposal.

      In addition, some of the Company’s land holdings are and have been used for industrial or transportation-related purposes or leased to commercial or industrial companies whose activities may have resulted in releases of various regulated materials onto the property. Therefore, the Company is subject to environmental cleanup and enforcement actions under the Superfund law, as well as similar state laws that may impose joint and several liability for cleanup and enforcement costs on current and former owners and operators of a site without regard to fault or the legality of the original conduct, which could be substantial. In 2004, the Company assumed $6 million of Conrail environmental liabilities, due to the Conrail spin-off transaction.

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

•  Type of cleanup required;

•  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);

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

•  Accuracy and strength of evidence connecting CSXT to the location; and

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

      CSXT management estimates its environmental liabilities using guidance from Statement of Position (“SOP”) 96-1, Environmental Remediation Liabilities. Each site is periodically evaluated and the liability is adjusted to the most recent estimates made by management. Based on the review process, the Company has recorded reserves to cover estimated contingent future environmental costs with respect to such sites. Environmental costs are charged to expense when they relate to an existing condition caused by past operations and do not contribute to current or future revenue generation. The recorded liabilities for estimated future environmental costs are undiscounted and include amounts representing the Company’s estimate of unasserted claims, which the Company believes to be immaterial. The liability includes future costs for all sites where the Company’s obligation is (1) deemed probable, and (2) where such costs can be reasonably estimated. The liability includes future costs for remediation and restoration of sites as well as any significant ongoing monitoring costs, but excludes any anticipated insurance recoveries.

      Currently, the Company does not 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, financial condition and liquidity.

Legal

      In accordance with SFAS 5, 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 twice quarterly and adjusts reserves when appropriate under the guidance noted above. The amount of a particular reserve may be influenced by factors that include official rulings, newly discovered or developed evidence, or changes in laws, regulations, and evidentiary standards.

Pension and Postretirement Medical Plan Accounting

      The Company sponsors defined benefit pension plans, principally for salaried, management personnel. The plans provide eligible employees with retirement benefits based predominantly on years of service and compensation rates near retirement. In addition to the defined benefit pension

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

      The accounting for these plans is subject to the guidance provided in SFAS 87, Employers Accounting for Pensions (“SFAS 87”), and SFAS 106, Employers’ Accounting for Postretirement Benefits Other than Pensions (“SFAS 106”). Both of these statements require that management make certain assumptions relating to the following:

•  Long-term rate of return of plan assets;

•  Discount rates used to measure future obligations and interest expense;

•  Salary scale inflation rates;

•  Health care cost trend rates; and

•  Other assumptions.

      These assumptions are determined as of the beginning of the year. As permitted by SFAS 87, the Company has elected to use a plan measurement date of September 30 to actuarially value its pension and postretirement plans as it provides for more timely analysis. The Company engages independent, external actuaries to compute the amounts of liabilities and expenses relating to these plans subject to the assumptions that the Company selects as of the beginning of the plan year. The Company reviews the discount, salary scale inflation, and health care cost trend rates on an annual basis and makes modifications to the assumptions based on current rates and trends as appropriate. Because the Company reduced its expected long-term rate of return on assets in 2004, management does not anticipate revising this assumption for the next several years to maintain consistency with market cycles.

Long-term Rate of Return on Plan Assets

      The expected long-term rate of return on plan assets reflects the average rate of earnings expected on the funds invested or to be invested to provide for benefits included in the projected benefit obligation. In estimating that rate, the Company gives appropriate consideration to the returns being earned by the plan assets in the funds and the rates of return expected to be available for reinvestment. The expected long-term rate of return on plan assets is used in conjunction with the market-related value of assets to compute the expected return on assets.

      The Company’s expected long-term average rate of return on assets considers the current and projected asset mix of the funds. Management balances market expectations obtained from various investment managers and economists with both market and actual plan historical returns to develop a reasonable estimate of the expected long-term rate of return on assets. As this assumption is long-term, it is adjusted less frequently than other assumptions used in pension accounting.

Discount Rates

      Discount rates affect the amount of liability recorded and the interest expense component of pension and postretirement expense. Assumed discount rates reflect the rates at which the pension and postretirement benefits could be effectively settled. It is appropriate in estimating those rates to look to available information about rates implicit in current prices of annuity contracts that could be used to effect settlement of the obligation. In making those estimates, employers may also look to rates of return on high-quality fixed-income investments currently available and expected to be available during the period to maturity of the pension benefits. The Company determines the discount rate based on a hypothetical portfolio of high quality bonds with cash flows matching the

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plans’ expected benefit payments. CSX uses a different discount rate for pension and postretirement benefits due to the different time horizons of future payments for each of the plans.

      Each year these discount rates are reevaluated and adjusted to reflect the best estimate of the current effective settlement rates. If interest rates generally decline or rise, the assumed discount rates will change.

Salary Scale Inflation Rates

      Salary scale inflation rates are based on current trends and historical data accumulated by the Company. The Company reviews recent merit increases and management incentive compensation payments over the past five years in assessment of salary scale inflation rates.

Health Care Cost Trend Rates

      Health care cost trend rates are based on recent plan experience and industry trends. The Company uses actuarial data to substantiate the inflation assumption for health care costs, representing increases in total plan costs, which include claims and administrative fee cost components. The current assumed health care cost trend rate is 11% for Medicare eligible participants and 12% for non-Medicare eligible participants and is expected to increase slightly before decreasing gradually until reaching 4.5% in 2013 based upon current actuarial projections.

Other Assumptions

      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.

2006 Estimated Pension and Postretirement Expense

      As a result of changes in assumptions for fiscal year 2006, net periodic pension benefit cost and postretirement benefit costs for 2006 are expected to be approximately $62 million and $30 million, respectively, compared to $46 million and $40 million, respectively in 2005. Currently, there is proposed legislation regarding pension plan funding requirements. If the proposed legislation is passed, pension plan funding requirements will be increased. The impact to the Company of this proposed legislation is unknown at this time.

		Increase/
		(Decrease) in 2006
		Estimated Expense
		Pension			OPEB
		(Millions of dollars)
Discount Rate:
	0.25% increase	$	(4	)	$	—
	0.25% decrease		5			—
Salary Scale Inflation Rate:
	0.25% increase		3			—
	0.25% decrease		(3	)		—
Health Care Cost Trend Rate:
	1% increase		N/A			3
	1% decrease		N/A			(3	)

Medicare Prescription Drug, Improvement and Modernization Act of 2003

      The Company is required to estimate and record the effects of the Medicare Prescription Drug, Improvement and Modernization Act of 2003 (“Act”). The Company determined that its medical

45

plan’s prescription drug benefit will qualify as actuarially equivalent to Medicare Part D based upon a review by the plan’s health and welfare actuary of the plan’s benefit compared with the benefit that would be paid under Medicare Part D. The reduction in the postretirement benefit obligation as a result of the Act was approximately $56 million as of December 31, 2005. (See Note 18. Employee Benefit Plans.)

      The Company has applied for the tax free 28% federal reimbursement of total prescription drug claims from $250 to $5,000 paid after January 1, 2006. Combining the financial implications of both cash receipts and lower tax deductible business expenses resulting from the subsidy, the Company expects after tax cash flow savings of approximately $5 million for fiscal year 2006. Additionally, projected postretirement benefit expenses for fiscal year 2006 were reduced by approximately $7 million due to the Act.

Depreciation Policies for Assets Under the Group-Life Method

      CSXT accounts for its rail assets, including main-line track, locomotives and freight cars, using the group-life method. The group-life method pools similar assets by type and then depreciates each group as a whole. Under the group-life method, the service lives for each group of rail assets are determined by the performance of periodic life studies and management’s assumptions concerning the service lives of its properties. These studies, called life studies, are conducted by a third party expert, analyzed by the Company’s management and approved by the Surface Transportation Board (“STB”) of the U.S. Department of Transportation. Life studies for equipment assets are completed every three years, whereas road and track life studies are completed every six years as required by the STB.

      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. Factors taken into account during the life study include:

•  Statistical analysis of historical retirements for each group of property;

•  Evaluation of current operations;

•  Evaluation of technological advances and maintenance schedules;

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

•  Expected net salvage expected to be received upon retirement; and

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

      The life studies may also indicate that the recorded amount of accumulated depreciation is deficient (or in excess) of the appropriate amount indicated by the study. Any such deficiency (or excess) is amortized as a component of depreciation expense over the remaining useful life of the asset group until the next required life study.

      Although recent experience with life studies has resulted in depreciation rate changes, these modifications have not significantly affected the Company’s annual depreciation expense. In 2003, the Company completed life studies for all of its rail, equipment and track assets, resulting in an increase in the average useful lives of equipment and track assets, while decreasing the average useful lives of many roadway assets. The combination of these adjustments increased depreciation expense by $1 million in 2003 with a decrease of approximately $13 million in 2004. No life studies were required or completed during 2005.

      Assets depreciated under the group-life method comprise 95% of the Company’s total fixed assets of $19.5 billion on a net basis at December 30, 2005. The Company’s depreciation expense for the year ended December 30, 2005 amounted to $826 million. A one-percentage point increase (or decrease) in the average life of all group-life assets would result in an $8 million increase (or decrease) to the Company’s annual depreciation expense.

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Income Taxes

      Management uses factors such as applicable law, current information and past experience with similar issues in computing its income tax expense. The Company has not materially changed its methodology for calculating income tax expense for the years presented. The Company does not anticipate any material change in the methodology or assumptions used in determining the Company’s income tax expense.

      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. Federal income tax returns for 1994 through 2003 currently are under examination. Management believes adequate provision has been made for any adjustments that might be assessed. While the final outcome of these matters cannot be predicted with certainty, 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. An unexpected adverse resolution of one or more of these items, however, could have a material adverse effect on the results of operations, financial condition or liquidity in a particular fiscal quarter or fiscal year. Also, the Company is party to a number of legal and administrative proceedings, the resolution of which could result in gain realization in amounts that could be material to results of operations, financial condition or liquidity in a particular fiscal quarter or fiscal year.

New Accounting Pronouncements and Change in Accounting Policy

      See Note 1. Nature of Operations and Significant Accounting Policies under the caption “New Accounting Pronouncements and Change in Accounting Policy.”

Item 7A. Quantitative and Qualitative Disclosures about Market Risk

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

      CSX addresses its exposure to interest rate market risk through a controlled program of risk management that includes the use of interest rate swap agreements. The table below illustrates CSX’s long-term interest rate swap sensitivity.

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

      During 2003, CSX began a program to hedge its exposure to fuel price volatility through swap transactions. As of December 30, 2005, CSX had hedged approximately 9% of fuel purchases for 2006. At December 30, 2005, a 1% change in fuel prices would result in an increase or decrease in the asset related to the swaps of approximately $1 million. CSX’s rail unit average annual fuel consumption is approximately 603 million gallons. A one-cent change in the price per gallon, excluding gallons hedged, of fuel would affect fuel expense by approximately $5 million annually.

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

      The following table highlights CSX’s floating rate debt outstanding exclusive of derivative contracts that essentially convert fixed interest rate notes to floating interest rates.

	December 30, 2005
	(Dollars in millions)
Floating Rate Debt Outstanding	$	378
Effect of 1% Variance in Interest Rates		4

47

Item 8. Financial Statements and Supplementary Data

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

		Page
Reports of Independent Registered Public Accounting Firm			49
CSX Corporation
Consolidated Financial Statements and Notes to Consolidated Financial Statements Submitted Herewith:
Consolidated Income Statements for Fiscal Years Ended:			51
	• December 30, 2005
	• December 31, 2004
	• December 26, 2003
Consolidated Balance Sheets as of:			52
	• December 30, 2005
	• December 31, 2004
Consolidated Cash Flow Statements for Fiscal Years Ended:			53
	• December 30, 2005
	• December 31, 2004
	• December 26, 2003
Consolidated Statements of Changes in Shareholders’ Equity:			54
	• December 30, 2005
	• December 31, 2004
	• December 26, 2003
Notes to Consolidated Financial Statements			55

48

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Shareholders and Board of Directors of CSX Corporation

      We have audited the accompanying consolidated balance sheets of CSX Corporation and subsidiaries as of December 30, 2005 and December 31, 2004, 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 30, 2005. 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 the standards of the Public Company Accounting Oversight Board (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 30, 2005 and December 31, 2004, and the consolidated results of their operations and their cash flows for each of the three fiscal years in the period ended December 30, 2005, in conformity with U.S. generally accepted accounting principles.

      As discussed in Note 1 to the consolidated financial statements, in 2004 the Company changed its method of calculating earnings per share, and in 2003 the Company changed its method of accounting for railroad tie removal costs and stock-based compensation.

      We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of CSX Corporation’s internal control over financial reporting as of December 30, 2005, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 13, 2006, expressed an unqualified opinion thereon.

/s/ Ernst & Young LLP

Independent Certified Public Accountants

Jacksonville, Florida

February 13, 2006

49

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Shareholders and Board of Directors of CSX Corporation

      We have audited management’s assessment, included in the accompanying CSX Corporation Management’s Report on Internal Control Over Financial Reporting appearing under Item 9A, that CSX Corporation maintained effective internal control over financial reporting as of December 30, 2005, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria). CSX Corporation’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express an opinion on management’s assessment and an opinion on the effectiveness of the company’s internal control over financial reporting based on our audit.

      We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, evaluating management’s assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

      A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

      Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

      In our opinion, management’s assessment that CSX Corporation maintained effective internal control over financial reporting as of December 30, 2005, is fairly stated, in all material respects, based on the COSO criteria. Also, in our opinion, CSX Corporation maintained, in all material respects, effective internal control over financial reporting as of December 30, 2005, based on the COSO criteria.

      We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the 2005 consolidated financial statements of CSX Corporation and our report dated February 13, 2006, expressed an unqualified opinion thereon.

/s/ Ernst & Young LLP

Independent Certified Public Accountants

Jacksonville, Florida

February 13, 2006

50

CSX CORPORATION

CONSOLIDATED INCOME STATEMENTS

			Fiscal Years Ended
			December 30,			December 31,			December 26,
			2005			2004			2003
			(Dollars in millions, except per share amounts)
Operating Revenue			$	8,618		$	8,040		$	7,573
Operating Expense
	Labor and Fringe			2,864			2,744			2,656
	Materials, Supplies and Other			1,828			1,753			1,622
	Depreciation			826			711			620
	Fuel			783			656			581
	Building and Equipment Rent			510			569			565
	Inland Transportation			230			280			305
	Conrail Rents, Fees and Services			65			256			342
	Restructuring Charge — Net			—			71			22
	Provision for Casualty Claims			(38	)		—			232
	Additional Loss on Sale			—			—			108
Total Operating Expenses				7,068			7,040			7,053
Operating Income				1,550			1,000			520
Other Income and Expense
	Other Income (Note 7)			101			72			93
	Debt Repurchase Expense (Note 12)			(192	)		—			—
	Interest Expense			(423	)		(435	)		(418	)
Earnings
	Earnings before Income Taxes			1,036			637			195
	Income Tax Expense (Note 8)			(316	)		(219	)		(58	)
	Earnings from Continuing Operations			720			418			137
	Discontinued Operations — Net of Tax (Note 4)			425			(79	)		52
	Cumulative Effect of Accounting Change — Net of Tax			—			—			57
	Net Earnings		$	1,145		$	339		$	246
Per Common Share (Note 15)
Earnings Per Share:
		From Continuing Operations	$	3.33		$	1.95		$	0.64
		Discontinued Operations		1.96			(0.37	)		0.24
		Cumulative Effect of Accounting Change		—			—			0.26
		Net Earnings	$	5.29		$	1.58		$	1.14
Earnings Per Share, Assuming Dilution:
		From Continuing Operations	$	3.17		$	1.87		$	0.63
		Discontinued Operations		1.87			(0.35	)		0.23
		Cumulative Effect of Accounting Change		—			—			0.25
		Net Earnings	$	5.04		$	1.52		$	1.11
Average Common Shares Outstanding (Thousands)				216,425			214,796			213,964
Average Common Shares Outstanding, Assuming Dilution (Thousands)				228,024			225,030			224,328
Cash Dividends Paid Per Common Share			$	0.43		$	0.40		$	0.40

See accompanying Notes to Consolidated Financial Statements.

51

CSX CORPORATION

CONSOLIDATED BALANCE SHEETS

					December 30,			December 31,
					2005			2004
					(Dollars in millions)
ASSETS
	Current Assets:
		Cash and Cash Equivalents (Note 1)			$	309		$	522
		Short-term Investments				293			337
		Accounts Receivable — Net (Note 9)				1,202			1,159
		Materials and Supplies				199			165
		Deferred Income Taxes				225			20
		Other Current Assets				144			157
		International Terminals Assets Held for Sale (Note 4)				—			643
				Total Current Assets		2,372			3,003
	Properties					26,538			25,852
	Accumulated Depreciation					(6,375	)		(5,907	)
			Properties — Net (Note 10)			20,163			19,945
	Investment in Conrail (Note 2)					603			574
	Affiliates and Other Companies					304			281
	Other Long-term Assets (Note 21)					790			802
				Total Assets	$	24,232		$	24,605
LIABILITIES AND SHAREHOLDERS’ EQUITY
	Current Liabilities:
		Accounts Payable			$	954		$	870
		Labor and Fringe Benefits Payable				565			380
		Casualty, Environmental and Other Reserves (Note 11)				311			312
		Current Maturities of Long-term Debt (Note 12)				936			983
		Short-term Debt (Note 12)				1			101
		Income and Other Taxes Payable				102			170
		Other Current Liabilities				110			115
		International Terminals Liabilities Held for Sale (Note 4)				—			386
				Total Current Liabilities		2,979			3,317
	Casualty, Environmental and Other Reserves (Note 11)					653			735
	Long-term Debt (Note 12)					5,093			6,248
	Deferred Income Taxes					6,082			5,979
	Other Long-term Liabilities (Note 21)					1,471			1,515
				Total Liabilities		16,278			17,794
Shareholders’ Equity:
	Common Stock, $1 Par Value (Note 14)					218			216
	Other Capital					1,751			1,605
	Retained Earnings					6,262			5,210
	Accumulated Other Comprehensive Loss					(277	)		(220	)
				Total Shareholders’ Equity		7,954			6,811
				Total Liabilities and Shareholders’ Equity	$	24,232		$	24,605

See accompanying Notes to Consolidated Financial Statements.

52

CSX CORPORATION

CONSOLIDATED CASH FLOW STATEMENTS

				Fiscal Years Ended
				December 30,			December 31,			December 26,
				2005			2004			2003
				(Dollars in millions)
Operating Activities
Net Earnings				$	1,145		$	339		$	246
Adjustments to Reconcile Net Earnings to Net Cash Provided:
		Depreciation			833			730			643
		Deferred Income Taxes			(46	)		240			119
		Gain on Sale of International Terminals — Net of Tax (Note 4)			(428	)		—			—
		Provision for Casualty Reserves (Note 11)			(38	)		—			232
		Additional Loss on Sale			—			—			108
		Cumulative Effect of Accounting Change — Net of Tax			—			—			(57	)
		Insurance Proceeds (Note 6)			29			—			—
		Restructuring Charge (Note 5)			—			71			22
		Net Gain on Conrail spin-off — after tax (Note 2)			—			(16	)		—
		Other Operating Activities			(103	)		(91	)		(108	)
		Changes in Operating Assets and Liabilities:
			Termination of Sale of Accounts Receivable (Note 9)		—			—			(380	)
			Accounts Receivable (Note 9)		(44	)		(3	)		19
			Other Current Assets		(29	)		29			40
			Accounts Payable		54			(2	)		49
			Income and Other Taxes Payable		(402	)		38			(23	)
			Other Current Liabilities		139			111			(106	)
Net Cash Provided by Operating Activities					1,110			1,446			804
Investing Activities
Property Additions					(1,136	)		(1,030	)		(1,059	)
Insurance Proceeds (Note 6)					41			—			—
Net Proceeds from Sale of International Terminals (Note 4)					1,108			—			—
Purchase of Minority Interest in an International Terminals’ Subsidiary (Note 4)					(110	)		—			—
Proceeds from Divestitures (Note 3)					—			55			226
Purchases of Short-term Investments					(2,601	)		(1,583	)		(2,128	)
Proceeds from Sale of Short-term Investments					2,634			1,336			2,197
Other Investing Activities					28			(18	)		(43	)
Net Cash Used in Investing Activities					(36	)		(1,240	)		(807	)
Financing Activities
	Short-term Debt — Net				(99	)		99			(141	)
	Long-term Debt Issued				105			401			919
	Long-term Debt Repaid				(1,283	)		(434	)		(500	)
	Dividends Paid				(93	)		(86	)		(86	)
	Other Financing Activities				83			40			(20	)
Net Cash (Used In) Provided by Financing Activities					(1,287	)		20			172
Net (Decrease) Increase in Cash and Cash Equivalents					(213	)		226			169
Cash and Cash Equivalents
	Cash and Cash Equivalents at Beginning of Period				522			296			127
	Cash and Cash Equivalents at End of Period			$	309		$	522		$	296
Supplemental Cash Flow Information
Interest Paid — Net of Amounts Capitalized				$	440		$	414		$	406
Income Taxes Paid				$	798		$	35		$	134

See accompanying Notes to Consolidated Financial Statements.

53

CSX CORPORATION

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

											Accumulated Other
											Comprehensive Income (Loss)
		Common
		Shares									Minimum
		Outstanding		Common		Other		Retained			Pension			Fuel
		(Thousands)		Stock		Capital		Earnings			Liability(a)			Derivative(b)			Other			Total
		(Dollars in millions)
Balance December 27, 2002			214,687	$	215	$	1,547	$	4,797		$	(318	)	$	—		$	—		$	6,241
Comprehensive Earnings:
	Net Earnings		—		—		—		246			—			—			—			246
	Other Comprehensive Income		—		—		—		—			8			6			1			15
	Comprehensive Earnings																				261
Dividends			—		—		—		(86	)		—			—			—			(86	)
Stock Option Exercises and Other			384		—		32		—			—			—			—			32
Balance December 26, 2003			215,071		215		1,579		4,957			(310	)		6			1			6,448
Comprehensive Earnings:
	Net Earnings		—		—		—		339			—			—			—			339
	Other Comprehensive Income (Loss)		—		—		—		—			18			66			(1	)		83
	Comprehensive Earnings																				422
Dividends			—		—		—		(86	)		—			—			—			(86	)
Stock Option Exercises and Other			458		1		26		—			—			—			—			27
Balance December 31, 2004			215,529		216		1,605		5,210			(292	)		72			—			6,811
Comprehensive Earnings:
	Net Earnings		—		—		—		1,145			—			—			—			1,145
	Other Comprehensive (Loss)		—		—		—		—			(15	)		(42	)		—			(57	)
	Comprehensive Earnings																				1,088
Dividends			—		—		—		(93	)		—			—			—			(93	)
Stock Option Exercises and Other			2,674		2		146		—			—			—			—			148
Balance December 30, 2005			218,203	$	218	$	1,751	$	6,262		$	(307	)	$	30		$	—		$	7,954

(a)	Net of taxes of $146 million, $161 million, and $153 million for 2005, 2004, and 2003, respectively.
(b)	Net of taxes of $20 million, $45 million, and $3 million for 2005, 2004, and 2003, respectively.

See accompanying Notes to Consolidated Financial Statements.

54

CSX CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1. Nature of Operations and Significant Accounting Policies

Nature of Operations

      CSX Corporation (“CSX” and, together with its subsidiaries, the “Company”), based in Jacksonville, FL, owns companies providing rail, intermodal and rail-to-truck transload services that combine to form one of the nation’s leading transportation companies, connecting more than 70 ocean, river and lake ports.

Surface Transportation

CSX Transportation Inc.

      CSX’s principal operating company, CSX Transportation Inc. (“CSXT”), operates the largest railroad in the eastern United States with approximately 21,000-mile rail network linking commercial markets in 23 states, the District of Columbia, and the Canadian provinces of Ontario and Quebec.

CSX Intermodal Inc.

      CSX Intermodal Inc. (“Intermodal”), one of the nation’s largest coast-to-coast intermodal transportation providers, is a stand-alone, integrated intermodal company serving customers from origin to destination with its own truck and terminal operations, plus a dedicated domestic container fleet. Containers and trailers are loaded and unloaded from trains, with trucks providing the link between intermodal terminals and the customer.

Surface Transportation Businesses

      The rail and intermodal companies are viewed by the Company on a combined basis as Surface Transportation businesses. Together, they serve four primary lines of business:

•  Merchandise generated approximately 49% of the Company’s total revenue in 2005 with 2.9 million carloads. The Company’s merchandise business is made up of seven market segments: phosphates and fertilizers; metals; forest products; food and consumer; agricultural products; chemicals; and emerging markets. Emerging markets target high-growth business opportunities in specialized markets such as aggregates, processed materials (for example, cement), waste, military cargo, and machinery.

•  Coal, which delivered more than 1.8 million carloads of coal, coke and iron ore to electric utilities and manufacturers in 2005, accounted for approximately 24% of the Company’s total 2005 revenue. The Company serves more than 130 coal mines in nine states, including three of the nation’s top four coal-producing states.

•  Intermodal, as described above, offers a cost advantage over long-haul trucking by combining the better economics of longer hauls provided by rail with the short-haul flexibility of trucks through a network of dedicated terminals across North America. Intermodal accounted for approximately 2.2 million units and 16% of the Company’s total revenue in 2005.

•  Automotive, which serves plants in eight states and delivers both finished vehicles and auto parts, transported 488,000 carloads generating 10% of the Company’s total revenue in 2005.

•  Other revenue, such as demurrage, switching, and other incidental charges, accounted for 1% of the Company’s total 2005 revenue. Demurrage represents charges assessed by railroads for the retention of cars by shippers or receivers of freight beyond a specified period of time. Switching revenue is generated when CSX switches cars between trains for a customer or other railroad.

Basis of Presentation

      In the opinion of management, the accompanying consolidated financial statements contain all adjustments necessary to fairly present the financial position of CSX and its subsidiaries at December 30, 2005 and December 31, 2004, the Consolidated Income and Cash Flow Statements and Changes in Shareholders’ Equity for the fiscal years ended December 30, 2005, December 31,

55

CSX CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

2004 and December 26, 2003, such adjustments being of a normal, recurring nature. Certain prior-year data have been reclassified to conform to the 2005 presentation.

Fiscal Year

      CSX follows a 52/53 week fiscal reporting calendar. This fiscal calendar allows every quarter to consistently end on a Friday and to be of equal duration (13 weeks). However, in order to maintain this type of reporting calendar, every sixth or seventh year (depending on the Gregorian calendar and when leap year falls), an extra week will be included in one quarter (a 14 week quarter) and, therefore, the full year will have 53 weeks.

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

•  Fiscal year 2004 consisted of 53 weeks ending on December 31, 2004

•  Fiscal year 2003 consisted of 52 weeks ending on December 26, 2003

Principles of Consolidation

      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).

Cash, Cash Equivalents and Short-term Investments

      On a daily basis, cash in excess of current operating requirements is invested in various highly liquid investments having a typical maturity date 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. Investments in instruments with maturities less than one year are classified as Short-term Investments.

      CSX holds $268 million and $273 million of auction rate securities and classifies these investments as available for sale as of December 30, 2005, and December 31, 2004, respectively. Accordingly, these investments are included in current assets as Short-term Investments on the Consolidated Balance Sheets. On the Consolidated Cash Flow Statements, purchases and sales of these assets are classified within investing activities.

Materials and Supplies

      Materials and supplies consist primarily of fuel and parts used in the repair and maintenance of CSXT’s freight car and locomotive fleets, equipment, and track structure, which are carried at average cost.

Properties

      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, which pools similar assets by road and equipment type and then depreciates each group as a whole. The majority of non-rail property is depreciated using the straight-line method on a per asset basis. Amortization expense recorded under capital leases is included in depreciation expense on the Consolidated Income Statements.

      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. Factors taken into account during the life study include:

•  Statistical analysis of historical retirements for each group of property;

•  Evaluation of current operations;

•  Evaluation of technological advances and maintenance schedules;

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

56

CSX CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

•  Expected net salvage expected to be received upon retirement; and

•  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 years for system roadway machinery to 80 years for grading. Equipment assets, including locomotives and freight cars, have estimated service lives ranging from 6 years for vehicles to 35 years for work equipment.

      Changes in asset lives due to the results of the life studies are applied at the completion of the life study and continue until the next required life study. The life studies may also indicate that the recorded amount of accumulated depreciation is deficient (or in excess) of the amount indicated by the study. Any such deficiency (or excess) amount is amortized as a component of depreciation expense over the remaining useful life of the asset group until the next required life study.

      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 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, Accounting for the Impairment or Disposal of Long-Lived Assets (“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.

Revenue and Expense Recognition

      The Company recognizes freight revenue using Free-On-Board (“FOB”) Origin pursuant to Emerging Issues Task Force (“EITF”) 91-9, Revenue and Expense Recognition for Freight Services in Process. The Company uses method (5) in the EITF, which provides for the allocation of revenue between reporting periods based on relative transit time in each reporting period. Expenses are recognized as incurred.

      Certain key estimates are included in the recognition and measurement of revenue and related accounts receivable under the policies described above:

•  unbilled revenue on shipments that have been delivered;

•  revenue associated with shipments in transit;

•  future adjustments to revenue or accounts receivable for billing corrections and bad debts;

•  future adjustments to revenue for overcharge claims filed by customers; and

•  incentive-based refunds to customers.

      The Company regularly updates the estimates described above based on historical experience.

      All other revenue, such as demurrage, switching and other incidental charges are recorded upon completion of the service. Demurrage represents charges assessed by railroads for the retention of cars by shippers or receivers of freight beyond a specified period of time. Switching revenue is generated when CSX switches cars between trains for a customer or other railroad.

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CSX CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Share-Based Compensation

      As permitted under SFAS 148, Accounting for Stock-Based Compensation — Transition and Disclosure (“SFAS 148”), CSX has adopted the fair value recognition provisions on a prospective basis and, accordingly, recognized expense for stock options granted in May 2003. No stock options were granted in 2004 or 2005. In addition to stock option expense, stock-based employee compensation expense included in net income consists of restricted stock awards, stock issued to CSX directors and the Company’s Long-term Incentive Program for all periods presented.

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

		December 30,			December 31,			December 26,
		2005			2004			2003
		(Dollars in millions, except per share amounts)
Net Earnings — As Reported		$	1,145		$	339		$	246
Add: Stock-Based Employee Compensation Expense Included in Reported Net Income — Net of Tax			25			13			3
Deduct: Total Stock-Based Employee Compensation Expense Determined under the Fair Value Based Method for all Awards — Net of Tax			(29	)		(29	)		(34	)
Pro Forma Net Earnings		$	1,141		$	323		$	215
Interest Expense on Convertible Debt — Net of Tax			4			4			4
Pro Forma Net Earnings, If-Converted		$	1,145		$	327		$	219
Earnings Per Share:
	Basic — As Reported	$	5.29		$	1.58		$	1.14
	Basic — Pro Forma	$	5.27		$	1.50		$	1.00
	Diluted — As Reported	$	5.04		$	1.52		$	1.11
	Diluted — Pro Forma	$	5.02		$	1.45		$	0.98

      As discussed in “New Accounting Pronouncements and Change in Accounting Policy” below, the Company will comply with SFAS 123(R), Share-Based Payment (“SFAS 123(R)”), effective January 1, 2006.

Comprehensive Earnings

      CSX reports comprehensive earnings (loss) in accordance with SFAS 130, Reporting Comprehensive Income (“SFAS 130”), in the Consolidated Statement of Changes in Shareholders’ Equity. Comprehensive earnings are 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 30, 2005 and December 31, 2004 consists primarily of minimum pension liabilities partially offset by the fair value of fuel hedging contracts.

Derivative Financial Instruments

      The Company recognizes all derivatives as either assets or liabilities in the Consolidated Balance Sheets and measures those instruments at fair value. (See Note 13. Derivative Financial Instruments.)

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CSX CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

New Accounting Pronouncements and Change in Accounting Policy

      SFAS 148 was issued in December 2002. SFAS 148 amends SFAS 123, Accounting for Stock-Based Compensation (“SFAS 123”), to provide alternative methods of transition to SFAS 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 and adopted the disclosure requirements of SFAS 148. In accordance with the prospective method of adoption permitted under SFAS 148, stock-based awards issued subsequent to fiscal year 2002 are accounted for under the fair value recognition provisions of SFAS 123 utilizing the Black-Scholes-Merton valuation method and, accordingly, are expensed. (See Note 16. Stock Plans.)

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

      Currently, CSX’s stock-based employee compensation expense is recognized over the amortization period which could continue beyond the date an employee is eligible for retirement. Upon adoption of SFAS 123(R), CSX will no longer allow automatic vesting when an employee becomes retirement eligible.

      In 2001, SFAS 143, Accounting for Asset Retirement Obligations (“SFAS 143”) was issued. 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, the Company 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 as a result of the adoption of SFAS 143.

      In 2002, the FASB issued Financial Accounting Standard Interpretation (“FASI”) 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 Consolidated Balance Sheets and additional disclosures be made about guarantees. CSX did not realize a financial statement impact with the adoption of the accounting provisions of this

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CSX CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

statement in fiscal year 2003 and does not anticipate a future impact. (See Note 19. Commitments and Contingencies.)

      In 2002, SFAS 144 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. CSX 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.)

Use of Estimates

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

      1. Casualty, legal and environmental reserves (See Note 11. Casualty, Environmental and Other Reserves)

      2. Pension and postretirement medical plan accounting (See Note 18. Employee Benefit Plans)

      3. Depreciation policies for its assets under the group-life method (See Note 1. Nature of Operations and Significant Accounting Policies)

      4. Income taxes (See Note 8. Income Taxes)

NOTE 2. Investment In and Integrated Rail Operations with Conrail

      Through a limited liability company, CSX and Norfolk Southern Corporation (“NS”) jointly own Conrail Inc. (“Conrail”), whose primary subsidiary is Consolidated Rail Corporation (“CRC”). CSX has a 42% economic interest and 50% voting interest in the jointly owned entity, and NS has the remainder of the economic and voting interests. CSX applies the equity method of accounting to its investment in Conrail.

      In August 2004, CSX, NS and Conrail completed a reorganization of Conrail (“Conrail spin-off transaction”), which established direct ownership and control by CSXT and Norfolk Southern Railway (“NSR”) of two former CRC subsidiaries, New York Central Lines LLC (“NYC”) and Pennsylvania Lines LLC (“PRR”), respectively. Prior to the Conrail spin-off transaction, CSXT operated the routes and used the assets of NYC, and NSR operated the routes and used the assets of PRR, each in accordance with separate operating and lease agreements. Pursuant to the Conrail spin-off transaction, the operating and lease agreements were terminated and NYC and PRR were merged into CSXT and NSR, respectively.

      As a part of the Conrail spin-off transaction, the assets and liabilities of NYC and PRR were distributed to CSXT and NSR, respectively. In order to facilitate this distribution, Conrail restructured its existing unsecured and secured public indebtedness, with the consent of Conrail’s debt holders. As a result of the transaction, CSXT and NSR issued new unsecured debt securities in exchange for Conrail debentures and entered into leases and subleases with Conrail to support its secured debt obligations in proportion to their economic ownership percentages.

      In 2004, as a result of the transaction, the Company recognized a net gain of $16 million, after tax, which is included in Other Income. This net gain represents the fair value write-up of the assets and liabilities (“net assets”) received in excess of the book value of the net assets surrendered.

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CSX CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

      The Company concluded that it was appropriate to use the fair value of the net assets received as they were more clearly evident than the fair value of the assets surrendered in accordance with EITF 01-2, Interpretation of APB Opinion 29, paragraph 1. The fair value was based on an independent appraisal of the distribution.

      After the transaction, CSX’s investment in Conrail no longer includes the amounts related to NYC and PRR. Instead the assets and liabilities of NYC are reflected in their respective line items in CSX’s Consolidated Balance Sheet.

      The following table illustrates the pro forma effect on the Consolidated Income Statements as if the spin-off transaction had been completed as of the beginning of the periods.

		Fiscal Years Ended
		December 31, 2004								December 26, 2003
					Effect of		Unaudited			As		Effect of		Unaudited
		As Reported			Spin-Off		Pro Forma			Reported		Spin-Off		Pro Forma
		(Dollars in millions, except per share amounts)
Operating Revenue		$	8,040		$	—	$	8,040		$	7,573	$	—	$	7,573
Earnings from Continuing Operations			418			21		439			137		24		161
Discontinued Operations			(79	)		—		(79	)		52		—		52
Cumulative Effect of Accounting Change — Net of Tax			—			—		—			57		—		57
Net Earnings			339			21		360			246		24		270
Earnings Per Share, Assuming Dilution:
	From Continuing Operations		1.87			0.09		1.96			0.63		0.11		0.74
	Discontinued Operations		(0.35	)		—		(0.35	)		0.23		—		0.23
	Cumulative Effect of Accounting Change		—			—		—			0.25		—		0.25
	Net Earnings	$	1.52		$	0.09	$	1.61		$	1.11	$	0.11	$	1.22

      The Company recorded this spin-off transaction at fair value based on the results of an independent appraisal. Since September 2004, the assets, liabilities, results of operations and cash flows of NYC have been included in CSX’s Consolidated Balance Sheets and Consolidated Income and Cash Flow Statements.

Accounting and Financial Reporting Effects

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

1.	Right-of-way usage fees to Conrail through August 2004.
2.	Equipment rental payments to Conrail through August 2004.
3.	Transportation, switching and terminal service charges levied by Conrail in the Shared Assets Areas, which Conrail operates for the joint benefit of CSXT and NSR.
4.	Amortization of the fair value write-up arising from the acquisition of Conrail and certain other adjustments. The amortization primarily represents the additional after tax depreciation expense related to the write up of Conrail’s fixed assets when the original purchase price, from the 1997 transaction, was allocated based on fair value.

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CSX CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

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

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

Detail of Conrail Rents, Fees and Services

		Fiscal Years Ended
		December 30,			December 31,			December 26,
		2005			2004			2003
		(Dollars in millions)
Rents, Fees and Services		$	97		$	280		$	357
Purchase Price Amortization and Other			4			35			54
Equity in Income of Conrail			(36	)		(59	)		(69	)
	Total Conrail Rents, Fees and Services	$	65		$	256		$	342

Conrail Financial Information

      Summary financial information for Conrail is as follows:

		Fiscal Years Ended
		December 31,		December 31,			December 31,
		2005		2004			2003
		(Dollars in millions)
Income Statement Information:
	Revenues	$	378	$	352		$	316
	Expenses		346		370			352
	Operating Income	$	32	$	(18	)	$	(36	)
	Income from Continuing Operations		85		22			10
	Income from Discontinued Operations, Net of Tax		—		119			191
	Cumulative Effect of Accounting Change, Net of Tax		—		(1	)		2
	Net Income	$	85	$	140		$	203

      Discontinued Operations included in the summary income statement information for Conrail above reflect the results of operations of NYC and PRR prior to the spin-off transaction.

		December 31,		December 31,
		2005		2004
		(Dollars in millions)
Balance Sheet Information:
	Current Assets	$	233	$	334
	Property and Equipment and Other Assets		1,242		1,080
	Total Assets	$	1,475	$	1,414
	Current Liabilities	$	233	$	242
	Long-term Debt		215		266
	Other Long-term Liabilities		592		545
	Total Liabilities		1,040		1,053
	Stockholders’ Equity		435		361
	Total Liabilities and Stockholders’ Equity	$	1,475	$	1,414

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CSX CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Transactions with Conrail

      As listed below, the Company has amounts payable to Conrail representing expenses incurred under the operating, equipment and shared area agreements with Conrail. In exchange for the Conrail advance, the Company has executed two promissory notes with a subsidiary of Conrail which are included in Long-term Debt on the Consolidated Balance Sheets.

		December 30,		December 31,
		2005		2004
		(Dollars in millions)
Balance Sheet Information:
CSX Payable to Conrail		$	40	$	59
Promissory Notes Payable to Conrail Subsidiary
	4.40% CSX Promissory Note due October 2035	$	73	$	—
	4.52% CSXT Promissory Note due March 2035	$	23	$	—

	Fiscal Years Ended
	December 30,		December 31,		December 26,
	2005		2004		2003
	(Dollars in millions)
Income Statement Information:
Interest Expense Related to Conrail Advances	$	1	$	7	$	7

NOTE 3. Divestitures

      In February 2003, CSX conveyed its interest in its domestic container-shipping subsidiary, CSX Lines. In consideration of its interest in CSX Lines, CSX received $300 million of proceeds consisting of cash and senior preferred securities. As a result, CSX had a voting interest of approximately 16% of a new venture called Horizon Lines (“Horizon”). The majority interest was held by a unit of The Carlyle Group. Horizon is a shipping and logistics company that operates 16 vessels and approximately 22,100 cargo containers while servicing routes that include Alaska, Hawaii, Puerto Rico and Guam.

      The $300 million of gross proceeds from the conveyance was comprised of approximately $240 million of gross cash ($214 million net of transaction costs) and $60 million of senior preferred securities. After the transaction, CSX accounted for its investment in Horizon using the cost method of accounting in accordance with APB 18, The Equity Method for Accounting for Investments in Common Stock.

      CSX continues to sublease vessels and equipment to Horizon. Through 2014, the Company remains the primary obligor on 4 lease agreements (3 vessel leases and 1 container lease). The obligation under these lease agreements totals approximately $268 million, $248 million and $229 million as of December 26, 2003, December 31, 2004 and December 30, 2005, respectively. CSX believes Horizon will fulfill its contractual commitments with respect to such leases, and CSX will have no further liabilities for those obligations after 2014.

      In accordance with SAB Topic 5U, Gain Recognition on the Sale of a Business or Operating Assets to a Highly Leveraged Entity, CSX has deferred the gain associated with the conveyance of CSX Lines. In early 2003 a pretax gain of approximately $127 million was deferred and is being amortized over the 12-year sub-lease term.

      In August 2003, CSX received $15 million in cash from Horizon. This payment represented $3 million of accrued interest and $12 million for the partial redemption of senior preferred securities. After receipt of that payment, CSX’s voting interest was approximately 12%.

      In July 2004, CSX received $59 million cash from Horizon. This payment represented $4 million of accrued interest, $48 million for the final redemption of senior preferred securities and $7 million related to a performance payment. At this time, CSX was fully divested of its interest in Horizon.

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CSX CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

However, CSX and its affiliates will continue to remain the primary obligor on vessel and equipment leases and will continue to amortize the deferred gain over the sub-lease term that expires in 2014. (See Note 19. Commitments and Contingencies.)

NOTE 4. Discontinued Operations

      In February 2005, CSX sold its International Terminals business, which included the capital stock of SL Service, Inc. (“SLSI”) to Dubai Ports International FZE (“DPI”) for gross cash consideration of $1,142 billion. Of the gross proceeds, approximately $110 million was paid for the purchase of a minority interest in an International Terminals’ subsidiary, which the Company acquired during the first quarter of 2005 and divested as part of the sale to DPI. Other related cash transaction costs amounted to approximately $34 million, including resolution of working capital and long-term debt adjustments.

      CSX recognized a gain of $683 million pretax, $428 million after tax, for the fiscal year ended December 30, 2005 as a result of the sale. Consequently, amounts related to this business are reported as Discontinued Operations on the Consolidated Income Statement for all periods presented. On the 2004 Consolidated Balance Sheet, the amounts related to this business are shown as International Terminals Assets/Liabilities Held for Sale.

      SLSI also holds certain residual assets and liabilities as a result of prior divestitures and discontinuances. A wholly-owned subsidiary of CSX retains the rights to those assets and indemnifies DPI, SLSI and related entities against those liabilities pursuant to a separate agreement. CSX guarantees the obligations of its subsidiary under this separate agreement.

      Consequently, the results of operations and financial position of the Company’s International Terminals business are reported as Discontinued Operations for all periods presented.

		December 31,
		2004
		(Dollars in millions)
Balance Sheet Information:
	Accounts Receivable — Net	$	25
	Other Current Assets		3
	Properties — Net		87
	Affiliates and Other Companies		523
	Other Long-term Assets		5
	International Terminals Assets Held for Sale	$	643
	Current Liabilities	$	26
	Short-term Debt		203
	Long-term Deferred Income Taxes		16
	Other Long-term Liabilities		141
	International Terminals Liabilities Held for Sale	$	386

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CSX CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

		Fiscal Years Ended
		December 30,			December 31,			December 26,
		2005			2004			2003
		(Dollars in millions)
Income Statement Information:
	Revenues	$	14		$	167		$	227
	Expenses		21			122			121
	Operating Income (Loss)	$	(7	)	$	45		$	106
	Other Income (Expense)		—			(20	)		(36	)
	Earnings Before Income Taxes		(7	)		25			70
	Income Tax Expense		(4	)		7			18
	Net Income	$	(3	)	$	18		$	52

      In 2004, Discontinued Operations on the Consolidated Income Statements includes International Terminals’ net earnings of $18 million as well as additional income tax expense of $97 million related to undistributed foreign earnings.

      Discontinued Operations includes International Terminals restructuring initiatives of $6 million for the fiscal year ended December 31, 2004, designed to maintain and improve productivity standards in light of business conditions at the time. International Terminals recorded no such charges in 2003. The restructuring initiatives reduced the International Terminals’ workforce by 183 positions, as of December 31, 2004.

      In December 2004, prior to the completion of this transaction, International Terminals increased its ownership in Asia Container Terminals Ltd, funded by a loan from DPI of $203 million, which is included in International Terminals Liabilities Held for Sale in the Consolidated Balance Sheets.

NOTE 5. Management Restructuring

      Surface Transportation incurred restructuring charges related to the November 2003 restructuring plan designed to streamline the management structure, eliminate organizational layers and realign certain functions. For the fiscal year ended December 31, 2004, the Company recorded expense of $71 million for separation expense, pension and postretirement benefit curtailment charges, stock compensation expense and other related expenses. Surface Transportation recorded an initial pretax charge related to this reduction of $34 million in 2003. The restructuring initiatives reduced the management Surface Transportation workforce by 863 positions as of December 31, 2004.

      The total cost of the program through the fiscal year December 31, 2004 was $105 million for Surface Transportation. The majority of separation benefits were paid from CSX’s qualified pension plan, with the remainder being paid from general corporate funds.

      In 2003, the Company recorded a $22 million pretax credit related to a favorable change in estimate for railroad retirement taxes and other benefits included in the 1991 and 1992 separation plans. These plans provided for improvements in productivity, workforce reductions in train crews from three persons to two persons, and other cost reductions. Originally the Company recorded a $1.3 billion charge related to these obligations in 1991 and 1992. As part of the labor agreements entered into to facilitate the reduction of train crews, two payments are due to employees that were either conductors/foremen or trainmen/switchmen. These agreements required lump sum payments that were to be distributed (1) within 30 days of implementation of the 1991 and 1992 labor agreements, and (2) at retirement, death or resignation. Regardless of the employees’ continued service, such employees are entitled to receive the second payment at the time when the employee/employer relationship is severed.

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CSX CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

      Also in 2003, the Company recorded a $10 million restructuring charge related to another workforce reduction program, substantially all of which was paid as of December 26, 2003.

      A net $22 million restructuring charge was recorded in fiscal year 2003 representing the cost of the restructuring initiatives offset by reductions in 1991 and 1992 separation reserves. The associated expense is included in operating expense as “Restructuring Charge — Net” on the Consolidated Income Statements.

		Fiscal Year Ended		Fiscal Year Ended
		December 31,		December 26,
		2004		2003
		(Dollars in millions)
Management Restructuring:
	November 2003 management restructuring plan	$	71	$	34
	Other workforce reductions		—		10
	Change in estimate for 1991/1992 charge		—		(22	)
Restructuring Charge — Net		$	71	$	22

      The Company did not record any restructuring charges during the fiscal year ended December 30, 2005.

NOTE 6. Hurricane Katrina

      In August 2005, Hurricane Katrina caused extensive damage to Company assets on the Gulf Coast. The most significant damage was concentrated on CSXT’s approximately 100-mile route starting in New Orleans, LA and going east to Pascagoula, MS and includes damage to track infrastructure and bridges. Service to local businesses on the Gulf Coast has been restored and previously rerouted Merchandise trains have returned to the New Orleans gateway. Operations should be normalized to pre-hurricane conditions by the end of the first quarter of 2006.

      In order to determine the proper accounting treatment for the damage, the Company reviewed EITF 01-10, Accounting for the Impact of the Terrorist Attacks of September 11, 2001 (“EITF 01-10”), specifically Issue 3, of that consensus, in which the Task Force concluded that insurance recoveries in connection with property and casualty losses should be recognized when realization of the claim for recovery of a loss recognized in the financial statements is deemed probable. Information regarding the Company’s insurance coverage, damage estimates and the allocation of the insurance deductible is as follows:

Insurance coverage

      The Company has insurance coverage of $535 million, after a $25 million deductible (per occurrence), for the following types of losses:

Fixed assets

      1. Replacement value of fixed asset damages — CSX is entitled to the current replacement cost of the damaged assets. If the Company does not replace the damaged assets, then it is entitled to cash, at a discounted rate. The Company replaced the damaged assets in like kind. The Company’s bridges and track damaged by Hurricane Katrina comprised the majority of these types of losses.

Business interruption

      2. Recovery of incremental expenses — The Company is entitled to recover the increased costs incurred to allow the Company to continue operations and to minimize the overall business impact to the Company during the period of indemnity. These increased costs include off-line (third party) rerouting costs, on-line (internal) rerouting costs, and other costs.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

      3. Recovery of lost profits — The Company is entitled to recover lost profits, net of associated expenses during the period of indemnity. The period of indemnity extends through the date which the railroad network is restored to its original operations.

      The Company’s insurance policies do not prioritize coverage based on types of losses. As claims are submitted to the insurance companies, they are reviewed and preliminary payments made until all losses are incurred and documented. A final payment will be made once the Company and its insurers agree on the total measurement value of the claim. As of December 30, 2005, the Company has collected insurance payments of $70 million. Through February 2006, the Company has collected an additional $50 million in insurance recoveries for a total of $120 million.

Damage estimates

      The Company estimated damages as follows:

1. Fixed asset damages

      Through air and underwater inspections, along with discussions with construction and salvage contractors, the Company’s engineers estimated amounts to replace damaged assets. The cost estimate along the Company’s 100-mile impacted route is based on the replacement value of approximately 39 miles of continuous track, six major bridges, numerous small bridges, signal and communication damage, locomotive repair and facilities damaged throughout the region.

2. Incremental expenses

      The Company’s incremental expenses relate primarily to three main areas of anticipated loss; (1) off-line (third party) rerouting costs, (2) on-line (internal) rerouting costs and (3) other costs.

      Off-line rerouting costs were estimated based on projections made using historical volumes moved on other railroad lines. The Company is billed by the other railroads at an agreed upon rate based on the volume of trains or railcars routed to alternative locations.

      On-line rerouting costs were determined by comparing estimates of incremental activity, including railcar miles, railcar days, gross ton-miles and crew starts incurred on the Company’s network to route volume, before and after Hurricane Katrina, through alternative locations. The incremental activity was then used to calculate incremental operating expenses including train crew labor, railcar rentals, railcar maintenance, locomotive maintenance and fuel.

      Other costs include debris removal, maintenance on equipment damaged by water, supplies, environmental expenses, maintenance labor and other various items.

3. Lost profits

      The Company’s sales representatives have estimated the impact on revenue at a location and customer-specific level. In order to estimate lost profits, for each shipment lost, the associated expenses for fuel, railcar rentals, locomotive and railcar maintenance that would have been incurred were estimated and netted against the lost revenue.

Allocation of deductible

      The Company’s insurance policies require its participation in the first $25 million of each loss event, without regard to the category of the covered losses. Although the Company’s insurance policies do not specifically apply the deductible by the types of losses covered, CSX believes it is inconsistent with the form and economic substance of the Company’s policies to attribute the entire deductible to a single component of covered losses. Therefore, the Company allocated the $25 million self-insured retention among the three categories of losses in proportion to the best estimate of the total ultimate losses eligible for recovery under the Company’s insurance policies.

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CSX CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

This estimate includes losses incurred at the balance sheet date, including all three categories and expected future losses attributable to incremental expenses and lost profits.

      As the Company receives additional information regarding costs and lost revenues, it will continue to refine the estimate for insurance recoveries. As the estimate changes, the Company will reallocate and apply the deductible as appropriate. The Company does not foresee any possible scenario that would result in anything other than a net gain on insurance recoveries.

      Management’s estimate of the losses and recoveries by category is as follows:

			Total Expected
			Losses Eligible		% of			Allocation of
			for Recovery		Recoveries			Deductible
			(Dollars in millions)
Capital
	Fixed asset damages		$	222		60	%	$	(15	)
Business Interruption
	Incremental expenses			118		32	%		(8	)
	Lost profits			30		8	%		(2	)
		Total	$	370		100	%	$	(25	)

Fixed Asset Damages

      Due to the significant difference between the carrying amount of property damage (net book value of $41 million immediately prior to Hurricane Katrina) and the estimated replacement cost of the property ($222 million), the Company estimates that it will ultimately realize a net gain after an estimated, allocated deductible of $15 million. Because replacement value of damaged fixed assets is significantly greater than the net book value, in 2005 a portion of the gain on the replacement value, to the extent of the loss, was recognized in the period in which the loss was recognized. CSX believes the loss attributable to the allocable deductible will be offset by the recovery of the replacement value of the property. The remaining net gain will be recognized when all contingencies related to the gain are resolved.

Incremental expenses

      Because incremental expenses incurred to date have been easily quantified shortly after incurrence and CSX’s insurance policies explicitly cover such costs, the Company believes this coverage is more analogous to property damage coverage. As such, the Company has concluded recoveries attributable to incremental costs should be recognized when it is probable the insurance providers will settle the claim for at least the amount of recognized losses.

Lost profits

      Currently, the financial statements of the Company have been impacted by lost profits, as the Company did not earn revenues associated with covered losses. No amounts have been reflected for estimated insurance recoveries in the Company’s financial statements. The Company believes lost profits are recoverable based on the insurance policy terms. However, because the insurance coverage associated with the recovery of lost profits is similar to a contingent gain due to the subjective nature of the coverage and longer time periods utilized to measure the lost profits as compared to other types of coverage, all contingencies related to the timing and amount of recovery must be resolved prior to recognition in earnings or at the time cash is received. At this time, CSX does not yet believe these amounts meet the probable recovery criterion in EITF 01-10 due to uncertainties associated with the ultimate measurement of the lost profits and expected negotiations with the Company’s insurers. The Company estimates 2005 operating income was impacted by an estimated $30 million of lost profit.

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Summary

      Gain contingencies subject to FIN 30, Accounting for Involuntary Conversions of Nonmonetary Assets to Monetary Assets and SFAS 5, Accounting for Contingencies (“SFAS 5”), are not recognized until the period in which all contingencies are resolved. The probable insurance recovery of the replacement cost of fixed assets in excess of book value and the recovery of lost profits are considered to be gain contingencies. The Company believes it is appropriate to defer the net gain (after consideration of the insurance deductible) until all contingencies related to the gain are resolved. Therefore, in measuring the losses incurred at December 30, 2005, attributable to Hurricane Katrina, the Company considered the actual losses reflected in the financial statements, the allocable deductible (based on expected total recoveries from insured losses), and recorded a receivable for the difference based on probable insurance recoveries. The insurance receivable, after insurance proceeds, amounted to $43 million at December 30, 2005 and is included in Accounts Receivable — Net in the Company’s Consolidated Balance Sheet.

      The Company believes insurance recoveries, which are included in Materials, Supplies and Other and Labor expense in the Company’s consolidated income statement, are probable and it does not believe there are solvency issues with the Company’s insurers. In accordance with SFAS 95, Statement of Cash Flows (“SFAS 95”), cash proceeds received from insurers will be presented as “Insurance Proceeds”, in either cash flows from operating activities or cash flows from investing activities based on the type of cost to which the proceeds relate.

      The following table summarizes the financial impact of Hurricane Katrina during 2005:

			Income Statement Impact
											Net
									Insurance		Income
						Deductible			Recoveries		Statement
			Losses			Recognized			Recognized(a)		Impact
			(Dollars in millions)
Capital
	Fixed assets damages		$	(41	)	$	—		$	41	$	—
Business Interruption
	Incremental expenses			(80	)		(8	)		72		(8	)
	Estimated Lost profits			(30	)		—			—		(30	)
		Total	$	(151	)	$	(8	)	$	113	$	(38	)

(a)  Amounts recorded as receivables from insurance companies. (See table below)

			Balance Sheet Impact
			Insurance		Insurance		Net
			Recoveries		Proceeds		Insurance
			Receivables		Received		Receivable
			(Dollars in millions)
Capital
	Fixed assets damages		$	41	$	41	$	—
Business Interruption
	Incremental expenses			72		29		43
	Lost profits			—		—		—
		Total	$	113	$	70	$	43

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CSX CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

NOTE 7. Other Income and Supplemental Data

      Other Income and Supplemental Data consists of the following:

		Fiscal Years Ended
		December 30,			December 31,			December 26,
		2005			2004			2003
		(Dollars in millions)
Interest Income		$	38		$	21		$	21
Income from Real Estate and Resort Operations			85			47			95
Discounts on Sales of Accounts Receivable			—			—			(10	)
Net Gain on Conrail Spin-off, after tax			—			16			—
Minority Interest			(19	)		(16	)		(6	)
Miscellaneous			(3	)		4			(7	)
	Total Other Income	$	101		$	72		$	93
Gross Revenue from Real Estate and Resort Operations Included in Other Income above		$	262		$	217		$	274

      Operating Expense included Selling, General & Administrative Expenses of $524 million, $557 million and $549 million for fiscal years 2005, 2004, and 2003, respectively.

NOTE 8. Income Taxes

      Earnings from Continuing Operations before Income Taxes of $1.0 billion, $637 million, and $195 million for fiscal years 2005, 2004, and 2003, respectively represent earnings from domestic operations.

      The significant components of deferred tax assets and liabilities include:

		December 30, 2005				December 31, 2004
		Assets		Liabilities		Assets		Liabilities
		(Dollars in millions)
Productivity/ Restructuring Charges		$	48	$	—	$	73	$	—
Employee Benefit Plans			429		—		358		—
Accelerated Depreciation			—		6,324		—		6,665
Other			482		493		832		609
	Total	$	959	$	6,817	$	1,263	$	7,274
Net Deferred Tax Liabilities				$	5,858			$	6,011

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

•  Annual provision for deferred income tax expense;

•  Deferred income taxes attributable to Discontinued Operations; and

•  Adjustments to Accumulated Other Comprehensive Loss.

      In conjunction with the sale of all the issued and outstanding stock of SL Service, Inc., the Company accrued $97 million of deferred U.S. income tax liability related to undistributed foreign earnings of its foreign subsidiaries that are no longer considered indefinitely invested in offshore operations. This U.S. income tax expense is reflected as a component of Discontinued Operations — Net of Tax on the 2004 Consolidated Income Statements.

      Included in the net deferred tax liabilities above are $16 million of deferred taxes included in International Terminals Liabilities Held for Sale in the Consolidated Balance Sheets as of December 31, 2004. (See Note 4. Discontinued Operations.)

      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

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

through 1993. Federal income tax returns for 1994 through 2003 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:

		Fiscal Years Ended
		December 30,			December 31,		December 26,
		2005			2004		2003
		(Dollars in millions)
Current:
	Federal	$	350		$	66	$	(66	)
	State		12			14		7
	Total Current	$	362		$	80	$	(59	)
Deferred:
	Federal	$	33		$	139	$	125
	State		(79	)		—		(8	)
	Total Deferred	$	(46	)	$	139	$	117
	Total	$	316		$	219	$	58

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

	December
	30, 2005
						December
						31, 2004
	Fiscal Years Ended
											December
											26, 2003
	)
	(Dollars in millions
Tax at Statutory Rates	$	362		35	%	$	223		35	%	$	68		35	%
State Income Taxes		(44	)	-4	%		9		1	%		—		0	%
Equity in Conrail Earnings		(9	)	-1	%		(16	)	-3	%		(9	)	-5	%
Other Items		7		0	%		3		1	%		(1	)	0	%
Income Tax Expense/ Rate	$	316		30	%	$	219		34	%	$	58		30	%

      The decrease in the 2005 effective income tax rate compared to the prior year is primarily attributable to legislative changes in Ohio that will gradually eliminate the Ohio corporate franchise tax. The 2004 effective income tax rate was higher than the 2003 effective income tax rate because equity in Conrail earnings represented a larger percentage of pretax earnings in 2003 than 2004. Also, 2003 included a favorable state income tax benefit attributable to changes in the Company’s deferred effective state income tax rate.

NOTE 9. Accounts Receivable

Allowance for Doubtful Accounts

      The Company maintains an allowance for doubtful accounts for the estimated probable losses on uncollectible accounts and other receivables. The allowance is based upon the creditworthiness of customers, historical experience, the age of the receivable and current market and economic conditions. Uncollectible amounts are charged against the allowance account. The allowance for doubtful accounts is maintained against current accounts receivable. Allowances for doubtful accounts of $108 million and $95 million are included in the Consolidated Balance Sheets as of December 30, 2005 and December 31, 2004.

Sale of Accounts Receivable

      As of June 2003, CSXT discontinued its accounts receivable securitization program. Prior to that, CSXT sold, without recourse, a revolving pool of accounts receivable to CSX Trade Receivables Corporation (“CTRC”), a wholly-owned, bankruptcy-remote subsidiary. 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

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sold to investors, and the proceeds from those sales were paid to CSXT. Net losses associated with the sale of receivables were $10 million for the fiscal year ended December 26, 2003 and was included in Other Income.

NOTE 10. Properties

		December 30, 2005						December 31, 2004
				Accumulated						Accumulated
		Cost		Depreciation		Net		Cost		Depreciation		Net
		(Dollars in millions)
Rail:
	Road	$	18,861	$	3,208	$	15,653	$	18,367	$	2,923	$	15,444
	Equipment		6,357		2,482		3,875		6,181		2,363		3,818
Total Rail			25,218		5,690		19,528		24,548		5,286		19,262
Intermodal			528		284		244		506		247		259
Total Surface Transportation			25,746		5,974		19,772		25,054		5,533		19,521
Other			792		401		391		798		374		424
Total Properties		$	26,538	$	6,375	$	20,163	$	25,852	$	5,907	$	19,945

NOTE 11. Casualty, Environmental and Other Reserves

      Activity related to casualty, environmental and other reserves is as follows:

	Casualty			Separation			Environmental			Other
	Reserves			Liabilities			Reserves			Reserves			Total
	(Dollars in millions)
Balance December 27, 2002	$	463		$	216		$	35		$	136		$	850
Charged to Expense		226			38			23			87			374
Change in Estimate		232			(22	)		—			—			210
Payments		(209	)		(24	)		(13	)		(72	)		(318	)
Balance December 26, 2003		712			208			45			151			1,116
Charged to Expense		217			16			29			84			346
Payments		(214	)		(20	)		(21	)		(107	)		(362	)
Conrail Spin-off(a)		—			—			6			—			6
Reclassifications(b)		(10	)		(49	)		—			—			(59	)
Balance December 31, 2004		705			155			59			128			1,047
Charged to Expense		181			—			32			47			260
Change in Estimate		(38	)		—			—			—			(38	)
Payments		(173	)		(34	)		(20	)		(78	)		(305	)
Balance December 30, 2005	$	675		$	121		$	71		$	97		$	964

(a)	In 2004, the Company assumed $6 million of Conrail environmental liabilities, due to the Conrail Spin-off transaction.
(b)	The majority of this line represents obligations arising from the management restructuring program. Most of this liability was paid from CSX’s qualified pension plan and therefore was reclassified to pension liabilities which are included in Other Long-term Liabilities.

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

		December 30, 2005						December 31, 2004
		Current		Long-term		Total		Current		Long-term		Total
		(Dollars in millions)
Casualty		$	227	$	448	$	675	$	230	$	475	$	705
Separation			20		101		121		20		135		155
Environmental			20		51		71		20		39		59
Other			44		53		97		42		86		128
	Total	$	311	$	653	$	964	$	312	$	735	$	1,047

Casualty

      Casualty reserves represent accruals for personal injury and occupational injury claims. Currently, none of these claims are covered by insurance since no individual claim value is expected to exceed the Company’s self-insured retention amount. Personal injury and occupational claims are presented on a gross basis in accordance with SFAS 5. To the extent the value of an individual claim were to exceed the self-insured retention amount, CSX would present the liability on a gross basis with a corresponding receivable for insurance recoveries. Most of the claims are related to CSXT unless otherwise noted.

Personal Injury

      CSXT retains an independent actuarial firm to assist management in assessing the value of CSXT’s claims and cases. An analysis is performed by the independent actuarial firm semi-annually and is reviewed by management. The methodology used by the actuary includes a development factor to reflect growth or reduction in the value of CSXT’s personal injury claims. This methodology is based largely on CSXT’s historical claims and settlement activity. Actual results may vary from estimates due to the type and severity of the injury, costs of medical treatments, and uncertainties in litigation. In conjunction with the change in estimate during 2003, the Company recorded a charge of $26 million for personal injury liabilities. Reserves for personal injury claims are $421 million and $383 million at December 30, 2005 and December 31, 2004, respectively.

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

Occupational

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

      Reserves for asbestos related claims are $141 million and $212 million at December 30, 2005 and December 31, 2004, respectively. Reserves for other occupational claims are $113 million and $110 million at December 30, 2005 and December 31, 2004, respectively.

Occupational — Asbestos

      The Company is party to a number of occupational claims by employees alleging exposure to asbestos in the workplace. The heaviest possible exposure for employees was due to work conducted in and around steam locomotive engines that were phased out in the 1950’s, according to

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CSX CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

rail industry statistics. However, other types of exposures, including exposure from locomotive component parts and building materials, continued until it was substantially eliminated by 1985.

      Asbestos claim filings against the Company have been inconsistent. Accordingly, while the Company had concluded that a probable loss had occurred, prior to 2003 it did not believe it could estimate the range of reasonably possible loss because of the lack of experience with such claims and the lack of detailed employment records for the population of exposed employees. Claim filings increased and when they continued into 2003, the Company concluded that an estimate for incurred but not reported (“IBNR”) asbestos exposure liability needed to be recorded. Currently, there is recurring pending legislation regarding the establishment of an asbestos liability trust fund. The impact to the Company of this pending legislation is unknown at this time.

2003 Provision for Asbestos Change in Estimate

      In 2003, the Company changed its estimate of asbestos reserves to include an estimate of IBNR claims and retained a third party specialist who has extensive experience in performing asbestos and other occupational studies to assist in this estimate. The analysis is performed by the specialist semi-annually and is reviewed by management. The objective of the analysis is to determine the number of estimated IBNR claims and the estimated average cost per claim to be received over the next seven years. Seven years was determined by management to be the time period in which probable claim filings and claim values could be estimated with more certainty.

      The Company, with the assistance of the third party specialist, first determined its potentially exposed population from which it was able to derive the estimated number of IBNR claims. The estimated average cost per claim was then determined utilizing recent actual average cost per claim data and national industry data. Based on the assessment, in September 2003 the Company recorded an undiscounted $141 million pre-tax charge for unasserted asbestos claims. Key elements of the assessment included the following:

•  An estimate was computed using a ratio of Company employee data to national employment for select years during the period 1938-2001. The Company used railroad industry historical census data because it did not have detailed employment records in order to compute the population of potentially exposed employees.

•  The projected incidence of disease was estimated based on epidemiological studies using employees’ age and the duration and intensity of potential exposure while employed.

•  An estimate of the future anticipated claims filing rate by type of disease (non-malignant, cancer and mesothelioma) was computed using the Company’s average historical claim filing rates for a 2-year calibration period (i.e. the years management felt were representative of future filing rates).

•  An estimate of the future anticipated dismissal rate by type of claim was computed using the Company’s historical average dismissal rates observed for two years.

•  An estimate of the future anticipated settlement by type of disease was computed using the Company’s historical average of dollars paid per claim for pending and future claims using the average settlement by type of incident observed during a 3-year time period.

      From these assumptions, the Company projected the incidence of each type of disease to the estimated population to determine the total estimated number of employees that could potentially assert a claim. Historical claim filing rates were applied for each type of disease to the total number of employees that could potentially assert a claim to determine the total number of anticipated claim filings by disease type. Historical dismissal rates, which represent claims that are closed without payment, were deducted to calculate the number of future claims by disease type that would likely require payment by the Company. Finally, the number of such claims was multiplied by the average settlement value to estimate the Company’s future liability for IBNR asbestos claims.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

      Asbestos claim filings are typically sporadic and may include large batches of claims solicited by law firms. To reflect these factors, CSX used a 2-year calibration period during its initial assessment because the Company believed it would be most representative of its future claim experience. In addition, for non-malignant claims, the number of future claims to be filed against CSX declines at a rate consistent with both mortality and age as there is a decreasing probability of filing claims as the population ages. CSX believes the average claim values by type of disease from the historical 2-year period were most representative of future claim values.

2005 Provision for Asbestos Change in Estimate

      In 2004, management had no changes in estimate for asbestos liabilities. In 2005, management updated their assessment of the unasserted liability exposure with the assistance of the third party specialists, which resulted in recognition of a $48 million favorable change in estimate associated with asbestos liabilities. During 2004 and 2005, asbestos related disease claims filed against CSX dropped substantially, particularly bulk claims filed by certain law firms. In 2003, the Company received a significant number of filings. The Company believes the number was attributable to an attempt to file before a new, more restrictive venue law took effect in West Virginia in mid-2003. As a result, management reassessed the calibration period to a 3-year average, excluding the surge in claims originating in West Virginia. Management believes this calibration period provides the best estimate of future filing rates.

      The estimated future filing rates and estimated average claim values are the most sensitive assumptions for this reserve. A 10% increase or decrease in either the forecasted number of IBNR claims or the average claim values would result in an approximate $7 million increase or decrease in the liability recorded for unasserted asbestos claims.

      The Company, with the assistance of the third party specialist, obtains semi-annual updates of the study. The Company will monitor actual experience against the number of forecasted claims to be received and expected claim payments. More periodic updates to the study will occur if trends necessitate a change.

      Undiscounted liabilities recorded related to asbestos claims are as follows:

	December 30,		December 31,
	2005		2004
	(Dollars in millions)
Asbestos
Incurred but not reported claims	$	54	$	132
Asserted claims		87		80
Total liability	$	141	$	212
Current liability	$	37	$	37

      Defense and processing costs, which historically have been and are anticipated in the future to be insignificant, are not included in the recorded liability. The Company is presently self-insured for asbestos-related claims.

Other Occupational

2003 Provision for Other Occupational Change in Estimate

      In 2003, the Company changed its estimate of occupational reserves to include an estimate of IBNR claims for other occupational injuries as well as asbestos as noted above. The Company engaged a third party specialist to assist in projecting the number of other occupational injury claims to be received over the next seven years. Based on this analysis, the Company established reserves for the probable and reasonably estimable other occupational injury liabilities. In 2003, the Company recorded an undiscounted $65 million pre-tax charge for IBNR other occupational claims for similar reasons as asbestos discussed above.

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CSX CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

      Similar to the asbestos liability estimation process, the key elements of the assessment included the following:

•  An estimate of the potentially exposed population for other occupational diseases was calculated by projecting active versus retired work force from 2002 to 2010 using a growth rate projection for overall railroad employment made by the Railroad Retirement Board in its June 2003 report.

•  An estimate of the future anticipated claims filing rate by type of injury, employee type, and active versus retired employee was computed using the Company’s average historical claim filing rates for the 2-year calibration period for all diseases except hearing loss. Because the filing rate for hearing loss claims has been decreasing since 1998, the latest year filing rate was viewed as representative. These calibration periods are the time periods which management felt were representative of future filing rates. An estimate was made to forecast future claims by using the filing rates by disease and the active and retired CSX population each year.

•  An estimate of the future anticipated settlement by type of injury was computed using the Company’s historical average of dollars paid per claim for pending and future claims using the average settlement by type of injury observed during a 3-year time period.

2005 Provision for Other Occupational Change in Estimate

      In 2004, management had no changes in estimate for other occupational liabilities. During 2005, CSX experienced an unfavorable trend in settlement values for repetitive stress and other injuries, which resulted in the recognition of a $10 million unfavorable change in estimate associated with these liabilities. In connection with the semi-annual updates of the study, the Company will monitor actual experience against the number of forecasted claims to be received and expected claim payments. More periodic updates to the study will occur if trends necessitate a change.

      The estimated future filing rates and estimated average claim values are the most sensitive assumptions for this reserve. A 10% increase or decrease in either the forecasted number of IBNR claims or the average claim values would result in an approximate $7 million increase or decrease in the liability recorded for unasserted other occupational claims.

      Undiscounted recorded liabilities related to occupational claims are as follows:

	December 30,		December 31,
	2005		2004
	(Dollars in millions)
Other Occupational
Incurred But Not Reported Claims	$	63	$	56
Asserted Claims		50		54
Total Liability	$	113	$	110
Current Liability	$	18	$	18

      Defense and processing costs, which historically have been and are anticipated in the future to be insignificant, are not included in the recorded liability. The Company is presently self-insured for other occupational-related claims.

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CSX CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

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

	Fiscal Years Ended
	December 30,			December 31,
	2005			2004
Asserted Claims
Open Claims — Beginning of Period		11,461			13,479
New Claims Filed		765			1,178
Claims Settled		(1,206	)		(2,758	)
Claims Dismissed		(381	)		(438	)
Open Claims — End of Period		10,639			11,461

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

Summary

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

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

Separation

      Separation liabilities at December 30, 2005 and December 31, 2004 provide for the estimated costs of implementing workforce reductions, improvements in productivity and other cost reductions at the Company’s major transportation units since 1991. These liabilities are expected to be paid out over the next 15 to 20 years from general corporate funds.

Environmental

      The Company is a party to various proceedings, including administrative and judicial proceedings, involving private parties and regulatory agencies related to environmental issues. The Company has been identified as a potentially responsible party (“PRP”) at approximately 259 environmentally impaired sites, many of which are, or may be, subject to remedial action under the Federal Comprehensive Environmental Response, Compensation and Liability Act of 1980 (“CERCLA”), also known as the Superfund Law, or similar state statutes. A number of these proceedings are based on allegations that CSX, or its predecessors, sent hazardous substances to the facilities in question for disposal.

      In addition, some of the Company’s land holdings are and have been used for industrial or transportation-related purposes or leased to commercial or industrial companies whose activities may have resulted in releases of various regulated materials onto the property. Therefore, the Company is subject to environmental cleanup and enforcement actions under the Superfund law, as

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well as similar state laws that may impose joint and several liability for cleanup and enforcement costs on current and former owners and operators of a site without regard to fault or the legality of the original conduct, which could be substantial. In 2004, the Company assumed $6 million of Conrail environmental liabilities, due to the Conrail spin-off transaction.

      At least once a quarter, the Company reviews its role with respect to each site identified. Based on the review process, the Company has recorded reserves to cover estimated contingent future environmental costs with respect to such sites. Environmental costs are charged to expense when they relate to an existing condition caused by past operations and do not contribute to current or future revenue generation. The recorded liabilities for estimated future environmental costs are undiscounted and include amounts representing the Company’s estimate of unasserted claims, which the Company believes to be immaterial. The liability includes future costs for all sites where the Company’s obligation is (1) deemed probable, and (2) where such costs can be reasonably estimated. The liability includes future costs for remediation and restoration of sites as well as any significant ongoing monitoring costs, but excludes any anticipated insurance recoveries.

      Currently, the Company does not 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, financial condition and liquidity.

Other

      Other reserves of $97 million include liabilities for various claims, such as longshoremen disability claims, freight claims, and claims for property, automobile and general liability. As liabilities become known, the Company accrues the estimable and probable amount, in accordance with SFAS 5.

      Longshoremen disability reserves represent liability for assessments under Section 8f of the United States Longshore and Harbor Workers’ Compensation Act. These reserves have amounts accrued for second injury fund liabilities, which represent the non-medical portion of employee claims which are paid by the United States Department of Labor and are attributable to an earlier injury to the same employee.

      Freight claims represent claims for both freight loss and damage and freight rate disputes. Freight loss and damage claims are liabilities that resulted in lost or damaged customer freight while being handled by the Company’s transportation services. Freight rate disputes represent liabilities for customer claims regarding the rate charged by the Company for its transportation services. Liabilities for freight rate disputes are recorded as a reduction of revenue.

      The Company accrues for losses related to property, automobile and general liability. Property and automobile claims represent primary liability and state mandated coverages required satisfying financial responsibility requirements for company property and vehicle fleets. General liability is coverage for liability arising from operations of non-rail CSX subsidiaries.

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CSX CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

NOTE 12. Debt and Credit Agreements

      Debt is as follows:

			Average
			Interest
			Rates at
			December 30,			December 30,			December 31,
	Maturity		2005			2005			2004
	(Dollars in millions)
Notes		2006-2043		6.9	%	$	4,891		$	5,870
Convertible Debentures, net of $80 and $85 discount, respectively		2021		1.0	%		468			463
Equipment Obligations		2006-2015		6.6	%		549			651
Other Obligations, Including Capital Leases		2006-2015		7.3	%		121			247
Total Current Maturities and Long- term Debt							6,029			7,231
Less Debt Due within One Year							(936	)		(983	)
Total Long Term Debt						$	5,093		$	6,248

Debt Repurchased

      In June 2005, CSX repurchased $1.0 billion of its publicly-traded notes listed below.

			Aggregate Principal
			Amount of
			Tendered Notes
	Principal Amount		Accepted for
Notes	Outstanding		Purchase
	(Dollars in millions)
CSX 2.75% Notes due 2006	$	200	$	186
CSX 9% Notes due 2006		300		206
CSX Floating Rate Notes due 2006		300		58
CSX 8.625% Notes due 2022		200		84
CSX 7.95% Notes due 2027		500		227
CSX 8.10% Notes due 2022		150		57
CSX 7.25% Notes due 2027		250		167
CSX 7.90% Notes due 2017		400		15
	$	2,300	$	1,000

      The consideration paid for these notes totaled $1.2 billion, including a pretax charge of $192 million for costs to repurchase the debt which primarily reflects the market value above original issue value. CSX used net cash proceeds from the disposition of CSX’s International Terminals business, along with cash on hand, to finance this repurchase.

Debt Issuances

      In February 2004, CSX executed a $100 million bank financing that matured on February 25, 2005, which bore interest at a rate that varied with LIBOR plus an applicable spread. As of December 31, 2004, CSX had $100 million in aggregate principal amount outstanding under this agreement. CSX settled this obligation with cash at maturity.

      In June 2004, CSX executed a $300 million bank financing with a maturity date of December 29, 2004, which bore interest at a rate that varied with LIBOR plus an applicable spread. As of December 31, 2004, CSX repaid the entire aggregate principal amount outstanding under this agreement and terminated this agreement.

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CSX CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

      In August 2004, CSX issued $300 million of floating rate notes with a maturity date of August 3, 2006. The notes bear interest at a rate that varies with LIBOR plus an applicable spread. These notes are not redeemable prior to maturity.

Convertible Debentures

      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. The carrying value of outstanding debentures was $468 million and $463 million, at December 30, 2005 and December 31, 2004, 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.

      In October 2005, holders had the option to require CSX to purchase their debentures at a purchase price equal to the accreted value of $852.48 per $1,000 principal amount at maturity. As a result, CSX purchased an immaterial aggregate principal amount at maturity of the debentures with cash on hand. Similarly, the debentures allow holders to require CSX 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 at the time. The debentures are classified in Current Maturities of Long-term Debt in the Consolidated Balance Sheets. 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.

      CSX amended the terms of these debentures during the third quarter of 2004 to surrender its right to pay the purchase price, in whole or in part, in shares of CSX’s common stock for debentures tendered to CSX at the option of holders on certain specified purchase dates. As a result, if CSX is required to purchase any of the debentures on any of such dates, CSX will be required to pay the purchase price for such debentures on such specified purchase dates in cash.

      Holders may in addition convert their debentures into shares of CSX’s common stock at a conversion rate of 17.75 common shares per debenture, subject to customary anti-dilution adjustments, if any of the following conditions are satisfied:

•  If the closing sale price of CSX’s common stock for at least 20 trading days in the 30 trading day period ending on the trading day before the conversion date is more than 120% (which percentage will decline over the life of the debentures to 110% in accordance with the terms of the debentures) of the accreted conversion price per share of CSX’s common stock at that preceding trading day;

•  If CSX’s senior 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 CSX has called the debentures for redemption (which may occur no sooner than October 30, 2008); or

•  Upon the occurrence of specified corporate transactions.

      The accreted conversion price of the debentures at December 30, 2005 was $853.98 and the threshold price to be met in order to convert the debentures into common stock was $56.79 per common share.

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CSX CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Short-term Debt Balances and Rates

	December 30,			December 31,
	2005			2004
	(Dollars in millions)
Short-term Debt	$	1		$	101
Weighted Average Interest Rates		4.47	%		1.10	%

Long-term Debt Maturities

Fiscal Years Ending	(Dollars in millions)
2006	$	1,016
2007		595
2008		633
2009		296
2010		94
2011 and Thereafter		3,474
Total Long-term Debt Maturities		6,108
Unamortized discount on convertible bonds included in Current Maturities of Long-term Debt		(80	)
Fair market value of interest rate swap included in Long-term Debt		1
Total Current Maturities and Long-term Debt	$	6,029

      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 $68 million in assets, which are specifically designated to fund an equal amount of long-term debt.

Credit Facilities

      CSX has a $1.2 billion five-year unsecured revolving credit facility expiring in May 2009 and a $400 million 364-day unsecured revolving credit facility expiring in May 2006. The facilities were entered into in May 2004 and May 2005, respectively, on terms substantially similar to the facilities they replaced. Generally, these facilities may be used for general corporate purposes, to support CSX’s commercial paper, and for working capital. Neither of the credit facilities was drawn on as of December 30, 2005. Commitment fees and interest rates payable under the facilities are similar to fees and rates available to comparably rated investment-grade borrowers. In 2005, CSX paid approximately $2 million for total fees associated with the undrawn facility. These credit facilities allow for borrowings at floating (LIBOR-based) rates, plus a spread, depending upon CSX’s senior unsecured debt ratings. At December 30, 2005, CSX was in compliance with all covenant requirements under the facilities.

NOTE 13. Derivative Financial Instruments

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

Interest Rate Swaps

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

						Variable Rate at			Variable Rate at
			Fixed Interest			December 30,			December 31,
Maturity Date	Notional Amount		Rate			2005			2004
	(Dollars in
	millions)
May 1, 2007	$	450		7.45	%		7.65	%		5.50	%
May 1, 2032		150		8.30	%		5.84	%		3.75	%
Total/ Average	$	600		7.66	%

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CSX CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

      Under these agreements, CSX will pay variable interest based on LIBOR in exchange for a fixed rate, effectively transforming the notes to floating rate obligations. The interest rate swap agreements are designated and qualify as fair value hedges and the gain or loss on the derivative instrument, as well as the offsetting gain or loss on the fixed rate note attributable to the hedged risk, are recognized in current earnings during the period of change in fair values. Hedge effectiveness is measured at least quarterly based on the relative change in fair value of the derivative contract in comparison with changes over time in the fair value of the fixed rate notes. Any change in fair value resulting from ineffectiveness, as defined by SFAS 133, Accounting For Derivative Instruments and Hedging Activities (“SFAS 133”), is recognized immediately in earnings. CSX’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 $1 million and $26 million for the fair market value of the interest rate swap agreements based upon quoted market prices at December 30, 2005 and December 31, 2004, respectively. Fair value adjustments are non-cash transactions and, accordingly, have no cash impact on the Consolidated Cash Flow Statements.

      The differential to be paid or received under these agreements is accrued based on the terms of the agreements and is recognized in interest expense over the term of the related debt. The related amounts payable to or receivable from counterparties are included in other current liabilities or assets. Cash flows related to interest rate swap agreements are classified as Operating Activities in the Consolidated Cash Flow Statements. For the fiscal years ended December 30, 2005 and December 31, 2004, CSX reduced interest expense by approximately $12 million and $32 million, respectively, as a result of the interest rate swap agreements that were in place during each period.

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

Fuel Hedging

      In 2003, CSX began a program to hedge a portion of CSXT’s future diesel fuel purchases. This program was established to manage exposure to fuel price fluctuations. In order to minimize this risk, CSX has entered into a series of swaps in order to fix the price of a portion of CSXT’s estimated future fuel purchases.

      Following is a summary of outstanding fuel swaps:

	December 30, 2005
Approximate Gallons Hedged (Millions)		57
Average Price Per Gallon		$0.84
Swap Maturities		January 2006-July 2006

	2006
	Q1			Q2			Q3
Estimated % of Future Fuel Purchases Hedged at December 30, 2005		25	%		11	%		1	%

      The program limits fuel hedges to a 24-month duration and a maximum of 80% of CSXT’s average monthly fuel purchased for any month within the 24-month period, and places the hedges among selected counterparties. Fuel hedging activity favorably impacted fuel expense for the fiscal year ended December 30, 2005 and December 31, 2004 by $249 million and $63 million, respectively. Fuel hedging activity had no impact on fuel expense for the fiscal 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, was immaterial.

      These instruments qualify, and are designated by management, as cash-flow hedges of variability in expected future cash flows attributable to fluctuations in fuel prices. The fair values of

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CSX CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

fuel derivative instruments are determined based upon current fair market values as quoted by third party dealers and are recorded on the Consolidated Balance Sheets with offsetting adjustments to Accumulated Other Comprehensive Loss, a component of Shareholders’ Equity. Amounts are reclassed from Accumulated Other Comprehensive Loss as the underlying fuel that was hedged is consumed by rail operations. The fair value of fuel derivative instruments based upon quoted market prices was $51 million and $118 million as of December 30, 2005 and December 31, 2004. Fair value adjustments are non-cash transactions and, accordingly, have no cash impact on the Consolidated Cash Flow Statements.

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

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

NOTE 14. Shareholders’ Equity

Common and Preferred Stocks

      Common and Preferred Stock consists of:

	December 30,
Common Stock, $1 Par Value	2005
	(In thousands)
Common Shares Authorized		300,000
Common Shares Issued and Outstanding		218,203

	December 30,
Preferred Stock	2005
	(In thousands)
Preferred Shares Authorized		25,000
Preferred Shares Outstanding		—

      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 CSX.

      Prior to October 2003, 3,000,000 shares had been designated as Series B Preferred Stock in conjunction with CSX’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 CSX’s Articles of Incorporation were amended to eliminate the designation of shares for Series B Preferred.

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CSX CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

NOTE 15. Earnings Per Share

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

		Fiscal Years Ended
		December 30,			December 31,			December 26,
		2005			2004			2003
Numerator (Millions):
	Earnings from Continuing Operations	$	720		$	418		$	137
	Interest Expense on Convertible Debt — Net of Tax		4			4			4
	Net Earnings from Continuing Operations, If- Converted		724			422			141
	Discontinued Operations — Net of Tax		425			(79	)		52
	Cumulative Effect of Accounting Change — Net of Tax		—			—			57
	Net Earnings, If-Converted		1,149			343			250
	Interest Expense on Convertible Debt — Net of Tax		(4	)		(4	)		(4	)
	Net Earnings	$	1,145		$	339		$	246
Denominator (Thousands):
	Average Common Shares Outstanding		216,425			214,796			213,964
	Convertible Debt		9,728			9,728			9,932
	Stock Options		1,406			360			328
	Other Potentially Dilutive Common Shares		465			146			104
	Average Common Shares Outstanding, Assuming Dilution		228,024			225,030			224,328
Earnings Per Share:
	Income from Continuing Operations	$	3.33		$	1.95		$	0.64
	Discontinued Operations		1.96			(0.37	)		0.24
	Cumulative Effect of Accounting Change		—			—			0.26
	Net Earnings	$	5.29		$	1.58		$	1.14
Earnings Per Share, Assuming Dilution:
	Income from Continuing Operations	$	3.17		$	1.87		$	0.63
	Discontinued Operations		1.87			(0.35	)		0.23
	Cumulative Effect of Accounting Change		—			—			0.25
	Net Earnings	$	5.04		$	1.52		$	1.11

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

	Fiscal Years Ended
	December 30,		December 31,		December 26,
	2005		2004		2003
	(Thousands)
Number of Stock Options Exercised		2,764		517		293

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CSX CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

      Certain potentially dilutive stock options as of the fiscal years ended 2005, 2004 and 2003 were excluded from the computation of earnings per share, assuming dilution, since their related option exercise prices were greater than the average market price of the common shares during the period. The following table provides information about potentially dilutive stock options excluded from the computation of earnings per share:

	Fiscal Years Ended
	December 30,		December 31,		December 26,
	2005		2004		2003
Number of Shares (Thousands)		2,213		16,374		18,497
Average Exercise Price	$	53.11	$	42.88	$	42.41

      A substantial increase in the fair market value of CSX’s stock price could trigger contingent conditions for conversion allowing holders to convert their debentures into CSX common stock, as well as causing an increase in the exercise of stock options. Thus, both could negatively impact basic earnings per share.

NOTE 16. Stock Plans

      The Company adopted the fair value based method of accounting for share-based payments effective fiscal year 2003 using the prospective method described in SFAS 148. (See Note 1. Nature of Operations and Significant Accounting Policies under the caption “Share-Based Compensation”.)

      Total compensation expense associated with share-based compensation was as follows:

	Fiscal Years Ended
	December 30,		December 31,		December 26,
	2005		2004		2003
	(Dollars in millions)
Stock Based Compensation Expense	$	39	$	20	$	5

Stock Options and Awards

      CSX stock option and award plans provide primarily (1) stock options, (2) restricted stock awards to eligible officers and employees, (3) Long-term incentive plans, (4) stock plans for directors, and (5) other plans. Awards granted under the various plans are determined by the Board of Directors.

      At December 30, 2005, there were 3,334 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 6 million were available for new grants. The remaining shares are assigned to outstanding stock options and stock awards.

Stock Options

      The fair value of $8.93 for stock options granted in 2003 was estimated as of the date of grant using the Black-Scholes-Merton option model and incorporating assumptions as listed below. No stock options were granted in 2004 or 2005.

		December 26,
		2003
Black-Scholes Assumptions:
	Expected Dividend Yield		1.10	%
	Risk-free Interest Rate		2.53	%
	Expected Stock Volatility		28	%
	Expected Term Until Exercise		6 years

      Stock options have been granted with 10-year terms. Options outstanding at December 30, 2005, 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 CSX’s

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CSX CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

stock option activity and related information for the fiscal years ended December 30, 2005, December 31, 2004 and December 26, 2003 is as follows:

	December 30, 2005					December 31, 2004					December 26, 2003
	Weighted-					Weighted-			2004		Weighted-
	Average			Average		Average			Average		Average			Average
	Shares			Exercise		Shares			Exercise		Shares			Exercise
	(000s)			Price		(000s)			Price		(000s)			Price
Outstanding at Beginning of Year		20,594		$	39.83		23,297		$	39.27		26,022		$	40.45
Granted		—		$	—		—		$	—		3,477		$	38.14
Expired or Canceled		(883	)	$	39.97		(2,186	)	$	37.83		(5,909	)	$	39.91
Exercised		(2,764	)	$	35.56		(517	)	$	23.29		(293	)	$	22.42
Outstanding at End of Year		16,947		$	40.30		20,594		$	39.83		23,297		$	39.27
Exercisable at End of Year		8,497		$	42.15		7,758		$	41.18		7,104		$	41.13

      The following table summarizes information about stock options outstanding at December 30, 2005:

		Options Outstanding						Options Exercisable
				Weighted-
				Average		Weighted-				Weighted-
		Number		Remaining		Average		Number		Average
		Outstanding		Contractual		Exercise		Outstanding		Exercise
Exercise Price		(000’s)		Life (Years)		Price		(000’s)		Price
	$20 to $29		713		4.20	$	24.02		713	$	24.02
	$30 to $39		9,523		6.28	$	36.58		2,838	$	39.15
	$40 to $49		4,509		2.47	$	44.48		3,571	$	44.58
	$50 to $59		2,202		0.89	$	53.12		1,375	$	51.43
Total			16,947		4.48	$	40.30		8,497	$	42.15

Restricted Stock Awards

      Restricted stock awards vest over a three to five-year employment period. The following table provides information about outstanding restricted stock awards.

	Fiscal Years Ended
	December 30,		December 31,		December 26,
	2005		2004		2003
Number of Restricted Stock Awards Outstanding (Thousands)		275		259		249
Weighted Average Fair Value at Grant Date	$	32.72	$	31.21	$	30.97
Restricted Stock Award Expense (Millions)	$	2	$	2	$	2

Long-term Incentive Programs

      The CSX Long-term Incentive Program, introduced in 2004, is designed to reward participants for the attainment of certain CSX financial and strategic initiatives designed to align shareholder and employee interests. The objective of the plan is to motivate and reward key members of management and executives for achieving and exceeding a two-year modified free cash flow goal. The award is payable in cash and CSX common stock. The current plan expired on December 30, 2005, and CSX issued 756 thousand shares in 2006 as a result of the achievement of performance targets for the two preceding fiscal years. Additionally, CSX recognized $75 million and $10 million in expense associated with this program for the fiscal years ended December 30, 2005 and December 31, 2004, respectively.

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CSX CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

      The Company intends to continue to motivate and reward key members of management and executive officers for achieving certain performance criteria through the use of long-term incentive compensation plans at least partially payable in CSX common stock.

Stock Plan for Directors

      The Stock Plan for Directors, approved by the shareholders in 1992, governs in part the manner in which directors’ fees and retainers are paid. In 2004, the minimum retainer to be paid in CSX common stock increased from 40% 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 CSX. In 1997, shareholders approved amendments to the Plan that would permit additional awards of stock or stock options. The following table provides information about shares issued to directors.

	Fiscal Years Ended
	December 30,		December 31,		December 26,
	2005		2004		2003
Shares Issued to Directors (Thousands)		37		41		36
Expense (Millions)	$	2	$	1	$	1

      For 2005, the Plan permits each director, in accordance with Internal Revenue Code Section 409A, to defer receipt of fees. Deferred fee amounts are credited to an unfunded account and may be invested in eight investment choices, including a CSX common stock equivalent fund. Distributions are made in accordance with elections made by the directors consistent with the terms of the Plan. At December 30, 2005, there were 593 thousand shares of common stock reserved for issuance under this plan.

Employee Stock Purchase Plan

      The 2001 Employee Stock Purchase Plan (“ESPP”) allowed 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 CSX stock. Once purchased, the shares were unrestricted and could generally be sold or transferred at any time. Employees purchased approximately 540,000 shares under this plan during 2003. This plan was not extended beyond 2003.

Shareholder Dividend Reinvestment Plan

      CSX maintains the Shareholder Dividend Reinvestment Plan under which shareholders may purchase additional shares of stock. The following table provides information about shares available for issuance under this plan as of December 30, 2005, December 31, 2004 and December 26, 2003.

	December 30,		December 31,		December 26,
	2005		2004		2003
	(Thousands)
Number of Shares Available for Issuance		4,734		4,947		4,626

Stock Repurchases

      The Board of Directors has authorized CSX to purchase shares of its common stock from time to time in an amount up to approximately $150 million in any fiscal year. Pursuant to this authority, CSX intends to purchase shares of CSX common stock in the open market or in privately negotiated transactions.

NOTE 17. Fair Value of Financial Instruments

      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

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CSX CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

carrying amounts. 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

		December 30,		December 31,
		2005		2004
		(Dollars in billions)
Long Term Debt Including Current Maturities:
	Fair Value	$	6.7	$	7.7
	Carrying Value	$	6.0	$	7.2

NOTE 18. Employee Benefit Plans

General

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

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

	Summary of Participants as of
	January 1, 2005
	Pension Plans		Postretirement Plan
Active Employees		6,654		4,325
Retirees and Beneficiaries		11,079		11,295
Other		5,980		265
Total		23,713		15,885

      As permitted by SFAS 87, Employers Accounting for Pensions (“SFAS 87”), the Company has elected to use a plan measurement date of September 30 to actuarially value its pension and postretirement plans as it provides for more timely analysis. The Company engages independent, external actuaries to compute the amounts of liabilities and expenses relating to these plans subject to the assumptions that the Company selects as of the beginning of the plan year.

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

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

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

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

•  Benefits paid to participants

      Currently, there is proposed legislation regarding pension plan funding requirements. If the proposed legislation is passed, pension plan funding requirements will be increased. The impact to the Company of this proposed legislation is unknown at this time.

Cashflows

      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

88

CSX CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

benefits paid. The Company funds the cost of the postretirement medical and life insurance benefits on a pay-as-you go basis. CSX expects to make cash contributions of approximately $9 million to its pension plans in 2006. The benefits as of December 30, 2005 expected to be paid in each of the next five fiscal years, and in the aggregate for the five fiscal years thereafter are as follows:

	Expected Cashflows
	Pension		Postretirement
	Benefits		Benefits
	(Dollars in millions)
2006	$	147	$	47
2007		143		46
2008		143		45
2009		144		43
2010		142		42
Thereafter		738		177
Total	$	1,457	$	400

Plan Assets

      Asset management for the pension fund is founded upon an asset allocation strategy that was developed using asset return simulation in conjunction with projected plan liabilities. The allocation seeks maximization of returns within the constraints of acceptable risks considering the long-term investment horizon. CSX has established a target allocation of 60% equity and 40% fixed income investments. The goal is to maintain assets at or above benefit obligations (long-term liabilities) without corporate contributions.

      The distribution of pension plan assets as of the measurement date is as follows:

	September 30,					September 30,
	2005					2004
			Percent of					Percent of
	Amount		Total Assets			Amount		Total Assets
	(Dollars in millions)
Common Stocks	$	928		60	%	$	865		59	%
Fixed Income		591		39	%		581		40	%
Cash and Cash Equivalents		17		1	%		12		1	%
Total	$	1,536		100	%	$	1,458		100	%

      The Company provides investment guidelines to both the plan’s fixed income and equity fund managers. Within the broad asset classes that comprise the plan’s investments, common stocks are diversified based on allocations to domestic and foreign stocks as mandated by the Company. Allocations are maintained at within 3% of targets. The U.S. stock segment includes style diversification among managers of large capitalization stocks and small capitalization stocks. The Company limits industry sectors, outlines individual stock issuer concentration and monitors the use or prohibition of derivatives and CSX securities.

      Fixed income securities are diversified across fund managers and investment style and are benchmarked to a long duration index. The Company specifies the types of allowable investments such as government, corporate and asset-backed bonds, and limits diversification between domestic and foreign investments and the use of derivatives. Additionally, the Company stipulates minimum credit quality constraints and any prohibited securities.

      Individual investments or fund managers are selected in accordance with standards of prudence as it applies to asset diversification and investment suitability. Monitoring fund investment performance is ongoing. Acceptable performance is determined in the context of the long-term return objectives of the fund and appropriate asset class benchmarks.

89

CSX CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Benefit Obligation and Plan Asset Information

		Pension Benefits						Postretirement Benefits
		December 30,			December 31,			December 30,			December 31,
		2005			2004			2005			2004
		(Dollars in millions)
Actuarial Present Value of Benefit Obligation
	Accumulated Benefit Obligation	$	1,947		$	1,825			N/A			N/A
	Projected Benefit Obligation		2,078			1,941		$	444		$	509
Change in Projected Benefit Obligation:
Projected Benefit Obligation at Beginning of Plan Year		$	1,941		$	1,916		$	509		$	513
Service Cost			34			37			8			9
Interest Cost			107			111			24			25
Impact of Plan Changes/ Special Termination Benefits			2			51			—			20
Plan Participants’ Contributions			—			—			14			12
Actuarial (Gain)/ Loss			141			12			(58	)		(20	)
Benefits Paid			(147	)		(186	)		(53	)		(50	)
Benefit Obligation at End of Plan Year		$	2,078		$	1,941		$	444		$	509

	Pension Benefits						Postretirement Benefits
	December 30,			December 31,			December 30,			December 31,
	2005			2004			2005			2004
	(Dollars in millions)
Change in Plan Assets:
Fair Value of Plan Assets at Beginning of Plan Year	$	1,458		$	1,451			N/A			N/A
Actual Return on Plan Assets		210			165			N/A			N/A
Employer Contributions		15			28		$	39		$	38
Plan Participants’ Contributions		—			—			14			12
Benefits Paid		(147	)		(186	)		(53	)		(50	)
Fair Value of Plan Assets at End of Plan Year	$	1,536		$	1,458		$	—		$	—
Funded Status	$	(542	)	$	(483	)	$	(444	)	$	(509	)

Funded Status and Amounts Recognized in Consolidated Balance Sheets

      The funded status, or amount by which the benefit obligation exceeds the fair value of plan assets, represents a liability. At December 30, 2005, the status of CSX plans is as follows:

	Aggregate		Aggregate
	Projected Benefit		Fair Value of
	Obligation		Plan Assets
For plans with a projected benefit obligation in excess of plan assets	$	2.1 billion	$	1.5 billion
For plans with an accumulated benefit obligation in excess of plan assets	$	1.9 billion	$	1.5 billion

90

CSX CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

      The following table shows the reconciliation of the funded status of the plans with the amount recorded in the Consolidated Balance Sheets:

		Pension Benefits						Postretirement Benefits
		December 30,			December 31,			December 30,			December 31,
		2005			2004			2005			2004
		(Dollars in millions)
Funded Status		$	(542	)	$	(483	)	$	(444	)	$	(509	)
Unrecognized Actuarial Loss			477			448			114			184
Unrecognized Prior Service Cost			23			27			(14	)		(19	)
Fourth Quarter Activity:
	Employer Contributions to Pension Plans		4			3			—			—
	Net Postretirement Benefits Paid		—			—			11			10
Net Amount Recognized in Consolidated Balance Sheet		$	(38	)	$	(5	)	$	(333	)	$	(334	)

      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.

	Pension Benefits						Postretirement Benefits
	December 30,			December 31,			December 30,			December 31,
	2005			2004			2005			2004
	(Dollars in millions)
Accrued Benefit Liability	$	(462	)	$	(422	)	$	(333	)	$	(334	)
Intangible Asset		23			26			N/A			N/A
Accumulated Other Comprehensive Loss		401			391			N/A			N/A
Net Amount Recognized in Consolidated Balance Sheet	$	(38	)	$	(5	)	$	(333	)	$	(334	)

Net Periodic Benefit Expense

										Postretirement
	Pension Benefits									Benefits
	Fiscal Years Ended									Fiscal Years Ended
	2005			2004			2003			2005			2004			2003
	(Dollars in millions)
Service Cost	$	34		$	37		$	38		$	8		$	9		$	11
Interest Cost		107			111			113			24			25			25
Expected Return on Plan Assets		(120	)		(130	)		(137	)		—			—			—
Amortization of Prior Service Cost		4			4			4			(5	)		(6	)		(5	)
Amortization of Net Loss		21			14			—			13			15			14
Net Periodic Benefit Cost	$	46		$	36		$	18		$	40		$	43		$	45
Special Termination Benefits — Workforce Reduction Program/ Curtailments		—			6			13			—			18			—
Net Periodic Benefit Expense Including Termination Benefits	$	46		$	42		$	31		$	40		$	61		$	45

91

CSX CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Curtailments

      Due to the termination of employees under the management restructuring plan (see Note 5. Management Restructuring), a curtailment occurred in CSX’s pension plan and postretirement medical plan. The estimated cost of the curtailments of $24 million was included in the management restructuring charge for the fiscal year ended December 31, 2004. Due to the curtailments, the Company was required to update its measurement of the assets and obligations of these plans, which affected the net periodic benefit costs beginning in the second quarter of 2004. A substantial portion of benefits provided under the management restructuring initiatives was paid from assets of the Company’s defined benefit pension plans.

      The $13 million termination charge in 2003 represents a curtailment charge associated with the retirement of the Company’s former Chairman and Chief Executive Officer.

Additional Minimum Liability

      During 2005 and 2004, CSX recorded changes in its minimum pension liability and its shares of changes in Conrail’s minimum pension liability. These changes did not affect net earnings, but are a component of Accumulated Other Comprehensive Loss on an after tax basis.

	December 30,			December 31,
	2005			2004
Components of Accumulated Other Comprehensive Loss	Increase (Decrease)			Increase (Decrease)
	(Dollars in millions)
Minimum Pension Liability	$	(10	)	$	(26	)
Accumulated Effect Net of Taxes		(6	)		19
Conrail Effect Net of Taxes		(9	)		(1	)

Assumptions

      Weighted-average assumptions used in accounting for the plans are as follows:

		Pension Benefits						Postretirement Benefits
		December 30,			December 31,			December 30,			December 31,
		2005			2004			2005			2004
Expected Long-term Return on Plan Assets:
	Benefit Cost for Plan Year		8.50	%		8.90	%		N/A			N/A
	Benefit Obligation at End of Plan Year		8.50	%		8.50	%		N/A			N/A
Discount Rates:
	Benefit Cost for Plan Year		5.75	%		6.00	%		5.00	%		5.00	%
	Benefit Obligation at End of Plan Year		5.25	%		5.75	%		5.00	%		5.00	%
Salary Scale Inflation			3.60	%		3.20	%		3.60	%		3.20	%

      The net postretirement benefit obligation was determined using the following assumptions for health care cost trend rate for medical plans.

		Postretirement Benefits
		December 30,		December 31,
		2005		2004
Health Care Cost Trend Rate
	Components of Benefit Cost: Pre-65		12% decreasing to 4.5%		11% decreasing to 4.5%
	Components of Benefit Cost: Post-65		13% decreasing to 4.5%		11% decreasing to 4.5%
	Benefit Obligations: Pre-65		11% decreasing to 4.5%		12% decreasing to 4.5%
	Benefit Obligations: Post-65		12% decreasing to 4.5%		13% decreasing to 4.5%

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CSX CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

      A 1% change in the assumed health care cost trend rate would have the following effects:

	1% Increase		1% Decrease
	(Dollars in millions)
Effect on postretirement benefits service and interest cost	$	1	$	(2	)
Effect on postretirement benefit obligation	$	18	$	(16	)

Medicare Prescription Drug, Improvement and Modernization Act of 2003

      The Company is required to estimate and record the effects of the Medicare Prescription Drug, Improvement and Modernization Act of 2003 (“Act”). The Company determined that its medical plan’s prescription drug benefit will qualify as actuarially equivalent to Medicare Part D based upon a review by the plan’s health and welfare actuary of the plan’s benefit compared with the benefit that would be paid under Medicare Part D. The reduction in the postretirement benefit obligation as a result of the Act was approximately $56 million as of December 30, 2005.

      CSX has applied for the tax free 28% federal reimbursement of total prescription drug claims from $250 to $5,000 paid after January 1, 2006.

Other Plans

      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 $19 million, $15 million and $16 million for 2005, 2004 and 2003, respectively.

      Under collective bargaining agreements, the Company participates in a number of multiemployer medical insurance plans providing health insurance coverage to its contract employees. The participating employers make contributions on a pay-as-you-go basis generally based upon the number of its employees participating in the plan. Total contributions of $376 million, $368 million and $360 million were made to these plans in 2005, 2004 and 2003, respectively.

NOTE 19. Commitments and Contingencies

Lease Commitments

      The Company has various lease agreements with other parties with terms up to 27 years. Non-cancelable, long-term leases generally include provisions for maintenance, options to purchase and options to extend the terms.

      At December 30, 2005, minimum building and equipment rentals and commitments for vessels under these operating leases are as follows:

	Operating		Sublease		Net Lease
Years	Leases		Income		Commitments
	(Dollars in millions)
2006	$	232	$	56	$	176
2007		236		71		165
2008		170		50		120
2009		124		37		87
2010		106		31		75
Thereafter		375		111		264
Total	$	1,243	$	356	$	887

      Operating leases and an equal portion of sublease income include approximately $229 million relating to ongoing operating lease commitments for vessels and equipment, which have been subleased to Horizon. CSX believes Horizon will fulfill its contractual commitments with respect to such leases, and CSX will have no further liabilities for those obligations.

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CSX CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

      In addition to the commitments in the following table, the Company also has agreements covering equipment leased from Conrail. (See Note 2. Investment In and Integrated Rail Operations with Conrail, for a description of these commitments.)

	For Years Ended
	December 30,		December 31,		December 26,
	2005		2004		2003
	(Dollars in millions)
Rent Expense on Operating Leases	$	523	$	567	$	556

      The majority of rent expense on operating leases relates to net daily rental charges on railroad operating equipment which are not long-term commitments.

      The Company recognizes rent expense associated with operating leases that include escalations over their term using the straight-line method.

Matters Arising Out of Sale of International Container-Shipping Assets

      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 European Container Terminals (“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 Operating Expense as an Additional Loss on the Sale of the international container-shipping assets. Neither settlement had a material impact on cash flows.

Purchase Commitments

      CSXT has a commitment under a long-term maintenance program that currently covers 43% of CSXT’s fleet of locomotives. The agreement is based on the maintenance cycle for each locomotive and is currently predicted to expire no earlier than 2026 and as late as 2031, depending upon when additional locomotives are placed in service. The costs expected to be incurred through the duration of the agreement fluctuate as locomotives are placed into or removed from service or as required maintenance is adjusted. CSXT may terminate the agreement at its option after 2012 though such action will trigger certain liquidated damages provisions. Under the program, CSXT paid $170 million, $151 million and $130 million during the fiscal years ended 2005, 2004 and 2003, respectively.

      As a result of agreements executed in August 2005 and February 2006, CSXT has purchase obligations supporting a multi-year plan to acquire additional locomotives between 2006 and 2011. The amount of the ultimate purchase commitment depends upon the model of locomotive acquired and the timing of delivery.

94

CSX CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

      Annual payments under the long-term maintenance program and locomotive purchase obligations are estimated as follows:

Years	Payments
	(Dollars in millions)
2006	$	361
2007		392
2008		340
2009		338
2010		353
2011-2031		5,855
Total	$	7,639

      Additionally, the Company has various commitments to purchase technology and communications services. The terms for the various agreements call for the Company to pay $36 million, $31 million and $2 million for the fiscal years ending 2006, 2007 and 2008, respectively. The largest purchase obligation is for communications services of $24 million per year for the years 2006 through 2007.

STB Proceeding

      In 2001 Duke Energy Corporation (“Duke”) filed a complaint before the STB alleging that certain CSXT common carrier coal rates were unreasonably high. CSXT and Duke reached a settlement agreement pursuant to which Duke dismissed the STB proceedings with prejudice. Consequently, the Company reversed a $17 million reserve which increased coal, coke and iron ore revenue. Resolution of this matter in 2005 did not have a material impact on the Company’s financial condition, results of operations or liquidity for any period presented. Duke and CSXT have entered into a transportation contract establishing commercial terms for the future transportation of coal to Duke power plants served by CSXT.

Insurance

      The Company maintains numerous insurance programs, most notably for third-party casualty liability and for Company property damage and business interruption with substantial limits. A specific amount of risk ($25 million per occurrence) is retained by the Company on the casualty program and noncatastrophic property damage. The Company retains $50 million of risk per occurrence for its catastrophic property coverage. For information on insurance issues resulting from the effects of Hurricane Katrina on the Company’s operations and assets, see Note 6 Hurricane Katrina.

Guarantees

      CSX and its subsidiaries are contingently liable individually and jointly with others as guarantors of approximately $117 million in obligations principally relating to leased equipment, vessels and joint facilities used by the Company in its business operations. Utilizing the Company’s guarantee for these obligations allows the obligor to take advantage of lower interest rates and obtain other favorable terms. Guarantees are contingent commitments issued by the Company that could require CSX or one of its affiliates to make payment to or to perform certain actions for the beneficiary of the guarantee based on another entity’s failure to perform.

      1. Guarantee of approximately $85 million of obligations of a former subsidiary, CSX Energy, in connection with a sale-leaseback transaction. CSX is, in turn, indemnified by several subsequent owners of the subsidiary against payments made with respect to this guarantee. CSX management does not expect that CSX will be required to make any payments under this guarantee for which CSX will not be reimbursed.

95

CSX CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

      2. Guarantee of approximately $16 million relating to leases assumed as part of the conveyance of its interest in a former subsidiary, CSX Lines, subsequently renamed Horizon Lines LLC (“Horizon”). CSX believes Horizon will fulfill its contractual commitments with respect to such leases, and CSX will have no further liabilities for those obligations.

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

      As of December 30, 2005, the Company has not recognized any liabilities in its financial statements in connection with any guarantees arrangements. The maximum amount of future payments CSX could be required to make under these guarantees is the amount of the guarantees themselves.

Other Legal Proceedings

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

NOTE 20. Business Segments

      The Company operates primarily in two business segments: rail and intermodal. The rail segment provides rail freight transportation over a network of approximately 21,000 route miles in 23 states, the District of Columbia and two Canadian provinces. The intermodal segment provides integrated rail and truck transportation services and operates a network of dedicated intermodal facilities across North America. The Company’s segments are strategic business units that offer different services and are managed separately. The rail and intermodal segments are also viewed on a combined basis as Surface Transportation operations.

      The Company evaluates performance and allocates resources based on several factors, of which the primary financial measure is business segment operating income. The accounting policies of the segments are the same as those described in Nature of Operations and Significant Accounting Policies (See Note 1. Nature of Operations and Significant Accounting Policies.)

      Consolidated operating income includes the results of operations of Surface Transportation and other operating income. Other operating income includes the gain amortization on the CSX Lines conveyance, net sublease income from assets formerly included in the Company’s Marine Services segment, and other items.

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

96

CSX CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

      Business segment information for the fiscal years ended December 30, 2005, December 31, 2004 and December 26, 2003 is as follows:

	Surface Transportation
	Rail		Intermodal		Total		Other		Total
	(Dollars in millions)
2005
Revenues from External Customers	$	7,256	$	1,362	$	8,618	$	—	$	8,618
Segment Operating Income		1,301		248		1,549		1		1,550
Assets		23,177		305		23,482		—		23,482
Depreciation Expense		779		39		818		—		818
Property Additions		1,091		25		1,116		1		1,117
2004
Revenues from External Customers	$	6,694	$	1,346	$	8,040	$	—	$	8,040
Segment Operating Income		841		152		993		7		1,000
Assets		22,927		313		23,240		552		23,792
Depreciation Expense		664		38		702		—		702
Property Additions		973		22		995		8		1,003
2003
Revenues from External Customers	$	6,182	$	1,264	$	7,446	$	127	$	7,573
Intersegment Revenues		—		4		4		—		4
Segment Operating Income		541		110		651		—		651
Assets		16,333		400		16,733		614		17,347
Depreciation Expense		579		32		611		—		611
Property Additions		974		47		1,021		21		1,042

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

		Fiscal Years Ended
		December 30,		December 31,		December 26,
		2005		2004		2003
		(Dollars in millions)
Revenues:
Total External Revenues for Business Segments		$	8,618	$	8,040	$	7,573
Intersegment Revenues for Business Segments			—		—		4
Elimination of Intersegment Revenues			—		—		(4	)
Other			—		—		—
	Total Consolidated Revenues	$	8,618	$	8,040	$	7,573
Operating Income:
Total Operating Income for Business Segments		$	1,550	$	1,000	$	651
Unallocated Corporate Expenses			—		—		(23	)
Additional Loss on Sale			—		—		(108	)
	Total Consolidated Operating Income	$	1,550	$	1,000	$	520

97

CSX CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

		Fiscal Years Ended
		December 30,			December 31,			December 26,
		2005			2004			2003
		(Dollars in millions)
Assets:
Assets for Business Segments		$	23,482		$	23,792		$	17,347
Investment in Conrail			603			574			4,678
Elimination of Intersegment Payables (Receivables)			(83	)		(61	)		(44	)
Non-segment Assets (Liabilities)			230			300			(221	)
	Total Consolidated Assets	$	24,232		$	24,605		$	21,760
Depreciation Expense
Depreciation for Business Segments		$	818		$	702		$	611
Non-Segment Depreciation			8			9			9
	Total Consolidated Depreciation Expense	$	826		$	711		$	620
Property Additions
Property Additions for Business Segments		$	1,117		$	1,003		$	1,042
Non-segment Property Additions			19			27			17
Total Consolidated Property Additions		$	1,136		$	1,030		$	1,059

NOTE 21. Other Long-term Assets and Other Long-term Liabilities

Other Long-term Assets

      Other Long-term Assets at December 30, 2005 and December 31, 2004 consisted of the following:

		Fiscal Years Ended
		December 30,		December 31,
		2005		2004
		(Dollars in millions)
Pension Plan Assets		$	127	$	162
Long Term Deposits			77		68
Other Long-term Assets			69		146
Available for Sale Securities			65		50
Goodwill			64		64
Real Estate Development Costs			37		37
Debt Issuance Costs			31		42
Long-term Income Taxes Receivable			320		233
	Total Other Long-term Assets	$	790	$	802

98

CSX CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Other Long-term Liabilities

      Other Long-term Liabilities at December 30, 2005 and December 31, 2004 consisted of the following:

		Fiscal Years Ended
		December 30,		December 31,
		2005		2004
		(Dollars in millions)
Long-term Pension Plan Liability		$	554	$	547
Postretirement Benefit Liability			287		289
Long-term Deferred Gains			203		226
Other Long-term Liabilities			132		148
Accrued Deferred Compensation			84		105
Minority Interest			68		54
Deferred Lease Payments			35		37
Accrued Sick Leave			23		28
Long-term Income Taxes Payable			85		81
	Total Other Long-term Liabilities	$	1,471	$	1,515

99

CSX CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

NOTE 22. Quarterly Financial Data (Unaudited)(a)(b)

		2005												2004
Quarter		1st			2nd(f)			3rd			4th(g)			1st(c)			2nd(d)			3rd(e)			4th
		(Dollars in millions, except per share amounts)
Operating Revenue		$	2,108		$	2,166		$	2,125		$	2,219		$	1,920		$	1,997		$	1,943		$	2,180
Operating Expense			1,754			1,735			1,772			1,807			1,768			1,715			1,693			1,863
Operating Income			354			431			353			412			152			282			250			317
Other Income (Expense)			(2	)		30			11			62			(4	)		5			32			38
Debt Repurchase Expense			—			(192	)		—			—			—			—			—			—
Interest Expense			(114	)		(110	)		(100	)		(99	)		(108	)		(109	)		(106	)		(112	)
Earnings from Continuing Operations before Income Taxes			238			159			264			375			40			178			176			243
Income Tax (Expense) Benefit			(84	)		6			(100	)		(138	)		(13	)		(60	)		(62	)		(84	)
Earnings from Continuing Operations			154			165			164			237			27			118			114			159
Discontinued Operations — Net of Tax			425			—			—			—			3			1			9			(93	)
Net Earnings		$	579		$	165		$	164		$	237		$	30		$	119		$	123		$	66
Earnings Per Share:
From Continuing Operations		$	0.72		$	0.76		$	0.75		$	1.09		$	0.13		$	0.55		$	0.53		$	0.74
Discontinued Operations			1.97			—			—			—			0.01			—			0.04			(0.43	)
Net Earnings		$	2.69		$	0.76		$	0.75		$	1.09		$	0.14		$	0.55		$	0.57		$	0.31
Earnings Per Share Assuming Dilution:
From Continuing Operations		$	0.68		$	0.73		$	0.72		$	1.03		$	0.13		$	0.53		$	0.51		$	0.71
Discontinued Operations			1.88			—			—			—			0.01			—			0.04			(0.41	)
Net Earnings		$	2.56		$	0.73		$	0.72		$	1.03		$	0.14		$	0.53		$	0.55		$	0.30
Dividend Per Share		$	0.10		$	0.10		$	0.10		$	0.13		$	0.10		$	0.10		$	0.10		$	0.10
Market Price
	High	$	43.54		$	44.10		$	46.89		$	51.60		$	36.26		$	33.04		$	34.28		$	40.46
	Low	$	36.90		$	38.01		$	42.48		$	42.70		$	28.80		$	29.28		$	29.96		$	33.09

(a)	Periods presented are 13-week quarters, except for the fourth quarter of 2004, which was 14 weeks.
(b)	All periods presented have been restated for Discontinued Operations.
(c)	A charge of $53 million pretax for separation expenses related to the management restructuring announced in November 2003 at the Company’s Surface Transportation units. (See Note 5. Management Restructuring.)
(d)	A charge of $15 million pretax for separation expenses related to the management restructuring announced in November 2003 at the Company’s Surface Transportation units. (See Note 5. Management Restructuring.)
(e)	CSX completed a corporate reorganization of Conrail that resulted in the direct ownership of certain Conrail assets by CSXT. This transaction was accounted for at fair value and resulted in a net gain of $16 million after tax, which is included in other income. (See Note 2. Investment In and Integrated Rail Operations with Conrail.)
(f)	Ohio enacted legislation to gradually eliminate its corporate franchise tax. This legislative change resulted in an income tax benefit of $71 million. (See Note 8. Income Taxes.)
(g)	CSX updated its assessment of the unasserted liability exposure, which resulted in recognition of a $38 million pretax, favorable change in estimate. (See Note 11. Casualty, Environmental, and Other Reserves.)

100

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

      None.

Item 9A. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

      As of December 30, 2005, under the supervision and with the participation of CSX’s Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), management has evaluated the effectiveness of the design and operation of the Company’s disclosure controls and procedures, as such term is defined in Exchange Act Rules 13a-15(e) and 15d-15(e). Based on that evaluation, the CEO and CFO concluded that the Company’s disclosure controls and procedures were effective as of December 30, 2005. There were no changes in the Company’s internal controls over financial reporting during the fourth quarter of 2005 that have materially affected or are reasonably likely to materially affect the Company’s internal control over financial reporting.

Management’s Report on Internal Control over Financial Reporting

      CSX’s management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rules 13a-15(f) and 15d-15(f). Under the supervision and with the participation of the management of CSX, including CSX’s CEO and CFO, CSX conducted an evaluation of the effectiveness of the Company’s internal control over financial reporting as of December 30, 2005 based on the framework in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). Based on that evaluation, management of CSX concluded that the Company’s internal control over financial reporting was effective as of December 30, 2005.

      Management’s assessment of the effectiveness of the Company’s internal control over financial reporting as of December 30, 2005 has been audited by Ernst & Young LLP, an independent registered public accounting firm, as stated in their report which is included elsewhere herein.

Changes in Internal Control over Financial Reporting

      There were no material changes in the Company’s internal control over financial reporting.

Item 9B. Other Information

      None.

101

CSX CORPORATION

PART III

Item 10. Directors and 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, 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.”

Item 11. Executive Compensation

      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.

Item 12. Security Ownership of Certain Beneficial Owners and Management

      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.

Item 13. Certain Relationships and Related Transactions

      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.

Item 14. Principal Accounting Fees and Services

      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.

102

CSX CORPORATION

PART IV

Item 15. Exhibits and Financial Statement Schedules

      (a)(1) Financial Statements

      See Index to Consolidated Financial Statements on page 56.

      (2) Financial Statement Schedules

      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 Unaudited and Audited Consolidated Financial Statements of Conrail, Inc., filed herewith as Exhibit 99.3*. The information required by Schedule II is included in Note 11 to the Consolidated Financial Statements, Casualty, Environmental and Other Reserves. All other financial statement schedules are not applicable.

      (3) Exhibits

2	.1	Distribution Agreement, dated as of July 26, 2004, by and among CSX Corporation, CSX Transportation, Inc., CSX Rail Holding Corporation, CSX Northeast Holding Corporation, Norfolk Southern Corporation, Norfolk Southern Railway Company, CRR Holdings LLC, Green Acquisition Corp., Conrail Inc., Consolidated Rail Corporation, New York Central Lines LLC, Pennsylvania Lines LLC, NYC Newco, Inc. and PRR Newco, Inc. (incorporated herein by reference to Exhibit 2.1 to the Registrant’s Current Report on Form 8-K filed with the Commission on September 2, 2004)
3	.1	Amended and Restated Articles of Incorporation of the Registrant (incorporated herein by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K filed with the Commission on December 14, 2004)
3	.2	Bylaws of the Registrant, amended effective as of May 3, 2006 (incorporated herein by reference to Exhibit 3.2 of the Registrant’s Current Report on Form 8-K filed with the Commission on February 13, 2006)
4	.1(a)	Indenture, dated August 1, 1990, between the Registrant and The Chase Manhattan Bank, as Trustee (incorporated herein by reference to the Registrant’s Form SE, dated September 7, 1990, filed with the Commission)
4	.1(b)	First Supplemental Indenture, dated as of June 15, 1991, between the Registrant and The Chase Manhattan Bank, as Trustee (incorporated herein by reference to Exhibit 4(c) to the Registrant’s Form SE, dated May 28, 1992, filed with the Commission)
4	.1(c)	Second Supplemental Indenture, dated as of May 6, 1997, between the Registrant and The Chase Manhattan Bank, as Trustee (incorporated herein by reference to Exhibit 4.3 to the Registrant’s Registration Statement on Form S-4 (Registration No. 333-28523) filed with the Commission on June 5, 1997)
4	.1(d)	Third Supplemental Indenture, dated as of April 22, 1998, between the Registrant and The Chase Manhattan Bank, as Trustee (incorporated herein by reference to Exhibit 4.2 to the Registrant’s Current Report on Form 8-K filed with the Commission on May 12, 1998)
4	.1(e)	Fourth Supplemental Indenture, dated as of October 30, 2001, between the Registrant and The Chase Manhattan Bank, as Trustee (incorporated herein by reference to Exhibit 4.1 to the Registrant’s Report on Form 10-Q filed with the Commission on November 7, 2001)
4	.1(f)	Fifth Supplemental Indenture, dated as of October 27, 2003 between the Registrant and The Chase Manhattan Bank, as Trustee (incorporated herein by reference to Exhibit 4.1 to the Registrant’s Report on Form 8-K filed with the Commission on October 27, 2003)
4	.1(g)	Sixth Supplemental Indenture, dated as of September 23, 2004 between the Registrant and JP Morgan Chase Bank, formerly The Chase Manhattan Bank, as Trustee (incorporated herein by reference to Exhibit 4.1 to the Registrant’s Report on Form 10-Q filed with the Commission on November 3, 2004)

      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

103

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.

10.1**	CSX Stock Plan for Directors (as amended through January 1, 2004) (incorporated herein by reference to Exhibit 10.1 to the Registrant’s Annual Report on Form 10-K filed with the Commission on March 10, 2004)
10.2**	Corporate Director Deferred Compensation Plan (as amended through January 1, 2004) (incorporated herein by reference to Exhibit 10.2 to the Registrant’s Annual Report on Form 10-K filed with the Commission on March 10, 2004)
10.3**	CSX Corporation 2002 Corporate Director Deferred Compensation Plan (as amended through January 1, 2004) (incorporated herein by reference to Exhibit 10.3 to the Registrant’s Annual Report on Form 10-K filed with the Commission on March 10, 2004)
10.4**	CSX Directors’ Charitable Gift Plan, as amended (incorporated herein by reference to Exhibit 10.4 to the Registrant’s Annual Report on Form 10-K filed with the Commission on March 4, 1994)
10.5**	CSX Directors’ Matching Gift Plan (as amended through December 31, 2003) (incorporated herein by reference to Exhibit 10.5 to the Registrant’s Annual Report on Form 10-K filed with the Commission on March 10, 2004)
10.6**	Special Employment Agreement with M. J. Ward (incorporated herein by reference to Exhibit 10.6 to the Registrant’s Report on Form 10-Q filed with the Commission on November 7, 2001)
10.7**	Restricted Stock Award Agreement with M. J. Ward (incorporated herein by reference to Exhibit 10.7 to the Registrant’s Report on Form 10-Q filed with the Commission on November 7, 2001)
10.8**	Railroad Retirement Benefits Agreement with M. J. Ward (incorporated herein by reference to Exhibit 10.13 to the Registrant’s Report on Form 10-K filed with the Commission on February 26, 2003)
10.9**	Employment Agreement with O. Munoz (incorporated herein by reference to Exhibit 10.1 to the Registrant’s Report on Form 10-Q filed with the Commission on July 30, 2003)
10.10**	Restricted Stock Award Agreement with O. Munoz (incorporated herein by reference to Exhibit 10.2 to the Registrant’s Report on Form 10-Q filed with the Commission on July 30, 2003)
10.11**	Form of Employment Agreement with executive officers (incorporated herein by reference to Exhibit 10.1 of the Registrant’s Current Report on Form 8-K filed with the Commission on January 6, 2005)
10.12**	Form of Stock Option Agreement (incorporated herein by reference to Exhibit 10.17 of the Registrant’s Report on Form 10-K filed with the Commission on March 4, 2002)
10.13**	1987 Long-term Performance Stock Plan, as Amended and Restated effective April 25, 1996 (as amended through February 7, 2003) (incorporated herein by reference to Exhibit 10.24 to the Registrant’s Annual Report on Form 10-K filed with the Commission on March 10, 2004)
10.14**	Deferred Compensation Program for Executives of CSX Corporation and Affiliated Companies (as amended through January 1, 1998) (incorporated herein by reference to Exhibit 10.25 to the Registrant’s Annual Report on Form 10-K filed with the Commission on March 10, 2004)
10.15**	2002 Deferred Compensation Plan of CSX Corporation and Affiliated Corporations (as amended through February 7, 2003) (incorporated herein by reference to Exhibit 10.26 to the Registrant’s Annual Report on Form 10-K filed with the Commission on March 10, 2004)
10.16**	Supplementary Savings Plan and Incentive Award Deferral Plan for Eligible Executives of CSX Corporation and Affiliated Companies (as Amended through February 7, 2003) (incorporated herein by reference to Exhibit 10.27 to the Registrant’s Annual Report on Form 10-K filed with the Commission on March 10, 2004)
10.17**	Special Retirement Plan of CSX Corporation and Affiliated Companies (as amended through February 14, 2001) (incorporated herein by reference to Exhibit 10.23 to the Registrant’s Report on Form 10-K filed with the Commission on March 4, 2002)

104

10.18**		Supplemental Retirement Benefit Plan of CSX Corporation and Affiliated Companies (as amended through February 14, 2001) (incorporated herein by reference to Exhibit 10.24 of the Registrant’s Report on Form 10-K filed with the Commission on March 4, 2002)
10.19**		Senior Executive Incentive Compensation Plan (incorporated herein by reference to Appendix B to the Registrant’s Definitive Proxy Statement filed with the Commission on March 17, 2000)
10.20*		CSX Omnibus Incentive Plan (as Amended through December 8, 2004) (incorporated herein by reference to Exhibit 10.26 to the Registrant’s Report on Form 10-K filed with the Commission on March 4, 2002)
10.21**		1990 Stock Award Plan as Amended and Restated Effective February 14, 1996 (as amended through September 8, 1999) (incorporated herein by reference to Exhibit 10.24 to the Registrant’s Annual Report on Form 10-K filed with the Commission on March 7, 2000)
10	.22	Transaction Agreement, dated as of June 10, 1997, by and among CSX Corporation, CSX Transportation, Inc., Norfolk Southern Corporation, Norfolk Southern Railway Company, Conrail Inc., Consolidated Rail Corporation, and CRR Holdings LLC, with certain schedules thereto (incorporated herein by reference to Exhibit 10 to the Registrant’s Current Report on Form 8-K filed with the Commission on July 8, 1997)
10	.23	Amendment No. 1, dated as of August 22, 1998, to the Transaction Agreement, dated as of June 10, 1997, by and among CSX Corporation, CSX Transportation, Inc., Norfolk Southern Corporation, Norfolk Southern Railway Company, Conrail Inc., Consolidated Rail Corporation, and CRR Holdings LLC (incorporated herein by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed with the Commission on June 11, 1999)
10	.24	Amendment No. 2, dated as of June 1, 1999, to the Transaction Agreement, dated as of June 10, 1997, by and among CSX Corporation, CSX Transportation, Inc., Norfolk Southern Corporation, Norfolk Southern Railway Company, Conrail Inc., Consolidated Rail Corporation, and CRR Holdings, LLC (incorporated herein by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K filed with the Commission on June 11, 1999)
10	.25	Amendment No. 3, dated as of August 1, 2000, to the Transaction Agreement, dated as of June 10, 1997, by and among CSX Corporation, CSX Transportation, Inc., Norfolk Southern Corporation, Norfolk Southern Railway Company, Conrail Inc., Consolidated Rail Corporation, and CRR Holdings LLC (incorporated herein by reference to Exhibit 10.34 to the Registrant’s Annual Report on Form 10-K filed with the Commission on March 1, 2001)
10	.26	Amendment, dated and effective as of June 1, 1999, and executed in April 2004, to the Transaction Agreement, dated as of June 10, 1997, by and among CSX Corporation, CSX Transportation, Inc., Norfolk Southern Corporation, Norfolk Southern Railway Company, Conrail Inc., Consolidated Rail Corporation, and CRR Holdings LLC (incorporated herein by reference to Exhibit 99.1 to the Registrant’s Current Report on Form 8-K filed with the Commission on August 6, 2004)
10	.27	Amendment No. 5, dated as of August 27, 2004, to the Transaction Agreement, dated as of June 10, 1997, by and among CSX Corporation, CSX Transportation, Inc., Norfolk Southern Corporation, Norfolk Southern Railway Company, Conrail Inc., Consolidated Rail Corporation and CRR Holdings LLC (incorporated herein by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed with the Commission on September 2, 2004)
10	.28	Operating Agreement Termination Agreement, dated as of August 27, 2004, between New York Central Lines LLC and CSX Transportation, Inc. (incorporated herein by reference to Exhibit 10.3 to the Registrant’s Current Report on Form 8-K filed with the Commission on September 2, 2004)
10	.29	Shared Assets Area Operating Agreement for North Jersey, dated as of June 1, 1999, by and among Consolidated Rail Corporation, CSX Transportation, Inc. and Norfolk Southern Railway Company, with exhibit thereto (incorporated herein by reference to Exhibit 10.4 to the Registrant’s Current Report on Form 8-K filed with the Commission on June 11, 1999)
10	.30	Shared Assets Area Operating Agreement for Southern Jersey/Philadelphia, dated as of June 1, 1999, by and among Consolidated Rail Corporation, CSX Transportation, Inc. and Norfolk Southern Railway Company, with exhibit thereto (incorporated herein by reference to Exhibit 10.5 to the Registrant’s Current Report on Form 8-K filed with the Commission on June 11, 1999)

105

10	.31	Shared Assets Area Operating Agreement for Detroit, dated as of June 1, 1999, by and among Consolidated Rail Corporation, CSX Transportation, Inc. and Norfolk Southern Railway Corporation, with exhibit thereto (incorporated herein by reference to Exhibit 10.6 to the Registrant’s Current Report on Form 8-K filed with the Commission on June 11, 1999)
10	.32	Monongahela Usage Agreement, dated as of June 1, 1999, by and among CSX Transportation, Inc., Norfolk Southern Railway Company, Pennsylvania Lines LLC and New York Central Lines LLC, with exhibit thereto (incorporated herein by reference to Exhibit 10.7 to the Registrant’s Current Report on Form 8-K filed with the Commission on June 11, 1999)
10	.33	Tax Allocation Agreement, dated as of August 27, 2004, by and among CSX Corporation, Norfolk Southern Corporation, Green Acquisition Corp., Conrail Inc., Consolidated Rail Corporation, New York Central Lines LLC and Pennsylvania Lines LLC (incorporated herein by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K filed with the Commission on September 2, 2004)
10.34**		Employment Agreement with T. L. Ingram, dated as of March 15, 2004 (incorporated herein by reference to Exhibit 10.1 to the Registrant’s Report on Form 10-Q filed with the Commission on April 30, 2004)
10.35**		Restricted Stock Award Agreement with T. L. Ingram (incorporated herein by reference to Exhibit 10.1 to the Registrant’s Report on Form 10-Q filed with the Commission on July 29, 2004)
10	.36	Stock Purchase Agreement, dated as of December 8, 2004, by and between CSX Corporation and Dubai Ports International FZE. (incorporated herein by reference to Exhibit 2.1 to the Registrant’s Current Report on Form 8-K filed with the Commission on December 13, 2004)
10.37**		Special Employment Agreement with A.B. Fogarty, dated as of December 13, 2004 (incorporated herein by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed with the Commission on December 14, 2004)
10.38**		Amendment No. 1, dated as of December 13, 2004, to Employment Agreement with T. L. Ingram, dated as of March 15, 2004 (incorporated herein by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K filed with the Commission on December 14, 2004)
10	.39	Omnibus Closing Agreement, by and between CSX Corporation and Dubai Ports International FZE dated February 22, 2005 (incorporated herein by reference to Exhibit 2.1 to the Registrant’s Current Report on Form 8-K filed with the Commission on February 25, 2005)
10	.40*	Restricted Stock Award Agreement with Clarence W. Gooden
10	.41*	Restricted Stock Award Agreement with Ellen M. Fitzsimmons
14		Code of Ethics (incorporated herein by reference to Exhibit 14 to the Registrant’s Annual Report on Form 10-K filed with the Commission on March 10, 2004)
21*		Subsidiaries of the Registrant
23	.1*	Consent of Ernst & Young LLP
23	.2*	Consent of Ernst & Young LLP and KPMG LLP
24*		Powers of Attorney
31	.1*	Rule 13a-14(a) Certification of Principal Executive Officer
31	.2*	Rule 13a-14(a) Certification of Principal Financial Officer
32	.1*	Rule 13a-14(b) Certification of Principal Executive Officer
32	.2*	Rule 13a-14(b) Certification of Principal Financial Officer
99	.3*	Unaudited Consolidated Financial Statements of Conrail Inc. for the Years Ended December 31, 2004 and December 31, 2005 and Audited Consolidated Financial Statements of Conrail Inc. for the Year Ended December 31, 2003

*	Filed herewith
**	Management Contract or Compensatory Plan or Arrangement

106

SIGNATURES

      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.

CSX CORPORATION

          (Registrant)

By:  /s/ CAROLYN T. SIZEMORE

Carolyn T. Sizemore

Vice President and Controller

(Principal Accounting Officer)

Dated: February 21, 2006

      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 February 21, 2006.

Signature		Title
* Michael J. Ward		Chairman of the Board, President, Chief Executive Officer and Director (Principal Executive Officer)
* Oscar Munoz		Executive Vice President and Chief Financial Officer (Principal Financial Officer)
/s/ CAROLYN T. SIZEMORE Carolyn T. Sizemore		Vice President and Controller (Principal Accounting Officer)
*By:	/s/ ELLEN M. FITZSIMMONS Ellen M. Fitzsimmons	Senior Vice President — Law and Public Affairs Attorney-in-Fact
* Elizabeth E. Bailey		Director
* John B. Breaux		Director
* Edward J. Kelly III		Director
* Robert D. Kunisch		Director
* Southwood J. Morcott		Director
* David M. Ratcliffe		Director
* Charles E. Rice		Director

107

Signature	Title
* William C. Richardson	Director
* Frank S. Royal M.D.	Director
* Donald J. Shepard	Director

108 EX-10.20 2 g99714exv10w20.htm OMNIBUS INCENTIVE PLAN AS AMENDED

Exhibit 10.20

CSX Omnibus Incentive Plan

Effective April 27, 2000

(As Amended through December 8, 2004)

1. Purpose. The purpose of this CSX Omnibus Incentive Plan (the “Plan”) is to further the long term stability and financial success of CSX, its Subsidiaries, Foreign Affiliates and Affiliates by rewarding selected meritorious employees. The Board of Directors believes that such awards will provide incentives for employees to remain with CSX, will encourage continued work of superior quality and will further the identification of those employees’ interests with those of CSX’s shareholders.

2. Definitions. As used in the Plan, the following terms have the meanings indicated:

(a)	“Affiliate” means a corporation, partnership or other entity other than a Subsidiary or Foreign Affiliate in which CSX or a Subsidiary owns, directly or indirectly, a substantial interest. The employees of an Affiliate shall be eligible to participate in the Plan only if the Board or the Committee approves the participation of the Affiliate in the Plan.
(b)	“Applicable Withholding Taxes” means the aggregate minimum amount of federal, state, local and foreign income, payroll and other taxes that an Employer is required to withhold in connection with any Incentive Award.
(c)	“Beneficiary” means the person or entity designated by the Participant, in a form approved by CSX, to exercise the Participant’s rights with respect to an Incentive Award after the Participant’s death.
(d)	Benefits Trust Committee” means the committee established pursuant to the CSX Corporation and Affiliated Companies Benefits Assurance Trust.
(e)	“Board” means the Board of Directors of CSX Corporation.
(f)	“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, Foreign Affiliates or Affiliates; (ii) a 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 Employer; or, (iii) the conviction of the Participant of a felony involving moral turpitude.
(g)	“Change in Control” means the occurrence of any of the following events:

(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 percent or more of either (A) the then outstanding shares of common stock of CSX (the “Outstanding Company Common Stock”), or (B) the

	combined voting power of the then outstanding voting securities of CSX 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 in control: (A) any acquisition directly from CSX; (B) any acquisition by CSX; (C) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by CSX or any corporation controlled by CSX; 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(c); or
(ii)	Board Composition Individuals who, as of the date hereof, constitute the Board (the “Incumbent Board”) cease for any reason to constitute at least a majority of the Board; provided, however, that any individual becoming a director subsequent to the date hereof whose election or nomination for election by CSX’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 individuals 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; or
(iii)	Business Combination Approval by the shareholders of CSX of a reorganization, merger, consolidation, or sale or other disposition of all or substantially all of the assets of CSX 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 “STB”) (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 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 CSX or its principal Subsidiary or all or substantially all of the assets of CSX 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 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 CSX or such corporation resulting from such Business Combination) beneficially owns, directly or indirectly, 20 percent 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 providing for such Business Combination; or

(iv)	Regulated Business Combination. Approval by the shareholders of CSX of a Business Combination that is subject, as a matter of law or contract, to approval by the STB (a “Regulated Business Combination”) unless such Business Combination complies with clauses (A), (B) and (C) of subsection (iii) of this Section 2(g); or
(v)	Liquidation or Dissolution. Approval by the shareholders of CSX of a complete liquidation or dissolution of CSX or its principal Subsidiary.

(h)	“Code” means the Internal Revenue Code of 1986, as amended.
(i)	“Committee” means the Compensation Committee of the Board or its successor, provided that, if any member of the Compensation Committee does not qualify as both an outside director for purposes of Code Section 162(m) and a non-employee director for purposes of Rule 16b-3, the remaining members of the Compensation Committee (but not less than two members) shall be constituted as a subcommittee of the Compensation Committee to act as the Committee for purposes of the Plan.
(j)	“Company Stock” means common stock, $1.00 par value, of CSX. In the event of a change in the capital structure of CSX affecting the common stock (as provided in Section 18), the shares resulting from such a change in the common stock shall be deemed to be Company Stock within the meaning of the Plan.

(k)	“Covered Employee” means a Participant who the Committee determines is or may become a covered employee within the meaning of Code Section 162(m) during the performance period for a Performance Grant.
(l)	“CSX” means CSX Corporation.
(m)	“Date of Grant” means the date on which the Committee grants an Incentive Award.
(n)	“Disability” or “Disabled” means, as to an Incentive Stock Option, a Disability within the meaning of Code Section 22(e)(3). As to all other Incentive Awards, a Disability shall occur when the Participant is eligible for benefits under the CSX Salary Continuance and Long-Term Disability Plan or another long-term disability plan of CSX applicable to the Participant.
(o)	“Divisive Transaction” means a transaction in which the Participant’s Employer ceases to be a Subsidiary, Foreign Affiliate or Affiliate or a sale of substantially all of the assets of a Subsidiary, Foreign Affiliate or Affiliate.
(p)	“Employer” means CSX and each Subsidiary, Foreign Affiliate or Affiliate that employs one or more Participants.
(q)	“Fair Market Value” means the mean between the highest and lowest registered sales prices of a share of Company Stock on the New York Stock Exchange, as reported in the Wall Street Journal (or other authoritative source approved by the Committee) on the day of reference.
(r)	“Foreign Affiliate” means an entity that is not organized under the laws of the United States, or any state thereof or any political subdivision of any state, and in which CSX has, directly or indirectly, a substantial interest.
(s)	“Good Reason,” as to any Participant, means (i) the Participant’s compensation or employment related benefits are reduced (other than across-the reductions that affect management employees generally); (ii) the Participant’s status, title(s), office(s), working conditions, or management responsibilities are diminished (other than changes in reporting or management responsibilities required by applicable federal or state law); or (iii) the location of Participant’s place of employment is changed by more than 30 miles without the Participant’s consent.
(t)	“Incentive Award” means, collectively, a Performance Grant or the award of Restricted Stock, an Option, a Restricted Stock Unit, a Stock Appreciation Right, or a Dividend Right under the Plan,
(u)	“Incentive Stock Option” means an Option that qualifies for favorable federal income tax treatment under Code Section 422.
(v)	“Mature Shares” means shares of Company Stock for which the holder has good title, free and clear of all liens and encumbrances and which the holder either (i) has held for at least six months or (ii) has purchased on the open market.

(w)	“Nonqualified Stock Option” means an Option that is not an Incentive Stock Option.
(x)	“Option” means a right to purchase Company Stock granted under the Plan, at a price determined in accordance with the Plan.
(y)	“Participant” means any employee of CSX, a Subsidiary, a Foreign Affiliate or an Affiliate who receives an Incentive Award under the Plan.
(z)	“Performance Criteria” means any of the following areas of performance of CSX, any Subsidiary, any Foreign Affiliate, or any Affiliate:
	return on invested capital (ROIC); free cash flow; value added (ROIC) less cost of capital multiplied by capital); total shareholder return; economic value added (net operating profit after tax less cost of capital); operating ratio; cost reduction (or limits on cost increases); debt to capitalization; debt to equity; earnings; earnings before interest and taxes; earnings before interest, taxes, depreciation and amortization; earnings per share (including or excluding nonrecurring items); earnings per share before extraordinary items; income from operations (including or excluding nonrecurring items); income from operations compared to capital spending; net income (including or excluding nonrecurring items, extraordinary items and/or the accumulative effect of accounting changes); net sales; price per share of Company Stock; return on assets; return on capital employed; return on equity; return on investment; return on sales; and sales volume.
	Any Performance Criteria may be used to measure the performance of CSX as a whole or any Subsidiary, Foreign Affiliate, Affiliate or business unit of CSX. As determined by the Committee, Performance Criteria shall be derived from the financial statements of CSX, its Subsidiaries or affiliated entities prepared in accordance with generally accepted accounting principles applied on a consistent basis, or, for Performance Criteria that cannot be so derived, under a methodology established by the Committee prior to the issuance of a Performance Grant that is consistently applied.
(aa)	“Performance Goal” means an objectively determinable performance goal established by the Committee with respect to a given Performance Grant that relates to one or more Performance Criteria.
(bb)	“Performance Grant” means an Incentive Award payable in Company Stock, cash, or a combination of Company Stock and cash that is made pursuant to Section 8.
(cc)	“Restricted Stock” means Company Stock awarded under Section 6.
(dd)	“Restricted Stock Unit” means a right granted to a Participant to receive Company Stock or cash awarded under Section 7.

(ee)	“Retirement” means a Participant’s termination of employment after age 55 with eligibility to begin immediately receiving retirement benefits under an Employer’s defined benefit pension plan.
(ff)	“Rule l6b-3” means Rule 16b-3 of the Securities and Exchange Commission promulgated under the Securities Exchange Act of 1934, as amended. A reference in the Plan to Rule 16b-3 shall include a reference to any corresponding rule (or number redesignation) of any amendments to Rule I 6b-3 enacted after the effective date of the Plan adoption.
(gg)	“Senior Executive Incentive Award” means an award made to a Participant under the terms of the Senior Executive Incentive Plan.
(hh)	“Senior Executive Incentive Plan” means the CSX Senior Executive incentive Plan.
(ii)	“Stock Appreciation Right” means a right to receive amounts awarded under Section 10.
(jj)	“Subsidiary” means any corporation in which CSX owns stock possessing more than 50 percent of the combined voting power of all classes of stock or which is in a chain of corporations with CSX in which stock possessing more than 50 percent of the combined voting power of all classes of stock is owned by one or more other corporations in the chain.
(kk)	“Vesting Event” means the occurrence of any of the events listed in Section 2(g), with the following modification: the words, “Approval by the shareholders of CSX of,” in the first line of Sections 2(g)(iii) and 2(g)(iv) are replaced for purposes of this Section 2(kk) with the words, “Consummation of, i.e., actual change in ownership of Outstanding Corporation Common Stock, Outstanding Corporation Voting Stock, and/or assets of CSX or its principal Subsidiary by reason of,”.

3. Stock.

(a) Subject to Section 18 of the Plan, there shall be reserved for issuance under the Plan an aggregate of 6 million (6,000,000) shares of Company Stock, which shall be authorized, but unissued shares, plus any shares of Company Stock that are represented by awards granted under any prior plan of the Company, which are forfeited, expire or are cancelled without the delivery of shares or which result in the forfeiture of shares back to CSX. Shares allocable to Incentive Awards granted under the Plan that expire, are forfeited, otherwise terminate unexercised, or are settled in cash may again be subjected to an Incentive Award under the Plan. For purposes of determining the number of shares that are available for Incentive Awards under the Plan, the number shall include the number of shares surrendered by a Participant actually or by attestation or retained by CSX in payment of Applicable Withholding Taxes and any Mature Shares surrendered by a Participant upon exercise of an Option or in payment of Applicable Withholding Taxes. Shares issued under the Plan through the settlement, assumption of substitution of outstanding awards or

obligations to grant future awards as a condition of an Employer acquiring another entity shall not reduce the maximum number of shares available for delivery under the Plan. Shares issued under the Senior Executive Incentive Plan shall reduce the maximum number of shares available for delivery under the Plan.

(b) No more than 1,200,000 shares may be allocated to the Incentive Awards, including the maximum amounts payable under a Performance Grant, that are granted to any individual Participant during any 36-month period. The maximum number of shares that may be issued as Restricted Stock, Restricted Stock Units, Dividend Equivalents and under Performance Grants, Stock Awards or Senior Executive Incentive Plan Grants shall be 1,200,000 shares, provided that any shares of Restricted Stock, Restricted Stock Units, Dividend Equivalents, Performance Grants or Stock Awards that are forfeited shall not count against this limit. The maximum cash payment that can be made for all Incentive Awards granted to any one individual shall be $3,000,000 times the number of 12-month periods in any performance cycle for any single or combined performance goals. Any amount that is deferred by a Participant shall be subject to the previous limit on the maximum cash payment in the year in which the deferral is made and not in any later year in which payment is made.

4. Eligibility.

(a)

All present and future employees of CSX, a Subsidiary, or a Foreign Affiliate at the time of grant shall be eligible to receive Incentive Awards under the Plan, If an Affiliate is approved to participate in the Plan, all present and future employees of an Affiliate at the time of grant shall be eligible to receive Incentive Awards under the Plan. The Committee shall have the power and complete discretion, as provided in Section 19, to select eligible employees to receive Incentive Awards and to determine for each employee the nature of the award and the terms and conditions of each Incentive Award.

(b)

The grant of an Incentive Award shall not obligate an Employer to pay an employee any particular amount of remuneration, to continue the employment of the employee after the grant or to make further grants to the employee at any time thereafter.

5. Stock Options.

(a)	The Committee may make grants of Options to Participants. The Committee shall determine the number of shares for which Options are granted, the Option exercise price per share, whether the Options are Incentive Stock Options or Nonqualified Stock Options, and any other terms and conditions to which the Options are subject.
(b)	The exercise price of shares of Company Stock covered by an Option shall be not less than 100 percent of the Fair Market Value of the Company Stock on the Date of Grant. Except as provided in Section 18, the exercise

price of an Option may not be decreased after the Date of Grant. Except as provided in Section 18, a Participant may not surrender an Option in consideration for the grant of a new Option with a lower exercise price. If a Participant’s Option is cancelled before its termination date, the Participant may not receive another Option within 6 months of the cancellation unless the exercise price of such Option is no less than the exercise price of the cancelled Option.

(c) An Option shall not be exercisable more than 10 years after the Date of Grant. The aggregate Fair Market Value, determined at the Date of Grant, of shares for which Incentive Stock Options become exercisable by a Participant during any calendar year shall not exceed $100,000.

6. Restricted Stock Awards.

(a)	The Committee may make grants of Restricted Stock to Participants. The Committee shall establish as to each award of Restricted Stock the terms and conditions to which the Restricted Stock is subject, including the period of time before which all restrictions shall lapse and the Participant shall have full ownership of the Company Stock (the “Restriction Period”). The Committee in its discretion may award Restricted Stock without cash consideration.
(b)	Except as provided below in Section 6(c), the minimum Restriction Period applicable to any award of Restricted Stock that is not subject to performance standards restricting transfer shall be three years from the Date of Grant. Except as provided below in Section 6(c), the minimum Restriction Period applicable to any award of Restricted Stock that is subject to performance standards shall be one year from the Date of Grant.
(c)	Restriction Periods of shorter duration than provided in Section 6(b) and Section 7(b) may be approved for awards of Restricted Stock or Restricted Stock Units combined with respect to up to 600,000 shares of Company Stock under the Plan.
(d)	Restricted Stock may not be sold, assigned, transferred, pledged, hypothecated, or otherwise encumbered or disposed of until the restrictions have lapsed or been removed. Certificates representing Restricted Stock shall be held by CSX until the restrictions lapse and the Participant shall provide CSX with appropriate stock powers endorsed in blank.

7. Restricted Stock Units.

(a) The Committee may make grants of Restricted Stock Units to Participants. The Committee shall establish as to each award of Restricted Stock Units the terms and conditions to which the Restricted Stock Units are subject. Upon lapse of the restrictions, a Restricted Stock Unit shall entitle the Participant to receive from CSX a share of Company Stock or a cash amount equal to the Fair Market Value of the Company Stock on the date that the restrictions lapse.

(b)  Except as provided in Section 6 the minimum Restriction Period applicable to any award of Restricted Stock Units that is not subject to performance standards restricting transfer shall be three years from the Date of Grant. Except as provided in Section 6(c) the minimum Restriction Period applicable to any award of Restricted Stock Units that is subject to performance standards shall be one year from the Date of Grant.

8. Performance Grants.

(a)	The Committee may make Performance Grants to any Participant. Each Performance Grant shall contain the Performance Goals for the award, including the Performance Criteria, the target and maximum amounts payable and such other terms and conditions of the Performance Grant. As to each Covered Employee, each Performance Grant shall be granted and administered to comply with the requirements of Code Section 162(m).
(b)	The Committee shall establish the Performance Goals for Performance Grants. The Committee shall determine the extent to which any Performance Criteria shall be used and weighted in determining Performance Grants. The Committee may increase, but not decrease, any Performance Goal during a performance period for a Covered Employee. The Performance Goals for any Performance Grant for a Covered Employee shall be made not later than 90 days after the start of the period for which the Performance Grant relates and shall be made prior to the completion of 25 percent of such period.
(c)	The Committee shall establish for each Performance Grant the amount of Company Stock or cash payable at specified levels of performance, based on the Performance Goal for each Performance Criteria. The Committee shall make all determinations regarding the achievement of any Performance Goals. The Committee may not increase the amount of cash or Common Stock that would otherwise be payable upon achievement of the Performance Goal or Goals but may reduce or eliminate the payments except as provided in a Performance Grant.
(d)	The actual payments to a Participant under a Performance Grant will be calculated by applying the achievement of Performance Criteria to the Performance Goal. The Committee shall make all calculations of actual payments and shall certify in writing the extent, if any, to which the Performance Goals have been met.

9. Stock Awards. The Committee may make Stock Awards to any Participant. The Committee shall establish the number of shares of Common Stock to be awarded and the terms and conditions applicable to each Stock Award. The Committee will make all determinations regarding the achievement of any performance restrictions on a Stock Award. The Common Stock under a Stock Award shall be issued by CSX upon the satisfaction of the terms and conditions of a Stock Award. No more than 1,200,000 shares of Company Stock (reduced by shares issued under Restricted Stock or Restricted Stock Units subject to Section 6(c)) may be granted under Stock Awards without performance restrictions.

10. Stock Appreciation Rights. The Committee may make grants of Stock Appreciation Rights to Participants. The Committee shall establish as to each award of Stock Appreciation Rights the terms and conditions to which the Stock Appreciation Rights are subject. The following provisions apply to all Stock Appreciation Rights:

(a)

A Stock Appreciation Right shall entitle the Participant, upon exercise of the Stock Appreciation Right, to receive in exchange an amount equal to the excess of (x) the Fair Market Value on the date of exercise of the Company Stock covered by the surrendered Stock Appreciation Right over (y) an amount not less than 100 percent of the Fair Market Value of the Company Stock on the Date of Grant of the Stock Appreciation Right. The Committee may limit the amount that the Participant will be entitled to receive upon exercise of Stock Appreciation Rights.

(b)

A Stock Appreciation Right may not be exercisable more than 10 years after the Date of Grant. A Stock Appreciation Right may only be exercised at a time when the Fair Market Value of the Company Stock covered by the Stock Appreciation Right exceeds the Fair Market Value of the Company Stock on the Date of Grant of the Stock Appreciation Right. The Stock Appreciation Right may provide for payment in Company Stock or cash, or a fixed combination of Company Stock or cash, or the Committee may reserve the right to determine the manner of payment at the time the Stock Appreciation Right is exercised.

11.	Dividend Equivalents. The Committee may make grants of Dividend Equivalents to any Participant. The Committee shall establish the terms and conditions to which the Dividend Equivalents are subject. Dividend Equivalents may be granted in connection with any other Incentive Award or separately. Under a Dividend Equivalent, a Participant shall be entitled to receive currently or in the future payments equivalent to the amount of dividends paid by CSX to holders of Company Stock with respect to the number of Dividend Equivalents held by the Participant. The Dividend Equivalent may provide for payment in Company Stock or cash, or a fixed combination of Company Stock or cash, or the Committee may reserve the right to determine the manner of payment at the time the Dividend Equivalent is payable.
12.	Method of Exercise of Options. Options may be exercised by the Participant (or his guardian or personal representative) giving notice to the Corporate Secretary of CSX or his delegate pursuant to procedures established by CSX of the exercise stating the number of shares the Participant has elected to purchase under the Option. The exercise price may be paid in cash; or if the terms of an Option permit, (i) delivery or attestation of Mature Shares (valued at their Fair Market Value) in satisfaction of all or any part of the exercise price, (ii) delivery of a properly executed exercise notice with irrevocable instructions to a broker to deliver to CSX the amount necessary to pay the exercise price from the sale or proceeds of a loan from the broker with respect to the sale of Company Stock or a broker Joan secured by Company Stock, or (iii) a combination of(i) and (ii).
13.	Tax Withholding. Whenever payment under an Incentive Award is made in cash, the Employer will withhold an amount sufficient to satisfy any Applicable Withholding Taxes. Each Participant shall agree as a condition of receiving an Incentive Award

payable in the form of Company Stock, to pay to the Employer, or make arrangements satisfactory to the Employer regarding the payment to the Employer of, Applicable Withholding Taxes. To satisfy Applicable Withholding Taxes and under procedures established by the Committee or its delegate, a Participant may elect to (i) make a cash payment or authorize additional withholding from cash compensation, (ii) deliver Mature Shares (valued at their Fair Market Value) or (iii) have CSX retain that number of shares of Company Stock (valued at their Fair Market Value) that would satisfy all or a specified portion of the Applicable Withholding Taxes.

14.	Transferability of Incentive Awards. Incentive Awards other than Incentive Stock Options shall not be transferable by a Participant and exercisable by a person other than the Participant, except as expressly provided in the Incentive Award. Incentive Stock Options, by their terms, shall not be transferable except by will or by the laws of descent and distribution and shall be exercisable, during the Participant’s lifetime, only by the Participant.
15	Deferral Elections. The Committee may permit Participants to elect to defer the issuance of Company Stock or the settlement of awards in cash under the 2002 Deferred Compensation Plan of CSX Corporation or its successor.
16.	Effective Date of the Plan. The effective date of the Plan is April 27, 2000. The Plan shall be submitted to the shareholders of CSX for approval. Until (i) the Plan has been approved by CSX’s shareholders, and (ii) the requirements of any applicable federal or state securities laws have been met, no Restricted Stock shall be awarded that is not contingent on these events and no Option granted shall be exercisable.
17.	Termination, Modification. Change. If not sooner terminated by the Board, this Plan shall terminate at the close of business on April 26. 2010. No Incentive Awards shall be made under the Plan after its termination. Prior to a Change in Control, the Board may amend or terminate the Plan as it shall deem advisable; provided that no change shall be made that increases the total number of shares of Company Stock reserved for issuance pursuant to Incentive Awards granted under the Plan (except pursuant to Section 18), or reduces the minimum exercise price for Options unless such change is authorized by the shareholders of CSX. A termination or amendment of the Plan shall not, without the consent of the Participant, adversely affect a Participant’s rights under an Incentive Award previously granted to him or her. After a Change in Control, all amendments to the Plan are subject to the approval of the Benefits Trust Committee.
18.	Change in Capital Structure.

(a) In the event of a stock dividend, stock split or combination of shares, share exchange, recapitalization or merger in which CSX is the surviving corporation or other change in CSX capital stock (including, but not limited to, the created or issuance to shareholders generally of rights, options or warrants for the purchase of common stock or preferred stock of CSX), the number and kind of shares of stock or securities of CSX to be subject to the Plan and to Incentive Awards then outstanding or to be granted, the maximum number of shares or securities which may be delivered under the Plan under Sections 3(a), 3(b), 6(b) or 9, the exercise price, the terms of incentive Awards and other relevant provisions shall be

adjusted by the Committee in its discretion, whose determination shall be binding on all persons. If the adjustment would produce fractional shares with respect to any unexercised Option, the Committee may adjust appropriately the number of shares covered by the Option so as to eliminate the fractional shares.

(b)	If CSX is a party to a consolidation or a merger in which CSX is not the surviving corporation, a transaction that results in the acquisition of substantially all of CSR’s outstanding stock by a single person or entity, or a sale or transfer of substantially all of CSX’s assets, the Committee may take such actions with respect to outstanding Incentive Awards as the Committee deems appropriate.
(c)	Notwithstanding anything in the Plan to the contrary, the Committee may take the foregoing actions without the consent of any Participant, and the Committee’s determination shall be conclusive and binding on all persons for all purposes.

19. Administration of the Plan.

(a)	Prior to a Change in Control, the Committee shall administer the Plan. The Committee shall have general authority to impose any term, limitation or condition upon an Incentive Award that the Committee deems appropriate to achieve the objectives of the Incentive Award. The Committee may adopt rules and regulations for carrying out the Plan with respect to Participants. The interpretation and construction of any provision of the Plan by the Committee shall be final and conclusive as to any Participant.
(b)	Except as provided in Section 5(b), the Committee shall have the power to amend the terms of previously granted Incentive Awards that were granted by that Committee as long as the terms as amended are consistent with the terms of the Plan and provided that the consent of the Participant is obtained with respect to any amendment that would be detrimental to him or her, except that such consent will not be required if such amendment is for the purpose of complying with Rule 16b-3 or any requirement of the Code applicable to the Incentive Award.
(c)	The Committee shall have the power and complete discretion (i) to delegate to any individual, or to any group of individuals employed by the Company or any Subsidiary, the authority to grant Stock Awards under the Plan and (ii) to determine the terms and limitations of any delegation of authority; provided that no individual Stock Award granted under a delegation by the Committee may exceed a Fair Market Value of $100,000 on the Date of Grant.
(d)	Following a Change in Control, the Benefits Trust Committee, at its discretion, may assume any or all of the duties and responsibilities of the

Committee as to the Plan. All actions by the Benefits Trust Committee shall be consistent with the provisions of the CSX Corporation and Affiliated Companies Benefits Assurance Trust.

(e)	If the Participant’s Employer is involved in a Divisive Transaction, the Committee may take such actions with respect to outstanding Incentive Awards as the Committee deems appropriate.
(f)	If a Participant or former Participant (1) becomes associated with, recruits or solicits customers or other employees of an Employer, 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 CSX, its Subsidiaries, Foreign Affiliates or Affiliates, (2) has his employment terminated by his Employer on account of actions by the Participant which are detrimental to the interests of CSX, its Subsidiaries, Foreign Affiliates or Affiliates, or (3) engages in, or has engaged in, conduct which the Committee determines to be detrimental to the interests of CSX. the Committee may, in its sole discretion, cancel all outstanding Incentive Awards, including immediately terminating any options held by the Participant, regardless of whether then exercisable.
(g)	In the event of the death of a Participant, any outstanding Incentive Awards that are otherwise exercisable may be exercised by the Participant’s Beneficiary or, if no Beneficiary is designated, by the personal representative of the Participant’s estate or by the person to whom rights under the Incentive Award shall pass by will or the laws of descent and distribution.

20. Change in Control.

(a) Notwithstanding any provision of the Plan or any Incentive Award to the contrary:

(i)

upon the occurrence of the date of a Change in Control, (i) all Options and Stock Appreciation Rights granted before February 13, 2001 shall become fully exercisable, (ii) all terms and conditions on Restricted Stock and Restricted Stock Units granted before February 13, 2001 shall be deemed satisfied, and (iii) all Performance Grants, Stock Awards and Dividend Equivalents granted before February 13, 2001 shall be deemed to be fully earned and to be immediately payable in cash;

(ii)

upon the occurrence of the date of a Vesting Event, (i) all Options and Stock Appreciation Rights granted on or after February 13, 2001 shall become fully exercisable, (ii) all terms and conditions on Restricted Stock and Restricted Stock Units granted on or after February 13, 2001 shall be deemed satisfied, and (iii) all Performance Grants, Stock Awards and Dividend Equivalents

granted on or after February 13, 2001 shall be deemed to be fully earned and to be immediately payable in cash;

(iii)

all Options and Stock Appreciation Rights held by a Participant (A) who resigns within three months after an event constituting Good Reason or (B) whose employment is terminated without Cause by the Company or an Affiliate, in either case upon or after an event described in Section 2(g)(iii) or 2(g)(iv) and prior to the earlier of (x) the consummation of such event, i.e., actual change in ownership of Outstanding Corporation Common Stock, Outstanding Corporation Voting Stock, and/or assets of CSX or its principal Subsidiary and (y) the determination by the Board of Directors that such event has been unwound or reversed or is no longer expected to be consummated, which Options and Stock Appreciation Rights were not fully exercisable at the time of such termination of employment, shall become fully exercisable upon the consummation of the event described in Section 2(g)(iii) or 2(g)(iv), as applicable. Such Options and Stock Appreciation Rights shall be exercisable following the consummation of such event for the period specified in the Incentive Award for exercise following termination of employment other than due to death or Disability or until the expiration of the original option term, if sooner; provided, that prior to consummation of such event or a Board of Directors determination, as referenced above, such Options and Stock Appreciation Rights shall remain outstanding and be exercisable only at the time and to the extent set forth in the Incentive Award;

(iv)

any terms and conditions of all Restricted Stock and Restricted Stock Units held by a Participant (A) who resigns within three months if an event constituting Good Reason or (B) whose employment is terminated without Cause by the Company or an Affiliate, in either case upon or after an event described in Section 2(g)(iii) or 2(g)(iv) and prior to the earlier of (x) the consummation of such event, i.e., actual change in ownership of Outstanding Corporation Common Stock, Outstanding Corporation Voting Stock, and/or assets of CSX or its principal Subsidiary and (y) the determination by the Board of Directors that such event has been unwound or reversed or is no longer expected to be consummated, which terms and conditions had not been satisfied at the time of such termination of employment, shall be deemed satisfied upon the consummation of the event described in Section 2(g)(iii) or 2(g)(iv), as applicable; provided, that prior to the consummation of such event or a Board of Directors determination, as referenced above, such Restricted Stock and Restricted Stock Units shall remain outstanding and be subject to the terms and conditions set forth in the Incentive Award; and

(v) all Performance Grants, Stock Awards and Dividend Equivalents held by a Participant (A) who resigns within three months of an event constituting Good Reason or (B) whose employment is terminated without Cause by the Company or an Affiliate, in either case upon or after an event described in Section 2(g)(iii) or 2(g)(iv) and prior to a the earlier of(x) the consummation of such event, i.e., actual change in ownership of Outstanding Corporation Common Stock, Outstanding Corporation Voting Stock, and/or assets of CSX or its principal Subsidiary and (y) the determination by the Board of Directors that such event has been unwound, reversed, or is no longer expected to be consummated, which had not been fully earned at the time of such termination of employment, shall be deemed to be fully earned and immediately payable in cash upon the consummation of the event described in Section 2(g)(iii) or 2(g)(iv), as applicable; provided, that prior to the consummation of such event or a Board of Directors determination, as referenced above, such Performance Grants, Stock Awards and Dividend Equivalents shall remain outstanding and be subject to the terms and conditions set forth in the Incentive Award.

(b) Upon a Change in Control, CSX or the Employer of the Participant shall, as soon as possible, but in no event more than seven days following a Change in Control, make an irrevocable contribution to the Benefits Trust in an amount that is sufficient to pay each Participant or Beneficiary of this Plan the unfunded portion of the benefits (i) to which Participants of this Plan or their Beneficiaries are entitled and for which the Company is liable pursuant to the terms of this Plan as of the date on which the Change in Control occurred and (ii) if the Change in Control is not also a Vesting Event, to which Participant or their Beneficiaries would be entitled and for which the Company would be liable if the Change of Control had been a Vesting Event. The amount of the Company’s irrevocable contribution shall be based on the accounting for the most recent calendar year or more recent period for the Plan, as approved by an independent actuary or accountant engaged by the Company prior to the Change in Control and approved by the Benefits Trust Committee, if selected or changed following a Change in Control (the “Actuary”), and shall include an amount deemed necessary to pay estimated administrative expenses for the following five years. The Benefits Trust Committee shall cause such accounting 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 notify the Company of the amount of additional contributions required as soon as possible. The Benefits Trust is the CSX Corporation and Affiliated Companies Executives’ Trust or other similar trusts sponsored by CSX or another Employer.

21. Interpretation. The terms of this Plan shall be governed by the laws of the Commonwealth of Virginia without regard to its conflict of laws rules.

EX-10.20

Omnibus Incentive Plan as amended

EX-10.40

Exhibit 10.40

RESTRICTED STOCK AWARD AGREEMENT

     THIS AGREEMENT is made and entered into as of October 4, 2002, by and between CSX CORPORATION (“CSX”), a Virginia corporation, and Clarence W. Gooden (the “Recipient”).

     WHEREAS, CSX wishes to create a further incentive for Recipient to remain as an employee of CSX.

     NOW, THEREFORE, in consideration of their mutual promises and undertakings, CSX and Recipient mutually agree as follows:

     1. In consideration for Recipient’s agreement to remain an active employ of CSX or an Affiliate, continuously, through October 4, 2007 (the “Employment Period”), the Recipient shall, as of October 4, 2002 (the “Grant Date”), receive a grant of 17,000 shares of restricted CSX Corporation common stock, $1 par value (the “Restricted Stock”) under CSX’ s Omnibus Incentive Plan (the “Plan”), the provisions of which are hereby incorporated by reference. (In the event of any conflict between this Agreement and the Plan, this Agreement shall control.) All or a portion of the Restricted Stock shall vest, and the restrictions applicable to such shares of Restricted Stock hereunder shall be lifted, on the date that is the “Vesting Date,” as provided below in this Agreement. Except as provided otherwise below, the Vesting Date for all of the Restricted Stock shall be October 4, 2007. CSX shall pay to Recipient an amount equal to dividends declared and payable on each of the shares of Restricted Stock from October 4, 2002, through the Vesting Date for such shares or the date on which it is forfeited, as applicable, net of applicable withholding taxes, as and when such dividends are paid to CSX shareholders generally.

     2. (a) Except as set forth below in this Section 2, if Recipient’s employment with CSX terminates for any reason before the end of the Employment Period (“Date of Termination?’), Recipient shall forfeit the Restricted Stock, this Agreement shall become null and void, and CSX shall have no obligation as to vesting of any of the Restricted Stock and payment of any further monies pursuant to Paragraph 1 of this Agreement.

          (b) In the event of a termination of Recipient’s employment before the end of the Employment Period by reason of Recipient’s death or Disability, by CSX without Cause or by Recipient for Good Reason, the Date of Termination shall be the Vesting Date with respect to a number of shares of Restricted Stock determined by the following formula:

(number of completed months from the Grant Date through the Date of
Termination / 60) x 17,000

          For purposes of this Agreement, “Disability” shall mean the Recipient’s becoming disabled within the meaning of the long-term disability plan of the Company covering the Recipient. “Cause” means (i) the willful and continued failure of the Recipient substantially to perform the Recipient’s duties under this Agreement (other than as a result of physical or mental illness or injury), after the Board of Directors of the Company (the “Board”) or the Chief Executive Officer or other senior executive of the

Company delivers to the Recipient a written demand for substantial performance that specifically identifies the manner in which the Board, the Chief Executive Officer or such other executive believes that the Recipient has not substantially performed the Recipient’s duties, or (ii) illegal conduct or gross misconduct by the Recipient. “Good Reason” means termination by the Recipient within 60 days after, and as a result of:

i.	Any action by the Company that results in a material diminution in the Recipient’s position, authority, duties or responsibilities; provided, however, that minor changes in Recipient’s job title or responsibilities will not constitute grounds for a Good Reason termination under this Section 4(c)(i)(A).
ii.	any requirement by the Company that the Recipient’s services be rendered primarily at a location or locations other than Jacksonville Florida. unless such requested relocation is made under the terms of the CSX executive relocation policy.

          The remainder of the Restricted Stock shall be forfeited as of the Date of Termination and CSX shall have no obligation as to vesting of such forfeited Restricted Stock, nor any obligation to pay further monies pursuant to Paragraph 1 of this Agreement with respect to any of the Restricted Stock.

          (c) Recipient shall be solely responsible for any and all federal, state, and local taxes which may be imposed on him as a result of his receipt of the Restricted Stock, the vesting thereof and his receipt of dividends pursuant to Section 1.

     3. In the event of any change (such as recapitalization, merger, consolidation, stock dividend, or otherwise) in the character or amount of CSX Corporation common stock, $1 par value, prior to vesting of the Restricted Stock pursuant to Paragraph I of this Agreement, (a) the number of shares of Restricted Stock to which Recipient shall be entitled shall be the same as if he had actually owned the Restricted Stock without restriction at the time of such change, and (b) the amount of the cash to be paid to Recipient shall be the amount of dividends paid on the Restricted Stock following such change in the number of shares of Restricted Stock.

     4. Upon The occurrence of the date of a Vesting Event as defined in the Plan. the Vesting Date will be deemed to have occurred.

     5. Nothing in this Agreement shall be interpreted or construed to create a contract of employment between the Company and the Recipient. This Agreement is intended solely to provide Recipient an incentive to continue his existing employment.

     IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of October 4, 2002.

RECIPIENT:	CSX CORPORATION
/s/ Clarence W. Gooden	By: /s/ Jeffrey McCutcheon
Social Security No.: _________________________	Title: SVP, Human Resources

EX-10.41

Exhibit 10.41

RESTRICTED STOCK AWARD AGREEMENT

     THIS AGREEMENT is made and entered into as of December 22, 2005, by and between CSX CORPORATION (“CSX”), a Virginia corporation, and Ellen M. Fitzsimmons (the “Recipient”).

     WHEREAS, CSX wishes to create a further incentive for Recipient to remain as an employee of CSX.

     NOW, THEREFORE, in consideration of their mutual promises and undertakings, CSX and Recipient mutually agree as follows:

1.   In consideration for Recipient’s agreement to remain an active employee of CSX or an Affiliate, continuously and without interruption from the period December 22, 2005 through December 21, 2008 (the “Employment Period”), the Recipient shall, as of December 22, 2005, receive a grant of 20,620 shares of restricted CSX Corporation common stock, $1 par value (the “Restricted Stock”) under CSX’s Omnibus Incentive Plan (the “Plan”), the provisions of which are hereby incorporated by reference. (In the event of any conflict between this Agreement and the Plan, this Agreement shall control.) During the Employment Period, CSX will pay to Recipient an amount equal to dividends declared and payable on the Restricted Stock from December 22, 2005, through the Employment Period, net of applicable withholding taxes. Except as otherwise provided herein, the Restricted Stock shall vest and the restrictions will be lifted as follows:

Vesting	Shares
Date	Vested
December 22, 2005		5,155
December 22, 2006		5,155
December 22, 2007		5,155
December 22, 2008		5,155

2.   (a) Except as set forth in subsection 2, if Recipient’s employment by CSX or an Affiliate terminates before the “Vesting Date,” this Agreement shall become null and void and CSX shall have no obligation as to vesting of any of the Restricted Stock and payment of any further monies pursuant to Paragraph 1 of this Agreement.

     (b) In the event of a termination of Recipient’s employment before the end of the Employment Period by reason of Recipient’s death or Disability, by CSX without Cause or by Recipient for Good Reason, the Date of Termination shall be the Vesting Date with respect to a number of shares of Restricted Stock determined by the following formula:

(number of completed months from the Grant Date through the Date of
Termination / 48) x 20,620)

     For purposes of this Agreement, “Disability” shall mean the Recipient’s becoming disabled within the meaning of the long-term disability plan of the Company covering the Recipient. “Cause” means (i) the willful and continued failure of the Recipient substantially to perform the Recipient’s duties under this Agreement (other

than as a result of physical or mental illness or injury), after the Board of Directors of the Company (the “Board”) or the Chief Executive Officer or other senior executive of the Company delivers to the Recipient a written demand for substantial performance that specifically identifies the manner in which the Board, the Chief Executive Officer or such other executive believes that the Recipient has not substantially performed the Recipient’s duties, or (ii) illegal conduct or gross misconduct by the Recipient. “Good Reason” means termination by the Recipient within 60 days after, and as a result of:

i.	Any action by the Company that results in a material diminution in the Recipient’s position, authority, duties or responsibilities; provided, however, that minor changes in Recipient’s job title or responsibilities will not constitute grounds for a Good Reason termination under this Section 4(c)(i)(A).
ii.	any requirement by the Company that the Recipient’s services be rendered primarily at a location or locations other than Jacksonville, Florida, unless such requested relocation is made under the terms of the CSX executive relocation policy.

     The remainder of the Restricted Stock shall be forfeited as of the Date of Termination and CSX shall have no obligation as to vesting of such forfeited Restricted Stock, nor any obligation to pay further monies pursuant to Paragraph 1 of this Agreement with respect to any of the Restricted Stock.

     (c) Recipient shall be solely responsible for any and all federal, state, and local taxes which may be imposed on her as a result of her receipt of the Restricted Stock, the vesting thereof and her receipt of dividends pursuant to Section 1.

3.   In the event of any change (such as recapitalization, merger, consolidation, stock dividend, or otherwise) in the character or amount of CSX Corporation common stock, $1 par value, prior to vesting of the Restricted Stock pursuant to Paragraph 1 of this Agreement, (a) the number of shares of Restricted Stock to which Recipient shall be entitled shall be the same as if she had actually owned the Restricted Stock without restriction at the time of such change, and (b) the amount of the cash to be paid to Recipient shall be the amount of dividends paid on the Restricted Stock following such change in the number of shares of Restricted Stock.

4.   Upon the occurrence of the date of a Vesting Event as defined in the Plan, the Vesting Date will be deemed to have occurred.

5.   Nothing in this Agreement shall be interpreted or construed to create a contract of employment between the Company and the Recipient. This Agreement is intended sole to provide Recipient an incentive to continue her existing employment.

     IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of December 22, 2005.

RECIPIENT:	CSX CORPORATION
/s/ Ellen M. Fitzsimmons	/s/ Michael Ward
Ellen M. Fitzsimmons	Title: Chairman, President & CEO

EX-21

Exhibit 21

Subsidiaries of the Registrant

As of December 30, 2005, the Registrant was the beneficial owner of 100% of the common stock of the following significant subsidiaries:

CSX Transportation, Inc. (a Virginia corporation)
CSX Intermodal, Inc. (a Delaware corporation)

As of December 30, 2005, none of the other subsidiaries included in the Registrant’s consolidated financial statements constitute a significant subsidiary.

EX-23.1

EXHIBIT 23.1

Consent of Independent Registered Public Accounting Firm

We consent to the incorporation by reference in the following Registration Statements:

• Registration Statement (Form S-3 No. 33-2084)

• Registration Statement (Form S-3 No. 333-113637)

• Registration Statement (Form S-8 No. 33-16230)

• Registration Statement (Form S-8 No. 33-25537)

• Registration Statement (Form S-8 No. 33-29136)

• Registration Statement (Form S-8 No. 33-33853)

• Registration Statement (Form S-8 No. 33-33854)

• Registration Statement (Form S-8 No. 33-37449)

• Registration Statement (Form S-8 No. 33-41498)

• Registration Statement (Form S-8 No. 33-41499)

• Registration Statement (Form S-8 No. 33-41735)

• Registration Statement (Form S-8 No. 33-47655)

• Registration Statement (Form S-8 No. 33-57029)

• Registration Statement (Form S-8 No. 333-09213)

• Registration Statement (Form S-8 No. 333-73429)

• Registration Statement (Form S-8 No. 333-32008)

• Registration Statement (Form S-8 No. 333-43382)

• Registration Statement (Form S-8 No. 333-48896)

• Registration Statement (Form S-8 No. 333-66604)

• Registration Statement (Form S-8 No. 333-110589)

of our report dated February 13, 2006, with respect to the consolidated financial statements of CSX Corporation, included herein, and our report dated February 13, 2006 with respect to CSX Corporation’s management’s assessment of the effectiveness of internal control over financial reporting and the effectiveness of internal control over financial reporting of CSX Corporation included in this Annual Report (Form 10-K) for CSX Corporation.

/s/ Ernst & Young LLP
Jacksonville, Florida
February 21, 2006

EX-23.2

EXHIBIT 23.2

Consent of Independent Registered Public Accounting Firms

We consent to the use of our report dated January 27, 2004, except for Note 2, as to which the date is January 21, 2005, with respect to the consolidated statements of income, stockholders’ equity, and cash flows of Conrail Inc. and subsidiaries for the year ended 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 CSX Form S-3 Registration Statement (Registration Nos. 33-2084 and 333-113637) and in each CSX Form S-8 Registration Statement (Registration Nos. 33-16230, 33-25537, 33-29136, 33-37449, 33-41498, 33-41499, 33-41735, 33-41655, 33-57029, 333-09213, 33-33853, 33-33854, 333-73427, 333-73429, 333-32008, 333-43382, 333-48896, 333-66604, and 333-110589) of our report dated January 27, 2004, except for Note 2, as to which the date is January 21, 2005, with respect to the consolidated statements of income, stockholders’ equity, and cash flows of Conrail Inc. and subsidiaries for the year ended December 31, 2003 included in this Annual Report (Form 10-K) of CSX for the fiscal year ended December 30, 2005.

/s/ Ernst & Young LLP	/s/ KPMG LLP
Jacksonville, Florida	Norfolk, Virginia
February 21, 2006	February 21, 2006

EX-24

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 8th day of February 2006.

/s/ Elizabeth E. Bailey	/s/ Charles E. Rice
Elizabeth E. Bailey	Charles E. Rice
/s/ John B. Breaux	/s/ William C. Richardson
John B. Breaux	William C. Richardson
/s/ Edward J. Kelly, III	/s/ Frank S. Royal
Edward J. Kelly, III	Frank S. Royal
/s/ Robert D. Kunisch	/s/ Donald J. Shepard
Robert D. Kunisch	Donald J. Shepard
/s/ Southwood J. Morcott	/s/ Michael J. Ward
Southwood J. Morcott	Michael J. Ward
/s/ David M. Ratcliffe	/s/ Oscar Munoz
David M. Ratcliffe	Oscar Munoz

EX-31.1

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)) and internal control over financial reporting (as defined by Exchange Act Rules 13a-15(f) and 15d-15(f)) 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)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
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 officer 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: February 21, 2006

/s/ MICHAEL J. WARD  

Michael J. Ward 

Chairman, President and Chief Executive Officer 

EX-31.2

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)) and internal control over financial reporting (as defined by Exchange Act Rules 13a-15(f) and 15d-15(f)) 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)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
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 officer 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: February 21, 2006

/s/ OSCAR MUNOZ  

Oscar Munoz 

Executive Vice President and Chief Financial Officer 

EX-32.1

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 fiscal year ended December 30, 2005 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: February 21, 2006

/s/ MICHAEL J. WARD  

Michael J. Ward 

Chairman, President and Chief Executive Officer 

EX-32.2

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 fiscal year ended December 30, 2005 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: February 21, 2006

/s/ OSCAR MUNOZ  

Oscar Munoz 

Executive Vice President and Chief Financial Officer 

EX-99.3

Exhibit 99.3

Report of Independent Registered Public Accounting Firms

The Stockholders and Board of Directors
Conrail Inc.:

We have audited the accompanying consolidated statements of income, stockholders’ equity and cash flows of Conrail Inc. and subsidiaries for the year 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 audit.

We conducted our audit in accordance with the Standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged to perform an audit of the Company’s internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also 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 audit provides a reasonable basis for our opinion.

In our opinion, the consolidated financial statements of Conrail Inc. and subsidiaries referred to above present fairly, in all material respects, the results of their operations and their cash flows for the year ended December 31, 2003, in conformity with U.S. generally accepted accounting principles.

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.

The accompanying financial statements for 2005 and 2004 were not audited by us and, accordingly we do not express an opinion on them.

KPMG LLP	Ernst & Young LLP
Norfolk, Virginia	Jacksonville, Florida

January 27, 2004,
except for Note 2, as to which
the date is January 21, 2005

-1-

CONRAIL INC.
CONSOLIDATED STATEMENTS OF INCOME

	Years ended December 31,
	(Unaudited)			(Unaudited)
($ In Millions)	2005			2004			2003
Revenues — NSC/CSX	$	276		$	255		$	235
Revenues — Third parties		102			97			81
Total operating revenues		378			352			316
Operating expenses
Compensation and benefits		187			189			168
Material, services and rents		103			121			118
Depreciation and amortization		27			29			30
Casualties and insurance		9			11			16
Fuel		10			7			6
Other		10			13			14
Total operating expenses		346			370			352
Income (loss) from operations		32			(18	)		(36	)
Interest expense		(7	)		(8	)		(9	)
Other income, net (Note 11)		88			61			58
Income from continuing operations before income taxes and accounting changes		113			35			13
Provision for income taxes (Note 8)		28			13			3
Income from continuing operations before accounting changes		85			22			10
Income from discontinued operations, net of tax (Note 2)		—			119			191
Cumulative effect of changes in accounting principles, net of tax (Note 1)		—			(1	)		2
Net Income	$	85		$	140		$	203

See accompanying notes to the consolidated financial statements.

-2-

CONRAIL INC.
CONSOLIDATED BALANCE SHEETS

	December 31,
	(Unaudited)			(Unaudited)
($ In Millions)	2005			2004
ASSETS
Current assets
Cash and cash equivalents	$	20		$	20
Accounts receivable, net		24			25
Income taxes receivable (Note 8)		5			73
Due from NSR/CSXT (Note 3)		134			165
Material and supplies		9			8
Deferred income taxes (Note 8)		38			40
Other current assets		3			3
Total current assets		233			334
Property and equipment, net (Note 5)		560			560
Due from NSR/CSXT (Note 3)		308			225
Due from NSC/CSX (Note 3)		105			—
Other assets (Note 6)		269			295
Total assets	$	1,475		$	1,414
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
Accounts payable	$	30		$	18
Current maturities of long-term debt (Note 7)		44			50
Due to NSC/CSX (Note 3)		6			4
Wages and employee benefits		35			33
Casualty reserves		32			32
Accrued and other current liabilities (Note 6)		86			105
Total current liabilities		233			242
Long-term debt (Note 7)		215			266
Casualty reserves		87			109
Deferred income taxes (Note 8)		66			17
Other liabilities (Note 6)		439			419
Total liabilities		1,040			1,053
Commitments and contingencies (Note 12)
Stockholders’ equity (Notes 2 and 10)
Common stock ($1 par value; 100 shares authorized, issued and outstanding)		—			—
Additional paid-in capital		456			445
Retained earnings		102			17
Accumulated other comprehensive loss		(123	)		(101	)
Total stockholders’ equity		435			361
Total liabilities and stockholders’ equity	$	1,475		$	1,414

See accompanying notes to the consolidated financial statements.

-3-

CONRAIL INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

($ in Millions)

							Accumulated
	Additional						Other
	Paid-In			Retained			Comprehensive
	Capital			Earnings			Loss			Total
Balance , January 1, 2003	$	2,221		$	2,134		$	(129	)	$	4,226
Comprehensive income - 2003
Net Income		—			203			—			203
Minimum pension liability, net (Note 9)		—			—			25			25
Total comprehensive income											228
Balance , December 31, 2003		2,221			2,337			(104	)		4,454
Comprehensive income — 2004 (Unaudited)
Net Income (Unaudited)		—			140			—			140
Minimum pension liability, net (Unaudited) (Note 9)		—			—			3			3
Total comprehensive income (Unaudited)											143
Conrail Corporate Reorganization (Unaudited)(Note 2)		(1,776	)		(2,460	)					(4,236	)
Balance , December 31, 2004 (Unaudited)		445			17			(101	)		361
Comprehensive income — 2005 (Unaudited)
Net Income (Unaudited)		—			85			—			85
Minimum pension liability, net (Unaudited) (Note 9)		—			—			(22	)		(22	)
Total comprehensive income (Unaudited)											63
Tax refund allocation to spun-off subsidiaries (Unaudited) (Note 8)		11									11
Balance, December 31, 2005 (Unaudited)	$	456		$	102		$	(123	)	$	435

See accompanying notes to the consolidated financial statements.

-4-

CONRAIL INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS

	Years ended December 31,
	(Unaudited)			(Unaudited)
				Revised			Revised
				See Note 1			See Note 1
($In Millions)	2005			2004			2003
Cash flows from operating activities
Net income	$	85		$	140		$	203
Adjustments to reconcile net income to net cash provided by operating activities:
Net cumulative effect of changes in accounting principles		—			1			(40	)
Depreciation and amortization		27			219			329
Deferred income taxes		48			(26	)		(12	)
Gains from sales of property		(9	)		(3	)		(7	)
Pension cost (benefit)		12			10			(4	)
Changes in:
Accounts receivable, net		1			1			1
Income taxes receivable		68			—			—
Accounts and wages payable		14			(14	)		4
Due to NSC/CSX		2			(1	)		(4	)
Other, net		9			(30	)		(58	)
Net cash provided by operating activities		257			297			412
Cash flows from investing activities
Notes receivable from NSR/CSXT		(124	)		—			—
Notes receivable from NSC/CSX		(105	)		(213	)		(339	)
Property and equipment acquisitions		(26	)		(31	)		(35	)
Other		14			3			14
Net cash used in investing activities		(241	)		(241	)		(360	)
Cash flows from financing activities
Payment of long-term debt, net		(16	)		(54	)		(57	)
Net cash used in financing activities		(16	)		(54	)		(57	)
Net change in cash and cash equivalents		—			2			(5	)
Cash and cash equivalents
At beginning of year		20			18			23
At end of year	$	20		$	20		$	18
Supplemental cash flow information
Cash paid during the year for:
Interest	$	24		$	80		$	100
Income taxes	$	25		$	73		$	129

See accompanying notes to the consolidated financial statements.

-5-

CONRAIL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information pertaining to December 31, 2005 and December 31, 2004 and
the years then ended is unaudited except for Note 2)

1. Summary of Significant Accounting Policies

Description of Business

Conrail Inc. (“Conrail” or the “Company”) is a holding company whose principal subsidiary is Consolidated Rail Corporation (“CRC”), a principal switching and terminal railroad operating in Pennsylvania, New Jersey and Michigan. Norfolk Southern Corporation (“NSC”) and CSX Corporation (“CSX”), two of the major railroad holding companies in the United States, jointly control Conrail through their ownership interests in CRR Holdings LLC (“CRR”), whose major 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. Through its subsidiary, CRC, Conrail owns, manages and operates certain rail properties (“Shared Assets Area”) for the joint and exclusive benefit of the railroad subsidiaries of NSC and CSX, Norfolk Southern Railway Company (“NSR”)and CSX Transportation, Inc. (“CSXT”), respectively.

On August 27, 2004, Conrail, NSC and CSX completed a reorganization of Conrail (“Conrail Reorganization”), which resulted in the spin-off of two former CRC subsidiaries, Pennsylvania Lines LLC (“PRR”) and New York Central Lines LLC (“NYC”), respectively. Prior to the Conrail Reorganization, PRR and NYC owned a substantial share of Conrail’s assets and leased these assets through separate but identical operating agreements to NSR and CSXT, respectively. As a result of the Conrail Reorganization, the operating and lease agreements were terminated and PRR and NYC were merged into NSR and CSXT, respectively. Consequently, the results of operations, and assets and liabilities for PRR and NYC have been classified as discontinued operations in the consolidated financial statements for all periods presented. In addition, as part of the Conrail Reorganization, the Company restructured its existing unsecured and secured indebtedness, with the consent of CRC’s debtholders (see Note 2 to the Consolidated Financial Statements).

The Conrail Reorganization did not involve the Shared Assets Area. Accordingly, subsequent to the Conrail reorganization the major source of the Company’s revenues is from CSXT and NSR, related to fees paid for their joint access and reimbursable cost incurred by
CRC in operating the Shared Assets Area. Also, effective with the Conrail Reorganization and the restructuring of its existing unsecured and secured debt, Conrail has entered into various sublease arrangements with NSR and CSXT.

-6-

CONRAIL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Information pertaining to December 31, 2005 and December 31, 2004 and
the years then ended is unaudited except for Note 2)

Principles of Consolidation

The consolidated financial statements include the Company and its majority-owned subsidiaries. As of January 1, 2004, the financial statements also include the consolidated results for a variable interest entity for which the Company is the primary beneficiary (See Note 1 New Accounting Pronouncements). Investments in 20% to 50% owned companies are accounted for by the equity method. All significant intercompany accounts and transactions have been eliminated. Effective with the Conrail Reorganization, the Company no longer has any equity investees.

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.

For 2004 and 2003, the Company has revised the consolidated statements of cash flows by combining cash flows from discontinued operations with cash flows from continuing operations within each category. Previously, cash flows from discontinued operations were reported as a single amount within operating cash flows.

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 group 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. Gains and losses on disposal of land and all other property are included in Other Income, net (See Note 11). In 2005, the overall depreciation rate averaged 2.9% 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.

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.

-7-

CONRAIL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Information pertaining to December 31, 2005 and December 31, 2004 and
the years then ended is unaudited except for Note 2)

New Accounting Pronouncements

Conrail adopted Financial Accounting Standards Board (“FASB”) Interpretation No. 46R, “Consolidation of Variable Interest Entities” (“FIN 46R”) 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. Pursuant to FIN 46R, on January 1, 2004, the Company consolidated a locomotive leasing entity, Locomotive Management Services (“LMS”) and recorded a $1 million net adjustment for the cumulative effect of this accounting change. The consolidation of LMS will not have an impact on net income in future periods as the Company previously accounted for its investment in LMS under the equity method of accounting.

Conrail also adopted 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, Conrail recorded income of $40 million ($65 million before taxes) for the cumulative effect of this change. Of this amount, $38 million ($62 million before taxes) is related to the discontinued operations of PRR and NYC. Effective with this pronouncement, removal costs are expensed as incurred. This change did not have a material impact on the Company’s consolidated financial statements.

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. 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.

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.

-8-

CONRAIL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Information pertaining to December 31, 2005 and December 31, 2004 and
the years then ended is unaudited except for Note 2)

Reclassifications

Certain amounts in the consolidated financial statements and notes thereto have been reclassified to conform to the 2005 presentation.

2. Conrail Reorganization

On August 27, 2004, Conrail, together with NSC and CSX, completed the Conrail Reorganization. Prior to the Conrail Reorganization, CRC’s former subsidiaries, PRR and NYC owned a substantial share of Conrail’s assets and leased these assets through separate but identical operating agreements to NSR and CSXT, respectively. Pursuant to the Conrail Reorganization, these agreements were terminated and the direct ownership of PRR and NYC was transferred to NSR and CSXT, respectively. The Conrail Reorganization has been approved by the Surface Transportation Board (“STB”) and has received favorable rulings from the Internal Revenue Service (“IRS”) regarding certain tax matters.

As a part of the Conrail Reorganization, the Company restructured its existing unsecured and secured public indebtedness, with the consent of CRC’s debt holders. NSR and CSXT offered substantially similar unsecured debt securities in a 58%/42% ratio in exchange of CRC’s unsecured debentures. Of the $800 million total unsecured debentures, $779 million were accepted for exchange and became direct unsecured obligations of NSR and CSXT. The Company’s secured debt and lease obligations remained obligations of CRC and are supported by new leases and subleases which became the direct lease and sublease obligations, also in a 58%/42% ratio of NSR and CSXT, respectively. In accordance with EITF 87-24, “Allocation of Interest to Discontinued Operations,” interest expense related to the exchanged debt and the direct lease and sublease obligations assumed by NSR and CSXT has been allocated to discontinued operations for all periods presented.

At August 27, 2004, the Company charged $4.2 billion, principally the net assets of the discontinued operations of PRR and NYC against stockholders’ equity to reflect the Conrail Reorganization. In addition, Conrail recorded net operating loss carrybacks and carryforwards of approximately $73 million and $27 million, respectively, related to the Conrail Reorganization (See Note 8).

-9-

CONRAIL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Information pertaining to December 31, 2005 and December 31, 2004 and
the years then ended is unaudited except for Note 2)

The following table summarizes the reporting of the discontinued operations on the Consolidated Statements of Income:

Condensed Statement of Operations
$ in Millions

	Year to Date Period Ended
	Aug. 27, 2004			Dec. 31, 2003
Total operating revenues	$	406		$	602
Total operating expenses		196			307
Income from operations		210			295
Interest expense		(59	)		(90	)
Other income, net		37			38
Income before income taxes and accounting change		188			243
Provision for income taxes		69			90
Income before accounting change		119			153
Accounting change, net of tax		—			38
Income from discontinued operations	$	119		$	191

3. Related Parties Transactions

Shared Assets Area

NSR and CSXT pay Conrail a fee for joint and exclusive access to the Shared Assets Area. In addition, NSR and CSXT pay, based on usage, the costs incurred by Conrail to operate the Shared Assets Area plus a profit factor.

Payments made by NSR to Conrail under the Shared Assets agreements were $149 million, $109 million and $135 million during 2005, 2004 and 2003, respectively, of which $30 million, $27 million and $31 million, were minimum rents. Payments made by CSXT to Conrail under the Shared Assets agreements were $112 million, $91 million and $124 million during 2005, 2004 and 2003, respectively, of which $21 million, $19 million and $24 million, were minimum rents.

-10-

CONRAIL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Information pertaining to December 31, 2005 and December 31, 2004 and
the years then ended is unaudited except for Note 2)

Future minimum lease payments to be received from NSR/CSXT for the Shared Assets Area are as follows:

$ in Millions
Year Ending December 31,	From NSR		From CSXT		Total
2006	$	25	$	18	$	43
2007		25		18		43
2008		25		18		43
2009		25		18		43
2010		25		18		43
2011 and Beyond		331		240		571
Total	$	456	$	330	$	786

Equipment Financing Agreements

As part of the Conrail Reorganization, CRC obtained consents from debtholders and other related parties regarding amendments to certain of the Company’s existing equipment financing obligations. Under the amended agreements, CRC’s existing secured debt and lease obligations related to these equipment financings remain in effect but are supported by new leases and subleases which became the direct lease and sublease obligations in an approximate 58%/42% ratio of NSR and CSXT, respectively. In general, payments received by Conrail from NSR and CSXT under the direct lease and sublease agreements equal the Company’s existing lease obligations and in 2005 totaled $62 million and $44 million from NSR and CSXT, respectively. Payments received in 2004 under these agreements totaled $16 million and $11 million from
NSR and CSXT, respectively.

Future minimum lease payments to be received from NSR/CSXT under the Equipment Financing agreements are as follows:

$ in Millions
Year Ending December 31,	From NSR		From CSXT		Total
2006	$	52	$	38	$	90
2007		64		47		111
2008		41		29		70
2009		34		24		58
2010		19		13		32
2011 and Beyond		41		28		69
Total	$	251	$	179	$	430

-11-

CONRAIL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Information pertaining to December 31, 2005 and December 31, 2004 and
the years then ended is unaudited except for Note 2)

Related Party Balances and Other Transactions

“Due from NSR/CSXT” at December 31, 2005 and 2004, is comprised of amounts due for the Shared Assets Area operations and the Equipment Financing Agreements. Also at December 31, 2005, “Due from NSR/CSXT” includes 30 year interest-bearing notes receivable issued in 2005 totaling $101 million at 4.40% from NSR and $23 million at 4.52% from CSXT. Interest income related to the notes receivables “Due from NSR/CSXT” was approximately $1 million in 2005.

“Due from NSC/CSX” at December 31, 2005 is comprised of 30 year interest-bearing notes receivable issued in 2005 totaling $32 million at 4.52% from NSC and $73 million at 4.40% from CSX. Interest income related to the notes receivables “Due from NSC/CSX” was approximately $2 million in 2005.

“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/CSX” activity for the services described above follows:

$ in Millions
	Payments				Payments
	to NSC				to CSX
	2005		2004		2005		2004
Service Provider Agreements	$	7	$	6	$	3	$	3
Material purchases		11		8		—		—
Rental of locomotives, equipment and facilities		4		6		3		4
Capital Project activities		—		2		—		3
Total payments	$	22	$	22	$	6	$	10

	2005		2004		2005		2004
“Due to NSC/CSX” at December 31	$	5	$	3	$	1	$	1

From time to time, NSC and CSX, as the indirect owners of Conrail, may need to provide some of the Company’s cash requirements through capital contributions, loans or advances. Through December 31, 2005 there have been no transactions under these arrangements.

-12-

CONRAIL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Information pertaining to December 31, 2005 and December 31, 2004 and
the years then ended is unaudited except for Note 2)

4. Other Items

In November 2004, a settlement was reached among Conrail and other parties relating to insurance recoveries for environmental remediation costs. Under the terms of the settlement, Conrail received approximately $9 million in the first quarter of 2005. In the fourth quarter of 2004, the Company recognized a pretax gain of $9 million resulting from the settlement, which is included in the “Other income, net” line item of the income statement.

In 2004, Conrail made payments totaling approximately $15 million, relating to obtaining consents from debtholders and other related parties regarding amendments to certain of the Company’s existing equipment financing obligations. The amounts are included as operating activities in the cash flow statement.

5. Property and Equipment

	December 31,
	2005			2004
	($ In Millions)
Roadway	$	727		$	709
Equipment		141			145
Accumulated depreciation		(315	)		(304	)
		553			550
Capital leases (primarily equipment)		49			52
Accumulated amortization		(42	)		(42	)
		7			10
	$	560		$	560

6. Composition of Certain Balance Sheet Amounts

The components of certain balance sheet accounts were as follows:

          Other Assets

	December 31,
	2005		2004
	($ In Millions)
Prepaid Pension cost	$	111	$	121
Employee Benefit Trust		106		105
Yen denominated deposits		22		33
Other		30		36
	$	269	$	295

-13-

CONRAIL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Information pertaining to December 31, 2005 and December 31, 2004 and
the years then ended is unaudited except for Note 2)

Accrued and Other Current Liabilities

	December 31,
	2005		2004
	($ In Millions)
Operating leases	$	22	$	37
Income and other taxes		30		32
Other		34		36
	$	86	$	105

Other Liabilities

	December 31,
	2005		2004
	($ In Millions)
Pension and other postretirement benefits	$	266	$	235
Environmental reserves		48		57
Unearned revenues		46		48
Minority interest		35		32
Other		44		47
	$	439	$	419

7. Long-term Debt and Leases

As part of the Conrail Reorganization, CRC obtained consents from debtholders and other related parties regarding amendments to certain of the Company’s existing equipment financing obligations. Under the amended agreements, CRC’s existing secured debt and lease obligations related to these equipment financings remain in effect but are supported by new leases and subleases which became the direct lease and sublease obligations in an approximate 58%/42% ratio of NSR and CSX, respectively. In general, payments received by Conrail from NSR and CSX under the direct lease and sublease agreements equal the Company’s existing lease obligations.

Long-term debt

Long-term debt outstanding, including the weighted average interest rates at December 31, 2005, is composed of the following:

	December 31,
	2005			2004
	($ In Millions)
Capital leases	$	87		$	118
Debentures payable, 7.88%, due 2043		12			12
Debentures payable, 9.75%, due 2020		9			9
Equipment and other obligations, 7.21%		151			177
Total Long-term debt		259			316
Current portion		(44	)		(50	)
Long-term debt excluding current portion	$	215		$	266

-14-

CONRAIL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Information pertaining to December 31, 2005 and December 31, 2004 and
the years then ended is unaudited except for Note 2)

Equipment and other obligations mature in 2006 through 2043 and are collateralized by a net lease receivable of $123 million at December 31, 2005. Maturities of long-term debt other than capital leases net of the lease receivable amounts due under the equipment financing agreements are as follows:

Debentures, Equipment and Other Obligations

$ in Millions

	Gross		Lease
Year Ending December 31,	Commitments		Receivable		Net
2006	$	25	$	20	$	5
2007		47		43		4
2008		21		17		4
2009		15		11		4
2010		12		8		4
2011 and Beyond		52		24		28
Total	$	172	$	123	$	49

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 $22 million and $33 million at December 31, 2005 and December 31, 2004, respectively. Capital leases have been discounted at rates ranging from 3.09% to 14.26% and are collateralized by net lease receivables of $49 million at December 31, 2005.

The future minimum lease payments for the capital and operating leases net of the lease receivable amounts due under the equipment financing agreements are as follows:

-15-

CONRAIL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Information pertaining to December 31, 2005 and December 31, 2004 and
the years then ended is unaudited except for Note 2)

Capital Leases

$ In Millions

	Gross Lease			Lease
Year Ending December 31,	Commitments			Receivable			Net
2006	$	24		$	17		$	7
2007		28			19			9
2008		15			11			4
2009		23			12			11
2010		12			1			11
2011 and Beyond		—			—			—
Total		102			60			42
Amount representing interest		(15	)		(11	)		(4	)
	$	87		$	49		$	38

Operating Leases

$ In Millions

	Gross Lease		Sublease
Year Ending December 31,	Commitments		Rentals		Net
2006	$	48	$	44	$	4
2007		54		43		11
2008		51		38		13
2009		44		31		13
2010		33		21		12
2011 and Beyond		184		41		143
Total	$	414	$	218	$	196

Operating lease rent expense was $54 million in 2005 and $60 million in both 2004 and 2003. Sublease rental income commencing in August 2004 with the Conrail Reorganization totaled $50 million in 2005 and $17 million in 2004.

-16-

CONRAIL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Information pertaining to December 31, 2005 and December 31, 2004 and
the years then ended is unaudited except for Note 2)

8. Income Taxes

Conrail is included in the consolidated federal income tax return of Green Acquisition Corporation and Subsidiaries (“Green”).

Total income taxes for the years ended December 31, were allocated as follows:

	2005			2004		2003
			($ In Millions)
Income from continuing operations	$	28		$	13	$	3
Discontinued operations (includes $24 million in 2003 for accounting change)		—			69		114
Cumulative effect of changes in accounting principles		—			—		1
Stockholders’ equity, for Accumulated
Other Comprehensive Loss recognized for minimum pension liability		(12	)		9		16
	$	16		$	91	$	134

The amount related to Accumulated Other Comprehensive Loss for 2004 includes $4 million tax expense related to a change in the effective tax rate in connection with the Conrail reorganization.

The provisions for income taxes for continuing operations are composed of the following:

	2005			2004			2003
			($ In Millions)
Current
Federal	$	(18	)	$	(6	)	$	(8	)
State		(2	)		1			(1	)
		(20	)		(5	)		(9	)
Deferred
Federal		44			8			11
State		4			10			1
		48			18			12
	$	28		$	13		$	3

-17-

CONRAIL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Information pertaining to December 31, 2005 and December 31, 2004 and
the years then ended is unaudited except for Note 2)

Reconciliation of the U.S. statutory tax rates with the effective tax rates is as follows:

	2005			2004			2003
Statutory tax rate		35.0	%		35.0	%		35.0	%
State income taxes, net of federal benefit		1.1			1.5			1.3
Settlement of tax audit		(11.3	)		—			-
Corporate-owned life insurance		(.1	)		(1.1	)		(10.0	)
Other		.3			.4			1.3
Effective tax rate		25.0	%		35.8	%		27.6	%

During the third quarter of 2005, the Internal Revenue Service (IRS) advised Green that the Congressional Joint Committee on Taxation had completed its consideration of the IRS special report (made to satisfy the requirements of section 6405 of the Internal Revenue Code of 1986) for Green’s federal income tax returns for the short tax period beginning May 24, 1997 and ending December 1997, and calendar years ending December 1998 through December 2001, and have taken no exception to the conclusions reached by the IRS and approved a refund of approximately $120 million (this included interest of approximately $19 million). Conrail has recognized the interest portion of the refund in the “Other income, net” line item of the income statement.

In conjunction with the tax refund, the Company also recognized income tax benefits of approximately $13 million, which is reflected in the “Provision for income taxes” line item of the income statement. The income tax benefit adjustment is net of the impact of additional tax liabilities required for reversing temporary differences and an increase in the Company’s effective tax rate. Also in accounting for the tax refund, the Company under the provisions of a tax allocation agreement, distributed a share of the refund proceeds and other tax items to the former CRC subsidiaries PRR and NYC which were spun-off as part of the Conrail Reorganization. The net effect of the tax allocation transactions, approximately $11 million, has been recognized in stockholders’ equity.

As part of the Conrail Reorganization in 2004, a $267 million bond redemption premium deduction was taken on the Green tax return for the period ended December 31, 2004 which contributed to Green having a consolidated federal taxable loss for 2004. The taxable loss resulted in the Company filing for refunds ($66 million federal and $7 million state) of the 2004 estimated tax payments. The $73 million income tax refund receivable is reflected in the “Income taxes receivable” line item of the Balance Sheet as of December 31, 2004.

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CONRAIL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Information pertaining to December 31, 2005 and December 31, 2004 and
the years then ended is unaudited except for Note 2)

During 2005, $55 million of the federal income tax refund was received and the remaining $11 million was applied and credited towards the 2005 federal income tax estimate. Also in 2005, $5 million of the state income tax refund was received and $1 million has been applied and credited towards the 2005 state income tax estimate.

Significant components of the Company’s deferred income tax assets (liabilities) are as follows:

	December 31,
	2005			2004
	($ In Millions)
Current assets	$	—		$	—
Current liabilities		38			40
Current deferred tax asset, net	$	38		$	40
Non-current liabilities:
Property and equipment		(155	)		(97	)
Other		(65	)		(98	)
		(220	)		(195	)
Non-current assets:
Non-deductible reserves and other liabilities		154			178
Non-current deferred income tax asset (liability), net	$	(66	)	$	(17	)
Net deferred income tax asset (liability)	$	(28	)	$	23

As of December 31, 2005 , the Company had state net operating loss
carryforwards of approximately $37 million that are anticipated to be utilized through 2023.

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.

9. Pension and Other Postretirement Benefits

The Company and certain subsidiaries sponsor defined benefit qualified and nonqualified pension plans, covering principally non-union employees. The Company and certain subsidiaries also sponsor plans that provide for medical benefits and life insurance coverage to eligible retirees.

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CONRAIL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Information pertaining to December 31, 2005 and December 31, 2004 and
the years then ended is unaudited except for Note 2)

Pension Plan Asset Management

Six investment firms manage the Company’s defined benefit pension plans’ 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, 2005, was 47% in fixed income investments and 53% in equity investments including 11% in international equities. This compared to 46% fixed income and 54% equity including 12% international equity as of December 31, 2004.

The plans’ assumed future returns are based principally on the asset allocation and the historic returns for the plans’ asset classes determined from both the actual plan returns and, over longer time periods, the market returns for those asset classes.

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CONRAIL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Information pertaining to December 31, 2005 and December 31, 2004 and
the years then ended is unaudited except for Note 2)

Obligations and Funded Status

The following tables provide a reconciliation of the changes in the plans’ benefit obligations and fair value of assets over the two- year period ended December 31, 2005, and a statement of the funded status as of December 31 of both years:

							Other Postretirement
	Pension Benefits						Benefits
($ In Millions)	2005			2004			2005			2004
Change in benefit obligation
Net benefit obligation at beginning of year	$	670		$	655		$	38		$	37
Service cost		2			2			—			—
Interest cost		37			40			2			2
Plan participants’ contributions		—			—			7			9
Actuarial losses		31			34			2			2
Benefits paid		(58	)		(61	)		(12	)		(12	)
Net benefit obligation at end of year	$	682		$	670		$	37		$	38
Change in plan assets
Fair value of plan assets at beginning of year	$	588		$	576		$	5		$	6
Actual return on plan assets		24			71			—			-
Employer contributions		2			2			4			2
Plan participants’ contributions		—			—			7			9
Benefits paid		(58	)		(61	)		(12	)		(12	)
Fair value of plan assets at end of year	$	556		$	588		$	4		$	5
Funded status at end of year	$	(126	)	$	(82	)	$	(33	)	$	(33	)
Unrecognized prior service cost		6			6			(1	)		(1	)
Unrecognized actuarial (gains)losses		198			164			—			(2	)
Net amount recognized at year end	$	78		$	88		$	(34	)	$	(36	)

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CONRAIL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Information pertaining to December 31, 2005 and December 31, 2004 and
the years then ended is unaudited except for Note 2)

Accumulated Benefit Obligation

The accumulated benefit obligation is the actuarial present value of pension benefits based on current or past salary levels. The accumulated benefit obligation for all defined benefit plans was $671 million and $656 million as of December 31, 2005 and 2004, 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 are as follows:

	December 31,
	2005			2004
	($ In Millions)
Projected benefit obligation	$	(671	)	$	(661	)
Accumulated benefit obligation		(662	)		(649	)
Fair value plan assets		545			576
Unfunded accumulated benefit obligation		(117	)		(73	)

Minimum Pension Liability

During 2005 and 2004, the Company recorded changes to its minimum pension liability, which is required due to the Company’s unfunded accumulated benefit obligation and recognized prepaid paid pension asset.

The changes do not impact net income but are recognized as adjustments to an intangible asset and accumulated other comprehensive income, net of tax. In 2005, the minimum pension liability increased $33 million, decreasing accumulated other comprehensive income $22 million, net of tax. In 2004, the minimum pension liability decreased $13 million, increasing accumulated other comprehensive income $3 million, net of tax. The intangible asset decreased $1 million in both 2005 and 2004.

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CONRAIL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Information pertaining to December 31, 2005 and December 31, 2004 and
the years then ended is unaudited except for Note 2)

Amounts Recognized in Consolidated Balance Sheets

The following amounts have been recognized in the balance sheets as of December 31:

							Other Postretirement
	Pension Benefits						Benefits
($ In Millions)	2005			2004			2005			2004
Prepaid pension cost	$	111		$	121		$	—		$	—
Accrued benefit cost		(232	)		(199	)		(34	)		(36	)
Intangible asset		5			6			—			-
Accumulated other comprehensive loss		194			160			—			-
	$	78		$	88		$	(34	)	$	(36	)

The postretirement life insurance plan had plan assets totaling $4 million and $5 million at December 31, 2005 and December 31, 2004, respectively. There are no plan assets for the postretirement medical plans.

Actuarial Assumptions

The assumptions used in the measurement of the Company’s benefit obligations and benefit cost for the year ended December 31 are as follows:

							Other Postretirement
	Pension Benefits						Benefits
($ In Millions)	2005			2004			2005			2004
Funded Status:
Discount rate		5.50	%		5.75	%		5.50	%		5.75	%
Rate of compensation increase		5.00	%		5.00	%		5.00	%		5.00	%
Benefit Cost:
Discount rate		5.75	%		6.25	%		5.75	%		6.25	%
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 2005, gradually decreasing to 5% by the year 2010.

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 approximately $1 million and $(1) million, respectively.

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CONRAIL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Information pertaining to December 31, 2005 and December 31, 2004 and
the years then ended is unaudited except for Note 2)

Net Periodic Benefit Cost

The components of the Company’s net periodic benefit cost (benefit) for the plans are as follows:

	Year Ending December 31,
										Other Postretirement
	Pension Benefits									Benefits
($ In Millions)	2005			2004			2003			2005		2004			2003
Service cost	$	2		$	2		$	1		$	—	$	—		$	—
Interest cost		37			40			41			2		2			2
Expected return on assets		(45	)		(47	)		(52	)		—		(1	)		—
Amortization of:
Prior service cost		—			1			1			—		—			—
Actuarial loss		18			14			5			—		—			—
	$	12		$	10		$	(4	)	$	2	$	1		$	2

Contributions and Estimated Future Benefit Payments

The Company is not required to make cash contributions to its defined benefit qualified plan in 2006, but may elect to make discretionary contributions depending upon the plan’s investment performance and the Company’s operating cash flows. The Company expects to contribute approximately $2 million to the non-qualified pension plan and $3 million to the other postretirement benefit plans in 2006.

The estimated future benefits to be paid for pensions and other postretirement benefits (OPEB) are:

Year Ending December 31,	Pensions		OPEB
	($ In Millions)
2006	$	57	$	3
2007		55		3
2008		54		3
2009		53		3
2010		52		3
2011 - 2015		247		15

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 approximately $1 million in each of the years 2005, 2004 and 2003. 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.

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CONRAIL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Information pertaining to December 31, 2005 and December 31, 2004 and
the years then ended is unaudited except for Note 2)

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 approximately $3 million in each of the years 2005, 2004 and 2003.

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 $5 million in 2005, $6 million in 2004, and $2 million in 2003.

Change in Control payments

The Company has a long-term liability in connection with employment “change in control” agreements with certain former executives, which became operative as a result of the joint acquisition of Conrail. There were no payments in 2005, and payments were $1 million in 2004 and $4 million in 2003 made primarily from the Company’s pension plan. The remaining amount, approximately $27 million at December 31, 2005, will be paid out at the discretion of the participants in the program.

10. Stockholders’ equity

In conjunction with the tax refund received in 2005, the Company under the provisions of a tax allocation agreement, distributed a share of the refund proceeds and other tax items to the former CRC subsidiaries PRR and NYC which were spun-off as part of the Conrail Reorganization. The net effect of the tax allocation transactions; approximately $11 million, has been recognized in stockholders’ equity (Note 8).

As a result of the Conrail Reorganization in 2004, the Company charged $4.2 billion, principally the net assets of the discontinued operations of PRR and NYC, against stockholders’ equity (Note 2).

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CONRAIL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Information pertaining to December 31, 2005 and December 31, 2004 and
the years then ended is unaudited except for Note 2)

11. Other income, net

	2005		2004			2003
	($ In Millions)
Rental income	$	48	$	49		$	46
Property sales		9		2			5
Interest income		28		3			3
Insurance settlements		3		10			1
Other, net		—		(3	)		3
	$	88	$	61		$	58

The increase in interest income in 2005 is primarily attributable to $19 million received in conjunction with the settlement of the tax audit (Note 8) and $3 million related to interest from the issuance of long-term notes to NSR/CSXT and NSC/CSX (Note 3).

12. Commitments and Contingencies

Environmental

The Company is subject to various federal, state and local laws and regulations regarding environmental matters. Conrail 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, 2005, Conrail 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 25 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 Conrail’s liability for the costs associated with the assessment and remediation of contaminated sites.

At December 31, 2005 and 2004, the Company had accrued $48 million and $57 million respectively, related to future environmental costs 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 $2 million in 2005, $6 million in 2004 and $5 million in 2003 for environmental remediation and related costs.

-26-

CONRAIL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Information pertaining to December 31, 2005 and December 31, 2004 and
the years then ended is unaudited except for Note 2)

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.

Labor

CRC had 1,217 employees at December 31, 2005; approximately 89% of whom are represented by 12 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, 2005 with labor organizations representing approximately 87% of its labor force.

Guarantees

The Company is contingently liable under indemnification provisions related to the sale of tax benefits. This liability is recorded in the “Other liabilities” line item of the balance sheet and totaled $1 million at both December 31, 2005 and December 31, 2004.

13. Fair Values of Financial Instruments

The fair values of “Cash and cash equivalents,” “Accounts receivable, net” and “Accounts payable” approximate the carrying values of these financial instruments at December 31, 2005 and 2004.

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 $188 million and $222 million at December 31, 2005 and 2004, respectively, compared with carrying values of $172 million and $198 million at December 31, 2005 and 2004, respectively.

-27-