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SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

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

~~For the quarter ended September 27~~Washington, ~~2002~~D.C. 20549

(X)

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

EXCHANGE

ACT OF 1934

For the quarter ended March 28, 2003

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

EXCHANGE

ACT OF 1934

For the transition period from to

Commission File Number 1-3359

CSX TRANSPORTATION, INC.

(Exact name of registrant as specified in its charter)

Virginia		54-6000720
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)
500 Water Street, Jacksonville, Florida		32202
(Address of principal executive offices)		(Zip Code)

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

(904) 359-3100

(Registrant’s telephone number, including area code)

No Change

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

Indicate by check mark whether the registrant (1) has filed all reports ~~required~~ 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 x (X) No ( ¨)

REGISTRANT MEETS THE CONDITIONS SET FORTH IN GENERAL INSTRUCTION H (1) (a) AND (b) OF FORM 10-Q AND IS THEREFORE FILING THIS FORM WITH THE REDUCED DISCLOSURE FORMAT.

CSX TRANSPORTATION, INC.

FORM 10-Q

FOR THE QUARTERLY PERIOD ENDED ~~September~~March 2728, ~~2002~~2003

INDEX

		Page Number
PART I.	FINANCIAL INFORMATION
Item 1:	Financial Statements
	Consolidated Statement of Earnings (Unaudited)—Quarters and Nine Months Ended September 27, 2002 and September 28, 2001	3
	Consolidated Income Statements (Unaudited)— Quarters Ended March 28, 2003 and March 29, 2002	3
	Consolidated Statement of Cash Flows (Unaudited)—Nine Months Ended September 27, 2002 and September 28, 2001	4
	Consolidated Cash Flow Statements (Unaudited)— Quarters Ended March 28, 2003 and March 29, 2002	4
	Consolidated Statement of Financial Position—At September 27, 2002 (Unaudited) and December 28, 2001	5
	Consolidated Balance Sheets— At March 28, 2003 (Unaudited) and December 27, 2002	5
	Notes to Consolidated Financial Statements (Unaudited)	6
Item 2:	Management’s ~~Discussion~~Narrative ~~and~~ Analysis of the Results of Operations	1314
Item 3:	Quantitative and Qualitative Disclosures About Market Risk	18
Item 4:	Disclosure ~~Control~~Controls and Procedures	18
PART II.	OTHER INFORMATION
Item 6:	Exhibits and Reports on Form 8-K	19
Signature		19
Certifications		20

CSX TRANSPORTATION, INC. AND SUBSIDIARIES

Consolidated ~~Statement~~Income ofStatements ~~Earnings~~

(~~Millions~~Dollars ofin ~~Dollars~~Millions)

	Quarter Ended						Nine Months Ended
	(Unaudited)
	September 27, 2002			September 28, 2001			September 27, 2002		September 28, 2001
	Quarters Ended
	(Unaudited)
	March 28, 2003			March 29, 2002
OPERATING REVENUE
Operating Revenue:
Merchandise	$	~~871~~922		$	~~852~~868		$	~~2,632~~	$	~~2,623~~
Automotive		~~195~~208			~~184~~200			~~626~~		~~591~~
Coal, Coke & Iron Ore		~~401~~383			~~435~~397			~~1,196~~		~~1,301~~
Other		618			2421			43		68
Total		1,~~473~~531			1,~~495~~486			~~4,497~~		~~4,583~~
OPERATING EXPENSE
Operating Expense:
Labor and Fringe		~~611~~624			~~606~~614			~~1,830~~		~~1,854~~
Materials, Supplies and Other		~~261~~297			~~282~~286			~~832~~		~~837~~
Conrail Operating Fee, Rent and Services		86			84			260		261
Conrail		87			88
Related Party Service Fees		(946	)		4479			~~138~~		~~140~~
Building and Equipment Rent		~~112~~104			~~102~~96			~~311~~		~~317~~
Depreciation		~~136~~138			130			~~397~~		~~392~~
Fuel		~~109~~158			~~123~~104			~~325~~		~~408~~
Total		1,~~306~~454			1,~~371~~397			~~4,093~~		~~4,209~~
OPERATING INCOME		167			124			404		374
Operating Income		77			89
Other Income (Expense)		16			(6	)		17		(1	)
Other (Expense) Income		(10	)		18
Interest Expense		2826			30			86		97
EARNINGS BEFORE INCOME TAXES		155			88			335		276
Earnings Before Income Taxes and Cumulative Effect of Accounting Change		41			77
Income Tax Expense		5825			3130			~~127~~		~~104~~
NET EARNINGS	$	97		$	57		$	208	$	172
Earnings Before Cumulative Effect of Accounting Change		16			47
Cumulative Effect of Accounting Change		57			—
Net Earnings	$	73		$	47

See accompanying Notes to Consolidated Financial Statements.

-3-

CSX TRANSPORTATION, INC. AND SUBSIDIARIES

Consolidated ~~Statement of~~ Cash ~~Flows~~Flow Statements

(~~Millions~~Dollars ofin ~~Dollars~~Millions)

	Nine Months Ended
	September 27, 2002			September 28, 2001
	(Unaudited)
	Quarters Ended
	March 28, 2003			March 29, 2002
OPERATING ACTIVITIES
Net Earnings	$	~~208~~73		$	~~172~~47
Adjustments to Reconcile Net Earnings to Net Cash Provided:
Adjustments to Reconcile Net Earnings to Net Cash (Used) Provided:
Depreciation		~~397~~138			~~392~~130
Deferred Income Taxes		~~144~~24			8729
Other Operating Activities		5			(17	)
Cumulative Effect of Accounting Change—Net of Tax		(57	)		—
Other Operating Activities		8			4
Changes in Operating Assets and Liabilities:
Accounts and Notes Receivable		(1526	)		~~(26~~37	)
Sale of Accounts Receivable, Net		(29	)		10
Sale of Accounts Receivable—Net		(58	)		(36	)
Other Current Assets		(3927	)		(1442	)
Accounts Payable		~~(81~~22	)		(~~145~~96	)
Other Current Liabilities		(~~108~~116	)		66(35	)
Net Cash Provided by Operating Activities		482			525
Net Cash (Used) Provided by Operating Activities		(19	)		38
INVESTING ACTIVITIES
Property Additions		(~~647~~124	)		(~~566~~114	)
Short-term Investments		~~220~~—			—133
Other Investing Activities		(51	)		1—
Net Cash Used by Investing Activities		(432	)		(565	)
Net Cash (Used) Provided by Investing Activities		(125	)		19
FINANCING ACTIVITIES
Long-term Debt Repaid		(~~172~~67	)		(~~134~~78	)
Advances from CSX		~~244~~296			~~324~~49
Dividends Paid		(~~150~~57	)		(~~159~~50	)
Other Financing Activities		1			41
Net Cash (Used) Provided by Financing Activities		(77	)		35
Net Cash Provided (Used) by Financing Activities		173			(78	)
Net Decrease in Cash and Cash Equivalents		(27	)		(5	)
Net Increase (Decrease) in Cash and Cash Equivalents		29			(21	)
CASH, CASH EQUIVALENTS, AND SHORT-TERM INVESTMENTS
Cash and Cash Equivalents at Beginning of Period		27—			2827
Cash and Cash Equivalents at End of Period		—29			236
Short-term Investments at End of Period		—			—87
Cash, Cash Equivalents and Short-term Investments at End of Period	$	—29		$	2393

See accompanying Notes to Consolidated Financial Statements.

-4-

CSX TRANSPORTATION, INC. AND SUBSIDIARIES

Consolidated ~~Statement~~Balance ofSheets ~~Financial Position~~

(~~Millions~~Dollars ofin ~~Dollars~~Millions)

	September 27, 2002			December 28, 2001
	(Unaudited)
	March 28, 2003			December 27, 2002
ASSETS
Current Assets
Current Assets:
Cash, Cash Equivalents and Short-term Investments	$	—		$	247
Cash and Cash Equivalents	$	29		$	—
Accounts Receivable, Net		275			289
Accounts Receivable—Net		302			235
Notes Receivable		52			62
Materials and Supplies		176			171
Materials and Supplies		183			181
Deferred Income Taxes		113			110
Deferred Income Taxes		101			142
Other Current Assets		39			18
Income Taxes Receivable		78			78
Total Current Assets		659			534
Other Current Assets		63			32
Properties		17,439			17,354
Total Current Assets		752			1,031
Accumulated Depreciation		(4,731	)		(4,730	)
Properties		16,992			16,644
Properties—Net		12,708			12,624
Accumulated Depreciation		(4,539	)		(4,427	)
Affiliates and Other Companies		230			217
Properties-Net		12,453			12,217
Other Long-term Assets		624			627
Affiliates and Other Companies		212			198
Total Assets	$	14,221		$	14,002
Other Long-term Assets		609			567
Total Assets	$	14,026		$	14,013
LIABILITIES
Current Liabilities
Current Liabilities:
Accounts Payable	$	~~624~~640		$	~~736~~618
Labor and Fringe Benefits Payable		~~286~~285			~~320~~319
Casualty, Environmental and Other Reserves		174			~~178~~173
Current Maturities of Long-term Debt		~~207~~188			~~170~~213
Income and Other Taxes Payable		~~207~~89			~~192~~98
Due to Parent Company		1,~~338~~588			1,~~107~~297
Due to Affiliate		~~201~~208			~~209~~200
Other Current Liabilities		7658			~~196~~132
Total Current Liabilities		3,~~113~~230			3,~~108~~050
Casualty, Environmental and Other Reserves		507			532
Deferred Income Taxes		3,487			3,424
Long-term Debt		~~880~~830			~~1,033~~873
Deferred Income Taxes		3,353			3,250
Casualty, Environmental and Other Reserves		463			467
Other Long-term Liabilities		~~602~~586			~~577~~579
Total Liabilities		8,~~455~~596			8,~~500~~393
SHAREHOLDER’S EQUITY
Common Stock, $20 Par Value:
Authorized 10,000,000 Shares;
Issued and Outstanding 9,061,038 Shares		181			181
Other Capital		1,380			1,380
Retained Earnings		4,~~010~~064			34,~~952~~048
Total Shareholder’s Equity		5,~~571~~625			5,~~513~~609
Total Liabilities and Shareholder’s Equity	$	14,~~026~~221		$	14,~~013~~002

See accompanying Notes to Consolidated Financial Statements.

-5-

CSX TRANSPORTATION, INC. AND SUBSIDIARIES

Notes toTo Consolidated Financial Statements (Unaudited)

(All tables in Millions of Dollars)

NOTE 1. BASIS OF PRESENTATION

In the opinion of management, the accompanying consolidated financial statements contain all adjustments necessary to ~~present~~ fairly present the financial position of CSX Transportation, Inc. and ~~its~~ subsidiaries (“CSXT” or the “Company”) at ~~September~~March 2728, ~~2002~~2003 and December 2827, ~~2001~~2002, and the results of its operations ~~for the quarters~~ and ~~nine months ended September 27, 2002 and September 28, 2001, and its~~ cash flows for the ~~nine~~quarters ~~months~~ ended ~~September~~March 2728, ~~2002~~2003 and ~~September~~March 2829, ~~2001~~2002, such adjustments being of a normal recurring nature. Certain prior-year data have been reclassified to conform to the ~~2002~~2003 presentation. CSXT is a wholly-owned subsidiary of CSX Corporation (“CSX”).

The Company believes that the disclosures presented are accurate and not misleading, ~~but~~and suggests that these financial statements be read in conjunction with the financial statements and the notes included in CSXT’s ~~latest~~most recent Form 10-K.

CSXT follows a 52/53 week fiscal reporting calendar. Fiscal years ~~2002~~2003 and ~~2001~~2002 consist of 52 weeks ending on December 2726, ~~2002~~2003 and December 2827, ~~2001~~2002, respectively. The financial statements presented are for the 13-week quarters ended ~~September~~March 2728, ~~2002~~2003 and ~~September~~March 2829, ~~2001, the 39-week periods ended September 27,~~ 2002 ~~and September 28~~, ~~2001,~~ and as of December 2827, ~~2001~~2002.

NOTE 2. ~~INTEGRATED~~NEW ~~RAIL~~ACCOUNTING ~~OPERATIONS~~PRONOUNCEMENTS ~~WITH~~AND ~~CONRAIL.~~CUMULATIVE EFFECT OF ACCOUNTING CHANGES

In 2001, Statement of Financial Accounting Standard (“SFAS”) 143, “Accounting for Asset Retirement Obligations,” 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 the first quarter of 2003, CSXT 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 materials, supplies and other expense will be increased.

NOTE 3. INTEGRATED RAIL OPERATIONS WITH CONRAIL

Background

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

CSXT and Norfolk Southern Railway Company (“Norfolk Southern Railway”), the rail subsidiary of Norfolk Southern, operate their respective portions of the Conrail system pursuant to certain operating agreements. Under these agreements, the railroads pay operating fees to Conrail for the use of right-of6-~~way~~ and rent for the use of equipment. Conrail continues to provide rail services in certain shared geographic areas (“Shared Asset Areas”) for the joint benefit of CSXT and Norfolk Southern Railway for which it is compensated on the basis of usage by the respective railroads.

CSX TRANSPORTATION, INC. AND SUBSIDIARIES

Notes toTo Consolidated Financial Statements (Unaudited), ~~Continued~~

~~(All~~NOTE ~~tables~~3. INTEGRATED ~~in Millions~~RAIL ofOPERATIONS ~~Dollars)~~WITH CONRAIL, Continued.

~~NOTE~~CSXT ~~2. INTEGRATED~~and ~~RAIL~~Norfolk ~~OPERATIONS~~Southern ~~WITH~~Railway ~~CONRAIL~~Company (“Norfolk Southern Railway”), ~~Continued~~the rail subsidiary of Norfolk Southern, operate their respective portions of the Conrail system pursuant to various operating agreements. Under these agreements, the railroads pay operating fees to Conrail for the use of right-of-way and rent for the use of equipment. Conrail continues to provide rail services in certain shared geographic areas (“Shared Asset Areas”) for the joint benefit of CSXT and Norfolk Southern Railway, for which it is compensated on the basis of usage by the respective railroads.

Accounting and Financial Reporting Effects

CSXT’s operating revenue ~~and expense~~ includes ~~activity~~revenue from traffic moving on ~~the territory acquired in the~~ Conrail ~~transaction~~property. Operating expenses ~~also~~ include ancosts ~~expense~~incurred ~~category,~~to ~~“Conrail~~handle ~~Operating~~that ~~Fee,~~traffic ~~Rent~~ and ~~Services,”~~operate ~~which reflects payments to Conrail for~~ the ~~use of~~ Conrail ~~right-of-way~~lines. ~~and~~Operating ~~equipment,~~expense asincludes ~~well~~an asexpense ~~charges for transportation~~category, ~~switching and terminal services in the Shared Asset Areas that~~ “Conrail,” ~~operates~~which ~~for~~reflects: ~~the joint benefit of CSXT and Norfolk Southern Railway.~~

Right-of-way usage fees to Conrail

Equipment rental payments to Conrail

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

Transactions with Conrail

~~The~~As ~~agreement~~listed ~~under~~below, ~~which~~ CSXT ~~operates its allocated portion of the Conrail route system~~ has anamounts ~~initial~~payable ~~term of 25 years and may be renewed at CSXT’s option for two five-year terms. Operating fees paid~~ to ~~Conrail under the agreement are subject to adjustment every six years based on the fair~~ ~~value of the underlying~~ Conrail, ~~railroad~~representing ~~system.~~expenses ~~Lease~~incurred ~~agreements~~under ~~for~~ the ~~Conrail equipment operated by CSXT cover varying terms. CSXT is responsible for all costs of~~ operating, ~~maintaining,~~equipment and ~~improving~~shared ~~the~~area ~~routes and equipment under these~~ agreements.

As listed below, CSXT has amounts payable to Conrail, representing expenses incurred under the operating, equipment and shared area agreements with Conrail. At December 28, 2001, CSXT also had receivables from Conrail, principally for reimbursement of certain capital improvement costs.

	September 27, 2002		December 28, 2001
CSXT Payable to Conrail	$	70	$	88
CSXT Receivable from Conrail		—		3

The agreement under which CSXT operates its allocated portion of the Conrail route system has an initial term of 25 years and may be renewed at CSXT’s option for two five-year terms. Operating fees paid to Conrail under the agreement are subject to adjustment every six years based on the fair value of the underlying system. Lease agreements for the Conrail equipment operated by CSXT cover varying terms. CSXT is responsible for all costs of operating, maintaining, and improving the routes and equipment under these agreements.

~~NOTE~~-7- ~~3. ACCOUNTS RECEIVABLE~~

CSXT has an ongoing agreement to sell without recourse, on a revolving basis each month, an undivided percentage ownership interest in all rail freight accounts receivable to CSX Trade Receivables Corporation (“CTRC”), a wholly-owned subsidiary of CSX. Outstanding accounts receivable sold under this agreement totaled $936 million at September 27, 2002 and $966 million at December 28, 2001. In addition, through November 2001, CSXT had a revolving agreement with a financial institution to sell with recourse on a monthly basis an undivided percentage ownership interest in all miscellaneous accounts receivable. Accounts receivable sold under this agreement were $47 million at September 28, 2001. The sales of receivables have been reflected as reductions of Accounts Receivable in the Consolidated Statement of Financial Position. The net losses associated with sales of receivables were $18 million for the quarter and $56 million for the nine months ended September 27, 2002, and $19 million for the quarter and $58 million for the nine months ended September 28, 2001.

CSX TRANSPORTATION, INC. AND SUBSIDIARIES

Notes toTo Consolidated Financial Statements (Unaudited), ~~Continued~~

~~(All~~NOTE ~~tables~~4. ACCOUNTS ~~in Millions~~RECEIVABLE ~~of Dollars)~~

~~NOTE~~Sale ~~3. ACCOUNTS~~of ~~RECEIVABLE,~~Accounts ~~Continued~~Receivable

CSXT ~~has~~sells, ~~retained~~generally ~~the~~without ~~responsibility~~recourse, ~~for~~a ~~servicing~~revolving pool of accounts receivable ~~sold~~ to ~~CTRC.~~CSX ~~The~~Trade ~~average~~Receivables ~~servicing~~Corporation ~~period~~(“CTRC”), ~~is approximately~~a ~~one~~bankruptcy-remote ~~month.~~(special Nopurpose) ~~servicing~~entity ~~asset~~wholly-owned orby ~~liability~~CSX ~~has~~Corporation. ~~been~~Once ~~recorded~~these receivables ~~since~~are ~~the~~sold ~~fees~~they ~~CSXT~~are ~~receives~~no ~~for~~longer ~~servicing~~included ~~the~~in ~~receivables approximates~~ the ~~related~~Company’s ~~costs~~balance sheet.

~~NOTE~~Outstanding ~~4. OTHER~~accounts ~~INCOME~~receivable ~~(EXPENSE)~~sold under this agreement are as follows:

	Quarters Ended							Nine Months Ended
	March 28, 2003			December 27, 2002
	September 27, 2002				September 28, 2001			September 27, 2002			September 28, 2001
	(dollars in millions)
Income from Real Estate Operations(1)	$	33			$	15		$	76		$	65
Outstanding Accounts Receivable Sold	$	856		$	914
Net Losses from Accounts Receivable Sold		(18	)			(19	)		(56	)		(58	)
Miscellaneous		1				(2	)		(3	)		(8	)
Total	$	16			$	(6	)	$	17		$	(1	)

~~(1)~~Net losses ~~Gross~~associated ~~revenue~~with ~~from real estate operations was $42 million for~~ the ~~quarter~~sales ~~and~~of ~~$102~~receivables ~~million~~are ~~for~~as ~~the~~follows: ~~nine months ended September 27, 2002, and $21 million and $86 million for the quarter and nine months ended September 28, 2001.~~

NOTE 5. RELATED PARTIES

~~At September 27, 2002 and December 28, 2001,~~ CSXT ~~had deficit balances of $1.3 billion and $1.1 billion,~~has ~~respectively,~~retained ~~relating~~responsibility tofor ~~its~~servicing ~~participation in~~ the ~~CSX~~accounts ~~cash~~receivables ~~management~~sold ~~plan, which is shown as Due~~ to ~~Parent Company in the Consolidated Statement of Financial Position~~CTRC. ~~Under~~The ~~this~~average ~~plan,~~servicing ~~excess~~period ~~cash~~ is ~~advanced~~less tothan ~~CSX~~one ~~for investment and CSX makes cash funds available to its subsidiaries as needed for use in their operations~~month. ~~CSXT~~No ~~and~~servicing ~~CSX~~asset ~~are committed to repay all amounts due each other on demand should circumstances require. The companies are charged for borrowings~~ or ~~compensated~~liability ~~for investments~~has ~~based~~been onrecorded ~~returns~~since ~~earned by~~ the ~~plan~~fees ~~portfolio,~~CSXT ~~which~~receives ~~was~~approximate ~~2.79%~~its ~~and 4.19% at September 27, 2002 and September 28, 2001, respectively. Interest expense~~ related ~~to this plan was $8~~costs.~~0 million and $24.5 million for the quarter and nine months~~ ~~ended September 27, 2002, and $6.8 million and $23.7 million for the quarter and nine months ended September 28, 2001.~~

~~Related~~Allowance ~~Party~~for ~~Service~~Doubtful ~~Fees~~Accounts ~~consists of amounts related to:~~

•The ~~CSX~~Company ~~Intermodal,~~maintains ~~Inc. (“CSXI”) Reimbursements—Reimbursement from CSXI under~~ an ~~operating~~allowance ~~agreement~~ for ~~costs~~doubtful ~~incurred~~accounts byon receivables ~~the~~not ~~Company~~sold ~~related to intermodal operations. This reimbursement is~~ based on anthe ~~amount~~expected ~~which~~collectibility ~~approximates~~of ~~actual~~all ~~costs~~accounts receivable. The ~~Company~~allowance ~~also~~for ~~collects~~doubtful ~~certain~~accounts ~~revenue~~is onincluded ~~behalf~~in ofthe ~~CSXI~~balance ~~under~~sheet ~~the~~as ~~operating~~follows: ~~agreement.~~

• Total Distribution Services, Inc. (“TDSI”) Charges—Charges from TDSI for services provided to CSXT at automobile ramps. These charges are calculated based on direct costs.

•-8- ~~TRANSFLO Terminal Services, Inc. (“TRANSFLO”) Charges—Charges from TRANSFLO for services provided to CSXT at bulk commodity facilities. These charges are calculated based on direct costs.~~

CSX TRANSPORTATION, INC. AND SUBSIDIARIES

Notes toTo Consolidated Financial Statements (Unaudited), ~~Continued~~

~~(All~~NOTE ~~tables~~5. OTHER ~~in Millions~~INCOME ~~of Dollars~~(EXPENSE)

~~NOTE~~Other ~~5. RELATED~~income ~~PARTIES,~~(expense) ~~Continued~~consists of the following:

• CSX Management Service Fee—A management service fee charged by CSX as compensation for certain corporate services provided to the Company. These services include, but are not limited to, the areas of human resources, finance, administration, benefits, legal, tax, internal controls and corporate communications, as well as strategic management services. The fee for 2002 is calculated as a percentage of CSXT’s revenue. Prior to 2002, the fee was calculated as a percentage of CSX’s investment in CSXT.

	Quarters Ended
	March 28, 2003			March 29, 2002
	(dollars in millions)
Income from Real Estate Operations	$	9		$	43
Discounts on Sales of Accounts Receivable		(18	)		(19	)
Miscellaneous		(1	)		(6	)

Total	$	(10	)	$	18

Gross Revenue from Real Estate Operations Included in Other Income	$	17		$	52

•NOTE ~~CSX Technology, Inc~~6. RELATED ~~(“CSX~~PARTIES Technology”) Charges—Data processing charges from CSX Technology as compensation to CSX Technology for the development, implementation and maintenance of computer systems, software and associated documentation for the day-to-day operations of the Company. These charges are based on a mark-up of direct costs.

•At ~~CTRC~~March ~~Reimbursement—During~~28, ~~the~~2003 ~~quarter~~and ~~ended~~December ~~September~~ 27, 2002, CSXT had deficit balances of $1.5 billion and $1.3 billion, respectively, relating to its participation in the CSX cash management plan. The amount is included in Due to Parent Company in the balance sheet. Under this plan, excess cash is advanced to CSX for investment and CSX makes cash funds available to its subsidiaries as needed for use in their operations. CSXT and CSX are committed to repay all amounts due each other on demand should circumstances require. The companies are charged ~~CTRC~~for borrowings or compensated for ~~accounts~~investments ~~receivable~~based ~~reserves~~on ~~recorded~~returns earned by the ~~Company~~plan inportfolio, ~~current~~which was 1.33% and ~~prior~~2.86% ~~periods~~at March 28, 2003 and March 29, 2002, respectively. Interest expense related to ~~receivables~~this ~~sold~~plan towas ~~CTRC~~$10 million and $9 million for the quarters ended March 28, 2003 and March 29, 2002, respectively.

Detail of Related Party Service Fees (as included in the Income Statement)

	Quarters Ended
	March 28, 2003			March 29, 2002
	(dollars in millions)
CSX Intermodal	$	(99	)	$	(86	)
CSX Management Service Fee		60			77
CSX Technology		51			55
TDSI		14			12
TRANSFLO		20			21

Total Related Party Service Fees	$	46		$	79

Related Party Service Fees consist of amounts related to:

CSX Intermodal Inc. (“CSXI”) Reimbursements—Reimbursement from CSXI under an operating agreement for costs incurred by the Company related to intermodal operations. This reimbursement is based on an amount which approximates actual costs. The Company also collects certain revenue on behalf of CSXI under the operating agreement.

-9-

CSX TRANSPORTATION INC. AND SUBSIDIARIES

Notes To Consolidated Financial Statements (Unaudited)

NOTE 6. RELATED PARTIES, continued

CSX Management Service Fee—A management service fee charged by CSX as compensation for certain corporate services provided to the Company. These services include, but are not limited to, the areas of human resources, finance, administration, benefits, legal, tax, internal audit, corporate communications, risk management and strategic management services. The fee for 2003 and 2002 is calculated as a percentage of CSXT’s revenue.

CSX Technology Inc. (“CSX Technology”) Charges—Data processing charges from CSX Technology for the development, implementation and maintenance of computer systems, software and associated documentation for the day-to-day operations of the Company. These charges are based on a mark-up of direct costs.

Total Distribution Services Inc. (“TDSI”) Charges—Charges from TDSI for services provided to CSXT at automobile ramps. These charges are calculated based on direct costs.

TRANSFLO Terminal Services Inc. (“TRANSFLO”) Charges—Charges from TRANSFLO for services provided to CSXT at bulk commodity facilities. These charges are calculated based on direct costs.

CSX Technology, CSXI, TDSI, and TRANSFLO are wholly-owned subsidiaries of CSX.

Detail Ofof Due to Affiliate (as included in the Balance Sheet)

	Quarters Ended
	March 28, 2003		December 27, 2002
	September 27, 2002		December 28, 2001
	(dollars in millions)
CSXI	$	3430	$	2425
TDSI		—		4
CSX Technology		43		41
TRANSFLO		9		5
TDSI		5		5
CSX Technology		37		44
TRANSFLO		8		8
CSX Insurance		115		125
CTRC		6		6
Other		—		1
CSX Insurance		115		115
Total Due to Affiliate	$	201	$	209
Other		1		1
Total Due to Affiliate	$	208	$	201

~~Detail~~CSXT and CSX Insurance Company (“CSX Insurance”), a wholly-owned subsidiary of ~~Related~~CSX, ~~Party~~have ~~Service~~entered ~~Fees~~into a loan agreement whereby CSXT may borrow up to $125 million from CSX Insurance. The loan is payable in full on demand. At March 28, 2003 and December 27, 2002, $115 million was outstanding under the agreement. Interest on the loan is payable monthly at 0.45% over the LIBOR rate, which was 1.31% at March 28, 2003.

	Quarters Ended						Nine Months Ended
	September 27, 2002			September 28, 2001			September 27, 2002			September 28, 2001
CSXI	$	(94	)	$	(94	)	$	(272	)	$	(280	)
TDSI		7			11			31			38
TRANSFLO		20			13			60			39
CSX Management Service Fee		59			60			213			179
CSX Technology		52			54			159			164
CTRC		(53	)		—			(53	)		—
Total Related Party Service Fees	$	(9	)	$	44		$	138		$	140

-10-

CSX TRANSPORTATION, INC. AND SUBSIDIARIES

Notes toTo Consolidated Financial Statements (Unaudited), ~~Continued~~

~~(All~~NOTE ~~tables~~6. RELATED ~~in Millions~~PARTIES, ofcontinued ~~Dollars)~~

~~NOTE~~CSXT 5participates with SL Service Inc. ~~RELATED~~ ~~PARTIES~~(“SL Service”), ~~Continued~~a wholly-owned subsidiary of CSX, in sale-leaseback arrangements. Under these arrangements, SL Service sold equipment to a third party and CSXT leased the equipment and assigned the lease to SL Service. SL Service is obligated for all lease payments and other associated equipment expenses. If SL Service defaults on its obligations under the arrangements, CSXT would assume the asset lease rights and obligations of approximately $24 million at March 28, 2003. Some of these leases were assumed by Maersk as part of its purchase of the CSX international liner business and the remainder were assumed by Horizon Lines LLC (formerly CSX Lines) as part of its ongoing domestic shipping business. CSXT believes that Maersk and Horizon Lines will fulfill their contractual commitments with respect to such leases and that CSXT will have no further liability for those obligations.

~~CSXT~~NOTE ~~and CSX Insurance Company (“CSX Insurance”), a wholly-owned subsidiary of CSX, have entered into a loan agreement whereby CSXT may borrow up to $125 million from CSX Insurance~~7. ~~The loan is payable in full on demand. At September 27~~ CASUALTY, ~~2002 and December 28, 2001, $115 million and $125 million, respectively, was outstanding. Interest on the loan is payable monthly at 0.45%~~ ~~over~~ENVIRONMENTAL ~~the~~AND ~~LIBOR~~OTHER ~~rate,~~RESERVES and was 1.82% at September 27, 2002 and 2.56% at December 28, 2001. Interest expense related to the loan was $0.6 million and $1.9 million for the quarter and nine months ended September 27, 2002, respectively, and $1.4 million and $4.9 million for the quarter and nine months ended September 28, 2001, respectively.

~~CSXT participates with SL Service~~Casualty, Inc., a wholly-owned subsidiary of CSX, in sale-leaseback arrangements. Under these arrangements, SL Service, Inc. sold equipment to a third party and CSXT leased the equipment and assigned the lease to SL Service, Inc. SL Service, Inc. isenvironmental ~~obligated for all lease payments~~ and other ~~associated~~reserves ~~equipment~~are ~~expenses.~~provided Iffor SLin ~~Service, Inc. defaults on its obligations under~~ the ~~arrangements,~~balance ~~CSXT~~sheet ~~would assume the asset lease rights and obligations of $27 million at September 27, 2002. These leases were assumed by Maersk~~ as ~~part~~follows: of its purchase of the CSX international liner business. CSXT believes that Maersk will fulfill its contractual commitments with respect to such leases and that CSXT will have no further liability for those obligations.

NOTE 6. COMMITMENTS AND CONTINGENCIES

	March 28, 2003			December 27, 2002
	Current	Long-term	Total	Current	Long-term	Total
Casualty and Other	144	252	396	143	252	395
Environmental	15	20	35	15	20	35
Separation	15	191	206	15	195	210

Total	174	463	637	173	467	640

~~Purchase~~Casualty ~~Commitments~~ Reserves

~~The~~Casualty ~~Company~~reserves ~~has~~represent ~~entered~~accruals ~~into~~for ~~fuel~~the uninsured ~~purchase~~portion ~~agreements~~of ~~for~~personal ~~approximately~~injury, ~~50%~~occupational injury (asbestos, carpal tunnel, etc.) and accident claims. These reserves are recorded upon the first reporting of ~~its~~an ~~fuel~~incident, ~~requirements~~and ~~over~~estimates are updated as information develops. The amount of liability accrued is based on the ~~next~~type ~~three~~and ~~months~~severity of claim, and an estimate of future claims development based on current trends and historical data. The Company believes it has ~~not~~recorded ~~entered~~liabilities ~~into~~in ~~any~~sufficient ~~fuel~~amounts ~~purchase~~to ~~agreements~~cover ~~for~~all ~~2003~~identified claims and estimates of incurred but not reported personal injury and accident claims. AtUnreported ~~September~~occupational ~~27,~~injuries ~~2002,~~are ~~the agreements~~not ~~amount~~subject to ~~approximately~~reasonable 70estimation, ~~million~~thus ~~gallons~~no inprovision ~~commitments~~is atmade afor ~~weighted~~incurred, ~~average~~but ofnot 78reported ~~cents~~occupational ~~per gallon~~injuries. Accruals ~~These~~for ~~contracts~~occupational ~~require~~injury, ~~the~~personal ~~Company~~injury toand ~~take~~accident ~~monthly~~liabilities ~~delivery~~amount ofto ~~specified~~$396 ~~quantities~~million ofand ~~fuel~~$395 million at aMarch ~~fixed~~28, ~~price~~2003 and December 27, 2002, respectively.

~~CSXT~~Environmental ~~also~~Reserves ~~has a commitment under a long-term maintenance program for approximately 40% of the Company’s fleet of locomotives. The agreement expires in 2025 and totals $2.6 billion.~~

~~Contingencies~~CSXT is a party to various proceedings involving private parties and regulatory agencies related to environmental issues. CSXT has been identified as a potentially responsible party (“PRP”) at approximately 90 environmentally impaired sites that are, or may be, subject to remedial action under the Federal Superfund statute (“Superfund”) or similar state statutes. A number of these proceedings are based on allegations that CSXT, or its railroad predecessors, sent hazardous substances to the facilities in question for disposal. Such proceedings arising under Superfund or similar state statutes can involve numerous other waste generators and disposal companies and seek to allocate or recover costs associated with site investigation and cleanup, which could be substantial.

~~Self~~-~~Insurance~~11-

The Company obtains substantial amounts of commercial insurance for potential losses for third-party liability and property damages. It also self-insures at reasonable levels, based on its assessment of market risks and practices.

CSX TRANSPORTATION, INC. AND SUBSIDIARIES

Notes toTo Consolidated Financial Statements (Unaudited), ~~Continued~~

~~(All~~NOTE ~~tables~~7. CASUALTY, ~~in Millions~~ENVIRONMENTAL ofAND ~~Dollars)~~OTHER RESERVES, Continued

~~NOTE~~CSXT 6is involved in administrative and judicial proceedings, and other clean-up efforts at approximately 210 sites, which include the 90 Superfund sites noted above where it is participating in the study or clean-up of alleged environmental contamination. ~~COMMITMENTS~~ ~~AND~~At ~~CONTINGENCIES~~least once each quarter, ~~Continued~~CSXT reviews its role, if any, with respect to each such location, giving consideration to a number of factors, including the nature of CSXT’s alleged connection to the location (e.g., generator of waste sent to the site, or owner or operator of the site), the extent of CSXT’s alleged connection (e.g., volume of waste sent to the location and other relevant factors), the accuracy and strength of evidence connecting CSXT to the location, and the number, connection, and financial viability of other named and unnamed PRPs at the location.

~~Contingencies~~Based on the review process, ~~Continued~~CSXT has recorded reserves to cover estimated contingent future environmental costs with respect to such sites. The recorded liabilities for estimated future environmental costs at March 28, 2003, and December 27, 2002 were $35 million. These liabilities, which are undiscounted, include amounts representing CSXT’s estimate of unasserted claims, which CSXT believes to be immaterial. The liability includes future costs for all sites where the Company’s obligation is (1) deemed probable and (2) where such costs can be reasonably estimated. The liability includes future costs for remediation and restoration of sites as well as any significant ongoing monitoring costs, but excludes any anticipated insurance recoveries. The majority of the March 28, 2003 environmental liability is expected to be paid out over the next seven years, funded by cash generated from operations.

Casualty

CSXT incurs claims for occupational injuries, personal injuries and accidents. Casualty reserves are estimated based upon the first reporting of an accident or personal injury, and updated as information develops. Liabilities for accidents are based upon the type and severity of the injury or claim and the use of current trends and historical data. The Company believes it has recorded liabilities in sufficient amounts to cover all identified claims and estimates of incurred, but not reported personal injury and accident claims. Unreported occupational injuries are not subject to reasonable estimation, thus no provision is made for incurred, but not reported occupational injuries. Occupational injury, personal injury and accident liabilities amount to $425 million and $435 million at September 27, 2002 and December 28, 2001, respectively.

Environmental

CSXT is a party to various proceedings involving private parties and regulatory agencies related to environmental issues. CSXT has been identified as a potentially responsible party (PRP) at 89 environmentally impaired sites that are, or may be, subject to remedial action under the Federal Superfund statute (“Superfund”) or similar state statutes. A number of these proceedings are based on allegations that CSXT, or its railroad predecessors, sent hazardous substances to the facilities in question for disposal. Such proceedings arising under Superfund or similar state statutes can involve numerous other waste generators and disposal companies and seek to allocate or recover costs associated with site investigation and cleanup, which could be substantial.

CSXT is involved in a number of administrative and judicial proceedings and other clean-up efforts at 206 sites. The 206 sites where it is participating in the study or clean-up of alleged environmental contamination include the 89 Superfund sites noted above.

At least once each quarter, CSXT reviews its role, if any, with respect to each such location, giving consideration to the nature of CSXT’s alleged connection to the location (e.g., generator of waste sent to the site, owner or operator of the site), the extent of CSXT’s alleged connection (e.g., volume of waste sent to the location and other relevant factors), the accuracy of evidence connecting CSXT to the location, and the number, connection, financial position and ability to pay of other named and unnamed PRPs at the location.

Based upon the assessment review process, CSXT has recorded, and reviews at least quarterly for adequacy, reserves to cover estimated contingent future environmental costs with respect to such sites. The recorded liabilities for estimated future environmental costs at September 27, 2002, and December 28, 2001 were $34 and $32 million, respectively. These recorded liabilities, which are undiscounted, include amounts representing CSXT’s estimate of unasserted claims, which CSXT believes to be immaterial. The liability has been accrued for future costs for all sites where the Company’s obligation is probable and where such costs can be reasonably estimated. The liability includes future costs for remediation and restoration of sites as well as any significant ongoing monitoring costs, but excludes any anticipated insurance recoveries. The majority of the September 27, 2002 environmental liability is expected to be paid out over the next five to seven years, funded by cash generated from operations.

CSX TRANSPORTATION, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited), Continued

(All tables in Millions of Dollars)

NOTE 6. COMMITMENTS AND CONTINGENCIES, Continued

Contingencies, Continued

Environmental, Continued

The Company does not currently possess sufficient information to reasonably estimate the amounts of additional liabilities, if any, on some sites until completion of future environmental studies. In addition, latent conditions at any given location could result in exposure, the amount and materiality of which cannot presently be reliably estimated. Based upon information currently available, however, the Company believes its environmental reserves are adequate to accomplish remedial actions to comply with present laws and regulations, and that the ultimate liability for these matters will not materially affect its overall results of operations and financial condition.

~~New~~NOTE ~~Orleans~~8. COMMITMENTS ~~Tank~~AND ~~Car~~CONTINGENCIES ~~Fire~~

~~CSXT’s~~Purchase ~~settlement~~Commitments of the New Orleans Tank Car Fire Litigation was $220 million, of which approximately $135 million was funded by CSXT’s insurers, and was paid during the third quarter of 2002 to the plaintiffs’ representatives.

~~Contract~~The Company ~~Settlement~~has a commitment under a long-term maintenance program for approximately 40% of its fleet of locomotives. The agreement expires in 2026 and totals $2.7 billion. The long-term maintenance program assures CSXT access to efficient, high-quality locomotive maintenance services at fixed price levels through the term of the program. Under the program, CSXT paid approximately $33 million and $31 million in the quarters ended March 28, 2003 and March 29, 2002, respectively.

InLong-term ~~July the~~Operating ~~Company~~Agreements received $44 million as the first of two payments to settle a contract dispute. In the quarter ended September 27, 2002, the Company recognized approximately $7 million of this first payment in other income as this amount related to prior periods. The remaining $37 million will be recognized ratably over the contract period which ends in 2020. The second payment of $23 million is due in January 2003 and will likewise be recognized over the contract period which ends in 2020. The results of this settlement will provide approximately $3 million in annual pretax earnings through 2020.

In addition to its contractual arrangement to operate specified portions of Conrail’s rail system, CSXT has various long-term railroad operating agreements that allow for exclusive operating rights over various railroad lines. Under these agreements, CSXT is obligated to pay usage fees of approximately $10 million annually. The terms of these agreements range from 30 to 40 years.

-12-

CSX TRANSPORTATION INC. AND SUBSIDIARIES

Notes To Consolidated Financial Statements (Unaudited)

NOTE 8. COMMITMENTS AND CONTINGENCIES, Continued

Self-Insurance

The Company obtains substantial amounts of commercial insurance for potential losses for third-party liability and property damages. Reasonable levels of risk ($35 million for property and $25 million for liability per occurrence) are retained on a self-insurance basis. Using a combination of third party and self-insurance allows the Company to realize savings on insurance premium costs and preserves flexibility in achieving the best insurance solutions for various categories of risks.

Other Legal Proceedings

A number of other legal actions are pending against CSXT in ~~which~~ which claims are made in substantial amounts. While the ultimate results of these legal actions ~~against CSXT~~ cannot be predicted with certainty, management does not currently expect that the resolution of these matters will have a material adverse effect on CSXT’s consolidated ~~financial~~balance ~~position~~sheet, ~~results~~income ofstatement ~~operations~~ or cash flows. The Company is also party to a number of actions, the resolution of which could result in gain realization in amounts that could be material to results of operations in the quarter received.

12-13-

~~ITEM~~CSX 2TRANSPORTATION INC. ~~MANAGEMENT’S~~ ~~DISCUSSION~~ AND ~~ANALYSIS~~SUBSIDIARIES ~~OF RESULTS OF OPERATIONS~~

ITEM 2: MANAGEMENT’S NARRATIVE ANALYSIS OF THE RESULTS OF OPERATIONS

RESULTS OF OPERATIONS

~~CSX Transportation, Inc. (“~~CSXT~~” or “Company”)~~ follows a 52/53- week fiscal reporting calendar. Fiscal years ~~2002~~2003 and ~~2001~~2002 consist of 52 weeks ending on December 27 26, ~~2002~~2003 and December 2827, ~~2001~~2002, respectively. The financial statements presented are for the 13-week quarters ended ~~September~~March 2728, ~~2002~~2003 and March ~~September 28~~29, ~~2001, the 39-week periods ended September 27,~~ 2002 ~~and September 28~~, ~~2001,~~ and as of December 28 27, ~~2001~~2002.

~~CSXT earned $167 million in operating income for the quarter ended September 27, 2002, compared to $124~~Operating ~~million~~Revenue ~~reported in the third quarter of 2001. The $43 million, or 35%, increase was primarily due to a related party charge.~~

~~Revenue~~The ~~decreased~~following totable ~~$1.473~~provides ~~billion~~carload and inrevenue ~~the~~data ~~current~~by ~~period~~service ~~from~~group ~~$1.495~~and ~~billion~~commodity infor the ~~same~~quarters ~~quarter~~ended ofMarch ~~the~~28, ~~prior~~2003 ~~year.~~and ~~The~~March ~~$22 million decrease resulted from weaker coal demand~~29, ~~which~~2002: ~~offset increases in merchandise and automotive revenues.~~

Merchandise revenue was up $19 million or 2% over the prior year period due to volume and price increases. This increase was due to the continued strong performance of phosphates and fertilizers as well as year-over-year improvements in metals, paper and forest, and chemical volumes. Agriculture volumes were down in the quarter because of a decline in the demand for export grain. The phosphates and fertilizers, paper and forest, agricultural, chemicals, minerals, and emerging markets commodity groups realized yield improvements as compared to the prior year period.

	Carloads (Thousands)				Revenue (Dollars in Millions)
	2003	2002	% Change		2003		2002		% Change
Merchandise
Phosphates and Fertilizer	117	119	(2	)%	$	87	$	89	(2	)%
Metals	88	77	14	%		110		98	12	%
Forest and Industrial Products	148	144	3	%		195		189	3	%
Agricultural and Food	114	115	(1	)%		167		166	1	%
Chemicals	138	135	2	%		251		238	5	%
Emerging Markets	101	93	9	%		112		88	27	%

Total Merchandise	706	683	3	%		922		868	6	%
Automotive	131	129	2	%		208		200	4	%
Coal, Coke & Iron Ore
Coal	373	393	(5	)%		370		381	(3	)%
Coke and Iron Ore	12	12	—	%		13		16	(19	)%

Total Coal, Coke & Iron Ore	385	405	(5	)%		383		397	(4	)%
Other	—	—	—	%		18		21	(14	)%

Total	1,222	1,217	—	%	$	1,531	$	1,486	3	%

~~Automotive~~Revenue increased ~~revenue was up~~ $1145 million or 6%3 ~~due~~percent tofor ~~yield~~the ~~improvements~~quarter ~~driven~~ended ~~primarily~~March by28, ~~favorable~~2003, ~~mix~~as ~~and~~compared ~~extended~~to ~~linehauls. Automotive~~the ~~sales~~quarter ~~are~~ended ~~favorably~~March ~~affected~~29, ~~by continued dealer incentives~~2002. ~~The continuing increase in light truck production capacity is driving volume growth.~~

~~Coal,~~Merchandise ~~coke~~Revenue and iron ore revenue was down $34 million versus the prior year. Coal volumes were down 6% and revenue was down 8%. Unfavorable export, metallurgical, lake, and industrial coal are a result of plant closings and reduced competitive standing of U.S. coal in international markets. Pricing and increased tons per car continue to improve revenue per car yield, but were offset by mix changes, including short-haul modal conversions to the river, and decline in higher revenue per car movements, such as export and long-haul southern utility traffic.

~~Operating~~Overall ~~expenses~~merchandise revenues were atup ~~$1.31~~6 ~~billion~~percent ~~and~~on ~~$1.37~~3 ~~billion~~percent ~~for~~volume ~~the~~growth. ~~quarters~~Emerging ~~ended~~markets, ~~September 27~~chemicals, ~~2002~~metals and ~~September~~forest ~~28,~~and ~~2001,~~industrial products’ ~~respectively.~~revenue ~~Labor~~levels ~~and~~increased ~~fringe~~over ~~benefits~~the prior year quarter, ~~equipment~~while ~~rent~~phosphates and ~~depreciation~~fertilizers ~~increased~~had ina ~~the~~slight ~~current~~decrease. ~~year quarter,~~The ~~offset~~positive byperformance ~~related~~in ~~party~~emerging ~~fees,~~markets ~~lower~~by ~~materials,~~continued ~~supplies~~strength ~~and~~in ~~other~~military ~~and~~shipments ~~favorable~~during ~~fuel~~the ~~expenses.~~first quarter of 2003.

~~Labor~~Automotive ~~and fringe~~Revenue benefits increased $5 million primarily due to inflation and increased healthcare costs, partially offset by decreases attributed to headcount reductions. Equipment rent increased $10 million or 10% primarily as a result of unanticipated car hire reclaims from another railroad, which should not recur.

13Automotive revenues grew $8 million or 4 percent over the prior year quarter. Growth was driven by increased vehicle production, while extended linehauls resulted in yield improvements. Light truck and remarketed vehicles revenue are up year-over-year due to shifts to sports utility and crossover vehicles and aggressive manufacturer incentives.

-14-

~~ITEM~~CSX 2TRANSPORTATION INC. ~~MANAGEMENT’S~~ ~~DISCUSSION~~ AND ~~ANALYSIS~~SUBSIDIARIES ~~OF RESULTS OF OPERATIONS, Continued~~

ITEM 2: MANAGEMENT’S NARRATIVE ANALYSIS OF THE RESULTS OF OPERATIONS

RESULTS OF OPERATIONS, Continued

~~Fuel~~Coal ~~costs were down $14 million, $13 million due to lower fuel price. The net impact on operating income of reduced fuel price was $4~~Revenue ~~million, since $9 million of fuel surcharge revenue was eliminated.~~

~~Materials,~~Coal ~~supplies~~revenues ~~and~~were ~~other~~down ~~expense improved by~~ $2111 million asor ~~compared~~3 topercent from ~~the~~ prior year. ~~quarter~~Abnormally ~~primarily~~harsh ~~due~~winter toweather ~~reductions~~adversely inaffected ~~personal~~lake ~~injuries~~loadings, ~~derailment~~as lakes were frozen and, ~~other~~therefore, ~~costs~~inaccessible. ~~Expenses~~Additionally, ~~associated~~weakness ~~with~~continued in exports due to reduced competitive standing of United States coal in the international ~~Baltimore~~market. ~~tunnel~~These ~~fire~~two ~~last~~factors ~~year~~more ~~were~~than offset bythe ~~insurance~~strength ~~recoveries~~in utility coal shipments that occurred in the ~~same period~~latter part of the quarter.

~~Related~~Operating ~~party~~Expense ~~service fees decreased $53 million due to the Company charging CTRC for accounts receivable reserves recorded by the Company in current and prior periods related to receivables sold to CTRC.~~

InOperating ~~addition, several~~expenses ~~cost~~increased ~~categories~~to ~~reflected~~$1.5 ~~expenses~~billion ~~associated~~from ~~with~~$1.4 ~~train~~billion ~~speed~~for ~~restrictions~~the ~~due~~quarters toended ~~the~~March ~~heat~~28, ~~orders~~2003 ~~that~~and ~~were~~March ~~put~~29, in2002, ~~place~~respectively. ~~during~~The $57 ~~the~~million ~~height~~increase ofwas ~~the~~primarily ~~Company’s~~due ~~maintenance~~to ~~program~~higher infuel ~~August~~prices, operational inefficiencies due to severe winter weather during 2003, and ~~part~~increased ofpersonal ~~September~~injury claims.

• Labor and Fringe expenses were up $10 million in the first quarter of 2003 versus prior year. The ~~following~~Company ~~tables~~experienced ~~provide~~higher ~~rail~~crew ~~carload~~costs during the first quarter of 2003 due to inflation, higher volumes and ~~revenue~~costs ~~data~~related to the slowdown of the network caused by ~~service~~weather ~~group~~issues ~~and~~during ~~commodity~~the ~~for~~quarter. Expenses were also affected upon the ~~quarters~~adoption ~~and~~of ~~nine~~SFAS ~~months~~143, ~~ended~~“Accounting ~~September 27~~for Asset Retirement Obligations,” ~~2002~~by ~~and~~the ~~September~~inclusion 28of approximately $2 million of costs relating to the removal of retired crossties, ~~2001:~~which were previously provided for through depreciation expense.

	Third Quarter Loads(Thousands)				Third Quarter Revenue(Millions of Dollars)
	2002	2001	% Change		2002		2001		% Change
Merchandise
Phosphates and Fertilizer	113	101	12		$	73	$	63	16
Metals	83	81	2			104		102	2
Food and Consumer	41	41	—			53		54	(2	)
Paper and Forest	122	120	2			161		161	—
Agricultural	86	88	(2	)		116		118	(2	)
Chemicals	124	123	1			224		216	4
Minerals	21	23	(9	)		33		36	(8	)
Emerging Markets	115	117	(2	)		107		102	5
Total Merchandise	705	694	2			871		852	2
Automotive	124	119	4			195		184	6
Coal, Coke and Iron Ore
Coal	395	422	(6	)		382		417	(8	)
Coke	9	10	(10	)		12		12	—
Iron Ore	13	12	8			7		6	17
Total Coal, Coke and Iron Ore	417	444	(6	)		401		435	(8	)
Other	—	—	—			6		24	(75	)
Total Rail	1,246	1,257	(1	)	$	1,473	$	1,495	(1	)

•

Materials, Supplies and Other expenses increased $11 million period over period, primarily due to increased personal injuries and derailments and other costs relating to the weather in the first quarter of 2003. Expenses were also affected upon the adoption of SFAS 143 by the inclusion of approximately $2 million of costs relating to the removal of retired crossties, which were previously provided for through depreciation expense.

14• Conrail expenses were relatively flat decreasing $1 million to $86 million in 2003.

•

Related party service fees decreased $33 million as compared to the prior year quarter due to a change in the management service fee charged by CSX and higher fees received from CSXI.

•

Building and Equipment Rent increased $8 million primarily due to increased car hire expenses caused partially by the network slowdown relating to abnormally harsh winter weather.

•

Depreciation expense increased $8 million primarily due to asset additions. Reductions in depreciation expense relating to the discontinuation of accruals for the removal of crossties upon the adoption of SFAS 143 were offset by the impact of reductions of certain asset lives as part of a group depreciation life study.

•

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

Operating Income

Operating income was $77 million for the quarter ended March 28, 2003, as compared to $89 for the quarter ended March 29, 2002. This $12 million decrease resulted from the large increase in fuel and other operating expenses more than offsetting the benefit of higher revenues.

-15-

~~ITEM~~CSX 2TRANSPORTATION INC. ~~MANAGEMENT’S~~ ~~DISCUSSION~~ AND ~~ANALYSIS~~SUBSIDIARIES ~~OF RESULTS OF OPERATIONS, Continued~~

ITEM 2: MANAGEMENT’S NARRATIVE ANALYSIS OF THE RESULTS OF OPERATIONS

RESULTS OF OPERATIONS, Continued

	Nine Months Loads(Thousands)				Nine Months Revenue(Millions of Dollars)
	2002	2001	% Change		2002		2001		% Change
Merchandise
Phosphates and Fertilizer	351	325	8		$	245	$	227	8
Metals	240	245	(2	)		302		304	(1	)
Food and Consumer	122	122	—			161		163	(1	)
Paper and Forest	360	363	(1	)		479		482	(1	)
Agricultural	265	280	(5	)		362		377	(4	)
Chemicals	378	380	(1	)		681		673	1
Minerals	66	70	(6	)		101		107	(6	)
Emerging Markets	323	327	(1	)		301		290	4
Total Merchandise	2,105	2,112	—			2,632		2,623	—
Automotive	401	385	4			626		591	6
Coal, Coke and Iron Ore
Coal	1,178	1,291	(9	)		1,142		1,248	(8	)
Coke	26	31	(16	)		39		36	8
Iron Ore	26	30	(13	)		15		17	(12	)
Total Coal, Coke and Iron Ore	1,230	1,352	(9	)		1,196		1,301	(8	)
Other	—	—	—			43		68	(37	)
Total Rail	3,736	3,849	(3	)	$	4,497	$	4,583	(2	)

Net Earnings

15CSXT reported net earnings for the quarter ended March 28, 2003 of $73 million, compared with $47 million in the quarter ended March 29, 2002.

Income tax expense includes $9 million for the increase in the Company’s deferred effective state income tax rate, which is applied to CSXT’s cumulative temporary differences, as a result of the conveyance of certain CSX assets to a new venture.

In 2001, SFAS 143, “Accounting for Asset Retirement Obligations” 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 the first quarter of 2003, CSX recorded pretax income of $93 million, $57 million after tax as a cumulative effect of an accounting change, representing the reversal of the accrued liability for crosstie removal costs. The adoption of SFAS 143 did not have a material effect on prior reporting periods, and the Company does not believe it will have a material effect on future earnings. On an ongoing basis, depreciation expense will be reduced, while labor and fringe and materials, supplies and other expense will be increased.

Earnings before the cumulative effect of accounting changes was $16 million and $47 million for the quarters ended March 28, 2003 and March 29, 2002, respectively. This $31 million decrease results primarily from the decrease in operating income and other income, partially offset by a decrease in income tax expense.

FACTORS EXPECTED TO INFLUENCE 2003

Fuel expenses fluctuate and are a significant cost of CSX’s transportation businesses so far, but the Company expects that the impact of price variance will be less in the second quarter of 2003 than the $50 million impact during the first quarter of 2003. The full year impact of fuel expenses cannot be estimated with reasonable certainty.

CRITICAL ACCOUNTING ESTIMATES

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires that management make estimates in reporting the amounts of certain assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of certain revenues and expenses during the reporting period. Actual results may differ from those estimates. For information regarding CSXT’s significant estimates using management judgement, see the December 27, 2002 CSXT 10-K. As of March 28, 2003, there have been no significant changes to these estimates.

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~~ITEM~~CSX 2TRANSPORTATION INC. ~~MANAGEMENT’S~~ ~~DISCUSSION~~ AND ~~ANALYSIS~~SUBSIDIARIES ~~OF RESULTS OF OPERATIONS, Continued~~

~~OTHER~~ITEM ~~MATTERS~~2: MANAGEMENT’S NARRATIVE ANALYSIS OF THE RESULTS OF OPERATIONS

New Orleans Tank Car Fire

CSXT’s settlement of the New Orleans Tank Car Fire Litigation was $220 million, of which approximately $135 million was funded by CSXT’s insurers, and was paid during the third quarter of 2002 to the plaintiffs’ representatives.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS, Continued

FORWARD LOOKING STATEMENTS

This Quarterly Report contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act with respect to, among other items: projections and estimates of earnings, revenues, cost-savings, expenses, or other financial items; statements of management’s plans, strategies and objectives for future operations, and management’s expectations as to future performance and operations and the time by which objectives will be achieved; statements concerning proposed new products and services; and statements regarding future economic, industry or market conditions or performance. Forward-looking statements are typically identified by words or phrases such as “believe”, “expect”, “anticipate”, “project”, and similar expressions. Forward-looking statements speak only as of the date they are made, and the Company undertakes no obligation to update or revise any forward-looking statement. If the Company does update any forward-looking statement, no inference should be drawn that the Company will make additional updates with respect to that statement or any other forward-looking statements.

Forward-looking statements are subject to a number of risks and uncertainties, and actual performance or results could differ materially from that anticipated by these forward-looking statements. Factors that may cause actual results to differ materially from those contemplated by these forward-looking statements include, among others: (i) the Company’s success in implementing its financial and operational initiatives, (ii) changes in domestic or international economic or business conditions, including those affecting the rail industry (such as the impact of industry competition, conditions, performance and consolidation); (iii) legislative or regulatory changes; and (iv) the outcome of claims and litigation involving or affecting the Company. Other important assumptions and factors that could cause actual results to differ materially from those in the forward-looking statements are specified elsewhere in this ~~Quarterly~~Annual Report and in the Company’s other SEC reports, accessible on the SEC’s website at www.sec.gov and the Company’s website at www.csx.com.

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CSX TRANSPORTATION INC. AND SUBSIDIARIES

PART II. OTHER INFORMATION

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company is subject to risk relating to changes in the price of diesel fuel. ~~Forward~~At ~~purchase~~March ~~agreements~~28, ~~have been entered into with various suppliers for approximately 70 million gallons of fuel~~2003, ~~which is approximately 50% of~~ the ~~requirement~~Company ~~over~~had ~~the~~not ~~next~~entered ~~three~~into ~~months,~~any atcommitments afor ~~weighted~~forward ~~average~~fuel ~~price of 78 cents per gallon~~purchases. The Company’s isaverage ~~subject~~annual tofuel ~~fluctuations~~consumption inis ~~prices~~approximately ~~for~~570 ~~the~~million ~~remainder of its 2002 needs~~gallons. A one -cent change in the price per gallon of fuel would ~~affect~~impact annual fuel expense ~~for the remainder of 2002~~ by approximately $~~0.7~~6 million. ~~The Company has not entered into any fuel purchase contracts for 2003.~~

~~CSXT~~ ~~participates~~ITEM ~~in the CSX cash management plan, under which excess cash is advanced to CSX for investment~~4. DISCLOSURE ~~CSX~~CONTROLS ~~than~~AND ~~makes~~PROCEDURES cash funds available to CSXT as needed for use in its operations CSXT and CSX are committed to repay all amounts due on demand should circumstances require. CSXT is charged for borrowings or compensated for investments based on returns earned by the plan portfolio. At September 27, 2002 and December 28, 2001, CSXT had deficit balances of $1.3 billion and $1.1 billion, respectively, relating to its participation in the CSX cash management plan, which is included in Due to Parent Company in the Statement of Financial Position. CSXT also had $108 million of floating rate debt outstanding at September 27, 2002 and December 28, 2001. A 1% increase or decrease in the interest rates would have an approximately $1.1 million effect on annual interest expense.

~~ITEM~~As 4: of April 28, 2003, under the supervision and with the participation of the Company’s Principal Executive Officer and the Principal Financial Officer, management has evaluated the effectiveness ~~DISCLOSURE~~of ~~CONTROL~~the ~~AND~~design ~~PROCEDURES~~and operation of the Company’s disclosure controls and procedures. Based on that evaluation, the Principal Executive Officer and the Principal Financial Officer, concluded that the Company’s disclosure controls and procedures were effective as of April 28, 2003. There were no significant changes in the Company’s internal controls or in the other factors that could significantly affect those controls subsequent to the date of evaluation.

As-18- of October 23, 2002, under the supervision and with the participation of the Company’s Principal Executive Officer and the Principal Financial Officer, management has evaluated the effectiveness of the design and operation of the Company’s disclosure controls and procedures. Based on that evaluation, the Principal Executive Officer and the Principal Financial Officer, concluded that the Company’s disclosure controls and procedures were effective as of October 23, 2002. There were no significant changes in the Company’s internal controls or in the other factors that could significantly affect those controls subsequent to the date of evaluation.

CSX TRANSPORTATION INC. AND SUBSIDIARIES

PART II. OTHER INFORMATION

~~Item~~ ITEM 6. ~~Exhibits~~EXHIBITS ~~and~~AND ~~Reports~~REPORTS onON ~~Form~~FORM 8-K

(a) Exhibits

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

99.1*

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

99.2*

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

(b) Reports on Form 8-K

None

~~Signature~~* Filed herewith

SIGNATURE

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

CSX TRANSPORTATION, INC. (Registrant) By: /s/ CAROLYN T. SIZEMORE Carolyn T. Sizemore (Principal Accounting Officer)

ByDated: ~~/s/~~April ~~CAROLYN~~30, T.2003 ~~SIZEMORE Carolyn T. Sizemore (Principal Accounting Officer)~~

~~Dated:~~-19- ~~October 28, 2002~~

CERTIFICATE OF PRINCIPAL EXECUTIVE OFFICER

I, Michael J. Ward, certify that:

1. I have reviewed this quarterly report on Form 10-Q of CSX Transportation, Inc.;

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

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

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

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

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

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

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

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

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

6. The registrant’s other certifying officers and I have indicated in this quarterly report whether ~~or not~~ there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Date: ~~October~~April 2830, ~~2002~~2003

/s/ MICHAEL J. WARD

Michael J. Ward

Principal Executive Officer

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CERTIFICATE OF PRINCIPAL FINANCIAL OFFICER

I, Frederick J. Favorite Jr., certify that:

1. I have reviewed this quarterly report on Form 10-Q of CSX Transportation, Inc.;

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

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

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

Date: ~~October~~April 2830, ~~2002~~2003

/s/ FREDERICK J. FAVORITE JRJr. Frederick J. Favorite Jr. Principal Financial Officer

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March 28, 2003

December 27, 2002

(dollars in millions)

Payable to Conrail

Filing Compare · CSX TRANSPORTATION INC