FORM 10-Q

SECURITIES AND EXCHANGE COMMISSION

For the quarter ended March 26, 2004

OR

                                          For the transition period from____to____

Commission File Number 1-8022

CSX CORPORATION

(904) 359-3200
(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 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) No (   )

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

Indicate the number of shares outstanding of each of the issuer’s classes of common stock,
as of March 26, 2004: 214,680,092 shares.

1

CSX CORPORATION
FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED MARCH 26, 2004
INDEX

2

CSX CORPORATION AND SUBSIDIARIES

3

CSX CORPORATION AND SUBSIDIARIES
ITEM I: FINANCIAL STATEMENTS

4

CSX CORPORATION AND SUBSIDIARIES
ITEM I: FINANCIAL STATEMENTS

5

CSX CORPORATION AND SUBSIDIARIES
ITEM I: FINANCIAL STATEMENTS

NOTE 1.   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 Corporation and subsidiaries (“CSX” or the “Company”) at March 26, 2004 and December 26, 2003, the results of its operations and cash flows for the three months ended March 26, 2004 and March 28, 2003, such adjustments being of a normal recurring nature. Certain prior-year data have been reclassified to conform to the 2004 presentation.

     The Company suggests that these financial statements be read in conjunction with the financial statements and the notes included in the Company’s most recent Annual Report and Form 10-K.

     CSX follows a 52/53 week fiscal reporting calendar. Fiscal year 2004 consists of a 53-week year ending on December 31, 2004. Fiscal year 2003 consisted of 52 weeks ended on December 26, 2003. The financial statements presented are for the 13-week quarters ended March 26, 2004 and March 28, 2003, and as of December 26, 2003. In 2004, the fourth quarter ended December 31, 2004, consists of 14 weeks.

     Comprehensive income approximates net earnings for all periods presented in the accompanying consolidated income statements.

NOTE 2.   EARNINGS PER SHARE

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

6

CSX CORPORATION AND SUBSIDIARIES
ITEM I: FINANCIAL STATEMENTS

NOTE 2. EARNINGS PER SHARE, Continued

     Earnings per share are based on the weighted-average number of common shares outstanding. Earnings per share, assuming dilution, are based on the weighted-average number of common shares outstanding adjusted for the effect of potentially dilutive common shares, mainly arising from employee stock options. Potentially dilutive common shares at CSX include stock options and awards, and common stock that would be issued relating to convertible long-term debt. During the quarters ended March 26, 2004 and March 28, 2003, 78 thousand and 1 thousand shares, respectively, were issued for options exercised.

     Certain potentially dilutive common shares at March 26, 2004 and March 28, 2003 were not included in the computation of earnings per share, assuming dilution, since their exercise or conversion prices were greater than the average market price of the common shares during the period and, therefore, their effect is antidilutive. These potentially dilutive common shares were as follows:

     A substantial increase in the fair market value of the Company’s stock price could negatively impact earnings per share if the shares were to become dilutive.

NOTE 3. DEBT AND CREDIT AGREEMENTS

     The Company had $50 million of commercial paper borrowings outstanding at March 26, 2004 at a weighted average interest rate of 1.11%. There was no commercial paper outstanding as of December 26, 2003.

     On February 20, 2004, the Company executed a $100 million credit agreement that matures February 25, 2005. Borrowings under the facility will bear interest at a rate that varies with LIBOR plus the applicable spread of 0.15%. As of March 26, 2004, the Company had $100 million in aggregate principal amount outstanding under this agreement.

7

CSX CORPORATION AND SUBSIDIARIES
ITEM I: FINANCIAL STATEMENTS

NOTE 4. DIVESTITURES

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

NOTE 5. NEW ACCOUNTING PRONOUNCEMENTS AND CUMULATIVE EFFECT OF ACCOUNTING CHANGES

     Statement of Financial Accounting Standard (“SFAS”) 143, “Accounting for Asset Retirement Obligations” was issued in 2001. This statement addresses financial accounting and reporting for legal obligations associated with the retirement of tangible long-lived assets and the associated retirement costs. In conjunction with the group-life method of accounting for asset costs, the Company historically accrued crosstie removal costs as a component of depreciation, which is not permitted under SFAS 143. With the adoption of SFAS 143 in fiscal year 2003, CSX recorded pretax income of $93 million, $57 million after tax, or 26 cents per share, as a cumulative effect of an accounting change in the first quarter, 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.

     SFAS 148, “Accounting for Stock-Based Compensation – Transition and Disclosure” was issued in December 2002. SFAS 148 amends SFAS 123, “Accounting for Stock-Based Compensation,” to provide alternative methods of transition to Statement 123’s fair value method of accounting for stock-based employee compensation and require disclosure of the effects of an entity’s accounting policy with respect to stock-based employee compensation. Effective beginning with fiscal year 2003, CSX voluntarily adopted the fair value recognition provisions of SFAS 123, “Accounting for Stock-Based Compensation,” and adopted the disclosure requirements of SFAS 148, “Accounting for Stock-Based Compensation – Transition and Disclosure – an amendment of SFAS 123.” In accordance with the prospective method of adoption permitted under SFAS 148, stock-based awards issued subsequent to fiscal year 2002 are accounted for under the fair value recognition provisions of SFAS 123 utilizing the Black-Scholes valuation method and, accordingly, are expensed. (See Note 11, Stock Based Compensation)

     In 2003, the Financial Accounting Standards Board (“FASB”) issued Interpretation No. 46, “Consolidation of Variable Interest Entities,” which requires a variable interest entity (“VIE”) to be consolidated by a company that is subject to a majority of the risk of loss from the variable interest entity’s activities or is entitled to receive a majority of the entity’s residual returns, or both. Under the new guidance, CSX consolidated Four Rivers Transportation, Inc. (“FRT”), a shortline railroad, into its financial statements at the beginning of fiscal 2004. Previously, FRT was accounted for under the equity method of accounting. The first quarter of 2004 includes revenues, operating expenses, and after-tax income of approximately $14 million, $10 million, and $1 million for FRT, respectively. The quarter ended March 28, 2003, includes net equity earnings of FRT of approximately $1 million (included in other income). Total consolidated assets as of March 26, 2004 include $24 million and $145 million of current and long-term assets, respectively, for FRT. Total consolidated liabilities as of March 26, 2004 include $27 million and $60 million of current and long-term debt, respectively, for FRT.

8

CSX CORPORATION AND SUBSIDIARIES
ITEM I: FINANCIAL STATEMENTS

NOTE 6. INVESTMENT IN AND INTEGRATED RAIL OPERATIONS WITH CONRAIL

Background

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

     From time to time, CSX and NS, as the indirect owners of Conrail, may have to make capital contributions, loans or advances to Conrail under the terms of the Transaction Agreement among CSX, NS and Conrail in order to satisfy the retained liabilities and other obligations as provided under such transaction agreement.

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

     In June 2003, CSX, NS and Conrail jointly filed a petition with the Surface Transportation Board (“STB”) to establish direct ownership and control by CSX’s and NS’ respective subsidiaries, CSXT and NSR, of CSX’s and NS’ portions of the Conrail system already operated by them separately and independently under various agreements. These portions of the Conrail system are currently owned by Conrail’s subsidiaries, New York Central Lines, LLC (“NYC”) and Pennsylvania Lines, LLC (“PRR”). The ownership of NYC and PRR would ultimately be transferred (“spun off”) to CSXT and NSR, respectively. Conrail would continue to own, manage and operate the Shared Asset Areas as previously approved by the STB. STB approval to proceed with the spin-off transaction and a favorable ruling from the Internal Revenue Service (“IRS”) qualifying the transaction as a non-taxable distribution were received in November 2003. On April 23, 2004, CSXT and NSR each filed a Registration Statement on Form S-4 with the Securities and Exchange Commission (“SEC”) that describes an offer to exchange new unsecured securities of subsidiaries of CSXT and NSR and cash for unsecured securities of Conrail. The filings initiate the final stage in implementing the restructuring of Conrail’s unsecured indebtedness as described in the parties’ joint petition filed June 4, 2003 with the STB. The transaction remains subject to a number of other conditions.

     If all necessary conditions are satisfied, unsecured debt securities of newly formed subsidiaries of CSXT and NSR would be offered in an approximate 42%/58% ratio along with cash payments in exchange for Conrail’s unsecured debentures. The debt securities issued by its respective subsidiary would be fully and unconditionally guaranteed by CSXT or NSR. Upon completion of the proposed transaction, the subsidiaries would be merged into CSXT and NSR, respectively, and the new debt securities thus would become direct unsecured obligations of CSXT or NSR. Conrail’s secured debt and lease obligations will remain obligations of Conrail and are expected to be supported by new leases and subleases which, upon completion of the proposed transaction, would be the direct lease and sublease obligations, also in an approximate 42%/58% ratio, of CSXT and NSR. CSXT will record this transaction at fair value based on the results of an independent valuation.

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

9

CSX CORPORATION AND SUBSIDIARIES
ITEM I: FINANCIAL STATEMENTS

NOTE 6. INVESTMENT IN AND INTEGRATED RAIL OPERATIONS WITH CONRAIL, Continued

Accounting and Financial Reporting Effects

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

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

     Conrail’s earnings are not taxed at the CSX level. The effective tax rate for CSX is lower in the first quarter of 2004 as equity in earnings from Conrail represents a larger percentage of earnings compared to the first quarter of 2003.

Detail of Conrail Rents, Fees and Services

Conrail Financial Information

     Summary financial information for Conrail is as follows:

10

CSX CORPORATION AND SUBSIDIARIES
ITEM I: FINANCIAL STATEMENTS

NOTE 6. INVESTMENT IN AND INTEGRATED RAIL OPERATIONS WITH CONRAIL, Continued

Transactions with Conrail

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

     The agreement under which CSX operates its allocated portion of the Conrail route system has an initial term of 25 years and may be renewed at CSX’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 CSX cover varying terms. CSX is responsible for all costs of operating, maintaining, and improving the routes and equipment under these agreements. Upon consummation of the spin-off transaction, the agreement covering the NYC portion of the Conrail system will terminate, as CSX will then directly own its allocated portion of the Conrail system.

11

CSX CORPORATION AND SUBSIDIARIES
ITEM I: FINANCIAL STATEMENTS

NOTE 7. ACCOUNTS RECEIVABLE

Sale of Accounts Receivable

     As of June 27, 2003, CSXT discontinued its accounts receivable securitization program, which resulted in a $380 million increase in accounts receivable and increased commercial paper borrowings included in short-term debt. Prior to June 27, 2003, CSXT sold, without recourse, a revolving pool of accounts receivable to CSX Trade Receivables Corporation (“CTRC”), a bankruptcy-remote entity wholly owned by CSX. CTRC transferred the accounts receivable to a master trust and caused the trust to issue multiple series of certificates representing undivided interests in the receivables. The certificates issued by the master trust were sold to investors, and the proceeds from those sales were paid to CSXT. Net losses associated with the sale of receivables were $6 million for the quarter ended March 28, 2003. There were no net losses associated with the sale of receivables for the first quarter of 2004.

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

Allowance for Doubtful Accounts

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

NOTE 8. OPERATING EXPENSE

     Operating expense consists of the following:

12

CSX CORPORATION AND SUBSIDIARIES
ITEM I: FINANCIAL STATEMENTS

NOTE 8. OPERATING EXPENSE, Continued

     Operating expenses include amounts from the Company’s domestic container-shipping subsidiary, CSX Lines, through February of 2003, when most of CSX’s interest in the entity was conveyed to a new venture. See note 4, “Divestitures.”

NOTE 9. OTHER INCOME (EXPENSE)

     Other income (expense) consists of the following:

NOTE 10. DERIVATIVE FINANCIAL INSTRUMENTS

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

Interest Rate Swaps

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

13

CSX CORPORATION AND SUBSIDIARIES
ITEM I: FINANCIAL STATEMENTS

NOTE 10. DERIVATIVE FINANCIAL INSTRUMENTS, Continued

     Under these agreements, the Company will pay variable interest based on LIBOR in exchange for a fixed rate, effectively transforming the notes to floating rate obligations. The interest rate swap agreements are designated and qualify as fair value hedges and the gain or loss on the derivative instrument, as well as the offsetting gain or loss on the fixed rate note attributable to the hedged risk, are recognized in current earnings during the period of change in fair values. Hedge effectiveness is measured at least quarterly based on the relative change in fair value of the derivative contract in comparison with changes over time in the fair value of the fixed rate notes. Any change in fair value resulting from ineffectiveness, as defined by SFAS 133, “Accounting For Derivative Instruments and Hedging Activities,” is recognized immediately in earnings. The Company’s interest rate swaps qualify as perfectly effective fair va