FORM 10-Q

SECURITIES AND EXCHANGE COMMISSION

For the quarter ended June 25, 2004

OR

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.

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 June 25, 2004: 214,814,160 shares.

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CSX CORPORATION
FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED JUNE 25, 2004
INDEX

2

CSX CORPORATION AND SUBSIDIARIES

Consolidated Income Statements (Unaudited)

See accompanying Notes to Consolidated Financial Statements.

3

CSX CORPORATION AND SUBSIDIARIES
ITEM I: FINANCIAL STATEMENTS

Consolidated Balance Sheets (Unaudited)

See accompanying Notes to Consolidated Financial Statements.

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CSX CORPORATION AND SUBSIDIARIES
ITEM I: FINANCIAL STATEMENTS

Consolidated Cash Flow Statements (Unaudited)

See accompanying Notes to Consolidated Financial Statements.

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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 June 25, 2004 and December 26, 2003, and the results of its operations and cash flows for the quarters and six months ended June 25, 2004 and June 27, 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, 2004 First Quarterly Report on Form 10-Q and any Current Reports on Form 8-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 June 25, 2004 and June 27, 2003, the 26-week periods ended June 25, 2004 and June 27, 2003, and as of December 26, 2003. In 2004, the fourth quarter ended December 31, 2004, consists of 14 weeks.

     Other comprehensive income for the second quarter of 2004 was $28 million, after tax resulting from the increase in fair value of fuel derivative instruments. Other comprehensive income for the six months ended June 25, 2004 was $95 million after tax resulting from the increase in fair value of fuel derivative instruments and a reduction in the Company’s additional minimum pension liability. (See Note 10, Derivative Financial Instruments.) Other comprehensive income approximates net earnings for the quarter and six months ended June 27, 2003.

NOTE 2. EARNINGS PER SHARE

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

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CSX CORPORATION AND SUBSIDIARIES
ITEM I: FINANCIAL STATEMENTS
Notes to Consolidated Financial Statements (Unaudited)

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 of CSX include stock options and awards, and common stock that would be issued relating to convertible long-term debt. During the quarter and six months ended June 25, 2004, 114 thousand and 192 thousand options, respectively, were exercised. During the quarter and six months ended June 27, 2003, 174 thousand and 176 thousand options, respectively, were exercised.

     Certain potentially dilutive common shares at June 25, 2004 and June 27, 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:

     Potentially dilutive common shares include approximately 10 million shares associated with convertible long-term debt with a current conversion price of $55.39. A substantial increase in the fair market value of the Company’s stock price could negatively impact earnings per share if these shares were to become dilutive.

NOTE 3. DEBT AND CREDIT AGREEMENTS

     The Company had $301 million of commercial paper borrowings outstanding at June 25, 2004 at a weighted average interest rate of 1.37 %. 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 bear interest at a rate that varies with LIBOR plus an applicable spread. As of June 25, 2004, the Company had $100 million in aggregate principal amount outstanding under this agreement.

     On June 21, 2004, the Company executed a $300 million credit agreement that matures December 29, 2004. Borrowings under the facility bear interest at a rate that varies with LIBOR plus an applicable spread. As of June 25, 2004, the Company had $300 million in aggregate principal amount outstanding under this agreement.

     The weighted average interest rate on short-term borrowings outstanding, including commercial paper, was 1.55% as of June 25, 2004. The Company had no short-term borrowings outstanding as of December 26, 2003.

     The Company 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 2005. The facilities were entered into in May 2004 on terms substantially similar to the facilities they replaced a $345 million unsecured revolving credit facility that expired in May 2004 and a $1.0 billion unsecured revolving credit facility that would have expired in May 2006. Generally, these facilities may be used for general corporate purposes, to support the Company’s commercial paper, and for working capital. None of the credit facilities were drawn on as of June 25, 2004. Commitment fees and interest rates payable under the facilities are similar to fees and rates available to comparably rated investment-grade borrowers. Similar to the credit facilities they replaced, these credit facilities allow for borrowings at floating (LIBOR-based) rates, plus a spread, depending upon our senior unsecured debt ratings. At June 25, 2004, the Company was in compliance with all covenant requirements under the facilities.

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CSX CORPORATION AND SUBSIDIARIES
ITEM I: FINANCIAL STATEMENTS
Notes to Consolidated Financial Statements (Unaudited)

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 subleased vessels 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.

     On July 7, 2004, Horizon completed a merger with a third party, and CSX received $59 million, which included $52 million for the purchase of its ownership interest in Horizon and a performance payment of $7 million. However, CSX or one of its affiliates will continue to remain a lessee or guarantor on certain vessels and equipment as long as the subleases remain in effect. (See Note 13, Commitments and Contingencies.)

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.)

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CSX CORPORATION AND SUBSIDIARIES
ITEM I: FINANCIAL STATEMENTS
Notes to Consolidated Financial Statements (Unaudited)

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

     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 VIE’s activities or is entitled to receive a majority of the entity’s residual returns, or both. Under that 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. Other income includes net equity earnings for the quarter and six months ended June 27, 2003. The following table indicates the impact of consolidating FRT in 2004 compared to equity method accounting in 2003.

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CSX CORPORATION AND SUBSIDIARIES
ITEM I: FINANCIAL STATEMENTS
Notes to Consolidated Financial Statements (Unaudited)

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.

     CSX Transportation, Inc. (“CSXT”), the rail subsidiary of CSX, 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 Assets 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 Assets 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 July 26, 2004, CSXT launched an exchange offer pursuant to a Registration Statement on Form S-4 filed with the Securities and Exchange Commission (“SEC”) that describes the offer to exchange new unsecured securities of subsidiaries of CSXT and NSR and cash for unsecured securities of Conrail. The exchange offer, which is subject to a number of conditions, will be the final stage in the restructuring of Conrail’s unsecured indebtedness as described in the parties’ joint petition filed with the STB.

     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. The preliminary results of an appraisal of the NYC properties indicate that their aggregate fair value will likely exceed CSX’s carrying amount.

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CSX CORPORATION AND SUBSIDIARIES
ITEM I: FINANCIAL STATEMENTS
Notes to Consolidated Financial Statements (Unaudited)

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

     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 Assets Areas.

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:

     The effective tax rate for CSX is lower in the first six months of 2004 due, in part, to equity in earnings from Conrail representing a larger percentage of earnings compared to the first six months of 2003.

Detail of Conrail Rents, Fees and Services

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CSX CORPORATION AND SUBSIDIARIES
ITEM I: FINANCIAL STATEMENTS
Notes to Consolidated Financial Statements (Unaudited)

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

Conrail Financial Information

     Summary financial information for Conrail for its fiscal periods ended June 30, 2004 and 2003, and at December 31, 2003, is as follows:

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CSX CORPORATION AND SUBSIDIARIES
ITEM I: FINANCIAL STATEMENTS
Notes to Consolidated Financial Statements (Unaudited)

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.