2005 CORPORATE PROFILE

 

FO R WA R D — L O O K I N G S TAT E M E N T S This document contains forward-looking Forward-looking statements are subject to statements within the meaning of the a number of risks and uncertainties, and Private Securities Litigation Reform Act actual performance or results could differ with respect to, among other items: materially from that anticipated by these projections and estimates of earnings, forward-looking statements. Factors that revenues, cost-savings, expenses, or other may cause actual results to differ materially financial items; statements of management’s from those contemplated by these plans, strategies and objectives for future forward-looking statements include, operation; and management’s expectations among others: (i) the company’s success in as to future performance and operations implementing its financial and operational and the time by which objectives will be initiatives, (ii) changes in domestic or achieved; statements concerning proposed international economic or business new products and services; and statements conditions, including those affecting the regarding future economic, industry or rail industry (such as the impact of industry market conditions or performance. competition, conditions, performance and Forward-looking statements are typically consolidation); (iii) legislative or regulatory identified by words or phrases such as changes; (iv) the inherent business risks “believe,” “expect,” “anticipate,” “project,” associated with safety and security; and (v) and similar expressions. Forward-looking the outcome of claims and litigation statements speak only as of the date they involving or affecting the company. Other are made, and the company undertakes no important assumptions and factors that obligation to update or revise any forward- could cause actual results to differ looking statement. If the company does materially from those in the forward-update any forward-looking statement, no looking statements are specified in the inference should be drawn that the company’s SEC filings, accessible on the company will make additional updates SEC’s web site at www.sec.gov and the with respect to that statement or any company’s web site at www.csx.com. other forward-looking statements.

 

TA B L E O F C O N T E N T S Chairman’s Letter . . . . . . . . . . . . . . . . . . . . . . . . . .         . 2 Financial & Statistical Highlights. . . . . . . . . . . . . . . 6 Corporate Profile . . . . . .         . . . . . . . . . . . . . . . . . . . . . 8 Sales & Marketing . . . . . . . . . . . . . . . . . . .         . . . . . . 12 Investing in Our Assets. . . . . . . . . . . . . . . . . . . . . . 42 Corporate Governance. . . . . . . . . . . . . . . . . . . . . . 48 Board of Directors & Officers . . . . . .         . . . . . . . . . . 50 Shareholder & Investor Information . . . . . . . . . . 51 Appendix . . . . .         . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52 The accompanying financial information should be read in conjunction with the company’s 2005 Annual Report on Form 10-K, 2006 Quarterly Reports on Form 10-Q, and any current reports on Form 8-K available at www.csx.com.

 

L E T T E R F R O M T H E CHAIRMAN Dear Investor: 1. Revenue impact. Our businesses have If you have followed the CSX story over targeted — and delivered — a significant the past two years, you know that we’ve revenue impact from the renaissance achieved great success by returning to our taking place in our industry. By impact, transportation roots at a terrific time in we mean profitable growth versus the industry and economy. top-line growth for its own sake. With robust demand and tight supply In Surface Transportation, our combined conditions in our markets, the employees rail and intermodal business, 2005 was a in our businesses are sharply focused on record year in both revenue and operating getting shipments to customers safely income. To date*, the team has completed and on time. nine consecutive quarters of revenue improvements and operating income From a capital markets perspective, growth adjusted for certain charges. our strategy and commitment have three interrelated parts: A major driver of these results is the transportation environment itself. Revenue Per Unit by Quarter $1,221 $1,277 $1,100 $1,143 $1,159 $1,168 $1,053 $1,048 $1,069 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 2004 2004 2004 2004 2005 2005 2005 2005 2006 * This and all subsequent references to “to date” or “today” in the Chairman’s Letter are based on results as of March 31, 2006, the most recent completed reporting period at this writing. 2

 

America is buying more, producing more, and income in the past two years has more importing more at a time when congested than doubled on relatively flat volume highways and rising fuel prices have put a overall. That’s revenue with impact. premium on efficient and environmentally-friendly rail transportation. 2. Operating discipline. In 2003, we put a new operating plan in place, went to work But that’s not the whole story. Our on a set of operating disciplines to drive transportation network connects more than improvements in safety and reliability, and 70 ocean, river and lake ports to the hearts steadily built the proficiency and confidence of commerce in some of America’s largest of our team. population centers, and serves industries as diverse as consumer goods and coal. We went about these changes the right way, with consistent, continuous improvement As a result, our businesses have the ability over time. We remained focused and didn’t to remain profitable over the long-term by allow ourselves to get too excited or too shifting the mix of our services to meet discouraged along the way. As a result, market needs at any given time or place. we’ve seen the operational performance Nowhere is that more evident than in our steadily get better and, in recent months, intermodal business, where operating gain strong momentum. Adjusted Surface Transportation Operating Income (Dollars in millions) $487 $422 $415 $351 $361 $315 $204 $295 $250 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 2004 2004 2004 2004 2005 2005 2005 2005 2006 3

 

C H A I R M A N ‘S L E T T E R C O N T I N U E D Today, safety results are at their all-time The good news is that, in our business, best levels, and our delivery performance there are no walls! Our men and women is the best we’ve seen since 2002. see enormous potential for their company and have been striving to meet the So the business environment is strong demands of the new environment with and we are gaining strong momentum in ever-increasing speed and excitement. operations — but what else are we doing inside of our four walls to ensure continued 3. Performance culture. When we set out growth over the long-term? to change CSX, we assembled a leadership team with diverse experience from inside and outside the industry, and committed ourselves to one set of values that would stand the test of time. Shareholder Value Comparison of Five-Year Cumulative Total Return† Among CSX CORPORATION, the S & P 500 Index and the Dow Jones US Transportation Average Index 250 200 Dollars 150 100 50 CSX CORPORATION S & P 500 DJ US TRANSPORTATION AVG 0 Q1 2000 2001 2002 2003 2004 2005 2006 †$100 invested on 12/31/99 in stock or index-including reinvestment of dividends. Fiscal year ending December 31. ©2002, Standard & Poor’s, a division of The McGraw-Hill Companies, Inc. All rights reserved, www.researchdatagroup.com/S&P.htm. 4

 

WE’R E A C H I E V I N G H I G H E R L E V E L S O F S U C C E S S, J U S T A S O P P O R T U N I T I E S F O R S U C C E S S A B O U N D. TR A N S P O R T A T I O N D E M A N D I S S T R O N G, A N D O U R A B I L I T Y T O M E E T T H A T D E M A N D I S S T R O N G E R. Our messages and priorities have not All of this spells strong returns for our changed, and we have steadily increased shareholders. Investors who have held CSX our standards of accountability as the shares since the beginning of 2001 have seen business disciplines have fallen into place. about a 150% increase in the value of their Now we’ve reached a place where our stock. Our focus is on creating greater employees feel wind at their backs and shareholder value by meeting customer recognize the vast opportunity in front expectations and delivering double-digit of them. You can see it on their faces operating income, earnings per share, and and in their results. free cash flow growth in the coming five years. Employees have earned the right to We’re achieving higher levels of success, reinvest in the already-strong CSX just as opportunities for success abound. Transportation network. This year alone, Transportation demand is strong, and our we will spend more than $1.4 billion on ability to meet that demand is stronger. capital projects to achieve higher levels of growth and reliability, with expansions If you enjoy a great American business story, underway in some of our most attractive welcome aboard! We invite you to explore geographic markets. the power of our enterprise in the pages that follow. In the near-term, these expansions will enable us to grow with our customers. Longer-term, we envision even more infrastructure-related opportunities as America’s population and economic Sincerely, centers shift and expand. Michael Ward 5

 

F I N A N C I A L & S T A T I S T I C A L H I G H L I G H T S Financial Highlights Dollars in Millions (except per share amounts) 2005 2004 2003 Surface Transportation Revenue $8,618 $8,040 $7,446 Operating Expense 7,069 7,047 6,795 Operating Income $1,549 $993 $651 Add Restructuring Change — Net — 71 22 Provision for Casualty Claims — - 229 Operating Income — Adjusted $1,549 $1,064 $902 Financial Ratios Operating Ratio — Adjusted 82.0% 86.8% 87.9% Net All-in Debt to Capital 46% 54% 56% Other Information Free Cash Flow (a) $1,030 $461 $363 Property Additions $1,136 $1,030 $1,059 Dividends per Share $0.43 $0.40 $0.40 CSX follows a 52/53-week fiscal reporting calendar. Fiscal year 2004 consisted of a 53-week year ending on December 31, 2004. All 2004 volume and financially related data contained in this book includes the 53rd week. The company reports its financial results in accordance with generally accepted accounting principles (“GAAP”). However, management believes that certain non-GAAP financial measures used in managing the company’s business that fall within the meaning of Regulation G by the Securities and Exchange Commission may provide users of the financial information with additional meaningful comparisons of prior reported results. Specifically, the company believes that Surface Transportation operating income adjusted for the charges listed above provides useful information for evaluating and understanding the company’s ongoing or core business performance. Free Cash Flow measures an ability to generate cash without incurring additional external financings. All-in Debt to Capital includes off-balance sheet accounts receivable and operating leases which management believes is necessary to assess the company’s total leverage relative to its overall capital structure. A reconciliation of Free Cash Flow to the most directly comparable GAAP financial measure and the computation of All-in Debt to Capital is presented on page 57. (a) Free cash flow as of December 30, 2005 includes net cash proceeds (net of taxes paid) from the International Terminals’ disposition of $640 million and net debt repurchase costs of $123 million. 2005 and 2006 exclude $99 million and $138 million respectively relating to capital spending resulting from the impact of Hurricane Katrina. The company expects insurance proceeds to cover costs, less the insurance deductible. However, no payments are guaranteed until cash is received. 6

 

Statistical Highlights 2005 2004 2003 Volume (in thousands) Carloads 7,350 7,530 7,283 Gross Ton Miles 463.2 467.8 447.9 Resources Employees (a) 34,153 33,591 34,084 Route Miles 21,357 22,153 22,841 Locomotives, Owned or Under Long-Term Lease 3,790 3,710 3,616 Freight Cars 103,314 104,714 106,869 Safety Personal Injury Frequency Index (per 200,000 man-hours) 1.71 2.29 2.30 FRA Train Accidents Frequency (per million train miles) 3.99 4.79 4.66 Operations Average System Velocity (miles per hour) 19.2 20.3 21.1 Average System Dwell Time (hours) 29.7 28.7 25.3 Average Total Cars on Line 233,118 233,271 229,926 On-time Originations 51.1% 49.0% 62.0% On-time Arrivals 40.1% 40.9% 56.9% Average Recrews 68 63 50 (a) Represents Surface Transportation employees Surface Transportation Adjusted Adjusted Revenue Operating Income Operating Ratio ($ in millions) ($ in millions) $8,618 $1,549 87.9% 86.8% $8,040 82.0% $7,446 $902 $1,064 2003 2004 2005 2003 2004 2005 2003 2004 2005 7

 

C O R P O R A T E P R O F I L E Well positioned in the growing CSX Intermodal, Inc. links customers to transportation industry, CSX Corporation railroads via trucks and terminals. CSXI is parent to a strategic network of rail, keeps distribution centers ready to deliver intermodal and related businesses serving athletic shoes, clothes, DVD players and some of the most active economic centers hundreds of other consumer products to in North America. retail outlets coast to coast. In 2005, CSXI handled nearly 2.2 million trailers and Business Units containers. In addition to truck and CSX Transportation, Inc. delivers merchandise, terminal operations, CSXI operates a coal and automobiles over 21,000 miles of designated domestic container fleet. track, and connects every major population center in 23 states and two Canadian CSX also owns Total Distribution Services, Inc., provinces east of the Mississippi River with which serves the automotive industry with 70 ocean, river and lake ports. CSXT, the distribution centers and storage locations; and largest railroad in the eastern United TRANSFLO, Inc., providing logistical solutions States, also serves thousands of production for transferring products from rail to truck at and distribution facilities through track more than 70 facilities across the country. connections to more than 200 shortline and regional railroads. The above subsidiaries combine to form the company’s Surface Transportation businesses, which completed the first quarter of 2006 with nine consecutive quarters of revenue (gains/improvements/increases) and operating income growth adjusted for certain charges. 8

 

Market Segments • Intermodal. In 2005, CSXI handled The Surface Transportation businesses nearly 2.2 million containers and trailers delivered nearly 7.4 million carloads in which generated nearly 16% of total 2005, generating more than $8.6 billion company revenue. of revenue. Major market segments: • Automotive. This segment contributes • Merchandise. Annually, CSXT ships nearly nearly 10% of the company’s total three million carloads of aggregate, revenue and accounts for 488,000 metal, phosphate, building, fertilizer, carloads annually. The automotive group food, consumer, agricultural, paper and delivers one-third of North America’s chemical products. light vehicles, serving both traditional manufacturers and the increasing • Coal. In 2005, more than 1.8 million number of global manufacturers. carloads of coal, coke and iron ore were delivered to electric utilities and manufacturers. Coal is playing an increasingly important role in the generation of energy used to heat, cool and light homes and businesses. This segment generated more than 24% of CSX’s total revenue in 2005. 9

 

C O R P O R A T E P R O F I L E C O N T I N U E D 2005 AVG. MAJOR CSX DAILY CARS TERMINALS PROCESSED* Atlanta, Ga. 1,022 Avon (Indianapolis), Ind. 1,494 Baldwin, Fla. 331 Birmingham, Ala. 1,205 Buffalo, N.Y. 1,093 Charleston, S.C. 384 Chicago, Ill. 926 Cincinnati, Ohio 1,557 Cleveland, Ohio 386 Columbus, Ohio 479 Cumberland, Md. 1,118 Curtis Bay (Baltimore), Md. 313 Detroit, Mich. 333 East Savannah, Ga. 467 Erwin, Tenn. 609 Evansville, Ind. 457 Florence, S.C. 437 Greenwich (Philadelphia), Pa. 293 Hamlet, N.C. 1,390 Locust Point (Baltimore), Md. 122 Louisville, Ky. 1,211 Mobile, Ala. 412 Moncrief (Jacksonville), Fla. 614 Montgomery, Ala. 551 Nashville, Tenn. 1,695 New Orleans, La. 483 Richmond, Va. 388 Rocky Mount, N.C. 640 Major Terminals Russell, Ky. 852 Coal Network Selkirk, N.Y. 1,627 I-90 Corridor Stanley (Toledo), Ohio 1,063 I-95 Corridor Syracuse, N.Y. 418 Tampa, Fla. 269 Southeastern Corridor Walbridge (Toledo), Ohio 580 CSX Rail Network Waycross, Ga. 2,276 Willard, Ohio 1,557 * For the period September through December 2005 the CSXT system was affected by Hurricane Katrina. 10

 

Rail Network • Southeastern Corridor. The Southeastern Train operations are focused on four Corridor runs from the western gateways major rail routes: the coal network, of Chicago, Memphis and East St. Louis Interstate 90, Interstate 95 and the through the growing cities of Atlanta, Southeastern Corridor, with 36 major Nashville and Birmingham and into classification yards and terminals. expanding markets in the Southeast. Although merchandise traffic represents a • Coal Network. Coal is used to generate large portion of the traffic transported on more than half the electricity in the this corridor, it is also an important route United States. The CSX network connects for intermodal and automobile shipments. mining operations in nine states with industrial and utility customers, and Non-Transportation Holdings many port facilities. Non-transportation holdings include The Greenbrier Resort and Club Management • I-90 Corridor. The gateway city of Chicago Company, a AAA Five-Diamond resort in is linked to urban areas in New York and White Sulphur Springs, W. Va.; CSX Real New England by the I-90 corridor. Much of this route is double mainline track Property, an organization responsible for supporting high-speed intermodal and the sale, lease and development of CSX-automotive service. The I-90 corridor owned properties; and CSX Technology, a also is a primary route for import traffic provider of information technology services. moving cross-country from western ports. • I-95 Corridor. The I-95 corridor is a primary route for CSX’s merchandise businesses, which include commodities such as metals, chemicals and food and consumer products. The corridor connects Charleston, Jacksonville, Miami and many other growing southeastern cities to the heavily-populated northeastern cities of Baltimore, Philadelphia and New York. 11

 

S A L E S & M A R K E T I N G Serving many of the fastest-growing states and cities in the country, CSX is uniquely positioned to capitalize on the nation’s robust economy and international trade. Driven by growing U.S. production and strong demand for imports, CSX’s Surface Transportation units delivered nearly 7.4 million carloads, generating $8.6 billion in revenue, with year-over-year revenue growth of just over 7%. Foreign demand for U.S. products and raw materials, such as coal, metals and agricultural products, also contributed to the company’s record performance. CSX serves as a crucial link in the transportation supply chain through: • A 21,000-mile rail network with service to 23 eastern states, the District of Columbia, Quebec and Ontario. • Service to 70 ports on the Atlantic and Gulf coasts, the Mississippi River, Great 2005 Total Surface Lakes and St. Lawrence Seaway. Transportation Volume • The opening of new manufacturing facilities, including a Hyundai assembly Density plant, along its rail lines. Low Med High 12

 

CSX I S U N I Q U E L Y P O S I T I O N E D T O C A P I T A L I Z E O N T H E N A T I O N ‘S R O B U S T E C O N O M Y A N D I N T E R N A T I O N A L T R A D E . • Access to more than 130 coal mines, CSX also has launched service innovations, which contributed to a nearly 5% increase streamlined operations and entered into in coal volume in 2005. new affiliations with other transportation companies to achieve long-term growth • A robust intermodal business that from a variety of market segments. overcomes the challenges confronted by motor carriers. The company is situated to deliver both the raw materials and finished products that the With a well-diversified traffic base, CSX global marketplace demands. can overcome losses in one market with gains in another for continued overall revenue growth. 2005 Surface Transportation Volume (% of Carloads) Carloads Revenue Per Car Revenue (in thousands) ($ in millions) 7% 7,530 $8,618 25% 39% 7,283 7,350 $1,068 $1,173 $1,022 $7,446 $8,040 29% 39% Merchandise 29% Intermodal 2003 2004 2005 2003 2004 2005 2003 2004 2005 25% Coal, Coke and Iron Ore 7% Automotive 13

 

CO A L , CO K E & IR O N OR E In 2005, coal, coke and iron ore revenues totaled more than $2 billion, representing 24% of CSX’s total revenue. Coal, coke and iron ore revenue increased nearly 17% on 5% volume growth over 2004. CSX delivered more than 1.8 million carloads of coal, coke, and iron ore to electric utilities and manufacturers in 2005. More than half the nation’s electricity is generated by coal. In 2005, electricity consumption in CSX’s territory increased more than 3%. North American utility and industrial shipments represent 93% of CSX’s total coal, coke and iron ore carloads. Strong demand was driven by the need to replenish low utility stockpiles, higher demand from a strong industrial economy, and rising costs for alternative fuels, including natural gas. 2005 Coal Volume Density Low Med High 14

 

IN 2005, COAL, COKE AND IRON ORE REVENUES TOTALED MORE THAN $2 BILLION, REPRESENTING 24 % O F CSX’S T O T A L R E V E N U E. COAL, COKE AND IRON ORE REVENUE I N C R E A S E D N E A R L Y 17 % O N 5% V O L U M E G R O W T H O V E R 2004. Additionally, export coal, driven by demand While the Appalachian coal fields lie at the in Europe and South America for metallurgic heart of the company’s 21,000-mile network, coal, accounted for 7% of CSX’s coal volumes CSX also: in 2005. • Serves the major export terminals at CSX is the largest coal transporter east Mobile, Ala.; Newport News, Va.; and of the Mississippi River and delivers 170 Baltimore, Md., as well as three coal million tons of coal annually to utilities terminals on Lake Erie. and major industrial installations. CSX serves more than 130 coal mines in nine • Operates coal terminals at Toledo, Ohio states, including three of the nation’s top and Baltimore, Md. four coal-producing states. During a • Has access to the growing Illinois Basin typical week, 30,000 carloads of coal are coal fields and connections with the loaded at CSX-served mines, and several western railroads in Chicago and thousand more cars are received from East St. Louis that give CSX the ability connecting rail carriers. to deliver Powder River Basin and other western coals throughout the East. 2005 Coal Volume Revenue Per Car Revenue 7% Carloads (% of Carloads) (in thousands) ($ in millions) 93% 1,730 1,809 $1,150 $2,080 1,635 $979 $1,029 $1,600 $1,780 7% 2003 2004 2005 2003 2004 2005 2003 2004 2005 93% Domestic 7% Export 15

 

C O A L , C O K E & I R O N O R E C O N T I N U E D Coal Utility Locations Coal Reserves CSX Rail Network 16

 

Outlook Additionally, CSX customers are making Coal Top Ten The U.S. Department of Energy expects major investments in the future of coal (Customers listed in alphabetical order) U.S. coal consumption to increase to nearly by addressing the environmental issues PRODUCERS 1.6 billion tons in 2025, from the current associated with coal combustion. These Alliance Coal level of approximately 1.1 billion tons. projects include the construction of Alpha Natural Resources Coal is the most abundant fuel in the scrubbers for sulfur dioxide and mercury Arch Coal United States, with at least 250 billion tons control, and the installation of selective CONSOL Energy of economically recoverable reserves. catalytic reduction for the control of International Coal Group nitrogen oxides emissions. Overall, the James River Coal As a result of the growing demand for importance of coal is recognized as part Jim Walter Resources electricity, construction is underway on of the national energy policy. There is Massey Energy coal-fired power plants located on CSX’s substantial federal funding for clean Peabody Energy network. Two coal-fired power plants in coal technologies. TECO Coal South Carolina are planned, one in North Carolina, three new units in Florida and one in Kentucky. A typical new plant RECEIVERS will generate more than a million tons American Electric Power in additional annual volume for CSX. The Consumers Power company is well positioned for long-term Dominion Resources growth in the coal market, benefiting Duke Power from the rise in electricity consumption, Mirant Americas the population increase in the Southeast Progress Energy and the high cost of natural gas. Santee Cooper (South Carolina Public Service) Seminole Electric South Carolina Electric and Gas Southern Company 17

 

AU T O M O T I V E In 2005, CSX realized improvement in revenue-per-car in the automotive sector through value pricing initiatives. Delivering 488,000 rail carloads of parts and vehicles annually, CSX derives approximately 10% of its annual revenue from the automotive sector. Two major lines of business form the automotive unit: vehicles, which generate 90% of the unit’s revenue, and auto parts, which generate 10%. CSX transports more than 5 million vehicles per year for domestic producers, international producers and importers. Serving plants in eight states, CSX has significant advantages in the automotive sector: • With logistics partners, CSX reaches 20 traditional assembly plants and satellite vehicle loading and distribution centers, such as those at New Boston, Mich., and Lawrenceville, Ga. • In addition to its longstanding relationships with traditional domestic manufacturers —General Motors, Ford and Chrysler — CSX has 2005 Automotive Volume forged additional relationships with the Density “new domestics,” including Honda, Nissan, Toyota, Mercedes-Benz and Hyundai. Low Med High 18

 

THE AUTOMOTIVE GROUP HAS ENHANCED VALUE BY OFFERING CUSTOMERS A NETWORK OF AUTO DISTRIBUTION CENTERS, CUTTING-EDGE INVENTORY AND FACILITY MANAGEMENT TECHNOLOGY, AS WELL AS MULTI-LEVEL AND SPECIALTY BOXCAR EQUIPMENT. • In 2005, Hyundai opened a state-of- The automotive group has enhanced value the-art assembly center on CSX lines in by offering customers a network of auto Montgomery, Ala. distribution centers, cutting-edge inventory and facility management technology, as well • With rail service reaching across 23 states as multi-level and specialty boxcar equipment. and over half the U.S. population, CSX has developed service innovations to efficiently A wholly owned subsidiary of CSX Corporation, move new vehicles from assembly plants Total Distribution Services manages a network into consumption markets. of 36 vehicle distribution centers serving most major metropolitan areas east of the Mississippi River. To optimize network efficiency and create capacity for the auto industry, CSX focuses on total cycle times to increase productivity and improve asset utilization. 2005 Automotive Volume Carloads Revenue Per Car Revenue (% of Carloads) 10% (in thousands) ($ in millions) 90% 529 507 488 $1,612 $1,647 $1,730 $853 $835 $844 90% 10% 2003 2004 2005 2003 2004 2005 2003 2004 2005 90% Automobiles 10% Parts 19

 

A U T O M O T I V E C O N T I N U E D CSX-Served Assembly Plants (customers listed in alphabetical order) DAIMLER-CHRYSLER Detroit, Mich. Dodge Viper, Jeep Sterling Heights, Mich. Chrysler Sebring/Conv., Dodge Stratus Warren, Mich. Dodge Dakota, Ram 1500, Mitsubishi Raider FORD Dearborn Truck, Mich. Ford F-Series, Lincoln Mark LT Louisville, Ky. (2 Plants) Ford Explorer/Sport Trac, F-Series, Excursion, Mercury Mountaineer Wayne, Mich. (2 Plants) Ford Focus, Expedition, Lincoln Navigator Wixom, Mich. Lincoln Town Car, LS GENERAL MOTORS Bowling Green, Ky. Chevrolet Corvette, Cadillac XLR Lordstown, Ohio Chevrolet Cobalt Spring Hill, Tenn. Saturn Ion, Vue Wilmington, Del. Pontiac Solstice, Saturn Sky HONDA East Liberty, Ohio Honda Accord, Civic, Element, CR-V Assembly Plants Marysville, Ohio Honda Accord, Acura TL, RD-X Distribution Centers HYUNDAI CSX Rail Network Montgomery, Ala. Sonata, Sante Fe MITSUBISHI Normal, Ill. Eclipse, Endeavor, Gallant NISSAN Smyrna, Tenn. Altima, Frontier, Maxima, Pathfinder, Xterra SUBARU Lafayette, Ind. Baja, Tribecca, Legacy, Outback TOYOTA Princeton, Ind. Sequoia, Sienna, Tundra 20

 

Outlook CSX expects its automotive volumes to remain Automotive Top Ten Through 2010, growth in North American constant through 2010. The majority of the (Customers listed in alphabetical order) light vehicle production is forecast at 1% company’s automotive business is currently American Honda Motor and traditional domestic production is associated with traditional domestic Daimler-Chrysler expected to decline. However, this decline manufacturers; however, the company is Ford Motor is expected to be offset by increasing expanding its relationships with the new General Motors production on the part of the new domestic manufacturers, including service to Hyundai Motor America domestic manufacturers. a newly-opened Hyundai plant in Mazda Motor of America Montgomery, Ala. Additionally, revenue is Mercedes-Benz USA expected to grow as the company continues Nissan North America to focus on value pricing initiatives. Subaru of America Toyota Motor Sales USA 21

 

M E R C H A N D I S E O V E R V I E W With more than $4 billion in revenue from nearly 3 million carloads in 2005, CSX is one of the largest haulers of merchandise shipments, reflecting a strategic network that serves every major population center east of the Mississippi. Merchandise shipments accounted for 39% of the total carloads on the CSX network in 2005 and contributed nearly half the company’s record $8.6 billion in revenue. Factors behind CSX’s strength in merchandise include strong imports, increased industrial activity and business development efforts along the company’s 21,000-mile network. In addition, adversities in the trucking industry — driver shortages, high turnover rates, rising fuel prices, traffic congestion —contribute to new long-haul opportunities for rail. Seven diverse market segments make up the company’s merchandise category: phosphates and fertilizers; metals; forest products; food and consumer; agricultural products; chemicals; and emerging markets. 2005 Merchandise Volume Density Low Med High 22

 

WITH MORE THAN $4 BILLION IN REVENUE F R O M N E A R L Y 3 M I L L I O N C A R L O A D S I N 2005, CSX I S O N E O F T H E L A R G E S T H A U L E R S O F M E R C H A N D I S E S H I P M E N T S . Serving producers, manufacturers, consumers 2005 Merchandise Volume Merchandise Top Ten and global shippers throughout the economically (% of Carloads) (Customers listed in alphabetical order) diverse eastern United States, CSX: Archer Daniels Midland AK Steel • Leads the North American rail industry 15% Cargill in phosphate and fertilizer volume. 18% 15% DOW Chemical • Is the second-leading carrier of forest Georgia Pacific products and is also number two in International Paper 15% chemical volume and revenue among 15% Mosaic North American railroads. 18% Nucor Steel Smurfit-Stone Container • Serves 400 grain elevators, 100 feed Weyerhaeuser 13% 13% mills and 15 grain processing facilities 9% in the Midwest and Southeast. 12% In addition to routes throughout the populous Northeast and the growing 18% Chemicals Southeast, CSX’s position as a vital link 18% Emerging Markets in the national supply chain is reinforced 15% Phosphates & Fertilizers through the more than 70 ports it serves 15% Forest Products 13% Metals on the Atlantic Ocean, Gulf of Mexico, 12% Agricultural Products Mississippi River system, Great Lakes and 9% Food & Consumer the St. Lawrence Seaway. Carloads Revenue Per Car Revenue (in thousands) ($ in millions) 2,889 2,987 2,888 $1,464 $3,694 $3,995 $4,228 $1,279 $1,337 2003 2004 2005 2003 2004 2005 2003 2004 2005 23

 

18% C H E M I C A L S % of Merchandise Carloads CSX is the second leading provider of chemical transportation services among all North American railroads, shipping approximately 533,000 carloads of chemical commodities annually. During 2005, high energy and feedstock costs, inventory draw-downs and Hurricanes Katrina and Rita all contributed to reduced volumes. Those reductions were offset by yield management efforts. Overall, during 2005 the company’s chemicals unit generated more than $1 billion in revenue, or approximately 13% of CSX’s total revenue and 7% of total carloads. CSX serves more than 800 producers and receivers of chemical products, delivering raw materials and finished products to industrial consumers throughout the eastern United States. The company ships a wide range of chemical products, from plastics and plastics feedstocks, petrochemicals and liquefied petroleum gases, to specialty chemicals and glass manufacturing products. While the growing Southeast is the cornerstone of CSX’s chemical network, through connections with western railroads CSX is able to provide service from the Top Origination Points major chemical-producing and petroleum-CSX Rail Network processing areas in Texas and Louisiana to consuming markets in the East. 24

 

CSX SERVES MORE THAN 800 PRODUCERS AND RECEIVERS OF CHEMICALS PRODUCTS, DELIVERING RAW MATERIALS AND FINISHED PRODUCTS TO INDUSTRIAL CONSUMERS THROUGHOUT THE EASTERN UNITED STATES. Market highlights include: CSX expects moderate volume growth in its Carloads chemicals unit over the near term, contingent (in thousands) • The continued expansion of the polyethylene upon continued strength in U.S. manufacturing terephthalate (PET) resin market in the activity. Most volume growth will come from Southeast, which is driven by demand for the company’s plastics and plastics feedstock 541 564 533 plastic bottles and containers. CSX leads segments. Expansions by eastern-based PET all North American railroads in the PET plastic resin producers are projected to increase market, one of the fastest growing CSX’s carload volumes by approximately 25,000 manufacturing segments in the country, over the next five years. Volumes associated increasing 7% to 10% a year. with CSX’s more mature chemicals markets, 2003 2004 2005 including petroleum products and inorganic • Access to the large base of chemical and acids, should remain relatively stable. Overall, petroleum manufacturers in the heavily the company expects strong revenue growth Revenue Per Car populated, industrialized Northeast and in its chemicals unit as a result of continued Mid-Atlantic regions. Other chemical yield management efforts. production regions served by CSX include the Ohio River area; Niagara Falls, N.Y.; Legislation and regulation relating to security $2,043 Sarnia, Ontario; and the northern New issues that affect the transportation industry, $1,895 Jersey refinery complexes. including rules and regulations pertaining to $1,828 the transportation of hazardous materials, • The CSX system reaches nearly 100 glass are being considered and, in some instances, manufacturing plants, plastic pellet adopted by federal, state and local regulatory 2003 2004 2005 manufacturing plants and refineries, and agencies. These actions are likely to affect more than 500 receivers of plastic pellets. operations and may affect the overall outlook in this area. Revenue In addition, the company provides the most ($ in millions) comprehensive access to bulk transloading Concern also exists for long-term growth as sites in North America through its TRANSFLO domestic capital investment in new chemical subsidiary. TRANSFLO allows chemical shippers plants has declined substantially and foreign to leverage the economics and productivity of investments have grown in the Middle East, bulk rail loadings and still reach customers China and Southeast Asia. However, with $989 $1,069 $1,089 that are not rail-served or lack volume to access to nearly every major port along the justify rail carloads. Atlantic and Gulf Coasts and access to every major consumption market in the East, CSX Outlook 2003 2004 2005 is strategically positioned to accommodate Despite the high price of natural gas and crude imports from these regions. oil feedstocks, U.S. chemical manufacturing should remain stable over the next several years. 25

 

18% E M E R G I N G M A R K E T S % of Merchandise Carloads The Emerging Markets Unit targets high-growth business opportunities and capitalizes on them by developing rail-based service solutions that maximize profitability, expansion and efficiency. Transporting more than 500,000 carloads annually, emerging markets had revenue of $513 million in 2005. While some market segments grew due to increased demand in the populous Northeast and rapidly expanding Southeast, these gains were partially offset by fewer military shipments. CSX should remain well positioned to secure additional rail business as the volume of global trade increases. The growing demand for bulk transfers, distribution and warehouse facilities continues to result in more opportunities. Additionally, growth continues within this unit, particularly in specialized markets such as aggregates, processed materials, waste and machinery. Top Origination Points • The aggregate market has never been Aggregates stronger. In 2005, CSX delivered 275,000 Lime carloads of crushed stone, sand, and Cement gravel needed to produce quality concrete Waste and asphalt. For example, Florida alone Machinery consumed over 100 million tons of aggregate CSX Rail Network products. CSX has realized significant growth in recent years in this market. 26

 

TR A N S P O R T I N G M O R E T H A N 500,000 C A R L O A D S A N N U A L L Y, E M E R G I N G M A R K E T S H A D R E V E N U E O F $513 M I L L I O N I N 2005. • The processed materials market experienced • TRANSFLO manages a vast network of Carloads (in thousands) a decline in cement shipments but increased bulk transfer terminals and warehouses demand for fly ash, slag and lime in 2005. throughout North America to facilitate The CSX network serves numerous lime more rail shipments for CSX. plants and connects producers with the 476 506 505 largest power plants, steel mills, mining • New Business Development prospects and operations, and water treatment facilities. cultivates traffic opportunities from smaller and medium-size customers. • Total waste revenues increased significantly in 2005. Municipal and construction waste • International Sales and Marketing works with 2003 2004 2005 revenue grew 16% as traditional truck disposal numerous global manufacturing companies, remained more expensive. CSX handles steamship lines, freight forwarders, and port shipments from a variety of customers, officials to capitalize on the railroad’s access Revenue Per Car including steel, automotive, paper and to more than 70 ports. chemicals, as well as waste hauling • Finally, the Regional Development group companies, environmental service firms, leads the effort to attract new industries prime contractors and municipalities. $989 $996 and encourage existing facility expansion on $1,016 • There is a significant amount of heavy CSX lines. It also manages the relationship equipment and machinery that moves by rail. with more than 200 shortline and CSXT transports agricultural, construction, regional railroads. 2003 2004 2005 military and power generation equipment, Outlook offering a cost-effective alternative to trucks. The passage of the Federal Highway and Revenue Transit bill continues to increase demand ($ in millions) The emerging markets organization also includes CSX de Mexico, TRANSFLO, and for construction materials. Ongoing cement the company’s new Business Development, shortages are increasing demand for international Sales and Marketing, and processed materials as alternatives. Waste $513 Regional Development groups, which removal in the Northeast will continue to $471 $504 support the various CSX business units. require transportation services. These market trends will continue to result in • CSX de Mexico, a wholly owned corporate greater rail demand. subsidiary, sells to accounts shipping or 2003 2004 2005 receiving commodities cross-border, and works extensively with the rail carriers providing direct service into Mexico. 27

 

15% PHOSPHATES & FERTILIZERS % of Merchandise Carloads With exclusive operations in one of the This market includes the three primary world’s largest phosphate reserves, CSX crop nutrients (nitrogen, phosphates and leads the rail industry in phosphate and potash), and molten sulphur, which is used fertilizer volume, filling a critical role in in the processing of phosphate rock. global agricultural markets. CSX’s strengths in the phosphate CSX’s extensive rail network serves five and fertilizer market include: mines and eight processing plants in Central Florida’s 1,977-square-mile Bone Valley, the • Service to six Tampa Bay port facilities, heart of Florida’s phosphate-mining area, providing water access for exports and as well as six port facilities. trans-Gulf shipments. In 2005 phosphate and fertilizer revenues • The CSX Rockport facility at the Port of totaled $351 million, or approximately 4% of Tampa, which has 100,000 tons of storage CSX’s total revenue and 6% of total carloads. capacity, handling more than 2 million Revenue increased 3% year-over-year. tons of exports a year. About 80% of the phosphate used • An extensive network of rail services domestically, and 25% used around the with shuttle train operations that move world, originates in Florida. Exporting phosphate rock and finished product from its own Tampa Bay terminal to global quickly and efficiently among mines, destinations, CSX also dispatches unit trains processing plants and ports. of processed phosphates and fertilizers to • Dock-to-dock transit times that are Midwestern and Canadian farm belts via measured in hours, with much of the the Chicago gateway. equipment turning within 36 hours. More than 66% of CSX’s phosphate and fertilizer revenue comes from domestic shipments. Nearly 34% is from imports and exports, primarily to China, India and Australia. 28

 

WITH EXCLUSIVE OPERATIONS IN ONE OF THE WORLD’S LARGEST PHOSPHATE RESERVES, CSX LEADS THE RAIL INDUSTRY IN PHOSPHATE AND FERTILIZER VOLUME, FILLING A CRITICAL ROLE IN GLOBAL AGRICULTURAL MARKETS. Beyond its extensive phosphate and fertilizer Over the near term, CSX expects significant Carloads segment in Central Florida, CSX also serves volume declines on short-haul Bone Valley (in thousands) many other important crop nutrient producers rock and port moves driven by four recent and consumers through its network and plant closures in the Valley. 471 alliances with other carriers. Working with 460 444 the western U.S. carriers primarily through Oversupply of phosphate in the world the company’s Chicago gateway, CSX delivers market has created competitive challenges substantial and growing phosphate shipments in the marketplace for domestic producers. to points in Illinois, Wisconsin, Minnesota, While near-term low revenue-per-car volume Iowa, and the Dakotas. declines will be significant, CSX expects only 2003 2004 2005 moderate losses in revenue as it will see Alliances with the major Canadian carriers strength in longer haul domestic shipments provide access to points in western and of fertilizer. Revenue Per Car eastern Canada. This same network provides access for potash and sulphur, primarily from In addition, yield management efforts, Canada through the Chicago gateway, to coupled with tight barge and truck supply, CSX destinations. will further strengthen margin position. $715 $724 $791 Outlook Long-term, CSX expects its fertilizer Consumer food demand represents the primary shipment revenue and volume to stabilize, driver in the phosphate and fertilizer market. driven by an emphasis on efficient unit 2003 2004 2005 As population growth places more demand train distribution and access to consuming on food supplies, farmers need additional regions of the Midwest. nutrient supplies to enhance crop yields. Revenue ($ in millions) Fertilizer demand will increase as farmers look to boost corn production for ethanol-based fuels. $351 $329 $341 2003 2004 2005 29

 

15% F O R E S T P R O D U C T S % of Merchandise Carloads CSX serves over 90 pulp and paper mills, 50 lumber mills, 40 building materials mills, and 30 panel mills, reaching every segment of the eastern forest products market from Michigan to Florida. This extensive network, along with historic synergy with suppliers and consumers, makes CSX the second-leading carrier of forest products in North America. CSX also serves more paper mills than any other U.S. railroad. In 2005, forest products represented more than 8% of CSX’s total revenue, with forest products revenue reaching $717 million, a 5% gain over 2004, reflecting strong yields in the segment. The forest products segment draws its strength from several sources: • Long-term, sustainable growth from an increasing population in CSX markets. • Consistent demand for domestically produced printing and packaging materials. Packaging Paper Mills • Northeast and growing Southeast Printing Paper Mills/Originations consumption of lumber and panel CSX Rail Network products essential to the expanding home-construction market. 30

 

IN 2005, F O R E S T P R O D U C T S R E P R E S E N T E D M O R E T H A N 8% % O F CSX’S T O T A L R E V E N U E , W I T H F O R E S T P R O D U C T S R E V E N U E R E A C H I N G $717 M I L L I O N , A 5% % G A I N O V E R 2004. CSX’s system feeds the major population Outlook Carloads centers east of the Mississippi, allowing (in thousands) Short-term, U.S. housing starts are declining the company to serve both origins and as interest rates rise and demand subsides, destinations for paper and lumber in which may affect the need for lumber. 459 465 439 Florida, Georgia, Alabama, the Carolinas, Long-term, housing demand, especially in West Virginia, and the Chicago-New York the Southeast, remains strong. corridor. CSX has secured long-term, mutually beneficial relationships with major Newsprint consumption continues to fall and paper producers and building products printing paper output is slowing as growth 2003 2004 2005 receivers on CSX lines, providing a valuable in electronic media impacts both markets. transportation option so that construction Yield management efforts will slow overall and paper products easily reach major carload growth in the market but will lead Revenue Per Car retail outlets. CSX also connects with to a more favorable long-term mix of traffic. numerous printing facilities, box plants and distribution centers for major home The increasing stress on the trucking industry, improvement retail outlets. which faces congested interstates, driver $1,633 shortages and rising insurance and fuel costs, Additionally, through alliances with other creates an opportunity for CSX to expand in $1,465 carriers, CSX carries shipments of lumber $1,355 this market. and panel loads originating in eastern and western Canada and pulp and paper 2003 2004 2005 originating in Wisconsin, New England and eastern Canada. Interchanging with western Revenue carriers, CSX ships pulp and paper products ($ in millions) to western destinations, including California. $681 $717 $622 2003 2004 2005 31

 

M E T A L S 13% % of Merchandise Carloads Metals generate almost 7% of CSX’s revenue. In 2005, metals revenue reached a record $570 million, representing revenue growth of nearly 12% on reduced volume compared to 2004. Fueled by heavy demand for steel at home and abroad, CSX serves more than 800 metals customers and reaches more metal-producing eastern U.S. states than any other carrier. The CSX metals unit is comprised of seven key market segments: ferrous scrap, sheet steel, semi-finished, plate, pipe, bar-rod-structural and non-ferrous products. Ferrous scrap and sheet steel are the two primary segments, accounting for 63% of the metals revenue base. With one of the most modern and safe metals car fleets in the industry, CSX transports: • More ferrous scrap than any other transportation provider in North America. • Sheet steel from all the major producers to processing facilities and key end-use Steel Facilities markets, including steel warehouses serving CSX Rail Network the automotive and appliance industries. • Millions of tons of bar, coiled rod and structural steel annually to support the booming construction industry. • Hundreds of thousands of tons per year of alumina, ferro-alloy and other raw materials to aluminum and steel producers. 32

 

FU E L E D B Y H E A V Y D E M A N D F O R S T E E L A T H O M E A N D A B R O A D , CSX S E R V E S M O R E T H A N 800 M E T A L S C U S T O M E R S A N D R E A C H E S M O R E M E T A L-P R O D U C I N G E A S T E R N U.S. S T A T E S T H A N A N Y O T H E R C A R R I E R . CSX also provides specialized services like Outlook Carloads MetalNet, through which the company (in thousands) Overall steel demand remains strong establishes business relationships with a domestically and globally. Consolidations network of metals warehouses that allows will continue to add greater stability and rail service to non-rail served customers. discipline to the market. Domestic steel 348 380 361 supply is moving towards balancing with While the majority of metals shipments is demand. Steel product prices are less volatile domestically produced, the market is becoming but continue to feel upward price pressure more global, in turn generating more import as mills move to recover increasing costs. 2003 2004 2005 and export traffic opportunities. China’s need Strong demand from the construction, energy for steel, for example, is creating unprecedented and auto end-use markets will continue to scrap demand, which is being filled through drive high levels of steel production. U.S. sources. This requires U.S. mills to draw Revenue Per Car on scrap supply from inland sources, which In addition, Asian steel output and demand in turn allows for substantial long-haul are expected to remain strong, with India also opportunities for CSX. Additionally, CSX de seeing greater steel demand going forward. Mexico and CSXT’s International and Ports Imports of steel to the U.S. are expected to $1,579 group offer multifaceted solutions to further increase but will only fill unmet demand and $1,345 capture the expanding global opportunities. not compete for significant domestic market $1,250 share gains. 2003 2004 2005 The steel market has been enjoying significant success on both the demand and pricing fronts. Growth in both the flat and long Revenue ($ in millions) product segments is expected to continue over the short-term but the pace of this growth is expected to ease as interest rates rise and the economy slows. $570 $511 $435 2003 2004 2005 33

 

A G R I C U L T U R A L P R O D U C T S % of Merchandise 12% Carloads In 2005, agricultural products represented approximately 6%, or $550 million, of CSX’s total revenue. Slight volume growth in 2005 reflected gains in ethanol, feed grains, soybeans, and export shipments. These gains were partially offset by volume declines in wheat, sweeteners and flour. Revenues grew more than 7% based on the strength of ethanol shipments transported to the Northeast and export grain shipments. Improved yield management strategies in soybeans and feed ingredients also contributed to revenue growth. Domestic shipments comprise the majority of CSX’s agricultural traffic. Export traffic is a small amount of the company’s business, representing less than 3% of total agricultural revenue. Within the agricultural products group are two distinct market segments: whole grains, such as corn, soybeans and wheat; and processed grain products, such as feed ingredients, flour, edible oils, corn sweeteners and ethanol. Grain Receivers Of the two market segments, the largest is Grain Origination Areas grain, which delivers corn and other feed CSX Rail Network to livestock producers, and whole grains to processors. Transporting more than 18 million tons of grain annually, CSX serves over 400 grain elevators in the Midwest and supplies more than half the feed demand to the livestock industry in the Southeast. 34

 

E T H A N O L I S G R O W I N G S I G N I F I C A N T L Y A S T H E 2005 E N E R G Y B I L L C O N T I N U E S T O E N C O U R A G E B O T H P R O D U C T I O N A N D C O N S U M P T I O N O F T H I S E N V I R O N M E N T A L L Y F R I E N D L Y, G A S O L I N E -S A V I N G F U E L A D D I T I V E . In the processed grain products segment, Outlook Carloads ethanol is growing significantly as the (in thousands) The agricultural segment is expected to 2005 energy bill continues to encourage strengthen steadily over the next three years both production and consumption of this as consumption markets, driven by U.S. environmentally friendly, gasoline-saving population growth, increase moderately 363 356 357 fuel additive. each year. In addition to having the industry’s most CSX’s network of grain elevators in the extensive rail network east of the Mississippi Midwest and feed mills in the Southeast River, CSX offers particular strengths to the provides a solid foundation for enhancing the 2003 2004 2005 agricultural market, including: company’s vital role in the agricultural industry. • Service to grain elevators throughout the Growth markets for CSX within the agricultural Revenue Per Car midwestern U.S., primarily in Indiana, Ohio segment include feed grains that are driven by and Michigan, for storing and loading. new and expanded feed mills on CSX routes. • Service to over 100 feed mills A secondary and very promising emerging $1,541 in the Southeast. market is ethanol, which is expected to $1,369 $1,438 create more demand for rail transport in • Access to more than 15 grain processing coming years as interest continues in this facilities, as well as a number of bakeries alternative fuel. 2003 2004 2005 and soft drink production facilities throughout the eastern U.S. Revenue ($ in millions) $497 $512 $550 2003 2004 2005 35

 

F O O D & C O N S U M E R % of Merchandise 9% Carloads In 2005, food and consumer shipments • Numerous processing plants that produce totaled $438 million, or approximately 5% food and beverage products, building of CSX revenue. CSX transports the food, products, appliances and other consumer beverages, building products and appliances products are located directly on CSX lines. that end up in local grocery stores, fast food For example, the Tropicana juice train establishments and other retail destinations hauls fresh, refrigerated orange juice across the nation. from Central Florida directly into the New York metropolitan area, Cincinnati, and Food and consumer revenue for 2005 southern California. was up more than 16% over 2004 on approximately 2% higher volume. The • CSX serves a large network of 249,000 annual carloads in 2005 were public warehouses that customers predominantly domestic shipments, with use to transfer products to their a growing volume of consumer goods final destinations by truck. originating in Mexico. Additionally, a new cross-country unit train of perishables • Through relationships with other railroads, will be launched in 2006, targeting a CSX provides cross-country delivery of segment of produce shippers and receivers perishables, canned goods and beverages. not served by rail today. • CSX links beverage producers and appliance The key market segments of the food and manufacturers in Mexico with eastern U.S. consumer unit are refrigerated and packaged markets through interline rail connections. foods, beverages, manufactured products, building products, transportation equipment and clay and ores. CSX is well positioned to serve the growing demand, in some cases in partnerships with other transportation companies: 36

 

CSX T R A N S P O R T S T H E F O O D , B E V E R A G E S , B U I L D I N G P R O D U C T S A N D A P P L I A N C E S T H A T E N D U P I N L O C A L G R O C E R Y S T O R E S , FAST FOOD ESTABLISHMENTS AND OTHER RETAIL D E S T I N A T I O N S A C R O S S T H E N A T I O N . Demand for building products in the Long-term, housing demand remains Carloads (in thousands) Southeast, resulting from population strong — most notably in the Southeast —growth and hurricane recovery, helped and this regional outlook is favorable. drive the food and consumer unit in 2005. This is positive for building products and Yield management success, value pricing appliance shipments. 242 245 249 and the increased demand due to demographic growth, especially in the With the nation’s interstate trucking Southeast, continue to contribute to the system strained and the demand for freight strong food and consumer market. transport increasing, CSX customers are increasingly aware that shipping by rail 2003 2004 2005 Outlook can be an important part of their overall CSX’s innovative service offerings will transportation strategy. continue to support conversion of traffic Revenue Per Car from the highway to rail. Continued slow and steady growth, with further emphasis on yield management, is expected. Transportation equipment deliveries will $1,759 continue strong. Food and beverage $1,539 markets will consolidate, spurring rail traffic $1,450 growth between food processors and distributors, with a continued emphasis on 2003 2004 2005 the forward positioning of products, and inventory management. Revenue ($ in millions) $438 $351 $377 2003 2004 2005 37

 

IN T E R M O D A L CSX Intermodal (CSXI), one of the nation’s largest coast-to-coast intermodal transportation providers, offers customers the value of rail combined with the advantages of trucking through a network of more than 40 terminals across North America and more than 500 dedicated intermodal trains a week. Intermodal transports mainly manufactured consumer goods in containers, and is a competitive alternative to long- and medium-haul trucking. In 2005, CSXI focused on improved performance and profitability to increase shareholder value and improve customer service. Demand from a strong industrial economy generated intermodal revenues of nearly $1.4 billion in 2005 for CSX, representing 16% of the company’s total revenue. CSXI handled nearly 2.2 million containers and trailers in 2005. Domestic shipments accounted for 41% of its 2005 volume. International traffic accounted for nearly 59% of Intermodal’s total volume and nearly 37% of its total revenue in 2005. 2005 Intermodal Volume Density Low Med High 38

 

CSXI’S EXTENSIVE NETWORK OF INTERMODAL TERMINALS GIVES THE COMPANY A COMPETITIVE PRESENCE IN MAJOR METROPOLITAN MARKETS NATIONWIDE. CSXI’s 2005 initiatives have increased CSXI’s extensive network of intermodal profitability, driven by improvements in terminals gives the company a competitive productivity, asset utilization and safety. presence in major metropolitan markets Service lanes with low volumes or high nationwide. The company is well positioned operating ratios were eliminated and assets to accommodate growing demand for were redeployed to higher margin corridors. intermodal transportation services through: Gateway exchanges were simplified to facilitate consistent connections with western • Unparalleled, nonstop long-haul service railroads. Intermodal reduced terminal dwell along the I-90 corridor between Chicago for private equipment and championed a and New York/New England, the chassis management initiative which southeastern corridor between Chicago combined to improve asset management and Florida, and the I-95 corridor between and terminal throughput. New York/New England and Florida. • Direct access to all major container ports on the Atlantic and Gulf Coasts. • Direct routes from the Pacific Coast, through alliances with western carriers, to the population centers of the Northeast and the growing cities of the Southeast. 2005 Intermodal Volume (% of Carloads) Units Revenue Per Unit Revenue (in thousands) ($ in millions) 2,230 2,306 $629 41% 2,165 $567 $584 $1,264 $1,346 $1,362 59% 2003 2004 2005 2003 2004 2005 2003 2004 2005 41% Domestic 59% International 39

 

IN T E R M O D A L C O N T I N U E D Intermodal Facilities Intermodal Network 40

 

In addition, with constraints on the domestic Outlook Intermodal Top Ten trucking industry, the intermodal alternative The intermodal industry is expected to grow (Customers listed in alphabetical order) is becoming more attractive for long-haul approximately 17% over the next three years, Alliance Shipper movements. Major truckload carriers are driven largely by the growth in domestic APL Stack Train Services increasingly diverting their constrained consumption and a double-digit increase Evergreen Marine driver supply to cover short-haul pickups in imports to meet the higher demand. GST Corporation and deliveries, relying on railroads to service Hub Group the long-haul portion of the route. After several months of refocusing its service Mark VII Transportation portfolio on profitable market segments, Matson Intermodal Meanwhile, growth in import traffic CSXI is focused on profitable growth through Mediterranean Shipping and larger container ships have increased service improvements and strategic capacity Mitsui Osk Lines international traffic moving from ports to investments in key regions. The business has United Parcel Service inland CSXI terminals. approximately 35% of its intermodal train capacity available and is operating at 90% service levels in all three major corridors —both key enablers of growth. CSXI is targeting new international import traffic, improving its connections with western railroads in the Southeast, and securing business with large trucking companies who are increasingly expanding their business models to include intermodal shipments. Terminal productivity initiatives, asset management programs and train utilization measures are also enhancing CSXI’s ability to meet market needs and grow profitably. 41

 

I N V E S T I N G I N O U R A S S E T S Capacity Expansion In August 2005, CSX announced expansion projects to capitalize on the strong demand for transportation services, improve day-today efficiency and position the company for future growth. After investing an average $977 million per year in Surface Transportation improvements since 2000, CSX has budgeted approximately $1.4 billion for capital improvement in 2006*. A portion of this money will be used for specific infrastructure projects to improve capacity, including: • Approximately 60 projects over two years to expand capacity at strategic points between Chicago and Jacksonville. • Enhancements in the St. Louis gateway and connecting sites. This investment will help CSX satisfy the demand of its utility customers for western coal and facilitate merchandise, intermodal and auto traffic to growing cities in the Southeast. Strategic Network Investments *Excludes infrastructure costs incurred by Hurricane Katrina. 42

 

CSX I S C O M M I T T E D T O S T R E N G T H E N I N G I T S T R A N S P O R T A T I O N N E T W O R K F O R T H E F U T U R E B Y M A K I N G S T R A T E G I C I N F R A S T R U C T U R E I N V E S T M E N T S T O A C C O M M O D A T E S A F E, E F F I C I E N T A N D R E L I A B L E T R A I N O P E R A T I O N S . • Additional sidings on the River Line With U.S. consumption increasing and with between Albany and New York to more of that consumption being met by increase long-term capacity for the I-90 imports, supply chains are extending, and corridor, a primary route for imports the long-haul nature of transportation moving across the country, as well as requirements tend to be more beneficial intermodal and auto traffic through to railroads — providing the industry both Chicago and New York. an opportunity for growth and a need for investment to support that growth. • Scheduled for completion by 2007, these projects will enable CSX to operate at a CSX is committed to strengthening its capacity level capable of handling 2008 transportation network for the future commercial projections, and position the by making strategic infrastructure company to capture the benefits of an investments to accommodate safe, evolving transportation marketplace. efficient and reliable train operations. Additionally, CSX will undertake other capital projects as needed as the company 2006 Surface Transportation builds to meet future demand. Capital Expenditures 6% 8% Surface Transportation 14% Capital Spending 54% ($ in millions) 18% ** ** $1,420 $983 54% Infrastructure $960 18% New Capacity $1,055 14% Locomotives 8% Freight Cars 6% Technology 2003 2004 2005 2006 $1,420 Total Capital Expenditure **2005 and 2006 exclude $99 million and $138 million respectively relating to capital spending resulting from the impact of Hurricane Katrina. The company expects insurance proceeds to cover costs, less the insurance deductible. However, no payments are guaranteed until cash is received. 43

 

I N V E S T I N G I N O U R A S S E T S C O N T I N U E D Freight Car Fleet CSX provides specialized equipment to FREIGHT RAILCAR NUMBER FLEET * OF CARS To help the company provide on-time and deliver merchandise and raw materials from Flat Cars 6,744 safe delivery for its customers, CSXT will spend the source to distributors or end users: Boxcars 15,977 more than $108 million on its freight car fleet in 2006. • Open-top hoppers represent 19% of CSXT’s Covered Hoppers 16,500 fleet, with 19,653 cars. These freight cars Open-top Hoppers 19,653 The average daily fleet of cars-on-line consists serve primarily the coal, coke and iron ore Gondolas 30,244 of approximately 233,000 CSXT owned and markets and also aggregates and other Multi-levels 12,748 leased cars; more than 118,000 cars that are bulk commodities. Other 1,448 privately owned by shippers; and more than TOTAL 103,314 • Covered hoppers, totaling 16,500 cars, 43,000 foreign (other railroad marked) cars. or 16% of the CSXT fleet, are segregated *As of Dec. 30, 2005 Daily interchange with other rail carriers consists of tens of thousands of cars to and based upon commodity density. Lighter from CSXT for transport to final destinations. bulk commodities use larger cubic capacity “jumbo covered hoppers” for grain, On any given day, about 228,000 freight cars fertilizers, flour, clay and lime. Heavier Gondolas occupy CSXT’s rail network, delivering more commodities like cement, ground limestone than 7 million carloads of products and raw and glass sand are shipped in “small cube materials annually. Intermodal represents covered hoppers.” Open-top Hoppers nearly 2.2 million loads while the remaining nearly 5.2 million carloads are handled in • Gondolas make up the bulk of the CSXT fleet CSXT’s merchandise, coal and auto networks. at 29% and primarily support the metals Covered Hoppers markets. Some gondolas are equipped with special hoods for protecting products like coil and sheet steel. Boxcars • Boxcars account for nearly 16% of the Freight Cars CSXT fleet and include a variety of tonnages, sizes, door configurations and Multi-level heights to accommodate a wide range of finished products, including paper, auto parts, appliances and building materials. Center Beam 106,869 Insulated boxcars deliver food products, 104,714 103,314 canned goods, beer and wine. Flatcars 2003 2004 2005 44

 

BE T T E R L O C O M O T I V E M A N A G E M E N T H E L P S T H E C O M P A N Y M O V E F R E I G H T M O R E E F F I C I E N T L Y, W H I L E C O N T I N U E D I N V E S T M E N T I N T H E C O M P A N Y ‘S P O W E R S O U R C E M E A N S CSX I S O P E R A T I N G M O R E L O C O M O T I V E S B E T T E R T H A N E V E R. • Flatcars are used to transport bulk and CSX focuses on maximum use of its fleet and LOCOMOTIVES* finished goods, such as lumber, pipe, prudent investment in new units to drive the Road Freight 2,375 plywood, drywall and pulpwood. company’s Surface Transportation system. Yard and Local 1,226 Auxiliary 189 • Multi-level railcars handle finished Better locomotive management helps the TOTAL 3,790 automobiles and are differentiated by company move freight more efficiently, while the number of levels: bi-levels for large continued investment in the company’s vehicles such as pickup trucks and SUV’s; power source means CSX is operating more tri-levels for sedans and smaller automobiles. locomotives better than ever. CSX ROAD FREIGHT LOCOMOTIVE FLEET PROFILE* CSXT controls 12,748 units, two-thirds of which are bi-levels. The fleet again will expand by 100 high- CLASS BUILDER HP UNITS horsepower units in 2006, in addition to B40-8 GE 4,000 32 • Other cars on the network include: center approximately 100 locomotives added in C40-8 GE 4,000 156 beam cars for transporting lumber and 2005. These newer locomotives meet the CW40-8 GE 4,000 375 building products, flatcars for shipping Clean Air Act’s emission standards and offer CW44-9 GE 4,380 52 intermodal containers and trailers, and more fuel efficiency, and greater reliability CW44AC GE 4,400 593 bulk and finished goods, such as lumber, than earlier models. CW60AC GE 6,000 117 pipe, plywood, drywall, and pulpwood. GP60 EMD 3,800 3 SD40-2 EMD 3,000 402 Locomotives SD50 EMD 3,500 177 CSX operates more than 3,790 total SD60 EMD 3,800 25 locomotives, owned or leased long term, SD60I EMD 3,800 34 including 1,226 yard and local service SD60M EMD 3,800 31 locomotives, and 189 auxiliary units (used SD70AC EMD 4,300 220 to provide extra traction for heavy trains SD70AE EMD 4,320 20 in hilly terrain). SD70M EMD 4,000 25 Locomotives SD80AC EMD 5,000 13 ES44DC GE 4,400 100 TOTAL 2,375 3,616 3,708 3,790 *As of Dec. 30, 2005 2003 2004 2005 45

 

I N V E S T I N G I N O U R A S S E T S C O N T I N U E D The CSX Workforce — The facility provides students with the People Make The Difference technical background and the safety At CSX’s foundation are 34,000 employees awareness necessary for a successful railroad working to deliver consistent, continuous career. Safety has improved significantly improvement for shareholders and customers. among employees with less than two years of By living the company’s core values, employees service since the opening of the REDI. of CSX Corporation and its subsidiaries strive to safely and consistently meet the company’s goals. CSX provides other opportunities for professional growth throughout an With rail industry projections pointing to the employee’s career, enabling advancement need for thousands of new employees over and providing for increased skills. Training the next few years, CSX will hire approximately is provided through up-to-date technology 3,500 employees in 2006. and a selection of comprehensive programs. Among these programs are business ethics CSX continually focuses on improving the courses, desktop office skills and safety productivity and efficiency of its workforce. instruction. Additionally, a tuition The CSX Transportation Railroad Education and reimbursement program allows employees Development Institute (REDI), a consolidated to finish degrees or obtain graduate degrees. training center in Atlanta, Ga., for frontline CSX’s training and hiring practices are employees, celebrated its first year of service competitive in the industry and ensure a in 2005, training more than 3,400 new and strong workforce with the skills and talents current CSX employees. necessary to provide value for the company’s shareholders and customers. 46

 

AT CSX, P E O P L E A R E T H E D I F F E R E N C E. CSX R E L I E S O N T H E S P E C I A L I Z E D S K I L L S, B A C K G R O U N D S A N D P E R S P E C T I V E S O F A L L I T S E M P L O Y E E S. Diversity at CSX Corporate Citizenship RAIL UNIONS PARTICIPATING IN NATIONAL NEGOTIATIONS CSX’s goal of developing and sustaining a CSX Corporation and its employees are strong, diverse organization is essential to deeply committed to working with and American Train Dispatchers Association (ATDA) achieving business objectives. Being assisting the communities through which Brotherhood of Locomotive competitive in a changing marketplace the company’s trains operate. Engineers and Trainmen (BLET) means creating an environment that Brotherhood of Maintenance attracts, develops and retains excellent As good neighbors, CSX supports the of Way Employees (BMWE) employees. At CSX, people are the efforts of its many employee-volunteers Brotherhood of Railway difference. CSX relies on the specialized who contribute time and talent to local Signalmen (BRS) skills, backgrounds and perspectives of all organizations through donations of goods Brotherhood of Railway its employees. and with financial support. At the same Carmen (BRC) time, the company supports a wide variety International Association CSX has made significant progress in its of regional and national organizations of Machinists and Aerospace Workers (IAMAW) diversity initiatives, doubling the percentage dedicated to improving the well-being of International Brotherhood of women and minorities hired since 2002. our nation’s citizens. The company’s goal is of Boilermakers, Iron Ship to make life better in the communities it Builders, Blacksmiths, Forgers & Helpers (IBB) Through recruitment and hiring at colleges serves and to contribute funds at the across the country, including a diversity International Brotherhood of grassroots level, targeted at local needs. Electrical Workers (IBEW) scholarship program, CSX is pursuing its National Conference of goal to attract a highly skilled and varied Union Negotiations Firemen & Oilers (NCFO) workforce. Additionally, diversity training As a member of the National Carriers Sheet Metal Workers and educational activities enable existing Conference Committee (NCCC), CSXT International Association (SMWIA) employees to excel in an increasingly participates in national negotiations with changing workplace. 13 rail unions. The NCCC represents Class I Transportation Communications International Union (TCU) railroads, including CSXT, in these national UTU Yardmaster Department negotiations. CSXT works with unions to (UTU-YM) operate its transportation services in the United Transportation Union most efficient and safe manner possible (UTU) while providing employees with excellent pay and benefits. 47

 

C O R P O R A T E G O V E R N A N C E CSX and its Board of Directors are The Board annually evaluates the committed to sound corporate governance performance of each of its directors and principles and practices that facilitate his or her independence. In conducting meeting fiduciary duties to shareholders. this review, the Board solicits input from Management regularly reviews these all directors and, as appropriate, from principles and practices, and, with oversight management. Each standing Board from the Governance Committee of the committee also conducts an annual Board, ensures that all CSX entities maintain evaluation of its own performance. high standards of corporate governance at all times. As evidence of this, Institutional The Board’s Audit, Compensation and Shareholder Services (ISS), an independent Governance committees are made up provider of proxy voting and corporate entirely of independent directors. CSX governance services, recently reported that Chairman and CEO Michael Ward is the in 2005, CSX outperformed 89.9% of the company’s only non-independent director. companies in the S&P 500, and 97.8% of the Principles of Corporate Governance companies in the transportation industry in The Board has adopted Corporate corporate governance practices. Governance Guidelines that reflect the high standards that those who deal with Board of Directors the company — employees, investors, CSX’s Board is comprised of a diverse customers, vendors, communities and group of 10 individuals with a broad regulators — can expect from CSX. These range of professional experience. Each guidelines include the establishment of Board committee operates under a qualification criteria for director candidates written charter and committee chairs and and the authority of each Board committee memberships rotate on a regular basis. to retain outside, independent advisors and consultants when appropriate. In The full Board normally meets six times addition, the Board recently adopted a per year, and each committee meets at director resignation policy that applies least four times per year. The Audit, when a director candidate receives more Compensation and Governance committees “withheld” votes than “for” votes in an generally meet more often. uncontested election. 48

 

Code of Ethics • CSX has provided training on the The CSX Code of Ethics applies to all company’s Code of Ethics to all officers, directors and employees of the non-contract employees. Part of the corporation and its subsidiaries. The code training includes a test that validates covers such matters as conflicts of interest, their understanding of the materials. insider trading, misuse of confidential information, compliance with laws and • CSX has maintained effective internal protection and proper use of corporate control over financial reporting relating assets. Directors, executives and employees to Section 404 of the Sarbanes-Oxley Act, are expected to comply fully with the which requires companies to document Code of Ethics and report any violations. and test their internal controls. Compliance and CSX’s Board committee charters, Corporate Reporting Mechanisms Governance Guidelines and Code of Ethics As required by the Sarbanes-Oxley Act of are available at www.csx.com. 2002, CSX has improved identification and reporting mechanisms to help CSX prevent or detect inappropriate behavior. • CSX maintains an ethics hotline that operates around the clock. Employees, contractors and customers are encouraged to report any issues or suspected violations. All calls will be investigated and if warranted, concerns are escalated to the Audit Committee of the Board of Directors. 49

 

B O A R D O F D I R E C T O R S & O F F I C E R S Board of Directors Elizabeth E. Bailey Southwood J. Morcott Frank S. Royal, M.D. John C. Hower Professor of Business Retired Chairman and CEO, Physician and Health Care Expert and Public Policy, The Wharton School, Dana Corporation University of Pennsylvania Richmond, Va. Hilton Head Island, S.C. Committees: Compensation, Philadelphia, Penn. Committees: Executive, Governance, Governance Committees: Executive, Audit, Public Affairs Public Affairs* Donald J. Shepard David M. Ratcliffe Chairman, Executive Board and CEO, John B. Breaux Chairman, President and CEO, AEGON N.V. Senior Counsel, Southern Company Patton Boggs LLP Baltimore, Md. Atlanta, Ga. Committees: Washington, D.C. Committees: Executive, Governance*, Executive, Compensation, Finance* Committees: Governance, Public Affairs Public Affairs Michael J. Ward Edward J. Kelly, III, William C. Richardson Chairman, President and CEO, Chairman, President and CEO, President and CEO, CSX Corporation Mercantile Bankshares Corporation W.K. Kellogg Foundation Jacksonville, Fla. Baltimore, Md. Battle Creek, Mich. Committee: Executive* Committees: Executive, Audit*, Finance Committees: Executive, Audit, Compensation* Robert D. Kunisch Special Partner ABS Capital Partners Inc. and Advisor, Cendant Corporation Lutherville, Md. Committees: Compensation, Audit * Denotes Committee Chairperson Corporate and Unit Officers Michael J. Ward* Ellen M. Fitzsimmons* Lester M. Passa Chairman, President and CEO Senior Vice President-Law and Public Vice President-Strategic Planning Affairs and Corporate Secretary Oscar Munoz* Michael J. Ruehling Robert J. Haulter* Executive Vice President and Vice President-Federal Legislation Chief Financial Officer Senior Vice President-Human Resources and Labor Relations Peter J. Shudtz Clarence W. Gooden* Vice President-Federal Regulations David A. Boor Executive Vice President and Chief Commercial Officer, Vice President-Tax and Treasurer Sales and Marketing Carolyn T. Sizemore* Vice President and Controller John L. West Tony L. Ingram* President, Executive Vice President CSX Technology, Inc. Stephen A. Crosby and Chief Operating Officer, CSX Transportation, Inc. President CSX Real Property, Inc. Ted J. Kleisner President and CEO, James R. Hertwig The Greenbrier Resort and President, Club Management Company CSX Intermodal, Inc. * Executive officers of the corporation 50

 

S H A R E H O L D E R & I N V E S T O R I N F O R M A T I O N Investor Relations Media and Public Relations Direct Stock Purchase and Dividend Reinvestment To receive copies of reports filed with the Media and public relations inquiries should be Securities and Exchange Commission, recent directed to the address or telephone number CSX provides dividend reinvestment and stock press releases, quarterly and annual reports and listed below. purchase plans for shareholders and potential additional information about CSX Corporation, shareholders as a convenient method of acquiring visit the company’s website at www.csx.com. Vance Meyer CSX shares through direct purchase, dividend CSX Corporation reinvestment and optional cash payments. Institutional investors and financial analysts 500 Water Street, C420 with questions may contact Investor Relations Jacksonville, FL 32202 CSXDirectInvestSM permits the purchase and at the address or phone number shown below. (904) 366-2949 sale of shares directly through The Bank of Vance_Meyer@csx.com New York, the company’s transfer agent. David H. Baggs Through this plan, no service charges or CSX Corporation brokerage commissions apply to share 500 Water Street, C110 purchases, and sales can be made with Jacksonville, FL 32202 minimal charges and commissions. Initial (904) 359-4812 Corporate Headquarters investment for a non-shareholder is $500 David_Baggs@csx.com 500 Water Street, 15th floor plus a $10 one-time enrollment fee. You do Jacksonville, FL 32202 not need to own shares of CSX stock to (904) 359-3200 enroll in this plan. However, if you are a www.csx.com current shareholder, the initial investment and enrollment fee are waived. Shareholder Services Other benefits of CSXDirectInvestSM Shareholders with questions about their include the ability to: accounts should contact the transfer agent at Stock Listings the address or telephone number listed below. • Reinvest dividends automatically in CSX CSX’s common stock is listed on the New York common stock without payment of any The Bank of New York Stock Exchange and trades with unlisted brokerage commissions or service charges, Securities Servicing privileges on the Midwest, Boston, Cincinnati, or you may receive dividend payments on 101 Barclay Street, 11 East Pacific and Philadelphia stock exchanges. The some or all of your shares. New York, NY 10286 official trading symbol is “CSX.” www.stockbny.com • Make optional cash investments with as little as $50 per month, or up to $10,000 per month, without any charges or commissions. Linda Philcox CSX Corporation Independent Auditors • Make gifts of CSX shares to 500 Water Street, J150 others through the plan. Ernst and Young LLP — Jacksonville, FL Jacksonville, FL 32202 (904) 359-3252 To obtain a prospectus or other information Linda_Philcox@csx.com regarding CSXDirectInvestSM, please call or write The Bank of New York at the phone number or address below. Or, if you prefer, please visit the web site at www.stockbny.com. The Bank of New York Securities Servicing CSXDirectInvestSM 101 Barclay Street, 11 East New York, NY 10286 (800) 521-5571 51

 

A P P E N D I X Safety & Service Measurements . . . . . . . . . . . . . . . . . . . . . . . . . . .         . . . . . . . . . . . . . . . . 53 Consolidated Income Statement. . . . . . . . . . . . . . . . . .         . . . . . . . . . . . . . . . . . . . . . . . . . 54 Consolidated Balance Sheets . . . . . . . . .         . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55 Consolidated Cash Flow Statement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56 Calculation of Certain Non-GAAP Measures . . . . . . . . . . . . . . . . . . . . . . . . . . . . .         . . . . 57 Volume . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .         . . . . . . . . . . . . . . . . . . . . . . 58 Revenue . . . . . . . . . . . . . . . . . . . . . .         . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59 Revenue per Carload . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .         . . . . . 60 Core Values . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .         . . . . . . . . . . . . . . . . . . . . . . 61 52

 

S A F E T Y & S E R V I C E M E A S U R E M E N T S 2005 2004 2003 Quarterly Average Q1 Q2 Q3 Q4 Total Q1 Q2 Q3 Q4 Total Total Safety Measurements FRA-Reportable Injuries 1.67 1.86 1.91 1.41 1.71 2.18 2.22 2.42 2.20 2.29 2.30 FRA Train Accident Rate 4.41 3.20 3.85 3.68 3.99 4.97 4.53 4.43 4.99 4.79 4.66 Service Measurements Velocity 19.5 19.1 19.7 18.8 19.2 20.9 19.5 20.1 20.5 20.3 21.1 Dwell (a) 30.0 30.4 29.0 29.6 29.7 27.2 29.3 28.8 29.3 28.7 25.3 Cars-On-Line 234,209 235,819 232,324 230,172 233,118 230,746 235,688 233,469 233,181 233,271 229,926 On-Time Train Originations 49.9% 47.7% 51.1% 55.9% 51.1% 52.8% 39.3% 50.9% 52.7% 49.0% 62.0% On-Time Destination Arrivals 37.7% 36.2% 43.1% 43.5% 40.1% 47.4% 34.1% 40.6% 41.2% 40.9% 56.9% Recrews 65 67 63 78 68 60 73 62 56 63 50 (a) Beginning October 2005, the American Association of Railroads adopted a new dwell calculation in an effort to standardize reporting across U.S. railroads. Beginning in 2006 and forward, CSX will adopt this new method. CSXT Key Performance Measures Definitions FRA Personal Injuries Frequency Index: Cars-On-Line: The number of cars on the The number of FRA-reportable injuries per CSXT rail network, as reported by the AAR. 200,000 man-hours. Does not include locomotives, trailers, containers, or maintenance equipment. FRA Train Accident Rate: The number of This is a measure of fluidity. FRA-reportable train accidents per million train miles. On-Time Train Originations: The percent of scheduled trains departing the origin System Train Velocity: Line of Road station at or prior to the scheduled (terminal to terminal) train velocity. Does departure time. Includes intermodal, not include locals, yard jobs, or work automobile, and merchandise trains. trains. This is a measure of line of road efficiency and the impact of trains held On-Time Destination Arrivals: The percent out of terminals. of scheduled trains arriving at the destination station early to 2 hours late. Dwell: The amount of time between car Intermodal trains can be no more than 30 arrival at and departure from the yard. minutes late. Does not include cars moving through the yard on the same train. This is a key Recrews: The number of relief crews called. measure of terminal performance. This is a measure of line of road efficiency in the use of crews. 53

 

C O N S O L I D A T E D I N C O M E S TAT E M E N T 2005 2004 2003 Dollars in Millions (except per share amounts) Q1 Q2 Q3 Q4 Total Q1 Q2 Q3 Q4 Total Total Surface Transportation Operating Revenue $2,108 $2,166 $2,125 $2,219 $8,618 $1,920 $1,997 $1,943 $2,180 $8,040 $7,446 Operating Expenses Labor and Fringe 694 706 725 731 2,856 677 664 671 729 2,741 2,595 Materials, Supplies and Other 470 439 454 421 1,784 426 435 414 484 1,759 1,572 Depreciation 203 203 204 208 818 160 157 170 215 702 611 Fuel 179 176 188 240 783 154 151 162 189 656 566 Building and Equipment Rent 135 137 129 132 533 141 146 143 152 582 569 Inland Transportation 56 64 55 55 230 71 67 70 72 280 289 Conrail Rents, Fees and Services 20 19 9 17 65 87 82 63 24 256 342 Provision for Casualty Claims — - — - — - — - — - 229 Restructuring Charge — Net — - — - — 53 15 3 — 71 22 Total Operating Expenses 1,757 1,744 1,764 1,804 7,069 1,769 1,717 1,696 1,865 7,047 6,795 Surface Transportation Operating Income 351 422 361 415 1,549 151 280 247 315 993 651 Other Operating Income 3 9 (8) (3) 1 1 2 3 2 7 (131) Consolidated Operating Income 354 431 353 412 1,550 152 282 250 317 1,000 520 Other Income (2) 30 11 62 101 (4) 5 32 38 72 93 Debt Repurchase Expense — (192) — - (192) — - — - — -Interest Expense (114) (110) (100) (99) (423) (108) (109) (106) (112) (435) (418) Pre-tax Earnings from Continuing Operations 238 159 264 375 1,036 40 178 176 243 637 195 Income Tax Expense (84) 6 (100) (138) (316) (13) (60) (62) (84) (219) (58) Net Earnings from Continuing Operations 154 165 164 237 720 27 118 114 159 418 137 Discontinued Operations 425 — - — 425 3 1 9 (93) (79) 52 Cumulative Effect of Accounting Change - — - — - — — — — — 57 Net Earnings $579 $165 $164 $237 $1,145 $30 $119 $123 $66 $339 $246 54

 

C O N S O L I D A T E D B A L A N C E S H E E T S Effect of ProForma Dollars in Millions2005 2005 2004 2003 Conrail Spin-Off 2003 Assets Current Assets Cash and Cash Equivalents $309 $522 $296 $ - $296 Short-term Investments 293 337 72 — 72 Accounts Receivable — Net 1,202 1,159 1,115 — 1,115 Materials and Supplies 199 165 168 — 168 Deferred Income Taxes 225 20 136 — 136 Other Current Assets 144 157 64 7 71 International Terminals Assets Held for Sale — 643 446 — 446 Total Current Assets 2,372 3,003 2,297 7 2,304 Properties — Net 20,163 19,945 13,634 6,151 19,785 Investment in Conrail 603 574 4,678 (4,185) 493 Affiliates and Other Companies 304 281 225 — 225 Other Long-term Assets 790 802 926 136 1,062 Total Assets $24,232 $24,605 $21,760 $2,109 $23,869 Liabilities Current Liabilities Accounts Payable $954 $870 $821 $ — $821 Labor and Fringe Benefits Payable 565 380 388 — 388 Casualty, Environmental and Other Reserves 311 312 280 — 280 Current Maturities of Long-term Debt 936 983 426 — 426 Short-term Debt 1 101 2 — 2 Income and Other Taxes Payable 102 170 114 — 114 Other Current Liabilities 110 115 144 7 151 International Terminals Liabilities Held for Sale — 386 199 — 199 Total Current Liabilities 2,979 3,317 2,374 7 2,381 Casualty, Environmental and Other Reserves 653 735 836 6 842 Long-term Debt 5,093 6,248 6,886 (55) 6,831 Deferred Income Taxes 6,082 5,979 3,707 2,142 5,849 Other Long-term Liabilities 1,471 1,515 1,509 9 1,518 Total Liabilities 16,278 17,794 15,312 2,109 17,421 Shareholders’ Equity Common Stock, $1 Par Value 218 216 215 — 215 Other Capital 1,751 1,605 1,579 — 1,579 Retained Earnings 6,262 5,210 4,957 — 4,957 Accumulated Other Comprehensive Loss (277) (220) (303) — (303) Total Shareholders’ Equity 7,954 6,811 6,448 — 6,448 Total Liabilities and Shareholders’ Equity $24,232 $24,605 $21,760 $2,109 $23,869 55

 

C O N S O L I D A T E D C A S H F L O W S TAT E M E N T 2005 2004 2003 Dollars in Millions Q1 Q2 Q3 Q4 Total Q1 Q2 Q3 Q4 Total Q1 Q2 Q3 Q4 Total Operating Activities Net Earnings $579 $165 $164 $237 $1,145 $30 $119 $123 $67 $339 $99 $127 $(103) $123 $246 Depreciation 209 209 202 213 833 167 165 179 219 730 160 162 160 161 643 Deferred Income Taxes 8 (59) (81) 86 (46) 16 51 48 125 240 18 80 (76) 97 119 Cumulative Effect of Accounting Change — - — - — - — - — — (57) — - — (57) Additional Loss on Sale — - — - — - — - — — - — 108 — 108 Provision for Casualty Reserves — - - (38) (38) — - — - — - — 232 — 232 Net Gain on Sale of International Terminals — After Tax (428) - — - (428) — - — - — - — - — - Insurance Proceeds — - — 29 29 — - — - — - — - — -Restructuring Charge — - — - — 53 15 3 — 71 — - — 22 22 Net Gain on Conrail Spin-off — After Tax — - — - - - — (16) — (16) — - — - — Other Operating Activities (59) (65) 151 (130) (103) 7 (45) (67) 14 (91) 22 (6) 1 (125) (108) Termination of Sale of Accounts Receivable — - — - — - — - — — - (380) - - (380) Accounts Receivable (14) 55 (115) 30 (44) 4 (51) 49 (5) (3) (73) 8 17 67 19 Other Current Assets (41) (4) 8 8 (29) (51) 33 22 25 29 (31) (11) 49 33 40 Accounts Payable 84 (68) 46 (8) 54 27 4 (32) (1) (2) 51 (66) 33 31 49 Other Current Liabilities (29) (213) 74 (95) (263) (49) 24 37 137 149 (145) 7 18 (9) (129) Net Cash Provided By (Used in) 309 20 449 332 1,110 204 315 346 581 1,446 44 (79) 439 400 804 Operating Activities Investing Activities Property Additions (167) (214) (345) (410) (1,136) (264) (220) (250) (296) (1,030) (150) (329) (278) (302) (1,059) Insurance Proceeds — - — 41 41 — - — - — - — - — -Net Proceeds from Sale of International Terminals 1,110 - (2) — 1,108 — - — — — — - — - — Purchase of Minority Interest in an International Terminal (110) - — - (110) — - — - — - — - — -Net Proceeds from Divestitures — - — - — - — 55 — 55 214 — 12 - 226 Short-term Investments — Net (788) 891 (94) 24 33 (132) 57 (274) 102 (247) (1) 1 (213) 282 69 Other Investing Activities (2) 3 25 2 28 (25) (12) 13 6 (18) (32) 12 (18) (5) (43) Net Cash Provided By (Used in) 43 680 (416) (343) (36) (421) (175) (456) (188) (1,240) 31 (316) (497) (25) (807) Investing Activities Financing Activities Short-term Debt — Net (97) (1) — (1) (99) 152 550 (601) (2) 99 12 549 25 (727) (141) Long-term Debt Issued 26 1 2 76 105 50 12 350 (11) 401 67 16 350 486 919 Long-term Debt Repaid (112) (1,101) (26) (44) (1,283) (32) (347) (6) (49) (434) (95) (123) (74) (208) (500) Dividends Paid (22) (22) (21) (28) (93) (22) (21) (21) (22) (86) (21) (22) (21) (22) (86) Other Financing Activities 41 14 (11) 39 83 3 — 15 22 40 (6) (10) (11) 7 (20) Net Cash Provided by (Used in) (164) (1,109) (56) 42 (1,287) 151 194 (263) (62) 20 (43) 410 269 (464) 172 Financing Activities Net Increase (Decrease) in Cash & Cash Equivalents $188 $(409) $ (23) $31 $ (213) $ (66) $334 $(373) $331 $226 $32 $15 $211 $ (89) $169 Cash & Cash Equivalents at Beginning of Period 522 710 301 278 522 296 230 564 191 296 127 159 174 385 127 Cash & Cash Equivalents at End of Period $710 $301 $278 $309 $309 $230 $564 $191 $522 $522 $159 $174 $385 $296 $296 56

 

C A L C U L A T I O N O F C E R T A I N N O N — G A A P M E A S U R E S The company reports its financial results in accordance with generally The calculation of All-in Debt to Capital is presented because accepted accounting principles (“GAAP”). However, management believes management believes off-balance sheet accounts receivable and that certain non-GAAP financial measures used in managing the operating leases are relevant in assessing the company’s total leverage company’s business that fall within the meaning of Regulation G by the relative to its overall capital structure. The debt to total capital ratio Securities and Exchange Commission may provide users of the financial has been adjusted to include off-balance sheet accounts receivable information with additional meaningful comparisons of prior reported and operating leases. results. A reconciliation of these measures to the most directly comparable GAAP financial measure or the computation of the non-GAAP financial The reconciliation of Free Cash Flow is presented because management measure is presented in reasonable detail. The presentation of non-GAAP believes that Free Cash Flow is important in evaluating its financial financial information should be considered in addition to, rather than a performance and measures an ability to generate cash without incurring substitute for, comparable amounts determined in accordance with additional external financings. Free Cash Flow should be considered in generally accepted accounting principles in the United States. addition to, rather than as a substitute for, net cash provided by operating activities. As of Dec. 30, Dec. 31, Dec. 26, Dec. 27, Dollars in millions 2005 2004 2003 2002 All-in Debt to Capital Calculation: Total Debt Current Maturities of Long-term Debt $936 $983 $426 $391 Short-term Debt 1 101 2 143 Long-term Debt 5,093 6,248 6,886 6,519 Total Balance Sheet Debt 6,030 7,332 7,314 7,053 Accounts Receivable Sold — - — 380 Net Present Value of CSX Operating Leases 637 745 745 1,097 Total All-in Debt $6,667 $8,077 $8,059 $8,503 Shareholders’ Equity 7,954 6,811 6,448 6,241 Total All-in Capital $14,621 $14,888 $14,507 $14,771 All-in Debt to Capital: 46% 54% 56% 58% Fiscal Years Ended Dec. 30, Dec. 31, Dec. 26, Dec. 27, Dollars in millions 2005 2004 2003 2002 Free Cash Flow (a) $1,030 $461 $363 $191 Add (Deduct) Items from Consolidated Cash Flow Statements Short-term Investments — Net (b) 33 (247) 69 350 Dividends Paid 93 86 86 86 Termination of Sale of Accounts Receivable — - (380) (120) Net Cash Used in Investing Activities (c) 36 1,240 807 775 Add (Deduct) Items Not Included in Consolidated Free Cash Flow Conrail Free Cash Flow (d) (103) (115) (164) (178) Other Deposits (e) 21 21 23 23 Net Cash Provided by Operating Activities: $1,110 $1,446 $804 $1,127 (a) Free cash flow as of December 30, 2005 includes net cash proceeds (net of taxes paid) from the International Terminals’ disposition of $640 million and net debt repurchase costs of $123 million. (b) Short-term Investments — Net represents the net source or (use) of cash resulting from sales and purchases of short-term investments included in the investing section of the Consolidated Cash Flow Statements. (c) Net Cash Used in Investing Activities includes property additions offset by net cash proceeds (before taxes paid) from the International Terminals’ disposition of $998 million and other investing items. (d) Conrail Free Cash Flow represents CSX’s 42% economic interest which is not consolidated in the CSX amounts. (e) Other Deposits are not included in the Company’s Free Cash Flow as these deposits represent assets that are set aside for certain future debt payments. 57

 

VO L U M E 2005 2004 2003 Carloads in Thousands Q1 Q2 Q3 Q4 Total Q1 Q2 Q3 Q4 Total Q1 Q2 Q3 Q4 Total Merchandise Chemicals 140 135 131 127 533 139 140 139 146 564 137 133 136 135 541 Forest Products 113 113 107 106 439 114 115 115 121 465 114 116 115 114 459 Agricultural Products 92 87 88 90 357 92 89 82 93 356 91 89 88 95 363 Metals 93 92 88 88 361 94 95 95 96 380 88 87 85 88 348 Emerging Markets 115 136 132 122 505 112 134 126 134 506 101 125 130 120 476 Food and Consumer 63 63 62 61 249 59 61 59 66 245 58 62 61 61 242 Phosphate and Fertilizers 117 117 111 99 444 120 121 107 123 471 117 113 114 116 460 Total Merchandise 733 743 719 693 2,888 730 755 723 779 2,987 706 725 729 729 2,889 Automotive 125 124 114 125 488 125 135 112 135 507 131 139 120 139 529 Coal, Coke, and Iron Ore Coal 437 438 422 429 1,726 403 410 406 440 1,659 373 400 391 406 1,570 Coke and Iron Ore 21 21 20 21 83 17 17 17 20 71 12 18 17 18 65 Total Coal, Coke, and Iron Ore 458 459 442 450 1,809 420 427 423 460 1,730 385 418 408 424 1,635 Total Rail 1,316 1,326 1,275 1,268 5,185 1,275 1,317 1,258 1,374 5,224 1,222 1,282 1,257 1,292 5,053 Intermodal Domestic 212 223 216 240 891 254 267 239 268 1,028 247 265 263 285 1,060 International 316 320 328 310 1,274 295 322 320 341 1,278 279 300 301 290 1,170 Total Intermodal 528 543 544 550 2,165 549 589 559 609 2,306 526 565 564 575 2,230 Total Surface Transportation 1,844 1,869 1,819 1,818 7,350 1,824 1,906 1,817 1,983 7,530 1,748 1,847 1,821 1,867 7,283 58

 

R E V E N U E 2005 2004 2003 Dollars in Millions Q1 Q2 Q3 Q4 Total Q1 Q2 Q3 Q4 Total Q1 Q2 Q3 Q4 Total Merchandise Chemicals $275 $270 $269 $275 $1,089 $256 $264 $266 $283 $1,069 $250 $243 $248 $248 $989 Forest Products 176 181 177 183 717 159 166 171 185 681 152 159 158 153 622 Agricultural Products 137 133 133 147 550 131 127 117 137 512 128 124 116 129 497 Metals 138 140 142 150 570 119 125 129 138 511 110 108 107 110 435 Emerging Markets 117 137 135 124 513 116 129 120 139 504 112 118 125 116 471 Food and Consumer 105 109 110 114 438 88 92 93 105 377 83 90 89 89 351 Phosphate and Fertilizers 90 91 83 87 351 89 88 75 89 341 87 85 74 83 329 Total Merchandise 1,038 1,061 1,049 1,080 4,228 958 991 971 1,076 3,995 922 927 917 928 3,694 Automotive 208 211 200 225 844 202 220 185 228 835 208 224 193 228 853 Coal, Coke, and Iron Ore Coal 482 519 491 500 1,992 405 426 423 460 1,714 370 401 384 388 1,543 Coke and Iron Ore 24 22 21 21 88 17 16 15 18 66 13 15 14 15 57 Total Coal, Coke, and Iron Ore 506 541 512 521 2,080 422 442 438 478 1,780 383 416 398 403 1,600 Other 27 23 27 27 104 23 19 22 20 84 18 6 2 9 35 Total Rail 1,779 1,836 1,788 1,853 7,256 1,605 1,672 1,616 1,802 6,694 1,531 1,573 1,510 1,568 6,182 Intermodal Domestic 167 185 180 206 738 192 199 184 220 795 183 192 195 214 784 International 124 124 130 121 499 117 124 127 133 501 113 121 120 115 469 Other 38 21 27 39 125 6 2 16 26 50 6 3 — 2 11 Total Intermodal 329 330 337 366 1,362 315 325 327 379 1,346 302 316 315 331 1,264 Total Surface Transportation $2,108 $2,166 $2,125 $2,219 $8,618 $1,920 $1,997 $1,943 $2,181 $8,040 $1,833 $1,889 $1,825 $1,899 $7,446 59

 

R E V E N U E P E R C A R L O A D 2005 2004 2003 Q1 Q2 Q3 Q4 Total Q1 Q2 Q3 Q4 Total Q1 Q2 Q3 Q4 Total Merchandise Chemicals $1,964 $2,000 $2,053 $2,165 $2,043 $1,842 $1,886 $1,914 $1,938 $1,895 $1,825 $1,827 $1,824 $1,837 $1,828 Forest Products 1,558 1,602 1,654 1,726 1,633 1,395 1,443 1,487 1,529 1,465 1,333 1,371 1,374 1,342 1,355 Agricultural Products 1,489 1,529 1,511 1,633 1,541 1,424 1,427 1,427 1,473 1,438 1,407 1,393 1,318 1,358 1,369 Metals 1,484 1,522 1,614 1,705 1,579 1,266 1,316 1,358 1,438 1,345 1,250 1,241 1,259 1,250 1,250 Emerging Markets 1,017 1,007 1,023 1,016 1,016 1,036 963 952 1,037 996 1,109 944 962 967 989 Food and Consumer 1,667 1,730 1,774 1,869 1,759 1,492 1,508 1,576 1,591 1,539 1,431 1,452 1,459 1,459 1,450 Phosphate and Fertilizers 769 778 748 879 791 742 727 701 724 724 744 752 649 716 715 Total Merchandise 1,416 1,428 1,459 1,558 1,464 1,312 1,313 1,343 1,381 1,337 1,306 1,279 1,258 1,273 1,279 Automotive 1,664 1,702 1,754 1,800 1,730 1,616 1,630 1,652 1,689 1,647 1,588 1,612 1,608 1,640 1,612 Coal, Coke, and Iron Ore Coal 1,103 1,185 1,164 1,166 1,154 1,005 1,039 1,042 1,045 1,033 992 1,003 982 956 983 Coke and Iron Ore 1,143 1,048 1,050 1,000 1,060 1,000 941 882 900 930 1,083 833 824 833 877 Total Coal, Coke, and Iron Ore 1,105 1,179 1,158 1,158 1,150 1,005 1,035 1,035 1,039 1,029 995 995 975 950 979 Total Rail 1,352 1,385 1,402 1,461 1,399 1,259 1,270 1,285 1,311 1,281 1,253 1,227 1,201 1,214 1,223 Intermodal Domestic 788 830 833 858 828 756 745 770 821 773 741 725 741 751 740 International 392 388 396 390 392 397 385 397 390 392 405 403 399 397 401 Total Intermodal 623 608 619 665 629 574 552 585 622 584 574 559 559 576 567 Total Surface Transportation $1,143 $1,159 $1,168 $1,221 $1,173 $1,053 $1,048 $1,069 $1,100 $1,068 $1,049 $1,023 $1,002 $1,017 $1,022 60

 

C S X C O R E VA L U E S More than just miles of track and numbers Safety is a way of life. of railcars and locomotives, the true measure Safety is a way of life, encompassing of CSX lies in its core values, which guide every aspect of company operations. business decisions and create an environment Employees at all levels are empowered to that allows employees to develop and follow the company’s safety philosophy: produce superior results. “No job is so important, no service so urgent, that we cannot take the time to These values form the guideposts perform all work safely.” for CSX’s more than 34,000 Surface Transportation employees whose daily Fact-based. efforts combine to enhance value to CSX is a fact-based organization. customers and shareholders. The company measures customer-based performance and improves performance It starts with the customer. with facts. Employees concern themselves Focusing on safety and service, the with validation over speculation, and company’s core values start with its focus on solving problems rather than customers. Reliable service is the stepping- treating symptoms. stone to growth. By anticipating and meeting customers’ needs and making it Right results, right way. easier for them to conduct business with CSX insists on achieving the right results, the company, CSX not only retains its the right way. Ethical behavior is an absolute customer base but also expands it. requirement at CSX. The company also believes in being a positive influence on People make the difference. the communities it serves and the Each CSX employee adds value to the environment in which it operates. company while growing professionally and personally. Expectations are high, but not out of reach, and success is celebrated. Employees treat each other with respect and dignity. 61

 

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