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Proc-Type: 2001,MIC-CLEAR
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<SEC-DOCUMENT>0000916641-01-000095.txt : 20010205
<SEC-HEADER>0000916641-01-000095.hdr.sgml : 20010205
ACCESSION NUMBER:		0000916641-01-000095
CONFORMED SUBMISSION TYPE:	8-K
PUBLIC DOCUMENT COUNT:		5
CONFORMED PERIOD OF REPORT:	20010131
ITEM INFORMATION:		
ITEM INFORMATION:		
FILED AS OF DATE:		20010131

FILER:

	COMPANY DATA:	
		COMPANY CONFORMED NAME:			CSX CORP
		CENTRAL INDEX KEY:			0000277948
		STANDARD INDUSTRIAL CLASSIFICATION:	RAILROADS, LINE-HAUL OPERATING [4011]
		IRS NUMBER:				621051971
		STATE OF INCORPORATION:			VA
		FISCAL YEAR END:			1231

	FILING VALUES:
		FORM TYPE:		8-K
		SEC ACT:		
		SEC FILE NUMBER:	001-08022
		FILM NUMBER:		1520601

	BUSINESS ADDRESS:	
		STREET 1:		ONE JAMES CNTR
		STREET 2:		901 E CARY ST
		CITY:			RICHMOND
		STATE:			VA
		ZIP:			23219
		BUSINESS PHONE:		8047821400

	MAIL ADDRESS:	
		STREET 1:		ONE JAMES CENTER
		STREET 2:		ONE JAMES CENTER
		CITY:			RICHMOND
		STATE:			VA
		ZIP:			23219
</SEC-HEADER>
<DOCUMENT>
<TYPE>8-K
<SEQUENCE>1
<FILENAME>0001.txt
<DESCRIPTION>CURRENT REPORT
<TEXT>

<PAGE>

________________________________________________________________________________

                      SECURITIES AND EXCHANGE COMMISSION
                            Washington, DC   20549

                                _______________

                                   FORM 8-K
                                CURRENT REPORT

                    Pursuant to Section 13 or 15 (d) of the
                        Securities Exchange Act of 1934



                               January 31, 2001
                            (Date of earliest event
                                   reported)



                                CSX Corporation
                 (Exact name of registrant as specified in its
                                   charter)




       Virginia                 1-8022                    62-1051971
      (State of           (Commission File              (IRS Employer
   Incorporation )              No.)                 Identification No.)




                    One James Center, 901 East Cary Street
                           Richmond, Virginia 23219
                   (Address of principal executive offices,
                              including zip code)


                                (804)-782-1400
                        (Registrant's telephone number,
                             including area code)


                                      N/A
                      (Former name or former address, if
                          changed since last report)



Item 5. Other Events

As previously reported by the Registrant, CSX Corporation ("CSX"), in its Form
10Q for the quarter ended September 29, 2000, CSX sold its wholly owned
logistics subsidiary, CTI Logistx on September 22, 2000. CSX has restated its
financial statements for the following periods to reflect its logistics segment
as a discontinued operation: 1) for each of the three years in the period ended
December 31, 1999; 2) for the three month period ended March 31, 2000; and 3)
for the three and six month period ended June 30, 2000. The restated financial
statements, together with other restated financial information, are filed
herewith as Exhibit 99.1, Exhibit 99.2 and Exhibit 99.3.

________________________________________________________________________________
<PAGE>

Item 7. Financial Statements and Exhibits.
(c) Exhibits.

  23.1     Consent of Independent Auditors

  99.1     Restated financial statements and related financial information
           for the period ended December 31, 1999

  99.2     Restated financial statements and related financial information
           for the three month period ended March 31, 2000

  99.3     Restated financial statements and related financial information
           for the three and six month period ended June 30, 2000



                                   SIGNATURES

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


                                CSX Corporation
                                   (Registrant)

                                By:/s/ James L. Ross
                                Name: James L. Ross
                                Title: Vice President and Controller

Dated: January 31, 2001

<PAGE>


                               INDEX TO EXHIBITS

 Exhibit   Exhibit
   No.

   23.1    Consent of Independent Auditors.

   99.1    Restated financial statements and related financial information
           for the period ended December 31, 1999

   99.2    Restated financial statements and related financial information
           for the period ended March 31, 2000

   99.3    Restated financial statements and related financial information
           for the periods ended June 30, 2000
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-23.1
<SEQUENCE>2
<FILENAME>0002.txt
<DESCRIPTION>CONSENT OF INDEPENDENT AUDITORS
<TEXT>

<PAGE>

                                                                  EXHIBIT 23.1

                        Consent of Independent Auditors

We consent to the incorporation by reference in this Annual Report (Form 10-K)
of CSX Corporation and subsidiaries (CSX) of our report dated February 9, 2000,
included in the 1999 Annual Report to Shareholders of CSX.

We consent to the incorporation by reference in each Form S-3 Registration
Statement or Post-Effective Amendment (Registration Nos. 33-2084, 333-53191, and
333-68885) and in each Form S-8 Registration Statement (Registration Nos.
33-16230, 33-25537, 33-29136, 33-37449, 33-41498, 33-41499, 33-41735, 33-41736,
33-49767, 33-57029, 333-09213, 333-73427 and 333-73429) of our report dated
February 9, 2000, except for note 20 and 21 for which the date is January 25,
2001 with respect to the restated consolidated financial statements of CSX for
the fiscal year ended December 31, 1999 included in its Current Report on Form
8-K, filed with the Securities and Exchange Commission.

/s/ ERNST & YOUNG LLP

Richmond, Virginia
January 24, 2001
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-99.1
<SEQUENCE>3
<FILENAME>0003.txt
<DESCRIPTION>RESTATED FINANCIAL STATEMENTS
<TEXT>

<PAGE>

                                                              Exhibit 99.1

                                  CSX Corporation
                     INDEX TO RESTATED FINANCIAL STATEMENTS
                        AND RELATED FINANCIAL INFORMATION
<TABLE>
<CAPTION>
                                                                                        Page (s)
<S><C>
Financial Highlights                                                                       2

Management's Discussion and Analysis of Financial Condition
  and Results of Operations                                                                3

Consolidated Statement of Earnings for each of the three years
  in the period ended December 31, 1999                                                   22

Consolidated Statement of Cash Flows for each of the three years in the period
  ended December 31, 1999                                                                 23

Consolidated Statement of Financial Position at December 25, 1998
  and December 31, 1999                                                                   24

Consolidated Statement of Changes in Stockholders' Equity for each of the three
  years in the period ended December 31, 1999                                             25

Notes to the Consolidated Financial Statements                                            26

Report of Independent Auditors                                                            58

Quarterly Data (Unaudited)                                                              59-60

Ratio of Earnings to Fixed Charges                                                        61
</TABLE>

                                      -1-
<PAGE>

<TABLE>
<CAPTION>

Financial Highlights

(Millions of Dollars, Except Per Share Amounts)  1999       1998       1997      1996       1995
- --------------------------------------------------------------------------------------------------
<S>                                           <C>        <C>       <C>       <C>         <C>
Earnings
   Operating Revenue                            $10,375    $9,490    $10,232   $10,220    $ 10,064
   Operating Expense                              9,802     8,359      8,673     8,715       8,951
                                         ---------------------------------------------------------
   Operating Income                             $   573    $1,131    $ 1,559   $ 1,505    $  1,113
                                         ---------------------------------------------------------
   Net Earnings from Continuing Operations      $    32    $  520    $   785   $   844    $    609
                                         ---------------------------------------------------------
   Net Earnings                                 $     2    $  537    $   799   $   855    $    618
                                         ---------------------------------------------------------

Earnings Per Share from Continuing Operations   $   .15    $ 2.47    $  3.74   $  4.05    $   2.94
Earnings Per Share from Continuing Operations,
assuming dilution                               $   .15    $ 2.43    $  3.66   $  3.97    $   2.91

   Earnings Per Share                           $   .01    $ 2.55    $  3.80   $  4.10    $   2.99
   Earnings Per Share, Assuming Dilution        $   .01    $ 2.51    $  3.72   $  4.03    $   2.95
- --------------------------------------------------------------------------------------------------
Earnings, Excluding Non-recurring Items,
   Discontinued Operations, and Cumulative
   Effect of Accounting Change(a)(b)(c)
   Operating Revenue                            $10,375   $ 9,490   $ 10,232  $ 10,220    $ 10,064
   Operating Expense                              9,387     8,389      8,673     8,715       8,694
                                         ---------------------------------------------------------
   Operating Income                             $   988   $ 1,101   $  1,559   $ 1,505    $  1,370
                                         ---------------------------------------------------------

   Net Earnings                                 $   320   $   411   $    785   $   844    $    719
                                         ---------------------------------------------------------

   Earnings Per Share                           $  1.52   $  1.95   $   3.74   $  4.05    $   3.47
   Earnings Per Share, Assuming Dilution        $  1.50   $  1.92   $   3.66   $  3.98    $   3.43
- --------------------------------------------------------------------------------------------------
Financial Position
   Cash, Cash Equivalents and
      Short-term Investments                    $   974   $   533   $    690   $   682    $    660
  Working Capital Deficit                       $  (910)  $  (616)  $   (532)  $  (685)   $ (1,056)
   Total Assets                                 $20,720   $20,427   $ 19,957   $16,965    $ 14,282
   Long-term Debt                               $ 6,196   $ 6,432   $  6,416   $ 4,331    $  2,222

   Shareholders' Equity                         $ 5,756   $ 5,880   $  5,766   $ 4,995    $  4,242
- --------------------------------------------------------------------------------------------------
Other Data Per Common Share
   Cash Dividends                               $  1.20   $  1.20   $   1.08   $  1.04    $    .92
   Book Value                                   $ 26.35   $ 27.08   $  26.41   $ 23.04    $  20.15
   Market Price -- High                         $ 53.94   $ 60.75   $  62.44   $ 53.13    $  46.13
                -- Low                          $ 28.81   $ 36.50   $  41.25   $ 42.25    $  34.63
- --------------------------------------------------------------------------------------------------
Employees(d)
   Rail                                          31,952    28,358     27,864    28,559      29,537
   Other                                         16,998    17,789     19,047    18,755      18,428
                                         ---------------------------------------------------------
      Total                                      48,950    46,147     46,911    47,314      47,965
- --------------------------------------------------------------------------------------------------


See accompanying Consolidated Financial Statements

(a)     Significant non-recurring items include the following:
     1999  - A loss on the sale of international container-shipping assets and a
           related benefit from discontinuing depreciation of those assets from
</TABLE>

                                      -2-
<PAGE>

           the date they were classified as "held for sale." The net effect of
           the loss and the depreciation benefit reduced earnings by $360
           million before tax, $271 million after tax, $1.27 per share.

           - A charge to recognize the cost of a workforce reduction program at
           the company's rail and intermodal units that reduced earnings by $55
           million before tax, $34 million after tax, 16 cents per share.

           - A gain on the sale of the company's Grand Teton Lodge resort
           subsidiary that increased earnings by $27 million before tax, $17
           million after tax, 8 cents per share.

     1998  - A net investment gain, primarily from the conveyance of American
           Commercial Lines LLC, the company's wholly owned barge subsidiary, to
           a joint venture. The gain increased earnings by $154 million before
           tax, $90 million after tax, 42 cents per share.

           - A restructuring credit to reverse certain separation and labor
           protection reserves established by the company's rail unit as part of
           a 1995 restructuring charge. The restructuring credit increased
           earnings by $30 million before tax, $19 million after tax, 9 cents
           per share.

     1995  - A charge to recognize the estimated costs of initiatives to revise,
           restructure and consolidate specific operations and administrative
           functions at the company's rail and container-shipping units. The
           restructuring charge reduced earnings by $257 million before tax,
           $160 million after tax, 76 cents per share.

           - A net investment gain on the issuance of an equity interest in a
           container-shipping terminal and related operations in Asia and the
           write down of various investments. The net gain increased earnings by
           $77 million before tax, $51 million after-tax, 25 cents per share.

(b)     The company recorded a charge at the beginning of fiscal year 1999 to
        reflect the cumulative effect on prior years of adopting a new
        accounting rule related to workers' compensation second injury fund
        assessments incurred by the company's container-shipping unit. The
        charge reduced net earnings for 1999 by $49 million, 23 cents per share.
        Had the accounting change been applied retroactively, the effect on net
        earnings and related per share amounts would not have been material to
        any fiscal year presented.

 (c)    CSX completed the sale of CTI Logistx, its wholly owned logistics
        subsidiary on September 22, 2000. The contract logistics segment is now
        reported as a discontinued operation and all prior periods in the
        statement of earnings have been restated accordingly. CSX recognized a
        gain of $570 million before tax, $365 million after tax, $1.73 per
        share, on the sale. Cash proceeds from the transaction were $650
        million.

(d)     Employee counts are based on annual averages.




Management's Discussion and Analysis of Financial Condition and Results of
Operations (All references to earnings per share assume dilution)

Description of Business

CSX Corporation (CSX), headquartered in Richmond, Va., operates the largest rail
network in the eastern United States and also provides intermodal transportation
services across the United States and into key markets in Canada and Mexico. The
sale of CSX's international container-shipping liner business in December 1999
further increases the company's focus on its core operations. CSX's goal,
advanced at each of its business units, is to provide efficient, competitive
transportation and related services for our customers and to deliver superior
value to the company's shareholders.

                                      -3-
<PAGE>

CSX Transportation Inc.
CSXT is the largest rail network in the eastern United States, providing rail
freight transportation over a network of more than 23,400 route miles in 23
states, the District of Columbia and two Canadian provinces. Headquartered in
Jacksonville, Fla., CSXT accounted for 54% of CSX's operating revenue and 83% of
operating income, excluding non-recurring items, in 1999.

CSX Intermodal Inc.
CSXI is the nation's only transcontinental intermodal transportation service
provider, operating a network of dedicated intermodal facilities across North
America. The CSXI network, expanded through the integration of Conrail in June
1999, runs approximately 500 dedicated trains between its 48 terminals every
week. CSXI accounted for 9% of CSX's operating revenue and 8% of operating
income, excluding non-recurring items, in 1999. Its headquarters are located in
Jacksonville, Fla.

CSX Lines LLC
CSX Lines was formed in 1999 to operate the domestic liner business of Sea-Land
Service Inc. (Sea-Land), consisting of a fleet of 16 vessels and 27,000
containers serving the trade between ports on the United States mainland and
Alaska, Guam, Hawaii and Puerto Rico. The domestic container-shipping business
was retained by CSX when Sea-Land's international container-shipping operations
were sold to A.P. Moller-Maersk Line (Maersk) in December 1999. CSX Lines is
headquartered in Charlotte, N.C.

CSX World Terminals LLC
CSX World Terminals, formed in 1999, operates container-freight terminal
facilities at 12 locations in Hong Kong, China, Australia, Europe and the
Dominican Republic. These operations, located in areas expected to benefit from
the continuing growth in world trade, also were retained by CSX when Sea-Land's
international liner business was sold to Maersk. CSX World Terminals is
headquartered in Charlotte, N.C.

Business segment financial results for CSX Lines and CSX World Terminals will be
reported beginning in fiscal year 2000. Sea-Land's consolidated operations,
which included those businesses for the full year and the international liner
operations for eleven and a half months, accounted for 37% of CSX's operating
revenue and 15% of operating income, excluding non-recurring items, in 1999.

Non-transportation
Resort holdings include the AAA Five-Diamond hotel, The Greenbrier, in White
Sulphur Springs, W.Va. In December 1999, The Greenbrier was named "Resort of the
Century" by Andrew Harper's Hideaway Report. CSX Real Property Inc. is
responsible for sales, leasing and development of CSX-owned properties. CSX also
holds a majority interest in Yukon Pacific Corporation, which is promoting
construction of the Trans-Alaska Gas System to transport Alaska's North Slope
natural gas to Valdez for export to Asian markets.

Discontinued Operations
CSX completed the sale of CTI Logistx, its wholly-owned logistics subsidiary on
September 22, 2000. The contract logistics segment is now reported as a
discontinued operation and all prior periods in the statement of earnings have
been restated accordingly. CSX recognized a gain of $570 million before tax,
$365 million after tax, $1.73 per share, on the sale. Cash proceeds from the
transaction were $650 million.

                                      -4-
<PAGE>

Results of Operations

Net Earnings
(Millions of Dollars, Except Per Share Amounts)
<TABLE>
<CAPTION>
                                                    1999                   1998                   1997
- --------------------------------------------------------------------------------------------------------------
                                                          Per                    Per                    Per
Description (all amounts after tax)           Amount     Share       Amount     Share       Amount     Share
- --------------------------------------------------------------------------------------------------------------
<S>                                           <C>        <C>         <C>        <C>         <C>        <C>
Net Earnings Before Non-recurring Items       $320       $1.50       $411       $1.92       $785       $3.66

Loss on Sale, Net of Depreciation Benefit     (271)      (1.27)        --          --         --          --
Workforce Reduction Program                    (34)       (.16)        --          --         --          --
Net Investment Gain                             17         .08         90         .42         --          --
Restructuring Credit                            --          --         19         .09         --          --
Cumulative Effect of Accounting Change         (49)       (.23)        --          --         --          --
Discontinued Operations                         19         .09         17         .08         14         .06

- --------------------------------------------------------------------------------------------------------------
Net Earnings as Reported                      $  2       $ .01       $537       $2.51       $799       $3.72
- --------------------------------------------------------------------------------------------------------------
</TABLE>

1999 vs. 1998 CSX follows a 52/53-week fiscal calendar. Fiscal year 1999
consisted of 53 weeks compared with 52 weeks in fiscal 1998. The company
reported net earnings for 1999 of $2 million, 1 cent per share. Earnings for the
prior year were $537 million, $2.51 per share. Net earnings include the results
of the Company's wholly owned logistics subsidiary, CTI Logistx, Inc. which was
sold subsequent to year end on September 22, 2000 for $650 million. Operating
revenues, expenses and income have been restated to reflect the logistics
segment as a discontinued operation. Operating income for 1999 totaled $573
million, compared with $1.13 billion in 1998. Operating revenue of $10.4 billion
was 9% higher than the prior year, while operating expense of $9.8 billion was
17% higher. The higher revenue and expense levels were primarily due to the
expansion of the company's rail and intermodal businesses in June 1999 with the
integration of Conrail lines in the Northeast and Midwest.

Financial results for 1999 and 1998 included several significant non-recurring
items. The 1999 results included a loss on the sale of assets comprising the
company's international container-shipping business, a charge to recognize the
cost of a workforce reduction program at the rail and intermodal units, a gain
on the sale of the company's Grand Teton Lodge resort subsidiary, and an
adjustment to record the cumulative effect of adopting a new accounting rule
related to workers' compensation second injury funds. The 1998 results included
a net investment gain, primarily from the conveyance of the company's barge
subsidiary to a joint venture, and a restructuring credit at the rail unit.
These non-recurring items are discussed in greater detail in other sections of
Management's Discussion and Analysis, and their effect on the company's net
earnings and earnings per share is outlined in the "Net Earnings" table on page
__. Net earnings exclusive of these items totaled $320 million, $1.50 per share,
in 1999 vs. $411 million, $1.92 per share in 1998. Operating income excluding
the non-recurring items totaled $988 million for 1999, compared with $1.10
billion for the prior year.

                                      -5-
<PAGE>

Operating Income
(Millions of Dollars)

<TABLE>
<CAPTION>
                                                           1999
- -------------------------------------------------------------------------------------
                                   Surface Transportation
                                   ----------------------
                                            Inter-         Container      Elim./
                                     Rail   modal  Total   Shipping(a)    Other  Total
- -------------------------------------------------------------------------------------
<S>                                <C>      <C>    <C>     <C>          <C>   <C>
Operating Revenue                   $5,623   $959  $6,582    $3,809     $(16) $10,375
- -------------------------------------------------------------------------------------
Operating Expense

   Labor and Fringe Benefits         2,244     64   2,308       983       --    3,291
   Materials, Supplies and Other     1,279    150   1,429     1,217        5    2,651
   Conrail Operating Fee,
      Rent and Services                280     --     280        --       --      280
   Building and Equipment Rent         496    123     619       546       --    1,165
   Inland Transportation              (285)   513     228       707      (17)     918
   Depreciation                        469     24     493        90       --      583
   Fuel                                317      1     318       154       --      472
   Miscellaneous                        --     --      --        23      (37)     (14)
   Loss on Sale                         --     --      --       401       --      401
   Workforce Reduction Program          53      2      55        --       --       55
   Restructuring Credit                 --     --      --        --       --       --
- -------------------------------------------------------------------------------------
      Total Expense                  4,853    877   5,730     4,121      (49)   9,802
- -------------------------------------------------------------------------------------
Operating Income (Loss)             $  770   $ 82 $   852    $ (312)    $ 33  $   573
Operating Income (Loss)
   as Adjusted(c)                   $  823   $ 84 $   907    $   48     $ 33  $   988
- -------------------------------------------------------------------------------------
Operating Ratio                       86.3%  91.4%   87.1%    108.2%
- -------------------------------------------------------------------------------------
Operating Ratio as Adjusted(c)        85.4%  91.2%   86.2%     98.7%
Average Employment                  31,952  1,090  33,042     8,923
- -------------------------------------------------------------------------------------
Property Additions                  $1,298   $ 63  $1,361    $   86
- -------------------------------------------------------------------------------------
</TABLE>

                                      -6-
<PAGE>




<TABLE>
<CAPTION>
Operating Income
(Millions of Dollars)
                                                             1998
- ---------------------------------------------------------------------------------------
                             Surface Transportation
                             ----------------------
                                           Inter-           Container  Elim./
                                   Rail    modal   Total    Shipping   Other(a)   Total
- ---------------------------------------------------------------------------------------
<S>                                <C>     <C>     <C>      <C>        <C>       <C>
Operating Revenue                  $4,956  $648    $5,604   $3,916     $(30)     $9,490
- ---------------------------------------------------------------------------------------
Operating Expense
   Labor and Fringe Benefits        1,974    50     2,024      959       --       2,983
   Materials, Supplies and Other    1,057   117     1,174    1,285       --       2,459
   Conrail Operating Fee,
      Rent and Services                --    --        --       --       --          --
   Building and Equipment Rent        382    81       463      596       --       1,059
   Inland Transportation             (159)  348       189      734      (30)        893
   Depreciation                       450    18       468      130       --         598
   Fuel                               251     1       252      141       --         393
   Miscellaneous(b)(d)                 --    --        --       34      (30)          4
   Loss on Sale                        --    --        --       --       --          --
   Workforce Reduction Program         --    --        --       --       --          --
   Restructuring Credit               (30)   --       (30)      --       --         (30)
- ---------------------------------------------------------------------------------------
      Total Expense                 3,925   615     4,540    3,879      (60)      8,359
- ---------------------------------------------------------------------------------------
Operating Income (Loss)            $1,031  $ 33    $1,064    $  37     $ 30      $1,131
Operating Income (Loss)
   as Adjusted(c)                  $1,001  $ 33    $1,034    $  37     $ 30      $1,101
- ---------------------------------------------------------------------------------------
Operating Ratio                      79.2% 94.9%     81.0%    99.1%
- ---------------------------------------------------------------------------------------
Operating Ratio as Adjusted(c)       79.8% 94.9%     81.5%    99.1%
Average Employment                 28,358   786    29,144    8,690
- ---------------------------------------------------------------------------------------
Property Additions                 $1,212 $  99    $1,311    $  54
- ---------------------------------------------------------------------------------------
</TABLE>

                                      -7-
<PAGE>





<TABLE>
<CAPTION>
Operating Income
(Millions of Dollars)
                                                              1997
- -----------------------------------------------------------------------------------------
                             Surface Transportation
                             ----------------------
                                             Inter-          Container     Elim./
                                    Rail     modal   Total   Shipping(a)   Other(b)  Total
- -----------------------------------------------------------------------------------------
<S>                                 <C>      <C>     <C>      <C>        <C>      <C>
Operating Revenue                   $4,989    $669   $5,658    $3,991    $583     $10,232
- -----------------------------------------------------------------------------------------
Operating Expense
   Labor and Fringe Benefits         1,963      56    2,019       903     151       3,073
   Materials, Supplies and Other       878     119      997     1,191     262       2,450
   Conrail Operating Fee,
      Rent and Services                 --      --       --        --      --          --
   Building and Equipment Rent         349      77      426       600      40       1,066
   Inland Transportation              (158)    356      198       757     (35)        920
   Depreciation                        429      14      443       128      39         610
   Fuel                                299       1      300       197      57         554
   Miscellaneous                        --      --       --        40     (40)         --
   Loss on Sale                         --      --       --        --      --          --
   Workforce Reduction Program          --      --       --        --      --          --
   Restructuring Credit                 --      --       --        --      --           -
- -----------------------------------------------------------------------------------------
      Total Expense                  3,760     623    4,383     3,816     474       8,673
- -----------------------------------------------------------------------------------------
Operating Income (Loss)             $1,229   $  46   $1,275   $   175   $ 109    $  1,559
Operating Income (Loss)
   as Adjusted(c)                   $1,229   $  46   $1,275   $   175   $ 109    $  1,559
- -----------------------------------------------------------------------------------------
Operating Ratio                       75.4%   93.1%    77.5%     95.6%
- -----------------------------------------------------------------------------------------
Operating Ratio as Adjusted(c)        75.4%   93.1%    77.5%     95.6%
Average Employment                  27,864     800   28,664     9,105
- -----------------------------------------------------------------------------------------
Property Additions                 $   712   $  32   $  744   $   251
- -----------------------------------------------------------------------------------------
</TABLE>

(a)  Container shipping includes minority interest expense which is reclassified
     to other income in eliminations and other.

(b)  On June 30, 1998, CSX conveyed its wholly owned barge subsidiary to a joint
     venture in which it holds a 32% common ownership interest. Due to the
     reduction in ownership percentage, CSX has accounted for its investment in
     the barge company under the equity method retroactive to the beginning of
     fiscal year 1998. For periods prior to fiscal year 1998, the barge company
     was accounted for as a consolidated subsidiary, and its results appear in
     the Eliminations/Other category for 1997.

(c)  Excludes loss on international container-shipping asset sale (net of
     depreciation benefit) and surface transportation workforce reduction
     program in 1999. Excludes rail-restructuring credit in 1998.



- --------------------------------------------------------------------------------

                                      -8-

<PAGE>

As previously mentioned, the year-over-year increases in operating revenue and
expense were due primarily to the June 1999 integration of the company's
allocated portion of the Conrail rail and intermodal operations (see "Investment
in and Integrated Rail Operations with Conrail"). Earnings for 1999 were
adversely affected by costs related to preparation and start-up of the Conrail
integration and significant costs and lost revenue due to network congestion
experienced after the integration. The impact of Hurricane Floyd, higher
personal injury accruals and higher fuel prices in the second half of the year
also decreased earnings. Spending on Year 2000 preparations was lower in 1999 as
the company completed key phases of its readiness plan near the end of the third
quarter.

1998 vs. 1997 Net earnings for 1998 totaled $537 million, $2.51 per share,
compared with $799 million, $3.72 per share in 1997. Net earnings include the
results of the Company's wholly owned logistics subsidiary, CTI Logistx, Inc.
which was sold as mentioned above. The 1998 results also included a net
investment gain of $154 million, $90 million after tax, 42 cents per share,
primarily from the conveyance of the company's barge subsidiary, American
Commercial Lines LLC (ACL), to a joint venture. Also included in the 1998
results was a one-time restructuring credit of $30 million, $19 million after
tax, or 9 cents per share, to reverse a previous charge for separation and labor
protection costs. Excluding the effects of non-recurring items, net earnings
would have been $411 million, $1.92 per share, in 1998 vs. $785 million, $3.66
per share, in 1997.

Consolidated operating revenue totaled $9.5 billion, a decrease of $742 million,
or 7%, from 1997. A significant portion of the revenue decline, $618 million,
was attributable to the conveyance of the company's barge unit to a joint
venture in the third quarter of 1998 and the resulting exclusion of barge
activity from 1998 operating income. Due to a reduction in the company's
ownership interest to 32% of the new venture, CSX accounted for its investment
in the venture under the equity method retroactive to the beginning of fiscal
year 1998. For periods prior to fiscal 1998, ACL was accounted for as a
consolidated subsidiary.

Operating revenue was down from the prior year at the rail, container shipping,
and intermodal business units. The rail unit suffered primarily from weak demand
for export coal. Sea-Land's revenues were negatively impacted by the Asian
economic crisis, while the intermodal unit struggled with congestion on the
western rail network.

CSX's operating expenses totaled $8.4 billion for 1998, down $314 million from
the prior year; however, $549 million of the decline represents barge unit
expenses not included in operations in 1998. Other favorable items included the
$30 million restructuring credit recorded by the rail unit, lower fuel costs
that benefited the company $106 million on a consolidated basis, and lower stock
compensation expense resulting from the company's lower stock price. Higher
operating expenses associated with changes in traffic mix at the rail unit and
inbound/outbound cargo imbalances in major trade lanes at the container-shipping
unit offset these favorable variances.

Other income increased to $119 million from 1997's $51 million. Contributing to
the increase was the $154 million net investment gain, partially offset by
higher Conrail transition expenses.

                                      -9-
<PAGE>

Business Segment Results

Surface Transportation Results

<TABLE>
<CAPTION>
Rail Traffic by Commodity*
                                                    Carloads                        Revenue
                                                   (Thousands)                (Millions of Dollars)
- ---------------------------------------------------------------------------------------------------------------
                                             1999     1998     1997        1999     1998    1997
- ---------------------------------------------------------------------------------------------------------------
<S>                                         <C>      <C>      <C>          <C>      <C>     <C>
Merchandise
   Phosphates & Fertilizer                    527      539      506        $  318   $  304  $   295
   Metals                                     319      268      264           367      307      301
   Food & Consumer Products                   150      135      139           184      148      147
   Paper & Forest Products                    505      457      471           600      508      512
   Agricultural Products                      326      277      269           442      380      364
   Chemicals                                  545      444      435           913      750      762
   Minerals                                   422      396      371           386      353      337
   Government                                  11        6       10            28       16       24
- ---------------------------------------------------------------------------------------------------------------
   Total Merchandise                        2,805    2,522    2,465         3,238    2,766    2,742

Automotive                                    553      412      387           760      540      543

Coal, Coke & Iron Ore
   Coal                                     1,614    1,651    1,714         1,476    1,503    1,567
   Coke                                        55       60       74            51       53       65
   Iron Ore                                    61       50       52            38       27       30
- ---------------------------------------------------------------------------------------------------------------
     Total Coal, Coke & Iron Ore            1,730    1,761    1,840         1,565    1,583    1,662

Other Revenue                                  --       --       --            60       67       42

- ---------------------------------------------------------------------------------------------------------------
     Total Rail                             5,088    4,695    4,692        $5,623   $4,956   $4,989
- ---------------------------------------------------------------------------------------------------------------
</TABLE>

* Certain amounts for 1998 and 1997 have been restated to conform to the 1999
presentation.

1999 vs. 1998
Rail
Excluding its $53 million portion of the workforce reduction charge in 1999 and
the $30 million restructuring credit in 1998, CSXT earned $823 million of
operating income in 1999 vs. $1 billion in 1998. Operating revenue was 13%
higher, at $5.62 billion. Operating expense rose 22% to $4.8 billion, excluding
the workforce reduction charge. The 1999 results included seven months of
integrated Conrail operations, distorting comparisons to 1998.

Overall volumes increased due to the addition of former Conrail traffic and
relatively strong demand across most service groups. The largest revenue
increase was in automotive (up 41%) due to the new Conrail traffic, strong
vehicle production in 1999, and the strike at major General Motors plants that
adversely affected 1998 revenue. Merchandise revenue increased 17% largely due
to the new Conrail traffic. Added coal revenues from the former Conrail
territory were offset by continued weakness in export coal volume, resulting in
a net revenue decrease of 2%. The 24% increase in rail operating expense
reflects the expense associated with the new Conrail traffic, as well as
significant costs incurred in starting up combined operations and addressing
post-integration congestion and operating problems. In addition, Hurricane Floyd
disrupted operations for up to 10 days on key portions of the CSXT system in
North Carolina and New Jersey, resulting in repair costs and lost revenue. Fuel
expense was $66 million higher than 1998, reflecting a 2 cent increase in the
average price per gallon for the full year, and higher fuel consumption with the
added Conrail traffic.

Intermodal
Excluding its $2 million portion of the workforce reduction charge, CSXI
reported 1999 operating income of $84 million, compared with $33 million a year
ago. The increase was primarily due to the significant growth in intermodal
volume attributable to the new Conrail operations. Strengthening international
business and improved rail service in the Western half of the country also
benefited 1999. Revenue for 1999 totaled $959 million vs. $648 million in the
prior year. Operating expense totaled $875 million without the workforce

                                     -10-
<PAGE>

reduction charge, compared with $615 million in 1998. The expanded operations
over portions of the former Conrail system accounted for the significant revenue
and expense increases in 1999. While CSXI realized margin improvements through
economies of scale, rail congestion led to lost revenue as shippers diverted
some traffic to trucks.

1998 vs. 1997
Rail
Excluding a one-time restructuring credit, CSXT produced operating income of $1
billion in 1998, down 19% from 1997. Operating revenue decreased slightly from
the prior year, to $4.96 billion. While merchandise revenue saw modest gains on
increased traffic, coal revenue declined $64 million on 4% fewer carloads. The
decline in coal revenue was attributable to the strong U.S. dollar and
competition from foreign coal producers, which softened the demand for export
coal.

CSXT experienced growth in several merchandise commodity groups during 1998.
Agricultural product moves were up 3% due to strong demand for Midwest grain in
the Southeast. Continued strength in the Southeast's construction industry was
primarily responsible for the 7% increase in minerals carloads over 1997, while
strong demand from U.S. steel mills in the early part of the year drove an
increase of 2% in metals traffic over 1997. Phosphates and fertilizer shipments
were up 7% due to continued strong export demand and strong demand from U.S. and
Canadian agricultural firms. The railroad's automotive revenue was down 1% from
the prior year, due in part to the estimated loss of $13 million in revenue
caused by the work stoppages at two of General Motors' Flint, Mich. plants.

Excluding the restructuring credit, operating expenses were up 5% from 1997 to
$3.96 billion, reflecting the impact of a shift in mix to lower margin cargo,
increases in certain casualty and litigation reserves, and Year 2000
preparations. Labor and fringe benefits expense increased slightly due to wage
increases and additional employee training and certification, partially offset
by lower stock compensation expense. The higher casualty and litigation accruals
and Year 2000 costs drove materials, supplies and other expense up 20% over the
prior year. Fuel expense was $48 million lower than 1997, reflecting an 11 cent
decrease in the average price per gallon, while fuel consumption remained level
with the prior year. The 1998 restructuring credit totaled $30 million and
reflected the reversal of separation and labor protection reserves established
as part of a 1995 restructuring charge to cover a planned reduction in the
unit's telecommunications workforce. Under a new telecommunications contract
signed in July 1998, those workforce reductions did not occur.

Intermodal
CSX Intermodal earned $33 million of operating income in 1998, down 28% from
1997. The decline was largely attributable to loss of business caused by service
disruptions on the western rail network.

Although container and trailer volumes were 1% above 1997, operating revenue
decreased 3%, to $648 million, as the average length-of-haul declined. Both
domestic and international freight revenue decreased from 1997 as a result of
the western rail service difficulties. Revenue from other sources declined 29%
as truck operations were ceased at 13 terminals in early 1998 in connection with
a restructuring of the trucking service network.

The intermodal unit reported operating expense of $615 million in 1998, down 1%
from 1997. Labor and fringe benefits declined 11% from 1997, reflecting lower
stock compensation expense and a decrease in average employee levels during the
year. Other expense categories were generally comparable to the prior year.

                                     -11-
<PAGE>

Container-shipping Results
Container-shipping Traffic by Trade Lane*

<TABLE>
<CAPTION>
                                     Loads                                             Revenue
                                   (Thousands)            Revenue Per Box       (Millions of Dollars)
- ---------------------------------------------------------------------------------------------------------------
                               1999   1998   1997      1999    1998     1997       1999    1998    1997
- ---------------------------------------------------------------------------------------------------------------
<S>                            <C>    <C>    <C>      <C>      <C>      <C>       <C>      <C>     <C>

Pacific                         583    603    705     $2,611   $2,319   $2,221    $1,500   $1,386  $1,549
Atlantic                        290    359    349      2,092    2,267    2,426       600      807     842
Americas                        250    268    242      2,159    2,282    2,304       524      587     538
Asia/Middle East/Europe         277    273    286      2,068    2,060    2,041       563      554     576
Terminal Services and Other      --     --     --         --       --       --       622      582     486
- ---------------------------------------------------------------------------------------------------------------
   Total                      1,400  1,503  1,582     $2,315   $2,252   $2,250    $3,809   $3,916  $3,991
</TABLE>

* Certain amounts for 1998 and 1997 have been restated to conform to the 1999
presentation.

1999 vs. 1998
Although the sale of Sea-Land's international liner business to Maersk did not
close until mid-December, the unit lost significant business in the fourth
quarter of 1999 as international shippers shifted cargo bookings in anticipation
of the transaction. As a result, those operations incurred an operating loss for
the quarter that exceeded earnings from the retained domestic shipping and
terminal management businesses. Operating results for the first nine months of
the year showed marked improvement over 1998 as Pacific container volumes
recovered and significant rate increases in the Asia-to-U.S. trade more than
offset weakness in the Atlantic and Americas trade lanes. Despite the fourth
quarter loss, 1999 operating income of $48 million, excluding a loss on the
international liner sale net of a related depreciation benefit, was 30% higher
than the $37 million earned in 1998.

Fiscal 1999 revenue of $3.81 billion was 3% lower than 1998, reflecting the
international liner disposition three weeks prior to year end and the
pre-closing runoff in shipments. Similarly, operating expense of $3.76 billion,
excluding the net loss on sale, was 3% lower than 1998; although higher fuel
prices resulted in a 9% increase in fuel expense on consumption levels that were
flat year-to-year.

                                     -12-
<PAGE>

1998 vs. 1997
Sea-Land produced operating income of $37 million in 1998, down 79% from 1997,
reflecting the negative impact of Asia's economic crisis on the
container-shipping business. Operating revenue totaled $3.92 billion, a 2%
decline from 1997.

Asia's economic conditions caused tremendous imbalances in cargo shipments, as
exports from Asian countries increased while import traffic declined. These
imbalances were evidenced by a 3% increase in eastbound Pacific loads (Asia to
North America), vs. a 17% decline in westbound Pacific loads. In addition, the
Asia/Middle East/Europe trade lane experienced a 1% increase in westbound loads
(Asia to Europe), vs. a 20% decline in eastbound loads. Compounding the impact,
Sea-Land's cargo mix shifted to a higher level of lower-rated freight as imports
of higher-rated discretionary goods to Asia declined. Terminal services and
other revenue increased 20% from 1997's level as a result of higher volumes in
Asia.

Operating expenses increased 2% in 1998, to $3.88 billion. Although Sea-Land
moved fewer revenue loads compared with 1997, the company actually handled more
containers as a result of the increased export volume from Asia. The higher
container volume drove increases of 6% in labor and fringe benefits and 8% in
materials, supplies and other expense over 1997 levels. Fuel expense decreased
$56 million from 1997, benefiting from a 12 cent per gallon average price
reduction on a 1% increase in fuel consumption during the year.

Liquidity and Capital Resources

Operating Activities
Cash provided by operations for 1999 totaled $1.1 billion, up $71 million from
1998, due principally to net changes in accounts receivable and payable driven
by the absorption of Conrail business and accrual of liabilities associated with
the Sea-Land sale, respectively. Cash provided by operations totaled $1.0
billion and $1.6 billion in 1998 and 1997, respectively.

Investing Activities
Net cash used by investing activities in 1999 totaled $582 million, vs. $870
million in 1998 and $3.3 billion in 1997. Included in the 1999 total is $751
million in net proceeds from the sale of international container-shipping assets
and $49 million from the sale of the Grand Teton Lodge resort. The 1998 total
included $628 million from the conveyance of the company's barge subsidiary to a
joint venture. In 1997, CSX spent approximately $2.2 billion to complete the
acquisition of its $4.1 billion investment in Conrail.

Property additions totaled approximately $1.5 billion in 1999 and 1998, and $1.1
billion in 1997. The higher levels in 1999 and 1998 are largely due to rail and
intermodal spending for locomotives and capital improvements to service the
additional traffic resulting from the Conrail integration. Significant projects
related to Conrail included investments in technology, a major upgrade to the
B&O line between Chicago and Cleveland, and a new intermodal terminal in
Chicago. Property additions for the coming fiscal year are expected to be under
$1 billion, reflecting a return to more normal spending levels on the combined
rail network and the disposition of Sea-Land's international liner operations.

Financing Activities
Financing activities provided net cash of $32 million in 1999, compared to a use
of $276 million of cash in 1998. In 1997, financing activities provided $1.7
billion. While higher levels of short-term debt provided $187 million in cash
for 1999, the company expects to reduce short-term debt in the early part of
fiscal year 2000 with proceeds from the December 1999 sale of international
container-shipping assets. Through year-end 1999, a portion of those proceeds
had been used to repay short-term debt, with the remainder being invested in
cash equivalents and short-term investments. In 1998, the barge subsidiary
proceeds were initially used to reduce short-term debt, but borrowings were
increased over the second half of the year to fund a portion of the capital
spending to prepare for the Conrail integration. The issuance of debt to

                                     -13-
<PAGE>

finance completion of the Conrail acquisition was the primary factor affecting
cash from financing activities in 1997.

During 1999, CSX issued $400 million of floating rate notes having a one-year
maturity. These financings were intended to supplement the company's existing
commercial paper program and ensure adequate liquidity over year end if
financial markets experienced disruption from Year 2000 issues. In 1998, CSX
issued approximately $1 billion of fixed-rate debt, principally to refinance
commercial paper borrowings classified as long-term debt in the company's
statement of financial position. The placement of this fixed-rate debt allowed
the company to take advantage of a favorable interest rate environment to reduce
the overall floating-rate exposure in its debt portfolio. In 1997, CSX issued
over $2.5 billion in long-term debt primarily to finance completion of the
Conrail transaction.

CSX repaid $126 million of long-term debt in 1999, vs. $1.1 billion in 1998
(including the commercial paper refinancings) and $398 million in 1997.
Long-term debt at Dec. 31, 1999, totaled $6.2 billion, down $236 million from
year-end 1998, largely reflecting the reclassification of balances to short-term
debt in anticipation of the use of the proceeds from the international
container-shipping sale. The ratio of debt to total capitalization at the end of
1999 was 53%, compared with 52% at the end of 1998. CSX has $400 million of
remaining capacity under a shelf registration that may be used to issue debt or
other securities at the company's discretion.

Cash dividends paid per common share were $1.20 for 1999 and 1998, and $1.08 in
1997. Total cash dividends of $262 million, $262 million and $235 million were
paid in 1999, 1998 and 1997, respectively.

Market Risk

CSX does not currently use derivative financial instruments, although the
company may from time to time employ them as part of its risk management
program. If used, the objective is to manage specific risks and exposures, not
to trade such instruments for profit or loss.

CSX manages its overall exposure to fluctuations in interest rates by adjusting
the proportion of fixed and floating rate debt instruments within its debt
portfolio over time. At Dec. 31, 1999, CSX had approximately $1.2 billion of
floating-rate debt outstanding. A 1% increase in interest rates would increase
annual interest expense by approximately $12 million. While the company's
container-shipping terminal management subsidiary does business in several
foreign countries, a substantial portion of its revenue and expenses are
transacted in U.S. dollars. For this reason, CSX does not believe its foreign
currency market risk is significant.

                                     -14-
<PAGE>

Investment In and Integrated Rail Operations with Conrail

Background and Integration
On June 1, 1999, CSX and Norfolk Southern Corporation (Norfolk Southern)
formally began integrated operations over their respective portions of the
Conrail Inc. (Conrail) rail system. This step implemented the operating plan
envisioned by CSX and Norfolk Southern when they completed the joint acquisition
of Conrail in May 1997 and received regulatory approval permitting them to
exercise joint control over Conrail in August 1998.

Under this operating plan, CSXT added approximately 4,400 route miles of track
in the Northeastern and Midwestern United States and in Canada to its existing
lines concentrated in the Middle Atlantic and Southeastern United States. To
service the new operations, approximately 5,600 former Conrail employees joined
the company. CSXT now operates a network of more than 23,400 route miles in 23
states, the District of Columbia, and two Canadian provinces. CSXT and its
sister company, CSX Intermodal, employ approximately 35,000 employees across the
combined system.

The rail subsidiaries of CSX and Norfolk Southern operate their respective
portions of the Conrail system pursuant to various operating agreements that
took effect on June 1. Under these agreements, the railroads pay operating fees
to Conrail for the use of right-of-way and rent for the use of equipment.
Conrail continues to provide rail service in certain shared geographic areas for
the joint benefit of CSX and Norfolk Southern for which it is compensated on the
basis of usage by the respective railroads. CSX and Norfolk Southern, through a
jointly owned acquisition entity, hold economic interests in Conrail of 42% and
58%, respectively, and voting interests of 50% each.

Financial Effects
Upon integration, substantially all of Conrail's customer freight contracts were
assumed by CSX and Norfolk Southern. As a result, beginning June 1, 1999, CSX's
rail and intermodal operating revenue includes revenue from traffic previously
moving on Conrail. Operating expenses reflect corresponding increases for costs
incurred to handle the new traffic and operate the former Conrail lines.
Effective June 1, 1999, rail operating expenses also include a new expense
category, "Conrail Operating Fee, Rent and Services", which reflects payments to
Conrail for the use of right-of-way and equipment, as well as charges for
transportation, switching, and terminal services provided by Conrail in the
shared areas operated for the joint benefit of CSX and Norfolk Southern. The new
expense category also includes amortization of the fair value write-up arising
from the acquisition of Conrail, as well as CSX's proportionate share of
Conrail's net income or loss recognized under the equity method of accounting.
Prior to the June 1, 1999 integration, CSX recorded its share of Conrail's net
income, less amortization of the fair value write-up, and acquisition and
transition expenses in other income (expense) in the consolidated statement of
earnings.

The integration of Conrail initially resulted in congestion and traffic delays
on parts of the new CSX network and on the shared areas operated by Conrail. As
a result, the company incurred increased costs and experienced lost revenues as
customers directed business to other modes of transportation. Substantial
progress was made during July and August in stabilizing post-integration
operations and improving service; however, disruptions in the rail network
caused by Hurricane Floyd in September, combined with seasonal traffic build-up
from September through early December, adversely affected operating performance.
Efforts have been focused on improving operations through network simplification
and progress since mid-December has been encouraging.

While management believes it will continue to see steady improvement across the
rail network that will lead to increased customer satisfaction, the return of
business diverted to other modes of transportation and improved financial
performance, there can be no assurance that these objectives will be met, or met
within a specified time frame. If recent operating improvements are sustained,
management anticipates that the company will begin realizing many of the
economic synergies envisioned from the integration of its allocated portion of
the Conrail network. These synergies include revenue benefits from freight
traffic that currently moves on other modes of transportation (principally
trucks), as well as cost savings from better equipment utilization, more direct

                                     -15-
<PAGE>

routing of freight traffic, fewer interchange points, and the elimination of
duplicate positions and facilities. CSX and Norfolk Southern now compete for
traffic located in markets formerly served solely by Conrail. As a result of
this process of entering new markets, there have been changes in the historic
rate and traffic patterns, including some rate reductions and traffic volume
shifts. The process is being driven by market conditions and, over time, may be
affected by customer satisfaction with service levels provided by the competing
carriers.

Conrail's Results of Operations
1999 vs. 1998. Conrail's results of operations for 1999 were significantly
impacted by the changes in its business resulting from the integration with CSX
and Norfolk Southern. Through May 31, 1999, Conrail's earnings include freight
line-haul revenues and related expenses. Effective June 1, 1999, its major
sources of revenue are derived from CSX and Norfolk Southern and consist
principally of operating fees, equipment rent, and shared area usage fees. The
nature of Conrail's operating expenses also has changed to reflect the new
operations. As a result, meaningful comparisons of 1999 and 1998 results are
more difficult.

Conrail reported net income of $26 million for 1999, compared with $267 million
for 1998. Operating revenues were $2.2 billion for 1999 vs. $3.9 billion for
1998, primarily reflecting the change in operations and a 2% decline in freight
revenue for the five-month period prior to integration. Operating expenses
totaled $2.0 billion in 1999 and $3.3 billion in 1998. The decrease reflected
the change in operations in June, partially offset by higher casualty and other
claims expenses. The 1999 operating expenses include net charges of $180
million, $121 million after tax, principally to reflect the method of settlement
of certain casualty liabilities based on the agreement between CSX, Norfolk
Southern, and Conrail, to adjust certain litigation and environmental reserves
related to settlements and completion of site reviews, and to reflect the
assumption of a lease obligation by CSX. Operating expenses in 1998 included a
charge of $170 million, $105 million after tax, for severance benefits covering
non-union employees, and other charges and reserves totaling $132 million, $82
million after tax. Conrail's operating expenses also included transition-related
costs of $60 million in 1999, principally employee training and technology
integration expenses, and $149 million in 1998, principally employee retention
bonuses and technology integration costs.

1998 vs. 1997. Conrail reported net income of $267 million in 1998, compared
with $7 million in 1997. Operating revenue totaled $3.9 billion in 1998 vs. $3.8
billion in 1997, with the increase due principally to a 4% increase in traffic
volume. All market groups except automotive-posted revenue increases for the
year. Operating expenses totaled $3.3 billion in 1998 and $3.4 billion in 1997.
Operating expenses for 1998 included non-recurring charges for non-union
severance and other expenses totaling $302 million, $187 million after tax. The
1997 operating expenses included a $221 million charge associated with the
termination of Conrail's Employee Stock Ownership Plan, which had no related
income tax effect, as well as a charge of $173 million, $142 million after tax,
for stock compensation and executive severance costs related to the change in
ownership. Additional transition expenses reflected in the 1998 total include
$149 million in 1998, primarily for employee stay bonuses and technology
integration costs, and $114 million in 1997, primarily for investment banking,
legal and consulting fees and employee stay bonuses. Excluding the effects of
the acquisition-related compensation and transition costs, operating expenses
increased 3% in 1998, primarily as a result of the higher traffic volume and
higher casualty and other claims expenses, partially offset by lower fuel costs.

Financial Condition and Liquidity. Conrail's cash provided by operations of $396
million decreased by $331 million, or 46%, in 1999, and by $157 million, or 18%,
in 1998. The 1999 decrease was principally due to the change in the company's
operations. The decline in 1998 reflected higher incentive compensation payments
and transition-related costs. Cash generated from operations is the principal
source of liquidity and is primarily used for debt repayments and capital
expenditures. Debt repayments totaled $112 million in 1999 and $119 million in
1998. Capital expenditures totaled $176 million in 1999 and $537 million in
1998. The significant decline in capital spending for 1999 reflected the change
in operations.

                                     -16-
<PAGE>

Conrail had a working capital deficit of $194 million at Dec. 31, 1999, compared
with a deficit of $202 million at Dec. 31, 1998. The deficit at year-end 1999
resulted from reclassifying $250 million of long-term debt to current
liabilities, reflecting the maturity of the debt in June 2000. Conrail is
expected to have sufficient cash flow to meet its ongoing obligations,
principally from operating fees, rents, and shared area usage fees paid by CSX
and Norfolk Southern.

Divestitures and Joint Venture Investment

Sale of International Container-Shipping Assets
In July 1999, CSX entered into an agreement to sell certain assets comprising
the international liner business of Sea-Land, its wholly owned
container-shipping subsidiary, to A. P. Moller-Maersk Line (Maersk) for
approximately $800 million, subject to certain purchase price adjustments that
depended on a detailed allocation and valuation of certain categories of assets.
The transaction, which also involved Maersk assuming in excess of $800 million
present value of Sea-Land operating lease obligations, closed on Dec. 10, 1999.

The international liner business operated approximately 75 container vessels and
200,000 containers in worldwide trades and comprised a majority of CSX's
container-shipping revenue. In addition to vessels and containers, Maersk
acquired certain terminal facilities and various other assets and related
liabilities of the international liner business. The operating revenue
associated with the assets sold was approximately $2.8 billion in 1999, $3.0
billion in 1998, and $3.2 billion in 1997.

In accordance with FASB Statement No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," CSX classified
the international liner assets as "held for sale" in July when the agreement
with Maersk was signed. The company recorded a $315 million asset impairment
charge in the third quarter to adjust the book value of the related property,
equipment and other long-lived assets to their fair value less cost to sell. In
addition, in accordance with the provisions of Statement No. 121, no
depreciation was recorded on these assets after their classification as "held
for sale." Based on subsequent accounting for the completed transaction,
including adjustments to reflect asset allocations agreed to at closing, the
company determined that the loss on sale was approximately $86 million higher
than the third quarter charge. The final loss on sale of $401 million, net of a
$41 million benefit from the lower depreciation expense, reduced 1999 earnings
by $360 million, $271 million after tax, $1.27 per share. The agreement with
Maersk provides for a post-closing adjustment to the sales price based on the
final amount of working capital conveyed, and the loss includes estimates of
costs to terminate various contractual obligations of the company. These matters
are expected to be resolved in fiscal 2000 and will affect the final
determination of the loss on sale. Net of purchase price adjustments and cash
balances conveyed to Maersk at closing, the company received cash proceeds of
$751 million on the sale. Through Dec. 31, 1999, a portion of the proceeds was
used to reduce short-term debt, with the remainder invested in cash equivalents
and short-term investments.

CSX retained the container-shipping business serving the U.S. domestic trade and
part of the company's international terminal operations and will manage them
separately. Management reporting and performance measures for these businesses
have been developed for fiscal year 2000. The company expects to revise its
disclosures under FASB Statement No. 131, "Disclosures about Segments of an
Enterprise and Related Information," in the first quarter of 2000 to report
these as separate business segments; however, it will not be practicable to
provide comparative segment disclosures for prior years.

Sale of Grand Teton Lodge Subsidiary
In June 1999, CSX completed the sale of its Grand Teton Lodge resort subsidiary,
located in Jackson Hole, Wyo., to Vail Resorts. The transaction resulted in a
net investment gain of $27 million, $17 million after tax, 8 cents per share.
CSX received net cash proceeds of $49 million.

                                     -17-
<PAGE>

Conveyance of Barge Unit
In June 1998, CSX conveyed its barge unit, American Commercial Lines (ACL), to a
venture formed with Vectura Group Inc. (Vectura). CSX received cash proceeds of
$695 million from the transaction, $67 million of which were used to repay
certain outstanding debt and other obligations of ACL and to pay expenses of the
transaction. As part of the transaction, NMI Holdings LLC, a wholly owned barge
subsidiary of Vectura, was combined with ACL. CSX holds a 32% common interest in
the venture. Operating results for 1998 include a net investment gain of $154
million, $90 million after tax, 42 cents per share, primarily from the ACL
transaction.

Other Matters

Workforce Reduction Program
CSX recorded a charge of $55 million, $34 million after tax, 16 cents per share,
in the fourth quarter of 1999 to recognize the cost of a program to reduce the
non-union workforce at its rail and intermodal units by approximately 800
positions. A voluntary early retirement program completed in December accounted
for approximately 680 of the position reductions, with the remainder achieved
through a combination of involuntary terminations and normal attrition.
Approximately 75% of the retirements and separations occurred by the end of the
year, with the remainder scheduled to occur over the first half of fiscal year
2000 as their job responsibilities are reorganized or transitioned to other
personnel. Early retirement benefits offered under the voluntary program
accounted for $24 million of the charge and will be paid from CSX's pension and
postretirement benefit plans. Separation benefits are being paid from cash
generated by operations. Approximately half of the separation benefits were paid
in 1999. On an annualized basis, the workforce reduction program is expected to
provide operating expense savings of approximately $65 million.

Federal Court Decision Affecting Mountaintop Coal Mining
In October 1999, a federal district court judge ruled that certain mountaintop
coal mining practices in West Virginia were in violation of the federal Clean
Water Act and the federal Surface Mining and Control Reclamation Act. The
decision, which is currently under appeal, could adversely affect CSX's coal
traffic and revenues if upheld.

New Orleans Tank Car Fire Litigation
In September 1997, a state court jury in New Orleans, La. returned a $2.5
billion punitive damages award against CSXT. The award was made in a
class-action lawsuit against a group of nine companies based on personal
injuries alleged to have arisen from a 1987 fire. The fire was caused by a
leaking chemical tank car parked on CSXT tracks and resulted in the 36-hour
evacuation of a New Orleans neighborhood. In the same case, the court awarded a
group of 20 plaintiffs compensatory damages of approximately $2 million against
the defendants, including CSXT, to which the jury assigned 15% of the
responsibility for the incident. CSXT's liability under that compensatory
damages award is not material, and adequate provision has been made for the
award.

In October 1997, the Louisiana Supreme Court set aside the punitive damages
judgment, ruling the judgment should not have been entered until all liability
issues were resolved. In February 1999, the Louisiana Supreme Court issued a
further decision, authorizing and instructing the trial court to enter
individual punitive damages judgments in favor of the 20 plaintiffs who had
received awards of compensatory damages, in amounts representing an appropriate
share of the jury's award. The trial court on April 8, 1999 entered judgment
awarding approximately $2 million in compensatory damages and approximately $8.5
million in punitive damages to those 20 plaintiffs. Approximately $6.2 million
of the punitive damages awarded were assessed against CSXT. CSXT then filed
post-trial motions for a new trial and for judgment notwithstanding the verdict
as to the April 8 judgment.

The new trial motion was denied by the trial court in August of 1999. On Nov. 5,
1999, the trial court issued an opinion that granted CSXT's motion for judgment
notwithstanding the verdict and effectively reduced the amount of the punitive
damages verdict from $2.5 billion to $850 million. CSXT believes that this
amount (or any amount of punitive damages) is unwarranted and intends to

                                     -18-
<PAGE>

pursue its full appellate remedies with respect to the 1997 trial as well as the
trial judge's decision on the motion for judgment notwithstanding the verdict.
The compensatory damages awarded by the jury in the 1997 trial were also
substantially reduced by the trial judge. A judgment reflecting the $850 million
punitive award has been entered against CSXT. CSXT has obtained and posted an
appeal bond in the amount of $895 million, which will allow it to appeal the
1997 compensatory and punitive awards, as reduced by the trial judge.

A trial for the claims of 20 additional plaintiffs for compensatory damages
began on May 24, 1999. In early July, the jury in that trial rendered verdicts
totaling approximately $330 thousand in favor of 18 of those 20 plaintiffs. Two
plaintiffs received nothing; that is, the jury found that they had not proved
any damages. Management believes this result, while still excessive, supports
CSXT's contention that the punitive damages award was unwarranted.

CSXT continues to pursue an aggressive legal strategy. Management believes that
an adverse outcome, if any, is not likely to be material to CSX's or CSXT's
financial position, although it could be material to results of operations in a
particular quarterly accounting period.

Environmental Management
CSX generates and transports hazardous and nonhazardous waste in its current and
former operations, and is subject to federal, state and local environmental laws
and regulations. The company has identified 243 sites at which it is or may be
liable for remediation costs associated with alleged contamination or for
alleged violations of environmental requirements. Approximately 115 of these
sites are or may be subject to remedial action under the federal Superfund
statute or similar state statutes. Certain federal legislation imposes joint and
several liability for the remediation of identified sites. Consequently, CSX's
ultimate environmental liability may include costs relating to other parties, in
addition to costs relating to its own activities at each site.

A liability of $53 million has been accrued for future costs at all sites where
the company's obligation is probable and where such costs can be reasonably
estimated. However, the ultimate cost could be higher or lower than the amounts
currently provided. The liability includes future costs for remediation and
restoration of sites, as well as for ongoing monitoring costs, but excludes any
anticipated recoveries from third parties. Cost estimates were based on
information available for each site, financial viability of other potentially
responsible parties (PRPs), and existing technology, laws and regulations. CSX
believes it has made adequate provision for its ultimate share of costs at sites
subject to joint and several liability. However, the ultimate liability for
remediation is difficult to determine with certainty because of the number of
PRPs involved, site-specific cost-sharing arrangements with other PRPs, the
degree of contamination by various wastes, the scarcity and quality of data
related to many of the sites, and/or the speculative nature of remediation
costs. The majority of the year-end 1999 environmental liability is expected to
be paid out over the next five to seven years, funded by cash generated from
operations. Total expenditures associated with protecting the environment and
remedial environmental cleanup and monitoring efforts amounted to $35 million in
1999, compared with $34 million in 1998 and $36 million in 1997. During 2000,
the company expects to incur preventive and remedial environmental expenditures
in the range of $35 million to $45 million. Future environmental obligations are
not expected to have a material impact on the results of operations or financial
position of the company.

Year 2000 Computer Transition

In 1996, CSX and each of its transportation subsidiaries began a comprehensive
plan to address the potential exposure associated with the Year 2000 computer
problem. By the fourth quarter of 1999, all key phases of the company's Year
2000 readiness plan were completed and project teams made final preparations for
the transition to Jan. 1, 2000. During the Year 2000 rollover weekend, no major
problems surfaced.

CSX believes that its readiness plan was successfully executed, key objectives
were met, and project teams adequately addressed all significant Year 2000

                                     -19-
<PAGE>

issues. The company continues to assess technology-related problems as they
occur to determine if they are Year 2000 related. Detailed contingency plans
remain in place and can be implemented if any Year 2000 problems occur. However,
based on the information gathered since January, CSX does not expect the Year
2000 event to cause any interruptions in business operations or to adversely
affect its customers.

The company has incurred total Year 2000 related costs of $70 million through
the end of fiscal year 1999 and expects to incur additional costs of
approximately $2 million. To provide a consistent, objective method for
identifying costs of the Year 2000 plan, the company has classified expenditures
as Year 2000 plan costs for reporting purposes only if they remedied only Year
2000 risks and were otherwise unnecessary in the normal course of business. The
cost of the Year 2000 plan was expensed as incurred and funded by cash generated
from operations.

Business Outlook for 2000

CSX enters fiscal year 2000 poised to build on its core rail and intermodal
businesses and complemented by other transportation interests that are solid
performers. With the Conrail integration completed, the rail unit's focus in
2000 will be on delivering stronger financial performance by driving out costs,
improving railroad operations and seizing growth opportunities on the expanded
network. The rail and intermodal units will work to capture merger synergies and
restore customer satisfaction by improving on-time performance and other key
operating measures. Modest growth in the domestic economy is expected to
continue in 2000, which would be favorable for CSXT; however, CSXT's export coal
business shows no sign of recovering in the foreseeable future. CSXT is
currently engaged in negotiations with the bargaining representatives for its
union employees, who represent the majority of its employment base; the impact
of these negotiations cannot be estimated at this time. CSXT will incur higher
labor costs in 2000 from cost-of-living increases provided under current union
contracts unless new agreements are reached. Recent fuel price increases have
adversely impacted company earnings. If these price trends continue and if the
company cannot pass these higher costs through to its customers, the negative
impact on fiscal year 2000 earnings is likely to be significant.

The sale of Sea-Land's international liner business leaves CSX less vulnerable
to the highly volatile global container-shipping markets. The retained Sea-Land
businesses have experienced management teams and are expected to generate
reliable earnings and positive cash flow. CSX Lines expects to deliver stable
quarterly earnings on annual revenues of approximately $700 million. CSX World
Terminals anticipates capitalizing on identified growth opportunities and should
generate fiscal year 2000 revenues of approximately $300 million. The contract
logistics business expects continued double-digit growth and is working closely
with the surface transportation group to develop new and creative transportation
and logistics solutions for customers.

Forward-looking Statements

Estimates and forecasts in Management's Discussion and Analysis and in other
sections of this Annual Report are based on many assumptions about complex
economic and operating factors with respect to industry performance, general
business and economic conditions and other matters that cannot be predicted
accurately and that are subject to contingencies over which the company has no
control. Such forward-looking statements are subject to uncertainties and other
factors that may cause actual results to differ materially from the views,
beliefs, and projections expressed in such statements. The words "believe,"
"expect," "anticipate," "project," and similar expressions signify
forward-looking statements. Readers are cautioned not to place undue reliance on
any forward-looking statements made by or on behalf of the company. Any such
statement speaks only as of the date the statement was made. The company
undertakes no obligation to update or revise any forward-looking statement.

Factors that may cause actual results to differ materially from those
contemplated by these forward-looking statements include, among others, the
following possibilities: (i) costs and operating difficulties related to the
integration of Conrail may not be eliminated or resolved within the time frame
currently anticipated; (ii) revenue and cost synergies expected from the

                                     -20-
<PAGE>

integration of Conrail may not be fully realized or realized within the time
frame anticipated; (iii) general economic or business conditions, either
nationally or internationally, an increase in fuel prices, a tightening of the
labor market or changes in demands of organized labor resulting in higher wages,
or increased benefits or other costs or disruption of operations may adversely
affect the businesses of the company; (iv) legislative or regulatory changes,
including possible enactment of initiatives to reregulate the rail industry, may
adversely affect the businesses of the company; (v) possible additional
consolidation of the rail industry in the near future may adversely affect the
operations and business of the company; and (vi) changes may occur in the
securities and capital markets.

                                     -21-
<PAGE>

Consolidated Statement of Earnings
(Millions of Dollars, Except Per Share Amounts)

<TABLE>
<CAPTION>
                                                                             Fiscal Years Ended
                                                              ---------------------------------------------
                                                               Dec. 31, 1999  Dec. 25, 1998  Dec. 26, 1997
- -----------------------------------------------------------------------------------------------------------
<S>                                                           <C>             <C>            <C>
Operating Income
Operating Revenue                                                 $ 10,375       $  9,490      $ 10,232
Operating Expense                                                    9,802          8,359         8,673
                                                               ------------------------------------------
Operating Income                                                       573          1,131         1,559

Other Income and Expense
Other Income                                                            52            119            51
Interest Expense                                                       521            506           451
                                                               ------------------------------------------

Earnings
Earnings from Continuing Operations
 Before Income Taxes                                                   104            744         1,159
Income Tax Expense                                                      72            224           374
                                                               ------------------------------------------
Earnings before Discontinued Operations and Cumulative
Effect of Accounting                                                    32            520           785

Earnings from Discontinued Operations,
Net of Tax                                                              19             17            14
                                                               ------------------------------------------

Earnings before Cumulative Effect of Accounting Change                  51            537           799
Cumulative Effect on Prior Years of Accounting
  Change for Insurance-related Assessments, Net of Tax                 (49)            --            --
                                                               ------------------------------------------
Net Earnings                                                      $      2       $    537      $    799
- ---------------------------------------------------------------------------------------------------------
Per Common Share
Earnings Per Share:
  Before Discontinued Operations and Cumulative
  Effect of Accounting Change                                     $    .15       $   2.47      $   3.74
  Earnings from Discontinued Operations                                .09            .08           .06
  Cumulative Effect of Accounting Change                              (.23)            --            --
                                                               ------------------------------------------
  Including Discontinued Operations and
  Cumulative Effect of Accounting Change                          $    .01       $   2.55      $    3.80
                                                               ------------------------------------------
Earnings Per Share, Assuming Dilution:
  Before Discontinued Operations and Cumulative
  Effect of Accounting Change                                     $    .15       $   2.43      $    3.66
  Earnings from Discontinued Operations                                .09            .08            .06
  Cumulative Effect of Accounting Change                              (.23)            --             --
                                                               ------------------------------------------
  Including Discontinued Operations and
  Cumulative Effect of Accounting Change                          $    .01       $   2.51      $    3.72
                                                               ------------------------------------------

Average Common Shares Outstanding (Thousands)                      210,616        210,860        209,979
Average Common Shares Outstanding, Assuming Dilution (Thousands)   212,696        214,196        214,445

Cash Dividends Paid Per Common Share                              $   1.20       $   1.20      $    1.08
- ---------------------------------------------------------------------------------------------------------
</TABLE>

See accompanying Notes to Consolidated Financial Statements.

                                     -22-
<PAGE>

Consolidated Statement of Cash Flows
(Millions of Dollars)

<TABLE>
<CAPTION>
                                                                                 Fiscal Years Ended
                                                                   -------------------------------------------------
                                                                      Dec. 31, 1999  Dec. 25, 1998   Dec. 26, 1997
- --------------------------------------------------------------------------------------------------------------------
<S>                                                                   <C>            <C>             <C>
Operating Activities
Net Earnings                                                            $      2      $    537       $    799
Adjustments to Reconcile Net Earnings to Net Cash Provided
  Cumulative Effect of Accounting Change                                      49            --             --
  Depreciation                                                               621           630            646
  Deferred Income Taxes                                                      (19)          296            190
  Loss on Sale of International Container-Shipping Assets                    401            --             --
  Workforce Reduction Program                                                 55            --             --
  Net Investment Gains                                                       (27)         (154)            --
  Equity in Conrail Earnings - Net                                             2          (141)          (102)
  Other Operating Activities                                                   8           (78)           (28)
  Changes in Operating Assets and Liabilities
   Accounts Receivable                                                      (621)           19            (99)
   Other Current Assets                                                       41           (82)            (2)
   Accounts Payable                                                          301            55             39
   Other Current Liabilities                                                 258           (82)           115
                                                                        -----------------------------------------
  Net Cash Provided by Operating Activities                                1,071         1,000          1,558
- -----------------------------------------------------------------------------------------------------------------
Investing Activities
Property Additions                                                        (1,517)       (1,479)        (1,125)
Net Proceeds from Sale of International Container-Shipping Assets            751            --             --
Net Proceeds from Conveyance of Barge Subsidiary                              --           628             --
Investment in Conrail                                                         (2)          (13)        (2,163)
Short-term Investments - Net                                                  94             6           (119)
Other Investing Activities                                                    92           (12)            59
                                                                        -----------------------------------------
  Net Cash Used by Investing Activities                                     (582)         (870)        (3,348)
- -----------------------------------------------------------------------------------------------------------------
Financing Activities
Short-term Debt - Net                                                        187            61           (209)
Long-term Debt Issued                                                        284         1,153          2,530
Long-term Debt Repaid                                                       (126)       (1,132)          (398)
Cash Dividends Paid                                                         (262)         (262)          (235)
Common Stock Reacquired                                                       --          (103)           (11)
Other Financing Activities                                                   (51)            7             (4)
                                                                        -----------------------------------------
  Net Cash Provided (Used) by Financing Activities                            32          (276)         1,673
- -----------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Cash and Cash Equivalents                         521          (146)          (117)

Cash, Cash Equivalents and Short-term Investments
Cash and Cash Equivalents at Beginning of Year                               105           251            368
                                                                        -----------------------------------------
Cash and Cash Equivalents at End of Year                                     626           105            251
Short-term Investments at End of Year                                        348           428            439
                                                                        -----------------------------------------
Cash, Cash Equivalents and Short-term Investments at End of Year        $    974      $    533       $    690
- -----------------------------------------------------------------------------------------------------------------

Supplemental Cash Flow Information
Interest Paid - Net of Amounts Capitalized                              $    523      $    498       $    423
Income Taxes Paid                                                       $     58      $    154       $    141
- --------------------------------------------------------------------------------------------------------------------
</TABLE>

See accompanying Notes to Consolidated Financial Statements.

                                     -23-
<PAGE>

Consolidated Statement of Financial Position
(Millions of Dollars)

<TABLE>
<CAPTION>
                                                                    Dec. 31, 1999  Dec. 25, 1998
- ---------------------------------------------------------------------------------------------------------------
<S>                                                                 <C>            <C>
Assets
Current Assets
  Cash, Cash Equivalents and Short-term Investments                  $    974       $    533
  Accounts Receivable                                                   1,135            898
  Materials and Supplies                                                  220            225
  Deferred Income Taxes                                                   135            128
  Other Current Assets                                                     99            200
                                                                     -------------------------
   Total Current Assets                                                 2,563          1,984
                                                                     -------------------------

Properties                                                             17,526         18,678
Accumulated Depreciation                                               (5,269)        (6,033)
                                                                     -------------------------
  Properties - Net                                                     12,257         12,645
                                                                     -------------------------

Investment in Conrail                                                   4,663          4,798
Affiliates and Other Companies                                            410            448
Other Long-term Assets                                                    827            552
                                                                     -------------------------
   Total Assets                                                      $ 20,720       $ 20,427
- ---------------------------------------------------------------------------------------------------

Liabilities
Current Liabilities
  Accounts Payable                                                   $  1,197       $  1,216
  Labor and Fringe Benefits Payable                                       436            462
  Casualty, Environmental and Other Reserves                              271            283
  Current Maturities of Long-term Debt                                    349            100
  Short-term Debt                                                         574            187
  Other Current Liabilities                                               646            352
                                                                     -------------------------
   Total Current Liabilities                                            3,473          2,600

Casualty, Environmental and Other Reserves                                767            645
Long-term Debt                                                          6,196          6,432
Deferred Income Taxes                                                   3,227          3,173
Other Long-term Liabilities                                             1,301          1,697
                                                                     -------------------------
   Total Liabilities                                                   14,964         14,547
- ---------------------------------------------------------------------------------------------------

Shareholders' Equity
Common Stock, $1 Par Value                                                218            217
Other Capital                                                           1,525          1,489
Retained Earnings                                                       4,034          4,294
Accumulated Other Comprehensive Loss                                      (21)          (120)
                                                                     -------------------------
   Total Shareholders' Equity                                           5,756          5,880
                                                                     -------------------------
   Total Liabilities and Shareholders' Equity                        $ 20,720       $ 20,427
- ---------------------------------------------------------------------------------------------------
</TABLE>

See accompanying Notes to Consolidated Financial Statements.

                                     -24-
<PAGE>

Consolidated Statement of Changes in Shareholders' Equity
(Millions of Dollars)

<TABLE>
<CAPTION>
                                                       Common Shares                        Accumulated Other
                                                        Outstanding Common  Other  Retained  Comprehensive
                                                       (Thousands)  Stock  Capital  Earnings     Loss   Total
- -------------------------------------------------------------------------------------------------------------
<S>                                                    <C>          <C>    <C>     <C>      <C>
Balance Dec. 27, 1996                                    216,885    $ 217  $ 1,433  $ 3,455  $ (110)  $ 4,995

Comprehensive Earnings:
  Net Earnings                                                --       --       --      799      --       799
  Adjustment of Minimum Pension Liability,
   Net of $45 Income Taxes                                    --       --       --       --      87        87
                                                                                                      -------
  Comprehensive Earnings                                                                                  886
                                                                                                      -------

Dividends                                                     --       --       --     (235)     --      (235)
Common Stock Issued (Repurchased) - Net                    1,425        1      119       --      --       120
- -------------------------------------------------------------------------------------------------------------
Balance Dec. 26, 1997                                    218,310      218    1,552    4,019     (23)    5,766

Comprehensive Earnings:
Net Earnings                                                  --       --       --      537      --       537
  Adjustment of Minimum Pension Liability,
   Net of $54 Income Taxes                                    --       --       --       --     (94)      (94)
  Other - Net                                                 --       --       --       --      (3)       (3)
                                                                                                      -------
  Comprehensive Earnings                                                                                  440
                                                                                                      -------
Dividends                                                     --       --       --     (262)     --      (262)
Common Stock Issued (Repurchased) - Net                   (1,191)      (1)     (63)      --      --       (64)
- -------------------------------------------------------------------------------------------------------------

Balance Dec. 25, 1998                                    217,119      217    1,489    4,294    (120)    5,880

Comprehensive Earnings:
  Net Earnings                                                --       --       --        2      --         2
  Adjustment of Minimum Pension Liability,
   Net of $56 Income Taxes                                    --       --       --       --      99        99
                                                                                                       ------
  Comprehensive Earnings                                                                                  101
                                                                                                       ------
Dividends                                                     --       --       --     (262)     --      (262)
Common Stock Issued (Repurchased) - Net                    1,325        1       36       --      --        37
- -------------------------------------------------------------------------------------------------------------
Balance Dec. 31, 1999                                    218,444     $218   $1,525   $4,034   $ (21)   $5,756
- -------------------------------------------------------------------------------------------------------------
</TABLE>

See accompanying Notes to Consolidated Financial Statements.

                                     -25-
<PAGE>

Note 1. Significant Accounting Policies.

Nature of Operations
CSX Corporation (CSX) is a freight transportation company with principal
business units providing rail, intermodal, and container shipping services. Rail
transportation services are provided principally throughout the eastern United
States and accounted for slightly more than half of the company's 1999 operating
revenue. Intermodal services are provided through a dedicated network of
terminals and facilities across North America and accounted for nearly 10% of
operating revenue in 1999. Container-shipping services were provided in the
United States and more than 80 countries and territories throughout the world
and accounted for more than a third of 1999 operating revenue. In December 1999,
CSX sold its international container-shipping liner operations (see Note 4.),
but continues to own and operate its domestic container shipping and terminal
management businesses. In September 2000, the Company sold its contract
logistics segment (See Note 21).

Rail shipments include merchandise traffic, automobiles and related products,
and coal, coke and iron ore. Merchandise traffic comprised nearly 60% of rail
revenue in 1999, while automotive traffic accounted for nearly 15% and coal,
coke and iron ore accounted for slightly more than 25%. Merchandise traffic
includes chemicals, paper and forest products, agricultural products, minerals,
metals, phosphates and fertilizer, and food and consumer products. Coal
shipments originate principally from mining locations in the eastern United
States and primarily supply domestic utility and export markets.

Principles of Consolidation
The Consolidated Financial Statements include CSX and its majority-owned
subsidiaries. All significant intercompany accounts and transactions have been
eliminated. Investments in companies that are not majority-owned are carried at
either cost or equity, depending on the extent of control.

Fiscal Year
CSX follows a 52/53-week fiscal reporting calendar. Fiscal year 1999 consisted
of 53 weeks. Fiscal years 1998 and 1997 consisted of 52 weeks. A 52-week fiscal
year consists of four 13-week quarters; a 53-week year reports an extra week in
the first quarter.

Earnings Per Share
References to earnings per share in the Notes to Consolidated Financial
Statements assume dilution.

Cash, Cash Equivalents and Short-term Investments
Cash in excess of current operating requirements is invested in various
short-term instruments carried at cost that approximates market value. Those
short-term investments having a maturity of three months or less at the date of
acquisition are classified as cash equivalents.

Materials and Supplies
Materials and supplies consist primarily of fuel and items for maintenance of
property and equipment, and are carried at average cost.

Properties
All properties are stated at cost, less an allowance for accumulated
depreciation. Main-line track on the rail system is depreciated using a
composite straight-line method. All other property and equipment is depreciated
on a straight-line basis over estimated useful lives of three to 50 years.

Regulations enforced by the Surface Transportation Board (STB) of the U.S.
Department of Transportation require periodic formal studies of ultimate service
lives for all railroad assets. Resulting service life estimates are subject to
review and approval by the STB. For retirements or disposals of depreciable rail
assets that occur in the ordinary course of business, the asset cost (net of
salvage value or sales proceeds) is charged to accumulated depreciation and no
gain or loss is recognized. For retirements or disposals of depreciable assets
of non-rail businesses, and for all dispositions of land, gains or losses are
recognized at the time of disposal. Expenditures that significantly increase
asset values or extend useful lives are capitalized. Repair and maintenance
expenditures are charged to operating expense when the work is performed.

                                     -26-
<PAGE>

Properties and other long-lived assets are reviewed for impairment whenever
events or business conditions indicate the carrying amount of such assets may
not be fully recoverable. Initial assessments of recoverability are based on
estimates of undiscounted future net cash flows associated with an asset or a
group of assets. Where impairment is indicated, the assets are evaluated for
sale or other disposition, and their carrying amount is reduced to fair value
based on discounted net cash flows or other estimates of fair value.

Revenue and Expense Recognition
Surface transportation (rail and intermodal) revenue and expense are recognized
proportionately as freight moves from origin to destination. Marine
transportation (container-shipping) revenue and a corresponding accrual for the
estimated cost to complete delivery are recorded when cargo first sails from its
port of origin.

Environmental Costs
Environmental costs are charged to expense when they relate to an existing
condition caused by past operations and do not contribute to current or future
revenue generation. Liabilities are recorded when CSX's responsibility for
environmental remedial efforts is deemed probable and the costs can be
reasonably estimated. Generally, the timing of these accruals coincides with the
completion of a feasibility study or the company's commitment to a formal plan
of action.

Stock-based Compensation
The company records expense for stock-based compensation in accordance with the
provisions of Accounting Principles Board (APB) Opinion No. 25, "Accounting for
Stock Issued to Employees," and related Interpretations. Disclosures required
with respect to the alternative fair value measurement and recognition methods
prescribed by Financial Accounting Standards Board (FASB) Statement No. 123,
"Accounting for Stock-Based Compensation," are presented in Note 15 - Stock
Plans.

Prior-year Data
Certain prior-year data have been reclassified to conform to the 1999
presentation.

Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires that management make estimates in reporting the
amounts of certain revenues and expenses for each fiscal year and certain assets
and liabilities at the end of each fiscal year. Actual results may differ from
those estimates.

Comprehensive Earnings
CSX reports comprehensive earnings (loss) in accordance with FASB Statement No.
130, "Reporting Comprehensive Income," in the Consolidated Statement of Changes
in Shareholders' Equity. Accumulated other comprehensive loss at Dec. 31, 1999
and Dec. 25, 1998, consists of minimum pension liability adjustments ($15
million and $114 million, respectively) and foreign currency translation
adjustments and other ($6 million and $6 million, respectively).

Accounting Pronouncements
The FASB has issued Statement No. 137, "Accounting for Derivative Instruments
and Hedging Activities -- Deferral of Effective Date of FASB Statement No. 133,"
which postpones the effective date of FASB Statement No. 133 until fiscal
quarters of all fiscal years beginning after June 15, 2000. Statement No. 133
requires companies to record derivatives on the statement of financial position,
measured at fair value. The statement also sets forth new accounting rules for
gains or losses resulting from changes in the values of derivatives. While CSX
does not currently use derivative financial instruments, and its historical use
of such instruments has not been material, the company plans to adopt this
statement in the first quarter of 2001 to the extent it may apply at that time.
The company would not expect the adoption of Statement No. 133 to have a
material impact on its financial statements.

                                     -27-
<PAGE>

Note 2. Change in Method of Accounting for Insurance-Related Assessments.

CSX adopted the American Institute of Certified Public Accountants' Statement of
Position No. 97-3, "Accounting by Insurance and Other Enterprises for Insurance-
Related Assessments," (SOP No. 97-3) effective as of the beginning of fiscal
year 1999. SOP No. 97-3 requires companies to accrue assessments related to
workers' compensation second injury funds and is applicable to CSX with respect
to certain assessments incurred by Sea-Land Service, Inc. (Sea-Land), the
company's container-shipping unit. The assessments relate to employees who have
experienced second injuries over periods dating back to the 1970s and are
receiving a disability benefit. Previously, the assessments were charged to
expense in the fiscal year they were paid. As a result of adopting SOP No. 97-3,
the company recorded a non-cash charge of $78 million, $49 million after tax, 23
cents per share, to reflect the cumulative effect on prior years of the
accounting change. Had the accounting change been applied retroactively, the
effect on net earnings and related per share amounts would not have been
material to any period presented.

Note 3. Investment in and Integrated Rail Operations with Conrail.

Background
CSX and Norfolk Southern Corporation (Norfolk Southern) completed the
acquisition of Conrail Inc. (Conrail) in May 1997. Conrail owns the primary
freight railroad system serving the northeastern United States, and its rail
network extends into several midwestern states and into Canada. CSX and Norfolk
Southern, through a jointly owned acquisition entity, hold economic interests in
Conrail of 42% and 58%, respectively, and voting interests of 50% each. CSX and
Norfolk Southern received regulatory approval from the Surface Transportation
Board (STB) to exercise joint control over Conrail in August 1998 and
subsequently began integrated rail operations over allocated portions of the
Conrail lines in June 1999.

The rail subsidiaries of CSX and Norfolk Southern operate their respective
portions of the Conrail system pursuant to various operating agreements that
took effect on June 1, 1999. Under these agreements, the railroads pay operating
fees to Conrail for the use of right-of-way and rent for the use of equipment.
Conrail continues to provide rail service in certain shared geographic areas for
the joint benefit of CSX and Norfolk Southern for which it is compensated on the
basis of usage by the respective railroads. The majority of Conrail's operations
workforce transferred to CSX or Norfolk Southern, although certain operations
personnel, as well as certain management and administrative employees, remain at
Conrail to oversee its ongoing business activities. As a result of the
acquisition, a number of positions were eliminated and certain duplicate
facilities were closed.

Acquisition Accounting by the Jointly Owned Entity and CSX
The jointly owned entity has accounted for the acquisition of Conrail as a
purchase business combination effective as of the August 1998 control date. At
that time, its investment in Conrail was approximately $10.2 billion, consisting
of the original $9.8 billion purchase price plus equity in Conrail's earnings,
net of purchase price amortization, since the May 1997 acquisition date. This
amount has been allocated to reflect the fair values of Conrail's assets and
liabilities as follows (in millions):

Current Assets                        $   879
Property and Equipment, Net            17,832
Other Assets                            1,122
Current Liabilities                    (1,279)
Long-term Debt                         (1,891)
Deferred Income Taxes                  (5,595)
Other Liabilities                        (868)
                                      -------
  Total                               $10,200
- -------------------------------------------------------

The jointly owned entity's purchase price allocation included a provision of
$280 million for the cost to Conrail of separating non-union employees whose
positions were eliminated as a result of the acquisition. CSX separately
recorded liabilities totaling approximately $400 million to provide for other

                                     -28-
<PAGE>

acquisition-related obligations it is required to fund, including separation and
relocation costs for Conrail union employees, relocation costs for Conrail non-
union employees, and costs associated with the closure of certain Conrail
facilities. CSX increased its investment in Conrail on the statement of
financial position as a result of recording these separate obligations.

Under STB restrictions, CSX and Norfolk Southern did not have complete access to
Conrail's properties and records and also were prevented from negotiating labor
implementing agreements prior to the August 1998 control date. As a result, the
amounts initially recorded by the jointly owned entity and by CSX for separation
costs and other acquisition-related obligations were preliminary and were
adjusted to reflect refinements identified as CSX and Norfolk Southern completed
their integration of the Conrail network. These adjustments did not have a
significant effect on the purchase price allocation.

Conrail Financial Information
Summary financial information for Conrail for its fiscal years ended Dec. 31,
1999, 1998 and 1997 is as follows:

<TABLE>
<CAPTION>
                               Years Ended Dec. 31,                                                     Dec. 31,
- ---------------------------------------------------                                               -------------------
                               1999    1998   1997                                                   1999    1998
- ---------------------------------------------------    --------------------------------------------------------------
<S>                            <C>    <C>    <C>       <C>                                          <C>      <C>
Income Statement Information:                          Balance Sheet Information:
Revenues                       $2,174 $3,863 $3,765    Current Assets                               $  669   $1,005
  Income from Operations          128    515    322    Property and Equipment and Other Assets       7,714    8,039
  Net Income                       26    267      7    Total Assets                                  8,383    9,044
- ---------------------------------------------------    Current Liabilities                             863    1,207
                                                       Long-term Debt                                1,302    1,609
                                                       Total Liabilities                             4,564    5,244
                                                       Stockholders' Equity                          3,819    3,800
                                                       --------------------------------------------------------------
</TABLE>

Conrail's operating results for 1999 were significantly impacted by the changes
in its business resulting from the integration with CSX and Norfolk Southern.
Effective June 1, 1999, Conrail's major sources of revenue are derived from CSX
and Norfolk Southern and consist principally of operating fees, equipment rent,
and shared area usage fees. The nature of Conrail's operating expenses also has
changed to reflect the new operations. In addition, Conrail's 1999 operating
results included after-tax expenses of $121 million principally to reflect the
method of settlement of certain casualty liabilities based on the agreement
between CSX, Norfolk Southern and Conrail, to adjust certain litigation and
environmental reserves related to settlements and completion of site reviews,
and to reflect the assumption of a lease obligation by CSX. Certain of these
items were considered by the joint acquisition entity in its fair value
allocation of Conrail's assets and liabilities and, accordingly, were excluded
in determining the equity in Conrail's net income recorded by CSX.

Conrail's operating results for the years ended Dec. 31, 1998, and 1997 included
certain charges related to the acquisition. The 1998 charges totaled $187
million on an after-tax basis and reflected the accrual of separation costs for
non-union employees below the executive level. The 1997 charges totaled $363
million on an after-tax basis and reflected the accrual of separation costs for
Conrail executives, as well as the vesting of benefits under certain stock
compensation plans and the termination of Conrail's Employee Stock Ownership
Plan. The jointly owned entity accounted for these costs as part of the fair
value allocation and CSX accordingly excluded them in determining its equity in
Conrail's net income. Excluding the charges, Conrail's net income totaled $454
million for the year ended Dec. 31, 1998, and $370 million for the year ended
Dec. 31, 1997.

CSX's Accounting for its Investment in and Integrated Rail Operations with
Conrail Upon integration, substantially all of Conrail's customer freight
contracts were assumed by CSX and Norfolk Southern. As a result, beginning June
1, 1999, CSX's rail and intermodal operating revenue includes revenue from
traffic previously moving on Conrail. Operating expenses reflect corresponding
increases for costs incurred to handle the new traffic and operate the former
Conrail lines. Effective June 1, 1999, rail operating expenses also include a
new expense category, "Conrail Operating Fee, Rent and Services," which

                                     -29-
<PAGE>

reflects payments to Conrail for the use of right-of-way and equipment; as well
as charges for transportation, switching, and terminal services provided by
Conrail in the shared areas operated for the joint benefit of CSX and Norfolk
Southern. The new expense category also includes amortization of the fair value
write-up arising from the acquisition of Conrail, as well as CSX's proportionate
share of Conrail's net income or loss recognized under the equity method of
accounting. Prior to the June 1, 1999 integration, CSX recorded its share of
Conrail's net income, less amortization of the fair value write-up, and
acquisition and transition expenses, in other income (expense) in the
Consolidated Statement of Earnings.

As previously outlined, CSX and Norfolk Southern completed the joint acquisition
of Conrail in May 1997. At that time, CSX's economic interest in Conrail
increased to 42% from approximately 20%. Had CSX held its 42% interest in
Conrail from the beginning of the fiscal year, its net earnings for the year
ended Dec. 26, 1997, would have been reduced by $28 million to $771 million,
$3.60 per share, reflecting additional amounts for equity in Conrail's net
income, amortization of the fair value write-up, and interest on the acquisition
debt.

Transactions With Conrail
The agreement under which CSX operates its allocated portion of the Conrail
route system has an initial term of 25 years and may be renewed at CSX's option
for two five-year terms. Operating fees paid to Conrail under the agreement are
subject to adjustment every six years based on the fair value of the underlying
system. Lease agreements for the Conrail equipment operated by CSX cover varying
terms. CSX is responsible for all costs of operating, maintaining, and improving
the routes and equipment under these agreements. Future minimum payments to
Conrail under the operating, equipment and shared area agreements total $247
million for 2000, $240 million for 2001, $248 million for 2002, $256 million for
2003, $261 million for 2004, and $4.4 billion for years after 2004.

At Dec. 31, 1999, CSX had $53 million in amounts receivable from Conrail,
principally for reimbursement of certain capital improvement costs and accrued
vacation for former Conrail employees who joined CSX in June 1999. CSX has
recorded a corresponding vacation liability and will pay the employees as they
take vacation. Conrail advances its available cash balances to CSX and Norfolk
Southern under variable-rate demand loan agreements. At Dec. 31, 1999, Conrail
had advanced $93 million to CSX under this arrangement at an interest rate of
5.6%. CSX also had amounts payable to Conrail of approximately $105 million
representing expenses incurred under the operating, equipment, and shared area
agreements.

Note 4. Divestitures and Joint Venture Investment.

Sale of International Container-Shipping Assets
In July 1999, CSX entered into an agreement to sell certain assets comprising
the international liner business of Sea-Land to A. P. Moller-Maersk Line
(Maersk) for approximately $800 million, subject to certain purchase price
adjustments that depended on a detailed allocation and valuation of certain
categories of assets. The transaction, which also involved Maersk assuming in
excess of $800 million present value of Sea-Land operating lease obligations,
closed on Dec. 10, 1999.

The international liner business operated approximately 75 container vessels and
200,000 containers in worldwide trades and comprised a majority of CSX's
container-shipping revenue. In addition to vessels and containers, Maersk
acquired certain terminal facilities and various other assets and related
liabilities of the international liner business. The operating revenue
associated with the assets sold was approximately $2.8 billion for 1999, $3.0
billion in 1998, and $3.2 billion in 1997.

In accordance with FASB Statement No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," CSX classified
the international liner assets as "held for sale" in July when the agreement
with Maersk was signed. The company recorded a $315 million asset impairment
charge in the third quarter to adjust the book value of the related property,
equipment and other long-lived assets to their fair value less cost to sell. In
addition, in accordance with the provisions of Statement No. 121, no

                                     -30-
<PAGE>

depreciation was recorded on these assets after their classification as "held
for sale." Based on subsequent accounting for the completed transaction,
including adjustments to reflect asset allocations agreed to at closing, the
company determined that the loss on sale was approximately $86 million higher
than the third quarter charge. The final loss on sale of $401 million, net of a
$41 million benefit from the lower depreciation expense, reduced 1999 earnings
by $360 million, $271 million after tax, $1.27 per share. The agreement with
Maersk provides for a post-closing adjustment to the sales price based on the
final amount of working capital conveyed, and the loss includes estimates of
costs to terminate various contractual obligations of the company. These matters
are expected to be resolved in fiscal 2000 and will affect the final
determination of the loss on sale. Net of purchase price adjustments and cash
balances conveyed to Maersk at closing, the company received cash proceeds of
$751 million on the sale. Through Dec. 31, 1999, a portion of the proceeds was
used to reduce short-term debt, with the remainder invested in cash equivalents
and short-term investments.

CSX retained the container-shipping business serving the U.S. domestic trade and
part of the company's international terminal operations and will manage them
separately. Management reporting and performance measures for these businesses
have been developed for fiscal year 2000. The company expects to revise its
disclosures under FASB Statement No. 131, "Disclosures about Segments of an
Enterprise and Related Information," in the first quarter of 2000 to report
these as separate business segments; however, it will not be practicable to
provide comparative segment disclosures for prior years.

Sale of Grand Teton Lodge Subsidiary
In June 1999, CSX completed the sale of its Grand Teton Lodge resort subsidiary,
located in Jackson Hole, Wyo., to Vail Resorts. The transaction resulted in a
net investment gain of $27 million, $17 million after tax, 8 cents per share.
CSX received net cash proceeds of $49 million.

Conveyance of Barge Subsidiary to Joint Venture
On June 30, 1998, CSX conveyed its wholly owned barge subsidiary, American
Commercial Lines LLC (ACL), to a venture formed with Vectura Group Inc.
(Vectura). As part of the transaction, NMI Holdings LLC, a wholly owned barge
subsidiary of Vectura, was combined with ACL. CSX received cash proceeds of $695
million from the transaction, $67 million of which were used to repay certain
outstanding debt and other obligations of ACL and to pay expenses of the
transaction. Operating results for the year ended Dec. 25, 1998, include a net
investment gain of $154 million, $90 million after tax, 42 cents per share,
primarily from the ACL transaction.

CSX has a 32% common ownership in the new venture. Due to the reduction in its
ownership interest, CSX has accounted for its investment in the venture under
the equity method for the fiscal years ended Dec. 25, 1998 and Dec 31, 1999. For
periods prior to fiscal year 1998, ACL was accounted for as a consolidated
subsidiary.

Note 5. Workforce Reduction Program.

CSX recorded a charge of $55 million, $34 million after tax, 16 cents per share,
in the fourth quarter of 1999 to recognize the cost of a program to reduce the
non-union workforce at its rail and intermodal units by approximately 800
positions. A voluntary early retirement program completed in December accounted
for approximately 680 of the position reductions, with the remainder achieved
through a combination of involuntary terminations and normal attrition.
Approximately 75% of the retirements and separations occurred by the end of the
year, with the remainder scheduled to occur over the first half of fiscal year
2000 as their job responsibilities are reorganized or transitioned to other
personnel. Early retirement benefits offered under the voluntary program
accounted for $24 million of the charge and will be paid from CSX's pension and
postretirement benefit plans. Separation benefits are being paid from cash
generated by operations. Approximately half of the separation benefits were paid
in 1999. Substantially all of the remaining amounts will be paid in fiscal year
2000 and are included in "Labor and Fringe Benefits Payable" in the consolidated
statement of financial position.

                                     -31-
<PAGE>

Note 6. Operating Expense.

<TABLE>
<CAPTION>
                                                                           1999     1998     1997
- ---------------------------------------------------------------------------------------------------
<S>                                                                       <C>      <C>      <C>
Labor and Fringe Benefits                                                 $3,291   $2,983   $3,073
Materials, Supplies and Other                                              2,637    2,463    2,450
Conrail Operating Fee, Rent and Services                                     280       --       --
Building and Equipment Rent                                                1,165    1,059    1,066
Inland Transportation                                                        918      893      920
Depreciation                                                                 583      598      610
Fuel                                                                         472      393      554
Loss on Sale of International Container-Shipping Assets                      401       --       --
Workforce Reduction Program                                                   55       --       --
Restructuring Credit                                                          --      (30)      --
                                                                      -----------------------------
  Total                                                                   $9,802   $8,359   $8,673
                                                                      -----------------------------
Selling, General and Administrative Expense Included in Above Items       $1,074   $1,142   $1,084
- ---------------------------------------------------------------------------------------------------
</TABLE>

Note 7. Other Income.

<TABLE>
<CAPTION>
                                                                               1999    1998    1997
- ---------------------------------------------------------------------------------------------------
<S>                                                                            <C>     <C>     <C>
Interest Income                                                                  $ 47   $ 52   $ 53
Income from Real Estate and Resort Operations(a)                                   74     47     71
Net Investment Gain(b)                                                             27    154     --
Net Losses from Accounts Receivable Sold                                          (31)   (30)   (29)
Minority Interest                                                                 (40)   (35)   (41)
Net Income (Loss) from Investment in Conrail                                      (42)   (39)    34
Equity Earnings of Other Affiliates                                                17     27      6
Foreign Currency Loss                                                              (4)   (16)    (1)
Miscellaneous                                                                       4    (41)   (42)
                                                                         --------------------------
  Total                                                                          $ 52   $119    $51
- ---------------------------------------------------------------------------------------------------
</TABLE>

(a)  Gross revenue from real estate and resort operations was $204 million, $194
     million and $206 million in 1999, 1998 and 1997, respectively.

(b)  The $27 million net investment gain recognized in 1999 was attributable to
     the sale of the Grand Teton Lodge Company. The $154 million net gain in
     1998 was primarily attributable to the conveyance of the company's barge
     subsidiary to a joint venture. See Note 4.

                                     -32-
<PAGE>

Note 8. Income Taxes.

Earnings from domestic and foreign operations and related income tax expense are
as follows:

                                                          1999    1998   1997
- ------------------------------------------------------------------------------
Earnings from Continuing Operations Before Income Taxes:
     -- Domestic                                          $ 58   $ 543  $  970
     -- Foreign                                             46     201     189
                                                   ---------------------------
  Total Earnings from Continuing Operations
    Before Income Taxes                                   $104   $ 744  $1,159
- ------------------------------------------------------------------------------

Income Tax Expense (Benefit):
Current  -- Federal                                       $ 65   $(103) $  137
     -- Foreign                                             26      34      31
     -- State                                                1      (6)     16
                                                  ----------------------------
  Total Current                                             92     (75)    184
                                                  ----------------------------

 Deferred -- Federal                                       (75)    262     168
     -- Foreign                                              3       2       1
     -- State                                               52      35      21
                                                  ----------------------------
  Total Deferred                                           (20)    299     190
                                                  ----------------------------
  Total Income Tax Expense                                $ 72   $ 224 $   374
- ------------------------------------------------------------------------------

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

<TABLE>
<CAPTION>
                                                                         1999         1998           1997
- -------------------------------------------------------------------------------------------------------------
<S>                                                                    <C>    <C>   <C>     <C>   <C>     <C>
Tax at Statutory Rates                                                 $37    35%   $260    35%  $406     35%
State Income Taxes                                                       6     6      18     2     24      2
Equity in Conrail Net Income                                            (4)   (4)    (49)   (7)   (30)    (3)
Loss on Sale of International Container-Shipping Assets                 43    41      --    --     --     --
Other Items                                                            (10)   (9)     (5)   --    (26)    (2)
                                                        -----------------------------------------------------
   Income Tax Expense                                                  $72    69%   $224    30%  $374     32%
- -------------------------------------------------------------------------------------------------------------
</TABLE>

The significant components of deferred tax assets and liabilities include:

                                                 Dec. 31, 1999  Dec. 25, 1998
- -----------------------------------------------------------------------------

Deferred Tax Assets:
  Productivity/Restructuring Charges                  $  133     $  139
  Employee Benefit Plans                                 309        406
  Other                                                  502        527
                                                 ----------------------------
   Total                                                 944      1,072
                                                 ----------------------------

Deferred Tax Liabilities:
  Accelerated Depreciation                             3,256      3,334
  Other                                                  780        783
                                                 ----------------------------
   Total                                               4,036      4,117
- -----------------------------------------------------------------------------
Net Deferred Tax Liabilities                          $3,092     $3,045
- ---------------------------------------------------------------------------

                                     -33-
<PAGE>

The sale of certain assets comprising the international liner business of
Sea-Land (Note 4.) increased the effective deferred state income tax rate which
is applied to the company's cumulative temporary differences.

In addition to the annual provision for deferred income tax expense, the change
in the year-end net deferred income tax liability balances included the income
tax effect of the changes in the minimum pension liability in 1999 and 1998, the
income tax effect of the transfer of certain assets and obligations from
Conrail's primary defined benefit pension plan to the CSX pension plan in 1999,
and the income tax effect of accruing assessments related to workers
compensation second injury funds in accordance with SOP No. 97-3 in 1999.

The company has not recorded domestic deferred or additional foreign income
taxes applicable to undistributed earnings of foreign subsidiaries that are
considered to be indefinitely reinvested. Such earnings amounted to $172 million
and $205 million at Dec. 31, 1999 and Dec. 25, 1998, respectively. These amounts
may become taxable upon their remittance as dividends or upon the sale or
liquidation of these foreign subsidiaries. It is not practicable to determine
the amount of net additional income tax that may be payable if such earnings
were repatriated.

The company files a consolidated federal income tax return, which includes its
principal domestic subsidiaries. Examinations of the federal income tax returns
of CSX have been completed through 1990. Returns for 1991 through 1996 are
currently under examination. Management believes adequate provision has been
made for any adjustments that might be assessed.

Note 9. Accounts Receivable.

The company sells revolving interests in its rail accounts receivable to public
investors through a securitization program and to a financial institution
through commercial paper conduit programs. The accounts receivable are sold,
without recourse, to a wholly owned, special-purpose subsidiary, which then
transfers the receivables, with recourse, to a master trust. The securitization
and conduit programs are accounted for as sales in accordance with FASB
Statement No. 125, "Accounting for Transfers and Servicing of Financial Assets
and Extinguishments of Liabilities." Receivables sold under these arrangements
are excluded from accounts receivable in the consolidated statement of financial
position. In June 1998, the company replaced an expiring securitization program
with a new program and reduced the amount of receivables sold under the conduit
programs. At Dec. 31, 1999, the agreements provide for the sale of up to $350
million in receivables through the securitization program and $50 million
through the conduit programs.

At Dec. 31, 1999 and Dec. 25, 1998, the company had sold $347 million of
accounts receivable; $300 million through the securitization program and $47
million through the conduit programs. The certificates issued under the
securitization program bear interest at 6% annually and mature in June 2003.
Receivables sold under the conduit program require yield payments based on
prevailing commercial paper rates plus incremental fees. Losses recognized on
the sale of accounts receivable totaled $31 million, $30 million, and $29
million in 1999, 1998 and 1997, respectively.

The company has retained the responsibility for servicing accounts receivable
transferred to the master trust. The average servicing period is approximately
one month. No servicing asset or liability has been recorded since the fees the
company receives for servicing the receivables approximate the related costs.

The company maintains an allowance for doubtful accounts based upon the expected
collectibility of accounts receivable, including receivables transferred to the
master trust. Allowances for doubtful accounts of $81 million and $92 million
have been applied as a reduction of accounts receivable at Dec. 31, 1999 and
Dec. 25, 1998, respectively.

                                     -34-
<PAGE>

Note 10. Properties.

                               Dec. 31, 1999               Dec. 25, 1998
                             ---------------------------------------------------
                                   Accumulated                 Accumulated
                             Cost  Depreciation Net      Cost  Depreciation Net
- --------------------------------------------------------------------------------

Rail:
Road                        $10,534  $2,641  $ 7,893    $10,202  $2,745  $ 7,457
Equipment                     5,243   1,983    3,260      4,762   1,806    2,956
                            ----------------------------------------------------
  Total Rail                 15,777   4,624   11,153     14,964   4,551   10,413
Container-shipping              600     339      261      2,662   1,204    1,458
Other                         1,149     306      843      1,052     278      774
                            ----------------------------------------------------
  Total                     $17,526  $5,269  $12,257   $18,678   $6,033  $12,645
- --------------------------------------------------------------------------------

Note 11. Casualty, Environmental and Other Reserves.


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

<TABLE>
<CAPTION>
                                           Casualty and      Environmental  Separation
                                         Other Reserves(a)(b) Reserves(a) Liabilities(a)(c) Total
- ----------------------------------------------------------------------------------------
<S>                                      <C>                <C>       <C>       <C>
Balance Dec. 27, 1996                            $ 534      $117      $ 370     $1,021
Charged to Expense                                 277        12         --        289
Payments                                          (249)      (30)       (22)      (301)
- ----------------------------------------------------------------------------------------
Balance Dec. 26, 1997                              562        99        348      1,009
Charged to Expense                                 309         3         --        312
Restructuring Credit                                --        --        (30)       (30)
Payments and Other Reductions                     (318)      (27)       (18)      (363)
- ----------------------------------------------------------------------------------------
Balance Dec. 25, 1998                              553        75        300        928
Charged to Expense                                 417         3         --        420
Cumulative Effect of Accounting Change              78        --         --         78
Payments and Other Reductions                     (333)      (25)       (30)      (388)
- ----------------------------------------------------------------------------------------
Balance Dec. 31, 1999                            $ 715      $ 53      $ 270     $1,038
- ----------------------------------------------------------------------------------------
</TABLE>

(a)  Balances include current portions of casualty and other, environmental and
     separation reserves, respectively, of $236 million, $20 million and $15
     million at Dec. 31, 1999; $244 million, $20 million and $19 million at Dec.
     25, 1998; $245 million, $20 million and $33 million at Dec. 26, 1997.

(b)  Casualty reserves are estimated based upon the first reporting of an
     accident or personal injury. Liabilities for accidents are based upon field
     reports and liabilities for personal injuries and occupational claims are
     based upon the type and severity of the injury or claim and the use of
     current trends and historical data. The company has recorded liabilities in
     sufficient amounts to cover identified claims and an estimate of incurred,
     but not reported, claims. Future liabilities for certain occupational
     hazards are not subject to reasonable estimation.

(c)  Separation liabilities at Dec. 31, 1999, relate to productivity charges
     recorded in 1991 and 1992 to provide for the estimated costs of
     implementing workforce reductions, improvements in productivity and other
     cost reductions at the company's major transportation units. The remaining
     liabilities are expected to be paid out over the next 15 to 20 years. The
     remaining liability for separation costs incurred in connection with the
     1999 workforce reduction program is included in "Labor and Fringe Benefits
     Payable" (see Note 5).

The company increased casualty and other reserves by $78 million at the
beginning of fiscal year 1999 to record the cumulative effect on prior years of
adopting a new accounting rule (SOP No. 97-3) related to assessments by

                                     -35-
<PAGE>

workers' compensation second injury funds. The assessments relate to disability
benefits received by former employees of Sea-Land and previously were charged to
expense in the fiscal year they were paid.

During 1998, CSXT recorded a restructuring credit of $30 million, reflecting the
reversal of certain separation and labor protection reserves established as part
of a 1995 restructuring charge. These reserves were associated with planned
workforce reductions that did not occur as a result of a new telecommunications
contract CSXT entered into in July 1998.

Note 12. Debt and Credit Agreements.

<TABLE>
<CAPTION>
                                                       Average Interest Rates
Types and Maturity Dates                                 at Dec. 31, 1999  Dec. 31, 1999  Dec. 25, 1998
- -------------------------------------------------------------------------------------------------------
<S>                                                    <C>                 <C>            <C>
Commercial Paper                                               5.39%           $ 800         $1,000
Notes (2002-2032)                                              7.53%           4,558          4,560
Equipment Obligations (2000-2014)                              6.88%             940            770
Mortgage Bonds (2002-2003)                                     3.16%              56             72
Other Obligations, including Capital Leases (2000-2010)        7.34%             191            130
                                                           --------------------------------------------
  Total                                                        7.13%           6,545          6,532
Less Debt Due Within One Year                                                    349            100
                                                                             --------------------------
  Total Long-term Debt                                                        $6,196         $6,432
- -------------------------------------------------------------------------------------------------------
</TABLE>

CSX maintains a $2.5 billion bank credit agreement to provide financing for a
portion of the Conrail acquisition and for general working capital needs. Under
the agreement, the company may borrow directly from the participating banks or
utilize the credit facility to support the issuance of commercial paper. Direct
borrowings from the participating banks can be obtained, at the company's
option, under a competitive bid process among the banks or under a revolving
credit arrangement with interest either at LIBOR plus a margin determined by the
company's credit rating or at an alternate base rate, as defined in the
agreement. The company pays annual fees to the participating banks that may
range from .06% to .15% of the total commitment, depending upon its credit
rating. The credit agreement, which expires in November 2001, also includes
certain covenants and restrictions, such as limitations on debt as a percentage
of total capitalization and restrictions on the disposition of certain assets.
At Dec. 31, 1999, CSX had commercial paper borrowings supported by the credit
facility of $1.374 billion, of which $800 million was classified as long-term
debt based on the company's ability and intent to maintain this debt outstanding
for more than one year. At Dec. 26, 1998, the company had commercial paper
borrowings of $1.187 billion, of which $1 billion was classified as long-term
debt. Short-term debt totaled $574 million at a weighted-average interest rate
of 5.39% at Dec. 31, 1999, and $187 million at a weighted-average interest rate
of 5.82% at Dec. 25, 1998.

CSX issued other debt during 1999 and 1998. In 1999, $400 million of floating
rate notes with a one-year maturity were issued to ensure adequate liquidity
over year end in the event that financial markets experienced disruption from
Year 2000 issues. In 1998, the company issued approximately $1 billion of fixed
rate notes, principally to refinance commercial paper borrowings incurred to
complete the Conrail acquisition. The notes have maturities ranging from 2001 to
2028 and interest rates ranging from 5.85% to 6.80%. In addition to these
financings, the company had customary borrowing and repayment activity in
connection with the acquisition of equipment.

In January 1999, CSX completed a shelf registration statement with the
Securities and Exchange Commission that provides for the issuance of up to $800
million in debt securities and warrants, common stock, preferred stock,
depository shares, or warrants for common or preferred stock. At Dec. 31, 1999,
the company had $400 million of capacity remaining under the shelf registration.

Excluding long-term commercial paper, the company has long-term debt maturities
for 2000 through 2004 aggregating $349 million, $157 million, $584 million, $314
million and $391 million, respectively. Certain of CSX's rail unit

                                     -36-
<PAGE>

properties are pledged as security for various rail-related long-term debt
issues.

Note 13. Common and Preferred Stock.

The company has a single class of common stock, $1 par value, of which 300
million shares are authorized. Each share is entitled to one vote in all matters
requiring a vote. At Dec. 31, 1999, common shares issued and outstanding totaled
218,444,959.

The company also has total authorized preferred stock of 25 million shares, of
which 250,000 shares of Series A have been reserved for issuance, and 3 million
shares of Series B have been reserved for issuance under the Shareholder Rights
Plan discussed below. All preferred shares rank senior to common shares both as
to dividends and liquidation preference. No preferred shares were outstanding at
Dec. 31, 1999.

On May 29, 1998, the board of directors adopted a Shareholder Rights Plan.
Pursuant to the Plan, each outstanding share of common stock also evidences one
preferred share purchase right ("right"). Each right entitles shareholders of
record to purchase from the company, until the earlier of June 8, 2008, or the
redemption of the rights, one one-hundredth of a share of Series B preferred
stock at an exercise price of $180, subject to certain adjustments or, under
certain circumstances, to obtain additional shares of common stock in exchange
for the rights. The rights are not exercisable or transferable apart from the
related common shares until the earlier of 10 business days following the public
announcement that a person or affiliated group has acquired 20% or more of the
company's outstanding common stock; or 10 days following the commencement or
announcement of an intention to make a tender offer or exchange offer, the
consummation of which would result in the ownership by a person or group of 15%
or more of the outstanding common stock. The board of directors may redeem the
rights at a price of one cent per right at any time prior to the acquisition by
a person or group of 20% or more of the outstanding common stock.

Note 14. Earnings Per Share.



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

<TABLE>
                                                                                           1999       1998      1997
- ---------------------------------------------------------------------------------------------------------------------
<S>                                                                                  <C>            <C>       <C>
Numerator:
  Net Earnings before Discontinued Operations and Cumulative Effect of
     Accounting Change                                                                 $      32  $     520  $    785

Denominator (thousands):
  Average Common Shares Outstanding                                                      210,616    210,860   209,979
  Effect of Potentially Dilutive Common Shares, Principally Employee Stock Plans           2,080      3,336     4,466
                                                                                     --------------------------------
  Average Common Shares Outstanding, Assuming Dilution                                   212,696    214,196   214,445
                                                                                     --------------------------------
Earnings Per Share, from continuing operations                                         $     .15  $    2.47  $   3.74
                                                                                     --------------------------------
Earnings Per Share, from continuing operations, Assuming Dilution                      $     .15  $    2.43  $   3.66
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>

Certain potentially dilutive securities outstanding at Dec. 31, 1999, Dec. 25,
1998, and Dec. 26, 1997, were not included in the computation of earnings per
share, assuming dilution, since their exercise prices were greater than the
average market price of the common shares during the period and their effect is
antidilutive. These shares totaled 15.60 million at a weighted-average exercise
price of $45.80 per share for 1999, 9.60 million at $48.84 per share for 1998,
and 1.96 million at $57.00 for 1997.

                                     -37-
<PAGE>

Note 15. Stock Plans.

The company maintains several stock plans designed to encourage ownership of its
stock and provide incentives for employees to contribute to its success. Expense
for stock-based compensation under these plans is based on the intrinsic value
accounted for under the principles of APB Opinion No. 25 and related
Interpretations. The company recognized compensation expense of $6 million in
1999, a net credit of $4 million in 1998, and expense of $66 million in 1997.
Had compensation expense been determined based upon fair values at the date of
grant, consistent with the methods of FASB Statement No. 123, the company's net
earnings and earnings per share would have been reduced to the pro forma amounts
indicated below.

                                                      1999   1998   1997
- --------------------------------------------------------------------------------

Net Earnings                          -- As Reported $   2   $ 537   $ 799
                                      -- Pro Forma   $ (22)  $ 481   $ 791

Earnings Per Share                    -- As Reported $ .01   $2.55   $3.80
                                      -- Pro Forma   $(.11)  $2.28   $3.77

Earnings Per Share, Assuming Dilution -- As Reported $ .01   $2.51   $3.72
                                      -- Pro Forma   $(.11)  $2.24   $3.69
- --------------------------------------------------------------------------------

The pro forma fair value method of accounting was applied only to stock-based
awards granted after Dec. 30, 1994. Because all stock-based compensation expense
for 1999, 1998 and 1997 was not restated and because stock-based awards granted
may vary from year to year, the resulting pro forma compensation cost may not be
representative of that to be expected in future years.

Stock Purchase and Loan Plan
The Stock Purchase and Loan Plan provides for the purchase of common stock and
related rights by eligible officers and key employees of the company and
entitles them to obtain loans with respect to the shares purchased. The Plan is
intended to further the long-term stability and financial success of the company
by providing a method for eligible employees to increase significantly their
ownership of common stock. A total of 9 million shares are reserved for issuance
under the Plan.

In consideration for shares purchased, participants have provided down payments
of not less than 5% nor more than 25% of the purchase price in the form of cash,
recourse notes or equity earned in the Plan. The remaining purchase price is in
the form of non-recourse loans secured by the shares issued. At Dec. 31, 1999
and Dec. 25, 1998, loans outstanding totaled $261 million and $275 million,
respectively, at weighted-average interest rates of 6.6% for both years. All
non-recourse loans under the Plan were originally subject to certain adjustments
after a vesting period based upon targeted increases in the market price of CSX
common stock. Certain of the market price thresholds were met prior to 1998,
resulting in forgiveness of interest (net of dividends applied to interest) plus
a portion of the principal balances of the notes.

At Dec. 31, 1999, there were 143 participants in the Plan. Transactions
involving the Plan are as follows:

                                                Shares
                                               (000's)  Average Price(a)
- --------------------------------------------------------------------------

Outstanding at Dec. 27, 1996                    8,111     $46.26
  Issued                                          138     $59.43
  Exchanged, Canceled or Withdrawn               (581)    $22.48
                                                --------------------------
Outstanding at Dec. 26, 1997                    7,668     $45.74
  Exchanged, Canceled or Withdrawn               (503)    $45.13
                                                --------------------------
Outstanding at Dec. 25, 1998                    7,165     $45.75
  Exchanged, Canceled or Withdrawn               (349)    $47.50
                                                --------------------------
Outstanding at Dec. 31, 1999                    6,816     $46.93
- --------------------------------------------------------------------------

(a) Represents average cost to participants, net of cumulative note forgiveness.

                                     -38-
<PAGE>

There were no shares issued under the Stock Purchase and Loan Plan in 1999 or
1998. The weighted-average fair value benefit to participants for a share issued
under the Plan in 1997 was $19.82. This value was estimated as of the grant date
using the Black-Scholes option pricing model with the following assumptions:
risk-free interest rate of 6.1%; dividend yield of 2.2%; volatility factor of
22.2%; and expected life of six years.

1987 Long-term Performance Stock Plan and 1990 Stock Award Plan
The CSX Corporation 1987 Long-term Performance Stock Plan and 1990 Stock Award
Plan provide for awards in the form of stock options, Stock Appreciation Rights
(SARs), Performance Share Awards (PSAs), Restricted Stock Awards (RSAs) and
Incentive Compensation Program shares (ICPs) to eligible officers and employees.
Awards granted under the Plans are determined by the board of directors based on
the financial performance of the company.

At Dec. 31, 1999, there were 3,243 current or former employees with outstanding
grants under the 1987 Plan. A total of 20,413,561 shares were reserved for
issuance, of which 1,465,331 were available for new grants. At Dec. 31, 1999,
there were 1,276,289 shares reserved for issuance under the 1990 Plan, of which
432,729 were available for new grants. The remaining shares are assigned to
outstanding stock options, SARs, RSAs and PSAs.

The majority of stock options have been granted with 10-year terms and vest at
the end of one year of continued employment. The exercise price for options
granted equals the market price of the underlying stock on the date of grant. A
summary of the company's stock option activity and related information for the
fiscal years ended Dec. 31, 1999, Dec. 25, 1998, and Dec. 26, 1997, follows:

<TABLE>
<CAPTION>
                                              1999                          1998                          1997
                                -----------------------------------------------------------------------------------------
                                   Shares    Weighted-average    Shares    Weighted-average    Shares    Weighted-average
                                   (000s)     Exercise Price     (000s)     Exercise Price     (000s)     Exercise Price
- ----------------------------------------------------------- ------------------------ ------------------------------------
<S>                                <C>       <C>                <C>        <C>                 <C>       <C>
Outstanding at Beginning of Year   16,288        $41.73         16,171          $40.49         13,102         $35.82
Granted                             3,226        $43.96          2,674          $48.43          4,182         $51.44
Exchanged, Canceled or Expired       (521)       $48.89         (1,505)         $52.82            (31)        $49.89
Exercised                            (683)       $24.19         (1,052)         $23.80         (1,082)        $26.08
- ----------------------------------------------------------- ------------------------ ------------------------------------
Outstanding at End of Year         18,310        $42.57         16,288          $41.73         16,171         $40.49
- ----------------------------------------------------------- ------------------------ ------------------------------------
Exercisable at End of Year         10,038        $37.94         10,447          $36.96          9,911         $34.08
- ----------------------------------------------------------- ------------------------ ------------------------------------
Fair Value of Options Granted     $ 10.92                      $ 11.22                        $ 12.25
- ----------------------------------------------------------- ------------------------ ------------------------------------
</TABLE>

On Dec. 14, 1998, 1,297,595 stock options granted in April 1998 at an exercise
price of $52.66 per share were exchanged for 1,038,076 new options at an
exercise price of $41.78 per share.

The following table summarizes information about stock options outstanding at
Dec. 31, 1999:

<TABLE>
<CAPTION>
                           Options Outstanding              Options Exercisable
          ---------------------------------------------------------------------------------------
                Number      Weighted-average                          Number
             Outstanding      Remaining           Weighted-average  Exercisable  Weighted-average
              (000s)        Contractual Life      Exercise Price      (000s)      Exercise Price
          --------------------------------------------------------  -----------------------------
<S>          <C>            <C>                   <C>               <C>          <C>
$15 to $20       903             1.1                   $19.18             903         $19.18
$30 to $39     4,590             3.4                   $35.55           4,590         $35.55
$40 to $49     9,015             7.4                   $43.64           3,941         $42.94
$50 to $57     3,802             7.1                   $54.10             604         $51.43
- ------------------------------------------------------------ ------------------------------------
  Total       18,310             6.1                   $42.57          10,038         $37.94
- -------------------------------------------------------------------------------------------------
</TABLE>

The fair value of options granted in 1999, 1998 and 1997 was estimated as of the
dates of grant using the Black-Scholes option pricing model with the following
weighted-average assumptions used for grants in 1999, 1998 and 1997,

                                     -39-
<PAGE>

respectively: risk-free interest rates of 5.2%, 5.2% and 6.5%; volatility
factors of 24%, 23% and 21%; dividend yields of 2.6%, 2.4% and 2.2%; and
expected lives of 6 years, 5 years and 4.8 years.

Under the Plans, the value of PSAs is contingent on the achievement of
performance goals and completion of certain continuing employment requirements
over a three-year period. Each PSA earned will equal the fair market value of
one share of CSX common stock on the date of payment. At Dec. 31, 1999, there
were 1,323,200 shares reserved for outstanding PSAs. In 1999, 1998 and 1997,
respectively, 256,000, 518,500, and 126,600 PSAs were granted to employees. The
weighted-average fair value of those shares was $41.52 for 1999, $52.00 for
1998, and $44.88 for 1997. In February 2000, the company's Board of Directors
approved a plan to discontinue grants of PSA's after 1999. In connection with
that plan, the final number of shares to be distributed under outstanding grants
was determined. These shares will be issued to participants in 2000.

During 1999, 500,000 shares were issued as RSAs to certain executives. The RSAs
vest over a three or four year employment period and are contingent on the
achievement of certain financial performance goals. The fair value of RSAs
was$45.48 as of the date of grant.

At Dec. 31, 1999, there were 56,024 SARs outstanding with a weighted-average
exercise price of $16.84. In 1999, 1998 and 1997, respectively, 130,116, 77,556
and 171,377 SARs were exercised at weighted-average exercise prices of $16.77,
$15.58 and $14.94. There were no grants of SARs in 1999, 1998 or 1997.

Stock Purchase and Dividend Reinvestment Plans
The 1991 Employees Stock Purchase and Dividend Reinvestment Plan provides a
method and incentive for eligible employees to purchase shares of the company's
common stock at market value by payroll deductions. To encourage stock
ownership, employees receive a 17.65% matching payment on their contributions in
the form of additional stock purchased by the company. Each matching payment of
stock is subject to a two-year holding period. Sales of stock prior to the
completion of the holding period result in forfeiture of the matching stock
purchase. Officers and key employees who qualify for the Stock Purchase and Loan
Plan are not eligible to participate in this Plan. At Dec. 31, 1999, there were
565,453 shares of common stock available for purchase under this Plan. Employees
purchased 38,989 shares in 1999, 37,403 shares in 1998 and 35,593 shares in 1997
under the plan at weighted-average market prices of $41.53, $46.63, and $51.94
for 1999, 1998 and 1997, respectively.

The company also maintains the Employees Stock Purchase and Dividend
Reinvestment Plan and the Shareholders Dividend Reinvestment Plan, adopted in
1981, under which all employees and shareholders may purchase CSX common stock
at the average of daily high and low sale prices for the five trading days
ending on the day of purchase. To encourage stock ownership, employees receive a
5% discount on all purchases under this program. At Dec. 31, 1999, there were
5,488,329 shares reserved for issuance under these Plans.

Stock Plan for Directors
The Stock Plan for Directors, approved by the shareholders in 1992, governs in
part the manner in which directors' fees and retainers are paid. A minimum of
40% of the retainers must be paid in common stock of the company. In addition,
each director may elect to receive up to 100% of the remaining retainer and fees
in the form of common stock of the company. In 1997, shareholders approved
amendments to the Plan that would permit additional awards of stock or stock
options. In 1999, 13,000 stock options were granted with an exercise price of
$35.31. In 1998, 13,000 stock options were granted with an exercise price of
$41.25. The Plan permits each director to elect to transfer stock into a trust
that will hold the shares until the participant's death, disability, retirement
as a director, other cessation of services as a director, or change in control
of the company. At Dec. 31, 1999, there were 898,330 shares of common stock
reserved for issuance under this Plan.

Note 16. Fair Value of Financial Instruments.

Fair values of the company's financial instruments are estimated by reference to
quoted prices from market sources and financial institutions, as well as other
valuation techniques. Long-term debt is the only financial instrument of

                                     -40-
<PAGE>

the company with a fair value significantly different from its carrying amount.
At Dec. 31, 1999, the fair value of long-term debt, including current
maturities, was $6.44 billion, compared with a carrying amount of $6.55 billion.
At Dec. 25, 1998, the fair value of long-term debt, including current
maturities, was $6.96 billion, compared with a carrying amount of $6.53 billion.
The fair value of long-term debt has been estimated using discounted cash flow
analysis based upon the company's current incremental borrowing rates for
similar types of financing arrangements.

Note 17. Employee Benefit Plans.

The company sponsors defined benefit pension plans, principally for salaried
personnel. The plans provide eligible employees with retirement benefits based
principally on years of service and compensation rates near retirement. Plan
assets consist primarily of common stocks, corporate bonds and cash and cash
equivalents.

In addition to the defined benefit pension plans, the company sponsors three
plans that provide medical and life insurance benefits to most full-time
salaried employees upon their retirement. The postretirement medical plans are
contributory, with retiree contributions adjusted annually. The life insurance
plan is non-contributory. The company's current policy is to fund the cost of
the postretirement medical and life insurance benefits on a pay-as-you-go basis,
as in prior years.

The company uses a plan year of Oct. 1 through Sept. 30 to value its pension and
postretirement plans on an actuarial basis.

                                       41
<PAGE>

<TABLE>
<CAPTION>
                                                                          Pension Benefits  Postretirement Benefits
                                                                        -------------------------------------------
                                                                           1999       1998       1999      1998
- -------------------------------------------------------------------------------------------------------------------
<S>                                                                    <C>          <C>        <C>        <C>
Change in Benefit Obligation
Benefit Obligation at Beginning of Plan Year                             $1,615     $1,470     $  315     $ 345
Service Cost                                                                 51         39          9         8
Interest Cost                                                               102         98         20        21
Transfer of Benefit Obligations from Conrail Plan                            42         --         --        --
Conveyance of Barge Subsidiary                                               --        (85)        --       (18)
Plan Participants' Contributions                                             --         --          4         4
Actuarial (Gain) Loss                                                      (170)       187         (3)      (12)
Benefits Paid                                                              (100)       (94)       (37)      (33)
                                                                       ----------------------------------------
  Benefit Obligation at End of Plan Year                                  1,540      1,615        308       315

Change in Plan Assets
Fair Value of Plan Assets at Beginning of Plan Year                       1,273      1,371         --        --
Actual Return on Plan Assets                                                155         54         --        --
Transfer of Assets from Conrail Plan                                        260         --         --        --
Conveyance of Barge Subsidiary                                               --        (96)        --        --
Employer Contributions                                                       16         38         33        29
Plan Participants' Contributions                                             --         --          4         4
Benefits Paid                                                              (100)       (94)       (37)      (33)
                                                                       ----------------------------------------
  Fair Value of Plan Assets at End of Plan Year                           1,604      1,273         --        --

Funded Status                                                                64       (342)      (308)     (315)
Unrecognized Actuarial Loss                                                  29        352         23        26
Unrecognized Prior Service Cost                                              10         11         (2)       (3)
Unrecognized Transition Obligation                                           --          1         --        --
Fourth Quarter Activity:
  Special Termination Benefits - Workforce Reduction Program                (23)        --         (1)       --
  Employer Contributions to Pension Plans                                     5          2         --        --
  Net Postretirement Benefits Paid                                           --         --          8         8
                                                                       ----------------------------------------
  Net Amount Recognized in Statement of Financial Position               $   85     $   24     $ (280)    $(284)
- ---------------------------------------------------------------------------------------------------------------

Amount Recognized in Statement of Financial Position Consists of:
  Prepaid Benefit Cost                                                   $  215     $    7     $   --     $  --
  Accrued Benefit Liability                                                (161)      (173)      (280)     (284)
  Intangible Asset                                                            7         11         --        --
  Accumulated Other Comprehensive Loss                                       24        179         --        --
                                                                 ----------------------------------------------
   Net Amount Recognized in Statement of Financial Position              $   85   $   24       $ (280)    $(284)
- ---------------------------------------------------------------------------------------------------------------

</TABLE>

                                     -42-
<PAGE>

<TABLE>
<CAPTION>
                                                                Pension Benefits  Postretirement Benefits
                                                               --------------------------------------------
                                                                     1999    1998       1999     1998
- ------------------------------------------------------------------------------------------------------------
<S>                                                                  <C>      <C>       <C>      <C>
Weighted-average Assumptions:
Discount Rates:
  Benefit Cost for Plan Year                                         6.50%    7.50%     6.50%    7.50%
  Benefit Obligation at End of Plan Year                             7.75%    6.50%     7.75%    6.50%
Rate of Compensation Increase                                        5.00%    5.00%     5.00%    5.00%
Expected Return on Plan Assets                                       9.50%    9.50%      n/a      n/a
- ------------------------------------------------------------------------------------------------------------
</TABLE>

For plans with a projected benefit obligation in excess of plan assets at Dec.
31, 1999, the aggregate projected benefit obligation was $431 million and the
aggregate fair value of plan assets was $256 million. For plans with an
accumulated benefit obligation in excess of plan assets at Dec. 31, 1999, the
aggregate accumulated benefit obligation was $160 million and the aggregate fair
value of plan assets was $37 million.

The net postretirement benefit obligation was determined using the assumption
that the health care cost trend rate for medical plans was 8.5% for 1999-2000,
decreasing gradually to 5.5% by 2005 and remaining at that level thereafter. A
1% change in the assumed health care cost trend rate would have the following
effects:
                                                                   1%     1%
                                                              Increase  Decrease
                                                            --------------------
Effect on postretirement benefits service and interest cost      $ 3    $ (2)
Effect on postretirement benefit obligation                       19     (17)
- --------------------------------------------------------------------------------

<TABLE>

                                                                              Pension Benefits     Postretirement Benefits
                                                                            -----------------------------------------------------
                                                                               1999    1998    1997    1999    1998    1997
- ---------------------------------------------------------------------------------------------------------------------------------
<S>                                                                           <C>     <C>     <C>     <C>     <C>     <C>
Components of Net Periodic Benefit Cost
Service Cost                                                                  $  51   $  39   $  40   $   9   $   8   $   10
Interest Cost                                                                   102      98      98      20      21       25
Expected Return on Plan Assets                                                 (118)   (101)    (96)     --      --       --
Amortization of Transition Obligation                                            --       6       5      --      --       --
Amortization of Prior Service Cost                                                1       1      --      (1)     (4)      (7)
Recognized Net Actuarial (Gain) Loss                                             22      12      13      --      (1)       2
                                                                            ------------------------------------------------
  Net Periodic Benefit Cost                                                      58      55      60      28      24       30
Special Termination Benefits - Workforce Reduction Program                       23      --      --       1      --       --
                                                                            ------------------------------------------------
  Net Periodic Benefit Cost Including Special Termination Benefits            $  81   $  55   $  60   $  29   $  24   $   30
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>

During 1999, certain assets and obligations of Conrail's primary defined benefit
pension plan were transferred to the pension plans of CSX and Norfolk Southern.
The CSX plan received $260 million of plan assets at fair value and assumed $42
million of benefit obligations.

In December 1999, pursuant to a workforce reduction initiative that offered a
retirement benefit enhancement to employees electing early retirement, the
company recorded a non-recurring charge that included $23 million of special
termination pension benefits and $1 million of special termination
postretirement benefits.

                                     -43-
<PAGE>

As a result of the workforce reduction initiative and the sale of assets
comprising the international liner business of Sea-Land, a significant number of
employees participating in pension and postretirement benefit plans sponsored by
CSX have terminated active employment and the plans have experienced a
curtailment. Because both curtailment events occurred after the Sept. 30, 1999
measurement date, the effect of the curtailment will not be recognized in the
company's financial statements until fiscal year 2000. CSX anticipates recording
a net pre-tax curtailment loss of approximately $2 million in the first quarter
of 2000.

The conveyance of CSX's barge subsidiary to a joint venture during 1998 included
various pension and postretirement benefit plans and reduced the related
obligations and assets in CSX's Consolidated Statement of Financial Position.

During 1999 and 1998, CSX recorded changes in its minimum pension liability.
These changes did not affect net earnings, but are a component of accumulated
other comprehensive loss on an after-tax basis. In 1999, the minimum pension
liability decreased by $158 million, principally due to the transfer of assets
from Conrail's pension plan and to higher interest rates, which increased the
discount applied to pension obligations. In 1998, the minimum pension liability
increased by $148 million due to lower interest rates, which reduced the
discount applied to pension obligations, and to a broad decline in U.S. stock
prices during the third quarter.

Other Plans
The company maintains savings plans for virtually all full-time salaried
employees and certain employees covered by collective bargaining agreements.
Expense associated with these plans was $28 million, $20 million, and $23
million for 1999, 1998 and 1997, respectively.

Under collective bargaining agreements, the company participates in a number of
union-sponsored, multiemployer benefit plans. Payments to these plans are made
as part of aggregate assessments generally based on number of employees covered,
hours worked, tonnage moved or a combination thereof. Total contributions of
$247 million, $235 million, and $238 million were made to these plans in 1999,
1998 and 1997, respectively.

Note 18. Commitments and Contingencies.

Lease Commitments
In addition to the agreements covering routes and equipment leased from Conrail
(See Note 3), the company leases equipment from other parties under agreements
with terms up to 21 years. Non-cancelable, long-term leases generally include
options to purchase at fair value and to extend the terms. At Dec. 31, 1999,
minimum building and equipment rentals under these operating leases totaled
approximately $247 million for 2000, $238 million for 2001, $194 million for
2002, $197 million for 2003, $176 million for 2004, and $1 billion thereafter.
Rent expense on operating leases, exclusive of the Conrail agreements, totaled
$1.2 billion in 1999, $1.1 billion in 1998, and $1.2 billion in 1997. These
amounts include net daily rental charges on railroad operating equipment of $381
million, $258 million, and $239 million in 1999, 1998, and 1997, respectively.

Purchase Commitments
CSXT entered into agreements in 1998 and 1999 to purchase 140 locomotives. These
orders covered normal locomotive replacement needs as well as one-time
locomotive power requirements related to the integration of Conrail operations.
CSXT has taken delivery of 101 of the locomotives through Dec. 31, 1999. The
remaining 39 units are scheduled to be delivered in 2000.

                                     -44-
<PAGE>

Contingencies
Guarantees
The company and its subsidiaries are contingently liable individually and
jointly with others as guarantors of long-term debt and obligations principally
relating to leased equipment, joint ventures and joint facilities. These
contingent obligations were not material to the company's results of operations
and financial position at Dec. 31, 1999. CSX also remains contingently liable
for certain lease obligations assumed by Maersk as part of its purchase of
Sea-Land's international liner business. CSX believes that Maersk will fulfill
its contractual commitments with respect to such leases and that CSX will have
no further liability for these obligations.

New Orleans Tank Car Fire
In September 1997, a state court jury in New Orleans, Louisiana returned a $2.5
billion punitive damages award against CSXT. The award was made in a
class-action lawsuit against a group of nine companies based on personal
injuries alleged to have arisen from a 1987 fire. The fire was caused by a
leaking chemical tank car parked on CSXT tracks and resulted in the 36-hour
evacuation of a New Orleans neighborhood. In the same case, the court awarded a
group of 20 plaintiffs compensatory damages of approximately $2 million against
the defendants, including CSXT, to which the jury assigned 15% of the
responsibility for the incident. CSXT's liability under that compensatory
damages award is not material, and adequate provision has been made for the
award.

In October 1997, the Louisiana Supreme Court set aside the punitive damages
judgment, ruling the judgment should not have been entered until all liability
issues were resolved. In February 1999, the Louisiana Supreme Court issued a
further decision, authorizing and instructing the trial court to enter
individual punitive damages judgments in favor of the 20 plaintiffs who had
received awards of compensatory damages, in amounts representing an appropriate
share of the jury's award. The trial court on April 8, 1999, entered judgment
awarding approximately $2 million in compensatory damages and approximately 8.5
million in punitive damages to those 20 plaintiffs. Approximately $6.2 million
of the punitive damages awarded were assessed against CSXT. CSXT then filed
post-trial motions for a new trial and for judgment notwithstanding the verdict
as to the April 8 judgment.

The new trial motion was denied by the trial court in August of 1999. On Nov. 5,
1999, the trial court issued an opinion that granted CSXT's motion for judgment
notwithstanding the verdict and effectively reduced the amount of the punitive
damages verdict from $2.5 billion to $850 million. CSXT believes that this
amount (or any amount of punitive damages) is unwarranted and intends to pursue
its full appellate remedies with respect to the 1997 trial as well as the trial
judge's decision on the motion for judgment notwithstanding the verdict. The
compensatory damages awarded by the jury in the 1997 trial were also
substantially reduced by the trial judge. A judgment reflecting the $850 million
punitive award has been entered against CSXT. CSXT has obtained and posted an
appeal bond in the amount of $895 million, which will allow it to appeal the
1997 compensatory and punitive awards, as reduced by the trial judge.

A trial for the claims of 20 additional plaintiffs for compensatory damages
began on May 24, 1999. In early July, the jury in that trial rendered verdicts
totaling approximately $330 thousand in favor of 18 of those 20 plaintiffs. Two
plaintiffs received nothing; that is, the jury found that they had not proved
any damages. Management believes that this result, while still excessive,
supports CSXT's contention that the punitive damages award was unwarranted.

CSXT continues to pursue an aggressive legal strategy. Management believes that
an adverse outcome, if any, is not likely to be material to CSX's or CSXT's
financial position, although it could be material to results of operations in a
particular quarterly accounting period.

Self-Insurance
Although the company obtains substantial amounts of commercial insurance for
potential losses for third-party liability and property damage, reasonable
levels of risk are retained on a self-insurance basis. A portion of the
insurance coverage, $25 million limit above $100 million per occurrence from

                                     -45-
<PAGE>

rail and certain other operations, is provided by a company partially owned by
CSX.

Environmental
CSXT is a party to various proceedings involving private parties and regulatory
agencies related to environmental issues. CSXT has been identified as a
potentially responsible party (PRP) at 115 environmentally impaired sites that
are or may be subject to remedial action under the Federal Superfund statute
(Superfund) or similar state statutes. A number of these proceedings are based
on allegations that CSXT, or its railroad predecessors, sent hazardous
substances to the facilities in question for disposal. Such proceedings arising
under Superfund or similar state statutes can involve numerous other waste
generators and disposal companies and seek to allocate or recover costs
associated with site investigation and cleanup, which could be substantial.

CSXT is involved in a number of administrative and judicial proceedings and
other clean-up efforts at 243 sites, including the sites addressed under the
Federal Superfund statute or similar state statutes, where it is participating
in the study and/or clean-up of alleged environmental contamination. The
assessment of the required response and remedial costs associated with most
sites is extremely complex. Cost estimates are based on information available
for each site, financial viability of other PRPs, where available, and existing
technology, laws and regulations. CSXT's best estimates of the allocation method
and percentage of liability when other PRPs are involved are based on
assessments by consultants, agreements among PRPs, or determinations by the U.S.
Environmental Protection Agency or other regulatory agencies.

At least once each quarter, CSXT reviews its role, if any, with respect to each
such location, giving consideration to the nature of CSXT's alleged connection
to the location (i.e., generator, owner or operator), the extent of CSXT's
alleged connection (i.e., volume of waste sent to the location and other
relevant factors), the accuracy and strength of evidence connecting CSXT to the
location, and the number, connection and financial position of other named and
unnamed PRPs at the location. The ultimate liability for remediation can be
difficult to determine with certainty because of the number and creditworthiness
of PRPs involved. Through the assessment process, CSXT monitors the
creditworthiness of such PRPs in determining ultimate liability.

Based upon such reviews and updates of the sites with which it is involved, CSXT
has recorded, and reviews at least quarterly for adequacy, reserves to cover
estimated contingent future environmental costs with respect to such sites. The
recorded liabilities for estimated future environmental costs at Dec. 31, 1999
and Dec. 25, 1998, were $53 million and $75 million, respectively. These
recorded liabilities, which are undiscounted, include amounts representing
CSXT's estimate of unasserted claims, which CSXT believes to be immaterial. The
liability has been accrued for future costs for all sites where the company's
obligation is probable and where such costs can be reasonably estimated. The
liability includes future costs for remediation and restoration of sites as well
as any significant ongoing monitoring costs, but excludes any anticipated
insurance recoveries. The majority of the Dec. 31, 1999, environmental liability
is expected to be paid out over the next five to seven years, funded by cash
generated from operations.

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

Other Legal Proceedings
A number of legal actions are pending against CSX and certain subsidiaries in
which claims are made in substantial amounts. While the ultimate results of
environmental investigations, lawsuits and claims against the company cannot be
predicted with certainty, management does not currently expect that resolution
of these matters will have a material adverse effect on CSX's consolidated

                                     -46-
<PAGE>

- --------------------------------------------------------------------------------

financial position, results of operations or cash flows. The company is also
party to a number of actions, the resolution of which could result in gain
realization in amounts that could be material to results of operations in the
quarter received.

Note 19. Business Segments.

The company operates in three business segments: Rail, Intermodal, and Container
Shipping . The rail segment provides rail freight transportation over a network
of more than 23,400 route miles in 23 states, the District of Columbia and two
Canadian provinces. The intermodal segment provides transcontinental intermodal
transportation services and operates a network of dedicated intermodal
facilities across North America. Prior to the sale of its international liner
operations in December 1999 (see Note 4), the container-shipping segment
provided global transportation services via a fleet of 91 container ships and
220,000 containers. The company's segments are strategic business units that
offer different services and are managed separately based on the differences in
these services.

The company evaluates performance and allocates resources based on several
factors, of which the primary financial measure is business segment operating
income, defined as income from operations, excluding the effects of
non-recurring charges and gains. The accounting policies of the segments are the
same as those described in the summary of significant accounting policies (Note
1). Intersegment sales and transfers are generally accounted for as if the sales
or transfers were to third parties, that is, at current market prices.

Business segment information for fiscal years 1999, 1998 and 1997 is as follows:

<TABLE>
<CAPTION>
                                       Surface Transportation
- ---------------------------------    ----------------------------            Container
Fiscal year ended Dec. 31, 1999      Rail   Intermodal      Total             Shipping         Other     Total
- --------------------------------------------------------------------------------------------------------------
<S>                               <C>       <C>           <C>                <C>               <C>     <C>
Revenue from External Customers   $ 5,623       $943      $ 6,566               $3,809          --     $10,375
Intersegment Revenue                   --         16           16                   --          --          16
Operating Income                      823         84          907                   48          --         955
Assets                             12,985        401       13,386                1,290          --      14,676
Depreciation Expense                  469         24          493                   90          --         583
Property Additions                  1,298         63        1,361                   86          --       1,447
- --------------------------------------------------------------------------------------------------------------

<CAPTION>
                                       Surface Transportation
- ---------------------------------    ----------------------------            Container
Fiscal year ended Dec. 25, 1998      Rail   Intermodal      Total             Shipping         Other     Total
- --------------------------------------------------------------------------------------------------------------
<S>                               <C>       <C>           <C>                <C>               <C>     <C>
Revenue from External Customers   $ 4,956       $618      $ 5,574               $3,916          --     $ 9,490
Intersegment Revenue                   --         30           30                   --          --          30
Operating Income                    1,001         33        1,034                   37          --       1,071
Assets                             11,897        217       12,114                2,453          --      14,567
Depreciation Expense                  450         18          468                  130          --         598
Property Additions                  1,212         99        1,311                   54          --       1,365
- --------------------------------------------------------------------------------------------------------------

<CAPTION>
                                       Surface Transportation
- ---------------------------------    ----------------------------            Container
Fiscal year ended Dec. 26, 1997      Rail   Intermodal      Total             Shipping        Other(a)   Total
- --------------------------------------------------------------------------------------------------------------
<S>                               <C>       <C>           <C>                <C>               <C>     <C>
Revenue from External Customers   $ 4,989       $634      $ 5,623               $3,991        $618     $10,232
Intersegment Revenue                   --         35           35                   --          --          35
Operating Income                    1,229         46        1,275                  175          69       1,519
Assets                             11,403        218       11,621                2,576         626      14,823
Depreciation Expense                  429         14          443                  128          39         610
Property Additions                    712         32          744                  251          52       1,047
- --------------------------------------------------------------------------------------------------------------
</TABLE>

                                     -47-
<PAGE>

 (a) Other includes the company's barge operations, which were conveyed to a
  joint venture in 1998 and are no longer a consolidated activity (see Note 4).

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

<TABLE>
<CAPTION>
                                                                  1999       1998      1997
                                                          ---------------------------------
<S>                                                            <C>        <C>       <C>
Revenue:
Revenue from External Customers for Business Segments          $10,375    $ 9,490   $10,232
Intersegment Revenue for Business Segments                          16         30        35
Elimination of Intersegment Revenue                                (16)       (30)      (35)
                                                          ---------------------------------
     Total Consolidated Revenue                                $10,375    $ 9,490   $10,232
- -------------------------------------------------------------------------------------------

Operating Income:
Operating Income for Business Segments                         $   955    $ 1,071   $ 1,519
Reclassification of Minority Interest Expense                       40         34        40
Loss on Sale, Net of Depreciation Benefit                         (360)        --        --
Workforce Reduction Program                                        (55)        --        --
Restructuring Credit                                                --         30        --
Unallocated Corporate Expenses                                      (7)        (4)       --
                                                           ---------------------------------
  Total Consolidated Operating Income                          $   573    $ 1,131   $ 1,559
- -------------------------------------------------------------------------------------------

Assets:
Assets for Business Segments                                   $14,676    $14,567   $14,823
Investment in Conrail                                            4,663      4,798     4,244
Elimination of Intercompany Receivables                            (32)       (36)      (33)
Non-segment Assets(b)                                            1,413      1,098       923
                                                          ---------------------------------
   Total Consolidated Assets                                   $20,720    $20,427   $19,957
- -------------------------------------------------------------------------------------------

Depreciation Expense:
Depreciation Expense for Business Segments                     $   583    $   598   $   610
Non-segment Depreciation(b)                                         38         32        36
                                                          ---------------------------------
   Total Consolidated Depreciation Expense                     $   621    $   630   $   646
- -------------------------------------------------------------------------------------------

Property Additions:
Property Additions for Business Segments                       $ 1,447    $ 1,365   $ 1,047
Non-segment Property Additions(b)                                   70        114        78
                                                          ---------------------------------
   Total Consolidated Property Additions                       $ 1,517    $ 1,479   $ 1,125
- -------------------------------------------------------------------------------------------
</TABLE>

(b)  Non-segment assets include corporate cash and cash equivalents and assets
     of non-transportation businesses. Non-segment depreciation and property
     additions are primarily attributable to non-transportation businesses and
     discontinued operations. Principal non-transportation businesses include
     real estate and resort operations and information technology subsidiaries
     serving multiple segments.

- --------------------------------------------------------------------------------

                                     -48-
<PAGE>

Included in the consolidated financial statements are the following amounts
related to geographic locations:

                                                1999     1998     1997
- -----------------------------------------------------------------------
Revenues:(c)
United States                                 $ 8,141   $7,266   $7,976
Asia                                            1,378    1,239    1,188
Europe                                            516      668      721
Other                                             340      317      347
                                         ------------------------------
   Total Consolidated Revenues                $10,375   $9,490  $10,232
- -----------------------------------------------------------------------

(c)  Revenues are attributed to geographic locations based on port of origin for
     container-shipping operations and the location of the service provided for
     all other operations.

More than 95% of the company's long-lived assets are located in the United
States. The company does not have a single external customer that represents 10%
or more of its consolidated revenue.

Note 20. Summarized Financial Data - Sea-Land Service Inc.

During 1987, Sea-Land entered into agreements to sell and lease back by charter
three new U.S.-built, U.S.-flag, D-7 class container ships. CSX has guaranteed
the obligations of Sea-Land pursuant to the related charters which, along with
the container ships, serve as collateral for debt securities registered with the
Securities and Exchange Commission (SEC). The ships were not included in the
sale of international liner assets to Maersk in December 1999 and the related
debt remains an obligation of Sea-Land. In accordance with SEC disclosure
requirements, consolidating summarized financial information for the parent and
guarantors are as follows:

                                     -49-
<PAGE>

<TABLE>
<CAPTION>
                                                                                 1999
                                               --------------------------------------------------------------------------
                                                     CSX           Sea-
Statement of Financial Position                   Corporate        Land        Other     Eliminations       Consolidated
- -------------------------------------------------------------------------------------------------------------------------
<S>                                             <C>                <C>        <C>        <C>                <C>
Assets
Cash                                                   (141)        553          567               (5)               974
Accounts Receivable                                      38          38        1,348             (289)             1,135
Materials and Supplies                                    -          16          204                -                220
Deferred Income Taxes                                     -          (3)         138                -                135
Other Current Assets                                      7          13          146              (67)                99
                                               --------------------------------------------------------------------------
Total Current Assets                                    (96)        617        2,403             (361)             2,563

Properties                                               29         600       16,897                -             17,526
Accumulated Depreciation                                (24)      (339)       (4,906)               -             (5,269)
                                               --------------------------------------------------------------------------
Properties, net                                           5         261       11,991                -             12,257

Investment in Conrail                                   385           -        4,278                -              4,663
Affiliates and Other Companies                            -         282          128                -                410
Investment in Consolidated Subsidiaries              13,141           -            -          (13,141)                 -
Other long-term assets                                  191         129        1,237              730                827
                                               --------------------------------------------------------------------------
Total Assets                                         13,626       1,289       20,037          (14,232)            20,720
                                               ==========================================================================

Liabilities
Current Liabilities
Accounts Payable                                         71         104        1,193             (171)             1,197
Labor and Fringe Benefits Payable                         7          60          369                -                436
Payable to Affiliates                                 1,044          82         (950)            (176)                 -
Casualty, Environmental and Other Reserves                -           9          262                -                271
Current Maturities of Long-term debt                    254           -           95                -                349
Short-term debt                                         574           -            -                -                574
Other Current Liabilities                                36         134          492              (16)               646
                                               --------------------------------------------------------------------------
Total Current Liabilities                             1,986         389        1,461             (363)             3,473

Casualty, Environmental and Other Reserves                -          93          674                -                767
Long-term Debt                                        5,054           -        1,142                -              6,196
Deferred Income Taxes                                   359         (91)       2,959                -              3,227
Long-term Payable to Affiliates                           -         434          291             (725)                 -
Other Long-term Liabilities                             474         284          546               (3)             1,301
                                               --------------------------------------------------------------------------
Total Liabilities                                     7,873       1,109        7,073           (1,091)            14,964
                                               --------------------------------------------------------------------------

Shareholders' Equity
Common Stock                                            218           -          182             (182)               218
Other Capital                                         1,525         803        8,275           (9,078)             1,525
Retained Earnings                                     4,034        (617)       4,498           (3,881)             4,034
Accumulated Other Comprehensive Loss                    (24)         (6)           9                -                (21)
                                               --------------------------------------------------------------------------
Total Shareholders' Equity                            5,753         180       12,964          (13,141)             5,756
                                               --------------------------------------------------------------------------
Total Liabilities and Shareholders' Equity           13,626       1,289       20,037          (14,232)            20,720
                                               ==========================================================================
</TABLE>

                                     -50-
<PAGE>

<TABLE>
<CAPTION>
                                                                                 1998
                                               --------------------------------------------------------------------------
                                                     CSX           Sea-
Statement of Financial Position                   Corporate        Land        Other     Eliminations       Consolidated
- -------------------------------------------------------------------------------------------------------------------------
<S>                                             <C>                <C>        <C>        <C>                <C>
Assets
Cash                                                   (248)        139          645               (3)               533
Accounts Receivable                                      41         361          874             (378)               898
Materials and Supplies                                    -          45          180                -                225
Deferred Income Taxes                                     -           1          127                -                128
Other Current Assets                                      5          53          142                -                200
                                               --------------------------------------------------------------------------
Total Current Assets                                   (202)        599        1,968             (381)             1,984

Properties                                               29       2,662       15,987                -             18,678
Accumulated Depreciation                                (23)     (1,204)      (4,806)               -             (6,033)
                                               --------------------------------------------------------------------------
Properties, net                                           6       1,458       11,181                -             12,645

Investment in Conrail                                 2,113           -        2,685                -              4,798
Affiliates and Other Companies                            -         296          152                -                448
Investment in Consolidated Subsidiaries              11,235           -            -          (11,235)                 -
Other long-term assets                                   62          99        1,197             (806)               552
                                               --------------------------------------------------------------------------
Total Assets                                         13,214       2,452       17,183          (12,422)            20,427
                                               ==========================================================================

Liabilities
Current Liabilities
Accounts Payable                                         74         430          938             (226)             1,216
Labor and Fringe Benefits Payable                        21          74          367                -                462
Payable to Affiliates                                   881          87         (812)            (156)                 -
Casualty, Environmental and Other Reserves                2          35          246                -                283
Current Maturities of Long-term debt                      -           -          100                -                100
Short-term debt                                         187           -            -                -                187
Other Current Liabilities                                11          73          267                1                352
                                               --------------------------------------------------------------------------
Total Current Liabilities                             1,176         699        1,106             (381)             2,600

Casualty, Environmental and Other Reserves                -          39          606                -                645
Long-term Debt                                        5,507          18          907                -              6,432
Deferred Income Taxes                                   335          95        2,743                -              3,173
Long-term Payable to Affiliates                           -         628          185             (813)                 -
Other Long-term Liabilities                             367         463          869               (2)             1,697
                                               --------------------------------------------------------------------------
Total Liabilities                                     7,385       1,942        6,416           (1,196)            14,547
                                               --------------------------------------------------------------------------

Shareholders' Equity
Common Stock                                            217           -          182             (182)               217
Other Capital                                         1,489         797        6,196           (6,993)             1,489
Retained Earnings                                     4,294        (277)       4,328           (4,051)             4,294
Accumulated Other Comprehensive Loss
                                                       (171)        (10)          61                -               (120)
                                               --------------------------------------------------------------------------
Total Shareholders' Equity                            5,829         510       10,767          (11,226)             5,880
                                               --------------------------------------------------------------------------
Total Liabilities and Shareholders' Equity           13,214       2,452       17,183          (12,422)            20,427
                                               ==========================================================================
</TABLE>

                                     -51-
<PAGE>

<TABLE>
<CAPTION>
                                                                                   1999
                                               --------------------------------------------------------------------------
                                                     CSX         Sea-
Summary of Operations                             Corporate      Land          Other    Eliminations        Consolidated
- -------------------------------------------------------------------------------------------------------------------------
<S>                                             <C>           <C>           <C>        <C>                  <C>
Operating Income
Operating Revenue                                         -        3,809         6,584             (18)           10,375
Operating Expense                                      (287)       4,054         6,053             (18)            9,802
                                               --------------------------------------------------------------------------
Operating Income (Loss)                                 287         (245)          531               -               573

Other Income and Expense
Other Income                                            174          (95)          172            (199)               52
Interest Expense                                        526           63            20             (88)              521

Earnings
Earnings from Continuing Operation before Income Taxes  (65)        (403)          683            (111)              104
Income Tax Expense                                       (5)        (127)          204               -                72
                                               --------------------------------------------------------------------------

Earnings before Discontinued Operations and
Cumulative Effect of Accounting Change                  (60)        (276)          479            (111)               32
Earnings from Discontinued Operations, Net
of Tax                                                   -            -            19               -                19
                                               --------------------------------------------------------------------------

Earnings before Cumulative Effect of
Accounting Change                                       (60)        (276)          498            (111)               51
Cumulative Effect on Prior Years of
Accounting Change, Net of Tax                             -          (49)            -               -               (49)
                                               --------------------------------------------------------------------------
Net Earnings                                            (60)        (325)          498            (111)                2
                                               ==========================================================================
</TABLE>

                                     -52-
<PAGE>

<TABLE>
<CAPTION>
                                                                                  1998
                                               -------------------------------------------------------------------------
                                                     CSX         Sea-
Summary of Operations                             Corporate      Land       Other      Eliminations      Consolidated
- ------------------------------------------------------------------------------------------------------------------------
<S>                                            <C>           <C>         <C>          <C>              <C>
Operating Income
Operating Revenue                                         -        3,916        5,607             (33)             9,490
Operating Expense                                      (237)       3,821        4,808             (33)             8,359
                                               --------------------------------------------------------------------------
Operating Income (Loss)                                 237           95          799               -              1,131

Other Income and Expense
Other Income                                            701         (127)         381            (836)               119
Interest Expense                                        516           53           24             (87)               506

Earnings
Earnings from Continuing Operations before Income Taxes 422          (85)       1,156            (749)               744
Income Tax Expense                                       (3)         (15)         242               -                224
                                               --------------------------------------------------------------------------

Earnings before Discontinued Operations and
Cumulative Effect of Accounting Change                  425          (70)         914            (749)               520
Earnings from Discontinued Operations, Net
of Tax                                                    -            -           17               -                 17
                                               --------------------------------------------------------------------------
Earnings before Cumulative Effect of
Accounting Change                                       425          (70)         931            (749)               537
Cumulative Effect on Prior Years of
Accounting Change, Net of Tax                             -            -            -               -                  -
                                               --------------------------------------------------------------------------
Net Earnings                                            425          (70)         931            (749)               537
                                               ==========================================================================
</TABLE>

                                     -53-
<PAGE>

<TABLE>
<CAPTION>
                                                                                 1997
                                               --------------------------------------------------------------------------
                                                     CSX         Sea-
Summary of Operations                              Corporate     Land         Other        Eliminations      Consolidated
- --------------------------------------------------------------------------------------------------------------------------
<S>                                           <C>                <C>          <C>          <C>               <C>
Operating Income
Operating Revenue                                         -       3,991        6,277              (36)            10,232
Operating Expense                                      (197)      3,743        5,163              (36)             8,673
                                               ---------------------------------------------------------------------------
Operating Income (Loss)                                 197         248        1,114                -              1,559

Other Income and Expense
Other Income                                            916        (104)         198             (959)                51
Interest Expense                                        449          50           31              (79)               451

Earnings
Earnings from Continuing Operations before Income Taxes 664          94        1,281             (880)             1,159
Income Tax Expense                                      (14)         37          351                -                374
                                               ---------------------------------------------------------------------------

Earnings before Discontinued Operations and
Cumulative Effect of Accounting Change                  678          57          930             (880)               785
Earnings from Discontinued Operations, Net
of Tax                                                    -           -           14                -                 14
                                               ---------------------------------------------------------------------------

Earnings before Cumulative Effect of
Accounting Change                                       678          57          944             (880)               799
Cumulative Effect on Prior Years of
Accounting Change, Net of Tax                             -           -            -                -                  -
                                               --------------------------------------------------------------------------
Net Earnings                                            678          57          944             (880)               799
                                               ==========================================================================
</TABLE>

                                     -54-
<PAGE>

<TABLE>
<CAPTION>
                                                                                  1999
                                               --------------------------------------------------------------------------
                                                   CSX         Sea-
Statement of Cash Flows                         Corporate      Land        Other      Eliminations      Consolidated
- -------------------------------------------------------------------------------------------------------------------------
<S>                                            <C>             <C>        <C>         <C>               <C>
Operating Activities
Net cash provided (used) by operating
  activities                                          154        62        1,125              (270)            1,071
                                               --------------------------------------------------------------------------

Investing Activities
Property additions                                      -       (86)      (1,431)                -            (1,517)
Net proceeds from sale of                               -         -          751                 -               751
  International Container-Shipping
  assets
Investment in Conrail                               2,084         -       (2,086)                -                (2)
Short-term investments-net                             94         -            -                 -                94
Other investing activities                         (2,090)      712         (545)            2,015                92
                                               --------------------------------------------------------------------------
Net cash provided (used) by investing
  activities                                           88       626       (3,311)            2,015              (582)

Financing Activities
Short-term debt-net                                   187         -            -                 -               187
Long-term debt issued                                   -         -          284                 -               284
Long-term debt repaid                                   -       (18)        (108)                -              (126)
Cash dividends paid                                  (266)      (14)        (252)              270              (262)
Other financing activities                             38      (241)       2,167            (2,015)              (51)
                                               --------------------------------------------------------------------------

Net cash provided (used) by
  financing activities                                (41)     (273)       2,091            (1,745)               32
                                               --------------------------------------------------------------------------

Net increase (decrease) in cash and cash
  equivalents                                         201       415          (95)                -               521
Cash and cash equivalents at
  beginning of year                                  (676)      139          642                 -               105
                                               --------------------------------------------------------------------------

Cash and cash equivalents at end
  of year                                            (475)      554          547                 -               626
                                               ==========================================================================
</TABLE>

                                     -55-
<PAGE>

<TABLE>
<CAPTION>
                                                                                 1998
                                               --------------------------------------------------------------------------
                                                  CSX           Sea-
Statement of Cash Flows                         Corporate       Land        Other      Eliminations      Consolidated
- -------------------------------------------------------------------------------------------------------------------------
<S>                                             <C>             <C>       <C>          <C>               <C>
Operating Activities
Net cash provided (used) by operating
  activities                                          269         63        1,203              (535)            1,000
                                               --------------------------------------------------------------------------

Investing Activities
Property additions                                     (1)       (54)      (1,424)                -            (1,479)

Net proceeds from Conveyance of
  Barge Subsidiary                                      -          -          628                 -               628
Investment in Conrail                                   -          -          (13)                -               (13)
Short-term investments-net                              6          -            -                 -                 6
Other investing activities                           (245)       (13)        (113)              359               (12)
                                               --------------------------------------------------------------------------
Net cash provided (used) by investing
  activities                                         (240)       (67)        (922)              359              (870)

Financing Activities
Short-term debt-net                                    60          -            1                 -                61
Long-term debt issued                                 987          -          166                 -             1,153
Long-term debt repaid                              (1,059)        (1)         (72)                -            (1,132)
Cash dividends paid                                  (267)       (55)        (475)              535              (262)
Common stock reacquired                              (103)         -            -                 -              (103)
Other financing activities                             57         50          259              (359)                7
                                               --------------------------------------------------------------------------
Net cash provided (used) by
  financing activities                               (325)        (6)        (121)              176              (276)
                                               --------------------------------------------------------------------------
Net increase (decrease) in cash
  and cash equivalents                               (296)       (10)         160                 -              (146)
                                               --------------------------------------------------------------------------
Cash and cash equivalents at
   beginning of year                                 (380)       149          482                 -               251
                                               --------------------------------------------------------------------------
Cash and cash equivalents at end
   of year                                           (676)       139          642                 -               105
                                               ==========================================================================
</TABLE>

                                     -56-
<PAGE>

<TABLE>
<CAPTION>
                                                                                  1997
                                               --------------------------------------------------------------------------
                                                   CSX         Sea-
Statement of Cash Flows                         Corporate      Land        Other      Eliminations      Consolidated
- -------------------------------------------------------------------------------------------------------------------------
<S>                                             <C>            <C>       <C>          <C>               <C>
Operating Activities
Net cash provided (used) by operating
  activities                                          323       161        1,368              (294)            1,558
                                               --------------------------------------------------------------------------

Investing Activities
Property additions                                     (5)     (237)        (883)                -            (1,125)
Investment in Conrail                              (1,982)        -         (181)                -            (2,163)
Short-term investments-net                           (119)        -            -                 -              (119)
Other investing activities                            727        70       (1,018)              280                59
                                               --------------------------------------------------------------------------
Net cash provided (used) by investing
  activities                                       (1,379)     (167)      (2,082)              280            (3,348)

Financing Activities
Short-term debt-net                                  (509)        -          300                 -              (209)
Long-term debt issued                               2,448         -           82                 -             2,530
Long-term debt repaid                                 (17)       (2)        (379)                -              (398)
Common stock issued                                    62         -          (62)                -                 -
Cash dividends paid                                  (240)      (55)        (234)              294              (235)
Common stock reacquired                               (47)        -           36                 -               (11)
Other financing activities                            107        16          153              (280)               (4)
                                               --------------------------------------------------------------------------
Net cash provided (used) by
  financing activities                              1,742       (41)         (42)               14             1,673
                                               --------------------------------------------------------------------------
Net increase (decrease) in cash
  and cash equivalents                                686       (47)        (756)                -              (117)
                                               --------------------------------------------------------------------------
Cash and cash equivalents at
  beginning of year                                (1,066)      196        1,238                 -               368
                                               --------------------------------------------------------------------------
Cash and cash equivalents at end
  of year                                            (380)      149          482                 -               251
                                               ==========================================================================
</TABLE>

Note 21.  Subsequent Event

On September 22, 2000, CSX completed the sale of CTI Logistx, Inc., its wholly
owned logistics subsidiary, for $650 million. All prior period statements of
earnings have been restated accordingly. Revenues from the contract logistics
segment for the years ended December 31, 1999, December 25, 1998 and December
26, 1997 were $484 million, $408 million and $389 million, respectively. CSX
recorded a gain of $570 million before tax, $365 million after tax, $1.73 per
share, on the sale.

- ------------------------------------------------------------------------------

                                     -57-
<PAGE>

Report of Ernst & Young LLP, Independent Auditors

To the Shareholders and Board of Directors of CSX Corporation
We have audited the accompanying consolidated statements of financial position
of CSX Corporation and subsidiaries as of December 31, 1999 and December 25,
1998, and the related consolidated statements of earnings, cash flows, and
changes in shareholders' equity for each of the three fiscal years in the period
ended December 31, 1999. These financial statements are the responsibility of
the company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of CSX
Corporation and subsidiaries at December 31, 1999 and December 25, 1998, and the
consolidated results of their operations and their cash flows for each of the
three fiscal years in the period ended December 31, 1999, in conformity with
accounting principles generally accepted in the United States.

As discussed in Note 2 to the Consolidated Financial Statements, in 1999 the
company changed its method of accounting for insurance-related assessments.


                          /s/ERNST & YOUNG LLP

Richmond, Virginia
February 9, 2000, except for Note 21 for which the date is January 24, 2001

                                     -58-
<PAGE>

Quarterly Financial Data (Unaudited)

<TABLE>
<CAPTION>
                                                           1999                                              1998
                                            ---------------------------------               -----------------------------------
                                              1st      2nd      3rd      4th                    1st     2nd      3rd      4th
                                            ---------------------------------               -----------------------------------
<S>                                         <C>       <C>     <C>      <C>                  <C>        <C>      <C>      <C>
Operating Income
Operating Revenue                            $2,433   $2,509  $2,807   $2,626                  $2,361  $2,395   $2,345   $2,389
Operating Expense                             2,165    2,246   2,797    2,594                   2,089   2,066    2,081    2,123
                                            ---------------------------------               -----------------------------------
Operating Income                                268      263      10       32                     272     329      264      266

Other Income and Expense
Other Income                                    (35)      23      17       47                     (29)      3      138        7
Interest Expense                                133      127     133      128                     123     124      120      139
                                            ---------------------------------               -----------------------------------

Earnings
Earnings from Continuing Operations Before
   Income Taxes                                 100      159    (106)     (49)                    120     208      282      134
Income Tax Expense                               30       52      12      (22)                     33      61       98       32
                                            ---------------------------------               -----------------------------------

Earnings before Discontinued Operations
and Cumulative Effect of Accounting Change       70      107    (118)     (27)                     87     147      184      102

Earnings from Discontinued Operations,
Net of Tax                                        5        7       5        2                       4       4        3        6
                                            ---------------------------------               -----------------------------------

Earnings before Cumulative Effect of
Accounting Change                                75      114    (113)     (25)                     91     151      187      108
Cumulative Effect on Prior Years of
Accounting Change for Insurance-Related
Assessments, Net of Tax                         (49)       -       -        -                       -       -        -        -
                                            ---------------------------------               -----------------------------------
Net Earnings                                 $   26   $  114  $ (113)  $  (25)                 $   91  $  151   $  187   $  108
                                            =================================               ===================================
</TABLE>

                                     -59-
<PAGE>

<TABLE>
<CAPTION>
                                                         1999                                              1998
                                          -----------------------------------               -----------------------------------
                                              1st      2nd     3rd      4th                     1st     2nd      3rd      4th
                                          -----------------------------------               -----------------------------------
<S>                                       <C>         <C>     <C>      <C>                  <C>        <C>       <C>      <C>
Per Common Share

Earnings Per Share:
Before Discontinued Operations and
Cumulative Effect of Accounting Change         0.34     0.51   (0.57)   (0.13)                   0.41    0.69     0.88     0.48
Earnings from Discontinued Operations          0.02     0.03    0.03     0.01                    0.02    0.02     0.01     0.03
Cumulative Effect of Accounting Change        (0.24)       -       -        -                       -       -        -        -
                                          -----------------------------------               -----------------------------------

Including Discontinued Operations and
Cumulative Effect of Accounting Change         0.12     0.54   (0.54)   (0.12)                   0.43    0.71     0.89     0.51
                                          ===================================               ===================================

Earnings Per Share, Assuming Dilution:
Before Discontinued Operations and
Cumulative Effect of Accounting Change         0.34     0.50   (0.57)   (0.13)                   0.40    0.68     0.87     0.48
Earnings from Discontinued Operations          0.02     0.03    0.03     0.01                    0.02    0.02     0.01     0.03
Cumulative Effect of Accounting Change        (0.24)       -       -        -                       -       -        -        -
                                          ------------------------------------              -----------------------------------

Including Discontinued Operations and
Cumulative Effect of Accounting Change         0.12     0.53   (0.54)   (0.12)                   0.42    0.70     0.88     0.51
                                          ===================================               ===================================

Dividend per Share                           $ 0.30   $ 0.30  $ 0.30   $ 0.30                  $ 0.30  $ 0.30   $ 0.30   $ 0.30
                                          -----------------------------------               -----------------------------------
Market price
  High                                       $45.50   $53.94  $51.63   $43.56                  $60.31  $60.75   $46.94   $46.81
                                          -----------------------------------               -----------------------------------
  Low                                        $36.00   $36.81  $41.44   $28.81                  $49.25  $44.88   $36.50   $37.63
                                          -----------------------------------               -----------------------------------
</TABLE>

(a)  First quarter 1999 consists of 14 weeks; all other quarters presented
     consist of 13 weeks.

(b)  Third and fourth quarters of 1999 reflect pretax charges of $298 million
     and $62 million, respectively, to recognize a loss on the sale of
     international container-shipping assets, net of a benefit from
     discontinuing depreciation on those assets from the date of the agreement
     to sell. The charges reduced net earnings by $236 million, $1.11 per share,
     and $35 million, 16 cents per share, in the respective quarters.

(c)  Fourth quarter 1999 includes a $55 million pretax charge for a work-force
     reduction program. The charge reduced net earnings by $34 million, 16 cents
     per share.

(d)  Second quarter 1999 includes a pretax gain of $27 million on the sale of
     the company's Grand Teton Lodge resort subsidiary. The gain increased net
     earnings by $17 million, 8 cents per share.

(e)  First quarter 1999 includes a $49 million after-tax charge to recognize the
     cumulative effect on prior years of adopting a new accounting rule related
     to workers' compensation second injury fund assessments. The charge reduced
     earnings per share for the quarter by 24 cents.

(f)  Third quarter 1998 includes a pretax net investment gain of $154 million,
     principally from the conveyance of the company's barge subsidiary to a
     joint venture, and a restructuring credit of $30 million. On a combined
     basis, these items increased net earnings by $109 million, 51 cents per
     share.

                                     -60-
<PAGE>

                           CSX Corporation
                      Ratio of Earnings to Fixed Charges
                         (Millions of Dollars)


<TABLE>
<CAPTION>
                                                                        For the Fiscal Years Ended
                                                  --------------------------------------------------------------------
                                                           Dec. 31,     Dec. 25,     Dec. 26,     Dec. 27,   Dec. 29,
                                                            1999         1998         1997         1996        1995
                                                         -----------  ----------   ----------   ----------   ---------
<S>                                                      <C>          <C>          <C>          <C>          <C>
EARNINGS:
    Earnings from Continuing Operations Before
        Income Taxes                                      $      104   $     744    $   1,159    $   1,299    $    961
    Interest Expense                                             521         506          451          249         270
    Amortization of Debt Discount                                  -           1            4            2           2
    Interest Portion of Fixed Rent                               151         183          196          188         183
    Undistributed (Earnings) Loss of Affiliates
     Accounted for Using the Equity Method                       (58)       (238)        (150)          (6)          3
                                                         -----------  ----------   ----------   ----------  ----------

Earnings, as Adjusted                                     $      718   $   1,196    $   1,660    $   1,732    $  1,419
                                                         ===========  ==========   ==========   ==========  ==========

FIXED CHARGES:
    Interest Expense                                             521         506          451          249         270
    Capitalized Interest                                           8           9            3            5           6
    Amortization of Debt Discount                                  -           1            4            2           2
    Interest Portion of Fixed Rent                               151         183          196          188         183
                                                         -----------  ----------   ----------   ----------  ----------

Fixed Charges                                             $      680   $     699    $     654    $     444    $    461
                                                         ===========  ==========   ==========   ==========   =========

Ratio of Earnings to Fixed Charges                               1.1 x       1.7 x        2.5 x        3.9 x       3.1 x
                                                         ===========  ==========   ==========   ==========   =========
</TABLE>

                                     -61-
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-99.2
<SEQUENCE>4
<FILENAME>0004.txt
<DESCRIPTION>INDEX TO 3/31/00 RESTATE FINANCIAL STATEMENTS
<TEXT>

<PAGE>

                               CSX CORPORATION                     Exhibit 99.2
                   INDEX TO MARCH 31, 2000 RESTATED FINANCIAL
                       STATEMENTS AND RELATED INFORMATION


<TABLE>
<CAPTION>
                                                                 Page Number
<S>                                                              <C>
PART I.  FINANCIAL INFORMATION

Item 1:

Financial Statements

1.      Consolidated Statement of Earnings-
         Quarters Ended March 31, 2000 and April 2, 1999
                                                                      3

2.      Consolidated Statement of Cash Flows-
         Quarters Ended March 31, 2000 and April 2, 1999              4

3.      Consolidated Statement of Financial Position-
         At March 31, 2000 and December 31, 1999                      5

Notes to Consolidated Financial Statements                            6

Item 2:

Management's Discussion and Analysis of Results of
Operations and Financial Condition                                   17
</TABLE>

                                      -1-
<PAGE>

                        CSX CORPORATION AND SUBSIDIARIES
                       Consolidated Statement of Earnings
                (Millions of Dollars, Except Per Share Amounts)

<TABLE>
<CAPTION>
                                                                                            Unaudited
                                                                                          Quarters Ended
                                                                                ---------------------------------
                                                                                   March 31,             April 2,
                                                                                     2000                  1999
                                                                                ------------         ------------
<S>                                                                              <C>                  <C>
Operating Income
Operating Revenue                                                                $     2,034          $     2,433
Operating Expense                                                                      1,860                2,165
                                                                                ------------         ------------
Operating Income                                                                         174                  268

Other Income and Expense
Other Income (expense)                                                                    (5)                 (35)
Interest Expense                                                                         134                  133
                                                                                ------------         ------------

Earnings
Earnings from Continuing Operations Before Income Taxes                                   35                  100
Income Tax Expense                                                                        10                   30
                                                                                ------------         ------------

Earnings before Discontinued Operations and Cumulative Effect of Accounting               25                   70
 Change

Earnings from Discontinued Operations, Net of Tax                                          4                    5
                                                                                ------------         ------------

Earnings before Cumulative Effect of Accounting Change                                    29                   75
Cumulative Effect on Prior Years of Accounting Change for Insurance-Related
 Assessments, Net of Tax                                                                   -                  (49)
                                                                                ------------         ------------

Net Earnings                                                                     $        29          $        26
                                                                                ============         ============

Per Common Share
Earnings Per Share:
Before Discontinued Operations and Cumulative Effect of Accounting Change               0.12                 0.34
Earnings from Discontinued Operations                                                   0.02                 0.02
Cumulative Effect of Accounting Change                                                     -                (0.24)
                                                                                ------------         ------------

Including Discontinued Operations and Cumulative Effect of Accounting Change            0.14                 0.12
                                                                                ============         ============

Earnings Per Share, Assuming Dilution:
Before Discontinued Operations and Cumulative Effect of Accounting Change               0.12                 0.34
Earnings from Discontinued Operations                                                   0.02                 0.02
Cumulative Effect of Accounting Change                                                     -                (0.24)
                                                                                ------------         ------------

Including Discontinued Operations and Cumulative Effect of Accounting Change            0.14                 0.12
                                                                                ============         ============
Average Common Shares Outstanding (Thousands)                                        211,192              210,124
                                                                                ============         ============
Average Common Shares Outstanding, Assuming Dilution (Thousands)                     212,015              211,658
                                                                                ============         ============
Cash Dividends Paid Per Common Share                                             $      0.30          $      0.30
                                                                                ============         ============
</TABLE>

See accompanying Notes to Consolidated Financial Statements.

                                      -2-
<PAGE>

                        CSX CORPORATION AND SUBSIDIARIES
                      Consolidated Statement of Cash Flows
                             (Millions of Dollars)
<TABLE>
<CAPTION>
                                                                                         (Unaudited)
                                                                                       Quarters Ended
                                                                           -----------------------------------
                                                                              March 31,               April 2,
                                                                                2000                    1999
                                                                           ------------           ------------
<S>                                                                        <C>                    <C>
OPERATING ACTIVITIES
  Net Earnings                                                             $         29           $         26
  Adjustments to Reconcile Net Earnings to Net Cash Provided:
      Cumulative Effect of Accounting Change                                          -                     49
      Depreciation                                                                  147                    169
      Deferred Income Taxes                                                           2                     39
      Equity in Conrail Earnings - Net                                               (6)                   (13)
      Other Operating Activities                                                     33                     (7)
      Changes in Operating Assets and Liabilities
        Accounts Receivable                                                           6                    (75)
        Other Current Assets                                                        (39)                    20
        Accounts Payable                                                            (21)                  (122)
        Other Current Liabilities                                                  (152)                   (86)
                                                                           ------------           ------------

        Net Cash Provided by Operating Activities                                    (1)                     -
                                                                           ------------           ------------

INVESTING ACTIVITIES
  Property Additions                                                               (107)                  (190)
  Short-Term Investments - Net                                                      (23)                    32
  Other Investing Activities                                                         11                    (14)
                                                                           ------------           ------------

        Net Cash Used by Investing Activities                                      (119)                  (172)
                                                                           ------------           ------------

FINANCING ACTIVITIES
  Short-Term Debt - Net                                                             (81)                   250
  Long-Term Debt Issued                                                               -                     79
  Long-Term Debt Repaid                                                             (34)                   (32)
  Cash Dividends Paid                                                               (66)                   (65)
  Other Financing Activities                                                        (32)                   (11)
                                                                           ------------           ------------

        Net Cash Provided (Used) by Financing Activities                           (213)                   221
                                                                           ------------           ------------

  Net Increase (Decrease) in Cash and Cash Equivalents                             (333)                    49

CASH, CASH EQUIVALENTS AND SHORT-TERM
  INVESTMENTS
  Cash and Cash Equivalents at Beginning of Period                                  626                    105
                                                                           ------------           ------------

  Cash and Cash Equivalents at End of Period                                        293                    154
  Short-Term Investments at End of Period                                           373                    396
                                                                           ------------           ------------

  Cash, Cash Equivalents and Short-Term
    Investments at End of Period                                           $        666           $        550
                                                                           ============           ============
</TABLE>

See accompanying Notes to Consolidated Financial Statements.

                                      -3-
<PAGE>

                       CSX CORPORATION AND SUBSIDIARIES
                 Consolidated Statement of Financial Position
                             (Millions of Dollars)
<TABLE>
<CAPTION>
                                                                  (Unaudited)
                                                                   March 31,            December 31,
                                                                     2000                   1999
                                                               -----------------     -----------------
<S>                                                            <C>                   <C>
ASSETS
  Current Assets
    Cash, Cash Equivalents and Short-Term Investments          $         666         $         974
    Accounts Receivable                                                1,129                 1,135
    Materials and Supplies                                               263                   220
    Deferred Income Taxes                                                133                   135
    Other Current Assets                                                 159                    99
                                                               -------------         -------------
        Total Current Assets                                           2,350                 2,563

  Properties                                                          17,514                17,526
  Accumulated Depreciation                                            (5,301)               (5,269)
                                                               -------------         -------------
       Properties-Net                                                 12,213                12,257

  Investment in Conrail                                                4,668                 4,663
  Affiliates and Other Companies                                         466                   410
  Other Long-Term Assets                                                 828                   827
                                                               -------------         -------------
        Total Assets                                           $      20,525         $      20,720
                                                               =============         =============
LIABILITIES
  Current Liabilities
    Accounts Payable                                           $       1,176         $       1,197
    Labor and Fringe Benefits Payable                                    441                   436
    Casualty, Environmental and Other Reserves                           267                   271
    Current Maturities of Long-Term Debt                                 351                   349
    Short-Term Debt                                                      493                   574
    Other Current Liabilities                                            557                   646
                                                               -------------         -------------
        Total Current Liabilities                                      3,285                 3,473

  Casualty, Environmental and Other Reserves                             763                   767
  Long-Term Debt                                                       6,160                 6,196
  Deferred Income Taxes                                                3,228                 3,227
  Other Long-Term Liabilities                                          1,382                 1,301
                                                               -------------         -------------
        Total Liabilities                                             14,818                14,964
                                                               -------------         -------------
SHAREHOLDERS' EQUITY
  Common Stock, $1 Par Value                                             218                   218
  Other Capital                                                        1,514                 1,525
  Retained Earnings                                                    3,997                 4,034
  Accumulated Other Comprehensive Loss                                   (22)                  (21)
                                                               -------------         -------------
        Total Shareholders' Equity                                     5,707                 5,756
                                                               -------------         -------------
        Total Liabilities and Shareholders' Equity             $      20,525         $      20,720
                                                               =============         =============
</TABLE>

See accompanying Notes to Consolidated Financial Statements.

                                      -4-
<PAGE>

                       CSX CORPORATION AND SUBSIDIARIES
            Notes to Consolidated Financial Statements (Unaudited)
         (All Tables in Millions of Dollars, Except Per Share Amounts)

NOTE 1.  BASIS OF PRESENTATION

     In the opinion of management, the accompanying consolidated financial
statements contain all adjustments necessary to present fairly the financial
position of CSX Corporation and subsidiaries (CSX or the "company") at March 31,
2000 and December 31, 1999, the results of its operations and cash flows for the
quarters ended March 31, 2000 and April 2, 1999, such adjustments being of a
normal recurring nature.  Certain prior-year data have been reclassified to
conform to the 2000 presentation.

     While the company believes that the disclosures presented are adequate to
make the information not misleading, it is suggested that these financial
statements be read in conjunction with the financial statements and the notes
included in the company's latest Annual Report and Form 10-K.

     CSX follows a 52/53 week fiscal reporting calendar.  Fiscal year 2000
consists of 52 weeks ending on December 29, 2000.  Fiscal year 1999 consisted of
53 weeks ended December 31, 1999.  The financial statements presented are for
the 13-week quarter ended March 31, 2000, the 14-week quarter ended April 2,
1999, and as of December 31, 1999.

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

NOTE 2.  CHANGE IN METHOD OF ACCOUNTING FOR INSURANCE-RELATED
         ASSESSMENTS

     CSX adopted the American Institute of Certified Public Accountants'
Statement of Position No. 97-3, "Accounting by Insurance and Other Enterprises
for Insurance-Related Assessments," (SOP No. 97-3) effective as of the beginning
of fiscal year 1999.  SOP No. 97-3 requires companies to accrue assessments
related to workers' compensation second injury funds and is applicable to CSX
with respect to certain assessments incurred by Sea-Land Service, Inc. (Sea-
Land), the company's container-shipping unit.  The assessments relate to
employees who have experienced second injuries over periods dating back to the
1970's and are receiving a disability type benefit.  Previously, the assessments
were charged to expense in the fiscal year they were paid.  As a result of
adopting SOP No. 97-3, the company recorded a non-cash charge of $78 million,
$49 million after-tax, 24 cents per share, during the quarter ended April 2,
1999 to reflect the cumulative effect on prior years of the accounting change.
Had the accounting change been applied retroactively, the effect on net earnings
and related per share amounts would not have been material to any period
presented.

     The majority of the Sea-Land workforce that could incur second injuries and
become eligible for these disability benefits in future periods transferred
their employment to the purchaser of Sea-Land's international liner business in
December 1999 (see Note 5).  The company retained the obligations for second
injury fund assessments for claimants receiving benefits prior to the sale.  As
a result of these changes, future expense for second injury fund assessments
associated with the continuing workforce should be minimal, but the company
expects to make annual contributions to the fund for a number of years until the
retained obligations are extinguished.

                                      -5-
<PAGE>

                       CSX CORPORATION AND SUBSIDIARIES
            Notes to Consolidated Financial Statements (Unaudited)
         (All Tables in Millions of Dollars, Except Per Share Amounts)


NOTE 3.  EARNINGS PER SHARE

     Earnings per share are based on the weighted average of common shares
outstanding, as defined by Financial Accounting Standards Board (FASB) Statement
No. 128, "Earnings per Share," for the fiscal quarters ended March 31, 2000 and
April 2, 1999.  Earnings per share, assuming dilution, are based on the weighted
average of common shares outstanding adjusted for the effect of potential common
shares outstanding that were dilutive during the period, principally arising
from employee stock plans.  For the fiscal quarters ended March 31, 2000 and
April 2, 1999, potential common shares that were dilutive totaled 0.8 and 1.5
million, respectively.

     Certain potential common shares outstanding at March 31, 2000 and April 2,
1999 were not included in the computation of earnings per share, assuming
dilution, since their exercise prices were greater than the average market price
of the common shares during the period and, accordingly, their effect is
antidilutive.  These shares totaled 23.9 million at a weighted-average exercise
price of $41.89 per share at March 31, 2000 and 11.4 million with a weighted-
average exercise price of $50.29 per share at April 2, 1999.

NOTE 4.  INVESTMENT IN AND INTEGRATED RAIL OPERATIONS WITH CONRAIL

Background
- ----------

     CSX and Norfolk Southern Corporation (Norfolk Southern) completed the
acquisition of Conrail Inc. (Conrail) in May 1997.  Conrail owns the primary
freight railroad system serving the northeastern United States, and its rail
network extends into several midwestern states and into Canada.  CSX and Norfolk
Southern, through a jointly owned acquisition entity, hold economic interests in
Conrail of 42% and 58%, respectively, and voting interests of 50% each.  CSX and
Norfolk Southern received regulatory approval from the Surface Transportation
Board (STB) to exercise joint control over Conrail in August 1998 and
subsequently began integrated operations over allocated portions of the Conrail
lines in June 1999.

     The rail subsidiaries of CSX and Norfolk Southern operate their respective
portions of the Conrail system pursuant to various operating agreements that
took effect on June 1, 1999.  Under these agreements, the railroads pay
operating fees to Conrail for the use of right-of-way and rent for the use of
equipment.  Conrail continues to provide rail service in certain shared
geographic areas for the joint benefit of CSX and Norfolk Southern for which it
is compensated on the basis of usage by the respective railroads.

NOTE 4.  INVESTMENT IN AND INTEGRATED RAIL OPERATIONS WITH CONRAIL, Continued

Conrail Financial Information
- -----------------------------

     Summary financial information for Conrail for its fiscal periods ended
March 31, 2000 and 1999, and at December 31, 1999, is as follows:

                                                         Quarters Ended
                                                  ----------------------------
                                                    March 31,       March 31,
                                                      2000            1999
                                                  ------------    ------------
   Income Statement Information:
      Revenues                                      $  259          $  916
      Income from Operations                            60             146
      Net Income                                        65              76

                                      -6-
<PAGE>

                       CSX CORPORATION AND SUBSIDIARIES
            Notes to Consolidated Financial Statements (Unaudited)
         (All Tables in Millions of Dollars, Except Per Share Amounts)

 NOTE 4.  INVESTMENT IN AND INTEGRATED RAIL OPERATIONS WITH CONRAIL, Continued

<TABLE>
<CAPTION>
                                                                                            As Of
                                                                         -----------------------------------------
                                                                              March 31,             December 31,
                                                                                2000                    1999
                                                                         ---------------       -------------------
    <S>                                                                  <C>                   <C>
    Balance Sheet Information:
      Current Assets                                                      $       705            $       669
      Property and Equipment and Other Assets                                   7,662                  7,714
      Total Assets                                                              8,367                  8,383
      Current Liabilities                                                         825                    863
      Long-Term Debt                                                            1,287                  1,302
      Total Liabilities                                                         4,483                  4,564
      Stockholders' Equity                                                      3,884                  3,819
</TABLE>

      Comparisons of Conrail's operating results for the quarters ended March
31, 2000 and 1999 reflect the significant changes in its business that occurred
as a result of the integration with CSX and Norfolk Southern in June 1999.
Revenues and expenses for the 1999 quarter were derived principally from freight
linehaul operations over the entire Conrail network. Results for the 2000
quarter reflect Conrail's post-integration business, with revenues consisting
primarily of operating fees, equipment rents, and shared area usage fees derived
from CSX and Norfolk Southern, and expenses consisting of salaries and wages,
rents, depreciation, and other costs reflective of the new operations. Results
for the 2000 quarter also include a non-recurring gain of $61 million before
tax, $37 million after tax, on the sale of property. To reflect the fair value
write-up arising from the Conrail acquisition, CSX excluded approximately $16
million of the after-tax gain on this transaction in recording its equity in
Conrail's net income .

CSX's Accounting for its Investment in and Integrated Rail Operations with
- --------------------------------------------------------------------------
Conrail
- -------
      CSX and Norfolk Southern assumed substantially all of Conrail's customer
freight contracts at the June 1999 integration date.  CSX's rail and intermodal
operating revenue since that date include revenue from traffic previously moving
on Conrail.  Operating expenses reflect corresponding increases for costs
incurred to handle the new traffic and operate the former Conrail lines.  Rail
operating expenses after the integration also include an expense category,
"Conrail Operating Fee, Rent and Services," which reflects payment to Conrail
for the use of right-of-way and equipment, as well as charges for
transportation, switching, and terminal services in the shared areas Conrail
operates for the joint benefit of CSX and Norfolk Southern.  This expense
category also includes amortization of the fair value write-up arising from the
acquisition of Conrail, as well as CSX's proportionate share of Conrail's net
income or loss recognized under the equity method of accounting. Prior to
integration, CSX recorded its share of Conrail's net income, less amortization
of the fair value write-up, and acquisition and transition expenses, in other
income (expense) in the Consolidated Statement of Earnings.

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

                                      -7-
<PAGE>

                       CSX CORPORATION AND SUBSIDIARIES
            Notes to Consolidated Financial Statements (Unaudited)
         (All Tables in Millions of Dollars, Except Per Share Amounts)


NOTE 4.  INVESTMENT IN AND INTEGRATED RAIL OPERATIONS WITH CONRAIL, Continued

     At March 31, 2000 and December 31, 1999, CSX had $26 million and $53
million, respectively, in amounts receivable from Conrail, principally for
reimbursement of certain capital improvement costs.  Conrail advances its
available cash balances to CSX and Norfolk Southern under variable-rate demand
loan agreements.  At March 31, 2000 and December 31, 1999, Conrail had advanced
$87 million and $93 million, respectively, to CSX under this arrangement at
interest rates of 6.3% and 5.6%, respectively.  CSX also had amounts payable to
Conrail of $118 million and $105 million at March 31, 2000 and December 31,
1999, respectively, representing expenses incurred under the operating,
equipment, and shared area agreements.

NOTE 5.  SALE OF INTERNATIONAL CONTAINER-SHIPPING ASSETS

     In December 1999, CSX sold certain assets comprising Sea-Land's
international liner business to A. P. Moller-Maersk Line (Maersk).  The
international liner business operated approximately 75 container vessels and
200,000 containers in worldwide trades and comprised a majority of CSX's
container-shipping revenue.  In addition to vessels and containers, Maersk
acquired certain terminal facilities and various other assets and related
liabilities of the international liner business.  The agreement with Maersk
provides for a post-closing adjustment to the sales price based on the final
amount of working capital conveyed, and the loss includes estimates of costs to
terminate various contractual obligations of the company.  These matters will
affect the final determination of the loss on sale.  While the Company is in
discussions about these matters with Maersk, it is expected that the parties
ultimately will seek to resolve these issues through third-party arbitration.
Such arbitration is expected to be resolved before year-end.  Management is not
yet in a position to assess fully the likely outcome of this process.

     CSX retained the container-shipping business serving the U.S. domestic
trade and part of the company's international terminal operations and manages
them separately.  Management reporting and performance measures for these
businesses have been developed for fiscal year 2000.  The company revised its
disclosures under FASB Statement No. 131, "Disclosures about Segments of an
Enterprise and Related Information," in the first quarter of 2000 to report
these as separate business segments; however, it is not practicable to provide
comparative segment disclosures for the prior year.

NOTE 6.  ACCOUNTS RECEIVABLE

     The company sells revolving interests in its rail accounts receivable to
public investors through a securitization program and to a financial institution
through commercial paper conduit programs.  The accounts receivable are sold,
without recourse, to a wholly-owned, special-purpose subsidiary, which then
transfers the receivables, with recourse, to a master trust.  The securitization
and conduit programs are accounted for as sales in accordance with FASB
Statement No. 125 "Accounting for Transfers and Servicing of Financial Assets
and Extinguishments of Liabilities."  Receivables sold under these arrangements
are excluded from accounts receivable in the consolidated statement of financial
position.  At March 31, 2000, the agreements provide for the sale of up to $350
million in receivables through the securitization program and $50 million
through the conduit programs.

     At March 31, 2000 and December 31, 1999, the company had sold $347 million
of accounts receivable; $300 million through the securitization program and $47
million through the conduit programs.  The certificates issued under the
securitization program bear interest at 6% annually and mature in June 2003.
Receivables sold under the conduit program require yield payments based on
prevailing commercial paper rates plus incremental fees.  Losses recognized on
the sale of accounts receivable totaled $8 million for the quarters ended
March 31, 2000 and April 2, 1999.

                                      -8-
<PAGE>

                       CSX CORPORATION AND SUBSIDIARIES
            Notes to Consolidated Financial Statements (Unaudited)
         (All Tables in Millions of Dollars, Except Per Share Amounts)

NOTE 6.  ACCOUNTS RECEIVABLE, Continued

     The company has retained the responsibility for servicing accounts
receivable transferred to the master trust.  The average servicing period is
approximately one month.  No servicing asset or liability has been recorded
since the fees the company receives for servicing the receivables approximate
the related costs.

NOTE 7.  OPERATING EXPENSE

<TABLE>
<CAPTION>
                                                                   Quarters Ended
                                                              --------------------------
                                                              March 31,        April 2,
                                                                2000             1999
                                                              ---------        ---------
<S>                                                           <C>              <C>
     Labor and Fringe Benefits                                $     727        $     781
     Materials, Supplies and Other                                  473              620
     Conrail Operating Fee, Rent & Services                          95                -
     Building and Equipment Rent                                    188              294
     Inland Transportation                                           83              223
     Depreciation                                                   138              164
     Fuel                                                           156               83
                                                              ---------        ---------
       Total                                                  $   1,860        $   2,165
                                                              =========        =========
</TABLE>

NOTE 8.  OTHER INCOME (EXPENSE)

<TABLE>
<CAPTION>
                                                                            Quarters Ended
                                                                 ---------------------------------
                                                                     March 31,           April 2,
                                                                      2000                1999
                                                                 -------------       -------------
<S>                                                              <C>                 <C>
     Interest Income                                             $          16       $          14
     Income (Loss) from Real Estate and Resort Operations/(1)/               1                  (7)
     Net Losses from Accounts Receivable Sold                               (8)                 (8)
     Minority Interest                                                      (8)                 (9)
     Income (Loss) from Investment in Conrail - Net                          -                 (28)
     Equity Earnings (Loss) of Other Affiliates                             (5)                  7
     Foreign Currency Gain                                                   1                   5
     Miscellaneous                                                          (2)                 (9)
                                                                 -------------       -------------

       Total                                                     $          (5)      $         (35)
                                                                 =============       =============
</TABLE>

/(1)/ Gross revenue from real estate and resort operations was $29 million and
      $19 million for the quarters ended March 31, 2000 and April 2, 1999,
      respectively.

                                      -9-
<PAGE>

                       CSX CORPORATION AND SUBSIDIARIES
            Notes to Consolidated Financial Statements (Unaudited)
         (All Tables in Millions of Dollars, Except Per Share Amounts)


NOTE 9.  COMMITMENTS AND CONTINGENCIES
- --------------------------------------

New Orleans Tank Car Fire
- -------------------------

     In September 1997, a state court jury in New Orleans, Louisiana returned a
$2.5 billion punitive damages award against CSX Transportation, Inc. (CSXT), the
wholly-owned rail subsidiary of CSX. The award was made in a class-action
lawsuit against a group of nine companies based on personal injuries alleged to
have arisen from a 1987 fire. The fire was caused by a leaking chemical tank car
parked on CSXT tracks and resulted in the 36-hour evacuation of a New Orleans
neighborhood. In the same case, the court awarded a group of 20 plaintiffs
compensatory damages of approximately $2 million against the defendants,
including CSXT, to which the jury assigned 15 percent of the responsibility for
the incident. CSXT's liability under that compensatory damages award is not
material, and adequate provision has been made for the award.

     In October 1997, the Louisiana Supreme Court set aside the punitive damages
judgment, ruling the judgment should not have been entered until all liability
issues were resolved. In February 1999, the Louisiana Supreme Court issued a
further decision, authorizing and instructing the trial court to enter
individual punitive damages judgments in favor of the 20 plaintiffs who had
received awards of compensatory damages, in amounts representing an appropriate
share of the jury's award. The trial court on April 8, 1999 entered judgment
awarding approximately $2 million in compensatory damages and approximately $8.5
million in punitive damages to those 20 plaintiffs. Approximately $6.2 million
of the punitive damages awarded were assessed against CSXT. CSXT then filed
post-trial motions for a new trial and for judgment notwithstanding the verdict
as to the April 8 judgment.

     The new trial motion was denied by the trial court in August 1999. On
November 5, 1999, the trial court issued an opinion that granted CSXT's motion
for judgment notwithstanding the verdict and effectively reduced the amount of
the punitive damages verdict from $2.5 billion to $850 million. CSXT believes
that this amount (or any amount of punitive damages) is unwarranted and intends
to pursue its full appellate remedies with respect to the 1997 trial as well as
the trial judge's decision on the motion for judgment notwithstanding the
verdict. The compensatory damages awarded by the jury in the 1997 trial were
also substantially reduced by the trial judge. A judgment reflecting the $850
million punitive award has been entered against CSXT. CSXT has obtained and
posted an appeal bond in the amount of $895 million, which will allow it to
appeal the 1997 compensatory and punitive awards, as reduced by the trial judge.

     A trial for the claims of 20 additional plaintiffs for compensatory damages
began on May 24, 1999. In early July, the jury in that trial rendered verdicts
totaling approximately $330 thousand in favor of eighteen of those twenty
plaintiffs. Two plaintiffs received nothing; that is, the jury found that they
had not proved any damages. Management believes that this result, while still
excessive, supports CSXT's contention that the punitive damages award was
unwarranted.

     CSXT continues to pursue an aggressive legal strategy. Management believes
that an adverse outcome, if any, is not likely to be material to CSX's or CSXT's
overall results of operations or financial position, although it could be
material to results of operations in a particular quarterly accounting period.

Self-Insurance
- --------------

     Although the company obtains substantial amounts of commercial insurance
for potential losses for third-party liability and property damage, reasonable
levels of risk are retained on a self-insurance basis. A

                                      -10-
<PAGE>

                       CSX CORPORATION AND SUBSIDIARIES
            Notes to Consolidated Financial Statements (Unaudited)
         (All Tables in Millions of Dollars, Except Per Share Amounts)

NOTE 9.  COMMITMENTS AND CONTINGENCIES, Continued

Self-Insurance, Continued
- -------------------------

portion of the insurance coverage, $25 million limit above $100 million per
occurrence from rail and certain other operations, is provided by a company
partially owned by CSX.

Environmental
- -------------

     CSXT is a party to various proceedings involving private parties and
regulatory agencies related to environmental issues. CSXT has been identified as
a potentially responsible party (PRP) at 104 environmentally impaired sites that
are or may be subject to remedial action under the Federal Superfund statute
(Superfund) or similar state statutes. A number of these proceedings are based
on allegations that CSXT, or its railroad predecessors, sent hazardous
substances to the facilities in question for disposal. Such proceedings arising
under Superfund or similar state statutes can involve numerous other waste
generators and disposal companies and seek to allocate or recover costs
associated with site investigation and cleanup, which could be substantial.

     CSXT is involved in a number of administrative and judicial proceedings and
other clean-up efforts at 241 sites, including the sites addressed under the
Federal Superfund statute or similar state statutes, where it is participating
in the study and/or clean-up of alleged environmental contamination. The
assessment of the required response and remedial costs associated with most
sites is extremely complex. Cost estimates are based on information available
for each site, financial viability of other PRPs, where available, and existing
technology, laws and regulations. CSXT's best estimates of the allocation method
and percentage of liability when other PRPs are involved are based on
assessments by consultants, agreements among PRPs, or determinations by the U.S.
Environmental Protection Agency or other regulatory agencies.

     At least once each quarter, CSXT reviews its role, if any, with respect to
each such location, giving consideration to the nature of CSXT's alleged
connection to the location (e.g., generator, owner or operator), the extent of
CSXT's alleged connection (e.g., volume of waste sent to the location and other
relevant factors), the accuracy and strength of evidence connecting CSXT to the
location, and the number, connection and financial position of other named and
unnamed PRPs at the location. The ultimate liability for remediation can be
difficult to determine with certainty because of the number and creditworthiness
of PRPs involved. Through the assessment process, CSXT monitors the
creditworthiness of such PRPs in determining ultimate liability.

     Based upon such reviews and updates of the sites with which it is involved,
CSXT has recorded, and reviews at least quarterly for adequacy, reserves to
cover estimated contingent future environmental costs with respect to such
sites. The recorded liabilities for estimated future environmental costs at
March 31, 2000, and December 31, 1999, were $49 million and $53 million,
respectively. These recorded liabilities, which are undiscounted, include
amounts representing CSXT's estimate of unasserted claims, which CSXT believes
to be immaterial. The liability has been accrued for future costs for all sites
where the company's obligation is probable and where such costs can be
reasonably estimated. The liability includes future costs for remediation and
restoration of sites as well as any significant ongoing monitoring costs, but
excludes any anticipated insurance recoveries. The majority of the March 31,
2000 environmental liability is expected to be paid out over the next five to
seven years, funded by cash generated from operations.

                                      -11-
<PAGE>

                       CSX CORPORATION AND SUBSIDIARIES
            Notes to Consolidated Financial Statements (Unaudited)
         (All Tables in Millions of Dollars, Except Per Share Amounts)

NOTE 9.  COMMITMENTS AND CONTINGENCIES, Continued

Environmental, Continued
- ------------------------

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

Other Legal Proceedings
- -----------------------

     A number of legal actions are pending against CSX and certain subsidiaries
in which claims are made in substantial amounts. While the ultimate results of
environmental investigations, lawsuits and claims against the company cannot be
predicted with certainty, management does not currently expect that resolution
of these matters will have a material adverse effect on the company's
consolidated financial position, results of operations or cash flows. The
company is also party to a number of actions, the resolution of which could
result in gain realization in amounts that could be material to results of
operations in the quarter received.

NOTE 10. BUSINESS SEGMENTS

     The company operates in four business segments: Rail, Intermodal, Domestic
Container Shipping, and International Terminals. The Rail segment provides rail
freight transportation over a network of more than 23,400 route miles in 23
states, the District of Columbia and two Canadian provinces. The Intermodal
segment provides transcontinental intermodal transportation services and
operates a network of dedicated intermodal facilities across North America. The
Domestic Container Shipping segment consists of a fleet of 16 ocean vessels and
27,000 containers serving the trade between ports on the United States mainland
and Alaska, Guam, Hawaii and Puerto Rico. The International Terminals segment
operates container freight terminal facilities at 12 locations in Hong Kong,
China, Australia, Europe, and the Dominican Republic. Prior to the sale of its
international liner operations in December 1999 (see Note 5), Marine Services
(formerly known as the Container Shipping segment) provided global
transportation services via a fleet of 91 container ships and more than 220,000
containers. The company's segments are strategic business units that offer
different services and are managed separately based on the differences in these
services. Because of their close interrelationship, the Rail and Intermodal
segments are viewed on a combined basis as Surface Transportation operations and
the Domestic Container Shipping and International Terminals segments are viewed
on a combined basis as Marine Services operations.

     The company evaluates performance and allocates resources based on several
factors, of which the primary financial measure is business segment operating
income, defined as income from operations, excluding the effects of non-
recurring charges and gains. The accounting policies of the segments are the
same as those described in the summary of significant accounting policies (Note
1), except that for segment reporting purposes, CSX includes minority interest
expense on the international terminals segment's joint venture businesses in
operating expense. These amounts are reclassified in CSX's consolidated
financial statements to other income (expense) to conform to the customary
reporting presentation under generally accepted accounting principles.
Intersegment sales and transfers are generally accounted for as if the sales or
transfers were to third parties, that is, at current market prices.

                                      -12-
<PAGE>

                       CSX CORPORATION AND SUBSIDIARIES
            Notes to Consolidated Financial Statements (Unaudited)
         (All Tables in Millions of Dollars, Except Per Share Amounts)

NOTE 10.  BUSINESS SEGMENTS, Continued

      Business segment information for the quarters ended March 31, 2000 and
April 2, 1999 is as follows:

Quarter ended March 31, 2000:
- -----------------------------

<TABLE>
<CAPTION>
                                                                                Marine Services*
                                                                    -----------------------------------------
                                          Surface Transportation
                                      ------------------------------      Domestic
                                                                          Container    International
                                       Rail    Intermodal      Total      Shipping      Terminals      Total   Totals
                                      -------------------------------------------------------------------------------
<S>                                   <C>      <C>           <C>       <C>             <C>            <C>     <C>
Revenues from external customers      $ 1,515        $283    $ 1,798        $162           $ 74       $  236  $ 2,034
Intersegment revenues                       -           5          5           -              -            -        5
Segment operating income (loss)           147          13        160          (1)            14           13      173
Assets                                 12,976         389     13,365         338            720        1,058   14,423
</TABLE>

Quarter ended April 2, 1999:
- ----------------------------

<TABLE>
<CAPTION>
                                                  Surface Transportation
                                        ------------------------------------------       Marine
                                            Rail         Intermodal      Total          Services*       Totals
                                        --------------------------------------------------------------------------
<S>                                     <C>              <C>             <C>         <C>               <C>
Revenues from external customers            $ 1,297         $163         $ 1,460          $  973       $ 2,433
Intersegment revenues                             -            6               6               -             6
Segment operating income (loss)                 266            7             273             (12)          261
Assets                                       11,982          205          12,187           2,344        14,531
</TABLE>

*  In December 1999, CSX sold the assets comprising the international liner
business of Sea-Land.  Operating revenue and expenses related to assets sold are
included in the Marine Services segment in 1999, distorting comparisons to 2000.
The company reports the retained businesses as separate segments starting in the
first quarter of 2000; however, it is not practicable to provide comparative
segment disclosures for the prior year.

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

<TABLE>
<CAPTION>
                                                        March 31,            April 2,
                                                          2000                 1999
                                                       ----------           ----------
<S>                                                    <C>                  <C>
Revenues:
- --------
Total external revenues for business segments          $    2,034           $    2,433
Intersegment revenues for business segments                     5                    6
Elimination of intersegment revenues                           (5)                  (6)
                                                       ----------           ----------
     Total consolidated revenues                       $    2,034           $    2,433
                                                       ==========           ==========
</TABLE>

                                      -13-
<PAGE>

                       CSX CORPORATION AND SUBSIDIARIES
            Notes to Consolidated Financial Statements (Unaudited)
         (All Tables in Millions of Dollars, Except Per Share Amounts)


NOTE 10.  BUSINESS SEGMENTS, Continued


                                                       March 31,       April 2,
                                                          2000           1999
                                                       ---------       --------
Operating Income:
- ----------------
Total operating income for business segments           $     173       $    261
Reclassification of minority interest expense for
  international terminals segment                              8              9
Unallocated corporate expenses                                (7)            (2)
                                                       ---------       --------
     Total consolidated operating income               $     174       $    268
                                                       =========       ========

Assets:
- ------
Assets for Business Segments                           $    14,423     $ 14,531
Investment in Conrail                                        4,668        4,811
Elimination of Intercompany Receivables                       (289)        (151)
Non-segment Assets                                           1,723        1,358
                                                       -----------     --------
     Total consolidated assets                         $    20,525     $ 20,549
                                                       ===========     ========

NOTE 11. SUBSEQUENT EVENT

On September 22, 2000, CSX completed the sale of CTI Logistx, Inc., its wholly
owned logistics subsidiary, for $650 million. All prior period statements of
earnings have been restated accordingly. Revenues from the contract logistics
segment for the quarters ended March 31, 2000 and April 2, 1999 were $126
million and $120 million, respectively. CSX recorded a gain of $570 million
before tax, $365 million after tax, $1.73 per share, on the sale.

                                      -14-
<PAGE>

ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
         FINANCIAL CONDITION

RESULTS OF OPERATIONS

     CSX follows a 52/53-week fiscal calendar. Fiscal year 2000 consists of 52
weeks, and fiscal year 1999 consisted of 53 weeks. The quarter ended March 31,
2000 consisted of 13 weeks and the quarter ended April 2, 1999 consisted of 14
weeks .

First Quarter 2000 Compared with 1999
- -------------------------------------

     CSX reported net earnings of $29 million, 14 cents per share, for the
quarter ended March 31, 2000. In the prior year, the company earned $75 million,
36 cents per share, excluding a one-time, non-cash after-tax charge of $49
million, 24 cents per share, to recognize the cumulative effect of adopting a
new accounting rule related to second-injury fund assessments at its container-
shipping unit. Net earnings include the results of the Company's wholly owned
logistics subsidiary, CTI Logistx, Inc. which was sold on September 22, 2000.
All periods have been restated to reflect the results of the logistics segment
as a discontinued operation. Including the cumulative effect of the accounting
change, earnings for the 1999 quarter were $26 million, 12 cents per share.

     Several significant factors affect the comparability of CSX's first quarter
2000 operating results with the prior year. First quarter 1999 preceded the
company's integration with Conrail and, accordingly, rail and intermodal results
for that period do not include revenues and expenses associated with operations
over CSX's allocated portion of the Conrail network. Additionally, CSX sold its
international container-shipping liner business and certain container terminal
facilities in December 1999. Operating results for first quarter 1999 included
substantial revenues and expenses from those operations. Finally, as mentioned
above, under the company's fiscal calendar, first quarter 1999 included an extra
week compared to first quarter 2000.

     Operating income for the first quarter of 2000 totaled $174 million,
compared with $268 million in the first quarter of 1999. Operating revenue of
$2.03 billion was 16% below the prior year quarter, while operating expense of
$1.86 billion was 14% lower. The reductions in revenue and expense compared to
1999 result primarily from the business changes created by the Conrail
integration and the international container-shipping sale and are discussed in
more detail in the following analysis of segment results.

Surface Transportation Results
- ------------------------------

Rail

     Rail operating income for the first quarter of 2000 totaled $147 million,
compared to $266 million in the prior year quarter. Operating revenue totaled
$1.52 billion, an increase of $218 million, or 17%, due to the Conrail
integration and relatively strong demand across most commodity groups. Operating
expense increased $337 million, or 33%, to $1.37 billion. As discussed below,
both revenues and expenses were adversely affected by significant congestion on
key parts of the CSX network.

                                      -15-
<PAGE>

ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
         FINANCIAL CONDITION


RESULTS OF OPERATIONS, Continued

Surface Transportation Results, Continued
- -----------------------------------------

Rail, Continued

     The following table provides rail carload and revenue data by service group
and commodity for the quarters ended March 31, 2000 and April 2, 1999:

<TABLE>
<CAPTION>
                                                   Carloads                     Revenue
                                                  (Thousands)            (Millions of Dollars)
                                         -------------------------     -------------------------
                                         March 31,        April 2,     March 31,        April 2,
                                           2000             1999         2000             1999
                                         --------         --------     ---------        --------
     <S>                                 <C>              <C>          <C>              <C>
     Merchandise
       Phosphates and Fertilizer              131              148     $      92        $     90
       Metals                                  91               72           107              82
       Food and Consumer Products              41               34            53              39
       Paper and Forest Products              137              121           168             137
       Agricultural Products                   92               76           122             104
       Chemicals                              149              121           247             205
       Minerals                               101              101            95              92
       Government                               3                3             5               7
                                         --------         --------     ---------        --------
       Total Merchandise                      745              676           889             756

     Automotive                               158              119           227             154

     Coal, Coke & Iron Ore
       Coal                                   396              396           371             353
       Coke                                    12               12            12              12
       Iron Ore                                 8                7             7               7
                                         --------         --------     ---------        --------

       Total Coal, Coke & Iron Ore            416              415           390             372

           Other                                -                -             9              15
                                         --------         --------     ---------        --------

     Total Rail                             1,319            1,210     $   1,515        $  1,297
                                         ========         ========     =========        ========
</TABLE>

     Overall freight revenue was significantly higher than the first quarter of
1999 due to the Conrail integration, although the increase in coal revenue was
tempered by mild winter weather in the East and continuing weakness in export
coal shipments. Merchandise demand was strong, particularly in the chemicals,
metals, food and consumer products, and paper and forest products commodity
groups. Automotive revenue was up significantly, benefiting from the Conrail
integration, continued strength in U.S. vehicle production, and rate increases
on some auto shipments.

     Since the integration of Conrail, CSX's rail unit has experienced operating
difficulties and diminished service performance, particularly in high-volume
corridors of its network and during periods of peak traffic demand. Key
performance statistics that track average train velocity, the number of freight
cars on the network, and dwell time for trains in terminals and classification
yards have not shown sustainable improvement. As a result, the unit continued to
experience lost revenues during the first quarter as customers diverted traffic
to trucks or other carriers. Operating expenses include significant costs
related to the

                                      -16-
<PAGE>

ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
         FINANCIAL CONDITION


RESULTS OF OPERATIONS, Continued

Surface Transportation Results, Continued
- -----------------------------------------

Rail, Continued

congestion problems, including lease costs for higher numbers of locomotives and
freight cars on the system and incremental labor costs for train crews and yard
personnel. Significantly higher fuel prices and cost-of-living increases for
union employees under previously-negotiated contracts also had a substantial
effect on operating expenses for the quarter. The average price per gallon of
diesel fuel was 86 cents vs. 45 cents in the prior year quarter, accounting for
$66 million of the increase in rail operating expense. As discussed in a later
section of Management's Discussion and Analysis, CSX has various initiatives
underway to relieve congestion, improve operations, and reduce operating
expenses.

Intermodal

     Intermodal operating income totaled $13 million for the first quarter of
2000, compared to $7 million in the prior year quarter. Revenue for the quarter
increased $119 million, or 70%, to $288 million. Operating expense increased
$113 million, or 70%, to $275 million. These increases reflect the Conrail
integration, as well as new business associated with a contract signed last year
with a major intermodal customer. International container traffic continued to
show strength during the quarter; however, significant domestic container
business was lost to trucks and other carriers due to service problems and price
competition.

Marine Services Results
- -----------------------

     Following the sale of its international container-shipping liner business
in 1999, CSX has redefined the retained portions of its container-shipping
business to consist of a Domestic Container Shipping segment and an
International Terminals segment. These segments are being managed as separate
businesses, and operating results for the first quarter of 2000 are presented
separately for each segment. It is not practicable to provide results for these
segments for the comparable period of 1999. For reporting purposes, these
businesses are also viewed in the aggregate as Marine Services. Prior year
results for the Marine Services grouping include the two retained businesses and
the international liner business that was sold. The Domestic Container Shipping
unit operates 16 vessels and 27,000 containers along six service routes between
the continental United States and Alaska, Guam, Hawaii, and Puerto Rico. The
International Terminals unit operates container freight terminals at 12
locations in Hong Kong, China, Australia, Europe, Russia, and Latin America.

     Revenue from Marine Services operations totaled $236 million for the first
quarter of 2000, vs. $973 million for the 1999 quarter. Operating expenses
totaled $223 million, compared to $985 million in the prior year. Operating
income for first quarter 2000 was $13 million, compared to a loss of $12 million
in 1999. The significant declines in revenue and expense reflect the
international liner sale. That transaction also accounted for the significant
improvement in operating income as the international business operated at a loss
in the prior year under substantial rate pressure and seasonal traffic weakness.
Prior year results for the Marine Services grouping reflect certain
reclassifications to conform with the presentation for fiscal year 2000.

                                      -17-
<PAGE>

ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
         FINANCIAL CONDITION


RESULTS OF OPERATIONS, Continued

Marine Services Results, Continued
- ----------------------------------

Domestic Container Shipping, Continued

     The domestic container shipping unit reported an operating loss of $1
million for the first quarter of fiscal 2000 on operating revenue of $162
million. The unit's domestic ocean trades are stable environments, with business
growth rates reflective of growth rates of the U.S. economy. The first quarter
is typically seasonally weak, with subsequent quarters steadily growing
stronger. First quarter results were moderately favorable to expectations,
despite the fact that operating expenses were adversely affected by higher fuel
prices.

International Terminals

     The international terminals unit reported operating income of $14 million
for the first quarter on operating revenue of $74 million. The business enjoys a
strong market position in the growing global container market and benefited in
particular from strong container traffic through its Hong Kong terminal
locations.

FINANCIAL CONDITION

     Cash, cash equivalents and short-term investments totaled $666 million at
March 31, 2000, a decrease of $308 million since December 31, 1999. The balance
at the end of fiscal 1999 was significantly higher than normal, reflecting
planned levels to ensure liquidity over year-end in light of the Year 2000 date
change and the fact that the company had not fully utilized the proceeds from
the sale of its international container-shipping business to reduce short-term
debt.

     Primary sources of cash and cash equivalents during the first quarter of
2000 were normal transportation operations and a non-recurring dividend received
on the company's investment in a railcar leasing venture. Operations used $1
million of cash during the quarter, reflecting customary seasonal weakness and
the decline in operating income. The railcar venture dividend totaled $49
million. Approximately half of the dividend related to CSX's direct interest in
the venture and was reported as cash provided by other investing activities. The
remaining half of the dividend related to CSX's allocated interest within
Conrail; that amount was received by Conrail and transferred to CSX through the
related party advance arrangement described in the Notes to the Consolidated
Financial Statements. That portion appears in the Consolidated Statement of Cash
Flows as a reduction of net repayments of short-term debt. Primary uses of cash
and cash equivalents during the quarter were property additions, repayments of
short-term and long-term debt, and the payment of dividends on the company's
outstanding common stock.

     CSX's working capital deficit at March 31, 2000 was $935 million, roughly
level with the deficit at December 31, 1999.  The working capital deficit at
both dates included approximately $350 million in current maturities of long-
term debt, approximately $250 million of which are scheduled for the third
quarter.  A working capital deficit is not unusual for the company and does not
indicate a lack of liquidity.  The company continues to maintain adequate
current assets to satisfy current liabilities when they are due and has
sufficient liquidity and financial resources to manage its day-to-day cash
needs.

                                      -18-
<PAGE>

ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
         AND FINANCIAL CONDITION


FINANCIAL CONDITION, Continued

     Under its normal equipment financing programs, the company's rail unit
expects to close approximately $200 million in long-term financing on
locomotives and railcars in the second and third quarters of 2000.  CSX also has
$400 million of remaining capacity under a shelf registration that may be used
to issue debt or other securities at the company's discretion.

FINANCIAL DATA

                                            (Millions of Dollars)
                                         ---------------------------
                                           March 31,    December 31,
                                             2000           1999
                                         ------------  -------------
    Cash, Cash Equivalents and
     Short-Term Investments                 $  666        $  974
    Commercial Paper Outstanding -
     Short-Term                             $  493        $  574
    Commercial Paper Outstanding -
     Long-Term                              $  800        $  800
    Working Capital (Deficit)               $ (935)       $ (910)

    Current Ratio                               .7            .7
    Debt Ratio                                  55%           53%
    Ratio of Earnings to Fixed Charges         1.2x          1.1x

OUTLOOK

     With the sale of its international container-shipping liner business in the
fourth quarter of 1999, CSX's strategic emphasis is overwhelmingly oriented
toward its core rail and intermodal businesses.  Financial performance during
the second quarter and the balance of fiscal 2000 will be largely dependent on
the company's success in achieving operational improvements that restore
fluidity on the rail network, improve customer service, eliminate substantial
excess costs, and allow the realization of planned merger synergies.  Management
expects to make steady progress toward these goals as the year progresses.

     Entering the second quarter of 2000, merchandise and automotive traffic
remain strong, and coal traffic is showing some signs of strengthening.  On the
other hand, domestic intermodal traffic continues to reflect weakness
attributable to service issues and pricing competition.  The company expects to
implement price increases on rail and intermodal shipments where appropriate and
competitively feasible, particularly where traffic demand is creating capacity
constraints on the system.  Fuel prices have moderated over the past month, but
are expected to remain at levels significantly higher than the prior year.

     The domestic container shipping business should move into positive earnings
territory in the second quarter as seasonal traffic demand picks up and the U.S.
economy remains strong.  The international terminals business is expected to
report steady or improved earnings as container volumes remain strong in Hong
Kong and other key terminal locations.

                                      -19-
<PAGE>

ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
         AND FINANCIAL CONDITION



OUTLOOK, Continued

INVESTMENT IN AND INTEGRATED RAIL OPERATIONS WITH CONRAIL

Background
- ----------

     CSX and Norfolk Southern Corporation (Norfolk Southern) completed the
acquisition of Conrail Inc. (Conrail) in May 1997.  Conrail owns the primary
freight railroad system serving the northeastern United States, and its rail
network extends into several midwestern states and into Canada.  CSX and Norfolk
Southern, through a jointly owned acquisition entity, hold economic interests in
Conrail of 42% and 58%, respectively, and voting interests of 50% each.  CSX and
Norfolk Southern received regulatory approval from the Surface Transportation
Board (STB) to exercise joint control over Conrail in August 1998 and
subsequently began integrated operations over allocated portions of the Conrail
lines in June 1999.

     The rail subsidiaries of CSX and Norfolk Southern operate their respective
portions of the Conrail system pursuant to various operating agreements that
took effect on June 1, 1999.  Under these agreements, the railroads pay
operating fees to Conrail for the use of right-of-way and rent for the use of
equipment. Conrail continues to provide rail service in certain shared
geographic areas for the joint benefit of CSX and Norfolk Southern for which it
is compensated on the basis of usage by the respective railroads.

Accounting and Financial Reporting Effects
- ------------------------------------------

     CSX and Norfolk Southern assumed substantially all of Conrail's customer
freight contracts at the June 1999 integration date.  CSX's rail and intermodal
operating revenue since that date include revenue from traffic previously moving
on Conrail.  Operating expenses reflect corresponding increases for costs
incurred to handle the new traffic and operate the former Conrail lines.  Rail
operating expenses after the integration also include an expense category,
"Conrail Operating Fee, Rent and Services," which reflects payment to Conrail
for the use of right-of-way and equipment, as well as charges for
transportation, switching, and terminal services in the shared areas Conrail
operates for the joint benefit of CSX and Norfolk Southern.  This expense
category also includes amortization of the fair value write-up arising from the
acquisition of Conrail, as well as CSX's proportionate share of Conrail's net
income or loss recognized under the equity method of accounting. Prior to
integration, CSX recorded its share of Conrail's net income, less amortization
of the fair value write-up, and acquisition and transition expenses, in other
income (expense) in the Consolidated Statement of Earnings.

Operating and Financial Effects
- -------------------------------

     The integration of Conrail in June 1999 initially resulted in congestion
and traffic delays on parts of the new CSX network and on the shared areas
operated by Conrail.  Although substantial progress was made during the summer
of 1999 in stabilizing post-integration operations and restoring service levels,
these improvements have not been sustained across the CSX system.  Network
disruptions created by Hurricane Floyd in September 1999, followed by heavy
seasonal traffic build-up in the fourth quarter, adversely affected rail and
intermodal operating and service recovery efforts.  As peak traffic levels
subsided and the company implemented network simplification plans throughout the
system, congestion problems eased and service levels improved in key areas.
During the first quarter

                                      -20-
<PAGE>

ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
         AND FINANCIAL CONDITION


INVESTMENT IN AND INTEGRATED RAIL OPERATIONS WITH CONRAIL, Continued

Operating and Financial Effects, Continued
- ------------------------------------------

of 2000, overall operations on the northern portion of the CSX system (generally
the lines allocated to CSX in the Conrail acquisition) improved; however,
operations in the south deteriorated.  From a systemwide perspective, key
performance statistics that track average train velocity, the number of freight
cars on the network, and dwell time for trains in terminals and classification
yards did not show sustainable improvement during the quarter.  As a result, the
company continued to experience lost rail and intermodal revenue opportunities,
significant incremental operating costs, and delays in realizing merger
synergies.

     In April 2000, CSX announced a number of key management changes at its rail
unit aimed at accelerating the pace of operational and service recovery.  The
company has a number of initiatives underway to achieve this goal.  Although
progress is expected to be gradual, management expects steady improvement over
the coming quarters will result in improved network fluidity across the system
in adequate time to meet peak traffic demand in the fall.  In conjunction with
the operational and service improvement initiatives, efforts are being focused
on reducing operating costs and realizing planned merger synergies that will
deliver significant improvements in earnings and cash flow.  The company is also
closely reviewing its pricing policies and implementing rate increases where
competitively appropriate.

     Management believes that steady improvement across the rail network will be
achieved, leading to increased customer satisfaction, the return of business
which had been diverted to other modes of transportation, and improved financial
performance.  However, there can be no assurance that these objectives will be
met, or met within a specified time frame.

Conrail's Results of Operations
- -------------------------------

     Comparisons of Conrail's operating results for the quarters ended March 31,
2000 and 1999 reflect the significant changes in its business that occurred as a
result of the integration with CSX and Norfolk Southern in 1999.  Revenues and
expenses for the 1999 quarter were derived principally from freight linehaul
operations over the entire Conrail network.  Results for the 2000 quarter
reflect Conrail's post-integration business, with revenues consisting primarily
of operating fees, equipment rents, and shared area usage fees derived from CSX
and Norfolk Southern, and expenses consisting of salaries and wages, rents,
depreciation, and other costs reflective of the new operations.  Conrail
reported net income of $65 million on revenues of $259 million for the first
quarter of 2000, compared to net income of $76 million on revenues of $916
million for the prior year quarter.  Results for the first quarter of 2000
benefited from a non-recurring gain on the sale of property of $61 million, $37
million after-tax.

     Conrail's operating activities required a net use of cash of $112 million
in the first quarter of 2000, compared with net cash provided by operations of
$170 million in the first quarter of 1999.  The net use of cash in the first
quarter of 2000 resulted primarily from significant payments of one-time items
owed to CSX and Norfolk Southern.  The decline in cash provided by operations
also reflected lower operating income resulting from Conrail's post-integration
structure and operations.

                                      -21-
<PAGE>

ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
         AND FINANCIAL CONDITION


INVESTMENT IN AND INTEGRATED RAIL OPERATIONS WITH CONRAIL, Continued

Conrail's Results of Operations, Continued
- ------------------------------------------

     Conrail's working capital deficit was $120 million at March 31, 2000,
compared with $194 million at December 31, 1999.  The working capital deficit at
both dates includes slightly more than $300 million in long-term debt
maturities, the majority of which will be paid in the second quarter and is
expected to require CSX and Norfolk Southern to repay some of their borrowings
from Conrail under the related party advance arrangements.  Conrail expects to
have sufficient cash flow to meet its ongoing obligations.

SALE OF INTERNATIONAL CONTAINER-SHIPPING ASSETS

     In December 1999, CSX sold certain assets comprising Sea-Land's
international liner business to A. P. Moller-Maersk Line (Maersk).  The
international liner business operated approximately 75 container vessels and
200,000 containers in worldwide trades and comprised a majority of CSX's
container-shipping revenue.  In addition to vessels and containers, Maersk
acquired certain terminal facilities and various other assets and related
liabilities of the international liner business.  The agreement with Maersk
provides for a post-closing adjustment to the sales price based on the final
amount of working capital conveyed, and the loss includes estimates of costs to
terminate various contractual obligations of the company.  These matters will
affect the final determination of the loss on sale.  While the Company is in
discussions about these matters with Maersk, it is expected that the parties
ultimately will seek to resolve these issues through third-party arbitration.
Such arbitration is expected to be resolved before year-end.  Management is not
yet in a position to assess fully the likely outcome of this process.

     CSX retained the container-shipping business serving the U.S. domestic
trade and part of the company's international terminal operations and manages
them separately.  Management reporting and performance measures for these
businesses have been developed for fiscal year 2000.  The company revised its
disclosures under FASB Statement No. 131, "Disclosures about Segments of an
Enterprise and Related Information," in the first quarter of 2000 to report
these as separate business segments; however, it is not practicable to provide
comparative segment disclosures for the prior year.

OTHER MATTERS

Federal Railroad Administration Track Audit
- -------------------------------------------

     In March 2000, the Federal Railroad Administration (FRA) released a draft
report of the results of a two-week audit of track conditions on CSX's rail
system.  The audit, which began on February 22, identified track defects on
certain portions of the system, the nature of which led the FRA to question the
effectiveness of the quality control procedures in CSX's track maintenance and
inspection programs.  CSX responded to the findings immediately by making
necessary track repairs and by restricting train speeds on certain portions of
track until repairs could be completed.

     As a result of the audit, CSX and the FRA entered into a Safety Compliance
Agreement in April 2000 that includes measures to improve the railroad's track
inspection and maintenance processes.  Under the agreement, which is effective
though May 1, 2001, CSX will increase the frequency of automated track
inspections, enhance management oversight of track inspection and large scale
maintenance operations, and implement a new track inspection procedures manual
developed in a joint effort with the FRA and Brotherhood of Maintenance of Way
Employees.

                                      -22-
<PAGE>

ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
         AND FINANCIAL CONDITION

OTHER MATTERS, Continued

Federal Railroad Administration Track Audit, Continued
- ------------------------------------------------------

     CSX estimates that it will incur approximately $20 million to $30 million
in additional costs over the remainder of fiscal year 2000 to address the issues
raised in the audit and the commitments made in the Safety Compliance Agreement.
The company is in the process of refining those cost estimates and expects that
a portion will represent operating expenses for fiscal 2000 and a portion will
consist of capital expenditures to be depreciated over the useful life of the
related track improvements.

Surface Transportation Board Moratorium on Rail Merger Applications
- -------------------------------------------------------------------

     In March 2000, the Surface Transportation Board (STB) issued a decision
establishing a moratorium on rail merger applications for a 15-month time
period. The moratorium precluded the anticipated filing of an application by the
Burlington Northern Santa Fe (BNSF) and Canadian National (CN) railroads to
combine their respective systems. The moratorium is intended to address the
potential downstream effects that a rail merger might have on the railroad
industry at the present time, given the lingering difficulties and service
issues attributable to recent rail mergers. In the STB's public hearings on the
matter, particular concern was expressed that a combination by BNSF and CN might
precipitate further merger activity among other Class I railroads at an unstable
time in the industry. The STB's decision had the support of CSX and other major
railroads, as well as many shippers and other constituents of the rail industry.
BNSF and CN are currently challenging the STB decision in the federal courts.

Federal Court Decision Affecting Coal Mining Operations
- -------------------------------------------------------

     In October 1999, a federal district court judge ruled that certain
mountaintop coal mining practices in West Virginia were in violation of the
federal Clean Water Act and the federal Surface Mining and Control Reclamation
Act. The decision, which is currently under appeal, could adversely affect
CSX's coal traffic and revenues if upheld.

Litigation
- ----------

     In September 1997, a state court jury in New Orleans, Louisiana returned a
$2.5 billion punitive damages award against CSX Transportation, Inc. (CSXT), the
wholly-owned rail subsidiary of CSX. The award was made in a class-action
lawsuit against a group of nine companies based on personal injuries alleged to
have arisen from a 1987 fire. The fire was caused by a leaking chemical tank car
parked on CSXT tracks and resulted in the 36-hour evacuation of a New Orleans
neighborhood. In the same case, the court awarded a group of 20 plaintiffs
compensatory damages of approximately $2 million against the defendants,
including CSXT, to which the jury assigned 15 percent of the responsibility for
the incident. CSXT's liability under that compensatory damages award is not
material, and adequate provision has been made for the award.

     In October 1997, the Louisiana Supreme Court set aside the punitive damages
judgment, ruling the judgment should not have been entered until all liability
issues were resolved. In February 1999, the Louisiana Supreme Court issued a
further decision, authorizing and instructing the trial court to enter
individual punitive damages judgments in favor of the 20 plaintiffs who had
received awards of compensatory damages, in amounts representing an appropriate
share of the jury's award. The trial court on April 8, 1999 entered judgment
awarding approximately $2 million in compensatory damages and approximately
$8.5 million in punitive damages to those 20 plaintiffs. Approximately $6.2
million of the punitive damages awarded were assessed against CSXT. CSXT then
filed post-trial motions for a new trial and for judgment notwithstanding the
verdict as to the April 8 judgment.

                                      -23-
<PAGE>

ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
         AND FINAL CONDITION

OTHER MATTERS, Continued

Litigation, Continued
- ---------------------

     The new trial motion was denied by the trial court in August 1999.  On
November 5, 1999, the trial court issued an opinion that granted CSXT's motion
for judgment notwithstanding the verdict and effectively reduced the amount of
the punitive damages verdict from $2.5 billion to $850 million.  CSXT believes
that this amount (or any amount of punitive damages) is unwarranted and intends
to pursue its full appellate remedies with respect to the 1997 trial as well as
the trial judge's decision on the motion for judgment notwithstanding the
verdict.  The compensatory damages awarded by the jury in the 1997 trial were
also substantially reduced by the trial judge.  A judgment reflecting the $850
million punitive award has been entered against CSXT.  CSXT has obtained and
posted an appeal bond in the amount of $895 million, which will allow it to
appeal the 1997 compensatory and punitive awards, as reduced by the trial judge.

     A trial for the claims of 20 additional plaintiffs for compensatory damages
began on May 24, 1999.  In early July, the jury in that trial rendered verdicts
totaling approximately $330 thousand in favor of eighteen of those twenty
plaintiffs.  Two plaintiffs received nothing; that is, the jury found that they
had not proved any damages.  Management believes that this result, while still
excessive, supports CSXT's contention that the punitive damages award was
unwarranted.

     CSXT continues to pursue an aggressive legal strategy.  Management believes
that an adverse outcome, if any, is not likely to be material to CSX's or CSXT's
overall results of operations or financial position, although it could be
material to results of operations in a particular quarterly accounting period.

               __________________________________________________

     Estimates and forecasts in Management's Discussion and Analysis and in
other sections of this Quarterly Report are based on many assumptions about
complex economic and operating factors with respect to industry performance,
general business and economic conditions and other matters that cannot be
predicted accurately and that are subject to contingencies over which the
company has no control.  Such forward-looking statements are subject to
uncertainties and other factors that may cause actual results to differ
materially from the views, beliefs, and projections expressed in such
statements.  The words "believe", "expect", "anticipate", "project", and similar
expressions signify forward-looking statements.  Readers are cautioned not to
place undue reliance on any forward-looking statements made by or on behalf of
the company.  Any such statement speaks only as of the date the statement was
made.  The company undertakes no obligation to update or revise any forward-
looking statement.

     Factors that may cause actual results to differ materially from those
contemplated by these forward-looking statements include, among others, the
following possibilities:  (i) costs and operating difficulties related to the
integration of Conrail may not be eliminated or resolved within the time frame
currently anticipated; (ii) revenue and cost synergies expected from the
integration of Conrail may not be fully realized or realized within the
timeframe anticipated; (iii) general economic or business conditions, either
nationally or internationally, an increase in fuel prices, a tightening of the
labor market or changes in demands of organized labor resulting in higher wages,
or increased benefits or other costs or disruption of operations may adversely
affect the businesses of the company; (iv) legislative or regulatory changes,
including possible enactment of initiatives to reregulate the rail industry, may
adversely affect the businesses of the company; (v) possible additional
consolidation of the rail industry in the near future may adversely affect the
operations and business of the company; and (vi) changes may occur in the
securities and capital markets.

                                      -24-
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-99.3
<SEQUENCE>5
<FILENAME>0005.txt
<DESCRIPTION>INDEX TO 6/30/00 RESTATED FINANCIAL STATEMENTS
<TEXT>

<PAGE>

                                     CSX CORPORATION                Exhibit 99.3
                    INDEX to June 30, 2000 Restated Financial
                       Statements and Related Information


<TABLE>
<CAPTION>
                                                                                         Page Number
<S>                                                                                      <C>
PART I.  FINANCIAL INFORMATION

Item 1:


Financial Statements

1.            Consolidated Statement of Earnings-
                Quarters and Six Months Ended June 30, 2000 and July 2, 1999                     3

2.            Consolidated Statement of Cash Flows-
                Six Months Ended June 30, 2000 and July 2, 1999                                  4

3.            Consolidated Statement of Financial Position-
                At June 30, 2000 and December 31, 1999                                           5

Notes to Consolidated Financial Statements                                                       6


Item 2:

Management's Discussion and Analysis of Results of
Operations and Financial Condition                                                              17
</TABLE>

                                      -1-
<PAGE>

                       CSX CORPORATION AND SUBSIDIARIES
                      Consolidated Statement of Earnings
                (Millions of Dollars, Except Per Share Amounts)


<TABLE>
<CAPTION>
                                                        Unaudited                       Unaudited
                                                      Quarters Ended                Six Months Ended
                                             ----------------------------------------------------------------
                                             June 30, 2000    July 2, 1999     June 30, 2000    July 2, 1999
                                             --------------   -------------    --------------   ------------
<S>                                          <C>              <C>             <C>              <C>
Operating Income
Operating Revenue                                 $   2,071       $    2,509         $   4,105      $   4,942
Operating Expense                                     1,882            2,246             3,742          4,411
                                             ---------------   --------------    --------------   ------------
Operating Income                                        189              263               363            531

Other Income and Expense
Other Income                                             24               23                19            (12)
Interest Expense                                        139              127               273            260
                                             ---------------   --------------    --------------   ------------

Earnings



Earnings from Continuing Operations Before
   Income Taxes                                          74              159               109            259
Income Tax Expense                                       26               52                36             82
                                             ---------------   --------------    --------------   ------------

Earnings before Discontinued Operations and
Cumulative Effect of Accounting Change                   48              107                73            177

Earnings from Discontinued Operations, Net
of Tax                                                    7                7                11             12
                                             ---------------   --------------    --------------   ------------

Earnings before Cumulative Effect of
Accounting Change                                        55              114                84            189
Cumulative Effect on Prior Years of
Accounting Change for Insurance-Related
Assessments, Net of Tax                                   -                -                 -            (49)
                                             ---------------   --------------    --------------   ------------

Net Earnings                                      $      55       $      114         $      84      $     140
                                             ===============   ==============    ==============   ============

Per Common Share
Earnings Per Share:
Before Discontinued Operations and
Cumulative Effect of Accounting Change            $    0.23       $     0.51         $    0.35      $    0.84
Earnings from Discontinued Operations                  0.03             0.03              0.05           0.06
Cumulative Effect of Accounting Change                    -                -                 -          (0.24)
                                             ---------------   --------------    --------------   ------------

Including Discontinued Operations and
Cumulative Effect of Accounting Change            $    0.26       $     0.54         $    0.40      $    0.66
                                             ===============   ==============    ==============   ============

Earnings Per Share, Assuming Dilution:
Before Discontinued Operations and
Cumulative Effect of Accounting Change            $    0.23       $     0.50         $    0.35      $    0.83
Earnings from Discontinued Operations                  0.03             0.03              0.05           0.06
Cumulative Effect of Accounting Change                    -                -                 -          (0.23)
                                             ---------------   --------------    --------------   ------------

Including Discontinued Operations and
Cumulative Effect of Accounting Change            $    0.26       $     0.53         $    0.40      $    0.66
                                             ===============   ==============    ==============   ============
Average Common Shares Outstanding
(Thousands)                                         211,016          210,517           211,104        210,321
                                             ===============   ==============    ==============   ============
Average Common Shares Outstanding,
Assuming Dilution (Thousands)                       211,211          213,157           211,588        212,407
                                             ===============   ==============    ==============   ============
Dividends Paid Per Common Share                   $    0.30       $     0.30         $    0.60      $    0.60
                                             ===============   ==============    ==============   ============
</TABLE>

See accompanying Notes to Consolidated Financial Statements.

                                      -2-
<PAGE>

                        CSX CORPORATION AND SUBSIDIARIES
                      Consolidated Statement of Cash Flows
                              (Millions of Dollars)


<TABLE>
<CAPTION>
                                                                                            (Unaudited)
                                                                                         Six Months Ended
                                                                                -----------------------------------
                                                                                    June 30,             July 2,
                                                                                      2000                1999
                                                                                ----------------    ---------------
<S>                                                                             <C>                 <C>
OPERATING ACTIVITIES
  Net Earnings                                                                     $         84        $       140
  Adjustments to Reconcile Net Earnings to Net Cash Provided:
      Cumulative Effect of Accounting Change                                                  -                 49
      Depreciation                                                                          293                335
      Deferred Income Taxes                                                                  31                 45
      Equity in Conrail Earnings - Net                                                       (4)               (22)
      Other Operating Activities                                                             52                (67)
      Changes in Operating Assets and Liabilities
        Accounts Receivable                                                                  68               (255)
        Other Current Assets                                                                (80)                 -
        Accounts Payable                                                                   (161)              (109)
        Other Current Liabilities                                                          (287)                39
                                                                                   --------------      -------------

        Net Cash Provided by Operating Activities                                            (4)               155
                                                                                   --------------      -------------

INVESTING ACTIVITIES
  Property Additions                                                                       (422)              (562)
  Short-Term Investments - Net                                                               99                 71
  Other Investing Activities                                                                (13)                35
                                                                                   --------------      -------------

        Net Cash Used by Investing Activities                                              (336)              (456)
                                                                                   --------------      -------------

FINANCING ACTIVITIES
  Short-Term Debt - Net                                                                    (105)               383
  Long-Term Debt Issued                                                                     187                195
  Long-Term Debt Repaid                                                                     (72)               (60)
  Cash Dividends Paid                                                                      (131)              (130)
  Other Financing Activities                                                                (37)                 -
                                                                                   --------------      -------------

        Net Cash Provided by Financing Activities                                          (158)               388
                                                                                   --------------      -------------
  Net Increase (Decrease) in Cash and Cash Equivalents                                     (498)                87

CASH, CASH EQUIVALENTS AND SHORT-TERM
  INVESTMENTS

  Cash and Cash Equivalents at Beginning of Period                                          626                105
                                                                                   --------------      -------------

  Cash and Cash Equivalents at End of Period                                                128                192
  Short-Term Investments at End of Period                                                   267                357
                                                                                   --------------      -------------

  Cash, Cash Equivalents and Short-Term
    Investments at End of Period                                                   $        395        $       549
                                                                                   ==============      =============
</TABLE>

See accompanying Notes to Consolidated Financial Statements.

                                      -3-
<PAGE>

                       CSX CORPORATION AND SUBSIDIARIES
                 Consolidated Statement of Financial Position
                             (Millions of Dollars)

<TABLE>
<CAPTION>
                                                                        (Unaudited)
                                                                         June 30,            December 31,
                                                                           2000                  1999
                                                                        -----------          -----------
<S>                                                                  <C>                   <C>
ASSETS
 Current Assets
  Cash, Cash Equivalents and Short-Term Investments                    $        395          $       974
  Accounts Receivable                                                         1,135                1,135
  Materials and Supplies                                                        278                  220
  Deferred Income Taxes                                                         127                  135
  Other Current Assets                                                          144                   99
                                                                     --------------        -------------
    Total Current Assets                                                      2,079                2,563

 Properties                                                                  17,750               17,526
 Accumulated Depreciation                                                    (5,360)              (5,269)
                                                                     --------------        -------------
   Properties-Net                                                            12,390               12,257

 Investment in Conrail                                                        4,667                4,663
 Affiliates and Other Companies                                                 407                  410
 Other Long-Term Assets                                                         831                  827
                                                                     --------------        -------------
    Total Assets                                                     $       20,374          $    20,720
                                                                     ==============        =============
LIABILITIES
 Current Liabilities
  Accounts Payable                                                     $      1,051          $     1,197
  Labor and Fringe Benefits Payable                                             425                  436
  Current Portion of Casualty, Environmental and
   Other Reserves                                                               249                  271
  Current Maturities of Long-Term Debt                                          364                  349
  Short-Term Debt                                                               469                  574
  Other Current Liabilities                                                     465                  646
                                                                     --------------        -------------
    Total Current Liabilities                                                 3,023                3,473

 Casualty, Environmental and Other Reserves                                     781                  767
 Long-Term Debt                                                               6,296                6,196
 Deferred Income Taxes                                                        3,251                3,227
 Other Long-Term Liabilities                                                  1,329                1,301
                                                                     --------------        -------------
    Total Liabilities                                                        14,680               14,964
                                                                     --------------        -------------

SHAREHOLDERS' EQUITY
 Common Stock, $1 Par Value                                                     218                  218
 Other Capital                                                                1,510                1,525
 Retained Earnings                                                            3,987                4,034
 Accumulated Other Comprehensive Loss                                           (21)                 (21)
                                                                     --------------        -------------
    Total Shareholders' Equity                                                5,694                5,756
                                                                     --------------        -------------
    Total Liabilities and Shareholders' Equity                      $        20,374          $    20,720
                                                                     ==============        =============
</TABLE>
See accompanying Notes to Consolidated Financial Statements.

                                     - 4 -
<PAGE>

                       CSX CORPORATION AND SUBSIDIARIES
            Notes to Consolidated Financial Statements (Unaudited)
         (All Tables in Millions of Dollars, Except Per Share Amounts)

NOTE 1.  BASIS OF PRESENTATION

     In the opinion of management, the accompanying consolidated financial
statements contain all adjustments necessary to present fairly the financial
position of CSX Corporation and subsidiaries (CSX or the "company") at June 30,
2000 and December 31, 1999, and the results of its operations and its cash flows
for the quarters and six months ended June 30, 2000 and July 2, 1999, such
adjustments being of a normal recurring nature. Certain prior year data have
been reclassified to conform to the 2000 presentation.

     While the company believes that the disclosures presented are adequate to
make the information not misleading, it is suggested that these financial
statements be read in conjunction with the financial statements and the notes
included in the company's latest Annual Report and Form 10-K.

     CSX follows a 52/53-week fiscal reporting calendar. Fiscal year 2000
consists of 52 weeks ending on December 29, 2000. Fiscal year 1999 consisted of
53 weeks ended December 31, 1999. The financial statements presented are for the
13-week quarters ended June 30, 2000 and July 2, 1999, the 26-week period ended
June 30, 2000, the 27-week period ended July 2, 1999, and as of December 31,
1999.

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

NOTE 2.  CHANGE IN METHOD OF ACCOUNTING FOR INSURANCE-RELATED
         ASSESSMENTS

     CSX adopted the American Institute of Certified Public Accountants'
Statement of Position No. 97-3, "Accounting by Insurance and Other Enterprises
for Insurance-Related Assessments," (SOP No. 97-3) effective as of the beginning
of fiscal year 1999. SOP No. 97-3 requires companies to accrue assessments
related to workers' compensation second injury funds and is applicable to CSX
with respect to certain assessments incurred by Sea-Land Service, Inc. (Sea-
Land), the company's container-shipping unit. The assessments relate to
employees who have experienced second injuries over periods dating back to the
1970's and are receiving a disability type benefit. Previously, the assessments
were charged to expense in the fiscal year they were paid. As a result of
adopting SOP No. 97-3, the company recorded a non-cash charge of $78 million,
$49 million after-tax, 24 cents per share, during the quarter ended April 2,
1999 to reflect the cumulative effect on prior years of the accounting change.
Had the accounting change been applied retroactively, the effect on net earnings
and related per share amounts would not have been material to any period
presented.

     The majority of the Sea-Land workforce that could incur second injuries and
become eligible for these disability benefits in future periods transferred
their employment to the purchaser of Sea-Land's international liner business in
December 1999 (see Note 5). The company retained the obligations for second
injury fund assessments for claimants receiving benefits prior to the sale. As a
result of these changes, future expense for second injury fund assessments
associated with the continuing workforce should be minimal, but the company
expects to make annual contributions to the fund for a number of years until the
retained obligations are extinguished.

                                     - 5 -
<PAGE>

                       CSX CORPORATION AND SUBSIDIARIES
       Notes to Consolidated Financial Statements (Unaudited), Continued
         (All Tables in Millions of Dollars, Except Per Share Amounts)



NOTE 3.  EARNINGS PER SHARE

     Earnings per share are based on the weighted average of common shares
outstanding, as defined by Financial Accounting Standards Board (FASB) Statement
No. 128, "Earnings per Share," for the fiscal quarters and six months ended June
30, 2000 and July 2, 1999. Earnings per share, assuming dilution, are based on
the weighted average of common shares outstanding adjusted for the effect of
potential common shares outstanding that were dilutive during the period,
principally arising from employee stock plans. For the fiscal quarters ended
June 30, 2000 and July 2, 1999, potential common shares that were dilutive
totaled .2 million and 2.6 million, respectively. For the six months ended June
30, 2000 and July 2, 1999, potentially dilutive shares totaled .5 million and
2.1 million.

     Certain potential common shares outstanding at June 30, 2000 and July 2,
1999 were not included in the computation of earnings per share, assuming
dilution, since their exercise prices were greater than the average market price
of the common shares during the period and, accordingly, their effect is
antidilutive. These shares totaled 26.2 million at a weighted-average exercise
price of $40.07 per share at June 30, 2000 and 7.0 million with a weighted-
average exercise price of $50.79 per share at July 2, 1999.

NOTE 4.  INVESTMENT IN AND INTEGRATED RAIL OPERATIONS WITH CONRAIL

Background
- ----------
     CSX and Norfolk Southern Corporation (Norfolk Southern) completed the
acquisition of Conrail Inc. (Conrail) in May 1997. Conrail owns the primary
freight railroad system serving the northeastern United States, and its rail
network extends into several midwestern states and into Canada. CSX and Norfolk
Southern, through a jointly owned acquisition entity, hold economic interests in
Conrail of 42% and 58%, respectively, and voting interests of 50% each. CSX and
Norfolk Southern received regulatory approval from the Surface Transportation
Board (STB) to exercise joint control over Conrail in August 1998 and
subsequently began integrated operations over allocated portions of the Conrail
lines in June 1999.

     The rail subsidiaries of CSX and Norfolk Southern operate their respective
portions of the Conrail system pursuant to various operating agreements that
took effect on June 1, 1999. Under these agreements, the railroads pay operating
fees to Conrail for the use of right-of-way and rent for the use of equipment.
Conrail continues to provide rail service in certain shared geographic areas for
the joint benefit of CSX and Norfolk Southern for which it is compensated on the
basis of usage by the respective railroads.

                                     - 6 -
<PAGE>

                       CSX CORPORATION AND SUBSIDIARIES
       Notes to Consolidated Financial Statements (Unaudited), Continued
         (All Tables in Millions of Dollars, Except Per Share Amounts)


NOTE 4.  INVESTMENT IN AND INTEGRATED RAIL OPERATIONS WITH CONRAIL, Continued

Conrail Financial Information
- -----------------------------
     Summary financial information for Conrail for its fiscal periods ended June
30, 2000 and 1999, and at December 31, 1999, is as follows:

<TABLE>
<CAPTION>
                                                          Quarters Ended             Six Months Ended
                                                             June 30,                    June 30,
                                                     ------------------------    ------------------------
                                                        2000         1999           2000         1999
                                                     -----------  -----------    -----------  -----------
<S>                                                  <C>          <C>            <C>          <C>
Income Statement Information:
   Revenues                                             $246         $737           $505        $1,653
   Income (Loss) From Operations                          52          (61)           112            85
   Net Income (Loss)                                      30          (63)            96            13
</TABLE>

<TABLE>
<CAPTION>
                                                                            As Of
                                                            -------------------------------------
                                                               June 30,           December 31,
                                                                  2000                 1999
                                                            --------------      -----------------
<S>                                                         <C>                 <C>
Balance Sheet Information:
   Current Assets                                          $      509              $    669
   Property and Equipment and Other Assets                      7,596                 7,714
   Total Assets                                                 8,105                 8,383
   Current Liabilities                                            529                   863
   Long-Term Debt                                               1,273                 1,302
   Total Liabilities                                            4,191                 4,564
   Stockholders' Equity                                         3,914                 3,819
</TABLE>

         Comparisons of Conrail's operating results for the quarters ended June
30, 2000 and 1999 reflect the significant changes in its business that occurred
as a result of the integration with CSX and Norfolk Southern in June 1999.
Revenues and expenses for two months of the 1999 quarter and five months of the
1999 six-month period were derived principally from freight linehaul operations
over the entire Conrail network. Results for the 2000-quarter and six months
reflect Conrail's post-integration business, with revenues consisting primarily
of operating fees, equipment rents, and shared area usage fees derived from CSX
and Norfolk Southern, and expenses consisting of salaries and wages, rents,
depreciation, and other costs reflective of the new operations.

         Conrail's results for the six months ended June 30, 2000 include a
non-recurring gain of $61 million before tax, $37 million after tax, on the sale
of property. To reflect the fair value write-up arising from the Conrail
acquisition, CSX excluded approximately $16 million of the after-tax gain on
this transaction in recording its equity in Conrail's net income. Conrail's
operating results for the quarter and six months ended June 30, 1999 included
non-recurring expenses totaling $173 million, $117 million after-tax, related to
the integration with CSX and Norfolk Southern. These expenses included employee
training expenses, costs to discontinue certain activities, an adjustment to
reflect an increase in a state property tax rate, and an increase in casualty
reserves, principally to reflect the method of settlement of certain casualty
liabilities based on the agreement between CSX, Norfolk Southern, and Conrail.
The increase in Conrail's casualty reserves was considered by the joint
acquisition entity in its fair value allocation of Conrail's assets and
liabilities and, accordingly, was excluded in determining the equity in
Conrail's net income recorded by CSX.

                                     - 7 -
<PAGE>

                       CSX CORPORATION AND SUBSIDIARIES
            Notes to Consolidated Financial Statements (Unaudited), Continued
         (All Tables in Millions of Dollars, Except Per Share Amounts)


NOTE 4.  INVESTMENT IN AND INTEGRATED RAIL OPERATIONS WITH CONRAIL, Continued

CSX's Accounting for its Investment in and Integrated Rail Operations with
- --------------------------------------------------------------------------
Conrail
- -------

     CSX and Norfolk Southern assumed substantially all of Conrail's customer
freight contracts at the June 1999 integration date. CSX's rail and intermodal
operating revenue since that date include revenue from traffic previously moving
on Conrail. Operating expenses reflect corresponding increases for costs
incurred to handle the new traffic and operate the former Conrail lines. Rail
operating expenses after the integration also include an expense category,
"Conrail Operating Fee, Rent and Services," which reflects payment to Conrail
for the use of right-of-way and equipment, as well as charges for
transportation, switching, and terminal services in the shared areas Conrail
operates for the joint benefit of CSX and Norfolk Southern. This expense
category also includes amortization of the fair value write-up arising from the
acquisition of Conrail, as well as CSX's proportionate share of Conrail's net
income or loss recognized under the equity method of accounting. Prior to
integration, CSX recorded its share of Conrail's net income, less amortization
of the fair value write-up, and acquisition and transition expenses, in other
income (expense) in the Consolidated Statement of Earnings.

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

     At June 30, 2000 and December 31, 1999, CSX had $9 million and $53 million,
respectively, in amounts receivable from Conrail, principally for reimbursement
of certain capital improvement costs. Conrail advances its available cash
balances to CSX and Norfolk Southern under variable-rate demand loan agreements.
At June 30, 2000 and December 31, 1999, Conrail had advanced $34 million and $93
million, respectively, to CSX under this arrangement at interest rates of 6.4%
and 5.6%, respectively. CSX also had amounts payable to Conrail of $90 million
and $105 million at June 30, 2000 and December 31, 1999, respectively;
representing expenses incurred under the operating, equipment, and shared area
agreements.

NOTE 5.  SALE OF INTERNATIONAL CONTAINER-SHIPPING ASSETS

     In December 1999, CSX sold certain assets comprising Sea-Land's
international liner business to A. P. Moller-Maersk Line (Maersk). The
international liner business operated approximately 75 container vessels and
200,000 containers in worldwide trades and comprised a majority of CSX's
container-shipping revenue. In addition to vessels and containers, Maersk
acquired certain terminal facilities and various other assets and related
liabilities of the international liner business. The agreement with Maersk
provides for a post-closing adjustment to the sales price based on the change in
working capital, as defined in the agreement, between June 25, 1999, and
December 10, 1999. The loss recorded includes the estimated costs to terminate
various contractual obligations of the company. These matters will affect the
determination of the final loss on sale. The company is in discussions about
these matters with Maersk and also has commenced third-party arbitration to
resolve certain of the issues. Management is not yet in a position to assess
fully the likely outcome of this process but believes it will prevail in the
arbitration.

                                     - 8 -
<PAGE>

                        CSX CORPORATION AND SUBSIDIARIES
       Notes to Consolidated Financial Statements (Unaudited), Continued
         (All Tables in Millions of Dollars, Except Per Share Amounts)


NOTE 5.  SALE OF INTERNATIONAL CONTAINER-SHIPPING ASSETS, Continued

         CSX retained the container-shipping business serving the U.S. domestic
trade and part of the company's international terminal operations and manages
them separately. Management reporting and performance measures for these
businesses have been developed for fiscal year 2000. The company has revised its
disclosures under FASB Statement No. 131, "Disclosures about Segments of an
Enterprise and Related Information," for fiscal year 2000 to report these as
separate business segments; however, it is not practicable to provide
comparative segment disclosures for the prior year.

NOTE 6.  ACCOUNTS RECEIVABLE

         The company sells revolving interests in its rail accounts receivable
to public investors through a securitization program and to a financial
institution through commercial paper conduit programs. The accounts receivable
are sold, without recourse, to a wholly owned, special-purpose subsidiary, which
then transfers the receivables, with recourse, to a master trust. The
securitization and conduit programs are accounted for as sales in accordance
with FASB Statement No. 125 "Accounting for Transfers and Servicing of Financial
Assets and Extinguishments of Liabilities." Receivables sold under these
arrangements are excluded from accounts receivable in the consolidated statement
of financial position. At June 30, 2000, the agreements provide for the sale of
up to $350 million in receivables through the securitization program and $50
million through the conduit programs.

         At June 30, 2000 and December 31, 1999, the company had sold $347
million of accounts receivable; $300 million through the securitization program
and $47 million through the conduit programs. The certificates issued under the
securitization program bear interest at 6% annually and mature in June 2003.
Receivables sold under the conduit program require yield payments based on
prevailing commercial paper rates plus incremental fees. Losses recognized on
the sale of accounts receivable totaled $8 million and $16 million for the
quarter and six months ended June 30, 2000, respectively, and $7 million and $15
million for the quarter and six months ended July 2, 1999, respectively.

         The company has retained the responsibility for servicing accounts
receivable transferred to the master trust. The average servicing period is
approximately one month. No servicing asset or liability has been recorded since
the fees the company receives for servicing the receivables approximate the
related costs.

NOTE 7.  OPERATING EXPENSE

<TABLE>
<CAPTION>
                                                           Quarters Ended                    Six Months Ended
                                                   -------------------------------    ------------------------------
                                                     June 30,          July 2,          June 30,          July 2,
                                                       2000              1999             2000             1999
                                                   ---------------   -------------    -------------    -------------
<S>                                                <C>               <C>              <C>              <C>
   Labor and Fringe Benefits                          $    714         $   806           $  1,441        $  1,587
   Materials, Supplies and Other                           499             645                972           1,265
   Conrail Operating Fee, Rent and Services                101              46                196              46
   Building and Equipment Rent                             183             268                371             562
   Inland Transportation                                   100             227                183             450
   Depreciation                                            134             156                272             320
   Fuel                                                    151              98                307             181
                                                   ----------------   ------------    -------------    -------------
       Total                                          $  1,882         $ 2,246           $  3,742        $  4,411
                                                   ================   ============    =============    =============
</TABLE>

                                      -9-
<PAGE>

                        CSX CORPORATION AND SUBSIDIARIES
       Notes to Consolidated Financial Statements (Unaudited), Continued
         (All Tables in Millions of Dollars, Except Per Share Amounts)


NOTE 8.  OTHER INCOME (EXPENSE)

<TABLE>
<CAPTION>
                                                              Quarters Ended              Six Months Ended
                                                         --------------------------   --------------------------
                                                           June 30,      July 2,        June 30,       July 2,
                                                             2000          1999           2000          1999
                                                         -------------   ----------    ------------  -----------
<S>                                                      <C>             <C>           <C>           <C>
     Interest Income                                       $  12         $   10        $   28        $   24
     Income from Real Estate and Resort
          Operations/1/                                       33             17            34            10
     Net Investment Gain                                       -             27             -            27
     Net Losses from Accounts Receivable Sold                 (8)            (7)          (16)          (15)
     Minority Interest                                       (12)           (10)          (20)          (19)
     Income (Loss) from Investment in Conrail - Net            -            (14)            -           (42)
     Miscellaneous                                            (1)             -            (7)            3
                                                          ------------   ----------    ------------  ------------

          Total                                            $  24         $   23        $   19         $ (12)
                                                          ============   ==========    ============   ===========
</TABLE>

/(1)/ Gross revenue from real estate and resort operations was $68 million and
      $97 million for the quarter and six months ended June 30, 2000,
      respectively, and $52 million and $71 million for the quarter and six
      months ended July 2, 1999, respectively.

NOTE 9.  COMMITMENTS AND CONTINGENCIES

New Orleans Tank Car Fire
- -------------------------

     In September 1997, a state court jury in New Orleans, Louisiana returned a
$2.5 billion punitive damages award against CSX Transportation, Inc. (CSXT), the
wholly owned rail subsidiary of CSX. The award was made in a class-action
lawsuit against a group of nine companies based on personal injuries alleged to
have arisen from a 1987 fire. The fire was caused by a leaking chemical tank car
parked on CSXT tracks and resulted in the 36-hour evacuation of a New Orleans
neighborhood. In the same case, the court awarded a group of 20 plaintiffs
compensatory damages of approximately $2 million against the defendants,
including CSXT, to which the jury assigned 15 percent of the responsibility for
the incident. CSXT's liability under that compensatory damages award is not
material, and adequate provision has been made for the award.

     In October 1997, the Louisiana Supreme Court set aside the punitive damages
judgment, ruling the judgment should not have been entered until all liability
issues were resolved. In February 1999, the Louisiana Supreme Court issued a
further decision, authorizing and instructing the trial court to enter
individual punitive damages judgments in favor of the 20 plaintiffs who had
received awards of compensatory damages, in amounts representing an appropriate
share of the jury's award. The trial court on April 8, 1999 entered judgment
awarding approximately $2 million in compensatory damages and approximately $8.5
million in punitive damages to those 20 plaintiffs. Approximately $6.2 million
of the punitive damages awarded were assessed against CSXT. CSXT then filed
post-trial motions for a new trial and for judgment notwithstanding the verdict
as to the April 8 judgment.

                                      -10-
<PAGE>

                        CSX CORPORATION AND SUBSIDIARIES
       Notes to Consolidated Financial Statements (Unaudited), Continued
         (All Tables in Millions of Dollars, Except Per Share Amounts)


NOTE 9.  COMMITMENTS AND CONTINGENCIES, Continued

     The new trial motion was denied by the trial court in August 1999. On
November 5, 1999, the trial court issued an opinion that granted CSXT's motion
for judgment notwithstanding the verdict and effectively reduced the amount of
the punitive damages verdict from $2.5 billion to $850 million. CSXT believes
that this amount (or any amount of punitive damages) is unwarranted and intends
to pursue its full appellate remedies with respect to the 1997 trial as well as
the trial judge's decision on the motion for judgment notwithstanding the
verdict. The compensatory damages awarded by the jury in the 1997 trial were
also substantially reduced by the trial judge. A judgment reflecting the $850
million punitive award has been entered against CSXT. CSXT has obtained and
posted an appeal bond in the amount of $895 million, which will allow it to
appeal the 1997 compensatory and punitive awards, as reduced by the trial judge.

     A trial for the claims of 20 additional plaintiffs for compensatory damages
began on May 24, 1999. In early July, the jury in that trial rendered verdicts
totaling approximately $330 thousand in favor of eighteen of those twenty
plaintiffs. Two plaintiffs received nothing; that is, the jury found that they
had not proved any damages. Management believes that this result, while still
excessive, supports CSXT's contention that the punitive damages award was
unwarranted.

     CSXT continues to pursue an aggressive legal strategy. Management believes
that an adverse outcome, if any, is not likely to be material to CSX's or CSXT's
overall results of operations or financial position, although it could be
material to results of operations in a particular quarterly accounting period.

Self-Insurance
- --------------

     Although the company obtains substantial amounts of commercial insurance
for potential losses for third-party liability and property damage, reasonable
levels of risk are retained on a self-insurance basis. A portion of the
insurance coverage, $25 million limit above $100 million per occurrence from
rail and certain other operations, is provided by a company partially owned by
CSX.

Environmental
- -------------

     CSXT is a party to various proceedings involving private parties and
regulatory agencies related to environmental issues. CSXT has been identified as
a potentially responsible party (PRP) at 110 environmentally impaired sites that
are or may be subject to remedial action under the Federal Superfund statute
(Superfund) or similar state statutes. A number of these proceedings are based
on allegations that CSXT, or its railroad predecessors, sent hazardous
substances to the facilities in question for disposal. Such proceedings arising
under Superfund or similar state statutes can involve numerous other waste
generators and disposal companies and seek to allocate or recover costs
associated with site investigation and cleanup, which could be substantial.

     CSXT is involved in a number of administrative and judicial proceedings and
other clean-up efforts at 240 sites, including the sites addressed under the
Federal Superfund statute or similar state statutes, where it is participating
in the study and/or clean-up of alleged environmental contamination. The
assessment of the required response and remedial costs associated with most
sites is extremely complex. Cost estimates are based on information available
for each site, financial viability of other PRPs, where available, and existing
technology, laws and regulations. CSXT's best estimates of the allocation method
and percentage of liability when other PRPs are involved are based on
assessments by consultants, agreements among PRPs, or determinations by the U.S.
Environmental Protection Agency or other regulatory agencies.

                                      -11-
<PAGE>

                        CSX CORPORATION AND SUBSIDIARIES
       Notes to Consolidated Financial Statements (Unaudited), Continued
         (All Tables in Millions of Dollars, Except Per Share Amounts)


NOTE 9.  COMMITMENTS AND CONTINGENCIES, Continued

     At least once each quarter, CSXT reviews its role, if any, with respect to
each such location, giving consideration to the nature of CSXT's alleged
connection to the location (e.g., generator, owner or operator), the extent of
CSXT's alleged connection (e.g., volume of waste sent to the location and other
relevant factors), the accuracy and strength of evidence connecting CSXT to the
location, and the number, connection and financial position of other named and
unnamed PRPs at the location. The ultimate liability for remediation can be
difficult to determine with certainty because of the number and creditworthiness
of PRPs involved. Through the assessment process, CSXT monitors the
creditworthiness of such PRPs in determining ultimate liability.

     Based upon such reviews and updates of the sites with which it is involved,
CSXT has recorded, and reviews at least quarterly for adequacy, reserves to
cover estimated contingent future environmental costs with respect to such
sites. The recorded liabilities for estimated future environmental costs at June
30, 2000, and December 31, 1999, were $45 million and $53 million, respectively.
These recorded liabilities, which are undiscounted, include amounts representing
CSXT's estimate of unasserted claims, which CSXT believes to be immaterial. The
liability has been accrued for future costs for all sites where the company's
obligation is probable and where such costs can be reasonably estimated. The
liability includes future costs for remediation and restoration of sites as well
as any significant ongoing monitoring costs, but excludes any anticipated
insurance recoveries. The majority of the June 30, 2000 environmental liability
is expected to be paid out over the next five to seven years, funded by cash
generated from operations.

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

Other Legal Proceedings
- -----------------------

     A number of legal actions are pending against CSX and certain subsidiaries
in which claims are made in substantial amounts. While the ultimate results of
environmental investigations, lawsuits and claims against the company cannot be
predicted with certainty; management does not currently expect that resolution
of these matters will have a material adverse effect on the company's
consolidated financial position, results of operations or cash flows. The
company is also party to a number of actions, the resolution of which could
result in gain realization in amounts that could be material to results of
operations in the quarter received.

                                      -12-
<PAGE>

                       CSX CORPORATION AND SUBSIDIARIES
       Notes to Consolidated Financial Statements (Unaudited), Continued
         (All Tables in Millions of Dollars, Except Per Share Amounts)

NOTE 10.  BUSINESS SEGMENTS

     The company operates in four business segments: Rail, Intermodal, Domestic
Container Shipping, and International Terminals. The Rail segment provides rail
freight transportation over a network of more than 23,400 route miles in 23
states, the District of Columbia and two Canadian provinces. The Intermodal
segment provides transcontinental intermodal transportation services and
operates a network of dedicated intermodal facilities across North America. The
Domestic Container Shipping segment consists of a fleet of 16 ocean vessels and
27,000 containers serving the trade between ports on the United States mainland
and Alaska, Guam, Hawaii and Puerto Rico. The International Terminals segment
operates container freight terminal facilities at 12 locations in Hong Kong,
China, Australia, Europe, and the Dominican Republic. Prior to the sale of its
international liner operations in December 1999 (see Note 5), Marine Services
(formerly known as the Container Shipping segment) provided global
transportation services via a fleet of 91 container ships and more than 220,000
containers. The company's segments are strategic business units that offer
different services and are managed separately based on the differences in these
services. Because of their close interrelationship, the Rail and Intermodal
segments are viewed on a combined basis as Surface Transportation operations and
the Domestic Container Shipping and International Terminals segments are viewed
on a combined basis as Marine Services operations.

     The company evaluates performance and allocates resources based on several
factors, of which the primary financial measure is business segment operating
income, defined as income from operations, excluding the effects of non-
recurring charges and gains. The accounting policies of the segments are the
same as those described in the summary of significant accounting policies (Note
1), except that for segment reporting purposes, CSX includes minority interest
expense on the international terminals segment's joint venture businesses in
operating expense. These amounts are reclassified in CSX's consolidated
financial statements to other income (expense). Intersegment sales and transfers
are generally accounted for as if the sales or transfers were to third parties,
that is, at current market prices.

     Business segment information for the quarters and six months ended June 30,
2000 and July 2, 1999 is as follows:

<TABLE>
<CAPTION>
Quarter ended June 30, 2000:
- ---------------------------

                                                                              Marine Services*
                                                                      ----------------------------------
                                         Surface Transportation        Domestic
                                     -------------------------------  Container   International
                                       Rail    Intermodal    Total     Shipping     Terminals    Total    Totals
                                     -----------------------------------------------------------------------------
<S>                                  <C>       <C>           <C>      <C>         <C>            <C>      <C>
Revenues from external customers     $ 1,548         $286    $1,834         $162         $75       $237   $2,071
Intersegment revenues                      -            5         5            -           1          1        6
Segment operating income                 138           20       158            4          18         22      180
Assets                                13,140          393    13,533          367         745      1,112   14,645
</TABLE>

                                      -13-
<PAGE>

                       CSX CORPORATION AND SUBSIDIARIES
       Notes to Consolidated Financial Statements (Unaudited), Continued
         (All Tables in Millions of Dollars, Except Per Share Amounts)

NOTE 10.  BUSINESS SEGMENTS, Continued

<TABLE>
<CAPTION>
Quarter ended July 2, 1999:
- --------------------------

                                               Surface Transportation
                                       -------------------------------------    Marine
                                         Rail      Intermodal        Total      Services     Totals
                                       ----------------------------------------------------------------
<S>                                    <C>         <C>             <C>           <C>         <C>
Revenues from external customers         $ 1,334        $199        $ 1,533      $  976     $ 2,509
Intersegment revenues                          -           8              8           -           8
Segment operating income                     208          16            224          30         254
Assets                                    12,457         228         12,685       2,428      15,113

<CAPTION>
Six Months ended June 30, 2000:
- ------------------------------

                                                                               Marine Services*
                                                                      ----------------------------------
                                          Surface Transportation       Domestic
                                     -------------------------------- Container   International
                                       Rail     Intermodal   Total     Shipping     Terminals    Total    Totals
                                     -----------------------------------------------------------------------------
<S>                                  <C>       <C>           <C>       <C>        <C>            <C>      <C>
Revenues from external customers     $ 3,063         $569   $ 3,632         $324        $149     $  473  $ 4,105
Intersegment revenues                      -           10        10            -           1          1       11
Segment operating income                 285           33       318            3          32         35      353
Assets                                13,140          393    13,533          367         745      1,112   14,645

<CAPTION>
Six Months ended July 2, 1999:
- -----------------------------

                                              Surface Transportation
                                       -------------------------------------    Marine
                                         Rail      Intermodal        Total      Services     Totals
                                       ----------------------------------------------------------------
<S>                                    <C>         <C>             <C>          <C>          <C>
Revenues from external customers         $ 2,631        $362        $ 2,993      $1,949     $ 4,942
Intersegment revenues                          -          14             14           -          14
Segment operating income                     474          23            497          18         515
Assets                                    12,457         228         12,685       2,428      15,113
</TABLE>

* In December 1999, CSX sold the assets comprising the international liner
business of Sea-Land. Operating revenue and expenses related to assets sold are
included in the Marine Services segment in 1999, distorting comparisons to 2000.
The company reports the retained Domestic Container Shipping and International
Terminals businesses as separate segments starting in the first quarter of 2000;
however, it is not practicable to provide comparative segment disclosures for
the prior year.

                                      -14-

<PAGE>

                       CSX CORPORATION AND SUBSIDIARIES
       Notes to Consolidated Financial Statements (Unaudited), Continued
         (All Tables in Millions of Dollars, Except Per Share Amounts)

NOTE 10.  BUSINESS SEGMENTS, Continued

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

<TABLE>
<CAPTION>
                                                                 Quarters Ended                Six Months Ended
                                                           ----------------------------    -------------------------
                                                             June 30,        July 2,        June 30,        July 2,
                                                               2000           1999            2000           1999
                                                           -------------  -------------    -----------  ------------
<S>                                                        <C>            <C>              <C>          <C>
Revenues:
- --------
Total external revenues for business segments               $   2,071      $   2,509       $   4,105     $   4,942
Intersegment revenues for business segments                         6              8              11            14
Elimination of intersegment revenues                               (6)            (8)            (11)          (14)
                                                           -------------  -------------    -----------  ------------

     Total consolidated revenues                            $   2,071      $   2,509       $   4,105     $   4,942
                                                           =============  =============    ===========   ===========

Operating Income:
- ----------------
Total operating income for business segments                $     180      $     254       $     353     $     515
Reclassification of minority interest expense for
  International terminals segment                                  12             10              20            19
Unallocated corporate expenses                                     (3)            (1)            (10)           (3)
                                                           -------------  -------------    -----------  ------------

     Total consolidated operating income                    $     189      $     263       $     363     $     531
                                                           =============  =============    ===========   ===========

<CAPTION>
                                                             June 30,        July 2,
                                                               2000           1999
                                                           -------------  -------------
<S>                                                        <C>            <C>
Assets:
- ------
Assets for business segments                                $  14,645      $  15,113
Investment in Conrail                                           4,667          4,820
Elimination of intercompany receivables                          (162)          (187)
Non-segment assets                                              1,224          1,181
                                                           -------------  -------------

    Total consolidated assets                               $  20,374      $  20,927
                                                           =============  =============
</TABLE>

Note 11. SUBSEQUENT EVENT

On September 22, 2000, CSX completed the sale of CTI Logistx, Inc., its wholly
owned logistics subsidiary, for $650 million. All prior period statements of
earnings have been restated accordingly. Revenues from the contract logistics
segment for the quarters ended June 30, 2000 and July 2, 1999 were $131 million
and $117 million, respectively. Revenues from the contract logistics segment for
the six-months ended June 30, 2000 and July 2, 1999 were $257 million and $237
million, respectively. CSX recorded a gain of $570 million before tax, $365
million after tax, $1.73 per share, on the sale.

                                      -15-
<PAGE>

ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
         FINANCIAL CONDITION

RESULTS OF OPERATIONS
- ---------------------

     CSX follows a 52/53-week fiscal calendar. Fiscal year 2000 consists of 52
weeks, and fiscal year 1999 consisted of 53 weeks. The quarters ended June 30,
1999 and July 2, 1999 consisted of 13 weeks. The six-month period ended June 30,
2000 consisted of 26 weeks, while the six-month period ended July 2, 1999
consisted of 27 weeks.

Second Quarter 2000 Compared with 1999
- --------------------------------------

     CSX reported net earnings of $55 million, 26 cents per share, for the
quarter ended June 30, 2000. In the prior year, the company earned $114 million,
53 cents per share on a diluted basis. Net earnings include the operations of
the Company's wholly owned logistics subsidiary, CTI Logistx, Inc., which was
sold on September 22, 2000 for $650 million. All periods have been restated to
show the logistics segment as a discontinued operation.

     Several significant factors affect the comparability of CSX's second
quarter 2000 operating results with the prior year. The company's integration of
Conrail operations took place June 1, 1999 and, accordingly, rail and intermodal
results for the second quarter 1999 include only one month of revenues and
expenses associated with operations over CSX's allocated portion of the Conrail
network. Additionally, CSX sold its international container-shipping liner
business and certain container terminal facilities in December 1999. Operating
results for second quarter 1999 included substantial revenues and expenses from
those operations.

     Operating income for the second quarter of 2000 totaled $189 million,
compared with $263 million in the second quarter of 1999. Operating revenue of
$2.07 billion was 17% below the prior year quarter, while operating expense of
$1.88 billion was 16% lower. The reductions in revenue and expense compared to
1999 result primarily from the business changes created by the Conrail
integration and the international container-shipping sale and are discussed in
more detail in the following analysis of segment results.

Surface Transportation Results
- ------------------------------

Rail

     Rail operating income for the second quarter of 2000 totaled $138 million,
compared to $208 million in the prior year quarter. Operating revenue totaled
$1.5 billion, an increase of $214 million, or 16%, due to the Conrail
integration and relatively strong demand across most commodity groups. Operating
expense increased $284 million, or 25%, to $1.4 billion. As discussed below,
both revenues and expenses were adversely affected by significant congestion on
key parts of the CSX network and costs incurred to regain network fluidity.

                                      -16-
<PAGE>

ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
         FINANCIAL CONDITION


RESULTS OF OPERATIONS, Continued
- --------------------------------

Rail, Continued

     The following tables provide rail carload and revenue data by service group
and commodity for the quarters and six months ended June 30, 2000 and July 2,
1999:

<TABLE>
<CAPTION>
                                                           Carloads                       Revenue
                                                        Quarter Ended                  Quarter Ended
                                                         (Thousands)               (Millions of Dollars)
                                                  ---------------------------    --------------------------
                                                    June 30,      July 2,          June 30,      July 2,
                                                      2000          1999             2000         1999
                                                  ------------  ------------     ------------  ------------
<S>                                               <C>           <C>              <C>           <C>
Merchandise
     Phosphates and Fertilizer                           123            128      $      75       $     78
     Metals                                               90             78            107             88
     Food and Consumer Products                           39             35             55             41
     Paper and Forest Products                           135            121            169            142
     Agricultural Products                                87             73            117            100
     Chemicals                                           154            129            255            219
     Minerals                                            117            109            104             99
     Government                                            3              3             10              9
                                                  -------------  ------------    -------------  -----------
     Total Merchandise                                   748            676            892            776


Automotive                                               158            132            238            177

Coal, Coke and Iron Ore
     Coal                                                409            377            383            344
     Coke                                                 12             15             13             13
     Iron Ore                                             13             22              7             13
                                                  -------------  ------------    -------------  -----------

     Total Coal, Coke and Iron Ore                       434            414            403            370

     Other                                                -              -             15             11
                                                  -------------  ------------    -------------  -----------
Total Rail                                             1,340          1,222      $   1,548       $  1,334
                                                  =============  ============    =============  ===========
</TABLE>

                                      -17-
<PAGE>

ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
         FINANCIAL CONDITION


RESULTS OF OPERATIONS, Continued
- --------------------------------

Rail, Continued

<TABLE>
<CAPTION>
                                                                Carloads                       Revenue
                                                            Six Months Ended              Six Months Ended
                                                              (Thousands)               (Millions of Dollars)
                                                       ---------------------------    --------------------------
                                                         June 30,      July 2,          June 30,      July 2,
                                                           2000          1999             2000         1999
                                                       -------------  -----------     ------------- ------------
     <S>                                               <C>            <C>             <C>           <C>
     Merchandise
          Phosphates and Fertilizer                           254            276      $     167       $    168
          Metals                                              181            150            214            170
          Food and Consumer Products                           80             69            108             80
          Paper and Forest Products                           272            242            337            279
          Agricultural Products                               179            149            239            204
          Chemicals                                           303            250            502            424
          Minerals                                            218            210            199            191
          Government                                            6              6             15             16
                                                       -------------  ------------    -------------  -----------
          Total Merchandise                                 1,493          1,352          1,781          1,532

     Automotive                                               316            251            465            331

     Coal, Coke and Iron Ore
          Coal                                                805            773            754            697
          Coke                                                 24             27             25             25
          Iron Ore                                             21             29             14             20
                                                       -------------  ------------    -------------  -----------
          Total Coal, Coke and Iron Ore                       850            829            793            742

           Other                                                -              -             24             26
                                                       -------------  ------------    -------------  -----------
     Total Rail                                             2,659          2,432      $   3,063       $  2,631
                                                       =============  ============    =============  ===========
</TABLE>

     As mentioned above, overall freight revenue was significantly higher for
the second quarter and first six months than in 1999 due to the Conrail
integration. The increase in coal revenue was tempered by generally mild winter,
spring, and early summer weather conditions in the East and continuing weakness
in export coal shipments. Merchandise demand was generally strong, particularly
in the chemicals, metals, food and consumer products, and paper and forest
products commodity groups. Automotive revenue was up significantly, benefiting
from the Conrail integration, continued strength in U.S. vehicle production, and
rate increases on some auto shipments.

     Since the integration of Conrail, the railroad has experienced operating
difficulties and diminished service performance, particularly in high-volume
corridors of its network and during periods of peak traffic demand. Key
performance statistics that track average train velocity, the number of freight
cars on the network, and dwell time for trains in terminals or classification
yards did not show sustainable improvement through the end of the first quarter
of 2000. While significant improvements were realized during the second quarter,
the rail unit experienced lost revenue during the second quarter and first half
of the year as customers diverted traffic to trucks or other carriers. Operating
expenses include significant costs related to the congestion problems, including
lease costs for higher numbers of locomotives and freight cars on the system

                                      -18-
<PAGE>

ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
         FINANCIAL CONDITION


RESULTS OF OPERATIONS, Continued
- --------------------------------

Rail, Continued

and incremental labor costs for train crews and yard personnel. Significantly
higher fuel prices and cost-of-living increases for union employees under
previously-negotiated contracts also had a substantial effect on operating
expenses for the quarter. As discussed in a later section of Management's
Discussion and Analysis, the railroad undertook various initiatives during the
second quarter to relieve congestion, improve operations, and reduce operating
expenses. With these initiatives in place, substantial progress was made by the
end of the second quarter in restoring network fluidity across the system.

Intermodal

     Intermodal operating income totaled $20 million for the second quarter of
2000, compared to $16 million in the prior year quarter. Revenue for the quarter
increased $84 million, or 41%, to $291 million. Operating expense increased $80
million, or 42%, to $271 million. These increases reflect the Conrail
integration, as well as new business associated with a contract signed last year
with a major intermodal customer. International container traffic remained
relatively strong during the quarter; however, domestic container revenues
continued to be adversely affected by business lost to trucks and other carriers
as a result of service problems and by price competition.

Marine Services Results
- -----------------------

     Following the sale of its international container-shipping liner business
in 1999, CSX has redefined the retained portions of its container-shipping
business to consist of a Domestic Container Shipping segment and an
International Terminals segment. These segments are being managed as separate
businesses, and operating results for the second quarter and first six months of
2000 are presented separately for each segment. It is not practicable to provide
results for these segments for the comparable periods of 1999. For reporting
purposes, these businesses are also viewed in the aggregate as Marine Services.
Prior year results for the Marine Services grouping include the two retained
businesses and the international liner business that was sold. The Domestic
Container Shipping unit operates 16 vessels and 27,000 containers along six
service routes between the continental United States and Alaska, Guam, Hawaii,
and Puerto Rico. The International Terminals unit operates container freight
terminals at 12 locations in Hong Kong, China, Australia, Europe, Russia, and
Latin America.

     Revenue from Marine Services operations totaled $237 million for the second
quarter of 2000, vs. $976 million for the 1999 quarter. Operating expenses
totaled $215 million, compared to $947 million in the prior year. Operating
income for second quarter 2000 was $22 million, compared to $30 million in 1999.
The significant declines in revenue and expense reflect the international liner
sale. That transaction also accounted for the significant improvement in
operating ratio as the international business operated at a low margin in the
prior year under substantial rate pressure and seasonal traffic weakness. Prior
year results for the Marine Services grouping reflect certain reclassifications
to conform with the presentation for fiscal year 2000.

                                      -19-
<PAGE>

ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
         FINANCIAL CONDITION


RESULTS OF OPERATIONS, Continued
- --------------------------------

Domestic Container Shipping

     The domestic container-shipping unit reported operating income of $4
million for the second quarter of fiscal 2000 on operating revenue of $162
million. Traffic demand was strong in the Alaska and Hawaii-Guam trade lanes,
reflecting seasonal improvement. However, weakness in the Puerto Rico trade due
to competitive pressures and a slower Puerto Rican economy negatively impacted
earnings for the quarter.

International Terminals

     The international terminals unit reported operating income of $18 million
for the second quarter on operating revenue of $76 million. International trade
remained robust, with ongoing growth in world trade and the continued rebound of
Asian economies. In addition to strong container traffic through its Hong Kong
terminal, the unit benefited from continued productivity enhancements and
improved capacity utilization at that facility.

First Six Months 2000 Compared with 1999
- ----------------------------------------

     For the first six months of the year, earnings for the company totaled $84
million, 40 cents per share on a diluted basis, compared to $140 million, 66
cents per share on a diluted basis for the prior year period. Net earnings
include the discontinued logistics segment sold in September 2000. The 1999
results included a $17 million after-tax gain, or 8 cents per share, on the June
1999 sale of the company's Grand Teton Lodge resort and an after-tax charge of
$49 million, 23 cents per share, in the first quarter of 1999 to record the
cumulative effect of an accounting change. As previously mentioned, the 2000
period covers 26 weeks of results, versus 27 weeks for the 1999 period. The
additional week in 1999 was included in the first quarter.

     Operating revenue for the first six months of 2000 totaled $4.1 billion,
compared to $4.9 billion in the prior year. Surface Transportation revenue
increased $635 million, primarily as a result of the Conrail integration, while
Marine Services revenue declined $1.5 billion as a result of the international
liner sale.

     Operating income totaled $363 million for the first six months of 2000,
versus $531 million for the comparable 1999 period. The decline in operating
income was attributable to significantly higher rail operating expenses,
including higher wage and benefit costs for the contract workforce,
significantly higher fuel costs, and heavy spending associated with network
congestion and initiatives to restore network fluidity. The impact of fuel price
increases alone was responsible for $117 million in higher rail fuel expense
compared to the first six months of 1999.

                                      -20-
<PAGE>

ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
         FINANCIAL CONDITION


FINANCIAL CONDITION
- -------------------

     Cash, cash equivalents and short-term investments totaled $395 million at
June 30, 2000, a decrease of $579 million since December 31, 1999. The balance
at the end of fiscal 1999 was significantly higher than normal, reflecting
planned levels to ensure liquidity over year-end in light of the Year 2000 date
change and the fact that the company had not fully utilized the proceeds from
the sale of its international container-shipping business to reduce short-term
debt.

     Primary sources of cash and cash equivalents during the six months ended
June 30, 2000 were normal transportation operations and the issuance of long-
term debt. On a net basis, operations used $4 million of cash for the six-month
period, reflecting the decline in operating income and the utilization of cash
to reduce accounts payable and other accrued liabilities. Primary uses of cash
and cash equivalents were property additions, repayments of short-term and long-
term debt, and the payment of dividends on the company's outstanding common
stock.

     CSX's working capital deficit at June 30, 2000 was $944 million, roughly
level with the deficit at December 31, 1999. The working capital deficit at both
dates included approximately $350 million in current maturities of long-term
debt, approximately $250 million of which are scheduled for the third quarter. A
working capital deficit is not unusual for the company and does not indicate a
lack of liquidity. The company continues to maintain adequate current assets to
satisfy current liabilities when they are due and has sufficient liquidity and
financial resources to manage its day-to-day cash needs.

     Under its normal equipment financing programs, the company's rail unit
closed approximately $140 million in long-term financing on locomotives and
railcars in the second quarter of 2000 and expects to close approximately $70
million in similar financing during the second half of the year. CSX also has
$200 million of remaining capacity under a shelf registration that may be used
to issue debt or other securities at the company's discretion.

FINANCIAL DATA
- --------------

<TABLE>
<CAPTION>
                                                                          (Millions of Dollars)
                                                                    -----------------------------------
                                                                        June 30,        December 31,
                                                                          2000              1999
                                                                    ----------------- -----------------
          <S>                                                       <C>               <C>
          Cash, Cash Equivalents and
            Short-Term Investments                                  $       395        $       974
          Commercial Paper and Equivalents -
            Short-Term                                              $       469        $       574
          Commercial Paper -
            Long-Term                                               $       800        $       800
          Working Capital (Deficit)                                 $      (944)       $      (910)

          Current Ratio                                                      .7                 .7
          Debt Ratio                                                         56 %               54 %
          Ratio of Earnings to Fixed Charges                                1.4 x              1.1 x
</TABLE>

                                      -21-
<PAGE>

ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
         FINANCIAL CONDITION

OUTLOOK
- -------

     CSX's financial performance during the second half of fiscal 2000 will be
largely dependent on its success in maintaining fluidity on the rail network,
improving customer service, and eliminating substantial excess costs
attributable to recent network congestion and service recovery initiatives.
Demand remains strong across most commodity groups, and management is optimistic
that the company will begin recapturing traffic that had moved to alternate
modes of transportation as a result of the recent rail service problems in the
Eastern United States. CSX's rail and intermodal businesses will concentrate on
improving operating performance and service levels heading into the fall traffic
peak. Significant attention is also being focused on reducing and eliminating
excess costs and beginning to achieve a number of the planned merger synergies
associated with the Conrail transaction. However, there can be no assurance that
these objectives will be met, or met within a specified time frame. The company
will also continue its initiative to review and increase prices on rail and
intermodal shipments where appropriate and competitively feasible, particularly
where traffic demand is creating capacity constraints on the system. Fuel
expense is expected to remain at levels significantly higher than the prior
year.

     The domestic container shipping business should continue to benefit from
seasonal traffic strength, particularly in the Alaska and Hawaii-Guam trade
lanes, but will likely see a continuation of competitive pressures and economic
slowdown in Puerto Rico that affected that trade lane in the second quarter. The
international terminals business expects container volumes to remain strong in
Hong Kong and other key terminal locations and should see steady or improved
earnings.

INVESTMENT IN AND INTEGRATED RAIL OPERATIONS WITH CONRAIL

Background
- ----------

     CSX and Norfolk Southern Corporation (Norfolk Southern) completed the
acquisition of Conrail Inc. (Conrail) in May 1997. Conrail owns the primary
freight railroad system serving the northeastern United States, and its rail
network extends into several midwestern states and into Canada. CSX and Norfolk
Southern, through a jointly owned acquisition entity, hold economic interests in
Conrail of 42% and 58%, respectively, and voting interests of 50% each. CSX and
Norfolk Southern received regulatory approval from the Surface Transportation
Board (STB) to exercise joint control over Conrail in August 1998 and
subsequently began integrated operations over allocated portions of the Conrail
lines in June 1999.

     The rail subsidiaries of CSX and Norfolk Southern operate their respective
portions of the Conrail system pursuant to various operating agreements that
took effect on June 1, 1999. Under these agreements, the railroads pay operating
fees to Conrail for the use of right-of-way and rent for the use of equipment.
Conrail continues to provide rail service in certain shared geographic areas for
the joint benefit of CSX and Norfolk Southern for which it is compensated on the
basis of usage by the respective railroads.

Accounting and Financial Reporting Effects
- ------------------------------------------

     CSX and Norfolk Southern assumed substantially all of Conrail's customer
freight contracts at the June 1999 integration date. CSX's rail and intermodal
operating revenue since that date include revenue from traffic previously moving
on Conrail. Operating expenses reflect corresponding increases for costs
incurred to handle the new traffic and operate the former Conrail lines. Rail
operating expenses after the integration also include an expense category,
"Conrail Operating Fee, Rent and Services," which reflects payment to Conrail

                                      -22-
<PAGE>

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
        FINANCIAL CONDITION


INVESTMENT IN AND INTEGRATED RAIL OPERATIONS WITH CONRAIL, Continued

Accounting and Financial Reporting Effects, Continued
- -----------------------------------------------------

for the use of right-of-way and equipment, as well as charges for
transportation, switching, and terminal services in the shared areas Conrail
operates for the joint benefit of CSX and Norfolk Southern. This expense
category also includes amortization of the fair value write-up arising from the
acquisition of Conrail, as well as CSX's proportionate share of Conrail's net
income or loss recognized under the equity method of accounting. Prior to
integration, CSX recorded its share of Conrail's net income, less amortization
of the fair value write-up, and acquisition and transition expenses, in other
income (expense) in the Consolidated Statement of Earnings.

Operating and Financial Effects
- -------------------------------

         The integration of Conrail in June 1999 initially resulted in
congestion and traffic delays on parts of the new CSX network and on the shared
areas operated by Conrail. Although substantial progress was made during the
summer of 1999 in stabilizing post-integration operations and restoring service
levels, these improvements were not sustained across the CSX system. Network
disruptions created by Hurricane Floyd in September 1999, followed by heavy
seasonal traffic build-up in the fourth quarter, adversely affected rail and
intermodal operating and service recovery efforts. As peak traffic levels
subsided and the company implemented network simplification plans throughout the
system, congestion problems eased and service levels improved in key areas.
During the first quarter of 2000, overall operations on the northern portion of
the CSX system (generally the lines allocated to CSX in the Conrail acquisition)
improved; however, operations in the south deteriorated. From a systemwide
perspective, key performance statistics that track average train velocity, the
number of freight cars on the network, and dwell time for trains in terminals
and classification yards did not show sustainable improvement during the first
quarter.

         In April 2000, CSX announced a number of key management changes at its
rail unit aimed at accelerating the pace of operational and service recovery. At
that time, the company implemented a 90-day action plan targeting significant
improvements in seventeen key operating and service measures. Most of these
operating goals were met and substantial progress was made by the end of the
second quarter in restoring network fluidity across the system. Financial
results for the first six months of fiscal year 2000 reflect significant costs
attributable to network congestion and the recovery initiatives.

         Entering the third quarter of 2000, efforts are being focused on
ensuring that the rail system is well-prepared to handle peak traffic demand in
the fall. To achieve this goal, a 60-day action plan was implemented at the
beginning of the quarter that targets further improvements in most key service
measures. Major initiatives are also being undertaken to identify and eliminate
substantial excess costs associated with the poor network performance. The
company is also continuing its review of pricing policies and implementing rate
increases where competitively appropriate.

         Management believes that the trend of operational improvement across
the rail network will be continued and the company will be prepared to handle
the increased fall traffic. Financial results for the rail unit are expected to
improve as the company reduces operating costs, regains business which had been
diverted to other modes of transportation, and begins to realize many of the
synergies envisioned with the Conrail acquisition. However, there can be no
assurance that these objectives will be met, or met within a specified time
frame.

                                      -23-
<PAGE>

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
        FINANCIAL CONDITION

INVESTMENT IN AND INTEGRATED RAIL OPERATIONS WITH CONRAIL, Continued

Conrail's Results of Operations
- -------------------------------

         Comparisons of Conrail's operating results for the quarters and
six-month periods ended June 30, 2000 and 1999 reflect the significant changes
in its business that occurred as a result of the integration with CSX and
Norfolk Southern in 1999. Revenues and expenses for two months of the 1999
quarter and five months of the 1999 six-month period were derived principally
from freight linehaul operations over the entire Conrail network. Results for
the 2000 quarter and six months reflect Conrail's post-integration business,
with revenues consisting primarily of operating fees, equipment rents, and
shared area usage fees derived from CSX and Norfolk Southern, and expenses
consisting of salaries and wages, rents, depreciation, and other costs
reflective of the new operations.

         Conrail reported net income of $30 million on revenues of $246 million
for the second quarter of 2000, compared to a net loss of $63 million on
revenues of $737 million for the prior year quarter. For the related six-month
periods, Conrail reported net income of $96 million on revenues of $505 million
in 2000 and $13 million on revenues of $1.7 billion in 1999. Conrail's results
for the first six months of 2000 benefited from a non-recurring gain on the sale
of property of $61 million, $37 million after-tax. Conrail's operating results
for the quarter and six months ended June 30, 1999 included non-recurring
expenses totaling $173 million, $117 million after-tax, related to the
integration with CSX and Norfolk Southern. These expenses included employee
training expenses, costs to discontinue certain activities, an adjustment to
reflect an increase in a state property tax rate, and an increase in casualty
reserves, principally to reflect the method of settlement of certain casualty
liabilities based on the agreement between CSX, Norfolk Southern, and Conrail.

         Conrail's operating activities required a net use of cash of $1 million
for the first half of 2000, compared with net cash provided by operations of
$267 million for the first half of 1999. The decline in cash provided by
operations reflected lower operating income resulting from Conrail's
post-integration structure and operations, as well as significant payments of
one-time items owed to CSX and Norfolk Southern in the early part of fiscal
2000.

         Conrail's working capital deficit was $20 million at June 30, 2000,
compared with $194 million at December 31, 1999. The working capital deficit at
December 31, 1999 included slightly more than $300 million in long-term debt
maturities, the majority of which was paid in the second quarter of 2000 and
required CSX and Norfolk Southern to repay some of their borrowings from Conrail
under the related party advance arrangements. Conrail expects to have sufficient
cash flow to meet its ongoing obligations.

SALE OF INTERNATIONAL CONTAINER-SHIPPING ASSETS

         In December 1999, CSX sold certain assets comprising Sea-Land's
international liner business to A. P. Moller-Maersk Line (Maersk). The
international liner business operated approximately 75 container vessels and
200,000 containers in worldwide trades and comprised a majority of CSX's
container-shipping revenue. In addition to vessels and containers, Maersk
acquired certain terminal facilities and various other assets and related
liabilities of the international liner business. The agreement with Maersk
provides for a post-closing adjustment to the sales price based on the change in
working capital, as defined in the agreement, between June 25, 1999, and
December 10, 1999. The loss recorded includes the estimated costs to terminate
various contractual obligations of the company. These matters will affect the
determination of the final loss on sale. The company is in discussions about
these matters with Maersk and also has commenced third-party arbitration to
resolve certain of the issues. Management is not yet in a position to assess
fully the likely outcome of this process but believes it will prevail in the
arbitration.

                                      -24-
<PAGE>

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
        FINANCIAL CONDITION


SALE OF INTERNATIONAL CONTAINER-SHIPPING ASSETS, Continued

         CSX retained the container-shipping business serving the U.S. domestic
trade and part of the company's international terminal operations and manages
them separately. Management reporting and performance measures for these
businesses have been developed for fiscal year 2000. The company revised its
disclosures under FASB Statement No. 131, "Disclosures about Segments of an
Enterprise and Related Information," for fiscal 2000 to report these as separate
business segments; however, it is not practicable to provide comparative segment
disclosures for the prior year.

OTHER MATTERS

Federal Railroad Administration Track Audit
- -------------------------------------------

         In March 2000, the Federal Railroad Administration (FRA) released a
draft report of the results of a two-week audit of track conditions on CSX's
rail system. The audit identified track defects on certain portions of the
system, the nature of which led the FRA to question the effectiveness of the
quality control procedures in CSX's track maintenance and inspection programs.
CSX responded to the findings immediately by making necessary track repairs and
by restricting train speeds on certain portions of track until repairs could be
completed.

         As a result of the audit, CSX and the FRA entered into a Safety
Compliance Agreement in April 2000 that includes measures to improve the
railroad's track inspection and maintenance processes. Under the agreement,
which is effective through May 1, 2001, CSX will increase the frequency of
automated track inspections, enhance management oversight of track inspection
and large scale maintenance operations, and implement a new track inspection
procedures manual developed in a joint effort with the FRA and Brotherhood of
Maintenance of Way Employees. CSX estimates that it will incur approximately $20
million to $30 million in additional costs during fiscal year 2000 to address
the issues raised in the audit and the commitments made in the Safety Compliance
Agreement, a portion of which will represent operating expenses for fiscal 2000
and a portion of which will consist of capital expenditures to be depreciated
over the useful life of the related track improvements.

Surface Transportation Board Moratorium on Rail Merger Applications
- -------------------------------------------------------------------

         In March 2000, the Surface Transportation Board (STB) issued a decision
establishing a moratorium on rail merger applications for a 15-month time
period. The moratorium is intended to address the potential downstream effects
that a rail merger might have on the railroad industry at the present time given
the lingering difficulties and service issues attributable to recent rail
mergers, and to allow the STB time to consider changes in the rules by which
future rail mergers will be evaluated. The STB moratorium precluded the
anticipated filing of an application by the Burlington Northern Santa Fe (BNSF)
and Canadian National (CN) railroads to combine their respective systems. BNSF
and CN challenged the STB decision in federal appeals court. The court issued a
ruling in July 2000 that upheld the STB moratorium. The moratorium expires in
June 2001.

                                      -25-
<PAGE>

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
        FINANCIAL CONDITION


OTHER MATTERS, Continued

Federal Court Decision Affecting Coal Mining Operations
- -------------------------------------------------------

         In October 1999, a federal district court judge ruled that certain
mountaintop coal mining practices in West Virginia were in violation of the
federal Clean Water Act and the federal Surface Mining and Control Reclamation
Act. The decision, which is currently under appeal, could adversely affect CSX's
coal traffic and revenues if upheld.

Litigation
- ----------

         In September 1997, a state court jury in New Orleans, Louisiana
returned a $2.5 billion punitive damages award against CSX Transportation, Inc.
(CSXT), the wholly-owned rail subsidiary of CSX. The award was made in a
class-action lawsuit against a group of nine companies based on personal
injuries alleged to have arisen from a 1987 fire. The fire was caused by a
leaking chemical tank car parked on CSXT tracks and resulted in the 36-hour
evacuation of a New Orleans neighborhood. In the same case, the court awarded a
group of 20 plaintiffs compensatory damages of approximately $2 million against
the defendants, including CSXT, to which the jury assigned 15 percent of the
responsibility for the incident. CSXT's liability under that compensatory
damages award is not material, and adequate provision has been made for the
award.

         In October 1997, the Louisiana Supreme Court set aside the punitive
damages judgment, ruling the judgment should not have been entered until all
liability issues were resolved. In February 1999, the Louisiana Supreme Court
issued a further decision, authorizing and instructing the trial court to enter
individual punitive damages judgments in favor of the 20 plaintiffs who had
received awards of compensatory damages, in amounts representing an appropriate
share of the jury's award. The trial court on April 8, 1999 entered judgment
awarding approximately $2 million in compensatory damages and approximately $8.5
million in punitive damages to those 20 plaintiffs. Approximately $6.2 million
of the punitive damages awarded were assessed against CSXT. CSXT then filed
post-trial motions for a new trial and for judgment notwithstanding the verdict
as to the April 8 judgment.

         The new trial motion was denied by the trial court in August 1999. On
November 5, 1999, the trial court issued an opinion that granted CSXT's motion
for judgment notwithstanding the verdict and effectively reduced the amount of
the punitive damages verdict from $2.5 billion to $850 million. CSXT believes
that this amount (or any amount of punitive damages) is unwarranted and intends
to pursue its full appellate remedies with respect to the 1997 trial as well as
the trial judge's decision on the motion for judgment notwithstanding the
verdict. The compensatory damages awarded by the jury in the 1997 trial were
also substantially reduced by the trial judge. A judgment reflecting the $850
million punitive award has been entered against CSXT. CSXT has obtained and
posted an appeal bond in the amount of $895 million, which will allow it to
appeal the 1997 compensatory and punitive awards, as reduced by the trial judge.

         A trial for the claims of 20 additional plaintiffs for compensatory
damages began on May 24, 1999. In early July, the jury in that trial rendered
verdicts totaling approximately $330 thousand in favor of eighteen of those
twenty plaintiffs. Two plaintiffs received nothing; that is, the jury found that
they had not proved any damages. Management believes that this result, while
still excessive, supports CSXT's contention that the punitive damages award was
unwarranted.

                                      -26-
<PAGE>

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
        FINANCIAL CONDITION


OTHER MATTERS, Continued

Litigation, Continued
- ---------------------
         CSXT continues to pursue an aggressive legal strategy. Management
believes that an adverse outcome, if any, is not likely to be material to CSX's
or CSXT's overall results of operations or financial position, although it could
be material to results of operations in a particular quarterly accounting
period.

              --------------------------------------------------

         Estimates and forecasts in Management's Discussion and Analysis and in
other sections of this Quarterly Report are based on many assumptions about
complex economic and operating factors with respect to industry performance,
general business and economic conditions and other matters that cannot be
predicted accurately and that are subject to contingencies over which the
company has no control. Such forward-looking statements are subject to
uncertainties and other factors that may cause actual results to differ
materially from the views, beliefs, and projections expressed in such
statements. The words "believe", "expect", "anticipate", "project", and similar
expressions signify forward-looking statements. Readers are cautioned not to
place undue reliance on any forward-looking statements made by or on behalf of
the company. Any such statement speaks only as of the date the statement was
made. The company undertakes no obligation to update or revise any
forward-looking statement.

         Factors that may cause actual results to differ materially from those
contemplated by these forward-looking statements include, among others, the
following possibilities: (i) costs and operating difficulties related to the
integration of Conrail may not be eliminated or resolved within the time frame
currently anticipated; (ii) revenue and cost synergies expected from the
integration of Conrail may not be fully realized or realized within the
timeframe anticipated; (iii) general economic or business conditions, either
nationally or internationally, an increase in fuel prices, a tightening of the
labor market or changes in demands of organized labor resulting in higher wages,
or increased benefits or other costs or disruption of operations may adversely
affect the businesses of the company; (iv) legislative or regulatory changes,
including possible enactment of initiatives to reregulate the rail industry, may
adversely affect the businesses of the company; (v) possible additional
consolidation of the rail industry in the near future may adversely affect the
operations and business of the company; and (vi) changes may occur in the
securities and capital markets.

                                      -27-
</TEXT>
</DOCUMENT>
</SEC-DOCUMENT>
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