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FORM 10-K

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

(X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934

For the fiscal year ended December 28, 2001

OR

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

For the transition period from ______________ to ________________

Commission file number 1-3359
------

CSX TRANSPORTATION, INC.
(Exact name of registrant as specified in its charter)

Virginia 54-6000720
-------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)

500 Water Street, Jacksonville, FL. 32202
----------------------------------- -----
(Address of principal executive offices) (Zip Code)

Registrant's telephone number, including area code: (904) 359-3100
--------------

Securities registered pursuant to Section 12(b) of the Act:

Name of each exchange on which each
Title of each class class is registered
------------------------------ -------------------------
Louisville and Nashville Railroad
Company First and Refunding Mortgage
3-3/8% Bonds, Series F, due April 1, 2003 New York Stock Exchange

Louisville and Nashville Railroad
Company First and Refunding Mortgage
2-7/8% Bonds, Series G, due April 1, 2003 New York Stock Exchange

Monon Railroad 6% Income Debentures,
due January 1, 2007 New York Stock Exchange

Exhibit Index can be found on page 7.

-1-



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

Securities Registered Pursuant to Section 12(g) of the Act: None.

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes (X) No ( )

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. (X)

State the aggregate market value of the voting stock held by nonaffiliates of
the registrant. The aggregate market value of the voting stock at February 22,
2002, was $-0-, excluding the voting stock held by the parent of the registrant.

Indicate the number of shares outstanding of each of the registrant's classes of
common stock, as of the latest practicable date. The registrant has 9,061,038
shares of common stock, par value $20.00, outstanding at February 22, 2002.

-2-




CSX TRANSPORTATION, INC. AND SUBSIDIARIES
2001 FORM 10-K ANNUAL REPORT
Table of Contents



Item No. Page
- -------- ----

PART I

1 Business 4-5
2. Properties 4-5
3. Legal Proceedings 5
4. Submission of Matters to a Vote of Security Holders 5

PART II

5. Market for Registrant's Common Stock and Related Stockholder Matters 5
6. Selected Financial Data 5
7. Management's Discussion and Analysis 5
7.A. Quantitative and Qualitative Disclosures About Market Risk 6
8. Financial Statements and Supplementary Data 6
9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 6

PART III

10. Directors, Executive Officers, Promoters and Control Persons of the Registrant 6
11. Executive Compensation 6
12. Security Ownership of Certain Beneficial Owners and Management 6
13. Certain Relationships and Related Transactions 6

PART IV

14. Exhibits, Financial Statement Schedules and Reports on Form 8-K 7-8



Signatures 9

Index to Consolidated Financial Statements 10


-3-



PART I

Items 1. & 2. Business and Properties

General
- -------

CSX Transportation, Inc. (CSXT or the company) is engaged
principally in the business of railroad transportation and operates a system
composed of approximately 23,000 miles of first main line track in 23 states,
the District of Columbia, and two Canadian provinces. Headquartered in
Jacksonville, Florida, CSXT conducts railroad operations in its own name and
through railroad subsidiaries, employing an average of approximately 35,000
employees during its most recent fiscal year

CSXT is a wholly-owned subsidiary of CSX Corporation (CSX). CSX is
a publicly-owned Virginia corporation with headquarters at One James Center, 901
East Cary Street, Richmond, Virginia, 23219-4031. CSX also owns other
transportation businesses which include CSX Intermodal, Inc., an intermodal and
trucking company; CSX Lines, LLC, an ocean container-shipping company; and CSX
World Terminals, LLC, a container-freight terminal company. CSX also has
interests in real estate, resorts and resort management.

During 1999, CSXT's rail system expanded significantly with the
integration of Conrail Inc. (Conrail) in the Northeast, brought about by the
joint CSX /Norfolk Southern Corporation (Norfolk Southern) acquisition of
Conrail that was approved by federal regulators in 1998. CSXT now operates in
every major market east of the Mississippi River and serves more ports than any
railroad in the country.

For information concerning business conducted by CSXT during 2001,
see "Management's Discussion and Analysis" on pages 32-37.

Roadway
- -------

On December 28, 2001, CSXT's consolidated system consisted of
40,520 miles of track as follows:

Track
Miles
-----

First Main 23,297
Second Main 5,518
Passing, Crossovers and Turnouts 2,865
Way and Yard Switching 8,840
---------
Total 40,520
=========

Included above are 6,601 miles of leased track, 6,509 miles of
track under trackage right agreements with other railroads (including 5,755
miles of track leased from Conrail) and 256 miles of track under operating
contracts.

-4-



Equipment
- ---------

On December 28, 2001, CSXT and subsidiaries owned or leased the
following:

Owned Leased Total
----------- --------- -----------
Locomotives
Freight 2,350 808 3,158
Switching 177 25 202
Auxiliary Units 181 11 192
----------- --------- -----------
Total 2,708 844 3,552
=========== ========= ===========

Freight Cars
Gondolas 15,854 16,720 32,574
Open Top Hoppers 12,618 12,548 25,166
Box Cars 10,318 8,512 18,830
Covered Hoppers 11,186 6,937 18,123
Flat Cars 964 18,979 19,943
Other 808 5 813
----------- --------- -----------
Total 51,748 63,701 115,449
=========== ========= ===========

Included in leased equipment are 665 locomotives and 17,415 freight cars leased
from Conrail.

Item 3. Legal Proceedings

In response to this item, the information set forth on pages 34-35
of this document in "Management's Discussion and Analysis," under
the caption "Legal Proceedings" is incorporated by reference.

Item 4. Submission of Matters to a Vote of Security Holders

Information omitted in accordance with General Instruction I(2)(c).

PART II

Item 5. Market for Registrant's Common Stock and Related Stockholder Matters

There is no market for CSXT's common stock as CSXT is a
wholly-owned subsidiary of CSX. During the years 2001, 2000 and
1999, CSXT paid dividends on its common stock aggregating $212
million, $220 million and $219 million, respectively.

Item 6. Selected Financial Data

Information omitted in accordance with General Instruction I(2)(a)

Item 7. Management's Discussion and Analysis

Information omitted in accordance with General Instruction I(2)(a).
However, in compliance with said Instruction, see "Management's
Discussion and Analysis" on pages 32-37.

-5-



Item 7A. Quantitative and Qualitative Disclosures About Market Risk

The company is subject to risk relating to changes in the price of
diesel fuel. Forward purchase agreements have been entered into
with various suppliers for approximately 294 million gallons of
fuel, which is approximately 50% of the 2002 requirement, at a
weighted average price of 78 cents per gallon. The company is
subject to fluctuations in prices for the remainder of its 2002
needs. A one cent change in the price per gallon of fuel would
impact fuel expense by approximately $3 million.

CSXT participates in the CSX cash management plan, under which
excess cash is advanced to CSX for investment. CSX then makes cash
funds available to CSXT as needed for use in their operations, and
are committed to repay all amounts due on demand should
circumstances require. CSXT is charged for borrowings or
compensated for investments based on returns earned by the plan
portfolio. At December 28, 2001, CSXT had a $1.1 billion deficit
balance relating to CSXT's participation in the CSX cash
management plan, which is included in Due to Parent Company in the
statement of financial position. A 1% increase or decrease in the
borrowing rate would have approximately a $11 million affect on
interest expense.

Item 8. Financial Statements and Supplementary Data

The consolidated financial statements of CSXT and notes thereto
required in response to this item are included herein (refer to
Index to Consolidated Financial Statements on page 10).

Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure

None.

PART III

Item 10. Directors, Executive Officers, Promoters and Control Persons of
the Registrant

Information omitted in accordance with General Instruction
I(2)(c).

Item 11. Executive Compensation

Information omitted in accordance with General Instruction
I(2)(c).

Item 12. Security Ownership of Certain Beneficial Owners and Management

Information omitted in accordance with General Instruction
I(2)(c).

Item 13. Certain Relationships and Related Transactions

Information omitted in accordance with General Instruction
I(2)(c).

-6-



PART IV

Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K

(a) 1. Financial Statements

See Index to Consolidated Financial Statements on
page 10.

2. Financial Statement Schedules

The information required by Schedule II is included
in Note 10 to the consolidated financial statements.
All other financial statement schedules are not
applicable.

3. Exhibits

(3.1) Articles of Incorporation, as amended (
incorporated by reference to Exhibit 3.1 to
Form 10-K dated March 8, 1996)

(3.2) By-laws of the Registrant, as amended
(incorporated by reference to Exhibit 3.2
to Form 10-K dated March 14, 2000)

(4.1) Articles of Incorporation, as amended (See
Exhibit 3.1)

(4.2) By-laws of the Registrant, as amended (See
Exhibit 3.2)

Pursuant to Regulation S-K, Item 601 (b) (4)(iii),
instruments that define the rights of holders of the
Registrant's long-term debt securities, where the
long-term debt securities authorized under each
instrument do not exceed 10% of the Registrant's
total assets, have been omitted and will be furnished
to the Commission upon request.

(10.1) Transaction Agreement, dated as of June 10,
1997, by and among CSX Corporation, CSX
Transportation, Inc., Norfolk Southern
Corporation, Norfolk Southern Railway
Company, Conrail Inc., Consolidated Rail
Corporation, and CRR Holdings LLC, with
certain schedules thereto (incorporated by
reference to Exhibit 10.1 to Form 8-K dated
June 11, 1999)

(10.2) Amendment No. 1, dated as of August 22,
1998, to the Transaction Agreement, dated
as of June 10, 1997, by and among CSX
Corporation, CSX Transportation, Inc.,
Norfolk Southern Corporation, Norfolk
Southern Railway Company, Conrail Inc.,
Consolidated Rail Corporation, and CRR
Holdings LLC (incorporated by reference to
Exhibit 10.2 to Form 8-K dated June 11,
1999)

(10.3) Amendment No. 2, dated as of June 1, 1999,
to the Transaction Agreement, dated June
10, 1997, by and among CSX Corporation, CSX
Transportation, Inc., Norfolk Southern
Corporation, Norfolk Southern Railway
Company, Conrail Inc., Consolidated Rail
Corporation, and CRR Holdings, LLC
(incorporated by reference to Exhibit 10.3
to Form 8-K dated June 11, 1999)

(10.4) Amendment No. 3, dated as of August 1,
2000, to the Transaction Agreement by and
among CSX Corporation, CSX Transportation,
Inc., Norfolk Southern Corporation, Norfolk
Southern Railway Company, Conrail Inc.,

-7-



Consolidated Rail Corporation, and CRR
Holdings LLC.

(10.5) Operating Agreement, dated as of June 1,
1999, by and between New York Central Lines
LLC and CSX Transportation, Inc.
(incorporated by reference to Exhibit 10.4
to Form 8-K dated June 11, 1999)

(10.6) Shared Assets Area Operating Agreement for
North Jersey, dated as of June 1, 1999, by
and among Consolidated Rail Corporation,
CSX Transportation, Inc., and Norfolk
Southern Railway Company, with exhibit
thereto (incorporated by reference to
Exhibit 10.5 to Form 8-K dated June 11,
1999)

(10.7) Shared Assets Area Operating Agreement for
Southern Jersey/Philadelphia, dated as of
June 1, 1999, by and among Consolidated
Rail Corporation, CSX Transportation, Inc.,
and Norfolk Southern Railway Company, with
exhibit thereto (incorporated by reference
to Exhibit 10.6 to Form 8-K dated June 11,
1999)

(10.8) Shared Assets Area Operating Agreement for
Detroit, dated as of June 1, 1999, by and
among Consolidated Rail Corporation, CSX
Transportation, Inc., and Norfolk Southern
Railway Corporation, with exhibit thereto
(incorporated by reference to Exhibit 10.7
to Form 8-K dated June 11, 1999)

(10.9) Monongahela Usage Agreement, dated as of
June 1, 1999, by and among CSX
Transportation, Inc., Norfolk Southern
Railway Company, Pennsylvania Lines LLC,
and New York Central Lines LLC, with
exhibit thereto (incorporated by reference
to Exhibit 10.8 to Form 8-K dated June 11,
1999)

(21) Omitted in accordance with General
Instruction I(2)(c)

(24) * Powers of Attorney

(b) Reports on Form 8-K

None

* Filed herewith
-8-



Signatures
- ----------

Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized, on the
12th day of March, 2002.

CSX TRANSPORTATION, INC.

/s/ JAMES L. ROSS
-------------
James L. Ross
(Principal Accounting Officer)

Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons on behalf of
the Registrant and in the capacities and on the dates indicated.

Signatures Title
---------- -----

/s/ John W. Snow Chairman of the Board and Director
- ----------------
John W. Snow*

/s/ Mark G. Aron Director
- ----------------
Mark G. Aron*

/s/ Alan F. Crown Executive Vice President
- ----------------- Transportation and Director
Alan F. Crown*

/s/ Andrew B. Fogarty Director
- ---------------------
Andrew B. Fogarty*

/s/ P. Michael Giftos Executive Vice-President and Chief
- --------------------- Commercial Officer and Director
P. Michael Giftos*

/s/ Paul R. Goodwin Director
- -------------------
Paul R. Goodwin*

/s/ Michael J. Ward President (Principal Executive
- ------------------- Officer) and Director
Michael J. Ward*

/s/ Frederick J. Favorite Senior Vice-President-Finance
- ------------------------- (Principal Finance Officer)
Frederick J. Favorite*

/s/ Rachel Geiersbach
- -----------------------
*Rachel Geiersbach
(Attorney-in-Fact)

-9-



CSX TRANSPORTATION, INC. AND SUBSIDIARIES
Index to Consolidated Financial Statements



Page
----


Report of Independent Auditors 11

CSX Transportation, Inc. and Subsidiaries

Consolidated Financial Statements and Notes to Consolidated
Financial Statements Submitted Herewith:

Consolidated Statement of Earnings -
Fiscal Years Ended December 28, 2001,
December 29, 2000 and December 31, 1999 12

Consolidated Statement of Cash Flows -
Fiscal Years Ended December 28, 2001,
December 29, 2000 and December 31, 1999 13

Consolidated Statement of Financial Position -
December 28, 2001 and December 29, 2000 14

Consolidated Statement of Retained Earnings
Fiscal Years Ended December 28, 2001,
December 29, 2000 and December 31, 1999 15

Notes to Consolidated Financial Statements 16


-10-




REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
-------------------------------------------------

To the Shareholder and Board of Directors
of CSX Transportation, Inc.

We have audited the accompanying consolidated statements of financial
position of CSX Transportation, Inc. and subsidiaries as of December 28, 2001
and December 29, 2000, and the related consolidated statements of earnings, cash
flows, and retained earnings for each of the three fiscal years in the period
ended December 28, 2001. 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 Transportation, Inc. and subsidiaries at December 28, 2001 and
December 29, 2000, and the consolidated results of their operations and their
cash flows for each of the three fiscal years in the period ended December 28,
2001, in conformity with accounting principles generally accepted in the United
States.

/s/ ERNST & YOUNG LLP



Jacksonville, Florida
February 13, 2002

-11-



CSX TRANSPORTATION, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF EARNINGS
(Millions of Dollars)



Fiscal Years Ended
------------------------------------------------------------
December 28, December 29, December 31,
2001 2000 1999
---------------- ---------------- -----------------

OPERATING REVENUE
Merchandise $ 3,460 $ 3,513 $ 3,238
Automotive 794 869 760
Coal, Coke and Iron Ore 1,739 1,623 1,565
Other 89 70 60
---------------- ---------------- -----------------

Total 6,082 6,075 5,623
---------------- ---------------- -----------------

OPERATING EXPENSE
Labor and Fringe Benefits 2,464 2,463 2,225
Materials, Supplies and Other 1,100 1,103 1,029
Conrail Operating Fee, Rent and Services 353 382 249
Related Party Service Fees 186 214 287
Building & Equipment Rent 413 517 495
Depreciation 522 494 468
Fuel 525 577 317
New Orleans Litigation Provision 60 - -
Workforce Reduction Program - - 53
---------------- ---------------- -----------------

Total 5,623 5,750 5,123
---------------- ---------------- -----------------

OPERATING INCOME 459 325 500

Other Expense, net 5 35 51

Interest Expense, net 130 120 77
---------------- ---------------- -----------------

EARNINGS BEFORE INCOME TAXES 324 170 372

Income Tax Expense 121 73 159
---------------- ---------------- -----------------

NET EARNINGS $ 203 $ 97 $ 213
================ ================ =================


See accompanying Notes to Consolidated Financial Statements.

-12-



CSX TRANSPORTATION, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(Millions of Dollars)



Fiscal Years Ended
--------------------------------------------------------
December 28, December 29, December 31,
2001 2000 1999
---------------- ---------------- -----------------

OPERATING ACTIVITIES
Net Earnings $ 203 $ 97 $ 213
Adjustments to Reconcile Net Earnings
to Net Cash Provided

Depreciation 522 494 468
Deferred Income Taxes 131 100 155
Workforce Reduction Program - - 53
Other Operating Activities 6 (4) 15
Changes in Operating Assets and Liabilities
Accounts and Notes Receivable 2 173 (467)
Redemption of Accounts Receivable (28) (4) 310
Other Current Assets (20) (37) 77
Accounts Payable 20 (199) 284
Other Current Liabilities 11 (144) 87
---------------- ---------------- -----------------

Net Cash Provided by Operating Activities 847 476 1,195
---------------- ---------------- -----------------

INVESTING ACTIVITIES
Property Additions (848) (822) (1,299)
Short-term Investments (220) - -
Other Investing Activities (4) (2) 47
---------------- ---------------- -----------------

Net Cash Used by Investing Activities (1,072) (824) (1,252)
---------------- ---------------- -----------------

FINANCING ACTIVITIES
Long-term Debt Issued - 185 284
Long-term Debt Repaid (185) (102) (107)
Advances from CSX 619 446 -
Cash Dividends Paid to Affiliate (212) (220) (219)
Other Financing Activities 2 31 (42)
---------------- ---------------- -----------------

Net Cash Provided (Used) by Financing Activities 224 340 (84)
---------------- ---------------- -----------------

Net Decrease in Cash and Cash Equivalents (1) (8) (141)

CASH AND CASH EQUIVALENTS
Cash and Cash Equivalents at Beginning of Period 28 36 177
---------------- ---------------- -----------------

Cash and Cash Equivalents at End of Period $ 27 $ 28 $ 36
================ ================ =================

SUPPLEMENTAL CASH FLOW INFORMATION
Interest Paid - Net of Amounts Capitalized $ 98 $ 103 $ 75
================ ================ =================
Income Taxes Paid $ 59 $ 5 $ 5
================ ================ =================


See accompanying Notes to Consolidated Financial Statements.

-13-



CSX TRANSPORTATION, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
(Millions of Dollars)



December 28, December 29,
2001 2000
------------------- -------------------

ASSETS
Current Assets
Cash and Cash Equivalents $ 27 $ 28
Short-term Investments 220 -
Accounts Receivable 289 271
Notes Receivable 62 3
Materials and Supplies 181 168
Deferred Income Taxes 142 109
Income Taxes Receivable 78 63
Other Current Assets 32 31
------------------- -------------------
Total Current Assets 1,031 673
------------------- -------------------
Properties 16,644 16,395
Accumulated Depreciation (4,427) (4,518)
------------------- -------------------
Properties-Net 12,217 11,877
------------------- -------------------
Affiliates and Other Companies 198 200
Other Long-term Assets 567 547
------------------- -------------------
Total Assets $ 14,013 $ 13,297
=================== ===================

LIABILITIES
Current Liabilities
Accounts Payable $ 820 $ 849
Labor and Fringe Benefits Payable 320 311
Casualty, Environmental and Other Reserves 178 177
Current Maturities of Long-term Debt 170 108
Income and Other Taxes Payable 192 120
Due to Parent Company 1,107 462
Due to Affiliate 125 125
Other Current Liabilities 196 180
------------------- -------------------
Total Current Liabilities 3,108 2,332
Casualty, Environmental and Other Reserves 532 578
Long-term Debt 1,033 1,156
Deferred Income Taxes 3,250 3,085
Other Long-term Liabilities 577 624
------------------- -------------------

Total Liabilities 8,500 7,775
------------------- -------------------
SHAREHOLDER'S EQUITY
Common Stock, $20 Par Value:
Authorized 10,000,000 Shares;
Issued and Outstanding 9,061,038 Shares 181 181
Other Capital 1,380 1,380
Retained Earnings 3,952 3,961
------------------- -------------------
Total Shareholder's Equity 5,513 5,522
------------------- -------------------
Total Liabilities and Shareholder's Equity $ 14,013 $ 13,297
=================== ===================


See accompanying Notes to Consolidated Financial Statements.

-14-



CSX TRANSPORTATION, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF RETAINED EARNINGS
(Millions of Dollars)



December 28, December 29, December 31,
2001 2000 1999
----------------- ----------------- ------------------

Beginning Balance $ 3,961 $ 4,084 $ 4,090

Net Earnings 203 97 213

Dividends - Common (212) (220) (219)
----------------- ----------------- ------------------
Ending Balance $ 3,952 $ 3,961 $ 4,084
================= ================= ==================


See accompanying Notes to Consolidated Financial Statements.

-15-



CSX TRANSPORTATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All Tables in Millions of Dollars)

NOTE 1. SIGNIFICANT ACCOUNTING POLICIES

Nature of Operations
- --------------------

CSX Transportation, Inc. (CSXT) is a rail freight transportation
company operating a system composed of approximately 23,000 route miles of track
in 23 states, the District of Columbia and two Canadian provinces. Rail
shipments include merchandise traffic, automobiles and related products, and
coal, coke and iron ore. Merchandise traffic accounted for 57% of rail revenue
in 2001, while automotive traffic accounted for 13% and coal, coke and iron ore
accounted for 29%. 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.

CSXT is a wholly-owned subsidiary of CSX Corporation (CSX).

Principles of Consolidation
- ---------------------------

The consolidated financial statements include CSXT 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
- -----------

CSXT follows a 52/53 week fiscal reporting calendar. Fiscal years
2001 and 2000 consisted of 52 weeks. Fiscal year 1999 consisted of 53 weeks. A
52-week fiscal year consists of four 13-week quarters; a 53-week year reports an
extra week in the first quarter.

Cash and Cash Equivalents
- -------------------------

Cash and cash equivalents primarily consist of cash in banks and
short-term investments with an original maturity of less than 3 months.

Short-term Investments
- ----------------------

Included in short-term investments is $220 million of deposits
relating to the New Orleans case discussed in Note 14.

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. Track-related structures and rolling stock are
depreciated using the group-life method over estimated useful lives of three to
50 years.

-16-



CSX TRANSPORTATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(All Tables in Millions of Dollars)

NOTE 1. SIGNIFICANT ACCOUNTING POLICIES, Continued

Properties, Continued
- ---------------------

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 non-operating property, 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.

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 group of assets. Where impairment is indicated, assets are evaluated
and their carrying amount is reduced to fair value based on discounted net cash
flows or other estimates of fair value.

Revenue & Expense Recognition
- -----------------------------

Transportation revenue and expense is recognized proportionately as
freight moves from origin to destination. Other revenue and expense, which
relates to switching, demurrage and incidental service charges, as well as
interline switching settlements, is recognized when the service is performed.

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 CSXT'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 CSXT's commitment to a formal plan of
action.

Common Stock and Other Capital
- ------------------------------

There have been no changes in common stock during the last three
years.

Casualty Reserve Management
- ---------------------------

CSXT incurs claims for occupational injuries, personal injuries and
accidents. Casualty reserves are estimated based upon the first reporting of an
accident or personal injury, and updated as information develops. Liabilities
for accidents are based upon the type and severity of the injury or claim and
the use of current trends and historical data. The company believes it has
recorded liabilities in sufficient amounts to cover all identified claims, and
estimates of incurred, but not reported, personal injury and accident claims.
Unreported occupational injuries are not subject to reasonable estimation, thus
no provision is made for incurred, but not reported occupation injuries.
Occupational injury, personal injury and accident liabilities amount to $435
million and $457 million at December 28, 2001 and December 29, 2000,
respectively.

-17-



CSX TRANSPORTATION, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS, CONTINUED
(All Tables in Millions of Dollars)

NOTE 1. SIGNIFICANT ACCOUNTING POLICIES, Continued

Use of Estimates
- ----------------

The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires that management make
estimates in reporting the amounts of certain 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. Significant estimates must be
made in determining litigation, arbitration, casualty and environmental
reserves.

Prior-Year Data
- ---------------

Certain prior-year data have been reclassified to conform to the 2001
presentation.

NOTE 2. INTEGRATED RAIL OPERATIONS WITH CONRAIL

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

CSX and Norfolk Southern Corporation (Norfolk Southern) completed the
joint 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 STB to
exercise joint control over Conrail in August 1998, and their respective rail
subsidiaries subsequently began integrated operations over allocated portions of
the Conrail lines in June 1999.

CSXT and Norfolk Southern Railway Company (Norfolk Southern Railway),
the rail subsidiary of Norfolk Southern, operate their respective portions of
the Conrail system pursuant to 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 services in certain shared geographic areas for the
joint benefit of CSXT and Norfolk Southern Railway for which it is compensated
on the basis of usage by the respective railroads. The majority of Conrail's
operations workforce transferred to CSXT or Norfolk Southern Railway, although
certain operations personnel, as well as certain management and administrative
employees, remain at Conrail to oversee its ongoing business activities.

-18-



CSX TRANSPORTATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(All Tables in Millions of Dollars)

NOTE 2. INTEGRATED RAIL OPERATIONS WITH CONRAIL, Continued

CSXT's Accounting for its Integrated Rail Operations With Conrail
- -----------------------------------------------------------------

Upon integration, substantially all of Conrail's customer freight
contracts were assumed by CSXT and Norfolk Southern Railway. As a result,
beginning June 1, 1999, CSXT's operating revenue includes revenue from traffic
previously moving on Conrail lines. Operating expenses reflect corresponding
increases for costs incurred to handle the new traffic and operate the former
Conrail lines. Effective June 1, 1999, operating expenses also include an
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 CSXT and Norfolk Southern
Railway.

As a result of the integration, a number of employees' positions
at Conrail were eliminated and certain duplicate facilities were closed. Under
the agreements among the parties, CSXT and Norfolk Southern Railway assumed
various obligations related to these actions. During 2001, 2000, and 1999, CSXT
incurred approximately $35, $42, and $66 million, respectively, of costs related
to separation and relocation of Conrail employees and for lease payments on
certain Conrail facilities no longer being used after the integration. These
costs are reflected in "Materials, Supplies and Other" expense in CSXT's
consolidated statement of earnings.

Transactions With Conrail
- -------------------------

The agreement under which CSXT operates its allocated portion of
the Conrail route system has an initial term of 25 years and may be renewed at
CSXT's option for two five-year terms. Operating fees paid to Conrail under the
agreement are subject to adjustment every six years based on the fair value of
the underlying system. Lease agreements for the Conrail equipment operated by
CSXT cover varying terms. CSXT is responsible for all costs of operating,
maintaining, and improving the routes and equipment under these agreements.
Future minimum payments to Conrail under the operating, equipment, and shared
area agreements total $259 million for 2002, $256 million for 2003, $262 million
for 2004, $255 million for 2005, $245 million for 2006 and $4 billion for years
after 2006.

At December 28, 2001 and December 29, 2000, CSXT had amounts
payable to Conrail of approximately $88 million and $127 million, respectively,
representing expenses incurred under the operating, equipment, and shared area
agreements.

-19-



CSX TRANSPORTATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(All Tables in Millions of Dollars)

NOTE 3. WORKFORCE REDUCTION PROGRAM

CSXT recorded a charge of $53 million, $32 million after tax, in
the fourth quarter of 1999 to recognize the cost of a program to reduce its
non-union workforce by approximately 725 positions. A voluntary early retirement
program completed in December 1999 accounted for approximately 640 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 1999, and the remainder
occurred over the first half of fiscal year 2000. Early retirement benefits
offered under the voluntary program accounted for $20 million of the charge and
were paid from CSX's pension and postretirement benefit plans. Separation
benefits were paid from cash generated by operations. Approximately half of the
separation benefits were paid in 1999, with the remainder in 2000.

The company also completed a smaller, non-voluntary program that
was announced in late 2000 and continued through 2001. This program resulted in
approximately 220 position reductions. Expense of $5 million was recorded in
each of 2001 and 2000.

NOTE 4. SUPPLEMENTAL CONSOLIDATED STATEMENT OF EARNINGS FINANCIAL DATA.

Operating expense includes the following:



2001 2000 1999
---- ---- ----

Selling, General and Administrative Expense $911 $731 $935
==== ==== ====



NOTE 5. OTHER EXPENSE, Net



2001 2000 1999
---------- ---------- ----------

Income from Real Estate Operations/(a)/ $ (83) $ (47) $ (66)
Net Losses from Accounts Receivable Sold 78 77 63
Conrail Transition Expenses - - 67
Miscellaneous 10 5 (13)
---------- ---------- ----------

Total $ 5 $ 35 $ 51
========== ========== ==========


(a) Gross revenue from real estate operations was $114 million, $77 million and
$95 million in 2001, 2000 and 1999, respectively.

-20-




CSX TRANSPORTATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(All Tables in Millions of Dollars)

NOTE 6. INCOME TAXES

Income tax expense information is as follows:



2001 2000 1999
----------- ------------ -----------

Current
Federal $ (11) $ (33) $ 15
State and Foreign 1 6 (11)
----------- ------------ -----------
Total (10) (27) 4
----------- ------------ -----------

Deferred
Federal 117 85 94
State 14 15 61
----------- ------------ -----------
Total 131 100 155
----------- ------------ -----------
Total Expense $ 121 $ 73 $ 159
=========== ============ ===========



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



2001 2000 1999
----------------- ---------------- ----------------

Tax at Statutory Rates $ 113 35% $ 60 35% $ 130 35%
State Income Taxes 10 3 13 8 33 9
Other (2) (1) - - (4) (1)
-------- -------- --------- ------ --------- ------
Total Expense $ 121 37% $ 73 43% $ 159 43%
======== ======== ========= ====== ========= ======


Deferred state income tax expense in 1999 includes $27 million for
the increase in the company's effective deferred state income tax rate, which is
applied to CSXT's cumulative temporary differences, as a result of the sale of
certain CSX assets.

The significant components of deferred tax assets and liabilities include:



December 28, December 29,
2001 2000
------------------- ----------------------

Deferred Tax Assets
Productivity/Restructuring Charges
Employee Benefit Plans $ 102 $ 107
Other 97 136
429 360
Total ------------------- ----------------------
628 603
------------------- ----------------------
Deferred Tax Liabilities
Accelerated Depreciation
Other 3,451 3,291
285 288
Total ------------------- ----------------------
3,736 3,579
Net Deferred Tax Liabilities ------------------- ----------------------
$ 3,108 $ 2,976
=================== ======================


-21-




CSX TRANSPORTATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(All Tables in Millions of Dollars)

NOTE 6. INCOME TAXES, Continued

CSXT and its subsidiaries are included in the consolidated federal
income tax return filed by CSX. The consolidated current federal income tax
expense or benefit is allocated to CSXT and its subsidiaries as though CSXT had
filed a separate consolidated federal return. At December 28, 2001 and December
29, 2000, approximately $110 million and $45 million of income taxes due to CSX
were included in Other Current Liabilities, respectively.

Examinations of the federal income tax returns of CSX and its
principal subsidiaries have been completed through 1990. Returns for 1991
through 1998 are currently under examination. Management believes adequate
provision has been made for any adjustments that might be assessed.

NOTE 7. RELATED PARTIES

At December 28, 2001, CSXT had a $1.1 billion deficit balance relating
to CSXT's participation in the CSX cash management plan, which is included in
Due to Parent Company in the statement of financial position. At December 29,
2000, CSXT had a $446 million deficit balance under the terms of the cash
management plan. CSXT incurred interest (expense)/income of $(30) million, $(13)
million, and $3 million in 2001, 2000, and 1999, respectively, relating to
CSXT's participation in the plan. These amounts are included in interest expense
on the statement of earnings. Under this plan, excess cash is advanced to CSX
for investment and CSX makes cash funds available to its subsidiaries as needed
for use in their operations. Depending on the position, CSXT and CSX are
committed to repay all amounts due each other on demand should circumstances
require. The companies are charged for borrowings or compensated for investments
based on returns earned by the plan portfolio. The average borrowing rate for
the year 2001 was 3.36%

Related Party Service Fees expense consists of amounts related to a
management service fee charged by CSX; data processing related charges from CSX
Technology, Inc. (CSX Technology); the reimbursement, under an operating
agreement, from CSX Intermodal, Inc. (CSXI), for costs incurred by CSXT related
to intermodal operations; charges from Total Distribution Services, Inc. (TDSI),
for services provided at automobile ramps; and charges from TRANSFLO Terminal
Services, Inc. (TRANSFLO) for services provided at bulk commodity facilities.
The management service fee charged by CSX represents compensation for certain
corporate services provided to CSXT. These services include, but are not limited
to, development of corporate policy and long-range strategic plans, allocation
of capital, placement of debt, maintenance of employee benefit plans, internal
audit and tax administration. The fee is calculated as a percentage of CSX's
investment in CSXT. The data processing related charges are compensation to CSX
Technology for the development, implementation and maintenance of computer
systems, software and associated documentation for the day-to-day operations of
CSXT. CSX Technology, CSXI, TDSI, and TRANSFLO are wholly-owned subsidiaries of
CSX.

-22-



CSX TRANSPORTATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(All Tables in Millions of Dollars)

NOTE 7. RELATED PARTIES, Continued

CSXT and CSX Insurance Company (CSX Insurance), a wholly-owned
subsidiary of CSX, have entered into a loan agreement whereby CSXT may borrow up
to $125 million from CSX Insurance. The loan is payable in full on demand. At
December 28, 2001, and December 29, 2000, $125 million was outstanding under the
agreement. Interest on the loan is payable monthly at .45% over the LIBOR rate,
and was 2.563% at December 28, 2001 and 7.065% at December 29, 2000. Interest
expense related to the loan was $6 million, $7 million and $5 million for the
fiscal years ended December 28, 2001, December 29, 2000, and December 31, 1999,
respectively.

CSXT participates with CSX Lines, LLC (CSX Lines), a wholly-owned
subsidiary of CSX, in four sale-leaseback arrangements. Under these
arrangements, CSX Lines sold equipment to a third party and CSXT leased the
equipment and assigned the lease to CSX Lines. CSX Lines is obligated for all
lease payments and other associated equipment expenses. If CSX Lines defaults on
its obligations under the arrangements, CSXT would assume the asset lease rights
and obligations of $51 million at December 28, 2001.

NOTE 8. ACCOUNTS RECEIVABLE

CSXT has an ongoing agreement to sell without recourse, on a revolving
basis each month, an undivided percentage ownership interest in all rail freight
accounts receivable to CSX Trade Receivables Corporation (CTRC), a wholly-owned
subsidiary of CSX. Accounts receivable sold under this agreement totaled $966
million at December 28, 2001 and $947 million at December 29, 2000. In addition,
through November 2001, CSXT had a revolving agreement with a financial
institution to sell with recourse on a monthly basis an undivided percentage
ownership interest in all miscellaneous accounts receivable. Accounts receivable
sold under this agreement was $47 million at December 29, 2000. The sale of
receivables have been reflected as reductions of "Accounts Receivable" in the
consolidated statement of financial position. The net losses associated with
sales of receivables were $78 million, $77 million, and $63 million for the
fiscal years ended December 28, 2001, December 29, 2000, and December 31, 1999,
respectively.

CSXT has retained the responsibility for servicing accounts receivable
sold to CTRC. The average servicing period is approximately one month. No
servicing asset or liability has been recorded since the fees CSXT receives for
servicing the receivables approximates the related costs.

-23-



CSX TRANSPORTATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(All Tables in Millions of Dollars)

NOTE 9. PROPERTIES

December 28, 2001
--------------------------------------
Accumulated
Cost Depreciation Net
------- ------------- --------

Road $11,035 $ 2,343 $ 8,692
Equipment 5,467 2,077 3,390
Other 142 7 135
------- ------- -------

Total $16,644 $ 4,427 $12,217
======= ======= =======

December 29, 2000
----------------------------------------
Accumulated
Cost Depreciation Net
-------- ------------ ------------

Road $10,718 $ 2,423 $ 8,295
Equipment 5,532 2,093 3,439
Other 145 2 143
------- ------- -------

Total $16,395 $ 4,518 $11,877
======= ======= =======

NOTE 10. CASUALTY, ENVIRONMENTAL AND OTHER RESERVES/(a)/

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



Casualty Environmental Separation
Reserves Reserves Liabilities Total
--------------- ----------------- --------------- --------------

Balance December 25, 1998 $335 $ 75 $ 285 $ 695

Charged to Expense 266 3 -- 269
Payments and Other Reductions (166) (25) (16) (207)
----- ----- ----- -----
Balance December 31, 1999 435 53 269 757

Charged to Expense 209 -- -- 209
Payments (187) (12) (12) (211)
----- ----- ----- -----
Balance December 29, 2000 457 41 257 755

Charged to Expense 155 1 -- 157
Payments (177) (10) (14) (202)
----- ----- ----- -----
Balance December 28, 2001 $ 435 $ 32 $ 243 $ 710
===== ===== ===== =====


(a) Balances include current portion of casualty and environmental reserves
and separation liabilities, respectively, of $148 million, $15 million and
$15 million at December 28, 2001, $147 million, $15 million and $15
million at December 29, 2000 and $146 million, $20 million and $15 million
at December 31, 1999.

-24-



CSX TRANSPORTATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(All Tables in Millions of Dollars)

NOTE 10. CASUALTY, ENVIRONMENTAL AND OTHER RESERVES, Continued

CSXT incurs claims for occupational injuries, personal injuries and
accidents. Casualty reserves are estimated based upon the first reporting of an
accident or personal injury and updated as information develops. Liabilities for
accidents are based upon the type and severity of the injury or claim and the
use of current trends and historical data. The company believes it has recorded
liabilities in sufficient amounts to cover all identified claims and an estimate
of incurred, but not reported personal injury and accident claims. Unreported
occupational injuries are not subject to reasonable estimation, thus no
provision is made for incurred, but not reported occupation injuries.

Separation liabilities at December 28, 2001 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. The remaining liabilities are expected to be paid out over the next
15 to 20 years.

NOTE 11. LONG-TERM DEBT



Average
Type and Maturity Date Interest Rates at Dec. 28, 2001 Dec. 29, 2000
Dec. 28, 2001
- ------------------------------------------ -------------------- ---------------- -----------------

Equipment Obligations (2002-2015) 7 % $ 950 $1,038
Mortgage Bonds (2002-2003) 3 % 55 56
Capital Leases and Other Obligations
(2002-2021) 7 % 198 170
------ ------

Total 1,203 1,264

Less Debt Due Within One Year 170 108
------ -------

Total Long-Term Debt $1,033 $1,156
====== ======


CSXT has long-term debt maturities for 2002 through 2006 aggregating
$170 million, $196 million, $107 million, $110 million and $106 million,
respectively.

A portion of the properties and certain other assets of CSXT and its
subsidiaries are pledged as security for various long-term debt issues.

-25-



CSX TRANSPORTATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(All Tables in Millions of Dollars)

NOTE 12. 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. At December 28, 2001, the fair value of
long-term debt, including current maturities, was $1.27 billion, compared with a
carrying amount of $1.2 billion. At December 29, 2000, the fair value of
long-term debt, including current maturities, was $1.28 billion, compared with a
carrying amount of $1.26 billion. The fair value of long-term debt has been
estimated using discounted cash flow analyses based upon the company's current
incremental borrowing rates for similar types of financing arrangements. The
fair value of all other financial instruments approximates carrying value.

NOTE 13. EMPLOYEE BENEFIT PLANS

Pension Plans
- -------------

CSXT, in conjunction with CSX and its subsidiaries, sponsor defined
benefit pension plans principally for salaried employees. The plans provide
eligible employees with retirement benefits based principally on years of
service and compensation rates near retirement. CSX allocates to CSXT a portion
of the net pension expense for the CSX pension plans based on CSXT's relative
level of participation. The allocated expense from the various CSX pension plans
amounted to a credit of $3 million in 2001 and $2 million in 2000 and expense of
$33 million in 1999. During 1999, CSXT received $109 million ($66 million after
tax) in pension assets from CSX through capital contributions.

Savings Plans
- -------------

CSXT maintains savings plans for virtually all full-time salaried
employees and certain employees covered by collective bargaining agreements of
CSXT and subsidiary companies. Expense for these plans was $13 million for 2001,
$14 million for 2000 and $20 million for 1999.

Other Postretirement Benefit Plans
- ----------------------------------

In addition to the CSX defined benefit pension plans, CSXT
participates with CSX and other affiliates in two defined benefit postretirement
plans that provide medical and life insurance benefits to most full-time
salaried employees upon their retirement. The postretirement medical plan is
contributory, with retiree contributions adjusted annually. The life insurance
plan is non-contributory. CSX allocates to CSXT a portion of the expense for
these plans based on CSXT's relative level of participation. The allocated
expense amounted to $31 million in 2001, $22 million in 2000 and $20 million in
1999.

Other Plans
- -----------

Under collective bargaining agreements, the company participates in a
number of union-sponsored, multi-employer benefit plans. Payments to these plans
are made as part of aggregate

-26-



CSX TRANSPORTATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(All Tables in Millions of Dollars)

NOTE 13. EMPLOYEE BENEFIT PLANS, Continued

Other Plans, Continued
- ----------------------

assessments generally based on number of employees covered, hours worked,
tonnage moved or a combination thereof. Total contributions of $285 million,
$242 million and $168 million, respectively, were made to these plans in 2001,
2000 and 1999.

Certain officers and key employees of CSXT participate in stock
purchase, performance and award plans of CSX. CSXT is allocated its share of any
cost to participate in these plans.

NOTE 14. COMMITMENTS AND CONTINGENCIES.

Commitments
- -----------

Lease Commitments

In addition to the agreements covering routes and equipment leased
from Conrail, CSXT leases equipment from other parties under agreements with
terms up to 21 years. Non-cancelable, long-term leases generally include
provisions for maintenance, options to purchase at fair value and to extend the
terms. At December 28, 2001, minimum equipment rentals under non-cancelable
operating leases totaled approximately $124 million for 2002, $112 million for
2003, $92 million for 2004, $90 million for 2005, $83 million for 2006 and $517
million thereafter.

Rent expense on equipment operating leases, exclusive of the Conrail
agreements, amounted to $413 million, $517 million, and $495 million in 2001,
2000, and 1999, respectively. Included in these amounts were net daily rental
charges on railroad operating equipment of $289 million, $369 million and $341
million in 2001, 2000, and 1999, respectively.

Long-Term Operating Agreements

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

Purchase Commitments

The company has entered into fuel purchase agreements for
approximately 50% of its fuel requirements over the next twelve months. These
agreements amount to approximately 294 million gallons in commitments at a
weighted average of 78 cents per gallon. These contracts require the company to
take monthly delivery of specified quantities of fuel at a fixed price. These
contracts cannot be net settled.

The company also has a commitment under a long-term maintenance
program for approximately 40% of its fleet of locomotives. The agreement expires
in 2024 and totals $2.7 billion. Minimum payments under this agreement are $120
million of 2002, $124 million for 2003, $125 million for 2004, $131 million for
2005, $159 million for 2006 and $2.1 billion thereafter.

-27-



CSX TRANSPORTATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(All Tables in Millions of Dollars)

NOTE 14. COMMITMENTS AND CONTINGENCIES, Continued

Contingencies
- -------------

STB Proceeding

On December 21, 2001, Duke Energy Corporation filed a complaint
before the U.S. Surface Transportation Board alleging that certain CSXT common
carrier coal rates are unreasonably high. A similar complaint was filed by Duke
against Norfolk Southern. At this time the outcome of the proceeding against
CSXT is uncertain and would only apply to billings subsequent to 2001. CSXT is
pursuing an aggressive legal strategy in its defense against this complaint.

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 tank car fire.

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 damage judgments in favor of the 20 plaintiffs who had
received awards of compensatory damages.

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. A
judgment reflecting the $850 million punitive award has been entered against
CSXT. CSXT has obtained and posted an appeal bond.

In June 2001 the Louisiana Court of Appeal for the Fourth Circuit
affirmed the judgment of the trial court, which reduced the punitive damages
verdict from $2.5 billion to $850 million. CSXT moved the Louisiana Fourth
Circuit Court for rehearing of certain issues raised in its appeal; that motion
was denied in August 2001.

CSXT then filed with the Louisiana Supreme Court an application that
the court take jurisdiction over and reverse the 1997 punitive damages award.
The Louisiana Supreme Court's jurisdiction in this case is discretionary.
Opposing papers were filed by counsel in October 2001. If the Louisiana Supreme
Court takes jurisdiction of the case, an additional round of briefing and oral
argument may precede any decision by the court.

-28-



CSX TRANSPORTATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(All Tables in Millions of Dollars)

NOTE 14. COMMITMENTS AND CONTINGENCIES, Continued

New Orleans Tank Car Fire, Continued

On November 21, 2001, CSXT announced that it had reached a proposed
settlement of the litigation, subject to a fairness hearing and court approval.
The amount to be paid by CSXT under the proposed settlement is $220 million to
resolve all claims arising out of the 1987 fire and evacuation (whether or not
included in the present class-action lawsuit). A preliminary settlement
agreement between CSXT and the plaintiffs' management committee on behalf of the
plaintiff case has been preliminarily approved by the trial court, and has been
publicly filed. CSXT incurred a charge of $60 million before tax, $37 million
after tax, in the fourth quarter of 2001 to account for the expense of the
settlement, net of insurance recoveries. The trial court has set April 2, 2002,
as the date for a fairness hearing at which the court will consider final
approval of the settlement. CSXT expects that the settlement will be finally
approved shortly after that hearing . The Louisiana Supreme Court has ordered
that the proceeding before it be deferred in light of the proposed settlement.

If the proposed settlement is not approved and the litigation thereby
disposed of, CSXT intends to continue to pursue an aggressive legal strategy,
including the pursuit of the proceedings in the Louisiana Supreme Court and, if
necessary, proceedings before the United States Supreme Court.

Other Legal Proceedings

A number of other legal actions are pending against CSXT in which
claims are made in substantial amounts. While the ultimate results of these
legal actions cannot be predicted with certainty, management does not currently
expect that the resolution of these matters will have a material adverse effect
on CSXT's consolidated results of operations, financial position or cash flows.
CSXT 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.

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 108 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.

-29-



CSX TRANSPORTATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(All Tables in Millions of Dollars)

NOTE 14. COMMITMENTS AND CONTINGENCIES, Continued

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

CSXT is involved in a number of administrative and judicial
proceedings and other clean-up efforts at 227 sites, including the sites
addressed under the 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
credit-worthiness 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 December 28, 2001 and December 29, 2000, were $32 million and $41 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 December 28,
2001, 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.

-30-



CSX TRANSPORTATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(All Tables in Millions of Dollars)

NOTE 15. QUARTERLY DATA (Unaudited)




2001
------------------------------------------------------
1/st/ 2/nd/ 3/rd/ 4/th/(a
----------- ---------- --------- ----------

Operating Revenue $ 1,532 $ 1,556 1,495 $ 1,499
Operating Income 98 152 124 85
Net Earnings 31 84 57 31


2000
------------------------------------------------------
1/st/ 2/nd/ 3/rd/ 4/th/
------------ ---------- --------- ----------

Operating Revenue $ 1,515 $ 1,548 $ 1,500 $ 1,512
Operating Income 71 63 90 101
Net Earnings 22 24 27 24


(a) CSXT recorded a provision in the fourth quarter of 2001 to account for the
proposed settlement of the 1987 New Orleans tank car fire litigation. This
charge reduced earnings by $60 million, $37 million after-tax.

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CSX TRANSPORTATION, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS

2001 OPERATING RESULTS

Traffic By Commodity
- --------------------



Carloads Revenue
(Thousands) (Millions of Dollars)
-------------------------- ---------------------
2001 2000 2001 2000
----------- ------------ ------------- ------

Merchandise
Phosphates and Fertilizer 441 486 $ 306 $ 316
Metals 325 346 406 414
Food and Consumer Products 166 161 241 224
Paper and Forest Products 478 523 633 657
Agricultural Products 372 361 501 483
Chemicals 580 598 960 993
Minerals 427 439 384 398
Government 10 11 29 28
------ ------ ------- ------
Total Merchandise 2,799 2,925 3,460 3,513

Automotive 516 586 794 869

Coal, Coke and Iron Ore
Coal 1,722 1,660 1,671 1,546
Coke 39 46 46 47
Iron Ore 38 49 22 30
------ ------ ------- ------

Total Coal, Coke and Iron Ore 1,799 1,755 1,739 1,623
------ ------
Total Carloads 5,114 5,266
====== ======
Other Revenue 89 70
------- ------
Total Operating Revenue $ 6,082 $ $6,075
======= ======



CSXT earned $459 million of operating income in 2001 vs. $325
million in 2000. Excluding the New Orleans Litigation Provision of $60 million,
operating income for 2001 was $519 million. Operating revenue remained
consistent at $6.1 billion, but operating expense decreased 2% to $5.6 billion
compared to $5.8 billion in 2000.

Volume decreases associated with the economic downturn affected
revenue. Only volumes for food and consumer, agricultural products and coal were
up on a year-over-year basis. Volume decreases were offset by an increase of 7%
in coal, coke and iron ore revenues reflecting the coal volume increases,
various pricing initiatives and mix improvements. Operating expenses decreased
2% between 2000 and 2001 to $5.6 billion. The $127 million decrease was made up
of decreases in Conrail operating fee, rent and services; building and equipment
rent; and, fuel, being offset by the New Orleans litigation provision and
increases in depreciation. Building and equipment rent decreased $104 million
primarily due to reduced car hire

-32-



CSX TRANSPORTATION, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS, CONTINUED

2001 OPERATING RESULTS, Continued

as the railroad took cars offline and ran more efficiently. Fuel expense was $52
million or 9% lower in 2001 as compared to 2000. The 6 cent decrease in the
average price per gallon resulted in $34 million of the decrease with $18
million attributable to lower fuel consumption. Conrail operating fees, rents
and services decreased by $29 million due mostly to continued cost savings.

OTHER MATTERS

Integrated Rail Operations with Conrail
- ---------------------------------------

Background and Integration

On June 1, 1999, CSXT and Norfolk Southern Railway Company
(Norfolk Southern Railway), Norfolk Southern's rail subsidiary, formally began
integrated operations over their respective portions of the Conrail rail system.
This step implemented the operating plan envisioned by CSX and Norfolk Southern
Railway 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 approximately
23,000 route miles in 23 states, the District of Columbia, and two Canadian
provinces. CSXT employs approximately 35,000 employees across the combined
system.

CSXT and Norfolk Southern Railway 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 CSXT and Norfolk Southern Railway 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.

-33-



CSX TRANSPORTATION, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS, CONTINUED

OTHER MATTERS, Continued

Financial Effects

Upon integration, substantially all of Conrail's customer freight
contracts were assumed by CSXT and Norfolk Southern Railway. As a result,
beginning June 1, 1999, CSXT's 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, operating expenses also include an 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 CSXT and Norfolk Southern
Railway.

Legal Proceedings
- -----------------

STB Proceeding

On December 21, 2001, Duke Energy Corporation (Duke) filed a
complaint before the U.S. Surface Transportation Board alleging that certain
CSXT common carrier coal rates are unreasonably high. A similar complaint was
filed by Duke against Norfolk Southern. At this time the outcome of the
proceeding against CSXT is uncertain and would only apply to billings subsequent
to 2001. CSXT is pursuing an aggressive legal strategy in its defense against
this complaint.

New Orleans Tank Car Fire Litigation

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 tank car fire.

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 damage judgments in favor of the 20 plaintiffs who had
received awards of compensatory damages.

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. A judgment reflecting the $850 million punitive award has been entered
against CSXT. CSXT has obtained and posted an appeal bond.

In June 2001 the Louisiana Court of Appeal for the Fourth Circuit
affirmed the judgment of the trial court, which reduced the punitive damages
verdict from $2.5 billion to $850 million. CSXT moved the Louisiana Fourth
Circuit Court for rehearing of certain issues raised in its appeal; that motion
was denied in August 2001.

CSXT then filed with the Louisiana Supreme Court an application
that the court take jurisdiction over and reverse the 1997 punitive damages
award. The Louisiana Supreme Court's jurisdiction in this case is discretionary.
Opposing papers were filed by counsel in October 2001. If the Louisiana Supreme
Court takes jurisdiction of the case, an additional round of briefing and oral
argument may precede any decision by the court.

-34-



CSX TRANSPORTATION, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS, CONTINUED

OTHER MATTERS, Continued

New Orleans Tank Car Litigation, Continued

On November 21, 2001, CSXT announced that it had reached a
proposed settlement of the litigation, subject to a fairness hearing and court
approval. The amount to be paid by CSXT under the proposed settlement is $220
million to resolve all claims arising out of the 1987 fire and evacuation
(whether or not included in the present class-action lawsuit). A preliminary
settlement agreement between CSXT and the plaintiffs' management committee on
behalf of the plaintiff case has been preliminarily approved by the trial court,
and has been publicly filed. CSXT incurred a charge of $60 million before tax,
$37 million after tax, in the fourth quarter of 2001 to account for the expense
of the settlement, net of insurance recoveries. The trial court has set April 2,
2002, as the date for a fairness hearing at which the court will consider final
approval of the settlement. CSXT expects that the settlement will be finally
approved shortly after that hearing . The Louisiana Supreme Court has ordered
that the proceeding before it be deferred in light of the proposed settlement.

If the proposed settlement is not approved and the litigation
thereby disposed of, CSXT intends to continue to pursue an aggressive legal
strategy, including the pursuit of the proceedings in the Louisiana Supreme
Court and, if necessary, proceedings before the United States Supreme Court.

Other Legal Proceedings

A number of other legal actions are pending against CSXT in which
claims are made in substantial amounts. While the ultimate results of these
legal actions cannot be predicted with certainty, management does not currently
expect that resolution of these matters will have a material adverse effect on
the consolidated results of operations, financial position or cash flows of the
company. 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.

Casualty Reserve Management
- ---------------------------

CSXT incurs claims for occupational injuries, personal injuries
and accidents. Casualty reserves are estimated based upon the first reporting of
an accident or personal injury, and updated as information develops. Liabilities
for accidents are based upon the type and severity of the injury or claim and
the use of current trends and historical data. The company believes it has
recorded liabilities in sufficient amounts to cover all identified claims, and
estimates of incurred, but not reported, personal injury and accident claims.
Unreported occupational injuries are not subject to reasonable estimation, thus
no provision is made for incurred, but not reported occupation injuries.
Occupational injury, personal injury and accident liabilities amount to $435
million and $457 million at December 28, 2001 and December 29, 2000,
respectively.

Environmental Matters
- ---------------------

CSXT 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 227 sites at
which it is, or may be, liable for remediation costs associated with alleged
contamination or for alleged violations of environmental requirements.
Approximately 108 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, CSXT's ultimate environmental liability may
include costs relating to other parties, in addition to costs relating to its
own activities at each site.

-35-



CSX TRANSPORTATION, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS, CONTINUED

OTHER MATTERS, Continued

Environmental Matters, Continued

A liability of $32 million has been accrued at December 28, 2001,
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. CSXT 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 2001 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 $32 million in 2001, compared with $36 million in 2000 and $35
million in 1999. During 2002, the company expects to incur preventive and
remedial environmental expenditures in the range of $35 million to $40 million.
Future environmental obligations are not expected to have a material impact on
the results of operations or financial position of the company.

Workforce Reduction Program
- ---------------------------

CSXT recorded a charge of $53 million, $32 million after tax, in
the fourth quarter of 1999 to recognize the cost of a program to reduce its
non-union workforce by approximately 725 positions. A voluntary early retirement
program completed in December 1999 accounted for approximately 640 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 1999 and the remainder occurred
over the first half of fiscal year 2000. Early retirement benefits offered under
the voluntary program accounted for $20 million of the charge and were paid from
CSX's pension and postretirement benefit plans. Separation benefits were paid
from cash generated by operations. Approximately half of the separation benefits
were paid in 1999 with the remainder in 2000.

The company also completed a smaller, non-voluntary program that
was announced in late 2000 and continued through 2001. This program resulted in
approximately 220 position reductions. Expense of $5 million was recorded in
both 2001 and 2000.

-36-



CSX TRANSPORTATION, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS, CONTINUED

OTHER MATTERS, Continued

Forward Looking Statements
- --------------------------

Estimates and forecasts in Management's Discussion and Analysis
and in other sections of this 10-K 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) 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; (ii) legislative or regulatory changes,
including possible enactment of initiatives to reregulate the rail industry, may
adversely affect the businesses of the company; (iii) possible additional
consolidation of the rail industry in the near future may adversely affect the
operations and business of the company; and (iv) changes may occur in the
securities and capital markets.

-37-