the rail industry are finding that because of these challenges, some of the major trucking companies are re-examining their business model, moving to a model where they perform the local move and contract with railroads and intermodal companies to do the long-haul shipment. With an excellent franchise of intermodal, manufactured products and coal, and a man- agement team united by our core values and a commitment to integrity, CSX is becoming a leading rail-based transportation and distribu- tion company and will be a leading participant in the renaissance of the North American rail network – a transformation driven by alliances and other cooperative efforts to improve cus- tomer service and increase profitability by reducing unnecessary costs. Simply put, long-term trends favor the growth of rail transportation, and CSX is well positioned to capitalize on those trends.  While these economic trends signal a strong future for railroads, CSX and the rail industry also face significant challenges. As the company improves and expands its operations to meet the growing needs and expectations of our customers, we place increasing demands on our rail infrastructure – an infrastructure that is almost entirely owned and operated by CSX. Few industries are as capital-intensive as railroads. In 2005, CSX expects to spend about 13% of the company’s 2004 revenue on capital improvements. Our highest priority improvements include secu- rity enhancements, rail infrastructure, freight cars, locomotives and technology. By comparison, the manufacturing industry spends, on average, about 4% of its revenues on capital projects. Unfortunately, CSX, like others in the rail industry, does not currently earn a sufficient return on its capital investments. When our return on invested capital is less than the cost of that capital, CSX’s ability to improve operational efficiency and expand capacity is diminished. CSX will continue to manage costs, improve safety and streamline operations, but we can- not solve this problem on our own. One of the company’s most critical tasks in the coming years will be to explore public-private partner- ships and tax policies that recognize the bene- fits that freight rails provide to everyone – reduced pollution, efficient energy use, reduced congestion on our highways, and the safest form of transportation for hazardous materials. Your company is positioned to do well in the current environment and very well if condi- tions continue to evolve in a way that favors rail transportation. By living our core values, “ It Starts With the Customer ,” “ People Make the Difference ,” “ Safety is a Way of Life ,” “ Fact-Based ,” and “ Right Results, Right Way ,” the 34,000 employees of CSX will provide sus- tainable value to shareholders, customers and the communities we serve in the short term and in the long term. Michael Ward The Bottom Line Ensuring a Strong Future