FORM 10-K

SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549

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

For the Fiscal Year Ended December 26, 1997

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

For the transition period from to
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Commission File Number 1-8022
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CSX Corporation
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(Exact name of registrant as specified in its charter)

Virginia 62-1051971
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)

901 East Cary Street, Richmond, Virginia 23219-4031
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(Address of principal executive offices) (Zip Code)

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

Securities Registered Pursuant to Section 12(b) of the Act:

Name of each exchange
Title of each class on which registered
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Common Stock, $1 Par Value New York Stock Exchange

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 Registant'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)

On January 23, 1998, the aggregate market value of the Registrant's voting stock
held by non-affiliates (using the New York Stock Exchange closing price) was $11
billion.

On January 23, 1998, there were 218,308,863 shares of Common Stock outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

The proxy statement for the annual meeting of security holders on April 28,
1998, is incorporated by reference for Part III.

ITEM CAPTIONS AND INDEX -- FORM 10-K ANNUAL REPORT

Item No. Page
Part I
1. Business..............................................3-4, 12-27
2. Properties.......................................12-27, 33-34,39
3. Legal Proceedings....................................10,18-19,48
4. Submission of Matters to a Vote of Security Holders..........N/A
4a. Executive Officers of the Registrant..........................52

Part II
5. Market for the Registrant's Common Equity and
Related Stockholder Matters...............................54-56
6. Selected Financial Data........................................4
7. Management's Discussion and Analysis of
Financial Condition and Results of Operations.............12-27
8. Financial Statements and Supplementary Data..........See Item 14
9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure......................N/A

Part III
10. Directors and Executive Officers of the Registrant...........(a)
11. Executive Compensation.......................................(a)
12. Security Ownership of Certain Beneficial Owners
and Management..............................................(a)
13. Certain Relationships and Related Transactions...............(a)

Part IV
14. Exhibits, Financial Statement Schedules and Reports
on Form 8-K
a. Consolidated Statement of Earnings for the
Fiscal Years Ended Dec. 26, 1997, Dec. 27, 1996,
and Dec. 29, 1995.........................................29

Consolidated Statement of Cash Flows for the
Fiscal Years Ended Dec. 26, 1997, Dec. 27, 1996,
and Dec. 29, 1995.........................................30

Consolidated Statement of Financial Position at
Dec. 26, 1997, and Dec. 27, 1996..........................31

Consolidated Statement of Changes in Shareholders'
Equity for the Fiscal Years Ended Dec. 26, 1997,
Dec. 27, 1996, and Dec. 29, 1995..........................32

Notes to Consolidated Financial Statements for the
Fiscal Years Ended Dec. 26, 1997, Dec. 27, 1996,
and Dec. 29, 1995......................................33-50

Report of Independent Auditors............................51

b. Reports on Form 8-K: None.

c. See Index to Exhibits.....................................61

d. Audited Consolidated Financial Statements and
Schedule of Conrail Inc. for the Years Ended
Dec. 31, 1997, 1996 and 1995.

(a) Part III will be incorporated by reference from the registrant's 1998 Proxy
Statement pursuant to instructions G(1) and G(3) of the General Instructions
to Form 10-K.

CSX Corporation

CSX Corporation is a Fortune 500 transportation company providing rail,
intermodal, container-shipping, barging and contract logistics services
worldwide.

Our holdings include: CSX Transportation Inc., Sea-Land Service Inc., CSX
Intermodal Inc., American Commercial Lines Inc. and Customized Transportation
Inc.

The company's non-transportation interests include: The Greenbrier, the Grand
Teton Lodge Company, and CSX Real Property Inc. CSX also holds a majority
interest in Yukon Pacific Corporation.

In 1997, CSX generated more than $10.6 billion of operating revenue.

Financial Highlights

(Millions of Dollars, Except Per Share Amounts)

1997(a) 1996 1995(b) 1994(c) 1993(d)
-----------------------------------------------------

SUMMARY OF OPERATIONS
Operating Revenue $10,621 $10,536 $10,304 $ 9,409 $ 8,766
Operating Expense 9,038 9,014 8,921 8,227 7,792
Restructuring Charge(e) -- -- 257 -- 93
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Total Operating Expense 9,038 9,014 9,178 8,227 7,885
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Operating Income $ 1,583 $ 1,522 $ 1,126 $ 1,182 $ 881
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Net Earnings $ 799 $ 855 $ 618 $ 652 $ 359
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PER COMMON SHARE(f)
Net Earnings $ 3.67 $ 4.00 $ 2.94 $ 3.12 $ 1.73
Net Earnings, Assuming Dilution $ 3.62 $ 3.96 $ 2.91 $ 3.08 $ 1.71
Cash Dividends $ 1.08 $ 1.04 $ .92 $ .88 $ .79
Market Price - High $ 62.44 $ 53.13 $ 46.13 $ 46.19 $ 44.07
- Low $ 41.25 $ 42.25 $ 34.63 $ 31.57 $ 33.19
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PERCENTAGE CHANGE FROM PRIOR YEAR
Operating Revenue .8% 2.3% 9.5% 7.3% 2.5%
Operating Expense .3% (1.8)% 11.6% 4.3% (5.4)%
Operating Expense, Excluding
Restructuring Charge .3% 1.0% 8.4% 5.6% 2.0%
Cash Dividends Per Common Share 3.8% 13.0% 4.5% 11.4% 3.9%
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SUMMARY OF FINANCIAL POSITION
Cash, Cash Equivalents and
Short-Term Investments $ 690 $ 682 $ 660 $ 535 $ 499
Working Capital Deficit $ (532) $ (685) $(1,056) $ (840) $ (704)
Total Assets $19,957 $16,965 $14,282 $13,724 $13,420
Long-Term Debt $ 6,416 $ 4,331 $ 2,222 $ 2,618 $ 3,133
Shareholders' Equity $ 5,766 $ 4,995 $ 4,242 $ 3,731 $ 3,180
Book Value Per Common Share(f) $ 26.41 $ 23.04 $ 20.15 $ 17.81 $ 15.27
-----------------------------------------------------

EMPLOYEE COUNT(g)
Rail 27,864 28,559 29,537 29,729 30,461
Other 19,047 18,755 18,428 17,974 17,847
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Total 46,911 47,314 47,965 47,703 48,308
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See accompanying Notes to Consolidated Financial Statements.

(a) Net earnings for 1997 include the effects of the company's 42% investment in
Conrail Inc. (Conrail). Pending regulatory approval of the joint acquisition of
Conrail by CSX and Norfolk Southern Corporation, the ownership interest in
Conrail is being held in a voting trust and the company is not permitted to
consolidate its portion of the Conrail system with its rail operations. Under
the equity method of accounting, the company has recognized income from its
share of Conrail's net earnings, as well as expense for amortization of its
purchase price in excess of its share of Conrail's net book value. The combined
effect of these items, net interest on debt issued to acquire the investment,
and other expenses related to the joint acquisition reduced the company's net
earnings for 1997 by $97 million, 43 cents per share.

(b) In 1995, the company recognized a net investment gain of $77 million, $51
million after tax, 24 cents per share, on the issuance of an equity interest in
a Sea-Land terminal and related operations in Asia and the write-down of various
investments.

(c) In 1994, the state of Florida elected to satisfy its remaining unfunded
obligation issued in 1988 to consummate the purchase of 80 miles of track and
right of way. The transaction resulted in an accelerated pretax gain of $69
million and increased net earnings by $42 million, 20 cents per share.

(d) The company revised its estimated annual effective tax rate in 1993 to
reflect the change in the federal statutory income tax rate from 34% to 35%. The
effect of this change was to increase income tax expense for 1993 by $56
million, 26 cents per share. Of this amount, $51 million, 24 cents per share,
related to applying the newly enacted statutory income tax rate to deferred tax
balances as of Jan. 1, 1993.

(e) In 1995, the company recorded a $257 million pretax charge to recognize the
estimated costs of initiatives to revise, restructure and consolidate specific
operations and administrative functions at its rail and container-shipping
units. The 1995 restructuring charge reduced net earnings by $160 million, 76
cents per share. In 1993, the company recorded a $93 million pretax charge to
recognize the estimated costs of restructuring certain operations and functions
at its container-shipping unit. The 1993 restructuring charge reduced net
earnings by $61 million, 30 cents per share.

(f) Net earnings per common share, assuming dilution, includes the effect of
potentially dilutive securities such as stock options on average common shares
outstanding and has been calculated in accordance with the provisions of
Financial Accounting Standards Board Statement No. 128, "Earnings Per Share,"
adopted by the company in 1997. Amounts per common share for 1993 through 1995
have been restated to reflect a 2-for-1 common stock split distributed to
shareholders in December 1995.

(g) Employee counts based on annual averages.

Chairman's Message

[PHOTO]

1997 was a historic year for CSX Corporation, one
in which we embarked on a course that will transform
our company and create immense potential for growth
and prosperity.

The landmark agreement to divide Conrail with Norfolk Southern -- the most
important milestone for CSX since the 1980 merger that created the company --
significantly advances our strategic interests. It gives CSX a new, important
dimension: an opportunity to grow rail revenues substantially and enhance our
earnings power greatly.

Once the Surface Transportation Board (STB) approves the Conrail transaction and
we have combined Conrail's Northeast and Midwest operations with CSX
Transportation's larger, complementary network, we will markedly change the
competitive environment for transportation services in the region. For the first
time, Eastern railroads will be in a position to compete effectively with trucks
- -- especially on north-south shipments - for an important share of the $77
billion intercity transportation market in the East.

Such a robust competitive environment will set the stage for a growing and
dynamic CSX. We will create growth for ourselves and for the customers and
communities we serve, bringing more business and more jobs to the region. By
attracting freight to the rails and accommodating communities and rail passenger
services in the region, we will improve highway safety and the environment while
reducing highway maintenance and construction costs. These important public
benefits can be achieved only with approval of this transaction.

No railroad merger in recent history has experienced as lengthy and as thorough
a review as this transaction will have undergone by the time it is approved in
mid-1998. We are making the most of this time. Since the middle of last year,
hundreds of our employees and managers, along with their counterparts at
Conrail, have been involved in an intense planning process to ensure the
effective and efficient integration of our portion of Conrail's operations. We
are delighted with the quality of the Conrail employees and the railroad they
have created.

[PHOTO]

Continued improvement in safety and in service
will be key to our ability to compete more
effectively.

We are taking a fresh look at how we run our railroad, while conducting a
parallel review of the way Conrail approaches the same operational tasks. This
review will allow us to improve overall service by adopting a best-practices
approach to the Conrail integration, one that takes full advantage of the best
each organization has to offer.

Our management team also has studied the recent rail mergers in the Western
United States and the safety issues and service disruptions there that
frustrated shippers and raised concerns among them about our own transaction.
The Western railroads, their customers and the regulatory agencies have been
open and candid with us, sharing many valuable lessons. While we are certain to
encounter bumps in the road when we move forward, we are confident in our
abilities and committed to accomplishing two imperatives: continued improvement
in safety and in customer service. Both are key to our ability to compete more
effectively with trucks and to achieve our growth strategy.

We realize that integrating two great rail systems is a huge, complex task, but
our employees and those who will be joining us from Conrail are up to the
challenge. We will move forward with our integration process only when the
necessary labor agreements, staffing, capital improvements, technology
enhancements and operating plans are tested and in place.

The Conrail transaction affords us an exciting opportunity to usher in a new era
of transportation in the East. We firmly believe the new CSX will be a
powerhouse company, fully capable of meeting our aggressive growth, profit and
free cash flow targets, thus creating exceptional value for our shareholders.

1997 FINANCIAL RESULTS

Strong performances by our rail, intermodal and contract logistics units during
1997 were tempered by disappointing results at our container-shipping and barge
companies. Still, CSX produced operating income of $1.58 billion, up 4% from
1996's record level.

On a consolidated basis, CSX earned $799 million in 1997, or $3.62 a share on a
diluted basis, vs. $855 million in 1996, or $3.96 a share. 1997 earnings
reflected the impact of the Conrail transaction, including the interest expense
on the money we borrowed to finance the transaction. Excluding the effects of
the Conrail transaction, CSX would have earned $896 million, up 5% from 1996's
record. These were solid results, considering the severe impact that rate
erosion exerted at our container-shipping and barge companies.

Our shareholders were rewarded with returns that outpaced rail industry peers.
The total return of CSX stock in 1997, including reinvested dividends, was
30.5%, exceeding that of the S&P Railroad Index and Dow Jones Industrial Average
and only slightly trailing that of the S&P 500 Index. Confidence in CSX's
financial strength and future earnings growth led the CSX Board of Directors to
raise the quarterly dividend 15%, from 26 cents a share to 30 cents a share.

We will maintain our focus on improving performance
and profitability.

RAIL RESULTS
While devoting considerable attention to the Conrail acquisition and integration
planning, our rail unit, CSX Transportation Inc. (CSXT), maintained its focus on
cutting costs, improving service and increasing revenue in 1997. The result was
another operating income record of $1.23 billion, up 9% from 1996's level.

The railroad's strategy to grow its business was evident in the merchandise
sector, where revenue rose 4%. Total revenue growth was held to 2%, however, as
mild weather and weak foreign demand reduced coal revenue.

CSXT's determined campaign to control costs, combined with its strategy to
improve margins, continued to pay dividends. The operating ratio, a productivity
measure that divides operating expense by operating revenue, improved to a
record 75.4%, down a point and a half from 1996's level and an impressive 12
points since 1990.

PRO FORMA NET EARNINGS
(Millions of Dollars, Except Per Share Amounts*)

1997 1996 1995
----------------------------------------------------
Description Per Per Per
(all after tax) Amt. Share Amt. Share Amt. Share
- -------------------------------------------------------------------------
Net Earnings
as Reported $799 $3.62 $855 $3.96 $618 $2.91
Effect of
Investment
in Conrail 97 .43 -- -- -- --
Net Gains from
Investment
Transactions -- -- -- -- (51) (.24)
Restructuring
Charge -- -- -- -- 160 .76
---- ----- ---- ----- ---- -----
Pro Forma
Net Earnings $896 $4.05 $855 $3.96 $727 $3.43
==== ===== ==== ===== ==== =====

* All per-share amounts assume dilution. Per-share amounts for 1995 have been
adjusted to reflect a 2-for-1 stock split.

INTERMODAL RESULTS
CSX Intermodal Inc. (CSXI) produced 1997 operating income of $46 million, up 31%
from the prior year's level. The improved results reflected both stronger demand
for intermodal service and the favorable results of CSXI's action in 1996 to
streamline its national intermodal network. That network redesign eliminated
less-profitable routes and enhanced traffic and service levels on
more-profitable routes.

Late in the year, Les Passa, a 20-year veteran of Conrail and a highly respected
member of its management team, took the reins as chief executive officer of
CSXI. His leadership strength and knowledge of Conrail operations and markets
will be of great value to CSX as our intermodal company adds critical Conrail
routes and makes significant investments to its expanded intermodal network.

Intermodal service -- when trailers and containers are placed directly on rail
cars for longer hauls -- is the rail industry's fastest growing sector. CSXI
will be an increasingly important contributor to CSX earnings as we absorb
Conrail routes and move significant volumes of freight off the nation's
congested highways.

CONTAINER-SHIPPING RESULTS
Our container-shipping business, Sea-Land Service Inc. (Sea-Land), performed
admirably in adverse market conditions. Excess capacity in the
container-shipping industry has resulted in significant rate deterioration over
the past two years in most major trade lanes. Sea-Land offset much of the impact
of lower rates through stringent cost control and higher volumes. In 1997, the
company handled 1.65 million loads, up 7% from 1996's level, but the average
rate it received for shipping a container fell 8%. Consequently, operating
income at Sea-Land fell 13% to $278 million.

Though disappointed with prevailing industry conditions, we are encouraged that
Sea-Land has weathered this period of severe rate declines better than its
competitors and has increased its market share significantly in key trade lanes.
Furthermore, we see continued consolidation within the container-shipping
industry and increased government deregulation as promising signs that the
industry is responding favorably to rational market forces.

BARGING RESULTS
Severe flooding and a difficult rate environment dealt a double blow to American
Commercial Lines (ACL), our barging company. The worst flooding along the Ohio
River in 30 years shut down portions of the river system beginning in March and
resulted in restricted operations along the Ohio and Lower Mississippi rivers
through May. In addition, lower demand for U.S. grain exports reduced freight
rates for grain and other dry cargo. This combination of events led to a 38%
drop in ACL's operating income, to $69 million.

More favorable barge operating conditions are expected in 1998, though rate
pressures are likely to persist. Improved grain demand, coupled with stringent
cost control, should produce improved results.

[PHOTO]

CONTRACT LOGISTICS RESULTS
Customized Transportation Inc. (CTI), our contract logistics company, has
enjoyed terrific growth in recent years by helping businesses more effectively
and efficiently manage and coordinate their delivery and supply systems. In
1997, CTI continued its unbroken record of performance improvement since joining
the CSX family in 1993. Revenue rose 23% and operating income rose 40% to $24
million.

LOOKING AHEAD

1998 promises to be a year of unprecedented activity,
challenge and opportunity for CSX.

We eagerly await the completion of the regulatory review of the proposed Conrail
acquisition so we can begin achieving the sizable benefits that will flow from
the extension of single-line service to customers, consumers and communities
within the Conrail territory.

We also look forward to competing aggressively throughout the Conrail service
territory with Norfolk Southern, our partner and competitor, as we restore rail
competition to the East and take freight off the highways.

As we push ahead with our Conrail integration planning, we will maintain our
focus on improving the performance and profitability of each CSX transportation
unit. As always, our efforts will be driven by our commitment to maximize
shareholder value.

Clearly, 1998 will be a watershed year for CSX. Our employees and those who will
be joining us from Conrail are eager to begin leveraging the strengths of our
two great companies. I have complete confidence in their ability to execute a
smooth transition that will enable CSX to emerge from the Conrail acquisition as
the best rail-based transportation company in the nation.

/s/ John W. Snow
------------
John W. Snow
Chairman and Chief Executive Officer

Public Policy Statement

In 1997, government at all levels again played an
important role in several issues touching the heart
of CSX's business. Decisions made in 1998 will
affect not only our company but the entire
transportation industry.

CONRAIL
The successful completion of the acquisition of Conrail by CSX and Norfolk
Southern Corporation is of critical importance to us. It is now the subject of a
painstaking, 345-day review by the Surface Transportation Board (STB), the
federal agency that must approve the acquisition.

Excellent progress has been made. We have been successful in building strong
support not only from government officials, but from our major shippers and
shipper organizations as well. It is noteworthy that the Department of Justice
and the Department of Transportation, U.S. government agencies that have been
skeptical of railroad mergers in the past, had comments about the transaction,
but did not oppose it. The public benefits of the acquisition -- increased rail
competition, improved service and the diversion of trucks from congested
highways--were clearly recognized by the more than 2,000 shippers and 14 states,
from Massachusetts to Florida, that have officially endorsed the CSX-Conrail
acquisition. As a result of this public support, Congress rejected legislative
efforts to block or delay the transaction.

As we write this, the STB continues its careful study of the impact of the
transaction on the environment, customers, employees, communities, passenger
service and safety. The problems that occurred in the West, following the Union
Pacific-Southern Pacific merger, have raised concerns among shippers over
whether mergers of this magnitude can be implemented smoothly.

We are determined that our transaction will not repeat what happened in the
West. The railroad that CSX will acquire is much smaller, well run and in
excellent condition financially and otherwise. Its employees are highly skilled
and motivated. From the outset of the transaction, CSX has been planning with
great intensity for the integration of the railroads in such key areas as
safety, capital improvements, information technology, manpower and labor
agreements. Combined operation of Conrail lines will not begin until these
components are effectively in place and service can be assured. We are already
working with our shippers, public constituents and labor to assure a smooth
transition.

COMMITMENT TO SAFETY
Above all, CSX is committed to operating in the safest manner possible. In
October, the United Transportation Union (UTU) and CSX Transportation (CSXT)
entered into a partnership to build a model rail industry safety process.
Working with the Federal Railroad Administration (FRA), the UTU and CSXT will
develop specific action plans to improve safety and to foster greater
cooperation between union employees and managers. In December, CSX submitted its
Safety Integration Plan for the new CSX rail system to the STB. This
first-of-its-kind document spells out the careful processes by which the safety
aspects of the Conrail integration and consolidated operation of the systems
will be addressed.

In terms of legislation, as Congress prepares to take up the Federal Railroad
Safety Act in 1998, CSXT is working to improve upon the gains made in rail
transportation safety over the past decade. The most important objective is to
set realistic standards by which to measure safety improvements.

"OPEN ACCESS" AND RE-REGULATION
The Staggers Rail Act of 1980, which freed the railroads from outdated economic
regulation, set the stage for the remarkable recovery of the railroads from the
financial disasters of the 1970s. Now there are calls from some shippers for a
return to the old era of stifling government intervention. Some of this new
regulation is bring given the misleading label of "competitive" or "open"
access.

In reality, what some shippers want is to force a freight railroad such as CSXT
to allow other railroads to operate over its property without fair compensation.
Far from creating competition in a free marketplace, this so-called "open"
access would have to be administered by a government agency and would result in
long regulatory proceedings that would take away the economic benefits of
freedom from regulation.

Another proposal would simply gut the Staggers Act by repealing its key
provisions. Almost all rail rates would again be subject to challenge before a
regulatory agency, and railroads would lose the ability to price their services
based on competitive market forces.

From the vantage point of today's multibillion dollar freight business, it is
easy to forget that just 20 years ago, when shipping rates and virtually every
other aspect of the freight rail business were tightly controlled by government
regulators, America's railroads were on the brink of collapse. In fact, nearly a
fourth of the nation's rail assets were then in bankruptcy. The last thing
today's railroads or their customers need is a return to a failed system of
government regulation that did not work then and will not work now. The impact
of the current proposed changes would be to wreck the balance that exists today
between the interests of shippers and railroads. They would jeopardize the
ability of railroads to attract needed capital and to provide the safe and
reliable service our customers want and expect.

[PHOTO]
[PHOTO CAPTION] CSX will continue working to insure that changes to rail safety
laws are consistent with our widely acclaimed safety process
and our voluntary safety programs.

TORT REFORM
CSX has been a proponent of tort reform for some time, and the urgency for that
reform hit home this year with a jury verdict against CSXT of $2.5 billion in
punitive damages.

The case grew out of a tank car leak and fire in New Orleans for which CSXT was
in no way responsible -- an incident that fortunately caused local residents no
serious injuries or significant property damage. Moreover, after a very careful
and thorough investigation, the National Transportation Safety Board confirmed
CSXT was not at fault for the incident. But the event provided further evidence
of the need to restore rationality to our civil-justice system and to rein in
greedy trial lawyers and runaway juries.

We are pleased that the Louisiana Supreme Court vacated and set aside the
judgment until all liability issues have been determined. We are now working to
undo the remaining injustice of the case. Although our case was extreme, it was
far from the only instance of huge punitive awards bearing no relationship to
fault. There is something fundamentally wrong with a system that allows
penalties to be assessed based on the depth of a company's pockets rather than
its responsibility for an incident. Laws define unacceptable conduct and set the
penalties to be imposed for not abiding by its rules. The very existence of a
system permitting unlimited punitive damages for ill-defined actions encourages
lawyers to inflame juries and juries to ignore the facts and, instead, to act on
pure emotion.

Lawyers, government officials and the general public should be deeply concerned
about punitive damages that effectively distort the rule of law and punish
capriciously. The law should never tolerate distinctions based on status. This
is a fight that should not be left solely to business interests, but should be
of concern to every citizen.

MARITIME ISSUES
Because of the overriding importance of the Conrail transaction, our main public
policy focus has been on rail issues. There also is legislation of great
significance for the future of the maritime industry, which the Congress should
act on during 1998. One bill would reduce economic regulation of the
container-shipping industry. This legislation, which has the strong support of
CSX and its subsidiary Sea-Land, will give shipping lines the freedom they need
to negotiate service contracts tailored to the needs of their customers. Another
piece of legislation awaiting action is a bill to carry out the terms of the
international treaty to eliminate subsidies by foreign governments to their
shipyards and to allow U. S. shipyards to compete effectively.

THE YEAR AHEAD
1998 will be a critical year in which the future structure of the rail industry
will be decided by the STB and in which Congress may make important decisions
affecting the rail and maritime transportation industries. While the Conrail
acquisition will be of paramount importance, high on our agenda will be ensuring
that any changes to rail safety laws are consistent with our voluntary safety
programs, and turning back efforts to reimpose burdensome economic regulation on
the railroads. CSX will continue to play an active role in public policy debates
concerning transportation, to ensure that the outcomes enhance our ability to
provide safe, reliable and efficient transportation services to our customers
and superior returns to our shareholders.

Financial Policy

CSX'S FINANCIAL PRINCIPLES
The management of CSX Corporation reports the company's financial condition and
results of operations in an accurate, timely and conservative manner in order to
give shareholders all the information they need to make investment decisions
about the company.

In this section, financial information is presented to assist you in
understanding the sources of earnings, the financial resources of the company
and the contributions of the major business units. In addition, certain
information needed to meet the Securities and Exchange Commission's Form 10-K
requirements has been included in the Notes to Consolidated Financial
Statements.

Our key objective is to increase shareholder value by improving the return on
invested capital and maximizing free cash flow. To achieve these goals, managers
utilize the following guidelines in conducting the financial activities of the
company:

Capital - CSX business units are expected to earn returns in excess of the
CSX cost of capital. Business units that do not earn a return above the CSX
cost of capital and do not generate an adequate level of free cash flow over
an appropriate period of time will be evaluated for sale or other
disposition.

Taxes - CSX will pursue all available opportunities to pay the lowest
federal, state and foreign taxes, consistent with applicable laws and
regulations and the company's obligation to carry a fair share of the cost
of government. CSX also works through the legislative process for lower tax
rates.

Debt Rating - The company will strive to maintain its investment grade debt
ratings, which allow cost-effective access to financial markets. The company
will manage its business operations in a manner consistent with meeting this
objective, insuring adequate cash to service its debt and fixed charges.

Derivative Financial Instruments - From time to time the company may employ
derivative financial instruments as part of its risk management program. The
objective is to manage specific risks and exposures, not to trade such
instruments for profit or loss.

Dividends - The cash dividend is reviewed regularly in the context of
inflation and competitive dividend yields. The dividend may be increased
periodically if cash flow projections and reinvestment opportunities show
the higher payout level will best benefit shareholders.

CSX cannot always guarantee that its goals will be met, despite its best
efforts. For example, revenue and operating expenses are affected by the state
of the economy and the industries the company serves. Changes in regulatory
policy can drastically change the cost and feasibility of certain operations.
The impact of factors such as these, along with the uncertainty involved in
predicting future events, should be borne in mind when reading company
projections or forward-looking statements in this report.

MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL REPORTING
The consolidated financial statements of CSX have been prepared by management,
which is responsible for their content and accuracy. The statements present the
results of operations, cash flows and financial position of the company in
conformity with generally accepted accounting principles and, accordingly,
include amounts based on management's judgments and estimates.

CSX and its subsidiaries maintain internal controls designed to provide
reasonable assurance that assets are safeguarded and that transactions are
properly authorized by management and are recorded in conformity with generally
accepted accounting principles. Controls include accounting tests, written
policies and procedures and a code of corporate conduct routinely communicated
to all employees. An internal audit staff monitors compliance with and the
effectiveness of established policies and procedures.

The Audit Committee of the board of directors, composed solely of outside
directors, meets periodically with management, internal auditors and the
independent auditors to review audit findings, adherence to corporate policies
and other financial matters. The firm of Ernst & Young LLP, independent
auditors, has been engaged to audit and report on the company's consolidated
financial statements. Its audit was conducted in accordance with generally
accepted auditing standards and included a review of internal accounting
controls to the extent deemed necessary for the purpose of its report, which
appears on page 51.

Analysis of Operations

CSX Corporation, headquartered in Richmond, Va., is a leading provider of
multimodal freight transportation and contract logistics services around the
world. CSX's unique combination of rail, container-shipping, barging, intermodal
and logistics services offers shippers global reach unmatched by any other
freight transportation company. The company's goal, advanced at each of its
business units, is to provide efficient, competitive transportation and related
services for customers and to deliver superior value to CSX shareholders.

CSX TRANSPORTATION INC.
CSXT is a major eastern railroad, providing rail freight transportation over a
network of approximately 18,300 route miles in 20 states in the East, Midwest
and South; and in Ontario, Canada. Headquartered in Jacksonville, Fla., CSXT
accounted for 47% of CSX's operating revenue and 78% of operating income in
1997.

SEA-LAND SERVICE INC.
Sea-Land is the largest U.S.-based ocean carrier and a leader in the global
shipping industry. The carrier operates a fleet of 98 container ships and
approximately 220,000 containers in U.S. and foreign trade and serves 120 ports.
In addition, Sea-Land operates 28 marine terminal facilities across its global
network. Headquartered in Charlotte, N.C., Sea-Land accounted for 37% of CSX's
operating revenue and 18% of operating income in 1997.

AMERICAN COMMERCIAL LINES INC.
ACL, headquartered in Jeffersonville, Ind., is a family of marine companies
providing a wide range of services to the shipping public and other inland
waterway carriers. ACL is a leader in barge transportation, operating 135
towboats and more than 3,800 barges on U.S. and South American waterways.
Additionally, ACL operates marine construction facilities, river terminals and
communications services. ACL accounted for 6% of CSX's operating revenue and 4%
of operating income in 1997.

CSX INTERMODAL INC.
CSXI provides transcontinental intermodal transportation services and operates a
network of dedicated intermodal facilities across North America. Every week,
CSXI runs more than 300 dedicated trains between its 33 terminals. CSXI
contributed 6% of CSX's operating revenue and 3% of operating income in 1997.

CUSTOMIZED TRANSPORTATION INC.
CTI is one of the nation's leading third-party logistics providers, offering
inventory management, distribution, warehousing, assembly and just-in-time
delivery services. The fastest growing unit of CSX, CTI provided 4% of CSX's
operating revenue and 1% of operating income in 1997.

NON-TRANSPORTATION
Resort holdings include the Mobil Five-Star and AAA Five-Diamond hotel, The
Greenbrier in White Sulphur Springs, W.Va., and the Grand Teton Lodge Company in
Moran, Wyo.

CSX Real Property Inc. is responsible for sales, leasing and development of
CSX-owned properties.

CSX 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.

DISCUSSION OF EARNINGS

CSX produced solid results in 1997, positioning
itself to increase core earnings significantly in
the years ahead. Strong rail, intermodal and
logistics results produced record operating income.

Average Return on Assets
(Percent)

[GRAPH]

'93* '94 '95* '96 '97
2.7 4.8 4.4 5.9 4.3

* Excluding after-tax restructuring charges and the
impact of the 1993 tax-rate increase, return on
assets in 1993 and 1995 would have been 3.6% and
5.6%, respectively.

Net earnings for 1997 totaled $799 million, $3.67 per share, compared with $855
million, $4.00 per share, in 1996, and $618 million, $2.94 per share, in 1995.
Earnings per share on a diluted basis were $3.62, compared with $3.96 in 1996
and $2.91 in 1995.

The 1997 results include the impact on earnings of the company's 42% investment
in Conrail, which has been reported under the equity method of accounting. While
the transaction awaits regulatory approval, the company is incurring interest on
the debt issued to acquire the investment, as well as certain expenses
associated with the acquisition and activities undertaken to prepare for the
integration of the CSXT and Conrail systems. Interest on the Conrail-related
debt totaled $236 million for the year, while acquisition and
integration-related expenses totaled $61 million. Under the equity method of
accounting, the company is recognizing income from its proportionate share of
Conrail's net earnings and expense for the amortization of its purchase price in
excess of its share of Conrail's net book value. Equity in Conrail's net
earnings totaled $144 million, and amortization of the excess purchase price
totaled $42 million for the year. The combined effect of these items reduced
CSX's net earnings by $97 million, 43 cents per share on a diluted basis.

The 1995 net earnings included the effect of a restructuring charge and a
non-recurring gain from the issuance of an equity interest in a Sea-Land
terminal and related operations in Asia. The restructuring charge reflected the
write-down of obsolete telecommunications assets and related employee separation
costs at CSXT, as well as costs associated with reflagging five Sea-Land vessels
and consolidating Sea-Land's corporate and divisional headquarters in Charlotte,
N.C. The combined effect of these items reduced CSX's 1995 net earnings by $109
million, 52 cents per share on a diluted basis.

Average Return on Equity
(Percent)

[GRAPH]

'93* '94 '95* '96 '97
11.7 18.6 15.5 18.9 15.2

* Excluding after-tax restructuring charges and the
impact of the 1993 tax-rate increase, return on
equity in 1993 and 1995 would have been 14.0% and
19.1%, respectively.

Consolidated operating revenue for 1997 was $10.6 billion, 1% above 1996 and 3%
above 1995. CSXT contributed $80 million of additional revenue over 1996,
largely resulting from strength in its automotive business unit, chemicals and
most other merchandise groups. Additionally, the company's intermodal unit
increased revenue by 1% to $669 million, reflecting strong demand and a
relatively stable rate environment. The contract logistics unit, CTI, posted
revenue of $389 million, an increase of $73 million over 1996 and $149 million
over 1995. Despite generating significant volume increases, Sea-Land's revenue
decreased $60 million to $4.0 billion, due to continued rate weakness across all
major trade lanes. ACL generated $618 million of revenue, almost level with
1996's total. Revenue from barge operations at ACL declined 4% from 1996 as a
result of rate weakness and difficult weather, although a 10% increase in barge
construction and other revenue offset most of the shortfall.

In 1997, all CSX units continued their efforts to control costs through
performance improvement initiatives. Consolidated operating expense remained
level with 1996 at $9.0 billion. Operating expense in 1995 totaled $9.2 billion,
including the $257 million pretax restructuring charge recorded by CSXT and
Sea-Land.

Consolidated operating income for 1997 was $1.6 billion, compared with $1.5
billion in 1996 and $1.1 billion in 1995. Absent the restructuring charge, 1995
operating income would have been $1.4 billion.

Other income for 1997 totaled $51 million, compared with $43 million in 1996 and
$118 million in 1995. The 1997 total includes $34 million in net income related
to the investment in Conrail, consisting of the equity in Conrail's net earnings
less amortization of the excess purchase price and acquisition and integration
expenses. Other income for 1995 included a $77 million pretax net investment
gain related to the issuance of the equity interest in a Sea-Land terminal
facility and related operations in Asia.

[PHOTO]
[PHOTO CAPTION] Performance Improvement Teams work beyond traditional
boundaries to identify and close competitive gaps. PIT
initiatives are responsible for millions in capital and
operating expense savings since their inception in 1992.

DISCUSSION OF CASH FLOW

Cash provided by operating activities totaled $1.6 billion in 1997, compared
with $1.4 billion in 1996 and $1.6 billion in 1995. Cash from operations was
adequate to fund net property investments and cash dividends in 1997, 1996 and
1995. In addition, CSX funded scheduled long-term debt payments of $98 million,
$486 million and $343 million in 1997, 1996 and 1995, respectively.

The company's net cash flow for 1997 and 1996 included significant items related
to the Conrail transaction. Cash used to acquire the investment in Conrail
totaled $2.2 billion for a 22.1% ownership interest in 1997 and $2.0 billion for
a 19.9% interest in 1996. Proceeds from the issuance of long-term debt were used
to finance the Conrail acquisition, including $2.5 billion from an offering of
fixed rate debentures in 1997 and $2.0 billion from commercial paper in 1996.
Approximately $300 million of the proceeds from the debentures was not required
to complete the acquisition of the Conrail investment in 1997 and was used to
reduce the commercial paper borrowings incurred in 1996. In addition to the
acquisition of the ownership interest in Conrail and the related financings,
property additions for 1997 included $119 million of expenditures associated
with upgrading routes on CSXT's rail system and intermodal facilities in CSXI's
network in preparation for the consolidation of CSXT and Conrail lines.

Productivity and restructuring charge payments totaled $51 million, $88 million,
and $155 million for 1997, 1996 and 1995, respectively. These payments related
principally to CSXT's 1991/92 productivity charge covering labor agreements
providing for two-member train crews. Through 1997, the company has made total
payments of $975 million related to this productivity charge.

Fixed Charge Coverage

[GRAPH}

'93* '94 '95* '96 '97
2.3 3.1 3.2 4.0 2.9

* Excluding after-tax restructuring charges, fixed
charge coverage in 1993 and 1995 would have been
2.5x and 3.7x, respectively.

Asset utilization and capital productivity continue to be areas of significant
emphasis at CSX. Capital investments for 1997, including the $119 million in
spending to prepare for the Conrail integration, totaled $1.1 billion, down from
$1.2 billion in 1996 and 1995. Excluding the Conrail spending, capital
investments for 1997 reflect a $217 million reduction from 1996. The reduction
is primarily attributable to fewer locomotive deliveries at CSXT in 1997.
Capital investments at Sea-Land were down $56 million, primarily due to one-time
spending in 1996 to acquire containers previously covered under operating
leases.

Cash dividends per common share were $1.08 for 1997, compared with $1.04 in 1996
and 92 cents in 1995. The Board of Directors increased the quarterly dividend to
30 cents per share in the fourth quarter of 1997, reflecting confidence in the
company's financial strength and future earnings growth.

CSX expects its operations to continue generating significant cash flow to fund
working capital requirements, capital investments, debt obligations and
dividends. The company expects to continue to have access to financial markets,
if necessary, to fund operations, working capital, or other cash requirements.
Two-thirds of the capital spending required to integrate the CSX and Conrail
systems is expected to occur in 1998. With this spending, total capital
investments are expected to increase to a level near $1.4 billion for the coming
fiscal year. Sea-Land's program to add nine high-performance, fuel-efficient
container vessels to its fleet was substantially complete at the end of 1997
and, as a result, capital investments at the unit are expected to decline in
1998.

DISCUSSION OF FINANCIAL POSITION

Cash, cash equivalents and short-term investments totaled $690 million at Dec.
26, 1997, vs. $682 million at Dec. 27, 1996.

The company's working capital deficit decreased $153 million during 1997,
primarily due to reductions in short-term debt levels. The company had a
year-end working capital deficit of $532 million in 1997, compared with $685
million in 1996. A working capital deficit is not unusual for CSX and does not
indicate a lack of liquidity. CSX maintains adequate resources to satisfy
current liabilities when they are due and has sufficient financial capacity to
manage its day-to-day cash requirements.

The company's investment in Conrail increased to $4.2 billion at Dec. 26, 1997,
from $2.0 billion at Dec. 27, 1996. The increase reflects the change in CSX's
ownership interest in Conrail from 19.9% to 42% in May 1997 under the joint
acquisition agreement with Norfolk Southern.

Long-term debt at Dec. 26, 1997, totaled $6.4 billion, $2.1 billion higher than
the end of fiscal year 1996. The increase is attributable to the issuance of
debt to finance the completion of the joint Conrail acquisition. The ratio of
debt to total capitalization increased to 52% at the end of 1997, from 46% in
1996.

Cash Provided by Operations
(Millions of Dollars)

[GRAPH]

'93 '94 '95 '96 '97
$962 $1,326 $1,567 $1,440 $1,558

[PHOTO]
[PHOTO CAPTION] CSX Transflo, a network of specialized terminals that enables
customers not served by rail to transfer product between rail-
cars, trucks, and containers, plans to expand its bulk transfer
terminal network by more than 50% in 1998, to well over 100
locations.

Operating Results
(Millions of Dollars)
1997

Container Contract Elim./
Rail Shipping Intermodal Barge Logistics Other Total

--------------------------------------------------------------------
Operating Revenue $4,989 $3,991 $669 $618 $389 $(35) $10,621
--------------------------------------------------------------------
Operating Expense
Labor and Fringe Benefits 1,963 903 56 151 153 -- 3,226
Materials, Supplies and Other 878 1,191 119 262 61 -- 2,511
Building and Equipment Rent 349 600 77 40 45 -- 1,111
Inland Transportation (158) 757 356 -- 83 (35) 1,003
Depreciation 429 128 14 39 10 -- 620
Fuel 299 197 1 57 13 -- 567
Miscellaneous(b) -- (63) -- -- -- 63 --
Restructuring Charge -- -- -- -- -- -- --
---------------------------------------------------------------------
Total Operating Expense 3,760 3,713 623 549 365 28 9,038
---------------------------------------------------------------------
Operating Income (Loss) $1,229 $ 278 $ 46 $ 69 $ 24 $(63) $ 1,583
---------------------------------------------------------------------
Pro Forma Operating Income (Loss)(c) $1,229 $ 278 $ 46 $ 69 $ 24 $(63) $ 1,583
---------------------------------------------------------------------
Operating Ratio(c) 75.4% 93.0% 93.1% 88.8% 93.8%
---------------------------------------------------------------------
Average Employment 27,864 9,105 800 3,559 2,334
---------------------------------------------------------------------
Property Additions $ 712 $ 251 $ 32 $ 52 $ 13
---------------------------------------------------------------------

1996(a)

Container Contract Elim./
Rail Shipping Intermodal Barge Logistics Other Total
---------------------------------------------------------------------
Operating Revenue $4,909 $4,051 $660 $622 $316 $(22) $10,536
---------------------------------------------------------------------
Operating Expense
Labor and Fringe Benefits 1,933 900 63 138 124 -- 3,158
Materials, Supplies and Other 919 1,190 109 242 49 -- 2,509
Building and Equipment Rent 365 630 73 35 40 -- 1,143
Inland Transportation (160) 750 364 -- 64 (22) 996
Depreciation 416 135 15 36 9 -- 611
Fuel 309 192 1 59 13 -- 574
Miscellaneous(b) -- (64) -- -- -- 87 23
Restructuring Charge -- -- -- -- -- -- --
---------------------------------------------------------------------
Total Operating Expense 3,782 3,733 625 510 299 65 9,014
---------------------------------------------------------------------
Operating Income (Loss) $1,127 $ 318 $ 35 $112 $ 17 $(87) $ 1,522
---------------------------------------------------------------------
Pro Forma Operating Income (Loss)(c) $1,127 $ 318 $ 35 $112 $ 17 $(87) $ 1,522
---------------------------------------------------------------------
Operating Ratio(c) 77.0% 92.2% 94.7% 82.0% 94.5%
---------------------------------------------------------------------
Average Employment 28,559 8,982 1,090 3,418 2,120
---------------------------------------------------------------------
Property Additions $ 764 $ 307 $ 24 $ 91 $ 15
---------------------------------------------------------------------

1995(a)

Container Contract Elim./
Rail Shipping Intermodal Barge Logistics Other Total
---------------------------------------------------------------------
Operating Revenue $4,819 $4,008 $707 $554 $240 $(24) $10,304
---------------------------------------------------------------------
Operating Expense
Labor and Fringe Benefits 1,900 934 85 122 92 -- 3,133
Materials, Supplies and Other 990 1,231 122 232 46 -- 2,621
Building and Equipment Rent 373 636 72 20 33 -- 1,134
Inland Transportation (160) 730 383 -- 41 (24) 970
Depreciation 397 139 14 32 6 -- 588
Fuel 255 165 1 42 10 -- 473
Miscellaneous(b) -- (65) -- -- -- 67 2
Restructuring Charge 196 61 -- -- -- -- 257
---------------------------------------------------------------------
Total Operating Expense 3,951 3,831 677 448 228 43 9,178
---------------------------------------------------------------------
Operating Income (Loss) $ 868 $ 177 $ 30 $106 $ 12 $(67) $ 1,126
---------------------------------------------------------------------
Pro Forma Operating Income (Loss)(c) $1,064 $ 238 $ 30 $106 $ 12 $(67) $ 1,383
---------------------------------------------------------------------
Operating Ratio(c) 77.9% 94.1% 95.8% 80.9% 94.7%
---------------------------------------------------------------------
Average Employment 29,537 9,168 1,434 2,914 1,853
---------------------------------------------------------------------
Property Additions $ 765 $ 269 $ 57 $ 33 $ 8
---------------------------------------------------------------------

(a) Certain prior-year data have been reclassified to conform to the 1997
presentation.

(b) A portion of intercompany interest income received from the CSX parent
company has been classified as a reduction of Miscellaneous expense by the
container-shipping unit. This amount was $63 million, $64 million and $65
million in 1997, 1996 and 1995, respectively, and the corresponding charge
is included in Eliminations/Other.

CONRAIL ACQUISITION

In April 1997, CSX and Norfolk Southern entered into an agreement providing for
their joint acquisition of Conrail and the division of its routes and other
assets.

Under the terms of the agreement, CSX and Norfolk Southern acquired all
outstanding shares of Conrail not already owned by them for $115 per share in
cash during the second quarter of 1997. CSX and Norfolk Southern each possess
50% of the voting and management rights of a jointly owned acquisition company,
and non-voting equity is divided between the parties to achieve overall economic
allocations of 42% for CSX and 58% for Norfolk Southern. Following approval by
the STB as described below, Conrail's assets will be segregated within Conrail,
and CSX and Norfolk Southern will each benefit from the operation of a specified
portion of the Conrail routes and other assets through the use of various
operating arrangements. Certain Conrail assets will be operated for the joint
benefit of CSX and Norfolk Southern.

The total cost of acquiring the outstanding shares of Conrail under the joint
CSX/Norfolk Southern agreement was approximately $9.8 billion. Pursuant to the
agreement, CSX has paid 42%, or approximately $4.1 billion, and Norfolk Southern
has paid 58%, or approximately $5.7 billion, of such cost. Including its
capitalized transaction costs, CSX's total purchase price was approximately $4.2
billion.

JOINT STB APPLICATION
The Conrail shares have been placed in a voting trust pending STB approval of
the joint acquisition, control and division of Conrail. The exercise of control
over Conrail by CSX and Norfolk Southern remains subject to a number of
conditions and approvals, including approval by the STB, which has the authority
to modify contract terms and impose additional conditions.

CSX and Norfolk Southern filed an application for control of Conrail with the
STB in June 1997. The STB has adopted a schedule that contemplates a decision in
late July 1998. CSX believes that the STB will approve the joint application for
control without imposing onerous conditions. However, should the application not
be approved by the STB, or should the STB impose onerous approval conditions,
the closing may be delayed, or CSX may be required to, or may choose to, dispose
of some or all of its investment in Conrail in a manner that could cause CSX to
incur a loss on its investment in Conrail.

[PHOTO]
[PHOTO CAPTION] CSX maintains a top-to-bottom commitment to environmental
protection.

FINANCING ARRANGEMENTS
CSX originally arranged a $4.8 billion bank credit facility in November 1996 to
provide initial financing for the Conrail acquisition and to meet general
working capital needs. The facility was amended in May 1997, and the lenders'
commitments were reduced to $2.5 billion, reflecting the issuance of fixed rate
debentures. Currently, the facility is used as support for commercial paper
issuance.
17

The fixed rate debentures, issued through a $2.5 billion multitranche private
offering in May 1997, have maturities ranging from 2002 to 2032 and interest
rates ranging from 6.95% to 8.30%.

ENHANCED EFFICIENCIES AND REVENUE GROWTH
Management expects the integration of Conrail operations resulting from the
transaction to add approximately $1.7 billion, or 16%, to CSX's annual revenue
beginning in the first 12 months following operational consolidation. Management
believes that the transaction also will result in growth of the company's rail
revenue base through expansion of single-line service and CSX's ability to
compete more effectively against trucks on major freight routes.

INTEGRATION PLANNING
The company is actively planning for the smooth integration of Conrail
operations into the CSXT rail system after the STB control date. Plans involve
all facets of combining the two systems, including: safety; customer service;
train scheduling, switching, and routing; equipment utilization and track
programs; commuter and passenger rail; marketing; technology; labor agreements;
and administration. Related capital improvements to certain routes and
facilities on the CSX rail system also have been initiated. Operational
integration is expected to take place once the necessary implementing agreements
have been reached, which currently is anticipated in late 1998.

FINANCIAL EFFECTS
Including transaction costs, the overall purchase price paid by CSX exceeded the
historical book value of its proportionate share of Conrail's net assets by
approximately $2.9 billion. A substantial portion of the excess purchase price
is expected to be allocated to reflect the fair value of Conrail's property and
equipment. The company has based its provision for amortization of the excess
purchase price on preliminary estimates of the fair values of such property and
equipment and estimates of their remaining useful lives, as well as estimates of
the fair values of other assets and liabilities of Conrail.

Because of the time required to obtain necessary regulatory and other approvals,
CSX does not expect integrated operations to have a significant effect on
operating and financial results prior to fiscal 1999. The primary impact of the
Conrail transaction on net earnings prior to the integration of operations will
be the after-tax effect of the company's share of Conrail's net earnings,
reported under the equity method of accounting, less amortization of the excess
purchase price and interest on debt incurred to acquire the Conrail investment.
Net cash flow prior to operational integration is expected to be reduced by
interest payments on the acquisition debt. At Dec. 26, 1997, the average
interest rate on debt incurred to acquire Conrail shares was approximately 6.9%.
The degree of negative impact on net earnings and net cash flow during 1998 will
depend primarily on the net earnings reported by Conrail and the average
interest rate and timing of interest payments on the related debt.

OTHER MATTERS
LITIGATION
In September 1997, a state court jury in New Orleans 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.

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. CSX believes this decision means that 8,000 other cases
must be resolved before the punitive damage claims can be decided. CSXT is
pursuing an aggressive strategy on all legal fronts, and management believes
that any adverse outcome will not 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.

CSX has been advised that activities of a former subsidiary that administered
U.S. government guaranteed student loans are under investigation. The subsidiary
was sold in 1992. The U.S. Attorney's Office has said that it may institute
proceedings against CSX based on government insurance payments made on
uncollected loans as a result of alleged processing deficiencies or errors
before the sale. While the amount of potential damages is not yet reasonably
estimable, based upon information currently available to the company, management
believes any adverse outcome will not be material to CSX's results of operations
or 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 approximately 250 sites at which it
is or may be liable for remediation costs associated with alleged contamination
or for violations of environmental requirements. Approximately 120 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 $99 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 that 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.

Total expenditures associated with protecting the environment and remedial
environmental cleanup and monitoring efforts amounted to $36 million in 1997.
This compares with $44 million in 1996 and $43 million in 1995. During 1998, the
company expects to incur remedial environmental expenditures in the range of $40
million to $50 million. The majority of the year-end 1997 environmental
liability is expected to be paid out over the next five to seven years, funded
by cash generated from operations. Future environmental obligations are not
expected to have a material impact on the results of operations or financial
position of the company.

SAFETY REVIEW
On Oct. 16, 1997, the Federal Railroad Administration (FRA) issued a report on a
joint review of safety on the CSXT rail system. The review was undertaken as a
cooperative effort with CSXT and rail labor, and was conducted between July and
September 1997. CSXT and its labor representatives, in cooperation with the FRA,
are actively addressing the issues cited in the report and have already
initiated numerous actions to ensure that all issues are fully resolved. CSXT
has improved its safety record dramatically over the past decade and, in recent
years, has been among the safest Class I freight railroads in the nation. The
cooperative effort with rail labor and the FRA reaffirms the commitment to
safety by all parties involved and helps ensure that safety will remain the top
priority as CSXT plans the integration of Conrail lines into its system.

LABOR
Discussions with labor representatives in connection with the Conrail
acquisition are underway. In January 1998, the United Transportation Union,
which represents approximately a third of CSXT's unionized workforce, announced
its support for the CSX/Norfolk Southern joint acquisition of Conrail.

Under CSXT's latest national agreement with the UTU and the Brotherhood of
Locomotive Engineers, study commissions were established to address key issues
such as basis of pay, quality of work life and productivity improvements through
work rule modifications. These commissions are meeting regularly and exploring
projects that could lead to reaching consensus or creating a set of
recommendations covering these important matters. At the request of the parties,
the National Mediation Board is facilitating the discussions.

YEAR 2000 PLANNING AT CSX
CSX has determined it will need to modify or replace portions of its software so
its computer systems will function properly with respect to dates in the year
2000 and beyond. The company also has initiated discussions with its significant
suppliers, large customers and financial institutions to ensure that those
parties have appropriate plans to remediate Year 2000 issues where their systems
interface with CSX systems or otherwise impact the company's operations. The
company is assessing the extent to which its operations are vulnerable should
those organizations fail to remediate properly their computer systems.

The company's comprehensive Year 2000 initiative is centrally managed by CSX
staff, utilizing outside consultants as necessary. The team's activities are
designed to ensure that there is no adverse effect on CSX core business
operations and that transactions with customers, suppliers, and financial
institutions are fully supported. The company is well under way with these
efforts, which are scheduled to be completed in mid 1999. While the company
believes its planning efforts are adequate to address its Year 2000 concerns,
there can be no guarantee that the systems of other companies on which CSX
systems and operations rely will be converted on a timely basis and will not
have a material effect on the company. The cost of the Year 2000 initiatives is
not expected to be material to the company's results of operations or financial
position.

[PHOTO]
[PHOTO CAPTION] Already a leader in technology, CSX has established a large
Year 2000 team to prepare for the technology challenges of the
new millennium.

FORWARD-LOOKING STATEMENTS
Estimates and forecasts in the Analysis of Operations are based on many
estimates and 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 involve known and unknown risks, uncertainties and other important
factors that could cause the actual results, performance or achievements of the
company to differ materially from any future results, performance or
achievements expressed or implied by such statements. Certain of those risks,
uncertainties and other important factors that could cause actual results to
differ materially include: future economic conditions in the markets in which
CSX and Conrail operate; financial market conditions; inflation rates; changing
competition; changes in the economic regulatory climate in the U.S. railroad
industry; the ability to eliminate duplicative administrative functions; and
adverse changes in applicable laws, regulations or rules governing
environmental, tax or accounting matters. These forward-looking statements speak
only as of the date of this filing. CSX disclaims any obligation or undertaking
to disseminate any updates or revisions to any such statement to reflect changes
in CSX's expectations or any change in events, conditions or circumstances on
which any such statements are based.

RAIL RESULTS

CSX Transportation Inc. (CSXT) turned in another
strong performance in 1997. Operating income was
a record $1.23 billion, a 9% increase over 1996
and 16% over 1995, excluding 1995's restructuring
charge. The 1997 results were primarily driven
by strength in merchandise traffic, as well as
continued emphasis on cost reduction.

Rail Operating Revenue
(Millions of Dollars)

[GRAPH]

'93 '94 '95 '96 '97
$4,380 $4,625 $4,819 $4,909 $4,989

Gains in carloads for most merchandise commodities allowed CSXT to generate
operating revenue of $4.99 billion, an increase of 2% over 1996 and more than 3%
over 1995.

CSXT enjoyed growth in practically all merchandise commodity groups during 1997.
Total merchandise traffic increased 4% over 1996, to 2.97 million carloads and
3% over 1995 levels. This growth was largely attributed to targeted marketing
efforts and stronger general demand.

Demand for automobiles and light trucks remained strong in 1997, resulting in a
5% increase in carloads and a 4% increase in revenue over 1996. Compared with
1995 results, CSXT's automotive business experienced an increase of 8% in both
carloads and revenue in 1997.

Chemical traffic benefited from steady demand for plastics as well as the
success of the railroad's efforts to target truck traffic. The railroad hauled
435,000 carloads of chemicals, an increase of 6% over 1996 and 7% over 1995.
Corresponding revenues were $747 million in 1997, $721 million in 1996 and $700
million in 1995.

[PHOTO]
[PHOTO CAPTION] Service reliability improvements and customer-focused
initiatives combined to produce growth in practically all
commodity groups in 1997.

Shipments of coal were level with 1996 at 1.71 million carloads, compared with
1.68 million carloads in 1995. Coal revenue totaled $1.56 billion in 1997, vs.
$1.58 billion in 1996 and $1.52 billion in 1995. The 1997 results were adversely
affected by mild temperatures across the eastern United States during the year,
as well as weak demand for U.S. export coal due to the strong dollar.

Cost control remained a priority. Rail operating expense was $3.76 billion, vs.
$3.78 billion in 1996 and $3.76 billion in 1995, excluding the restructuring
charge. The company achieved record operating ratio of 75.4% in 1997, compared
with 77% in 1996 and 77.9% in 1995, excluding the restructuring charge.

RAIL ASSETS
Owned or leased units as of Dec. 26, 1997
- --------------------------------------------
Freight Cars
Box Cars 15,131
Open-Top Hoppers 24,144
Covered Hoppers 18,356
Gondolas 25,279
Other Cars 14,568
- --------------------------------------------
Total 97,478
- --------------------------------------------
Locomotives 2,781

Track
Route Miles 18,285
Track Miles 30,941
- --------------------------------------------

Rail Traffic by Commodity

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

1997 1996 1995 1997 1996 1995
--------------------- ---------------------------
Automobiles 387 367 357 $ 543 $ 520 $ 503
Chemicals 435 409 406 747 721 700
Minerals 445 430 414 394 381 375
Food & Consumer 149 134 145 163 148 168
Agricultural Products 269 261 286 347 343 344
Metals 316 277 301 314 290 291
Forest Products 471 466 479 499 499 488
Phosphates & Fertilizer 506 511 511 292 279 282
Coal 1,714 1,711 1,684 1,560 1,584 1,530
--------------------- ---------------------------
Total 4,692 4,566 4,583 4,859 4,765 4,681
---------------------
Other Revenue 130 144 138
---------------------------
Total Operating Revenue $4,989 $4,909 $4,819
---------------------------

Lower operating expense was, to a large degree, achieved through the efforts of
the railroad's Performance Improvement Teams (PITs), which removed approximately
$115 million in costs through reductions of overtime and absenteeism, foreign
car-hire days and maintenance costs. Cost reduction was furthered by the
introduction of a new rail car distribution optimization system, which in its
early stages yielded significant improvements in car utilization.

Customer service continued to improve in 1997 through an Operational Excellence
initiative, begun in the first quarter of 1996 and implemented throughout CSXT's
54 terminals during 1997. This process emphasizes continuous improvement in
service to customers and more precise operations within and among terminals. The
initiative is expected to achieve higher service levels at lower cost, providing
a foundation for successful competition as CSXT integrates its portion of
Conrail.

Improved asset utilization continues to enhance CSXT's ability to control
capital expenditures. Capital expenditures in 1997 were $712 million, compared
with $764 million and $765 million in 1996 and 1995, respectively.

Of the 1997 expenditures, $100 million was for projects related to the
integration of Conrail. The most significant spending on Conrail-related
projects was for upgrading the B&O lines between Chicago and Cleveland. When
completed later in 1998 and linked with Conrail's route from Cleveland to New
York, this line will allow for high-speed, high-density freight traffic between
Chicago and New York.

CSXT's 1997 capital spending for its current rail system was mainly for track,
freight cars, locomotives, signals and bridges.

The railroad expects continued earnings growth in 1998. The company anticipates
modest volume and revenue increases, as well as cost reductions similar to those
achieved in 1997.

1998 will be a year of intense planning for the integration of Conrail. People
at all levels of the company are involved in this effort in order to ensure a
smooth transition. That concentrated planning, along with CSXT's continued
emphasis on performance improvement and service reliability, should position the
railroad to increase revenue and profitability in truck-competitive markets.

Rail Operating Expense
(Millions of Dollars)

[GRAPH]

'93 '94 '95* '96 '97
$3,634 $3,696 $3,951 $3,782 $3,760

* Restructuring charge in 1995 was $196 million.

CONTAINER-SHIPPING RESULTS

Continued intense rate competition, due to over-
capacity, dominated the container-shipping
industry in 1997. In the face of this challenging
environment, Sea-Land Service was able to
mitigate partially revenue losses through higher
volumes. Additionally, continued cost cutting
helped Sea-Land achieve a respectable level of
profitability while many other carriers were
faltering.

Container-shipping Operating Revenue
(Millions of Dollars)

[GRAPH]

'93 '94 '95 '96 '97
$3,246 $3,492 $4,008 $4,051 $3,991

Sea-Land generated $278 million in operating income in 1997, vs. $318 million in
1996. In 1995, Sea-Land's operating income was $238 million, excluding a
restructuring charge.

Volume in 1997 increased more than 7% to 1.65 million loads from 1.54 million
loads in 1996. This increase was driven by continued global trade growth and
market-share gains in virtually all trade lanes. In 1995, volume totaled 1.44
million loads.

Due to lower rates, operating revenue decreased to $3.99 billion vs. $4.05
billion in 1996 and $4.01 billion in 1995. In 1997, the average revenue per
container fell 8% due to over-capacity in the major trade lanes.

Sea-Land's operating expense declined by $20 million from 1996, to $3.71
billion, despite higher volumes. In 1995, operating expense totaled $3.77
billion, excluding that year's restructuring charge. The company continues to
improve its per-unit cost structure through its ongoing emphasis on cutting
costs and improving productivity.

In 1997, Sea-Land accomplished major cost reductions in the areas of inland
transportation, procurement, network management and equipment management.
Borrowing from the railroad's Performance Improvement Team (PIT) process,
Sea-Land managed to remove $217 million from its operating expense structure.
The company has set aggressive targets for 1998 to achieve similar results.

[PHOTO]
[PHOTO CAPTION] Emphasis on cost control and productivity helped Sea-Land slash
millions from its operating cost structure while handling
greater volumes, thus maintaining profitability despite intense
rate competition. Similarly aggresive targets are on track for
1998.

Container-shipping Load Volume
(Thousands)

[GRAPH]

'93 '94 '95 '96 '97
1,180 1,288 1,442 1,541 1,653

Implementation of the global alliance with Maersk continued in 1997. This
alliance gives Sea-Land a substantial advantage over its competitors, providing
a global network with excellent frequency and scope of service. In addition to
the integrated vessel network, the alliance initiated a number of terminal,
equipment and information technology rationalization efforts, which will be key
to further cost reduction. These efforts included facility rationalization in
Baltimore, Houston and Kobe, Japan; joint central dispatch pilot programs;
chassis rationalization in North America; and coordination in the areas of
procurement and electronic data interchange (EDI). The financial benefits from
the alliance in 1997 were approximately $78 million. Sea-Land is on target to
exceed this level of benefits in 1998.

[PHOTO]

In 1997, capital expenditures totaled $251 million, as the company completed its
fleet enhancement program and invested in information technology and rolling
stock. This amount compares with $307 million in 1996 and $269 million in 1995.

CONTAINER-SHIPPING ASSETS
Owned or leased units as of Dec. 26, 1997
- --------------------------------------------
Containers
40- and 20-foot Dry Vans 182,514
45-foot Dry Vans 14,147
Refrigerated Vans 20,457
Other Specialized Equipment 2,972
- --------------------------------------------
Total 220,090
- --------------------------------------------
Chassis 67,454
Container Ships 98

Terminals
Exclusive-Use 14
Preferential Berthing Rights 14
- --------------------------------------------

In 1998 trade growth is expected to continue, albeit at a slightly slower pace
than in recent years. The effect of the current Asian economic difficulties
potentially could slow the double-digit growth rates of the early 1990s to more
moderate levels.

Ongoing rate pressures are causing realignment and consolidation in the
container-shipping industry. With the exception of the Sea-Land/Maersk alliance,
every major carrier alliance experienced dramatic structural change during 1997.
This trend is expected to continue, causing further customer uncertainty
regarding competitive offerings. Sea-Land's stability is proving to be a
reassuring advantage to customers. As a stable, global carrier with costs under
control, Sea-Land is well-positioned to compete effectively in 1998.

BARGE RESULTS

Severe weather and unfavorable operating conditions
in the first half, combined with rate pressures
later in the year, significantly affected American
Commercial Lines' (ACL's) 1997 results.

The barge company reported operating income of $69 million, vs. $112 million in
1996 and $106 million in 1995. The 1996 and 1997 results reflect the acquisition
of Conti-Carriers and Terminals Inc. in January 1996.

Total operating revenue for 1997 was $618 million, a decrease of 1% from 1996,
and a 12% increase from 1995's revenue of $554 million. Operating expense in
1997 totaled $549 million, vs. $510 million in 1996 and $448 million in 1995.
The increase in expense was primarily due to weather-induced adverse operating
conditions, expansion start-up expense in Argentina and increased production at
the company's barge-building subsidiary, Jeffboat. The year started with ice
problems on the Ohio and Mid-Mississippi rivers, followed by major flooding on
the Ohio and Mississippi Rivers. These adverse operating conditions forced the
company to operate smaller tows at lower speeds, resulting in lower productivity
and corresponding lost volume. Additionally, operating boats and barges in
unfavorable river conditions led to higher maintenance expense.

BARGE ASSETS
Owned or leased units as of Dec. 26, 1997
- --------------------------------------------
Towboats 135

Barges
Covered/Open-Top Hoppers 3,569
Tankers 249
- --------------------------------------------
Total 3,818
- --------------------------------------------
Marine Services
River Terminals 11
Fleet Operations 16
Shipyards 2
- --------------------------------------------

In 1997 rates were negatively affected by lower U.S. grain exports due to
increased grain production by foreign competitors. Reduced exports, combined
with a net increase in barge industry capacity, created a supply/demand
imbalance, leading to lower rates for grain and other dry commodities.

Barge Operating Revenue
(Millions of Dollars)

[GRAPH]

'93 '94 '95 '96 '97
$417 $449 $554 $622 $618

Transportation demand for non-grain commodities, such as steel and raw materials
for steel minimills, was steady, while demand for liquid cargo movements
remained robust, leading to a $4 million increase in revenue for this sector.
Coal tonnage was up slightly from 1996, but revenue was flat due to rate
pressures.

International growth continued as the Argentina-based business (ACBL Hidrovias,
S.A.) expanded, though earnings lagged due to start-up costs. ACBL Hidrovias is
well-positioned to profit from strong growth in 1998.

ACL continued its focus on safety in 1997, with a 33% improvement in its
incident rate. ACBL, the company's domestic barge subsidiary, is the safest
barge line in the United States. ACL's South American operations adopted ACBL's
safety practices, and ACBL de Venezuela completed the year injury free.

Capital additions at ACL, which included additions to domestic marine equipment
and expansion in South America, totaled $52 million in 1997. This compares with
$91 million in 1996 and $33 million in 1995.

ACL anticipates more favorable operating results in 1998. Steady demand is
expected, but rate pressures will likely persist as barge supply continues to
exceed demand in the short term. Corn production is expected to be among the
highest in U.S. history; and record-level soybean exports are projected,
indicating strong demand. Demand for the transportation of liquid commodities
should remain strong, while demand for transportation of coal, steel and other
commodities is expected to remain steady.

INTERMODAL RESULTS

CSX Intermodal's (CSXI's) earnings in 1997 rose to
attractive levels due to significant cost
reductions generated by the unit's network
redesign, as well as modest tightening of truck
capacity.

Intermodal Operating Revenue
(Millions of Dollars)

[GRAPH]

'93 '94 '95 '96 '97
$599 $684 $707 $660 $669

Operating income totaled $46 million in 1997, up 31% from 1996. Revenue
increased $9 million, to $669 million, while volume increased 5%, to 1.03
million trailers and containers. In 1995, operating income was $30 million on
revenue of $707 million.

CSXI's network redesign, implemented in the fourth quarter of 1996, resulted in
significant productivity gains. The company expanded train capacity in markets
with the greatest growth and profit potential. Service reliability improved
significantly as a result of the network redesign and enhanced coordination
between CSXI and CSXT. During the year, CSXI's overall performance was adversely
affected by service problems on the western section of its transcontinental
network.

International volume rose 7% in 1997, with revenue up 10% over 1996. While
domestic volume increased 4%, revenue decreased 1% due to rate pressure and
traffic mix. Productivity initiatives related to equipment management and
terminal-trucking operations reduced operating costs by $8 million.

INTERMODAL ASSETS
Owned or leased units as of Dec. 26, 1997
- ---------------------------------------------
Equipment

Domestic Containers 5,322
Rail Trailers 5,119

Facilities
CSX Intermodal Terminals 33
Motor Carrier Operations Terminals 23
- ---------------------------------------------

Capital expenditures totaled $32 million in 1997, $19 million of which related
to preparation for the Conrail integration, vs. $24 million in 1996 and $57
million in 1995. During 1997, CSXI began expansion of its terminal facilities in
Atlanta, New York/New Jersey, and at its Chicago gateway. The company also
expanded its domestic container fleet by more than 30%.

In 1998, CSXI will focus on expanding its business in key lanes and developing
new markets to enhance the value of the CSXT core franchise. At the same time,
the company will be preparing for the integration of Conrail routes. CSXI
anticipates growth patterns in 1998 similar to those achieved in 1997. The
unit's capital plan for 1998 includes a significant investment for the
continuing expansion of terminal facilities in key markets in preparation for
the Conrail integration.

[PHOTO]
[PHOTO CAPTION] Trailers loaded for shipment in Jacksonville now arrive in the
Northeast faster and more reliably due to CSXI's service re-
design, undertaken in conjunction with CSXT.

CONTRACT LOGISTICS RESULTS

Customized Transportation Inc. (CTI) continued its
rapid growth in revenue and operating income in
1997. Revenue rose to $389 million, 23% above
1996 and 62% above 1995. Operating income
increased to $24 million, 40% above 1996 and 91%
above 1995.

Contract Logistics Operating Revenue
(Millions of Dollars)

[GRAPH]

'93 '94 '95 '96 '97
$145 $182 $240 $316 $389

Much of CTI's 1997 results were attributable to its success in providing
logistics management services to the automotive, tire, machinery, electronics,
consumer durable, and chemical industries. More than 65 million transactions
were completed in 1997 with an error-free rate of 99.9858%. This commitment to
quality earned nine additional ISO 9002 certifications during the year. In
addition, CTI continued to expand overseas, with the management of contract
operations in South America and Europe. CTI expects to continue its rapid growth
in 1998.

[PHOTO]
[PHOTO CAPTION] CTI is building upon its U.S. automotive base while expanding
into other industries and international markets.

CONSOLIDATED OUTLOOK

Though uncertainty about the direction of Asian
economies makes economic forecasting more difficult
than usual, CSX expects modest growth in the U.S.
economy and continued expansion of global trade
during 1998.

We expect each of our transportation units to improve upon its 1997 financial
performance in 1998. The railroad should continue to improve its operating ratio
through stringent cost control and modest revenue growth. For our waterborne
businesses, we expect improving supply-demand fundamentals to result in a more
stable rate environment and improved profitability. Our intermodal and logistics
units should continue their recent trend of strong earnings growth.

Costs associated with the Conrail transaction and integration will affect 1998
consolidated results, as CSX makes investments in capital improvements and
information technology to prepare for the Conrail integration. We expect
regulatory approval in mid-1998 and are determined to execute a smooth
integration of the Conrail assets. The steps we are taking will strengthen CSX's
position by expanding our market reach.

FINANCIAL INFORMATION

CONTENTS
29 Consolidated Statement of Earnings
30 Consolidated Statement of Cash Flows
31 Consolidated Statement of Financial Position
32 Consolidated Statement of Changes in Shareholders' Equity
33 Notes to Consolidated Financial Statements
51 Report of Ernst & Young LLP, Independent Auditors

Consolidated Statement of Earnings

(Millions of Dollars, Except Per Share Amounts)

Fiscal Years Ended
Dec. 26, Dec. 27, Dec. 29,
1997 1996 1995
----------------------------------

OPERATING INCOME
Operating Revenue $10,621 $10,536 $10,304
Operating Expense 9,038 9,014 8,921
Restructuring Charge -- -- 257
----------------------------------
Total Operating Expense 9,038 9,014 9,178
----------------------------------
Operating Income 1,583 1,522 1,126
----------------------------------

OTHER INCOME AND EXPENSE
Other Income 51 43 118
Interest Expense 451 249 270
----------------------------------

EARNINGS
Earnings Before Income Taxes 1,183 1,316 974
Income Tax Expense 384 461 356
----------------------------------
Net Earnings $ 799 $ 855 $ 618
----------------------------------

PER COMMON SHARE
Earnings Per Share $ 3.67 $ 4.00 $ 2.94
Earnings Per Share, Assuming Dilution $ 3.62 $ 3.96 $ 2.91
Average Common Shares Outstanding (Thousands) 217,796 213,633 210,270
Average Common Shares Outstanding, Assuming
Dilution (Thousands) 220,792 216,205 212,329
Cash Dividends Paid Per Common Share $ 1.08 $ 1.04 $ .92
----------------------------------

See accompanying Notes to Consolidated Financial Statements.

Consolidated Statement of Cash Flows

(Millions of Dollars)

Fiscal Years Ended
Dec. 26, Dec. 27, Dec. 29,
1997 1996 1995
----------------------------------

OPERATING ACTIVITIES
Net Earnings $ 799 $ 855 $ 618
Adjustments to Reconcile Net Earnings to Net
Cash Provided
Depreciation and Amortization 688 620 600
Deferred Income Taxes 190 166 (26)
Restructuring Charge Provision -- -- 257
Productivity/Restructuring Charge Payments (51) (88) (155)
Equity in Conrail Earnings and Other Operating
Activities (121) 12 10
Changes in Operating Assets and Liabilities
Accounts Receivable (99) (67) (82)
Other Current Assets (2) (65) (22)
Accounts Payable 39 84 170
Other Current Liabilities 115 (77) 197
----------------------------------
Net Cash Provided by Operating Activities 1,558 1,440 1,567
----------------------------------

INVESTING ACTIVITIES
Property Additions (1,125) (1,223) (1,156)
Proceeds from Property Dispositions 51 84 97
Investment in Conrail (2,163) (1,965) --
Short-Term Investments-- Net (119) 21 (65)
Purchases of Long-Term Marketable Securities (60) (45) (114)
Proceeds from Sales of Long-Term Marketable Securities 45 137 97
Other Investing Activities 23 4 87
----------------------------------
Net Cash Used by Investing Activities (3,348) (2,987) (1,054)
----------------------------------

FINANCING ACTIVITIES
Short-Term Debt-- Net (509) 187 (53)
Long-Term Debt Issued 2,530 2,118 121
Long-Term Debt Repaid (98) (486) (343)
Cash Dividends Paid (235) (223) (194)
Other Financing Activities (15) (1) 11
----------------------------------
Net Cash Provided (Used) by Financing Activities 1,673 1,595 (458)
----------------------------------

Net (Decrease) Increase in Cash and Cash Equivalents (117) 48 55

CASH, CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS
Cash and Cash Equivalents at Beginning of Year 368 320 265
----------------------------------
Cash and Cash Equivalents at End of Year 251 368 320
Short-Term Investments at End of Year 439 314 340
----------------------------------
Cash, Cash Equivalents and Short-Term Investments
at End of Year $ 690 $ 682 $ 660
----------------------------------

SUPPLEMENTAL CASH FLOW INFORMATION
Interest Paid-- Net of Amounts Capitalized $ 423 $ 265 $ 275
Income Taxes Paid $ 141 $ 381 $ 253
----------------------------------

See accompanying Notes to Consolidated Financial Statements.

Consolidated Statement of Financial Position

(Millions of Dollars)

Dec. 26, Dec. 27,
1997 1996
---------------------

ASSETS
Current Assets
Cash, Cash Equivalents and Short-Term Investments $ 690 $ 682
Accounts Receivable 987 894
Materials and Supplies 227 229
Deferred Income Taxes 134 139
Other Current Assets 137 128
---------------------
Total Current Assets 2,175 2,072

Properties-- Net 12,406 11,906
Investment in Conrail 4,244 1,965
Affiliates and Other Companies 394 345
Other Long-Term Assets 738 677
---------------------
Total Assets $19,957 $16,965
---------------------

LIABILITIES
Current Liabilities
Accounts Payable $ 1,179 $ 1,189
Labor and Fringe Benefits Payable 477 499
Casualty, Environmental and Other Reserves 298 306
Current Maturities of Long-Term Debt 229 101
Short-Term Debt 126 335
Other Current Liabilities 398 327
---------------------
Total Current Liabilities 2,707 2,757

Casualty, Environmental and Other Reserves 711 715
Long-Term Debt 6,416 4,331
Deferred Income Taxes 2,939 2,720
Other Long-Term Liabilities 1,418 1,447
---------------------
Total Liabilities 14,191 11,970
---------------------

SHAREHOLDERS' EQUITY
Common Stock, $1 Par Value 218 217
Other Capital 1,552 1,433
Retained Earnings 4,016 3,452
Minimum Pension Liability (20) (107)
---------------------
Total Shareholders' Equity 5,766 4,995
---------------------
Total Liabilities and Shareholders' Equity $19,957 $16,965
---------------------

See accompanying Notes to Consolidated Financial Statements.

Consolidated Statement of Changes in Shareholders' Equity

(Millions of Dollars)

Common Shares Minimum
Outstanding Common Other Retained Pension
(Thousands) Stock Capital Earnings Liability Total
- ----------------------------------------------------------------------------------------------

Balance Dec. 30, 1994 104,722 $105 $1,368 $2,391 $(133) $3,731
Net Earnings -- -- -- 618 -- 618
Dividends - Common -- -- -- (194) -- (194)
Common Stock -
Stock Purchase and Loan Plan
Stock Canceled (155) (1) (11) -- -- (12)
Purchase Loans-- Net -- -- 12 -- -- 12
Other Stock Issued -- Net 716 1 55 -- -- 56
Minimum Pension Liability -- -- -- -- 24 24
2-for-1 Stock Split 105,212 105 (105) -- -- --
Other -- Net -- -- -- 7 -- 7
- ----------------------------------------------------------------------------------------------

Balance Dec. 29, 1995 210,495 210 1,319 2,822 (109) 4,242
Net Earnings -- -- -- 855 -- 855
Dividends-- Common -- -- -- (223) -- (223)
Common Stock --
Stock Purchase and Loan Plan
Stock Issued 7,652 8 356 -- -- 364
Stock Canceled and
Exchanged (2,786) (3) (67) -- -- (70)
Purchase Loans-- Net -- -- (240) -- -- (240)
Other Stock Issued-- Net 1,524 2 65 -- -- 67
Minimum Pension Liability -- -- -- -- 2 2
Other-- Net -- -- -- (2) -- (2)
- ----------------------------------------------------------------------------------------------

Balance Dec. 27, 1996 216,885 217 1,433 3,452 (107) 4,995
Net Earnings -- -- -- 799 -- 799
Dividends - Common -- -- -- (235) -- (235)
Common Stock -
Stock Purchase and Loan Plan
Stock Issued 138 -- 8 -- -- 8
Stock Canceled and
Exchanged (379) -- (11) -- -- (11)
Purchase Loans-- Net -- -- 26 -- -- 26
Other Stock Issued-- Net 1,666 1 96 -- -- 97
Minimum Pension Liability -- -- -- -- 87 87
----------------------------------------------------------------
Balance Dec. 26, 1997 218,310 $218 $1,552 $4,016 $ (20) $5,766
- ----------------------------------------------------------------------------------------------

See accompanying Notes to Consolidated Financial Statements.

Notes to Consolidated Financial Statements

NOTE 1. SIGNIFICANT ACCOUNTING POLICIES.

Nature of Operations
CSX Corporation (CSX) is a global freight transportation company with principal
business units providing rail, container-shipping, intermodal, barging and
contract logistics services. Rail transportation services are provided
principally throughout the eastern United States and account for nearly half of
the company's operating revenue, with coal, bulk products and manufactured
products each contributing a relatively equal share of rail revenue. Coal
shipments primarily supply domestic utility and export markets.
Container-shipping services are provided in the United States and more than 80
countries and territories throughout the world and account for more than
one-third of the company's operating revenue. Intermodal, barging and contract
logistics services are provided principally within the United States and
together account for the company's remaining operating revenue.

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
The company's fiscal reporting period ends on the last Friday in December. The
financial statements presented are for the fiscal periods ended Dec. 26, 1997,
Dec. 27, 1996, and Dec. 29, 1995. Each fiscal year consists of four 13-week
quarters.

Common Stock Split
The company distributed a 2-for-1 common stock split to shareholders in December
1995. In the accompanying Consolidated Statement of Earnings and Notes to
Consolidated Financial Statements, all references to shares of common stock and
per share amounts for periods prior to the stock split have been restated.

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. Cash and cash equivalents are
net of outstanding checks that are funded daily from cash receipts and maturing
short-term investments.

Accounts Receivable
The company has sold, directly and through Trade Receivables Participation
Certificates (Certificates), ownership interests in designated pools of accounts
receivable originated by CSX Transportation Inc. (CSXT), its rail unit.

At Dec. 26, 1997, the company had $200 million of Certificates outstanding, at
5.05%, due September 1998. The Certificates represent undivided interests in a
master trust holding an ownership interest in a revolving pool of rail freight
accounts receivable. The Certificates were collateralized by $249 million of
accounts receivable held in the master trust. The company has the ability to
issue $50 million in additional Certificates through September 1998 at
prevailing market terms.

The company also has a revolving agreement with a financial institution to sell
with recourse on a monthly basis an undivided percentage ownership interest in
designated pools of freight and other accounts receivable. The agreement
provides for the sale of up to $200 million in accounts receivable and expires
in October 1998.

The company has retained the responsibility for servicing and collecting
accounts receivable held in trust or sold. At Dec. 26, 1997, and Dec. 27, 1996,
accounts receivable have been reduced by $372 million, representing Certificates
and accounts receivable sold. The net costs associated with sales of
Certificates and receivables were $29 million, $30 million and $32 million in
1997, 1996 and 1995, respectively.

The company maintains an allowance for doubtful accounts based upon the expected
collectibility of accounts receivable, including receivables collateralizing the
Certificates and receivables sold. Allowances for doubtful accounts of $86
million and $97 million have been applied as a reduction of accounts receivable
at Dec. 26, 1997, and Dec. 27, 1996, respectively.

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
Main line track on the rail system is depreciated on a group basis using a
unit-of-property 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. Significant premature retirements for all
properties, which would include major casualty losses, abandonments, sales and
obsolescence of assets, are recorded as gains or losses at the time of their
occurrence. 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. All properties are stated at cost,
less an allowance for accumulated depreciation.

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 Recognition
Transportation revenue is recognized proportionately as shipments move from
origin to destination.

Environmental Costs
Environmental costs relating to current operations are expensed or capitalized
as appropriate. Expenditures relating to remediating an existing condition
caused by past operations, and that do not contribute to current or future
revenue generation, are expensed. 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.

Derivative Financial Instruments
Derivative financial instruments may be used from time to time by the company in
the management of its interest, foreign currency and commodity exposures, and
are accounted for on an accrual basis. Income and expense are recorded in the
same category as that of the underlying asset or liability. Gains and losses
related to hedges of existing assets or liabilities are deferred and recognized
over the expected remaining life of the related asset or liability. Gains and
losses related to hedges of anticipated transactions also are deferred and
recognized in income in the same period as the hedged transaction. There were no
significant derivative financial instruments outstanding at Dec. 26, 1997.

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 12 -- Stock
Plans.

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.

Prior-Year Data
Certain prior-year data have been reclassified to conform to the 1997
presentation.

Accounting Pronouncements
The FASB has issued Statement No. 130 "Reporting Comprehensive Income" and
Statement No. 131 "Disclosures about Segments of an Enterprise and Related
Information," both of which the company will adopt in 1998. Statement No. 130
establishes standards for reporting and display of comprehensive income and its
components in financial statements. Comprehensive income generally represents
all changes in shareholders' equity except those resulting from investments by
or distributions to shareholders. With the exception of net earnings, such
changes are generally not significant to the company; and the adoption of
Statement No. 130, including the required comparative presentation for prior
periods, is not expected to have a material impact on its financial statements.
Statement No. 131 requires that a publicly held company report financial and
descriptive information about its operating segments in financial statements
issued to shareholders for interim and annual periods. The Statement also
requires additional disclosures with respect to products and services,
geographic areas of operation and major customers. The company operates
diversified freight transportation businesses and has historically provided
detailed operating segment and other information in its communications to
shareholders; however, such information has not typically been presented in the
consolidated financial statements and related notes.

NOTE 2. JOINT ACQUISITION OF CONRAIL.

During the second quarter of 1997, CSX and Norfolk Southern Corporation (Norfolk
Southern) completed the acquisition of Conrail Inc. (Conrail) through a jointly
owned entity pursuant to an agreement dated April 8, 1997. The joint acquisition
was the outcome of negotiations that followed separate, competing initiatives by
CSX and Norfolk Southern to acquire Conrail. These initiatives began in October
1996 when CSX and Conrail entered into an agreement to combine in a strategic
merger transaction in which Conrail shareholders would receive cash and CSX
common stock for their shares. Norfolk Southern challenged the CSX/Conrail
merger agreement and made an all-cash competing offer for Conrail. As a result
of these initiatives, CSX and Norfolk Southern completed separate cash tender
offers for 19.9% and 9.9%, respectively, of Conrail's outstanding shares in late
1996 and early 1997. Subsequent developments surrounding the efforts of CSX and
Norfolk Southern to acquire Conrail led to discussions that produced the joint
acquisition agreement.

Completion of the Conrail acquisition was achieved through a joint tender offer
and subsequent merger in which all outstanding Conrail shares not already owned
by the company and Norfolk Southern were acquired for cash, or were converted
into the right to receive cash, of $115 per share. Under the agreement, CSX
contributed approximately $4.1 billion, in the form of cash and Conrail shares
previously acquired, for a 42% investment in Conrail. Norfolk Southern
contributed approximately $5.7 billion, also in the form of cash and Conrail
shares previously acquired, for a 58% investment in Conrail. The Conrail shares
acquired by CSX and Norfolk Southern have been placed in a voting trust pending
approval of the transaction by the STB. CSX financed the acquisition of its 42%
investment in Conrail by issuing a combination of fixed-rate debentures and
commercial paper.

In June 1997, CSX and Norfolk Southern completed supplemental agreements
governing the legal structure of the transaction and operations of the Conrail
rail system subsequent to STB approval. The terms of these agreements, the
operating plans of the respective companies, and the benefits expected to result
from combining the respective rail systems are incorporated in a joint railroad
control application that was filed with the STB on June 23, 1997. The STB is
expected to issue a final decision on the application in July 1998. It is
anticipated that operational integration of the CSX and Conrail systems will
take place upon completion of labor agreements with Conrail's contract
workforce, currently expected to be in late 1998.

The completion of the joint tender offer and subsequent merger, and the
resulting increase in CSX's ownership interest in Conrail from 19.9% to 42%,
required a change from the cost method to the equity method of accounting for
the investment during the second quarter of 1997. The change in accounting
method included adjustments retroactive to the date of CSX's initial investment
in Conrail in November 1996. The net amount of these retroactive adjustments
applicable to fiscal year 1996 was not material. The company will continue to
use the equity method of accounting while the Conrail shares are held in the
voting trust. Under this method, the company recognizes income from its
proportionate share of Conrail's net income and expense for amortization of its
purchase price in excess of its proportionate share of Conrail's net book value.
For the fiscal year ended Dec. 26, 1997, equity in Conrail's net income totaled
$144 million, and amortization of the excess purchase price totaled $42 million.

Summary financial information for Conrail for its fiscal years ended Dec. 31,
1997, 1996 and 1995 is as follows:

For the Year Ended Dec. 31,
--------------------------------
1997 1996 1995
- ------------------------------------------------------------------------------
Income Statement Information:
Revenues $3,765 $3,714 $3,686
Income from Operations 322 601 456
Net Income 7 342 264
- ------------------------------------------------------------------------------

As of Dec. 31,
--------------------
1997 1996
- -----------------------------------------------------------------------------
Balance Sheet Information:
Current Assets $ 954 $1,117
Property and Equipment and Other Assets 7,530 7,285
Total Assets 8,484 8,402
Current Liabilities 1,208 1,092
Long-Term Debt 1,732 1,876
Total Liabilities 5,319 5,295
Stockholders' Equity 3,165 3,107
- -----------------------------------------------------------------------------

Conrail's operating results for 1997 include certain charges that the acquiring
companies are required to record as liabilities established in connection with a
purchase business combination under generally accepted accounting principles.
These charges reflect obligations for separation-related compensation to certain
Conrail executives and include vesting of benefits under certain stock
compensation plans and the termination of Conrail's Employee Stock Ownership
Plan. The charges, which totaled $363 million on an after-tax basis, were
excluded from the net income of Conrail in determining the proportionate share
of such income recorded by CSX. Excluding these separation-related charges,
Conrail's net income would have been $370 million for the year ended Dec. 31,
1997.

Conrail's 1997 operating results also include one-time expenses for other
acquisition-related costs and a cumulative income tax adjustment. On an
after-tax basis, the acquisition-related expenses totaled $72 million for the
year. The adjustment to income tax expense, $22 million, was recorded to
increase deferred income taxes as a result of a change in a state tax rate.
These expenses were included in the net income of Conrail in determining the
proportionate share of such income recorded by CSX.

CSX is amortizing the difference between its purchase price for the investment
in Conrail and its proportionate share of Conrail's net assets. A substantial
portion of the excess purchase price is expected to be allocated to reflect the
fair value of Conrail's property and equipment. The provision for amortization
of the excess purchase price has been based upon preliminary estimates of the
fair values of such property and equipment and estimates of their remaining
useful lives, as well as estimates of the fair values of other assets and
liabilities of Conrail.

The combined effect of equity earnings, excess purchase price amortization, net
interest on debt issued to acquire the Conrail investment, and other expenses
related to the transaction reduced CSX's net earnings for the fiscal year ended
Dec. 26, 1997, by $97 million, 43 cents per share on a diluted basis. The net
effect of the investment in Conrail on CSX's net earnings for the fiscal year
ended Dec. 27, 1996, was not significant. The company's method of accounting for
the investment subsequent to the STB decision and dissolution of the voting
trust will depend upon the final terms of the joint ownership arrangement
approved by the STB.

NOTE 3. 1995 RESTRUCTURING CHARGE.

In 1995, the company recorded a $257 million pretax restructuring charge to
recognize the estimated costs of specific initiatives at CSXT and at Sea-Land
Service Inc. (Sea-Land), its container-shipping unit. The charge reduced 1995
net earnings by $160 million, 76 cents per share.

CSXT Initiative
CSXT recorded its $196 million portion of the pretax restructuring charge to
recognize the costs associated with a contractual agreement with a major
telecommunications vendor to replace, manage and technologically enhance its
existing private telecommunications network. The initiative resulted in a
write-down of assets rendered technologically obsolete and a provision for
separation and labor protection payments to affected employees.

The agreement, which originally was to expire in May 2005, provided for the
vendor to supply and manage new technology to replace CSXT's existing
telecommunications system, thereby rendering it commercially obsolete. These
assets, comprising CSXT's internal companywide telecommunications network
including existing microwave and fiber optic communications systems, have no
alternative use and their net realizable value is not significant. As a result
of the agreement, the net book value of the assets to be replaced was reduced by
$163 million.

During 1996, CSXT and the vendor amended the agreement to change the termination
date to June 30, 1998, to increase the payments required over the revised
service period, and to relieve the vendor's obligations to replace certain
technology. CSXT is in the final stages of negotiating a multiyear agreement
with a successor telecommunications vendor and expects to have service
arrangements with that vendor in place prior to June 30, 1998.

Sea-Land Initiatives
The restructuring initiatives at Sea-Land represented $61 million of the total
charge and included its global integration program and the reflagging of five
U.S.-flag vessels to the registry of the Marshall Islands in accordance with
approval from the Maritime Administration. Sea-Land's global integration program
resulted in the consolidation of worldwide senior management functions, the
relocation of the corporate headquarters to Charlotte, N.C., and the integration
of information technologies. The vessel reflagging initiative primarily involves
crew separations on the five vessels.

NOTE 3. 1995 RESTRUCTURING CHARGE (CONTINUED).

Summary

The 1995 restructuring charge and related activity through Dec. 26, 1997, is as
follows:

Separation Lease and
and Labor Facility
Obsolete Protection Exit
Assets Costs Costs Total
------------------------------------------------

Restructuring Charge $163 $80 $14 $257
Amounts Utilized through Dec. 26, 1997 163 31 9 203
------------------------------------------------
Remaining Reserve as of Dec. 26, 1997 $ -- $49 $ 5 $ 54
------------------------------------------------

The total provision for separation and labor protection payments relates to
approximately 800 affected employees and was based on existing collective
bargaining agreements with members of clerical, electrical, and signal crafts
and seafarer trades. Through Dec. 26, 1997, approximately 560 employee
separations have been finalized. The company expects the remaining affected
employees to be impacted within the next four years.

NOTE 4. OPERATING EXPENSE.

1997 1996 1995
--------------------------------
Labor and Fringe Benefits $3,226 $3,158 $3,133
Materials, Supplies and Other 2,511 2,509 2,621
Building and Equipment Rent 1,111 1,143 1,134
Inland Transportation 1,003 996 970
Depreciation 620 611 588
Fuel 567 574 473
Miscellaneous -- 23 2
Restructuring Charge -- -- 257
--------------------------------
Total $9,038 $9,014 $9,178
--------------------------------
Selling, General and Administrative
Expense Included in Above Items $1,106 $1,210 $1,249
--------------------------------

NOTE 5. OTHER INCOME.

1997 1996 1995
-------------------------------

Interest Income $53 $48 $ 62
Income from Real Estate and Resort Operations(a) 71 62 54
Net Gain (Loss) on Investment Transactions(b) -- (4) 77
Net Costs for Accounts Receivable Sold (29) (30) (32)
Minority Interest (41) (42) (32)
Income from Investment in Conrail-- Net 34 8 --
Equity Earnings (Losses) of Other Affiliates 6 6 (3)
Foreign Currency Gain (Loss) (1) 5 (1)
Miscellaneous (42) (10) (7)
-------------------------------
Total $51 $43 $118
-------------------------------

(a) Gross revenue from real estate and resort operations was $206 million, $186
million and $178 million in 1997, 1996 and 1995, respectively.

(b) In December 1995, the company recognized a net investment gain of $77
million on the issuance of an equity interest in a Sea-Land terminal and
related operations in Asia and the write-down of various investments. The
The equity interest portion of the transaction resulted in proceeds of $105
million and a pretax gain of $93 million, $61 million after-tax, 29 cents
per share. Sea-Land's interest in the terminal operations was reduced from
approximately 67% to 57%.

NOTE 6. INCOME TAXES.

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

1997 1996 1995
--------------------------------

Earnings Before Income Taxes:
- Domestic $ 987 $1,158 $765
- Foreign 196 158 209
--------------------------------
Total Earnings Before Income Taxes $1,183 $1,316 $974

Income Tax Expense (Benefit):
Current - Federal $ 143 $ 250 $337
- Foreign 35 30 26
- State 16 15 19
--------------------------------
Total Current 194 295 382
--------------------------------
Deferred- Federal 168 166 (26)
- Foreign 1 -- --
- State 21 -- --
--------------------------------
Total Deferred 190 166 (26)
--------------------------------
Total Income Tax Expense $ 384 $ 461 $356
--------------------------------

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

1997 1996 1995
------------------------------------------------

Tax at Statutory Rates $414 35% $461 35% $341 35%
State Income Taxes 24 2 10 1 12 1
Equity in Conrail Net Income (30) (2) -- -- -- --
Prior Years' Income Taxes (12) (1) (27) (2) -- --
Other Items (12) (1) 17 1 3 1
------------------------------------------------
Income Tax Expense $384 33% $461 35% $356 37%
------------------------------------------------

The significant components of deferred tax assets and liabilities include:

Dec. 26, Dec. 27,
1997 1996
--------------------

Deferred Tax Assets:
Productivity/Restructuring Charges $162 $ 171
Employee Benefit Plans 334 434
Deferred Gains and Related Rents 119 195
Other 370 252
--------------------
Total 985 1,052
--------------------
Deferred Tax Liabilities:
Accelerated Depreciation 3,173 3,095
Other 618 538
--------------------
Total 3,791 3,633
--------------------
Net Deferred Tax Liabilities $2,806 $2,581
--------------------

NOTE 6. INCOME TAXES (CONTINUED).
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 1997 and 1996.

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 $290 million
and $279 million at Dec. 26, 1997, and Dec. 27, 1996, 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 1993 are
currently under examination. Management believes adequate provision has been
made for any adjustments that might be assessed.

NOTE 7. PROPERTIES.

Dec. 26, 1997 Dec. 27, 1996
- --------------------------------------------------------------------------------------------
Accumulated Accumulated
Cost Depreciation Net Cost Depreciation Net
- --------------------------------------------------------------------------------------------

Rail:
Road $ 9,603 $2,658 $ 6,945 $ 9,308 $2,619 $ 6,689
Equipment 4,400 1,580 2,820 4,220 1,427 2,793
- --------------------------------------------------------------------------------------------
Total Rail 14,003 4,238 9,765 13,528 4,046 9,482
- --------------------------------------------------------------------------------------------
Container-shipping 2,673 1,111 1,562 2,437 1,017 1,420
Other 1,594 515 1,079 1,455 451 1,004
- --------------------------------------------------------------------------------------------
Total $18,270 $5,864 $12,406 $17,420 $5,514 $11,906
- --------------------------------------------------------------------------------------------

NOTE 8. CASUALTY, ENVIRONMENTAL AND OTHER RESERVES.

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

Casualty and Environmental Separation
Other Reserves(a)(b) Reserves(a) Liabilities(a)(c) Total
----------------------------------------------------------------------

Balance Dec. 30, 1994 $579 $140 $394 $1,113
Charged to Expense and Other Additions 279 22 80 381
Payments and Other Reductions (288) (25) (70) (383)
----------------------------------------------------------------------
Balance Dec. 29, 1995 570 137 404 1,111

Charged to Expense and Other Additions 254 16 -- 270
Payments and Other Reductions (290) (36) (34) (360)
----------------------------------------------------------------------
Balance Dec. 27, 1996 534 117 370 1,021

Charged to Expense and Other Additions 277 12 -- 289
Payments and Other Reductions (249) (30) (22) (301)
----------------------------------------------------------------------
Balance Dec. 26, 1997 $562 $ 99 $348 $1,009
----------------------------------------------------------------------

(a)Balances include current portions of casualty and other, environmental and
separation reserves, respectively, of $245 million, $20 million and $33
million at Dec. 26, 1997; $234 million, $20 million and $52 million at Dec.
27, 1996; and $241 million, $20 million and $37 million at Dec. 29, 1995.

(b)Casualty reserves are estimated based upon the first reporting of an
accident or personal injury to an employee. Liabilities for accidents are
based upon field reports and liabilities for personal injuries are based upon
the type and severity of the injury and the use of current trends and
historical data.

(c)Separation liabilities include $300 million at Dec. 26, 1997, $318 million
at Dec. 27, 1996, and $344 million at Dec. 29, 1995, related to productivity
charges recorded in 1991 and 1992 to provide for the estimated costs of
implementing work-force 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 20 to 25 years.

NOTE 9. DEBT AND CREDIT AGREEMENTS.
Average Interest
Rates at Dec. 26, Dec. 27,
Type and Maturity Dates Dec. 26, 1997 1997 1996
----------------------------------------
Commercial Paper 6% $2,000 $2,300
Notes Payable (1999-2021) 8% 479 498
Debentures (2000-2032) 8% 3,145 650
Equipment Obligations (1998-2011) 7% 784 739
Mortgage Bonds (1998-2003) 3% 75 76
Other Obligations, including
Capital Leases (1998-2021) 7% 162 169
----------------------------------------
Total 7% 6,645 4,432
----------------
Less Debt Due Within One Year 229 101
--------------------
Total Long-Term Debt $6,416 $4,331
--------------------

To provide financing for a portion of the Conrail acquisition, the company
issued $2.5 billion principal amount of fixed rate debentures through a private
offering in May 1997. The debentures were issued in multiple tranches with
maturities ranging from 2002 to 2032 and interest rates ranging from 6.95% to
8.30%. In October 1997, the company completed an offer to exchange the
privately placed debentures for new freely tradeable debentures with
substantially identical terms.

In November 1996, the company had entered into a $4.8 billion bank credit
agreement to provide financing for the Conrail acquisition and meet general
working capital needs. Upon issuance of the debentures described above, the
agreement was amended and the maximum borrowing amount was reduced to $2.5
billion. 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. At Dec. 26, 1997, the company had commercial paper
borrowings related to the credit facility of $2.126 billion, of which $2 billion
was classified as long-term debt based on the company's ability and intention to
maintain this debt outstanding for more than one year. At Dec. 27, 1996, the
company had commercial paper borrowings related to the credit facility of $2.635
billion, of which $2.3 billion was classified as long-term debt. 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 sale or disposition of certain assets.

Commercial paper classified as short-term debt was $126 million at Dec. 26,
1997, and $335 million at Dec. 27, 1996. The weighted-average interest rate for
the short-term commercial paper outstanding at year-end was 6% for 1997 and
1996.

In September 1992, the company filed a shelf registration statement with the
Securities and Exchange Commission to provide for the issuance of up to $450
million in senior debt securities, warrants to purchase debt securities or
currency warrants. This shelf registration included a combined prospectus
covering amounts remaining to be issued as debt securities under a previous
shelf registration. As of Dec. 26, 1997, an aggregate of $250 million of debt is
available for issuance under the company's shelf registration statement and
combined prospectus.

Excluding long-term commercial paper, the company has long-term debt maturities
for 1998 through 2002 aggregating $229 million, $94 million, $325 million, $63
million and $561 million, respectively. A portion of the company's rail unit
properties are pledged as security for various rail-related, long-term debt
issues.

NOTE 10. 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. In December 1995, shareholders received one additional share
of common stock for each share held, pursuant to a 2-for-1 stock split approved
by the board of directors. At Dec. 26, 1997, common shares issued and
outstanding totaled 218,309,911.

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. 26, 1997.

Pursuant to a Shareholder Rights Plan adopted by the board of directors in 1988
and amended in 1990, 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, 1998, or the
redemption of the rights, one one-hundredth of a share of Series B preferred
stock at an exercise price of $100, 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 days following the public
announcement that a person or affiliated group has acquired or obtained the
right to acquire 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 20% 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 11. EARNINGS PER SHARE.
The company adopted FASB Statement No. 128 "Earnings per Share" in the fourth
quarter of 1997. In accordance with the provisions of this statement, the
following table sets forth the computation of earnings per share and earnings
per share, assuming dilution.

1997 1996 1995
- --------------------------------------------------------------------------------

Numerator:
Net Earnings $799 $855 $618

Denominator (thousands):
Denominator for earnings per share -
average common shares outstanding 217,796 213,633 210,270
Effect of Potentially Dilutive
Securities:
Stock Options 2,598 2,192 1,598
Performance Share Awards and
other stock awards 398 381 460
-----------------------------
Potentially dilutive common shares 2,996 2,573 2,058
-----------------------------
Denominator for earnings per share, assuming
dilution -- average diluted common shares
outstanding 220,792 216,206 212,328
- --------------------------------------------------------------------------------
Earnings per share $3.67 $4.00 $2.94
- --------------------------------------------------------------------------------
Earnings per share, assuming dilution $3.62 $3.96 $2.91
- --------------------------------------------------------------------------------

Note 12 provides additional disclosures regarding employee stock options,
Performance Share Awards, and other stock awards.

Options to purchase 1,955,000 shares of common stock at $57 per share and
1,977,520 shares at $51.44 per share were outstanding during late 1997 and the
second half of 1996, respectively, but were not included in the computation of
earnings per share, assuming dilution. The exercise price of these options was
greater than the average market price of the common shares and, accordingly,
their effect is antidilutive to earnings per share.

NOTE 12. 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.
Compensation expense for stock-based awards under these plans is determined by
the awards' intrinsic value accounted for under the principles of APB Opinion
No. 25 and related Interpretations. Compensation expense recognized for
stock-based awards was $66 million, $36 million and $50 million in 1997, 1996
and 1995, respectively. Had compensation expense been determined based upon fair
values at the date of grant for awards under these plans, 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:

1997 1996 1995
----------------------------
Net Earnings - As Reported $ 799 $ 855 $ 618
- Pro Forma $ 791 $ 832 $ 610
----------------------------
Earnings Per Share - As Reported $3.67 $4.00 $2.94
- Pro Forma $3.63 $3.90 $2.90
----------------------------
Earnings Per Share, Assuming Dilution
- As Reported $3.62 $3.96 $2.91
- Pro Forma $3.58 $3.85 $2.87
----------------------------

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 1997, 1996 and 1995 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,
which originated in 1991, 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. Amendments to the Plan
were approved by the company's shareholders and implemented in 1996, providing
for continuation of the Plan through February 2006, and increasing the common
stock reserved for issuance from 4.4 million to 9 million shares.

At the inception of the revised Plan in August 1996, participants who entered
the original Plan in 1991 or 1992 either withdrew shares from the Plan, applied
all or part of their equity in shares purchased in the original Plan as a down
payment to acquire additional shares, or extended their participation at
existing levels for up to one year. In addition, shares were offered to certain
employees who were not previously eligible to participate in the Plan. In
connection with the Plan amendments, from Aug. 1, 1996, through Dec. 27, 1996,
72,497 shares were withdrawn from the Plan, 2,630,727 shares were exchanged and
canceled, and 7,651,970 new shares were sold to participants at an average
market price of $47.52 per share. In consideration for the 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 original Plan. The remaining purchase price is in the form of non-recourse
loans secured by the shares issued.

All non-recourse loans under the Plan are subject to certain adjustments after a
vesting period based upon targeted increases in the market price of CSX common
stock. At Dec. 26, 1997, certain of the market price thresholds had been met,
resulting in forgiveness of interest (net of dividends applied to interest) plus
a portion of the principal balances of the notes.

NOTE 12. STOCK PLANS (CONTINUED).

At Dec. 26, 1997, there were 170 participants in the Plan. Transactions
involving the Plan are as follows:

Shares Average
(000's) Price(a)
----------------------
Outstanding at Dec. 29, 1995 3,423 $18.64
Issued 7,652 $47.52
Exchanged, Canceled or Withdrawn (2,964) $18.73
----------------------
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
----------------------

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

1997 1996 1995
- --------------------------------------------------------------------------------
Down Payment (Recourse) Loans Outstanding $ 7 $ 7 $ 4
Purchase (Non-Recourse) Loans Outstanding $270 $296 $ 60
Weighted-Average Interest Rate 6.59% 6.64% 7.75%
- --------------------------------------------------------------------------------

The weighted-average fair value benefit to participants for a share issued under
the Stock Purchase and Loan Plan was $19.82 in 1997 and $15.65 in 1996. These
values were estimated as of the dates of grant using the Black-Scholes option
pricing model with the following assumptions for 1997 and 1996, respectively:
risk-free interest rates of 6.1% and 6.5%; dividend yields of 2.2% and 2.4%;
volatility factors of 22.2% and 21.5%. Expected lives of six years were used in
both 1997 and 1996.

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

At Dec. 26, 1997, there were 475 current or former employees with outstanding
grants under the Plan. A total of 18,132,238 shares were reserved for issuance,
of which 428,638 were available for new grants (5,396,274 at Dec. 27, 1996). The
remaining shares are assigned to outstanding stock options, SARs 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. 26, 1997, Dec. 27, 1996, and Dec. 29, 1995, follows:

1997 1996 1995
--------------------------------------------------------------------------------
Shares Weighted-Average Shares Weighted-Average Shares Weighted-Average
(000s) Exercise Price (000s) Exercise Price (000s) Exercise Price
--------------------------------------------------------------------------------

Outstanding at Beginning of Year 13,102 $35.82 11,881 $32.76 10,206 $30.97
Granted 4,182 $51.44 1,978 $51.43 2,165 $40.25
Canceled or Expired (31) $49.89 (42) $27.69 (57) $38.95
Exercised (1,082) $26.08 (715) $42.08 (433) $27.18
--------------------------------------------------------------------------------
Outstanding at End of Year 16,171 $40.49 13,102 $35.82 11,881 $32.76
--------------------------------------------------------------------------------
Exercisable at End of Year 9,911 $34.08 10,139 $31.90 8,017 $28.79
--------------------------------------------------------------------------------
Fair Value of Options Granted $12.25 $13.78 $11.33
--------------------------------------------------------------------------------

The following table summarizes information about stock options outstanding at
Dec. 26, 1997:

Options Outstanding Options Exercisable
------------------------------------------------- ------------------------------
Weighted-Average
Number Remaining Weighted-Average Number Weighted-Average
Range of Exercise Prices Outstanding Contractual Life Exercise Price Exercisable Exercise Price
------------------------------------------------- ------------------------------

$15 to $20 2,042 2.4 $17.74 2,042 $17.74
$30 to $39 4,987 5.5 $35.57 4,987 $35.57
$40 to $49 5,239 8.0 $43.80 2,234 $40.67
$50 to $57 3,903 9.0 $54.22 648 $51.43
------------------------------------------------- ------------------------------
Total 16,171 6.7 $40.49 9,911 $34.08
------------------------------------------------- ------------------------------

The fair value of options granted in 1997, 1996 and 1995 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 1997, 1996 and 1995,
respectively: risk-free interest rates of 6.5%, 6.3% and 6.8%; volatility
factors of 21%, 22% and 23%; dividend yields of 2.2%, 2.4% and 2.4%; and
expected lives of 4.8 years, 6 years and 6 years.

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. 26, 1997, there were 1,269,200
shares reserved for outstanding PSAs. In 1997, 1996 and 1995, respectively,
126,600, 110,600, and 122,200 PSAs were granted to employees. The
weighted-average fair value of those shares was $44.88 for 1997, $44.44 for 1996
and $32.56 for 1995.

At Dec. 26, 1997, there were 263,696 SARs outstanding with a weighted-average
exercise price of $16.44. In 1997 and 1996, respectively, 171,377 and 69,494
SARs were exercised at weighted-average exercise prices of $14.94 and $15.68;
there were no exercises in 1995. There were no grants of SARs in 1997, 1996 or
1995.

Stock Award Plan
Under the 1990 Stock Award Plan, all officers and employees of the company are
eligible to receive shares of CSX common stock as an incentive award and certain
key employees are eligible to receive them as a deferral award. All awards of
common stock are issued based on terms and conditions approved by the company's
board of directors. At Dec. 26, 1997, there were 1,314,890 shares reserved for
issuance under this Plan, of which 815,390 were available for new grants. In
1997, 1996 and 1995, respectively, 433,500 shares, 633,587 shares and 348,278
shares were granted under the Plan. The weighted-average fair value of those
shares was $44.69 for 1997, $45.63 for 1996 and $35.78 for 1995.

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. 26, 1997, there were
659,946 shares of common stock available for purchase under this Plan. Employees
purchased 35,593 shares in 1997; 40,985 shares in 1996 and 46,224 shares in 1995
under the plan at weighted-average market prices of $51.94, $47.39 and $40.31
for 1997, 1996 and 1995, 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. 26, 1997, there were
4,809,010 shares reserved for issuance under these Plans.

NOTE 12. STOCK PLANS (CONTINUED).

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 award of stock or stock
options. No stock options have been awarded under the Plan. 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. 26, 1997, there were 929,377 shares of common stock reserved for issuance
under this Plan.

NOTE 13. 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 the
company with a fair value significantly different from its carrying amount. At
Dec. 26, 1997, the fair value of long-term debt, including current maturities,
was $7.03 billion, compared with a carrying amount of $6.64 billion. At Dec. 27,
1996, the fair value of long-term debt, including current maturities, was $4.56
billion, compared with a carrying amount of $4.43 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 company had no significant hedging or derivative financial instruments at
Dec. 26, 1997, or Dec. 27, 1996.

NOTE 14. EMPLOYEE BENEFIT PLANS.

Pension 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. Annual
contributions to the plans are sufficient to meet the minimum funding standards
set forth in the Employee Retirement Income Security Act of 1974, as amended.
Plan assets consist primarily of common stocks, corporate bonds and cash and
cash equivalents. Pension expense is determined based upon annual actuarial
valuations and includes the following components:

1997 1996 1995
----------------------
Service Cost $ 40 $ 37 $ 28
Interest Cost on Projected Benefit Obligation 98 93 91
Actual Return on Plan Assets (271) (89) (190)
Net Amortization and Deferral 193 18 117
Foreign Plans 3 4 4
----------------------
Pension Expense $ 63 $ 63 $ 50
----------------------

The funded status of the plans and the amounts reflected in the accompanying
statement of financial position at year-end are:

Assets Exceed Obligations Obligations Exceed Assets
(At Valuation Date) (At Valuation Date)
------------------------- -------------------------
Sept. 30, Sept. 30, Sept. 30, Sept. 30,
1997 1996 1997 1996
-------------------- -------------------------

Benefit Obligation:
Vested Benefits $1,164 $44 $107 $1,161
Non-Vested Benefits 49 1 4 59
-------------------- -------------------------
Accumulated Benefit Obligation 1,213 45 111 1,220
Effect of Anticipated Future Salary Increases 128 1 18 105
-------------------- -------------------------
Projected Benefit Obligation 1,341 46 129 1,325
Fair Value of Plan Assets 1,371 63 -- 1,047
-------------------- -------------------------
Funded Status 30 17 (129) (278)
Unrecognized Initial Net Obligation 18 -- 2 18
Unrecognized Prior Service Cost (9) 1 9 (3)
Unrecognized Net Loss 69 6 48 257
Recognition of Minimum Liability -- -- (43) (176)
Cash Contributions, Oct. 1 through Year-End -- -- 2 2
-------------------- -------------------------
Net Pension Asset (Obligation) at Year-End $108 $24 $(111) $ (180)
-------------------- -------------------------

The company experienced a significant increase in the fair value of plan assets
between the actuarial measurement dates for 1996 and 1997. Due to this increase,
plans comprising a significant portion of the company's total projected benefit
obligation experienced a change in funded status. Assets exceeded projected
benefit obligations for these plans at Sept. 30, 1997, and the company's
aggregate minimum pension liability was reduced by $133 million in 1997.

The following actuarial assumptions were used in determining net pension expense
and projected benefit obligations:

1997 1996 1995
---------------------------------
Discount Rate at Valuation Date 7.50% 7.50% 7.50%
Estimated Long-Term Rate of Salary
Increases at Valuation Date 5.00% 5.00% 5.00%
Expected Long-Term Rate of Return
on Assets During the Period 9.50% 9.50% 9.75%
---------------------------------

Savings Plans
The company maintains savings plans for virtually all full-time salaried
employees and certain employees covered by collective bargaining agreements.
Eligible employees may contribute from 1% to 15% of their annual compensation in
1% multiples to these plans. The company matches eligible employees'
contributions in an amount equal to the lesser of 50% of each participating
employee's contributions or 3% of their annual compensation. In addition, the
company contributes fixed amounts for each participating employee covered by
certain collective bargaining agreements. Expense associated with these plans
was $23 million, $23 million and $29 million for 1997, 1996 and 1995,
respectively.

Other Post-Retirement Benefit Plans
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 post-retirement medical plans are
contributory, with retiree contributions adjusted annually, and contain other
cost-sharing features such as deductibles and coinsurance. The net benefit
obligation for medical plans anticipates future cost-sharing changes consistent
with the company's expressed intent to increase retiree contribution rates
annually in line with expected medical cost inflation rates. The life insurance
plan is non-contributory.

NOTE 14. EMPLOYEE BENEFIT PLANS (CONTINUED).

The company's current policy is to fund the cost of the post-retirement medical
and life insurance benefits on a pay-as-you-go basis, as in prior years. The
amounts recorded for the combined plans in the company's statement of financial
position at Dec. 26, 1997, and Dec. 27, 1996, are as follows:

Medical Life Insurance
(At Valuation Date) (At Valuation Date)
-------------------- --------------------
Sept. 30, Sept. 30, Sept. 30, Sept. 30,
1997 1996 1997 1996
-------------------- --------------------

Accumulated Post-Retirement Benefit Obligation:
Retirees $206 $214 $59 $60
Fully Eligible Active Participants 37 34 3 3
Other Active Participants 38 38 2 2
-------------------- -------------------
Accumulated Post-Retirement Benefit Obligation 281 286 64 65
Unrecognized Prior Service Cost 4 10 4 4
Unrecognized Net (Loss) Gain (31) (48) -- 1
Claim Payments, Oct. 1 through Year-End (5) (6) (2) (1)
-------------------- -------------------
Net Post-Retirement Benefit Obligation at Year-End $249 $242 $66 $69
-------------------- -------------------

Net expense for post-retirement benefits was $30 million, $30 million and $27
million for 1997, 1996 and 1995, respectively. The net post-retirement benefit
obligation was determined using the assumption that the health care cost trend
rate for medical plans was 9.5% for 1997-1998, decreasing gradually to 5.5% by
2005 and remaining at that level thereafter. A 1% increase in the assumed health
care cost trend rate would increase the accumulated post-retirement benefit
obligation for medical plans as of Dec. 26, 1997, by $21 million and net
post-retirement benefit expense for 1997 by $3 million. The discount rate used
in determining the accumulated post-retirement benefit obligation was 7.50% for
1997, 1996 and 1995.

Other Plans
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. The administrators of the
multiemployer plans generally allocate funds received from participating
companies to various health and welfare benefit plans and pension plans. Current
information regarding such allocations has not been provided by the
administrators. Total contributions of $238 million, $224 million and $239
million were made to these plans in 1997, 1996 and 1995, respectively.

NOTE 15. COMMITMENTS AND CONTINGENCIES.

Lease Commitments
The company leases equipment 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. 26, 1997, minimum building and equipment
rentals under non-cancelable operating leases totaled approximately $414 million
for 1998, $356 million for 1999, $304 million for 2000, $290 million for 2001,
$262 million for 2002 and $1.9 billion thereafter.

Rent expense on operating leases, including net daily rental charges on railroad
operating equipment of $239 million, $245 million and $257 million in 1997, 1996
and 1995, respectively, amounted to $1.2 billion in 1997, 1996 and 1995.

Purchase Commitments
CSXT entered into agreements during 1993, 1996 and 1997 to purchase 450
locomotives. These large orders cover normal locomotive replacement needs for
1994 through 1998 and introduced alternating current traction technology to the
locomotive fleet. CSXT has taken delivery of 50 direct current and 301
alternating-current locomotives through Dec. 26, 1997. The remaining 99
alternating-current units will be delivered in 1998.

Contingent Liabilities
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 immaterial to the company's results of operations
and financial position at Dec. 26, 1997.

In September 1997, a state court jury in New Orleans 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.

The company has been advised that activities of a former subsidiary that
administered U.S. government guaranteed student loans are under investigation.
The subsidiary was sold in 1992. The U.S. Attorney's Office has said that it may
institute proceedings against CSX based on government insurance payments made on
uncollected loans as a result of alleged processing deficiencies or errors
before the sale. While the amount of potential damages is not yet reasonably
estimable, based upon information currently available to the company, management
believes any adverse outcome will not be material to the company's results of
operations or financial position, although it could be material to results of
operations in a particular quarterly accounting period.

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.

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 approximately 120 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 approximately 250 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. 26, 1997,
and Dec. 27, 1996, were $99 million and $117 million, respectively. These
recorded liabilities 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. 26, 1997, 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 position.

Legal Proceedings
A number of legal actions, other than environmental, 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 involving
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 consolidated results of operations, financial position or cash flows of the
company.

NOTE 16. 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). In accordance with SEC disclosure
requirements, summarized financial information for Sea-Land and its consolidated
subsidiaries is as follows:

Summary of Operations: 1997 1996 1995(b)
- --------------------------------------------------------------------------------
Operating Revenue $3,991 $4,051 $4,008

Operating Expense
- Public 3,634 3,648 3,755
- Affiliated(a) 109 122 107
-------------------------------
Operating Income $ 248 $ 281 $ 146
------------------------------
Net Earnings $ 56 $ 84 $ 86
-------------------------------

Dec. 26, Dec. 27,
Summary of Financial Position: 1997 1996
- --------------------------------------------------------------------------------
Current Assets - Public $ 652 $ 747
- Affiliated(a) 4 1

Other Assets - Public 1,880 1,829
- Affiliated(a) 40 14

Current Liabilities - Public 626 725
- Affiliated(a) 37 115

Other Liabilities - Public 687 756
- Affiliated(a) 576 347

Shareholder's Equity 650 648
-----------------------

(a) Amounts represent activity with CSX affiliated companies.

(b) Beginning in 1996, Sea-Land assumed primary responsibility for direct
purchase of transportation from non-affiliated rail carriers. These
services were previsouly purchased through a CSX-affiliated company.
Operating expense for 1995 has been restated to report this activity as
public expense.

SL Alaska Trade Company (SLATCO) is a special purpose, unconsolidated subsidiary
of Sea-Land wi th trust-related assets of $117 million securing $106 million of
debt maturing on Oct. 1, 2005. The assets of SLATCO are not available to
creditors of Sea-Land or its subsidiaries, nor are the SLATCO notes guaranteed
by Sea-Land or any of its subsidiaries.

NOTE 17. BUSINESS SEGMENTS.

Operating Revenue Operating Income
Fiscal Years Ended Fiscal Years Ended Identifiable Assets
---------------------------- ---------------------------- -------------------
Dec. 26, Dec. 27, Dec. 29, Dec. 26, Dec. 27, Dec. 29, Dec. 26, Dec. 27,
1997 1996 1995 1997 1996 1995 1997 1996
---------------------------- ---------------------------- -------------------

Transportation $10,621 $10,536 $10,304 $1,583 $1,522 $1,126 $18,682 $16,071
---------------------------- ---------------------------- -------------------
Non-Transportation Segment $ 238 $ 220 $ 200 61 43 46 $ 1,275 $ 894
---------------------------- -------------------
Other (Net) (10) -- 72
----------------------------
Total Other Income 51 43 118
Interest Expense 451 249 270
----------------------------
Earnings Before Income Taxes $1,183 $1,316 $ 974
----------------------------

The principal components of the business segments are:

Transportation - Rail, container-shipping, barge, intermodal and contract
logistics operations. The container-shipping operation reported revenue of $4.0
billion for 1997, $4.1 billion for 1996 and $4.0 billion for 1995. Approximate
revenue allocation by port of origin for 1997, 1996 and 1995 was: North America
- -- 44%; Asia -- 31%; Europe -- 18%; and Other -- 7%. Foreign business activities
outside the container-shipping operation do not contribute materially to the
company's financial results.

Non-Transportation - Real estate sales and rentals, resort management and resort
operations.

NOTE 18. QUARTERLY DATA (UNAUDITED).

1997
-------------------------------------------
1st 2nd 3rd 4th
-------------------------------------------

Operating Revenue $2,567 $2,678 $2,649 $2,727
Operating Income $ 324 $ 433 $ 384 $ 442
Net Earnings $ 151 $ 227 $ 206 $ 215
Earnings Per Share $ .70 $ 1.04 $ .95 $ .98
Earnings Per Share, Assuming Dilution $ .69 $ 1.03 $ .93 $ .97
-------------------------------------------

1996
-------------------------------------------
1st 2nd 3rd 4th
-------------------------------------------

Operating Revenue $2,514 $2,672 $2,647 $2,703
Operating Income $ 296 $ 408 $ 392 $ 426
Net Earnings $ 146 $ 234 $ 222 $ 253
Earnings Per Share $ .69 $ 1.11 $ 1.04 $ 1.17
Earnings Per Share, Assuming Dilution $ .68 $ 1.09 $ 1.02 $ 1.15
-------------------------------------------

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 26, 1997 and December 27,
1996, 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 26, 1997. 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 generally accepted auditing
standards. 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
(appearing on pages 29-50) present fairly, in all material respects, the
consolidated financial position of CSX Corporation and subsidiaries at December
26, 1997 and December 27, 1996, and the consolidated results of their operations
and their cash flows for each of the three fiscal years in the period ended
December 26, 1997, in conformity with generally accepted accounting principles.

/s/ Ernst & Young LLP
-----------------
Ernst & Young LLP

Richmond, Virginia
January 30, 1998

Board of Directors

Elizabeth E. Bailey(2,4)
John C. Hower Professor of Public Policy and Management
The Wharton School, University of Pennsylvania, Philadelphia, Pa.

Robert L. Burrus Jr.(4,5)
Partner and Chairman
McGuire, Woods, Battle & Boothe, LLP, Richmond, Va.

Bruce C. Gottwald(4,5)
Chairman and CEO
Ethyl Corporation, Richmond, Va.

John R. Hall(3,5)
Chairman of Arch Coal Inc. and
Retired Chairman and CEO
Ashland Inc., Ashland, Ky.

Robert D. Kunisch(1,3)
Vice Chairman
Cendant Corporation, Boca Grande, Fla.

Hugh L. McColl Jr.(2,4)
CEO
NationsBank Corp., Charlotte, N.C.

James W. McGlothlin(1,5)
Chairman and CEO
The United Company, Bristol, Va.

Southwood J. Morcott(1,2,4)
Chairman and CEO
Dana Corporation, Toledo, Ohio

Charles E. Rice(1,2,3)
Former Chairman and CEO
Barnett Banks Inc., Jacksonville, Fla.

William C. Richardson(3,5)
President and CEO
W.K. Kellogg Foundation, Battle Creek, Mich.

Frank S. Royal, M.D.(2,3)
Physician and Health Care Authority, Richmond, Va.

John W. Snow(1)
Chairman, President and CEO
CSX Corporation, Richmond, Va.

Key to committees of the board
1 - Executive, 2 - Audit, 3 - Compensation, 4 - Pension,
5 - Organization & Corporate Responsibility

Corporate Officers

John W. Snow, 58*, Chairman, President and CEO -- elected February 1991

Mark G. Aron, 55*, Executive Vice President-Law and Public Affairs -- elected
April 1995(1)

Andrew B. Fogarty, 53*, Senior Vice President-Corporate Services -- elected
September 1997(2)

Paul R. Goodwin, 55*, Executive Vice President-Finance and Chief Financial
Officer -- elected April 1995(3)

Ellen M. Fitzsimmons, 37, General Counsel-Corporate -- elected September 1997

Arnold I. Havens, 50, Vice President-Federal Affairs -- elected February 1997

Thomas E. Hoppin, 56, Vice President-Corporate Communications -- elected April
1986

William F. Miller, 55, Vice President-Audit and Advisory Services -- elected
September 1996

Jesse R. Mohorovic, 55*, Vice President-Corporate Relations -- elected February
1995(4)

James P. Peter, 47, Vice President-Taxes -- elected June 1993

James L. Ross, 59*, Vice President and Controller -- elected April 1996(5)

Alan A. Rudnick, 50, Vice President-General Counsel and Corporate Secretary --
elected June 1991

Michael J. Ruehling, 50, Vice President-State Relations -- elected February 1995

James A. Searle Jr., 51, Vice President-Administration -- elected April 1996

Peter J. Shudtz, 49, Vice President-Law and General Counsel -- elected September
1997

William H. Sparrow, 54*, Vice President-Financial Planning -- elected January
1996(6)

Gregory R. Weber, 52*, Vice President and Treasurer -- elected April 1996(7)

Unit Officers

CSX TRANSPORTATION INC.

Alvin R. (Pete) Carpenter, 56*
President and CEO since January 1992

John Q. Anderson, 46*
Executive Vice President-Sales & Marketing since May 1996(8)

Donald D. Davis, 58*
Executive Vice President-Employee Relations since January 1998(9)

Gerald L. Nichols, 62*
Vice Chairman since January 1998(10)

Carl N. Taylor, 58*
Executive Vice President-Operations since January 1998(11)

Michael J. Ward, 47*
Executive Vice President-Finance and CFO since June 1996(12)

SEA-LAND SERVICE INC.

John P. Clancey, 53*
President and CEO since August 1991

Robert J. Grassi, 51*
Senior Vice President-Finance and Planning since August 1997(13)

Richard E. Murphy, 53*
Senior Vice President-Corporate Marketing since June 1996(14)

Charles G. Raymond, 54*
Senior Vice President and Chief Transportation Officer
since May 1995(15)

CSX INTERMODAL INC.

Lester M. Passa, 43*
President and CEO since November 1997(16)

AMERICAN COMMERCIAL LINES INC.

Michael C. Hagan, 51*
President and CEO since May 1992

CUSTOMIZED TRANSPORTATION INC.

David G. Kulik, 49
President and CEO since December 1994

THE GREENBRIER

Ted J. Kleisner, 53
President and Managing Director since January 1989

YUKON PACIFIC CORPORATION

Jeff B. Lowenfels, 49
President and CEO since February 1995

CSX TECHNOLOGY

John F. Andrews, 44*
President and CEO since April 1995
and CSX Chief Information Officer -- elected November 1997(17)

* Executive officers of the corporation. Executive officers of CSX Corporation
are elected by the CSX board of directors and hold office until the next
annual election of officers. Officers of CSX business units are elected
annually by the respective boards of directors of the business units. There
are no family relationships or any arrangement or understanding between any
officer and any other person pursuant to which such officer was selected. All
of the executive officers listed have held their current positions for at
least five years except as noted below:

1) Prior to April 1995, Mr. Aron served as Senior Vice President-Law and Public
Affairs.

2) Prior to September 1997, Mr. Fogarty served as Senior Vice President-Finance
and Planning, Sea-Land, from June 1996 TO August 1997; As CSX Vice
President-Audit and Advisory Services from March 1995 TO June 1996; and prior
thereto as CSX Vice President-Executive Department.

3) Prior to April 1995, Mr. Goodwin served as an officer of CSXT as Executive
Vice President-Finance & Administration from February 1995 to April 1995; as
Senior Vice President-Finance from April 1992 to February 1995; and prior
thereto as Senior Vice President-Finance.

4) Prior to February 1995, Mr. Mohorovic served as Vice President-Corporate
Communications, CSXT, from April 1994 to February 1995, and prior thereto as
Vice President-Corporate Communications, Sea-Land.

5) Prior to April 1996, Mr. Ross served as CSX Vice President-Special Projects
from October 1995 to April 1996, and prior thereto as Audit Partner with
Ernst & Young, LLP.

6) Prior to January 1996, Mr. Sparrow served as Vice President-Capital Planning
and Budgeting from May 1994 to January 1996 and prior thereto as Vice
President and Treasurer.

7) Prior to April 1996, Mr. Weber served as Vice President, Controller and
Treasurer, from May 1994 TO April 1996, and prior thereto as Vice President
and Controller.

8) Prior to May 1996, Mr. Anderson served as Senior Vice President-Coal, Metals
and Minerals Business for Burlington Northern Santa Fe Corporation.

9) Prior to January 1998, Mr. Davis served as CSXTSenior Vice President-Employee
Relations.

10)Prior to January 1998, Mr. Nichols served as CSXT Executive Vice President
and COO from February 1995 to January 1998 and prior thereto as Senior Vice
President-Administration of CSXT.

11)Prior to January 1998, Mr. Taylor served as CSXT Senior Vice President
Transportation & Mechanical and Chief Financial Officer from July 1996 to
January 1998; Senior Vice President Engineering & Mechanical from March 1995
to July 1996; and prior thereto as Vice President Mechanical.

12)Prior to May 1996, Mr. Ward served as an officer of CSXT as Senior Vice
President-Finance from April 1995 TO May 1996; General Manager-C&O Business
unit from 1994 TO April 1995; and prior thereto as Vice President-Coal.

13)Prior to August 1997, Mr. Grassi served as Sea-Land Senior Vice
President-Atlantic, AME Services from June 1996 to August 1997 and prior
thereto as Senior Vice President-Finance and Planning.

14)Prior to June 1996, Mr. Murphy served as Sea-Land Vice
President-Atlantic-AME from 1995 to June 1996; Senior Vice President-Pacific
Services from 1993 to 1995; and prior thereto as Vice President-Pacific
Services.

15)Prior to May 1995, Mr. Raymond served as Sea-Land Senior Vice
President-Operations and Inland Transportation.

16)Prior to November 1997, Mr. Passa served as CSXT Vice President-Commercial
Integration from July 1997 to November 1997, and prior thereto as an officer
of Conrail Inc. as Senior Vice President-Automotive Service Group from
February 1997 to July 1997; as Vice President-Logistics & Corporate Strategy
from March 1995 to February 1997; as Assistant Vice President-Corporate
Strategy.

17)Prior to April 1995, Mr. Andrews served as Vice President-Systems
Development, CSX Technology.

Shareholder Information

SHAREHOLDER SERVICES

Shareholders with questions about their accounts should contact the transfer
agent at the address or telephone number shown below. General questions about
CSX or information contained in company publications should be directed to
corporate communications at the address or telephone number shown below.

Security analysts, portfolio managers or other investment community
representatives should contact investor relations at the address or telephone
number shown below.

TRANSFER AGENT, REGISTRAR AND DIVIDEND DISBURSING

Agent Harris Trust Company
P.O. Box A3504
Chicago, IL 60690
(800) 521-5571
e-mail: WEBSHARE@HARRISBANK.com

CSX Direct Invest
Harris Trust Dividend Reinvestment Department
P. O. Box A3309
Chicago, IL 60690-3309
(800) 521-5571
e-mail: www.harrisbank.com

Shareholder Relations
Anne B. Taylor
Administrator-Shareholder Services
CSX Corporation
P.O. Box 85629
Richmond, VA 23285-5629
(804) 782-1465
e-mail: Anne_Taylor@csx.com

Corporate Communications
Elisabeth Gabrynowicz
Director-Corporate Communications
CSX Corporation
P.O. Box 85629
Richmond, VA 23285-5629
(804) 782-1406
e-mail: Elisabeth_Gabrynowicz@csx.com

Investor Relations
Joseph C. Wilkinson
Director-Investor Relations
CSX Corporation
P.O. Box 85629
Richmond, VA 23285-5629
(804) 782-1553
e-mail: Joseph_Wilkinson@csx.com

DIRECT STOCK PURCHASE AND DIVIDEND REINVESTMENT
CSX provides dividend reinvestment and stock purchase plans for employees,
shareholders and potential shareholders as a convenient method of acquiring CSX
shares through direct purchase, dividend reinvestment and optional cash
payments.

CSXDirect Invest
CSXDirectInvestSM, a direct stock purchase and dividend reinvestment plan,
permits the purchase and sale of shares directly though our transfer agent,
Harris Trust. Through this plan, no service charges or brokerage commissions
apply to share purchases, and sales can be made with minimal charges and
commissions. Initial investment for a non-shareholder is $500 plus a $10
one-time enrollment fee.

The plan also allows for automatic reinvestment of dividends in CSX common stock
without payment of any brokerage commissions or service charges, or you may
receive dividend payments on some or all of your shares. You also may make
optional cash investments with as little as $50 per month, or up to $10,000 per
month, without any charges or commissions. Optional cash investments may be made
by mailing a check or money order to Harris, or by authorizing automatic monthly
withdrawals from your bank account. You also may make gifts of CSX shares to
others through the plan, and present them with a gift memento if desired. You do
not need to own shares of CSX stock currently to enroll in this plan.

To obtain a prospectus or other information regarding CSXDirectInvestSM, please
call or write the Harris Trust Dividend Reinvestment Department at the phone
number or address above. Or, if you prefer, you may visit our web site at
www.csx.com.

Stock Held in Brokerage Accounts
When a broker holds your stock, it is usually registered in the broker's name,
or "street name." We do not know the identity of individual shareholders who
hold stock in this manner. We know only that a broker holds a certain number of
shares that may be for any number of customers. If your stock is in a
street-name account, you are not eligible to participate in CSXDirectInvestSM,
the company's direct stock purchase and dividend reinvestment plan. Also, you
will receive your dividend payments, annual reports and proxy materials through
your broker. You should notify your broker, not Harris Trust, if you wish to
eliminate unwanted, duplicate mailings and improve the timeliness on the
delivery of these materials and your dividend payments.

LOST OR STOLEN STOCK CERTIFICATES
If your stock certificates are lost, stolen or in some way destroyed, you should
notify Harris Trust in writing immediately.

MULTIPLE DIVIDEND CHECKS AND DUPLICATE MAILINGS
Some shareholders hold their stock on CSX records in similar but different names
(e.g. John A. Smith and J.A. Smith). When this occurs, we are required to create
separate accounts for each name. Although the mailing addresses are the same, we
are required to mail separate dividend checks to each account. Duplicate
mailings of annual reports can be eliminated if you send the labels or copies of
the labels from a CSX mailing to Harris Trust. You should mark the labels to
indicate names to be kept on the mailing list and names to be deleted. However,
this action will affect mailings of financial materials only. Dividend checks
and proxy materials will continue to be sent to each account.

CONSOLIDATING ACCOUNTS
If you want to consolidate separate accounts into one account, you should
contact Harris Trust for the necessary forms and instructions. When accounts are
consolidated, it may be necessary to reissue the stock certificates.

DIVIDENDS
CSX pays quarterly dividends on its common stock on or about the 15th of March,
June, September and December, when declared by the board of directors, to
shareholders of record approximately three weeks earlier. CSX now offers direct
deposit of dividends to shareholders who request it. If you are interested,
please contact Harris Trust at the address or phone number shown on page 54.

REPLACING DIVIDEND CHECKS
If you do not receive your dividend check within 10 business days after the
payment date or if your check is lost or destroyed, you should notify Harris
Trust so payment on the check can be stopped and a replacement issued.

ENVIRONMENTAL/SAFETY REPORT
CSX is publishing an environmental/safety report, available to shareholders at
the Annual Meeting. Shareholders may order additional copies by calling
804-783-1349 or visiting our website.

Corporate Information

HEADQUARTERS
One James Center
901 East Cary Street
Richmond, VA 23219-4031
(804) 782-1400
http://www.csx.com

MARKET INFORMATION
CSX's common stock is listed on the New York, London and Swiss stock exchanges
and trades with unlisted privileges on the Midwest, Boston, Cincinnati, Pacific
and Philadelphia stock exchanges. The official trading symbol is "CSX."

DESCRIPTION OF COMMON AND PREFERRED STOCKS
A total of 300 million shares of common stock is authorized, of which
218,309,911 shares were outstanding as of Dec. 26, 1997. Each share is entitled
to one vote in all matters requiring a vote of shareholders. There are no
pre-emptive rights.

A total of 25 million shares of preferred stock is authorized. Series A consists
of 250,000 shares of $7 Cumulative Convertible Preferred Stock. All outstanding
shares of Series A Preferred Stock were redeemed as of July 31, 1992.

Series B consists of 3 million shares of Junior Participating Preferred Stock,
none of which has been issued. These shares will become issuable only and when
the rights distributed to holders of common stock under the Preferred Share
Rights Plan adopted by CSX on June 8, 1988, become exercisable.

Closing Price of Common
Stock at Fiscal Year-End
(Dollars)

[GRAPH]

'93 '94 '95 '96 '97
$40.94 $34.82 $45.63 $42.88 $51.13

COMMON STOCK PRICE RANGE AND DIVIDENDS PER SHARE

Fiscal Year 1997
- ---------------------------------------------------------------
Quarter 1st 2nd 3rd 4th
- ---------------------------------------------------------------
Market Price
High $52.00 $56.13 $62.44 $60.75
Low $41.25 $44.13 $53.94 $50.25
Dividends Per Share $ .26 $ .26 $ .26 $ .30
- ---------------------------------------------------------------

Fiscal Year 1996
- ---------------------------------------------------------------
Quarter 1st 2nd 3rd 4th
- ---------------------------------------------------------------
Market Price
High $48.50 $53.13 $53.00 $52.38
Low $42.25 $44.13 $42.25 $42.50
Dividends Per Share $ .26 $ .26 $ .26 $ .26
- ---------------------------------------------------------------

Fiscal Year 1995
- ---------------------------------------------------------------
Quarter 1st 2nd 3rd 4th
- ---------------------------------------------------------------
Market Price
High $39.88 $41.00 $44.63 $46.13
Low $34.63 $36.00 $37.44 $39.06
Dividends Per Share $ .22 $ .22 $ .22 $ .26
- ---------------------------------------------------------------

Fiscal Year 1994
- ---------------------------------------------------------------
Quarter 1st 2nd 3rd 4th
- ---------------------------------------------------------------
Market Price
High $46.19 $41.63 $39.57 $37.25
Low $39.94 $35.50 $33.00 $31.57
Dividends Per Share $ .22 $ .22 $ .22 $ .22
- ---------------------------------------------------------------

Fiscal Year 1993
- --------------------------------------------------------------
Quarter 1st 2nd 3rd 4th
- ---------------------------------------------------------------
Market Price
High $39.98 $39.07 $40.13 $44.07
Low $33.57 $33.19 $33.94 $37.44
Dividends Per Share $ .19 $ .19 $ .19 $ .22
- ---------------------------------------------------------------

Data for periods prior to 4th quarter 1995 have been adjusted for a 2-for-1
common stock split.

NUMBER OF REGISTERED SHAREHOLDERS

1997 1996 1995 1994 1993
- ------ ------ ------ ------ ------
52,852 55,176 55,528 57,355 59,714

SHARES OUTSTANDING AS OF JAN. 23, 1998: 218,308,863

COMMON STOCK SHAREHOLDERS AS OF JAN. 23, 1998: 52,599

Proposed Acquisition Map

The proposed division of Conrail's rail network is along the former New York
Central/Pennsylvania systems. CSX's 42% of Conrail is centered around the New
York-to-St. Louis Water Level Route of the former New York Central.

Historically, the New York Central competed with the Pennsylvania Railroad,
which makes up much of the Norfolk Southern acquisition. Thus, the proposed
division of Conrail effectively restores rail-rail competition in the Northeast
while creating single-line service making CSXT more competitive with trucks.

[MAP]

ANNUAL SHAREHOLDER MEETING
10 a.m., Tuesday, April 28, 1998
The Greenbrier White Sulphur Springs, W.Va.

SHAREHOLDER HOUSE PARTIES AT THE GREENBRIER
Throughout the year, The Greenbrier offers Shareholder House Parties featuring
discounted rates and special activities. Shareholder House Parties in 1998 are
scheduled for:

EASTER - APRIL 8-12

ANNUAL MEETING - APRIL 26-29

LABOR DAY - SEPT. 4-8

For information on shareholder parties, contact Maryann Sanford, Reservations
Department, The Greenbrier, 300 W. Main Street, White Sulphur Springs, WV 24986,
or phone toll-free (800) 624-6070 or e-mail to The_Greenbrier@csx.com

Again in 1998, The Greenbrier is pleased to extend to all shareholders a 10
percent discount on their Modified American Plan rates, applicable to one visit
per year. Reservations will be accepted on a space-available basis. This offer
does not apply during CSX House Parties, when rates are already discounted, or
if a shareholder is attending a conference being held at The Greenbrier.

CSX CORPORATION
One James Center
901 East Cary Street
Richmond, VA 23219-4031
(804) 782-1400
Internet address: http://www.csx.com

CSX TRANSPORTATION INC.
500 Water Street
Jacksonville, FL 32202
(904) 359-3100
Internet address: http://www.csxt.com

SEA-LAND SERVICE INC.
6000 Carnegie Blvd.
Charlotte, NC 28209
(704) 571-2000
Internet address: http://www.sealand.com

CSX INTERMODAL INC.
301 West Bay Street
Jacksonville, FL 32202
(904) 633-1000
Internet address: http://www.csxi.com

AMERICAN COMMERCIAL LINES INC.
1701 E. Market Street
Jeffersonville, IN 47130
(812) 288-0100
Internet address: http://www.aclines.com

CUSTOMIZED TRANSPORTATION INC.
10407 Centurion Parkway, N., Ste. 400
Jacksonville, FL 32256
(904) 928-1400
Internet address: http://www.cti-logistics.com

THE GREENBRIER
300 W. Main Street
White Sulphur Springs, WV 24986
(304) 536-1110
Internet address: http://www.greenbrier.com

YUKON PACIFIC CORPORATION
1049 W. 5th Avenue
Anchorage, AK 99501
(907) 265-3100
Internet address: http://www.csx.com/docs/ypc/ypc.html

CSX Corporation

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 18th day of
February 1998.

CSX Corporation

By: /s/ James L. Ross
-----------------
James L. Ross, Vice President
and Controller

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
- ------------ -------------------------------------
John W. Snow Chairman of the Board, President,
Chief Executive Officer and Director
(Principal Executive Officer)*

Paul R. Goodwin Executive Vice President-Finance
(Principal Financial Officer)*

Elizabeth E. Bailey Director*

Robert L. Burrus Jr. Director*

Bruce C. Gottwald Director*

John R. Hall Director*

Robert D. Kunisch Director*

Hugh L. McColl Jr. Director*

James W. McGlothlin Director*

Southwood J. Morcott Director*

Charles E. Rice Director*

William C. Richardson Director*

Frank S. Royal, M.D. Director*

/s/ Peter J. Shudtz
- -----------------------------------
* Peter J. Shudtz, Attorney-in-Fact
February 18, 1998

CSX CORPORATION
Statement of Differences

1. The printed Annual Report and Form 10-K contains numerous graphs and
photographs not incorporated into the electronic Form 10-K.

2. The 10-K cover sheet and index, presented on pages 49 and 50 of the printed
document, have been repositioned to the front of the electronic document.

INDEX TO EXHIBITS

Description

(3.1) Articles of Incorporation (incorporated by reference as Exhibit 3 to
Form 10-K dated Feb. 15, 1991)

(3.2) Bylaws (incorporated by reference to Exhibit 3.2 to Form 10-K dated
March 14, 1997)

(10.1) CSX Stock Plan for Directors* (incorporated by reference to Appendix A
to Proxy Statement dated March 18, 1997)

(10.2) Special Retirement Plan for CSX Directors*

(10.3) Corporate Director Deferred Compensation Plan*

(10.4) CSX Directors' Charitable Gift Plan (incorporated by reference to
Exhibit 10.4 to Form 10-K dated March 4, 1994)

(10.5) CSX Directors' Matching Gift Plan* (incorporated by reference to
Exhibit 10.5 to Form 10-K dated March 14, 1997)

(10.6) Form of Agreement with J. W. Snow, A. R. Carpenter, J. P. Clancey,
P. R. Goodwin and G. L. Nichols* (incorporated by reference to
Exhibit 10.6 to Form 10-K dated March 3, 1995)

(10.7) Form of Amendment to Agreement with A. R. Carpenter, P. R. Goodwin and
G. L. Nichols (incorporated by reference to Exhibit 10.7 to Form 10-K
dated March 14, 1997)

(10.8) Form of Amendment to Agreement with J. P. Clancey* (incorporated by
reference to Exhibit 10.8 to Form 10-K dated March 14, 1997)

(10.9) Form of Retention Agreement with A. R. Carpenter and J. P. Clancey*
(incorporated by reference to Exhibit 10.3 to Form 10-K dated Feb. 28,
1992)

(10.10) Agreement with J. W. Snow* (incorporated by reference to Exhibit 10.9
to Form 10-K dated March 4, 1994)

(10.11) Amendment to Agreement with J. W. Snow (incorporated by reference to
Exhibit 10.11 to Form 10-K dated March 14, 1997)

(10.12) Amendment to Agreement with J. W. Snow*

(10.13) Agreement with G. L. Nichols*

(10.14) Stock Purchase and Loan Plan*

(10.15) 1987 Long-Term Performance Stock Plan*

(10.16) 1985 Deferred Compensation Program for Executives of CSX Corporation
and Affiliated Companies*

(10.17) Supplementary Savings Plan and Incentive Award Deferral Plan for
Eligible Executives of CSX Corporation and Affiliated Companies*

(10.18) Special Retirement Plan of CSX Corporation and Affiliated Companies*

(10.19) Supplemental Retirement Plan of CSX Corporation and Affiliated
Companies*

(10.20) 1994 Senior Management Incentive Compensation Plan* (incorporated by
reference to Exhibit 10.16 to Form 10-K dated March 3, 1995)

(21) Subsidiaries of the Registrant

(23.1) Consent of Ernst & Young LLP

(23.2) Consent of Price Waterhouse LLP

(27) Financial Data Schedule

(99.1) Audited Consolidated Financial Statements and Schedule of Conrail Inc.
for the Years Ended Dec. 31, 1997, 1996 and 1995

* Management Contract or Compensatory Plan or Arrangement.