SECURITIES AND EXCHANGE COMMISSION
                          Washington, D. C. 20549

                                 FORM 10-K
(Mark One)
  [X]          ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
               SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]

For the fiscal year ended December 31, 1996
                                    OR
  [ ]          TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
               SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]

For the Transition Period from _________________ to ____________________

Commission File No. 1-12184
                               CONRAIL INC.
                               ------------
          (Exact name of registrant as specified in its charter)

       Pennsylvania                                23 2728514
---------------------------------      -------------------------------------
(State or other jurisdiction          (I.R.S. Employer Identification Number)
of incorporation or organization)

2001 Market Street, Two Commerce Square
Philadelphia, Pennsylvania                                  19101-1417
---------------------------------------                     ----------
(Address of principal executive offices)                    (Zip Code)

Registrant's telephone number, including area code  (215) 209-4000
                                                    --------------

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

    Title of each class           Name of each exchange on which registered

Conrail Inc.                                 New York Stock Exchange
Common Stock (Par Value $1.00)               Philadelphia Stock Exchange
and Common Stock Purchase Rights             ---------------------------
--------------------------------

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

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

Aggregate market value of voting stock held by non-affiliates of the
Registrant (as of March 3, 1997): $9,260,302,728

Shares of Common Stock outstanding (as of March 3, 1997):  83,144,397

DOCUMENTS INCORPORATED BY REFERENCE:  None

<PAGE>

                         TABLE OF CONTENTS



         Item                                                          Page
Part I     1.  Business......................................            1
           2.  Properties....................................            1
           3.  Legal Proceedings.............................           17

           4.  Submission of Matters to a Vote of Security
                   Holders....................................          23
               Executive Officers of the Registrant...........          23


Part II    5.  Market for Registrant's Common Equity and
                   Related Stockholder Matters.................         28
           6.  Selected Financial Data........................          28
           7.  Management's Discussion and Analysis of
                   Financial Condition and Results of
                   Operations..................................         31
           8.  Financial Statements and Supplementary Data....          41
           9.  Changes in and Disagreements with Accountants
                   on Accounting and Financial Disclosure......         65


Part III  10.  Directors and Executive Officers of the
                   Registrant..................................         66

          11.  Executive Compensation.........................          69

          12.  Security Ownership of Certain Beneficial
                   Owners and Management.......................         77

          13.  Certain Relationships and Related Transactions.          79

Part IV   14.  Exhibits, Financial Statement Schedules, and
                   Reports on Form 8-K.........................         80

Power of Attorney.............................................          86
Signatures....................................................          86

Exhibit Index.................................................          88

                                i

<PAGE>

                                 PART I

Item 1.   Business.
------    --------
       and
Item 2.   Properties.
------    ----------

     GENERAL. Conrail Inc. was incorporated in Pennsylvania on
     -------
February 12, 1993 and on July 1, 1993 became the holding company of
Consolidated Rail Corporation.  Consolidated Rail Corporation is
Conrail Inc.'s only significant subsidiary and primary asset.  Conrail
Inc.'s common stock is listed on the New York and Philadelphia Stock
Exchanges.

     Consolidated Rail Corporation is a Pennsylvania corporation
incorporated on February 10, 1976 to acquire, pursuant to the Regional
Rail Reorganization Act of 1973, the rail properties of many of the
railroads in the northeast and midwest region of the United States
which had gone bankrupt during the early 1970's, the largest of which
was the Penn Central Transportation Company ("Penn Central").

     Reports on Form 10-K for years prior to 1993 were filed by
Consolidated Rail Corporation, and historic data presented herein and
therein reflect the results of Consolidated Rail Corporation for those
time periods. Unless otherwise indicated, references to Conrail prior
to July 1, 1993 denote Consolidated Rail Corporation and its
consolidated subsidiaries, and references to Conrail after July 1,
1993 denote Conrail Inc. and its consolidated subsidiaries.

     PROPOSED MERGER.  On October 14, 1996, Conrail, CSX Corporation
     ---------------
("CSX") and a subsidiary of CSX entered into an Agreement and Plan of
Merger (as amended, the "Merger Agreement"), pursuant to which Conrail
was to be merged with a subsidiary of CSX in a merger-of-equals
transaction.

     On October 24, 1996, Norfolk Southern Corporation ("Norfolk")
commenced an unsolicited tender offer for all outstanding Conrail
voting stock at $100 per share in cash.  Norfolk has since increased
its offer to $115 per share in cash.

     On November 20, 1996, CSX concluded its first tender offer and
purchased approximately 19.9% of Conrail's outstanding shares for $110
per share.

     On December 18, 1996, CSX and Conrail entered into a second
amendment to the Merger Agreement (the "Second Amendment") that would,
among other things, (i) increase the consideration payable pursuant to
the merger, (ii) accelerate the consummation of the merger to
immediately following the receipt of applicable shareholder approvals
and prior to the Surface Transportation Board ("STB") approval and
(iii) extend until December 31, 1998 an exclusivity period during
which the Conrail Board agreed not to withdraw or modify its

<PAGE>

recommendations of the CSX transactions, approve or recommend any
takeover proposal or cause Conrail to enter into any agreement related
to any takeover proposal.

     On January 13, 1997, Norfolk issued a press release announcing
that it would offer to purchase shares representing 9.9% of the
outstanding shares for $115 per share, in the event that Conrail
shareholders did not approve a proposal to opt out of a Pennsylvania
statute (the "Opt Out Proposal") at the meeting of shareholders to be
held on January 17, 1997 (the "Special Shareholders Meeting").

     On January 17, 1997, Conrail shareholders voted at the Special
Shareholders Meeting against the Opt Out Proposal.

     On February 4, 1997, the amended Norfolk tender offer expired,
and Norfolk subsequently purchased approximately 8.2 million Shares
pursuant thereto.

     On March 7, 1997, Conrail and CSX entered into a Third Amendment
(the "Third Amendment") to the Merger Agreement.  Pursuant to the
Third Amendment, (i) the price per share has been increased from $110
to $115, and the number of shares to be purchased in the tender offer
has been increased to all outstanding shares.  The tender offer is
scheduled to close April 18, 1997 (subject to extension by CSX to June
2, 1997 whether or not the conditions have been satisfied), (ii) the
consideration paid per share in the merger for all remaining
outstanding shares following consummation of the offer has been
increased to $115 in cash and (iii) the conditions to the offer
relating to certain provisions of Pennsylvania law  becoming
inapplicable to Conrail and relating pending governmental actions or
proceedings have been deleted.

     The Third Amendment also provides that CSX will have sole control
over the regulatory approval process and will be free to conduct by
itself discussions with other railroads, including Norfolk, relating
to competitive issues raised by the CSX transactions, and to enter
into any resulting agreement.  It is anticipated that CSX and Norfolk
will negotiate an appropriate division of Conrail's assets;  however,
neither the pending CSX tender offer nor the merger is conditioned on
CSX's reaching an agreement with Norfolk.

     Pursuant to the Third Amendment, three members of Conrail's Board
of Directors approved by CSX shall be invited to join the CSX Board of
Directors and a transition team will be established, the leadership of
which will include senior executive officers of CSX and Conrail to
ensure the orderly operation of Conrail during the regulatory approval
process and an orderly transition thereafter.

     Under the Third Amendment, Conrail and CSX agreed to reduce from
December 31, 1998 to December 31, 1997 the period of time during which
the Conrail Board is prohibited from (i) withdrawing or modifying, or

                                2
<PAGE>

publicly proposing to withdraw or modify, its approval or
recommendation of the CSX transactions, in a manner adverse to CSX,
(ii) approving or recommending, or publicly proposing to approve or
recommend, any competing proposal or (iii) causing Conrail to enter
into any agreement related to any such competing proposal.

     Under the Merger Agreement as amended, Conrail may terminate the
Merger Agreement in the event that after June 2, 1997, CSX fails to
consummate the tender offer for any reason other than the non-
occurrence of any condition to the tender offer.  In the event that
CSX fails to consummate the tender offer under such circumstances,
Conrail will be entitled to exercise any additional remedies it may
have.

     The full terms and conditions of the CSX and Norfolk offers and
Conrail's position with respect to the CSX and Norfolk offers are set
forth in documents filed by Conrail with the Securities and Exchange
Commission.

     RAIL OPERATIONS.  Conrail, through its wholly-owned subsidiary
     ---------------
Consolidated Rail Corporation, provides freight transportation
services within the northeast and midwest United States.  Conrail
interchanges freight with other United States and Canadian railroads
for transport to destinations within and outside Conrail's service
region.  Conrail operates no significant line of business other than
the freight railroad business and does not provide common carrier
passenger or commuter train service.

     Conrail serves a heavily industrial region that is marked by
dense population centers which constitute a substantial market for
consumer durable and non-durable goods, and a market for raw materials
used in manufacturing and by electric utilities. Conrail's traffic
levels and, as a result, its financial performance are substantially
affected by its ability to compete with trucks and other railroads,
the economic strength of the industries and metropolitan areas that
produce and consume the freight Conrail hauls and the traffic
generated by Conrail's connecting railroads. Conrail remains dependent
on non-bulk traffic, which tends to generate higher revenues than bulk
commodities, but also involves higher costs and is more vulnerable to
truck competition.

      The Service Group System.  Beginning in 1994, Conrail's
      ------------------------
Marketing and Sales Department and related segments of its Operating
Department were organized into four service groups: CORE Service,
Intermodal Service, Unit Train Service and Automotive Service.
Petrochemicals and Minerals, food and agriculture products, forest and
manufactured products, and metals are handled by the CORE Service
Group. The Intermodal Service Group handles intermodal trailers and
containers.  The Unit Train Service Group handles coal and ore
traffic. The Automotive Service Group handles automotive parts and
finished vehicles.  Each of these groups controls the integrated
                                3
<PAGE>

planning, pricing and operating functions that will enable them to
tailor services, develop products and make capital investments
directed toward the special requirements of their respective
customers.

     Revenues for the Service Groups for 1992 through 1996, together
with total annual traffic volumes, are set forth in the following
tables.

<TABLE>
               SERVICE GROUPS - REVENUES ($ in Millions)

                                          Years ended December 31,
                                  ---------------------------------------
                                  1996    1995     1994     1993     1992
                                ------  ------   ------   ------   ------
<S>                                <C>     <C>      <C>      <C>     <C>
CORE Service Group(1)
   Revenues(2)                  $1,542  $1,557   $1,587   $1,514   $1,468
   Percent of total              43.9%   44.5%    44.5%    45.9%    46.0%

Intermodal Service Group
   Revenues(2)                     747     701      742      647      597
   Percent of total              21.3%   20.0%    20.8%    19.6%    18.7%

Unit Train Service Group
   Revenues(2)                     666     659      631      583      673
   Percent of total              19.0%   18.8%    17.7%    17.7%    21.1%

Automotive Service Group
   Revenues(2)                     543     549      558      505      443
   Percent of total              15.5%   15.7%    15.7%    15.3%    13.9%

Total Unassigned Revenue(2)         11      36       46       48       10
                                  0.3%    1.0%     1.3%     1.5%     0.3%

Total line haul revenue          $3,509  $3,502  $3,564   $3,297   $3,191
Miscellaneous revenue(3)            205     184     169      156      154
                                 ------  ------  ------   ------   ------
Total freight revenue            $3,714  $3,686  $3,733   $3,453   $3,345
                                 ======  ======  ======   ======   ======
</TABLE>
----------------------
(1)  Petrochemicals and
       Minerals                  $  582  $  584  $  603   $  565   $  541
     Food and Agriculture           335     353     361      351      347
     Forest and Mfg. Products       318     329     326      308      315
     Metals                         307     291     297      290      265
                                 ------  ------  ------   ------   ------
     Total CORE Srv. Grp.        $1,542  $1,557  $1,587   $1,514   $1,468
                                 ======  ======  ======   ======   ======

(2) Revenues for the years 1992 through 1994 have been
    reclassified to exclude unassigned revenue from Service Group
    totals to provide more accurate comparisons to the current
    period.

(3) Includes switching, demurrage and other miscellaneous
    revenues.

                                4
<PAGE>

<TABLE>
                   SERVICE GROUPS - VOLUME IN UNITS
         (FREIGHT CARS AND INTERMODAL TRAILERS AND CONTAINERS)
                            (In Thousands)

                                             Years ended December 31,
                                  -------------------------------------------
                                   1996    1995    1994     1993     1992
                                  -----   -----   -----    -----    -----
<S>                                <C>     <C>     <C>      <C>      <C>
CORE Service Group (1)            1,235   1,254   1,321    1,302    1,213

Intermodal Service Group          1,584   1,473   1,589    1,355    1,220

Unit Train Service Group            862     862     912      878      964

Automotive Service Group            392     399     396      360      319
                                  -----   -----   -----    -----    -----
Total Volume                      4,073   3,988   4,218    3,895    3,716
                                  =====   =====   =====    =====    =====
</TABLE>
__________________________
(1)  Petrochemicals and
       Minerals                     350     358     376      374      360
     Food and Agriculture           257     265     289      295      284
     Forest and Mfg. Products       290     306     318      309      290
     Metals                         338     325     338      324      279
                                  -----   -----   -----    -----    -----
     Total CORE Srv. Grp.         1,235   1,254   1,321    1,302    1,213
                                  =====   =====   =====    =====    =====


     CORE Service Group:
     ------------------

     In 1996, revenues and volume for this service group declined 1%
and 1.6%, respectively, from 1995.  Revenue in each of the business
units comprising the CORE Service Group declined in 1996, except in
the Metals Business Group which experienced revenue growth of 5.4%
over 1995.

     Petrochemicals and Minerals:  This commodity group consists of a
     ---------------------------
wide variety of commodities, including agricultural and organic
chemicals, plastic pellets, soda ash, construction minerals, petroleum
products and waste.  The majority of traffic is joint-line and the
primary flows are between Louisiana and Texas, (as originating
sources), and Delaware, New Jersey, and Pennsylvania (as destination
points).  This commodity group's customer base and origin/destination
pair mix are both large and diverse, with none occupying a dominant
position in terms of Conrail's traffic volume or revenues.  Conrail's
traffic in this commodity group increased in 1992 and 1993, leveled
off in 1994, and declined slightly in 1995 and 1996, with revenue and
volume down 0.3% and 2.5% respectively.  Revenues from mineral
products, which accounted for one-fourth of this group's volume in
1996, declined approximately 5% as the result of several plant
closings.

     The largest component of this business is chemical traffic,
accounting for approximately 44% of the revenue and 38% of the volume
in 1996.  This traffic includes chlorine, smaller volumes of other
hazardous chemicals and non-hazardous substances which, if spilled or
released into the atmosphere, could be dangerous and could result in
significant liability to Conrail.  Under catastrophic circumstances,

                                5
<PAGE>

such liability could exceed Conrail's $300 million in insurance
coverage for such accidents.  It is impossible to eliminate the risk
of such liability;  however, Conrail has not experienced any
significant liability as a result of an accident involving chlorine or
any other such substance.  Furthermore, Conrail has safety procedures
designed to prevent the occurrence of such accidents, or limit their
impact should they occur, and works in concert with chemical
manufacturers to reduce the risks in transporting these commodities,
subscribing to the policies and procedures defined under Responsible
Care partnerships.  The year 1996 marked Conrail's first complete year
as a Responsible Care partner.

     Increasing regulation by federal, state and local governments of
the transportation and handling of hazardous and non-hazardous
substances and waste has increased the administrative burden and costs
of transporting certain commodities in this group.

     Food and Agriculture:  This commodity group includes fresh and
     ---------------------
processed food products moving primarily in boxcars, grain, grain
products and agricultural chemicals moving in covered hopper and tank
cars.  Conrail's revenue declined by 5.1% and units declined by 2.8%
in 1996 from 1995 levels.  In the food commodities area, market share
declines of several large customers account for the difference in
volume and revenue from 1995 levels.  Agriculture volume declined as
record grain prices caused domestic users to reduce their use of grain
and grain products.  The 13.8% revenue decline in grain and grain
products is primarily attributable to an increase in grain shippers'
use of private cars.

     Forest and Manufactured Products:  This commodity group includes
     ---------------------------------
paper and wood products moving in boxcars, certain lumber and related
products moving on flatcars, and general manufactured commodities
moving in boxcars.  Paper products account for 57% of 1996 revenue for
this group, followed by wood products (30%), and manufactured products
(13%).  A 5.3% volume decline was partially offset by increases in
revenue per unit, which yielded a net revenue decrease of 3.3%.  High
inventories and product prices drove paper receivers to work off
existing inventories, reducing rail volume.  Most of the inventory
adjustments have taken place and shipments are expected to return to
normal for 1997.

     Metals:  This commodity group includes scrap ferrous products and
     -------
semi-finished, finished and sheet steel.  In 1995, this group
experienced decreases in revenue and volume due to increased truck
competition and selective price increases on low margin business.  In
1996, volume increased 4% and revenues grew 5.4% over 1995.  Market
share gains from new mini-mills located on Conrail, capacity increases
due to the acquisition of new coil cars and aggressive business
development activity contributed to the year over year growth.

                                6
<PAGE>

     Intermodal Service Group
     ------------------------

     Conrail continues to be one of the rail industry's leaders in
handling intermodal traffic.  Volume and revenue increased 7.6% and
6.6%, respectively, in 1996 from 1995.  Conrail handled nearly 1.6
million units of intermodal traffic in 1996.

     Conrail's intermodal traffic consists of three segments.  The
first segment is Conrail's parcel/package traffic, which principally
involves shipments for the U.S. Postal Service, United Parcel Service
and less-than-truck-load companies.  Revenue in this segment increased
by 7.3% in 1996.

     The second segment is domestic traffic, which includes a variety
of commodities and customers.  Revenue in this segment increased by
7.8% in 1996.  Traffic from major truckload companies continued to
increase, as did traffic from intermodal marketing companies (or third
party freight consolidators and brokers).

     International container traffic constitutes the third segment of
Conrail's intermodal traffic.  International container traffic chiefly
involves goods produced in the Pacific Basin and shipped by rail from
west coast ports to east coast markets.  Conrail and its western
railroad connections are able to participate in this traffic because
they have established superior transit time compared with the all-
water route through the Panama Canal.  Conrail also participates in
traffic moving through Atlantic ports for import and export trade with
European and Mediterranean markets.  Revenue from Conrail's
international intermodal traffic increased 4.6% in 1996.

     In 1996, Conrail opened a new intermodal terminal in Pittsburgh,
PA, initiated service from the Ameriport terminal in Philadelphia and
reopened its intermodal terminal in Buffalo.

     Unit Train Service Group
     ------------------------

     In 1996, revenues for this service group increased by
approximately 1.1%, despite no increase in traffic volume.

     Utility coal traffic, which makes up the majority of Conrail's
coal business, increased 10.4% with a 13.5% increase in revenue in
1996. Utility coal moves from mines located on and off Conrail's
system to electric utilities located on Conrail.  Annual traffic
volumes fluctuate with the inventory practices of the electric
utilities, their use of alternative sources of energy and the weather.
The 1996 increase reflects a very cold winter with lower utilization of
nuclear units in Conrail's service area.

     The utility industry is undergoing a process of deregulation
which is changing the competitive environment in this key Conrail

                                7
<PAGE>

market.   Deregulation will increase the downward pressure on utility
coal transportation rates and increase service requirements as
utilities strive to reduce their costs to remain competitive.
Deregulation, coupled with more stringent sulfur dioxide emission
limits, should help Conrail's lower cost and lower sulfur coal sources
in southwestern Pennsylvania and northern West Virginia to remain
competitive.  Shipments of Conrail-served coal from these areas
increased 7.0% in 1996 over 1995.

     Export, industrial/cogeneration and metallurgical coal represent
the three remaining segments of Conrail's coal traffic, with export
coal volumes being one-third greater than industrial/cogeneration
volumes and more than twice as great as metallurgical coal volumes.

     Export coal traffic volume declined 6% in 1996, after having
increased 58% in 1995, due to strong domestic demand for coal which
reduced the amount of coal available for the export market.

     Conrail's traffic volume and revenue for industrial/cogeneration
coal was essentially unchanged from 1995.

     Conrail's traffic volume and revenue from metallurgical coal
continues to decline, having decreased 38% in 1996 after a decline of
9% in 1995.  Revenue in 1996 was down approximately 44%.  The large
decline in 1996 volume and revenue was due to the loss of a
significant customer in the first half of the year.  Sixty  percent of
this business was recovered in June of 1996, although at significantly
lower rates.

     Conrail serves directly, or via short line switching carriers,
many of the nation's largest active integrated steel production
facilities.  Although a significant portion of the active domestic
steel industry is along the Cleveland-Chicago corridor on Conrail's
system, the traditional domestic steel industry (using integrated
steel production facilities) continues to eliminate inefficient
production capacity, which in past years has adversely affected the
volume of raw materials for steel production handled by Conrail, and
could continue to do so.  Volume in this segment is expected to
continue to decline in 1997.  This trend is continuing as iron ore and
coke volume declined 12% in 1996, while revenues declined 3.5%.

     Automotive Service Group
     ------------------------

     Conrail's Automotive Service Group experienced a slight decrease
in volume and revenue in 1996, despite continued slow growth in North
American Light Vehicle Production, which increased 1% in 1996 over
1995.  As a whole, the Automotive Service Group's revenues decreased
1.1%.  Finished vehicles revenue increased 1%, and Autoparts
experienced a 4% revenue reduction.

                                8
<PAGE>

     General Motors' strike in the Fall of 1996 was the major factor
contributing to the group's overall decline in volume and revenue,
with a particularly negative impact on the autoparts business.

     Continued strong production by the foreign-based domestic
manufacturers, and the shift of import traffic from East coast ports
to cross-country landbridge shipments, resulted in an increase in
finished vehicles traffic, despite the mid-year closing of General
Motors' Tarrytown, NY plant and Chrysler's Newark, DE plant.
                                9
<PAGE>

     Certain Statistics.  The following tables provide various
     ------------------
measurements relating to Conrail's rail operations from 1992 through
1996:

<TABLE>

                                                     PRODUCTIVITY DATA
                                                  Years ended December 31,
                                           -------------------------------------
                                           1996     1995    1994    1993    1992
                                          -----    -----   -----   -----   -----
<S>                                        <C>      <C>     <C>     <C>     <C>
Operating ratio (1)...................    83.8%    87.6%   83.8%   82.9%   84.0%
Compensation and benefits ratio.......    32.5%    33.9%   33.7%   35.6%   37.0%
Employees (average)...................   21,280   23,510  24,833  25,406  25,380
Gross ton miles per freight employee
   hour worked (2)(3).................    4,634    4,352   4,135   3,805   3,746
Gross ton miles per freight train
   hour (thousands) (2)(3)............    113.4    118.7   113.0   119.0   122.1
Gross ton miles per locomotive in
  service (millions) (2)(3)...........    114.2    110.1   104.8   102.4   107.1
Gross ton miles per gallon of fuel (2)      773      774     749     745     770
</TABLE>

(1) The 1996 operating ratio (operating expenses as a percent of
    revenues) includes the effect of a one-time $135 million charge
    for non-union voluntary separation programs and related losses on
    certain non-cancelable leases.  Without this charge, Conrail's
    operating ratio would have been 79.7%.  See Item 7 -
    "Management's Discussion and Analysis of Financial Condition and
    Results of Operations" and Note 3 to the Consolidated Financial
    Statements elsewhere in this Annual Report.  Without the $285
    million special charge in 1995, Conrail's operating ratio would
    have been 79.9%.  See Note 10 to the Consolidated Financial
    Statements elsewhere in this Annual Report.  Without the $84
    million special charge in 1994, Conrail's operating ratio would
    have been 81.5%. See Note 11 to the Consolidated Financial
    Statements elsewhere in this Annual Report.

(2) Excluding subsidiaries, except Consolidated Rail Corporation.

(3) Locomotive weight not included.

<TABLE>
                                                 QUALITY OF SERVICE DATA(1)
                                                  Years ended December 31,
                                           -------------------------------------
                                           1996     1995    1994    1993    1992
                                           ----     ----    ----    ----    ----
<S>                                         <C>      <C>     <C>     <C>     <C>

Miles of track under slow order.......       12       43      49      62      73
Locomotive out of service ratio.......     9.4%     9.1%    8.7%    8.3%    8.8%
Freight cars requiring heavy repairs..     5.6%     5.6%    4.9%    4.7%    4.0%
Reportable train accidents ...........      180      141     160     155     148
Cost of loss and damage incidents
   as a percent of revenue............     .52%     .47%    .48%    .39%    .39%

</TABLE>

(1)  Excluding subsidiaries, except Consolidated Rail Corporation.

                                10
<PAGE>

     COMPETITION.  Conrail's rail services face significant
     -----------
competition from trucks, from other railroads, and from the
availability of the same or substitute goods produced at points not
served by Conrail.  The trucking industry is especially competitive in
Conrail's service area because, among other reasons, freight in this
region is moved shorter distances than in the West, and the cost
characteristics of the railroad and trucking industries generally make
trucks more competitive over shorter distances.

     Price and service competition from trucks, while present for all
commodities, is especially evident in the movement of intermodal
freight, auto parts, and finished steel.  Competition from trucks has
been increased by the passage of legislation removing certain barriers
to entry into the trucking business and allowing the use of wider,
longer, and heavier trailers and multiple trailer combinations.
Larger trailers and multiple trailer combinations have substantially
increased productivity in the trucking industry, and any future
legislation permitting further increases in truck capacity could have
a substantial adverse effect on the competitiveness of railroads.

     Conrail is also subject to competition from other railroads.  In
most of Conrail's service territory, one or more other railroads can
serve customers directly.  Elsewhere, the ability to provide joint
service with the many short lines whose operations have proliferated
throughout the east, and/or in partnership with trucks (for pick-up,
delivery, and draying services) allows rail competitors whose tracks
do not reach given customers or points to constrain Conrail prices and
to compete effectively for movement of the freight.  In addition,
recent changes in the nature of rail service offerings and in
technology have expanded the scope of rail service beyond the physical
limitations of lines, which has resulted in increased railroad
competition.

     An important influence on Conrail's competitive position is
regulation by the Federal government.  Prior to 1980, regulation
significantly inhibited the ability of railroads to respond to
increasing customer demands, overall logistics needs, and changing
transportation markets.  The Staggers Rail Act of 1980 ("Staggers
Act") substantially reduced the restrictions of regulation.  In
particular, railroads were given more opportunity to reduce costs and
more freedom to adjust prices and service offerings, which enabled
them to compete more effectively.  Under the Staggers Act, the former
Interstate Commerce Commission ("ICC") deregulated a significant
amount of railroad traffic, including intermodal and most boxcar
traffic, finished vehicles and numerous other commodities moving in
other types of equipment.

     The Staggers Act further enhanced railroads' competitive options
by permitting the use of railroad-shipper contracts for traffic still
regulated, under which the parties can negotiate customer-specific
prices, service standards and terms.  These contracts generally

                                11
<PAGE>

provide prices lower than tariff rates and many do not guarantee that
any given amount of freight will be shipped during their term.  As of
December 31, 1996, Conrail was a party to 3,362 such contracts for
regulated traffic, which Conrail estimates accounted for 29% of its
line-haul revenues in 1996.  Although some contracts have a term
longer than one year, most contracts are for one year or less.  The
majority of Conrail's multi-year contracts are subject to cost-related
adjustments that provide for flat percentage increases.  The cost-
based provisions in certain of these contracts are tied to indices
formerly under the jurisdiction of the ICC.  Action to adjust these
indices for productivity gains by the railroads has had an adverse
impact on Conrail's ability to recover costs under such contracts,
which accounted for less than 2% of Conrail's line haul revenues in
1996.

     Effective January 1, 1996, pursuant to the ICC Termination Act of
1995, the authority of the ICC to regulate railroads was transferred
to the Department of Transportation ("DOT") to be administered by the
Surface Transportation Board.  The prior regulatory scheme remains
substantially intact, with the following significant changes: (1)
access to freight railroad tracks by rail operators (both freight and
passenger) operating on behalf of local governmental authorities has
been eased;  (2) some types of abandonments may take appreciably
longer;  (3) tariffs and most contracts will no longer be filed (other
mechanisms are required for advising customers of rates and rate
changes);  (4) minimum rate levels will no longer be regulated;  and
(5) DOT will not regulate railroad issuances of securities or
assumptions of debt.  Other changes will require development of new
regulations and/or of a body of precedent before their impact can be
fully assessed.

     PROPERTY.  Conrail directly holds no real property.  The only
     --------
significant property holdings are those of Consolidated Rail
Corporation.

     As of December 31, 1996, Consolidated Rail Corporation (excluding
its subsidiaries) maintained 16,970 miles of track including track for
crossovers, turnouts, second main, other main, passing and switch
track, on its 10,543 mile route system.  Of total route miles, 8,459
are owned, 87 are leased or operated under contract and 1,997 are
operated under trackage rights, including approximately 300 miles
operated pursuant to an easement over Amtrak's Northeast Corridor.  As
of December 31, 1996, virtually all track over which at least 10
million gross tons moved annually (5,923 track miles) was heavy-weight
rail of at least 127 pounds per yard, and 100% of such track had
continuous welded rail.  Continuous welded rail reduces track
maintenance costs and, in general, permits trains to travel at higher
speeds.  As of December 31, 1996, Conrail had 8,804 miles of
continuous welded rail on track it maintained.
                                12
<PAGE>


     As of December 31, 1996, 83% of the 3,814 track miles maintained
for fast freight traffic had a maximum operating speed of 50 MPH or
more, and 70% had a maximum operating speed of at least 60 MPH.  As of
December 31, 1996, approximately 96% of the track over which at least
10 million gross tons moved annually was governed by automatic signal
systems.  In all, as of December 31, 1996, 7,656 miles of track were
controlled by automatic signal systems.

     Conrail is engaged in an ongoing process to identify certain
under-utilized rail lines and other underperforming assets to avoid
future capital costs and to improve its return on assets. Conrail
recorded a $285 million charge in 1995 to cover the expected losses
upon disposition of approximately 1,800 miles of lines and other
assets not required to support Conrail's service.  See Note 10 to the
Consolidated Financial Statements elsewhere in this Annual Report.

     The following table indicates the number of locomotives and
freight cars owned (or subject to capitalized leases) and includes
21,435 freight cars used by Conrail under operating leases.  These
total figures are as of December 31, 1996, and include stored or
surplus units, but exclude subsidiaries other than Consolidated Rail
Corporation, which have an immaterial number of locomotives and
freight cars:

<TABLE>
                    LOCOMOTIVES AND FREIGHT CARS

                                                Number of Units
                                             ----------------------
                                              Total       Stored(1)
                                             ------       ---------
     <S>                                       <C>           <C>
     LOCOMOTIVES........................      2,006          122
                                             ------        -----
       Road.............................      1,834           78
       Switching........................        172           44


                                              Total       Surplus(2)
                                             ------       ----------

     FREIGHT CARS.......................     45,988        6,333
                                             ------        -----
       Box..............................      7,855        1,661
       Covered Hopper...................      3,400          315
       Open Hopper......................     11,464        3,265
       Gondola..........................      4,459          638
       Coil Steel.......................     11,294            0
       Multi-Level......................      6,005          165
       Flat and Other...................      1,511          289
</TABLE>
-----------------
(1)  Serviceable locomotives not required for current operations on
     December 31, 1996.

(2)  Freight cars which did not move during the seven days immediately
     preceding December 31, 1996 and which were available for loading.
     The number of surplus freight cars during 1996 fluctuated due to
     variations in traffic and fleet adjustments.
                                13
<PAGE>


     On December 31, 1996, the average age of Conrail's road
locomotives, not including stored-serviceable units, was 11.1 years.
The average age of the total locomotive fleet was 15.6 years, and the
average age of the total freight car fleet was 22 years.


     CAPITAL EXPENDITURES.  The following tables provide information
     --------------------
concerning capital expenditures from 1992 through 1996:

<TABLE>
                         CAPITAL EXPENDITURES
                             (In Millions)

                                                   Years ended December 31,
                                            ------------------------------------
                                            1996    1995    1994    1993    1992
                                            ----    ----    ----    ----    ----
<S>                                          <C>    <C>     <C>     <C>      <C>
Track rehabilitation......                  $203    $206    $221    $207    $275
Rolling stock and
transportation equipment..                   139     170     139     314      57
Other(1)..................                   136     118     148     129     159
                                            ----    ----    ----    ----    ----

Total.....................                  $478    $494    $508    $650    $491
                                            ====    ====    ====    ====    ====

Subsidiaries of
Consolidated Rail
Corporation (included in
Total)....................                  $  5    $  4    $  3    $  4    $ 12
</TABLE>

(1)  Includes communications and signals, bridges and tunnels,
computers and telecommunications, and other improvements.

<TABLE>
                         TRACK REHABILITATION

                                                   Years ended December 31,
                                            ____________________________________
                                            1996    1995    1994    1993    1992
                                            ----    ----    ----    ----    ----
<S>                                         <C>     <C>     <C>     <C>     <C>
Track miles surfaced......                 4,685   3,162   2,749   3,154   3,671
Track miles of rail laid..                   241     255     207     201     312
Ties installed (millions).                   0.9     1.1     1.1     1.0     1.4
</TABLE>


     EMPLOYEES AND LABOR.  Including subsidiaries, Conrail's average
     -------------------
number of employees for 1996 was 21,280.  Consolidated Rail
Corporation (excluding subsidiaries) averaged 20,761 employees in
1996, 87% of whom are represented by a total of 14 labor organizations
and are covered by 22 separate collective bargaining agreements.

     Conrail has concluded collective bargaining agreements with
organizations representing approximately 66% of its total employees.
These agreements contain moratorium clauses providing that they may
                                14

<PAGE>

not be reopened prior to January 1, 2000.  However, certain issues
remain outstanding with one of the above-mentioned organizations, the
Transportation Communications International Union, representing
approximately 2,250 Conrail employees.  The parties are currently in
mediation under the auspices of the National Mediation Board (NMB).
In addition, the United Transportation Union, which represents
approximately 4,100 Conrail employees, contends that certain issues
remain outstanding.  The Company disputes this contention and the
parties are in mediation.

     Conrail is currently in negotiations with organizations
representing approximately 22% of its employees.  The negotiations
with the largest of these organizations, a coalition of the
Brotherhood of Railroad Carmen and the Transport Workers Union, are
currently in mediation.  The outcome of these negotiations cannot be
predicted at this time.  If the NMB eventually concludes that its
efforts to resolve the dispute will not be successful, it will proffer
binding arbitration.  If either side refuses to arbitrate, there is a
30-day "cooling-off" period during which the NMB may make a finding
that the dispute threatens "substantially to interrupt interstate
commerce to a degree such as to deprive any section of the country of
essential transportation service."  Such finding is then presented to
the President of the United States who has the option of appointing an
Emergency Board to investigate the dispute.  If the President does not
appoint an Emergency Board, the parties are free to resort to self
help at the conclusion of the above-mentioned cooling-off period.

     If the President does appoint an Emergency Board, the Board has
30 days to investigate the dispute and report its findings.  The
Emergency Board's findings are non-binding.  Although the parties must
maintain the status quo for a period of 30 days following the issuance
of the Board's report, any party which rejects the Board's findings
may thereafter resort to self help.  In the event of a strike,
Congress has the power to resolve the dispute by enacting legislation,
including legislation imposing a labor contract in accordance with the
findings of the Emergency Board.

     In Conrail's negotiations with four other organizations
representing approximately 4% of its employees, the parties have not
invoked mediation.

     Under a decision by the United States Supreme Court on April 28,
1987, rail unions have the right, under the Railway Labor Act and
other federal laws, to engage in secondary picketing against any
railroad.  As a result, a labor dispute between one railroad and a
union can cause a strike to spread to any other railroad, or to all
other railroads, whether or not the union has a collective bargaining
agreement or a dispute with such other railroads.  There is also the
potential that railroads may be subject to secondary picketing in the
event of a strike in the airline industry, which, like the railroad
industry, is subject to the Railway Labor Act.

                                15
<PAGE>

     Should Conrail or its subsidiaries be the subject of a strike or
secondary picketing, Conrail's rail operations could be stopped or
severely curtailed.

     GOVERNMENT REGULATION.  Conrail is subject to environmental,
     ---------------------
safety, and other regulations generally applicable to all businesses,
and its rail operations are also regulated by the DOT, the Federal
Railroad Administration ("FRA"), state Departments of Transportation
and some state and local regulatory agencies.

     The DOT has jurisdiction over, among other things, rates charged
for certain traffic movements, service levels and freight car rents.
It also has jurisdiction over the situations and terms under which one
railroad may gain access to another railroad's traffic or facilities,
extension or abandonment of rail lines, consolidation, merger, or
acquisition of control of rail common carriers and of other carriers
by rail common carriers, and labor protection provisions in connection
with the foregoing.

     Under the Staggers Act, federal regulation of rates and services
was reduced.  The regulatory scheme, now administered by the Surface
Transportation Board, continues the ICC's prior deregulation of rates
for intermodal traffic, most boxcar traffic and a series of
miscellaneous commodities, including steel and automobiles.  In
addition, railroads are free to negotiate contracts with shippers
setting rates, service standards and the terms for movements of other
kinds of traffic.  As a result, railroads have greater flexibility in
adjusting rates and services to meet revenue needs and competitive
conditions.  For further discussion of the abolition of the ICC and
the effect of the transfer of its regulatory authority to DOT, see
"Competition."

     The FRA has jurisdiction over safety and railroad equipment
standards.

     Conrail's rail operations are also subject to a variety of
governmental laws and regulations relating to the protection of the
environment.  In addition to being involved as a potentially
responsible party at numerous Superfund sites (see Item 3 - "Legal
Proceedings"), Consolidated Rail Corporation is subject to increasing
regulation of its transportation and handling of certain hazardous and
non-hazardous commodities and waste which has resulted in additional
administrative and operating costs.  Also, on February 11, 1997, the
United States Environmental Protection Agency published in the Federal
Register Proposed Rule "Emission Standards for Locomotives and
Locomotive Engines".  According to the Proposed Rule, locomotive
engines (other than those defined as new or remanufactured) may be
regulated by the states.   Additional investments will likely be
required to bring other than new locomotives into compliance, although
the timing and amount of the investments will not be determinable
until the Rule is adopted.  Compliance with existing laws and
                                16
<PAGE>

regulations relating to the protection of the environment has not had
a material effect on Conrail's capital expenditures, earnings or
competitive condition.  (See "Item 7 - Management's Discussion and
Analysis of Financial Condition and Results of Operations -
Environmental Matters," and Note 13 to the Consolidated Financial
Statements included elsewhere in this Annual Report.)

Item 3.  Legal Proceedings.  References to Conrail in "Item 3. Legal
------   -----------------
Proceedings" shall denote Consolidated Rail Corporation unless
otherwise expressly noted.

     Occupational Disease Litigation.  Conrail has been named as a
     -------------------------------
defendant in lawsuits filed pursuant to the provisions of the Federal
Employers' Liability Act ("FELA") by persons alleging (1) personal
injury or death caused by exposure to asbestos in connection with
railroad employment; (2) complete or partial loss of hearing caused by
exposure to excessive noise in the course of railroad employment;  (3)
repetitive motion injury in connection with railroad employment;  and
(4) personal injury or death caused by exposure to deleterious
substances (mixed dusts, fumes, chemicals, etc.).  As of December 31,
1996, Conrail was a defendant in 559 pending asbestos suits, 545
pending hearing loss suits, 1,318 repetitive motion injury suits and
374 pending deleterious substance suits, and had notice of 1,293
potential asbestosis claims, 2,734 potential hearing loss claims,
2,112 potential repetitive motion injury claims and 56 deleterious
substance claims.

     Conrail expects to be named as a defendant in a significant
number of occupational disease cases in the future.

     Norfolk Southern Corp., et al. v. Conrail Inc.  On October 23, 1996,
     ---------------------------------------------
Norfolk filed a Complaint for Declaratory and Injunctive Relief (as
amended on October 30, 1996, the "Complaint"), with respect to the
transactions contemplated by the Merger Agreement, in the United
States District Court for the Eastern District of Pennsylvania.
Norfolk named CSX, Conrail and certain directors of Conrail as
defendants.  The Complaint in its currently amended form alleges,
among other things, violations of:  (1) fiduciary duties by the
Conrail Board;  (2) Conrail's Articles of Incorporation and By-Laws;
and (3) Pennsylvania statutory law.

     In addition, Norfolk alleges that the CSX tender offer is
coercive and unfair to Conrail shareholders;  that certain provisions
in the Merger Agreement prohibiting Conrail from changing its
recommendation of the transaction or agreeing to a competing
transaction, is ultra vires and a breach of the Conrail Board's
fiduciary duties;  and that Conrail and CSX violated disclosure
provisions of the federal securities laws relating to tender offers
and proxy solicitations through the misrepresentation and omission of
material facts.
                                17
<PAGE>

     Norfolk has requested preliminary and permanent injunctive and
declaratory relief including, without limitation, an injunction to
prevent defendants from:  (1) continuing a tender offer for the
Conrail shares, (2) taking any action to enforce certain provisions of
the Merger Agreement, and (3) failing to take actions necessary to
exempt Norfolk's proposal to acquire Conrail from certain provisions
of Pennsylvania statutory law.

     Conrail believes that the claims set forth by Norfolk are
entirely without merit, and on November 12, 1996, Conrail filed a
motion to dismiss Norfolk's complaint in its entirety.  The Federal
District Court and the Third Circuit Court of Appeals have denied
Norfolk's requests for the preliminary injunctions.

     Punitive Damage Awards in Ohio Crossing Accident Cases.
     ------------------------------------------------------
Consolidated Rail Corporation has recently received adverse jury
verdicts in three separate crossing accident cases in Ohio:  Garrett
and Gollihue v. Consolidated Rail Corp.;  Wightman v. Consolidated
Rail Corp.;  and Moore, et al. v. Consolidated Rail Corp.  In each
case, the jury awarded substantial punitive damages in connection with
property damage resulting from the accidents.  Collectively, the total
punitive damage awards total approximately $30 million, based on
property damage that totals less than $5,000.  Conrail believes that,
ultimately, these awards should not be sustainable due to their
failure to bear a reasonable relationship to the amount of physical
property damage involved, and has appealed.  Ohio law prohibits the
award of punitive damages in connection with a wrongful death action.

     Structure and Crossing Removal Disputes in Connection With Lines
     ----------------------------------------------------------------
Abandoned Under NERSA.  Conrail may be responsible, in whole or in
---------------------
part, for the costs of removal of several hundred overhead and
underpass crossings located on railroad lines it has abandoned under
NERSA (and, in some instances, responsible for the removal of the
lines of railroad themselves as well as appurtenant structures).
Conrail's liability for the removal of such lines, crossings and
structures will be determined on a case-by-case basis, and is
dependent upon the circumstances under which each was constructed, the
nature of Conrail's property interest with respect to such structures,
the existence of contracts pertaining to such crossings and
structures, and applicable federal and state law.  Some states have
imposed upon Conrail the obligation to remove certain crossings.
                                18
<PAGE>

     Engelhart v. Conrail.  In connection with the Special Voluntary
     --------------------
Retirement Program offered to certain employees in late 1989 and early
1990, Conrail used surplus funds in its over-funded Supplemental
Pension Plan ("Plan") to fund certain aspects of that program.  In
December 1992, certain former Conrail employees brought suit
challenging the use of surplus Plan funds (a) to pay administrative
Plan expenses previously paid by Conrail, (b) to fund the Special
Voluntary Retirement Program, and (c) to pay life insurance and
medical insurance premiums of former employees as improper and
unlawful, and alleging that employees who have made contributions to
the Plan or its predecessor plans are entitled to share in the surplus
assets of the Plan.  In August, 1993, the court granted Conrail's
Motion to Dismiss the majority of the counts in the complaint, but
refused to dismiss the issue of Conrail's use of Plan assets to pay
administrative expenses of the Plan, which are estimated to be
approximately $40 million at December 31, 1996.  Conrail believes that
the use of surplus Plan assets for this purpose was lawful and proper.
On September 16, 1996, the Judge granted Conrail's motion for summary
judgment on all of the claims except for one individual participant
claim.  Plaintiffs have appealed those claims as to which they
received an adverse ruling.

     Environmental Litigation.  Conrail is subject to various federal,
     ------------------------
state and local laws and regulations regarding environmental matters.
In certain instances, Conrail has received notices of violations of
such laws and regulations and either has taken or plans to take
appropriate steps to address the problems cited or to contest the
allegations of violation.  As of December 31, 1996, Conrail had
received inquiries from governmental agencies or had been identified,
together with other companies, as a potentially responsible party for
cleanup and/or removal costs due to its status as an alleged
transporter, generator or property owner at 135 locations throughout
the country.  However, Conrail, through its own investigations and
assessments, believes it may have some potential responsibility at
only 61 of these sites.  The amounts Conrail has accrued with respect
to the proceedings listed below are included in its $55 million
accrual for estimated future environmental expenses.  (See Item 7
"Management's Discussion and Analysis of Financial Condition and
Results of Operations - Environmental Matters" and Note 13 to the
Consolidated Financial Statements included elsewhere in this Annual
Report.)  The significant environmental proceedings, including
Superfund sites, are discussed below.

     United States v. Southeastern Pennsylvania Transportation
     ---------------------------------------------------------
Authority ("SEPTA"), National Railroad Passenger Corporation
------------------------------------------------------------
("Amtrak"), and Consolidated Rail Corporation.  In March 1986, the
---------------------------------------------
United States Environmental Protection Agency ("EPA") filed an action
in the United States District Court for the Eastern District of
Pennsylvania for cost recovery, injunctive relief, and a declaratory
judgment against the Company, Southeastern Pennsylvania Transportation
Authority ("SEPTA") and National Railroad Passenger Corp. ("Amtrak")
                                19
<PAGE>

under the Comprehensive Environmental Response, Compensation, and
Liability Act of 1980 ("CERCLA" or "Superfund Law"), as amended.  In
1990, the Pennsylvania Department of Environmental Resources
intervened as a plaintiff.  Suit is based on the release or threatened
release at the Paoli Railroad Yard, Paoli, Chester County,
Pennsylvania, of polychlorinated biphenyls ("PCBs"), a listed
hazardous substance under CERCLA.

     Pursuant to a series of partial preliminary consent decrees,
defendants have performed a series of cleanup actions both on and off-
site and have conducted a Remedial Investigation/Feasibility Study
("RI/FS").  Those costs have been shared equally among the three
defendants but are subject to reallocation.

     The estimated cost of the Company's portion of a remedy proposed
by the parties was included in the 1991 special charge and subsequent
adjustments to accruals.  EPA and the railroad parties have entered
into a tentative settlement agreement regarding EPA's claim for past
costs, as well as federal and state natural resource damages.  As part
of the settlement, Amtrak, SEPTA and Conrail have committed to perform
the on-site remedy for the rail yard.

     United States v. Conrail.  The EPA has listed Conrail's Elkhart
     ------------------------
Yard on the National Priorities List.  The EPA contends that chemicals
have migrated from the yard and contaminated drinking wells in the
area.  On February 14, 1990, EPA filed a civil action against Conrail
in the U.S. District Court for the Northern District of Indiana
seeking recovery of approximately $345,000 for costs incurred in
protecting the water supply.  In addition, EPA seeks a declaratory
judgment against Conrail for all future costs incurred in responding
to the release or threatened release of hazardous substances from the
site.  Conrail believes it is not the sole source and may not be a
contributing source to the contamination alleged by EPA.

     Conrail filed a third-party action joining Penn Central as a
defendant.  Conrail and Penn Central have negotiated an interim cost
sharing arrangement for the cost of implementing the EPA's 1992
interim record of decision, which is substantially complete.  On May
15, 1995 EPA issued an Administrative Order to Conrail and Penn
Central requiring the extension of public water hook-up to an
additional 700 - 1,000 residences and businesses in the site area.
Conrail and Penn Central have agreed that each company would comply
with the Order.  The cost for providing public water to the remaining
residences is estimated to be in excess of $6 million, which will be
apportioned between Penn Central and Conrail according to the interim
cost sharing arrangement that has been negotiated.  Conrail and Penn
Central are attempting to negotiate a final settlement with EPA of the
matter.

     United States v. Consolidated Rail Corp., et al (Berks Superfund
     ----------------------------------------------------------------
Site).  Conrail has been identified as the fifth largest generator of
-----
                                20

<PAGE>

waste oil at the Berks Associates Superfund site in Douglasville,
Pennsylvania.  In addition, Conrail has become aware that it and its
predecessor, Penn Central, owned a small portion of land that was
leased to the operator of the Berks site.  As such, Conrail's
liability could increase due to its questionable status as both an
owner and a generator.  In August 1991, the EPA issued an
administrative order against Conrail and thirty-five other entities
mandating the implementation of an approximately $2 million partial
remedy and filed a complaint in the U.S. District Court for the
recovery of approximately $8 million in costs incurred by the
government.  The parties have negotiated an administrative order with
the EPA and have filed an answer to the civil action.  A group of
potentially responsible parties (including Conrail) undertook
compliance with the administrative order.  Conrail and the 35 other
defendants have filed a third-party complaint against approximately
630 entities seeking contribution for the costs of the remedy and
government costs.  Conrail, along with other defendants, is
negotiating a settlement with the EPA.  On June 30, 1993, the EPA
issued another administrative order against Conrail and 33 other
entities, mandating the remediation of the southern portion of the
site.  The EPA has requested a feasibility study for the
implementation of a less expensive remedy for the southern portion of
the site, which remedy would range from approximately $10-$12 million.
Conrail's share of such a remedy has not yet been determined.  In
addition, the PADER has filed a complaint for the recovery of natural
resource damages.

     United Scrap Lead - Troy, OH.  Conrail is a potentially
     ----------------------------
responsible party, along with more than 50 other parties, in the
United Scrap Lead federal Superfund action in Troy, Ohio, where
substantial quantities of batteries were disposed of over a period of
several years.  EPA sued Conrail and nine other parties in August 1991
for the recovery of approximately $2,000,000 in past costs.
Conrail and other PRP's have commissioned treatability studies. The
parties are negotiating over the nature of the remediation to be
undertaken at the site.  EPA has selected a preferred alternative with
an estimated total cost of $33 million, which the PRP group is
challenging.  Conrail's estimated share of any remedial costs is 8%.

     Commonwealth of Massachusetts v. Conrail (Locomotive Emission).
     --------------------------------------------------------------
On April 21, 1992, the Massachusetts Attorney General filed suit in
state court alleging Conrail's violation of the Massachusetts Clean
Air Act by allowing diesel engines to idle unnecessarily and/or in
excess of thirty (30) minutes.  On May 4, 1992, the court entered a
preliminary injunction, the terms of which are substantially those
embodied in Conrail's existing idling policy.  The Attorney General
has filed a complaint alleging Conrail's violation of the preliminary
injunction.  On February 2, 1993, the parties entered into a partial
settlement agreement; however, the  Attorney General has alleged that
Conrail has failed to comply with certain provisions of the

                                21
<PAGE>

settlement.  Conrail continues to attempt to settle the matter with
the Attorney General's office.

     New York State Department of Environmental Conservation Order On
     ----------------------------------------------------------------
Consent (Selkirk Yard).  On July 31, 1996, the New York State
----------------------
Department of Environmental Conservation (NYSDEC) served Conrail with
a revised draft Order on Consent requiring the payment of a penalty of
$250,000 in connection with its inspection of Selkirk Yard.  A revised
Order was received by Conrail on August 6, 1996, requiring the payment
of fines in connection with the 1991 inspection and mandates
assessment and remediation of the facility.  Conrail is negotiating
the terms of the order with NYSDEC.

     New York State Department of Environmental Conservation Order on
     ----------------------------------------------------------------
Consent (DeWitt Yard).  On November 3, 1994, NYSDEC served Conrail
---------------------
with a Consent Order in connection with the alleged discharge of waste
water from DeWitt Yard, Onondaga County, New York into New York state
waters. On June 17, 1996, a revised Consent Order was issued to
Conrail which added American Financial Group (Penn Central Corp.) as a
named responsible party for the payment of penalties and preparation
of a Site Assessment and Remediation Plan.  Conrail and American
Financial Group are negotiating the terms of the Order with NYSDEC.

     In the Matter of Conrail, Ashtabula, OH.  On September 21, 1994,
     ---------------------------------------
the EPA filed an Administrative Complaint against Conrail seeking
civil penalties of $125,000 for certain alleged violations of its
National Pollutants Discharge Emissions System permit.  On November
27, 1995, EPA filed a separate Administrative Complaint seeking civil
penalties for alleged violations of regulatory requirements pertaining
to on-site petroleum storage.  Conrail has reached agreement with EPA
to jointly settle these matters for $150,000.

     Conway Yard, Pittsburgh.  In 1991, Conrail received Notices of
     -----------------------
Violation ("NOV") from the Pennsylvania DER ("PADER") alleging
violations of the Clean Streams Act for discharges of oil into the
Ohio River.  In September 1993, PADER sent to Conrail a draft Consent
Order and Agreement requiring a comprehensive site remediation for
soil, ground water, surface waters and sediments at the Conway
Railyard and requiring the payment of civil fines in connection with
violations at the yard.  Conrail and PADER continue to negotiate the
extent of the investigation and remediation to be undertaken at the
yard.

     Other.  In addition to the above proceedings, Conrail has been
     -----
named in various legal proceedings arising out of its activities as an
employer and as an operator of a freight railroad, including personal
injury actions brought by its employees under FELA, as well as
administrative proceedings with and investigation by government
agencies.

                                22
<PAGE>

     In view of the inherent difficulty of predicting the outcome of
legal proceedings, particularly in certain matters described above in
which substantial damages are or may be sought, Conrail cannot state
what the eventual outcomes of such legal proceedings will be. Certain
of these matters, if determined adversely to Conrail, could result in
the imposition of substantial damage awards against, or increased
costs to, Conrail that could have a material adverse effect on
Conrail's results of operations and financial position.  Conrail's
management believes, however, based on current knowledge, that such
legal proceedings will not have a material adverse effect on Conrail's
financial position.

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

     There were no matters submitted to a vote of security holders
during the fourth quarter of 1996.




Executive Officers of the Registrant.
------------------------------------

     Conrail's officers are elected annually by the Board of Directors
at its first meeting held after the meeting of shareholders at which
directors are elected, and they hold office until their successors are
elected.  There are no family relationships among the officers or
directors, nor any arrangement or understanding between any officer
and any other person pursuant to which the officer was selected.  The
following table sets forth certain information, as of March 1, 1997,
relating to the executive officers of Conrail and Consolidated Rail
Corporation.  An asterisk (*) indicates that such individual is an
officer of Consolidated Rail Corporation only:


Name, Age, Present Position           Business Experience During Past 5
---------------------------         ------------------------------------
                                                  Years
                                                  -----

David M. LeVan, 51, Chairman,       Present position since May 1996.
  President and Chief Executive     Served as President and Chief
  Officer                           Executive Officer between March 1995
                                    and May 1996.  Served as President
                                    and Chief Operating Officer between
                                    September 1994 and March 1995.
                                    Served as Executive Vice President
                                    between November 1993 and September
                                    1994.  Served as Senior Vice
                                    President - Operations between July
                                    1992 and November 1993.  Served as
                                    Senior Vice President-Operating
                                    Systems and Strategies between
                                    November 1991 and July 1992.

                                23
<PAGE>

Cynthia A. Archer, 43, Senior       Present position since May 1995.
  Vice President - Intermodal       Served as General Manager -
  Service Group                     Transportation and Customer Service
                                    of the Harrisburg Division between
                                    February 1994 and May 1995.  Served
                                    as Assistant Vice President - Food
                                    and Agriculture between September
                                    1993 and January 1994.  Served as
                                    Director - Intermodal Business
                                    Development between September 1991
                                    and August 1993.

Ronald J. Conway, 53, Senior        Present position since November
  Vice President - Operations       1994.  Served as Vice President -
                                    Operations between September 1994
                                    and November 1994.  Served as Vice
                                    President -  Transportation between
                                    July 1994 and September 1994.
                                    Served as Vice President -
                                    Intermodal Service Group between
                                    November 1993 and July 1994.  Served
                                    as Assistant Vice President -
                                    Petrochemicals and Minerals between
                                    April 1992 and November 1993.

Timothy P. Dwyer, 47, Senior        Present position since November
  Vice President - Unit Train       1994.  Served as Vice President -
  Service Group                     Unit Train Service Group between
                                    November 1993 and November 1994.
                                    Served as General Manager -
                                    Philadelphia Division between April
                                    1992 and November 1993.

John A. McKelvey, 45, Senior        Present position since February
  Vice President - Finance          1997.  Served as Vice President-
                                    Service Delivery between January
                                    1996 and February 1997.  Served as
                                    Vice President - Materials and
                                    Purchasing between April 1994 and
                                    January 1996.  Served as Vice
                                    President - Controller between May
                                    1993 and March 1994.  Served as Vice
                                    President - Treasurer between 1988
                                    and May 1993.

                                24
<PAGE>

Frank H. Nichols, 50, Senior        Present position since May 1995.
  Vice President -                  Served as Vice President - Human
  Organizational Performance        Resources between February 1993 and
                                    May 1995.  Served as Assistant Vice
                                    President - Finance between November
                                    1988 and February 1993.

Timothy T. O'Toole, 41, Senior      Present position since February
  Vice President - Law and          1997.  Served as Senior Vice
  Government Affairs                President-Finance between April 1996
                                    and February 1997.  Served as Vice
                                    President and Treasurer between
                                    April 1994 and April 1996.  Served
                                    as Vice President and General
                                    Counsel between May 1989 and April
                                    1994.

Lester M. Passa, 43, Senior         Present position since February
  Vice President - Automotive       1997.  Served as Vice President-
  Service Group                     Logistics and Corporate Strategy
                                    between March 1995 and February
                                    1997.  Served as Assistant Vice
                                    President - Corporate Strategy
                                    between February 1993 and March
                                    1995.  Served as Director -
                                    Intermodal Planning between October
                                    1991 and January 1993.

John P. Sammon, 46, Senior Vice     Present position since November
  President - CORE Service          1994.  Served as Vice President -
  Group                             Intermodal between July 1994 and
                                    November 1994.  Served as Assistant
                                    Vice President- Intermodal between
                                    January 1988 and July 1994.

George P. Turner, 55, Senior        Present position since February
  Vice President - Merger           1997.  Served as Senior Vice
  Transition                        President-Automotive Service Group
                                    between November 1994 and February
                                    1997. Served as Vice President -
                                    Automotive Service Group between
                                    November 1993 and November 1994.
                                    Served as Assistant Vice President -
                                    Automotive between April 1992
                                    and November 1993.

                                25
<PAGE>

Bruce B. Wilson, 61, Senior         Present position since February
  Vice President - Merger           1997.  Served as Senior Vice
                                    President - Law between April 1987
                                    and February 1997.

Lucy S.L. Amerman, 46, Vice         Present position since July 1994.
  President - Risk Management*      Served as Assistant Vice President -
                                    Claims and Litigation between April
                                    1994 and July 1994.  Served as
                                    General Counsel - Litigation between
                                    March 1990 and March 1994.

Dennis A. Arouca, 45, Vice          Present position since May 1994.
  President - Labor Relations*      Served as Partner in the law firm of
                                    Pepper Hamilton & Scheetz between
                                    February 1986 and May 1994.

Gerald T. Gates, 43, Vice           Present position since January 1996.
  President - Customer Support*     Served as Vice President -
                                    Transportation between November 1994
                                    and January 1996.  Served as Vice
                                    President - Mechanical between
                                    December 1993 and November 1994.
                                    Served as Assistant Vice President -
                                    Operations Planning and
                                    Administration between July 1992 and
                                    November 1993.  Served as General
                                    Manager - Indianapolis Division
                                    between September 1990 and July
                                    1992.

Hugh J. Kiley, 44, Vice             Present position since January 1996.
  President - Service Design        Served as Assistant Vice President -
  & Planning*                       Performance and Process Management
                                    between November 1994 and January
                                    1996.  Served as Assistant Vice
                                    President - Program Management
                                    between May 1994 and November 1994.
                                    Served as General Manager - National
                                    Customer Service Center between
                                    November 1990 and May 1994.

Craig R. MacQueen, 44, Vice         Present position since June 1995.
  President - Corporate             Served as Assistant Vice President -
  Communications*                   Public Affairs between September
                                    1992 and June 1995.  Served as
                                    Executive Director - Public Affairs
                                    between November 1990 and August
                                    1992.

                                26
<PAGE>

Donald W. Mattson, 54, Vice         Present position since April 1994.
  President - Controller            Served as Vice President - Treasurer
                                    between May 1993 and April 1994.
                                    Served as Vice President -
                                    Controller between August 1988 and
                                    May 1993.

Thomas J. McFadden, 42,             Present position since May 1996.
  Treasurer*                        Served as Assistant Treasurer -
                                    Investor Relations and Finance
                                    between June 1994 and May 1996.
                                    Served as Director - Project
                                    Financing between July 1990 and June
                                    1994.

James D. McGeehan, 48,              Present position since May 1996.
  Corporate Secretary               Served as Assistant Corporate
                                    Secretary between December 1980 and
                                    May 1996.

William B. Newman, Jr., 46,         Present position since 1981.
  Vice President and
  Washington Counsel*

Albert M. Polinsky, 50, Vice        Present position since April 1994.
  President - Information           Served as Assistant Vice President -
  Systems*                          Program Management between December
                                    1993 and March 1994.  Served as
                                    Assistant Vice President - Marketing
                                    Services between April 1992 and
                                    December 1993.

John M. Samuels, 53, Vice           Present position since January 1996.
  President - Operating Assets*     Served as Vice President -
                                    Mechanical between November 1994 and
                                    January 1996.  Served as Vice
                                    President - Engineering between
                                    April 1992 and November 1994.

Gary M. Spiegel, 46, Vice           Present position since February
  President - Service Delivery*     1997.  Served as Assistant-Vice
                                    President - Train Operations between
                                    August 1994 and February 1997.
                                    Served as General Manager-
                                    Transportation and Customer Service
                                    between April 1992 and August 1994.

                                27
<PAGE>

                                PART II

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

     Conrail's common stock is listed for trading on the New York
Stock Exchange and the Philadelphia Stock Exchange.   The number of
holders of record of Conrail common stock on March 1, 1997 was 18,377.
For the high and low sales prices of Conrail's common stock on the New
York Stock Exchange and the frequency and amount of cash dividends for
1996 and 1995, see Note 14 to the Consolidated Financial Statements
included elsewhere in this Annual Report.

Item 6.  Selected Financial Data.
------   -----------------------

     The selected consolidated financial data included in the following
tables have been derived from Conrail's Consolidated Financial Statements.
The consolidated statements of income, stockholders' equity and cash flows
for each of the three years in the period ended December 31, 1996 and the
consolidated balance sheets as of December 31, 1996 and 1995 appear
elsewhere in this Annual Report and have been audited by the Company's
independent accountants, as indicated in their report thereon.  For
purposes of the following selected consolidated financial data, references
to Conrail reflect the consolidated entities of Consolidated Rail
Corporation for periods prior to July 1, 1993 and Conrail Inc. for
subsequent periods.

     The selected consolidated financial data should be read in
conjunction with the Consolidated Financial Statements and related notes
and other financial information included elsewhere in this Annual Report.

                                28
<PAGE>

<TABLE>
                                                 Years ended December 31,
                                          -----------------------------------------

                                          1996     1995     1994     1993(4)   1992
                                          ----     ----     ----     ----      ----
<S>                                     <C>      <C>      <C>      <C>       <C>
                                           (In Millions Except Per Share Amounts)
STATEMENT OF INCOME DATA:
Revenues                                $3,714   $3,686   $3,733   $3,453    $3,345
Operating expenses (before one-time
   charges)(1)                           2,978    2,945    3,043    2,862     2,811
   One-time charges (1),(2) and (3)        135      285       84
                                        ------   ------   ------   ------    ------
Income from operations                     601      456      606      591       534
Interest expense                          (182)    (194)    (192)    (185)     (172)
Loss on disposition of subsidiary (5)                                 (80)
Other income, net                          112      130      118      114        98
                                        ------   ------   ------   ------    ------
Income before income taxes and the
  cumulative effect of changes
  in accounting principles                 531      392      532      440       460
Income taxes (2)                           189      128      208      206       178
                                        ------   ------   ------   ------    ------
Income before the cumulative
  effect of changes in accounting
  principles                               342      264      324      234       282
Cumulative effect of changes in
  accounting principles                                               (74)
                                        ------   ------   ------   ------    ------
Net income                              $  342   $  264   $  324   $  160    $  282
                                        ======   ======   ======   ======    ======

Income per common share
  before the cumulative effect of
  changes in accounting principles
  Primary                               $ 4.25   $ 3.19   $ 3.90   $ 2.74    $ 3.28
  Fully diluted                           3.89     2.94     3.56     2.51      2.99
Cumulative effect of changes in
  accounting principles
  Primary                                                            (.92)
  Fully diluted                                                      (.81)
Net income per common share (6)
  Primary                                 4.25     3.19     3.90     1.82      3.28
  Fully diluted                           3.89     2.94     3.56     1.70      2.99

Dividends per common share (6)            1.80     1.60     1.40     1.20      1.00

</TABLE>

<TABLE>
                                                Years ended December 31,
                                           ----------------------------------

                                          1996     1995     1994     1993      1992
                                          ----     ----     ----     ----      ----
<S>                                     <C>      <C>      <C>      <C>       <C>
                                                        (In Millions)

BALANCE SHEET DATA:
Cash, cash equivalents and
  temporary cash investments            $   30   $   73   $   43   $   38    $   40
Working capital (deficit)                   25       36      (76)     (13)     (489)
Total assets                             8,402    8,424    8,322    7,948     7,315
Other noncurrent liabilities (net of
  current maturities of debt)            2,379    2,444    2,480    2,433     2,075
Deferred income taxes                    1,478    1,393    1,203    1,081       644
Special income tax obligation              346      440      513      575       569
Stockholders' equity                     3,107    2,977    2,925    2,784     2,748

</TABLE>
                                29
<PAGE>

                     NOTES TO SELECTED FINANCIAL DATA

1. Included in 1996 operating expenses is a charge of $135 million (before
   tax benefits of $52 million) consisting of $102 million in termination
   benefits to be paid to non-union employees participating in the voluntary
   retirement and separation programs ("voluntary separation programs") and
   losses of $33 million on non-cancelable leases for office space no longer
   required as a result of the reduction in the Company's workforce.  Over
   840 applications were accepted from eligible employees under both
   programs.  Approximately $90 million of the termination benefits are
   being paid from the Company's overfunded pension plan.  Also included in
   1996 operating expenses are expenses of $16 million (before tax benefits
   of $6 million) incurred by Conrail as a result of the proposed merger
   with CSX Corporation.  Without these items, net income for 1996 would
   have been $435 million ($5.45 per share, primary and $4.96 per share,
   fully diluted).  (See Notes 3 and 2, respectively to the Consolidated
   Financial Statements included elsewhere in this Annual Report.)

2. Included in 1995 operating expenses is an asset disposition charge of
   $285 million, which reduced net income by $176 million.  The asset
   disposition charge resulted from a review of the Company's route system
   and other operating assets to determine those that no longer effectively
   and economically support current and expected operations.  The Company
   identified and has committed to sell 1,800 miles of rail lines that are
   expected to provide proceeds substantially less than net book value.  In
   addition, other assets, principally yards and side tracks, identified for
   disposition have been written down to estimated net realizable value.
   Also, in 1995, as a result of a decrease in a state income tax rate
   enacted during the second quarter of 1995, income tax expense was reduced
   by $21 million representing the effect of adjustment for the rate
   decrease as required by Statement of Financial Accounting Standards No.
   109, "Accounting for Income Taxes" ("SFAS 109").  Without these items,
   net income for 1995 would have been $419 million ($5.16 per share,
   primary and $4.69 per share, fully diluted).  (See Notes 10 and 7,
   respectively, to the Consolidated Financial Statements included elsewhere
   in this Annual Report.)

3. In 1994, Conrail recorded a charge of $51 million (after tax benefits of
   $33 million) for a non-union employee voluntary early retirement program
   and related costs.  The majority of the cost of the early retirement
   program is being paid from Conrail's overfunded pension plan.  Without
   this one-time charge, net income would have been $375 million ($4.54 per
   share, primary and $4.13 per share, fully diluted).  (See Note 11 to the
   Consolidated Financial Statements included elsewhere in this Annual
   Report.)

4. Conrail adopted Statement of Financial Accounting Standards No. 106,
   "Employers' Accounting for Postretirement Benefits Other Than Pensions"
   ("SFAS 106"), and SFAS 109 effective January 1, 1993.  As a result, in
   the first quarter of 1993, Conrail recorded cumulative after-tax charges
   of $22 million and $52 million, respectively.  In addition, as a result
   of the increase in the federal corporate income tax rate from 34% to 35%,
   effective January 1, 1993, income tax expense includes $34 million of a
   retroactive nature, primarily for the effects of adjusting deferred
   income taxes and the special income tax obligation for the rate increase
   as required under SFAS 109.

5. In 1993, Conrail committed to a plan for disposition of its investment in
   Concord Resources Group, Inc. ("Concord").  Pursuant to this plan,
   Conrail recorded an estimated loss of $80 million for the disposition of
   its investment, including $19 million for operating losses expected to be
   incurred during the phase-out period and disposition costs.  Conrail also
   recorded estimated federal tax benefits of $30 million relating to the
   disposition.  In June 1995, the Company completed the disposition of the
   last two major waste disposal facilities of Concord.  The disposition had
   no financial statement impact.

6. Net income and dividends per common share include the effects of a 1992
   two-for-one common stock split.  The calculations of income per common
   share for 1996, 1995 and 1994 are shown in Exhibit 11, Part IV included
   elsewhere in this Annual Report.

                                30
<PAGE>

Item 7.  Management's Discussion and Analysis of Financial
------   -------------------------------------------------
          Condition and Results of Operations.
          -----------------------------------

Overview
--------

Conrail's net income for 1996 was $342 million, compared with $264 million
for 1995 and $324 million for 1994. Results for 1996 include a one-time
charge of $83 million (net of $52 million of tax benefits) related to
voluntary separation programs and related costs and merger-related expenses
of $10 million (net of $6 million of tax benefits) incurred in connection
with the proposed merger with CSX Corporation ("CSX") (see Notes 3 and 2,
respectively, to the Consolidated Financial Statements included elsewhere
in this Annual Report).  Without these charges, net income for 1996 would
have been $435 million.

The results for 1995 include the effects of a $285 million asset
disposition charge ($176 million after income taxes) and the recognition of
a $21 million reduction in income taxes related to a decrease in a state
tax rate (see Notes 10 and 7, respectively, to the Consolidated Financial
Statements included elsewhere in this Annual Report). Results for 1994
include a one-time charge of $51 million (net of tax benefits of $33
million) for a non-union early retirement program and related costs (see
Note 11 to the Consolidated Financial Statements included elsewhere in this
Annual Report).  Absent the one-time items, Conrail's net income for 1995
and 1994 would have been $419 million and $375 million, respectively.

Traffic volumes and operating revenues increased 2.1% and .8%,
respectively, in 1996 compared with 1995.  Lower than anticipated revenue
growth and higher than expected operating expenses resulted in an operating
ratio (operating expenses as a percent of revenues) of 83.8%.  Excluding
the voluntary separation programs charge and merger-related costs,
Conrail's operating ratio was 79.7% compared with the Company's 1996
operating ratio goal of 77.5%.  The difficult operating conditions caused
by severe weather experienced over most of the Company's service area
during the first quarter of 1996, higher fuel prices and declines in
equipment utilization all contributed to the increase in operating expenses
in 1996 as compared with those that were planned for 1996.  The 1995
operating ratio, excluding the asset disposition charge, was 79.9%.

For 1995 versus 1994, traffic volume and operating revenues decreased 5.4%
and 1.3%, respectively, while operating expenses, excluding one-time
charges, decreased 3.2%.

     Proposed Merger
----------------

On October 14, 1996, Conrail, CSX Corporation ("CSX") and a subsidiary of
CSX entered into an Agreement and Plan of Merger (as amended, the "Merger

                                31
<PAGE>

Agreement"), pursuant to which Conrail was to be merged with a subsidiary
of CSX in a merger-of-equals transaction.

On October 24, 1996, Norfolk Southern Corporation ("Norfolk") commenced an
unsolicited tender offer for all outstanding Conrail voting stock at $100
per share in cash.  Norfolk has since increased its offer to $115 per share
in cash.

On November 20, 1996, CSX concluded its first tender offer and purchased
approximately 19.9% of Conrail's outstanding shares for $110 per share.

On December 18, 1996, CSX and Conrail entered into a second amendment to
the Merger Agreement (the "Second Amendment") that would, among other
things, (i) increase the consideration payable pursuant to the merger, (ii)
accelerate the consummation of the merger to immediately following the
receipt of applicable shareholder approvals and prior to the Surface
Transportation Board ("STB") approval and (iii) extend until December 31,
1998 an exclusivity period during which the Conrail Board agreed not to
withdraw or modify its recommendations of the CSX transactions, approve or
recommend any takeover proposal or cause Conrail to enter into any
agreement related to any takeover proposal.

On January 13, 1997, Norfolk issued a press release announcing that it
would offer to purchase shares representing 9.9% of the outstanding Shares
for $115 per share, in the event that Conrail shareholders did not approve
a proposal to opt out of a Pennsylvania statute (the "Opt Out Proposal") at
the meeting of shareholders to be held on January 17, 1997 (the "Special
Shareholders Meeting").

On January 17, 1997, Conrail shareholders voted at the Special Shareholders
Meeting against the Opt Out Proposal.

On February 4, 1997, the amended Norfolk tender offer expired, and Norfolk
subsequently purchased approximately 8.2 million Shares pursuant thereto.

On March 7, 1997, Conrail and CSX entered into a Third Amendment (the
"Third Amendment") to the Merger Agreement.  Pursuant to the Third
Amendment, (i) the price per share has been increased from $110 to $115,
and the number of shares to be purchased in the tender offer has been
increased to all outstanding shares.  The tender offer is scheduled to
close April 18, 1997 (subject to extension by CSX to June 2, 1997 whether
or not the conditions have been satisfied), (ii) the consideration paid per
share in the merger for all remaining outstanding shares following
consummation of the offer has been increased to $115 in cash and (iii) the
conditions to the offer relating to certain provisions of Pennsylvania law
becoming inapplicable to Conrail and relating pending governmental actions
or proceedings have been deleted.

                                32
<PAGE>

The Third Amendment also provides that CSX will have sole control over the
regulatory approval process and will be free to conduct by itself
discussions with other railroads, including Norfolk, relating to
competitive issues raised by the CSX transactions, and to enter into any
resulting agreement.  It is anticipated that CSX and Norfolk will negotiate
an appropriate division of Conrail's assets;  however, neither the pending
CSX tender offer nor the merger is conditioned on CSX's reaching an
agreement with Norfolk.

Pursuant to the Third Amendment, three members of Conrail's Board of
Directors approved by CSX shall be invited to join the CSX Board of
Directors and a transition team will be established, the leadership of
which will include senior executive officers of CSX and Conrail to ensure
the orderly operation of Conrail during the regulatory approval process and
an orderly transition thereafter.

Under the Third Amendment, Conrail and CSX agreed to reduce from December
31, 1998 to December 31, 1997 the period of time during which the Conrail
Board is prohibited from (i) withdrawing or modifying, or publicly
proposing to withdraw or modify, its approval or recommendation of the CSX
transactions, in a manner adverse to CSX, (ii) approving or recommending,
or publicly proposing to approve or recommend, any competing proposal or
(iii) causing Conrail to enter into any agreement related to any such
competing proposal.

Under the Merger Agreement as amended, Conrail may terminate the Merger
Agreement in the event that after June 2, 1997, CSX fails to consummate the
tender offer for any reason other than the non-occurrence of any condition
to the tender offer.  In the event that CSX fails to consummate the tender
offer under such circumstances, Conrail will be entitled to exercise any
additional remedies it may have.

The full terms and conditions of the CSX and Norfolk offers and Conrail's
position with respect to the CSX and Norfolk offers are set forth in
documents filed by Conrail with the Securities and Exchange Commission.


1997 Outlook
------------

Conrail expects the economy to grow in 1997 at about the same growth rate
experienced in 1996. Conrail's 1997 plans are based on assumptions of
2.2% growth in real gross domestic product and 3.4% growth in industrial
production.  Conrail's outlook for 1997 includes line haul revenue growth
of between 2.5% and 3.5%.  Conrail's operating ratio goal for 1997 is
78.5%.

Voluntary Separation Programs
-----------------------------

     During the second quarter of 1996, the Company recorded a charge of $135
million (before tax benefits of $52 million) consisting of $102 million

                                33
<PAGE>

in termination benefits to be paid to non-union employees participating
in the voluntary retirement and separation programs ("voluntary
separation programs") and losses of $33 million on non-cancelable leases
for office space no longer required as a result of the reduction in the
Company's workforce.  Over 840 applications were accepted from eligible
employees under the voluntary separation programs.  Approximately $90
million of the termination benefits are being paid from the Company's
overfunded pension plan.

Results of Operations
---------------------

1996 Compared with 1995

Net income for 1996 was $342 million ($4.25 per share, primary and $3.89
per share, fully diluted) compared with 1995 net income of $264 million
($3.19 per share, primary and $2.94 per share, fully diluted).  Excluding
the unusual items (see "Overview") in both years, Conrail's net income
would have been $435 million ($5.45 per share, primary and $4.96 per share,
fully diluted) for 1996 and $419 million ($5.16 per share, primary and
$4.69 per share, fully diluted) for 1995.

Operating revenues (primarily freight line haul revenues, but also
including switching, demurrage and incidental revenue) increased $28
million, or .8%, to $3,714 million in 1996 from $3,686 million in 1995.  A
2.1% increase in traffic volume in units (freight cars and intermodal
trailers and containers) resulted in a $74 million increase in revenues.
Average revenue per unit decreased revenues by $42 million due to an
unfavorable traffic mix.  A traffic volume increase of 7.6% was experienced
by the Intermodal Service Group while traffic volume for the Unit Train
Service Group remained unchanged.  The Automotive and CORE Service Groups
experienced traffic volume declines of 1.7% and 1.6%, respectively.  Within
the CORE Service Group, traffic volume declines were experienced by three
of the four commodity groups: Forest and Manufactured Products, 5.3%; Food
and Agriculture, 2.8%; and Petrochemicals, 2.5%. Metals experienced a
traffic increase of 4.0%.

                                34
<PAGE>

Operating expenses (including one-time charges and merger-related costs in
1996 and the asset disposition charge in 1995) decreased $117 million, or
3.6%, from $3,230 million in 1995 to $3,113 million in 1996.  The following
table sets forth the operating expenses for the two years:


                                                         Increase
(In Millions)                       1996        1995    (Decrease)
                                  ------      ------    ---------
Compensation and benefits         $1,206      $1,249      $ (43)
Fuel                                 202         168         34
Material and supplies                175         167          8
Equipment rents                      382         355         27
Depreciation and amortization        283         293        (10)
Casualties and insurance             176         175          1
Other                                554         538         16
Voluntary separation programs        135                    135
Asset disposition charge                         285       (285)
                                  ------       -----      -----
                                  $3,113      $3,230      $(117)
                                  ======      ======      =====


Compensation and benefits decreased $43 million, or 3.4%, as a result of
reductions in employment levels and other employee-related costs.  These
decreases were partially offset by increased wage rates due to new labor
agreements, increased train crew costs and overtime caused by adverse
weather conditions experienced during the first quarter of 1996.
Compensation and benefits as a percent of revenues was 32.5% in 1996 as
compared with 33.9% in 1995.

Fuel costs increased $34 million, or 20.2%, due mostly to higher fuel
prices.

Equipment rents increased $27 million, or 7.6%, primarily as a result of
declines in equipment utilization and increased car hire rates.

Other operating expenses increased $16 million, or 3.0%, primarily due to
$16 million of costs incurred in connection with the proposed merger with
CSX (see Note 2 to the Consolidated Financial Statements included elsewhere
in this Annual Report).

Conrail recorded a one-time pre-tax charge of $135 million in 1996 for the
voluntary separation programs and related costs (see Note 3 to the
Consolidated Financial Statements included elsewhere in this Annual Report)
and an asset disposition charge of $285 million in 1995 (see Note 10 to the
Consolidated Financial Statements included elsewhere in this Annual
Report).

Conrail's operating ratio was 83.8% for 1996, compared with 87.6% for 1995.
Without the one-time charges recorded in 1996 and 1995 and the merger-
related costs incurred in 1996, the operating ratios would have been 79.7%
and 79.9%, respectively.

                                35
<PAGE>

Other income decreased $18 million, or 13.8%, from $130 million in 1995 to
$112 million in 1996 primarily due to decreases in rental income and lesser
gains from sales of property.

The Company's effective income tax rate for 1996 was 35.6% compared with
32.7% for 1995. The lower effective rate in 1995 is primarily caused by a
$21 million reduction in income taxes as a result of a decrease in state
income taxes (see Note 7 to the Consolidated Financial Statements included
elsewhere in this Annual Report).

1995 Compared with 1994

Net income for 1995 was $264 million ($3.19 per share, primary and $2.94
per share, fully diluted) compared with 1994 net income of $324 million
($3.90 per share, primary and $3.56 per share, fully diluted).  Excluding
the one-time charges (see "Overview") in both years and the one-time tax
benefit in 1995, Conrail's net income would have been $419 million ($5.16
per share, primary and $4.69 per share, fully diluted) for 1995 and $375
million ($4.54 per share, primary and $4.13 per share, fully diluted) for
1994.

Operating revenues decreased $47 million, or 1.3%, from $3,733 million in
1994 to $3,686 million in 1995.  A 5.4% decrease in traffic volume in units
resulted in a $191 million decrease in revenues which was partially offset
by an increase in average revenue per unit that increased revenues by $140
million.  The improvement in average revenue per unit resulted from
increases in average rates, $117 million, and a favorable traffic mix, $23
million. Traffic volume decreases were experienced by three of the four
service groups, with only Automotive showing a slight volume increase of
 .8%. Traffic volume declines for the other service groups were as follows:
Intermodal, 7.3%; Unit Train, 5.4%; and CORE, 5.1%.  Within the CORE
Service Group, traffic volume declines were also experienced by each of the
commodity groups: Food and Agriculture, 8.2%; Petrochemicals, 4.6%; Metals,
4.0%; and Forest and Manufactured Products, 3.9%.

                                36
<PAGE>

Operating expenses increased $103 million, or 3.3%, from $3,127 million in
1994 to $3,230 million in 1995.  The following table sets forth the
operating expenses for the two years:

                                                         Increase
(In Millions)                       1995        1994    (Decrease)
                                  ------      ------    ---------
Compensation and benefits         $1,249      $1,260       $(11)
Fuel                                 168         188        (20)
Material and supplies                167         203        (36)
Equipment rents                      355         381        (26)
Depreciation and amortization        293         278         15
Casualties and insurance             175         184         (9)
Other                                538         549        (11)
Asset disposition charge             285                    285
Early retirement program                          84        (84)
                                  ------      ------       ----
                                  $3,230      $3,127       $103
                                  ======      ======       ====


Compensation and benefits costs decreased $11 million, or .9%, as a result
of a 5.3% reduction in employment levels, which exceeded the increases in
wage rates and fringe benefit costs. Compensation and benefits as a percent
of revenues was 33.9% in 1995 compared with 33.7% in 1994.

Fuel costs decreased $20 million, or 10.6%, as a result of greater use of
newer fuel efficient locomotives, lower average fuel prices and lower
traffic volume.

The decrease of $36 million, or 17.7%, in material and supplies costs was
primarily attributable to a lower level of repair and maintenance
expenditures related to lower traffic volume.

Equipment rents decreased $26 million, or 6.8%, primarily as a result of
fewer foreign cars on Conrail's lines and improved equipment utilization,
partially offset by the increased costs associated with new operating
leases for equipment.

Depreciation and amortization increased $15 million, or 5.4%, due to asset
additions and increased depreciation rates for track structure as a result
of a depreciation study required by the former Interstate Commerce
Commission.

Conrail recorded an asset disposition charge of $285 million in 1995 (see
Note 10 to the Consolidated Financial Statements included elsewhere in this
Annual Report) and a one-time pre-tax charge of $84 million in 1994 for the
non-union voluntary early retirement program and related costs (see Note 11
to the Consolidated Financial Statements included elsewhere in this Annual
Report).

Conrail's operating ratio was 87.6% for 1995, compared with 83.8% for 1994.
Without the $285 million asset disposition charge in 1995 and the $84

                                37
<PAGE>

million charge for the early retirement program in 1994, the operating
ratios for 1995 and 1994 would have been 79.9% and 81.5%, respectively.

Other income, net, increased $12 million, or 10.2%, primarily due to an $8
million gain from a property sale completed during the second quarter of
1995.

The Company's effective income tax rate for 1995 was 32.7% compared
with 39.1% for 1994. The lower rate reflects the effect of a $21
million reduction in income taxes resulting from a decrease in a
state income tax rate enacted during the second quarter of 1995 (see
Note 7 to the Consolidated Financial Statements included elsewhere in
this Annual Report).

Liquidity and Capital Resources
-------------------------------

Conrail's cash and cash equivalents decreased $43 million, from $73 million
at December 31, 1995 to $30 million at December 31, 1996.  Cash generated
from operations, principally from its wholly-owned subsidiary, Consolidated
Rail Corporation ("CRC"), and borrowings are Conrail's principal sources of
liquidity and are used primarily for capital expenditures, debt service,
and dividends.  Operating activities provided cash of $669 million in 1996,
compared with $773 million in 1995 and $697 million in 1994.  In 1996,
loans from and redemptions of insurance policies provided cash of $95
million and issuance of long-term debt provided cash of $26 million.  The
principal uses of cash in 1996 were for property and equipment
acquisitions, $387 million, payment of long-term debt including capital
lease and equipment obligations, $184 million, cash dividends on preferred
and common stock, $171 million, and the repurchase of common stock, $156
million.

Working capital (current assets less current liabilities)of $25 million
existed at December 31, 1996, compared with $36 million at December 31,
1995.  Management believes that Conrail's financial position allows it
sufficient access to credit sources on investment grade terms, and, if
necessary, additional intermediate or long-term debt could be issued for
additional working capital requirements.

In April 1995, the Company's Board of Directors approved a $250 million
multi-year stock repurchase program.  During 1996, the Company acquired
2,225,738 shares for $156 million under this program.  As a result of the
proposed merger agreement with CSX (see Note 2 to the Consolidated
Financial Statements included elsewhere in this Annual Report), the Company
will not make any additional stock repurchases under this program.

During 1996, CRC issued an additional $139 million of commercial paper and
repaid $129 million.  Of the $199 million outstanding at December 31, 1996,
$100 million is classified as long-term debt since it is expected to be
refinanced through subsequent issuances of commercial paper and is

                                38
<PAGE>

supported by the $500 million uncollateralized bank credit agreement.

At December 31, 1996, $312 million remains available to Conrail and CRC under
a 1993 shelf registration statement whereby CRC can issue debt securities and
Conrail can issue both convertible debt and equity securities.

In April 1996, CRC issued $50 million of Pass-Through Certificates at a
rate of 6.96% to finance equipment.  Although the certificates are not
direct obligations of, or guaranteed by CRC, amounts payable under
related capital leases will be sufficient to pay principal and interest
on the certificates.

In July 1996, CRC issued $26 million of 1996 Equipment Trust
Certificates, Series A, with interest rates ranging from 6.0% to 7.48%,
maturing annually from 1997 to 2011.  The certificates were issued to
finance approximately 85% of the purchase price of twenty locomotives.

In June 1996, CRC borrowed $69 million against the cash surrender value of
the company-owned life insurance policies which it maintains on certain of
its non-union employees.  The Company also redeemed the remaining excess
cash surrender value of $26 million.  Both transactions resulted in an
increase of $95 million in cash in 1996.

Capital Expenditures
--------------------

Capital expenditures totaled $478 million, $494 million and $508 million in
1996, 1995 and 1994, respectively.  Of these totals, Conrail directly
financed $108 million in 1996, $126 million in 1995 and $57 million in
1994.

Capital expenditures for 1997 are expected to be approximately
$550 million.

Inflation
---------

Generally accepted accounting principles require the use of historical
costs in preparing financial statements.  This approach does not consider
the effects of inflation on the costs of replacing assets.  The replacement
cost of Conrail's property and equipment is substantially higher than its
historical cost basis.  Similarly, depreciation expense on a replacement
cost basis would be substantially in excess of the amount recorded under
generally accepted accounting principles.

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

Conrail's operations and property are subject to various federal, state and
local laws regulating the environment.  CRC is a party to numerous

                                39
<PAGE>

proceedings brought by regulatory agencies and private parties under
federal, state and local laws, including Superfund laws, and has also
received inquiries from governmental agencies with respect to other
potential environmental issues.  As of December 31, 1996, CRC had received,
together with other companies, notices of its involvement as a potentially
responsible party or requests for information under the Superfund laws with
respect to cleanup and/or removal costs due to its status as an alleged
transporter, generator or property owner at 135 locations throughout the
country.  However, based on currently available information, Conrail
believes CRC may have some potential responsibility at only 61 of these
sites.  Due to the number of parties involved at many of these sites, the
wide range of costs of the possible remediation alternatives, changing
technology and the length of time over which these matters develop, it is
not always possible to estimate CRC's liability for the costs associated
with the assessment and remediation of contaminated sites.  At December 31,
1996, Conrail had accrued $55 million for estimated future environmental
expenses.  Although Conrail's operating results and liquidity could be
significantly affected in any quarterly or annual reporting period in which
CRC was held principally liable in certain of these actions, Conrail
believes the ultimate liability for these matters will not materially
affect its financial condition.  (See Note 13 to the Consolidated Financial
Statements included elsewhere in this Annual Report).

Conrail spent $11 million, $14 million and $8 million in 1996, 1995 and
1994, respectively, for environmental remediation and related costs and
anticipates spending an amount comparable to that spent in 1996 during
1997.  In addition, Conrail's capital expenditures for environmental
control and abatement projects were approximately $6 million in 1996 and
1995, and $5 million in 1994, and are anticipated to be approximately $10
million in 1997.

Conrail has an Environmental Quality Department, the mission of which is to
institute and promote compliance with environmentally sound operating
practices and to monitor and assess the status of sites where liability
under environmental laws may exist.

Other Matters
-------------

Except for the historical information contained herein, the matters
discussed in this report are forward-looking statements that involve risks
and uncertainties that may cause actual results to differ, including but
not limited to the effect of economic conditions, competition, regulation
and weather on Conrail's operations, customers, service and prices, and
other factors discussed elsewhere in this report and, from time to time, in
other reports filed with the Securities and Exchange Commission.

                                40
<PAGE>

Item 8.   Financial Statements and Supplementary Data.
------    -------------------------------------------


                     REPORT OF INDEPENDENT ACCOUNTANTS


The Stockholders and Board of Directors
Conrail Inc.


In our opinion, the consolidated financial statements listed in the index
appearing under Item 14 (a) 1. and 2. present fairly, in all material
respects, the financial position of Conrail Inc. and subsidiaries at
December 31, 1996 and 1995, and the results of their operations and their
cash flows for each of the three years in the period ended December 31,
1996, in conformity with generally accepted accounting principles.  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 of these statements in
accordance with generally accepted auditing standards which 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, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall
financial statement presentation.  We believe that our audits provide a
reasonable basis for the opinion expressed above.



Price Waterhouse LLP
Thirty South Seventeenth Street
Philadelphia, Pennsylvania  19103


January 21, 1997,
except as to Note 2, which is as of March 7, 1997


                                41
<PAGE>

<TABLE>
                               CONRAIL INC.
                     CONSOLIDATED STATEMENTS OF INCOME

                                           Years ended December 31,
                                         ---------------------------
($ In Millions Except Per Share Data)      1996       1995      1994
                                         ------     ------    ------
<S>                                      <C>        <C>       <C>
Revenues                                 $3,714     $3,686    $3,733
                                         ------     ------    ------
Operating expenses
  Way and structures                        462        485       499
  Equipment                                 803        766       815
  Transportation                          1,385      1,324     1,379
  General and administrative                328        370       350
  Voluntary separation programs (Note 3)    135
  Asset disposition charge (Note 10)                   285
  Early retirement program (Note 11)                              84
                                         ------     ------    ------
    Total operating expenses              3,113      3,230     3,127
                                         ------     ------    ------

Income from operations                      601        456       606
Interest expense                           (182)      (194)     (192)
Other income, net (Note 12)                 112        130       118
                                         ------     ------    ------
Income before income taxes                  531        392       532

Income taxes (Note 7)                       189        128       208

                                         ------     ------    ------
Net income                               $  342     $  264    $  324
                                         ======     ======    ======

Net income per common share (Note 1)
    Primary                              $ 4.25     $ 3.19    $ 3.90
    Fully diluted                          3.89       2.94      3.56
Ratio of earnings to fixed charges
 (Note 1)                                  3.19x      2.51x     3.19x
</TABLE>
See accompanying notes.

                                42
<PAGE>

                               CONRAIL INC.
                        CONSOLIDATED BALANCE SHEETS

<TABLE>
                                                    December 31,
                                                  ----------------
($ In Millions)                                     1996      1995
                                                  ------    ------
<S>                                              <C>        <C>
         ASSETS
Current assets
  Cash and cash equivalents                      $    30    $   73
  Accounts receivable                                630       614
  Deferred tax assets (Note 7)                       293       333
  Material and supplies                              139       158
  Other current assets                                25        28
                                                  ------    ------
     Total current assets                          1,117     1,206
Property and equipment, net (Note 4)               6,590     6,408
Other assets                                         695       810
                                                  ------    ------
     Total assets                                 $8,402    $8,424
                                                  ======    ======

         LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
  Short-term borrowings                               99        89
  Current maturities of long-term debt (Note 6)      130       181
  Accounts payable                                   135       113
  Wages and employee benefits                        143       183
  Casualty reserves                                  141       110
  Accrued and other current liabilities (Note 5)     444       494
                                                  ------    ------
     Total current liabilities                     1,092     1,170
Long-term debt (Note 6)                            1,876     1,911
Casualty reserves                                    190       217
Deferred income taxes (Note 7)                     1,478     1,393
Special income tax obligation (Note 7)               346       440
Other liabilities                                    313       316
                                                  ------    ------
     Total liabilities                             5,295     5,447
                                                  ------    ------
Commitments and contingencies (Note 13)
Stockholders' equity (Notes 2 and 9)
  Preferred stock (no par value; 15,000,000
    shares authorized; no shares issued)
  Series A ESOP convertible junior preferred
    stock (no par value; 10,000,000 shares
    authorized; 7,303,920 and 9,770,993 shares
    issued and outstanding, respectively)            211       282
  Unearned ESOP compensation                        (222)     (233)
  Common stock ($1 par value; 250,000,000
    shares authorized; 87,768,428 and 85,392,392
    shares issued, respectively; 82,244,973 and
    82,094,675 shares outstanding, respectively)      88        85
  Additional paid-in capital                       2,404     2,187
  Employee benefits trust, at market (3,394,988
    and 4,706,665 shares, respectively)             (384)     (329)
  Retained earnings                                1,357     1,176
                                                  ------    ------
                                                   3,454     3,168
  Treasury stock, at cost (5,523,455 and
    3,297,717 shares, respectively)                 (347)     (191)
                                                  ------    ------
     Total stockholders' equity                    3,107     2,977
                                                  ------    ------
     Total liabilities and stockholders' equity   $8,402    $8,424
                                                  ======    ======
</TABLE>
See accompanying notes.
                                43
<PAGE>

<TABLE>
                                                                          CONRAIL INC.
                                                        CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY




                                           Series A      Unearned             Additional   Employee
                                          Preferred          ESOP   Common      Paid-in    Benefits    Retained   Treasury
($ In Millions Except Per Share Data)         Stock  Compensation    Stock      Capital       Trust    Earnings      Stock
                                          ---------  ------------   ------   ----------    --------    --------   --------
<S>                                          <C>           <C>         <C>      <C>         <C>         <C>          <C>
Balance, January 1, 1994                     $286          $(253)      $80      $1,819                 $  857        $ (5)
  Amortization                                                10
  Net income                                                                                              324
  Common dividends, $1.40 per share                                                                      (111)
  Preferred dividends, $2.165 per share                                                                   (21)
  Common shares acquired                                                                                              (94)
  Exercise of stock options                                                         14
  Other                                        (3)                                  15                      7
                                           ------         ------     ------     ------     ------      ------      ------
Balance, December 31, 1994                    283           (243)       80       1,848                  1,056         (99)
  Amortization                                                10
  Net income                                                                                              264
  Common dividends, $1.60 per share                                                                      (129)
  Preferred dividends, $2.165 per share                                                                   (21)
  Common shares acquired                                                                                              (92)
  Exercise of stock options                                                          6
  Establishment of employee benefits trust                               5         245      $(250)
  Employee benefits trust transactions, net                                         84        (79)
  Other                                        (1)                                   4                      6
                                           ------         ------    ------      ------     ------      ------      ------
Balance, December 31, 1995                    282          (233)        85       2,187       (329)      1,176        (191)
  Amortization                                               11
  Net income                                                                                              342
  Common dividends, $1.80 per share                                                                      (146)
  Preferred dividends, $2.165 per share                                                                   (20)
  Common shares acquired                                                                                             (156)
  Exercise of stock options                                                         29         53
  Employee benefits trust transactions, net                                        128       (116)
  Effects of voluntary separation programs     (8)                                              8
  Effects of CSX tender offer (Note 2)        (63)                       3          60
  Other                                                                                                     5
                                           ------        ------     ------      ------     ------      ------      ------
Balance, December 31, 1996                   $211         $(222)       $88      $2,404      $(384)     $1,357       $(347)
                                           ======        ======     ======      ======     ======      ======      ======
</TABLE>
See accompanying notes.

                                44
<PAGE>

                               CONRAIL INC.
                   CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
                                               Years ended December 31,
                                               ------------------------
($ In Millions)                                 1996      1995     1994
                                               -----     -----   -----
<S>                                            <C>        <C>     <C>
Cash flows from operating activities
  Net income                                   $ 342      $ 264   $ 324
  Adjustments to reconcile net income to
   net cash provided by operating activities:
    Voluntary separation programs                135
    Asset disposition charge                                285
    Early retirement program                                         84
    Depreciation and amortization                283        293     278
    Deferred income taxes                        183        108     150
    Special income tax obligation                (94)       (73)    (62)
    Gains from sales of property                 (24)       (27)    (18)
    Pension credit                               (46)       (43)    (46)
    Changes in:
      Accounts receivable                        (16)        32      (2)
      Accounts and wages payable                 (18)         8      41
    Settlement of tax audit                      (39)
    Other                                        (37)       (74)    (52)
                                               -----      -----   -----
      Net cash provided by operating
       activities                                669        773     697
                                               -----      -----   -----
Cash flows from investing activities
  Property and equipment acquisitions           (387)      (415)   (490)
  Proceeds from disposals of properties           34         38      32
  Other                                          (46)       (59)    (23)
                                               -----     ------   -----
      Net cash used in investing activities     (399)      (436)   (481)
                                               -----      -----   -----
Cash flows from financing activities
  Repurchase of common stock                    (156)       (92)    (94)
  Net proceeds from (repayments of)
    short-term borrowings                         10        (23)     33
  Proceeds from long-term debt                    26         85     114
  Payment of long-term debt                     (184)      (134)   (158)
  Loans from and redemptions of
    insurance policies                            95
  Dividends on common stock                     (146)      (129)   (111)
  Dividends on Series A preferred stock          (25)       (21)    (16)
  Proceeds from stock options and other           67          7      21
                                               -----      -----   -----
    Net cash used in financing
       activities                               (313)      (307)   (211)
                                               -----      -----   -----
Increase (decrease) in cash and cash equivalents (43)        30       5
Cash and cash equivalents
  Beginning of year                               73         43      38
                                               -----      -----   -----
  End of year                                  $  30      $  73   $  43
                                               =====      =====   =====
</TABLE>
See accompanying notes.
                                45
<PAGE>


                                 CONRAIL INC.
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


1. Summary of Significant Accounting Policies
   ------------------------------------------
       Industry
       --------
   Conrail Inc. ("Conrail") is a holding company of which the principal
   subsidiary is Consolidated Rail Corporation ("CRC"), a freight
   railroad which operates within the northeast and midwest United States
   and the Province of Quebec.

       Principles of Consolidation
       ---------------------------
   The consolidated financial statements include Conrail and majority-
   owned subsidiaries.  Investments in 20% to 50% owned companies are
   accounted for by the equity method.

       Cash Equivalents
       ----------------
   Cash equivalents consist of commercial paper, certificates of deposit
   and other liquid securities purchased with a maturity of three months
   or less, and are stated at cost which approximates market value.

       Material and Supplies
       ---------------------
   Material and supplies consist mainly of fuel oil and items for
   maintenance of property and equipment, and are valued at the lower of
   cost, principally weighted average, or market.

       Property and Equipment
       ----------------------
   Property and equipment are recorded at cost.  Depreciation is provided
   using the composite straight-line method.  The cost (net of salvage)
   of depreciable property retired or replaced in the ordinary course of
   business is charged to accumulated depreciation and no gain or loss is
   recognized.

       Asset Impairment
       ----------------
   Long-lived assets are reviewed for impairment whenever events or
   changes in circumstances indicate that the carrying amount of an asset
   may not be recoverable.  Expected future cash flows from the use and
   disposition of long-lived assets are compared to the current carrying
   amounts to determine the potential impairment loss.

       Revenue Recognition
       -------------------
   Revenue is recognized proportionally as a shipment moves on the
   Conrail system from origin to destination.

       Earnings Per Share
       ------------------
   Primary earnings per share are based on net income adjusted for the
   effects of preferred dividends net of income tax benefits, divided by
   the weighted average number of shares outstanding during the period,
   including the dilutive effect of stock options.  Fully diluted

                                46
<PAGE>

   earnings per share assume conversion of Series A ESOP Convertible
   Junior Preferred Stock ("ESOP Stock") into Conrail common stock.  Net
   income amounts applicable to fully diluted earnings per share have been
   adjusted by the increase, net of income tax benefits, in ESOP-related
   expenses assuming conversion of all ESOP Stock to common stock.

                                46
<PAGE>

   Shares in the Conrail Employee Benefits Trust are not considered
   outstanding for computing earnings per share.  The weighted
   average number of shares of common stock outstanding during each
   of the most recent three years are as follows:

                                  1996           1995         1994
                            ----------     ----------   ----------
   Primary weighted
    average shares          77,628,825     78,733,947   79,674,781
   Fully diluted weighted
    average shares          87,325,575     88,702,712   89,562,721


       Ratio of Earnings to Fixed Charges
       ----------------------------------
   Earnings used in computing the ratio of earnings to fixed charges
   represent income before income taxes plus fixed charges, less equity
   in undistributed earnings of 20% to 50% owned companies.  Fixed
   charges represent interest expense together with interest capitalized
   and a portion of rent under long-term operating leases representative
   of an interest factor.

       New Accounting Standards
       ------------------------
   During 1995, the Financial Accounting Standards Board issued Statement
   of Financial Accounting Standards ("SFAS") No. 121, "Accounting for
   the Impairment of Long-Lived Assets and for Long-Lived Assets to Be
   Disposed Of" (SFAS 121) and SFAS No. 123, "Accounting for Stock-Based
   Compensation" (SFAS 123), which are both effective in 1996.  The
   Company has decided to adopt only the disclosure provisions of SFAS
   123 in 1996 and continues to apply APB Opinion No. 25, "Accounting for
   Stock Issued to Employees" (APB 25) and related interpretations in
   accounting for its stock-based compensation plans.  The Company
   adopted SFAS 121 in the first quarter of 1996 and determined that it
   did not have a material effect on its financial statements.

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

   The preparation of financial statements in conformity with generally
   accepted accounting principles requires management to make estimates
   and assumptions that affect the reported amounts of assets and
   liabilities and disclosure of contingent assets and liabilities at
   the date of the financial statements and the reported amounts of
   revenues and expenses during the reporting period.  Actual results
   could differ from those estimates.

                                47
<PAGE>

2.     Proposed Merger
       ---------------
   On October 14, 1996, Conrail, CSX Corporation ("CSX") and a subsidiary
   of CSX entered into an Agreement and Plan of Merger (as amended, the
   "Merger Agreement"), pursuant to which Conrail was to be merged with a
   subsidiary of CSX in a merger-of-equals transaction.

   On October 24, 1996, Norfolk Southern Corporation ("Norfolk") commenced
   an unsolicited tender offer for all outstanding Conrail voting stock at
   $100 per share in cash.  Norfolk has since increased its offer to $115
   per share in cash.

   On November 20, 1996, CSX concluded its first tender offer and
   purchased approximately 19.9% of Conrail's outstanding shares for $110
   per share.

   On December 18, 1996, CSX and Conrail entered into a second amendment
   to the Merger Agreement (the "Second Amendment") that would, among
   other things, (i) increase the consideration payable pursuant to the
   merger, (ii) accelerate the consummation of the merger to immediately
   following the receipt of applicable shareholder approvals and prior to
   the Surface Transportation Board ("STB") approval and (iii) extend
   until December 31, 1998 an exclusivity period during which the Conrail
   Board agreed not to withdraw or modify its recommendations of the CSX
   transactions, approve or recommend any takeover proposal or cause
   Conrail to enter into any agreement related to any takeover proposal.

   On January 13, 1997, Norfolk issued a press release announcing that it
   would offer to purchase shares representing 9.9% of the outstanding
   shares for $115 per share, in the event that Conrail shareholders did
   not approve a proposal to opt out of a Pennsylvania statute (the "Opt
   Out Proposal") at the meeting of shareholders to be held on January 17,
   1997 (the "Special Shareholders Meeting").

   On January 17, 1997, Conrail shareholders voted at the Special
   Shareholders Meeting against the Opt Out Proposal.

   On February 4, 1997, the amended Norfolk tender offer expired, and
   Norfolk subsequently purchased approximately 8.2 million shares
   pursuant thereto.

   On March 7, 1997, Conrail and CSX entered into a Third Amendment (the
   "Third Amendment") to the Merger Agreement.  Pursuant to the Third
   Amendment, (i) the price per share has been increased from $110 to
   $115, and the number of shares to be purchased in the tender offer has
   been increased to all outstanding shares.  The tender offer is
   scheduled to close April 18, 1997 (subject to extension by CSX to June
   2, 1997 whether or not the conditions have been satisfied), (ii) the
   consideration paid per share in the merger for all remaining
   outstanding shares following consummation of the offer has been
   increased to $115 in cash and (iii) the conditions to the offer
                                48
<PAGE>

   relating to certain provisions of Pennsylvania law  becoming
   inapplicable to Conrail and relating pending governmental actions or
   proceedings have been deleted.

   The Third Amendment also provides that CSX will have sole control over
   the regulatory approval process and will be free to conduct by itself
   discussions with other railroads, including Norfolk, relating to
   competitive issues raised by the CSX transactions, and to enter into
   any resulting agreement.  It is anticipated that CSX and Norfolk will
   negotiate an appropriate division of Conrail's assets;  however,
   neither the pending CSX tender offer nor the merger is conditioned on
   CSX's reaching an agreement with Norfolk.

   Pursuant to the Third Amendment, three members of Conrail's Board of
   Directors approved by CSX shall be invited to join the CSX Board of
   Directors and a transition team will be established, the leadership of
   which will include senior executive officers of CSX and Conrail to
   ensure the orderly operation of Conrail during the regulatory approval
   process and an orderly transition thereafter.

   Under the Third Amendment, Conrail and CSX agreed to reduce from
   December 31, 1998 to December 31, 1997 the period of time during which
   the Conrail Board is prohibited from (i) withdrawing or modifying, or
   publicly proposing to withdraw or modify, its approval or
   recommendation of the CSX transactions, in a manner adverse to CSX,
   (ii) approving or recommending, or publicly proposing to approve or
   recommend, any competing proposal or (iii) causing Conrail to enter
   into any agreement related to any such competing proposal.

   Under the Merger Agreement as amended, Conrail may terminate the Merger
   Agreement in the event that after June 2, 1997, CSX fails to consummate
   the tender offer for any reason other than the non-occurrence of any
   condition to the tender offer.  In the event that CSX fails to
   consummate the tender offer under such circumstances, Conrail will be
   entitled to exercise any additional remedies it may have.

   The full terms and conditions of the CSX and Norfolk offers and
   Conrail's position with respect to the CSX and Norfolk offers are set
   forth in documents filed by Conrail with the Securities and Exchange
   Commission.

   Pending approval by the Surface Transportation Board ("STB"), 100% of
   Conrail's voting stock will be held by CSX in a voting trust.  The
   combination of the railroad operations of the two companies is
   contingent upon the approval of the merger by the STB.

                                49
<PAGE>

3.     Voluntary Separation Programs
       -----------------------------
   During the second quarter of 1996, the Company recorded a charge of
   $135 million (before tax benefits of $52 million) consisting of $102
   million in termination benefits to be paid to non-union employees
   participating in the voluntary retirement and separation programs
   ("voluntary separation programs") and losses of $33 million on non-
   cancelable leases for office space no longer required as a result of
   the reduction in the Company's workforce.  Over 840 applications were
   accepted from eligible employees under the voluntary separation
   programs.  Approximately $90 million of the termination benefits are
   being paid from the Company's overfunded pension plan.

4.     Property and Equipment
       ----------------------
                                              December 31,
                                           -----------------
                                              1996      1995
                                           -------   -------
                                              (In Millions)
  Roadway                                  $ 7,021   $ 6,828
  Equipment                                  1,231     1,213
  Less:  Accumulated depreciation           (1,654)   (1,572)
         Allowance for disposition            (408)     (439)
                                           -------    -------
                                             6,190     6,030
                                           -------    -------
  Capital leases (primarily equipment)         908       908
  Accumulated amortization                    (508)     (530)
                                           -------   -------
                                               400       378
                                           -------   -------
                                           $ 6,590   $ 6,408
                                           =======   =======


   Conrail acquired equipment and incurred related long-term debt under
   various capital leases of $82 million in 1996, $71 million in 1995 and
   $8 million in 1994.  In 1995 (Note 10) and 1991, the Company recorded
   allowances for disposition for the sale or abandonment of certain
   under-utilized rail lines and other facilities.

5.     Accrued and Other Current Liabilities
       -------------------------------------
                                                December 31,
                                               --------------
                                               1996      1995
                                               ----      ----
                                                (In Millions)
     Freight settlements due others            $ 48      $ 54
     Equipment rents (primarily car hire)        74        71
     Unearned freight revenue                    79        56
     Property and corporate taxes                49        66
     Other                                      194       247
                                               ----      ----
                                               $444      $494
                                               ====      ====
                                50
<PAGE>


6.     Long-Term Debt
       --------------
   Long-term debt outstanding, including the weighted average interest
   rates at December 31, 1996, is composed of the following:

                                             December 31,
                                          ------------------
                                            1996        1995
                                          ------      ------
                                             (In Millions)
     Capital leases                       $  491      $  489
     Medium-term notes payable,
       6.70%, due 1997 to 1999               109         208
     Notes payable, 9.75%, due 2000          250         250
     Debentures payable, 7.88%, due 2043     250         250
     Debentures payable, 9.75%, due 2020     544         544
     Equipment and other obligations, 6.55%  262         251
     Commercial paper, 5.53%                 100         100
                                          ------      ------
                                           2,006       2,092
     Less current portion                   (130)       (181)
                                          ------      ------
                                          $1,876      $1,911
                                          ======      ======

   Using current market prices when available, or a valuation based on
   the yield to maturity of comparable debt instruments having similar
   characteristics, credit rating and maturity, the total fair value of
   the Company's long-term debt, including the current portion, but
   excluding capital leases, is $1,685 million and $1,870 million at
   December 31, 1996 and 1995, respectively, compared with carrying
   values of $1,515 million and $1,603 million at December 31, 1996 and
   1995, respectively.

   The Company's noncancelable long-term leases generally include options
   to purchase at fair value and to extend the terms.  Capital leases
   have been discounted at rates ranging from 3.09% to 14.26% and are
   collateralized by assets with a net book value of $400 million at
   December 31, 1996.

   Minimum commitments, exclusive of executory costs borne by the
   Company, are:
                                   Capital         Operating
                                    Leases            Leases
                                   -------         ---------
                                        (In Millions)
          1997                       $ 107             $115
          1998                          96              104
          1999                          86               87
          2000                          64               76
          2001                          57               68
          2002 - 2017                  273              523
                                     -----           ------
          Total                        683             $973
                                                     ======
          Less interest portion       (192)
                                     -----
          Present value              $ 491
                                     =====


                                51
<PAGE>

   Operating lease rent expense was $127 million in 1996, $130 million in
   1995 and $118 million in 1994.

   In June 1993, the Company and CRC filed a shelf registration statement
   on Form S-3 to enable CRC to issue up to $500 million in debt securities
   or the Company to issue up to $500 million in convertible debt and
   equity securities.  The remaining balance under this shelf registration
   was $312 million at December 31, 1996.

   In April 1996, CRC issued $50 million of Pass-Through Certificates at
   a rate of 6.96% to finance equipment.  Although the certificates are
   not direct obligations of, or guaranteed by CRC, amounts payable under
   related capital leases will be sufficient to pay principal and
   interest on the certificates.

   In July 1996, CRC issued $26 million of 1996 Equipment Trust
   Certificates, Series A, with interest rates ranging from 6.0% to
   7.48%, maturing annually from 1997 to 2011. The certificates were used
   to finance approximately 85% of the purchase price of twenty
   locomotives.

   In June 1996, CRC borrowed $69 million against the cash surrender
   value of the company-owned life insurance policies which it maintains
   on certain of its non-union employees.

   Equipment and other obligations mature in 1997 through 2043 and  are
   collateralized by assets with a net book value of $253 million at
   December 31, 1996.  Maturities of long-term debt other than capital
   leases and commercial paper are $65 million in 1997, $46 million in
   1998, $46 million in 1999, $266 million in 2000, $17 million in 2001 and
   $975 million in total from 2002 through 2043.

   CRC had $199 million of commercial paper outstanding at December 31,
   1996.  Of the total amount outstanding, $100 million is classified as
   long-term since it is expected to be refinanced through subsequent
   issuances of commercial paper and is supported by the long-term credit
   facility mentioned below.

   CRC maintains a $500 million uncollateralized bank credit agreement
   with a group of banks which is used for general corporate purposes and
   to support CRC's commercial paper program. The agreement matures in
   2000 and requires interest to be paid on amounts borrowed at rates
   based on various defined short-term rates and an annual maximum fee of
   .125% of the facility amounts.  The agreement contains, among other
   conditions, restrictive covenants relating to a debt ratio and
   consolidated tangible net worth.  During 1996, CRC had no borrowings
   under this agreement.

   Interest payments were $170 million in 1996, $177 million in 1995 and
   $174 million in 1994.

                                52
<PAGE>


7.     Income Taxes
       ------------
   The provisions for income taxes are composed of the following:

                                     1996       1995      1994
                                     ----       ----     -----
                                           (In Millions)
   Current
      Federal                        $ 90       $ 78      $104
      State                            10         15        16
                                     ----       ----      ----
                                      100         93       120
                                     ----       ----      ----
   Deferred
      Federal                         151        110       125
      State                            32         (2)       25
                                     ----       ----      ----
                                      183        108       150
                                     ----       ----      ----

   Special income tax obligation
      Federal                         (80)       (61)      (53)
      State                           (14)       (12)       (9)
                                     ----       ----      ----
                                      (94)       (73)      (62)
                                     ----       ----      ----
                                     $189       $128      $208
                                     ====       ====      ====


   In conjunction with the public sale in 1987 of the 85% of the
   Company's common stock then owned by the U.S. Government, federal
   legislation was enacted which resulted in a reduction of the tax basis
   of certain of the Company's assets, particularly property and
   equipment, thereby substantially decreasing tax depreciation
   deductions and increasing future federal income tax payments.  Also,
   net operating loss and investment tax credit carryforwards were
   canceled.  As a result of the sale-related transactions, a special
   income tax obligation was recorded in 1987 based on an estimated
   effective federal and state income tax rate of 37.0%.

   As a result of a decrease in a state income tax rate enacted during
   1995, income tax expense for that year was reduced by $21 million
   representing the effects of adjusting deferred income taxes and the
   special income tax obligation for the rate decrease as required by
   SFAS 109, "Accounting for Income Taxes".

   In November 1996, the Company reached a settlement with the Internal
   Revenue Service related to the audit of the Company's consolidated
   federal income tax returns for the fiscal years 1990 through 1992.
   The Company made a payment of $39 million pending resolution of the
   final interest determination related to the settlement.  Federal and
   state income tax payments were $145 million in 1996 (excluding tax
   settlement), $109 million in 1995 and $80 million in 1994.

                                53
<PAGE>


   Reconciliations of the U.S. statutory tax rates with the effective tax
   rates are as follows:
                                          1996     1995    1994
                                          ----     ----    ----
       Statutory tax rate                 35.0%    35.0%   35.0%
       State income taxes,
         net of federal benefit            3.4      3.5     3.9
       Effect of state tax decrease
         on deferred taxes                         (5.3)
       Other                              (2.8)     (.5)     .2
                                          ----     ----    ----
       Effective tax rate                 35.6%    32.7%   39.1%
                                          ====     ====    ====

   Significant components of the Company's special income tax obligation
   and deferred income tax liabilities and (assets) are as follows:
                                                     December 31,
                                                  -----------------
                                                    1996       1995
                                                  ------     ------
                                                     (In Millions)
   Current assets (primarily accounts
     receivable)                                  $   (9)    $  (27)
   Current liabilities (primarily accrued
    liabilities and casualty reserves)              (245)      (265)
   Tax benefits related to disposition of
    subsidiary                                       (30)       (30)
   Net operating loss carryforwards                   (9)       (11)
                                                  ------     ------
   Current deferred tax asset, net                $ (293)    $ (333)
                                                  ======     ======
   Noncurrent liabilities:
    Property and equipment                         1,939      1,936
    Other long-term assets (primarily prepaid
     pension asset)                                   92         67
    Miscellaneous                                     98         66
                                                  ------     ------
                                                   2,129      2,069
                                                  ------     ------
   Noncurrent assets:
    Nondeductible reserves and other
     liabilities                                    (174)      (144)
    Tax benefit transfer receivable                  (36)       (33)
    Alternative minimum tax credits                             (38)
    Miscellaneous                                    (95)       (21)
                                                  ------     ------
                                                    (305)      (236)
                                                  ------     ------
   Special income tax obligation and
    deferred income tax liabilities, net          $1,824     $1,833
                                                  ======     ======
                                54
<PAGE>


8.     Employee Benefits
       -----------------
       Pension Plans
       -------------
   The Company and certain subsidiaries maintain defined benefit pension
   plans which are noncontributory for all non-union employees and
   generally contributory for participating union employees.  Benefits
   are based primarily on credited years of service and the level of
   compensation near retirement.  Funding is based on the minimum amount
   required by the Employee Retirement Income Security Act of 1974.

   Pension credits include the following components:

                                                       1996   1995   1994
                                                      -----   ----   ----
                                                        (In Millions)

   Service cost - benefits earned during the period   $   9   $  8   $  8
   Interest cost on projected benefit obligation         51     51     48
   Return on plan assets - actual                      (138)  (254)   (10)
                         - deferred                      47    167    (77)
   Net amortization and deferral                        (15)   (15)   (15)
                                                      -----   ----   ----
                                                      $ (46)  $(43)  $(46)
                                                      =====   ====   ====

   The funded status of the pension plans and the amounts reflected in
   the balance sheets are as follows:
                                                   1996        1995
                                                 ------       -----
                                                    (In Millions)
   Accumulated benefit obligation ($655 million
    and $603 million vested, respectively)       $  661      $  609
                                                  =====       =====
   Market value of plan assets                    1,187       1,168
   Projected benefit obligation                    (734)       (726)
                                                 ------       -----
   Plan assets in excess of projected
     benefit obligation                             453         442
   Unrecognized prior service cost                   36          50
   Unrecognized transition net asset                (90)       (120)
   Unrecognized net gain                           (231)       (157)
                                                 ------       -----
   Net prepaid pension cost                      $  168      $  215
                                                 ======       =====

   The assumed weighted average discount rates used in 1996 and 1995 are
   7.5% and 7.0%, respectively, and the rate of increase in future
   compensation levels used in determining the actuarial present value of
   the projected benefit obligation as of December 31, 1996 and 1995 is
   6.0%.  The expected long-term rate of return on plan assets (primarily
   equity securities) in 1996 and 1995 is 9.0%.

                                55
<PAGE>

       Savings Plans
       -------------
   The Company and certain subsidiaries provide 401(k) savings plans for
   union and non-union employees.  Under the Non-union ESOP, 100% of
   employee contributions are matched in the form of ESOP Stock for the
   first 6% of a participating employee's base pay.  There is no Company
   match provision under the union employee plan.  Savings plan expense
   was $4 million in 1996 and 1995, and $5 million in 1994.

   In connection with the Non-union ESOP, the Company issued
   9,979,562 of the authorized 10 million shares of its ESOP Stock to the
   Non-union ESOP in exchange for a 20 year promissory note with interest
   at 9.55% from the Non-union ESOP in the principal amount of
   $288 million.  In addition, unearned ESOP compensation of $288 million
   was recognized as a charge to stockholders' equity coincident with the
   Non-union ESOP's issuance of its $288 million promissory note to the
   Company.  The debt of the Non-union ESOP was recorded by the Company
   and offset against the promissory note from the Non-union ESOP.
   Unearned ESOP compensation is charged to expense as shares of ESOP
   Stock are allocated to participants.  Approximately 2.7 million ESOP
   shares have been cumulatively allocated to participants through
   December 31, 1996, and a portion of these shares have been tendered to
   CSX (Note 2).  An amount equivalent to the preferred dividends
   declared on the ESOP Stock partially offsets compensation and interest
   expense related to the Non-union ESOP.

   In 1994, the ESOP's promissory note to the Company was refinanced.  As
   part of the refinancing, the interest rate was decreased to 8.0%, from
   the original 9.55%, and accrued interest of $21 million was
   capitalized as part of the principal balance of the promissory note.

   The Company is obligated to make dividend payments at a rate of 7.51%
   on the ESOP Stock and additional contributions in an aggregate amount
   sufficient to enable the Non-union ESOP to make the required interest
   and principal payments on its note to the Company.

   Interest expense incurred by the Non-union ESOP on its debt to the
   Company was $24 million in 1996 and 1995, and $30 million in 1994.
   Compensation expense related to the Non-union ESOP was $11 million in
   1996, and $10 million in 1995 and 1994.  Preferred dividends of $20
   million were declared in 1996, and $21 million in 1995 and 1994.
   Preferred dividend payments of $25 million, $21 million and $16
   million were made in 1996, 1995 and 1994, respectively. The Company
   received debt service payments from the Non-union ESOP of $40 million
   in 1996, $31 million in 1995 and $21 million in 1994.

                                56
<PAGE>

       Postretirement Benefits Other Than Pensions
       -------------------------------------------
   The Company provides health and life insurance benefits to certain
   retired non-union employees.  Certain non-union employees are eligible
   for retiree medical benefits, while substantially all non-union
   employees are eligible for retiree life insurance benefits. Generally,
   company-provided health care benefits terminate when individuals reach
   age 65.

   Retiree life insurance plan assets consist of a retiree life insurance
   reserve held in the Company's group life insurance policy.  There are
   no plan assets for the retiree health benefits plan.

   The following sets forth the plans' funded status reconciled with amounts
   reported in the Company's balance sheets:

                                           1996                1995
                                    -----------------    -----------------
                                               Life                Life
                                     Medical Insurance   Medical Insurance
                                      Plan     Plan       Plan     Plan
                                              (In Millions)
   Accumulated postretirement
    benefit obligation:
     Retirees                          $44      $20        $38      $19
     Fully eligible active plan
      participants                       1                   5        1
     Other active plan participants               3                   5
                                       ---      ---        ---      ---
   Accumulated benefit obligation       45       23         43       25
   Market value of plan assets                  (10)                 (7)
                                       ---      ---        ---      ---
   Accumulated benefit obligation
    in excess of plan assets            45       13         43       18
   Unrecognized gains and (losses)      (1)       2          1       (1)
   Accrued benefit cost recognized
    in the Consolidated Balance        ---      ---        ---      ---
    Sheet                              $44      $15        $44      $17
                                       ===      ===        ===      ===
   Net periodic postretirement
    benefit cost, primarily
    interest cost                      $ 3      $ 1       $ 4      $ 1
                                       ===      ===       ===      ===

   An 8 percent rate of increase in per capita costs of covered health
   care benefits was assumed for 1997, gradually decreasing to 6 percent
   by the year 2007. Increasing the assumed health care cost trend rates
   by one percentage point in each year would increase the accumulated
   postretirement benefit obligation as of December 31, 1996 by $2
   million and would have an immaterial effect on the net periodic
   postretirement benefit cost for 1996.  Discount rates of 7.5% and
   7.0% were used to determine the accumulated postretirement benefit
   obligations for both the medical and life insurance plans in 1996 and
   1995, respectively.

   The assumed rate of compensation increase was 6.0% in 1996 and 5.0%
   in 1995.

                                57
<PAGE>

   Retiree medical benefits are funded by a combination of Company and
   retiree contributions.  Retiree life insurance benefits are provided by
   insurance companies whose premiums are based on claims paid during the
   year.

9.      Capital Stock
        -------------
        Preferred Stock
        ---------------
   The Company is authorized to issue 25 million shares of preferred
   stock with no par value.  The Board of Directors has the authority to
   divide the preferred stock into series and to determine the rights
   and preferences of each.

   The Company cannot pay dividends on its common stock unless full
   cumulative dividends have been paid on its ESOP Stock, and no
   distributions can be made to the holders of common stock upon
   liquidation or dissolution of the Company unless the holders of the
   ESOP Stock have received a cash liquidation payment of $28.84375 per
   share, plus unpaid dividends up to the date of such payment.  The
   ESOP Stock is convertible into an equivalent number of shares of
   common stock based on their respective market values at the date of
   conversion.  The ESOP Stock is entitled to one vote per share, voting
   together as a single class with common stock on all matters.

   As a result of the CSX tender offer related to the proposed merger
   (Note 2), 2.2 million shares of ESOP Stock have been converted to
   common shares as a result of being removed from the Non-union ESOP
   401(k) savings plan.

       Employee Benefits Trust
       -----------------------
   In 1995, the Company issued approximately 4.7 million shares of its
   common stock to the Conrail Employee Benefits Trust (the "Trust") in
   exchange for a promissory note of $250 million at an interest rate of
   6.9%.  The Trust is being used to fund certain employee benefits and
   other forms of compensation over its fifteen-year term.  The amount
   representing unearned employee benefits is recorded as a deduction
   from stockholders' equity and is reduced as benefits and compensation
   are paid through the release of shares from the Trust. The shares
   owned by the Trust are valued at the closing market price as of the
   end of each reporting period, with corresponding changes in the
   balance of the Trust reflected in additional paid-in capital.  The
   Trust has sold shares of Conrail common stock in connection with the
   CSX and Norfolk tender offers (Note 2) and has used the proceeds to
   repurchase shares of Conrail common stock in the open market.  Shares
   held by the Trust are not considered outstanding for earnings per
   share computations until released by the Trust, but do have voting
   and dividend rights.


       Common Stock Repurchase Program
       -------------------------------
   In April 1995, the Board of Directors approved a $250 million multi-
   year stock repurchase program. During 1996, the Company acquired
   2,225,738 shares for approximately $156 million under this program.

                                58
<PAGE>

   At December 31, 1996, approximately $93 million remained available
   from this authorization; however, as a result of the proposed merger
   with CSX Corporation (Note 2), the Company will not make any
   additional stock repurchases under this program.

   The activity and status of treasury stock follow:

                                      1996         1995         1994
                                ----------    ---------    ---------
   Shares, beginning of year     3,297,717    1,789,164       83,745
    Acquired                     2,225,738    1,508,553    1,705,419
                                ----------    ---------   ----------
   Shares, end of year           5,523,455    3,297,717    1,789,164
                                ==========    =========   ==========

       Stock Plans
       -----------
   The Company's stock-based compensation plans as of December 31, 1996
   are described below.  The Company applies APB 25 and related
   interpretations in accounting for its plans.  Accordingly, no
   compensation cost has been recognized for its fixed stock option
   plans.  SFAS 123 was issued in 1995 and, if fully adopted, would
   change the method of recognition of costs on plans similar to those
   of the Company.  Adoption of SFAS 123 is optional; however, the
   required pro forma disclosures as if the Company had adopted the cost
   recognition requirements under SFAS 123 in 1996 and 1995 are
   presented below.

   The Company's 1987 and 1991 Long-Term Incentive Plans authorize the
   granting to officers and key employees of up to 4 million and 6.6
   million shares of common stock, respectively, through stock options,
   stock appreciation rights, phantom stock and awards of restricted or
   performance shares.  A stock option is exercisable for a specified
   term commencing after grant at a price not less than the fair market
   value of the stock on the date of grant.  The vesting of awards made
   pursuant to these plans is contingent upon one or more of the
   following: continued employment, passage of time or financial and
   other performance goals.

   Effective November 1996, the Company's Board of Directors authorized
   the automatic vesting of all unvested stock options outstanding in
   connection with the Merger Agreement between CSX and the Company
   (Note 2).
                                59
<PAGE>

   The activity and status of stock options under the incentive
   plans follow:
                                    Non-qualified Stock Options
                              -----------------------------------
                                    Option Price           Shares
                                       Per Share     Under Option
                              -----------------      ------------
   Balance, January 1, 1994    $14.000 - $60.500        1,966,321
       Granted                 $52.188 - $66.938           23,988
       Exercised               $14.000 - $51.375         (507,450)
       Canceled                $42.625 - $60.500         (118,904)
                                                     ------------
   Balance, December 31, 1994  $14.000 - $66.938        1,363,955
       Granted                 $50.688 - $68.563          516,757
       Exercised               $14.000 - $53.875         (200,940)
       Canceled                $42.625 - $53.875         (123,560)
                                                     ------------
   Balance, December 31, 1995  $14.000 - $68.563        1,556,212
       Granted                 $68.563 - $96.063          551,038
       Exercised               $14.000 - $73.250       (1,268,085)
       Canceled                $42.625 - $70.031           (3,984)
                                                     ------------
   Balance, December 31, 1996  $14.000 - $96.063          835,181
                                                     ============
   Exercisable,
      December 31, 1996        $14.000 - $74.188          831,481
                                                     ============
   Available for future grants
      December 31, 1995                                 1,188,193
                                                     ============
      December 31, 1996                                 3,969,317
                                                     ============


   The weighted average exercise prices of options granted during 1996 and
   1995 are $70.130 per share and $51.204 per share, respectively.  The
   weighted average exercise prices of options exercised during 1996 and
   1995 are $48.32 per share and $31.16 per share, respectively.  The
   average remaining maximum terms of options is not considered meaningful
   given the events that have occurred as a result of the proposed merger
   with CSX (Note 2).

   The fair value of each option granted during 1996 is estimated on the
   date of grant using the Black-Scholes option-pricing model with the
   following weighted average assumptions: (1) dividend yield of 2.43%, (2)
   expected volatility of 25.25%, (3) risk-free interest rate of 5.51%, and
   (4) expected life of 4 years.  The weighted average fair value of
   options granted during 1996 and 1995 is $16.00 per share and $13.12 per
   share, respectively.


   Had the compensation cost for the Company's 1996 and 1995 grants for
   stock-based compensation plans been determined consistent with SFAS 123,
   the Company's net income, primary earnings per share and fully diluted
   earnings per share for 1996 and 1995 would approximate the pro forma

                                60
<PAGE>

   amounts below ($ in millions except per share data):

                                                 1996    1995
                                                -----   -----
   Net income as reported                       $ 342   $ 264
   Net income pro forma                           335     262

   Primary earnings per share                   $4.25   $3.19
   Primary earnings per share pro forma          4.16    3.16

   Fully diluted earnings per share             $3.89   $2.94
   Fully diluted earnings per share pro forma    3.81    2.92

   The Company has granted phantom shares and restricted stock under its
   non-union employee bonus plans to eligible employees who elect to
   defer all or a portion of their annual bonus in a given year.  The
   number of shares granted depends on the length of the deferral
   period. Grants are made at the market price of the Company's common
   stock at the date of grant. The Company has granted 148,749 shares
   and 337,329 shares of phantom and restricted stock, respectively,
   under its non-union employee bonus plans through December 31, 1996.
   The Company has also granted 73,344 performance shares under its 1991
   Long-Term Incentive Plan through December 31, 1996. Compensation
   expense related to these plans was $2 million in 1996 and $3 million
   in 1995.  The weighted-average fair value for the phantom shares and
   restricted stock granted during 1996 and 1995 was $68.02 per share
   and $52.88 per share, respectively.

   Stock Rights
   ------------
   In 1989, the Company declared a dividend of one common share purchase
   right (the "Right") on each outstanding share of common stock.  The
   Rights are not exercisable or transferable apart from the common stock
   until the occurrence of certain events arising out of an actual or
   potential acquisition of 10% or more of the Company's common stock,
   and would at such time provide the holder with certain additional
   entitlements.  However, under the terms of the Merger Agreement (Note
   2) the CSX tender offer does not constitute an event that would result
   in the Rights becoming exercisable.  In 1995, a dividend of one Right
   for each share of ESOP Stock was declared and paid.  The exercise
   price of the Rights is $205.  The Rights may be redeemed by the
   Company prior to becoming exercisable at one-half cent ($.005) per
   Right and have no voting or dividend rights.

                                61
<PAGE>

10.    Asset Disposition Charge
       ------------------------
   Included in 1995 operating expenses is an asset disposition charge of
   $285 million, which reduced net income by $176 million.     The asset
   disposition charge resulted from a review of the Company's route
   system and other operating assets to determine those that no longer
   effectively and economically supported current and expected
   operations.  The Company identified and has committed to sell 1,800
   miles of rail lines that are expected to provide proceeds
   substantially less than net book value.  In addition, other assets,
   principally yards and side tracks, identified for disposition were
   written down to estimated net realizable value (See Note 1 "Asset
   Impairment").

11.    1994 Early Retirement Program
       -----------------------------
   During 1994, the Company recorded a charge of $84 million, which
   reduced net income by $51 million, for a non-union employee voluntary
   early retirement program and related costs.  The majority of the cost
   of the early retirement program is being paid from the Company's
   overfunded pension plan.

12.    Other Income, Net
       -----------------
                                   1996      1995     1994
                                   ----      ----     ----
                                       (In Millions)
      Interest income             $ 29       $ 33    $ 34
      Rental income                 50         57      53
      Property sales                23         27      18
      Other, net                    10         13      13
                                  ----       ----    ----
                                  $112       $130    $118
                                  ====       ====    ====

13.    Commitments and Contingencies
       -----------------------------
       Environmental
       -------------
   The Company is subject to various federal, state and local laws and
   regulations regarding environmental matters.  CRC is a party to
   various proceedings brought by both regulatory agencies and private
   parties under federal, state and local laws, including
   Superfund laws, and has also received inquiries from governmental
   agencies with respect to other potential environmental issues.  At
   December 31, 1996, CRC has received, together with other companies,
   notices of its involvement as a potentially responsible party or
   requests for information under the Superfund laws with respect to
   cleanup and/or removal costs due to its status as an alleged
   transporter, generator or property owner at 135 locations.  However,
   based on currently available information, the Company believes CRC may
   have some potential responsibility at only 61 of these sites.  Due to
   the number of parties involved at many of these sites, the wide range
   of costs of possible remediation alternatives, the changing technology
   and the length of time over which these matters develop, it is often
   not possible to estimate CRC's liability for the costs associated with
   the assessment and remediation of contaminated sites.

                                62
<PAGE>

   Although the Company's operating results and liquidity could be
   significantly affected in any quarterly or annual reporting period if
   CRC were held principally liable in certain of these actions, at
   December 31, 1996, the Company had accrued $55 million, an amount it
   believes is sufficient to cover the probable liability and remediation
   costs that will be incurred at Superfund sites and other sites based
   on known information and using various estimating techniques.  The
   Company believes the ultimate liability for these matters will not
   materially affect its consolidated financial condition.

   The Company spent $11 million in 1996, $14 million in 1995 and $8
   million in 1994 for environmental remediation and related costs and
   anticipates spending an amount comparable to that spent in 1996
   during 1997. In addition, the Company's capital expenditures for
   environmental control and abatement projects were approximately $6
   million in 1996 and 1995, and $5 million in 1994, and are
   anticipated to be approximately $10 million in 1997.

   The Environmental Quality Department is charged with promoting the
   Company's compliance with laws and regulations affecting the
   environment and instituting environmentally sound operating
   practices.  The department monitors the status of the sites where
   the Company is alleged to have liability and continually reviews the
   information available and assesses the adequacy of the recorded
   liability.

       Other
       -----
   The Company is involved in various legal actions, principally relating
   to occupational health claims, personal injuries, casualties, property
   damage and damage to lading.  The Company has recorded liabilities on
   its balance sheet for amounts sufficient to cover the expected
   payments for such actions.

   The Company may be contingently liable for approximately $63 million
   at December 31, 1996 under indemnification provisions related to sales
   of tax benefits.

   CRC had an average of 20,761 employees in 1996, approximately 87% of
   whom are represented by 14 different labor organizations and are
   covered by 22 separate collective bargaining agreements.  The Company
   was engaged in collective bargaining at December 31, 1996 with labor
   organizations representing approximately 22% of its labor force.

   In 1994, Locomotive Management Services, a general partnership of
   which CRC holds a fifty percent interest, issued $96 million of
   Equipment Trust Certificates to fund the purchase price of 60 new
   locomotives. While principal and interest payments on certificates
   will be fully guaranteed by CRC, through a sharing agreement with its
   partner, CRC's portion of the guarantee is reduced to approximately
   $48 million, effective January 1, 1997, with the Company's purchase of
   twenty of the locomotives.

                                63
<PAGE>

   CRC has received three adverse jury verdicts related to railroad
   crossing accidents in Ohio that include significant punitive damage
   awards that collectively approximate $30 million.  CRC believes the
   punitive damage awards in those cases are improper and that it has
   meritorious defenses, which it plans to pursue on appeal.  The Company
   is not presently able to reasonably estimate the ultimate outcome of
   these cases, and accordingly, no expense for such awards has been
   recorded as of December 31, 1996.

   As part of the Merger Agreement (Note 2), the Company may be a party to
   certain stock purchase options or, under certain circumstances, be
   required to pay substantial termination fees.

14.    Condensed Quarterly Data (Unaudited)
       -----------------------------------
<TABLE>
                                            First          Second            Third           Fourth
                                       ------------     -----------       -----------     ------------
                                       1996    1995     1996     1995     1996     1995     1996    1995
                                       ----    ----     ----     ----     ----     ----     ----    ----
                                                        ($ In Millions Except Per Share)
   <S>                               <C>     <C>      <C>      <C>      <C>      <C>     <C>      <C>
   Revenues                            $889    $889     $949     $923     $933     $923     $943    $951
   Income (loss) from operations         69     114       54      180      235      208      243     (46)
   Net income (loss)                     31      55       26      123      138      116      147     (30)
   Net income (loss) per common share:
     Primary                            .36     .66      .30     1.52     1.74     1.44     1.86    (.43)
     Fully diluted                      .35     .61      .29     1.37     1.58     1.31     1.70    (.43)
   Ratio of earnings to fixed charges  1.75x   2.39x    1.57x    3.42x    4.77x    4.02x    4.91x      -
   Dividends per common share          .425    .375     .425     .375     .475     .425     .475    .425
   Market prices per common share
     (New York Stock Exchange)
     High                            77 1/4  57 5/8   73 1/4   56 1/4   74 5/8   70 1/4  100 7/8  74 3/8
     Low                             67 5/8  50 1/2   66 1/4   51 1/8   63 3/4   55 1/8   68 1/2  65 1/2

</TABLE>

   During the second quarter of 1996, the Company recorded a one-time
   charge of $135 million for the non-union employee voluntary early
   retirement and separation programs and related costs, which
   reduced net income by $83 million (Note 3). Without this charge, net
   income would have been $109 million for the quarter ($1.37 and $1.25
   per share, primary and fully diluted, respectively).

   As a result of a decrease in a state income tax rate enacted during
   the second quarter of 1995, income tax expense was reduced
   by $21 million representing the effects of adjusting deferred income
   taxes and the special income tax obligation for the rate decrease as
   required under SFAS 109 (Note 7).  Without this one-time tax benefit,
   the Company's net income for the quarter would have been $102 million
   ($1.25 and $1.14 per share, primary and fully diluted, respectively).
   During the fourth quarter of 1995, an asset disposition charge reduced
   income from operations by $285 million and adversely affected the
   quarter's net income by $176 million (Note 10).  Without the asset
   disposition charge, net income would have been $146 million ($1.82 and
   $1.65 per share, primary and fully diluted, respectively) for the
   fourth quarter of 1995.  After the asset disposition charge, earnings
   were insufficient by $58 million to cover fixed charges for the
   quarter.

                                64
<PAGE>

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

          None.





                                65
<PAGE>



                                 PART III


Item 10.  Directors and Executive Officers of the Registrant.
-------   --------------------------------------------------

         The information regarding executive officers called for by Item
         401 of Regulation S-K is included in Part I under "Executive
         Officers of the Registrant."

CLASS I DIRECTORS - TERM EXPIRING 1997:

        Name, Business Experience                        Prior Service As
        and Other Directorships                          Conrail Director
        -------------------------                        ----------------

H. Furlong Baldwin                                       Since 1988
Chairman and Chief Executive Officer of
Mercantile Bankshares Corporation since
prior to January 1991. Director,
Mercantile Bankshares Corporation,
Baltimore Gas & Electric Company, GRC
International, Inc. and USF&G Corporation.
Age 65.

David M. LeVan                                           Since 1994
Chairman, President and Chief Executive
Officer of Conrail since May 1996.
Served as President and Chief Executive
Officer between March 1995 and May 1996.
President and Chief Operating Officer of
Conrail between September 1994 and March
1995.  Executive Vice President between
November 1993 and September 1994.  Senior
Vice President - Operations between July
1992 and November 1993.  Senior Vice
President - Operating Systems and Strategies
between November 1991 and June 1992.  Age
51.

Gail J. McGovern                                         Since 1996
Executive Vice President, Consumer Markets
of AT&T since January 1997.   Executive
Vice President, Business Markets of AT&T
between November 1995 and January 1997.
Vice President, Business Services of AT&T
between April 1994 and November 1995.
Vice President, Strategy of AT&T between
August 1993 and April 1994.  Vice
President, 800 Service of AT&T between
January 1992 and August 1993.  Age 45.

                                           66
<PAGE>

        Name, Business Experience                        Prior Service As
         and Other Directorships                         Conrail Director
        -------------------------                        ----------------


David H. Swanson                                         Since 1989
President and Chief Executive Officer of
Countrymark Cooperative, Inc., a farm
supply and marketing cooperative, since
December 1995.  Chairman, President and
Chief Executive Officer of Explorer
Nutritional Group, an animal nutrition
company, and Chairman of Premiere Agri-
Technologies, Inc., an international
agricultural business, between January
1995 and December 1995.  Chief Executive
Officer of Premiere Agri-Technologies,
Inc. between January 1994 and January
1995. Chairman, President and Chief
Executive Officer of Central Soya Company,
Inc. between 1986 and January 1994.
Director, Fiduciary Trust International.
Age 54.

CLASS II DIRECTORS - TERM EXPIRING 1998:
Kathleen Foley Feldstein                                 Since 1993
President of Economics Studies, Inc., a
private consulting firm, since prior to
January 1, 1991. Director, Bank America
Corporation, Digital Equipment Corporation
and John Hancock Mutual Life Insurance
Company.  Age 56.

David B. Lewis                                           Since 1989
Chairman of Lewis, Clay & Munday, P.C., a
law firm, since prior to January 1991.
Director, LG&E Energy Corp., Comerica
Bank, and TRW, Inc.  Lewis, Clay & Munday
provided legal services to Conrail in
1996.  Age 52.

John C. Marous                                           Since 1991
Retired in July 1990 from Westinghouse
Electric Corporation where he held the
position of Chairman and Chief Executive
Officer between January 1988 and July
1990.  Director, Mellon Bank, N.A.  Age
71.

Raymond T. Schuler                                       Since 1981
Retired in September 1990 from the
Business Council of New York State, Inc.,
where he held the positions of Vice
Chairman, President and Chief Executive
Officer. Director, Oneida, Ltd., Northeast
Savings and NAMICVSA.   Age 67.

                                67
<PAGE>


CLASS III DIRECTORS - TERM EXPIRING 1999:
        Name, Business Experience                        Prior Service As
        and Other Directorships                          Conrail Director
        -------------------------                        ----------------

Claude S. Brinegar                                       Since 1990
Vice Chairman of Unocal Corp., a high
technology earth resources company, from
August 1989 to June 1995.  Retired from
Unocal Corp. in May 1992, where he held
the position of Executive Vice President -
Administration and Planning, since 1989.
Director, Maxicare Health Plans, Inc., and
a visiting scholar at Stanford University.
Age 70.

Daniel B. Burke                                          1981 to 1986 and
Chairman and Owner, Portland, Maine                      since 1987
Baseball Inc., 1994 to present. Retired
in February 1994 from Capital Cities/ABC,
Inc. where he held the positions of
President and Chief Executive Officer
since June 1990.  Director, Capital
Cities/ABC, Inc., Rohm and Haas Co., Avon
Products, Inc., Morgan Stanley Group
Incorporated and Darden Restaurants.  Age
68.


Roger S. Hillas                                          Since 1981
Retired in January 1993 from Meritor
Savings Bank where he held the positions
of Chairman and Chief Executive Officer
between July 1988 and December 1992.
Director, P.H. Glatfelter Company, Toll
Bros., Inc., The Bon-Ton Stores, Inc. and
VF Corporation.  Age 69.

E. Bradley Jones                                         Since 1987
Retired in December 1984 from LTV Steel
Company where he held the positions of
Chairman and Chief Executive Officer and
Group Vice President of LTV Corporation.
Director, TRW, Inc.,  Cleveland-Cliffs,
Inc., Birmingham Steel Corporation and
RPM, Inc.; Trustee, First Union Real
Estate Equity and Mortgage Investments and
Trustee, Fidelity Group of Funds.  Age 69.

                                68
<PAGE>


Item 11.  Executive Compensation.
-------   ----------------------

COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS

      Directors'  Compensation. Directors who are not officers  of  Conrail
receive  an  annual fee of $25,000 and a fee of $1,000 for each  Board  and
Board  committee meeting they attend. Each such director who is a  chairman
of  a  Board Committee receives an additional annual fee of $2,000,  except
the  chairman of the Audit Committee who receives an additional annual  fee
of  $2,500. Directors who are officers of Conrail are not paid any fees for
service on the Board or on any Board Committees.

     Conrail  maintains a Retirement Plan for Non-Employee  Directors  that
provides each director who is not an employee or former employee of Conrail
with a retirement benefit equal to the product of (1) one-twelfth of his or
her  annual  retainer fee from Conrail in effect at the time  the  director
ceases to serve as a member of the Board and (2) the number of full months,
up to 120, he or she served on the Board, including service on the Board of
Consolidated Rail Corporation prior to July 1, 1993.

      Benefits are payable in cash, from Conrail's general assets, in equal
monthly  installments  over the ten-year period beginning  with  the  month
following the later of (1) the month in which the director ceases to  serve
on  the  Board  or  (2)  the month in which the director  attains  age  65.
Notwithstanding the foregoing, (1) the benefits of directors who  cease  to
serve  on  the  Board  on  account of disability commence  with  the  month
following the month in which the director ceases to serve on the Board, and
(2)  after  a  director's death, his or her benefits shall be paid  to  the
director's  designated  beneficiary,  or  in  the  absence  of  a   written
designation,  to  the  director's  estate,  in  a  lump  sum,  as  soon  as
practicable following the director's death.

      Benefits  are forfeited in the event the director, before he  or  she
attains  age 65, is removed from the Board for cause or voluntarily resigns
from  the Board, unless the resignation is approved by the Board on account
of  a  conflict between the interests of the director and the interests  of
Conrail.

      Conrail  also maintains a Board of Directors Charitable Contributions
Program pursuant to which Conrail has purchased life insurance policies  of
$1  million  on the life of each director. Upon the death of an  individual
director,  Conrail  will donate $1 million in five annual  installments  of
$200,000   each  to  one  or  more  qualifying  educational  or  charitable
organizations  designated by the director, and will be  reimbursed  by  the
life  insurance proceeds. Individual directors derive no financial  benefit
from  the program; all charitable deductions accrue solely to Conrail.   In
1996,  a donation of $200,000 was made under the program on behalf  of  the
late Ann F. Friedlaender.

                                69
<PAGE>


      Compensation  of  Executive Officers. The  following  table  provides
certain  summary information concerning compensation awarded to, earned  by
or  paid  in  1996  to  Conrail's Chairman, President and  Chief  Executive
Officer, David M. LeVan, and each of the four other most highly compensated
executive officers of Conrail (determined as of the end of the last  fiscal
year  (December 31, 1996) and hereafter referred to as the "named executive
officers") for all services rendered in all capacities to Conrail  and  its
subsidiaries  during the fiscal years ended December  31,  1994,  1995  and
1996.

<TABLE>
                                     SUMMARY COMPENSATION TABLE

                                                       Long-Term Compensation
                          Annual Compensation                   Awards
                          -------------------        ---------------------------

(a)                        (b)          (c)           (d)            (f)           (g)            (i)


                                                                 Restricted    Securities
Name and                                                         Stock         Underlying      All Other
Principal                            Salary         Bonus        Award(s)      Options/SARS   Compensation
Position                  Year        ($)            ($)           ($)             (#)           ($)(1)
-----------               ----       ------         -----        ----------    ------------   ------------

<S>                       <C>        <C>           <C>            <C>                <C>             <C>
D. M. LeVan               1996       594,522            0               0(2)         33,000          9,000
Chairman, President       1995       514,519       24,759         509,976(3)         30,746          9,000
& CEO

R. J. Conway              1996       257,031            0               0(2)          9,000          9,000
Sr. Vice President-       1995       223,889      101,367          27,425(3)          9,000          9,000
Operations                1994       166,940       88,023               0                            9,000

B. B. Wilson              1996       251,840            0               0(2)          9,000          9,000
Sr. Vice President-       1995       253,026      114,792          27,425(3)          9,000          9,000
Merger                    1994       245,040      122,500               0                            9,000

J.P. Sammon               1996       217,720            0               0(2)          9,000          9,000
Sr. Vice President-       1995       198,334       90,104          27,425(3)          9,000          9,000
CORE Service Group        1994       135,187       54,207               0                            9,000

T.P. Dwyer                1996       197,819            0               0(2)          9,000          9,000
Sr. Vice President-       1995       198,882       33,736         106,340(3)          9,000          9,000
Unit Train Service        1994       150,446       65,178               0                            9,000
Group

</TABLE>

 (1) These amounts represent Conrail's matching contribution in the form of
     Conrail Preferred Stock of amounts deferred by the named executive
     officers through a 401(k) plan during 1996, 1995 and 1994.  The shares
     are allocated based on the per share price set at the time the shares
     were purchased by the plan.

 (2) As of December 31, 1996,  Messrs. LeVan, Conway, Wilson, Sammon and
     Dwyer held, respectively, 15,273, 2,061, 1,230, 0 and 2,212 restricted
     shares of Conrail Common Stock worth $940,411, $146,513, $122,539, $0
     and $124,473, respectively, net of the payments which such officers
     would have been entitled to receive absent their elections to take
     restricted shares instead of cash bonuses. Valuation is based on the
     closing price of Conrail Common Stock on December 31, 1996 ($99.625).

                                70
<PAGE>

 (3) This figure represents the following:  (i) full market value as of the
     January 31, 1996 grant date of restricted shares of Conrail Common
     Stock awarded to the named executive officer as a result of a 1995
     bonus deferral, and is composed of the amount of the 1995 bonus which
     such officer elected to defer ($277,546 and $56,368 for Messrs. LeVan
     and Dwyer, respectively) plus a matching contribution by Conrail in
     the amount of 50%;  and (ii) the value of shares of Conrail Common
     Stock awarded on January 22, 1996 in settlement of performance shares
     granted on January 1, 1995 based on Conrail's having met certain
     predetermined financial performance goals (computed at a fair market
     value of $68.5625).  The number of shares of restricted stock was
     determined by the fair market value of Conrail Common Stock on January
     31, 1996 ($70.3125).  Dividends are paid on all restricted shares.

                                71
<PAGE>


The following table contains information concerning the grant of stock
options made to the named executive officers during the fiscal year ended
December 31, 1996.

<TABLE>
                                 Option/SAR Grants in Last Fiscal Year


                                   Individual Grant                                          Grant Date
                                                                                                Value
   (a)                     (b)             (c)                (d)               (e)               (f)
-------------------------------------------------------------------------------------------------------

                    Number of          % of Total
                    Securities         Options/SARs
                    Underlying         Granted to         Exercise or                        Grant Date
                    Options/SARs       Employees in       Base Price                         Present Value
Name                Granted (#)        Fiscal Year        ($/sh)          Expiration Date    ($) (2)
<S>                  <C>                  <C>                <C>         <C>                   <C>

D. M. LeVan          33,000(1)            6.9%              $70.0313     January 1, 2006       521,730

R.J. Conway           9,000(1)            1.9%              $70.0313     January 1, 2006       142,290

B.B. Wilson           9,000(1)            1.9%              $70.0313     January 1, 2006       142,290

J.P. Sammon           9,000(1)            1.9%              $70.0313     January 1, 2006       142,290

T.P. Dwyer            9,000(1)            1.9%              $70.0313     January 1, 2006       142,290

</TABLE>
(1)  Exerciseable as of November, 1996.

(2)  Based on modified Black-Scholes Option Pricing Model assuming a four
     year term and that dividends are compounded quarterly and risk-free
     rates are compounded continuously over the expected option term.
     Dividend yield for the options is 2.43%, and the risk free rate of
     return is 5.34%, using daily volatility rates of 25.30%.


                                72
<PAGE>

      The  following table provides information concerning the exercise  of
stock  options during the fiscal year ended December 31, 1996, by  each  of
the  named  executive officers and the value of unexercised  stock  options
held by each such officer as of December 31, 1996.

<TABLE>
                         Aggregated Option/SAR Exercises in Last Fiscal Year
                               and Fiscal Year-End Option/SAR Values

   (a)                  (b)                (c)                    (d)              (e)
                                                             Number of
                                                             Securities         Value of
                                                             Underlying         Unexercised
                                                             Unexercised        In-the-Money
                                                             Options/SARs       Options/SARs
                                                             at FY-End (#)      at FY-End ($)

                  Shares Acquired                            Exercisable/       Exercisable/
Name              On Exercise (#)     Value Realized ($)     Unexercisable      Unexercisable(1)
----              ---------------     ------------------     -------------      ----------------
<S>                      <C>                 <C>             <C>                <C>

D. M. LeVan               0                   0              E     98,896       E   4,357,479
                                                             U          0       U           0

R. J. Conway              0                   0              E     27,375       E   1,242,867
                                                             U          0       U           0

B. B. Wilson           65,716             3,654,824          E          0       E           0
                                                             U          0       U           0

J.P. Sammon            17,375              562,867           E     18,125       E     739,226
                                                             U          0       U           0

T.P. Dwyer             30,500             1,314,437          E          0       E           0
                                                             U          0       U           0

</TABLE>

(1)   This valuation is based on the fair market value of Conrail Common
      Stock on December 31, 1996 ($99.6875).

                                73
<PAGE>

                    Long-Term Incentive Plans ---Awards in Last Fiscal Year
<TABLE>
                                                     Estimated Future Payouts
                                                  under Non-Stock Price-Based Plans
                                                  ---------------------------------
   (a)             (b)               (c)            (d)            (e)           (f)
                                  Performance
               Number of          or Other
               Shares, Units      Period Until
               or Other           Maturation
Name           Rights (#)(1)      or Payout      Threshold (#)   Target (#)   Maximum(#)
<S>               <C>             <C>               <C>            <C>          <C>
D. M. LeVan       4,400           January 1999      3,960          4,400        4,400

R. J. Conway      1,200           January 1999      1,080          1,200        1,200

B. B. Wilson      1,200           January 1999      1,080          1,200        1,200

J.P. Sammon       1,200           January 1999      1,080          1,200        1,200

T.P. Dwyer        1,200           January 1999      1,080          1,200        1,200

</TABLE>

(1)  Represents performance shares granted to the named executive
     officers in 1996. Shares will vest proportionately in January
     1999 if Conrail has met 90% or more of a three-year, cumulative
     cash flow goal.

                                74
<PAGE>


                 Pension Plan Table and Related Disclosure

     The following table shows estimated annual retirement benefits payable
under the Supplemental Pension Plan of Consolidated Rail Corporation.

                                          Years of Service
----------------------------------------------------------------------------

Remuneration                15 YRS    20 YRS    25 YRS    30 YRS    35 YRS
------------                -------   -------   -------   -------   -------
$  125,000                 $ 20,928  $ 27,905  $ 34,881  $ 41,857  $ 48,833
   150,000                   26,178    34,905    43,631    52,357    61,083
   175,000                   31,428    41,905    52,381    62,857    73,333
   200,000                   36,678    48,905    61,131    73,357    85,583
   225,000                   41,928    55,905    69,881    83,857    97,833
   250,000                   47,178    62,905    78,631    94,357   110,083
   300,000                   57,678    76,905    96,131   115,357   134,583
   400,000                   78,678   104,905   131,631   157,357   183,583
   450,000                   89,178   118,905   148,631   178,357   208,083
   500,000                   99,678   132,905   166,131   199,357   232,583
   600,000                  120,678   160,905   201,131   241,357   281,583
   700,000                  141,678   188,905   236,131   283,357   330,583
   750,000                  152,178   202,905   253,631   304,357   355,083
 1,250,000                  257,178   342,905   428,631   514,357   600,083
 1,500,000                  309,678   412,905   516,131   619,357   722,583


      Messrs. LeVan, Conway, Wilson, Sammon and Dwyer have 18, 27, 17, 17
and 24 years of credited service, respectively. Compensation covered by the
Pension  Plan  consists  of  an employee's wages  for  federal  income  tax
purposes  (see column (c) to the Summary Compensation Table plus any  bonus
paid  in  1996; column (d) reflects bonuses earned in the stated year,  but
not  paid  in such year), excluding reimbursements, fringe benefits,  gains
from  the exercise of employee stock options, and contributions to deferred
compensation  plans other than employee deferrals under  Conrail's  Matched
Savings  Plan. In 1996, the covered compensation of Messrs. LeVan,  Conway,
Wilson,  Sammon and Dwyer was $625,826, $260,636, $308,554,  $210,455,  and
$233,707,  respectively.  The table above shows estimated annual retirement
benefits,  after  application  of the Pension  Plan's  railroad  retirement
offset,  payable  to  participants as a straight  life  annuity  under  the
Pension  Plan  upon  normal retirement at age 65 based upon  final  average
compensation  and  years  of Conrail service. The table  does  not  reflect
statutory limits on benefits under tax-qualified plans.

                                75
<PAGE>



          Employment Agreements and Termination of Employment and
                      Change in Control Arrangements

      To  ensure that Conrail would have the continued dedicated service  of
certain executives notwithstanding the possibility, threat or occurrence of
changes in control, in 1995, Conrail entered into severance agreements with
its officers and certain key employees, including the officers named in the
Summary Compensation Table ("Change of Control Contracts").  The agreements
generally provide that if the executive is Terminated other than for  Cause
within three years  after  a  Change  in Control,  or  within two years of
regulatory approval  of  such  Change  in Control,  each as defined in the
agreement, such executive is entitled to receive severance benefits.  Such
benefits would be equal to  a  lump  sum  payment equal to all previously
accrued cash compensation, three times  the sum  of the then-current base
salary and highest annual bonus earned within the previous three calendar
years, together with certain other payments and benefits, including
continuation of employee welfare benefits and an additional  payment to
compensate the executive for certain excise taxes imposed upon payments
under such agreements.  In addition, such Termination would result in the
acceleration of vesting or lapse of restricted periods on previously granted
stock-based incentive awards.

     In connection with the proposed merger with CSX Corporation, CSX has
agreed to pay to Mr. LeVan, in lieu of any stay bonus and severance or
termination benefits, a lump sum equal to the economic value of the
employment agreement (as reasonably determined by the parties in good
faith) which CSX and Mr. LeVan had entered into in connection with the
Conrail-CSX merger as originally proposed.  Company executives (other than
Mr. LeVan) will be paid the value of their Change of Control Contracts in
accordance with the terms thereof if their employment is terminated under
certain specified circumstances or if they remain employed until May 31,
1998.

     CSX Corporation has agreed to honor all obligations under employment
agreements and employee benefit plans, programs and policies and
arrangements of Conrail in accordance with the terms of the Merger
Agreement and to provide benefits to those employees of Conrail transferred
to CSX or another entity.  Severance or supplemental retirement benefits
will be provided to non-union employees (other than executive level
employees) who are terminated within three years following the regulatory
approval of the merger, equal to between six months and 24 months of salary
(depending upon an employee's service).  Medical coverage will also be
continued for these employees for specified periods.  A stay bonus program
will also be established that provides a lump sum cash payment to non-union
employees who remain employed until regulatory approval of the merger with
additional payments made to those employees who remain employed for up to
six months thereafter.

                                76
<PAGE>




Item 12.  Security Ownership of Certain Beneficial
-------   ----------------------------------------
          Owners and Management.
          ---------------------

      Outstanding Shares. As of the close of business on March 3, 1997,
there  were  issued and outstanding 83,144,397 shares of Conrail Common
Stock and 6,358,470  shares of Conrail Preferred Stock.  To Conrail's
knowledge, the only persons (or "group" as that term is used in Section
13(d)(3) of the Securities Exchange Act of 1934, as amended  (the
"Exchange Act")) who, as of March 3, 1997, owned beneficially more than
5% of any class of Conrail's voting securities are listed in the
following table:

<TABLE>

                     Name and Address               Amount and Nature of             Percent
Title of Class       of Beneficial Owner            Beneficial Ownership             of Class
--------------       -------------------            --------------------             --------
<S>                           <C>                          <C>                         <C>

Conrail Common      Green Acquisition Corp.,       17,775,124 (of which: sole         21.4%
Stock               a wholly- owned subsidiary of  voting power - 17,775,124;
                    CSX Corp.                      shared voting power - 0; sole
                    One James Center               dispositive power -17,775,124;
                    901 E. Cary Street             shared dispositive power - 0) (1)
                    Richmond, VA  23219

Conrail Common      Alantic Acquisition Corp.,     8,200,100 (of which: sole           9.9%
Stock               a wholly-owned subsidiary of   voting power - 8,200,100;
                    Norfolk Southrn Corp.          shared voting power - 0; sole
                    Three Commercial Place         dispositive power - 8,200,100;
                    Norfolk, VA  23510             shared dispositive power - 0) (2)

Conrail Preferred  Fidelity Management Trust Co.   4,825,000 shares,not individually, 75.9%
Stock              82 Devonshire Street            but solely in its capacity
                   Boston, MA  02109               as Trustee of the ESOP (3)

</TABLE>

1.   Held in trust by Deposit Guaranty National Bank, One Deposit Guaranty
     Plaza, Jackson,  Mississippi. These shares represent 19.9% of
     Conrail's total voting securities (Common Stock and Preferred Stock
     voting as one class).  CSX also beneficially owns an additional
     15,955,477 shares of Conrail Common Stock pursuant to a Conrail Stock
     Option Agreement dated as of October 14, 1996 between Conrail and CSX,
     pursuant to which CSX currently has the right to purchase up to that
     number of additional shares at a price of $92.50 per share.  These
     option shares, together with the 17,775,124 shares referred to above,
     represent approximately 37.7% of Conrail's total voting securities.

2.   Held in trust by First American National Bank, 300 Union Street,
     Nashville,  Tennessee.  These shares represent 9.2% of Conrail's
     total voting securities.

3.   Shares of Conrail Preferred Stock are convertible into shares of
     Conrail  Common Stock at any time on a share-for-share basis, subject
     to certain antidilution adjustments. As a result, ownership of shares
     of Conrail Preferred Stock is deemed to be ownership of an equal
     number of shares of Conrail Common Stock. These 4,825,000 shares of
     Conrail Preferred Stock represent 5.4% of Conrail's total voting
     securities.

     Ownership by Management of Equity Securities. The following table sets
forth the beneficial ownership, as of March 3, 1997,  of  Conrail  Common

                                77



Stock and Conrail Preferred Stock of each director and nominee, each of the
executive officers  named  in  the  Summary  Compensation  Table  and  all
directors and executive officers as a group.  Unless otherwise indicated,
each such person has sole voting and investment power with respect to such
shares of Conrail Common Stock and sole voting power with respect to such
shares of Conrail Preferred Stock.  The ESOP Trustee holds sole investment
power  with respect to all shares of Conrail Preferred Stock.  As of March
3, 1997, all Conrail directors and officers as a group owned less than one
percent  (1%) of the aggregate outstanding Conrail Common Stock and Conrail
Preferred Stock.

<TABLE>
                                                         Amount and Nature
                         Name and Title                     of Beneficial
Title of Class          of Beneficial Owner                   Ownership
--------------          -------------------               -----------------
<S>                     <C>                                         <C>
Conrail Common Stock    H. Furlong Baldwin                            2,000
                        Director

                        Claude S. Brinegar
                        Director                                      1,000

                        Daniel B. Burke
                        Director                                      2,000

                        Kathleen Foley Feldstein
                        Director                                        700

                        Roger S. Hillas
                        Director                                      2,362

                        E. Bradley Jones
                        Director                                      1,000

                        David B. Lewis
                        Director                                        919

                        John C. Marous
                        Director                                        612

                        Gail J. McGovern
                        Director                                          0

                        Raymond T. Schuler
                        Director                                      6,070

                        David H. Swanson
                        Director                                        452

                        David M. LeVan
                        Director, Chairman, President and
                        Chief Executive Officer                     138,896(1)


                                78
<PAGE>

                        Bruce B. Wilson
                        Senior Vice President - Merger               28,166(1)

                        Ronald J. Conway
                        Senior Vice President - Operations           33,481(1)

                        John P. Sammon
                        Senior Vice President - CORE Service Group   23,839(1)

                        Timothy P. Dwyer
                        Senior Vice President - Unit Train
                        Service Group                                12,252(1)

                        All Directors and Executive Officers        577,760
                        as a group(2)



       (1)  For Messrs. LeVan, Wilson, Conway, Sammon and  Dwyer,
respectively,  includes  options exercisable within 60 days to acquire
98,896,  0, 27,375, 18,125 and 0 shares of Conrail Common Stock and 1,968,
1,700,  1,903, 1,673 and 1,665 shares of Conrail Preferred Stock allocated
to the accounts of the named officers pursuant to the ESOP.  Shares of
Conrail Preferred Stock are convertible into shares of Conrail Common Stock
at any time on a share-for-share basis, subject to certain antidilution
adjustments. As a result, ownership of shares of Conrail Preferred Stock is
deemed to be ownership of an equal number of shares of Conrail Common
Stock.

      (2)   Includes options exercisable within 60 days to acquire 356,560
shares of Conrail Common Stock and 35,842 shares of Conrail Preferred Stock
allocated to the accounts of individual officers pursuant to the ESOP.
This number also includes shares held by all officers of Consolidated Rail
Corporation.

SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
-------------------------------------------------------
Section 16(a) of the Exchange Act and the rules and regulations promulgated
thereunder  require  that certain officers, directors  and  10%  beneficial
owners  of  Conrail  Common  Stock file with the  Securities  and  Exchange
Commission,  within specified time periods, reports concerning transactions
in  Conrail securities.  Based on its review of the filed forms or  written
representations that, in certain instances, no filing is required,  Conrail
believes  that  all  Section  16(a) filing requirements  during  1996  were
complied  with, except that, due to administrative error, one  timely-filed
report  of each of Bruce B. Wilson, Senior Vice President-Merger, and  Lucy
S.L. Amerman, Vice President-Risk Management, disclosed an incorrect number
of shares sold in a tender offer and stock options granted, respectively.

          and

Item 13.  Certain Relationships and Related Transactions.
-------   ----------------------------------------------
          None except as disclosed in Item 10.

                                79
<PAGE>

                               PART IV

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

(a)  The following documents are filed as a part of this report:

     1.   Financial Statements:
                                                                   Page
                                                                   ----
          Report of Independent Accountants......................    41
          Consolidated Statements of Income for each of the
               three years in the period ended December 31, 1996.    42
          Consolidated Balance Sheets at December 31, 1996
               and 1995 .........................................    43
          Consolidated Statements of Stockholders'
               Equity for each of the three years in the
               period ended December 31, 1996....................    44
          Consolidated Statements of Cash Flows for each of
               the three years in the period ended
               December 31, 1996   ..............................    45
          Notes to Consolidated Financial Statements.............    46

     2.   Financial Statement Schedules:

          The following financial statement schedules should be read in
          connection with the financial statements listed in Item 14(a)1
          above.

                  Index to Financial Statement Schedules
                  --------------------------------------

                                                                   Page
                                                                   ----
          Schedule II    Valuation and Qualifying Accounts.......   S-1

          Schedules other than those listed above are omitted for reasons
          that they are not required, are not applicable, or the information
          is included in the financial statements or related notes.





                                80
<PAGE>


     3.   Exhibits:

          Exhibit No.
          ----------
     2.1       Agreement and Plan of Merger among Consolidated Rail
               Corporation, Conrail Inc. and Conrail Subsidiary Corporation
               dated as of February 17, 1993, filed as Appendix A to the
               Proxy Statement of Consolidated Rail Corporation, dated
               April 16, 1993 and incorporated herein by reference.

     2.2       Agreement and Plan of Merger dated October 14, 1996 among
               Conrail Inc., CSX Corporation and Green Acquisition Corp.
               (the "Merger Agreement") (incorporated by reference to
               Exhibit (c)(1) to the Solicitation/Recommendation Statement
               on Schedule 14D-1, originally filed with the Securities and
               Exchange Commission ("SEC") on October 16, 1996 (the
               "CSX 14D-1")).

     2.3       First Amendment to the Merger Agreement, dated as of
               November 5, 1996 (incorporated by reference to Exhibit
               (c)(7) to the CSX 14D-1).

     2.4       Second Amendment to the Merger Agreement, dated as of
               December 18, 1996 (the "Second Amendment") (incorporated by
               reference to Exhibit (c)(10) to the CSX 14D-1).

     2.5       Third Amendment to the Merger Agreement, dated as of March
               7, 1997 (the "Third Amendment") (incorporated by reference
               to Exhibit (c)(12) to the CSX 14D-1).

     3.1       Articles of Incorporation of the Registrant filed as
               Appendix B to the Proxy Statement of Consolidated Rail
               Corporation, dated April 16, 1993 and incorporated herein by
               reference.

     3.2       Amended and Restated Bylaws of the Registrant filed as
               Exhibit 3 to the Registrant's Report on Form 10-Q for the
               quarterly period ended September 30, 1996 and incorporated
               herein by reference.

     4.1       Articles of Incorporation of the Registrant filed as
               Appendix B to the Proxy Statement of Consolidated Rail
               Corporation, dated April 16, 1993 and incorporated herein by
               reference.

     4.2       Form of Certificate of Common Stock, par value $1.00 per
               share, of the Registrant, filed as Exhibit 3.4(i)(c) to the
               Registrant's Form 8-B dated July 13, 1993 and incorporated
               herein by reference.

                                81
<PAGE>



     4.3       Form of Certificate of Series A ESOP Convertible Junior
               Preferred Stock, no par value, of the Registrant filed as
               Exhibit 3.4(i)(d) to the Registrant's Form 8-B dated July
               13, 1993 and incorporated herein by reference.

     4.4       Rights Agreement dated as of July 19, 1989, between
               Consolidated Rail Corporation and First Chicago Trust
               Company of New York, together with Form of Right Certificate
               and Summary of Rights to Purchase Common Shares as exhibits
               thereto, filed as Exhibit 1 to Consolidated Rail
               Corporation's Form 8-K dated July 31, 1989 and incorporated
               herein by reference.

     4.5       Amendment to Rights Agreement dated as of March 21, 1990,
               filed as Exhibit 4.5 to Consolidated Rail Corporation's
               Report on Form 8-K dated March 27, 1990 and incorporated
               herein by reference.

     4.6       Amendment, Assignment and Assumption Agreement, dated as of
               February 17, 1993, with respect to the Rights Agreement,
               filed as Exhibit 3.4(i)(g) to the Registrant's Form 8-B
               dated July 13, 1993 and incorporated herein by reference.

     4.7       Amendment to Rights Agreement dated as of October 19, 1994
               filed as Exhibit 4.1 to the Registrant's Report on Form 10-Q
               for the quarter ended September 30, 1994 and incorporated
               herein by reference.

     4.8       Amendment to Rights Agreement of the Registrant dated as of
               September 20, 1995, filed as Exhibit 3.4(i)(i) to the
               Registrant's Form 8-B/A dated as of September 25, 1995 and
               incorporated herein by reference.

     4.9       Form of Indenture between Consolidated Rail Corporation and
               The First National Bank of Chicago, as Trustee, with respect
               to the issuance of up to $1.25 billion aggregate principal
               amount of Consolidated Rail Corporation's debt securities,
               filed as Exhibit 4 to Consolidated Rail Corporation's
               Registration Statement on Form S-3 (Registration No. 33-
               34040) and incorporated herein by reference.

               In accordance with Item 601(b)(4)(iii) of Regulation S-K,
               copies of instruments of the Registrant and its subsidiaries
               with respect to the rights of holders of certain long-term
               debt are not filed herewith, or incorporated by reference,
               but will be furnished to the Commission upon request.

     10.1      Second Amended and Restated Northeast Corridor Freight
               Operating Agreement dated October 1, 1986 between National
               Railroad Passenger Corporation and Consolidated Rail

                                82
<PAGE>


               Corporation, filed as Exhibit 10.1 to Consolidated Rail
               Corporation's Registration Statement on Form S-1
               (Registration No. 33-11995) and incorporated herein by
               reference.

     10.2      Letter agreements dated September 30, 1982 and July 19, 1986
               between Consolidated Rail Corporation and The Penn Central
               Corporation, filed as Exhibit 10.5 to Consolidated Rail
               Corporation's Registration Statement on Form S-1
               (Registration No. 33-11995) and incorporated herein by
               reference.

     10.3      Letter agreement dated March 16, 1988 between Consolidated
               Rail Corporation and Penn Central Corporation relating to
               hearing loss litigation, filed as Exhibit 19.1 to
               Consolidated Rail Corporation's Quarterly Report on Form 10-
               Q for the quarter ended March 31, 1988 and incorporated
               herein by reference.

     10.4      Conrail Stock Option Agreement, dated as of October 14, 1996
               (incorporated by reference to Exhibit (c)(2) of the CSX 14D-
               1).

     Management Compensation Plans and Contracts
     -------------------------------------------

     10.5      Consolidated Rail Corporation 1993 Annual Performance
               Achievement Reward Plan, filed as Exhibit 3.10(v) to the
               Registrant's Form 8-B dated July 13, 1993 and incorporated
               herein by reference.

     10.6      Consolidated Rail Corporation 1994 Annual Performance
               Achievement Reward Plan for Officers, filed as Exhibit 10.7
               to the Registrant's Annual Report on Form 10-K for the year
               ended December 31, 1994 and incorporated herein by
               reference.

     10.7      Consolidated Rail Corporation 1995 Annual Performance
               Achievement Reward Plan for Officers, filed as Exhibit 10.6
               to the Registrant's Annual Report on Form 10-K for the year
               ended December 31, 1995 and incorporated herein by
               reference.

     10.8      Consolidated Rail Corporation 1996 Annual Performance
               Achievement Reward Plan for Officers.

     10.9      Retirement Plan for Non-employee Directors, as amended
               February 21, 1990, filed as Exhibit 10.10 to Consolidated
               Rail Corporation's Annual Report on Form 10-K for the year
               ended December 31, 1989 and included herein by reference.

                                83
<PAGE>



     10.10     Conrail 1987 Long-Term Incentive Plan, filed as Exhibit 4.4
               to Consolidated Rail Corporation's Registration Statement on
               Form S-8 (Registration No. 33-19155) and incorporated herein
               by reference.

     10.11     Conrail 1991 Long-Term Incentive Plan, amended and restated as
               of May 15, 1996, filed as Appendix A to the Registrant's Proxy
               Statement dated April 3, 1996 and incorporated herein by
               reference.

     10.12     Conrail Senior Executive Performance Plan, filed as Appendix
               A to the Registrant's Proxy Statement for the 1995 Annual
               Meeting of Shareholders, dated April 3, 1995, and
               incorporated herein by reference.

     10.13     Form of Severance Agreement between the Registrant and each
               of the officers of Consolidated Rail Corporation, dated as
               of August 1, 1995, filed as Exhibit 10.1 to the Registrant's
               Report on Form 10-Q for the quarterly period ended September
               30, 1995 and incorporated herein by reference.

     11        Statement of earnings per share computations.

     12        Computation of the ratio of earnings to fixed charges.

     21        Subsidiaries of the Registrant, filed as Exhibit 21 of the
               Registrant's Annual Report on Form 10-K for the year ended
               December 31, 1993 and incorporated herein by reference.

     23        Consent of Independent Accountants.

     24        Each of the officers and directors signing this Annual
               Report on Form 10-K has signed a power of attorney,
               contained on page 86 hereof, with respect to amendments to
               this Annual Report.

     27        Financial Data Schedule.


(b)  Reports on Form 8-K.
     -------------------
     October 22, 1996, in connection with Merger Agreement between
     CSX Corporation and Consolidated Rail Corporation.

                                84
<PAGE>




(c)  Exhibits.
     --------
     The Exhibits required by Item 601 of Regulation S-K as listed in Item
     14(a)3 are filed herewith or incorporated herein by reference.

(d)  Financial Statement Schedules.
     -----------------------------
     Financial statement schedules and separate financial statements
     specified by this Item are included in Item 14(a)2 or are otherwise
     omitted for reasons that they are not required or are not applicable.

                                85


<PAGE>
                             POWER OF ATTORNEY
                             -----------------

     Each person whose signature appears below under "SIGNATURES" hereby
authorizes Timothy T. O'Toole and John A. McKelvey, or either of them, to
execute in the name of each such person, and to file, any amendment to this
report and hereby appoints Timothy T. O'Toole and John A. McKelvey, or
either of them, as attorneys-in-fact to sign on his or her behalf,
individually and in each capacity stated below, and to file any and all
amendments to this report.

                                SIGNATURES
                                ----------
     Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act 1934, Conrail Inc. has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.

                                        CONRAIL INC.

Date: March 19, 1997

                                        By  /s/ David M. LeVan
                                        ----------------------
                                        David M. LeVan
                                        Chairman, President and Chief
                                        Executive Officer and Director

     Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below on this 19th day of March, 1997, by the
following persons on behalf of Conrail Inc. and in the capacities
indicated.

Signature                               Title

/s/ David M. LeVan
------------------                      Chairman, President and Chief
David M. LeVan                          Executive Officer and Director
                                        (Principal Executive Officer)


/s/ John A. McKelvey
-------------------                     Senior Vice President-Finance
John A. McKelvey                        (Principal Financial Officer)


/s/ Donald W. Mattson
---------------------                   Vice President-Controller
Donald W. Mattson                       (Principal Accounting Officer)

                                86
<PAGE>



/s/ H. Furlong Baldwin                  Director
----------------------
H. Furlong Baldwin


/s/ Claude S. Brinegar                  Director
----------------------
Claude S. Brinegar


                                        Director
-------------------
Daniel B. Burke


/s/ Kathleen Foley Feldstein            Director
----------------------------
Kathleen Foley Feldstein


/s/ Roger S. Hillas                     Director
-------------------
Roger S. Hillas


/s/ E. Bradley Jones                    Director
--------------------
E. Bradley Jones


/s/ David B. Lewis                      Director
------------------
David B. Lewis


/s/ John C. Marous                      Director
------------------
John C. Marous


/s/ Gail J. McGovern                    Director
--------------------
Gail J. McGovern


/s/ Raymond T. Schuler                  Director
----------------------
Raymond T. Schuler


                                        Director
--------------------
David H. Swanson

                                87

<PAGE>

                                    E-1
                               EXHIBIT INDEX



Exhibit No.
----------


10.8      Consolidated Rail Corporation 1996 Annual Performance
          Achievement Reward Plan for Officers

11        Statement of earnings per share
          computations

12        Computation of the ratio of earnings
          to fixed charges

23        Consent of Independent Accountants

27        Financial Data Schedule

Exhibits 2.1, 2.2, 2.3, 2.4, 2.5, 3.1, 3.2, 4.1, 4.2, 4.3, 4.4, 4.5, 4.6,
4.7, 4.8, 4.9, 10.1, 10.2, 10.3, 10.4, 10.5, 10.6, 10.7, 10.9, 10.10,
10.11, 10.12, 10.13 and 21 are incorporated herein by reference.  Powers of
attorney with respect to amendments to this Annual Report are contained on
page 86.





                                88

<PAGE>



</TABLE>