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. 1-9064

                       CONSOLIDATED RAIL CORPORATION
                       -----------------------------
         (Exact name of registrant as specified in its charter)

       Pennsylvania                                23 1989084
(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:      NONE
Securities registered pursuant to Section 12(g) of the Act:      NONE

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

Aggregate market value of voting stock held by non-affiliates of the
Registrant (as of March 3, 1997): $0.

Shares of Common Stock Outstanding (as of March 3, 1997):  100 Shares,
all of which are held by the parent of the Registrant

DOCUMENTS INCORPORATED BY REFERENCE:  NONE


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

<PAGE>

                         TABLE OF CONTENTS



         Item                                                    Page
         ----                                                    ----

Part I     1.  Business......................................      1
           2.  Properties....................................      3
           3.  Legal Proceedings.............................      5
           4.  Submission of Matters to a Vote of Security
                  Holders....................................     11

Part II    5.  Market for Registrant's Common Equity and
                  Related Stockholder Matters.................    11
           6.  Selected Financial Data........................    11
           7.  Management's Discussion and Analysis of
                Financial Condition and Results of
                  Operations..................................    11
           8.  Financial Statements and Supplementary Data....    14
           9.  Changes in and Disagreements with Accountants
                on Accounting and Financial Disclosure......      37

Part III  10.  Directors and Executive Officers of the
                  Registrant..................................    37
          11.  Executive Compensation.........................    37
          12.  Security Ownership of Certain Beneficial
                  Owners and Management.......................    37
          13.  Certain Relationships and Related Transactions.    37

Part IV   14.  Exhibits, Financial Statement Schedules, and
                   Reports on Form 8-K.........................   38

Power of Attorney.............................................    41
Signatures....................................................    41

Exhibit Index.................................................    43





                                i
<PAGE>


                           PART I
Item 1.   Business.
------    --------

    GENERAL.  Consolidated Rail Corporation ("the Company")
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").

    On July 1, 1993 Conrail Inc. ("Conrail") became the holding
company of the Company.  The Company 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.

    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.

    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

<PAGE>


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 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 nonoccurrence of any condition to the
tender offer.  In the event that CSX fails to consummate the
tender offer under such circumstances, Conrail will be

                                2
<PAGE>

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.  The Company provides freight
transportation services within the northeast and midwest
United States.  The Company interchanges freight with other
United States and Canadian railroads for transport to
destinations within and outside the Company's service
region. The Company operates no significant line of business
other than the freight railroad business and does not provide
common carrier passenger or commuter train service.

    The Company 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. The Company's traffic levels 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
the Company hauls, and the traffic generated by the Company's
connecting railroads. The Company 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.

Item 2.   Properties.
------    ----------

    As of December 31, 1996, the Company (excluding
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 heavyweight 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, the Company had 8,804 miles of
continuous welded rail on track it maintained.

    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.

                                3
<PAGE>


    The Company 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. The Company recorded a $283
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 the Company's service.  See
Note 11 to the Consolidated Financial Statements elsewhere
in this Annual Report.

    The Company owns (or uses subject to capitalized
leases) 2,006 locomotives with an average age of 15.6 years
and 45,988 freight cars of various types (including 21,435
freight cars under operating leases) with an average age of
22 years.

    GOVERNMENT REGULATION.  The Company is subject to
environmental, safety, and other regulations generally
applicable to all businesses, and its rail operations are
also regulated by the Department of Transportation ("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 Rail Act of 1980, 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.

    The FRA has jurisdiction over safety and railroad equipment
standards.

    The Company'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"), the Company 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 "Emissions Standards for
Locomotives and Locomotive Engines."  According to the
Proposed Rule, locomotive engines (other than those defined

                                4
<PAGE>

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 legislation is adopted.  Compliance
with existing laws and regulations relating to the
protection of the environment has not had a material effect
on the Company's capital expenditures, earnings or
competitive condition.  (See Note 14 to the Consolidated
Financial Statements included elsewhere in this Annual
Report.)

Item 3.  Legal Proceedings.
------   -----------------

    Occupational Disease Litigation.  The Company 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, the Company 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.

    The Company 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.  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.

     Norfolk has requested preliminary and permanent
injunctive and declaratory relief including, without
limitation, an injunction to prevent defendants from:  (1)

                                5
<PAGE>

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.
     ------------------------------------------------------
The Company 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.  The
Company 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.  The Company 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).  The
Company'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 the Company'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 the
Company the obligation to remove certain crossings.

                                6
<PAGE>

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

    Environmental Litigation.  The Company is subject to
    ------------------------
various federal, state and local laws and regulations
regarding environmental matters.  In certain instances, the
Company 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, the Company 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, the Company, through its
own investigations and assessments, believes it may have
some potential responsibility at only 61 of these sites.
The amounts the Company has accrued with respect to the
proceedings listed below are included in its $55 million
accrual for estimated future environmental expenses.  (See
Note 14 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")
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

                                7
<PAGE>

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 offsite 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 the Company have committed to
perform the on-site remedy for the rail yard.

    United States v. Conrail.  The EPA has listed the
    ------------------------
Company'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 the Company 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 the Company for all
future costs incurred in responding to the release or
threatened release of hazardous substances from the site.
The Company believes it is not the sole source and may not
be a contributing source to the contamination alleged by
EPA.

    The Company filed a third-party action joining Penn
Central as a defendant.  The Company 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 the Company and Penn Central
requiring the extension of public water hook-up to an
additional 700 - 1,000 residences and businesses in the site
area. The Company 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 the Company according to the interim cost sharing
arrangement that has been negotiated.  The Company 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).  The Company has been identified as the
---------------
fifth largest generator of waste oil at the Berks Associates
Superfund site in Douglasville, Pennsylvania.  In addition,
the Company 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, the Company's
liability could increase due to its questionable status as

                                8
<PAGE>

both an owner and a generator.  In August 1991, the EPA
issued an administrative order against the Company 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 the Company) undertook compliance with the
administrative order.  The Company 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.  The Company,
along with other defendants, is negotiating a settlement
with the EPA.  On June 30, 1993, the EPA issued another
administrative order against the Company 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.  The Company'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.  The Company 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
the Company and nine other parties in August 1991 for the
recovery of approximately $2,000,000 in past costs.  The
Company 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.  The Company'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 the Company'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 the Company's existing idling policy.  The
Attorney General has filed a complaint alleging the Company'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 the Company
has failed to comply with certain provisions of the settlement.
The Company 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 the Company 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

                                9
<PAGE>

Order was received by the Company on August 6, 1996,
requiring the payment of fines in connection with the 1991
inspection and mandates assessment and remediation of the
facility.  The Company 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 the Company 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 the Company 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.  The Company 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
the Company 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.  The Company has
reached agreement with EPA to jointly settle these matters
for $150,000.

    Conway Yard, Pittsburgh.  In 1991, the Company 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 the Company 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.  The Company 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, the
    -----
Company 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.

    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, the Company cannot state what the eventual outcomes
of such legal proceedings will be. Certain of these
matters, if determined adversely to the Company, could
result in the imposition of substantial damage awards
against, or increased costs to, the Company that could have
a material adverse effect on the Company's results of
operations and financial position. The Company's management
believes, however, based on current knowledge, that such
legal proceedings will not have a material adverse effect
on the Company's financial position.

                                10
<PAGE>

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

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


                         PART II

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

    All of the common stock of the Company is held by
Conrail. Accordingly, there is no market for the
Company's common stock.  See Note 4 to the Consolidated
Financial Statements elsewhere in this Annual Report for
information with respect to dividends paid by the
Company.

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

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

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

     See General Instruction I (2) (a).


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

1996 Compared with 1995

Net income for 1996 was $335 million, compared with $256 million
for 1995.  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 $428 million.

The results for 1995 include the effects of a $283 million asset
disposition charge ($175 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 11 and 8, respectively,
to the Consolidated Financial Statements included elsewhere in
this Annual Report).

Operating revenues (primarily freight line haul revenues, but also
including switching, demurrage and incidental revenue) increased
$16 million, or .4%, to $3,684 million in 1996 from $3,668 million

                                11
<PAGE>

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%.

Operating expenses (including one-time charges and merger-related
costs in 1996 and the asset disposition charge in 1995) decreased
$127 million, or 4.0%, from $3,213 million in 1995 to $3,086
million in 1996.  The following table sets forth the operating
expenses for the two years:

                                                       Increase
(In Millions)                    1996       1995      (Decrease)
                               ------       ----       ---------
Compensation and benefits      $1,204      $1,247       $ (43)
Fuel                              202         168          34
Material and supplies             175         167           8
Equipment rents                   382         355          27
Depreciation and amortization     282         293         (11)
Casualties and insurance          179         178           1
Other                             527         522           5
Voluntary separation programs     135                     135
Asset disposition charge                      283        (283)
                              ------       ------       -----
                              $3,086       $3,213       $(127)
                              ======       ======       =====



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 32.7% in
1996 as compared with 34.0% 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.

The Company 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

                                12
<PAGE>

this Annual Report) and an asset disposition charge of $283 million
in 1995 (see Note 11 to the Consolidated Financial Statements
included elsewhere in this Annual Report).

The Company's operating ratio (operating expenses as a percent of
revenues) 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 of $16 million incurred in 1996, the operating ratios would
have been 79.7% and 79.9%, respectively.

Other income decreased $19 million, or 17.1%, from $111 million in
1995 to $92 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 35.1% compared
with 32.8% 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 8 to the Consolidated
Financial Statements included elsewhere in this Annual Report).


                            13
<PAGE>



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

                   Report Of Independent Accountants


The Stockholder and Board of Directors of
Consolidated Rail Corporation


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 Consolidated Rail
Corporation 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





                                14
<PAGE>

<TABLE>
                       CONSOLIDATED RAIL CORPORATION
                     CONSOLIDATED STATEMENTS OF INCOME


                                           Years ended December 31,
                                         -------------------------
($ In Millions Except Per Share Data)      1996       1995      1994
                                         ------     ------    ------
<S>                                      <C>        <C>       <C>
Revenues                                 $3,684     $3,668    $3,716
                                         ------     ------    ------
Operating expenses
  Way and structures                        463        486       500
  Equipment                                 803        767       816
  Transportation                          1,361      1,311     1,366
  General and administrative                324        366       347
  Voluntary separation programs (Note 3)    135
  Asset disposition charge (Note 11)                   283
  Early retirement program (Note 12)                              84
                                         ------     ------    ------
    Total operating expenses              3,086      3,213     3,113
                                         ------     ------    ------
Income from operations                      598        455       603
Interest expense                           (174)      (185)     (178)
Other income, net (Note 13)                  92        111       101
                                         ------     ------    ------
Income before income taxes                  516        381       526

Income taxes (Note 8)                       181        125       207
                                         ------     ------    ------
Net income                               $  335     $  256    $  319
                                         ======     ======    ======

Ratio of earnings to fixed charges
 (Note 1)                                 3.20x      2.52x     3.29x

</TABLE>
See accompanying notes.

                                15
<PAGE>

<TABLE>
                     CONSOLIDATED RAIL CORPORATION
                      CONSOLIDATED BALANCE SHEETS


                                                    December 31,
                                                  ---------------
($ In Millions)                                   1996      1995
                                                ------    ------
<S>                                             <C>       <C>
         ASSETS
Current assets
  Cash and cash equivalents                     $   17    $   58
  Accounts receivable                              629       624
  Deferred tax assets (Note 8)                     285       325
  Material and supplies                            139       158
  Other current assets                              22        26
                                                ------    ------
     Total current assets                        1,092     1,191

Property and equipment, net (Note 5)             6,590     6,408
Other assets                                       671       788
                                                ------    ------
     Total assets                               $8,353    $8,387
                                                ======    ======

         LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities
  Short-term borrowings                             99        89
  Current maturities of long-term debt (Note 7)    130       181
  Accounts payable                                 160       126
  Wages and employee benefits                      143       182
  Casualty reserves                                138       107
  Accrued and other current liabilities (Note 6)   445       492
                                                ------    ------
     Total current liabilities                   1,115     1,177

Long-term debt (Note 7)                          1,876     1,911
Casualty reserves                                  190       217
Deferred income taxes (Note 8)                   1,484     1,401
Special income tax obligation (Note 8)             346       440
Other liabilities                                  307       312
                                                ------    ------
     Total liabilities                           5,318     5,458
                                                ------    ------
Commitments and contingencies (Note 14)
Stockholder's equity (Note 10)
  Preferred stock (no par value; 25,000,000
    shares authorized; 1 share issued)
  Common stock ($1 par value; 250,000,000
    shares authorized; 100 shares issued and
    outstanding)
  Additional paid-in capital                     2,151     2,130
  Note receivable from ESOP                       (294)     (305)
  Retained earnings                              1,178     1,104
                                                ------    ------
     Total stockholder's equity                  3,035     2,929
                                                ------    ------
     Total liabilities and stockholder's equity $8,353    $8,387
                                                ======    ======
</TABLE>

See accompanying notes.

                                16
<PAGE>

<TABLE>

              CONSOLIDATED RAIL CORPORATION CONSOLIDATED
                 STATEMENTS OF STOCKHOLDER'S EQUITY


                                                        Additional         Note
                                     Preferred  Common     Paid-in   Receivable     Retained
($ In Millions Except Per Share Data)    Stock   Stock     Capital    From ESOP     Earnings
                                     --------- -------    ---------  ----------     --------
<S>                                      <C>     <C>        <C>           <C>         <C>
Balance, January 1, 1994                 $   -   $   -      $2,123        $(308)      $  928
  Net income                                                                             319
  Common dividends (Note  4)                                                            (170)
  Other                                                          5           (4)
                                         -----   -----      ------        -----       ------

Balance, December 31, 1994                 -       -         2,128         (312)       1,077
  Net income                                                                             256
  Common dividends (Note  4)                                                            (229)
  Other                                                          2            7
                                       -----   -----        ------        -----       ------
Balance, December 31, 1995                 -       -         2,130         (305)       1,104
  Net income                                                                             335
  Common dividends (Note  4)                                                            (261)
  Other                                                         21           11
                                       -----   -----        ------        -----       ------
Balance, December 31, 1996             $   -   $   -        $2,151        $(294)      $1,178
                                       =====   =====        ======        =====       ======
</TABLE>

See accompanying notes.

                                17
<PAGE>

<TABLE>

                     CONSOLIDATED RAIL CORPORATION
                CONSOLIDATED STATEMENTS OF CASH FLOWS

                                               Years ended December 31,
                                               ------------------------
($ In Millions)                                 1996      1995    1994
                                               -----     -----   -----
<S>                                            <C>       <C>     <C>
Cash flows from operating activities
  Net income                                   $ 335     $ 256   $ 319
  Adjustments to reconcile net income to
   net cash provided by operating activities:
    Voluntary separation programs                135
    Asset disposition charge                               283
    Early retirement program                                        84
    Depreciation and amortization                282       293     278
    Deferred income taxes                        180       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                         (5)       26       1
      Accounts and wages payable                  (5)       17      22
    Settlement of tax audit                      (39)
    Other                                        (62)     (116)    (94)
                                               -----     -----   -----
    Net cash provided by operating
       activities                                657       724     634
                                               -----     -----   -----
Cash flows from investing activities
  Property and equipment acquisitions           (387)     (415)   (490)
  Proceeds from disposals of properties           34        37      32
  Other                                          (46)      (45)    (18)
                                               -----     -----   -----
    Net cash used in investing activities       (399)     (423)   (476)
                                               -----     -----   -----
Cash flows from financing activities
  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)     (133)   (158)
  Loans from and redemptions of
    insurance policies                            95
  Dividends on common stock                     (261)     (229)   (170)
  Other                                           15        26      28
                                               -----     -----   -----
  Net cash used in financing
     activities                                 (299)     (274)   (153)
                                               -----     -----   -----
Increase(decrease) in cash and cash equivalents  (41)       27       5
Cash and cash equivalents
  Beginning of year                               58        31      26
                                               -----     -----   -----
  End of year                                  $  17     $  58   $  31
                                               =====     =====   =====
</TABLE>

See accompanying notes.

                                18
<PAGE>



                     CONSOLIDATED RAIL CORPORATION
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


1. Summary of Significant Accounting Policies
   ------------------------------------------

      Industry
      --------
Consolidated Rail Corporation (the "Company"), a wholly-owned
subsidiary of Conrail Inc.("Conrail"), operates a freight
railroad system within the northeast and midwest United States
and the Province of Quebec.

      Principles of Consolidation
      ---------------------------
The consolidated financial statements include the Company 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
Company's system from origin to destination.

      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

                                19
<PAGE>

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.

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.

                                20
<PAGE>


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 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.

                                21
<PAGE>



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.


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.   Related Party Transactions
     --------------------------
The Company engages in various transactions with Conrail.  The
Company funds the cash requirements of Conrail primarily through
cash dividends, which totaled $261 million, $229 million and $170
million in 1996, 1995 and 1994, respectively.  The Company is
obligated to pay a management fee to Conrail equal to the amount
of preferred dividends declared by Conrail in connection with the
Non-union ESOP, which totaled $20 million in 1996 and $21 million
in 1995 and 1994, and is recorded in "Other income, net" on the
consolidated statements of income (Notes 9 and 13).  Advances
between the two companies accrue interest at the Federal Reserve
Bank's 30-day average interest rate.  The resulting interest
income and interest expense on advances to and from Conrail were
immaterial to the Company's financial statements.  A summary of
the Company's transactions with Conrail are as follows:


                                          December 31,
                                         --------------
                                         1996      1995
                                         ----      ----
                                             (In Millions)

Short-term receivable                     $ 8       $14
Short-term payable                         28        18

                                22
<PAGE>

5.   Property and Equipment
     ----------------------
                                            December 31,
                                           ----------------
                                            1996       1995
                                          -------    ------
                                               (In Millions)

Roadway                                   $ 7,021   $ 6,828
Equipment                                   1,229     1,211
Less:  Accumulated depreciation            (1,652)   (1,570)
       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
                                          =======   =======


The Company 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 11) and
1991, the Company recorded allowances for disposition for the
sale or abandonment of certain under-utilized rail lines and other
facilities.

6.   Accrued and Other Current Liabilities
     -------------------------------------

                                              December 31,
                                            ---------------
                                            1996       1995
                                            ----       ----
                                              (In Millions)

Freight settlements due others              $ 44       $ 52
Equipment rents (primarily car hire)          74         71
Unearned freight revenue                      79         56
Property and corporate taxes                  47         67
Other                                        201        246
                                            ----       ----
                                            $445       $492
                                            ====       ====

                                23
<PAGE>


7.  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
                                  =====

                                24
<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 Conrail filed a shelf registration
statement on Form S-3 to enable the Company to issue up to $500
million in debt securities or Conrail 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, the Company 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 the
Company, amounts payable under related capital leases will be
sufficient to pay principal and interest on the certificates.

In July 1996, the Company 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, the Company 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.

The Company 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.

The Company maintains a $500 million uncollateralized bank credit
agreement with a group of banks which is used for general corporate
purposes and to support its 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, the Company had no
borrowings under this agreement.

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

                                25
<PAGE>


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

                                    1996      1995    1994
                                    ----      ----    ----
                                         (In Millions)
Current
   Federal                          $ 87      $ 75    $104
   State                               8        15      15
                                    ----      ----    ----
                                      95        90     119
                                    ----      ----    ----
Deferred
   Federal                           149       111     125
   State                              31        (3)     25
                                    ----      ----    ----
                                     180       108     150
                                    ----      ----    ----

Special income tax obligation
   Federal                           (80)      (61)    (53)
   State                             (14)      (12)     (9)
                                    ----      ----    ----
                                     (94)      (73)    (62)
                                    ----      ----    ----
                                    $181      $125    $207
                                    ====      ====    ====


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 1995 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" ("SFAS 109").

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.

                                26
<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            3.3     3.5     3.9
    Effect of state tax decrease
      on deferred taxes                        (5.5)
    Other                              (3.2)    (.2)     .5
                                       ----    ----    ----
    Effective tax rate                 35.1%   32.8%   39.4%
                                       ====     ====    ====

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)
   Reserve of intercompany receivables          (31)           (31)
   Miscellaneous                                                (2)
                                             ------         ------
   Current deferred tax asset, net           $ (285)        $ (325)
                                             ======         ======
   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                               (89)          (13)
                                             ------        ------
                                               (299)         (228)
                                             ------        ------
   Special income tax obligation and
    deferred income tax liabilities, net     $1,830        $1,841
                                             ======        ======

                                27
<PAGE>

9.  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%.

                                28
<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 shares
  of its ESOP Stock to the Non-union ESOP in exchange for a 20 year
  promissory note with interest currently at 8.0% from the Non-union
  ESOP in the principal amount of $288 million.  In conjunction with the
  formation of the holding company in 1993, each share of the Company's
  preferred stock, all of which were held by the Non-union ESOP, was
  automatically converted into one share of preferred stock of Conrail
  and the promissory note receivable from the Non-union ESOP plus the
  accrued interest of $21 million were reclassified by the Company to
  the stockholder's equity section of its balance sheet.  Unearned ESOP
  compensation is now amortized and charged to the Company by Conrail 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 proportionally offsets
  compensation expense of the Company and interest expense of Conrail
  related to the Non-union ESOP.

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

  Compensation expense related to the Non-union ESOP was $11 million in
  1996, and $10 million in 1995 and 1994. 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.

  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.

                            29
<PAGE>


  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.

  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.

                                30
<PAGE>


10.  Capital 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.

     Subsequent to July 1, 1993, the Company had 100 shares of common
     stock outstanding, all held by Conrail.  All of the Company's long
     term incentive plans were amended in 1993 to reflect the use of
     Conrail's common stock.  The Company applies APB 25 and related
     interpretations in accounting for the Conrail 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 Conrail.  Adoption of SFAS 123 is optional; however, pro forma
     disclosures as if the Company had adopted the cost recognition
     requirements under SFAS 123 in 1996 and 1995 are presented below.
     Conrail's stock-based compensation plans as of December 31, 1996 are
     described below.

     Conrail'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, Conrail's Board of Directors authorized the
     automatic vesting of all unvested stock options outstanding in
     connection with the Merger Agreement between CSX and Conrail (Note 2).

                                31
<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
    Conrail's 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 Conrail's 1996 and 1995 grants for
    stock-based compensation plans been determined consistent with SFAS
    123, the Company's net income for 1996 and 1995 would approximate the
    pro forma amounts below ($ in millions):

                                                  1996    1995
                                                  ----    ----
    Net income as reported                       $ 335   $ 256
    Net income pro forma                           328     254

                                32
<PAGE>


    Conrail 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 Conrail's common stock at the
    date of grant.  Conrail 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. Conrail 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.

11. Asset Disposition Charge
    ------------------------
    Included in 1995 operating expenses is an asset disposition charge
    of $283 million, which reduced net income by $175 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").

12. 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.

13.  Other Income, Net
     -----------------
                                   1996      1995     1994
                                   ----      ----     ----
                                         (In Millions)
     Interest income               $ 30      $ 33     $ 34
     Rental income                   50        57       53
     Property sales                  23        27       18
     Management fee                 (20)      (21)     (21)
     Other, net                       9        15       17
                                   ----      ----     ----
                                   $ 92      $111     $101
                                   ====      ====     ====

                                33
<PAGE>



14.  Commitments and Contingencies
     ----------------------------
     Environmental
     -------------
     The Company is subject to various federal, state and local laws and
     regulations regarding environmental matters.  The Company 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, the Company 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 that it 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 the Company's
     liability for the costs associated with the assessment and
     remediation of contaminated sites.

     Although the Company's operating results and liquidity could be
     significantly affected in any quarterly or annual reporting period if
     it 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

                                34
<PAGE>


     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.

     The Company 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 the Company 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 the Company, through a sharing agreement with
     its partner, the Company'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.

     The Company has received three adverse jury verdicts related to
     railroad crossing accidents in Ohio that include significant punitive
     damage awards that collectively approximate $30 million.
     The Company 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), Conrail may be a party to
     certain stock purchase options or, under certain circumstances, be
     required to pay substantial termination fees.



15. 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                            $884  $885   $943  $918   $923  $919  $934  $946
   Income (loss) from operations         68   113     54   179    234   208   242   (45)
   Net income (loss)                     29    53     23   120    137   115   146   (32)
   Ratio of earnings to fixed charges  1.73x 2.45x  1.54x 3.48x  4.76x 4.07x 4.98x   -

</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).

                                35
<PAGE>



    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 8).  During the fourth quarter of 1995,
    an asset disposition charge reduced income from operations by $283
    million and adversely affected the quarter's net income by $175
    million (Note 11).  After the asset disposition charge, earnings were
    insufficient by $62 million to cover fixed charges for the quarter.










                                36
<PAGE>

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

          None.
                                PART III

Item 10.  Directors and Executive Officers of the Registrant.
-------   --------------------------------------------------
          Information omitted in accordance with General Instruction
          I(2)(c).

Item 11.  Executive Compensation.
-------   ----------------------
          Information omitted in accordance with General Instruction
          I(2)(c).

Item 12.  Security Ownership of Certain Beneficial
-------   ----------------------------------------
          Owners and Management.
          ---------------------
          Information omitted in accordance with General Instruction
          I(2)(c).

          and

Item 13.  Certain Relationships and Related Transactions.
-------   ----------------------------------------------
          Information omitted in accordance with General Instruction
          I(2)(c).

                                37
<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......................    14

          Consolidated Statements of Income for each of the
               three years in the period ended December 31, 1996.    15

          Consolidated Balance Sheets at December 31, 1996
               and 1995 .........................................    16

          Consolidated Statements of Stockholder's
               Equity for each of the three years in the
               period ended December 31, 1996....................    17

          Consolidated Statements of Cash Flows for each of
               the three years in the period ended
               December 31, 1996.................................    18

          Notes to Consolidated Financial Statements.............    19

     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.

                                38
<PAGE>

     3.   Exhibits:

      Exhibit No.
      ----------
     2     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 the Registrant, dated
           April 16, 1993 and incorporated herein by reference.

     3.1   Amended and Restated Articles of Incorporation of the
           Registrant filed as Exhibit 3.1 to the Registrant's Report
           on Form 10-K for the year ended December 31, 1994 and
           incorporated herein by reference.

     3.2   Bylaws of the Registrant, filed as Exhibit 3.2 to the
           Registrant's Report on Form 10-K for the year ended
           December 31, 1993 and incorporated herein by reference.

     3.3   Amendment to Bylaws of the Registrant, as of March 15,
           1995, filed as Exhibit 3.3 to the Registrant's Report on
           Form 10-K for the year ended December 31, 1994 and
           incorporated herein by reference.

     4.1   Form of Certificate of Common Stock, par value $1.00 per
           share, of the Registrant, filed as Exhibit 4.7 to the
           Registrant's Registration Statement on Form S-8 (No. 33
           19155) and incorporated herein by reference.

     4.2   Form of Indenture between the Registrant and The First
           National Bank of Chicago, as Trustee, with respect to the
           issuance of up to $1.25 billion aggregate principal amount of
           the Registrant's debt securities, filed as Exhibit 4 to the
           Registrant'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 SK,
           copies of instruments of the Registrant 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
           Corporation, filed as Exhibit 10.1 to the Registrant's
           Registration Statement on Form S-1 (Registration No. 3311995)
           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 the Registrant's
           Registration Statement on Form S-1

                              39
<PAGE>



          (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
          the Registrant's Quarterly Report on
          Form 10-Q for the quarter ended March 31, 1988 and
          incorporated herein by reference.

    12    Computation of the ratio of earnings to fixed charges.

    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 41 hereof, with respect to amendments
          to this Annual Report.

    27    Financial Data Schedule.

   (b)    Reports on Form 8-K.
          -------------------
          None.

   (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.

                                40
<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, Consolidated Rail Corporation has duly
caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
                                        CONSOLIDATED RAIL CORPORATION

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 Consolidated Rail
Corporation 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)


                                41
<PAGE>


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

<PAGE>


/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

                                42
<PAGE>

                                  E-1
                             EXHIBIT INDEX


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


12        Computation of the ratio of earnings
          to fixed charges

23        Consent of Independent Accountants

27        Financial Data Schedule

Exhibits 2, 3.1, 3.2, 3.3, 4.1, 4.2, 10.1, 10.2 and 10.3 are
incorporated herein by reference.  Powers of attorney with respect to
amendments to this Annual Report are contained on page 41.




                                43

<PAGE>