TABLE OF CONTENTS

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PART I.   FINANCIAL INFORMATION

Item 1.   Financial Statements.

NORFOLK SOUTHERN CORPORATION AND SUBSIDIARIES

Consolidated Statements of Income

($ in millions except per share amounts)

(Unaudited)

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NORFOLK SOUTHERN CORPORATION AND SUBSIDIARIES

Consolidated Balance Sheets

($ in millions)

(Unaudited)

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NORFOLK SOUTHERN CORPORATION AND SUBSIDIARIES

Consolidated Statements of Cash Flows

($ in millions)

(Unaudited)

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NORFOLK SOUTHERN CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

In the opinion of management, the accompanying unaudited interim financial statements contain all adjustments (consisting of normal recurring accruals) necessary to present fairly the Corporation'sNorfolk Southern Corporation and subsidiaries (NS) financial position as of March 31,Sept. 30, 2003, its results of operations for the three and nine months ended March 31,Sept. 30, 2003 and 2002, and its cash flows for the threenine months ended March 31,Sept. 30, 2003 and 2002.2002, in conformity with accounting principles generally accepted in the United States of America.

Although management believes that the disclosures presented are adequate to make the information not misleading, these Consolidated Financial Statements should be read in conjunction with:   (a) the financial statements and notes included in the Corporation'sNS' latest Annual Report on Form 10‑K and (b) any Current Reports on Form 8‑K.

1.   Stock-Based Compensation

During the first quarter of 2003, a committee of nonemployee directors of NS' Board granted stock options, performance share units (PSUs) and restricted shares pursuant to the stockholder-approved Long-Term Incentive Plan.   Options to purchase 5,700,000 shares were granted with an option price of $19.625, which was the fair market value of Common Stock on the date of grant.   The options have a term of ten years, but may not be exercised prior to the first anniversary of the date of grant.   PSUs granted totaled 946,000 and will be awarded based on achievement of certain predetermined corporate performance goals at the end of a three-year cycle.   One-half of any PSUs earned will be paid in the form of shares of Common Stock withand the other half towill be paid in cash.   Restricted shares granted totaled 420,600 and have a three-year vesting and restriction period.

NS applies the intrinsic value recognition and measurement principles of APB Opinion No. 25, "Accounting for Stock Issued to Employees," and related interpretations in accounting for its stock-based employee compensation plans.   As a result, the grants of PSUs and restricted shares resulted in charges to net income, while the stock-option grant did not result in a charge to net income.   The portion of the restricted stock that has not yet been earned is shown as a reduction of stockholders' equity on NS' Consolidated Balance Sheet.   The following table illustrates the effect on net income and earnings per share if NS had applied the fair value recognition provisions of Statement of Financial Accounting Standards (SFAS) No. 123, "Accounting for Stock-Based Compensation" to stock-based employee compensation:

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2.   Discontinued Operations

First-quarterYear-to-date 2003 results include an additional after-tax gain of $10 million, or 3 cents per share, related to the 1998 sale of NS' motor carrier subsidiary, North American Van Lines, Inc.   This noncash gain resulted from the resolution of tax issues related to the transaction.

3.   Changes in Accounting Principles

NS adopted Financial Accounting Standards Board (FASB) Statement No. 143, "Accounting for Asset Retirement Obligations," (SFAS No. 143) effective Jan. 1, 2003, and recorded a $110 million net adjustment ($182 million before taxes) for the cumulative effect of this change in accounting on years prior to 2003.   Pursuant to SFAS No. 143, the cost to remove crossties must be recorded as an expense when incurred; previously these removal costs were accrued as a component of depreciation.   This change in accounting in the first quarter of 2003 lowered depreciation expense by almostabout $7 million in the third quarter and $21 million in the first nine months (because the depreciation rate for crossties no longer reflects cost to remove) and increased compensation and benefits and other expenses by almost $5about $6 million for the quarter and $16 million for the first nine months (for the costs to remove retired assets).

NS also adopted FASB Interpretation No. 46, "Consolidation of Variable Interest Entities," (FIN No. 46) effective Jan. 1, 2003, and recorded a $4 million net adjustment ($6 million before taxes) for the cumulative effect of this change in accounting on years prior to 2003.   Pursuant to FIN No. 46, NS has consolidated a special-purpose entity that leases certain locomotives to NS.   This entity's assets and liabilities at Jan. 1, 2003, included $169 million of locomotives and $157 million of debt related to their purchase as well as a $6 million minority interest liability.   This change in accounting in the first quarter of 2003 increased depreciation and interest expense (to reflect the locomotives as owned assets) and lowered lease expense.   The net effect to total railway operating expenses and net income was not material.

4.   Investment in Conrail and Operations Over Its Lines

Overview

Through a limited liability company, Norfolk SouthernNS and CSX Corporation (CSX) jointly own Conrail Inc. (Conrail), whose primary subsidiary is Consolidated Rail Corporation (CRC), the major freight railroad in the Northeast.   NS has a 58% economic and 50% voting interest in the jointly owned entity, and CSX has the remainder of the economic and voting interests.   From time to time, Norfolk SouthernNS and CSX, as the indirect owners of Conrail, may have to make capital contributions, loans or advances to Conrail under the terms of the Transaction Agreement among NS, CSX and Conrail.

Operation of Conrail's Lines

Norfolk Southern'sNS' railroad subsidiary, Norfolk Southern Railway Company (NSR), operates as a part of its rail system the routes and assets of Pennsylvania Lines LLC (PRR), a wholly owned subsidiary of CRC, pursuant to operating and lease agreements.   CSX Transportation, Inc. (CSXT) operates the routes and assets of another CRC subsidiary under comparable terms.

Operation of Conrail's Lines

The June 1999 Operating Agreement between NSR and PRR governs substantially all nonequipmenttrack assets to be operated by NSR and has an initial 25-year term, renewable at the option of NSR for two five-year terms.   Payments under the Opera-ting Agreement are subject to adjustment every six years to reflect changes in values.   NSR also has leased or subleased equipment for varying terms from PRR a number of equipment assets.PRR.   Costs necessary to operate and maintain the PRR assets, including leasehold improvements, are borne by NSR.   NSR receives all freight revenues on the PRR lines.

NSR and CSXT also have entered into agreements with CRC governing other properties that continue to be owned and operated by CRC (the Shared Assets Areas).   NSR and CSXT pay CRC a fee for joint and exclusive access to the Shared Assets Areas.   In addition, NSR and CSXT pay, based on usage, the costs incurred by CRC to operate the Shared Assets Areas.

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Proposed Spin-Off of PRR and NYC

In June 2003, NS together with CSX and Conrail, filed a joint petition with the Surface Transportation Board (STB) to establish direct ownership and control by NSR and CSXT of PRR and NYC, respectively.   The proposed transaction would replace the existing operating agreements and allow NSR and CSXT to operate PRR and NYC, respectively, via direct ownership.   The proposed transaction does not involve the Shared Assets Areas.   The proposed transaction is subject to a number of conditions, including STB approval and an Internal Revenue Service ruling qualifying it as a nontaxable distribution.

As a part of the proposed transaction, Conrail would undertake a restructuring of its existing unsecured and secured public indebtedness.   There are currently two series of unsecured public debentures with an outstanding principal amount of $800 million and 13 series of secured debt with an outstanding principal amount of approximately $350 million.   It is currently contemplated that guaranteed debt securities of two newly formed corporate subsidiaries of NSR and CSXT would be offered in a 58%/42% ratio in exchange for Conrail's unsecured debentures.   Upon completion of the proposed transaction, the new debt securities would become direct unsecured obligations of NSR and CSXT, respectively, and would rank equally with all existing and future senior unsecured debt obligations, if any, of NSR and CSXT.   These new debt securities will have maturity dates, interest rates and principal and interest payment dates identical to those of the respective series of Conrail's unsecured debentures.   In addition, these new debt securities will have covenant packages substantially similar to those of the publicly traded debt securities of NS and CSX, respectively.   Registration statements on Form S-4 will be filed with the U.S. Securities and Exchange Commission in connection with the proposed exchange offer.

Conrail's secured debt and lease obligations will remain obligations of Conrail and are expected to be supported by new leases and subleases which, upon completion of the proposed transaction, would be the direct lease and sublease obligations of NSR or CSXT.

Investment in Conrail

NS is applying the equity method of accounting to its investment in Conrail in accordance with APB Opinion No. 18, "The Equity Method of Accounting for Investments in Common Stock."   NS is amortizing the excess of the purchase price over Conrail's net equity using the principles of purchase accounting, based primarily on the estimated remaining useful lives of Conrail's depreciable property and equipment, including the related deferred tax effect of the differences in tax and accounting bases for certain assets.   At March 31,Sept. 30, 2003, the difference between NS' investment in Conrail and its share of Conrail's underlying net equity was $3.7 billion.

NS' Consolidated Balance Sheet at March 31,Sept. 30, 2003 includes $53$40 million of liabilities related to the Conrail transaction, principally for contractual obligations to Conrail employees imposed by the Surface Transportation BoardSTB when it approved the transaction.   Through March 31,Sept. 30, 2003, NS has paid $150$163 million of thesesuch costs.

Related-Party Transactions

NS provides certain general and administrative support functions to Conrail, the fees for which are billed in accordance with several service-provider arrangements and amount to approximately $7 million annually.

"Conrail rents and services" includes:   (1) expenses for amounts due to PRR and CRC for use by NSR of operating properties and equipment, and(2) expenses for amounts due to CRC for operation of the Shared Assets Areas and (2)(3) NS' equity in the earnings of Conrail, net of amortization.  

A significant portion of payments made to PRR is borrowed back from a subsidiary of PRR under a note due in 2032.   Amounts outstanding under this note comprise the long-term balance of "Due to Conrail."   The interest rate for these loans is variable and was 1.56%1.51% at March 31,Sept. 30, 2003.   On a consolidated basis, the proposed spin-off transaction described above would effectively relieve NS of this obligation.   The current balance "Due to Conrail" is composed of amounts related to expenses included in "Conrail rents and services," as discussed above.

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Summary Financial Information - Conrail

The following historical cost basis financial information should be read in conjunction with Conrail's audited financial statements, included as Exhibit 99(b) with NS' 2002 Annual Report on Form 10‑K.  

Summarized Consolidated Statements of Income - Conrail

Note:   Conrail adopted SFAS No. 143, effective Jan. 1, 2003, and recorded a $40 million net adjustment for the cumulative effect of this change in accounting on years prior to 2003.   NS excluded this amount from its determination of equity in earnings of Conrail because an amount related to Conrail is included in NS' cumulative effect adjustment for SFAS No. 143.

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Summarized Consolidated Balance Sheets - Conrail

5.  

 Accounts Receivable

A bankruptcy-remote special purpose subsidiary of NS sells without recourse undivided ownership interests in a pool of accounts receivable.   The buyers have a priority collection interest in the entire pool of receivables, and as a result, NS has credit risk to the extent the pool of receivables exceeds the amount sold.   NS services and collects the receivables on behalf of the buyers; however, no servicing asset or liability has

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been recognized because the benefits of servicing are estimated to be just adequate to compensate NS for its responsibilities.   Payments collected from sold receivables can be reinvested in new accounts receivable on behalf of the buyers.   Should NS' credit rating drop below investment grade, the buyers have the right to discontinue this reinvestment.

There were no accounts receivable sold under this arrangement at March 31,Sept. 30, 2003, but $30 million were sold at Dec. 31, 2003,2002, and therefore not included in "Accounts receivable, net" on the Consolidated Balance Sheet.   The fees associated with the sale, which are based on the buyers' financing costs, are included in "Other income - net."   NS' retained interest, which is included in "Accounts receivable, net" is recorded at fair value using estimates of dilution based on NS' historical experience.   These estimates are adjusted regularly based on NS' actual experience with the pool, including defaults and credit deterioration.   NS has experienced very low levels of default, and as a result, little dilution.   If historical dilution percentages were to increase one percentage point, the value of NS' retained interest would be reduced by approximately $6 million.

NS' allowance for doubtful accounts was $6 million at March 31,Sept. 30, 2003, and $5 million at Dec. 31, 2002.

6.  Derivative Financial Instruments

NS uses derivative financial instruments to reduce the risk of volatility in its diesel fuel costs and to manage its overall exposure to fluctuations in interest rates.   NS does not engage in the trading of derivatives.   Management has determined that its derivative financial instruments qualify as either fair-value or cash-flow hedges, having values which highly correlate with the underlying hedged exposures, and has designated such instruments as hedging transactions.   Credit risk related to the derivative financial instruments is considered to be minimal and is managed by requiring high credit standards for counterparties and periodic settlements.

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Diesel Fuel Hedging

In the second quarter of 2001, NS began a program to hedge a portion of its diesel fuel consumption. The intent of the program is to assist in the management of NS' aggregate risk exposure to fuel price fluctuations, which can significantly affect NS' operating margins and profitability. In order to minimize this risk, NS instituted a continuous hedging strategy for a portion of its estimated future fuel needs by entering into a series of swaps in order to lock in the purchase prices of some of its diesel fuel. Management has designated these derivative instruments as cash-flow hedges of the exposure to variability in expected future cash flows attributable to fluctuations in diesel fuel prices.

Following is a summary of NS' diesel fuel swaps:

Hedges are placed each month by competitive bid among selected counterparties. The goal of this hedging strategy is to average fuel costs over an extended period of time while minimizing the incremental cost of hedging. The program provides that NS will not enter into any fuel hedges with a duration of more than 36 months, and that no more than 80% of NS' average monthly forecasted fuel consumption will be hedged for any month within the 36-month period.   Diesel fuel costs represented 8%7% and 6%, respectively, of NS' operating expenses for the firstthird quarters of 2003 and 2002, respectively.2002.

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NS' fuel hedging activity resulted in a net decrease inhad the following effects on diesel fuel expenseexpense:   for the third quarter, decreases of $26$11 million and $5 million for first quarter 2003 and a net increase in diesel fuel expense2002, respectively, and decreases of $4$45 million and $2 million, respectively, for the first quarter 2002.nine months.   The effect of the hedges was to yield an average cost of 75 centscosts per gallon (including federal taxes and transportation) of 77 cents and 73 cents for the third quarters of 2003 and 2002, respectively, and 81 cents and 70 cents for the first quarternine months of 2003 and 70 cents per gallon for the same period of 2002, including federal taxes and transportation.respectively.   Ineffectiveness, or the extent to which changes in the fair values of the heating oil contracts do not offset changes in the fair values of the expected diesel fuel oil transactions, was approximatelyless than $1 million for each quarter.

Interest Rate Hedging

NS manages its overall exposure to fluctuations in interest rates by issuing both fixed and floating-rate debt instruments, and by entering into interest rate hedging transactions.   NS had $211$194 million, or 3.1%3%, and $220 million, or 3.2%3%, of its fixed rate debt portfolio hedged at March 31,Sept. 30, 2003, and Dec. 31, 2002, respectively, using interest rate swaps that qualify for and are designated as fair-value hedge transactions.   These swaps have been effective in hedging the changes in fair value of the related debt arising from changes in interest rates, and accordingly, there has been no impact on earnings resulting from ineffectiveness associated with these derivative transactions.

Fair Values

The fair values of NS' diesel fuel derivative instruments at March 31,Sept. 30, 2003, and Dec. 31, 2002, were determined based upon current fair market values as quoted by third party dealers.   Fair values of interest rate swaps were determined based upon the present value of expected future cash flows discounted at the appropriate implied spot rate from the spot rate yield curve.   Fair value adjustments are noncash transactions, and accordingly, are excluded from the

Consolidated Statement of Cash Flows.   "Accumulated other comprehensive loss," a component of "Stockholders' equity," included an unrealized gainspretax gain of $23$22 million and an unrealized pretax loss of $1 million at Sept. 30, 2003, and an unrealized pretax gain of $29 million (pretax) at March 31, 2003, and Dec. 31, 2002, respectively, related to the fair value of derivative fuel hedging transactions that will terminate within twelve months of the respective dates.

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The asset and liability positions of NS' outstanding derivative financial instruments were as follows:

7.  Earnings Per Share

The following table sets forth the reconciliation of the number of weighted-average shares outstanding used in the calculations of basic and diluted earnings per share:

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The calculations exclude options on 31 million shares in 2003 and 24 million shares in 2002 whose exercise price exceeded the average market price of Common Stock for the period.period as follows:   in 2003, 31 million in the third quarter, 25 million in the second quarter and 31 million in the first quarter; and in 2002, 25 million in the third quarter and 24 million in the second and first quarters.   There are no adjustments to "Net income" for the diluted earnings per share computations.

8.  Comprehensive Income

NS' total comprehensive income was as follows:

For NS, "Other"Other comprehensive income (loss)" reflects the unrealized gains and losses on certain investments in debt and equity securities and net fair value adjustments to certain derivative financial instruments.

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9.    Commitments and Contingencies

Lawsuits

Norfolk Southern and certain subsidiaries are defendants in numerous lawsuits and other claims relating principally to railroad operations.   When management concludes that it is probable that a liability has been incurred and the amount of the liability can be reasonably estimated, it is accrued through a charge to expenses.   While the ultimate amount of liability incurred in any of these lawsuits and claims is dependent on future developments, in management's opinion the recorded liability is adequate to cover the future payment of such liability and claims.   However, the final outcome of any of these lawsuits and claims cannot be predicted with certainty, and unfavorable or unexpected outcomes could result in additional accruals that could be significant to results of operations in a particular year or quarter.   Any adjustments to the recorded liability will be reflected in expenses in the periods in which such adjustments are known.

Presently, there are two disputes, one involving labor arbitration and other claims for "New York Dock" and other income protection benefits and the othersecond involving contractual obligations of a fiber optic codeveloper, WilTel Communications, LLC (f/k/a Williams Communications, LLCLLC) ("Williams Communications"WilTel"), where the aggregated range of loss could be from zero to $75$45 million.   Management believes that NS will prevail in both these matters.   However, unfavorable outcomes in either of these matters could result in accruals that could be significant to results of operations in a particular year or quarter.

A number of claims have been filed with NSR on behalf of employees furloughed after June 1, 1999, for various periods of time, alleging that the furloughs were a result of the Conrail transaction and seeking "New York Dock" income protection benefits.   Other disputes are pending wherein similar benefits are sought under labor agreement provisions that, in management's judgment, do not apply to the involved circumstances.   A number of claims on behalf of individual employees have been submitted to arbitration.   Three significant cases have been heard and NSR received favorable decisions in each of them.

On January 29, 2003, the United States District Court for the Northern District of Georgia entered an order requiring Williams CommunicationsWilTel to pay T‑Cubed, NS' telecommunications subsidiary, approximately $36 million, plus prejudgment interest at a rate of 9% per annum, in connection with its contractual obligations to T-Cubed.   Williams CommunicationsWilTel has appealed and has posted an appeal bond for the full amount of the judgment and interest.   In the event the appeals court reverses the judgment and returns the case to the trial court for further proceedings, T-Cubed's ability to collect and retain the $36 million receivable due from Williams CommunicationsWilTel may be limited because of the latter's financial condition and any subsequent developments in the trial court.   The shortfall, if any, cannot now be determined.   Williams Communications' parent, Williams Communications Group, Inc.,In March of 2003, WilTel filed in April 2002 a voluntary petitiondemand for reorganization under Chapter 11arbitration of the U.S. Bankruptcy Code, and emerged from bankruptcy in October 2002. Williams Communications was not includedcounterclaims first asserted in the bankruptcy petition.above contract litigation relating to alleged construction

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defects, and T-Cubed asserted additional claims relating to costs incurred under the contract.   The arbitration is currently scheduled for December 2003.   Management believes that NS will prevail in these matters and that any potential liability for the claims should not have a material adverse effect on NS' financial position, results of operations or liquidity.

Casualty Claims

NS is generally self-insured for casualty claims.   NS has insurance for catastrophic events, but that coverage has upper limits.   The casualty claims liability is determined actuarially based upon claims filed and an estimate of claims incurred but not yet reported.   While the ultimate amount of claims incurred is dependent on future developments, in management's opinion, the recorded liability is adequate to cover the future payments of claims.   However, it is possible that the recorded liability may not be adequate to cover the future payment of claims.   Adjustments to the recorded liability are reflected in operating expenses in the periods in which such adjustments are known.

Environmental Matters

NS is subject to various jurisdictions' environmental laws and regulations.   It is NS' policy to record a liability where such liability or loss is probable and its amount can be estimated reasonably.   Claims, if any, against third parties for recovery of cleanup costs incurred by NS are reflected as receivables (when collection is probable) on the balance sheet and are not netted against the associated liability.   Environmental engineers regularly participate in ongoing evaluations of all known sites and in determining any necessary adjustments to liability estimates.   NS also has established an Environmental Policy Council, composed of senior managers, to oversee and interpret its environmental policy.

NS' balance sheets included liabilities for environmental exposures in the amount of $28$25 million at March 31,Sept. 30, 2003, and $29 million at Dec. 31, 2002 (of which $8 million was accounted for as a current liability for each period).   At March 31,Sept. 30, 2003, the liability represented NS' estimate of the probable cleanup and remediation costs based on available information at 113 known locations.   On that date, 10 sites accounted for $15$13 million of the liability, and no individual site was considered to be material.   NS anticipates that much of this liability will be paid out over five years; however, some costs will be paid out over a longer period.

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At some of the 113 locations, certain NS subsidiaries, usually in conjunction with a number of other parties, have been identified as potentially responsible parties by the Environmental Protection Agency (EPA) or similar state authorities under the Comprehensive Environmental Response, Compensation and Liability Act of 1980, or comparable state statutes, which often impose joint and several liability for cleanup costs.

With respect to known environmental sites (whether identified by NS or by the EPA or comparable state authorities), estimates of NS' ultimate potential financial exposure for a given site or in the aggregate for all such sites are necessarily imprecise because of the widely varying costs of currently available cleanup techniques, the likely development of new cleanup technologies, the difficulty of determining in advance the nature and full extent of contamination and each potential participant's share of any estimated loss (and that participant's ability to bear it), and evolving statutory and regulatory standards governing liability.

The risk of incurring environmental liability - for acts and omissions, past, present and future - is inherent in the railroad business.   Some of the commodities in NS' traffic mix, particularly those classified as hazardous materials, can pose special risks that NS and its subsidiaries work diligently to minimize.   In addition, several NS subsidiaries own, or have owned, land used as operating property, or which is leased or may have been leased and operated by others, or held for sale.   Because environmental problems may exist on these properties that are latent or undisclosed, there can be no assurance that NS will not incur environmentally related liabilities or costs with respect to one or more of them, the amount and materiality of which cannot be estimated reliably at this time.   Moreover, lawsuits and claims involving these and potentially other now-unidentified environmental sites and matters are likely to arise from time to time.   The resulting liabilities could have a significant effect on financial condition, results of operations or liquidity in a particular year or quarter.

However, based on its assessment of the facts and circumstances now known, management believes that it has recorded the probable costs for dealing with those environmental matters of which the Corporation is aware.   Further,

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management believes that it is unlikely that any known matters, either individually or in the aggregate, will have a material adverse effect on NS' financial position, results of operations or liquidity.

Purchase Commitments

At March 31,Sept. 30, 2003, NS had outstanding purchase commitments of approximately $63$14 million in connection with its 2003 capital program.   In addition, Norfolk Southern has committed to purchase telecommunications services totaling $36$32 million through 2006.

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Independent Accountants' Review Report

The Stockholders and Board of Directors

Norfolk Southern Corporation:

We have reviewed the accompanying consolidated balance sheet of Norfolk Southern Corporation and subsidiaries as of March 31,September 30, 2003, and the related consolidated statements of income for the three-month and nine-month periods ended September 30, 2003 and 2002 and the related consolidated statements of cash flows for the three-monthnine-month periods ended March 31,September 30, 2003 and 2002.   These consolidated financial statements are the responsibility of the Company's management.

We conducted our reviews in accordance with standards established by the American Institute of Certified Public Accountants.   A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters.   It is substantially less in scope than an audit conducted in accordance with auditing standards generally accepted in the United States of America, the objective of which is the expression of an opinion regarding the financial statements taken as a whole.   Accordingly, we do not express such an opinion.

Based on our reviews, we are not aware of any material modifications that should be made to the consolidated financial statements referred to above for them to be in conformity with accounting principles generally accepted in the United States of America.  

As discussed in Note 3 to the consolidated financial statements, the Company adopted Financial Accounting Standards Board Statement No. 143, "AccountingAccounting for Asset Retirement Obligations," and Financial Accounting Standards Board Interpretation No. 46, "ConsolidationConsolidation of Variable Interest Entities," as of January 1, 2003.

We have previously audited, in accordance with auditing standards generally accepted in the United States of America, the consolidated balance sheet of Norfolk Southern Corporation and subsidiaries as of December 31, 2002, and the related consolidated statements of income, changes in stockholders' equity and cash flows for the year then ended (not presented herein); and in our report dated January 28, 2003, we expressed an unqualified opinion on those consolidated financial statements.   In our opinion, the information set forth in the accompanying consolidated balance sheet as of December 31, 2002, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.

/s/ KPMG LLP

Norfolk, Virginia

April 22,October 28, 2003

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Item 2.   Management's Discussion and Analysis of Financial Condition and Results of Operations.

NORFOLK SOUTHERN CORPORATION AND SUBSIDIARIES

Management's Discussion and Analysis of Financial Condition and Results of Operations

RESULTS OF OPERATIONS

Net Income

First-quarterThird-quarter net income was $209$137 million in 2003, up $11 million, or 9%, compared with the same period last year, benefiting from higher nonoperating income and a lower effective tax rate.   For the first nine months of 2003, net income was $483 million and included $114 million for the cumulative effect on years prior to 2003 of changes in accounting principles as required by the adoption of two accounting pronouncements (see Note 3).   First-quarter 2003Nine-month net income also included an additional $10 million gain related to the 1998 sale of NS' former motor carrier subsidiary, North American Van Lines, Inc., which is reported as discontinued operations (see Note 2).   First-quarter incomeIncome from continuing operations before accounting changes, which does not include these items, was $85$359 million down slightlyfor the first nine months of 2003, up $28 million, or 8%, compared with results for the first quartersame period of 2002.   Lower income from railway operations and lowerThe improvement was primarily the result of higher nonoperating income were largely offset by the favorable effects ofand a lower effective income tax rate.rate, which more than offset lower income from railway operations.

Railway Operating Revenues

First-quarterThird-quarter railway operating revenues were $1.56$1.6 billion in 2003 and 2002 as increased revenue per unit was exactly offset by lower traffic volume.   For the first nine months, revenues were $4.8 billion, up $63$103 million, or 4%2%, compared with the first quarter of 2002.   Asresult, as shown in the following table, the increase was the result of higher traffic volume and increased average revenues.

Revenues, carloads and carloadsaverage revenue per unit for the commodity groups were as follows:follows (prior year amounts have been reclassified to conform to the current presentation):

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Coal

First-quarter coalCoal revenues decreased $5increased $1 million in the third quarter and $35 million, or 1%3%, in the first nine months, compared with the same periods last year.   Total traffic volume (tonnage) handled was down slightlydecreased 1% in the quarter, but increased 2% for the first nine months, primarily because of higher utility and export coal volume.   Shipments of export coal increased 40% in the quarter and 12% for the first nine months due to blend changes, the impact of ocean freight rates and the value of the dollar.   Industrial coal volume increased 8% in the quarter, as lower traffic volumelow inventories at plants began to be replenished, but decreased 6% for export, domestic metallurgical and industrial coal more than offset higher traffic volume for utility coal.   Export coal volume was hampered by production shortfalls from a key supplier.   Domestic metallurgical coal shipments were lower as the harsh winter weather delayed shipments in the Great Lakes region.   Utility coal traffic volume benefited from higher demand caused by the cold weather; however, the weather also resulted in delayed shipments as frozen coal slowed loading and unloading operations.first nine months.   Average revenue per carload declined 1%was up 2% in the third quarter and for the first quarter asnine months, reflecting a favorable change in the effectsmix of more shorter-haul (lower revenue per unit) business more than offset the favorable effects of a fuel surcharge.traffic (increased export volume).

CoalFor the remainder of the year, coal volumes are expected to strengthencontinue to be higher, although mild weather patterns could dampen this outlook.   Utility stockpiles are estimated to be below normal and utilities should begin rebuilding stockpiles in anticipation of winter, and gas prices remain relatively high, which could lead to greater utilization of coal-fired generation plants.

As disclosed in NS' 2002 10-K, since early 2002, two utility customers have rate reasonableness complaints before the STB.   Until resolved, NS is billing and collecting amounts from these customers based on the challenged tariff rates.   NS currently expects the STB to issue its decisions in the secondfourth quarter as utilities' coal stockpiles were depleted duringof 2003, although ultimate resolution may not occur until a later date.   While the winter.   For the last halfaccompanying financial statements reflect management's best estimate of the resolution of these matters, due to the passage of time, their ultimate outcome could have a significant effect on results of operations in the particular quarter or year coal revenues are expected to be comparable to those of 2002.resolved.

General Merchandise

First-quarter generalGeneral merchandise revenues increased $49decreased $6 million, or 6%1%, in the third quarter, but increased $39 million, or 1%, in the first nine months, compared with the same periods last year.   TrafficThe decline for the quarter was the result of lower traffic volume (carloads) increased 2%, as all commodity groups exceptwhich was partially offset by higher average revenues.   For the first nine months, the revenue increase reflected higher average revenues.   For both periods, the largest volume decreases were in the automotive and metals and construction group posted increases.groups.   Automotive traffic volume reflected plant downtime at Ford and DaimlerChrysler.   Metals and construction volume suffered from continued softness in the imported steel market.   Agriculture, consumer products and government volume increased 6%8% in the quarter and 7% for the first nine months reflecting increased volume for fertilizer, higher shipments for the military and more shipments of corn into markets affected by the 2002 drought.   This is expected to continue until late September when the 2003 crop comes to market.   In addition, trafficPaper, clay and forest products volume benefited from increased volume for sweeteners and more shipmentsslightly for the military.   Chemicals traffic volume increased 3% on stronger demandquarter and was up 1% for industrial intermediate products and increased plastics shipments, which was supported by higher vehicle production and consumer products demand.   Automotive traffic volume increased 2%, primarily due to the resumption of production at a plant that had been curtailed during the first quarter of 2002.   Automotive production for the year is expected to be lower than that of 2002.   nine months.

General merchandise average revenue per carload increased 3%1% in the third quarter and 2% for the first nine months reflecting fuel surcharges, increased rates moreand longer haul (higher average revenue) business, a fuel surcharge and favorable changes in the mixlengths of traffic.haul.

General merchandise revenues16

While improvements are expected to weaken in the second quarter, when compared with the second quarter of 2002, reflecting lower vehicle production.   However, for the last half of the year,our metals and construction, chemicals and agriculture business groups, overall, general merchandise revenues are expected to be comparablecontinue to thoseshow weakness during the last quarter of 2002the year and are largely reflectdependent upon the performance of the economy.