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) Unaudited )

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NORFOLK SOUTHERN CORPORATION AND SUBSIDIARIES

Consolidated Balance Sheets

($ in millions)

(Unaudited) Unaudited )

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NORFOLK SOUTHERN CORPORATION AND SUBSIDIARIES

Consolidated Statements of Cash Flows

($ in millions)

(Unaudited) Unaudited )

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NORFOLK SOUTHERN CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)( Unaudited )

In the opinion of management, the accompanying unaudited interim financial statements contain all adjustments (consisting of normal recurring accruals) necessary to present thefairly Norfolk Southern Corporation and subsidiariessubsidiaries' (NS) financial position as of Sept. 30, 2003,March 31, 2004, and its results of operations for the three and nine months ended Sept. 30, 2003 and 2002, and its cash flows for the ninethree months ended Sept. 30,March 31, 2004 and 2003, and 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 NS' 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 2003,2004, a committee of nonemployee directors of NS' Board granted stock options, performance share units (PSUs)( PSUs ) and restricted shares pursuant to the stockholder-approved Long-Term Incentive Plan.   Options to purchase 5,700,0004,580,500 shares were granted with an option price of $19.625,$22.02, 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 946,000831,000 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 andwith the other half willto be paid in cash.   Restricted shares granted totaled 420,600359,040 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

Year-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 lowered depreciation expense by about $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 about $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 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, NSNorfolk Southern and CSX Corporation (CSX) jointly own Conrail Inc. (Conrail), whose primary subsidiary is Consolidated Rail Corporation (CRC), the majora principal 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, NSNorfolk Southern 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.

NS'Norfolk Southern's 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 (NSC) under comparable terms.

Operation of Conrail's Lines

The June 1999 Operating Agreement between NSR and PRR governs substantially all track assets 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. 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 NYCConrail Corporate Reorganization

In June 2003, NS, together with CSX and Conrail filed a joint petition with the Surface Transportation Board (STB)are jointly seeking to reorganize Conrail and establish direct ownership and control by NSR and CSXT of PRR and NYC, respectively.   The proposed transactionreorganization would replace the existing operating agreements described above and allow NSR and CSXT to directly own and operate PRR and NYC, respectively, via direct ownership.respectively.   The proposed transaction doesreorganization would not involve the Shared Assets Areas, and would have no effect on the competitive rail service provided in the Shared Assets Areas.   The proposedConrail would continue to own, manage and operate the Shared Assets Areas as previously approved by the Surface Transportation Board (STB).

Consummation of the reorganization requires a ruling from the Internal Revenue Service (IRS), the approval of the STB and filings with the Securities Exchange Commission.   In addition, NS, CSX and Conrail must obtain the consent of Conrail's debt holders to carry out the transaction isand obtain a valuation of PRR and of NYC.

In 2003, the IRS issued a ruling that the reorganization as contemplated would qualify as a tax-free distribution.   In order to implement the reorganization approved by the IRS, the companies have engaged an investment banking firm to provide a valuation.   Also in 2003, the STB granted its authorization to carry out the reorganization, subject to a numbercondition requiring NS, CSX and Conrail to either:   ( i ) obtain the voluntary consent of conditions, including STB approvalthe Conrail debt holders; or (ii) propose further proceedings to determine whether the terms offered to the Conrail debt holders are fair, just and an Internal Revenue Service ruling qualifying it asreasonable.   NSR and CSXT have filed registration statements on Form S-4 with the SEC to allow a nontaxable distribution.proposed exchange offer relating to Conrail's unsecured debt (see below).

As a part of the proposed transaction,reorganization, 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$321 million.   It is currently contemplated that guaranteedGuaranteed debt securities of two newly formed corporate subsidiaries of NSR and CSXT wouldwill 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

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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 packagescovenants 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.

NS, CSX and Conrail are diligently working to complete all steps necessary to consummate the Conrail corporate reorganization in 2004.   Upon consummation of the proposed transaction, NS' investment in Conrail will no longer include amounts related to PRR and NYC.   Instead, the assets and liabilities of PRR will be reflected in their respective line items in NS' Consolidated Balance Sheet, and any amounts due to PRR would be extinguished.   On the Consolidated Income Statement, Conrail Rents and Services will be reduced to reflect only the expenses associated with the Shared Assets Areas, and other expenses, primarily the depreciation related to the PRR assets, will be reflected in their respective line items.

NS expects to record the proposed transaction at fair value.   The preliminary results of a valuation of PRR and NYC indicate that NS' carrying amount for its interests in PRR and NYC is within the range of fair values.   The final results of the valuation discussed above, or of other appraisals or valuations that may be obtained to assist in the accounting for the transaction, may result in a gain or loss being recognized upon consummation of the transaction.

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 Sept. 30, 2003,March 31, 2004 , 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 Sept. 30, 2003March 31, 2004 includes $40$29 million of liabilities related to the Conrail transaction, principally for contractual obligations to Conrail employees imposed by the STBSurface Transportation Board when it approved the transaction.   Through Sept. 30, 2003,March 31, 2004 , NS has paid $163$174 million of suchthese 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 (2) expenses for amounts due to CRC forand operation of the Shared Assets Areas and (3)(2) 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 1.51%1.6% at Sept. 30, 2003.   On a consolidated basis,March 31, 2004 ..   Upon consummation of the proposed spin-off transaction described abovereorganization, these loans would effectively relieve NS of this obligation.be extinguished.   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)99 with NS' 20022003 Annual Report on Form 10‑K.

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Summarized Consolidated Statements of Income - Conrail

Note:   Conrail adopted FIN No. 46(R), "Consolidation of Variable Interest Entities," effective Jan. 1, 2004 , and recorded a $1 million net adjustment for the cumulative effect of this change in accounting on years prior to 2004.   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.

Summarized Consolidated Balance Sheets - Conrail

5.3.  

 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 hasretains 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.

ThereWhile there were some sales during the first quarter of 2004, there were no accounts receivable sold under this arrangement at Sept. 30, 2003, but $30 million were soldMarch 31, 2004 , and at Dec. 31, 2002, and therefore not included2003 ..   The change in "Accounts receivable, net"receivable" included on

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the Consolidated Balance Sheet.Statements of Cash Flows related to receivable sales was $0 for the three months ended March 31, 2004 , compared with $(30) million for the same period of 2003.   The fees associated with the sale,sales, 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$7 million at Sept. 30, 2003,March 31, 2004 , and $5 million at Dec. 31, 2002.2003 ..

6.4.  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 whichthat 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.

Diesel Fuel Hedging

In the second quarter of 2001, NS beganhas a program to hedge a significant 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 institutedhas a continuous hedging strategy for a portion of its estimated future fuel needs by entering intousing 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 theany 36-month period. Diesel fuel costs represented 7% and 6%, respectively,8% of NS' operating expenses forin each of the thirdfirst quarters of 20032004 and 2002.

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NS' fuel hedging activity had the following effects onresulted in net decreases in diesel fuel expense:   for the third quarter, decreasesexpense of $11 million and $5$23 million for 2003first quarter 2004 and 2002, respectively, and decreases of $45$26 million and $2 million, respectively, for the first nine months.   The effect of the hedges was to yield average costs 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 nine months of 2003 and 2002, respectively.quarter 2003.   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 less thanapproximately $3 million in the first quarter of 2004 and $1 million for each quarter.in the first quarter of 2003.

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 $194$177 million, or 3%, and $220$186 million, or 3%, of its fixed rate debt portfolio hedged at Sept. 30, 2003,March 31, 2004 , and Dec. 31, 2002,2003 , 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.

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Fair Values

The fair values of NS' diesel fuel derivative instruments at Sept. 30, 2003,March 31, 2004 and Dec. 31, 2002,2003 , 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 pretax gaingains of $22$50 million and an unrealized pretax loss of $1$40 million (pretax) at Sept. 30, 2003,March 31, 2004, and an unrealized pretax gain of $29 million at Dec. 31, 2002, related2003, respectively, relating to an increase in the fair value of derivative fuel hedging transactions that will terminate within twelve months of the respective dates.

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

5 ..   Pensions and Other Postretirement Benefits

Pension and Other Postretirement Benefit Cost Components

Contributions for Pension and Other Postretirement Benefits

NS previously disclosed in its consolidated financial statements for the year ended Dec. 31, 2003 , that it expected to contribute $7 million to its unfunded pension plans and $42 million to its other postretirement benefit plans in 2004.   For the three months ended March 31, 2004 , $1 million and $10 million of contributions have been made to its unfunded pension plans and its other postretirement benefit plans, respectively.   NS presently anticipates contributing an additional $6 million to its unfunded pension plans for a total of $7 million and an additional $32 million to fund its postretirement benefit plans in 2004 for a total of $42 million.

6 ..   Discontinued Operations in 2003

First-quarter 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.

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7.   Changes in Accounting Principles in 2003

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.

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.

8.  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 22 million shares in 2004 and 31 million shares in 2003 whose exercise price exceeded the average market price of Common Stock for the 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.period.   There are no adjustments to "Net income" for the diluted earnings per share computations.

8.9.  Comprehensive Income

NS' total comprehensive income was as follows:

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

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10.    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 claims for income protection benefits and the second involving contractual obligations of a fiber optic codeveloper, WilTel Communications, LLC (f/k/a Williams Communications, LLC) ("WilTel"), where the aggregated range of loss could be from zero to $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 WilTel 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.   WilTel 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 WilTel 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.   In March of 2003, WilTel filed a demand for arbitration of counterclaims first asserted in the 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, subject to limits, for catastrophic events, but that coverage has upper limits.events.   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 $25$24 million at Sept. 30, 2003,March 31, 2004 , and $29$25 million at Dec. 31, 20022003 , (of which $8 million was accounted for as a current liability for each period).   At Sept. 30, 2003,March 31, 2004 , the liability represented NS' estimate of the probable cleanup and remediation costs based on available information at 113112 known locations.   On that date, 10 sites accounted for $13$12 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.

At some of the 113112 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

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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 Sept. 30, 2003,March 31, 2004 , NS had outstanding purchase commitments of approximately $14$270 million in connection with its 20032004 capital program.program, including purchases of locomotives and equipment.   In addition, Norfolk Southern has committed to purchase telecommunications services totaling $32$35 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 September 30, 2003,March 31, 2004 , 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 nine-monththree-month periods ended September 30, 2003March 31, 2004 and 2002.2003.   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.America ..  

As discussed in Note 3note 7 to the consolidated financial statements, the Company adopted Financial Accounting Standards Board Statement No. 143, Accounting for Asset Retirement Obligations, and Financial Accounting Standards Board Interpretation No. 46, Consolidation of Variable Interest Entities, as of January 1, 2003.2003 ..

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, 2002,2003, 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, 2003,27, 2004, 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, 2002,2003 , 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

October 28, 2003April 20, 2004

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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 IncomeOverview

Third-quarterFirst-quarter net income was $137$158 million in 2003, up $11 million, or 9%,2004, compared with $209 million in 2003.   The following table shows the same period last year, benefiting from higher nonoperating incomecomponents of the change:

The decline reflected the absence of the accounting changes and a lower effective tax rate.   For the first nine months of 2003,discontinued operations included in 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).   Nine-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).2003.   Income from continuing operations before accounting changes which does not include these items, was $359increased $73 million, foror 86%, in the first nine monthsquarter of 2003, up $282004, compared with the same period of 2003.   The growth resulted from a $132 million, or 8%, comparedincrease in railway operating revenues coupled with results for the same period of 2002.only a slight rise in railway operating expenses, which led to strong income from railway operations.   The improvementrevenue gain was primarily the result of higher nonoperating incomea 7% rise in traffic volume.   Expenses were up 1% as the fluidity of the NS railroad network resulted in an increase in efficiency as measured by average train speed, terminal dwell time and a lower effective income tax rate, which more than offset lower income from railway operations.cars on line.

Railway Operating Revenues

Third-quarterFirst-quarter railway operating revenues were $1.6$1.7 billion in 2003 and 2002 as increased revenue per unit was exactly offset by lower traffic volume.   For2004, up $132 million, or 8%, compared with the first nine months, revenues were $4.8 billion, up $103 million, or 2%, the result, asquarter of 2003.   As shown in the following table, the increase was the result of higher traffic volume and increased average revenues.

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

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