UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington , D.C. 20549

FORM 10-K

(X)	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the fiscal year ended December 31, 2002
	OR
( )	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the transition period from ____________ to ____________
	Commission file numbers 1-743; 1-3744; 1-4793; 1-5462

(X)	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the fiscal year ended December 31, 2004

	OR

( )	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the transition period from ____________ to ____________
	Commission file numbers 1-743; 1-3744; 1-4793; 1-5462

NORFOLK SOUTHERN RAILWAY COMPANY
(Exact name of registrant as specified in its charter)
Virginia	53-6002016
(State or other jurisdiction of	(IRS Employer Identification No.)
incorporation or organization)
Three Commercial Place
Norfolk, Virginia	23510-2191
(Address of principal executive offices)	Zip Code
Registrant’s telephone number, including area code	(757) 629-2680
Securities registered pursuant to Section 12(b) of the Act:
Title of each class so registered. Each class registered on New York Stock Exchange:
Norfolk and Western Railway Company 4.85% Subordinated Income Debentures, due November 15, 2015; Guarantee of Norfolk Southern Railway Company with respect to $1,754,900 principal amount of Norfolk and Western Railway Company 4.85% Subordinated Income Debentures due November 15, 2015; The Virginian Railway Company 6% Subordinated Income Debentures, due August 1, 2008; Guarantee of Norfolk Southern Railway Company with respect to $4,466,000 principal amount of The Virginian Railway Company 6% Subordinated Income Debentures due August 1, 2008; Norfolk Southern Railway Company $2.60 Cumulative Preferred Stock, Series A (No Par Value, $50 Stated Value).
Securities registered pursuant to Section 12(g) of the Act: NONE
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes (X) No ( )
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. (X)
The number of shares outstanding of each of the registrant’s classes of common stock, as of January 31, 2003: 16,668,997
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). Yes ( ) No ( X )
The aggregate market value of the voting common equity held by nonaffiliates as of June 28, 2002 was zero.

NORFOLK SOUTHERN RAILWAY COMPANY
(Exact name of registrant as specified in its charter)

Virginia	53-6002016
(State or other jurisdiction of	(IRS Employer Identification No.)
incorporation or organization)

Three Commercial Place
Norfolk , Virginia	23510-2191
(Address of principal executive offices)	Zip Code

Registrant's telephone number, including area code	(757) 629-2680

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

Title of each class so registered. Each class registered on New York Stock Exchange: 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 ( )

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

The number of shares outstanding of each of the registrant's classes of common stock, as of January 31, 2004 : 16,668,997

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). Yes ( ) No ( X )

The aggregate market value of the voting common equity held by nonaffiliates as of June 30, 2004 was zero.

~~DOCUMENTS~~The registrant ~~INCORPORATED~~meets BYthe ~~REFERENCE:~~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.

~~Portions~~Table of ~~the~~Contents ~~Registrant’s definitive proxy statement, to be filed electronically pursuant to Regulation 14A not later than 120 days after the end of the fiscal year, are incorporated by reference in Part III.~~

~~TABLE~~Norfolk OFSouthern ~~CONTENTS~~Railway Company and Subsidiaries (NS Rail)

~~NORFOLK~~ Page ~~SOUTHERN~~ Part I. ~~RAILWAY~~ 1. Business ~~COMPANY~~ 3 ~~AND~~ 2. Properties ~~SUBSIDIARIES~~ 3 ~~(NS~~ 3. Legal ~~RAIL)~~Proceedings 9 4. Submission of Matters to a Vote of Security Holders 9 Part II. 5. Market for Registrant's Common Equity and Related Stockholders Matters 10 6. Selected Financial Data 10 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 11 7A. Quantitative and Qualitative Disclosures About Market Risk 21 8. Financial Statements and Supplementary Data 22 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 51 9A. Controls and Procedures 51 Part III. 10. Directors and Executive Officers of the Registrant 52 11. Executive Compensation 52 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 52 13. Certain Relationships and Related Transactions 52 14. Principal Accountant Fees and Services 52 Part IV. 15. Exhibits, Financial Statement Schedule and Reports on Form 8-K 53 Power of Attorney 57 Signatures 57 Exhibit Index 59

		Page
Part I.	1. Business	3
	2. Properties	3
	3. Legal Proceedings	12
	4. Submission of Matters to a Vote of Security Holders	12
	Executive Officers of the Registrant	12
Part II.	5. Market for Registrant’s Common Stock and Related Stockholders Matters	15
	6. Selected Financial Data	16
	7. Management’s Discussion and Analysis of Financial Condition and Results of Operations	17
	7A. Quantitative and Qualitative Disclosures About Market Risk	35
	8. Financial Statements and Supplementary Data	35
	9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	59
Part III.	10. Directors and Executive Officers of the Registrant	59
	11. Executive Compensation	60
	12. Security Ownership of Certain Beneficial Owners and Management	60
	13. Certain Relationships and Related Transactions	60
	14. Controls and Procedures	60
Part IV.	15. Exhibits, Financial Statement Schedule and Reports on Form 8-K	61
	Index to Consolidated Financial Statement Schedule	61
	Power of Attorney	64
	Signatures	64
	Certifications of CEO and CFO	65
	Exhibit Index	68

2 PART I

~~NORFOLK~~Norfolk ~~SOUTHERN~~Southern ~~RAILWAY~~Railway ~~COMPANY~~Company ~~AND~~and ~~SUBSIDIARIES~~Subsidiaries (NS ~~RAIL~~ Rail)

Item 1. Business. and Item 2. Properties .

~~General~~In accordance -with ~~Norfolk~~General ~~Southern~~Instruction ~~Railway~~( ~~Company~~I )(~~Norfolk~~ ~~Southern~~2)(d), ~~Railway~~the orregistrant ~~NSR)~~is ~~was~~providing reduced ~~incorporated~~disclosure infor ~~1894~~Items ~~under~~1, Business, and 2, Properties. For Item 1, the ~~name~~registrant furnishes below a brief description of the business done by the ~~Southern~~registrant ~~Railway~~and ~~Company~~its ~~(Southern)~~subsidiaries induring the ~~Commonwealth~~most recent fiscal year, which, in the opinion of ~~Virginia~~management, indicates the general nature and, ~~together~~scope ~~with~~of ~~its~~the business ~~consolidated~~of the registrant and its subsidiaries. For ~~(collectively~~Item 2, the ~~NS Rail),~~registrant isfurnishes ~~primarily~~below ~~engaged~~a brief description of the material properties of the registrant and its subsidiaries to the extent, in the ~~transportation~~opinion of ~~freight~~management, necessary for an understanding of the business done by ~~rail~~the registrant and its subsidiaries.

OnGeneral ~~June~~- 1,Norfolk ~~l982,~~ Southern ~~and Norfolk and Western~~ Railway Company (~~N&W) became subsidiaries of~~ Norfolk Southern ~~Corporation (NS),~~Railway aor ~~transportation~~NSR) ~~holding~~was ~~company. Effective~~incorporated ~~Dec. 31,~~in ~~1990,~~1894 NSunder ~~transferred all~~ the ~~common stock of N&W to Southern, and Southern’s~~ name ~~was changed to Norfolk~~ Southern Railway Company~~. Effective~~ ~~Sept. 1, 1998, N&W was merged with and into Norfolk~~ (Southern) ~~Railway. All~~in the ~~common~~Commonwealth ~~stock~~ of ~~Norfolk~~Virginia ~~Southern Railway (16~~and,~~668,997~~ ~~shares)~~together iswith ~~owned~~its ~~directly~~consolidated bysubsidiaries (collectively, NS~~. NS~~ Rail), ~~common stock~~ is ~~publicly~~primarily ~~held~~engaged in ~~and listed on~~ the ~~New~~transportation ~~York~~of ~~Stock~~freight ~~Exchange~~by rail.

~~There~~On ~~remain~~June ~~issued~~1, l982, Southern and ~~outstanding~~Norfolk asand ofWestern ~~Jan. 31,~~Railway Company ~~2003,~~(N&W) ~~1,197,027~~became ~~shares~~subsidiaries of Norfolk Southern ~~Railway’s~~Corporation ~~$2.60~~(NS), a ~~Cumulative~~transportation ~~Preferred~~holding ~~Stock,~~company. Effective ~~Series~~Dec. A31, ~~(Series A~~1990 ~~Stock)~~, ofNS transferred ~~which~~all ~~1,096,907 shares~~the ~~were~~common ~~held~~stock ~~other~~of ~~than~~N&W ~~by subsidiaries. The~~to ~~Series A~~Southern, ~~Stock~~and isSouthern's ~~entitled~~name was changed to ~~one~~Norfolk ~~vote~~Southern ~~per~~Railway ~~share~~Company. Effective Sept. 1, is1998 , ~~nonconvertible~~N&W ~~and~~was ismerged ~~traded~~with onand ~~the~~into ~~New~~Norfolk ~~York Stock~~Southern ~~Exchange~~Railway. All Asthe equity securities of ~~Jan. 31,~~Norfolk ~~2003,~~Southern NSRailway ~~held~~are aowned ~~total of 246~~directly,~~355 shares~~ ofor ~~Series A Stock; consequently~~indirectly, by asNS. NS ofcommon ~~the same~~stock ~~date,~~is NSpublicly held ~~95.2%~~and oflisted on the ~~voting~~New ~~stock~~York ~~of Norfolk Southern Railway~~Stock Exchange.

Norfolk Southern Railway makes available free of charge through the website www.nscorp.com, its annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and all amendments to those reports as soon as reasonably practicable after such material is electronically filed with or furnished to the Securities and Exchange Commission (SEC).

~~OPERATION~~CONRAIL OFCORPORATE REORGANIZATION A- ~~PORTION~~On OFAugust ~~THE~~27, ~~CONRAIL~~2004 ~~RAIL ASSETS - On June 1~~, ~~1999~~NS, ~~Norfolk~~CSX ~~Southern~~Corporation ~~Railway~~(CSX) and ~~CSX~~Conrail ~~Corporation~~Inc. (~~CSX~~Conrail), ~~through~~completed ~~its~~a ~~railroad~~reorganization ~~subsidiary~~of Conrail (Conrail Corporate Reorganization), ~~began~~which ~~operating~~established ~~separate~~direct ~~portions~~ownership ofand ~~Conrail’s~~control ~~rail~~by ~~routes~~NSR and CSX ~~assets~~Transportation, Inc. ~~Substantially~~ ~~all~~(CSXT) ~~such~~of ~~assets~~two ~~are~~former ~~owned~~CRC bysubsidiaries, ~~two~~Pennsylvania ~~wholly~~Lines LLC ~~owned~~(PRR) ~~subsidiaries~~and ofNew ~~Consolidated~~York ~~Rail~~Central ~~Corporation~~Lines LLC (~~CRC~~NYC);, ~~one~~respectively. Prior to ofthe ~~those~~Conrail ~~subsidiaries~~Corporate Reorganization, ~~Pennsylvania~~NSR ~~Lines~~operated ~~LLC~~the (routes and assets of PRR) and CSXT operated the routes and assets of NYC, ~~has~~each ~~entered~~in ~~into~~accordance ~~various~~with operating and lease agreements. Pursuant to the Conrail Corporate Reorganization, the operating and ~~leasing~~lease ~~arrangements~~agreements were terminated and PRR and NYC were merged into NSR and CSXT, ~~more~~respectively. The ~~particularly~~reorganization did ~~described~~not ininvolve ~~Note 2~~the ofShared NSAssets ~~Rail’s~~Areas ~~Consolidated~~and ~~Financial~~did ~~Statements,~~not ~~with~~affect ~~Norfolk~~the ~~Southern~~competitive ~~Railway~~rail service provided in the Shared Assets Areas. ~~Certain~~ Conrail ~~rail~~continues to own, ~~assets~~manage (and operate the Shared Assets Areas) ~~still~~as ~~are~~previously ~~owned~~approved by ~~CRC,~~the ~~which~~Surface Transportation ~~operates~~Board ~~them~~(STB). In ~~for~~connection ~~joint~~with the Conrail Corporate Reorganization, NS, CSX and ~~exclusive~~Conrail ~~use~~obtained bya ~~Norfolk~~ruling ~~Southern~~from ~~Railway~~the Internal Revenue Service (IRS) regarding certain tax matters, and the ~~rail~~STB ~~subsidiary~~approved the transaction. As a part of ~~CSX~~the Conrail Corporate Reorganization, Conrail restructured its existing unsecured and secured public indebtedness, with the consent of Conrail's debtholders . See Note 2 to the Consolidated Financial Statements.

~~Operation~~TRIPLE ofCROWN ~~the~~SERVICES ~~PRR~~COMPANY ~~routes~~CAPITAL ~~and~~CONTRIBUTION ~~assets~~- ~~increased~~On ~~the~~Aug. ~~size~~27, 2004 , NS contributed 500 shares of ~~the~~TCS ~~system~~Leasing, ~~over~~Inc. ~~which~~(TCS ~~Norfolk~~Leasing) ~~Southern~~common ~~Railway~~stock ~~provides~~to ~~service~~the bycapital of ~~nearly~~NSR. TCS Leasing indirectly owns a 50% ~~and~~partnership ~~afforded~~interest ~~access~~in toTriple Crown ~~the~~Services ~~New~~Company ~~York~~(Triple ~~metropolitan~~Crown). As ~~area,~~a toresult ~~much~~ of the ~~Northeast~~Conrail Corporate ~~and~~Reorganization, toNSR ~~most~~became of the ~~major~~indirect ~~East~~owner ~~Coast~~of the remaining ~~ports~~partnership ~~north~~interest ofin ~~Norfolk,~~Triple ~~Virginia~~Crown. ~~Also~~ Accordingly, ~~leasing~~Triple ~~arrangements~~Crown ~~with~~is ~~PRR~~now included ~~augmented~~in ~~Norfolk~~NS ~~Southern Railway’~~Rail's ~~locomotive, freight~~consolidated ~~car~~financial ~~and~~statements. See ~~intermodal~~Note ~~fleet~~2 to the Consolidated Financial Statements.

~~OPERATIONS~~3 - As of Dec. 31, 2002, NS Rail operated approximately 21,500 miles of road in the states of Alabama, Delaware, Florida, Georgia, Illinois, Indiana, Iowa, Kentucky, Louisiana, Maryland, Michigan, Mississippi, Missouri, New Jersey, New York, North Carolina, Ohio, Pennsylvania, South Carolina, Tennessee, Virginia, West Virginia, the District of Columbia and in the Province of Ontario, Canada. The miles operated were as follows:

3RAILROAD OPERATIONS - As of Dec. 31, 2004 , NS Rail operated approximately 21,300 miles of road. The miles operated, which includes leased lines between Cincinnati , Ohio and Chattanooga , Tennessee , and trackage rights over property owned by North Carolina Railway Company, were as follows:

	Mileage Operated as of Dec. 31, 2002
			Passing
		Second and	Track,	Way and
	Miles of	Other Main	Crossovers	Yard
	Road	Track	and Turnouts	Switching	Total
Owned	11,745	1,384	1,625	5,969	20,723
Operated under lease, contract
or trackage rights	9,813	3,441	891	3,647	17,792
Total	21,558	4,825	2,516	9,616	38,515

	Mileage Operated as of Dec. 31, 2004

			Passing
		Second and	Track,	Way and
	Miles of	Other Main	Crossovers	Yard
	Road	Track	and Turnouts	Switching	Total

Owned	16,389	2,808	2,095	8,632	29,924
Operated under lease, contract
or trackage rights	4,947	1,978	417	969	8,311
Total	21,336	4,786	2,512	9,601	38,235

InNS Rail's ~~addition to the~~ lines ~~leased~~carry ~~from~~raw ~~Conrail previously discussed~~materials, ~~NS Rail~~intermediate ~~has~~products and ~~major~~finished ~~leased~~goods ~~lines~~primarily ~~between~~in ~~Cincinnati,~~the ~~Ohio~~Southeast, East and ~~Chattanooga,~~Midwest ~~Tennessee~~, and ~~operates~~via interchange ~~over~~with ~~trackage~~other ~~owned~~rail bycarriers, ~~North~~to ~~Carolina~~and ~~Railway~~from ~~Company~~the ~~(NCRR).~~rest ~~The~~of ~~Cincinnati-Chattanooga lease,~~the ~~covering~~United ~~about~~States and ~~335 miles~~parts of ~~road,~~Canada ~~expires~~. These inlines ~~2026,~~also ~~and~~transport isoverseas ~~subject~~freight tothrough several anAtlantic ~~option~~and toGulf ~~extend~~Coast ports. Atlantic ports served by NS Rail include: the ~~lease~~Ports ~~for~~of anNew ~~additional~~York/New 25Jersey; Philadelphia, ~~years~~Pennsylvania/Camden, atNew ~~terms~~Jersey; toBaltimore, beMaryland; ~~agreed~~Wilmington, ~~upon.~~Delaware; Norfolk, ~~The~~Virginia; ~~trackage~~Morehead ~~rights~~City, ~~over~~North ~~NCRR~~Carolina; ~~cover~~Charleston, ~~approximately~~South ~~315~~Carolina; Savannah ~~miles~~and ofBrunswick, ~~road~~Georgia; ~~under~~and anJacksonville, ~~agreement~~Florida. Gulf ~~through~~Coast ~~2014~~ports ~~with~~served ~~the~~include ~~right~~Mobile to, ~~renew~~Alabama ~~for~~and ~~two~~New ~~additional~~Orleans ~~15-year~~, ~~periods~~Louisiana .

NS Rail’'s lines ~~carry~~reach ~~raw~~most ~~materials,~~of ~~intermediate~~the ~~products~~larger industrial and trading ~~finished~~centers ~~goods~~of ~~primarily in~~ the Southeast, ~~East~~Northeast, Mid-Atlantic region and Midwest . Chicago, Norfolk, Detroit, Atlanta, Metropolitan New York City, Jacksonville, Kansas City (Missouri), Baltimore, Buffalo, Charleston, Cleveland, Columbus, Philadelphia, Pittsburgh, Toledo, Greensboro, Charlotte and ~~via~~Savannah are ~~interchange~~among ~~with~~the ~~other~~leading ~~rail~~centers ~~carriers~~originating and terminating freight traffic on the system. In addition, haulage arrangements with connecting carriers allow NS Rail to provide single-line service to and from additional markets, including haulage provided by Florida East Coast Railway Company to serve southern and eastern Florida, including the ~~rest~~port cities of Miami, West Palm Beach and Fort Lauderdale; and haulage provided by The Kansas City Southern Railway Company to provide transcontinental intermodal service via a connection in Dallas, Texas with the ~~United~~Burlington ~~States~~Northern and ~~parts~~Santa ofFe ~~Canada~~Railway Company. ~~These~~ Service is ~~lines~~provided ~~also~~to ~~transport~~New ~~overseas~~England ~~freight~~, ~~through~~including ~~several~~the ~~Atlantic~~Port of Boston , via haulage, trackage rights and ~~Gulf~~interline ~~Coast~~arrangements ~~ports~~with Canadian Pacific Railway Company and Guilford Transportation Industries. ~~Atlantic~~ The ~~ports~~system's ~~served~~lines byalso ~~NS Rail~~reach many ~~include: Norfolk~~individual industries, ~~Virginia;~~electric ~~Morehead~~generating ~~City~~facilities, ~~North~~mines ~~Carolina;~~(in ~~Charleston~~western Virginia , ~~South~~eastern ~~Carolina;~~Kentucky ~~Savannah~~, southern and ~~Brunswick~~northern West Virginia and western Pennsylvania ), ~~Georgia;~~distribution centers, transload facilities and other businesses located in smaller communities in its service area. The traffic corridors carrying the heaviest volumes of freight include those from the New York City area to Chicago (via Allentown and Pittsburgh ); Chicago to Jacksonville (via Cincinnati , ~~Florida~~Chattanooga and Atlanta ); ~~Baltimore~~Appalachian coal fields of Virginia , West ~~Maryland;~~Virginia ~~Philadelphia~~and Kentucky , ~~Pennsylvania/Camden~~to Norfolk , ~~New~~Virginia ~~Jersey;~~and ~~Wilmington~~Sandusky , ~~Delaware~~Ohio ; Cleveland to Kansas City ; and ~~the~~Knoxville ~~Ports~~to ofChattanooga . Chicago , ~~New~~Memphis ~~York~~, Sidney/~~New~~Salem, ~~Jersey. Gulf~~Illinois ~~Coast~~, ~~ports~~New ~~served~~Orleans ~~include~~, ~~Mobile~~Kansas City, ~~Alabama~~Buffalo , St. Louis and ~~New~~Meridian ~~Orleans~~, ~~Louisiana~~Mississippi are major gateways for interterritorial system traffic.

~~NS Rail’s~~Triple ~~lines~~Crown Operations ~~reach most of the larger industrial and trading centers of the Southeast, Northeast, Mid~~-~~Atlantic region~~ ~~and~~Triple ~~Midwest. Chicago~~Crown, Norfolk, Detroit, Atlanta, Metropolitan New York City, Jacksonville, Kansas City (Missouri), Baltimore, Buffalo, Charleston, Cleveland, Columbus, Philadelphia, Pittsburgh, Toledo, Greensboro, Charlotte and Savannah are among the leading centers originating and terminating freight traffic on the system. In addition, haulage arrangements with connecting carriers allow NS Rail's tointermodal ~~provide single-line service to and from additional markets~~subsidiary, ~~including haulage provided by~~offers ~~Florida East Coast Railway Company~~ door-to-door serve southern and eastern Florida, including the port cities of Miami, West Palm Beach and Fort Lauderdale; and haulage provided by The Kansas City Southern Railway Company to provide transcontinental intermodal service ~~via~~ ausing ~~connection~~RoadRailer ~~with~~® ~~the~~equipment ~~Burlington Northern~~ and ~~Santa Fe Railway Company. Service is provided to New England, including the~~domestic ~~Port of Boston, via haulage, trackage rights and interline arrangements with Canadian Pacific Railway Company and Guilford Transportation Industries~~containers. ~~The~~ RoadRailer ~~system’s~~® ~~lines~~units ~~also~~are ~~reach~~enclosed ~~many~~vans ~~individual~~that ~~industries,~~can ~~electric~~be ~~generating~~pulled ~~facilities,~~over ~~mines~~highways (in ~~western~~tractor-trailer ~~Virginia,~~configuration ~~eastern Kentucky, southern~~ and ~~northern~~over ~~West~~the ~~Virginia~~rails ~~and~~by ~~western Pennsylvania), distribution centers,~~locomotives. ~~transload~~ Triple ~~facilities~~Crown ~~and~~provides ~~other~~intermodal ~~businesses~~service ~~located~~ in ~~smaller~~major ~~communities in its service area. The~~ traffic corridors ~~carrying~~, ~~the~~including ~~heaviest volumes of freight include~~ those ~~from~~between the ~~New~~Midwest ~~York City area to Chicago (via Allentown~~ and ~~Pittsburgh);~~the ~~Chicago to Jacksonville (via Cincinnati~~Northeast, ~~Chattanooga~~the ~~and~~Midwest ~~Atlanta); Appalachian coal fields of Virginia, West Virginia~~ and ~~Kentucky, to Norfolk~~the ~~and Sandusky~~Southeast, ~~Ohio; Cleveland to Kansas City;~~ and ~~Knoxville~~the toMidwest ~~Chattanooga. Chicago, Memphis, Sidney/Salem, New Orleans, Kansas City, Buffalo, St. Louis~~ and ~~Meridian~~Texas ~~are major gateways for interterritorial system traffic~~.

~~The~~RAILWAY ~~following~~OPERATING ~~table~~REVENUES ~~sets~~- ~~forth certain statistics relating to~~ NS Rail’'s ~~operations~~total ~~for~~railway operating ~~the~~revenues ~~past~~were 5$7.2 ~~years,~~billion ~~including operations~~ in ~~the~~2004. ~~Northern Region that commenced June 1, 1999:~~

4COAL TRAFFIC - Coal, coke and iron ore -- most of which is bituminous coal -- is NS Rail's largest commodity group as measured by revenues. NS Rail handled a total of 181 million tons in 2004, most of which originated on NS Rail's lines in West Virginia , Virginia , Pennsylvania and Kentucky . Revenues from coal, coke and iron ore accounted for about 24% of NS Rail's total railway operating revenues in 2004.

Rail Operating Statistics
	Year Ended Dec. 31,
	2002	2001	2000	1999	1998
Revenue ton miles (billions)	179	182	197	167	135
Freight train miles traveled (millions)	72.6	70.0	74.4	61.5	53.0
Revenue per ton mile	$0.0341	$0.0330	$0.0304	$0.0310	$0.0316
Revenue ton miles per
man-hour worked	3,067	3,023	2,888	2,577	2,659
Percentage ratio of railway operating
expenses to railway operating revenues	84.1%	86.2%	91.8%	90.3%	75.5%

~~RAILWAY~~GENERAL ~~OPERATING~~Merchandise ~~REVENUES~~Traffic - General merchandise traffic is composed of five major commodity groupings: automotive; chemicals; metals and construction; agriculture, consumer products and government; and paper, clay and forest products. The automotive group includes finished vehicles for BMW, DaimlerChrysler, Ford Motor Company, General Motors, Honda, Isuzu, Jaguar, Land Rover, Mazda, Mercedes-Benz, ~~NS Rail’s~~Mitsubishi, ~~total~~Nissan, ~~railway~~Saab, ~~operating~~Subaru, ~~revenues~~Suzuki, ~~were~~Toyota and $6Volkswagen, and auto parts for Ford Motor Company, General Motors, Mercedes-Benz and Toyota .~~1 billion~~ The inchemicals ~~2002~~group includes sulfur and related chemicals, petroleum products, chlorine and bleaching compounds, plastics, rubber, industrial chemicals, chemical wastes and municipal wastes. ~~Revenue~~ The metals and construction group includes steel, ~~shipments~~aluminum products, machinery, scrap metals, cement, aggregates, bricks and ~~revenue~~minerals. The agriculture, ~~yield~~consumer byproducts ~~principal~~and ~~railway~~government ~~operating~~group ~~revenue~~includes ~~sources~~soybeans, wheat, corn, fertilizer, animal and poultry feed, food oils, flour, beverages, canned goods, sweeteners, consumer products, ethanol and items for the ~~past~~military. The ~~five~~paper, ~~years~~clay ~~are~~and ~~set~~forest ~~forth~~products group includes lumber and wood products, pulp board and paper products, wood fibers, wood pulp, scrap paper and clay. General merchandise carloads handled in ~~the~~2004 were 2.88 million, ~~following~~compared ~~table~~with 2.78 million handled in 2003, an increase of 4%. General merchandise revenues accounted for about 56% of NS Rail's total railway operation revenues.

	Year Ended Dec. 31,
Principal Sources of
Railway Operating Revenues		2002		2001		2000		1999		1998
(Revenues in millions, shipments in thousands, revenue yield in dollars per shipment)
COAL
Revenues	$	1,441	$	1,521	$	1,435	$	1,322	$	1,252
% of total revenues		24%		25%		24%		26%		29%
Shipments		1,610		1,695		1,687		1,519		1,310
% of total shipments		24%		26%		25%		25%		27%
Revenue Yield	$	895	$	897	$	850	$	870	$	955
AUTOMOTIVE
Revenues	$	961	$	885	$	921	$	746	$	577
% of total revenues		16%		15%		15%		15%		13%
Shipments		662		622		692		611		487
% of total shipments		10%		9%		10%		10%		10%
Revenue Yield	$	1,450	$	1,423	$	1,331	$	1,220	$	1,186
CHEMICALS
Revenues	$	769	$	752	$	756	$	641	$	492
% of total revenues		13%		13%		13%		12%		12%
Shipments		434		432		453		394		315
% of total shipments		6%		6%		6%		7%		7%
Revenue Yield	$	1,773	$	1,742	$	1,668	$	1,627	$	1,559
METALS/CONSTRUCTION
Revenues	$	692	$	674	$	689	$	567	$	375
% of total revenues		11%		11%		11%		11%		9%
Shipments		716		703		757		587		372
% of total shipments		11%		11%		11%		10%		8%
Revenue Yield	$	966	$	959	$	911	$	965	$	1,008

In 2004, 141 million tons of general merchandise freight, or approximately 67% of total general merchandise tonnage handled by NS Rail, originated online. The balance of general merchandise traffic was received from connecting carriers at interterritorial gateways. The principal interchange points for NS Rail-received traffic included Chicago , Memphis , New Orleans , Cincinnati , Kansas City, Detroit , Hagerstown , St. Louis/East St. Louis and Louisville .

5INTERMODAL TRAFFIC - The intermodal market consists of shipments moving in trailers, domestic and international containers, and Roadrailer ® equipment. These shipments are handled on behalf of intermodal marketing companies, international steamship lines, truckers and other shippers. Intermodal units handled in 2004 were 2.89 million, compared with 2.47 million handled in 2003, an increase of 17%. Intermodal revenues accounted for about 20% of NS Rail's total railway operating revenues.

	Year Ended Dec. 31,
Principal Sources of
Railway Operating Revenues		2002		2001		2000		1999		1998
(Revenues in millions, shipments in thousands, revenue yield in dollars per shipment)
AGR./CONSUMER
PRODUCTS/GOVT.
Revenues	$	623	$	603	$	609	$	539	$	468
% of total revenues		10%		10%		10%		10%		11%
Shipments		507		509		525		489		441
% of total shipments		8%		8%		8%		8%		9%
Revenue Yield	$	1,228	$	1,185	$	1,160	$	1,103	$	1,063
PAPER/CLAY/FOREST
Revenues	$	603	$	612	$	630	$	578	$	535
% of total revenues		10%		10%		11%		11%		13%
Shipments		438		450		491		465		445
% of total shipments		6%		7%		7%		8%		9%
Revenue Yield	$	1,378	$	1,357	$	1,285	$	1,243	$	1,202
INTERMODAL
Revenues	$	1,006	$	962	$	972	$	768	$	555
% of total revenues		16%		16%		16%		15%		13%
Shipments		2,354		2,214		2,242		1,896		1,443
% of total shipments		35%		33%		33%		32%		30%
Revenue Yield	$	427	$	435	$	434	$	405	$	385
TOTALS
Railway Operating Revenues	$	6,095	$	6,009	$	6,012	$	5,161	$	4,254
Railway Shipments		6,721		6,625		6,847		5,961		4,813
Railway Revenue Yield	$	907	$	907	$	878	$	866	$	884

FREIGHT RATES - In 2004, NS Rail continued its reliance on private contracts and exempt price quotes as the predominant pricing mechanism. Thus, a major portion of NS Rail's freight business is not currently economically regulated by the government. In general, market forces have been substituted for government regulation and now are the primary determinant of rail service prices. However, in 2004 there were significant coal movements moving under common carrier (tariff) rates that had previously moved under rates contained in transportation contracts. Beginning Jan. 1, 2002, coal moving to Duke Energy's (Duke) Belew's Creek, Allen, Buck and Dan River generating stations moved under common carrier rates and beginning April 1, 2002, coal moving to Carolina Power and Light's (CP&L) Hyco and Mayo plants moved under common carrier rates. In 2002, Duke and CP&L filed rate reasonableness complaints at the STB alleging that NS Rail's tariff rates for the transportation of coal were unreasonable. On Oct. 20, 2004 , in a consolidated decision the STB found NS Rail's rates to be reasonable in both cases. At the STB's invitation, Duke and CP&L have each initiated proceedings to determine whether phasing constraints should apply. Although management has made an estimate of the ultimate resolution of these cases, the uncertainty of future developments in the Duke case and (or) the CP&L case may result in adjustments that could have a favorable or unfavorable material impact on results of operations in a particular quarter or year. See the discussion of the rate cases in Part II, Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations."

~~COAL~~In ~~TRAFFIC - Coal~~2004, ~~coke~~NS Rail ~~and~~was ~~iron~~found ~~ore -- most~~by ofthe ~~which~~STB isnot ~~bituminous~~to ~~coal --~~be is"revenue ~~NS Rail’s~~adequate" ~~largest~~based ~~commodity~~on ~~group~~results asfor ~~measured~~the byyear ~~revenues~~2003. ~~NS Rail~~ A ~~handled~~railroad ais ~~total~~"revenue adequate" ofunder ~~170.4 million~~the ~~tons in~~applicable ~~2002,~~law ~~most~~when ofits ~~which~~return ~~originated~~ on NSnet ~~Rail’s~~investment ~~lines~~exceeds inthe rail ~~West~~industry's ~~Virginia,~~composite ~~Virginia,~~cost ~~Pennsylvania~~of ~~and Kentucky~~capital. ~~Revenues from~~ This ~~coal,~~determination ~~coke~~is ~~and~~made pursuant ~~iron~~to ~~ore~~statutory ~~accounted~~requirement ~~for~~and ~~about~~does ~~24%~~not ofadversely impact NS Rail’'s liquidity ~~total~~or ~~railway~~capital ~~operating revenues in 2002~~resources.

~~Coal~~PASSENGER OPERATIONS - Regularly scheduled passenger trains are operated by Amtrak on NS Rail's lines between Alexandria and New Orleans , ~~coke~~Louisiana ; between Greensboro and ~~iron~~Selma ~~ore~~, ~~tonnage~~North Carolina by; ~~market~~between ~~for~~Chicago ~~the~~, ~~past~~Illinois ~~five~~, ~~years~~and Detroit , Michigan ; and between Chicago and Harrisburg , Pennsylvania . Commuter trains are ~~set~~operated ~~forth~~on the NS Rail line between Manassas and Alexandria in accordance with contracts with two transportation commissions of the ~~following~~Commonwealth ~~table~~of Virginia . NS Rail also leases the Chicago to Manhattan , Illinois , line to the Commuter Rail Division of the Regional Transportation Authority of Northeast Illinois. NS Rail

Coal, Coke and Iron Ore Tonnage by Market
	Year Ended December 31,
	2002	2001	2000	1999	1998
	(tons in thousands)
Utility	127,747	132,325	119,284	107,381	83,225
Export	11,342	13,872	19,845	18,373	24,453
Steel	21,578	20,457	25,003	21,399	18,236
Industrial	9,733	11,377	10,781	10,348	8,382
	170,400	178,031	174,913	157,501	134,296

6operates lines on which Amtrak conducts regularly scheduled passenger operations. In addition, NS Rail provides freight service over lines with significant ongoing Amtrak and commuter passenger operations, and is conducting freight operations over some trackage owned by Amtrak or by New Jersey Transit, the Southeastern Pennsylvania Transportation Authority, Metro-North Commuter Railroad Company and Maryland DOT. Finally, passenger operations are conducted either by Amtrak or by the commuter agencies over trackage owned by Conrail in the Shared Assets Areas.

~~Total~~RAILWAY coal handled through all system ports in 2002 was 32 million tons. Of this total, 10 million tons (including coastwise traffic) moved through Lamberts Point, Virginia, 3 million tons moved through the Baltimore Terminal, 11 million tons moved to various docks on the Ohio River, and 8 million tons moved to various Lake Erie ports. Other than coal for export, virtually all coal handled by NS Rail was terminated in states east of the Mississippi River.PROPERTY

~~See~~The NS Rail system extends across 22 states, the ~~discussion~~District of Columbia ~~coal~~and ~~traffic~~portions of Canada . The railroad infrastructure makes the company capital intensive with total property of approximately $20 billion. Of the approximately 38,200 bytotal ~~type~~miles of ~~coal~~track operated, inNS ~~Part II~~Rail had responsibility for maintaining about 31,000 ~~Item 7~~miles of track with the remainder being operated under trackage rights. Over 75% of the main line trackage (including first, ~~“Management’s~~second, ~~Discussion~~third and branch main tracks, all excluding trackage ~~Analysis~~rights) has rail ranging from 131 to 155 pounds per yard with the standard installation currently at 141 pounds per yard.” Approximately 40% of NS Rail's lines carried 20 million or more gross tons per track mile.

GENERAL Merchandise Traffic - General merchandise traffic is composed of five major commodity groupings: automotive; chemicals; metals and construction; agriculture, consumer products and government; and paper, clay and forest products. The ~~automotive~~following ~~group~~table ~~includes~~summarizes ~~finished~~certain ~~vehicles~~information ~~for~~about ~~BMW, Daimler Chrysler, Ford Motor Company,~~track ~~General~~roadway ~~Motors,~~additions ~~Honda, Isuzu, Jaguar, Land Rover, Mazda, Mercedes-Benz, Mitsubishi, Nissan, Saab, Subaru, Suzuki, Toyota~~ and ~~Volkswagen,~~ ~~and~~replacements ~~auto~~during parts for Ford Motor Company, General Motors, Mercedes-Benz and Toyota. The chemicals group includes sulfur and related chemicals, petroleum products, chlorine and bleaching compounds, plastics, rubber, industrial chemicals, chemical wastes and municipal wastes. The metals and construction group includes steel, aluminum products, machinery, scrap metals, cement, aggregates, bricks and minerals. The agriculture, consumer products and government group includes soybeans, wheat, corn, fertilizer, animal and poultry feed, food oils, flour, beverages, canned goods, sweeteners, consumer products and items for the ~~military. The~~past ~~paper,~~five clay and forest products group includes lumber and wood products, pulpboard and paper products, woodfibers, woodpulp, scrap paper and clay. General merchandise carloads handled in 2002 were 2.76 million, compared with 2.72 million handled in 2001, an increase of 2%.years:

In 2004 2003 2002, ~~134 million~~ 2001 ~~tons~~ 2000 of Track miles ~~general merchandise freight, or approximately 67%~~ of ~~total~~rail ~~general~~installed ~~merchandise~~ 246 ~~tonnage~~ 233 ~~handled~~ by 235 ~~NS Rail,~~ 254 ~~originated~~ 390 ~~online. The balance~~ Miles of ~~general~~track ~~merchandise~~surfaced ~~traffic was received from connecting carriers at~~ ~~interterritorial~~ 5,055 ~~gateways. The principal interchange points for NS Rail-received traffic included Chicago~~ 5,105 ~~Memphis~~ 5,270 ~~New~~ ~~Orleans~~ 3,836 ~~Cincinnati~~ 3,687 ~~Kansas~~ New crossties ~~City,~~installed ~~Detroit,~~(millions) ~~Hagerstown,~~ 2.5 St 2. ~~Louis/East St~~8 2. ~~Louis~~8 ~~and~~ 1.5 ~~Louisville~~ 1.5

~~See~~6 ~~the discussion of general merchandise rail traffic by commodity group in Part II, Item 7, “Management’s Discussion and Analysis.”~~

~~INTERMODAL~~Equipment ~~TRAFFIC~~ - ~~The~~As ~~intermodal market consists~~ of ~~shipments~~Dec. ~~moving in trailers~~31, ~~domestic~~2004 ~~and international containers~~, ~~and~~NS Rail ~~Roadrailer®~~owned ~~equipment. These shipments are handled on behalf of intermodal marketing companies,~~or ~~international~~leased ~~steamship~~the ~~lines,~~following ~~truckers and other shippers. Intermodal~~ units ~~handled in 2002 were 2.35 million, compared with 2.21 million handled in 2001, an increase~~ of ~~6%.~~equipment:

~~See~~ Number ~~the~~of ~~discussion~~Units Capacity Owned* Leased** Total of ~~intermodal~~Equipment ~~traffic~~ Locomotives: (Horsepower) in Multiple purpose ~~Part~~ 3,323 II 151 3,474 ~~Item~~ 11,902,650 7 Switching 207 -- 207 303,700 ~~“Management’s~~ Auxiliary units ~~Discussion~~ 74 -- 74 -- Total locomotives 3,604 151 3,755 12,206,350 Freight cars: (Tons) Hopper 19,911 822 20,733 2,183,236 Box 18,712 2,175 20,887 1,641,530 Covered hopper 9,399 2,678 12,077 1,316,489 Gondola 30,300 8,010 38,310 4,093,691 Flat 2,928 1,342 4,270 328,376 Caboose 251 -- 251 -- Other 3,701 -- 3,701 184,599 Total freight cars 85,202 15,027 100,229 9,747,921 Other: Work equipment 5,612 3 5,615 Vehicles 4,761 -- 4,761 Highway trailers and ~~Analysis~~ containers 877 9,987 10,864 Roadrailer ® 6,498 -- 6,498 Miscellaneous 1,546 16,256 17,802 Total other 19,294 26,246 45,540 * Includes equipment leased to outside parties and equipment subject to equipment trusts, conditional sale agreements and capitalized leases.” ** Includes 18 locomotives and 6,813 freight cars leased from CRC.

~~FREIGHT~~As ~~RATES~~of -Dec. 31, In2004 ~~2002~~, ~~NS Rail continued its reliance on private contracts and exempt price quotes as~~ the ~~predominant~~ ~~pricing~~average ~~mechanism. Thus,~~age ~~a major portion~~ of ~~NS Rail’s~~the ~~freight business is not currently economically~~locomotive ~~regulated~~fleet bywas ~~the government~~16. In8-- years. During ~~general~~2004, ~~market~~50 ~~forces~~locomotives, ~~have been substituted for government regulation and now are~~ the ~~primary~~ ~~determinant~~average age of ~~rail~~which ~~service~~was ~~prices~~22. ~~However~~9 years, ~~in 2002 there~~ were ~~significant~~retired. The ~~coal~~average ~~movements~~age ~~moving~~of ~~under common carrier~~the ~~(tariff)~~freight ~~rates~~car ~~which~~fleet ~~had~~at ~~previously moved under rates contained in transportation contracts~~Dec. ~~Beginning Jan. 1~~ 31, ~~2002,~~2004 ~~coal moving to Duke Energy’s (Duke) Belew’s Creek~~, ~~Allen,~~was ~~Buck and Dan River generating stations moved under common carrier~~27.6 years. Between ~~rates~~1988 and ~~beginning April 1~~2000, ~~2002,~~about 29,000 coal ~~moving~~cars towere ~~Carolina~~rebodied ~~Power~~. As ~~and~~a ~~Light’s~~result, the ~~(CP&L)~~remaining ~~Hyco~~serviceability ~~and~~of ~~Mayo~~the ~~plants~~freight ~~moved~~car ~~under common~~fleet ~~carrier~~is ~~rates. Duke~~greater ~~and~~than ~~CP&L~~may ~~have~~be inferred ~~challenged~~from the ~~reasonableness~~average age of ~~these~~the ~~common~~fleet. During ~~carrier rates in proceedings~~2004, ~~currently~~1,829 freight ~~pending~~cars ~~before~~were ~~the Surface Transportation Board~~retired.

In Annual ~~2002,~~Average ~~NS Rail~~Bad ~~was~~Order ~~found~~Ratio by 2004 ~~the~~ 2003 ~~STB~~ 2002 ~~not~~ 2001 to 2000 be Freight cars ~~“revenue~~(excluding ~~adequate”~~cabooses): ~~based~~ NS onRail ~~results~~ 7.4% ~~for~~ 7.4% ~~the~~ 8.1% ~~year~~ 6.9% ~~2001~~ 5. A7% ~~railroad~~ Locomotives: NS isRail ~~“revenue~~ 6.3% ~~adequate”~~ 6.2% ~~under~~ 6.3% ~~the~~ 5.8% ~~applicable~~ 5.5% ~~law when its return on net investment exceeds the~~

7Ongoing freight car and locomotive maintenance programs are intended to ensure the highest standards of safety, reliability, customer satisfaction and equipment marketability. The freight car bad order ratio rose in 2000, 2001 and 2002 as a result of decreased maintenance activity. The decline in 2003 reflected an increase in maintenance activity as well as the retirement of unserviceable units. The locomotive bad order ratio includes units out of service for required inspections every 92 days and program work such as overhauls. The elevated ratio through 2004 reflected units out of service related to the resumption of maintenance and modification activities.

~~rail~~Encumbrances ~~industry’s~~- ~~composite~~Certain ~~cost~~railroad ofequipment ~~capital.~~is ~~This~~subject ~~determination~~to the isprior ~~made~~lien ~~pursuant~~of toequipment ~~statutory~~financing ~~requirement~~obligations ~~and~~amounting ~~does~~to ~~not~~approximately ~~adversely~~$930 ~~impact~~million NSas ~~Rail’s~~of ~~liquidity~~Dec. or31, ~~capital~~2004 ~~resources~~, and $880 million as of Dec. 31, 2003 .

~~PASSENGER~~7 OPERATIONS - Regularly scheduled passenger trains are operated by Amtrak on NS Rail’s lines between Alexandria and New Orleans, and between Greensboro and Selma, North Carolina. Commuter trains are operated on the NS Rail line between Manassas and Alexandria in accordance with contracts with two transportation commissions of the Commonwealth of Virginia. NS Rail also leases the Chicago to Manhattan, Illinois, line to the Commuter Rail Division of the Regional Transportation Authority of Northeast Illinois. Since June 1, 1999, Norfolk Southern Railway Company has operated former Conrail lines on which Amtrak conducts regularly scheduled passenger operations between Chicago, Illinois, and Detroit, Michigan, and between Chicago and Harrisburg, Pennsylvania.

~~Also~~Microwave ~~since~~System - The ~~June~~NS Rail 1microwave system, ~~1999,~~consisting ~~through its operation~~ of ~~PRR’s~~approximately ~~routes~~7,400 radio ~~Norfolk~~route ~~Southern~~miles, ~~Railway has been providing freight~~423 core ~~service~~stations, ~~over~~14 ~~former~~secondary ~~Conrail~~stations ~~lines with significant ongoing Amtrak~~ and ~~commuter~~5 passive ~~passenger~~repeater ~~operations~~stations, ~~and is conducting freight~~provides ~~operations~~communications ~~over~~between ~~some~~most ~~trackage~~operating ~~owned~~locations. The bymicrowave ~~Amtrak~~system oris used byprimarily ~~New~~for ~~Jersey~~voice ~~Transit~~communications, ~~the~~VHF ~~Southeastern~~radio ~~Pennsylvania~~control ~~Transportation Authority~~circuits, ~~Metro-North~~ ~~Commuter~~data ~~Railway Company~~ and ~~Maryland DOT. Finally, passenger operations are conducted either by Amtrak or by the~~ ~~commuter~~facsimile ~~agencies over trackage owned by Pennsylvania Lines LLC~~transmissions, ortraffic bycontrol ~~Conrail~~operations inand ~~the~~AEI ~~Shared Assets Areas~~data transmissions.

~~RAILWAY~~Traffic ~~PROPERTY~~Control - Of the approximately 16,400 route miles owned by NS Rail, 11,052 miles are signalized, including 8,030 miles of centralized traffic control (CTC) and 3,022 miles of automatic block signals. Of the 8,030 miles of CTC, 2,565 miles are controlled by data radio originating at 197 base radio sites.

~~The~~Computers - A NScomputer ~~Rail~~network consisting of a centralized data center in Atlanta , Georgia , and various distributed computers throughout the company connects the yards, terminals, transportation offices, rolling stock repair points, sales offices and other key system ~~extends~~locations. Operating ~~across~~and 22traffic ~~states~~data are processed and ~~portions~~stored to provide customers with information on their shipments throughout the system. Computer systems provide current information on the location of ~~Canada~~every train and each car on line, as well as related waybill and other train and car movement data. ~~The~~In ~~railroad~~addition, ~~infrastructure~~the ~~makes~~computer ~~the~~systems ~~company~~are ~~very~~utilized to assist management in ~~capital~~the ~~intensive~~performance ~~with~~of ~~total~~a ~~property~~variety of ~~approximately~~functions ~~$11~~and ~~billion~~services including payroll, car and revenue accounting, billing, material management activities and controls, and special studies.

~~Capital~~Environmental ~~Expenditures~~Matters - ~~Capital~~Compliance ~~expenditures~~with ~~for~~federal, ~~road~~state and local laws and ~~equipment~~regulations ~~for~~relating to the ~~past~~protection ~~five~~of ~~years~~the ~~were~~environment asis a ~~follows~~principal ~~(including~~NS Rail goal. To date, such compliance has not affected ~~capitalized~~materially ~~leases):~~NS Rail's capital additions, earnings, liquidity or competitive position. See the discussion of "Environmental Matters" in Part II, Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations," and in Note 16 to the Consolidated Financial Statements.

	Capital Expenditures
		2002		2001		2000		1999		1998
	($ in millions)
Road	$	495	$	462	$	518	$	559	$	583
Equipment		172		263		110		356		419
Total	$	667	$	725	$	628	$	915	$	1,002

Employees - NS Rail employed an average of 28,057 railroad employees in 2004, compared with an average of 28,363 employees in 2003 (including NS' employees who provide management services to NS Rail). The approximate average cost per employee during 2004 was $59,000 in wages and $28,000 in employee benefits.

~~Capital~~Substantially ~~spending~~all ~~and~~of ~~maintenance~~NS Rail's ~~programs~~non-management ~~are~~employees ~~and have been designed to assure the ability to provide safe, efficient and~~are ~~reliable~~covered ~~transportation~~by ~~services. For~~collective ~~2003,~~bargaining NSagreements ~~Rail~~with ~~has budgeted almost $800~~14 ~~million~~different oflabor ~~capital spending~~unions. See the discussion ~~following~~of ~~“Cash~~"Labor ~~used~~Agreements" ~~for investing activities,”~~ in Part II, Item 7, “ "Management’'s Discussion and Analysis of Financial Condition and Results of Operations.”"

8GOVERNMENT REGULATION - In addition to environmental, safety, securities and other regulations generally applicable to all businesses, NS Rail is subject to regulation by the STB. The STB has jurisdiction over some rates, routes, conditions of service and the extension or abandonment of rail lines. The STB also has jurisdiction over the consolidation, merger or acquisition of control of and by rail common carriers. The Department of Transportation regulates certain track and mechanical equipment standards.

~~Equipment~~The -relaxation Asof economic regulation of ~~Dec~~railroads, begun over two decades ago under the Staggers Rail Act of 1980 has continued. Significant 31exemptions are TOFC/COFC (i.e., ~~2002~~"piggyback") business, rail boxcar traffic, lumber, manufactured steel, automobiles and certain bulk commodities such as sand, gravel, pulpwood and wood chips for paper manufacturing. Transportation contracts on regulated shipments effectively remove those shipments from regulation as well. About 75% of NS Rail's ~~owned~~freight revenues orcome ~~leased~~from ~~the~~either ~~following~~exempt ~~units~~traffic ofor ~~equipment:~~traffic moving under transportation contracts.

	Number of Units				Capacity
		Owned*	Leased**	Total	of Equipment
Locomotives:					(Horsepower)
Multiple purpose		2,259	1,001	3,260	10,959,200
Switching		105	102	207	302,800
Auxiliary units		59	18	77	--
Total locomotives		2,423	1,121	3,544	11,262,000
Freight cars:					(Tons)
Hopper		18,568	5,036	23,604	2,486,500
Box		17,184	4,438	21,622	1,687,530
Covered hopper		9,956	3,097	13,053	1,423,216
Gondola		27,618	11,077	38,695	4,148,497
Flat		3,420	1,485	4,905	363,566
Caboose		169	57	226	--
Other		212	--	212	17,363
Total freight cars		77,127	25,190	102,317	10,126,672
Other:
Work equipment		4,619	1,584	6,203
Vehicles		3,529	1,063	4,592
Highway trailers and
containers		881	7,397	8,278
Miscellaneous		1,431	10,185	11,616
Total other		10,460	20,229	30,689
* Includes equipment leased to outside parties and equipment subject to equipment trusts, conditional sale agreements and capitalized leases.
** Includes locomotives, freight cars and units of other equipment leased from PRR.

Efforts may be made in 2005 to re-subject the rail industry to unwarranted federal economic regulation. The Staggers Rail Act of 1980, which substantially reduced such regulation, encouraged and enabled rail carriers to innovate and to compete for business, thereby contributing to the economic health of the nation and to the revitalization of the industry. Accordingly, NS Rail will oppose efforts to reimpose unwarranted economic regulation.

~~The~~Competition ~~following~~- ~~table~~There ~~indicates~~is ~~the~~continuing ~~number~~strong competition among rail, water and ~~year~~highway ~~built~~carriers. Price ~~for~~is ~~locomotives~~usually only one factor of importance as shippers and ~~freight~~receivers ~~cars~~choose ~~owned~~a attransport ~~Dec~~mode and specific hauling company. 31 Inventory carrying costs, ~~2002:~~service reliability, ease of handling and the desire to avoid loss and damage during transit are also important considerations, especially for higher-valued finished goods, machinery and

	Year Built
						1993-	1988-	1987 &
	2002	2001	2000	1999	1998	1997	1992	Before	Total
Locomotives:
No. of units	--	160	60	147	119	420	257	1,260	2,423
% of fleet	--	7%	2%	6%	5%	17%	11%	52%	100%
Freight cars:
No. of units	--	--	112	514	1,166	4,015	5,368	65,952	77,127
% of fleet	--	--	--	1%	1%	5%	7%	86%	100%

Asconsumer ~~of Dec~~products. ~~31,~~ Even ~~2002,~~for ~~the~~raw ~~average age of the locomotive fleet was 16.1 years. During 2002~~materials, 52semifinished ~~locomotives,~~goods ~~the~~and ~~average age of which was 28.2 years~~work-in-process, ~~were~~users ~~retired. The~~are ~~average~~increasingly ~~age~~sensitive ofto ~~the~~transport arrangements ~~freight~~that ~~car~~minimize ~~fleet~~problems at ~~Dec. 31,~~ ~~2002,~~successive ~~was~~production 26stages.~~6 years. During 2002, 3,013 freight cars were retired.~~

~~Since~~NS Rail's ~~1988,~~primary ~~about~~rail ~~29,000 coal~~competitor ~~cars~~is ~~have~~the ~~been~~CSX ~~rebodied. As~~system; aboth operate ~~result,~~throughout much of the ~~remaining~~same ~~serviceability~~territory. Other railroads also operate in parts of the ~~freight~~territory. NS Rail ~~car fleet~~also iscompetes ~~greater~~with ~~than~~motor carriers, ~~may~~water becarriers ~~inferred~~and ~~from~~shippers who have the ~~high~~additional ~~percentage~~option of ~~freight~~handling their ~~cars~~own ~~built~~goods in ~~earlier~~private ~~years~~carriage.

9Certain marketing strategies among railroads and between railroads and motor carriers enable carriers to compete more effectively in specific markets.

	Annual Average Bad Order Ratio
	2002	2001	2000	1999	1998
Freight cars (excluding cabooses):
NS Rail	8.1%	6.9%	5.7%	3.7%	4.1%
Locomotives:
NS Rail	6.3%	5.8%	5.5%	5.3%	4.3%

Item 3. Legal Proceedings .

~~Ongoing freight car and locomotive maintenance programs are intended to ensure the highest standards of safety, reliability, customer satisfaction and equipment marketability~~None. In past years, the freight car bad order ratio reflected the storage of certain types of cars that were not in high demand. The ratio rose in 2000, 2001 and 2002 as a result of decreased maintenance activity. A review began in 2002 to address several hundred unserviceable, overage and commercially obsolete freight cars, which will likely result in their disposition in 2003. The locomotive bad order ratio includes units out of service for required inspections every 92 days and program work such as overhauls. The increase in the locomotive bad order ratio in 1999 was primarily due to the maintenance requirements of units being rented to meet short-term needs and to weather-related failures. The ratio rose slightly in 2000 as maintenance activities were curtailed in response to a slowing economy. The elevated ratio through 2001 and 2002 reflected units out of service related to the resumption of maintenance and modification activities.

~~Track~~Item ~~Maintenance - Of the approximately 38,500 total miles of track operated, NS Rail had responsibility for maintaining about 31,000 miles of track with the remainder being operated under trackage rights~~4. ~~Over~~ ~~75%~~Submission of ~~the~~Matters ~~main line trackage (including first, second, third and branch main tracks, all excluding trackage rights) has rail ranging from 131~~ to ~~155~~a ~~pounds~~Vote ~~per yard with the standard installation currently at 141 pounds per yard. Approximately 40%~~ of NSSecurity ~~Rail’s~~Holders ~~lines carried 20 million or more gross tons per track mile~~.

The ~~following~~information ~~table~~called ~~summarizes~~for ~~certain~~by ~~information~~Item ~~about~~4 ~~track~~is ~~roadway~~omitted ~~additions~~in ~~and~~accordance with ~~replacements~~General ~~during~~Instruction ~~the~~( ~~past~~I ~~five years:~~)( 2)(c).

	2002	2001	2000	1999	1998
Track miles of rail installed	235	254	390	403	429
Miles of track surfaced	5,270	3,836	3,687	5,087	4,715
New crossties installed (millions)	2.8	1.5	1.5	2.3	2.0

~~Microwave~~PART ~~System - The~~II NS Rail microwave system, consisting of 7,282 radio route miles, 442 active stations and 4 passive repeater stations, provides communications between most operating locations. The microwave system is used primarily for voice communications, VHF radio control circuits, data and facsimile transmissions, traffic control operations and AEI data transmissions.

~~Traffic~~Norfolk ~~Control - Of~~Southern aRailway ~~total~~Company ofand ~~21,500 road~~Subsidiaries ~~miles operated by~~ (NS ~~Rail, excluding trackage rights over~~ ~~foreign lines, 11,511 miles are signalized, including 8,546 miles of centralized traffic control (CTC~~Rail) ~~and 2,965 miles of automatic block signals. Of the 8,546 miles of CTC, 1,895 miles are controlled by data radio originating at 148 base radio sites.~~

~~Computers - A~~Item computer network consisting of a centralized data center in Atlanta, Georgia, and various distributed computers throughout the company connects the yards, terminals, transportation offices, rolling stock repair points, sales offices and other key system locations5. ~~Operating~~ ~~and~~Market ~~traffic~~for ~~data are processed and stored to provide customers with information on their shipments throughout~~ the ~~system. Computer~~Registrant's ~~systems~~Common ~~provide~~Equity ~~current information on the location of every train~~ and ~~each~~Related ~~car~~Stockholder onMatters ~~line, as well as related waybill and other train and car movement data~~. In addition, the computer systems are utilized to assist management in the performance of a variety of functions and services including payroll, car and revenue accounting, billing, material management activities and controls, and special studies.

10COMMON STOCK

~~Other~~Since -June ~~The~~1, ~~railroads~~1982 ~~have~~, ~~extensive~~NS ~~facilities~~has ~~for~~owned ~~support~~all ofthe ~~operations,~~common ~~including~~stock ~~freight depots, car construction~~of ~~shops,~~Norfolk ~~maintenance~~Southern ~~shops,~~Railway ~~office~~Company. The ~~buildings,~~common ~~and~~stock ~~signals~~is ~~and~~not ~~communications facilities~~publicly traded.

~~Encumbrances~~Item ~~- Certain railroad equipment is subject to the prior lien of equipment financing obligations amounting to approximately $820 million as of Dec~~6. ~~31,~~Selected ~~2002,~~Financial ~~and~~Data ~~$834 million as of Dec~~. ~~31, 2001.~~

~~Environmental~~The information ~~Matters~~called -for ~~Compliance~~by ~~with~~Item ~~federal,~~6 ~~state and local laws and regulations relating to the protection of the environment~~ is aomitted ~~principal~~in ~~NS Rail~~accordance ~~goal. To~~with ~~date, such compliance has not affected materially NS Rail’s~~General ~~capital~~Instruction ~~additions,~~( ~~earnings,~~I ~~liquidity~~)( ~~or competitive position~~2)(a). ~~See~~ ~~the discussion of “Environmental Matters” in Part II, Item 7, “Management’s Discussion and Analysis,” and in Note 16 to the Consolidated Financial Statements.~~

~~Employees~~10 - NS Rail employed an average of 28,587 employees in 2002, compared with an average of 30,510 employees in 2001, (including NS’ employees who provide management services to NS Rail). The decrease reflects NS Rail’s continuous drive to operate more efficiently, accompanied by railroad retirement legislation late in 2001, which lowered the retirement age for rail employees. The approximate average cost per employee during 2002 was $54,000 in wages and $24,000 in employee benefits.

~~Substantially~~Item ~~all~~7. ~~of NS Rail’~~Management's ~~non-management~~Discussion ~~employees~~and ~~are~~Analysis ~~covered~~of byFinancial ~~collective~~Condition ~~bargaining~~and ~~agreements~~Results ~~with 15 different labor unions. See the discussion~~ of ~~“Labor~~Operations ~~Agreements” in Part II, Item 7, “Management’s Discussion and Analysis~~.”

~~GOVERNMENT~~The ~~REGULATION~~information -called Infor ~~addition~~by toItem ~~environmental,~~7 ~~safety,~~is ~~securities~~omitted ~~and~~in ~~other regulations generally applicable to~~accordance ~~all~~with ~~businesses,~~General ~~NS Rail~~Instruction is( ~~subject~~I to)( ~~regulation by the STB~~2)(a). However, ~~which~~pursuant ~~succeeded~~to the ~~ICC on Jan. 1, 1996. The STB has~~same ~~jurisdiction over some rates~~instructions, ~~routes, conditions of service and~~ the ~~extension~~registrant orprovides ~~abandonment~~herein ofmanagement's ~~rail~~narrative ~~lines. The~~analysis ~~STB also has~~of ~~jurisdiction over~~ the ~~consolidation,~~results ~~merger or acquisition~~ of ~~control of and by rail common carriers~~operations. ~~The Department of Transportation regulates certain track and mechanical equipment standards.~~

~~The relaxation of economic regulation of railroads, begun over two decades ago by the ICC under the Staggers Rail Act of 1980,~~MANAGEMENT'S ~~has~~NARRATIVE ~~continued~~ANALYSIS ~~under~~OF ~~the~~THE ~~STB. Significant~~RESULTS ~~exemptions~~OF ~~are~~OPERATIONS TOFC/COFC (i.e., “piggyback”) business, rail boxcar traffic, lumber, manufactured steel, automobiles and certain bulk commodities such as sand, gravel, pulpwood and wood chips for paper manufacturing. Transportation contracts on regulated shipments effectively remove those shipments from regulation as well. About 80% of NS Rail’s freight revenues come from either exempt traffic or traffic moving under transportation contracts.

~~Efforts~~The following ~~may~~analysis should be ~~made~~read in ~~2003~~conjunction towith ~~re-subject~~ the ~~rail~~Consolidated ~~industry to unwarranted federal economic regulation. The Staggers Rail Act of~~Financial ~~1980,~~Statements ~~which substantially reduced such regulation, encouraged~~ and ~~enabled~~Notes ~~rail carriers to innovate and to compete for business, thereby contributing to the economic health of the nation and to the revitalization of the industry~~thereto. ~~Accordingly, NS Rail~~ ~~will oppose efforts to reimpose unwarranted economic regulation.~~

~~Competition~~SUMMARIZED -RESULTS ~~There~~OF isOPERATIONS continuing strong competition among rail, water and highway carriers. Price is usually only one factor of importance as shippers and receivers choose a transport mode and specific hauling company. Inventory carrying costs, service reliability, ease of handling and the desire to avoid loss and damage during transit are also important considerations, especially for higher-valued finished goods, machinery and consumer products. Even for raw materials, semifinished goods and work-in-process, users are increasingly sensitive to transport arrangements that minimize problems at successive production stages.

112004 Compared with 2003

~~NS Rail’s~~Net ~~primary~~income ~~rail~~was ~~competitor~~$772 ismillion ~~the~~in ~~CSX~~2004, ~~system;~~up ~~both~~$285 ~~operate~~million, ~~throughout~~or ~~much~~59%, compared with net income of ~~the~~$487 ~~same~~million ~~territory~~in 2003. ~~Other~~ Results in 2003 ~~railroads~~included ~~also~~a ~~operate~~$104 inmillion ~~parts~~benefit ofrelated to the ~~territory~~cumulative effect of changes in accounting principles (see Note 1). ~~NS Rail~~ Income ~~also~~before ~~competes~~accounting ~~with~~changes ~~motor~~was $772 ~~carriers~~million, ~~water~~up ~~carriers~~$389 million, ~~and~~or 102%, compared with $383 million in 2003. ~~shippers~~ The ~~who~~increase ~~have~~was the ~~additional~~result ~~option~~of higher income from railway operations. In addition, the comparison was affected by the costs of ~~handling~~a ~~their~~voluntary separation ~~own~~program ~~goods~~(see inNote 13) ~~private~~which ~~carriage~~reduced income by $107 million in 2003.

~~Certain~~DETAILED ~~marketing~~RESULTS ~~strategies~~OF ~~between~~OPERATIONS ~~railroads and between railroads and motor carriers enable carriers to compete more effectively in specific markets.~~

~~Item~~Railway 3.Operating ~~Legal~~Revenues ~~Proceedings.~~

~~None~~Railway operating revenues were $7.2 billion in 2004. The following table presents a two-year comparison of revenues by market group (prior year amounts have been reclassified to conform to the current market groupings).

~~Item~~ Revenues 4.by ~~Submission~~Market ofGroup ~~Matters~~ 2004 to 2003 a ($ ~~Vote~~in ofmillions) ~~Security~~ Coal $ ~~Holders.~~ 1,728 $ 1,500 General merchandise: Automotive 954 936 Chemicals 864 772 Metals/construction 818 699 Agriculture/consumer products/ government 727 688 Paper/clay/forest 684 634 General merchandise 4,047 3,729 Intermodal 1,401 1,061 Total $ 7,176 $ 6,290

~~There~~In ~~were~~2004, norevenues ~~matters~~increased ~~submitted~~14%, toreflecting a ~~vote~~32% improvement in intermodal revenues (which includes all of ~~security~~Triple ~~holders~~Crown's ~~during~~revenues as of Aug. 27, 2004 - see Note 2), a 9% rise in general merchandise revenues, and a 15% increase in coal revenues. All general merchandise market groups except automotive posted volume increases over 2003. As shown in the ~~fourth~~following ~~quarter~~table, the revenue improvement was the result of ~~2002~~higher traffic volumes and increased average revenues. The favorable revenue per unit/mix variance was driven by higher average revenue per

~~Executive~~11 ~~Officers of the Registrant.~~

~~Norfolk~~unit ~~Southern~~that ~~Railway’s~~reflected ~~executive~~higher ~~officers~~rates ~~generally are elected~~ and ~~designated~~increased ~~annually~~fuel ~~by the Board of Directors at its first meeting held after the annual meeting of stockholders~~surcharges, ~~and they hold office until their successors are elected.~~ ~~Executive~~offset ~~officers~~in ~~also~~part ~~may~~by ~~be elected and designated throughout~~ the ~~year~~effects ~~as the Board~~ of ~~Directors~~a ~~considers~~17% ~~appropriate. There~~increase ~~are~~in nolower-priced ~~family relationships among the officers, nor any arrangement or understanding between any officer and any other person~~intermodal ~~pursuant~~traffic ~~to which the officer was selected~~volume. ~~The following table sets forth certain information, as of Feb. 1, 2003, relating to the executive officers:~~

Name, Age, Present Position	Business Experience During Past Five Years
David R. Goode, 62,	Present position since September 1992. Also, Chairman,
President and	President, and Chief Executive Officer of Norfolk Southern
Chief Executive Officer	Corporation since September 1992.
L. I. Prillaman, 59,	Present position since May 2000. Also, Vice Chairman and Chief
Vice President	Marketing Officer of Norfolk Southern Corporation since
	August 1998. Served as Vice President and Chief Marketing
	Officer of Norfolk Southern Railway Company from August
	1998 to May 2000, and prior thereto was Vice President and
	Chief Traffic Officer of Norfolk Southern Railway and
	Executive Vice President Marketing of Norfolk Southern
	Corporation.
Stephen C. Tobias, 58,	Present position since May 2000. Also, Vice Chairman and Chief
Vice President	Operating Officer of Norfolk Southern Corporation since
	August 1998. Served as Vice President and Chief Operating
	Officer of Norfolk Southern Railway Company from August
	1998 to May 2000, and prior thereto was Vice President of
	Norfolk Southern Railway Company and Executive Vice
	President Operations of Norfolk Southern Corporation.

Revenue Variance Analysis
Increases (Decreases)
	2004 vs. 2003
	($ in millions)

Volume	$	553
Revenue per unit/mix		333
Total	$	886

12COAL revenues increased $228 million, or 15%, versus 2003. Traffic volume (carloads) increased 5% primarily due to higher export, utility and metallurgical coal volumes, which offset declines in coke and iron ore. Revenue per unit increased 10%, reflecting higher rates, fuel surcharges, a favorable change in the mix of traffic (the rate of increase in longer haul traffic exceeded that of short haul traffic) and improved loading productivity (increased tons per car). Coal, coke and iron ore represented 24% of total railway operating revenues in 2004, and 83% of NS Rail's coal shipments originated on lines it operates.

Henry C. Wolf, 60,	Present position since May 2000. Also, Vice Chairman and Chief
Vice President	Financial Officer of Norfolk Southern Corporation since August
	1998. Served as Vice President Finance of Norfolk Southern
	Railway Company from August 1998 to May 2000, and prior
	thereto was Vice President and Chief Financial Officer of
	Norfolk Southern Railway Company and Executive Vice
	President Finance of Norfolk Southern Corporation.
John F. Corcoran, 62,	Present position since July 2001. Also, Senior Vice President
Vice President	Public Affairs of Norfolk Southern Corporation since August
	1997.
John W. Fox, Jr., 55,	Present position since May 2000. Also, Senior Vice President
Vice President	Coal Services of Norfolk Southern Corporation since April
	2001. Served as Senior Vice President Coal Marketing from
	December 1999 to April 2001, and prior thereto was Vice
	President Coal Marketing.
James A. Hixon, 49,	Present position since May 2000. Also, Senior Vice President
Vice President	Administration of Norfolk Southern Corporation since February
	2000. Served as Senior Vice President Employee Relations
	from November 1999 to February 2001, and prior thereto was
	Vice President Taxation.
Henry D. Light, 62,	Present position since May 2000. Also, Senior Vice President
Vice President	Law of Norfolk Southern Corporation since January 2002.
	Served as Vice President Law of Norfolk Southern Corporation
	from April 2000 to January 2002, and prior thereto was General
	Counsel Operations.
James W. McClellan, 63, Vice President	Present position since May 2000. Also, Senior Vice President Planning of Norfolk Southern Corporation since August 1998. Served as Vice President Planning of Norfolk Southern Railway Company from June 1999 to May 2000; Senior Vice President Planning from August 1998 to June 1999; and prior thereto was Vice President Strategic Planning.
Kathryn B. McQuade, 46,	Present position since May 2000. Also, Senior Vice President
Vice President	Financial Planning of Norfolk Southern Corporation since April
	2000. Served as Vice President Financial Planning of Norfolk
	Southern Corporation and Norfolk Southern Railway Company
	since August 1998, and prior thereto was Vice President
	Internal Audit.
Charles W. Moorman, 51,	Present position since May 2000. Also, Senior Vice President
Vice President	Corporate Services since February 1, 2003, and President
	Thoroughbred Technology and Telecommunications, Inc. of
	Norfolk Southern Corporation since October 1999, and prior
	thereto was Vice President Information Technology.
John P. Rathbone, 51,	Present position since December 1992. Also, Senior Vice
Vice President	President and Controller of Norfolk Southern Corporation since
	April 2000 and prior thereto was Vice President and Controller.

Total Coal, Coke and Iron Ore Carloads

	2004	2003
	(Cars in thousands)

Utility	1,222.4	1,188.5
Export	157.0	116.5
Domestic metallurgical	214.0	213.8
Other	97.4	95.8
Total	1,690.8	1,614.6

13Utility coal volume increased 3%, compared to 2003, as electricity production was up almost 2% in NS Rail's service region responding to higher demand driven by a rebounding U.S. economy. Utilities increased burn to meet the heavier electricity demand and a new rail unloading facility began operating in April 2004 at a northern utility. Utility coal stockpiles were below target levels across NS Rail's service area due in part to the increased demand for coal-fired electric generation. Increased demand for Eastern U.S. coal prompted some customers to ship coals from non-traditional coal fields in Wyoming and Colorado in addition to more imported coal. In response, Appalachian coal production increased slightly in 2004 following declines in 2003 and 2002.

Stephen P. Renken, 59,	Present position since January 2000. Also, Senior Vice President
Vice President	Chief Information Officer of Norfolk Southern Corporation
	since February 2001. Served as Vice President Information
	Technology from October 1999 to February 2001, Assistant
	Vice President Program Management from January 1998 to
	October 1999, and prior thereto was employed by Burlington
	Northern Santa Fe.
John M. Samuels, 59,	Present position since May 2000. Also, Senior Vice President
Vice President	Operations Planning and Support of Norfolk Southern
	Corporation since April 2000. Served as Vice President
	Operations Planning and Budget of Norfolk Southern
	Corporation and Norfolk Southern Railway Company from
	January 1998 to April 2000, and prior thereto was Vice
	President Operating Assets of Conrail.
Donald W. Seale, 50,	Present position since May 2000. Also, Senior Vice President
Vice President	Merchandise Marketing of Norfolk Southern Corporation since
	December 1999, and prior thereto was Vice President
	Merchandise Marketing.

NS Rail is involved in rate cases with two of its utility customers, Duke Energy (Duke) and Carolina Power & Light (CP&L). In 2002, Duke and CP&L filed rate reasonableness complaints at the STB alleging that NS Rail's tariff rates for the transportation of coal were unreasonable. On Oct. 20, 2004 , in a consolidated decision, the STB found NS Rail's rates to be reasonable in both cases. At the STB's invitation, Duke and CP&L each initiated proceedings to determine whether phasing constraints should apply. As the STB has explained, the phasing constraint is an independent constraint relating not to the reasonableness of a rate, but to the reasonableness of collecting it immediately. The Interstate Commerce Commission (the predecessor to the STB) had previously issued guidelines for phasing. These guidelines indicate that phasing of a rate increase will only be required where the party seeking such relief demonstrates the need for it with specificity. In balancing the equities of the particular phasing request, the STB will consider factors including the requirements of the railroads, the magnitude of the proposed increase, the magnitude of past increases, the dependence of the utility on coal, the economic conditions in the final destination market and the economic conditions in the coal supply area.

14The phasing ~~PART~~constraint IIhas never been invoked by a complainant utility in a rate case, and the STB has never applied it. Therefore, it is unknown how the STB would balance the above factors, whether it would find the phasing constraint applicable, and if it did, whether phasing would be ordered retroactively or prospectively or both. Additionally, Duke and CP&L have appealed the October 2004 STB decision on reconsideration to the D.C. Circuit Court of Appeals. Although management has made an estimate of the ultimate resolution of these

~~NORFOLK~~12 ~~SOUTHERN RAILWAY COMPANY AND SUBSIDIARIES (NS RAIL)~~

~~Item~~cases 5, due to these uncertainties, future developments in the Duke case and(or) the CP&L case may result in adjustments that could have a favorable or unfavorable material impact on results of operations in a particular quarter or year. Over ~~Market~~the ~~for~~long term, management believes the ~~Registrant’s~~STB ~~Common~~decisions ~~Stock~~in the Duke and CP&L ~~Related~~proceedings ~~Stockholder~~will ~~Matters~~help support improved pricing for coal transportation services.

~~COMMON~~Export ~~STOCK~~coal volume increased 35% in 2004, compared to 2003, due to sustained strong global demand for high quality metallurgical coal and China 's continued growing consumption of coal for steel production and electricity generation. The devaluation of the dollar resulted in lower U.S. coal prices relative to Australian and Canadian coal prices which made U.S. coals more economical in traditional European markets. In addition, ocean vessel rates continued to favor U.S. coals. Volume through Baltimore and Norfolk increased dramatically. Baltimore was up approximately 24,000 carloads, or 159%, and Norfolk was up approximately 16,000 carloads, or 16%. However, U.S. exports in 2004 were constrained by the tight coal supply from Eastern coal mines.

~~Since~~Domestic metallurgical ~~June 1~~coal, ~~1982,~~coke NSand ~~has~~iron ~~owned~~ore ~~all~~volume ~~the~~was ~~common~~flat ~~stock~~in of2004 ~~Norfolk~~when ~~Southern~~compared to ~~Railway~~2003. Metallurgical ~~Company~~coal was up 12%. ~~The~~ However, ~~common~~this ~~stock~~was isoffset by ~~not~~declines in domestic coke and iron ore volumes, principally due to reduced ~~publicly~~production ~~traded~~at an NS-served producer.

~~PREFERRED~~Other ~~STOCK~~coal volumes ~~INFORMATION~~increased 2% versus 2003, primarily due to new business and the recovery of the U.S. economy .

~~There~~GENERAL MERCHANDISE ~~are~~traffic ~~10,000,000~~volume ~~shares~~(carloads) ofincreased no4% ~~par~~in ~~value~~2004 ~~serial~~compared ~~preferred~~to ~~stock~~2003, and ~~authorized. This~~revenues ~~stock~~increased ~~may~~9%, beprincipally ~~issued~~due ~~in series from time~~ to ~~time~~improved atvolumes ~~the~~in ~~discretion~~all ofbut the automotive ~~Board~~business ofgroup, ~~Directors~~higher ~~with~~average ~~any~~revenues ~~series~~across ~~having~~all ~~such~~business ~~voting and other powers, designations,~~groups ~~dividends~~ and ~~other~~increased ~~preferences~~fuel ~~as deemed appropriate at the time of issuance~~surcharges.

~~The~~Automotive ~~$2.60~~traffic ~~Cumulative~~volume ~~Preferred~~decreased ~~Stock, Series A (Series A Stock), of which 1,197,027 shares were issued and 1,096,907 shares were~~2% ~~held~~in ~~other~~2004 ~~than~~compared byto ~~subsidiaries~~2003, ~~including~~primarily ~~246,355~~due ~~shares~~to ~~held~~reduced byautomotive ~~NS,~~production asat ~~of Dec. 31, 2002, has no par value but has a $50 per~~Ford ~~share~~and ~~stated value. As indicated in the title~~GM, ~~the~~partially ~~stock~~offset pays a dividend of $2.60 per share annually, payable quarterly on March 15, June 15, Sept. 15 and Dec. 15. Dividends on this stock are cumulative and in preference to dividends on all other classes of stock. Except for any shares held by ~~Norfolk~~increased ~~Southern~~production ~~Railway~~at ~~Company~~Toyota ~~subsidiaries~~ and~~/or~~ ~~in a fiduciary capacity, each share is entitled to one vote per share on all matters, voting as a single class with holders of other stock~~Honda. In ~~Should dividends become delinquent for six quarters~~contrast, ~~this~~revenues ~~class~~increased ~~of stock~~2%, ~~voting~~reflecting aspricing aimprovements ~~class,~~and ~~may elect two directors so long as any~~fuel ~~default~~surcharge ~~in dividend payments continues~~increases. ~~The~~ stock is redeemable at the option of Norfolk Southern Railway Company at $50 per share plus accrued dividends. On liquidation, the stock is entitled to $50 per share plus accrued dividends before any amounts are paid on any other class of stock.

15Chemicals traffic volume increased 5% and revenues increased 12% in 2004, compared with 2003, reflecting manufacturers' increased demand across all chemical business groups. Feedstocks and plastic shipments were up as inventories were restocked in anticipation of higher product prices related to increased natural gas costs and new propane and asphalt terminals in the Southeast added carloads. Revenue per unit reflected higher prices to meet market conditions and fuel surcharges.

~~Item~~Metals 6and construction traffic volume increased 10% and revenue increased 17% in 2004 compared with 2003. The ~~Selected~~improvement ~~Financial~~was ~~Data~~primarily due to increased production at NS-served integrated mills and mini-mills, the conversion of truck business to rail resulting from a shortage of flatbed trucks as well as higher scrap metal volumes resulting from expanded alliances with key scrap metal shippers and access to new scrap processors and steel mills. Construction traffic volume benefited from increased residential, commercial and highway construction.

~~NORFOLK~~Agriculture, consumer ~~SOUTHERN~~products ~~RAILWAY~~and ~~COMPANY~~government ~~AND~~traffic ~~SUBSIDIARIES~~volume increased 2% and revenue increased 6% in 2004 compared with 2003, driven by ethanol and fertilizer shipments. Ethanol traffic increased 59% primarily due to the opening of the Northeast market to ethanol as a gasoline additive. Fertilizer was up 7% year-over- year , reflecting higher domestic shipments to industrial customers and increased exports of phosphates, principally to China . Revenue per unit improved 3% as a result of changes in traffic mix such as increased ethanol traffic and more long haul feed shipments as well as higher prices.

(APaper, ~~Majority-Owned~~clay ~~Subsidiary~~and forest products traffic volume increased 1% and revenue increased 8% in 2004 compared with 2003, reflecting yield improvements in all segments except newsprint, together with higher printing paper, newsprint, pulp board and kaolin shipments as U.S. paper production and demand for paper products strengthened in 2004. Revenue per unit improved 6% principally as a result of ~~Norfolk~~price increases ~~Southern~~but ~~Corporation)~~also aided by increased fuel surcharges.

~~Five~~INTERMODAL volume increased 17% and revenue (which now includes all of Triple Crown's revenue -~~Year~~ ~~Financial~~see ~~Review~~Note 2) increased 32% in 2004 compared with 2003. Strong demand was driven by an expanding economy led by

	2002		2001		2000(2)		1999(3)		1998
	($ in millions)
Results of Operations:
Railway operating revenues	$	6,095	$	6,009	$	6,012	$	5,161	$	4,254
Railway operating expenses		5,124		5,178		5,521		4,658		3,211
Income from railway operations		971		831		491		503		1,043
Other income (expense) - net		(221)		(243)		(169)		42		90
Interest expense on debt		(30)		(37)		(37)		(39)		(25)
Income before income taxes		720		551		285		506		1,108
Provision for income taxes		278		202		99		174		383
Net income	$	442	$	349	$	186	$	332	$	725
Financial Position:
Total assets	$	12,853	$	12,541	$	12,017	$	12,632	$	12,017
Total long-term debt, including
current maturities	$	857	$	868	$	771	$	866	$	760
Stockholders’ equity	$	4,813	$	4,821	$	5,106	$	5,385	$	6,137
Other:
Capital expenditures	$	667	$	725	$	628	$	915	$	1,002
Number of stockholders at year end		1,674		1,774		1,927		2,109		2,317
Average number of employees (1)		28,587		30,510		33,344		30,897		24,185
(1) The employee count includes NS’ employees whose primary duties relate to rail operations.
(2) 2000 operating expenses include $165 million in work-force reduction costs for early retirement and separation programs,
which reduced net income by $101 million.
(3) On June 1, 1999, NS Rail began operating a substantial portion of Conrail’s properties. As a result, both its railroad route
miles and the number of its railroad employees increased by approximately 50% on that date.

16higher consumer spending, industrial production and international trade, in addition to constraints in truck and other railroad's capacity. International steamship volume was up 15%, tied to the growth in U.S. trade volumes through east and west coast ports. Truckload volume increased 28% as a result of new business with traditional truckload companies. Premium business, which includes parcel and LTL carriers, grew 15% principally due to new parcel service between Chicago and New Jersey . Triple Crown Services Company increased volume by 8% through an expanded trailer fleet and growth in its geographic coverage. Revenue per unit improved 6%, reflecting value-based pricing and fuel surcharges.

~~Item~~Railway 7.Operating ~~Management’s Discussion and Analysis of Financial Condition and Results of Operations.~~Expenses

~~Norfolk~~Railway ~~Southern~~operating expenses ~~Railway~~increased ~~Company~~4% ~~and~~in ~~Subsidiaries~~2004 compared to 2003. Expenses in 2003 included $107 million of costs related to a voluntary separation program to reduce the size of the workforce, while there was no such program in 2004. Accordingly, the absence of the voluntary separation program in 2004 resulted in a 3% reduction in the 2004 to 2003 year-over-year comparison. Carloads increased 9% in 2004 compared with 2003.

(AThe ~~Majority-Owned~~railway operating ~~Subsidiary~~ratio, which measures the percentage of ~~Norfolk~~railway ~~Southern~~operating ~~Corporation)~~revenues consumed by railway operating expenses, was 79.1% in 2004, compared with 86.4% in 2003. The voluntary separation costs added 1.7 percentage points to the 2003 ratio.

~~Management’s~~The ~~Discussion~~following table ~~and~~shows ~~Analysis~~the ofchanges ~~Financial~~in ~~Condition~~railway ~~and~~operating ~~Results~~expenses ofsummarized ~~Operations~~by major classifications.

~~The~~ Operating ~~following~~Expense ~~discussion~~Variances ~~and~~ Increases ~~analysis~~(Decreases) ~~should~~ 2004 bevs. 2003* ~~read~~ ($ in ~~conjunction~~millions) ~~with~~ Compensation and ~~the~~benefits ~~Consolidated~~ $ ~~Financial~~ 83 Materials, services ~~Statements~~and rents 120 Conrail rents and ~~Notes~~services (115) Depreciation 90 Diesel fuel 69 Casualties and ~~the~~other claims ~~Five-Year~~ (30) ~~Financial~~ Other 27 Total $ ~~Review.~~ 244

~~SUMMARIZED~~* ~~RESULTS~~Includes OF$107 million ~~OPERATIONS~~of costs related to NS' voluntary separation in 2003.

~~2002~~Compensation and ~~Compared~~benefits ~~with~~represented ~~2001~~30% of total railway operating expenses and increased 5% in 2004 compared to 2003. Expenses in 2004 reflected higher volume-related train and engine payroll expenses, up $39 million; higher wage rates, which added $37 million; and increased stock-based compensation, up $24 million: and higher management and locomotive engineer performance-based compensation, which was up $20 million. These increases were offset by lower nonagreement workforce levels, saving $24 million, as well as the absence of the $107 million expense of the voluntary separation program.

~~Net~~The ~~income~~Railroad Retirement ~~was~~and ~~$442~~Survivors' ~~million~~Improvement inAct, which took effect Jan. 1, 2002, allows upfor ~~$93~~investment ~~million,~~of orTier ~~27%,~~II ~~compared~~assets ~~with~~in ~~2001~~a diversified portfolio through the National Railroad Retirement Investment Trust. The ~~increase~~law ~~was~~also ~~primarily~~provides a mechanism for automatic adjustment of Tier II payroll taxes should the trust assets fall below a four-year reserve or exceed a six-year reserve. As a result, the employers' portion of Tier II retirement payroll taxes have been areduced 17from 14.2% ~~improvement~~in 2003 to 13.1% in ~~income~~2004 ~~from~~and ~~railway~~12.6% ~~operations~~in 2005 and ~~lower~~thereafter. However, ~~nonoperating~~these ~~expenses~~savings are expected to continue to be substantially offset by higher payroll taxes on increased wages and a higher wage base.

~~2001~~Materials, services ~~Compared~~and rents includes items used for the maintenance of railroad lines, structures and equipment; the costs of services purchased from outside contractors, including the net costs of operating joint (or leased) facilities with ~~2000~~other railroads; and the net cost of equipment rentals. This category of expenses increased 6% in 2004 compared to 2003.

~~Net~~14 income in 2001 was $349 million, up $163 million, or 88%. Results in 2000 included $165 million of costs related to actions taken to reduce the size of the work force, which reduced net income by $101 million. Excluding these costs, net income increased $62 million, or 22%, in 2001. The improvement resulted from higher income from railway operations, which was up $175 million, or 27%, that more than offset higher nonoperating expenses, which rose $74 million (see Note 3).

~~DETAILED~~The ~~RESULTS~~2004 OFincrease was ~~OPERATIONS~~the result of higher purchased services, up $100 million, including higher costs for volume-related intermodal services such as loading of containers and trailers and drayage. In addition, locomotive and freight car maintenance expenses rose $23 million, and equipment rents increased $33 million.

~~Railway~~Equipment ~~Operating~~rents, which ~~Revenues~~include the cost to NS Rail of using equipment (mostly freight cars) owned by other railroads or private owners, less the rent paid to NS Rail for the use of its equipment, increased 10% in 2004 compared to 2003. The increase in 2004 was principally due to increased volume-related intermodal shipments and the absence of favorable settlements that benefited 2003.

~~Railway~~Locomotive ~~operating~~repair costs ~~revenues~~increased ~~were $6.1 billion~~ in ~~2002~~2004, ~~and~~due ~~were~~to ~~$6.0~~more ~~billion~~maintenance inactivity ~~both~~related ~~2001~~to ~~and~~the increase ~~2000. The~~in ~~following~~business ~~table presents~~coupled awith ~~three-year~~the ~~comparison~~age of ~~revenues~~the ~~by market group~~fleet.

Revenues by Market Group
	2002		2001		2000
	($ in millions)
Coal	$	1,441	$	1,521	$	1,435
General merchandise:
Automotive		961		885		921
Chemicals		769		752		756
Metals/construction		692		674		689
Agriculture/consumer products/
government		623		603		609
Paper/clay/forest		603		612		630
General merchandise		3,648		3,526		3,605
Intermodal		1,006		962		972
Total	$	6,095	$	6,009	$	6,012

Conrail rents and services decreased 24% in 2004 compared to 2003. This item includes amounts due to CRC for operation of the Shared Assets Areas. Prior to the Conrail Corporate Reorganization, this category also included amounts due to PRR for use of its operating properties and equipment. The decline was primarily driven by the Conrail Corporation Reorganization.

17Depreciation expense increased 18% in 2004 compared to 2003. The increase in 2004 was primarily the result of the Conrail Corporation Reorganization (see Note 2) and substantial levels of capital spending (see Note 1, "Properties," for NS Rail's depreciation policy).

In ~~2002~~2004, ~~revenues~~NS received ~~increased~~the ~~1%,~~results asof a 3%depreciation ~~rise~~study infrom ~~general~~an ~~merchandise~~independent ~~revenues~~firm ~~coupled with a 5% improvement in intermodal~~of ~~revenues offset a 5% decline in coal revenue~~engineers. ~~All~~ The ~~but~~results ~~one~~ of the ~~general merchandise market groups (paper~~study, ~~clay~~which ~~and~~were ~~forest products)~~implemented ~~posted increases over 2001. As shown~~ in ~~the following table~~Sept. 2004, ~~all~~prospectively ofreduced ~~the~~depreciation ~~revenue~~expenses ~~improvement~~by ~~was the result of~~approximately ~~higher~~$17 million ~~traffic volume~~annually.

Revenue Variance Analysis
Increases (Decreases)
	2002 vs. 2001		2001 vs. 2000
	($ in millions)
Volume	$	87	$	(195)
Revenue per unit/mix		(1)		192
Total	$	86	$	(3)

Diesel fuel expenses increased 18% in 2004, a result of a 13% rise in the average price per gallon (which includes hedge benefits) and a 6% increase in consumption. Expenses in 2004 included a benefit of $140 million from the diesel fuel hedging program compared with a $59 million benefit in 2003 (see "Market Risks and Hedging Activities," below and Note 15).

InRecently ~~2001,~~enacted legislation ~~revenues~~will ~~fell~~repeal ~~for~~the ~~all~~4.3 ~~the~~cents ~~general~~per ~~merchandise~~gallon ~~market~~excise ~~groups. However,~~tax aon 6%railroad ~~increase~~diesel fuel inand ~~coal~~inland ~~revenues~~waterway ~~offset~~fuel ~~the effects~~by of2007, with the ~~lower~~following ~~general~~phased ~~merchandise~~reductions ~~revenues. Revenue~~in 2005 ~~pre~~and ~~unit~~2006: by ~~increased~~1 incent ~~all~~per ~~market~~gallon ~~groups~~from Jan. 1, ~~principally~~2005, ~~due~~through toJune ~~rate~~30, ~~increases~~2005; 2 cents per gallon from July 1, ~~use~~2005, ofthrough ~~higher~~Dec. ~~capacity~~31, ~~equipment~~2006; and ~~favorable~~by ~~changes~~the full in4.3 ~~the~~cents ~~mix~~thereafter. NS Rail consumes approximately 500 million gallons of ~~traffic~~diesel fuel per year.

~~COAL~~Casualties ~~tonnage decreased 4% in 2002~~ and ~~revenues declined 5%. Revenue per unit declined slightly, reflecting~~ ~~unfavorable~~other ~~changes~~claims inexpenses (including the ~~mix~~estimates of ~~traffic~~costs ~~(more~~related ~~shorter-haul~~to ~~business)~~personal injury, ~~that~~property ~~offset~~damage ~~the~~and ~~effects~~environmental ofmatters) ~~rate~~decreased ~~increases~~16% ~~and gains~~ in 2004 ~~tonnage~~compared ~~per~~to ~~car~~2003. ~~Coal,~~ The ~~coke~~decline ~~and~~reflected ~~iron~~favorable ~~ore~~personal ~~represented~~injury ~~24%~~and freight ofclaims ~~total~~development ~~railway~~and ~~operating~~higher ~~revenues~~insurance ~~in 2002~~settlements, ~~and~~partially ~~84%~~offset ~~of NS~~by ~~Rail’s~~increased ~~coal~~derailment ~~shipments originated on lines it operates~~expenses.

InOn ~~2001~~Jan. 6, ~~coal~~2005 ~~tonnage~~, a ~~increased~~derailment 2%occurred in Graniteville , SC. NS Rail expects the first quarter of 2005 to reflect operating expenses related to this incident of between $30 million and ~~revenues~~$40 ~~improved~~million 6%(pretax). ~~Revenue~~ The ~~per~~amount ~~unit~~includes ~~increased~~NS Rail's ~~6%,~~self-insured aretention ~~result~~under ofits ~~rate~~insurance ~~increases~~policies, as well as other ~~including~~uninsured ~~lower~~costs. Although ~~volume-related~~potential ~~refunds~~losses onmay ~~export~~exceed ~~coal~~self-insured retention ~~shipments~~amounts, ~~gains~~NS inRail ~~tonnage~~expects ~~per~~at ~~car~~this ~~and~~time ~~favorable~~that ~~changes~~insurance incoverage ~~the~~is adequate ~~mix~~to ofcover such potential claims or settlements. This amount does ~~traffic~~not ~~(less~~include ~~shorter-haul~~any ~~business)~~fines or penalties that could be imposed.

Total Coal, Coke and Iron Ore Tonnage
	2002	2001	2000
	(In millions of tons)
Utility	128	133	119
Export	11	14	20
Domestic metallurgical	21	20	25
Other	10	11	11
Total	170	178	175

The largest component of casualties and other claims expense is personal injury costs. In 2004, cases involving occupational injuries comprised about one-third of total employee injury cases resolved and 24% of the total payments made. With its long-established commitment to safety, NS Rail continues to work actively to eliminate all employee injuries and to reduce the associated costs. With respect to occupational injuries, which are not caused by a specific accident or event, but result from a claimed exposure over time, the benefits of any existing safety initiatives may not be realized immediately. These types of claims are being asserted by former or retired employees, some of which have not been actively employed in the rail industry for decades.

~~Utility~~15 coal tonnage decreased 3% in 2002, a result of lower demand that reflected the weak economy, high coal stockpile levels entering the year, mild temperatures in the first quarter, reduced stockpile targets set by utility companies and increased generation from new natural gas-fired plants. Licensing requirements for these new plants resulted in additional generation that temporarily displaced coal-fired generation.

InThe ~~2001,~~rail ~~utility~~industry remains ~~coal~~uniquely ~~traffic~~susceptible ~~increased~~to ~~11%,~~litigation ~~reflecting~~involving ~~higher~~job-related ~~demand~~accidental injury ~~for~~and ~~coal-fired~~occupational ~~electricity~~claims ~~and~~because of the ~~effects~~Federal ofEmployers' ~~very~~Liability ~~high~~Act ~~natural~~(FELA), ~~gas~~which ~~prices~~is ~~early~~applicable inonly ~~the~~to ~~year~~railroads. ~~High~~ FELA's ~~demand~~fault-based ~~for coal~~system, which acovers ~~volatile~~employee ~~market~~claims for ~~natural~~job-related ~~gas~~injuries, ~~and~~produces ~~production~~results ~~problems~~that ~~at a~~are ~~number~~unpredictable ofand ~~large~~inconsistent ~~mines~~as incompared ~~the East late in 2000 combined to increase demand somewhat early in 2001~~ with a ~~resulting~~no-fault ~~increase~~workers' ~~in coal~~compensation ~~prices~~system. ~~Utility~~ ~~coal traffic volume also benefited somewhat from the shifting of coal that traditionally would have been bound for export to the domestic market.~~

18NS Rail is covered by substantial amounts of commercial insurance for potential third-party liability and property damage claims. It also retains reasonable levels of risk through self-insurance (see Note 16).

~~Two~~Other ofexpenses increased NS9% ~~Rail’s~~in ~~utility~~2004 ~~customers,~~compared ~~Duke~~to ~~Energy (Duke) and Carolina Power and Light (CP&L)~~2003, ~~have~~primarily ~~filed~~attributable ~~rate reasonableness complaints at the Surface Transportation Board (STB) alleging that the NS Rail tariff rates for the transportation of coal~~ to ~~their solely served power plants are unreasonable. NS Rail is disputing these allegations. Since~~higher ~~January~~property ~~1, 2002, in the case of Duke~~ and ~~since~~sales ~~April 1, 2002, in the case of CP&L, NS Rail has been billing~~ and ~~collecting amounts~~use ~~from the customers based on the challenged tariff rates~~taxes. ~~Management~~ ~~expects that the resolution of these cases, which is anticipated to occur in 2003, will not have a material effect on NS Rail’s financial statements.~~

~~The~~Other ~~near-term~~Expense ~~outlook for utility coal remains positive. Coal~~-~~fired~~ ~~generation~~Net remains the lowest cost marginal source of electricity. Coal plant generation should continue to track the U.S. economy, and management expects that utilities will use coal-fired plants to meet increased demand because of coal’s low cost. As always, demand will be influenced by the weather. In addition, while the price of natural gas can affect demand for utility coal, its higher price and volatility may improve the long-term competitive position of coal-fired generation.

~~Phase~~Other IIexpense of- ~~Title~~net IVwas of$293 ~~the~~million ~~Clean~~in ~~Air~~2004 ~~Act~~compared ~~Amendments~~with of$220 million ~~1990,~~in ~~which~~2003. The ~~imposed~~increase ~~more~~reflects ~~stringent~~losses ~~limits~~generated onby ~~sulfur~~an ~~dioxide~~investment in ~~emissions,~~a limited liability company that owns and operates facilities that produce ~~took~~synthetic ~~effect~~fuel onfrom ~~Jan.~~coal 1,(see ~~2000. Many~~the discussion of ~~the~~tax ~~mines~~credit ~~served~~investments bybelow). In June 2004, NS Rail ~~produce~~purchased ~~coals~~a membership interest in a limited liability company that ~~satisfy~~owns ~~Phase~~and IIoperates ~~requirements. In~~facilities that produce synthetic fuel ~~addition,~~from ~~substantial~~coal. The ~~banks~~production of ~~sulfur~~synthetic ~~dioxide~~fuel ~~allowances~~results ~~held~~in byexpenses ~~many~~related to NSthe ~~Rail-served~~investments ~~utilities,~~ as well as ~~implementation~~tax ofcredits. The ~~sulfur dioxide~~expenses ~~emission~~are ~~control~~recorded ~~systems~~as ata component ~~many~~of NS"Other ~~Rail~~expense -~~served~~ ~~plants~~net," ~~should~~and ~~continue~~the tax credits, as well as tax benefits related to ~~provide~~the aexpenses, ~~market~~are ~~for~~reflected ~~other~~in NSthe ~~Rail-served mines~~provision for income taxes.

~~While~~Income ~~the~~Taxes Phase II impact on NS Rail utility coal has been minimal, there are a number of other evolving environmental issues that have the potential to increase or ease cost pressures on the utility coal market, depending upon their outcome. These include a potential new national energy policy, proposed multi-pollutant legislation, a proposed new rule concerning “new source review,” the impending mercury emissions standard and the fate of U.S. participation in the Kyoto Protocol.

~~Although~~Income ~~impending~~tax ~~developments~~expense in ~~with~~2004 ~~these~~was ~~environmental~~$395 ~~issues~~million ~~could~~for ~~potentially~~an ~~increase~~effective ~~cost~~rate ~~pressures~~of ~~on coal-fired generation~~34%, ~~the~~compared ~~outlook~~with ~~remains~~an effective ~~positive~~rate ~~for~~of ~~maintaining~~37% in ~~coal’s~~2003. In ~~position~~2004, in the ~~power~~effective ~~generation~~rate ~~mix~~was reduced ~~for regions served~~ by ~~NS Rail. However,~~tax ~~different~~credits ~~developments~~from ~~with~~synthetic ~~these~~fuel ~~issues~~related ~~could actually ease cost pressures on coal-fired generation, further strengthening coal’s position~~investments.

~~The~~APPLICATION ~~1999 decision by a federal district court judge in West Virginia holding that some common mountaintop mining practices in~~OF ~~the~~CRITICAL ~~coal~~ACCOUNTING ~~industry~~ESTIMATES are illegal was overturned in April 2001 by the U.S. Fourth Circuit Court of Appeals. In January 2002, the U.S. Supreme Court refused to hear an appeal of the case. In May 2002, the same district court judge made a similar ruling in a different case in which NS Rail had again intervened. In January 2003, this ruling also was overturned by the Fourth Circuit Court of Appeals.

~~Export~~The ~~coal~~preparation ~~tonnage~~of financial ~~declined~~statements ~~18%~~ in ~~2002~~accordance with U. ~~Steam~~S. ~~coal~~generally ~~exports~~accepted ~~through~~accounting principles ~~Baltimore~~requires ~~declined~~management ~~4%,~~to make estimates and ~~export~~assumptions that affect the ~~metallurgical~~reported ~~coals~~amounts ~~through~~of ~~Norfolk~~assets ~~declined~~and ~~22%. During~~liabilities, the ~~first~~disclosure ~~half~~ of ~~2002,~~contingent ~~demand~~assets and ~~for~~liabilities ~~U.S.~~at ~~coal~~the ~~was~~date ~~soft~~of ~~as international~~the ~~buyers~~financial ~~focused~~statements ~~their~~and ~~purchases~~the ~~toward~~reported ~~other,~~amounts of ~~lower-priced~~revenues ~~sources~~and expenses during the reporting period. ~~Market~~ These ~~uncertainty~~estimates ~~resulted~~and assumptions inmay ~~late~~require ~~contract~~significant judgment about matters that are inherently ~~settlements~~uncertain, and ~~delayed~~future ~~shipments~~events are likely to occur that may require management to change them. ~~Late~~Accordingly, inmanagement ~~2002,~~regularly ~~demand~~reviews ~~for~~these ~~U.S.~~estimates and ~~coking~~assumptions ~~coals~~based ~~increased,~~on ~~reflecting~~historical aexperience, ~~shift~~changes in the ~~market as~~business ~~exports~~environment ~~from~~and ~~China,~~other ~~Australia~~factors ~~and~~that ~~Poland~~management ~~declined~~believes to be reasonable under the circumstances. As Management adiscusses ~~result~~the development, ~~shipments~~selection ~~through~~and disclosures ~~Norfolk~~concerning ~~increased~~critical inaccounting estimates with the ~~fourth~~Audit Committee of ~~quarter~~NS' Board of Directors.

InPensions 2001, export coal tonnage decreased 30%. The rapid rise of domestic utility coal prices early in the year enticed many foreign-market suppliers to place much of their 2001 production in the domestic utility markets. In addition, production difficulties at several large NS Rail-served mines and ~~flooding in West Virginia in July significantly reduced the supply of low~~ ~~volatile~~Other ~~coal. The~~Postretirement ~~combination~~Benefits of these factors resulted in most of the decline in shipments of export coal. Steam coal exports through Baltimore declined 32%, and export metallurgical coals through Norfolk declined by 30%. Demand for steam coal

19Accounting for pensions and other postretirement benefit plans requires management to make several estimates and assumptions (see Note 13). These include the expected rate of return from investment of the plans' assets, projected increases in medical costs and the expected retirement age of employees as well as their projected earnings and mortality. In addition, the amounts recorded are affected by changes in the interest rate environment because the associated liabilities are discounted to their present value. Management makes these estimates based on the company's historical experience and other information that it deems pertinent under the circumstances (for example, expectations of future stock market performance). Management engages an independent consulting actuarial firm to aid it in selecting appropriate assumptions and valuing its related liabilities.

toNS ~~export~~Rail's ~~strengthened~~net pension benefit, which is included in ~~the~~"Compensation ~~last~~and ~~half~~benefits" ofon ~~2001;~~its Consolidated ~~however~~Income Statement, ~~strong~~was U$36 million for the year ended Dec.S 31, 2004 . In ~~demand~~recording ~~limited~~this amount, NS Rail’s ~~participation~~assumed ina ~~this~~long-term investment rate ~~market~~of return of 9%. ~~Demand~~ Investment ~~for~~experience ~~coking~~of ~~coal~~the topension ~~export~~fund ~~continued~~over tothe ~~soften~~past 10-, as15- ~~steel~~and ~~production~~20-year ~~moved~~periods ~~from~~has ~~traditional~~been NSin ~~Rail~~excess ~~markets~~of 10%. A one percentage point change to this rate of return assumption would result in an $18 million ~~Europe~~change to ~~Asia~~the pension credit and, ~~which~~as a result, an equal change in ~~recent~~"Compensation and ~~years~~benefits" ~~has~~expense. Changes ~~been~~that ~~supplied~~are byreasonably ~~Australian~~likely orto ~~Canadian~~occur ~~coals.~~in assumptions concerning retirement age, projected earnings

It16 is expected that export coal tonnage will continue to be limited by supply and subject to the fluctuations of the world market. The increase in demand for U.S. coals seen in the fourth quarter of 2002 has continued into the first quarter of 2003, and early indications are that these market forces should remain in place as contracts are settled in the spring for the coming year. Should these market forces continue, U.S. coal export volumes could recover somewhat. However, the inherent volatility and uncertainties in this market make predictions especially vulnerable.

~~Domestic~~and ~~metallurgical~~mortality would ~~coal,~~not ~~coke~~be ~~and~~expected ~~iron~~to ~~ore~~have ~~tonnage~~a ~~increased~~material 5%effect inon ~~2002,~~NS ~~reflecting~~Rail's ~~higher~~net ~~U.S.~~pension ~~steel~~benefit or ~~production~~net ~~that was~~pension ~~aided~~asset byin the ~~imported~~future. The ~~steel~~net ~~tariff~~pension ~~program~~asset ~~implemented~~is inrecorded ~~2002. In~~at its ~~addition,~~net ~~continued~~present ~~strong~~value ~~vehicle~~using ~~production~~a ~~resulted~~discount rate that is based on the current ininterest ~~demand~~rate ~~for~~environment; ~~steel~~therefore, management has little discretion in this assumption.

InNS ~~2001,~~Rail's ~~domestic~~net ~~metallurgical~~cost for ~~coal,~~other ~~coke~~postretirement ~~and~~benefits, ~~iron~~which ~~ore~~is ~~tonnage~~included ~~decreased 18% due to a decline~~ in the ~~market~~management ~~for~~fee ~~domestic~~from ~~steel. The~~NS, ~~softening~~was ~~economy~~$49 million ~~and~~for anthe ~~increase~~year inended ~~steel~~Dec. ~~imports~~31, ~~drastically~~2004 ~~cut~~. In ~~blast~~recording this ~~furnace~~expense ~~production,~~and ~~sharply~~valuing ~~reducing~~ the ~~demand~~ ~~for~~net ~~coking~~liability ~~coal,~~for ~~iron~~other ~~ore~~postretirement ~~and~~benefits, which ~~coke. The~~is ~~increase~~included in ~~imported~~"Other ~~steel~~benefits" ~~also~~as ~~resulted~~disclosed in ~~lower~~Note ~~prices~~13, ~~that~~management estimated ~~put~~future ~~pressure~~increases ~~on the~~in Uhealth-care costs.S. These ~~steel~~assumptions, ~~industry~~along with ~~and~~the ~~led~~effect toof ~~plant~~a ~~closures~~one ~~and~~percentage ~~bankruptcies~~point ~~that~~change ~~included~~in ~~some~~them, NSare ~~Rail~~described ~~customers~~in Note 13.

~~Domestic~~Properties ~~metallurgical coal, coke~~ and ~~iron ore traffic is expected to continue to experience modest gains during the two-year~~ ~~life~~Depreciation ~~of the import tariffs. However, long-term demand is expected to decline, reflecting advanced technologies that allow production of steel using less coke.~~

~~Other~~Most ~~coal~~of ~~tonnage,~~NS ~~principally~~Rail's total ~~steam~~assets ~~coal~~are ~~shipped~~comprised toof ~~manufacturing~~long-lived ~~plants,~~railway ~~decreased~~properties ~~14%~~(see Note 6). As disclosed in ~~2002~~Note 1, ~~but~~NS ~~increased~~Rail's 6%properties ~~in 2001. The~~are ~~decline~~depreciated inusing ~~2002~~group depreciation. Rail ~~was~~is depreciated primarily on the ~~result~~basis of use measured by gross-ton miles. Other properties are depreciated generally using the straight-line ~~weak~~method ~~economy~~over the lesser of estimated service or lease lives. ~~The~~ NS ~~gain~~Rail reviews the carrying amount of properties whenever events or changes in circumstances ~~2001~~indicate ~~resulted~~that ~~from~~such ~~new~~carrying ~~and~~amount may not be recoverable based on ~~increased~~future ~~business~~undiscounted ~~from~~cash ~~industrial~~flows. Assets ~~customers~~that are deemed impaired as a result of such review are recorded at the lesser of carrying amount or fair value.

~~GENERAL~~NS ~~MERCHANDISE~~Rail's depreciation ~~traffic~~expense ~~volume~~is ~~(carloads)~~based ~~increased~~on 2%management's inassumptions ~~2002,~~concerning service lives of its properties as well as the expected net salvage that will be received upon their retirement. These assumptions are the product of periodic depreciation studies that are performed by a firm of consulting engineers. These studies analyze NS Rail's historical patterns of asset use and ~~revenues~~retirement ~~increased~~and ~~3%,~~take ~~principally~~into ~~due~~account any expected change in operation or maintenance practices. NS Rail's recent experience with these studies has been that while they do result in changes in the rates used to depreciate its properties, these changes have not caused a 9%significant effect to its annual ~~improvement~~depreciation expense. The studies may also indicate that the recorded amount of accumulated depreciation is deficient (or in ~~automotive~~excess) ~~revenues~~of the amount indicated by the study. In Any ~~2001,~~such ~~traffic~~deficiency ~~volume~~(or ~~decreased~~excess) ~~7%,~~is ~~and~~amortized ~~revenues~~as ~~decreased~~a component ~~2%,~~of ~~reflecting~~depreciation expense over the ~~effects~~remaining service lives of the affected class of property. NS Rail's "Depreciation expense" for the year ended Dec. 31, 2004 , amounted to $588 million. NS Rail's weighted-average depreciation rates for 2004 are disclosed in Note 6; a one-tenth ~~weak~~percentage ~~economy~~point increase (or decrease) in these rates would have resulted in a $26 million increase (or decrease) to NS Rail's depreciation expense.

~~Automotive traffic volume increased 7%, and revenues increased 9% in 2002, principally due to a rise in vehicle~~Personal ~~production and new business. Revenue per unit increased 2%~~Injury, ~~reflecting~~Environmental ~~some pricing improvements, extended length of haul, special ancillary services~~ and ~~the~~Legal ~~settlement~~Liabilities ~~of a disputed charge.~~

InNS ~~2001,~~Rail's ~~automotive~~expense for ~~traffic~~"Casualties ~~volume~~and ~~decreased~~other ~~10%,~~claims" ~~and~~amounted ~~revenues~~to ~~declined~~$153 4%million for the year ended Dec. 31, ~~principally~~2004 ~~due~~. Most of this expense was composed of NS Rail's accrual related to apersonal ~~10%~~injury ~~drop~~liabilities (see discussion of FELA in ~~vehicle~~the discussion ~~production~~captioned "Casualties and other claims" on page 14). ~~Revenue~~ Job-related ~~per~~personal injury ~~unit~~and ~~increased~~occupational 7%claims are subject to FELA, ~~principally~~which ~~due~~is applicable only to railroads. FELA's ~~rate~~fault-based ~~increases,~~tort ~~efficiencies~~system ~~gained~~produces results that are unpredictable and inconsistent as compared with a no-fault worker's compensation system. The variability inherent in this system could result in actual costs being very different from the ~~redesign~~liability ofrecorded. In ~~the~~all cases, NS ~~mixing~~Rail ~~center~~records ~~network~~a ~~and~~liability ~~use~~when ofthe ~~higher~~expected ~~capacity~~loss ~~equipment~~for the claim is both probable and estimable.

~~Automotive~~NS ~~revenues~~Rail engages an independent consulting actuarial firm to aid in ~~2003~~valuing ~~are~~its ~~expected~~personal injury liability and determining the amount to beaccrue ~~lower~~during ~~than~~the ~~those~~year. For employee personal injury cases, the actuarial firm studies NS Rail's historical patterns of ~~2002~~reserving for claims and subsequent settlements, taking into account relevant outside influences. ~~Light~~ An ~~vehicle~~estimate ~~production~~of the ultimate amount of the liability, which includes amounts for incurred but unasserted claims, is ~~predicted~~based on tothe beresults ~~down~~of this analysis. For occupational injury claims, the ~~slightly~~actuarial firm studies NS Rail's history of claim filings, severity, payments and other relevant facts. Additionally, the estimate of the ultimate loss for occupational injuries includes a provision for those claims that have been incurred but not reported by projecting NS’ ~~largest~~Rail's ~~automotive~~experience ~~customer~~into the future as far as can be reasonably determined. NS Rail has ~~announced~~recorded this actuarially determined liability. The liability is dependent upon many individual judgments made as to the specific case reserves as well as the judgments of the consulting actuary and management in the periodic studies. Accordingly, there could be significant changes in the liability, which NS Rail would recognize when such a 5%change ~~decrease~~became known. The most recent actuarial study was performed as of Sept. 30, 2004 , and resulted in ~~first~~a slight decrease to NS Rail's personal injury liability during the fourth quarter. While ~~2003~~the ~~production~~liability recorded is supported by the most recent study, it is reasonably possible that the liability could be higher or lower.

~~Chemicals~~17 traffic volume increased slightly, and revenues increased 2% in 2002. Higher traffic volume for plastics and a small increase for miscellaneous chemicals offset a decline for petroleum products. Demand for plastics was supported by increases in light vehicle production and housing starts. Traffic volume also benefited from increased shipments through NS Rail’s Thoroughbred Bulk Transfer (TBT) facilities that handle chemicals and bulk commodities for customers not located on NS Rail-served lines. Revenue per unit increased as a result of a favorable change in the mix of traffic (more higher-rated business) and market-driven rate increases.

20NS Rail is subject to various jurisdictions' environmental laws and regulations. It is NS Rail's policy to record a liability where such liability or loss is probable and its amount can be estimated reasonably (see Note 16). Environmental engineers regularly participate in ongoing evaluations of all known sites and in determining any necessary adjustments to liability estimates. NS Rail also has established an Environmental Policy Council, composed of senior managers, to oversee and interpret its environmental policy.

InOperating ~~2001,~~expenses for ~~chemicals~~environmental ~~traffic~~matters ~~volume~~totaled ~~decreased~~approximately ~~5%,~~$11 ~~and~~million ~~revenues~~in ~~decreased 1%. The weak economy depressed shipments of petroleum~~2004, ~~plastics, industrial~~ and ~~miscellaneous chemicals. These declines were partially offset by new business through NS~~capital ~~Rail’s~~expenditures ~~TBT~~totaled ~~facilities. Revenue~~approximately ~~per~~$9 ~~unit~~million ~~increased due to higher rates and a favorable change~~ in ~~the mix of traffic (more longer-haul moves)~~2004.

~~Chemicals~~NS ~~revenues~~Rail's ~~are~~balance sheets ~~expected~~included toliabilities ~~improve~~for environmental exposures in ~~2003~~the amount of $64 million at Dec. 31, ~~supported~~2004 by, and $25 million at Dec. 31, 2003 (of which $12 million was accounted for as a ~~recovering~~current ~~economy~~liability at Dec. 31, ~~new~~2004 ~~business~~, and ~~improved~~$8 million ~~revenue~~at ~~per~~Dec. 31, 2003 ). The increase in the liability was the result ~~unit~~of the Conrail Corporate Reorganization and relates to sites on the former PRR properties. At Dec. 31, 2004 , the liability represented NS Rail's estimate of the probable cleanup and remediation costs based on available information at 210 identified locations. On that date, 15 sites accounted for $32 million of the liability, and no individual site was considered to be material. NS Rail anticipates that much of this liability will be paid out over five years; however, some costs will be paid out over a longer period.

~~Metals~~At ~~and~~some ~~construction~~of ~~traffic~~the ~~volume increased 2%~~210 locations, ~~and~~certain ~~revenues~~NS ~~improved~~Rail 3%subsidiaries, usually in ~~2002,~~conjunction ~~reflecting~~with ~~improvement~~a innumber ~~the~~of ~~steel~~other ~~industry~~parties, ~~which~~have ~~was~~been ~~aided~~identified byas ~~the~~potentially ~~two-year~~responsible ~~imported~~parties ~~steel~~by ~~tariff~~the Environmental ~~program~~Protection ~~implemented~~Agency in(EPA) ~~2002. Metals~~or ~~volume~~similar ~~benefited from~~state ~~resumption~~authorities ofunder ~~production~~the Comprehensive atEnvironmental ~~some~~Response, ~~mills~~Compensation ~~that closed in 2001~~ and ~~increased~~Liability ~~volume~~Act ~~from~~of ~~new~~1980, ~~mills. Construction traffic~~or ~~declined,~~comparable ~~primarily~~state asstatutes, awhich ~~result~~often ofimpose ~~reductions~~joint inand ~~highway~~several ~~projects~~liability ~~due~~for cleanup ~~to state government budget pressures~~costs.

InWith ~~2001,~~respect ~~metals~~to known ~~and~~environmental ~~construction~~sites ~~traffic~~(whether ~~volume~~identified ~~decreased~~by ~~7%,~~NS ~~and~~Rail ~~revenues~~or ~~declined~~by 2%the EPA or comparable state authorities), ~~reflecting~~estimates ~~weakness~~of NS Rail's ultimate potential financial exposure for a given site or in the ~~steel~~aggregate ~~and~~for all such ~~construction~~sites ~~industries. The~~are ~~steel~~necessarily ~~industry~~imprecise ~~recession~~because of the widely varying costs of currently available cleanup techniques, ~~which~~the ~~began~~likely indevelopment ~~2000~~of new cleanup technologies, ~~resulted~~the difficulty of determining in ~~excess~~advance ~~capacity~~the nature and ~~the~~full extent ~~closing~~of contamination and each potential participant's share of any estimated ~~numerous~~loss ~~steel~~(and ~~mills~~that participant's ability to bear it), and evolving statutory and regulatory standards governing liability. ~~Revenue~~ NS ~~per~~Rail ~~unit~~estimates ~~increased~~its environmental ~~due~~remediation toliability ~~higher~~on ~~rates~~a site-by-site basis, using assumptions and ~~favorable~~judgments that management deems appropriate for each site. As a result, it is not practical to quantitatively describe the effects of changes in these ~~the~~many ~~mix~~assumptions and judgments. NS Rail has consistently applied its methodology of ~~traffic~~estimating its environmental liabilities.

~~Metals~~The ~~and~~risk ~~construction~~of incurring ~~revenues~~environmental ~~are~~liability ~~expected~~is toinherent ~~continue~~in tothe ~~benefit~~railroad ~~from~~business. Some ~~added~~of ~~production~~the ~~along~~commodities NSin NS Rail’'s ~~lines~~traffic mix, ~~although~~particularly those ~~further~~classified ~~consolidation~~as inhazardous ~~the~~materials, ~~steel~~can ~~industry~~pose special risks that NS Rail and its subsidiaries work diligently to minimize. In addition, several NS Rail subsidiaries own, or have owned, land used as operating property, or which is leased ~~expected~~and operated by others, or held for sale. ~~Construction~~ Because ~~markets~~environmental problems may ~~benefit~~exist ~~from~~on ~~new~~these ~~business~~properties ~~from~~that ~~stone~~are latent or undisclosed, there can ~~quarries~~be no assurance that NS Rail will not incur environmentally related liabilities or costs with respect to one or more of them, the amount and ~~cement~~materiality ~~terminals~~of which cannot be estimated reliably at this time. Moreover, lawsuits and claims involving these and potentially other 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 ~~the~~a ~~Southeast~~particular year or quarter.

~~Agriculture~~However, ~~consumer~~based ~~products~~on its ~~and~~assessment ~~government~~of ~~traffic~~the ~~volume~~facts ~~decreased~~and ~~slightly~~circumstances innow ~~2002~~known, ~~but~~management ~~revenues increased 3%.~~ believes ~~Traffic~~that ~~volume~~it ~~increases~~has ~~for~~recorded ~~corn,~~the ~~food~~probable ~~products~~costs ~~and beverages largely offset declines~~ for ~~soybeans~~dealing ~~and~~with ~~feed. Corn~~those ~~volume~~environmental ~~benefited~~matters ~~from~~of ~~increased~~which ~~shipments from~~ the ~~Midwest~~Corporation tois ~~drought-stricken areas in the East~~aware. ~~The~~ Further, ~~increase~~management ~~for food products was~~believes ~~primarily~~that ~~the~~it ~~result~~is ofunlikely ~~new~~that ~~business. Soybean~~any ~~and~~known ~~feed~~matters, ~~volumes~~either ~~were~~individually ~~adversely~~or ~~affected~~in bythe aggregate, ~~lower~~will ~~domestic~~have ~~and~~a ~~export demand. Revenue~~material ~~per~~adverse ~~unit~~effect ~~increased~~on ~~because~~NS ofRail's ~~higher~~financial ~~rates~~position, results ~~increased length~~ of ~~haul~~operations ~~and~~or ~~favorable changes in the mix of traffic~~liquidity.

InNorfolk ~~2001,~~Southern Railway ~~agriculture,~~and ~~consumer~~certain ~~products~~subsidiaries ~~and~~are ~~government~~defendants ~~traffic~~in ~~volume~~numerous ~~decreased~~lawsuits ~~3%,~~ and ~~revenues~~other claims ~~declined~~relating ~~1%,~~principally ~~primarily~~to ~~due~~railroad tooperations. When management ~~reduced~~concludes ~~shipments~~that ofit ~~fertilizer. This~~is ~~decline~~probable ~~was~~that ~~due~~a toliability ~~soft~~has ~~farm~~been ~~demand,~~incurred ~~record~~and ~~high~~the ~~natural~~amount of ~~gas~~the ~~prices~~liability ~~early~~can inbe ~~the~~reasonably ~~year~~estimated, it is accrued through a charge to ~~(which~~expenses. While ~~curtailed~~the ~~production~~ultimate amount of ~~certain~~liability ~~fertilizers)~~incurred in any of these lawsuits and ~~increased~~claims ~~imports. This~~is ~~was~~dependent ~~mitigated~~on byfuture ~~traffic~~developments, ~~volume~~in ~~increases~~management's ~~for~~opinion ~~grain~~the recorded liability, ~~flour~~if any, ~~and~~is ~~canned~~adequate ~~goods~~to cover the future payment of such liability and claims. However, ~~The~~the ~~revenue~~final ~~per~~outcome ~~unit~~of ~~increase~~any ~~was~~of ~~primarily~~these ~~due~~lawsuits and toclaims ~~favorable~~cannot ~~changes~~be predicted with certainty, and unfavorable or unexpected outcomes could result in ~~the~~additional ~~mix~~accruals that could be significant to results of ~~traffic.~~

~~Agriculture,~~18 consumer products and government revenues in 2003 are expected to continue to benefit from higher corn, fertilizer and food product volume. Fertilizer volumes may be favorably affected by the reopening of a large phosphate fertilizer plant.

~~Paper,~~operations ~~clay and forest products traffic volume declined 3%, and revenues decreased 1%,~~ in ~~2002, primarily due to~~a ~~continued~~particular ~~weakness in the paper market, especially in the first half of the~~ year~~. Traffic~~ ~~volume~~or ~~improved later in the year as the paper market strengthened~~quarter. In Any ~~addition,~~adjustments ~~NS Rail gained business from conversion of truck shipments~~ to ~~rail~~recorded ~~and~~liabilities ~~from~~will ~~continued~~be ~~strength~~reflected in ~~housing~~expenses ~~starts. Revenue~~in ~~per~~the ~~unit~~periods ~~benefited~~in ~~from~~which ~~rate~~such ~~increases~~adjustments ~~and~~are ~~a decline in shorter-haul business~~known.

InIncome ~~2001, paper, clay and forest products traffic volume declined 8%, and revenues decreased 3%, primarily due to a weakened~~Taxes ~~paper market. Paper shipments were adversely affected by reduced production at many NS Rail-served paper mills, a result of sluggish newspaper advertising and soft~~

~~demand~~NS ~~for~~Rail's ~~paper~~net long-term deferred tax liability totaled $7,843 million at Dec. ~~Lumber~~ ~~traffic~~31, ~~began~~2004 (see Note 4). This liability is estimated based on the ~~year~~expected ~~weak,~~future ~~improved~~tax consequences of items recognized in ~~late~~the ~~summer~~financial statements. After application of the federal statutory tax rate to book income, ~~but~~judgment ~~softened~~is required ~~late~~with respect to the timing and deductibility of expenses in the corporate ~~year~~income ~~due~~tax returns. For state income and other taxes, judgment is also required with respect to the apportionment among the various ~~short-term~~jurisdictions. A ~~weakness~~valuation inallowance ~~housing~~is ~~starts~~recorded if management expects that it is more likely than not that its deferred tax assets will not be realized. NS ~~Revenue~~Rail ~~per~~has ~~unit~~a ~~increased~~valuation ~~principally~~allowance ~~due~~of $2 million on $634 million of deferred tax assets as of Dec. 31, 2004 , reflecting the expectation that most of these assets will be realized. In addition, NS Rail has a recorded liability for its estimate of potential income tax exposures. Management believes this liability for potential exposure to be ~~higher~~adequate. Income ~~rates~~tax expense is adjusted to the extent the final outcome of these matters differs from the amounts recorded. For every one half percent change in the 2004 effective tax rate, net income would have changed by $6 million.

21OTHER MATTERS

~~Paper, clay and forest products revenues are expected to improve slightly in 2003 as a result of a recovering economy, service~~Labor ~~improvements~~Agreements ~~and new business.~~

~~INTERMODAL~~Approximately 24,000 ~~traffic~~of ~~volume~~NS ~~increased~~Rail's ~~6%,~~railroad ~~and~~employees ~~revenues~~are ~~increased~~covered ~~5%,~~by incollective ~~2002~~bargaining agreements with various labor unions. ~~Volume~~These ~~growth~~agreements ~~was~~remain ~~principally~~in ~~the~~effect ~~result~~until ofchanged ~~new~~pursuant ~~and~~to ~~improved~~the ~~services~~Railway ~~that~~Labor ~~resulted~~Act. NS Rail largely bargains in ~~new~~concert ~~business,~~with ~~including~~other ~~the~~major ~~conversion~~railroads. ofMoratorium ~~truck~~provisions ~~business~~in tothe ~~rail.~~ labor ~~International~~agreements ~~traffic,~~govern ~~which~~when ~~accounts~~the ~~for~~railroads ~~about~~and ~~half~~the ofunions ~~intermodal~~may ~~volume,~~propose ~~increased~~labor ~~10%,~~agreement changes. Such ~~supported~~proposals bywere ~~growth~~made in ~~trade~~late ~~activity~~1999 and ~~new~~, ~~business~~since that time, ~~including~~NS Rail ~~the~~has ~~conversion~~reached agreements with most of ~~over-~~the~~-road~~ ~~traffic~~major rail labor organizations to settle that round of bargaining. ~~Domestic~~These ~~shipments~~agreements ~~grew~~cover 6approximately 93%, of ~~primarily~~NS ~~because~~Rail ofcontract ~~new~~employees. Tentative agreements subject to ~~business~~ratification ~~gained~~have ~~from~~also been reached with the ~~conversion~~National Conference of ~~truck~~Firemen ~~shipments. Volume~~and Oilers ~~handled~~and ~~for~~the ~~Triple~~Sheet ~~Crown~~Metal ~~Services~~Workers ~~Company~~International ~~(TCS)~~Association. A ~~increased~~1999 ~~4%. Revenue~~bargaining ~~per~~round ~~unit~~agreement ~~declined~~has asnot ayet ~~result~~been reached with the International Association of anMachinists. On ~~increase~~or inafter ~~shorter-haul~~November ~~business~~1, 2004 , the railroads and the ~~absence~~rail oflabor ~~fuel~~unions ~~surcharges~~served ~~that were~~new inproposals ~~place~~to inbegin ~~2001,~~the ~~which~~next ~~were~~bargaining round. The ~~partially~~outcome ~~offset~~of bythe ~~some~~negotiations ~~rate~~cannot ~~increases~~be determined at this point.

InMarket ~~2001, intermodal traffic volume decreased 1% and revenues declined 1%. Domestic traffic volumewas up in the first half~~Risks ~~of the year, but demand increasingly weakened as the year progressed, which eroded NS Rail’s base of traffic. New business supported by the opening of three new terminals~~ and ~~other~~Hedging ~~initiatives~~Activities mitigated the effects of the weakened economy. International traffic, which accounts for about half of intermodal volume, grew slightly as U.S. imports slowed with the economy. TCS traffic volume increased 1% despite economic conditions, as it continued to benefit from reliable, truck-like service. Intermodal revenue per unit dropped later in the year, reflecting the expiration of fuel surcharges that were implemented late in 2000 and the introduction of new shorter-haul business.

InNS ~~2003,~~Rail ~~intermodal~~uses derivative ~~revenues~~financial ~~are~~instruments ~~expected~~ to ~~continue~~reduce tothe ~~benefit~~risk ~~from~~of ~~new~~volatility ~~business~~in ~~supported~~its ~~by continued improvements in~~diesel ~~service~~fuel costs and ~~conversion~~to ofmanage ~~truck~~its ~~traffic~~overall exposure to ~~rail~~fluctuations in interest rates.

~~Railway~~In ~~Operating~~2001, ~~Expenses~~NS Rail 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 Rail's aggregate risk exposure to fuel price fluctuations, which can significantly affect NS Rail's operating margins and profitability, through the use of one or more types of derivative instruments.

~~Railway~~Diesel ~~operating~~fuel ~~expenses~~costs represented ~~decreased 1~~8% inof ~~2002,~~NS ~~while~~Rail's ~~carloads~~operating ~~increased~~expenses 1%for 2004. In The ~~2001,~~program provides ~~railway~~that ~~operating~~NS ~~expenses~~Rail ~~declined 6%.~~will ~~However,~~not ~~expenses~~enter ininto ~~2000~~any ~~included~~fuel ~~$165~~hedges ~~million~~with a duration of more ~~costs~~than ~~related~~36 tomonths, ~~actions~~and ~~taken~~that tono ~~reduce~~more ~~the~~than ~~size~~80% of ~~the~~NS ~~work~~Rail's ~~force. Excluding~~average ~~these~~monthly ~~costs,~~fuel consumption ~~railway~~will ~~operating~~be ~~expenses~~hedged ~~decreased~~for 3%any inmonth ~~2001,~~within ~~while~~any ~~carloads~~36-month ~~dropped 3%~~period.

~~The~~As ~~railway operating ratio, which measures the percentage~~ of ~~railway~~Dec. ~~operating revenues consumed by railway operating expenses~~31, ~~was~~2004 ~~84.1%~~, inthrough ~~2002~~swap transactions, ~~compared~~NS ~~with~~Rail ~~86.2%~~has inhedged ~~2001~~approximately ~~and 89.1~~36% inof expected ~~2000~~2005 ~~(excluding~~diesel ~~the~~fuel ~~work-force~~requirements. The ~~reduction~~effect ~~costs,~~of ~~which~~these ~~increased~~hedges ~~the~~is to ~~ratio~~yield ~~2.7~~an ~~percentage~~average ~~points). Both~~cost ~~declines~~of ~~primarily~~83 cents ~~resulted~~per ~~from~~hedged ~~gains in efficiency~~gallon, ~~although~~including ~~2002 also benefited from~~federal ~~higher~~taxes ~~traffic volume,~~ and ~~2001 benefited from increased revenue per unit~~transportation. ~~The~~ A ~~efficiency~~10% ~~gains~~decrease in ~~2002~~diesel ~~were~~fuel ~~principally~~prices ~~the~~would ~~result~~reduce ofNS ~~the~~Rail's ~~implementation~~asset ofrelated ~~a new operating plan that emphasizes adherence~~ to ~~a schedule and reductions in service variability. These improvements came despite a continuing change in~~ the ~~mix~~swaps ofby ~~traffic~~approximately ~~(more~~$24 ~~resource-intensive~~million ~~traffic,~~as ~~such~~of asDec. ~~automotive and intermodal~~31, ~~coupled~~2004 ~~with the decrease in export coal traffic)~~.

22However, with fuel prices near historic highs and fuel surcharges being collected under certain tariffs and contracts, NS Rail has not entered into additional hedges since May 2004. Consequently, the past pattern of entering into regular monthly swaps may not be indicative of future hedging activity. If diesel fuel prices remain at their current levels, or increase further, diesel fuel expense will be higher going forward.

~~The~~19 ~~following table shows the changes in railway operating expenses summarized by major classifications.~~

Operating Expense Variances
Increases (Decreases)
	2002 vs. 2001			2001 vs. 2000
	($ in millions)
Compensation and benefits*	$	12	$		(372)
Materials, services and rents		(6)			159
Conrail rents and services		1			(35)
Depreciation		2			11
Diesel fuel		(70)			(66)
Casualties and other claims		27			3
Other		(20)			(43)
Total	$	(54)	$		(343)

NS Rail 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 to achieve an appropriate mix within its debt portfolio.

*At Dec. 31, 2004 , NS Rail's debt subject to interest rate fluctuations totaled $476 million. ~~Includes~~A 1% increase in interest rates would increase NS Rail's total annual interest expense related to all its variable debt by approximately $~~165~~5 million. Management ofconsiders ~~work-force~~it ~~reduction~~unlikely ~~costs~~that interest rate fluctuations applicable to these instruments will result in ~~2000~~a material adverse effect on NS Rail's financial position, results of operations or liquidity.

~~Compensation~~Some ~~and~~of ~~benefits~~NS ~~represented~~Rail's capital ~~30%~~leases, ofwhich ~~total~~carry ~~railway~~an ~~operating~~average ~~expenses~~fixed ~~and~~rate ~~increased~~of 17%, inwere ~~2002~~effectively converted to variable rate obligations using interest rate swap agreements. ~~Higher~~On ~~wage rates~~Dec. 31, ~~reduced~~2004 ~~pension~~, ~~income~~the ~~(see~~average ~~Note~~pay ~~13)~~rate ~~and~~under ~~increased~~these ~~health~~agreements was 3%, and ~~welfare~~the ~~benefits~~average ~~costs~~receive ~~more~~rate ~~than~~was ~~offset~~7%. During ~~savings~~2004, ~~from~~the ~~reduced~~effect of the swaps ~~employment~~was ~~levels~~to ~~and~~reduce ~~lower~~interest ~~payroll~~expense ~~taxes~~by ~~(see~~$6 ~~the~~million. A ~~discussion~~portion of the ~~Railroad~~lease obligations ~~Retirement~~is ~~and~~payable ~~Survivors’~~in ~~Improvement~~Japanese ~~Act, below)~~yen. ~~Medical~~ NS ~~costs~~Rail ~~are~~eliminated ~~expected~~the toassociated exchange ~~continue~~rate risk at the inception of each lease with a yen deposit sufficient to ~~increase~~fund inthe ~~2003~~yen-denominated obligation. Most of these deposits are held by foreign banks, primarily Japanese. As a result, ofNS ~~higher~~Rail ~~costs~~is ~~for~~exposed ~~active~~to financial ~~employees~~market ~~and an~~risk ~~increase~~relative into Japan . Counterparties to the ~~expected~~interest rate ~~inflation~~swaps ~~related~~and Japanese banks holding yen deposits are major financial institutions believed by management to ~~postretirement~~be ~~benefits~~creditworthy.

InProposed Legislation ~~2001, compensation~~ and ~~benefits~~Regulations ~~decreased~~on ~~20%;~~Safety ~~however, this comparison reflects the $165 million of work-force reduction costs in 2000. Excluding those costs, compensation~~ and ~~benefits~~Transportation ~~decreased 12%, reflecting the effects~~ of ~~the~~Hazardous ~~management fee charged~~Materials by NS (see Note 2) as well as savings attributable to the reduced size of the work force. These savings were somewhat offset by higher wages and benefit costs for union employees and reduced pension income.

~~The~~Legislation introduced ~~Railroad~~in ~~Retirement~~Congress ~~and~~in ~~Survivors’~~early ~~Improvement~~2005 ~~Act,~~would ~~which~~give ~~took~~federal ~~effect~~regulators ~~on Jan. 1, 2002, provides for a phased reduction~~increased ofauthority ~~the~~to ~~employers’~~conduct ~~portions~~investigations ofand ~~Tier~~levy IIsubstantial ~~Railroad~~fines ~~Retirement~~and ~~payroll~~penalties ~~taxes. The phase-~~in connection ~~calls~~with ~~for~~railroad aaccidents. Federal ~~reduction~~regulators ~~from~~would ~~15.6%~~also be inrequired ~~2002~~ to ~~14.2%~~prescribe innew ~~2003~~regulations ~~and~~governing ~~13.1%~~railroads' intransportation ~~2004~~of hazardous materials. If ~~In addition~~enacted, ~~the~~such ~~supplemental~~legislation ~~annuity~~and ~~tax~~regulations ~~was eliminated. These changes resulted~~could inimpose ansignificant ~~estimated~~additional ~~$21~~costs ~~million~~on ~~reduction~~railroads inincluding ~~payroll~~NS ~~taxes~~Rail. In addition, incertain ~~2002~~local ~~and~~governments ~~are~~have ~~expected~~sought to ~~result~~enact inordinances ~~savings of $20 million in 2003~~banning, or ~~compared~~requiring disclosures with ~~2002. However,~~respect ~~these savings are expected~~ to, behazardous ~~offset~~materials moving by anrail ~~increase in the railroad unemployment tax rate,~~within ~~higher~~their ~~payroll~~borders. If ~~taxes~~promulgated ~~on increased wages~~ and aupheld, ~~higher~~such ~~wage~~ordinances ~~base. The~~could ~~new~~require the ~~law~~re-routing ~~allows for investment~~ of ~~Tier~~hazardous IImaterials ~~assets~~shipments, inwith ~~a diversified portfolio through~~ the ~~newly~~potential ~~established~~for significant ~~National~~additional ~~Railroad~~costs ~~Retirement~~and ~~Investment~~network ~~Trust~~inefficiencies. ~~The~~ Accordingly, ~~law also provides a~~NS ~~mechanism~~Rail ~~for~~will ~~automatic~~oppose ~~adjustment~~efforts ofto ~~future~~impose ~~Tier~~unwarranted IIregulation ~~payroll~~in ~~taxes~~this ~~should the trust assets fall below a four-year reserve or exceed a six-year reserve~~area.

~~Materials, services and rents includes items used for the maintenance of the railroad’s lines, structures and~~Inflation equipment; the costs of services purchased from outside contractors, including the net costs of operating joint (or leased) facilities with other railroads; the management fee charged by NS (see Note 2); and the net cost of equipment rentals. This category of expenses decreased slightly in 2002, but increased 9% in 2001.

~~The~~In ~~decline~~preparing infinancial ~~2002~~statements, ~~reflected~~U.S. generally aaccepted ~~significant~~accounting ~~reduction~~principles inrequire ~~equipment~~the ~~rents,~~use ~~which~~of ~~was~~historical ~~largely~~cost ~~offset~~that disregards bythe ~~higher~~effects ~~volume~~of inflation on the replacement cost of property. NS Rail, a capital-~~related~~intensive company, has most of its capital invested in such ~~expenses~~assets. The ~~for~~replacement ~~automotive~~cost ~~and~~of ~~intermodal~~these ~~traffic~~assets, ~~increased~~as ~~material~~well ~~costs~~as ~~for~~the ~~locomotives~~related depreciation expense, ~~higher~~would ~~expenses~~be ~~for~~substantially ~~roadway~~greater ~~and~~than ~~bridge~~the amounts reported ~~repairs~~on ~~and~~the ~~increased~~basis ~~derailment~~of ~~costs. In~~historical ~~2001,~~cost.

2320

~~the~~FORWARD-LOOKING ~~effects~~STATEMENTS ~~of the management fee charged by NS and higher costs for purchased services, including expenses for software, consulting and legal fees were partially offset by lower equipment rents.~~

~~Equipment~~This ~~rents,~~management's ~~which~~narrative ~~includes~~analysis of the ~~cost~~results toof operations NScontains ~~Rail~~forward-looking statements that may be identified by the use of ~~using~~words ~~equipment~~like ~~(mostly~~"believe," ~~freight~~"expect," ~~cars)~~"anticipate" ~~owned~~and by"project." ~~other~~Forward-looking statements ~~railroads~~reflect ormanagement's ~~private~~good-faith evaluation of information currently ~~owners~~available. However, ~~less~~such ~~the~~statements ~~rent~~are ~~paid~~dependent toon NSand, ~~Rail~~therefore, ~~for~~can ~~the~~be influenced ~~use~~by, a number of ~~its~~external ~~equipment,~~variables ~~decreased~~over ~~14%~~which inmanagement ~~2002~~has little or no control, including: domestic and ~~11%~~international ineconomic ~~2001.~~conditions; ~~The~~the business ~~decline~~environment in ~~2002~~industries ~~was~~that produce and consume rail freight; ~~principally~~competition and consolidation within the ~~result~~transportation industry; fluctuation in prices of ~~continued~~key ~~improvement~~materials, in ~~cycle~~particular ~~times~~diesel fuel; labor difficulties, including ~~reflecting~~strikes ~~efficiency~~and ~~gains~~work stoppages; legislative and regulatory developments; changes in securities and capital markets; and natural events such as severe weather, ~~for~~floods ~~intermodal~~and ~~equipment~~earthquakes. Forward-looking statements are not, ~~service~~and should ~~design~~not ~~and~~be ~~process~~relied ~~changes~~upon ~~implemented~~as, ~~during~~a ~~the~~guaranty ~~year. The~~of ~~decrease~~future inperformance ~~2001~~or ~~was~~results. ~~primarily~~Nor ~~due~~will they necessarily prove to ~~shorter~~be ~~car~~accurate ~~cycle~~indications of the times at or by which ~~that~~any ~~resulted~~such inperformance ~~fewer~~or ~~car~~results ~~days~~will onbe ~~line~~achieved. ~~and~~As ~~fewer~~a ~~freight~~result, ~~car~~actual outcomes and ~~locomotive~~results ~~leases~~may differ materially from those expressed in forward-looking statements. NS Rail undertakes no obligation to update or revise forward-looking statements.

~~Locomotive~~Item ~~repair costs increased in 2002 and 2001, principally due to renewed maintenance activity, which is expected to continue into 2003~~7A. ~~Freight~~ ~~car~~Quantitative ~~maintenance costs, which were relatively flat in 2002, are also likely to increase in 2003, as it is expected that the economy will recover~~ and ~~more~~Qualitative ~~freight~~Disclosures ~~cars~~About ~~are~~Market ~~due~~Risk ~~for maintenance~~.

~~Conrail~~The ~~rents~~information ~~and~~required ~~services~~by ~~increased~~this ~~slightly~~item inis ~~2002~~included ~~and declined 7%~~ in ~~2001.~~Part ~~This~~II, Item ~~item~~7, ~~includes~~"Management's ~~amounts~~Discussion ~~due to PRR~~ and ~~CRC~~ ~~for~~Analysis ~~use~~ of ~~their~~Financial ~~operating~~Condition ~~properties~~ and ~~equipment~~Results of ~~and~~Operations," ~~CRC’s~~under ~~operation of~~ the ~~Shared~~heading ~~Assets~~"Market ~~Areas.~~Risks ~~The~~and ~~decline~~Hedging ~~in 2001 reflected lower expenses in the Shared Assets Areas~~Activities."

~~Depreciation~~21 expense was up slightly in 2002 and increased 2% in 2001. Substantial levels of capital spending affected both years; however, depreciation expense in 2002 benefited from lower rates implemented early in the year following completion of a periodic study (see Note 1, “Properties,” for NS Rail’s depreciation policy).

~~Diesel~~Item ~~fuel expenses decreased 17% in 2002 and 14% in 2001~~8. ~~The~~ ~~decline~~Financial inStatements ~~2002 reflected a 16% drop in the average price per gallon~~ and ~~slightly~~Supplementary ~~lower~~Data ~~consumption~~. Expenses in 2002 included a $10 million benefit from the hedging program initiated in the second quarter of 2001 (see “Market Risks and Hedging Activities,” below and Note 15). The decrease in 2001 was the result of an 8% drop in consumption and a 7% decline in the average price per gallon. Expenses in 2001 included $8 million of cost related to the hedging program. NS Rail expects diesel fuel prices to be higher in 2003.

~~Casualties~~INDEX ~~and~~TO ~~other~~FINANCIAL ~~claims~~STATEMENTS expenses (including the estimates of costs related to personal injury, property damage and environmental matters) increased 19% in 2002 and 2% in 2001. The increase in 2002 reflected adverse personal injury claims development as indicated by an actuarial study and higher expenses for loss and damage to lading, as well as higher insurance and environmental remediation costs.

~~The~~ Page ~~largest~~ Report of ~~component~~Independent ofRegistered ~~casualties~~Public ~~and~~Accounting ~~other~~Firm ~~claims~~ 23 ~~expense~~ Consolidated Statements isof ~~personal~~Income ~~injury~~ Years ended ~~costs~~Dec. In ~~2002~~31, ~~cases~~2004 ~~involving occupational~~, ~~injuries~~2003 ~~comprised~~and ~~about~~2002 ~~30%~~ 24 of Consolidated Balance ~~the~~Sheets ~~total~~ As of ~~employee~~Dec. ~~injury~~31, ~~cases~~2004 ~~settled~~ and ~~24%~~2003 of 25 ~~the total settlement payments~~ ~~made. Injuries~~ Consolidated Statements of ~~this~~Cash ~~type~~Flows ~~are~~ Years ended ~~not~~Dec. ~~generally caused by a specific accident or event~~31, ~~but,~~2004 ~~rather~~, ~~result~~2003 ~~from~~and a2002 ~~claimed~~ ~~exposure~~ 26 ~~over~~ Consolidated Statements ~~time. Many~~of ~~such~~Changes ~~claims~~in ~~are~~Stockholder's ~~being~~Equity ~~asserted~~ Years ended byDec. ~~former~~31, or2004 ~~retired employees~~, ~~some~~2003 ofand ~~whom~~2002 ~~have~~ 27 ~~not been actively~~ ~~employed~~ Notes to inConsolidated ~~the~~Financial ~~rail~~Statements ~~industry~~ 28 ~~for~~ The Index ~~decades. NS Rail continues~~ to ~~work~~Consolidated ~~actively~~Financial toStatement ~~eliminate~~Schedule ~~all~~in ~~employee~~Item 15 ~~injuries and to~~ ~~reduce~~ 53 ~~the associated costs.~~

~~The~~22 rail industry remains uniquely susceptible to litigation involving job-related accidental injury and occupational claims because of the Federal Employers’ Liability Act (FELA), which is applicable only to railroads. This law, which covers employee claims for job-related injuries, produces results that are unpredictable and inconsistent as compared with a no-fault workers’ compensation system.

NSR ~~Rail,~~eport like many other businesses in the U.S., has experienced difficulty obtaining property and casualty insurance at reasonable terms since the September 11 terrorist attacks. Thus far, NS Rail has been successful in maintaining a substantial amount of ~~commercial~~Independent ~~insurance~~Registered ~~for~~Public ~~third-party~~Accounting ~~personal injury, property damage and FELA claims that exceed the self-insured~~Firm ~~retention. However, both the cost~~

24The Board of Directors

ofNorfolk ~~this~~Southern ~~commercial~~Railway ~~insurance and the amount of risk that NS Rail retains through self-insurance has more than doubled since the attacks.~~Company:

~~Other~~We ~~expenses~~have ~~decreased~~audited 7%the inaccompanying ~~2002~~consolidated balance sheets of Norfolk Southern Railway Company and ~~13%~~subsidiaries, ina ~~2001. The~~wholly ~~decline~~owned insubsidiary ~~2002~~of Norfolk ~~reflected~~Southern ~~lower~~Corporation, ~~expenses~~as ~~for~~of ~~property~~December 31, 2004 and ~~sales~~ 2003, and ~~use~~the ~~taxes. The~~related consolidated ~~decrease~~statements of income, changes in ~~2001~~stockholder's ~~was~~equity ~~principally~~and cash flows for each of the ~~result~~years in the three-year period ended December 31, 2004. In connection with our audits of ~~lower~~the ~~bad~~consolidated ~~debt~~financial ~~costs~~statements, we ~~reduced~~have ~~franchise~~also ~~and~~audited ~~property~~the financial statement schedule as listed in Item 15( A ) ~~taxes,~~2 . These consolidated financial statements and financial statement schedule are the ~~effects~~responsibility of ~~the~~Norfolk NSSouthern Railway Company's management. Our ~~fee~~responsibility ~~(see~~is ~~Note~~to 2)express an opinion on these consolidated financial statements and financial statement schedule based on our audits.

~~Other~~We ~~Income~~conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (~~Expense~~ United States ). Those standards –require ~~Net~~that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

~~Other~~In ~~income~~our ~~(expenses)~~opinion, –the ~~net~~consolidated ~~was~~financial anstatements ~~expense~~referred to ofabove ~~$221~~present ~~million~~fairly, in ~~2002~~all material respects, ~~compared~~the ~~with~~financial ~~expenses~~position of Norfolk ~~$243~~Southern ~~million~~Railway inCompany ~~2001~~and subsidiaries as of December 31, 2004 and ~~$169~~2003, ~~million~~and inthe ~~2000. The~~results ~~decline~~of intheir ~~2002~~operations ~~primarily~~and ~~resulted~~their ~~from~~cash ~~lower~~flows ~~discount~~for ~~from~~each of the years ~~sales~~in ofthe ~~accounts~~three-year ~~receivable~~period ~~(see~~ended December 31, 2004, in conformity with ~~Note~~U.S. 2)generally accepted accounting principles. Also, ~~which~~in ~~was~~our ~~offset~~opinion, the related financial statement schedule, when considered in ~~part~~relation byto ~~higher~~the ~~interest~~basic consolidated ~~accruals~~financial onstatements ~~federal~~taken ~~income~~as ~~tax~~a ~~liabilities. The~~whole, ~~increase~~presents fairly, in ~~2001~~all ~~resulted~~material ~~from~~respects, ~~higher~~the ~~discount~~information onset ~~accounts~~forth ~~receivable sales~~therein.

~~Income~~As discussed ~~Taxes~~in note 1 to the consolidated financial statements, effective January 1, 2003 , Norfolk Southern Railway 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.

~~Income~~/s/ ~~tax~~KPMG ~~expense in 2002 was $278 million, for an effective rate of 39%, compared with effective rates of 37% in 2001 and 35% in 2000.~~LLP

~~The~~Norfolk ~~effective~~, ~~rates~~Virginia in all three years were below the statutory federal and state rates because of favorable adjustments upon filing the prior year tax returns and in 2002 and 2000 because of favorable adjustments to state tax liabilities.

InFebruary ~~March 2002~~28, ~~the~~2005 Job Creation and Worker Assistance Act of 2002 was signed into law and began providing immediate tax incentives for business. A 30% additional first-year depreciation allowance was a primary element of this legislation. This depreciation incentive continues for three years, and during these years the resulting acceleration of tax depreciation deductions will improve cash flow by reducing current tax expense and increasing deferred tax expense by significant amounts.

~~FINANCIAL~~23 ~~CONDITION, LIQUIDITY AND CAPITAL RESOURCES~~

~~Cash~~Norfolk ~~provided~~Southern byRailway ~~operating~~Company ~~activities, NS Rail’s principal source of liquidity, was $1.1 billion in 2002, compared with $737 million in 2001~~ and ~~$1.05 billion in 2000. In 2002, the improvement was the result of higher income from railway~~Subsidiaries operations and favorable changes in working capital. The significant decline in operating cash flow in 2001 reflects the sale in 2000 of accounts receivable, proceeds of which were advanced to NS (see Note 2, “Sale of Accounts Receivable”). Excluding the cash infusion from that accounts receivable sale program, operating cash flow declined $106 million in 2001. The decrease primarily resulted from higher tax payments including amounts applicable to prior years, bonus payments in 2001 (no such payments in 2000) and the timing of payrolls.

(A ~~significant~~Wholly ~~portion~~Owned ofSubsidiary ~~payments made to PRR (which are included in “Conrail Rents and Services” and, therefore, are a use~~ of ~~cash~~Norfolk ~~in “Cash provided by operating activities”~~Southern Corporation) are borrowed back from a PRR subsidiary and, therefore, are a source of cash in “Proceeds from borrowings.” NS Rail’s net cash flow from these borrowings amounted to $212 million in 2002 and $250 million in 2001.

NSConsolidated ~~Rail’s~~Statements ~~working capital deficit was $1.1 billion at Dec. 31, 2002, compared with $1.5 billion at Dec. 31, 2001. The decline resulted principally from the change in the terms~~ of ~~the~~Income ~~note under which NS borrows funds from a subsidiary of PRR (see Note 2).~~

NS Years ~~Rail~~ended ~~looks~~Dec. to31, NS 2004 to 2003 ~~provide~~ 2002 ~~needed~~ ($ ~~funding.~~in NSmillions) ~~currently~~ Railway operating ~~has~~revenues ~~the~~ $ ~~capability~~ 7,176 $ to 6,290 $ ~~increase~~ 6,095 Railway operating ~~the~~expenses ~~amount~~ Compensation and ofbenefits ~~accounts~~(Note ~~receivable~~13) ~~being~~ 1,719 1,636 1,540 Materials, services ~~sold~~and ~~under~~rents ~~its~~ 2,090 1,970 1,832 Conrail rents ~~revolving~~and ~~sale~~services ~~program.~~(Note ~~During~~2) ~~2002~~ 362 477 466 Depreciation (Note 2) 588 498 499 Diesel fuel 449 380 342 Casualties and other claims 153 183 172 Other 317 290 273 Railway operating expenses 5,678 5,434 5,124 Income from ~~the~~railway ~~amount~~operations 1,498 856 971 Other expense - net (Note 3) (293) (220) (221) Interest expense on debt (Note 6) (38) (24) (30) Income before income taxes 1,167 612 720 Provision for income taxes (Note 4) 395 229 278 Income before accounting changes 772 383 442 Cumulative effect of ~~receivables~~changes in accounting principles, net of taxes (Note 1) -- 104 -- Net income $ 772 $ 487 $ 442 See accompanying notes to consolidated financial statements.

2524

NSNorfolk ~~could~~Southern ~~sell~~Railway ~~under~~Company ~~this program ranged from $368 million to $421 million,~~ and ~~the amount of receivables NS sold ranged from $30~~Subsidiaries million to $400 million. Moreover, NS has the capability to issue up to $1 billion of commercial paper; however, reductions in its credit rating could limit NS’ ability to access the commercial paper markets.

As(A ~~the~~Wholly ~~major~~Owned NSSubsidiary ~~subsidiary,~~of NSNorfolk ~~Rail provides funding to service NS’ debt. NS’ debt at Dec. 31, 2002, totaled $6.4~~Southern ~~billion.~~Corporation) ~~Of this debt, $1.8 billion is due between 2003 and 2007.~~

NSConsolidated ~~Rail~~Balance ~~expects~~Sheets to generate sufficient cash flow from operations to meet its ongoing obligations, as well as to advance amounts to NS to service its debt. This expectation is based on a view that the economy will remain flat for the first half of 2003 and resume growth in the third and fourth quarters.

~~Contractual~~ As ~~obligationsat~~of Dec. 31, ~~2002~~ 2004 2003 ($ in millions) Assets Current assets: Cash and cash equivalents $ 561 $ 257 Short-term investments 90 -- Accounts receivable net of allowance for doubtful accounts of $9 million and $6 million, ~~related~~respectively (Note 2) 154 121 Materials and supplies 104 91 Deferred income taxes (Note 4) 170 175 Other current assets 235 159 Total current assets 1,314 803 Investments (Notes 5 and 14) 1,328 779 Properties less accumulated depreciation (Notes 2 and 6) 20,201 11,346 Other assets 724 684 Total assets $ 23,567 $ 13,612 Liabilities and stockholder's equity Current liabilities: Accounts payable (Note 7) $ 974 $ 890 Income and other taxes 178 168 Due to NS ~~Rail’s~~- net (Note 2) 1,029 781 Due to Conrail (Note 2) 78 81 Other current liabilities (Note 7) 142 112 Current maturities of long-term debt (~~including~~Note ~~capital~~8) ~~leases~~ 263 102 Total current liabilities 2,664 2,134 Long-term debt (Notes 2 and 8) 1,291 ~~operating~~ ~~leases~~ 813 Other liabilities (Note 10) 1,088 ~~agreements~~ 1,033 ~~with~~ Due to ~~CRC~~NS (Note 2) 874 -- Due to Conrail (Note 2) -- 716 Deferred income taxes (Notes 2 and ~~unconditional~~4) ~~purchase~~ 7,843 ~~obligations~~ 4,372 ~~are~~ Total asliabilities ~~follows~~ 13,760 9,068 Stockholder's equity: Common stock (Note 11) 167 167 Additional paid-in capital (Note 2) 6,336 721 Accumulated other comprehensive income (Note 12) 507 323 Retained income 2,797 3,333 Total stockholder's equity 9,807 4,544 Total liabilities and stockholder's equity $ 23,567 $ 13,612 See accompanying notes to consolidated financial statements.

					2004-		2006-		2008 and
	Total		2003		2005		2007		Subsequent
	($ in millions)
Long-term debt and
capital leases	$	857	$	94	$	188	$	201	$	374
Operating leases		876		112		165		114		485
Agreements with CRC		748		30		65		68		585
Unconditional purchase
obligations		164		164		--		--		--
Total	$	2,645	$	400	$	418	$	383	$	1,444

NSNorfolk ~~Rail~~Southern ~~also~~Railway ~~has~~Company contractual obligations to PRR as disclosed in Note 2. However, NS Rail has the ability to borrow back funds from PRR to the extent they aren’t needed to fund contractual obligations at Conrail. The following table represents 58% (NS’ economic ownership interest in Conrail) of Conrail’s contractual obligations for long-term debt (including capital leases) and ~~operating~~Subsidiaries ~~leases. Conrail has no unconditional purchase or other long-term obligations.~~

					2004-		2006-		2008 and
	Total		2003		2005		2007		Subsequent
	($ in millions)
Long-term debt and
capital leases	$	684	$	33	$	62	$	62	$	527
Operating leases		327		32		64		62		169
Total	$	1,011	$	65	$	126	$	124	$	696

(A Wholly Owned Subsidiary of Norfolk Southern Corporation)

NSConsolidated ~~Rail~~Statements ~~also has two transactions not included in the balance sheets or in the previous table~~ of ~~its~~Cash ~~contractual~~Flows ~~obligations consisting of an accounts receivable sale program (see Note 2) and an operating lease covering 140 locomotives (see Note 9).~~

~~Under~~ Years ~~the~~Ended ~~accounts~~Dec. ~~receivable~~31, ~~sale~~ 2004 ~~program,~~ 2003 NS 2002 ~~Rail~~ ($ ~~sells~~in ~~without~~millions) ~~recourse~~ Cash ~~accounts~~flows ~~receivable~~from tooperating aactivities ~~bankruptcy-remote~~ ~~special-purpose~~ Net income ~~subsidiary~~ $ 772 $ 487 $ 442 Reconciliation of ~~NS.~~net ~~There~~income isto nonet ~~existing~~cash ~~obligation~~ provided by ~~for~~operating NSactivities: ~~Rail~~ Net cumulative toeffect ~~repurchase~~of ~~sold~~changes ~~receivables.~~in ~~The~~accounting ~~special~~principles -~~purpose~~- ~~subsidiary~~ (104) ~~sells~~ -- Depreciation 590 499 500 Deferred income ~~undivided~~taxes ~~ownership~~ 207 166 186 Gains and ~~interests~~losses on properties and investments (35) (34) (22) Changes in ~~the~~assets ~~receivables~~and toliabilities ~~two~~affecting ~~unrelated~~operations: ~~buyers.~~ Accounts receivable NS(Note ~~Rail~~2) ~~has~~ (49) no (4) ~~ownership~~ 35 Materials and ~~interest~~supplies in (12) ~~the~~ ~~unrelated~~ 4 (8) ~~buyers.~~ Other current ~~The~~assets ~~unrelated~~ (15) ~~buyers~~ (12) ~~issued~~ 1 Income tax ~~debt~~liabilities to 62 19 49 Other short-term ~~fund~~liabilities ~~their~~ 114 41 17 Other - ~~initial~~net ~~purchase~~ 2 15 (107) Net cash provided by operating activities 1,636 1,077 1,093 Cash flows from investing activities Property additions (1,010) (705) (661) Property sales and NSother ~~Rail~~transactions ~~has~~ 47 65 20 Investments, including noshort-term ~~obligation~~ (215) ~~related~~ (103) to (73) ~~this~~ ~~debt.~~ Investment sales ~~Upon~~and ~~termination~~other oftransactions ~~the~~ 41 107 45 Net cash ~~program~~used ~~between~~for ~~the~~investing activities (1,137) (636) (669) Cash flows from financing activities Dividends (Note 2) -- (3) (3) Other paid-in capital 10 -- -- Advances to NS ~~subsidiary~~(Note 2) (195) (398) (633) Advances and ~~the~~repayments ~~unrelated~~from ~~buyers,~~NS ~~the~~(Note ~~buyers~~2) ~~would~~ 10 28 -- Redemption of ~~cease~~preferred ~~purchasing~~shares ~~new~~(Note 11) ~~receivables~~ -- (43) -- Proceeds from borrowings 202 261 344 Debt repayments (222) (159) (169) Net cash used for financing activities (195) (314) (461) Net increase (decrease) in cash and ~~collections~~cash ~~related~~equivalents to 304 127 (37) ~~the~~ Cash ~~sold~~and ~~receivables~~cash ~~would~~equivalents At beginning beof ~~retained~~year by 257 130 167 At end of year $ 561 $ 257 $ 130 Supplemental disclosures of cash flow information Cash paid during the ~~buyers~~year for: Interest (net of amounts capitalized) $ 43 $ 41 $ 49 Income taxes $ 128 $ 42 $ 35 See accompanying notes to consolidated financial statements.

2625

~~The~~Norfolk ~~operating~~Southern ~~lease~~Railway ~~covering~~Company ~~the 140 locomotives is renewable annually at NS Rail’s option~~ and ~~expires~~Subsidiaries in 2008. The lessor is a special-purpose entity formed to enter into this transaction, but it isnot related to NS Rail and its owner has a substantive residual equity capital investment at risk in the entity. The lessor owns the locomotives and issued debt to finance their purchase. NS Rail has no obligation related to the debt. NS Rail has the option to purchase the locomotives, but also can return them to the lessor. The return provisions of the lease are not so onerous as to preclude this option. If NS Rail does not purchase the locomotives at the end of the maximum lease term, it is liable for any shortfall in the then fair value of the locomotives and a specified residual value. NS Rail does not expect to be required to make any payments under this provision (see Note 9). As the primary beneficiary of the business of the lessor, effective Jan. 1, 2003, NS Rail consolidated the assets (locomotives) and liabilities (debt) of this special-purpose entity when it implemented Financial Accounting Standards Board Interpretation No. 46 (see “New Accounting Pronouncement,” on Page 33).

~~Cash~~(A ~~used~~Wholly ~~for~~Owned ~~investing~~Subsidiary ~~activities decreased 5% in 2002, but increased 29% in 2001. Property additions, which account for most~~ of ~~the~~Norfolk ~~recurring~~Southern ~~spending in this category,were down 9% in 2002, following a 15% increase in 2001. Property sales were~~Corporation) significantly lower in 2002, which resulted in the smaller decline in cash used for investing activities compared with the reduction in capital spending. The following tables show capital spending and track and equipment statistics for the past five years.

Capital Expenditures
	2002		2001		2000		1999		1998
	($ in millions)
Road	$	495	$	462	$	518	$	559	$	583
Equipment		172		263		110		356		419
Total	$	667	$	725	$	628	$	915	$	1,002

Consolidated Statements of Changes in Stockholder's Equity

~~Capital~~ Accum ~~expenditures~~. ~~(which~~ Other in Serial ~~2002~~ Additional ~~included~~ Compre $6- ~~million~~ Preferred of Common ~~capitalized~~ Paid-In ~~leases)~~ hensive ~~decreased~~ Retained 8% Stock Stock Capital Income Income Total ($ in ~~2002~~millions, ~~but~~except ~~increased~~per ~~15%~~share inamounts) ~~2001~~ Balance Dec. ~~The~~ ~~decline~~31, in2001 ~~2002~~ $ ~~reflected~~ 55 $ ~~lower~~ 167 $ ~~spending~~ 706 $ ~~for~~ 215 $ ~~intermodal~~ 3,678 $ ~~facilities~~ 4,821 Comprehensive income as Net income NS 442 442 Other comprehensive ~~Rail~~ income 51 ~~completed~~ 51 Total comprehensive in income 493 Serial preferred ~~2001~~stock, ~~several~~ ~~significant~~ $2.60 per ~~projects~~share ~~that~~cash ~~expanded~~ dividend (3) ~~the~~ (3) ~~capacity~~ Noncash dividends ofon ~~the~~ Common Stock ~~intermodal~~ (501) ~~network.~~ (501) Capital contribution 3 ~~Higher~~ 3 Balance Dec. ~~spending~~31, on2002 ~~track~~ $ ~~program~~ 55 $ ~~work~~ 167 $ ~~was~~ 709 $ ~~offset~~ by 266 $ ~~lower~~ 3,616 $ ~~locomotive~~ 4,813 Comprehensive income ~~purchases~~ Net income 487 487 Other comprehensive income (50Note in12) ~~2002~~ 57 ~~compared~~ 57 Total comprehensive ~~with~~ income 544 Serial preferred ~~100~~stock, in $2.60 per ~~2001~~share cash dividend (3). ~~Outlays~~ (3) in Redemption of ~~2001~~preferred ~~included~~shares ~~amounts~~ (43) ~~for~~ (43) ~~locomotive~~ Noncash dividends ~~purchases~~on Common Stock (noNote 2) ~~such~~ (767) ~~purchases~~ (767) ~~were~~ Capital contribution ~~made~~(Note in2) ~~2000~~ (12) as 12 -- -- 167 721 323 3,333 4,544 Balance Dec. ~~locomotives~~31, ~~were~~2003 ~~leased~~ Comprehensive income Net income 772 772 Other comprehensive income (Note 12) ~~that~~ 184 184 Total comprehensive ~~were~~ income 956 Noncash dividends ~~somewhat~~(Note ~~offset~~2) by (1,308) ~~lower~~ (1,308) ~~expenditures~~ Capital contribution ~~for~~(Note ~~freight~~2) ~~car~~ ~~purchases~~ 5,615 5,615 Balance Dec. ~~and~~31, ~~roadway~~2004 ~~projects~~ $ -- $ 167 $ 6,336 $ 507 $ 2,797 $ 9,807 See accompanying notes to consolidated financial statements.

Track Structure Statistics (Capital and Maintenance)
	2002		2001		2000		1999		1998
Track miles of rail installed		235		254		390		403		429
Miles of track surfaced		5,270		3,836		3,687		5,087		4,715
New crossties installed (millions)		2.8		1.5		1.5		2.3		2.0

27Norfolk Southern Railway Company and Subsidiaries

Average Age of Owned Railway Equipment
	2002		2001		2000		1999		1998
	(Years)
Freight cars		26.6		26.1		25.3		24.4		23.6
Locomotives		16.1		15.7		16.1		15.4		15.4
Retired locomotives		28.2		22.4		24.5		22.7		20.6

(A Wholly Owned Subsidiary of Norfolk Southern Corporation)

~~The~~Notes ~~table~~to ~~above~~Consolidated ~~excludes~~Financial ~~equipment~~Statements ~~leased from PRR (see Note 2), which comprises 17% of the freight car fleet and 25% of the locomotive fleet.~~

~~Through~~The ~~its~~following ~~coal~~Notes ~~car~~are ~~rebody~~an ~~program,~~integral ~~which~~part ~~was suspended in 2000, NS Rail converted about 29,000 hopper cars into high-capacity steel gondolas or hoppers. As a result, the remaining service life~~ of the ~~freight-car fleet is greater than may be inferred from~~Consolidated ~~the~~Financial ~~increasing average age shown in the table above~~Statements.

~~For 2003, NS Rail has budgeted almost $800 million for capital expenditures~~1. Summary ~~The anticipated spending includes $499 million for roadway projects,~~ of ~~which~~Significant ~~$383~~Accounting ~~million~~Policies is for track and bridge program work. Also included are projects for communications, signal and electrical systems, as well as projects for environmental and public improvements such as grade crossing separations and signal upgrades. Other roadway projects include marketing and industrial development initiatives, including increasing track capacity and access to coal receivers and vehicle production and distribution facilities, and continuing investments in intermodal infrastructure. Equipment spending of $246 million includes the purchase of 100 locomotives and upgrades to existing units, improvements to multilevel automobile racks, and projects related to computers and information technology, including additional security and backup systems.

~~Cash~~Description ~~used for financing activities in 2002 was $461 million. Financing activities provided cash~~ of ~~$134~~Business million in 2001 and used cash of $506 million in 2000. Financing activities included loan transactions with a PRR subsidiary that resulted in net borrowings of $212 million in 2002 and $250 million in 2001 and net repayments of $72 million in 2000 (see Note 2). Advances to NS typically account for most of the cash used for financing activities and reflect NS’ requirements (see Note 2, “Cash required for NS Debt”).

NSNorfolk isSouthern ~~subject~~Railway toCompany ~~various~~(NSR), ~~financial~~together ~~covenants~~ with ~~respect~~its consolidated tosubsidiaries ~~its~~(collectively ~~credit~~NS ~~agreement~~Rail), ~~including~~is aengaged ~~minimum~~principally ~~net~~in ~~worth~~the rail ~~requirement~~transportation business, aoperating approximately 21,300 route miles, ~~maximum~~primarily ~~leverage~~in ~~ratio~~the ~~restriction~~East and ~~certain~~Midwest ~~restrictions~~. onThese ~~issuance~~consolidated offinancial ~~further~~statements include ~~debt.~~NSR Asand ~~the~~its ~~major~~majority-owned NSand ~~subsidiary,~~controlled NSsubsidiaries. ~~Rail~~All issignificant ~~subject~~intercompany tobalances ~~certain~~and oftransactions ~~these~~have ~~restrictions~~been eliminated in consolidation.

~~APPLICATION~~NS OFRail ~~CRITICAL~~transports ~~ACCOUNTING~~raw ~~ESTIMATES~~materials, intermediate products and finished goods classified in the following market groups (percent of total railway operating revenues): coal (24%); intermodal (20%); automotive (13%); chemicals (12%); metals/construction (11%); agriculture/consumer products/government (10%); and paper/clay/forest products (10%). Ultimate points of origination or destination for some of the freight (particularly coal bound for export and intermodal containers) are outside of the United States . Substantially all of NS Rail's employees are covered by collective bargaining agreements with 14 different labor unions.

~~The~~Use ~~preparation~~ of financial statements in accordance with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the 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. These estimates and assumptions may require significant judgment about matters that are inherently uncertain, and future events are likely to occur that may require management to change them. Accordingly, management regularly reviews these estimates and assumptions based on historical experience, changes in the business environment and other factors that management believes to be reasonable under the circumstances. Management discusses the development, selection and disclosures concerning critical accounting estimates with its Board of Directors.Estimates

28The preparation of financial statements in accordance with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the 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. Management reviews its estimates, including those related to the recoverability and useful lives of assets, as well as liabilities for litigation, environmental remediation, casualty claims, income taxes, and pension and postretirement benefits. Changes in facts and circumstances may result in revised estimates.

~~Pensions~~Cash ~~and Other Postretirement Benefits~~Equivalents

NS"Cash ~~Rail~~equivalents" ~~provides~~are ~~defined~~highly ~~pension~~liquid ~~benefits,~~investments ~~principally~~purchased ~~for salaried employees, through participation in NS’ funded and~~three ~~unfunded~~months defined benefit pension plans. NS Rail also provides specified health care and death benefits to eligible retired employees and their dependents by participating in welfare benefit plans sponsored by NS. Under the present plans, which may be amended or ~~terminated~~less atfrom NS’ option, a defined percentage of health care expenses is covered, reduced by any deductibles, copayments, Medicare payments and, in some cases, coverage provided under other group insurance policiesmaturity. ~~The following discussion relates to the combined NS plans (see Note 13).~~

Accounting for pensions and other postretirement benefit plans requires management to make several estimates and assumptions. These include the expected rate of return from investment of the plans’ assets, projected increases in medical costs and the expected retirement age of employees as well as their projected earnings and mortality. In addition, the amounts recorded are affected by changes in the interest rate environment because the associated liabilities are discounted to their present value. Management makes these estimates based on the company’s historical experience and other information that it deems pertinent under the circumstances (for example, expectations of future stock market performance). Management engages an independent consulting actuarial firm to aid it in selecting appropriate assumptions and valuing its related liabilities.Investments

~~NS’~~Marketable ~~net~~equity ~~pension benefit, which is included in “Compensation~~ and ~~benefits”~~debt onsecurities ~~its~~are ~~Consolidated~~reported ~~Income Statement,~~at ~~was $79 million for the year ended Dec. 31, 2002. In recording this amount, NS assumed a long-term investment rate~~amortized ofcost ~~return~~or offair 9%value, ~~compared~~depending ~~with~~upon ~~the~~their ~~10%~~classification ~~rate~~as ~~used in the previous two years. Investment experience of the pension fund over~~securities ~~the past 10~~"held-to-maturity," ~~15-~~"trading," ~~and~~or 20"available-~~year periods has been in excess of 10%~~for-sale. A" ~~one~~All ~~percentage~~marketable ~~point~~equity securities ~~change~~consisting toprincipally ~~this rate~~ of ~~return assumption~~NS ~~would~~Common ~~result~~Stock inare adesignated ~~$20 million change to the pension credit and,~~ as "available-for-sale." ~~a result~~Accordingly, anunrealized ~~equal~~gains ~~change in “Compensation~~ and ~~benefits”~~ ~~expense. Changes~~losses, ~~that~~net ~~are~~of ~~reasonably likely to occur in assumptions made concerning retirement age~~taxes, ~~projected~~ ~~earnings~~are ~~and~~recognized ~~mortality would not be expected to have a material effect on NS’ net pension benefit or net pension asset~~ in ~~the future. The~~"Accumulated ~~net~~Other ~~pension~~Comprehensive ~~asset~~Income" is(see ~~recorded~~Note ~~at its net present value using a discount rate that is based on the current interest rate environment; therefore, management has little discretion in this assumption~~12).

~~NS’~~Investments ~~net~~where ~~cost~~NS ~~for~~Rail ~~other~~has ~~postretirement~~the ~~benefits,~~ability ~~which~~to isexercise significant ~~also~~influence ~~included in “Compensation and benefits~~over,” ~~was~~but ~~$34 million~~does ~~for~~not ~~the year ended Dec. 31~~control, ~~2002. In recording this expense and valuing~~ the ~~net~~entity ~~liability~~are ~~for~~accounted ~~other postretirement~~for ~~benefits,~~using ~~which~~the isequity ~~included~~method in ~~“Other~~accordance ~~benefits”~~with asAPB ~~disclosed~~Opinion inNo. ~~Note 13~~18, ~~management~~"The ~~estimated future increases in~~Equity ~~health-care~~Method ~~costs. These assumptions, along with the effect~~ of aAccounting ~~one~~for ~~percentage~~Investments ~~point change~~ in ~~them,~~Common ~~are described in Note 13~~Stock."

~~Properties~~Materials and ~~Depreciation~~Supplies

~~Most~~"Materials ofand NSsupplies," ~~Rail’s~~consisting ~~total~~mainly ~~assets are comprised~~ of ~~long-lived~~fuel ~~railway~~oil ~~properties (see Note 6). As disclosed in Note 1,~~and NSitems ~~Rail’s~~for ~~properties~~maintenance ~~are depreciated using group depreciation. Rail is depreciated primarily on the basis~~ of ~~use measured~~property byand ~~gross-ton~~equipment, ~~miles. Other properties~~ are ~~depreciated~~stated ~~generally~~at ~~using~~ the ~~straight-line~~lower ~~method over the lesser~~ of ~~estimated~~average ~~service~~cost or ~~lease lives~~market. NS The ~~Rail~~cost ~~reviews the carrying amount~~ of ~~properties~~materials ~~whenever~~and ~~events~~supplies orexpected ~~changes~~to inbe ~~circumstances~~used ~~indicate~~in ~~that~~capital ~~such~~additions ~~carrying amount may not be recoverable based on future undiscounted cash flows~~ or ~~estimated~~improvements ~~net realizable~~is ~~value. Assets~~included ~~that~~in ~~are deemed impaired as a result of such review are recorded at the lesser of carrying amount or fair value~~"Properties."

NS28 Rail’s depreciation expense is based on management’s assumptions concerning service lives of its properties as well as the expected net salvage that will be received upon their retirement. These assumptions are the product of periodic depreciation studies that are performed by a firm of consulting engineers. These studies analyze NS Rail’s historical patterns of asset use and retirement and take into account any expected change in operation or maintenance practices. NS Rail’s recent experience with

29Properties

~~these~~"Properties" ~~studies~~are ~~has~~stated ~~been~~principally ~~that~~at ~~while~~cost ~~they~~and doare ~~result~~depreciated using ingroup ~~changes~~depreciation. inRail is depreciated primarily on the ~~rates~~basis ~~used~~of touse measured ~~depreciate~~by ~~its~~gross ton-miles. Other properties, ~~these~~are ~~changes~~depreciated ~~have~~generally using ~~not~~the ~~caused~~straight-line amethod ~~significant~~over ~~effect~~estimated toservice ~~its~~or ~~annual~~lease ~~depreciation expense~~lives. ~~The~~ ~~studies~~NS ~~may~~Rail capitalizes ~~also~~interest ~~indicate~~on ~~that~~major ~~the~~capital ~~recorded~~projects ~~amount~~during the period of their ~~accumulated~~construction. Expenditures, ~~depreciation~~including isthose ~~deficient~~on ~~(or~~leased inassets, ~~excess)~~that ofextend an ~~the~~asset's ~~amount~~useful ~~indicated~~life byor ~~the~~increase ~~study. Any~~its ~~such~~utility ~~deficiency~~are ~~(or~~capitalized. ~~excess)~~Maintenance expense is ~~amortized~~ asrecognized awhen ~~component~~repairs ofare ~~depreciation~~performed. ~~expense~~When ~~over~~properties ~~the~~other ~~remaining~~than land ~~service~~and ~~lives~~nonrail ofassets are sold or retired in the ~~affected~~ordinary ~~class~~course of ~~property. NS~~business, ~~Rail’s~~the ~~“Depreciation~~cost ~~expense”~~of ~~for~~ the ~~year~~assets, ~~ended~~net ~~Dec.~~of ~~31,~~sale ~~2002,~~proceeds ~~amounted~~or tosalvage, ~~$499~~is ~~million. NS~~charged ~~Rail’s~~to ~~weighted-average~~accumulated depreciation ~~rates~~and ~~for~~no ~~2002~~gain ~~are~~or ~~disclosed~~loss inis ~~Note~~recognized 6;through aincome. ~~one-tenth~~Gains and ~~percentage~~losses ~~point~~on ~~increase~~disposal ~~(or~~of ~~decrease)~~land inand ~~these rates~~nonrail ~~would~~assets ~~result~~are included in a"Other ~~$16~~expense - ~~million~~net" ~~increase~~ (orsee ~~decrease)~~Note ~~to NS Rail’s depreciation expense~~3).

~~Personal~~NS ~~Injury,~~Rail ~~Environmental~~reviews ~~and~~the ~~Legal~~carrying ~~Liabilities~~amount of properties whenever events or changes in circumstances indicate that such carrying amount may not be recoverable based on future undiscounted cash flows. Assets that are deemed impaired as a result of such review are recorded at the lower of carrying amount or fair value.

NSRevenue ~~Rail’s~~Recognition ~~expense for “Casualties~~ and ~~other~~Allowance ~~claims” amounted to $171 million~~ for ~~the~~Doubtful ~~year ended~~Accounts

~~Dec.~~Transportation ~~31,~~revenue ~~2002. Most~~is ofrecognized ~~this~~proportionally ~~expense~~as ~~was~~a shipment ~~composed~~moves offrom NSorigin ~~Rail’s accrual related~~ to ~~personal injury liabilities (see discussion of FELA in the discussion captioned “Casualties and other claims” on Page 24)~~destination. NS ~~Rail~~Refunds ~~engages~~are ~~an independent~~recorded ~~consulting~~as ~~actuarial~~a ~~firm~~ reduction to ~~aid~~revenues inbased ~~valuing~~on ~~its personal injury liability and determining the amount to accrue during the year. The actuarial firm studies NS Rail’~~management's ~~historical~~best ~~patterns of reserving for claims and subsequent settlements. The actuary also takes into account outside influences considered pertinent. The study uses the results of these analyses to~~ estimate ~~the ultimate amount~~ of ~~the~~projected liability~~, which includes amounts for incurred but unasserted claims~~. NS Rail has recorded this actuarially determined liability. The liability is dependent upon many individual judgments made as to the specific case reserves as well as the judgments of the consulting actuary and management in the periodic studies. AccordinglySwitching, ~~there~~demurrage ~~could be significant changes in the liability, which NS Rail would recognize when such a change became known. The most recent actuarial study was performed as of June 30, 2002,~~ and ~~resulted~~other inincidental anservice ~~increase~~revenue ~~to NS Rail’s personal injury liability during the third quarter. While the liability recorded~~ is ~~supported~~recognized bywhen the ~~most recent study, it is~~ ~~reasonably~~services ~~possible~~are ~~that the liability could be higher or lower~~performed.

NSTo ~~Rail~~determine isits ~~subject~~allowance tofor ~~various~~doubtful ~~jurisdictions’~~accounts ~~environmental laws and regulations. It is~~ NS Rail~~’s policy to~~ ~~record~~evaluates ahistorical ~~liability where such liability or~~ loss isexperience, ~~probable~~which ~~and~~has ~~its~~not ~~amount~~been ~~can~~significant, ~~be estimated reasonably (see Note 16).~~ the ~~Environmental~~characteristics ~~engineers~~of ~~regularly~~current ~~participate~~accounts, inas ~~ongoing~~well ~~evaluations~~as ofgeneral ~~all~~economic ~~known~~conditions ~~sites~~ and ~~in determining any necessary~~ ~~adjustments to liability estimates~~trends. ~~NS Rail also has established an Environmental Policy Council, composed of senior managers, to oversee and interpret its environmental policy.~~

~~Operating~~Derivatives expenses for environmental matters totaled approximately $15 million in 2002, $12 million in 2001, and $11 million in 2000, and capital expenditures totaled approximately $10 million in each of 2002, 2001 and 2000. Capital expenditures in 2003 are expected to be comparable to those in 2002.

NS Rail’s ~~balance~~does ~~sheets~~not ~~included~~engage ~~liabilities for environmental exposures~~ in the ~~amount~~trading of ~~$29~~derivatives. ~~million~~NS ~~at Dec. 31,~~Rail ~~2002,~~uses ~~and~~derivative ~~$33~~financial ~~million~~instruments atto ~~Dec.~~reduce ~~31,~~the ~~2001~~risk (of ~~which~~volatility $8in ~~million~~its diesel ~~was~~fuel ~~accounted~~costs ~~for~~and asin athe ~~current~~management ~~liability~~of inits ~~each~~mix ~~year).~~of Atfixed- ~~Dec.~~and ~~31,~~floating-rate ~~2002,~~debt. ~~the~~Management ~~liability~~has ~~represented~~determined NSthat ~~Rail’s~~these ~~estimate~~derivative ofinstruments ~~the~~qualify ~~probable~~as either ~~cleanup~~fair-value ~~and~~or ~~remediation~~cash-flow ~~costs~~hedges, ~~based~~having onvalues ~~available~~that highly correlate with ~~information~~the atunderlying ~~114~~hedged ~~identified~~exposures ~~locations~~and have designated such instruments as hedging transactions. Income Onand ~~that~~expense ~~date,~~related 10to ~~sites~~the ~~accounted~~derivative ~~for~~financial instruments ~~$16~~is ~~million~~recorded ofin the ~~liability,~~same ~~and~~category noas ~~individual~~generated ~~site was~~by ~~considered~~the tounderlying asset beor ~~material~~liability. NSCredit ~~Rail~~risk ~~anticipates~~related ~~that~~to ~~much~~the ofderivative ~~this~~financial ~~liability~~instruments is ~~will~~considered to be ~~paid~~minimal ~~out~~and ~~over~~is ~~five~~managed ~~years;~~by ~~however,~~requiring ~~some costs~~high ~~will~~credit bestandards for ~~paid~~counterparties ~~out~~and ~~over~~periodic asettlements ~~longer~~(see ~~period~~Note 15).

AtRequired ~~some~~Accounting ofChanges ~~the 114 locations, certain NS Rail subsidiaries, usually~~ in ~~conjunction~~2003 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.

30NS Rail adopted Financial Accounting Standards Board ( FASB ) Statement No. 143, "Accounting for Asset Retirement Obligations," (SFAS No. 143) effective Jan. 1, 2003, and recorded a $100 million net adjustment ($165 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 (because the depreciation rate for crossties no longer reflects cost to remove) and increased compensation and benefits and other expenses (for the costs to remove retired assets). The net effect to total railway operating expenses and net income was not material.

~~With respect to known environmental sites (whether identified by~~ NS Rail oralso byadopted ~~the~~FASB ~~EPA~~Interpretation orNo. ~~comparable state authorities)~~46, ~~estimates~~ "Consolidation of NSVariable ~~Rail’s~~Interest ~~ultimate~~Entities," ~~potential~~(FIN ~~financial~~No. ~~exposure~~46) ~~for~~effective aJan. 1, ~~given~~2003, ~~site~~and recorded ora in$4 ~~the~~million ~~aggregate~~net ~~for~~adjustment ~~all~~($6 ~~such~~million ~~sites~~before ~~are necessarily~~taxes) ~~imprecise~~for ~~because of~~ the cumulative ~~widely~~effect ~~varying costs~~ of ~~currently~~this ~~available~~change ~~cleanup~~in ~~techniques,~~accounting ~~the~~on ~~likely~~years ~~development~~prior ofto ~~new~~2003. ~~cleanup~~Pursuant ~~technologies,~~to ~~the~~FIN ~~difficulty~~No. of46, ~~determining~~NS inhas ~~advance~~consolidated ~~the~~a ~~nature~~special-purpose ~~and~~entity ~~full~~that ~~extent of contamination and each potential~~leases ~~participant’s~~certain ~~share~~locomotives ofto ~~any~~NS ~~estimated loss~~ (~~and~~see ~~that~~Note ~~participant’s ability to bear it~~9),. This ~~and~~entity's ~~evolving~~assets ~~statutory~~ and ~~regulatory~~liabilities ~~standards~~at ~~governing liability~~Jan. NS ~~Rail~~1, ~~estimates~~2003 ~~its~~, ~~environmental~~included ~~remediation~~$169 ~~liability~~million onof alocomotives ~~site-by-site~~and ~~basis,~~$157 ~~using~~million ~~assumptions~~of ~~and~~debt ~~judgments~~related ~~that~~to ~~management~~their ~~deems~~purchase ~~appropriate~~as ~~for~~well ~~each~~as ~~site~~a $6 million minority interest liability. As This achange ~~result,~~in itaccounting isincreased ~~not~~depreciation ~~practical~~and interest expense (to ~~quantitatively~~ ~~discuss~~reflect the ~~effects~~locomotives ofas ~~changes~~owned inassets) ~~these~~and ~~many~~lowered ~~assumptions~~lease expense. The ~~and~~net ~~judgments. NS~~effect ~~Rail~~to ~~has~~total ~~consistently~~railway ~~applied~~operating ~~its methodology~~expenses ofand ~~estimating~~net income ~~its~~was ~~environmental~~not ~~liabilities~~material.

~~The~~29 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 Rail’s traffic mix, particularly those classified as hazardous materials, can pose special risks that NS Rail and its subsidiaries work diligently to minimize. In addition, several NS Rail 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 Rail 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 Company is aware. Further, management believes that it is unlikely that any known matters, either individually or in the aggregate, will have a material adverse effect on NS Rail’s financial position, results of operations or liquidity.Reclassifications

~~Norfolk~~Certain ~~Southern~~amounts ~~Railway 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~~consolidated offinancial ~~the liability~~statements ~~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,~~notes ifthereto ~~any,~~have isbeen ~~adequate~~reclassified to ~~cover~~conform 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 recorded liability will be reflected in expenses in~~ the ~~periods~~2004 ~~in which such adjustments are known~~presentation.

~~Income~~2. Related ~~Taxes~~Parties

NSGeneral Rail’s net deferred tax liability totaled $4,057 million at Dec. 31, 2002 (see Note 4). This liability is estimated based on the expected future tax consequences of items recognized in the financial statements. After application of the federal statutory tax rate to book income, judgment is required with respect to the timing and deductibility of expenses in the corporate income tax returns. For state income and other taxes, judgment is also required with respect to the apportionment among the various jurisdictions. A valuation allowance is recorded if management expects that it is more likely than not that its deferred tax assets will not be realized. NS Rail has a valuation allowance of about $1 million in its $537 million of deferred tax assets as of Dec. 31, 2002, reflecting the expectation that most of these assets will be realized. For 2002, 2001 and 2000, the effective tax rates were 39%, 37% and 35%, respectively. For every 1/2% change in the 2002 effective tax rate, net income would have changed by $4 million.

31Norfolk Southern Corporation (NS) is the parent holding company of NSR. Rail operations are coordinated at the holding company level by the NS Vice Chairman and Chief Operating Officer. NS charges NS Rail a fee for management services it performs for NS Rail (which totaled $606 million, including a $38 million markup in 2004; $686 million, including a $43 million markup in 2003; and $522 million, including a $32 million markup in 2002). In addition, NS charges NS Rail a revenue-based licensing fee (which totaled $107 million in 2004, $93 million in 2003 and $91 million in 2002) for use of certain intangible assets owned by NS.

~~OTHER~~NS ~~MATTERS~~Rail owns 20,907,125 shares of NS common stock.

~~Labor~~Operations ~~Arbitration~~Over Conrail's Lines

~~Several hundred claims have been filed with NSR on behalf of employees furloughed after June 1, 1999, for various periods of~~Overview time, alleging that the furloughs were a result of the Conrail transaction and seeking “New York Dock” income protection benefits. Several labor organizations have initiated arbitration on behalf of individual employees. 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.

~~Based~~Through a onlimited ~~known~~liability ~~facts~~company, ~~including~~NS ~~the~~and ~~availability~~CSX ofCorporation ~~legal~~(CSX) ~~defenses~~jointly own Conrail Inc. (Conrail), ~~management~~whose ~~believes~~primary ~~that~~subsidiary is Consolidated Rail Corporation (CRC). NS ~~will~~has ~~prevail~~a in58% ~~these~~economic ~~disputes~~ and ~~that~~50% ~~any~~voting ~~potential~~interest ~~liability~~in ~~for~~ the ~~involved~~jointly ~~claims~~owned entity, ~~should~~and ~~not~~CSX ~~have~~has athe ~~material~~remainder ~~adverse~~of ~~effect~~the oneconomic NSand ~~Rail’s~~voting ~~financial~~interests. ~~position,~~CRC ~~results~~owns ofand ~~operations~~operates orcertain ~~liquidity.~~properties ~~Depending~~(the onShared ~~the~~Assets ~~outcome~~Areas) offor ~~these~~the ~~arbitrations,~~joint and ~~additional~~exclusive ~~claims~~benefit ~~may~~of beNS ~~filed~~Rail ~~or progressed~~and toCSX ~~arbitration~~Transportation Inc. ~~Should~~(CSXT). The costs ~~all~~of ~~such~~operating ~~claimants~~the ~~prevail,~~Shared ~~there~~Assets ~~could~~Areas beare aborne ~~significant~~by ~~effect~~NS Rail and CSXT based on ~~results~~usage. In ofaddition, ~~operations~~NS inRail and CSXT pay CRC a ~~particular~~ ~~quarter~~fee ~~(see~~for ~~Note~~access ~~16)~~to the Shared Assets Areas.

~~Labor~~Conrail ~~Agreements~~Corporate Reorganization

~~Approximately~~On Aug. 2427,~~000~~ of2004 , NS, ~~Rail’s~~CSX ~~employees~~and ~~are~~Conrail ~~covered~~completed bya ~~collective~~reorganization ~~bargaining~~of ~~agreements with 15 different labor~~Conrail ~~unions. These~~(Conrail ~~agreements~~Corporate ~~remain~~Reorganization), inwhich ~~effect~~established ~~until~~direct ~~changed~~ownership ~~pursuant~~and control toby ~~the~~NSR ~~Railway~~and ~~Labor~~CSXT ~~Act. Moratorium~~of ~~provisions~~two ~~in these~~former ~~agreements~~CRC ~~permitted~~subsidiaries, NSPennsylvania ~~Rail~~Lines LLC (PRR) and ~~the~~New ~~unions~~York toCentral ~~propose~~Lines ~~such~~LLC ~~changes~~(NYC), inrespectively. Prior ~~late~~to ~~1999; negotiations at~~ the ~~national level~~ ~~commenced~~Conrail ~~shortly~~Corporate ~~thereafter. The~~Reorganization, ~~outcome~~NSR ofoperated ~~these~~the ~~negotiations~~routes isand ~~uncertain~~assets atof ~~this~~PRR ~~time. However, agreements have~~and ~~been~~CSXT ~~reached~~operated ~~with~~ the ~~Brotherhood~~routes ofand ~~Maintenance~~assets of ~~Way Employes (BMWE)~~NYC, ~~which~~each ~~represents~~in ~~about~~accordance ~~4,200~~with NSoperating and ~~Rail~~lease ~~employees;~~agreements. Pursuant to the ~~Brotherhood~~ ofConrail ~~Locomotive~~Corporate ~~Engineers (BLE)~~Reorganization, the ~~which~~operating ~~represents~~and ~~about~~lease ~~4,500~~agreements NSwere ~~Rail~~terminated ~~employees;~~and ~~the~~PRR ~~United~~and ~~Transportation~~NYC ~~Union~~were ~~(UTU),~~merged ~~which~~into ~~represents~~NSR ~~about~~and 6CSXT,~~700~~ NSrespectively. The ~~Rail~~reorganization ~~employees;~~did ~~the~~not ~~International~~involve ~~Brotherhood~~the Shared ofAssets ~~Boilermakers~~Areas and ~~Blacksmiths~~did ~~(IBB),~~not ~~which represents~~affect ~~about~~the ~~100~~competitive NSrail ~~Rail~~service ~~employees;~~provided ~~and~~ in the ~~Transportation~~Shared ~~Communications~~Assets ~~International~~Areas. Conrail ~~Union~~continues ~~(TCU),~~to ~~which represents about 4~~own,~~400~~ NSmanage ~~Rail employees. Health~~ and ~~welfare~~operate ~~issues~~the Shared ~~have~~Assets ~~been~~Areas ~~resolved~~as ~~with~~previously ~~BMWE~~approved ~~and~~by ~~TCU. The~~the ~~UTU~~Surface ~~agreement~~Transportation ~~provides~~Board ~~that,~~(STB). In ~~subsequent~~connection towith athe ~~further~~Conrail ~~period~~Corporate ofReorganization, ~~negotiation~~NS, ~~health~~ CSX and ~~welfare~~Conrail ~~issues~~obtained ~~may~~a beruling ~~submitted~~from tothe ~~arbitration. Health~~Internal ~~and welfare~~Revenue ~~issues~~Service ~~with~~(IRS) ~~the~~regarding certain ~~other~~tax ~~organizations~~matters, ~~have~~and ~~not~~the ~~yet~~STB ~~been~~approved ~~resolved~~the transaction.

~~Market~~As a ~~Risks~~part of the Conrail Corporate Reorganization, Conrail restructured its existing unsecured and ~~Hedging~~secured ~~Activities~~public indebtedness, with the consent of Conrail's debtholders . Prior to the restructuring, there were two series of unsecured public debentures with an outstanding principal amount of approximately $800 million and 13 series of secured debt with an outstanding principal amount of approximately $300 million. Guaranteed debt securities were offered in an approximate 58%/42% ratio in exchange for Conrail's unsecured debentures. Of the $800 million unsecured public debentures, $779 million were tendered and accepted for exchange. Upon completion of the transaction as described in various SEC filings, the new debt securities became direct unsecured obligations of NSR and CSXT, respectively, and rank equally with all existing and future senior unsecured debt obligations, if any, of NSR and CSXT. Except for interest payments made in relation to the consummation of the exchange, these new debt securities 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

NS30 ~~Rail 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.~~

Insecurities have ~~2001,~~covenants NSsubstantially ~~Rail~~similar ~~began a program~~ to ~~hedge~~those ~~a portion~~ of ~~its diesel fuel consumption. The intent of~~ the ~~program~~publicly istraded ~~to assist in~~debt ~~the~~securities ~~management~~ of NS ~~Rail’s aggregate risk exposure to fuel price fluctuations, which can significantly affect NS Rail’s operating margins~~ and ~~profitability~~CSX, ~~through the use of one or more types of derivative instruments~~respectively.

~~Diesel fuel costs represented 7% of NS Rail’~~Conrail's secured ~~operating~~debt ~~expenses~~and ~~for~~lease ~~2002.~~obligations ~~The~~remain ~~program~~obligations ~~provides~~of ~~that~~Conrail NSand ~~Rail will not~~are ~~enter~~supported ~~into~~by ~~any~~leases ~~fuel~~and ~~hedges~~subleases ~~with~~which aare ~~duration~~the ofdirect ~~more~~lease ~~than 36 months,~~ and ~~that~~sublease obligations ~~no more than 80%~~ of NSNSR ~~Rail’s~~or ~~average monthly fuel consumption will be hedged for each month within any 36-month period~~CSXT.

~~As of Dec~~On Aug. 3127, ~~2002~~2004 , ~~through~~NS ~~swap~~made ~~transactions~~a contribution of capital of the assets and ~~advance~~liabilities of ~~purchases,~~PRR to NS Rail. The ~~has~~assets ~~hedged~~and ~~approximately~~liabilities ~~62%~~ of ~~expected~~PRR ~~2003~~are reflected in ~~diesel~~their ~~fuel~~respective ~~requirements.~~line ~~The~~items ~~effect~~in ofNS ~~the~~Rail's ~~hedges~~Consolidated isBalance toSheet ~~yield~~and anamounts due ~~average~~to ~~cost~~PRR ofwere 73extinguished. The ~~cents~~following ~~per~~summarizes ~~hedged~~the ~~gallon,~~effect ~~including~~of ~~federal~~the ~~taxes~~transaction ~~and~~on ~~transportation.~~NS ARail's ~~10%~~Consolidated ~~decrease~~Balance Sheet ($ in millions):

32 Properties $ 8,368 Extinguishment of amounts due to PRR 870 Other assets and liabilities, net 177 Deferred income taxes (3,113) Long-term debt, including current maturities (734) Net assets received $ 5,568

~~diesel~~The ~~fuel~~amounts ~~prices~~shown ~~would~~above ~~reduce~~for NSthe net ~~Rail’s~~assets ~~asset~~received ~~related~~are toat ~~the~~NS' ~~swaps~~basis byand ~~approximately~~reflect ~~$30~~the ~~million~~fair asvalue of ~~Dec~~such assets. Properties ~~31,~~have ~~2002~~been valued based on information received from an independent valuation consultant. Debt has been recorded at fair value based on interest rates at the time of the Conrail Corporate Reorganization.

NSOn ~~Rail~~the ~~manages~~Consolidated ~~its~~Income Statement, ~~overall~~"Conrail ~~exposure~~rents toand ~~fluctuations~~services" inis ~~interest~~reduced ~~rates~~as bya ~~issuing~~result ~~both~~of ~~fixed-~~the transaction. After the Conrail Corporate Reorganization, "Conrail rents and ~~floating-rate~~services" ~~debt~~reflects ~~instruments~~only the expenses associated with the Shared Assets Areas, and byother ~~entering~~expenses ~~into~~(primarily ~~interest-rate~~the ~~hedging~~depreciation ~~transactions~~related to ~~achieve~~the anPRR ~~appropriate~~assets) are ~~mix~~reflected ~~within~~in ~~its~~their respective line items. The transaction did not significantly affect net income in 2004. Prospectively, the depreciation related to the assets received combined with the interest on the new debt ~~portfolio~~will be lower than the rent paid for the use of PRR assets and, therefore, will result in a small annual increase of approximately 5% to net income.

AtShared ~~Dec. 31, 2002, NS Rail’s debt subject to interest rate fluctuations totaled $434 million (excluding debt due to the PRR~~Assets ~~subsidiary).~~Areas A 1% increase in interest rates would increase NS Rail’s total annual interest expense related to all its variable debt by approximately $4 million. Management considers it unlikely that interest rate fluctuations applicable to these instruments will result in a material adverse effect on NS Rail’s financial position, results of operations or liquidity.

~~Some~~CRC ofowns NSand operates ~~Rail’s~~certain ~~capital~~properties ~~leases,~~(the ~~which~~Shared ~~carry~~Assets anAreas) ~~average~~for ~~fixed~~the ~~rate~~joint ~~of 7%, were effectively converted to variable rate~~and ~~obligations~~exclusive ~~using~~benefit ~~interest~~of ~~rate~~NSR ~~swap~~and ~~agreements~~CSXT. NSR Onand ~~Dec.~~CSXT ~~31, 2002, the average~~ pay ~~rate~~CRC ~~under~~a ~~these~~fee ~~agreements~~for ~~was 2.1%,~~ joint and ~~the average~~exclusive ~~receive~~access ~~rate~~to ~~was 7%. During 2002,~~ the ~~effect~~Shared ofAssets ~~the swaps was to reduce interest expense by $9 million~~Areas. In Aaddition, ~~portion~~NSR ~~of the~~and ~~lease~~CSXT ~~obligations~~pay, isbased ~~payable~~on inusage, ~~Japanese yen. NS Rail eliminated~~ the ~~associated~~costs ~~exchange~~incurred ~~rate~~by ~~risk~~CRC ~~at the inception of each lease with a yen deposit sufficient~~ to ~~fund~~operate the ~~yen-denominated~~Shared ~~obligation. Most of these deposits are held by foreign banks, primarily~~Assets ~~Japanese~~Areas. Future Asminimum alease ~~result,~~payments NSdue ~~Rail is exposed~~ to ~~financial~~CRC ~~market~~under ~~risk relative to Japan. Counterparties to~~ the ~~interest~~Shared ~~rate~~Assets ~~swaps~~Areas ~~and~~agreements ~~Japanese banks holding yen deposits~~ are ~~major~~as follows ~~financial~~($ in ~~institutions~~millions): ~~believed by management to be creditworthy.~~

~~New~~ 2005 ~~Accounting~~ $ ~~Pronouncements~~ 33 2006 34 2007 34 2008 34 2009 34 2010 and subsequent years 517 Total $ 686

~~The~~Operating ~~Financial Accounting Standards Board (FASB) has issued Statement No. 143, “Accounting for Asset Retirement~~lease ~~Obligations,”~~expense ~~(SFAS~~related ~~No.~~to ~~143) which is effective Jan. 1, 2003, and addresses legal obligations associated with~~ the ~~retirement of~~Shared ~~tangible~~Assets ~~long-lived~~Areas ~~assets~~as ~~and~~well ~~the~~as ~~associated asset retirement costs. In accordance with~~ the ~~Uniform~~agreements ~~System~~in ~~of Accounts~~place ~~for~~before ~~Railroad~~the Conrail ~~Companies~~Corporate ~~(see~~Reorganization ~~Code~~related ~~of Federal Regulations, Title 49, Subtitle B, Chapter X, Part 1201), NS Rail depreciates track structure (rail, other track material and ties)~~ to ~~its~~operation ~~net salvage value (gross salvage less cost to remove). SFAS No. 143 prohibits the accrual~~ of ~~a liability for removal costs absent a legal obligation to remove~~ the ~~related asset. Management~~PRR ~~believes~~routes ~~that~~and ~~there~~assets, isall ~~no such legal obligation to remove track. The SEC staff has recently taken a position with a registrant in another industry that calls into question whether the use~~ of ~~net~~which ~~salvage that results in depreciating more than the cost basis of an asset (negative salvage)~~ is ~~appropriate~~included ~~once SFAS No. 143 becomes effective. NS Rail is~~ in "Conrail ~~the~~rents ~~process of~~and ~~studying~~services," ~~its~~amounted ~~track accounts~~ to ~~determine~~$363 ~~where~~million ~~current depreciation rates will result~~ in ~~negative salvage. To the extent that NS Rail’s accumulated depreciation includes such amounts~~2004, ~~they~~$478 million ~~will be removed. The cumulative effect of this catch-up adjustment will be recorded as a change~~ in ~~accounting principle in the first quarter of~~ 2003~~. Going~~ ~~forward, this change will result in lower depreciation expense (because the depreciation rate will no longer reflect any negative salvage)~~ and ~~higher~~$468 ~~compensation~~million ~~and benefits expenses (for the labor cost to remove retired assets); NS Rail does not expect that this will result~~ in a ~~material change to its total railway operating expenses~~2002.

~~The~~NS Rail's ~~FASB~~Consolidated ~~has~~Balance ~~issued~~Sheet ~~Interpretation~~at NoDec. 4631, ~~“Consolidation~~2004 ~~of Variable Interest Entities~~,” ~~(FIN~~includes ~~No. 46), which~~$17 million ~~addresses consolidation~~ of ~~certain~~liabilities ~~variable~~related ~~interest entities (also commonly referred~~ to asthe ~~“special~~original ~~purpose entities”). NS~~Conrail ~~Rail adopted FIN No. 46~~transaction, ~~effective~~principally ~~Jan 1, 2003. As a result, on that date NS Rail consolidated a~~for ~~special-purpose~~contractual ~~entity~~obligations ~~that leases certain locomotives~~ to NSConrail ~~Rail~~employees ~~(see~~imposed ~~Note~~by ~~9). This~~the ~~entity~~STB ~~has~~when noit ~~other significant assets~~approved ~~or liabilities other than~~ the ~~locomotives~~transaction. Through ~~and~~Dec. ~~the~~31, ~~debt~~2004 ~~related to their purchase~~, ~~which will be reflected on~~ NS Rail~~’s Consolidated~~ ~~Balance~~has ~~Sheet in 2003. This change in reporting will also have the following effects to NS Rail’s~~paid ~~Consolidated~~$168 million ~~Income Statement beginning in 2003: operating lease expense will decline, and depreciation expense and interest expense on debt will increase. The net effect~~ of ~~these~~such ~~income statement changes is not significant~~costs. ~~Adoption~~ ~~of FIN No. 46 did not have a significant effect on NS Rail’s financial position or liquidity.~~

3331

~~Inflation~~NS Rail 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.

~~Generally~~Prior to ~~accepted~~the ~~accounting~~Conrail ~~principles~~Corporate ~~require~~Reorganization, ~~the~~a ~~use~~significant portion of ~~historical~~the ~~cost~~payments made into ~~preparing~~PRR ~~financial~~was ~~statements.~~borrowed ~~This~~back ~~approach disregards~~from ~~the~~a ~~effects~~subsidiary of ~~inflation~~PRR onunder ~~the~~a ~~replacement~~note ~~cost~~due ofin ~~property~~2032. Amounts NSoutstanding ~~Rail,~~under athis ~~capital-intensive~~note ~~company,~~comprised ~~has~~the ~~most~~long‑term ofbalance ~~its~~of ~~capital~~"Due ~~invested~~to ~~in such assets~~Conrail." "Due ~~The~~to ~~replacement~~Conrail" ~~cost~~included ofin ~~these~~current ~~assets,~~liabilities asis composed ~~well~~principally asof ~~the~~amounts related ~~depreciation~~to ~~expense,~~expenses ~~would~~included ~~be substantially~~in ~~greater~~"Conrail ~~than~~rents and ~~the~~services," ~~amounts~~as ~~reported~~discussed ~~on the basis of historical cost~~above.

~~TRENDS~~Noncash Dividends

~~Federal~~NSR ~~Economic~~declared ~~Regulation~~and --issued ~~Efforts~~to ~~may~~NS benoncash ~~made~~dividends inof ~~2003~~$450 tomillion in ~~reimpose~~2004, ~~unwarranted~~$767 ~~federal~~million ~~economic~~in ~~regulation~~2003 onand ~~the rail~~$501 million ~~industry.~~in ~~The~~2002, ~~Staggers~~which ~~Rail~~were ~~Act~~settled by reduction of ~~1980,~~NSR's ~~which~~interest-bearing ~~substantially~~advances ~~reduced~~due ~~such~~from ~~regulation~~NS. In 2004, ~~encouraged~~NSR declared and ~~enabled~~issued ~~rail~~to ~~carriers~~NS ~~to innovate~~a ~~and~~noncash todividend ~~compete~~of ~~for~~$858 ~~business.~~million NSof ~~Rail~~all ~~and~~the ~~other~~shares of ~~rail~~Pennsylvania ~~carriers~~Investment ~~will~~Company, Inc, ~~oppose~~whose ~~any~~principal ~~efforts~~asset tois ~~reimpose~~an interest-bearing ~~unwarranted~~loan ~~economic~~due from NSR. Noncash dividends are excluded from ~~regulation~~the Consolidated Statements of Cash Flows.

~~Utility~~Intercompany ~~Deregulation~~Accounts -- Deregulation of the electrical utility industry is expected to increase competition among electric power generators; deregulation over time would permit wholesalers and possibly retailers of electric power to sell or purchase increasing quantities of power to or from distant parties. The effects of deregulation on NS Rail and on its customers cannot be predicted with certainty; however, NS Rail serves a number of efficient power producers who are expected to remain competitive in this evolving environment.

~~Carbon-Based~~ Dec. ~~Fuel~~31, -- 2004 ~~There~~ 2003 is Average ~~growing~~ Average ~~concern~~ Interest in Interest ~~some~~ Balance ~~quarters~~ Rate ~~that~~ Balance ~~emissions~~ Rate ~~resulting~~ ($ ~~from~~in ~~burning~~millions) ~~carbon-based~~ Current: ~~fuel,~~ ~~including~~ Advances ~~coal,~~due from ~~are~~NS ~~contributing~~ $ 65 2% to $ 68 2% ~~global~~ Advances ~~warming~~ and ~~causing other environmental changes. To the extent that these concerns~~ ~~evolve~~ notes ~~into~~due ato ~~consensus~~NS ~~among policy-makers~~ (1,094) ~~the~~ 2% ~~impact~~ (849) ~~could~~ 2% be Due ~~either~~to aNS ~~reduction in the demand for coal or imposition of more~~- ~~stringent~~ net ~~regulations on emissions~~ (1,029) ~~which might result in making coal a less economical source of power generation or make~~ ~~permitting~~ (781) ~~of coal~~ Long-~~fired~~term: ~~facilities~~ Advances ~~even more difficult. The revenues~~ and notes ~~net~~due ~~income~~to of NS ~~Rail~~ (874) ~~and other railroads that move large~~ ~~quantities~~ 3% ~~of coal could be affected adversely.~~ --

~~FORWARD~~Interest is applied to certain advances at the average NS yield on short-~~LOOKING~~term ~~STATEMENTS~~investments and to the notes at specified rates. "Other expense - net" includes interest on amounts due from NS of $10 million in 2004, $10 million in 2003 and $12 million in 2002.

~~This~~"Other ~~Management’s~~interest ~~Discussion~~expense" ~~and~~includes ~~Analysis~~interest of Financial Condition and Results of Operations contains forward-looking statements that may be identified by the use of words like “believe,” “expect,” “anticipate” and “project.” Forward-looking statements reflect management’s good-faith evaluation of information currently available. However, such statements are dependent on ~~and,~~amounts ~~therefore,~~due ~~can~~to ~~be influenced by, a number of external variables over~~NS which management has little or no control, including: domestic and international economic conditions; the business environment in industries that produce and consume rail freight; competition and consolidation within the transportation industry; fluctuation in prices of ~~key~~$9 ~~materials,~~million in ~~particular diesel fuel; labor difficulties~~2004, ~~including~~$8 ~~strikes~~million ~~and work stoppages; legislative and regulatory developments; changes~~ in ~~securities~~2003 and ~~capital~~$10 ~~markets;~~million and natural events such as severe weather, floods and earthquakes. Forward-looking statements are not, and should not be relied upon as, a guaranty of future performance or results. Nor will they necessarily prove to be accurate indications of the times at or by which any such performance or results will be achieved. As a result, actual outcomes and results may differ materially from those expressed in ~~forward-looking statements~~2002. ~~The Company undertakes no obligation to update or revise forward-looking statements.~~

34Sale of Accounts Receivable

~~Item~~NS 7ARail sells, without recourse, to a bankruptcy-remote special-purpose NS subsidiary, a pool of accounts receivable. NS ~~Quantitative~~Rail services and ~~Qualitative~~collects ~~Disclosures~~the ~~about~~sold ~~Market~~receivables; ~~Risk~~however, no servicing asset or liability has been recognized because the benefits of servicing are estimated to be just adequate to compensate NS Rail for its responsibilities. Payments collected from sold receivables are remitted to the special-purpose NS subsidiary, which, in turn, reinvests the amounts by purchasing new receivables from NS Rail. NS Rail has no retained interest in the sold receivables. Under the terms of the sale agreement, the receivables are treated as sold and, accordingly, $599 million at Dec. 31, 2004 , and $528 million at Dec. 31, 2003 , of sold receivables are not included on the balance sheet of NS Rail. Fees associated with the sale, which are based on historical dilution and prevailing interest rates, are included in "Other expense - net" (see Note 3).

~~The~~32 information required by this item is included in Part II, Item 7, “Management’s Discussion and Analysis of Financial Conditions and Results of Operations,” under the heading “Market Risks and Hedging Activities.”

~~Item~~Intercompany 8.Federal ~~Financial~~Income ~~Statements~~Tax ~~and~~Accounts ~~Supplementary Data.~~

~~INDEX~~In TOaccordance ~~FINANCIAL~~with ~~STATEMENTS~~the NS Tax Allocation Agreement, intercompany federal income tax accounts are recorded between companies in the NS consolidated group. NS Rail had long-term intercompany federal income tax payables (which are included in "Deferred income taxes" in the Consolidated Balance Sheets) of $1,026 million at Dec. 31, 2004 , and $994 million at Dec. 31, 2003 .

	Page
Independent Auditors’ Report	36
Consolidated Statements of Income
Years ended December 31, 2002, 2001 and 2000	37
Consolidated Balance Sheets
As of December 31, 2002 and 2001	38
Consolidated Statements of Cash Flows
Years ended December 31, 2002, 2001 and 2000	39
Consolidated Statements of Changes in Stockholders’ Equity
Years ended December 31, 2002, 2001 and 2000	40
Notes to Consolidated Financial Statements	41
The Index to Consolidated Financial Statement Schedule in Item 15	61

Capital Contributions

35On Aug. 27, 2004 , NS contributed 500 shares of TCS Leasing, ~~Independent~~Inc. ~~Auditors’~~(TCS ~~Report~~Leasing) common stock to the capital of NSR. TCS Leasing indirectly owns a 50% partnership interest in Triple Crown Services Company (Triple Crown). As a result of the Conrail Corporate Reorganization, NSR became the indirect owner of the remaining partnership interest in Triple Crown. Accordingly, Triple Crown is now included in NS Rail's consolidated financial statements. The following summarizes the effect of the transaction on NS Rail's Consolidated Balance Sheet ($ in millions):

~~The~~ Properties $ 102 Long-term ~~Stockholders~~debt, including current maturities (44) Other assets and ~~Board~~liabilities, ofnet (19) Capital ~~Directors~~contribution $ 39

~~Norfolk~~On ~~Southern~~the ~~Railway~~Consolidated ~~Company:~~Income Statement, NS Rail's revenues and expenses increased as a result of including amounts for Triple Crown after Aug. 27, 2004 (previously, these line items included only the railroad's portion of Triple Crown's revenues and expenses); however, the inclusion of Triple Crown had no significant effect on "Income from railway operations" and "Net income." Prospectively, the inclusion of Triple Crown will increase annual revenues and expenses by approximately 3% each.

WeIn ~~have~~2004, ~~audited~~NS ~~the~~Rail ~~accompanying~~recognized ~~consolidated~~an ~~balance~~$8 ~~sheets~~million ofnoncash ~~Norfolk Southern Railway Company and subsidiaries as of December~~capital ~~31,~~contribution ~~2002~~for ~~and~~benefits ~~2001,~~it ~~and~~received ~~the~~ related ~~consolidated~~to ~~statements~~tax ofcredits ~~income,~~generated ~~changes~~by ina nonrail ~~stockholders’~~subsidiary ~~equity and cash flows for each~~ of ~~the years in the three-year period ended December 31, 2002~~NS. In ~~connection with our audits of the consolidated financial statements~~2003, weNS ~~have~~made ~~also~~a ~~audited~~noncash ~~the~~capital ~~financial statement schedule as listed in Item 15(A)2. These consolidated financial~~contribution ~~statements and financial statement schedule are the responsibility~~ of the ~~Company’s~~Norfolk ~~management. Our~~Southern ~~responsibility~~Railway ~~is to~~preferred ~~express~~shares anit ~~opinion~~held onconcurrent ~~these~~with ~~consolidated~~their redemption ~~financial~~(see ~~statements~~Note ~~and financial statement schedule based on our audits~~11).

WeCash ~~conducted~~Required our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for ~~our~~NS ~~opinion.~~Debt

InTo ~~our~~finance ~~opinion,~~ the ~~consolidated~~cost ~~financial~~of ~~statements~~the ~~referred~~Conrail ~~to above present fairly~~transaction, inNS ~~all~~issued ~~material respects, the financial~~and ~~position~~sold ofcommercial ~~Norfolk~~paper ~~Southern Railway Company~~ and ~~subsidiaries~~$4.3 asbillion of ~~December~~unsecured ~~31,~~notes. A ~~2002 and 2001, and the results of their operations~~significant ~~and~~portion ~~their cash flows for each~~ of the ~~years~~funding infor the ~~three-year~~interest ~~period~~and ~~ended~~repayments ~~December~~on ~~31,~~this ~~2002~~and inother ~~conformity~~NS ~~with accounting~~debt ~~principles~~is ~~generally~~expected ~~accepted in the United States of America. Also, in our opinion, the related financial statement schedule, when considered in relation~~ to ~~the~~be ~~basic~~provided ~~consolidated~~by ~~financial~~NS ~~statements taken as a whole, presents fairly, in all material respects, the information set forth therein~~Rail.

~~/s/~~NS ~~KPMG~~is ~~LLP~~subject to various financial covenants with respect to its debt and under its credit agreement, including a minimum net worth requirement, a maximum leverage ratio restriction and certain restrictions on issuance of further debt. As a major NS subsidiary, NS Rail is subject to certain of those covenants.

~~Norfolk,~~33 ~~Virginia~~

~~January~~3. Other ~~28,~~Expense ~~2003~~- Net

36 ~~Norfolk~~ 2004 ~~Southern~~ 2003 ~~Railway~~ 2002 ~~Company~~ ($ in millions) Rental income $ 44 $ 42 $ 40 Gains from sales of properties and ~~Subsidiaries~~investments 35 34 22 Interest income (Note 2) 16 14 17 Dividends from NS 8 6 6 Corporate-owned life insurance - net 2 21 -- Discount on sales of accounts receivable (Note 2) (307) (307) (258) Equity in earnings (losses) of partnerships and LLCs (53) (1) -- Other interest expense (Note 2) (28) (19) (44) Taxes on nonoperating property (5) (3) (2) Other - net (5) (7) (2) Total $ (293) $ (220) $ (221)

(A"Other ~~Majority~~current assets" in the Consolidated Balance Sheets includes prepaid interest on corporate-~~Owned~~owned ~~Subsidiary~~life insurance borrowings of ~~Norfolk~~$44 million ~~Southern~~at ~~Corporation)~~Dec. 31, 2004 , and $48 million at Dec. 31, 2003 .

~~Consolidated~~4. Income ~~Statements~~Taxes ~~of Income~~

	Years ended December 31,
	2002		2001		2000
	($ in millions, except earnings per share)
Railway operating revenues	$	6,095	$	6,009	$	6,012
Railway operating expenses
Compensation and benefits		1,540		1,528		1,900
Materials, services and rents		1,832		1,838		1,679
Conrail rents and services (Note 2)		466		465		500
Depreciation		499		497		486
Diesel fuel		342		412		478
Casualties and other claims		172		145		142
Other		273		293		336
Railway operating expenses		5,124		5,178		5,521
Income from railway operations		971		831		491
Other income (expense) – net (Note 3)		(221)		(243)		(169)
Interest expense on debt (Note 6)		(30)		(37)		(37)
Income before income taxes		720		551		285
Provision for income taxes (Note 4)		278		202		99
Net income	$	442	$	349	$	186
See accompanying notes to consolidated financial statements.

Provision for Income Taxes

37 2004 2003 2002 ($ in millions) Current: Federal $ 145 $ 56 $ 86 State 43 7 6 Total current taxes 188 63 92 Deferred: Federal 186 130 148 State 21 36 38 Total deferred taxes 207 166 186 Provision for income taxes $ 395 $ 229 $ 278

~~Norfolk~~Reconciliation ~~Southern~~of ~~Railway~~Statutory ~~Company~~Rate ~~and~~to ~~Subsidiaries~~Effective Rate

(ATotal ~~Majority-Owned~~income ~~Subsidiary~~taxes as reflected in the Consolidated Statements of ~~Norfolk~~Income ~~Southern~~differ ~~Corporation)~~from the amounts computed by applying the statutory federal corporate tax rate as follows:

~~Consolidated~~ 2004 ~~Balance~~ 2003 ~~Sheets~~ 2002 Amount % Amount % Amount % ($ in millions) Federal income tax at statutory rate $ 408 35 $ 215 35 $ 252 35 State income taxes, net of federal tax benefit 42 4 28 4 28 4 Tax credits (48) (4) (1) -- (1) -- Other - net (7) (1) (13) (2) (1) -- Provision for income taxes $ 395 34 $ 229 37 $ 278 39

	As of Dec. 31,
	2002		2001
	($ in millions)
Assets
Current assets:
Cash and cash equivalents	$	130	$	167
Accounts receivable net of allowance for doubtful accounts of $5 million (Note 2)		117		152
Due from Conrail (Note 2)		6		8
Materials and supplies		95		87
Deferred income taxes (Note 4)		174		153
Other current assets		131		98
Total current assets		653		665
Investments (Notes 5 and 14)		703		631
Properties less accumulated depreciation (Note 6)		10,837		10,672
Other assets		660		573
Total assets	$	12,853	$	12,541
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable (Note 7)		860		819
Income and other taxes		187		236
Due to NS - net (Note 2)		384		517
Due to Conrail (Note 2)		86		373
Other current liabilities (Note 7)		122		134
Current maturities of long-term debt (Note 8)		94		88
Total current liabilities		1,733		2,167
Long-term debt (Note 8)		763		780
Other liabilities (Note 10)		971		1,024
Due to Conrail (Note 2)		513		--
Minority interests		3		3
Deferred income taxes (Note 4)		4,057		3,746
Total liabilities		8,040		7,720
Stockholders’ equity:
Serial preferred stock (Note 11)		55		55
Common stock (Note 11)		167		167
Additional paid-in capital		709		706
Accumulated other comprehensive income (Note 12)		266		215
Retained income		3,616		3,678
Total stockholders’ equity		4,813		4,821
Total liabilities and stockholders’ equity	$	12,853	$	12,541
See accompanying notes to consolidated financial statements.

~~38 Norfolk~~Inclusion ~~Southern~~in ~~Railway~~Consolidated ~~Company~~Return ~~and Subsidiaries~~

(ANS ~~Majority-Owned~~Rail ~~Subsidiary~~is included in the consolidated federal income tax return of ~~Norfolk~~NS. ~~Southern~~The ~~Corporation)~~provision for current income taxes in the Consolidated Statements of Income reflects NS Rail's portion of NS' consolidated tax provision. Tax expense or tax benefit is recorded on a separate company basis.

~~Consolidated~~Deferred ~~Statements~~Tax ofAssets ~~Cash~~and ~~Flows~~Liabilities

	Years Ended December 31,
	2002		2001		2000
	($ in millions)
Cash flows from operating activities
Net income	$	442	$	349	$	186
Reconciliation of net income to net cash
provided by operating activities:
Depreciation		500		499		487
Deferred income taxes		186		71		16
Nonoperating gains on properties and investments		(22)		(13)		(18)
Changes in assets and liabilities affecting operations:
Accounts receivable		35		(6)		39
Materials and supplies		(8)		2		9
Other current assets and due from Conrail		1		49		60
Income tax liabilities		49		72		79
Other short-term liabilities		17		(131)		178
Other – net		(107)		(155)		14
Net cash provided by operating activities		1,093		737		1,050
Cash flows from investing activities
Property additions		(661)		(725)		(628)
Property sales and other transactions		20		52		72
Investments, including short-term		(73)		(89)		(71)
Investment sales and other transactions		45		58		83
Net cash used for investing activities		(669)		(704)		(544)
Cash flows from financing activities
Dividends (Note 2)		(3)		(3)		(3)
Advances to NS (Note 2)		(633)		(213)		(396)
Advances and repayments from NS (Note 2)		--		5		50
Proceeds from borrowings		344		480		244
Debt repayments		(169)		(135)		(401)
Net cash provided by (used for) financing activities		(461)		134		(506)
Net increase (decrease) in cash and cash equivalents		(37)		167		--
Cash and cash equivalents
At beginning of year		167		--		--
At end of year	$	130	$	167	$	--
Supplemental disclosures of cash flow information
Cash paid during the year for:
Interest (net of amounts capitalized)	$	49	$	70	$	115
Income taxes	$	35	$	65	$	4
See accompanying notes to consolidated financial statements.

Certain items are reported in different periods for financial reporting and income tax purposes. Deferred tax assets and liabilities were recorded in recognition of these differences.

39The tax effects of temporary differences that give rise to ~~Norfolk~~significant ~~Southern~~portions ~~Railway~~of ~~Company~~the deferred tax assets and ~~Subsidiaries~~deferred tax liabilities are as follows:

Dec. 31, 2004 2003 (A$ ~~Majority~~in millions) Deferred tax assets: Reserves, including casualty and other claims $ 181 $ 193 Retiree health and death benefit obligations 179 155 Taxes, including state and property 254 230 Other 20 14 Total gross deferred tax assets 634 592 Less valuation allowance (2) -~~Owned~~- Net deferred ~~Subsidiary~~tax ofasset ~~Norfolk~~ 632 592 Deferred ~~Southern~~tax liabilities: ~~Corporation~~ Property (6,874) (3,527) Unrealized holding gains (266) (172) Other (139) (96) Total gross deferred tax liabilities (7,279) (3,795) Intercompany federal tax payable - net (1,026) (994) Net deferred tax liability (7,673) (4,197) Net current deferred tax assets 170 175 Net long-term deferred tax liability $ (7,843) $ (4,372)

~~Consolidated~~Net ~~Statements~~deferred income tax liabilities increased by $3,113 million in 2004 as a result of ~~Changes~~the Conrail Corporate Reorganization (see Note 2). Except for amounts for which a valuation allowance has been provided, management believes that it is more likely than not that the result of future operations will generate sufficient taxable income to realize the deferred tax assets. The valuation allowance at the end of each year relates to subsidiary net operating losses that may not be utilized prior to their expiration. The total valuation allowance increased from less than $1 million in ~~Stockholders’~~2003 ~~Equity~~to $2 million in 2004.

							Accum.
							Other
	Serial				Additional		Compre-
	Preferred		Common		Paid-In		hensive		Retained
	Stock		Stock		Capital		Income		Income		Total
	($ in millions, except per share amounts)
Balance Dec. 31, 1999	$	55	$	167	$	673	$	259	$	4,231		$	5,385
Comprehensive income
Net income										186			186
Other comprehensive
loss (Note 12)								(102)					(102)
Total comprehensive
income													84
Serial preferred stock,
$2.60 per share cash
dividend										(3)			(3)
Noncash dividends on
Common Stock (Note 2)										(382)			(382)
Capital contribution (Note 2)						22							22
Balance Dec. 31, 2000		55		167		695		157		4,032			5,106
Comprehensive income
Net income										349			349
Other comprehensive
income (Note 13)								58					58
Total comprehensive
income													407
Serial preferred stock,
$2.60 per share cash
dividend										(3)			(3)
Noncash dividends on
Common Stock (Note 2)										(700)			(700)
Capital contribution (Note 2)						11							11
Balance Dec. 31, 2001		55		167		706		215		3,678			4,821
Comprehensive income
Net income										442			442
Other comprehensive
income (Note 13)								51					51
Total comprehensive
income													493
Serial preferred stock,
$2.60 per share cash
dividend										(3)			(3)
Noncash dividends on
Common Stock (Note 2)										(501)			(501)
Capital contribution (Note 2)						3							3
Balance Dec. 31, 2002	$	55	$	167	$	709	$	266	$	3,616		$	4,813
See accompanying notes to consolidated financial statements.

Internal Revenue Service (IRS) Reviews

40Consolidated ~~Norfolk~~federal ~~Southern~~income ~~Railway~~tax ~~Company~~returns have been examined and ~~Subsidiaries~~Revenue Agent Reports have been received for all years up to and including 1999. The consolidated federal income tax returns for 2000 through 2003 are being audited by the IRS. The IRS examination for 2000 and 2001 is expected to be completed in the first half of 2005. Management believes that adequate provision has been made for any additional taxes and interest thereon that might arise as a result of IRS examinations.

(A35 ~~Majority-Owned Subsidiary of Norfolk Southern Corporation)~~

~~Notes~~5. Investments ~~to Consolidated Financial Statements~~

~~The~~ Dec. ~~following~~31, ~~Notes~~ 2004 ~~are~~ 2003 an ($ ~~integral~~in ~~part~~millions) of Marketable equity ~~the~~securities ~~Consolidated~~at ~~Financial~~fair ~~Statements.~~value (Note 14) $ 758 $ 498 Corporate-owned life insurance at net cash surrender value 257 226 Investments utilizing equity method 308 50 Investments carried at cost 5 5 Total $ 1,328 $ 779

16. ~~SUMMARY~~ Properties ~~OF SIGNIFICANT ACCOUNTING POLICIES~~

~~Description~~ Dec. of31, ~~Business~~ Depreciation 2004 2003 Rate for 2004 ($ in millions) Railway property: Road $ 19,479 $ 11,169 3.0% Equipment 6,661 5,594 4.2% Other property 105 94 3.9% 26,245 16,857 Less accumulated depreciation (6,044) (5,511) Net properties $ 20,201 $ 11,346

~~Norfolk~~Properties ~~Southern~~increased ~~Railway Company (NSR)~~$8,470 ~~together~~in ~~with~~2004 ~~its~~as ~~consolidated~~a ~~subsidiaries~~result ~~(collectively~~of NSthe ~~Rail), is engaged~~Conrail ~~principally~~Corporate inReorganization ~~the~~as ~~rail~~well ~~transportation~~as ~~business,~~the ~~operating~~Triple ~~approximately~~Crown ~~21,500~~capital ~~route~~contribution ~~miles,~~(see Note ~~primarily~~2). Railway inproperty ~~the~~includes ~~East~~$618 ~~and~~million ~~Midwest~~at Dec. ~~These~~ ~~consolidated~~31, ~~financial~~2004 ~~statements~~, ~~include NSR~~ and $477 ~~its~~million ~~majority-owned~~at ~~and controlled subsidiaries~~Dec. ~~All~~31, ~~significant intercompany~~2003 ~~balances~~, ~~and~~of ~~transactions~~assets ~~have~~recorded ~~been~~pursuant ~~eliminated~~to ~~in consolidation~~capital leases.

NSCapitalized ~~Rail~~Interest transports raw materials, intermediate products and finished goods classified in the following market groups (percent of total railway operating revenues): coal (24%); automotive (16%); chemicals (13%); metals/construction (11%); paper/clay/forest products (10%); agriculture/consumer products/government (10%); and intermodal (16%). Ultimate points of origination or destination for some of the freight (particularly coal bound for export and intermodal containers) are outside of the United States. Substantially all of NS Rail’s employees are covered by collective bargaining agreements with 15 different labor unions.

~~Use~~Total interest cost incurred on debt in 2004, 2003 and 2002 was $48 million, $36 million and $41 million, respectively, of ~~Estimates~~which $10 million, $12 million and $11 million was capitalized.

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, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period7. ~~Management~~ Current ~~reviews~~Liabilities its estimates, including those related to the recoverability and useful lives of assets, as well as liabilities for litigation, environmental remediation, casualty claims, income taxes, and pension and postretirement benefits. Changes in facts and circumstances may result in revised estimates.

~~Cash~~ Dec. ~~Equivalents~~31, 2004 2003 ($ in millions) Accounts payable: Accounts and wages payable $ 507 $ 434 Casualty and other claims 221 217 Vacation liability 115 113 Equipment rents payable - net 106 103 Other 25 23 Total $ 974 $ 890 Other current liabilities: Liabilities for forwarded traffic $ 46 $ 37 Retiree health and death benefit obligations (Note 13) 45 38 Interest payable 29 10 Accrued Conrail-related costs (Note 2) 17 21 Other 5 6 Total $ 142 $ 112

~~“Cash~~36 ~~equivalents” are highly liquid investments purchased three months or less from maturity.~~

~~Investments~~8. Debt

~~Marketable equity and debt securities are reported at amortized cost or fair value, depending upon their classification as securities “held~~Long-~~to-maturity,”~~Term ~~“trading,”~~Debt or “available-for-sale.” All marketable equity securities consisting principally of NS Common Stock are designated as “available-for-sale.” Accordingly, unrealized gains and losses, net of taxes, are recognized in “Accumulated Other Comprehensive Income” (see Note 12).

~~Investments~~ Dec. ~~where~~31, NS 2004 ~~Rail~~ 2003 ~~has~~ ($ ~~the~~in ~~ability~~millions) to Equipment obligations ~~exercise~~at ~~significant~~an ~~influence~~average ~~over~~rate of 4.3%, ~~but~~maturing ~~does~~to ~~not~~2014 ~~control~~ $ 563 $ 607 Debentures at an average rate of 9.2%, ~~the~~maturing ~~entity~~to ~~are~~2043 ~~accounted~~ ~~for~~ 452 -- ~~using~~ Capitalized leases ~~the~~at ~~equity~~an ~~method~~average inrate ~~accordance~~of ~~with~~3.5%, ~~APB~~maturing ~~Opinion~~to No2024 370 274 Other debt at an average rate of 1.5%, 18maturing to 2013 29 35 Discounts and premiums, ~~“The~~net ~~Equity~~ 140 (1) ~~Method~~ Total long-term ofdebt ~~Accounting~~ 1,554 915 Current maturities ~~for~~ (263) ~~Investments~~ (102) in Long-term debt ~~Common~~less current maturities ~~Stock.”~~ $ 1,291 $ 813 Long-term debt maturities subsequent to 2005 are as follows: 2006 $ 116 2007 153 2008 170 2009 81 2010 and subsequent years 771 Total $ 1,291

~~Materials~~Pursuant to the Conrail Corporate Reorganization, NSR issued unsecured public debentures with a total principal of $452 million and ~~Supplies~~fair value of $595 million that mature in 2020 and 2043 (see Note 2). The fair value write-up is included in "Discounts and premiums, net" and reflects interest rates at the time of the reorganization. This write-up is being amortized as a reduction to interest expense over the life of the instruments with a resulting average effective interest rate of 6.2%. The new debt securities have covenants substantially similar to other NS publicly traded debt securities. In addition, "Capitalized leases" includes $135 million at Dec. 31, 2004 , related to the fair value of equipment sublease obligations for equipment that remain secured debt and lease obligations of Conrail (see Note 2).

~~“Materials~~The ~~and~~equipment ~~supplies,”~~obligations ~~consisting mainly of fuel oil~~ and ~~items~~the ~~for~~capitalized ~~maintenance~~leases ~~of property and equipment,~~ are secured ~~stated~~by atliens on the ~~lower~~underlying ~~of average cost or market~~equipment. ~~The cost of materials and supplies expected~~

Certain lease obligations require the maintenance of yen-denominated deposits, which are pledged to bethe ~~used~~lessor into ~~capital~~satisfy yen-denominated ~~additions~~lease orpayments. ~~improvements~~These isdeposits are included in ~~“Properties~~"Other assets" on the balance sheet and totaled $100 million at Dec.” 31, 2004 , and $96 million at Dec. 31, 2003 .

4137

~~Properties~~9. Lease Commitments

~~“Properties”~~NS ~~are stated principally at cost and are depreciated using group depreciation.~~ Rail is ~~depreciated primarily~~committed onunder ~~the basis of use measured by gross ton~~long-~~miles.~~term ~~Other~~lease ~~properties~~agreements, ~~are depreciated generally using the straight-line~~which ~~method~~expire ~~over estimated service or lease lives. NS Rail capitalizes interest~~ on ~~major~~various ~~capital~~dates ~~projects~~through ~~during the period of their construction. Expenditures~~2067, ~~including~~for ~~those on leased assets~~equipment, ~~that~~lines ~~extend~~of anroad ~~asset’s~~and ~~useful life or increase its utility are~~other ~~capitalized~~property. The ~~Maintenance~~following ~~expense~~amounts isdo ~~recognized~~not ~~when~~include ~~repairs~~payments ~~are~~to ~~performed.~~CRC ~~When~~under ~~properties other than land and nonrail assets are sold or retired in~~ the ~~ordinary course of business, the cost of the assets, net of sale proceeds or salvage, is charged to~~ ~~accumulated~~Shared ~~depreciation~~Assets ~~rather~~Areas ~~than~~agreements ~~recognized~~(see ~~through~~Note ~~income~~2). Future ~~Gains~~minimum ~~and~~lease payments ~~losses on disposal of land~~ and ~~nonrail~~operating ~~assets~~lease expenses are ~~included~~ ~~in “Other Income (Expense) - Net” (see Note 3).~~as follows:

NS Operating ~~Rail~~ Capital ~~reviews~~ Leases ~~the~~ Leases ~~carrying~~ ($ ~~amount~~in ofmillions) ~~properties~~ 2005 $ ~~whenever~~ 154 ~~events~~ $ or 75 2006 120 ~~changes~~ 70 2007 107 in 80 2008 87 ~~circumstances~~ 48 2009 73 ~~indicate~~ 64 2010 and ~~that~~subsequent ~~such~~years ~~carrying~~ 484 ~~amount~~ ~~may~~ 74 Total $ ~~not~~ 1,025 be $ ~~recoverable~~ 411 Less imputed ~~based~~interest on ~~future~~capital ~~undiscounted~~leases ~~cash~~at ~~flows~~an oraverage ~~estimated~~rate ~~net~~of ~~realizable value~~5.5% ~~Assets that are deemed impaired~~ as (41) Present value ~~a result~~ of ~~such~~minimum ~~review~~lease ~~are~~payments ~~recorded~~included atin ~~the~~debt ~~lower~~ $ ~~of carrying amount or fair value.~~ 370

~~Revenue~~Operating ~~Recognition~~Lease Expense

~~Revenue~~ 2004 is 2003 ~~recognized~~ 2002 ~~proportionally~~ ($ asin amillions) ~~shipment~~ Minimum rents ~~moves~~ $ ~~from~~ 150 $ ~~origin~~ 130 to $ ~~destination.~~ 140 ~~Refunds~~ Contingent rents ~~are~~ 65 63 ~~recorded~~ 60 as Total $ a 215 $ ~~reduction~~ 193 to ~~revenues~~ $ ~~based~~ 200 ~~on Management’s best estimate of projected liability.~~

~~Derivatives~~During 2000, NS Rail entered into an operating lease for 140 locomotives, which is renewable annually at NS Rail's option, has a maximum term of eight years and includes purchase options. The lessor is a variable interest entity whose activities are limited to those incident to this particular transaction. As discussed in Note 1 under the heading "Required Accounting Changes," NS Rail has consolidated this entity for reporting purposes as of Jan. 1, 2003 . The table above includes operating lease expense related to this lease of $13 million in 2002. During December 2004, NS Rail provided an irrevocable notice of election to exercise the purchase option and pay for the locomotives on June 30, 2005 . Accordingly, the $141 million of debt of the variable interest entity is included in "Current maturities of long-term debt" as of Dec. 31, 2004 .

~~NS Rail does not engage in the trading of derivatives~~10. Other NSLiabilities Rail uses derivative financial instruments to reduce the risk of volatility in its diesel fuel costs and in the management of its mix of fixed- and floating-rate debt. Management has determined that these derivative instruments qualify as either fair-value or cash-flow hedges, having values that highly correlate with the underlying hedged exposures and have designated such instruments as hedging transactions. Income and expense related to the derivative financial instruments is recorded in the same category as generated by the underlying asset or liability. 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.

~~Required~~ Dec. ~~Accounting~~31, ~~Changes~~ 2004 2003 ($ in millions) Retiree health and death benefit obligations (Note 13) $ 349 $ 316 Casualty and other claims 315 270 Net pension obligations (Note 13) 94 89 Accrued Conrail-related costs (Note 2) -- 11 Other 330 347 Total $ 1,088 $ 1,033

~~The~~38 adoption of Statement of Financial Accounting Standards No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets,” which was effective January 1, 2002, did not have a material effect on NS Rail’s consolidated financial statements.

211. ~~RELATED~~ Stock ~~PARTIES~~

~~General~~There are 10,000,000 shares of no par value serial preferred stock authorized. This stock may be issued in series from time to time at the discretion of the Board of Directors with any series having such voting and other powers, designations, dividends and other preferences as deemed appropriate at the time of issuance.

In 2003, Norfolk Southern ~~Corporation~~Railway ~~(NS)~~redeemed isall ~~the~~publicly ~~parent~~held shares ~~holding company~~ of ~~NSR.~~its ~~Rail operations are coordinated at the holding company level by the NS Vice Chairman and Chief Operating Officer~~$2.60 ~~Effective~~Cumulative ~~June~~Preferred 1Stock, ~~2000,~~Series NSA ~~charges NS Rail a fee~~ for ~~management services it performs for NS Rail (which totaled $522 million, including~~ a ~~$32~~redemption ~~million markup in 2002; $521 million, including a $35 million~~price ~~markup~~of ~~in 2001; and~~ $~~347~~50 ~~million,~~per ~~including~~share aplus ~~$17~~accrued ~~million markup in 2000). Previously, the costs of functions performed by NS were charged to NS Rail. As a result, costs that were previously included in “Compensation~~ and ~~benefits”~~unpaid ~~and “Other” are reflected in “Materials~~dividends, ~~services~~for ~~and~~an ~~rents.”~~aggregate ~~In addition, NS charges NS Rail a revenue-based~~redemption ~~licensing~~price ~~fee (which totaled $91 million in 2002, $90 million in 2001 and $91 million in 2000) for use~~ of ~~certain intangible assets owned by NS~~$50.2066.

NSThere ~~Rail~~are ~~owns 21~~50,~~169~~000,~~125~~000 shares of NSno par value common stock with a stated value of $10 per share authorized. NS owned all 16,668,997 shares issued and outstanding at Dec. 31, 2004 and 2003.

4212. Accumulated Other Comprehensive Income

~~Operations~~"Accumulated ~~Over~~other ~~Conrail’~~comprehensive income" reported in the Consolidated Statements of Changes in Stockholder's ~~Lines~~Equity consisted of the following:

~~Overview~~ Balance –at ~~Through~~ Net a Reclassi ~~limited~~- ~~liability~~ Balance ~~company,~~ Beginning NS Gain ~~and~~ fication ~~CSX~~ at ~~Corporation~~End of Year (~~CSX~~Loss) ~~jointly~~ Adjustments ~~own~~ of ~~Conrail~~Year ~~Inc.~~ (~~Conrail~~$ in millions) Dec. 31, 2004 ~~whose~~ Unrealized gains ~~primary~~on ~~subsidiary~~securities is $ ~~Consolidated~~ 306 $ ~~Rail~~ 166 $ ~~Corporation~~ -- $ 472 Cash flow hedges 28 104 (~~CRC~~85), ~~the~~ 47 Minimum pension ~~major~~liability ~~freight~~ (11) ~~railroad~~ (1) in -- (12) ~~the~~ Accumulated ~~Northeast~~other comprehensive income $ 323 $ 269 $ (85) $ 507 Dec. NS31, ~~has~~2003 a Unrealized gains ~~58%~~on ~~economic~~securities ~~and~~ $ ~~50%~~ 257 $ ~~voting~~ 49 $ ~~interest~~ -- $ in 306 Cash flow ~~the~~hedges ~~jointly~~ 18 46 (36) ~~owned~~ 28 Minimum pension ~~entity,~~liability ~~and~~ (9) ~~CSX~~ (2) ~~has~~ -- (11) ~~the~~ Accumulated ~~remainder~~other ofcomprehensive ~~the~~income ~~economic~~ $ ~~and~~ 266 $ ~~voting~~ 93 $ ~~interests.~~ (36) $ 323

~~Operations~~39 of Conrail’s Lines - 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.

~~The~~"Other ~~Operating~~comprehensive ~~Agreement~~income" ~~between~~reported ~~NSR~~in ~~and~~the ~~PRR governs substantially all nonequipment assets to be operated by NSR and has an~~Consolidated ~~initial~~Statements ~~25-year term, renewable at the option~~ of ~~NSR~~Changes ~~for two five-year terms. Payments under the Operating Agreement are subject to adjustment every six years to reflect changes~~ in ~~values.~~Stockholder's ~~NSR~~Equity ~~also~~consisted ~~has leased or subleased for varying terms from PRR a number~~ of ~~equipment~~ ~~assets. 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.~~following:

~~NSR~~ Tax ~~and~~ Pretax ~~CSXT~~ (Expense) ~~also~~ Net-of-Tax ~~have~~ Amount ~~entered~~ Benefit ~~into~~ Amount ~~agreements~~ ($ ~~with~~in ~~CRC~~millions) ~~governing~~ Year ended ~~other~~Dec. ~~properties~~31, ~~that~~2004 ~~continue~~ Net gain to(loss) bearising ~~owned~~during ~~and~~the ~~operated~~year: by Cash flow ~~CRC~~hedges $ 171 $ (~~the~~67) ~~Shared~~ $ ~~Assets~~ 104 Reclassification adjustments ~~Areas~~for gains included in net income (140). ~~NSR~~ 55 (85) ~~and~~ Subtotal ~~CSXT~~ 31 (12) ~~pay~~ 19 Unrealized gains ~~CRC~~(losses) aon ~~fee~~securities ~~for~~ 260 (94) ~~joint~~ 166 Minimum pension ~~and~~liability ~~exclusive~~ (2) ~~access~~ 1 (1) to Other ~~the~~comprehensive ~~Shared~~income ~~Assets~~(loss) ~~Areas.~~ $ In 289 $ ~~addition,~~ (105) ~~NSR~~ ~~and~~ $ ~~CSXT~~ 184 Year ended ~~pay~~Dec. 31, ~~based~~2003 Net gain (loss) arising during the year: Cash flow hedges $ 75 $ (29) $ 46 Reclassification adjustments for gains included in net income (59) 23 (36) Subtotal 16 (6) 10 Unrealized gains (losses) on ~~usage~~securities 74 (25) 49 Minimum pension liability (3) 1 (2) Other comprehensive income (loss) $ 87 $ (30) $ 57 Year ended Dec. 31, 2002 Net gain (loss) arising during the ~~costs~~year: ~~incurred~~ Cash flow byhedges ~~CRC~~ $ to 58 $ ~~operate~~ (23) ~~the~~ $ ~~Shared~~ 35 Reclassification adjustments ~~Assets~~for ~~Areas.~~gains included in net income (10) 4 (6) Subtotal 48 (19) 29 Unrealized gains (losses) on securities 35 (13) 22 Other comprehensive income (loss) $ 83 $ (32) $ 51

~~Future~~13. Pensions ~~minimum lease payments due to PRR under the Operating Agreement~~ and ~~lease~~Other ~~agreements~~Postretirement ~~and to CRC under the Shared Assets~~Benefits ~~Areas (SAA) agreements are as follows:~~

	PRR Oper.		PRR Lease		SAA
	Agmt.		Agmt.		Agmts.
	($ in millions)
2003	$	217	$	116	$	30
2004		238		94		32
2005		246		74		33
2006		246		60		34
2007		246		48		34
2008 and subsequent years		4,285		129		585
Total	$	5,478	$	521	$	748

NS and certain subsidiaries have both funded and unfunded defined benefit pension plans covering principally salaried employees. NS and certain subsidiaries also provide specified health care and death benefits to eligible retired employees and their dependents. Under the present plans, which may be amended or terminated at NS' option, a defined percentage of health care expenses is covered, reduced by any deductibles, copayments , Medicare payments and, in some cases, coverage provided under other group insurance policies. The following relates to the combined NS plans.

OperatingAsset lease expense related to the agreements, which is included in “Conrail rents and services,” amounted to $468 million in 2002, $467 million in 2001 and $502 million in 2000.Management

Eleven investment firms manage NS' ~~Rail’~~defined benefit pension plan's ~~consolidated~~assets ~~balance~~under ~~sheet~~investment guidelines atapproved ~~Dec~~by the Board of Directors. Investments 31are restricted to domestic fixed income securities, ~~2002~~international fixed income securities, domestic ~~includes~~and ~~$58~~international ~~million~~equity investments and unleveraged exchange-traded options and financial futures. Limitations restrict investment concentration and use of ~~liabilities~~certain ~~related~~derivative toinstruments. The target asset allocation for equity is 75% of the ~~Conrail~~pension plan's assets. Fixed income ~~transaction,~~investments ~~principally~~must ~~for~~have ~~contractual~~an ~~obligations~~average torating ~~Conrail~~of ~~employees~~"AA" ~~imposed~~or bybetter ~~the~~and ~~STB~~all ~~when~~fixed itincome securities ~~approved~~must ~~the~~be ~~transaction~~rated "A" or better except bond index funds. Equity ~~Through~~investments ~~Dec.~~must ~~31,~~be ~~2002,~~in NSliquid ~~Rail~~securities ~~had~~listed ~~paid~~on ~~$125~~national ~~million~~exchanges. No investment ofis ~~these~~permitted ~~costs.~~in

NS40 Rail provides certain general and administrative support functions to Conrail, the fees for which are billed in accordance with several service-provider arrangements and totaled $7 million in 2002, $6 million in 2001 and $7 million in 2000.

~~“Conrail~~the ~~rents~~securities ~~and~~of NS ~~services”~~or ~~includes~~its ~~expenses~~subsidiaries ~~for~~(except ~~amounts~~through ~~due~~commingled topension ~~PRR~~trust ~~and~~funds). Investment ~~CRC~~managers' ~~for~~returns ~~use~~are byexpected NSto ~~Rail~~exceed ofselected ~~operating properties~~market ~~and~~indices ~~equipment~~by prescribed ~~and operation of the Shared Assets Areas~~margins.

ANS' ~~significant~~pension ~~portion~~plan weighted-average ofasset ~~payments~~allocations ~~made~~at ~~to PRR is borrowed back from a subsidiary of PRR~~Dec. ~~Previously~~ 31, ~~these~~2004 ~~loans~~and ~~were made under a demand note; however~~2003, inby ~~the~~asset ~~first quarter of 2002~~category, are ~~the~~as follows: ~~subsidiary of PRR~~

43 Plan assets at Dec. 31, Asset Category 2004 2003 Equity securities 76 % 75 % Debt securities 24 25 Total 100 % 100 % International equity securities included in equity securities above 10 % 9 %

~~exchanged~~The ~~this~~postretirement benefit ~~demand~~plan ~~note~~assets ~~for~~consist aprimarily ~~new note due in 2032. As a result, borrowings owed to the subsidiary~~ of ~~PRR~~trust-owned ~~now~~variable ~~comprise~~life insurance ~~the~~policies ~~noncurrent~~with ~~balance~~an ~~“Due~~asset toallocation ~~Conrail.” The interest rate for these loans is variable and was 1.82%~~ at Dec. 31, ~~2002. The~~ ~~current~~2004 ~~balance~~, ~~“Due~~of to67% ~~Conrail”~~in atequity ~~Dec.~~securities and ~~31,~~33% ~~2002,~~in isdebt ~~composed~~securities ofcompared ~~amounts~~with ~~related~~55% ~~to expenses included~~ in ~~“Conrail~~equity ~~rents~~securities and ~~services,”~~45% asin debt ~~discussed~~securities ~~above. At~~at Dec. 31, ~~2001,~~2003 ~~the~~. The ~~current~~target ~~balance~~asset ~~“Due~~allocation tofor equity ~~Conrail”~~is ~~included~~between ~~$72~~50% ~~million of such amounts~~ and ~~$301~~75% ~~million~~ of ~~advances owed under~~ the ~~previous~~plan's ~~demand note~~assets.

~~Noncash~~The ~~Dividends~~plans' assumed future returns are based principally on the asset allocation and on the historic returns for the plans' asset classes determined from both actual plan returns and, over longer time periods, market returns for those asset classes.

NSRVoluntary declaredSeparation andProgram issued to NS noncash dividends of $501 million in 2002, $700 million in 2001 and $382 million in 2000, which were settled by reduction of NSR’s interest-bearing advances due from NS. Noncash dividends are excluded from the Consolidated Statements of Cash Flows.2003

~~Intercompany~~Compensation ~~Accounts~~and benefits expense in 2003 includes $107 million of costs related to a voluntary separation program undertaken in the fourth quarter. Through the program, 553 nonagreement employees were separated from service, of which 314 retired under NS' retirement plan. The costs include $66 million for separation payments and other benefits of the program and $41 million of costs related to the pension and other benefit plans.

	December 31,
	2002			2001
			Average				Average
			Interest				Interest
	Balance		Rate	Balance			Rate
	($ in millions)
Advances due from NS	$	68	2%		$	68	2%
Advances and notes due to NS		(452)	2%			(585)	3%
Due to NS - net	$	(384)			$	(517)

Medicare Changes

~~Interest~~The isMedicare Prescription ~~applied~~Drug, toImprovement, ~~certain~~and ~~advances~~Modernization atAct of 2003 (the ~~average~~Act) NSwas signed ~~yield~~into law onin ~~short-term~~December ~~investments~~2003. The ~~and~~Act introduces a new prescription drug benefit under Medicare (Medicare Part D) as well as a federal subsidy to ~~the~~sponsors ~~notes~~of retiree health care benefit plans that provide a benefit that is at ~~specified~~least ~~rates~~actuarially equivalent to Medicare Part D. NS believes ~~“Interest~~that ~~income”~~its ~~includes~~medical ~~interest~~plan's prescription drug benefit will qualify as actuarially equivalent to Medicare Part D based on ~~amounts~~a ~~due~~review ~~from~~by NSthe plan's external prescription drug administrator of ~~$12~~the ~~million~~plan's prescription drug benefit compared with the prescription drug benefit that would be paid under Medicare Part D beginning in ~~2002~~2006. In 2003, NS elected to take into account these legislative changes in the measurement of its postretirement benefit obligations in accordance with Financial Accounting Standards Board Staff Position No. 106-1. This resulted in a $2245 million decrease in ~~2001~~the ~~and~~end-of-year benefit obligation with a corresponding decline in the unrecognized actuarial loss for 2003. There was no effect on the net benefit cost in 2003; however, the effects of the Act are reflected as a reduction of $189 million in the net benefit cost in ~~2000~~2004.

~~“Other~~41 ~~interest expense” includes interest on amounts due to NS of $10 million in 2002, $15 million in 2001 and $74 million in 2000.~~

~~Sale~~Pension ofand Other ~~Accounts~~Postretirement ~~Receivable~~Benefit Obligations and Plan Assets

~~From~~ Pension ~~Dec.~~Benefits Other Benefits 2004 2003 2004 2003 ($ in millions) Change in benefit obligations Benefit obligation at beginning of year $ 1,488 $ ~~1999~~ 1,370 $ ~~through~~ 608 $ ~~April~~ 592 Service 30cost 18 20 15 18 Interest cost 89 89 39 40 Amendment -- -- -- (51) Legislative changes -- -- -- (45) Curtailment loss -- 17 -- 10 Special termination benefits -- -- -- 17 Actuarial losses 96 105 83 65 Benefits paid (117) (113) (44) (38) Benefit obligation at end of year 1,574 ~~2000~~ 1,488 701 608 Change in NSplan ~~Rail~~assets ~~sold~~ Fair ~~certain~~ value of ~~its~~plan ~~rail~~assets ~~accounts~~at ~~receivable~~beginning of year 1,720 1,469 130 106 Actual return on aplan ~~nonrecourse~~assets ~~basis,~~ 197 358 10 24 Employer contribution to ~~NS.~~ 6 ~~Based~~ 6 9 38 Benefits paid on (117) ~~the~~ (113) ~~terms~~ (44) (38) Fair value of ~~the~~plan ~~sale~~assets ~~agreement~~at end of year 1,806 1,720 105 130 Funded status ~~these~~ 232 232 (596) ~~sales~~ (478) ~~were~~ Unrecognized actuarial ~~accounted~~loss ~~for~~ 253 208 232 163 Unrecognized prior asservice ~~secured~~cost ~~borrowings.~~(benefit) ~~The~~ 18 21 (35) ~~discount~~ (44) is Net amount ~~included~~recognized in $ ~~“Other~~ 503 $ ~~income~~ 461 $ - (399) ~~net”~~ $ (359) Amounts recognized in the Consolidated ~~Statements~~ Balance Sheets consist of: ~~Income~~ Prepaid benefit ~~and~~cost is $ a 577 $ ~~component~~ 532 $ of -- $ ~~“Other~~ -- Accrued benefit ~~interest~~liability ~~expense”~~ (94) in (89) ~~Note~~ (399) 3. (359) Accumulated other comprehensive income 20 18 -- -- Net amount recognized $ 503 $ 461 $ (399) $ (359)

~~Effective~~Following ~~May 2000, NS and NS Rail sold, without recourse, to a bankruptcy-remote special-purpose NS subsidiary, a pool of~~is ~~accounts~~information ~~receivable~~for ~~totaling approximately $700 million. The pool consisted of receivables~~ NS' ~~earlier~~unfunded ~~had~~pension ~~purchased~~plans ~~from~~which NSin ~~Rail (as described above), and certain additional NS Rail receivables. NS Rail services and collects~~ all ofcases ~~the~~have ~~sold receivables on behalf of the buyers; however,~~ no ~~servicing~~assets ~~asset or liability has been recognized because the benefits of servicing are estimated~~and totherefore behave ~~just~~an ~~adequate~~accumulated tobenefit ~~compensate~~obligation ~~NS Rail for its responsibilities. Payments collected from sold receivables are remitted to the special-purpose NS subsidiary, which,~~ in ~~turn,~~excess ~~reinvests~~of ~~the~~plan ~~amounts~~assets: ~~by purchasing new receivables from NS Rail. NS Rail has no retained interest in the sold receivables.~~

~~Under the terms of the sale agreement, the receivables are treated as sold and, accordingly, $513 million at~~ Dec. 31, ~~2002, and~~ 2004 2003 ($~~534~~ ~~million~~in atmillions) Projected benefit ~~Dec.~~obligation ~~31,~~ $ ~~2001, of sold receivables are not included on the balance sheet of NS Rail. The transition to the new~~ ~~program~~ 120 ~~in May 2000 resulted in a~~ $~~495~~ ~~million~~ 103 ~~noncash~~ Accumulated benefit ~~reduction~~obligation ~~of receivables and Intercompany Accounts, which was excluded from~~ ~~the~~ 94 ~~Consolidated Statements of Cash Flows. Fees associated with the sale, which are based on historical dilution and prevailing~~ ~~interest~~ 89 ~~rates, are included in “Other income (expense) - net” (see Note 3).~~

44During 2003, NS amended its retiree medical plan to require participants retiring after Dec. 31, 2003 to share in any increased medical costs. Contributions will be determined annually and will increase at a rate similar to that of active nonagreement employees. The amendment decreased the retiree medical benefit obligation by $51 million.

~~Intercompany~~42 ~~Federal Income Tax Accounts~~

InPension ~~accordance with the NS Tax Allocation Agreement, intercompany federal income tax accounts are recorded between companies in~~and ~~the~~Other NSPostretirement ~~consolidated~~Benefit ~~group.~~Costs NSComponents ~~Rail had long-term intercompany federal~~

~~income~~ 2004 ~~tax~~ 2003 ~~payables~~ 2002 (~~which~~$ ~~are~~in ~~included~~millions) in Pension benefits ~~“Deferred~~ Service ~~income~~cost $ ~~taxes”~~ 18 $ in 20 $ ~~the~~ 17 Interest cost ~~Consolidated~~ 89 89 91 Curtailment loss ~~Balance~~ -- 17 -- Expected return ~~Sheets~~on plan assets (149) (158) (179) Amortization of prior service cost 3 5 4 Recognized net actuarial (gains) losses 3 2 (13) Net benefit $~~938~~ ~~million~~ (36) at $ ~~Dec.~~ (25) ~~31,~~ $ ~~2002,~~ (80) ~~and~~ Other postretirement benefits Service cost $~~871~~ ~~million~~ 15 $ at 18 $ ~~Dec.~~ 13 Interest cost ~~31,~~ 39 40 33 Curtailment loss ~~2001.~~ -- 10 -- Special termination benefits -- 17 -- Expected return on plan assets (12) (12) (13) Amortization of prior service cost (benefit) (9) (7) -- Amortization of unrecognized losses 16 14 -- Net cost $ 49 $ 80 $ 33

~~Capital~~Pension Assumptions ~~Contributions~~

InPension ~~each~~and ofother postretirement ~~2002,~~benefit ~~2001~~costs ~~and~~are ~~2000,~~determined NSbased ~~Rail~~on ~~recognized~~actuarial ~~capital~~valuations ~~contributions~~that reflect ~~for~~appropriate ~~benefits~~assumptions itas ~~received~~of ~~related~~the tomeasurement ~~tax~~date, ~~credits~~ordinarily the ~~generated~~beginning byof aeach ~~nonrail~~year. The ~~subsidiary~~funded status of NSthe plans is determined using appropriate assumptions as of each year end. A summary of the major assumptions follows:

~~Cash~~ 2004 ~~Required~~ 2003 ~~for~~ 2002 NS Funded status: ~~Debt~~ Discount rate 5.75% 6.25% 6.75% Future salary increases 4.5% 4.5% 4.5% Pension cost: Discount rate 6.25% 6.75% 7.25% Return on assets in plans 9% 9% 9% Future salary increases 4.5% 4.5% 5%

ToHealth ~~finance the cost of the Conrail transaction, NS issued and sold commercial paper and $4.3 billion of unsecured notes. A~~Care ~~significant~~Cost ~~portion~~Trend ofAssumptions ~~the funding for the interest and repayments on this and other NS debt is expected to be provided by NS Rail.~~

NSFor ismeasurement purposes ~~subject~~at toDec. ~~various~~31, ~~financial~~2004 ~~covenants~~, ~~with~~increases ~~respect~~in tothe ~~its~~per ~~debt~~capita ~~and~~cost ~~under~~of ~~its~~covered ~~credit~~health care ~~agreement,~~benefits ~~including~~were aassumed ~~minimum~~to ~~net worth~~be ~~requirement,~~9% afor ~~maximum~~2004 ~~leverage~~and ~~ratio~~8% ~~restriction~~for ~~and~~2005. It ~~certain~~is assumed ~~restrictions~~the onrate ~~issuance~~will ofdecrease ~~further~~gradually ~~debt.~~to Asan aultimate ~~major~~rate ~~NS subsidiary,~~of NS5% ~~Rail~~for is2008 ~~subject~~and remain toat ~~certain~~that oflevel ~~those covenants~~thereafter.

3Assumed health care cost trend rates have a significant effect on the amounts reported in the financial statements. ~~OTHER~~ To ~~INCOME~~illustrate, ~~(EXPENSE)~~a one-percentage-point ~~NET~~change in the assumed health care cost trend would have the following effects:

	2002		2001		2000
	($ in millions)
Rental income	$	40	$	44	$	35
Interest income (Note 2)		17		29		26
Gains from sales of properties and investments		22		13		18
Dividends from NS		6		5		17
Discount on sales of accounts receivable (Note 2)		(258)		(314)		(145)
Other interest expense (Note 2)		(44)		(10)		(109)
Corporate-owned life insurance – net		--		7		--
Taxes on nonoperating property		(2)		(6)		(6)
Other – net		(2)		(11)		(5)
Total	$	(221)	$	(243)	$	(169)

	One percentage point
	Increase		Decrease
	($ in millions)
Increase (decrease) in:
Total service and interest cost components	$	8	$	(6)
Postretirement benefit obligation	$	82	$	(69)

~~“Other current assets” in the Consolidated Balance Sheets includes prepaid interest on corporate-owned life insurance borrowings of $~~43 ~~million at Dec. 31, 2002, and $42 million at Dec. 31, 2001.~~

45Contributions and Estimated Future Benefit Payments

4In 2005, NS expects to contribute approximately $7 million to its unfunded pension plans for payments to pensioners and $44 million to its other postretirement benefit plans for retiree health benefits. ~~INCOME~~ ~~TAXES~~

~~Provision~~Benefit ~~for~~payments, which ~~Income~~reflect ~~Taxes~~expected future service, as appropriate, are expected to be paid as follows:

	2002			2001		2000
			($ in millions)
Current:
Federal		$	86	$	113	$	75
State			6		18		8
Total current taxes			92		131		83
Deferred:
Federal			148		56		14
State			38		15		2
Total deferred taxes			186		71		16
Provision for income taxes		$	278	$	202	$	99

	Pension		Other
	Benefits		Benefits
	($ in millions)

2005	$	111	$	44
2006		110		43
2007		107		44
2008		106		45
2009		106		46
Years 2010-2014		564		249

~~Reconciliation~~Beginning ofin ~~Statutory~~2006, the ~~Rate~~other benefit payments include an estimated annual $3 million reduction due to ~~Effective~~the ~~Rate~~Medicare Part D Subsidy.

TotalOther incomePostretirement taxes as reflected in the Consolidated Statements of Income differ from the amounts computed by applying the statutory federal corporate tax rate as follows:Coverage

	2002			2001			2000
	Amount		%	Amount		%	Amount		%
	($ in millions)
Federal income tax at statutory rate	$	252	35	$	193	35	$	100	35
State income taxes, net of federal
tax benefit		28	4		21	4		7	2
Corporate-owned life insurance		(1)	--		(3)	--		(2)	--
Other – net		(1)	--		(9)	(2)		(6)	(2)
Provision for income taxes	$	278	39	$	202	37	$	99	35

Under collective bargaining agreements, NS and certain subsidiaries participate in a multi-employer benefit plan, which provides certain postretirement health care and life insurance benefits to eligible union employees. Premiums under this plan are expensed as incurred and amounted to $20 million in 2004, $18 million in 2003 and $11 million in 2002.

~~Inclusion~~Section in401(k) Plans ~~Consolidated Return~~

NS ~~Rail~~and iscertain subsidiaries ~~included~~provide inSection ~~the~~401(k) ~~consolidated~~savings ~~federal~~plans ~~income tax return of NS. The provision~~ for ~~current income taxes in the~~employees. Under ~~Consolidated~~the ~~Statements~~plans, ~~of Income reflects~~ NS ~~Rail’s~~matches a portion of ~~NS’~~employee ~~consolidated~~contributions, ~~tax~~subject ~~provision~~to applicable limitations. NS' ~~Tax~~expenses ~~expense~~under orthese ~~tax benefit~~plans iswere ~~recorded~~$12 million onin aeach of ~~separate~~2004, ~~company~~2003 ~~basis~~and 2002.

~~Deferred~~14. Fair ~~Tax~~Values ~~Assets~~of ~~and~~Financial ~~Liabilities~~Instruments

~~Certain~~The ~~items~~fair ~~are~~values ~~reported~~of in"Cash ~~different~~and ~~periods~~cash ~~for~~equivalents," "Accounts receivable" and "Accounts payable" approximate carrying values because of the short maturity of these financial ~~reporting~~instruments. ~~and~~The ~~income~~fair ~~tax~~value ~~purposes~~of corporate-owned life insurance approximates carrying value. ~~Deferred~~The ~~tax~~carrying ~~assets~~amounts and estimated ~~liabilities~~fair ~~were~~values ~~recorded~~for the remaining financial instruments, excluding investments accounted for under the equity method in ~~recognition~~accordance with APB No. 18, consisted of ~~these~~the ~~differences~~following at Dec. 31:

~~The~~ 2004 ~~tax~~ 2003 ~~effects~~ Carrying of Fair ~~temporary~~ Carrying ~~differences~~ Fair ~~that~~ Amount ~~give~~ Value ~~rise~~ Amount to Value ~~significant~~ ($ ~~portions~~in ofmillions) ~~the~~ Investments $ ~~deferred~~ 803 ~~tax~~ $ ~~assets~~ 811 ~~and~~ $ ~~deferred~~ 543 $ ~~tax~~ ~~liabilities~~ 552 Long-term debt ~~are~~ $ as (1,554) ~~follows:~~ $ (1,549) (915) (931)

46Quoted market prices were used to determine the fair value of marketable securities; underlying net assets were used to estimate the fair value of other investments. The fair values of debt were estimated based on quoted market prices or discounted cash flows using current interest rates for debt with similar terms, company rating and remaining maturity.

	December 31,
	2002		2001
	($ in millions)
Deferred tax assets:
Reserves, including casualty and other claims	$	177	$	156
Employee benefits		6		57
Retiree health and death benefit obligations		136		135
Taxes, including state and property		218		204
Deferred tax assets		537		552
Deferred tax liabilities:
Property		(3,293)		(3,112)
Unrealized holding gains		(147)		(134)
Other		(42)		(28)
Deferred tax liabilities		(3,482)		(3,274)
Intercompany federal tax payable - net		(938)		(871)
Net deferred tax liability		(3,883)		(3,593)
Net current deferred tax assets		174		153
Net long-term deferred tax liability	$	(4,057)	$	(3,746)

~~Except~~Carrying ~~for~~ amounts ~~for~~of marketable securities, which aconsist ~~valuation~~almost entirely ~~allowance~~of ~~has~~shares ~~been~~of ~~provided~~NS Common Stock, ~~management~~reflect ~~believes~~unrealized ~~the~~holding ~~other~~gains ~~deferred~~of ~~tax~~$738 million ~~assets~~as ~~will~~of beDec. 31, 2004 , and $478 million as of Dec. 31, 2003 . ~~realized~~Sales of "available-for-sale securities" were immaterial for years ended Dec. 31, 2004 and 2003.

~~Internal~~15. Derivative ~~Revenue~~Financial ~~Service~~Instruments ~~(IRS) Reviews~~

~~Consolidated~~On ~~federal~~Jan. ~~income~~1, ~~tax~~2001, NS ~~returns~~Rail ~~have~~adopted ~~been~~Statement ~~examined~~of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and ~~Revenue~~Hedging ~~Agent~~Activities" ~~Reports~~(SFAS ~~have~~No. ~~been~~133), ~~received~~as ~~for~~amended ~~all~~by Statement ~~years~~of upFinancial toAccounting ~~and~~Standards No. 138, "Accounting for ~~including~~Certain ~~1996~~Derivative Instruments and Certain Hedging Activities" (SFAS No. 138). The ~~consolidated~~Statements ~~federal~~establish ~~income~~accounting ~~tax~~and ~~returns~~reporting standards for derivative ~~1997~~instruments and hedging activities, ~~1998~~requiring that all derivatives be recognized in the financial statements as either assets or liabilities and ~~1999~~that they be measured at fair value. Changes in fair value are ~~being~~recorded ~~audited~~as adjustments byto the ~~IRS.~~assets ~~Management~~or liabilities being hedged in "Other comprehensive ~~believes~~income," ~~that~~or ~~adequate~~in ~~provision~~current ~~has~~earnings, ~~been~~depending ~~made~~on whether the derivative is designated and qualifies for ~~any~~hedge ~~additional~~accounting, ~~taxes~~the type of hedge transaction represented and ~~interest~~the ~~thereon~~effectiveness ~~that~~of ~~might~~the ~~arise~~hedge. The assettlement aof the hedges will result in the reclassification into diesel fuel expense of ~~IRS~~the ~~examinations~~related gains or losses recorded as a component of "Other comprehensive income."

5NS Rail 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. ~~INVESTMENTS~~NS Rail 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 that 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.

	December 31,
	2002		2001
	($ in millions)
Marketable equity securities at fair value (Note 14)	$	425	$	389
Corporate-owned life insurance at net cash surrender value		242		214
Other		36		28
Total	$	703	$	631

Diesel Fuel Hedging

46NS Rail has hedged a significant portion of its diesel fuel consumption. The intent of the hedges is to assist in the management of NS Rail's aggregate risk exposure to fuel price fluctuations, which can significantly affect NS Rail's operating margins and profitability. In order to minimize this risk, NS Rail entered 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.

~~6. PROPERTIES~~Following is a summary of NS Rail's diesel fuel swaps:

	December 31,				Depreciation
	2002		2001		Rate for 2002
	($ in millions)
Railway property:
Road	$	10,789	$	10,384	2.9%
Equipment		5,395		5,378	4.1%
Other property		94		94	2.3%
		16,278		15,856
Less accumulated depreciation		(5,441)		(5,184)
Net properties	$	10,837	$	10,672

		2004	2003
Number of swaps entered into during the year		120	286
Approximate number of gallons hedged (millions)		157	374
Approximate average price per gallon of Nymex
No. 2 heating oil		$0.86	$0.76

	2005	2006	2007
Percent of estimated future diesel fuel consumption covered as of Dec. 31, 2004	36%	4%	--

~~Railway~~Hedges ~~property~~are ~~includes~~entered into ~~$480~~periodically ~~million~~by atcompetitive ~~Dec.~~bid 31among selected counterparties; however, ~~2002~~no hedges have been placed since May 2004. The goal of this hedging strategy is to reduce the variability of fuel costs over an extended period of time while minimizing the incremental cost of hedging. The program provides that NS Rail will not enter into any fuel hedges with a duration of more than 36 months, and ~~$474~~that ~~million~~no atmore than 80% of NS Rail's average monthly fuel consumption will be hedged for each month within any 36-month period. After taking into account the effect of the hedging, diesel fuel costs represented 8% for the year ended Dec. 31, ~~2001~~2004 , ofand ~~assets~~7% ~~recorded~~for ~~pursuant~~the toyears ended ~~capital~~Dec. ~~leases~~31, 2003 and 2002, respectively.

~~Capitalized~~45 ~~Interest~~

~~Total~~NS ~~interest~~Rail's ~~cost~~fuel hedging ~~incurred~~activity onresulted ~~debt~~ in ~~2002,~~decreases ~~2001~~in ~~and~~diesel ~~2000~~fuel ~~was~~expenses of $41140 million, $5459 million and $55 10 million for 2004, 2003 and 2002, respectively. Ineffectiveness, ofor the extent to which changes in the fair value of the heating ~~$11~~oil ~~million~~contracts do not offset changes in the fair values of the expected diesel fuel transaction, was approximately $175 million in 2004 and less than $181 million in ~~was~~both ~~capitalized~~2003 and 2002.

~~7. CURRENT~~Interest ~~LIABILITIES~~Rate Hedging

	December 31,
	2002		2001
	($ in millions)
Accounts payable:
Accounts and wages payable	$	399	$	357
Casualty and other claims		206		191
Equipment rents payable – net		116		130
Vacation liability		117		118
Other		22		23
Total	$	860	$	819
Other current liabilities:
Accrued Conrail-related costs (Note 2)	$	32	$	32
Interest payable		18		15
Liabilities for forwarded traffic		34		35
Retiree health and death benefit obligations (Note 13)		31		24
Derivative instruments		--		17
Other		7		11
Total	$	122	$	134

NS Rail 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 Rail had $151 million, or 14%, and $186 million, or 33.9%, of its fixed rate debt portfolio hedged at Dec. 31, 2004 , and Dec. 31, 2003 , respectively, using interest rate swaps that qualify for and are designated as fair-value hedge transactions. NS Rail's interest rate hedging activity resulted in decreases to interest expense of $6 million, $10 million and $9 million for 2004, 2003 and 2002, respectively. 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.

48Fair Values

8The fair values of NS Rail's diesel fuel derivative instruments at Dec. ~~DEBT~~ 31, 2004 and 2003, were determined based upon current fair market values as quoted by an independent third party. 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 unrealized gains of $75 million (pretax) at Dec. 31, 2004, and $40 million (pretax) at Dec. 31, 2003, related to the fair value of derivative fuel hedging transactions that will terminate within twelve months of the respective dates. Any future gain or loss actually realized will be based on the fair value of the derivative fuel hedges at the time of termination.

~~Long-Term~~The ~~Debt~~asset and liability positions of NS Rail's outstanding derivative financial instruments were as follows:

	December 31,
	2002		2001
	($ in millions)
Equipment obligations at an average rate of 4.6%, maturing to 2014	$	514	$	518
Capitalized leases at an average rate of 2.1%, maturing to 2015		306		316
Other debt at an average rate of 1.7%, maturing to 2015		37		34
Total long-term debt		857		868
Current maturities		(94)		(88)
Long-term debt less current maturities	$	763	$	780
Long-term debt maturities subsequent to 2003 are as follows:
2004	$	97
2005		91
2006		88
2007		113
2008 and subsequent years		374
Total	$	763

	Dec. 31,
	2004		2003
	($ in millions)
*Interest rate hedges:*
Gross fair market asset position	$	9	$	16
Gross fair market (liability) position		--		--
*Fuel hedges:*
Gross fair market asset position		81		45
Gross fair market (liability) position		--		--
Total net asset (liability) position	$	90	$	61

~~The~~16. Commitments ~~equipment obligations~~ and ~~the~~Contingencies ~~capitalized leases are secured by liens on the underlying equipment.~~

~~Certain lease obligations require the maintenance of yen-denominated deposits, which are pledged to the lessor to satisfy~~Lawsuits ~~yen-denominated lease payments. These deposits are included in “Other assets” on the balance sheet and totaled $86 million at Dec. 31, 2002, and $78 million at Dec. 31, 2001.~~

9NS Rail and certain subsidiaries are defendants in numerous lawsuits and other claims relating principally to railroad operations. ~~LEASE~~ When ~~COMMITMENTS~~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 earnings. 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 earnings in the periods in which such adjustments are known.

NS46 Rail is committed under long-term lease agreements, which expire on various dates through 2067, for equipment, lines of road and other property. The following amounts do not include payments to PRR under the Operating Agreement and lease agreements or to CRC under the SAA agreements (see Note 2). Future minimum lease payments and operating lease expenses, other than to PRR and CRC, are as follows:

	Operating		Capital
	Leases		Leases
	($ in millions)
2003	$	112	$	47
2004		88		52
2005		77		47
2006		61		43
2007		53		40
2008 and subsequent years		485		123
Total	$	876	$	352
Less imputed interest on capital leases at an average rate of 7%				(46)
Present value of minimum lease payments included in debt			$	306

Casualty Claims

49Casualty claims include employee personal injury and occupational claims as well as third-party claims. NS Rail engages an independent consulting actuarial firm to aid in valuing its liability for personal injury, occupational and third-party claims. Job-related accidental injury and occupational claims are subject to the Federal Employers' Liability Act (FELA), which is applicable only to railroads. FELA's fault-based system produces results that are unpredictable and inconsistent as compared with a no-fault workers' compensation system. The variability inherent in this system could result in actual costs being very different from the liability recorded. While the ultimate amount of claims incurred is dependent on future developments, in management's opinion, the recorded liability after considering applicable insurance coverage is adequate to cover the future payments of claims and is supported by the most recent actuarial study. In all cases, NS Rail records a liability when the expected loss for the claim is both probable and estimable.

~~Operating~~Employee ~~Lease~~personal ~~Expense~~injury claims - The largest component of casualties and other claims expense is employee personal injury costs. The actuarial firm engaged by NS Rail provides quarterly studies to aid in valuing its employee personal injury liability and estimating its employee personal injury expense. The actuarial firm studies NS Rail's historical patterns of reserving for claims and subsequent settlements, taking into account relevant outside influences. The actuary uses the results of these analyses to estimate the ultimate amount of the liability, which includes amounts for incurred but unasserted claims. NS Rail adjusts its liability to the actuarially determined amount on a quarterly basis. The estimate of loss liabilities is subject to inherent limitation given the difficulty of predicting future events such as jury decisions, court interpretations or legislative changes and as such the actual emergence of loss may vary from the actuarial estimate.

	2002		2001		2000
	($ in millions)
Minimum rents	$	140	$	148	$	167
Contingent rents		60		55		61
Total	$	200	$	203	$	228

Occupational claims - Occupational claims (including asbestosis and other respiratory diseases, as well as repetitive motion) are often not caused by a specific accident or event but rather result from a claimed exposure over time. Many such claims are being asserted by former or retired employees, some of whom have not been actively employed in the rail industry for decades. The actuarial firm provides an estimate of the occupational claims liability based upon NS Rail's history of claim filings, severity, payments and other pertinent facts. The liability is dependent upon management's judgments made as to the specific case reserves as well as judgments of the consulting actuarial firm in the periodic studies. The actuarial firm's estimate of ultimate loss includes a provision for those claims that have been incurred but not reported by analyzing industry data and projecting NS Rail's experience into the future as far as can be reasonably determined. NS Rail adjusts its liability to the actuarially determined amount on a quarterly basis. 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 become known.

~~During~~Third-party ~~2000,~~claims - NS Rail ~~entered~~records ~~into~~a liability ~~an operating lease~~ for ~~140~~third-party ~~locomotives,~~claims ~~which~~including isthose ~~renewable~~for ~~annually~~highway atcrossing ~~NS’ option~~accidents, ~~has a~~ ~~maximum~~trespasser ~~term of eight years~~ and ~~includes~~other ~~purchase options. Because the fixed~~injuries, ~~noncancellable~~automobile ~~term of the lease is one year~~liability, ~~future minimum~~property ~~lease~~damage payments in the table above do not include amounts related to this lease. However, operating lease expense in the table above does include amounts related to this lease as follows: $13 million in 2002, $18 million in 2001 and ~~$11~~lading ~~million in 2000~~damage. If The NSactuarial ~~Rail~~firm ~~does~~assists ~~not~~with ~~renew~~ the ~~lease~~calculation ~~during~~of ~~the eight-year period or does not purchase the locomotives at the~~potential ~~end~~liability offor ~~the~~third-party ~~maximum lease term~~claims, itexcept islading ~~liable~~damage, ~~for~~based ~~any~~upon ~~shortfall in the then fair value of the locomotives and a specified residual value.~~ NS Rail's experience ~~does~~including ~~not~~number ~~expect~~and totiming beof ~~required~~incidents, toamount ~~make any payments under this provision. As~~ of ~~Dec. 31~~payments, ~~2002, the~~ ~~maximum~~settlement ~~liability under this provision~~rates, ~~assuming~~number NSof ~~Rail~~open ~~chose~~claims ~~not to renew the lease in 2003~~ and ~~the~~legal ~~then fair value of the locomotives was zero, would be $116 million~~defenses. The ~~lessor~~actuarial estimate isincludes a ~~special-purpose~~provision ~~entity~~for ~~whose~~claims ~~activities~~that ~~are~~have ~~limited~~been toincurred ~~those incident~~but tohave ~~this~~not yet ~~particular~~been ~~transaction~~reported. ~~Upon~~ Each ~~adoption~~quarter ofNS ~~Financial~~Rail ~~Accounting~~adjusts ~~Standards~~its ~~Board~~liability ~~Interpretation~~to ~~No. 46,~~the ~~“Consolidation~~actuarially ofdetermined ~~Variable~~amount. Given ~~Interest~~the ~~Entities,”~~inherent ~~which~~uncertainty ~~will occur~~ in ~~2003, NS Rail will consolidate this entity. As~~the aultimate ~~result,~~outcome ~~the~~of ~~locomotives~~third-party ~~will be shown as assets~~claims, ~~debt~~it ~~will~~is ~~increase,~~possible ~~operating~~that ~~lease~~future ~~expense will decline, depreciation expense~~settlement ~~will~~costs ~~increase~~may ~~and~~differ ~~interest~~from ~~expense~~the onestimated ~~debt~~liability ~~will increase~~recorded.

~~10. OTHER~~Environmental Matters ~~LIABILITIES~~

	December 31,
	2002		2001
	($ in millions)
Retiree health and death benefit obligations (Note 13)	$	282	$	286
Casualty and other claims		253		264
Net pension obligations (Note 13)		82		79
Accrued Conrail-related costs (Note 2)		26		46
Other		328		349
Total	$	971	$	1,024

NS Rail is subject to various jurisdictions' environmental laws and regulations. It is NS Rail's 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 Rail are reflected as receivables (when collection is probable) on the balance sheet and are not netted against the associated NS Rail liability. Environmental engineers regularly participate in ongoing evaluations of all known sites and in determining any necessary adjustments to liability estimates. NS Rail also has established an Environmental Policy Council, composed of senior managers, to oversee and interpret its environmental policy.

~~11. STOCK~~47

~~There~~NS ~~are~~Rail's ~~10,000,000~~balance sheets ~~shares~~included ofliabilities nofor ~~par~~environmental ~~value~~exposures ~~serial~~in ~~preferred~~the ~~stock~~amount ~~authorized.~~of ~~This~~$64 million ~~stock~~at ~~may~~Dec. 31, be2004 ~~issued~~, inand ~~series~~$25 ~~from~~million ~~time to time~~ at ~~the~~Dec. ~~discretion~~31, 2003 (of ~~the~~which ~~Board~~$12 million ofwas ~~Directors~~accounted ~~with~~for ~~any~~as ~~series~~a ~~having~~current ~~such~~liability ~~voting~~at ~~and~~Dec. ~~other powers~~31, ~~designations~~2004 , ~~dividends~~ and $8 ~~other~~million ~~preferences~~at asDec. ~~deemed~~31, ~~appropriate~~2003 at). The increase in the ~~time~~liability ofwas ~~issuance.~~the Onresult of ~~Dec.~~the ~~31,~~Conrail ~~2002~~Corporate Reorganization and ~~2001,~~relates ~~1,197,027~~to ~~shares~~sites ofon ~~$2.60~~the ~~Cumulative~~former PRR ~~Preferred~~properties. At ~~Stock~~Dec. 31, ~~Series~~2004 A, ~~(Series~~the Aliability ~~Stock)~~represented ~~were~~NS ~~issued,~~Rail's estimate ~~and~~of ~~1,096,907~~the ~~shares~~probable ~~were~~cleanup ~~held~~and ~~other~~remediation ~~than~~costs bybased ~~subsidiaries,~~on ~~including~~available ~~246,355~~information ~~shares held by NS~~ at ~~Dec.~~210 ~~31,~~known ~~2002~~locations. On ~~The~~that ~~Series~~date, A15 ~~Stock~~sites ~~has~~accounted a for $5032 ~~per~~million ~~share~~of ~~stated~~the ~~value.~~liability, ~~The~~and ~~Series~~no Aindividual ~~Stock~~site iswas ~~callable~~considered atto be ~~any~~material. NS ~~time~~Rail atanticipates ~~$50~~that ~~per~~much ~~share~~of ~~plus~~this ~~accrued~~liability ~~dividends~~will ~~and~~be ~~has~~paid out ~~one~~over ~~vote~~five ~~per~~years; ~~share on all matters~~however, ~~voting~~some ascosts awill ~~single~~be ~~class~~paid ~~with~~out ~~holders of~~over ~~other~~a ~~stock~~longer period.

~~There~~At ~~are~~some 10of the 210 locations,~~000~~ NS Rail and certain of its subsidiaries,~~000~~ ~~shares~~usually in conjunction with a number of noother ~~par~~parties, ~~value~~have ~~serial~~been ~~preference~~identified ~~stock~~as ~~authorized.~~potentially ~~None~~responsible parties by the Environmental Protection Agency (EPA) or similar state authorities under the Comprehensive Environmental Response, Compensation and Liability Act of ~~these~~1980, ~~shares~~or ~~has~~comparable ~~been~~state ~~issued~~statutes, which often impose joint and several liability for cleanup costs.

~~There~~With ~~are~~respect 50to known environmental sites (whether identified by NS Rail or by the EPA or comparable state authorities),~~000,000~~ ~~shares~~estimates of noNS ~~par~~Rail's ~~value~~ultimate ~~common~~potential financial ~~stock~~exposure ~~with~~for a ~~stated~~given ~~value~~site or in the aggregate for all such sites are necessarily imprecise because of ~~$10~~the ~~per~~widely ~~share~~varying ~~authorized.~~costs NSof ~~owned~~currently ~~all~~available 16cleanup techniques,~~668~~ the likely development of new cleanup technologies,~~997~~ ~~shares~~the difficulty ~~issued~~of determining in advance the nature and ~~outstanding~~full atextent ~~Dec.~~of 31contamination and each potential participant's share of any estimated loss (and that participant's ability to bear it), ~~2002~~and evolving statutory and ~~2001~~regulatory standards governing liability.

50The risk of incurring environmental liability is inherent - for acts and omissions, past, present and future - in the railroad business. Some of the commodities in NS Rail's traffic mix, particularly those classified as hazardous materials, can pose special risks that NS Rail and its subsidiaries work diligently to minimize. In addition, several NS Rail subsidiaries own, or have owned, land used as operating property, or which is 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 Rail will not incur environmental 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 other potentially unidentified environmental sites and matters are likely to arise from time to time. The resulting liabilities could have a significant effect on NS Rail's financial condition, results of operations or liquidity in a particular year or quarter.

12However, 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. ~~ACCUMULATED~~ Further, ~~OTHER~~management ~~COMPREHENSIVE~~believes that ~~INCOME~~it is unlikely that any known matters, either individually or in the aggregate, will have a material adverse effect on NS Rail's financial position, results of operations or liquidity.

~~“Accumulated~~Insurance ~~other comprehensive income” reported in the Consolidated Statements of Changes in Stockholders’ Equity consisted of the following:~~

	Balance at		Net		Reclassi-		Balance
	Beginning		Gain		fication		at End
	of Year		(Loss)		Adjustments		of Year
	($ in millions)
December 31, 2002
Unrealized gains on securities	$	235	$	22	$	--	$	257
Cash flow hedges		(11)		35		(6)		18
Minimum pension liability		(9)		--		--		(9)
Accumulated other comprehensive income	$	215	$	57	$	(6)	$	266
December 31, 2001
Unrealized gains on securities	$	170	$	65	$	--	$	235
Cash flow hedges		--		(16)		5		(11)
Minimum pension liability		(13)		4		--		(9)
Accumulated other comprehensive income	$	157	$	53	$	5	$	215

NS obtains on behalf of itself and its subsidiaries commercial insurance for potential losses for third-party liability and first-party property damages. Specified levels of risk are retained on a self-insurance basis (up to $25 million per occurrence for bodily injury and property damage to third parties and $12.5 million per occurrence for property owned by NS Rail or in NS Rail's care, custody or control).

~~“Other comprehensive income (loss)” reported in the Consolidated Statements of Changes in Stockholders’ Equity~~Purchase ~~consisted~~Commitments ~~of the following:~~

			Tax
	Pretax		(Expense)		Net-of-Tax
	Amount		Benefit		Amount
	($ in millions)
Year ended Dec. 31, 2002
Net gain (loss) arising during the year:
Cash flow hedges	$	58	$	(23)	$	35
Reclassification adjustments for gains
included in net income		(10)		4		(6)
Subtotal		48		(19)		29
Unrealized gains (losses) on securities		35		(13)		22
Other comprehensive income (loss)	$	83	$	(32)	$	51
Year ended Dec. 31, 2001
Net gain (loss) arising during the year:
Cash flow hedges	$	(27)	$	11	$	(16)
Reclassification adjustments for gains
included in net income		8		(3)		5
Subtotal		(19)		8		(11)
Unrealized gains (losses) on securities		103		(38)		65
Minimum pension liability		6		(2)		4
Other comprehensive income (loss)	$	90	$	(32)	$	58
Year ended Dec. 31, 2000
Net gain (loss) arising during the year:
Unrealized gains (losses) on securities	$	(159)	$	57	$	(102)
Other comprehensive income (loss)	$	(159)	$	57	$	(102)

NS Rail had outstanding purchase commitments of approximately $121 million in connection with its 2005 capital program.

51Change-In-Control Arrangements

13NS has compensation agreements with officers and certain key employees that become operative only upon a change in control of NS, as defined in those agreements. ~~PENSIONS~~The ~~AND~~agreements ~~OTHER~~provide ~~POSTRETIREMENT~~generally ~~BENEFITS~~for payments based on

~~Norfolk~~48 Southern and certain subsidiaries have both funded and unfunded defined benefit pension plans covering principally salaried employees. Norfolk Southern and certain subsidiaries also provide specified health care and death benefits to eligible retired employees and their dependents. Under the present plans, which may be amended or terminated at NS’ option, a defined percentage of health care expenses is covered, reduced by any deductibles, copayments, Medicare payments and, in some cases, coverage provided under other group insurance policies.

~~Pension~~compensation ~~and~~at the ~~Other~~time ~~Postretirement~~of ~~Benefit~~a ~~Obligations~~covered individual's involuntary or other specified termination and ~~Plan~~for ~~Assets~~certain other benefits.

	Pension Benefits				Other Benefits
	2002		2001		2002		2001
	($ in millions)
Change in benefit obligations
Benefit obligation at beginning of year	$	1,324	$	1,312	$	479	$	445
Service cost		17		15		13		13
Interest cost		91		94		33		33
Amendment		--		6		--		--
Legislative changes		--		(19)		--		--
Actuarial (gains) losses		54		36		98		21
Benefits paid		(116)		(120)		(31)		(34)
Benefit obligation at end of year		1,370		1,324		592		479
Change in plan assets
Fair value of plan assets at beginning of year		1,798		1,999		118		126
Actual return on plan assets		(201)		(74)		(12)		(8)
Employer contribution		6		7		31		34
401(h) account transfer		(18)		(14)		--		--
Benefits paid		(116)		(120)		(31)		(34)
Fair value of plan assets at end of year		1,469		1,798		106		118
Funded status		99		474		(486)		(361)
Unrecognized (gain) loss		305		(142)		169		46
Unrecognized prior service cost		26		30		--		--
Net amount recognized	$	430	$	362	$	(317)	$	(315)
Amounts recognized in the Consolidated Balance Sheets consist of:
Prepaid benefit cost	$	497	$	426	$	--	$	--
Accrued benefit liability		(82)		(79)		(317)		(315)
Accumulated other comprehensive income		15		15		--		--
Net amount recognized	$	430	$	362	$	(317)	$	(315)

Guarantees

OfIn ~~the~~a ~~pension~~number ~~plans~~of instances, ~~included~~NSR ~~above,~~has ~~the~~agreed ~~unfunded~~to ~~pension~~indemnify ~~plans~~lenders ~~were~~for ~~the~~additional ~~only~~costs ~~plans~~they ~~with~~may bear anas ~~accumulated~~a ~~benefit~~result ~~obligation~~of certain changes in ~~excess~~ oflaws ~~plan~~or ~~assets~~regulations applicable to their loans. Such ~~These~~changes ~~plans’~~may ~~accumulated~~include ~~benefit~~impositions ~~obligations~~or ~~were~~modifications ~~$82~~with ~~million~~respect to attaxes, ~~Dec.~~duties, 31reserves, ~~2002~~liquidity, capital adequacy, special deposits, and similar ~~$79~~requirements ~~million~~relating atto extensions of credit by, deposits with, or the ~~Dec~~assets or liabilities of such lenders. Similar ~~31,~~provisions ~~2001~~exist in NSR's accounts receivable sales program. The ~~These~~nature ~~plans’~~and ~~projected~~timing ~~benefit~~of ~~obligations~~changes ~~were~~in laws ~~$94~~or ~~million~~regulations atapplicable ~~Dec.~~to ~~31,~~NSR's ~~2002~~financings are inherently unpredictable, and ~~$89~~therefore ~~million~~NSR's atexposure ~~Dec.~~in ~~31,~~connection ~~2001~~with the foregoing indemnifications cannot be quantified. No liability has been recorded related to these ~~Because~~indemnifications. In the case of ~~the~~one ~~nature~~type of ~~such~~equipment ~~plans~~financing, ~~there~~NSR's Japanese ~~are~~leveraged noleases, ~~plan~~NSR ~~assets~~may terminate the leases and ancillary agreements if such a change-in-law indemnity is triggered. Such a termination would require NSR to make early termination payments that would not be expected to have a material adverse effect on NS Rail's financial condition, results of operations or liquidity.

NSNSR ~~received~~has indemnified ~~Section~~parties ~~401(h)~~in ~~account~~a ~~transfers,~~number ~~from~~of ~~pension~~transactions ~~assets,~~for U.S. income tax withholding imposed as a result of ~~$18~~changes ~~million~~in U.S. tax law. In all cases, NSR has the right to unwind the related transaction if the withholding cannot be avoided in the ~~2002~~future. Because these indemnities would be triggered and ~~$14~~are dependent ~~million~~upon a change in ~~2001~~the astax law, the maximum exposure is not ~~reimbursement~~quantifiable. Management ~~for~~does ~~medical~~not believe that it is likely that it will be required to make any payments ~~for~~under ~~retirees~~these indemnities.

52NSR has outstanding warranty liabilities primarily related to work performed at its locomotive facilities. NSR has recorded a reserve of less than $1 million as of Dec. 31, 2004 , and $1 million as of Dec. 31, 2003 , for these warranties.

~~Legislative~~As ~~changes~~of ~~primarily~~Dec. ~~resulting~~31, 2004 ~~from~~, ~~the~~NSR ~~December~~and ~~2001~~subsidiaries ~~amendment~~are tocontingently ~~the~~liable ~~Railroad~~as ~~Retirement~~guarantors ~~Act~~with ~~(“The Act”)~~respect ~~increased~~to ~~benefits~~$8 million ~~payable~~of toindebtedness ~~certain~~of ~~retirees~~an ~~covered~~entity byin ~~The~~which ~~Act. Since~~it ~~employees’~~has ~~pension~~an ~~benefits~~ownership interest, ~~paid~~the byTerminal NSRailroad ~~are offset~~Association byof aSt. ~~portion~~Louis, ofdue ~~benefits~~in ~~paid~~2019. Six ~~under~~other ~~The~~railroads ~~Act,~~are ~~the~~also ~~amendment~~jointly ~~served~~and toseverally ~~reduce~~liable ~~NS’~~as ~~obligation~~guarantors byfor ~~approximately~~this ~~$19 million~~indebtedness. No atliability ~~Dec.~~has ~~31,~~been ~~2001~~recorded related to this guaranty.

~~During~~Subsequent ~~2001,~~Event NS amended its qualified and nonqualified pension plans to enhance benefits to certain NS employees. The amendments increased the pension benefit obligation by $6 million at Dec. 31, 2001. During 2000, NS amended its qualified pension plan to allow for the payment of qualifying disability benefits.

~~Pension~~On Jan. 6, 2005 , a derailment occurred in Graniteville , SC. NS Rail expects the first quarter of 2005 to reflect operating expenses related to this incident of between $30 million and ~~Other~~$40 ~~Postretirement~~million ~~Benefit~~(pretax). The ~~Costs~~amount ~~Components~~includes NS Rail's self-insured retention under its insurance policies, as well as other uninsured costs. Although potential losses may exceed self-insured retention amounts NS Rail expects at this time, that insurance coverage is adequate to cover such potential claims or settlements. This amount does not include any fines or penalties that could be imposed.

	2002		2001		2000
	($ in millions)
Pension benefits
Service cost	$	17	$	15	$	18
Interest cost		91		94		79
Cost of early retirement programs		--		--		119
Expected return on plan assets		(179)		(202)		(192)
Amortization of prior service cost		4		4		4
Amortization of initial net asset		--		(3)		(7)
Recognized net actuarial gain		(13)		(24)		(38)
Net benefit	$	(80)	$	(116)	$	(17)
Other postretirement benefits
Service cost	$	13	$	14	$	15
Interest cost		33		33		27
Cost of early retirement programs		--		--		14
Expected return on plan assets		(13)		(13)		(14)
Amortization of prior service cost		--		--		(4)
Net cost	$	33	$	34	$	38

~~Pension~~Norfolk ~~Assumptions~~Southern Railway Company and Subsidiaries

~~Pension~~(A ~~and~~Wholly ~~other~~Owned ~~postretirement~~Subsidiary ~~benefit costs are determined based on actuarial valuations that reflect appropriate assumptions as~~ of ~~the~~Norfolk ~~measurement date, ordinarily the beginning of each year. The funded status of the plans is determined using appropriate~~Southern ~~assumptions~~Corporation) ~~as of each year end. A summary of the major assumptions follows:~~

	2002	2001	2000
Funded status:
Discount rate	6.75%	7.25%	7.50%
Future salary increases	4.5%	5%	5%
Pension cost:
Discount rate	7.25%	7.50%	7.75%
Return on assets in plans	9%	10%	10%
Future salary increases	5%	5%	5%

Quarterly Financial Data

~~Health~~ Three ~~Care~~Months ~~Cost~~Ended ~~Trend~~ March ~~Assumptions~~31 June 30 Sept. 30 Dec. 31 (In millions of dollars, except per share amounts) 2004 Railway operating revenues $ 1,645 $ 1,760 $ 1,823 $ 1,948 Income from railway operations 302 376 415 405 Income before accounting changes 143 180 215 234 Net income 143 180 215 234 2003 Railway operating revenues $ 1,519 $ 1,589 $ 1,553 $ 1,629 Income from railway operations 189 246 267 154 2 Income before accounting changes 80 108 127 68 2 Net income 184 1 108 127 68 2 Dividends per serial preferred share $ 0.65 $ 0.65 $ 0.65 $ 0.65

~~For~~ 1 Includes ~~measurement~~a ~~purposes,~~$104 ~~increases~~million inincrease ~~the~~related ~~per capita cost of covered health care benefits were assumed~~ to ~~be 10% for 2003 and~~required 9%accounting ~~for~~changes ~~2004.~~(see ItNote ~~is assumed the rate will decrease gradually to an ultimate rate of 5~~1).0% ~~for 2008 and remain at that level thereafter.~~

53 2 Includes $107 million (pre-tax) of costs related to NS' voluntary separation program (see Note 13).

~~Assumed~~50 health care cost trend rates have a significant effect on the amounts reported in the financial statements. To illustrate, a one-percentage-point change in the assumed health care cost trend would have the following effects:

	One percentage point
	Increase		Decrease
	($ in millions)
Increase (decrease) in:
Total service and interest cost components	$	6	$	(5)
Postretirement benefit obligation	$	69	$	(57)

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

~~Other~~None. ~~Postretirement Coverage~~

~~Under~~Item ~~collective bargaining agreements, NS Rail participates in a multi-employer benefit plan, which provides certain postretirement health care and life insurance benefits to eligible union employees~~9A. ~~Premiums~~Controls ~~under this plan are expensed as incurred~~ and ~~amounted~~Procedures ~~to $11 million in 2002, $10 million in 2001 and $7 million in 2000~~.

~~401(k)~~Evaluation ~~Plans~~of Disclosure Controls and Procedures.

NSR's Chief Executive Officer and Chief Financial Officer have evaluated the effectiveness of NS Rail's ~~provides~~disclosure ~~401~~controls and procedures (k)as such ~~savings~~term ~~plans~~is ~~for~~defined ~~employees.~~in ~~Under~~Rules 13a-15(e) and 15d-15(e) under the ~~plans~~Securities Exchange Act of 1934, NSas ~~Rail~~amended ~~matches~~(the a"Exchange ~~portion~~Act")) as of ~~employee~~December ~~contributions~~31, ~~subject~~ ~~to applicable limitations~~2004. Based ~~Since~~on ~~1999~~such evaluation, NSsuch ~~has~~officers ~~contributed~~have ~~newly~~concluded ~~issued~~that, ~~shares~~as of December ~~its~~31, ~~Common~~2004 ~~Stock~~, ~~for~~ NS Rail’'s ~~matching~~ ~~contributions.~~disclosure NScontrols ~~Rail’s~~and ~~expenses~~procedures ~~under~~are ~~these~~effective in ~~plans~~alerting ~~were~~them ~~$12 million~~on ina ~~2002,~~timely ~~$11~~basis ~~million~~to inmaterial ~~2001~~information ~~and~~relating ~~$12~~to NS Rail ~~million~~(including its consolidated subsidiaries) required to be included in ~~2000~~NS Rail's periodic filings under the Exchange Act.

~~Early~~Changes ~~Retirement Programs~~ in ~~2000~~Internal Controls.

During ~~2000, NS offered two voluntary early retirement programs to its salaried employees. The principal incentives offered in these programs were enhanced pension benefits,~~ the ~~cost~~fourth ~~for~~quarter ~~most~~ of ~~which~~2004, ~~will~~management behas ~~paid~~not ~~from NS’ overfunded pension~~identified ~~plan. A~~any ~~February~~changes ~~program~~in ~~was~~NS ~~accepted~~Rail's byinternal ~~919~~controls ofover ~~1,180~~financial ~~eligible~~reporting ~~employees,~~that ~~and a December program was accepted by 370 of 846~~have ~~eligible~~materially ~~employees. The total cost of these programs~~affected, ~~which~~or isare ~~included~~reasonably inlikely ~~“Compensation~~to ~~and~~materially ~~benefits~~affect,” ~~was $133 million. The resulting noncash reduction to~~ NS’ ~~pension plan asset is included in “Other - net” in the~~Rail's ~~Consolidated~~internal ~~Statement~~controls ofover ~~Cash~~financial ~~Flows~~reporting.

~~14. FAIR~~51 ~~VALUES OF FINANCIAL INSTRUMENTS~~

~~The~~PART ~~fair~~III values of “Cash and cash equivalents,” “Accounts receivable” and “Accounts payable” approximate carrying values because of the short maturity of these financial instruments. The fair value of corporate-owned life insurance approximates carrying value. The carrying amounts and estimated fair values for the remaining financial instruments, excluding investments accounted for under the equity method in accordance with APB No. 18, consisted of the following at December 31:

	2002				2001
	Carrying		Fair		Carrying		Fair
	Amount		Value		Amount		Value
	($ in millions)
Investments	$	470	$	479	$	435	$	442
Long-term debt		(857)		(883)		(868)		(868)

Norfolk Southern Railway Company and Subsidiaries (NS Rail)

~~Quoted~~Item ~~market~~10. ~~prices~~Directors ~~were~~and ~~used~~Executive toOfficers ~~determine the fair value~~ of ~~marketable securities; underlying net assets were used to estimate~~ the ~~fair~~Registrant ~~value of other investments~~. ~~The fair values of debt were estimated~~

54Item 11. Executive Compensation .

~~based~~Item on12. ~~quoted~~Security ~~market~~Ownership ~~prices~~of orCertain ~~discounted~~Beneficial ~~cash~~Owners ~~flows~~and ~~using~~Management ~~current interest rates for debt with similar terms, company rating~~ and ~~remaining maturity.~~Related

~~Carrying amounts of marketable securities, which consist almost entirely of shares of NS Common Stock, reflect unrealized~~ ~~holding~~Stockholder ~~gains of $404 million on Dec~~Matters. ~~31, 2002, and $369 million on Dec. 31, 2001. Sales of “available-for-sale securities” were immaterial for years ended Dec. 31, 2002 and 2000.~~

15Item 13. ~~DERIVATIVE~~ ~~FINANCIAL~~Certain ~~INSTRUMENTS~~Relationships and Related Transactions .

OnThe ~~Jan.~~information 1,called ~~2001, NS Rail adopted Statement of Financial Accounting Standards No. 133, “Accounting~~ for ~~Derivative Instruments and Hedging Activities” (SFAS 133), as amended~~ by ~~Statement~~Items ~~of Financial Accounting Standards No. 138~~10, ~~“Accounting~~ ~~for Certain Derivative Instruments and Certain Hedging Activities” (SFAS 138). The Statements establish accounting and reporting standards for derivative instruments and hedging activities~~11, ~~requiring~~12 ~~that all derivatives be recognized in the financial statements as either assets or liabilities~~ and ~~that~~13 ~~they~~is ~~be measured at fair value. Changes in fair~~omitted ~~value are recorded as adjustments to the assets or liabilities being hedged~~ in ~~“Other~~accordance ~~comprehensive~~with ~~income,”~~General orInstruction ~~in current earnings, depending on whether the derivative is designated and qualifies for hedge accounting, the type of hedge transaction represented and the effectiveness of the hedge~~(I)(2)(c).

NSItem ~~Rail 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~~14. NS ~~Rail~~Principal ~~does~~Accountant ~~not~~Fees 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 that highly correlate with the underlying hedged exposures, and ~~has~~Services ~~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~~The ~~Fuel~~Audit ~~Hedging~~Committee of the NS Board of Directors ("NS Audit Committee") appointed the firm of KPMG LLP, independent registered public accounting firm ("KPMG"), to audit the books, records and accounts of NS Rail for the year ended Dec. 31, 2004 . The firm also provides services to NS.

InThe ~~the~~NS ~~second~~Audit ~~quarter~~Committee ofapproves ~~2001,~~in advance all services rendered by KPMG to NS Rail ~~began~~and aapproves ~~program~~all fees paid to ~~hedge~~KPMG. The aNS ~~portion~~Audit Committee ofrequires ~~its~~that ~~diesel~~management ~~fuel~~obtain ~~consumption.~~its ~~The~~prior ~~intent~~approval offor ~~the~~all audit and ~~program~~permissible isnon-audit services to ~~assist~~be inprovided ~~the~~by ~~management~~KPMG. The of NS ~~Rail’s~~Audit Committee ~~aggregate~~considers ~~risk~~and ~~exposure~~approves at each January meeting anticipated audit and permissible non-audit services to ~~fuel~~be ~~price~~provided ~~fluctuations,~~by ~~which~~KPMG ~~can~~during the year and ~~significantly~~estimated ~~affect~~fees. The NS ~~Rail’s~~Audit ~~operating~~Committee ~~margins~~considers and ~~profitability.~~pre-approves additional Inaudit ~~order~~and topermissible ~~minimize~~non-audit ~~this~~services ~~risk,~~and NSfees ~~Rail~~as ~~instituted~~needed aat each ~~continuous~~meeting. The ~~hedging~~NS ~~strategy~~Audit ~~for~~Committee ahas ~~portion~~delegated authority to the Chair of the ~~its~~NS ~~estimated~~Audit ~~future~~Committee ~~fuel~~to ~~needs~~pre-approve byaudit ~~entering~~and ~~into~~permissible anon-audit ~~series~~services between meetings of ~~swaps~~the inNS ~~order~~Audit toCommittee, ~~lock~~provided in that the ~~purchase~~Chair ~~prices~~reports ofany such ~~some~~pre-approval ofto the NS Audit Committee at its ~~diesel~~next ~~fuel~~meeting. The ~~Management~~NS Audit ~~has~~Committee ~~designated~~will ~~these~~not ~~derivative~~approve ~~instruments~~non-audit asengagements ~~cash-flow~~that ~~hedges~~would violate rules of the Securities and Exchange Commission or impair the independence of KPMG. ~~exposure~~ All services rendered by KPMG to ~~variability~~NS Rail in ~~expected~~2004 ~~future~~were ~~cash~~pre-approved ~~flows~~by ~~attributable~~the NS toAudit ~~fluctuations~~Committee in ~~diesel~~accordance ~~fuel~~with ~~prices~~these procedures.

~~Following~~For isthe ayears ~~summary~~ended ofDec. NS31, ~~Rail’s~~2004 ~~diesel~~, ~~fuel~~and ~~swaps~~Dec. 31, 2003 , KPMG has billed the following fees for services provided to NS and NS Rail:

		2002	2001
Number of swaps entered into during the year		288	222
Approximate number of gallons hedged (millions)		393	370
Approximate average price per gallon of Nymex
No. 2 heating oil		$0.66	$0.68
	2003	2004	2005
Percent of estimated future diesel fuel
consumption covered as of Dec. 31, 2002	62%	22%	--

		2004		2003

Audit Fees¹	$	2,462,000	$	1,446,000
Audit-Related Fees²	$	245,000	$	228,900
Tax Fees³	$	95,000	$	289,190
All Other Fees⁴	$	--	$	36,526

~~Hedges~~1 ~~are~~Audit ~~placed~~Fees ~~each~~include ~~month~~fees byfor ~~competitive~~professional ~~bid~~services performed ~~among~~by ~~selected~~KPMG ~~counterparties.~~for ~~The~~the ~~goal~~audit of ~~this~~the ~~hedging~~annual ~~strategy~~financial isstatements tofor ~~average~~NS and ~~fuel~~its ~~costs~~subsidiaries, ~~over~~including anNS ~~extended~~Rail, ~~period~~the audit of ~~time~~Conrail, ~~while~~the ~~minimizing~~review ~~the~~of financial ~~incremental~~statements ~~cost~~included ofin ~~hedging. The~~the ~~program~~10-Q ~~provides~~filings ~~that~~for NS and NS Rail and ~~will~~services ~~not~~that ~~enter~~are ~~into~~normally ~~any~~provided ~~fuel~~in ~~hedges~~connection with astatutory ~~duration~~and ofregulatory filings ~~more~~or ~~than~~engagements ~~36 months~~and, ~~and~~for ~~that~~2004, nothe ~~more~~audit ~~than 80%~~ of NSinternal ~~Rail’s~~control over ~~average~~financial ~~monthly~~reporting ~~fuel~~for NS.

552 Audit-Related Fees principally include fees for audit-related tax services, employee benefit plan audits, audits of subsidiaries, agreed upon procedures related to the receivables securitization program and for 2003, the examination of management's assertion on internal control over financial reporting.

~~consumption~~3 ~~will~~Tax beFees ~~hedged~~consist ~~for~~principally ~~each~~of ~~month~~general ~~within~~tax ~~any~~advice pertaining ~~36-month~~to ~~period.~~customary ~~Diesel~~business ~~fuel~~matters ~~costs represented 7%, 8%~~ and ~~9% of NS Rail’s operating expenses~~ for ~~the years ended Dec. 31~~2003, ~~2002,~~assistance ~~2001~~with ~~and~~IRS interest ~~2000, respectively~~claims.

In4 ~~2001,~~For ~~NS Rail also purchased eight monthly call options at a strike price of 84 cents per gallon of Nymex No. 2 heating oil. The cost of the monthly options~~2003, ~~which~~All ~~expired~~Other ~~serially~~Fees ~~through~~consist ~~Dec.~~principally ~~31, 2001, was amortized as a component~~ of ~~diesel fuel expense.~~ ~~Because~~information ~~the~~technology ~~price~~projects ofand ~~diesel~~executive ~~fuel~~tax ~~did not reach the strike price at any time during the period the options were outstanding, NS Rail did not record any benefit related to these transactions~~services.

NS52 Rail’s fuel hedging activity resulted in a net decrease in 2002 diesel fuel expense of $10 million and a net increase in 2001 diesel fuel expense of $8 million. Ineffectiveness related to the use of diesel fuel hedges in 2002 and 2001 was less than $1 million for each year.

~~Interest~~PART ~~Rate~~IV ~~Hedging~~

NSNorfolk ~~Rail~~Southern ~~manages~~Railway ~~its~~Company ~~overall exposure to fluctuations in interest rates by issuing both fixed~~ and ~~floating-rate~~Subsidiaries ~~debt instruments, and by entering into interest rate hedging transactions.~~ (NS Rail) ~~had $220 million, or 35.4%, and $251 million, or 36.7%, of its fixed rate debt portfolio hedged at Dec. 31, 2002, and~~

~~Dec~~Item l5. 31 Exhibits, ~~2001,~~Financial ~~respectively,~~Statement ~~using~~Schedule ~~interest rate swaps that qualify for~~ and ~~are~~Reports ~~designated~~on Form ~~as fair~~8-~~value~~ ~~hedge~~K ~~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~~ (A) The following ~~Values~~documents are filed as part of this report: 1. Index to Consolidated Financial Statements Page Report of Independent Registered Public Accounting Firm 23 Consolidated Statements of Income - Years ended Dec. 31, 2004 , 2003 and 2002 24 Consolidated Balance Sheets - As of Dec. 31, 2004 and 2003 25 Consolidated Statements of Cash Flows - Years ended Dec. 31, 2004 , 2003 and 2002 26 Consolidated Statements of Changes in Stockholder's Equity - Years ended Dec. 31, 2004 , 2003 and 2002 27 Notes to Consolidated Financial Statements 28 2. Financial Statement Schedule: The following consolidated financial statement schedule should be read in connection with the consolidated financial statements: Index to Consolidated Financial Statement Schedule Page Schedule II - Valuation and Qualifying Accounts 58 Schedules other than the one listed above are omitted either because they are not required or are inapplicable, or because the information is included in the consolidated financial statements or related notes. 3. Exhibits Exhibit Number Description 3. Articles of Incorporation and Bylaws - 3( i ) The amended Restated Articles of Incorporation of Norfolk Southern Railway Company are incorporated by reference to Exhibit 3( i ) to Norfolk Southern Railway Company's 10-K filed on March 8, 2001. 3(ii) The Bylaws of Norfolk Southern Railway Company are incorporated by reference to Exhibit 3(ii) to Norfolk Southern Railway Company's 10-K filed on March 8, 2001 . 4. Instruments Defining the Rights of Security Holders, Including Indentures - 4(a) The Indenture, dated Aug. 27, 2004 , among PRR Newco , Inc., as Issuer, and Norfolk Southern Railway Company, as Guarantor, and The Bank of New York, as Trustee, is incorporated herein by reference to Exhibit 4(l) to Norfolk Southern Corporation's Form 10-Q filed on Oct. 28, 2004 . 4(b) The First Supplemental Indenture, dated Aug. 27, 2004, among PRR Newco , Inc., as Issuer, and Norfolk Southern Railway Company, as Guarantor, and The Bank of New York, as Trustee, related to the issuance of notes in the principal amount of approximately $451.8 million, is incorporated herein by reference to Exhibit 4(m) to Norfolk Southern Corporation's Form 10-Q filed on Oct. 28, 2004.

~~The~~53 fair values of NS Rail’s diesel fuel derivative instruments at Dec. 31, 2002 and 2001, 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 $29 million (pretax) at Dec. 31, 2002, relating to an increase, and $15 million (pretax) at Dec. 31, 2001, relating to a decrease in the fair value of derivative fuel hedging transactions that will terminate within 12 months.

In accordance with Item 601(b)(4)(iii) of Regulation S-K, copies of instruments of Norfolk Southern Railway Company and its subsidiaries with respect to the rights of holders of long-term debt are not filed herewith, or incorporated by reference, but will be furnished to the Commission upon request. 10. Material Contracts - (a) The Transaction ~~asset~~Agreement, dated as of June 10, 1997, by and ~~liability~~among ~~positions~~CSX, CSX Transportation, Inc., Registrant, Norfolk Southern Corporation, Conrail Inc., Consolidated Rail Corporation and CRR Holdings LLC, with certain schedules thereto, previously filed, is incorporated herein by reference from Exhibit 10(a) to Norfolk Southern Railway Company's Form 10-K, filed on Feb. 24, 2003. (b) Amendment No. 1, dated as of NSAug. 22, 1998, to the Transaction Agreement, dated as of June 10, 1997, by and among CSX Corporation, CSX Transportation, Inc., Norfolk Southern Corporation, Norfolk Southern Railway Company, Conrail Inc., Consolidated Rail’ Corporation and CRR Holdings LLC is incorporated herein by reference from Exhibit 10.1 to Norfolk Southern Railway Company's ~~outstanding~~Form ~~derivative~~10-Q ~~financial~~filed ~~instruments~~on ~~were~~Aug. 11, 1999. (c) Amendment No. 2, dated as ~~follows:~~of June 1, 1999, to the Transaction Agreement, dated June 10, 1997, by and among CSX Corporation, CSX Transportation, Inc., Norfolk Southern Corporation, Norfolk Southern Railway Company, Conrail Inc., Consolidated Rail Corporation and CRR Holdings LLC is incorporated herein by reference from Exhibit 10.2 to Norfolk Southern Railway Company's Form 10-Q filed on Aug. 11, 1999. (d) Shared Assets Area Operating Agreement for North Jersey , dated as of June 1, 1999 , by and among Consolidated Rail Corporation, CSX Transportation, Inc. and Norfolk Southern Railway Company, with exhibit thereto, is incorporated herein by reference from Exhibit 10.4 to Norfolk Southern Railway Company's Form 10-Q filed on Aug. 11, 1999 . (e) Shared Assets Area Operating Agreement for South Jersey / Philadelphia , dated as of June 1, 1999 , by and among Consolidated Rail Corporation, CSX Transportation, Inc. and Norfolk Southern Railway Company, with exhibit thereto, is incorporated herein by reference from Exhibit 10.5 to Norfolk Southern Railway Company's Form 10-Q filed on Aug. 11, 1999 . (f) Shared Assets Area Operating Agreement for Detroit , dated as of June 1, 1999 , by and among Consolidated Rail Corporation, CSX Transportation, Inc. and Norfolk Southern Railway Company, with exhibit thereto, is incorporated herein by reference from Exhibit 10.6 to Norfolk Southern Railway Company's Form 10-Q filed on Aug. 11, 1999 . (g) Amendment No. 1, dated as of June 1, 2000, to the Shared Assets Areas Operating Agreement for North Jersey, South Jersey/Philadelphia and Detroit, dated as of June 1, 1999, by and among Consolidated Rail Corporation, CSX Transportation, Inc. and Norfolk Southern Railway Company, with exhibit thereto, is incorporated herein by reference to Exhibit 10(h) to Norfolk Southern Railway Company's 10-K filed on March 8, 2001.

	December 31,
	2002		2001
	($ in millions)
Interest rate hedges:
Gross fair market asset position	$	24	$	12
Gross fair market (liability) position		--		--
Fuel hedges:
Gross fair market asset position		29		--
Gross fair market (liability) position		--		(19)
Total net asset (liability) position	$	53	$	(7)

56 (h) Amendment No. 2, dated as Jan. 1, 2001, to the Shared Assets Area Operating Agreements for North Jersey, South Jersey/Philadelphia and Detroit, dated as of June 1, 1999, by and among Consolidated Rail Corporation, CSX Transportation, Inc. and Norfolk Southern Railway Company, with exhibit thereto, is incorporated herein by reference from Exhibit 10(j) to Norfolk Southern Railway Company's Form 10-K filed on Feb. 22, 2002. ( i ) Amendment No. 3, dated as of June 1, 2001, and executed in May of 2002, to the Shared Assets Area Operating Agreement for North Jersey, South Jersey/Philadelphia and Detroit, dated as of June 1, 1999, by and among Consolidated Rail Corporation, CSX Transportation, Inc. and Norfolk Southern Railway Company, with exhibit thereto, is incorporated herein by reference from Exhibit 10(k) to Norfolk Southern Railway Company's Form 10-K, filed on Feb. 24, 2003. (j) Monongahela Usage Agreement, dated as of June 1, 1999 , by and among CSX Transportation, Inc., Norfolk Southern Railway Company, Pennsylvania Lines LLC and New York Central Lines LLC, with exhibit thereto, is incorporated herein by reference from Exhibit 10.7 to Norfolk Southern Railway Company's Form 10-Q filed on Aug. 11, 1999 . (k) The Agreement, entered into as of July 27, 1999 , between North Carolina Railroad Company and Norfolk Southern Railway Company, is incorporated herein by reference from Exhibit 10( i ) to Norfolk Southern Railway Company's Form 10-K filed on March 6, 2000 . (l) The Supplementary Agreement, entered into as of January 1, 1987, between the Trustees of the Cincinnati Southern Railway and The Cincinnati, New Orleans and Texas Pacific Railway Company (the latter a wholly owned subsidiary of Norfolk Southern Railway Company) - extending and amending a Lease, dated as of October 11, 1881 - is incorporated by reference to Exhibit 10(k) to Norfolk Southern Railway Company's Form 10-K filed on March 8, 2001. (m) Agreement No. 3, dated as of June 1, 1999, and executed in April 2004, to the Transaction Agreement, dated June 10, 1997, by and among CSX Corporation, CSX Transportation, Inc., Norfolk Southern Corporation, Norfolk Southern Railway Company, Conrail Inc., Consolidated Rail Corporation and CRR Holdings LLC, is incorporated herein by reference to Exhibit 10(o) to Norfolk Southern Railway Company's Form 10-Q filed on July 30, 2004. (n) Distribution Agreement, dated as of July 26, 2004, by and among CSX Corporation, CSX Transportation, Inc., CSX Rail Holding Corporation, CSX Northeast Holdings Corporation, Norfolk Southern Corporation, Norfolk Southern Railway Company, CRR Holdings LLC, Green Acquisition Corp., Conrail Inc., Consolidated Rail Corporation, New York Central Lines LLC, Pennsylvania Lines LLC, NYC Newco , Inc. and PRR Newco , Inc., is incorporated herein by reference to Exhibit 2.1 to Norfolk Southern Railway Company's Form 8-K filed on Sept. 2, 2004. (o) Amendment No. 5 to the Transaction Agreement, dated as of Aug. 27, 2004, by and among CSX Corporation, CSX Transportation, Inc., Norfolk Southern Corporation, Norfolk Southern Railway Company, Conrail Inc., Consolidated Rail Corporation and CRR Holdings LLC, is incorporated herein by reference to Exhibit 10.1 to Norfolk Southern Railway Company's Form 8-K filed on Sept. 2, 2004.

~~16. COMMITMENTS~~55 ~~AND CONTINGENCIES~~

~~Lawsuits~~ 31. Rule 13a-14(a)/ 15d-14(a) Certifications . 32. Section 1350 Certifications. (B) Reports on Form 8-K. A report on Form 8-K/A was filed on Nov. 12, 2004, amending the Corporation's Form 8-K previously filed on Sept. 2, 2004, and attaching as an exhibit the following financial statements for Pennsylvania Lines LLC and its subsidiaries: Consolidated Statements of Income for the years ended Dec. 31, 2003, 2002 and 2001; Consolidated Balance Sheets for the years ended Dec. 31, 2003 and 2002; and Consolidated Statements of Cash Flows for the years ended Dec. 31, 2003 , 2002 and 2001; Report of Independent Registered Public Accounting Firm. (C) Exhibits. The Exhibits required by Item 601 of Regulation S-K as listed in Item 15( 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 15( A ) ( 2) or are otherwise not required or are not applicable.

~~NSR~~56 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. 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,~~POWER ~~there~~OF ~~are~~ATTORNEY cases involving labor issues where the aggregated range of loss could be from nothing to $40 million. Management believes that NS Rail will prevail in these cases; however, an unfavorable outcome could result in accruals that could be significant to results of operations in a particular year or quarter.

~~Casualty~~Each ~~Claims~~person whose signature appears below under "SIGNATURES" hereby authorizes Henry C. Wolf, James A. Hixon or James A. Squires or any one of them, to execute in the name of each such person, and to file, any amendment to this report and hereby appoints Henry C. Wolf, James A. Hixon or James A. Squires or any one of them, as attorneys-in-fact to sign on his behalf, individually and in each capacity stated below, and to file, any and all amendments to this report.

NSSIGNATURES Rail is generally self-insured for casualty claims. Claims in excess of self-insurance levels are insured up to excess coverage 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 payments of claims. Adjustments to the recorded liability will be reflected in operating expenses in the periods in which such adjustments are known.

~~Environmental~~Pursuant ~~Matters~~to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, Norfolk Southern Railway Company has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on this 28th day of February, 2005.

NSNORFOLK ~~Rail~~SOUTHERN isRAILWAY subject to various jurisdictions’ environmental laws and regulations. It is NS Rail’s 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 Rail are reflected as receivables in the balance sheet and are not netted against the associated NS Rail liability. Environmental engineers regularly participate in ongoing evaluations of all identified sites and in determining any necessary adjustments to initial liability estimates. NS Rail also has established an Environmental Policy Council, composed of senior managers, to oversee and interpret its environmental policy.COMPANY

~~NS Rail’~~By: /s/ ~~balance~~David ~~sheets included liabilities for environmental exposures in the amount of $29 million at Dec~~R. ~~31,~~Goode 2002, and $33 million at Dec. 31, 2001 (of which $8 million was accounted for as a current liability in each year). At Dec. 31, 2002, the liability represented NS Rail’s estimate of the probable cleanup and remediation costs based on available information at 114 identified locations. On that date, 10 sites accounted for $16 million of the reserve, and no individual site was considered to be material. NS Rail 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 114 locations, certain NS Rail subsidiaries, usually in conjunction with a number of other parties, have been identified as potentially responsible parties by the Environmental Protection Agency (~~EPA)~~David orR. ~~similar state authorities under the Comprehensive Environmental Response~~Goode, ~~Compensation~~President and ~~Liability~~Chief ~~Act~~Executive ofOfficer) ~~1980, or comparable state statutes, which often impose joint and several liability for cleanup costs.~~

~~With~~Pursuant ~~respect~~ to ~~known~~the ~~environmental~~requirements ~~sites~~of ~~(whether~~the ~~identified~~Securities byExchange NSAct ~~Rail~~of 1934, orthis byreport ~~the~~has ~~EPA~~been orsigned ~~comparable~~below ~~state~~on ~~authorities), estimates~~this 28th day of NSFebruary, ~~Rail’s~~2005, ~~ultimate~~by the ~~potential~~following ~~financial~~persons ~~exposure~~on ~~for~~behalf aof ~~given~~Norfolk ~~site~~Southern orRailway Company and in the capacities indicated.

57 Signature Title /s/ David R. Goode President and Chief Executive Officer and (David R. Goode) and Director (Principal Executive Officer) /s/ Henry C. Wolf Vice President and Chief Financial Officer (Henry C. Wolf) and Director (Principal Financial Officer) /s/ Marta R. Stewart Vice President and Controller ( Marta R. Stewart ) (Principal Accounting Officer) /s/ L. I. Prillaman Director (L. I. Prillaman ) /s/ Stephen C. Tobias Director (Stephen C. Tobias)

~~aggregate~~57 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~~ Schedule ~~risk~~II of Norfolk ~~incurring~~Southern ~~environmental~~Railway ~~liability~~Company —and Subsidiaries ~~for~~ Valuation ~~acts~~ and Qualifying ~~omissions~~Accounts Years Ended December 31, ~~past~~2002 , ~~present~~2003 and 2004 ~~future~~ (In —millions isof ~~inherent~~dollars) in ~~the~~ Additions charged ~~railroad~~to: ~~business.~~ Beginning ~~Some~~ Other of Ending ~~the~~ Balance ~~commodities~~ Expenses in Accounts NS Deductions ~~Rail’s~~ Balance ~~traffic~~ Year ended ~~mix~~December 31, ~~particularly~~2002 ~~those~~ Valuation allowance ~~classified~~(included asnet ~~hazardous~~in deferred tax liability) for deferred tax assets ~~materials,~~ $ ~~can~~ 1 ~~pose~~ $ ~~special~~ -- ~~risks~~ $ ~~that~~ -- NS $ ~~Rail~~ -- $ 1 Casualty and ~~its~~other ~~subsidiaries~~claims ~~work~~included ~~diligently~~in toother ~~minimize.~~liabilities In $ ~~addition,~~ 264 ~~several~~ $ NS 119 ~~Rail~~ ~~subsidiaries~~ $ ~~own,~~ 9 or(1) ~~have~~ $ ~~owned,~~ 139 ~~land~~(2) ~~used~~ $ as 253 ~~operating~~ Current portion ~~property,~~of orcasualty ~~which~~and isother ~~leased~~claims orincluded ~~may~~in ~~have~~accounts ~~been~~payable ~~leased~~ $ ~~and~~ 191 ~~operated~~ $ by ~~others,~~ 32 or $ ~~held~~ 124 ~~for~~(1) ~~sale.~~ $ ~~Because~~ 141 ~~environmental~~(3) ~~problems~~ $ ~~may~~ 206 ~~exist~~ Year ended onDecember ~~these~~31, ~~properties~~2003 ~~that~~ Valuation allowance ~~are~~(included ~~latent~~net orin ~~undisclosed,~~deferred ~~there~~tax ~~can~~liability) befor deferred tax assets no $ ~~assurance~~ 1 ~~that~~ $ NS -- ~~Rail~~ $ ~~will~~ -- ~~not~~ $ ~~incur~~ -- ~~environmentally~~ $ ~~related~~ 1 Casualty and other claims included in other liabilities or $ ~~costs~~ 253 ~~with~~ $ ~~respect~~ 134 to $ ~~one~~ 6 or(1) ~~more~~ $ of 123(2) ~~them,~~ $ ~~the~~ ~~amount~~ 270 Current portion of casualty and ~~materiality~~other ofclaims ~~which~~included ~~cannot~~in beaccounts ~~estimated~~payable ~~reliably~~ $ at 206 ~~this~~ $ ~~time.~~ 34 ~~Moreover~~ $ 125 (1) $ 148(3) $ 217 Year ended December 31, ~~lawsuits~~2004 ~~and~~ Valuation allowance ~~claims~~(included ~~involving~~net ~~these~~in ~~and~~deferred ~~other~~tax liability) for deferred tax assets ~~now-unidentified~~ $ ~~environmental~~ 1 ~~sites~~ $ ~~and~~ -- ~~matters~~ $ ~~are~~ 1(1) ~~likely~~ $ to -- ~~arise~~ $ ~~from~~ 2 ~~time~~ Casualty and toother ~~time.~~claims ~~The~~included ~~resulting~~in other liabilities ~~could~~ $ ~~have~~ 270 a ~~significant~~ $ ~~effect~~ 112 on $ ~~financial~~ 48(1) ~~condition,~~ $ ~~results~~ 115(2) $ 315 Current portion of ~~operations~~casualty orand ~~liquidity~~other claims included in aaccounts ~~particular~~payable ~~year~~ $ or 217 ~~quarter~~ $ 23 $ 124(1) $ 143(3) $ 221 (1) Includes revenue refunds and overcharges provided through deductions from operating revenues and transfers from other accounts. (2) Payments and reclassifications to/from accounts payable. (3) Payments and reclassifications to/from other liabilities.

~~However,~~58 based on its assessments 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 NS Rail is aware. Further, management believes that it is unlikely that any identified matters, either individually or in the aggregate, will have a material adverse effect on NS Rail’s financial position, results of operations or liquidity.

~~Purchase~~EXHIBIT ~~Commitments~~INDEX

NSNorfolk ~~Rail~~Southern ~~had~~Railway ~~outstanding~~Company ~~purchase~~and ~~commitments~~Subsidiaries of(NS Rail) ~~approximately $164 million in connection with its 2003 capital program.~~

~~Change~~ Electronic Submission Exhibit Number Description 31 Rule 13a-in14(a)/ 15d-~~Control~~14(a) ~~Arrangements~~Certifications . 32 Section 1350 Certifications.

~~NS has compensation agreements with officers and certain key employees that become operative only upon a change in control~~The —2004 asForm ~~defined~~10-K inis ~~those~~posted ~~agreements~~on —the ofwebsite ~~that corporation~~www.nscorp.com ~~The~~under ~~agreements~~the ~~provide~~heading ~~generally for payments based on~~"SEC ~~compensation~~documents" ator ~~the~~you ~~time~~may ofrequest acopies ~~covered~~by ~~individual’s~~writing ~~involuntary~~to or:4 ~~other specified termination and for certain other benefits.~~

~~Guarantees~~Office of Corporate Secretary

InNorfolk aSouthern ~~number~~Railway ofCompany instances, NSR and its subsidiaries have agreed to indemnify lenders for additional costs they may bear as a result of certain changes in laws or regulations applicable to their loans. Such changes may include impositions or modifications with respect to taxes, duties, reserves, liquidity, capital adequacy, special deposits, and similar requirements relating to extensions of credit by, deposits with, or the assets or liabilities of such lenders. The nature and timing of changes in laws or regulations applicable to NSR’s financings are inherently unpredictable, and therefore NSR’s exposure in connection with the foregoing indemnifications cannot be quantified. No liability has been recorded related to these indemnifications. In the case of one type of equipment financing, NSR’s Japanese leveraged leases, NSR may terminate the leases and ancillary agreements if such a change-in-law indemnity is triggered. Such a termination would require NSR to make early termination payments that would not be expected to have a material adverse effect on NS Rail’s financial condition, results of operations or liquidity.

~~NSR~~Three ~~has~~Commercial ~~indemnified~~Place parties in a number of transactions for U.S. income tax withholding imposed as a result of changes in U.S. tax law. In all cases, NSR has the right to unwind the related transaction if the withholding cannot be avoided in the future. Because these indemnities would be triggered and are dependent upon a change in the tax law, the maximum exposure is not quantifiable. Management does not believe that it is likely that it will be required to make any payments under these indemnities.

58Norfolk , Virginia 23510-9219

NS59 Rail has outstanding warranty liabilities primarily related to work performed at its locomotive facilities. NS Rail has recorded a reserve of less than $2 million as of Dec. 31, 2002 and 2001 for these warranties.

As of Dec. 31, 2002, NSR and certain of its subsidiaries are contingently liable as guarantors with respect to $8 million of indebtedness of an entity in which it has an ownership interest, the Terminal Railroad Association of St. Louis, due in 2019. Six other railroads are also jointly and severally liable as guarantors for this indebtedness. No liability has been recorded related to this guaranty.

NSR is liable for any shortfall in the then fair market value of certain leased locomotives and a specified residual value for the locomotives if the leases are not renewed, as discussed in Note 9.

NORFOLK SOUTHERN RAILWAY COMPANY AND SUBSIDIARIES

(A Majority-Owned Subsidiary of Norfolk Southern Corporation)

Quarterly Financial Data

(Unaudited)

	Three Months Ended
	March 31		June 30		Sept. 30		Dec. 31
	(In millions of dollars, except per share amounts)
2002
Railway operating revenues	$	1,457	$	1,547	$	1,556	$	1,535
Income from railway operations		200		277		259		235
Net income		85		126		124		107
Dividends per serial preferred share	$	0.65	$	0.65	$	0.65	$	0.65
2001
Railway operating revenues	$	1,502	$	1,550	$	1,469	$	1,488
Income from railway operations		152		234		206		239
Net income		62		83		95		109
Dividends per serial preferred share	$	0.65	$	0.65	$	0.65	$	0.65

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

None.

PART III

NORFOLK SOUTHERN RAILWAY COMPANY AND SUBSIDIARIES (NS RAIL)

Item 10. Directors and Executive Officers of the Registrant.

In accordance with General Instruction G(3), information called for by Part III is incorporated herein by reference from the information appearing under the caption “Election of Directors,” including the subcaptions “Nominee (for the class whose term expires in 2006)” and “Continuing Directors” in Norfolk Southern Railway’s definitive Proxy Statement, for the Norfolk Southern Railway Annual Meeting of Stockholders to be held on May 27, 2003, which definitive Proxy Statement will be filed electronically with the Commission pursuant to Regulation 14A. The information regarding executive

officers called for by Item 401 of Regulation S-K is included in Part I hereof beginning under “Executive Officers of the Registrant.”

Item 11. Executive Compensation.

In accordance with General Instruction G(3), information called for by Part III is incorporated herein by reference from the information appearing under the caption “Compensation of Directors” for directors and under the caption “Executive Compensation” for executives, including the information appearing in the “Summary Compensation Table” and under the subcaptions “Long-Term Incentive Plan” (including the three tables therein), “Pension Plans” (including the table therein), and “Change in Control Arrangements” in Norfolk Southern Railway’s definitive Proxy Statement, for the Norfolk Southern Railway Annual Meeting of Stockholders to be held on May 27, 2003, which definitive Proxy Statement will be filed electronically with the Commission pursuant to Regulation 14A.

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

In accordance with General Instruction G(3), information called for by Part III is incorporated herein by reference from the information appearing under the caption “Beneficial Ownership of NS and Company Stock” in Norfolk Southern Railway’s definitive Proxy Statement, for the Norfolk Southern Railway Annual Meeting of Stockholders to be held on May 27, 2003, which definitive Proxy Statement will be filed electronically with the Commission pursuant to Regulation 14A.

Item 13. Certain Relationships and Related Transactions.

In accordance with General Instruction G(3), the information called for by Part III is incorporated herein by reference from the information appearing under the caption “Certain Relationships and Other Transactions” in Norfolk Southern Railway’s definitive Proxy Statement, for the Norfolk Southern Railway Annual Meeting of Stockholders to be held on May 27, 2003, which definitive Proxy Statement will be filed electronically with the Commission pursuant to Regulation 14A.

Item 14. Controls and Procedures.

(a) Evaluation of Disclosure Controls and Procedures.

NS Rail’s Chief Executive Officer and Chief Financial Officer have evaluated the effectiveness of NS Rail’s disclosure controls and procedures (as such term is defined in Rules 13a-14(c) and 15d-14(c) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of a date within 90 days prior to the filing date of this annual report (the “Evaluation Date”). Based on such evaluation, such officers have concluded that, as of the Evaluation Date, NS Rail’s disclosure controls and procedures are effective in alerting them on a timely basis to material information relating to NS Rail (including its consolidated subsidiaries) required to be included in NS Rail’s periodic filings under the Exchange Act.

(b) Changes in Internal Controls.

Since the Evaluation Date, there have not been any significant changes in NS Rail’s internal controls or in other factors that could significantly affect such controls.

60 PART IV

NORFOLK SOUTHERN RAILWAY COMPANY AND SUBSIDIARIES (NS RAIL)

Item l5. Exhibits, Financial Statement Schedule and Reports on Form 8-K.

(A)	The following documents are filed as part of this report:
	1.	Index to Consolidated Financial Statements	Page
		Independent Auditors’ Report	36
		Consolidated Statements of Income - Years ended Dec. 31, 2002, 2001 and 2000	37
		Consolidated Balance Sheets - As of Dec. 31, 2002 and 2001	38
		Consolidated Statements of Cash Flows - Years ended Dec. 31, 2002, 2001 and 2000	39
		Consolidated Statements of Changes in Stockholders’ Equity - Years ended Dec. 31, 2002, 2001 and 2000	40
		Notes to Consolidated Financial Statements	41
	2.	Financial Statement Schedule:
		The following consolidated financial statement schedule should be read in connection with the consolidated financial statements:
		Index to Consolidated Financial Statement Schedule	Page
		Schedule II - Valuation and Qualifying Accounts	67
		Schedules other than the one listed above are omitted either because they are not required or are inapplicable, or because the information is included in the consolidated financial statements or related notes.

	3.		Exhibits
Exhibit
Number				Description
	3.	Articles of Incorporation and Bylaws -
		3(i)		The amended Restated Articles of Incorporation of Norfolk Southern Railway Company are incorporated by reference to Exhibit 3(i) to Norfolk Southern Railway Company’s 10-K filed on March 8, 2001.
		3(ii)		The Bylaws of Norfolk Southern Railway Company are incorporated by reference to Exhibit 3(ii) to Norfolk Southern Railway Company’s 10-K filed on March 8, 2001.
	4.	Instruments Defining the Rights of Security Holders, Including Indentures -
		In accordance with Item 601(b)(4)(iii) of Regulation S-K, copies of instruments of Norfolk Southern Railway Company and its subsidiaries with respect to the rights of holders of long-term debt are not filed herewith, or incorporated by reference, but will be furnished to the Commission upon request.
	10.	Material Contracts -

		(a)	The Transaction Agreement, dated as of June 10, 1997, by and among CSX, CSX Transportation, Inc., Registrant, Norfolk Southern Railway Company, Conrail Inc., Consolidated Rail Corporation and CRR Holdings LLC, with certain schedules thereto, previously filed, is refiled herewith pursuant to Item 10(d) of Regulation S-K.
		(b)	Amendment No. 1, dated as of August 22, 1998, to the Transaction Agreement, dated as of June 10, 1997, by and among CSX Corporation, CSX Transportation, Inc., Norfolk Southern Corporation, Norfolk Southern Railway Company, Conrail Inc., Consolidated Rail Corporation and CRR Holdings LLC is incorporated herein by reference from Exhibit 10.1 to Norfolk Southern Railway Company’s Form 10-Q filed on August 11, 1999.
		(c)	Amendment No. 2, dated as of June 1, 1999, to the Transaction Agreement, dated June 10, 1997, by and among CSX Corporation, CSX Transportation, Inc., Norfolk Southern Corporation, Norfolk Southern Railway Company, Conrail Inc., Consolidated Rail Corporation and CRR Holdings LLC is incorporated herein by reference from Exhibit 10.2 to Norfolk Southern Railway Company’s Form 10-Q filed on August 11, 1999.
		(d)	Operating Agreement, dated as of June 1, 1999, by and between Pennsylvania Lines LLC and Norfolk Southern Railway Company is incorporated herein by reference from Exhibit 10.3 to Norfolk Southern Railway Company’s Form 10-Q filed on August 11, 1999.
		(e)	Amendment No. 1, dated as of September 29, 2001, to Operating Agreement, dated as of June 1, 1999, by and between Pennsylvania Lines LLC and Norfolk Southern Railway Company, is incorporated by reference from Exhibit 10(e) to Norfolk Southern Railway Company’s Form 10-K filed on February 22, 2002.
		(f)	Shared Assets Area Operating Agreement for North Jersey, dated as of June 1, 1999, by and among Consolidated Rail Corporation, CSX Transportation, Inc. and Norfolk Southern Railway Company, with exhibit thereto, is incorporated herein by reference from Exhibit 10.4 to Norfolk Southern Railway Company’s Form 10-Q filed on August 11, 1999.
		(g)	Shared Assets Area Operating Agreement for South Jersey/ Philadelphia, dated as of June 1, 1999, by and among Consolidated Rail Corporation, CSX Transportation, Inc. and Norfolk Southern Railway Company, with exhibit thereto, is incorporated herein by reference from Exhibit 10.5 to Norfolk Southern Railway Company’s Form 10-Q filed on August 11, 1999.
		(h)	Shared Assets Area Operating Agreement for Detroit, dated as of June 1, 1999, by and among Consolidated Rail Corporation, CSX Transportation, Inc. and Norfolk Southern Railway Company, with exhibit thereto, is incorporated herein by reference from Exhibit 10.6 to Norfolk Southern Railway Company’s Form 10-Q filed on August 11, 1999.
		(i)	Amendment No. 1, dated as of June 1, 2000, to the Shared Assets Areas Operating Agreement for North Jersey, South Jersey/Philadelphia and Detroit, dated as of June 1, 1999, by and among Consolidated Rail Corporation, CSX Transportation, Inc. and Norfolk Southern Railway Company, with exhibit thereto, is incorporated herein by reference to Exhibit 10(h) to Norfolk Southern Railway Company’s 10-K filed on March 8, 2001.

		(j)	Amendment No. 2, dated as January 1, 2001, to the Shared Assets Area Operating Agreements for North Jersey, South Jersey/Philadelphia and Detroit, dated as of June 1, 1999, by and among Consolidated Rail Corporation, CSX Transportation, Inc. and Norfolk Southern Railway Company, with exhibit thereto, is incorporated herein by reference from Exhibit 10(j) to Norfolk Southern Railway Company’s Form 10-K filed on February 22, 2002.
		(k)	Amendment No. 3, dated as of June 1, 2001, and executed in May of 2002, to the Shared Assets Area Operating Agreement for North Jersey, South Jersey/Philadelphia and Detroit, dated as of June 1, 1999, by and among Consolidated Rail Corporation, CSX Transportation, Inc. and Norfolk Southern Railway Company, with exhibit thereto, is filed herewith.
		(l)	Monongahela Usage Agreement, dated as of June 1, 1999, by and among CSX Transportation, Inc., Norfolk Southern Railway Company, Pennsylvania Lines LLC and New York Central Lines LLC, with exhibit thereto, is incorporated herein by reference from Exhibit 10.7 to Norfolk Southern Railway Company’s Form 10-Q filed on August 11, 1999.
		(m)	The Agreement, entered into as of July 27, 1999, between North Carolina Railroad Company and Norfolk Southern Railway Company, is incorporated herein by reference from Exhibit 10(i) to Norfolk Southern Railway Company’s Form 10-K filed on March 6, 2000.
		(n)	The Supplementary Agreement, entered into as of January 1, 1987, between the Trustees of the Cincinnati Southern Railway and The Cincinnati, New Orleans and Texas Pacific Railway Company (the latter a wholly owned subsidiary of Norfolk Southern Railway Company) - extending and amending a Lease, dated as of October 11, 1881 - is incorporated by reference to Exhibit 10(k) to Norfolk Southern Railway Company’s Form 10-K filed on March 8, 2001.
	21.	Subsidiaries of the Registrant.
	99.	Certifications of the CEO and CFO pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
(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 not required or are not applicable.

63 POWER OF ATTORNEY

Each person whose signature appears below under “SIGNATURES” hereby authorizes Henry C. Wolf and Henry D. Light, or either of them, to execute in the name of each such person, and to file, any amendment to this report and hereby appoints Henry C. Wolf and Henry D. Light, or either of them, as attorneys-in-fact to sign on his 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 of 1934, Norfolk Southern Railway Company has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on this 21st day of February, 2003.

NORFOLK SOUTHERN RAILWAY COMPANY

By: /s/ David R. Goode

(David R. Goode, President and Chief Executive Officer)

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below on this 21st day of February 2003, by the following persons on behalf of Norfolk Southern Railway Company and in the capacities indicated.

Signature Title /s/ David R. Goode President and Chief Executive Officer and (David R. Goode) and Director (Principal Executive Officer) /s/ John P. Rathbone Vice President and Controller (John P. Rathbone) (Principal Accounting Officer) /s/ Henry C. Wolf Vice President and Chief Financial Officer (Henry C. Wolf) and Director (Principal Financial Officer) /s/ L. I. Prillaman Director (L. I. Prillaman) /s/ Stephen C. Tobias Director (Stephen C. Tobias)

I, David R. Goode, certify that:
1.	I have reviewed this annual report on Form 10-K of Norfolk Southern Railway Company;
2.	Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;
3.	Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;
4.	The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
	a.	designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;
	b.	evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the “Evaluation Date”); and
	c.	presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;
5.	The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):
	a.	all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and
	b.	any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and
6.	The registrant’s other certifying officers and I have indicated in this annual report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
Date: February 21, 2003
/s/ David R. Goode
David R. Goode
President and Chief Executive Officer

I, Henry C. Wolf, certify that:
1.	I have reviewed this annual report on Form 10-K of Norfolk Southern Railway Company;
2.	Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;
3.	Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;
4.	The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
	a.	designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;
	b.	evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the “Evaluation Date”); and
	c.	presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;
5.	The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):
	a.	all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and
	b.	any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and
6.	The registrant’s other certifying officers and I have indicated in this annual report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
Date: February 21, 2003
/s/ Henry C. Wolf
Henry C. Wolf
Vice President and Chief Financial Officer

Schedule II
Norfolk Southern Railway Company and Subsidiaries
Valuation and Qualifying Accounts
Years Ended December 31, 2000, 2001 and 2002
(In millions of dollars)
	Additions charged to:
	Beginning		Other						Ending
	Balance		Expenses		Accounts		Deductions		Balance
Year ended December 31, 2000
Valuation allowance (included net in deferred tax liability) for deferred tax assets	$	1	$	--	$	--	$	--	$	1
Casualty and other claims included in other liabilities		275		117		8 (1)		138 (2)		262
Current portion of casualty and other claims included in accounts payable		180		19		221 (1)		198 (3)		222
Year ended December 31, 2001
Valuation allowance (included net in deferred tax liability) for deferred tax assets	$	1	$	--	$	--	$	--	$	1
Casualty and other claims included in other liabilities		262		109		20 (1)		127 (2)		264
Current portion of casualty and other claims included in accounts payable		222		22		142 (1)		195 (3)		191
Year ended December 31, 2002
Valuation allowance (included net in deferred tax liability) for deferred tax assets	$	1	$	--	$	--	$	--	$	1
Casualty and other claims included in other liabilities		264		119		9 (1)		139 (2)		253
Current portion of casualty and other claims included in accounts payable		191		32		124 (1)		141 (3)		206

(1) Includes revenue refunds and overcharges provided through deductions from operating

revenues and transfers from other accounts.

(2) Payments and reclassifications to/from accounts payable.

(3) Payments and reclassifications to/from other liabilities.

67 EXHIBIT INDEX

NORFOLK SOUTHERN RAILWAY COMPANY AND SUBSIDIARIES (NS RAIL)

Electronic Submission Exhibit Number			Description
	10(a)	The Transaction Agreement, dated as of June 10, 1997, by and among CSX, CSX Transportation, Inc., Registrant, Norfolk Southern Railway Company, Conrail Inc., Consolidated Rail Corporation and CRR Holdings LLC, with certain schedules thereto.
	10(k)	Amendment No. 3, dated as of June 1, 2001, and executed in May of 2002, to the Shared Assets Area Operating Agreement for North Jersey, South Jersey/Philadelphia and Detroit, dated as of June 1, 1999, by and among Consolidated Rail Corporation, CSX Transportation, Inc. and Norfolk Southern Railway Company, with exhibit thereto.
	21	Subsidiaries of Norfolk Southern Railway.
	99	Certification of the CEO and CFO pursuant to 18 U.S.C Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

Exhibit 99 is included; remaining exhibits are not included in copies assembled for public dissemination. These exhibits are included in the 2002 Form 10-K posted on the website www.nscorp.com under the heading “SEC documents” or you may request copies by writing to: Office of Corporate Secretary, Norfolk Southern Railway Company, Three Commercial Place, Norfolk, Virginia 23510-9219

Washington , D.C. 20549

FORM 10-K

Virginia

Norfolk , Virginia

OperatingAsset lease expense related to the agreements, which is included in “Conrail rents and services,” amounted to $468 million in 2002, $467 million in 2001 and $502 million in 2000.Management

Medicare Changes

One percentage point

45Contributions and Estimated Future Benefit Payments

TotalOther incomePostretirement taxes as reflected in the Consolidated Statements of Income differ from the amounts computed by applying the statutory federal corporate tax rate as follows:Coverage

Filing Compare · NORFOLK SOUTHERN RAILWAY CO /VA/