This past year was one of great turmoil for corporations in general and a tough economic climate for all of us. Still, I am pleased to report that 2002 was a good year for Norfolk Southern. Although we have a lot further to go before reaching our goals for increasing shareholder value, we made significant progress in 2002 and demonstrated that we are moving in the right direction.

Last year in this letter, I set out some goals for the year. Here’s how we did.

Improved service: We put in place our new Thoroughbred Operating Plan. Service steadily improved as a result of better scheduling and consistent execution of the plan. On-time performance improved by 17 percent, and we did better in all our service metrics, as you can see elsewhere in this report. Customers responded to the service improvements in the best possible way – by letting us handle their business. We are determined to continue improving service throughout 2003.

Continued improvement in productivity: We focused on process improvement, using our own NS21 process and the discipline of Six Sigma. Our operating ratio improved 2.2 points. Productivity improvement is a constant necessity, and we continue to devote ourselves to it.

Revenue growth: Our revenues in 2002 were 2 percent better than in 2001. We achieved this increase in a year when the industrial economy was flat and our coal revenues were down 5 percent. The growth in automotive, intermodal and general commodities shows our overall strength and confirms the soundness of the investments we have made. For the year, highway diversions generated more than $71 million in revenue. We entered into partnerships with all of our major connecting carriers to generate additional business. Our MODALGISTICS® business unit and TransWorks subsidiary laid the groundwork for new revenue sources. Given a stronger economy, we will be able to build on this growth.

Cash flow: We committed to generating cash and paying down debt, and we did, achieving $303 million in debt reduction during the year.

Fair returns: Our earnings grew 23 percent, we increased our dividend, and our total shareholder returns were in the 86th percentile of the S&P 500. At the same time, we recognize that we still have a long way to go in improving our returns.

Significantly, our employees captured a record 13th consecutive Harriman safety award. NS’ unparalleled safety leadership in our industry is a continuing source of pride for all our people and good business for us.

Our goals are basics, just as our business is a basic component of the economy. We believe better operations, service and returns are sure to follow if we keep our eye on basic values and produce consistent improvement.

Last year, American corporate and business values were called into question by a series of highly visible problems in accounting, ethics and business judgment at several major companies. We at Norfolk Southern took the opportunity to look within our organization to test and ensure that our values and principles are sound. Our board and management are committed to high levels of ethics and strong, independent governance. We will continue to be vigilant so our investors and all our constituents can rely on Norfolk Southern, as they have for more than 20 years, and just as they relied on our predecessor companies for more than 150 years.

The past year was filled with challenge for everyone in business. Yet for us it was a year when our company showed its mettle. The value of expanding our system and diversifying our business base began to really pay off. The value of service improvements is clear.

We have an enviable transportation network, and we have the capacity to grow our business. We have invested in technology and infrastructure to serve existing customers better and add new ones. Most important, we have the people who have been tested by tough times, and they have accepted the challenge to strive for industry leadership in safety, service and value for our investors. They met the challenge of 2002, and they will meet it in the years to come.

The year 2003 poses equal or greater challenges. The economy is uncertain, and growth is going to be hard to find. Costs, such as fuel, wages and benefits, continue to rise. Still, we are steadfast in our concentration on process and productivity improvement, in our dedication to being the leader in service as we are in safety, and in our determination to justify our investors’ faith by improving our returns. I believe these values will produce a successful 2003. We’ll accelerate the pace and keep our company headed in the right direction.

     January 28, 2003

“We have the people who have been tested by tough times and have accepted the challenge to strive for industry leadership in safety, service and value for our investors.”

– David R. Goode chairman, president and chief executive officer