Dear fellow employees,

In 2002, we introduced a new television advertisement called Weathervane. It sends an important message about Norfolk Southern: change is in the air, and we must be prepared to face the challenges it brings.

Despite fairly strong winds of change in 2002, we made progress toward meeting our "7+7" operating ratio and revenue goals. We showed that we can produce an operating ratio in the 70s, but we have more work to do to hit that target all the time. We also must find more growth if we are to reach our goal of $7 billion in annual revenue.

In my letter to shareholders in the 2001 annual report, I set out specific goals for NS in 2002, goals that we will build on again in 2003:

• Improved Service. We completed the Thoroughbred Operating Plan implementation and introduced systems that will allow us to manage individual shipments. In 2003, we will give our front-line workers and managers new tools and information that will let them manage the reliability of those individual shipments. We must push everywhere for continued service improvement.
• Continued Improvement in Productivity. In 2002, we hauled more freight and we saw car productivity — especially in our merchandise fleet — rise impressively. Wage, benefits and materials costs continue to increase, so we must continue to implement productivity tools, such as new systems and automation. The only way we can survive and grow as a company is with continued productivity improvement.
• Revenue Growth. Norfolk Southern's revenues grew, but grew less than we expected due to continued weakness in the economy and depressed coal shipments. We must grow our revenue base to be successful. We will continue to seek out new markets, such as our penetration into the short-haul coal market, where rail can compete successfully. We must all seek new customers and improve service to sell more to our existing customer base.
• Cash Flow. Norfolk Southern improved its cash flow and reduced its debt levels again in 2002. We will invest wisely in our assets — including track, locomotives and cars — and carefully review all of those investments. We will continue to reduce debt and improve our financial strength.
• Fair Returns. Despite our improvement, our returns remain below our cost of capital. Our obligation to our shareholders remains to fairly compensate them for their support as owners of our company.

We accomplished a lot in 2002 by staying focused on our goals and managing through an unpredictable economy. But in 2003, the winds of change are stronger, the economy no more predictable, and the effects of international events uncertain.

Our team is a strong one, and I am proud to face with you the challenges of 2003. As always, I am confident we can move this company forward and benefit our customers, the communities we serve and NS people — the best in the business.

David R. Goode
Chairman, president and chief executive officer

Six Sigma Council, blackbelts,
greenbelts enhance quality process

Norfolk Southern has expanded its quality process with the appointment of 21 employees for training to become certified as Six Sigma experts, or "blackbelts." A Six Sigma Council has been formed, and the company has trained 135 "greenbelts."

The Council is responsible for establishing and maintaining Six Sigma deployment throughout the company. It uses best business practices to plan and improve NS quality initiatives in line with new ISO quality standards. It tracks projects under way to mark progress and helps establish policy for future training.

"This is a natural extension of our continuing efforts to make Six Sigma the way we work," said Jeff Yates, assistant vice president quality management. "We have a dedicated team to help us develop our people and our processes to better serve our customers."

There is a significant time commitment for training and certification. It can take up to nine months for a blackbelt to be certified and up to five for a greenbelt. Blackbelts devote 100 percent of their time and greenbelts about 30 percent of their time to process improvement and project work in ther respective departments.

Certification requirements include demonstrating knowledge, understanding and application of the Six Sigma tools, passing tests and successfully completing a number of projects.

Those certified as blackbelts take responsibility for quality process management in their department and managing projects aligned with key corporate goals.

Future goals to enhance quality management include elevating a small number of blackbelts to master blackbelts who will provide support, coach and mentor blackbelts and greenbelts and train future candidates.

Yates said 59 department and sub-department heads are trained as Six Sigma champions for the existing candidates and their projects, and 98 active projects have projected significant financial benefit to NS once completed.

"At the end of the day, Six Sigma is all about project completion and taking money to the bottom line," Yates said. "Of the 17 projects completed to date, benefits of $36 million have been recognized, including revenue growth, revenue retention and cost avoidance. There also have been projects that specifically address customer satisfaction. We expect an additional $29 million in benefits once we complete current projects."

Plans for 2003 include a champion class in February and four greenbelt waves, one per quarter.

Meet Mike Greene, blackbelt candidate

Mike Greene is manager process improvement Six Sigma, accounting operations. He began his blackbelt training in April.

Why did you decide to become a blackbelt?

I got involved because I like project-based work. I like coming up with solutions. Also, my boss, Ben Chapman, selected me to go through training after he received his greenbelt certification.

Why is Six Sigma important to Norfolk Southern?

Between my two projects, the company will save about $1.2 million, and these are not even the biggest projects in the class. Also, Six Sigma gives us the tools to make processes as efficient as possible.

Carroll Campbell retires as NS board member

Carroll A. Campbell Jr. retired from the board of directors of Norfolk Southern effective Nov. 29, 2002.

Campbell was elected to the board in July 1996. He served on the executive and governance, finance and audit committees, and he helped guide the company during a time of significant growth and expansion. Prior to joining the board, Campbell served two terms as South Carolina's governor and was U.S. representative from the state's 4th Congressional District. He served successively as a state representative and as a state senator before his congressional term.

In a tribute to Campbell, the board expressed its "heartfelt appreciation for his effective and dedicated service" and said his "judgment, wise counsel and long-standing commitment to fiscal responsibility" will be missed.

David R. Goode, chairman, president and chief executive officer, said, "Carroll Campbell has been an effective and dedicated independent board member, one who has made important contributions to the company. He retires with my appreciation and thanks on behalf of all Norfolk Southern shareholders."

Pittsburgh Division crew customer
service team helps retain business

Two members of a Pittsburgh Division crew customer service team were commended for their work with LaRoche Industries. Conductor Jim Hempel and Mike Doran, an engineer, received letters of commendation from David R. Goode, chairman, president and chief executive officer, for helping to retain business.

Hempel and Doran have been working with the company since June. Hempel said the company, which supplies industrial ammonia to power plants, oil refineries and other companies for nitrogen oxide removal, expected to double its business at its Donora, Pa., plant by April 2003. To handle the increase, LaRoche wanted to go from a five-day service to six- or seven-day service; otherwise, they would close down their Pennsylvania plant entirely and move to another area.

Hempel and Doran visited the site and proposed a second track as a better option. LaRoche still would get five-day service and four cars instead of two. Tom Hobaugh, plant manager, liked the idea. "I don't know who came up with the team idea, but it is a really good one. They understand the problems we have, and we listen to their solutions," Hobaugh said.

New agreement for carmen effective Jan. 1

Representatives of Norfolk Southern and the carmen have successfully negotiated a single collective bargaining agreement. Effective Jan. 1, 2003, all carmen on NS will be covered by the newly negotiated agreement. This systemwide agreement, resulting in a uniform set of working rules for employees within the craft of carmen, is the first of its kind on NS. It replaces the March 1, 1975, NSR Agreement, the Sept. 1, 1949, N&W Agreement and the Oct. 1, 1952, NKP Agreement.

J.V. Waller, general chairman of the Brotherhood Railway Carmen, said, "this agreement will assure that all carmen on NS will be governed by the same contractual rules, eliminating a lot of confusion. I believe that the agreement will be beneficial to all our members. NS will provide each carman a copy of this agreement. Some of the changes, such as the new transfer rule, will benefit both our members and NS."

The new agreement largely tracks the March 1, 1975, NSR shop craft agreement, with certain significant modifications, such as a simplified transfer rule and a new discipline rule. Other key changes provide for uniformity in connection with rules governing advertisement and displacements, meal periods, starting times and the payment of overtime.

Tony Licate, director labor relations, said, "The new system-wide carman agreement represents the collective efforts of labor and management to successfully negotiate a clear, concise and accurate labor agreement that will benefit the labor organizations, the company and its employees. The new agreement provides one single document in which all current rules can be found."

CYO exceeds its customer service improvement goal

When the employees of Central Yard Operations set out to improve customer service by making 2,000 customer visits in 2002, they knew they had their work cut out for them. All their hard work paid off, because they not only met that goal, they exceeded it significantly.

CYO managers, assistant managers and representatives met with 3,232 customers to learn more about those customers' operations and service issues.

"We wanted to get out and talk to the people we serve," said Brad Fitzgerald, director CYO. "Our representatives got to know their customers in their dealings on the phone, but they couldn't always visualize that customer's operations."

CYO is organized by geographic division. Employees monitor all freight car movement across the Norfolk Southern system using NS' Thoroughbred Yard Enterprise System technology. Their job is to make sure the right car is in the right place at the right time - every time.

CYO personnel spend a week meeting with customers. Marketing personnel often join them. Fitzgerald cited a visit to customers on the Lake Division in which CYO employees met with 25 customers during one week.

"We knew we could help support marketing and sales efforts if we were able to meet with NS customers and work together to make our service more reliable and consistent," Fitzgerald said.

Fitzgerald said CYO handles 18,000 inbound and outbound calls and 15,000 inbound and outbound faxes daily. "With that kind of volume of daily customer contact, the visits open up a new avenue for improving our service," Fitzgerald said. "Sitting down face-to-face provides opportunity for a continuing dialogue with positive results."

Fitzgerald said new CYO employees also participate in customer visits as part of an ongoing training program.

NS, BNSF introduce new service assurance program

Norfolk Southern and Burlington Northern and Santa Fe began a new coast-to-coast carload service assurance program for temperature-controlled commodities moving from selected cities in the Pacific Northwest to the Midwest, Northeast and Southeast.

With the program, shippers can purchase service assurance for a $500 premium. For each load of freight that does not reach its destination on time, BNSF and NS will reimburse shippers double their premium.

"This new partnership allows NS and BNSF to offer some of the fastest transit times in the industry for perishable rail shipments to destinations throughout the East," said Don Seale, senior vice president merchandise marketing. "It capitalizes on a renewed commitment by BNSF and NS to service consistency and reliability for food and consumer shipments."

February is African-American
Railroader Month at NS

Norfolk Southern recognizes the contributions of African-Americans to the railroad industry and to the company during February. NS employees can check local bulletin boards and the company's Web site at www.nscorp.com for updates on activities.

RRB statements available online

The U.S. Railroad Retirement Board announced that rail employees now have electronic access, via the board's Web site, to their individual railroad retirement records of service months and compensation.

This new Internet service, called "Service and Compensation History," can be accessed by visiting the board's Web site at www.rrb.gov and clicking on "MainLine Services."

This electronic alternative does not replace the "Certificate of Service Months and Compensation" (Form BA-6) mailed to current employees each June, but makes the same information readily available online for current and former employees. In addition to providing a record of an employee's creditable railroad service and compensation as reported by rail employers, these records include any service months deemed by the board, the amount of any separation allowance or severance payment that was subject to railroad retirement taxes, and the cumulative amounts of railroad retirement payroll taxes paid by the employee over and above social security equivalent payroll taxes.

Railroad employees or retirees with questions about their service and compensation records should contact the nearest board office. Most board offices are open to the public from 9:00 a.m. to 3:30 p.m., Monday through Friday, except on Federal holidays.

USAF recognizes NS for support
of reservists, guard members

Norfolk Southern has been recognized for its support of U.S. Air Force Reserve and Air National Guard members' service.

"We could not protect America's freedom without the incredible people who are willing to carry on the 'citizen airman' tradition. As the civilian employer of many of those airmen, your company's support continues to be critical to our ongoing efforts and makes a real difference to our country. As fellow leaders, we understand that the vitality of this support is a constant balancing act, and we thank you for everything you and your management team do to make your employees' service possible."

John P. Jumper - General USAF, Chief of Staff

James G. Roche - Secretary of the Air Force

Excerpted from a letter received by NS Chairman, President and Chief Executive Officer David R. Goode.

During World War II, the U.S. military used "E" flags to recognize companies whose efficient production made major contributions to the overall war effort. The U.S. Air Force has adapted this contemporary version of the "E" flag - an E cradled in the Air Force symbol - on a lapel pin to recognize the vital partnership between America's Air Force and the civilian employers of Air Force Reserve Command and Air National Guard airmen in the war on terrorism. This lapel pin was presented to NS Chairman, President and Chief Executive Officer David R. Goode in recognition of NS' support for its employees who serve in the Air Force Reserve and Air National Guard.