Dear Colleagues:

Along with many other CEOs, I recently spoke at the Merrill Lynch Global Transportation Leaders Conference. All speakers echoed a common concern: the effect of the current economic slowdown on their companies. Norfolk Southern is no exception.

We'd hoped for a quick economic recovery, but it now looks like the recession will be longer and deeper. Norfolk Southern's customers continue to receive bad economic news.

In good times, we enjoyed the benefits of having the industry's largest metals franchise. But tough times have hit the steel industry especially hard, affecting not only our metals business but also our metallurgical coal traffic. The automakers have been hurt by slowing sales and the disruption of tire replacement programs. Even our intermodal business is feeling the effects of reduced consumer demand.

This recession isn't disaster for Norfolk Southern, but it is frustrating, since we know we have the capacity and capability to handle more business. While we can't directly control the economic forces that affect us, we can and must manage Norfolk Southern's costs for the traffic that is available.

Our current cost reduction programs helped Norfolk Southern post strong first-quarter results. I am especially pleased that we managed our costs while at the same time improving our service quality. For example, we recently achieved record-low dwell times in our major yards and record-high average train speeds. And as our service improves, customers are willing to pay more for our services.

But we must continue to manage every expenditure. We are watching our costs by:

• controlling employment levels, including the use of temporary furloughs as necessary;
• working with suppliers to reduce the cost of purchased materials and services;
• continuing to implement "NS 21" cost-saving and productivity-improvement projects;
• closing surplus or redundant facilities; and
• eliminating and, where possible, deferring expenditures not necessary for safety and customer service.

This economic downturn is clearly temporary, and I feel good about the way our company is positioned to take advantage of the inevitable recovery in traffic levels. We will be ready to handle growth in business when the economy rebounds.

Thanks for all your help.

David Goode

Planning, teamwork prevail over floodwaters

Life on the Mississippi River was less than idyllic in late April and for the first three weeks of May, when the river overflowed its banks due to heavy rains. Service over Norfolk Southern's historic bridge at Hannibal, Mo., was disrupted when the approach to the bridge saw significant flooding.

"At one point, the rail on the approach was under 29 inches of water," said Greg Comstock, general manager Western Region. "Hip waders seemed to be the order of the day for many weeks."

He said traffic normally using the bridge between Decatur, Ill., and Kansas City, Mo., had to be rerouted through St. Louis. That brought a new set of challenges to operating personnel.

"The lines we were using didn't have a lot of sidings, so we had to execute our traffic moves flawlessly," he said. "We were planning 24 hours a day."

As the floodwaters began to recede, lines approaching the bridge were inspected. Signal and communications systems, already underground to protect them from damage, were tested.

"We were somewhat fortunate in that the river rose gradually, which generally only leaves debris on the tracks," Comstock said. "If the water had been free flowing, it could have washed out some track areas."

Traffic was partially restored May 23 and fully restored by the end of the month.

Comstock said teamwork helped NS meet the many challenges the flooding caused.

"Everyone worked together to provide service to our customers safely under difficult conditions," he said. "I'm extremely proud of the job everyone did to keep trains moving and provide the best service we could under the circumstances."

Car reporting initiative
improves information quality

Norfolk Southern's Central Yard Operations (CYO) is taking the lead to enhance communication and documentation in an effort to improve overall car reporting. Additional training for field personnel and train crews has resulted in significant improvements in information quality.

"We have realized a dramatic improvement in communication and documentation since our additional training efforts began in March 2001," said Brad Fitzgerald, director CYO. "This has resulted in more accurate and timely information for our internal and external customers and better use of our resources."

The initiative is a result of the company's NS 21 analysis of key business processes to improve customer service and reduce costs.

The initial approach emphasizes better communication and documentation of switching activities by train crews and field personnel. All will receive additional training in NS car reporting processes.

"It's mostly an awareness issue and a reinforcement of the process already in place today," said Fitzgerald. "Communication is the cornerstone to our reporting process, and documentation is a key element in the support of this process."

CYO uses NS' leading-edge technology, Thoroughbred Yard Enterprise System (TYES), to support rail operations and supply customers with reliable and timely information 24 hours a day, seven days a week.

Accuracy and timely reporting are essential. When a customer contacts NS for service, information is entered into the TYES system. Train crews receive this information on their work orders. They document all work performed on the work order and fax it to CYO. Information provided by train crews updates various internal processes and is available to customers.

In addition to training, the company produced a video for customers to remind them of the benefits of working with CYO to address their service needs.

Crew training is ongoing and is expected to be completed by Sept. 18, 2001. Nearly 3,000 field employees had been trained through the end of May. The customer video was completed in early July.

NS to donate steam locomotive to Roanoke

Norfolk Southern has agreed to donate its Class A Number 1218 steam locomotive to the city of Roanoke for display at the Virginia Museum of Transportation there.

"Number 1218 is an enduring symbol of the partnership shared by a great community and its railroad through the decades," said NS Chairman, President and Chief Executive Officer David Goode. "In honor and remembrance of our friend O. Winston Link, and in recognition of the historical partnership between NS and Roanoke, we are delighted to make this donation."

The locomotive was built in Norfolk and Western's Roanoke Shops in 1943 and worked out of Portsmouth, Ohio, assigned to merchandise freight trains with passenger-like schedules. This heavy service enabled it to operate some 90,000 miles yearly.

In all, NW built 43 Class A locomotives, which pulled scheduled merchandise freight and coal trains between 1936 and 1959 at speeds of up to 70 mph on level portions of the railroad. During World War II, the Class A's served in heavy passenger service and on troop trains, sometimes moving entire tank divisions.

Number 1218 was retired in 1959, and NS restored it for use in excursion service beginning in 1987. The locomotive was placed in storage in 1994. Earlier this year, it was featured in Vanity Fair magazine with Link, who achieved broad acclaim for the artistic photos he took of the Class A's and other steam locomotives in the 1950s. Link died Jan. 30, 2001.

The donation of Number 1218 is contingent upon Roanoke's Center in the Square museum complex obtaining exclusive rights from Link's estate to house the O. Winston Link Museum at the former NW passenger station in Roanoke. NS expressed its hope that the donation of Number 1218 will help ensure that Roanoke successfully obtains the museum. The Virginia Museum of Transportation will refurbish the locomotive for display.

Operation Lifesaver takes
its message on the rails

Operation Lifesaver is taking its three E's — education, enforcement and engineering — on the rails again.

As part of its ongoing campaign to promote highway-rail grade crossing safety, OL is teaming up with Norfolk Southern and Amtrak to operate special trains on NS lines. Members of the media, local community leaders and elected officials are invited to ride aboard.

"This is a way for us to reach more people and call attention to unsafe behaviors at highway-rail grade crossings and to the danger of trespassing on railroad property," said Bill Hughes, manager Grade Crossing Safety.

The main message of the special train trips is "expect a train at anytime, and prepare to yield to that train," Hughes said.

Each year, NS identifies areas that have a high number of incidents to determine where the OL trains will run. Nine OL trains are running between April and September. Amtrak is involved in three of them.

Since OL's start in 1972, highway-rail grade crossing incidents have declined substantially. So has trespassing.

OL was incorporated in 1986 as a national nonprofit educational organization. Forty-nine states now participate in OL programs. According to preliminary 2000 federal statistics, 425 people lost their lives in more than 3,500 vehicle-train collisions at highway-rail grade crossings nationwide. Trespassing incidents cost 463 people their lives in the same year.

For more information about OL, go to www.oli.org.

Pocahontas Land Corporation
celebrates centennial

The year was 1901. Theodore Roosevelt was president, and the population of the United States was 77,584,000.

Flat Top Coal Land Association had about 300,000 acres of property when N&W Railway Company acquired it on Dec. 31. It then became the Pocahontas Coal and Coke Company. In 1939, the name was changed to the Pocahontas Land Corporation (PLC).

It's now 2001. George W. Bush is president, the population exceeds 280 million, and PLC is celebrating its centennial.

PLC is a subsidiary of Norfolk Southern that owns or controls more than a million acres of land and 1.7 billion tons of coal reserves. Its mission today is "to be the most responsible, innovative and successful owner and manager of natural resource properties."

"The company has really changed over the years," said Daniel D. Smith, president of NS Development and PLC. "We've gone from just being a caretaker of the land to a developer of coal properties available to Norfolk Southern."

PLC transforms abandoned mine land and evaluates post-mining land use to find new uses for it. As an example, for the past six years, PLC has been working with Mingo Logan Coal Company and Premium Energy Inc. to construct a public golf course in Mingo County, W.Va., on reclaimed surface mined land. After breaking ground Aug. 24, 2000, the Twisted Gun Golf Course is scheduled for completion this fall.

In the last 15 years, the company has seen steady growth in the amount of land it manages, from 600,000 acres to more than a million in Alabama, Illinois, Kentucky, Tennessee, Virginia and West Virginia. In that time, revenue has soared fourfold. PLC is currently the largest landowner in West Virginia.

At one time, most of PLC's revenue came from coal, natural gas and timber royalties. However, in 2000, PLC sold its natural gas and timber holdings to Penn Virginia Oil & Gas Corp. and Bluefield Timber, LLC.

In 2000, PLC had 90 coal mining lessees and 135 active coal mines. Coal production for the year was 43.8 million tons and coal reserves available to NS exceeded 1.7 billion tons.

To commemorate the company's 100-year milestone, PLC has commissioned historian Dr. Stuart McGehee of Bluefield, W.Va., to write a book outlining the history of the company. The book will be given to local bookstores, dignitaries and libraries according to Smith.

A picnic also is scheduled for current and retired employees on Aug.12 in Bluefield.

NS Special agent receives honor

Norfolk Southern Special Agent Reyes Moran III of Chicago was recognized by Chicago Police for his efforts in apprehending a suspect in a fatal hit-and-run accident that occurred April 20, 2001.

While on routine patrol, Moran was monitoring Chicago portable police radio communication when he heard Chicago dispatch describe a vehicle wanted in a hit-and-run accident that seriously injured a woman and killed a 2-year-old girl.

About five miles from the scene, he observed and stopped a vehicle matching the description given by Chicago police dispatch. Moran detained the occupants until 4th District officers arrived.

Working with local law enforcement is nothing new for NS police, according to Larry Schneider, NS special agent in charge, Chicago.

"We work together every day," said Schneider. "We assist them and they assist us. It makes all of our jobs a little easier."

Train crew gets "Lucky"

Norfolk Southern Engineer Fred Reynolds and Conductor Larry Walker were returning to St. Thomas, Ont., from Detroit with 20 cars of auto parts when a dog ran in front of their train near Bothwell, Ohio. The train hit the dog. Believing the dog had died, Reynolds and Walker told a local newspaper that the incident bothered them, but they couldn't prevent what happened.

Three days later, Walker again was traveling through Bothwell and noticed a dog in the weeds alongside the tracks. It lifted its head as the train passed. When he arrived home, he contacted Reynolds, and the two of them took food, water and blankets in search of the dog.

They traveled 50 miles and found the animal hungry and injured, but still alive.

They took it to a nearby veterinarian who said the dog was only about a year old and in relatively good health, injuries notwithstanding.

Concerned about the dog's future, Walker decided to adopt it. Its name? "Lucky," of course.

NS locomotive engineer helps
young readers understand
railroads and safety

Joyce Mills wants young people to know more about railroading and rail safety. The Harrisburg, Pa., Norfolk Southern locomotive engineer has written a book called "Railroad People" that will be available this summer.

The book talks about all of the people who are essential to keeping trains running and maintaining railroad equipment and property. It is aimed at first- to fourth-grade readers.

The main character is "Engineer Lynn," who takes readers through a typical day on the railroad. The book also has information about railroad safety.

In addition to being a soon-to-be published author, Mills is an Operation Lifesaver presenter for NS in the Harrisburg area.

BMWE ratifies contract;
IBEW reaches tentative agreement

The Brotherhood of Maintenance of Way Employes (BMWE) ratified a five-year contract with Norfolk Southern and other major freight railroads. The ratification is the first in the current round of bargaining among the railroad industry and 13 labor unions that began in November 1999.

"We are pleased with this agreement with the nation's second-largest labor union, which sets the pattern for the successful resolution of negotiations with the other rail unions involved in the current round of bargaining," said Jim Hixon, senior vice president Administration.

Mark MacMahon, vice president Labor Relations, added that the agreement "sets a ground-breaking precedent, because it responsibly addresses the significant increases in health and welfare costs and recognizes that employees should share those costs as a necessary part of the solution."

The major freight railroads also have reached a tentative agreement with the International Brotherhood of Electrical Workers.

NS and the Brotherhood of Locomotive Engineers separately have entered into a five-year agreement covering BLE members on NS.