UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q
(X)	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
	EXCHANGE ACT OF 1934
	For the quarterly period ended JUNE 30, 2003
	For the quarterly period ended SEPT. 30, 2003
( )	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; 1-546-2

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

No Change
(Former name, former address and former fiscal year,
if changed since last report.)

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.	(X) Yes	( ) No
Indicate by check mark whether registrant is an accelerated filer (as defined in Rule 12b-2 of The Exchange Act).
	( ) Yes	(X) No
The number of shares outstanding of each of the registrant's classes of Common Stock, as of the last
practicable date:
Class			Outstanding as of ~~June~~Sept. 30, 2003
Common Stock (par value $1.00)			16,668,997

TABLE OF CONTENTS

			Page
Part I.	Financial information:
	Item 1.	Financial statements:
		Consolidated Statements of Income	3
		Three and Six Months Ended June 30, 2003 and 2002
		Three and Nine Months Ended Sept. 30, 2003 and 2002
		Consolidated Balance Sheets	4
		June 30, 2003 and Dec. 31, 2002
		Sept. 30, 2003 and Dec. 31, 2002
		Consolidated Statements of Cash Flows	5
		Six Months Ended June 30, 2003 and 2002
		Nine Months Ended Sept. 30, 2003 and 2002
		Notes to Consolidated Financial Statements	6
		Independent Accountants' Review Report	12
	Item 2.	Management's Discussion and Analysis of	13
		Financial Condition and Results of Operations
	Item 3.	Quantitative and Qualitative Disclosures	19
		About Market Risks
	Item 4.	Controls and Procedures	19
Part II.	Other Information:
	Item 1.	Legal Proceedings	20
	Item 6.	Exhibits and Reports on Form 8-K	20
Signatures			21
Exhibit Index			22

2
PART I. FINANCIAL INFORMATION

Item 1. Financial Statements.

NORFOLK SOUTHERN RAILWAY COMPANY AND SUBSIDIARIES

(A Majority-Owned Subsidiary of Norfolk Southern Corporation [NS])

Consolidated Statements of Income

($ in millions)

(Unaudited)

	Three months Ended				~~Six~~Nine Months Ended
	June 30,				June 30,
	Sept. 30,				Sept. 30,
	2003		2002		2003		2002
Railway operating revenues:
Coal	$	~~389~~372	$	~~350~~371	$	~~743~~1,115	$	~~709~~1,080
General merchandise		~~944~~911		~~948~~917		12,~~862~~773		12,~~817~~734
Intermodal		~~256~~270		~~249~~268		~~503~~773		~~478~~746
Total Railway Operating Revenues		1,~~589~~553		1,~~547~~556		34,~~108~~661		34,~~004~~560
Railway operating expenses:
Compensation and benefits		~~401~~396		~~377~~390		~~801~~1,197		~~760~~1,150
Materials, services and rents		~~487~~449		~~454~~465		~~946~~1,395		~~907~~1,372
Conrail rents and services (Note 2)		~~118~~119		~~115~~112		~~237~~356		~~236~~348
Depreciation		~~123~~124		125		~~246~~370		~~248~~373
Diesel fuel		9386		8481		~~197~~283		~~165~~246
Casualties and other claims		4844		3757		99143		72129
Other		7368		7867		~~147~~215		~~139~~206
Total Railway Operating Expenses		1,~~343~~286		1,~~270~~297		23,~~673~~959		23,~~527~~824
Income from railway operations		~~246~~267		~~277~~259		~~435~~702		~~477~~736
Other income (expense) - net		(6560)		(6044)		(~~116~~176)		(~~112~~156)
Interest expense on debt		(56)		(76)		(1218)		(1622)
Income before income taxes and
accounting changes		~~176~~201		~~210~~209		~~307~~508		~~349~~558
Provision for income taxes		6874		8485		~~119~~193		~~138~~223
Income before accounting changes		~~108~~127		~~126~~124		~~188~~315		~~211~~335
Cumulative effect of changes in accounting
principles, net of taxes (Note 1)		--		--		104		--
Net Income	$	~~108~~127	$	~~126~~124	$	~~292~~419	$	~~211~~335
See accompanying notes to consolidated financial statements.

NORFOLK SOUTHERN RAILWAY COMPANY AND SUBSIDIARIES

(A Majority-Owned Subsidiary of Norfolk Southern Corporation [NS])

Consolidated Balance Sheets

($ in millions)

(Unaudited)

~~June~~Sept. 30, Dec. 31, 2003 2002 Assets Current assets: Cash and cash equivalents $ 76129 $ 130 Accounts receivable, net (Note 2) ~~138~~123 117 Due from Conrail (Note 2) 6 6 Materials and supplies ~~101~~91 95 Deferred income taxes ~~188~~184 174 Other current assets 8246 131 Total current assets ~~591~~579 653 Investments (Note 4) ~~754~~753 703 Properties less accumulated depreciation 11,~~162~~167 10,837 Other assets ~~680~~693 660 Total assets $ 13,~~187~~192 $ 12,853 Liabilities and Stockholders' Equity Current liabilities: Accounts payable $ ~~871~~884 $ 860 Income and other taxes ~~176~~202 187 Due to NS - net (Note 2) ~~389~~430 384 Due to Conrail (Note 2) 65 78 86 Other current liabilities 114 ~~123~~ 122 Current maturities of long-term debt 102 94 Total current liabilities 1,~~739~~797 1,733 Long-term debt 830 ~~856~~ 763 Other liabilities 991 ~~969~~ 971 Due to Conrail (Note 2) 688 ~~618~~ 513 Minority interests 8 3 Deferred income taxes 4,~~217~~271 4,057 Total liabilities 8,~~407~~585 8,040 Stockholders' equity: Serial preferred stock 55 55 Common stock 167 167 Additional paid-in capital 709 709 Accumulated other comprehensive income (Note 4) ~~259~~243 266 Retained income 3,~~590~~433 3,616 Total stockholders' equity 4,~~780~~607 4,813 Total liabilities and stockholders' equity $ 13,~~187~~192 $ 12,853 See accompanying notes to consolidated financial statements.

NORFOLK SOUTHERN RAILWAY COMPANY AND SUBSIDIARIES

(A Majority-Owned Subsidiary of Norfolk Southern Corporation [NS])

Consolidated Statements of Cash Flows

($ in millions)

(Unaudited)

~~Six~~Nine Months Ended ~~June~~Sept. 30, 2003 2002 Cash flows from operating activities Net income $ ~~292~~ 419 $ ~~211~~335 Reconciliation of net income to net cash provided by operating activities: Net cumulative effect of changes in accounting principles (104) -- Depreciation 371 ~~248~~ ~~248~~374 Deferred income taxes 61115 74142 Gains and losses on properties and investments (59) (1215) Changes in assets and liabilities affecting operations: Accounts receivable (216) 3526 Materials and supplies ~~(6)~~4 (101) Other current assets and due from Conrail 4977 5172 Income tax liabilities 68 35 2746 Other short-term liabilities (179) (6131) Other - net (2526) (7178) Net cash provided by operating activities 900 ~~507~~ ~~492~~870 Cash flows from investing activities Property additions (~~244~~392) (~~330~~501) Property sales and other transactions 34 10 ~~(10)~~7 Investments, including short-term (6480) (4254) Investment sales and other transactions 3 1 -- Net cash used for investing activities (~~297~~435) (~~382~~548) Cash flows from financing activities Dividends (12) (12) Advances to NS (~~339~~586) (~~334~~556) Advances and repayments from NS 31 26 6 4 Proceeds from borrowings 218 ~~130~~ ~~198~~281 Debt repayments (80127) (97142) Net cash used for financing activities (~~264~~466) (~~230~~413) Net decrease in cash and cash equivalents (541) (~~120~~91) Cash and cash equivalents At beginning of year 130 167 At end of period $ 129 76 $ 4776 Supplemental disclosures of cash flow information Cash paid during the period for: Interest (net of amounts capitalized) $ 21 29 $ 26 38 Income taxes $ 22 9 $ 35 29 See accompanying notes to consolidated financial statements.

NORFOLK SOUTHERN RAILWAY COMPANY AND SUBSIDIARIES

(A Majority-Owned Subsidiary of Norfolk Southern Corporation [NS])

Notes to Consolidated Financial Statements

(Unaudited)

In the opinion of management, the accompanying unaudited interim financial statements contain all adjustments (consisting of normal recurring accruals) necessary to present ~~the~~ Norfolk Southern Railway Company and Subsidiaries's ~~financial~~("NS Rail") financial position as of ~~June~~Sept. 30, 2003, its results of operations for the three and ~~six~~ nine months ended ~~June~~Sept. 30, 2003 and 2002, and its cash flows for the ~~six~~nine months ended ~~June~~Sept. 30, 2003 and 2002, in conformity with accounting ~~principles~~ principles generally accepted in the United States of America.

Although management believes that the disclosures presented are adequate to make the information not misleading, these Consolidated Financial Statements should be read in conjunction with: (a) the financial statements and notes included in ~~the~~NS ~~Company~~Rail's latest Annual Report on on Form 10-K and (b) any Current Reports on Form 8-K.

1. Changes in Accounting Principles

NS 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 by about $7 million in the ~~second~~third quarter and $1421 million in the first ~~six~~nine months (because the depreciation rate for crossties no no longer reflects cost to remove) and increased compensation and benefits and other expenses by about $6 million for the quarter and $1016 million for the first ~~six~~nine months (for the costs to remove retired assets).

NS Rail also adopted FASB Interpretation No. 46, "Consolidation of Variable Interest Entities," (FIN No. 46) effective Jan. 1, 2003, and recorded a $4 million net adjustment ($6 million before taxes) for the cumulative effect of this change in ~~accounting~~ accounting on years prior to 2003. Pursuant to FIN No. 46, NS Rail has consolidated a special-purpose entity that leases certain locomotives to NS Rail. This entity's assets and liabilities at Jan. 1, 2003, included $169 million of locomotives and $157 million of debt related to their purchase as well as a $6 million minority interest liability. This change in accounting ~~in the second quarter of 2003~~ increased depreciation and interest expense (to reflect the locomotives as owned assets) and lowered lease expense. The net effect to total railway operating expenses and net income was not material.

2. Related Parties

General

NS is the parent holding company of Norfolk Southern Railway Company (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. This fee amounted to $~~146~~140 million and $~~128~~118 million in the ~~second~~third quarters of 2003 ~~and~~ and 2002, respectively (including a $108 million and $87 million mark-up in each quarter, respectively) and $~~280~~420 million and $~~274~~392 million for the first ~~six~~nine months of 2003 and 2002, respectively (including an $1826 million and $1724 million mark-up in each period, respectively). In addition, NS charges NS Rail a revenue-based licensing fee for use of certain intangible assets owned by NS. This fee amounted to $2523 million ~~and~~in ~~$24~~each ~~million~~of in the ~~second~~third quarters of 2003 and 2002, ~~respectively,~~ and $4669 million and $4568 million for the first ~~six~~ nine months of 2003 and 2002, respectively.

NS Rail owns 21,~~169~~116,125 shares of NS common stock.

6 Operations Over Conrail's Lines

Overview -- Through a limited liability company, NS and CSX Corporation (CSX) jointly own Conrail Inc. (Conrail), whose primary subsidiary is Consolidated Rail Corporation (CRC), the major freight railroad in the Northeast. NS has a 58% economic and 50% voting interest in the jointly owned entity, and CSX has the remainder of the economic and voting interests.

Northeast. NS has a 58% economic and 50% voting interest in the jointly owned entity, and CSX has the remainder of the economic and voting interests.

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.

Operations of Conrail's Lines -- The June 1999 Operating Agreement between NSR and PRR governs substantially all track assets operated by NSR and has an initial 25-year term, renewable at the option of NSR for two five-year terms. Payments under the Opera-ting Agreement are subject to adjustment every six years to reflect changes in values. NSR also has leased or subleased equipment for varying terms from PRR. Costs necessary to operate and maintain the PRR assets, including leasehold improvements, are borne by NSR. NSR receives all freight revenues on the PRR lines.

NSR and CSXT also have entered into agreements with CRC governing other properties that continue to be owned and operated by CRC (the Shared Assets Areas). NSR and CSXT pay CRC a fee for joint and exclusive access to the Shared Assets Areas. In addition, NSR and CSXT pay, based on usage, the costs incurred by CRC to operate the Shared Assets Areas.

Proposed Spin-Off of PRR and NYC -- In June 2003, NS together with CSX and Conrail, filed a joint petition with the Surface Transportation Board to("STB") to establish direct ownership and control by NSR and CSXT of PRR and NYC, respectively. The proposed transaction would replace the existing operating agreements and allow NSR and CSXT to operate PRR and NYC, respectively, via direct ownership. The proposed transaction does not involve the Shared Assets Areas. The proposed transaction is subject to a number of conditions, including STB approval and an Internal Revenue Service ruling qualifying it as a nontaxable distribution.

As a part of the proposed transaction, Conrail would undertake a restructuring of its existing unsecured and secured public indebtedness. There are currently two series of unsecured public debentures with an outstanding principal amount of $800 million and 13 series of secured debt with an outstanding principal amount of approximately $~~400~~350 million. It is currently contemplated that guaranteed debt securities of two newly formed corporate subsidiaries of NSR and CSXT would be offered in a 58%/42% ratio in exchange for Conrail's unsecured debentures. Upon completion of the proposed transaction, the new debt securities would become direct unsecured obligations of NSR and CSXT, respectively, and would rank equally with all existing and future senior unsecured debt obligations, if any, of NSR and CSXT. These new debt securities will have maturity dates, interest rates and principal and interest payment dates identical to those of the respective series of Conrail's unsecured debentures. In addition, these new debt securities will have covenant packages substantially similar to those of the publicly traded debt securities of NS and CSX, respectively. Registration ~~statements~~ statements on Form S-4 will be filed with the U.S. Securities and Exchange Commission in connection with the proposed exchange offer.

Conrail's secured debt and lease obligations will remain obligations of Conrail and are expected to be supported by new leases and subleases which, upon completion of the proposed transaction, would be the direct lease and sublease obligations of NSR or CSXT.

Related-Party Transactions with Conrail -- 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.

"Conrail rents and services" includes: (1) expenses for amounts due to PRR for use of operating properties and equipment and (2) expenses for amounts due to CRC for operation of the Shared Assets Areas.

A significant portion of payments made to PRR is borrowed back from a subsidiary of PRR under a note due in 2032. Amounts outstanding under ~~the~~this note comprise the long-term balance of "Due to Conrail." The interest rate ~~for these loans is variable and was 1.48% at June 30, 2003.~~ The proposed spin-off transaction described above would effectively relieve NS Rail of this obligation. The current balance "Due to Conrail" is composed of amounts related to expenses included in "Conrail rents and services," as discussed above.

NSfor ~~Rail's~~these ~~Consolidated~~loans ~~Balance~~is ~~Sheet~~variable and was 1.51% at ~~June~~Sept. 30, 2003~~, includes $44 million of~~. ~~liabilities~~ On ~~related~~a toconsolidated basis, the ~~Conrail~~proposed spin-off transaction, ~~principally~~described ~~for~~above ~~contractual obligations~~would toeffectively ~~Conrail~~relieve ~~employees~~NS ~~imposed~~Rail byof ~~the~~this obligation. The ~~Surface~~current ~~Transportation Board~~balance ~~when~~"Due itto ~~approved~~Conrail" ~~the~~is ~~transaction. Through~~composed ~~June~~of ~~30,~~amounts ~~2003,~~related NSto ~~Rail~~expenses ~~has~~included in ~~paid~~"Conrail ~~$139 million~~rents ofand ~~such~~services," ~~costs~~as discussed above.

NS Rail's Consolidated Balance Sheet at Sept. 30, 2003, includes $38 million of liabilities related to the Conrail transaction, principally for contractual obligations to Conrail employees imposed by the STB when it approved the transaction. Through Sept. 30, 2003, NS Rail has paid $145 million of such costs.

Sales of Accounts Receivable

NS Rail sells, without recourse, to a bankruptcy-remote special-purpose NS subsidiary, a pool of accounts receivable. NS Rail services and collects all of the sold receivables on behalf of the buyers; 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 new sale agreement, the receivables are treated as sold and, accordingly, $~~581~~571 million at ~~June~~Sept. 30, 2003, and $513 million at Dec. 31, 2002, of sold receivables are not included on the NS Rail Consolidated Balance Sheets. Fees associated with the sale, which are based on historical dilution and prevailing interest rates, are included in "Other income (expense) - net."

Intercompany Accounts

~~June~~Sept. 30, 2003 Dec. 31, 2002 Average Average Interest Interest Balance Rate Balance Rate ($ in millions) Advances due from NS $ 6867 2% $ 68 2% Advances and notes due to NS (~~457~~497) 2% (452) 2% Due to NS - net $ (~~389~~430) $ (384)

Interest is applied to certain advances at the average NS yield on short-term investments and to the notes at specified rates. NS Rail's results for the ~~six~~nine months ended ~~June~~Sept. 30 include interest income of $58 million in 2003 and in 2002 and interest expense of $46 million in 2003 and $58 million in 2002 related to these intercompany accounts. These amounts are included in "Other income (expense) - net."

Noncash Dividend

NS Rail declared and issued to NS a noncash ~~dividend~~dividends oftotaling $~~317~~600 million in June and Sept. 2003, and $333 million in Sept. 2002, which ~~was~~were settled by reduction of NS Rail's interest-bearing advances due from NS. Noncash dividends are excluded from the Consolidated Statements of Cash Flows.

Intercompany Federal Income Tax Accounts

In accordance with 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 $~~963~~979 million at ~~June~~Sept. 30, 2003, and $938 million at Dec. 31, 2002.

3. Derivative Financial Instruments

NS 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. NS Rail does not engage in the trading of derivatives. NS Rail's ~~management has determined that its derivative financial instruments~~ qualify as either fair-value or cash-flow hedges, having values which 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.

management has determined that its derivative financial instruments qualify as either fair-value or cash-flow hedges, having values which highly correlate with the underlying hedged exposures, and has designated such instruments as hedging transactions. Credit risk related to the derivative financial instruments is considered to be minimal and is managed by requiring high credit standards for counterparties and periodic settlements.

Diesel Fuel Hedging

In the second quarter of 2001, NS 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. In order to minimize this risk, NS Rail instituted a continuous hedging strategy for a portion of its estimated future fuel needs by entering 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.

Following is a summary of NS Rail's diesel fuel swaps:

~~Second~~Third quarter 2003 2002 Number of swaps entered into during the ~~second~~third quarter 72 72 Approximate number of gallons hedged (millions) 9495 9897 Approximate average price per gallon of Nymex ~~$0.70~~ ~~$0.67~~ No. 2 heating oil $0.73 $0.69 Remainder of 2003 2004 2005 Percent of estimated future diesel fuel consumption covered as of ~~June~~Sept. 30, 2003 7277% 4352% 613%

Hedges are placed each month by competitive bid among selected counterparties. The goal of this hedging strategy is to average fuel costs over an extended period of time while minimizing the incremental cost of hedging. The program provides that NS Rail will not enter into any fuel hedges with a duration of more than 36 months, and that no more than 80% of NS Rail's average monthly forecasted fuel consumption will be hedged for any month within the 36-month period. Diesel fuel costs represented 7% and 6% of NS Rail's operating expenses for the ~~second~~ third quarters of 2003 and 2002, respectively.

NS Rail's fuel hedging activity had the following effects on diesel fuel expense: for the ~~second~~third quarter, decreases of $811 million and $15 million for 2003 and 2002, respectively, and for the first ~~six~~nine months, adecreases ~~decrease~~ of $3445 million and ~~an increase of~~ $32 million for 2003 and 2002, respectively. The effect of the ~~hedges~~ hedges was to yield average costs per gallon (including federal taxes and transportation) of 8077 cents and 7073 cents for the ~~second~~third quarters of 2003 and 2002, respectively, and 8381 cents and 6970 cents for the first ~~six~~nine months of 2003 and 2002, respectively. Ineffectiveness, or the extent to which changes in the fair values of the heating oil contracts do not offset changes in the fair values of the expected diesel fuel oil transactions, was ~~approximately~~less than $1 million for each quarter.

Interest Rate Hedging

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 $~~203~~194 million, or 3534.05%, and $220 million, or 35.4%, of its fixed rate debt portfolio hedged at ~~June~~Sept. 30, 2003, and Dec. 31, 2002, respectively, using interest rate swaps that qualify for and are designated as fair-value hedge transactions. These swaps have been effective in hedging the changes in fair value of the related debt arising from changes in interest rates, and accordingly, there has been no impact on earnings resulting from ineffectiveness associated with these derivative transactions.

Fair Values

The fair values of NS Rail's diesel fuel derivative instruments at ~~June~~Sept. 30, 2003, and Dec. 31, 2002, 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 non-cash 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 $29 million (pretax) at June 30, 2003, and at Dec. 31, 2002,

~~related~~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 non-cash transactions, and accordingly, are excluded from the Consolidated Statement of Cash Flows. "Accumulated other comprehensive loss," a component of "Stockholders' equity," included an unrealized pretax gain of $22 million and an unrealized pretax loss of $1 million at Sept. 30, 2003, and an unrealized pretax gain of $29 million at Dec. 31, 2002, related to the fair value of derivative fuel hedging transactions that will terminate within twelve months of the respective dates.

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

~~June~~Sept. 30, Dec. 31, 2003 2002 ($ in millions) Interest rate hedges: Gross fair market asset position $ 2419 $ 24 Gross fair market (liability) position -- -- Fuel hedges: Gross fair market asset position 3225 29 Gross fair market (liability) position --(1) -- Total net asset position $ 5643 $ 53

4. Comprehensive Income

NS Rail's total comprehensive income was as follows:

Three months Ended ~~Six~~Nine months Ended ~~June~~Sept. 30, ~~June~~Sept. 30, 2003 2002 2003 2002 ($ in millions) Net income $ ~~108~~127 $ ~~126~~124 $ ~~292~~419 $ ~~211~~ 335 Other comprehensive income (loss) 13(16) (1035) (723) 85 50 Total comprehensive income $ ~~121~~111 $ ~~116~~89 $ ~~285~~396 $ ~~296~~ 385

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

5. Commitments and Contingencies

Lawsuits

NSR and certain subsidiaries are defendants in numerous lawsuits and other claims relating principally to railroad operations. When management concludes that it is probable that a liability has been incurred and the amount of the liability can be reasonably estimated, it is accrued through a charge to expenses. While the ultimate amount of liability incurred in any of these lawsuits and claims is dependent on future developments, in management's opinion the recorded liability is adequate to cover the future payment of such liability and claims. However, the final outcome of any of these lawsuits and claims cannot be predicted with certainty, and unfavorable or unexpected outcomes could result in additional accruals that could be significant to results of operations in a particular year or quarter. Any adjustments to recorded liability will be reflected in expenses in the periods in which such adjustments are known.

Presently, there are claims for ~~"New York Dock" and other~~ income protection benefits where the aggregated range of loss could be from zero to $20 9 million. ~~Several~~ A ~~hundred~~number of claims have been filed with NSR on behalf of employees furloughed after June 1, 1999, for various periods of time, alleging that the furloughs were a result of the Conrail transaction and seeking "New York Dock" income protection benefits. ~~Several labor organizations~~ ~~have initiated arbitration on behalf of individual employees. Two significant cases have been heard. Both resulted in an award favorable to NSR.~~ 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. ~~Management~~A ~~believes that NS Rail will prevail in these matters;~~number ~~however, an unfavorable outcome could result in accruals that could be significant to results of operations in a particular year or quarter.~~

of claims on behalf of individual employees have been submitted to arbitration. Three significant cases have been heard and NSR received favorable decisions in each of them. Management believes that NSR will prevail in these matters; however, an unfavorable outcome could result in accruals that could be significant to results of operations in a particular year or quarter.

Casualty Claims

NS Rail is generally self-insured for casualty claims. NS Rail has insurance for catastrophic events, but that coverage has upper 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 are reflected in operating expenses in the periods in which such adjustments are known.

Environmental Matters

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) inon 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 liability estimates. NS Rail also has established an Environmental Policy Council, composed of senior managers, to oversee and interpret its environmental policy.

NS Rail's balance sheets included liabilities for environmental exposures in the amount of $2425 million at ~~June~~ Sept. 30, 2003, and $29 million at Dec. 31, 2002 (of which $8 million was accounted for as a current liability for each period). At ~~June~~Sept. 30, 2003, the liability represented NS Rail's estimate of the probable cleanup and remediation costs based on available information at ~~110~~113 ~~identified~~ known locations. On that date, 10 sites accounted for $13 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.

At some of the ~~110~~113 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) or similar state authorities under the Comprehensive Environmental Response, Compensation and ~~Liability~~ Liability Act of 1980, or comparable state statutes, which often impose joint and several liability for cleanup costs.

With respect to known environmental sites (whether identified by NS Rail or by the EPA or comparable state authorities), estimates of NS Rail's ultimate potential financial exposure for a given site or in the aggregate for all such sites are necessarily imprecise because of the widely varying costs of currently available cleanup techniques, the likely development of new cleanup technologies, the difficulty of determining in advance the nature and full extent of contamination and each potential participant's share of any estimated loss (and that participant's ability to bear it) and evolving statutory and regulatory standards governing liability.

The risk of incurring environmental liability -- for acts and omissions, past, present and future -- is inherent in the railroad business. Some of the commodities in NS 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 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 ~~Corporation~~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.~~

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 Commitments

At ~~June~~Sept. 30, 2003, NS Rail had outstanding purchase commitments of approximately $1514 million in connection with its 2003 capital program.

Independent Accountants' Review Report

The Stockholders and Board of Directors

Norfolk Southern Railway Company:

We have reviewed the accompanying consolidated balance sheet of Norfolk Southern Railway Company and subsidiaries as of September ~~June~~ 30, 2003, and the related consolidated statements of income for the three-month and ~~six~~nine-month periods ended ~~June~~September 30, 2003 and 2002 and the related consolidated statements of cash flows for the ~~six~~nine-month periods ended September ~~June~~ 30, 2003 and 2002. These consolidated financial statements are the responsibility of the Company's management.

We conducted our reviews in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with auditing standards generally accepted in the United States of America, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.

Based on our reviews, we are not aware of any material modifications that should be made to the consolidated financial statements referred to above for them to be in conformity with accounting principles generally accepted in the United States of America.

As discussed in Note 1 to the consolidated financial statements, the Company adopted Financial Accounting Standards Board Statement No. 143, Accounting for Asset Retirement Obligations, and Financial Accounting Standards Board Interpretation No. 46, Consolidation of Variable Interest Entities, as of January 1, 2003.

We have previously audited, in accordance with auditing standards generally accepted in the United States of America, the consolidated balance sheet of Norfolk Southern Railway Company and subsidiaries as of December 31, 2002, and the related consolidated statements of income, changes in stockholders' equity and cash flows for the year then ended (not presented herein); and in our report dated January 28, 2003, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying consolidated balance sheet as of December 31, 2002, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.

/s/ KPMG LLP

Norfolk, Virginia

~~July~~October 2228, 2003

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.

NORFOLK SOUTHERN RAILWAY COMPANY AND SUBSIDIARIES

(A M ajority-Owned Subsidiary of Norfolk Southern Corporation [NS])

Management's Discussion and Analysis of Financial Condition and Results of Operations

RESULTS OF OPERATIONS

Net Income

~~Second~~Third-quarter net income was $~~108~~127 million in 2003, ~~down~~up $183 million, or 142%, compared with the ~~same~~ same period last ~~year.~~ For the first six months of 2003, net income was $292 million and included $104 million for the cumulative effect on years prior to 2003 of changes in accounting principles as required by the adoption of two accounting pronouncements (see Note 1). Six-month income before accounting changes was $188 million, down $23 million, or 11%, compared with results for the same period of 2002. The declines for both the quarter and first six months were primarily the result of lower income from railway operations.

year, benefiting from higher income from operations. For the first nine months of 2003, net income was $419 million and included $104 million for the cumulative effect on years prior to 2003 of changes in accounting principles as required by the adoption of two accounting pronouncements (see Note 1). Nine-month income before accounting changes was $315 million, down $20 million, or 6%, compared with results for the same period of 2002. The decline was primarily the result of lower income from railway operations offset, in part, by a lower effective tax rate.

Railway Operating Revenues

~~Second~~Third-quarter railway operating revenues were $1.6 billion in 2003, updown $423 million, ~~or 3%,~~ compared with the ~~second~~ third quarter of last year. For the first nine ~~six~~ months, revenues were $34.17 billion, up $~~104~~101 million, or 32%. As shown in the following table, the third ~~increases~~quarter ~~were~~decrease ~~the~~was ~~result~~due ofto ~~higher~~reduced traffic volume ~~and~~offset ~~increased~~in part by higher average revenues, while the increase for the first nine months was the result of increased average revenues and higher traffic volume.

~~Second~~Third quarter First ~~six~~nine months 2003 vs. 2002 2003 vs. 2002 Increase (Decrease) Increase (Decrease) ($ in millions) Traffic volume (carloads) $ 17(13) $ 5542 Revenue per unit/mix 2510 49 59 Total $ (3) 42 $ ~~104~~101

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

~~Second~~Third Quarter Revenue Carloads Revenue per Unit 2003 2002 2003 2002 2003 2002 ($ in millions) (in thousands) ($ per unit) Coal $ ~~389~~372 $ ~~350~~371 ~~420~~407 ~~394~~413 $ ~~927~~915 $ ~~889~~900 General merchandise: Automotive ~~242~~205 ~~259~~231 ~~169~~142 ~~181~~155 1,~~433~~447 1,~~428~~494 Chemicals ~~190~~196 ~~190~~194 ~~105~~108 ~~108~~110 1,~~809~~805 1,~~771~~768 Metals/construction ~~175~~180 ~~189~~181 ~~184~~187 ~~196~~193 ~~954~~965 ~~966~~935 Agr./consumer prod./govt. ~~175~~167 156 ~~137~~138 127 1,~~278~~212 1,~~227~~219 Paper/clay/forest ~~162~~163 ~~154~~155 113 ~~112~~113 1,~~433~~445 1,~~376~~379 General merchandise ~~944~~911 ~~948~~917 ~~708~~688 ~~724~~698 1,~~334~~325 1,~~310~~313 Intermodal ~~256~~270 ~~249~~268 ~~608~~627 ~~599~~625 ~~421~~430 ~~417~~429 Total $ 1,~~589~~553 $ 1,~~547~~556 1,~~736~~722 1,~~717~~736 $ ~~916~~902 $ ~~902~~896

First ~~Six~~Nine Months Revenues Carloads Revenue per Unit 2003 2002 2003 2002 2003 2002 ($ in millions) (in thousands) ($ per unit) Coal $ ~~743~~1,115 $ ~~709~~1,080 ~~816~~1,222 ~~792~~1,204 $ ~~911~~913 $ ~~895~~897 General merchandise: Automotive ~~484~~689 ~~487~~718 ~~335~~477 ~~344~~499 1,~~443~~444 1,~~414~~439 Chemicals ~~382~~578 ~~373~~567 ~~211~~319 ~~209~~319 1,~~816~~812 1,~~784~~779 Metals/construction ~~341~~521 ~~349~~530 ~~345~~532 ~~358~~551 ~~988~~980 ~~977~~962 Agr./consumer prod./govt. ~~343~~510 ~~313~~469 ~~271~~409 ~~255~~382 1,~~262~~245 1,~~231~~227 Paper/clay/forest ~~312~~475 ~~295~~450 ~~220~~333 ~~217~~330 1,~~419~~428 1,~~358~~365 General merchandise 12,~~862~~773 12,~~817~~734 12,~~382~~070 12,~~383~~081 1,~~347~~340 1,314 Intermodal ~~503~~773 ~~478~~746 1,~~186~~814 1,~~148~~774 ~~424~~426 ~~416~~421 Total $ 34,~~108~~661 $ 34,~~004~~560 35,~~384~~106 35,~~323~~059 $ ~~918~~913 $ ~~904~~901

Coal

Coal revenues increased $391 million, ~~or 11%,~~ in the ~~second~~third quarter and $3435 million, or 5 3%, in the first ~~six~~nine months, compared with the same periods last year. Total traffic volume (tonnage) handled ~~increased~~decreased 81% in the quarter, ~~and~~but 4increased 2% for the first ~~six~~nine months, primarily because of higher utility and export coal volume. Shipments of ~~utility~~export coal increased 940% in the quarter asand ~~stockpile replenishments,~~12% ~~increased~~for ~~coal-fired~~the ~~generation~~first ~~and~~nine ~~gains~~months, ~~from~~due ~~new~~to ~~business more~~blend ~~than~~changes, ~~offset~~ the ~~effects~~ impact of ~~reduced~~ocean ~~demand~~rates ~~for~~and ~~electricity. Utility coal volume was up 5% for~~ the ~~first six~~value ~~months,~~of ~~largely due to~~ the ~~second-quarter increase~~dollar. ~~Export~~ Industrial coal volume increased 198% in the quarter, ~~and~~as 6%low ~~for the first six months.~~inventories ~~Both~~at ~~increases~~plants ~~were~~began ~~primarily~~to ~~the~~be ~~result of increased shipments of metallurgical coal~~replenished, ~~which~~but ~~more~~decreased ~~than~~6% ~~offset~~for ~~less~~the ~~steam~~first ~~coal exports~~nine months. Average revenue per carload was up 42% in the ~~second~~ third quarter and ~~2% for the~~ first ~~six~~nine months, reflecting a favorable change in the mix of traffic (~~the~~increased ~~rate~~export ~~of increase in longer haul traffic exceeded that of shorter haul traffic~~volume) ~~and the favorable effects of a fuel surcharge~~.

For the remainder of the year, coal volumes are expected to continue to be higher, although mild weather patterns could dampen this outlook. ~~While~~Utility ~~utility~~ stockpiles ~~are~~ are estimated to be ~~near~~below ~~target~~normal ~~levels,~~and ~~significant~~utilities ~~natural~~should ~~gas price increases~~begin ~~are~~rebuilding ~~expected this winter, which could lead to greater~~stockpiles ~~utilization of coal-fired generation plants. As disclosed~~ in NSanticipation ~~Rail's~~of ~~2002 10-K~~winter, ~~since early 2002, two utility customers have rate reasonableness complaints before the Surface Transportation Board (STB). Until resolved, NS Rail is billing~~ and ~~collecting~~gas ~~amounts~~prices ~~from~~remain ~~these~~relatively ~~customers based on the challenged tariff rates. NS Rail currently expects the STB to issue its decisions in the fourth quarter of 2003~~high, ~~although~~which ~~ultimate~~could ~~resolution~~lead ~~may not occur until a later date. While the accompanying financial statements reflect management's best estimate of the resolution of these matters, due~~ to ~~the~~greater ~~passage~~utilization of ~~time,~~coal-fired ~~their ultimate~~generation ~~outcome could have a significant effect on results of operations in the particular quarter or year resolved~~plants.

As disclosed in NS Rail's 2002 10-K, since early 2002, two utility customers have rate reasonableness complaints before the STB. Until resolved, NS Rail is billing and collecting amounts from these customers based on the challenged tariff rates. NS Rail currently expects the STB to issue its decisions in the fourth quarter of 2003, although ultimate resolution may not occur until a later date. While the accompanying financial statements reflect management's best estimate of the resolution of these matters, due to the passage of time, their ultimate outcome could have a significant effect on results of operations in the particular quarter or year resolved.

General Merchandise

General merchandise revenues decreased $46 million, or 1%, in the ~~second~~third quarter, but ~~increased~~ increased $4539 million, or 21%, in the first ~~six~~nine months, compared with the ~~same~~ same periods last year. The ~~slight~~ decline ~~for~~ for the quarter was the result of lower traffic volume (carloads), which was ~~largely~~partially offset by higher average revenues. For the first ~~six~~nine months, the revenue increase reflected higher average revenues ~~as traffic volume was flat~~. For both periods, the largest volume decreases were in the ~~metals~~automotive and ~~construction~~ ~~and~~metals ~~automotive groups. Metals~~ and construction ~~volume suffered from continued softness in the imported~~ ~~steel market and a weak U~~groups.~~S. dollar.~~ Automotive traffic volume reflected ~~reduced~~plant ~~production~~downtime ~~from~~at Ford~~, General~~ ~~Motors~~ and DaimlerChrysler,. Metals ~~which~~and ~~was~~construction ~~partially~~volume ~~offset~~suffered byfrom ~~increased~~continued softness ~~shipments~~in ~~for~~the ~~Toyota,~~imported ~~BMW~~steel ~~and Honda~~market. Agriculture, consumer products and government volume increased 8% in the quarter and 7% for the first ~~six~~nine months reflecting increased volume for fertilizer, higher military shipments and more shipments of corn into ~~markets~~ markets affected by the 2002 drought. ~~This is expected to continue until late September when the 2003 crop comes to market. In addition, traffic volume benefited from increased volume for fertilizer and more shipments for the military.~~ Paper, clay and forest products volume increased 1%slightly for ~~both~~ the quarter and ~~first~~was ~~six months,~~up ~~supported~~1% byfor ~~improving~~the ~~market~~first ~~conditions~~nine ~~and diversion of truck traffic to rail~~months.

General merchandise average revenue per carload increased 1% in the third quarter and 2% for the first nine months reflecting fuel surcharges, increased rates and longer lengths of haul.

~~General~~While ~~merchandise~~improvements ~~average~~are ~~revenue per carload~~expected ~~increased~~in 2%out inmetals ~~the~~and ~~second~~construction, ~~quarter~~chemicals and 3%agriculture ~~for~~business ~~the~~groups, overall, ~~first~~general ~~six~~merchandise ~~months~~revenues ~~reflecting~~are expected to show weakness during the ~~fuel~~last ~~surcharges,~~quarter ~~increased~~of ~~rates~~the year and ~~longer~~are ~~lengths~~largely dependent upon the performance of ~~haul~~the economy.

General merchandise revenues are expected to continue to show weakness during the last half of the year and are largely dependent upon the performance of the economy.

Intermodal

Intermodal revenues increased $72 million, or 31%, in the ~~second~~third quarter and $2527 million, or 54%, in the first ~~six~~nine months, compared with the same periods last year. Traffic volume (units) ~~increased~~was 1%slightly higher in the ~~second~~third quarter and 3increased 2% for the first ~~six months~~ ~~reflecting~~nine ~~more shipments of containers~~months, which ~~offset~~reflected ~~declines~~higher intrailer ~~premium~~and ~~business (mostly~~Triple ~~postal~~Crown traffic ~~and automotive parts)~~ volume. Container traffic volume benefited from increased international and domestic truckload business as well as the conversion of truck traffic to rail. Intermodal revenue per unit ~~increased~~ 1%was just about even for the quarter, ~~and~~but 2up 1% for the first ~~six~~nine months, as the favorable effects of fuel surcharges and ancillary revenues ~~more than~~ offset an unfavorable change in the mix of traffic.

Intermodal revenues are expected to ~~continue~~show togrowth ~~benefit~~due ~~from~~to ~~new~~favorable ~~business~~year-over-year ~~supported~~comparison byfrom ~~continued~~the ~~improvements~~2002 inWest ~~service~~Coast ~~and~~port ~~conversion~~shutdown, ofmarket ~~truck~~share ~~traffic~~gains toand ~~rail;~~new ~~however~~products, ~~any~~in addition ~~weakening~~to a steady recovery in ~~consumer~~the ~~demand~~economy ~~could~~and ~~dampen~~continued ~~this~~high ~~outlook~~levels of consumer spending.

Railway Operating Expenses

~~Second~~Third-quarter railway operating expenses were $1.3 billion in 2003, updown $7311 million, or 61%, compared with last year. For the first ~~six~~nine months, expenses were $24.70 billion, up $~~146~~135 million, or 64%. ~~For both periods, most expense line items were higher.~~

As discussed in Note 1, effective Jan. 1, 2003, NS Rail's method of accounting for crosstie removal was changed as a result of implementation of SFAS No. 143. This change in accounting lowered depreciation expense and increased compensation and benefits and other expenses as disclosed in Note 1. For the year, it is expected that the depreciation reduction will total approximately $29 million, while the expense increases will total about $20 million.

Compensation and benefits expenses increased $246 million, or 62%, in the ~~second~~third quarter and $4147 million, or 54%, in the first ~~six~~nine months, compared with the same periods last year. Both comparisons reflected lower pension income, higher wage rates, increased medical costs (despite additional employee contributions), expenses attributable to employee turnover (~~more~~primarily an increase in train and engine trainees) ~~and the effect of the change in accounting (see Note 1)~~. ~~These increases more than offset reduced payroll taxes.~~

~~Materials,~~In the third ~~services~~quarter, ~~and~~NS ~~rents~~announced ~~increased~~a ~~$33~~voluntary ~~million,~~separation orprogram ~~7%,~~for innonagreement ~~the~~employees with ~~second~~at ~~quarter~~least ~~and~~two years of service. ~~$39~~ ~~million,~~ The program oroffers ~~4%,~~severance inpay ~~the~~of ~~first~~three ~~six~~weeks' ~~months,~~salary ~~compared~~for ~~with~~each ~~the~~year ~~same~~of service up ~~periods~~to ~~last~~a maximum of 100 weeks, continued health care for one year at no cost and outplacement services for up to 90 days. ~~Both~~ Voluntary ~~increases~~separations ~~were primarily~~will ~~the~~be ~~result~~effective ofon ~~higher~~or ~~expenses~~before ~~for~~Nov. ~~the~~30, ~~management~~2003. The ~~fee~~cost ~~charged~~of bythis ~~NS (see~~program, ~~Note~~approximately 2)$100 million, ~~repairs~~will be reflected in fourth quarter results and ~~maintenance,~~consists ~~haulage~~of a cash and non-cash ~~software~~component. The ~~license~~cash component is estimated at approximately $65 million for severance benefits and the ~~maintenance~~balance ~~fees~~will be a non-cash charge for postretirement medical and pension benefits.

~~Conrail~~Materials, services ~~rents~~ and ~~services~~rents ~~expenses~~decreased ~~increased~~ $3 16 million, or 3%, in the ~~second~~third quarter ~~and~~but increased $123 million, or 2%, in the first ~~six~~ nine months, compared with the same periods last year. ~~The~~Both ~~increases~~periods reflected ~~were~~higher ~~principally~~expenses for the ~~result~~management offee ~~higher~~charged ~~Operating Agreement~~by ~~fees,~~NS ~~which~~(see Note 2); however, for the ~~first~~quarter, ~~six~~this ~~months,~~was ~~were~~more ~~largely~~than offset by lower automotive traffic ~~expenses~~volume in ~~the~~addition ~~Shared~~to ~~Assets~~adjustments ~~Areas~~relating to periodic studies and favorable settlements of recent bills.

~~Depreciation~~Conrail ~~expense~~rents ~~was~~and ~~down~~services ~~slightly~~expenses inincreased ~~both~~$7 million, or 6%, in the ~~second~~third quarter and $8 million, or 2%, in the first nine ~~six~~ months, compared with the same periods last year,. The asincreases were principally the ~~effects~~result of higher ~~property~~Operating ~~additions~~Agreement ~~were~~fees ~~offset~~and byhigher ~~the~~expenses ~~change~~ in ~~accounting~~ ~~related~~the toShared ~~crosstie~~Assets ~~removal costs (see Note 1)~~Areas.

~~Diesel~~Depreciation ~~fuel~~expense ~~expenses~~was ~~increased~~down $9slightly ~~million, or 11%,~~ in both the ~~second~~third quarter and ~~$32 million, or 19%, in~~ the first ~~six~~ nine months, compared with the same periods last year, ~~reflecting~~as ~~higher~~the ~~average prices~~effects ~~and~~of ~~marginally~~property ~~lower~~additions ~~consumption. The~~were ~~hedging~~offset ~~program~~by ~~produced benefits of $8 million and $34 million in~~ the ~~second~~change ~~quarter and first six months of 2003, compared~~in ~~with~~accounting arelated ~~$1 million~~to ~~benefit~~crosstie ~~and~~removal ~~$3 million~~costs of(see ~~cost for the same periods of 2002, respectively~~Note 1).

~~Casualties~~Diesel ~~and~~fuel ~~other~~expenses ~~claims expense~~ increased $11 5 million, or 30 6%, in the ~~second~~third quarter and $2737 million, or 3815%, in the first ~~six~~ nine months, compared with the same periods last year, reflecting higher average prices. The ~~increases~~hedging ~~were~~program ~~largely the result of~~produced ~~continuing~~

~~adverse~~benefits ~~personal~~of ~~injury~~$11 million ~~claims development~~ and ~~higher~~$45 million ~~insurance~~in ~~premiums,~~the ~~which~~third ~~was~~quarter ~~mitigated~~and byfirst annine ~~insurance~~months ~~recovery~~of ~~related~~2003, torespectively, acompared ~~previous~~with ~~settlement.~~ a $5 ~~The~~million ~~increase for~~and ~~the~~a ~~first~~$2 million ~~six~~benefit ~~months~~for the ~~also~~same ~~reflected~~periods ~~damage costs incurred because~~ of ~~several~~ ~~derailments early in the year~~2002.

~~Other~~Casualties and other claims expense ~~decreased~~ decreased $5 13 million, or 623%, in the ~~second~~third quarter, but increased $814 million, or 611%, in the first ~~six~~nine months, compared with the same periods of last year. The ~~decline~~decrease ~~resulted~~for ~~from~~the quarter areflected ~~favorable~~lower ~~property~~unfavorable ~~tax~~periodic ~~settlement,~~study ~~while~~adjustments ~~the~~as ~~increase~~compared ~~reflected~~with the ~~absence~~prior ofyear. The aincrease ~~favorable~~for ~~bad~~the ~~debt~~first ~~settlement~~nine (months was largely the ~~effects~~result of ~~this~~continuing ~~year's~~adverse ~~property~~personal ~~tax~~injury claims development ~~settlement~~and ~~was~~higher ~~comparable~~insurance premiums, mitigated by an insurance recovery related to a previous ~~similar~~settlement. The ~~item~~increase in for the first ~~quarter~~nine months also reflected damage costs incurred because of ~~2002)~~several derailments early in the year.

Other expense increased $1 million, or 1%, in the third quarter and $9 million, or 4%, in the first nine months, compared with the same periods of last year. Both periods reflected the absence of prior year settlements - sales and use tax for the quarter and a favorable bad debt settlement for the first nine months.

FINANCIAL CONDITION AND LIQUIDITY

Cash provided by operating activities, NS Rail's principal source of liquidity, was $~~507~~900 million in the first ~~six~~nine months of 2003, compared with $~~492~~870 million in the first ~~six~~nine months of 2002. ~~The increase was primarily the result of favorable changes in working capital.~~

A significant portion of payments made to PRR (which are included in "Conrail rents and services" and, therefore, are a use of cash in "Cash provided by operating activities") 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~~ borrowings amounted to $~~105~~174 million in the first ~~six~~nine months of 2003 and $98 162 million for the same period of 2002.

NS Rail's working capital deficit was $1.12 billion at ~~June~~Sept. 30, 2003, and $1.1 billion at Dec. 31, 2002.

NS Rail looks to NS to provide needed funding. NS currently has the capability to increase the amount of accounts receivable being sold under the revolving sale program. Over the last twelve months, the amount of receivables NS could sell under this program ranged from $358 million to $~~422~~433 million, and the amount of receivables NS sold ranged from zero to $~~200~~120 million. Moreover, NS has a $1 billion credit facility, which expires in 2006, that it can borrow under or use to support commercial paper debt; however, reductions in its credit rating could limit NS' ability to access the commercial paper markets.

As the major NS subsidiary, NS Rail provides funding to service NS' debt. NS' debt at ~~June~~Sept. 30, 2003, totaled $6.4 2 billion. Of this debt, $1.8 billion is due between 2003 and 2007.

NS Rail expects to generate sufficient cash flow from operations to meet its ongoing obligations, as well as to advance amounts to NS to service its debt.

Cash used for investing activities decreased in the first ~~six~~nine months of 2003, compared with the first ~~six~~nine months of 2002, principally because of a decline in capital expenditures. The decrease reflected the absence of locomotive purchases in 2003~~; however, NS Rail expects to acquire locomotives later in the year~~.

Cash used for financing activities was $~~264~~466 million in the first ~~six~~nine months of 2003, ~~compared~~ compared with $~~230~~413 million in the same period of 2002, reflecting the absence in 2003 of proceeds from equipment financing. Advances to NS typically account for most of the cash used for financing activities and reflect NS' requirements.

OTHER MATTERS

Labor Arbitration

~~Several~~A ~~hundred~~number of claims have been filed with NSR on behalf of employees furloughed ~~after~~ after June 1, 1999, for various periods of time, alleging that the ~~furloughs~~ 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. Two significant cases have been heard. Both resulted in an award favorable to NSR. 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 on known facts, including the availability of legal defenses, management believes that NS Rail will prevail in these disputes and that any potential liability for the involved claims should not have a material adverse effect on NS Rail's financial position, results of operations or liquidity.

~~Depending~~income onprotection ~~the~~benefits. Other ~~outcome~~disputes ofare pending ~~these~~wherein ~~arbitrations~~similar ~~and~~benefits ~~claims~~are sought under labor agreement provisions that, ~~other~~in ~~claims~~management's ~~may~~judgment, bedo ~~filed~~not ~~or progressed~~apply to ~~arbitration~~the involved circumstances. ~~Should~~A ~~all~~number of claims on ~~such~~behalf ~~claimants~~of ~~prevail,~~individual ~~there~~employees ~~could~~have bebeen asubmitted to arbitration. Three significant ~~effect~~cases onhave ~~results~~been ofheard and ~~operations~~NSR received favorable decisions in each of them. In addition, a ~~particular~~number ~~quarter~~of ~~(see~~other ~~Note~~claims 5)have been settled or withdrawn.

Based on known facts, including the availability of legal defenses, management believes NS Rail will prevail in these disputes and that any potential liability for the involved claims should not have material adverse effect on NS Rail's financial position, results of operations or liquidity. Depending on the outcome of these arbitrations and claims, other claims may be filed or progressed to arbitration. Should all such claimants prevail, there could be a significant effect on results of operations in a particular quarter (see Note 5).

Labor Agreements

Approximately 24,000 of NS Rail's employees are covered by collective bargaining agreements with 1514 different labor unions. These agreements remain in effect until changed pursuant to the Railway Labor Act. Moratorium provisions in these agreements permitted NS Rail and the unions to propose such changes in late 1999; negotiations at the national level commenced shortly thereafter. Agreements have been reached with the Brotherhood of Maintenance of Way Employes (BMWE), which represents about 4,200 NS Rail employees; the Brotherhood of Locomotive Engineers (BLE), which represents about 4,500 NS Rail employees; the United Transportation Union (UTU), which represents about 6,700 NS Rail employees; the International Brotherhood of Boilermakers and Blacksmiths (IBB), which represents about 100 NS Rail employees; the Transportation Communications International Union (TCU), which represents about 4,400 NS Rail employees; ~~and~~ the ~~American~~International ~~Train~~Brotherhood ~~Dispatchers~~of ~~Department~~Electrical Workers (~~ATDD~~IBEW), which represents about ~~400~~900 NS Rail employees.; the AAmerican ~~tentative~~Train ~~agreement (subject~~Dispatchers toDepartment ~~ratification~~(ATDD), ~~has~~which ~~also~~represents ~~been~~about ~~reached~~400 ~~with~~NS Rail employees; and the Brotherhood of Railway Signalmen (BRS), which represents about 1,100 NS Rail employees. The agreement previously reached with the BLE was through 2004; NS Rail recently reached a further contract extension with the BLE through 2009 (subject to ratification). Health and welfare issues ~~were~~have been resolved bywith the BMWE, ~~and~~ TCU ~~agreements~~ (and ~~by the tentative~~ BRS ~~agreement)~~. ~~The~~Tentative ~~UTU~~agreements ~~agreement~~(subject ~~provides that, subsequent~~ to ratification) ahave ~~further~~been ~~period of~~reached ~~negotiation~~with BLE, ~~health~~UTU and ~~welfare~~IBEW ~~issues~~that ~~may~~would beresolve health ~~submitted~~and towelfare ~~arbitration~~issues. Health and welfare issues with the other organizations have not yet been resolved.

Market Risks and Hedging Activities

NS 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.

In 2001, 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.

Diesel fuel costs represented 7% of NS Rail's operating expenses for the ~~second~~third quarter of 2003. The program provides that NS Rail will not enter into any fuel hedges with a duration of more than 36 months, and that no more than 80% of NS Rail's average monthly fuel consumption will be hedged for any month within any 36-month period.

As of ~~June~~Sept. 30, 2003, through swap transactions, NS Rail has hedged approximately 7277% of expected diesel fuel requirements for the remainder of 2003, and 4352% and 613% of expected requirements for 2004 and 2005, respectively. The effect of the hedges is to yield an average cost of 7679 cents per hedged gallon for the rest of 2003, including federal taxes and transportation. A 10% decrease in diesel fuel prices would reduce NS Rail's asset related to the swaps by approximately $3031 million as of ~~June~~Sept. 30, 2003.

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 ~~June~~Sept. 30, 2003, NS Rail's debt subject to interest rate exposure totaled $~~557~~546 million. A 1 percentage point increase in interest rates would increase NS Rail's total annual interest expense related to all its variable debt by ~~approximately $6 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 of NS Rail's capital leases, which carry an average fixed rate of 7%, were effectively converted to variable rate obligations using interest rate swap agreements. On June 30, 2003, the average pay rate under these agreements was 2%, and the average receive rate was 7%. The effect of the swaps was to reduce interest expense by $2 million in both the second quarters of 2003 and 2002 and by $4 million and $5 million for the first six months of 2003 and 2002, respectively. A portion of the lease obligations is payable in Japanese yen. NS Rail

~~eliminated~~approximately ~~the~~$5 ~~associated exchange rate risk at the inception of each lease with a yen deposit sufficient to fund the yen-denominated obligation~~million. ~~Most~~Management ofconsiders ~~these deposits are held by foreign banks, primarily~~it ~~Japanese. As~~unlikely athat ~~result,~~interest NSrate ~~Rail~~fluctuations ~~is exposed~~applicable to ~~financial~~these ~~market~~instruments ~~risk relative to Japan.~~will ~~Counterparties~~result toin ~~the~~a ~~interest~~material ~~rate~~adverse ~~swaps~~effect ~~and~~on ~~Japanese~~NS ~~banks holding~~Rail's ~~yen deposits are major~~ financial ~~institutions~~position, ~~believed~~results ~~by management to~~of beoperations ~~creditworthy~~or liquidity.

Some of NS Rail's capital leases, which carry an average fixed rate of 7%, were effectively converted to variable rate obligations using interest rate swap agreements. On Sept. 30, 2003, the average pay rate under these agreements was 2%, and the average receive rate was 7%. The effect of the swaps was to reduce interest expense by $3 million and $2 million for the third quarters of 2003 and 2002, respectively, and by $7 million for both the first nine months of 2003 and 2002, respectively. A portion of the lease obligations is payable in Japanese yen. NS Rail eliminated the associated exchange rate risk at the inception of each lease with a yen deposit sufficient to fund the yen-denominated obligation. Most of these deposits are held by foreign banks, primarily Japanese. As a result, NS Rail is exposed to financial market risk relative to Japan. Counterparties to the interest rate swaps and Japanese banks holding yen deposits are major financial institutions believed by management to be creditworthy.

Environmental Matters

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) in 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.

Operating expenses for environmental matters totaled approximately $26 million for the first ~~six~~nine months of 2003 and $512 million for the same period of 2002. Capital expenditures totaled approximately $23 million and $35 million for the first ~~six~~nine months of 2003 and 2002, respectively.

NS Rail's balance sheets included liabilities for environmental exposures in the amount of $2425 million at ~~June~~ Sept. 30, 2003, and $29 million at Dec. 31, 2002 (of which $8 million was accounted for as a current liability in each period). At ~~June~~Sept. 30, 2003, the liability represented NS Rail's estimate of the probable cleanup and remediation costs based on available information at ~~110~~113 known locations. On that date, 10 sites accounted for $13 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.

At some of the ~~110~~113 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) or similar state authorities under the Comprehensive Environmental Response, Compensation and Liability Act of 1980, or comparable state statutes, which often impose joint and several liability for cleanup costs.

With respect to known environmental sites (whether identified by NS or by the EPA or comparable state authorities), estimates of NS Rail's ultimate potential financial exposure for a given site or in the aggregate for all such sites are unavoidably imprecise because of the widely varying costs of currently available cleanup techniques, the likely development of new cleanup technologies, the difficulty of determining in advance the nature and full extent of contamination and each potential participant's share of any estimated loss (and that participant's ability to bear it), and evolving statutory and regulatory standards governing liability.

The risk of incurring environmental liability -- for acts and omissions, past, present and future -- is inherent in the railroad business. Some of the commodities in NS 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 that are latent or undisclosed may exist on these properties, there can be no assurance that NS 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 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 a particular year or quarter.

However, based on an assessment of known facts and circumstances, 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.

FORWARD-LOOKING STATEMENTS

This Management's Discussion and Analysis 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, therefore, can be influenced by, a number of external variables over 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 materials, in particular diesel fuel; labor difficulties, including strikes and work stoppages; legislative and regulatory developments; changes in securities and capital markets; 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. The Company undertakes no obligation to update or revise forward-looking statements.

Item 3. Quantitative and Qualitative Disclosures About Market Risks.

The information required by this item is included in Part I, Item 2, "Management's Discussion and Analysis of Financial Conditions and Results of Operations" on page 17 under the heading "Market Risks and Hedging Activities."

Item 4. 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 the end of the period covered by this report. Based on such evaluation, such officers have concluded that, as of the end of the period covered by this report, 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.

During the most recent fiscal quarter, there has not been any change in NS Rail's internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, NS Rail's internal control over financial reporting.

19 ~~PART II. OTHER INFORMATION~~

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

Norfolk Southern Railway Company, Conrail and PRR have entered into a consent order and agreement with the Commonwealth of Pennsylvania Department of Environmental Protection agreeing to pay a lump-sum civil penalty of $550,000 in settlement of the state's claims for alleged environmental violations at Conway Yard, located in western Pennsylvania. In addition, the parties agreed to stipulated civil penalties of $1,000 per month for the first two years and $1,500 per month thereafter until certain conditions at the Yard are remediated.

Item 6. Exhibits and Reports on Form 8-K

(a) Exhibits:

31 Certifications of the CEO and CFO pursuant to Exchange Act Rule 13a-14(a) or Rule 15d-14(a).

32 Certifications of the CEO and CFO required by Rule 13a-14(b) or Rule 15d-14(b) and Section 1350 of Chapter 63 of Title 18 of the U. S. Code.

(b) Reports on Form 8-K:

None.

20 SIGNATURES

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

		NORFOLK SOUTHERN RAILWAY COMPANY
		Registrant
Date:	~~July~~Oct. 30, 2003	/s/ Reginald J. Chaney
		Reginald J. Chaney
		Corporate Secretary (Signature)
Date:	~~July~~Oct. 30, 2003	/s/ John P. Rathbone
		John P. Rathbone
		Vice President and Controller
		(Principal Accounting Officer) (Signature)

21 Exhibit Index

Exhibit Index

Electronic
Submission
Exhibit
Number	Description

31	Certifications of the CEO and CFO pursuant to Exchange Act Rule 13a-14(a)
	or Rule 15d-14(a).

32	Certifications of the CEO and CFO required by Rule 13a-14(b) or Rule 15d-14(b)
	and Section 1350 of Chapter 63 of Title 18 of the U. S. Code.

Virginia

Norfolk, Virginia

No Change

General

6

Operations Over Conrail's Lines

Sales of Accounts Receivable

Intercompany Federal Income Tax Accounts

Net Income

Railway Operating Revenues

General Merchandise

Intermodal

Railway Operating Expenses

Electronic

Filing Compare · NORFOLK SOUTHERN RAILWAY CO /VA/