| 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 **SEPT. 30, 2004** |
|          |   |
| ( )      | 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 ofSept. 30, 2004 |
| Common  Stock (par value $1.00)                                                                                                                                           | 16,668,997 |
|                                                                                                                                                                      |   |
| The registrant meets the conditions set forth  in General Instruction H(1)(a) and (b) of Form 10-Q and is therefore filing  this form with the reduced disclosure format. |
|                                                                                                                                                                           |  |  |  |

TABLEOF CONTENTS

 
|           |                    |                                                     | Page   |
|----------------|-------------------------|----------------------------------------------------------|--------|
|           |                    |                                                     |   |
| Part I.        | Financial  information: |
|           |                    |                                                     |   |
|           | Item  1.                | Financial  statements:                                   |   |
|           |                    |                                                     |   |
|           |                    | Consolidated  Statements of Income                       | 3      |
|           |                    | Three  and Nine Months EndedSept.   30, 2004 and 2003    |
|           |                    |                                                     |   |
|           |                    | Consolidated  Balance Sheets                             | 4      |
|           |                    | Sept. 30, 2004  andDec. 31, 2003                         |   |
|           |                    |                                                     |   |
|           |                    | Consolidated  Statements of Cash Flows                   | 5      |
|           |                    | Nine  Months EndedSept.   30, 2004 and 2003              |
|           |                    |                                                     |   |
|           |                    | Notes  to Consolidated Financial Statements              | 6      |
|           |                    |                                                     |   |
|           |                    | Report  of Independent Registered Public Accounting Firm | 14     |
|           |                    |                                                     |   |
|           | Item  2.                | Management's  Narrative Analysis of the                  | 15     |
|           |                    | Results  of Operations                                   |
|           |                    |                                                     |   |
|           | Item  3.                | Quantitative  and Qualitative Disclosures                | 21     |
|           |                    | About  Market Risks                                      |   |
|           |                    |                                                     |   |
|           | Item  4.                | Controls  and Procedures                                 | 21     |
|           |                    |                                                     |   |
| Part II.       | Other  Information:     |                                                     |
|           |                    |                                                     |   |
|           | Item  6.                | Exhibits  and Reports on Form 8-K                        | 22     |
|           |                    |                                                     |   |
| Signatures     |                    | 24                                                       |
|           |                    |                                                     |   |
| Exhibit  Index |                    | 25                                                       |
|                |                         |                                                          |        |  |  |

 

**PART I. FINANCIAL INFORMATION**

** **

**Item 1. Financial Statements.**

 

** **

**NORFOLK****SOUTHERN RAILWAY COMPANY AND SUBSIDIARIES**

**(A Wholly Owned Subsidiary of****Norfolk****Southern Corporation)**

**Consolidated Statements of Income**

**($ in millions)**

**(Unaudited)**

 

                                                                                                                   
|                                                                                        | **Three Months  Ended** | **Nine Months  Ended** |
|---------------------------------------------------------------------------------------------|-------------------------|------------------------|
|                                                                                        | **Sept. 30,**           | **Sept. 30,**          |
|                                                                                        | **2004**                | **2003**               | **2004** | **2003** |
|                                                                                        |                    |                   |   |   |   |   |   |   |
| ***Railway  operating revenues:***                                                          |                    |                   |   |   |   |   |   |   |
|    Coal                                                                      | $                       | 447               | $ | 372  | $ | 1,269  | $ | 1,115  |
|    General  merchandise                                                      |                    | 1,006             |   | 911  |   | 2,998  |   | 2,773  |
|    Intermodal                                                                |                    | 370               |   | 270  |   | 961  |   | 773  |
|                                                                                        |                    |                   |   |   |   |   |   |   |
|       Total  railway operating revenues                       |                    | 1,823             |   | 1,553  |   | 5,228  |   | 4,661  |
|                                                                                        |                    |                   |   |   |   |   |   |   |
| ***Railway  operating expenses:***                                                          |                    |                   |   |   |   |   |   |   |
|    Compensation  and benefits                                                |                    | 431               |   | 396  |   | 1,271  |   | 1,197  |
|    Materials,  services and rents                                            |                    | 536               |   | 449  |   | 1,480  |   | 1,395  |
|    Conrail  rents and services (Note 1)                                      |                    | 89                |   | 119  |   | 325  |   |  356  |
|    Depreciation  (Note 1)                                                    |                    | 147               |   | 124  |   | 400  |   | 370  |
|    Diesel  fuel                                                              |                    | 98                |   | 86  |   | 311  |   | 283  |
|    Casualties  and other claims                                              |                    | 32                |   | 44  |   | 110  |   | 143  |
|    Other                                                                     |                    | 75                |   | 68  |   | 238  |   | 215  |
|                                                                                        |                    |                   |   |   |   |   |   |   |
|       Total  railway operating expenses                       |                    | 1,408             |   | 1,286  |   | 4,135  |   | 3,959  |
|                                                                                        |                    |                   |   |   |   |   |   |   |
|          Income  from railway operations       |                    | 415               |   | 267  |   | 1,093  |   | 702  |
|                                                                                        |                    |                   |   |   |   |   |   |   |
| Other  income (expense) - net                                                          |                    | (85)                   |   | (60) |   | (244) |   | (176) |
| Interest  expense on debt                                                                   |                    | (9)                    |   | (6) |   | (23) |   | (18) |
|                                                                                        |                    |                   |   |   |   |   |   |   |
|          Income  before income taxes and       |                    |                   |   |   |   |   |   |   |
|             accounting  changes |                    | 321               |   | 201  |   | 826  |   | 508  |
|                                                                                        |                    |                   |   |   |   |   |   |   |
| Provision  for income taxes                                                                 |                    | 106               |   | 74  |   | 288  |   | 193  |
|                                                                                        |                    |                   |   |   |   |   |   |   |
|          Income  before accounting changes     |                    | 215               |   | 127  |   | 538  |   | 315  |
|                                                                                        |                    |                   |   |   |   |   |   |   |
| Cumulative  effect of changes in accounting                                                 |                    |                   |   |   |   |   |   |   |
|    principles,  net of taxes (Note 4)                                        |                    | --                |   | --  |   | --  |   | 104  |
|                                                                                        |                    |                   |   |   |   |   |   |   |
|       Net  Income                                             | $                       | 215               | $ | 127  | $ | 538  | $ | 419  |
|                                                                                        |                    |                   |   |   |   |   |   |   |
|                                                                                        |                    |                   |   |   |   |   |   |   |
| *See  accompanying notes to consolidated financial statements.*                             |

 

 

**NORFOLK****SOUTHERN RAILWAY COMPANY AND SUBSIDIARIES**

**(A Wholly Owned Subsidiary of****Norfolk****Southern Corporation)**

**Consolidated Balance Sheets**

**($ in millions)**

**(Unaudited)**

** **

 

|                                                                            | **Sept. 30,** | **Dec. 31,** |
|---------------------------------------------------------------------------------|---------------|--------------|
|                                                                            | **2004**      | **2003**     |
| ***Assets***                                                                    |          |         |   |   |
| Current assets:                                                                 |          |         |   |   |
|    Cash and cash equivalents                                     | $             | 453          | $ | 257  |
|    Short-term investments                                        |          | 55           |   | --  |
|    Accounts receivable, net  (Note 1)                            |          | 173          |   | 121  |
|    Materials and supplies                                        |          | 102          |   | 91  |
|    Deferred income taxes                                         |          | 174          |   | 175  |
|    Other current assets                                          |          | 177          |   | 159  |
|       Total  current assets                       |          | 1,134        |   | 803  |
|                                                                            |          |         |   |   |
| Investments (Note 1)                                                            |          | 1,209        |   | 779  |
| Properties less accumulated depreciation (Note  1)                              |          | 20,038       |   | 11,346  |
| Other assets                                                                    |          | 716          |   | 684  |
| **      **Total  assets                           | $             | 23,097       | $ | 13,612  |
|                                                                            |          |         |   |   |
| ***Liabilities and Stockholder's Equity***                                      |          |         |   |   |
| Current liabilities:                                                            |          |         |   |   |
|    Accounts payable                                              | $             | 966          | $ | 890  |
|    Income and other taxes                                        |          | 254          |   | 168  |
|    Due to NS - net (Note 1)                                      |          | 960          |   | 781  |
|    Due to Conrail                                                |          | 68           |   | 81  |
|    Other current liabilities                                     |          | 136          |   | 112  |
|    Current maturities of  long-term debt                         |          | 129          |   | 102  |
|       Total  current liabilities                  |          | 2,513        |   | 2,134  |
|                                                                            |          |         |   |   |
| Long-term debt (Note 1)                                                         |          | 1,450        |   | 813  |
| Other liabilities                                                               |          | 1,071        |   | 1,033  |
| Due to Conrail (Note 1)                                                         |          | --           |   | 716  |
| Deferred income taxes (Note 1)                                                  |          | 7,678        |   | 4,372  |
|       Total  liabilities                          |          | 12,712       |   | 9,068  |
|                                                                            |          |         |   |   |
| Stockholder's equity:                                                           |          |         |   |   |
|    Common stock                                                  |          | 167          |   | 167  |
|    Additional paid-in capital  (Note 1)                          |          | 6,338        |   | 721  |
|    Accumulated other  comprehensive income (Note 5)              |          | 459          |   | 323  |
|    Retained income                                               |          | 3,421        |   | 3,333  |
|       Total  stockholder's equity                 |          | 10,385       |   | 4,544  |
|                                                                            |          |         |   |   |
|       Total  liabilities and stockholder's equity | $             | 23,097       | $ | 13,612  |
|                                                                            |          |         |   |   |
| *See accompanying notes to consolidated  financial statements.*                 |
|                                                                                 |               |              |  |  |  |

** **

** **

 

** **

**NORFOLK****SOUTHERN RAILWAY COMPANY AND SUBSIDIARIES**

**(A Wholly Owned Subsidiary of****Norfolk****Southern Corporation)**

**Consolidated Statements of Cash Flows**

**($ in millions)**

**(Unaudited)**

** **

 

|                                                                                                                                            | Nine Months  Ended |
|-------------------------------------------------------------------------------------------------------------------------------------------------|--------------------|
|                                                                                                                                            | **Sept.  30,**     |
|                                                                                                                                            | **2004**           | **2003** |
| ***Cash  flows from operating activities***                                                                                                     |               |   |   |   |
|    Net  income                                                                                                                   | $                  | 538  | $ | 419   |
|    Reconciliation  of net income to net cash                                                                                     |               |   |   |   |
|       provided  by operating activities:                                                                          |               |   |   |   |
|          Net  cumulative effect of changes in accounting principles                                |               | --  |   | (104) |
|          Depreciation                                                                              |               | 401  |   |  371  |
|          Deferred  income taxes                                                                    |               | 116  |   | 115  |
|          Gains  and losses on properties and investments                                           |               | (8) |   | (9) |
|          Changes  in assets and liabilities affecting operations:                                  |               |   |   |   |
|             Accounts  receivable                                                    |               | (68) |   | (6) |
|             Materials  and supplies                                                 |               | (10) |   | 4  |
|             Other  current assets                                                   |               | 68  |   | 77  |
|             Income  tax liabilities                                                 |               | 116  |   |  68  |
|             Other  short-term liabilities                                           |               | 57  |   | (9) |
|             Other  - net                                                            |               | (22) |   | (26) |
|                Net  cash provided by operating activities            |               | 1,188  |   |  900  |
|                                                                                                                                            |               |   |   |   |
| ***Cash  flows from investing activities***                                                                                                     |               |   |   |   |
|    Property  additions                                                                                                           |               | (640) |   | (392) |
|    Property  sales and other transactions                                                                                        |               | 25  |   |  34  |
|    Investments,  including short-term                                                                                            |               | (132) |   | (80) |
|    Investment  sales and other transactions                                                                                      |               | 1  |   |  3  |
|                Net  cash used for investing activities               |               | (746) |   | (435) |
|                                                                                                                                            |               |   |   |   |
| ***Cash  flows from financing activities***                                                                                                     |               |   |   |   |
|    Dividends                                                                                                                     |               | --  |   | (2) |
|    Other  paid in capital                                                                                                        |               | 12  |   | --  |
|    Advances  to NS                                                                                                               |               | (296) |   | (586) |
|    Advances  and repayments from NS                                                                                              |               | 25  |   |  31  |
|    Proceeds  from borrowings                                                                                                     |               | 202  |   |  218  |
|    Debt  repayments                                                                                                              |               | (189) |   | (127) |
|                Net  cash used for financing activities               |               | (246) |   | (466) |
|                                                                                                                                            |               |   |   |   |
|                Net  increase (decrease) in cash and cash equivalents |               | 196  |   | (1) |
|                                                                                                                                            |               |   |   |   |
| ***Cash  and cash equivalents***                                                                                                                |               |   |   |   |
|    At  beginning of year                                                                                                         |               | 257  |   |  130  |
|                                                                                                                                            |               |   |   |   |
|    At  end of period                                                                                                             | $                  | 453  | $ | 129  |
| *** ***                                                                                                                                    |               |   |
| ***Supplemental  disclosures of cash flow information***                                                                                        |               |   |
|    Cash  paid during the period for:                                                                                             |               |   |   |   |
|       Interest  (net of amounts capitalized)                                                                      | $                  | 21  | $ | 29   |
|       Income  taxes                                                                                               | $                  | 59  | $ | 9   |
|                                                                                                                                            |               |   |   |   |
| *See  accompanying notes to consolidated financial statements.*                                                                                 |

 

**NORFOLK****SOUTHERN RAILWAY COMPANY AND SUBSIDIARIES**

**(A Wholly Owned Subsidiary of****Norfolk****Southern Corporation)**

**Notesto Consolidated Financial Statements**

**(Unaudited)**

 

 

In the opinion ofmanagement, the accompanying unaudited interim financial statements contain alladjustments (consisting of normal recurring accruals) necessary to present theCompany's financial position as of Sept. 30, 2004, its results of operationsfor the three and nine months ended Sept. 30, 2004 and 2003, and its cash flowsfor the nine months ended Sept. 30, 2004 and 2003, in conformity with U.S.generally accepted accounting principles.

 

Althoughmanagement believes that the disclosures presented are adequate to make theinformation not misleading, these Consolidated Financial Statements should beread in conjunction with: (a) thefinancial statements and notes included in the Company's latest Annual Reporton Form 10-K and (b) any Current Reports on Form 8-K.

 

**1. Related Parties**

 

## General

 

NorfolkSouthern Corporation (NS) is the parent holding company of Norfolk SouthernRailway Company (NSR, collectively with its subsidiaries, NS Rail). Rail operations are coordinated at theholding company level by the NS Vice Chairman and Chief Operating Officer. NS charges NS Rail a fee for managementservices it performs for NS Rail. Thisfee amounted to $154 million and $140 million in the third quarters of 2004 and2003, respectively (including a $10 million and $8 million mark-up in eachquarter, respectively) and $426 million and $420 million for the first ninemonths of 2004 and 2003, respectively (including a $27 million and $26 millionmark-up in each period, respectively). In addition, NS charges NS Rail a revenue-based licensing fee foruse of certain intangible assets owned by NS. This fee amounted to $27 million and $23 million in the third quartersof 2004 and 2003, respectively, and $78 million and $69 million for the first ninemonths of 2004 and 2003, respectively.

 

NS Railowns 20,938,125 shares of NS common stock.

 

**Transactions with Conrail**

 

**Overview --** Through a limitedliability company, NS and CSX Corporation (CSX) jointly own Conrail Inc.(Conrail), whose primary subsidiary is Consolidated Rail Corporation(CRC). NS has a 58% economic and 50%voting interest in the jointly owned entity, and CSX has the remainder of theeconomic and voting interests. CRC ownsand operates certain properties (the Shared Assets Areas) for the joint andexclusive benefit of NS Rail and CSX Transportation Inc. (CSXT). The costs of operating the Shared AssetsAreas are borne by NS Rail and CSXT based on usage. In addition, NS Rail and CSXT pay CRC a feefor access to the Shared Assets Areas.

 

NS Rail provides certain general and administrativesupport functions to Conrail, the fees for which are billed in accordance withseveral service-provider arrangements and amount to approximately $7 millionannually.

 

NS Rail's Consolidated Balance Sheet as ofSept. 30, 2004, includes $21 million of liabilities related to theConrail transaction, principally for contractual obligations to Conrailemployees imposed by the Surface Transportation Board (STB) when it approvedthe transaction. ThroughSept. 30, 2004, NS Rail had paid $164 million of these costs.

 

**Conrail Reorganization --**OnAug. 27, 2004,NS, CSX and Conrail completed a reorganization of Conrail (ConrailReorganization), which established direct ownership and control by NSR and CSXTof two former CRC subsidiaries, Pennsylvania Lines LLC (PRR) and New YorkCentral Lines LLC (NYC), respectively. Prior to the Conrail Reorganization, NSR operated the routes and assetsof PRR and CSXT operated the routes and assets of NYC, each in accordance withoperating and lease agreements. Pursuantto the Conrail Reorganization, the operating and lease agreements wereterminated and PRR and NYC were merged into NSR and CSXT, respectively. The reorganization did not involve the SharedAssets Areas and did not affect the competitive rail service provided in theShared Assets Areas. Conrail continuesto own, manage and operate the Shared Assets Areas as previously approved bythe STB. In connection with the ConrailReorganization, NS, CSX and Conrail obtained a ruling from the Internal RevenueService (IRS) regarding certain tax matters, and the STB approved thetransaction.

 

As a part of theConrail Reorganization, Conrail restructured its existing unsecured and securedpublic indebtedness, with the consent of Conrail's debtholders. Prior to the restructuring, there were twoseries of unsecured public debentures with an outstanding principal amount ofapproximately $800 million and 13 series of secured debt with an outstandingprincipal amount of approximately $300 million. Guaranteed debt securities were offered in anapproximate 58%/42% ratio in exchange for Conrail's unsecured debentures. Of the $800 million unsecured publicdebentures, $779 million were tendered and accepted for exchange. Upon completion of the transaction asdescribed in various SEC filings, the new debt securities became directunsecured obligations of NSR and CSXT, respectively, and rank equally with allexisting and future senior unsecured debt obligations, if any, of NSR andCSXT. Except for interest payments madein relation to the consummation of the exchange, these new debt securities havematurity dates, interest rates and principal and interest payment datesidentical to those of the respective series of Conrail's unsecureddebentures. In addition, these new debtsecurities have covenants substantially similar to those of the publicly tradeddebt securities of NS and CSX, respectively.

 

Conrail's secured debtand lease obligations remain obligations of Conrail and are supported by leasesand subleases which are the direct lease and sublease obligations of NSR orCSXT.

 

OnAug. 27, 2004, NS made a contribution ofcapital of the assets and liabilities of PRR to NSR. The assets and liabilities of PRR arereflected in their respective line items in NS Rail's Consolidated BalanceSheet and amounts due to PRR were extinguished. The following summarizes the effect of the transaction on NS Rail'sConsolidated Balance Sheet ($ in millions):

 

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

 

The amounts shown above are at NS' basis and reflectthe fair value of such assets. Properties have been valued based on information received from anindependent valuation consultant, and NS will receive a final detailedvaluation report in the fourth quarter. Debt has been recorded at fair value based on interest rates at the timeof the Conrail Reorganization.

 

On the Consolidated Income Statement, "Conrail rentsand services" is reduced as a result of the transaction. After the Conrail Reorganization,"Conrail rents and services" reflects only the expenses associated with theShared Assets Areas, and other expenses (primarily the depreciation related tothe PRR assets) are reflected in their respective line items. The transaction did not significantly affectnet income of the company for the third quarter and first nine months of 2004. Prospectively, the depreciation related tothe assets received combined with the interest on the new debt will be lowerthan the rent that had been paid for the use of PRR assets and, therefore, willresult in a small annual increase of approximately 5% to net income.

 

### Sales of Accounts Receivable

 

NS Rail sells, withoutrecourse, a pool of accounts receivable to a bankruptcy-remote special-purposeNS subsidiary. NS Rail services andcollects all of the sold receivables on behalf of the buyers; however, noservicing asset or liability has been recognized because the benefits ofservicing are estimated to be just adequate to compensate NS Rail for itsresponsibilities. Payments collectedfrom 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 soldreceivables. Under the terms of the saleagreement, the receivables are treated as sold and,accordingly, $621 million atSept. 30, 2004, and $528million atDec. 31, 2003, of sold receivables are not included onthe NS Rail Consolidated Balance Sheets. Fees associated with the sale, which are based on historical dilutionand prevailing interest rates, are included in "Other income (expense) - net."

** **

**IntercompanyAccounts**

 

|                                      | **Sept. 30, 2004****** | **Dec. 31, 2003****** |
|-------------------------------------------|------------------------|-----------------------|
|                                      | ** **             | ** **            | **Average** | ** ** | ** ** | Average |
|                                      | ** **             | ** **            | **Interest** | ** ** | ** ** | **Interest** |
|                                      | **Balance**            | **Rate**              | **Balance** | **Rate** |
|                                      | *($  in millions)*     |
|                                      |                   |                  |   |   |   |   |
|   Advances  due from NS         | $                      | 65               | 2% | $ | 68  | 2% |
|                                      |                   |                  |   |   |   |   |
|   Advances  and notes due to NS |                   | (1,025)               | 2% |   | (849) | 2% |
|                                      |                   |                  |   |   |   |   |
|   Due  to NS - net              | $                      | (960)                 |   | $ | (781) |   |

 

Interest is applied tocertain advances at the average NS yield on short-term investments and to thenotes at specified rates. NS Rail'sresults for the nine months ended Sept. 30 include interest income of $6million in 2004 and $8 million in 2003 and interest expense of $6 million in2004 and in 2003 related to these intercompany accounts. These amounts are included in "Otherincome (expense) - net."

 

**NoncashDividend**

 

NSR declared andissued to NS noncash dividends in March and June 2004, totaling $450 million, whichwere settled by reduction of NS Rail's interest-bearing advances due fromNS. Noncash dividends are excluded fromthe Consolidated Statements of Cash Flows.

 

**Capital Contributions**

 

OnAug. 27, 2004, NS contributed 500 sharesof TCS Leasing, Inc. (TCS Leasing) common stock to the capital of NSR. TCS Leasing indirectly owns a 50% partnershipinterest in Triple Crown Services Company (Triple Crown). As a result of the Conrail Reorganization,NSR became the indirect owner of the remaining partnership interest in TripleCrown. Accordingly, Triple Crown is nowincluded in NS Rail's consolidated financial statements. The following summarizes the effect of thetransaction on NS Rail's Consolidated Balance Sheet ($ in millions):

 

| Properties                                                                   | $      | 102  |
|------------------------------------------------------------------------------|--------|-----------|
| Long-term debt, including current maturities                                 |   | (44)      |
| Other assets and liabilities, net                                            |   | (17)      |
|      Net assets received  (contribution to capital) | $      | 41   |

 

Onthe Consolidated Income Statement, NS Rail's revenues and expenses increased asa result of including amounts for Triple Crown after Aug. 27, 2004,(previously, these line items included only the railroad's portion of TripleCrown's revenues and expenses); however, the inclusion of Triple Crown had nosignificant effect on "Income from railway operations" and "Net income." Prospectively, the inclusion of Triple Crownwill increase annual revenues and expenses by approximately 3% each.

 

In the third quarter, NS Rail received an $8 millionnoncash capital contribution for benefits it received related to tax creditsgenerated by a nonrail subsidiary of NS.

 

### Intercompany Federal Income Tax Accounts

 

Inaccordance with the NS Tax Allocation Agreement, intercompany federal incometax accounts are recorded between companies in the NS consolidated group. NS Rail had long-term intercompanyfederal income tax payables (which are included in "Deferred incometaxes" in the Consolidated Balance Sheets) of $970 million atSept. 30, 2004,and $994 million atDec. 31, 2003..

 

**2. Derivative Financial Instruments**

 

NSRail uses derivative financial instruments to reduce the risk of volatility inits diesel fuel costs and to manage its overall exposure to fluctuations ininterest rates. NS Rail does not engagein the trading of derivatives. NS Rail'smanagement has determined that its derivative financial instruments qualify aseither fair-value or cash-flow hedges, having values which highly correlatewith the underlying hedged exposures, and has designated such instruments ashedging transactions. Credit riskrelated to the derivative financial instruments is considered to be minimal andis managed by requiring high credit standards for counterparties and periodicsettlements.

 

**DieselFuel Hedging**

 

NS Rail has hedged a significant portion of itsdiesel fuel consumption. The intent of the hedges is to assist in themanagement of NS Rail's aggregate risk exposure to fuel price fluctuations,which can significantly affect NS Rail's operating margins andprofitability. In order to minimize thisrisk, NS Rail has entered into a series of swaps in order to lock in thepurchase prices of some of its diesel fuel. Management has designated these derivative instruments as cash-flowhedges of the exposure to variability in expected future cash flowsattributable to fluctuations in diesel fuel prices.

 

Following is a summary of NS Rail's dieselfuel swaps:

 

|                                                                                                     |              | Third  Quarter |
|----------------------------------------------------------------------------------------------------------|-------------------|----------------|
|                                                                                                     |              | **2004**       | **2003** |
| Number of swaps entered into during the third  quarter                                                   |              | --             | 72 |
| Approximate number of gallons hedged  (millions)                                                         |              | --             | 95 |
| Approximate average price per gallon of Nymex                                                            |              |           |   |
|    No. 2 heating oil                                                                      |              | n/a            |  $0.73 |
|                                                                                                     | **Remainder  of** |           |   |
|                                                                                                     | **2004**          | **2005**       | **2006** |
| Percent of estimated future diesel  fuel consumption

   covered as ofSept. 30, 2004 | 61%               | 36%            | 4% |
|                                                                                                          |                   |                |  |  |  |

 

Hedges are entered into periodically by competitivebid among selected counterparties; however, no hedges have been placed sinceMay 2004. The goal of this hedging strategy is to reduce the variability of fuelcosts over an extended period of time while minimizing the incremental cost ofhedging. The program provides that NSRail will not enter into any fuel hedges with a duration of more than36 months, and that no more than 80% of NS Rail's average monthly fuelconsumption will be hedged for any month within the 36‐month period. Aftertaking into account the effect of hedging, diesel fuel costs represented 7% ofNS Rail's operating expenses for the third quarters of 2004 and 2003.

 

NS Rail's fuel hedgingactivity had the following effects on diesel fuel expense: for the third quarter, decreases of $41million and $11 million for 2004 and 2003, respectively, and for the first ninemonths, decreases of $90 million and $45 million for 2004 and 2003,respectively. Ineffectiveness, or theextent to which changes in the fair values of the heating oil contracts do notoffset changes in the fair values of the expected diesel fuel transactions, wasapproximately $5 million for the first nine months of 2004 and less than $1million for the same period of 2003.

 

**Interest Rate Hedging**

 

NSRail manages its overall exposure to fluctuations in interest rates by issuingboth fixed and floating-rate debt instruments and by entering into interestrate hedging transactions. NS Rail had $159million, or 14%, and $186 million, or 34%, of its fixed rate debtportfolio hedged as ofSept. 30, 2004, andDec. 31, 2003, respectively, usinginterest rate swaps that qualify for and are designated as fair-value hedgetransactions. These swaps have beeneffective in hedging the changes in fair value of the related debt arising fromchanges in interest rates, and accordingly, there has been no impact onearnings resulting from ineffectiveness associated with these derivativetransactions.

 

**FairValues**

 

Thefair values of NS Rail's diesel fuel derivative instruments as ofSept. 30, 2004,andDec. 31, 2003,were determined based upon current fair market values as quoted by anindependent third party. Fair values ofinterest rate swaps were determined based upon the present value of expectedfuture cash flows discounted at the appropriate implied spot rate from the spotrate yield curve. Fair value adjustmentsare noncash transactions, and accordingly, are excluded from the ConsolidatedStatement of Cash Flows. "Accumulated other comprehensive income," a component of"Stockholder's equity," included unrealized gains of $123 million(pretax) as of Sept. 30, 2004, and $40 million (pretax) as of Dec.31, 2003, related to the fair value of derivative fuel hedging transactionsthat will terminate within twelve months of the respective dates. Any future gain or loss actually realizedwill be based on the fair value of the derivative fuel hedges at the time oftermination.

 

The asset andliability positions of NS Rail's outstanding derivative financial instrumentswere as follows:

 

|                                                | **Sept.  30,**     | **Dec.  31,** |
|-----------------------------------------------------|--------------------|---------------|
|                                                | **2004**           | **2003**      |
|                                                | *($  in millions)* |
| ***Interest rate hedges:***                         |               |          |   |   |
|   Gross fair market asset position        | $                  | 11       | $ | 16 |
|   Gross fair market (liability)  position |               | --       |   | -- |
|                                                |               |          |   |   |
| ***Fuel hedges:***                                  |               |          |   |   |
|   Gross fair market asset position        |               | 140      |   | 45 |
|   Gross fair market (liability)  position |               | --       |   | -- |
|                                                |               |          |   |   |
| Total net asset position                            | $                  | 151      | $ | 61 |

 

**3. Pensions and Other Postretirement Benefits**

** **

NS and certain subsidiaries have both funded andunfunded defined benefit pension plans covering principally salariedemployees. NS and certain subsidiariesalso provide specified health care and death benefits to eligible retiredemployees and their dependents. Underthe present plans, which may be amended or terminated at NS' option, a definedpercentage of health care expenses is covered, reduced by any deductibles,copayments, Medicare payments and, in some cases, coverage provided under othergroup insurance policies. The following relatesto the combined NS plans.

 

|                                         | **Three Months Ended Sept. 30,** |
|----------------------------------------------|----------------------------------|
|                                         | **2004**                         | **2003** | **2004** | **2003** |
|                                         | **Pension Benefits**             | **Other Benefits** |
|                                         | *($ in millions)*                |
|                                         |                             |   |   |   |   |   |   |   |
| Service cost                                 | $                                | 4  | $ | 5  | $ | 4  | $ | 5  |
| Interest cost                                |                             | 22  |   | 22  |   | 11  |   | 10  |
| Expected return on plan assets               |                             | (37) |   | (39) |   | (3) |   | (3) |
| Amortization of prior service cost (benefit) |                             | 1  |   | 1  |   | (2) |   | (1) |
| Amortization of unrecognized net loss        |                             | 1  |   | --  |   | 3  |   | 3  |
|    Net (benefit) cost         | $                                | (9) | $ | (11) | $ | 13  | $ | 14  |

 

|                                         | **Nine Months Ended Sept. 30,** |
|----------------------------------------------|---------------------------------|
|                                         | **2004**                        | **2003** | **2004** | **2003** |
|                                         | **Pension Benefits**            | **Other Benefits** |
|                                         | *($ in millions)*               |
|                                         |                            |   |   |   |   |   |   |   |
| Service cost                                 | $                               | 13  | $ | 15  | $ | 12  | $ | 13  |
| Interest cost                                |                            | 67  |   | 66  |   | 33  |   | 28  |
| Expected return on plan assets               |                            | (111) |   | (119) |   | (11) |   | (9) |
| Amortization of prior service cost (benefit) |                            | 2  |   | 3  |   | (8) |   | (3) |
| Recognized net actuarial loss                |                            | --  |   | 1  |   | --  |   | --  |
| Amortization of unrecognized net loss        |                            | 2  |   | --  |   | 11  |   | 11  |
|    Net (benefit) cost         | $                               | (27) | $ | (34) | $ | 37  | $ | 40  |

** **

**Contributionsfor Pension and Other Postretirement Benefits**

 

NS previously disclosed in its consolidatedfinancial statements for the year endedDec. 31, 2003, that it expected tocontribute in 2004 $7 million to its unfunded pension plans for paymentsto pensioners and $42 million to its other postretirement benefit plans forretiree health benefits. For the ninemonths endedSept. 30, 2004, $5 million and $34 million ofcontributions have been made to its unfunded pension plans and its otherpostretirement benefit plans, respectively. Accordingly, NS presently anticipates contributing in the fourth quarterthe remaining $2 million to its unfunded pension plans and the remaining $8 millionto its postretirement benefit plans.

 

**4. Changes in Accounting Principles**

 

NS Rail adoptedFinancial 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 inaccounting on years prior to 2003. Pursuant to SFAS No. 143, the cost to remove crossties must berecorded as an expense when incurred; previously these removal costs wereaccrued as a component of depreciation.

 

NS Rail also adoptedFASBInterpretation 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 inaccounting on years prior to 2003. Pursuant to FIN No. 46, NS Rail has consolidated a special-purposeentity that leases certain locomotives to NS. This entity's assets and liabilities atJan. 1, 2003,included $169 million of locomotives and $157 million of debt related to theirpurchase as well as a $6 million minority interest liability.

 

**5. Comprehensive Income**

 

 

NS Rail'stotal comprehensive income was as follows:

 

|                               | **Three  Months Ended** | Nine Months Ended |
|------------------------------------|-------------------------|-------------------|
|                               | **Sept.  30,**          | **Sept.  30,**    |
|                               | **2004**                | **2003**          | **2004** | **2003** |
|                               | *($  in millions)*      |
|                               |                    |              |   |   |   |   |   |   |
| Net  income                        | $                       | 215               | $ | 127  | $ | 538 | $ | 419   |
| Other  comprehensive income (loss) |                    | 74                |   | (16) |   | 136 |   | (23) |
|                               |                    |              |   |   |   |   |   |   |
| Total  comprehensive income        | $                       | 289               | $ | 111  | $ | 674 | $ | 396  |

 

"Othercomprehensive income (loss)" reflects the net fair value adjustments tocertain derivative financial instruments and unrealized gains and losses oncertain investments in debt and equity securities, principally NS common stock.

 

**6. Commitments and Contingencies**

 

**Lawsuits**

 

NSR and certainsubsidiaries are defendants in numerous lawsuits and other claims relatingprincipally to railroad operations. Whenmanagement concludes that it is probable that a liability has been incurred andthe amount of the liability can be reasonably estimated, it is accrued througha charge to earnings. While the ultimateamount of liability incurred in any of these lawsuits and claims is dependenton future developments, in management's opinion, the recorded liability isadequate to cover the future payment of such liability and claims. However, the final outcome of any of theselawsuits and claims cannot be predicted with certainty, and unfavorable orunexpected outcomes could result in additional accruals that could besignificant to results of operations in a particular year or quarter. Any adjustments to the recorded liabilitywill be reflected in earnings in the periods in which such adjustments areknown.

 

**Casualty Claims**

 

NSRail is generally self-insured for casualty claims. NS Rail has insurance, subject to limits, forcatastrophic events. The casualty claims liability is determined actuarially,based upon claims filed and an estimate of claims incurred but not yetreported. While the ultimate amount ofclaims 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 recordedliability may not be adequate to cover the future payments of claims. Adjustments to the recorded liability arereflected in operating expenses in the periods in which such adjustments areknown.

 

**Environmental Matters**

** **

NSRail is subject to various jurisdictions' environmental laws andregulations. It is NS Rail's policy torecord a liability where such liability or loss is probable and its amount canbe estimated reasonably. Claims, if any,against third parties for recovery of cleanup costs incurred by NS Rail arereflected as receivables (when collection is probable) on the balance sheet andare not netted against the associated NS Rail liability. Environmental engineers regularly participatein ongoing evaluations of all knownsites and in determining any necessary adjustments to liability estimates. NS Rail also has established an EnvironmentalPolicy Council, composed of senior managers, to oversee and interpret itsenvironmental policy.

 

NSRail's balance sheets included liabilities for environmental exposures in theamount of $66 million atSept. 30, 2004, and $25 million atDec. 31, 2003(of which $12 million was accounted for as a current liability atSept. 30, 2004,and $8 million atDec. 31, 2003). The increase in the liability was the result of the ConrailReorganization and relates to sites on the former PRR properties. At Sept. 30, 2004, the liability representedNS Rail's estimate of the probable cleanup and remediation costs based onavailable information at 207 known locations. On that date, 14 sites accounted for $31 million of the liability, andno individual site was considered to be material. NS Rail anticipates that much of thisliability will be paid out over five years; however, some costs will be paidout over a longer period.

 

Atsome of the 207 locations certain NS Rail subsidiaries, usually in conjunctionwith a number of other parties, have been identified as potentially responsibleparties by the Environmental Protection Agency (EPA) or similar stateauthorities under the Comprehensive Environmental Response, Compensation andLiability Act of 1980, or comparable state statutes, which often impose jointand several liability for cleanup costs.

 

Withrespect to known environmental sites (whether identified by NS Rail or by theEPA or comparable state authorities), estimates of NS Rail's ultimate potentialfinancial exposure for a given site or in the aggregate for all such sites are necessarilyimprecise because of the widely varying costs of currently available cleanuptechniques, the likely development of new cleanup technologies, the difficultyof determining in advance the nature and full extent of contamination and eachpotential participant's share of any estimated loss (and that participant'sability to bear it), and evolving statutory and regulatory standards governingliability.

 

Therisk 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 trafficmix, particularly those classified as hazardous materials, can pose specialrisks that NS Rail and its subsidiaries work diligently to minimize. In addition, several NS Rail subsidiariesown, or have owned, land used as operating property, or which is leased or mayhave been leased and operated by others, or held for sale. Because environmental problems that arelatent or undisclosed may exist on these properties, there can be no assurancethat NS Rail will not incur environmental liabilities or costs with respect toone or more of them, the amount and materiality of which cannot be estimatedreliably at this time. Moreover,lawsuits and claims involving these and potentially other now-unidentifiedenvironmental sites and matters are likely to arise from time to time. The resulting liabilities could have asignificant effect on financial condition, results of operations or liquidityin a particular year or quarter.

 

However,based on its assessment of the facts and circumstances now known, managementbelieves that it has recorded the probable costs for dealing with those environmentalmatters of which the Company is aware. Further, management believes that it is unlikely that any known matters,either individually or in the aggregate, will have a material adverse effect onNS Rail's financial position, results of operations or liquidity.

** **

**Purchase Commitments**

 

AtSept. 30, 2004,NS Rail had outstanding purchase commitments of approximately $200 million inconnection with its 2004 and 2005 capital programs.

 

** **

** **

**Report of Independent Registered Public AccountingFirm**

 

 

The Board of Directors

NorfolkSouthern Railway Company:

 

We havereviewed the accompanying consolidated balance sheet of Norfolk SouthernRailway Company and subsidiaries as ofSeptember 30, 2004, the relatedconsolidated statements of income for the three-month and nine-month periodsendedSeptember 30, 2004 and 2003 and the related consolidatedstatements of cash flows for the nine-month periods endedSeptember 30, 2004and 2003. These consolidated financialstatements are the responsibility of the Company's management.

 

We conductedour reviews in accordance with the standards of the Public Company AccountingOversight Board (United States). A review of interim financial informationconsists principally of applying analytical procedures and making inquiries ofpersons responsible for financial and accounting matters. It is substantially less in scope than anaudit conducted in accordance with the standards of the Public CompanyAccounting Oversight Board (United  States), the objective ofwhich is the expression of an opinion regarding the financial statements takenas a whole. Accordingly, we do notexpress such an opinion.

 

Based on ourreviews, we are not aware of any material modifications that should be made tothe consolidated financial statements referred to above for them to be inconformity withU.S.generally accepted accounting principles. 

 

As discussed innote 4 to the consolidated financial statements, the Company adopted FinancialAccounting Standards Board Statement No. 143, *Accounting for Asset Retirement Obligations*, and FinancialAccounting Standards Board Interpretation No. 46, *Consolidation of Variable Interest Entities*, as ofJanuary 1, 2003..

 

We havepreviously audited, in accordance with the standards of the Public CompanyAccounting Oversight Board (United States), the consolidated balance sheet ofNorfolk Southern Railway Company and subsidiaries as of December 31, 2003, andthe related consolidated statements of income, changes in stockholders' equityand cash flows for the year then ended (not presented herein); and in ourreport dated January 27, 2004, we expressed an unqualified opinion on thoseconsolidated financial statements. Inour opinion, the information set forth in the accompanying consolidated balancesheet as ofDecember 31, 2003, is fairly stated, in all materialrespects, in relation to the consolidated balance sheet from which it has beenderived.

 

 

 

/s/ KPMG LLP

Norfolk,Virginia

October 27, 2004

 

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

** **

** **

The information calledfor by Item 2 is omitted in accordance with General Instruction (H)(2)(a). However, pursuant to the same instructions,the registrant provides herein management's narrative analysis of the resultsof operations.

** **

** **

**MANAGEMENT'SNARRATIVE ANALYSIS OF THE RESULTS OF OPERATIONS**

** **

** **

**RESULTS OF OPERATIONS**

 

### Net Income

 

Third-quarter netincome was $215 million in 2004, compared with $127 million in 2003. The increase was primarily the result of a$148 million, or 55%, increase in income from railway operations, driven by a17% rise in revenues. Railway operatingexpenses rose only 9% despite an 11% increase in carloads, evidencing thecontinued fluidity of the railroad network.

 

For the first ninemonths, net income was $538 million in 2004, compared with $419 million in2003. The following table shows thecompenents of the change.

 

|                                                                                    | **First Nine Months** |
|-----------------------------------------------------------------------------------------|-----------------------|
|                                                                                    | ** **            | ** ** | ** ** | ** ** | **2004 vs. 2003** |
|                                                                                    | ** **            | ** ** | ** ** | ** ** | **Increase** |
|                                                                                    | **2004**              | **2003** | **(Decrease)** |
|                                                                                    | *($ in millions)*     |
| Income before accounting changes                                                        | $                     | 538  | $ | 315  | $ | 223  |
| Cumulative effect of changes in

   accounting principles, net of  taxes |                  | --  |   | 104  |   | (104) |
|       Net income                                          | $                     | 538  | $ | 419  | $ | 119  |

###  

Incomebefore accounting changes increased $223 million, or 71%, compared with thesame period last year. The growthresulted from a $567 million, or 12%, increase in railway operating revenuescoupled with a 4% rise in railway operating expenses, which led to higherincome from railway operations.

 

### Railway Operating Revenues

 

Third-quarter railway operatingrevenues were $1.8 billion in 2004, up $270 million, or 17%, compared with thethird quarter of last year. For thefirst nine months, revenues were $5.2 billion, up $567 million, or 12%. As shown in the following table, theincreases were the result of higher traffic volume and increased averagerevenues. As discussed in Note 1, NSRail's consolidated financial statements now include Triple Crown (formerly asubsidiary of NS).

 

|                                | Third  Quarter              | **First  Nine Months**   |
|-------------------------------------|-----------------------------|--------------------------|
|                                | **2004  vs. 2003**          | **2004  vs. 2003**       |
|                                | **Increase  (Decrease)**    | **Increase  (Decrease)** |
|                                | *($ in millions)*           |
|                                |                        |                     |
| Traffic volume (units)              | $  165            | $  394         |
| Revenue per unit/mix                |     105 |    173    |
|                                |                        |                     |
|      Total | $  270            | $  567         |

 

Revenues,volume and average revenue per unit for the commodity groups were as follows:

 

|                                         | **Third  Quarter** |
|----------------------------------------------|--------------------|
|                                         | **Revenues**       | **Units** | **Revenue  per Unit** |
|                                         | **2004**           | **2003** | **2004** | **2003** | **2004** | **2003** |
|                                         | *($  in millions)* | *(in  thousands)* | *($  per unit)* |
|                                         |               |   |   |   |   |   |   |   |   |   |   |   |
| Coal                                         | $                  | 447 | $ | 372 |   | 429 |   | 407 | $ | 1,045 | $ | 915 |
| General merchandise:                         |               |   |   |   |   |   |   |   |   |   |   |   |
|    Automotive                 |               | 210 |   | 205 |   | 140 |   | 142 |   | 1,508 |   | 1,447 |
|    Chemicals                  |               | 226 |   | 196 |   | 115 |   | 108 |   | 1,950 |   | 1,805 |
|    Metals/construction        |               | 214 |   | 180 |   | 206 |   | 187 |   | 1,042 |   | 965 |
|    Agr./consumer  prod./govt. |               | 179 |   | 167 |   | 142 |   | 138 |   | 1,264 |   | 1,212 |
|    Paper/clay/forest          |               | 177 |   | 163 |   | 114 |   | 113 |   | 1,546 |   | 1,445 |
| General  merchandise                         |               | 1,006 |   | 911 |   | 717 |   | 688 |   | 1,403 |   | 1,325 |
|                                         |               |   |   |   |   |   |   |   |   |   |   |   |
| Intermodal                                   |               | 370 |   | 270 |   | 759 |   | 627 |   | 487 |   | 430 |
|                                         |               |   |   |   |   |   |   |   |   |   |   |   |
|       Total    | $                  | 1,823 | $ | 1,553 |   | 1,905 |   | 1,722 | $ | 957 | $ | 902 |

 

|                                         | **First  Nine Months** |
|----------------------------------------------|------------------------|
|                                         | Revenues               | **Units** | **Revenue  per Unit** |
|                                         | **2004**               | **2003** | **2004** | **2003** | **2004** | **2003** |
|                                         | *($  in millions)*     | *(in  thousands)* | *($  per unit)* |
|                                         |                   |   |   |   |   |   |   |   |   |   |   |   |
| Coal                                         | $                      | 1,269 | $ | 1,115 |   | 1,262 |   | 1,222 | $ | 1,006 | $ | 913 |
| General merchandise:                         |                   |   |   |   |   |   |   |   |   |   |   |   |
|    Automotive                 |                   | 710 |   | 689 |   | 477 |   | 477 |   | 1,490 |   | 1,444 |
|    Chemicals                  |                   | 643 |   | 578 |   | 338 |   | 319 |   | 1,902 |   | 1,812 |
|    Metals/construction        |                   | 606 |   | 521 |   | 587 |   | 532 |   | 1,033 |   | 980 |
|    Agr./consumer  prod./govt. |                   | 537 |   | 510 |   | 423 |   | 409 |   | 1,269 |   | 1,245 |
|    Paper/clay/forest          |                   | 502 |   | 475 |   | 335 |   | 333 |   | 1,499 |   | 1,428 |
| General  merchandise                         |                   | 2,998 |   | 2,773 |   | 2,160 |   | 2,070 |   | 1,388 |   | 1,340 |
|                                         |                   |   |   |   |   |   |   |   |   |   |   |   |
| Intermodal                                   |                   | 961 |   | 773 |   | 2,115 |   | 1,814 |   | 454 |   | 426 |
|                                         |                   |   |   |   |   |   |   |   |   |   |   |   |
|       Total    | $                      | 5,228 | $ | 4,661 |   | 5,537 |   | 5,106 | $ | 944 | $ | 913 |

 

**Coal**

 

Coal revenues increased $75 million, or 20%, in the thirdquarter and $154 million, or 14%, in the first nine months, compared withthe same periods last year. Totaltraffic volume (carloads) handled increased 5% in the quarter and 3% for thefirst nine months, primarily because of higher export coal and utilityvolume. Export coal volume increased 49%in the quarter and 31% for the first nine months, supported by increased demandforU.S. coal, as reduced exports fromChina have resulted in more shipments toEuropean steelmakers. Shipments ofutility coal increased 3% in the quarter and 2% for the first nine months, andutility stockpiles remained low at some plants. Domestic metallurgical coal, coke and iron ore volume increased 1% inthe third quarter but declined 4% for the first nine months, mostly because ofreduced iron ore shipments. Averagerevenue per carload was up 14% in the third quarter and 10% for the first ninemonths, reflecting a favorable change in the mix of traffic (the rate ofincrease in longer haul traffic exceeded that of shorter haul traffic), higherrates for export coal and the favorable effects of a fuel surcharge.

 

Two of NS Rail's utility customers, Duke Energy(Duke) and Carolina Power & Light (CP&L), filed rate reasonablenesscomplaints at the STB alleging that NS Rail's tariff rates for thetransportation of coal were unreasonable. In the Duke proceeding, the STB initially found NS Rail's rates to bereasonable in November 2003, but subsequently issued technical corrections inFebruary 2004, finding that in certain years some portion of the rates wasunreasonable. In the CP&L proceeding,the STB found NS Rail's rates to be unreasonable in December 2003, butupheld a significant portion of NS Rail's tariff increase. As required by the STB's decision, earlierthis year NS Rail paid reparations to CP&L representing that portion of thepreviously charged rate that was found to be unreasonable, with interest. Reconsideration of the STB's rate decisions wassought by NS Rail and by the complainants. OnOct. 20, 2004, in a consolidated decision,the STB found NS Rail's rates to be reasonable in both cases. However, in the ruling, the STB invited Dukeand CP&L to initiate a proceeding within 30 days to determine whether phasingconstraints should apply. As the STB hasexplained, the phasing constraint is an independent constraint relating not tothe reasonableness of a rate, but to the reasonableness of collecting itimmediately. The Interstate CommerceCommission (the predecessor to the STB) has previously issued guidelines forphasing. These guidelines indicate thatphasing of a rate increase will only be required where the party seeking suchrelief demonstrates the need for it with specificity. In balancing the equities of the particularphasing request, the STB will consider factors including the requirements ofthe railroads, the magnitude of the proposed increase, the magnitude of pastincreases, the dependence of the utility on coal, the economic conditions inthe final destination market and the economic conditions in the coal supplyarea. 

 

The phasing constraint has never been invoked bya complainant utility in a rate case, and the STB has never applied it. Therefore, it is unknown how the STB wouldbalance the above factors, whether it would find the phasing constraintapplicable, and if it did, whether phasing would be ordered retroactively orprospectively or both. Although managementhas made an estimate of the ultimate resolution of these cases, due to these uncertainties,future developments in the Duke case and(or) the CP&L case may result inadjustments that could have a favorable or unfavorable material impact onresults of operations in a particular quarter or year. Over the long term, management believes theSTB decisions in the Duke and CP&L proceedings will help support improvedpricing for coal transportation services.

 

For the remainder of the year, coal revenues areexpected to continue to show growth, supported by higher export, metallurgicaland utility coal volumes in addition to increased average revenue per shipment.

 

### General Merchandise

 

General merchandiserevenues increased $95 million, or 10%, in the third quarter and$225 million, or 8%, in the first nine months, compared with the sameperiods last year. Both increasesreflected higher traffic volume, particularly for metals & construction andchemicals, as well as higher average revenues. Metals & construction volume continued to benefit from strength inconstruction activity and increased domestic steel production. Chemicals traffic volume continued to benefitfrom manufacturing expansion and higher plant operating rates. Agriculture, consumer products & governmentvolume this quarter reflected more shipments of corn, increased volume forfertilizer and more shipments for the military. General merchandise average revenue per carload increased 6% in thethird quarter and 4% for the first nine months reflecting fuel surcharges,increased rates and longer lengths of haul.

 

General merchandiserevenues are expected to continue to compare favorably with the prior year;however, the extent of the increase could lessen in the fourth quarter due tothe comparative strength of the fourth quarter last year and the impact ofrecently announced cutbacks in automotive production.

 

### Intermodal

 

Intermodal revenues increased $100 million, or 37%, in thethird quarter and $188 million, or 24%, in the first nine months, comparedwith the same periods last year. Trafficvolume (units) increased 21% in the third quarter and 17% for the first ninemonths reflecting strong trailer and container volume. Intermodal traffic volume benefited from astronger economy with increased international container and domestic truckloadbusiness, as well as the conversion of truck traffic to rail. Intermodal revenue per unit increased 13% forthe quarter, and 7% for the first nine months, reflecting the consolidation ofTriple Crown (see Note 1), favorable effects of rate increases and fuel surcharges.

 

Intermodal revenuesare expected to continue to show growth in the fourth quarter, provided theretail and manufacturing sectors continue to expand and with continuedincreases in highway diversions.

 

### Railway Operating Expenses

 

Third-quarter railwayoperating expenses were $1.4 billion in 2004, up $122 million, or 9%, comparedwith last year. For the first ninemonths, expenses were $4.1 billion, up $176 million, or 4%, comparedwith 2003. For both periods, most of theincrease was the result of increased materials, services and rents expense,higher compensation and benefits and higher diesel fuel prices. Expenses also reflect the consolidation ofTriple Crown (see Note 1).

 

Compensation and benefitsexpenses increased $35 million, or 9%, in the third quarter and $74 million,or 6%, in the first nine months, compared with the same periods last year. All comparisons reflected higher wage rates,including increased locomotive engineer performance-based incentive compensationand higher volume-related train and engine payroll expenses.

 

Materials, services and rents increased $87 million, or 19%,in the third quarter and $85 million, or 6%, in the first nine months,compared with the same periods last year. Both periods reflected increased volume-related intermodal purchasedservices and equipment rents as well as higher locomotive and freight carmaintenance expenses. The increases alsoreflect the absence of favorable adjustments for equipment bills that benefited2003.

 

Conrail rents andservices expenses decreased $30 million, or 25%, in the third quarter and $31 million,or 9%, in the first nine months, compared with the same periods last year. The decline for both periods was primarilydue to the Conrail Reorganization (see Note 1) and lower expenses related tothe Shared Assets Areas.

 

Depreciation expenseincreased $23 million in the third quarter and $30 million in the first ninemonths of 2004, compared with the same periods of 2003, largely as a result ofthe Conrail Reorganization (see Note 1). NS Rail recently received the results of a depreciation study from anindependent firm of engineers. The results of the study, which were implementedin Sept. 2004, will reduce future depreciation expense by approximately$16 million annually.

 

Diesel fuel expensesincreased $12 million, or 14%, in the third quarter and $28 million, or10%, in the first nine months, compared with the same periods last year,reflecting higher average prices and higher consumption, the effects of whichwere partially offset by fuel hedge benefits and an $8 million foreign linefuel credit. The hedging programproduced benefits of $41 million and $90 million in the third quarterand first nine months of 2004, compared with benefits of $11 million and$45 million for the same periods of 2003, respectively. No new hedges have been entered into sinceMay of 2004. Accordingly, if diesel fuelprices remain at their current levels, or increase further, diesel fuel expensewill be higher going forward. (See Note 2for the percentage of estimated future diesel fuel consumption hedged.) Recently enacted legislation will repealthe 4.3¢ per gallonexcise tax on railroad diesel fuel and inland waterway fuel by 2007, with thefollowing phased reductions in 2005 and 2006: by 1¢ per gallon from Jan. 1, 2005 throughJune 30, 2005;2¢ per gallon fromJuly 1, 2005 throughDec. 31, 2006;and by the full 4.3¢ thereafter. NS Railconsumes approximately 500 million gallons of diesel fuel per year.

 

Casualties and otherclaims expense decreased $12 million, or 27%, in the third quarter and$33 million, or 23%, in the first nine months, compared with the sameperiods last year. The declinesreflected favorable claims development for both loss and damage and personalinjury claims. In addition, the thirdquarter of 2003 was burdened with unfavorable personal injury claimsdevelopment.

 

Other expense increased $7 million, or 10%, inthe third quarter, and $23 million, or 11%, in the first nine months,compared with the same periods of last year. The increases were largely the result of higher property taxes and salesand use tax.

 

**Other Income (Expense) - Net**

 

Other income (expense) - net was an expense of $85million in the third quarter and $244 million in the first nine months of2004, compared with expenses of $60 million and $176 million, respectively, forthe same periods of 2003. Both increasesreflected expenses related to new investments. In June 2004, NS Rail purchased a 40.5% membership interest in a limitedliability company (LLC) that owns and operates facilities that producesynthetic fuel from coal. The productionof synthetic fuel results in tax credits as well as expenses related to theinvestments. The expenses are recordedas a component of "Other income (expense) - net," and the tax credits, as wellas tax benefits related to the expenses, are reflected in the provision forincome taxes. The synthetic-fuel taxcredits are subject to reduction if the average price for oil for a yearexceeds a certain amount as determined under the tax laws. Given current oil market conditions, it ispossible that these tax credits could be reduced for 2005. Such a reduction in tax credits would beaccompanied by a reduction in the expenses related to the investments althoughthe net effect would be to reduce the projected returns on the investment.

 

** **

**OTHER MATTERS**

** **

**LaborAgreements**

 

Approximately 24,000 of NS Rail's railroad employeesare covered by collective bargaining agreements with various labor unions. These agreements remain in effect untilchanged pursuant to the Railway Labor Act. Moratorium provisions in the agreements permitted NS Rail and the unionsto propose such changes in late 1999; negotiations at the national levelcommenced shortly thereafter. Agreementswere subsequently negotiated with the Brotherhood of Maintenance of WayEmployes, the United Transportation Union, the International Brotherhood ofBoilermakers and Blacksmiths, the Transportation Communications InternationalUnion, the American Train Dispatchers Association, the Brotherhood of RailroadSignalmen and the Brotherhood of Locomotive Engineers and Trainmen. These agreements cover approximately 21,500(or 90%) of NS Rail employees. Therailroads and the International Brotherhood of Electrical Workers agreed toresolve their negotiations through arbitration and a decision is pending. Agreements have not yet been reached with theInternational Association of Machinists and Aerospace Workers, the Sheet MetalWorkers International Association, the National Conference of Fireman andOilers, and the International Longshoreman Association. Negotiations for the next round of bargainingwill commence in late 2004. 

 

**MarketRisks and Hedging Activities**

 

NS Rail uses derivative financial instruments toreduce, in part, the risk of volatility in its diesel fuel costs and to manageits overall exposure to fluctuations in interest rates.

 

The intent of the diesel fuel hedging program hasbeen to assist in the management of NS Rail's aggregate risk exposure to fuelprice fluctuations, which can significantly affect NS Rail's operating marginsand profitability, through the use of one or more types of derivativeinstruments. The program provides thatNS Rail will not enter into any fuel hedges with a duration of more than 36months, and that no more than 80% of NS Rail's average monthly fuel consumptionwill be hedged for any month within any 36-month period. After taking into account the effect ofhedging, diesel fuel costs represented 7% of NS Rail's operating expenses forthe third quarter of 2004.

 

However, with fuel prices near historic highs andfuel surcharges being collected under certain tariffs and contracts, NS Railhas not entered into additional hedges since May 2004. Consequently, the past pattern of enteringinto regular monthly swaps may not be indicative of future hedging activity.

 

As ofSept. 30, 2004, through swap transactions,NS Rail has hedged approximately 61% of expected 2004 diesel fuel requirementsfor the remainder of the year, and 36% and 4% of expected requirements for 2005and 2006, respectively. The effect ofthe hedges is to yield an average cost of 84 cents per hedged gallon,including federal taxes and transportation. A 10% decrease from current diesel fuel prices would reduce NS Rail'sasset related to the swaps by approximately $36 million as ofSept. 30, 2004..

 

NS Rail manages its overall exposure to fluctuationsin interest rates by issuing both fixed- and floating-rate debt instruments andby entering into interest-rate hedging transactions to achieve an appropriatemix within its debt portfolio.

 

As ofSept. 30, 2004, NS Rail's debt subject tointerest rate fluctuations totaled $487 million. A 1% increase in short-term interest rateswould increase NS Rail's total annual interest expense related to all itsvariable debt by approximately $5 million. Management considers it unlikely that interest rate fluctuationsapplicable to these instruments will result in a material adverse effect on NSRail's financial position, results of operations or liquidity.

 

Some of NS Rail's capital leases, which carry anaverage fixed rate of 7%, were effectively converted to variable rateobligations using interest rate swap agreements. OnSept. 30, 2004,the average pay rate under these agreements was 2%, and the average receiverate was 7%. The effect of the swaps wasto reduce interest expense by $1 million and $3 million in the thirdquarters of 2004 and 2003, respectively, and by $5 million and $7 million forthe first nine months of 2004 and 2003, respectively. A portion of the lease obligations is payablein Japanese yen. NS Rail eliminated theassociated exchange rate risk at the inception of each lease with a yen depositsufficient to fund the yen-denominated obligation. Most of these deposits are held by foreignbanks, primarily Japanese. As a result,NS Rail is exposed to financial market risk relative toJapan.. Counterparties to the interest rate swaps andJapanese banks holding yen deposits are major financial institutions believedby management to be creditworthy.

** **

**Surface TransportationBoard's Oversight of Conrail**

 

In July 1998, the STBapproved the "Conrail Transaction" whereby the assets of Conrail were divdedinto allocated assets (assets transferred to PRR and NYC and operated by NSRand CSXT, respectively) and Shared Assets Areas (assets retained and operatedby CRC for the benefit of NS and CSX). In approving the Conrail Transaction in 1998, the STB had imposednumerous conditions to ensure that the acquisition of Conrail did not result inany competitive problems. In addition,the STB established general oversight for 5 years to monitor annually theprogress of implementation of the Conrail Transaction and the workings of thevarious conditions imposed and retained jurisdiction to impose additionalconditions, if necessary, to address any harms caused by the ConrailTransaction. OnOct. 20, 2004, the STB issued its fifth and final decision arising out of itsretention of general oversight jurisdiction. This decision terminates all further reporting requirements by NS andCSX, with one exception: that theexisting operational monitoring reporting requirements with respect to theShared Assets Areas remain in place to provide the STB with otherwiseunavailable data about Shared Assets Areas operations. In its decision, the STB also declined toimpose any new requirements or constraints on NS, CSX or Conrail and denied allrequests for substantive relief by commenting parties.

 

** **

**FORWARD-LOOKINGSTATEMENTS**

 

This management's narrative analysis of the results of operationscontains forward-looking statements that may be identified by the use of wordslike "believe," "expect," "anticipate" and"project." Forward-looking statementsreflect management's good-faith evaluation of information currentlyavailable. However, such statements aredependent on and, therefore, can be influenced by, a number of externalvariables over which management has little or no control, including: domesticand international economic conditions; the business environment in industriesthat produce and consume rail freight; competition and consolidation within thetransportation industry; fluctuation in prices of key materials, in particulardiesel fuel; labor difficulties, including strikes and work stoppages;legislative and regulatory developments; changes in securities and capitalmarkets; and natural events such as severe weather, floods andearthquakes. Forward-looking statementsare not, and should not be relied upon as, a guarantee of future performance orresults. Nor will they necessarily proveto be accurate indications of the times at or by which any such performance orresults will be achieved. As a result, actual outcomes and results may differmaterially from those expressed in forward-looking statements. The Company undertakes no obligation toupdate or revise forward-looking statements.

 

** **

**Item 3. Quantitativeand Qualitative Disclosures About Market Risks.**

 

Theinformation required by this item is included in Part I, Item 2,"Management's Narrative Analysis of the Results of Operations" onpage 19 under the heading "Market Risks and Hedging Activities."

 

 

**Item 4. Controls and Procedures.******

 

(a) Evaluation ofDisclosure Controls and Procedures.

 

NSR's Chief ExecutiveOfficer and Chief Financial Officer have evaluated the effectiveness of NSRail's disclosure controls and procedures (as such term is defined in Rules13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended(the "Exchange Act")) as of Sept. 30, 2004. Based on such evaluation, such officers haveconcluded that, as ofSept. 30, 2004, NS Rail's disclosure controls andprocedures are effective in alerting them on a timely basis to materialinformation relating to NS Rail (including its consolidated subsidiaries)required to be included in NS Rail's periodic filings under the Exchange Act.

 

(b) Changes inInternal Controls.

 

During the first ninemonths of 2004, management has not identified any changes in NS Rail's internalcontrols over financial reporting that have materially affected, or arereasonably likely to materially affect, NS Rail's internal controls overfinancial reporting.

 

 

**PARTII. OTHER INFORMATION**

 

 

**Item6. Exhibits and Reports on Form 8-K**

 
| (a)    | Exhibits:

                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   | 4(a)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  | The Indenture, datedAugust 27, 2004, among PRR Newco, Inc., as Issuer, and  Norfolk Southern Railway Company, as Guarantor, and The Bank of New York, as  Trustee, is incorporated herein by reference to Exhibit 4(l) to Norfolk Southern  Corporation's Form 10-Q filed onOctober   28, 2004..

  |
|   | 4(b)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  | The First Supplemental  Indenture, dated August 27, 2004, among PRR Newco, Inc., as Issuer, and  Norfolk Southern Railway Company, as Guarantor, and The Bank of New York, as  Trustee, related to the issuance of notes in the principal amount of  approximately $451.8 million, is incorporated herein by reference to Exhibit  4(m) to Norfolk Southern Corporation's Form 10-Q filed on October 28,  2004.

  |
|   | 10(o)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 | Distribution  Agreement, dated as of July 26, 2004, by and among CSX Corporation, CSX  Transportation, Inc., CSX Rail Holding Corporation, CSX Northeast Holding  Corporation, Norfolk Southern Corporation, Norfolk Southern Railway Company,  CRR Holdings LLC, Green Acquisition Corp., Conrail Inc., Consolidated Rail  Corporation, New York Central Lines LLC, Pennsylvania Lines LLC, NYC Newco,  Inc. and PRR Newco, Inc., is incorporated herein by reference to Exhibit 2.1  to Norfolk Southern Railway Company's Form 8-K filed on September 2, 2004. 

  |
|   | 10(p)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 | Amendment No. 5 to the  Transaction Agreement, dated as of August 27, 2004, by and among CSX  Corporation, CSX Transportation, Inc., Norfolk Southern Corporation, Norfolk  Southern Railway Company, CRR Holdings LLC, Conrail Inc. and Consolidated  Rail Corporation, is incorporated herein by reference to Exhibit 10.1 to  Norfolk Southern Railway Company's Form 8-K filed on September 2, 2004.

  |
|   | 10(q)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 | Operating Agreement  Termination Agreement, dated as ofAugust   27, 2004,  between Pennsylvania Lines LLC and Norfolk Southern Railway Company, is  incorporated herein by reference to Exhibit 10.3 to Norfolk Southern Railway  Company's Form 8-K filed onSeptember 2,   2004..

  |
|   | 31                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    | Rule  13a-14(a)/Rule 15d-14(a) Certifications.

  |
|   | 32                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    | Section  1350 Certifications.

  |
| (b)    | Reports  on Form 8-K:

                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
|   | A report on Form 8-K  was filed on September 2, 2004, advising that Norfolk Southern Railway  Company and its parent Norfolk Southern Corporation entered into two material  definitive agreements, terminated a material definitive agreement and  acquired assets, all in connection with the restructuring of Conrail, and  attaching as an exhibit (1) the Distribution Agreement, dated as of July 26,  2004, by and among CSX Corporation, CSX Transportation, Inc., CSX Rail  Holding Corporation, CSX Northeast Holding Corporation, Norfolk Southern  Corporation, Norfolk Southern Railway Company, CRR Holdings LLC, Green  Acquisition Corp., Conrail Inc., Consolidated Rail Corporation, New York  Central Lines LLC, Pennsylvania Lines LLC, NYC Newco, Inc. and PRR Newco,  Inc.; (2) Amendment No. 5 to the Transaction Agreement, dated as of August  27, 2004, by and among CSX Corporation, CSX Transportation, Inc., Norfolk  Southern Corporation, Norfolk Southern Railway Company, CRR Holdings LLC,  Conrail Inc. and Consolidated Rail Corporation; (3) Tax Allocation Agreement,  dated as of August 27, 2004, by and among Green Acquisition Corp.,  Conrail Inc., Consolidated Rail Corporation, New York Central Lines LLC,  Pennsylvania Lines LLC; (4) Operating Agreement Termination Agreement, dated  as of August 27, 2004, between Pennsylvania Lines LLC and Norfolk Southern  Railway Company; and (5) Norfolk Southern Railway Company and CSX  Transportation, Inc. Joint Press Release, dated August 30, 2004.

  |
|   | A report on Form 8-K  was filed on August 24, 2004, advising that Norfolk Southern Railway Company  and CSX Transportation, Inc. issued a joint press release announcing the  results of: (i) the offer to exchange new unsecured debt securities  guaranteed by Norfolk Southern Railway Company and CSX Transportation, Inc.  and cash for existing unsecured debt securities of Consolidated Rail  Corporation and (ii) the consent solicitation related to the restructuring of  the secured debt of Consolidated Rail Corporation, and attaching as an  exhibit the related press release.

                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
|   | A report on Form 8-K  was filed onAugust 9, 2004, advising that  Norfolk Southern Railway Company, CSX Transportation, Inc. and Consolidated  Rail Corporation issued a joint press release announcing the increased cash  consideration and other terms to their exchange offer and consent  solicitation, and attaching as an exhibit the related press release.

                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
|   | A report on Form 8-K  was filed on July 30, 2004, updating financial information contained in  Norfolk Southern Railway Company's Registration Statement on Form S-4 (File  No. 333-114795) which was declared effective on July 26, 2004, and attaching  as exhibits the following: (1) Ranking of the Indebtedness of CSX  Transportation, Inc. and Norfolk Southern Railway Company; (2) Selected  Historical Financial Data of Consolidated Rail Corporation as of June 30,  2004; (3) Unaudited Pro Forma Financial Information of Consolidated Rail  Corporation as of June 30, 2004; (4) Management's Discussion and Analysis of  Financial Condition and Results of Operations of Consolidated Rail  Corporation as of June 30, 2004; (5) Unaudited Pro Forma Financial  Information of Norfolk Southern Railway Company as of June 30, 2004; (6)  Norfolk Southern Railway Company Capitalization; (7) Norfolk Southern Railway  Company Ratio of Earnings to Fixed Charges; and (8) Unaudited Consolidated  Financial Statements of Consolidated Rail Corporation.

                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |

** **

**SIGNATURES**

 

 

Pursuant to the requirements of the SecuritiesExchange Act of 1934, the Registrant has duly caused this report to be signedon its behalf by the undersigned thereunto duly authorized.

 

 
|   |             | NORFOLK  SOUTHERN RAILWAY COMPANY |
|--------|------------------|-----------------------------------|
|   |             | Registrant                        |
|   |             |                              |
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| Date:  | October 28, 2004 | /s/  Reginald J. Chaney           |  
 

 

Reginald  J. Chaney

 

 

Corporate  Secretary (Signature)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Date:

October 28, 2004

/s/Marta R. Stewart

 
 

 

Marta   R. Stewart

 

 

Vice  President and Controller

 

 

(Principal  Accounting Officer) (Signature)

 
****
**Exhibit Index******

 

 

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Electronic
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**Submission**

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**Exhibit**

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**Number**

**Description******

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31

Rule 13a-14(a)/15d-14(a)  Certifications.

 

 

 

 

32

Section  1350 Certifications.

** **

 

 

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