David R. Goode Chairman, President and Chief Executive Officer

Dear Fellow Stockholders:

In 1999, Norfolk Southern made a difficult transition as we integrated a large portion of Conrail into our transportation network. Despite our intensive planning and the undivided concentration of our great Norfolk Southern people, this undertaking proved more complex than anticipated. This has been your company's greatest challenge — a challenge that cost us this year financially and in service to our customers.

Pressure on the bottom line was compounded by the weakest export coal market in more than two decades and fuel prices that nearly doubled during the course of the year. As a result, we recorded net income of $239 million, or 63 cents per share, down 62 percent compared with income from continuing operations in 1998.

All of us at Norfolk Southern are strongly committed to improvement. We aspire to be the best in safety, service and in building value. As stockholders ourselves, we are acutely aware of the importance of producing prompt improvements in shareholder value and are dedicated to that end.

In spite of the challenges, we continue to focus on building for the future and rewarding our shareholders. Norfolk Southern made capital investments of $912 million last year, which reaffirms our commitment to the long-term value of the Conrail transaction and our conviction that the new Norfolk Southern will succeed and deliver the promised results.

During 1999, we concentrated on restoring service and improving deliveries for our customers. This year, as we continue to improve service, we also are focused on increasing revenues, reducing expenses and increasing profitability for our investors.

Executing the Transition

In my letter last year, I outlined goals for 1999, the primary one being successful integration of a large new territory to create an entirely new Norfolk Southern. We knew that putting in place and executing an integrated operating plan were the keys to success. However, we missed the mark on execution and found we needed to adjust our plans.

Our employees dedicated themselves to overcoming the early challenges and service interruptions caused by transaction-related problems, and Norfolk Southern made enormous progress during the year. Thousands deserve special recognition and thanks for going the extra mile to help customers in conditions that were far from ideal after the June 1 closing of the transaction.

At the same time, we made additional financial commitments to improve service, including more locomotives, extra cars, and investments in capacity improvements. Regrettably, we paid a short-term price in lower earnings, which were made even worse because of business lost due to service difficulties.

Lessons learned from experience are helping us improve service and achieve our vision to "be the safest, most customer-focused and successful transportation company in the world." I believe our people are more dedicated than ever to reaching that goal.

Norfolk Southern is committed to being a company with which customers want to do business, where employees are proud to work and where value is created for stockholders. We know that we have caused many of our customers to lose confidence in us as a result of 1999. That only increases our commitment to serving our customers better in the future.

Investments — both financial and in the time and effort of our employees — paid off. We have improved service, and we are moving forward. We now need to turn improvement into results.

Persevering

As great as the challenge of reshaping the nation's transportation network has been, it's certainly not the first hurdle Norfolk Southern has had to overcome in its century-long history. Our legacy shows that Norfolk Southern people, including those Conrail people who joined our team this year, are a determined, talented group in a resilient industry.

Some might say a difficult time like the second half of 1999 is best forgotten, but I believe we should remember and learn from the experience. We should remember how important thorough planning is, and we should remember how well our dedicated people respond to challenge.

David Goode addresses employees at Altoona, Pa., on June 1, 1999, the day Norfolk Southern launched operations over its expanded network in the Northeast.

I am proud of our employees who, like generations of railroaders before them, confronted change and persevered. I also want to thank our many partners for their cooperation: our customers, our short-line and regional rail partners, Amtrak, labor leadership and other carriers. Many stepped forward to help us, just as we offered assistance to other rail partners in the past.

Norfolk Southern is again on a sure and steady course to improve customer service and realize the benefits of our expanded rail system. We have reduced the number of cars on line, improved train speed across the system and cut the time cars spend in rail yards. We met performance and service goals, and we have set new stretch targets.

We are encouraged by performance barometers that show system efficiency improvements and remain committed to a strategy of growth through continuous improvement in safety, service and customer satisfaction. We are well on our way to regaining customer confidence and business.

On an on-going basis, teams from various departments analyze the network and deploy resources with better service and safety in mind. Infrastructure improvements increase capacity for existing traffic and anticipated new business, improve service reliability and provide additional capability for traffic growth. We continue to make improvements.

Building a Foundation for Growth

While 1999 service and financial results did not meet our expectations, we were successful in many ways.

Safety remains our top priority. Even in the midst of challenge, employees earned in 1999 our tenth consecutive E.H. Harriman Gold Medal award, an unprecedented accomplishment. We again set the industry standard, a remarkable safety achievement.

Despite the weakening in the export coal market, a significant milestone was reached in Thoroughbred Quality during the year when the Lamberts Point Pier 6 coal transload facility achieved ISO 9002 quality certification. The facility loaded its billionth ton of coal in 1999 and is the only one of its kind to reach that level. We believe we can continue a strong market position and revenue growth in this area of our business.

Norfolk Southern completed an accelerated rollout of a new data system for the former Conrail territory now referred to as the Northern Region. The Thoroughbred Yard Enterprise System (TYES) provides accurate, timely reports on car and train movements. This system is directly related to improved service and will be installed over the entire network later this year.

In addition, we accelerated implementation of a data management system for intermodal operations on the Northern Region. The installation of the Strategic Intermodal Management System (SIMS) was completed at least two months ahead of schedule and will help accommodate the aggressive growth of this business.

Investments in technology will reward your company in other ways. We are rapidly developing the company's capability in e-business. We are using technology to expand and improve our customer contacts and the ease of doing business with us.

In addition, in 1999 Norfolk Southern formed a new subsidiary — Thoroughbred Technology and Telecommunications, Inc. — to make its assets available in the fast-growing technology field and capitalize on our capacity in fiber optics, wireless communications and logistics technology. We expect these commitments to enhance our returns in future years.

Going Forward

We have learned a lot this past year about the strength and resilience of our extended network. We are putting that knowledge to work to improve operating efficiency, service reliability and customer satisfaction. With those improvements, we will increase profitability and total returns to our owners.

We are focused on capturing the synergies that we believe our expanded system makes possible. With the investments we have made, we know that we have the track infrastructure and facilities to make this new network thrive over the long term.

We realize there is a great deal of work ahead to regain fully customer confidence and to rebuild and expand our revenue base while improving our cost structure. That is our focus in the coming year. With the strength of our expanded franchise and the continued support of our employees, we are creating the momentum for 2000 and beyond.

I am confident that we have what it takes to deliver the performance our customers deserve and post the returns our stockholders expect. Our goal for 2000 is to build on the recovery and improvements we have made and give our customers, our investors, our people and our communities the results they expect. We know we have the system. We know we can do it. We will get the job done.

Although our roots wind back to the 1800s, Norfolk Southern has a barely tapped world of opportunity before us. The new Norfolk Southern is a franchise in its infancy, a true growth company packed with potential. We can — and will — deliver.

David R. Goode
Chairman, President and Chief Executive Officer

January 25, 2000