TABLE OF CONTENTS

NORFOLK SOUTHERN CORPORATION AND SUBSIDIARIES (NS)

2

PART I.   FINANCIAL INFORMATION

Item 1.   Financial Statements.

NORFOLK SOUTHERN CORPORATION AND SUBSIDIARIES

Consolidated Statements of Income

  (Unaudited)

NORFOLK SOUTHERN CORPORATION AND SUBSIDIARIES

Consolidated Balance Sheets

(Unaudited)

NORFOLK SOUTHERN CORPORATION AND SUBSIDIARIES

Consolidated Statements of Cash Flows

(Unaudited)

NORFOLK SOUTHERN CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

In the opinion of management, the accompanying unaudited interim financial statements contain all adjustments (consisting of normal recurring accruals) necessary to present fairly Norfolk Southern Corporation and subsidiaries' (NS) financial positioncondition as of March 31,Sept. 30, 2007, and its results of operations for the three and nine months ended Sept. 30, 2007 and 2006, and its cash flows for the threenine months ended March 31,Sept. 30, 2007 and 2006, in conformity with U.S. generally accepted accounting principles.

These Consolidated Financial Statements should be read in conjunction with the financial statements and notes included in NS’ latest Annual Report on Form 10‑K.

1.   Stock-Based Compensation

DuringIn the first quarter of 2007, a committee of nonemployeenon-employee directors of NS’ Board of Directors granted stock options, restricted stock units and performance share units (PSUs) pursuant to the Long-Term Incentive Plan (LTIP) and granted stock options pursuant to the Thoroughbred Stock Option Plan (TSOP) as discussed below.   Stock-based compensation expense was $51$14 million during the firstthird quarter of 2007 and $84a benefit of $1 million duringfor the same period of 2006.   For the first nine months of 2007 and 2006, stock-based compensation expense was $82 million and $100 million, respectively.   The total tax effect recognized in income in relation to stock-based compensation was $17a benefit of $5 million and $29an expense of less than $1 million for the quarters ended March 31,Sept. 30, 2007 and 2006, and benefits of $27 million and $34 million for the first nine months of 2007 and 2006, respectively.

Stock Options

In the first quarter of 2007, 1,203,300 options were granted under the LTIP and 251,000 options were granted under the TSOP.   In each case, the grant price was $49.56, which was the fair market value of Norfolk Southern Corporation Common Stock (Common Stock) on the date of grant, and the options have a term of ten years but may not be exercised prior to the third anniversary of the date of grant.   Holders of the options granted under the LTIP receive cash dividend equivalent payments for five years commensurate with dividends paid on Common Stock.

The fair value of each option award in 2007 was measured on the date of grant using a lattice-based option valuation model.   Expected volatilities are based on implied volatilities from traded options on Common Stock and historical volatility of Common Stock.   NS uses historical data to estimate option exercises and employee terminations within the valuation model.   The average expected option life is derived from the output of the valuation model and represents the period of time that options granted are expected to be outstanding.   The average risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant.   For options granted that include dividend equivalent payments, a dividend yield of zero was used.   The assumptions for the 2007 LTIP grant are shown in the following table:

The grant-date fair value of the 2007 TSOP grant was $17.88 using the same assumptions as the 2007 LTIP grant, except a dividend yield of 1.5% was used because no dividend equivalents are paid on these options and the average expected option life was 6.5 years.

DuringFor the first quarternine months of 2007, 1,091,1084,611,841 options were exercised yielding $26$114 million of cash proceeds and $15$52 million of tax benefits recognized as additional paid-in capital, compared with $132capital.   For the first nine months of 2006, option exercises resulted in $170 million of cash proceeds and $51$70 million of tax benefits in the same period of 2006.benefits.

Restricted Shares and Restricted Stock Units

There were 291,450321,450 restricted stock units granted in 2007, with aan average grant-date fair value of $49.56$50.01 and a five-year restriction period.   There were no restricted shares granted in 2007; however, the restricted stock units granted in 2007 will be settled through the issuance of shares of Common Stock.

DuringFor the first quarternine months of 2007, 247,086270,839 restricted shares were vested and 164,725167,027 restricted units were paid out with a grant-dategrant date fair value of $22.06$23.11 and $22.22 per share, respectively, and a fair value at vesting of $49.56$48.21 and $47.82 per share.share, respectively.

Performance Share Units

PSUs provide for awards based on achievement of certain predetermined corporate performance goals at the end of a three-year cycle.   There were 1,203,300 PSUs granted with a grant-date fair value of $49.56 in 2007.   One-half of any PSUs earned will be paid in the form of shares of Common Stock with the other half to be paid in cash.

DuringFor the first quarternine months of 2007, 717,554 PSUs were earned and paid out, one-half in shares of Common Stock, and one-half in cash.   These PSUs had a grant-date fair value of $22.02 per unit and a fair value at pay out of $49.56 per unit.

2.  Income Taxes

In June 2006, the Financial Accounting Standards Board (FASB) issued Interpretation No. 48, “Accounting for Uncertainty in Income Taxes” (FIN 48).   This Interpretation clarifies accounting for uncertainty in income taxes recognized in an enterprise’s financial statements in accordance with Statement of Financial Accounting Standards (SFAS) No. 109, “Accounting for Income Taxes.”   FIN 48 prescribes a recognition threshold and measurement attribute for a tax position taken or expected to be taken in a tax return.   Under the guidelines of FIN 48, an entity should recognize a financial statement benefit for a tax position if it determines that it is more likely than not that the position will be sustained on examination.

Norfolk Southern adopted the provisions of FIN 48 on Jan. 1, 2007.   As a result of the implementation, NS recognized a $10 million increase to equity, $2 million of which related to investments accounted for under the equity method of accounting.   The balance for unrecognized tax benefits at Jan. 1, 2007, was $179 million.   The total amountmillion, of unrecognized tax benefits at Jan. 1, 2007, that, if recognized, would affect the effective tax rate waswhich $44 million (net of the federal tax benefit). would affect the effective tax rate if recognized.   Primarily due to changes in estimates upon the filing of 2006 tax returns, the Jan. 1, 2007, balance for unrecognized tax benefits has declined by $19 million, principally for tax positions for which only the timing of deductibility is uncertain.   NS does not expect a significant change in itsthe remaining Jan. 1, 2007, unrecognized tax benefits between now and the end of 2007.

NS recognizes interest related to unrecognized tax benefits in “Other income – net” and penalties related to tax matters in “Provision for income taxes.”   At Jan. 1, 2007, the balance of interest accrued on unrecognized tax benefits and any penalties related to tax matters was $17 million and zero, respectively.

NS’ consolidated federal income tax returns for 2004 and 2005 are being audited by the Internal Revenue Service (IRS).   The IRS completed its examination of the 2002 and 2003 consolidated federal income tax returns during the third quarter of 2006 and NS appealed certain adjustments proposed by the IRS.

In the third quarter of 2007, Illinois enacted tax legislation that modifies the way in which transportation companies apportion their taxable income to the state.   The change resulted in an increase in NS’ deferred income tax liability in the third quarter, as required by Statement of Financial Accounting Standards No. 109, “Accounting for Income Taxes,” which increased deferred tax expense by $19 million.

3.  Earnings Per Share

The following tables set forth the calculation of basic and diluted earnings per share:

Income available to common stockholders for 2007 and 2006 reflects a $1 million reduction for the after-tax effect of dividend equivalent payments made to holders of vested stock options.options as follows:   for the third quarters of 2007 and 2006, $2 million, and for the first nine months of 2007 and 2006, $4 million.

The diluted calculations exclude options having exercise prices exceeding the average market price of Common Stock as follows:   none in the third, second and first quarterquarters of 2007 and, for 2006, 1 million in the third quarter, none in the second quarter and 1 million in the first quarter of 2006.quarter.

4.   Stock Purchase Program

In March 2007, NS’ Board of Directors amended NS’ share repurchase program authorizing the repurchase of up to 75 million shares of Common Stock through the end of 2010.   The timing and volume of any purchases will be guided by management’s assessment of market conditions and other pertinent facts.   Near-term purchases under the program are expected to be made with internally generated cash; however, future funding sources could include proceeds from the sale of commercial paper notes or the increase of long-term debt.financings.

NS purchased and retired 5.615.1 million shares of its common stock under this program in the first quarternine months of 2007 at a cost of $276$769 million, of which $252$702 million was charged to retained income.   In total,Since inception, NS has purchased and retired 27.436.9 million shares at a total cost of $1.2$1.7 billion under this program.

5.   Investment in Conrail

Through a limited liability company, Norfolk Southern Corporation ( Norfolk Southern) 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 the economic and voting interests.   NS’ investment in Conrail was $859$874 million at March 31,Sept. 30, 2007, and $849 million at Dec. 31, 2006.

CRC owns and operates certain properties (the Shared Assets Areas) for the joint and exclusive benefit of Norfolk Southern Railway Company (NSR) and CSX Transportation, Inc. (CSXT).   The costs of operating the Shared Assets Areas are borne by NSR and CSXT based on usage.   In addition, NSR and CSXT pay CRC a fee for access to the Shared Assets Areas.   "Materials, services and rents" includes expenses of $33 million in the first quarter of 2007 compared with $32 million in the same period of 2006 for amounts due to CRC for operation of the Shared Assets Areas.Areas of $30 million in each of the third quarters of 2007 and 2006, and $94 million and $93 million, respectively, for the first nine months of 2007 and 2006.   NS’ equity in the earnings of Conrail, net of amortization, included in “Other income – net” was $5$10 million and $9 million in the first quarterthird quarters of 2007 and $62006, respectively, and $21 million duringand $20 million for the same periodfirst nine months of 2006.2007 and 2006, respectively.

“Accounts payable” includes $62$76 million at March 31,Sept. 30, 2007, and $68 million at Dec. 31, 2006, due to Conrail for the operation of the Shared Assets Areas.   In addition, “Other liabilities” includes $133 million in long-term advances from Conrail, maturing 2035, entered into in 2005 that bear interest at an average rate of 4.4%.

6.  Derivative Financial Instruments

All derivatives are recognized in the financial statements as either assets or liabilities and are measured at fair value.   Changes in fair value are recorded as adjustments to the assets or liabilities being hedged in “Other comprehensive loss,” or in current earnings, depending on whether the derivative is designated and qualifies for hedge accounting, the type of hedge transaction represented and the effectiveness of the hedge.

NS has used derivative financial instruments in the past to reduce the risk of volatility in its diesel fuel costs and currently to manage its overall exposure to fluctuations in interest rates.   NS does not engage in the trading of derivatives.   Management has determined that its derivative financial instruments qualify as either fair-value or cash-flow hedges, having values that highly correlate with the underlying hedged exposures, and has designated such instruments as hedging transactions.   Credit risk related to the derivative financial instruments is considered to be minimal and is managed by requiring high credit standards for counterparties and periodic settlements.  

Diesel Fuel Hedging

In 2001, NS began a program to hedge a portion of its diesel fuel consumption.   The intent of the program was to assist in the management of NS' aggregate risk exposure to fuel price fluctuations, which can significantly affect NS' operating margins and profitability, through the use of one or more types of derivative instruments.   No new hedges have been entered into since May 2004, and the last remaining contracts were settled in the second quarter of 2006, bringing an end to this program.   First quarter 2006There was no reduction in diesel fuel expense includedin the third quarter of 2006, but a $15$20 million benefit, from fuel hedging activities.activities, for the first nine months of 2006.   There werewas no fuel hedging activitiesactivity in 2007.

Interest Rate Hedging

NS manages its overall exposure to fluctuations in interest rates by issuing both fixed and floating-rate debt instruments, and by entering into interest rate hedging transactions to achieve an appropriate mix within its debt portfolio.   NS had $76$65 million and $83 million, or about 1%, of its fixed rate debt portfolio hedged as of March 31,Sept. 30, 2007, and Dec. 31, 2006, using interest rate swaps that qualify for and are designated as fair-value hedge transactions.   NS’ interest rate hedging activity resulted in decreases inThe effect of the swaps was to reduce interest expenses ofby less than $1 million forin the third quarter and first quarternine months of 2007 and about $1 million for first quarter 2006.as well as the same periods in 2006, respectively.   These swaps have been effective in hedging the changes in fair value of the related debt arising from changes in interest rates and there has been no impact on earnings resulting from ineffectiveness associated with these derivative transactions.

Fair Values

Fair values of interest rate swaps at March 31,Sept. 30, 2007, and Dec. 31, 2006, were determined based upon the present value of expected future cash flows discounted at the appropriate implied spot rate from the spot rate yield curve.   Fair value adjustments are noncash transactions and, accordingly, are excluded from the Consolidated Statements of Cash Flows.

The total net asset and liability positionsposition of NS' outstanding derivative financial instruments were as follows:was comprised of a gross fair value asset position of $1 million at both Sept. 30, 2007, and Dec. 31, 2006.

7.   Pensions and Other Postretirement Benefits

Norfolk Southern and certain subsidiaries have both funded and unfunded defined benefit pension plans covering principally salaried employees.   Norfolk Southern and certain subsidiaries also provide specified health care and death benefits to eligible retired employees and their dependents.   Under the present plans, which may be amended or terminated at NS’ option, a defined percentage of health care expenses is covered, reduced by any deductibles, co-payments, Medicare payments and, in some cases, coverage provided under other group insurance policies.

Pension and Other Postretirement Benefit Cost Components

NS previously disclosed in its consolidated financial statements for the year ended Dec. 31, 2006, that it expected to pay $8 million to its unfunded pension plans and $45 million to its other postretirement (medical and life insurance) benefit plans in 2007 to cover benefit payments.   For the three months ended March 31, 2007, $2 million and $12 million

The estimated amortization of contributions have been made to its unfunded pension plans and its other postretirement benefit plans, respectively.   NS presently anticipates that prior to year end it will contribute an additional $6 million to its unfunded pension plans for a total of $8 million and an additional $33 million to fund its other postretirement benefit plans for a total of $45 million.

NS previously disclosed in its consolidated financial statements for the year ended Dec. 31, 2006, that $9 million of estimated net losses and $2 million of prior service cost for the defined benefit pension plans will be amortizedcertain items from accumulated other comprehensive lossincome (loss) into net periodic benefit cost in 2007.   For the first three months ended March 31, 2007, $2 million of estimated net losses and $1 million of prior service cost were amortized from accumulated other comprehensive loss.   NS presently anticipates that prior to year end it will amortize an additional $7 million of net losses and $1 million of prior service cost from accumulated other comprehensive loss for a total of $9 million and $2 million, respectively.is as follows:

NS previously disclosed in its consolidated financial statements for the year ended Dec. 31, 2006, that $23 million of estimated net losses and $8 million of prior service benefit for the other defined benefit postretirement plans will be amortized from accumulated other comprehensive loss into net periodic benefit cost in 2007.   For the first three months ended March 31, 2007, $7 million of estimated net losses and $2 million of prior service benefit were amortized from accumulated other comprehensive loss.   NS presently anticipates that prior to year end it will amortize an additional $16 million of net losses and $6 million of prior service benefit from accumulated other comprehensive loss for a total of $23 million and $8 million, respectively.

8.  Comprehensive Income

NS' total comprehensive income was as follows:

“Other comprehensive income (loss)" in 2007 reflects primarily, net of tax, the amortization of the actuarial net losses and prior service costs for the pension and other postretirement benefit plans and unrealized gains and losses on available-for-sale securities.   “Other comprehensive income (loss)” in 2006 reflects primarily, net of tax, unrealized gains and losses on available-for-sale securities and for 2006, the fair value adjustments to certain derivative financial instruments.

9.    Commitments and Contingencies

Lawsuits

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

Casualty Claims

Casualty claims include employee personal injury and occupational claims as well as third-party claims, all exclusive of legal costs.   NS engages an independent consulting actuarial firm to aid in valuing its liability for these claims.   Job-related accidental injury and occupational claims are subject to the Federal Employers’ Liability Act (FELA), which is applicable only to railroads.   FELA’s fault-based system produces results that are unpredictable and inconsistent as compared with a no-fault workers’ compensation system.   The variability inherent in this system could result in actual costs being very different from the liability recorded.   While the ultimate amount of claims incurred is dependent on future developments, in management’s opinion, the recorded liability is adequate to cover the future payments of claims and is support ed by the most recent actuarial study.   In all cases, NS records a liability when the expected loss for the claim is both probable and estimable.

In 2005, NS recorded a liability related to the Jan. 6, 2005 derailment in Graniteville , SC.   The liability, which includes a current and long-term portion, represents NS’ best estimate based on current facts and circumstances.   The estimate includes amounts related to business property damage and other economic losses, personal injury and individual property damage claims as well as third-party response costs.   NS’ commercial insurance policies are expected to cover substantially all expenses related to this derailment above NS’ self-insured retention, including NS’ response costs and legal fees.   Accordingly, the Consolidated Balance Sheets reflect a current and long-term receivable for estimated recoveries from NS’ insurance carriers.   While it is reasonable to expect that the liability for covered losses could differ from the amount recorded, such a change would be offset by a corresponding change in the insurance receivable.   As a result, NS does not believe that it is reasonably likely that its net loss (the difference between the liability and future recoveries) will be materially different than the loss previously recorded.   NS expects at this time that insurance coverage is adequate to cover potential claims and settlements above its self-insurance retention.

Employee personal injury claims – The largest component of casualties and other claims expense is employee personal injury costs.   The actuarial firm engaged by NS provides quarterly studies to aid in valuing its employee personal injury liability and estimating its employee personal injury expense.   The actuarial firm studies NS’ historical patterns of reserving for claims and subsequent settlements, ta ki ng into account relevant outside influences.   The actuary uses the results of these analyses to estimate the ultimate amount of the liability, which includes amounts for incurred but unasserted claims.   NS adjusts its liability to the actuarially determined amount on a quarterly basis.   The estimate of loss liabilities is subject to inherent limitation given the difficulty of predicting future events such as jury decisions, court interpretations or legislative changes and as such the actual loss may vary from the actuarial estimate.

Occupational claims – Occupational claims (including asbestosis and other respiratory diseases, as well as repetitive motion) are often not alleged to be caused by a specific accident or event but rather are alleged to result from a claimed exposure over time.   Many such claims are being asserted by former or retired employees, some of whom have not been employed in the rail industry for decades.   The actuarial firm provides an estimate of the occupational claims liability based upon NS’ history of claim filings, severity, payments and other pertinent facts.   The liability is dependent upon management’s judgments made as to the specific case reserves as well as judgments of the consulting actuarial firm in the periodic studies.   The actuarial firm’s estimate of ultimate loss includes a provision for those claims that have been incurred but not reported.   This provision is derived by analyzing industry data and projecting NS’ experience into the future as far as can be reasonably determined.   NS adjusts its liability to the actuarially determined amount on a quarterly basis.   However, it is possible that the recorded liability may not be adequate to cover the future payment of claims.   Adjustments to the recorded liability are reflected in operating expenses in the periods in which such adjustments become known.

Third-party claims – NS records a liability for third-party claims including those for highway crossing accidents, trespasser and other injuries, automobile liability, property damage and lading damage.   The actuarial firm assists with the calculation of potential liability for third-party claims, except lading damage, based upon NS’ experience including number and timing of incidents, amount of payments, settlement rates, number of open claims and legal defenses.   The actuarial estimate includes a provision for claims that have been incurred but have not yet been reported.   Each quarter NS adjusts its liability to the actuarially determined amount.   Given the inherent uncertainty in regard to the ultimate outcome of third-party claims, it is possible that future settlement costs may differ from the estimated liability recorded.

Environmental Matters

NS is subject to various jurisdictions' environmental laws and regulations.   It is NS' policy to record a liability where such liability or loss is probable and its amount can be estimated reasonably.   Claims, if any, against third parties for recovery of cleanup costs incurred by NS are reflected as receivables (when collection is probable) on the balance sheet and are not netted against the associated NS liability.   Environmental engineers regularly participate in ongoing evaluations of all known sites and in determining any necessary adjustments to liability estimates.   NS also has an Environmental Policy Council, composed of senior managers, to oversee and interpret its environmental policy.

NS' Consolidated Balance Sheets included liabilities for environmental exposures in the amount of $52$47 million at March 31,Sept. 30, 2007, and $54 million at Dec. 31, 2006 (of which $12 million was accounted for as a current liability at March 31, 2007, and Dec. 31, 2006)the end of each period, respectively).   At March 31,Sept. 30, 2007, the liability represented NS' estimate of the probable cleanup and remediation costs based on available information at 164155 known locations.   On that date, 1413 sites accounted for $28$25 million of the liability, and no individual site was considered to be material.   NS anticipates that much of this liability will be paid out over five years; however, some costs will be paid out over a longer period.

At 32 locations, one or more subsidiaries of NS, usually in conjunction with a number of other parties, have been identified as potentially responsible parties by the Environmental Protection Agency (EPA) or similar state authorities under the Comprehensive Environmental Response, Compensation and Liability Act of 1980, or comparable state statutes, which often impose joint and several liability for cleanup costs.

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

The risk of incurring environmental liability – for acts and omissions, past, present and future – is inherent in the railroad business.   Some of the commodities in NS' traffic mix, particularly those classified as hazardous materials, can pose special risks that NS and its subsidiaries work diligently to minimize.   In addition, several NS subsidiaries own, or have owned, land used as operating property, or which is leased and operated by others, or held for sale.   Because environmental problems may exist on these properties that are latent or undisclosed, there can be no assurance that NS will not incur environmental liabilities or costs with respect to one or more of them, the amount and materiality of which cannot be estimated reliably at this time.   Moreover, lawsuits and claims involving these and potentially other unidentified environmental sites and matters are likely to arise from time to time.   The resulting liabilities could have a significant effect on financial condition, results of operations or liquidity in a particular year or quarter.

However, based on its assessment of the facts and circumstances now known, management believes that it has recorded the probable costs for dealing with those environmental matters of which NS 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 on NS' financial position,condition, results of operations or liquidity.

On Oct. 19, 2006, the Pennsylvania Department of Environmental Protection (PDEP) issued an assessment of civil penalties against NS and filed a complaint for civil penalties with the Pennsylvania Environmental Hearing Board (EHB) requesting that the EHB impose civil penalties upon NS for alleged violations of state environmental laws and regulations resulting from a discharge of sodium hydroxide that occurred as a result of the derailment of a NS train in Norwich Township, Pennsylvania, on June 30, 2006.   The PDEP’s actions seeksought to impose combined penalties of $8,890,000 for alleged past violations and $46,420 per day for alleged ongoingcontinuing violations of state environmental laws and regulations.   NS believes that the monetary penalties sought by the PDEP are excessive.   Accordingly, NS intends to vigorously defend the action and has appealed the fines to the EHB.   In addition, NS expects theThe Pennsylvania Fish and Boat Commission to impose a monetary penalty on NSsought financial restitution for damages alleged to have been caused by this accident.   In addition, the Pennsylvania Attorney General and the McKean County District Attorney filed three misdemeanor charges for alleged violations of state environmental and aquatic resource protection laws and regulations.   NS does not believehas reached a settlement agreement with all Commonwealth of Pennsylvania parties, subject to execution of a written agreement and the passage of statutory comment and appeal periods.   Pursuant to that agreement, which will resolve all claims by the outcomeCommonwealth for civil liability resulting from the derailment and spill, NS will pay approximately $7.35 million in restitution to compensate for all natural resource damages and the agencies’ response costs caused by the derailment and spill.   NS has also reached a verbal agreement with the Pennsylvania Attorney General and the McKean County District Attorney, under which NS will plead no contest and pay a fine of these proceedings will haveapproximately $250,000 to the Attorney General’s office to resolve the misdemeanor charges brought against it as a material effect on its financial position, resultsresult of operations, or liquidity.the derailment.    

Insurance

NS obtains on behalf of itself and its subsidiaries insurance for potential losses for third-party liability and first-party property damages.   Specified levels of risk are retained on a self-insurance basis (up to $25 million per occurrence for bodily injury and property damage to third parties and $25 million per occurrence for property owned by NS or in NS’ care, custody or control).

Purchase Commitments

At Sept. 30, 2007, NSR had outstanding purchase commitments of approximately $214$415 million primarily for coal hoppers, locomotives, RoadRailer® trailers, track material and gondolas in connection with its capital programs through 2009, including $50 million for locomotives in 2007 and $123 million for gondola cars and RoadRailer® trailers.2009.

Report of Independent Registered Public Accounting Firm

The Stockholders and Board of Directors

Norfolk Southern Corporation:

We have reviewed the accompanying consolidated balance sheet of Norfolk Southern Corporation and subsidiaries as of March 31,September 30, 2007, the related consolidated statements of income for the three-month and nine-month periods ended September 30, 2007 and 2006 and the related consolidated statements of income and cash flows for the three-monthnine-month periods ended March 31,September 30, 2007 and 2006.   These consolidated financial statements are the responsibility of the Company’s management.

We conducted our reviews in accordance with the standards of the Public Company Accounting Oversight Board ( United States ).   A review of interim financial information consists principally of applying analytical procedures and makingma ki ng inquiries of persons responsible for financial and accounting matters.   It is substantially less in scope than an audit conducted in accordance with the standards of the Public Company Accounting Oversight Board ( United States ), the objective of which is the expression of an opinion regarding the financial statements taken as a whole.   Accordingly, we do not express such an opinion.

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

As discussed in note 2 to the consolidated financial statements, Norfolk Southern Corporation adopted Financial Accounting Standards Board Interpretation No. 48, Accounting for Uncertainty in Income Taxes, effective January 1, 2007.

We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet of Norfolk Southern Corporation and subsidiaries as of December 31, 2006, and the related consolidated statements of income, changes in stockholders’ equity and cash flows for the year then ended (not presented herein); and in our report dated February 20, 2007, we expressed an unqualified opinion on those consolidated financial statements.   Our report refers to Norfolk Southern Corporation’s adoption of Statement of Financial Accounting Standards No. 123 (revised 2004), Share-Based Payment, effective January 1, 2006, and Statement of Financial Accounting Standards No. 158, Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans, effective December 31, 2006.   In our opinion, the information set forth in the accompanying consolidated balance sheet as of December 31, 2006, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.

/s/ KPMG LLP

Norfolk , Virginia

April 24,October 25, 2007

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

NORFOLK SOUTHERN CORPORATION AND SUBSIDIARIES

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

OVERVIEW

NS’ first-quarterthird quarter 2007 results reflected lowercontinued weakness in the overall economy that dampened freight transportation demand.   Railway operating revenues decreased 2% as a 4% declinereduction in traffic volume compared with a strong quarter a year agowas only partially offset by higher average revenue per unit.   The decrease in revenues exceeded a decline inRailway operating expenses which resulted in lower income fromwere about even with the third quarter of 2006, and the railway operations and a higher operating ratio (a measure of the amount of operating revenues consumed by operating expenses) of 76.5%rose to 71.1% compared with 76.1%70.1% for the firstthird quarter of 2006.

Despite the decline in operating income, cashCash provided by operating activities improved which, combined with a $74 million decrease in cashfor the first nine months was $1.8 billion and provided funding for capital expenditures, debt maturities and dividends.   Cash and short-term investment balances during the quarter, provided funding for sharewere used to fund third-quarter repurchases capital expenditures, dividends and debt maturities.   At March 31, 2007, cash and short-term investment balances totaled $844 million.

In the first quarter of 2007, NS purchased and retired 5.66.7 million shares of Common Stock at a total cost of $276 million under the share repurchase program amended by the Board of Directors on March 27, 2007.   Under the amended program, the Board has authorized the repurchase of up to 75 million shares of Common Stock through the end of 2010.   In total, NS has purchased$341 million.  At Sept. 30, 2007, cash and retired 27.4 million shares at a total cost of $1.2 billion under this program.short-term investment balances totaled $418 million.

SUMMARIZED RESULTS OF OPERATIONS

First-quarterThird-quarter 2007 net income was $285$386 million, in 2007down $30 million, or 7%, compared with $305the same period last year.   The decline primarily resulted from a $34 million in 2006.   The decrease was principally due to lowerin income from railway operations and a $10 million decline in nonoperating income which were partially offset by a $13 million reduction in interest expense.   In addition, third quarter net income was reduced by a $19 million increase in deferred tax expense resulting from an Illinois tax law change.

For the first nine months of 2007, net income was $1.1 billion, down $23$31 million, or 4%, and decreased nonoperating income, down $23 million, or 27%3%, compared with last year.   Railway operating revenues decreased $56the same period of 2006.   A $44 million or 2%, reflectingdecrease in income from railway operations, lower traffic volumesnonoperating income and the effects of the Illinois tax law change were partially offset by higher average revenues per unit, including fuel surcharges.   Railway operating expenses decreased $33lower interest expense and a $9 million or 2%, largely because of lower compensation andincrease in net benefits costs.   Nonoperating income was lower largely because of less gains from sales of property.synthetic fuel-related investments.

DETAILED RESULTS OF OPERATIONS

Railway Operating Revenues

First-quarterThird-quarter railway operating revenues were $2.2$2.4 billion in 2007, down $56$40 million, or 2%, compared with the third quarter of 2006.   For the first quarternine months, railway operating revenues were $7.0 billion in 2007, down $110 million, or 2%, compared with the same period of 2006.   As shown in the following table, the decrease wasdecreases were the result of lower traffic volume (down 4% for both periods) offset in part by increased average revenue per unit.unit (up 2.5% for the third quarter and 2.7% for the first nine months).

Traffic volume decreased 4% in the first quarter of 2007, while revenue per unit increased 2%.   The revenue per unit increase was moderated by the absence of higher-rated business, particularly traffic related to hurricane recovery efforts that lowered overall revenue per unit by 2%.

On January 26, 2007, the Surface Transportation Board (STB) issued a decision that the type of fuel surcharge imposed by NS and most other large railroads – a fuel surcharge based on a percentage of line haul revenue – would no longer be permitted for regulated traffic that moves under public (tariff) rates.   The STB gave the railroads a 90‑day transition period to adjust their fuel surcharge programs.   Effective April 1, 2007,During the second quarter, NS discontinued assessing fuel surcharges on its localpublished (non-intermodal) public rates.   Future adjustments to public prices will reflect ongoing market conditions.   NS does not expect that compliance with the new STB regulations will have a material effect on its financial condition, results of operations or liquidity.

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

Coal

Coal revenues decreased $2$17 million, or 3%, in the third quarter and $24 million, or 1%, in the first nine months, compared with the same periodperiods last year,year.   For the third quarter, the decrease reflected a 2% decline in carloads and a 1% decline in average revenue per unit.   For year-to-date, the decrease reflected a 3% decline in carloads that offset a 2% increase in the average revenue per unit.   For both periods, tonnage handled showed smaller decreases reflecting lower volumes (units), whichincreases in tons per carload.   Coal tonnage by market was as follows:

Utility coal tonnage declined 3% in the third quarter and in the first nine months as high stockpile levels led to reduced shipments, despite fairly strong electric generation that was up 4% in both periods in the NS service region.   Export coal tonnage increased 44% for the third quarter that were largely offset byand 26% for the first nine months, reflecting loading delays at Australian ports and increased demand due to a 3% improvement in average revenues per unit, reflecting increased rates ..lower valued dollar.   Domestic metallurgical coal, coke and iron ore tonnage declined 24%14% in the third quarter and 15% in the first quarternine months due to coke furnace outages, mine production outages and reduced spot iron ore traffic and lower volumes of imported coke.   Utility coal tonnage decreased 2%, reflecting weather-related service disruptions in the northern service region that were partially offset by increased shipments to power plants in the southern service region.   Export coal tonnage increased 5%, reflecting loading delays at Australian ports and a weaker dollar.traffic.   Industrial coal tonnage increased 19%2% for the third quarter and 9% for the first nine months compared with 2006, principally due to new business and stronger demand.

NS is currently involved in litigation with Virginia Electric and Power Company/Old Dominion Electric Cooperative (Virginia Power) regarding rate adjustment provisions in a transportation contract between them.   During the thirdsecond quarter of 2006, a court order was entered in favor of NS, and in the fourth quarter 2006 Virginia Power filed a petition with2007, the Virginia Supreme Court appealing thisissued a decision that remanded the case to the trial court on the grounds that neither of its prior decisions constituted a final order.   Future developments and the ultimate resolution of this matter could result in NS recognizing additional revenues related to this dispute, which could have a favorable impact on results of operations in a particular year or quarter.

Coal revenues forin the remainder of the yearfourth quarter are expected to continuebe up slightly compared to be comparable to the prior year levels, as modestly higher utilityaverage revenue per unit and continued strength in the export coalmarkets are anticipated to offset weaker demand is expected to be tempered by continued softness in metallurgical coal and coke demand.from utilities.

General Merchandise

General merchandise revenues decreased $50increased $8 million, or 4%1%, in the firstthird quarter, compared with the same period last year, reflecting an 8%a 4% increase in average revenue per unit, which was partially offset by a 3% decline in traffic volume.   For the first nine months, general merchandise revenues decreased $33 million, or 1%, as a 5% decline in traffic volume which was partially offset by a 4% increase in average revenuesrevenue per unit.   Automotive volumes declined 14%, due principally to production cuts at Ford, General MotorsThe improvement in average revenue per unit for both periods reflected continued market-based pricing in all groups ..

General merchandise revenues for the second quarter are expected to trend modestly higher in the fourth quarter as improved year-over-year pricing should continue to reflect the softening in the automotive and housing sectors of the economy; however, volumes in other commodities are expected to recover in the second half of the year.offset modestly lower traffic volume.

Intermodal

Intermodal revenues decreased $4$31 million, or 1%6%, in the third quarter, and $53 million, or 4%, for the first quarternine months, compared with the same periodperiods last year, as modestlyprimarily due to lower traffic volumes (down 6% and 4%, respectively).   Intermodal average revenue per unit was flat for the third quarter and first nine months.

The declines for Truckload, IMCs and Triple Crown were primarily due to lower national demand for dry van shipments primarily resulting from weakness in the housing and automotive sectors.

·          International traffic volume declined 5% for the quarter and 4% for the first nine months, primarily driven by slightly higher average revenues per unit.reduced shipment of empty international containers, and less inland rail movement of West Coast port traffic.  

·          The Premium business, which includes parcel and LTL (less-than-truckload) carriers, decreased 3% in the third quarter, but increased 6%2% in the first nine months as improved parcel business offset declines among LTL carriers.   Truckload volume increased 2% due to continued business growth with traditional truckload companies.   International traffic volume was even with last year as a 7% increase in East Coast port volume was offset by a 6% decline in West Coast port volume.   Triple Crown Services Company volume was down 6%, reflecting automotive production cuts and the effects of 2006 automotive plant closures.   Domestic intermodal marketing companies (IMC) volume declined 7% reflecting lower demand in the face of higher available truck capacity.   Intermodal average revenue per unit increased 1%, as gains in International and Triple Crown Services Company offset declines in Domestic, Premium and Truckload revenue per unit.

Intermodal revenues in the fourth quarter are expected to show modest growth inbe about even with the second halffourth quarter of the year bolstered by new international business and strengthening in truckload and premium business.last year.

Railway Operating Expenses

First-quarterThird-quarter railway operating expenses were $1.7 billion in 2007, down $33$6 million, or 2%less than 1%, compared with the same period last year, largely due to lower compensation and benefits expense ..year.   For the first nine months, expenses were $5.1 billion, down $66 million, or 1%.

Compensation and benefits expenses decreased $40$5 million, or 6%1%, in the third quarter and $53 million, or 3%, in the first nine months, compared with the same periods last year. The decrease for the quarter was primarily the result of lower expenses for incentive compensation (down $10 million) and volume-related payroll (down $10 million) that were largely offset by higher stock-based compensation costs (up $15 million).   ThisFor the first nine months, the decrease primarily resulted fromreflected lower incentive compensation (down $35 million), the absence of the prior year retirement and waiver agreements with former executives as well as the cost of the regular stock-based grant to the former Chief Executive Officer who retired in the first quarter of 2006 ($24 million), reduced performance-based compensationlower volume-related payroll (down $17$22 million) and lower payroll taxes (down $12 million), which included a favorable resolution of a claim in the second quarter, that were partially offset by increased wage rates (up $20 million), and lower stock-based compensation attributable to changes in NS’ stock price (down $14   million) resulting from the $0.31 increase in the stock price in first quarter 2007 compared with a $9.24 increase during the same period last year.   These declines were offset in part by higher medical costs for health and welfare benefits (up $10 million) and increased wages (up $4$21 million).

Materials, services and rents decreased $6increased $3 million, or 1%, as lower equipment rents andin the absence of purchased services associatedthird quarter, but decreased $9 million, or 1%, for the first nine months, compared with the hurricane recovery traffic more thansame periods last year.   Higher maintenance and repair expenses were partially offset higher maintenance costs.for the quarter and completely offset for the year-to-date by lower volume-related equipment rents.

Diesel fuel expense increased $1 million for the third quarter, but decreased $12$22 million, or 5%3%, reflectingfor the first nine months compared with the same periods last year.   For the quarter, higher prices offset a 6%5% drop in consumption.   The year-to-date decline inresulted from lower consumption (down 5%) and a 5%modest decrease in price offset in part by the average price per gallon.absence of hedge benefits in 2007.   Last year favorable hedge settlements reduced fuel expenses by $15$20 million in the first half of the year.

Casualties and other claims expense decreased $17 million, or 34%, in the third quarter and $37 million, or 22%, for the first quarter.nine months, compared with the same periods last year.   The decline for the quarter reflected favorable personal injury and lading claims development, as well as a $5 million favorable settlement of a global insurance claim from Conrail’s legacy policies.   In addition, the year-to-date decrease reflected lower derailment costs.

Other railway operating expenses increased $17$4 million, or 28%7%, principallyin the third quarter and $28 million, or 15%, for the first nine months, compared with the same periods last year.   The increases were primarily due to higher franchise,property, sales and use, and propertyfranchise taxes.

Other Income – Net

Other income – net decreased $28$10 million in the third quarter and $50 million in the first nine months.   Interest income decreased $11 million for the quarter compared withand $24 million for the same period in 2006, principally due to lowerfirst nine months, while gains on the sale of property and investments increased $14 million for the quarter and $4 million for the first nine months.   In addition, the quarter reflected lower returns from corporate-owned life insurance (down $17$8 million) and the first nine months included higher expenses associated with synthetic fuel-related tax credit investments (up $6$19 million).

NS purchased a facility that produces synthetic fuel from coal in July 2007 and a second facility in August 2007.   NS also has membership interests representing ownership in companies that own and operate facilities that produce synthetic fuel from coal.   The production of synthetic fuel results in tax credits as well as expenses related to the investments.   The expenses are recorded as a component of “Other income – net,” and the tax credits, as well as tax benefits related to the expenses, are reflected in “Provision for income taxes” (see discussion below).

Provision for Income Taxes

The first-quarterthird-quarter effective income tax rate was 32.1%36.2% in 2007, compared with 34.5%34.6% last year.   For the first nine months, the effective rate was 34.5% in 2007 compared with 35.2% in 2006.   The decreaseincrease for the quarter was largely the result of deferred tax accruals arising from the Illinois tax legislation enacted in August (see Note 2).   For the first nine months, an increase in tax credits from synthetic fuel related investments.fuel-related investments largely offset the expenses associated with the Illinois tax legislation.

NS’ interests in synthetic fuel credits are subject to reduction if the Reference Price of a barrel of oil for the year falls within an inflation-adjusted phase-out range specified by the Internal Revenue Code.   The Reference Price for a year is the annual average wellhead price per barrel of unregulated domestic crude oil determined by the Secretary of the Treasury by April 1 of the following year.   In 2006, the phase-out range was $55.06 to $69.12, and the phase-out range is adjusted annually for inflation.   While NS cannot predict with certainty the Reference Price of a barrel of oil for 2007, based on actual oil prices during the first threenine months and forward curve prices for the remainder of 2007, in the firstthird quarter NS estimated a 15%43% phase-out of synthetic fuel credits in 2007 compared with an estimated phase-out of 45%36% in the firstthird quarter of 2006.

First-quarter netNet income for the third quarter and first nine months reflected a $2$1 million and $9 million increase, respectively, in net benefits from these credits, as compared with the same periodperiods in 2006, as shown below:

SubjectThe net benefits from these investments were higher in both periods, notwithstanding the higher phase-out, because of increased production, particularly from the new facilities.

Volatility in crude oil prices and changes in production levels, both of which are largely beyond NS’ control, could cause dramatic changes in the expenses and tax credits related to all of NS’ synthetic fuel investments.   The 43% phase-out equates to an average Nymex per-barrel oil price for the uncertainty associatedlast three months of the year of about $81.   A one dollar change in that average price changes the net benefit by almost $2 million.

The effect of the new synthetic fuel facilities, along with NS’ existing synthetic fuel investments in the fourth quarter of 2007, assuming the 43% phase-out, is projected to be as follows:

Based on these tax credits,projections it is expected that the effective tax rate will be approximately 34% for the full year 2007.   The tax credits generated by NS’ synthetic fuel-related investments expire at the end of 2007 and, accordingly, the effective tax rate is expectedlikely to be comparable to that of 2006.increase thereafter.

FINANCIAL CONDITION AND LIQUIDITY

Cash provided by operating activities, NS' principal source of liquidity, was $586 million$1.8 billion in the first quarternine months of 2007, compared with $510 million$1.7 billion in the first quarternine months of 2006, primarily due to favorable changes in2006.   NS had a wor ki ng capital as accounts receivable balances were stable in the current yeardeficit of $171 million at Sept. 30, 2007, compared with an increase in the same period last year.   NS had wor ki ng capital of $138 million at March 31, 2007, compared with $307 million at Dec. 31, 2006; the declinechange was largely due to share repurchases in the first quarter.result of reduced cash and short-term investment balances.   NS’ cash, cash equivalents and short-term investment balances totaled $844$418 million at March 31,Sept. 30, 2007.   NS expects that cash on hand combined with cash flow from operations will be sufficient to meet its ongoing obligations.   There have been no material changes to the contractual obligations disclosureobligation amounts contained in NS’ Dec. 31, 2006, Form 10-K.10-K, except for the commitment to purchase 50 locomotives, discussed below.   In addition, information relating to NS’ future obligations related to certain tax positions, the timing of which is uncertain, is disclosed in Note 2.