UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC   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 SEPTEMBER 30, 2009

OR

[   ]            TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES

                EXCHANGE ACT OF 1934

                For the transition period from ____________ to ____________

Commission file number 1-8339

NORFOLK SOUTHERN CORPORATION

(Exact name of registrant as specified in its charter)

VirginiaUNITED 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 MARCH 31, 2010
		OR
[  ]		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
		EXCHANGE ACT OF 1934
	For the transition period from _________ to _________
Commission file number 1-8339

TABLE OF CONTENTS

NORFOLK SOUTHERN CORPORATION AND SUBSIDIARIES (NS)

                                                                                                                                                      Page

Part I.                Financial Information:

PART I.   FINANCIAL INFORMATION

Item 1.   Financial Statements:Statements

Norfolk Southern Corporation and Subsidiaries

Consolidated Statements of Income

                                                Three and Nine Months Ended September 30, 2009 and 2008                           3(Unaudited)

See accompanying notes to consolidated financial statements.

Norfolk Southern Corporation and Subsidiaries

Consolidated Balance Sheets

                                                As of September 30, 2009, and December 31, 2008                              4(Unaudited)

See accompanying notes to consolidated financial statements.

Norfolk Southern Corporation and Subsidiaries

Consolidated Statements of Cash Flows

                                                Nine Months Ended September 30, 2009 and 2008                                5(Unaudited)

See accompanying notes to consolidated financial statements.

Norfolk Southern Corporation and Subsidiaries

Notes to Consolidated Financial Statements                                            6

(Unaudited)

                                                Report of Independent Registered Public Accounting Firm                  15

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

                                                Results of Operations                                                                           16

                        Item 3.              Quantitative and Qualitative Disclosures About Market Risk                26

                        Item 4.              Controls and Procedures                                                                       26

Part II.               Other Information:

                        Item 1.              Legal Proceedings                                                                                 27

                        Item 1A.           Risk Factors                                                                                          27

                        Item 2.              Unregistered Sales of Equity Securities and Use of Proceeds               28

                        Item 6.              Exhibits                                                                                                28

Signatures                                                                                                                                             29

Exhibit Index                                                                                                                                        30

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 (Norfolk Southern) and subsidiaries'subsidiaries’ (collectively, NS) financial condition as of September 30, 2009,March 31, 2010, and December 31, 2008,2009, and its results of operations for the three and nine months ended September 30, 2009 and 2008, and its cash flows for the ninethree months ended September 30,March 31, 2010 and 2009, and 2008, in conformity with U.S. generally accepted accounting principles.   Management has evaluated subsequent events through October 30, 2009, which is the date these consolidated financial statements were issued.

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

1.   Stock-basedStock-Based Compensation

In the first quarter of 2009,2010, a committee of non-employee directors of Norfolk Southern'sSouthern’s 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 $19$40 million during the thirdfirst quarter of 20092010 and $23$15 million during the same period of 2008.   For the first nine months of 2009 and 2008, stock-based compensation expense was $34 million and $118 million, respectively.2009.   The total tax effecteffects recognized in income in relation to stock-based compensation were net benefits of $7$13 million and $8$3 million for the quarters ended September 30,March 31, 2010 and 2009, and 2008, respectively, and benefits of $9 million and $40 million for the first nine months of 2009 and 2008, respectively.

Stock Options

In the first quarter of 2009, 1,209,7002010, 824,900 options were granted under the LTIP and 251,200259,800 options were granted under the TSOP.   In each case, the grant price was $38.71,$47.76, which was the greater of the average fair market value of Norfolk Southern common stock (Common Stock) or the closing price of the Common Stock on the effective date of the grant, and the options have a term of ten years.   The options granted under the LTIP and TSOP in 20092010 may not be exercised prior to the fourth and third anniversaries of the date of grant, respectively.   Holders of the options granted under the LTIP who remain actively employed receive cash dividend equivalent payments for four years in an amount equal to the regular quarterly dividends paid on Common Stock.   Dividend equivalent payments are not made on TSOP options.

The fair value of each option award in 20092010 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, aA dividend yield of zero was used.used for LTIP options during the four-year period in which dividend equivalent payments are made.   A dividend yield of 2.89% was used for LTIP options for periods where no dividend equivalent payments are made as well as for TSOP options which do not receive dividend equivalents.   The assumptions for the 20092010 LTIP grantand TSOP grants are shown in the following table:

The grant-date fair value of the 2009 TSOP grant was $15.41 using the same assumptions as the 2009 LTIP grant, except the average expected option life was 9.2 years and a dividend yield of 2.40% was used because no dividend equivalent payments are made on these options.

During the third quarter of 2009, options relating to 241,754 shares were exercised, yielding $6 million in cash proceeds and $3 million of tax benefits recognized as additional paid-in capital.   During the third quarter of 2008, options relating to 1,165,958 shares were exercised, yielding $27 million in cash proceeds and $20 million of tax benefits recognized as additional paid-in capital.

For the first ninethree months of 2009,2010, options relating to 1,082,657592,110 shares were exercised, yielding $30$12 million of cash proceeds and $6$7 million of tax benefitsbenefit recognized as additional paid-in capital.   For the first ninethree months of 2008, option exercises resulted in $1322009, options relating to 283,961 shares were exercised, yielding $7 million of cash proceeds and $73$2 million of tax benefits.benefit.

Restricted Stock Units and Restricted Shares

There were 319,550168,250 restricted stock units granted in 2009,2010, with an average grant-date fair value of $38.71$47.76 and a five-year restriction period.   The restricted stock units granted in 20092010 will be settled through the issuance of shares of Common Stock.   There were no restricted shares granted in 2009.2010.

During the thirdfirst quarter of 2009, 3,0232010, 286,709 restricted stock units were earned and paid out in cash with a weighted-averageweighted average fair value of $41.32.$48.88.   Also earned and distributed were 4,535433,236 restricted shares with a weighted-average grant-date fair value of $34.10.   The total related tax benefit recognized as additional paid-in capital was less than $1$2 million duringin the thirdfirst quarter of 2009.2010.

During the first nine monthsquarter of 2009, 351,755318,950 restricted stock units were earned and paid out in cash with a weighted average fair value of $36.32.$36.50.   Also earned and distributed were 368,158318,950 restricted shares with a weighted-average grant-date fair value of $47.54.$49.61.   The total related tax expense recognized as a reduction to additional paid inpaid-in capital was $1 million forin the first nine monthsquarter of 2009.

Performance Share Units

PSUs provide for awards based on achievement of certain predetermined corporate performance goals at the end of a three-year cycle.   During the first quarter of 2009,2010, there were 1,209,700824,900 PSUs granted with a grant-date fair value of $38.71.$47.76.   The PSUs granted in 2010 and 2009 will be paid in the form of shares; however, one-half of any previously granted PSUsthe 2008 PSU grants earned will be paid in the form of shares of Common Stock, with the other half to be paid in cash.

During the first nine monthsquarter of 2010, 851,893 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 $49.56 per unit and a fair value at payout of $47.76 per unit.   The total related tax expense recognized as additional paid-in capital was less than $1 million for the first quarter of 2010.

During the first quarter of 2009, 983,965 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 $49.43 per unit and a fair value at pay outpayout of $38.71 per unit.   The total related tax expensebenefit recognized as a reduction toin additional paid-in capital was $2 million forin the first nine monthsquarter of 2009.

For2.  Income Taxes

During the first nine monthsquarter of 2008, 1,013,999 PSUs2010, the Patient Protection and Affordable Care Act, and the Health Care and Education Reconciliation Act of 2010 were earned and paid out, one-half in sharessigned into law.   Provisions of Common Stock and one-half in cash.   These PSUs hadthe Acts eliminate, after 2012, the tax deduction available for reimbursed prescription drug expenses under the Medicare Part D retiree drug subsidy program.  As required by ASC 740, “Income Taxes,” NS recorded a grant-date fair value of $34.10 per unit and a fair value at pay out of $50.47 per unit.   The total related$27 million charge to deferred tax benefit was $2 million for the first nine months of 2008.

2.   Income Taxes

expense.  

There have been no material changes to the balance of unrecognized tax benefits reported at December 31, 2008.   NS anticipates that the IRS will complete its examination of NS' 2006 and 2007 federal income tax returns by the end of 2009.

3.   Earnings Per Share

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

In the first quarter of 2009, NS adoptedAs required under the provisions of the Financial Accounting Standards Board Staff Position (FSP) EITF No. 03-6-1, "Determining Whether Instruments Granted in Share-Based Payment Transactions are Participating Securities" (Accounting Standards Codification (ASC) 260-10), which requires the treatment of unvested stock options receiving dividend equivalents as participating securities in computing earnings per share under the two-class method.   NS has retrospectively applied the provisions of this FSP and accordingly,ASC 260-10, “Earnings Per Share,” income available to common stockholders for the third quarterthree months ended March 31, 2010 and 2009 and 2008 reflects a $2 million and $3 million reduction respectively, and for the first nine months of 2009 and 2008 a $6 million and $7 million reduction, respectively, from net income for the effect of dividend equivalent payments made to holders of stock options, which had the effect of reducing the previously reported basic earnings per share for the nine months ended September 30, 2008, from $3.37 to $3.36.options.

As required under the provisions of FSP EITF No. 03-6-1 (ASC 260-10),ASC 260-10, diluted earnings per share for the three and nine months ended September 30,March 31, 2010 and 2009, werewas calculated under the more dilutive two-class method (as compared to the treasury stock method) and accordingly, income available to common stockholders for 2009both periods reflects a $2 million and $6 million reduction respectively, from net income for dividend equivalent payments.   The diluted calculations exclude options having exercise prices exceeding the average market price of Common Stock as follows:   zero in 2009, 4.1 million in the third quarter,2010 and 5.6 million in both the second and first quarters, and none in 2008.2009.

4.   Stockholders'Stockholders’ Equity

Common stock is reported net of shares held by consolidated subsidiaries of Norfolk Southern, which at September 30, 2009,March 31, 2010, and December 31, 2008,2009, amounted to 20,473,56920,414,388 and 20,579,08820,443,337 shares, respectively, with a cost of $19 million for both periods.

5.5 ..   Stock Repurchase Program

In March 2007, NS'NS’ Board of Directors amended NS'NS’ share repurchase program, increasing the authorized amount of share repurchases from 50 million to 75 million shares and shortening the term of the program from 2015 to 2010.   The timing and volume of purchases is guided by management'smanagement’s assessment of market conditions and other pertinent facts.   Any near-term purchases under the program are expected to be made with internally generated cash or proceeds from borrowings.   There were no shares repurchased under this program in the first nine monthsquarter of 2009.   NS repurchased2010 and retired 15.2 million shares in the first nine months of 2008, at a cost of $899 million.2009.   Since inception of this program in 2006, NS has repurchased and retired 64.7 million shares of common stockCommon Stock at a total cost of $3.3 billion.

6.   Investments

6.Short-Term Investments

As of March 31, 2010 and December 31, 2009, with average maturities is presented below:

Investment in Conrail, Inc.

Through a limited liability company, 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'NS’ investment in Conrail was $892$930 million at September 30, 2009,March 31, 2010, and $868$924 million at December 31, 2008.2009.

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.   "Purchased“Purchased services and rents"rents” and "Fuel"“Fuel” include expenses for the use of the Shared Assets Areas totaling $32 million and $34$29 million in the third quartersfirst quarter of 20092010 and 2008, respectively, and $92$31 million and $98 million forin the first nine monthsquarter of 2009 and 2008, respectively.   NS'2009.   NS’ equity in the earnings of Conrail, net of amortization, included in "Other“Other income - net"– net” was $7$6 million and $8$9 million in the thirdfirst quarters of 20092010 and 2008, respectively, and $24 million and $23 million for the first nine months of 2009, and 2008, respectively.

"“Accounts payable"payable” includes $98$124 million at September 30, 2009,March 31, 2010, and $82$104 million at December 31, 2008,2009, due to Conrail for the operation of the Shared Assets Areas.   In addition, "Other liabilities"“Other liabilities” includes $133 million at both September 30, 2009,March 31, 2010, and December 31, 2008,2009, for long-term advances from Conrail, maturing 2035, that bear interest at an average rate of 4.4%.

Investment in Pan Am Southern LLC

During the second quarter of 2009, NS and Pan Am Railways, Inc. (Pan Am) formed a joint venture, Pan Am Southern LLC (PAS), a railroad company in which each has a 50% equity interest.  Pan Am contributed to PAS a 155-mile main line track that runs between Mechanicville, New York and Ayer, Massachusetts, along with 281 milesAs of secondary and branch lines, including trackage rights in New York, Connecticut, Massachusetts, New Hampshire, and Vermont (collectively, the "PAS Lines"), and as of September 30, 2009,March 31, 2010, NS hashad contributed cash and other property with a combined value of approximately $63$85 million and has committed to contribute an additional $77$55 million in cash and other property over the next three years, $75 million of which is evidenced by notes payable to PAS.two years.  A significant portion of NS'NS’ contributions has and will continue to be used for capital improvements to the PAS Lines and the related construction of new intermodal and automotive terminals in the Albany, New York and the Ayer, Massachusetts areas.   PAS is jointly controlled by NS and Pan Am; accordingly, NS   accounts for its interest in PAS using the equity method of accounting.terminals.

7.   Long-term Debt

In the first nine monthsquarter of 2009,2010, NS repaid $200$100 million under its accounts receivable securitization facility.   At September 30, 2009,March 31, 2010, and December 31, 2008,2009, the amounts outstanding under the facility were $100 million (at an average variable interest rate of 1.47%1.89%) and $300$200 million (at an average variable interest rate of 3.01%2.22%), respectively.   In October 2009, NS renewed and amended its accounts receivable securitization facility, with a new 364-day term to run until October 2010.   NS reduced the total amount that can be borrowed from $500 million to $350 million to more closely match its liquidity requirements and receivables profile.

During the second quarter of 2009, NS issued $500 million of unsecured notes at 5.90% due 2019 pursuant to its automatic shelf registration statement described below.   The net proceeds from the offering were $496 million after deducting the purchase discount and expenses.   NS also issued a total of $75 million in non-interest bearing notes payable with maturity dates beginning in 2010 and ending in 2012 as part of its total investment in Pan Am Southern LLC.

During the first quarter of 2009, NS issued $500 million of unsecured notes at 5.75% due 2016 in a private offering.   The net proceeds from the offering were approximately $494 million after deducting the purchase discount and expenses.   During the third quarter of 2009, NS offered to exchange these unregistered securities with essentially identical securities registered under the Securities Act of 1933.

NS has authority from its Board of Directors to issue an additional $500 million of debt or equity securities through public or private sale.   During the first quarter of 2009, NS filed a Form S-3 automatic shelf registration statement for well-known seasoned issuers under which, as of September 30, 2009, up to $500 million could be issued under this authority.

8.   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'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

The estimated amortization of certain items from accumulated comprehensive income (loss) into periodic benefit cost in 2009 is as follows:

9.  Comprehensive Income

NS'NS’ total comprehensive income was as follows:

"

“Other comprehensive income" in 20092010 and 20082009 reflects primarily, net of tax, the amortization of the actuarial net losses and prior service costs (benefits) for the pension and other postretirement benefit plans and unrealized gains and losses on available-for-sale securities.plans.

10.   Fair Value

Fair Value Measurements

ASC 820-10, “Fair Value Measurements,” established a framework for measuring fair value and a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three broad levels, as follows:  

The asset’s or liability’s fair value measurement level within the hierarchy is based on the lowest level of any input that is significant to the fair value measurement.   At March 31, 2010, and December 31, 2009 for assets measured at fair value on a recurring basis, there were $225 million and $90 million of available-for-sale securities as valued under level 2 of the fair value hierarchy, respectively.   There were no such assets valued under level 1 or level 3 valuation techniques.

Fair Values of Financial Instruments

In accordance with ASC 825, “Financial Instruments,” NS has evaluated the fair values of financial instruments and methods used to determine those fair values.   The fair values of "Cash“Cash and cash equivalents," "Accounts receivable"” “Short-term investments,” “Accounts receivable,” “Accounts payable,” and "Accounts payable"“Short-term debt” approximate carrying values because of the short maturity of these financial instruments.   The carrying value of corporate-owned life insurance is recorded at cash surrender value and, accordingly, approximates fair value.   The carrying amounts

and estimated fair values for the remaining financial instruments, excluding derivatives and investments accounted for under the equity method, consisted of the following at September 30, 2009,March 31, 2010, and December 31, 2008:2009:

Underlying net assets were used to estimate the fair value of investments with the exception of notes receivable, which are based on future discounted future cash flows.   The fair values of debt were estimated based on quoted market prices or discounted cash flows using current interest rates for debt with similar terms, company rating, and remaining maturity.

Carrying amounts of marketableavailable-for-sale securities reflect unrealized holding gainslosses of zeroless than $1 million on September 30, 2009March 31, 2010, and December 31, 2008.2009.   Sales of "available-for-sale"“available-for-sale” securities were immaterial$20 million and zero for the three and nine months ended September 30,March 31, 2010 and 2009, and 2008.respectively.

11.   Commitments and Contingencies

Lawsuits

Norfolk Southern and/or 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'smanagement’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.   To aid in valuing its personal injury liability and determining the amount to accrue with respect to such claims during the year, NS'NS’ management utilizes studies prepared by an independent consulting actuarial firm.   Job-related accidental injury and occupational claims are subject to the Federal Employers'Employers’ Liability Act (FELA), which is applicable only to railroads.   FELA'sFELA’s fault-based system produces results that are unpredictable and inconsistent as compared with a no-fault workers'workers’ compensation system.   The variability inherent in this system could result in actual costs being different from the liability recorded.   While the ultimate amount of claims incurred is dependent on future developments, in management'smanagement’s opinion, the recorded liability is adequate to cover the future payments of claims and is supported 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 April 2008, NS settled the lawsuit brought by Avondale MillsThe Consolidated Balance Sheets reflect long-term receivables for estimated recoveries from NS’ insurance carriers for claims associated with the January 6, 2005, derailment in Graniteville, SC.  A portion of the settlement was not reimbursed by insurance and was included in first quarter 2008 expenses.   The total liability related to the derailment 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 the unreimbursed portion and NS' self-insured retention, including NS' response costs and legal fees.   The Consolidated Balance Sheets reflect long-term receivables for estimated recoveries from NS' insurance carriers.   NS is currently engaged in arbitration with one of its insurance carriers that failed to respond to an insurance claim submitted by NS.  NS believes these expenses are covered by the insurance policy and that recovery of the contested amountportion ($43 million) of the recorded recoveries is probable, in thatprobable.  During the first quarter, NS expects the arbitrator will determine the settlement amounts to be reasonable and that the insurer's refusal to consent to and to fund the settlement was a breach of contract.   Accordingly, NS has recorded the full recovery attributable to such carrier ($100 million).   In October 2008, another of NS' insurance carriers provided the preliminary findings of its review of NS' reimbursement request and reported that it may dispute a portion of that request.   NS has initiated arbitration against the carrier and has submitted itssettled an arbitration claim ($43 million).   NS believes that recoverywith another insurance carrier with no adverse effect on NS’ financial position, results of the claimed amount is probable.operations, or liquidity.

Employee personal injury claims -– The largest component of casualties and other claims expense is employee personal injury costs.   The independent 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'NS’ historical patterns of reserving for claims and subsequent settlements, taking 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 quarterly based upon management'smanagement’s assessment and the results of the study.   Recent actuarial studies have reflected favorable claims development and accordingly, those changes in estimates have reduced the first quarter cost related to personal injuries to $16 million in 2010 from $20 million in 2009.   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 estimated liability recorded.

Occupational claims -– Occupational claims (including asbestosis and other respiratory diseases, as well as conditions allegedly related to repetitive motion) are often not caused by a specific accident or event but rather allegedly 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 independent actuarial firm provides an estimate of the occupational claims liability based upon NS'NS’ history of claim filings, severity, payments, and other pertinent facts.   The liability is dependent upon management'smanagement’s judgments made as to the specific case reserves as well as judgments of the consulting independent actuarial firm in the periodic studies.   The actuarial firm'sfirm’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'NS’ experience into the future as far as can be reasonably determined.   NS adjusts its liability quarterly based upon management'smanagement’s assessment and the results of the study.   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 independent actuarial firm assists with the calculation of potential liability for third-party claims, except lading damage, based upon NS'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 based upon management'smanagement’s assessment and the results of the study.   Given the inherent uncertainty in regard to the ultimate outcome of third-party claims, it is possible that the actual loss may differ from the estimated liability recorded.

Environmental Matters

NS is subject to various jurisdictions'jurisdictions’ environmental laws and regulations.   It is NS'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) in the Consolidated Balance Sheets 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'NS’ Consolidated Balance Sheets include liabilities for environmental exposures in the amount of $33$37 million at September 30, 2009,March 31, 2010, and $42$32 million at December 31, 20082009 (of which $12 million is classified as a current liability at the end of each period).   At September 30, 2009,March 31, 2010, the liability represents NS'NS’ estimate of the probable cleanup and remediation costs based on available information at 146144 known locations.   As of that date, 912 sites accounted for $15$19 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 2930 locations, one or more Norfolk Southern subsidiaries, usually in conjunction with a number of other parties, have been identified as potentially responsible parties by the Environmental Protection Agency (EPA) or similar state authorities under the Comprehensive Environmental Response, Compensation and Liability Act of 1980, or comparable state statutes, which often impose joint and several liability for cleanup costs.

With respect to known environmental sites (whether identified by NS or by the EPA or comparable state authorities), estimates of NS'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'sparticipant’s share of any estimated loss (and that participant'sparticipant’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'NS’ traffic mix, particularly those classified as hazardous materials, 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 NS'NS’ financial position, results of operations, or liquidity in a particular year or quarter.

On April 24, 2008, the United States Department of Justice (DOJ) brought an action against NS for alleged violations of federal environmental laws resulting from the discharge of chlorine and oil that occurred as a result of the January 6, 2005, derailment in Graniteville, SC, including claims for civil penalties as well as injunctive relief.  Although NS'NS’ motion to dismiss for failure to allege sufficient facts was granted, DOJ was given leave to, and did, amend its complaint.   On January 22, 2010, NS reached an agreement with the DOJ on a Consent Decree and on March 31, 2010, the Consent Decree was published with a 30-day public comment period.   NS does not believe that the resolution of these claims will have a material adverse effect on its financial position, results of operations, or liquidity.

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'NS’ financial position, results of operations, or liquidity.

Insurance

Norfolk Southern obtains on behalf of itself and its subsidiaries insurance for potential losses for third-party liability and first-party property damages.   NS is currently self-insured up to $25 million and above $1 billion per occurrence for bodily injury and property damage to third parties and up to $25 million and above $175 million per occurrence for property owned by NS or in NS'NS’ care, custody or control.

Purchase Commitments

At September 30, 2009,March 31, 2010, NS had outstanding purchase commitments of approximately $75$229 million primarily for long-term service contracts through 2019, as well as freight cars, track material freight cars, and RoadRailer® unitstrailers in connection with its capital programs through 2011.2012.

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 September 30, 2009,March 31, 2010, and the related consolidated statements of income for the three-month and nine-month periods ended September 30, 2009 and 2008 and the related consolidated statements of cash flows for the nine-monththree‑month periods ended September 30, 2009March 31, 2010 and 2008.2009. These consolidated financial statements are the responsibility of the Company'sCompany’s management.

We conducted our review in accordance with the standards of the Public Company Accounting Oversight Board (United States).( United States ). A review of interim financial information consists principally of applying analytical procedures and making inquiresinquiries 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),( 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 review, 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.

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, 2008,2009, and the related consolidated statements of income, changes in stockholders'stockholders’ equity and cash flows for the year then ended (not presented herein); and in our report dated February 18, 2009,17, 2010, we expressed an unqualified opinion on those consolidated financial statements.   In our opinion, the information set forth in the accompanying consolidated balance sheet as of December 31, 2008,2009, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.derived ..

/s/ KPMG LLP

Norfolk, Virginia
April 30, 2010

/s/ KPMG LLP

Norfolk, Virginia

October 30, 2009

Item 2.   Management's2 ..   Management’s Discussion and Analysis of Financial Condition and Results of Operations

Norfolk Southern Corporation and Subsidiaries

Management'sManagement’s Discussion and Analysis of

Financial Condition and Results of Operations

The following discussion and analysis should be read in conjunction with the Consolidated Financial Statements and Notes.

OVERVIEW

NS' thirdAmid an improved economic landscape, NS’ first quarter 20092010 net income declined 42% compared with the same period last year, reflecting the ongoing weakened economy.   Despite this decline, NS continues to focus on safety, service, and asset management to strategically position itself for the long term.   A 20% decrease in volumes coupled with lower fuel surcharge revenue more than offset the effects of expense reductions and rate increases.   Operating expenses declined 25%was up 45%, compared with the same period last year, primarilyas higher income from railway operations more than offset increased income taxes that included a deferred tax charge due to reduced volume-related expenses and lower fuel prices.the recent enactment of health care legislation.   The railway operating ratio (a measure of the amount of operating revenues consumed by operating expenses) roseimproved to 72.8%75.2%, compared with 69.1%80.3% for the thirdfirst quarter of 2008.2009.  

Cash provided by operating activities for the first nine monthsquarter was $1.4 billion and, along with proceeds from borrowings, provided$758 million, which allowed for capital expenditures, investment purchases, debt maturities, and dividends.   At September 30, 2009,March 31, 2010, cash, and cash equivalents and short-term investment balances totaled $999 million.$1.4 billion.

SUMMARIZED RESULTS OF OPERATIONS

ThirdFirst quarter 20092010 net income was $303$257 million, down $217up $80 million, or 42%45%, compared with the same period last year.   The reductionincrease primarily resulted from a $332$172 million decreaseincrease in income from railway operations that reflected an $831a $295 million, or 29%15%, declineimprovement in railway operating revenues, and a $499 million, or 25%, decrease in railway operating expenses.

For the first nine months of 2009, net income was $727 million, down $537 million, or 42%, compared with the same period last year.   Income from railway operations decreased $858 million, as a $2.3 billion decline in railway operating revenues was partially offset by a $1.4 billion drop$123 million, or 8%, increase in railway operating expenses.expenses as well as higher income taxes.

Oil prices affect NS'NS’ results of operations in a variety of ways and can have an overall favorable or unfavorable impact in any particular period.   In addition to the impact of oil prices on general economic conditions, traffic volume, and supplier costs, oil prices directly affect NS'NS’ revenues through market-based fuel surcharges and contract escalators (see "Railway“Railway Operating Revenues"Revenues”) and also affect fuel costs (see "Railway“Railway Operating Expenses"Expenses”).   For the thirdfirst quarter and first nine months of 2009,2010, excluding the impact of decreasedincreased consumption, the declineincrease in fuel expense was more than the increase in fuel surcharge revenue was greater than the decline in fuel expense.revenue.   Future changes in oil prices may cause volatility in operating results that could be material to a particular period.

DETAILED RESULTS OF OPERATIONS

Railway Operating Revenues

Third quarter 2009First-quarter railway operating revenues were $2.1$2.2 billion down $831in 2010, up $295 million, or 29%15%, compared with the thirdfirst quarter of 2008.   For the first nine months, railway operating revenues were $5.9 billion, down $2.3 billion, or 28%.2009.   As shown in the following table, the decreasesincreases were the result of lowerhigher traffic volumesvolume and lowerhigher average revenue per unit, which was driven by lowerincluding fuel surcharges that more than offset rate increases.   Fuel surchargeswere up $65 million (and which amounted to $99 million in the third quarter (down $436$159 million) and $255 million for the first nine months (down $1 billion).

Many of Norfolk Southern'sSouthern’s negotiated fuel surcharges for coal and general merchandise traffic are based on the monthly average price of West Texas Intermediate Crude Oil (WTI Average Price).   These surcharges are reset the first day of each calendar month based on the WTI Average Price for the second preceding calendar month.   This two monthtwo-month lag in computing WTI Average Price coupled with the change in fuel prices lowereddid not have a material impact on fuel surcharge revenue by approximately $10 million for the quarter and $35 million forin the first nine months.quarter.

Revenues, units and average revenue per unit for NS'NS’ market groups were as follows: