0000702165
nsc:TsopMember
2011-01-01
2011-03-31
0000702165
nsc:LtipMember
2011-01-01
2011-03-31
0000702165
us-gaap:USTreasuryBondSecuritiesMember
2011-06-30
0000702165
us-gaap:USTreasuryBondSecuritiesMember
2010-12-31
0000702165
nsc:AffiliateVotingMember
2011-06-30
0000702165
nsc:AffiliateEquityMember
2011-06-30
0000702165
us-gaap:EarningsPerShareDilutedMember
2011-04-01
2011-06-30
0000702165
us-gaap:EarningsPerShareDilutedMember
2011-01-01
2011-06-30
0000702165
us-gaap:EarningsPerShareDilutedMember
2010-04-01
2010-06-30
0000702165
us-gaap:EarningsPerShareDilutedMember
2010-01-01
2010-06-30
0000702165
us-gaap:EarningsPerShareBasicMember
2011-04-01
2011-06-30
0000702165
us-gaap:EarningsPerShareBasicMember
2011-01-01
2011-06-30
0000702165
us-gaap:EarningsPerShareBasicMember
2010-04-01
2010-06-30
0000702165
us-gaap:EarningsPerShareBasicMember
2010-01-01
2010-06-30
0000702165
us-gaap:DefinedBenefitPensionMember
2011-04-01
2011-06-30
0000702165
nsc:OpebMember
2011-04-01
2011-06-30
0000702165
us-gaap:DefinedBenefitPensionMember
2011-01-01
2011-06-30
0000702165
nsc:OpebMember
2011-01-01
2011-06-30
0000702165
us-gaap:DefinedBenefitPensionMember
2010-04-01
2010-06-30
0000702165
nsc:OpebMember
2010-04-01
2010-06-30
0000702165
us-gaap:DefinedBenefitPensionMember
2010-01-01
2010-06-30
0000702165
nsc:OpebMember
2010-01-01
2010-06-30
0000702165
2010-06-30
0000702165
2009-12-31
0000702165
us-gaap:CommercialPaperMember
2011-06-30
0000702165
us-gaap:CertificatesOfDepositMember
2011-06-30
0000702165
us-gaap:AllOtherCorporateBondsMember
2011-06-30
0000702165
us-gaap:CommercialPaperMember
2010-12-31
0000702165
us-gaap:CertificatesOfDepositMember
2010-12-31
0000702165
us-gaap:AllOtherCorporateBondsMember
2010-12-31
0000702165
nsc:TsopMember
2011-01-01
2011-06-30
0000702165
nsc:LtipMember
2011-01-01
2011-06-30
0000702165
us-gaap:RestrictedStockUnitsRSUMember
2011-04-01
2011-06-30
0000702165
us-gaap:RestrictedStockUnitsRSUMember
2010-04-01
2010-06-30
0000702165
us-gaap:RestrictedStockUnitsRSUMember
2010-01-01
2010-06-30
0000702165
us-gaap:RestrictedStockUnitsRSUMember
2011-01-01
2011-12-31
0000702165
nsc:PsuMember
2011-01-01
2011-06-30
0000702165
nsc:PsuMember
2010-01-01
2010-06-30
0000702165
us-gaap:RestrictedStockUnitsRSUMember
2011-01-01
2011-06-30
0000702165
nsc:PsuMember
2011-01-01
2011-03-31
0000702165
2011-04-01
2011-06-30
0000702165
2010-04-01
2010-06-30
0000702165
2010-01-01
2010-06-30
0000702165
2010-12-31
0000702165
2011-01-01
2011-03-31
0000702165
2010-01-01
2010-03-31
0000702165
2011-06-30
0000702165
2011-01-01
2011-06-30
iso4217:USD
xbrli:shares
xbrli:pure
iso4217:USD
xbrli:shares
false
--12-31
Q2
2011
2011-06-30
10-Q
0000702165
347773580
Large Accelerated Filer
NORFOLK SOUTHERN CORP
<table style="font-size: 20px;" width="897">
<tr><td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td></tr>
<tr><td> </td>
<td colspan="3">
<div align="center"><strong>June 30,</strong></div></td>
<td> </td>
<td colspan="5">
<div align="center"><strong>December 31,</strong></div></td></tr>
<tr><td> </td>
<td colspan="3">
<div align="center"><u><strong>2011</strong></u></div></td>
<td> </td>
<td colspan="5">
<div align="center"><u><strong>2010</strong></u></div></td></tr>
<tr><td> </td>
<td colspan="9">
<div align="center"><em>($ in millions) </em></div></td></tr>
<tr><td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td></tr>
<tr><td width="531">Short-term investments with average remaining maturities:</td>
<td width="20"> </td>
<td width="60"> </td>
<td width="20"> </td>
<td width="20"> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td></tr>
<tr><td> Available-for-sale:</td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td width="20"> </td>
<td width="20"> </td>
<td width="60"> </td>
<td width="20"> </td>
<td width="20"> </td></tr>
<tr><td> Corporate bonds, <font class="_mt">10</font> and <font class="_mt">4</font> months, respectively</td>
<td>
<div align="right">$</div></td>
<td>
<div align="right">50</div></td>
<td> </td>
<td> </td>
<td> </td>
<td>
<div align="right">$</div></td>
<td>
<div align="right">64</div></td>
<td> </td>
<td> </td></tr>
<tr><td> Certificates of deposit, <font class="_mt">2</font> and <font class="_mt">5</font> months, respectively</td>
<td> </td>
<td>
<div align="right">46</div></td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td>
<div align="right">76</div></td>
<td> </td>
<td> </td></tr>
<tr><td> Commercial paper, <font class="_mt">4</font> months</td>
<td> </td>
<td>
<div style="border-bottom: #000 thin solid; border-top-color: #000; border-right-color: #000; border-left-color: #000;" align="right">--</div></td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td>
<div style="border-bottom: #000 thin solid; border-top-color: #000; border-right-color: #000; border-left-color: #000;" align="right">35</div></td>
<td> </td>
<td> </td></tr>
<tr><td> Total available-for-sale</td>
<td> </td>
<td>
<div style="border-bottom: #000 thin solid; border-top-color: #000; border-right-color: #000; border-left-color: #000;" align="right">96</div></td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td>
<div style="border-bottom: #000 thin solid; border-top-color: #000; border-right-color: #000; border-left-color: #000;" align="right">175</div></td>
<td> </td>
<td> </td></tr>
<tr><td> Held-to-maturity:</td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td></tr>
<tr><td> Federal government bonds, <font class="_mt">4</font> and <font class="_mt">9</font> months, respectively</td>
<td> </td>
<td>
<div align="right">74</div></td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td>
<div align="right">49</div></td>
<td> </td>
<td> </td></tr>
<tr><td> Corporate bonds, <font class="_mt">4</font> and <font class="_mt">10</font> months, respectively</td>
<td> </td>
<td>
<div style="border-bottom: #000 thin solid; border-top-color: #000; border-right-color: #000; border-left-color: #000;" align="right">58</div></td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td>
<div style="border-bottom: #000 thin solid; border-top-color: #000; border-right-color: #000; border-left-color: #000;" align="right">59</div></td>
<td> </td>
<td> </td></tr>
<tr><td> Total held-to-maturity</td>
<td> </td>
<td>
<div style="border-bottom: #000 thin solid; border-top-color: #000; border-right-color: #000; border-left-color: #000;" align="right">132</div></td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td>
<div style="border-bottom: #000 thin solid; border-top-color: #000; border-right-color: #000; border-left-color: #000;" align="right">108</div></td>
<td> </td>
<td> </td></tr>
<tr><td> Total short-term investments</td>
<td>
<div align="right">$</div></td>
<td>
<div style="border-bottom: double;" align="right">228</div></td>
<td> </td>
<td> </td>
<td> </td>
<td>
<div align="right">$</div></td>
<td>
<div style="border-bottom: double;" align="right">283</div></td>
<td> </td>
<td> </td></tr></table>
100000000
43000000
5
2
4
4
10
43000000
0.044
157
seven
11000000
5
29
58000000
29000000
65000000
32000000
3000000
0
10
4
9
4
62.75
62.75
47.76
62.75
1091000000
635000000
1311000000
796000000
959000000
972000000
40000000
2035
4
382000000
191000000
494000000
222000000
169000000
201000000
27000000
0
0
15000000
0.50
0.50
0.50
0.50
851893
850595
42000000
69000000
709000000
374000000
788000000
405000000
five
286709
0
0
0
-2000000
-1000000
-1000000
1000000000
50000000
175000000
25000000
51000000
11000000
49000000
7000000
0.0255
0.00
22.26
18.10
49.56
50.47
34.10
16000000
3000000
16000000
2000000
62.75
91000000
4900000000
1000000
-2000000
682000000
406000000
917000000
573000000
1181000000
1254000000
807000000
991000000
33000000
33000000
12000000
12000000
9262000000
9217000000
-805000000
-770000000
1892000000
1951000000
28199000000
28478000000
2471000000
2315000000
175000000
64000000
76000000
35000000
96000000
50000000
46000000
0
175000000
96000000
996000000
855000000
827000000
678000000
-141000000
-149000000
<div style="font-size: 20px;">
<p align="left"><strong>10. Commitments and Contingencies</strong></p>
<p align="left"><strong>Lawsuits</strong></p>
<p align="left">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'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.</p>
<p align="left">Two of NS' customers, DuPont and South Mississippi Electric Power Association (SMEPA), have filed rate reasonableness complaints at the Surface Transportation Board (STB) alleging that the NS tariff rates for transportation of regulated movements are unreasonable. NS is disputing these allegations. Since June 1, 2009, in the case of DuPont, and since January 1, 2011, in the case of SMEPA, NS has been billing and collecting amounts from the customers based on the challenged tariff rates. Management presently expects resolution of these cases to occur in late 2012 or 2013. The cases have not progressed to a point where management can provide an estimate of the possible loss or range of loss, if any.</p>
<p align="left"><strong>Casualty Claims</strong></p>
<p align="left">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' management utilizes studies prepared by an independent consulting actuarial firm. 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 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 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.</p>
<p align="left">The 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, S.C. During the first quarter of 2010, NS settled an arbitration claim ($<font class="_mt">100</font> million) with one of its insurance carriers with no adverse effect on NS' financial position, results of operations, or liquidity. In the first quarter of 2011, NS received an unfavorable ruling for an arbitration claim with another insurance carrier, and was denied recovery of the contested portion ($<font class="_mt">43</font> million) of the claim. As a result, NS recorded a $<font class="_mt">43</font> million expense during the first quarter of 2011 for the receivables associated with the contested portion of the claim and a $<font class="_mt">15</font> million expense for other receivables affected by the ruling for which recovery is no longer probable.</p>
<p align="left"><strong>Employee personal injury claims</strong> – 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 independent actuarial firm studies 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 liability, which includes amounts for incurred but unasserted claims. NS adjusts its liability quarterly based upon management's assessment and the results of the study. 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.</p>
<p align="left"><strong>Occupational claims</strong> – 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' 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 independent actuarial firm in the periodic studies. The independent 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 quarterly based upon management'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. </p>
<p> </p>
<p align="left"><strong>Third-party claims</strong> – 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' 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'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.</p>
<p align="left"><strong> </strong><strong>Environmental Matters</strong> </p>
<p align="left">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) 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.</p>
<p align="left">NS' Consolidated Balance Sheets include liabilities for environmental exposures of $<font class="_mt">33</font> million at June 30, 2011 and December 31, 2010 (of which $<font class="_mt">12</font> million is classified as a current liability at the end of each period). At June 30, 2011, the liability represents NS' estimate of the probable cleanup and remediation costs based on available information at approximately <font class="_mt">157</font> known locations and projects. As of that date, <font class="_mt">seven</font> sites accounted for $<font class="_mt">11</font> 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 <font class="_mt">five</font> years; however, some costs will be paid out over a longer period.</p>
<p align="left">At <font class="_mt">29</font> 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. </p>
<p align="left">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.</p>
<p> </p>
<p align="left">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, 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 position, results of operations, or liquidity in a particular year or quarter.</p>
<p align="left">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, results of operations, or liquidity.</p>
<p align="left"><strong>Insurance</strong></p>
<p align="left">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 $<font class="_mt">50</font> million and above $<font class="_mt">1</font> billion per occurrence for bodily injury and property damage to third parties and up to $<font class="_mt">25</font> million and above $<font class="_mt">175</font> million per occurrence for property owned by NS or in NS' care, custody, or control.</p>
<p align="left"><strong>Purchase Commitments</strong></p>
<p align="left">At June 30, 2011, NS had outstanding purchase commitments totaling approximately $<font class="_mt">1.2</font> billion for long-term service contracts through 2019, as well as locomotives, freight cars, track material, and RoadRailer® trailers, in connection with its capital programs through 2014.</p></div>
0.68
0.34
0.80
0.40
1
1
1350000000
1350000000
357362604
347773580
358000000
349000000
<div style="font-size: 20px;">
<p align="left"><strong>8. Comprehensive Income</strong></p>
<table style="font-size: 20px;" width="807">
<tr><td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td></tr>
<tr><td> </td>
<td colspan="6">
<div align="center"><strong>Three Months Ended</strong></div></td>
<td> </td>
<td colspan="5">
<div align="center"> <strong>Six Months Ended</strong></div></td></tr>
<tr><td> </td>
<td> </td>
<td colspan="4">
<div align="center"><strong>June 30,</strong></div></td>
<td> </td>
<td> </td>
<td> </td>
<td colspan="4">
<div align="center"><strong>June 30,</strong></div></td></tr>
<tr><td width="395"> </td>
<td width="17"> </td>
<td width="55">
<div align="center"><u><strong>2011</strong></u></div></td>
<td width="15"> </td>
<td width="17"> </td>
<td width="55">
<div align="center"><u><strong>2010</strong></u></div></td>
<td width="16"> </td>
<td width="16"> </td>
<td width="17"> </td>
<td width="55">
<div align="center"><u><strong>2011</strong></u></div></td>
<td width="16"> </td>
<td width="17"> </td>
<td width="60">
<div align="center"><u><strong>2010</strong></u> </div></td></tr>
<tr><td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td colspan="5">
<div align="center"><em>($ in millions)</em></div></td>
<td> </td>
<td> </td>
<td> </td></tr>
<tr><td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td></tr>
<tr><td>Net income</td>
<td>
<div align="right">$</div></td>
<td>
<div align="right">557</div></td>
<td> </td>
<td>
<div align="right">$</div></td>
<td>
<div align="right">392</div></td>
<td> </td>
<td> </td>
<td>
<div align="right">$</div></td>
<td>
<div align="right">882</div></td>
<td> </td>
<td>
<div align="right">$</div></td>
<td>
<div align="right">649</div></td></tr>
<tr><td>Other comprehensive income</td>
<td> </td>
<td>
<div style="border-bottom: thin solid;" align="right">16</div></td>
<td> </td>
<td> </td>
<td>
<div style="border-bottom: thin solid;" align="right">14</div></td>
<td> </td>
<td> </td>
<td> </td>
<td>
<div style="border-bottom: thin solid;" align="right">35</div></td>
<td> </td>
<td> </td>
<td>
<div style="border-bottom: thin solid;" align="right">33</div></td></tr>
<tr><td> Total comprehensive income</td>
<td>
<div align="right">$</div></td>
<td>
<div style="border-bottom: double;" align="right">573</div></td>
<td> </td>
<td>
<div align="right">$</div></td>
<td>
<div style="border-bottom: double;" align="right">406</div></td>
<td> </td>
<td> </td>
<td>
<div align="right">$</div></td>
<td>
<div style="border-bottom: double;" align="right">917</div></td>
<td> </td>
<td>
<div align="right">$</div></td>
<td>
<div style="border-bottom: double;" align="right">682</div></td></tr></table>
<p align="left">"Other comprehensive income" in 2011 and 2010 reflects primarily, net of tax, the amortization of the actuarial net losses and prior service costs for the pension and other postretirement benefit plans.</p></div>
408000000
204000000
424000000
213000000
7971000000
8203000000
46000000
243000000
19000000
145000000
163000000
7088000000
7372000000
24000000
24000000
12000000
12000000
22000000
34000000
11000000
17000000
1000000
1000000
1000000
7000000
71000000
3000000
35000000
7000000
70000000
3000000
35000000
30000000
48000000
15000000
24000000
29000000
46000000
14000000
23000000
55000000
15000000
28000000
7000000
52000000
25000000
26000000
13000000
8000000
13000000
4000000
6000000
8000000
14000000
4000000
7000000
411000000
428000000
<p align="left"><strong>1. Stock-Based Compensation</strong> </p>
<p align="left">In the first quarter of 2011, a committee of non-employee directors of Norfolk Southerns 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 $<font class="_mt">7</font> million during the second quarter of 2011, and $<font class="_mt">11</font> million during the same period of 2010. For the first six months of 2011 and 2010, stock-based compensation expense was $<font class="_mt">49</font> million and $<font class="_mt">51</font> million, respectively. The total tax effects recognized in income in relation to stock-based compensation were net benefits of $<font class="_mt">2</font> million and $<font class="_mt">3</font> million for the quarters ended June 30, 2011 and 2010, respectively, and net benefits of $<font class="_mt">16</font> million for the first six months of 2011 and 2010.</p>
<p align="left"><strong>Stock Options</strong></p>
<p>In the first quarter of 2011, <font class="_mt">627,700</font> options were granted under the LTIP and <font class="_mt">257,000</font> options were granted under the TSOP. In each case, the grant price was $<font class="_mt">62.75</font>, 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 <font class="_mt">ten</font> years. The options granted under the LTIP and TSOP in 2011 may not be exercised prior to the <font class="_mt">fourth</font> and <font class="_mt">third</font> anniversaries of the date of grant, respectively. Holders of the 2011 options granted under the LTIP who remain actively employed receive cash dividend equivalent payments for <font class="_mt">four</font> years in an amount equal to the regular quarterly dividends paid on Common Stock. Dividend equivalent payments are not made on TSOP options.</p>
<p align="left">The fair value of each option award in 2011 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. A dividend yield of <font class="_mt">zero</font> was used for LTIP options during the four-year period in which dividend equivalent payments are made. A dividend yield of <font class="_mt">2.55</font>% 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 2011 LTIP and TSOP grants are shown in the following table:</p>
<table style="font-size: 20px;">
<tr><td width="530">Expected volatility range</td>
<td width="105">
<div align="right"><font class="_mt">28</font>% - <font class="_mt">32</font>%</div></td></tr>
<tr><td>Average expected volatility</td>
<td>
<div align="right">28%</div></td></tr>
<tr><td>Average expected option life</td>
<td>
<div align="right">8.5 years</div></td></tr>
<tr><td>Average risk-free interest rate</td>
<td>
<div align="right">3.42%</div></td></tr>
<tr><td>LTIP per-share grant-date fair value</td>
<td>
<div align="right">$22.26</div></td></tr>
<tr><td>TSOP per-share grant-date fair value</td>
<td>
<div align="right">$18.10</div></td></tr></table>
<p align="left">During the second quarter of 2011, options relating to <font class="_mt">889,853</font> shares were exercised, yielding $<font class="_mt">25</font> million in cash proceeds and $<font class="_mt">12</font> million of tax benefits recognized as additional paid-in capital. During the second quarter of 2010, options relating to <font class="_mt">565,786</font> shares were exercised, yielding $<font class="_mt">14</font> million in cash proceeds and $<font class="_mt">7</font> million of tax benefits recognized as additional paid-in capital.</p>
<p> </p>
<p align="left">For the first six months of 2011, options relating to <font class="_mt">1,649,046</font> shares were exercised, yielding $<font class="_mt">45</font> million of cash proceeds and $<font class="_mt">22</font> million of tax benefits recognized as additional paid-in capital. For the first six months of 2010, options relating to <font class="_mt">1,157,896</font> shares were exercised yielding $<font class="_mt">26</font> million of cash proceeds and $<font class="_mt">14</font> million of tax benefits recognized as additional paid-in capital.</p>
<p align="left"><strong>Restricted Stock Units and Restricted Shares</strong></p>
<p align="left">There were <font class="_mt">177,400</font> restricted stock units granted in 2011, with an average grant-date fair value of $<font class="_mt">62.75</font> and a <font class="_mt">five</font>-year restriction period. The restricted stock units granted in 2011 will be settled through the issuance of shares of Common Stock.</p>
<p align="left">During the second quarters of 2011 and 2010, no restricted stock units were earned or paid out. There were no restricted stock units earned or paid out during the first six months of 2011. The total related tax benefit recognized as additional paid-in capital was less than $<font class="_mt">1</font> million for both the second quarter of 2011 and the first six months of 2011.</p>
<p align="left">During the first six months of 2010, <font class="_mt">286,709</font> restricted stock units were earned and paid out in cash with a weighted average fair value of $<font class="_mt">48.88</font>. Also earned and distributed were <font class="_mt">433,236</font> restricted shares with a weighted-average grant-date fair value of $<font class="_mt">34.10</font>. The total related tax benefit recognized as additional paid-in capital was $<font class="_mt">2</font> million in the first six months of 2010.</p>
<p align="left"><strong>Performance Share Units</strong></p>
<p align="left">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 2011, there were <font class="_mt">580,900</font> PSUs granted with a grant-date fair value of $<font class="_mt">62.75</font>. The PSUs granted in 2011 and 2010 will be paid in the form of shares of Common Stock.</p>
<p align="left">During the first six months of 2011, <font class="_mt">850,595</font> 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 $<font class="_mt">50.47</font> per unit and a fair value at payout of $<font class="_mt">62.75</font> per unit. The total related tax benefit recognized as additional paid-in capital was $<font class="_mt">2</font> million for the first six months of 2011.</p>
<p align="left">During the first six months of 2010, <font class="_mt">851,893</font> 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 $<font class="_mt">49.56</font> per unit and a fair value at payout of $<font class="_mt">47.76</font> per unit. The total related tax expense recognized as a reduction to additional paid-in capital was less than $<font class="_mt">1</font> million for the first six months of 2010.</p>
128000000
153000000
133000000
133000000
1.74
1.74
1.06
1.06
2.49
2.49
1.58
1.58
1.72
1.72
1.04
1.04
2.45
2.45
1.56
1.56
<p align="left"><strong>3. Earnings Per Share</strong></p>
<table style="font-size: 20px;" width="986">
<tr><td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td></tr>
<tr><td> </td>
<td> </td>
<td colspan="10">
<div align="center"><strong>Three months ended June 30,</strong></div></td></tr>
<tr><td> </td>
<td> </td>
<td width="61">
<div align="center"><u><strong>2011</strong></u></div></td>
<td width="18"> </td>
<td width="18"> </td>
<td width="61">
<div align="center"><u><strong>2010</strong></u></div></td>
<td> </td>
<td> </td>
<td width="61">
<div align="center"><u><strong>2011</strong></u></div></td>
<td width="18"> </td>
<td width="18"> </td>
<td width="61">
<div align="center"><u><strong>2010</strong></u></div></td></tr>
<tr><td width="524"> </td>
<td width="19"> </td>
<td colspan="4">
<div style="border-bottom: thin solid;" align="center"><strong>Basic</strong></div></td>
<td width="18"> </td>
<td width="18"> </td>
<td colspan="4">
<div style="border-bottom: thin solid;" align="center"><strong>Diluted</strong></div></td></tr>
<tr><td> </td>
<td colspan="11"><em> ($ in millions except per share, shares in millions)</em></td></tr>
<tr><td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td></tr>
<tr><td>Net income</td>
<td>
<div align="right">$</div></td>
<td>
<div align="right">557 </div></td>
<td> </td>
<td>
<div align="right">$</div></td>
<td>
<div align="right">392 </div></td>
<td> </td>
<td>
<div align="right">$</div></td>
<td>
<div align="right">557 </div></td>
<td> </td>
<td>
<div align="right">$</div></td>
<td>
<div align="right">392 </div></td></tr>
<tr><td>Dividend equivalent payments</td>
<td> </td>
<td>
<div style="border-bottom: thin solid;" align="right">(2)</div></td>
<td> </td>
<td> </td>
<td>
<div style="border-bottom: thin solid;" align="right">(2)</div></td>
<td> </td>
<td> </td>
<td>
<div style="border-bottom: thin solid;" align="right">-- </div></td>
<td> </td>
<td> </td>
<td>
<div style="border-bottom: thin solid;" align="right"> (2)</div></td></tr>
<tr><td>Income available to common stockholders</td>
<td>
<div align="right">$</div></td>
<td>
<div align="right">555 </div></td>
<td> </td>
<td>
<div align="right">$</div></td>
<td>
<div align="right">390 </div></td>
<td> </td>
<td>
<div align="right">$</div></td>
<td>
<div align="right">557 </div></td>
<td> </td>
<td>
<div align="right">$</div></td>
<td>
<div align="right">390 </div></td></tr>
<tr><td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td></tr>
<tr><td>Weighted-average shares outstanding</td>
<td> </td>
<td>
<div style="border-bottom: thin solid;" align="right">351.0 </div></td>
<td> </td>
<td> </td>
<td>
<div style="border-bottom: thin solid;" align="right">369.7 </div></td>
<td> </td>
<td> </td>
<td>
<div align="right">351.0 </div></td>
<td> </td>
<td> </td>
<td>
<div align="right">369.7 </div></td></tr>
<tr><td>Dilutive effect of outstanding options and share-settled awards</td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td>
<div style="border-bottom: thin solid;" align="right">6.3 </div></td>
<td> </td>
<td> </td>
<td>
<div style="border-bottom: thin solid;" align="right"> 5.4 </div></td></tr>
<tr><td>Adjusted weighted-average shares outstanding</td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td>
<div style="border-bottom: thin solid;" align="right">357.3 </div></td>
<td> </td>
<td> </td>
<td>
<div style="border-bottom: thin solid;" align="right"> 375.1 </div></td></tr>
<tr><td>Earnings per share</td>
<td>
<div align="right">$</div></td>
<td>
<div style="border-bottom: double;" align="right">1.58 </div></td>
<td> </td>
<td>
<div align="right">$</div></td>
<td>
<div style="border-bottom: double;" align="right"> 1.06 </div></td>
<td> </td>
<td>
<div align="right">$</div></td>
<td>
<div style="border-bottom: double;" align="right">1.56 </div></td>
<td> </td>
<td>
<div align="right">$</div></td>
<td>
<div style="border-bottom: double;" align="right"> 1.04 </div></td></tr></table><br /><br /><br />
<table style="font-size: 20px;" width="986">
<tr><td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td></tr>
<tr><td> </td>
<td> </td>
<td colspan="10">
<div align="center"><strong>Six months ended June 30,</strong></div></td></tr>
<tr><td> </td>
<td> </td>
<td width="61">
<div align="center"><u><strong>2011</strong></u></div></td>
<td width="18"> </td>
<td width="18"> </td>
<td width="61">
<div align="center"><u><strong>2010</strong></u></div></td>
<td> </td>
<td> </td>
<td width="61">
<div align="center"><u><strong>2011</strong></u></div></td>
<td width="18"> </td>
<td width="18"> </td>
<td width="61">
<div align="center"><u><strong>2010</strong></u></div></td></tr>
<tr><td width="524"> </td>
<td width="19"> </td>
<td colspan="4">
<div style="border-bottom: thin solid;" align="center"><strong>Basic</strong></div></td>
<td width="18"> </td>
<td width="18"> </td>
<td colspan="4">
<div style="border-bottom: thin solid;" align="center"><strong>Diluted</strong></div></td></tr>
<tr><td> </td>
<td colspan="11"><em> ($ in millions except per share, shares in millions)</em></td></tr>
<tr><td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td></tr>
<tr><td>Net income</td>
<td>
<div align="right">$</div></td>
<td>
<div align="right">882 </div></td>
<td> </td>
<td>
<div align="right">$</div></td>
<td>
<div align="right">649 </div></td>
<td> </td>
<td>
<div align="right">$</div></td>
<td>
<div align="right">882 </div></td>
<td> </td>
<td>
<div align="right">$</div></td>
<td>
<div align="right">649 </div></td></tr>
<tr><td>Dividend equivalent payments</td>
<td> </td>
<td>
<div style="border-bottom: thin solid;" align="right">(4)</div></td>
<td> </td>
<td> </td>
<td>
<div style="border-bottom: thin solid;" align="right">(4)</div></td>
<td> </td>
<td> </td>
<td>
<div style="border-bottom: thin solid;" align="right">(2)</div></td>
<td> </td>
<td> </td>
<td>
<div style="border-bottom: thin solid;" align="right">(4)</div></td></tr>
<tr><td>Income available to common stockholders</td>
<td>
<div align="right">$</div></td>
<td>
<div align="right">878 </div></td>
<td> </td>
<td>
<div align="right">$</div></td>
<td>
<div align="right">645 </div></td>
<td> </td>
<td>
<div align="right">$</div></td>
<td>
<div align="right">880 </div></td>
<td> </td>
<td>
<div align="right">$</div></td>
<td>
<div align="right">645 </div></td></tr>
<tr><td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td></tr>
<tr><td>Weighted-average shares outstanding</td>
<td> </td>
<td>
<div style="border-bottom: thin solid;" align="right">353.1 </div></td>
<td> </td>
<td> </td>
<td>
<div style="border-bottom: thin solid;" align="right"> 369.6 </div></td>
<td> </td>
<td> </td>
<td>
<div align="right">353.1 </div></td>
<td> </td>
<td> </td>
<td>
<div align="right">369.6 </div></td></tr>
<tr><td>Dilutive effect of outstanding options and share-settled awards</td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td>
<div style="border-bottom: thin solid;" align="right">5.8 </div></td>
<td> </td>
<td> </td>
<td>
<div style="border-bottom: thin solid;" align="right"> 5.4 </div></td></tr>
<tr><td>Adjusted weighted-average shares outstanding</td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td>
<div style="border-bottom: thin solid;" align="right">358.9 </div></td>
<td> </td>
<td> </td>
<td>
<div style="border-bottom: thin solid;" align="right"> 375.0 </div></td></tr>
<tr><td>Earnings per share</td>
<td>
<div align="right">$</div></td>
<td>
<div style="border-bottom: double;" align="right">2.49 </div></td>
<td> </td>
<td>
<div align="right">$</div></td>
<td>
<div style="border-bottom: double;" align="right"> 1.74 </div></td>
<td> </td>
<td>
<div align="right">$</div></td>
<td>
<div style="border-bottom: double;" align="right">2.45 </div></td>
<td> </td>
<td>
<div align="right">$</div></td>
<td>
<div style="border-bottom: double;" align="right"> 1.72 </div></td></tr></table>
<p align="left">During the second quarters and first six months of 2011 and 2010, dividend equivalent payments were made to holders of stock options and restricted stock units. For purposes of computing basic earnings per share, the total amount of dividend equivalent payments made to holders of stock options and restricted stock units were deducted from net income to determine income available to common stockholders. For purposes of computing diluted earnings per share, NS evaluates on a grant-by-grant basis those stock options and restricted stock units receiving dividend equivalent payments under the two-class and treasury stock methods to determine which method is the more dilutive for each grant. For those grants for which the two-class method was more dilutive, net income was reduced by the amount of dividend equivalent payments on these grants to determine income available to common stockholders. The diluted calculations exclude options having exercise prices exceeding the average market price of Common Stock as follows: <font class="_mt">zero</font> in 2011 and 2010. </p>
4000000
4000000
2000000
2000000
4000000
2000000
2000000
0.58
0.50
14000000
7000000
22000000
12000000
<table style="font-size: 20px;" width="882">
<tr><td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td></tr>
<tr><td> </td>
<td> </td>
<td colspan="4">
<div align="center"><strong>June 30, 2011 </strong></div></td>
<td> </td>
<td colspan="5">
<div align="center"> <strong>December 31, 2010</strong></div></td></tr>
<tr><td width="370"> </td>
<td width="20"> </td>
<td colspan="2">
<div align="center"><strong>Carrying</strong></div></td>
<td colspan="2">
<div align="center"><strong>Fair</strong></div></td>
<td width="20"> </td>
<td width="20"> </td>
<td colspan="2">
<div align="center"><strong>Carrying</strong></div></td>
<td colspan="2">
<div align="center"><strong>Fair</strong></div></td></tr>
<tr><td> </td>
<td> </td>
<td colspan="2">
<div align="center"><u><strong>Amount</strong></u></div></td>
<td colspan="2">
<div align="center"><u><strong>Value</strong></u></div></td>
<td> </td>
<td> </td>
<td colspan="2">
<div align="center"><u><strong>Amount</strong></u></div></td>
<td colspan="2">
<div align="center"><u><strong>Value</strong></u></div></td></tr>
<tr><td> </td>
<td> </td>
<td width="60"> </td>
<td width="20"> </td>
<td width="20"> </td>
<td colspan="4">
<div align="center"><em>($ in millions)</em></div></td>
<td width="20"> </td>
<td width="20"> </td>
<td width="60"> </td></tr>
<tr><td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td width="60"> </td>
<td> </td>
<td> </td>
<td width="60"> </td>
<td> </td>
<td> </td>
<td> </td></tr>
<tr><td>Long-term investments</td>
<td>
<div align="right">$</div></td>
<td>
<div align="right">170 </div></td>
<td> </td>
<td>
<div align="right">$</div></td>
<td>
<div align="right">201 </div></td>
<td> </td>
<td>
<div align="right">$</div></td>
<td>
<div align="right">192 </div></td>
<td> </td>
<td>
<div align="right">$</div></td>
<td>
<div align="right">222 </div></td></tr>
<tr><td>Long-term debt, including current maturities</td>
<td>
<div align="right">$</div></td>
<td>
<div align="right">(6,986)</div></td>
<td> </td>
<td>
<div align="right">$</div></td>
<td>
<div align="right">(8,203)</div></td>
<td> </td>
<td>
<div align="right">$</div></td>
<td>
<div align="right">(6,925)</div></td>
<td> </td>
<td>
<div align="right">$</div></td>
<td>
<div align="right">(7,971)</div></td></tr></table>
<div style="font-size: 20px;">
<p align="left"><strong>9. Fair Value</strong></p>
<p align="left"><strong>Fair Value Measurements</strong></p>
<p align="left">ASC 820-10, <em>"Fair Value Measurements,"</em> 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: </p>
<blockquote>
<table style="font-size: 20px;" width="891">
<tr><td valign="top" width="70">Level 1</td>
<td width="873">Inputs to the valuation methodology are unadjusted quoted prices for identical assets or liabilities in active markets that NS has the ability to access.</td></tr>
<tr><td> </td>
<td> </td></tr>
<tr><td>Level 2</td>
<td>Inputs to the valuation methodology include:</td></tr>
<tr><td colspan="2">
<blockquote>
<blockquote>
<ul>
<li>Quoted prices for similar assets or liabilities in active markets; <br />
</li>
<li>Quoted prices for identical or similar assets or liabilities in inactive markets; <br />
</li>
<li>Inputs other than quoted prices that are observable for the asset or liability; <br />
</li>
<li>Inputs that are derived principally from or corroborated by observable market data by correlation or other means. </li></ul></blockquote></blockquote></td></tr>
<tr><td> </td>
<td>If the asset or liability has a specified (contractual) term, the Level 2 input must be observable for substantially the full term of the asset or liability.</td></tr>
<tr><td> </td>
<td> </td></tr>
<tr><td valign="top">Level 3</td>
<td valign="top">Inputs to the valuation methodology are unobservable and significant to the fair value measurement.</td></tr></table></blockquote>
<p align="left">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 June 30, 2011 and December 31, 2010, for assets measured at fair value on a recurring basis, there were $<font class="_mt">96</font> million and $<font class="_mt">175</font> million, respectively, of available-for-sale securities valued under level 2 of the fair value hierarchy. There were no available-for-sale securities valued under level 1 or level 3 valuation techniques. </p>
<p align="left"><strong>Fair Values of Financial Instruments</strong></p>
<p align="left">NS has evaluated the fair values of financial instruments and methods used to determine those fair values. The fair values of "Cash and cash equivalents," "Short-term investments," "Accounts receivable," "Accounts payable," and "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:</p>
<table style="font-size: 20px;" width="882">
<tr><td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td></tr>
<tr><td> </td>
<td> </td>
<td colspan="4">
<div align="center"><strong>June 30, 2011 </strong></div></td>
<td> </td>
<td colspan="5">
<div align="center"> <strong>December 31, 2010</strong></div></td></tr>
<tr><td width="370"> </td>
<td width="20"> </td>
<td colspan="2">
<div align="center"><strong>Carrying</strong></div></td>
<td colspan="2">
<div align="center"><strong>Fair</strong></div></td>
<td width="20"> </td>
<td width="20"> </td>
<td colspan="2">
<div align="center"><strong>Carrying</strong></div></td>
<td colspan="2">
<div align="center"><strong>Fair</strong></div></td></tr>
<tr><td> </td>
<td> </td>
<td colspan="2">
<div align="center"><u><strong>Amount</strong></u></div></td>
<td colspan="2">
<div align="center"><u><strong>Value</strong></u></div></td>
<td> </td>
<td> </td>
<td colspan="2">
<div align="center"><u><strong>Amount</strong></u></div></td>
<td colspan="2">
<div align="center"><u><strong>Value</strong></u></div></td></tr>
<tr><td> </td>
<td> </td>
<td width="60"> </td>
<td width="20"> </td>
<td width="20"> </td>
<td colspan="4">
<div align="center"><em>($ in millions)</em></div></td>
<td width="20"> </td>
<td width="20"> </td>
<td width="60"> </td></tr>
<tr><td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td width="60"> </td>
<td> </td>
<td> </td>
<td width="60"> </td>
<td> </td>
<td> </td>
<td> </td></tr>
<tr><td>Long-term investments</td>
<td>
<div align="right">$</div></td>
<td>
<div align="right">170 </div></td>
<td> </td>
<td>
<div align="right">$</div></td>
<td>
<div align="right">201 </div></td>
<td> </td>
<td>
<div align="right">$</div></td>
<td>
<div align="right">192 </div></td>
<td> </td>
<td>
<div align="right">$</div></td>
<td>
<div align="right">222 </div></td></tr>
<tr><td>Long-term debt, including current maturities</td>
<td>
<div align="right">$</div></td>
<td>
<div align="right">(6,986)</div></td>
<td> </td>
<td>
<div align="right">$</div></td>
<td>
<div align="right">(8,203)</div></td>
<td> </td>
<td>
<div align="right">$</div></td>
<td>
<div align="right">(6,925)</div></td>
<td> </td>
<td>
<div align="right">$</div></td>
<td>
<div align="right">(7,971)</div></td></tr></table><br />
<p align="left">Underlying net assets were used to estimate the fair value of investments with the exception of notes receivable, which are based on future discounted cash flows. The fair values of long-term 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.</p>
<p align="left">Carrying amounts of available-for-sale securities reflect immaterial unrealized holding gains on both June 30, 2011 and December 31, 2010. Sales of available-for-sale securities were $<font class="_mt">132</font> million and $<font class="_mt">40</font> million for the six months ended June 30, 2011 and 2010, respectively.</p></div>
512000000
258000000
801000000
412000000
108000000
59000000
49000000
132000000
58000000
74000000
13000000
7000000
13000000
7000000
<div style="font-size: 20px;">
<p align="left"><strong>2. Income Taxes</strong></p>
<p align="left">During the second quarter of 2011, the Internal Revenue Service (IRS) completed its examination of NS' 2008 tax return and review of certain claims for refund for prior years that resulted in a decrease in income tax expense of $<font class="_mt">40</font> million. Also during the second quarter, three states enacted tax law changes that, as required by the Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) 740, <em>"Income Taxes,"</em> decreased deferred income tax expense by $<font class="_mt">19</font> million.</p>
<p align="left">NS' balance of unrecognized tax benefits reported at December 31, 2010 has decreased by $<font class="_mt">76</font> million, primarily because of the timing of deductibility of a tax position that became certain during the first quarter and the completion of the IRS examination and review of certain claims for refund during the second quarter. NS' consolidated income tax return for 2009 is undergoing routine audit by the IRS.</p>
<p align="left">During the first quarter of 2010, the Patient Protection and Affordable Care Act, and the Health Care and Education Reconciliation Act of 2010 were signed into law. Provisions of the Acts eliminated, 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,<em> </em>NS recorded a $<font class="_mt">27</font> million charge to deferred tax expense in the first quarter of 2010.</p></div>
253000000
45000000
442000000
243000000
429000000
239000000
126000000
184000000
15000000
32000000
-36000000
-36000000
236000000
221000000
234000000
115000000
225000000
113000000
232000000
219000000
<div style="font-size: 20px;">
<p align="left"><strong>6. Investments</strong></p>
<table style="font-size: 20px;" width="897">
<tr><td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td></tr>
<tr><td> </td>
<td colspan="3">
<div align="center"><strong>June 30,</strong></div></td>
<td> </td>
<td colspan="5">
<div align="center"><strong>December 31,</strong></div></td></tr>
<tr><td> </td>
<td colspan="3">
<div align="center"><u><strong>2011</strong></u></div></td>
<td> </td>
<td colspan="5">
<div align="center"><u><strong>2010</strong></u></div></td></tr>
<tr><td> </td>
<td colspan="9">
<div align="center"><em>($ in millions) </em></div></td></tr>
<tr><td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td></tr>
<tr><td width="531">Short-term investments with average remaining maturities:</td>
<td width="20"> </td>
<td width="60"> </td>
<td width="20"> </td>
<td width="20"> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td></tr>
<tr><td> Available-for-sale:</td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td width="20"> </td>
<td width="20"> </td>
<td width="60"> </td>
<td width="20"> </td>
<td width="20"> </td></tr>
<tr><td> Corporate bonds, <font class="_mt">10</font> and <font class="_mt">4</font> months, respectively</td>
<td>
<div align="right">$</div></td>
<td>
<div align="right">50</div></td>
<td> </td>
<td> </td>
<td> </td>
<td>
<div align="right">$</div></td>
<td>
<div align="right">64</div></td>
<td> </td>
<td> </td></tr>
<tr><td> Certificates of deposit, <font class="_mt">2</font> and <font class="_mt">5</font> months, respectively</td>
<td> </td>
<td>
<div align="right">46</div></td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td>
<div align="right">76</div></td>
<td> </td>
<td> </td></tr>
<tr><td> Commercial paper, <font class="_mt">4</font> months</td>
<td> </td>
<td>
<div style="border-bottom: #000 thin solid; border-top-color: #000; border-right-color: #000; border-left-color: #000;" align="right">--</div></td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td>
<div style="border-bottom: #000 thin solid; border-top-color: #000; border-right-color: #000; border-left-color: #000;" align="right">35</div></td>
<td> </td>
<td> </td></tr>
<tr><td> Total available-for-sale</td>
<td> </td>
<td>
<div style="border-bottom: #000 thin solid; border-top-color: #000; border-right-color: #000; border-left-color: #000;" align="right">96</div></td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td>
<div style="border-bottom: #000 thin solid; border-top-color: #000; border-right-color: #000; border-left-color: #000;" align="right">175</div></td>
<td> </td>
<td> </td></tr>
<tr><td> Held-to-maturity:</td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td></tr>
<tr><td> Federal government bonds, <font class="_mt">4</font> and <font class="_mt">9</font> months, respectively</td>
<td> </td>
<td>
<div align="right">74</div></td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td>
<div align="right">49</div></td>
<td> </td>
<td> </td></tr>
<tr><td> Corporate bonds, <font class="_mt">4</font> and <font class="_mt">10</font> months, respectively</td>
<td> </td>
<td>
<div style="border-bottom: #000 thin solid; border-top-color: #000; border-right-color: #000; border-left-color: #000;" align="right">58</div></td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td>
<div style="border-bottom: #000 thin solid; border-top-color: #000; border-right-color: #000; border-left-color: #000;" align="right">59</div></td>
<td> </td>
<td> </td></tr>
<tr><td> Total held-to-maturity</td>
<td> </td>
<td>
<div style="border-bottom: #000 thin solid; border-top-color: #000; border-right-color: #000; border-left-color: #000;" align="right">132</div></td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td>
<div style="border-bottom: #000 thin solid; border-top-color: #000; border-right-color: #000; border-left-color: #000;" align="right">108</div></td>
<td> </td>
<td> </td></tr>
<tr><td> Total short-term investments</td>
<td>
<div align="right">$</div></td>
<td>
<div style="border-bottom: double;" align="right">228</div></td>
<td> </td>
<td> </td>
<td> </td>
<td>
<div align="right">$</div></td>
<td>
<div style="border-bottom: double;" align="right">283</div></td>
<td> </td>
<td> </td></tr></table><br />
<p><strong>Investment in Conrail</strong></p>
<p align="left">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 <font class="_mt">58</font>% economic and <font class="_mt">50</font>% voting interest in the jointly owned entity, and CSX has the remainder of the economic and voting interests. NS' investment in Conrail was $<font class="_mt">972</font> million at June 30, 2011, and $<font class="_mt">959</font> million at December 31, 2010. </p>
<p align="left">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 services and rents" and "Fuel" include expenses for the use of the Shared Assets Areas totaling $<font class="_mt">32</font> million and $<font class="_mt">29</font> million for the second quarters of 2011 and 2010, respectively, and $<font class="_mt">65</font> million and $<font class="_mt">58</font> million for the first six months of 2011 and 2010, respectively. NS' equity in the earnings of Conrail, net of amortization, included in "Other income – net" was $<font class="_mt">7</font> million for the second quarters of 2011 and 2010, respectively, and $<font class="_mt">13</font> million for the first six months of 2011 and 2010, respectively.</p>
<p align="left">"Accounts payable" includes $<font class="_mt">153</font> million at June 30, 2011, and $<font class="_mt">128</font> million at December 31, 2010, due to Conrail for the operation of the Shared Assets Areas. In addition, "Other liabilities" includes $<font class="_mt">133</font> million at both June 30, 2011 and December 31, 2010, for long-term advances from Conrail, maturing <font class="_mt">2035</font>, that bear interest at an average rate of <font class="_mt">4.4</font>%.</p></div>
1369000000
670000000
1504000000
739000000
17530000000
17851000000
28199000000
28478000000
2082000000
1753000000
6925000000
6986000000
6567000000
6931000000
358000000
55000000
2193000000
2235000000
1200000000
-792000000
-1048000000
-731000000
-801000000
1382000000
1700000000
645000000
390000000
878000000
555000000
645000000
390000000
880000000
557000000
3380000000
1697000000
4011000000
1991000000
1288000000
733000000
1475000000
875000000
240000000
54000000
304000000
257000000
33000000
14000000
35000000
16000000
244000000
284000000
1793000000
1795000000
37000000
17000000
61000000
34000000
148000000
106000000
-77000000
-134000000
114000000
792000000
252000000
283000000
260000000
67000000
569000000
888000000
<div style="font-size: 20px;">
<p align="left"><strong>7. Pensions and Other Postretirement Benefits</strong></p>
<p align="left">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 are covered, reduced by any deductibles, co-payments, Medicare payments, and in some cases, coverage provided under other group insurance policies.</p>
<table style="font-size: 20px;">
<tr><td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td></tr>
<tr><td> </td>
<td> </td>
<td colspan="10">
<div align="center"><strong>Three months ended June 30,</strong></div></td></tr>
<tr><td width="389"> </td>
<td width="20"> </td>
<td width="60">
<div align="center"><u><strong>2011</strong></u></div></td>
<td width="20"> </td>
<td width="20"> </td>
<td width="60">
<div align="center"><u><strong>2010</strong></u></div></td>
<td width="20"> </td>
<td width="20"> </td>
<td width="60">
<div align="center"><u><strong>2011</strong></u></div></td>
<td width="20"> </td>
<td width="20"> </td>
<td width="60">
<div align="center"><u><strong>2010</strong></u></div></td></tr>
<tr><td> </td>
<td> </td>
<td colspan="4">
<div style="border-bottom: thin solid;" align="center"><strong>Pension Benefits</strong></div></td>
<td> </td>
<td> </td>
<td colspan="4">
<div style="border-bottom: thin solid;" align="center"><strong>Other Benefits</strong></div></td></tr>
<tr><td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td colspan="4">
<div align="center"><em>($ in millions)</em></div></td>
<td> </td>
<td> </td>
<td> </td></tr>
<tr><td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td></tr>
<tr><td>Service cost</td>
<td>
<div align="right">$</div></td>
<td>
<div align="right">7 </div></td>
<td> </td>
<td>
<div align="right">$</div></td>
<td>
<div align="right">6 </div></td>
<td> </td>
<td>
<div align="right">$</div></td>
<td>
<div align="right">4 </div></td>
<td> </td>
<td>
<div align="right">$</div></td>
<td>
<div align="right">4 </div></td></tr>
<tr><td>Interest cost</td>
<td> </td>
<td>
<div align="right">23 </div></td>
<td> </td>
<td> </td>
<td>
<div align="right">24 </div></td>
<td> </td>
<td> </td>
<td>
<div align="right">14 </div></td>
<td> </td>
<td> </td>
<td>
<div align="right">15 </div></td></tr>
<tr><td>Expected return on plan assets</td>
<td> </td>
<td>
<div align="right">(35)</div></td>
<td> </td>
<td> </td>
<td>
<div align="right">(35)</div></td>
<td> </td>
<td> </td>
<td>
<div align="right">(3)</div></td>
<td> </td>
<td> </td>
<td>
<div align="right">(3)</div></td></tr>
<tr><td>Amortization of net losses</td>
<td> </td>
<td>
<div align="right">17 </div></td>
<td> </td>
<td> </td>
<td>
<div align="right">12 </div></td>
<td> </td>
<td> </td>
<td>
<div align="right">11 </div></td>
<td> </td>
<td> </td>
<td>
<div align="right">12 </div></td></tr>
<tr><td>Amortization of prior service cost</td>
<td> </td>
<td>
<div style="border-bottom: thin solid;" align="right">1 </div></td>
<td> </td>
<td> </td>
<td>
<div style="border-bottom: thin solid;" align="right">-- </div></td>
<td> </td>
<td> </td>
<td>
<div style="border-bottom: thin solid;" align="right">-- </div></td>
<td> </td>
<td> </td>
<td>
<div style="border-bottom: thin solid;" align="right">-- </div></td></tr>
<tr><td> Net cost</td>
<td>
<div align="right">$</div></td>
<td>
<div style="border-bottom: double;" align="right">13 </div></td>
<td> </td>
<td>
<div align="right">$</div></td>
<td>
<div style="border-bottom: double;" align="right">7 </div></td>
<td> </td>
<td>
<div align="right">$</div></td>
<td>
<div style="border-bottom: double;" align="right">26 </div></td>
<td> </td>
<td>
<div align="right">$</div></td>
<td>
<div style="border-bottom: double;" align="right">28 </div></td></tr></table><br /><br /><br />
<table style="font-size: 20px;">
<tr><td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td></tr>
<tr><td> </td>
<td> </td>
<td colspan="10">
<div align="center"><strong>Six months ended June 30,</strong></div></td></tr>
<tr><td width="389"> </td>
<td width="20"> </td>
<td width="60">
<div align="center"><u><strong>2011</strong></u></div></td>
<td width="20"> </td>
<td width="20"> </td>
<td width="60">
<div align="center"><u><strong>2010</strong></u></div></td>
<td width="20"> </td>
<td width="20"> </td>
<td width="60">
<div align="center"><u><strong>2011</strong></u></div></td>
<td width="20"> </td>
<td width="20"> </td>
<td width="60">
<div align="center"><u><strong>2010</strong></u></div></td></tr>
<tr><td> </td>
<td> </td>
<td colspan="4">
<div style="border-bottom: thin solid;" align="center"><strong>Pension Benefits</strong></div></td>
<td> </td>
<td> </td>
<td colspan="4">
<div style="border-bottom: thin solid;" align="center"><strong>Other Benefits</strong></div></td></tr>
<tr><td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td colspan="4">
<div align="center"><em>($ in millions)</em></div></td>
<td> </td>
<td> </td>
<td> </td></tr>
<tr><td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td></tr>
<tr><td>Service cost</td>
<td>
<div align="right">$</div></td>
<td>
<div align="right">14 </div></td>
<td> </td>
<td>
<div align="right">$</div></td>
<td>
<div align="right">13 </div></td>
<td> </td>
<td>
<div align="right">$</div></td>
<td>
<div align="right">8 </div></td>
<td> </td>
<td>
<div align="right">$</div></td>
<td>
<div align="right">8 </div></td></tr>
<tr><td>Interest cost</td>
<td> </td>
<td>
<div align="right">46 </div></td>
<td> </td>
<td> </td>
<td>
<div align="right">48 </div></td>
<td> </td>
<td> </td>
<td>
<div align="right">29 </div></td>
<td> </td>
<td> </td>
<td>
<div align="right">30 </div></td></tr>
<tr><td>Expected return on plan assets</td>
<td> </td>
<td>
<div align="right">(70)</div></td>
<td> </td>
<td> </td>
<td>
<div align="right">(71)</div></td>
<td> </td>
<td> </td>
<td>
<div align="right">(7)</div></td>
<td> </td>
<td> </td>
<td>
<div align="right">(7)</div></td></tr>
<tr><td>Amortization of net losses</td>
<td> </td>
<td>
<div align="right">34 </div></td>
<td> </td>
<td> </td>
<td>
<div align="right">24 </div></td>
<td> </td>
<td> </td>
<td>
<div align="right">22 </div></td>
<td> </td>
<td> </td>
<td>
<div align="right">24 </div></td></tr>
<tr><td>Amortization of prior service cost</td>
<td> </td>
<td>
<div style="border-bottom: thin solid;" align="right">1 </div></td>
<td> </td>
<td> </td>
<td>
<div style="border-bottom: thin solid;" align="right">1 </div></td>
<td> </td>
<td> </td>
<td>
<div style="border-bottom: thin solid;" align="right">-- </div></td>
<td> </td>
<td> </td>
<td>
<div style="border-bottom: thin solid;" align="right">-- </div></td></tr>
<tr><td> Net cost</td>
<td>
<div align="right">$</div></td>
<td>
<div style="border-bottom: double;" align="right">25 </div></td>
<td> </td>
<td>
<div align="right">$</div></td>
<td>
<div style="border-bottom: double;" align="right">15 </div></td>
<td> </td>
<td>
<div align="right">$</div></td>
<td>
<div style="border-bottom: double;" align="right">52 </div></td>
<td> </td>
<td>
<div align="right">$</div></td>
<td>
<div style="border-bottom: double;" align="right">55 </div></td></tr></table></div>
396000000
40000000
132000000
21000000
20000000
26000000
14000000
45000000
25000000
649000000
649000000
649000000
392000000
392000000
392000000
882000000
882000000
882000000
557000000
557000000
557000000
23231000000
23671000000
468000000
438000000
9224000000
9097000000
4668000000
2430000000
5486000000
2866000000
<table style="font-size: 20px;" width="807">
<tr><td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td></tr>
<tr><td> </td>
<td colspan="6">
<div align="center"><strong>Three Months Ended</strong></div></td>
<td> </td>
<td colspan="5">
<div align="center"> <strong>Six Months Ended</strong></div></td></tr>
<tr><td> </td>
<td> </td>
<td colspan="4">
<div align="center"><strong>June 30,</strong></div></td>
<td> </td>
<td> </td>
<td> </td>
<td colspan="4">
<div align="center"><strong>June 30,</strong></div></td></tr>
<tr><td width="395"> </td>
<td width="17"> </td>
<td width="55">
<div align="center"><u><strong>2011</strong></u></div></td>
<td width="15"> </td>
<td width="17"> </td>
<td width="55">
<div align="center"><u><strong>2010</strong></u></div></td>
<td width="16"> </td>
<td width="16"> </td>
<td width="17"> </td>
<td width="55">
<div align="center"><u><strong>2011</strong></u></div></td>
<td width="16"> </td>
<td width="17"> </td>
<td width="60">
<div align="center"><u><strong>2010</strong></u> </div></td></tr>
<tr><td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td colspan="5">
<div align="center"><em>($ in millions)</em></div></td>
<td> </td>
<td> </td>
<td> </td></tr>
<tr><td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td></tr>
<tr><td>Net income</td>
<td>
<div align="right">$</div></td>
<td>
<div align="right">557</div></td>
<td> </td>
<td>
<div align="right">$</div></td>
<td>
<div align="right">392</div></td>
<td> </td>
<td> </td>
<td>
<div align="right">$</div></td>
<td>
<div align="right">882</div></td>
<td> </td>
<td>
<div align="right">$</div></td>
<td>
<div align="right">649</div></td></tr>
<tr><td>Other comprehensive income</td>
<td> </td>
<td>
<div style="border-bottom: thin solid;" align="right">16</div></td>
<td> </td>
<td> </td>
<td>
<div style="border-bottom: thin solid;" align="right">14</div></td>
<td> </td>
<td> </td>
<td> </td>
<td>
<div style="border-bottom: thin solid;" align="right">35</div></td>
<td> </td>
<td> </td>
<td>
<div style="border-bottom: thin solid;" align="right">33</div></td></tr>
<tr><td> Total comprehensive income</td>
<td>
<div align="right">$</div></td>
<td>
<div style="border-bottom: double;" align="right">573</div></td>
<td> </td>
<td>
<div align="right">$</div></td>
<td>
<div style="border-bottom: double;" align="right">406</div></td>
<td> </td>
<td> </td>
<td>
<div align="right">$</div></td>
<td>
<div style="border-bottom: double;" align="right">917</div></td>
<td> </td>
<td>
<div align="right">$</div></td>
<td>
<div style="border-bottom: double;" align="right">682</div></td></tr></table>
<table style="font-size: 20px;" width="986">
<tr><td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td></tr>
<tr><td> </td>
<td> </td>
<td colspan="10">
<div align="center"><strong>Six months ended June 30,</strong></div></td></tr>
<tr><td> </td>
<td> </td>
<td width="61">
<div align="center"><u><strong>2011</strong></u></div></td>
<td width="18"> </td>
<td width="18"> </td>
<td width="61">
<div align="center"><u><strong>2010</strong></u></div></td>
<td> </td>
<td> </td>
<td width="61">
<div align="center"><u><strong>2011</strong></u></div></td>
<td width="18"> </td>
<td width="18"> </td>
<td width="61">
<div align="center"><u><strong>2010</strong></u></div></td></tr>
<tr><td width="524"> </td>
<td width="19"> </td>
<td colspan="4">
<div style="border-bottom: thin solid;" align="center"><strong>Basic</strong></div></td>
<td width="18"> </td>
<td width="18"> </td>
<td colspan="4">
<div style="border-bottom: thin solid;" align="center"><strong>Diluted</strong></div></td></tr>
<tr><td> </td>
<td colspan="11"><em> ($ in millions except per share, shares in millions)</em></td></tr>
<tr><td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td></tr>
<tr><td>Net income</td>
<td>
<div align="right">$</div></td>
<td>
<div align="right">882 </div></td>
<td> </td>
<td>
<div align="right">$</div></td>
<td>
<div align="right">649 </div></td>
<td> </td>
<td>
<div align="right">$</div></td>
<td>
<div align="right">882 </div></td>
<td> </td>
<td>
<div align="right">$</div></td>
<td>
<div align="right">649 </div></td></tr>
<tr><td>Dividend equivalent payments</td>
<td> </td>
<td>
<div style="border-bottom: thin solid;" align="right">(4)</div></td>
<td> </td>
<td> </td>
<td>
<div style="border-bottom: thin solid;" align="right">(4)</div></td>
<td> </td>
<td> </td>
<td>
<div style="border-bottom: thin solid;" align="right">(2)</div></td>
<td> </td>
<td> </td>
<td>
<div style="border-bottom: thin solid;" align="right">(4)</div></td></tr>
<tr><td>Income available to common stockholders</td>
<td>
<div align="right">$</div></td>
<td>
<div align="right">878 </div></td>
<td> </td>
<td>
<div align="right">$</div></td>
<td>
<div align="right">645 </div></td>
<td> </td>
<td>
<div align="right">$</div></td>
<td>
<div align="right">880 </div></td>
<td> </td>
<td>
<div align="right">$</div></td>
<td>
<div align="right">645 </div></td></tr>
<tr><td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td></tr>
<tr><td>Weighted-average shares outstanding</td>
<td> </td>
<td>
<div style="border-bottom: thin solid;" align="right">353.1 </div></td>
<td> </td>
<td> </td>
<td>
<div style="border-bottom: thin solid;" align="right"> 369.6 </div></td>
<td> </td>
<td> </td>
<td>
<div align="right">353.1 </div></td>
<td> </td>
<td> </td>
<td>
<div align="right">369.6 </div></td></tr>
<tr><td>Dilutive effect of outstanding options and share-settled awards</td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td>
<div style="border-bottom: thin solid;" align="right">5.8 </div></td>
<td> </td>
<td> </td>
<td>
<div style="border-bottom: thin solid;" align="right"> 5.4 </div></td></tr>
<tr><td>Adjusted weighted-average shares outstanding</td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td>
<div style="border-bottom: thin solid;" align="right">358.9 </div></td>
<td> </td>
<td> </td>
<td>
<div style="border-bottom: thin solid;" align="right"> 375.0 </div></td></tr>
<tr><td>Earnings per share</td>
<td>
<div align="right">$</div></td>
<td>
<div style="border-bottom: double;" align="right">2.49 </div></td>
<td> </td>
<td>
<div align="right">$</div></td>
<td>
<div style="border-bottom: double;" align="right"> 1.74 </div></td>
<td> </td>
<td>
<div align="right">$</div></td>
<td>
<div style="border-bottom: double;" align="right">2.45 </div></td>
<td> </td>
<td>
<div align="right">$</div></td>
<td>
<div style="border-bottom: double;" align="right"> 1.72 </div></td></tr></table>
<table style="font-size: 20px;" width="986">
<tr><td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td></tr>
<tr><td> </td>
<td> </td>
<td colspan="10">
<div align="center"><strong>Three months ended June 30,</strong></div></td></tr>
<tr><td> </td>
<td> </td>
<td width="61">
<div align="center"><u><strong>2011</strong></u></div></td>
<td width="18"> </td>
<td width="18"> </td>
<td width="61">
<div align="center"><u><strong>2010</strong></u></div></td>
<td> </td>
<td> </td>
<td width="61">
<div align="center"><u><strong>2011</strong></u></div></td>
<td width="18"> </td>
<td width="18"> </td>
<td width="61">
<div align="center"><u><strong>2010</strong></u></div></td></tr>
<tr><td width="524"> </td>
<td width="19"> </td>
<td colspan="4">
<div style="border-bottom: thin solid;" align="center"><strong>Basic</strong></div></td>
<td width="18"> </td>
<td width="18"> </td>
<td colspan="4">
<div style="border-bottom: thin solid;" align="center"><strong>Diluted</strong></div></td></tr>
<tr><td> </td>
<td colspan="11"><em> ($ in millions except per share, shares in millions)</em></td></tr>
<tr><td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td></tr>
<tr><td>Net income</td>
<td>
<div align="right">$</div></td>
<td>
<div align="right">557 </div></td>
<td> </td>
<td>
<div align="right">$</div></td>
<td>
<div align="right">392 </div></td>
<td> </td>
<td>
<div align="right">$</div></td>
<td>
<div align="right">557 </div></td>
<td> </td>
<td>
<div align="right">$</div></td>
<td>
<div align="right">392 </div></td></tr>
<tr><td>Dividend equivalent payments</td>
<td> </td>
<td>
<div style="border-bottom: thin solid;" align="right">(2)</div></td>
<td> </td>
<td> </td>
<td>
<div style="border-bottom: thin solid;" align="right">(2)</div></td>
<td> </td>
<td> </td>
<td>
<div style="border-bottom: thin solid;" align="right">-- </div></td>
<td> </td>
<td> </td>
<td>
<div style="border-bottom: thin solid;" align="right"> (2)</div></td></tr>
<tr><td>Income available to common stockholders</td>
<td>
<div align="right">$</div></td>
<td>
<div align="right">555 </div></td>
<td> </td>
<td>
<div align="right">$</div></td>
<td>
<div align="right">390 </div></td>
<td> </td>
<td>
<div align="right">$</div></td>
<td>
<div align="right">557 </div></td>
<td> </td>
<td>
<div align="right">$</div></td>
<td>
<div align="right">390 </div></td></tr>
<tr><td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td></tr>
<tr><td>Weighted-average shares outstanding</td>
<td> </td>
<td>
<div style="border-bottom: thin solid;" align="right">351.0 </div></td>
<td> </td>
<td> </td>
<td>
<div style="border-bottom: thin solid;" align="right">369.7 </div></td>
<td> </td>
<td> </td>
<td>
<div align="right">351.0 </div></td>
<td> </td>
<td> </td>
<td>
<div align="right">369.7 </div></td></tr>
<tr><td>Dilutive effect of outstanding options and share-settled awards</td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td>
<div style="border-bottom: thin solid;" align="right">6.3 </div></td>
<td> </td>
<td> </td>
<td>
<div style="border-bottom: thin solid;" align="right"> 5.4 </div></td></tr>
<tr><td>Adjusted weighted-average shares outstanding</td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td>
<div style="border-bottom: thin solid;" align="right">357.3 </div></td>
<td> </td>
<td> </td>
<td>
<div style="border-bottom: thin solid;" align="right"> 375.1 </div></td></tr>
<tr><td>Earnings per share</td>
<td>
<div align="right">$</div></td>
<td>
<div style="border-bottom: double;" align="right">1.58 </div></td>
<td> </td>
<td>
<div align="right">$</div></td>
<td>
<div style="border-bottom: double;" align="right"> 1.06 </div></td>
<td> </td>
<td>
<div align="right">$</div></td>
<td>
<div style="border-bottom: double;" align="right">1.56 </div></td>
<td> </td>
<td>
<div align="right">$</div></td>
<td>
<div style="border-bottom: double;" align="right"> 1.04 </div></td></tr></table>
<table style="font-size: 20px;">
<tr><td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td></tr>
<tr><td> </td>
<td> </td>
<td colspan="10">
<div align="center"><strong>Six months ended June 30,</strong></div></td></tr>
<tr><td width="389"> </td>
<td width="20"> </td>
<td width="60">
<div align="center"><u><strong>2011</strong></u></div></td>
<td width="20"> </td>
<td width="20"> </td>
<td width="60">
<div align="center"><u><strong>2010</strong></u></div></td>
<td width="20"> </td>
<td width="20"> </td>
<td width="60">
<div align="center"><u><strong>2011</strong></u></div></td>
<td width="20"> </td>
<td width="20"> </td>
<td width="60">
<div align="center"><u><strong>2010</strong></u></div></td></tr>
<tr><td> </td>
<td> </td>
<td colspan="4">
<div style="border-bottom: thin solid;" align="center"><strong>Pension Benefits</strong></div></td>
<td> </td>
<td> </td>
<td colspan="4">
<div style="border-bottom: thin solid;" align="center"><strong>Other Benefits</strong></div></td></tr>
<tr><td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td colspan="4">
<div align="center"><em>($ in millions)</em></div></td>
<td> </td>
<td> </td>
<td> </td></tr>
<tr><td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td></tr>
<tr><td>Service cost</td>
<td>
<div align="right">$</div></td>
<td>
<div align="right">14 </div></td>
<td> </td>
<td>
<div align="right">$</div></td>
<td>
<div align="right">13 </div></td>
<td> </td>
<td>
<div align="right">$</div></td>
<td>
<div align="right">8 </div></td>
<td> </td>
<td>
<div align="right">$</div></td>
<td>
<div align="right">8 </div></td></tr>
<tr><td>Interest cost</td>
<td> </td>
<td>
<div align="right">46 </div></td>
<td> </td>
<td> </td>
<td>
<div align="right">48 </div></td>
<td> </td>
<td> </td>
<td>
<div align="right">29 </div></td>
<td> </td>
<td> </td>
<td>
<div align="right">30 </div></td></tr>
<tr><td>Expected return on plan assets</td>
<td> </td>
<td>
<div align="right">(70)</div></td>
<td> </td>
<td> </td>
<td>
<div align="right">(71)</div></td>
<td> </td>
<td> </td>
<td>
<div align="right">(7)</div></td>
<td> </td>
<td> </td>
<td>
<div align="right">(7)</div></td></tr>
<tr><td>Amortization of net losses</td>
<td> </td>
<td>
<div align="right">34 </div></td>
<td> </td>
<td> </td>
<td>
<div align="right">24 </div></td>
<td> </td>
<td> </td>
<td>
<div align="right">22 </div></td>
<td> </td>
<td> </td>
<td>
<div align="right">24 </div></td></tr>
<tr><td>Amortization of prior service cost</td>
<td> </td>
<td>
<div style="border-bottom: thin solid;" align="right">1 </div></td>
<td> </td>
<td> </td>
<td>
<div style="border-bottom: thin solid;" align="right">1 </div></td>
<td> </td>
<td> </td>
<td>
<div style="border-bottom: thin solid;" align="right">-- </div></td>
<td> </td>
<td> </td>
<td>
<div style="border-bottom: thin solid;" align="right">-- </div></td></tr>
<tr><td> Net cost</td>
<td>
<div align="right">$</div></td>
<td>
<div style="border-bottom: double;" align="right">25 </div></td>
<td> </td>
<td>
<div align="right">$</div></td>
<td>
<div style="border-bottom: double;" align="right">15 </div></td>
<td> </td>
<td>
<div align="right">$</div></td>
<td>
<div style="border-bottom: double;" align="right">52 </div></td>
<td> </td>
<td>
<div align="right">$</div></td>
<td>
<div style="border-bottom: double;" align="right">55 </div></td></tr></table>
<table style="font-size: 20px;">
<tr><td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td></tr>
<tr><td> </td>
<td> </td>
<td colspan="10">
<div align="center"><strong>Three months ended June 30,</strong></div></td></tr>
<tr><td width="389"> </td>
<td width="20"> </td>
<td width="60">
<div align="center"><u><strong>2011</strong></u></div></td>
<td width="20"> </td>
<td width="20"> </td>
<td width="60">
<div align="center"><u><strong>2010</strong></u></div></td>
<td width="20"> </td>
<td width="20"> </td>
<td width="60">
<div align="center"><u><strong>2011</strong></u></div></td>
<td width="20"> </td>
<td width="20"> </td>
<td width="60">
<div align="center"><u><strong>2010</strong></u></div></td></tr>
<tr><td> </td>
<td> </td>
<td colspan="4">
<div style="border-bottom: thin solid;" align="center"><strong>Pension Benefits</strong></div></td>
<td> </td>
<td> </td>
<td colspan="4">
<div style="border-bottom: thin solid;" align="center"><strong>Other Benefits</strong></div></td></tr>
<tr><td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td colspan="4">
<div align="center"><em>($ in millions)</em></div></td>
<td> </td>
<td> </td>
<td> </td></tr>
<tr><td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td></tr>
<tr><td>Service cost</td>
<td>
<div align="right">$</div></td>
<td>
<div align="right">7 </div></td>
<td> </td>
<td>
<div align="right">$</div></td>
<td>
<div align="right">6 </div></td>
<td> </td>
<td>
<div align="right">$</div></td>
<td>
<div align="right">4 </div></td>
<td> </td>
<td>
<div align="right">$</div></td>
<td>
<div align="right">4 </div></td></tr>
<tr><td>Interest cost</td>
<td> </td>
<td>
<div align="right">23 </div></td>
<td> </td>
<td> </td>
<td>
<div align="right">24 </div></td>
<td> </td>
<td> </td>
<td>
<div align="right">14 </div></td>
<td> </td>
<td> </td>
<td>
<div align="right">15 </div></td></tr>
<tr><td>Expected return on plan assets</td>
<td> </td>
<td>
<div align="right">(35)</div></td>
<td> </td>
<td> </td>
<td>
<div align="right">(35)</div></td>
<td> </td>
<td> </td>
<td>
<div align="right">(3)</div></td>
<td> </td>
<td> </td>
<td>
<div align="right">(3)</div></td></tr>
<tr><td>Amortization of net losses</td>
<td> </td>
<td>
<div align="right">17 </div></td>
<td> </td>
<td> </td>
<td>
<div align="right">12 </div></td>
<td> </td>
<td> </td>
<td>
<div align="right">11 </div></td>
<td> </td>
<td> </td>
<td>
<div align="right">12 </div></td></tr>
<tr><td>Amortization of prior service cost</td>
<td> </td>
<td>
<div style="border-bottom: thin solid;" align="right">1 </div></td>
<td> </td>
<td> </td>
<td>
<div style="border-bottom: thin solid;" align="right">-- </div></td>
<td> </td>
<td> </td>
<td>
<div style="border-bottom: thin solid;" align="right">-- </div></td>
<td> </td>
<td> </td>
<td>
<div style="border-bottom: thin solid;" align="right">-- </div></td></tr>
<tr><td> Net cost</td>
<td>
<div align="right">$</div></td>
<td>
<div style="border-bottom: double;" align="right">13 </div></td>
<td> </td>
<td>
<div align="right">$</div></td>
<td>
<div style="border-bottom: double;" align="right">7 </div></td>
<td> </td>
<td>
<div align="right">$</div></td>
<td>
<div style="border-bottom: double;" align="right">26 </div></td>
<td> </td>
<td>
<div align="right">$</div></td>
<td>
<div style="border-bottom: double;" align="right">28 </div></td></tr></table>
<table style="font-size: 20px;">
<tr><td width="530">Expected volatility range</td>
<td width="105">
<div align="right"><font class="_mt">28</font>% - <font class="_mt">32</font>%</div></td></tr>
<tr><td>Average expected volatility</td>
<td>
<div align="right">28%</div></td></tr>
<tr><td>Average expected option life</td>
<td>
<div align="right">8.5 years</div></td></tr>
<tr><td>Average risk-free interest rate</td>
<td>
<div align="right">3.42%</div></td></tr>
<tr><td>LTIP per-share grant-date fair value</td>
<td>
<div align="right">$22.26</div></td></tr>
<tr><td>TSOP per-share grant-date fair value</td>
<td>
<div align="right">$18.10</div></td></tr></table>
ten
fourth
third
580900
177400
48.88
8.5
0.32
0.28
0.0342
0.28
627700
257000
100000000
0
283000000
228000000
10669000000
10627000000
<div style="font-size: 20px;">
<p align="left"><strong>4. Stockholders' Equity</strong></p>
<p align="left">Common stock is reported net of shares held by consolidated subsidiaries of Norfolk Southern, which at June 30, 2011 and December 31, 2010, amounted to <font class="_mt">20,320,777</font> and <font class="_mt">20,336,843</font> shares, respectively, with a cost of $<font class="_mt">19</font> million as of both dates.</p></div>
433236
1157896
565786
1649046
889853
2000000
11600000
114000000
792000000
192000000
170000000
222000000
201000000
199000000
160000000
20336843
20320777
<p align="left"><strong>5. Stock Repurchase Program</strong></p>
<p align="left">NS repurchased and retired <font class="_mt">11.6</font> million shares of Common Stock in the first six months of 2011, at a cost of $<font class="_mt">792</font> million and <font class="_mt">2.0</font> million shares at a cost of $<font class="_mt">114</font> million for the same period of 2010. The timing and volume of purchases is guided by managements assessment of market conditions and other pertinent factors. Any near-term share repurchases are expected to be made with internally generated cash, cash on hand, or proceeds from borrowings. Since 2005, NS has repurchased and retired <font class="_mt">91.0</font> million shares at a total cost of $<font class="_mt">4.9</font> billion.</p>
19000000
19000000
-76000000
5400000
5400000
5800000
6300000
375000000
375100000
358900000
357300000
369600000
369600000
369700000
369700000
353100000
353100000
351000000
351000000