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<div></div> <table border="0" cellspacing="0" cellpadding="0"> <tr> <td valign="top" width="384"><div> </div></td> <td valign="top" colspan="8" width="275"><div align="center"><font size="3" color="#000000"><b>June 30, 2012</b></font></div></td> </tr> <tr> <td valign="top" width="384"><div> </div></td> <td valign="top" colspan="2" width="83"><div align="center"><font size="3" color="#000000"><b>Level 1</b></font></div></td> <td valign="top" width="19"><div> </div></td> <td valign="top" colspan="2" width="76"><div align="center"><font size="3" color="#000000"><b>Level 2</b></font></div></td> <td valign="top" width="19"><div> </div></td> <td valign="top" colspan="2" width="76"><div align="center"><font size="3" color="#000000"><b>Total</b></font></div></td> </tr> <tr> <td valign="top" width="384"><div> </div></td> <td valign="top" colspan="8" width="275"><div align="center"><font size="3" color="#000000"><i>($ in millions)</i></font></div></td> </tr> <tr> <td valign="top" width="384"><div> </div></td> <td valign="top" width="19"><div> </div></td> <td valign="top" width="63"><div> </div></td> <td valign="top" width="19"><div> </div></td> <td valign="top" width="19"><div> </div></td> <td valign="top" width="57"><div> </div></td> <td valign="top" width="19"><div> </div></td> <td valign="top" width="19"><div> </div></td> <td valign="top" width="57"><div> </div></td> </tr> <tr> <td valign="top" width="384"><div><font size="3" color="#000000">Long-term investments</font></div></td> <td valign="top" width="19"><div><font size="3" color="#000000">$</font></div></td> <td valign="top" width="63"><div align="right"><font size="3" color="#000000">38 </font></div></td> <td valign="top" width="19"><div> </div></td> <td valign="top" width="19"><div><font size="3" color="#000000">$</font></div></td> <td valign="top" width="57"><div align="right"><font size="3" color="#000000">133 </font></div></td> <td valign="top" width="19"><div> </div></td> <td valign="top" width="19"><div><font size="3" color="#000000">$</font></div></td> <td valign="top" width="57"><div align="right"><font size="3" color="#000000">171 </font></div></td> </tr> <tr> <td valign="top" width="384"><div><font size="3" color="#000000">Long-term debt, including current maturities</font></div></td> <td valign="top" width="19"><div> </div></td> <td valign="top" width="63"><div align="right"><font size="3" color="#000000">(9,962)</font></div></td> <td valign="top" width="19"><div> </div></td> <td valign="top" width="19"><div> </div></td> <td valign="top" width="57"><div align="right"><font size="3" color="#000000">(296)</font></div></td> <td valign="top" width="19"><div> </div></td> <td valign="top" width="19"><div> </div></td> <td valign="top" width="57"><div align="right"><font size="3" color="#000000">(10,258)</font></div></td> </tr> <tr> <td width="384"></td> <td width="19"></td> <td width="63"></td> <td width="19"></td> <td width="19"></td> <td width="57"></td> <td width="19"></td> <td width="19"></td> <td width="57"></td> </tr> </table> <div></div>

<div></div> <table border="0" cellspacing="0" cellpadding="0"> <tr> <td valign="bottom" width="304" height="12"><div> </div></td> <td valign="top" colspan="5" width="175"><div align="center"><font size="3" color="#000000"><b>June 30, 2012</b></font></div></td> <td valign="top" width="24"><div> </div></td> <td valign="top" colspan="5" width="174"><div align="center"><font size="3" color="#000000"><b>December 31, 2011</b></font></div></td> </tr> <tr> <td valign="bottom" width="304" height="12"><div> </div></td> <td valign="top" colspan="2" width="78"><div align="center"><font size="3" color="#000000"><b>Carrying</b></font></div></td> <td valign="top" width="18"><div align="center"> </div></td> <td valign="top" colspan="2" width="78"><div align="center"><font size="3" color="#000000"><b>Fair</b></font></div></td> <td valign="top" width="24"><div> </div></td> <td valign="top" colspan="2" width="78"><div align="center"><font size="3" color="#000000"><b>Carrying</b></font></div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" colspan="2" width="77"><div align="center"><font size="3" color="#000000"><b>Fair</b></font></div></td> </tr> <tr> <td valign="bottom" width="304" height="12"><div> </div></td> <td valign="top" colspan="2" width="78"><div align="center"><font size="3" color="#000000"><b>Amount</b></font></div></td> <td valign="top" width="18"><div align="center"> </div></td> <td valign="top" colspan="2" width="78"><div align="center"><font size="3" color="#000000"><b>Value</b></font></div></td> <td valign="top" width="24"><div> </div></td> <td valign="top" colspan="2" width="78"><div align="center"><font size="3" color="#000000"><b>Amount</b></font></div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" colspan="2" width="77"><div align="center"><font size="3" color="#000000"><b>Value</b></font></div></td> </tr> <tr> <td valign="bottom" width="304" height="12"><div> </div></td> <td valign="top" colspan="11" width="374"><div align="center"><font size="3" color="#000000"><i>($ in millions)</i></font></div></td> </tr> <tr> <td valign="bottom" width="304" height="12"><div> </div></td> <td valign="bottom" width="18"><div> </div></td> <td valign="bottom" width="60"><div> </div></td> <td valign="top" width="18"><div> </div></td> <td valign="bottom" width="18"><div> </div></td> <td valign="bottom" width="60"><div> </div></td> <td valign="top" width="24"><div> </div></td> <td valign="bottom" width="18"><div> </div></td> <td valign="bottom" width="60"><div> </div></td> <td valign="top" width="18"><div> </div></td> <td valign="bottom" width="18"><div> </div></td> <td valign="bottom" width="58"><div> </div></td> </tr> <tr> <td valign="bottom" width="304" height="12"><div><font size="3" color="#000000">Long-term investments</font></div></td> <td valign="bottom" width="18"><div><font size="3" color="#000000">$</font></div></td> <td valign="bottom" width="60"><div align="right"><font size="3" color="#000000">137 </font></div></td> <td valign="top" width="18"><div> </div></td> <td valign="bottom" width="18"><div><font size="3" color="#000000">$</font></div></td> <td valign="bottom" width="60"><div align="right"><font size="3" color="#000000">171 </font></div></td> <td valign="top" width="24"><div> </div></td> <td valign="bottom" width="18"><div><font size="3" color="#000000">$</font></div></td> <td valign="bottom" width="60"><div align="right"><font size="3" color="#000000">151 </font></div></td> <td valign="top" width="18"><div> </div></td> <td valign="bottom" width="18"><div><font size="3" color="#000000">$</font></div></td> <td valign="bottom" width="58"><div align="right"><font size="3" color="#000000">186 </font></div></td> </tr> <tr> <td valign="bottom" width="304" height="12"><div><font size="3" color="#000000">Long-term debt, including current maturities</font></div></td> <td valign="bottom" width="18"><div> </div></td> <td valign="bottom" width="60"><div align="right"><font size="3" color="#000000">(7,999)</font></div></td> <td valign="top" width="18"><div> </div></td> <td valign="bottom" width="18"><div> </div></td> <td valign="bottom" width="60"><div align="right"><font size="3" color="#000000">(10,258)</font></div></td> <td valign="top" width="24"><div> </div></td> <td valign="bottom" width="18"><div> </div></td> <td valign="bottom" width="60"><div align="right"><font size="3" color="#000000">(7,440)</font></div></td> <td valign="top" width="18"><div> </div></td> <td valign="bottom" width="18"><div> </div></td> <td valign="bottom" width="58"><div align="right"><font size="3" color="#000000">(9,469)</font></div></td> </tr> <tr> <td width="304"></td> <td width="18"></td> <td width="60"></td> <td width="18"></td> <td width="18"></td> <td width="60"></td> <td width="24"></td> <td width="18"></td> <td width="60"></td> <td width="18"></td> <td width="18"></td> <td width="58"></td> </tr> </table> <div></div>

<div></div> <table border="0" cellspacing="0" cellpadding="0"> <tr> <td valign="top" width="383"><div> </div></td> <td valign="top" colspan="5" width="139"><div align="center"><font size="3" color="#000000"><b>Pension Benefits</b></font></div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" colspan="5" width="138"><div align="center"><font size="3" color="#000000"><b>Other Benefits</b></font></div></td> </tr> <tr> <td valign="top" width="383"><div> </div></td> <td valign="top" colspan="11" width="295"><div align="center"><font size="3" color="#000000"><b>Three Months Ended June 30,</b></font></div></td> </tr> <tr> <td valign="top" width="383"><div> </div></td> <td valign="top" colspan="2" width="60"><div align="center"><font size="3" color="#000000"><b>2012</b></font></div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" colspan="2" width="60"><div align="center"><font size="3" color="#000000"><b>2011</b></font></div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" colspan="2" width="60"><div align="center"><font size="3" color="#000000"><b>2012</b></font></div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" colspan="2" width="59"><div align="center"><font size="3" color="#000000"><b>2011</b></font></div></td> </tr> <tr> <td valign="top" width="383"><div> </div></td> <td valign="top" colspan="11" width="295"><div align="center"><font size="3" color="#000000"><i>($ in millions)</i></font></div></td> </tr> <tr> <td valign="top" width="383"><div> </div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="42"><div> </div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="42"><div> </div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="42"><div> </div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="41"><div> </div></td> </tr> <tr> <td valign="top" width="383"><div><font size="3" color="#000000">Service cost</font></div></td> <td valign="top" width="18"><div><font size="3" color="#000000">$</font></div></td> <td valign="top" width="42"><div align="right"><font size="3" color="#000000">9 </font></div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="18"><div><font size="3" color="#000000">$</font></div></td> <td valign="top" width="42"><div align="right"><font size="3" color="#000000">7 </font></div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="18"><div><font size="3" color="#000000">$</font></div></td> <td valign="top" width="42"><div align="right"><font size="3" color="#000000">4 </font></div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="18"><div><font size="3" color="#000000">$</font></div></td> <td valign="top" width="41"><div align="right"><font size="3" color="#000000">4 </font></div></td> </tr> <tr> <td valign="top" width="383"><div><font size="3" color="#000000">Interest cost</font></div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="42"><div align="right"><font size="3" color="#000000">22 </font></div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="42"><div align="right"><font size="3" color="#000000">23 </font></div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="42"><div align="right"><font size="3" color="#000000">13 </font></div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="41"><div align="right"><font size="3" color="#000000">14 </font></div></td> </tr> <tr> <td valign="top" width="383"><div><font size="3" color="#000000">Expected return on plan assets</font></div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="42"><div align="right"><font size="3" color="#000000">(35)</font></div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="42"><div align="right"><font size="3" color="#000000">(35)</font></div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="42"><div align="right"><font size="3" color="#000000">(3)</font></div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="41"><div align="right"><font size="3" color="#000000">(3)</font></div></td> </tr> <tr> <td valign="top" width="383"><div><font size="3" color="#000000">Amortization of net losses</font></div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="42"><div align="right"><font size="3" color="#000000">19 </font></div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="42"><div align="right"><font size="3" color="#000000">17 </font></div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="42"><div align="right"><font size="3" color="#000000">13 </font></div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="41"><div align="right"><font size="3" color="#000000">11 </font></div></td> </tr> <tr> <td valign="top" width="383"><div><font size="3" color="#000000">Amortization of prior service cost</font></div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="42"><div align="right"><font size="3" color="#000000">- </font></div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="42"><div align="right"><font size="3" color="#000000">1 </font></div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="42"><div align="right"><font size="3" color="#000000">- </font></div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="41"><div align="right"><font size="3" color="#000000">- </font></div></td> </tr> <tr> <td valign="top" width="383"><div> </div></td> <td valign="top" width="18"><div align="center"> </div></td> <td valign="top" width="42"><div> </div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="18"><div align="center"> </div></td> <td valign="top" width="42"><div> </div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="18"><div align="center"> </div></td> <td valign="top" width="42"><div> </div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="18"><div align="center"> </div></td> <td valign="top" width="41"><div> </div></td> </tr> <tr> <td valign="top" width="383"><div><font size="3" color="#000000">   Net cost</font></div></td> <td valign="top" width="18"><div><font size="3" color="#000000">$</font></div></td> <td valign="top" width="42"><div align="right"><font size="3" color="#000000">15 </font></div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="18"><div><font size="3" color="#000000">$</font></div></td> <td valign="top" width="42"><div align="right"><font size="3" color="#000000">13 </font></div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="18"><div><font size="3" color="#000000">$</font></div></td> <td valign="top" width="42"><div align="right"><font size="3" color="#000000">27 </font></div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="18"><div><font size="3" color="#000000">$</font></div></td> <td valign="top" width="41"><div align="right"><font size="3" color="#000000">26 </font></div></td> </tr> <tr> <td width="383"></td> <td width="18"></td> <td width="42"></td> <td width="18"></td> <td width="18"></td> <td width="42"></td> <td width="18"></td> <td width="18"></td> <td width="42"></td> <td width="18"></td> <td width="18"></td> <td width="41"></td> </tr> </table> <div><font size="3" color="#000000"> </font></div> <div><font size="3" color="#000000"> </font></div> <div></div> <table border="0" cellspacing="0" cellpadding="0"> <tr> <td valign="top" width="383"><div> </div></td> <td valign="top" colspan="5" width="139"><div align="center"><font size="3" color="#000000"><b>Pension Benefits</b></font></div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" colspan="5" width="138"><div align="center"><font size="3" color="#000000"><b>Other Benefits</b></font></div></td> </tr> <tr> <td valign="top" width="383"><div> </div></td> <td valign="top" colspan="11" width="295"><div align="center"><font size="3" color="#000000"><b>Six Months Ended June 30,</b></font></div></td> </tr> <tr> <td valign="top" width="383"><div> </div></td> <td valign="top" colspan="2" width="60"><div align="center"><font size="3" color="#000000"><b>2012</b></font></div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" colspan="2" width="60"><div align="center"><font size="3" color="#000000"><b>2011</b></font></div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" colspan="2" width="60"><div align="center"><font size="3" color="#000000"><b>2012</b></font></div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" colspan="2" width="59"><div align="center"><font size="3" color="#000000"><b>2011</b></font></div></td> </tr> <tr> <td valign="top" width="383"><div> </div></td> <td valign="top" colspan="11" width="295"><div align="center"><font size="3" color="#000000"><i>($ in millions)</i></font></div></td> </tr> <tr> <td valign="top" width="383"><div> </div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="42"><div> </div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="42"><div> </div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="42"><div> </div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="41"><div> </div></td> </tr> <tr> <td valign="top" width="383"><div><font size="3" color="#000000">Service cost</font></div></td> <td valign="top" width="18"><div><font size="3" color="#000000">$</font></div></td> <td valign="top" width="42"><div align="right"><font size="3" color="#000000">17 </font></div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="18"><div><font size="3" color="#000000">$</font></div></td> <td valign="top" width="42"><div align="right"><font size="3" color="#000000">14 </font></div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="18"><div><font size="3" color="#000000">$</font></div></td> <td valign="top" width="42"><div align="right"><font size="3" color="#000000">8 </font></div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="18"><div><font size="3" color="#000000">$</font></div></td> <td valign="top" width="41"><div align="right"><font size="3" color="#000000">8 </font></div></td> </tr> <tr> <td valign="top" width="383"><div><font size="3" color="#000000">Interest cost</font></div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="42"><div align="right"><font size="3" color="#000000">44 </font></div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="42"><div align="right"><font size="3" color="#000000">46 </font></div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="42"><div align="right"><font size="3" color="#000000">27 </font></div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="41"><div align="right"><font size="3" color="#000000">29 </font></div></td> </tr> <tr> <td valign="top" width="383"><div><font size="3" color="#000000">Expected return on plan assets</font></div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="42"><div align="right"><font size="3" color="#000000">(69)</font></div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="42"><div align="right"><font size="3" color="#000000">(70)</font></div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="42"><div align="right"><font size="3" color="#000000">(7)</font></div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="41"><div align="right"><font size="3" color="#000000">(7)</font></div></td> </tr> <tr> <td valign="top" width="383"><div><font size="3" color="#000000">Amortization of net losses</font></div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="42"><div align="right"><font size="3" color="#000000">38 </font></div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="42"><div align="right"><font size="3" color="#000000">34 </font></div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="42"><div align="right"><font size="3" color="#000000">26 </font></div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="41"><div align="right"><font size="3" color="#000000">22 </font></div></td> </tr> <tr> <td valign="top" width="383"><div><font size="3" color="#000000">Amortization of prior service cost</font></div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="42"><div align="right"><font size="3" color="#000000">- </font></div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="42"><div align="right"><font size="3" color="#000000">1 </font></div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="42"><div align="right"><font size="3" color="#000000">- </font></div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="41"><div align="right"><font size="3" color="#000000">- </font></div></td> </tr> <tr> <td valign="top" width="383"><div> </div></td> <td valign="top" width="18"><div align="center"> </div></td> <td valign="top" width="42"><div> </div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="18"><div align="center"> </div></td> <td valign="top" width="42"><div> </div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="18"><div align="center"> </div></td> <td valign="top" width="42"><div> </div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="18"><div align="center"> </div></td> <td valign="top" width="41"><div> </div></td> </tr> <tr> <td valign="top" width="383"><div><font size="3" color="#000000">   Net cost</font></div></td> <td valign="top" width="18"><div><font size="3" color="#000000">$</font></div></td> <td valign="top" width="42"><div align="right"><font size="3" color="#000000">30 </font></div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="18"><div><font size="3" color="#000000">$</font></div></td> <td valign="top" width="42"><div align="right"><font size="3" color="#000000">25 </font></div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="18"><div><font size="3" color="#000000">$</font></div></td> <td valign="top" width="42"><div align="right"><font size="3" color="#000000">54 </font></div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="18"><div><font size="3" color="#000000">$</font></div></td> <td valign="top" width="41"><div align="right"><font size="3" color="#000000">52 </font></div></td> </tr> <tr> <td width="383"></td> <td width="18"></td> <td width="42"></td> <td width="18"></td> <td width="18"></td> <td width="42"></td> <td width="18"></td> <td width="18"></td> <td width="42"></td> <td width="18"></td> <td width="18"></td> <td width="41"></td> </tr> </table> <div></div>

<div></div> <table border="0" cellspacing="0" cellpadding="0"> <tr> <td valign="top" width="383"><div> </div></td> <td valign="top" colspan="5" width="139"><div align="center"><font size="3" color="#000000"><b>Basic</b></font></div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" colspan="5" width="138"><div align="center"><font size="3" color="#000000"><b>Diluted</b></font></div></td> </tr> <tr> <td valign="top" width="383"><div> </div></td> <td valign="top" colspan="11" width="295"><div align="center"><font size="3" color="#000000"><b>Three Months Ended June 30,</b></font></div></td> </tr> <tr> <td valign="top" width="383"><div> </div></td> <td valign="top" colspan="2" width="60"><div align="center"><font size="3" color="#000000"><b>2012</b></font></div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" colspan="2" width="60"><div align="center"><font size="3" color="#000000"><b>2011</b></font></div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" colspan="2" width="60"><div align="center"><font size="3" color="#000000"><b>2012</b></font></div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" colspan="2" width="59"><div align="center"><font size="3" color="#000000"><b>2011</b></font></div></td> </tr> <tr> <td valign="top" width="383"><div> </div></td> <td valign="top" colspan="11" width="295"><div align="center"><font size="3" color="#000000"><i>($ in millions, except per share amounts)</i></font></div></td> </tr> <tr> <td valign="top" width="383"><div> </div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="42"><div> </div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="42"><div> </div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="42"><div> </div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="41"><div> </div></td> </tr> <tr> <td valign="top" width="383"><div><font size="3" color="#000000">Net income</font></div></td> <td valign="top" width="18"><div><font size="3" color="#000000">$</font></div></td> <td valign="top" width="42"><div align="right"><font size="3" color="#000000">524 </font></div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="18"><div><font size="3" color="#000000">$</font></div></td> <td valign="top" width="42"><div align="right"><font size="3" color="#000000">557 </font></div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="18"><div><font size="3" color="#000000">$</font></div></td> <td valign="top" width="42"><div align="right"><font size="3" color="#000000">524 </font></div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="18"><div><font size="3" color="#000000">$</font></div></td> <td valign="top" width="41"><div align="right"><font size="3" color="#000000">557 </font></div></td> </tr> <tr> <td valign="top" width="383"><div><font size="3" color="#000000">Dividend equivalent payments</font></div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="42"><div align="right"><font size="3" color="#000000">(2)</font></div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="42"><div align="right"><font size="3" color="#000000">(2)</font></div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="42"><div align="right"><font size="3" color="#000000">- </font></div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="41"><div align="right"><font size="3" color="#000000">- </font></div></td> </tr> <tr> <td valign="top" width="383"><div><font size="3" color="#000000">Income available to common stockholders</font></div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="42"><div align="right"><font size="3" color="#000000">522 </font></div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="42"><div align="right"><font size="3" color="#000000">555 </font></div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="42"><div align="right"><font size="3" color="#000000">524 </font></div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="41"><div align="right"><font size="3" color="#000000">557 </font></div></td> </tr> <tr> <td valign="top" width="383"><div> </div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="42"><div> </div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="42"><div> </div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="42"><div> </div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="41"><div> </div></td> </tr> <tr> <td valign="top" width="383"><div><font size="3" color="#000000">Weighted-average shares outstanding</font></div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="42"><div align="right"><font size="3" color="#000000">322.7 </font></div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="42"><div align="right"><font size="3" color="#000000">351.0 </font></div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="42"><div align="right"><font size="3" color="#000000">322.7 </font></div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="41"><div align="right"><font size="3" color="#000000">351.0 </font></div></td> </tr> <tr> <td valign="top" width="383"><div><font size="3" color="#000000">Dilutive effect of outstanding options and share-settled awards</font></div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="42"><div> </div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="42"><div> </div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="42"><div align="right"><font size="3" color="#000000">4.8 </font></div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="41"><div align="right"><font size="3" color="#000000">6.3 </font></div></td> </tr> <tr> <td valign="top" width="383"><div><font size="3" color="#000000">Adjusted weighted-average shares outstanding</font></div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="42"><div> </div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="42"><div> </div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="42"><div align="right"><font size="3" color="#000000">327.5 </font></div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="41"><div align="right"><font size="3" color="#000000">357.3 </font></div></td> </tr> <tr> <td valign="top" width="383"><div> </div></td> <td valign="top" width="18"><div align="center"> </div></td> <td valign="top" width="42"><div> </div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="18"><div align="center"> </div></td> <td valign="top" width="42"><div> </div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="18"><div align="center"> </div></td> <td valign="top" width="42"><div> </div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="18"><div align="center"> </div></td> <td valign="top" width="41"><div> </div></td> </tr> <tr> <td valign="top" width="383"><div><font size="3" color="#000000">Earnings per share</font></div></td> <td valign="top" width="18"><div><font size="3" color="#000000">$</font></div></td> <td valign="top" width="42"><div align="right"><font size="3" color="#000000">1.62 </font></div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="18"><div><font size="3" color="#000000">$</font></div></td> <td valign="top" width="42"><div align="right"><font size="3" color="#000000">1.58 </font></div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="18"><div><font size="3" color="#000000">$</font></div></td> <td valign="top" width="42"><div align="right"><font size="3" color="#000000">1.60 </font></div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="18"><div><font size="3" color="#000000">$</font></div></td> <td valign="top" width="41"><div align="right"><font size="3" color="#000000">1.56 </font></div></td> </tr> <tr> <td width="383"></td> <td width="18"></td> <td width="42"></td> <td width="18"></td> <td width="18"></td> <td width="42"></td> <td width="18"></td> <td width="18"></td> <td width="42"></td> <td width="18"></td> <td width="18"></td> <td width="41"></td> </tr> </table> <div><font size="3" color="#000000"> </font></div> <div><font size="3" color="#000000"> </font></div> <div></div> <table border="0" cellspacing="0" cellpadding="0"> <tr> <td valign="top" width="383"><div> </div></td> <td valign="top" colspan="5" width="139"><div align="center"><font size="3" color="#000000"><b>Basic</b></font></div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" colspan="5" width="138"><div align="center"><font size="3" color="#000000"><b>Diluted</b></font></div></td> </tr> <tr> <td valign="top" width="383"><div> </div></td> <td valign="top" colspan="11" width="295"><div align="center"><font size="3" color="#000000"><b>Six Months Ended June 30,</b></font></div></td> </tr> <tr> <td valign="top" width="383"><div> </div></td> <td valign="top" colspan="2" width="60"><div align="center"><font size="3" color="#000000"><b>2012</b></font></div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" colspan="2" width="60"><div align="center"><font size="3" color="#000000"><b>2011</b></font></div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" colspan="2" width="60"><div align="center"><font size="3" color="#000000"><b>2012</b></font></div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" colspan="2" width="59"><div align="center"><font size="3" color="#000000"><b>2011</b></font></div></td> </tr> <tr> <td valign="top" width="383"><div> </div></td> <td valign="top" colspan="11" width="295"><div align="center"><font size="3" color="#000000"><i>($ in millions, except per share amounts)</i></font></div></td> </tr> <tr> <td valign="top" width="383"><div> </div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="42"><div> </div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="42"><div> </div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="42"><div> </div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="41"><div> </div></td> </tr> <tr> <td valign="top" width="383"><div><font size="3" color="#000000">Net income</font></div></td> <td valign="top" width="18"><div><font size="3" color="#000000">$</font></div></td> <td valign="top" width="42"><div align="right"><font size="3" color="#000000">934 </font></div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="18"><div><font size="3" color="#000000">$</font></div></td> <td valign="top" width="42"><div align="right"><font size="3" color="#000000">882 </font></div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="18"><div><font size="3" color="#000000">$</font></div></td> <td valign="top" width="42"><div align="right"><font size="3" color="#000000">934 </font></div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="18"><div><font size="3" color="#000000">$</font></div></td> <td valign="top" width="41"><div align="right"><font size="3" color="#000000">882 </font></div></td> </tr> <tr> <td valign="top" width="383"><div><font size="3" color="#000000">Dividend equivalent payments</font></div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="42"><div align="right"><font size="3" color="#000000">(4)</font></div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="42"><div align="right"><font size="3" color="#000000">(4)</font></div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="42"><div align="right"><font size="3" color="#000000">(2)</font></div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="41"><div align="right"><font size="3" color="#000000">(2)</font></div></td> </tr> <tr> <td valign="top" width="383"><div><font size="3" color="#000000">Income available to common stockholders</font></div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="42"><div align="right"><font size="3" color="#000000">930 </font></div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="42"><div align="right"><font size="3" color="#000000">878 </font></div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="42"><div align="right"><font size="3" color="#000000">932 </font></div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="41"><div align="right"><font size="3" color="#000000">880 </font></div></td> </tr> <tr> <td valign="top" width="383"><div> </div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="42"><div> </div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="42"><div> </div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="42"><div> </div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="41"><div> </div></td> </tr> <tr> <td valign="top" width="383"><div><font size="3" color="#000000">Weighted-average shares outstanding</font></div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="42"><div align="right"><font size="3" color="#000000">325.5 </font></div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="42"><div align="right"><font size="3" color="#000000">353.1 </font></div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="42"><div align="right"><font size="3" color="#000000">325.5 </font></div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="41"><div align="right"><font size="3" color="#000000">353.1 </font></div></td> </tr> <tr> <td valign="top" width="383"><div><font size="3" color="#000000">Dilutive effect of outstanding options and share-settled awards</font></div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="42"><div> </div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="42"><div> </div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="42"><div align="right"><font size="3" color="#000000">4.7 </font></div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="41"><div align="right"><font size="3" color="#000000">5.8 </font></div></td> </tr> <tr> <td valign="top" width="383"><div><font size="3" color="#000000">Adjusted weighted-average shares outstanding</font></div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="42"><div> </div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="42"><div> </div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="42"><div align="right"><font size="3" color="#000000">330.2 </font></div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="41"><div align="right"><font size="3" color="#000000">358.9 </font></div></td> </tr> <tr> <td valign="top" width="383"><div> </div></td> <td valign="top" width="18"><div align="center"> </div></td> <td valign="top" width="42"><div> </div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="18"><div align="center"> </div></td> <td valign="top" width="42"><div> </div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="18"><div align="center"> </div></td> <td valign="top" width="42"><div> </div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="18"><div align="center"> </div></td> <td valign="top" width="41"><div> </div></td> </tr> <tr> <td valign="top" width="383"><div><font size="3" color="#000000">Earnings per share</font></div></td> <td valign="top" width="18"><div><font size="3" color="#000000">$</font></div></td> <td valign="top" width="42"><div align="right"><font size="3" color="#000000">2.86 </font></div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="18"><div><font size="3" color="#000000">$</font></div></td> <td valign="top" width="42"><div align="right"><font size="3" color="#000000">2.49 </font></div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="18"><div><font size="3" color="#000000">$</font></div></td> <td valign="top" width="42"><div align="right"><font size="3" color="#000000">2.82 </font></div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="18"><div><font size="3" color="#000000">$</font></div></td> <td valign="top" width="41"><div align="right"><font size="3" color="#000000">2.45 </font></div></td> </tr> <tr> <td width="383"></td> <td width="18"></td> <td width="42"></td> <td width="18"></td> <td width="18"></td> <td width="42"></td> <td width="18"></td> <td width="18"></td> <td width="42"></td> <td width="18"></td> <td width="18"></td> <td width="41"></td> </tr> </table> <div></div>

<div></div> <table border="0" cellspacing="0" cellpadding="0"> <tr> <td valign="bottom" width="377"><div><font size="3" color="#000000">Expected volatility range</font></div></td> <td valign="bottom" width="133"><div align="right"><font size="3" color="#000000">27% - 29%</font></div></td> </tr> <tr> <td valign="bottom" width="377"><div><font size="3" color="#000000">Average expected volatility</font></div></td> <td valign="bottom" width="133"><div align="right"><font size="3" color="#000000">27%</font></div></td> </tr> <tr> <td valign="bottom" width="377"><div><font size="3" color="#000000">LTIP average expected option life</font></div></td> <td valign="bottom" width="133"><div align="right"><font size="3" color="#000000">8.9 years</font></div></td> </tr> <tr> <td valign="bottom" width="377"><div><font size="3" color="#000000">TSOP average expected option life</font></div></td> <td valign="bottom" width="133"><div align="right"><font size="3" color="#000000">8.8 years</font></div></td> </tr> <tr> <td valign="bottom" width="377"><div><font size="3" color="#000000">Average risk-free interest rate</font></div></td> <td valign="bottom" width="133"><div align="right"><font size="3" color="#000000">1.96%</font></div></td> </tr> <tr> <td valign="bottom" width="377"><div><font size="3" color="#000000">LTIP per-share grant-date fair value</font></div></td> <td valign="bottom" width="133"><div align="right"><font size="3" color="#000000">$23.84</font></div></td> </tr> <tr> <td valign="bottom" width="377"><div><font size="3" color="#000000">TSOP per-share grant-date fair value</font></div></td> <td valign="bottom" width="133"><div align="right"><font size="3" color="#000000">$19.55</font></div></td> </tr> </table> <div></div>

<div><font size="3" color="#000000"><b>11.  New Accounting Pronouncements</b></font></div> <div><font size="3" color="#000000"> </font></div> <div><font size="3" color="#000000">In the first quarter of 2012, NS adopted Accounting Standards Update (ASU) No. 2011-05, <i>Comprehensive Income (Topic 220):  Presentation of Comprehensive Income.</i>  This update requires that the total of comprehensive income, the components of net income, and the components of other comprehensive income be presented in either a single continuous statement of comprehensive income or in two separate but consecutive statements.  This update does not change what items are reported in other comprehensive income or the requirement to report reclassification of items from other comprehensive income to net income.</font></div> <div><font size="3" color="#000000"> </font></div> <div><font size="3" color="#000000">In the first quarter of 2012, NS adopted ASU No. 2011-04, <i>Fair Value Measurements (Topic 820):  Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs.</i>  This update provides clarification about the application of existing fair value measurements and disclosure requirements, and expands certain other disclosures requirements.</font></div> <div></div>

<div><font size="3" color="#000000"><b>10.  Commitments and Contingencies</b></font></div> <div><font size="3" color="#000000"> </font></div> <div><font size="3" color="#000000"><b>Lawsuits</b></font></div> <div><font size="3" color="#000000"> </font></div> <div><font size="3" color="#000000">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.</font></div> <div><font size="3" color="#000000"> </font></div> <div><font size="3" color="#000000">One of NS' customers, DuPont, has a rate reasonableness complaint pending before the Surface Transportation Board (STB) alleging that the NS tariff rates for transportation of regulated movements are unreasonable. NS disputes these allegations. Since June 1, 2009, NS has been billing and collecting from DuPont amounts based on the challenged tariff rates. Management presently expects resolution of the case to occur in 2013 and believes the estimate of reasonably possible loss will not have a material effect on NS' financial position, results of operations, or liquidity.  With regard to rate cases, management records adjustments to revenues in the periods, if and when, such adjustments are probable and estimable.</font></div> <div><font size="3" color="#000000"> </font></div> <div><font size="3" color="#000000">On November 6, 2007, various antitrust class actions filed against NS and other Class 1 railroads in various Federal district courts regarding fuel surcharges were consolidated in the District of Columbia by the Judicial Panel on Multidistrict Litigation.  On June 21, 2012, the court certified the case as a class action.  NS believes the allegations in the complaints are without merit and intends to vigorously defend the cases. NS does not believe that the outcome of these proceedings will have a material effect on its financial position, results of operations, or liquidity.  A lawsuit containing similar allegations against NS and four other major railroads that was filed on March 25, 2008, in the U.S. District Court for the District of Minnesota was voluntarily dismissed by the plaintiff subject to a tolling agreement entered into in August 2008.</font></div> <div><font size="3" color="#000000"> </font></div> <div><font size="3" color="#000000"> </font></div> <div><font size="3" color="#000000"><b>Casualty Claims</b></font></div> <div><font size="3" color="#000000"> </font></div> <div><font size="3" color="#000000">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.</font></div> <div><font size="3" color="#000000"> </font></div> <div><font size="3" color="#000000">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.  In the first quarter of 2011, NS received an unfavorable ruling for an arbitration claim with an insurance carrier, and was denied recovery of the contested portion ($43 million) of the claim.  As a result, NS recorded a $43 million charge during the first quarter of 2011 for the receivables associated with the contested portion of the claim and a $15 million charge for other receivables affected by the ruling for which recovery was no longer probable.</font></div> <div><font size="3" color="#000000"> </font></div> <div><font size="3" color="#000000"><b>Employee personal injury claims -</b> 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' 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.</font></div> <div><font size="3" color="#000000"> </font></div> <div><font size="3" color="#000000"><b>Occupational claims -</b> 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 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.</font></div> <div><font size="3" color="#000000"> </font></div> <div><font size="3" color="#000000"><b>Third-party claims -</b> 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.</font></div> <div><font size="3" color="#000000"> </font></div> <div><font size="3" color="#000000"> </font></div> <div><font size="3" color="#000000"><b>Environmental Matters </b></font></div> <div><font size="3" color="#000000"> </font></div> <div><font size="3" color="#000000">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.</font></div> <div><font size="3" color="#000000"> </font></div> <div><font size="3" color="#000000">NS' Consolidated Balance Sheets include liabilities for environmental exposures of $36 million at June 30, 2012, and $35 million at December 31, 2011 (of which $12 million is classified as a current liability at the end of each period). At June 30, 2012, the liability represents NS' estimate of the probable cleanup and remediation costs based on available information at 141 known locations and projects. As of that date, seven sites accounted for $17 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.</font></div> <div><font size="3" color="#000000"> </font></div> <div><font size="3" color="#000000">At 25 locations, one or more Norfolk Southern subsidiaries in conjunction with a number of other parties, have been identified as potentially responsible parties under the Comprehensive Environmental Response, Compensation and Liability Act of 1980, or comparable state statutes that impose joint and several liability for cleanup costs. NS calculates its estimated liability for these sites based on facts and legal defenses applicable to each site and not solely on the bases of the potential joint liability.</font></div> <div><font size="3" color="#000000"> </font></div> <div><font size="3" color="#000000">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, unpredictable contaminant recovery and reduction rates associated with available clean-up 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.</font></div> <div><font size="3" color="#000000"> </font></div> <div><font size="3" color="#000000">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.</font></div> <div><font size="3" color="#000000"> </font></div> <div><font size="3" color="#000000">Based on its assessment of the facts and circumstances now known, management believes that it has recorded the probable and reasonably estimable 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.</font></div> <div><font size="3" color="#000000"> </font></div> <div><font size="3" color="#000000"> </font></div> <div><font size="3" color="#000000"><b>Insurance</b></font></div> <div><font size="3" color="#000000"> </font></div> <div><font size="3" color="#000000">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 $50 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' care, custody, or control.</font></div> <div><font size="3" color="#000000"> </font></div> <div><font size="3" color="#000000"> </font></div> <div><font size="3" color="#000000"><b>Purchase Commitments</b></font></div> <div><font size="3" color="#000000"> </font></div> <div><font size="3" color="#000000">At June 30, 2012, NS had outstanding purchase commitments totaling approximately $507 million for long-term service contracts through 2019, as well as locomotives, freight cars, and track material in connection with its capital programs through 2014.</font></div> <div></div><div align="center"><font size="3" color="#000000">1</font></div> <div><font size="3" color="#000000"> </font></div> <div></div>

<div><font size="3" color="#000000"><b>9.  Fair Value</b></font></div> <div><font size="3" color="#000000"> </font></div> <div><font size="3" color="#000000"><b>Fair Value Measurements</b></font></div> <div><font size="3" color="#000000"> </font></div> <div><font size="3" color="#000000">The Financial Accounting Standards Board (FASB) Accounting Standards Codifications (ASC) 820-10, <i>Fair Value Measurements,</i> 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:</font></div> <div><font size="3" color="#000000"> </font></div> <div></div> <table border="0" cellspacing="0" cellpadding="0"> <tr> <td valign="top" width="125"><div><font size="3" color="#000000">Level 1</font></div></td> <td valign="top" width="561"><div><font size="3" color="#000000">Inputs to the valuation methodology are unadjusted quoted prices for identical assets or liabilities in active markets that NS has the ability to access.</font></div></td> </tr> <tr> <td valign="top" width="125"><div> </div></td> <td valign="top" width="561"><div> </div></td> </tr> <tr> <td valign="top" width="125"><div><font size="3" color="#000000">Level 2</font></div></td> <td valign="top" width="561"><div><font size="3" color="#000000">Inputs to the valuation methodology include:</font></div></td> </tr> <tr> <td valign="top" width="125"><div> </div></td> <td valign="top" width="561"><div></div> <ul> <li type="disc"><font size="3" color="#000000">Quoted prices for similar assets or liabilities in active markets; </font></li> <li type="disc"><font size="3" color="#000000">Quoted prices for identical or similar assets or liabilities in inactive markets; </font></li> <li type="disc"><font size="3" color="#000000">Inputs other than quoted prices that are observable for the asset or liability; </font></li> <li type="disc"><font size="3" color="#000000">Inputs that are derived principally from or corroborated by observable market data by correlation or other means.</font></li> </ul></td> </tr> <tr> <td valign="top" width="125"><div> </div></td> <td valign="top" width="561"><div> </div></td> </tr> <tr> <td valign="top" width="125"><div> </div></td> <td valign="top" width="561"><div><font size="3" color="#000000">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.</font></div></td> </tr> <tr> <td valign="top" width="125"><div> </div></td> <td valign="top" width="561"><div> </div></td> </tr> <tr> <td valign="top" width="125"><div><font size="3" color="#000000">Level 3</font></div></td> <td valign="top" width="561"><div><font size="3" color="#000000">Inputs to the valuation methodology are unobservable and significant to the fair value measurement.</font></div></td> </tr> </table> <div><font size="3" color="#000000"> </font></div> <div><font size="3" color="#000000"> </font></div> <div><font size="3" color="#000000">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. There were no assets or liabilities measured at fair value on a recurring basis as of June 30, 2012 and December 31, 2011.  </font></div> <div><font size="3" color="#000000"> </font></div> <div><font size="3" color="#000000"> </font></div> <div><font size="3" color="#000000"><b>Fair Values of Financial Instruments</b></font></div> <div><font size="3" color="#000000"> </font></div> <div><font size="3" color="#000000">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 investments accounted for under the equity method, consisted of the following:</font></div> <div><font size="3" color="#000000"> </font></div> <div></div> <table border="0" cellspacing="0" cellpadding="0"> <tr> <td valign="bottom" width="304" height="12"><div> </div></td> <td valign="top" colspan="5" width="175"><div align="center"><font size="3" color="#000000"><b>June 30, 2012</b></font></div></td> <td valign="top" width="24"><div> </div></td> <td valign="top" colspan="5" width="174"><div align="center"><font size="3" color="#000000"><b>December 31, 2011</b></font></div></td> </tr> <tr> <td valign="bottom" width="304" height="12"><div> </div></td> <td valign="top" colspan="2" width="78"><div align="center"><font size="3" color="#000000"><b>Carrying</b></font></div></td> <td valign="top" width="18"><div align="center"> </div></td> <td valign="top" colspan="2" width="78"><div align="center"><font size="3" color="#000000"><b>Fair</b></font></div></td> <td valign="top" width="24"><div> </div></td> <td valign="top" colspan="2" width="78"><div align="center"><font size="3" color="#000000"><b>Carrying</b></font></div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" colspan="2" width="77"><div align="center"><font size="3" color="#000000"><b>Fair</b></font></div></td> </tr> <tr> <td valign="bottom" width="304" height="12"><div> </div></td> <td valign="top" colspan="2" width="78"><div align="center"><font size="3" color="#000000"><b>Amount</b></font></div></td> <td valign="top" width="18"><div align="center"> </div></td> <td valign="top" colspan="2" width="78"><div align="center"><font size="3" color="#000000"><b>Value</b></font></div></td> <td valign="top" width="24"><div> </div></td> <td valign="top" colspan="2" width="78"><div align="center"><font size="3" color="#000000"><b>Amount</b></font></div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" colspan="2" width="77"><div align="center"><font size="3" color="#000000"><b>Value</b></font></div></td> </tr> <tr> <td valign="bottom" width="304" height="12"><div> </div></td> <td valign="top" colspan="11" width="374"><div align="center"><font size="3" color="#000000"><i>($ in millions)</i></font></div></td> </tr> <tr> <td valign="bottom" width="304" height="12"><div> </div></td> <td valign="bottom" width="18"><div> </div></td> <td valign="bottom" width="60"><div> </div></td> <td valign="top" width="18"><div> </div></td> <td valign="bottom" width="18"><div> </div></td> <td valign="bottom" width="60"><div> </div></td> <td valign="top" width="24"><div> </div></td> <td valign="bottom" width="18"><div> </div></td> <td valign="bottom" width="60"><div> </div></td> <td valign="top" width="18"><div> </div></td> <td valign="bottom" width="18"><div> </div></td> <td valign="bottom" width="58"><div> </div></td> </tr> <tr> <td valign="bottom" width="304" height="12"><div><font size="3" color="#000000">Long-term investments</font></div></td> <td valign="bottom" width="18"><div><font size="3" color="#000000">$</font></div></td> <td valign="bottom" width="60"><div align="right"><font size="3" color="#000000">137 </font></div></td> <td valign="top" width="18"><div> </div></td> <td valign="bottom" width="18"><div><font size="3" color="#000000">$</font></div></td> <td valign="bottom" width="60"><div align="right"><font size="3" color="#000000">171 </font></div></td> <td valign="top" width="24"><div> </div></td> <td valign="bottom" width="18"><div><font size="3" color="#000000">$</font></div></td> <td valign="bottom" width="60"><div align="right"><font size="3" color="#000000">151 </font></div></td> <td valign="top" width="18"><div> </div></td> <td valign="bottom" width="18"><div><font size="3" color="#000000">$</font></div></td> <td valign="bottom" width="58"><div align="right"><font size="3" color="#000000">186 </font></div></td> </tr> <tr> <td valign="bottom" width="304" height="12"><div><font size="3" color="#000000">Long-term debt, including current maturities</font></div></td> <td valign="bottom" width="18"><div> </div></td> <td valign="bottom" width="60"><div align="right"><font size="3" color="#000000">(7,999)</font></div></td> <td valign="top" width="18"><div> </div></td> <td valign="bottom" width="18"><div> </div></td> <td valign="bottom" width="60"><div align="right"><font size="3" color="#000000">(10,258)</font></div></td> <td valign="top" width="24"><div> </div></td> <td valign="bottom" width="18"><div> </div></td> <td valign="bottom" width="60"><div align="right"><font size="3" color="#000000">(7,440)</font></div></td> <td valign="top" width="18"><div> </div></td> <td valign="bottom" width="18"><div> </div></td> <td valign="bottom" width="58"><div align="right"><font size="3" color="#000000">(9,469)</font></div></td> </tr> <tr> <td width="304"></td> <td width="18"></td> <td width="60"></td> <td width="18"></td> <td width="18"></td> <td width="60"></td> <td width="24"></td> <td width="18"></td> <td width="60"></td> <td width="18"></td> <td width="18"></td> <td width="58"></td> </tr> </table> <div><font size="3" color="#000000"> </font></div> <div><font size="3" color="#000000"> </font></div> <div><font size="3" color="#000000">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.</font></div> <div><font size="3" color="#000000"> </font></div> <div><font size="3" color="#000000">The following table sets forth the fair value of long-term investment and long-term debt balances disclosed above by valuation technique level, within the fair value hierarchy (there were no level 3 valued assets or liabilities).</font></div> <div><font size="3" color="#000000"> </font></div> <div></div> <table border="0" cellspacing="0" cellpadding="0"> <tr> <td valign="top" width="384"><div> </div></td> <td valign="top" colspan="8" width="275"><div align="center"><font size="3" color="#000000"><b>June 30, 2012</b></font></div></td> </tr> <tr> <td valign="top" width="384"><div> </div></td> <td valign="top" colspan="2" width="83"><div align="center"><font size="3" color="#000000"><b>Level 1</b></font></div></td> <td valign="top" width="19"><div> </div></td> <td valign="top" colspan="2" width="76"><div align="center"><font size="3" color="#000000"><b>Level 2</b></font></div></td> <td valign="top" width="19"><div> </div></td> <td valign="top" colspan="2" width="76"><div align="center"><font size="3" color="#000000"><b>Total</b></font></div></td> </tr> <tr> <td valign="top" width="384"><div> </div></td> <td valign="top" colspan="8" width="275"><div align="center"><font size="3" color="#000000"><i>($ in millions)</i></font></div></td> </tr> <tr> <td valign="top" width="384"><div> </div></td> <td valign="top" width="19"><div> </div></td> <td valign="top" width="63"><div> </div></td> <td valign="top" width="19"><div> </div></td> <td valign="top" width="19"><div> </div></td> <td valign="top" width="57"><div> </div></td> <td valign="top" width="19"><div> </div></td> <td valign="top" width="19"><div> </div></td> <td valign="top" width="57"><div> </div></td> </tr> <tr> <td valign="top" width="384"><div><font size="3" color="#000000">Long-term investments</font></div></td> <td valign="top" width="19"><div><font size="3" color="#000000">$</font></div></td> <td valign="top" width="63"><div align="right"><font size="3" color="#000000">38 </font></div></td> <td valign="top" width="19"><div> </div></td> <td valign="top" width="19"><div><font size="3" color="#000000">$</font></div></td> <td valign="top" width="57"><div align="right"><font size="3" color="#000000">133 </font></div></td> <td valign="top" width="19"><div> </div></td> <td valign="top" width="19"><div><font size="3" color="#000000">$</font></div></td> <td valign="top" width="57"><div align="right"><font size="3" color="#000000">171 </font></div></td> </tr> <tr> <td valign="top" width="384"><div><font size="3" color="#000000">Long-term debt, including current maturities</font></div></td> <td valign="top" width="19"><div> </div></td> <td valign="top" width="63"><div align="right"><font size="3" color="#000000">(9,962)</font></div></td> <td valign="top" width="19"><div> </div></td> <td valign="top" width="19"><div> </div></td> <td valign="top" width="57"><div align="right"><font size="3" color="#000000">(296)</font></div></td> <td valign="top" width="19"><div> </div></td> <td valign="top" width="19"><div> </div></td> <td valign="top" width="57"><div align="right"><font size="3" color="#000000">(10,258)</font></div></td> </tr> <tr> <td width="384"></td> <td width="19"></td> <td width="63"></td> <td width="19"></td> <td width="19"></td> <td width="57"></td> <td width="19"></td> <td width="19"></td> <td width="57"></td> </tr> </table> <div><font size="3" color="#000000"><i> </i></font></div> <div><font size="3" color="#000000">Sales of available-for-sale securities were zero and $132 million (which included current maturities) for the six months ended June 30, 2012 and 2011, respectively.</font></div> <div><font size="3" color="#000000"> </font></div> <div></div><div align="center"><font size="3" color="#000000">14</font></div> <div><font size="3" color="#000000"> </font></div> <div></div>

<div><font size="3" color="#000000"><b>8.  Pensions and Other Postretirement Benefits</b></font></div> <div><font size="3" color="#000000"> </font></div> <div><font size="3" color="#000000">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.</font></div> <div><font size="3" color="#000000"> </font></div> <div></div> <table border="0" cellspacing="0" cellpadding="0"> <tr> <td valign="top" width="383"><div> </div></td> <td valign="top" colspan="5" width="139"><div align="center"><font size="3" color="#000000"><b>Pension Benefits</b></font></div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" colspan="5" width="138"><div align="center"><font size="3" color="#000000"><b>Other Benefits</b></font></div></td> </tr> <tr> <td valign="top" width="383"><div> </div></td> <td valign="top" colspan="11" width="295"><div align="center"><font size="3" color="#000000"><b>Three Months Ended June 30,</b></font></div></td> </tr> <tr> <td valign="top" width="383"><div> </div></td> <td valign="top" colspan="2" width="60"><div align="center"><font size="3" color="#000000"><b>2012</b></font></div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" colspan="2" width="60"><div align="center"><font size="3" color="#000000"><b>2011</b></font></div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" colspan="2" width="60"><div align="center"><font size="3" color="#000000"><b>2012</b></font></div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" colspan="2" width="59"><div align="center"><font size="3" color="#000000"><b>2011</b></font></div></td> </tr> <tr> <td valign="top" width="383"><div> </div></td> <td valign="top" colspan="11" width="295"><div align="center"><font size="3" color="#000000"><i>($ in millions)</i></font></div></td> </tr> <tr> <td valign="top" width="383"><div> </div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="42"><div> </div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="42"><div> </div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="42"><div> </div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="41"><div> </div></td> </tr> <tr> <td valign="top" width="383"><div><font size="3" color="#000000">Service cost</font></div></td> <td valign="top" width="18"><div><font size="3" color="#000000">$</font></div></td> <td valign="top" width="42"><div align="right"><font size="3" color="#000000">9 </font></div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="18"><div><font size="3" color="#000000">$</font></div></td> <td valign="top" width="42"><div align="right"><font size="3" color="#000000">7 </font></div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="18"><div><font size="3" color="#000000">$</font></div></td> <td valign="top" width="42"><div align="right"><font size="3" color="#000000">4 </font></div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="18"><div><font size="3" color="#000000">$</font></div></td> <td valign="top" width="41"><div align="right"><font size="3" color="#000000">4 </font></div></td> </tr> <tr> <td valign="top" width="383"><div><font size="3" color="#000000">Interest cost</font></div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="42"><div align="right"><font size="3" color="#000000">22 </font></div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="42"><div align="right"><font size="3" color="#000000">23 </font></div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="42"><div align="right"><font size="3" color="#000000">13 </font></div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="41"><div align="right"><font size="3" color="#000000">14 </font></div></td> </tr> <tr> <td valign="top" width="383"><div><font size="3" color="#000000">Expected return on plan assets</font></div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="42"><div align="right"><font size="3" color="#000000">(35)</font></div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="42"><div align="right"><font size="3" color="#000000">(35)</font></div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="42"><div align="right"><font size="3" color="#000000">(3)</font></div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="41"><div align="right"><font size="3" color="#000000">(3)</font></div></td> </tr> <tr> <td valign="top" width="383"><div><font size="3" color="#000000">Amortization of net losses</font></div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="42"><div align="right"><font size="3" color="#000000">19 </font></div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="42"><div align="right"><font size="3" color="#000000">17 </font></div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="42"><div align="right"><font size="3" color="#000000">13 </font></div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="41"><div align="right"><font size="3" color="#000000">11 </font></div></td> </tr> <tr> <td valign="top" width="383"><div><font size="3" color="#000000">Amortization of prior service cost</font></div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="42"><div align="right"><font size="3" color="#000000">- </font></div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="42"><div align="right"><font size="3" color="#000000">1 </font></div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="42"><div align="right"><font size="3" color="#000000">- </font></div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="41"><div align="right"><font size="3" color="#000000">- </font></div></td> </tr> <tr> <td valign="top" width="383"><div> </div></td> <td valign="top" width="18"><div align="center"> </div></td> <td valign="top" width="42"><div> </div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="18"><div align="center"> </div></td> <td valign="top" width="42"><div> </div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="18"><div align="center"> </div></td> <td valign="top" width="42"><div> </div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="18"><div align="center"> </div></td> <td valign="top" width="41"><div> </div></td> </tr> <tr> <td valign="top" width="383"><div><font size="3" color="#000000">   Net cost</font></div></td> <td valign="top" width="18"><div><font size="3" color="#000000">$</font></div></td> <td valign="top" width="42"><div align="right"><font size="3" color="#000000">15 </font></div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="18"><div><font size="3" color="#000000">$</font></div></td> <td valign="top" width="42"><div align="right"><font size="3" color="#000000">13 </font></div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="18"><div><font size="3" color="#000000">$</font></div></td> <td valign="top" width="42"><div align="right"><font size="3" color="#000000">27 </font></div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="18"><div><font size="3" color="#000000">$</font></div></td> <td valign="top" width="41"><div align="right"><font size="3" color="#000000">26 </font></div></td> </tr> <tr> <td width="383"></td> <td width="18"></td> <td width="42"></td> <td width="18"></td> <td width="18"></td> <td width="42"></td> <td width="18"></td> <td width="18"></td> <td width="42"></td> <td width="18"></td> <td width="18"></td> <td width="41"></td> </tr> </table> <div><font size="3" color="#000000"> </font></div> <div><font size="3" color="#000000"> </font></div> <div></div> <table border="0" cellspacing="0" cellpadding="0"> <tr> <td valign="top" width="383"><div> </div></td> <td valign="top" colspan="5" width="139"><div align="center"><font size="3" color="#000000"><b>Pension Benefits</b></font></div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" colspan="5" width="138"><div align="center"><font size="3" color="#000000"><b>Other Benefits</b></font></div></td> </tr> <tr> <td valign="top" width="383"><div> </div></td> <td valign="top" colspan="11" width="295"><div align="center"><font size="3" color="#000000"><b>Six Months Ended June 30,</b></font></div></td> </tr> <tr> <td valign="top" width="383"><div> </div></td> <td valign="top" colspan="2" width="60"><div align="center"><font size="3" color="#000000"><b>2012</b></font></div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" colspan="2" width="60"><div align="center"><font size="3" color="#000000"><b>2011</b></font></div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" colspan="2" width="60"><div align="center"><font size="3" color="#000000"><b>2012</b></font></div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" colspan="2" width="59"><div align="center"><font size="3" color="#000000"><b>2011</b></font></div></td> </tr> <tr> <td valign="top" width="383"><div> </div></td> <td valign="top" colspan="11" width="295"><div align="center"><font size="3" color="#000000"><i>($ in millions)</i></font></div></td> </tr> <tr> <td valign="top" width="383"><div> </div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="42"><div> </div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="42"><div> </div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="42"><div> </div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="41"><div> </div></td> </tr> <tr> <td valign="top" width="383"><div><font size="3" color="#000000">Service cost</font></div></td> <td valign="top" width="18"><div><font size="3" color="#000000">$</font></div></td> <td valign="top" width="42"><div align="right"><font size="3" color="#000000">17 </font></div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="18"><div><font size="3" color="#000000">$</font></div></td> <td valign="top" width="42"><div align="right"><font size="3" color="#000000">14 </font></div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="18"><div><font size="3" color="#000000">$</font></div></td> <td valign="top" width="42"><div align="right"><font size="3" color="#000000">8 </font></div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="18"><div><font size="3" color="#000000">$</font></div></td> <td valign="top" width="41"><div align="right"><font size="3" color="#000000">8 </font></div></td> </tr> <tr> <td valign="top" width="383"><div><font size="3" color="#000000">Interest cost</font></div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="42"><div align="right"><font size="3" color="#000000">44 </font></div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="42"><div align="right"><font size="3" color="#000000">46 </font></div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="42"><div align="right"><font size="3" color="#000000">27 </font></div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="41"><div align="right"><font size="3" color="#000000">29 </font></div></td> </tr> <tr> <td valign="top" width="383"><div><font size="3" color="#000000">Expected return on plan assets</font></div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="42"><div align="right"><font size="3" color="#000000">(69)</font></div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="42"><div align="right"><font size="3" color="#000000">(70)</font></div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="42"><div align="right"><font size="3" color="#000000">(7)</font></div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="41"><div align="right"><font size="3" color="#000000">(7)</font></div></td> </tr> <tr> <td valign="top" width="383"><div><font size="3" color="#000000">Amortization of net losses</font></div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="42"><div align="right"><font size="3" color="#000000">38 </font></div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="42"><div align="right"><font size="3" color="#000000">34 </font></div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="42"><div align="right"><font size="3" color="#000000">26 </font></div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="41"><div align="right"><font size="3" color="#000000">22 </font></div></td> </tr> <tr> <td valign="top" width="383"><div><font size="3" color="#000000">Amortization of prior service cost</font></div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="42"><div align="right"><font size="3" color="#000000">- </font></div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="42"><div align="right"><font size="3" color="#000000">1 </font></div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="42"><div align="right"><font size="3" color="#000000">- </font></div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="41"><div align="right"><font size="3" color="#000000">- </font></div></td> </tr> <tr> <td valign="top" width="383"><div> </div></td> <td valign="top" width="18"><div align="center"> </div></td> <td valign="top" width="42"><div> </div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="18"><div align="center"> </div></td> <td valign="top" width="42"><div> </div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="18"><div align="center"> </div></td> <td valign="top" width="42"><div> </div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="18"><div align="center"> </div></td> <td valign="top" width="41"><div> </div></td> </tr> <tr> <td valign="top" width="383"><div><font size="3" color="#000000">   Net cost</font></div></td> <td valign="top" width="18"><div><font size="3" color="#000000">$</font></div></td> <td valign="top" width="42"><div align="right"><font size="3" color="#000000">30 </font></div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="18"><div><font size="3" color="#000000">$</font></div></td> <td valign="top" width="42"><div align="right"><font size="3" color="#000000">25 </font></div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="18"><div><font size="3" color="#000000">$</font></div></td> <td valign="top" width="42"><div align="right"><font size="3" color="#000000">54 </font></div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="18"><div><font size="3" color="#000000">$</font></div></td> <td valign="top" width="41"><div align="right"><font size="3" color="#000000">52 </font></div></td> </tr> <tr> <td width="383"></td> <td width="18"></td> <td width="42"></td> <td width="18"></td> <td width="18"></td> <td width="42"></td> <td width="18"></td> <td width="18"></td> <td width="42"></td> <td width="18"></td> <td width="18"></td> <td width="41"></td> </tr> </table> <div></div>

<div><font size="3" color="#000000"><b>7.  Debt</b></font></div> <div><font size="3" color="#000000"> </font></div> <div><font size="3" color="#000000">In the first quarter of 2012, NS borrowed $100 million and repaid $200 million under its accounts receivable securitization facility.  At June 30, 2012 and December 31, 2011, the amounts outstanding under the facility were $100 million (at an average variable interest rate of 1.3%) and $200 million (at an average variable interest rate of 1.35%), respectively.  In October 2011, NS renewed its accounts receivable securitization facility with a 364-day term to run until October 2012.</font></div> <div><font size="3" color="#000000"> </font></div> <div><font size="3" color="#000000">During the first quarter of 2012, NS issued $600 million of 3.0% senior notes due 2022.</font></div> <div><font size="3" color="#000000"> </font></div> <div><font size="3" color="#000000">NS has authority from its Board of Directors to issue an additional $400 million of debt or equity securities through public or private sale.</font></div> <div><font size="3" color="#000000"><b> </b></font></div> <div></div>

<div><font size="3" color="#000000"><b>6.  Investment in Conrail</b></font></div> <div><font size="3" color="#000000"> </font></div> <div><font size="3" color="#000000">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' investment in Conrail was $984 million at June 30, 2012, and $969 million at December 31, 2011. </font></div> <div><font size="3" color="#000000"> </font></div> <div><font size="3" color="#000000">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 $30 million and $32 million for the second quarters of 2012 and 2011, respectively, and </font></div> <div><font size="3" color="#000000">$66 million and $65 million for the first six months of 2012 and 2011, respectively. NS' equity in the earnings of Conrail, net of amortization, included in Other income - net was $9 million and $7 million for the second quarters of 2012 and 2011, respectively, and $15 million and $13 million for the first six months of 2012 and 2011, respectively.</font></div> <div><font size="3" color="#000000"> </font></div> <div><font size="3" color="#000000">Accounts payable includes $157 million at June 30, 2012, and $160 million at December 31, 2011, due to Conrail for the operation of the Shared Assets Areas. In addition, Other liabilities includes $133 million at both June 30, 2012 and December 31, 2011, for long-term advances from Conrail, maturing 2035, that bear interest at an average rate of 4.4%. </font></div> <div></div>

<div><font size="3" color="#000000"><b>5.  Stock Repurchase Program</b></font></div> <div><font size="3" color="#000000"> </font></div> <div><font size="3" color="#000000">NS repurchased and retired 12.3 million shares of Common Stock in the first six months of 2012, at a cost of </font></div> <div><font size="3" color="#000000">$850 million. NS repurchased and retired 11.6 million shares at a cost of $792 million for the same period of  2011. The timing and volume of purchases is guided by management's 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 the beginning of 2006, NS has repurchased and retired 121.9 million shares at a total cost of $7.1 billion.</font></div> <div></div>

<div><font size="3" color="#000000"><b>4.  Stockholders' Equity</b></font></div> <div><font size="3" color="#000000"> </font></div> <div><font size="3" color="#000000">Common stock is reported net of shares held by consolidated subsidiaries (Treasury Shares) of Norfolk Southern. Treasury Shares at June 30, 2012 and December 31, 2011, amounted to 20,320,777 shares, respectively, with a cost of $19 million as of both dates.</font></div> <div></div>

<div><font size="3" color="#000000"><b>3.  Earnings Per Share</b></font></div> <div><font size="3" color="#000000"> </font></div> <div></div> <table border="0" cellspacing="0" cellpadding="0"> <tr> <td valign="top" width="383"><div> </div></td> <td valign="top" colspan="5" width="139"><div align="center"><font size="3" color="#000000"><b>Basic</b></font></div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" colspan="5" width="138"><div align="center"><font size="3" color="#000000"><b>Diluted</b></font></div></td> </tr> <tr> <td valign="top" width="383"><div> </div></td> <td valign="top" colspan="11" width="295"><div align="center"><font size="3" color="#000000"><b>Three Months Ended June 30,</b></font></div></td> </tr> <tr> <td valign="top" width="383"><div> </div></td> <td valign="top" colspan="2" width="60"><div align="center"><font size="3" color="#000000"><b>2012</b></font></div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" colspan="2" width="60"><div align="center"><font size="3" color="#000000"><b>2011</b></font></div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" colspan="2" width="60"><div align="center"><font size="3" color="#000000"><b>2012</b></font></div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" colspan="2" width="59"><div align="center"><font size="3" color="#000000"><b>2011</b></font></div></td> </tr> <tr> <td valign="top" width="383"><div> </div></td> <td valign="top" colspan="11" width="295"><div align="center"><font size="3" color="#000000"><i>($ in millions, except per share amounts)</i></font></div></td> </tr> <tr> <td valign="top" width="383"><div> </div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="42"><div> </div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="42"><div> </div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="42"><div> </div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="41"><div> </div></td> </tr> <tr> <td valign="top" width="383"><div><font size="3" color="#000000">Net income</font></div></td> <td valign="top" width="18"><div><font size="3" color="#000000">$</font></div></td> <td valign="top" width="42"><div align="right"><font size="3" color="#000000">524 </font></div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="18"><div><font size="3" color="#000000">$</font></div></td> <td valign="top" width="42"><div align="right"><font size="3" color="#000000">557 </font></div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="18"><div><font size="3" color="#000000">$</font></div></td> <td valign="top" width="42"><div align="right"><font size="3" color="#000000">524 </font></div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="18"><div><font size="3" color="#000000">$</font></div></td> <td valign="top" width="41"><div align="right"><font size="3" color="#000000">557 </font></div></td> </tr> <tr> <td valign="top" width="383"><div><font size="3" color="#000000">Dividend equivalent payments</font></div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="42"><div align="right"><font size="3" color="#000000">(2)</font></div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="42"><div align="right"><font size="3" color="#000000">(2)</font></div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="42"><div align="right"><font size="3" color="#000000">- </font></div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="41"><div align="right"><font size="3" color="#000000">- </font></div></td> </tr> <tr> <td valign="top" width="383"><div><font size="3" color="#000000">Income available to common stockholders</font></div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="42"><div align="right"><font size="3" color="#000000">522 </font></div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="42"><div align="right"><font size="3" color="#000000">555 </font></div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="42"><div align="right"><font size="3" color="#000000">524 </font></div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="41"><div align="right"><font size="3" color="#000000">557 </font></div></td> </tr> <tr> <td valign="top" width="383"><div> </div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="42"><div> </div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="42"><div> </div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="42"><div> </div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="41"><div> </div></td> </tr> <tr> <td valign="top" width="383"><div><font size="3" color="#000000">Weighted-average shares outstanding</font></div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="42"><div align="right"><font size="3" color="#000000">322.7 </font></div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="42"><div align="right"><font size="3" color="#000000">351.0 </font></div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="42"><div align="right"><font size="3" color="#000000">322.7 </font></div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="41"><div align="right"><font size="3" color="#000000">351.0 </font></div></td> </tr> <tr> <td valign="top" width="383"><div><font size="3" color="#000000">Dilutive effect of outstanding options and share-settled awards</font></div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="42"><div> </div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="42"><div> </div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="42"><div align="right"><font size="3" color="#000000">4.8 </font></div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="41"><div align="right"><font size="3" color="#000000">6.3 </font></div></td> </tr> <tr> <td valign="top" width="383"><div><font size="3" color="#000000">Adjusted weighted-average shares outstanding</font></div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="42"><div> </div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="42"><div> </div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="42"><div align="right"><font size="3" color="#000000">327.5 </font></div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="41"><div align="right"><font size="3" color="#000000">357.3 </font></div></td> </tr> <tr> <td valign="top" width="383"><div> </div></td> <td valign="top" width="18"><div align="center"> </div></td> <td valign="top" width="42"><div> </div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="18"><div align="center"> </div></td> <td valign="top" width="42"><div> </div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="18"><div align="center"> </div></td> <td valign="top" width="42"><div> </div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="18"><div align="center"> </div></td> <td valign="top" width="41"><div> </div></td> </tr> <tr> <td valign="top" width="383"><div><font size="3" color="#000000">Earnings per share</font></div></td> <td valign="top" width="18"><div><font size="3" color="#000000">$</font></div></td> <td valign="top" width="42"><div align="right"><font size="3" color="#000000">1.62 </font></div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="18"><div><font size="3" color="#000000">$</font></div></td> <td valign="top" width="42"><div align="right"><font size="3" color="#000000">1.58 </font></div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="18"><div><font size="3" color="#000000">$</font></div></td> <td valign="top" width="42"><div align="right"><font size="3" color="#000000">1.60 </font></div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="18"><div><font size="3" color="#000000">$</font></div></td> <td valign="top" width="41"><div align="right"><font size="3" color="#000000">1.56 </font></div></td> </tr> <tr> <td width="383"></td> <td width="18"></td> <td width="42"></td> <td width="18"></td> <td width="18"></td> <td width="42"></td> <td width="18"></td> <td width="18"></td> <td width="42"></td> <td width="18"></td> <td width="18"></td> <td width="41"></td> </tr> </table> <div><font size="3" color="#000000"> </font></div> <div><font size="3" color="#000000"> </font></div> <div></div> <table border="0" cellspacing="0" cellpadding="0"> <tr> <td valign="top" width="383"><div> </div></td> <td valign="top" colspan="5" width="139"><div align="center"><font size="3" color="#000000"><b>Basic</b></font></div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" colspan="5" width="138"><div align="center"><font size="3" color="#000000"><b>Diluted</b></font></div></td> </tr> <tr> <td valign="top" width="383"><div> </div></td> <td valign="top" colspan="11" width="295"><div align="center"><font size="3" color="#000000"><b>Six Months Ended June 30,</b></font></div></td> </tr> <tr> <td valign="top" width="383"><div> </div></td> <td valign="top" colspan="2" width="60"><div align="center"><font size="3" color="#000000"><b>2012</b></font></div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" colspan="2" width="60"><div align="center"><font size="3" color="#000000"><b>2011</b></font></div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" colspan="2" width="60"><div align="center"><font size="3" color="#000000"><b>2012</b></font></div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" colspan="2" width="59"><div align="center"><font size="3" color="#000000"><b>2011</b></font></div></td> </tr> <tr> <td valign="top" width="383"><div> </div></td> <td valign="top" colspan="11" width="295"><div align="center"><font size="3" color="#000000"><i>($ in millions, except per share amounts)</i></font></div></td> </tr> <tr> <td valign="top" width="383"><div> </div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="42"><div> </div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="42"><div> </div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="42"><div> </div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="41"><div> </div></td> </tr> <tr> <td valign="top" width="383"><div><font size="3" color="#000000">Net income</font></div></td> <td valign="top" width="18"><div><font size="3" color="#000000">$</font></div></td> <td valign="top" width="42"><div align="right"><font size="3" color="#000000">934 </font></div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="18"><div><font size="3" color="#000000">$</font></div></td> <td valign="top" width="42"><div align="right"><font size="3" color="#000000">882 </font></div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="18"><div><font size="3" color="#000000">$</font></div></td> <td valign="top" width="42"><div align="right"><font size="3" color="#000000">934 </font></div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="18"><div><font size="3" color="#000000">$</font></div></td> <td valign="top" width="41"><div align="right"><font size="3" color="#000000">882 </font></div></td> </tr> <tr> <td valign="top" width="383"><div><font size="3" color="#000000">Dividend equivalent payments</font></div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="42"><div align="right"><font size="3" color="#000000">(4)</font></div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="42"><div align="right"><font size="3" color="#000000">(4)</font></div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="42"><div align="right"><font size="3" color="#000000">(2)</font></div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="41"><div align="right"><font size="3" color="#000000">(2)</font></div></td> </tr> <tr> <td valign="top" width="383"><div><font size="3" color="#000000">Income available to common stockholders</font></div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="42"><div align="right"><font size="3" color="#000000">930 </font></div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="42"><div align="right"><font size="3" color="#000000">878 </font></div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="42"><div align="right"><font size="3" color="#000000">932 </font></div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="41"><div align="right"><font size="3" color="#000000">880 </font></div></td> </tr> <tr> <td valign="top" width="383"><div> </div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="42"><div> </div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="42"><div> </div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="42"><div> </div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="41"><div> </div></td> </tr> <tr> <td valign="top" width="383"><div><font size="3" color="#000000">Weighted-average shares outstanding</font></div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="42"><div align="right"><font size="3" color="#000000">325.5 </font></div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="42"><div align="right"><font size="3" color="#000000">353.1 </font></div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="42"><div align="right"><font size="3" color="#000000">325.5 </font></div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="41"><div align="right"><font size="3" color="#000000">353.1 </font></div></td> </tr> <tr> <td valign="top" width="383"><div><font size="3" color="#000000">Dilutive effect of outstanding options and share-settled awards</font></div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="42"><div> </div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="42"><div> </div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="42"><div align="right"><font size="3" color="#000000">4.7 </font></div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="41"><div align="right"><font size="3" color="#000000">5.8 </font></div></td> </tr> <tr> <td valign="top" width="383"><div><font size="3" color="#000000">Adjusted weighted-average shares outstanding</font></div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="42"><div> </div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="42"><div> </div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="42"><div align="right"><font size="3" color="#000000">330.2 </font></div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="41"><div align="right"><font size="3" color="#000000">358.9 </font></div></td> </tr> <tr> <td valign="top" width="383"><div> </div></td> <td valign="top" width="18"><div align="center"> </div></td> <td valign="top" width="42"><div> </div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="18"><div align="center"> </div></td> <td valign="top" width="42"><div> </div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="18"><div align="center"> </div></td> <td valign="top" width="42"><div> </div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="18"><div align="center"> </div></td> <td valign="top" width="41"><div> </div></td> </tr> <tr> <td valign="top" width="383"><div><font size="3" color="#000000">Earnings per share</font></div></td> <td valign="top" width="18"><div><font size="3" color="#000000">$</font></div></td> <td valign="top" width="42"><div align="right"><font size="3" color="#000000">2.86 </font></div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="18"><div><font size="3" color="#000000">$</font></div></td> <td valign="top" width="42"><div align="right"><font size="3" color="#000000">2.49 </font></div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="18"><div><font size="3" color="#000000">$</font></div></td> <td valign="top" width="42"><div align="right"><font size="3" color="#000000">2.82 </font></div></td> <td valign="top" width="18"><div> </div></td> <td valign="top" width="18"><div><font size="3" color="#000000">$</font></div></td> <td valign="top" width="41"><div align="right"><font size="3" color="#000000">2.45 </font></div></td> </tr> <tr> <td width="383"></td> <td width="18"></td> <td width="42"></td> <td width="18"></td> <td width="18"></td> <td width="42"></td> <td width="18"></td> <td width="18"></td> <td width="42"></td> <td width="18"></td> <td width="18"></td> <td width="41"></td> </tr> </table> <div><font size="3" color="#000000"> </font></div> <div><font size="3" color="#000000"> </font></div> <div><font size="3" color="#000000">During the second quarters and first six months of 2012 and 2011, dividend equivalent payments were made to holders of stock options and RSUs. For purposes of computing basic earnings per share, the total amount of dividend equivalent payments made to holders of stock options and RSUs 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 RSUs 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: 0.8 million in 2012 and zero in 2011.</font></div> <div><font size="3" color="#000000"> </font></div> <div></div><div align="center"><font size="3" color="#000000">8</font></div> <div><font size="3" color="#000000"> </font></div> <div></div>

<div><font size="3" color="#000000"><b>2.  Income Taxes</b></font></div> <div><font size="3" color="#000000"> </font></div> <div><font size="3" color="#000000">There have been no material changes to the balance of unrecognized tax benefits reported at December 31, 2011.  NS anticipates that the Internal Revenue Service (IRS) will complete its examination of NS' 2009 and 2010 federal income tax returns by the end of 2012.  NS does not expect that the resolution of the examination will have a material effect on its financial position, results of operations, or liquidity.</font></div> <div></div>

<div><font size="3" color="#000000"><b>1.  Stock-Based Compensation </b></font></div> <div><font size="3" color="#000000"> </font></div> <div><font size="3" color="#000000">During the first quarter of 2012, a committee of non-employee directors of Norfolk Southern's Board of Directors granted stock options, restricted stock units (RSUs) 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 $7 million during both the second quarters of 2012 and 2011. For the first six months of 2012 and 2011, stock-based compensation expense was $41 million and $49 million, respectively. The total tax effects recognized in income in relation to stock-based compensation were net benefits of $3 million and $2 million for the quarters ended June 30, 2012 and 2011, respectively, and net benefits of $14 million and $16 million for the first six months of 2012 and 2011, respectively.</font></div> <div><font size="3" color="#000000"> </font></div> <div><font size="3" color="#000000"> </font></div> <div><font size="3" color="#000000"><b>Stock Options</b></font></div> <div><font size="3" color="#000000"><b> </b></font></div> <div><font size="3" color="#000000">In the first quarter of 2012, 567,300 options were granted under the LTIP and 210,300 options were granted under the TSOP. In each case, the grant price was $75.14, 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 2012 may not be exercised prior to the fourth and third anniversaries of the date of grant, respectively. Holders of the 2012 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.</font></div> <div><font size="3" color="#000000"> </font></div> <div><font size="3" color="#000000">The fair value of each option award in 2012 was measured on the date of grant using a lattice-based option valuation model. Expected volatilities are based on implied volatilities from traded options on Common Stock and historical volatility of Common Stock. NS uses historical data to estimate option exercises and employee terminations within the valuation model. The average expected option life is derived from the output of the valuation model and represents the period of time that options granted are expected to be outstanding. The average risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant. For options granted that include dividend equivalent payments, a dividend yield of zero was used. A dividend yield of 2.3% 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. </font></div> <div><font size="3" color="#000000"> </font></div> <div><font size="3" color="#000000">The assumptions for the 2012 LTIP and TSOP grants are shown in the following table:</font></div> <div><font size="3" color="#000000"> </font></div> <div></div> <table border="0" cellspacing="0" cellpadding="0"> <tr> <td valign="bottom" width="377"><div><font size="3" color="#000000">Expected volatility range</font></div></td> <td valign="bottom" width="133"><div align="right"><font size="3" color="#000000">27% - 29%</font></div></td> </tr> <tr> <td valign="bottom" width="377"><div><font size="3" color="#000000">Average expected volatility</font></div></td> <td valign="bottom" width="133"><div align="right"><font size="3" color="#000000">27%</font></div></td> </tr> <tr> <td valign="bottom" width="377"><div><font size="3" color="#000000">LTIP average expected option life</font></div></td> <td valign="bottom" width="133"><div align="right"><font size="3" color="#000000">8.9 years</font></div></td> </tr> <tr> <td valign="bottom" width="377"><div><font size="3" color="#000000">TSOP average expected option life</font></div></td> <td valign="bottom" width="133"><div align="right"><font size="3" color="#000000">8.8 years</font></div></td> </tr> <tr> <td valign="bottom" width="377"><div><font size="3" color="#000000">Average risk-free interest rate</font></div></td> <td valign="bottom" width="133"><div align="right"><font size="3" color="#000000">1.96%</font></div></td> </tr> <tr> <td valign="bottom" width="377"><div><font size="3" color="#000000">LTIP per-share grant-date fair value</font></div></td> <td valign="bottom" width="133"><div align="right"><font size="3" color="#000000">$23.84</font></div></td> </tr> <tr> <td valign="bottom" width="377"><div><font size="3" color="#000000">TSOP per-share grant-date fair value</font></div></td> <td valign="bottom" width="133"><div align="right"><font size="3" color="#000000">$19.55</font></div></td> </tr> </table> <div><font size="3" color="#000000"> </font></div> <div><font size="3" color="#000000">During the second quarter of 2012, options relating to 396,939 shares were exercised, yielding $10 million of cash proceeds and $6 million of tax benefit recognized as additional paid-in capital. During the second quarter of 2011, options relating to 889,853 shares were exercised, yielding $25 million of cash proceeds and $12 million of tax benefit recognized as additional paid-in capital.</font></div> <div><font size="3" color="#000000"> </font></div> <div><font size="3" color="#000000">For the first six months of 2012, options relating to 773,296 shares were exercised, yielding $21 million of cash proceeds and $12 million of tax benefit recognized as additional paid-in capital. For the first six months of 2011, options relating to 1,649,046 shares were exercised, yielding $45 million of cash proceeds and $22 million of tax benefit recognized as additional paid-in capital.</font></div> <div><font size="3" color="#000000"> </font></div> <div><font size="3" color="#000000"> </font></div> <div><font size="3" color="#000000"><b>Restricted Stock Units</b></font></div> <div><font size="3" color="#000000"> </font></div> <div><font size="3" color="#000000">There were 140,000 RSUs granted in 2012, with an average grant-date fair value of $75.14 and a five-year restriction period. The RSUs granted in 2012 will be settled through the issuance of shares of Common Stock.</font></div> <div><font size="3" color="#000000"> </font></div> <div><font size="3" color="#000000">During the second quarter of 2012, 30,000 RSUs were earned and paid out. There were 311,900 earned and paid out during the first six months of 2012. There were no RSUs 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 $1 million for the second quarter of 2012 and $3 million for the first six months of 2012. The total related tax benefit recognized as additional paid-in capital was less than $1 million for both the second quarter of 2011 and the first six months of 2011.</font></div> <div><font size="3" color="#000000"> </font></div> <div><font size="3" color="#000000"> </font></div> <div><font size="3" color="#000000"><b>Performance Share Units</b></font></div> <div><font size="3" color="#000000"> </font></div> <div><font size="3" color="#000000">PSUs provide for awards based on achievement of certain predetermined corporate performance goals (total shareholder return, return on average invested capital, and operating ratio) at the end of a three-year cycle and are paid in the form of shares of Common Stock. During the first quarter of 2012, there were 468,850 PSUs granted with a grant-date fair value of $75.14. </font></div> <div><font size="3" color="#000000"> </font></div> <div><font size="3" color="#000000">During the first six months of 2012, 782,889 PSUs were earned and paid out in shares of Common Stock. The total related tax benefit recognized as additional paid-in capital was $11 million for the first six months of 2012.</font></div> <div><font size="3" color="#000000"> </font></div> <div><font size="3" color="#000000">During the first six months of 2011, 850,595 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 $50.47 per unit and a fair value at payout of $62.75 per unit. The total related tax benefit recognized as additional paid-in capital was $2 million for the first six months of 2011.</font></div> <div></div><div align="center"><font size="3" color="#000000">1</font></div> <div><font size="3" color="#000000"> </font></div> <div></div>

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Q2 2012 Large Accelerated Filer --12-31 0000702165 NORFOLK SOUTHERN CORP false 2012-06-30 10-Q 319516715