TABLE OF CONTENTS

NORFOLK SOUTHERN CORPORATION AND SUBSIDIARIES (NS)

2

PART I.   FINANCIAL INFORMATION

Item 1.   Financial Statements.

NORFOLK SOUTHERN CORPORATION AND SUBSIDIARIES

Consolidated Statements of Income

($ in millions except per share amounts)

(Unaudited)

NORFOLK SOUTHERN CORPORATION AND SUBSIDIARIES

Consolidated Balance Sheets

($ in millions)

(Unaudited)

NORFOLK SOUTHERN CORPORATION AND SUBSIDIARIES

Consolidated Statements of Cash Flows

($ in millions)

(Unaudited)

NORFOLK SOUTHERN CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

In the opinion of management, the accompanying unaudited interim financial statements contain all adjustments (consisting of normal recurring accruals) necessary to present fairly Norfolk Southern Corporation and subsidiaries' (NS) financial position as of Sept. 30, 2005,March 31, 2006, and its results of operations for the three and nine months ended Sept. 30, 2005 and 2004, and its cash flows for the ninethree months ended Sept. 30, 2005 and 2004,March 31, 2006, in conformity with U.S. generally accepted accounting principles.

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

Certain amounts1. Stock Based Compensation

Effective January 1, 2006, NS adopted Statement of Financial Accounting Standards, No. 123(R), “Share-Based Payment,” [SFAS 123(R)].   This statement applies to awards granted, modified, repurchased or cancelled after the effective date as well as awards that are unvested at the effective date and includes, among other things, the requirement to expense the fair value of stock options.   The standard also requires that cash settled awards be measured at fair value at each reporting date until ultimate settlement.   NS adopted SFAS 123(R) using the modified prospective method, which requires application of the standard to all awards granted, modified, repurchased or cancelled on or after January 1, 2006, and to all awards for which the requisite service has not been rendered as of such date.   In accordance with the modified prospective approach, prior period financial statements have not been reclassifiedrestated to conformreflect the impact of SFAS 123(R).   As compared to current presentation.   Specifically, $112 million and $107APB Opinion No. 25, “Accounting for Stock Issued to Employees” (APB Opinion 25), the adoption of SFAS No. 123(R) resulted in $31 million of auction rate securities held atadditional compensation expense, including the immediate expensing of grants made to retirement-eligible employees, which reduced net income by $21 million, or 5 cents per basic and diluted share.   Through Dec. 31, 2004 , and Sept. 30, 2004, respectively, previously classified as cash equivalents have been reclassified as short-term investments, and accordingly $107 million is included in "Investments, including short-term" in the Consolidated Statements of Cash Flows for the nine months ended Sept. 30, 2004.   The auction rate securities held at Dec. 31, 2004, were sold in the first quarter of 2005, at market value, which was equal to their carrying cost, and accordingly are included in "Investment sales and other transactions" in the Consolidated Statements of Cash Flows.   There were no auction rate securities held at the beginning of 2004.   In addition, the following items shown in the Consolidated Balance Sheet as of Dec. 31, 2004, have been reclassified to conform to the current presentation in the Consolidated Balance Sheets filed herewith: (1) "Investment in Conrail" and the amount of investments included in "Other assets" have been reclassified and comprise "Investments" and (2) "Due to Conrail" has been reclassified and is included in the amount shown for "Accounts payable."

1.   Stock-Based Compensation

During the first quarter of 2005, a committee of nonemployee directors of NS' Board granted stock options, performance share units (PSUs) and restricted shares pursuant to the stockholder-approved Long-Term Incentive Plan.   Options to purchase 1,353,600 shares were granted with an option price of $34.10, which was the fair market value of Common Stock on the date of grant.   The options have a term of ten years, but may not be exercised prior to the third anniversary of the date of grant.   PSUs granted totaled 1,344,400 and will be awarded based on achievement of certain predetermined corporate performance goals at the end of a three-year cycle.   One-half of any PSUs earned will be paid in the form of shares of Common Stock with the other half to be paid in cash.   Restricted shares granted totaled 576,240 and have a five-year vesting and restriction period unless certain predetermined stock performance goals are met at the end of three years, in which case the shares become fully vested and the restrictions are lifted.

NS appliesapplied the intrinsic value recognition and measurement principles of APB Opinion No. 25, "Accounting for Stock Issued to Employees," and related interpretations in accounting for its stock-based employee compensation plans.   As a result, the grants of PSUs and restricted shares result in charges to net income, while the stock-option grant did not result in a charge to net income.   The portion of the restricted stock that has not yet been earned is shown as a reduction of stockholders' equity on NS' Consolidated Balance Sheet.plans (see Note 8).     

The following table illustrates the effect on net income and earnings per share if NS had applied the fair value recognition provisions of Statement of Financial Accounting Standards No.SFAS 123 "Accounting for Stock-Based Compensation" to stock-based employee compensation:compensation related to all awards:

2.   Investments

Investment in Conrail

Through a limited liability company, Norfolk Southern Corporation ( Norfolk Southern) and CSX Corporation (CSX) jointly own Conrail Inc. (Conrail), whose primary subsidiary is Consolidated Rail Corporation (CRC).   NS has a 58% economic and 50% voting interest in the jointly owned entity, and CSX has the remainder of the economic and voting interests.   NS applies the equity method of accounting to its investment in Conrail.  

On August 27, 2004 , NS, CSXCRC owns and Conrail completed a reorganization of Conrail (Conrail Corporate Reorganization), which established direct ownership and control by Norfolk Southern Railway (NSR) and CSX Transportation Inc. (CSXT) of two former CRC subsidiaries, Pennsylvania Lines LLC (PRR) and New York Central Lines LLC (NYC), respectively.   Prior to the Conrail Corporate Reorganization, NSR operated the routes and assets of PRR, and CSXT operated the routes and assets of NYC, each in accordance with operating and lease agreements.   Pursuant to the Conrail Corporate Reorganization, the operating and lease agreements were terminated and PRR and NYC were merged into NSR and CSXT, respectively.   As a part of the Conrail Corporate Reorganization, Conrail restructured its existing unsecured and secured public indebtedness, with the consent of Conrail's debtholders.   As a result of the transaction NSR and CSXT issued new unsecured debt securities in exchange for Conrail debentures and entered into leases and subleases with Conrail to support its secured debt obligations in proportion to their economic ownership percentages.

CRC continues to own and operateoperates certain properties (the Shared Assets Areas) for the joint and exclusive benefit of NSRNorfolk Southern Railway Company (NSR) and CSXT.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.   After the Conrail Corporate Reorganization, "Conrail rents and services" reflects only the expenses associated with the Shared Assets Areas, and other expenses (primarily the depreciation related to the former PRR assets) are reflected in their respective line items.   Accordingly, "Conrail rents and services" includes:   (1) expenses for amounts due to PRR for use by NSR of operating properties and equipment prior to the Conrail Corporate Reorganization, (2) NS' equity in the earnings of Conrail, net of amortization, prior to the Conrail Corporate Reorganization, and (3)includes expenses for amounts due to CRC for operation of the Shared Assets Areas.   NS'NS’ equity in the earnings of Conrail, net of amortization, after the reorganization is included in "Other“Other income -– net."”

"“Accounts payable"payable” includes $90$59 million at Sept. 30, 2005 ,March 31, 2006, and $78$56 million at Dec. 31, 2004 ,2005, due to Conrail for the operation of the Shared Assets Areas.   In addition, "Other liabilities" includes a $32“Other liabilities” include $133 million in long-term advanceadvances from Conrail, maturing 2035, entered into in the first quarter of 2005 that bearsbear interest at 4.5%.

Prior to the Conrail Corporate Reorganization, a significant portionan average rate of the payments made to PRR under the operating and lease agreements was borrowed back from a subsidiary of PRR, and this note was effectively extinguished by the reorganization in 2004.   NS' net cash flow from these borrowings amounted to $118 million in the first nine months of 2004.4.4%.

3.  Derivative Financial Instruments

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

Diesel Fuel Hedging

In 2001, NS hedgedbegan a program to hedge a significant portion of its diesel fuel consumption although the percentage of diesel fuel hedged has been declining.consumption.   The intent of the hedges isprogram was to assist in the management of NS' aggregate risk exposure to fuel price fluctuations, which can significantly affect NS' operating margins and profitability.   In order to minimize this risk, NS has entered into a series of swaps to lock in the purchase prices of some of its diesel fuel.   Management has designated these derivative instruments as cash-flow hedges of the exposure to variability in expected future cash flows attributable to fluctuations in diesel fuel prices.

Hedges are entered into periodically by competitive bid among selected counterparties; however, noNo new hedges have been placedentered into since May 2004.

The goal of this hedging strategy iswas to averagereduce the variability of fuel costs over an extended period of time while minimizing the incremental cost of hedging. The program providesprovided that NS will not enter into any fuel hedges with a duration of more than 36 months, and that no more than 80% of NS' average monthly fuel consumption will be hedged for any month within any 36-month period. After taking into account the effect of the hedges, diesel fuel costs represented 12%13% and 7%10% of NS' operating expenses in the thirdfirst quarters of 20052006 and 2004,2005, respectively.

NS' fuel hedging activity resulted in net decreases in diesel fuel expenseexpenses of $41 million for third quarter 2005 and $121$15 million for the first nine monthsquarter of 2005,2006, compared with $41 million and $90$40 million for the same periods, respectively, in 2004.first quarter of 2005.   Ineffectiveness, or the extent to which changes in the fair values of the heating oil contracts do not offset changes in the fair values of the expected diesel fuel transactions, was a less than $1 million expense in thirdfirst quarter 2005 compared with a less than $1 million benefit in 2004,2006 and a $3 million expense for the first nine months of 2005 compared with a $5 million benefit for the same period of 2004.2005.   As of Sept. 30, 2005,March 31, 2006, NS has 22%1% of its estimated fourth quarter 20052006 future diesel fuel consumption covered by hedges and 4% of its estimated 2006 consumption covered.hedges.

Interest Rate Hedging

NS manages its overall exposure to fluctuations in interest rates by issuing both fixed and floating-rate debt instruments, and by entering into interest rate hedging transactions.transactions to achieve an appropriate mix within its debt portfolio.   NS had $123$106 million and $151$116 million, or about 2% of its fixed rate debt portfolio, hedged at Sept. 30, 2005 ,March 31, 2006, and Dec. 31, 2004 ,2005, respectively, using interest rate swaps that qualify for and are designated as fair-value hedge transactions. NS'NS’ interest rate hedging activity resulted in decreases in interest expenses of less thanabout $1 million for thirdfirst quarter 20052006 and 2004, respectively, and $2 million and $5 million for the first nine months of 2005 and 2004, respectively.2005.   These swaps have been effective in hedging the changes in fair value of the related debt arising from changes in interest rates, and accordingly, there has been no impact on earnings resulting from ineffectiveness associated with these derivative transactions.

Fair Values

The fair values of NS' diesel fuel derivative instruments at Sept. 30, 2005March 31, 2006 , and Dec. 31, 2004 ,2005, were determined based upon current fair market values as quoted by independent third party dealers.   Fair values of interest rate swaps were determined based upon the present value of expected future cash flows discounted at the appropriate implied spot rate from the spot rate yield curve.   Fair value adjustments are noncash transactions, and accordingly, are excluded from the Consolidated Statement of Cash Flows.   "Accumulated other comprehensive loss," a component of "Stockholders' equity," included unrealized gains of $4 million (pretax) of $64and $20 million and $75 million(pretax) at Sept. 30, 2005,March 31, 2006, and Dec. 31, 2004,2005, respectively, relatingrelated to an increase in the fair value of derivative fuel hedging transactions that will terminate within twelve months of the respective dates.   Any future gain or loss actually realized will be based on the fair value of the derivative fuel hedges at the time of termination.

The asset and liability positions of NS' outstanding derivative financial instruments were as follows:

4.   Pensions and Other Postretirement Benefits

Norfolk Southern and certain subsidiaries have both funded and unfunded defined benefit pension plans covering principally salaried employees.   NSNorfolk 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 Norfolk Southern'sNS’ option, a defined percentage of health care expenses is covered, reduced by any deductibles, copayments, Medicare payments and, in some cases, coverage provided under other group insurance policies.

Pension and Other Postretirement Benefit Cost Components

Contributions for Pension and Other Postretirement Benefits

NS previously disclosed in its consolidated financial statements for the year ended Dec. 31, 2004 ,2005, that it expected to contribute $7$8 million to its unfunded pension plans and $44 million to its other postretirement (medical and life insurance) benefit plans in 2005.2006.   For the ninethree months ended Sept. 30, 2005 , $5March 31, 2006, $2 million and $33$11 million of contributions have been made to its unfunded pension plans and its other postretirement benefit plans, respectively.   NS presently anticipates contributing an additional $2$6 million to its unfunded pension plans for a total of $7$8 million and an additional $11$33 million to fund its other postretirement benefit plans in 20052006 for a total of $44 million.

5.   Income Taxes

Reconciliation of Statutory Rate to Effective Rate

Total income taxes as reflected in the Consolidated Statements of Income differ from the amounts computed by applying the statutory federal corporate tax rate as follows:

In the second quarter, Ohio enacted tax legislation that phases out its Corporate Franchise Tax, which was generally based on federal taxable income, and phases in a new gross receipts tax called the Commercial Activity Tax, which is based on current year sales and rentals.   The elimination of the Corporate Franchise Tax resulted in a reduction in NS' deferred income tax liability in the second quarter, as required by Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes," which decreased deferred tax expense by $96 million.

6. Long-Term Debt

In the second quarter, NS issued $717 million of unsecured notes ($350 million at 5.64% due 2029 and $367 million at 5.59% due 2025) and paid $218 million of premium in exchange for $717 million of its previously issued unsecured notes ($350 million at 7.8% due 2027, $200 million at 7.25% due 2031, and $167 million at 9.0% due 2021).   The $218 million cash premium payment is reflected as a reduction of debt in the Consolidated Balance Sheet and Statement of Cash Flows and will be amortized as additional interest expense over the terms of the new debt.

On March 11, 2005, NS issued $300 million of 6% Senior Notes due March 2105 under its shelf registration statement on Form S-3 filed with the SEC in September 2004.   At Sept. 30, 2005 , $700 million is available for future issuance under this registration statement.

7.  Earnings Per Share

The following table sets forth the reconciliation of the number of weighted-average shares outstanding used in the calculations of basic and diluted earnings per share:

The calculations exclude options whose exercise price exceeded the average market price of Common Stock for the period as follows:   in 2005, none in the third quarter, 52006, 1 million in the second quarter and none in the first quarter; and in 2004, 13 million in the third quarter, 15 million in the second quarter and 22 million2005, none in the first quarter.   There are no adjustments to "Net income" or “Income from continuing operations” for the diluted earnings per share computations.

8.6.  Comprehensive Income

NS' total comprehensive income was as follows:

For NS, "Other“Other comprehensive income (loss)" reflects primarily the fair value adjustments, net of tax, to certain derivative financial instruments.

7.   Stock Purchase Program

In November 2005, NS’ Board of Directors authorized the repurchase of up to 50 million shares of Norfolk Southern Corporation Common Stock (Common Stock) through the end of 2015.   The timing and volume of any purchases will be guided by management’s assessment of market conditions and other pertinent facts.   Near-term purchases under the program are expected to be made with internally generated cash; however, future funding sources could include proceeds from the sale of commercial paper notes or the increase of long-term debt.

NS has purchased and retired 1,310,000 shares of its common stock under this program in the first quarter of 2006 at a cost of $67 million, of which $61 million was charged to retained earnings.

8.   Stock-Based Compensation

Under the stockholder-approved Long-Term Incentive Plan (LTIP), a committee of nonemployee directors of the Board of Directors of Norfolk Southern Corporation (Board) or the chief executive officer (if delegated such authority by the committee) may grant stock options, stock appreciation rights (SARs), restricted shares, restricted stock units and performance share units (PSUs), up to a maximum of 88,025,000 shares of Common Stock.   Of these shares, 5,000,000 were approved by the Board for issuance to non-officer participants; as a broad-based issuance, stockholder approval was not required.   In May 2005, the stockholders approved an amended LTIP which provided that 8,500,000 shares of stock previously approved for issuance under LTIP could be granted as restricted shares, restricted stock unit shares or performance shares.   Under the Board-approved Thoroughbred Stock Option Plan (TSOP), the committee may grant stock options up to a maximum of 6,000,000 shares of Common Stock.

The LTIP also permits the payment – on a current or a deferred basis and in cash or in stock – of dividend equivalents on shares of Common Stock covered by options, PSUs or restricted stock units in an amount commensurate with dividends paid on Common Stock.   Tax absorption payments also are authorized for any awards under LTIP in amounts estimated to equal the federal and state income taxes applicable to shares of Common Stock issued subject to a share retention agreement.

During the first quarter of 2006, a committee of nonemployee directors of NS’ Board granted stock options, restricted shares, restricted stock units and PSUs pursuant to the LTIP and granted stock options pursuant to the TSOP.

Accounting Method

As disclosed in Note 1, prior to the adoption of SFAS 123(R), NS applied APB Opinion 25 and related interpretations in accounting for awards made under the plans.   Accordingly, grants of PSUs, restricted shares, restricted stock units, dividend equivalents, tax absorption payments and SARs resulted in charges to net income, while grants of stock options had no effect on net income.   Under SFAS 123(R), all awards will result in charges to net income while dividend equivalents are charged to retained earnings.

Stock-based compensation costs were $84 million and $12 million during the first quarters of 2006 and 2005, respectively.   The total tax benefit recognized in income in relation to these compensation costs was $29 million and $5 million for the quarter ended March 31, 2006 and 2005, respectively.   Compensation expense in 2006 included the immediate recognition of NS’ awards granted to retirement-eligible employees in accordance with SFAS No. 123(R).   Under APB Opinion 25 and related interpretations, such awards were amortized over the stated service period.

Stock Options

In the first quarter of 2006, 1,188,700 options were granted under the LTIP and 238,000 options were granted under the TSOP.   In each case, the grant price was $49.425, which was the fair market value of Common Stock on the date of grant, and the options have a term of ten years but may not be exercised prior to the first anniversary of the date of grant.   Holders of the options granted under LTIP receive cash dividend equivalent payments for five years commensurate with dividends paid on Common Stock.

The fair value of each option award in 2006 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.   For purposes of pro forma information required under SFAS 123, the fair value of the option awards in 2005 was determined using the Black-Scholes option-pricing model.   The assumptions for both years are shown in the following table:

A summary of options outstanding as of March 31, 2006, and changes during the three months then ended is presented below:

The following table provides information related to options exercised during the quarters ended March 31, 2006 and 2005:

Prior to the adoption of SFAS 123(R), NS presented tax benefits generated from tax deductions in excess of compensation costs recognized for share-based awards (excess tax benefits) as operating cash flows in the Consolidated Statement of Cash Flows.   Beginning in 2006, SFAS 123(R) requires excess tax benefits to be classified as financing cash flows.   Accordingly, “Common stock issued – net” in the Consolidated Statement of Cash Flows for the three months ended March 31, 2006, included $51 million of such tax benefits.

Restricted Shares and Restricted Stock Units

Restricted share and restricted stock unit grants were 664,300 in 2006, with a grant-date fair value of $49.60 and a three-year restriction period, and were 960,400 in 2005, with a grant-date fair value of $34.10 and a five-year restriction period (that may be accelerated to a three-year restriction period upon achievement of specified performance measures).

A summary of the status of restricted shares and restricted stock units as of March 31, 2006, and changes during the three months then ended is presented below:

As of March 31, 2006, there was $19 million and $21 million of total unrecognized compensation related to restricted shares and restricted stock units, respectively.   That cost is expected to be recognized over a weighted‑average period of approximately 1.9 years.   The total fair value of restricted shares vested and restricted stock units paid in cash during the three months ended March 31, 2006 and 2005 was $36 million and $2 million, respectively.

Performance Share Units

PSUs provide for awards based on achievement of certain predetermined corporate performance goals at the end of a three-year cycle.   PSU grants and average grant-date fair values were 1,163,600 and $49.425 in 2006 and 1,344,400 and $34.10 in 2005.   One-half of any PSUs earned will be paid in the form of shares of Common Stock with the other half to be paid in cash.   Shares earned and issued may be subject to share retention agreements and held by NS for up to five years.

Performance Share Unit Activity

As of March 31, 2006, there was $59 million of total unrecognized compensation related to PSUs granted under the LTIP.   That cost is expected to be recognized over a weighted-average period of 1.9 years.   The total fair value of PSUs earned and paid in cash during the three months ended March 31, 2006 and 2005 was $34 million and $18 million, respectively.

9.    Commitments and Contingencies

Lawsuits

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

NS has beenwas involved in mass tort litigation proceedings arising out of historic flooding events that occurred in West Virginia in 2001.   During the third quarter,In 2005, one of NS'NS’ subsidiaries was identified as the target defendant for claims related to a specific sub-watershed.   During the first quarter, the parties reached a settlement with respect to NS’ liability in the matter.   The final outcome of these proceedings cannot be determined at this time; however, an unexpected adverse resolution couldsettlement did not have a significant adversematerial effect on the results of operations in a particular quarter or year.the first quarter.

Casualty Claims

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

In the first quarter of 2005, NS recorded a liability related to the Jan. 6, 2005 derailment in Graniteville , SC.   The liability, which includes a current and long-term portion, represents NS'NS’ best estimate based on current facts and circumstances.   The estimate includes amounts related to business property damage and other economic losses, personal injury and individual property damage claims as well as third-party response costs.   NS'NS’ commercial insurance policies are expected to cover substantially all expenses related to this derailment above NS'NS’ self-insured retention, including NS'NS’ response costs and legal fees.   Accordingly, the Consolidated Balance Sheet reflects a current and long-term receivable for estimated recoveries from NS'NS’ insurance carriers.   Third-quarter andThe $41 million expense recorded in 2005, including $35 million in the first nine monthsquarter of 2005, expense include approximately $2 million and $39 million, respectively, related to this incident which represents NS'NS’ retention under its insurance policies and other uninsured costs.   While it is reasonable to expect that the liability for covered losses could differ from the amount recorded, such a change would be offset by a corresponding change in the insurance receivable.   As a result, NS does not believe that it is reasonably likely that its net loss (the difference between the liability and future recoveries) will be materially different than the loss recorded in the first nine months of 2005.   NS expects at this time that insurance coverage is adequate to cover potential claims and settlements above its self-insurance retention.

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

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

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

Environmental Matters

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

NS' Consolidated Balance Sheets included liabilities for environmental exposures in the amount of $60$58 million at Sept. 30, 2005 ,March 31, 2006, and $64 million at Dec. 31, 20042005 (of which $12 million was accounted for as a current liability in each period)at March 31, 2006, and Dec. 31, 2005).   At Sept. 30, 2005 ,March 31, 2006, the liability represented NS' estimate of the probable cleanup and remediation costs based on available information at 191182 known locations.   On that date, 1615 sites accounted for $30 million of the liability, and no individual site was considered to be material.   NS anticipates that much of this liability will be paid out over five years; however, some costs will be paid out over a longer period.

At some of the 191182 locations, certain NS subsidiaries, usually in conjunction with a number of other parties, have been identified as potentially responsible parties by the Environmental Protection Agency (EPA) or similar state authorities under the Comprehensive Environmental Response, Compensation and Liability Act of 1980, or comparable state statutes, which often impose joint and several liability for cleanup costs.

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

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

However, based on its assessment of the facts and circumstances now known, management believes that it has recorded the probable costs for dealing with those environmental matters of which the Corporation 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.

Insurance

NS obtains on behalf of itself and its subsidiaries commercial insurance for potential losses for third-party liability and first-party property damages.   Specified levels of risk are retained on a self-insurance basis (up to $25 million per occurrence for bodily injury and property damage to third parties and $12.5 million per occurrence for property owned by NS or in NS'NS’ care, custody or control).

Purchase Commitments

As of Sept. 30, 2005 , NSR had outstanding purchase commitments of approximately $488$285 million in connection with its 20052006 and 20062007 capital programs, including 85 locomotives in 20052006 and 20063 locomotives in 2006.2007.   In addition, Norfolk Southern has committed to purchase telecommunications services totaling $18$15 million through 2007.

Report of Independent Registered Public Accounting Firm

The Stockholders and Board of Directors

Norfolk Southern Corporation:

We have reviewed the accompanying consolidated balance sheet of Norfolk Southern Corporation and subsidiaries as of September 30, 2005 ,March 31, 2006, and the related consolidated statements of income for the three-month and nine-month periods ended September 30, 2005 and 2004, and the related consolidated statements of cash flows for the nine-monththree-month periods ended September 30, 2005March 31, 2006 and 2004.2005.   These consolidated financial statements are the responsibility of the Company'sCompany’s management.

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

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

As discussed in note 1 to the consolidated financial statements, effective January 1, 2006, Norfolk Southern Corporation adopted Statement of Financial Accounting Standards No. 123 (revised 2004), Share-Based Payment.

We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet of Norfolk Southern Corporation and subsidiaries as of December 31, 2004,2005, and the related consolidated statements of income, changes in stockholders'stockholders’ equity and cash flows for the year then ended (not presented herein); and in our report dated February 28, 2005,21, 2006, we expressed an unqualified opinion on those consolidated financial statements.   In our opinion, the information set forth in the accompanying consolidated balance sheet as of December 31, 20042005 , is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.

/s/ KPMG LLP

Norfolk , Virginia

OctoberApril 25, 2006

Item 1A.   Risk Factors.

There have been no material changes to the risk factors disclosure contained in NS’ Dec. 31, 2005, Form 10-K.

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

NORFOLK SOUTHERN CORPORATION AND SUBSIDIARIES

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

OVERVIEW

NS’ first quarter results reflect a continuation of the trends seen in 2005.   Substantial increases in revenues resulted from higher pricing, increased fuel surcharges and traffic volume growth.   High demand for rail freight transportation continued, which coupled with constrained capacity for other modes of transport and the fluidity of the NS network enabled NS to raise rates and handle additional volume.   Operating expenses rose

$194 million, largely because of increased costs for compensation and benefits, higher diesel fuel prices and volume-related increases.   Despite the 12% rise in expenses, the operating ratio, a measure of the operating revenues consumed by operating expenses, improved to 76.1%, and income from railway operations rose $148 million, or 37%.

Strong operating results translated into significantly increased cash flows, which combined with substantial proceeds from employee stock option exercises, were used to fund increased capital expenditures, purchase and retire common stock, increase dividends and pay maturing debt while establishing a cash and short-term investment balance of $1.5 billion at March 31, 2006.   Looking ahead, NS expects business levels to continue to grow for the remainder of the year, although perhaps at a more modest rate.   NS plans to continue its focus on improving service levels and maintaining an aggressive pricing strategy as business is renewed.

SUMMARIZED RESULTS OF OPERATIONS

Overview

Third-quarterFirst-quarter net income was $301$305 million in 2005,2006, compared with $288$194 million in 2004.2005.   The $13$111 million improvement in net income was driven by a $59$148 million, or 13%37%, rise in income from railway operations as well as higher nonoperating income whichthat was offset in part by last year's $53 million gain related to last year's Conrail Corporate Reorganization (see Note 2).higher income taxes.   Railway operating revenues increased $298$342 million, or 16%17%, reflecting increasedhigher rates, fuel surcharges higher rates, and higher traffic volume.volumes.   Railway operating expenses rose $239$194 million, or 17%12%, largely because of increased compensation and benefits costs, higher fuel prices and increased volume-related expenses.   First-quarter 2005 expenses and an unfavorable jury verdict receivedincluded $35 million of costs arising from the derailment in Graniteville , SC , which reduced that quarter’s net income by $21 million.   The increase in income taxes was due to a FELA case.higher first quarter effective income tax rate, largely reflecting the reduction in tax credits from synthetic fuel related investments, applied to the increased income.

During the third quarter, NS' operations were adversely affected by Hurricane Katrina, and to a lesser extent, Hurricane Rita, both of which struck the Gulf Coast ..   NS sustained damage to its facilities in the region as a result of Hurricane Katrina but restored rail freight service into and around New Orleans in a relatively short period of time.   The damage sustained to NS facilities as a result of the storm did not materially impact its financial condition or results of operations and is covered by insurance above the self-insurance retention limit.   Included in casualties and other claims is $4 million related to the self-insured retention.   NS expects to obtain a sufficient supply of diesel fuel for operations despite pipeline disruptions and refinery damage caused by the hurricanes and which are impacting price and regional availability of diesel fuel.

For the first nine months, net income was $919 million in 2005, compared with $659 million in 2004.   Results in 2005 reflected a $96 million second quarter increase to net income related to state tax law changes, while the results in 2004 reflected a $53 million net gain from the Conrail Corporate Reorganization (see Note 2).     The remaining $217 million rise in net income was primarily the result of higher income from railway operations.   The growth benefited from a $907 million, or 17%, increase in railway operating revenues reflecting higher rates (including the favorable effects of the coal rate cases settled in the second quarter), fuel surcharges and increased traffic volume.   Railway operating expenses rose $624 million, or 15%, largely because of higher diesel fuel prices, increased volume-related expenses, the first quarter costs associated with the Graniteville derailment and the unfavorable jury verdict received in the third quarter.DETAILED RESULTS OF OPERATIONS

Railway Operating Revenues

Third-quarterFirst-quarter railway operating revenues were $2.2$2.3 billion in 2005,2006, up $298$342 million, or 16%17%, compared with the thirdfirst quarter of 2004.   For the first nine months, revenues were $6.3 billion, up $907 million, or 17%.2005.   As shown in the following table, the increases were the result of increased average revenues, including fuel surcharges, and higher traffic volume.

Traffic volume increased 5% for both the third quarter and year-to-date.   Revenuewhile revenue per unit increased 11% for the third quarter and year-to-date,12%, of which about half related to increased fuel surcharges.   Fuel surcharge provisions presently cover approximately 85% of total revenues.   On April 24, 2006, Norfolk Southern announced that it is revising its fuel surcharge program for non-intermodal traffic originating and moving on Norfolk Southern-issued tariffs and public quotes issued on or after July 1, 2006.   While the mechanics of the new fuel surcharge will be generally the same as the current fuel surcharge, the trigger price will be raised from $23 per barrel of West Texas Intermediate Crude Oil to $64 per barrel and the percentage by which the line haul rate is increased when oil exceeds the trigger price will be decreased from 0.4% to 0.3% for each dollar or portion thereof in excess of the trigger price.   The traffic moving under these tariffs and public quotes comprises approximately 6% of Norfolk Southern’s total revenue base.

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