TABLE OF CONTENTS

NORFOLK SOUTHERN CORPORATION AND SUBSIDIARIES (NS)

2

PART I.   FINANCIAL INFORMATION

Item 1.   Financial Statements.Statements

NORFOLK SOUTHERN CORPORATION AND SUBSIDIARIESNorfolk Southern Corporation and Subsidiaries

Consolidated Statements of Income

(Unaudited)

See accompanying notes to consolidated financial statements.

NORFOLK SOUTHERN CORPORATION AND SUBSIDIARIESNorfolk Southern Corporation and Subsidiaries

Consolidated Balance Sheets

(Unaudited)

See accompanying notes to consolidated financial statements.

NORFOLK SOUTHERN CORPORATION AND SUBSIDIARIESNorfolk Southern Corporation and Subsidiaries

Consolidated Statements of Cash Flows

(Unaudited)

NORFOLK SOUTHERN CORPORATION AND SUBSIDIARIESNorfolk Southern Corporation and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

In the opinion of management, the accompanying unaudited interim financial statements contain all adjustments (consisting of normal recurring accruals) necessary to present fairly Norfolk Southern Corporation (Norfolk Southern) and subsidiaries'subsidiaries’ (collectively, NS) financial condition as of Sept. 30,March 31, 2009, and December 31, 2008, and its results of operations for the three and nine months ended Sept. 30, 2008 and 2007, and its cash flows for the ninethree months ended Sept. 30,March 31, 2009 and 2008, and 2007, in conformity with U.S. generally accepted accounting principles.

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

1.   Stock-based Compensation

In the first quarter of 2008,2009, a committee of non-employee directors of Norfolk Southern’s Board of Directors granted stock options, restricted stock units and performance share units (PSUs) pursuant to the Long-Term Incentive Plan (LTIP) and granted stock options pursuant to the Thoroughbred Stock Option Plan (TSOP) as discussed below.   Stock-based compensation expense was $23$15 million during the thirdfirst quarter of 20082009 and $14$65 million during the same period of 2007.   For the first nine months of 2008 and 2007, stock-based compensation expense was $118 million and $82 million, respectively.2008.   The total tax effect recognized in income in relation to stock-based compensation were benefitswas a net benefit of $8$3 million and $5$22 million for the quarters ended Sept. 30,March 31, 2009 and 2008, and 2007, respectively, and benefits of $40 million and $27 million for the first nine months of 2008 and 2007, respectively.

Stock Options

In the first quarter of 2008, 1,162,6002009, 1,209,700 options were granted under the LTIP and 250,000251,200 options were granted under the TSOP.   In each case, the grant price was $50.74,$38.71, which was the average fair market value of Norfolk Southern Corporation common stock (Common Stock) on the effective date of grant.   Thethe grant, and the options have a term of ten years butyears.   The options granted under the LTIP and TSOP in 2009 may not be exercised prior to the fourth and third anniversaryanniversaries of the date of grant.grant, respectively.   Holders of the options granted under the LTIP who remain actively employed receive cash dividend equivalent payments for fivefour years in an amount equal to the regular quarterly dividends paid on Common Stock.

The fair value of each option award in 20082009 was measured on the date of grant using a lattice-based option valuation model.   Expected volatilities are based on implied volatilities from traded options on Common Stock and historical volatility of Common Stock.   NS uses historical data to estimate option exercises and employee terminations within the valuation model.   The average expected option life is derived from the output of the valuation model and represents the period of time that options granted are expected to be outstanding.   The average risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant.   For options granted that include dividend equivalent payments, a dividend yield of zero was used.   The assumptions for the 20082009 LTIP grant are shown in the following table:

The grant-date fair value of the 20082009 TSOP grant was $16.29$15.41 using the same assumptions as the 20082009 LTIP grant, except a dividend yield of 2.29%2.40% was used because no dividend equivalent payments are made on these options and the average expected option life was 8.09.2 years.

For the first ninethree months of 2008,2009, options relating to 5,557,576283,961 shares were exercised, yielding $132$7 million of cash proceeds and $73$2 million of tax benefitsbenefit recognized as additional paid-in capital.   For the first ninethree months of 2007,2008, option exercises resulted in $114$40 million of cash proceeds and $52$15 million of tax benefits.

Restricted Stock Units and Restricted Shares

There were 299,950319,550 restricted stock units granted in 2008,2009, with an average grant-date fair value of $50.47$38.71 and a five-year restriction period.   The restricted stock units granted in 20082009 will be settled through the issuance of shares of Common Stock.   There were no restricted shares granted in 2008.2009.

During the first quarter of 2009, 318,950 restricted stock units were earned and paid out in cash with a weighted average fair value of $36.50.   Also earned and distributed were 318,950 restricted shares with a weighted-average grant-date fair value of $49.61.   The total related tax expense recognized as additional paid-in capital was $1 million in the first quarter of 2009.

Performance Share Units

PSUs provide for awards based on achievement of certain predetermined corporate performance goals at the end of a three-year cycle.   ThereDuring the first quarter of 2009, there were 1,162,6001,209,700 PSUs granted with a grant-date fair value of $50.47 during$38.71.   The PSUs granted in 2009 will be paid in the first quarterform of 2008.   One-halfshares; however, one-half of any previously granted PSUs earned will be paid in the form of shares of Common Stock, with the other half to be paid in cash.

During the first quarter of 2009, 983,965 PSUs were earned and paid out, one-half in shares of Common Stock, and one-half in cash.   These PSUs had a grant-date fair value of $49.43 per unit and a fair value at pay out of $38.71 per unit.   The total related tax expense recognized as additional paid-in capital was $2 million for the first quarter of 2009.

For the first ninethree months of 2008, 1,013,999 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 $34.10 per unit and a fair value at pay out of $50.47 per unit.   The total related tax benefit recognized in additional paid-in capital was $2 million forin the first nine monthsquarter of 2008.

2.  Income Taxes

InThere have been no material changes to the third quarter of 2008, NS’ balance of unrecognized tax benefits decreased $28 million to $134 million primarily due toreported at December 31, 2008.  NS anticipates that the IRS will complete its examination of NS’ 2006 and 2007 federal income tax returns by the end of 2009.   NS does not expect that the resolution of the Internal Revenue Service (IRS) examination of NS’ 2004 and 2005 federal income tax returns.   Of the $134 million unrecognized tax benefits remaining, $54 million would affect the effective tax rate if recognized.   NS’ resolution of the 2004 and 2005 examination did notwill have a material effect on income tax expense.   NS’ consolidated federal income tax returns for 2006 and 2007 are being audited by the IRS.

Interest expense related to the overpayment and underpaymentits financial position, results of income taxes, which is included in “Other income – net,” was reduced by $11 million during the third quarter of 2008 and $21 million for the first nine months of 2008.   The decrease for the quarter was primarily due to the resolution of the 2004 and 2005 IRS examination, while the first nine months also reflected the second quarter resolutions of certain refund claims submitted to the IRS and NS’ appeal of the 2002 and 2003 tax years.  operations, or liquidity.

3.   Earnings Per Share

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

IncomeIn the first quarter of 2009, NS adopted the provisions of the Financial Accounting Standards Board Staff Position (FSP) No. 03-6-1, “Determining Whether Instruments Granted in Share-Based Payment Transactions are Participating Securities,” which requires the treatment of unvested stock options receiving dividend equivalents as participating securities in computing earnings per share under the two-class method.   NS has retrospectively applied the provisions of this FSP and accordingly, income available to common stockholders for both 2009 and 2008 reflects a $2 million reduction from net income for the after-tax effect of dividend equivalent payments made to holders of vested stock options as follows:options.

As required under the provisions of FSP No. 03-6-1, diluted earnings per share for the three months ended March 31, 2009, was calculated under the more dilutive two-class method (as compared to the treasury stock method) and accordingly, income available to common stockholders for 2009 reflects a $2 million in the third quarter of 2008 and 2007, and $4 millionreduction from net income for the first nine months of 2008 and 2007.

dividend equivalent payments.   The diluted calculations exclude options having exercise prices exceeding the average market price of Common Stock as follows:   none5.6 million in the third, second2009 and first quarters of 2008 and 2007.zero in 2008.

4.   Stockholders’ Equity

Common Stockstock is reported net of shares held by consolidated subsidiaries (treasury shares) of Norfolk Southern.   TreasurySouthern, which at March 31, 2009, and December 31, 2008, amounted to 20,548,963 and 20,579,088 shares, at Sept. 30, 2008, and Dec. 31, 2007, totaled 20,606,674 and 20,683,686, respectively, with a cost of $20$19 million atfor both Sept. 30, 2008 and Dec. 31, 2007.periods.

5.   Share5 ..   Stock Repurchase Program

In March 2007, Norfolk Southern’sNS’ Board of Directors amended NS’ share repurchase program, increasing the authorized amount of share repurchases from 50 million to 75 million shares and shortening the term of the program from 2015 to 2010.   The timing and volume of purchases is guided by management’s assessment of market conditions and other pertinent facts.   Near-termAny near-term purchases under the program are expected to be made with internally generated cash or proceeds from borrowings.   NSThere were no shares repurchased and retired 15.2 million and 15.1 million shares of its Common Stock under this program in the first ninequarter of 2009.   NS repurchased and retired 5.6 million shares in the first three months of 2008 and 2007, respectively, at a cost of $899 million and $769 million for each of those periods, respectively.$276 million.   Since inception of thethis program in 2006, NS has repurchased and retired 60.564.7 million shares of common stockCommon Stock at a total cost of $3.1$3.3 billion.

6.   Investment in Conrail

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 $922$877 million at Sept. 30, 2008,March 31, 2009, and $899$868 million at Dec.December 31, 2007.2008.

CRC owns and operates certain properties (the Shared Assets Areas) for the joint and exclusive benefit of Norfolk Southern Railway Company (NSR) and CSX Transportation, Inc. (CSXT).   The costs of operating the Shared Assets Areas are borne by NSR and CSXT based on usage.   In addition, NSR and CSXT pay CRC a fee for access to the Shared Assets Areas.   "Purchased“Purchased services and rents"rents” and “Fuel” include expenses for amounts due to CRC for operationthe use of the Shared Assets Areas totaling $34$31 million in the thirdfirst quarter of 20082009 and $30$32 million in the thirdfirst quarter of 2007, and $98 million and $94 million, respectively, for the first nine months of 2008 and 2007.2008.   NS’ equity in the earnings of Conrail, net of amortization, included in “Other income – net” was $8$9 million and $10$8 million in the thirdfirst quarters of 20082009 and 2007, respectively, and $23 million and $21 million for the first nine months of 2008, and 2007, respectively.

“Accounts payable” includes $76$92 million at Sept. 30, 2008,March 31, 2009, and $78$82 million at Dec.December 31, 2007,2008, due to Conrail for the operation of the Shared Assets Areas.   In addition, “Other liabilities” includes $133 million at both Sept. 30,March 31, 2009, and December 31, 2008, and Dec. 31, 2007, infor long-term advances from Conrail, maturing 2035, that bear interest at an average rate of 4.4%.

7.   Long-term Debt

In the secondfirst quarter of 2008,2009, NS received $100repaid $200 million under its accounts receivable securitization facility.   At Sept. 30,March 31, 2009, and December 31, 2008, and Dec. 31, 2007, the amounts outstanding under the facility were $100 million at(at an average variable interest rate of 2.87%1.74%) and $250$300 million at(at an average variable interest rate of 5.57%3.01%), respectively.   The amount of receivables included in “Accounts receivable – net” serving as collateral for these borrowings was $919 million and $778 million, respectively.   In October 2008, NS renewed and amended its accounts receivable securitization facility, with a new 364-day term to run until October 2009.  

During the second quarter of 2008, $200In January 2009 NS issued $500 million of commercial paper matured, and was refinanced as part of a private offering, under which NS issued and sold $600 million in debt securitiesunsecured notes at 5.75% due 2018.in 2016 in a private offering.   The net proceeds from the offering were approximately $494 million after deducting the purchase discount and expenses.   NS subsequently exchanged substantially all ofagreed to exchange these unregistered securities with essentially identical securities registered under the Securities Act of 1933.

NS has authority from its board of directors to issue an additional $1 billion of debt or equity securities through public or private sale.   During the first quarter of 2009, NS filed a Form S-3 automatic shelf registration statement for well-known seasoned issuers under which up to $1 billion could be issued under this authority.

8.   Pensions and Other Postretirement Benefits

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

Pension and Other Postretirement Benefit Cost Components

9.  Comprehensive Income

NS'NS’ total comprehensive income was as follows:

“Other comprehensive income" in 20082009 and 20072008 reflects primarily, net of tax, the amortization of the actuarial net losses and prior service costs (benefits) for the pension and other postretirement benefit plans and unrealized gains and losses on available-for-sale securities.

10.   Commitments and Contingencies

Lawsuits

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

Casualty Claims

Casualty claims include employee personal injury and occupational claims as well as third-party claims, all exclusive of legal costs.   To aid in valuing its personal injury liability and determining the amount to accrue with respect to such claims during the year, NS’ 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.

In April 2008, NS settled the lawsuit brought by Avondale Mills for claims associated with the Jan.January 6, 2005, derailment in Graniteville, SC.  A portion of the settlement was not reimbursed by insurance and was included in first quarter 2008 expenses.  The total liability related to the derailment represents NS’ best estimate based on current facts and circumstances.   The estimate includes amounts related to business property damage and other economic losses, personal injury and individual property damage claims, as well as third-party response costs.   NS’ commercial insurance policies are expected to cover substantially all expenses related to this derailment above the unreimbursed portion and NS’ self-insured retention, including NS’ response costs and legal fees.  The Consolidated Balance Sheets reflect current and long-term receivables for estimated recoveries from NS’ insurance carriers.   On July 1, 2008, NS filed a demand foris engaged in arbitration againstwith one of its insurance carriers that failed to respond to an insurance claim submitted by NS.  Although the arbitral tribunal has been appointed, the carrier has not yet filed its grounds of defense.   However, it is likely that all or part of the recorded recovery attributable to such carrier ($100 million) will be contested.   NS believes these expenses are covered by the insurance policy and that recovery of anythe contested amount is probable, in that ifNS expects the carrier contests payment an arbitrator wouldwill determine the settlement amounts to be reasonable and that the insurer’s refusal to consent to and to fund the settlement was a breach of contract.   Accordingly, NS has recorded the full recovery attributable to such carrier ($100 million).   In October 2008, another of NS’ insurance carriers provided the preliminary findings of its review of NS’ reimbursement request and reported that it may dispute a portion of that request.   NS has initiated arbitration against the carrier and believes that all expenses contained in the reimbursement request are covered by the insurance policy and that recovery is probable.

Employee personal injury claims – The largest component of casualties and other claims expense is employee personal injury costs.   The independent actuarial firm engaged by NS provides quarterly studies to aid in valuing its employee personal injury liability and estimating its employee personal injury expense.   The actuarial firm studies NS’ historical patterns of reserving for claims and subsequent settlements, taking into account relevant outside influences.   The actuary uses the results of these analyses to estimate the ultimate amount of the liability, which includes amounts for incurred but unasserted claims.   NS adjusts its liability quarterly based upon management’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 differvary from the estimated liability recorded.

Occupational claims – Occupational claims (including asbestosis and other respiratory diseases, as well as conditions allegedly related to repetitive motion) are often not caused by a specific accident or event but rather allegedly result from a claimed exposure over time.   Many such claims are being asserted by former or retired employees, some of whom have not been employed in the rail industry for decades.   The independent actuarial firm provides an estimate of the occupational claims liability based upon NS’ 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.

Third-party claims – NS records a liability for third-party claims including those for highway crossing accidents, trespasser and other injuries, automobile liability, property damage, and lading damage.   The independent actuarial firm assists with the calculation of potential liability for third-party claims, except lading damage, based upon NS’ 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.

Environmental Matters

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

NS'NS’ Consolidated Balance Sheets include liabilities for environmental exposures in the amount of $39$40 million at Sept. 30, 2008,March 31, 2009, and $46$42 million at Dec.December 31, 20072008 (of which $12 million is classified as a current liability at the end of each period).   At Sept. 30, 2008,March 31, 2009, the liability represents NS'NS’ estimate of the probable cleanup and remediation costs based on available information at 148147 known locations.   As of that date, 1113 sites accounted for $19$23 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 3029 locations, one or more Norfolk Southern subsidiaries, usually in conjunction with a number of other parties, have been identified as potentially responsible parties by the Environmental Protection Agency (EPA) or similar state authorities under the Comprehensive Environmental Response, Compensation and Liability Act of 1980, or comparable state statutes, which often impose joint and several liability for cleanup costs.

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

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

On April 24, 2008, the United States Department of Justice (DOJ) brought an action against NS for alleged violations of federal environmental laws resulting from the discharge of chlorine and oil that occurred as a result of the Jan.January 6, 2005, derailment in Graniteville, SC, including claims for civil penalties as well as injunctive relief.  On June 24, 2008, NS filed aAlthough NS’ motion to dismiss DOJ’s claims, contending that insufficientfor failure to allege sufficient facts have been allegedwas granted, DOJ was given leave to, support such claims.and did, amend its complaint.   NS does not believe that the resolution of these claims will have a material adverse effect on its financial position, results of operations, or liquidity.

Based on its assessment of the facts and circumstances now known, management believes that it has recorded the probable costs for dealing with those environmental matters of which NS is aware.   Further, management believes that it is unlikely that any known matters, either individually or in the aggregate, will have a material adverse effect on NS'NS’ financial position, results of operations, or liquidity.

Insurance

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

Purchase Commitments

At Sept. 30, 2008, NSRMarch 31, 2009, NS had outstanding purchase commitments of approximately $169$113 million primarily for locomotives,freight cars, RoadRailer® trailers freight cars and track material in connection with its capital programs through 2009.2011.

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, 2008,March 31, 2009, and the related consolidated statements of income for the three‑month and nine‑month periods ended September 30, 2008 and 2007 and the related consolidated statements of cash flows for the nine‑three‑month periods ended September 30, 2008March 31, 2009 and 2007.2008. These consolidated financial statements are the responsibility of the Company’s management.

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

We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet of Norfolk Southern Corporation and subsidiaries as of December 31, 2007,2008, and the related consolidated statements of income, changes in stockholders’ equity and cash flows for the year then ended (not presented herein); and in our report dated February 15, 2008,18, 2009, we expressed an unqualified opinion on those consolidated financial statements. Our report refers to Norfolk Southern Corporation’s adoption of Financial Accounting Standards Board Interpretation No. 48, Accounting for Uncertainty in Income Taxes, effective January 1, 2007.   In our opinion, the information set forth in the accompanying consolidated balance sheet as of December 31, 2007,2008, 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 21, 20082009

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

NORFOLK SOUTHERN CORPORATION AND SUBSIDIARIESNorfolk Southern Corporation and Subsidiaries

Management'sManagement’s Discussion and Analysis of

Financial Condition and Results of Operations

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

OVERVIEW

Third-quarter 2008Reflecting the substantially weaker economy, NS’ first quarter 2009 net income was up $134 million, or 35%,down 39% compared with the same period last year.   The improvement primarily resulted fromyear, as a $213 million increase20% decline in income from railway operations, reflecting higher averagevolumes coupled with lower fuel surcharge revenue per unit (including fuel surcharges) that continued to more than offset the effects of lower traffic volumeexpense reductions and increased operating expenses.net rate/mix increases and led to a 34% decrease in income from railway operations.   Operating expenses declined 19% compared with the same period last year.    The railway operating ratio (a measure of the amount of operating revenues consumed by operating expenses) decreasedrose to 69.1% in80.3% compared with 76.9% for the thirdfirst quarter from 71.1% in the prior year.of 2008.  

Cash provided by operating activities for the first nine monthsquarter was $2.1 billion which provided funding for capital expenditures, dividends,$354 million and, supplementedalong with proceeds from borrowings, share repurchases.   In the third quarter of 2008, 6.2 million shares of Norfolk Southern Corporation common stock (Common Stock) were repurchased at a total cost of $405 million.  Since inception of the share repurchase program in 2006, NS has repurchasedprovided for capital expenditures, debt maturities, and retired 60.5 million shares of Common Stock at a total cost of $3.1 billion.dividends.   At Sept. 30, 2008,March 31, 2009, cash and short-term investment balances totaled $557$884 million.

SUMMARIZED RESULTS OF OPERATIONS

Third-quarter 2008First-quarter 2009 net income was $520$177 million, up $134down $114 million, or 35%39%, compared with the same period last year.   The improvementreduction primarily resulted from a $213$195 million increasedecrease in income from railway operations that reflected a $541$557 million, or 23%22%, risedecline in railway operating revenues, coupled withpartially offset by a $328$362 million, or 20%19%, increasedecrease in railway operating expenses.   Third-quarter net income was reduced by an $83 million increase in income taxes, reflecting both higher pretax income and the absence of benefits associated with synthetic fuel tax credits that expired in 2007.

For the first nine months of 2008, net income was $1.3 billion, up $199 million, or 19%, compared with the same period last year.   Increases of $372 million in income from railway operations and $33 million in other income were offset in part by a $207 million increase in income taxes.   Railway operating revenues rose $1.2 billion, or 17%, while railway operating expenses were up $809 million, or 16%.

As a commodity, oilOil prices impactaffect NS’ results of operations in a variety of ways and can have an overall favorable or unfavorable impact in any particular quarter.   In addition to the impact of oil prices on general economic conditions, and traffic volume, and supplier costs, oil prices directly affect NS’ revenues through market-based fuel surcharges and contract escalators (see “Railway Operating Revenues”) and expenses throughalso affect fuel expensecosts (see “Railway Operating Expenses”).   For the thirdfirst quarter and first nine months, oil prices had an overall favorable2009, excluding the impact on income from railway operations.of decreased consumption, the decline in fuel surcharge revenue was greater than the decline in fuel expense.   Future changes in oil prices may cause volatility in operating results that could be material to a particular quarter or year.

quarter.

DETAILED RESULTS OF OPERATIONS

Railway Operating Revenues

Third-quarter 2008First-quarter 2009 railway operating revenues were $2.9$1.9 billion, up $541down $557 million, or 23%22%, compared with the thirdfirst quarter of 2007.2008.   As shown in the following table, the increasesdecreases were the result of higherlower traffic volume and lower average revenue per unit, including increased fuel surcharges whichthat were offset in part by lower traffic volume.   Fuel surchargesdown $226 million (and which amounted to $535 million in the third quarter (up $339$94 million) and $1.3 billion for the first nine months (up $714 million).

Many of Norfolk Southern’s negotiated fuel surcharges for coal and general merchandise traffic are based on the monthly average price of West Texas Intermediate Crude Oil (WTI Average Price).   These surcharges are reset the first day of each calendar month based on the WTI Average Price for the second preceding calendar month.   This two-month lag in computing WTI Average Price coupled with the change in fuel prices increased fuel surcharge revenue by approximately $55$10 million for the third quarter, but decreased fuel surcharge revenue by approximately $39 million for the first nine months.    quarter.

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

Coal

Coal revenues increased $298decreased $60 million, or 52%, in the third quarter and $599 million, or 35%9%, in the first nine months,quarter compared with the same periodsperiod last year.   Both increasesThe decrease reflected higher rates, includingan 11% decline in carloads offset in part by a 2% increase in average revenue per unit, despite the impact of lower fuel surcharges, increased traffic volume (up 6% forsurcharges.   Tonnage handled was below first quarter 2008, reflecting decreases in the quarterutility, export, and 3% for the first nine months) and $22 million related to adomestic metallurgical coal customer’s 2008 contracted-volume shortfall and a nonrecurring effect related to the implementation of NS’ new coal billing system.   The higher rates were comprised of pricing increases and contract escalators and the effect of increased longer-haul export coal traffic.   For both periods, tonnage handled increased, reflecting improved export volume.markets.   Coal tonnage by market was as follows:

Utility coal tonnage increased slightly in the third quarter but was essentially flatdecreased 6% in the first nine monthsquarter as higher exporta result of lower demand further tightened coal availability for domestic customers.electricity induced by the downturn in the U.S. economy, natural gas competition, and plant maintenance outages.   Export coal tonnage increased 55% for the third quarter and 60% fordecreased 24% in the first nine months,quarter, reflecting increasedthe decline in global demand coupled with weather-related supply constraintssteel production as a result of the downturn in Australia, reduced export volume from China and the continued weak dollar.   D omesticglobal economy.   Domestic metallurgical coal, coke, and iron ore tonnage increased 8% in the third quarter due to the start up of a new coke plant, coal sourcing changes and new business.   Industrial coal tonnage decreased 4% for the third quarter and 13%was down 26% in the first nine monthsquarter, as domestic steel production declined due to a drop in steel demand.   Other coal tonnage (principally steam coal shipped to industrial plants) decreased 3% in the first quarter compared with 2007,to 2008 principally due to coal supply constraints.reduced production at NS-served plants.

NS is currently involved in litigation with Virginia Electric and Power Company/Old Dominion Electric Cooperative (Virginia Power) regarding rate adjustment provisions in a transportation contract between them.   In 2007, the Virginia Supreme Court issued a decision that remanded the case to the trial court on the grounds that neither of its prior decisions constituted a final order.  OnIn April 17, 2008, the trial court entered a final order granting NS monetary damages, including interest, and prescribing the methodology for determining future rates.   Virginia Power filed its Noticea notice of Appeal on May 7, 2008.appeal, and oral argument was held before the Virginia Supreme Court in April 2009.   Future developments and the ultimate resolution of this matter could result in NS recognizing additional revenues related to this dispute, which could have a favorable impact on results of operations in a particular year or quarter.

Coal revenues for the remainder of the year are expected to be updown compared to priorlast year levels, due to higher average revenue per unitcontinued weak volumes and continued strength in the domestic and metallurgical markets.lower fuel surcharge revenue.

General Merchandise

General merchandise revenues increased $167decreased $377 million, or 13%, in the third quarter and $429 million, or 11%28%, in the first nine months,quarter compared with the same periodsperiod last year, reflecting a result of higher average revenue per unit.   The improvement29% decline in averagetraffic volume.   Average revenue per unit reflected higherincreased 2% despite the impact of lower fuel surchargessurcharges.

Agriculture, consumer products, and continued market-based pricing in all groups ..   Trafficgovernment volume declined 6% for the quarter and 4%decreased 14% for the first nine months, driven primarily by lowerquarter, reflecting declines in fertilizer, corn, and soybeans shipments principally due to processing and production cutbacks.   Metals and construction volume declined 35%, reflecting reduced shipments of coil, iron, steel, and scrap metals and reduced demand for construction materials due to the weak housing and automotive volumes.sectors.   Chemicals traffic volume decreased 5% for the third quarter and 4%21% for the first nine months,quarter, reflecting continued weakness in both plasticsindustrial intermediates shipments (linked to housing construction declines), as well as petroleum-based and industrial intermediate products.   Metalsmiscellaneous chemical products shipments.   Paper, clay, and constructionforest products volume was up slightlydown 26% for the first quarter, reflecting reduced U.S. paper production and lower volumes related to the slowdown in both periods as increased carloads from metals, principally scrap, offset declines in housing-related markets.   A griculture, consumer products and government volume increased 5% for both the third quarter and first nine months, reflecting increases in ethanol and military shipments.housing market.   Automotive volumes decreased 30% for the third quarter and 20% for the first nine months, reflecting48%, a result of reduced North American sales and production.   Automotive manufacturers, especially the domestic producers, continuecontinued to experience significant sales declines.declines during the quarter.  North American automotive production decreased by 49% as manufacturers cut production to be more in line with consumer demand.   During the first quarter, Ford, General Motors, and Chrysler combined operate 16operated 15 of 2625 assembly plants served by NS.   FourGeneral Motors operates three of these assembly plants implemented shift reductions during the first nine months of 2008, and two other plants have announced plans to reduce shifts in the fourth quarter.  In addition, one manufacturer has announced plans to close an assembly plant intemporarily idle them during the fourth quarter,second and a second manufacturer has announced plansthird quarters of 2009 for periods of up to idle an assembly plant as it retools to produce a new product in 2010.nine weeks.   NS continues to monitor the state of the automotive industry and the collectability of the associated receivables.   P aper, clay and forest traffic volume was down 6% for the third quarter and 7% for the first nine months, reflecting lower volumes related to the housing slowdown and continued decline in conventional paper markets.  

General merchandise revenues are expected to be higher for the remainder of the year compared with 2007 as improved pricing should continueare expected to offsetbe lower traffic volume.than 2008, reflecting lower volumes and fuel surcharge revenue.

Intermodal

Intermodal revenues increased $76decreased $120 million, or 16%25%, in the thirdfirst quarter and $153 million, or 11%, for the first nine months, compared with the same periodsperiod last year, primarily due to higherreflecting an 18% decline in traffic volume and an 8% decrease in average revenue per unit, including the impact of lower fuel surcharges.   Intermodal volume was flat in the third quarter, but declined 2% in the first nine months.   Domestic volume (which includes truckload and intermodal marketing companies’ [IMC] volumes) increased 18% for the third quarter and 6% for the first nine months,2%, reflecting the relative fuel efficiency of intermodal versus over-the-road transportation and service improvements in the face of a high fuel cost environment.weak economy.   International traffic volume declined 9% for the third quarter and 7% for the first nine months,32%, primarily driven by a soft economy and less inland rail movement of West Coast port traffic that offset East Coast port volume growth.the weak global economy.   The Premium business, which includes parcel and less-than-truckload (LTL) carriers, decreased 2% for the third quarter19% due to poor economic conditions and 3% for the first nine months, as reduced privateless empty movements and soft parcel business offset LTL conversions.repositions.   Triple Crown Services Company, a service with rail-to-highway trailers, experienced a 15% drop in volume was down 5% for the third quarter and 1% for the first nine months primarily driven by reduced auto parts shipments.shipments and the weak economy.

Intermodal revenues for the remainder of the year are expected to continue to reflect growth due to increased revenue per unitbe lower than those of last year reflecting lower volumes and stronger domestic volumes related to truckload conversion to intermodal.fuel surcharge revenue.

Railway Operating Expenses

Third-quarter railwayRailway operating expenses were $2.0$1.6 billion in 2008, up $328the first quarter of 2009, down $362 million, or 20%, compared with the same period last year.   For the first nine months, railway operating expenses were $5.9 billion, up $809 million, or 16%19%, compared with the same period last year.

Compensation and benefits expenses increased $89decreased $66 million, or 14%, in the third quarter and $146 million, or 8%9%, in the first nine months,quarter of 2009, compared with the same periodsperiod last year.   The changes reflecteddecrease was primarily the costresult of lump-sum payments due under a new labor agreement with the Brotherhood of Locomotive Engineerslower stock-based and Trainmen (BLET) ($28 million), increased incentive compensation due to a higher projected payout (up $25 million for the quarter(down $56 million) and volume-related payroll (down $47 million for the first nine months),million).   These decreases were partially offset by increased wage rates (up $18 million for the quarter and $38 million for the first nine months)$13 million), pension expenses (up $10 million), and increased stock-based compensation primarily due to stock price increases during the periodsmedical benefits for active and retired employees (up $9 million for the quarter and $36 million for the first nine months)$10 million).

Purchased services and rents increased $28includes the costs of services purchased from outside contractors, including the net costs of operating joint (or leased) facilities with other railroads and the net cost of equipment rentals.   This category of expenses decreased $20 million, or 7%, in the third quarter and $39 million, or 3%5%, in the first nine months,quarter, compared with the same periodsperiod last year.   The increasesyear, reflecting lower volume-related intermodal and automotive operational costs and equipment rents that were primarily drivenoffset in part by higher intermodal terminal costs, transportation operatingincreased roadway maintenance costs and professional and legal services that were partially offset by lower equipment rents.costs.

Fuel expense, which includes the cost of locomotive fuel as well as other fuel used in railway operations, increased $185decreased $245 million, or 64%, for the third quarter and $553 million, or 68%61%, for the first nine months,quarter, compared with the same periodsperiod last year,year.   The decline consisted of $175 million based on price and $70 million based on consumption, which reflected a 50% drop in the price per gallon of locomotive fuel and 19% lower consumption.

Depreciation expense increased $9 million, or 5%, in the first quarter, reflecting sharply higher fuel prices.an increased capital base.

Materials and otherexpenses (including the estimates of costs related to personal injury, property damage, and environmental matters) increased $19decreased $40 million, or 11%17%, in the thirdfirst quarter, and $51 million, or 8%, for the first nine months, compared with the same periodsperiod last year.   The increasesdecline reflected increased materials costs for locomotive and freight car repairs as well as higher expenses associated with derailments and employee travel and relocation costs.   The year-to-date increase also reflected costs associated with the absence of the 2008 Avondale Mills settlement related to the Graniteville accident (see additional discussion below) as well as lower costs associated with derailments, personal injury claims development, and freight car material costs which were offset in part by favorable personal injuryhigher environmental claims development.   The following table shows the components of materials and other expenses.expenses:

In April 2008, NS settled the lawsuit brought by Avondale Mills for claims associated with the Jan.January 6, 2005, derailment in Graniteville, SC.  A portion of the settlement willwas not be reimbursed by insurance and was included in first-quarterfirst quarter 2008 expenses.  The total liability related to the derailment represents NS’ best estimate based on current facts and circumstances.   The estimate includes amounts related to business property damage and other economic losses, personal injury and individual property damage claims, as well as third-party response costs.   NS’ commercial insurance policies are expected to cover substantially all expenses related to this derailment above the unreimbursed portion and NS’ self-insured retention, including NS’ response costs and legal fees.  The Consolidated Balance Sheets reflect current and long-term receivables for estimated recoveries from NS’ insurance carriers.   On July 1, 2008, NS filed a demand foris engaged in arbitration againstwith one of its insurance carriers that failed to respond to an insurance claim submitted by NS.  Although t he arbitral tribunal has been appointed, the carrier has not yet filed its grounds of defense.   However, it is likely that all or part of the recorded recovery attributable to such carrier ($100 million) will be contested.   NS believes these expenses are covered by the insurance policy and that recovery of anythe contested amount is probable, in that ifNS expects the carrier contests payment an arbitrator wouldwill determine the settlement amounts to be reasonable and that the insurer’s refusal to consent to and to fund the settlement was a breach of contract.   Accordingly, NS has recorded the full recovery attributable to such carrier ($100 million).   In October 2008, another of NS’ insurance carriers provided the preliminary findings of its review of NS’ reimbursement request and reported that it may dispute a portion of that request.   NS has initiated arbitration against the carrier and believes that all expenses contained in the reimbursement request are covered by the insurance policy and that recovery is probable.

Other incomeIncome – netNet

Other income – net increased $8was $17 million, in the third quarter and $33up $10 million infrom the first nine monthsquarter of 2008,last year, reflecting higher net returns from corporate-owned life insurance (up $8 million) and increased coal royalties (up $6 million).

Provision for Income Taxes

The effective income tax rate for the first quarter was 37.5% in 2009, compared with 38.9% for the same periods in 2007.period last year.   The increases reflect the absence of expenses related to synthetic fuel investments (down $18 milliondecrease for the quarter and $64 million for the first nine months), reduced interest expense (down $11 million for the quarter and $21 million for the first nine months) due to second- and third-quarter adjustments to reflect the outcome of certain tax examinations and higher coal royalties (up $5 million for the quarter and $6 million for the first nine months).   These benefits were partially offset by fewer gains on the sale of property and investments (down $20 million for the quarter and $12 million for the first nine months), lower returns and higher borrowing costs on corporate-owned life insurance (down $8 million for the quarter and $40 million for the first nine months) and lower interest income (down $5 million for the quarter and $22 million for the first nine months).

Provision for Income Taxes

The third-quarter and year-to-date effective income tax rates were 36.7% and 37.8% in 2008, compared with 36.2% and 34.5% for the same periods last year.   The increases werewas largely due to the absencefavorable resolution of synthetic fuel-related credits which expired at the end of 2007, offset by thecertain prior year tax benefit arising from the donation of a conservation easement as well as the absence of an Illinois tax law change which increased deferred taxes by $19 million in the third quarter of 2007.positions.

The Internal Revenue Service completed its audit of NS’ consolidated federal income tax returns for 2004 and 2005 during the third quarter (see Note 2), and the 2006 and 2007 tax years are now being audited.audited by the Internal Revenue Service and these audits are expected to be completed by year end.

FINANCIAL CONDITION AND LIQUIDITY

Cash provided by operating activities, NS'NS’ principal source of liquidity, was $2.1 billion for$354 million in the first ninethree months of 2009 compared with $604 million in the first three months of 2008, and $1.8 billion for the first nine months of 2007.reflecting lower income from railway operations.   NS had a working capital deficit of $221$176 million at Sept. 30, 2008,March 31, 2009, compared with a working capital deficit of $273$106 million at Dec.December 31, 2007;2008; the change was largely the result of increased proceeds from borrowingsan increase in cash and cash flows from operations that were largely offset by higher debt repayments, property additions and share repurchases.   The payment of the Avondale Mills settlement affected working capital because the amount subject to arbitration is classified as a long-term receivable.   NS’ cash, cash equivalents and short-term investmentreduced accounts payable.   NS’ cash and cash equivalents balances totaled $557$884 million at Sept. 30, 2008.March 31, 2009.   NS expects that cash on hand combined with cash flows from operations will be sufficient to meet its ongoing obligations.   In additionThere have been no material changes to the contractual obligation amounts andor information relating to NS’ future obligations related to certainuncertain tax positions contained in NS’ Form 10-K as of Dec.for the year ended December 31, 2007, NS (1) made additional purchase commitments for capital assets, discussed below, (2) through a private offering issued and sold $600 million in debt securities during the second quarter of 2008, and (3) decreased the unrecognized tax benefit by $33 million to $134 million primarily due to resolution of the 2004 and 2005 federal income tax audits.   The year of settlement of the $134 million unrecognized tax benefit cannot be reasonably estimated.2008.