6

Restricted Stock Units and Restricted Shares

There were 168,250177,400 restricted stock units granted in 2010,2011, with an average grant-date fair value of $47.76$62.75 and a five-year restriction period.  The restricted stock units granted in 20102011 will be settled through the issuance of shares of Common Stock.   There were no restricted shares granted in 2010.

During the thirdfirst quarter of 2010, there were2011, no restricted stock units or restricted shares earned and paid out.   For the third quarter of 2009, 3,023 restricted stock units were earned and paid out in cash with a weighted-average fair value of $41.32.   Also earned and distributed were 4,535 restricted shares with a weighted-average grant-date fair value of $34.10.out.  The total related tax benefit recognized as additional paid-in capital was less than $1 million duringin the thirdfirst quarter of 2009.2011.

During the first nine monthsquarter of 2010, 286,709 restricted stock units were earned and paid out in cash with a weighted average fair value of $48.88.  Also earned and distributed were 433,236 restricted shares with a weighted-average grant-date fair value of $34.10.  The total related tax benefit recognized as additional paid-in capital was $2 million forin the first nine monthsquarter of 2010.

During the first nine months of 2009, 351,755 restricted stock units were earned and paid out in cash with a weighted-average fair value of $36.32.   Also earned and distributed were 368,158 restricted shares with a weighted-average grant-date fair value of $47.54.   The total related tax expense recognized as a reduction to additional paid-in capital was $1 million for the first nine months of 2009.

Performance Share Units

PSUs provide for awards based on achievement of certain predetermined corporate performance goals at the end of a three-year cycle.  During the first quarter of 2010,2011, there were 824,900580,900 PSUs granted with a grant-date fair value of $47.76.$62.75.  The PSUs granted in 20102011 and 20092010 will be paid in the form of shares of Common Stock; however,Stock.

During the first quarter of 2011, 850,595 PSUs were earned and paid out, one-half of the 2008 PSU grants earned will be paid in the form of shares of Common Stock withand one-half in cash.  These PSUs had a grant-date fair value of $50.47 per unit and a fair value at payout of $62.75 per unit.  The total related tax benefit recognized as additional paid-in capital was $2 million for the other half to be paid in cash.first quarter of 2011.

During the first nine monthsquarter of 2010, 851,893 PSUs were earned and paid out, one-half in shares of Common Stock and one-half in cash.  These PSUs had a grant-date fair value of $49.56 per unit and a fair value at payout of $47.76 per unit.  The total related tax expense recognized as a reduction to additional paid-in capital was less than $1 million for the first nine monthsquarter of 2010.

For the first nine months 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 payout of $38.71 per unit.   The total related tax expense recognized as a reduction to additional paid-in capital was $2 million for the first nine months of 2009.

2.  Income Taxes

During the first quarter of 2010, the Patient Protection and Affordable Care Act, and the Health Care and Education Reconciliation Act of 2010 were signed into law.  Provisions of the Acts eliminate,eliminated, after 2012, the tax deduction available for reimbursed prescription drug expenses under the Medicare Part D retiree drug subsidy program.  As required by the Financial Accounting Standards Board Accounting Standards Codification (ASC) 740, "Income“Income Taxes,"” NS recorded a $27 million charge to deferred tax expense.

Duringexpense in the thirdfirst quarter of 2010, NS submitted claims to the IRS seeking refunds2010.

NS’ balance of federal income taxes for the years 2005 - 2008, and expects to file a similar claim for 2009, the effects of which increased unrecognized tax benefits reported at December 31, 2010, decreased by $38 million during the first quarter of 2011, primarily because the timing of deductibility of a tax position became certain during the quarter.  NS’ consolidated income tax return for 2008 is being audited by the Internal Revenue Service (IRS) and the examination, along with the IRS’ review of certain refund claims for prior years, is expected to be completed within the next six months.  If resolved favorably, the completion of the examination and review could reduce unrecognized tax benefits and income tax expense by approximately $30$40 million.

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3.  Earnings Per Share

The following tables set forthDuring the calculationsfirst quarters of basic2011 and diluted2010, dividend equivalent payments were made to holders of stock options and restricted stock units.  For purposes of computing basic earnings per share:

As required undershare, the provisions of ASC 260-10, "Earnings Per Share," income available to common stockholders reflects reductions from net income for the effecttotal amount of dividend equivalent payments made to holders of stock options.

As required under the provisionsoptions and restricted stock units were deducted from net income to determine income available to common stockholders.  For purposes of ASC 260-10, "Earnings Per Share,"computing diluted earnings per share, forNS evaluates on a grant-by-grant basis those stock options and restricted stock units receiving dividend equivalent payments under the threetwo-class and nine months ended September 30, 2010 and 2009, were calculated undertreasury stock methods to determine which method is the more dilutive for each award.  For all stock option awards, for all periods presented, the two-class method (as comparedwas more dilutive and, as a result, net income was reduced by the amount of dividend equivalent payments on these awards to the treasury stock method) and accordingly,determine income available to common stockholdersstockholders.  For all restricted stock unit awards, for all periods reflect reductions frompresented, the treasury stock method was more dilutive and, as such, net income was not adjusted for the effect of these dividend equivalent payments.  The diluted calculations exclude options having exercise prices exceeding the average market price of Common Stock as follows: zero for each quarter in 2010, but in 2009, 4.1 million for the third quarter,2011 and 5.6 million for both the second and first quarters.2010.

4.  Stockholders'Stockholders’ Equity

Common stock is reported net of shares held by consolidated subsidiaries of Norfolk Southern, which at September 30, 2010,March 31, 2011 and December 31, 2009,2010, amounted to 20,361,35420,320,777 and 20,443,33720,336,843 shares, respectively, with a cost of $19 million as of the end of both dates.periods.

5.  Stock Repurchase Program

In March 2007, NS' Board of Directors amended NS' share repurchase program, increasing the authorized amount of share repurchases from 50 million to 75 million sharesNS repurchased and shortening the term of the program from 2015 to 2010.   On July 27, 2010, NS' Board of Directors authorized the repurchase of up to an additional 50retired 5.3 million shares of Common Stock through December 31, 2014.   The timing and volume of purchases is guided by management's assessment of market conditions and other pertinent facts.   Any near-term purchases under the program are expected to be made with internally generated cash.   NS repurchased and retired 7.8 million shares in the first nine monthsquarter of 2010,2011, at a cost of $437$343 million. There were no shares repurchased under this program in the first nine monthsquarter of 2009.2010.  The timing and volume of purchases is guided by management’s assessment of market conditions and other pertinent factors.  Any near-term share repurchases are expected to be made with internally generated cash, cash on hand, or proceeds from borrowings.  Since inception of this program,2005, NS has repurchased and retired 72.584.7 million shares of Common Stock at a total cost of $3.7$4.5 billion.

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6.  Investments

Short-Term Investments

	September 30,			December 31,
	2010			2009
	($ in millions)
Short-term investments with average remaining maturities:
Available-for-sale:
Certificates of deposit, 7 months	$	75	$		10
Federal government notes, 3 months		30			60
Corporate bond, 5 months		25			20
Commercial paper, 8 months		25			- --
Total available-for-sale		155			90
Held-to-maturity:
Corporate bonds, 6 months		43			- --
Federal government bond, 12 months		31			- --
Total held-to-maturity		74			- --
Total short-term investments	$	229	$		90

Investment in Conrail Inc.

Through a limited liability company, Norfolk Southern and CSX Corporation (CSX) jointly own Conrail Inc. (Conrail), whose primary subsidiary is Consolidated Rail Corporation (CRC).  NS has a 58% economic and 50% voting interest in the jointly owned entity, and CSX has the remainder of the economic and voting interests.  NS'NS’ investment in Conrail was $940$965 million at September 30, 2010,March 31, 2011, and $924$959 million at December 31, 2009.2010.

CRC owns and operates certain properties (the Shared Assets Areas) for the joint and exclusive benefit of Norfolk Southern Railway Company (NSR) and CSX Transportation, Inc. (CSXT).  The costs of operating the Shared Assets Areas are borne by NSR and CSXT based on usage.  In addition, NSR and CSXT pay CRC a fee for access to the Shared Assets Areas.  "Purchased“Purchased services and rents"rents” and "Fuel"“Fuel” include expenses for the use of the Shared Assets Areas totaling $30 million and $32 million in the third quarters of 2010 and 2009, respectively, and $88 million and $92$33 million for the first nine monthsquarter of 20102011 and 2009, respectively.   NS'$29 million for the first quarter of 2010.  NS’ equity in the earnings of Conrail, net of amortization, included in "Other“Other income - net"– net” was $3 million and $7 million in the third quarters of 2010 and 2009, respectively, and $16 million and $24$6 million for the first nine monthsquarters of 20102011 and 2009, respectively.2010.

"“Accounts payable"payable” includes $128$140 million at September 30, 2010,March 31, 2011, and $104$128 million at December 31, 2009,2010, due to Conrail for the operation of the Shared Assets Areas.  In addition, "Other liabilities"“Other liabilities” includes $133 million at both September 30, 2010,March 31, 2011 and December 31, 2009,2010, for long-term advances from Conrail, maturing 2035, that bear interest at an average rate of 4.4%.

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Investment in Pan Am Southern LLC

During the second quarter of 2009, NS and Pan Am Railways, Inc. (Pan Am) formed a joint venture, Pan Am Southern LLC (PAS), a railroad company in which each has a 50% equity interest.   As of September 30, 2010, NS had contributed cash and other property with a combined value of approximately $109 million and has committed to contribute an additional $31 million in cash over the next two years.   A significant portion of NS' contributions has and will continue to be used for capital improvements to the PAS lines and the related construction of new intermodal and automotive terminals.

7.   Debt

In the first nine months of 2010, NS repaid $100 million under its accounts receivable securitization facility.   At September 30, 2010, and December 31, 2009, the amounts outstanding under the facility were $100 million (at an average variable interest rate of 1.96%) and $200 million (at an average variable interest rate of 2.22%), respectively.   In October 2010, NS renewed its accounts receivable securitization facility with a 364-day term to run until October 2011.

During the third quarter of 2010, NS issued an additional $250 million of 6.00% Senior Notes due 2105.

NS has authority from its Board of Directors to issue an additional $1 billion of debt or equity securities through public or private sale.

8.  Pensions and Other Postretirement Benefits

Norfolk Southern and certain subsidiaries have both funded and unfunded defined benefit pension plans covering principally salaried employees.  Norfolk Southern and certain subsidiaries also provide specified health care and death benefits to eligible retired employees and their dependents.  Under the present plans, which may be amended or terminated at NS'NS’ option, a defined percentage of health care expenses isare 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

 

	Nine Months Ended September 30,
	2010		2009		2010		2009
	Pension Benefits				Other Benefits
	($ in millions)
Service cost	$	20	$	20	$	11	$	12
Interest cost		72		76		46		43
Expected return on plan assets		(107)		(116)		(11)		(11)
Amortization of prior service cost (benefit)		2		2		- --		(1)
Amortization of net losses		36		19		39		26
Net cost	$	23	$	1	$	85	$	69

9.8.  Comprehensive Income

"“Other comprehensive income"income” in 20102011 and 20092010 reflects primarily, net of tax, the amortization of the actuarial net losses and prior service costs (benefits)cost for the pension and other postretirement benefit plans.

10.10

9.  Fair Value

Fair Value Measurements

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

Level 1	Inputs to the valuation methodology are unadjusted quoted prices for identical assets or liabilities in active markets that NS has the ability to access.
Level 2	Inputs to the valuation methodology include:
Quoted prices for similar assets or liabilities in active markets; Quoted prices for identical or similar assets or liabilities in inactive markets; Inputs other than quoted prices that are observable for the asset or liability; and Inputs that are derived principally from or corroborated by observable market data by correlation or other means.
	If the asset or liability has a specified (contractual) term, the Level 2 input must be observable for substantially the full term of the asset or liability.
Level 3	Inputs to the valuation methodology are unobservable and significant to the fair value measurement.

The asset'sasset’s or liability'sliability’s fair value measurement level within the hierarchy is based on the lowest level of any input that is significant to the fair value measurement.  At September 30, 2010,March 31, 2011 and December 31, 2009,2010, for assets measured at fair value on a recurring basis, there were $155$119 million and $90$175 million of available-for-sale securities as valued under level 2 of the fair value hierarchy, respectively.  There were no such assetsavailable-for-sale securities valued under level 1 or level 3 valuation techniques.

Fair Values of Financial Instruments

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

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

Carrying amounts of available-for-sale securities reflect immaterial unrealized holding lossesgains on September 30, 2010,March 31, 2011 and December 31, 2009.2010.  Sales of "available-for-sale"available-for-sale securities were $160$55 million and immaterial$20 million for the ninethree months ended September 30,March 31, 2011 and 2010, and 2009, respectively.

11.11

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.

Two of NS’ customers, DuPont and South Mississippi Electric Power Association (SMEPA), have filed rate reasonableness complaints at the Surface Transportation Board (STB) alleging that the NS tariff rates for transportation of regulated movements are unreasonable.  NS is disputing these allegations.  Since June 1, 2009, in the case of DuPont, and since January 1, 2011, in the case of SMEPA, NS has been billing and collecting amounts from the customers based on the challenged tariff rates.  Management presently expects resolution of these cases to occur in late 2012 or 2013.  The cases have not progressed to a point where management can provide an estimate of the possible loss or range of loss, if any.

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

The Consolidated Balance Sheets reflect long-term receivables for estimated recoveries from NS'NS’ insurance carriers for claims associated with the January 6, 2005, derailment in Graniteville, SC.   NS is currently engaged in arbitration with one of its insurance carriers that failed to respond to an insurance claim submitted by NS.   NS believes these expenses are covered by the insurance policy and that recovery of the contested portion ($43 million) of the recorded recoveries is probable.S.C.  During the first quarter of 2010, NS settled an arbitration claim ($100 million) with anotherone of its insurance carriercarriers with no adverse effect on NS'NS’ financial position, results of operations, or liquidity.  In March 2011, NS received an unfavorable ruling for an arbitration claim with another insurance carrier, and was denied recovery of the contested portion ($43 million) of the claim.  As a result, NS recorded a $43 million expense during the first quarter of 2011 for the receivables associated with the contested portion of the claim and a $15 million expense for other receivables affected by the ruling for which recovery is no longer 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 independent actuarial firm studies NS'NS’ historical patterns of reserving for claims and subsequent settlements, taking into account relevant outside influences.  The actuary uses the results of these analyses to estimate the ultimate amount of the liability, which includes amounts for incurred but unasserted claims.  NS adjusts its liability quarterly based upon management'smanagement’s assessment and the results of the study.   Recent actuarial studies have reflected favorable claims development and accordingly, those changes in estimates have reduced the liability related to casualty claims by $2 million and $7 million for the third quarter of 2010 and 2009, respectively, and by $19 million and $34 million for the first nine months of 2010 and 2009, respectively.  The estimate of loss liabilities is subject to inherent limitation given the difficulty of predicting future events such as jury decisions, court interpretations, or legislative changes and as such the actual loss may vary from the estimated liability recorded.

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

Environmental Matters

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

NS'NS’ Consolidated Balance Sheets include liabilities for environmental exposures in the amount of $34$32 million at September 30, 2010,March 31, 2011, and $32$33 million at December 31, 20092010 (of which $12 million is classified as a current liability at the end of each period).  At September 30, 2010,March 31, 2011, the liability represents NS'NS’ estimate of the probable cleanup and remediation costs based on available information at 149142 known locations.  As of that date, 12nine sites accounted for $18$13 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 3330 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.

13

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.

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 environmental 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$50 million and above $1 billion per occurrence for bodily injury and property damage to third parties and up to $25 million and above $175 million per occurrence for property owned by NS or in NS'NS’ care, custody, or control.

Purchase Commitments

At September 30, 2010,March 31, 2011, NS had outstanding purchase commitments oftotaling approximately $762 million primarily$1.2 billion for railroad equipment, includinglong-term service contracts through 2019 as well as locomotives, track material, RoadRailer® units, covered hoppers,trailers, and boxfreight cars, in connection with its capital programs through 2014, long-term service contracts through 2019, as well as track material.2014.

Report of Independent Registered Public Accounting Firm

The Stockholders and Board of Directors and Stockholders
Norfolk Southern Corporation:

We have reviewed the accompanying consolidated balance sheet of Norfolk Southern Corporation and subsidiaries as of September 30, 2010,March 31, 2011, and the related consolidated statements of income for the three‑month and nine‑month periods ended September 30, 2010 and 2009 and the related consolidated statements of cash flows for the nine-monththree-month periods ended September 30, 2010March 31, 2011 and 2009.2010.  These consolidated financial statements are the responsibility of the Company'sCompany’s management.

We conducted our review in accordance with the standards of the Public Company Accounting Oversight Board (United States).  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 ),(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, 2009,2010, 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 17, 2010,16, 2011, 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, 2009,2010, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.

/s/KPMG LLP
KPMG LLP
Norfolk, Virginia
OctoberApril 29, 20102011

15

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

Norfolk Southern Corporation and Subsidiaries
Management's
Management’s Discussion and Analysis of

Financial Condition and Results of Operations

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

OVERVIEW

NS' thirdContinued improvements in the domestic and global economies helped NS grow first quarter 2010 net income from $257 million in 2010 to $325 million in 2011.  The increase was 47% higher thanprimarily the prior year due to increasedresult of a $45 million, or 8%, increase in income from railway operations, that resulted fromdriven by a 15% increase17% rise in volumes andrevenues which reflected higher average revenue per unit.unit and increased traffic volumes, as well as reduced income tax expense.  Railway operating expenses rose 20%, reflecting higher fuel prices, increased traffic volumes, and the $58 million unfavorable insurance arbitration decision, which reduced net income by $36 million.  The railway operating ratio (a measure of the amount of operating revenues consumed by operating expenses) improved, rose to 69.6%77.1%, compared with 72.8%75.2% for the thirdfirst quarter of 2009.2010.

Cash provided by operating activities for the first nine monthsquarter of 20102011 was $2.1 billion,$652 million, which along with cash on hand allowed for capital expenditures, debt repayments, share repurchases, dividends, and debt maturities (net of proceeds).dividends.  In the thirdfirst quarter of 2010, 5.82011, 5.3 million shares of Norfolk Southern Corporation common stock (Common Stock) were repurchased at a total cost of $323$343 million.  Since inception of the stock repurchase program in 2006, NS has repurchased and retired 72.584.7 million shares of Common Stock at a total cost of $3.7$4.5 billion.  At September 30, 2010,March 31, 2011, cash, cash equivalents, and short-term investments totaled $1.4 billion.$488 million.

SUMMARIZED RESULTS OF OPERATIONS

ThirdFirst quarter 20102011 net income was $445$325 million, up $142$68 million, or 47%26%, compared with the same period last year.  The increase primarily resulted from highera $45 million increase in income from railway operations that reflected a 19%$382 million, or 17%, improvement in railway operating revenues, partially offset in part by a 14%$337 million, or 20%, increase in railway operating expenses.   In addition, nonoperating income improved $44expenses, which included the $58 million principallyunfavorable insurance arbitration decision.  The first quarter also benefited from the absence of a $27 million deferred tax charge recorded in the prior year due to increased gains on the saleenactment of property.

For the first nine months of 2010, nethealth care legislation and higher income was $1.1 billion, up $367 million, or 50%, compared with the same period last year.   Income from railway operations increased 44% reflecting a 22% improvement in railway operating revenues that was partially offset by a 14% rise in railway operating expenses.   In addition, nonoperating income improved $28 million, principally due to increased gains on the sale of property.non-operating items.

Oil prices affect NS'NS’ results of operations in a variety of ways and can have an overall favorable or unfavorable impact in any particular period.  In addition to the impact of oil prices on general economic conditions, traffic volume, and supplier costs, oil prices directly affect NS'NS’ revenues through market-based fuel surcharges and contract escalators (see "Railway“Railway Operating Revenues"Revenues”) and also affect fuel costs (see "Railway“Railway Operating Expenses"expenses”).  For the thirdfirst quarter and first nine months of 2010,2011, excluding the effectimpact of increased consumption, the increase in fuel surcharge revenue was greaterless than the increase in fuel expense. Future changes in oil prices may cause volatility in operating results that could be material to a particular period.year or quarter.