Norfolk Southern (NSC) 8-K Results of Operations and Financial Condition

                                            Norfolk Southern Corporation and Subsidiaries

                                                     Consolidated Statements of Income

                                                                       (Unaudited)

			Three Months Ended						Years Ended
			December 31,						December 31,
			2010		2009				2010									2009
			(in millions, except per share amounts)
	Railway operating revenues:
	Coal		$	685	$		580			$		2,719							$	2,264
	General merchandise			1,236			1,119					5,001								4,175
	Intermodal			471			407					1,796								1,530
	Total railway operating revenues			2,392			2,106					9,516								7,969
	Railway operating expenses:
	Compensation and benefits			659			613					2,708								2,401
	Purchased services and rents			391			362					1,477								1,403
	Fuel			308			221					1,079								725
	Depreciation			207			213					819								837
	Materials and other (note 1)			185			148					757								641
	Total railway operating expenses			1,750			1,557					6,840								6,007
	Income from railway operations			642			549					2,676								1,962
	Other income - net			35			37					153								127
	Interest expense on debt			115			119					462								467
	Income before income taxes			562			467					2,367								1,622
	Provision for income taxes:
	Current			20			(5)					559								250
	Deferred (note 2)			140			165					312								338
	Total income taxes			160			160					871								588
	Net income		$	402	$		307			$		1,496							$	1,034
	Earnings per share (note 3):
	Basic		$	1.11	$		0.83			$		4.06							$	2.79
	Diluted		$	1.09	$		0.82			$		4.00							$	2.76
	Weighted average shares outstanding (notes 3 & 4):
	Basic			360.7			367.9					366.5								367.1
	Diluted			365.7			373.3					371.8								372.1
	See accompanying notes to consolidated financial statements.
	Norfolk Southern Corporation and Subsidiaries                                                            Consolidated Balance Sheets                                                                          (Unaudited)
								As of December 31,
								2010			2009
								($ in millions)
		Assets
		Current assets:
		Cash and cash equivalents				$		827						$			996
		Short-term investments						283									90
		Accounts receivable - net						807									766
		Materials and supplies						169									164
		Deferred income taxes						145									142
		Other current assets						240									88
		Total current assets						2,471									2,246
		Investments						2,193									2,164
		Properties less accumulated depreciation						23,231									22,643
		Other assets						304									316
		Total assets				$		28,199						$			27,369
		Liabilities and stockholders' equity
		Current liabilities:
		Accounts payable				$		1,181						$			974
		Short-term debt						100									100
		Income and other taxes						199									109
		Other current liabilities						244									232
		Current maturities of long-term debt						358									374
		Total current liabilities						2,082									1,789
		Long-term debt						6,567									6,679
		Other liabilities						1,793									1,801
		Deferred income taxes						7,088									6,747
		Total liabilities						17,530									17,016
		Stockholders' equity:
		Common stock $1.00 per share par value, 1,350,000,000 shares
		authorized; outstanding 357,362,604 and 369,019,990 shares,
		respectively, net of treasury shares						358									370
		Additional paid-in capital						1,892									1,809
		Accumulated other comprehensive loss						(805)									(853)
		Retained income						9,224									9,027
		Total stockholders' equity						10,669									10,353
		Total liabilities and stockholders' equity				$		28,199						$			27,369
		See accompanying notes to consolidated financial statements.
Norfolk Southern Corporation and Subsidiaries                                                 Consolidated Statements of Cash Flows                                                                        (Unaudited)
						Years Ended December 31,
						2010									2009
						($ in millions)
Cash flows from operating activities:
Net income						$		1,496					$			1,034
Reconciliation of net income to net cash provided
by operating activities:
Depreciation								826								845
Deferred income taxes								312								338
Gains and losses on properties and investments								(42)								(18)
Changes in assets and liabilities affecting operations:
Accounts receivable								(41)								63
Materials and supplies								(5)								30
Other current assets								(1)								72
Current liabilities other than debt								126								(365)
Other - net								43								(139)
Net cash provided by operating activities								2,714								1,860
Cash flows from investing activities:
Property additions								(1,470)								(1,299)
Property sales and other transactions								97								84
Investments, including short-term								(504)								(266)
Investment sales and other transactions								421								30
Net cash used in investing activities								(1,456)								(1,451)
Cash flows from financing activities:
Dividends								(514)								(500)
Common stock issued - net								89								66
Purchase and retirement of common stock (note 4)								(863)								-
Proceeds from borrowings - net								350								1,090
Debt repayments								(489)								(687)
Net cash used in financing activities								(1,427)								(31)
Net increase (decrease) in cash and cash equivalents								(169)								378
Cash and cash equivalents:
At beginning of year								996								618
At end of year						$		827					$			996
Supplemental disclosure of cash flow information
Cash paid during the year for:
Interest (net of amounts capitalized)						$		453					$			458
Income taxes (net of refunds)						$		602					$			381

See accompanying notes to consolidated financial statements.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS:

1.   MATERIALS AND OTHER

Second quarter 2009 includes a $21 million favorable adjustment related to settlement of a multi-year state tax dispute.

2.   DEFERRED TAXES

During the fourth quarter of 2010, NS recognized a $34 million non-recurring benefit resulting from a change in estimate for deferred 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 these Acts eliminate, after 2012, the tax deduction available for reimbursed prescription drug expenses under the Medicare Part D retiree drug subsidy program.  As required by ASC 740, "Income Taxes," NS recorded a $27 million charge to deferred tax expense.

3.   EARNINGS PER SHARE   

As required under the provisions of the Financial Accounting Standards Board Accounting Standards Codification (ASC) 260-10, "Earnings Per Share," for basic earnings per share, income available to common stockholders for the fourth quarters of 2010 and 2009 reflects a $2 million reduction and for the years 2010 and 2009 an $8 million reduction from net income for the effect of dividend equivalent payments made to holders of stock options.  In addition, for the fourth quarters and years 2010 and 2009, diluted earnings per share were calculated under the more dilutive two-class method (as compared to the treasury stock method) and income available to common stockholders reflects a $2 million and $8 million reduction, respectively, from net income for dividend equivalent payments.

4.   STOCK REPURCHASE PROGRAM  

On July 27, 2010, NS' Board of Directors authorized the repurchase of up to an additional 50 million shares of Norfolk Southern Corporation common stock (Common Stock) through December 31, 2014.  During 2010, NS purchased and retired 14.7 million shares of Common Stock at a cost of $863 million.  Since inception of the share repurchase program, NS has repurchased and retired 79.4 million shares at a total cost of $4.1 billion.