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| <NonNumbericText> <div> <div><!-- 2.0.3657.28464 --><div><!-- body --><p class="MsoNormal" style="margin: 0in -0.25in 0pt 0in;"><b style="mso-bidi-font-weight: normal;"><font class="_mt" style="font-size: 11pt;">16.<font class="_mt" style="mso-spacerun: yes;"> Derivative Financial Instruments</font></font></b></p> <p class="MsoNormal" style="margin: 0in -0.25in 0pt 0in;"><font class="_mt" style="font-size: 11pt;"> </font></p> <p class="MsoNormal" style="margin: 0in -0.25in 0pt 0in;"><font class="_mt" style="font-size: 11pt;">All derivatives are recognized in the financial statements as either assets or liabilities and are measured at fair value.<font class="_mt" style="mso-spacerun: yes;"> Changes in fair value are recorded as adjustments to the assets or liabilities being hedged in “Other comprehensive loss,” or in current earnings, depending on whether the derivative is designated and qualifies for hedge accounting, the type of hedge transaction represented, and the effectiveness of the hedge.</font></font></p> <p class="MsoNormal" style="margin: 0in -0.25in 0pt 0in;"><font class="_mt" style="font-size: 11pt;"> </font></p> <p class="MsoNormal" style="margin: 0in -0.25in 0pt 0in;"><font class="_mt" style="font-size: 11pt;">NS has used derivative financial instruments to manage its overall exposure to fluctuations in interest rates.<font class="_mt" style="mso-spacerun: yes;"> NS does not engage in the trading of derivatives.<font class="_mt" style="mso-spacerun: yes;"> Management has determined that its derivative financial instruments qualify as fair-value hedges, having values that highly correlate with the underlying hedged exposures, and has designated such instruments as hedging transactions.<font class="_mt" style="mso-spacerun: yes;"> Credit risk related to the derivative financial instruments is considered to be minimal and is managed by requiring high credit standards for counterparties and periodic settlements.</font></font></font></font></p> <p class="MsoNormal" style="margin: 0in -0.25in 0pt 0in;"><font class="_mt" style="font-size: 11pt;"> </font></p> <p class="MsoNormal" style="margin: 0in -0.25in 0pt 0in; mso-outline-level: 1;"><b style="mso-bidi-font-weight: normal;"><font class="_mt" style="font-size: 11pt;">Interest Rate Hedging</font></b></p> <p class="MsoNormal" style="margin: 0in -0.25in 0pt 0in;"><font class="_mt" style="font-size: 11pt;"> </font></p> <p class="MsoNormal" style="margin: 0in -0.25in 0pt 0in;"><font class="_mt" style="font-size: 11pt;">NS manages its overall exposure to fluctuations in interest rates by issuing both fixed- and floating-rate debt instruments, and by entering into interest rate hedging transactions to achieve an appropriate mix within its debt portfolio.<font class="_mt" style="mso-spacerun: yes;"> NS had $4 million, or less than 1%, and $17 million, or less than 1%, of its fixed-rate debt portfolio hedged as of December 31, 2009, and 2008, respectively, using interest rate swaps that qualify for and are designated as fair-value hedge transactions.<font class="_mt" style="mso-spacerun: yes;"> NS’ interest rate hedging activity resulted in decreases in interest expense of approximately $1 million for 2009, 2008 and 2007.<font class="_mt" style="mso-spacerun: yes;"> These swaps have been effective in hedging the changes in fair value of the related debt arising from changes in interest rates and there has been no impact on earnings resulting from ineffectiveness associated with these derivative transactions.</font></font></font></font></p> <p class="MsoNormal" style="margin: 0in -0.25in 0pt 0in;"><font class="_mt" style="font-size: 11pt;"> </font></p> <p class="MsoNormal" style="margin: 0in -0.25in 0pt 0in; mso-outline-level: 1;"><b style="mso-bidi-font-weight: normal;"><font class="_mt" style="font-size: 11pt;">Fair Values</font></b></p> <p class="MsoNormal" style="margin: 0in -0.25in 0pt 0in;"><font class="_mt" style="font-size: 11pt;"> </font></p> <p class="MsoNormal" style="margin: 0in -0.25in 0pt 0in;"><font class="_mt" style="font-size: 11pt;">Fair values of interest rate swaps at December 31, 2009, and 2008, were determined based upon the present value of expected future cash flows discounted at the appropriate implied spot rate from the spot rate yield curve.<font class="_mt" style="mso-spacerun: yes;"> Fair value adjustments are noncash transactions and, accordingly, are excluded from the Consolidated Statements of Cash Flows.<font class="_mt" style="mso-spacerun: yes;"> The gross and net asset position of NS’ outstanding derivative financial instruments was less than $1 million at December 31, 2009, and approximately $1 million at December 31, 2008.</font></font></font></p><!-- body --></div></div> </div> </NonNumbericText> |
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