DELIVERING
COMMITMENTS
ON
OUR
2016 Annual Report
FINANCIAL HIGHLIGHTS
NORFOLK SOUTHERN CORPORATION & SUBSIDIARIES
Description of Business
Norfolk Southern
Corporation
(NYSE: NSC)
is one of the
nation’s premier
transportation
companies. Our
Norfolk Southern
Railway Company
subsidiary operates
approximately
19,500 route miles
in 22 states and the
District of Columbia,
serves every major
container port in
the eastern United
States, and provides
efficient connections
to other rail carriers.
We operate the most
extensive intermodal
network in the East
and are a major
transporter of coal,
automotive, and
industrial products.
$ 250
$ 200
$ 150
$ 100
$ 50
$ 0
FOR THE YEAR
(numbers in millions, except per-share amounts)
Railway operating revenues
Income from railway operations
Net income
Per share – basic
Per share – diluted
Dividends per share
Dividend pay-out ratio
Cash provided by operating activities2
Property additions
Free cash flow1,2
AT YEAR END
Total assets3
Total debt
Stockholders’ equity
Shares outstanding
Stockholders’ equity per share
FINANCIAL RATIOS
Operating ratio
Debt-to-total-capitalization ratio
Total Stockholder Returns4
(dollars)
2016
2015
2014
$ 9,888
$ 3,074
$ 1,668
$ 5.66
$ 5.62
$ 2.36
42%
$ 3,034
$ 1,887
$ 1,147
$ 10,511
$ 2,884
$ 1,556
$ 5.13
$ 5.10
$ 2.36
46%
$ 2,908
$ 2,385
$ 523
$ 11,624
$ 3,575
$ 2,000
$ 6.44
$ 6.39
$ 2.22
34%
$ 2,915
$ 2,118
$ 797
$ 34,892
$ 10,212
$ 12,409
290.4
$ 42.73
$ 34,139
$ 10,093
$ 12,188
297.8
$ 40.93
$ 33,033
$ 8,985
$ 12,408
308.2
$ 40.26
68.9%
45.1%
72.6%
45.3%
69.2%
42.0%
Railway
Operating
Revenues
(in millions)
$11,624
$10,511
$9,888
Income from
Railway
Operations
(in millions)
$3,575
$3,074
$2,884
Free Cash Flow 1
(in millions)
$1,147
$797
$523
12/11
12/12
12/13
12/14
12/15
12/16
■ Norfolk Southern Corp. Common Stock
■ S&P Railroad Stock Price Index
■ S&P Composite-500 Stock Price Index
14
15
16
14
15
16
14
15
16
1 Free cash flow as used here is defined as cash provided by operating activities minus property additions and is a measure of cash available
for other investing and financing activities, including dividends and repurchases of common stock. For additional information, reference the
“Reconciliation of Non-GAAP Performance Measures” posted on our website on the “Invest in NS” page under applicable “Presentations.”
2 Prior year numbers have been revised to reflect retrospective adoption of ASU No. 2016-09, “Improvements to Employee Share-Based
Payment Accounting.” Reference the “Required Accounting Changes” section of Item 8, Note 1 of Form 10-K, page K44, for information
on the impacts of ASU No. 2016-09.
3 Prior year numbers have been revised to reflect retrospective adoption of ASU No. 2015-17, “Balance Sheet Classification of Deferred Taxes.”
Reference the “Required Accounting Changes” section of Item 8, Note 1 of Form 10-K, page K44, for information on the impacts of ASU No. 2015-17.
4 This graph compares the cumulative stockholder returns on Norfolk Southern Corporation common stock with the other identified indices.
It assumes that the value of the investment in NSC common stock and each index was $100 on Dec. 31, 2011, and that all dividends were reinvested
over the five-year period. Data furnished by Bloomberg Financial Markets.
DEAR FELLOW SHAREHOLDERS:
AAt the beginning of 2016, Norfolk Southern launched a new five-year
plan to improve customer service, drive productivity and growth, and
enhance shareholder value. In a year marked by economic volatility,
our Thoroughbred team delivered on those commitments by meeting
or exceeding key targets for the year and putting us well on our way
to achieving our 2020 goals.
Thanks to our hardworking employees, we improved service across
the network. We achieved $250 million in savings, which surpassed
our first-year target of $130 million and advanced us toward our
annual savings goal of $650 million by 2020. We lowered expenses
in all areas of operations, idling low-volume rail yards, consolidating
operating territories, and running longer trains. We rationalized 1,000
miles of secondary lines.
OUR
OUR
MANAGEMENT
MANAGEMENT
TEAM
(left to right)
ALAN SHAW
ALAN SHAW
MARTA STEWART
MARTA STEWART
BILL GALANKO
JIM SQUIRES
MIKE WHEELER
CINDY EARHART
CINDY EARHART
In a challenging environment, our commitment
to enhancing service and controlling costs
pushed our 2016 operating ratio to 68.9
percent, an all-time record for the company.
The productivity improvements we achieved
also helped us to deliver strong bottom-line
results. Earnings per share grew 10 percent
year-over-year in 2016.
ECONOMIC CHALLENGES
BUT DISCIPLINED CAPITAL
ALLOCATION AND COMMITMENT
TO SHAREHOLDER RETURNS
Through the continued successful execution
of our strategic plan, we significantly
improved Norfolk Southern’s profitability
during the year. Income from railway
operations and net income both increased
by 7 percent, which largely reflected an
11 percent decrease in operating expenses.
Our success in improving the company’s
profitability is remarkable because weak
commodity prices and a sluggish industrial
economy were headwinds for the entire
freight rail industry in 2016. Norfolk
Southern’s annual revenue of $9.9 billion decreased by 6 percent
as compared to 2015. Total volume and revenue per unit were each
down 3 percent. Coal volume dropped 16 percent and general
merchandise volume was 2 percent lower. Intermodal volume was
flat overall, but excluding Triple Crown, domestic intermodal grew
4 percent while international rose 7 percent. Against this backdrop,
driving net income growth was an outstanding accomplishment
for Norfolk Southern employees.
Norfolk Southern’s
new safety train
toured 18 cities in
13 states during
2016, supporting
the company’s
Operation Awareness
and Response
program to provide
training resources
and to strengthen
relationships with
local first responders.
Through classroom
and interactive
teaching aboard
the specially
equipped train,
Norfolk Southern
provided free rail
safety training to
1,926 community
firefighters, police,
emergency
management
personnel, and other
first responders.
In 2016, we funded $1.9 billion of property
additions to ensure safe and efficient
operations and promote growth. Among
strategic capital investments in 2016 were
track infrastructure additions in Pennsylvania
and New York on the 282-mile former
Delaware & Hudson line to strengthen our
competitive position in the Northeast. We
made progress on positive train control and
invested in technology that will undergird
future productivity and growth.
While reinvesting in our company and its
infrastructure, we also demonstrated our
continued commitment to shareholder returns.
In 2016, the board of directors approved total
cash dividend payments of $695 million,
extending the company’s dividend-paying
track record to 138 consecutive quarters.
In addition, Norfolk Southern repurchased
$803 million of company stock.
ADAPTING TO CHANGE
AND IMPROVING SERVICE
TO DRIVE VALUE
Over the past few years, we have changed
the way we think about our operations amid
shifting market conditions and industry
dynamics. With declines in coal, we are
more focused than ever on services that
will help convert freight from highway to rail.
Our management team began a structured
dialogue with key customers, seeking
feedback on how we can improve our
service and grow our business.
With our customers’ input, we are developing
key performance indicators to measure
service against shared expectations. Using
new information systems, we are refining
how we track freight cars so that equipment
arrives on schedule and in good repair. We are
modernizing our e-commerce platforms
to provide our customers with a superior
service product and to make it easier to do
business with us. We are changing the way
we do business in order to meet and exceed
our customers’ expectations and to drive
superior value creation for shareholders.
A SUSTAINABLE OPERATION
As we drive growth and value through
our strategic plan, we remain committed
to continuously improving sustainability
practices throughout our business. For us,
improvements in locomotive fuel-efficiency,
reliability, and emissions reduction are
cornerstones of sustainability and business
strategy. We are expanding our use of energy
management technologies and purchasing
new locomotives that meet the most stringent
emissions standards. Through our innovative
locomotive rebuilding program – the ultimate in
rail industry recycling – we are converting older
locomotives to like-new units. These upgrades
cost half as much as new models and produce
locomotives that are reliable, efficient, and
environmentally friendly.
A SKILLED, DIVERSE WORKFORCE
Our employees are critical to our success
in achieving our business strategy. To compete
in a time of rapid technological change, we
must have a well-trained and diverse workforce.
In 2016, we stepped
up recruitment, retention,
and promotion of women,
minorities, and military
veterans. In the last
several years, we hired
record numbers of women
in rail operations, and
veterans now comprise
14 percent of our workforce.
To prepare our workforce
for tomorrow’s challenges,
we expanded employee
education and development
programs at our training center in McDonough,
Georgia. Our goal is to make Norfolk Southern
an employer of choice by fostering a culture in
which everyone can thrive.
PROMOTING SAFETY
AND ECONOMIC DEVELOPMENT
In support of public safety, in 2016 Norfolk
Southern rolled out a new safety train to
bring local first responders information and
tools for responding to incidents. With this
unique mobile lab, we provided classroom
and hands-on training to responders across
13 states, with more visits planned in 2017.
Building partnerships with the communities
we serve is a vital part of operating a safe,
efficient rail network.
Norfolk Southern prides itself in being an
engine of economic development. Over the
past year we have worked with customers and
communities to create jobs across the regions
in which we operate. In 2016, we helped
locate or expand 71 industries that invested
$4 billion in business development and that
are expected to add more than 4,600 new
jobs. These industries will generate more than
50,000 carloads of freight annually for Norfolk
Southern. We will continue to pursue rail-served
projects as part of our growth strategy.
(Top) An intermodal train operates
at the South Carolina Inland Port
in Greer, S.C. Norfolk Southern helps
customers reduce transportation costs
and supply-chain carbon emissions by
offering truck-competitive service over
rail between the inland port and the
Port of Charleston.
(Bottom) The lead unit on this
intermodal train in Virginia is among
new locomotives purchased in 2016
that meet the most stringent emission
standards set by the federal government.
EXCELLENCE
IN CORPORATE
GOVERNANCE
Our board of
directors is active
in its oversight of
the company and its
management team
and is committed
to excellence in
BOARD OF DIRECTORS
(Front row, left to right)
THOMAS D. BELL JR.
MARTIN H. NESBITT
JAMES A. SQUIRES
(Back row, left to right)
MICHAEL D. LOCKHART
MARCELA E. DONADIO
AMY E. MILES
ERSKINE B. BOWLES
DANIEL A. CARP
ROBERT A. BRADWAY
STEVEN F. LEER
WESLEY G. BUSH
JOHN R. THOMPSON
MITCHELL E. DANIELS JR.
governance. In 2016, the board took a hands-on role in the strategic
planning process, and the board is closely monitoring our progress
toward achieving the strategic plan’s objectives.
Consistent with our commitment to ensuring strong independent
oversight, the board elected two new directors to enhance its overall
expertise and diversity. Our board now comprises 13 directors, 12 of
whom are independent, with extensive experience, complementary
skills, and diverse perspectives.
Shareholder input and feedback have been and will continue to be
critical to our decision-making. Following engagement with many
shareholders, the board adopted a proxy access provision in 2016
allowing shareholders to nominate candidates to stand for election
to the board. These enhancements underscore our commitment
to strong corporate governance.
A STRONGER, MORE PROFITABLE RAILROAD
Norfolk Southern is a stronger, faster, lower-cost, and more profitable
railroad than it was last year. While we have made great advances,
we continue to further optimize our cost structure and to capitalize
on growth opportunities. Thank you for your investment.
BOARD OF DIRECTORS
All directors stand for re-election annually. Information is as of Feb. 1, 2017.
THOMAS D.
BELL JR.
Director since 2010
ERSKINE B.
BOWLES
Director since 2011
ROBERT A.
BRADWAY
Director since 2011
WESLEY G.
BUSH
Director since 2012
Bell is chairman
of Mesa Capital
Partners, a real estate
investment company.
He also served as non-
executive chairman
of SecurAmerica LLC,
a provider of contract
security services, from
2010 through 2012.
He is a director of Regal
Entertainment Group
Inc. and Southern
Company Gas (formerly
AGL Resources).
COMMITTEES:
compensation,
executive, finance
and risk management
(chair)
EXPERTISE:
CEO/senior officer;
environmental
and safety;
governance/board;
governmental relations;
human resources
and compensation;
marketing; strategic
planning
Bowles has been a
senior advisor and
non-executive vice
chairman of BDT
Capital Partners LLC,
a merchant bank,
since January 2012.
He was co-chairman
of the National
Commission on Fiscal
Responsibility and
Reform after serving
as president of the
University of North
Carolina from 2006
to 2010. Bowles is
a director of
Morgan Stanley and
Facebook Inc.
Bradway has been
chief executive officer
of Amgen Inc.,
a biotechnology
company, since May
2012 and chairman
of its board since
January 2013. Previously,
he served as president
and chief operating
officer of Amgen from
May 2010 through May
2012 and as executive
vice president and chief
financial officer from
2007 to 2010. He is
a director of The
Boeing Company.
COMMITTEES:
compensation, finance
and risk management
EXPERTISE:
CEO/senior officer;
finance and
accounting;
governance/board;
governmental relations;
human resources
and compensation;
strategic planning
COMMITTEES:
audit, governance
and nominating
EXPERTISE:
CEO/senior officer;
environmental
and safety; finance
and accounting;
governance/board;
governmental
relations; information
technology; strategic
planning
Bush has been chief
executive officer and
president of Northrop
Grumman Corporation,
a global aerospace
and defense technology
company, since 2010.
He was elected to
Northrop Grumman’s
board in 2009 and
named chairman in July
2011. Previously, he
served as Northrop
Grumman’s president
and chief operating
officer from 2007 to
2009 and as corporate
vice president and chief
financial officer from
2006 to 2007.
COMMITTEES:
compensation, finance
and risk management
EXPERTISE:
CEO/senior officer;
environmental
and safety; finance
and accounting;
governance/board;
governmental
relations; information
technology;
strategic planning;
transportation
DANIEL A.
CARP
Director since 2006
MITCHELL E.
DANIELS JR.
Director since 2016
MARCELA E.
DONADIO
Director since 2016
Carp served as
chairman of the board
and chief executive
officer of Eastman
Kodak Company from
2000 until his retirement
in 2005. He is a director
of Delta Air Lines Inc.,
having been non-
executive chairman
of its board from 2007
until May 2016. He is a
director of Texas
Instruments Inc.
COMMITTEES:
compensation (chair),
executive, governance
and nominating
EXPERTISE:
CEO/senior officer;
governance/board;
human resources
and compensation;
information technology;
strategic planning;
transportation
Daniels has been
president of Purdue
University since 2013
and served as governor
of Indiana from 2005
to 2013. From 1990 to
2000, he worked for
Eli Lilly and Company,
holding the executive
positions of president
of North American
Pharmaceutical
Operations, and senior
vice president of
corporate strategy
and policy. He is a
director of Cerner Corp.
COMMITTEES:
compensation,
governance and
nominating
EXPERTISE:
CEO/senior officer;
finance and
accounting;
governance/board;
governmental relations;
strategic planning
Donadio retired as
a partner of Ernst &
Young LLP, a
multinational
professional services
firm, in 2014. From 2007
until her retirement,
she was Americas Oil &
Gas sector leader, with
responsibility for one
of Ernst & Young’s
significant industry
groups. She helped set
firm strategy for oil and
gas industry clients in
the United States
and throughout the
Americas. She is a
director of Marathon Oil
Corp. and National
Oilwell Varco Inc.
COMMITTEES:
audit, finance and
risk management
EXPERTISE:
CEO/senior officer;
finance and
accounting;
governance/board;
human resources
and compensation;
strategic planning
STEVEN F.
LEER
Lead Director
Director since 1999
Leer served as the chief
executive officer of Arch
Coal Inc., a company
engaged in coal mining
and related businesses,
from 1992 through 2012.
He was chairman
of its board from 2006
through 2012 and its
executive chairman
from 2012 through 2014.
He served as senior
advisor to the president
and CEO of Arch Coal
from 2014 through May
2015. He is a director
of Cenovus Energy Inc.
and the non-executive
chairman of USG
Corporation.
COMMITTEES:
compensation,
executive, governance
and nominating (chair)
EXPERTISE:
CEO/senior officer;
environmental and
safety; governance/
board; human
resources and
compensation;
marketing;
strategic planning;
transportation
MICHAEL D.
LOCKHART
Director since 2008
AMY E.
MILES
Director since 2014
MARTIN H.
NESBITT
Director since 2013
Miles has been a
director and chief
executive officer
of Regal Entertainment
Group Inc., a leading
motion picture
exhibitor, since June
2009. She was named
chair of its board in
March 2015. Previously,
she served as Regal
Entertainment’s
executive vice
president, chief
financial officer
and treasurer from
March 2002 through
June 2009.
COMMITTEES:
audit (chair),
executive, governance
and nominating
EXPERTISE:
CEO/senior officer;
finance and
accounting;
governance/board;
marketing; strategic
planning
Nesbitt is the
co-founder of The
Vistria Group, a private
equity firm. He served
as president and chief
executive officer of PRG
Parking Management
LLC, an off-airport
parking management
company, and
managing director
of Green Courte
Partners LLC, a real
estate investment firm,
until 2012. He is a
director of Jones Lang
LaSalle Inc. and
American Airlines
Group Inc.
COMMITTEES:
audit, finance and risk
management
EXPERTISE:
CEO/senior officer;
finance and
accounting;
governance/board;
governmental
relations; marketing;
strategic planning
Lockhart served as
chairman of the board,
president and chief
executive officer of
Armstrong World
Industries Inc., and its
predecessor, Armstrong
Holdings Inc., a leading
global producer of
flooring products and
ceiling systems,
from 2000 until his
retirement in February
2010. Previously, he
served as chairman
and chief executive
officer of General
Signal Corporation,
a diversified
manufacturer, from
September 1995 until it
was acquired in 1998.
COMMITTEES:
audit, finance
and risk management
EXPERTISE:
CEO/senior officer;
environmental
and safety; finance
and accounting;
governance/board;
marketing; strategic
planning;
transportation
JOHN R.
THOMPSON
Director since 2013
Thompson served as
a government relations
consultant for Best Buy
Co. Inc., a multinational
consumer electronics
corporation, from
October 2012 to April
2016. He served as
senior vice president
and general manager
of BestBuy.com LLC,
a subsidiary of Best Buy
Co. Inc., from 2002
through 2012. He was
formerly a director
of Belk Inc. and Wendy’s
International Inc.
COMMITTEES:
audit, governance
and nominating
EXPERTISE:
CEO/senior officer;
finance and accounting;
governance/board;
governmental
relations; information
technology; marketing;
strategic planning
JAMES A.
SQUIRES
Chairman,
President & CEO
Director since 2014
Squires has been
president of Norfolk
Southern since 2013
and chief executive
officer since June 2015.
He was named
chairman of the board
of Norfolk Southern
in October 2015.
Previously, he served
as Norfolk Southern’s
executive vice president
administration,
executive vice president
finance and chief
financial officer,
senior vice president
finance, senior vice
president law, and vice
president law.
COMMITTEES:
executive (chair)
EXPERTISE:
CEO/senior officer;
finance and
accounting;
governance/board;
governmental relations;
human resources
and compensation;
strategic planning;
transportation
OFFICERS
As of March 1, 2017
JAMES A. SQUIRES
Chairman, President and Chief Executive Officer
CYNTHIA C. EARHART
Executive Vice President Administration
and Chief Information Officer
ALAN H. SHAW
Executive Vice President and Chief Marketing Officer
MARTA R. STEWART
Executive Vice President Finance
and Chief Financial Officer
MICHAEL J. WHEELER
Executive Vice President
and Chief Operating Officer
WILLIAM A. GALANKO
Senior Vice President Law
and Corporate Communications
ANN A. ADAMS
Vice President Human Resources
CLYDE H. ALLISON JR.
Vice President and Treasurer
FREDRIC M. EHLERS
Vice President Information Technology
TERRY N. EVANS
Vice President Transportation
JOHN H. FRIEDMANN
Vice President Strategic Planning
JERRY W. HALL
Vice President Mechanical
EQUAL EMPLOYMENT
OPPORTUNITY POLICY
Norfolk Southern Corporation’s policy is to comply
with all applicable laws, regulations, and executive
orders concerning equal employment opportunity
and nondiscrimination and to offer employment on the
basis of qualification and performance, regardless
of race, religion, color, national origin, gender, age,
sexual orientation, veteran status, the presence of a
disability, or any other legally protected status.
JEFFREY S. HELLER
Vice President Intermodal and Automotive
THOMAS E. HURLBUT
Vice President and Controller
ROBERT M. KESLER JR.
Vice President Taxation
KAROL R. LAWRENCE
Vice President Network and Service Management
DAVID T. LAWSON
Vice President Coal
BRUNO MAESTRI
Vice President Government Relations
ROBERT E. MARTÍNEZ
Vice President Business Development
and Real Estate
MICHAEL R. MCCLELLAN
Vice President Industrial Products
PHILIP G. MERILLI
Vice President Engineering
JOHN M. SCHEIB
Vice President Law
SUSAN S. STUART
Vice President Audit and Compliance
SCOTT R. WEAVER
Vice President Labor Relations
THOMAS G. WERNER
Vice President Corporate Communications
and Chief Sustainability Officer
DENISE W. HUTSON
Corporate Secretary
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
(X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
for the fiscal year ended DECEMBER 31, 2016
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
for the transition period from ___________ to___________
Commission file number 1-8339
NORFOLK SOUTHERN CORPORATION
(Exact name of registrant as specified in its charter)
Virginia
(State or other jurisdiction of incorporation)
Three Commercial Place
Norfolk, Virginia
(Address of principal executive offices)
Registrant’s telephone number, including area code:
52-1188014
(IRS Employer Identification No.)
23510-2191
Zip Code
(757) 629-2680
Securities registered pursuant to Section 12(b) of the Act:
Title of each Class
Norfolk Southern Corporation
Common Stock (Par Value $1.00)
Name of each exchange on which registered
New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: NONE
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes (X) No ( )
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes ( ) No (X)
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes (X) No ( )
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data
File required to be submitted and posted pursuant to Rule 405 of Regulations S-T (§ 232.405 of this chapter) during the preceding 12 months
(or for such shorter period that the registrant was required to submit and post such files). Yes (X) No ( )
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained
herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by
reference in Part III of the Form 10-K or any amendment to this Form 10-K. (X)
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting
company. See definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange
Act.
Large accelerated filer (X) Accelerated filer ( ) Non-accelerated filer ( ) Smaller reporting company ( )
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ( ) No (X)
The aggregate market value of the voting common equity held by non-affiliates at June 30, 2016, was $24,959,609,647 (based on the closing
price as quoted on the New York Stock Exchange on that date).
The number of shares outstanding of each of the registrant’s classes of common stock, at January 31, 2017: 290,553,713 (excluding
20,320,777 shares held by the registrant’s consolidated subsidiaries).
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of the Registrant’s definitive proxy statements to be filed electronically pursuant to Regulation 14A not later than 120 days after the
end of the fiscal year, are incorporated herein by reference in Part III.
TABLE OF CONTENTS
NORFOLK SOUTHERN CORPORATION AND SUBSIDIARIES
Part I.
Items 1 and 2. Business and Properties
Item 1A.
Item 1B.
Item 3.
Item 4.
Risk Factors
Unresolved Staff Comments
Legal Proceedings
Mine Safety Disclosures
Executive Officers of the Registrant
Part II.
Item 5.
Market for Registrant’s Common Equity, Related Stockholder Matters and
Item 6.
Item 7.
Item 7A.
Item 8.
Item 9.
Item 9A.
Item 9B.
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
Issuer Purchases of Equity Securities
Selected Financial Data
Management’s Discussion and Analysis of Financial Condition and
Results of Operations
Quantitative and Qualitative Disclosures About Market Risk
Financial Statements and Supplementary Data
Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
Controls and Procedures
Other Information
Directors, Executive Officers, and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management
and Related Stockholder Matters
Certain Relationships and Related Transactions, and Director Independence
Principal Accounting Fees and Services
Part III.
Part IV.
Item 15.
Exhibits, Financial Statement Schedules
Power of Attorney
Signatures
Page
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PART I
NORFOLK SOUTHERN CORPORATION AND SUBSIDIARIES
Item 1. Business and Item 2. Properties
GENERAL – Our company, Norfolk Southern Corporation, is a Norfolk, Virginia based company that owns a
major freight railroad, Norfolk Southern Railway Company (NSR). We were incorporated on July 23, 1980, under
the laws of the Commonwealth of Virginia. Our common stock (Common Stock) is listed on the New York Stock
Exchange (NYSE) under the symbol “NSC.”
Unless indicated otherwise, Norfolk Southern Corporation and its subsidiaries, including NSR, are referred to
collectively as NS, we, us, and our.
We are primarily engaged in the rail transportation of raw materials, intermediate products, and finished goods
primarily in the Southeast, East, and Midwest and, via interchange with rail carriers, to and from the rest of the
United States. We also transport overseas freight through several Atlantic and Gulf Coast ports. We offer the most
extensive intermodal network in the eastern half of the United States.
We make available free of charge through our website, www.nscorp.com, our annual report on Form 10-K, quarterly
reports on Form 10-Q, current reports on Form 8-K, and all amendments to those reports as soon as reasonably
practicable after such material is electronically filed with or furnished to the U.S. Securities and Exchange
Commission (SEC). In addition, the following documents are available on our website and in print to any
shareholder who requests them:
• Corporate Governance Guidelines
• Charters of the Committees of the Board of Directors
• The Thoroughbred Code of Ethics
• Code of Ethical Conduct for Senior Financial Officers
• Categorical Independence Standards for Directors
• Norfolk Southern Corporation Bylaws
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RAILROAD OPERATIONS – At December 31, 2016, our railroad operated approximately 19,500 miles of road
in 22 states and the District of Columbia.
Our system reaches many manufacturing plants, electric generating facilities, mines, distribution centers, transload
facilities, and other businesses located in our service area.
Corridors with heaviest freight volume:
• New York City area to Chicago (via Allentown and Pittsburgh)
• Chicago to Macon (via Cincinnati, Chattanooga, and Atlanta)
• Central Ohio to Norfolk (via Columbus and Roanoke)
• Cleveland to Kansas City
• Birmingham to Meridian
• Memphis to Chattanooga
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The miles operated, which include major leased lines between Cincinnati, Ohio, and Chattanooga, Tennessee, and
an exclusive operating agreement for trackage rights over property owned by North Carolina Railroad Company,
were as follows:
Mileage Operated at December 31, 2016
Passing
Track,
Crossovers
and
Turnouts
Second
and
Other
Main
Track
Way and
Yard
Switching
Miles
of
Road
Total
Owned
Operated under lease, contract or trackage
rights
Total
14,713
2,735
1,950
8,311
27,709
4,756
1,916
398
836
7,906
19,469
4,651
2,348
9,147
35,615
The following table sets forth certain statistics relating to our railroads’ operations for the past five years:
2016
Years ended December 31,
2013
2014
2015
2012
Revenue ton miles (billions)
Revenue per thousand revenue ton miles
Revenue ton miles (thousands) per employee
Ratio of railway operating expenses to railway operating
$
191
51.91 $
6,838
200
52.63 $
6,645
205
56.70 $
7,054
194
58.10 $
6,517
186
59.47
6,078
revenues
68.9%
72.6%
69.2%
71.0%
71.7%
RAILWAY OPERATING REVENUES – Total railway operating revenues were $9.9 billion in 2016. Following
is an overview of our three major market groups. See the discussion of merchandise revenues by commodity group,
intermodal revenues, and coal revenues and tonnage in Part II, Item 7, “Management’s Discussion and Analysis of
Financial Condition and Results of Operations.”
MERCHANDISE – Our merchandise market group is composed of five major commodity groupings:
• Chemicals includes sulfur and related chemicals, petroleum products (including crude oil), chlorine and
bleaching compounds, plastics, rubber, industrial chemicals, and chemical wastes.
• Agriculture, consumer products, and government includes soybeans, wheat, corn, fertilizer, livestock and
poultry feed, food oils, flour, beverages, canned goods, sweeteners, consumer products, ethanol,
transportation equipment, and items for the U.S. military.
• Metals and construction includes steel, aluminum products, machinery, scrap metals, cement, aggregates,
sand, and minerals.
• Automotive includes finished vehicles for BMW, FCA, Ford, General Motors, Honda, Hyundai, Mercedes-
Benz, Mitsubishi, Subaru, Toyota, and Volkswagen, and auto parts for BMW, FCA, Ford, General Motors,
Honda, Hyundai, Mercedes-Benz, Nissan, Tesla, and Toyota.
• Paper, clay and forest products includes lumber and wood products, pulp board and paper products, wood
fibers, wood pulp, scrap paper, and clay.
Merchandise carloads handled in 2016 were 2.5 million, the revenues from which accounted for 63% of our total
railway operating revenues.
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INTERMODAL – Our intermodal market group consists of shipments moving in trailers, domestic and
international containers, and RoadRailer® equipment. These shipments are handled on behalf of intermodal
marketing companies, international steamship lines, truckers, and other shippers. Intermodal units handled in 2016
were 3.9 million, the revenues from which accounted for 22% of our total railway operating revenues.
COAL – Revenues from coal accounted for about 15% of our total railway operating revenues in 2016. We
handled 100 million tons, or 0.9 million carloads, in 2016, most of which originated on our lines from major eastern
coal basins, with the balance from major western coal basins received via the Memphis and Chicago gateways. Our
coal franchise supports the electric generation market, serving approximately 78 coal generation plants, as well as
the export, metallurgical and industrial markets, primarily through direct rail and river, lake, and coastal facilities,
including various terminals on the Ohio River, Lamberts Point in Norfolk, Virginia, the Port of Baltimore, and Lake
Erie.
FREIGHT RATES – Our predominant pricing mechanisms, private contracts and exempt price quotes, are not
subject to regulation. In general, market forces are the primary determinant of rail service prices.
In 2016, our railroad was found by the U.S. Surface Transportation Board (STB), the regulatory board that has
broad jurisdiction over railroad practices, to not be “revenue adequate” on an annual basis based on results for the
year 2015. The STB has not made its revenue adequacy determination for the year 2016. A railroad is “revenue
adequate” on an annual basis under the applicable law when its return on net investment exceeds the rail industry’s
composite cost of capital. This determination is made pursuant to a statutory requirement.
PASSENGER OPERATIONS – Amtrak operates regularly scheduled passenger trains on our lines between the
following locations:
• Alexandria and Lynchburg, Virginia
• Alexandria, Virginia and New Orleans, Louisiana
• Alexandria and Orange, Virginia
• Petersburg and Norfolk, Virginia
• Raleigh and Charlotte, North Carolina
• Selma and Charlotte, North Carolina
• Chicago, Illinois, and Porter, Indiana
• Chicago, Illinois, and Cleveland, Ohio
• Chicago, Illinois, and Pittsburgh, Pennsylvania
• Pittsburgh and Harrisburg, Pennsylvania
A consortium of two transportation commissions of the Commonwealth of Virginia operate commuter trains on our
line between Manassas and Alexandria.
We lease the Chicago to Manhattan, Illinois, line to the Commuter Rail Division of the Regional Transportation
Authority of Northeast Illinois (METRA).
We operate freight service over lines with significant ongoing Amtrak and commuter passenger operations, and
conduct freight operations over trackage owned or leased by:
• Amtrak
• New Jersey Transit
• Southeastern Pennsylvania Transportation Authority
• Metro-North Commuter Railroad Company
• Maryland Department of Transportation
• Michigan Department of Transportation
Amtrak and various commuter agencies conduct passenger operations over trackage owned by Conrail Inc.
(Conrail) in the Shared Assets Areas (Note 5 to the Consolidated Financial Statements).
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NONCARRIER OPERATIONS – Our noncarrier subsidiaries engage principally in the leasing or sale of rail
property and equipment; the development of commercial real estate; telecommunications; and the acquisition,
leasing, and management of coal, oil, gas and minerals. In 2016, no such noncarrier subsidiary or industry segment
grouping of noncarrier subsidiaries met the requirements for a reportable business segment under relevant
authoritative accounting guidance.
RAILWAY PROPERTY
Our railroad infrastructure makes us capital intensive with net property of approximately $30 billion on a historical
cost basis.
Property Additions – Property additions for the past five years were as follows:
2016
2015
2014
($ in millions)
2013
2012
Road and other property
Equipment
Delaware & Hudson acquisition
$
1,292 $
595
—
1,514 $
658
213
1,406 $
712
—
1,421 $
550
—
1,465
776
—
Total
$
1,887 $
2,385 $
2,118 $
1,971 $
2,241
Our capital spending and replacement programs are and have been designed to assure the ability to provide safe,
efficient, and reliable rail transportation services. For 2017, we have budgeted $1.9 billion of property additions.
See further discussion of our planned capital spending and replacement programs in Part II, Item 7, “Management’s
Discussion and Analysis of Financial Condition and Results of Operations,” under the subheading “Financial
Condition, Liquidity, and Capital Resources.”
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Equipment – At December 31, 2016, we owned or leased the following units of equipment:
Locomotives:
Multiple purpose
Auxiliary units
Switching
Total locomotives
Freight cars:
Gondola
Hopper
Covered hopper
Box
Flat
Other
Total freight cars
Other:
Chassis
Containers
Work equipment
Vehicles
Miscellaneous
Total other
Capacity of
Equipment
(Horsepower)
15,215,400
—
82,050
15,297,450
(Tons)
3,353,749
1,352,882
1,122,115
964,680
325,861
80,050
7,199,337
Owned
Leased
Total
4,041
172
55
4,268
27,964
12,042
10,065
9,997
1,900
1,718
63,686
28,710
19,210
5,824
3,842
2,418
60,004
—
—
—
—
2,653
—
85
1,362
1,485
12
5,597
—
1,738
258
—
27
2,023
4,041
172
55
4,268
30,617
12,042
10,150
11,359
3,385
1,730
69,283
28,710
20,948
6,082
3,842
2,445
62,027
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The following table indicates the number and year built for locomotives and freight cars owned at December 31,
2016:
Locomotives:
No. of units
% of fleet
Freight cars:
No. of units
% of fleet
2016
2015
2014
2013
2012
2007-
2011
2002-
2006
2001 &
Before
Total
66
2%
8
1%
83
2%
50
1%
60
1%
259
6%
536
12%
3,206
75%
4,268
100%
776
1%
2,093
3%
900
1%
—
—%
2,017
3%
8,109
13%
468
1%
49,323
78%
63,686
100%
The following table shows the average age of our owned locomotive and freight car fleets at December 31, 2016,
and information regarding 2016 retirements:
Average age – in service
Retirements
Average age – retired
Locomotives
24.1 years
130 units
37.2 years
Freight Cars
28.6 years
7,894 units
37.3 years
Track Maintenance – Of the approximately 35,600 total miles of track on which we operate, we are responsible
for maintaining approximately 28,500 miles, with the remainder being operated under trackage rights from other
parties responsible for maintenance.
Over 83% of the main line trackage (including first, second, third, and branch main tracks, all excluding rail
operated pursuant to trackage rights) has rail ranging from 131 to 155 pounds per yard with the standard installation
currently at 136 pounds per yard. Approximately 43% of our lines, excluding rail operated pursuant to trackage
rights, carried 20 million or more gross tons per track mile during 2016.
The following table summarizes several measurements regarding our track roadway additions and replacements
during the past five years:
Track miles of rail installed
Miles of track surfaced
New crossties installed (millions)
2016
2015
2014
2013
2012
518
4,984
2.3
523
5,074
2.4
507
5,248
2.7
549
5,475
2.5
509
5,642
2.6
Traffic Control – Of the approximately 16,400 route miles we dispatch, about 11,300 miles are signalized,
including 8,500 miles of centralized traffic control (CTC) and 2,800 miles of automatic block signals. Of the 8,500
miles of CTC, approximately 7,600 miles are controlled by data radio originating at 355 base station radio sites.
ENVIRONMENTAL MATTERS – Compliance with federal, state, and local laws and regulations relating to the
protection of the environment is one of our principal goals. To date, such compliance has not had a material effect
on our financial position, results of operations, liquidity, or competitive position. See “Personal Injury,
Environmental, and Legal Liabilities” in Part II, Item 7, “Management’s Discussion and Analysis of Financial
Condition and Results of Operations;” and Note 16 to the Consolidated Financial Statements.
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EMPLOYEES – The following table shows the average number of employees and the average cost per employee
for wages and benefits:
2016
2015
2014
2013
2012
Average number of employees
Average wage cost per employee
Average benefit cost per employee
30,456
28,044
30,943
$ 76,000 $ 77,000 $ 76,000 $ 72,000 $ 69,000
$ 35,000 $ 32,000 $ 35,000 $ 40,000 $ 38,000
29,482
30,103
Approximately 80% of our railroad employees are covered by collective bargaining agreements with various labor
unions. See the discussion of “Labor Agreements” in Part II, Item 7, “Management’s Discussion and Analysis of
Financial Condition and Results of Operations.”
GOVERNMENT REGULATION – In addition to environmental, safety, securities, and other regulations
generally applicable to all business, our railroads are subject to regulation by the STB. The STB has jurisdiction to
varying extents over rates, routes, customer access provisions, fuel surcharges, conditions of service, and the
extension or abandonment of rail lines. The STB also has jurisdiction over the consolidation, merger, or acquisition
of control of and by rail common carriers.
The relaxation of economic regulation of railroads, following the Staggers Rail Act of 1980, included exemption
from STB regulation of the rates and most service terms for intermodal business (trailer-on-flat-car, container-on-
flat-car), rail boxcar shipments, lumber, manufactured steel, automobiles, and certain bulk commodities such as
sand, gravel, pulpwood, and wood chips for paper manufacturing. Further, all shipments that we have under
contract are effectively removed from commercial regulation for the duration of the contract. Approximately 90%
of our revenues comes from either exempt shipments or shipments moving under transportation contracts; the
remainder comes from shipments moving under public tariff rates.
Efforts have been made over the past several years to increase federal economic regulation of the rail industry, and
such efforts are expected to continue in 2017. The Staggers Rail Act of 1980 substantially balanced the interests of
shippers and rail carriers, and encouraged and enabled rail carriers to innovate, invest in their infrastructure, and
compete for business, thereby contributing to the economic health of the nation and to the revitalization of the
industry. Accordingly, we will continue to oppose efforts to reimpose increased economic regulation.
Government regulations are discussed within Item 1A. “Risk Factors” and the safety and security of our railroads
are discussed within the “Security of Operations” section contained herein.
COMPETITION – There is continuing strong competition among rail, water, and highway carriers. Price is
usually only one factor of importance as shippers and receivers choose a transport mode and specific hauling
company. Inventory carrying costs, service reliability, ease of handling, and the desire to avoid loss and damage
during transit are also important considerations, especially for higher-valued finished goods, machinery, and
consumer products. Even for raw materials, semi-finished goods, and work-in-progress, users are increasingly
sensitive to transport arrangements that minimize problems at successive production stages.
Our primary rail competitor is CSX Corporation (CSX); both railroads operate throughout much of the same
territory. Other railroads also operate in parts of the territory. We also compete with motor carriers, water carriers,
and with shippers who have the additional options of handling their own goods in private carriage, sourcing
products from different geographic areas, and using substitute products.
Certain marketing strategies to expand reach and shipping options among railroads and between railroads and motor
carriers enable railroads to compete more effectively in specific markets.
SECURITY OF OPERATIONS – We continue to take measures to enhance the security of our rail system. Our
comprehensive security plan is modeled on and was developed in conjunction with the security plan prepared by the
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Association of American Railroads (AAR) post September 11, 2001. The AAR Security Plan defines four Alert
Levels and details the actions and countermeasures that are being applied across the railroad industry as a terrorist
threat increases or decreases. The Alert Level actions include countermeasures that will be applied in three general
areas: (1) operations (including transportation, engineering, and mechanical); (2) information technology and
communications; and, (3) railroad police. All of our Operations Division employees are advised by their
supervisors or train dispatchers, as appropriate, of any change in Alert Level and any additional responsibilities they
may incur due to such change.
Our plan also complies with U.S. Department of Transportation (DOT) security regulations pertaining to training
and security plans with respect to the transportation of hazardous materials. As part of the plan, security awareness
training is given to all railroad employees who directly affect hazardous material transportation safety, and is
integrated into hazardous material training programs. Additionally, location-specific security plans are in place for
certain metropolitan areas and each of the six port facilities we serve. With respect to the ports, each facility’s
security plan has been approved by the applicable Captain of the Port and remains subject to inspection by the U.S.
Coast Guard (USCG).
Additionally, we continue to engage in close and regular coordination with numerous federal and state agencies,
including the U.S. Department of Homeland Security (DHS), the Transportation Security Administration, the
Federal Bureau of Investigation, the Federal Railroad Administration (FRA), the USCG, U.S. Customs and Border
Protection, and various state Homeland Security offices. Similarly, we follow guidance from DHS and DOT
regarding rail corridors in High Threat Urban Areas (HTUA). Particular attention is aimed at reducing risk in
HTUA by: (1) the establishment of secure storage areas for rail cars carrying toxic-by-inhalation (TIH) materials;
(2) the expedited movement of trains transporting rail cars carrying TIH materials; (3) substantially reducing the
number of unattended loaded tank cars carrying TIH materials; and (4) cooperation with federal, state, local, and
tribal governments to identify those locations where security risks are the highest.
In 2016, through participation in the Transportation Community Awareness and Emergency Response
(TRANSCAER) Program, we provided rail accident response training to approximately 5,573 emergency
responders, such as local police and fire personnel. Our other training efforts throughout 2016 included
participation in drills for local, state, and federal agencies. We also have ongoing programs to sponsor local
emergency responders at the Security and Emergency Response Training Course conducted at the AAR
Transportation Technology Center in Pueblo, Colorado.
Item 1A. Risk Factors
The risks set forth in the following risk factors could have a materially adverse effect on our financial condition,
results of operations, or liquidity in a particular year or quarter, and could cause those results to differ materially
from those expressed or implied in our forward-looking statements. The information set forth in this Item 1A. Risk
Factors should be read in conjunction with the rest of the information included in this annual report, including
Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and Item 8.
“Financial Statements and Supplementary Data.”
Significant governmental legislation and regulation over commercial, operating and environmental matters
could affect us, our customers, and the markets we serve. Congress can enact laws that could increase economic
regulation of the industry. Railroads presently are subject to commercial regulation by the STB, which has
jurisdiction to varying extents over rates, routes, customer access provisions, fuel surcharges, conditions of service,
and the extension or abandonment of rail lines. The STB also has jurisdiction over the consolidation, merger, or
acquisition of control of and by rail common carriers. Additional economic regulation of the rail industry by
Congress or the STB, whether under new or existing laws, could have a significant negative impact on our ability to
determine prices for rail services and on the efficiency of our operations. This potential material adverse effect
could also result in reduced capital spending on our rail network or abandonment of lines.
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Railroads are also subject to the enactment of laws by Congress and regulation by the DOT and the DHS (which
regulate most aspects of our operations) related to safety and security. The Rail Safety Improvement Act of 2008
(RSIA), the Surface Transportation Extension Act of 2015, and the implementing regulations promulgated by the
FRA require us and each other Class I railroad to implement an interoperable positive train control system (PTC) on
certain of our respective lines by December 31, 2018.
Full implementation of PTC in compliance with RSIA will result in additional operating costs and capital
expenditures, and PTC implementation may result in reduced operational efficiency and service levels, as well as
increased compensation and benefits expenses, and increased claims and litigation costs.
Our operations are subject to extensive federal and state environmental laws and regulations concerning, among
other things, emissions to the air; discharges to waterways or groundwater supplies; handling, storage,
transportation, and disposal of waste and other materials; and the cleanup of hazardous material or petroleum
releases. The risk of incurring environmental liability, for acts and omissions, past, present, and future, is inherent in
the railroad business. This risk includes property owned by us, whether currently or in the past, that is or has been
subject to a variety of uses, including our railroad operations and other industrial activity by past owners or our past
and present tenants.
Environmental problems that are latent or undisclosed may exist on these properties, and we could incur
environmental liabilities or costs, the amount and materiality of which cannot be estimated reliably at this time,
with respect to one or more of these properties. Moreover, lawsuits and claims involving other unidentified
environmental sites and matters are likely to arise from time to time.
Concern over climate change has led to significant federal, state, and international legislative and regulatory efforts
to limit greenhouse gas (GHG) emissions. Restrictions, caps, taxes, or other controls on GHG emissions, including
diesel exhaust, could significantly increase our operating costs, decrease the amount of traffic handled, and decrease
the value of coal reserves we own.
In addition, legislation and regulation could negatively affect the markets we serve and our customers, including
those related to GHGs. Even without legislation or regulation, government incentives and adverse publicity relating
to GHGs could negatively affect the markets for certain of the commodities we carry and our customers that (1) use
commodities that we carry to produce energy, including coal, (2) use significant amounts of energy in producing or
delivering the commodities we carry, or (3) manufacture or produce goods that consume significant amounts of
energy.
As a common carrier by rail, we must offer to transport hazardous materials, regardless of risk.
Transportation of certain hazardous materials could create catastrophic losses in terms of personal injury and
property (including environmental) damage, and compromise critical parts of our rail network. The cost of a
catastrophic rail accident involving hazardous materials could exceed our insurance coverage. We have obtained
insurance for potential losses for third-party liability and first-party property damages (see Note 16 to the
Consolidated Financial Statements); however, insurance is available from a limited number of insurers and may not
continue to be available or, if available, may not be obtainable on terms acceptable to us.
We may be affected by general economic conditions. Prolonged negative changes in domestic and global
economic conditions could affect the producers and consumers of the commodities we carry. Economic conditions
could also result in bankruptcies of one or more large customers.
Significant increases in demand for rail services could result in the unavailability of qualified personnel and
locomotives. In addition, workforce demographics and training requirements, particularly for engineers and
conductors, could have a negative impact on our ability to meet demand for rail service. Unpredicted increases in
demand for rail services may exacerbate such risks.
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We may be affected by energy prices. Volatility in energy prices could have a significant effect on a variety of
items including, but not limited to: the economy; demand for transportation services; business related to the energy
sector, including crude oil, natural gas, and coal; fuel prices; and fuel surcharges.
We face competition from other transportation providers. We are subject to competition from motor carriers,
railroads and, to a lesser extent, ships, barges, and pipelines, on the basis of transit time, pricing, and quality and
reliability of service. While we have used primarily internal resources to build or acquire and maintain our rail
system, trucks and barges have been able to use public rights-of-way maintained by public entities. Any future
improvements, expenditures, legislation, or regulation materially increasing the quality or reducing the cost of
alternative modes of transportation in the regions in which we operate (such as granting materially greater latitude
for motor carriers with respect to size or weight limitations or adoption of autonomous commercial vehicles) could
have a material adverse effect on our operations.
The operations of carriers with which we interchange may adversely affect our operations. Our ability to
provide rail service to customers in the U.S. and Canada depends in large part upon our ability to maintain
collaborative relationships with connecting carriers (including shortlines and regional railroads) with respect to,
among other matters, freight rates, revenue division, car supply and locomotive availability, data exchange and
communications, reciprocal switching, interchange, and trackage rights. Deterioration in the operations of or service
provided by connecting carriers, or in our relationship with those connecting carriers, could result in our inability to
meet our customers’ demands or require us to use alternate train routes, which could result in significant additional
costs and network inefficiencies. Additionally, any significant consolidations, mergers or operational changes
among other railroads may significantly redefine our market access and reach.
We rely on technology and technology improvements in our business operations. If we experience significant
disruption or failure of one or more of our information technology systems, including computer hardware, software,
and communications equipment, we could experience a service interruption, a security breach, or other operational
difficulties. Accordingly, we also face cybersecurity threats which may result in breaches of systems, or
compromises of sensitive data, which may result in an inability to access or operate systems necessary for
conducting operations and providing customer service, thereby impacting our efficiency and/or damaging our
corporate reputation. Additionally, if we do not have sufficient capital to acquire new technology or we are unable
to implement new technology, we may suffer a competitive disadvantage within the rail industry and with
companies providing other modes of transportation service.
The vast majority of our employees belong to labor unions, and labor agreements, strikes, or work stoppages
could adversely affect our operations. Approximately 80% of our railroad employees are covered by collective
bargaining agreements with various labor unions. If unionized workers were to engage in a strike, work stoppage, or
other slowdown, we could experience a significant disruption of our operations. Additionally, future national labor
agreements, or renegotiation of labor agreements or provisions of labor agreements, could significantly increase our
costs for healthcare, wages, and other benefits.
We may be subject to various claims and lawsuits that could result in significant expenditures. The nature of
our business exposes us to the potential for various claims and litigation related to labor and employment, personal
injury, commercial disputes, freight loss and other property damage, and other matters. Job-related personal injury
and occupational claims are subject to the Federal Employer’s Liability Act (FELA), which is applicable only to
railroads. FELA’s fault-based tort system produces results that are unpredictable and inconsistent as compared with
a no-fault worker’s compensation system. The variability inherent in this system could result in actual costs being
very different from the liability recorded.
Any material changes to current litigation trends or a catastrophic rail accident involving any or all of freight loss
property damage, personal injury, and environmental liability could have a material adverse effect on us to the
extent not covered by insurance. We have obtained insurance for potential losses for third-party liability and first-
party property damages (see Note 16 to the Consolidated Financial Statements); however, insurance is available
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from a limited number of insurers and may not continue to be available or, if available, may not be obtainable on
terms acceptable to us.
Severe weather could result in significant business interruptions and expenditures. Severe weather conditions
and other natural phenomena, including hurricanes, floods, fires, and earthquakes, may cause significant business
interruptions and result in increased costs, increased liabilities, and decreased revenues.
We may be affected by terrorism or war. Any terrorist attack, or other similar event, any government response
thereto, and war or risk of war could cause significant business interruption. Because we play a critical role in the
nation’s transportation system, we could become the target of such an attack or have a significant role in the
government’s preemptive approach or response to an attack or war.
Although we currently maintain insurance coverage for third-party liability arising out of war and acts of terrorism,
we maintain only limited insurance coverage for first-party property damage and damage to property in our care,
custody, or control caused by certain acts of terrorism. In addition, premiums for some or all of our current
insurance programs covering these losses could increase dramatically, or insurance coverage for certain losses could
be unavailable to us in the future.
We may be affected by supply constraints resulting from disruptions in the fuel markets or the nature of
some of our supplier markets. We consumed approximately 462 million gallons of diesel fuel in 2016. Fuel
availability could be affected by any limitation in the fuel supply or by any imposition of mandatory allocation or
rationing regulations. A severe fuel supply shortage arising from production curtailments, increased demand in
existing or emerging foreign markets, disruption of oil imports, disruption of domestic refinery production, damage
to refinery or pipeline infrastructure, political unrest, war or other factors could impact us as well as our customers
and other transportation companies.
Due to the capital intensive nature, as well as the industry-specific requirements of the rail industry, high barriers of
entry exist for potential new suppliers of core railroad items, such as locomotives and rolling stock equipment.
Additionally, we compete with other industries for available capacity and raw materials used in the production of
locomotives and certain track and rolling stock materials. Changes in the competitive landscapes of these limited
supplier markets could result in increased prices or significant shortages of materials.
The state of capital markets could adversely affect our liquidity. From time-to-time we rely on the capital
markets to provide some of our capital requirements, including the issuance of long-term debt instruments and
commercial paper, as well as the sale of certain receivables. Significant instability or disruptions of the capital
markets, including the credit markets, or deterioration of our financial condition due to internal or external factors
could restrict or eliminate our access to, and/or significantly increase the cost of, various financing sources,
including bank credit facilities and issuance of corporate bonds. Instability or disruptions of the capital markets and
deterioration of our financial condition, alone or in combination, could also result in a reduction in our credit rating
to below investment grade, which could prohibit or restrict us from accessing external sources of short- and long-
term debt financing and/or significantly increase the associated costs.
Item 1B. Unresolved Staff Comments
None.
K14
Item 3. Legal Proceedings
On November 6, 2007, various antitrust class actions filed against us and other Class I railroads in various Federal
district courts regarding fuel surcharges were consolidated in the District of Columbia by the Judicial Panel on
Multidistrict Litigation. On June 21, 2012, the court certified the case as a class action. The defendant railroads
appealed this certification, and the Court of Appeals for the District of Columbia vacated the District Court’s
decision and remanded the case for further consideration. We believe the allegations in the complaints are without
merit and intend to vigorously defend the cases. We do not believe the outcome of these proceedings will have a
material effect on our financial position, results of operations, or liquidity.
Item 4. Mine Safety Disclosures
Not applicable.
K15
Executive Officers of the Registrant
Our executive officers generally are elected and designated annually by the Board of Directors at its first meeting
held after the annual meeting of stockholders, and they hold office until their successors are elected. Executive
officers also may be elected and designated throughout the year as the Board of Directors considers appropriate.
There are no family relationships among our officers, nor any arrangement or understanding between any officer
and any other person pursuant to which the officer was selected. The following table sets forth certain information,
at February 1, 2017, relating to our officers.
Name, Age, Present Position
Business Experience During Past Five Years
James A. Squires, 55,
Chairman, President and
Chief Executive Officer
Present position since October 1, 2015.
Served as CEO since June 1, 2015. Served as President
since June 1, 2013. Served as Executive Vice President –
Administration from August 1, 2012 to June 1, 2013.
Served as Executive Vice President – Finance and Chief
Financial Officer from July 1, 2007 to August 1, 2012.
Cynthia C. Earhart, 55,
Executive Vice President –
Administration and Chief
Information Officer
Present position since October 1, 2015.
Served as Executive Vice President - Administration since
June 1, 2013. Served as Vice President Human Resources
from March 1, 2007 to June 1, 2013.
Alan H. Shaw, 49
Executive Vice President and
Chief Marketing Officer
Present position since May 16, 2015.
Served as Vice President Intermodal Operations from
November 1, 2013 to May 15, 2015. Served as Group
Vice President Industrial Products from November 16,
2009 to October 31, 2013.
Marta R. Stewart, 59,
Executive Vice President –
Finance and Chief Financial Officer
Present position since November 1, 2013.
Served as Vice President and Treasurer from April 1, 2009
to November 1, 2013.
Michael J. Wheeler, 54,
Executive Vice President and
Chief Operating Officer
Present position since February 1, 2016.
Served as Senior Vice President Operations October 1,
2015 to January 31, 2016. Served as Vice President
Engineering November 1, 2012 to September 30, 2015.
Served as Vice President Transportation February 1, 2009
to October 31, 2012.
William A. Galanko, 60,
Senior Vice President –
Law and Corporate Communications
Present position since December 1, 2016.
Served as Vice President Law from April 1, 2006 to
November 30, 2016.
Thomas E. Hurlbut, 52,
Vice President and Controller
Present position since November 1, 2013.
Served as Vice President Audit and Compliance from
February 1, 2010 to November 1, 2013.
K16
PART II
NORFOLK SOUTHERN CORPORATION AND SUBSIDIARIES
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities
STOCK PRICE AND DIVIDEND INFORMATION
Common Stock is owned by 27,288 stockholders of record as of December 31, 2016, and is traded on the New York
Stock Exchange under the symbol “NSC.” The following table shows the high and low sales prices as reported by
Bloomberg L.P. on its internet-based service and dividends per share, by quarter, for 2016 and 2015.
2016
1st
2nd
3rd
4th
Quarter
Market Price
High
Low
Dividends per share
2015
Market Price
High
Low
Dividends per share
$
$
85.37 $
66.41
0.59
93.15 $
78.93
0.59
96.83 $
83.89
0.59
1st
2nd
3rd
4th
111.63 $
100.14
0.59
106.47 $
87.24
0.59
88.03 $
73.57
0.59
110.52
90.77
0.59
97.07
77.19
0.59
ISSUER PURCHASES OF EQUITY SECURITIES
Period
October 1-31, 2016
November 1-30, 2016
December 1-31, 2016
Total Number
of Shares
(or Units)
Purchased(1)
Average
Price Paid
per Share
(or Unit)
$
680,891
680,714
625,893
94.73
100.05
108.24
Total
1,987,498
Maximum
Number
(or Approximate
Dollar Value)
of Shares (or
Units)
that may yet be
Purchased under
the Plans or
Programs(2)
16,007,556
15,330,408
14,704,515
Total
Number of
Shares (or Units)
Purchased as
Part of Publicly
Announced
Plans
or Programs(2)
680,891
677,148
625,893
1,983,932
(1) Of this amount, 3,566 represents shares tendered by employees in connection with the exercise of stock options
under the stockholder-approved Long-Term Incentive Plan.
(2) Our Board of Directors authorized a share repurchase program, pursuant to which up to 50 million shares of
Common Stock through December 31, 2017.
K17
Item 6. Selected Financial Data
FIVE-YEAR FINANCIAL REVIEW
2016
2015
2014
($ in millions, except per share amounts)
2013
2012
RESULTS OF OPERATIONS
Railway operating revenues
Railway operating expenses
Income from railway operations
Other income – net
Interest expense on debt
Income before income taxes
$
9,888 $ 10,511 $ 11,624 $ 11,245 $ 11,040
7,916
8,049
6,814
3,124
3,575
3,074
7,988
3,257
7,627
2,884
71
563
2,582
103
545
2,442
104
545
3,134
233
525
2,965
129
495
2,758
Provision for income taxes
914
886
1,134
1,055
1,009
Net income
$
1,668 $
1,556 $
2,000 $
1,910 $
1,749
PER SHARE DATA
Net income – basic
– diluted
Dividends
Stockholders’ equity at year end
FINANCIAL POSITION
Total assets
Total debt
Stockholders’ equity
OTHER
Property additions
$
5.66 $
5.62
2.36
42.73
5.13 $
5.10
2.36
40.93
6.44 $
6.39
2.22
40.26
6.10 $
6.04
2.04
36.55
5.42
5.37
1.94
31.08
$ 34,892 $ 34,139 $ 33,033 $ 32,259 $ 30,135
8,642
9,760
9,404
11,289
10,093
12,188
8,985
12,408
10,212
12,409
$
1,887 $
2,385 $
2,118 $
1,971 $
2,241
Average number of shares outstanding (thousands)
Number of stockholders at year end
Average number of employees:
293,943
27,288
301,873
28,443
309,367
29,575
311,916
30,990
320,864
32,347
Rail
Nonrail
Total
27,856
188
30,057
399
29,063
419
29,698
405
30,543
400
28,044
30,456
29,482
30,103
30,943
See accompanying consolidated financial statements and notes thereto.
K18
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Norfolk Southern Corporation and Subsidiaries
The following discussion and analysis should be read in conjunction with the Consolidated Financial Statements
and Notes.
OVERVIEW
We are one of the nation’s premier transportation companies. Our Norfolk Southern Railway Company subsidiary
operates approximately 19,500 miles of road in 22 states and the District of Columbia, serves every major container
port in the eastern United States, and provides efficient connections to other rail carriers. We operate the most
extensive intermodal network in the East and are a major transporter of coal, automotive and industrial products.
Our 2016 results reflect our progress and commitment to achieving the goals set forth in our strategic plan.
Through a disciplined cost-control focus, we achieved a record-setting railway operating ratio (a measure of the
amount of operating revenues consumed by operating expenses) of 68.9% and delivered approximately $250
million of productivity savings, despite the economic challenges that continue to affect our industry. Operational
improvements allowed us to maintain near all-time best service levels and achieve high levels of network fluidity,
which improved train performance and asset utilization. In addition to these improvements, the implementation of
multiple cost-control initiatives drove savings in operating expenses across all categories.
In 2017, we expect to maintain high levels of service and see continued improvement in our operating ratio.
Railway operating revenues are expected to increase, driven by volume growth in our coal and intermodal markets,
in addition to higher average revenue per unit, a result of pricing gains and fuel surcharge revenue increases largely
driven by higher expected fuel prices. Railway operating expenses are expected to increase next year, driven in
large part by medical and wage inflation as well as volume-related expenses, offset in part by the continuation of
targeted expense reductions as we balance resources with the demand for our high-quality rail service. We continue
to focus on executing our strategic plan and remain committed to maintaining our strong levels of rail service,
generating higher returns on capital, and increasing the efficiency of our resources.
SUMMARIZED RESULTS OF OPERATIONS
2016
2015
$ in millions, except per share amounts
2014
2016
vs. 2015
2015
vs. 2014
% change
Income from railway operations
Net income
Diluted earnings per share
Railway operating ratio
$
$
$
$
$
$
3,074
1,668
5.62
68.9
$
$
$
2,884
1,556
5.10
72.6
3,575
2,000
6.39
69.2
7%
7%
10%
(5%)
(19%)
(22%)
(20%)
5%
The increase in net income for 2016, compared to 2015, was driven by higher income from railway operations, as
railway operating expense decreases (down $813 million, or 11%) more than offset declines in railway operating
revenues (down $623 million, or 6%). The decrease in net income for 2015, compared to 2014, reflected lower
income from railway operations, driven by a sharp decline in railway operating revenues (down $1.1 billion, or
10%) offset in part by lower railway operating expenses (down $422 million, or 5%). The 2015 results include $93
million of costs associated with the restructuring of our Triple Crown Services (TCS) subsidiary and the closure of
our Roanoke, Virginia corporate office, which reduced net income by $58 million, or $0.19 per diluted share.
K19
DETAILED RESULTS OF OPERATIONS
Railway Operating Revenues
The following tables present a three-year comparison of revenues, volumes (units), and average revenue per unit by
market group.
Merchandise:
Chemicals
Agr./consumer/gov’t.
Metals/construction
Automotive
Paper/clay/forest
Merchandise
Intermodal
Coal
Total
Merchandise:
Chemicals
Agr./consumer/gov’t.
Metals/construction
Automotive
Paper/clay/forest
Merchandise
Intermodal
Coal
Total
Merchandise:
Chemicals
Agr./consumer/gov’t.
Metals/construction
Automotive
Paper/clay/forest
Merchandise
Intermodal
Coal
Total
$
$
$
2016
Revenues
2015
$ in millions
2014
2016
vs. 2015
2015
vs. 2014
% change
1,648
1,548
1,267
975
744
6,182
2,218
1,488
9,888
$
$
1,760
1,516
1,263
969
771
6,279
2,409
1,823
10,511
$
$
1,863
1,498
1,521
1,004
794
6,680
2,562
2,382
11,624
(6%)
2%
—
1%
(4%)
(2%)
(8%)
(18%)
(6%)
(6%)
1%
(17%)
(3%)
(3%)
(6%)
(6%)
(23%)
(10%)
2016
Units
2015
in thousands
2014
2016
vs. 2015
2015
vs. 2014
% change
475.7
601.2
685.8
440.5
284.0
2,487.2
3,870.4
902.1
7,259.7
527.6
609.0
672.4
429.3
299.9
2,538.2
3,861.0
1,079.7
7,478.9
502.6
603.8
725.6
410.1
303.2
2,545.3
3,845.2
1,284.4
7,674.9
(10%)
(1%)
2%
3%
(5%)
(2%)
—
(16%)
(3%)
5%
1%
(7%)
5%
(1%)
—
—
(16%)
(3%)
2016
Revenue per Unit
2015
$ per unit
2014
2016
vs. 2015
2015
vs. 2014
% change
$
3,335
2,489
1,879
2,258
2,573
2,474
624
1,688
1,405
3,707
2,481
2,096
2,447
2,619
2,624
666
1,855
1,515
4%
3%
(2%)
(2%)
2%
—
(8%)
(2%)
(3%)
(10%)
—
(10%)
(8%)
(2%)
(6%)
(6%)
(9%)
(7%)
$
3,465
2,575
1,847
2,213
2,620
2,486
573
1,650
1,362
K20
Revenues decreased $623 million in 2016 and $1.1 billion in 2015. As reflected in the table below, both declines
resulted from lower average revenue per unit and reduced volume. In 2016, the effects of reduced fuel surcharges
and changes in traffic mix more than offset price increases. Volume decreases were primarily driven by reductions
in energy-related markets and the restructuring of our TCS subsidiary. For 2015, a large drop in fuel surcharge
revenues more than offset pricing gains to drive average revenue per unit lower. The volume decline was driven by
continued weakness in the coal markets.
Revenue per unit
Volume (units)
Total
Fuel surcharge revenues
Revenue Variance Analysis
(Decrease)
2016 vs. 2015
2015 vs. 2014
$ in millions
$
$
$
(315) $
(308)
(816)
(297)
(623) $
(1,113)
(241) $
(852)
Most of our contracts include negotiated fuel surcharges, typically tied to either West Texas Intermediate Crude Oil
(WTI) or On-Highway Diesel (OHD). Approximately 90% of our revenue base is covered by these negotiated fuel
surcharges, with more than half tied to OHD. For 2016, contracts tied to OHD accounted for about 90% of our fuel
surcharge revenue, as price levels were below most of our surcharge trigger points in contracts tied to WTI.
Revenues associated with fuel surcharges totaled $236 million, $477 million, and $1,329 million in 2016, 2015, and
2014, respectively.
MERCHANDISE revenues decreased for both 2016 and 2015, compared with the years before. In 2016, the
effects of lower volume were offset in part by a slight increase in average revenue per unit. Price increases were
tempered by reduced fuel surcharge revenues (which lowered average revenue per unit by $31) and unfavorable
changes in traffic mix. The 2015 decline reflected lower average revenue per unit, the result of lower fuel surcharge
revenues (which reduced average revenue per unit by $185) that offset the effects of higher rates. Volume was
relatively flat in 2015 compared to 2014.
For 2017, merchandise revenues are expected to increase, primarily the result of pricing gains and higher fuel
surcharge revenues.
Chemicals revenues were lower year-over-year in 2016 and 2015. The 2016 decline was due to lower traffic
volume, reflecting fewer shipments of crude oil originated from the Bakken oil fields, in addition to lower chlor-
alkali and rock salt traffic, the result of market consolidations and softened demand. These declines were offset in
part by higher average revenue per unit due to favorable mix, as increased volumes of higher-rated plastics more
than offset reduced fuel surcharge revenues.
In 2015, the decline was the result of lower average revenue per unit, driven by reduced fuel surcharge revenues
and negative mix resulting from increased shipments of lower-rated liquefied petroleum gas, which more than offset
the effect of higher rates. Volumes increased for the year, largely driven by liquefied petroleum gas volume gains as
well as strong demand for shipments of polypropylene due to lower feedstock prices. These volume increases were
partially offset by fewer shipments of crude oil from the Bakken oil fields.
For 2017, chemicals revenues are anticipated to increase, as average revenue per unit is expected to be higher,
largely the effect of favorable mix, driven by increased volumes of higher-rated plastics, and pricing gains.
However, we expect these gains to be mitigated by lower shipments of crude oil from the Bakken oil fields and
liquefied petroleum gas in the Utica Shale region.
K21
One of our chemical customers, Sunbelt Chlor Alkali Partnership (Sunbelt), filed a rate reasonableness complaint
before the STB alleging that our tariff rates for transportation of regulated movements are unreasonable. Since April
1, 2011, we have been billing and collecting amounts based on the challenged tariff rates. In 2014, the STB resolved
this rate reasonableness complaint in our favor. In June 2016, the STB resolved petitions for reconsideration. The
matter remains decided in our favor; however, the findings are still subject to appeal. We believe the estimate of any
reasonably possible loss will not have a material effect on our financial position, results of operations, or liquidity.
With regard to rate cases, we record adjustments to revenues in the periods if and when such adjustments are
probable and reasonably estimable.
Agriculture, consumer products, and government revenues increased for both years, compared with the years
before. The improvement in 2016 was driven by higher average revenue per unit primarily the result of pricing
gains, offset in part by lower fuel surcharge revenues. Volumes decreased for the year driven by weaker demand for
feed shipments and the effects of customer sourcing changes on corn volumes, offset in part by an increase in
soybean export shipments and higher food oil volumes driven by service improvements.
The increase in 2015 was the result of more ethanol shipments due to higher gasoline consumption, offset in part by
lower fuel surcharge revenues and fewer revenue shipments of empty rail cars as part of the conclusion of a hopper
re-body program.
For 2017, agriculture, consumer products, and government revenues are expected to increase, driven by more
shipments of corn and feed products, and by increased average revenue per unit, primarily a result of pricing gains.
Metals and construction revenues were up slightly in 2016 after falling in 2015, compared with the prior years.
The increase in 2016 was driven by higher demand for aggregates and iron and steel shipments, and more coil steel
traffic due to customer sourcing changes. These increases were offset in part by lower demand for materials used in
natural gas and oil drilling as a result of depressed commodity prices. Average revenue per unit declined for the
year, driven by lower fuel surcharge revenues and changes in traffic mix.
In 2015, the decline was driven by a drop in average revenue per unit, largely the result of lower fuel surcharge
revenues partially offset by pricing gains, and a decrease in carloads. The volume decline was the result of lower
demand for materials used in the construction of pipe for drilling activity, fewer shipments of fractionating sand and
ceramic proppant used in natural gas drilling, and declines in scrap metal and coil shipments, resulting from
declines in steel production due to global over-supply. These decreases were offset in part by increased shipments
of aggregates as a result of higher demand in the Southeast for project work and strong highway and construction
related markets.
For 2017, metals and construction revenues are expected to increase, as average revenue per unit is expected to be
higher, primarily due to changes in the mix of traffic. We also expect volumes to increase next year, driven by
growth in steel related products, in addition to higher cement shipments driven by increased construction activity.
Automotive revenues rose in 2016 after falling in 2015, compared with the prior years. For 2016, volumes
increased as a result of higher automotive parts shipments and growth in the production of North American light
vehicles. Average revenue per unit declined for the year, driven by lower fuel surcharge revenues offset in part by
pricing gains.
The decline in 2015 reflected a drop in average revenue per unit primarily due to lower fuel surcharge revenues,
offset in part by pricing gains. Volumes increased for the year, driven by gains in production of North American
light vehicles.
For 2017, automotive revenues are expected to decrease as a result of volume declines related to extended retooling
at several NS-served assembly plants and expected decreases in U.S. vehicle production, offset in part by higher
average revenue per unit driven by pricing gains and higher fuel surcharge revenues.
K22
Paper, clay and forest products revenues were down in both 2016 and 2015, compared to the prior years. The
decline in 2016 reflected volume decreases in our pulpboard and woodchip markets due to customer sourcing
changes, in addition to lower paper shipments as a result of decreased demand and further contraction of the paper
market. Average revenue per unit increased for the year driven by pricing gains, offset in part by lower fuel
surcharge revenues.
In 2015, both average revenue per unit and volumes decreased. The decline in average revenue per unit was driven
primarily by lower fuel surcharge revenues and negative mix (fewer higher-rated kaolin shipments) offset by
pricing gains. Volume changes reflected lower waste, kaolin, woodchip, and graphic paper volumes as a result of
customer sourcing changes, softened demand, and mill closures, offset by higher carloads of pulpboard, lumber, and
pulp due to continued recovery of the housing market.
For 2017, paper, clay, and forest products revenues are anticipated to increase, as we expect average revenue per
unit to be higher, largely due to pricing gains. Additionally, we expect volume to increase next year, driven by
growth in our miscellaneous waste and lumber markets as a result of higher construction activity, and increased
pulp volumes driven by growth in consumer demand. These volume increases will be partially offset by lower
pulpboard shipments due to customer sourcing changes, weaker export demand for kaolin shipments, and further
contraction of the paper market.
INTERMODAL revenues decreased in both years, a result of lower average revenue per unit that more than offset
small volume increases. In 2016, reduced fuel surcharge revenues and the effects of the TCS subsidiary
restructuring (which together lowered average revenue per unit $57) offset the effects of price increases. Volume
was up slightly for the year as growth in our domestic and international business offset the losses from the
restructuring of our TCS subsidiary. In 2015, lower average revenue per unit was the result of lower fuel surcharges
(which decreased average revenue per unit by $51). Volume gains in international shipments were almost fully
offset by declines in domestic shipments.
For 2017, we expect higher intermodal revenues due to increased volumes and average revenue per unit, primarily
driven by higher fuel surcharge revenues and pricing gains.
Intermodal units by market were as follows:
2016
2015
units in thousands
2014
2016
vs. 2015
2015
vs. 2014
% change
Domestic (excluding Triple Crown)
Triple Crown
Total Domestic
International
2,348.7
67.5
2,416.2
1,454.2
2,250.4
250.0
2,500.4
1,360.6
2,277.7
288.5
2,566.2
1,279.0
4%
(73%)
(3%)
7%
(1%)
(13%)
(3%)
6%
Total
3,870.4
3,861.0
3,845.2
—
—
K23
Total domestic volume decreased in both years, driven by the restructuring of our TCS subsidiary. In 2016,
domestic volumes excluding TCS increased due to growth from new and existing accounts that exceeded the
negative effects of increased trucking capacity. In 2015, volumes were also affected by ongoing service challenges
during the first three quarters of the year, an increase in available trucking capacity, and weaker overall demand, all
partially offset by growth from continued highway conversions.
For 2017, we expect higher domestic volumes driven from continued highway conversions and growth associated
with new and existing customers.
International volume increased in both years reflecting increased demand from existing customers and market
share gains.
For 2017, we expect continued growth in our international volume largely driven by more traffic from both new and
existing customers.
COAL revenues decreased in each of 2016 and 2015, compared with the prior years. Both declines reflected lower
carload volumes and decreased average revenue per unit, primarily due to reduced fuel surcharge revenues, which
lowered average revenue per unit by $34 in 2016 and $134 in 2015.
For 2017, coal revenues are expected to increase driven largely by higher utility and export volumes, in addition to
an improved average revenue per unit, primarily the result of pricing gains in our export market and higher fuel
surcharges.
As shown in the following table, tonnage decreased in all markets both years.
2016
2015
tons in thousands
2014
2016
vs. 2015
2015
vs. 2014
% change
Utility
Export
Domestic metallurgical
Industrial
65,033
14,608
13,884
6,152
81,137
16,193
14,450
8,201
93,884
23,218
16,130
8,599
(20%)
(10%)
(4%)
(25%)
(14%)
(30%)
(10%)
(5%)
Total
99,677
119,981
141,831
(17%)
(15%)
Utility coal tonnage in 2016 reflected residual stockpile overhang and limited coal burn due to milder weather and
sustained lower natural gas prices. For 2015, the decline was driven by reduced coal burn as significantly lower
natural gas prices caused utilities to shift away from coal generation. In addition, volumes were adversely affected
by coal plant retirements and mild weather during the last half of 2015.
For 2017, we expect utility tonnage to increase driven by higher natural gas prices and weather-related
normalization, in addition to market share gains.
Export coal tonnage also decreased both years, a result of strong competition faced by U.S. coal suppliers as excess
coal supply, weak seaborne coal prices, and a strong U.S. dollar reduced demand for export coal. Volume through
Norfolk was down 1.7 million tons, or 15%, in 2016, following a drop of 5.5 million tons, or 33%, in 2015. Volume
through Baltimore was up slightly in 2016 but was down 1.5 million tons, or 23%, in 2015.
For 2017, we expect export coal tonnage to increase, as higher prices from a tightening of the international coal
supply, a continued trend from the last quarter of 2016, is expected to drive incremental production increases.
K24
Domestic metallurgical coal tonnage was down in both years, compared with the prior periods. The 2016 decline
was largely driven by softness in the metallurgical market, offset in part by customer-specific gains. The 2015
decrease reflected volume losses related to plant curtailments and sourcing shifts resulting from steel producers
looking for opportunities to reduce costs that were offset in part by market share gains.
For 2017, domestic metallurgical coal tonnage is expected to remain relatively flat as customer-specific gains will
offset losses from sourcing shifts and supply issues driven by increased demand in export markets.
Industrial coal tonnage dropped in both years, compared with the prior periods. Both years reflected volume
losses related to natural gas conversions and decreased coal burn, both of which accelerated in 2016. In addition,
2016 volumes were further affected by a partial plant closure that took place in the first half of the year.
For 2017, industrial coal tonnage is expected to decrease driven by continued pressure from natural gas conversions
and customer sourcing changes.
Railway Operating Expenses
Railway operating expenses summarized by major classifications were as follows:
2016
2015
$ in millions
2014
2016
vs. 2015
2015
vs. 2014
% change
Compensation and benefits
Purchased services and rents
Fuel
Depreciation
Materials and other
$
2,743 $
1,548
698
1,026
799
2,911 $
1,752
934
1,054
976
2,897
1,687
1,574
951
940
(6%)
(12%)
(25%)
(3%)
(18%)
—
4%
(41%)
11%
4%
Total
$
6,814 $
7,627 $
8,049
(11%)
(5%)
In 2016, we experienced decreases across all categories driven largely from cost-control initiatives, lower fuel
expense, the absence of restructuring costs incurred in 2015, and service improvements. In 2015, decreases in fuel
costs and incentive compensation were offset in part by costs associated with the TCS restructuring and closure of
our Roanoke, Virginia corporate office, in addition to higher wage rates.
K25
•
•
•
•
•
•
Compensation and benefits decreased in 2016, compared to 2015, reflecting changes in:
employee levels, including decreased overtime and trainees (down $184 million),
pension costs (down $38 million)
payroll taxes (down $27 million),
labor agreement payments in 2015 ($24 million),
pay rates (up $34 million),
health and welfare benefit costs for agreement employees (up $35 million), which reflected higher rates,
offset in part by favorability from reduced headcount, and
bonus accruals (up $59 million).
•
In 2015, compensation and benefits increased slightly, a result of changes in:
•
•
•
•
•
pay rates (up $83 million),
payroll taxes (up $37 million),
labor agreement payments ($24 million),
employee levels, including overtime and increased trainees (up $21 million), and
incentive compensation (down $151 million).
Our employment averaged 28,044 in 2016, compared with 30,456 in 2015, and 29,482 in 2014. Looking forward to
2017, we expect higher compensation and benefit expenses, a result of wage increases, medical cost inflation and
higher levels of incentive compensation. We anticipate that cost-control initiatives will keep employment levels flat
notwithstanding expected volume increases.
Purchased services and rents includes 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.
2016
2015
$ in millions
2014
2016
vs. 2015
2015
vs. 2014
% change
Purchased services
Equipment rents
Total
$
$
1,242 $
306
1,433 $
319
1,394
293
(13%)
(4%)
1,548 $
1,752 $
1,687
(12%)
3%
9%
4%
The 2016 decrease in purchased services expense reflected lower TCS operational costs, reduced repair and
maintenance expenses, and decreased transportation activity costs, offset in part by higher volume-related costs in
intermodal operations. The increase in 2015 reflected higher costs associated with intermodal operations,
information technology, maintenance and repair, and the Roanoke, Virginia corporate office closure, partially offset
by TCS restructuring-related savings.
Equipment rents, which includes our cost of using equipment (mostly freight cars) owned by other railroads or
private owners less the rent paid to us for the use of our equipment, decreased in 2016 largely from improved
network velocity, offset in part by higher rates and conventional intermodal volumes. The 2015 increase was
principally due to higher automotive and intermodal rates and volumes.
Fuel expense, which includes the cost of locomotive fuel as well as other fuel used in railway operations, decreased
in both 2016 and 2015 compared with the prior years. Both declines were principally the result of lower locomotive
fuel prices (down 18% in 2016 and 40% in 2015). Locomotive fuel consumption decreased 5% in 2016 and 1% in
2015. We consumed approximately 462 million gallons of diesel fuel in 2016, compared with 487 million gallons
in 2015 and 494 million gallons in 2014.
K26
Depreciation expense decreased in 2016, but increased in 2015, compared to prior years, a result of the effects of
the TCS restructuring. In 2015 we recognized $63 million in accelerated depreciation on TCS assets as a result of
the restructuring. Both periods also reflect growth in our roadway and equipment capital base as we continue to
invest in our infrastructure and rolling stock.
Materials and other expenses decreased in 2016 but increased in 2015, as shown in the following table.
2016
2015
$ in millions
2014
2016
vs. 2015
2015
vs. 2014
% change
Materials
Casualties and other claims
Other
Total
$
$
364 $
150
285
469 $
137
370
799 $
976 $
470
135
335
940
(22%)
9%
(23%)
(18%)
—
1%
10%
4%
In 2016, lower materials and other expenses more than offset higher costs for casualties and other claims. Material
usage costs declined for the year primarily driven by lower locomotive, roadway and freight car repair costs
associated with cost-control initiatives and improved asset utilization.
Casualties and other claims expenses include the estimates of costs related to personal injury, property damage, and
environmental matters. The increase in 2016 was primarily driven by higher derailment expenses. The small rise in
2015 reflected less favorable personal injury reserve adjustments for prior years’ claim amounts, offset in part by
reduced environmental remediation costs as a result of less unfavorable development for our environmental liability.
Other expense this year reflected $37 million of gains from the sale of operating land. Both year-over-year
variances were affected by higher than normal expenses in 2015 relocating employees in connection with the
closure of our Roanoke, Virginia office. The 2015 increase also included higher travel costs for train service
employees and higher property taxes.
Income Taxes
The effective income tax rate was 35.4% in 2016, compared with 36.3% in 2015 and 36.2% in 2014. The decrease
in 2016 reflects favorable tax benefits associated with stock-based compensation and higher returns from corporate-
owned life insurance. All three years benefited from favorable reductions in deferred taxes for state tax law changes
and certain business tax credits.
Internal Revenue Service (IRS) examinations have been completed for all years prior to 2013. We are not currently
under audit by the IRS.
K27
FINANCIAL CONDITION, LIQUIDITY, AND CAPITAL RESOURCES
Cash provided by operating activities, our principal source of liquidity, was $3.0 billion in 2016 and $2.9 billion
in both 2015 and 2014. The increase in 2016 was primarily the result of improved operating results. Lower cash
from operations in 2015 compared with 2014 was offset by reduced tax payments. We had a working capital deficit
of $48 million at December 31, 2016, compared with working capital of $281 million at December 31, 2015. Cash
and cash equivalents totaled $1.0 billion and $1.1 billion at December 31, 2016 and 2015, respectively, and were
invested in accordance with our corporate investment policy. The portfolio contains securities that are subject to
market risk. There are no limits or restrictions on our access to these assets. We expect cash on hand combined
with cash provided by operating activities will be sufficient to meet our ongoing obligations.
Contractual obligations at December 31, 2016, were comprised of interest on fixed-rate long-term debt, long-term
debt (Note 8), unconditional purchase obligations (Note 16), operating leases (Note 9), long-term advances from
Conrail and agreements with Consolidated Rail Corporation (CRC) (Note 5), and unrecognized tax benefits (Note
3):
Total
2017
2018 -
2019
2020 -
2021
$ in millions
2022 and
Subsequent Other
Interest on fixed-rate long-term debt
Long-term debt principal
Unconditional purchase obligations
Operating leases
Long-term advances from Conrail
Agreements with CRC
Unrecognized tax benefits*
$ 13,403 $
10,598
1,283
614
280
276
27
533 $
550
519
78
—
37
—
955 $
1,185
349
127
—
74
—
832 $
898
281
104
—
74
—
11,083 $
7,965
134
305
280
91
—
Total
$ 26,481 $ 1,717 $ 2,690 $ 2,189 $
19,858 $
—
—
—
—
—
—
27
27
* This amount is shown in the Other column because the year of settlement cannot be reasonably estimated.
Off balance sheet arrangements consist of obligations related to operating leases, which are included in the table
of contractual obligations above and disclosed in Note 9.
Cash used in investing activities was $1.8 billion in 2016, compared with $2.1 billion in 2015, and $2.0 billion in
2014. Both year-over-year comparisons reflected higher cash outflows for property additions in 2015, including
approximately $215 million for the acquisition of the Delaware and Hudson Railway Co. line. In addition, 2015
included higher proceeds from corporate-owned life insurance investments.
Capital spending and track and equipment statistics can be found within the “Railway Property” section of Part I of
this report on Form 10-K.
For 2017, we have budgeted $1.9 billion for property additions. The anticipated spending includes $930 million for
the normalized replacement of rail, ties, and ballast, the improvement or replacement of bridges and other
maintenance of way items. Planned equipment spending of $340 million includes new and rebuilt locomotives,
mill gondolas, automobile multilevel recertifications, and covered hoppers. Investments in facilities and terminals
are anticipated to be $170 million and include terminals and equipment to add capacity to our intermodal network,
expanded bulk transfer facilities, improvements to vehicle distribution facilities, and upgrades and expansions of
our mechanical service shops. For 2017, we have budgeted $240 million for the continued implementation of PTC
and expect post-2017 PTC-related property additions to total approximately $300 million. Technology and other
K28
investments of $110 million are planned for new or upgraded systems and computers. We also expect to spend $80
million on infrastructure improvements to increase mainline capacity and to accommodate business growth.
Cash used in financing activities was $1.3 billion in 2016, compared with $693 million in 2015, and $1.4 billion
in 2014. The increase in 2016 was driven primarily by higher debt repayments and lower proceeds from borrowing,
partially offset by lower share repurchase activity. The decrease in 2015 was driven primarily by higher proceeds
from borrowings and lower debt repayments, partially offset by higher share repurchase activity.
Share repurchases totaled $803 million in 2016, $1.1 billion in 2015, and $318 million in 2014 for the purchase and
retirement of 9.2 million, 11.3 million, and 3.1 million shares, respectively. On August 1, 2012, our Board of
Directors authorized the repurchase of up to an additional 50 million shares of Common Stock through
December 31, 2017, and 14.7 million shares remain under this authority as of December 31, 2016. The timing and
volume of future share repurchases will be guided by our assessment of market conditions and other pertinent
factors. Any near-term purchases under the program are expected to be made with internally generated cash, cash
on hand, or proceeds from borrowings.
We discuss our credit agreement and our accounts receivable securitization program in Note 8 of our Notes to
Consolidated Financial Statements, and we have authority from our Board of Directors to issue an additional $1.2
billion of debt or equity securities through public or private sale, all of which provide for access to additional
liquidity should the need arise. Our debt-to-total capitalization ratio was 45.1% at December 31, 2016, compared
with 45.3% at December 31, 2015.
Upcoming annual debt maturities are relatively modest (Note 8). Overall, our goal is to maintain a capital structure
with appropriate leverage to support our business strategy and provide flexibility through business cycles.
APPLICATION OF CRITICAL ACCOUNTING ESTIMATES
The preparation of financial statements in accordance with U.S. Generally Accepted Accounting Principles (GAAP)
requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, the
disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of
revenue and expenses during the reporting period. These estimates and assumptions may require significant
judgment about matters that are inherently uncertain, and future events are likely to occur that may require us to
make changes to these estimates and assumptions. Accordingly, we regularly review these estimates and
assumptions based on historical experience, changes in the business environment, and other factors we believe to be
reasonable under the circumstances. We regularly discuss the development, selection, and disclosures concerning
critical accounting estimates with the Audit Committee of the Board of Directors.
Pensions and Other Postretirement Benefits
Accounting for pensions and other postretirement benefit plans requires us to make several estimates and
assumptions (Note 11). These include the expected rate of return from investment of the plans’ assets and the
expected retirement age of employees as well as their projected earnings and mortality. In addition, the amounts
recorded are affected by changes in the interest rate environment because the associated liabilities are discounted to
their present value. We make these estimates based on our historical experience and other information that we
deem pertinent under the circumstances (for example, expectations of future stock market performance). We utilize
an independent actuarial consulting firm’s studies to assist us in selecting appropriate actuarial assumptions and
valuing related liabilities.
In recording our net pension benefit, we assumed a long-term investment rate of return of 8.25%, which was
supported by the long-term total rate of return on plan assets since inception, as well as our expectation of future
returns. A one-percentage point change to this rate of return assumption would result in a $21 million change in
pension expense. We review assumptions related to our defined benefit plans annually, and while changes are likely
to occur in assumptions concerning retirement age, projected earnings, and mortality, they are not expected to have
K29
a material effect on our net pension expense or net pension liability in the future. The net pension liability is
recorded at net present value using discount rates that are based on the current interest rate environment in light of
the timing of expected benefit payments. We utilize analyses in which the projected annual cash flows from the
pension and postretirement benefit plans are matched with yield curves based on an appropriate universe of high-
quality corporate bonds. We use the results of the yield curve analyses to select the discount rates that match the
payment streams of the benefits in these plans.
Properties and Depreciation
Most of our assets are long-lived railway properties (Note 6). As disclosed in Note 1, the primary depreciation
method for our asset base is group life. Units of production is the principal method of depreciation for rail in high
density corridors. Remaining properties are depreciated generally using the straight-line method over the lesser of
estimated service or lease lives. See Note 1 for a more detailed discussion of the assumptions and estimates in this
area.
Depreciation expense for 2016 totaled $1.0 billion. Our composite depreciation rates for 2016 are disclosed in
Note 6; a one-tenth percentage point increase (or decrease) in these rates would have resulted in a $39 million
increase (or decrease) to depreciation expense. For 2016, roadway depreciation rates ranged from 0.83% to 14.86%
and equipment depreciation rates ranged from 1.38% to 30.18%.
Personal Injury, Environmental, and Legal Liabilities
Casualties and other claims expense, included in “Materials and other” in the Consolidated Statements of Income,
consists primarily of our accrual for personal injury liabilities and environmental remediation costs.
To aid in valuing our personal injury liability and determining the amount to accrue during each period, we utilize
studies prepared by an independent consulting actuarial firm. The actuarial firm studies our historical patterns of
reserving for claims and subsequent settlements, taking into account relevant outside influences. We adjust the
liability quarterly based upon our assessment and the results of the study. Our estimate is subject to inherent
limitation given the difficulty of predicting future events and as such the ultimate loss sustained may vary from the
estimated liability recorded.
We are subject to various jurisdictions’ environmental laws and regulations. We record a liability where such
liability or loss is probable and its amount can be estimated reasonably. Environmental engineers regularly
participate in ongoing evaluations of all known sites and in determining any necessary adjustments to liability
estimates. Additionally, our Environmental Policy Council (composed of senior managers) oversees and interprets
our environmental policy.
We and/or certain subsidiaries are defendants in numerous lawsuits and other claims relating principally to railroad
operations. When we conclude 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.
For a more detailed discussion of the assumptions and estimates in accounting for personal injury and
environmental matters see Note 16.
K30
Income Taxes
Our net deferred tax liability totaled $9.1 billion at December 31, 2016 (Note 3). This liability is estimated based
on the expected future tax consequences of items recognized in the financial statements. After application of the
federal statutory tax rate to book income, judgment is required with respect to the timing and deductibility of
expenses in our income tax returns. For state income and other taxes, judgment is also required with respect to the
apportionment among the various jurisdictions. A valuation allowance is recorded if we expect that it is more likely
than not that deferred tax assets will not be realized. We have a $39 million valuation allowance on $628 million of
deferred tax assets as of December 31, 2016, reflecting the expectation that almost all of these assets will be
realized.
OTHER MATTERS
Labor Agreements
Approximately 80% of our railroad employees are covered by collective bargaining agreements with various labor
unions. Pursuant to the Railway Labor Act, these agreements remain in effect until new agreements are reached, or
until the bargaining procedures mandated by the Act are completed. We largely bargain nationally in concert with
other major railroads, represented by the National Carriers Conference Committee (NCCC). Moratorium
provisions in the labor agreements govern when the railroads and unions may propose changes to the agreements.
Beginning in late 2014, the NCCC and the various unions exchanged new proposals to begin the current round of
national negotiations. The unions have formed three separate bargaining coalitions and negotiations with each are
ongoing with the assistance of mediators from the National Mediation Board. Separately, in January 2015 we
reached an agreement covering wages and work rules through 2019 with the Brotherhood of Locomotive Engineers
and Trainmen (BLET), which represents approximately 20% of our union workforce. Changes to the BLET benefit
plan will be bargained nationally through the NCCC.
Market Risks
We manage overall exposure to fluctuations in interest rates by issuing both fixed- and floating-rate debt
instruments. At December 31, 2016, debt subject to interest rate fluctuations totaled $200 million. A one-percentage
point increase in interest rates would increase total annual interest expense related to all variable debt by
approximately $2 million. We consider it unlikely that interest rate fluctuations applicable to these instruments will
result in a material adverse effect on our financial position, results of operations, or liquidity.
New Accounting Pronouncements
For a detailed discussion of new accounting pronouncements, see Note 1.
Inflation
In preparing financial statements, GAAP requires the use of historical cost that disregards the effects of inflation on
the replacement cost of property. As a capital-intensive company, we have most of our capital invested in long-
lived assets. The replacement cost of these assets, as well as the related depreciation expense, would be
substantially greater than the amounts reported on the basis of historical cost.
FORWARD-LOOKING STATEMENTS
Certain statements in Management’s Discussion and Analysis of Financial Condition and Results of Operations are
“forward-looking statements” within the meaning of the “safe harbor” provisions of the Private Securities Litigation
Reform Act of 1995, as amended. These statements relate to future events or our future financial performance and
involve known and unknown risks, uncertainties, and other factors that may cause our actual results, levels of
K31
activity, performance, or our achievements or those of our industry to be materially different from those expressed
or implied by any forward-looking statements. In some cases, forward-looking statements can be identified by
terminology such as “may,” “will,” “could,” “would,” “should,” “expect,” “plan,” “anticipate,” “intend,” “believe,”
“estimate,” “project,” “consider,” “predict,” “potential,” “feel,” or other comparable terminology. We have based
these forward-looking statements on our current expectations, assumptions, estimates, beliefs, and projections.
While we believe these expectations, assumptions, estimates, beliefs, and projections are reasonable, such forward-
looking statements are only predictions and involve known and unknown risks and uncertainties, many of which
involve factors or circumstances that are beyond our control. These and other important factors, including those
discussed in Part II, Item 1A “Risk Factors,” may cause actual results, performance, or achievements to differ
materially from those expressed or implied by these forward-looking statements. The forward-looking statements
herein are made only as of the date they were first issued, and unless otherwise required by applicable securities
laws, we disclaim any intention or obligation to update or revise any forward-looking statements, whether as a
result of new information, future events, or otherwise. Copies of our press releases and additional information
about us is available at www.norfolksouthern.com, or you can contact Norfolk Southern Corporation Investor
Relations Department by calling 757-629-2861.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
The information required by this item is included in Part II, Item 7, “Management’s Discussion and Analysis of
Financial Condition and Results of Operations” under the heading “Market Risks.”
K32
Item 8. Financial Statements and Supplementary Data
INDEX TO FINANCIAL STATEMENTS
Report of Management
Reports of Independent Registered Public Accounting Firm
Consolidated Statements of Income
Years ended December 31, 2016, 2015, and 2014
Consolidated Statements of Comprehensive Income
Years ended December 31, 2016, 2015, and 2014
Consolidated Balance Sheets
At December 31, 2016 and 2015
Consolidated Statements of Cash Flows
Years ended December 31, 2016, 2015, and 2014
Consolidated Statements of Changes in Stockholders’ Equity
Years ended December 31, 2016, 2015, and 2014
Notes to Consolidated Financial Statements
Index to Consolidated Financial Statement Schedule in Item 15
Page
K34
K35
K37
K38
K39
K40
K41
K42
K83
K33
Report of Management
February 6, 2017
To the Stockholders
Norfolk Southern Corporation
Management is responsible for establishing and maintaining adequate internal control over financial reporting. In
order to ensure that Norfolk Southern Corporation’s internal control over financial reporting is effective,
management regularly assesses such controls and did so most recently as of December 31, 2016. This assessment
was based on criteria for effective internal control over financial reporting described in Internal Control-Integrated
Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on
this assessment, management has concluded that the Corporation maintained effective internal control over
financial reporting as of December 31, 2016.
KPMG LLP, independent registered public accounting firm, has audited the Corporation’s financial statements and
issued an attestation report on the Corporation’s internal control over financial reporting as of December 31, 2016.
/s/ James A. Squires
James A. Squires
Chairman, President and
Chief Executive Officer
/s/ Marta R. Stewart
Marta R. Stewart
Executive Vice President Finance
and Chief Financial Officer
/s/ Thomas E. Hurlbut
Thomas E. Hurlbut
Vice President and
Controller
K34
Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders
Norfolk Southern Corporation:
We have audited Norfolk Southern Corporation’s internal control over financial reporting as of December 31, 2016,
based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of
Sponsoring Organizations of the Treadway Commission (COSO). Norfolk Southern Corporation’s management is
responsible for maintaining effective internal control over financial reporting and for its assessment of the
effectiveness of internal control over financial reporting, included in the accompanying Report of
Management. Our responsibility is to express an opinion on the Company’s internal control over financial reporting
based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about
whether effective internal control over financial reporting was maintained in all material respects. Our audit
included obtaining an understanding of internal control over financial reporting, assessing the risk that a material
weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the
assessed risk. Our audit also included performing such other procedures as we considered necessary in the
circumstances. We believe that our audit provides a reasonable basis for our opinion.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles. A company’s internal control over financial reporting
includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable
assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance
with generally accepted accounting principles, and that receipts and expenditures of the company are being made
only in accordance with authorizations of management and directors of the company; and (3) provide reasonable
assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s
assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect
misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that
controls may become inadequate because of changes in conditions, or that the degree of compliance with the
policies or procedures may deteriorate.
In our opinion, Norfolk Southern Corporation maintained, in all material respects, effective internal control over
financial reporting as of December 31, 2016, based on criteria established in Internal Control – Integrated
Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board
(United States), the consolidated balance sheets of Norfolk Southern Corporation and subsidiaries as of December
31, 2016 and 2015, and the related consolidated statements of income, comprehensive income, cash flows, and
changes in stockholders’ equity for each of the years in the three-year period ended December 31, 2016, and our
report dated February 6, 2017 expressed an unqualified opinion on those consolidated financial statements.
/s/ KPMG LLP
KPMG LLP
Norfolk, Virginia
February 6, 2017
K35
Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders
Norfolk Southern Corporation:
We have audited the accompanying consolidated balance sheets of Norfolk Southern Corporation and subsidiaries
as of December 31, 2016 and 2015, and the related consolidated statements of income, comprehensive income, cash
flows, and changes in stockholders’ equity for each of the years in the three-year period ended December 31,
2016. In connection with our audits of the consolidated financial statements, we also have audited the financial
statement schedule of valuation and qualifying accounts as listed in Item 15(A)2. These consolidated financial
statements and financial statement schedule are the responsibility of the Company’s management. Our
responsibility is to express an opinion on these consolidated financial statements and financial statement schedule
based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the
financial position of Norfolk Southern Corporation and subsidiaries as of December 31, 2016 and 2015, and the
results of their operations and their cash flows for each of the years in the three-year period ended December 31,
2016, in conformity with U.S. generally accepted accounting principles. Also in our opinion, the related financial
statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole,
presents fairly, in all material respects, the information set forth therein.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board
(United States), Norfolk Southern Corporation’s internal control over financial reporting as of December 31, 2016,
based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of
Sponsoring Organizations of the Treadway Commission (COSO), and our report dated February 6, 2017 expressed
an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.
/s/ KPMG LLP
KPMG LLP
Norfolk, Virginia
February 6, 2017
K36
Norfolk Southern Corporation and Subsidiaries
Consolidated Statements of Income
Years ended December 31,
2015
($ in millions, except per share amounts)
2016
2014
Railway operating revenues
$
9,888 $
10,511 $
11,624
Railway operating expenses:
Compensation and benefits
Purchased services and rents
Fuel
Depreciation
Materials and other
2,743
1,548
698
1,026
799
2,911
1,752
934
1,054
976
2,897
1,687
1,574
951
940
Total railway operating expenses
6,814
7,627
8,049
Income from railway operations
3,074
2,884
3,575
Other income – net
Interest expense on debt
71
563
103
545
104
545
Income before income taxes
2,582
2,442
3,134
Provision for income taxes
914
886
1,134
Net income
Per share amounts:
Net income
Basic
Diluted
$
1,668 $
1,556 $
2,000
$
5.66 $
5.62
5.13 $
5.10
6.44
6.39
See accompanying notes to consolidated financial statements.
K37
Norfolk Southern Corporation and Subsidiaries
Consolidated Statements of Comprehensive Income
2016
Years ended December 31,
2015
($ in millions)
2014
Net income
Other comprehensive loss, before tax:
Pension and other postretirement benefits
Other comprehensive income (loss) of equity investees
Other comprehensive loss, before tax
Income tax benefit related to items of
other comprehensive loss
Other comprehensive loss, net of tax
$
1,668 $
1,556 $
2,000
(74)
5
(69)
27
(42)
(76)
—
(76)
29
(47)
(15)
(8)
(23)
6
(17)
Total comprehensive income
$
1,626 $
1,509 $
1,983
See accompanying notes to consolidated financial statements.
K38
Norfolk Southern Corporation and Subsidiaries
Consolidated Balance Sheets
Assets
Current assets:
Cash and cash equivalents
Accounts receivable – net
Materials and supplies
Other current assets
Total current assets
Investments
Properties less accumulated depreciation of $11,737 and
$11,478, respectively
Other assets
Total assets
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable
Short-term debt
Income and other taxes
Other current liabilities
Current maturities of long-term debt
Total current liabilities
Long-term debt
Other liabilities
Deferred income taxes
Total liabilities
Stockholders’ equity:
Common Stock $1.00 per share par value, 1,350,000,000 shares
authorized; outstanding 290,417,610 and 297,795,016 shares,
respectively, net of treasury shares
Additional paid-in capital
Accumulated other comprehensive loss
Retained income
Total stockholders’ equity
At December 31,
2015
2016
($ in millions)
$
956 $
945
257
133
2,291
2,777
29,751
73
1,101
946
271
194
2,512
2,572
28,992
63
$
34,892 $
34,139
$
1,215 $
100
245
229
550
2,339
9,562
1,442
9,140
22,483
1,091
200
203
237
500
2,231
9,393
1,385
8,942
21,951
292
2,179
(487)
10,425
299
2,143
(445)
10,191
12,409
12,188
Total liabilities and stockholders’ equity
$
34,892 $
34,139
See accompanying notes to consolidated financial statements.
K39
Norfolk Southern Corporation and Subsidiaries
Consolidated Statements of Cash Flows
Cash flows from operating activities:
Net income
Reconciliation of net income to net cash
provided by operating activities:
Depreciation
Deferred income taxes
Gains and losses on properties and investments
Changes in assets and liabilities affecting operations:
Accounts receivable
Materials and supplies
Other current assets
Current liabilities other than debt
Other – net
2016
Years ended December 31,
2014
2015
($ in millions)
$
1,668 $
1,556 $
2,000
1,030
227
(46)
23
42
82
158
(150)
1,059
320
(30)
109
(35)
192
(152)
(111)
956
294
(13)
(31)
(13)
(260)
116
(134)
Net cash provided by operating activities
3,034
2,908
2,915
Cash flows from investing activities:
Property additions
Property sales and other transactions
Investment purchases
Investment sales and other transactions
(1,887)
130
(123)
48
(2,385)
63
(5)
240
(2,118)
114
(104)
106
Net cash used in investing activities
(1,832)
(2,087)
(2,002)
Cash flows from financing activities:
Dividends
Common Stock transactions
Purchase and retirement of Common Stock
Proceeds from borrowings – net
Debt repayments
(695)
57
(803)
694
(600)
(713)
12
(1,075)
1,185
(102)
(687)
67
(318)
200
(645)
Net cash used in financing activities
(1,347)
(693)
(1,383)
Net increase (decrease) in cash and cash equivalents
(145)
128
(470)
Cash and cash equivalents:
At beginning of year
At end of year
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest (net of amounts capitalized)
Income taxes (net of refunds)
See accompanying notes to consolidated financial statements.
K40
1,101
973
1,443
956 $
1,101 $
973
543 $
593
518 $
386
522
1,102
$
$
Norfolk Southern Corporation and Subsidiaries
Consolidated Statements of Changes in Stockholders’ Equity
Common
Stock
Accum. Other
Additional
Retained
Comprehensive
Paid-in
Capital
Income
Loss
($ in millions, except per share amounts)
Total
Balance at December 31, 2013
$
310 $
2,021 $
(381) $
9,339 $
11,289
Comprehensive income:
Net income
Other comprehensive loss
Total comprehensive income
Dividends on Common Stock,
$2.22 per share
Share repurchases
Stock-based compensation,
including tax benefit of $37
Other
2,000
(17)
(687)
(295)
(6)
(3)
2,000
(17)
1,983
(687)
(318)
144
(3)
(3)
3
(20)
147
Balance at December 31, 2014
310
2,148
(398)
10,348
12,408
Comprehensive income:
Net income
Other comprehensive loss
Total comprehensive income
Dividends on Common Stock,
$2.36 per share
Share repurchases
Stock-based compensation,
including tax benefit of $14
Other
1,556
(47)
(713)
(989)
(8)
(3)
1,556
(47)
1,509
(713)
(1,075)
62
(3)
(11)
(75)
70
Balance at December 31, 2015
299
2,143
(445)
10,191
12,188
Comprehensive income:
Net income
Other comprehensive loss
Total comprehensive income
Dividends on Common Stock,
$2.36 per share
Share repurchases
Stock-based compensation
Other
(42)
1,668
(695)
(731)
(6)
(2)
1,668
(42)
1,626
(695)
(803)
95
(2)
(9)
2
(63)
99
Balance at December 31, 2016
$
292 $
2,179 $
(487) $
10,425 $
12,409
See accompanying notes to consolidated financial statements.
K41
Norfolk Southern Corporation and Subsidiaries
Notes to Consolidated Financial Statements
The following Notes are an integral part of the Consolidated Financial Statements.
1. Summary of Significant Accounting Policies
Description of Business
Norfolk Southern Corporation (Norfolk Southern) is a Virginia-based holding company engaged principally in the
rail transportation business, operating approximately 19,500 miles of road primarily in the East and Midwest. These
consolidated financial statements include Norfolk Southern and its majority-owned and controlled subsidiaries
(collectively, NS, we, us, and our). Norfolk Southern’s major subsidiary is NSR. All significant intercompany
balances and transactions have been eliminated in consolidation.
NSR and its railroad subsidiaries transport raw materials, intermediate products, and finished goods classified in the
following commodity groups (percent of total railway operating revenues in 2016): intermodal (22%); chemicals
(17%); agriculture/consumer products/government (16%); coal (15%); metals/construction (13%); automotive
(10%); and, paper/clay/forest products (7%). Although most of our customers are domestic, ultimate points of
origination or destination for some of the products transported (particularly coal bound for export and some
intermodal containers) may be outside the U.S. Approximately 80% of our railroad employees are covered by
collective bargaining agreements with various labor unions.
Use of Estimates
The preparation of financial statements in accordance with U.S. GAAP requires us to make estimates and
assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the
reporting period. We periodically review our estimates, including those related to the recoverability and useful lives
of assets, as well as liabilities for litigation, environmental remediation, casualty claims, income taxes and pension
and other postretirement benefits. Changes in facts and circumstances may result in revised estimates.
Revenue Recognition
Transportation revenue is recognized proportionally as a shipment moves from origin to destination, and related
expenses are recognized as incurred. Refunds (which are primarily volume-based incentives) are recorded as a
reduction to revenues on the basis of management’s best estimate of projected liability, which is based on historical
activity, current shipment counts and the expectation of future activity. We regularly monitor our contract refund
liability and, historically, the estimates have not differed significantly from the amounts ultimately refunded.
Switching, demurrage and other incidental service revenues are recognized when the services are performed.
Cash Equivalents
“Cash equivalents” are highly liquid investments purchased three months or less from maturity.
Allowance for Doubtful Accounts
Our allowance for doubtful accounts was $4 million at December 31, 2016 and $3 million at December 31,
2015. To determine our allowance for doubtful accounts, we evaluate historical loss experience (which has not
been significant), the characteristics of current accounts, and general economic conditions and trends.
K42
Materials and Supplies
“Materials and supplies,” consisting mainly of items for maintenance of property and equipment, are stated at the
lower of average cost or market. The cost of materials and supplies expected to be used in property additions or
improvements is included in “Properties.”
Investments
Investments where we have the ability to exercise significant influence over but do not control the entity are
accounted for using the equity method, whereby the investment is carried at the cost of the acquisition plus our
equity in undistributed earnings or losses since acquisition.
Properties
“Properties” are stated principally at cost and are depreciated using the group method whereby assets with similar
characteristics, use, and expected lives are grouped together in asset classes and depreciated using a composite
depreciation rate. This methodology treats each asset class as a pool of resources, not as singular items. We use
approximately 75 depreciable asset classes. The primary depreciation method for our asset base is group life. Units
of production is the principal method of depreciation for rail in high density corridors. Remaining properties are
depreciated generally using the straight-line method over the lesser of estimated service or lease lives.
“Depreciation” in the Consolidated Statements of Cash Flows includes both depreciation and depletion.
Depreciation expense is based on our assumptions concerning expected service lives of our properties as well as the
expected net salvage that will be received upon their retirement. In developing these assumptions, we utilize
periodic depreciation studies that are performed by an independent outside firm of consulting engineers and
approved by the STB. Our depreciation studies are conducted about every three years for equipment and every six
years for track assets and other roadway property. The frequency of these studies is consistent with guidelines
established by the STB. We adjust our rates based on the results of these studies and implement the changes
prospectively. The studies may also indicate that the recorded amount of accumulated depreciation is deficient (or
in excess) of the amount indicated by the study. Any such deficiency (or excess) is amortized as a component of
depreciation expense over the remaining service lives of the affected class of property, as determined by the study.
Key factors that are considered in developing average service life and salvage estimates include:
•
•
•
•
•
statistical analysis of historical retirement data and surviving asset records;
review of historical salvage received and current market rates;
review of our operations including expected changes in technology, customer demand, maintenance
practices and asset management strategies;
review of accounting policies and assumptions; and
industry review and analysis.
The units of production depreciation rate for rail in high density corridors is derived based on consideration of
annual gross ton miles as compared to the total or ultimate capacity of rail in these corridors. Our experience has
shown that traffic density is a leading factor in determination of the expected service life of rail in high density
corridors. In developing the respective depreciation rate, consideration is also given to several rail characteristics
including age, weight, condition (new or second hand) and type (curve or straight). As a result, a composite
depreciation rate is developed which is applied to the depreciable base.
We capitalize interest on major projects during the period of their construction. Expenditures, including those on
leased assets, that extend an asset’s useful life or increase its utility are capitalized. Expenditures capitalized
include those that are directly related to a capital project and may include materials, labor and equipment, in
addition to an allocable portion of indirect costs that relate to a capital project. A significant portion of annual
capital spending relates to the replacement of self-constructed assets. Removal activities occur in conjunction with
replacement and are estimated based on an average percentage of time employees replacing assets spend on
K43
removal functions. Costs related to repairs and maintenance activities that do not extend an asset’s useful life or
increase its utility are expensed when such repairs are performed.
When depreciable operating road and equipment assets are sold or retired in the ordinary course of business, the
cost of the assets, net of sale proceeds or salvage, is charged to accumulated depreciation, and no gain or loss is
recognized in earnings. Actual historical cost values are retired when available, such as with most equipment
assets. The use of estimates in recording the retirement of certain roadway assets is necessary based on the
impracticality of tracking individual asset costs. When retiring rail, ties and ballast, we use statistical curves that
indicate the relative distribution of the age of the assets retired. The historical cost of other roadway assets is
estimated using a combination of inflation indices specific to the rail industry and those published by the U.S.
Bureau of Labor Statistics. The indices are applied to the replacement value based on the age of the retired
assets. These indices are used because they closely correlate with the costs of roadway assets. Gains and losses on
disposal of operating land are included in “Materials and other” expenses. Gains and losses on disposal of
nonoperating land and nonrail assets are included in “Other income – net” (Note 2) since such income is not a
product of our railroad operations.
A retirement is considered abnormal if it does not occur in the ordinary course of business, if it relates to disposition
of a large segment of an asset class and if the retirement varies significantly from the retirement profile identified
through our depreciation studies, which inherently consider the impact of normal retirements on expected service
lives and depreciation rates. Gains or losses from abnormal retirements would be recognized in income from
railway operations.
We review the carrying amount of properties whenever events or changes in circumstances indicate that such
carrying amount may not be recoverable based on future undiscounted cash flows. Assets that are deemed impaired
as a result of such review are recorded at the lower of carrying amount or fair value.
Required Accounting Changes
In March 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No.
2016-09, “Improvements to Employee Share-Based Payment Accounting.” We adopted the provisions of this ASU
during the first quarter of 2016. This update principally affected the recognition of excess tax benefits and
deficiencies and the cash flow classification of share-based compensation-related transactions. The requirement to
recognize excess tax benefits and deficiencies as income tax expense or benefit in the income statement was applied
prospectively, with a benefit of $17 million recognized in the “Provision for income taxes” line item for the year
ended December 31, 2016. The classification requirements on the Consolidated Statements of Cash Flows for the
adoption of ASU 2016-09 resulted in a $34 million increase in operating activities and a corresponding decrease in
financing activities for the year ended December 31, 2016. We retrospectively presented the Consolidated
Statements of Cash Flows for the years ended December 31, 2015 and December 31, 2014 to reflect $31
million and $63 million, respectively, increases in operating activities and corresponding decreases in financing
activities.
In November 2015, the FASB issued ASU No. 2015-17, “Balance Sheet Classification of Deferred Taxes.” This
update requires that deferred tax liabilities and assets be classified as noncurrent on the balance sheet rather than as
separate current and noncurrent amounts. We retrospectively adopted the provisions of this ASU during the first
quarter of 2016 and presented the December 31, 2015, Consolidated Balance Sheet to reflect the reclassification
of $121 million of deferred income tax assets from current assets to “Deferred income taxes” in the long-term
liabilities section of the balance sheet.
In May 2014, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers.” This update will
replace most existing revenue recognition guidance in GAAP and require an entity to recognize the amount of
revenue to which it expects to be entitled for the transfer of promised goods or services to customers. The new
standard will be effective for our annual and interim reporting periods beginning January 1, 2018. ASU 2014-09
permits the use of either the retrospective or cumulative effect transition method. We are still evaluating the effects
K44
of ASU 2014-09, but we do not currently expect that adoption of the standard will have a material effect on our
consolidated financial statements. There will be no change to our pattern of revenue recognition related to
transportation revenue, which will continue to be recognized proportionally as a shipment moves from origin to
destination. Certain additional financial statement disclosure requirements are mandated by the new standard
including disclosure of contract assets and contract liabilities as well as a disaggregated view of revenue, which we
expect to be similar to our current disclosure within the “Railway Operating Revenues” section of Item 7,
“Management’s Discussion and Analysis of Financial Condition and Results of Operations.” We do not plan to
adopt the standard early and we have not yet determined which transition method we will use.
In February 2016, the FASB issued ASU 2016-02, “Leases.” This update, effective for our annual and interim
reporting periods beginning January 1, 2019, will replace existing lease guidance in GAAP and will require lessees
to recognize lease assets and lease liabilities on the balance sheet for all leases greater than twelve months and
disclose key information about leasing arrangements. When implemented, lessees and lessors will be required to
recognize and measure leases at the beginning of the earliest period presented using a modified retrospective
approach. We are currently evaluating the effects ASU 2016-02 will have on our consolidated financial statements
and related disclosures. We currently disclose approximately $614 million in operating lease obligations in our lease
commitments footnote (Note 9) and we will evaluate those contracts as well as other existing arrangements to
determine if they qualify for lease accounting under the new standard. We do not plan to adopt the standard early.
In June 2016, the FASB issued ASU 2016-13, “Credit Losses - Measurement of Credit Losses on Financial
Instruments,” which replaces the current incurred loss impairment method with a method that reflects expected
credit losses. The new standard is effective as of January 1, 2020, and early adoption is permitted as of January 1,
2019. Because credit losses associated from our trade receivables have historically been insignificant, we do not
expect this standard to have a material effect on our financial statements.
K45
2. Other Income – Net
“Other income – net” includes income and costs not part of rail operations and the income generated by the
activities of our noncarrier subsidiaries as well as the costs incurred by those subsidiaries in their operations.
Rental income
Corporate-owned life insurance – net
Royalties from coal
Interest income
Gains and losses from sale of properties (including joint venture sales)
Nonoperating depletion and depreciation
Other interest expense – net
Charitable contributions
Taxes on nonoperating property
External advisor costs
Other
2016
2015
($ in millions)
2014
$
93 $
20
10
10
9
(4)
(6)
(9)
(11)
(20)
(21)
80 $
(1)
19
8
55
(5)
(4)
(9)
(10)
(8)
(22)
75
24
33
9
13
(5)
(12)
(9)
(9)
—
(15)
Total
$
71 $
103 $
104
K46
3. Income Taxes
Provisions for Income Taxes
Current:
Federal
State
Total current taxes
Deferred:
Federal
State
Total deferred taxes
2016
2015
($ in millions)
2014
$
612 $
75
687
505 $
61
566
206
21
227
292
28
320
729
111
840
299
(5)
294
Provision for income taxes
$
914 $
886 $
1,134
Reconciliation of Statutory Rate to Effective Rate
The “Provision for income taxes” in the Consolidated Statements of Income differs from the amounts computed by
applying the statutory federal corporate tax rate as follows:
2016
2015
Amount % Amount % Amount %
($ in millions)
2014
Federal income tax at statutory rate
State income taxes, net of federal tax effect
Excess tax benefits associated with stock-based
compensation, net of federal tax effect
State tax law changes, net of federal tax effect
Other, net
$
904
70
35.0 $
2.8
855
72
35.0 $
3.0
1,097
88
35.0
2.8
(17)
(7)
(36)
(0.7)
(0.3)
(1.4)
—
(14)
(27)
—
(0.6)
(1.1)
—
(20)
(31)
—
(0.6)
(1.0)
Provision for income taxes
$
914
35.4 $
886
36.3 $
1,134
36.2
K47
Deferred Tax Assets and Liabilities
Certain items are reported in different periods for financial reporting and income tax purposes. Deferred tax assets
and liabilities are recorded in recognition of these differences. The tax effects of temporary differences that give
rise to significant portions of the deferred tax assets and deferred tax liabilities are as follows:
Deferred tax assets:
Compensation and benefits, including postretirement benefits
Accruals, including casualty and other claims
Other
Total gross deferred tax assets
Less valuation allowance
Net deferred tax assets
Deferred tax liabilities:
Property
Other
Total deferred tax liabilities
Deferred income taxes
December 31,
2016
2015
($ in millions)
$
464 $
102
62
628
(39)
589
430
108
65
603
(35)
568
(9,301)
(428)
(9,729)
(9,072)
(438)
(9,510)
$
(9,140) $
(8,942)
Except for amounts for which a valuation allowance has been provided, we believe that it is more likely than not
that the results of future operations will generate sufficient taxable income to realize the deferred tax assets. The
valuation allowance at the end of each year primarily relates to subsidiary state income tax net operating losses and
state investment tax credits that may not be utilized prior to their expiration. The total valuation allowance
increased by $4 million in 2016 and $2 million in 2015.
K48
Uncertain Tax Positions
A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:
December 31,
2016
2015
($ in millions)
Balance at beginning of year
$
25 $
61
Additions based on tax positions related to the current year
Reductions for tax positions of prior years
Settlements with taxing authorities
Lapse of statutes of limitations
3
—
—
(1)
4
(34)
(5)
(1)
Balance at end of year
$
27 $
25
Included in the balance of unrecognized tax benefits at December 31, 2016, are potential benefits of $19 million
that would affect the effective tax rate if recognized. Unrecognized tax benefits are adjusted in the period in which
new information about a tax position becomes available or the final outcome differs from the amount recorded.
IRS examinations have been completed for all years prior to 2013. We are not currently under audit by the IRS.
State income tax returns generally are subject to examination for a period of three to four years after filing of the
return. In addition, we are generally obligated to report changes in taxable income arising from federal income tax
examinations to the states within a period of up to two years from the date the federal examination is final. We have
various state income tax returns either under examination, administrative appeal, or litigation.
K49
4. Fair Value
Fair Value Measurements
FASB Accounting Standards Codification (ASC) 820-10, “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 we have 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;
• 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’s or liability’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. Other than those assets and liabilities described below that
approximate fair value, there were no assets or liabilities measured at fair value on a recurring basis at
December 31, 2016 or 2015.
Fair Values of Financial Instruments
We have evaluated the fair values of financial instruments and methods used to determine those fair values. The
fair values of “Cash and cash equivalents,” “Accounts receivable,” “Accounts payable,” and “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 investments
accounted for under the equity method, consisted of the following at December 31:
2016
2015
Carrying
Amount
Fair
Value
Carrying
Amount
Fair
Value
($ in millions)
Long-term investments
Long-term debt, including current maturities
$
186 $
211 $
162 $
(10,112)
(11,626)
(9,893)
190
(11,124)
Underlying net assets and future discounted cash flows were used to estimate the fair value of investments. 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.
K50
The following tables set forth the fair value of long-term investment and long-term debt balances disclosed above
by valuation technique level, within the fair value hierarchy (there were no level 3 valued assets or liabilities).
Level 1
December 31, 2016
Level 2
($ in millions)
Total
$
$
74 $
(11,427)
137 $
(199)
211
(11,626)
Level 1
December 31, 2015
Level 2
($ in millions)
Total
49 $
(11,022)
141 $
(102)
190
(11,124)
Long-term investments
Long-term debt, including current maturities
Long-term investments
Long-term debt, including current maturities
5. Investments
Long-term investments:
Equity method investments:
Conrail Inc.
TTX Company
Meridian Speedway LLC
Pan Am Southern LLC
Other
Total equity method investments
Company-owned life insurance at net cash surrender value
Other investments
Total long-term investments
December 31,
2016
2015
($ in millions)
$
1,199 $
471
274
155
77
2,176
415
186
1,147
445
274
153
83
2,102
308
162
$
2,777 $
2,572
K51
Investment in Conrail
Through a limited liability company, we and CSX jointly own Conrail, whose primary subsidiary is CRC. We have
a 58% economic and 50% voting interest in the jointly owned entity, and CSX has the remainder of the economic
and voting interests. We are amortizing the excess of the purchase price over Conrail’s net equity using the
principles of purchase accounting, based primarily on the estimated useful lives of Conrail’s depreciable property
and equipment, including the related deferred tax effect of the differences in book and tax accounting bases for such
assets, as all of the purchase price at acquisition was allocable to Conrail’s tangible assets and liabilities.
At December 31, 2016, based on the funded status of Conrail’s pension plans, we increased our proportional
investment in Conrail by $5 million. This resulted in income of $5 million recorded to “Other comprehensive loss”
and a combined federal and state deferred tax liability of less than $1 million.
At December 31, 2015, based on the funded status of Conrail’s pension plans, we increased our proportional
investment in Conrail by $3 million. This resulted in income of $3 million recorded to “Other comprehensive loss”
and a combined federal and state deferred tax liability of less than $1 million.
At December 31, 2016, the difference between our investment in Conrail and our share of Conrail’s underlying net
equity was $524 million. Our equity in the earnings of Conrail, net of amortization, included in “Purchased
services and rents” was $47 million for 2016, $42 million for 2015, and $39 million for 2014.
CRC owns and operates certain properties (the Shared Assets Areas) for the joint and exclusive benefit of 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
services and rents” and “Fuel” include expenses payable to CRC for operation of the Shared Assets Areas totaling
$151 million in 2016, $154 million in 2015, and $144 million in 2014. Future minimum lease payments due to CRC
under the Shared Assets Areas agreements are as follows: $37 million in each of 2017 through 2021 and $91
million thereafter. We provide certain general and administrative support functions to Conrail, the fees for which are
billed in accordance with several service-provider arrangements and approximate $8 million annually.
“Accounts payable” includes $129 million at December 31, 2016, and $71 million at December 31, 2015, due to
Conrail for the operation of the Shared Assets Areas. “Other liabilities” includes $280 million at both December 31,
2016 and 2015 for long-term advances from Conrail, maturing 2044, that bear interest at an average rate of 2.9%.
Investment in TTX
NS and eight other North American railroads jointly own TTX Company (TTX). NS has a 19.65% ownership
interest in TTX, a railcar pooling company that provides its owner-railroads with standardized fleets of intermodal,
automotive, and general use railcars at stated rates.
Amounts paid to TTX for use of equipment are included in “Purchased services and rents.” This amounted to $229
million, $219 million, and $200 million of expense, respectively, for the years ended December 31, 2016, 2015 and
2014. Our equity in the earnings of TTX, also included in “Purchased services and rents,” totaled $26 million for
2016, $21 million for 2015, and $19 million for 2014.
K52
6. Properties
December 31, 2016
Cost
Accumulated
Depreciation
($ in millions)
Net Book
Value
Depreciation
Rate (1)
Land
Roadway:
Rail and other track material
Ties
Ballast
Construction in process
Other roadway
Total roadway
Equipment:
Locomotives
Freight cars
Computers and software
Construction in process
Other equipment
Total equipment
$
2,330 $
— $
2,330
—
6,632
5,011
2,559
664
13,096
27,962
5,525
3,377
552
295
972
10,721
(1,997)
(1,314)
(584)
—
(3,361)
(7,256)
(2,199)
(1,345)
(329)
—
(329)
(4,202)
4,635
3,697
1,975
664
9,735
20,706
3,326
2,032
223
295
643
6,519
2.46%
3.25%
2.64%
—
2.51%
3.65%
2.51%
10.40%
—
4.71%
Other property
475
(279)
196
0.83%
Total properties
$
41,488 $
(11,737) $
29,751
K53
December 31, 2015
Cost
Accumulated
Depreciation
($ in millions)
Net Book
Value
Depreciation
Rate (1)
Land
Roadway:
Rail and other track material
Ties
Ballast
Construction in process
Other roadway
Total roadway
Equipment:
Locomotives
Freight cars
Computers and software
Construction in process
Other equipment
Total equipment
$
2,327 $
— $
2,327
—
6,467
4,846
2,468
686
12,662
27,129
5,291
3,437
500
237
1,074
10,539
(1,944)
(1,229)
(539)
—
(3,225)
(6,937)
(2,126)
(1,422)
(296)
—
(421)
(4,265)
4,523
3,617
1,929
686
9,437
20,192
3,165
2,015
204
237
653
6,274
2.46%
3.26%
2.64%
—
2.54%
3.31%
2.87%
11.25%
—
6.09%
Other property
475
(276)
199
0.95%
Total properties
$
40,470 $
(11,478) $
28,992
(1) Composite annual depreciation rate for the underlying assets, excluding the effects of the amortization of any
deficiency (or excess) that resulted from our depreciation studies.
Other property includes the costs of obtaining rights to natural resources of $336 million at both December 31, 2016
and December 31, 2015, with accumulated depletion of $199 million and $198 million, respectively.
Capitalized Interest
Total interest cost incurred on debt was $583 million in 2016, $566 million in 2015, and $564 million in 2014, of
which $20 million, $21 million, and $19 million, respectively, was capitalized.
K54
7. Current Liabilities
Accounts payable:
Accounts and wages payable
Casualty and other claims (Note 16)
Vacation liability
Due to Conrail (Note 5)
Other
Total
Other current liabilities:
Interest payable
Pension benefit obligations (Note 11)
Other
Total
December 31,
2016
2015
($ in millions)
$
650 $
192
134
129
110
602
174
135
71
109
$
1,215 $
1,091
$
119 $
16
94
123
16
98
$
229 $
237
K55
8. Debt
Debt with weighted average interest rates and maturities is presented below:
Notes and debentures:
6.34% maturing to 2021
4.36% maturing 2022 to 2031
4.88% maturing 2037 to 2046
6.39% maturing 2097 to 2111
Securitization borrowings and capital leases
Discounts, premiums, and debt issuance costs
Total debt
Less current maturities and short-term debt
December 31,
2016
2015
($ in millions)
$
2,632 $
3,346
3,190
1,328
202
(486)
10,212
3,132
2,746
3,190
1,328
202
(505)
10,093
(650)
(700)
Long-term debt excluding current maturities and short-term debt
$
9,562 $
9,393
Long-term debt maturities subsequent to 2017 are as follows:
2018
2019
2020
2021
2022 and subsequent years
Total
$
600
585
314
584
7,479
$
9,562
During the second quarter of 2016, we issued $600 million of 2.9% senior notes due 2026.
We have in place a $350 million receivables securitization facility under which NSR sells substantially all of its
eligible third-party receivables to a subsidiary, which in turn may transfer beneficial interests in the receivables to
various commercial paper vehicles. Amounts received under the facility are accounted for as borrowings. Under
this facility, we received $100 million and repaid $100 million in both 2016 and 2015. The facility was renewed
and amended in June 2016, extending it until June 2018.
At December 31, 2016, the amount outstanding under the receivables securitization facility was $200 million (at an
average variable interest rate of 2.47%). Our intent is to refinance $100 million of these borrowings on a long-term
basis, which is supported by our $750 million credit agreement (see below). Accordingly, $100 million of the
outstanding amount is included within “Long-term debt” and the remaining $100 million outstanding is included in
“Short-term debt.” At December 31, 2015, the amount outstanding was $200 million (at an average variable
interest rate of 1.48%) included in “Short-term debt” in the Consolidated Balance Sheets. At December 31, 2016
and 2015, the receivables included in “Accounts receivable – net” serving as collateral for these borrowings totaled
$704 million and $653 million, respectively.
K56
Credit Agreement and Debt Covenants
We have in place and available a $750 million, five-year credit agreement which provides for borrowings at
prevailing rates and includes covenants. In May 2016, we renewed our agreement, extending the facility until May
2021. We had no amounts outstanding under this facility at December 31, 2016 and 2015, and we are in
compliance with all of its covenants.
9. Lease Commitments
We are committed under long-term lease agreements, which expire on various dates through 2067, for equipment,
lines of road and other property. The following amounts do not include payments to CRC under the Shared Assets
Areas agreements (Note 5). Future minimum lease payments and operating lease expense are as follows:
Future Minimum Lease Payments
2017
2018
2019
2020
2021
2022 and subsequent years
Total
Operating Lease Expense
Minimum rents
Contingent rents
Total
Operating
Leases
($ in millions)
$
$
78
71
56
54
50
305
614
2016
2015
($ in millions)
2014
$
$
98 $
73
111 $
84
109
92
171 $
195 $
201
Contingent rents are primarily comprised of usage-based rent paid to other railroads for joint facility operations.
K57
10. Other Liabilities
Net other postretirement benefit obligations (Note 11)
Net pension benefit obligations (Note 11)
Long-term advances from Conrail (Note 5)
Casualty and other claims (Note 16)
Deferred compensation
Other
Total
December 31,
2016
2015
($ in millions)
$
346 $
333
280
178
112
193
347
318
280
191
117
132
$
1,442 $
1,385
K58
11. Pensions and Other Postretirement Benefits
We have both funded and unfunded defined benefit pension plans covering principally salaried employees. We also
provide specified health care and life insurance benefits to eligible retired employees; these plans can be amended
or terminated at our option. Under our self-insured retiree health care plan, for those participants who are not
Medicare-eligible, a defined percentage of health care expenses is covered for retired employees and their
dependents, reduced by any deductibles, coinsurance, and, in some cases, coverage provided under other group
insurance policies. Those participants who are Medicare-eligible are not covered under the self-insured retiree
health care plan, but instead are provided with an employer-funded health reimbursement account which can be
used for reimbursement of health insurance premiums or eligible out-of-pocket medical expenses.
Pension and Other Postretirement Benefit Obligations and Plan Assets
Change in benefit obligations:
Benefit obligation at beginning of year
Service cost
Interest cost
Actuarial losses (gains)
Plan amendments
Benefits paid
Benefit obligation at end of year
Change in plan assets:
Fair value of plan assets at beginning of year
Actual return on plan assets
Employer contribution (reimbursement)1
Benefits paid
Fair value of plan assets at end of year
Pension Benefits
2015
2016
Other Postretirement
Benefits
2016
2015
($ in millions)
$
2,372 $
36
82
66
—
(136)
2,420
2,429 $
41
93
(64)
—
(127)
2,372
2,040
152
17
(136)
2,073
2,167
(14)
14
(127)
2,040
536 $
7
16
14
—
(45)
528
189
17
21
(45)
182
571
7
21
(7)
(8)
(48)
536
262
2
(27)
(48)
189
Funded status at end of year
$
(347) $
(332) $
(346) $
(347)
Amounts recognized in the Consolidated
Balance Sheets:
Noncurrent assets
Current liabilities
Noncurrent liabilities
$
2 $
2 $
(16)
(333)
(16)
(318)
— $
—
(346)
—
—
(347)
Net amount recognized
$
(347) $
(332) $
(346) $
(347)
Amounts included in accumulated other comprehensive
loss (before tax):
Net loss
Prior service cost (benefit)
$
940 $
3
904 $
3
30 $
(307)
16
(331)
1Norfolk Southern is eligible to receive reimbursement from the Norfolk Southern Corporation Post-Retirement
Benefits Trust (Trust), and the Trust had an outstanding liability to Norfolk Southern of $13 million as of December
31, 2016 and $30 million at December 31, 2015.
K59
Our accumulated benefit obligation for our defined benefit pension plans is $2.2 billion at both December 31, 2016
and December 31, 2015. Our unfunded pension plans, included above, which in all cases have no assets and
therefore have an accumulated benefit obligation in excess of plan assets, had projected benefit obligations of $286
million at December 31, 2016 and $274 million at December 31, 2015, and had accumulated benefit obligations of
$252 million at both December 31, 2016 and December 31, 2015.
Pension and Other Postretirement Benefit Cost Components
Pension benefits:
Service cost
Interest cost
Expected return on plan assets
Amortization of net losses
Amortization of prior service cost
Net cost (benefit)
Other postretirement benefits:
Service cost
Interest cost
Expected return on plan assets
Amortization of prior service benefit
2016
2015
($ in millions)
2014
$
$
$
36 $
82
(173)
51
—
41 $
93
(165)
65
—
34
93
(151)
54
1
(4) $
34 $
31
7 $
7 $
16
(17)
(24)
21
(19)
(24)
7
24
(18)
(20)
Net benefit
$
(18) $
(15) $
(7)
K60
Other Changes in Plan Assets and Benefit Obligations Recognized in Other Comprehensive Loss
Net loss arising during the year
Amortization of net losses
Amortization of prior service benefit
Total recognized in other comprehensive loss
Total recognized in net periodic cost
and other comprehensive loss
2016
Pension
Benefits
Other
Postretirement
Benefits
($ in millions)
$
$
$
87 $
(51)
—
36 $
32 $
14
—
24
38
20
Net actuarial losses arising during the year for pension and other postretirement benefits were due primarily to a
decrease in our discount rate.
The estimated net losses for the pension benefit plans that will be amortized from accumulated other comprehensive
loss into net periodic cost over the next year are $52 million. The estimated prior service cost for the pension
benefit plans and the prior service benefit for the other postretirement benefit plans that will be amortized from
accumulated other comprehensive loss into net periodic benefit over the next year are $1 million and $24 million,
respectively.
Pension and Other Postretirement Benefits Assumptions
Costs for pension and other postretirement benefits are determined based on actuarial valuations that reflect
appropriate assumptions as of the measurement date, ordinarily the beginning of each year. The funded status of the
plans is determined using appropriate assumptions as of each year end. A summary of the major assumptions
follows:
Pension funded status:
Discount rate
Future salary increases
Other postretirement benefits funded status:
Discount rate
Pension cost:
Discount rate - service cost
Discount rate - interest cost
Return on assets in plans
Future salary increases
Other postretirement benefits cost:
Discount rate1 - service cost
Discount rate1- interest cost
Return on assets in plans
Health care trend rate
2016
2015
2014
4.05%
4.21%
4.30%
4.50%
3.95%
4.50%
3.83%
4.02%
3.70%
4.64%
3.51%
8.25%
4.50%
4.36%
3.15%
8.00%
6.30%
3.95%
3.95%
8.25%
4.50%
3.70%
3.70%
8.00%
6.56%
4.60%
4.60%
8.25%
4.50%
3.90%
3.90%
8.00%
6.94%
1 2014 other postretirement benefits cost was based on a discount rate of 4.65% prior to our retiree medical plan
amendment in the first quarter of 2014, and 3.90% after the plan amendment.
K61
To determine the discount rates used to measure our benefit obligations, we utilize analyses in which the projected
annual cash flows from the pension and other postretirement benefit plans were matched with yield curves based on
an appropriate universe of high-quality corporate bonds. We use the results of the yield curve analyses to select the
discount rates that match the payment streams of the benefits in these plans.
Effective January 1, 2016, we began using a spot rate approach to estimate the service cost and interest cost
components of net periodic benefit cost for our pension and other postretirement benefits plans rather than a single
weighted-average discount rate. This change in estimate did not affect the measurement of our total benefit
obligations, but it did result in a total reduction in service and interest cost of $25 million for the year ended
December 31, 2016.
Health Care Cost Trend Assumptions
For measurement purposes at December 31, 2016, increases in the per capita cost of pre-Medicare covered health
care benefits were assumed to be 6.56% for 2017. It is assumed the rate will decrease gradually to an ultimate rate
of 5.0% for 2023 and remain at that level thereafter.
Assumed health care cost trend rates affect the amounts reported in the consolidated financial statements. To
illustrate, a one-percentage point change in the assumed health care cost trend would have the following effects:
Increase (decrease) in:
Total service and interest cost components
Postretirement benefit obligation
Asset Management
One-percentage point
Increase
Decrease
($ in millions)
$
1 $
11
(1)
(10)
Ten investment firms manage our defined benefit pension plans’ assets under investment guidelines approved by
our Benefits Investment Committee that is comprised of members of our management. Investments are restricted to
domestic and international equity securities, domestic and international fixed income securities, and unleveraged
exchange-traded options and financial futures. Limitations restrict investment concentration and use of certain
derivative investments. The target asset allocation for equity is 75% of the pension plans’ assets. The fixed income
portfolio is invested in the BlackRock Government/Credit Bond Index Fund. Equity investments must be in liquid
securities listed on national exchanges. No investment is permitted in our securities (except through commingled
pension trust funds). Investment managers’ returns are expected to meet or exceed selected market indices by
prescribed margins.
Our pension plans’ weighted average asset allocations, by asset category, were as follows:
Domestic equity securities
International equity securities
Debt securities
Cash and cash equivalents
Total
K62
Percentage of plan
assets at December 31,
2015
2016
51%
24%
23%
2%
50%
23%
25%
2%
100%
100%
The other postretirement benefit plan assets consist primarily of trust-owned variable life insurance policies with an
asset allocation at both December 31, 2016 and December 31, 2015 of 67% in equity securities and 33% in debt
securities. The target asset allocation for equity is between 50% and 75% of the plan’s assets.
The plans’ assumed future returns are based principally on the asset allocations and historical returns for the plans’
asset classes determined from both actual plan returns and, over longer time periods, expected market returns for
those asset classes. For 2017, we assume an 8.25% return on pension plan assets.
Fair Value of Plan Assets
Following is a description of the valuation methodologies used for pension plan assets measured at fair value.
Common stock: Shares held by the plan at year end are valued at the official closing price as defined by the
exchange or at the most recent trade price of a security at the close of the active market.
Common collective trusts: Valued at the net asset value (NAV) of shares held by the plan at year end. The
readily determinable fair value is based on the quoted market prices of the underlying assets of the
trusts. The common collective trusts hold equity securities, fixed income securities and cash and cash
equivalents.
Commingled funds: Valued at the NAV of shares held by the plan at year end. The readily determinable
fair value is based on the quoted market prices of the underlying assets of the funds. The commingled
funds hold equity securities.
Interest bearing cash: Short-term bills or notes are valued at an estimated price at which a dealer would pay
for the security at year end using observable market-based inputs; money market funds are valued at the
closing price reported on the active market on which the funds are traded.
U.S. government and agencies securities: Valued at an estimated price at which a dealer would pay for a
security at year end using observable market-based inputs. Inflation adjusted instruments utilize the
appropriate index factor.
K63
The following table sets forth the pension plans’ assets by valuation technique level, within the fair value hierarchy
(there were no level 3 valued assets).
Common stock
Common collective trusts:
Debt securities
International equity securities
Commingled funds
Interest bearing cash
U.S. government and agencies securities
Level 1
December 31, 2016
Level 2
($ in millions)
Total
$
1,142 $
— $
1,142
—
—
—
43
—
481
324
79
—
4
481
324
79
43
4
Total investments
$
1,185 $
888 $
2,073
Common stock
Common collective trusts:
Debt securities
International equity securities
Commingled funds
Interest bearing cash
U.S. government and agencies securities
Level 1
December 31, 2015
Level 2
($ in millions)
Total
$
1,119 $
— $
1,119
—
—
—
34
—
505
301
77
—
4
505
301
77
34
4
Total investments
$
1,153 $
887 $
2,040
Following is a description of the valuation methodologies used for other postretirement benefit plan assets
measured at fair value.
Trust-owned life insurance: Valued at our share of the net assets of trust-owned life insurance issued by a
major insurance company. The underlying investments of that trust consist of a U.S. stock account and a
U.S. bond account but may retain cash at times as well. The U.S. stock account and U.S. bond account are
valued based upon the aggregate market values of the underlying investments.
The other postretirement benefit plan assets consisted of trust-owned life insurance with fair values of $182 million
and $189 million at December 31, 2016 and 2015 respectively, and are valued under level 2 of the fair value
hierarchy. There were no level 1 or level 3 valued assets.
The methods used to value pension and other postretirement benefit plan assets may produce a fair value calculation
that may not be indicative of net realizable value or reflective of future fair values. Furthermore, while we believe
our valuation methods are appropriate and consistent with other market participants, the use of different
methodologies or assumptions to determine the fair value of certain financial instruments could result in a different
fair value measurement at the reporting date.
K64
Contributions and Estimated Future Benefit Payments
In 2017, we expect to contribute approximately $16 million to our unfunded pension plans for payments to
pensioners and approximately $44 million to our other postretirement benefit plans for retiree health and death
benefits. We do not expect to contribute to our funded pension plan in 2017.
Benefit payments, which reflect expected future service, as appropriate, are expected to be paid as follows:
2017
2018
2019
2020
2021
Years 2022 – 2026
Other Postretirement Coverage
Pension
Benefits
Other
Postretirement
Benefits
($ in millions)
$
139 $
141
142
142
143
723
44
43
42
41
40
180
Under collective bargaining agreements, Norfolk Southern and certain subsidiaries participate in a multi-employer
benefit plan, which provides certain postretirement health care and life insurance benefits to eligible union
employees. Premiums under this plan are expensed as incurred and totaled $37 million in 2016, $32 million in
2015, and $36 million in 2014.
Section 401(k) Plans
Norfolk Southern and certain subsidiaries provide Section 401(k) savings plans for employees. Under the plans, we
match a portion of employee contributions, subject to applicable limitations. Our matching contributions, recorded
as an expense, under these plans were $21 million in both 2016 and 2015, and $20 million in 2014.
12. Stock-Based Compensation
Under the stockholder-approved Long-Term Incentive Plan (LTIP), the Compensation Committee (Committee),
which is made up of nonemployee members of the Board of Directors, or the Chief Executive Officer (when
delegated authority by such Committee) may grant stock options, stock appreciation rights (SARs), restricted stock
units (RSUs), restricted shares, performance share units (PSUs), and performance shares, up to a maximum of
104,125,000 shares of our Common Stock.
The number of shares remaining for issuance under the LTIP is reduced (i) by 1 for each award granted as a stock
option or stock-settled SAR, or (ii) by 1.61 for an award made in the form other than a stock option or stock-settled
SAR. Under the Board-approved Thoroughbred Stock Option Plan (TSOP), the Committee may grant stock
options up to a maximum of 6,000,000 shares of Common Stock. We use newly issued shares to satisfy any
exercises and awards under the LTIP and the TSOP.
The LTIP also permits the payment, on a current or a deferred basis and in cash or in stock, of dividend equivalents
on shares of Common Stock covered by stock options, RSUs, or PSUs in an amount commensurate with regular
quarterly dividends paid on Common Stock. With respect to stock options, if employment of the participant is
terminated for any reason, including retirement, disability, or death, we have no further obligation to make any
dividend equivalent payments. Regarding RSUs, if employment of the participant is terminated for any reason
K65
other than retirement, disability, or death, we have no further obligation to make any dividend equivalent
payments. Should an employee terminate employment, they are not required to forfeit dividend equivalent
payments already received. Outstanding PSUs do not currently receive dividend equivalent payments.
During 2016, the Committee granted stock options, RSUs and PSUs pursuant to the LTIP and granted stock options
pursuant to the TSOP. Receipt of an award under the LTIP was made contingent upon the awardee’s execution of a
non-compete agreement, and all awards under the LTIP were made subject to forfeiture in the event the awardee
“engages in competing employment” for a period of time following retirement.
Accounting Method
We account for our grants of stock options, RSUs, PSUs, and dividend equivalent payments in accordance with
ASC 718, “Compensation-Stock Compensation.” Accordingly, all awards result in charges to net income while
dividend equivalent payments, which are all related to equity classified awards, are charged to retained income.
Related compensation costs were $42 million in both 2016 and 2015, and $44 million in 2014. The total tax effects
recognized in income in relation to stock-based compensation expense were net benefits of $31 million (including
$17 million of excess tax benefits) in 2016, $13 million in 2015, and $14 million in 2014.
Stock Options
Option exercise prices will be at least the higher of (i) the average of the high and low prices at which Common
Stock is traded on the grant date, or (ii) the closing price of Common Stock on the grant date. All options are
subject to a vesting period of at least one year, and the term of the option will not exceed ten years. Holders of the
options granted under the LTIP who remain actively employed receive cash dividend equivalent payments for four
years in an amount equal to the regular quarterly dividends paid on Common Stock. Dividend equivalent payments
are not made on the TSOP options.
The options granted under the LTIP and TSOP for the last three years are shown in the following table:
2016
2015
2014
Options
Granted
Weighted
Avg.
Exercise
Price
Options
Granted
Weighted
Avg.
Exercise
Price
Options
Granted
694,290 $
302,320
70.40
70.32
643,890 $
181,320
101.86
104.23
515,240 $
181,070
996,610
70.38
825,210
102.38
696,310
Weighted
Avg.
Exercise
Price
94.17
94.17
94.17
LTIP
TSOP
Total
For all years, options granted under the LTIP and the TSOP may not be exercised prior to the fourth and third
anniversaries of the date of grant, respectively, or if the optionee retires or dies before that anniversary date, may
not be exercised before the later of one year after the grant date or the date of the optionee’s retirement or death.
The fair value of each option awarded in 2016, 2015, and 2014 was measured on the date of grant using a binomial
lattice-based option valuation model. Expected volatility is based on implied volatility from traded options on, and
historical volatility of, Common Stock. Historical data is used 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 all options granted are expected to be outstanding, including
the branches of the model that result in options expiring unexercised. The average risk-free interest rate is based on
the U.S. Treasury yield curve in effect at the time of grant. A dividend yield of zero was used for the LTIP options
during the vesting period. For 2016, 2015, and 2014, a dividend yield of 3.37%, 2.27%, and 2.29%, respectively,
was used for all vested LTIP options and all TSOP options.
K66
The assumptions for the LTIP and TSOP grants for the last three years are shown in the following table:
Average expected volatility
Average risk-free interest rate
Average expected option term LTIP
Per-share grant-date fair value LTIP
Average expected option term TSOP
Per-share grant-date fair value TSOP
2016
2015
2014
27%
2.00%
8.9 years
19.92
8.6 years
14.75
$
$
25%
1.83%
9.3 years
30.35
9.1 years
24.71
$
$
25%
2.79%
8.9 years
29.87
8.8 years
24.38
$
$
A summary of the status of changes in stock options is presented below:
Outstanding at December 31, 2015
Granted
Exercised
Forfeited
Outstanding at December 31, 2016
Stock
Options
Weighted
Avg.
Exercise Price
6,048,736 $
996,610
(1,466,721)
(24,571)
5,554,054
67.90
70.38
51.65
82.74
72.57
The aggregate intrinsic value of options outstanding at December 31, 2016, was $197 million with a weighted
average remaining contractual term of 6.0 years. Of these options outstanding, 3,195,174 were exercisable and had
an aggregate intrinsic value of $136 million with a weighted average exercise price of $65.50 and a weighted
average remaining contractual term of 4.4 years.
The following table provides information related to options exercised for the last three years:
Options exercised
Total intrinsic value
Cash received upon exercise
Related tax benefits realized
2016
2015
($ in millions)
2014
1,466,721
589,081
$
60 $
74
13
27 $
29
7
2,009,461
106
93
26
At December 31, 2016, total unrecognized compensation related to options granted under the LTIP and the TSOP
was $10 million, and is expected to be recognized over a weighted-average period of approximately 2.2 years. Tax
benefits realized in 2016 are recognized in the “Provision for income taxes.” Tax benefits realized in 2015 and
2014 were recognized as “Additional paid-in capital.”
K67
Restricted Stock Units
RSU grants and grant-date fair values were 136,250 and $70.44 in 2016; 101,470 and $104.23 in 2015; and 113,505
and $94.17 in 2014. RSUs granted in all three years have a five-year restriction period and will be settled through
the issuance of shares of Common Stock. The RSU grants include cash dividend equivalent payments during the
restriction period in an amount equal to regular quarterly dividends paid on Common Stock. During 2016, 175,500
of the RSUs granted in 2011 vested, with 103,936 shares of Common Stock issued net of minimum withholding
taxes. A summary of the status of and changes in RSUs is presented below:
Nonvested at December 31, 2015
Granted
Vested
Forfeited
Nonvested at December 31, 2016
Weighted-
Average
Grant-Date
Fair Value
78.14
70.44
62.75
82.20
80.68
RSUs
688,725 $
136,250
(175,500)
(3,830)
645,645
At December 31, 2016, total unrecognized compensation related to RSUs was $7 million, and is expected to be
recognized over a weighted-average period of approximately 3.1 years. The total related tax benefits realized in
2016 were $1 million and were recognized in the “Provision for income taxes.” The total related tax benefits
realized in 2015 and 2014 were $4 million and $6 million, respectively, and were recognized as “Additional paid-in
capital.”
Performance Share Units
PSUs provide for awards based on the achievement of certain predetermined corporate performance goals at the end
of a three-year cycle and are settled through the issuance of shares of Common Stock. PSU grants were 1,042,628
in 2016 with a weighted average grant-date fair value of $52.75. PSU grants were 413,770 and 399,530 in 2015
and 2014, respectively; with weighted-average grant-date fair values of $71.66 and $72.24, respectively. All PSUs
will earn out based on the achievement of performance conditions and some will also earn out based on a market
condition. The market condition fair value was measured on the date of grant using a Monte Carlo simulation
model. During 2016, 406,038 of the PSUs granted in 2013 were earned, with 241,757 shares of Common Stock
issued net of minimum withholding taxes. A summary of the status of and changes in PSUs is presented below:
Balance at December 31, 2015
Granted
Earned
Unearned
Forfeited
Balance at December 31, 2016
K68
Weighted-
Average
Grant-Date
Fair Value
71.09
52.75
69.83
69.83
56.62
61.17
PSUs
1,361,050 $
1,042,628
(406,038)
(142,662)
(5,970)
1,849,008
At December 31, 2016, total unrecognized compensation related to PSUs granted under the LTIP was $4 million,
and is expected to be recognized over a weighted-average period of approximately 1.8 years. The total related tax
benefits realized were $3 million in 2016 which were recognized in the “Provision for income taxes.” The total
related tax benefits were $3 million in 2015 and $5 million in 2014 which were recognized as “Additional paid-in
capital.”
Shares Available and Issued
Shares of Common Stock available for future grants and issued in connection with all features of the LTIP and the
TSOP at December 31, were as follows:
Available for future grants:
LTIP
TSOP
Issued:
LTIP
TSOP
2016
2015
2014
9,385,674
544,217
11,769,796
832,676
4,899,428
998,896
1,511,645
300,769
708,059
121,745
2,168,641
252,042
K69
13. Stockholders’ Equity
Common Stock
Common Stock is reported net of shares held by our consolidated subsidiaries (Treasury Shares). Treasury Shares
at December 31, 2016 and 2015 amounted to 20,320,777, with a cost of $19 million at both dates.
Accumulated Other Comprehensive Loss
The components of “Other comprehensive loss” reported in the Consolidated Statements of Comprehensive Income
and changes in the cumulative balances of “Accumulated other comprehensive loss” reported in the Consolidated
Balance Sheets consisted of the following:
Balance
at
Beginning
of Year
Net Income
(Loss)
Reclassification
Adjustments
($ in millions)
Balance
at End
of Year
Year ended December 31, 2016
Pensions and other postretirement
liabilities
Other comprehensive income (loss)
of equity investees
$
(367)
$
(64)
$
17 (1) $
(414)
(78)
5
—
(73)
Accumulated other comprehensive loss $
(445)
$
(59)
$
17
$
(487)
Year ended December 31, 2015
Pensions and other postretirement
liabilities
Other comprehensive loss
of equity investees
$
(320)
$
(72)
$
25 (1) $
(367)
(78)
—
—
(78)
Accumulated other comprehensive loss $
(398)
$
(72)
$
25
$
(445)
(1) These items are included in the computation of net periodic pension and postretirement benefit costs.
See Note 11, “Pensions and Other Postretirement Benefits,” for additional information.
K70
Other Comprehensive Loss
“Other comprehensive loss” reported in the Consolidated Statements of Comprehensive Income consisted of the
following:
Year ended December 31, 2016
Net gain (loss) arising during the year:
Pensions and other postretirement benefits
Reclassification adjustments for costs
included in net income
Subtotal
Other comprehensive income of equity investees
Other comprehensive loss
Year ended December 31, 2015
Net gain (loss) arising during the year:
Pensions and other postretirement benefits
Reclassification adjustments for costs
included in net income
Other comprehensive loss
Year ended December 31, 2014
Net gain (loss) arising during the year:
Pensions and other postretirement benefits
Reclassification adjustments for costs
included in net income
Subtotal
Other comprehensive loss of equity investees
Pretax
Amount
Tax
(Expense)
Benefit
($ in millions)
Net-of-Tax
Amount
$
(101) $
37 $
(64)
$
$
$
$
27
(74)
5
(10)
27
—
17
(47)
5
(69) $
27 $
(42)
(117) $
45 $
(72)
41
(16)
25
(76) $
29 $
(47)
(50) $
19 $
(31)
35
(15)
(8)
(14)
5
1
21
(10)
(7)
Other comprehensive loss
$
(23) $
6 $
(17)
K71
14. Stock Repurchase Program
We repurchased and retired 9.2 million, 11.3 million, and 3.1 million shares of Common Stock under our stock
repurchase program in 2016, 2015, and 2014, respectively, at a cost of $803 million, $1.1 billion, and $318 million,
respectively. On August 1, 2012, our Board of Directors authorized the repurchase of up to an additional 50 million
shares of Common Stock through December 31, 2017, and 14.7 million shares remain under this authority as of
December 31, 2016. The timing and volume of purchases is guided by our 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 the beginning of 2006, we have repurchased and retired 160.3
million shares at a total cost of $10.3 billion.
15. Earnings Per Share
The following table sets forth the calculation of basic and diluted earnings per share:
Basic
2015
Diluted
2015
2016
2014
($ in millions except per share amounts, shares in millions)
2014
2016
Net income
Dividend equivalent payments
$ 1,668 $ 1,556 $ 2,000 $ 1,668 $ 1,556 $ 2,000
(4)
(6)
(4)
(6)
(5)
(5)
Income available to common stockholders
$ 1,663 $ 1,550 $ 1,994 $ 1,664 $ 1,551 $ 1,996
Weighted-average shares outstanding
Dilutive effect of outstanding options
and share-settled awards
Adjusted weighted-average shares outstanding
293.9
301.9
309.4
293.9
301.9
309.4
2.1
296.0
2.5
304.4
3.1
312.5
Earnings per share
$
5.66 $
5.13 $
6.44 $
5.62 $
5.10 $
6.39
In each year, dividend equivalent payments were made to holders of stock options and RSUs. For purposes of
computing basic earnings per share, dividend equivalent payments made to holders of stock options and RSUs were
deducted from net income to determine income available to common stockholders. For purposes of computing
diluted earnings per share, we evaluate on a grant-by-grant basis those stock options and RSUs receiving dividend
equivalent payments under the two-class and treasury stock methods to determine which method is the more
dilutive for each grant. For those grants for which the two-class method was more dilutive, net income was reduced
by dividend equivalent payments to determine income available to common stockholders. The dilution calculations
exclude options having exercise prices exceeding the average market price of Common Stock as follows:
Period
2016
2015
(in millions)
2014
1st Quarter
2nd Quarter
3rd Quarter
4th Quarter
1.5
1.5
1.5
0.7
—
0.7
1.5
1.5
0.7
—
—
—
K72
16. Commitments and Contingencies
Lawsuits
We and/or certain subsidiaries are defendants in numerous lawsuits and other claims relating principally to railroad
operations. When we conclude 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 our 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 become
known.
One of our chemical customers, Sunbelt, filed a rate reasonableness complaint before the STB alleging that our
tariff rates for transportation of regulated movements are unreasonable. Since April 1, 2011, we have been billing
and collecting amounts based on the challenged tariff rates. In 2014, the STB resolved this rate reasonableness
complaint in our favor. In June 2016, the STB resolved petitions for reconsideration. The matter remains decided in
our favor; however, the findings are still subject to appeal. We believe the estimate of any reasonably possible loss
will not have a material effect on our financial position, results of operations, or liquidity. With regard to rate cases,
we record adjustments to revenues in the periods if and when such adjustments are probable and reasonably
estimable.
On November 6, 2007, various antitrust class actions filed against us and other Class I railroads in various Federal
district courts regarding fuel surcharges were consolidated in the District of Columbia by the Judicial Panel on
Multidistrict Litigation. On June 21, 2012, the court certified the case as a class action. The defendant railroads
appealed this certification, and the Court of Appeals for the District of Columbia vacated the District Court’s
decision and remanded the case for further consideration. We believe the allegations in the complaints are without
merit and intend to vigorously defend the cases. We do not believe the outcome of these proceedings will have a
material effect on our financial position, results of operations, or liquidity.
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 our personal injury liability and determining the amount to accrue with
respect to such claims during the year, we utilize studies prepared by an independent consulting actuarial firm. Job-
related accidental injury and occupational claims are subject to the 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 our 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, we record a liability when the expected loss for the claim
is both probable and reasonably estimable.
Employee personal injury claims – The largest component of casualties and other claims expense is employee
personal injury costs. The independent actuarial firm engaged by us provides quarterly studies to aid in valuing our
employee personal injury liability and estimating personal injury expense. The actuarial firm studies our historical
patterns of reserving for claims and subsequent settlements, taking into account relevant outside influences. The
actuarial firm uses the results of these analyses to estimate the ultimate amount of liability. We adjust the liability
quarterly based upon our assessment and the results of the study. Our estimate of the liability is subject to inherent
limitation given the difficulty of predicting future events such as jury decisions, court interpretations, or legislative
changes. As a result, actual claim settlements may vary from the estimated liability recorded.
K73
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 our history of claim filings, severity, payments,
and other pertinent facts. The liability is dependent upon judgments we make as to the specific case reserves as
well as judgments of the actuarial firm in the quarterly 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 our experience. We adjust the liability quarterly based upon our 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 – We record a liability for third-party claims including those for highway crossing accidents,
trespasser and other injuries, automobile liability, property damage, and lading damage. The actuarial firm assists
us with the calculation of potential liability for third-party claims, except lading damage, based upon our experience
including the number and timing of incidents, amount of payments, settlement rates, number of open claims, and
legal defenses. We adjust the liability quarterly based upon our 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
We are subject to various jurisdictions’ environmental laws and regulations. We record a liability where such
liability or loss is probable and its amount can be reasonably estimated. Environmental engineers regularly
participate in ongoing evaluations of all known sites and in determining any necessary adjustments to liability
estimates. We have an Environmental Policy Council, composed of senior managers, to oversee and interpret our
environmental policy.
Our Consolidated Balance Sheets include liabilities for environmental exposures of $67 million at December 31,
2016, and $69 million at December 31, 2015 (of which $15 million is classified as a current liability at the end of
both 2016 and 2015). At December 31, 2016, the liability represents our estimates of the probable cleanup,
investigation, and remediation costs based on available information at 134 known locations and projects compared
with 145 locations and projects at December 31, 2015. At December 31, 2016, 18 sites accounted for $46 million
of the liability, and no individual site was considered to be material. We anticipate that much of this liability will be
paid out over five years; however, some costs will be paid out over a longer period. Operating expenses for
environmental matters totaled $31 million in 2016, $40 million in 2015, and $45 million in 2014 and are included in
“Materials and other” and “Purchased services and rents.”
At 10 locations, one or more of our subsidiaries in conjunction with a number of other parties have been identified
as potentially responsible parties under the Comprehensive Environmental Response, Compensation and Liability
Act of 1980 or comparable state statutes that impose joint and several liability for cleanup costs. We calculate our
estimated liability for these sites based on facts and legal defenses applicable to each site and not solely on the basis
of the potential for joint liability.
With respect to known environmental sites (whether identified by us or by the Environmental Protection Agency or
comparable state authorities), estimates of our ultimate potential financial exposure for a given site or in the
aggregate for all such sites can change over time because of the widely varying costs of currently available cleanup
techniques, unpredictable contaminant recovery and reduction rates associated with available cleanup technologies,
the likely development of new cleanup technologies, the difficulty of determining in advance the nature and full
extent of contamination and each potential participant’s share of any estimated loss (and that participant’s ability to
bear it), and evolving statutory and regulatory standards governing liability.
K74
The risk of incurring environmental liability, for acts and omissions, past, present, and future, is inherent in the
railroad business. Some of the commodities we transport, particularly those classified as hazardous materials, pose
special risks that we work diligently to reduce. In addition, several of our 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 that are latent or undisclosed may exist on these properties, there can be no assurance that we will not
incur environmental liabilities or costs with respect to one or more of them, the amount and materiality of which
cannot be estimated reliably at this time. Moreover, lawsuits and claims involving these and potentially other
unidentified environmental sites and matters are likely to arise from time to time. The resulting liabilities could
have a significant effect on financial position, results of operations, or liquidity in a particular year or quarter.
Based on our assessment of the facts and circumstances now known, we believe we have recorded the probable and
reasonably estimable costs for dealing with those environmental matters of which we are aware. Further, we
believe that it is unlikely that any known matters, either individually or in the aggregate, will have a material
adverse effect on our financial position, results of operations, or liquidity.
Insurance
We obtain on behalf of ourself and our subsidiaries insurance for potential losses for third-party liability and first-
party property damages. We are currently self-insured up to $50 million and above $1.1 billion ($1.5 billion for
specific perils) per occurrence and/or policy year for bodily injury and property damage to third parties and up to
$25 million and above $200 million per occurrence and/or policy year for property owned by us or in our care,
custody, or control.
Purchase Commitments
At December 31, 2016, we had outstanding purchase commitments totaling approximately $1.3 billion for
locomotives, track material, long-term service contracts, track and yard expansion projects in connection with our
capital programs as well as freight cars and containers through 2022.
Change-In-Control Arrangements
We have compensation agreements with certain officers and key employees that become operative only upon a
change in control of Norfolk Southern, as defined in those agreements. The agreements provide generally for
payments based on compensation at the time of a covered individual’s involuntary or other specified termination
and for certain other benefits.
Guarantees
In a number of instances, we have agreed to indemnify lenders for additional costs they may bear as a result of
certain changes in laws or regulations applicable to their loans. Such changes may include impositions or
modifications with respect to taxes, duties, reserves, liquidity, capital adequacy, special deposits, and similar
requirements relating to extensions of credit by, deposits with, or the assets or liabilities of such lenders. The nature
and timing of changes in laws or regulations applicable to our financings are inherently unpredictable, and therefore
our exposure in connection with the foregoing indemnifications cannot be quantified. No liability has been
recorded related to these indemnifications.
K75
NORFOLK SOUTHERN CORPORATION AND SUBSIDIARIES
QUARTERLY FINANCIAL DATA
(Unaudited)
2016
Railway operating revenues
Income from railway operations
Net income
Earnings per share:
Basic
Diluted
2015
Railway operating revenues
Income from railway operations
Net income
Earnings per share:
Basic
Diluted
Three Months Ended
March 31
June 30
September 30 December 31
($ in millions, except per share amounts)
$
$
2,420 $
723
387
2,454 $
770
405
1.30
1.29
1.37
1.36
2,567 $
606
310
2,713 $
814
433
1.01
1.00
1.43
1.41
2,524 $
820
460
1.56
1.55
2,713 $
822
452
1.50
1.49
2,490
761
416
1.43
1.42
2,518
642
361
1.21
1.20
K76
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Our Chief Executive Officer and Chief Financial Officer, with the assistance of management, evaluated the
effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e)
under the Securities Exchange Act of 1934, as amended (Exchange Act)) at December 31, 2016. Based on such
evaluation, our officers have concluded that, at December 31, 2016, our disclosure controls and procedures were
effective to ensure that information required to be disclosed in our reports under the Exchange Act is recorded,
processed, summarized, and reported, within the time period specified in the SEC’s rules and forms, and that such
information is accumulated and communicated to management, including the Chief Executive Officer and the Chief
Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.
Internal Control Over Financial Reporting
We are responsible for establishing and maintaining adequate internal control over financial reporting. Our internal
control over financial reporting includes those policies and procedures that pertain to our ability to record, process,
summarize, and report reliable financial data. We recognize that there are inherent limitations in the effectiveness
of any internal control over financial reporting, including the possibility of human error and the circumvention or
overriding of internal control. Accordingly, even effective internal control over financial reporting can provide only
reasonable assurance with respect to financial statement preparation. Further, because of changes in conditions, the
effectiveness of internal control over financial reporting may vary over time.
In order to ensure that our internal control over financial reporting is effective, we regularly assess such controls
and did so most recently as of December 31, 2016. This assessment was based on criteria for effective internal
control over financial reporting set forth by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO) in Internal Control-Integrated Framework (2013). Based on our assessment, we have
concluded that we maintained effective internal control over financial reporting at December 31, 2016.
Our Board of Directors, acting through its Audit Committee, is responsible for the oversight of our accounting
policies, financial reporting, and internal control. The Audit Committee of our Board of Directors is comprised
entirely of outside directors who are independent of management. The independent registered public accounting
firm and our internal auditors have full and unlimited access to the Audit Committee, with or without management,
to discuss the adequacy of internal control over financial reporting, and any other matters which they believe should
be brought to the attention of the Audit Committee.
We have issued a report of our assessment of internal control over financial reporting, and our independent
registered public accounting firm has issued an attestation report on our internal control over financial reporting at
December 31, 2016. These reports appear in Part II, Item 8 of this report on Form 10-K.
During the fourth quarter of 2016, we have not identified any changes in internal control over financial reporting
that have materially affected, or are reasonably likely to materially effect, our internal control over financial
reporting.
Item 9B. Other Information
None.
K77
PART III
NORFOLK SOUTHERN CORPORATION AND SUBSIDIARIES
Item 10. Directors, Executive Officers, and Corporate Governance
In accordance with General Instruction G(3), information called for by Part III, Item 10, is incorporated herein by
reference from the information appearing under the caption “Election of Directors,” under the caption “Section 16
(a) Beneficial Ownership Reporting Compliance,” under the caption “Corporate Governance and the Board,” under
the caption “Committees of the Board,” under the caption “Shareholder Recommendations and Nominations,” and
under the caption “The Thoroughbred Code of Ethics” in our definitive Proxy Statement for our 2016 Annual
Meeting of Stockholders, which definitive Proxy Statement will be filed electronically with the SEC pursuant to
Regulation 14A. The information regarding executive officers called for by Item 401 of Regulation S-K is included
in Part I hereof beginning under “Executive Officers of the Registrant.”
Item 11. Executive Compensation
In accordance with General Instruction G(3), information called for by Part III, Item 11, is incorporated herein by
reference from the information:
•
•
•
under the caption “Corporate Governance and the Board”, including “Compensation of Directors” and
“Non-Employee Director Compensation;”
appearing under the caption “Executive Compensation” for executives, including the “Compensation
Discussion and Analysis,” the information appearing in the “Summary Compensation Table” and the “2016
Grants of Plan-Based Awards” table, including the narrative to such tables, the “Outstanding Equity Awards
at Fiscal Year-End 2016” and “Option Exercises and Stock Vested in 2016” tables, and the tabular and
narrative information appearing under the subcaptions “Retirement Benefits,” “Deferred Compensation,”
and “Potential Payments Upon a Change in Control or Other Termination of Employment;” and
appearing under the captions “Compensation Committee Interlocks and Insider Participation,”
“Compensation Policy Risk Assessment,” and “Compensation Committee Report,”
in each case included in our definitive Proxy Statement for our 2016 Annual Meeting of Stockholders, which
definitive Proxy Statement will be filed electronically with the SEC pursuant to Regulation 14A.
K78
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters
In accordance with General Instruction G(3), information on security ownership of certain beneficial owners and
management called for by Item 403 of Regulation S-K, Part III, Item 12, is incorporated herein by reference from
the information appearing under the caption “Beneficial Ownership of Stock” in our definitive Proxy Statement for
our 2017 Annual Meeting of Stockholders, which definitive Proxy Statement will be filed electronically with the
SEC pursuant to Regulation 14A.
Equity Compensation Plan Information (at December 31, 2016)
Plan
Category
Equity compensation plans
approved by securities holders(2)
Equity compensation plans
not approved by securities holders(3)
Number of
securities
to be issued upon
exercise of
outstanding
options,
warrants and
rights
(a)
Weighted-
average
exercise price
of outstanding
options,
warrants
and rights
(b)
Number of
securities
remaining
available
for future issuance
under equity
compensation
plans (1)
(c)
7,241,217 (4) $
71.77 (5)
9,385,674
1,117,069
75.75
553,217 (6)
Total
8,358,286
9,938,891
(1) Excludes securities reflected in column (a).
(2) LTIP.
(3) TSOP and the Director’s Restricted Stock Plan.
(4)
Includes options, RSUs and PSUs granted under LTIP that will be settled in shares of stock.
(5) Calculated without regard to 2,804,732 outstanding RSUs and PSUs at December 31, 2016.
(6) Of the shares remaining available for grant under plans not approved by stockholders, 9,000 are available for
grant as restricted stock under the Directors’ Restricted Stock Plan.
K79
Norfolk Southern Corporation Long-Term Incentive Plan (LTIP)
Established on June 28, 1983, and approved by our stockholders at their Annual Meeting held on May 10, 1984,
LTIP was adopted to promote the success of our company by providing an opportunity for non-employee Directors,
officers, and other key employees to acquire a proprietary interest in the Corporation. The Board of Directors
amended LTIP on January 23, 2015, which amendment was approved by shareholders on May 14, 2015, to include
the reservation for issuance of an additional 8,000,000 shares of authorized but unissued Common Stock.
The amended LTIP adopted a fungible share reserve ratio so that, for awards granted after May 13, 2010, the
number of shares remaining for issuance under the amended LTIP will be reduced (i) by 1 for each award granted as
an option or stock-settled stock appreciation right, or (ii) by 1.61 for an award made in the form other than an
option or stock-settled stock appreciation right. Any shares of Common Stock subject to options, PSUs, restricted
shares, or RSUs which are not issued as Common Stock will again be available for award under LTIP after the
expiration or forfeiture of an award.
Non-employee Directors, officers, and other key employees residing in the United States or Canada are eligible for
selection to receive LTIP awards. Under LTIP, the Compensation Committee (Committee), or the Corporation’s
chief executive officer to the extent the Committee delegates award-making authority pursuant to LTIP, may grant
incentive stock options, nonqualified stock options, stock appreciation rights, RSUs, restricted shares, PSUs, and
performance shares. In addition, dividend equivalent payments may be awarded for options, RSUs, and PSUs.
Awards under LTIP may be made subject to forfeiture under certain circumstances and the Committee may establish
such other terms and conditions for the awards as provided in LTIP.
For options granted after May 13, 2010, the option price will be at least the higher of (i) the average of the high and
low prices at which Common Stock is traded on the date of grant, or (ii) the closing price of Common Stock on the
date of the grant. All options are subject to a vesting period of at least one year, and the term of the option will not
exceed ten years. LTIP specifically prohibits option repricing without stockholder approval, except that adjustments
may be made in the event of changes in our capital structure or Common Stock.
PSUs entitle a recipient to receive performance-based compensation at the end of a three-year cycle based on our
performance during that period. For the regular 2016 PSU awards, corporate performance will be measured using
two equally weighted standards established by the Committee: (1) three-year average return on average capital
invested and (2) total return to stockholders measured at the end of the three-year period. For the 2016 PSU
awards, PSUs will be settled in shares of Common Stock. In 2016, the committee also granted an “accelerated
turnaround incentive” award in the form of a PSU with a three-year performance that is based on equally weighted
standards established by the Committee for operating ratio and earnings per share.
RSUs are payable in cash or in shares of Common Stock at the end of a restriction period. During the restriction
period, the holder of the RSUs has no beneficial ownership interest in the Common Stock represented by the RSUs
and has no right to vote the shares represented by the units or to receive dividends (except for dividend equivalent
payment rights that may be awarded with respect to the RSUs). The Committee at its discretion may waive the
restriction period, but settlement of any RSUs will occur on the same settlement date as would have applied absent
a waiver of restrictions, if no performance goals were imposed. For the 2016 RSU awards, RSUs will be settled in
shares of Common Stock.
K80
Norfolk Southern Corporation Thoroughbred Stock Option Plan (TSOP)
Our Board of Directors adopted TSOP on January 26, 1999, to promote the success of our company by providing an
opportunity for nonagreement employees to acquire a proprietary interest in our company and thereby to provide an
additional incentive to nonagreement employees to devote their maximum efforts and skills to the advancement,
betterment, and prosperity of our company and our stockholders. Under TSOP there were 6,000,000 shares of
authorized but unissued Common Stock reserved for issuance. TSOP has not been and is not required to have been
approved by our stockholders.
Active full-time nonagreement employees residing in the United States or Canada are eligible for selection to
receive TSOP awards. Under TSOP, the Committee, or the Corporation’s chief executive officer to the extent the
Committee delegates award-making authority pursuant to TSOP, may grant nonqualified stock options subject to
such terms and conditions as provided in TSOP.
The option price may not be less than the average of the high and low prices at which Common Stock is traded on
the date of the grant. All options are subject to a vesting period of at least one year, and the term of the option will
not exceed ten years. TSOP specifically prohibits repricing without stockholder approval, except for capital
adjustments.
Norfolk Southern Corporation Directors’ Restricted Stock Plan (Plan)
The Plan was adopted on January 1, 1994, and is designed to increase ownership of Common Stock by our non-
employee Directors so as to further align their ownership interest in our company with that of our stockholders.
The Plan has not been and is not required to have been approved by our stockholders. A maximum of 66,000 shares
of Common Stock may be granted under the Plan. To make grants eligible to Directors, we purchase, through one
or more subsidiary companies, the number of shares required in open-market transactions at prevailing market
prices, or make such grants from Common Stock already owned by one or more of our subsidiary companies.
Effective January 23, 2015, the Board amended the Plan to provide that no additional awards will be made under
the Plan. Prior to that amendment, only non-employee Directors who are not and never have been employees of our
company were eligible to participate in the Plan. Upon becoming a Director, each eligible Director received a one-
time grant of 3,000 restricted shares of Common Stock. No individual member of the Board exercised discretion
concerning the eligibility of any Director or the number of shares granted.
The restriction period applicable to restricted shares granted under the Plan begins on the date of the grant and ends
on the earlier of the recipient’s death or the day after the recipient ceases to be a Director by reason of disability or
retirement. During the restriction period, shares may not be sold, pledged, or otherwise encumbered. Directors
forfeit the restricted shares if they cease to serve as a Director of our company for reasons other than their disability,
retirement, or death.
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Item 13. Certain Relationships and Related Transactions, and Director Independence
In accordance with General Instruction G(3), information called for by Part III, Item 13, is incorporated herein by
reference from the information appearing under the caption “Related Persons Transactions” and under the caption
“Director Independence” in our definitive Proxy Statement for our 2017 Annual Meeting of Stockholders, which
definitive Proxy Statement will be filed electronically with the SEC pursuant to Regulation 14A.
Item 14. Principal Accounting Fees and Services
In accordance with General Instruction G(3), information called for by Part III, Item 14, is incorporated herein by
reference from the information appearing under the caption “Ratification of Appointment of Independent Registered
Public Accounting Firm” in our definitive Proxy Statement for our 2017 Annual Meeting of Stockholders, which
definitive Proxy Statement will be filed electronically with the SEC pursuant to Regulation 14A.
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PART IV
NORFOLK SOUTHERN CORPORATION AND SUBSIDIARIES
Item 15. Exhibits and Financial Statement Schedules
(A)
The following documents are filed as part of this report:
1.
Index to Consolidated Financial Statements
Page
Report of Management
Reports of Independent Registered Public Accounting Firm
Consolidated Statements of Income, Years ended December 31, 2016,
2015, and 2014
Consolidated Statements of Comprehensive Income, Years ended
December 31, 2016, 2015, and 2014
Consolidated Balance Sheets at December 31, 2016 and 2015
Consolidated Statements of Cash Flows, Years ended December 31, 2016,
2015, and 2014
Consolidated Statements of Changes in Stockholders’ Equity, Years ended
December 31, 2016, 2015, and 2014
Notes to Consolidated Financial Statements
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2. Financial Statement Schedule:
The following consolidated financial statement schedule should be read in
connection with the consolidated financial statements:
Index to Consolidated Financial Statement Schedule
Schedule II – Valuation and Qualifying Accounts
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Schedules other than the one listed above are omitted either because they
are not required or are inapplicable, or because the information is included
in the consolidated financial statements or related notes.
3. Exhibits
Exhibit
Number
Description
3
(i)(a)
(i)(b)
(ii)
Articles of Incorporation and Bylaws –
The Restated Articles of Incorporation of Norfolk Southern Corporation
are incorporated by reference to Exhibit 3(i) to Norfolk Southern
Corporation’s 10-K filed on March 5, 2001.
An amendment to the Articles of Incorporation of Norfolk Southern
Corporation is incorporated by reference to Exhibit 3(i) to Norfolk
Southern Corporation’s Form 8-K filed on May 18, 2010.
The Bylaws of Norfolk Southern Corporation, as amended November 28,
2016, are incorporated by reference to Exhibit 3(iii) to Norfolk Southern
Corporation’s Form 8-K filed on November 29, 2016.
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4
Instruments Defining the Rights of Security Holders, Including
Indentures:
(a)
(b)
(c)
(d)
(e)
(f)
(g)
(h)
(i)
(j)
Indenture, dated as of January 15, 1991, from Norfolk Southern Corporation to
First Trust of New York, National Association, as Trustee, is incorporated by
reference to Exhibit 4.1 to Norfolk Southern Corporation’s Registration
Statement on Form S-3 (No. 33-38595).
First Supplemental Indenture, dated May 19, 1997, between Norfolk Southern
Corporation and First Trust of New York, National Association, as Trustee,
related to the issuance of notes in the principal amount of $4.3 billion, is
incorporated by reference to Exhibit 1.1(d) to Norfolk Southern Corporation’s
Form 8-K filed on May 21, 1997.
Second Supplemental Indenture, dated April 26, 1999, between Norfolk
Southern Corporation and U.S. Bank Trust National Association, as Trustee, is
incorporated by reference to Exhibit 1.1(c) to Norfolk Southern Corporation’s
Form 8-K filed on April 30, 1999.
Fourth Supplemental Indenture, dated as of February 6, 2001, between Norfolk
Southern Corporation and U.S. Bank Trust National Association, as Trustee,
related to the issuance of notes in the principal amount of $1 billion, is
incorporated by reference to Exhibit 4.1 to Norfolk Southern Corporation’s Form
8-K filed on February 7, 2001.
Indenture, dated August 27, 2004, among PRR Newco, Inc., as Issuer, and
Norfolk Southern Railway Company, as Guarantor, and The Bank of New York,
as Trustee, is incorporated by reference to Exhibit 4(1) to Norfolk Southern
Corporation’s Form 10-Q filed on October 28, 2004.
First Supplemental Indenture, dated August 27, 2004, among PRR Newco, Inc.,
as Issuer, and Norfolk Southern Railway Company, as Guarantor, and The Bank
of New York, as Trustee, related to the issuance of notes in the principal amount
of approximately $451.8 million, is incorporated by reference to Exhibit 4(m) to
Norfolk Southern Corporation’s Form 10-Q filed on October 28, 2004.
Ninth Supplemental Indenture, dated as of March 11, 2005, between Norfolk
Southern Corporation and U.S. Bank Trust National Association, as Trustee,
related to the issuance of notes in the principal amount of $300 million, is
incorporated by reference to Exhibit 4.1 to Norfolk Southern Corporation’s Form
8-K filed on March 15, 2005.
Tenth Supplemental Indenture, dated as of May 17, 2005, between Norfolk
Southern Corporation and U.S. Bank Trust National Association, as Trustee,
related to the issuance of notes in the principal amount of $366.6 million, is
incorporated by reference to Exhibit 99.1 to Norfolk Southern Corporation’s
Form 8-K filed on May 18, 2005.
Eleventh Supplemental Indenture, dated as of May 17, 2005, between Norfolk
Southern Corporation and U.S. Bank Trust National Association, as Trustee,
related to the issuance of notes in the principal amount of $350 million, is
incorporated by reference to Exhibit 99.2 to Norfolk Southern Corporation’s
Form 8-K filed on May 18, 2005.
Twelfth Supplemental Indenture, dated as of August 26, 2010, between Norfolk
Southern Corporation and U.S. Bank Trust National Association, as Trustee,
related to the issuance of notes in the principal amount of $250 million, is
incorporated by reference to Exhibit 4.2 to Norfolk Southern Corporation’s Form
8-K filed on August 26, 2010.
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(k)
(l)
(m)
(n)
(o)
(p)
(q)
(r)
(s)
(t)
(u)
(v)
Indenture, dated as of April 4, 2008, between Norfolk Southern Corporation and
U.S. Bank Trust National Association, as Trustee, related to the issuance of notes
in the principal amount of $600 million, is incorporated by reference to Exhibit
4.1 to Norfolk Southern Corporation’s Form 8-K filed on April 9, 2008.
Indenture, dated as of January 15, 2009, between Norfolk Southern Corporation
and U.S. Bank Trust National Association, as Trustee, related to the issuance of
notes in the principal amount of$500 million, is incorporated by reference to
Exhibit 4.1 to Norfolk Southern Corporation’s Form 8-K filed on January 20,
2009.
Indenture, dated as of June 1, 2009, between Norfolk Southern Corporation and
U.S. Bank Trust National Association, as Trustee, is incorporated by reference to
Exhibit 4.1 to Norfolk Southern Corporation’s Form 8-K filed on June 1, 2009.
First Supplemental Indenture, dated as of June 1, 2009, between Norfolk
Southern Corporation and U.S. Bank Trust National Association, as Trustee,
related to the issuance of notes in the principal amount of $500 million, is
incorporated by reference to Exhibit 4.2 to Norfolk Southern Corporation’s Form
8-K filed on June 1, 2009.
Second Supplemental Indenture, dated as of May 23, 2011, between the
Registrant and U.S. Bank Trust National Association, as Trustee, related to the
issuance of notes in the principal amount of $400 million, is incorporated by
reference to Exhibit 4.1 to Norfolk Southern Corporation’s Form 8-K filed on
May 23, 2011.
Indenture, dated as of September 14, 2011, between the Registrant and U.S.
Bank Trust National Association, as Trustee, related to the issuance of notes in
the principal amount of $595,504,000, is incorporated by reference to Exhibit 4.1
to Norfolk Southern Corporation’s Form 8-K filed on September 15, 2011.
Third Supplemental Indenture, dated as of September 14, 2011, between the
Registrant and U.S. Bank Trust National Association, as Trustee, related to the
issuance of notes in the principal amount of $4,492,000, is incorporated by
reference to Exhibit 4.2 to Norfolk Southern Corporation’s Form 8-K filed on
September 15, 2011.
Fourth Supplemental Indenture, dated as of November 17, 2011, between the
Registrant and U.S. Bank Trust National Association, as Trustee, related to the
issuance of two series of notes, one in the principal amount of $500 million and
one in the principal amount of $100 million, is incorporated by reference to
Exhibit 4.1 to Norfolk Southern Corporation’s Form 8-K filed on November 17,
2011.
Indenture, dated as of March 15, 2012, between the Registrant and U.S. Bank
Trust National Association, as Trustee, is incorporated by reference to Exhibit
4.1 to Norfolk Southern Corporation’s Form 8-K filed on March 15, 2012.
First Supplemental Indenture, dated as of March 15, 2012, between the
Registrant and U.S. Bank Trust National Association, as Trustee, is incorporated
by reference to Exhibit 4.2 to Norfolk Southern Corporation’s Form 8-K filed on
March 15, 2012.
Indenture, dated as of August 20, 2012, between the Registrant and U.S. Bank
Trust National Association, as Trustee, is incorporated by reference to Exhibit
4.1 to the Registrant’s Form 8-K filed on August 21, 2012.
Second Supplemental Indenture, dated as of September 7, 2012, between the
Registrant and U.S. Bank Trust National Association, as Trustee, is incorporated
by reference to Exhibit 4.1 to Norfolk Southern Corporation’s Form 8-K filed on
September 7, 2012.
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Third Supplemental Indenture, dated as of August 13, 2013, between the
Registrant and U.S. Bank Trust National Association, as Trustee, related to the
issuance of notes in the principal amount of $500,000,000, is incorporated by
reference to Exhibit 4.1 to Norfolk Southern Corporation’s Form 8-K filed on
August 13, 2013.
Fourth Supplemental Indenture, dated as of November 21, 2013, between the
Registrant and U.S. Bank Trust National Association, as Trustee, related to the
issuance of notes in the principal amount of $400,000,000, is incorporated by
reference to Exhibit 4.1 to Norfolk Southern Corporation’s Form 8-K filed on
November 21, 2013.
Indenture dated as of June 2, 2015, between Registrant and U.S. Bank Trust
National Association, as Trustee, is incorporated by reference to Exhibit 4.1 to
Norfolk Southern Corporation’s Form 8-K filed on June 2, 2015.
First Supplemental Indenture, dated as of June 2, 2015, between the Registrant
and U.S. Bank Trust National Association, as Trustee, is incorporated by
reference to Exhibit 4.2 to Norfolk Southern Corporation’s Form 8-K filed on
June 2, 2015.
Second Supplemental Indenture, dated as of November 3, 2015, between the
Registrant and U.S. Bank Trust National Association, as Trustee, is incorporated
by reference to Exhibit 4.1 to Norfolk Southern Corporation’s Form 8-K filed on
November 3, 2015.
Third Supplemental Indenture, dated as of June 3, 2016, between the Registrant
and U.S. Bank National Association, as Trustee, is incorporated by reference to
Exhibit 4.1 to Norfolk Southern Corporation’s Form 8-K filed on June 3, 2016.
In accordance with Item 601(b)(4)(iii) of Regulation S-K, copies of other
instruments of Norfolk Southern Corporation and its subsidiaries with respect to
the rights of holders of long-term debt are not filed herewith, or incorporated by
reference, but will be furnished to the Commission upon request.
10
Material Contracts -
(a)
(b)
(c)
(d)
The Transaction Agreement, dated as of June 10, 1997, by and among CSX and
CSX Transportation, Inc., Registrant, Norfolk Southern Railway Company,
Conrail Inc., Consolidated Rail Corporation, and CRR Holdings LLC, with
certain schedules thereto, previously filed, is incorporated by reference to
Exhibit 10(a) to Norfolk Southern Corporation’s Form 10-K filed on February
24, 2003.
Amendment No. 1 dated as of August 22, 1998, to the Transaction Agreement,
dated as of June 10, 1997, by and among CSX Corporation, CSX Transportation,
Inc., Norfolk Southern Corporation, Norfolk Southern Railway Company,
Conrail, Inc., Consolidated Rail Corporation, and CRR Holdings LLC, is
incorporated by reference from Exhibit 10.1 to Norfolk Southern Corporation’s
Form 10-Q filed on August 11, 1999.
Amendment No. 2 dated as of June 1, 1999, to the Transaction Agreement, dated
June 10, 1997, by and among CSX Corporation, CSX Transportation, Inc.,
Norfolk Southern Corporation, Norfolk Southern Railway Company, Conrail,
Inc., Consolidated Rail Corporation, and CRR Holdings LLC, is incorporated by
reference from Exhibit 10.2 to Norfolk Southern Corporation’s Form 10-Q filed
on August 11, 1999.
Amendment No. 3 dated as of June 1, 1999, and executed in April 2004, to the
Transaction Agreement, dated June 10, 1997, by and among CSX Corporation,
CSX Transportation, Inc., Norfolk Southern Corporation, Norfolk Southern
Railway Company, Conrail, Inc., Consolidated Rail Corporation, and CRR
Holdings LLC, is incorporated by reference from Exhibit 10(dd) to Norfolk
Southern Corporation’s Form 10-Q filed on July 30, 2004.
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(e)
(f)
(g)
(h)
(i)
(j)
(k)
(l)
(m)
(n)
Amendment No. 5 to the Transaction Agreement, dated as of August 27, 2004,
by and among CSX Corporation, CSX Transportation, Inc., Norfolk Southern
Corporation, Norfolk Southern Railway Company, Conrail, Inc., Consolidated
Rail Corporation, and CRR Holdings LLC, is incorporated by reference to
Exhibit 10.1 to Norfolk Southern Corporation’s Form 8-K filed on September 2,
2004.
Amendment No. 6 dated as of April 1, 2007, to the Transaction Agreement, dated
June 10, 1997, by and among CSX Corporation, CSX Transportation, Inc.,
Norfolk Southern Railway Company, Conrail, Inc., Consolidated Rail
Corporation, and CRR Holdings LLC, is incorporated by reference to Exhibit
10.5 to Norfolk Southern Corporation’s Form 10-Q filed on July 27, 2007.
Shared Assets Area Operating Agreement for North Jersey, dated as of June 1,
1999, by and among Consolidated Rail Corporation, CSX Transportation, Inc.,
and Norfolk Southern Railway Company, with exhibit thereto, is incorporated by
reference from Exhibit 10.4 to Norfolk Southern Corporation’s Form 10-Q filed
on August 11, 1999.
Shared Assets Area Operating Agreement for Detroit, dated as of June 1, 1999,
by and among Consolidated Rail Corporation, CSX Transportation, Inc., and
Norfolk Southern Railway Company, with exhibit thereto, is incorporated by
reference from Exhibit 10.6 to Norfolk Southern Corporation’s Form 10-Q filed
on August 11, 1999.
Shared Assets Area Operating Agreement for South Jersey/Philadelphia, dated as
of June 1, 1999, by and among Consolidated Rail Corporation, CSX
Transportation, Inc., and Norfolk Southern Railway Company, with exhibit
thereto, is incorporated by reference from Exhibit 10.5 to Norfolk Southern
Corporation’s Form 10-Q filed on August 11, 1999.
Amendment No. 1, dated as of June 1, 2000, to the Shared Assets Area
Operating Agreements for North Jersey, South Jersey/Philadelphia, and Detroit,
dated as of June 1, 1999, by and among Consolidated Rail Corporation, CSX
Transportation, Inc., and Norfolk Southern Railway Company, with exhibits
thereto, is incorporated by reference to Exhibit 10(h) to Norfolk Southern
Corporation’s Form 10-K filed on March 5, 2001.
Amendment No. 2, dated as of January 1, 2001, to the Shared Assets Area
Operating Agreements for North Jersey, South Jersey/Philadelphia, and Detroit,
dated as of June 1, 1999, by and among Consolidated Rail Corporation, CSX
Transportation, Inc., and Norfolk Southern Railway Company, with exhibits
thereto, is incorporated by reference to Exhibit 10(j) to Norfolk Southern
Corporation’s Form 10-K filed on February 21, 2002.
Amendment No. 3, dated as of June 1, 2001, and executed in May of 2002, to the
Shared Assets Area Operating Agreements for North Jersey, South Jersey/
Philadelphia, and Detroit, dated as of June 1, 1999, by and among Consolidated
Rail Corporation, CSX Transportation, Inc., and Norfolk Southern Railway
Company, with exhibits thereto, is incorporated by reference to Exhibit 10(k) to
Norfolk Southern Corporation’s Form 10-K filed on February 24, 2003.
Amendment No. 4, dated as of June 1, 2005, and executed in late June 2005, to
the Shared Assets Area Operating Agreements for North Jersey, South Jersey/
Philadelphia, and Detroit, dated as of June 1, 1999, by and among Consolidated
Rail Corporation, CSX Transportation, Inc., and Norfolk Southern Railway
Company, with exhibits thereto, is incorporated by reference to Exhibit 99 to
Norfolk Southern Corporation’s Form 8-K filed on July 1, 2005.
Monongahela Usage Agreement, dated as of June 1, 1999, by and among CSX
Transportation, Inc., Norfolk Southern Railway Company, Pennsylvania Lines
LLC, and New York Central Lines LLC, with exhibit thereto, is incorporated by
reference from -Exhibit 10.7 to Norfolk Southern Corporation’s Form 10-Q
filed on August 11, 1999.
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(p)
(q)
(r)
(s)*
(t)*
(u)*
(v)*
(w)*
(x)
(y)*
(z)
(aa)
The Agreement, entered into as of July 27, 1999, between North Carolina
Railroad Company and Norfolk Southern Railway Company, is incorporated by
reference from Exhibit 10(i) to Norfolk Southern Corporation’s Form 10-K filed
on March 6, 2000.
First Amendment, dated March 19, 2007, to the Master Agreement dated July 27,
1999, by and between North Carolina Railroad Company and Norfolk Southern
Railway Company, is incorporated by reference to Exhibit 10.3 to Norfolk
Southern Corporation’s Form 10-Q filed on July 27, 2007.
Second Amendment, dated December 28, 2009, to the Master Agreement dated
July 27, 1999, by and between North Carolina Railroad Company and Norfolk
Southern Railway Company, is incorporated by reference to Exhibit 10(q) to
Norfolk Southern Corporation’s Form 10-K filed on February 17, 2010
(Exhibits, annexes and schedules omitted. The Registrant will furnish
supplementary copies of such materials to the SEC upon request).
The Supplementary Agreement, entered into as of January 1, 1987, between the
Trustees of the Cincinnati Southern Railway and The Cincinnati, New Orleans
and Texas Pacific Railway Company (the latter a wholly owned subsidiary of
Norfolk Southern Railway Company) – extending and amending a Lease, dated
as of October 11, 1881 – is incorporated by reference to Exhibit 10(k) to Norfolk
Southern Corporation’s Form 10-K filed on March 5, 2001.
Norfolk Southern Corporation Executive Management Incentive Plan, as
approved by shareholders May 14, 2015, is incorporated by reference to Exhibit
10-A to Norfolk Southern Corporation’s Form 10-Q filed on July 27, 2015.
The Norfolk Southern Corporation Officers’ Deferred Compensation Plan, as
amended effective September 26, 2000, is incorporated by reference to Exhibit
10(n) to Norfolk Southern Corporation’s Form 10-K filed on March 5, 2001.
The Norfolk Southern Corporation Directors’ Restricted Stock Plan, adopted
January 1, 1994, and amended and restated effective as of January 23, 2014.
Supplemental Benefit Plan of Norfolk Southern Corporation and Participating
Subsidiary Companies, adopted June 1, 1982, and as amended and restated
effective as of September 30, 2014.
The Norfolk Southern Corporation Directors’ Charitable Award Program, as
amended effective July 2007, is incorporated by reference to Exhibit 10.6 to
Norfolk Southern Corporation’s Form 10-Q filed on July 27, 2007.
The Norfolk Southern Corporation Thoroughbred Stock Option Plan, as
amended effective July 22, 2013, is incorporated by reference to Exhibit 10.2 to
Norfolk Southern Corporation’s Form 10-Q filed on July 24, 2013.
The Norfolk Southern Corporation Executive Life Insurance Plan, as amended
and restated effective November 1, 2009, is incorporated by reference to Exhibit
10(cc) to Norfolk Southern Corporation’s Form 10-K filed on February 17, 2010.
Distribution Agreement, dated as of July 26, 2004, by and among CSX
Corporation, CSX Transportation, Inc., CSX Rail Holding Corporation, CSX
Northeast Holdings Corporation, Norfolk Southern Corporation, Norfolk
Southern Railway Company, CRR Holdings LLC, Green Acquisition Corp.,
Conrail Inc., Consolidated Rail Corporation, New York Central Lines LLC,
Pennsylvania Lines LLC, NYC Newco, Inc., and PRR Newco, Inc., is
incorporated by reference to Exhibit 2.1 to Norfolk Southern Corporation’s Form
8-K filed on September 2, 2004.
Tax Agreement, dated as of August 27, 2004, by and among Green Acquisition
Corp., Conrail Inc., Consolidated Rail Corporation, New York Central Lines
LLC, and Pennsylvania Lines LLC, is incorporated by reference to Exhibit 10.2
to Norfolk Southern Corporation’s Form 8-K filed on September 2, 2004.
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The description of Norfolk Southern Corporation’s executive physical
reimbursement for non-employee directors and certain executives is incorporated
by reference to Norfolk Southern Corporation’s Form 8-K filed on July 28, 2005;
but no reimbursements will be made for physical examinations performed for
non-employee directors after July 30, 2016.
(cc)*, **
The Norfolk Southern Corporation Long-Term Incentive Plan, as approved by
shareholders May 14, 2015, and as amended July 29, 2016 and November 29,
2016.
(dd)
(ee)
(ff)
(gg)
The Transaction Agreement, dated as of December 1, 2005, by and among
Norfolk Southern Corporation, The Alabama Great Southern Railroad Company,
Kansas City Southern, and The Kansas City Southern Railway Company, is
incorporated by reference to Exhibit 10(II) to Norfolk Southern Corporation’s
Form 10-K filed on February 23, 2006 (Exhibits, annexes, and schedules
omitted. The Registrant will furnish supplementary copies of such materials to
the SEC upon request).
Amendment No. 1, dated as of January 17, 2006, by and among Norfolk
Southern Corporation, The Alabama Great Southern Railroad Company, Kansas
City Southern, and The Kansas City Southern Railroad , is incorporated by
reference to Exhibit 10(mm) to Norfolk Southern Corporation’s Form 10-K filed
on February 23, 2006.
Amendment No. 2, dated as of May 1, 2006, to the Transaction Agreement,
dated as of December 1, 2005, by and among Norfolk Southern Corporation, The
Alabama Great Southern Railroad Company, Kansas City Southern, and The
Kansas City Southern Railway Company is incorporated by reference to Exhibit
10.1 to Norfolk Southern Corporation’s Form 8-K filed on May 4, 2006.
Limited Liability Agreement of Meridian Speedway, LLC, dated as of May 1,
2006, by and among the Alabama Great Southern Railroad Company and Kansas
City Southern, is incorporated by reference to Exhibit 10.2 to Norfolk Southern
Corporation’s Form 8-K filed on May 4, 2006.
(hh)*,**
Retirement Plan of Norfolk Southern Corporation and Participating Subsidiary
Companies effective June 1, 1982, as amended and restated effective January 1,
2016.
(ii)
(jj)
(kk)
(ll)
(mm)
Transfer and Administration Agreement dated as of November 8, 2007, is
incorporated by reference to Exhibit 99 to Norfolk Southern Corporation’s Form
8-K filed on November 14, 2007.
Amendment No. 2, dated as of May 19, 2009, to Transfer and Administration
Agreement dated as of November 8, 2007, is incorporated by reference to
Exhibit 10.1 to Norfolk Southern Corporation’s Form 10-Q filed on July 31,
2009.
Amendment No. 3, dated as of August 21, 2009, to Transfer and Administration
Agreement dated as of November 8, 2007, is incorporated by reference to
Exhibit 10.1 to Norfolk Southern Corporation’s Form 10-Q filed on October 30,
2009.
Amendment No. 4, dated as of October 22, 2009, to Transfer and Administration
Agreement dated as of November 8, 2007, is incorporated by reference to
Exhibit 99 to Norfolk Southern Corporation’s Form 8-K filed on October 22,
2009.
Amendment No. 5, dated as of December 23, 2009, to Transfer and
Administration Agreement dated as of November 8, 2007, is incorporated by
reference to Exhibit 10(xx) to Norfolk Southern Corporation’s Form 10-K filed
on February 17, 2010.
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(qq)
(rr)
(ss)
(tt)
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(vv)
(ww)
(xx)*
(yy)*
(zz)*
Amendment No. 6, dated as of August 30, 2010, to Transfer and Administration
Agreement dated as of November 8, 2007, is incorporated by reference to
Exhibit 10.1 to Norfolk Southern Corporation’s Form 10-Q filed on October 29,
2010.
Amendment No. 7, dated as of October 21, 2010, to Transfer and Administration
Agreement dated as of November 8, 2007, is incorporated by reference to
Exhibit 99 to Norfolk Southern Corporation’s Form 8-K filed on October 22,
2010.
Amendment No. 8, dated as of October 20, 2011, to Transfer and Administration
Agreement dated as of November 8, 2007, is incorporated by reference to
Exhibit 99 to Norfolk Southern Corporation’s Form 8-K filed on October 20,
2011.
Amendment No. 9, dated as of October 18, 2012, to Transfer and Administration
Agreement dated as of November 8, 2007, is incorporated by reference to
Exhibit 99 to Norfolk Southern Corporation’s Form 8-K filed on October 22,
2012.
Amendment No. 10, dated as of October 17, 2013, to Transfer and
Administration Agreement dated as of November 8, 2007, is incorporated by
reference to Exhibit 10.1 to Norfolk Southern Corporation’s Form 8-K filed on
October 18, 2013.
Dealer Agreement dated as of January 23, 2008, between the Registrant and J. P.
Morgan Securities Inc. is incorporated by reference to Exhibit 10.1 to Norfolk
Southern Corporation’s Form 8-K filed on January 25, 2008.
Dealer Agreement dated as of January 23, 2008, between the Registrant and
Goldman, Sachs & Co. is incorporated by reference to Exhibit 10.2 to Norfolk
Southern Corporation’s Form 8-K filed on January 25, 2008.
Omnibus Amendment, dated as of March 18, 2008, to the Transfer and
Administration Agreement dated as of November 8, 2007, is incorporated by
reference to Exhibit 10.1 to Norfolk Southern Corporation’s Form 10-Q filed on
April 23, 2008.
Transaction Agreement (Pan Am Transaction Agreement), dated May 15, 2008,
by and among Norfolk Southern Railway Company, Pan Am Railways, Inc.,
Boston and Maine Corporation, and Springfield Terminal Railway Company, is
incorporated by reference to Exhibit 10.1 to Norfolk Southern Corporation’s
Form 10-Q filed on July 24, 2008 (Exhibits, annexes and schedules omitted. The
Registrant will furnish supplementary copies of such materials to the SEC upon
request).
Letter Agreement, dated October 21, 2008, by and among Norfolk Southern
Railway Company, Pan Am Railways, Inc., Boston and Maine Corporation, and
Springfield Terminal Railway Company amending certain terms of the Pan Am
Transaction Agreement, is incorporated by reference to Exhibit 10(rrr) to
Norfolk Southern Corporation’s Form 10-K filed on February 18, 2009.
Directors’ Deferred Fee Plan of Norfolk Southern Corporation, adopted June 1,
1982 and as amended and restated effective October 3, 2014, is incorporated by
reference to Exhibit 10 to Norfolk Southern Corporation’s Form 10-Q filed on
October 22, 2014.
Norfolk Southern Corporation Executives’ Deferred Compensation Plan, as
amended effective June 26, 2013, is incorporated by reference to Exhibit 10.1 to
Norfolk Southern Corporation’s Form 10-Q filed on July 24, 2013.
Amendment to Norfolk Southern Corporation Officers’ Deferred Compensation
Plan, effective January 1, 2008, is incorporated by reference to Exhibit 10.03 to
Norfolk Southern Corporation’s Form 8-K filed on July 24, 2008.
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(hhh)*,**
(iii)*,**
(jjj)*,**
(kkk)*,**
(lll)
Norfolk Southern Corporation Restricted Stock Unit Plan, as amended effective
January 1, 2009, is incorporated by reference to Exhibit 10.05 to Norfolk
Southern Corporation’s Form 8-K filed on July 24, 2008.
Amendment No. 1 to Transfer and Administration Agreement dated as of
October 22, 2008, and effective as of October 23, 2008, is incorporated by
reference to Exhibit 99 to Norfolk Southern Corporation’s Form 8-K filed on
October 23, 2006.
Stock Unit Plan of Norfolk Southern Corporation dated as of July 24, 2001, as
amended on August 21, 2008, with an effective date of January 1, 2009, is
incorporated by reference to Exhibit 10.1 to Norfolk Southern Corporation’s
Form 10-Q filed on October 24, 2008.
Form of Amended and Restated Change in Control Agreement between Norfolk
Southern Corporation and certain executive officers (including those defined as
“named executive officers” and identified in the Corporation’s Proxy Statement
for the 2016 annual Meeting of Stockholders), is incorporated by reference to
Exhibit 10(aaaa) to Norfolk Southern Corporation’s Form 10-K filed on
February 18, 2009.
Limited Liability Company Agreement of Pan Am Southern LLC, dated as of
April 9, 2009, is incorporated by reference to Exhibit 10.1 to Norfolk Southern
Corporation’s Form 8-K filed on April 9, 2009 (exhibits, annexes, and schedules
omitted – the Registrant will furnish supplementary copies of such materials to
the SEC upon request).
Credit Agreement dated as of December 14, 2011, is incorporated by reference to
Exhibit 99 to Norfolk Southern Corporation’s Form 8-K filed on December 15,
2011.
Form of Norfolk Southern Corporation Long-Term Incentive Plan, Award
Agreement for Outside Directors as approved by the Compensation Committee
on November 28, 2016.
Form of Norfolk Southern Corporation Long-Term Incentive Plan, Award
Agreement for performance share units approved by the Compensation
Committee on November 28, 2016.
Form of Norfolk Southern Corporation Long-Term Incentive Plan, Award
Agreement for non-qualified stock options approved by the Compensation
Committee on November 28, 2016.
Form of Norfolk Southern Corporation Long-Term Incentive Plan, Award
Agreement for restricted stock units approved by the Compensation Committee
on November 28, 2016.
Form of Norfolk Southern Corporation Long-Term Incentive Plan, Non-
Compete Agreement Associated with Award Agreement, approved by the
Compensation Committee on November 28, 2016.
Performance Criteria for bonuses payable in 2018 for the 2017 incentive year.
On November 29, 2016, the Compensation Committee of the Norfolk Southern
Corporation Board of Directors adopted the following performance criteria for
determining bonuses payable in 2018 for the 2017 incentive year under the
Norfolk Southern Corporation Executive Management Incentive Plan: 50%
based on operating income; 35% based on operating ratio; and 15% based on a
composite of three transportation service measures, consisting of adherence to
operating plan, connection performance, and train performance.
(mmm)
Omnibus Amendment, dated as of January 17, 2011, to Pan Am Transaction
Agreement dated as of May 15, 2008, and Limited Liability Company
Agreement of Pan Am Southern LLC dated as of April 9, 2009, is incorporated
by reference to Exhibit 10.1 to Norfolk Southern Corporation’s Form 10-Q filed
on April 27, 2012.
K91
(nnn)*
(ooo)*
(ppp)*,**
(qqq)
(rrr)
(sss)
(ttt)*
12**
21**
23**
31-A**
31-B**
32**
99**
101**
Form of Amendment to Amended and Restated Change in Control Agreements
between Norfolk Southern Corporation and the Corporation’s Chairman,
President and Chief Executive Officer, and each of the Corporation’s Executive
Vice Presidents, to eliminate the excise tax gross-up provision in the
Agreements, is incorporated by reference to Exhibit 10.1 to Norfolk Southern
Corporation’s Form 8-K filed on January 23, 2013.
Form of Change in Control Agreement between Norfolk Southern Corporation
and executive officers who did not enter into a change in control agreement
before 2016.
Form of Norfolk Southern Corporation Long-Term Incentive Plan, Award
Agreement for Performance Share Unit Incentive for Accelerated Five-Year Plan
approved by the Compensation Committee on November 28, 2016.
Credit Agreement dated as of May 26, 2016, establishing a 5-year, $750 million,
unsecured revolving credit facility of the Registrant, is incorporated by reference
to Exhibit 10.1 to Norfolk Southern Corporation’s Form 8-K filed on May 27,
2016.
Amendment No. 11 to Transfer and Administration Agreement dated as of
October 16, 2014, is hereby incorporated by reference to Exhibit 10.1 to Norfolk
Southern Corporation’s Form 8-K filed on October 17, 2014.
Amendment No. 12 to Transfer and Administration Agreement dated as of June
3, 2016 (Schedules III and IV omitted. The Registrant will furnish
supplementary copies of such materials to the SEC upon request), is
incorporated by reference to Exhibit 10.1 to Norfolk Southern Corporation’s
Form 8-K filed on June 6, 2016.
Restricted Stock Unit Award for Marta R. Stewart, granted on January 23, 2017,
is incorporated herein by reference to Exhibit 10.1 to Norfolk Southern
Corporation’s Form 8-K filed on January 27, 2017.
Statement re: Computation of Ratio of Earnings to Fixed Charges.
Subsidiaries of the Registrant.
Consent of Independent Registered Public Accounting Firm.
Rule 13a-14(a)/15d-014(a) CEO Certification.
Rule 13a-14(a)/15d-014(a) CFO Certification.
Section 1350 Certifications.
Annual CEO Certification pursuant to NYSE Rule 303A.12(a).
The following financial information from Norfolk Southern Corporation’s
Annual Report on Form 10-K for the year ended December 31, 2016, formatted
in Extensible Business Reporting Language (XBRL) includes: (i) the
Consolidated Statements of Income of each of the years ended December 31,
2016, 2015, and 2014; (ii) the Consolidated Statements of Comprehensive
Income for each of the years ended December 31, 2016, 2015, and 2014; (iii) the
Consolidated Balance Sheets at December 31, 2016 and 2015; (iv) the
Consolidated Statements of Cash Flows for the years ended December 31, 2016,
2015, and 2014; (v) the Consolidated Statements of Changes in Stockholders’
Equity for each of the three years ended December 31, 2016, 2015, and 2014;
and (vi) the Notes to Consolidated Financial Statements.
* Management contract or compensatory arrangement.
** Filed herewith.
K92
(B)
Exhibits.
The Exhibits required by Item 601 of Regulation S-K as listed in Item 15(A)3 are filed
herewith or incorporated by reference.
(C)
Financial Statement Schedules.
Financial statement schedules and separate financial statements specified by this Item are
included in Item 15(A)2 or are otherwise not required or are not applicable.
Exhibits 23, 31, 32, and 99 are included in copies assembled for public dissemination. All
exhibits are included in the 2016 Form 10-K posted on our website at www.nscorp.com under
“Investors” and “SEC Filings” or you may request copies by writing to:
Office of Corporate Secretary
Norfolk Southern Corporation
Three Commercial Place
Norfolk, Virginia 23510-9219
K93
POWER OF ATTORNEY
Each person whose signature appears on the next page under SIGNATURES hereby authorizes William A. Galanko
and Marta R. Stewart, or any one of them, to execute in the name of each such person, and to file, any amendments
to this report, and hereby appoints William A. Galanko and Marta R. Stewart, or any one of them, as attorneys-in-
fact to sign on his or her behalf, individually and in each capacity stated below, and to file, any and all amendments
to this report.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, Norfolk Southern
Corporation has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on
this 6th day of February, 2017.
/s/ James A. Squires
By: James A. Squires
(Chairman, President and Chief Executive Officer)
K94
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below on this 6th
day of February, 2017, by the following persons on behalf of Norfolk Southern Corporation and in the capacities
indicated.
Signature
Title
/s/ James A. Squires
(James A. Squires)
Chairman, President and Chief Executive Officer and Director
(Principal Executive Officer)
/s/ Marta R. Stewart
(Marta R. Stewart)
Executive Vice President Finance and Chief Financial Officer
(Principal Financial Officer)
/s/ Thomas E. Hurlbut
(Thomas E. Hurlbut)
Vice President and Controller
(Principal Accounting Officer)
/s/ Thomas D. Bell, Jr.
(Thomas D. Bell, Jr.)
Director
/s/ Erskine B. Bowles
(Erskine B. Bowles)
Director
/s/ Robert A. Bradway
(Robert A. Bradway)
Director
/s/ Wesley G. Bush
(Wesley G. Bush)
/s/ Daniel A. Carp
(Daniel A. Carp)
Director
Director
/s/ Mitchell E. Daniels, Jr.
(Mitchell E. Daniels, Jr.)
Director
/s/ Marcela E. Donadio
(Marcela E. Donadio)
Director
/s/ Steven F. Leer
(Steven F. Leer)
Director
/s/ Michael D. Lockhart
(Michael D. Lockhart)
Director
/s/ Amy E. Miles
(Amy E. Miles)
/s/ Martin H. Nesbitt
(Martin H. Nesbitt)
Director
Director
/s/ John R. Thompson
(John R. Thompson)
Director
K95
Norfolk Southern Corporation and Subsidiaries
Valuation and Qualifying Accounts
Years ended December 31, 2014, 2015, and 2016
($ in millions)
Schedule II
Beginning
Balance
Additions charged to:
Other
Accounts
Expenses
Deductions
Ending
Balance
Year ended December 31, 2014
Valuation allowance (included net in
deferred tax liability) for deferred
tax assets
Casualty and other claims
included in other liabilities
Current portion of casualty and
other claims included in
accounts payable
Year ended December 31, 2015
Valuation allowance (included net in
deferred tax liability) for deferred
tax assets
Casualty and other claims
included in other liabilities
Current portion of casualty and
other claims included in
accounts payable
Year ended December 31, 2016
Valuation allowance (included net in
deferred tax liability) for deferred
tax assets
Casualty and other claims
included in other liabilities
Current portion of casualty and
other claims included in
accounts payable
$
32
$
1
$
— $
— $
33
214
166
71 (1)
—
86 (3)
199
19
132 (2)
130 (4)
187
$
33
$
2
$
— $
— $
35
199
187
66 (1)
—
74 (3)
191
19
119 (2)
151 (4)
174
$
35
$
4
$
— $
— $
39
191
174
68 (1)
—
81 (3)
178
25
101 (2)
108 (4)
192
(1)
(2)
Includes adjustments for changes in estimates for prior years’ claims.
Includes revenue refunds and overcharges provided through deductions from operating revenues and transfers
from other accounts.
(3) Payments and reclassifications to/from accounts payable.
(4) Payments and reclassifications to/from other liabilities.
K96
DIVIDENDS
At its January 2017 meeting, our board
of directors declared a quarterly dividend
of 61 cents per share on the company’s
common stock, payable on March 10, 2017,
to shareholders of record on Feb. 3, 2017.
We usually pay quarterly dividends on our
common stock on or about March 10, June 10,
Sept. 10, and Dec. 10, when and if declared
by our board of directors to shareholders
of record. We have paid 138 consecutive
quarterly dividends since our inception in 1982.
ACCOUNT ASSISTANCE
For assistance with lost stock certificates,
transfer requirements, the INVESTORS CHOICE
Plan, address changes, dividend checks,
and direct deposit of dividends, contact:
American Stock Transfer
& Trust Company LLC
6201 15th Avenue
Brooklyn, N.Y. 11219
877.864.4750
INVESTORS CHOICE
We and our transfer agent, American Stock
Transfer & Trust Company LLC (AST), offer
the INVESTORS CHOICE Plan for investors
wishing to purchase or sell Norfolk Southern
Corporation common stock. This plan is
available to both present shareholders of
record and individual investors wishing to
make an initial purchase of Norfolk Southern
Corporation common stock. Once enrolled in
the plan, you can invest cash dividends when
paid and make optional cash investments
simply and conveniently.
To take advantage of the INVESTORS CHOICE
Plan, contact AST at 877.864.4750 or visit
www.amstock.com. Once you are on this
page, you may go to Shareholders/Invest
Online to access information about the NS
INVESTORS CHOICE Plan.
SHAREHOLDER INFORMATION
COMMON STOCK
Ticker symbol: NSC
Our common stock is listed and traded
on the New York Stock Exchange.
PUBLICATIONS
The following reports and publications are
available on our website at www.nscorp.com
and, upon written request, will be furnished in
printed form to shareholders free of charge:
Annual Reports on Form 10-K
Quarterly Reports on Form 10-Q
Corporate Governance Guidelines
Board Committee Charters
Thoroughbred Code of Ethics
Code of Ethical Conduct
for Senior Financial Officers
Categorical Independence
Standards for Directors
Shareholders desiring a printed copy
of one or more of these reports and
publications should send their request
to the corporate secretary:
Denise W. Hutson
Corporate Secretary
Norfolk Southern Corporation
Three Commercial Place
Norfolk, Va. 23510
757.823.5567
A notice and proxy statement for the annual
meeting of shareholders are furnished to
shareholders in advance of the meeting.
Amendments to or waivers of the
Thoroughbred Code of Ethics and/or the
Code of Ethical Conduct for Senior Financial
Officers that are required to be disclosed
pursuant to Item 5.05 of the current report
on Form 8-K will be disclosed on our website.
ETHICS & COMPLIANCE HOTLINE
High ethical standards always have been
key to our success. Anyone who may be
aware of a violation of our corporation’s
Thoroughbred Code of Ethics is encouraged
to contact our Ethics & Compliance Hotline
at 800.732.9279.
Financial
Inquiries
Marta R. Stewart
Executive Vice
President Finance and
Chief Financial Officer
Norfolk Southern Corp.
Three Commercial Place
Norfolk, Va. 23510
757.629.2770
Investor
Inquiries
Katie Cook
Director Investor Relations
Norfolk Southern Corp.
Three Commercial Place
Norfolk, Va. 23510
757.629.2861
Corporate
Office
Executive Offices
Norfolk Southern Corp.
Three Commercial Place
Norfolk, Va. 23510
757.629.2600
Regional
Office
1200 Peachtree St. N.E.
Atlanta, Ga. 30309
Annual Report
Requests & Information
800.531.6757
Three Commercial Place
Norfolk, Virginia 23510
www.nscorp.com
© 2017 Norfolk Southern Corp.
All Rights Reserved
10.032017.11170.75K