ANNUAL REPORT
17
20 FINANCIAL HIGHLIGHTS
NORFOLK SOUTHERN CORPORATION & SUBSIDIARIES
FOR THE YEAR
(numbers in millions, except per-share amounts)
Railway operating revenues
Income from railway operations1
Net income1
Per share – diluted1
Dividends per share
Dividend pay-out ratio1
Net cash provided by operating activities
Property additions
Free cash flow2
AT YEAR END
Total assets
Total debt
Stockholders’ equity
Shares outstanding
Stockholders’ equity per share
FINANCIAL RATIOS
Operating ratio1
Debt-to-total-capitalization ratio
Total Stockholder Returns3
(in dollars)
2017
2016
$ 10,551
$ 3,435
$
1,922
6.61
2.44
$
$
$
$ 9,888
$
3,074
1,668
5.62
2.36
$
$
37%
42%
$
$
$
3,253
1,723
1,530
$
$
$
3,034
1,887
1,147
2015
10,511
2,884
1,556
5.10
2.36
46%
2,908
2,385
523
$
$
$
$
$
$
$
$
$ 35,711
$ 9,836
$ 16,359
284.2
57.57
$
$ 34,892
$
10,212
$ 12,409
290.4
42.73
$
$ 34,139
$ 10,093
$
12,188
297.8
$ 40.93
67.4%
37.5%
68.9%
45.1%
72.6%
45.3%
Railway
Operating
Revenues
(in millions)
Income from
Railway
Operations
(in millions)
$3,435
$10,511
$10,551
$9,888
$3,074
$2,884
Free Cash Flow 2
(in millions)
$1,530
$1,147
$523
12/12
12/13
12/14
12/15
12/16
12/17
2015
2016
2017
2015
2016
20171
2015
2016
2017
n Norfolk Southern Corp. Common Stock
n S&P Railroad Stock Price Index
n S&P Composite-500 Stock Price Index
DESCRIPTION
OF BUSINESS
Norfolk Southern
Corporation (NYSE: NSC)
is one of the nation’s
premier transportation
companies. Its Norfolk
Southern Railway Com-
pany subsidiary operates
approximately 19,500
route miles in
22 states and the
District of Columbia,
serves every major con-
tainer port in the eastern
United States, and provides
efficient connections to
other rail carriers. Norfolk
Southern operates the
most extensive intermodal
network in the East and is
a major transporter of
coal, automotive, and
industrial products.
$ 300
$ 250
$ 200
$ 150
$ 100
$ 50
$
0
1 On Dec. 22, 2017, the Tax Cuts and Jobs Act (the “Tax Act”) was signed into law. For 2017, our financial statements reflect the impact of the Tax Act and are presented in accordance
with GAAP. However, for purposes of period-over-period comparability, these financial results are adjusted to exclude the effects of the Tax Act, and are considered to be non-GAAP
financial measures. Specifically, the adjustments remove the effects of remeasurements of net deferred tax liabilities related to the reduction of the federal corporate income tax rate
from 35 percent to 21 percent. Dividend payout ratio is dividends paid ($703M) as a percentage of net income ($1,922M), which was adjusted to exclude the effects of tax reform. For
more information, see the “Reconciliation of Non-GAAP Financial Measures” on page K18 of our Annual Report on Form 10-K for the fiscal year ended Dec. 31, 2017.
2 Free cash flow is considered a non-GAAP financial measure and is a measure of cash available for other investing and financing activities, primarily including payment of dividends,
repurchases of common stock, and repayments of debt. Management believes that this non-GAAP financial measure provides useful supplemental information to investors
regarding our ability to generate cash flows after taking into consideration cash necessary to cover operations and maintain and grow our capital base. Net cash provided by
operating activities is a GAAP measure. Free cash flow ($1,530M) is net cash provided by operating activities ($3,253M) reduced by payments for property additions ($1,723M).
3 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, 2012, and that all dividends were reinvested over the five-year period. Data furnished by Bloomberg Financial Markets.
DEAR FELLOW SHAREHOLDERS:
In 2017, Norfolk Southern delivered an all-time best operating ratio
of 67.41 and record earnings per share of $6.61 ,1 up 18 percent versus
2016. Income from railway operations and net income also increased
double digits, by 12 percent and 15 percent, respectively. Free cash
flow, another record, grew 33 percent year-over-year. These financial
achievements show our strategy is working, and we are on track to
deliver a sub-65 operating ratio by 2020 or sooner. In 2018, with
a strengthening economy and the benefit of the Tax Cuts
and Jobs Act, we plan to increase capital spending and
shareholder distributions.
GROWTH,
EFFICIENCY,
AND SAFETY
Annual revenue grew
7 percent in 2017, the
most since 2011, to
$10.6 billion. Growth
came from a 5 percent
increase in total carload
volume and revenue
per-unit gains across all
major market segments.
Merchandise volumes were flat
overall, while intermodal volumes
grew 5 percent. Coal volumes rose
for the first time since 2011, increasing
16 percent.
Above: A Norfolk Southern double-stack intermodal
train passes a siding track as it moves through Tifton,
Georgia. The company grew intermodal revenue by
11 percent in 2017 versus 2016, reflecting volume growth
and pricing gains.
1 On Dec. 22, 2017, the Tax Cuts and Jobs Act (the “Tax Act”) was signed into
law. For 2017, our financial statements reflect the impact of the Tax Act and
are presented in accordance with GAAP. However, for purposes of period-
over-period comparability, these financial results are adjusted to exclude
the effects of the Tax Act, and are considered to be non-GAAP financial
measures. Specifically, the adjustments remove the effects of remeasurements
of net deferred tax liabilities related to the reduction of the federal corporate
income tax rate from 35 percent to 21 percent. For more information, see the
“Reconciliation of Non-GAAP Financial Measures” on page K18 of our Annual
Report on Form 10-K for the fiscal year ended Dec. 31, 2017.
In the third and fourth quarters of 2017, and
continuing into the first quarter of 2018, our network
velocity slowed as the result of a series of hurricanes
and multiple snowstorms in the South, with one
shutting down one of our highest-density routes
for several days. Resulting service disruptions were
regrettable. Although we will never be immune to
severe weather, our objective is to provide stable,
resilient service over the long term through steady
investments in key resources and reasonable
redundancy, such as maintaining parallel routes,
“surge” locomotives, and adequate yard capacity.
In 2018, in close consultation with customers, we will
begin implementing operational changes we believe
will promote greater network stability.
Efficiency and safety improved in a variety
of ways in 2017. Productivity metrics like
train length, locomotive utilization, and fuel
efficiency reached new levels. We maintained
adequate staffing to meet demand, and we
expect to hold employment levels relatively flat
in 2018. In 2017, we experienced our lowest-
ever train accident frequency, an essential
safety measure. Our employee reportable and
serious injury ratios remained stable. Our goal
for safety is continuous improvement and,
ultimately, zero accidents and injuries.
REINVESTING IN THE
BUSINESS AND RETURNING
CAPITAL TO SHAREHOLDERS
Our 2017 capital spending and replacement
programs, which ensure safe, efficient,
and reliable service, totaled $1.7 billion.
Investments included $1.2 billion in roadway
and other property and $500 million in
equipment. We installed 466 miles of rail,
resurfaced 5,368 miles of track, and installed
2.5 million crossties. We earned new business
from 75 industries locating or expanding along
our lines, representing over $1 billion invested
by our customers. Through a public-private
partnership with the State of New York, we
invested in a new $75 million Portageville
Bridge to expand rail capacity and shipping
options for businesses across New York’s
Southern Tier.
In addition to reinvesting money in our
company, we returned capital to our
shareholders. In 2017, we paid $703 million
in dividends and repurchased $1 billion of
company stock. For 2018 we have budgeted
$1.8 billion of capital expenditures, with
additional investments in growth and network
resilience under consideration. In early 2018
our board of directors increased our dividend
18 percent. In 2018, we plan to conduct a
robust share repurchase program.
Top:
On Dec. 11, 2017,
the eastbound
36T general
merchandise train,
running from Buffalo,
New York, to Allentown,
Pennsylvania, with stops
in Corning and Binghamton,
New York, became the first train
to run over the new Portageville
Bridge on Norfolk Southern’s Southern
Tier Line. The bridge, a public-private
partnership between Norfolk Southern
and the State of New York, supports jobs
and economic development
in New York’s Southern Tier.
Right: A Norfolk Southern mixed-freight
merchandise train passes by PTC
wayside signals infrastructure on
Norfolk Southern’s CNO&TP line in
Kentucky. The company’s merchandise
markets generated railway operating
revenues of $6.4 billion in 2017, a 3
percent increase over 2016.
COMMITMENT TO
CORPORATE SOCIAL
RESPONSIBILITY
Our focus on stewardship of assets is at
the center of our sustainability strategy. In
2017, we achieved another record year for
locomotive fuel-economy through onboard
energy management technologies and
operating practices that make more effective
use of locomotive horsepower. Through our
more efficient use of diesel fuel – one of the
railroad’s single largest expenses – we are
generating significant environmental benefits.
Since 2010, we’ve reduced locomotive
greenhouse gas emissions by around 10
percent per revenue ton-mile of freight moved.
Safe operations in the communities we
serve are a second component of our social
responsibility. In 2017, Norfolk Southern
provided hands-on training and other
resources at no cost to more than 8,000 first
responders across our network to help them
safely respond to rail incidents. This outreach
included visiting 23 communities in 14 states
with our safety train, a rolling classroom
debuted in 2016.
Below: With a paint
scheme that honors
the nation’s military,
Norfolk Southern’s
Veterans Locomotive
transports military
equipment on tracks
running down
Hancock Street in
New Bern, North
Carolina. In 2017,
14 percent of new hires
at Norfolk Southern
self-reported as
military veterans.
USING TECHNOLOGY TO
GROW WITH CUSTOMERS
Since launching our strategic plan in early
2016, Norfolk Southern has been working to
enhance our service product and the ease
of doing business with us. Our goal is to
help customers succeed in a rapidly evolving
marketplace, by providing service that allows
them to adapt quickly and compete for
growth. Investments in digital technologies
will give our customers more flexibility to
order freight cars, track and trace shipments,
and manage shipment pipelines. We also are
investing in technology for productivity and
efficiency. Remote monitoring systems track
locomotive performance, allowing preventive
maintenance and avoidance of delays. Other
uses of predictive analytics include rail-wear
and wayside detector monitoring.
Investments in positive train control in
2017 kept us on pace to meet federal
requirements. By year-end, we had surpassed
internal PTC targets for installation of wayside
devices and locomotive hardware, employee
training, and implementation. That keeps
us on track to obtain the congressionally
approved extension to 2020 for full PTC
implementation. Looking ahead, 2018,
2019, and 2020 will be critical years for
PTC implementation. Our plan, filed with
the federal government, made clear the
challenges associated with full deployment
of an interoperable, still-immature system.
Significant work remains between now and
full implementation to address remaining
PTC shortfalls. Looking beyond PTC
implementation, our intent is to use the
system as a platform for next-generation
freight rail operations.
Another integral part of our sustainability
efforts is our commitment to provide
employees with a work environment where
they can thrive – rewarding careers with good
pay to support their families, opportunities
for advancement, and a financially secure
retirement. In 2017, we continued to grow
the ranks of women, military veterans, and
minorities in our workforce. We also created
a new leadership development program for
field supervisors in transportation, our largest
operations department, designed to retain top
talent, enhance operating efficiencies, and
build stronger relationships with customers
and communities.
ENGAGED AND EFFECTIVE
CORPORATE GOVERNANCE
Our highly qualified and independent board of directors played an
active role in developing the company’s long-term strategy, and the
board is fully engaged in overseeing the progress we have achieved.
Our board now comprises 13 members, 12 of them independent, who
bring a wealth of senior management experience, diverse viewpoints,
and skills to the table.
Shareholder input and feedback are essential to the board’s decision-
making. In 2017, our board supported shareholders’ desire to continue
annual advisory shareholder votes on executive pay. As part of
our enterprise risk management program, the board continued its
effective oversight of risk, a key theme that emerged from shareholder
engagements during the year.
MOVING AHEAD WITH DETERMINATION
Norfolk Southern has generated tremendous momentum since rolling
out our strategic plan two years ago. Through the energy and talent
of our employees, we have demonstrated the ability to deliver on our
financial and operational goals. Our emphasis on growth, efficiency,
safety, balanced capital deployment, technology that drives service
and productivity, sustainability, and sound governance gives me great
confidence that we will deliver superior shareholder value as we
move through 2018 and beyond. Thank you for your investment in
Norfolk Southern.
Above and Right:
Norfolk Southern
reinvests in its network
to ensure safe and
efficient operations
and to promote
growth. Above, a
maintenance-of-
way crew replaces
crossties near Barree,
Pennsylvania, as an
eastbound automotive
train passes by. At right,
a maintenance-of-way
train dumps ballast
along a South Carolina
line. In 2017, the
company installed
466 miles of rail,
resurfaced 5,368 miles
of track, and installed
2.5 million crossties.
BOARD OF DIRECTORS
All directors stand for re-election annually. Information is as of March 1, 2018.
THOMAS D. BELL JR. | Director since 2010
Bell is chairman of Mesa Capital Partners, a real estate investment company. He also served as chairman
and CEO of Cousins Properties, a publicly traded real estate investment trust that invests in office
buildings throughout the South, from 2002 to 2009. 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 and
stakeholder relations; human resources and compensation; marketing; strategic planning
ERSKINE B. BOWLES | Director since 2011
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 Facebook Inc.
COMMITTEES: compensation, finance and risk management
EXPERTISE: CEO/senior officer; finance and accounting; governance/board;
governmental and stakeholder relations; human resources and compensation; strategic planning
WESLEY G. BUSH | Director since 2012
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 and stakeholder relations; human resources and compensation; information technology;
strategic planning; transportation
DANIEL A. CARP | Director since 2006
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
MITCHELL E. DANIELS JR. | Director since 2016
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 and
stakeholder relations; strategic planning
MARCELA E. DONADIO | Director since 2016
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; governmental and
stakeholder relations; human resources and compensation; marketing; strategic planning;
transportation
MICHAEL D. LOCKHART | Director since 2008
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
AMY E. MILES | Director since 2014
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; information technology;
marketing; strategic planning
MARTIN H. NESBITT | Director since 2013
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
and stakeholder relations; marketing; strategic planning
JENNIFER F. SCANLON | Director since 2018
Scanlon has been president and chief executive officer of USG Corporation, an industry-leading
manufacturer of building products and innovative solutions, since November 2016. Previously, she was
president of the company’s international business, president of its L&W Supply Corporation, and chief
information officer and chairman of the board for USG Boral Building Products. She was elected to
USG’s board in September 2016.
COMMITTEES: compensation, finance and risk management
EXPERTISE: CEO/senior officer; environmental and safety; governance/board; information technology;
marketing; strategic planning; transportation
JAMES A. SQUIRES | Chairman, President and 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 and
stakeholder relations; human resources and compensation; 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. Previously,
he was 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 and
stakeholder relations; information technology; marketing; strategic planning
Norfolk Southern has generated tremendous momentum since
rolling out our strategic plan two years ago. Through the energy
and talent of our employees, we have demonstrated the ability
to deliver on our financial and operational goals.
~ Jim Squires
OFFICERS
As of March 1, 2018
JAMES A. SQUIRES
Chairman, President and Chief Executive Officer
JERRY W. HALL
Vice President Transportation
CYNTHIA C. EARHART
Executive Vice President Finance
and Chief Financial Officer
JOHN M. SCHEIB
Executive Vice President Law and Administration
and Chief Legal Officer
ALAN H. SHAW
Executive Vice President
and Chief Marketing Officer
MICHAEL J. WHEELER
Executive Vice President
and Chief Operating Officer
ANN A. ADAMS
Vice President Human Resources
CLYDE H. “JAKE” ALLISON JR.
Vice President and Treasurer
FREDRIC M. EHLERS
Vice President Information Technology
and Chief Information Officer
JOHN H. FRIEDMANN
Vice President Network Operations
and Strategic Planning
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
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
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. The company’s policy is 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.
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, 2017
( ) 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 this 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, a smaller reporting company,
or emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging
growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer (X) Accelerated filer ( ) Non-accelerated filer ( ) Smaller reporting company ( ) Emerging growth company ( )
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with
any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act [ ]
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, 2017, was $35,044,199,563 (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, 2018: 283,997,242 (excluding 20,320,777
shares held by the registrant’s consolidated subsidiaries).
DOCUMENTS INCORPORATED BY REFERENCE: Portions of the Registrant’s definitive proxy statement 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.
Item 15.
Item 16.
Part III.
Part IV.
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
Exhibits, Financial Statement Schedules
Form 10-K Summary
Power of Attorney
Signatures
Page
K3
K10
K13
K13
K13
K14
K15
K16
K17
K30
K31
K72
K72
K72
K73
K73
K74
K76
K76
K77
K87
K88
K88
K2
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.norfolksouthern.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:
The Thoroughbred Code of Ethics
• Corporate Governance Guidelines
• Charters of the Committees of the Board of Directors
•
• 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, 2017, 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)
• Birmingham to Meridian
• Memphis to Chattanooga
• Cleveland to Kansas City
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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, 2017
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
14,711
2,753
1,952
8,320
27,736
4,756
1,932
398
835
7,921
19,467
4,685
2,350
9,155
35,657
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, and Michigan Department of Transportation.
The following table sets forth certain statistics relating to our railroads’ operations for the past five years:
2017
Years ended December 31,
2014
2015
2016
2013
Revenue ton miles (billions)
Revenue per thousand revenue ton miles
Revenue ton miles (thousands) per railroad employee
Ratio of railway operating expenses to railway
201
$ 52.38
7,474
$
191
51.91 $
6,838
200
52.63 $
6,645
205
56.70 $
7,054
194
58.10
6,517
operating revenues
67.4% 1
68.9%
72.6%
69.2%
71.0%
1Note: See reconciliation to U.S. Generally Accepted Accounting Principles (GAAP) in Part II, Item 7,
“Management’s Discussion and Analysis of Financial Condition and Results of Operations.”
RAILWAY OPERATING REVENUES – Total railway operating revenues were $10.6 billion in 2017. 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 motor vehicles and automotive parts.
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•
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 2017 were 2.5 million, the revenues from which accounted for 60% of our total
railway operating revenues.
INTERMODAL – Our intermodal market group consists of shipments moving in domestic and international
containers and trailers. These shipments are handled on behalf of intermodal marketing companies, international
steamship lines, truckers, and other shippers. Intermodal units handled in 2017 were 4.1 million, the revenues from
which accounted for 23% of our total railway operating revenues.
COAL – Revenues from coal accounted for 17% of our total railway operating revenues in 2017. We handled 116
million tons, or 1.0 million carloads, in 2017, 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 76 coal generation plants, as well as the
export, domestic 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 2017, our railroad was found by the U.S. Surface Transportation Board (STB), the regulatory board that has
broad jurisdiction over railroad practices, to be “revenue adequate” on an annual basis based on results for the year
2016. The STB has not made its revenue adequacy determination for the year 2017. 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.
RAILWAY PROPERTY
Our railroad infrastructure makes us capital intensive with net property of approximately $30 billion on a historical
cost basis.
Property Additions – Property additions for the past five years were as follows:
2017
2016
2015
($ in millions)
2014
2013
Road and other property
Equipment
Delaware & Hudson acquisition
$
1,210 $
513
—
1,292 $
595
—
1,514 $
658
213
1,406 $
712
—
1,421
550
—
Total
$
1,723 $
1,887 $
2,385 $
2,118 $
1,971
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 2018, we have budgeted $1.8 billion of property additions.
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Equipment – At December 31, 2017, 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)
14,948,800
—
82,050
15,030,850
(Tons)
3,086,465
1,272,224
1,013,837
829,014
316,534
74,100
6,592,174
Owned
Leased
Total
3,911
175
55
4,141
25,265
11,266
9,061
8,248
1,776
1,606
57,222
28,710
16,190
7,213
4,072
2,387
58,572
14
—
—
14
2,549
—
85
1,362
1,484
4
5,484
—
1,738
287
156
189
2,370
3,925
175
55
4,155
27,814
11,266
9,146
9,610
3,260
1,610
62,706
28,710
17,928
7,500
4,228
2,576
60,942
The following table indicates the number and year built for locomotives and freight cars owned at December 31,
2017:
Locomotives:
No. of units
% of fleet
Freight cars:
No. of units
% of fleet
2017
2016
2015
2014
2013
2008-
2012
2003-
2007
2002 &
Before
Total
53
1%
66
2%
8
—%
83
2%
50
1%
231
6%
624
15%
3,026
73%
4,141
100%
470
1%
775
1%
2,091
4%
897
1%
—
—%
8,889
16%
1,658
3%
42,442
74%
57,222
100%
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The following table shows the average age of our owned locomotive and freight car fleets at December 31, 2017,
and information regarding 2017 retirements:
Average age – in service
Retirements
Average age – retired
Locomotives
24.4 years
180 units
33.2 years
Freight Cars
28.5 years
6,947 units
44.7 years
Track Maintenance – Of the approximately 35,700 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 46% of our lines, excluding rail operated pursuant to trackage
rights, carried 20 million or more gross tons per track mile during 2017.
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
Crossties installed (millions)
2017
2016
2015
2014
2013
466
5,368
2.5
518
4,984
2.3
523
5,074
2.4
507
5,248
2.7
549
5,475
2.5
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 Note 16 to the Consolidated
Financial Statements.
EMPLOYEES – The following table shows the average number of employees and the average cost per employee
for wages and benefits:
2017
2016
2015
2014
2013
Average number of employees
Average wage cost per employee
Average benefit cost per employee
27,110
28,044
30,103
$ 79,000 $ 76,000 $ 77,000 $ 76,000 $ 72,000
$ 42,000 $ 35,000 $ 32,000 $ 35,000 $ 40,000
29,482
30,456
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.”
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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 2018. 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 NS and CSX 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 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 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 facilities we operate that are under U.S. Coast Guard (USCG)
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Maritime Security Regulations. With respect to these facilities, each facility’s security plan has been approved by
the applicable Captain of the Port and remains subject to inspection by the 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, the Department of Defense, 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 2017, through participation in the Transportation Community Awareness and Emergency Response
(TRANSCAER) Program, we provided rail accident response training to approximately 8,185 emergency
responders, such as local police and fire personnel. Our other training efforts throughout 2017 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.
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 (collectively “the PTC laws and regulations”) require us (and each other Class I railroad) to implement, on
certain mainline track where intercity and commuter passenger railroads operate and where TIH hazardous
materials are transported, an interoperable positive train control system (PTC). PTC is a set of highly advanced
technologies designed to prevent train-to-train collisions, speed-related derailments, and certain other accidents
caused by human error, but PTC will not prevent all types of train accidents or incidents. The PTC laws and
regulations require us to install all hardware and to implement the PTC system on some of those rail lines by
December 31, 2018, and to implement such system on the remainder of those rail lines by December 31, 2020.
Full implementation of PTC in compliance with RSIA, as amended, 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.
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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 related to GHGs could negatively affect the markets we serve and our
customers. 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 short-term demand for rail service. Unpredicted
increases in demand for rail services may exacerbate such risks.
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
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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. 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 health care, 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
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; 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.
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.
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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 458 million gallons of diesel fuel in 2017. 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. We rely on the capital markets to provide some
of our capital requirements, including the issuance of debt instruments, 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.
Item 3. Legal Proceedings
In 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. In 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. On October 10, 2017, the District Court denied class certification; the findings are subject
to appeal. 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.
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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, 2018, relating to our officers.
Name, Age, Present Position
Business Experience During Past Five Years
James A. Squires, 56,
Chairman, President and
Chief Executive Officer
Cynthia C. Earhart, 56,
Executive Vice President –
Finance and Chief Financial Officer
William A. Galanko, 61,
Executive Vice President –
Law and Administration
Alan H. Shaw, 50,
Executive Vice President and
Chief Marketing Officer
Michael J. Wheeler, 55,
Executive Vice President and
Chief Operating 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.
Present position since August 15, 2017.
Served as Executive Vice President - Administration and
Chief Information Officer from October 1, 2015 to August
15, 2017. Served as Executive Vice President -
Administration from June 1, 2013 to October 1, 2015.
Served as Vice President Human Resources from March 1,
2007 to June 1, 2013.
Present position since October 1, 2017.
Served as Senior Vice President - Law and Corporate
Communications from December 1, 2016 to October 1,
2017. Served as Vice President Law from April 1, 2006 to
December 1, 2016.
Present position since May 16, 2015.
Served as Vice President Intermodal Operations from
November 1, 2013 to May 16, 2015. Served as Group
Vice President Industrial Products from November 16,
2009 to November 1, 2013.
Present position since February 1, 2016.
Served as Senior Vice President Operations from October
1, 2015 to February 1, 2016. Served as Vice President
Engineering from November 1, 2012 to October 1, 2015.
Served as Vice President Transportation from February 1,
2009 to November 1, 2012.
Thomas E. Hurlbut, 53,
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.
K14
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 25,737 stockholders of record as of December 31, 2017, 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 2017 and 2016.
2017
1st
2nd
3rd
4th
Quarter
Market Price
High
Low
Dividends per share
2016
Market Price
High
Low
Dividends per share
$
$
123.77 $
107.39
0.61
124.51 $
112.07
0.61
133.04 $
112.28
0.61
1st
2nd
3rd
4th
85.37 $
66.41
0.59
93.15 $
78.93
0.59
96.83 $
83.89
0.59
145.82
126.45
0.61
110.52
90.77
0.59
ISSUER PURCHASES OF EQUITY SECURITIES
Period
October 1-31, 2017
November 1-30, 2017
December 1-31, 2017
Total Number
of Shares
(or Units)
Purchased(1)
Average
Price Paid
per Share
(or Unit)
$
776,328
786,387
679,945
131.53
129.44
142.33
Total
2,242,660
Maximum
Number
(or Approximate
Dollar Value)
of Shares (or
Units)
that may yet be
Purchased under
the Plans or
Programs(2)
57,935,286
57,150,180
56,470,235
Total
Number of
Shares (or Units)
Purchased as
Part of Publicly
Announced
Plans
or Programs(2)
772,572
785,106
679,945
2,237,623
(1) Of this amount, 5,037 represents shares tendered by employees in connection with the exercise of stock options
under the stockholder-approved Long-Term Incentive Plan.
(2) On September 26, 2017, our Board of Directors authorized the repurchase of up to an additional 50 million
shares of Common Stock through December 31, 2022. As of December 31, 2017, 56.5 million shares remain
authorized for repurchase.
K15
Item 6. Selected Financial Data
FIVE-YEAR FINANCIAL REVIEW
2017
2016
2015
($ in millions, except per share amounts)
2014
2013
RESULTS OF OPERATIONS
Railway operating revenues
Railway operating expenses
Income from railway operations
Other income – net
Interest expense on debt
Income before income taxes
Income taxes
Net income
PER SHARE DATA
Net income – basic
– diluted
Dividends
Stockholders’ equity at year end
FINANCIAL POSITION
Total assets
Total debt
Stockholders’ equity
OTHER
Property additions
$ 10,551 $
6,965
3,586
9,888 $ 10,511 $ 11,624 $ 11,245
7,988
6,814
3,257
3,074
8,049
3,575
7,627
2,884
92
550
3,128
71
563
2,582
103
545
2,442
104
545
3,134
233
525
2,965
(2,276)
914
886
1,134
1,055
$
5,404 $
1,668 $
1,556 $
2,000 $
1,910
$
18.76 $
18.61
2.44
57.57
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
$ 35,711 $ 34,892 $ 34,139 $ 33,033 $ 32,259
9,404
11,289
10,093
12,188
9,836
16,359
8,985
12,408
10,212
12,409
$
1,723 $
1,887 $
2,385 $
2,118 $
1,971
Average number of shares outstanding (thousands)
Number of stockholders at year end
Average number of employees:
Rail
Nonrail
Total
287,861
25,737
293,943
27,288
301,873
28,443
309,367
29,575
311,916
30,990
26,955
155
27,110
27,856
188
28,044
30,057
399
30,456
29,063
419
29,482
29,698
405
30,103
Note: In 2017, as a result of the enactment of tax reform, “Railway operating expenses” includes a $151 million
benefit and “Income taxes” includes a $3,331 million benefit, which added $3,482 million to “Net income” and
$12.00 to “Diluted earnings per share.”
See accompanying consolidated financial statements and notes thereto.
K16
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.
Throughout 2017 we further pursued our strategic plan, focused on a balanced approach of growth, increasing
efficiency, and delivering a strong customer service product. We achieved a record-setting railway operating ratio
for the year (a measure of the amount of operating revenues consumed by operating expenses) and delivered
approximately $150 million of productivity savings, the direct result of our commitment to achieving the targets set
forth in our plan. Operational leverage allowed us to grow our business by providing a competitive service product
to our customers while simultaneously driving productivity.
In 2018, we will continue to implement our balanced, dynamic strategic plan. We remain committed to consistently
providing high levels of rail service and increasing the efficiency of our resources, thereby generating higher returns
on capital and increasing shareholder value.
SUMMARIZED RESULTS OF OPERATIONS
2017
2015
2016
$ in millions, except per share amounts
2017
vs. 2016
2016
vs. 2015
% change
Income from railway operations
Net income
Diluted earnings per share
Railway operating ratio
$
$
$
$
$
$
3,586
5,404
18.61
66.0
$
$
$
3,074
1,668
5.62
68.9
2,884
1,556
5.10
72.6
17%
224%
231%
(4%)
7%
7%
10%
(5%)
On December 22, 2017, the Tax Cuts and Jobs Act (“tax reform”) was signed into law. For more information on the
impact of tax reform, see Note 3. As a result of the enactment of this law, “Purchased services and rents” includes a
$151 million benefit and “Income taxes” includes a $3,331 million benefit, which added $3,482 million to “Net
income” and $12.00 to “Diluted earnings per share.” The operating ratio was favorably impacted by 1.4 percentage
points.
The following table adjusts our GAAP financial results to exclude the effects of tax reform (specifically, the effects
of remeasurement of net deferred tax liabilities related to the reduction of the federal tax rate from 35% to 21%).
We use these non-GAAP financial measures internally and believe this information provides useful supplemental
information to investors to facilitate making period-to-period comparisons by excluding the effects of tax reform.
While we believe that these non-GAAP financial measures are useful in evaluating our business, this information
should be considered as supplemental in nature and is not meant to be considered in isolation or as a substitute for
the related financial information prepared in accordance with GAAP. In addition, these non-GAAP financial
measures may not be the same as similar measures presented by other companies.
K17
Reconciliation of Non-GAAP Financial Measures
Reported results
(GAAP)
Tax reform
$ in millions, except per share amounts
Adjusted results
(non-GAAP)
Income from railway operations
Net income
Diluted earnings per share
Railway operating ratio
$
$
$
$
$
$
3,586
5,404
18.61
66.0
(151) $
(3,482) $
(12.00) $
1.4
3,435
1,922
6.61
67.4
In the table below and the paragraph following, references to 2017 results and related comparisons use the adjusted,
non-GAAP results from the reconciliation in the table above.
Adjusted
2017
(non-GAAP)
2015
2016
$ in millions, except per share amounts
Adjusted
2017 vs. 2016
(non-GAAP)
2016
vs. 2015
% change
Income from railway operations
Net income
Diluted earnings per share
Railway operating ratio
$
$
$
3,435 $
1,922 $
6.61 $
67.4
3,074 $
1,668 $
5.62 $
68.9
2,884
1,556
5.10
72.6
12%
15%
18%
(2%)
7%
7%
10%
(5%)
The increases in net income for both comparisons resulted from higher income from railway operations. For 2017,
a 7% increase in revenues was partially offset by a 4% rise in adjusted operating expenses. For 2016, an 11%
decline in operating expenses more than offset a 6% decrease in revenues. The higher percentage increases in
diluted earnings per share compared with the percentage increases in net income for both years was largely the
result of our share repurchase program.
K18
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
$
$
$
2017
Revenues
2016
$ in millions
2015
2017
vs. 2016
2016
vs. 2015
% change
1,668
1,547
1,426
955
761
6,357
2,452
1,742
10,551
$
$
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%
—
13%
(2%)
2%
3%
11%
17%
7%
(6%)
2%
—
1%
(4%)
(2%)
(8%)
(18%)
(6%)
2017
Units
2016
in thousands
2015
2017
vs. 2016
2016
vs. 2015
% change
467.2
589.0
727.5
423.1
284.6
2,491.4
4,074.1
1,046.0
7,611.5
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
(2%)
(2%)
6%
(4%)
—
—
5%
16%
5%
(10%)
(1%)
2%
3%
(5%)
(2%)
—
(16%)
(3%)
2017
Revenue per Unit
2016
$ per unit
2015
2017
vs. 2016
2016
vs. 2015
% change
$
3,571
2,627
1,960
2,257
2,673
2,552
602
1,665
1,386
$
3,465
2,575
1,847
2,213
2,620
2,486
573
1,650
1,362
3,335
2,489
1,879
2,258
2,573
2,474
624
1,688
1,405
3%
2%
6%
2%
2%
3%
5%
1%
2%
4%
3%
(2%)
(2%)
2%
—
(8%)
(2%)
(3%)
K19
Revenues increased $663 million in 2017, following a $623 million decline in 2016. As reflected in the table
below, the rise in 2017 was largely the result of increased volume, particularly in our coal and intermodal markets,
coupled with pricing gains. The decline in 2016 reflected lower revenue per unit, the effects of reduced fuel
surcharges and changes in traffic mix, which more than offset price increases, as well as lower volume, primarily
driven by reductions in energy-related markets and the restructuring of our Triple Crown Services (TCS) subsidiary.
Revenue per unit
Volume (units)
Total
Fuel surcharge revenues
Revenue Variance Analysis
Increase (Decrease)
2017 vs. 2016
2016 vs. 2015
$ in millions
$
$
$
184 $
479
(315)
(308)
663 $
(623)
123 $
(241)
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 about two-thirds tied to OHD. For both 2017 and 2016, contracts tied to OHD accounted for about
90% of our fuel surcharge revenue, as oil price levels were below most of our surcharge trigger points in contracts
tied to WTI. Revenues associated with fuel surcharges totaled $359 million, $236 million, and $477 million in
2017, 2016, and 2015, respectively.
MERCHANDISE revenues increased in 2017, but decreased in 2016, compared with the years before. In 2017,
the growth was a result of higher average revenue per unit, driven by pricing gains. Volume was relatively flat
compared to the prior year, as gains in the metals and construction group were offset by declines in automotive,
agriculture, and chemicals traffic. 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 and unfavorable
changes in traffic mix.
For 2018, merchandise revenues are expected to increase, primarily the result of pricing gains and higher fuel
surcharge revenues.
Chemicals revenues were modestly higher in 2017, following a decline in 2016. The increase in 2017 was due to
higher average revenue per unit, a result of favorable mix and price improvements, which outweighed declines in
volume. Both periods reflected fewer shipments of crude oil from the Bakken oil fields, and 2017 reflected lower
shipments of coal ash; in both periods, these reductions were partially offset by more shipments of plastics. The
2016 volume decline also reflected lower chlor-alkali and rock salt traffic, the result of market consolidations and
softened demand. The 2016 volume decrease was 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.
For 2018, chemicals revenues are anticipated to increase, as average revenue per unit is expected to be higher, the
effect of favorable mix influenced by increased volumes of higher-rated plastics and organic chemicals, as well as,
overall pricing gains. We expect carload declines of liquefied petroleum gas to be offset by gains in plastics,
industrial chemicals, and crude oil.
One of our chemical customers, Sunbelt Chlor Alkali Partnerships (Sunbelt), filed in 2011 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
K20
STB resolved this rate reasonableness complaint in our favor and 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.
Agriculture, consumer products, and government revenues were flat in 2017 after rising in 2016. In 2017, lower
traffic volume was offset by higher revenue per unit, driven by pricing gains. Volume declines in ethanol and
soybeans, reflecting reduced market demand, more than offset increases in fertilizer. 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 in 2016, 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.
For 2018, agriculture, consumer products, and government revenues are expected to increase, driven by more
shipments of ethanol, corn and feed products, and by increased average revenue per unit, primarily a result of
pricing gains.
Metals and construction revenues rose in both periods, reflecting higher traffic volume and, for 2017, higher
average revenue per unit. In 2017, volume growth was a result of more frac sand shipments for use in natural gas
drilling in the Marcellus and Utica regions and more iron and steel shipments driven by continued improvement in
construction activity. These increases were partially offset by a decline in coil steel traffic due to customer sourcing
changes. Revenue per unit growth in 2017 was driven by favorable changes in traffic mix. The volume 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 in 2016, driven by
lower fuel surcharge revenues and changes in traffic mix.
For 2018, metals and construction revenues are expected to rise, primarily driven by increased revenue per unit, a
result of pricing gains and positive mix. Traffic volume growth should result from the continued rise in frac sand
shipments in addition to more shipments of steel related products.
Automotive revenues fell in 2017, but rose in 2016. The decline in 2017 was driven mainly by decreases in U.S.
light vehicle production, as well as temporary shutdowns for retooling of several NS-served facilities. Average
revenue per unit increased for the year, driven by pricing gains and higher fuel surcharge revenue. In 2016,
volumes increased as a result of higher automotive parts shipments and growth in the production of U.S. light
vehicles. Lower fuel surcharge revenues offset in part by pricing gains drove the decrease in average revenue per
unit in 2016.
For 2018, automotive revenues are expected to increase as a result of higher revenue per unit driven by price
increases and higher fuel surcharge, partially offset by volume declines due to reduced customer demand.
Paper, clay and forest products revenues rose in 2017 following a decline in 2016. The increase in 2017 was due
to higher revenue per unit, a result of pricing gains and changes in the traffic mix. Traffic was flat for the year as
increases in waste and pulp shipments were offset by continued losses in woodchip volume due to customer
sourcing changes. 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 in 2016 driven by pricing gains, offset in part
by lower fuel surcharge revenues.
For 2018, paper, clay, and forest products revenues are anticipated to increase, reflecting pricing gains and increased
volume, driven by growth in pulpboard as a result of tightening truck capacity, lumber due to more construction
activity, and our miscellaneous waste markets. These increases may be partially offset by weaker export demand
for kaolin shipments, and further contraction of the paper market.
K21
INTERMODAL revenues increased in 2017, but declined in 2016, compared to the prior years. The 2017 increase
resulted from higher traffic volume and higher average revenue per unit, driven by fuel surcharge revenue and
pricing gains. The decline in 2016 was due to lower average revenue per unit that more than offset a small volume
increase. 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.
For 2018, we expect higher intermodal revenues due to increased average revenue per unit, driven by higher fuel
surcharge revenues and rate increases, as well as, higher volumes.
Intermodal units by market were as follows:
Domestic
International
Total
2017
2016
units in thousands
2015
2017
vs. 2016
2016
vs. 2015
% change
2,585.0
1,489.1
2,416.2
1,454.2
2,500.4
1,360.6
4,074.1
3,870.4
3,861.0
7%
2%
5%
(3%)
7%
—
Total domestic volume increased in 2017, but decreased 2016, a result of the restructuring of our TCS subsidiary
which decreased overall domestic volume. Domestic volumes in both years benefitted from continued highway
conversions and growth from new and existing accounts.
For 2018, we expect higher domestic volumes driven by strong demand due to favorable economic conditions
combined with continued highway conversions.
International volume increased in both years reflecting increased demand from existing customers and market
share gains.
For 2018, we expect continued growth in our international volume largely driven by more traffic from both new and
existing customers.
COAL revenues increased in 2017, but decreased in 2016, compared with the prior years. The increase in 2017
was a result of higher volume, primarily in the export market, and higher revenue per unit, driven by fuel surcharge
revenue and pricing gains. The 2016 decline was a result of lower carload volumes across all markets and
decreased average revenue per unit, primarily due to reduced fuel surcharge revenues that lowered average revenue
per unit by $34 in 2016.
For 2018, coal revenues are expected to decline, driven by lower export and utility volumes, in addition to
decreased revenue per unit, primarily the result of lower pricing in our export market.
K22
As shown in the following table, tonnage increased in 2017, but decreased in 2016.
2017
2016
tons in thousands
2015
2017
vs. 2016
2016
vs. 2015
% change
Utility
Export
Domestic metallurgical
Industrial
67,899
26,460
15,675
5,545
65,033
14,608
13,884
6,152
81,137
16,193
14,450
8,201
4%
81%
13%
(10%)
(20%)
(10%)
(4%)
(25%)
Total
115,579
99,677
119,981
16%
(17%)
Utility coal tonnage increased in 2017, driven by market share gains. Both years were affected by limited coal burn
due to milder weather and sustained lower natural gas prices. The decline in 2016 was additionally impacted by
residual customer stockpile overhang.
For 2018, we expect utility tonnage to decrease, the result of continued pressure from natural gas prices and new
renewable and natural gas capacity.
Export coal tonnage grew significantly in 2017 as continued tightening of international coal supply drove
incremental production increases and higher demand for U.S. coal. In 2016, the decrease was 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. Volume through Norfolk was up 5.5 million tons, or 57%, in 2017, following a drop of 1.7
million tons, or 15%, in 2016. Volume through Baltimore was up 6.4 million tons, or 129%, in 2017 and was up
slightly in 2016.
For 2018, we expect export coal tonnage to decrease due to expected contraction of the elevated 2017 market.
Domestic metallurgical coal tonnage was up in 2017, but down in 2016. In 2017, the increase was a result of
market share gains while the 2016 decline was largely driven by softness in the metallurgical market.
For 2018, domestic metallurgical coal tonnage is expected to remain relatively flat year-over-year.
Industrial coal tonnage decreased in both years, a result of plant outages, natural gas conversions and decreased
coal burn.
For 2018, industrial coal tonnage is expected to increase driven by increased customer demand, but will continue to
face pressure due to natural gas conversions and customer sourcing changes.
K23
Railway Operating Expenses
Railway operating expenses summarized by major classifications were as follows:
2017
2016
$ in millions
2015
2017
vs. 2016
2016
vs. 2015
% change
Compensation and benefits
Purchased services and rents
Fuel
Depreciation
Materials and other
$
2,915 $
1,414
840
1,055
741
2,743 $
1,548
698
1,026
799
2,911
1,752
934
1,054
976
6%
(9%)
20%
3%
(7%)
(6%)
(12%)
(25%)
(3%)
(18%)
Total
$
6,965 $
6,814 $
7,627
2%
(11%)
In 2017, we experienced an overall increase in expense compared to the prior year, reflecting higher fuel expense,
incentive compensation, inflationary increases, and volume-related costs, partially offset by improved productivity
and increased equity in earnings of certain investees as a result of the enactment of tax reform. In 2016, expenses
were lower across all categories driven largely from cost-control initiatives, lower fuel expense, the absence of
restructuring costs incurred in 2015, and service improvements.
Compensation and benefits increased in 2017, reflecting changes in:
•
•
•
•
•
incentive and stock-based compensation (up $125 million)
higher health and welfare benefit rates for agreement employees (up $62 million),
pay rates (up $43 million),
increased overtime (up $24 million), and
employment levels (down $81 million).
In 2016, compensation and benefits decreased, a result of changes in:
•
•
•
•
•
•
•
employment levels, including 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).
Our employment averaged 27,110 in 2017, compared with 28,044 in 2016, and 30,456 in 2015.
K24
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. As previously
discussed, this line item includes a $151 million benefit from the enactment of tax reform ($36 million in purchased
services and $115 million in equipment rents) in the form of higher income of certain equity investees.
2017
2016
$ in millions
2015
2017
vs. 2016
2016
vs. 2015
% change
Purchased services
Equipment rents
Total
$
$
1,233 $
181
1,242 $
306
1,433
319
(1%)
(41%)
(13%)
(4%)
1,414 $
1,548 $
1,752
(9%)
(12%)
The remaining increase in purchased services expense was a result of higher intermodal volume-related costs. The
2016 decrease reflected lower TCS operational costs, reduced repair and maintenance expenses, and decreased
transportation activity costs, offset in part by higher intermodal volume-related costs.
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 both 2017 and 2016. In 2017, in
addition to the effects of tax reform, the decline was a result of lower automotive volume. In 2016, the decrease
was largely from improved network velocity, partly offset by higher rates and conventional intermodal volumes.
Fuel expense, which includes the cost of locomotive fuel as well as other fuel used in railway operations, increased
in 2017, but decreased in 2016. The change in both years was principally due to locomotive fuel prices (up 22% in
2017 and down 18% in 2016). Locomotive fuel consumption decreased 1% in 2017 despite an increase in volume
of 5% and declined 5% in 2016 with a volume decrease of 3%, both the direct result of our strategic initiative to
increase fuel efficiency. We consumed approximately 458 million gallons of diesel fuel in 2017, compared with
462 million gallons in 2016 and 487 million gallons in 2015.
Depreciation expense increased in 2017, but decreased in 2016. Both periods reflect growth in our roadway and
equipment capital base as we continue to invest in our infrastructure and rolling stock. In 2016, the decrease was a
result of the effects of $63 million in accelerated depreciation related to the TCS restructuring in 2015.
Materials and other expenses decreased in both periods as shown in the following table.
2017
2016
$ in millions
2015
2017
vs. 2016
2016
vs. 2015
% change
Materials
Casualties and other claims
Other
Total
$
$
348 $
145
248
364 $
150
285
741 $
799 $
469
137
370
976
(4%)
(3%)
(13%)
(22%)
9%
(23%)
(7%)
(18%)
Material usage declined in both periods, a result of lower freight car repairs associated with cost-control initiatives
and improved asset utilization.
K25
Casualties and other claims expenses include the estimates of costs related to personal injury, property damage, and
environmental matters. The decrease in 2017 was the result of lower loss and damage, offset in part by unfavorable
developments in personal injury cases. The increase in 2016 was primarily driven by higher derailment expenses.
Both declines in other expenses reflected more gains from the sale of operating properties (up $42 million in 2017
and $37 million in 2016). The 2016 decline was also driven by the absence of expenses that occurred in 2015 for
relocating employees in connection with the closure of our Roanoke, Virginia office.
Income Taxes
Income taxes in 2017 includes a benefit of $3,331 million related to the effects of the enactment of tax reform from
the reduction in our net deferred tax liabilities driven by the change in the federal rate. Our tax benefit on 2017
income resulted in an effective rate of negative 72.8%, which includes negative 106.5% related to tax reform,
compared with 35.4% in 2016 and 36.3% in 2015. Both 2017 and 2016 benefited from favorable tax benefits
associated with stock-based compensation and higher returns from corporate-owned life insurance. The 2016 and
2015 years also benefited from favorable reductions in deferred taxes for state tax law changes and certain business
tax credits.
We expect our effective tax rate to approximate 24% on a go-forward basis. In addition, we expect cash paid for
income taxes to be approximately 25% lower than 2017 levels, which is less than the percentage decline in the
effective rate, as 2017 benefited from accelerated tax deductions related to our two debt exchanges (see Note 8).
FINANCIAL CONDITION, LIQUIDITY, AND CAPITAL RESOURCES
Cash provided by operating activities, our principal source of liquidity, was $3.3 billion in 2017, $3.0 billion in
2016, and $2.9 billion in 2015. The increases in both 2017 and 2016 were primarily the result of improved
operating results. We had working capital deficits of $396 million and $48 million at December 31, 2017 and 2016,
respectively. Cash and cash equivalents totaled $690 million and $956 million at December 31, 2017 and 2016,
respectively. 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, 2017, were comprised of long-term debt, interest on fixed-rate long-term
debt (Note 8), unconditional purchase obligations (Note 16), operating leases (Note 9), agreements with
Consolidated Rail Corporation (CRC) and long-term advances from Conrail (Note 5), and unrecognized tax benefits
(Note 3):
Total
2018
2019 -
2020
2021 -
2022
$ in millions
2023 and
Subsequent Other
Long-term debt principal
Interest on fixed-rate long-term debt
Unconditional purchase obligations
Operating leases
Agreements with CRC
Long-term advances from Conrail
Unrecognized tax benefits*
$ 10,584 $
10,105
1,050
660
281
280
17
600 $
493
438
69
38
—
—
899 $ 1,184 $
884
315
126
76
—
—
782
297
106
76
—
—
7,901 $
7,946
—
359
91
280
—
Total
$ 22,977 $ 1,638 $ 2,300 $ 2,445 $
16,577 $
—
—
—
—
—
—
17
17
* This amount is shown in the Other column because the year of settlement cannot be reasonably estimated.
K26
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 $1.5 billion in 2017, compared with $1.8 billion in 2016, and $2.1 billion in
2015. Both year-over-year comparisons reflected lower cash outflows for property additions. A decline in
corporate-owned life insurance investments additionally impacted 2017. The decrease in 2016 is also a reflection
of lower 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 2018, we expect capital spending to total $1.8 billion.
Cash used in financing activities was $2.0 billion in 2017, compared with $1.3 billion in 2016, and $693 million
in 2015. Both year-over-year comparisons reflected lower debt proceeds. In 2017, the rise was further affected by
increased repurchases of common stock. Contributing to the increase in 2016 were higher debt repayments,
partially offset by lower repurchases of common stock.
Share repurchases totaled $1.0 billion in 2017, $803 million in 2016, and $1.1 billion in 2015 for the purchase and
retirement of 8.2 million, 9.2 million, and 11.3 million shares, respectively. On September 26, 2017, our Board of
Directors authorized the repurchase of up to an additional 50 million shares of Common Stock through
December 31, 2022. As of December 31, 2017, 56.5 million shares remain authorized for repurchase. 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.
In May of 2017, we issued $300 million of 3.15% senior notes due 2027. In August of 2017, we issued $750
million of 4.05% senior notes due 2052 as part of a debt exchange for $551 million of previously issued notes. In
November of 2017, we issued $750 million of senior notes at 3.94% due 2047 and paid $52 million of premium in
exchange for $613 million of previously issued notes (see Note 8).
We discuss our credit agreement and our accounts receivable securitization program in Note 8, 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 37.5% at December 31, 2017, compared with 45.1% at December 31, 2016.
Upcoming annual debt maturities are disclosed in 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 POLICIES
The preparation of financial statements in accordance with 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. The following critical
accounting policies are a subset of our significant accounting policies described in Note 1.
K27
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 $22 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
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. See Note 1 for a more detailed discussion of the assumptions and estimates
in this area.
Depreciation expense for 2017 totaled $1.1 billion. Our composite depreciation rates for 2017 are disclosed in
Note 6; a one-tenth percentage point increase (or decrease) in these rates would have resulted in a $40 million
increase (or decrease) to depreciation expense. For 2017, roadway depreciation rates ranged from 0.83% to 29.12%
and equipment depreciation rates ranged from 1.38% to 33%.
Personal Injury
Casualties and other claims expense, included in “Materials and other” in the Consolidated Statements of Income,
includes our accrual for personal injury liabilities.
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. 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.
For a more detailed discussion of the assumptions and estimates in accounting for personal injury see Note 16.
Income Taxes
Our net deferred tax liability totaled $6.3 billion at December 31, 2017 (Note 3). This liability is estimated based
on the expected future tax consequences of items recognized in the financial statements. After application of the
K28
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 $44 million valuation allowance on $366 million of
deferred tax assets as of December 31, 2017, reflecting the expectation that almost all of these assets will be
realized. See discussion of tax reform in Note 3.
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 Railway Labor 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 formed three separate bargaining coalitions and the NCCC has reached
agreements with 2 of these coalitions representing 10 separate unions and approximately 80% of the unionized
workforce. Some of these agreements (applicable to approximately 10% of the unionized workforce) are still
pending ratification by the union membership while the rest have already been ratified and are now final.
Negotiations with the other coalition is ongoing with the assistance of mediators from the National Mediation
Board. In accordance with the Railway Labor Act, current agreements will remain in effect during the statutory
bargaining process. Separately, NS has reached agreement covering wages and work rules through 2019 with the
Brotherhood of Locomotive Engineers and Trainmen (BLET), which represents approximately 4,600 NS engineers.
Market Risks
We manage overall exposure to fluctuations in interest rates by issuing both fixed- and floating-rate debt
instruments. At December 31, 2017, debt subject to interest rate fluctuations totaled $100 million. A one-
percentage point increase in interest rates would increase total annual interest expense related to all variable debt by
approximately $1 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.
K29
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
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 I, 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.”
K30
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, 2017, 2016, and 2015
Consolidated Statements of Comprehensive Income
Years ended December 31, 2017, 2016, and 2015
Consolidated Balance Sheets
At December 31, 2017 and 2016
Consolidated Statements of Cash Flows
Years ended December 31, 2017, 2016, and 2015
Consolidated Statements of Changes in Stockholders’ Equity
Years ended December 31, 2017, 2016, and 2015
Notes to Consolidated Financial Statements
Index to Consolidated Financial Statement Schedule in Item 15
Page
K32
K33
K36
K37
K38
K39
K40
K41
K77
K31
Report of Management
February 5, 2018
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, 2017. 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, 2017.
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, 2017.
/s/ James A. Squires
James A. Squires
Chairman, President and
Chief Executive Officer
/s/ Cynthia C. Earhart
Cynthia C. Earhart
Executive Vice President Finance
and Chief Financial Officer
/s/ Thomas E. Hurlbut
Thomas E. Hurlbut
Vice President and
Controller
K32
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders
Norfolk Southern Corporation:
Opinion on Internal Control Over Financial Reporting
We have audited Norfolk Southern Corporation and subsidiaries’ (the “Company”) internal control over financial
reporting as of December 31, 2017, based on criteria established in Internal Control - Integrated Framework (2013)
issued by the Committee of Sponsoring Organizations of the Treadway Commission. In our opinion, the Company
maintained, in all material respects, effective internal control over financial reporting as of December 31, 2017,
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) (“PCAOB”), the consolidated balance sheets of the Company as of December 31, 2017 and 2016,
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, 2017, and the related notes and financial
statement schedule of valuation and qualifying accounts as listed in Item 15(A)2 (collectively, the “consolidated
financial statements”), and our report dated February 5, 2018 expressed an unqualified opinion on those
consolidated financial statements.
Basis for Opinion
The Company’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 are a public accounting firm registered with the PCAOB and are required to be
independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable
rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. 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 of internal control over financial reporting 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.
Definition and Limitations of Internal Control Over Financial Reporting
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.
K33
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.
/s/ KPMG LLP
KPMG LLP
Norfolk, Virginia
February 5, 2018
K34
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders
Norfolk Southern Corporation:
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of Norfolk Southern Corporation and subsidiaries
(the “Company”) as of December 31, 2017 and 2016, 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, 2017, and the related notes and financial statement schedule of valuation and qualifying accounts as
listed in Item 15(A)2 (collectively, the “consolidated financial statements”). In our opinion, the consolidated
financial statements present fairly, in all material respects, the financial position of the Company as of
December 31, 2017 and 2016, and the results of its operations and its cash flows for each of the years in the three-
year period ended December 31, 2017, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board
(United States) (“PCAOB”), the Company’s internal control over financial reporting as of December 31, 2017,
based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of
Sponsoring Organizations of the Treadway Commission, and our report dated February 5, 2018 expressed an
unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is
to express an opinion on these consolidated financial statements based on our audits. We are a public accounting
firm registered with the PCAOB and are required to be independent with respect to the Company in accordance
with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange
Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of
material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks
of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing
procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the
amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the
accounting principles used and significant estimates made by management, as well as evaluating the overall
presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our
opinion.
/s/ KPMG LLP
KPMG LLP
We have served as the Company’s auditor since 1982.
Norfolk, Virginia
February 5, 2018
K35
Norfolk Southern Corporation and Subsidiaries
Consolidated Statements of Income
Years ended December 31,
2016
($ in millions, except per share amounts)
2015
2017
Railway operating revenues
$
10,551 $
9,888 $
10,511
Railway operating expenses:
Compensation and benefits
Purchased services and rents
Fuel
Depreciation
Materials and other
2,915
1,414
840
1,055
741
2,743
1,548
698
1,026
799
2,911
1,752
934
1,054
976
Total railway operating expenses
6,965
6,814
7,627
Income from railway operations
3,586
3,074
2,884
Other income – net
Interest expense on debt
92
550
71
563
103
545
Income before income taxes
3,128
2,582
2,442
Income taxes
Net income
Per share amounts:
Net income
Basic
Diluted
(2,276)
914
886
$
5,404 $
1,668 $
1,556
$
18.76 $
18.61
5.66 $
5.62
5.13
5.10
See accompanying notes to consolidated financial statements.
K36
Norfolk Southern Corporation and Subsidiaries
Consolidated Statements of Comprehensive Income
2017
Years ended December 31,
2016
($ in millions)
2015
Net income
Other comprehensive income (loss), before tax:
Pension and other postretirement benefits
Other comprehensive income of equity investees
Other comprehensive income (loss), before tax
Income tax benefit (expense) related to items of
other comprehensive income (loss)
Other comprehensive income (loss), net of tax
$
5,404 $
1,668 $
1,556
155
19
174
(43)
131
(74)
5
(69)
27
(42)
(76)
—
(76)
29
(47)
Total comprehensive income
$
5,535 $
1,626 $
1,509
See accompanying notes to consolidated financial statements.
K37
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 $11,909 and
$11,737, 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 $1.00 per share par value, 1,350,000,000 shares
authorized; outstanding 284,157,187 and 290,417,610 shares,
respectively, net of treasury shares
Additional paid-in capital
Accumulated other comprehensive loss
Retained income
Total stockholders’ equity
At December 31,
2016
2017
($ in millions)
$
690 $
955
222
282
2,149
2,981
30,330
251
956
945
257
133
2,291
2,777
29,751
73
$
35,711 $
34,892
$
1,401 $
100
211
233
600
2,545
9,136
1,347
6,324
19,352
1,215
100
245
229
550
2,339
9,562
1,442
9,140
22,483
285
2,254
(356)
14,176
292
2,179
(487)
10,425
16,359
12,409
Total liabilities and stockholders’ equity
$
35,711 $
34,892
See accompanying notes to consolidated financial statements.
K38
Norfolk Southern Corporation and Subsidiaries
Consolidated Statements of Cash Flows
2017
Years ended December 31,
2016
($ in millions)
2015
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
Changes in assets and liabilities affecting operations:
Accounts receivable
Materials and supplies
Other current assets
Current liabilities other than debt
Other – net
$
5,404 $
1,668 $
1,556
1,059
(2,859)
(92)
(41)
35
(71)
135
(317)
1,030
227
(46)
23
42
82
158
(150)
1,059
320
(30)
109
(35)
192
(152)
(111)
Net cash provided by operating activities
3,253
3,034
2,908
Cash flows from investing activities:
Property additions
Property sales and other transactions
Investment purchases
Investment sales and other transactions
(1,723)
202
(7)
47
(1,887)
130
(123)
48
(2,385)
63
(5)
240
Net cash used in investing activities
(1,481)
(1,832)
(2,087)
Cash flows from financing activities:
Dividends
Common Stock transactions
Purchase and retirement of Common Stock
Proceeds from borrowings – net of issuance costs
Debt repayments
(703)
89
(1,012)
290
(702)
(695)
57
(803)
694
(600)
(713)
12
(1,075)
1,185
(102)
Net cash used in financing activities
(2,038)
(1,347)
(693)
Net increase (decrease) in cash and cash equivalents
(266)
(145)
128
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.
K39
956
1,101
973
690 $
956 $
1,101
528 $
705
543 $
593
518
386
$
$
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, 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
Comprehensive income:
Net income
Other comprehensive income
Total comprehensive income
Dividends on Common Stock,
$2.44 per share
Share repurchases
Stock-based compensation
131
5,404
(703)
(945)
(5)
5,404
131
5,535
(703)
(1,012)
130
(8)
1
(59)
134
Balance at December 31, 2017
$
285 $
2,254 $
(356) $
14,176 $
16,359
See accompanying notes to consolidated financial statements.
K40
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 2017): intermodal (23%); coal (17%);
chemicals (16%); agriculture/consumer products/government (15%); metals/construction (13%); automotive (9%);
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 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. 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 $7 million at December 31, 2017 and $4 million at December 31,
2016. 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.
K41
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. “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 composite depreciation rate for rail in high density corridors is derived based on consideration of annual gross
tons 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 the 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).
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 the average percentage of time employees replacing assets spend on
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.
K42
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.
New Accounting Pronouncements
In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (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. Freight revenue will continue to be recognized
proportionally as a shipment moves from origin to destination and other revenues will be recognized as
performance obligations are satisfied. We adopted the standard on January 1, 2018 using the modified retrospective
transition method and the adoption did not have a material effect on our financial position and results of operations.
Certain additional financial statement disclosures are required beginning with 2018 reporting, 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 disclosures within the “Railway Operating Revenues” section of Item 7, “Management’s Discussion
and Analysis of Financial Condition and Results of Operations.”
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 leases greater than twelve months and disclose
key information about leasing arrangements. When implemented, lessees and lessors will be required to measure
and record leases at the present value of the remaining lease payments as of 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 $660 million
in undiscounted 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 anticipate a material impact on our results of operations and 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,
K43
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.
In March 2017, the FASB issued ASU No. 2017-07, “Improving the Presentation of Net Periodic Pension Cost and
Net Periodic Postretirement Benefit Cost.” This update, effective for annual and interim reporting periods
beginning January 1, 2018, will require segregation of these net benefit costs between operating and non-operating
expenses. Currently, we report the net benefit costs associated with our defined benefit and postretirement plans in
the “Compensation and benefits” line item of the Consolidated Statements of Income, as disclosed in Note 11,
“Pensions and Other Postretirement Benefits.” When the ASU is implemented, only the service cost component of
defined benefit pension cost and postretirement benefit cost will be reported within compensation costs, while all
other components of net benefit cost will be presented within the “Other income – net” line item on the
Consolidated Statements of Income. The standard requires retrospective application, and as such the adoption of
this standard will result in offsetting increases in “Compensation and benefits” expense and “Other income – net”
on the Consolidated Statements of Income for all periods of 2017 and 2016, with no impact on net income. We did
not adopt the standard early.
2. Other Income – Net
Rental income
Corporate-owned life insurance – net
Royalties from coal
Interest income
Gains from sale of properties (including joint venture sales)
External advisor costs
Nonoperating depletion and depreciation
Taxes on nonoperating property
Charitable contributions
Other interest expense – net (including debt exchange fees)
Other
Total
3. Income Taxes
2017
2016
($ in millions)
2015
$
87 $
33
19
13
13
—
(4)
(11)
(15)
(17)
(26)
93 $
20
10
10
9
(20)
(4)
(11)
(9)
(6)
(21)
80
(1)
19
8
55
(8)
(5)
(10)
(9)
(4)
(22)
$
92 $
71 $
103
On December 22, 2017, the Tax Cuts and Jobs Act (“tax reform”) was signed into law. Tax reform lowered the
Federal corporate tax rate from 35% to 21% and made numerous other tax law changes. GAAP requires companies
to recognize the effect of tax law changes in the period of enactment. As a result, “Purchased services and rents”
includes a $151 million benefit for earnings generated from reductions to net deferred tax liabilities at certain equity
investees and “Income taxes” includes a $3,331 million benefit primarily due to the remeasurement of our net
deferred tax liabilities to reflect the lower rate. Reasonable estimates were made based on our analysis of tax
reform. These provisional amounts may be adjusted in future periods during 2018 when additional information is
obtained. Additional information that may affect our provisional amounts would include further clarification and
guidance on how the IRS will implement tax reform, including guidance with respect to 100% bonus depreciation
on self-constructed assets, further clarification and guidance on how state taxing authorities will implement tax
reform and the related effect on our state income tax returns, completion of our 2017 tax return filings, any changes
K44
made by our equity method investees, and the potential for additional guidance from the SEC or the FASB related
to tax reform.
Current:
Federal
State
Total current taxes
Deferred:
Federal
State
Total deferred taxes
Income taxes
2017
2016
($ in millions)
2015
$
500 $
83
583
612 $
75
687
(2,924)
65
(2,859)
206
21
227
505
61
566
292
28
320
$
(2,276) $
914 $
886
Reconciliation of Statutory Rate to Effective Rate
“Income taxes” in the Consolidated Statements of Income differs from the amounts computed by applying the
statutory federal corporate tax rate as follows:
2017
2016
2015
Amount
%
Amount % Amount %
($ in millions)
Federal income tax at statutory rate
State income taxes, net of federal tax effect
Excess tax benefits on stock-based compensation
Equity in earnings related to tax reform
Other, net
Tax reform
$
1,095
88
(39)
(38)
(51)
(3,331)
35.0 $
2.8
(1.2)
(1.2)
(1.7)
(106.5)
904
70
(17)
—
(43)
—
35.0 $
2.8
(0.7)
—
(1.7)
—
855
72
—
—
(41)
—
35.0
3.0
—
—
(1.7)
—
Income taxes
$
(2,276)
(72.8) $
914
35.4 $
886
36.3
K45
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,
2017
2016
($ in millions)
$
235 $
64
67
366
(44)
322
464
102
62
628
(39)
589
(6,212)
(434)
(6,646)
(9,301)
(428)
(9,729)
$
(6,324) $
(9,140)
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 $5 million in 2017 and $4 million in 2016.
Uncertain Tax Positions
A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:
December 31,
2017
2016
($ in millions)
Balance at beginning of year
$
27 $
25
Additions based on tax positions related to the current year
Additions for tax positions of prior years
Reductions for tax positions of prior years
Settlements with taxing authorities
Lapse of statutes of limitations
4
2
(2)
(11)
(3)
3
—
—
—
(1)
Balance at end of year
$
17 $
27
K46
Included in the balance of unrecognized tax benefits at December 31, 2017, are potential benefits of $11 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 have amended our 2012 income tax return to
request a refund of $46 million, which is not included in the above balance of unrecognized tax benefits. 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.
4. 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, 2017 or 2016.
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:
2017
2016
Carrying
Amount
Fair
Value
Carrying
Amount
Fair
Value
($ in millions)
Long-term investments
Long-term debt, including current maturities
$
26 $
49 $
116 $
(9,736)
(11,771)
(10,112)
141
(11,626)
K47
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, credit rating, and remaining maturity.
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).
December 31, 2017
Long-term investments
Long-term debt, including current maturities
December 31, 2016
Long-term investments
Long-term debt, including current maturities
$
$
Level 1
Level 2
($ in millions)
Total
4 $
(11,676)
45 $
(95)
49
(11,771)
4 $
(11,427)
137 $
(199)
141
(11,626)
5. Investments
Long-term investments:
Equity method investments:
Conrail Inc.
TTX Company
Meridian Speedway LLC
Pan Am Southern LLC
Other
Total equity method investments
Corporate-owned life insurance at net cash surrender value
Other investments
Total long-term investments
Investment in Conrail
December 31,
2017
2016
($ in millions)
$
1,293 $
629
272
154
77
2,425
530
26
1,199
471
274
155
77
2,176
485
116
$
2,981 $
2,777
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.
K48
At December 31, 2017, based on the funded status of Conrail’s pension plans, we increased our proportional
investment in Conrail by $19 million. This resulted in income of $17 million recorded to “Other comprehensive
income” and a combined federal and state deferred tax liability of $2 million.
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, 2017, the difference between our investment in Conrail and our share of Conrail’s underlying net
equity was $519 million. Our equity in the earnings of Conrail, net of amortization, included in “Purchased
services and rents” was $75 million (including $33 million related to the enactment of tax reform - see Note 3) for
2017, $47 million for 2016, and $42 million for 2015. Equity in earnings are included in the “Other - net” line item
within operating activities in the Consolidated Statements of Cash Flows.
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
$141 million in 2017, $151 million in 2016, and $154 million in 2015. Future minimum lease payments due to CRC
under the Shared Assets Areas agreements are as follows: $38 million in each of 2018 through 2022 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 $146 million at December 31, 2017, and $129 million at December 31, 2016, due to
Conrail for the operation of the Shared Assets Areas. “Other liabilities” includes $280 million at both December 31,
2017 and 2016 for long-term advances from Conrail, maturing in 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 $237
million, $229 million, and $219 million of expense, respectively, for the years ended December 31, 2017, 2016 and
2015. Our equity in the earnings of TTX, also included in “Purchased services and rents,” totaled $158 million
(including $115 million related to the enactment of tax reform - see Note 3) for 2017, $26 million for 2016, and $21
million for 2015.
K49
6. Properties
December 31, 2017
Cost
Accumulated
Depreciation
($ 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
$
2,342 $
— $
2,342
—
6,730
5,181
2,654
447
13,636
28,648
5,658
3,256
610
247
1,004
10,775
(1,961)
(1,374)
(624)
—
(3,523)
(7,482)
(2,158)
(1,286)
(334)
—
(366)
(4,144)
4,769
3,807
2,030
447
10,113
21,166
3,500
1,970
276
247
638
6,631
2.28%
3.37%
2.71%
—
2.59%
3.77%
2.48%
10.61%
—
5.06%
Other property
474
(283)
191
0.77%
Total properties
$
42,239 $
(11,909) $
30,330
K50
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
(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, 2017
and December 31, 2016, with accumulated depletion of $200 million and $199 million, respectively.
Capitalized Interest
Total interest cost incurred on debt was $570 million in 2017, $583 million in 2016, and $566 million in 2015, of
which $20 million in both 2017 and 2016 and $21 million in 2015 was capitalized.
K51
7. Current Liabilities
Accounts payable:
Accounts and wages payable
Casualty and other claims (Note 16)
Due to Conrail (Note 5)
Vacation liability
Other
Total
Other current liabilities:
Interest payable
Pension benefit obligations (Note 11)
Other
Total
8. Debt
Debt with weighted average interest rates and maturities is presented below:
Notes and debentures:
5.32% maturing to 2022
4.42% maturing 2023 to 2031
4.54% maturing 2037 to 2052
6.81% maturing 2097 to 2111
Securitization borrowings and capital leases
Discounts, premiums, and debt issuance costs
Total debt
Less current maturities and short-term debt
December 31,
2017
2016
($ in millions)
$
822 $
187
146
133
113
650
192
129
134
110
$
1,401 $
1,215
$
115 $
17
101
119
16
94
$
233 $
229
December 31,
2017
2016
($ in millions)
$
2,682 $
2,965
4,404
531
102
(848)
9,836
3,232
2,746
3,190
1,328
202
(486)
10,212
(700)
(650)
Long-term debt excluding current maturities and short-term debt
$
9,136 $
9,562
K52
Long-term debt maturities subsequent to 2018 are as follows:
2019
2020
2021
2022
2023 and subsequent years
Total
$
585
314
584
600
7,053
$
9,136
During the fourth quarter of 2017, we issued $750 million of senior notes at 3.94% due 2047 and paid $52 million
of premium in exchange for $613 million of previously issued notes ($241 million at 6% due 2105, $208 million at
4.8% due 2043, $78 million at 7.05% due 2037, $49 million at 7.8% due 2027, $32 million at 7.25% due 2031 and
$5 million at 6% due 2111). The premium is reflected as a reduction of debt in the Consolidated Balance Sheet and
within “Debt repayments” in the Consolidated Statement of Cash Flows and will be amortized as additional interest
expense over the term of the new debt. No gain or loss was recognized as a result of the debt exchange.
During the third quarter of 2017, we issued $750 million of senior notes at 4.05% due 2052 in exchange for $551
million of previously issued notes ($48 million at 7.9% due 2097, $378 million at 6% due 2111, and $125 million at
6% due 2105). No gain or loss was recognized as a result of the debt exchange.
During the second quarter of 2017, we issued $300 million of 3.15% senior notes due 2027.
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 in 2016, and paid $100 million in both 2017 and 2016. The facility expires in
June 2018. At December 31, 2017, the amount outstanding under the facility was $100 million (at an average
variable interest rate of 3.21%). Our intent is to pay the remaining balance by the June 2018 expiration, therefore,
this amount was included within “Short-term debt” at December 31, 2017. At December 31, 2016, the amount
outstanding was $200 million (at an average variable interest rate of 2.47%), with $100 million included within
“Long-term debt” and the remaining $100 million outstanding included in “Short-term debt” in the Consolidated
Balance Sheet. At December 31, 2017 and 2016, the receivables included in “Accounts receivable-net” serving as
collateral for these borrowings totaled $751 million and $704 million, respectively. These borrowings are supported
by our $750 million credit agreement (see below).
Credit Agreement and Debt Covenants
We have in place and available a $750 million, five-year credit agreement which expires in May 2021 and provides
for borrowings at prevailing rates and includes covenants. We had no amounts outstanding under this facility at
December 31, 2017 and 2016, and we are in compliance with all of its covenants.
K53
9. Lease Commitments
We are committed under long-term lease agreements, which expire on various dates through 2067, for equipment,
lines of road and other property. The following amounts do not include payments to CRC under the Shared Assets
Areas agreements (Note 5). Future minimum lease payments and operating lease expense are as follows:
Future Minimum Lease Payments
2018
2019
2020
2021
2022
2023 and subsequent years
Total
Operating Lease Expense
Minimum rents
Contingent rents
Total
Operating
Leases
($ in millions)
$
$
69
66
60
55
51
359
660
2017
2016
($ in millions)
2015
$
$
90 $
79
98 $
73
111
84
169 $
171 $
195
Contingent rents are primarily comprised of usage-based rent paid to other railroads for joint facility operations.
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
K54
December 31,
2017
2016
($ in millions)
$
309 $
296
280
179
113
170
346
333
280
178
112
193
$
1,347 $
1,442
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
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 contribution1
Benefits paid
Fair value of plan assets at end of year
Pension Benefits
2016
2017
Other Postretirement
Benefits
2017
2016
($ in millions)
$
2,420 $
38
80
143
(140)
2,541
2,372 $
36
82
66
(136)
2,420
2,073
423
17
(140)
2,373
2,040
152
17
(136)
2,073
528 $
7
15
6
(46)
510
182
40
25
(46)
201
536
7
16
14
(45)
528
189
17
21
(45)
182
Funded status at end of year
$
(168) $
(347) $
(309) $
(346)
Amounts recognized in the Consolidated
Balance Sheets:
Noncurrent assets
Current liabilities
Noncurrent liabilities
$
145 $
(17)
(296)
2 $
(16)
(333)
— $
—
(309)
—
—
(346)
Net amount recognized
$
(168) $
(347) $
(309) $
(346)
Amounts included in accumulated other comprehensive
loss (before tax):
Net loss
Prior service cost (benefit)
$
781 $
2
940 $
3
11 $
(283)
30
(307)
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 $1 million at December 31,
2017 and $13 million at December 31, 2016.
K55
Our accumulated benefit obligation for our defined benefit pension plans is $2.3 billion and $2.2 billion at
December 31, 2017 and December 31, 2016, respectively. Our unfunded pension plans, included above, which in
all cases have no assets, had projected benefit obligations of $313 million at December 31, 2017 and $286 million
at December 31, 2016, and had accumulated benefit obligations of $267 million and $252 million at December 31,
2017 and December 31, 2016, respectively.
Pension and Other Postretirement Benefit Cost Components
Pension benefits:
Service cost
Interest cost
Expected return on plan assets
Amortization of net losses
Amortization of prior service cost
Net cost (benefit)
Other postretirement benefits:
Service cost
Interest cost
Expected return on plan assets
Amortization of prior service benefit
2017
2016
($ in millions)
2015
$
$
$
38 $
80
(172)
51
1
36 $
82
(173)
51
—
41
93
(165)
65
—
(2) $
(4) $
34
7 $
15
(15)
(24)
7 $
16
(17)
(24)
7
21
(19)
(24)
Net benefit
$
(17) $
(18) $
(15)
Other Changes in Plan Assets and Benefit Obligations Recognized in Other Comprehensive Income
Net gain arising during the year
Amortization of net losses
Amortization of prior service benefit (cost)
Total recognized in other comprehensive income
Total recognized in net periodic cost
and other comprehensive income
2017
Pension
Benefits
Other
Postretirement
Benefits
($ in millions)
$
$
$
(108) $
(51)
(1)
(160) $
(162) $
(19)
—
24
5
(12)
Net actuarial gains arising during the year for pension and other postretirement benefits were due primarily to
higher actual returns on plan assets, partially offset by a decrease in discount rate.
K56
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 $57 million. The estimated 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 is $24 million.
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 rate - service cost
Discount rate - interest cost
Return on assets in plans
Health care trend rate
2017
2016
2015
3.74%
4.21%
4.05%
4.21%
4.30%
4.50%
3.57%
3.83%
4.02%
4.31%
3.43%
8.25%
4.21%
4.17%
3.14%
8.00%
6.56%
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%
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.
Health Care Cost Trend Assumptions
For measurement purposes at December 31, 2017, increases in the per capita cost of pre-Medicare covered health
care benefits were assumed to be 6.3% for 2018. It is assumed the rate will decrease gradually to an ultimate rate of
5.0% for 2023 and remain at that level thereafter.
K57
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 $
10
(1)
(9)
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).
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
Percentage of plan
assets at December 31,
2016
2017
49%
25%
24%
2%
51%
24%
23%
2%
100%
100%
The other postretirement benefit plan assets consist primarily of trust-owned variable life insurance policies with an
asset allocation at December 31, 2017 of 61% in equity securities and 39% in debt securities compared with 67% in
equity securities and 33% in debt securities at December 31, 2016. 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 2018, 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.
K58
Common collective trusts: The readily determinable fair value is based on the published fair value per unit
of the trusts. The common collective trusts hold equity securities, fixed income securities and cash and
cash equivalents.
Commingled funds: The readily determinable fair value is based on the published fair value per unit 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.
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, 2017
Level 2
($ in millions)
Total
$
1,154 $
— $
1,154
—
—
—
23
—
562
397
233
—
4
562
397
233
23
4
Total investments
$
1,177 $
1,196 $
2,373
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
K59
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 on readily determinable fair values.
The other postretirement benefit plan assets consisted of trust-owned life insurance with fair values of $201 million
and $182 million at December 31, 2017 and 2016 respectively, and are valued under level 2 of the fair value
hierarchy. There were no level 1 or level 3 valued assets.
Contributions and Estimated Future Benefit Payments
In 2018, we expect to contribute approximately $17 million to our unfunded pension plans for payments to
pensioners and approximately $43 million to our other postretirement benefit plans for retiree health and death
benefits. We do not expect to contribute to our funded pension plan in 2018.
Benefit payments, which reflect expected future service, as appropriate, are expected to be paid as follows:
2018
2019
2020
2021
2022
Years 2023 – 2027
Other Postretirement Coverage
Pension
Benefits
Other
Postretirement
Benefits
($ in millions)
$
143 $
143
143
144
145
731
42
41
40
38
37
169
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 $44 million in 2017, $37 million in
2016, and $32 million in 2015.
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 $23 million in 2017 and $21 million in both 2016 and 2015.
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
K60
104,125,000 shares of our Common Stock, of which 8,774,768 remain available for future grants as of December
31, 2017.
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, we have no further obligation to make any dividend equivalent
payments unless employment of the participant is terminated as a result of qualifying retirement or disability.
Should an employee terminate employment, they are not required to forfeit dividend equivalent payments already
received. Outstanding PSUs do not receive dividend equivalent payments.
The Committee granted stock options, RSUs and PSUs pursuant to the LTIP and granted stock options pursuant to
the TSOP for the last three years as follows:
2017
2016
2015
Weighted
Average
Grant-Date
Fair Value
Weighted
Average
Grant-Date
Fair Value
Granted
Granted
Granted
Weighted
Average
Grant-Date
Fair Value
Stock options:
LTIP
TSOP
Total
341,120 $
144,440
485,560
37.73
31.33
694,290 $
302,320
996,610
Restricted stock units
Performance share units
83,330
300,334
120.16
88.56
136,250
1,042,628
19.92
14.75
70.44
52.75
643,890 $
181,320
825,210
30.35
24.71
101,470
413,770
104.23
71.66
Receipt of an LTIP award is contingent on the recipient having executed a non-compete agreement with the
company.
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 and tax benefits during the year were:
Stock-based compensation expense
Total tax benefit
$
45 $
54
42 $
31
42
13
2017
2016
($ in millions)
2015
K61
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.
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 2017, 2016, and 2015 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 term 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 2017, 2016, and 2015, a dividend yield of 2.04%, 3.37%, and 2.27%, respectively,
was used for all vested LTIP options and all TSOP options.
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
Average expected option term TSOP
A summary of changes in stock options is presented below:
Outstanding at December 31, 2016
Granted
Exercised
Forfeited
2017
2016
2015
26%
2.51%
8.6 years
8.3 years
27%
2.00%
8.9 years
8.6 years
25%
1.83%
9.3 years
9.1 years
Stock
Options
Weighted
Avg.
Exercise Price
5,554,054 $
485,560
(1,789,939)
(15,608)
72.57
120.25
60.28
90.05
Outstanding at December 31, 2017
4,234,067
83.17
The aggregate intrinsic value of options outstanding at December 31, 2017, was $261 million with a weighted
average remaining contractual term of 6.2 years. Of these options outstanding, 2,221,577 were exercisable and had
K62
an aggregate intrinsic value of $157 million with a weighted average exercise price of $74.06 and a weighted
average remaining contractual term of 4.8 years.
The following table provides information related to options exercised for the last three years:
Options exercised
Total intrinsic value
Cash received upon exercise
Related tax benefits realized
2017
2016
($ in millions)
2015
1,789,939
1,466,721
$
114 $
104
35
60 $
74
13
589,081
27
29
7
At December 31, 2017, total unrecognized compensation related to options granted under the LTIP and the TSOP
was $10 million, and is expected to be recognized over a weighted-average period of approximately 2.2 years. Tax
benefits realized in both 2017 and 2016 are recognized in “Income taxes.” Tax benefits realized in 2015 were
recognized as “Additional paid-in capital.”
Restricted Stock Units
RSUs granted in all three years have a five-year restriction period and will be settled through the issuance of shares
of Common Stock. The RSU grants include cash dividend equivalent payments during the restriction period in an
amount equal to regular quarterly dividends paid on Common Stock.
2017
2016
($ in millions)
2015
RSUs vested
Common Stock issued net of tax witholding
Related tax benefit realized
137,200
81,318
175,500
103,936
$
3 $
1 $
166,750
99,337
4
Tax benefits realized in both 2017 and 2016 are recognized in “Income taxes.” Tax benefits realized in 2015 were
recognized as “Additional paid-in capital.”
A summary of changes in RSUs is presented below:
Nonvested at December 31, 2016
Granted
Vested
Forfeited
Nonvested at December 31, 2017
K63
Weighted-
Average
Grant-Date
Fair Value
RSUs
645,645 $
83,330
(137,200)
(3,370)
80.68
120.16
75.14
108.47
588,405
87.40
At December 31, 2017, total unrecognized compensation related to RSUs was $8 million, and is expected to be
recognized over a weighted-average period of approximately 3.2 years.
Performance Share Units
PSUs provide for awards based on the achievement of certain predetermined corporate performance goals at the end
of a three-year cycle and are settled through the issuance of shares of Common Stock. All PSUs will earn out based
on the achievement of performance conditions and some will also earn out based on a market condition. The
market condition fair value was measured on the date of grant using a Monte Carlo simulation model.
2017
2016
($ in millions)
2015
PSUs earned
Common Stock issued net of tax witholding
Related tax benefit realized
171,080
99,805
406,038
241,757
$
1 $
3 $
236,601
141,386
3
Tax benefits realized in both 2017 and 2016 are recognized in “Income taxes.” Tax benefits realized in 2015 were
recognized as “Additional paid-in capital.”
A summary of changes in PSUs is presented below:
Balance at December 31, 2016
Granted
Earned
Unearned
Forfeited
Balance at December 31, 2017
Weighted-
Average
Grant-Date
Fair Value
61.17
88.56
68.67
74.93
58.09
63.36
PSUs
1,849,008 $
300,334
(171,080)
(226,780)
(2,730)
1,748,752
At December 31, 2017, total unrecognized compensation related to PSUs granted under the LTIP was $6 million,
and is expected to be recognized over a weighted-average period of approximately 1.8 years.
K64
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
13. Stockholders’ Equity
Common Stock
2017
2016
2015
8,774,768
410,895
9,385,674
544,217
11,769,796
832,676
1,679,547
291,515
1,511,645
300,769
708,059
121,745
Common Stock is reported net of shares held by our consolidated subsidiaries (Treasury Shares). Treasury Shares
at December 31, 2017 and 2016 amounted to 20,320,777, with a cost of $19 million at both dates.
Accumulated Other Comprehensive Loss
The components of “Other comprehensive income (loss)” reported in the Consolidated Statements of
Comprehensive Income and changes in the cumulative balances of “Accumulated other comprehensive loss”
reported in the Consolidated Balance Sheets consisted of the following:
Balance
at
Beginning
of Year
Net Income
(Loss)
Reclassification
Adjustments
($ in millions)
Balance
at End
of Year
Year ended December 31, 2017
Pensions and other postretirement
liabilities
Other comprehensive income
of equity investees
$
(414)
$
(73)
$
95
17
Accumulated other comprehensive loss $
(487)
$
112
$
Year ended December 31, 2016
Pensions and other postretirement
liabilities
Other comprehensive income
of equity investees
$
(367)
$
(64)
$
(78)
5
Accumulated other comprehensive loss $
(445)
$
(59)
$
19
—
19
17
—
17
$
$
$
$
(300)
(56)
(356)
(414)
(73)
(487)
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Other Comprehensive Income (Loss)
“Other comprehensive income (loss)” reported in the Consolidated Statements of Comprehensive Income consisted
of the following:
Year ended December 31, 2017
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 income
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
14. Stock Repurchase Program
Pretax
Amount
Tax
(Expense)
Benefit
($ in millions)
Net-of-Tax
Amount
$
127 $
(32) $
28
155
19
(9)
(41)
(2)
95
19
114
17
$
$
$
$
$
174 $
(43) $
131
(101) $
37 $
(64)
27
(74)
5
(10)
27
—
17
(47)
5
(69) $
27 $
(42)
(117) $
45 $
(72)
41
(16)
25
(76) $
29 $
(47)
We repurchased and retired 8.2 million, 9.2 million, and 11.3 million shares of Common Stock under our stock
repurchase program in 2017, 2016, and 2015, respectively, at a cost of $1.0 billion, $803 million, and $1.1 billion,
respectively. On September 26, 2017, our Board of Directors authorized the repurchase of up to an additional 50
million shares of Common Stock through December 31, 2022. As of December 31, 2017, 56.5 million shares
remain authorized for repurchase. Since the beginning of 2006, we have repurchased and retired 168.5 million
shares at a total cost of $11.3 billion.
K66
15. Earnings Per Share
The following table sets forth the calculation of basic and diluted earnings per share:
Basic
2016
Diluted
2016
2015
2017
($ in millions except per share amounts, shares in millions)
2017
2015
Net income
Dividend equivalent payments
$ 5,404 $ 1,668 $ 1,556 $ 5,404 $ 1,668 $ 1,556
(5)
(4)
(6)
(5)
(4)
(2)
Income available to common stockholders
$ 5,400 $ 1,663 $ 1,550 $ 5,402 $ 1,664 $ 1,551
Weighted-average shares outstanding
Dilutive effect of outstanding options
and share-settled awards
Adjusted weighted-average shares outstanding
287.9
293.9
301.9
287.9
293.9
301.9
2.4
290.3
2.1
296.0
2.5
304.4
Earnings per share
$ 18.76 $
5.66 $
5.13 $ 18.61 $
5.62 $
5.10
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 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 of 0.2 million, 1.3
million, and 0.9 million for the years ended December 31, 2017, 2016 and 2015, respectively.
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 in 2011 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, and 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
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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.
In 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. In 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. On October 10, 2017, the District Court denied class certification; the findings are subject
to appeal. 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 personal injury and occupational claims are subject to the 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 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.
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
K68
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 reasonably estimable. Environmental engineers regularly participate in ongoing
evaluations of all known sites and in determining any necessary adjustments to liability estimates.
Our Consolidated Balance Sheets include liabilities for environmental exposures of $58 million at December 31,
2017, and $67 million at December 31, 2016, (of which $15 million is classified as a current liability at the end of
both 2017 and 2016). At December 31, 2017, the liability represents our estimates of the probable cleanup,
investigation, and remediation costs based on available information at 127 known locations and projects compared
with 134 locations and projects at December 31, 2016. At December 31, 2017, 15 sites accounted for $37 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.
At thirteen 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.
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.
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Purchase Commitments
At December 31, 2017, we had outstanding purchase commitments totaling approximately $1.1 billion for
locomotives, track material, long-term service contracts, track and yard expansion projects in connection with our
capital programs as well as freight cars and containers through 2022.
Change-In-Control Arrangements
We have compensation agreements with certain officers and key employees that become operative only upon a
change in control of Norfolk Southern, as defined in those agreements. The agreements provide generally for
payments based on compensation at the time of a covered individual’s involuntary or other specified termination
and for certain other benefits.
Indemnifications
In a number of instances, we have agreed to indemnify lenders for additional costs they may bear as a result of
certain changes in laws or regulations applicable to their loans. Such changes may include impositions or
modifications with respect to taxes, duties, reserves, liquidity, capital adequacy, special deposits, and similar
requirements relating to extensions of credit by, deposits with, or the assets or liabilities of such lenders. The nature
and timing of changes in laws or regulations applicable to our financings are inherently unpredictable, and therefore
our exposure in connection with the foregoing indemnifications cannot be quantified. No liability has been
recorded related to these indemnifications.
K70
NORFOLK SOUTHERN CORPORATION AND SUBSIDIARIES
QUARTERLY FINANCIAL DATA
(Unaudited)
2017
Railway operating revenues
Income from railway operations
Net income
Earnings per share:
Basic
Diluted
2016
Railway operating revenues
Income from railway operations
Net income
Earnings per share:
Basic
Diluted
Three Months Ended
March 31
June 30
September 30 December 31
($ in millions, except per share amounts)
$
$
2,575 $
773
433
2,637 $
888
497
1.49
1.48
1.72
1.71
2,420 $
723
387
2,454 $
770
405
1.30
1.29
1.37
1.36
2,670 $
911
506
1.76
1.75
2,524 $
820
460
1.56
1.55
2,669
1,014
3,968
13.91
13.79
2,490
761
416
1.43
1.42
Note: In the fourth quarter of 2017, as a result of the enactment of tax reform, “Income from railway operations”
includes a $151 million benefit and income taxes includes a $3,331 million benefit, which added $3,482 million to
“Net income,” $12.21 to “Earnings per share - basic,” and $12.10 to “Earnings per share - diluted.”
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Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A. Controls and Procedures
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, 2017. Based on such
evaluation, our officers have concluded that, at December 31, 2017, 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.
Management’s Annual Report on 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.
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 of
five 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, 2017. These reports appear in Part II, Item 8 of this report on Form 10-K.
Changes in Internal Control Over Financial Reporting
During the fourth quarter of 2017, 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.
K72
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 2018 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 “2017
Grants of Plan-Based Awards” table, including the narrative to such tables, the “Outstanding Equity Awards
at Fiscal Year-End 2017” and “Option Exercises and Stock Vested in 2017” 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 2018 Annual Meeting of Stockholders, which
definitive Proxy Statement will be filed electronically with the SEC pursuant to Regulation 14A.
K73
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 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 2018 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, 2017)
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)
5,916,679 (4) $
83.00 (5)
8,774,768
959,376
83.77
419,895 (6)
Total
6,876,055
9,194,663
(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 2,641,988 outstanding RSUs and PSUs at December 31, 2017.
(6) Reflects shares remaining available for grant under TSOP.
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.
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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 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 2017 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 2017 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 2017 RSU awards, RSUs will be settled in
shares of Common Stock.
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.
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Norfolk Southern Corporation Directors’ Restricted Stock Plan (Plan)
The Plan was adopted on January 1, 1994, and was 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.
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 additional shares may be granted under the Plan. 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.
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 2018 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 2018 Annual Meeting of Stockholders, which
definitive Proxy Statement will be filed electronically with the SEC pursuant to Regulation 14A.
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Item 15. Exhibits, Financial Statement Schedules
NORFOLK SOUTHERN CORPORATION AND SUBSIDIARIES
PART IV
(A)
The following documents are filed as part of this report:
1.
Index to Financial Statements
Report of Management
Reports of Independent Registered Public Accounting Firm
Consolidated Statements of Income, Years ended December 31, 2017, 2016, and 2015
Consolidated Statements of Comprehensive Income, Years ended December 31, 2017,
2016, and 2015
Consolidated Balance Sheets at December 31, 2017 and 2016
Consolidated Statements of Cash Flows, Years ended December 31, 2017, 2016, and
2015
Consolidated Statements of Changes in Stockholders’ Equity, Years ended December 31,
2017, 2016, and 2015
Notes to Consolidated Financial Statements
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
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
2.1
Description
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. (SEC File No. 001-08339)
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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. (SEC File No. 001-08339)
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. (SEC File No. 001-08339)
The Bylaws of Norfolk Southern Corporation, as amended January 22, 2018, are
incorporated by reference to Exhibit 99.1 to Norfolk Southern Corporation’s Form 8-K
filed on January 22, 2018. (SEC File No. 001-08339)
Instruments Defining the Rights of Security Holders, Including Indentures:
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 (SEC File 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. (SEC
File No. 001-08339)
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. (SEC File No. 001-08339)
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. (SEC File No.
001-08339)
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. (SEC File No. 001-08339)
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. (SEC File No. 001-08339)
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. (SEC File No.
001-08339)
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. (SEC File No.
001-08339)
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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. (SEC File No.
001-08339)
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. (SEC File
No. 001-08339)
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. (SEC File No. 001-08339)
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. (SEC File No. 001-08339)
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. (SEC File No.
001-08339)
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. (SEC File No.
001-08339)
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. (SEC File No. 001-08339)
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. (SEC File No. 001-08339)
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. (SEC File No.
001-08339)
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. (SEC File No. 001-08339)
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. (SEC File No. 001-08339)
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. (SEC File No.
001-08339)
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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. (SEC File No. 001-08339)
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.
(SEC File No. 001-08339)
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. (SEC File No. 001-08339)
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. (SEC File No.
001-08339)
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. (SEC File No. 001-08339)
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. (SEC File No.
001-08339)
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.
(SEC File No. 001-08339)
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. (SEC File No.
001-08339)
Fourth Supplemental Indenture, dated as of May 31, 2017, between the Registrant and
U.S. Bank National Association, as Trustee, is incorporated by reference to Exhibit 4.1 to
the Corporation’s Form 8-K filed May 31, 2017. (SEC File No. 001-08339)
Indenture dated as of August 15, 2017, between the Registrant and U.S. Bank National
Association, as Trustee, is incorporated by reference herein to Exhibit 4.1 to Norfolk
Southern Corporation’s Form 8-K filed August 15, 2017. (SEC File No. 001-08339)
Registration Rights Agreement dated as of August 15, 2017. The Agreement is
incorporated by reference herein to Exhibit 4.2 to Norfolk Southern Corporation’s Form
8-K filed August 15, 2017. (SEC File No. 001-08339)
Indenture, dated as of November 16, 2017, between the Registrant and U.S. Bank
National Association, as Trustee, is incorporated by reference herein to Exhibit 4.1 to
Norfolk Southern Corporation’s Form 8-K filed November 16, 2017. (SEC File No.
001-08339)
Registration Rights Agreement, dated as of November 16, 2017, between Norfolk
Southern Corporation and Merrill Lynch, Pierce, Fenner & Smith Incorporated, is
incorporated by reference herein to Exhibit 4.2 to Norfolk Southern Corporation’s Form
8-K filed November 16, 2017. (SEC File No. 001-08339)
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.
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Material Contracts -
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. (SEC File No. 001-08339)
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. (SEC File
No. 001-08339)
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. (SEC File No.
001-08339)
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. (SEC File No. 001-08339)
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. (SEC File No. 001-08339)
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. (SEC File No. 001-08339)
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.
(SEC File No. 001-08339)
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. (SEC File No.
001-08339)
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. (SEC File No. 001-08339)
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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.
(SEC File No. 001-08339)
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. (SEC File No. 001-08339)
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. (SEC File No. 001-08339)
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. (SEC File No. 001-08339)
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.
(SEC File No. 001-08339)
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.
(SEC File No. 001-08339)
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). (SEC File No. 001-08339)
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. (SEC File No. 001-08339)
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. (SEC File No. 001-08339)
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. (SEC File No. 001-08339)
The Norfolk Southern Corporation Directors’ Restricted Stock Plan, adopted January 1,
1994, and amended and restated effective as of January 23, 2015, is incorporated by
reference to Exhibit 10.1 to Norfolk Southern Corporation’s Form 10-Q filed on
October 25, 2017. (SEC File No. 001-08339)
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Supplemental Benefit Plan of Norfolk Southern Corporation and Participating Subsidiary
Companies, adopted June 1, 1982, as amended and restated effective as of June 26, 2015,
is incorporated by reference to Exhibit 10.2 to Norfolk Southern Corporation’s Form 10-
Q filed on October 25, 2017. (SEC File No. 001-08339)
Retirement Plan of Norfolk Southern Corporation and Participating Subsidiary
Companies effective June 1, 1982, as amended and restated effective January 1, 2016, is
incorporated by reference to Exhibit 10(hh) to Norfolk Southern Corporation’s Form 10-
K file on February 6, 2017. (SEC File No. 001-08339)
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. (SEC File No. 001-08339)
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. (SEC File No. 001-08339)
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. (SEC File No.
001-08339)
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. (SEC File No. 001-08339)
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The Norfolk Southern Corporation Long-Term Incentive Plan, as approved by
shareholders May 14, 2015, and as amended July 29, 2016, November 29, 2016, and
November 28, 2017. (SEC File No. 001-08339)
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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). (SEC File No.
001-08339)
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. (SEC File No.
001-08339)
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. (SEC File No. 001-08339)
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. (SEC File No. 001-08339)
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. (SEC File No. 001-08339)
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Amendment No. 1 to Transfer and Administration Agreement dated as of November 8,
2007, and effective as of October 22, 2008, is incorporated by reference to Exhibit 99 to
Norfolk Southern Corporation’s Form 8-K filed on October 23, 2008. (SEC File No.
001-08339)
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. (SEC File No. 001-08339)
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. (SEC File No.
001-08339)
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. (SEC File No.
001-08339)
Amendment No. 5, dated as of January 5, 2010, 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. (SEC File No.
001-08339)
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. (SEC File No.
001-08339)
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. (SEC File No.
001-08339)
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. (SEC File No.
001-08339)
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. (SEC File No.
001-08339)
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. (SEC File No.
001-08339)
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. (SEC File No. 001-08339)
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. (SEC File No.
001-08339)
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. (SEC File No.
001-08339)
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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). (SEC File No. 001-08339)
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. (SEC File No. 001-08339)
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.
(SEC File No. 001-08339)
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. (SEC File No. 001-08339)
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. (SEC File No. 001-08339)
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. (SEC File No. 001-08339)
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. (SEC File No.
001-08339)
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).
(SEC File No. 001-08339)
Form of Norfolk Southern Corporation Long-Term Incentive Plan, Award Agreement for
Outside Directors as approved by the Compensation Committee on November 28, 2016,
is incorporated by reference to Exhibit 10(ggg) to Norfolk Southern Corporation’s Form
10-K filed on February 6, 2017. (SEC File No. 001-08339)
(ddd)*,**
(eee)*,**
(fff)*,**
Form of Norfolk Southern Corporation Long-Term Incentive Plan, Award Agreement for
performance share units approved by the Compensation Committee on November 27,
2017. (SEC File No. 001-08339)
Form of Norfolk Southern Corporation Long-Term Incentive Plan, Award Agreement for
non-qualified stock options approved by the Compensation Committee on November 27,
2017. (SEC File No. 001-08339)
Form of Norfolk Southern Corporation Long-Term Incentive Plan, Award Agreement for
restricted stock units approved by the Compensation Committee on November 27, 2017.
(SEC File No. 001-08339)
K85
(ggg)*
(hhh)
(iii)
(jjj)*
(kkk)*
(lll)*
(mmm)
12**
21**
23**
31-A**
31-B**
32**
99**
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, is incorporated by reference to Exhibit 10(kkk) to
Norfolk Southern Corporation’s 10-K filed on February 6, 2017. (SEC File No.
001-08339)
Performance Criteria for bonuses payable in 2019 for the 2018 incentive year. On
November 27, 2017, the Compensation Committee of the Norfolk Southern Corporation
Board of Directors adopted the following performance criteria for determining bonuses
payable in 2019 for the 2018 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.
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. (SEC File No.
001-08339)
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.
(SEC File No. 001-08339)
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, is
incorporated by reference to Exhibit 10(ooo) to Norfolk Southern Corporation’s Form 10-
K filed on February 8, 2016. (SEC File No. 001-08339)
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, is incorporated by reference to Exhibit
10(ppp) to Norfolk Southern Corporation’s Form 10-K filed on February 6, 2017. (SEC
File No. 001-08339)
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. (SEC
File No. 001-08339)
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).
K86
101**
(B)
(C)
The following financial information from Norfolk Southern Corporation’s Annual Report
on Form 10-K for the year ended December 31, 2017, formatted in Extensible Business
Reporting Language (XBRL) includes: (i) the Consolidated Statements of Income of
each of the years ended December 31, 2017, 2016, and 2015; (ii) the Consolidated
Statements of Comprehensive Income for each of the years ended December 31, 2017,
2016, and 2015; (iii) the Consolidated Balance Sheets at December 31, 2017 and 2016;
(iv) the Consolidated Statements of Cash Flows for each of the years ended December
31, 2017, 2016, and 2015; (v) the Consolidated Statements of Changes in Stockholders’
Equity for each of the three years ended December 31, 2017, 2016, and 2015; and (vi) the
Notes to Consolidated Financial Statements.
* Management contract or compensatory arrangement.
** Filed herewith.
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.
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 2017 Form 10-K posted on our website at
www.norfolksouthern.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
Item 16. Form 10-K Summary
Not applicable.
K87
POWER OF ATTORNEY
Each person whose signature appears on the next page under SIGNATURES hereby authorizes William A. Galanko
and Cynthia C. Earhart, 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 Cynthia C. Earhart, 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 5th day of February, 2018.
/s/ James A. Squires
By: James A. Squires
(Chairman, President and Chief Executive Officer)
K88
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below on this 5th
day of February, 2018, 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/ Cynthia C. Earhart
(Cynthia C. Earhart)
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/ 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/ Jennifer F. Scanlon
(Jennifer F. Scanlon)
Director
/s/ John R. Thompson
(John R. Thompson)
Director
K89
Norfolk Southern Corporation and Subsidiaries
Valuation and Qualifying Accounts
Years ended December 31, 2015, 2016, and 2017
($ in millions)
Schedule II
Beginning
Balance
Additions charged to:
Other
Accounts
Expenses
Deductions
Ending
Balance
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
Year ended December 31, 2017
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
$
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
$
39
$
5
$
— $
— $
44
178
192
83 (1)
—
82 (3)
179
17
124 (2)
146 (4)
187
(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.
K90
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Intentionally Left Blank
Intentionally Left Blank
Intentionally Left Blank
Intentionally Left Blank
Intentionally Left Blank
SHAREHOLDER INFORMATION
COMMON STOCK
Ticker symbol: NSC
Our common stock is listed and traded
on the New York Stock Exchange.
DIVIDENDS
At its January 2018 meeting, our board
of directors declared a quarterly dividend
of 72 cents per share on the company’s
common stock, payable on March 10, 2018,
to shareholders of record on Feb. 2, 2018.
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 142 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.astfinancial.com. Once you are on this
page, you may go to Client Login/Shareholders/
Buy Shares Direct to access information about
the INVESTORS CHOICE Plan.
PUBLICATIONS
The following reports and publications
are available on our website at
www.norfolksouthern.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
Cynthia C. Earhart
Executive Vice
President Finance and
Chief Financial Officer
Norfolk Southern Corp.
Three Commercial Place
Norfolk, Va. 23510
757.629.2734
Investor
Inquiries
Claiborne L. Moore
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
Norfolk Southern Corp.
1200 Peachtree St. N.E.
Atlanta, Ga. 30309
Annual Report
Norfolk Southern Corp.
Requests & Information
800.531.6757
Three Commercial Place
Norfolk, Virginia 23510
www.norfolksouthern.com
© 2018 Norfolk Southern Corporation
All Rights Reserved
10.032018.12101.75K