FINANCIAL HIGHLIGHTS
NORFOLK SOUTHERN CORPORATION & SUBSIDIARIES
DESCRIPTION
OF BUSINESS
Norfolk Southern
Corporation (NYSE:
NSC) is one of the
nation’s premier
transportation
companies. Its
Norfolk Southern
Railway Company
subsidiary operates
approximately
19,500 route miles
in 22 states and the
District of Columbia,
serves every major
container port in the
eastern United States,
and provides efficient
connections to
other rail carriers.
Norfolk Southern is a
major transporter of
industrial products,
including chemicals,
agriculture, metals and
construction materials,
and forest products.
In addition, the
railroad operates the
most extensive
intermodal network
in the East and is
a principal carrier
of coal, automobiles,
and automotive parts.
FOR THE YEAR
(numbers in millions, except per-share amounts)
Railway operating revenues
Income from railway operations1,2
Net income1
Per share – diluted1
Dividends per share
Dividend payout ratio1
Net cash provided by operating activities
Property additions
Free cash flow3
AT YEAR END
Total assets
Total debt
Stockholders’ equity
Shares outstanding
FINANCIAL RATIOS
Operating ratio1,2
Debt-to-total-capitalization ratio
2018
11,458
3,959
2,666
9.51
3.04
32%
3,726
1,951
1,775
$
$
$
$
$
$
$
$
2017
$ 10,551
$
$
$
$
$
$
$
3,371
1,922
6.61
2.44
37%
3,253
1,723
1,530
2016
9,888
3,009
1,668
5.62
2.36
42%
3,034
1,887
1,147
$
$
$
$
$
$
$
$
$ 36,239
$ 35,711
$ 34,892
$
$
11,145
15,362
268.1
$ 9,836
$
10,212
$ 16,359
$ 12,409
284.2
290.4
65.4%
42.0%
68.1%
37.5%
69.6%
45.1%
Total Stockholder Returns4
(in dollars)
Railway
Operating
Revenues
(in millions)
Income from
Railway
Operations
(in millions)
Free Cash Flow 3
(in millions)
$11,458
$10,551
$9,888
$3,959
$3,371
$3,009
$1,775
$1,530
$1,147
$ 200
$
150
$ 100
$ 50
$
0
12/13
12/14
12/15
12/16
12/17
12/18
n Norfolk Southern Corp. Common Stock
n S&P Railroad Stock Price Index
n S&P Composite-500 Stock Price Index
2018
2017
2016
2018
2017
1,2
2
2016
2018
2017
2016
1 Our 2017 financial results included the effects of remeasurement of net deferred tax liabilities
(“2017 tax adjustments”) resulting from the enactment of the Tax Cuts and Jobs Act. For purposes
of period-over-period comparability, 2017 results for income from railway operations, net income,
net income per share – diluted, dividend payout ratio, and operating ratio have been adjusted
to exclude the effects of the 2017 tax adjustments, and are considered non-GAAP financial
measures. The 2017 dividend payout ratio is dividends paid ($703M) as a percentage of net
income ($1,922M). For more information, see the “Reconciliation of Non-GAAP Financial Measures”
on page K19 of our Annual Report on Form 10-K for the fiscal year ended Dec. 31, 2018.
3 Free cash flow is considered a non-GAAP financial measure and is a measure of cash
available for other investing and financing activities, 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 ($1,775M) is net cash provided by
operating activities ($3,726M) reduced by payments for property additions ($1,951M).
2 We adopted Financial Accounting Standards Board Accounting Standards Update 2017–07
“Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement
Benefit Cost” on Jan. 1, 2018. The retrospective application resulted in an offsetting increase
in “compensation and benefits” expense within “railway operating expenses” and an increase
to “other income-net” on the Consolidated Statements of Income of $64M and $65M for 2017
and 2016, respectively.
4 This graph compares cumulative stockholder returns on Norfolk Southern Corporation
common stock with the other identified indices. It assumes an investment of $100 in NSC
common stock and each index on Dec. 31, 2013, and that all dividends were reinvested
over the five-year period. Data furnished by Bloomberg Financial Markets.
DEAR FELLOW SHAREHOLDERS:
2018 was another year of record
financial results for Norfolk Southern
— and a year in which we began
Reimagining Norfolk Southern
through a comprehensive review
of strategy. As we begin 2019, we
are hard at work on initiatives to
drive shareholder value, from new
ways of operating the railroad to
new ways of marketing our services.
A year of growth and record
financial performance
Thanks to the efforts of our management
team and employees, in 2018 Norfolk
Southern continued to deliver on our
financial commitments to shareholders.
Guided by the five-year strategic plan
we announced in late 2015, the company
achieved an all-time best operating ratio
of 65.4 – the third consecutive year of
improvement – and record income from
railway operations, up by double digits.
Earnings per share1 of $9.51 also was
a record and up by double digits absent
2017 adjustments from tax reform.
A strong economy in 2018 gave us
opportunities to increase volume and
revenue. Our total railway operating
revenue grew 9 percent year-over-year
and surpassed $11 billion for the first
time since 2014. Intermodal revenue
grew an impressive 18 percent, bolstered
by a 7 percent volume increase and
pricing gains in a tight trucking market.
Merchandise revenue grew 6 percent
on volume growth of 1 percent. Coal
revenue was up 5 percent, despite a
1 percent decline in carloads. Across all
three major groups, revenue-per-unit
increased an average of 4 percent
year-over-year, reflecting favorable
traffic mix and strong pricing.
With the expectation we would meet
our prior strategic plan’s 2020 financial
goals ahead of schedule, we began work
on a new plan in mid-2018. On Feb. 11, 2019,
we unveiled the new plan, announcing
productivity and growth initiatives to
achieve an operating ratio of 60 by 2021.
1 The comparison for earnings per share is to a non-GAAP financial measure. For more information, see the “Reconciliation
of Non-GAAP Financial Measures” on page K19 of our Annual Report on Form 10-K for the fiscal year ended Dec. 31, 2018.
NORFOLK SOUTHERN | 1
Reimagining operations by focusing on service,
productivity, costs, safety, and people
Five core principles underpin the transformation of our operations:
serving the customer, managing assets, controlling costs, working
safely, and developing people.
Kick-starting this effort across our network in 2018, we began “Clean
Sheeting” yards, to turn rail cars more quickly and provide more
consistent local service. Those Clean Sheeting efforts will lay the
foundation for our new operating plan, TOP21. Under TOP21 we will:
run fewer, larger trains; balance network and asset flows; decrease
circuity; reduce classification events; and fully integrate local and
system operations. A newly established Network Planning and
Optimization Department will be responsible for ensuring TOP21 is
executable by our field forces, responsive to our customers’ needs,
rigorously adhered to, and financially sound. Supporting these efforts,
in 2018 we opened a state-of-the-art Network Operations Center in
Atlanta that, for the first time, brings together under one roof all
departments involved in the movement and safe operation of trains.
Our commitment to sustainable business practices will bolster our
efforts to manage assets and control costs. In 2018, we achieved
gains on efficiency measures such as train length and locomotive
productivity, and we increased traffic volumes while keeping overall
employment levels relatively flat. Since 2015, the company has
improved locomotive fuel economy by over 6 percent, generating
substantial savings in fuel costs and reducing our carbon footprint.
Norfolk Southern’s highest priority is the safety of our employees
and the safe operation of trains in the communities we serve. In 2018,
the employee reportable-injury ratio remained stable, while serious
workplace injuries declined for the second consecutive year. Norfolk
Southern provided training and other resources at no cost to more
than 6,200 first responders last year to help them prepare for
and safely respond to possible rail-related incidents. The company’s
safety train stopped in over 20 cities
across 15 states, while our safety and
environmental personnel participated in
nearly 20 table-top drills in communities
across our network. We were honored to
receive the American Chemistry Council’s
Responsible Care® Partner of the Year award
for exemplary performance and safety in the
transport of chemical products. Through
behavior-based safety practices, rules
compliance, on-the-job safety briefings,
and ongoing workplace safety checkups,
Norfolk Southern is striving for zero
injuries and incidents.
Below: In an innovative program
to modernize our locomotive
fleet, Norfolk Southern is
converting older GE Dash 9
and EMD SD70 models from
DC to AC traction power.
Increasing the fleet’s reliability
and productivity, the conversions
produce like-new locomotives
at significant cost savings over
buying new models. Prototypes
of the converted AC units are
pictured here at our Juniata
Locomotive Shop in Altoona,
Pennsylvania. NS mechanical
teams at Altoona and Roanoke,
Virginia, and industry partners
are performing the conversions.
2 | 2018 ANNUAL REPORT
Norfolk Southern achieved a milestone in
positive train control technology in 2018.
By year-end, capping years of hard work,
we had completed installing wayside and
locomotive hardware, acquired all radio
spectrum, trained over 18,700 employees,
and started operating PTC-equipped
trains on a majority of required track. With
these accomplishments, we received a
congressionally approved extension to the
end of 2020 for full PTC implementation.
While significant challenges remain to
achieve industry interoperability, Norfolk
Southern is determined to tap the full
potential of PTC not only to enhance
safety but as a system that will support
next-generation freight rail operations.
Reimagining growth – a technology
company that operates trains
Top-line growth is a key component of
our new strategic plan. As we look into
the future, we currently see favorable
economic conditions. Unemployment is
low, manufacturing activity is high, and
customers are investing. Our franchise
has both cyclical and structural growth
potential. To grow successfully, we will:
ensure pricing reflects the value of our
product in the marketplace; direct railroad
assets to their most valuable use within
our rights; understand the cost of our
service; and make sure our service is
executable. With these objectives in
mind, TOP21 provides the platform for
top-line growth, margin improvement,
and shareholder value.
We aim to be the industry leader in the use
of technology to advance our top- and
bottom-line goals. In 2018, we released
a new online portal that provides real-time
data about shipments and other customized
features that make it easier to do business
with us. We followed with a mobile
application that allows customers to do
business with us anywhere they are. We
are harnessing predictive analytics to add
to the value of our service to our customers
while improving our own efficiency.
Above: Norfolk
Southern has
installed radio
towers, wayside
radios and
interface units,
and signals to
accommodate
positive train
control operations
on approximately
8,000 miles of
PTC-required
track, including
our Chicago Line,
pictured here.
A westbound
double-stack
intermodal train
moves over the
line past PTC-
equipped track in
northwest Ohio.
Last year, we formed strategic partnerships
with various technology businesses and
associations to foster the development
and deployment of technologies that will
enhance safety of operations, streamline
supply-chain logistics, improve how we train
employees, and increase the efficiency of
rail operations.
Reimagining culture
Changes to our operating philosophy
demand that we reimagine culture. To
succeed, we must get the right people in
the right jobs with the right organizational
structure. Toward this end, in 2018 we
recruited top industry veterans with
deep experience in precision scheduled
railroading operations. We renewed
emphasis on developing and retaining
talented employees. We enhanced job
benefits, expanded technology-enabled
learning, and initiated quarterly “pulse”
surveys to better understand what our
employees need to thrive. Norfolk Southern
became the first Class I railroad to join the
CEO Action for Diversity and Inclusion
coalition, pledging to cultivate a workplace
environment that welcomes diversity and
inclusion. As part of that commitment,
we introduced unconscious bias training
for employees to advance our goal of
becoming a more diverse and inclusive
company. In late 2018, we announced plans
to consolidate our Norfolk and Atlanta
business operations into a single Atlanta
corporate headquarters, a move we
believe will foster increased alignment.
NORFOLK SOUTHERN | 3
Network reinvestment, returning
cash to shareholders, effective
corporate governance
In support of our strategic goals,
Norfolk Southern continues to make
investments in railway infrastructure
to ensure safe and efficient operations.
In 2018, the company invested close to $2 billion in capital improvements,
including nearly $1.3 billion in roadway projects and $675 million in
equipment. During the year, we installed 416 track-miles of rail, resurfaced
4,594 miles of track with ballast, and installed 2.2 million new crossties.
While reinvesting in our business, we also fulfilled our
commitment to return capital to our shareholders. The
company’s board raised the quarterly dividend twice
in 2018, for an overall increase of 31 percent and total
payouts of $844 million. In addition, we repurchased
nearly $2.8 billion of the company’s shares.
We are fortunate to have an exceptionally qualified
board with senior-level expertise across a range
of business sectors, providing us with a diversity
of skills, experience, and perspectives. Our highly
independent board is actively involved in our
strategic plan and in monitoring progress toward
our goals.
A railroad that reimagines possible
As we Reimagine Norfolk Southern, we are building
a stronger company for our customers, our employees,
and our shareholders. Through the hard work and
determination of our employees, we have delivered on
the financial commitments made to our shareholders.
Our progress gives us confidence we can achieve
even more. The momentum we have today is exciting, and I feel strongly
that our focus on serving customers, managing assets, controlling costs,
working safely, and developing people will deliver superior shareholder
value in 2019 and in the years to come. Thank you for your investment
in Norfolk Southern.
Above: Norfolk
Southern in 2018
opened its new
Network Operations
Center in Atlanta,
for the first time
bringing together
under one roof train
dispatchers and
other employees
involved in the
movement and safe
operations of trains
across our network.
Right: A Norfolk
Southern intermodal
train passes through
Cresson, Pennsylvania,
on the Pittsburgh
Line, part of the
railroad’s Premier
Corridor, a key link
in the U.S. freight
transportation
network. It connects
our customers to
consumer markets
from Chicago to
New York.
Forward-looking Statement Disclaimer: This letter contains forward-looking statements within the meaning of the safe harbor provision of
the Private Securities Litigation Reform Act of 1995, as amended. These statements relate to future events or the Company’s future financial
performance and involve known and unknown risks, uncertainties and other factors, including those discussed under “Risk Factors” in our
Annual Report on Form 10-K for the year ended Dec. 31, 2018, as well as the Company’s subsequent filings with the SEC, that may cause our
actual results, benefits, performance, or achievements to differ materially from those expressed or implied by these forward-looking statements.
We undertake no obligation to update or revise forward-looking statements, whether as a result of new information, the occurrence of certain
events or otherwise, unless otherwise required by applicable securities law.
4 | 2018 ANNUAL REPORT
BOARD OF DIRECTORS
All directors are subject to re-election each year. Information as of Feb. 1, 2019.
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 Southern Company Gas, formerly AGL Resources. Previously,
he was a director of Regal Entertainment Group Inc.
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
WESLEY G. BUSH | DIRECTOR SINCE 2012
Bush has been chairman of Northrop Grumman Corporation, a global aerospace and
defense technology company, since 2011. He previously served as Northrop Grumman’s
chief executive officer from 2010 to 2018, president from 2007 to 2017, 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
NORFOLK SOUTHERN | 5
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
THOMAS C. KELLEHER | DIRECTOR SINCE 2019
Kelleher has been president of Morgan Stanley, a leading global financial services firm, since
2016. He also serves as chairman and chief executive officer of Morgan Stanley Bank N.A.
Previously, he served as president of Morgan Stanley Institutional Securities and CEO of Morgan
Stanley International from 2009 to 2016, as chief financial officer and co-head of corporate
strategy from 2007 to 2009, and as head of global capital markets from 2006 to 2007.
COMMITTEES: finance and risk management
EXPERTISE: CEO/senior officer; finance/accounting; governance/board; governmental and
stakeholder relations; 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 served as chief executive officer of Regal Entertainment Group Inc., a leading motion
picture exhibitor, from 2009 until its acquisition in March 2018. During that time, she served
as a director of Regal and 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
6 | 2018 ANNUAL REPORT
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.,
American Airlines Group Inc., and CenterPoint Energy, 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 | 7
OFFICERS
As of Feb. 1, 2019
JAMES A. SQUIRES
Chairman, President
and Chief Executive Officer
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
MICHAEL A. FARRELL
Senior Vice President Transportation
ANN A. ADAMS
Vice President Human Resources
C. H. “JAKE” ALLISON JR.
Vice President and Treasurer
FREDRIC M. EHLERS
Vice President Information Technology
and Chief Information Officer
CLAUDE E. “ED” ELKINS
Vice President Industrial Products
JOHN H. FRIEDMANN
Vice President Network Planning
and Optimization
JEFFREY S. HELLER
Vice President Intermodal and Automotive
ROBERT M. KESLER JR.
Vice President Taxation
KAROL R. LAWRENCE
Vice President Customer Service
DAVID T. LAWSON
Vice President Coal
MARQUE I. LEDOUX
Vice President Government Relations
ROBERT E. MARTÍNEZ
Vice President Business Development
and Real Estate
MICHAEL R. MCCLELLAN
Vice President Strategic Planning
PHILIP G. MERILLI
Vice President Engineering
SUSAN S. STUART
Vice President Audit and Compliance
VANESSA ALLEN SUTHERLAND
Vice President Law
SCOTT R. WEAVER
Vice President Labor Relations
THOMAS G. WERNER
Vice President Corporate Communications
and Chief Sustainability Officer
JASON A. ZAMPI
Vice President and Controller
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, status as a covered
veteran, sexual orientation, gender identity, the presence of a disability,
genetic information, or any other legally protected status.
8 | 2018 ANNUAL REPORT
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, 2018
( ) 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 or organization)
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 every Interactive Data File required to be submitted pursuant to Rule
405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to
submit 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 an 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, 2018 was $42,224,842,213 (based on the closing
price as quoted on the New York Stock Exchange on June 29, 2018).
The number of shares outstanding of each of the registrant’s classes of common stock, at January 31, 2019: 267,455,326 (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
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K18
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PART I
NORFOLK SOUTHERN CORPORATION AND SUBSIDIARIES
Item 1. Business and Item 2. Properties
GENERAL – Our company, Norfolk Southern Corporation (Norfolk Southern), 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, 2018, our railroad operated approximately 19,500 route miles 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
• Cleveland to Kansas City
• Memphis to Chattanooga
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The miles operated, which include major leased lines between Cincinnati, Ohio, and Chattanooga, Tennessee, and
an exclusive operating agreement for trackage rights over property owned by North Carolina Railroad Company,
were as follows:
Mileage Operated at December 31, 2018
Passing
Track,
Crossovers
and
Turnouts
Second
and
Other
Main
Track
Way and
Yard
Switching
Route
Miles
Total
Owned
Operated under lease, contract or trackage
rights
Total
14,664
2,755
1,949
8,319
27,687
4,756
1,943
398
834
7,931
19,420
4,698
2,347
9,153
35,618
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:
Revenue ton miles (billions)
Revenue per thousand revenue ton miles
Revenue ton miles (thousands) per railroad employee
Ratio of railway operating expenses to railway
operating revenues (Railway operating ratio)
Railway operating ratio, excluding the effects of the
2018
Years ended December 31,
2015
2016
2017
2014
207
$ 55.25
7,822
201
$ 52.38
7,474
191
$ 51.91
6,838
200
$ 52.63
6,645
205
$ 56.70
7,054
65.4%
66.6% 2
69.6% 2
72.8% 2
69.4% 2
2017 tax adjustments (non-GAAP)
65.4%
68.1% 1,2
69.6% 2
72.8% 2
69.4% 2
1
See reconciliation to U.S. Generally Accepted Accounting Principles (GAAP) in Item 7 “Management’s
Discussion and Analysis of Financial Condition and Results of Operations.”
2 We adopted Financial Accounting Standards Board (FASB) Accounting Standards Update (ASU) 2017-07 on
January 1, 2018. The retrospective application resulted in an increase in “Railway operating expenses” and
therefore an increase to the “Railway operating ratio” for all years presented prior to 2018. See additional
details in Item 8 “Financial Statements and Supplementary Data” in Note 1.
RAILWAY OPERATING REVENUES – Total railway operating revenues were $11.5 billion in 2018. Following
is an overview of our three major commodity groups. See the discussion of merchandise revenues by commodity
group, intermodal revenues, and coal revenues and tonnage in Item 7 “Management’s Discussion and Analysis of
Financial Condition and Results of Operations.”
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MERCHANDISE – Our merchandise commodity group is composed of five 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.
•
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 2018 were 2.5 million, the revenues from which accounted for 59% of our total
railway operating revenues.
INTERMODAL – Our intermodal commodity 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 2018 were 4.4 million, the revenues from
which accounted for 25% of our total railway operating revenues.
COAL – Revenues from coal accounted for 16% of our total railway operating revenues in 2018. We handled 115
million tons, or 1.0 million carloads, in 2018, 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 70 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.
RAILWAY PROPERTY
Our railroad infrastructure makes us capital intensive with net property of approximately $31 billion on a historical
cost basis.
Property Additions – Property additions for the past five years were as follows:
2018
2017
2016
($ in millions)
2015
2014
Road and other property
Equipment
Delaware & Hudson acquisition
$
1,276 $
675
—
1,210 $
513
—
1,292 $
595
—
1,514 $
658
213
1,406
712
—
Total
$
1,951 $
1,723 $
1,887 $
2,385 $
2,118
Our capital spending and replacement programs are and have been designed to assure the ability to provide safe,
efficient, and reliable rail transportation services.
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Equipment – At December 31, 2018, we owned or leased the following units of equipment:
Locomotives:
Multiple purpose
Auxiliary units
Switching
Total locomotives
Freight cars:
Gondola
Hopper
Covered hopper
Box
Flat
Other
Total freight cars
Other:
Chassis
Containers
Work equipment
Vehicles
Miscellaneous
Total other
Capacity of
Equipment
(Horsepower)
15,229,400
—
64,050
15,293,450
(Tons)
3,205,609
1,244,016
932,767
726,694
312,537
73,203
6,494,826
Owned
Leased
Total
3,900
178
43
4,121
24,768
11,001
8,323
7,125
1,685
1,597
54,499
33,865
17,664
7,117
3,591
2,381
64,618
76
—
—
76
4,048
—
85
1,251
1,608
4
6,996
—
—
258
133
—
391
3,976
178
43
4,197
28,816
11,001
8,408
8,376
3,293
1,601
61,495
33,865
17,664
7,375
3,724
2,381
65,009
The following table indicates the number and year built for locomotives and freight cars owned at December 31,
2018:
Locomotives:
No. of units
% of fleet
Freight cars:
No. of units
% of fleet
2018
2017
2016
2015
2014
2009-
2013
2004-
2008
2003 &
Before
Total
15
—%
55
1%
66
2%
8
—%
83
2%
242
6%
564
14%
3,088
75%
4,121
100%
—
—%
470
1%
775
1%
2,091
4%
897
2%
6,464
12%
4,080
7%
39,722
73%
54,499
100%
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The following table shows the average age of our owned locomotive and freight car fleets at December 31, 2018,
and information regarding 2018 retirements:
Average age – in service
Retirements
Average age – retired
Locomotives
25.2 years
37 units
42.9 years
Freight Cars
28.7 years
2,748 units
44.7 years
Track Maintenance – Of the approximately 35,600 total miles of track on which we operate, we are responsible
for maintaining approximately 28,400 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 47% of our lines, excluding rail operated pursuant to trackage
rights, carried 20 million or more gross tons per track mile during 2018.
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)
2018
2017
2016
2015
2014
416
4,594
2.2
466
5,368
2.5
518
4,984
2.3
523
5,074
2.4
507
5,248
2.7
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 17 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:
2018
2017
2016
2015
2014
Average number of employees
Average wage cost per employee
Average benefit cost per employee
26,662
27,110
29,482
$ 83,000 $ 79,000 $ 76,000 $ 77,000 $ 76,000
$ 39,000 $ 42,000 $ 35,000 $ 32,000 $ 35,000
28,044
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 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 U.S. Surface Transportation Board
(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 has jurisdiction to determine
whether we are “revenue adequate” on an annual basis based on the results of the prior year. 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. 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 2019. 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
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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)
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 2018, through participation in the Transportation Community Awareness and Emergency Response Program, we
provided rail accident response training to approximately 6,300 emergency responders, such as local police and fire
personnel. Our other training efforts throughout 2018 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.
We also continually evaluate ourselves for appropriate business continuity and disaster recovery planning, with test
scenarios that include cybersecurity attacks. Our risk-based information security program helps ensure our defenses
and resources are aligned to address the most likely and most damaging potential attacks, to provide support for our
organizational mission and operational objectives, and to keep us in the best position to detect, mitigate, and recover
from a wide variety of potential attacks in a timely fashion.
Item 1A. Risk Factors
The risks set forth in the following risk factors could have a materially adverse effect on our financial position,
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
negotiate prices for rail services, on railway operating revenues, 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,
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
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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. We have met the December 31, 2018
deadline under the PTC laws and regulations to install all hardware and to implement PTC on some of those rail
lines. The PTC laws and regulations also require us to fully implement PTC on the remainder of those rail lines by
December 31, 2020. In addition, other railroads’ implementation schedules could impose additional interoperability
requirements and accelerated timelines on us, which could impact our operations over other railroads if not met.
Full implementation of PTC will result in additional operating costs and capital expenditures, and PTC
implementation may result in reduced operational efficiency and service levels, as well as increased compensation
and benefits expenses, and increased claims and litigation costs.
Our operations are subject to extensive federal and state environmental laws and regulations concerning, among
other things, emissions to the air; discharges to waterways or groundwater supplies; handling, storage,
transportation, and disposal of waste and other materials; and the cleanup of hazardous material or petroleum
releases. The risk of incurring environmental liability, for acts and omissions, past, present, and future, is inherent in
the railroad business. This risk includes property owned by us, whether currently or in the past, that is or has been
subject to a variety of uses, including our railroad operations and other industrial activity by past owners or our past
and present tenants.
Environmental problems that are latent or undisclosed may exist on these properties, and we could incur
environmental liabilities or costs, the amount and materiality of which cannot be estimated reliably at this time,
with respect to one or more of these properties. Moreover, lawsuits and claims involving other unidentified
environmental sites and matters are likely to arise from time to time.
Concern over climate change has led to significant federal, state, and international legislative and regulatory efforts
to limit greenhouse gas (GHG) emissions. Restrictions, caps, taxes, or other controls on GHG emissions, including
diesel exhaust, could significantly increase our operating costs, decrease the amount of traffic handled, and decrease
the value of coal reserves we own.
In addition, legislation and regulation 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 17 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.
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We may be affected by energy prices. Volatility in energy prices could have a significant effect on a variety of
items including, but not limited to: the economy; demand for transportation services; business related to the energy
sector, including crude oil, natural gas, and coal; fuel prices; and fuel surcharges.
We face competition from other transportation providers. We are subject to competition from motor carriers,
railroads and, to a lesser extent, ships, barges, and pipelines, on the basis of transit time, pricing, and quality and
reliability of service. While we have used primarily internal resources to build or acquire and maintain our rail
system, trucks and barges have been able to use public rights-of-way maintained by public entities. Any future
improvements, expenditures, legislation, or regulation materially increasing the quality or reducing the cost of
alternative modes of transportation in the regions in which we operate (such as granting materially greater latitude
for motor carriers with respect to size or weight limitations or adoption of autonomous commercial vehicles) could
have a material adverse effect on our operations.
The operations of carriers with which we interchange may adversely affect our operations. Our ability to
provide rail service to customers in the U.S. and Canada depends in large part upon our ability to maintain
collaborative relationships with connecting carriers (including shortlines and regional railroads) with respect to,
among other matters, freight rates, revenue division, car supply and locomotive availability, data exchange and
communications, reciprocal switching, interchange, and trackage rights. Deterioration in the operations of or service
provided by connecting carriers, or in our relationship with those connecting carriers, could result in our inability to
meet our customers’ demands or require us to use alternate train routes, which could result in significant additional
costs and network inefficiencies. Additionally, any significant consolidations, mergers or operational changes
among other railroads may significantly redefine our market access and reach.
We rely on technology and technology improvements in our business operations. If we experience significant
disruption or failure of one or more of our information technology systems, including computer hardware, software,
and communications equipment, we could experience a service interruption, a security breach, or other operational
difficulties. 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-
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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.
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 472 million gallons of diesel fuel in 2018. 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 position 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 position, 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.
K13
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.
K14
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, 2019, relating to our officers.
Name, Age, Present Position
Business Experience During Past Five Years
James A. Squires, 57,
Chairman, President and
Chief Executive Officer
Present position since October 1, 2015.
Served as CEO since June 1, 2015. Served as President
since June 1, 2013.
Cynthia C. Earhart, 57,
Executive Vice President –
Finance and Chief Financial Officer
John M. Scheib, 47,
Executive Vice President –
Law and Administration and
Chief Legal Officer
Alan H. Shaw, 51,
Executive Vice President and
Chief Marketing Officer
Michael J. Wheeler, 56,
Executive Vice President and
Chief Operating Officer
Jason A. Zampi, 44,
Vice President and Controller
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.
Present position since March 1, 2018.
Served as Senior Vice President Law and Corporate
Relations from October 1, 2017, to March 1, 2018.
Served as Vice President Law from December 1, 2016, to
October 1, 2017. Served as General Counsel from August
16, 2010, to December 1, 2016.
Present position since May 16, 2015.
Served as Vice President Intermodal Operations from
November 1, 2013 to May 16, 2015.
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.
Present position since December 16, 2018.
Served as Assistant Vice President Corporate Accounting
from April 1, 2016 to December 16, 2018. Served as
Director Accounting Research and Analysis from May 1,
2014 to April 1, 2016. Served as Director Forecast and
Performance Measures from March 16, 2011 to May 1,
2014.
K15
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 INFORMATION
Common Stock is owned by 24,475 stockholders of record as of December 31, 2018, and is traded on the New York
Stock Exchange under the symbol “NSC.”
ISSUER PURCHASES OF EQUITY SECURITIES
Total Number
of Shares
(or Units)
Purchased(1)
Average
Price Paid
per Share
(or Unit)
Total
Number of
Shares (or Units)
Purchased as
Part of Publicly
Announced Plans
or Programs(2) (3)
$
874,580
1,145,256
2,271,418
4,291,254
171.45
168.48
166.72
874,580
1,145,256
2,270,242
4,290,078
Period
October 1-31, 2018
November 1-30, 2018
December 1-31, 2018
Total
Maximum
Number
(or Approximate
Dollar Value)
of Shares (or
Units)
that may yet be
Purchased under
the Plans or
Programs(3)
42,783,417
41,638,161
39,367,919
(1) Of this amount, 1,176 represents shares tendered by employees in connection with the exercise of stock options
under the stockholder-approved Long-Term Incentive Plan.
(2) Total number of shares purchased as part of publicly announced plans or programs includes 1.3 million shares
purchased under the accelerated stock repurchase program (ASR) (see Note 15).
(3) 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, 2018, 39.4 million shares remain
authorized for repurchase.
K16
Item 6. Selected Financial Data
FIVE-YEAR FINANCIAL REVIEW
2018
2017
2016
($ in millions, except per share amounts)
2015
2014
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
Basic earnings per share
Diluted earnings per share
Dividends
Stockholders’ equity at year end
FINANCIAL POSITION
Total assets
Total debt
Stockholders’ equity
OTHER
Property additions
Average number of shares outstanding (thousands)
Number of stockholders at year end
Average number of employees:
Rail
Nonrail
Total
$ 11,458 $ 10,551 $
7,499
3,959
67
557
3,469
7,029
3,522
156
550
3,128
9,888 $ 10,511 $ 11,624
8,066
7,656
6,879
3,558
2,855
3,009
136
563
2,582
132
545
2,442
121
545
3,134
$
$
803
2,666 $
(2,276)
5,404 $
914
1,668 $
886
1,556 $
1,134
2,000
9.58 $
9.51
3.04
57.30
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
$ 36,239 $ 35,711 $ 34,892 $ 34,139 $ 33,033
8,985
12,408
10,093
12,188
10,212
12,409
11,145
15,362
9,836
16,359
$
1,951 $
1,723 $
1,887 $
2,385 $
2,118
277,708
24,475
287,861
25,737
293,943
27,288
301,873
28,443
309,367
29,575
26,512
150
26,662
26,955
155
27,110
27,856
188
28,044
30,057
399
30,456
29,063
419
29,482
Note 1: In 2017, as a result of the enactment of tax reform, “Railway operating expenses” included a $151 million
benefit and “Income taxes” included a $3,331 million benefit, which added $3,482 million to “Net income” and
$12.00 to “Diluted earnings per share.”
Note 2: The retrospective application of FASB ASU 2017-07 resulted in an increase to “Compensation and
benefits” expense within “Railway operating expenses” and an offsetting increase to “Other income – net” of $64
million, $65 million, $29 million, and $17 million for the years ended 2017, 2016, 2015, and 2014, respectively,
with no impact on “Net income.” See additional details in Item 8 “Financial Statements and Supplementary Data”
in Note 1.
See accompanying consolidated financial statements and notes thereto.
K17
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Norfolk Southern Corporation and Subsidiaries
The following discussion and analysis should be read in conjunction with the Consolidated Financial Statements
and Notes.
OVERVIEW
We are one of the nation’s premier transportation companies. Our Norfolk Southern Railway Company subsidiary
operates approximately 19,500 route miles in 22 states and the District of Columbia, serves every major container
port in the eastern United States, and provides efficient connections to other rail carriers. Norfolk Southern is a
major transporter of industrial products, including chemicals, agriculture, and metals and construction materials. In
addition, the railroad operates the most extensive intermodal network in the East and is a principal carrier of coal,
automobiles, and automotive parts.
We achieved records for income from railway operations and railway operating ratio (a measure of the amount of
operating revenues consumed by operating expenses) for the year, the result of significant revenue growth, partially
offset by increased operating expenses. Progress on our strategic initiatives established in 2015 has created a
sustainable platform positioning us for the continued execution of transformational changes that will provide greater
long-term value for our shareholders.
SUMMARIZED RESULTS OF OPERATIONS
2018
2017
($ in millions, except per share amounts)
2016
2018
vs. 2017
2017
vs. 2016
(% change)
Income from railway operations
Net income
Diluted earnings per share
Railway operating ratio
$
$
$
$
$
$
3,959
2,666
9.51
65.4
$
$
$
3,522
5,404
18.61
66.6
3,009
1,668
5.62
69.6
12%
(51%)
(49%)
(2%)
17%
224%
231%
(4%)
On December 22, 2017, the Tax Cuts and Jobs Act (“tax reform”) was signed into law. As a result of the enactment
of this law, in 2017, “Purchased services and rents” included a $151 million benefit and “Income taxes” included a
$3,331 million benefit, which added $3,482 million to “Net income” and $12.00 to “Diluted earnings per share.”
The 2017 operating ratio was favorably impacted by 1.5 percentage points. For more information on the impact of
tax reform, see Note 4.
The following table adjusts our 2017 GAAP financial results to exclude the effects of tax reform, specifically, the
effects of remeasurement of net deferred tax liabilities related to the reduction of the federal tax rate from 35% to
21% (the “2017 tax adjustments”). We use these non-GAAP financial measures internally and believe this
information provides useful supplemental information to investors to facilitate making period-to-period
comparisons by excluding the 2017 tax adjustments. While we believe that these non-GAAP financial measures are
useful in evaluating our business, this information should be considered as supplemental in nature and is not meant
to be considered in isolation or as a substitute for the related financial information prepared in accordance with
GAAP. In addition, these non-GAAP financial measures may not be the same as similar measures presented by
other companies.
K18
Reconciliation of Non-GAAP Financial Measures
Reported 2017
(GAAP)
2017
tax adjustments
($ in millions, except per share amounts)
Adjusted 2017
(non-GAAP)
Income from railway operations
Net income
Diluted earnings per share
Railway operating ratio
$
$
$
$
$
$
3,522
5,404
18.61
66.6
(151) $
(3,482) $
(12.00) $
1.5
3,371
1,922
6.61
68.1
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)
($ in millions, except per share amounts)
2018
2016
2018 vs.
Adjusted
2017
(non-GAAP)
Adjusted
2017
(non-GAAP)
vs. 2016
(% change)
Income from railway operations $
$
Net income
$
Diluted earnings per share
Railway operating ratio
3,959 $
2,666 $
9.51 $
65.4
3,371 $
1,922 $
6.61 $
68.1
3,009
1,668
5.62
69.6
17%
39%
44%
(4%)
12%
15%
18%
(2%)
Income from railway operations rose in both comparisons resulting from higher railway operating revenues that
more than offset higher expenses. Revenue growth of 9% and 7% in 2018 and 2017, respectively, was tempered by
increased adjusted operating expenses of 4% in both periods. In addition to higher income from railway operations,
net income and diluted earnings per share growth in 2018 also benefited from a lower effective tax rate, primarily
due to the enactment of tax reform. Finally, our share repurchase programs in both years resulted in diluted
earnings per share growth that exceeded that of net income.
K19
DETAILED RESULTS OF OPERATIONS
Railway Operating Revenues
The following tables present a three-year comparison of revenues, volumes (units), and average revenue per unit by
commodity 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
$
$
$
2018
Revenues
2017
($ in millions)
2016
2018
vs. 2017
2017
vs. 2016
(% change)
1,808
1,674
1,462
991
809
6,744
2,893
1,821
11,458
$
$
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
8%
8%
3%
4%
6%
6%
18%
5%
9%
1%
—
13%
(2%)
2%
3%
11%
17%
7%
2018
Units
2017
(in thousands)
2016
2018
vs. 2017
2017
vs. 2016
(% change)
498.0
614.4
715.7
403.9
287.1
2,519.1
4,375.7
1,033.5
7,928.3
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
7%
4%
(2%)
(5%)
1%
1%
7%
(1%)
4%
(2%)
(2%)
6%
(4%)
—
—
5%
16%
5%
2018
Revenue per Unit
2017
($ per unit)
2016
2018
vs. 2017
2017
vs. 2016
(% change)
$
3,631
2,724
2,042
2,453
2,819
2,677
661
1,762
1,445
$
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
2%
4%
4%
9%
5%
5%
10%
6%
4%
3%
2%
6%
2%
2%
3%
5%
1%
2%
K20
Revenues increased $907 million and $663 million in 2018 and 2017, respectively, compared to the prior years. As
reflected in the table below, higher 2018 revenues were the result of higher average revenue per unit, driven by
pricing gains and higher fuel surcharge revenue, partially offset by the mix-related impacts of increased intermodal
volume and decreased coal volume. In addition, overall volume also increased. The rise in 2017 was largely the
result of increased volume, particularly in our coal and intermodal markets, coupled with pricing gains. The table
below reflects the components of the revenue change by major commodity group.
2018 vs. 2017
Increase (Decrease)
2017 vs. 2016
Increase
($ in millions)
Merchandise
Intermodal
Coal
Merchandise
Intermodal
Coal
Volume
Fuel surcharge
revenue
Rate, mix and
other
Total
$
$
71 $
182 $
(21) $
10 $
117 $
237
119
197
159
100
20
80
35
130
78
39
10
7
387 $
441 $
79 $
175 $
234 $
254
Most of our contracts include negotiated fuel surcharges, typically tied to either On-Highway Diesel (OHD) or West
Texas Intermediate Crude Oil. Approximately 90% of our revenue base is covered by these negotiated fuel
surcharges, with almost 75% tied to OHD. For both 2018 and 2017, contracts tied to OHD accounted for about
90% of our fuel surcharge revenue. Revenues associated with fuel surcharges totaled $657 million, $359 million,
and $236 million in 2018, 2017, and 2016, respectively.
MERCHANDISE revenues increased in both 2018 and 2017 compared with the prior years. In 2018, revenues
grew due to higher average revenue per unit, driven by pricing gains and higher fuel surcharge revenue, as well as
higher volumes. Volume gains in chemicals, agriculture, and paper, clay, and forest products were partially offset
by declines in automotive and metals and construction traffic. Revenue growth in 2017 was a result of higher
average revenue per unit, the result of price improvements. 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.
For 2019, merchandise revenues are expected to increase, primarily the result of pricing gains.
Chemicals revenues rose in 2018 compared to a modest increase in 2017. In 2018 the rise was the result of higher
volume and higher average revenue per unit, due to pricing gains and higher fuel surcharge revenue. Volumes grew
due to increased shipments of crude oil, liquefied petroleum gas, and plastics, partially offset by a decrease in coal
ash shipments. 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. Volume declines were the result of fewer shipments of crude
oil from the Bakken oil fields, lower shipments of coal ash, partially offset by an increase in shipments of plastics.
For 2019, chemicals revenues are anticipated to increase, as average revenue per unit is expected to be higher, the
effect of overall pricing gains. We expect carloads to be relatively flat year-over-year, as declines in liquefied
petroleum gas are expected to be offset by gains in crude oil.
Agriculture, consumer products, and government revenues increased in 2018 and were flat in 2017 compared to
the prior years. Growth in 2018 was due to higher volume and higher average revenue per unit, a result of pricing
gains and higher fuel surcharge revenues. Higher ethanol and fertilizer shipments more than offset declines in
soybean and corn shipments. 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.
K21
For 2019, agriculture, consumer products, and government revenues are expected to increase, driven by increased
average revenue per unit, primarily a result of pricing gains. We expect volumes to decrease due to lower fertilizer
shipments.
Metals and construction revenues grew in both periods, more significantly so in 2017. In 2018, higher average
revenue per unit, the result of pricing gains and higher fuel surcharge revenue, more than offset volume declines.
Volume declines in aggregates, cement, aluminum, and iron and steel were partially offset by increases in frac sand
shipments for use in natural gas drilling in the Marcellus and Utica regions. In 2017, higher volume and average
revenue per unit contributed to the rise in revenues. 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.
For 2019, metals and construction revenues are expected to rise, a result of increased revenue per unit driven by
pricing gains, and volume growth is expected in aggregates and coil steel traffic.
Automotive revenues rose in 2018, but declined in 2017 compared to the prior years. In 2018, higher average
revenue per unit, driven by price increases and higher fuel surcharge revenues, more than offset volume declines.
Traffic declines were the result of shortages of availability of multilevel equipment and scheduled automotive plant
downtime. The drop in volume 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,
primarily the result of higher fuel surcharge revenue.
For 2019, automotive revenues are expected to increase as a result of higher volumes, reflecting increased demand
at NS-served plants, and higher average revenue per unit driven by price increases.
Paper, clay and forest products revenues rose in both 2018 and 2017 compared to the prior years. In 2018, higher
average revenue per unit, the result of pricing gains and higher fuel surcharge revenue, and volume gains drove the
increase. Gains in pulpboard and municipal waste shipments, a result of tightened truck capacity and growth with
existing customers, respectively, were partially offset by decreases in pulp, woodchip, and graphic paper traffic.
The increase in 2017 was due to higher average 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 losses in woodchip
volume due to customer sourcing changes.
For 2019, paper, clay, and forest products revenues are anticipated to increase, reflecting pricing gains. We expect
volume to decline slightly, as gains in lumber traffic are expected to be offset by declines in wood chips and graphic
paper.
INTERMODAL revenues increased considerably in both 2018 and 2017 compared to the prior years. The rise in
2018 was driven by higher average revenue per unit, a result of increased fuel surcharge revenue and pricing gains,
and higher volume. Growth in 2017 was the result of higher volume and higher average revenue per unit, due to
higher fuel surcharge revenue and pricing gains.
For 2019, we expect intermodal revenues to rise, the result of increased domestic volumes and higher average
revenue per unit, driven by rate increases.
K22
Intermodal units by market were as follows:
Domestic
International
Total
2018
2017
(units in thousands)
2016
2018
vs. 2017
2017
vs. 2016
(% change)
2,801.1
1,574.6
2,585.0
1,489.1
2,416.2
1,454.2
4,375.7
4,074.1
3,870.4
8%
6%
7%
7%
2%
5%
Domestic volume increased in both periods. The rise in 2018 benefited from continued highway conversions due to
tighter capacity in the truck market, higher truckload pricing, and growth from existing accounts. In 2017,
continued highway conversions and growth from existing accounts drove the increase.
For 2019, we expect higher domestic volumes driven by continued highway conversions and growth from existing
accounts.
International volume increased in both years reflecting increased demand from existing customers.
For 2019, we expect continued growth in our international volume largely driven by more traffic from existing
customers.
COAL revenues increased in 2018 and significantly so in 2017 compared with the prior years. Revenue growth in
2018 was the result of higher average revenue per unit, largely the result of pricing gains, which more than offset
volume declines. The increase in 2017 was a result of higher volume, primarily in the export market, and higher
revenue per unit, driven by higher fuel surcharge revenue and pricing gains.
For 2019, coal revenues are expected to remain relatively flat year-over-year. Higher export and domestic
metallurgical volumes are expected to be offset by lower revenue per unit, primarily the result of lower pricing in
our export market.
As shown in the following table, total tonnage decreased slightly in 2018, but increased in 2017.
2018
2017
(tons in thousands)
2016
2018
vs. 2017
2017
vs. 2016
(% change)
Utility
Export
Domestic metallurgical
Industrial
65,688
28,046
15,500
5,410
67,899
26,460
15,675
5,545
65,033
14,608
13,884
6,152
Total
114,644
115,579
99,677
(3%)
6%
(1%)
(2%)
(1%)
4%
81%
13%
(10%)
16%
Utility coal tonnage declined in 2018, driven by lower network velocity, decreased coal supply, inclement weather
in the first quarter, and plant outages. Tonnage rose in 2017, driven by market share gains, partially offset by
limited coal burn due to milder weather. Both periods were negatively impacted by sustained lower natural gas
prices.
K23
For 2019, we expect utility tonnage to be relatively flat year-over-year, the result of continued pressure from natural
gas prices and continued expected growth in renewable and natural gas capacity.
Export coal tonnage increased in both periods due to strong seaborne pricing that resulted in higher demand for
U.S. coal. Volume through Norfolk was up 2.3 million tons, or 15%, in 2018 and 5.5 million tons, or 57%, in 2017.
Volume through Baltimore declined 0.8 million tons, or 7%, in 2018, but rose 6.4 million tons, or 129%, in 2017.
For 2019, we expect export coal tonnage to rise due to continued demand for U.S. coal.
Domestic metallurgical coal tonnage was down slightly in 2018, but up in 2017. The decline in 2018 was a
reflection of customer sourcing changes. In 2017, the increase was a result of market share gains.
For 2019, domestic metallurgical coal tonnage is expected to grow due to increased demand in domestic steel
production.
Industrial coal tonnage decreased in both years. In 2018, the decrease reflected customer sourcing changes and
pressure from natural gas conversions. The drop in 2017 was a result of plant outages, natural gas conversions, and
decreased coal burn.
For 2019, industrial coal tonnage is expected to decrease as a result of continued pressure from natural gas
conversions and customer sourcing changes.
Railway Operating Expenses
Railway operating expenses summarized by major classifications were as follows:
2018
2017
($ in millions)
2016
2018
vs. 2017
2017
vs. 2016
(% change)
Compensation and benefits
Purchased services and rents
Fuel
Depreciation
Materials and other
$
2,925 $
1,730
1,087
1,102
655
2,979 $
1,414
840
1,055
741
2,808
1,548
698
1,026
799
(2%)
22%
29%
4%
(12%)
6%
(9%)
20%
3%
(7%)
Total
$
7,499 $
7,029 $
6,879
7%
2%
In 2018, expenses rose due to higher fuel prices as well as volume-related increases and costs associated with
overall lower network velocity, partially offset by higher property sales. 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.
K24
Compensation and benefits decreased in 2018, reflecting changes in:
•
•
•
•
•
•
employment levels (down $61 million),
health and welfare benefit rates for agreement employees (down $34 million),
employment tax refund ($31 million benefit),
incentive and stock-based compensation (down $7 million),
pay rates (up $34 million), and
overtime and recrews (up $58 million).
In 2017, compensation and benefits increased, a result of 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).
Our employment averaged 26,662 in 2018, compared with 27,110 in 2017, and 28,044 in 2016.
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, in 2017, this line item includes a $151 million benefit from the 2017 tax adjustments ($36
million in purchased services and $115 million in equipment rents) in the form of higher income of certain equity
investees.
2018
2017
($ in millions)
2016
2018
vs. 2017
2017
vs. 2016
(% change)
Purchased services
Equipment rents
Total
$
$
1,367 $
363
1,233 $
181
1,242
306
11%
101%
(1%)
(41%)
1,730 $
1,414 $
1,548
22%
(9%)
The increase in purchased services in 2018 was largely the result of the absence of the benefit from the 2017 tax
adjustments, higher intermodal volume-related costs, additional transportation and engineering activities as well as
higher technology costs. In addition to the tax reform impacts discussed above, the remaining increase in purchased
services expense in 2017 was a result of 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, increased in 2018, but decreased in 2017. In
2018, the rise was due to the absence of the benefits from the 2017 tax adjustments, the impact of slower network
velocity, the cost of additional short-term locomotive resources as well as growth in volume. In 2017, in addition to
the benefit from the 2017 tax adjustments, the decline was a result of lower automotive volume.
Fuel expense, which includes the cost of locomotive fuel as well as other fuel used in railway operations, increased
in both periods. The change in both years was principally due to locomotive fuel prices (up 25% in 2018 and up
22% in 2017) which increased expenses $208 million and $143 million, respectively. Locomotive fuel consumption
increased 3% in 2018, but declined 1% in 2017. We consumed approximately 472 million gallons of diesel fuel in
2018, compared with 458 million gallons in 2017 and 462 million gallons in 2016.
Depreciation expense increased in both periods, a reflection of growth in our roadway and equipment capital base
as we continue to invest in our infrastructure and rolling stock.
K25
Materials and other expenses decreased in both periods as shown in the following table.
2018
2017
($ in millions)
2016
2018
vs. 2017
2017
vs. 2016
(% change)
Materials
Casualties and other claims
Other
Total
$
$
362 $
176
117
348 $
145
248
655 $
741 $
364
150
285
799
4%
21%
(53%)
(4%)
(3%)
(13%)
(12%)
(7%)
Materials expense increased in 2018, due primarily to higher locomotive repair costs. In 2017, the decline was a
result of lower freight car repairs.
Casualties and other claims expenses include the estimates of costs related to personal injury, property damage, and
environmental matters. The 2018 expense increased, primarily the result of higher derailment-related costs. The
decrease in 2017 was the result of lower loss and damage, offset in part by unfavorable developments in personal
injury cases.
Other expense decreased in both periods, largely a result of higher gains from sales of operating properties, up $79
million and $42 million in 2018 and 2017, respectively, compared to the prior periods. In 2018, the decline was
additionally impacted by the inclusion of net rental income from operating property previously included in “Other
income – net” of $78 million, partially offset by increased costs as a result of the relocation of our train dispatchers
to Atlanta, Georgia.
Other income – net
Other income – net decreased in 2018, following an increase in 2017. The decline was driven by the absence of net
rental income as discussed above and unfavorable returns from corporate-owned life insurance (COLI) investments.
In 2017, the rise was mainly the result of favorable returns on COLI investments.
Income Taxes
The effective income tax rate was 23.1% in 2018, compared with negative 72.8% in 2017 and 35.4% in 2016.
Income taxes in 2018 benefited from the effects of the enactment of tax reform in late 2017 that lowered the federal
corporate income tax rate. Income taxes in 2017 included 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.
All three years benefited from favorable tax benefits associated with stock-based compensation. Both 2018 and
2016 benefited from favorable reductions in deferred taxes for state tax law changes and certain business tax
credits, while 2017 and 2016 benefited from higher returns from corporate-owned life insurance.
The statute of limitations on Internal Revenue Service (IRS) examinations has expired for all years prior to 2015.
Our consolidated federal income tax return for 2015 is currently being audited by the IRS. We do not expect that
the resolution of the examination will have a material effect on our financial position, results of operations, or
liquidity.
FINANCIAL CONDITION, LIQUIDITY, AND CAPITAL RESOURCES
Cash provided by operating activities, our principal source of liquidity, was $3.7 billion in 2018, $3.3 billion in
2017, and $3.0 billion in 2016. The increases in both 2018 and 2017 were primarily the result of improved
K26
operating results. We had working capital deficits of $729 million and $396 million at December 31, 2018, and
2017, respectively. Cash, cash equivalents, and restricted cash totaled $446 million and $690 million at
December 31, 2018, and 2017, respectively. We expect cash on hand combined with cash provided by operating
activities will be sufficient to meet our ongoing obligations.
Contractual obligations at December 31, 2018, were comprised of interest on fixed-rate long-term debt, long-term
debt (Note 9), unconditional purchase obligations (Note 17), operating leases (Note 10), long-term advances from
Conrail, agreements with Consolidated Rail Corporation (CRC) (Note 6), and unrecognized tax benefits (Note 4):
Total
2019
2020 -
2021
2022 -
2023
($ in millions)
2024 and
Subsequent Other
Interest on fixed-rate long-term debt
Long-term debt principal
Unconditional purchase obligations
Operating leases
Long-term advances from Conrail
Agreements with CRC
Unrecognized tax benefits*
$ 13,742 $
11,984
1,206
695
280
206
21
545 $ 1,001 $
585
611
101
—
38
—
898
408
183
—
76
—
907 $
1,200
187
144
—
76
—
11,289 $
9,301
—
267
280
16
—
Total
$ 28,134 $ 1,880 $ 2,566 $ 2,514 $
21,153 $
—
—
—
—
—
—
21
21
* This amount is shown in the Other column because the year of settlement cannot be reasonably estimated.
Off balance sheet arrangements consist of obligations related to operating leases, which are included in the table
of contractual obligations above and disclosed in Note 10.
Cash used in investing activities was $1.7 billion in 2018, compared with $1.5 billion in 2017, and $1.8 billion in
2016. In 2018, higher property additions drove the increase. The decline in 2017 was a reflection of lower cash
outflows for property additions and a drop in 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 2019, we expect capital spending to approximate 16% to 18% of revenues.
Cash used in financing activities was $2.3 billion in 2018, compared with $2.0 billion in 2017, and $1.3 billion in
2016. Both year-over-year comparisons reflect increased repurchases of common stock and higher debt
repayments. In 2018, the increase was also impacted by higher dividend payments, but tempered by increased
proceeds from borrowings. In 2017, lower proceeds from borrowings also contributed to the rise.
Share repurchases totaled $2.8 billion in 2018, $1.0 billion in 2017, and $803 million in 2016 for the purchase and
retirement of 17.1 million (including 7.0 million shares repurchased for $1.2 billion under the ASR program, see
Note 15), 8.2 million, and 9.2 million shares, respectively. As of December 31, 2018, 39.4 million shares remain
authorized by our Board of Directors 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 February of 2018, we issued $500 million of 4.15% senior notes due 2048. In August of 2018, we issued $300
million of 3.65% senior notes due 2025, $400 million of 3.80% senior notes due 2028, $200 million of 4.15%
senior notes due 2048, and $600 million of 5.10% senior notes due 2118 (see Note 9).
K27
We discuss our credit agreement and our accounts receivable securitization program in Note 9, 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 42.0% at December 31, 2018, compared with 37.5% at December 31, 2017.
Upcoming annual debt maturities are disclosed in Note 9. 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 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.
Pensions and Other Postretirement Benefits
Accounting for pensions and other postretirement benefit plans requires us to make several estimates and
assumptions (Note 12). 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 7). 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 2018 totaled $1.1 billion. Our composite depreciation rates for 2018 are disclosed in
Note 7; a one year increase (or decrease) in the estimated average useful lives of depreciable assets would have
resulted in an approximate $40 million decrease (or increase) to depreciation expense.
K28
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 17.
Income Taxes
Our net deferred tax liability totaled $6.5 billion at December 31, 2018 (Note 4). This liability is estimated based
on the expected future tax consequences of items recognized in the financial statements. After application of the
federal statutory tax rate to book income, judgment is required with respect to the timing and deductibility of
expenses in our income tax returns. For state income and other taxes, judgment is also required with respect to the
apportionment among the various jurisdictions. A valuation allowance is recorded if we expect that it is more likely
than not that deferred tax assets will not be realized. We have a $50 million valuation allowance on $425 million of
deferred tax assets as of December 31, 2018, reflecting the expectation that almost all of these assets will be
realized.
OTHER MATTERS
Labor Agreements
Approximately 80% of our railroad employees are covered by collective bargaining agreements with various labor
unions. Pursuant to the Railway Labor Act, these agreements remain in effect until new agreements are reached, or
until the bargaining procedures mandated by the Railway Labor Act are completed. We largely bargain nationally
in concert with other major railroads, represented by the National Carriers Conference Committee. Moratorium
provisions in the labor agreements govern when the railroads and unions may propose changes to the agreements.
The 2015 bargaining round is now complete with finalized agreements in place with all employees. All of the
newly negotiated agreements have moratorium provisions that will reopen the agreements for negotiation beginning
January 1, 2020.
Market Risks
At December 31, 2018, we had no outstanding debt subject to interest rate fluctuations. Market risk for fixed-rate
debt is estimated as the potential increase in fair value resulting from a one percentage point decrease in interest
rates as of December 31, 2018, and amounts to an increase of approximately $1.4 billion to the fair value of our
debt at December 31, 2018. 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.
K29
Inflation
In preparing financial statements, GAAP requires the use of historical cost that disregards the effects of inflation on
the replacement cost of property. As a capital-intensive company, we have most of our capital invested in long-
lived assets. The replacement cost of these assets, as well as the related depreciation expense, would be
substantially greater than the amounts reported on the basis of historical cost.
FORWARD-LOOKING STATEMENTS
Certain statements in Management’s Discussion and Analysis of Financial Condition and Results of Operations are
“forward-looking statements” within the meaning of the “safe harbor” provisions of the Private Securities Litigation
Reform Act of 1995, as amended. These statements relate to future events or our future financial performance and
involve known and unknown risks, uncertainties, and other factors that may cause our actual results, levels of
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 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 our 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 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, 2018, 2017, and 2016
Consolidated Statements of Comprehensive Income
Years ended December 31, 2018, 2017, and 2016
Consolidated Balance Sheets
At December 31, 2018 and 2017
Consolidated Statements of Cash Flows
Years ended December 31, 2018, 2017, and 2016
Consolidated Statements of Changes in Stockholders’ Equity
Years ended December 31, 2018, 2017, and 2016
Notes to Consolidated Financial Statements
Index to Consolidated Financial Statement Schedule in Item 15
Page
K32
K33
K36
K37
K38
K39
K40
K41
K78
K31
Report of Management
February 8, 2019
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, 2018. 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, 2018.
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, 2018.
/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/ Jason A. Zampi
Jason A. Zampi
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, 2018, 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, 2018,
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, 2018 and 2017, 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, 2018, 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 8, 2019 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 8, 2019
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, 2018 and 2017, 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, 2018, 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, 2018
and 2017, and the results of its operations and its cash flows for each of the years in the three-year period ended
December 31, 2018, 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, 2018, 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 8, 2019 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 8, 2019
K35
Norfolk Southern Corporation and Subsidiaries
Consolidated Statements of Income
Years ended December 31,
2017
($ in millions, except per share amounts)
2016
2018
Railway operating revenues
$
11,458 $
10,551 $
9,888
Railway operating expenses:
Compensation and benefits
Purchased services and rents
Fuel
Depreciation
Materials and other
2,925
1,730
1,087
1,102
655
2,979
1,414
840
1,055
741
2,808
1,548
698
1,026
799
Total railway operating expenses
7,499
7,029
6,879
Income from railway operations
3,959
3,522
3,009
Other income – net
Interest expense on debt
67
557
156
550
136
563
Income before income taxes
3,469
3,128
2,582
Income taxes
Net income
Earnings per share:
Basic
Diluted
803
(2,276)
914
2,666 $
5,404 $
1,668
9.58 $
9.51
18.76 $
18.61
5.66
5.62
$
$
See accompanying notes to consolidated financial statements.
K36
Norfolk Southern Corporation and Subsidiaries
Consolidated Statements of Comprehensive Income
2018
Years ended December 31,
2017
($ in millions)
2016
Net income
Other comprehensive income (loss), before tax:
Pension and other postretirement benefits
Other comprehensive income (loss) 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
$
2,666 $
5,404 $
1,668
(148)
(9)
(157)
155
19
174
38
(43)
(119)
131
(74)
5
(69)
27
(42)
Total comprehensive income
$
2,547 $
5,535 $
1,626
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 $12,374 and
$11,909, 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 $1.00 per share par value, 1,350,000,000 shares
authorized; outstanding 268,098,472 and 284,157,187 shares,
respectively, net of treasury shares
Additional paid-in capital
Accumulated other comprehensive loss
Retained income
Total stockholders’ equity
At December 31,
2017
2018
($ in millions)
$
358 $
1,009
207
288
1,862
3,109
690
955
222
282
2,149
2,981
31,091
177
30,330
251
$
36,239 $
35,711
$
1,505 $
—
255
246
585
2,591
10,560
1,266
6,460
20,877
1,401
100
211
233
600
2,545
9,136
1,347
6,324
19,352
269
2,216
(563)
13,440
285
2,254
(356)
14,176
15,362
16,359
Total liabilities and stockholders’ equity
$
36,239 $
35,711
See accompanying notes to consolidated financial statements.
K38
Norfolk Southern Corporation and Subsidiaries
Consolidated Statements of Cash Flows
2018
Years ended December 31,
2017
($ in millions)
2016
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
$
2,666 $
5,404 $
1,668
1,104
173
(171)
(70)
15
(46)
223
(168)
1,059
(2,859)
(92)
(41)
35
(71)
135
(317)
1,030
227
(46)
23
42
82
158
(150)
Net cash provided by operating activities
3,726
3,253
3,034
Cash flows from investing activities:
Property additions
Property sales and other transactions
Investment purchases
Investment sales and other transactions
(1,951)
204
(10)
99
(1,723)
202
(7)
47
(1,887)
130
(123)
48
Net cash used in investing activities
(1,658)
(1,481)
(1,832)
Cash flows from financing activities:
Dividends
Common Stock transactions
Purchase and retirement of Common Stock
Proceeds from borrowings – net of issuance costs
Debt repayments
(844)
40
(2,781)
2,023
(750)
(703)
89
(1,012)
290
(702)
(695)
57
(803)
694
(600)
Net cash used in financing activities
(2,312)
(2,038)
(1,347)
Net decrease in cash, cash equivalents, and restricted cash
(244)
(266)
(145)
Cash, cash equivalents, and restricted cash:
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
690
956
1,101
446 $
690 $
956
496 $
519
528 $
705
543
593
$
$
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, 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
Comprehensive income:
Net income
Other comprehensive loss
Total comprehensive income
Dividends on Common Stock,
$3.04 per share
Share repurchases
Stock-based compensation
Reclassification of stranded
tax effects
(17)
1
(125)
87
(119)
2,666
(844)
(2,639)
(7)
2,666
(119)
2,547
(844)
(2,781)
81
(88)
88
—
Balance at December 31, 2018
$
269 $
2,216 $
(563) $
13,440 $
15,362
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 is a Virginia-based holding company engaged principally in the rail transportation
business, operating approximately 19,500 route miles 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 2018): intermodal (25%); coal (16%);
chemicals (16%); agriculture, consumer products, and government (14%); metals and construction (13%);
automotive (9%); and, paper, clay, and 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. Certain of our contract 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 expectation of future activity. Switching, demurrage and
other incidental service revenues are recognized at a point in time when the services are performed or as contractual
obligations are met.
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 both December 31, 2018 and 2017. 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 net realizable value. The cost of materials and supplies expected to be used in property
additions or improvements is included in “Properties.”
Investments
Investments in entities over which we have the ability to exercise significant influence 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 on operating and nonoperating properties.
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 (curved 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” 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
The FASB issued ASU 2014-09, “Revenue from Contracts with Customers,” and related amendments, which are jointly
referred to as Accounting Standards Codification (ASC) Topic 606. This standard replaced most existing revenue
recognition guidance in GAAP and requires entities to recognize the amount of revenue to which it expects to be
entitled for the transfer of promised goods or services to customers. A performance obligation is defined as a promise
in a contract to transfer a distinct good or service to the customer. A contract’s transaction price is allocated to each
distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied. We
adopted the provisions of this standard on January 1, 2018, using the modified retrospective method. There was no
cumulative effect of initially applying the standard, nor is there any material difference in revenue for the year ended
December 31, 2018, as compared with GAAP that was in effect prior to January 1, 2018.
In March 2017, the FASB issued ASU 2017-07, “Improving the Presentation of Net Periodic Pension Cost and Net
Periodic Postretirement Benefit Cost.” This update requires segregation of net benefit costs between operating and
nonoperating expenses and requires retrospective application. We adopted the standard on January 1, 2018. Under
the new standard, only the service cost component of defined benefit pension cost and postretirement benefit cost
are reported within “Compensation and benefits” and all other components of net benefit cost are presented in
“Other income – net” on the Consolidated Statements of Income, whereas under the previous standard all
components were included in “Compensation and benefits.” The retrospective application resulted in an increase to
“Compensation and benefits” expense and an offsetting increase to “Other income – net” on the Consolidated
Statements of Income of $64 million and $65 million for the years ended December 31, 2017 and December 31,
2016, respectively, with no impact on “Net income.”
In February 2018, the FASB issued ASU 2018-02, “Reclassification of Certain Tax Effects from Accumulated Other
Comprehensive Income.” This update is intended to reclassify the stranded tax effects resulting from tax reform
from accumulated other comprehensive income (AOCI) to retained earnings. The amount of the reclassification is
the difference between the amount initially charged or credited directly to other comprehensive income at the
previously enacted U.S. federal corporate income tax rate that remains in AOCI and the amount that would have
been charged or credited directly to other comprehensive income using the newly enacted U.S. federal corporate
income tax rate. In the first quarter of 2018, we adopted the provisions of ASU 2018-02 resulting in an increase to
K43
“Accumulated other comprehensive loss” of $88 million and a corresponding increase to “Retained income,” with
no impact on “Total stockholders’ equity.”
In February 2016, the FASB issued ASU 2016-02, “Leases (Topic 842),” and subsequent amendments, which
replaced existing lease guidance in GAAP and requires lessees to recognize right-of-use (ROU) assets and lease
liabilities on the balance sheet for leases greater than twelve months and disclose key information about leasing
arrangements. We adopted the standard on January 1, 2019 using the modified retrospective method and used the
effective date as our date of initial application. Financial information will not be updated and the disclosures
required under the new standard will not be provided for dates and periods before January 1, 2019.
The new standard provides a number of optional practical expedients for transition. We elected the package of
practical expedients under the transition guidance which permits us not to reassess under the new standards our
prior conclusions for lease identification and lease classification on expired or existing contracts and whether initial
direct costs previously capitalized would qualify for capitalization under ASC 842. We also elected the practical
expedient related to land easements, allowing us to not reasses our current accounting treatment for existing
agreements on land easements, which are not accounted for as leases. We did not elect the hindsight practical
expedient to determine the reasonably certain lease term for existing leases.
The new standard also provides practical expedients and recognition exemptions for an entity’s ongoing accounting
policy elections. We elected the short-term lease recognition exemption for all leases that qualify. This means, for
those leases that qualify, we will not recognize ROU assets or lease liabilities. We also elected the practical
expedient not to separate lease and non-lease components for all of our leases.
We expect that adoption of the standard will result in recognition of lease liabilities of approximately $600 million
as of January 1, 2019, with corresponding ROU assets of the same amount based on the present value of the
remaining minimum rental payments under current leasing standards for existing operating leases. There will be no
adjustment to “Retained income” on adoption.
In June 2016, the FASB issued ASU 2016-13, “Credit Losses - Measurement of Credit Losses on Financial
Instruments,” which replaces the current incurred loss impairment method with a method that reflects expected
credit losses. The new standard is effective as of January 1, 2020, and early adoption is permitted as of January 1,
2019. Because credit losses associated from our trade receivables have historically been insignificant, we do not
expect this standard to have a material effect on our financial statements. We will not adopt the standard early.
2. Railway Operating Revenues
The following table disaggregates our revenues by commodity group:
Merchandise:
Chemicals
Agriculture, consumer products, and government
Metals and construction
Automotive
Paper, clay, and forest products
Merchandise
Intermodal
Coal
Total
K44
2018
($ in millions)
$
1,808
1,674
1,462
991
809
6,744
2,893
1,821
$
11,458
A performance obligation is created when a customer under a transportation contract or public tariff submits a bill
of lading to NS for the transport of goods. These performance obligations are satisfied as the shipments move from
origin to destination. As such, transportation revenue is recognized proportionally as a shipment moves, and related
expenses are recognized as incurred. These performance obligations are generally short-term in nature with transit
days averaging approximately one week or less for each commodity group. The customer has an unconditional
obligation to pay for the service once the service has been completed. Estimated revenue associated with in-process
shipments at period-end is recorded based on the estimated percentage of service completed to total transit days.
We had no material remaining performance obligations as of December 31, 2018.
Under the typical payment terms of our freight contracts, payment for services is due within fifteen days of billing
the customer, thus there are no significant financing components. “Accounts receivable – net” on the Consolidated
Balance Sheets includes both customer and non-customer receivables as follows:
Customer
Non-customer
Accounts receivable – net
December 31,
2018
2017
($ in millions)
$
$
740 $
269
1,009 $
703
252
955
Non-customer receivables include non-revenue-related amounts due from other railroads, governmental entities,
and others. “Other assets” on the Consolidated Balance Sheets includes non-current customer receivables of $55
million and $39 million at December 31, 2018 and December 31, 2017, respectively. We do not have any material
contract assets or liabilities.
Certain of our contracts contain refunds (which are primarily volume-based incentives) that are recorded as a reduction
to revenue. Refunds are recorded on the basis of management’s best estimate of projected liability, which is based on
historical activity, current shipment counts and expectation of future activity.
Certain accessorial services may be provided to customers under their transportation contracts such as switching,
demurrage and other incidental service revenues. These are distinct performance obligations that are recognized at
a point in time when the services are performed or as contractual obligations are met. This revenue is included
within each of the commodity groups and represents approximately 4% of total “Railway operating revenues” on
the Consolidated Statements of Income.
3. Other Income – Net
Net pension and other postretirement benefit cost (Note 12)
Rental income
External advisor costs
Other
Total
K45
2018
2017
($ in millions)
2016
$
61 $
5
—
1
64 $
87
—
5
65
93
(20)
(2)
$
67 $
156 $
136
4. Income Taxes
Tax reform, enacted in 2017, 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, in 2017, “Purchased services and rents” included a $151 million benefit for earnings generated from
reductions to net deferred tax liabilities at certain equity investees and “Income taxes” included a $3,331 million
benefit primarily due to the remeasurement of our net deferred tax liabilities to reflect the lower rate. In 2017,
reasonable estimates were made based on our analysis of tax reform that could have required provisional amounts
to be adjusted when additional information was obtained. No material adjustments to our provisional amounts were
made in 2018.
Current:
Federal
State
Total current taxes
Deferred:
Federal
State
Total deferred taxes
Income taxes
2018
2017
($ in millions)
2016
$
499 $
131
630
500 $
83
583
156
17
173
(2,924)
65
(2,859)
612
75
687
206
21
227
$
803 $
(2,276) $
914
Reconciliation of Statutory Rate to Effective Rate
“Income taxes” on the Consolidated Statements of Income differs from the amounts computed by applying the
statutory federal corporate tax rate as follows:
2018
2017
Amount
%
Amount
($ in millions)
%
2016
Amount %
Federal income tax at statutory rate
State income taxes, net of federal tax effect
Equity in earnings related to tax reform
Tax reform
Excess tax benefits on stock-based compensation
Other, net
$
728
120
—
—
(22)
(23)
21.0 $
3.5
—
—
(0.7)
(0.7)
1,095
88
(38)
(3,331)
(39)
(51)
35.0 $
2.8
(1.2)
(106.5)
(1.2)
(1.7)
904
70
—
—
(17)
(43)
35.0
2.8
—
—
(0.7)
(1.7)
Income taxes
$
803
23.1 $
(2,276)
(72.8) $
914
35.4
K46
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,
2018
2017
($ in millions)
$
284 $
69
72
425
(50)
375
235
64
67
366
(44)
322
(6,422)
(413)
(6,835)
(6,212)
(434)
(6,646)
$
(6,460) $
(6,324)
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 $6 million in 2018, $5 million in 2017, and $4 million in 2016.
Uncertain Tax Positions
A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:
December 31,
2018
2017
($ in millions)
Balance at beginning of year
$
17 $
27
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
5
—
—
—
(1)
4
2
(2)
(11)
(3)
Balance at end of year
$
21 $
17
K47
Included in the balance of unrecognized tax benefits at December 31, 2018 are potential benefits of $17 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.
The statute of limitations on IRS examinations has expired for all years prior to 2015. 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.
5. Fair Value Measurements
FASB 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.
Fair Values of Financial Instruments
The fair values of “Cash and cash equivalents,” “Accounts receivable – net,” “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.
There are no other assets or liabilities measured at fair value on a recurring basis at December 31, 2018 or 2017.
The carrying amounts and estimated fair values, based on Level 1 inputs, of long-term debt consisted of the
following at December 31:
2018
2017
Carrying
Amount
Fair
Value
Carrying
Amount
Fair
Value
($ in millions)
Long-term debt, including current maturities
$ (11,145) $ (12,203) $
(9,736) $ (11,771)
K48
6. 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,
2018
2017
($ in millions)
$
1,337 $
692
271
155
77
2,532
556
21
1,293
629
272
154
77
2,425
530
26
$
3,109 $
2,981
Through a limited liability company, we and CSX jointly own Conrail, whose primary subsidiary is CRC. We have
a 58% economic and 50% voting interest in the jointly owned entity, and CSX has the remainder of the economic
and voting interests. We are amortizing the excess of the purchase price over Conrail’s net equity using the
principles of purchase accounting, based primarily on the estimated useful lives of Conrail’s depreciable property
and equipment, including the related deferred tax effect of the differences in book and tax accounting bases for such
assets, as all of the purchase price at acquisition was allocable to Conrail’s tangible assets and liabilities.
At December 31, 2018, based on the funded status of Conrail’s pension plans, we decreased our proportional
investment in Conrail by $11 million. This resulted in a loss of $10 million recorded to “Other comprehensive loss”
and a combined federal and state deferred tax asset of $1 million.
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, 2018, the difference between our investment in Conrail and our share of Conrail’s underlying net
equity was $511 million. Our equity in the earnings of Conrail, net of amortization, included in “Purchased services
and rents” was $55 million for 2018, $75 million for 2017 (including $33 million related to the enactment of tax
reform – see Note 4), and $47 million for 2016. 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
$150 million in 2018, $141 million in 2017, and $151 million in 2016. Future payments for access fees due to CRC
under the Shared Assets Areas agreements are as follows: $38 million in each of 2019 through 2023 and $16 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 $7 million annually.
K49
“Accounts payable” includes $202 million at December 31, 2018, and $146 million at December 31, 2017, due to
Conrail for the operation of the Shared Assets Areas. “Other liabilities” includes $280 million at both December 31,
2018 and 2017 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 $262
million, $237 million, and $229 million of expense, respectively, for the years ended December 31, 2018, 2017 and
2016. Our equity in the earnings of TTX, also included in “Purchased services and rents,” totaled $61 million for
2018, $158 million (including $115 million related to the enactment of tax reform – see Note 4) for 2017, and $26
million for 2016.
7. Properties
December 31, 2018
Cost
Accumulated
Depreciation
($ 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
$
2,337 $
— $
2,337
—
6,888
5,346
2,759
442
14,072
29,507
5,870
3,183
623
437
1,071
11,184
(1,951)
(1,448)
(676)
—
(3,737)
(7,812)
(2,262)
(1,288)
(365)
—
(380)
(4,295)
4,937
3,898
2,083
442
10,335
21,695
3,608
1,895
258
437
691
6,889
2.29%
3.36%
2.70%
—
2.64%
3.77%
2.47%
10.65%
—
4.94%
Other property
437
(267)
170
0.78%
Total properties
$
43,465 $
(12,374) $
31,091
K50
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
(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, 2018
and 2017, with accumulated depletion of $200 million at both dates.
Capitalized Interest
Total interest cost incurred on debt was $574 million in 2018, $570 million in 2017, and $583 million in 2016, of
which $17 million in 2018 and $20 million in both 2017 and 2016 was capitalized.
K51
8. Current Liabilities
Accounts payable:
Accounts and wages payable
Casualty and other claims (Note 17)
Due to Conrail (Note 6)
Vacation liability
Other
Total
Other current liabilities:
Interest payable
Pension benefit obligations (Note 12)
Other
Total
9. Debt
Debt with weighted average interest rates and maturities is presented below:
Notes and debentures:
4.68% maturing to 2023
4.57% maturing 2024 to 2031
4.49% maturing 2037 to 2052
5.90% maturing 2097 to 2118
Securitization borrowings and capital leases
Discounts, premiums, and debt issuance costs
Total debt
December 31,
2018
2017
($ in millions)
$
828 $
213
202
140
122
822
187
146
133
113
$
1,505 $
1,401
$
139 $
18
89
115
17
101
$
246 $
233
December 31,
2018
2017
($ in millions)
$
2,682 $
3,065
5,104
1,131
2
(839)
11,145
3,282
2,365
4,404
531
102
(848)
9,836
Less current maturities and short-term debt
(585)
(700)
Long-term debt excluding current maturities and short-term debt
$
10,560 $
9,136
K52
Long-term debt maturities subsequent to 2019 are as follows:
2020
2021
2022
2023
2024 and subsequent years
Total
$
314
584
600
600
8,462
$
10,560
In February of 2018, we issued $500 million of 4.15% senior notes due 2048.
In August of 2018, we issued $300 million of 3.65% senior notes due 2025, $400 million of 3.80% senior notes due
2028, $200 million of 4.15% senior notes due 2048, and $600 million of 5.10% senior notes due 2118.
In June of 2018, we renewed our accounts receivable securitization program for a 364-day term expiring in May
2019. We also increased the program’s capacity from $350 million to $400 million. Under this facility 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 $50 million in 2018, and paid $150 million and $100 million during
2018 and 2017, respectively. We had no amounts outstanding under this program at December 31, 2018 and $100
million (at an average variable interest rate of 3.21%) at December 31, 2017, which is included within “Short-term
debt.” At December 31, 2018 and 2017, the receivables included in “Accounts receivable – net” serving as
collateral for these borrowings totaled $793 million and $751 million, respectively. Borrowings under this program
are supported by our $750 million credit agreement.
The “Cash, cash equivalents, and restricted cash” line item in the Consolidated Statements of Cash Flows includes
restricted cash of $88 million at December 31, 2018 which reflects deposits held by a third-party bond agent as
collateral for certain debt obligations maturing in 2019. The restricted cash balance is included as part of “Other
current assets” on the Consolidated Balance Sheets.
Credit Agreement and Debt Covenants
We have in place and available a $750 million, five-year credit agreement which expires in May 2021 and provides
for borrowings at prevailing rates and includes covenants. We had no amounts outstanding under this facility at
December 31, 2018 and 2017, and we are in compliance with all of its covenants.
K53
10. Lease Commitments
We are committed under long-term lease agreements for equipment, lines of road and other property. Future
minimum lease payments and operating lease expense are as follows:
Future Minimum Lease Payments
2019
2020
2021
2022
2023
2024 and subsequent years
Total
Operating Lease Expense
Minimum rents
Contingent rents
Total
Operating
Leases
($ in millions)
$
$
101
95
88
75
69
267
695
2018
2017
($ in millions)
2016
$
$
102 $
102
96 $
54
97
51
204 $
150 $
148
Contingent rents are primarily comprised of usage-based payments for equipment under service contracts.
11. Other Liabilities
Net other postretirement benefit obligations (Note 12)
Long-term advances from Conrail (Note 6)
Net pension benefit obligations (Note 12)
Casualty and other claims (Note 17)
Deferred compensation
Other
Total
K54
December 31,
2018
2017
($ in millions)
$
308 $
280
278
158
106
136
309
280
296
179
113
170
$
1,266 $
1,347
12. Pensions and Other Postretirement Benefits
We have both funded and unfunded defined benefit pension plans covering principally salaried employees. We also
provide specified health care and life insurance benefits to eligible retired employees; these plans can be amended
or terminated at our option. Under our self-insured retiree health care plan, for those participants who are not
Medicare-eligible, a defined percentage of health care expenses is covered for retired employees and their
dependents, reduced by any deductibles, coinsurance, and, in some cases, coverage provided under other group
insurance policies. Those participants who are Medicare-eligible are not covered under the self-insured retiree
health care plan, but instead are provided with an employer-funded health reimbursement account which can be
used for reimbursement of health insurance premiums or eligible out-of-pocket medical expenses.
Pension and Other Postretirement Benefit Obligations and Plan Assets
Change in benefit obligations:
Benefit obligation at beginning of year
Service cost
Interest cost
Actuarial losses (gains)
Benefits paid
Benefit obligation at end of year
Change in plan assets:
Fair value of plan assets at beginning of year
Actual return on plan assets
Employer contribution
Benefits paid
Fair value of plan assets at end of year
Pension Benefits
2017
2018
Other Postretirement
Benefits
2018
2017
($ in millions)
$
2,541 $
39
83
(149)
(143)
2,371
2,420 $
38
80
143
(140)
2,541
2,373
(143)
18
(143)
2,105
2,073
423
17
(140)
2,373
510 $
7
15
(24)
(42)
466
201
(19)
18
(42)
158
528
7
15
6
(46)
510
182
40
25
(46)
201
Funded status at end of year
$
(266) $
(168) $
(308) $
(309)
Amounts recognized in the Consolidated
Balance Sheets:
Noncurrent assets
Current liabilities
Noncurrent liabilities
$
30 $
(18)
(278)
145 $
(17)
(296)
— $
—
(308)
—
—
(309)
Net amount recognized
$
(266) $
(168) $
(308) $
(309)
Amounts included in accumulated other comprehensive
loss (before tax):
Net loss
Prior service cost (benefit)
$
895 $
2
781 $
2
21 $
(259)
11
(283)
K55
Our accumulated benefit obligation for our defined benefit pension plans is $2.2 billion and $2.3 billion at
December 31, 2018 and December 31, 2017, respectively. Our unfunded pension plans, included above, which in
all cases have no assets, had projected benefit obligations of $296 million and $313 million at December 31, 2018
and December 31, 2017, respectively, and had accumulated benefit obligations of $263 million and $267 million at
December 31, 2018 and December 31, 2017, respectively.
Pension and Other Postretirement Benefit Cost Components
Pension benefits:
Service cost
Interest cost
Expected return on plan assets
Amortization of net losses
Amortization of prior service cost
Net cost (benefit)
Other postretirement benefits:
Service cost
Interest cost
Expected return on plan assets
Amortization of prior service benefit
2018
2017
($ in millions)
2016
$
$
$
39 $
83
(177)
57
—
38 $
80
(172)
51
1
36
82
(173)
51
—
2 $
(2) $
(4)
7 $
15
(15)
(24)
7 $
15
(15)
(24)
7
16
(17)
(24)
Net benefit
$
(17) $
(17) $
(18)
Other Changes in Plan Assets and Benefit Obligations Recognized in Other Comprehensive Income
Net loss arising during the year
Amortization of net losses
Amortization of prior service benefit
Total recognized in other comprehensive income
Total recognized in net periodic cost
and other comprehensive income
2018
Pension
Benefits
Other
Postretirement
Benefits
($ in millions)
$
$
$
171 $
(57)
—
114 $
116 $
10
—
24
34
17
Net actuarial losses arising during the year for pension and other postretirement benefits were due primarily to
lower actual returns on plan assets, partially offset by an increase in discount rates.
K56
The estimated net losses for the pension plans that will be amortized from accumulated other comprehensive loss
into net periodic cost over the next year are $44 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
2018
2017
2016
4.33%
4.21%
3.74%
4.21%
4.05%
4.21%
4.18%
3.57%
3.83%
4.01%
3.33%
8.25%
4.21%
3.83%
3.13%
8.00%
6.30%
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%
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.
We use a spot rate approach to estimate the service cost and interest cost components of net periodic benefit cost for
our pension and other postretirement benefit plans.
Health Care Cost Trend Assumptions
For measurement purposes at December 31, 2018, increases in the per capita cost of pre-Medicare covered health
care benefits were assumed to be 6.5% for 2019. It is assumed the rate will decrease gradually to an ultimate rate of
5.0% for 2025 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 $
9
(1)
(8)
Eleven 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. Fixed income
investments must consist predominantly of securities rated investment grade or higher. 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,
2017
2018
49%
23%
25%
3%
49%
25%
24%
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, 2018 of 64% in equity securities and 36% in debt securities compared with 67% in
equity securities and 33% in debt securities at December 31, 2017. 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 2019, we assume an 8.25% return on pension plan assets.
K58
Fair Value of Plan Assets
Following is a description of the valuation methodologies used for pension plan assets measured at fair value.
Common stock: Shares held by the plan at year end are valued at the official closing price as defined by the
exchange or at the most recent trade price of a security at the close of the active market.
Common collective trusts: 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.
Fixed income securities: Valued based on quotes received from independent pricing services or at an
estimated price at which a dealer would pay for a security at year end using observable market-based
inputs.
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.
Cash and cash equivalents: 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.
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:
International equity securities
Debt securities
Fixed income securities:
Corporate bonds
Government and agencies securities
Mortgage and other asset-backed securities
Commingled funds
Cash and cash equivalents
Total investments
Level 1
December 31, 2018
Level 2
($ in millions)
Total
$
1,106 $
— $
1,106
—
—
—
—
—
—
72
314
287
83
89
62
92
—
314
287
83
89
62
92
72
$
1,178 $
927 $
2,105
K59
Common stock
Common collective trusts:
International equity securities
Debt securities
Fixed income securities:
Government and agencies securities
Commingled funds
Cash and cash equivalents
Level 1
December 31, 2017
Level 2
($ in millions)
Total
$
1,154 $
— $
1,154
—
—
—
—
23
397
562
4
233
—
397
562
4
233
23
Total investments
$
1,177 $
1,196 $
2,373
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 $158 million
and $201 million at December 31, 2018 and December 31, 2017, 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 2019, we expect to contribute approximately $18 million to our unfunded pension plans for payments to
pensioners and approximately $41 million to our other postretirement benefit plans for retiree health and death
benefits. We do not expect to contribute to our funded pension plan in 2019.
Benefit payments, which reflect expected future service, as appropriate, are expected to be paid as follows:
Pension
Benefits
Other
Postretirement
Benefits
($ in millions)
$
142 $
143
144
145
146
733
41
40
38
37
36
165
2019
2020
2021
2022
2023
Years 2024 – 2028
K60
Other Postretirement Coverage
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 $35 million in 2018, $44 million in
2017, and $37 million in 2016.
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 both 2018 and 2017 and $21 million in 2016.
13. Stock-Based Compensation
Under the stockholder-approved Long-Term Incentive Plan (LTIP), the Compensation Committee (Committee),
which is made up of nonemployee members of the Board of Directors, or the Chief Executive Officer (when
delegated authority by such Committee), may grant stock options, stock appreciation rights (SARs), restricted stock
units (RSUs), restricted shares, performance share units (PSUs), and performance shares, up to a maximum of
104,125,000 shares of our Common Stock, of which 8,644,108 remain available for future grants as of
December 31, 2018.
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:
Stock options:
LTIP
TSOP
Total
RSUs
PSUs
2018
2017
2016
Weighted
Average
Grant-Date
Fair Value
Weighted
Average
Grant-Date
Fair Value
Granted
Granted
Granted
Weighted
Average
Grant-Date
Fair Value
40,960 $
—
40,960
41.70
—
341,120 $
144,440
485,560
37.73
31.33
694,290 $
302,320
996,610
217,290
92,314
148.37
91.60
83,330
300,334
120.16
88.56
136,250
1,042,628
19.92
14.75
70.44
52.75
K61
Beginning in 2018, recipients of certain RSUs and PSUs pursuant to the LTIP who retire prior to October 1st will
forfeit awards received in the current year. Receipt of certain LTIP awards 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
FASB 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. Compensation cost for the awards is recognized on a straight-line basis over the requisite service period
for the entire award. Related compensation costs and tax benefits during the year were:
2018
2017
($ in millions)
2016
Stock-based compensation expense
Total tax benefit
$
47 $
33
45 $
54
42
31
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 2018 was measured on the date of grant using the Black-Scholes valuation
model. The fair value of each option awarded in 2017 and 2016 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. For the 2018 grant year, historical exercise data is used to estimate the
average expected option term. For the 2017 and 2016 grant years, 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 2018, 2017, and 2016, a dividend yield of 1.94%, 2.04%,
and 3.37%, respectively, was used for all vested LTIP options and all TSOP options.
K62
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, 2017
Granted
Exercised
Forfeited
Outstanding at December 31, 2018
2018
2017
2016
24%
2.55%
7.2 years
—
26%
2.51%
8.6 years
8.3 years
27%
2.00%
8.9 years
8.6 years
Stock
Options
Weighted
Avg.
Exercise Price
4,234,067 $
40,960
(840,175)
(15,208)
83.17
149.58
72.08
89.57
3,419,644
86.66
The aggregate intrinsic value of options outstanding at December 31, 2018 was $215 million with a weighted
average remaining contractual term of 5.7 years. Of these options outstanding, 1,908,864 were exercisable and had
an aggregate intrinsic value of $175 million with a weighted average exercise price of $57.81 and a weighted
average remaining contractual term of 3.0 years.
The following table provides information related to options exercised for the last three years:
Options exercised
Total intrinsic value
Cash received upon exercise
Related tax benefits realized
2018
2017
($ in millions)
2016
$
840,175
1,789,939
72 $
58
16
114 $
104
35
1,466,721
60
74
13
At December 31, 2018, total unrecognized compensation related to options granted under the LTIP and the TSOP
was $5 million, and is expected to be recognized over a weighted-average period of approximately 1.6 years.
K63
Restricted Stock Units
RSUs granted in 2018 primarily have a four-year ratable restriction period and will be settled through the issuance
of shares of Common Stock. RSUs granted in 2017 and 2016 have a five-year restriction period and will also be
settled through the issuance of shares of Common Stock. Certain RSU grants include cash dividend equivalent
payments during the restriction period in an amount equal to regular quarterly dividends paid on Common Stock.
2018
2017
($ in millions)
2016
RSUs vested
Common Stock issued net of tax withholding
Related tax benefit realized
160,200
99,968
137,200
81,318
$
3 $
3 $
175,500
103,936
1
A summary of changes in RSUs is presented below:
Nonvested at December 31, 2017
Granted
Vested
Forfeited
Nonvested at December 31, 2018
Weighted-
Average
Grant-Date
Fair Value
RSUs
588,405 $
217,290
(160,200)
(8,460)
87.40
148.37
69.83
143.24
637,035
111.87
At December 31, 2018, total unrecognized compensation related to RSUs was $17 million, and is expected to be
recognized over a weighted-average period of approximately 2.9 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.
PSUs earned
Common Stock issued net of tax withholding
Related tax benefit realized
154,189
94,399
171,080
99,805
$
3 $
1 $
406,038
241,757
3
2018
2017
($ in millions)
2016
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A summary of changes in PSUs is presented below:
Balance at December 31, 2017
Granted
Earned
Unearned
Forfeited
Balance at December 31, 2018
Weighted-
Average
Grant-Date
Fair Value
63.36
91.60
46.08
87.01
77.26
62.77
PSUs
1,748,752 $
92,314
(154,189)
(256,981)
(3,070)
1,426,826
At December 31, 2018, total unrecognized compensation related to PSUs granted under the LTIP was $5 million,
and is expected to be recognized over a weighted-average period of approximately 1.5 years.
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
14. Stockholders’ Equity
Common Stock
2018
2017
2016
8,644,108
422,973
8,774,768
410,895
9,385,674
544,217
820,746
213,796
1,679,547
291,515
1,511,645
300,769
Common Stock is reported net of shares held by our consolidated subsidiaries (Treasury Shares). Treasury Shares
at December 31, 2018 and 2017 amounted to 20,320,777, with a cost of $19 million at both dates.
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Accumulated Other Comprehensive Loss
The components of “Other comprehensive income (loss)” reported in the Consolidated Statements of
Comprehensive Income and changes in the cumulative balances of “Accumulated other comprehensive loss”
reported in the Consolidated Balance Sheets consisted of the following:
Balance
at
Beginning
of Year
Net
Income
(Loss)
Reclassification
of Stranded
Tax Effects
Reclassification
Adjustments
Balance
at End
of Year
($ in millions)
$
(300) $
(136) $
(86) $
25 $
(497)
(56)
(8)
(2)
—
(66)
Year ended December 31, 2018
Pensions and other postretirement
liabilities
Other comprehensive loss
of equity investees
Accumulated other comprehensive
loss
$
(356) $
(144) $
(88) $
25 $
(563)
Year ended December 31, 2017
Pensions and other postretirement
liabilities
Other comprehensive income
of equity investees
Accumulated other comprehensive
$
(414) $
95 $
— $
19 $
(300)
(73)
17
—
—
(56)
loss
$
(487) $
112 $
— $
19 $
(356)
The adoption of FASB ASU 2018-02 (see Note 1) resulted in an increase to “Accumulated other comprehensive
loss” of $88 million and a corresponding increase to “Retained income,” with no impact on “Total stockholders’
equity.”
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Other Comprehensive Income (Loss)
“Other comprehensive income (loss)” reported in the Consolidated Statements of Comprehensive Income consisted
of the following:
Year ended December 31, 2018
Net gain (loss) arising during the year:
Pensions and other postretirement benefits
Reclassification adjustments for costs
included in net income
Subtotal
Other comprehensive loss of equity investees
Other comprehensive loss
Year ended December 31, 2017
Net gain arising during the year:
Pensions and other postretirement benefits
Reclassification adjustments for costs
included in net income
Subtotal
Other comprehensive income of equity investees
Other comprehensive income
Year ended December 31, 2016
Net gain (loss) arising during the year:
Pensions and other postretirement benefits
Reclassification adjustments for costs
included in net income
Subtotal
Other comprehensive income of equity investees
Pretax
Amount
Tax
(Expense)
Benefit
($ in millions)
Net-of-Tax
Amount
$
(181) $
45 $
(136)
$
$
$
$
33
(148)
(9)
(8)
37
1
25
(111)
(8)
(157) $
38 $
(119)
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
Other comprehensive loss
$
(69) $
27 $
(42)
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15. Stock Repurchase Programs
We repurchased and retired 17.1 million (7.0 million shares under the ASR and 10.1 million shares under our
ongoing open-market program), 8.2 million, and 9.2 million shares of Common Stock under our stock repurchase
programs in 2018, 2017, and 2016, respectively, at a cost of $2.8 billion, $1.0 billion, and $803 million,
respectively. We entered into an ASR on August 2, 2018 with two financial institutions to repurchase Common
Stock, at which time we made a payment of $1.2 billion to the financial institutions and received an initial delivery
of 5.7 million shares valued at $960 million. In December 2018, the remaining balance was settled through the
receipt of 1.3 million additional shares.
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, 2018, 39.4 million shares remain authorized
for repurchase. Since the beginning of 2006, we have repurchased and retired 185.6 million shares at a total cost of
$14.1 billion.
16. Earnings Per Share
The following table sets forth the calculation of basic and diluted earnings per share:
Basic
2017
Diluted
2017
2016
2018
($ in millions except per share amounts, shares in millions)
2016
2018
Net income
Dividend equivalent payments
$ 2,666 $ 5,404 $ 1,668 $ 2,666 $ 5,404 $ 1,668
(4)
(2)
(6)
(1)
(4)
(5)
Income available to common stockholders
$ 2,660 $ 5,400 $ 1,663 $ 2,665 $ 5,402 $ 1,664
Weighted-average shares outstanding
Dilutive effect of outstanding options
and share-settled awards
Adjusted weighted-average shares outstanding
277.7
287.9
293.9
277.7
287.9
293.9
2.5
280.2
2.4
290.3
2.1
296.0
Earnings per share
$
9.58 $ 18.76 $
5.66 $
9.51 $ 18.61 $
5.62
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 zero, 0.2 million,
and 1.3 million for the years ended December 31, 2018, 2017 and 2016, respectively.
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17. 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.
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 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 include injuries and illnesses alleged to be caused by exposures which
occur over time as opposed to injuries or illnesses caused by a specific accident or event. Types of occupational
claims commonly seen allege exposure to asbestos and other claimed toxic substances resulting in respiratory
diseases or cancer, exposure to repetitive motion resulting in various musculoskeletal disorders, and exposure to
excessive noise resulting in hearing loss. 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
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judgments of the actuarial firm in the quarterly studies. The actuarial firm’s estimate of ultimate loss includes a
provision for those claims that have been incurred but not reported. This provision is derived by analyzing industry
data and projecting our experience. We adjust the liability quarterly based upon our assessment and the results of
the study. However, it is possible that the recorded liability may not be adequate to cover the future payment of
claims. Adjustments to the recorded liability are reflected in operating expenses in the periods in which such
adjustments become known.
Third-party claims – We record a liability for third-party claims including those for highway crossing accidents,
trespasser and other injuries, automobile liability, property damage, and lading damage. The actuarial firm assists
us with the calculation of potential liability for third-party claims, except lading damage, based upon our experience
including the number and timing of incidents, amount of payments, settlement rates, number of open claims, and
legal defenses. We adjust the liability quarterly based upon our assessment and the results of the study. Given the
inherent uncertainty in regard to the ultimate outcome of third-party claims, it is possible that the actual loss may
differ from the estimated liability recorded.
Environmental Matters
We are subject to various jurisdictions’ environmental laws and regulations. We record a liability where such
liability or loss is probable and reasonably estimable. Environmental specialists 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 $55 million at December 31,
2018, and $58 million at December 31, 2017, of which $15 million is classified as a current liability at the end of
both 2018 and 2017. At December 31, 2018, the liability represents our estimates of the probable cleanup,
investigation, and remediation costs based on available information at 114 known locations and projects compared
with 127 locations and projects at December 31, 2017. At December 31, 2018, fifteen 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 eleven 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.
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Based on our assessment of the facts and circumstances now known, we believe we have recorded the probable and
reasonably estimable costs for dealing with those environmental matters of which we are aware. Further, we
believe that it is unlikely that any known matters, either individually or in the aggregate, will have a material
adverse effect on our financial position, results of operations, or liquidity.
Insurance
We obtain on behalf of ourself and our subsidiaries insurance for potential losses for third-party liability and first-
party property damages. We are currently self-insured up to $50 million and above $1.1 billion ($1.5 billion for
specific perils) per occurrence and/or policy year for bodily injury and property damage to third parties and up to
$25 million and above $200 million per occurrence and/or policy year for property owned by us or in our care,
custody, or control.
Purchase Commitments
At December 31, 2018, we had outstanding purchase commitments totaling approximately $1.2 billion for
locomotives, track material, long-term service contracts, track and yard expansion projects in connection with our
capital programs as well as freight cars and containers through 2023.
Change-In-Control Arrangements
We have compensation agreements with certain officers and key employees that become operative only upon a
change in control of Norfolk Southern, as defined in those agreements. The agreements provide generally for
payments based on compensation at the time of a covered individual’s involuntary or other specified termination
and for certain other benefits.
Indemnifications
In a number of instances, we have agreed to indemnify lenders for additional costs they may bear as a result of
certain changes in laws or regulations applicable to their loans. Such changes may include impositions or
modifications with respect to taxes, duties, reserves, liquidity, capital adequacy, special deposits, and similar
requirements relating to extensions of credit by, deposits with, or the assets or liabilities of such lenders. The nature
and timing of changes in laws or regulations applicable to our financings are inherently unpredictable, and therefore
our exposure in connection with the foregoing indemnifications cannot be quantified. No liability has been
recorded related to these indemnifications.
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NORFOLK SOUTHERN CORPORATION AND SUBSIDIARIES
QUARTERLY FINANCIAL DATA
(Unaudited)
2018
Railway operating revenues
Income from railway operations
Net income
Earnings per share:
Basic
Diluted
2017
Railway operating revenues
Income from railway operations
Net income
Earnings per share:
Basic
Diluted
Three Months Ended
March 31
June 30
September 30 December 31
($ in millions, except per share amounts)
$
$
2,717 $
835
552
2,898 $
1,026
710
1.94
1.93
2.52
2.50
2,575 $
757
433
2,637 $
872
497
1.49
1.48
1.72
1.71
2,947 $
1,020
702
2.54
2.52
2,670 $
895
506
1.76
1.75
2,896
1,078
702
2.59
2.57
2,669
998
3,968
13.91
13.79
Note 1: In the fourth quarter of 2017, as a result of the enactment of tax reform, “Income from railway operations”
included a $151 million benefit and income taxes included 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.”
Note 2: The retrospective application of FASB ASU 2017-07 resulted in an increase to “Compensation and
benefits” expense within “Railway operating expenses” and an offsetting increase to “Other income – net” of $16
million in each of the quarters of 2017. This resulted in a decrease to “Income from railway operations” as
presented for each of the quarters of 2017.
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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, 2018. Based on such
evaluation, our officers have concluded that, at December 31, 2018, 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
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, 2018. These reports appear in Item 8 of this report on Form 10-K.
Changes in Internal Control Over Financial Reporting
During the fourth quarter of 2018, 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.
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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 2019 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 “2018
Grants of Plan-Based Awards” table, including the narrative to such tables, the “Outstanding Equity Awards
at Fiscal Year-End 2018” and “Option Exercises and Stock Vested in 2018” 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 2019 Annual Meeting of Stockholders, which
definitive Proxy Statement will be filed electronically with the SEC pursuant to Regulation 14A.
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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 2019 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, 2018)
Plan
Category
Equity compensation plans
approved by securities holders(2)
Equity compensation plans
not approved by securities holders
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)
5,048,649 (4) $
85.10 (5)
8,644,108
733,502 (3)
84.23
422,973 (6)
Total
5,782,151
9,067,081
(1) Excludes securities reflected in column (a).
(2) LTIP.
(3) TSOP and the Directors’ 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 2,362,507 outstanding RSUs and PSUs at December 31, 2018.
(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.
Non-employee Directors, officers, and other key employees residing in the United States of America or Canada are
eligible for selection to receive LTIP awards. Under LTIP, the Committee, or the Corporation’s chief executive
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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 2018 PSU awards, corporate performance will be based directly on return
on average capital invested, with total return to stockholders serving as a modifier, and 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 was based on equally weighted standards established by the Committee for
operating ratio and earnings per share. We did not meet the performance criteria for operating ratio and therefore
no payout for the accelerated turnaround incentive award was achieved.
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 2018 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 of America 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 2019 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 2019 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, 2018, 2017, and 2016
Consolidated Statements of Comprehensive Income, Years ended December 31, 2018,
2017, and 2016
Consolidated Balance Sheets at December 31, 2018 and 2017
Consolidated Statements of Cash Flows, Years ended December 31, 2018, 2017, and
2016
Consolidated Statements of Changes in Stockholders’ Equity, Years ended December 31,
2018, 2017, and 2016
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)
Page
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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 February 6, 2019, are
incorporated by reference to Exhibit 3(ii) to Norfolk Southern Corporation’s Form 8-K
filed on February 8, 2019. (SEC File No. 001-08339)
The Bylaws of Norfolk Southern Corporation, as amended January 23, 2019, effective
February 10, 2019, are incorporated by reference to Exhibit 3(iii) to Norfolk Southern
Corporation’s Form 8-K filed on January 25, 2019. (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)
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 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)
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)
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Third Supplemental Indenture, dated as of August 13, 2013, between the Registrant and
U.S. Bank Trust National Association, as Trustee, related to the issuance of notes in the
principal amount of $500,000,000, is incorporated by reference to Exhibit 4.1 to Norfolk
Southern Corporation’s Form 8-K filed on August 13, 2013. (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 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 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 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)
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)
Indenture, dated as of February 28, 2018 between the Registrant and U.S. Bank National
Association, as Trustee. The Indenture is incorporated by reference herein to Exhibit 4.1
to Norfolk Southern Corporation’s Form 8-K filed February 28, 2018. (SEC File No.
001-08339)
First Supplemental Indenture, dated as of February 28, 2018, between the Registrant and
U.S. Bank National Association, as Trustee. The Indenture is incorporated by reference
herein to Exhibit 4.2 to Norfolk Southern Corporation’s Form 8-K filed February 28,
2018. (SEC File No. 001-08339)
Second Supplemental Indenture, dated as of August 2, 2018, between the Registrant and
U.S. Bank National Association, as Trustee. The Indenture is incorporated by reference
herein to Exhibit 4.1 to Norfolk Southern Corporation’s Form 8-K filed August 2, 2018.
(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.
10
Material Contracts -
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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)
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)
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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, and as amended effective March 27, 2018, is incorporated by
reference to Exhibit 10.1 to Norfolk Southern Corporation’s Form 10-Q filed on April 25,
2018. (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)
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)
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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 filed 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 December 1, 2018.
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)
(aa)*,**
The Norfolk Southern Corporation Long-Term Incentive Plan, as approved by
shareholders May 14, 2015, and as amended July 29, 2016, November 29, 2016,
November 28, 2017, and November 27, 2018.
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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)
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)
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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)
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)
K85
(uu)
(vv)*
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)
(ww)*,**
Norfolk Southern Corporation Executives’ Deferred Compensation Plan, as amended and
restated effective January 1, 2019.
(xx)*
(yy)*
(zz)*
(aaa)
(bbb)*
(ccc)*
(ddd)*
(eee)*
(fff)*
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 “named executive officers”
identified in the Corporation’s Proxy Statement for the 2019 annual Meeting of
Stockholders who entered into change in control agreements before 2016), 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)
Form of Norfolk Southern Corporation Long-Term Incentive Plan, Award Agreement for
performance share units approved by the Compensation Committee on November 27,
2017, is incorporated by reference to Exhibit 10(ddd) to Norfolk Southern Corporation’s
Form 10-K filed on February 5, 2018. (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, is incorporated by reference to Exhibit 10(eee) to Norfolk Southern Corporation’s
Form 10-K filed on February 5, 2018. (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,
is incorporated by reference to Exhibit 10(fff) to Norfolk Southern Corporation’s Form
10-K filed on February 5, 2018. (SEC File No. 001-08339)
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)
K86
(ggg)
(hhh)
(iii)*
(jjj)*
(kkk)
21**
23**
31-A**
31-B**
32**
99**
101**
Performance Criteria for bonuses payable in 2020 for the 2019 incentive year. On
November 26, 2018, the Compensation Committee of the Norfolk Southern Corporation
Board of Directors adopted the following performance criteria for determining bonuses
payable in 2020 for the 2019 incentive year under the Norfolk Southern Corporation
Executive Management Incentive Plan: 60% based on operating income, and 40% based
on operating ratio.
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)
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)
Subsidiaries of the Registrant.
Consent of Independent Registered Public Accounting Firm.
Rule 13a-14(a)/15d-014(a) CEO Certification.
Rule 13a-14(a)/15d-014(a) CFO Certification.
Section 1350 Certifications.
Annual CEO Certification pursuant to NYSE Rule 303A.12(a).
The following financial information from Norfolk Southern Corporation’s Annual Report
on Form 10-K for the year ended December 31, 2018, formatted in Extensible Business
Reporting Language (XBRL) includes: (i) the Consolidated Statements of Income of
each of the years ended December 31, 2018, 2017, and 2016; (ii) the Consolidated
Statements of Comprehensive Income for each of the years ended December 31, 2018,
2017, and 2016; (iii) the Consolidated Balance Sheets at December 31, 2018 and 2017;
(iv) the Consolidated Statements of Cash Flows for each of the years ended December
31, 2018, 2017, and 2016; (v) the Consolidated Statements of Changes in Stockholders’
Equity for each of the years ended December 31, 2018, 2017, and 2016; and (vi) the
Notes to Consolidated Financial Statements.
* Management contract or compensatory arrangement.
** Filed herewith.
K87
(B)
(C)
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 2018 Form 10-K posted on our website at
www.norfolksouthern.com under “Invest in NS” 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.
K88
POWER OF ATTORNEY
Each person whose signature appears on the next page under SIGNATURES hereby authorizes John M. Scheib 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 John M. Scheib 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 8th day of February, 2019.
/s/ James A. Squires
By: James A. Squires
(Chairman, President and Chief Executive Officer)
K89
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below on this 8th
day of February, 2019, 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/ Jason A. Zampi
(Jason A. Zampi)
Vice President and Controller
(Principal Accounting Officer)
/s/ Thomas D. Bell, Jr.
(Thomas D. Bell, Jr.)
Director
/s/ Daniel A. Carp
(Daniel A. Carp)
Director
/s/ Mitchell E. Daniels, Jr.
(Mitchell E. Daniels, Jr.)
Director
/s/ Marcela E. Donadio
(Marcela E. Donadio)
Director
/s/ Thomas C. Kelleher
(Thomas C. Kelleher)
Director
/s/ Steven F. Leer
(Steven F. Leer)
Director
/s/ Michael D. Lockhart
(Michael D. Lockhart)
Director
/s/ Amy E. Miles
(Amy E. Miles)
Director
/s/ Martin H. Nesbitt
(Martin H. Nesbitt)
Director
/s/ Jennifer F. Scanlon
(Jennifer F. Scanlon)
Director
/s/ John R. Thompson
(John R. Thompson)
Director
K90
Norfolk Southern Corporation and Subsidiaries
Valuation and Qualifying Accounts
Years ended December 31, 2018, 2017, and 2016
($ in millions)
Schedule II
Beginning
Balance
Additions charged to:
Other
Accounts
Expenses
Deductions
Ending
Balance
Year ended December 31, 2018
Current portion of casualty and
other claims included in
accounts payable
Casualty and other claims
included in other liabilities
Year ended December 31, 2017
Current portion of casualty and
other claims included in
accounts payable
Casualty and other claims
included in other liabilities
Year ended December 31, 2016
Current portion of casualty and
other claims included in
accounts payable
Casualty and other claims
included in other liabilities
$
187
$
32
$
145 (2) $
151 (4) $
213
179
85 (1)
—
106 (3)
158
$
192
$
17
$
124 (2) $
146 (4) $
187
178
83 (1)
—
82 (3)
179
$
174
$
25
$
101 (2) $
108 (4) $
192
191
68 (1)
—
81 (3)
178
(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.
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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 2019 meeting, our board
of directors declared a quarterly dividend
of 86 cents per share on the company’s
common stock, payable on March 11, 2019,
to shareholders of record on Feb. 4, 2019.
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
146 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
http://astfinancial.mobular.net/amstock/NSC/
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
Norfolk Southern Corporation Bylaws
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
© 2019 Norfolk Southern Corporation
All Rights Reserved
10.031119.13266.50K