Annual Report
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, forest and
consumer goods,
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.
$ 200
$ 150
$ 100
$ 50
$
0
FINANCIAL HIGHLIGHTS
NORFOLK SOUTHERN CORPORATION & SUBSIDIARIES
FOR THE YEAR
(numbers in millions, except per-share amounts)
Railway operating revenues
Income from railway operations1
Net income1
Per share – diluted1
Dividends per share
Dividend payout ratio1
Net cash provided by operating activities
Property additions
Free cash flow3
AT YEAR-END
Total assets2
Total debt
Stockholders’ equity
Shares outstanding
FINANCIAL RATIOS
2019
$ 11,296
3,989
$
2,722
$
10.25
$
3.60
$
35%
$
$
$
3,892
2,019
1,873
2018
11,458
3,959
2,666
9.51
3.04
2017
$ 10,551
3,371
$
1,922
$
6.61
$
2.44
$
32%
37%
3,726
1,951
1,775
$
$
$
3,253
1,723
1,530
$
$
$
$
$
$
$
$
$ 37,923
$ 12,196
$ 15,184
257.9
$ 36,239
11,145
$
$ 15,362
268.1
35,711
$
9,836
$
$ 16,359
284.2
Operating ratio1
Debt-to-total-capitalization ratio
64.7%
44.5%
65.4%
42.0%
68.1%
37.5%
TOTAL STOCKHOLDER RETURNS4
(in dollars)
RAILWAY
OPERATING
REVENUES
(in millions)
INCOME FROM
RAILWAY
OPERATIONS
(in millions)
FREE CASH
FLOW 3
(in millions)
$11,458
$11,296
$10,551
$3,989
$3,959
$3,371
$1,873
$1,775
$1,530
12/14
12/15
12/16
12/17
12/18
12/19
2019 2018 2017
2019 2018 20171
2019 2018 2017
n Norfolk Southern Corp. Common Stock
S&P Railroad Stock Price Index
n S&P Composite – 500 Stock Price Index
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, 2019.
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 ($1,873M) is net cash provided by operating activities ($3,892M)
reduced by payments for property additions ($2,019M).
2 On Jan. 1, 2019, we adopted Financial Accounting Standards Board Accounting
Standards Update 2016-02, “Leases (Topic 842),” which requires lessees to
recognize right-of-use (ROU) assets and lease liabilities on the balance sheet
for leases greater than 12 months. As a result of the adoption, the Consolidated
Balance Sheets at Dec. 31, 2019, includes the recognition of ROU assets of $539
million and corresponding lease liabilities of $538 million.
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,
2014, and that all dividends were reinvested over the five-year period. Data
furnished by Bloomberg Financial Markets.
DEAR FELLOW
SHAREHOLDERS:
2019 was a year of transformation for Norfolk Southern.
With a commitment to enhance shareholder value, we rolled out
a new three-year plan to reimagine our company. Thanks to the
hard work and determination of our employees, we made great
progress, changing the way we operate our railroad, improving
customer service, and building a foundation for long-term growth.
ACHIEVING RECORD FINANCIAL
AND OPERATIONAL PERFORMANCE
Our successes drove record financial and operational performance.
With efficiency gains and a sharp focus on the bottom line, we
recorded a best-ever operating ratio of 64.7%, and remain on track to
achieve our 2021 goal of 60%. 2019 also saw record income from railway
operations as well as growth in net income and earnings per share.
These results were impressive considering the headwinds
that challenged the U.S. freight transportation industry.
During the year, weakness in manufacturing and industrial
activity, among other factors, contributed to overall
declines of 1% in our railway operating revenues and
5% in traffic volumes. Our intermodal revenue declined
2% on a 4% drop in volume. Merchandise revenue
was up 1% despite a 3% volume decline. Coal revenue
dropped 8% on a 12% decline in volume. Driven by
our improved service product, however, revenue-
per-unit increased an average 3% across all three
of our primary business markets.
We set company records for train speed, which
improved 17% year-over-year, and terminal dwell,
which was down 30%. With improved fluidity, we
delivered record shipment consistency and first- and
last-mile performance, helping our customers meet
their supply-chain needs.
NORFOLK SOUTHERN | 1
Faster trains have created capacity and
added resiliency to our network. Operating
more efficiently frees up track space,
locomotives, rail cars, and train crews. This
“capacity dividend” enhances our ability to
grow without adding infrastructure and other
assets. In 2019, we operated with roughly 20%
fewer locomotives and 21% fewer rail cars
than the preceding year. We are now running
a network that is more resilient to extreme
weather events – such as early 2019’s Polar
Vortex and Midwest flooding later in the year
– and other incidents that can disrupt normal
traffic flows.
TRANSFORMING OUR
BUSINESS WITH TECHNOLOGY
In today’s fast-paced, tech-driven
marketplace, Norfolk Southern recognizes
that we must deploy advanced technologies
across all areas of our business. Our
Information Technology Department has
assembled a team of data scientists who
use data analytics, machine learning,
and artificial intelligence to enhance the
safety and efficiency of operations. We are
now using big data to predict locomotive
engine failure and rail wear, allowing us to
take preventive measures and avoid costly
service disruptions. We’re also investing
in technologies to improve service and the
customer experience. In 2019, we released a
mobile app that lets customers
use a smartphone to
manage all of their
shipping and
logistics needs
with us.
DRIVING
IMPROVEMENT
WITH OUR BRAND
OF PRECISION
SCHEDULED
RAILROADING
Propelling these
improvements was the
adoption of our brand of
precision scheduled railroading,
or PSR. Thoughtful planning,
customer collaboration, and diligent
execution were the brand’s hallmarks. In late
2018, we introduced PSR to the market with
a “Clean Sheeting” initiative to streamline
terminal operations and speed the flow
of rail cars from yards to customers. In
midyear 2019, we launched TOP21, a new
operating plan that overhauls the way we
run trains across the network. With TOP21,
we’re running fewer, heavier trains, reducing
circuity and train miles, reducing car
handlings, and increasing network velocity.
Our new Network Planning and Optimization
team developed TOP21 using modeling and
simulation tools to analyze operating data
and train flows. Weeks before the TOP21
rollout, our marketing teams met with
hundreds of customers to communicate
expectations for the transition. The launch
was seamless, with no significant
customer or network issues
reported. Operating
efficiencies gained
through PSR have
enabled us to
improve customer
service, hone the
use of our assets,
and reduce
operating costs.
2 | NORFOLK SOUTHERN
As we fully implement positive train
control in 2020, we will seek to leverage
its powerful communication capabilities.
We envision tapping the PTC network to
automate many aspects of our operations,
making it a communications platform
for next-generation railroading. Already,
we’re using the PTC network to monitor
locomotive engine health. In another
advancement, we’ve integrated PTC and
onboard locomotive energy management
systems to enhance safety while optimizing
fuel efficiency, reducing fuel costs and
greenhouse gas emissions – good for
business and the environment. By the
end of 2020, we expect 100% of our road
locomotives to be equipped with energy
management systems. Our commitment to
sustainable business practices will help us
manage our assets, control our costs, and
reduce environmental impacts.
CREATING ALIGNMENT,
COLLABORATION,
ACCOUNTABILITY
As part of our transformation, we
began restructuring and right-sizing our
organization in 2019. We appointed a chief
transformation officer and a chief strategy
officer to lead and support change and
focus on strategic initiatives that give
us a competitive edge today and in the
future. We realigned marketing, operations,
and customer support teams to improve
collaboration and to be more proactive
in how we interact with customers. In
operations, we streamlined the chain-of-
command to speed up decision-making
and build accountability. With restructuring
and efficiency gains, we are advancing
our strategic plan goals with a leaner,
nimbler workforce. At year-end, our
average headcount was down 8%.
OPERATING SAFELY,
CONTRIBUTING TO
ECONOMIC GROWTH,
AN EMPLOYER OF CHOICE
As we transform, Norfolk Southern
recognizes our obligation to the
communities we serve, beginning with
safety. In 2019, through our Operation
Awareness and Response initiative,
members of our safety and environmental
team provided rail safety training at no cost
to more than 5,700 first responders across
14 states. That included 23 stops by our
safety train for classroom and hands-on
training on how to prepare for and safely
respond to rail-related incidents. In addition,
we participated in six tabletop drills and
exercises in Ohio, Georgia, and Pennsylvania,
strengthening relationships and lines
of communication with local and state
emergency management officials.
Our railroad contributes to the economic
vitality of our communities. Our industrial
development, marketing, and operations
teams in 2019 worked with 77 businesses
to open new or expanded facilities in 16
states across our network. This development
represented nearly $2 billion of customer
investment, more than 1,160 customer jobs,
and more than 62,300 carloads of new rail
traffic annually for us.
As a Fortune 300 company, Norfolk Southern
strives to be an employer of choice,
providing jobs that offer rewarding careers
and excellent pay and benefits. In 2019, we
expanded parental leave and announced
a new flexible holiday program. As a rail
industry leader in workforce diversity and
inclusion, we created a new Inclusion
Council to lead employee-driven initiatives
supporting inclusion, collaboration, and
innovation. We believe our focus on inclusion
is a competitive advantage driving business
improvement and shareholder value.
NORFOLK SOUTHERN | 3
In 2019, we appointed two new board
members, one a former railroad chief
executive officer with experience in precision
scheduled railroading and the other a chief
executive in global financial services. They
bring fresh perspectives to an exceptionally
qualified and diverse board. Our independent
board members are actively involved in
our strategic plan and fully engaged in
monitoring our transformation and progress
toward our goals.
BUILDING A RAILROAD
THAT IS FASTER, SMARTER,
MORE RESILIENT
As remarkable as 2019 was, we aim to
achieve much more as we continue to
transform our company into a railroad of
the future. Our success driving service
improvements and operating efficiencies
has generated tremendous momentum
and differentiated our company in the
marketplace. We are positioned to grow as
the economy strengthens. With a strong
foundation laid, we are confident that we
can build a railroad that is even faster,
smarter, and more resilient – in short, a
railroad that will deliver superior shareholder
value in 2020 and beyond.
Thank you for your investment
in Norfolk Southern.
Ensuring the safety of our workforce is
an unwavering commitment. While we
reduced serious injuries for the third
consecutive year, we were deeply saddened
to lose two employees to fatal on-the-job
accidents. Applying analytics to injury data,
we have created digital dashboards for use
by our operations teams to promote daily
rules compliance and focus on addressing
risky behaviors. With a strong peer-to-peer
focus on safety, daily safety briefings, and
regular workplace safety checkups, we
strive for zero injuries and incidents.
REINVESTING IN THE
BUSINESS, RETURNING CASH
TO SHAREHOLDERS, AN
ENGAGED BOARD
In support of our strategic
plan goals, Norfolk
Southern invests in our
business to achieve
reliable customer
service, safe and
efficient operations,
and long-term
growth. In 2019,
we funded over
$2 billion in rail
infrastructure and
equipment purchases
to support those
goals, including nearly
$1.4 billion in roadway
projects and $648 million
on assets like locomotives,
rail cars, and technology.
While reinvesting in our company, we
fulfilled our commitment to return capital
to shareholders. Our board raised the
quarterly dividend twice, for an overall
increase of 18% and a total payout of
$949 million. In addition, we repurchased
nearly $2.1 billion of the company’s shares.
4 | NORFOLK SOUTHERN
BOARD OF DIRECTORS
All directors are subject to re-election each year. Information as of Feb. 1, 2020.
THOMAS D. BELL JR. | DIRECTOR SINCE 2010
Bell is chairman of Mesa Capital Partners
LLC, a real-estate investment company.
From 2002 to 2009, he served as chairman
and CEO of Cousins Properties, a publicly
traded real-estate investment trust that
invests in office buildings throughout
the South. 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
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 nonexecutive
chairman of its board from 2007 until
May 2016. He was a director of Texas
Instruments Inc. until April 2019.
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. He served as
governor of Indiana from 2005 to 2013.
From 1990 to 2000, he worked for Eli Lilly
and Company, holding the executive
positions of president of North American
pharmaceutical operations and senior vice
president of corporate strategy and policy.
He is a director of Cerner Corp.
COMMITTEES: compensation, governance
and nominating
EXPERTISE: CEO/senior officer; finance
and accounting; governance/board;
governmental and stakeholder relations;
strategic planning
MARCELA E. DONADIO | DIRECTOR SINCE 2016
Donadio retired as a partner of Ernst & Young
LLP, a multinational professional services
firm, in 2014. From 2007 until her retirement,
she was Americas Oil & Gas sector leader,
with responsibility for one of Ernst & Young’s
significant industry groups. She helped set firm
strategy for oil and gas industry clients in the
United States and throughout the Americas.
She is a director of Marathon Oil Corp. and
National Oilwell Varco Inc.
COMMITTEES: audit, finance
and risk management
EXPERTISE: CEO/senior officer; finance
and accounting; governance/board;
human resources and compensation;
strategic planning
NORFOLK SOUTHERN | 5
THOMAS C. KELLEHER | DIRECTOR SINCE 2019
Kelleher served as president of Morgan Stanley,
a leading global financial services firm, from
2016 until his retirement in June 2019.
He also served as chairman and chief
executive officer of Morgan Stanley Bank N.A.
until June 2019. He was president of Morgan
Stanley Institutional Securities from 2010 to
2016, CEO of Morgan Stanley International
from 2011 to 2016, chief financial officer and co-
head of corporate strategy from 2007 to early
2010, and served as Morgan Stanley’s head of
global capital markets from 2006 to 2007.
COMMITTEES: audit, 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 Parsons Corporation. He
previously served as the nonexecutive
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.
6 | NORFOLK SOUTHERN
COMMITTEES: audit (chair), executive,
governance and nominating
EXPERTISE: CEO/senior officer; finance and
accounting; governance/board; information
technology; marketing; strategic planning
CLAUDE MONGEAU | DIRECTOR SINCE 2019
Mongeau served as president and chief
executive officer of Canadian National Railway
Company (CN), a North American railroad and
transportation company, from January 2010 to
June 2016 and as a director of CN from October
2009 to June 2016. During his 22-year career at CN,
he also served as executive vice president and
chief financial officer, vice president strategic and
financial planning, and assistant vice president
corporate development. He also is a director
of Cenovus Energy and Toronto-Dominion
Bank and was formerly a director of Telus, a
telecommunications company, from 2017 to 2019.
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;
marketing; strategic planning; transportation
JENNIFER F. SCANLON | DIRECTOR SINCE 2018
Scanlon has been president, chief executive
officer and board member of UL, a global science
safety organization, since September 2019.
She is the first woman to lead the organization.
She previously served as president and chief
executive officer of USG Corporation, from 2016
until its acquisition in April 2019. During that time,
she served as a board member of USG. Scanlon
also previously served as president of USG’s
international business, president of its L&W
Supply Corporation, and chief information
officer and chairman of the board for
USG Boral Building Products.
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
COMMITTEES: executive (chair)
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.
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, 2020
James A. Squires
Chairman, President
and Chief Executive Officer
Ann A. Adams
Executive Vice President
and Chief Transformation Officer
Mark R. George
Executive Vice President Finance
and Chief Financial Officer
John M. Scheib
Executive Vice President
and Chief Strategy 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
Operations and Mechanical
Vanessa Allen Sutherland
Senior Vice President Government
Relations and Chief Legal Officer
Claude E. Elkins
Vice President Industrial Products
John H. Friedmann
Vice President Network Planning
and Optimization
Jeffrey S. Heller
Vice President Intermodal and Automotive
Karol R. Lawrence
Vice President Customer Operations
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
Thomas W. Schnautz
Vice President Advanced Train Control
Susan S. Stuart
Vice President Audit and Compliance
Clyde H. Allison Jr.
Vice President and Treasurer
Scott R. Weaver
Vice President Labor Relations
Edward F. Boyle Jr.
Vice President Engineering
Jason A. Zampi
Vice President and Controller
Michael F. Cox
Vice President Taxation
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.
Fredric M. Ehlers
Vice President Information Technology
and Chief Information Officer
8 | NORFOLK SOUTHERN
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
for the fiscal year ended DECEMBER 31, 2019
☐ 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)
52-1188014
(IRS Employer Identification No.)
23510-2191
(Zip Code)
(757) 629-2680
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Norfolk Southern Corporation Common Stock (Par Value $1.00)
Trading symbol(s)
Name of each exchange on which registered
NSC
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 ☒ 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 ☒
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 ☒ 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 ☒ No ☐
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 the 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 ☒ 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 ☒
The aggregate market value of the voting common equity held by non-affiliates at June 30, 2019 was $52,456,511,032 (based on the closing
price as quoted on the New York Stock Exchange on June 28, 2019).
The number of shares outstanding of each of the registrant’s classes of common stock, at January 31, 2020: 257,844,180 (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
Information About Our Executive Officers
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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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, 2019, 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, 2019
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
14,655
2,677
2,008
8,320
27,660
4,796
1,889
407
840
7,932
19,451
4,566
2,415
9,160
35,592
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:
2019
Years ended December 31,
2016
2017
2018
2015
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)
194
$ 58.21
7,939
207
$ 55.25
7,822
201
$ 52.38
7,474
191
$ 51.91
6,838
200
$ 52.63
6,645
64.7%
65.4%
66.6%
69.6%
72.8%
RAILWAY OPERATING REVENUES – Total railway operating revenues were $11.3 billion in 2019.
Following is an overview of our three commodity groups. See the discussion of merchandise revenues by major
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 products includes soybeans, wheat, corn, fertilizer, livestock and poultry feed, food products,
food oils, flour, sweeteners, and ethanol.
• Metals and construction includes steel, aluminum products, machinery, scrap metals, cement, aggregates,
sand, minerals, transportation equipment, and items for the U.S. military.
• Automotive includes finished motor vehicles and automotive parts.
•
Forest and consumer includes lumber and wood products, pulp board and paper products, wood fibers,
wood pulp, scrap paper, clay, beverages, canned goods, and consumer products
Merchandise carloads handled in 2019 were 2.4 million, the revenues from which accounted for 60% 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, premium customers and asset owning companies. Intermodal units handled in 2019 were 4.2
million, the revenues from which accounted for 25% of our total railway operating revenues.
COAL – Revenues from coal accounted for 15% of our total railway operating revenues in 2019. We handled 102
million tons, or 0.9 million carloads, in 2019, 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 60 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 $32 billion on a historical
cost basis.
Property Additions – Property additions for the past five years were as follows:
2019
2018
2017
($ in millions)
2016
2015
Road and other property
Equipment
Delaware & Hudson acquisition
$
1,371 $
648
—
1,276 $
675
—
1,210 $
513
—
1,292 $
595
—
1,514
658
213
Total
$
2,019 $
1,951 $
1,723 $
1,887 $
2,385
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, 2019, we owned or leased the following units of equipment:
Locomotives:
Multiple purpose
Auxiliary units
Switching
Total locomotives
Freight cars:
Gondola
Hopper
Covered hopper
Box
Flat
Other
Total freight cars
Other:
Chassis
Containers
Work equipment
Vehicles
Miscellaneous
Total other
Capacity of
Equipment
(Horsepower)
14,234,300
—
23,800
14,258,100
(Tons)
2,476,401
1,109,777
699,985
388,615
190,213
73,203
4,938,194
Owned
Leased
Total
3,711
178
17
3,906
22,081
9,877
6,320
4,432
1,572
1,592
45,874
33,861
18,920
5,754
3,349
2,391
64,275
—
—
—
—
3,541
—
—
747
387
4
4,679
—
—
258
59
—
317
3,711
178
17
3,906
25,622
9,877
6,320
5,179
1,959
1,596
50,553
33,861
18,920
6,012
3,408
2,391
64,592
The following table indicates the number and year built for locomotives and freight cars owned at December 31,
2019:
2019
2018
2017
2016
2015
2010-
2014
2005-
2009
2004 &
Before
Total
Locomotives:
No. of units
% of fleet
Freight cars:
No. of units
% of fleet
35
1%
15
—%
200 —
—%
—%
55
2%
470
1%
66
2%
8
—%
325
8%
359
9%
3,043
78%
3,906
100%
775
2%
2,090
5%
6,841
15%
4,760
10%
30,738
67%
45,874
100%
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The following table shows the average age of our owned locomotive and freight car fleets at December 31, 2019,
and information regarding 2019 retirements:
Average age – in service
Retirements
Average age – retired
Locomotives
25.7 years
250 units
29.8 years
Freight Cars
27.0 years
8,825 units
42.6 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 84% 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 44% of our lines, excluding rail operated pursuant to trackage
rights, carried 20 million or more gross tons per track mile during 2019.
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)
2019
2018
2017
2016
2015
449
5,012
2.4
416
4,594
2.2
466
5,368
2.5
518
4,984
2.3
523
5,074
2.4
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:
2019
2018
2017
2016
2015
Average number of employees
Average wage cost per employee
Average benefit cost per employee
26,662
24,587
30,456
$ 85,000 $ 83,000 $ 79,000 $ 76,000 $ 77,000
$ 40,000 $ 39,000 $ 42,000 $ 35,000 $ 32,000
28,044
27,110
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 2020. 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 further 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 to mitigate the risk of terrorist,
violent extremist or seriously disruptive cyber-attack 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 security plan also complies with U.S. Department of Transportation (DOT) security regulations pertaining to
training and security plans with respect to the transportation of hazardous materials. As part of the plan, security
awareness training is given to all railroad employees who directly affect hazardous material transportation safety,
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and is integrated into hazardous material training programs. Additionally, location-specific security plans are in
place for rail corridors in certain metropolitan areas referred to as High Threat Urban Areas (HTUA). Particular
attention is aimed at reducing risk in a 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) 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.
We also operate six facilities 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.
In 2019, through the Norfolk Southern Operation Awareness and Response Program as well as participation in the
Transportation Community Awareness and Emergency Response Program, we provided rail accident response
training to approximately 5,700 emergency responders, such as local police and fire personnel. Our other training
efforts throughout 2019 included participation in tabletop and full scale exercises 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 met the deadline under the PTC laws
and regulations to install all hardware and to implement PTC on some of those rail lines, and we are required 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-
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.
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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 451 million gallons of diesel fuel in 2019. 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.
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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 decision was
upheld by the Court of Appeals on August 16, 2019. Since that decision, various individual cases have been filed in
multiple jurisdictions. 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
Information About Our Executive Officers
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, 2020, relating to our officers.
Name, Age, Present Position
Business Experience During Past Five Years
James A. Squires, 58,
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.
Ann A. Adams, 49,
Executive Vice President and
Chief Transformation Officer
Present position since April 1, 2019.
Served as Vice President Human Resources from April 1, 2016 to
April 1, 2019. Served as Assistant Vice President Human
Resources from July 1, 2012 to April 1, 2016.
Mark R. George, 52,
Executive Vice President –
Finance and Chief Financial Officer
John M. Scheib, 48,
Executive Vice President and
Chief Strategy Officer
Present position since November 1, 2019.
Prior to joining Norfolk Southern, served as Vice President,
Finance and Chief Financial Officer at segments of United
Technologies Corporation. The positions were Vice President
Finance, Strategy, IT and Chief Financial Officer at Otis Elevator
Company from October 2015 to May 2019, and Vice President
Finance and Chief Financial Officer at Carrier Corporation from
September 2008 until September 2015, and again June 2019 until
joining Norfolk Southern.
Present position since April 1, 2019.
Served as Executive Vice President – Law and Administration and
Chief Legal Officer from March 1, 2018 to April 1, 2019. 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.
Alan H. Shaw, 52,
Executive Vice President and
Chief Marketing Officer
Present position since May 16, 2015.
Served as Vice President Intermodal Operations from November 1,
2013 to May 16, 2015.
Michael J. Wheeler, 57,
Executive Vice President and
Chief Operating Officer
Jason A. Zampi, 45,
Vice President and Controller
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.
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 23,273 stockholders of record as of December 31, 2019, and is traded on the New York
Stock Exchange under the symbol “NSC.”
ISSUER PURCHASES OF EQUITY SECURITIES
Period
Total Number
of Shares
(or Units)
Purchased(1)
Average
Price Paid
per Share
(or Unit)
October 1-31, 2019
November 1-30, 2019
December 1-31, 2019
$
1,024,028
923,726
987,478
178.89
192.84
191.40
Total
2,935,232
Maximum
Number
(or Approximate
Dollar Value)
of Shares (or
Units)
that may yet be
Purchased under
the Plans or
Programs(2)
29,956,368
29,034,259
28,046,781
Total
Number of
Shares (or Units)
Purchased as
Part of Publicly
Announced Plans
or Programs(2)
1,020,083
922,109
987,478
2,929,670
(1) Of this amount, 5,562 represents shares tendered by employees in connection with the exercise of stock options
under the stockholder-approved Long-Term Incentive Plan.
(2) On September 26, 2017, our Board of Directors authorized the repurchase of up to an additional 50 million
shares of Common Stock through December 31, 2022. As of December 31, 2019, 28.0 million shares remain
authorized for repurchase.
K16
Item 6. Selected Financial Data
FIVE-YEAR FINANCIAL REVIEW
2019
2018
2017
($ in millions, except per share amounts)
2016
2015
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
$ 11,296 $ 11,458 $ 10,551 $
7,499
3,959
7,307
3,989
7,029
3,522
9,888 $ 10,511
7,656
6,879
2,855
3,009
106
604
3,491
67
557
3,469
156
550
3,128
136
563
2,582
132
545
2,442
769
2,722 $
803
2,666 $
(2,276)
5,404 $
914
1,668 $
886
1,556
10.32 $
10.25
3.60
58.87
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
$
$
$ 37,923 $ 36,239 $ 35,711 $ 34,892 $ 34,139
10,093
12,188
12,196
15,184
11,145
15,362
9,836
16,359
10,212
12,409
$
2,019 $
1,951 $
1,723 $
1,887 $
2,385
263,270
23,273
277,708
24,475
287,861
25,737
293,943
27,288
301,873
28,443
24,442
145
24,587
26,512
150
26,662
26,955
155
27,110
27,856
188
28,044
30,057
399
30,456
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: On January 1, 2019, we adopted Financial Accounting Standards Board (FASB) Accounting Standards
Update (ASU) 2016-02, “Leases (Topic 842),” which requires lessees to recognize right-of-use (ROU) assets and
lease liabilities on the balance sheet for leases greater than twelve months. As a result of the adoption, the
Consolidated Balance Sheets at December 31, 2019 includes the recognition of ROU assets of $539 million and
corresponding lease liabilities of $538 million.
See accompanying consolidated financial statements and notes thereto.
K17
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Norfolk Southern Corporation and Subsidiaries
The following discussion and analysis should be read in conjunction with the Consolidated Financial Statements
and Notes.
OVERVIEW
We are one of the nation’s premier transportation companies. Our Norfolk Southern Railway Company subsidiary
operates approximately 19,500 route miles in 22 states and the District of Columbia, serves every major container
port in the eastern United States, and provides efficient connections to other rail carriers. Norfolk Southern is a
major transporter of industrial products, including chemicals, agriculture, and metals and construction materials. In
addition, we operate the most extensive intermodal network in the East and are a principal carrier of coal,
automobiles, and automotive parts.
The execution of the initiatives in our strategic plan allowed us to achieve records for income from railway
operations and railway operating ratio (a measure of the amount of operating revenues consumed by operating
expenses) for the year. We continued our focus on improving the efficiency of our operations and utilization of our
assets, allowing us to reduce our operating expenses by 3% in the face of a 1% revenue decline.
SUMMARIZED RESULTS OF OPERATIONS
2019
2018
($ in millions, except per share amounts)
2017
2019
vs. 2018
2018
vs. 2017
(% change)
Income from railway operations
Net income
Diluted earnings per share
Railway operating ratio (percent)
$
$
$
$
$
$
3,989
2,722
10.25
64.7
$
$
$
3,959
2,666
9.51
65.4
3,522
5,404
18.61
66.6
1%
2%
8%
(1%)
12%
(51%)
(49%)
(2%)
Income from railway operations rose in 2019 as a 3% reduction in railway operating expenses more than offset the
impact of a 1% decline in railway operating revenues. In addition to higher income from railway operations, net
income and diluted earnings per share growth in 2019 also benefited from a lower effective tax rate. Our continuing
share repurchase program contributed to diluted earnings per share growth that exceeded that of net income.
On December 22, 2017, the Tax Cuts and Jobs Act (“tax reform”) was signed into law. The following table adjusts
our 2017 U.S. Generally Accepted Accounting Principles (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 (percent)
$
$
$
$
$
$
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)
2019
2018
($ in millions, except per share amounts)
2018 vs.
Adjusted
2017
(non-GAAP)
2019
vs. 2018
(% change)
Income from railway operations $
$
Net income
Diluted earnings per share
$
Railway operating ratio
(percent)
3,989 $
2,722 $
10.25 $
3,959 $
2,666 $
9.51 $
64.7
65.4
3,371
1,922
6.61
68.1
1%
2%
8%
(1%)
17%
39%
44%
(4%)
Income from railway operations increased in 2018 as compared to 2017, as a 9% increase in railway operating
revenues more than offset a 4% increase in adjusted operating expenses. 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 program 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
major commodity group. At the beginning of 2019, we made changes in the categorization of certain commodity
groups within Merchandise. Prior period railway operating revenues, units, and revenue per unit have been
reclassified to conform to the current presentation (see Note 2).
Merchandise:
Chemicals
Agriculture products
Metals and construction
Automotive
Forest and consumer
Merchandise
Intermodal
Coal
Total
Merchandise:
Chemicals
Agriculture products
Metals and construction
Automotive
Forest and consumer
Merchandise
Intermodal
Coal
Total
Merchandise:
Chemicals
Agriculture products
Metals and construction
Automotive
Forest and consumer
Merchandise
Intermodal
Coal
Total
$
$
$
2019
Revenues
2018
($ in millions)
2017
2019
vs. 2018
2018
vs. 2017
(% change)
1,874
1,567
1,522
994
846
6,803
2,824
1,669
11,296
$
$
1,858
1,514
1,539
991
842
6,744
2,893
1,821
11,458
$
$
1,710
1,416
1,481
955
795
6,357
2,452
1,742
10,551
1%
4%
(1%)
—%
—%
1%
(2%)
(8%)
(1%)
9%
7%
4%
4%
6%
6%
18%
5%
9%
2019
Units
2018
(in thousands)
2017
2019
vs. 2018
2018
vs. 2017
(% change)
514.9
528.5
721.3
394.7
273.0
2,432.4
4,207.2
914.0
7,553.6
523.3
538.9
759.7
403.9
293.3
2,519.1
4,375.7
1,033.5
7,928.3
488.6
524.8
761.2
423.1
293.7
2,491.4
4,074.1
1,046.0
7,611.5
(2%)
(2%)
(5%)
(2%)
(7%)
(3%)
(4%)
(12%)
(5%)
7%
3%
—%
(5%)
—%
1%
7%
(1%)
4%
2019
Revenue per Unit
2018
($ per unit)
2017
2019
vs. 2018
2018
vs. 2017
(% change)
$
3,551
2,809
2,026
2,453
2,870
2,677
661
1,762
1,445
3,501
2,697
1,946
2,257
2,706
2,552
602
1,665
1,386
$
3,640
2,964
2,110
2,517
3,101
2,797
671
1,826
1,495
K20
3%
6%
4%
3%
8%
4%
2%
4%
3%
1%
4%
4%
9%
6%
5%
10%
6%
4%
Revenues decreased $162 million in 2019 but increased $907 million in 2018 compared to the prior years. As
reflected in the table below, lower 2019 revenues were the result of decreased volumes, partially offset by higher
average revenue per unit, driven by pricing gains. The rise in 2018 revenues was the result of higher average
revenue per unit, driven by pricing gains and higher fuel surcharge revenue, partially offset by the mix-related
impacts of increased intermodal volume and decreased coal volume. In addition, overall volume also increased.
The table below reflects the components of the revenue change by major commodity group.
2019 vs. 2018
Increase (Decrease)
2018 vs. 2017
Increase (Decrease)
($ in millions)
Merchandise
Intermodal
Coal
Merchandise
Intermodal
Coal
$
(232) $
(111) $
(210) $
71 $
182 $
(21)
Volume
Fuel surcharge
revenue
Rate, mix and
other
(14)
305
(30)
72
(35)
93
119
197
159
100
20
80
79
Total
$
59 $
(69) $
(152) $
387 $
441 $
Approximately 90% of our revenue base is covered by contracts that include negotiated fuel surcharges. These
revenues totaled $578 million, $657 million, and $359 million in 2019, 2018, and 2017, respectively.
For 2020, merchandise and intermodal revenues are expected to increase, while coal revenues are anticipated to
decline, resulting in overall revenues that are expected to be flat.
MERCHANDISE revenues increased in both 2019 and 2018 compared with the prior years. In 2019, revenues
grew due to higher average revenue per unit, driven by pricing gains, which were partially offset by volume declines
in all commodity groups. 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 and agriculture products
were partially offset by declines in automotive traffic.
Chemicals revenues rose in both 2019 and 2018 compared with the prior years. In 2019, the rise was the result of
higher average revenue per unit, due to pricing gains, which were partially offset by volume declines. Volume
declines in natural gas, petroleum products, organic and inorganic chemicals, and plastics were partially offset by
gains in crude oil and municipal waste. 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, plastics, and municipal waste shipments, partially offset by a decrease in coal
ash shipments.
Agriculture products revenues rose in both 2019 and 2018 compared to the prior years. Growth in 2019 was due
to higher average revenue per unit, a result of pricing gains, which more than offset volume declines. Volumes
were down due to decreased shipments of ethanol, soybeans, and fertilizer, partially offset by increases in corn
shipments. Growth in 2018 was due to higher average revenue per unit, a result of pricing gains and higher fuel
surcharge revenues, and higher volume. Higher ethanol and fertilizer shipments more than offset declines in
soybean and corn shipments.
Metals and construction revenues declined in 2019 but increased in 2018 compared to the prior years. In 2019,
volume declines were largely offset by higher average revenue per unit, the result of pricing gains. Volume declines
in iron and steel, coil, sand, and scrap metal were partially offset by increases in aggregates shipments due to
improved service and market strength. In 2018, higher average revenue per unit, the result of pricing gains and
K21
higher fuel surcharge revenue, drove the increase while volumes remained flat. Volume increases in frac sand
shipments for use in natural gas drilling in the Marcellus and Utica regions were offset by declines in aggregates,
cement, aluminum, and iron and steel.
Automotive revenues were flat in 2019 and increased in 2018 compared to the prior years. In 2019, higher average
revenue per unit, driven by price increases, offset volume declines that were primarily the result of decreases in U.S.
light vehicle production and the United Automobile Workers strike in the fourth quarter. 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.
Forest and consumer revenues were flat in 2019 and increased in 2018 compared to the prior years. In 2019,
higher average revenue per unit, the result of pricing gains, offset volume declines. Volume declines were primarily
driven by reduced shipments of pulpboard, lumber and wood, and kaolin. In 2018, higher average revenue per unit,
the result of pricing gains and higher fuel surcharge revenue drove the increase while volumes remained flat. Gains
in pulpboard, a result of tightened truck capacity, were offset by decreases in pulp, woodchip, and graphic paper.
INTERMODAL revenues decreased in 2019, but increased considerably in 2018 compared to the prior years. The
decline in 2019 was driven by lower volumes, which were partially offset by higher average revenue per unit, a
result of pricing gains. 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.
Intermodal units by market were as follows:
Domestic
International
Total
2019
2018
(units in thousands)
2017
2019
vs. 2018
2018
vs. 2017
(% change)
2,593.5
1,613.7
2,801.1
1,574.6
2,585.0
1,489.1
4,207.2
4,375.7
4,074.1
(7%)
2%
(4%)
8%
6%
7%
Domestic volume fell in 2019 but increased in 2018. Volume was challenged in 2019 by stronger over-the-road
competition. 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.
International volume increased in both periods reflecting increased demand from new and existing customers,
despite 2019 volume being somewhat tempered by tariff concerns.
COAL revenues decreased in 2019, but increased in 2018 compared with the prior years. The decrease in 2019 was
a result of lower volume, which was partially offset by higher average revenue per unit, driven by pricing gains.
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.
K22
As shown in the following table, total tonnage decreased in both periods.
2019
2018
(tons in thousands)
2017
2019
vs. 2018
2018
vs. 2017
(% change)
Utility
Export
Domestic metallurgical
Industrial
60,278
23,324
13,562
4,655
65,688
28,046
15,500
5,410
67,899
26,460
15,675
5,545
(8%)
(17%)
(13%)
(14%)
Total
101,819
114,644
115,579
(11%)
(3%)
6%
(1%)
(2%)
(1%)
Utility coal tonnage declined in both periods from continued headwinds from low natural gas prices as well as
additional natural gas and renewable energy generating capacity, that were slightly offset by our service
improvements and customer inventory rebuilding.
Export coal tonnage decreased in 2019 but increased in 2018. The decline in 2019 was a result of weak thermal
seaborne pricing and coal supply disruptions at certain mines. The increase in 2018 was due to strong seaborne
pricing that resulted in higher demand for U.S. coal.
Domestic metallurgical coal tonnage was down in both years. The decline in 2019 was a reflection of challenging
overall market conditions including softening domestic steel demand, customer sourcing changes, and plant outages.
The decline in 2018 was a reflection of customer sourcing changes.
Industrial coal tonnage decreased in both years driven by customer sourcing changes and pressure from natural gas
conversions.
Railway Operating Expenses
Railway operating expenses summarized by major classifications were as follows:
2019
2018
($ in millions)
2017
2019
vs. 2018
2018
vs. 2017
(% change)
Compensation and benefits
Purchased services and rents
Fuel
Depreciation
Materials and other
$
2,751 $
1,725
953
1,138
740
2,925 $
1,730
1,087
1,102
655
2,979
1,414
840
1,055
741
(6%)
—%
(12%)
3%
13%
(2%)
22%
29%
4%
(12%)
Total
$
7,307 $
7,499 $
7,029
(3%)
7%
In 2019, expenses fell as our strategic initiatives to improve productivity resulted in lower compensation, equipment
rents, and materials expense. These decreases along with lower fuel prices and consumption were partially offset by
lower gains on property sales, increased depreciation, and a write-off of a $32 million receivable as a result of a
legal dispute. 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 gains on property sales.
K23
Compensation and benefits decreased in 2019, reflecting changes in:
•
•
•
•
•
•
•
employment levels (down $117 million),
incentive and stock-based compensation (down $83 million),
overtime and recrews (down $45 million),
higher capitalized labor ($9 million),
2018 employment tax refund ($31 million unfavorable in 2019),
pay rates (up $76 million), and
other (down $27 million).
In 2018, compensation and benefits decreased, a result of 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),
overtime and recrews (up $58 million), and
other (down $13 million).
Our employment averaged 24,587 in 2019, compared with 26,662 in 2018, and 27,110 in 2017.
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. In 2017, this
line item includes a $151 million benefit from the 2017 tax adjustments ($36 million in purchased services and $115
million in equipment rents) in the form of higher income of certain equity investees.
2019
2018
($ in millions)
2017
2019
vs. 2018
2018
vs. 2017
(% change)
Purchased services
Equipment rents
Total
$
$
1,434 $
291
1,367 $
363
1,233
181
5%
(20%)
11%
101%
1,725 $
1,730 $
1,414
—%
22%
The increase in purchased services in 2019 was the result of increased technology-related expenses, expenses
associated with our headquarters relocation, and increased intermodal-related costs partially offset by decreased
transportation activities. 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.
Equipment rents, which includes our cost of using equipment (mostly freight cars) owned by other railroads or
private owners less the rent paid to us for the use of our equipment, decreased in 2019, but increased in 2018. In
2019, the decrease was largely due to improved network velocity and the absence of short-term locomotive resource
costs incurred in the prior year. 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.
Fuel expense, which includes the cost of locomotive fuel as well as other fuel used in railway operations, decreased
in 2019, but increased in 2018. The change in both years was principally due to locomotive fuel prices (down 8% in
2019 and up 25% in 2018) which decreased expenses $82 million in 2019 but increased expenses $208 million in
2018. Locomotive fuel consumption decreased 4% in 2019, but increased 3% in 2018. We consumed
K24
approximately 451 million gallons of diesel fuel in 2019, compared with 472 million gallons in 2018 and 458
million gallons in 2017.
Depreciation expense increased in both periods, a reflection of growth in our roadway and equipment capital base
as we continue to invest in our infrastructure and rolling stock, and technology.
Materials and other expenses increased in 2019 but decreased in 2018 as shown in the following table.
2019
2018
($ in millions)
2017
2019
vs. 2018
2018
vs. 2017
(% change)
Materials
Casualties and other claims
Other
Total
$
$
327 $
193
220
362 $
176
117
740 $
655 $
348
145
248
741
(10%)
10%
88%
4%
21%
(53%)
13%
(12%)
Materials expense decreased in 2019, due primarily to lower locomotive repair costs as a result of fewer
locomotives in service. In 2018, the increase was primarily a result of higher locomotive repair costs.
Casualties and other claims expenses include the estimates of costs related to personal injury, property damage, and
environmental matters. The 2019 expense increased, primarily the result of higher costs related to environmental
remediation matters and higher personal injury costs. The 2018 expense increased, primarily the result of higher
derailment-related costs.
Other expense increased in 2019 but decreased in 2018, largely a result of gains from sales of operating properties.
Gains from operating property sales amounted to $64 million, $158 million, and $79 million in 2019, 2018, and
2017, respectively. In 2019, the increase was additionally impacted by the write-off of a $32 million receivable as a
result of a legal dispute. In 2018, the decline was also 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 increased in 2019 but decreased in 2018. The increase in 2019 was driven by higher returns on
corporate-owned life insurance (COLI) investments and increased gains on sales of non-operating property, which
more than offset a $49 million impairment loss related to our natural resource assets that we are actively marketing
to sell. The decline in 2018 was driven by the absence of net rental income as discussed above and unfavorable
returns from COLI investments.
Income Taxes
The effective income tax rate was 22.0% in 2019, compared with 23.1% in 2018 and negative 72.8% in 2017. Both
2019 and 2018 benefited from favorable reductions in deferred taxes for state tax law changes and certain business
tax credits, while 2019 and 2017 benefited from higher returns from COLI. 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.
K25
For 2020, we expect the effective income tax rate to range from 23% to 24%.
FINANCIAL CONDITION, LIQUIDITY, AND CAPITAL RESOURCES
Cash provided by operating activities, our principal source of liquidity, was $3.9 billion in 2019, $3.7 billion in
2018, and $3.3 billion in 2017. The increases in both 2019 and 2018 were primarily the result of improved
operating results. We had working capital deficits of $219 million and $729 million at December 31, 2019, and
2018, respectively. Cash, cash equivalents, and restricted cash totaled $580 million and $446 million at
December 31, 2019, and 2018, respectively. We expect cash on hand combined with cash provided by operating
activities will be sufficient to meet our ongoing obligations.
Contractual obligations at December 31, 2019, include interest on fixed-rate long-term debt, long-term debt (Note
9), unconditional purchase obligations (Note 17), operating leases (Note 10), long-term advances from Conrail and
agreements with Consolidated Rail Corporation (CRC) (Note 6), and unrecognized tax benefits (Note 4):
Total
2020
2021 -
2022
2023 -
2024
($ in millions)
2025 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*
$ 15,285 $
13,005
1,225
630
280
176
24
568 $ 1,070 $
316
499
110
—
40
—
1,189
521
183
—
80
—
988 $
1,000
82
131
—
56
—
12,659 $
10,500
123
206
280
—
—
Total
$ 30,625 $ 1,533 $ 3,043 $ 2,257 $
23,768 $
—
—
—
—
—
—
24
24
* This amount is shown in the Other column because the year of settlement cannot be reasonably estimated.
Off balance sheet arrangements consist primarily of unrecognized obligations, including unconditional purchase
obligations and future interest payments on fixed-rate long-term debt, which are included in the table above. In
addition, we entered into a synthetic lease during 2019 which is discussed further in Note 10.
Cash used in investing activities was $1.8 billion in 2019, compared with $1.7 billion in 2018, and $1.5 billion in
2017. In 2019, increased corporate owned life insurance activity and higher property additions were partially offset
by increased proceeds from property sales. In 2018, higher property additions drove the increase.
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 2020, we expect capital spending to approximate 16% to 18% of revenues.
Cash used in financing activities was $2.0 billion in 2019, compared with $2.3 billion in 2018, and $2.0 billion in
2017. Both year-over-year comparisons reflect higher debt repayments and increased dividends. In 2019, the
decrease was also impacted by fewer repurchases of common stock. In 2018, the increase was also impacted by
increased repurchases of common stock, but tempered by increased proceeds from borrowings.
Share repurchases totaled $2.1 billion in 2019, $2.8 billion in 2018, and $1.0 billion in 2017 for the purchase and
retirement of 11.3 million, 17.1 million (including 7.0 million shares repurchased for $1.2 billion under the
Accelerated Share Repurchase (ASR) program), and 8.2 million shares, respectively. As of December 31, 2019,
28.0 million shares remain authorized by our Board of Directors for repurchase. The timing and volume of future
K26
share repurchases will be guided by our assessment of market conditions and other pertinent factors. Any near-term
purchases under the program are expected to be made with internally generated cash, cash on hand, or proceeds
from borrowings.
In May 2019, we issued $200 million of 3.80% senior notes due 2028, $400 million of 4.10% senior notes due
2049, and $200 million of 5.10% senior notes due 2118. In November 2019, we issued $400 million of 2.55%
senior notes due 2029, and $400 million of 3.40% senior notes due 2049.
In May 2019, we also renewed and amended our accounts receivable securitization program, increasing our
maximum borrowing capacity from $400 million to $450 million with a term expiring in May 2020. We had no
amounts outstanding at both December 31, 2019 and 2018.
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 $1.6 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 44.5% at December 31, 2019, compared with 42.0% at December 31, 2018.
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 $23 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. A one-percentage point change to this discount rate assumption
would result in about an $18 million change in pension expense.
K27
Properties and Depreciation
Most of our assets are long-lived railway properties (Note 7). “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. See Note 1 for a more detailed
discussion of the assumptions and estimates in this area.
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 other direct costs, in addition to an allocable portion of indirect costs that relate to a capital project. A
significant portion of our annual capital spending relates to the replacement of self-contructed assets. Costs related
to repairs and maintenance activities that, in our judgment, do not extend an asset’s useful life or increase its utility
are expensed when such repairs are performed.
Depreciation expense for 2019 totaled $1.1 billion. Our composite depreciation rates for 2019 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.
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 $6.8 billion at December 31, 2019 (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 $54 million valuation allowance on $513 million of
deferred tax assets as of December 31, 2019, 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.
K28
The next round of bargaining commenced on November 1, 2019 with both management and the unions serving their
formal proposals for changes to the collective bargaining agreements.
Market Risks
At December 31, 2019, 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, 2019, and amounts to an increase of approximately $2.1 billion to the fair value of our debt
at December 31, 2019. We consider it unlikely that interest rate fluctuations applicable to these instruments will
result in a material adverse effect on our financial position, results of operations, or liquidity.
New Accounting Pronouncements
For a detailed discussion of new accounting pronouncements, see Note 1.
Inflation
In preparing financial statements, GAAP requires the use of historical cost that disregards the effects of inflation on
the replacement cost of property. As a capital-intensive company, we have most of our capital invested in long-
lived assets. The replacement cost of these assets, as well as the related depreciation expense, would be
substantially greater than the amounts reported on the basis of historical cost.
FORWARD-LOOKING STATEMENTS
Certain statements in Management’s Discussion and Analysis of Financial Condition and Results of Operations are
“forward-looking statements” within the meaning of the “safe harbor” provisions of the Private Securities Litigation
Reform Act of 1995, as amended. These statements relate to future events or our future financial performance and
involve known and unknown risks, uncertainties, and other factors that may cause our actual results, levels of
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.
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.”
K29
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, 2019, 2018, and 2017
Consolidated Statements of Comprehensive Income
Years ended December 31, 2019, 2018, and 2017
Consolidated Balance Sheets
At December 31, 2019 and 2018
Consolidated Statements of Cash Flows
Years ended December 31, 2019, 2018, and 2017
Consolidated Statements of Changes in Stockholders’ Equity
Years ended December 31, 2019, 2018, and 2017
Notes to Consolidated Financial Statements
Index to Consolidated Financial Statement Schedule in Item 15
Page
K31
K32
K36
K37
K38
K39
K40
K41
K79
K30
Report of Management
February 6, 2020
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, 2019. 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, 2019.
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, 2019.
/s/ James A. Squires
James A. Squires
Chairman, President and
Chief Executive Officer
/s/ Mark R. George
Mark R. George
Executive Vice President – Finance
and Chief Financial Officer
/s/ Jason A. Zampi
Jason A. Zampi
Vice President and
Controller
K31
Report of Independent Registered Public Accounting Firm
To the Stockholders and Board of Directors
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, 2019, 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,
2019, 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, 2019 and 2018, 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, 2019, 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 6, 2020 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.
K32
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
Atlanta, Georgia
February 6, 2020
K33
Report of Independent Registered Public Accounting Firm
To the Stockholders and Board of Directors
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, 2019 and 2018, 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, 2019, 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, 2019
and 2018, and the results of its operations and its cash flows for each of the years in the three-year period ended
December 31, 2019, 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, 2019, 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 6, 2020 expressed an unqualified
opinion on the effectiveness of the Company’s internal control over financial reporting.
Change in Accounting Principle
As discussed in Note 1 to the consolidated financial statements, the Company has changed its method of accounting
for leases as of January 1, 2019, due to the adoption of Accounting Standards Update 2016-02, Leases (Topic 842)
and related amendments.
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.
K34
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated
financial statements that was communicated or required to be communicated to the audit committee and that: (1)
relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our
especially challenging, subjective, or complex judgment. The communication of a critical audit matter does not alter
in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by
communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the
accounts or disclosures to which it relates.
Assessment of capitalization of property expenditures
As discussed in Note 1 to the consolidated financial statements, expenditures that extend an asset’s useful
life or increase its utility are capitalized. The Company has recorded $31,614 million in net book value of
properties at December 31, 2019 and has recorded $2,019 million in property additions for the year ended
December 31, 2019. Expenditures capitalized include those that are directly related to a capital project and
may include materials, labor and other direct costs, in addition to an allocable portion of indirect costs that
relate to a capital project. A significant portion of the Company's annual capital spending relates to the
replacement of self-constructed assets. Costs related to repair and maintenance activities, that in the
Company's judgment, do not extend an asset’s useful life or increase its utility are expensed when such
repairs are performed.
We identified the assessment of capitalization of property expenditures as a critical audit matter. A higher
degree of auditor judgment was required in determining procedures and evaluating audit results related to
the capitalization or expense treatment of purchased services and compensation due to their usage for both
self-constructed assets and repairs and maintenance.
The primary procedures we performed to address this critical audit matter included the following. We tested
certain internal controls over the Company’s capitalization process, including controls that establish
whether a project is a capital or repair expenditure and the appropriateness of accumulated charges to
capitalized projects. We selected a sample of capital projects and assessed the capital nature of the project.
We obtained support for a sample of property addition expenditures and tested the classification of the
related expenditure as capital, which included inquiry with Company personnel regarding the relevance of
the sampled expenditure to the capital project.
/s/ KPMG LLP
KPMG LLP
We have served as the Company’s auditor since 1982.
Atlanta, Georgia
February 6, 2020
K35
Norfolk Southern Corporation and Subsidiaries
Consolidated Statements of Income
Years ended December 31,
2018
($ in millions, except per share amounts)
2017
2019
Railway operating revenues
$
11,296 $
11,458 $
10,551
Railway operating expenses:
Compensation and benefits
Purchased services and rents
Fuel
Depreciation
Materials and other
2,751
1,725
953
1,138
740
2,925
1,730
1,087
1,102
655
2,979
1,414
840
1,055
741
Total railway operating expenses
7,307
7,499
7,029
Income from railway operations
3,989
3,959
3,522
Other income – net
Interest expense on debt
106
604
67
557
156
550
Income before income taxes
3,491
3,469
3,128
Income taxes
Net income
Earnings per share:
Basic
Diluted
769
803
(2,276)
2,722 $
2,666 $
5,404
10.32 $
10.25
9.58 $
9.51
18.76
18.61
$
$
See accompanying notes to consolidated financial statements.
K36
Norfolk Southern Corporation and Subsidiaries
Consolidated Statements of Comprehensive Income
2019
Years ended December 31,
2018
($ in millions)
2017
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)
$
2,722 $
2,666 $
5,404
101
(4)
(148)
(9)
97
(157)
155
19
174
(25)
38
(43)
Other comprehensive income (loss), net of tax
72
(119)
131
Total comprehensive income
$
2,794 $
2,547 $
5,535
See accompanying notes to consolidated financial statements.
K37
Norfolk Southern Corporation and Subsidiaries
Consolidated Balance Sheets
Assets
Current assets:
Cash and cash equivalents
Accounts receivable – net
Materials and supplies
Other current assets
Total current assets
Investments
Properties less accumulated depreciation of $11,982 and
$12,374, respectively
Other assets
Total assets
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable
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 $1.00 per share par value, 1,350,000,000 shares
authorized; outstanding 257,904,956 and 268,098,472 shares,
respectively, net of treasury shares
Additional paid-in capital
Accumulated other comprehensive loss
Retained income
Total stockholders’ equity
At December 31,
2018
2019
($ in millions)
$
580 $
920
244
337
2,081
3,428
31,614
800
358
1,009
207
288
1,862
3,109
31,091
177
$
37,923 $
36,239
$
1,428 $
229
327
316
2,300
11,880
1,744
6,815
22,739
1,505
255
246
585
2,591
10,560
1,266
6,460
20,877
259
2,209
(491)
13,207
269
2,216
(563)
13,440
15,184
15,362
Total liabilities and stockholders’ equity
$
37,923 $
36,239
See accompanying notes to consolidated financial statements.
K38
Norfolk Southern Corporation and Subsidiaries
Consolidated Statements of Cash Flows
Cash flows from operating activities:
Net income
Reconciliation of net income to net cash
provided by operating activities:
Depreciation
Deferred income taxes
Gains and losses on properties
Changes in assets and liabilities affecting operations:
Accounts receivable
Materials and supplies
Other current assets
Current liabilities other than debt
Other – net
Years ended December 31,
2017
2018
2019
($ in millions)
$
2,722 $
2,666 $
5,404
1,139
330
(42)
87
(37)
(4)
(185)
(118)
1,104
173
(171)
(70)
15
(46)
223
(168)
1,059
(2,859)
(92)
(41)
35
(71)
135
(317)
Net cash provided by operating activities
3,892
3,726
3,253
Cash flows from investing activities:
Property additions
Property sales and other transactions
Investment purchases
Investment sales and other transactions
Net cash used in investing activities
Cash flows from financing activities:
Dividends
Common Stock transactions
Purchase and retirement of Common Stock
Proceeds from borrowings – net of issuance costs
Debt repayments
Other
Net cash used in financing activities
Net increase (decrease) in cash, cash equivalents, and
restricted cash
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
(1,951)
204
(10)
99
(1,658)
(844)
40
(2,781)
2,023
(750)
—
(2,312)
(1,723)
202
(7)
47
(1,481)
(703)
89
(1,012)
290
(702)
—
(2,038)
(244)
(266)
(2,019)
377
(18)
(104)
(1,764)
(949)
27
(2,099)
2,192
(1,188)
23
(1,994)
134
446
690
$
$
580 $
446 $
555 $
543
496 $
519
956
690
528
705
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, 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
Comprehensive income:
Net income
Other comprehensive income
Total comprehensive income
Dividends on Common Stock,
$3.60 per share
Share repurchases
Stock-based compensation
72
2,722
(949)
(2,000)
(6)
2,722
72
2,794
(949)
(2,099)
76
(11)
1
(88)
81
Balance at December 31, 2019
$
259 $
2,209 $
(491) $
13,207 $
15,184
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 2019): intermodal (25%); chemicals
(17%); coal (15%); agriculture products (14%); metals and construction (13%); automotive (9%); and, forest and
consumer (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 shipments) 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. 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.
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 $9 million and $7 million at December 31, 2019 and 2018,
respectively. 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 other direct costs, in
addition to an allocable portion of indirect costs that relate to a capital project. A significant portion of our 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, in our judgment, do not extend an
asset’s useful life or increase its utility are expensed when such repairs are performed.
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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 was 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.
See Note 2 for additional information.
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 for the year ended December 31, 2017, 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 $88 million and a corresponding increase to “Retained income,” with
no impact on “Total stockholders’ equity.”
In February 2016, the FASB issued ASU 2016-02, “Leases (Topic 842),” and subsequent amendments, which
replaced existing lease guidance in GAAP. We adopted the standard on January 1, 2019 using the modified
retrospective method and used the effective date as our date of initial application. See Note 10 for additional
information.
In June 2016, the FASB issued ASU 2016-13, “Credit Losses - Measurement of Credit Losses on Financial
Instruments,” which replaces the current incurred loss impairment method with a method that reflects expected
credit losses. We adopted the standard on January 1, 2020. Because credit losses associated from our trade
receivables have historically been insignificant, we do not expect this standard to have a material effect on our
financial statements.
In December 2019, the FASB issued ASU 2019-12, “Simplifying the Accounting for Income Taxes,” which adds
new guidance to simplify the accounting for income taxes, changes the accounting for certain income tax
transactions, and makes other minor changes. The new standard is effective as of January 1, 2021, and early
adoption is permitted for any interim period for which financial statements have not been issued. We do not expect
this standard to have a material effect on our financial statements. We will not adopt the standard early.
2. Railway Operating Revenues
The following table disaggregates our revenues by major commodity group:
Merchandise:
Chemicals
Agriculture products
Metals and construction
Automotive
Forest and consumer
Merchandise
Intermodal
Coal
Total
2019
2018
($ in millions)
$
1,874 $
1,567
1,522
994
846
6,803
2,824
1,669
1,858
1,514
1,539
991
842
6,744
2,893
1,821
$
11,296 $
11,458
At the beginning of 2019, we recategorized certain commodities within Merchandise major commodity groups to
better align with how we internally manage these commodities. Prior period amounts have been reclassified to
conform to the current presentation with no net impact to overall Merchandise revenue or total railway operating
revenues. Specifically, certain commodities were shifted between chemicals, agriculture products, metals and
construction, and forest and consumer.
We recognize the amount of revenue we expect to be entitled to for the transfer of promised goods or services to
customers. 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
K44
completed to total transit days. We had no material remaining performance obligations at December 31, 2019 and
2018.
Revenue related to interline transportation services that involve another railroad is reported on a net basis.
Therefore, the portion of the amount that relates to another party is not reflected in revenue.
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,
2019
2018
($ in millions)
$
$
682 $
238
740
269
920 $
1,009
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 $23 million
and $55 million at December 31, 2019 and 2018, respectively. In 2019, we wrote off a $32 million non-current
customer receivable resulting from a legal dispute and this expense is included in “Materials and other” on the
Consolidated Statements of Income. We do not have any material contract assets or liabilities at December 31,
2019 and 2018.
Certain accessorial services may be provided to customers under their transportation contracts such as switching,
demurrage and other incidental service revenues. These are distinct performance obligations that are recognized at
a point in time when the services are performed or as contractual obligations are met. This revenue is included
within each of the commodity groups and represents approximately 5% and 4% of total “Railway operating
revenues” on the Consolidated Statements of Income for the years ended December 31, 2019 and 2018,
respectively.
3. Other Income – Net
Corporate-owned life insurance – net
Net pension and other postretirement benefit cost (Note 12)
Rental income
Other
Total
2019
2018
($ in millions)
2017
$
69 $
63
4
(30)
(10) $
61
5
11
33
64
87
(28)
$
106 $
67 $
156
K45
4. Income Taxes
Current:
Federal
State
Total current taxes
Deferred:
Federal
State
Total deferred taxes
Income taxes
2019
2018
($ in millions)
2017
$
356 $
83
439
499 $
131
630
500
83
583
280
50
330
156
17
173
(2,924)
65
(2,859)
$
769 $
803 $
(2,276)
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:
2019
2018
2017
Amount % Amount %
Amount
%
($ in millions)
$
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
733
110
—
—
(29)
(45)
21.0 $
3.1
—
—
(0.8)
(1.3)
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)
Income Taxes
$
769
22.0 $
803
23.1 $ (2,276)
(72.8)
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 $3,331 million
benefit primarily due to the remeasurement of our net deferred tax liabilities to reflect the lower rate.
K46
Deferred Tax Assets and Liabilities
Certain items are reported in different periods for financial reporting and income tax purposes. Deferred tax assets
and liabilities are recorded in recognition of these differences. The tax effects of temporary differences that give
rise to significant portions of the deferred tax assets and deferred tax liabilities are as follows:
Deferred tax assets:
Compensation and benefits, including postretirement benefits
Accruals, including casualty and other claims
Other
Total gross deferred tax assets
Less valuation allowance
Net deferred tax assets
Deferred tax liabilities:
Property
Other
Total deferred tax liabilities
Deferred income taxes
December 31,
2019
2018
($ in millions)
$
222 $
89
202
513
(54)
459
284
69
72
425
(50)
375
(6,714)
(560)
(7,274)
(6,422)
(413)
(6,835)
$
(6,815) $
(6,460)
Except for amounts for which a valuation allowance has been provided, we believe that it is more likely than not
that the results of future operations will generate sufficient taxable income to realize the deferred tax assets. The
valuation allowance at the end of each year primarily relates to subsidiary state income tax net operating losses and
state investment tax credits that may not be utilized prior to their expiration. The total valuation allowance
increased by $4 million in 2019, $6 million in 2018, and $5 million in 2017.
Uncertain Tax Positions
A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:
December 31,
2019
2018
($ in millions)
Balance at beginning of year
$
21 $
17
Additions based on tax positions related to the current year
Lapse of statutes of limitations
Balance at end of year
4
(1)
5
(1)
$
24 $
21
Included in the balance of unrecognized tax benefits at December 31, 2019 are potential benefits of $19 million that
would affect the effective tax rate if recognized. Unrecognized tax benefits are adjusted in the period in which new
information about a tax position becomes available or the final outcome differs from the amount recorded.
K47
The statute of limitations on Internal Revenue Service 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. We would recognize a tax benefit of around $18 million if the refund is
allowed. 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 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,” and “Accounts payable,” approximate
carrying values because of the short maturity of these financial instruments. The carrying value of COLI 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, 2019 or 2018. The carrying amounts and estimated fair
values, based on Level 1 inputs, of long-term debt consisted of the following at December 31:
2019
2018
Carrying
Amount
Fair
Value
Carrying
Amount
Fair
Value
($ in millions)
Long-term debt, including current maturities
$ (12,196) $ (14,806) $ (11,145) $ (12,203)
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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,
2019
2018
($ in millions)
$
1,387 $
749
271
154
85
2,646
767
15
1,337
692
271
155
77
2,532
556
21
$
3,428 $
3,109
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, 2019, based on the funded status of Conrail’s pension plans, we decreased our proportional
investment in Conrail by $3 million. This resulted in a loss of $3 million recorded to “Other comprehensive loss”.
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 liability of $1 million.
At December 31, 2019, the difference between our investment in Conrail and our share of Conrail’s underlying net
equity was $497 million. Our equity in the earnings of Conrail, net of amortization, included in “Purchased services
and rents,” which offsets the costs of operating the Shared Assets Areas, was $53 million for 2019, $55 million for
2018, and $75 million for 2017 (including $33 million related to the enactment of tax reform – see Note 4). 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
$149 million in 2019, $150 million in 2018, and $141 million in 2017. Future payments for access fees due to CRC
under the Shared Assets Areas agreements are as follows: $40 million in each of 2020 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 $6 million annually.
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“Accounts payable” includes $264 million at December 31, 2019, and $202 million at December 31, 2018, due to
Conrail for the operation of the Shared Assets Areas. “Other liabilities” includes $280 million at both December 31,
2019 and 2018 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 $244
million, $262 million, and $237 million of expense, respectively, for the years ended December 31, 2019, 2018 and
2017. Our equity in the earnings of TTX, which offset the costs and are also included in “Purchased services and
rents,” totaled $58 million for 2019, $61 million for 2018, and $158 million for 2017 (including $115 million
related to the enactment of tax reform – see Note 4).
7. Properties
December 31, 2019
Cost
Accumulated
Depreciation
($ 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
$
2,385 $
— $
2,385 —
7,024
5,536
2,868
360
14,261
30,049
5,973
2,988
732
291
1,082
11,066
(1,905)
(1,496)
(723)
—
(3,786)
(7,910)
(2,112)
(1,148)
(355)
—
(388)
(4,003)
5,119
4,040
2,145
2.30%
3.37%
2.72%
360 —
10,475
22,139
2.71%
3.66%
2.45%
9.68%
3,861
1,840
377
291 —
694
7,063
4.89%
Other property
96
(69)
27
1.05%
Total properties
$
43,596 $
(11,982) $
31,614
K50
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
2.29%
3.36%
2.70%
442 —
10,335
21,695
2.64%
3.77%
2.47%
10.65%
3,608
1,895
258
437 —
691
6,889
4.94%
Other property
437
(267)
170
0.78%
Total properties
$
43,465 $
(12,374) $
31,091
(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 current assets” on the Consolidated Balance Sheets at December 31, 2019 includes natural resource assets of
$88 million, reflecting their status as held for sale. In 2019, we recorded a $49 million impairment loss related to
our natural resource assets that we are actively marketing to sell. The impairment loss is reflected in “Gains and
losses on properties” in the Consolidated Statements of Cash Flows for the year ended December 31, 2019. At
December 31, 2018, these assets were reflected in other property within “Properties” on the Consolidated Balance
Sheets, reflecting costs of obtaining rights to natural resources of $336 million, with associated accumulated
depletion of $200 million.
Capitalized Interest
Total interest cost incurred on debt was $620 million, $574 million, and $570 million during 2019, 2018 and 2017,
respectively, of which $16 million, $17 million, and $20 million were capitalized during 2019, 2018, and 2017,
respectively.
K51
8. Current Liabilities
Accounts payable:
Accounts and wages payable
Due to Conrail (Note 6)
Casualty and other claims (Note 17)
Vacation liability
Other
Total
Other current liabilities:
Interest payable
Current operating lease liability (Note 10)
Pension benefit obligations (Note 12)
Other
Total
9. Debt
Debt with weighted average interest rates and maturities is presented below:
Notes and debentures:
4.22% maturing to 2024
4.35% maturing 2025 to 2031
4.38% maturing 2037 to 2052
5.79% maturing 2097 to 2118
Financing leases
Discounts, premiums, and debt issuance costs
Total debt
Less current maturities
December 31,
2019
2018
($ in millions)
$
710 $
264
212
136
106
828
202
213
140
122
$
1,428 $
1,505
$
149 $
97
18
63
139
—
18
89
$
327 $
246
December 31,
2019
2018
($ in millions)
$
2,497 $
3,265
5,904
1,331
8
(809)
12,196
3,082
2,665
5,104
1,131
2
(839)
11,145
(316)
(585)
Long-term debt excluding current maturities
$
11,880 $
10,560
K52
Long-term debt maturities subsequent to 2020 are as follows:
2021
2022
2023
2024
2025 and subsequent years
Total
$
586
603
600
400
9,691
$
11,880
In May 2019, we issued $200 million of 3.80% senior notes due 2028, $400 million of 4.10% senior notes due
2049, and $200 million of 5.10% senior notes due 2118. In November 2019, we issued $400 million of 2.55%
senior notes due 2029 and $400 million of 3.40% senior notes due 2049.
In May 2019, we also renewed and amended our accounts receivable securitization program, increasing the
program’s maximum borrowing capacity from $400 million to $450 million with a term expiring in May 2020.
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. Under this facility, we
received $600 million in 2019 and $50 million in 2018, and paid $600 million and $150 million during 2019 and
2018, respectively. We had no amounts outstanding at both December 31, 2019 and 2018, and our available
borrowing capacity was $429 million and $400 million, respectively.
The January 1, 2019 and December 31, 2018 “Cash, cash equivalents, and restricted cash” line item in the
Consolidated Statements of Cash Flows includes restricted cash of $88 million which reflects deposits held by a
third-party bond agent as collateral for certain debt obligations, which matured on October 1, 2019. The restricted
cash balance is included as part of “Other current assets” on the Consolidated Balance Sheets at December 31, 2018.
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
both December 31, 2019 and 2018, and we are in compliance with all of its covenants.
10. Leases
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 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. Upon adoption of the standard, we
recognized ROU assets and corresponding lease liabilities of $586 million on the Consolidated Balance Sheets as of
January 1, 2019. There were no adjustments to “Retained income” on adoption.
The new standard provides a number of optional practical expedients for transition. We elected the package of
practical expedients under the transition guidance which permitted us not to reassess under the new standard 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 FASB ASC 842. We also elected the
practical expedient related to land easements, which allowed us to not reassess 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.
K53
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 do 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 are committed under long-term lease agreements for equipment, lines of road, and other property. Some of
these agreements contain variable payment provisions that depend on an index or rate, initially measured using the
index or rate at the lease commencement date, and are therefore not included in our future minimum lease
payments. These variable lease agreements include usage-based payments for equipment under service contracts,
lines of road, and other property. Our long-term lease agreements do not contain any material restrictive covenants.
Our equipment leases have remaining terms of less than 1 year to 9 years and our lines of road and land leases have
remaining terms of less than 1 year to 138 years. Some of these leases include options to extend the leases for up to
99 years and some include options to terminate the leases within 30 days. Because we are not reasonably certain to
exercise these renewal options, the options are not considered in determining the lease term, and associated
payments are excluded from future minimum lease payments.
Leases with an initial term of twelve months or less are not recorded on the balance sheet. We recognize lease
expense for these leases on a straight-line basis over the lease term.
Operating lease amounts included on the Consolidated Balance Sheet were as follows:
Assets
ROU assets
Liabilities
Classification
Other assets
Current lease liabilities
Non-current lease liabilities
Other current liabilities
Other liabilities
Total lease liabilities
December 31, 2019
($ in millions)
$
$
$
539
97
441
538
The components of total lease expense, primarily included in “Purchased services and rents,” were as follows:
Operating lease expense
Variable lease expense
Short-term lease expense
Total lease expense
December 31, 2019
($ in millions)
$
$
114
57
5
176
At December 31, 2019, we do not have any material finance lease assets or liabilities, nor do we have any material
subleases.
K54
In March 2019, we entered into a non-cancellable lease for an office building with an estimated construction cost of
$550 million. The lease will commence upon completion of the construction (for which we are a construction
agent) of the office building which is expected to be in 2021. The initial term of the lease is five years with options
to renew, purchase, or sell the office building at the end of the lease term. Upon lease commencement, the ROU
asset and lease liability will be determined and recorded. The lease also contains a residual value guarantee of up to
ninety percent of the total construction cost.
Other information related to operating leases was as follows:
Weighted-average remaining lease term (years) on operating leases
Weighted-average discount rates on operating leases
December 31, 2019
8.25
3.52%
As the rates implicit in most of our leases are not readily determinable, we use a collateralized incremental
borrowing rate based on the information available at the lease commencement date in determining the present value
of future payments. We use the portfolio approach and group leases into short, medium, and long-term categories,
applying the corresponding incremental borrowing rates to these categories of leases.
During 2019, ROU assets obtained in exchange for new operating lease liabilities were $49 million. During 2019,
cash paid for amounts included in the measurement of lease liabilities was $114 million and is included in operating
cash flows. During 2019, cash proceeds from a sale and leaseback transaction were $82 million and the gain on the
transaction was $15 million.
Future minimum lease payments under non-cancellable operating leases were as follows:
2020
2021
2022
2023
2024
2025 and subsequent years
Total lease payments
Less: Interest
Present value of lease liabilities
December 31, 2019
($ in millions)
$
$
110
104
79
70
61
206
630
92
538
K55
Undiscounted future minimum lease payments under non-cancellable operating leases accounted for under ASC 840
“Leases” were as follows:
2019
2020
2021
2022
2023
2024 and subsequent years
Total
Operating lease expense accounted for under ASC 840 “Leases” was as follows:
Minimum rents
Contingent rents
Total
December 31, 2018
($ in millions)
$
$
101
95
88
75
69
267
695
2018
2017
($ in millions)
$
$
102 $
102
96
54
204 $
150
Contingent rents are primarily comprised of usage-based payments for equipment under service contracts.
11. Other Liabilities
December 31,
2019
2018
($ in millions)
$
441 $
302
287
280
171
104
159
—
278
308
280
158
106
136
$
1,744 $
1,266
Non-current operating lease liability (Note 10)
Net pension benefit obligations (Note 12)
Net other postretirement benefit obligations (Note 12)
Long-term advances from Conrail (Note 6)
Casualty and other claims (Note 17)
Deferred compensation
Other
Total
K56
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, certain health care expenses are covered for retired employees and their dependents, reduced by
any deductibles, coinsurance, and, in some cases, coverage provided under other group insurance policies. Those
participants who are Medicare-eligible are not covered under the self-insured retiree health care plan, but instead are
provided with an employer-funded health reimbursement account which can be used for reimbursement of health
insurance premiums or eligible out-of-pocket medical expenses.
Pension and Other Postretirement Benefit Obligations and Plan Assets
Change in benefit obligations:
Benefit obligation at beginning of year
Service cost
Interest cost
Actuarial losses (gains)
Plan amendment
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
2018
2019
Other Postretirement
Benefits
2019
2018
($ in millions)
$
2,371 $
35
93
235
—
(146)
2,588
2,541 $
39
83
(149)
—
(143)
2,371
2,105
485
18
(146)
2,462
2,373
(143)
18
(143)
2,105
466 $
6
17
28
(18)
(42)
457
158
34
20
(42)
170
510
7
15
(24)
—
(42)
466
201
(19)
18
(42)
158
Funded status at end of year
$
(126) $
(266) $
(287) $
(308)
Amounts recognized in the Consolidated
Balance Sheets:
Other assets
Other current liabilities
Other liabilities
$
194 $
(18)
(302)
30 $
(18)
(278)
— $
—
(287)
—
—
(308)
Net amount recognized
$
(126) $
(266) $
(287) $
(308)
Amounts included in accumulated other comprehensive
loss (before tax):
Net loss
Prior service cost (benefit)
$
781 $
1
895 $
2
29 $
(253)
21
(259)
K57
Our accumulated benefit obligation for our defined benefit pension plans is $2.3 billion and $2.2 billion at
December 31, 2019 and 2018, respectively. Our unfunded pension plans, included above, which in all cases have
no assets, had projected benefit obligations of $320 million and $296 million at December 31, 2019 and 2018,
respectively, and had accumulated benefit obligations of $292 million and $263 million at December 31, 2019 and
2018, respectively.
Pension and Other Postretirement Benefit Cost Components
Pension benefits:
Service cost
Interest cost
Expected return on plan assets
Amortization of net losses
Amortization of prior service cost
Net cost (benefit)
Other postretirement benefits:
Service cost
Interest cost
Expected return on plan assets
Amortization of prior service benefit
2019
2018
($ in millions)
2017
$
$
$
35 $
93
(179)
43
1
39 $
83
(177)
57
—
38
80
(172)
51
1
(7) $
2 $
(2)
6 $
17
(14)
(24)
7 $
15
(15)
(24)
7
15
(15)
(24)
Net benefit
$
(15) $
(17) $
(17)
Other Changes in Plan Assets and Benefit Obligations Recognized in Other Comprehensive Income
Net loss (gain) arising during the year
Prior service effect of plan amendment
Amortization of net losses
Amortization of prior service (cost) benefit
Total recognized in other comprehensive income
Total recognized in net periodic cost
and other comprehensive income
2019
Pension
Benefits
Other
Postretirement
Benefits
($ in millions)
$
$
$
(71) $
—
(43)
(1)
(115) $
(122) $
8
(18)
—
24
14
(1)
Net gains arising during the year for pension benefits were due primarily to higher actual returns on plan assets,
partially offset by a decrease in discount rates. Net losses arising during the year for other postretirement benefits
were due primarily to a decrease in discount rates, partially offset by higher actual returns on plan assets.
K58
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 $52 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 $25 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
2019
2018
2017
3.38%
4.21%
4.33%
4.21%
3.74%
4.21%
3.13%
4.18%
3.57%
4.55%
3.99%
8.25%
4.21%
4.39%
3.83%
8.00%
6.50%
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%
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, 2019, increases in the per capita cost of pre-Medicare covered health
care benefits were assumed to be 6.25% for 2020. It is assumed the rate will decrease gradually to an ultimate rate
of 5.0% for 2025 and remain at that level thereafter.
K59
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 $
8
(1)
(7)
Eleven investment firms manage our defined benefit pension plans’ assets under investment guidelines approved by
our Benefits Investment Committee that is composed 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,
2018
2019
50%
24%
24%
2%
49%
23%
25%
3%
100%
100%
The other postretirement benefit plan assets consist primarily of trust-owned variable life insurance policies with an
asset allocation at December 31, 2019 of 67% in equity securities and 33% in debt securities compared with 64% in
equity securities and 36% in debt securities at December 31, 2018. 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 2020, we assume an 8.25% return on pension plan assets.
K60
Fair Value of Plan Assets
The 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 the 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 the 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 Treasury 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 at December 31, 2019 or 2018.
Common stock
Common collective trusts:
International equity securities
Debt securities
Fixed income securities:
Government and agencies securities
Corporate bonds
Mortgage and other asset-backed securities
Commingled funds
Cash and cash equivalents
Total investments
Level 1
December 31, 2019
Level 2
($ in millions)
Total
$
1,329 $
— $
1,329
—
—
—
—
—
—
50
377
303
172
84
26
121
—
377
303
172
84
26
121
50
$
1,379 $
1,083 $
2,462
K61
Common stock
Common collective trusts:
International equity securities
Debt securities
Fixed income securities:
Government and agencies securities
Corporate bonds
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
89
83
62
92
—
314
287
89
83
62
92
72
$
1,178 $
927 $
2,105
The 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 $170 million
and $158 million at December 31, 2019 and 2018, 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 2020, we expect to contribute approximately $18 million to our unfunded pension plans for payments to
pensioners and approximately $37 million to our other postretirement benefit plans for retiree health and death
benefits. We do not expect to contribute to our funded pension plan in 2020.
Benefit payments, which reflect expected future service, as appropriate, are expected to be paid as follows:
Pension
Benefits
Other
Postretirement
Benefits
($ in millions)
$
144 $
144
144
144
144
719
37
36
34
33
32
148
2020
2021
2022
2023
2024
Years 2025 – 2029
K62
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 $31 million in 2019, $35 million in
2018, and $44 million in 2017.
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 $22 million in 2019 and $23 million in both 2018 and 2017.
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 9,294,726 remain available for future grants as of
December 31, 2019.
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:
2019
2018
2017
Weighted
Average
Grant-Date
Fair Value
Weighted
Average
Grant-Date
Fair Value
Granted
Granted
Granted
Weighted
Average
Grant-Date
Fair Value
47,360 $
—
47,360
45.74
—
40,960 $
—
40,960
41.70
—
341,120 $
144,440
485,560
37.73
31.33
219,710
102,250
164.47
160.97
217,290
92,314
148.37
147.47
83,330
300,334
120.16
88.56
Stock options:
LTIP
TSOP
Total
RSUs
PSUs
K63
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:
2019
2018
($ in millions)
2017
Stock-based compensation expense
Total tax benefit
$
53 $
37
47 $
33
45
54
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 2019 and 2018 was measured on the date of grant using the Black-Scholes
valuation model. The fair value of each option awarded in 2017 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 2019 and 2018 grant years, historical exercise data is used to
estimate the average expected option term. For the 2017 grant year, 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 2019, 2018, and 2017, a dividend yield of 2.06%, 1.94%,
and 2.04%, respectively, was used for all vested LTIP options and all TSOP options.
The assumptions for the LTIP and TSOP grants for the last three years are shown in the following table:
Average expected volatility
Average risk-free interest rate
Average expected option term LTIP
Average expected option term TSOP
2019
2018
2017
23%
2.56%
7.2 years
—
24%
2.55%
7.2 years
—
26%
2.51%
8.6 years
8.3 years
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A summary of changes in stock options is presented below:
Outstanding at December 31, 2018
Granted
Exercised
Forfeited
Outstanding at December 31, 2019
Stock
Options
Weighted
Avg.
Exercise
Price
3,419,644 $
47,360
(770,597)
(18,958)
86.66
168.36
74.39
105.28
2,677,449
91.51
The aggregate intrinsic value of options outstanding at December 31, 2019 was $275 million with a weighted
average remaining contractual term of 5 years. Of these options outstanding, 1,856,019 were exercisable and had an
aggregate intrinsic value of $196 million with a weighted average exercise price of $88.48 and a weighted average
remaining contractual term of 2.9 years.
The following table provides information related to options exercised for the last three years:
Options exercised
Total intrinsic value
Cash received upon exercise
Related tax benefits realized
2019
2018
($ in millions)
2017
$
770,597
840,175
86 $
53
18
72 $
58
16
1,789,939
114
104
35
At December 31, 2019, total unrecognized compensation related to options granted under the LTIP and the TSOP
was $2 million, and is expected to be recognized over a weighted-average period of approximately 1.6 years.
Restricted Stock Units
Beginning in 2018, RSUs granted primarily have a four-year ratable restriction period and will be settled through
the issuance of shares of Common Stock. RSUs granted prior to 2018 have a five-year restriction period and will
also be settled through the issuance of shares of Common Stock. Certain RSU grants include cash dividend
equivalent payments during the restriction period in an amount equal to regular quarterly dividends paid on
Common Stock.
2019
2018
($ in millions)
2017
RSUs vested
Common Stock issued net of tax withholding
Related tax benefit realized
166,197
119,346
160,200
99,968
$
2 $
3 $
137,200
81,318
3
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A summary of changes in RSUs is presented below:
Nonvested at December 31, 2018
Granted
Vested
Forfeited
Nonvested at December 31, 2019
Weighted-
Average
Grant-Date
Fair Value
RSUs
637,035 $
219,710
(166,197)
(24,376)
111.87
164.47
111.79
152.17
666,172
127.77
At December 31, 2019, total unrecognized compensation related to RSUs was $25 million, and is expected to be
recognized over a weighted-average period of approximately 2.6 years.
Performance Share Units
PSUs provide for awards based on the achievement of certain predetermined corporate performance goals at the end
of a three-year cycle and are settled through the issuance of shares of Common Stock. All PSUs will earn out based
on the achievement of performance conditions and some will also earn out based on a market condition. The market
condition fair value was measured on the date of grant using a Monte Carlo simulation model.
2019
2018
($ in millions)
2017
PSUs earned
Common Stock issued net of tax withholding
Related tax benefit realized
331,099
221,241
154,189
94,399
$
9 $
3 $
171,080
99,805
1
A summary of changes in PSUs is presented below:
Balance at December 31, 2018
Granted
Earned
Unearned
Forfeited
Weighted-
Average
Grant-Date
Fair Value
66.35
160.97
42.70
60.02
126.92
PSUs
1,426,826 $
102,250
(331,099)
(735,048)
(6,419)
Balance at December 31, 2019
456,510
114.04
At December 31, 2019, total unrecognized compensation related to PSUs granted under the LTIP was $6 million,
and is expected to be recognized over a weighted-average period of approximately 1.7 years.
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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
2019
2018
2017
9,294,726
434,401
8,644,108
422,973
8,774,768
410,895
852,869
258,315
820,746
213,796
1,679,547
291,515
Common Stock is reported net of shares held by our consolidated subsidiaries (Treasury Shares). Treasury Shares
at December 31, 2019 and 2018 amounted to 20,320,777, with a cost of $19 million at both dates.
Accumulated Other Comprehensive Loss
The components of “Other comprehensive income (loss)” reported in the Consolidated Statements of
Comprehensive Income and changes in the cumulative balances of “Accumulated other comprehensive loss”
reported in the Consolidated Balance Sheets consisted of the following:
Balance
at
Beginning
of Year
Net
Income
(Loss)
Reclassification
of Stranded
Tax Effects
($ in millions)
Reclassification
Adjustments
Balance
at End
of Year
$
(497) $
61 $
— $
15 $
(421)
(66)
(4)
—
—
(70)
Year ended December 31, 2019
Pensions and other postretirement
liabilities
Other comprehensive loss
of equity investees
Accumulated other comprehensive
loss
$
(563) $
57 $
— $
15 $
(491)
Year ended December 31, 2018
Pensions and other postretirement
liabilities
Other comprehensive loss
of equity investees
Accumulated other comprehensive
$
(300) $
(136) $
(86) $
25 $
(497)
(56)
(8)
(2)
—
(66)
loss
$
(356) $
(144) $
(88) $
25 $
(563)
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The adoption of FASB ASU 2018-02 (see Note 1) resulted in an increase to “Accumulated other comprehensive
loss” of $88 million and a corresponding increase to “Retained income,” with no impact on “Total stockholders’
equity.”
Other Comprehensive Income (Loss)
“Other comprehensive income (loss)” reported in the Consolidated Statements of Comprehensive Income consisted
of the following:
Pretax
Amount
Tax
(Expense)
Benefit
($ in millions)
Net-of-Tax
Amount
Year ended December 31, 2019
Net gain 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 income
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
$
81 $
(20) $
20
101
(4)
(5)
(25)
—
97 $
(25) $
61
15
76
(4)
72
(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
$
$
$
$
Other comprehensive income
$
174 $
(43) $
131
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15. Stock Repurchase Programs
We repurchased and retired 11.3 million, 17.1 million (7.0 million shares under the ASR and 10.1 million shares
under our ongoing open-market program), and 8.2 million shares of Common Stock under our stock repurchase
programs in 2019, 2018, and 2017, respectively, at a cost of $2.1 billion, $2.8 billion, and $1.0 billion, respectively.
On September 26, 2017, our Board of Directors authorized the repurchase of up to an additional 50 million shares of
Common Stock through December 31, 2022. As of December 31, 2019, 28.0 million shares remain authorized for
repurchase. Since the beginning of 2006, we have repurchased and retired 196.9 million shares at a total cost of
$16.2 billion.
16. Earnings Per Share
The following table sets forth the calculation of basic and diluted earnings per share:
Basic
2018
Diluted
2018
2019
2017
($ in millions except per share amounts, shares in millions)
2019
2017
Net income
Dividend equivalent payments
$ 2,722 $ 2,666 $ 5,404 $ 2,722 $ 2,666 $ 5,404
(2)
(5)
(6)
(1)
(4)
—
Income available to common stockholders
$ 2,717 $ 2,660 $ 5,400 $ 2,722 $ 2,665 $ 5,402
Weighted-average shares outstanding
Dilutive effect of outstanding options
and share-settled awards
Adjusted weighted-average shares outstanding
263.3
277.7
287.9
263.3
277.7
287.9
2.3
265.6
2.5
280.2
2.4
290.3
Earnings per share
$ 10.32 $ 9.58 $ 18.76 $ 10.25 $
9.51 $ 18.61
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 for the years
ended December 31, 2019 and 2018, and 0.2 million for the year ended December 31, 2017.
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
K69
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 decision was
upheld by the Court of Appeals on August 16, 2019. Since that decision, various individual cases have been filed in
multiple jurisdictions. 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. Many such claims are being asserted by former or retired employees, some of whom have not
been employed in the rail industry for decades. The independent actuarial firm provides an estimate of the
occupational claims liability based upon our history of claim filings, severity, payments, and other pertinent
facts. The liability is dependent upon judgments we make as to the specific case reserves as well as judgments of
the actuarial firm in the quarterly studies. The actuarial firm’s estimate of ultimate loss includes a provision for
those claims that have been incurred but not reported. This provision is derived by analyzing industry data and
projecting our experience. We adjust the liability quarterly based upon our assessment and the results of the
study. However, it is possible that the recorded liability may not be adequate to cover the future payment of
claims. Adjustments to the recorded liability are reflected in operating expenses in the periods in which such
adjustments become known.
Third-party claims – We record a liability for third-party claims including those for highway crossing accidents,
trespasser and other injuries, property damage, and lading damage. The actuarial firm assists us with the calculation
K70
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 $56 million at December 31,
2019, and $55 million at December 31, 2018, of which $15 million is classified as a current liability at the end of
both 2019 and 2018. At December 31, 2019, the liability represents our estimates of the probable cleanup,
investigation, and remediation costs based on available information at 110 known locations and projects compared
with 114 locations and projects at December 31, 2018. At December 31, 2019, sixteen sites accounted for $40
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.
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.
K71
Insurance
We obtain on behalf of ourself and our subsidiaries insurance for potential losses for third-party liability and first-
party property damages. With limited exceptions, we are currently insured above $75 million and below $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 above $25 million and below $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, 2019, we had outstanding purchase commitments totaling approximately $1.2 billion for
locomotives, track material, long-term service contracts, track and yard expansion projects in connection with our
capital programs as well as freight cars and containers through 2024.
Change-In-Control Arrangements
We have compensation agreements with certain officers and key employees that become operative only upon a
change in control of Norfolk Southern, as defined in those agreements. The agreements provide generally for
payments based on compensation at the time of a covered individual’s involuntary or other specified termination
and for certain other benefits.
Indemnifications
In a number of instances, we have agreed to indemnify lenders for additional costs they may bear as a result of
certain changes in laws or regulations applicable to their loans. Such changes may include impositions or
modifications with respect to taxes, duties, reserves, liquidity, capital adequacy, special deposits, and similar
requirements relating to extensions of credit by, deposits with, or the assets or liabilities of such lenders. The nature
and timing of changes in laws or regulations applicable to our financings are inherently unpredictable, and therefore
our exposure in connection with the foregoing indemnifications cannot be quantified. No liability has been
recorded related to these indemnifications.
K72
NORFOLK SOUTHERN CORPORATION AND SUBSIDIARIES
QUARTERLY FINANCIAL DATA
(Unaudited)
2019
Railway operating revenues
Income from railway operations
Net income
Earnings per share:
Basic
Diluted
2018
Railway operating revenues
Income from railway operations
Net income
Earnings per share:
Basic
Diluted
Three Months Ended
March 31
June 30
September 30 December 31
($ in millions, except per share amounts)
$
$
2,840 $
966
677
2,925 $
1,065
722
2.53
2.51
2.72
2.70
2,717 $
835
552
2,898 $
1,026
710
1.94
1.93
2.52
2.50
2,841 $
996
657
2.50
2.49
2,947 $
1,020
702
2.54
2.52
2,690
962
666
2.56
2.55
2,896
1,078
702
2.59
2.57
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Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Not applicable.
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, 2019. Based on such
evaluation, our officers have concluded that, at December 31, 2019, 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, 2019. 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 2019, 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.
K74
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 “Delinquent
Section 16(a) Reports,” 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 2020 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 “Information about our Executive
Officers.”
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 “Compensation of Directors;”
appearing under the caption “Compensation Discussion and Analysis,” the information appearing in the
“Summary Compensation Table” and the “2019 Grants of Plan-Based Awards” table, including the
narrative to such tables, the “Outstanding Equity Awards at Fiscal Year-End 2019” and “Option Exercises
and Stock Vested in 2019” 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 2020 Annual Meeting of Stockholders, which
definitive Proxy Statement will be filed electronically with the SEC pursuant to Regulation 14A.
K75
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 2020 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, 2019)
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)
3,577,895 (3) $
91.86 (5)
9,294,726
463,759 (4)
89.81
434,401 (6)
Total
4,041,654
9,729,127
Includes options, RSUs and PSUs granted under LTIP that will be settled in shares of stock.
(1) Excludes securities reflected in column (a).
(2) LTIP.
(3)
(4) TSOP.
(5) Calculated without regard to 1,364,205 outstanding RSUs and PSUs at December 31, 2019.
(6) Reflects shares remaining available for grant under TSOP.
Norfolk Southern Corporation Long-Term Incentive Plan
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 SAR, or (ii) by 1.61 for an award made in the form other than an option or stock-settled
SAR. 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.
K76
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
officer to the extent the Committee delegates award-making authority pursuant to LTIP, may grant incentive stock
options, nonqualified stock options, SARs, 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 2019 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. RSUs will be settled in shares of Common Stock.
Norfolk Southern Corporation Thoroughbred Stock Option Plan
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 2020 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 2020 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, 2019, 2018, and 2017
Consolidated Statements of Comprehensive Income, Years ended December 31, 2019,
2018, and 2017
Consolidated Balance Sheets at December 31, 2019 and 2018
Consolidated Statements of Cash Flows, Years ended December 31, 2019, 2018, and
2017
Consolidated Statements of Changes in Stockholders’ Equity, Years ended December 31,
2019, 2018, and 2017
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
3
(i)(a)
(i)(b)
(ii)
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)
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 September 24, 2019, are
incorporated by reference to Exhibit 3(ii) to Norfolk Southern Corporation’s Form 8-K
filed on September 24, 2019. (SEC File No. 001-08339)
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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 (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)
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)
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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)
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)
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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)
Third Supplemental Indenture, dated as of May 8, 2019, between the Registrant and U.S. Bank
National Association, as Trustee, is incorporated by reference to Exhibit 4.1 to the Registrant’s
Form 8-K filed on May 8, 2019.
Fourth Supplemental Indenture, dated as of October 24, 2019, between the Registrant and U.S.
Bank National Association, as Trustee, is incorporated by reference to Exhibit 4.1 to the
Registrant’s Form 8-K filed on November 4, 2019.
(hh)**
Description of the Registrant’s Common Stock Registered Under Section 12 of the Securities
Exchange Act of 1934.
10
(a)
(b)
(c)
(d)
(e)
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.
Material Contracts -
The Transaction Agreement, dated as of June 10, 1997, by and among CSX and CSX
Transportation, Inc., Registrant, Norfolk Southern Railway Company, Conrail Inc., Consolidated
Rail Corporation, and CRR Holdings LLC, with certain schedules thereto, previously filed, is
incorporated by reference to Exhibit 10(a) to Norfolk Southern Corporation’s Form 10-K filed on
February 24, 2003. (SEC File No. 001-08339)
Amendment No. 1 dated as of August 22, 1998, to the Transaction Agreement, dated as of June 10,
1997, by and among CSX Corporation, CSX Transportation, Inc., Norfolk Southern Corporation,
Norfolk Southern Railway Company, Conrail, Inc., Consolidated Rail Corporation, and CRR
Holdings LLC, is incorporated by reference from Exhibit 10.1 to Norfolk Southern Corporation’s
Form 10-Q filed on August 11, 1999. (SEC File No. 001-08339)
Amendment No. 2 dated as of June 1, 1999, to the Transaction Agreement, dated June 10, 1997, by
and among CSX Corporation, CSX Transportation, Inc., Norfolk Southern Corporation, Norfolk
Southern Railway Company, Conrail, Inc., Consolidated Rail Corporation, and CRR Holdings
LLC, is incorporated by reference from Exhibit 10.2 to Norfolk Southern Corporation’s Form 10-Q
filed on August 11, 1999. (SEC File No. 001-08339)
Amendment No. 3 dated as of June 1, 1999, and executed in April 2004, to the Transaction
Agreement, dated June 10, 1997, by and among CSX Corporation, CSX Transportation, Inc.,
Norfolk Southern Corporation, Norfolk Southern Railway Company, Conrail, Inc., Consolidated
Rail Corporation, and CRR Holdings LLC, is incorporated by reference from Exhibit 10(dd) to
Norfolk Southern Corporation’s Form 10-Q filed on July 30, 2004. (SEC File No. 001-08339)
Amendment No. 5 to the Transaction Agreement, dated as of August 27, 2004, by and among CSX
Corporation, CSX Transportation, Inc., Norfolk Southern Corporation, Norfolk Southern Railway
Company, Conrail, Inc., Consolidated Rail Corporation, and CRR Holdings LLC, is incorporated
by reference to Exhibit 10.1 to Norfolk Southern Corporation’s Form 8-K filed on September 2,
2004. (SEC File No. 001-08339)
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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)
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)
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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
July 26, 2019, is incorporated by reference to Exhibit 10.2 to Norfolk Southern Corporation’s Form
10-Q filed on October 23, 2019. (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)
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 E
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, is incorporated by reference to Exhibit 10(y) to Norfolk Southern
Corporation's Form 10-K filed on February 8, 2019. (SEC File No. 001-08339)
The description of Norfolk Southern Corporation’s optional executive physical reimbursement
program, as amended effective July 26, 2019, is incorporated by reference to Exhibit 10.1 to
Norfolk Southern Corporation’s Form 10-Q filed on October 23, 2019. (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, November 27,
2018, and November 19, 2019.
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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)
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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)
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)
(mm)
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)
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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)
Amendment No. 13 to Transfer and Administration Agreement dated as of June 1, 2018 is hereby
incorporated by reference to Exhibit 10.1 to the Registrant’s Form 8-K filed on June 4, 2018 (SEC
File No. 001-8339)
Amendment No. 14 to Transfer and Administration Agreement dated as of May 31, 2019 is hereby
incorporated by reference to Exhibit 10.1 to the Registrant’s Form 8-K filed on June 3, 2019 (SEC
File No. 001-8339)
Omnibus Amendment, dated as of March 18, 2008, to the Transfer and Administration Agreement
dated as of November 8, 2007, is incorporated by reference to Exhibit 10.1 to Norfolk Southern
Corporation’s Form 10-Q filed on April 23, 2008. (SEC File No. 001-08339)
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Transaction Agreement (Pan Am Transaction Agreement), dated May 15, 2008, by and among
Norfolk Southern Railway Company, Pan Am Railways, Inc., Boston and Maine Corporation, and
Springfield Terminal Railway Company, is incorporated by reference to Exhibit 10.1 to Norfolk
Southern Corporation’s Form 10-Q filed on July 24, 2008 (Exhibits, annexes and schedules
omitted. The Registrant will furnish supplementary copies of such materials to the SEC upon
request). (SEC File No. 001-08339)
Letter Agreement, dated October 21, 2008, by and among Norfolk Southern Railway Company,
Pan Am Railways, Inc., Boston and Maine Corporation, and Springfield Terminal Railway
Company amending certain terms of the Pan Am Transaction Agreement, is incorporated by
reference to Exhibit 10(rrr) to Norfolk Southern Corporation’s Form 10-K filed on February 18,
2009. (SEC File No. 001-08339)
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Directors’ Deferred Fee Plan of Norfolk Southern Corporation, adopted June 1, 1982 and as
amended and restated effective December 1, 2019.
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(zz)*
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Norfolk Southern Corporation Executives’ Deferred Compensation Plan, as amended and restated
effective January 1, 2019, is incorporated by reference to Exhibit 10(ww) to Norfolk Southern
Corporation's Form 10-K filed on February 8, 2019. (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)
(ddd)*,**
Form of Norfolk Southern Corporation Long-Term Incentive Plan, Award Agreement for Outside
Directors for restricted stock units and deferral election form as approved by the Compensation
Committee on December 4, 2019.
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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)
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Performance Criteria for bonuses payable in 2021 for the 2020 incentive year. On January 27,
2020, the Compensation Committee of the Norfolk Southern Corporation Board of Directors
adopted the following performance criteria for determining bonuses payable in 2021 for the 2020
incentive year under the Norfolk Southern Corporation Executive Management Incentive Plan:
40% based on operating income, and 60% 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 Agreement between Norfolk
Southern Corporation and the Corporation’s Chairman, President and Chief Executive Officer, to
eliminate the excise tax gross-up provision in the Agreement, 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)
Form of Norfolk Southern Corporation Long-Term Incentive Plan, Off-Cycle Award Agreement
for Non-Qualified Stock Options as approved by the Compensation Committee on April 23, 2019,
in incorporated by reference to Exhibit 10.5 to Norfolk Southern Corporation’s Form 10-Q filed on
April 24, 2019. (SEC File No. 001-08339)
Form of Norfolk Southern Corporation Long-Term Incentive Plan, Off-Cycle Award Agreement
for Performance Share Units as approved by the Compensation Committee on April 23, 2019, in
incorporated by reference to Exhibit 10.6 to Norfolk Southern Corporation’s Form 10-Q filed on
April 24, 2019. (SEC File No. 001-08339)
Form of Norfolk Southern Corporation Long-Term Incentive Plan, Off-Cycle Award Agreement
for Restricted Stock Units as approved by the Compensation Committee on April 23, 2019, in
incorporated by reference to Exhibit 10.7 to Norfolk Southern Corporation’s Form 10-Q filed on
April 24, 2019. (SEC File No. 001-08339)
Offer Letter for Mark R. George, dated August 26, 2019, is incorporated by reference to Exhibit
99.1 to Norfolk Southern Corporation’s Form 8-K filed on August 28, 2019. (SEC File No.
001-08339)
Norfolk Southern Corporation Long-Term Incentive Plan Inducement Award Agreement for
Performance-Based Restricted Stock Units is incorporated by reference to Exhibit 99.2 to Norfolk
Southern Corporation’s Form 8-K filed on August 28, 2019. (SEC File No. 001-08339)
Norfolk Southern Corporation Long-Term Incentive Plan Inducement Award Agreement for
Restricted Stock Units is incorporated by reference to Exhibit 99.3 to Norfolk Southern
Corporation’s Form 8-K filed on August 28, 2019. (SEC File No. 001-08339)
Norfolk Southern Corporation Long-Term Incentive Plan Inducement Award Agreement for Non-
Qualified Stock Options is incorporated by reference to Exhibit 99.4 to Norfolk Southern
Corporation’s Form 8-K filed on August 28, 2019. (SEC File No. 001-08339)
A Construction Agency Agreement, dated March 1, 2019, between Norfolk Southern Railway
Company (“NSRC”) and BA Leasing BSC, LLC. This Agreement is incorporated by reference
herein to Exhibit 10.1 to Norfolk Southern Corporation’s Form 8-K filed March 5, 2019. (See SEC
File No. 001-08339).
A Lease Agreement, dated March 1, 2019, between NSRC and BA Leasing BSC, LLC. This
Agreement is incorporated by reference herein to Exhibit 10.2 to Norfolk Southern Corporation’s
Form 8-K filed March 5, 2019. (See SEC File No. 001-08339).
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31-A**
31-B**
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A Participation Agreement, dated March 1, 2019, between NSRC, BA Leasing BSC, LLC, Bank of
America, N.A. as Administrative Agent, and each of the Rent Assignees listed on Schedule II
thereto. This Agreement is incorporated by reference herein to Exhibit 10.3 to Norfolk Southern
Corporation’s Form 8-K filed March 5, 2019. (See SEC File No. 001-08339).
Guaranty of NSRC’s obligations under the Participation Agreement, Construction Agency
Agreement, Lease Agreement and related documents by Norfolk Southern Corporation. This
Agreement is incorporated by reference herein to Exhibit 10.4 to Norfolk Southern Corporation’s
Form 8-K filed March 5, 2019. (See 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.
The following financial information from Norfolk Southern Corporation’s Annual Report on Form
10-K for the year ended December 31, 2019, formatted in Inline Extensible Business Reporting
Language (iXBRL) includes: (i) the Consolidated Statements of Income for each of the years
ended December 31, 2019, 2018, and 2017; (ii) the Consolidated Statements of Comprehensive
Income for each of the years ended December 31, 2019, 2018, and 2017; (iii) the Consolidated
Balance Sheets at December 31, 2019 and 2018; (iv) the Consolidated Statements of Cash Flows
for each of the years ended December 31, 2019, 2018, and 2017; (v) the Consolidated Statements
of Changes in Stockholders’ Equity for each of the years ended December 31, 2019, 2018, and
2017; and (vi) the Notes to Consolidated Financial Statements.
* Management contract or compensatory arrangement.
** Filed herewith.
(B)
Exhibits.
The Exhibits required by Item 601 of Regulation S-K as listed in Item 15(A)3 are filed
herewith or incorporated by reference.
(C)
Financial Statement Schedules.
Financial statement schedules and separate financial statements specified by this Item are
included in Item 15(A)2 or are otherwise not required or are not applicable.
Exhibits 23, 31, and 32 are included in copies assembled for public dissemination. All
exhibits are included in the 2019 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.
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POWER OF ATTORNEY
Each person whose signature appears on the next page under SIGNATURES hereby authorizes Vanessa Allen
Sutherland and Mark R. George, 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 Vanessa Allen Sutherland and Mark R. George, or any one of them,
as attorneys-in-fact to sign on his or her behalf, individually and in each capacity stated below, and to file, any and
all amendments to this report.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, Norfolk Southern
Corporation has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on
this 6th day of February, 2020.
/s/ James A. Squires
By: James A. Squires
(Chairman, President and Chief Executive Officer)
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Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below on this 6th
day of February, 2020, 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/ Mark R. George
(Mark R. George)
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)
/s/ Claude Mongeau
(Claude Mongeau)
Director
Director
/s/ Jennifer F. Scanlon
(Jennifer F. Scanlon)
Director
/s/ John R. Thompson
(John R. Thompson)
Director
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Norfolk Southern Corporation and Subsidiaries
Valuation and Qualifying Accounts
Years ended December 31, 2019, 2018, and 2017
($ in millions)
Schedule II
Additions charged to:
Beginning
Balance
Expenses
Other
Accounts
Deductions
Ending
Balance
Year ended December 31, 2019
Current portion of casualty and
other claims included in
accounts payable
Casualty and other claims
included in other liabilities
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
$
213
$
22
$
131 (2) $
154 (3) $
158
89 (1)
—
76 (4)
$
187
$
32
$
145 (2) $
151 (3) $
179
85 (1)
—
106 (4)
$
192
$
17
$
124 (2) $
146 (3) $
178
83 (1)
—
82 (4)
212
171
213
158
187
179
(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 other liabilities.
(4) Payments and reclassifications to/from accounts payable.
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SHAREHOLDER INFORMATION
COMMON STOCK
Ticker symbol: NSC
Our common stock is listed and traded
on the New York Stock Exchange.
DIVIDENDS
At its January 2020 meeting, our board of
directors declared a quarterly dividend of 94
cents per share on the company’s common
stock, payable on March 10, 2020,
to shareholders of record on Feb. 7, 2020.
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 150 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
Our transfer agent, American Stock Transfer
& Trust Company LLC (AST), offers 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 our 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
Mark R. George
Executive Vice
President Finance and
Chief Financial Officer
Norfolk Southern Corp.
1200 Peachtree St., N.E.
Atlanta, Ga. 30309
470.867.4833
INVESTOR
INQUIRIES
Peter V. Sharbel
Director Investor Relations
Norfolk Southern Corp.
1200 Peachtree St., N.E.
Atlanta, Ga. 30309
470.867.4807
CORPORATE
OFFICE
Executive Offices
Norfolk Southern Corp.
Three Commercial Place
Norfolk, Va. 23510
757.629.2600
855NORFOLK or
855.667.3655
REGIONAL
OFFICE
Norfolk Southern Corp.
1200 Peachtree St., N.E.
Atlanta, Ga. 30309
Three Commercial Place
Norfolk, Virginia 23510
www.norfolksouthern.com
© 2020 Norfolk Southern Corporation
All Rights Reserved
10.032020.64836.45K