Norfolk Southern
Annual Report 2020

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www.norfolksouthern.com 2020 ANNUAL REPORT N O R F O L K S O U T H E R N C O R P O R A T I O N 2 0 2 0 A N N U A L R E P O R T © 2021 Norfolk Southern Corporation All Rights Reserved 10.032021.133802.22K FINANCIAL HIGHLIGHTS NORFOLK SOUTHERN CORPORATION & SUBSIDIARIES DESCRIPTION OF BUSINESS Norfolk Southern Corporation (NYSE: NSC) is one of the nation’s premier transportation companies. Its Norfolk Southern Railway Company subsidiary operates approximately 19,300 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 agriculture, forest and consumer products, chemicals, 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. 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 flow2 AT YEAR-END Total assets3 Total debt Stockholders’ equity Shares outstanding FINANCIAL RATIOS Operating ratio1 Debt-to-total capitalization ratio TOTAL STOCKHOLDER RETURNS4 (in dollars) $ $ $ $ $ $ $ $ 2020 9,789 3,486 2,375 9.25 3.76 2019 2018 $ 11,296 3,989 $ 2,722 $ 10.25 $ 3.60 $ $ 11,458 3,959 $ 2,666 $ 9.51 $ 3.04 $ 40% 35% 32% 3,637 1,494 2,143 $ 37,962 $ 12,681 $ 14,791 252.1 $ $ $ $ $ $ 3,892 2,019 1,873 37,923 12,196 15,184 257.9 $ $ $ 3,726 1,951 1,775 $ 36,239 11,145 $ $ 15,362 268.1 64.4% 46.2% 64.7% 44.5% 65.4% 42.0% RAILWAY OPERATING REVENUES (in millions) INCOME FROM RAILWAY OPERATIONS (in millions) FREE CASH FLOW 2 (in millions) $11,458 $11,296 $9,789 $3,989 $3,959 $3,486 $2,143 $1,873 $1,775 $ 350 $ 300 $ 250 $ 200 $ 150 $ 100 $ 50 $ 0 12/2015 12/2016 12/2017 12/2018 12/2019 12/2020 2020 2019 2018 20201 2019 2018 2020 2019 2018 n Norfolk Southern Corp. Common Stock S&P Railroad Stock Price Index n S&P Composite – 500 Stock Price Index 1 Our 2020 financial results included a loss on asset disposal of $385M related to locomotives sold and a $99M impairment charge related to an equity method investment. For purposes of period- over-period comparability, 2020 results for income from railway operations, net income, net income per share – diluted, dividend payout ratio, and operating ratio have been adjusted to exclude these charges, and are considered non-GAAP financial measures. The 2020 dividend payout ratio is dividends paid ($960M) as a percentage of adjusted net income ($2,375M), as compared to a 48% dividend payout ratio using net income under GAAP ($2,013M). For more information, see the “Non-GAAP Reconciliation for 2020” on page K20 of our Annual Report on Form 10-K. 2 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 ($2,143M) is net cash provided by operating activities ($3,637M) reduced by payments for property additions ($1,494M). 3 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 twelve months. The Consolidated Balance Sheets include ROU assets of $433M and $539M at Dec. 31, 2020 and 2019, respectively, and lease liabilites of $433M and $538M, respectively. 4 This graph compares the cumulative stockholder return 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, 2015, and that all dividends were reinvested over the five-year period, ending Dec. 31, 2020. Data furnished by Bloomberg Financial Markets. DEAR FELLOW SHAREHOLDERS: In 2020, the Norfolk Southern team stepped up in remarkable fashion to weather a global pandemic that triggered one of the most severe economic disruptions in modern times. Our agile response to the year’s unpredictable events is testament to our unwavering commitment to our customers, our shareholders, and the communities that rely on our service. As we quickly adapted, we stayed focused on our transformational goals to build a faster, more efficient, and technologically innovative railroad. ADAPTING TO CHANGE, CONTROLLING COSTS, AND FORGING AHEAD Driven by our resiliency, financial discipline, and successful execution of precision scheduled railroading, we achieved our fifth consecutive year of improvement in our operating ratio.1 In every quarter but the second, which was marked by the most sudden and severe impacts of the pandemic, we made consistent progress towards our goal of reaching a 60% operating ratio. In the fourth quarter of 2020, we attained a record low 61.8% operating ratio. COVID-19-related supply-chain impacts and downward trends in global energy markets created significant headwinds. Revenues in 2020 declined 13% on a 12% reduction in volume. Merchandise revenue fell 11%, with almost all markets experiencing pandemic-related losses. While intermodal traffic recovered significantly in the year’s second half with a surge in e-commerce and consumer-driven demand, intermodal revenue declined 6% for the year. Faced with COVID impacts and adverse market conditions, coal revenue dropped 37%. In total, energy market headwinds accounted for 70% of our 2020 revenue decline. NORFOLK SOUTHERN (1) DRIVING PRODUCTIVITY TO REDUCE RESOURCE NEEDS, INCREASE NETWORK SPEED AND CAPACITY Despite these challenges, our commitment to increase efficiencies generated a 14% reduction in adjusted operating expenses,1 exceeding the percentage decline in revenue. Efficiencies gained through our implementation of PSR drove fourth- quarter company records for train weight, length, and fuel efficiency as volumes continued a recovery from pandemic- induced lows. By handling increased volumes with reduced resources, we increased our productivity throughout the year with a smaller workforce and a record low number of locomotives, disposing of more than 700 during 2020. ACCELERATING OUR TRANSFORMATION WITH TECHNOLOGY Our agility and efficiency were amplified by the transformative power of technology. We made significant progress in 2020 toward our goal of deploying advanced technologies to enhance safety, increase productivity, and better serve our customers. Our data scientists, developers, and IT professionals are pioneers in the rail industry’s use of artificial intelligence, mobile applications, and mathematical modeling. Their work is helping to transform how we do everything from train reporting and inspecting rail cars to deciding when we replace rail and how we maintain locomotives for optimum performance – and the list continues to grow. As we managed significant volume fluctuations through the year, we continued to consolidate and streamline yard operations, as well as restructure our operations teams to create a flatter, more responsive, and more collaborative organization. (2) NORFOLK SOUTHERN GROWING OUR BUSINESS THROUGH COLLABORATION AND IMPROVED CUSTOMER EXPERIENCE Expanding our topline through smart, profitable growth is core to our business strategy. In 2020, we assisted 86 businesses across 18 states in opening new or expanded rail-served facilities on our network, generating an estimated 54,300 carloads of new traffic volume annually. Expected to create over 2,900 customer jobs, these development initiatives help communities thrive as they expand economic opportunity. Our commitment to improving the customer experience is key to our growth strategy. To advance this goal, we continued refining and developing our use of customer-facing technologies that are user-friendly. We initiated the industry partnership, Rail Pulse, to enable real-time onboard location, condition, and health information of rail cars across 99% of the North American rail geography. We expanded our use of mobile applications to increase efficiencies for truck drivers at our intermodal terminals. In addition, we completed a strategic realignment of our marketing, finance, and customer operations and service teams to break down internal silos and foster collaboration across departments. With a shared goal of improvement through increased productivity, we’re making it easier for customers to do business with us. When they succeed, we succeed. OUR COMMITMENT TO CORPORATE RESPONSIBILITY As an industry leader in sustainability, we believe that being a good steward of our resources is vital to achieving our business goals and driving long-term value. Through our adoption of smart operating practices and energy management technologies, we achieved record locomotive fuel efficiency in 2020. By offering a low-carbon transportation service, we continued to work with customers to help them reduce supply-chain emissions and achieve their own environmental goals. We partnered with communities and organizations across our network on sustainability initiatives that generate economic, environmental, and social benefits. In 2020, we constructed a living shoreline at our Lamberts Point terminal in Norfolk, Virginia, creating a green oasis for oysters and wildlife on the Elizabeth River while protecting railroad property from erosion and sea level rise. In another initiative, we joined Operation Clean Sweep in a pledge to help supply-chain partners eliminate plastic pollution from the environment. Underscoring our commitment, the Wall Street Journal in 2020 named Norfolk Southern to its list of the 100 Most Sustainably Managed Companies in the World. Our goal is to be an employer of choice, enhancing diversity, equity, and inclusion at our company. Across the country, 2020 was a year of significant civil unrest and widespread concern surrounding the issues of equality and racial justice. Addressing these events head-on, we applied a renewed energy to ensuring that our company is a place that values the unique experiences, perspectives, and contributions of all people. To help drive our progress, we established our own Inclusion Leadership Council and created the position of director equity and inclusion. NORFOLK SOUTHERN (3) PRIORITIZING THE SAFETY OF NS EMPLOYEES, CUSTOMERS, AND COMMUNITIES Taking a holistic approach to employee well- being, we’re resolved to providing a safe working environment and operating safely in the communities we serve. To oversee the company’s ongoing efforts in safety investments, culture, and performance, our board of directors formed a dedicated safety committee that will consult regularly with our senior leadership team. We completed full implementation of positive train control on 8,000 miles of our core mainline routes, achieving a significant milestone. In addition to enhancing rail safety, we plan to leverage PTC’s communication capabilities as part of our transformation into a next-generation railroad. As part of a community safety initiative, we partnered with the mobile navigation app, Waze, to provide motorists with warning alerts as they approach a highway-rail grade crossing. 1 Our 2020 financial results included a loss on asset disposal of $385M related to locomotives sold and a $99M impairment charge related to an equity method investment. For purposes of period-over-period comparability discussed herein, 2020 operating ratio and operating expenses have been adjusted to exclude these charges and are considered non-GAAP financial measures. For more information, see the “Non-GAAP Reconciliation for 2020” on page K20 of our Annual Report on Form 10-K. (4) NORFOLK SOUTHERN REINVESTING IN INFRASTRUCTURE, RETURNING CASH TO SHAREHOLDERS, STRONG GOVERNANCE While advancing new partnerships and initiatives in 2020, we made considerable investment in our essential business assets and operations to ensure safe and efficient operations and support growth. We funded $1.5 billion in capital improvement projects, including investments in track and rail infrastructure and in modernizing our locomotive fleet. At the same time, we maintained our strong commitment to return capital to our shareholders. In 2020, our board approved dividend distributions of $960 million, a 1% increase over the previous year. We also repurchased more than $1.4 billion of the company’s shares. BUILDING ON SUCCESSES TO FORGE THE RAILROAD OF THE FUTURE We were pleased to welcome Christopher T. Jones and John C. Huffard Jr. as new board members in 2020. With extensive and diverse technology backgrounds, they are providing invaluable guidance for Norfolk Southern as we accelerate our transformation into a faster, more efficient, and technologically innovative railroad. While we faced significant challenges in 2020, the NS team never wavered. From the front lines of operations to back offices and makeshift home offices, employees across all departments stepped up in truly heroic fashion to deliver for our customers and the country. Thanks to their tireless efforts, Norfolk Southern is a leaner, smarter, and more efficient company. As we prepare to finalize the relocation of our corporate headquarters to the technology hub and talent-rich city of Atlanta, we look forward to making our company even stronger. The Thoroughbred Team is well-positioned to continue growing our business and delivering superior shareholder value in 2021 and in the years ahead. Thank you for your investment in Norfolk Southern. BOARD OF DIRECTORS All directors are subject to re-election each year. Information as of Feb. 1, 2021. THOMAS D. BELL JR. DIRECTOR SINCE 2010 MITCHELL E. DANIELS JR. DIRECTOR SINCE 2016 MARCELA E. DONADIO DIRECTOR SINCE 2016 JOHN C. HUFFARD JR. DIRECTOR SINCE 2020 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, finance and risk management EXPERTISE: CEO/senior officer; environmental and safety; governance/ board; governmental and stakeholder relations; human resources and compensation; marketing; strategic planning 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, executive, governance and nominating (chair) EXPERTISE: CEO/senior officer; finance and accounting; governance/board; governmental and stakeholder relations; strategic planning Donadio retired as a partner of Ernst & Young LLP, a multinational professional services firm, in 2014. From 2007 until her retirement, she was Americas Oil & Gas sector leader, with responsibility for one of Ernst & Young’s significant industry groups. She helped set firm strategy for oil and gas industry clients in the United States and throughout the Americas. She is a director of Marathon Oil Corp. and NOV Inc. COMMITTEES: audit, finance and risk management EXPERTISE: CEO/senior officer; finance and accounting; governance/board; human resources and compensation; strategic planning Huffard is a co-founder of Tenable Network Security Inc. and Tenable Holdings Inc., a cybersecurity software company. He served as president and chief operating officer and as a director of Tenable Network Security Inc. from 2002 to 2018, where he was responsible for driving Tenable’s global corporate strategy and business operations and was instrumental in the venture funding and IPO process. From 2018 to 2019, he focused exclusively on business operations as chief operating officer of Tenable Holdings Inc. He has been a director of Tenable Holdings Inc. since 2016. COMMITTEES: compensation, finance and risk management EXPERTISE: CEO/ senior officer; finance and accounting; governance/board; human resources and compensation; information technology NORFOLK SOUTHERN (5) CHRISTOPHER T. JONES DIRECTOR SINCE 2020 THOMAS C. KELLEHER DIRECTOR SINCE 2019 STEVEN F. LEER LEAD DIRECTOR DIRECTOR SINCE 1999 MICHAEL D. LOCKHART DIRECTOR SINCE 2008 Jones served as corporate vice president and president of the technology services sector of Northrop Grumman Corporation, a global aerospace and defense technology company, from January 2013 through December 2019. Previously, he served as vice president and general manager of Northrop Grumman’s integrated logistics and modernization division from 2010 through 2012. Jones was a maintenance officer in the Connecticut Air National Guard from 1997 to 2011. COMMITTEES: audit, governance and nominating EXPERTISE: CEO/senior officer; finance and accounting; governmental and stakeholder relations; information technology, strategic planning 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 cohead of corporate strategy from 2007 to early 2010, and head of Morgan Stanley’s global capital markets from 2006 to 2007. COMMITTEES: audit, executive, finance and risk management (chair) EXPERTISE: CEO/senior officer; finance/accounting; governance/board; governmental and stakeholder relations; human resources and compensation; strategic planning Lockhart served as chairman of the board, president and chief executive officer of Armstrong World Industries Inc. and its predecessor, Armstrong Holdings Inc., a leading global producer of flooring products and ceiling systems, from 2000 until his retirement in February 2010. Previously, he served as chairman and CEO of General Signal Corporation, a diversified manufacturer, from September 1995 until it was acquired in 1998. COMMITTEES: audit, executive, finance and risk management, safety (chair) EXPERTISE: CEO/senior officer; environmental and safety; finance and accounting; governance/ board; marketing; strategic planning; transportation 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 EXPERTISE: CEO/senior officer; environmental and safety; governance/ board; governmental and stakeholder relations; human resources and compensation; 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. She has been a director of The Gap Inc. since April 2020 and Amgen Inc. since July 2020. COMMITTEES: audit (chair), executive, governance and nominating EXPERTISE: CEO/senior officer; finance and accounting; governance/ board; information technology; marketing; strategic planning (6) NORFOLK SOUTHERN CLAUDE MONGEAU DIRECTOR SINCE 2019 JENNIFER F. SCANLON DIRECTOR SINCE 2018 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, safety EXPERTISE: CEO/senior officer; environmental and safety; finance and accounting; governance/board; governmental and stakeholder relations; human resources and compensation; marketing; strategic planning; transportation 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 CEO 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, governance and nominating, safety EXPERTISE: CEO/senior officer; environmental and safety; governance/ board; information technology; marketing; strategic planning; transportation JAMES A. SQUIRES CHAIRMAN, PRESIDENT AND CEO DIRECTOR SINCE 2014 Squires has been president of Norfolk Southern since 2013 and chief executive officer since June 2015. He was named chairman of the board of Norfolk Southern in October 2015. Previously, he served as Norfolk Southern’s executive vice president administration, executive vice president finance and chief financial officer, senior vice president finance, senior vice president law, and vice president law. COMMITTEES: executive (chair) EXPERTISE: CEO/senior officer; finance and accounting; governance/board; governmental and stakeholder relations; human resources and compensation; marketing; strategic planning; transportation JOHN R. THOMPSON DIRECTOR SINCE 2013 Thompson served as a government relations consultant for Best Buy Co. Inc., a multinational consumer electronics corporation, from October 2012 to April 2016. He served as senior vice president and general manager of BestBuy.com LLC, a subsidiary of Best Buy Co. Inc., from 2002 through 2012. Previously, he was a director of Belk Inc. and Wendy’s International Inc. COMMITTEES: compensation (chair), executive, governance and nominating EXPERTISE: CEO/senior officer; finance and accounting; governance/board; governmental and stakeholder relations; human resources and compensation; information technology; marketing; strategic planning NORFOLK SOUTHERN (7) OFFICERS As of Feb. 1, 2021 James A. Squires Chairman, President and Chief Executive Officer Ann A. Adams Executive Vice President and Chief Transformation Officer Vanessa Allen Sutherland Executive Vice President and Chief Legal Officer Mark R. George Executive Vice President Finance and Chief Financial Officer Cynthia M. Sanborn Executive Vice President and Chief Operating Officer Alan H. Shaw Executive Vice President and Chief Marketing Officer Clyde H. Allison Jr. Vice President and Controller Edward F. Boyle Jr. Vice President Engineering John S. Hatfield Vice President Corporate Communications Jeffrey S. Heller Vice President Intermodal and Automotive Lorri J. Kleine Vice President Law Karol R. Lawrence Vice President Customer Operations and Service David T. Lawson Vice President Coal Marque I. Ledoux Vice President Government Relations Michael R. McClellan Vice President Strategic Planning Gregory R. Comstock Vice President Network Operations Christopher R. Neikirk Vice President and Treasurer Michael F. Cox Vice President Taxation Barbara N. Paul Vice President Human Resources Fredric M. Ehlers Vice President Information Technology and Chief Information Officer Claude E. Elkins Vice President Industrial Products John H. Friedmann Vice President Network Planning and Optimization Thomas W. Schnautz Vice President Advanced Train Control Kathleen C. Smith Vice President Business Development and Real Estate Susan S. Stuart Vice President Audit and Compliance Scott R. Weaver Vice President Labor Relations Jason A. Zampi Vice President Financial Planning and Analysis 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 opportunity and nondiscrimination. The company’s policy is to offer employment, training, remuneration, advancement, and all other privileges of employment on the basis of qualification and performance regardless of race, religion, color, national origin, gender, age, status as a covered veteran, sexual orientation, gender identity, the presence of a disability, genetic information, or any other legally protected status. (8) 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, 2020 ☐ 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) (State or other jurisdiction of incorporation or organization) Virginia 52-1188014 (I.R.S Employer Identification No.) Three Commercial Place Norfolk, Virginia (Address of principal executive offices) 23510-2191 (Zip Code) (757) 629-2680 (Registrant’s telephone number, including area code) Securities registered pursuant to Section 12(b) of the Act: Norfolk Southern Corporation Common Stock (Par Value $1.00) NSC New York Stock Exchange Title of each class Trading Symbol(s) Name of each exchange on which registered 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 has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☒ 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, 2020 was $44,745,974,634 (based on the closing price as quoted on the New York Stock Exchange on June 30, 2020). The number of shares outstanding of each of the registrant’s classes of common stock, at January 31, 2021: 251,911,634 (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 and Financial Statement Schedule Form 10-K Summary Power of Attorney Signatures Page K3 K11 K14 K15 K15 K16 K17 K18 K19 K32 K33 K77 K77 K77 K78 K78 K79 K81 K81 K82 K92 K93 K93 K2 PART I NORFOLK SOUTHERN CORPORATION AND SUBSIDIARIES Item 1. Business and Item 2. Properties GENERAL – 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 (U.S.). 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 U.S. 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 K3 RAILROAD OPERATIONS – At December 31, 2020, we operated approximately 19,300 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 K4 The miles operated, which include major leased lines between Cincinnati and Chattanooga, and an exclusive operating agreement for trackage rights over property owned by North Carolina Railroad Company, were as follows: Mileage Operated at December 31, 2020 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 14,540 2,678 2,004 8,310 27,532 4,795 1,889 406 840 7,930 19,335 4,567 2,410 9,150 35,462 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 operations for the past five years: 2020 Years ended December 31, 2017 2018 2019 2016 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) 164 $ 59.67 8,191 194 $ 58.21 7,939 207 $ 55.25 7,822 201 $ 52.38 7,474 191 $ 51.91 6,838 69.3% 64.7% 65.4% 66.6% 69.6% RAILWAY OPERATING REVENUES – Total railway operating revenues were $9.8 billion in 2020. 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.” MERCHANDISE – Our merchandise commodity group is composed of four groupings: • Agriculture, forest and consumer products includes soybeans, wheat, corn, fertilizer, livestock and poultry feed, food products, food oils, flour, sweeteners, ethanol, lumber and wood products, pulp board and paper products, wood fibers, wood pulp, scrap paper, beverages, canned goods, and consumer products. • Chemicals includes sulfur and related chemicals, petroleum products (including crude oil), chlorine and bleaching compounds, plastics, rubber, industrial chemicals, chemical wastes and sand. • Metals and construction includes steel, aluminum products, machinery, scrap metals, cement, aggregates, minerals, clay, transportation equipment, and items for the U.S. military. • Automotive includes finished motor vehicles and automotive parts. In 2020, we handled 2.1 million merchandise carloads, which accounted for 62% of our total railway operating revenues. K5 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. In 2020, we handled 4.0 million intermodal units, which accounted for 27% of our total railway operating revenues. COAL – Coal revenues accounted for 11% of our total railway operating revenues in 2020. We handled 64 million tons, or 0.6 million carloads, 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 50 coal-fired power 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 properties of approximately $31 billion on a historical cost basis. Property Additions – Property additions for the past five years were as follows: 2020 2019 2018 ($ in millions) 2017 2016 Road and other property Equipment $ 1,046 $ 1,371 $ 1,276 $ 1,210 $ 1,292 595 675 448 648 513 Total $ 1,494 $ 2,019 $ 1,951 $ 1,723 $ 1,887 Our capital spending and replacement programs are and have been designed to assure the ability to provide safe, efficient, and reliable rail transportation services. K6 Equipment – At December 31, 2020, 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) 11,901,400 — 4,400 11,905,800 (Tons) 2,460,176 992,956 661,573 312,994 133,586 70,045 4,631,330 Owned Leased Total 3,060 138 4 3,202 18,958 8,723 5,951 2,851 1,494 1,559 39,536 33,865 18,350 5,546 2,928 2,306 62,995 — — — — 3,203 — — 617 85 4 3,909 — — 183 32 — 215 3,060 138 4 3,202 22,161 8,723 5,951 3,468 1,579 1,563 43,445 33,865 18,350 5,729 2,960 2,306 63,210 The following table indicates the number and year built for locomotives and freight cars owned at December 31, 2020: Locomotives: No. of units % of fleet Freight cars: No. of units % of fleet 2020 2019 2018 2017 2016 2011- 2015 2006- 2010 2005 & Before Total — — — — 35 1% 200 1% 15 1% — — 55 2% 470 1% 65 2% 291 9% 260 8% 2,481 77% 3,202 100% 775 2% 8,782 22% 4,840 12% 24,469 62% 39,536 100% K7 The following table shows the average age of our owned locomotive and freight car fleets at December 31, 2020 and information regarding 2020 retirements: Average age – in service Retirements Average age – retired Locomotives 25.7 years 704 units 31.3 years Freight Cars 25.6 years 6,338 units 42.7 years Track Maintenance – Of the 35,500 total miles of track on which we operate, we are responsible for maintaining 28,800 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 39% of our lines, excluding rail operated pursuant to trackage rights, carried 20 million or more gross tons per track mile during 2020. 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) 2020 2019 2018 2017 2016 418 4,785 1.8 449 5,012 2.4 416 4,594 2.2 466 5,368 2.5 518 4,984 2.3 Traffic Control – Of the 16,400 route miles we dispatch, 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, 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. HUMAN CAPITAL MANAGEMENT Workforce – We employed an average of 20,200 employees during 2020, and 19,100 employees at the end of 2020. Approximately 80% of our railroad employees – referred to as “craft” 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.” The remainder of our workforce is composed of management employees. Craft Workforce Levels and Productivity – Maintaining appropriate headcount levels for our craft-employee workforce is critical to our on-time and consistent delivery of customers’ goods and operational efficiency goals. We manage this human capital metric through forecasting tools designed to ensure the optimal level of staffing to meet business demands while controlling costs. We measure and monitor employee productivity based on gross ton miles per train and engine employee. Safety – We are dedicated to providing employees with a safe workplace and the knowledge and tools they need to work safely and return home safely every day. Our commitment to an injury-free workplace is illustrated by our “I am Coming Home” safety message, which is featured prominently in our yards, shops, and facilities and further reinforces the importance of working safely. We measure employee safety performance through internal metrics K8 such as lost-time injuries and serious injuries per 200,000 employee-hours and metrics established by the Federal Railroad Administration (FRA), such as FRA reportable injuries per 200,000 employee-hours. Given the importance of safety among our workforce and business, in 2020, our Board of Directors established a standing Safety Committee that, among other duties, reviews, monitors, and evaluates our compliance with our safety programs and practices. Attracting and Retaining Management Employees – Our talent strategy for management employees is essential to attracting strong candidates in a competitive talent environment. We evaluate the effectiveness of that strategy by studying market trends, benchmarking the attractiveness of our employee value proposition, and analyzing retention data. We also focus on driving employee engagement, which is key to increasing employee productivity, retention, and safety. We take a data-centric approach, including the use of quarterly surveys among management employees, to identify new initiatives that will help boost engagement and drive business results. Employee Development and Training – We provide a range of developmental programs, opportunities, skills, and resources for our employees to work safely and be successful in their careers. We provide hands-on training and simulation training designed to improve training effectiveness and safety outcomes. We also use modern learning and performance technologies to offer robust professional growth opportunities. Through on-demand digital course offerings, custom-built learning paths, and performance-management tools, our platforms deliver a contemporary, convenient, and inclusive approach to professional development. Diversity, Equity and Inclusion – As a leading transportation service company, we understand that competing in the global marketplace requires recruiting the most qualified, talented, and diverse people. We strive to create a diverse, equitable, and inclusive workplace where a wide range of perspectives and experiences are represented, valued, and empowered to thrive. While our current workforce reflects a broad range of backgrounds and experiences, we continue to focus on building an even more diverse workforce, using technology-driven outreach and multiple recruiting relationships to maintain a robust pipeline of diverse talent. To underscore our commitment to cultivating a workplace experience where the unique experiences, perspectives, and contributions of all our people are valued, our senior management team recently signed a pledge reaffirming our commitment to diversity, equity, and inclusion. To advance that commitment, senior leaders from across the company serve on an Inclusion Leadership Council, which is accountable for setting our enterprise inclusion strategy and articulating measurable goals and actions needed to achieve them. 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. K9 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 2021. 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 we 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, 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 FRA, the USCG, U.S. Customs and Border Protection, the Department of Defense, and various state Homeland Security offices. In 2020, the COVID-19 pandemic led to cancellation of all face-to-face training, including the Safety Train Tour as part of our Operation Awareness and Response Program, as well as participation in the Transportation Community K10 Awareness and Emergency Response Program. The need to provide training to first responders did not go away. Our Hazmat Group adapted and created online training courses as well as conducted training webinars for first responders. Even with the adverse conditions of 2020, we provided rail accident response training to approximately 1,000 emergency responders, such as local police and fire personnel. 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.” REGULATORY RISKS Significant governmental legislation and regulation over commercial, tax, 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. Such additional industry regulation, as well as enactment of any new tax laws, could also negatively impact cash flows from operating activities and, therefore, could 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”) required us (and each other Class I railroad) to implement an interoperable positive train control system (PTC) on main lines over which five million or more gross tons of annual traffic and certain hazardous materials are transported, and on any main lines over which intercity or commuter rail passenger transportation is regularly provided. We completed our PTC implementation prior to the December 31, 2020 deadline. PTC is installed on 8,000 of our 19,300 routes miles. PTC is designed to prevent train-to-train collisions, speed-related derailments, and certain other accidents caused by human error, but it will not prevent all types of train accidents or incidents. The PTC system will continue to result in additional operating costs and capital expenditures, and may result in 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. K11 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. OPERATIONAL RISKS The COVID-19 pandemic could further impact us, our customers, our supply chain and our operations. The pandemic has negatively impacted the economy and continues to generate significant economic uncertainty. The magnitude and duration of the pandemic, and its impact on our customers and general economic conditions will influence the demand for our services and affect our revenues. In addition, COVID-19 could affect our operations and business continuity if a significant number of our essential employees, overall or in a key location, are quarantined from contraction of or exposure to the disease or if governmental orders prevent our operating employees or critical suppliers from working. To the extent COVID-19 adversely affects our business and financial results, it may also have the effect of heightening many of the other risks described in the risk factors included herein. 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 costs 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 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 ability to compete with other modes of transportation. Capacity constraints could negatively impact our service and operating efficiency. We could experience capacity constraints on our rail network related to increased demand for rail services, locomotive or employee shortages, severe weather, congestion on other railroads, including passenger activities, or impacts from changes to our network structure or composition. Such constraints could result in operational inefficiencies or adversely affect our operations. Significant increases in demand for rail services could result in the unavailability of qualified personnel and resources like locomotives. Changes in workforce demographics, training requirements, and availability of qualified personnel, 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 and could negatively impact our operational efficiency. 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. K12 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 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 368 million gallons of diesel fuel in 2020. 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. LITIGATION RISKS 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. A catastrophic rail accident, whether on our lines or another carrier’s, involving any or all of release of hazardous materials, freight loss, property damage, personal injury, and environmental liability could compromise critical parts of our rail network. Losses associated with such an accident involving us could exceed our insurance coverage, resulting in a material adverse effect on our liquidity. Any material changes to current litigation trends could also have a material adverse effect on our liquidity to the extent not covered by insurance. We have obtained insurance for potential losses for third-party liability and first-party property damages (see Note 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. K13 CLIMATE CHANGE RISKS 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. 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 and decrease the amount of traffic we handle. 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 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. GENERAL RISKS We may be affected by general economic conditions. Prolonged negative changes in domestic and global economic conditions, including reduced import and export volumes, could affect the producers and consumers of the commodities we carry. Economic conditions could also result in bankruptcies of one or more large customers. 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 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 also result in service interruptions, safety failures, or operational difficulties. Such a breach, or compromise, could decrease revenues, increase operating costs, including those to protect our infrastructure, impact our efficiency, or damage 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 alternative modes of transportation service. 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 and 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 of our credit rating to below investment grade, which could prohibit or restrict us from accessing external sources of short- and long-term debt financing and/or significantly increase the associated costs. Item 1B. Unresolved Staff Comments None. K14 Item 3. Legal Proceedings 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 and also consolidated in the District of Columbia. 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. In 2018, a lawsuit was filed against one of our subsidiaries by the minority owner in a jointly-owned terminal railroad company in which our subsidiary has the majority ownership. The lawsuit alleged violations of various state laws and federal antitrust laws. It is reasonably possible that we could incur a loss in the case; however, we intend to vigorously defend the case and believe that we will prevail. The potential range of loss cannot be estimated at this time. Item 4. Mine Safety Disclosures Not applicable. K15 Information About Our Executive Officers Our executive officers generally are elected and designated annually by the Board of Directors (Board) 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 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, 2021, relating to our officers. Name, Age, Present Position Business Experience During Past Five Years James A. Squires, 59, Chairman, President and Chief Executive Officer Ann A. Adams, 50, Executive Vice President and Chief Transformation Officer Vanessa Allen Sutherland, 49, Executive Vice President and Chief Legal Officer Mark R. George, 53, Executive Vice President Finance and Chief Financial Officer Cynthia M. Sanborn, 56, Executive Vice President and Chief Operating Officer Alan H. Shaw, 53, Executive Vice President and Chief Marketing Officer Clyde H. Allison, Jr., 57, Vice President and Controller Present position since October 1, 2015. 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. Present position since April 1, 2020. Served as Senior Vice President Government Relations and Chief Legal Officer from August 16, 2019 to April 1, 2020. Served as Senior Vice President Law and Chief Legal Officer from April 1, 2019 to August 16, 2019. Served as Vice President Law from June 25, 2018 to April 1, 2019. Prior to joining Norfolk Southern, served as Chairman of the U.S. Chemical Safety and Hazard Investigation Board from August 2015 to June 2018. 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 June 2019 until joining Norfolk Southern. Present position since September 1, 2020. Prior to joining Norfolk Southern, served as served as Vice President Network Planning & Operations at Union Pacific from May 2019 to September 2020 and as Regional Vice President – Western Region from February 2018 to May 2019. Previously served as Executive Vice President and Chief Operating Officer at CSX from September 2015 to November 2017. Present position since May 16, 2015. Present position since June 1, 2020. Served as Vice President and Treasurer from February 1, 2017 to June 1, 2020. Served as Vice President Internal Audit from November 1, 2013 to February 1, 2017. K16 PART II NORFOLK SOUTHERN CORPORATION AND SUBSIDIARIES Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities STOCK INFORMATION Common Stock is owned by 21,825 stockholders of record as of December 31, 2020, and is traded on the New York Stock Exchange under the symbol “NSC.” ISSUER PURCHASES OF EQUITY SECURITIES Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans or Programs(2) Maximum Number (or Approximate Dollar Value) of Shares (or Units) that may yet be Purchased under the Plans or Programs(2) Total Number of Shares (or Units) Purchased(1) Average Price Paid per Share (or Unit) $ 327,383 793,494 943,868 213.70 235.37 235.65 327,383 793,022 943,713 22,425,507 21,632,485 20,688,772 Period October 1-31, 2020 November 1-30, 2020 December 1-31, 2020 Total 2,064,745 2,064,118 (1) Of this amount, 627 represents shares tendered by employees in connection with the exercise of stock options under the stockholder-approved Long-Term Incentive Plan (LTIP). (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, 2020, 20.7 million shares remain authorized for repurchase. K17 Item 6. Selected Financial Data FIVE-YEAR FINANCIAL REVIEW 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 2020 2019 2018 ($ in millions, except per share amounts) 2017 2016 $ 9,789 $ 11,296 $ 11,458 $ 10,551 $ 9,888 6,879 3,009 7,307 3,989 7,029 3,522 7,499 3,959 6,787 3,002 153 625 2,530 106 604 3,491 67 557 3,469 156 550 3,128 136 563 2,582 517 914 $ 2,013 $ 2,722 $ 2,666 $ 5,404 $ 1,668 (2,276) 769 803 $ 7.88 $ 10.32 $ 7.84 3.76 58.67 10.25 3.60 58.87 9.58 $ 18.76 $ 9.51 3.04 57.30 18.61 2.44 57.57 5.66 5.62 2.36 42.73 $ 37,962 $ 37,923 $ 36,239 $ 35,711 $ 34,892 10,212 11,145 12,681 12,409 15,362 14,791 9,836 16,359 12,196 15,184 $ 1,494 $ 2,019 $ 1,951 $ 1,723 $ 1,887 Average number of shares outstanding (thousands) Number of stockholders at year-end Average number of employees: 255,117 21,825 263,270 23,273 277,708 24,475 287,861 25,737 293,943 27,288 Rail Nonrail Total 20,029 127 20,156 24,442 145 24,587 26,512 150 26,662 26,955 155 27,110 27,856 188 28,044 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 include the recognition of ROU assets of $433 million and $539 million at December 31, 2020 and 2019, respectively, and corresponding lease liabilities of $433 million and $538 million, respectively. See accompanying consolidated financial statements and notes thereto. K18 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations Norfolk Southern Corporation and Subsidiaries The following discussion and analysis should be read in conjunction with the Consolidated Financial Statements and Notes. OVERVIEW We are one of the nation’s premier transportation companies. Our Norfolk Southern Railway Company subsidiary operates approximately 19,300 route miles in 22 states and the District of Columbia, serves every major container port in the eastern U.S., and provides efficient connections to other rail carriers. We are a major transporter of industrial products, including agriculture, forest and consumer products, chemicals, 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. In 2020, we continued the implementation of our strategic plan, including tactical changes to our operating plan, to generate operational efficiencies, improve customer service, and deliver strong financial results. The COVID-19 pandemic caused significant economic disruption and, along with softening energy markets, reduced the demand for our services. Nevertheless, we executed on operational initiatives to generate efficiencies and lower our cost structure. In the face of economic headwinds that resulted in a year-over-year volume decline of 12%, we improved productivity by driving year-over-year average headcount down by 18%, and we increased asset utilization through rationalization of our locomotive fleet. These sustainable cost structure improvements will provide greater benefits as the economy recovers. However, there is still substantial uncertainty as to the pace of economic recovery and the continued effects of the pandemic on our results of operations. We continue to monitor the impact of the pandemic on our employees’ availability and remain committed to protecting our employees and providing excellent transportation service products for our customers. SUMMARIZED RESULTS OF OPERATIONS 2020 2019 ($ in millions, except per share amounts) 2018 2020 vs. 2019 2019 vs. 2018 (% change) Income from railway operations Net income Diluted earnings per share Railway operating ratio (percent) $ $ $ 3,002 $ 2,013 $ 7.84 $ 69.3 3,989 $ 2,722 $ 10.25 $ 64.7 3,959 2,666 9.51 65.4 (25%) (26%) (24%) 7% 1% 2% 8% (1%) Income from railway operations declined in 2020 compared to 2019 as railway operating revenues fell 13% which exceeded a 7% reduction in operating expenses. Railway operating revenues declined as lower customer demand resulted in volume reductions. Additionally, negative mix and lower fuel surcharge revenue, partially offset by increased pricing, led to lower revenue per unit. Railway operating expenses decreased due to declines in fuel price and consumption, reduced employment levels, lower volumes and operational efficiency improvements. Additionally, 2020 results were adversely impacted by a loss on asset disposal of $385 million related to locomotives sold, and by a $99 million impairment charge related to an equity method investment. For more information on the impact of these charges, see Notes 7 and 6, respectively. Income from railway operations rose in 2019 compared to 2018 as a 3% reduction in railway operating expenses more than offset the impact of a 1% decline in railway operating revenues. In addition to higher income from railway operations, net income and diluted earnings per share growth in 2019 also benefited from a lower effective K19 tax rate. Our continuing share repurchase program contributed to diluted earnings per share growth that exceeded that of net income. The following tables adjust our 2020 U.S. Generally Accepted Accounting Principles (“GAAP”) financial results to exclude the effects of the aforementioned charges. The income tax effects on the non-GAAP adjustments were calculated based on the applicable tax rates to which the non-GAAP adjustments relate. We use these non-GAAP financial measures internally and believe this information provides useful supplemental information to investors to facilitate making period-to-period comparisons by excluding the 2020 charges. While we believe that these non- GAAP financial measures are useful in evaluating our business, this information should be considered as supplemental in nature and is not meant to be considered in isolation from, or as a substitute for, the related financial information prepared in accordance with GAAP. In addition, these non-GAAP financial measures may not be the same as similar measures presented by other companies. Non-GAAP Reconciliation for 2020 Reported 2020 (GAAP) Loss on Asset Disposal Investment Impairment Adjusted 2020 (non-GAAP) ($ in millions, except per share amounts) Railway operating expenses Income from railway operations Income before income taxes Income taxes Net income Diluted earnings per share Railway operating ratio (percent) $ $ $ $ $ $ 6,787 $ 3,002 $ 2,530 $ 517 $ 2,013 $ 7.84 $ 69.3 (385) $ 385 $ 385 $ 97 $ 288 $ 1.12 $ (3.9) (99) $ 99 $ 99 $ 25 $ 74 $ 0.29 $ (1.0) 6,303 3,486 3,014 639 2,375 9.25 64.4 In the table below, references to 2020 results and related comparisons use the adjusted, non-GAAP results from the table above. Adjusted 2020 (non-GAAP) 2019 ($ in millions, except per share amounts) 2018 Adjusted 2020 (non-GAAP) vs. 2019 2019 vs. 2018 (% change) Railway operating expenses Income from railway operations Income before income taxes Income taxes Net income Diluted earnings per share Railway operating ratio (percent) $ $ $ $ $ $ 6,303 $ 3,486 $ 3,014 $ 639 $ 2,375 $ 9.25 $ 64.4 7,307 $ 3,989 $ 3,491 $ 769 $ 2,722 $ 10.25 $ 64.7 7,499 3,959 3,469 803 2,666 9.51 65.4 (14%) (13%) (14%) (17%) (13%) (10%) —% (3%) 1% 1% (4%) 2% 8% (1%) K20 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. Merchandise: Agriculture, forest and consumer products Chemicals Metals and construction Automotive Merchandise Intermodal Coal Total Merchandise: Agriculture, forest and consumer products Chemicals Metals and construction Automotive Merchandise Intermodal Coal Total Merchandise: Agriculture, forest and consumer products Chemicals Metals and construction Automotive Merchandise Intermodal Coal Total 2020 Revenues 2019 ($ in millions) 2018 2020 vs. 2019 2019 vs. 2018 (% change) $ $ 2,116 $ 1,809 1,333 830 6,088 2,654 1,047 9,789 $ 2,256 $ 2,092 1,461 994 6,803 2,824 1,669 11,296 $ 2,188 2,083 1,482 991 6,744 2,893 1,821 11,458 (6%) (14%) (9%) (16%) (11%) (6%) (37%) (13%) 3% —% (1%) —% 1% (2%) (8%) (1%) 2020 Units 2019 (in thousands) 2018 2020 vs. 2019 2019 vs. 2018 (% change) 704.4 482.0 601.2 329.7 2,117.3 3,992.1 574.1 6,683.5 763.7 588.9 685.1 394.7 2,432.4 4,207.2 914.0 7,553.6 790.7 604.7 719.8 403.9 2,519.1 4,375.7 1,033.5 7,928.3 (8%) (18%) (12%) (16%) (13%) (5%) (37%) (12%) (3%) (3%) (5%) (2%) (3%) (4%) (12%) (5%) 2020 Revenue per Unit 2019 ($ per unit) 2018 2020 vs. 2019 2019 vs. 2018 (% change) $ 3,004 $ 3,753 2,216 2,518 2,875 665 1,824 1,465 2,953 $ 3,553 2,133 2,517 2,797 671 1,826 1,495 2,767 3,444 2,059 2,453 2,677 661 1,762 1,445 2% 6% 4% —% 3% (1%) —% (2%) 7% 3% 4% 3% 4% 2% 4% 3% K21 At the beginning of 2020, we combined the agriculture products and forest and consumer commodity groups. In addition, we also made changes in the categorization of certain other 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). Revenues decreased $1.5 billion in 2020 and $162 million in 2019 compared to the prior years. As reflected in the table below, lower revenues for both years were the result of decreased volumes and lower fuel surcharge revenue, partially offset by pricing gains. The table below reflects the components of the revenue change by major commodity group. 2020 vs. 2019 Increase (Decrease) 2019 vs. 2018 Increase (Decrease) ($ in millions) Merchandise Intermodal Coal Merchandise Intermodal Coal $ (881) $ (144) $ (621) $ (232) $ (111) $ (210) (92) (124) (13) (14) (30) (35) 258 98 12 305 72 93 $ (715) $ (170) $ (622) $ 59 $ (69) $ (152) Volume Fuel surcharge revenue Rate, mix and other Total Approximately 90% of our revenue base is covered by contracts that include negotiated fuel surcharges. These revenues totaled $349 million, $578 million, and $657 million in 2020, 2019, and 2018, respectively. MERCHANDISE revenues decreased in 2020 but increased in 2019 compared with the prior years. In 2020, revenues decreased due to volume declines in all commodity groups which were partially offset by higher average revenue per unit, driven by pricing gains. 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. For 2021, merchandise revenues are expected to increase, the result of higher volume as the market continues to recover from the impact of the COVID-19 pandemic and increased revenue per unit driven by pricing gains. Agriculture, forest and consumer products revenues decreased in 2020 but increased in 2019 compared with the prior years. In 2020, the decline was the result of reduced volume partially offset by higher average revenue per unit, driven by pricing gains partially offset by lower fuel surcharge revenue. Volume declined due to the impact of COVID-19 on the demand for ethanol, corn, food service products, and building, industrial and commercial products. Revenue growth in 2019 was due to higher average revenue per unit, a result of pricing gains, which more than offset volume declines. Volume was down due to decreased shipments of ethanol, pulpboard, lumber, soybeans, pulp, woodchips, canned goods, and fertilizer, partially offset by increased corn shipments. In 2021, agriculture, forest and consumer products revenues are expected to rise, a result of increased volume as the economic recovery continues, and revenue per unit increases resulting from pricing gains. We expect volumes to increase in most markets led by ethanol, corn, pulpboard, and food services. Chemicals revenues fell in 2020 but rose slightly in 2019 compared with the prior years. In 2020, the decrease was the result of volume declines partially offset by higher average revenue per unit, due to pricing gains. Volume declined due to the impact from COVID-19 and ongoing disruptions in the energy market. The pandemic created an overabundance of products in the market as companies reduced stockpiles before requiring more products. Oil and petroleum shipments were negatively impacted due to reductions in gasoline/jet fuel demand and travel. In K22 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, sand, petroleum products, organic and inorganic chemicals, and plastics were partially offset by gains in crude oil and municipal waste. For 2021, chemicals revenues are anticipated to increase, as a result of increased volume and revenue per unit driven by pricing gains. We expect carloads to increase due to growth in plastics, organic chemicals, petroleum products, and solid waste which is projected to be partially offset by reduced volumes of sand, crude oil and natural gas liquids. Metals and construction revenues declined in both periods. In 2020, volume declines were partially offset by higher average revenue per unit, the result of pricing gains. Volume declines were largely the result of weakened demand due to reductions in metal and domestic vehicle production. The pandemic caused industries to suspend production which heavily impacted customers’ needs for materials and shipping of finished and semi-finished goods. These declines were partially offset by increased demand for cement. 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, scrap metal, and kaolin were partially offset by increases in aggregates shipments due to improved service and market strength. For 2021, metals and construction revenues are expected to rise, a result of increased volume and revenue per unit driven by pricing gains. As the economic recovery continues, volume growth is expected in almost all markets led by scrap metal, coil, iron and steel, and construction. Automotive revenues declined in 2020 but were flat in 2019 compared with the prior years. In 2020, revenue declines were driven by lower volume and fuel surcharge revenue, partially offset by pricing gains. The volume decline was mostly the result of unplanned automotive plant shutdowns in the first half of the year, primarily due to the COVID-19 pandemic, which was partially offset by increased demand in the second half of the year. 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 2021, automotive revenues are expected to increase as a result of higher volume as inventories continue to rebuild. INTERMODAL revenues decreased in both periods. The decline in 2020 was driven by lower volume and fuel surcharge revenue, which were partially offset by pricing gains and favorable mix. The decline in 2019 was driven by lower volume, which was partially offset by higher average revenue per unit, a result of pricing gains. For 2021, we expect intermodal revenues to rise, the result of increased demand, expected highway conversions, and higher fuel surcharge revenue. Intermodal units by market were as follows: Domestic International Total 2020 2019 (units in thousands) 2018 2020 vs. 2019 2019 vs. 2018 (% change) 2,568.7 1,423.4 2,593.5 1,613.7 2,801.1 1,574.6 (1%) (12%) (7%) 2% 3,992.1 4,207.2 4,375.7 (5%) (4%) Domestic volume fell in both periods. While volume rebounded in the second half of 2020 due to inventory replenishment and a strong peak season, volume for the year was challenged by supply chain disruptions related to K23 COVID-19 and strong over-the-road competition in the first half of the year. Volume was challenged in 2019 by stronger over-the-road competition. For 2021, we expect higher domestic volume driven by growth from new and existing customers and continued highway conversions. International volume fell in 2020, but rose in 2019. The decline in 2020 resulted from supply chain disruptions due to COVID-19. The rise in 2019 was due to increased demand from new and existing customers partially offset by lower shipments due to tariff concerns. For 2021, we expect international volume growth as demand and trade continue to recover. COAL revenues decreased in both periods. The decrease in 2020 was a result of significant volume declines. The decrease in 2019 was a result of lower volume, which was partially offset by higher average revenue per unit, driven by pricing gains. For 2021, we expect coal revenues to decline. We anticipate overall coal volume to be down as continued declines in utility are projected to more than offset domestic metallurgical and export gains. As shown in the following table, total tonnage decreased in both periods. 2020 2019 (tons in thousands) 2018 2020 vs. 2019 2019 vs. 2018 (% change) Utility Export Domestic metallurgical Industrial 32,479 18,900 9,441 3,566 60,278 23,324 13,562 4,655 65,688 28,046 15,500 5,410 (46%) (19%) (30%) (23%) (8%) (17%) (13%) (14%) Total 64,386 101,819 114,644 (37%) (11%) Utility coal tonnage decreased in both periods. The decline in 2020 was due to low natural gas prices, diminished industrial and commercial electricity demand, and high stockpiles. The decline in 2019 was due to continued headwinds from low natural gas prices and additional natural gas and renewable energy generating capacity, which were slightly offset by customer inventory rebuilding. For 2021, utility coal tonnage is expected to decrease as a result of high stockpiles and continued pressure from natural gas and renewable energy. Export coal tonnage decreased in both periods. The decline in 2020 was a result of weak seaborne pricing, COVID-19-related global disruptions, and import restrictions. The decline in 2019 was a result of weak thermal seaborne pricing and coal supply disruptions at certain mines. For 2021, export coal tonnage is expected to increase due to the global recovery from COVID-19. Domestic metallurgical coal tonnage was down in both years. The decline in 2020 was a reflection of continued reduced domestic steel demand which led to idled customer facilities and lower production. The decline in 2019 was a reflection of challenging overall market conditions including softening domestic steel demand, customer sourcing changes, and plant outages. For 2021, domestic metallurgical coal tonnage is expected to increase due to the recovery from COVID-19. K24 Industrial coal tonnage decreased in both years driven by pressure from natural gas conversions and customer sourcing changes. For 2021, industrial coal tonnage is expected to decrease as a result of continued pressure from natural gas conversions and customer sourcing changes. Railway Operating Expenses Railway operating expenses summarized by major classifications were as follows: 2020 2019 ($ in millions) 2018 2020 vs. 2019 2019 vs. 2018 (% change) Compensation and benefits Purchased services and rents Fuel Depreciation Materials and other Loss on asset disposal $ 2,373 $ 1,687 535 1,154 653 385 2,751 $ 1,725 953 1,138 740 — 2,925 1,730 1,087 1,102 655 — (14%) (2%) (44%) 1% (12%) (6%) —% (12%) 3% 13% Total $ 6,787 $ 7,307 $ 7,499 (7%) (3%) In 2020, expenses fell as our strategic initiatives to improve productivity and asset utilization resulted in lower compensation and benefits expense, declines in fuel consumption, reduced purchased services, and lower materials expense. Fuel expense also declined due to lower prices. These expense reductions were partially offset by a loss on asset disposal of $385 million related to locomotives sold, and a $99 million impairment charge included in purchased services and rents related to an equity method investment. 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 operating property sales, increased depreciation, and a write-off of a $32 million receivable as a result of a legal dispute. Compensation and benefits decreased in 2020, reflecting changes in: • • • • • • • employment levels (down $309 million), health and welfare benefits for craft employees (down $77 million), overtime and recrews (down $54 million), incentive and stock-based compensation (down $38 million), increased pay rates (up $50 million), lower capitalized labor (additional expense of $51 million), and other (down $1 million). K25 In 2019, compensation and benefits decreased, a result of changes in: • • • • • • • employment levels (down $117 million), incentive and stock-based compensation (down $83 million), overtime and recrews (down $45 million), higher capitalized labor (reduced expense of $9 million), 2018 employment tax refund ($31 million unfavorable in 2019), pay rates (up $76 million), and other (down $27 million). Our employment averaged 20,200 in 2020, compared with 24,600 in 2019, and 26,700 in 2018. Purchased services and rents includes the costs of services purchased from external vendors and contractors, including the net costs of operating joint (or leased) facilities with other railroads and the net cost of equipment rentals. 2020 2019 ($ in millions) 2018 2020 vs. 2019 2019 vs. 2018 (% change) Purchased services Equipment rents $ 1,387 $ 300 1,434 $ 291 1,367 363 (3%) 3% 5% (20%) Total $ 1,687 $ 1,725 $ 1,730 (2%) —% The decrease in purchased services in 2020 resulted from volume-related declines and strategic initiatives to improve productivity and asset utilization, partially offset by the $99 million impairment related to an equity method investment. The increase in purchased services in 2019 was the result of increased technology-related costs, expenses associated with our headquarters relocation, and increased intermodal-related costs partially offset by decreased transportation activities. Equipment rents, which includes our cost of using equipment (mostly freight cars) owned by other railroads or private owners less the rent paid to us for the use of our equipment, increased in 2020, but decreased in 2019. In 2020, the increase was primarily the result of lower equity in TTX earnings and increased automotive equipment expenses partially offset by decreased intermodal equipment expenses. 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. Fuel expense, which includes the cost of locomotive fuel as well as other fuel used in railway operations, decreased in both periods. The change in both years was due to lower locomotive fuel prices (down 32% in 2020 and 8% in 2019) which decreased expenses by $235 million in 2020 and $82 million in 2019. Additionally, locomotive fuel consumption decreased 18% in 2020 and 4% in 2019. We consumed approximately 368 million gallons of diesel fuel in 2020, compared with 451 million gallons in 2019 and 472 million gallons in 2018. Depreciation expense increased in both periods, a reflection of reinvestment in our infrastructure, rolling stock, and technology. K26 Materials and other expenses decreased in 2020 but increased in 2019 as shown in the following table. Materials Claims Other Total 2020 2019 ($ in millions) 2018 2020 vs. 2019 2019 vs. 2018 (% change) $ 274 $ 179 200 327 $ 193 220 362 176 117 (16%) (7%) (9%) (10%) 10% 88% $ 653 $ 740 $ 655 (12%) 13% Materials expense decreased in 2020 and 2019 due primarily to lower maintenance requirements as a result of fewer locomotives and freight cars in service. Claims expense includes costs related to personal injury, property damage, and environmental matters. The 2020 expense declined, primarily the result of lower costs related to environmental remediation matters partially offset by increased derailment costs. The 2019 expense increased, primarily due to higher costs related to environmental remediation matters and personal injury claims. Other expense decreased in 2020, largely due to the absence of the 2019 write-off of a $32 million receivable as a result of a legal dispute. Additionally, 2020 benefited from reduced travel expenses resulting from the COVID-19 pandemic. These reductions were partially offset by lower gains from sales of operating property. Other expense increased in 2019, primarily due to lower gains from sales of operating property and the $32 million write-off. Gains from operating property sales amounted to $26 million, $64 million, and $158 million in 2020, 2019, and 2018, respectively. Loss on asset disposal During 2020, we recorded a $385 million charge related to the disposal of 703 locomotives, the sales of which were completed during the fourth quarter. For more information on the impact of the charge, see Note 7. Other income – net Other income – net increased in 2020 and 2019. The increase in 2020 was driven by the absence of the prior year $49 million impairment loss related to natural resource assets that were sold in 2020, lower pension and postretirement benefit expenses, and higher returns on corporate-owned life insurance (“COLI”) investments, which more than offset the absence of coal royalties and lower gains on sales of non-operating property. The increase in 2019 was driven by higher COLI returns and increased gains on sales of non-operating property, which more than offset the aforementioned $49 million impairment loss. Income taxes The effective income tax rate was 20.4% in 2020, compared with 22.0% in 2019 and 23.1% in 2018. The current year benefited from a reduction of taxes upon the resolution of our 2012 amended return (see Note 4). All three years benefited from favorable tax benefits associated with stock-based compensation and COLI returns. For 2021, we expect an effective income tax rate between 23% and 24%. K27 FINANCIAL CONDITION, LIQUIDITY, AND CAPITAL RESOURCES Cash provided by operating activities, our principal source of liquidity, was $3.6 billion in 2020, $3.9 billion in 2019, and $3.7 billion in 2018. The decline in 2020 reflects a decrease in income from railway operations offset in part by lower income tax payments. The increase in 2019 was primarily the result of improved operating results. We had working capital of $158 million and negative working capital of $219 million at December 31, 2020, and 2019, respectively. Cash and cash equivalents totaled $1.1 billion and $580 million at December 31, 2020, and 2019, respectively. We expect cash on hand combined with cash provided by operating activities will be sufficient to meet our ongoing obligations. In addition, we believe our currently-available borrowing capacity, access to additional financing, and ability to reduce property additions and shareholder distributions, including share repurchases, provide additional flexibility to meet our ongoing obligations. Nonetheless, we continue to monitor the ongoing impacts of the COVID-19 pandemic, which could lead to a reduction in cash flows from operations. Contractual obligations at December 31, 2020, include long-term debt (Note 9), interest on fixed-rate long-term debt, unconditional purchase obligations (Note 17), long-term advances from Conrail (Note 6), operating leases (Note 10), agreements with Consolidated Rail Corporation (CRC) (Note 6), and unrecognized tax benefits (Note 4). Total 2021 2022 - 2023 2024 - 2025 ($ in millions) 2026 and Subsequent Other Long-term debt principal Interest on fixed-rate long-term debt Unconditional purchase obligations Long-term advances from Conrail Operating leases Agreements with CRC Unrecognized tax benefits* $ 13,693 $ 13,515 1,120 534 504 140 22 579 $ 1,156 $ 568 600 — 101 41 — 1,062 329 — 143 82 — 958 $ 997 76 — 115 17 — 11,000 10,888 115 534 145 — — — — — — — — 22 Total $ 29,528 $ 1,889 $ 2,772 $ 2,163 $ 22,682 $ 22 * 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 $1.2 billion in 2020, compared with $1.8 billion in 2019, and $1.7 billion in 2018. The decrease in 2020 was primarily driven by lower property additions. In 2019, increased COLI activity and higher property additions were partially offset by increased proceeds from property sales. We had the ability to borrow up to $750 million against our COLI policies at December 31, 2020. 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 2021, we expect capital spending will approximate $1.6 billion. Cash used in financing activities was $1.9 billion in 2020, compared with $2.0 billion in 2019, and $2.3 billion in 2018. The change in 2020 reflects lower repurchases of Common Stock and debt repayments, partially offset by reduced proceeds from borrowings. In 2019, the decrease was impacted by fewer repurchases of Common Stock, higher debt repayments, and increased dividends. Share repurchases of $1.4 billion in 2020, $2.1 billion in 2019, and $2.8 billion in 2018 resulted in the retirement of 7.4 million, 11.3 million, and 17.1 million shares, respectively. As of December 31, 2020, 20.7 million shares K28 remain authorized by our Board of Directors for repurchase. The timing and volume of future share repurchases will be guided by our assessment of market conditions and other pertinent factors. Any near-term purchases under the program are expected to be made with internally generated cash, cash on hand, or proceeds from borrowings. In May 2020, we issued $800 million of 3.05% senior notes due 2050, resulting in $790 million in net proceeds. In May 2020, we also issued $800 million of 3.155% senior notes due 2055 in exchange for $554 million of previously issued notes ($450 million at 5.1% due 2118, $42 million at 6% due 2111, $29 million at 7.9% due 2097, $26 million at 6% due 2105, and $7 million at 7.05% due 2037). As part of the debt exchange, a $4 million loss on extinguishment was recognized in “Other income – net.” In May 2020, we also renewed and amended our accounts receivable securitization program, reducing our maximum borrowing capacity from $450 million to $400 million. The term expires in May 2021. We had no amounts outstanding at December 31, 2020 or December 31, 2019, and our available borrowing capacity was $400 million and $429 million, respectively. In March 2020, we renewed and amended our five-year credit agreement. We increased the program’s borrowing capacity from $750 million to $800 million. The amended agreement expires in 2025 and provides for borrowings at prevailing rates and includes covenants. We had no amounts outstanding under this facility at December 31, 2020 or December 31, 2019. 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 46.2% at December 31, 2020, compared with 44.5% at December 31, 2019. 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 revenues 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 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. For 2020, we assumed a long-term investment rate of return of 8.25%, which was supported by our 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 $24 million change in annual pension expense. We review K29 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 a $17 million change in annual pension expense. 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 assumptions and estimates. 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 self-constructed 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 2020 totaled $1.2 billion. Our composite depreciation rates for 2020 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 annual depreciation expense. Personal Injury Claims expense, included in “Materials and other” in the Consolidated Statements of Income, includes our estimate of costs for personal injuries. 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. The accuracy of our estimate of the liability 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. See Note 17 for a more detailed discussion of the assumptions and estimates we use for personal injury. Income Taxes Our net deferred tax liability totaled $6.9 billion at December 31, 2020 (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 $57 million valuation allowance on $509 million of deferred tax assets as of December 31, 2020, reflecting the expectation that almost all of these assets will be realized. K30 OTHER MATTERS Labor Agreements Approximately 80% of our railroad employees are covered by collective bargaining agreements with various labor unions. Pursuant to the Railway Labor Act, these agreements remain in effect until new agreements are reached, or until the bargaining procedures mandated by the Railway Labor Act are completed. We largely bargain nationally in concert with other major railroads, represented by the National Carriers Conference Committee. Moratorium provisions in the labor agreements govern when the railroads and unions may propose changes to the agreements. The current 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 and direct negotiations are ongoing. Market Risks At December 31, 2020, 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, 2020 and amounts to an increase of approximately $2.0 billion to the fair value of our debt at December 31, 2020. 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. K31 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.” K32 Item 8. Financial Statements and Supplementary Data INDEX TO FINANCIAL STATEMENTS Report of Management Reports of Independent Registered Public Accounting Firm Consolidated Statements of Income Years ended December 31, 2020, 2019, and 2018 Consolidated Statements of Comprehensive Income Years ended December 31, 2020, 2019, and 2018 Consolidated Balance Sheets At December 31, 2020 and 2019 Consolidated Statements of Cash Flows Years ended December 31, 2020, 2019, and 2018 Consolidated Statements of Changes in Stockholders’ Equity Years ended December 31, 2020, 2019, and 2018 Notes to Consolidated Financial Statements Index to Financial Statement Schedule in Item 15 Page K34 K35 K39 K40 K41 K42 K43 K44 K82 K33 Report of Management February 4, 2021 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’s internal control over financial reporting is effective, management regularly assesses such controls and did so most recently as of December 31, 2020. 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 we maintained effective internal control over financial reporting as of December 31, 2020. KPMG LLP, independent registered public accounting firm, has audited our financial statements and issued an attestation report on our internal control over financial reporting as of December 31, 2020. /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/ Clyde H. Allison, Jr. Clyde H. Allison, Jr. Vice President and Controller K34 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, 2020, 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, 2020, 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, 2020 and 2019, 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, 2020, 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 4, 2021, 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. K35 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. Atlanta, Georgia February 4, 2021 /s/ KPMG LLP KPMG LLP K36 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, 2020 and 2019, 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, 2020, 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, 2020 and 2019, and the results of its operations and its cash flows for each of the years in the three‑year period ended December 31, 2020, 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, 2020, 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 4, 2021 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. K37 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 judgments. 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. Sufficiency of audit evidence related to the 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 $31,345 million in net book value of properties at December 31, 2020 and has recorded $1,494 million in property additions for the year ended December 31, 2020. 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 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 evaluation of the sufficiency of audit evidence related to capitalization of property expenditures as a critical audit matter. Subjective auditor judgment was required in determining procedures and evaluating audit results related to the capitalization of purchased services and compensation due to their usage for both self-constructed assets and repairs and maintenance. The following are the primary procedures we performed to address this critical audit matter. We applied auditor judgment to determine the nature and extent of procedures to be performed over capitalized property expenditures. We evaluated the design and tested the operating effectiveness of certain internal controls over the Company’s process to capitalize property expenditures, including controls over the determination of whether purchased services and compensation expenditures extend an asset’s useful life or increase its utility. For a sample of property addition expenditures, we inquired and inspected support to evaluate that the expenditure extended an asset’s useful life or increased its utility. We evaluated the sufficiency of audit evidence obtained by assessing the results of the procedures performed, including the appropriateness of the nature of such evidence. /s/ KPMG LLP KPMG LLP We have served as the Company’s auditor since 1982. Atlanta, Georgia February 4, 2021 K38 Norfolk Southern Corporation and Subsidiaries Consolidated Statements of Income Years ended December 31, 2019 ($ in millions, except per share amounts) 2020 2018 Railway operating revenues $ 9,789 $ 11,296 $ 11,458 Railway operating expenses: Compensation and benefits Purchased services and rents Fuel Depreciation Materials and other Loss on asset disposal 2,373 1,687 535 1,154 653 385 2,751 1,725 953 1,138 740 — 2,925 1,730 1,087 1,102 655 — Total railway operating expenses 6,787 7,307 7,499 Income from railway operations 3,002 3,989 3,959 Other income – net Interest expense on debt 153 625 106 604 67 557 Income before income taxes 2,530 3,491 3,469 Income taxes Net income Earnings per share: Basic Diluted 517 769 803 $ 2,013 $ 2,722 $ 2,666 $ 7.88 $ 7.84 10.32 $ 10.25 9.58 9.51 See accompanying notes to consolidated financial statements. K39 Norfolk Southern Corporation and Subsidiaries Consolidated Statements of Comprehensive Income 2020 Years ended December 31, 2019 ($ in millions) 2018 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) $ 2,013 $ 2,722 $ 2,666 (140) 2 101 (4) (148) (9) (138) 97 (157) 35 (25) 38 Other comprehensive income (loss), net of tax (103) 72 (119) Total comprehensive income $ 1,910 $ 2,794 $ 2,547 See accompanying notes to consolidated financial statements. K40 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 $11,985 and $11,982, 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 $1.00 per share par value, 1,350,000,000 shares authorized; outstanding 252,095,082 and 257,904,956 shares, respectively, net of treasury shares Additional paid-in capital Accumulated other comprehensive loss Retained income Total stockholders’ equity At December 31, 2019 2020 ($ in millions) $ 1,115 $ 848 221 134 2,318 3,590 31,345 709 580 920 244 337 2,081 3,428 31,614 800 $ 37,962 $ 37,923 $ 1,016 $ 263 302 579 2,160 12,102 1,987 6,922 1,428 229 327 316 2,300 11,880 1,744 6,815 23,171 22,739 254 2,248 (594) 12,883 259 2,209 (491) 13,207 14,791 15,184 Total liabilities and stockholders’ equity $ 37,962 $ 37,923 See accompanying notes to consolidated financial statements. K41 Norfolk Southern Corporation and Subsidiaries Consolidated Statements of Cash Flows Years ended December 31, 2018 2019 2020 ($ in millions) Cash flows from operating activities: Net income Reconciliation of net income to net cash provided by operating activities: $ 2,013 $ 2,722 $ 2,666 Depreciation Deferred income taxes Gains and losses on properties Loss on asset disposal Impairment of investment Changes in assets and liabilities affecting operations: Accounts receivable Materials and supplies Other current assets Current liabilities other than debt Other – net 1,154 142 (39) 385 99 71 23 3 34 (248) 1,139 330 (42) — — 87 (37) (4) (185) (118) 1,104 173 (171) — — (70) 15 (46) 223 (168) Net cash provided by operating activities 3,637 3,892 3,726 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. K42 (1,494) 333 (13) (1) (2,019) 377 (18) (104) (1,951) 204 (10) 99 (1,175) (1,764) (1,658) (960) 69 (1,439) 784 (381) — (949) 27 (2,099) 2,192 (1,188) 23 (844) 40 (2,781) 2,023 (750) — (1,927) (1,994) (2,312) 134 (244) 535 580 $ 1,115 $ 580 $ 446 690 446 $ 577 $ 311 555 $ 543 496 519 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, 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 2,666 (119) (17) 1 (125) 87 (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 2,722 72 (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 Comprehensive income: Net income Other comprehensive loss Total comprehensive income Dividends on Common Stock, $3.76 per share Share repurchases Stock-based compensation 2,013 (103) (7) 2 (59) 98 (960) (1,373) (4) 2,013 (103) 1,910 (960) (1,439) 96 Balance at December 31, 2020 $ 254 $ 2,248 $ (594) $ 12,883 $ 14,791 See accompanying notes to consolidated financial statements. K43 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 19,300 route miles primarily in the Southeast, 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 2020): intermodal (27%); agriculture, forest and consumer products (22%); chemicals (18%); metals and construction (14%); coal (11%); and, automotive (8%). 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 revenues are 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 our best estimate of projected liability, which is based on historical activity, current shipment counts and expectation of future activity. Certain ancillary services, such as switching, demurrage and other incidental activities, may be provided to customers under their transportation contracts. 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 $6 million and $9 million at December 31, 2020 and 2019, 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. K44 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 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 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. K45 When depreciable operating road and equipment assets are sold or retired in the ordinary course of business, the cost of the assets, net of sales 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 are recognized in income from railway operations. We review the carrying amount of properties whenever events or changes in circumstances indicate that such carrying amount may not be recoverable based on future undiscounted cash flows. Assets that are deemed impaired as a result of such review are recorded at the lower of carrying amount or fair value. New Accounting Pronouncements In 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 U.S. federal corporate income tax rate enacted in December 2017. In the first quarter of 2018, we adopted the provisions of ASU 2018-02 resulting in an increase to “Accumulated other comprehensive loss” of $88 million and a corresponding increase to “Retained income,” with no impact on “Total stockholders’ equity.” In February 2016, the FASB issued ASU 2016-02, “Leases (Topic 842),” and subsequent amendments, which replaced existing lease guidance in GAAP. We adopted the standard on January 1, 2019 using the modified retrospective method and used the effective date as our date of initial application. See Note 10 for additional information. In June 2016, the FASB issued ASU 2016-13, “Credit Losses - Measurement of Credit Losses on Financial Instruments,” which replaced the current incurred loss impairment method with a method that reflects expected credit losses. Short-term and long-term financial assets, as defined by the standard, are impacted by immediate recognition of estimated credit losses in the financial statements, reflecting the net amount expected to be collected. Historically, losses associated from the inability to collect on accounts receivable have been insignificant, with little divergence in collection trends through varying economic cycles. We adopted the standard on January 1, 2020 and there was no material impact to the financial statements upon adoption. In December 2019, the FASB issued ASU 2019-12, “Simplifying the Accounting for Income Taxes,” which adds new guidance to simplify the accounting for income taxes, changes the accounting for certain income tax transactions, and makes other minor changes. We adopted the standard on January 1, 2021 and do not expect it to have a material effect on our financial statements. K46 2. Railway Operating Revenues The following table disaggregates our revenues by major commodity group: Merchandise: Agriculture, forest and consumer products Chemicals Metals and construction Automotive Merchandise Intermodal Coal Total 2020 2019 ($ in millions) 2018 $ 2,116 $ 1,809 1,333 830 6,088 2,654 1,047 2,256 $ 2,092 1,461 994 6,803 2,824 1,669 2,188 2,083 1,482 991 6,744 2,893 1,821 $ 9,789 $ 11,296 $ 11,458 At the beginning of 2020, we combined the agriculture products and forest and consumer commodity groups. In addition, we also made changes in the categorization of certain other commodity groups within Merchandise. Specifically, certain commodities were shifted between agriculture, forest and consumer products; chemicals; and, metals and construction. We made these changes to better align our commodity groups as a result of an organizational realignment. Prior period railway operating revenues have been reclassified to conform to the current presentation. We recognize the amount of revenues 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 us for the transport of goods. These performance obligations are satisfied as the shipments move from origin to destination. As such, transportation revenues are 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 revenues associated with in-process shipments at period-end are recorded based on the estimated percentage of service completed. We had no material remaining performance obligations at December 31, 2020 and 2019. We may provide customers ancillary services, such as switching, demurrage and other incidental activities, under their transportation contracts. These are distinct performance obligations that are recognized at a point in time when the services are performed or as contractual obligations are met. These revenues are included within each of the commodity groups and represent approximately 5% of total “Railway operating revenues” on the Consolidated Statements of Income for the years ended December 31, 2020 and 2019, and approximately 4% for the year ended December 31, 2018. Revenues related to interline transportation services that involve another railroad are reported on a net basis. Therefore, the portion of the amount that relates to another party is not reflected in revenues. K47 Under the typical 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, 2020 2019 ($ in millions) $ $ 629 $ 219 682 238 848 $ 920 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 at both December 31, 2020 and 2019. In 2019, we wrote off a $32 million non-current customer receivable resulting from a legal dispute and this expense is included in “Materials and other” on the Consolidated Statements of Income. We do not have any material contract assets or liabilities at December 31, 2020 and 2019. 3. Other Income – Net 2020 2019 ($ in millions) 2018 $ 91 $ 85 (23) 63 $ 69 (26) 61 (10) 16 $ 153 $ 106 $ 67 2020 2019 ($ in millions) 2018 $ 307 $ 68 375 356 $ 83 439 111 31 142 280 50 330 499 131 630 156 17 173 $ 517 $ 769 $ 803 Pension and other postretirement benefits (Note 12) Corporate-owned life insurance – net Other Total 4. Income Taxes Current: Federal State Total current taxes Deferred: Federal State Total deferred taxes Income taxes K48 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: 2020 2019 Amount % Amount % Amount % ($ in millions) 2018 Federal income tax at statutory rate State income taxes, net of federal tax effect Excess tax benefits on stock-based compensation Other, net $ 531 85 (39) (60) 21.0 $ 3.3 (1.5) (2.4) 733 110 (29) (45) 21.0 $ 3.1 (0.8) (1.3) 728 120 (22) (23) 21.0 3.5 (0.7) (0.7) Income taxes $ 517 20.4 $ 769 22.0 $ 803 23.1 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, 2020 2019 ($ in millions) $ 218 $ 93 198 509 (57) 452 222 89 202 513 (54) 459 (6,820) (554) (7,374) (6,714) (560) (7,274) $ (6,922) $ (6,815) 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 $3 million in 2020, $4 million in 2019, and $6 million in 2018. K49 Uncertain Tax Positions A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows: December 31, 2020 2019 ($ in millions) Balance at beginning of year $ 24 $ 21 Additions based on tax positions related to the current year Settlements with taxing authorities Lapse of statutes of limitations 4 (4) (2) 4 — (1) Balance at end of year $ 22 $ 24 Included in the balance of unrecognized tax benefits at December 31, 2020 are potential benefits of $17 million that would affect the effective tax rate if recognized. Unrecognized tax benefits are adjusted in the period in which new information about a tax position becomes available or the final outcome differs from the amount recorded. The statute of limitations on Internal Revenue Service (IRS) examinations has expired for all years prior to 2017. The IRS accepted our 2012 amended income tax return. As a result, we received a refund of $46 million and recognized a tax benefit of $19 million in 2020. State income tax returns generally are subject to examination for a period of three to four years after filing 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, and • 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. K50 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, 2020 or 2019. The carrying amounts and estimated fair values, based on Level 1 inputs, of long-term debt consist of the following at December 31: 2020 2019 Carrying Amount Fair Value Carrying Amount Fair Value ($ in millions) Long-term debt, including current maturities $ (12,681) $ (16,664) $ (12,196) $ (14,806) 6. Investments Long-term investments: Equity method investments: Conrail Inc. TTX Company 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, 2020 2019 ($ in millions) $ 1,446 $ 1,387 749 510 2,646 798 418 2,662 902 26 767 15 $ 3,590 $ 3,428 Through a limited liability company, we and CSX jointly own Conrail Inc. (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. 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 $129 million in 2020, $149 million in 2019, and $150 million in 2018. Future payments for access fees due to CRC under the Shared Assets Areas agreements are as follows: $41 million in each of 2021 through 2023, and $17 million in 2024. 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. K51 In 2020, we converted $254 million of accounts payable into long-term advances from Conrail included in “Other liabilities.” “Accounts payable” includes $56 million at December 31, 2020, and $264 million at December 31, 2019, due to Conrail for the operation of the Shared Assets Areas. “Other liabilities” includes $534 million and $280 million at December 31, 2020 and 2019, respectively, for long-term advances from Conrail, maturing in 2050 that bear interest at an average rate of 1.31%. At December 31, 2020, the difference between our investment in Conrail and our share of Conrail’s underlying net equity was $494 million. Our equity in Conrail’s earnings, net of amortization, was $58 million for 2020, $53 million for 2019, and $55 million for 2018. These amounts offset the costs of operating the Shared Assets Areas and are included in “Purchased services and rents.” Equity in Conrail’s earnings is included in the “Other – net” line item within operating activities in the Consolidated Statements of Cash Flows. Investment in TTX We and eight other North American railroads jointly own TTX Company (TTX), a railcar pooling company that provides its owner-railroads with standardized fleets of intermodal, automotive, and general use railcars at stated rates. We have a 19.65% ownership interest in TTX. Expenses incurred for use of TTX equipment are included in “Purchased services and rents.” This amounted to $250 million, $244 million, and $262 million, respectively, for the years ended December 31, 2020, 2019 and 2018. Our equity in TTX’s earnings offsets these costs and totaled $48 million for 2020, $58 million for 2019, and $61 million for 2018. Equity in TTX’s earnings is included in the “Other – net” line item within operating activities in the Consolidated Statements of Cash Flows. Impairment of Investment In 2020, we recorded an other-than-temporary impairment of $99 million related to the carrying value of an equity method investment. This non-cash impairment charge is recorded in “Purchased services and rents” on the 2020 Consolidated Statement of Income and had a $74 million impact on net income. K52 7. Properties December 31, 2020 Cost Accumulated Depreciation ($ 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 $ 2,394 $ — $ 2,394 — 7,153 5,685 2,973 297 14,320 30,428 5,478 2,780 732 333 1,094 10,417 (1,892) (1,601) (774) — (3,926) (8,193) (1,911) (1,023) (391) — (399) (3,724) 2.35% 3.41% 2.76% — 2.71% 3.56% 2.59% 9.86% — 4.70% 5,261 4,084 2,199 297 10,394 22,235 3,567 1,757 341 333 695 6,693 Other property 91 (68) 23 2.24% Total properties $ 43,330 $ (11,985) $ 31,345 K53 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) 2.30% 3.37% 2.72% — 2.71% 3.66% 2.45% 9.68% — 4.89% 5,119 4,040 2,145 360 10,475 22,139 3,861 1,840 377 291 694 7,063 Other property 96 (69) 27 1.05% Total properties $ 43,596 $ (11,982) $ 31,614 (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. In 2020, we sold $88 million of natural resource assets that were included in “Other current assets” on the Consolidated Balance Sheet at December 31, 2019. We recorded a $49 million impairment loss in 2019 related to these assets, which is reflected in “Gains and losses on properties” in the Consolidated Statement of Cash Flows for the year ended December 31, 2019. Loss on Asset Disposal In 2020, we sold 703 locomotives deemed excess and no longer needed for railroad operations. We evaluated these locomotive retirements and concluded they were abnormal (see Note 1). Accordingly, we recorded a $385 million loss to adjust their carrying amount to their estimated fair value, which resulted in a $97 million tax benefit. Capitalized Interest Total interest cost incurred on debt was $639 million, $620 million, and $574 million during 2020, 2019 and 2018, respectively, of which $14 million, $16 million, and $17 million was capitalized during 2020, 2019 and 2018, respectively. K54 8. Current Liabilities Accounts payable: Accounts and wages payable Casualty and other claims (Note 17) Vacation liability Due to Conrail (Note 6) Other Total Other current liabilities: Interest payable Current operating lease liability (Note 10) Pension benefit obligations (Note 12) Other Total 9. Debt Debt maturities are presented below: Notes and debentures, with weighted-average interest rates as of December 31, 2020: 3.65% maturing to 2025 4.32% maturing 2026 to 2031 4.11% maturing 2037 to 2055 6.07% maturing 2097 to 2118 Finance leases Discounts, premiums, and debt issuance costs Total debt Less current maturities December 31, 2020 2019 ($ in millions) $ 552 $ 182 121 56 105 710 212 136 264 106 $ 1,016 $ 1,428 $ 141 $ 89 19 53 149 97 18 63 $ 302 $ 327 December 31, 2020 2019 ($ in millions) $ 2,673 $ 2,714 7,497 784 25 (1,012) 12,681 3,048 2,714 5,904 1,331 8 (809) 12,196 (579) (316) Long-term debt excluding current maturities $ 12,102 $ 11,880 K55 Long-term debt maturities subsequent to 2021 are as follows: 2022 2023 2024 2025 2026 and subsequent years Total $ 553 603 403 555 9,988 $ 12,102 In May 2020, we issued $800 million of 3.05% senior notes due 2050, resulting in $790 million in net proceeds. In May 2020, we also issued $800 million of 3.155% senior notes due 2055 in exchange for $554 million of previously issued notes ($450 million at 5.1% due 2118, $42 million at 6% due 2111, $29 million at 7.9% due 2097, $26 million at 6% due 2105, and $7 million at 7.05% due 2037). As part of the debt exchange, a $4 million loss on extinguishment was recognized in “Other income – net.” In May 2020, we also renewed and amended our accounts receivable securitization program, reducing our maximum borrowing capacity from $450 million to $400 million. The term expires in May 2021. We had no amounts outstanding at either December 31, 2020 or 2019, and our available borrowing capacity was $400 million and $429 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. Credit Agreement and Debt Covenants In March 2020, we renewed and amended our five-year credit agreement. We increased the program’s borrowing capacity from $750 million to $800 million. The amended agreement expires in 2025 and provides for borrowings at prevailing rates and includes covenants. We had no amounts outstanding under this facility at either December 31, 2020, or 2019. 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 Sheet as of January 1, 2019. There were no adjustments to “Retained income” on adoption. The 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. K56 The 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 are variable lease agreements that include usage-based payments. These agreements contain 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. Our long-term lease agreements do not contain any material restrictive covenants. Our equipment leases have remaining terms of less than 1 year to 5 years and our lines of road and land leases have remaining terms of less than 1 year to 137 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 Sheets are 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, 2020 2019 ($ in millions) $ $ $ 433 $ 539 89 $ 344 97 441 433 $ 538 The components of total lease expense, primarily included in “Purchased services and rents,” are as follows: Operating lease expense Variable lease expense Short-term lease expense Total lease expense 2020 2019 ($ in millions) $ 109 $ 42 9 114 57 5 $ 160 $ 176 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 the second half of 2021. The initial lease term is five years K57 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 is as follows: December 31, 2020 2019 Weighted-average remaining lease term (years) on operating leases 8.18 8.25 Weighted-average discount rates on operating leases 3.50% 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. During 2020 and 2019, respectively, ROU assets obtained in exchange for new operating lease liabilities were $22 million and $49 million. Cash paid for amounts included in the measurement of lease liabilities was $109 million and $114 million in 2020 and 2019, respectively, 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 $15 million. Future minimum lease payments under non-cancellable operating leases are as follows: 2021 2022 2023 2024 2025 2026 and subsequent years Total lease payments Less: Interest Present value of lease liabilities December 31, 2020 ($ in millions) $ $ 101 76 67 58 57 145 504 71 433 K58 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 Operating lease expense accounted for under ASC 840 “Leases” in 2018 included $102 million for minimum rents and $102 million for contingent rents. Contingent rents are primarily comprised of usage-based payments for equipment under service contracts. 11. Other Liabilities Long-term advances from Conrail (Note 6) Non-current operating lease liability (Note 10) Net pension benefit obligations (Note 12) Net other postretirement benefit obligations (Note 12) Casualty and other claims (Note 17) Deferred compensation Other Total 12. Pensions and Other Postretirement Benefits December 31, 2020 2019 ($ in millions) $ 534 $ 344 340 306 169 107 187 280 441 302 287 171 104 159 $ 1,987 $ 1,744 We have both funded and unfunded defined benefit pension plans covering eligible employees. We also provide specified health care 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. Eligible retired participants and their spouses 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. K59 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 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 2019 2020 Other Postretirement Benefits 2020 2019 ($ in millions) $ 2,588 $ 40 74 294 — (151) 2,845 2,371 $ 35 93 235 — (146) 2,588 2,462 345 19 (151) 2,675 2,105 485 18 (146) 2,462 457 $ 6 12 35 — (39) 471 170 21 13 (39) 165 466 6 17 28 (18) (42) 457 158 34 20 (42) 170 Funded status at end of year $ (170) $ (126) $ (306) $ (287) Amounts recognized in the Consolidated Balance Sheets: Other assets Other current liabilities Other liabilities $ 189 $ (19) (340) 194 $ (18) (302) — $ — (306) — — (287) Net amount recognized $ (170) $ (126) $ (306) $ (287) Amounts included in accumulated other comprehensive loss (before tax): Net loss Prior service cost (benefit) $ 869 $ — 781 $ 1 57 $ (228) 29 (253) Our accumulated benefit obligation for our defined benefit pension plans is $2.6 billion and $2.3 billion at December 31, 2020 and 2019, respectively. Our unfunded pension plans, included above, which in all cases have no assets, had projected benefit obligations of $359 million and $320 million at December 31, 2020 and 2019, respectively, and had accumulated benefit obligations of $330 million and $292 million at December 31, 2020 and 2019, respectively. K60 Pension and Other Postretirement Benefit Cost Components Pension benefits: Service cost Interest cost Expected return on plan assets Amortization of net losses Amortization of prior service cost Net cost (benefit) Other postretirement benefits: Service cost Interest cost Expected return on plan assets Amortization of prior service benefit 2020 2019 ($ in millions) 2018 $ $ $ 40 $ 74 (190) 51 1 35 $ 93 (179) 43 1 39 83 (177) 57 — (24) $ (7) $ 2 6 $ 12 (14) (25) 6 $ 17 (14) (24) 7 15 (15) (24) Net benefit $ (21) $ (15) $ (17) Other Changes in Plan Assets and Benefit Obligations Recognized in Other Comprehensive Income Net loss arising during the year Amortization of net losses Amortization of prior service (cost) benefit Total recognized in other comprehensive income Total recognized in net periodic cost and other comprehensive income 2020 Pension Benefits Other Postretirement Benefits ($ in millions) $ $ $ 139 $ (51) (1) 87 $ 63 $ 28 — 25 53 32 Net losses arising during the year for both pension benefits and other postretirement benefits were due primarily to decreases in discount rates, partially offset by higher actual returns on plan assets. 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 $66 million. The estimated net losses and 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 $23 million. K61 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 2020 2019 2018 2.67% 4.21% 3.38% 4.21% 4.33% 4.21% 2.27% 3.13% 4.18% 3.71% 2.92% 8.25% 4.21% 3.41% 2.69% 8.00% 6.25% 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% 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, 2020, increases in the per capita cost of pre-Medicare covered health care benefits were assumed to be 6.00% for 2021. We assume the rate will ratably decrease to an ultimate rate of 5.0% for 2025 and remain at that level thereafter. Assumed health care cost trend rates affect the amounts reported in the 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 K62 One-percentage Point Increase Decrease ($ in millions) $ 1 $ 8 (1) (8) Asset Management Eleven investment firms manage our defined benefit pension plan’s 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 plan’s 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 plan’s 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, 2019 2020 52% 24% 22% 2% 50% 24% 24% 2% 100% 100% The other postretirement benefit plan assets consist primarily of trust-owned variable life insurance policies with an asset allocation at December 31, 2020 of 68% in equity securities and 32% in debt securities compared with 67% in equity securities and 33% in debt securities at December 31, 2019. 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 2021, we assume an 8.00% return on pension plan assets. K63 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 plan’s assets by valuation technique level, within the fair value hierarchy. There were no level 3 valued assets at December 31, 2020 or 2019. 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, 2020 Level 2 ($ in millions) Total $ 1,483 $ — $ 1,483 — — — — — — 60 399 297 146 117 24 149 — 399 297 146 117 24 149 60 $ 1,543 $ 1,132 $ 2,675 K64 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 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 $165 million and $170 million at December 31, 2020 and 2019, 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 2021, we expect to contribute approximately $19 million to our unfunded pension plans for payments to pensioners and approximately $36 million to our other postretirement benefit plans for retiree health and death benefits. We do not expect to contribute to our funded pension plan in 2021. Benefit payments, which reflect expected future service, as appropriate, are expected to be paid as follows: Pension Benefits Other Postretirement Benefits ($ in millions) $ 147 $ 146 145 145 144 719 36 35 33 32 31 142 2021 2022 2023 2024 2025 Years 2026 – 2030 K65 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 craft employees. Premiums under this plan are expensed as incurred and totaled $22 million in 2020, $31 million in 2019, and $35 million in 2018. 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, totaled $21 million in 2020, $22 million in 2019, and $23 million in 2018. 13. Stock-Based Compensation Under the stockholder-approved LTIP, the Compensation Committee (Committee), which is made up of nonemployee members of the Board, or the Chief Executive Officer (when delegated authority by such Committee), may grant stock options, stock appreciation rights (SARs), restricted stock units (RSUs), restricted shares, performance share units (PSUs), and performance shares, up to a maximum of 104,125,000 shares of our Common Stock, of which 8,995,582 remain available for future grants as of December 31, 2020. 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 for the last three years as follows: 2020 2019 2018 Granted Granted Granted Weighted- Average Grant-Date Fair Value 52.05 210.11 212.66 43,770 $ 178,190 78,830 Weighted- Average Grant-Date Fair Value 45.74 164.47 160.97 47,360 $ 219,710 102,250 Weighted- Average Grant-Date Fair Value 41.70 148.37 147.47 40,960 $ 217,290 92,314 Stock options RSUs PSUs 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. K66 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 years were: 2020 2019 ($ in millions) 2018 Stock-based compensation expense Total tax benefit $ 28 $ 44 53 $ 37 47 33 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. 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 was measured on the date of grant using the Black-Scholes 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. Historical exercise data is used to estimate the average expected option term. 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 2020, 2019, and 2018, a dividend yield of 1.76%, 2.06%, and 1.94%, respectively, was used for all vested LTIP options. The assumptions for the LTIP grants for the last three years are shown in the following table: Average expected volatility Average risk-free interest rate Average expected option term 2020 2019 2018 22% 1.47% 7.5 years 23% 2.56% 7.2 years 24% 2.55% 7.2 years K67 A summary of changes in stock options is presented below: Outstanding at December 31, 2019 Granted Exercised Forfeited Stock Options Weighted- Average Exercise Price 2,677,449 $ 43,770 (1,171,786) (23,308) 91.51 213.54 86.12 156.02 Outstanding at December 31, 2020 1,526,125 98.17 The aggregate intrinsic value of options outstanding at December 31, 2020 was $213 million with a weighted- average remaining contractual term of 4.6 years. Of these options outstanding, 1,220,685 were exercisable and had an aggregate intrinsic value of $183 million with a weighted-average exercise price of $87.75 and a weighted- average remaining contractual term of 2.9 years. The following table provides information related to options exercised for the last three years: Options exercised Total intrinsic value Cash received upon exercise Related tax benefits realized 2020 2019 ($ in millions) 2018 1,171,786 770,597 $ 144 $ 98 29 86 $ 53 18 840,175 72 58 16 At December 31, 2020, total unrecognized compensation related to options granted under the LTIP was $1 million, and is expected to be recognized over a weighted-average period of approximately 2.4 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. RSUs vested Common Stock issued net of tax withholding Related tax benefit realized 204,665 146,047 166,197 119,346 $ 4 $ 2 $ 160,200 99,968 3 2020 2019 ($ in millions) 2018 K68 A summary of changes in RSUs is presented below: Nonvested at December 31, 2019 Granted Vested Forfeited Nonvested at December 31, 2020 Weighted- Average Grant-Date Fair Value RSUs 666,172 $ 178,190 (204,665) (39,457) 127.77 210.11 130.87 171.33 600,240 148.29 At December 31, 2020, total unrecognized compensation related to RSUs was $29 million, and is expected to be recognized over a weighted-average period of approximately 2.4 years. Performance Share Units PSUs provide for awards based on the achievement of certain predetermined corporate performance goals at the end of a three-year cycle and are settled through the issuance of shares of Common Stock. All PSUs will earn out based on the achievement of performance conditions and some will also earn out based on a market condition. The market condition fair value was measured on the date of grant using a Monte Carlo simulation model. 2020 2019 ($ in millions) 2018 PSUs earned Common Stock issued net of tax withholding Related tax benefit realized 235,935 156,477 331,099 221,241 $ 7 $ 9 $ 154,189 94,399 3 A summary of changes in PSUs is presented below: Balance at December 31, 2019 Granted Earned Unearned Forfeited Balance at December 31, 2020 Weighted- Average Grant-Date Fair Value PSUs 456,510 $ 78,830 (235,935) (33,705) (25,600) 114.04 212.66 89.70 58.77 177.41 240,100 171.34 At December 31, 2020, total unrecognized compensation related to PSUs granted under the LTIP was $5 million, and is expected to be recognized over a weighted-average period of approximately 1.7 years. K69 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 2020 2019 2018 8,995,582 435,699 9,294,726 434,401 8,644,108 422,973 1,270,208 204,102 852,869 258,315 820,746 213,796 Common Stock is reported net of shares held by our consolidated subsidiaries (Treasury Shares). Treasury Shares at December 31, 2020 and 2019 amounted to 20,320,777, with a cost of $19 million at both dates. Accumulated Other Comprehensive Loss The components of “Other comprehensive income (loss)” reported in the Consolidated Statements of Comprehensive Income and changes in the cumulative balances of “Accumulated other comprehensive loss” reported in the Consolidated Balance Sheets consisted of the following: Balance at Beginning of Year Net Income (Loss) Reclassification Adjustments Balance at End of Year ($ in millions) Year ended December 31, 2020 Pensions and other postretirement liabilities Other comprehensive income of equity investees $ (421) $ (70) (125) $ 2 20 $ — (526) (68) Accumulated other comprehensive loss $ (491) $ (123) $ 20 $ (594) Year ended December 31, 2019 Pensions and other postretirement liabilities Other comprehensive loss of equity investees $ (497) $ (66) $ 61 (4) 15 $ — (421) (70) Accumulated other comprehensive loss $ (563) $ 57 $ 15 $ (491) K70 Other Comprehensive Income (Loss) “Other comprehensive income (loss)” reported in the Consolidated Statements of Comprehensive Income consisted of the following: Year ended December 31, 2020 Net loss arising during the year: Pensions and other postretirement benefits Reclassification adjustments for costs included in net income Subtotal Other comprehensive income of equity investees Pretax Amount Tax (Expense) Benefit ($ in millions) Net-of-Tax Amount $ (167) $ 27 42 $ (7) (140) 2 35 — (125) 20 (105) 2 Other comprehensive loss $ (138) $ 35 $ (103) 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 $ 81 $ 20 (20) $ (5) 101 (25) (4) — 61 15 76 (4) Other comprehensive income $ 97 $ (25) $ 72 Year ended December 31, 2018 Net 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 $ (181) $ 33 45 $ (8) (148) (9) 37 1 (136) 25 (111) (8) Other comprehensive loss $ (157) $ 38 $ (119) 15. Stock Repurchase Programs We repurchased and retired 7.4 million, 11.3 million, and 17.1 million shares of Common Stock under our stock repurchase programs in 2020, 2019, and 2018, respectively, at a cost of $1.4 billion, $2.1 billion, and $2.8 billion, respectively. K71 On September 26, 2017, our Board of Directors authorized the repurchase of up to an additional 50 million shares of Common Stock through December 31, 2022. As of December 31, 2020, 20.7 million shares remain authorized for repurchase. 16. Earnings Per Share The following table sets forth the calculation of basic and diluted earnings per share: Basic 2019 Diluted 2019 2018 2020 ($ in millions except per share amounts, shares in millions) 2018 2020 Net income Dividend equivalent payments $ 2,013 $ 2,722 $ 2,666 $ 2,013 $ 2,722 $ 2,666 (1) (6) (5) (2) (3) — Income available to common stockholders $ 2,010 $ 2,717 $ 2,660 $ 2,011 $ 2,722 $ 2,665 Weighted-average shares outstanding Dilutive effect of outstanding options and share-settled awards Adjusted weighted-average shares outstanding 255.1 263.3 277.7 255.1 263.3 277.7 1.5 256.6 2.3 265.6 2.5 280.2 Earnings per share $ 7.88 $ 10.32 $ 9.58 $ 7.84 $ 10.25 $ 9.51 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. There are no options excluded from the dilution calculations due to exercise prices exceeding the average market price of Common Stock for each of the years ended December 31, 2020, 2019, and 2018. 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 and, if material, disclosed below. While the ultimate amount of liability incurred in any of these lawsuits and claims is dependent on future developments, in our opinion, the recorded liability is adequate to cover the future payment of such liability and claims. However, the final outcome of any of these lawsuits and claims cannot be predicted with certainty, and unfavorable or unexpected outcomes could result in additional accruals that could be significant to results of operations in a particular year or quarter. Any adjustments to the recorded liability will be reflected in earnings in the periods in which such adjustments become known. For lawsuits and other claims where a loss may be reasonably possible, but not probable, or is probable but not reasonably estimable, no accrual is established but the matter, if potentially material, is disclosed below. We routinely review relevant information with respect to our lawsuits and other claims and update our accruals, disclosures and estimates of reasonably possible loss based on such reviews. K72 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 and also consolidated in the District of Columbia. 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. In 2018, a lawsuit was filed against one of our subsidiaries by the minority owner in a jointly-owned terminal railroad company in which our subsidiary has the majority ownership. The lawsuit alleged violations of various state laws and federal antitrust laws. It is reasonably possible that we could incur a loss in the case; however, we intend to vigorously defend the case and believe that we will prevail. The potential range of loss cannot be estimated at this time. 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 claims expense is employee personal injury costs. The independent actuarial firm we engage 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. The accuracy of 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. K73 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 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 $54 million at December 31, 2020, and $56 million at December 31, 2019, of which $15 million is classified as a current liability at the end of both 2020 and 2019. At December 31, 2020, the liability represents our estimates of the probable cleanup, investigation, and remediation costs based on available information at 100 known locations and projects compared with 110 locations and projects at December 31, 2019. At December 31, 2020, seventeen sites accounted for $40 million of the liability, and no individual site was considered to be material. We anticipate that most 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. K74 Insurance We purchase insurance covering legal liabilities for bodily injury and property damage to third parties. This insurance provides coverage above $75 million and below $800 million ($1.1 billion for specific perils) per occurrence and/or policy year. In addition, we purchase insurance covering damage to property owned by us or in our care, custody, or control. This insurance covers approximately 85% of potential losses above $75 million and below $275 million per occurrence and/or policy year. Purchase Commitments At December 31, 2020, we had outstanding purchase commitments totaling approximately $1.1 billion for locomotives, locomotive diesel fuel, track material, long-term service contracts, track and yard expansion projects in connection with our capital programs, freight cars and containers through 2030. Change-In-Control Arrangements We have compensation agreements with certain officers and key employees that become operative only upon a change in control of Norfolk Southern, as defined in those agreements. The agreements provide generally for payments based on compensation at the time of a covered individual’s involuntary or other specified termination and for certain other benefits. Indemnifications In a number of instances, we have agreed to indemnify lenders for additional costs they may bear as a result of certain changes in laws or regulations applicable to their loans. Such changes may include impositions or modifications with respect to taxes, duties, reserves, liquidity, capital adequacy, special deposits, and similar requirements relating to extensions of credit by, deposits with, or the assets or liabilities of such lenders. The nature and timing of changes in laws or regulations applicable to our financings are inherently unpredictable, and therefore our exposure in connection with the foregoing indemnifications cannot be quantified. No liability has been recorded related to these indemnifications. K75 NORFOLK SOUTHERN CORPORATION AND SUBSIDIARIES QUARTERLY FINANCIAL DATA (Unaudited) 2020 Railway operating revenues Income from railway operations Net income Earnings per share: Basic Diluted 2019 Railway operating revenues Income from railway operations Net income Earnings per share: Basic Diluted Three Months Ended March 31 June 30 September 30 December 31 ($ in millions, except per share amounts) $ $ 2,625 $ 568 381 2,085 $ 610 392 1.48 1.47 1.53 1.53 2,840 $ 966 677 2,925 $ 1,065 722 2.53 2.51 2.72 2.70 2,506 $ 840 569 2.23 2.22 2,841 $ 996 657 2.50 2.49 2,573 984 671 2.65 2.64 2,690 962 666 2.56 2.55 K76 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, 2020. Based on such evaluation, our officers have concluded that, at December 31, 2020, 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, 2020. 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 2020, we have not identified any changes in internal control over financial reporting that have materially affected, or are reasonably likely to materially effect, our internal control over financial reporting. Item 9B. Other Information None. K77 PART III NORFOLK SOUTHERN CORPORATION AND SUBSIDIARIES Item 10. Directors, Executive Officers and Corporate Governance In accordance with General Instruction G(3), information called for by Part III, Item 10, is incorporated herein by reference from the information appearing under the caption “Election of Directors,” under the caption “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 2021 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;” under the caption “Compensation Discussion and Analysis,” the information appearing in the “Summary Compensation Table” and the “2020 Grants of Plan-Based Awards” table, including the narrative to such tables, the “Outstanding Equity Awards at Fiscal Year-End 2020” and “Option Exercises and Stock Vested in 2020” 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, 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 2021 Annual Meeting of Stockholders, which definitive Proxy Statement will be filed electronically with the SEC pursuant to Regulation 14A. K78 Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters In accordance with General Instruction G(3), information on security ownership of certain beneficial owners and management called for by 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 2021 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, 2020) 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) 2,387,953 (3) $ 100.09 (5) 8,995,582 258,359 (4) 88.72 435,699 (6) Total 2,646,312 9,431,281 Includes options, RSUs and PSUs granted under LTIP that will be settled in shares of Common Stock. (1) Excludes securities reflected in column (a). (2) LTIP. (3) (4) TSOP. (5) Calculated without regard to 1,120,187 outstanding RSUs and PSUs at December 31, 2020. (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 Norfolk Southern Corporation (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. K79 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. The option price is 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 2020 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. 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 management employees to acquire a proprietary interest in our company and thereby to provide an additional incentive to management 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 management employees residing in the U.S. 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. K80 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 2021 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 2021 Annual Meeting of Stockholders, which definitive Proxy Statement will be filed electronically with the SEC pursuant to Regulation 14A. K81 Page K34 K35 K39 K40 K41 K42 K43 K44 K95 PART IV NORFOLK SOUTHERN CORPORATION AND SUBSIDIARIES Item 15. Exhibits and Financial Statement Schedule (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, 2020, 2019, and 2018 Consolidated Statements of Comprehensive Income, Years ended December 31, 2020, 2019, and 2018 Consolidated Balance Sheets at December 31, 2020 and 2019 Consolidated Statements of Cash Flows, Years ended December 31, 2020, 2019, and 2018 Consolidated Statements of Changes in Stockholders’ Equity, Years ended December 31, 2020, 2019, and 2018 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 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) 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 10-Q filed on July 29, 2020. (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 March 24, 2020. (SEC File No. 001-08339) K82 Exhibit Number 2.1 3 (i)(a) (i)(b) (i)(c) (ii) 4 (a) (b) (c) (d) (e) (f) (g) (h) (i) (j) (k) (l) (m) 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) 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) K83 (n) (o) (p) (q) (r) (s) (t) (u) (v) (w) (x) (y) (z) (aa) (bb) (cc) 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) 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) K84 (dd) (ee) (ff) (gg) (hh) (ii) (jj) 10 (a) (b) (c) (d) (e) 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 (SEC File No. 001-08339). 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. (SEC File No. 001-08339) Description of the Registrant’s Common Stock Registered Under Section 12 of the Securities Exchange Act of 1934, is incorporated by reference to Exhibit 4(hh) to Norfolk Southern Corporation's Form 10-K filed on February 6, 2020. (SEC File No. 001-08339) Fifth Supplemental Indenture, dated as of May 11, 2020, 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 11, 2020. (SEC File No. 001-08339) Indenture dated as of May 15, 2020, 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 15, 2020. (SEC File No. 001-08339) In accordance with Item 601(b)(4)(iii) of Regulation S-K, copies of other instruments of Norfolk Southern Corporation and its subsidiaries with respect to the rights of holders of long-term debt are not filed herewith, or incorporated by reference, but will be furnished to the Commission upon request. 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) K85 (f) (g) (h) (i) (j) (k) (l) (m) (n) (o) (p) (q) 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) K86 (r)* (s)* (t)* (u)* Norfolk Southern Corporation Executive Management Incentive Plan, as approved by shareholders May 14, 2015, and as amended effective March 27, 2018, and November 17, 2020, is incorporated by reference to Exhibit 10.1 to Norfolk Southern Corporation’s Form 8-K filed on January 8, 2021. (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) (v)*,** Retirement Plan of Norfolk Southern Corporation and Participating Subsidiary Companies effective June 1, 1982, as amended and restated effective October 1, 2020. (SEC File No. 001-08339) (w)* (x) (y)* (z)* (aa)* (bb) (cc) (dd) (ee) 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) 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, is incorporated by referenced to Exhibit 10(aa) to Norfolk Southern Corporation’s Form 10-K filed on February 6, 2020. (SEC File No. 001-08339) 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) K87 (ff) (gg) (hh) (ii) (jj) (kk) (ll) 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) (nn) (oo) (pp) (qq) (rr) (ss) (tt) (uu) 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) Amendment No. 15 to Transfer and Administration Agreement dated as of May 29, 2020 is incorporated by referenced to Exhibit 10.1 to the Registrant’s Form 8-K filed on June 1, 2020. (SEC File No. 001-8339) K88 (vv) (ww) (xx)* (yy)* (zz)* (aaa)* (bbb) (ccc)*,** (ddd)*,** (eee)*,** (fff)*,** (ggg)*,** (hhh)* Transaction Agreement (Pan Am Transaction Agreement), dated May 15, 2008, by and among Norfolk Southern Railway Company, Pan Am Railways, Inc., Boston and Maine Corporation, and Springfield Terminal Railway Company, is incorporated by reference to Exhibit 10.1 to Norfolk Southern Corporation’s Form 10-Q filed on July 24, 2008 (Exhibits, annexes and schedules omitted. The Registrant will furnish supplementary copies of such materials to the SEC upon request). (SEC File No. 001-08339) Letter Agreement, dated October 21, 2008, by and among Norfolk Southern Railway Company, Pan Am Railways, Inc., Boston and Maine Corporation, and Springfield Terminal Railway Company amending certain terms of the Pan Am Transaction Agreement, is incorporated by reference to Exhibit 10(rrr) to Norfolk Southern Corporation’s Form 10-K filed on February 18, 2009. (SEC File No. 001-08339) Directors’ Deferred Fee Plan of Norfolk Southern Corporation, adopted June 1, 1982 and as amended and restated effective December 1, 2019, is incorporated by referenced to Exhibit 10(xx) to Norfolk Southern Corporation’s Form 10-K filed on February 6, 2020. (SEC File No. 001-08339) 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 Form of Amended and Restated Change in Control Agreement between Norfolk Southern Corporation and the Corporation’s Chairman, President and Chief Executive Officer, 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 for restricted stock units and deferral election form as approved by the Compensation Committee on November 16, 2020. Form of Norfolk Southern Corporation Long-Term Incentive Plan, Award Agreement for performance share units approved by the Compensation Committee on November 16, 2020. Form of Norfolk Southern Corporation Long-Term Incentive Plan, Award Agreement for non- qualified stock options approved by the Compensation Committee on November 16, 2020. Form of Norfolk Southern Corporation Long-Term Incentive Plan, Award Agreement for restricted stock units approved by the Compensation Committee on November 16, 2020. Form of Norfolk Southern Corporation Long-Term Incentive Plan, Non-Compete Agreement Associated with Award Agreement, approved by the Compensation Committee on November 16, 2020. Performance Criteria for bonuses payable in 2022 for the 2021 incentive year. On November 16, 2020, the Compensation Committee of the Norfolk Southern Corporation Board of Directors adopted the following performance criteria for determining bonuses payable in 2022 for the 2021 incentive year under the Norfolk Southern Corporation Executive Management Incentive Plan: 60% based on operating ratio, 20% based on operating income, and 20% based on strategic plan objectives. (iii) 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) K89 (jjj)* (kkk)* (lll) (mmm)*, ** (nnn)*,** (ooo)*,** (ppp)* (qqq)* (rrr)* (sss)* (ttt) (uuu) (vvv) (www) (xxx)* 21** 23** 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 entered into a change in control agreement after 2015 is incorporated by reference to Exhibit 10.2 to Norfolk Southern Corporation’s Form 10-Q filed on July 29, 2020. (SEC File No. 001-08339) Credit Agreement dated as of March 27, 2020 establishing a 5 year, $800 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 March 30, 2020. (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 November 16, 2020. Form of Norfolk Southern Corporation Long-Term Incentive Plan, Off-Cycle Award Agreement for Performance Share Units as approved by the Compensation Committee on November 16, 2020. Form of Norfolk Southern Corporation Long-Term Incentive Plan, Off-Cycle Award Agreement for Restricted Stock Units as approved by the Compensation Committee on November 16, 2020. 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). 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). Norfolk Southern Executive Severance Plan as adopted on May 14, 2020, and as amended July 28, 2020, is incorporated by reference to Exhibit 10.1 to Norfolk Southern Corporation Form 10-Q filed on July 29, 2020. (SEC File No. 001-08339). Subsidiaries of the Registrant. Consent of Independent Registered Public Accounting Firm. K90 31-A** 31-B** 32** 101** 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, 2020, formatted in Inline Extensible Business Reporting Language (iXBRL) includes: (i) the Consolidated Statements of Income for each of the years ended December 31, 2020, 2019, and 2018; (ii) the Consolidated Statements of Comprehensive Income for each of the years ended December 31, 2020, 2019, and 2018; (iii) the Consolidated Balance Sheets at December 31, 2020 and 2019; (iv) the Consolidated Statements of Cash Flows for each of the years ended December 31, 2020, 2019, and 2018; (v) the Consolidated Statements of Changes in Stockholders’ Equity for each of the years ended December 31, 2020, 2019, and 2018; 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 2020 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 K91 Item 16. Form 10-K Summary Not applicable. K92 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 4th day of February, 2021. /s/ James A. Squires By: James A. Squires (Chairman, President and Chief Executive Officer) K93 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below on this 4th day of February, 2021, 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/ Clyde H. Allison, Jr. (Clyde H. Allison, Jr.) Vice President and Controller (Principal Accounting Officer) /s/ Thomas D. Bell, Jr. (Thomas D. Bell, Jr.) Director /s/ Mitchell E. Daniels, Jr. (Mitchell E. Daniels, Jr.) Director /s/ Marcela E. Donadio (Marcela E. Donadio) Director /s/ John C. Hufford, Jr. (John C. Hufford, Jr.) Director /s/ Christopher T. Jones (Christopher T. Jones) 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 K94 Norfolk Southern Corporation and Subsidiaries Valuation and Qualifying Accounts Years ended December 31, 2020, 2019, and 2018 ($ in millions) Schedule II Additions charged to: Beginning Balance Expenses Other Accounts Deductions Ending Balance Year ended December 31, 2020 Current portion of casualty and other claims included in accounts payable Casualty and other claims included in other liabilities 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 $ 212 $ 27 $ 81 (2) $ 138 (3) $ 182 171 80 (1) — 82 (4) 169 $ 213 $ 22 $ 131 (2) $ 154 (3) $ 212 158 89 (1) — 76 (4) 171 $ 187 $ 32 $ 145 (2) $ 151 (3) $ 213 179 85 (1) — 106 (4) 158 (1) (2) Includes adjustments for changes in estimates for prior years’ claims. Includes revenue refunds and overcharges provided through deductions from operating revenues and transfers from other accounts. (3) Payments and reclassifications to/from accounts payable. (4) Payments and reclassifications to/from other liabilities. K95 SHAREHOLDER INFORMATION COMMON STOCK Ticker symbol: NSC Our common stock is listed and traded on the New York Stock Exchange. DIVIDENDS At its January 2021 meeting, our board of directors declared a quarterly dividend of 99 cents per share on the company’s common stock, payable on March 10, 2021, to shareholders of record on Feb. 5, 2021. 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. Through the end of 2020, we have paid 154 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 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 Meghan Achimasi Senior Director Investor Relations Norfolk Southern Corp. Three Commercial Place Norfolk, Va. 23510 470.867.4807 CORPORATE OFFICE Norfolk Southern Corp. Three Commercial Place Norfolk, Va. 23510 757.629.2600 855.NORFOLK or 855.667.3655 REGIONAL OFFICE Norfolk Southern Corp. 1200 Peachtree St., N.E. Atlanta, Ga. 30309 SHAREHOLDER SERVICES INFORMATION Norfolk Southern Corp. Requests & Information shareholder@nscorp.com 800.531.6757 INVESTORS CHOICE We and our transfer agent, American Stock Transfer & Trust Company LLC (AST), offer the INVESTORS CHOICE Plan for investors wishing to purchase or sell Norfolk Southern Corporation common stock. This plan is available to both present shareholders of record and individual investors wishing to make an initial purchase of Norfolk Southern Corporation common stock. Once enrolled in the plan, you can invest cash dividends when paid and make optional cash investments simply and conveniently. To take advantage of the INVESTORS CHOICE Plan, contact AST at 877.864.4750 or visit http://astfinancial.mobular.net/amstock/NSC/ to access information about the INVESTORS CHOICE Plan. PUBLICATIONS The following reports and publications are available on our website at www.norfolksouthern.com and, upon written request, will be furnished in printed form to shareholders free of charge: ● Annual Reports on Form 10-K ● Quarterly Reports on Form 10-Q ● Corporate Governance Guidelines ● Board Committee Charters ● Thoroughbred Code of Ethics ● Code of Ethical Conduct for Senior Financial Officers ● Categorical Independence Standards for Directors ● Norfolk Southern Corporation Bylaws Shareholders desiring a printed copy of one or more of these reports and publications should send their request to 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 might 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. FPO N O R F O L K S O U T H E R N C O R P O R A T I O N 2 0 2 0 A N N U A L R E P O R T www.norfolksouthern.com 2020 ANNUAL REPORT © 2021 Norfolk Southern Corporation All Rights Reserved 10.032021.133802.22K

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