Virginia (State or other jurisdiction of incorporation) | 52-1188014 (IRS 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) | |
No Change (Former name, former address and former fiscal year, if changed since last report) |
Class | Outstanding at June 30, 2016 | |
Common Stock ($1.00 par value per share) | 293,549,767 (excluding 20,320,777 shares held by the registrant’s consolidated subsidiaries) |
Page | |||
Second Quarter | First Six Months | ||||||||||||||
2016 | 2015 | 2016 | 2015 | ||||||||||||
($ in millions, except per share amounts) | |||||||||||||||
Railway operating revenues | $ | 2,454 | $ | 2,713 | $ | 4,874 | $ | 5,280 | |||||||
Railway operating expenses: | |||||||||||||||
Compensation and benefits | 667 | 724 | 1,390 | 1,507 | |||||||||||
Purchased services and rents | 384 | 438 | 763 | 861 | |||||||||||
Fuel | 174 | 255 | 323 | 519 | |||||||||||
Depreciation | 257 | 247 | 509 | 492 | |||||||||||
Materials and other | 202 | 235 | 396 | 481 | |||||||||||
Total railway operating expenses | 1,684 | 1,899 | 3,381 | 3,860 | |||||||||||
Income from railway operations | 770 | 814 | 1,493 | 1,420 | |||||||||||
Other income – net | 4 | 19 | 20 | 40 | |||||||||||
Interest expense on debt | 138 | 134 | 277 | 266 | |||||||||||
Income before income taxes | 636 | 699 | 1,236 | 1,194 | |||||||||||
Provision for income taxes | 231 | 266 | 444 | 451 | |||||||||||
Net income | $ | 405 | $ | 433 | $ | 792 | $ | 743 | |||||||
Per share amounts: | |||||||||||||||
Net income | |||||||||||||||
Basic | $ | 1.37 | $ | 1.43 | $ | 2.67 | $ | 2.43 | |||||||
Diluted | 1.36 | 1.41 | 2.65 | 2.41 | |||||||||||
Dividends | 0.59 | 0.59 | 1.18 | 1.18 |
Second Quarter | First Six Months | ||||||||||||||
2016 | 2015 | 2016 | 2015 | ||||||||||||
($ in millions) | |||||||||||||||
Net income | $ | 405 | $ | 433 | $ | 792 | $ | 743 | |||||||
Other comprehensive income, before tax: | |||||||||||||||
Pension and other postretirement benefits | 6 | 11 | 13 | 21 | |||||||||||
Other comprehensive income (loss) of | |||||||||||||||
equity investees | 1 | — | — | (4 | ) | ||||||||||
Other comprehensive income, before tax | 7 | 11 | 13 | 17 | |||||||||||
Income tax expense related to items of other | |||||||||||||||
comprehensive income | (2 | ) | (5 | ) | (5 | ) | (8 | ) | |||||||
Other comprehensive income, net of tax | 5 | 6 | 8 | 9 | |||||||||||
Total comprehensive income | $ | 410 | $ | 439 | $ | 800 | $ | 752 |
June 30, 2016 | December 31, 2015 | ||||||
($ in millions) | |||||||
Assets | |||||||
Current assets: | |||||||
Cash and cash equivalents | $ | 866 | $ | 1,101 | |||
Accounts receivable – net | 985 | 946 | |||||
Materials and supplies | 306 | 271 | |||||
Other current assets | 82 | 194 | |||||
Total current assets | 2,239 | 2,512 | |||||
Investments | 2,639 | 2,572 | |||||
Properties less accumulated depreciation of $11,586 and | |||||||
$11,478, respectively | 29,387 | 28,992 | |||||
Other assets | 69 | 63 | |||||
Total assets | $ | 34,334 | $ | 34,139 | |||
Liabilities and stockholders’ equity | |||||||
Current liabilities: | |||||||
Accounts payable | $ | 1,085 | $ | 1,091 | |||
Short-term debt | — | 200 | |||||
Income and other taxes | 205 | 203 | |||||
Other current liabilities | 267 | 237 | |||||
Current maturities of long-term debt | 550 | 500 | |||||
Total current liabilities | 2,107 | 2,231 | |||||
Long-term debt | 9,549 | 9,393 | |||||
Other liabilities | 1,358 | 1,385 | |||||
Deferred income taxes | 9,047 | 8,942 | |||||
Total liabilities | 22,061 | 21,951 | |||||
Stockholders’ equity: | |||||||
Common stock $1.00 per share par value, 1,350,000,000 shares | |||||||
authorized; outstanding 293,549,767 and 297,795,016 shares, | |||||||
respectively, net of treasury shares | 295 | 299 | |||||
Additional paid-in capital | 2,146 | 2,143 | |||||
Accumulated other comprehensive loss | (437 | ) | (445 | ) | |||
Retained income | 10,269 | 10,191 | |||||
Total stockholders’ equity | 12,273 | 12,188 | |||||
Total liabilities and stockholders’ equity | $ | 34,334 | $ | 34,139 |
First Six Months | ||||||||
2016 | 2015 | |||||||
($ in millions) | ||||||||
Cash flows from operating activities: | ||||||||
Net income | $ | 792 | $ | 743 | ||||
Reconciliation of net income to net cash provided by operating activities: | ||||||||
Depreciation | 511 | 494 | ||||||
Deferred income taxes | 101 | 35 | ||||||
Gains and losses on properties | (7 | ) | (18 | ) | ||||
Changes in assets and liabilities affecting operations: | ||||||||
Accounts receivable | (17 | ) | — | |||||
Materials and supplies | (35 | ) | (41 | ) | ||||
Other current assets | 103 | 282 | ||||||
Current liabilities other than debt | 25 | 27 | ||||||
Other – net | (41 | ) | (21 | ) | ||||
Net cash provided by operating activities | 1,432 | 1,501 | ||||||
Cash flows from investing activities: | ||||||||
Property additions | (932 | ) | (886 | ) | ||||
Property sales and other transactions | 40 | 32 | ||||||
Investment purchases | (23 | ) | (3 | ) | ||||
Investment sales and other transactions | 3 | 5 | ||||||
Net cash used in investing activities | (912 | ) | (852 | ) | ||||
Cash flows from financing activities: | ||||||||
Dividends | (350 | ) | (360 | ) | ||||
Common stock transactions | 1 | — | ||||||
Purchase and retirement of common stock | (400 | ) | (765 | ) | ||||
Proceeds from borrowings – net | 594 | 494 | ||||||
Debt repayments | (600 | ) | (102 | ) | ||||
Net cash used in financing activities | (755 | ) | (733 | ) | ||||
Net decrease in cash and cash equivalents | (235 | ) | (84 | ) | ||||
Cash and cash equivalents: | ||||||||
At beginning of year | 1,101 | 973 | ||||||
At end of period | $ | 866 | $ | 889 | ||||
Supplemental disclosures of cash flow information: | ||||||||
Cash paid during the period for: | ||||||||
Interest (net of amounts capitalized) | $ | 260 | $ | 249 | ||||
Income taxes (net of refunds) | 251 | 55 |
Average expected volatility | 27% | ||
Average risk-free interest rate | 2.00% | ||
Average expected option term LTIP | 8.9 years | ||
Per-share grant-date fair value LTIP | $ | 19.92 | |
Average expected option term TSOP | 8.6 years | ||
Per-share grant-date fair value TSOP | $ | 14.75 |
Basic | Diluted | ||||||||||||||
Second Quarter | |||||||||||||||
2016 | 2015 | 2016 | 2015 | ||||||||||||
($ in millions, except per share amounts, shares in millions) | |||||||||||||||
Net income | $ | 405 | $ | 433 | $ | 405 | $ | 433 | |||||||
Dividend equivalent payments | (1 | ) | (1 | ) | (1 | ) | (1 | ) | |||||||
Income available to common stockholders | $ | 404 | $ | 432 | $ | 404 | $ | 432 | |||||||
Weighted-average shares outstanding | 294.7 | 302.9 | 294.7 | 302.9 | |||||||||||
Dilutive effect of outstanding options | |||||||||||||||
and share-settled awards | 1.9 | 2.6 | |||||||||||||
Adjusted weighted-average shares outstanding | 296.6 | 305.5 | |||||||||||||
Earnings per share | $ | 1.37 | $ | 1.43 | $ | 1.36 | $ | 1.41 |
Basic | Diluted | ||||||||||||||
First Six Months | |||||||||||||||
2016 | 2015 | 2016 | 2015 | ||||||||||||
($ in millions, except per share amounts, shares in millions) | |||||||||||||||
Net income | $ | 792 | $ | 743 | $ | 792 | $ | 743 | |||||||
Dividend equivalent payments | (2 | ) | (3 | ) | (2 | ) | (2 | ) | |||||||
Income available to common stockholders | $ | 790 | $ | 740 | $ | 790 | $ | 741 | |||||||
Weighted-average shares outstanding | 296.0 | 304.8 | 296.0 | 304.8 | |||||||||||
Dilutive effect of outstanding options | |||||||||||||||
and share-settled awards | 1.7 | 2.7 | |||||||||||||
Adjusted weighted-average shares outstanding | 297.7 | 307.5 | |||||||||||||
Earnings per share | $ | 2.67 | $ | 2.43 | $ | 2.65 | $ | 2.41 |
Pensions and Other Postretirement Benefits | Other Comprehensive Loss of Equity Investees | Accumulated Other Comprehensive Loss | |||||||||
($ in millions) | |||||||||||
December 31, 2015 | $ | (367 | ) | $ | (78 | ) | $ | (445 | ) | ||
Other comprehensive income (loss): | |||||||||||
Amounts reclassified into net income | 7 | (1) | — | 7 | |||||||
Net loss | — | (1 | ) | (1 | ) | ||||||
Tax expense | (3 | ) | — | (3 | ) | ||||||
Other comprehensive income (loss) | 4 | (1 | ) | 3 | |||||||
March 31, 2016 | $ | (363 | ) | $ | (79 | ) | $ | (442 | ) | ||
Other comprehensive income (loss): | |||||||||||
Amounts reclassified into net income | 6 | (1) | — | 6 | |||||||
Net gain | — | 1 | 1 | ||||||||
Tax expense | (2 | ) | — | (2 | ) | ||||||
Other comprehensive income | 4 | 1 | 5 | ||||||||
June 30, 2016 | $ | (359 | ) | $ | (78 | ) | $ | (437 | ) |
Pensions and Other Postretirement Benefits | Other Comprehensive Loss of Equity Investees | Accumulated Other Comprehensive Loss | |||||||||
($ in millions) | |||||||||||
December 31, 2014 | $ | (320 | ) | $ | (78 | ) | $ | (398 | ) | ||
Other comprehensive income (loss): | |||||||||||
Amounts reclassified into net income | 10 | (1) | — | 10 | |||||||
Net loss | — | (4 | ) | (4 | ) | ||||||
Tax expense | (3 | ) | — | (3 | ) | ||||||
Other comprehensive income (loss) | 7 | (4 | ) | 3 | |||||||
March 31, 2015 | $ | (313 | ) | $ | (82 | ) | $ | (395 | ) | ||
Other comprehensive income (loss): | |||||||||||
Amounts reclassified into net income | 11 | (1) | — | 11 | |||||||
Tax expense | (5 | ) | — | (5 | ) | ||||||
Other comprehensive income | 6 | — | 6 | ||||||||
June 30, 2015 | $ | (307 | ) | $ | (82 | ) | $ | (389 | ) |
(1) | These items are included in the computation of net periodic pension and postretirement benefit costs. See Note 7, “Pensions and Other Postretirement Benefits,” for additional information. |
Other Postretirement | |||||||||||||||
Pension Benefits | Benefits | ||||||||||||||
Second Quarter | |||||||||||||||
2016 | 2015 | 2016 | 2015 | ||||||||||||
($ in millions) | |||||||||||||||
Service cost | $ | 9 | $ | 10 | $ | 2 | $ | 2 | |||||||
Interest cost | 21 | 23 | 4 | 5 | |||||||||||
Expected return on plan assets | (43 | ) | (42 | ) | (5 | ) | (5 | ) | |||||||
Amortization of net losses | 12 | 17 | — | — | |||||||||||
Amortization of prior service benefit | — | — | (6 | ) | (6 | ) | |||||||||
Net cost (benefit) | $ | (1 | ) | $ | 8 | $ | (5 | ) | $ | (4 | ) |
Other Postretirement | |||||||||||||||
Pension Benefits | Benefits | ||||||||||||||
First Six Months | |||||||||||||||
2016 | 2015 | 2016 | 2015 | ||||||||||||
($ in millions) | |||||||||||||||
Service cost | $ | 18 | $ | 20 | $ | 3 | $ | 4 | |||||||
Interest cost | 41 | 47 | 8 | 10 | |||||||||||
Expected return on plan assets | (86 | ) | (83 | ) | (9 | ) | (10 | ) | |||||||
Amortization of net losses | 25 | 33 | — | — | |||||||||||
Amortization of prior service benefit | — | — | (12 | ) | (12 | ) | |||||||||
Net cost (benefit) | $ | (2 | ) | $ | 17 | $ | (10 | ) | $ | (8 | ) |
Level 1 | Inputs to the valuation methodology are unadjusted quoted prices for identical assets or liabilities in active markets that we have the ability to access. |
Level 2 | Inputs to the valuation methodology include: |
• quoted prices for similar assets or liabilities in active markets; • quoted prices for identical or similar assets or liabilities in inactive markets;• inputs other than quoted prices that are observable for the asset or liability;• inputs that are derived principally from or corroborated by observable market data by correlation or other means. | |
If the asset or liability has a specified (contractual) term, the Level 2 input must be observable for substantially the full term of the asset or liability. | |
Level 3 | Inputs to the valuation methodology are unobservable and significant to the fair value measurement. |
June 30, 2016 | December 31, 2015 | ||||||||||||||
Carrying Amount | Fair Value | Carrying Amount | Fair Value | ||||||||||||
($ in millions) | |||||||||||||||
Long-term investments | $ | 183 | $ | 211 | $ | 162 | $ | 190 | |||||||
Long-term debt, including current maturities | (10,099 | ) | (12,219 | ) | (9,893 | ) | (11,124 | ) |
Level 1 | Level 2 | Total | |||||||||
($ in millions) | |||||||||||
June 30, 2016 | |||||||||||
Long-term investments | $ | 71 | $ | 140 | $ | 211 | |||||
Long-term debt, including current maturities | (12,016 | ) | (203 | ) | (12,219 | ) | |||||
December 31, 2015 | |||||||||||
Long-term investments | $ | 49 | $ | 141 | $ | 190 | |||||
Long-term debt, including current maturities | (11,022 | ) | (102 | ) | (11,124 | ) |
Decrease | |||||||
Second Quarter | First Six Months | ||||||
2016 vs. 2015 | 2016 vs. 2015 | ||||||
($ in millions) | |||||||
Volume (units) | $ | (191 | ) | $ | (256 | ) | |
Revenue per unit | (68 | ) | (150 | ) | |||
Total | $ | (259 | ) | $ | (406 | ) |
Second Quarter | |||||||||||||||||||||
Revenues | Units | Revenue per Unit | |||||||||||||||||||
2016 | 2015 | 2016 | 2015 | 2016 | 2015 | ||||||||||||||||
($ in millions) | (in thousands) | ($ per unit) | |||||||||||||||||||
Merchandise: | |||||||||||||||||||||
Chemicals | $ | 426 | $ | 454 | 122.8 | 137.3 | $ | 3,467 | $ | 3,312 | |||||||||||
Agriculture/consumer/gov’t | 383 | 379 | 148.0 | 153.7 | 2,587 | 2,463 | |||||||||||||||
Metals and construction | 334 | 344 | 183.6 | 182.1 | 1,822 | 1,889 | |||||||||||||||
Automotive | 248 | 254 | 112.7 | 111.2 | 2,198 | 2,278 | |||||||||||||||
Paper/clay/forest | 186 | 196 | 71.6 | 77.2 | 2,603 | 2,545 | |||||||||||||||
Merchandise | 1,577 | 1,627 | 638.7 | 661.5 | 2,469 | 2,459 | |||||||||||||||
Intermodal | 538 | 633 | 951.8 | 999.9 | 565 | 633 | |||||||||||||||
Coal | 339 | 453 | 210.0 | 275.7 | 1,611 | 1,644 | |||||||||||||||
Total | $ | 2,454 | $ | 2,713 | 1,800.5 | 1,937.1 | 1,362 | 1,401 |
First Six Months | |||||||||||||||||||||
Revenues | Units | Revenue per Unit | |||||||||||||||||||
2016 | 2015 | 2016 | 2015 | 2016 | 2015 | ||||||||||||||||
($ in millions) | (in thousands) | ($ per unit) | |||||||||||||||||||
Merchandise: | |||||||||||||||||||||
Chemicals | $ | 845 | $ | 886 | 243.4 | 264.6 | $ | 3,471 | $ | 3,349 | |||||||||||
Agriculture/consumer/gov’t | 769 | 753 | 299.4 | 303.7 | 2,568 | 2,479 | |||||||||||||||
Metals and construction | 634 | 654 | 338.5 | 334.6 | 1,874 | 1,954 | |||||||||||||||
Automotive | 502 | 473 | 226.0 | 206.9 | 2,220 | 2,284 | |||||||||||||||
Paper/clay/forest | 376 | 381 | 144.6 | 149.7 | 2,603 | 2,548 | |||||||||||||||
Merchandise | 3,126 | 3,147 | 1,251.9 | 1,259.5 | 2,497 | 2,498 | |||||||||||||||
Intermodal | 1,060 | 1,225 | 1,880.9 | 1,926.6 | 564 | 636 | |||||||||||||||
Coal | 688 | 908 | 424.8 | 553.1 | 1,619 | 1,643 | |||||||||||||||
Total | $ | 4,874 | $ | 5,280 | 3,557.6 | 3,739.2 | 1,370 | 1,412 |
Second Quarter | First Six Months | ||||||||||
2016 | 2015 | 2016 | 2015 | ||||||||
(units in thousands) | |||||||||||
Domestic (excluding Triple Crown) | 570.8 | 579.0 | 1,121.6 | 1,127.9 | |||||||
Triple Crown | 18.5 | 71.7 | 38.0 | 138.0 | |||||||
Total Domestic | 589.3 | 650.7 | 1,159.6 | 1,265.9 | |||||||
International | 362.5 | 349.2 | 721.3 | 660.7 | |||||||
Total | 951.8 | 999.9 | 1,880.9 | 1,926.6 |
Second Quarter | First Six Months | ||||||||||
2016 | 2015 | 2016 | 2015 | ||||||||
(tons in thousands) | |||||||||||
Utility | 14,336 | 20,189 | 29,740 | 40,303 | |||||||
Export | 3,683 | 4,066 | 7,382 | 9,377 | |||||||
Domestic metallurgical | 3,580 | 4,059 | 6,539 | 7,204 | |||||||
Industrial | 1,521 | 2,192 | 3,196 | 4,175 | |||||||
Total | 23,120 | 30,506 | 46,857 | 61,059 |
Second Quarter | First Six Months | ||||||
2016 vs. 2015 | 2016 vs. 2015 | ||||||
Increase (Decrease) | |||||||
($ in millions) | |||||||
Fuel | $ | (81 | ) | $ | (196 | ) | |
Compensation and benefits | (57 | ) | (117 | ) | |||
Purchased services and rents | (54 | ) | (98 | ) | |||
Materials and other | (33 | ) | (85 | ) | |||
Depreciation | 10 | 17 | |||||
Total | $ | (215 | ) | $ | (479 | ) |
• | employee levels, including decreased overtime and trainees (down $50 million for the quarter and $95 million for the first six months), |
• | pension costs (down $9 million for the quarter and $19 million for the first six months), |
• | payroll taxes (down $8 million for the quarter and $21 million for the first six months), |
• | labor agreement signing bonus in first-quarter 2015 ($11 million), and |
• | health and welfare benefit costs for agreement employees (up $10 million for the quarter and $25 million for the first six months), which reflected higher rates, offset in part by favorability from reduced headcount. |
Second Quarter | First Six Months | ||||||||||||||
2016 | 2015 | 2016 | 2015 | ||||||||||||
($ in millions) | |||||||||||||||
Purchased services | $ | 309 | $ | 363 | $ | 609 | $ | 704 | |||||||
Equipment rents | 75 | 75 | 154 | 157 | |||||||||||
Total | $ | 384 | $ | 438 | $ | 763 | $ | 861 |
Second Quarter | First Six Months | ||||||||||||||
2016 | 2015 | 2016 | 2015 | ||||||||||||
($ in millions) | |||||||||||||||
Materials | $ | 91 | $ | 117 | $ | 171 | $ | 239 | |||||||
Casualties and other claims | 32 | 26 | 65 | 62 | |||||||||||
Other | 79 | 92 | 160 | 180 | |||||||||||
Total | $ | 202 | $ | 235 | $ | 396 | $ | 481 |
(a) Total Number of Shares (or Units) | (b) Average Price Paid per Share | (c) Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans or | (d) Maximum Number (or Approximate Dollar Value) of Shares (or Units) that may yet be purchased under the Plans or | ||||||||||
Period | Purchased (1) | (or Unit) | Programs (2) | Programs (2) | |||||||||
April 1-30, 2016 | 795,258 | 84.31 | 788,793 | 20,492,642 | |||||||||
May 1-31 2016 | 751,211 | 86.80 | 751,211 | 19,741,431 | |||||||||
June 1-30, 2016 | 813,711 | 83.95 | 813,711 | 18,927,720 | |||||||||
Total | 2,360,180 | 2,353,715 |
(1) | Of this amount, 6,465 represent shares tendered by employees in connection with the exercise of options under the stockholder-approved Long-Term Incentive Plan. |
(2) | Our Board of Directors authorized a share repurchase program, pursuant to which up to 50 million shares of Common Stock could be purchased through December 31, 2017. |
NORFOLK SOUTHERN CORPORATION Registrant | ||
Date: | July 27, 2016 | /s/ Thomas E. Hurlbut Thomas E. Hurlbut Vice President and Controller (Principal Accounting Officer) (Signature) |
Date: | July 27, 2016 | /s/ Denise W. Hutson Denise W. Hutson Corporate Secretary (Signature) |
4.1 | Third Supplemental Indenture, dated as of June 3, 2016, between the Registrant and U.S. Bank National Association, as Trustee is incorporated by reference herein from Exhibit 4.1 to Norfolk Southern Corporation's Form 8-K filed on June 3, 2016. |
10.1 | Credit Agreement dated as of May 26, 2016, establishing a 5-year, $750 million, unsecured revolving credit facility of the Registrant is incorporated by reference herein from Exhibit 10.1 to Norfolk Southern Corporation's Form 8-K filed on May 27, 2016. |
10.2 | Amendment No. 12 to Transfer and Administration Agreement dated as of June 3, 2016 is incorporated by reference herein from Exhibit 10.1 to Norfolk Southern Corporation's Form 8-K filed on June 6, 2016 (Schedules III and IV omitted. The Registrant will furnish supplementary copies of such materials to the SEC upon request). |
31-A* | Rule 13a-14(a)/15d-014(a) CEO Certifications. |
31-B* | Rule 13a-14(a)/15d-014(a) CFO Certifications. |
32* | Section 1350 Certifications. |
101* | The following financial information from Norfolk Southern Corporation’s Quarterly Report on Form 10-Q for the second quarter of 2016, formatted in Extensible Business Reporting Language (XBRL) includes (i) the Consolidated Statements of Income for the second quarters and first six months of 2016 and 2015; (ii) the Consolidated Statements of Comprehensive Income for the second quarters and first six months of 2016 and 2015; (iii) the Consolidated Balance Sheets at June 30, 2016, and December 31, 2015; (iv) the Consolidated Statements of Cash Flows for the first six months of 2016 and 2015; and (v) the Notes to Consolidated Financial Statements. |
* Filed herewith. |
1. | I have reviewed this Quarterly Report on Form 10-Q of Norfolk Southern Corporation; |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. | The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
a. | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
b. | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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; |
c. | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
d. | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
5. | The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
a. | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
b. | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
/s/ James A. Squires | |
James A. Squires | |
Chairman, President and Chief Executive Officer |
1. | I have reviewed this Quarterly Report on Form 10-Q of Norfolk Southern Corporation; |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. | The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
a. | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
b. | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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; |
c. | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
d. | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
5. | The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
a. | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
b. | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
/s/ Marta R. Stewart | |
Marta R. Stewart | |
Executive Vice President Finance and Chief Financial Officer |
Signed: | /s/ James A. Squires |
James A. Squires | |
Chairman, President and Chief Executive Officer | |
Norfolk Southern Corporation |
Signed: | /s/ Marta R. Stewart |
Marta R. Stewart | |
Executive Vice President Finance and Chief Financial Officer | |
Norfolk Southern Corporation |
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Document And Entity Information |
6 Months Ended |
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Jun. 30, 2016
shares
| |
Document And Entity Information [Abstract] | |
Entity Registrant Name | NORFOLK SOUTHERN CORP |
Entity Central Index Key | 0000702165 |
Current Fiscal Year End Date | --12-31 |
Entity Filer Category | Large Accelerated Filer |
Document Type | 10-Q |
Document Period End Date | Jun. 30, 2016 |
Document Fiscal Year Focus | 2016 |
Document Fiscal Period Focus (Q1,Q2,Q3,FY) | Q2 |
Amendment Flag | false |
Entity Common Stock, Shares Outstanding | 293,549,767 |
Consolidated Statements Of Income - USD ($) $ in Millions |
3 Months Ended | 6 Months Ended | ||
---|---|---|---|---|
Jun. 30, 2016 |
Jun. 30, 2015 |
Jun. 30, 2016 |
Jun. 30, 2015 |
|
Income Statement [Abstract] | ||||
Railway operating revenues | $ 2,454 | $ 2,713 | $ 4,874 | $ 5,280 |
Railway operating expenses: | ||||
Compensation and benefits | 667 | 724 | 1,390 | 1,507 |
Purchased services and rents | 384 | 438 | 763 | 861 |
Fuel | 174 | 255 | 323 | 519 |
Depreciation | 257 | 247 | 509 | 492 |
Materials and other | 202 | 235 | 396 | 481 |
Total railway operating expenses | 1,684 | 1,899 | 3,381 | 3,860 |
Income from railway operations | 770 | 814 | 1,493 | 1,420 |
Other income – net | 4 | 19 | 20 | 40 |
Interest expense on debt | 138 | 134 | 277 | 266 |
Income before income taxes | 636 | 699 | 1,236 | 1,194 |
Provision for income taxes | 231 | 266 | 444 | 451 |
Net income | $ 405 | $ 433 | $ 792 | $ 743 |
Per share amounts: | ||||
Basic (in dollars per share) | $ 1.37 | $ 1.43 | $ 2.67 | $ 2.43 |
Diluted (in dollars per share) | 1.36 | 1.41 | 2.65 | 2.41 |
Dividends (in dollars per share) | $ 0.59 | $ 0.59 | $ 1.18 | $ 1.18 |
Consolidated Statements Of Comprehensive Income - USD ($) $ in Millions |
3 Months Ended | 6 Months Ended | ||
---|---|---|---|---|
Jun. 30, 2016 |
Jun. 30, 2015 |
Jun. 30, 2016 |
Jun. 30, 2015 |
|
Statement of Comprehensive Income [Abstract] | ||||
Net income | $ 405 | $ 433 | $ 792 | $ 743 |
Other comprehensive income, before tax: | ||||
Pension and other postretirement benefits | 6 | 11 | 13 | 21 |
Other comprehensive income (loss) of equity investees | 1 | 0 | 0 | (4) |
Other comprehensive income, before tax | 7 | 11 | 13 | 17 |
Income tax expense related to items of other comprehensive income | (2) | (5) | (5) | (8) |
Other comprehensive income, net of tax | 5 | 6 | 8 | 9 |
Total comprehensive income | $ 410 | $ 439 | $ 800 | $ 752 |
Consolidated Balance Sheets (Parenthetical) - USD ($) $ in Millions |
Jun. 30, 2016 |
Dec. 31, 2015 |
---|---|---|
Statement of Financial Position [Abstract] | ||
Properties, accumulated depreciation | $ 11,586 | $ 11,478 |
Common stock, par or stated value per share | $ 1.00 | $ 1.00 |
Common stock, shares authorized | 1,350,000,000 | 1,350,000,000 |
Common stock, shares outstanding, net of treasury shares | 293,549,767 | 297,795,016 |
Stock-Based Compensation |
6 Months Ended | ||||||||||||||||||||||||||||||||
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Jun. 30, 2016 | |||||||||||||||||||||||||||||||||
Disclosure of Compensation Related Costs, Share-based Payments [Abstract] | |||||||||||||||||||||||||||||||||
Stock-Based Compensation | Stock-Based Compensation During the first and second quarters of 2016, a committee of non-employee members of our Board of Directors (and the Chief Executive Officer when delegated authority by such committee) granted stock options, restricted stock units (RSUs) and performance share units (PSUs) pursuant to the Long-Term Incentive Plan (LTIP) and granted stock options pursuant to the Thoroughbred Stock Option Plan (TSOP), as discussed below. Stock-based compensation expense was $8 million and $4 million during the second quarters of 2016 and 2015, respectively. Stock-based compensation expense was $35 million for the first six months of both 2016 and 2015. The total tax effects recognized in income in relation to stock-based compensation expense were net benefits of $3 million and $1 million for the second quarters of 2016 and 2015, respectively, and net benefits of $13 million and $11 million for the first six months of 2016 and 2015, respectively. Stock Options In the first quarter of 2016, 691,310 options were granted under the LTIP and 302,320 options were granted under the TSOP. In each case, the grant price was $70.32 on the effective date of the grant, and the options have a term that will not exceed ten years. The 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 the 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. Holders of options granted under the LTIP who remain actively employed receive cash dividend equivalent payments during the four year vesting period in an amount equal to the regular quarterly dividends paid on Norfolk Southern common stock (Common Stock). Dividend equivalent payments are not made on the TSOP options. The fair value of each option award was measured on the date of grant using a lattice-based option valuation model. Expected volatility is based on implied volatility from traded options on, and historical volatility of, Common Stock. Historical data is used to estimate option exercises and employee terminations within the valuation model. The average expected option life is derived from the output of the valuation model and represents the period of time that all options granted are expected to be outstanding, including the branches of the model that result in options expiring unexercised. The average risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant. A dividend yield of zero was used for the LTIP options during the vesting period. A dividend yield of 3.37% was used for all vested LTIP options and all TSOP options. The assumptions for the 2016 LTIP and TSOP grants are shown in the following table:
For the second quarter of 2016, options relating to 156,003 shares were exercised, yielding $8 million of cash proceeds and $1 million of excess tax benefit recognized in the “Provision for income taxes.” For the second quarter of 2015, options relating to 90,269 shares were exercised, yielding $5 million of cash proceeds and $1 million of excess tax benefit, which was recognized as additional paid-in capital. For the first six months of 2016, options relating to 369,917 shares were exercised, yielding $18 million of cash proceeds and $2 million of tax benefit recognized in the “Provision for income taxes.” For the first six months of 2015, options relating to 331,673 shares were exercised, yielding $17 million of cash proceeds and $4 million of tax benefit, which was recognized as additional paid-in capital. Restricted Stock Units During the first quarter of 2016, there were 135,390 RSUs granted with a grant-date fair value of $70.32 and a five-year restriction period that will be settled through the issuance of shares of Common Stock. The RSU grants include cash dividend equivalent payments during the restriction period in an amount equal to the regular quarterly dividends paid on Common Stock. No RSUs were earned or paid out during the second quarters of 2016 or 2015. During the first six months of 2016, 175,500 of the RSUs granted in 2011 vested, with 103,936 shares of Common Stock issued net of minimum withholding taxes. For the first six months of 2015, 166,750 of the RSUs granted in 2010 vested, with 99,337 shares of Common Stock issued net of minimum withholding taxes. The total related excess tax benefits were $1 million for both the second quarter and first six months of 2016 and were recognized in the “Provision for income taxes,” and less than $1 million and $4 million for the second quarter and first six months of 2015, respectively, recognized as additional paid-in capital. Performance Share Units PSUs provide for awards based on the achievement of certain predetermined corporate performance goals at the end of a three-year cycle and are settled through the issuance of shares of Common Stock. During the first and second quarters of 2016, there were 1,036,120 and 6,508 PSUs granted, respectively, with weighted average grant-date fair values of $52.55 and $84.00, respectively. All PSUs will earn out based on the achievement of performance conditions and some will also earn out based on a market condition. The market condition fair value was measured on the date of grant using a Monte Carlo simulation model. No PSUs were earned or paid out in the second quarters of 2016 and 2015. During the first six months of 2016, 406,038 of the PSUs granted in 2013 were earned, with 241,757 shares of Common Stock issued net of minimum withholding taxes. For the first six months of 2015, 236,601 of the PSUs granted in 2012 were earned, with 141,386 shares of Common Stock issued net of minimum withholding taxes. The total related excess tax benefits were $3 million for the first six months of 2016, which was recognized in the “Provision for income taxes,” and $3 million for the first six months of 2015, which was recognized as additional paid-in capital. |
Earnings Per Share |
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Earnings Per Share [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Earnings Per Share | Earnings Per Share The following table sets forth the calculation of basic and diluted earnings per share:
During the second quarters and first six months of 2016 and 2015, dividend equivalent payments were made to holders of LTIP stock options and RSUs. For purposes of computing basic earnings per share, dividend equivalent payments made to holders of these stock options and RSUs were deducted from net income to determine income available to common stockholders. For purposes of computing diluted earnings per share, we evaluate on a grant-by-grant basis those stock options and RSUs receiving dividend equivalent payments under the two-class and treasury stock methods to determine which method is the more dilutive for each grant. For those grants for which the two-class method was more dilutive, net income was reduced by dividend equivalent payments to determine income available to common stockholders. The dilution calculations exclude options having exercise prices exceeding the average market price of Common Stock as follows: 1.5 million in the first quarter of 2016, none in the first quarter of 2015, 1.5 million in the second quarter of 2016, and 0.7 million in the second quarter of 2015. |
Stockholders' Equity |
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Equity [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Stockholders' Equity | Stockholders’ Equity Common Stock Common Stock is reported net of shares held by our consolidated subsidiaries (Treasury Shares). Treasury Shares at June 30, 2016, and December 31, 2015, amounted to 20,320,777 shares, with a cost of $19 million at both dates. Accumulated Other Comprehensive Loss The components of “Other comprehensive income” 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:
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Stock Repurchase Program |
6 Months Ended |
---|---|
Jun. 30, 2016 | |
Stock Repurchase Program [Abstract] | |
Stock Repurchase Program | Stock Repurchase Program We repurchased and retired 5.0 million and 7.4 million shares of Common Stock under our stock repurchase program in the first six months of 2016 and 2015, respectively, at a cost of $400 million and $765 million, respectively. The timing and volume of purchases is guided by our assessment of market conditions and other pertinent factors. Any near-term share repurchases are expected to be made with internally generated cash, cash on hand, or proceeds from borrowings. Since the beginning of 2006, we have repurchased and retired 156.1 million shares at a total cost of $9.9 billion. |
Investments |
6 Months Ended |
---|---|
Jun. 30, 2016 | |
Investments [Abstract] | |
Investments | Investments Investment in Conrail Through a limited liability company, we and CSX Corporation (CSX) jointly own Conrail Inc. (Conrail), whose primary subsidiary is Consolidated Rail Corporation (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. Our investment in Conrail was $1.2 billion at June 30, 2016, and $1.1 billion at December 31, 2015. CRC owns and operates certain properties (the Shared Assets Areas) for the joint and exclusive benefit of Norfolk Southern Railway Company (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 for amounts due to CRC for the operation of the Shared Assets Areas totaling $36 million and $40 million for the second quarters of 2016 and 2015, respectively, and $75 million and $77 million for the first six months of 2016 and 2015, respectively. Our equity in the earnings of Conrail, net of amortization, included in “Purchased services and rents” was $11 million and $13 million for the second quarters of 2016 and 2015, respectively, and $22 million and $23 million for the first six months of 2016 and 2015, respectively. “Accounts payable” includes $109 million at June 30, 2016, and $71 million at December 31, 2015, due to Conrail for the operation of the Shared Assets Areas. In addition, “Other liabilities” includes $280 million at both June 30, 2016, and December 31, 2015, for long-term advances from Conrail, maturing 2044, that bear interest at an average rate of 2.9%. Investment in TTX NS and eight other North American railroads jointly own TTX Company (TTX). NS has a 19.65% ownership interest in TTX, a railcar pooling company that provides its owner-railroads with standardized fleets of intermodal, automotive, and general use railcars at stated rates. Amounts paid to TTX for use of equipment are included in “Purchased services and rents.” This amounted to $56 million and $53 million of expense for the second quarters of 2016 and 2015, respectively, and $114 million and $106 million for the first six months of 2016 and 2015, respectively. Offsetting these amounts, our equity in the earnings of TTX, also included in “Purchased services and rents,” totaled $5 million and $7 million for the second quarters of 2016 and 2015, respectively, and $10 million and $9 million for the first six months of 2016 and 2015, respectively. |
Debt Debt |
6 Months Ended |
---|---|
Jun. 30, 2016 | |
Debt Disclosure [Abstract] | |
Debt Disclosure [Text Block] | Debt During the second quarter of 2016, NS issued $600 million of 2.9% senior notes due 2026. In May 2016, we renewed our five-year credit agreement, extending the facility until May 2021. In June 2016, we renewed and amended our accounts receivable securitization facility, extending it until June 2018. |
Pensions And Other Postretirement Benefits |
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Defined Contribution Pension and Other Postretirement Plans Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Pensions And Other Postretirement Benefits | Pensions and Other Postretirement Benefits We have both funded and unfunded defined benefit pension plans covering principally salaried employees. We also provide specified health care and life insurance benefits to eligible retired employees; these plans can be amended or terminated at our option. Under our self-insured retiree health care plan, for those participants who are not Medicare-eligible, a defined percentage of health care expenses is covered for retired employees and their dependents, reduced by any deductibles, coinsurance, and, in some cases, coverage provided under other group insurance policies. Those participants who are Medicare-eligible are not covered under the self-insured retiree health care plan, but instead are provided with an employer-funded health reimbursement account which can be used for reimbursement of health insurance premiums or eligible out-of-pocket medical expenses. Pension and postretirement benefit cost components for the second quarter and first six months are as follows:
Effective January 1, 2016, we began using a spot rate approach to estimate the service cost and interest cost components of net periodic benefit cost for our pension and other postretirement benefits plans rather than a single weighted-average discount rate. This change in estimate resulted in reductions in service and interest cost of $7 million and $13 million in the second quarter and first six months of 2016, respectively. |
Fair Value |
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Fair Value | Fair Value Fair Value Measurements Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) 820-10, “Fair Value Measurements,” established a framework for measuring fair value and a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three broad levels, as follows:
The asset’s or liability’s fair value measurement level within the hierarchy is based on the lowest level of any input that is significant to the fair value measurement. Other than those assets and liabilities described below that approximate fair value, there were no assets or liabilities measured at fair value on a recurring basis at June 30, 2016, or December 31, 2015. Fair Values of Financial Instruments We have evaluated the fair values of financial instruments and methods used to determine those fair values. The fair values of “Cash and cash equivalents,” “Accounts receivable,” “Accounts payable,” and “Short-term debt” approximate carrying values because of the short maturity of these financial instruments. The carrying value of corporate-owned life insurance is recorded at cash surrender value and, accordingly, approximates fair value. The carrying amounts and estimated fair values for the remaining financial instruments, excluding investments accounted for under the equity method, consisted of the following:
Underlying net assets were used to estimate the fair value of investments with the exception of notes receivable, which are based on future discounted cash flows. The fair values of long-term debt were estimated based on quoted market prices or discounted cash flows using current interest rates for debt with similar terms, company rating, and remaining maturity. The following table sets forth the fair value of long-term investment and long-term debt balances disclosed above by valuation technique level, within the fair value hierarchy (there were no level 3 valued assets or liabilities).
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Commitments And Contingencies |
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Jun. 30, 2016 | |
Commitments and Contingencies Disclosure [Abstract] | |
Commitments And Contingencies | Commitments and Contingencies Lawsuits We and/or certain subsidiaries are defendants in numerous lawsuits and other claims relating principally to railroad operations. When we conclude that it is probable that a liability has been incurred and the amount of the liability can be reasonably estimated, it is accrued through a charge to earnings. While the ultimate amount of liability incurred in any of these lawsuits and claims is dependent on future developments, in our opinion, the recorded liability is adequate to cover the future payment of such liability and claims. However, the final outcome of any of these lawsuits and claims cannot be predicted with certainty, and unfavorable or unexpected outcomes could result in additional accruals that could be significant to results of operations in a particular year or quarter. Any adjustments to the recorded liability will be reflected in earnings in the periods in which such adjustments become known. One of our chemical customers, Sunbelt Chlor Alkali Partnership (Sunbelt), filed a rate reasonableness complaint before the Surface Transportation Board (STB) alleging that our tariff rates for transportation of regulated movements are unreasonable. Since April 1, 2011, we have been billing and collecting amounts based on the challenged tariff rates. In 2014, the STB resolved this rate reasonableness complaint in our favor. In June 2016, the STB resolved petitions for reconsideration, which will be reviewed by the parties for technical issues. The matter remains decided in our favor; however, the findings are still subject to appeal. We believe the estimate of any reasonably possible loss will not have a material effect on our financial position, results of operations, or liquidity. With regard to rate cases, we record adjustments to revenues in the periods if and when such adjustments are probable and reasonably estimable. On November 6, 2007, various antitrust class actions filed against us and other Class I railroads in various Federal district courts regarding fuel surcharges were consolidated in the District of Columbia by the Judicial Panel on Multidistrict Litigation. On June 21, 2012, the court certified the case as a class action. The defendant railroads appealed this certification, and the Court of Appeals for the District of Columbia vacated the District Court’s decision and remanded the case for further consideration. We believe the allegations in the complaints are without merit and intend to vigorously defend the cases. We do not believe the outcome of these proceedings will have a material effect on our financial position, results of operations, or liquidity. A lawsuit containing similar allegations against us and four other major railroads that was filed on March 25, 2008, in the U.S. District Court for the District of Minnesota, was voluntarily dismissed by the plaintiff subject to a tolling agreement entered into in August 2008, and most recently extended in August 2013. Casualty Claims Casualty claims include employee personal injury and occupational claims as well as third-party claims, all exclusive of legal costs. To aid in valuing our personal injury liability and determining the amount to accrue with respect to such claims during the year, we utilize studies prepared by an independent consulting actuarial firm. Job-related accidental injury and occupational claims are subject to the Federal Employers’ Liability Act (FELA), which is applicable only to railroads. FELA’s fault-based system produces results that are unpredictable and inconsistent as compared with a no-fault workers’ compensation system. The variability inherent in this system could result in actual costs being different from the liability recorded. While the ultimate amount of claims incurred is dependent on future developments, in our opinion, the recorded liability is adequate to cover the future payments of claims and is supported by the most recent actuarial study. In all cases, we record a liability when the expected loss for the claim is both probable and reasonably estimable. Employee personal injury claims – The largest component of casualties and other claims expense is employee personal injury costs. The independent actuarial firm engaged by us provides quarterly studies to aid in valuing our employee personal injury liability and estimating personal injury expense. The actuarial firm studies our historical patterns of reserving for claims and subsequent settlements, taking into account relevant outside influences. The actuarial firm uses the results of these analyses to estimate the ultimate amount of liability, which includes amounts for incurred but unasserted claims. We adjust the liability quarterly based upon our assessment and the results of the study. Our estimate of loss liabilities is subject to inherent limitation given the difficulty of predicting future events such as jury decisions, court interpretations, or legislative changes, and as such the actual loss may vary from the estimated liability recorded. Occupational claims – Occupational claims (including asbestosis and other respiratory diseases, as well as conditions allegedly related to repetitive motion) are often not caused by a specific accident or event but rather allegedly result from a claimed exposure over time. Many such claims are being asserted by former or retired employees, some of whom have not been employed in the rail industry for decades. The independent actuarial firm provides an estimate of the occupational claims liability based upon our history of claim filings, severity, payments, and other pertinent facts. The liability is dependent upon judgments we make as to the specific case reserves as well as judgments of the actuarial firm in the quarterly studies. The actuarial firm’s estimate of ultimate loss includes a provision for those claims that have been incurred but not reported. This provision is derived by analyzing industry data and projecting our experience into the future as far as can be reasonably determined. We adjust the liability quarterly based upon our assessment and the results of the study. However, it is possible that the recorded liability may not be adequate to cover the future payment of claims. Adjustments to the recorded liability are reflected in operating expenses in the periods in which such adjustments become known. Third-party claims – We record a liability for third-party claims, including those for highway crossing accidents, trespasser and other injuries, automobile liability, property damage, and lading damage. The actuarial firm assists us with the calculation of potential liability for third-party claims, except lading damage, based upon our experience including the number and timing of incidents, amount of payments, settlement rates, number of open claims, and legal defenses. The actuarial estimate includes a provision for claims that have been incurred but not reported. We adjust the liability quarterly based upon our assessment and the results of the study. Given the inherent uncertainty in regard to the ultimate outcome of third-party claims, it is possible that the actual loss may differ from the estimated liability recorded. Environmental Matters We are subject to various jurisdictions’ environmental laws and regulations. We record a liability where such liability or loss is probable and its amount can be reasonably estimated. Claims, if any, against third parties, for recovery of cleanup costs we have incurred are reflected as receivables (when collection is probable) in the Consolidated Balance Sheets and are not netted against the associated liability. Environmental engineers regularly participate in ongoing evaluations of all known sites and in determining any necessary adjustments to liability estimates. We have an Environmental Policy Council, composed of senior managers, to oversee and interpret our environmental policy. Our Consolidated Balance Sheets include liabilities for environmental exposures of $66 million at June 30, 2016, and $69 million at December 31, 2015 (of which $15 million are classified as current liabilities at both June 30, 2016, and December 31, 2015). At both June 30, 2016, and December 31, 2015, the liability represents our estimates of the probable cleanup, investigation, and remediation costs based on available information at 145 known locations and projects. At June 30, 2016, 15 sites accounted for $42 million of the liability, and no individual site was considered to be material. We anticipate that much of this liability will be paid out over five years; however, some costs will be paid out over a longer period. At 12 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 our financial position, results of operations, or liquidity in a particular year or quarter. Based on our assessment of the facts and circumstances now known, we believe we have recorded the probable and reasonably estimable costs for dealing with those environmental matters of which we are aware. Further, we believe that it is unlikely that any known matters, either individually or in the aggregate, will have a material adverse effect on our financial position, results of operations, or liquidity. Insurance We obtain, on behalf of ourself and our subsidiaries, insurance for potential losses for third-party liability and first-party property damages. We are currently self-insured up to $50 million and above $1.1 billion ($1.5 billion for specific perils) per occurrence and/or policy year for bodily injury and property damage to third parties and up to $25 million and above $200 million per occurrence and/or policy year for property owned by us or in our care, custody, or control. |
New Accounting Pronouncement New Accounting Pronouncements |
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Jun. 30, 2016 | |
New Accounting Pronouncements and Changes in Accounting Principles [Abstract] | |
New Accounting Pronouncement, Early Adoption [Table Text Block] | New Accounting Pronouncements In March 2016, the FASB issued Accounting Standards Update (ASU) No. 2016-09, “Improvements to Employee Share-Based Payment Accounting.” We adopted the provisions of this ASU during the first quarter of 2016. This update principally affects the recognition of excess tax benefits and deficiencies and the cash flow classification of share-based compensation-related transactions. The requirement to recognize excess tax benefits and deficiencies as income tax expense or benefit in the income statement was applied prospectively, with a benefit of $6 million recognized in the “Provision for income taxes” line item for the six months ended June 30, 2016. The classification requirements on the Consolidated Statements of Cash Flows for the adoption of ASU 2016-09 resulted in a $23 million increase in “Current liabilities other than debt” within the operating activities section and a corresponding decrease in “Common stock transactions” within the financing activities section for the first six months of 2016. We retrospectively presented the Consolidated Statements of Cash Flows for the first six months of 2015 to reflect a $28 million increase in “Current liabilities other than debt” within the operating activities section and a corresponding decrease in “Common stock transactions” within the financing activities section. In November 2015, the FASB issued ASU No. 2015-17, “Balance Sheet Classification of Deferred Taxes.” This update requires that deferred tax liabilities and assets be classified as noncurrent on the balance sheet rather than as separate current and noncurrent amounts. We adopted the provisions of this ASU during the first quarter of 2016 and applied it retrospectively. The adoption of ASU 2015-17 resulted in the presentation of $110 million of current deferred income tax assets as a reduction of “Deferred income taxes” in the long-term liabilities section of the Consolidated Balance Sheet at June 30, 2016. We retrospectively presented the December 31, 2015, Consolidated Balance Sheet and related disclosures to reflect the reclassification of $121 million of deferred income tax assets from “Deferred income taxes” in the current assets section of the balance sheet to “Deferred income taxes” in the long-term liabilities section of the balance sheet. In February 2016, the FASB issued ASU No. 2016-02, “Leases.” This update, effective for our annual and interim reporting periods beginning January 1, 2019, will replace existing lease guidance in GAAP and will require lessees to recognize lease assets and lease liabilities on the balance sheet for all leases and disclose key information about leasing arrangements. When implemented, lessees and lessors will be required to recognize and measure leases at the beginning of the earliest period presented using a modified retrospective approach. We are evaluating the effect that ASU 2016-02 will have on our consolidated financial statements and related disclosures. In May 2014, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers.” This update will replace most existing revenue recognition guidance in GAAP and require an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. In July 2015, the FASB approved a one-year deferral of the effective date of the new standard, making it effective for our annual and interim reporting periods beginning January 1, 2018. Early application is permitted, but not before the original effective date for public business entities (annual reporting periods beginning after December 15, 2016). ASU 2014-09 permits the use of either the retrospective or cumulative effect transition method. We are evaluating the effect that ASU 2014-09 will have on our consolidated financial statements and related disclosures. |
Stock-Based Compensation (Tables) |
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Disclosure of Compensation Related Costs, Share-based Payments [Abstract] | |||||||||||||||||||||||||||||||||
Schedule Of Assumptions Used For LTIP And TSOP Grants | The assumptions for the 2016 LTIP and TSOP grants are shown in the following table:
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Earnings Per Share (Tables) |
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Earnings Per Share [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule Of Earnings Per Share Calculation | The following table sets forth the calculation of basic and diluted earnings per share:
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Stockholders' Equity (Tables) |
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Equity [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Accumulated Other Comprehensive Loss | The components of “Other comprehensive income” 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:
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Pensions And Other Postretirement Benefits (Tables) |
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Defined Contribution Pension and Other Postretirement Plans Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Pension And Other Postretirement Benefit Cost Components | Pension and postretirement benefit cost components for the second quarter and first six months are as follows:
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Fair Value (Tables) |
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Fair Value Disclosures [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Fair Value Measurements, Recurring and Nonrecurring, Valuation Techniques [Table Text Block] | Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) 820-10, “Fair Value Measurements,” established a framework for measuring fair value and a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three broad levels, as follows:
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Schedule Of Carrying Amounts And Estimated Fair Values | The carrying amounts and estimated fair values for the remaining financial instruments, excluding investments accounted for under the equity method, consisted of the following:
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Schedule Of Fair Value Of Long-term Assets And Liabilities | The following table sets forth the fair value of long-term investment and long-term debt balances disclosed above by valuation technique level, within the fair value hierarchy (there were no level 3 valued assets or liabilities).
|
Stock-Based Compensation (Schedule Of Assumptions Used For LTIP And TSOP Grants) (Details) |
3 Months Ended |
---|---|
Mar. 31, 2016
$ / shares
| |
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | |
Average expected volatility rate | 27.00% |
Average risk-free interest rate | 2.00% |
LTIP | |
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | |
Average expected option term, in years | 8 years 10 months 24 days |
Per-share grant-date fair value for options granted | $ 19.92 |
TSOP | |
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | |
Average expected option term, in years | 8 years 7 months 6 days |
Per-share grant-date fair value for options granted | $ 14.75 |
Earnings Per Share Earnings Per Share (Details) - USD ($) $ / shares in Units, shares in Millions, $ in Millions |
3 Months Ended | 6 Months Ended | ||||
---|---|---|---|---|---|---|
Jun. 30, 2016 |
Mar. 31, 2016 |
Jun. 30, 2015 |
Mar. 31, 2015 |
Jun. 30, 2016 |
Jun. 30, 2015 |
|
Earnings Per Share, Basic, by Common Class, Including Two Class Method [Line Items] | ||||||
Net income | $ 405 | $ 433 | $ 792 | $ 743 | ||
Dividend equivalent payments, basic | (1) | (1) | (2) | (3) | ||
Dividend equivalent payments, diluted | (1) | (1) | (2) | (2) | ||
Income available to common stockholders, basic | 404 | 432 | 790 | 740 | ||
Income available to common stockholders, diluted | $ 404 | $ 432 | $ 790 | $ 741 | ||
Weighted-average shares outstanding | 294.7 | 302.9 | 296.0 | 304.8 | ||
Dilutive effect of outstanding options and share-settled awards | 1.9 | 2.6 | 1.7 | 2.7 | ||
Adjusted weighted-average shares outstanding | 296.6 | 305.5 | 297.7 | 307.5 | ||
Earnings per share, basic | $ 1.37 | $ 1.43 | $ 2.67 | $ 2.43 | ||
Earnings per share, diluted | $ 1.36 | $ 1.41 | $ 2.65 | $ 2.41 | ||
Options having exercise prices exceeding average market price | 1.5 | 1.5 | 0.7 | 0.0 |
Stock Repurchase Program (Details) - USD ($) shares in Millions, $ in Millions |
6 Months Ended | |
---|---|---|
Jun. 30, 2016 |
Jun. 30, 2015 |
|
Stock Repurchase Program [Abstract] | ||
Stock repurchased and retired during period, shares | 5.0 | 7.4 |
Stock repurchased and retired during period, cost | $ 400 | $ 765 |
Stock repurchased and retired since beginning of stock repurchase program in 2006, shares | 156.1 | |
Stock repurchased and retired since beginning of stock repurchase program in 2006, cost | $ 9,900 |
Investments (Details) - USD ($) $ in Millions |
3 Months Ended | 6 Months Ended | 12 Months Ended | ||
---|---|---|---|---|---|
Jun. 30, 2016 |
Jun. 30, 2015 |
Jun. 30, 2016 |
Jun. 30, 2015 |
Dec. 31, 2015 |
|
Equity Method Investee [Member] | |||||
Schedule of Investments [Line Items] | |||||
Equity method investment, ownership percentage | 58.00% | 58.00% | |||
Conrail Voting | |||||
Schedule of Investments [Line Items] | |||||
Equity method investment, ownership percentage | 50.00% | 50.00% | |||
Conrail Inc [Member] | |||||
Schedule of Investments [Line Items] | |||||
Equity method investments | $ 1,200 | $ 1,200 | $ 1,100 | ||
Expenses from transactions with related party | 36 | $ 40 | 75 | $ 77 | |
Equity in the earnings of investee | 11 | 13 | 22 | 23 | |
Due to affiliate, current | 109 | 109 | 71 | ||
Due to affiliate, noncurrent | $ 280 | $ 280 | $ 280 | ||
Due to affiliate, noncurrent, maturity date | 2044 | 2044 | |||
Due to affiliate, average interest rate | 2.90% | 2.90% | |||
TTX Company [Member] | |||||
Schedule of Investments [Line Items] | |||||
Equity method investment, ownership percentage | 19.65% | 19.65% | |||
Expenses from transactions with related party | $ 56 | 53 | $ 114 | 106 | |
Equity in the earnings of investee | $ 5 | $ 7 | $ 10 | $ 9 |
Debt Debt (Details) - June2016SeniorNote2.9Due2026 [Member] $ in Millions |
3 Months Ended |
---|---|
Jun. 30, 2016
USD ($)
| |
Debt Instrument [Line Items] | |
Proceeds from Issuance of Long-term Debt | $ 600 |
Debt Instrument, Interest Rate, Stated Percentage | 2.90% |
Debt Instrument, Maturity Date, Description | 2026 |
Pensions And Other Postretirement Benefits (Details) - USD ($) $ in Millions |
3 Months Ended | 6 Months Ended | ||
---|---|---|---|---|
Jun. 30, 2016 |
Jun. 30, 2015 |
Jun. 30, 2016 |
Jun. 30, 2015 |
|
Pension Plans, Defined Benefit | ||||
Defined Benefit Plan Disclosure [Line Items] | ||||
Service cost | $ 9 | $ 10 | $ 18 | $ 20 |
Interest cost | 21 | 23 | 41 | 47 |
Expected return on plan assets | (43) | (42) | (86) | (83) |
Amortization of net losses | 12 | 17 | 25 | 33 |
Amortization of prior service benefit | 0 | 0 | 0 | 0 |
Net cost (benefit) | (1) | 8 | (2) | 17 |
Other Postretirement Benefit Plans, Defined Benefit | ||||
Defined Benefit Plan Disclosure [Line Items] | ||||
Service cost | 2 | 2 | 3 | 4 |
Interest cost | 4 | 5 | 8 | 10 |
Expected return on plan assets | (5) | (5) | (9) | (10) |
Amortization of net losses | 0 | 0 | 0 | 0 |
Amortization of prior service benefit | (6) | (6) | (12) | (12) |
Net cost (benefit) | (5) | $ (4) | (10) | $ (8) |
Pension and Other Postretirement Benefit [Member] | ||||
Defined Benefit Plan Disclosure [Line Items] | ||||
Change in accounting estimate, effect of change on operating results | $ 7 | $ 13 |
Fair Value (Schedule Of Carrying Amounts And Estimated Fair Values) (Details) - USD ($) $ in Millions |
Jun. 30, 2016 |
Dec. 31, 2015 |
---|---|---|
Fair Value Disclosures [Abstract] | ||
Long-term investments, carrying amount | $ 183 | $ 162 |
Long-term investments, fair value | 211 | 190 |
Long-term debt, including current maturities, carrying value | (10,099) | (9,893) |
Long-term debt, including current maturities, fair value | $ (12,219) | $ (11,124) |
Fair Value (Schedule Of Fair Value Of Long-term Assets And Liabilities) (Details) - USD ($) $ in Millions |
Jun. 30, 2016 |
Dec. 31, 2015 |
---|---|---|
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items] | ||
Long-term investments | $ 211 | $ 190 |
Long-term debt, including current maturities | (12,219) | (11,124) |
Level 1 | ||
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items] | ||
Long-term investments | 71 | 49 |
Long-term debt, including current maturities | (12,016) | (11,022) |
Level 2 | ||
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items] | ||
Long-term investments | 140 | 141 |
Long-term debt, including current maturities | $ (203) | $ (102) |
Commitments And Contingencies (Details) |
6 Months Ended | |
---|---|---|
Jun. 30, 2016
USD ($)
location
|
Dec. 31, 2015
USD ($)
location
|
|
Commitments and Contingencies Disclosure [Abstract] | ||
Environmental liability | $ 66,000,000 | $ 69,000,000 |
Current environmental liability | $ 15,000,000 | $ 15,000,000 |
Known cleanup and remediation locations and projects | location | 145 | 145 |
Number of sites - representative sample | location | 15 | |
Liability associated with those sites | $ 42,000,000 | |
Environmental locations representative sample liability payout period, in years | 5 years | |
Responsible locations with another party | location | 12 | |
Self-insured injury/damage to third party - up to | $ 50,000,000 | |
Self-insured injury/damage to third parties - and above, per occurrence | 1,100,000,000.0 | |
Self-insured injury/damage to third parties - and above, per occurrence for specific perils | 1,500,000,000.0 | |
Self-insured NS owned property - up to | 25,000,000 | |
Self-insured NS owned property - and above, per occurrence | $ 200,000,000 |
New Accounting Pronouncement Adjustments for New Accounting Pronouncements (Details) - USD ($) $ in Millions |
6 Months Ended | 12 Months Ended | |
---|---|---|---|
Jun. 30, 2016 |
Jun. 30, 2015 |
Dec. 31, 2015 |
|
Accounting Standards Update 2016-09 [Member] | |||
New Accounting Pronouncements or Change in Accounting Principle [Line Items] | |||
New accounting pronouncement, effect of change on net income | $ 6 | ||
New accounting pronouncement, effect of adoption, quantification | (23) | $ (28) | |
Accounting Standards Update 2015-17 [Member] | |||
New Accounting Pronouncements or Change in Accounting Principle [Line Items] | |||
New accounting pronouncement, effect of adoption, quantification | $ 110 | $ 121 |
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