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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
for the quarterly period ended SEPTEMBER 30, 2019

    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 
for the transition period from ___________ to___________
 
Commission file number 1-8339
nslogoq217a12.jpg
 
NORFOLK SOUTHERN CORPORATION
(Exact name of registrant as specified in its charter) 
Virginia
52-1188014
(State or other jurisdiction of incorporation or organization)
(IRS Employer Identification No.)
Three Commercial Place
23510-2191
Norfolk,
Virginia
(Address of principal executive offices)
(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)

 Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol
Name of each exchange on which registered
Norfolk Southern Corporation Common Stock (Par Value $1.00)
NSC
New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.         Yes  No
 
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).                             Yes  No
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company.  See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. 
Large accelerated filer          Accelerated filer        Non-accelerated filer    
Smaller reporting company          Emerging growth company    

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes   No

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
Class
 
Outstanding at September 30, 2019
Common Stock ($1.00 par value per share)
 
260,746,663
(excluding 20,320,777 shares held by the registrant’s
 
 
consolidated subsidiaries)




TABLE OF CONTENTS

NORFOLK SOUTHERN CORPORATION AND SUBSIDIARIES

 
 
Page
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


2


PART I. FINANCIAL INFORMATION
  
Item 1. Financial Statements.
 
Norfolk Southern Corporation and Subsidiaries
Consolidated Statements of Income
(Unaudited)
 
 
Third Quarter
 
First Nine Months
 
2019
 
2018
 
2019
 
2018
 
($ in millions, except per share amounts)
 
 
 
 
 
 
 
 
Railway operating revenues
$
2,841

 
$
2,947

 
$
8,606

 
$
8,562

 
 
 
 
 
 
 
 
Railway operating expenses:
 

 
 

 
 

 
 

Compensation and benefits
682

 
725

 
2,121

 
2,168

Purchased services and rents
423

 
450

 
1,265

 
1,281

Fuel
226

 
274

 
730

 
812

Depreciation
286

 
276

 
853

 
821

Materials and other
228

 
202

 
610

 
599

 
 
 
 
 
 
 
 
Total railway operating expenses
1,845

 
1,927

 
5,579

 
5,681

 
 
 
 
 
 
 
 
Income from railway operations
996

 
1,020

 
3,027

 
2,881

 
 
 
 
 
 
 
 
Other income – net
22

 
30

 
88

 
67

Interest expense on debt
150

 
142

 
452

 
409

 
 
 
 
 
 
 
 
Income before income taxes
868

 
908

 
2,663

 
2,539

 
 
 
 
 
 
 
 
Income taxes
211

 
206

 
607

 
575

 
 
 
 
 
 
 
 
Net income
$
657

 
$
702

 
$
2,056

 
$
1,964

 
 
 
 
 
 
 
 
Earnings per share:
 

 
 

 
 

 
 

Basic
$
2.50

 
$
2.54

 
$
7.76

 
$
7.00

Diluted
2.49

 
2.52

 
7.70

 
6.95

 
 
 
 
 
 
 
 
 

 See accompanying notes to consolidated financial statements.
3


Norfolk Southern Corporation and Subsidiaries
Consolidated Statements of Comprehensive Income
(Unaudited)
 
 
Third Quarter
 
First Nine Months
 
2019
 
2018
 
2019
 
2018
 
($ in millions)
 
 
 
 
 
 
 
 
Net income
$
657

 
$
702

 
$
2,056

 
$
1,964

Other comprehensive income, before tax:
 
 
 
 
 
 
 
Pension and other postretirement benefits
5

 
8

 
15

 
9

Other comprehensive income (loss) of equity investees

 

 
(1
)
 
2

Other comprehensive income, before tax
5

 
8

 
14

 
11

 
 
 
 
 
 
 
 
Income tax expense related to items of
 
 
 
 
 
 
 
other comprehensive income
(1
)
 
(2
)
 
(4
)
 
(2
)
 
 
 
 
 
 
 
 
Other comprehensive income, net of tax
4

 
6

 
10

 
9

 
 
 
 
 
 
 
 
Total comprehensive income
$
661

 
$
708

 
$
2,066

 
$
1,973

 

 See accompanying notes to consolidated financial statements.
4


Norfolk Southern Corporation and Subsidiaries
Consolidated Balance Sheets
(Unaudited)

 
September 30,
2019
 
December 31,
2018
 
($ in millions)
 
 
 
 
Assets
 

 
 

Current assets:
 

 
 

Cash and cash equivalents
$
452

 
$
358

Accounts receivable – net
973

 
1,009

Materials and supplies
266

 
207

Other current assets
325

 
288

Total current assets
2,016

 
1,862

 
 
 
 
Investments
3,376

 
3,109

Properties less accumulated depreciation of $12,381
 
 
 

and $12,374, respectively
31,394

 
31,091

Other assets
714

 
177

 
 
 
 
Total assets
$
37,500

 
$
36,239

 
 
 
 
Liabilities and stockholders’ equity
 

 
 

Current liabilities:
 

 
 

Accounts payable
$
1,407

 
$
1,505

Short-term debt
350

 

Income and other taxes
202

 
255

Other current liabilities
401

 
246

Current maturities of long-term debt
401

 
585

Total current liabilities
2,761

 
2,591

 
 
 
 
Long-term debt
11,085

 
10,560

Other liabilities
1,727

 
1,266

Deferred income taxes
6,689

 
6,460

 
 
 
 
Total liabilities
22,262

 
20,877

 
 
 
 
Stockholders’ equity:
 

 
 

Common stock $1.00 per share par value, 1,350,000,000 shares
 

 
 

  authorized; outstanding 260,746,663 and 268,098,472 shares,
 

 
 

  respectively, net of treasury shares
262

 
269

Additional paid-in capital
2,219

 
2,216

Accumulated other comprehensive loss
(553
)
 
(563
)
Retained income
13,310

 
13,440

 
 
 
 
Total stockholders’ equity
15,238

 
15,362

 
 
 
 
Total liabilities and stockholders’ equity
$
37,500

 
$
36,239

 

 See accompanying notes to consolidated financial statements.
5


Norfolk Southern Corporation and Subsidiaries
Consolidated Statements of Cash Flows
(Unaudited)
 
 
 
First Nine Months
 
 
2019
 
2018
 
 
($ in millions)
 
 
 
 
 
Cash flows from operating activities:
 

 
 

 
Net income
$
2,056

 
$
1,964

 
Reconciliation of net income to net cash provided by operating activities:
 

 
 

 
Depreciation
854

 
822

 
Deferred income taxes
225

 
138

 
Gains and losses on properties
(4
)
 
(26
)
 
Changes in assets and liabilities affecting operations:
 

 
 

 
Accounts receivable
34

 
(102
)
 
Materials and supplies
(59
)
 
(45
)
 
Other current assets
40

 
45

 
Current liabilities other than debt
(72
)
 
173

 
Other – net
(77
)
 
(85
)
 
 
 
 
 
 
Net cash provided by operating activities
2,997

 
2,884

 
 
 
 
 
Cash flows from investing activities:
 

 
 

 
Property additions
(1,494
)
 
(1,326
)
 
Property sales and other transactions
282

 
93

 
Investment purchases
(12
)
 
(4
)
 
Investment sales and other transactions
(99
)
 
96

 
 
 
 
 
 
Net cash used in investing activities
(1,323
)
 
(1,141
)
 
 
 
 
 
Cash flows from financing activities:
 

 
 

 
Dividends
(705
)
 
(627
)
 
Common stock transactions
21

 
38

 
Purchase and retirement of common stock
(1,550
)
 
(2,300
)
 
Proceeds from borrowings – net of issuance costs
1,404

 
2,023

 
Debt repayments
(750
)
 
(750
)
 
 
 
 
 
 
Net cash used in financing activities
(1,580
)
 
(1,616
)
 
 
 
 
 
 
Net increase in cash, cash equivalents,
 
 
 
 
and restricted cash
94

 
127

 
 
 
 
 
Cash, cash equivalents, and restricted cash:
 

 
 

 
At beginning of year
446

 
690

 
 
 
 
 
 
At end of period
$
540

 
$
817

 
 
 
 
 
Supplemental disclosures of cash flow information:
 

 
 

 
Cash paid during the period for:
 

 
 

 
Interest (net of amounts capitalized)
$
392

 
$
327

 
Income taxes (net of refunds)
404

 
314


 See accompanying notes to consolidated financial statements.
6


Norfolk Southern Corporation and Subsidiaries
Consolidated Statements of Changes in Stockholders’ Equity
(Unaudited)

 
Common
Stock
 
Additional
Paid-in
Capital
 
Accum. Other
Comprehensive
Loss
 
Retained
Income
 
Total
 
($ in millions, except per share amounts)
 
 
 
 
 
 
 
 
 
 
Balance at December 31, 2018
$
269

 
$
2,216

 
$
(563
)
 
$
13,440

 
$
15,362

 

 

 

 

 

Comprehensive income:

 

 

 

 

Net income
 
 
 
 
 
 
677

 
677

Other comprehensive income
 
 
 
 
3

 
 
 
3

Total comprehensive income

 

 

 

 
680

Dividends on common stock,

 

 

 

 

$0.86 per share
 
 
 
 
 
 
(230
)
 
(230
)
Share repurchases
(3
)
 
(22
)
 
 
 
(475
)
 
(500
)
Stock-based compensation
1

 
19

 
 
 
(1
)
 
19

 
 
 
 
 
 
 
 
 
 
Balance at March 31, 2019
267

 
2,213

 
(560
)
 
13,411

 
15,331

 
 
 
 
 
 
 
 
 
 
Comprehensive income:

 

 

 

 

Net income
 
 
 
 
 
 
722

 
722

Other comprehensive income
 
 
 
 
3

 
 
 
3

Total comprehensive income

 

 

 

 
725

Dividends on common stock,

 

 

 

 

$0.86 per share
 
 
 
 
 
 
(228
)
 
(228
)
Share repurchases
(2
)
 
(22
)
 
 
 
(526
)
 
(550
)
Stock-based compensation

 
35

 
 
 
(2
)
 
33

 
 
 
 
 
 
 
 
 
 
Balance at June 30, 2019
265

 
2,226

 
(557
)
 
13,377

 
15,311



 

 

 

 

Comprehensive income:

 

 

 

 

Net income

 

 

 
657

 
657

Other comprehensive income

 

 
4

 

 
4

Total comprehensive income

 

 

 

 
661

Dividends on common stock,

 

 

 

 

$0.94 per share

 

 

 
(247
)
 
(247
)
Share repurchases
(3
)
 
(21
)
 

 
(476
)
 
(500
)
Stock-based compensation

 
14

 

 
(1
)
 
13



 

 

 

 

Balance at September 30, 2019
$
262

 
$
2,219

 
$
(553
)
 
$
13,310

 
$
15,238






 See accompanying notes to consolidated financial statements.
7


Norfolk Southern Corporation and Subsidiaries
Consolidated Statements of Changes in Stockholders’ Equity
(Unaudited)
 
Common
Stock
 
Additional
Paid-in
Capital
 
Accum. Other
Comprehensive
Loss
 
Retained
Income
 
Total
 
($ in millions, except per share amounts)
 
 
 
 
 
 
 
 
 
 
Balance at December 31, 2017
$
285

 
$
2,254

 
$
(356
)
 
$
14,176

 
$
16,359

 
 
 
 
 
 
 
 
 
 
Comprehensive income:
 
 
 
 
 
 
 
 
 
Net income
 
 
 
 
 
 
552

 
552

Other comprehensive loss
 
 
 
 
(4
)
 
 
 
(4
)
Total comprehensive income

 

 

 

 
548

Dividends on common stock,

 

 

 

 

$0.72 per share
 
 
 
 
 
 
(205
)
 
(205
)
Share repurchases
(2
)
 
(16
)
 
 
 
(282
)
 
(300
)
Stock-based compensation
1

 
17

 
 
 
(2
)
 
16

Reclassification of stranded
 
 
 
 
 
 
 
 
 
tax effects
 
 
 
 
(88
)
 
88

 

 
 
 
 
 
 
 
 
 
 
Balance at March 31, 2018
284

 
2,255

 
(448
)
 
14,327

 
16,418

 
 
 
 
 
 
 
 
 
 
Comprehensive income:
 
 
 
 
 
 
 
 
 
Net income
 
 
 
 
 
 
710

 
710

Other comprehensive income
 
 
 
 
7

 
 
 
7

Total comprehensive income
 
 
 
 
 
 
 
 
717

Dividends on common stock,
 
 
 
 
 
 
 
 
 
$0.72 per share
 
 
 
 
 
 
(203
)
 
(203
)
Share repurchases
(3
)
 
(20
)
 
 
 
(377
)
 
(400
)
Stock-based compensation

 
28

 
 
 
(1
)
 
27

 
 
 
 
 
 
 
 
 
 
Balance at June 30, 2018
281

 
2,263

 
(441
)
 
14,456

 
16,559

 
 
 
 
 
 
 
 
 
 
Comprehensive income:
 
 
 
 
 
 
 
 
 
Net income
 
 
 
 
 
 
702

 
702

Other comprehensive income
 
 
 
 
6

 
 
 
6

Total comprehensive income
 
 
 
 
 
 
 
 
708

Dividends on common stock,
 
 
 
 
 
 
 
 
 
$0.80 per share
 
 
 
 
 
 
(219
)
 
(219
)
Share repurchases
(8
)
 
(300
)
 
 
 
(1,292
)
 
(1,600
)
Stock-based compensation
1

 
33

 
 
 
(2
)
 
32

 
 
 
 
 
 
 
 
 
 
Balance at September 30, 2018
$
274

 
$
1,996

 
$
(435
)
 
$
13,645

 
$
15,480




 See accompanying notes to consolidated financial statements.
8


Norfolk Southern Corporation and Subsidiaries
Notes to Consolidated Financial Statements
(Unaudited)
 
In the opinion of management, the accompanying unaudited interim consolidated financial statements contain all adjustments (consisting of normal recurring accruals) necessary to present fairly Norfolk Southern Corporation (Norfolk Southern) and subsidiaries’ (collectively, NS, we, us, and our) financial position at September 30, 2019, and December 31, 2018, our results of operations, comprehensive income and changes in stockholders’ equity for the third quarters and first nine months of 2019 and 2018, and our cash flows for the first nine months of 2019 and 2018 in conformity with U.S. generally accepted accounting principles (GAAP).
 
These consolidated financial statements should be read in conjunction with the consolidated financial statements and notes included in our latest Annual Report on Form 10-K.

1. Railway Operating Revenues

The following table disaggregates our revenues by major commodity group:
 
 
Third Quarter
 
First Nine Months
 
 
2019
 
2018
 
2019

2018
Merchandise:
 
($ in millions)
Chemicals
 
$
481

 
$
481

 
$
1,406

 
$
1,400

Agriculture products
 
394

 
388

 
1,185

 
1,124

Metals and construction
 
391

 
401

 
1,192

 
1,170

Automotive
 
247

 
245

 
749

 
741

Forest and consumer
 
218

 
222

 
641

 
625

Merchandise
 
1,731

 
1,737

 
5,173

 
5,060

Intermodal
 
707

 
746

 
2,127

 
2,138

Coal
 
403

 
464

 
1,306

 
1,364

 
 
 
 
 
 
 
 
 
Total
 
$
2,841

 
$
2,947

 
$
8,606

 
$
8,562



At the beginning of 2019, we recategorized certain commodities within Merchandise major commodity groups to better align with how we internally manage these commodities. Prior period amounts have been reclassified to conform to the current presentation with no net impact to overall Merchandise revenue or total railway operating revenues. Specifically, certain commodities were shifted between Chemicals, Agriculture products, Metals and construction, and Forest and consumer.

We recognize the amount of revenue we expect to be entitled to for the transfer of promised goods or services to customers. A performance obligation is created when a customer under a transportation contract or public tariff submits a bill of lading to NS for the transport of goods. These performance obligations are satisfied as the shipments move from origin to destination. As such, transportation revenue is recognized proportionally as a shipment moves, and related expenses are recognized as incurred. These performance obligations are generally short-term in nature with transit days averaging approximately one week or less for each commodity group. The customer has an unconditional obligation to pay for the service once the service has been completed. Estimated revenue associated with in-process shipments at period-end is recorded based on the estimated percentage of service completed to total transit days. We had no material remaining performance obligations as of September 30, 2019 or December 31, 2018.



9


Under the typical payment terms of our freight contracts, payment for services is due within fifteen days of billing the customer, thus there are no significant financing components. “Accounts receivable – net” on the Consolidated Balance Sheets includes both customer and non-customer receivables as follows:
 
 
September 30,
2019
 
December 31, 2018
 
 
($ in millions)
Customer                                       
 
$
720

 
$
740

Non-customer
 
253

 
269

 
 
 
 
 
  Accounts receivable – net
 
$
973

 
$
1,009



Non-customer receivables include non-revenue-related amounts due from other railroads, governmental entities, and others.  “Other assets” on the Consolidated Balance Sheets includes non-current customer receivables of $23 million and $55 million at September 30, 2019 and December 31, 2018, respectively.  During the third quarter of 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.

Certain ancillary services may be provided to customers under their transportation contracts such as switching, demurrage and other incidental service revenues. These are distinct performance obligations that are recognized at a point in time when the services are performed or as contractual obligations are met. This revenue is included within each of the commodity groups and represents 5% of total “Railway operating revenues” on the Consolidated Statements of Income for the third quarter and first nine months of 2019 and 4% for the third quarter and first nine months of 2018.

2.  Stock-Based Compensation
 
 
Third Quarter
 
First Nine Months
 
 
2019
 
2018
 
2019
 
2018
 
 
($ in millions)
Stock-based compensation expense
 
$
10

 
$
12

 
$
46

 
$
41

Total tax benefit
 
3

 
9

 
34

 
29



During 2019, a committee of nonemployee members of our Board of Directors (and the Chief Executive Officer under 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), as follows:
 
 
Third Quarter
 
First Nine Months
 
 
Granted
 
Weighted-Average Grant-Date Fair Value
 
Granted
 
Weighted-Average Grant-Date Fair Value
 
 
 
 
 
 
 
 
 
Stock options
 
1,190

 
$
40.98

 
45,110

 
$
45.80

RSUs
 
5,610

 
176.40

 
216,800

 
164.20

PSUs
 
2,090

 
168.73

 
98,860

 
160.42



 


10


Stock Options
 
 
Third Quarter
 
First Nine Months
 
 
2019
 
2018
 
2019
 
2018
 
 
($ in millions)
Stock options exercised
 
55,155

 
327,275

 
677,072

 
797,389

Cash received upon exercise
 
$
3

 
$
23

 
$
47

 
$
56

Related tax benefit realized
 
1

 
7

 
16

 
14



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 Norfolk Southern common stock (Common Stock). RSUs granted in previous years 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 the regular quarterly dividends paid on Common Stock. 

 
 
Third Quarter
 
First Nine Months
 
 
2019
 
2018
 
2019
 
2018
 
 
($ in millions)
RSUs vested
 
142

 

 
166,197

 
160,200

Common Stock issued net of tax withholding
 
102

 

 
119,346

 
99,968

Related tax benefit realized
 
$

 
$

 
$
2

 
$
3



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. No PSUs were earned or paid out during the third quarters of 2019 or 2018.

 
 
First Nine Months
 
 
2019
 
2018
 
 
($ in millions)
PSUs earned
 
331,099

 
154,189
Common Stock issued net of tax withholding
 
221,241

 
94,399
Related tax benefit realized
 
$
9

 
$
3





11


3.  Earnings Per Share

The following table sets forth the calculation of basic and diluted earnings per share:

 
Basic
 
Diluted
 
Third Quarter
 
2019
 
2018
 
2019
 
2018
 
($ in millions, except per share amounts,
shares in millions)
 
 
 
 
 
 
 
 
Net income
$
657

 
$
702

 
$
657

 
$
702

Dividend equivalent payments
(1
)
 
(2
)
 

 

 
 
 
 
 
 
 
 
Income available to common stockholders
$
656

 
$
700

 
$
657

 
$
702

 
 
 
 
 
 
 
 
Weighted-average shares outstanding
262.1

 
275.5

 
262.1

 
275.5

Dilutive effect of outstanding options
 

 
 

 
 

 
 

and share-settled awards
 

 
 

 
2.2

 
2.7

 
 
 
 
 
 
 
 
Adjusted weighted-average shares outstanding
 

 
 

 
264.3

 
278.2

 
 
 
 
 
 
 
 
Earnings per share
$
2.50

 
$
2.54

 
$
2.49

 
$
2.52

 
 
 
 
 
 
 
 
 
Basic
 
Diluted
 
First Nine Months
 
2019
 
2018
 
2019
 
2018
 
($ in millions, except per share amounts,
shares in millions)
 
 
 
 
 
 
 
 
Net income
$
2,056

 
$
1,964

 
$
2,056

 
$
1,964

Dividend equivalent payments
(4
)
 
(4
)
 

 
(1
)
 
 
 
 
 
 
 
 
Income available to common stockholders
$
2,052

 
$
1,960

 
$
2,056

 
$
1,963

 
 
 
 
 
 
 
 
Weighted-average shares outstanding
264.6

 
280.1

 
264.6

 
280.1

Dilutive effect of outstanding options
 

 
 

 
 

 
 

and share-settled awards
 

 
 

 
2.3

 
2.5

 
 
 
 
 
 
 
 
Adjusted weighted-average shares outstanding
 
 
 

 
266.9

 
282.6

 
 
 
 
 
 
 
 
Earnings per share
$
7.76

 
$
7.00

 
$
7.70

 
$
6.95


During the third quarters and first nine months of 2019 and 2018, dividend equivalent payments were made to certain 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


12


to common stockholders. There are no awards outstanding that were antidilutive for both the third quarters and first nine months ended September 30, 2019 and 2018.

4. Accumulated Other Comprehensive Loss
The changes in the cumulative balances of “Accumulated other comprehensive loss” reported on the Consolidated Balance Sheets consisted of the following:
 
Balance at
Beginning
of Year
 
Net Income
(Loss)
 
Reclassification of Stranded
Tax Effects
 
Reclassification
Adjustments
 
Balance at
End of Period
 
($ in millions)    
Nine Months Ended September 30, 2019
 
 
 
 
 
 
 
 
 
Pensions and other
 
 
 
 
 
 
 
 
 
postretirement liabilities
$
(497
)
 
$

 
$

 
$
11

 
$
(486
)
Other comprehensive loss
 

 
 

 
 
 
 

 
 

of equity investees
(66
)
 
(1
)
 

 

 
(67
)
 
 
 
 
 
 
 
 
 
 
Accumulated other
 
 
 
 
 
 
 
 
 
 comprehensive loss
$
(563
)
 
$
(1
)
 
$

 
$
11

 
$
(553
)
 
 
 
 
 
 
 
 
 
 
Nine Months Ended September 30, 2018
 

 
 

 
 
 
 

 
 

Pensions and other
 
 
 
 
 
 
 
 
 
postretirement liabilities
$
(300
)
 
$
(11
)
 
$
(86
)
 
$
18

 
$
(379
)
Other comprehensive income
 
 
 
 
 
 
 
 
 
(loss) of equity investees
(56
)
 
2

 
(2
)
 

 
(56
)
 
 
 
 
 
 
 
 
 
 
Accumulated other
 
 
 
 
 
 
 
 
 
 comprehensive loss
$
(356
)
 
$
(9
)
 
$
(88
)
 
$
18

 
$
(435
)


In February 2018, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2018-02, “Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income.” We adopted the provisions of ASU 2018-02 in the first quarter of 2018 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.”

5.  Stock Repurchase Program
 
We repurchased and retired 8.4 million shares of Common Stock under our stock repurchase program during the first nine months of 2019, at a cost of $1.6 billion. During the first nine months of 2018, we repurchased and retired 12.8 million shares (5.7 million under an accelerated share repurchase program and 7.1 million shares under our ongoing program) at a cost of $2.1 billion.

Since the beginning of 2006, we have repurchased and retired 194.0 million shares at a total cost of $15.7 billion.



13


6.  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 $1.4 billion at September 30, 2019, and $1.3 billion at December 31, 2018.

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 amounts payable to CRC for the operation of the Shared Assets Areas totaling $37 million and $38 million for the third quarters of 2019 and 2018, respectively, and $112 million for both the first nine months of 2019 and 2018. Our equity in the earnings of Conrail, net of amortization, included in “Purchased services and rents” was $13 million and $12 million for the third quarters of 2019 and 2018, respectively, and $36 million and $46 million for the first nine months of 2019 and 2018, respectively.

“Other liabilities” includes $280 million at both September 30, 2019, and December 31, 2018, 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” and amounted to $61 million and $64 million of expense for the third quarters of 2019 and 2018, respectively, and $183 million and $197 million for the first nine months of 2019 and 2018, respectively. Our equity in the earnings of TTX, also included in “Purchased services and rents,” totaled $19 million and $16 million for the third quarters of 2019 and 2018, respectively, and $44 million and $49 million for the first nine months of 2019 and 2018, respectively.

7.  Debt

In May 2019, we issued $200 million of 3.80% senior notes due 2028, $400 million of 4.10% senior notes due 2049, and $200 million of 5.10% senior notes due 2118.

In May 2019, we renewed and amended our accounts receivable securitization program, increasing borrowing capacity from $400 million to $450 million with a term expiring in May 2020. We had $350 million outstanding at September 30, 2019 reflected as “Short-term debt” on the Consolidated Balance Sheets, and no amounts outstanding at December 31, 2018.

The “Cash, cash equivalents, and restricted cash” line item on the Consolidated Statements of Cash Flows includes restricted cash of $88 million at both September 30, 2019 and December 31, 2018, reflecting deposits held by a third-party bond agent as collateral for certain debt obligations maturing in October 2019. The restricted cash balance is included as part of “Other current assets” on the Consolidated Balance Sheets in both periods.



14


8. 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 right-of-use (ROU) assets and lease liabilities on the balance sheet for leases greater than twelve months and disclose key information about leasing arrangements. We adopted the standard on January 1, 2019 using the modified retrospective method and used the effective date as our date of initial application. Financial information will not be updated and the disclosures required under the new standard will not be provided for dates and periods before January 1, 2019. Upon adoption of the standard, we recognized ROU assets and corresponding lease liabilities of $586 million on the Consolidated Balance Sheets as of January 1, 2019. There were no adjustments to “Retained income” on adoption.

The new standard provides a number of optional practical expedients for transition. We elected the package of practical expedients under the transition guidance which permitted us not to reassess under the new standard our prior conclusions for lease identification and lease classification on expired or existing contracts and whether initial direct costs previously capitalized would qualify for capitalization under FASB Accounting Standards Codification (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.

The new standard also provides practical expedients and recognition exemptions for an entity’s ongoing accounting policy elections. We elected the short-term lease recognition exemption for all leases that qualify. This means, for those leases that qualify, we do not recognize ROU assets or lease liabilities.

We are committed under long-term lease agreements for equipment, lines of road, and other property. Some of these agreements contain variable payment provisions that depend on an index or rate, initially measured using the index or rate at the lease commencement date, and are therefore not included in our future minimum lease payments. These variable lease agreements include usage-based payments for equipment under service contracts, lines of road, and other property. Our long-term lease agreements do not contain any material restrictive covenants.

Our equipment leases have remaining terms of less than 1 year to 9 years and our lines of road and land leases have remaining terms of less than 1 year to 138 years. Some of these leases include options to extend the leases for up to 99 years, and some include options to terminate the leases within 30 days. Because we are not reasonably certain to exercise these renewal options, the options are not considered in determining the lease term, and associated payments are excluded from future minimum lease payments.

Leases with an initial term of twelve months or less are not recorded on the balance sheet. We recognize lease expense for these leases on a straight-line basis over the lease term. We do not separate lease and non-lease components.

Operating lease amounts included on the Consolidated Balance Sheet were as follows: