Washington, DC 20549
for the quarterly period ended MARCH 31, 2020

for the transition period from ___________ to___________
Commission file number 1-8339
(Exact name of registrant as specified in its charter) 
(State or other jurisdiction of incorporation or organization)(IRS Employer Identification No.)
Three Commercial Place23510-2191
(Address of principal executive offices)(Zip Code)
(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 classTrading SymbolName of each exchange on which registered
Norfolk Southern Corporation Common Stock (Par Value $1.00)NSCNew 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 March 31, 2020
Common Stock ($1.00 par value per share)256,179,130  (excluding 20,320,777 shares held by the registrant’s  
consolidated subsidiaries) 





Item 1. Financial Statements.
Norfolk Southern Corporation and Subsidiaries
Consolidated Statements of Income
 First Quarter
 ($ in millions, except per share amounts)
Railway operating revenues$2,625  $2,840  
Railway operating expenses:  
Compensation and benefits622  727  
Purchased services and rents403  424  
Fuel189  250  
Depreciation292  283  
Materials and other166  190  
Loss on asset disposal385    
Total railway operating expenses2,057  1,874  
Income from railway operations568  966  
Other income – net22  44  
Interest expense on debt154  149  
Income before income taxes436  861  
Income taxes55  184  
Net income$381  $677  
Earnings per share:  
Basic$1.48  $2.53  
Diluted1.47  2.51  
 See accompanying notes to consolidated financial statements.

Norfolk Southern Corporation and Subsidiaries
Consolidated Statements of Comprehensive Income
 First Quarter
 ($ in millions)
Net income$381  $677  
Other comprehensive income, before tax:
Pension and other postretirement benefits7  5  
Other comprehensive income (loss) of equity investees5  (1) 
Other comprehensive income, before tax12  4  
Income tax expense related to items of
other comprehensive income(2) (1) 
Other comprehensive income, net of tax10  3  
Total comprehensive income$391  $680  
 See accompanying notes to consolidated financial statements.

Norfolk Southern Corporation and Subsidiaries
Consolidated Balance Sheets
March 31,
December 31,
($ in millions)
Current assets:  
Cash and cash equivalents$608  $580  
Accounts receivable – net889  920  
Materials and supplies265  244  
Other current assets240  337  
Total current assets2,002  2,081  
Investments3,470  3,428  
Properties less accumulated depreciation of $11,794
and $11,982, respectively
31,179  31,614  
Other assets787  800  
Total assets$37,438  $37,923  
Liabilities and stockholders’ equity  
Current liabilities:  
Accounts payable$1,284  $1,428  
Income and other taxes200  229  
Other current liabilities352  327  
Current maturities of long-term debt400  316  
Total current liabilities2,236  2,300  
Long-term debt11,807  11,880  
Other liabilities1,683  1,744  
Deferred income taxes6,828  6,815  
Total liabilities22,554  22,739  
Stockholders’ equity:  
Common stock $1.00 per share par value, 1,350,000,000 shares
  authorized; outstanding 256,179,130 and 257,904,956 shares,
  respectively, net of treasury shares258  259  
Additional paid-in capital2,205  2,209  
Accumulated other comprehensive loss(481) (491) 
Retained income12,902  13,207  
Total stockholders’ equity14,884  15,184  
Total liabilities and stockholders’ equity$37,438  $37,923  
 See accompanying notes to consolidated financial statements.

Norfolk Southern Corporation and Subsidiaries
Consolidated Statements of Cash Flows
 First Three Months
 ($ in millions)
Cash flows from operating activities:  
Net income$381  $677  
Reconciliation of net income to net cash provided by operating activities:  
Depreciation292  283  
Deferred income taxes11  57  
Gains and losses on properties(8) (18) 
Loss on asset disposal385    
Changes in assets and liabilities affecting operations:  
Accounts receivable32  (39) 
Materials and supplies(21) (21) 
Other current assets(33) 12  
Current liabilities other than debt(40) (27) 
Other – net(44) (43) 
Net cash provided by operating activities955  881  
Cash flows from investing activities:  
Property additions(366) (467) 
Property sales and other transactions158  152  
Investment purchases  (2) 
Investment sales and other transactions(25) (33) 
Net cash used in investing activities(233) (350) 
Cash flows from financing activities:  
Dividends(242) (230) 
Common stock transactions14  2  
Purchase and retirement of common stock(466) (500) 
Proceeds from borrowings  250  
Net cash used in financing activities(694) (478) 
Net increase in cash, cash equivalents, and restricted cash28  53  
Cash, cash equivalents, and restricted cash:     
At beginning of year580  446  
At end of period$608  $499  
Supplemental disclosures of cash flow information:  
Cash paid during the period for:  
Interest (net of amounts capitalized)$121  $112  
Income taxes (net of refunds)16  9  

 See accompanying notes to consolidated financial statements.

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

Accum. Other
 ($ in millions, except per share amounts)
Balance at December 31, 2019$259  $2,209  $(491) $13,207  $15,184  
Comprehensive income:
Net income381  381  
Other comprehensive income10  10  
Total comprehensive income391  
Dividends on common stock,
$0.94 per share
(242) (242) 
Share repurchases(2) (21) (443) (466) 
Stock-based compensation1  17  (1) 17  
Balance at March 31, 2020$258  $2,205  $(481) $12,902  $14,884  

Accum. Other
($ in millions, except per share amounts)
Balance at December 31, 2018$269  $2,216  $(563) $13,440  $15,362  
Comprehensive income:
Net income677  677  
Other comprehensive income3  3  
Total comprehensive income680  
Dividends on common stock,
$0.86 per share
(230) (230) 
Share repurchases(3) (22) (475) (500) 
Stock-based compensation1  19  (1) 19  
Balance at March 31, 2019$267  $2,213  $(560) $13,411  $15,331  

 See accompanying notes to consolidated financial statements.

Norfolk Southern Corporation and Subsidiaries
Notes to Consolidated Financial Statements
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 March 31, 2020, and December 31, 2019, our results of operations, comprehensive income and changes in stockholders’ equity for the first quarters of 2020 and 2019, and our cash flows for the first three months of 2020 and 2019 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:
First Quarter
Merchandise:($ in millions)
Agriculture, forest and consumer products$551  $558  
Chemicals520  507  
Metals and construction367  370  
Automotive234  251  
Merchandise1,672  1,686  
Intermodal655  719  
Coal298  435  
Total$2,625  $2,840  

At the beginning of 2020, we combined the agriculture products and forest and consumer commodity groups. In addition, we also made changes in the categorization of certain other commodity groups within Merchandise. Specifically, certain commodities were shifted between agriculture, forest, and consumer products; chemicals; and metals and construction. These changes were made as a result of organizational initiatives to better align with how we manage these commodities. Prior period railway operating revenues have been reclassified to conform to the current presentation.

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 March 31, 2020 or December 31, 2019.

Revenue related to interline transportation services that involve another railroad is reported on a net basis. Therefore, the portion of the amount that relates to another party is not reflected in revenue.


Under the typical payment terms of our freight contracts, payment for services is due within fifteen days of billing the customer, thus there are no significant financing components. “Accounts receivable – net” on the Consolidated Balance Sheets includes both customer and non-customer receivables as follows:
March 31,
December 31, 2019
($ in millions)
Customer                                       $665  $682  
Non-customer224  238  
  Accounts receivable – net$889  $920  

Non-customer receivables include non-revenue-related amounts due from other railroads, governmental entities, and others. “Other assets” on the Consolidated Balance Sheets includes non-current customer receivables of $23 million at both March 31, 2020 and December 31, 2019. We do not have any material contract assets or liabilities at March 31, 2020 or December 31, 2019.

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 both the first quarter of 2020 and 2019.

2.  Stock-Based Compensation
First Quarter
($ in millions)
Stock-based compensation expense$2  $16  
Total tax benefit26  23  

During the first quarter of 2020, a committee of nonemployee 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), as follows:

First Quarter
GrantedWeighted-Average Grant-Date Fair Value
Stock options42,720  $52.37  
RSUs164,160  210.77  
PSUs76,790  213.38  


Stock Options
First Quarter
($ in millions)
Stock options exercised523,238406,371  
Cash received upon exercise$43  $28  
Related tax benefit realized13  9  

Restricted Stock Units

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). 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. 
First Quarter
($ in millions)
RSUs vested202,299  165,549  
Common Stock issued net of tax withholding143,712  118,881  
Related tax benefit realized$5  $2  

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.

First Quarter
($ in millions)
PSUs earned235,935  331,099
Common Stock issued net of tax withholding156,450  221,241
Related tax benefit realized$7  $9  

3. Loss on Asset Disposal

In the first quarter of 2020, in connection with our initiatives to increase operational fluidity and asset utilization and improve labor and fuel efficiency, we committed to a plan to dispose of certain locomotives deemed excess and no longer needed for railroad operations. When depreciable operating road and equipment assets are sold or retired in the ordinary course of business, the cost of the assets, net of sale proceeds or salvage, is charged to accumulated depreciation, and no gain or loss is recognized in earnings. A retirement is considered abnormal if it does not occur in the ordinary course of business, if it relates to disposition of a large segment of an asset class and if the retirement varies significantly from the retirement profile identified through our depreciation studies, which inherently consider the impact of normal retirements on expected service lives and depreciation rates. We evaluated the planned locomotive retirements and concluded they were abnormal. Accordingly, a $385 million loss was recorded to adjust their carrying amount to their estimated fair value, which resulted in a $97 million tax benefit. During the first quarter, we sold 297 of 703 locomotives under the plan. The carrying amount of the remaining assets held for sale of $44 million is classified as “Other current assets” in the Consolidated Balance Sheets at March 31, 2020.


4.  Earnings Per Share

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

 First Quarter
($ in millions, except per share amounts,
shares in millions)
Net income$381  $677  $381  $677  
Dividend equivalent payments(1) (1) (1)   
Income available to common stockholders$380  $676  $380  $677  
Weighted-average shares outstanding257.3  267.1  257.3  267.1  
Dilutive effect of outstanding options    
and share-settled awards  1.4  2.3  
Adjusted weighted-average shares outstanding  258.7  269.4  
Earnings per share$1.48  $2.53  $1.47  $2.51  

During the first quarter of 2020 and 2019, 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 to common stockholders. There are no awards outstanding that were antidilutive for the first quarters ended March 31, 2020 and 2019.


5. Accumulated Other Comprehensive Loss
The changes in the cumulative balances of “Accumulated other comprehensive loss” reported in the Consolidated Balance Sheets consisted of the following:
Balance at
of Year
Net Income
Balance at
End of Period
 ($ in millions)    
Three Months Ended March 31, 2020     
Pensions and other
postretirement liabilities$(421) $  $5  $(416) 
Other comprehensive income (loss)     
of equity investees(70) 5     (65) 
Accumulated other
 comprehensive loss$(491) $5  $5   $(481) 
Three Months Ended March 31, 2019     
Pensions and other
postretirement liabilities$(497) $  $4  $(493) 
Other comprehensive loss
of equity investees(66) (1)    (67) 
Accumulated other
 comprehensive loss$(563) $(1) $4   $(560) 

6.  Stock Repurchase Program
We repurchased and retired 2.6 million and 2.9 million shares of Common Stock under our stock repurchase program during the first three months of 2020 and 2019, respectively, at a cost of $466 million and $500 million, respectively.

7.  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 both March 31, 2020 and December 31, 2019.

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 $35 million and $37 million for the first quarters of 2020 and 2019, respectively. Our equity in the earnings of Conrail, net of amortization, included in “Purchased services and rents,” which offsets the costs of operating the Shared Assets Areas, was $9 million and $8 million for the first quarters of 2020 and 2019, respectively.


“Other liabilities” includes $280 million at both March 31, 2020, and December 31, 2019, 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 $60 million and $62 million of expense for the first quarters of 2020 and 2019, respectively. Our equity in the earnings of TTX, which offset the costs and are also included in “Purchased services and rents,” totaled $4 million and $13 million for the first quarters of 2020 and 2019, respectively.

8.  Debt

We have in place an accounts receivable securitization program with maximum borrowing capacity of $450 million and a term expiring in May 2020. We had no amounts outstanding at both March 31, 2020, and December 31, 2019, and our available borrowing capacity was $412 million and $429 million, respectively.

In March 2020, we renewed and amended our five-year credit agreement which expires in May 2025 and provides for borrowings at prevailing rates and includes covenants. We increased the program’s borrowing capacity from $750 million to $800 million. We had no amounts outstanding under this facility at both March 31, 2020, and December 31, 2019.

The “Cash, cash equivalents, and restricted cash” line item on the Consolidated Statements of Cash Flows includes restricted cash of $88 million in 2019, reflecting deposits held by a third-party bond agent as collateral for certain debt obligations, which matured on October 1, 2019.

9.  Pensions and Other Postretirement Benefits
We have both funded and unfunded defined benefit pension plans covering principally salaried employees. We also provide specified health care and life insurance benefits to eligible retired employees; these plans can be amended or terminated at our option.  Under our self-insured retiree health care plan, for those participants who are not Medicare-eligible, certain health care expenses are covered for retired employees and their dependents, reduced by any deductibles, coinsurance, and, in some cases, coverage provided under other group insurance policies.  Those participants who are Medicare-eligible are not covered under the self-insured retiree health care plan, but instead are provided with an employer-funded health reimbursement account which can be used for reimbursement of health insurance premiums or eligible out-of-pocket medical expenses.


Pension and postretirement benefit cost components for the first quarter were as follows:
   Other Postretirement
 Pension BenefitsBenefits
 First Quarter
 ($ in millions)
Service cost$10  $9  $1  $2  
Interest cost19  23  3  4  
Expected return on plan assets(48) (45) (3) (4) 
Amortization of net losses13  11      
Amortization of prior service benefit    (6) (6) 
Net benefit$(6) $(2) $(5) $(4) 

The service cost component of defined benefit pension cost and postretirement benefit cost are reported within “Compensation and benefits” and all other components of net benefit cost are presented in “Other income – net” on the Consolidated Statements of Income.

10.  Fair Values of Financial Instruments
The fair values of “Cash and cash equivalents,” “Accounts receivable – net,” and “Accounts payable,” approximate carrying values because of the short maturity of these financial instruments. The carrying value of corporate-owned life insurance is recorded at cash surrender value and, accordingly, approximates fair value. There are no other assets or liabilities measured at fair value on a recurring basis at March 31, 2020 or December 31, 2019. The carrying amounts and estimated fair values, based on Level 1 inputs, of long-term debt consisted of the following:

 March 31, 2020December 31, 2019
 ($ in millions)
Long-term debt, including current maturities$(12,207) $(14,630) $(12,196) $(14,806) 

11.  Commitments and Contingencies
We and/or certain subsidiaries are defendants in numerous lawsuits and other claims relating principally to railroad operations.  When we conclude that it is probable that a liability has been incurred and the amount of the liability can be reasonably estimated, it is accrued through a charge to earnings.  While the ultimate amount of liability incurred in any of these lawsuits and claims is dependent on future developments, in our opinion, the recorded liability is adequate to cover the future payment of such liability and claims.  However, the final outcome of any of these lawsuits and claims cannot be predicted with certainty, and unfavorable or unexpected outcomes could result in additional accruals that could be significant to results of operations in a particular year or quarter.  Any adjustments to the recorded liability will be reflected in earnings in the periods in which such adjustments become known.


In 2007, various antitrust class actions filed against us and other Class I railroads in various Federal district courts regarding fuel surcharges were consolidated in the District of Columbia by the Judicial Panel on Multidistrict Litigation. In 2012, the court certified the case as a class action. The defendant railroads appealed this certification, and the Court of Appeals for the District of Columbia vacated the District Court’s decision and remanded the case for further consideration. On October 10, 2017, the District Court denied class certification. The decision was upheld by the Court of Appeals on August 16, 2019. Since that decision, various individual cases have been filed in multiple jurisdictions. We believe the allegations in the complaints are without merit and intend to vigorously defend the cases. We do not believe the outcome of these proceedings will have a material effect on our financial position, results of operations, or liquidity.

In 2018, a lawsuit was filed against one of our subsidiaries by the minority owner in a jointly-owned terminal railroad company in which our subsidiary has the majority ownership. The lawsuit alleged violations of various state laws and federal antitrust laws. It is reasonably possible that we could incur a loss in the case; however, we intend to vigorously defend the case and believe that we will prevail. The potential range of loss cannot be estimated at this time.

Casualty Claims

Casualty claims include employee personal injury and occupational claims as well as third-party claims, all exclusive of legal costs.  To aid in valuing our personal injury liability and determining the amount to accrue with respect to such claims during the year, we utilize studies prepared by an independent consulting actuarial firm.  Job-related personal injury and occupational claims are subject to the Federal Employer’s Liability Act (FELA), which is applicable only to railroads.  FELA’s fault-based tort system produces results that are unpredictable and inconsistent as compared with a no-fault workers’ compensation system.  The variability inherent in this system could result in actual costs being different from the liability recorded.  While the ultimate amount of claims incurred is dependent on future developments, in our opinion the recorded liability is adequate to cover the future payments of claims and is supported by the most recent actuarial study.  In all cases, we record a liability when the expected loss for the claim is both probable and reasonably estimable.
Employee personal injury claims – The largest component of claims expense is employee personal injury costs.  The independent actuarial firm engaged by us provides quarterly studies to aid in valuing our employee personal injury liability and estimating personal injury expense.  The actuarial firm studies our historical patterns of reserving for claims and subsequent settlements, taking into account relevant outside influences.  The actuarial firm uses the results of these analyses to estimate the ultimate amount of liability. We adjust the liability quarterly based upon our assessment and the results of the study. Our estimate of the liability is subject to inherent limitation given the difficulty of predicting future events such as jury decisions, court interpretations, or legislative changes. As a result, actual claim settlements may vary from the estimated liability recorded.

Occupational claims – Occupational claims include injuries and illnesses alleged to be caused by exposures which occur over time as opposed to injuries or illnesses caused by a specific accident or event. Types of occupational claims commonly seen allege exposure to asbestos and other claimed toxic substances resulting in respiratory diseases or cancer. Many such claims are being asserted by former or retired employees, some of whom have not been employed in the rail industry for decades.  The independent actuarial firm provides an estimate of the occupational claims liability based upon our history of claim filings, severity, payments, and other pertinent facts.  The liability is dependent upon judgments we make as to the specific case reserves as well as judgments of the actuarial firm in the quarterly studies.  The actuarial firm’s estimate of ultimate loss includes a provision for those claims that have been incurred but not reported.  This provision is derived by analyzing industry data and projecting our experience. We adjust the liability quarterly based upon our assessment and the results of the study.  However, it is possible that the recorded liability may not be adequate to cover the future payment of claims.  Adjustments to the recorded liability are reflected in operating expenses in the periods in which such adjustments become known.


Third-party claims – We record a liability for third-party claims including those for highway crossing accidents, trespasser and other injuries, property damage, and lading damage.  The actuarial firm assists us with the calculation of potential liability for third-party claims, except lading damage, based upon our experience including the number and timing of incidents, amount of payments, settlement rates, number of open claims, and legal defenses. We adjust the liability quarterly based upon our assessment and the results of the study.  Given the inherent uncertainty in regard to the ultimate outcome of third-party claims, it is possible that the actual loss may differ from the estimated liability recorded.

Environmental Matters
We are subject to various jurisdictions’ environmental laws and regulations.  We record a liability where such liability or loss is probable and reasonably estimable. Environmental specialists regularly participate in ongoing evaluations of all known sites and in determining any necessary adjustments to liability estimates.  

Our Consolidated Balance Sheets include liabilities for environmental exposures of $56 million at both March 31, 2020 and December 31, 2019 of which $15 million is classified as a current liability at both dates. At March 31, 2020, the liability represents our estimates of the probable cleanup, investigation, and remediation costs based on available information at 109 known locations and projects compared with 110 locations and projects at December 31, 2019. At March 31, 2020, fifteen sites accounted for $39 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 twelve locations, one or more of our subsidiaries in conjunction with a number of other parties have been identified as potentially responsible parties under the Comprehensive Environmental Response, Compensation and Liability Act of 1980 or comparable state statutes that impose joint and several liability for cleanup costs.  We calculate our estimated liability for these sites based on facts and legal defenses applicable to each site and not solely on the basis of the potential for joint liability.

With respect to known environmental sites (whether identified by us or by the Environmental Protection Agency or comparable state authorities), estimates of our ultimate potential financial exposure for a given site or in the aggregate for all such sites can change over time because of the widely varying costs of currently available cleanup techniques, unpredictable contaminant recovery and reduction rates associated with available cleanup technologies, the likely development of new cleanup technologies, the difficulty of determining in advance the nature and full extent of contamination and each potential participant’s share of any estimated loss (and that participant’s ability to bear it), and evolving statutory and regulatory standards governing liability.

The risk of incurring environmental liability for acts and omissions, past, present, and future, is inherent in the railroad business.  Some of the commodities we transport, particularly those classified as hazardous materials, pose special risks that we work diligently to reduce.  In addition, several of our subsidiaries own, or have owned, land used as operating property, or which is leased and operated by others, or held for sale.  Because environmental problems that are latent or undisclosed may exist on these properties, there can be no assurance that we will not incur environmental liabilities or costs with respect to one or more of them, the amount and materiality of which cannot be estimated reliably at this time.  Moreover, lawsuits and claims involving these and potentially other unidentified environmental sites and matters are likely to arise from time to time.  The resulting liabilities could have a significant effect on financial position, results of operations, or liquidity in a particular year or quarter.
Based on our assessment of the facts and circumstances now known, we believe we have recorded the probable and reasonably estimable costs for dealing with those environmental matters of which we are aware.  Further, we believe that it is unlikely that any known matters, either individually or in the aggregate, will have a material adverse effect on our financial position, results of operations, or liquidity.


We obtain on behalf of ourself and our subsidiaries insurance for potential losses for third-party liability and first-party property damages.  With limited exceptions, we are currently insured above $75 million and below $1.1 billion ($1.5 billion for specific perils) per occurrence and/or policy year for bodily injury and property damage to third parties and above $25 million and below $200 million per occurrence and/or policy year for property owned by us or in our care, custody, or control.
12. New Accounting Pronouncements

On January 1, 2020, we adopted Accounting Standards Update (ASU) 2016-13, “Credit Losses - Measurement of Credit Losses on Financial Instruments,” which replaced the current incurred loss impairment method with a method that reflects expected credit losses. Historically, losses associated from the inability to collect on accounts receivable have been insignificant, with little divergence in collection trends through varying economic cycles. Short-term and long-term financial assets, as defined by the standard, are impacted by immediate recognition of estimated credit losses in the financial statements, reflecting the net amount expected to be collected. There was no material impact to the financial statements upon adoption.

In December 2019, the Financial Accounting Standards Board (FASB) issued ASU 2019-12, “Simplifying the Accounting for Income Taxes,” which adds new guidance to simplify the accounting for income taxes, changes the accounting for certain income tax transactions, and makes other minor changes. The new standard is effective as of January 1, 2021, and early adoption is permitted for any interim period for which financial statements have not been issued. We do not expect this standard to have a material effect on our financial statements. We will not adopt the standard early.


Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Norfolk Southern Corporation and Subsidiaries
The following discussion and analysis should be read in conjunction with the Consolidated Financial Statements and Notes.
We are one of the nation’s premier transportation companies.  Our Norfolk Southern Railway Company subsidiary operates approximately 19,500 route miles in 22 states and the District of Columbia, serves every major container port in the eastern United States, and provides efficient connections to other rail carriers.  Norfolk Southern is a major transporter of industrial products, including chemicals, agriculture, and metals and construction materials. In addition, we operate the most extensive intermodal network in the East and are a principal carrier of coal, automobiles, and automotive parts.

During the first quarter of 2020, the execution of our strategic plan, including our new operating plan, continued to deliver financial and operational efficiencies. However, the rapidly developing COVID-19 pandemic has generated significant uncertainty in the economy and our outlook for the remainder of 2020 and could have a material adverse impact on our results of operations, financial condition, and liquidity. While the magnitude and duration of the outbreak, including its impact on our customers and general economic conditions, is uncertain, we experienced volume declines that accelerated through the end of the quarter and have continued to accelerate in the weeks subsequent to the quarter-end. As a result, we expect overall revenues for the full year to decline, driven by volume declines in merchandise, intermodal, and coal, with the magnitude of the decline unknown. The pandemic has influenced, and will continue to influence, the demand for our services and affect our revenues, with year-over-year volume declines in the first several weeks of April approximating 30%. As a result, the impact on the full year 2020 railway operating ratio (a measure of the amount of operating revenues consumed by operating expense) is uncertain.

Our immediate response to the COVID-19 pandemic included protecting our employees and continuing to provide an excellent transportation service product for our customers. We are continuing to monitor the impact of the pandemic on the availability of our employee base, which was not significantly adversely affected in the first quarter of 2020. We proactively established procedures to protect our employees, including implementing social distancing, transitioning to remote work for certain office employees, and establishing rigorous cleaning protocols for their work environments.

($ in millions, except per share amounts)
First Quarter
20202019% change
Income from railway operations$568  $966  (41 %)
Net income$381  $677  (44 %)
Diluted earnings per share$1.47  $2.51  (41 %)
Railway operating ratio (percent)78.4  66.0  19%

First quarter 2020 results were adversely impacted by a $385 million loss on asset disposal. During the first quarter of 2020, we recorded a charge related to the loss on sale of approximately 300 locomotives disposed of in the first quarter, and a write-down of approximately 400 additional locomotives that we are actively marketing to sell. For more information on the impact of the charge, see Note 3.

The following table adjusts our 2020 GAAP financial results to exclude the effects of the charge. We use these non-GAAP financial measures internally and believe this information provides useful supplemental information to


investors to facilitate making period-to-period comparisons by excluding the 2020 charge. While we believe that these non-GAAP financial measures are useful in evaluating our business, this information should be considered as supplemental in nature and is not meant to be considered in isolation, or as a substitute for, the related financial information prepared in accordance with GAAP. In addition, these non-GAAP financial measures may not be the same as similar measures presented by other companies.

Non-GAAP Reconciliation for First Quarter
Reported 2020 (GAAP)
2020 Loss on Asset Disposal
($ in millions, except per share amounts)
Railway operating expenses$2,057  $(385) $1,672  
Income from railway operations$568  $385  $953  
Net income$381  $288  $669  
Diluted earnings per share$1.47  $1.11  $2.58  
Railway operating ratio (percent)78.4  (14.7) 63.7  

In the table below and the paragraph below, references to 2020 results and related comparisons use the adjusted, non-GAAP results from the reconciliation in the table above.

First Quarter
2019Adjusted 2020 (non-GAAP)
($ in millions, except per share amounts)% change
Railway operating expenses$1,672  $1,874  (11 %)
Income from railway operations$953  $966  (1 %)
Net income$669  $677  (1 %)
Diluted earnings per share$2.58  $2.51  3%
Railway operating ratio (percent)63.7  66.0