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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 JUNE 30, 2020

    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 
for the transition period from ___________ to___________
 
Commission file number 1-8339
nsc-20200630_g1.jpg
 
NORFOLK SOUTHERN CORPORATION
(Exact name of registrant as specified in its charter) 
Virginia52-1188014
(State or other jurisdiction of incorporation or organization)(I.R.S. Employer Identification No.)
Three Commercial Place23510-2191
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 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 June 30, 2020
Common Stock ($1.00 par value per share)255,109,247(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)
 
 Second QuarterFirst Six Months
 2020201920202019
 ($ in millions, except per share amounts)
Railway operating revenues$2,085  $2,925  $4,710  $5,765  
Railway operating expenses:    
Compensation and benefits586  712  1,208  1,439  
Purchased services and rents372  418  775  842  
Fuel84  254  273  504  
Depreciation282  284  574  567  
Materials and other151  192  317  382  
Loss on asset disposal    385    
Total railway operating expenses1,475  1,860  3,532  3,734  
Income from railway operations610  1,065  1,178  2,031  
Other income – net49  22  71  66  
Interest expense on debt156  153  310  302  
Income before income taxes503  934  939  1,795  
Income taxes111  212  166  396  
Net income$392  $722  $773  $1,399  
Earnings per share:    
Basic$1.53  $2.72  $3.01  $5.25  
Diluted1.53  2.70  3.00  5.21  
 
 See accompanying notes to consolidated financial statements.
3


Norfolk Southern Corporation and Subsidiaries
Consolidated Statements of Comprehensive Income
(Unaudited)
 
 Second QuarterFirst Six Months
2020201920202019
 ($ in millions)
Net income$392  $722  $773  $1,399  
Other comprehensive income, before tax:  
Pension and other postretirement benefits6  5  13  10  
Other comprehensive income (loss) of equity investees1    6  (1) 
Other comprehensive income, before tax7  5  19  9  
Income tax expense related to items of
other comprehensive income(1) (2) (3) (3) 
Other comprehensive income, net of tax6  3  16  6  
Total comprehensive income$398  $725  $789  $1,405  
 
 See accompanying notes to consolidated financial statements.
4


Norfolk Southern Corporation and Subsidiaries
Consolidated Balance Sheets
(Unaudited)
June 30,
2020
December 31,
2019
($ in millions)
Assets  
Current assets:  
Cash and cash equivalents$1,143  $580  
Accounts receivable – net822  920  
Materials and supplies257  244  
Other current assets128  337  
Total current assets2,350  2,081  
Investments3,590  3,428  
Properties less accumulated depreciation of $11,823
 
and $11,982, respectively
31,217  31,614  
Other assets805  800  
Total assets$37,962  $37,923  
Liabilities and stockholders’ equity  
Current liabilities:  
Accounts payable$1,268  $1,428  
Income and other taxes239  229  
Other current liabilities343  327  
Current maturities of long-term debt85  316  
Total current liabilities1,935  2,300  
Long-term debt12,612  11,880  
Other liabilities1,680  1,744  
Deferred income taxes6,874  6,815  
Total liabilities23,101  22,739  
Stockholders’ equity:  
Common stock $1.00 per share par value, 1,350,000,000 shares
  
  authorized; outstanding 255,109,247 and 257,904,956 shares,
  
  respectively, net of treasury shares256  259  
Additional paid-in capital2,217  2,209  
Accumulated other comprehensive loss(475) (491) 
Retained income12,863  13,207  
Total stockholders’ equity14,861  15,184  
Total liabilities and stockholders’ equity$37,962  $37,923  
 
 See accompanying notes to consolidated financial statements.
5


Norfolk Southern Corporation and Subsidiaries
Consolidated Statements of Cash Flows
(Unaudited)
 
 First Six Months
 20202019
 ($ in millions)
Cash flows from operating activities:  
Net income$773  $1,399  
Reconciliation of net income to net cash provided by operating activities:  
Depreciation574  567  
Deferred income taxes56  133  
Gains and losses on properties(11) (7) 
Loss on asset disposal385    
Changes in assets and liabilities affecting operations:  
Accounts receivable98  (30) 
Materials and supplies(13) (49) 
Other current assets30  55  
Current liabilities other than debt  (30) 
Other – net(134) (86) 
Net cash provided by operating activities1,758  1,952  
Cash flows from investing activities:  
Property additions(735) (979) 
Property sales and other transactions258  214  
Investment purchases(5) (12) 
Investment sales and other transactions(58) (75) 
Net cash used in investing activities(540) (852) 
Cash flows from financing activities:  
Dividends(482) (458) 
Common stock transactions26  18  
Purchase and retirement of common stock(669) (1,050) 
Proceeds from borrowings784  1,054  
Debt repayments(314) (750) 
Net cash used in financing activities(655) (1,186) 
Net increase (decrease) in cash, cash equivalents,
and restricted cash
563  (86) 
Cash, cash equivalents, and restricted cash:   
At beginning of year580  446  
At end of period$1,143  $360  
Supplemental disclosures of cash flow information:  
Cash paid during the period for:  
Interest (net of amounts capitalized)$287  $271  
Income taxes (net of refunds)1  215  

 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, 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, 2020258  2,205  (481) 12,902  14,884  
Comprehensive income:
Net income392  392  
Other comprehensive income6  6  
Total comprehensive income398  
Dividends on common stock,
$0.94 per share
(240) (240) 
Share repurchases(2) (10) (191) (203) 
Stock-based compensation22  22  
Balance at June 30, 2020$256  $2,217  $(475) $12,863  $14,861  


 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, 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, 2019267  2,213  (560) 13,411  15,331  
Comprehensive income:
Net income722  722  
Other comprehensive income3  3  
Total comprehensive income725  
Dividends on common stock,
$0.86 per share
(228) (228) 
Share repurchases(2) (22) (526) (550) 
Stock-based compensation35  (2) 33  
Balance at June 30, 2019$265  $2,226  $(557) $13,377  $15,311  




 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 June 30, 2020, and December 31, 2019, our results of operations, comprehensive income and changes in stockholders’ equity for the second quarters and first six months of 2020 and 2019, and our cash flows for the first six 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:
Second QuarterFirst Six Months
2020201920202019
Merchandise:($ in millions)
Agriculture, forest and consumer products$498  $577  $1,049  $1,135  
Chemicals423  544  943  1,051  
Metals and construction293  384  660  754  
Automotive93  251  327  502  
Merchandise1,307  1,756  2,979  3,442  
Intermodal569  701  1,224  1,420  
Coal209  468  507  903  
Total$2,085  $2,925  $4,710  $5,765  

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 June 30, 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.


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:
June 30,
2020
December 31, 2019
($ in millions)
Customer                                       $592  $682  
Non-customer230  238  
  Accounts receivable – net$822  $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 June 30, 2020 and December 31, 2019. We do not have any material contract assets or liabilities at June 30, 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 the second quarter and first six months of 2020 and 4% for the second quarter and first six months of 2019.

2.  Stock-Based Compensation
Second QuarterFirst Six Months
2020201920202019
($ in millions)
Stock-based compensation expense$10  $20  $12  $36  
Total tax benefit3  8  29  31  

During 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:

Second QuarterFirst Six Months
GrantedWeighted-Average Grant-Date Fair ValueGrantedWeighted-Average Grant-Date Fair Value
Stock options1,050  $39.10  43,770  $52.05  
RSUs3,380  173.56  167,540  210.02  
PSUs1,930  184.47  78,720  212.67  


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Stock Options
Second QuarterFirst Six Months
2020201920202019
($ in millions)
Stock options exercised162,400215,546  685,638  621,917  
Cash received upon exercise$12  $16  $55  $44  
Related tax benefit realized3  6  16  15  

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. 
Second QuarterFirst Six Months
2020201920202019
($ in millions)
RSUs vested  506  202,299  166,055  
Common Stock issued net of tax withholding  363  143,712  119,244  
Related tax benefit realized$  $  $4  $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. No PSUs were earned or paid out during the second quarters of 2020 or 2019.

First Six Months
20202019
($ 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 six months, we sold 446 of 703 locomotives under the plan. The carrying amount of the remaining assets held for sale of $29 million is classified as “Other current assets” in the Consolidated Balance Sheets at June 30, 2020.

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4.  Earnings Per Share

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

 BasicDiluted
 Second Quarter
 2020201920202019
($ in millions, except per share amounts,
shares in millions)
Net income$392  $722  $392  $722  
Dividend equivalent payments  (2)     
Income available to common stockholders$392  $720  $392  $722  
Weighted-average shares outstanding255.4  264.8  255.4  264.8  
Dilutive effect of outstanding options    
and share-settled awards  1.3  2.3  
Adjusted weighted-average shares outstanding  256.7  267.1  
Earnings per share$1.53  $2.72  $1.53  $2.70  
 BasicDiluted
 First Six Months
 2020201920202019
($ in millions, except per share amounts,
shares in millions)
Net income$773  $1,399  $773  $1,399  
Dividend equivalent payments(1) (3) (1)   
Income available to common stockholders$772  $1,396  $772  $1,399  
Weighted-average shares outstanding256.3  265.9  256.3  265.9  
Dilutive effect of outstanding options    
and share-settled awards  1.4  2.4  
Adjusted weighted-average shares outstanding