UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

☒     ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

for the fiscal year ended DECEMBER 31, 2021

☐      TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

for the transition period from ___________ to___________ 

Commission File Number 1-8339 

NORFOLK SOUTHERN CORPORATION

(Exact name of registrant as specified in its charter)

Virginia		52-1188014
(State or other jurisdiction of incorporation or organization)		(I.R.S Employer Identification No.)
650 West Peachtree Street NW		30308-1925
Atlanta,	Georgia
(Address of principal executive offices)		(Zip Code)
(855)		667-3655
(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Norfolk Southern Corporation Common Stock (Par Value $1.00)	NSC	New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act: NONE

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  Yes ☒  No ☐

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act.  Yes ☐  No ☒

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes ☒   No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).   Yes ☒   No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer", "accelerated filer", "smaller reporting company", and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer ☒    Accelerated filer ☐   Non-accelerated filer ☐   Smaller reporting company ☐ Emerging growth company ☐

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

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☒

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

The aggregate market value of the voting common equity held by non-affiliates at June 30, 2021 was $65,486,012,788 (based on the closing price as quoted on the New York Stock Exchange on June 30, 2021).

The number of shares outstanding of each of the registrant’s classes of common stock, at January 31, 2022: 239,777,444 (excluding 20,320,777 shares held by the registrant’s consolidated subsidiaries).

DOCUMENTS INCORPORATED BY REFERENCE: Portions of the Registrant’s definitive proxy statement to be filed electronically pursuant to Regulation 14A not later than 120 days after the end of the fiscal year, are incorporated herein by reference in Part III.

TABLE OF CONTENTS

NORFOLK SOUTHERN CORPORATION AND SUBSIDIARIES

			Page
Part I.	Items 1 and 2.	Business and Properties	K3
	Item 1A.	Risk Factors	K11
	Item 1B.	Unresolved Staff Comments	K15
	Item 3.	Legal Proceedings	K15
	Item 4.	Mine Safety Disclosures	K15
		Information About Our Executive Officers	K16
Part II.	Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and
		Issuer Purchases of Equity Securities	K17
	Item 7.	Management’s Discussion and Analysis of Financial Condition and
		Results of Operations	K18
	Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	K31
	Item 8.	Financial Statements and Supplementary Data	K32
	Item 9.	Changes in and Disagreements with Accountants on Accounting and
		Financial Disclosure	K75
	Item 9A.	Controls and Procedures	K75
	Item 9B.	Other Information	K75
	Item 9C.	Disclosure Regarding Foreign Jurisdictions that Prevent Inspections	K75
Part III.	Item 10.	Directors, Executive Officers and Corporate Governance	K76
	Item 11.	Executive Compensation	K76
	Item 12.	Security Ownership of Certain Beneficial Owners and Management
		and Related Stockholder Matters	K77
	Item 13.	Certain Relationships and Related Transactions, and Director Independence	K79
	Item 14.	Principal Accountant Fees and Services	K79
Part IV.	Item 15.	Exhibits and Financial Statement Schedule	K80
	Item 16.	Form 10-K Summary	K88
		Power of Attorney	K89
		Signatures	K89

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PART I

NORFOLK SOUTHERN CORPORATION AND SUBSIDIARIES

Item 1. Business and Item 2. Properties

GENERAL – Norfolk Southern Corporation (Norfolk Southern) is an Atlanta, Georgia-based company that owns a major freight railroad, Norfolk Southern Railway Company (NSR).  We were incorporated on July 23, 1980, under the laws of the Commonwealth of Virginia.  Our common stock (Common Stock) is listed on the New York Stock Exchange (NYSE) under the symbol “NSC.”

Unless indicated otherwise, Norfolk Southern Corporation and its subsidiaries, including NSR, are referred to collectively as NS, we, us, and our. 

We are primarily engaged in the rail transportation of raw materials, intermediate products, and finished goods primarily in the Southeast, East, and Midwest and, via interchange with rail carriers, to and from the rest of the United States (U.S.).  We also transport overseas freight through several Atlantic and Gulf Coast ports.  We offer the most extensive intermodal network in the eastern half of the U.S.

We make available free of charge through our website, www.norfolksouthern.com, our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and all amendments to those reports as soon as reasonably practicable after such material is electronically filed with or furnished to the U.S. Securities and Exchange Commission (SEC).  In addition, the following documents are available on our website and in print to any shareholder who requests them:

•Corporate Governance Guidelines

•Charters of the Committees of the Board of Directors

•The Thoroughbred Code of Ethics

•Code of Ethical Conduct for Senior Financial Officers

•Categorical Independence Standards for Directors

•Norfolk Southern Corporation Bylaws

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RAILROAD OPERATIONS – At December 31, 2021, we operated approximately 19,300 route miles in 22 states and the District of Columbia.

Our system reaches many manufacturing plants, electric generating facilities, mines, distribution centers, transload facilities, and other businesses located in our service area.

Corridors with heaviest freight volume:

•New York City area to Chicago (via Allentown and Pittsburgh)

•Chicago to Macon (via Cincinnati, Chattanooga, and Atlanta)

•Central Ohio to Norfolk (via Columbus and Roanoke)

•Birmingham to Meridian

•Cleveland to Kansas City

•Memphis to Chattanooga

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The miles operated, which include major leased lines between Cincinnati and Chattanooga, and an exclusive operating agreement for trackage rights over property owned by North Carolina Railroad Company, were as follows:

 

	Mileage Operated at December 31, 2021
	Route Miles	Second and Other Main Track	Passing Track, Crossovers and Turnouts	Way and Yard Switching	Total
Owned	14,522	2,677	1,985	8,202	27,386
Operated under lease, contract or trackage
rights	4,797	1,889	405	839	7,930
Total	19,319	4,566	2,390	9,041	35,316

We operate freight service over lines with significant ongoing Amtrak and commuter passenger operations and conduct freight operations over trackage owned or leased by Amtrak, New Jersey Transit, Southeastern Pennsylvania Transportation Authority, Metro-North Commuter Railroad Company, Maryland Department of Transportation, and Michigan Department of Transportation.

The following table sets forth certain statistics relating to our operations for the past five years:

 

	Years ended December 31,
	2021		2020		2019		2018		2017
Revenue ton miles (billions)	178		164		194		207		201
Revenue per thousand revenue ton miles	$	62.56	$	59.67	$	58.21	$	55.25	$	52.38
Revenue ton miles (thousands) per railroad employee	9,694		8,191		7,939		7,822		7,474
Ratio of railway operating expenses to railway
operating revenues (railway operating ratio)	60.1%		69.3%		64.7%		65.4%		66.6%

RAILWAY OPERATING REVENUES – Total railway operating revenues were $11.1 billion in 2021.  Following is an overview of our three commodity groups. See the discussion of merchandise revenues by major commodity group, intermodal revenues, and coal revenues and tonnage in Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

MERCHANDISE – Our merchandise commodity group is composed of four groupings: 

•Agriculture, forest and consumer products includes soybeans, wheat, corn, fertilizer, livestock and poultry feed, food products, food oils, flour, sweeteners, ethanol, lumber and wood products, pulp board and paper products, wood fibers, wood pulp, scrap paper, beverages, canned goods, and consumer products.

•Chemicals includes sulfur and related chemicals, petroleum products (including crude oil), chlorine and bleaching compounds, plastics, rubber, industrial chemicals, chemical wastes and sand.

•Metals and construction includes steel, aluminum products, machinery, scrap metals, cement, aggregates, minerals, clay, transportation equipment, and items for the U.S. military.

•Automotive includes finished motor vehicles and automotive parts.

In 2021, we handled 2.3 million merchandise carloads, which accounted for 60% of our total railway operating revenues.

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INTERMODAL – Our intermodal commodity group consists of shipments moving in domestic and international containers and trailers.  These shipments are handled on behalf of intermodal marketing companies, international steamship lines, premium customers and asset owning companies. In 2021, we handled 4.1 million intermodal units, which accounted for 28% of our total railway operating revenues.

COAL – Coal revenues accounted for 12% of our total railway operating revenues in 2021.  We handled 73 million tons, or 0.7 million carloads, most of which originated on our lines from major eastern coal basins, with the balance from major western coal basins received via the Memphis and Chicago gateways. Our coal franchise supports the electric generation market, serving approximately 50 coal-fired power plants, as well as the export, domestic metallurgical and industrial markets, primarily through direct rail and river, lake, and coastal facilities, including various terminals on the Ohio River, Lamberts Point in Norfolk, Virginia, the Port of Baltimore, and Lake Erie.

FREIGHT RATES – Our predominant pricing mechanisms, private contracts and exempt price quotes, are not subject to regulation. In general, market forces are the primary determinant of rail service prices.

RAILWAY PROPERTY

Our railroad infrastructure makes us capital intensive with net properties of approximately $32 billion on a historical cost basis.

Property Additions – Property additions for the past five years were as follows:

	2021		2020		2019		2018		2017
	($ in millions)
Road and other property	$	1,041	$	1,046	$	1,371	$	1,276	$	1,210
Equipment	429		448		648		675		513
Total	$	1,470	$	1,494	$	2,019	$	1,951	$	1,723

Our capital spending and replacement programs are and have been designed to assure the ability to provide safe, efficient, and reliable rail transportation services.

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Equipment – At December 31, 2021, we owned or leased the following units of equipment:

 

	Owned	Leased	Total	Capacity of Equipment
Locomotives:				(Horsepower)
Multiple purpose	3,068	—	3,068	11,940,400
Auxiliary units	138	—	138	—
Switching	4	—	4	4,400
Total locomotives	3,210	—	3,210	11,944,800
Freight cars:				(Tons)
Gondola	17,781	2,643	20,424	2,282,819
Hopper	8,113	—	8,113	925,510
Covered hopper	5,664	—	5,664	629,896
Box	2,684	706	3,390	308,515
Flat	1,428	136	1,564	131,168
Other	1,558	—	1,558	69,649
Total freight cars	37,228	3,485	40,713	4,347,557
Other:
Chassis	33,751	880	34,631
Containers	18,310	—	18,310
Work equipment	5,502	243	5,745
Vehicles	2,833	19	2,852
Miscellaneous	2,245	—	2,245
Total other	62,641	1,142	63,783

The following table indicates the number and year built for locomotives and freight cars owned at December 31, 2021:

 

	2021	2020	2019		2018		2017		2012- 2016		2007- 2011		2006 & Before		Total
Locomotives:
No. of units	—	10	35		15		55		266		259		2,570		3,210
% of fleet	—	—	1	%	1	%	2	%	8	%	8	%	80	%	100	%
Freight cars:
No. of units	—	—	200		—		470		5,745		8,041		22,772		37,228
% of fleet	—	—	1	%	—		1	%	15	%	22	%	61	%	100	%

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The following table shows the average age of our owned locomotive and freight car fleets at December 31, 2021 and information regarding 2021 retirements:

 

	Locomotives	Freight Cars
Average age – in service	26.7 years	25.7 years
Retirements	2 units	2,308 units
Average age – retired	31.5 years	42.2 years

Track Maintenance – Of the 35,300 total miles of track on which we operate, we are responsible for maintaining 28,700 miles, with the remainder being operated under trackage rights from other parties responsible for maintenance.

Over 84% of the main line trackage (including first, second, third, and branch main tracks, all excluding rail operated pursuant to trackage rights) has rail ranging from 131 to 155 pounds per yard with the standard installation currently at 136 pounds per yard.  Approximately 41% of our lines, excluding rail operated pursuant to trackage rights, carried 20 million or more gross tons per track mile during 2021.

The following table summarizes several measurements regarding our track roadway additions and replacements during the past five years:

	2021	2020	2019	2018	2017
Track miles of rail installed	458	418	449	416	466
Miles of track surfaced	4,225	4,785	5,012	4,594	5,368
Crossties installed (millions)	2.0	1.8	2.4	2.2	2.5

Traffic Control – Of the 16,200 route miles we dispatch, 11,300 miles are signalized, including 8,500 miles of centralized traffic control (CTC) and 2,800 miles of automatic block signals.  Of the 8,500 miles of CTC, 7,600 miles are controlled by data radio originating at 355 base station radio sites.

ENVIRONMENTAL MATTERS – Compliance with federal, state, and local laws and regulations relating to the protection of the environment is one of our principal goals.  To date, such compliance has not had a material effect on our financial position, results of operations, liquidity, or competitive position. See Note 17 to the Consolidated Financial Statements.

HUMAN CAPITAL MANAGEMENT

Workforce – We employed an average of 18,500 employees during 2021, and 18,100 employees at the end of 2021. Approximately 80% of our railroad employees – referred to as “craft” employees – are covered by collective bargaining agreements with various labor unions. See the discussion of “Labor Agreements” in Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”  The remainder of our workforce is composed of management employees.

Craft Workforce Levels and Productivity – Maintaining appropriate headcount levels for our craft-employee workforce is critical to our on-time and consistent delivery of customers’ goods and operational efficiency goals. We manage this human capital metric through forecasting tools designed to ensure the optimal level of staffing to meet business demands while controlling costs. We measure and monitor employee productivity based on gross ton miles per train and engine employee.

Safety – We are dedicated to providing employees with a safe workplace and the knowledge and tools they need to work safely and return home safely every day. Our commitment to an injury-free workplace is illustrated by our “I am Coming Home” safety message, which is featured prominently in our yards, shops, and facilities and further reinforces the importance of working safely. We measure employee safety performance through internal metrics such as lost-time injuries and serious injuries per 200,000 employee-hours and metrics established by the Federal

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Railroad Administration (FRA), such as FRA reportable injuries per 200,000 employee-hours. Given the importance of safety among our workforce and business, in 2020, our Board of Directors established a standing Safety Committee that, among other duties, reviews, monitors, and evaluates our compliance with our safety programs and practices.

Attracting and Retaining Management Employees – Our talent strategy for management employees is essential to attracting strong candidates in a competitive talent environment. We evaluate the effectiveness of that strategy by studying market trends, benchmarking the attractiveness of our employee value proposition, and analyzing retention data.

We also focus on driving employee engagement, which is key to increasing employee productivity, retention, and safety. We take a data-centric approach, including the use of quarterly surveys among management employees, to identify new initiatives that will help boost engagement and drive business results.

Employee Development and Training – We provide a range of developmental programs, opportunities, skills, and resources for our employees to work safely and be successful in their careers. We provide hands-on training and simulation training designed to improve training effectiveness and safety outcomes.

We also use modern learning and performance technologies to offer robust professional growth opportunities. Through on-demand digital course offerings, custom-built learning paths, and performance-management tools, our platforms deliver a contemporary, convenient, and inclusive approach to professional development.

Diversity, Equity and Inclusion – As a leading transportation service company, we understand that competing in the global marketplace requires recruiting the most qualified, talented, and diverse people. We strive to create a diverse, equitable, and inclusive workplace where a wide range of perspectives and experiences are represented, valued, and empowered to thrive.

While our current workforce reflects a broad range of backgrounds and experiences, we continue to focus on building an even more diverse workforce, using technology-driven outreach and multiple recruiting relationships to maintain a robust pipeline of diverse talent.

To underscore our commitment to cultivating a workplace experience where the unique experiences, perspectives, and contributions of all our people are valued, our senior management team recently signed a pledge reaffirming our commitment to diversity, equity, and inclusion. To advance that commitment, senior leaders from across the company serve on an Inclusion Leadership Council, which is accountable for setting our enterprise inclusion strategy and articulating measurable goals and actions needed to achieve them.

GOVERNMENT REGULATION – In addition to environmental, safety, securities, and other regulations generally applicable to all business, our railroads are subject to regulation by the U.S. Surface Transportation Board (STB).  The STB has jurisdiction to varying extents over rates, routes, customer access provisions, fuel surcharges, conditions of service, and the extension or abandonment of rail lines.  The STB has jurisdiction to determine whether we are “revenue adequate” on an annual basis based on the results of the prior year. A railroad is “revenue adequate” on an annual basis under the applicable law when its return on net investment exceeds the rail industry’s composite cost of capital.  This determination is made pursuant to a statutory requirement. The STB also has jurisdiction over the consolidation, merger, or acquisition of control of and by rail common carriers. 

The relaxation of economic regulation of railroads, following the Staggers Rail Act of 1980, included exemption from STB regulation of the rates and most service terms for intermodal business (trailer-on-flat-car, container-on-flat-car), rail boxcar shipments, lumber, manufactured steel, automobiles, and certain bulk commodities such as sand, gravel, pulpwood, and wood chips for paper manufacturing.  Further, all shipments that we have under contract are effectively removed from commercial regulation for the duration of the contract.  Approximately 90% of our revenues comes from either exempt shipments or shipments moving under transportation contracts; the remainder comes from shipments moving under public tariff rates.

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Efforts have been made over the past several years to increase federal economic regulation of the rail industry, and such efforts are expected to continue in 2022.  The Staggers Rail Act of 1980 substantially balanced the interests of shippers and rail carriers, and encouraged and enabled rail carriers to innovate, invest in their infrastructure, and compete for business, thereby contributing to the economic health of the nation and to the revitalization of the industry.  Accordingly, we will continue to oppose efforts to reimpose increased economic regulation. 

Government regulations are further discussed within Item 1A “Risk Factors” and the safety and security of our railroads are discussed within the “Security of Operations” section contained herein.

COMPETITION – There is continuing strong competition among rail, water, and highway carriers.  Price is usually only one factor of importance as shippers and receivers choose a transport mode and specific hauling company. Inventory carrying costs, service reliability, ease of handling, and the desire to avoid loss and damage during transit are also important considerations, especially for higher-valued finished goods, machinery, and consumer products.  Even for raw materials, semi-finished goods, and work-in-progress, users are increasingly sensitive to transport arrangements that minimize problems at successive production stages.

Our primary rail competitor is CSX Corporation (CSX); both we and CSX operate throughout much of the same territory. Other railroads also operate in parts of the territory.  We also compete with motor carriers, water carriers, and with shippers who have the additional options of handling their own goods in private carriage, sourcing products from different geographic areas, and using substitute products.

Certain marketing strategies to expand reach and shipping options among railroads and between railroads and motor carriers enable railroads to compete more effectively in specific markets. 

SECURITY OF OPERATIONS – We continue to enhance the security of our rail system. Our comprehensive security plan is modeled on and was developed in conjunction with the security plan prepared by the Association of American Railroads (AAR) post September 11, 2001. The AAR Security Plan defines four Alert Levels and details the actions and countermeasures that are being applied across the railroad industry to mitigate the risk of terrorist, violent extremist or seriously disruptive cyber-attack increases or decreases. The Alert Level actions include countermeasures that will be applied in three general areas: (1) operations (including transportation, engineering, and mechanical); (2) information technology and communications; and, (3) railroad police. All of our Operations Division employees are advised by their supervisors or train dispatchers, as appropriate, of any change in Alert Level and any additional responsibilities they may incur due to such change.

Our security plan also complies with U.S. Department of Transportation (DOT) security regulations pertaining to training and security plans with respect to the transportation of hazardous materials. As part of the plan, security awareness training is given to all railroad employees who directly affect hazardous material transportation safety, and is integrated into hazardous material training programs. Additionally, location-specific security plans are in place for rail corridors in certain metropolitan areas referred to as High Threat Urban Areas (HTUA). Particular attention is aimed at reducing risk in a HTUA by: (1) the establishment of secure storage areas for rail cars carrying toxic-by-inhalation (TIH) materials; (2) the expedited movement of trains transporting rail cars carrying TIH materials; (3) reducing the number of unattended loaded tank cars carrying TIH materials; and (4) cooperation with federal, state, local, and tribal governments to identify those locations where security risks are the highest.

We also operate five facilities that are under U.S. Coast Guard (USCG) Maritime Security Regulations. With respect to these facilities, each facility’s security plan has been approved by the applicable Captain of the Port and remains subject to inspection by the USCG.

Additionally, we continue to engage in close and regular coordination with numerous federal and state agencies, including the U.S. Department of Homeland Security (DHS), the Transportation Security Administration, the Federal Bureau of Investigation, the FRA, the USCG, U.S. Customs and Border Protection, the Department of Defense, and various state Homeland Security offices.

In 2021, through the Norfolk Southern Operation Awareness and Response Program as well as participation in the Transportation Community Awareness and Emergency Response Program, we provided rail accident response

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training to approximately 3,500 emergency responders, such as local police and fire personnel, utilizing a combination of online training and face-to-face training sessions. In addition, 2021 saw the return of the Safety Train Tour; we conducted an abbreviated Six-Stop Safety Train Tour that provided hands-on training to approximately 700 first responders.

We also continually evaluate ourselves for appropriate business continuity and disaster recovery planning, with test scenarios that include cybersecurity attacks. Our risk-based information security program helps ensure our defenses and resources are aligned to address the most likely and most damaging potential attacks, to provide support for our organizational mission and operational objectives, and to keep us in the best position to detect, mitigate, and recover from a wide variety of potential attacks in a timely fashion.

Item 1A. Risk Factors

The risks set forth in the following risk factors could have a materially adverse effect on our financial position, results of operations, or liquidity in a particular year or quarter, and could cause those results to differ materially from those expressed or implied in our forward-looking statements. The information set forth in this Item 1A “Risk Factors” should be read in conjunction with the rest of the information included in this annual report, including

Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and Item 8 “Financial Statements and Supplementary Data.”

REGULATORY AND LEGISLATIVE RISKS

Significant governmental legislation, regulation, and Executive Orders over commercial, tax, operating and environmental matters could affect us, our customers, and the markets we serve. Congress can enact laws that could increase economic regulation of the industry. Similarly, regulations promulgated by agencies and the issuance of Executive Orders can affect us, our customers, and the markets we serve. Railroads presently are subject to commercial regulation by the STB, which has jurisdiction to varying extents over rates, routes, customer access provisions, fuel surcharges, conditions of service, and the extension or abandonment of rail lines. The STB also has jurisdiction over the consolidation, merger, or acquisition of control of and by rail common carriers. Additional economic regulation of the rail industry by Congress or the STB, whether under new or existing laws, could have a significant negative impact on our ability to negotiate prices for rail services, on railway operating revenues, and on the efficiency of our operations. Such additional industry regulation, as well as enactment of any new tax laws, could also negatively impact cash flows from operating activities and, therefore, could result in reduced capital spending on our rail network or abandonment of lines.

Railroads are also subject to the enactment of laws by Congress and regulation by the DOT and the DHS, which regulate most aspects of our operations related to safety and security. The Rail Safety Improvement Act of 2008, the Surface Transportation Extension Act of 2015, and the implementing regulations promulgated by the FRA required us (and each other Class I railroad) to implement an interoperable positive train control system (PTC) on main lines over which five million or more gross tons of annual traffic and certain hazardous materials are transported, and on any main lines over which intercity or commuter rail passenger transportation is regularly provided. We completed our PTC implementation prior to the December 31, 2020 deadline. PTC is designed to prevent train-to-train collisions, speed-related derailments, and certain other accidents caused by human error, but it will not prevent all types of train accidents or incidents. The PTC system will continue to result in additional operating costs and capital expenditures, and may result in increased claims and litigation costs.

Our operations are subject to extensive federal and state environmental laws and regulations concerning, among other things: emissions to the air; discharges to waterways or groundwater supplies; handling, storage, transportation, and disposal of waste and other materials; and, the cleanup of hazardous material or petroleum releases. The risk of incurring environmental liability, for acts and omissions, past, present, and future, is inherent in the railroad business. This risk includes property owned by us, whether currently or in the past, that is or has been subject to a variety of uses, including our railroad operations and other industrial activity by past owners or our past and present tenants.

Environmental problems that are latent or undisclosed may exist on these properties, and we could incur environmental liabilities or costs, the amount and materiality of which cannot be estimated reliably at this time, with

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respect to one or more of these properties. Moreover, lawsuits and claims involving other unidentified environmental sites and matters are likely to arise from time to time.

OPERATIONAL RISKS

Pandemics, epidemics or endemic diseases could further impact us, our customers, our supply chain and our operations. The magnitude and duration of a pandemic, epidemic or endemic disease, and its impact on our customers and general economic conditions will influence the demand for our services and affect our revenues. In addition, such outbreaks could affect our operations and business continuity if a significant number of our essential employees, overall or in a key location, are quarantined from contraction of or exposure to the disease or if governmental orders prevent our employees or critical suppliers (including individuals that have not received mandated vaccinations) from working. Our compliance with vaccine mandates could lead to employee absences, resignations, labor disputes or work stoppages. The COVID-19 pandemic negatively impacted the economy and continues to generate economic uncertainty. Future pandemics, epidemics or endemic diseases may cause similar consequences. To the extent such diseases adversely affects our business and financial results, they may also have the effect of heightening many of the other risks described in the risk factors included herein, or may affect our operating and financial results in a manner that is not presently known to us.

A significant cybersecurity incident or other disruption to our technology infrastructure could disrupt our business operations. We rely on information technology, and improvements in that technology, in all aspects of our business. If we experience significant disruption or failure of one or more of information technology systems operated by us or under control of third parties, including computer hardware, software, and communications equipment, we could experience a service interruption or other operational difficulties. Although we maintain comprehensive security programs designed to protect our information technology systems, we are continually targeted by threat actors attempting to access our networks. While we have experienced cybersecurity events that have had minimal impact, future events may result in more significant impacts to business operations. These potentially impactful events could include unauthorized access to our systems, viruses, ransomware, and/or compromise, acquisition, or destruction of our data. We also could be impacted by cybersecurity events targeting third parties that we rely on for business operations, including third party vendors that have access to our systems or data and third parties in our supply chain. Such a direct or indirect cybersecurity incident could interrupt our service, cause safety failures or operational difficulties, decrease revenues, increase operating costs, impact our efficiency, damage our corporate reputation, and/or expose us to litigation or government investigations, which could result in penalties, fines or judgments. In addition, our failure to comply with privacy-related or data protection laws and regulations could result in government investigations and proceedings against us, or litigation, resulting in adverse reputational impacts, penalties, and legal liability.

Our business may be seriously harmed if we fail to develop, implement, maintain, upgrade, enhance, protect and integrate our information technology systems. If we do not have sufficient capital to develop, acquire or implement new technology, we may suffer a competitive disadvantage within the rail industry and with companies providing alternative modes of transportation service.

As a common carrier by rail, we must offer to transport hazardous materials, regardless of risk. Transportation of certain hazardous materials could create catastrophic losses in terms of personal injury and property (including environmental) damage and compromise critical parts of our rail network. The costs of a catastrophic rail accident involving hazardous materials could exceed our insurance coverage. We have obtained insurance for potential losses for third-party liability and first-party property damages (see Note 17 to the Consolidated Financial Statements); however, insurance is available from a limited number of insurers and may not continue to be available or, if available, may not be obtainable on terms acceptable to us.

We face competition from other transportation providers. We are subject to competition from motor carriers, railroads and, to a lesser extent, ships, barges, and pipelines, on the basis of transit time, pricing, and quality and reliability of service. While we have used primarily internal resources to build or acquire and maintain our rail system, trucks and barges have been able to use public rights-of-way maintained by public entities. Any future improvements, expenditures, legislation, or regulation materially increasing the quality or reducing the cost of alternative modes of transportation in the regions in which we operate (such as granting materially greater latitude

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for motor carriers with respect to size or weight limitations or adoption of autonomous commercial vehicles) could have a material adverse effect on our ability to compete with other modes of transportation.

Capacity constraints could negatively impact our service and operating efficiency. We could experience capacity constraints on our rail network related to increased demand for rail services, locomotive or employee shortages, severe weather, congestion on other railroads, including passenger activities, or impacts from changes to our network structure or composition. Such constraints could result in operational inefficiencies or adversely affect our operations.

Significant increases in demand for rail services could result in the unavailability of qualified personnel and resources like locomotives. Changes in workforce demographics, training requirements, and availability of qualified personnel, particularly for engineers and conductors, could have a negative impact on our ability to meet short-term demand for rail service. Unpredicted increases in demand for rail services may exacerbate such risks and could negatively impact our operational efficiency.

Constraints on the supply chain or the operations of carriers with which we interchange may adversely affect our operations. Our ability to provide rail service to customers in the U.S. and Canada depends in large part upon a functioning global supply chain and our ability to maintain collaborative relationships with connecting carriers (including shortlines and regional railroads) with respect to, among other matters, freight rates, revenue division, car supply and locomotive availability, data exchange and communications, reciprocal switching, interchange, and trackage rights. Deterioration in the supply chain or operations of or service provided by connecting carriers, or in our relationship with those connecting carriers, could result in our inability to meet our customers’ demands or require us to use alternate train routes, which could result in significant additional costs and network inefficiencies. Additionally, any significant consolidations, mergers or operational changes among other railroads may significantly redefine our market access and reach.

The vast majority of our employees belong to labor unions, and labor agreements, strikes, or work stoppages could adversely affect our operations. Approximately 80% of our railroad employees are covered by collective bargaining agreements with various labor unions. If our craft employees were to engage in a strike, work stoppage, or other slowdown, we could experience a significant disruption of our operations. Additionally, future national labor agreements, or renegotiation of labor agreements or provisions of labor agreements, could significantly increase our costs for health care, wages, and other benefits.

We may be affected by terrorism or war. Any terrorist attack, or other similar event, any government response thereto, and war or risk of war could cause significant business interruption. Because we play a critical role in the nation’s transportation system, we could become the target of such an attack or have a significant role in the government’s preemptive approach or response to an attack or war.

Although we currently maintain insurance coverage for third-party liability arising out of war and acts of terrorism, we maintain only limited insurance coverage for first-party property damage and damage to property in our care, custody, or control caused by certain acts of terrorism. In addition, premiums for some or all of our current insurance programs covering these losses could increase dramatically, or insurance coverage for certain losses could be unavailable to us in the future.

We may be affected by supply constraints resulting from disruptions in the fuel markets or the nature of some of our supplier markets. We consumed over 380 million gallons of diesel fuel in 2021. Fuel availability could be affected by any limitation in the fuel supply or by any imposition of mandatory allocation or rationing regulations. A severe fuel supply shortage arising from production curtailments, increased demand in existing or emerging foreign markets, disruption of oil imports, disruption of domestic refinery production, damage to refinery or pipeline infrastructure, political unrest, war or other factors could impact us as well as our customers and other transportation companies.

Due to the capital-intensive nature, as well as the industry-specific requirements of the rail industry, high barriers of entry exist for potential new suppliers of core railroad items, such as locomotives and rolling stock equipment. Additionally, we compete with other industries for available capacity and raw materials used in the production of

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locomotives and certain track and rolling stock materials. Changes in the competitive landscapes of these limited supplier markets could result in increased prices or significant shortages of materials.

LITIGATION RISKS

We may be subject to various claims and lawsuits that could result in significant expenditures. The nature of our business exposes us to the potential for various claims and litigation related to labor and employment, personal injury, commercial disputes, freight loss and other property damage, and other matters. Job-related personal injury and occupational claims are subject to the Federal Employer’s Liability Act (FELA), which is applicable only to railroads. FELA’s fault-based tort system produces results that are unpredictable and inconsistent as compared with a no-fault worker’s compensation system. The variability inherent in this system could result in actual costs being different from the liability recorded.

A catastrophic rail accident, whether on our lines or another carrier’s, involving any or all of release of hazardous materials, freight loss, property damage, personal injury, and environmental liability could compromise critical parts of our rail network. Losses associated with such an accident involving us could exceed our insurance coverage, resulting in a material adverse effect on our liquidity. Any material changes to current litigation trends could also have a material adverse effect on our liquidity to the extent not covered by insurance.

We have obtained insurance for potential losses for third-party liability and first-party property damages (see Note 17 to the Consolidated Financial Statements); however, insurance is available from a limited number of insurers and may not continue to be available or, if available, may not be obtainable on terms acceptable to us.

CLIMATE CHANGE RISKS

Severe weather and disasters have caused, and could again cause, significant business interruptions and expenditures. Severe weather conditions and other natural phenomena resulting from changing weather patterns and rising sea levels or other causes, including hurricanes, floods, fires, landslides, extreme temperatures, significant precipitation, and earthquakes, have caused, and may again cause damage to our network, our workforce to be unavailable and us to be unable to use our equipment. Additionally, shifts in weather patterns caused by climate change are expected to increase the frequency, severity or duration of certain adverse weather conditions, which could cause more significant business interruptions that result in increased costs, increased liabilities, and decreased revenues.

Concern over climate change has led to significant federal, state, and international legislative and regulatory efforts to limit greenhouse gas (GHG) emissions. Restrictions, caps, taxes, or other controls on GHG emissions, including diesel exhaust, could significantly increase our operating costs and decrease the amount of traffic we handle.

In addition, legislation and regulation related to GHG emissions could negatively affect the markets we serve and our customers. Even without legislation or regulation, government incentives and adverse publicity relating to GHG emissions could negatively affect the markets for certain of the commodities we carry and our customers that (1) use commodities we carry to produce energy, including coal, (2) use significant amounts of energy in producing or delivering the commodities we carry, or (3) manufacture or produce goods that consume significant amounts of energy associated with GHG emissions.

MACROECONOMIC AND MARKET RISKS

We may be affected by general economic conditions. Negative changes in domestic and global economic conditions, including reduced import and export volumes, could affect the producers and consumers of the commodities we carry. Economic conditions could also result in bankruptcies of one or more large customers.

We may be affected by energy prices. Volatility in energy prices could have a significant effect on a variety of items including, but not limited to: the economy; demand for transportation services; business related to the energy sector, including crude oil, natural gas, and coal; fuel prices; and, fuel surcharges.

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The state of capital markets could adversely affect our liquidity. We rely on the capital markets to provide some of our capital requirements, including the issuance of debt instruments and the sale of certain receivables. Significant instability or disruptions of the capital markets, including the credit markets, or deterioration of our financial position due to internal or external factors could restrict or eliminate our access to, and/or significantly increase the cost of, various financing sources, including bank credit facilities and issuance of corporate bonds. Instability or disruptions of the capital markets and deterioration of our financial position, alone or in combination, could also result in a reduction of our credit rating to below investment grade, which could prohibit or restrict us from accessing external sources of short- and long-term debt financing and/or significantly increase the associated costs.

Item 1B. Unresolved Staff Comments

None.

Item 3. Legal Proceedings

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

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

Item 4. Mine Safety Disclosures

Not applicable.

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Information About Our Executive Officers

Our executive officers generally are elected and designated annually by the Board of Directors (Board) at its first meeting held after the annual meeting of stockholders, and they hold office until their successors are elected. Executive officers also may be elected and designated throughout the year as the Board considers appropriate. There are no family relationships among our officers, nor any arrangement or understanding between any officer and any other person pursuant to which the officer was selected. The following table sets forth certain information, at February 1, 2022, relating to our officers.

 

Name, Age, Present Position	Business Experience During Past Five Years
James A. Squires, 60, Chairman and Chief Executive Officer	Present position since October 1, 2015.
Alan H. Shaw, 54, President	Present position since December 1, 2021. Served as Executive Vice President and Chief Marketing Officer from May 16, 2015 to December 1, 2021.
Ann A. Adams, 51,   Executive Vice President and   Chief Transformation Officer	Present position since April 1, 2019. Served as Vice President Human Resources from April 1, 2016 to April 1, 2019.
Claude E. Elkins, Jr., 56, Executive Vice President and Chief Marketing Officer	Present position since December 1, 2021. Served as Vice President Industrial Products from April 1, 2018 to December 1, 2021. Served as Group Vice President Chemicals from March 1, 2016 to April 1, 2018.
Mark R. George, 54,   Executive Vice President Finance and   Chief Financial Officer	Present position since November 1, 2019. Prior to joining Norfolk Southern, served as Vice President, Finance and Chief Financial Officer at segments of United Technologies Corporation. The positions were Vice President Finance, Strategy, IT and Chief Financial Officer at Otis Elevator Company from October 2015 to May 2019, and Vice President Finance and Chief Financial Officer at Carrier Corporation from June 2019 until joining Norfolk Southern.
Cynthia M. Sanborn, 57, Executive Vice President and Chief Operating Officer	Present position since September 1, 2020. Prior to joining Norfolk Southern, served as served as Vice President Network Planning & Operations at Union Pacific from May 2019 to September 2020 and as Regional Vice President – Western Region from February 2018 to May 2019. Previously served as Executive Vice President and Chief Operating Officer at CSX from September 2015 to November 2017.
Lorri J. Kleine, 57,   Senior Vice President Law and   Chief Legal Officer	Present position since January 10, 2022. Served as Vice President Law from March 1, 2020 to January 10, 2022. Served as Senior General Counsel from August 1, 2019 to March 1, 2020. Served as General Counsel from December 1, 2016 to August 1, 2019.
Clyde H. Allison, Jr., 58, Vice President and Controller	Present position since June 1, 2020. Served as Vice President and Treasurer from February 1, 2017 to June 1, 2020.

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PART II

NORFOLK SOUTHERN CORPORATION AND SUBSIDIARIES

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

STOCK INFORMATION

Common Stock is owned by 20,616 stockholders of record as of December 31, 2021, and is traded on the New York Stock Exchange under the symbol “NSC.”

ISSUER PURCHASES OF EQUITY SECURITIES

Period	Total Number of Shares (or Units) Purchased(1)	Average Price Paid per Share (or Unit)		Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans or Programs(2)	Maximum Number (or Approximate Dollar Value) of Shares (or Units) that may yet be Purchased under the Plans or Programs(2)
October 1-31, 2021	861,374	$	268.13	861,374	10,467,071
November 1-30, 2021	269	282.17		—	10,467,071
December 1-31, 2021	2,427,166	287.85		2,426,998	8,040,073
Total	3,288,809			3,288,372

(1)Of this amount, 437 represent shares tendered by employees in connection with the exercise of stock options under the stockholder-approved Long-Term Incentive Plan (LTIP).

(2)On September 26, 2017, our Board of Directors authorized the repurchase of up to an additional 50 million shares of Common Stock through December 31, 2022. As of December 31, 2021, 8.0 million shares remain authorized for repurchase.

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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Norfolk Southern Corporation and Subsidiaries

The following discussion and analysis should be read in conjunction with the Consolidated Financial Statements and Notes.

OVERVIEW

We are one of the nation’s premier transportation companies, moving goods and materials that help drive the U.S. economy. We connect customers to markets and communities to economic opportunity with safe, reliable, and cost-effective shipping solutions. Our Norfolk Southern Railway Company subsidiary operates in 22 states and the District of Columbia. We are a major transporter of industrial products, including agriculture, forest and consumer products, chemicals, and metals and construction materials. In addition, in the East we serve every major container port and operate the most extensive intermodal network. We are also a principal carrier of coal, automobiles, and automotive parts.

During 2021, revenue growth and the absence of two prior-year charges resulted in substantial increases in operating income, net income and earnings per share. Our current year results compare favorably to the prior year, during which there was a pandemic-induced decline in demand which resulted in reduced earnings.

The COVID-19 pandemic continues to impact the U.S. and global economies and has resulted in ongoing supply chain challenges. We are monitoring and reacting to the evolving nature of the pandemic, governmental responses, and their impacts on our business, including employee availability. We remain committed to protecting our employees, operating safely, and providing excellent transportation service products for our customers.

SUMMARIZED RESULTS OF OPERATIONS

							2021		2020
	2021		2020		2019		vs. 2020		vs. 2019
	($ in millions, except per share amounts)						(% change)
Income from railway operations	$	4,447	$	3,002	$	3,989	48	%	(25	%)
Net income	$	3,005	$	2,013	$	2,722	49	%	(26	%)
Diluted earnings per share	$	12.11	$	7.84	$	10.25	54	%	(24	%)
Railway operating ratio (percent)	60.1		69.3		64.7		(13	%)	7	%

Income from railway operations increased in 2021 compared to 2020, the result of a 14% increase in railway operating revenues and a 1% reduction in railway operating expenses. Revenue growth was driven by increased average revenue per unit and higher volumes, the result of improved customer demand. The decline in railway operating expenses was largely due to the absence of two charges, as 2020 results were adversely impacted by a $385 million loss on asset disposal related to locomotives and a $99 million impairment charge related to an equity method investment. For more information on these charges, see Notes 7 and 6, respectively. Higher fuel costs, purchased services, and compensation and benefits expense mostly offset the reduction associated with these charges. Additionally, gains on the sale of operating properties increased compared to the prior year. The 48% increase in income from railway operations drove comparable increases in net income and diluted earnings per share. Our railway operating ratio (a measure of the amount of operating revenues consumed by operating expenses) decreased to 60.1 percent.

Income from railway operations declined in 2020 compared to 2019 as railway operating revenues fell 13% which exceeded a 7% reduction in operating expenses. Railway operating revenues declined as lower customer demand resulted in reduced volume. Additionally, negative mix and lower fuel surcharge revenue, partially offset by increased pricing, led to lower average revenue per unit. Railway operating expenses decreased due to declines in

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fuel price and consumption, reduced employment levels, lower volumes and operational efficiency improvements. These decreases in expenses were partially offset by the impact of the aforementioned charges.

The following tables adjust our 2020 U.S. Generally Accepted Accounting Principles (GAAP) financial results to exclude the effects of the loss on asset disposal and investment impairment. The income tax effects on these non-GAAP adjustments were calculated based on the applicable tax rates to which the non-GAAP adjustments relate. We use these non-GAAP financial measures internally and believe this information provides useful supplemental information to investors to facilitate making period-to-period comparisons by excluding the 2020 charges. While we believe that these non-GAAP financial measures are useful in evaluating our business, this information should be considered as supplemental in nature and is not meant to be considered in isolation from, or as a substitute for, the related financial information prepared in accordance with GAAP. In addition, these non-GAAP financial measures may not be the same as similar measures presented by other companies.

	Non-GAAP Reconciliation for 2020
	Reported (GAAP)		Loss on Asset Disposal		Investment Impairment		Adjusted (non-GAAP)
	($ in millions, except per share amounts)
Railway operating expenses	$	6,787	$	(385)	$	(99)	$	6,303
Income from railway operations	$	3,002	$	385	$	99	$	3,486
Income before income taxes	$	2,530	$	385	$	99	$	3,014
Income taxes	$	517	$	97	$	25	$	639
Net income	$	2,013	$	288	$	74	$	2,375
Diluted earnings per share	$	7.84	$	1.12	$	0.29	$	9.25
Railway operating ratio (percent)	69.3		(3.9)		(1.0)		64.4

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

							2021		Adjusted
			Adjusted				vs. Adjusted		2020
			2020				2020		(non-GAAP)
	2021		(non-GAAP)		2019		(non-GAAP)		vs. 2019
	($ in millions, except per share amounts)						(% change)
Railway operating expenses	$	6,695	$	6,303	$	7,307	6	%	(14	%)
Income from railway operations	$	4,447	$	3,486	$	3,989	28	%	(13	%)
Income before income taxes	$	3,878	$	3,014	$	3,491	29	%	(14	%)
Income taxes	$	873	$	639	$	769	37	%	(17	%)
Net income	$	3,005	$	2,375	$	2,722	27	%	(13	%)
Diluted earnings per share	$	12.11	$	9.25	$	10.25	31	%	(10	%)
Railway operating ratio (percent)	60.1		64.4		64.7		(7	%)	—	%

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DETAILED RESULTS OF OPERATIONS

Railway Operating Revenues

The following tables present a three-year comparison of revenues, volumes (units), and average revenue per unit by commodity group.

	Revenues						2021		2020
	2021		2020		2019		vs. 2020		vs. 2019
	($ in millions)						(% change)
Merchandise:
Agriculture, forest and consumer     products	$	2,251	$	2,116	$	2,256	6	%	(6	%)
Chemicals	1,951		1,809		2,092		8	%	(14	%)
Metals and construction	1,562		1,333		1,461		17	%	(9	%)
Automotive	905		830		994		9	%	(16	%)
Merchandise	6,669		6,088		6,803		10	%	(11	%)
Intermodal	3,163		2,654		2,824		19	%	(6	%)
Coal	1,310		1,047		1,669		25	%	(37	%)
Total	$	11,142	$	9,789	$	11,296	14	%	(13	%)

	Units			2021		2020
	2021	2020	2019	vs. 2020		vs. 2019
	(in thousands)			(% change)
Merchandise:
Agriculture, forest and consumer     products	725.5	704.4	763.7	3	%	(8	%)
Chemicals	529.7	482.0	588.9	10	%	(18	%)
Metals and construction	669.0	601.2	685.1	11	%	(12	%)
Automotive	345.4	329.7	394.7	5	%	(16	%)
Merchandise	2,269.6	2,117.3	2,432.4	7	%	(13	%)
Intermodal	4,104.1	3,992.1	4,207.2	3	%	(5	%)
Coal	658.0	574.1	914.0	15	%	(37	%)
Total	7,031.7	6,683.5	7,553.6	5	%	(12	%)

	Revenue per Unit						2021		2020
	2021		2020		2019		vs. 2020		vs. 2019
	($ per unit)						(% change)
Merchandise:
Agriculture, forest and consumer     products	$	3,102	$	3,004	$	2,953	3	%	2	%
Chemicals	3,684		3,753		3,553		(2	%)	6	%
Metals and construction	2,334		2,216		2,133		5	%	4	%
Automotive	2,621		2,518		2,517		4	%	—	%
Merchandise	2,938		2,875		2,797		2	%	3	%
Intermodal	771		665		671		16	%	(1	%)
Coal	1,991		1,824		1,826		9	%	—	%
Total	1,584		1,465		1,495		8	%	(2	%)

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Revenues increased $1.4 billion in 2021 and decreased $1.5 billion in 2020 compared to the prior years. Higher revenue for 2021 was the result of increased average revenue per unit, driven by pricing gains, higher fuel surcharge revenue, increased intermodal storage service charges and improved mix, as well as volume growth. In 2020, lower revenue was the result of decreased volumes and lower fuel surcharge revenue, partially offset by pricing gains.

The table below reflects the components of the revenue change by major commodity group.

	2021 vs. 2020						2020 vs. 2019
	Increase (Decrease)						Increase (Decrease)
	($ in millions)
	Merchandise		Intermodal		Coal		Merchandise		Intermodal		Coal
Volume	$	438	$	75	$	153	$	(881)	$	(144)	$	(621)
Fuel surcharge
revenue	91		178		4		(92)		(124)		(13)
Rate, mix and
other	52		256		106		258		98		12
Total	$	581	$	509	$	263	$	(715)	$	(170)	$	(622)

Approximately 90% of our revenue base is covered by contracts that include negotiated fuel surcharges. These revenues totaled $622 million, $349 million, and $578 million in 2021, 2020, and 2019, respectively.

MERCHANDISE revenues increased in 2021 but decreased in 2020 compared with the prior years. In 2021, revenues rose due to increased volume and higher average revenue per unit driven by increased fuel surcharge revenue and pricing. Volumes increased in all merchandise commodity groups, reflecting continued economic recovery following the onset of the COVID-19 pandemic. In 2020, revenues decreased due to volume declines in all commodity groups which were partially offset by higher average revenue per unit, driven by pricing gains.

For 2022, merchandise revenues are expected to increase, the result of higher revenue per unit, driven by pricing gains and increased fuel surcharge revenue, and higher volumes.

Agriculture, forest and consumer products revenues increased in 2021 but decreased in 2020 compared with the prior years. In 2021, the rise was the result of higher volume across almost all markets as the economy has improved since the early months of the pandemic in 2020 and increased average revenue per unit, the result of pricing gains and higher fuel surcharge revenue. Gains in ethanol, pulpboard, beverages, lumber and wood, and woodchips more than offset declines in soybeans and pulp. In 2020, the decline was the result of reduced volume partially offset by higher average revenue per unit, driven by pricing gains partially offset by lower fuel surcharge revenue. Volume declined due to the impact of COVID-19 on the demand for ethanol, corn, food service products, and building, industrial and commercial products.

In 2022, agriculture, forest and consumer products revenues are expected to rise, a result of increased volume and average revenue per unit increases resulting from pricing gains. We expect volumes to increase in most markets led by corn, soybeans, pulpboard, and feed.

Chemicals revenues rose in 2021 and fell in 2020 compared with the prior years. In 2021, the increase was the result of volume growth partially offset by lower average revenue per unit, driven by mix of traffic. The increase in volume was due to economic and production recovery since the beginning of the pandemic, despite ongoing challenges in the energy markets. The markets with the largest gains were solid waste, industrial chemicals, sand, natural gas liquids, and plastics. In 2020, the decrease was the result of volume declines partially offset by higher average revenue per unit, due to pricing gains. Volume declined due to the impact from COVID-19 and ongoing disruptions in the energy markets. The onset of the pandemic created an overabundance of products in the market

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as companies reduced stockpiles before requiring more products. Oil and petroleum shipments were negatively impacted due to reductions in gasoline/jet fuel demand and travel.

For 2022, chemicals revenues are anticipated to increase, a result of higher average revenue per unit, driven by pricing gains, and increased volume. We expect carload increases in plastics, solid waste, and petroleum products to be partially offset by reduced volumes of inorganic chemicals.

Metals and construction revenues were higher in 2021 but declined in 2020 compared with the prior years. In 2021, revenue growth was driven by increased volumes and higher average revenue per unit, the result of pricing gains and higher fuel surcharge revenue. Volume increased across almost all markets due to economic improvement since the beginning of the pandemic. The markets serving the metal production industry, including coil steel, scrap metal, and iron and steel, experienced the largest gains. In 2020, volume declines were partially offset by higher average revenue per unit, the result of pricing gains. Volume declines were largely the result of weakened demand due to reductions in metal and domestic vehicle production. The onset of the pandemic caused industries to suspend production which heavily impacted customers’ needs for materials and shipping of finished and semi-finished goods. These declines were partially offset by increased demand for cement.

For 2022, metals and construction revenues are expected to rise, a result of higher average revenue per unit, driven by pricing gains, and increased volume. As the economic recovery continues, volume growth is expected in almost all markets led by aggregates, coil steel, scrap metal, and construction.

Automotive revenues rose in 2021 but were lower in 2020 compared with the prior years. The increase in revenues in 2021 were driven by volume growth and higher average revenue per unit, driven by an increase in fuel surcharge revenue and pricing gains. Automotive volumes were higher due primarily to increased retail demand and the impact of prior-year pandemic-induced production shutdowns. This was partially offset by the impact of the microchip shortage on production. In 2020, revenue declines were driven by lower volume and fuel surcharge revenue, partially offset by pricing gains. The volume decline was mostly the result of unplanned automotive plant shutdowns in the first half of the year, primarily due to the COVID-19 pandemic, which was partially offset by increased demand in the second half of the year.

In 2022, automotive revenues are expected to increase as a result of higher volume, as inventories replenish, and increased average revenue per unit driven by pricing gains.

INTERMODAL revenues increased in 2021 but decreased in 2020 compared with the prior years. The rise in 2021 was primarily the result of higher average revenue per unit driven by increased storage service charges, higher fuel surcharge revenue and pricing gains. The decline in 2020 was driven by lower volume and fuel surcharge revenue, which were partially offset by pricing gains and favorable mix.

For 2022, we expect intermodal revenues to rise, the result of increased volume, higher fuel surcharge revenue and pricing gains, partially offset by lower storage service charges.

Intermodal units by market were as follows:

				2021		2020
	2021	2020	2019	vs. 2020		vs. 2019
	(units in thousands)			(% change)
Domestic	2,630.6	2,568.7	2,593.5	2	%	(1	%)
International	1,473.5	1,423.4	1,613.7	4	%	(12	%)
Total	4,104.1	3,992.1	4,207.2	3	%	(5	%)

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Domestic volume increased in 2021 but decreased in 2020 compared with the prior years. Volume rose due to strong consumer demand which was partially offset by overall supply chain congestion, including chassis availability issues. In 2020, volume declined due to supply chain disruptions related to the onset of the pandemic and strong over-the-road competition in the first half of the year. Inventory replenishment and a strong peak season in the second half of the year assisted in dampening the overall volume decline.

For 2022, we expect higher domestic volume driven by new business and growth from existing customers.

International volume rose in 2021 but fell in 2020. The increase in 2021 was the result of continued strong import demand despite being limited by various supply chain constraints, including chassis availability issues. The decline in 2020 resulted from supply chain disruptions due to the onset of the pandemic.

For 2022, we expect international volume growth due to increased demand and supply chain recovery.

COAL revenues increased in 2021 but decreased in 2020 compared with the prior years. The increase in 2021 was due to increased volumes and higher average revenue per unit driven by pricing gains and positive mix. The decrease in 2020 was a result of significant volume declines.

For 2022, we expect coal revenues to decline due to lower average revenue per unit and decreased volume driven by coal supply challenges.

As shown in the following table, total tonnage increased in 2021 but decreased in 2020.

				2021		2020
	2021	2020	2019	vs. 2020		vs. 2019
	(tons in thousands)			(% change)
Utility	33,169	32,479	60,278	2	%	(46	%)
Export	24,886	18,900	23,324	32	%	(19	%)
Domestic metallurgical	11,804	9,441	13,562	25	%	(30	%)
Industrial	3,595	3,566	4,655	1	%	(23	%)
Total	73,454	64,386	101,819	14	%	(37	%)

    

Utility coal tonnage increased in 2021 but decreased in 2020 compared with the prior years. The increase in 2021 was due to higher natural gas prices and increased demand from coal-sourced electrical generation. The decline in 2020 was due to low natural gas prices, diminished industrial and commercial electricity demand, and high stockpiles.

For 2022, utility coal tonnage is expected to decline due to higher coal prices, lower natural gas prices, uncertainty regarding coal production and impacts of weather on demand.

Export coal tonnage increased in 2021 but decreased in 2020 compared with the prior years. The increase in 2021 was a result of strong seaborne pricing, improved global economic conditions, and greater global demand. The decline in 2020 was a result of weak seaborne pricing, COVID-19-related global disruptions, and import restrictions.

For 2022, export coal tonnage is expected to decrease due to uncertainty regarding the global coal market and tight coal supply availability.

Domestic metallurgical coal tonnage increased in 2021 but decreased in 2020 compared with the prior years. The increase in 2021 was the result of strong recovery in the steel market. The decrease in 2020 was a reflection of reduced domestic steel demand which led to idled customer facilities and lower production.

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For 2022, domestic metallurgical coal tonnage is expected to decrease due to customer sourcing challenges and tight coal supply availability.

Industrial coal tonnage increased in 2021 but decreased in 2020 compared with the prior years. The increase in 2021 was a result of improved demand. The decrease in 2020 was driven by pressure from natural gas conversions and customer sourcing changes.

For 2022, industrial coal tonnage is expected to decrease due to continued natural gas conversions and coal supply sourcing challenges.

Railway Operating Expenses

Railway operating expenses summarized by major classifications were as follows:

							2021		2020
	2021		2020		2019		vs. 2020		vs. 2019
	($ in millions)						(% change)
Compensation and benefits	$	2,442	$	2,373	$	2,751	3	%	(14	%)
Purchased services and rents	1,726		1,687		1,725		2	%	(2	%)
Fuel	799		535		953		49	%	(44	%)
Depreciation	1,181		1,154		1,138		2	%	1	%
Materials and other	547		653		740		(16	%)	(12	%)
Loss on asset disposal	—		385		—
Total	$	6,695	$	6,787	$	7,307	(1	%)	(7	%)

In 2021, expenses declined primarily as a result of the absence of the 2020 loss on asset disposal and the equity method investment impairment charge, which is included in purchased services and rents. This was partially offset by higher fuel costs, increased other purchased services, and higher compensation and benefits expense. In 2020, expenses fell as our strategic initiatives to improve productivity and asset utilization resulted in lower compensation and benefits expense, declines in fuel consumption, reduced purchased services, and lower materials expense. Fuel expense also declined due to lower prices. These expense reductions were partially offset by the loss on asset disposal and impairment charge previously discussed.

Compensation and benefits increased in 2021, reflecting changes in:

•incentive and stock-based compensation (up $128 million),

•overtime and recrews (up $47 million),

•increased pay rates (up $41 million),

•health and welfare benefits for craft employees (down $19 million),

•employment levels (down $154 million), and

•other (up $26 million).

K24

In 2020, compensation and benefits decreased, a result of changes in:

•employment levels (down $309 million),

•health and welfare benefits for craft employees (down $77 million),

•overtime and recrews (down $54 million),

•incentive and stock-based compensation (down $38 million),

•increased pay rates (up $50 million),

•lower capitalized labor (additional expense of $51 million), and

•other (down $1 million).

Our employment averaged 18,500 in 2021, compared with 20,200 in 2020, and 24,600 in 2019.

Purchased services and rents includes the costs of services purchased from external vendors and contractors, including the net costs of operating joint (or leased) facilities with other railroads and the net cost of equipment rentals.

							2021		2020
	2021		2020		2019		vs. 2020		vs. 2019
	($ in millions)						(% change)
Purchased services	$	1,409	$	1,387	$	1,434	2	%	(3	%)
Equipment rents	317		300		291		6	%	3	%
Total	$	1,726	$	1,687	$	1,725	2	%	(2	%)

The increase in purchased services in 2021 was due to increased technology costs, higher intermodal-related expenses, and increased Conrail costs. This was partially offset by the absence of a prior year $99 million impairment related to an equity method investment. The decrease in purchased services in 2020 resulted from volume-related declines and strategic initiatives to improve productivity and asset utilization, partially offset by the impairment of an equity method investment.

Equipment rents, which includes our cost of using equipment (mostly freight cars) owned by other railroads or private owners less the rent paid to us for the use of our equipment, increased in both periods. In 2021, equipment rents were higher for general-use equipment due to decreased network velocity and increased volume. These increases were partially offset by lower intermodal costs and higher equity in TTX earnings. In 2020, the increase was primarily the result of lower equity in TTX earnings and increased automotive equipment expenses partially offset by decreased intermodal equipment expenses.

Fuel expense, which includes the cost of locomotive fuel as well as other fuel used in railway operations, increased in 2021 but decreased in 2020 compared with the prior years. The increase in 2021 was primarily due to locomotive fuel prices (up 43%), which increased expenses $224 million. Additionally, locomotive fuel consumption increased 4%. The decline in 2020 was primarily due to locomotive fuel prices (down 32%), which decreased expenses $235 million. We consumed 384 million gallons of diesel fuel in 2021, compared with 368 million gallons in 2020 and 451 million gallons in 2019.

Depreciation expense increased in both periods, a reflection of reinvestment in our infrastructure, rolling stock, and technology.

K25

Materials and other expenses decreased in both periods as shown in the following table.

							2021		2020
	2021		2020		2019		vs. 2020		vs. 2019
	($ in millions)						(% change)
Materials	$	250	$	274	$	327	(9	%)	(16	%)
Claims	165		179		193		(8	%)	(7	%)
Other	132		200		220		(34	%)	(9	%)
Total	$	547	$	653	$	740	(16	%)	(12	%)

Materials expense decreased in both periods due primarily to lower maintenance requirements as a result of fewer locomotives and freight cars in service.

Claims expense includes costs related to personal injury, property damage, and environmental matters. The decrease in 2021 was primarily the result of lower costs associated with derailments and personal injuries. In 2020, claims expense declined, the result of lower costs related to environmental remediation matters that were partially offset by increased derailment costs.

Other expense decreased in 2021, primarily due to higher gains from sales of operating property. Gains from operating property sales amounted to $82 million, $26 million, and $64 million in 2021, 2020, and 2019, respectively. In 2020, other expense decreased largely due to the absence of the 2019 write-off of a $32 million receivable as a result of a legal dispute. Additionally, 2020 benefited from reduced travel expenses resulting from the COVID-19 pandemic. These reductions were partially offset by lower gains from sales of operating property.

Loss on asset disposal

During 2020, we recorded a $385 million charge related to the disposal of 703 locomotives. For more information on the impact of the charge, see Note 7.

Other income – net

Other income – net decreased in 2021 but increased in 2020. Other income fell in 2021 due to lower net returns on corporate-owned life insurance (COLI) and lower gains on sales of non-operating property. The increase in 2020 was driven by the absence of a prior year $49 million impairment loss related to natural resource assets, lower pension and postretirement benefit expenses, and higher returns on COLI investments, which more than offset the absence of coal royalties and lower gains on sales of non-operating property.

Income taxes

The effective income tax rate was 22.5% in 2021, compared with 20.4% in 2020 and 22.0% in 2019.  All three years benefited from favorable tax benefits associated with stock-based compensation and COLI returns. The current year benefited from a reduction in deferred taxes associated with state tax law changes, while 2020 benefited from a reduction of taxes upon the resolution of our 2012 amended return (see Note 4).

For 2022, we expect an effective income tax rate between 23% and 24%.

K26

FINANCIAL CONDITION, LIQUIDITY, AND CAPITAL RESOURCES

Cash provided by operating activities, our principal source of liquidity, was $4.3 billion in 2021, $3.6 billion in 2020, and $3.9 billion in 2019. The increase in 2021 was primarily the result of improved operating results. The decline in 2020 reflected a decrease in income from railway operations offset in part by lower income tax payments. We had negative working capital of $354 million at December 31, 2021 and working capital of $158 million at December 31, 2020. Cash and cash equivalents totaled $839 million and $1.1 billion at December 31, 2021, and 2020, respectively. We expect cash on hand combined with cash provided by operating activities will be sufficient to meet our ongoing obligations. In addition, we believe our currently-available borrowing capacity, access to additional financing, and ability to reduce property additions and shareholder distributions, including share repurchases, provide additional flexibility to meet our ongoing obligations. Nonetheless, we continue to monitor the ongoing impacts of the COVID-19 pandemic, which could lead to a reduction in cash flows from operations.

Contractual obligations at December 31, 2021, including those that may have material cash requirements, include interest on fixed-rate long-term debt, long-term debt (Note 9), unconditional purchase obligations (Note 17), long-term advances from Conrail Inc. (Conrail) (Note 6), operating leases (Note 10), agreements with Consolidated Rail Corporation (CRC) (Note 6), and unrecognized tax benefits (Note 4).

	Total		2022		2023 - 2024		2025 - 2026		2027 and Subsequent		Other
	($ in millions)
Interest on fixed-rate long-term debt	$	16,014	$	593	$	1,136	$	1,063	$	13,222	—
Long-term debt principal	14,816		553		1,006		1,156		12,101		—
Unconditional purchase obligations	916		586		159		75		96		—
Long-term advances from Conrail	534		—		—		—		534		—
Operating leases	470		92		156		124		98		—
Agreements with CRC	103		42		61		—		—		—
Unrecognized tax benefits*	21		—		—		—		—		21
Total	$	32,874	$	1,866	$	2,518	$	2,418	$	26,051	$	21

* This amount is shown in the Other column because the year of settlement cannot be reasonably estimated.

Off balance sheet arrangements consist primarily of unrecognized obligations, including unconditional purchase obligations and future interest payments on fixed-rate long-term debt, which are included in the table above.

Cash used in investing activities was $1.2 billion in both 2021 and 2020, and $1.8 billion in 2019.  In 2021, lower proceeds from property sales were mostly offset by reduced COLI policy loan repayments and lower property additions. In 2020, the decrease was primarily driven by lower property additions.

Capital spending and track and equipment statistics can be found within the “Railway Property” section of Part I of this report on Form 10-K. For 2022, we expect property additions will be between $1.8 billion and $1.9 billion.

Cash used in financing activities was $3.3 billion in 2021, compared with $1.9 billion in 2020, and $2.0 billion in 2019.  The increase in 2021 reflects higher repurchases of Common Stock and debt repayments, partially offset by increased proceeds from borrowings. In 2020, the change reflects lower repurchases of Common Stock and debt repayments, partially offset by reduced proceeds from borrowings.

Share repurchases of $3.4 billion in 2021, $1.4 billion in 2020, and $2.1 billion in 2019 resulted in the retirement of 12.7 million, 7.4 million, and 11.3 million shares, respectively.  As of December 31, 2021, 8.0 million shares remain authorized by our Board of Directors for repurchase.  The timing and volume of future share repurchases

K27

will be guided by our assessment of market conditions and other pertinent factors.  Repurchases may be executed in the open market, through derivatives, accelerated repurchase and other negotiated transactions and through plans designed to comply with Rule 10b5-1(c) under the Securities and Exchange Act of 1934. Any near-term purchases under the program are expected to be made with internally generated cash, cash on hand, or proceeds from borrowings.

In August 2021, we issued $600 million of 2.90% senior notes due 2051.

In May 2021, we issued $500 million of 2.30% senior notes due 2031 and $600 million of 4.10% senior notes due 2121. The net proceeds of the 2.30% senior notes due 2031 will be used to finance or refinance, in whole or in part, new or existing eligible projects with environmental benefits, as outlined in our Green Financing Framework.

In May 2021, we renewed, amended and restated our accounts receivable securitization program with a maximum borrowing capacity of $400 million. The term expires in May 2022. We had no amounts outstanding under this program and our available borrowing capacity was $400 million at both December 31, 2021 and December 31, 2020.

We also have in place and available an $800 million credit agreement expiring in March 2025, which provides for borrowings at prevailing rates and includes covenants. We had no amounts outstanding under this facility at December 31, 2021 or December 31, 2020. In addition, we have investments in general purpose COLI policies and had the ability to borrow against these policies up to $715 million and $750 million at December 31, 2021 and December 31, 2020, respectively.

We discuss our credit agreement and our accounts receivable securitization program in Note 9, and we have authority from our Board of Directors to issue an additional $3.0 billion of debt or equity securities through public or private sale, all of which provide for access to additional liquidity should the need arise. Our debt-to-total capitalization ratio was 50.4% at December 31, 2021, compared with 46.2% at December 31, 2020.

Upcoming annual debt maturities are disclosed in Note 9.  Overall, our goal is to maintain a capital structure with appropriate leverage to support our business strategy and provide flexibility through business cycles.

CRITICAL ACCOUNTING ESTIMATES

The preparation of financial statements in accordance with GAAP requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period.  These estimates and assumptions may require judgment about matters that are inherently uncertain, and future events are likely to occur that may require us to make changes to these estimates and assumptions.  Accordingly, we regularly review these estimates and assumptions based on historical experience, changes in the business environment, and other factors we believe to be reasonable under the circumstances.  The following critical accounting estimates are a subset of our significant accounting policies described in Note 1.

Pensions and Other Postretirement Benefits

Accounting for pensions and other postretirement benefit plans requires us to make several estimates and assumptions (Note 12).  These include the expected rate of return from investment of the plans’ assets and the expected retirement age of employees as well as their projected earnings and mortality.  In addition, the amounts recorded are affected by changes in the interest rate environment because the associated liabilities are discounted to their present value.  We make these estimates based on our historical experience and other information we deem pertinent under the circumstances (for example, expectations of future stock market performance).  We utilize an independent actuarial consulting firm’s studies to assist us in selecting appropriate actuarial assumptions and valuing related liabilities.

K28

For 2021, we assumed a long-term investment rate of return of 8.0%, which was supported by our long-term total rate of return on pension plan assets since inception, as well as our expectation of future returns. A one-percentage point change to this rate of return assumption would result in a $27 million change in annual pension expense. We review assumptions related to our defined benefit plans annually, and while changes are likely to occur in assumptions concerning retirement age, projected earnings, and mortality, they are not expected to have a material effect on our net pension expense or net pension liability in the future. The net pension liability is recorded at net present value using discount rates that are based on the current interest rate environment in light of the timing of expected benefit payments.  We utilize analyses in which the projected annual cash flows from the pension and postretirement benefit plans are matched with yield curves based on an appropriate universe of high-quality corporate bonds.  We use the results of the yield curve analyses to select the discount rates that match the payment streams of the benefits in these plans. A one-percentage point change to this discount rate assumption would result in a $20 million change in annual pension expense.

Properties and Depreciation

Most of our assets are long-lived railway properties (Note 7). “Properties” are stated principally at cost and are depreciated using the group method whereby assets with similar characteristics, use, and expected lives are grouped together in asset classes and depreciated using a composite depreciation rate. See Note 1 for a more detailed discussion of assumptions and estimates.

Expenditures, including those on leased assets, that extend an asset’s useful life or increase its utility are capitalized. Expenditures capitalized include those that are directly related to a capital project and may include materials, labor, and other direct costs, in addition to an allocable portion of indirect costs that relate to a capital project. A significant portion of our annual capital spending relates to self-constructed assets. Costs related to repairs and maintenance activities that, in our judgment, do not extend an asset’s useful life or increase its utility are expensed when such repairs are performed.

Depreciation expense for 2021 totaled $1.2 billion.  Our composite depreciation rates for 2021 are disclosed in Note 7; a one-year increase (or decrease) in the estimated average useful lives of depreciable assets would have resulted in an approximate $45 million decrease (or increase) to annual depreciation expense.

Personal Injury

Claims expense, included in “Materials and other” in the Consolidated Statements of Income, includes our estimate of costs for personal injuries.  

To aid in valuing our personal injury liability and determining the amount to accrue with respect to such claims during the year, we utilize studies prepared by an independent actuarial consulting firm. The actuarial firm studies our historical patterns of reserving for claims and subsequent settlements, taking into account relevant outside influences. We adjust the liability quarterly based upon our assessment and the results of the study. The accuracy of our estimate of the liability is subject to inherent limitation given the difficulty of predicting future events and, as such, the ultimate loss sustained may vary from the estimated liability recorded.

See Note 17 for a more detailed discussion of the assumptions and estimates we use for personal injury.

Income Taxes

Our net deferred tax liability totaled $7.2 billion at December 31, 2021 (Note 4).  This liability is estimated based on the expected future tax consequences of items recognized in the financial statements.  After application of the federal statutory tax rate to book income, judgment is required with respect to the timing and deductibility of expenses in our income tax returns.  For state income and other taxes, judgment is also required with respect to the apportionment among the various jurisdictions. A valuation allowance is recorded if we expect that it is more likely than not that deferred tax assets will not be realized. We have a $60 million valuation allowance on $461 million of

K29

deferred tax assets as of December 31, 2021, reflecting the expectation that substantially all of these assets will be realized.

OTHER MATTERS

Labor Agreements

Approximately 80% of our railroad employees are covered by collective bargaining agreements with various labor unions.  Pursuant to the Railway Labor Act, these agreements remain in effect until new agreements are reached, or until the bargaining procedures mandated by the Railway Labor Act are completed.  We largely bargain nationally in concert with other major railroads, represented by the National Carriers Conference Committee.  Moratorium provisions in the labor agreements govern when the railroads and unions may propose changes to the agreements. The current round of bargaining commenced on November 1, 2019 with both management and the unions serving their formal proposals for changes to the collective bargaining agreements and negotiations are ongoing.

Market Risks

At December 31, 2021, we had no outstanding debt subject to interest rate fluctuations. Market risk for fixed-rate debt is estimated as the potential increase in fair value resulting from a one-percentage point decrease in interest rates as of December 31, 2021 and amounts to an increase of approximately $1.9 billion to the fair value of our debt at December 31, 2021. We consider it unlikely that interest rate fluctuations applicable to these instruments will result in a material adverse effect on our financial position, results of operations, or liquidity.

New Accounting Pronouncements

For a detailed discussion of new accounting pronouncements, see Note 1.

Inflation

In preparing financial statements, GAAP requires the use of historical cost that disregards the effects of inflation on the replacement cost of property.  As a capital-intensive company, we have most of our capital invested in long-lived assets.  The replacement cost of these assets, as well as the related depreciation expense, would be substantially greater than the amounts reported on the basis of historical cost.

FORWARD-LOOKING STATEMENTS

Certain statements in Management’s Discussion and Analysis of Financial Condition and Results of Operations are “forward-looking statements” within the meaning of the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995, as amended.  These statements relate to future events or our future financial performance and involve known and unknown risks, uncertainties, and other factors that may cause our actual results, levels of activity, performance, or our achievements or those of our industry to be materially different from those expressed or implied by any forward-looking statements.  In some cases, forward-looking statements can be identified by terminology such as “may,” “will,” “could,” “would,” “should,” “expect,” “plan,” “anticipate,” “intend,” “believe,” “estimate,” “project,” “consider,” “predict,” “potential,” “feel,” or other comparable terminology.  We have based these forward-looking statements on our current expectations, assumptions, estimates, beliefs, and projections.  While we believe these expectations, assumptions, estimates, beliefs, and projections are reasonable, such forward-looking statements are only predictions and involve known and unknown risks and uncertainties, many of which involve factors or circumstances that are beyond our control.  These and other important factors, including those discussed in Item 1A “Risk Factors,” may cause actual results, performance, or achievements to differ materially from those expressed or implied by these forward-looking statements.  The forward-looking statements herein are made only as of the date they were first issued, and unless otherwise required by applicable securities laws, we disclaim any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise.

K30

Additional Information

Investors and others should note that we routinely use the Investor Relations, Performance Metrics and Sustainability sections of our website (www.norfolksouthern.com/content/nscorp/en/investor-relations.html, http://www.nscorp.com/content/nscorp/en/investor-relations/performance-metrics.html, & www.nscorp.com/content/nscorp/en/about-ns/sustainability.html) to post presentations to investors and other important information, including information that may be deemed material to investors. Information about us, including information that may be deemed material, may also be announced by posts on our social media channels, including Twitter (www.twitter.com/nscorp) and LinkedIn (www.linkedin.com/company/norfolk-southern). We may also use our website and social media channels for the purpose of complying with our disclosure obligations under Regulation FD. As a result, we encourage investors, the media, and others interested in Norfolk Southern to review the information posted on our website and social media channels. The information posted on our website and social media channels is not incorporated by reference in this Annual Report on Form 10-K.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk 

The information required by this item is included in Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” under the heading “Market Risks.”

K31

Item 8. Financial Statements and Supplementary Data

INDEX TO FINANCIAL STATEMENTS

	Page
Report of Management	K33
Reports of Independent Registered Public Accounting Firm	K34
Consolidated Statements of Income Years ended December 31, 2021, 2020, and 2019	K38
Consolidated Statements of Comprehensive Income Years ended December 31, 2021, 2020, and 2019	K39
Consolidated Balance Sheets At December 31, 2021 and 2020	K40
Consolidated Statements of Cash Flows Years ended December 31, 2021, 2020, and 2019	K41
Consolidated Statements of Changes in Stockholders’ Equity Years ended December 31, 2021, 2020, and 2019	K42
Notes to Consolidated Financial Statements	K43
Index to Financial Statement Schedule in Item 15	K80

K32

Report of Management

February 4, 2022

To the Stockholders

Norfolk Southern Corporation:

Management is responsible for establishing and maintaining adequate internal control over financial reporting.  In order to ensure that Norfolk Southern’s internal control over financial reporting is effective, management regularly assesses such controls and did so most recently as of December 31, 2021.  This assessment was based on criteria for effective internal control over financial reporting described in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.  Based on this assessment, management has concluded that we maintained effective internal control over financial reporting as of December 31, 2021.

KPMG LLP, independent registered public accounting firm, has audited our financial statements and issued an attestation report on our internal control over financial reporting as of December 31, 2021.

 

/s/ James A. Squires	/s/ Mark R. George	/s/ Clyde H. Allison, Jr.
James A. Squires	Mark R. George	Clyde H. Allison, Jr.
Chairman and	Executive Vice President Finance	Vice President and
Chief Executive Officer	and Chief Financial Officer	Controller

K33

Report of Independent Registered Public Accounting Firm

To the Stockholders and Board of Directors

Norfolk Southern Corporation:

Opinion on Internal Control Over Financial Reporting

We have audited Norfolk Southern Corporation and subsidiaries’ (the Company) internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 2021 and 2020, the related consolidated statements of income, comprehensive income, cash flows, and changes in stockholders’ equity for each of the years in the three-year period ended December 31, 2021, and the related notes and financial statement schedule of valuation and qualifying accounts as listed in Item 15(A)2 (collectively, the consolidated financial statements), and our report dated February 4, 2022 expressed an unqualified opinion on those consolidated financial statements.

Basis for Opinion

The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management's Annual Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

Definition and Limitations of Internal Control Over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

K34

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ KPMG LLP

KPMG LLP

Atlanta, Georgia

February 4, 2022

K35

Report of Independent Registered Public Accounting Firm

To the Stockholders and Board of Directors

Norfolk Southern Corporation:

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated balance sheets of Norfolk Southern Corporation and subsidiaries (the Company) as of December 31, 2021 and 2020, the related consolidated statements of income, comprehensive income, cash flows, and changes in stockholders’ equity for each of the years in the three‑year period ended December 31, 2021, and the related notes and financial statement schedule of valuation and qualifying accounts as listed in Item 15(A)2 (collectively, the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the years in the three‑year period ended December 31, 2021, in conformity with U.S. generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated February 4, 2022 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.

K36

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of a critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Sufficiency of audit evidence related to the capitalization of property expenditures

As discussed in Note 1 to the consolidated financial statements, expenditures that extend an asset’s useful life or increase its utility are capitalized. The Company has recorded $31,653 million in net book value of properties at December 31, 2021 and has recorded $1,470 million in property additions for the year ended December 31, 2021. Expenditures capitalized include those that are directly related to a capital project and may include materials, labor and other direct costs, in addition to an allocable portion of indirect costs that relate to a capital project. A significant portion of the Company’s annual capital spending relates to self-constructed assets. Costs related to repair and maintenance activities, that in the Company’s judgment, do not extend an asset’s useful life or increase its utility are expensed when such repairs are performed.

We identified the evaluation of the sufficiency of audit evidence related to capitalization of property expenditures as a critical audit matter. Subjective auditor judgment was required in determining procedures and evaluating audit results related to the capitalization of purchased services and compensation due to their usage for both self-constructed assets and repairs and maintenance.

The following are the primary procedures we performed to address this critical audit matter. We applied auditor judgment to determine the nature and extent of procedures to be performed over capitalized property expenditures. We evaluated the design and tested the operating effectiveness of certain internal controls over the Company’s process to capitalize property expenditures, including controls over the determination of whether purchased services and compensation expenditures extend an asset’s useful life or increase its utility. For a sample of property addition expenditures, we inquired and inspected support to evaluate that the expenditure extended an asset’s useful life or increased its utility. We evaluated the sufficiency of audit evidence obtained by assessing the results of the procedures performed, including the appropriateness of the nature of such evidence.

/s/ KPMG LLP

KPMG LLP

We have served as the Company’s auditor since 1982.

Atlanta, Georgia

February 4, 2022

K37

Norfolk Southern Corporation and Subsidiaries

Consolidated Statements of Income

 

	Years ended December 31,
	2021		2020		2019
	($ in millions, except per share amounts)
Railway operating revenues	$	11,142	$	9,789	$	11,296
Railway operating expenses
Compensation and benefits	2,442		2,373		2,751
Purchased services and rents	1,726		1,687		1,725
Fuel	799		535		953
Depreciation	1,181		1,154		1,138
Materials and other	547		653		740
Loss on asset disposal	—		385		—
Total railway operating expenses	6,695		6,787		7,307
Income from railway operations	4,447		3,002		3,989
Other income – net	77		153		106
Interest expense on debt	646		625		604
Income before income taxes	3,878		2,530		3,491
Income taxes	873		517		769
Net income	$	3,005	$	2,013	$	2,722
Earnings per share
Basic	$	12.16	$	7.88	$	10.32
Diluted	12.11		7.84		10.25

See accompanying notes to consolidated financial statements.

K38

Norfolk Southern Corporation and Subsidiaries

Consolidated Statements of Comprehensive Income

 

	Years ended December 31,
	2021		2020		2019
	($ in millions)
Net income	$	3,005	$	2,013	$	2,722
Other comprehensive income (loss), before tax:
Pension and other postretirement benefits	226		(140)		101
Other comprehensive income (loss) of equity investees	24		2		(4)
Other comprehensive income (loss), before tax	250		(138)		97
Income tax benefit (expense) related to items of
other comprehensive income (loss)	(58)		35		(25)
Other comprehensive income (loss), net of tax	192		(103)		72
Total comprehensive income	$	3,197	$	1,910	$	2,794

See accompanying notes to consolidated financial statements.

K39

Norfolk Southern Corporation and Subsidiaries

Consolidated Balance Sheets

	At December 31,
	2021		2020
	($ in millions)
Assets
Current assets:
Cash and cash equivalents	$	839	$	1,115
Accounts receivable – net	976		848
Materials and supplies	218		221
Other current assets	134		134
Total current assets	2,167		2,318
Investments	3,707		3,590
Properties less accumulated depreciation of $12,031 and
$11,985, respectively	31,653		31,345
Other assets	966		709
Total assets	$	38,493	$	37,962
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable	$	1,351	$	1,016
Income and other taxes	305		263
Other current liabilities	312		302
Current maturities of long-term debt	553		579
Total current liabilities	2,521		2,160
Long-term debt	13,287		12,102
Other liabilities	1,879		1,987
Deferred income taxes	7,165		6,922
Total liabilities	24,852		23,171
Stockholders’ equity:
Common Stock $1.00 per share par value, 1,350,000,000 shares
authorized; outstanding 240,162,790 and 252,095,082 shares,
respectively, net of treasury shares	242		254
Additional paid-in capital	2,215		2,248
Accumulated other comprehensive loss	(402)		(594)
Retained income	11,586		12,883
Total stockholders’ equity	13,641		14,791
Total liabilities and stockholders’ equity	$	38,493	$	37,962

See accompanying notes to consolidated financial statements.

K40

Norfolk Southern Corporation and Subsidiaries

Consolidated Statements of Cash Flows

	Years ended December 31,
	2021		2020		2019
	($ in millions)
Cash flows from operating activities
Net income	$	3,005	$	2,013	$	2,722
Reconciliation of net income to net cash provided by operating activities:
Depreciation	1,181		1,154		1,139
Deferred income taxes	184		142		330
Gains and losses on properties	(86)		(39)		(42)
Loss on asset disposal	—		385		—
Impairment of investment	—		99		—
Changes in assets and liabilities affecting operations:
Accounts receivable	(133)		71		87
Materials and supplies	3		23		(37)
Other current assets	(6)		3		(4)
Current liabilities other than debt	283