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 endedDECEMBER December 31, 20192022
 
☐      TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
for the transition period from ___________ to___________ 
Commission file numberFile Number 1-8339 

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NORFOLK SOUTHERN CORPORATION
(Exact name of registrant as specified in its charter)

Virginia52-1188014
(State or other jurisdiction of incorporation or organization)(IRSI.R.S Employer Identification No.)
Three Commercial Place650 West Peachtree Street NW23510-219130308-1925
Norfolk,Atlanta,VirginiaGeorgia
(Address of principal executive offices)(Zip Code)
(757)(855)629-2680667-3655
(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading symbol(s)Symbol(s)Name of each exchange on which registered
Norfolk Southern Corporation Common Stock (Par Value $1.00)NSCNew 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. ☒

If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐

Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐

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, 20192022 was $52,456,511,032$53,336,433,209 (based on the closing price as quoted on the New York Stock Exchange on June 28, 2019)30, 2022).
 
The number of shares outstanding of each of the registrant’s classes of common stock, at January 31, 2020: 257,844,1802023: 227,782,202 (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
 
 
 
 
  
   
  
Issuer Purchases of Equity Securities
 
  
Results of Operations
 
 
 
  
Financial Disclosure
 
 
   
 
 
  
and Related Stockholder Matters
 
 
   
 
  
   
  

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PART I
 
NORFOLK SOUTHERN CORPORATION AND SUBSIDIARIES
 
Item 1. Business and Item 2. Properties
 
GENERAL – Our company, Norfolk Southern Corporation (Norfolk Southern), is a Norfolk, Virginia-basedan 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.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 United States.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 GuidelinesNorfolk Southern Corporation Bylaws
•Charters of the Committees of the Board of Directors
•Corporate Governance Guidelines
•Categorical Independence Standards
•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, 2019, our railroad2022, we operated approximately 19,50019,100 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.

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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 Ohio, and Chattanooga, Tennessee, and an exclusive operating agreement for trackage rights over property owned by North Carolina Railroad Company, were as follows:
 Mileage Operated at December 31, 2019
Route MilesSecond
and
Other
Main
Track		Passing
Track,
Crossovers
and
Turnouts
Way and
Yard
Switching 
Total 
Owned14,655  2,677  2,008  8,320  27,660  
Operated under lease, contract or trackage
rights4,796  1,889  407  840  7,932  
Total19,451  4,566  2,415  9,160  35,592  
 Mileage Operated at December 31, 2022
Route MilesSecond
and
Other
Main
Track		Passing
Track,
Crossovers
and
Turnouts
Way and
Yard
Switching 
Total 
Owned14,312 2,676 1,957 8,158 27,103 
Operated under lease, contract or trackage
rights4,825 1,889 406 841 7,961 
Total19,137 4,565 2,363 8,999 35,064 
 
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 railroads’ operations for the past five years:
 Years ended December 31,
 20192018201720162015
Revenue ton miles (billions)194  207  201  191  200  
Revenue per thousand revenue ton miles$58.21  $55.25  $52.38  $51.91  $52.63  
Revenue ton miles (thousands) per railroad employee7,939  7,822  7,474  6,838  6,645  
Ratio of railway operating expenses to railway
operating revenues (Railway operating ratio)64.7 %65.4 %66.6 %69.6 %72.8 %
 Years ended December 31,
 20222021202020192018
Revenue ton miles (billions)179 178 164 194 207 
Revenue per thousand revenue ton miles$71.35 $62.56 $59.67 $58.21 $55.25 
Revenue ton miles (thousands) per railroad employee9,513 9,694 8,191 7,939 7,822 
Ratio of railway operating expenses to railway
operating revenues (railway operating ratio)62.3%60.1%69.3%64.7%65.4%

RAILWAY OPERATING REVENUES – Total railway operating revenues were $11.3$12.7 billion in 2019.2022.  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.”
 

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MERCHANDISE – Our merchandise commodity group is composed of fivefour 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, beverages, and canned goods.
•Chemicals includes sulfur and related chemicals, petroleum products (including crude oil), chlorine and bleaching compounds, plastics, rubber, industrial chemicals, chemical wastes, sand, and chemical wastes.
•Agriculture products includes soybeans, wheat, corn, fertilizer, livestock and poultry feed, food products, food oils, flour, sweeteners, and ethanol.natural gas liquids.
•Metals and construction includes steel, aluminum products, machinery, scrap metals, cement, aggregates, sand, minerals, clay, transportation equipment, and items for the U.S. military.
•Automotive includes finished motor vehicles and automotive parts.
•Forest and consumer includes lumber and wood products, pulp board and paper products, wood fibers, wood pulp, scrap paper, clay, beverages, canned goods, and consumer products

MerchandiseIn 2022, we handled 2.2 million merchandise carloads, handled in 2019 were 2.4 million, the revenues from which accounted for 60%57% 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 owningasset-owning companies. IntermodalIn 2022, we handled 3.9 million intermodal units, handled in 2019 were 4.2 million, the revenues from which accounted for 25%29% of our total railway operating revenues.
 
COAL – Revenues from coalCoal revenues accounted for 15%14% of our total railway operating revenues in 2019.2022.  We handled 10277 million tons, or 0.90.7 million carloads, in 2019, 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, directly serving approximately 60 coal generation30 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, at Lamberts Point in Norfolk, Virginia, at the Port of Baltimore, and on 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 propertyproperties of approximately $32 billion on a historical cost basis.

Property Additions – Property additions for the past five years were as follows:
 20192018201720162015
 ($ in millions)
Road and other property$1,371  $1,276  $1,210  $1,292  $1,514  
Equipment648  675  513  595  658  
Delaware & Hudson acquisition—  —  —  —  213  
Total$2,019  $1,951  $1,723  $1,887  $2,385  

 20222021202020192018
 ($ in millions)
Road and other property$1,345 $1,041 $1,046 $1,371 $1,276 
Equipment603 429 448 648 675 
Total$1,948 $1,470 $1,494 $2,019 $1,951 

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, 2019,2022, we owned or leased the following units of equipment:
OwnedLeasedTotalCapacity of
Equipment
Locomotives:   (Horsepower)
Multiple purpose3,711  —  3,711  14,234,300  
Auxiliary units178  —  178  —  
Switching17  —  17  23,800  
Total locomotives3,906  —  3,906  14,258,100  
Freight cars:   (Tons)
Gondola22,081  3,541  25,622  2,476,401  
Hopper9,877  —  9,877  1,109,777  
Covered hopper6,320  —  6,320  699,985  
Box4,432  747  5,179  388,615  
Flat1,572  387  1,959  190,213  
Other1,592  4  1,596  73,203  
Total freight cars45,874  4,679  50,553  4,938,194  
Other:
Chassis33,861  —  33,861  
Containers18,920  —  18,920  
Work equipment5,754  258  6,012  
Vehicles3,349  59  3,408  
Miscellaneous2,391  —  2,391  
Total other64,275  317  64,592  
OwnedLeasedTotalCapacity of
Equipment
Locomotives:   (Horsepower)
Multiple purpose3,046 — 3,046 11,845,600 
Auxiliary units140 — 140 — 
Switching4 — 4 4,400 
Total locomotives3,190 — 3,190 11,850,000 
Freight cars:   (Tons)
Gondola17,391 2,836 20,227 2,265,085 
Hopper7,818 — 7,818 892,800 
Covered hopper5,571 — 5,571 619,424 
Box2,530 703 3,233 295,536 
Flat1,390 676 2,066 152,719 
Other1,555 — 1,555 69,649 
Total freight cars36,255 4,215 40,470 4,295,213 
Other:
Chassis35,393 1,100 36,493 
Containers18,047 — 18,047 
Work equipment5,408 243 5,651 
Vehicles2,976 14 2,990 
Miscellaneous2,243 — 2,243 
Total other64,067 1,357 65,424 
 
The following table indicates the number and year built for locomotives and freight cars owned at December 31, 2019:2022:
201920182017201620152010-
2014		2005-
2009		2004 &
Before		Total
Locomotives:        
No. of units3515556683253593,0433,906
% of fleet1 %— %2 %2 %— %8 %9 %78 %100 %
Freight cars:       
No. of units200—4707752,0906,8414,76030,73845,874
% of fleet— %— %1 %2 %5 %15 %10 %67 %100 %
202220212020201920182013-
2017		2008-
2012		2007 &
Before		Total
Locomotives:        
No. of units—11036152602312,6373,190
% of fleet— %— %— %1 %1 %8 %7 %83 %100 %
Freight cars:       
No. of units236——200—4,2028,84322,77436,255
% of fleet1 %— %— %— %— %12 %24 %63 %100 %

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The following table shows the average age of our owned locomotive and freight car fleets at December 31, 2019,2022 and information regarding 20192022 retirements:
 Locomotives Freight Cars 
Average age – in service25.727.6 years27.025.9 years
Retirements25022 units8,8251,209 units
Average age – retired29.825.2 years42.645.5 years

Track Maintenance – Of the approximately 35,60035,100 total miles of track on which we operate, we are responsible for maintaining approximately 28,400 miles, with the remainder being operated under trackage rights from other parties responsible for maintenance.

Over 84%85% 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 44%40% of our lines, excluding rail operated pursuant to trackage rights, carried 20 million or more gross tons per track mile during 2019.2022.

The following table summarizes several measurements regarding our track roadway additions and replacements during the past five years:
 20192018201720162015
Track miles of rail installed449  416  466  518  523  
Miles of track surfaced5,012  4,594  5,368  4,984  5,074  
Crossties installed (millions)2.4  2.2  2.5  2.3  2.4  
 20222021202020192018
Track miles of rail installed541 458 418 449 416 
Miles of track surfaced4,155 4,225 4,785 5,012 4,594 
Crossties installed (millions)2.2 2.0 1.8 2.4 2.2 

Traffic Control – Of the approximately 16,40016,200 route miles we dispatch, about 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, approximately 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
EMPLOYEES
Workforce – The following table showsWe employed an average of 18,900 employees during 2022, and 19,300 employees at the average numberend of employees and the average cost per employee for wages and benefits: 
 20192018201720162015
Average number of employees24,587  26,662  27,110  28,044  30,456  
Average wage cost per employee$85,000  $83,000  $79,000  $76,000  $77,000  
Average benefit cost per employee$40,000  $39,000  $42,000  $35,000  $32,000  

2022. 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. We measure and monitor employee productivity based on various factors, including 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 outlined in our Foundation of Safety policy which focuses on rules compliance, responsibility, relationships, and responsiveness. Our safety programs, practices, and messaging further reinforces the importance of working safely. We measure
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employee safety performance through internal metrics such as accidents, injuries, and serious injuries per 200,000 employee-hours. We also use metrics established by the Federal Railroad Administration (FRA) to measure FRA reportable accidents and 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, maintaining a competitive compensation package, 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 be successful in their careers. We provide classroom instruction, hands-on training and simulation-based 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 CEO recently signed the CEO Action for Diversity & Inclusion pledge, which outlines specific actions to create a welcoming environment for discussions and ideas about diversity and inclusion. To advance that commitment, senior leaders from across the company serve on an Inclusion Leadership Council, which partners with the Diversity, Equity, and Inclusion Strategy team in implementing our enterprise inclusion strategy, articulating measurable goals, and holding ourselves accountable.

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%
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of our revenues comes from either exempt shipments or shipments moving under transportation contracts; the remainder comes from shipments moving under public tariff rates.
 
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 2020.2023.  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. 

Railroads are also subject to the enactment of laws by Congress and regulation by the U.S. Department of Transportation (DOT) (including the Federal Railroad Administration) and the U.S. Department of Homeland Security (DHS) (including the Transportation Security Administration (TSA)), which regulate most aspects of our operations related to safety, security and cybersecurity.

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.

Ourprimary rail competitor is CSXCorporation (CSX); both NSwe and CSX operate throughout much of the same territory. Other railroads also operate in parts of the territory.  Wealso 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 enablerailroadsto 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)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,
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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.

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We also operate sixfour 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),DHS, the Transportation Security Administration,TSA, the Federal Bureau of Investigation, the Federal Railroad Administration (FRA),FRA, the USCG, U.S. Customs and Border Protection, the Department of Defense, and various state Homeland Security offices.

In 2019,2022, 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 training to approximately 5,7005,000 emergency responders, such as local police and fire personnel. Our otherpersonnel, utilizing a combination of online training efforts throughout 2019 included participation in tabletop and full scale exercises for local, state, and federal agencies.face-to-face training sessions as well as the Norfolk Southern Safety Train. We also have ongoing programs to sponsor local emergency responders at the Security and Emergency Response Training Course conducted at the AAR Transportation Technology Center in Pueblo, Colorado.Center.

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 materiallymaterial 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“Management’s Discussion and Analysis of Financial Condition and Results of Operations”Operations” and Item 8 “Financial“Financial Statements and Supplementary Data.”
”
REGULATORY AND LEGISLATIVE RISKS
Significant governmental
Governmental legislation, regulation, and regulationExecutive Orders over commercial, operating and environmentaloperational, tax, safety, security, or cybersecurity matters could negatively affect us, our customers, andthe rail industry or the markets we serve.Congress can enact laws, agencies can promulgate regulations, and Executive Orders can be issued that could increase economicor alter regulation ofthat negatively affects us, our customers, the industry. rail industry or the markets we serve. Railroads presently are subject to commercial and operational regulation by the STB, which hasjurisdiction to varying extents over rates, routes, customer access provisions, fuel surcharges, conditions of service, and the extension or abandonment of rail lines.

lines.
The STB also has jurisdiction over the consolidation, merger, or acquisition of control of and by rail commoncarriers. Additional economicor updated regulation of the rail industry by Congress or the STB, whether under new, orexisting or amended laws or regulations, could have a significant negative impact on our ability to negotiate prices for rail services, on our railway operating revenues, and on theefficiency, conduct, or complexity of our operations. This potential material adverse effectSuch additional or updated industry regulation, as well as enactment of any new or updated tax laws, could also negatively impact cash flows from our operating activities and, therefore, 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 (including the FRA) and the DHS (including the TSA), which regulate mostmany aspects of our operations related to safety, security and security. The Rail Safety Improvement Act of 2008,cybersecurity. Additional or updated safety, security, or cybersecurity regulation by Congress, the Surface Transportation Extension Act of 2015,DOT or DHS could have a negative impact on our business and the implementing regulations promulgated by the FRA (collectively “the PTC lawsefficiency, conduct, or complexity of our operations including (but not limited to) increased operating costs, capital expenditures, claims and regulations”) require us (and each other Class I railroad) to implement, on certain mainline track where intercity and commuter passenger railroads operate and where TIH hazardous materials arelitigation.
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transported, an interoperable positive train control system (PTC). PTC isOur inability to comply with the requirements of existing or updated laws, regulations, or Executive Orders that govern our operations or the rail industry, including but not limited to those pertaining to commercial, operational, tax, safety, security, or cybersecurity matters, could have a setmaterial adverse effect on our financial position, results of highly advanced technologies designed to prevent train-to-train collisions, speed-related derailments,operations or liquidity.

Federal and certain other accidents caused by human error, but PTC will not prevent all types of train accidents or incidents. We met the deadline under the PTCstate environmental laws and regulations to install all hardwarecould negatively impact us and to implement PTC on some of those rail lines, and we are required to fully implement PTC on the remainder of those rail lines by December 31, 2020.our operations. In addition, other railroads’ implementation schedules could impose additional interoperability requirements and accelerated timelines on us, which could impact our operations over other railroads if not met.

Full implementation of PTC will result in additional operating costs and capital expenditures, and PTC implementation may result in reduced operational efficiency and service levels, as well as increased compensation and benefits expenses, and increased claims and litigation costs.

Our operations are subject to extensive federal and state environmental laws and regulations concerning, among other things,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 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.

Concern over climate change has ledOur inability to comply with the extensive federal and state environmental laws and regulations to which we are subject could result in significant federal, state, and international legislative and regulatory efforts to limit greenhouse gas (GHG) emissions. Restrictions, caps, taxes,liabilities or other controls on GHG emissions, including diesel exhaust, could significantly increaseotherwise adversely impact our operating costs, decrease the amount of traffic handled, and decrease the value of coal reserves we own.operations.

OPERATIONAL RISKS

Pandemics, epidemics or endemic diseases could further negatively 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 can influence the demand for our services and affect our revenues. In addition, legislationsuch outbreaks could affect our operations and regulation relatedbusiness continuity if a significant number of our essential employees, overall or in a key location, are quarantined from contraction of or exposure to GHGs could negativelythe disease or if governmental orders prevent our employees or critical suppliers from working. To the extent such diseases adversely affect our business and financial results, they may also have the markets we serve and our customers. Even without legislation or regulation, government incentives and adverse publicity relating to GHGs could negatively affect the markets for certaineffect of heightening many of the commoditiesother 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 carryexperience 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, data breach, or other operational difficulties. Although we maintain comprehensive security programs designed to protect our customersinformation technology systems, we are continually targeted by threat actors attempting to access our networks. While we have previously experienced cybersecurity events that (1) use commoditieshave had minimal impact, future events may result in more significant impacts to our operations, reputation or results of 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 carryrely on for business operations, including third party vendors that have access to produce energy, including coal, (2) use significant amountsour 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 action or increased regulation, 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.

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Our business may be seriously harmed if we fail to develop, implement, maintain, upgrade, enhance, protect and integrate our information technology systems. If we fail to develop, acquire or implement new technology, or otherwise fail to maintain, protect or integrate our information technology systems, we may suffer a competitive disadvantage within the rail industry and with companies providing alternative modes of energy in producing or delivering the commodities we carry, or (3) manufacture or produce goods that consume significant amounts of energy.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 andproperty (including environmental) damage and compromise critical parts of our rail network. The costcosts of a catastrophic railaccident involving hazardous materials could exceed our insurance coverage. We have obtained insurance for potential losses forthird-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, ifavailable, may not be obtainable on terms acceptable to us.

We may be affected by general economic conditions. Prolonged negative changes in domestic and global economic conditions could affect the producers and consumers of the commodities we carry. Economic conditions could also result in bankruptcies of one or more large customers.

Significant increases in demand for rail services could result in the unavailability of qualified personnel and locomotives. In addition, workforce demographics and trainingrequirements, particularly for engineers and conductors, could have anegative impact on our ability to meet short-term demand for rail service. Unpredicted increases in demand for rail servicesmay exacerbate such risks.
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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.

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 primarily 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 changing or materially increasing the qualityefficiency or reducing the cost of one or more alternative modes of transportation in the regions in which we operate (such as granting materially greater latitude for motor carriers with respect to size or weight limitations or adoption and utilization 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 have experienced and may again experience capacity constraints on our rail network related to employee or equipment shortages, increased demand for rail services, 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, have negatively impacted and may again negatively impact 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.
The
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 our 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.

We rely on technology and technology improvements in our business operations. If we experience significant disruption or failure of one or more of our information technology systems, including computer hardware, software, and communications equipment, we could experience a service interruption, a security breach, or other operational difficulties. We also face cybersecurity threats which may result in breaches of systems, or compromises of sensitive data, which may result in an inability to access or operate systems necessary for conducting operations and providing customer service, thereby impacting our efficiency and/or damaging our corporate reputation. Additionally, if we do not have sufficient capital to acquire new technology or we are unable to implement new technology, we may suffer a competitive disadvantage within the rail industry and with companies providing other modes of transportation service.

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 collectivebargaining agreements with various labor unions. If unionized workers were to engage in a strike, work stoppage,or other slowdown, we could experience a significant disruption of our operations. Additionally, future nationallabor agreements, or renegotiation of labor agreements or provisions of labor agreements, could significantlyincrease our costs for health care, wages, and other benefits.

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.

Any material changes to current litigation trends or a catastrophic rail accident involving any or all of freight loss, property damage, personal injury, and environmental liability could have a material adverse effect on us to the extent not covered by insurance. We have obtained insurance for potential losses for third-party liability and first-party property damages; 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.
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Severe weather could result in significant business interruptions and expenditures. Severe weather conditions and other natural phenomena, including hurricanes, floods, fires, and earthquakes, may cause significant business interruptions and result in increased costs, increased liabilities, and decreased revenues.

We may benegatively 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,
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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 negatively affected by supply constraints resulting from disruptions in the fuel markets or the nature of some of our supplier markets.We consumed approximately 451376 million gallons of diesel fuel in 2019.2022. Fuelavailability could be affected by any limitation in the fuel supply or by any imposition of mandatory allocation orrationing regulations. A severe fuel supply shortage arising from production curtailments, increased demand inexisting 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 intensivecapital-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 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; 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.

HUMAN CAPITAL RISKS

The vast majority of our employees belong to labor unions, and the renegotiation of labor agreements or any provisions thereof, or any strikes or work stoppages (including any entered into in connection with any such negotiations), could adversely affect our operations. Approximately 80% of our railroad employees are covered by collective bargaining agreements with various labor unions. Although we recently entered into updated labor agreements with these labor unions, 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. Additionally, if our craft employees were to engage in a strike, work stoppage, or other slowdown, including in connection with the renegotiation of any such agreements or any provisions thereof, we could experience a significant disruption in our operations, thereby adversely impacting our results of operations.

Failure to attract and retain key executive officers, or skilled professional or technical employees could adversely impact our business and operations. Our success depends on our ability to attract and retain skilled employees, including a sufficient number of craft employees to enable us to efficiently conduct our operations.
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Difficulties in recruiting and retaining skilled employees, including train and engine workers, key executives, and other skilled professional and technical employees; the unexpected loss of such individuals; and/or our inability to successfully transition key roles could each have a material adverse effect on our business and operations.

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

MACROECONOMIC AND MARKET RISKS

We may be negatively impacted by changes in 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 freight we carry. Economic conditions could also result in bankruptcies of one or more large customers.

We may be negatively 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.

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 as well asand 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 inof 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.

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Item 3. Legal Proceedings
 
In 2007, various antitrust class actions filed against usFor information on our legal proceedings, see Note 17 “Commitments and other Class I railroads in various Federal district courts regarding fuel surcharges were consolidatedContingencies” in the District of Columbia by the Judicial Panel on Multidistrict Litigation. In 2012, the court certified the case as a class action. The defendant railroads appealed this certification, and the Court of Appeals for the District of Columbia vacated the District Court’s decision and remanded the case for further consideration. On October 10, 2017, the District Court denied class certification. The decision was upheld by the Court of Appeals on August 16, 2019. Since that decision, various individual cases have been filed in multiple jurisdictions. We believe the allegations in the complaints are without merit and intend to vigorously defend the cases. We do not believe the outcome of these proceedings will have a material effect on our financial position, results of operations, or liquidity.Consolidated Financial Statements.

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 of Directors 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, 2020,2023, relating to our officers.
Name, Age, Present PositionBusiness Experience During Past Five Years
  
James A. Squires, 58,Alan H. Shaw, 55,
Chairman, President and
Chief Executive Officer
Present position since OctoberMay 1, 2015.2022.
Served as CEO since JunePresident from December 1, 2015.2021 to May 1, 2022. Served as Executive Vice President since Juneand Chief Marketing Officer from May 16, 2015 to December 1, 2013.2021.
  
Ann A. Adams, 49,52,
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.
Paul B. Duncan, 43,
Executive Vice President and
Chief Operating Officer
Present position since January 1, 2023.
Served as Senior Vice President Transportation & Network Operations from September 1, 2022 to January 1, 2023. Served as Vice President Network Planning & Operations from March 1, 2022 to September 1, 2022. Prior to joining Norfolk Southern, served as Vice President of Service Design and Performance for BNSF Railway from October 1, 2018 to March 1, 2022 and as Assistant Vice President Human Resourcesfor Capacity Planning from JulyJune 1, 20122015 to October 1, 2018.
Claude E. Elkins, Jr., 57,
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, 2016.2018.
Mark R. George, 52,55,
Executive Vice President –and
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 September 2008 until September 2015, and again June 2019 until joining Norfolk Southern.
 
John M. Scheib, 48,Nabanita C. Nag, 47,
Executive Vice President and
Chief StrategyLegal Officer
Present position since AprilJuly 1, 2019.2022.
Served as ExecutiveSenior Vice President – Law and Administration and& Chief Legal Officer from March 1, 20182022 to AprilJuly 1, 2019. Served as Senior Vice President Law and Corporate Relations from October 1, 2017, to March 1, 2018. Served as Vice President Law from December 1, 2016, to October 1, 2017.2022. Served as General Counsel - Corporate from August 16, 2010,31, 2020 to DecemberMarch 1, 2016.2022. Prior to joining Norfolk Southern, served as Vice President & Corporate Counsel in the Financial Management Law Group at Prudential Financial from March 3, 2014 to August 1, 2020.
 
Alan H. Shaw, 52,
Executive Vice President and
Chief Marketing Officer
Present position since May 16, 2015.
Served as Vice President Intermodal Operations from November 1, 2013 to May 16, 2015.
Michael J. Wheeler, 57,
Executive Vice President and
Chief Operating Officer
Present position since February 1, 2016.
Served as Senior Vice President Operations from October 1, 2015 to February 1, 2016. Served as Vice President Engineering from November 1, 2012 to October 1, 2015.
Jason A. Zampi, 45,Claiborne L. Moore, 43,
Vice President and Controller
Present position since December 16, 2018.March 1, 2022.
Served as Assistant Vice President Corporate Accounting from AprilMarch 15, 2019 to March 1, 2016 to December 16, 2018.2022. Served as Director Accounting Research and AnalysisInvestor Relations from MayJuly 1, 20142017 to April 1, 2016.March 15, 2019.

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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 23,27319,796 stockholders of record as of December 31, 2019,2022, 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, 20191,024,028  $178.89  1,020,083  29,956,368  
November 1-30, 2019923,726  192.84  922,109  29,034,259  
December 1-31, 2019987,478  191.40  987,478  28,046,781  
Total2,935,232    2,929,670    

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, 20221,027,142 $217.12 1,027,142 $8,092,825,748 
November 1-30, 20221,023,706 243.00 1,023,706 7,844,066,906 
December 1-31, 20221,422,612 249.05 1,422,438 7,489,805,905 
Total3,473,460   3,473,286   
 
(1)Of this amount, 5,562 represents174 represent shares tendered by employees in connection with the exercise of stock options under the stockholder-approved Long-Term Incentive Plan.Plan (LTIP).
(2)On September 26, 2017,March 29, 2022, our Board of Directors authorized a new program for the repurchase of up to an additional 50 million shares$10.0 billion of Common Stock through December 31,beginning April 1, 2022. As of December 31, 2019, 28.0 million shares remain2022, $7.5 billion remains authorized for repurchase. Our previous share repurchase program terminated on March 31, 2022.
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Item 6. Selected Financial Data
FIVE-YEAR FINANCIAL REVIEW
 20192018201720162015
 ($ in millions, except per share amounts)
RESULTS OF OPERATIONS     
Railway operating revenues$11,296  $11,458  $10,551  $9,888  $10,511  
Railway operating expenses7,307  7,499  7,029  6,879  7,656  
Income from railway operations3,989  3,959  3,522  3,009  2,855  
Other income – net106  67  156  136  132  
Interest expense on debt604  557  550  563  545  
Income before income taxes3,491  3,469  3,128  2,582  2,442  
Income taxes769  803  (2,276) 914  886  
Net income$2,722  $2,666  $5,404  $1,668  $1,556  
PER SHARE DATA     
Basic earnings per share$10.32  $9.58  $18.76  $5.66  $5.13  
Diluted earnings per share10.25  9.51  18.61  5.62  5.10  
Dividends3.60  3.04  2.44  2.36  2.36  
Stockholders’ equity at year-end58.87  57.30  57.57  42.73  40.93  
FINANCIAL POSITION     
Total assets$37,923  $36,239  $35,711  $34,892  $34,139  
Total debt12,196  11,145  9,836  10,212  10,093  
Stockholders’ equity15,184  15,362  16,359  12,409  12,188  
OTHER     
Property additions$2,019  $1,951  $1,723  $1,887  $2,385  
Average number of shares outstanding (thousands)263,270  277,708  287,861  293,943  301,873  
Number of stockholders at year-end23,273  24,475  25,737  27,288  28,443  
Average number of employees: 
Rail24,442  26,512  26,955  27,856  30,057  
Nonrail145  150  155  188  399  
Total24,587  26,662  27,110  28,044  30,456  

Note 1:  In 2017, as a result of the enactment of tax reform, “Railway operating expenses” included a $151 million benefit and “Income taxes” included a $3,331 million benefit, which added $3,482 million to “Net income” and $12.00 to “Diluted earnings per share.”
Note 2: On January 1, 2019, we adopted Financial Accounting Standards Board (FASB) Accounting Standards Update (ASU) 2016-02, “Leases (Topic 842),” which requires lessees to recognize right-of-use (ROU) assets and lease liabilities on the balance sheet for leases greater than twelve months. As a result of the adoption, the Consolidated Balance Sheets at December 31, 2019 includes the recognition of ROU assets of $539 million and corresponding lease liabilities of $538 million.

See accompanying consolidated financial statements and notes thereto.
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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.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 approximately 19,500 route miles in 22 states and the District of Columbia, serves every major container port in the eastern United States, and provides efficient connections to other rail carriers.  Norfolk Southern isColumbia. We are a major transporter of industrial products, including agriculture, forest and consumer products, chemicals, agriculture, and metals and construction materials. In addition, in the East we serve every major container port and operate the most extensive intermodal network in the East andnetwork. We are also a principal carrier of coal, automobiles, and automotive parts.

The executionIn 2022, revenue growth led to year-over-year improvements in income from operations, net income and diluted earnings per share. Throughout the year, we focused on efforts to increase our network fluidity and improve service for our customers. These efforts included the hiring of the initiativesnew conductors in a tight labor market and evolving our operating plan, which collectively drove improvements in our strategic plan allowed usnetwork performance as we concluded the year and is providing strong momentum going into 2023. Additionally, new labor agreements were secured by December 2022 which provided retroactive pay and other benefits for our craft employees. As we head into 2023, we are focused on providing reliable and resilient service and delivering smart sustainable revenue growth that will deliver long-term value to achieve records for incomeour customers and shareholders.

SUMMARIZED RESULTS OF OPERATIONS
20222021
202220212020vs. 2021vs. 2020
 ($ in millions, except per share amounts)(% change)
Income from railway operations$4,809 $4,447 $3,002 8 %48 %
Net income$3,270 $3,005 $2,013 9 %49 %
Diluted earnings per share$13.88 $12.11 $7.84 15 %54 %
Railway operating ratio (percent)62.3 60.1 69.3 4 %(13 %)

Income from railway operations increased in 2022 compared to 2021, driven by higher railway operating revenues. Revenue growth was the result of higher fuel surcharge revenues and pricing gains, which more than offset the impact of volume declines. The rise in revenues was partly offset by increased railway operating expenses, driven by higher fuel prices, other inflationary pressures, service-related costs, increased labor-related costs primarily resulting from labor union negotiations, and higher claims-related expenses. Incremental expenses incurred in 2022 that resulted from finalized labor agreements for wages earned in 2021 and prior periods lowered diluted earnings per share by $0.18. Additionally, net income includes a $136 million deferred tax benefit resulting from a corporate income tax rate change in the Commonwealth of Pennsylvania, which increased diluted earnings per share by $0.58. Our share repurchase activity resulted in the percentage increase in diluted earnings per share that exceeded that of net income. Railway operating ratio (a measure of the amount of operating revenues consumed by operating expenses) for the year. We continued our focus on improving the efficiency of our operations and utilization of our assets, allowing usincreased to reduce our operating expenses by 3% in the face of a 1% revenue decline.

SUMMARIZED RESULTS OF OPERATIONS

20192018
201920182017vs. 2018vs. 2017
 ($ in millions, except per share amounts)(% change)
Income from railway operations$3,989  $3,959  $3,522  1 %12 %
Net income$2,722  $2,666  $5,404  2 %(51 %)
Diluted earnings per share$10.25  $9.51  $18.61  8 %(49 %)
Railway operating ratio (percent)64.7  65.4  66.6  (1 %)(2 %)
62.3 percent.

Income from railway operations roseincreased in 2019 as2021 compared to 2020, the result of a 3%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
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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 thaninformation on these charges, see Notes 7 and 6, respectively. Higher fuel costs, purchased services, and compensation and benefits expense mostly offset the impactreduction associated with these charges. Additionally, gains on the sale of a 1% declineoperating properties increased compared to 2020. The 48% increase in railway operating revenues. In addition to higher income from railway operations drove comparable increases in net income and diluted earnings per share growth in 2019 also benefited from a lower effective tax rate.share. Our continuing share repurchase program contributedrailway operating ratio decreased to diluted earnings per share growth that exceeded that of net income.60.1 percent.

On December 22, 2017, the Tax Cuts and Jobs Act (“tax reform”) was signed into law. The following table adjuststables adjust our 20172020 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 reform, specifically,effects on these non-GAAP adjustments were calculated based on the effects of remeasurement of net deferredapplicable tax liabilities relatedrates to which the reduction of the federal tax rate from 35% to 21% (the “2017 tax adjustments”).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 2017 tax adjustments.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.

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Reconciliation of Non-GAAP Financial Measures

Reported 2017 (GAAP)2017
tax adjustments		Adjusted 2017
(non-GAAP)		Non-GAAP Reconciliation for 2020
($ in millions, except per share amounts)Reported (GAAP)Loss on Asset DisposalInvestment ImpairmentAdjusted
(non-GAAP)
($ in millions, except per share amounts)
Railway operating expensesRailway operating expenses$6,787 $(385)$(99)$6,303 
Income from railway operationsIncome from railway operations$3,522  $(151) $3,371  Income from railway operations$3,002 $385 $99 $3,486 
Income before income taxesIncome before income taxes$2,530 $385 $99 $3,014 
Income taxesIncome taxes$517 $97 $25 $639 
Net incomeNet income$5,404  $(3,482) $1,922  Net income$2,013 $288 $74 $2,375 
Diluted earnings per shareDiluted earnings per share$18.61  $(12.00) $6.61  Diluted earnings per share$7.84 $1.12 $0.29 $9.25 
Railway operating ratio (percent)Railway operating ratio (percent)66.6  1.5  68.1  Railway operating ratio (percent)69.3 (3.9)(1.0)64.4 

In the table below, and the paragraph following, references to 20172020 results and related comparisons use the adjusted, non-GAAP results from the reconciliation in the table above.

2018 vs.
AdjustedAdjusted
201720192017
20192018(non-GAAP)vs. 2018(non-GAAP)
 ($ in millions, except per share amounts)(% change)
Income from railway operations$3,989  $3,959  $3,371  1 %17 %
Net income$2,722  $2,666  $1,922  2 %39 %
Diluted earnings per share$10.25  $9.51  $6.61  8 %44 %
Railway operating ratio (percent)64.7  65.4  68.1  (1 %)(4 %)

Income from railway operations increased in 2018 as compared to 2017, as a 9% increase in railway operating revenues more than offset a 4% increase in adjusted operating expenses. In addition to higher income from railway operations, net income and diluted earnings per share growth in 2018 also benefited from a lower effective tax rate, primarily due to the enactment of tax reform. Finally, our share repurchase program resulted in diluted earnings per share growth that exceeded that of net income.
2021
Adjusted2022vs. Adjusted
2020vs.2020
20222021(non-GAAP)2021(non-GAAP)
 ($ in millions, except per share amounts)(% change)
Railway operating expenses$7,936 $6,695 $6,303 19 %6 %
Income from railway operations$4,809 $4,447 $3,486 8 %28 %
Income before income taxes$4,130 $3,878 $3,014 6 %29 %
Income taxes$860 $873 $639 (1 %)37 %
Net income$3,270 $3,005 $2,375 9 %27 %
Diluted earnings per share$13.88 $12.11 $9.25 15 %31 %
Railway operating ratio (percent)62.3 60.1 64.4 4 %(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 major commodity group.  At the beginning of 2019, we made changes in the categorization of certain commodity groups within Merchandise. Prior period railway operating revenues, units, and revenue per unit have been reclassified to conform to the current presentation (see Note 2).
Revenues20222021
202220212020vs. 2021vs. 2020
($ in millions)(% change)
Merchandise:
Agriculture, forest and consumer
    products		$2,493 $2,251 $2,116 11 %6 %
Chemicals2,148 1,951 1,809 10 %8 %
Metals and construction1,652 1,562 1,333 6 %17 %
Automotive1,038 905 830 15 %9 %
     Merchandise7,331 6,669 6,088 10 %10 %
Intermodal3,681 3,163 2,654 16 %19 %
Coal1,733 1,310 1,047 32 %25 %
 Total$12,745 $11,142 $9,789 14 %14 %
Revenues20192018Units20222021
201920182017vs. 2018vs. 2017202220212020vs. 2021vs. 2020
($ in millions)(% change)(in thousands)(% change)
Merchandise:Merchandise:Merchandise:
Agriculture, forest and consumer
products		Agriculture, forest and consumer
products		723.0 725.5 704.4 — %3 %
ChemicalsChemicals$1,874  $1,858  $1,710  1 %9 %Chemicals540.1 529.7 482.0 2 %10 %
Agriculture products1,567  1,514  1,416  4 %7 %
Metals and constructionMetals and construction1,522  1,539  1,481  (1 %)4 %Metals and construction634.6 669.0 601.2 (5 %)11 %
AutomotiveAutomotive994  991  955  — %4 %Automotive339.1 345.4 329.7 (2 %)5 %
Forest and consumer846  842  795  — %6 %
MerchandiseMerchandise6,803  6,744  6,357  1 %6 % Merchandise2,236.8 2,269.6 2,117.3 (1 %)7 %
IntermodalIntermodal2,824  2,893  2,452  (2 %)18 %Intermodal3,913.1 4,104.1 3,992.1 (5 %)3 %
CoalCoal1,669  1,821  1,742  (8 %)5 %Coal684.6 658.0 574.1 4 %15 %
TotalTotal$11,296  $11,458  $10,551  (1 %)9 %Total6,834.5 7,031.7 6,683.5 (3 %)5 %
Revenue per Unit20222021
202220212020vs. 2021vs. 2020
($ per unit)(% change)
Merchandise:
Agriculture, forest and consumer
    products		$3,448 $3,102 $3,004 11 %3 %
Chemicals3,978 3,684 3,753 8 %(2 %)
Metals and construction2,604 2,334 2,216 12 %5 %
Automotive3,059 2,621 2,518 17 %4 %
     Merchandise3,277 2,938 2,875 12 %2 %
Intermodal941 771 665 22 %16 %
Coal2,532 1,991 1,824 27 %9 %
 Total1,865 1,584 1,465 18 %8 %

Units20192018
201920182017vs. 2018vs. 2017
(in thousands)(% change)
Merchandise:
Chemicals514.9  523.3  488.6  (2 %)7 %
Agriculture products528.5  538.9  524.8  (2 %)3 %
Metals and construction721.3  759.7  761.2  (5 %)— %
Automotive394.7  403.9  423.1  (2 %)(5 %)
Forest and consumer273.0  293.3  293.7  (7 %)— %
Merchandise2,432.4  2,519.1  2,491.4  (3 %)1 %
Intermodal4,207.2  4,375.7  4,074.1  (4 %)7 %
Coal914.0  1,033.5  1,046.0  (12 %)(1 %)
Total7,553.6  7,928.3  7,611.5  (5 %)4 %

Revenue per Unit20192018
201920182017vs. 2018vs. 2017
($ per unit)(% change)
Merchandise:
Chemicals$3,640  $3,551  $3,501  3 %1 %
Agriculture products2,964  2,809  2,697  6 %4 %
Metals and construction2,110  2,026  1,946  4 %4 %
Automotive2,517  2,453  2,257  3 %9 %
Forest and consumer3,101  2,870  2,706  8 %6 %
Merchandise2,797  2,677  2,552  4 %5 %
Intermodal671  661  602  2 %10 %
Coal1,826  1,762  1,665  4 %6 %
Total1,495  1,445  1,386  3 %4 %
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Revenues decreased $162 millionincreased $1.6 billion in 2019 but increased $907 million2022 and $1.4 billion in 20182021 compared to the prior years. As reflected in the table below, lower 2019 revenues wereHigher revenue for 2022 was the result of decreased volumes, partially offset by higherincreased average revenue per unit, driven by higher fuel surcharge revenue, pricing gains. The rise in 2018 revenuesgains, improved mix, and increased intermodal storage service charges, partially offset by volume declines. In 2021, higher revenue was the result of higherincreased average revenue per unit, driven by pricing gains, and higher fuel surcharge revenue, partially offset by the mix-related impacts of increased intermodal storage service charges and improved mix, as well as volume and decreased coal volume. In addition, overall volume also increased.growth.

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

 2019 vs. 2018 2018 vs. 2017 2022 vs. 2021 2021 vs. 2020
Increase (Decrease)Increase (Decrease)Increase (Decrease)Increase (Decrease)
($ in millions)($ in millions)
MerchandiseIntermodalCoalMerchandiseIntermodalCoalMerchandiseIntermodalCoalMerchandiseIntermodalCoal
VolumeVolume$(232) $(111) $(210) $71  $182  $(21) Volume$(96)$(147)$53 $438 $75 $153 
Fuel surchargeFuel surchargeFuel surcharge
revenuerevenue(14) (30) (35) 119  159  20  revenue455 417 79 91 178 4 
Rate, mix andRate, mix andRate, mix and
otherother305  72  93  197  100  80  other303 248 291 52 256 106 
TotalTotal$59  $(69) $(152) $387  $441  $79  Total$662 $518 $423 $581 $509 $263 
 
Approximately 90%95% of our revenue base is covered by contracts that include negotiated fuel surcharges. TheseFuel surcharge revenues totaled $578 million, $657$1.6 billion, $622 million, and $359$349 million in 2019, 2018,2022, 2021, and 2017,2020, respectively. The increase in fuel surcharge revenues in 2022 and 2021 was driven by higher fuel commodity prices.

For 2020, merchandise2023, we expect that revenue growth will be a challenge, as there is substantial economic uncertainty. Additionally, we expect revenue headwinds resulting from lower fuel prices, softening coal pricing, and intermodal revenues are expecteddeclining storage service charges. In this difficult environment, we will continue to fight to increase while coal revenues are anticipated to decline, resulting in overall revenues that are expected to be flat.revenue by recapturing truck-competitive freight and achieving pricing gains.

MERCHANDISE revenues increased in both 20192022 and 20182021 compared with the prior years. In 2019,2022, revenues grewrose due to higher average revenue per unit, driven by higher fuel surcharge revenue and increased pricing, partially offset by lower volume. Decreased volumes in metal and construction and automotive shipments more than offset higher chemical shipments. 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 economic recovery following the onset of the COVID-19 pandemic.

Agriculture, forest and consumer products revenues increased in both 2022 and 2021 compared with the prior years. In 2022, the rise was the result of increased average revenue per unit, the result of higher fuel surcharge revenue and pricing gains, whichwhile volumes were nearly flat. Declines in pulpboard, fertilizer, and pulp, were offset by increases in soybeans, feed, and corn. Pulpboard and pulp shipments declined due to decreased demand, equipment availability, service disruptions, and production down time. Lower fertilizer shipments were driven by high fertilizer prices causing customers to draw down on existing inventories or delay purchases as well as production disruptions. Soybean volumes were higher due to increased opportunity for exports. Feed shipments were higher due to increased customer demand. Increased corn shipments were due to improved equipment cycle times. In 2021, higher revenues were the result of higher volume across almost all markets, as the economy improved from 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.

Chemicals revenues increased in both 2022 and 2021 compared with the prior years. In 2022, the increase was the result of higher average revenue per unit, driven by fuel surcharge revenue and pricing gains, and volume growth.
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Increases in sand and solid waste shipments were partially offset by volume declines in plastics, inorganic chemicals, organic chemicals, and natural gas liquids. The increase in sand was due to greater demand resulting from sustained high natural gas prices. Solid waste shipments increased due to growth with existing customers. Plastics shipments decreased due to softening of the housing market. Declines in inorganic chemicals, organic chemicals, and natural gas liquids shipments were due to decreased demand and reduced production. 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.

Metals and construction revenues were higher in both 2022 and 2021 compared with the prior years. In 2022, revenue growth was driven by higher average revenue per unit, the result of higher fuel surcharge revenue and pricing gains, partially offset by lower volume. Volumes fell largely as a result of decreased shipments of coil steel, iron and steel, and scrap metal driven by service disruptions and slower equipment cycle times. 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 commodity groups.markets due to economic improvement since the beginning of the pandemic. The commodities serving the metal production industry, including coil steel, scrap metal, and iron and steel, experienced the largest gains.

Automotive revenues rose in both 2022 and 2021 compared with the prior years. The increase in revenues in 2022 was driven by higher average revenue per unit, due to higher fuel surcharge revenue and pricing gains, partially offset by volume declines. Volume declines were the result of slower equipment cycle times partially offset by fewer parts supply issues due to easing supply chain congestion when compared to the prior year. In 2018,2021, the increase in revenues grewwas driven by volume growth and higher average revenue per unit, a result of 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.

INTERMODAL revenues increased in both 2022 and 2021 compared with the prior years. The increase in 2022 was the result of higher average revenue per unit, driven by higher fuel surcharge revenue, pricing gains, and increased storage service charges, partially offset by decreased volume. 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.

Intermodal units by market were as follows:
20222021
202220212020vs. 2021vs. 2020
 (units in thousands)(% change)
Domestic2,573.6 2,630.6 2,568.7 (2 %)2 %
International1,339.5 1,473.5 1,423.4 (9 %)4 %
Total3,913.1 4,104.1 3,992.1 (5 %)3 %

Domestic volume decreased in 2022 but increased in 2021 compared with the prior years. In 2022, volume declined due to service disruptions, terminal congestion, strong over-the-road competition, and increased truck availability. In 2021, volume rose due to strong consumer demand which was partially offset by overall supply chain congestion, including equipment availability issues.

International volume fell in 2022 but rose in 2021. The decline in 2022 was the result of supply chain constraints, chassis shortages, and excess retail inventory. The increase in 2021 was the result of strong import demand despite being limited by various supply chain constraints, including chassis availability issues.
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COAL revenues increased in both 2022 and 2021 compared with the prior years. The increase in 2022 was due to higher average revenue per unit, driven by pricing gains and higher fuel surcharge revenue, as well as higherand increased volumes. Volume gainsThe increase in chemicals and agriculture products were partially offset by declines in automotive traffic.

Chemicals revenues rose in both 2019 and 2018 compared with the prior years. In 2019, the rise2021 was the result of higher average revenue per unit, due to pricing gains, which were partially offset by volume declines. Volume declines in natural gas, petroleum products, organic and inorganic chemicals, and plastics were partially offset by gains in crude oil and municipal waste. In 2018, the rise was the result of higher volume and higher average revenue per unit, due to pricing gains and higher fuel surcharge revenue. Volumes grew due to increased shipments of crude oil, liquefied petroleum gas, plastics,volumes and municipal waste shipments, partially offset by a decrease in coal ash shipments.
Agriculture products revenues rose in both 2019 and 2018 compared to the prior years. Growth in 2019 was due to higher average revenue per unit, a result of pricing gains, which more than offset volume declines. Volumes were down due to decreased shipments of ethanol, soybeans, and fertilizer, partially offset by increases in corn shipments. Growth in 2018 was due to higher average revenue per unit, a result of pricing gains and higher fuel surcharge revenues, and higher volume. Higher ethanol and fertilizer shipments more than offset declines in soybean and corn shipments.

Metals and construction revenues declined in 2019 but increased in 2018 compared to the prior years. In 2019, volume declines were largely offset by higher average revenue per unit, the result of pricing gains. Volume declines in iron and steel, coil, sand, and scrap metal were partially offset by increases in aggregates shipments due to improved service and market strength. In 2018, higher average revenue per unit, the result of pricing gains and
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higher fuel surcharge revenue, drove the increase while volumes remained flat. Volume increases in frac sand shipments for use in natural gas drilling in the Marcellus and Utica regions were offset by declines in aggregates, cement, aluminum, and iron and steel.

Automotive revenues were flat in 2019 and increased in 2018 compared to the prior years. In 2019, higher average revenue per unit, driven by price increases, offset volume declines that were primarily the result of decreases in U.S. light vehicle production and the United Automobile Workers strike in the fourth quarter. In 2018, higher average revenue per unit, driven by price increases and higher fuel surcharge revenues, more than offset volume declines. Traffic declines were the result of shortages of availability of multilevel equipment and scheduled automotive plant downtime.

Forest and consumer revenues were flat in 2019 and increased in 2018 compared to the prior years. In 2019, higher average revenue per unit, the result of pricing gains, offset volume declines. Volume declines were primarily driven by reduced shipments of pulpboard, lumber and wood, and kaolin. In 2018, higher average revenue per unit, the result of pricing gains and higher fuel surcharge revenue drove the increase while volumes remained flat. Gains in pulpboard, a result of tightened truck capacity, were offset by decreases in pulp, woodchip, and graphic paper.

INTERMODAL revenues decreased in 2019, but increased considerably in 2018 compared to the prior years. The decline in 2019 was driven by lower volumes, which were partially offset by higher average revenue per unit, a result of pricing gains. The rise in 2018 was driven by higher average revenue per unit, a result of increased fuel surcharge revenue and pricing gains, and higher volume.

Intermodal units by market were as follows:
20192018
201920182017vs. 2018vs. 2017
 (units in thousands)(% change)
Domestic2,593.5  2,801.1  2,585.0  (7 %)8 %
International1,613.7  1,574.6  1,489.1  2 %6 %
Total4,207.2  4,375.7  4,074.1  (4 %)7 %

Domestic volume fell in 2019 but increased in 2018. Volume was challenged in 2019 by stronger over-the-road competition. The rise in 2018 benefited from continued highway conversions due to tighter capacity in the truck market, higher truckload pricing, and growth from existing accounts.

International volume increased in both periods reflecting increased demand from new and existing customers, despite 2019 volume being somewhat tempered by tariff concerns.
COAL revenues decreased in 2019, but increased in 2018 compared with the prior years. The decrease in 2019 was a result of lower volume, which was partially offset by higher average revenue per unit driven by pricing gains. Revenue growth in 2018 was the result of higher average revenue per unit, largely the result of pricing gains which more than offset volume declines.and positive mix.

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As shown in the following table, total tonnage decreasedincreased in both periods.2022 and 2021.
 20222021
202220212020vs. 2021vs. 2020
 (tons in thousands)(% change)
Utility35,705 33,169 32,479 8 %2 %
Export25,887 24,886 18,900 4 %32 %
Domestic metallurgical11,307 11,804 9,441 (4 %)25 %
Industrial3,765 3,595 3,566 5 %1 %
Total76,664 73,454 64,386 4 %14 %

 20192018
201920182017vs. 2018vs. 2017
 (tons in thousands)(% change)
Utility60,278  65,688  67,899  (8 %)(3 %)
Export23,324  28,046  26,460  (17 %)6 %
Domestic metallurgical13,562  15,500  15,675  (13 %)(1 %)
Industrial4,655  5,410  5,545  (14 %)(2 %)
Total101,819  114,644  115,579  (11 %)(1 %)

Utility coal tonnage declinedincreased in both periods from continued headwinds from low2022 and 2021 compared with the prior years. The increase in 2022 was due to increased demand and service improvements. The increase in 2021 was due to higher natural gas prices as well as additional natural gas and renewable energy generating capacity, that were slightly offset by our service improvements and customer inventory rebuilding.increased demand from coal-sourced electrical generation.

Export coal tonnage decreased in 2019 but increased in 2018.both periods compared with prior years. The declineincrease in 20192022 was a result of weak thermal seaborne pricingstrong global demand and increased coal supply disruptions at certain mines.supply. The increase in 20182021 was due toa result of strong seaborne pricing, that resulted in higher demand for U.S. coal.improved global economic conditions, and greater global demand.
 
Domestic metallurgical coal tonnage was downdecreased in both2022 but increased in 2021 compared with the prior years. The declinedecrease in 20192022 was a reflectionthe result of challenging overall market conditions including softening domestic steel demand,reduced coke shipments related to customer sourcing changes and plant outages.idled customer facilities. The declineincrease in 20182021 was a reflectionthe result of customer sourcing changes.strong recovery in the steel market.

Industrial coal tonnage decreasedincreased in both years driven by customer sourcing changes2022 and pressure from natural gas conversions.2021 compared with the prior year as a result of increased demand.

Railway Operating Expenses

Railway operating expenses summarized by major classifications were as follows:

2019201820222021
201920182017vs. 2018vs. 2017202220212020vs. 2021vs. 2020
($ in millions)(% change) ($ in millions)(% change)
Compensation and benefitsCompensation and benefits$2,751  $2,925  $2,979  (6 %)(2 %)Compensation and benefits$2,621 $2,442 $2,373 7 %3 %
Purchased services and rentsPurchased services and rents1,725  1,730  1,414  — %22 %Purchased services and rents1,922 1,726 1,687 11 %2 %
FuelFuel953  1,087  840  (12 %)29 %Fuel1,459 799 535 83 %49 %
DepreciationDepreciation1,138  1,102  1,055  3 %4 %Depreciation1,221 1,181 1,154 3 %2 %
Materials and otherMaterials and other740  655  741  13 %(12 %)Materials and other713 547 653 30 %(16 %)
Loss on asset disposalLoss on asset disposal— — 385 
TotalTotal$7,307  $7,499  $7,029  (3 %)7 %Total$7,936 $6,695 $6,787 19 %(1 %)

In 2019, expenses fell as our strategic initiatives to improve productivity resulted in lower compensation, equipment rents, and materials expense. These decreases along with lower fuel prices and consumption were partially offset by lower gains on property sales, increased depreciation, and a write-off of a $32 million receivable as a result of a legal dispute. In 2018, expenses rose due to higher fuel prices as well as volume-related increases and costs associated with overall lower network velocity, partially offset by higher gains on property sales.
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In 2022, expenses increased primarily as a result of higher fuel prices, other inflationary pressures, service-related costs, increased labor-related costs resulting from labor union negotiations, and higher claims expenses. 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.

Compensation and benefits decreasedincreased in 2019,2022, reflecting changes in:

•employmentincreased pay rates (up $188 million),
•employee activity levels (down $117(up $51 million),
•overtime (up $18 million),
•incentive and stock-based compensation (down $83 million),
•overtime and recrews (down $45 million),
•higher capitalized labor ($9 million),
•2018 employment tax refund ($31 million unfavorable in 2019),
•pay rates (up $76$79 million), and
•other (down $27(up $1 million).

The increase in pay rates in 2022 includes payments in excess of amounts previously estimated in 2021 and 2020 for retroactive wage increases and other benefits under our labor agreements. In 2018,2022, compensation and benefits decreased,includes $54 million and purchased services includes $2 million of additional expenses pertaining to compensation earned in those periods.

In 2021, compensation and benefits increased, a result of changes in:
•employment levels (down $61 million),
•health and welfare benefit rates for agreement employees (down $34 million),
•employment tax refund ($31 million benefit),
•incentive and stock-based compensation (down $7 million),
•pay rates (up $34$128 million),
•overtime and recrews (up $58$47 million),
•increased pay rates (up $41 million),
•health and welfare benefits for craft employees (down $19 million),
•employee activity levels (down $154 million), and
•other (down $13(up $26 million).

Our employment averaged 24,58718,900 in 2019,2022, compared with 26,66218,500 in 2018,2021, and 27,11020,200 in 2017.2020.

Purchased services and rents includes the costs of services purchased from outsideexternal vendors and contractors, including the net costs of operating joint (or leased) facilities with other railroads and the net cost of equipment rentals. In 2017, this line item includes a $151 million benefit from the 2017 tax adjustments ($36 million in purchased services and $115 million in equipment rents) in the form of higher income of certain equity investees.
2019201820222021
201920182017vs. 2018vs. 2017 202220212020vs. 2021vs. 2020
($ in millions)(% change) ($ in millions)(% change)
Purchased servicesPurchased services$1,434  $1,367  $1,233  5 %11 %Purchased services$1,565 $1,409 $1,387 11 %2 %
Equipment rentsEquipment rents291  363  181  (20 %)101 %Equipment rents357 317 300 13 %6 %
TotalTotal$1,725  $1,730  $1,414  — %22 %Total$1,922 $1,726 $1,687 11 %2 %

The increase in purchased services in 20192022 was the result of increased technology-relateddue to inflationary pressures which resulted in higher intermodal-related expenses, expenses associated with our headquarters relocation, and increased intermodal-related costs partially offset by decreasedoperational and transportation activities.expenses, as well as higher technology-related costs. The increase in purchased services in 20182021 was largely the result ofdue to increased technology costs, higher intermodal-related expenses, and increased Conrail, Inc. (Conrail) costs. This was partially offset by the absence of the benefit from the 2017 tax adjustments, higher intermodal volume-related costs, additional transportation and engineering activities as well as higher technology costs.a prior year $99 million impairment related to 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, decreased in 2019, but increased in 2018.both periods. In 2019,2022, the decreaseincrease was largelythe result of lower network fluidity which led to greater time-and-mileage expenses, increased automotive and
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intermodal equipment expenses, and higher short-term locomotive resource costs. In 2021, equipment rents were higher for general-use equipment due to improveddecreased network velocity and the absence of short-term locomotive resourceincreased volume. These increases were partially offset by lower intermodal costs incurredand higher equity in the prior year. In 2018, the rise was due to the absence of the benefits from the 2017 tax adjustments, the impact of slower network velocity, the cost of additional short-term locomotive resources as well as growth in volume.TTX earnings.

Fuel expense, which includes the cost of locomotive fuel as well as other fuel used in railway operations, decreased in 2019, but increased in 2018.both periods. The change in both years was principally due to higher locomotive fuel prices (down 8%(up 87% in 20192022 and up 25%43% in 2018)2021) which decreasedincreased expenses $82by $634 million in 2019 but increased expenses $2082022 and $224 million in 2018.2021. Locomotive fuel consumption decreased 2% in 2022, but increased 4% in 2019, but increased 3% in 2018.2021. We consumed
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approximately 451 376 million gallons of diesel fuel in 2019,2022, compared with 472384 million gallons in 20182021 and 458368 million gallons in 2017.2020.

Depreciation expense increased in both periods, a reflection of growthreinvestment in our roadway and equipment capital base as we continue to invest in our infrastructure, and rolling stock, and technology.

Materials and other expenses increased in 20192022 but decreased in 20182021 as shown in the following table.

2019201820222021
201920182017vs. 2018vs. 2017 202220212020vs. 2021vs. 2020
($ in millions)(% change) ($ in millions)(% change)
MaterialsMaterials$327  $362  $348  (10 %)4 %Materials$283 $250 $274 13 %(9 %)
Casualties and other claims193  176  145  10 %21 %
ClaimsClaims270 165 179 64 %(8 %)
OtherOther220  117  248  88 %(53 %)Other160 132 200 21 %(34 %)
TotalTotal$740  $655  $741  13 %(12 %)Total$713 $547 $653 30 %(16 %)
 
Materials expense increased in 2022 but decreased in 2019,2021. The increase in 2022 is due to increased locomotive, freight car, and track materials costs. In 2021, the decrease was due primarily to lower locomotive repair costsmaintenance requirements as a result of fewer locomotives and freight cars in service. In 2018, the increase was primarily a result of higher locomotive repair costs.

Casualties and other claims expenses include the estimates ofClaims expense includes costs related to personal injury, property damage, and environmental matters. The 2019 expense increased,increase in 2022 was primarily the result of higher costs related toassociated with unfavorable personal injury case development, increased environmental remediation mattersexpenses, and higher personal injurylading and property damage costs. The 2018 expense increased,decrease in 2021 was primarily the result of higher derailment-related costs.lower costs associated with derailments and personal injuries.

Other expense increased in 2019 but decreased in 2018, largely a result of2022, primarily due to higher travel-related expenses, increased non-income based taxes, and lower gains from sales of operating properties.property, partially offset by lower relocation expenses. In 2021, other expense decreased primarily due to higher gains from sales of operating property. Gains from operating property sales amounted to $64$76 million, $158$82 million, and $79$26 million in 2019, 2018,2022, 2021, and 2017,2020, respectively. In 2019,

Loss on asset disposal

During 2020, we recorded a $385 million charge related to the increase was additionally impacted bydisposal of 703 locomotives. For more information on the write-off of a $32 million receivable as a result of a legal dispute. In 2018, the decline was also impacted by the inclusion of net rental income from operating property previously included in “Other income – net” of $78 million, partially offset by increased costs as a resultimpact of the relocation of our train dispatchers to Atlanta, Georgia.charge, see Note 7.

Other income – net

Other income – net increased in 2019 but decreased in 2018. The increaseboth 2022 and 2021. Other income fell in 2019 was driven by higher2022 due to lower net returns on corporate-owned life insurance (COLI) investmentspartially offset by a higher net pension benefit and increased interest income. The decrease in 2021 was driven by lower net returns on COLI and lower gains on sales of non-operating property, which more than offset a $49 million impairment loss related to our natural resource assets that we are actively marketing to sell. The decline in 2018 was driven by the absence of net rental income as discussed above and unfavorable returns from COLI investments.property.

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Income Taxestaxes
 
The effective income tax rate was 22.0%20.8% in 2019,2022, compared with 23.1%22.5% in 20182021 and negative 72.8%20.4% in 2017.  Both 2019 and 20182020.  The current year benefited from favorable reductions in deferred taxes for state tax law changes and certain business tax credits, while 2019 and 2017 benefited from higher returns from COLI. Income taxes in 2018 benefited fromby $136 million due to an enacted reduction to the effects of the enactment of tax reform in late 2017 that lowered the federalPennsylvania corporate income tax rate. Income taxes in 2017 included a benefit of $3,331rate while 2021 benefited by $34 million relateddue to the effects of the enactment of tax reform from the reduction in our net deferred tax liabilities driven by the change in the federal rate.various state law changes (see Note 4). All three years benefited fromexperienced favorable tax benefits associated with stock-based compensation.compensation, while 2021 and 2020 benefited from COLI returns.

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For 2020,2023, we expect thean effective income tax rate to range frombetween 23% toand 24%.

FINANCIAL CONDITION, LIQUIDITY, AND CAPITAL RESOURCES
 
Cash provided by operating activities, our principal source of liquidity, was $3.9$4.2 billion in 2019, $3.72022, $4.3 billion in 2018,2021, and $3.3$3.6 billion in 2017.2020. The increasesdecrease in both 2019 and 2018 were2022 reflected changes in working capital, offset in part by improved operating results. The increase in 2021 was primarily the result of improved operating results. We had negative working capital deficits of $219 million and $729$642 million at December 31, 2019,2022 and 2018, respectively. Cash, cash equivalents, and restricted cash totaled $580 million and $446$354 million at December 31, 2019,2021. Cash and 2018,cash equivalents totaled $456 million and $839 million at December 31, 2022, and 2021, respectively. We expect that 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, provides us additional flexibility to meet our ongoing obligations.

Contractual obligationsat December 31, 2019,2022, 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 (Note 6), operating leases (Note 10), long-term advances from Conrail and agreements with Consolidated Rail Corporation (CRC) (Note 6), and unrecognized tax benefits (Note 4):.

Total20202021 -
2022		2023 -
2024		2025 and
Subsequent		OtherTotal20232024 -
2025		2026 -
2027		2028 and
Subsequent
($ in millions) ($ in millions)
Interest on fixed-rate long-term debtInterest on fixed-rate long-term debt$15,285  $568  $1,070  $988  $12,659  $—  Interest on fixed-rate long-term debt$17,085 $643 $1,239 $1,144 $14,059 
Long-term debt principalLong-term debt principal13,005  316  1,189  1,000  10,500  —  Long-term debt principal16,012 603 957 1,223 13,229 
Unconditional purchase obligationsUnconditional purchase obligations1,225  499  521  82  123  —  Unconditional purchase obligations1,650 757 736 80 77 
Long-term advances from ConrailLong-term advances from Conrail534 — — — 534 
Operating leasesOperating leases630  110  183  131  206  —  Operating leases462 103 182 96 81 
Long-term advances from Conrail280  —  —  —  280  —  
Agreements with CRCAgreements with CRC176  40  80  56  —  —  Agreements with CRC272 42 84 84 62 
Unrecognized tax benefits*Unrecognized tax benefits*24  —  —  —  —  24  Unrecognized tax benefits*22 — — — 22 
TotalTotal$30,625  $1,533  $3,043  $2,257  $23,768  $24  Total$36,037 $2,148 $3,198 $2,627 $28,064 
 
* This amount is shown in the Other2028 and Subsequent 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. In addition, we entered into a synthetic lease during 2019 which is discussed further in Note 10.
 
Cash used in investing activities was $1.8$1.6 billion in 2019, compared with $1.72022, and $1.2 billion in 2018,both 2021 and $1.5 billion2020.  The increase in 2017.  In 2019, increased corporate owned life insurance activity and2022 is due to higher property additions were partially offset by increased proceeds from property sales. In 2018, higher2021, lower proceeds from property additions drove the increase.sales were mostly offset by reduced COLI policy loan repayments and lower property additions.

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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 2020,2023, we expect capital spendingproperty additions will be approximately $2.1 billion.

In November 2022, we entered into an asset purchase and sale agreement with the Board of Trustees of the Cincinnati Southern Railway to approximate 16%purchase approximately 337 miles of railway line that extends from Cincinnati, Ohio to 18%Chattanooga, Tennessee which we currently operate under a lease agreement. The total purchase price for the line and other associated real and personal property included in the transaction is approximately $1.6 billion. The agreement is conditioned upon (i) certain changes to Ohio state law applicable to the use of revenues.the related sale proceeds, (ii) approval by the voters of the City of Cincinnati, and (iii) the receipt of regulatory approval from the STB. The agreement includes various termination provisions including termination at any time prior to closing by the mutual written consent of the parties, termination at any time after December 31, 2024 by the mutual written consent of the parties, termination by us if the STB takes action that we deem unsatisfactory, and termination by either party if Cincinnati voter approval is not obtained on or before the later of June 30, 2025 and the calendar date on which the polls are open for the 2025 Cincinnati primary election.

Cash used in financing activities was $2.0$3.0 billion in 2019,2022, compared with $2.3$3.3 billion in 2018,2021, and $2.0$1.9 billion in 2017. Both year-over-year comparisons reflect2020.  The decrease in 2022 reflects lower repurchases of Common Stock, and increased proceeds from borrowings, partially offset by higher dividends. In 2021, the increase reflects higher repurchases of Common Stock and debt repayments, and increased dividends. In 2019, the decrease was also impacted by fewer repurchases of common stock. In 2018, the increase was also impacted by increased repurchases of common stock, but temperedpartially offset by increased proceeds from borrowings.

Share repurchases totaled $2.1of $3.1 billion in 2019, $2.82022, $3.4 billion in 2018,2021, and $1.0$1.4 billion in 20172020 resulted in the retirement of 12.6 million, 12.7 million, and 7.4 million shares, respectively. On March 29, 2022, our Board of Directors authorized a new program for the purchase and retirementrepurchase of 11.3 million, 17.1 million (including 7.0 million shares repurchased for $1.2up to an additional $10.0 billion under the Accelerated Share Repurchase (ASR) program), and 8.2 million shares, respectively.of Common Stock beginning April 1, 2022. Our previous share repurchase program terminated on March 31, 2022. As of December 31, 2019, 28.0 million shares remain2022, $7.5 billion remains authorized by our Board of Directors for repurchase. The timing and volume of future
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share repurchases 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) and Rule 10b-18 under the Securities and Exchange Act of 1934. Any near-term purchases under the program are expected to be made with internally generatedinternally-generated cash, cash on hand, or proceeds from borrowings.

In May 2019,June 2022, we issued $200$750 million of 3.80%4.55% senior notes due 2028, $4002053.

In February 2022, we issued $600 million of 4.10%3.00% senior notes due 2049, and $200 million of 5.10% senior notes due 2118. In November 2019, we issued $400 million of 2.55% senior notes due 2029,2032 and $400 million of 3.40%3.70% senior notes due 2049.2053.

In May 2019,2022, we also renewed and amended our accounts receivable securitization program increasing ourwith a maximum borrowing capacity fromof $400 million. The term expires in May 2023. We had $100 million in borrowings outstanding under this program and our available borrowing capacity was $300 million at December 31, 2022 and $400 million to $450at December 31, 2021.

We also have in place and available an $800 million with a termcredit agreement expiring in May 2020.March 2025, which provides for borrowings at prevailing rates and includes covenants. We had no amounts outstanding under this facility at botheither December 31, 20192022 or December 31, 2021, and 2018.we are in compliance with all of its covenants.

In addition, we have investments in general purpose COLI policies and had the ability to borrow against these policies up to $610 million and $715 million at December 31, 2022 and December 31, 2021, respectively.

Our debt-to-total capitalization ratio was 54.4% at December 31, 2022, compared with 50.4% at December 31, 2021. We discuss our credit agreement and our accounts receivable securitization program in Note 9,9. Subsequent to December 31, 2022, we issued $500 million in fixed rate debt securities. These senior notes, issued February 2, 2023, carry an interest rate of 4.45% and mature in 2033. After this issuance, we have authority from our Board of
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Directors to issue an additional $1.6 billion$800 million 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 44.5% at December 31, 2019, compared with 42.0% at December 31, 2018.
 
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.

APPLICATION OF CRITICAL ACCOUNTING POLICIESESTIMATES
 
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 revenuerevenues 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 policiesestimates 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 that 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.
 
In recording our net pension benefit,For 2022, we assumed a long-term investment rate of return of 8.25%8.0%, which was supported by theour 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 $23$26 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 about an $18a $3 million change in annual pension expense.
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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 the assumptions and estimates in this area.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 the replacement of self-contructedself-constructed assets. Costs related to repairs and
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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 20192022 totaled $1.1$1.2 billion.  Our composite depreciation rates for 20192022 are disclosed in
Note 7; a one yearone-year increase (or decrease) in the estimated average useful lives of depreciable assets would have resulted in an approximate $40$44 million decrease (or increase) to annual depreciation expense.

Personal Injury
 
Casualties and other claimsClaims expense, included in “Materials and other” in the Consolidated Statements of Income, includes our accrualestimate of costs for personal injury liabilities.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 actuarial 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. OurThe 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.

ForSee Note 17 for a more detailed discussion of the assumptions and estimates in accountingwe use for personal injury see Note 17.injury.

Income Taxes
 
Our net deferred tax liability totaled $6.8$7.3 billion at December 31, 20192022 (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 $54$41 million valuation allowance on $513$373 million of deferred tax assets as of December 31, 2019,2022, reflecting the expectation that almostsubstantially 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 (RLA), these agreements remain in effect until new agreements are reached, or until the bargaining procedures mandated by the Railway Labor ActRLA 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. We largely bargain nationally in concert with other major railroads, represented by the National Carriers’ Conference Committee.

After management and the unions served their formal proposals in November 2019 for changes to the collective bargaining agreements, negotiations began in 2020 following the expiration of the last moratorium. On June 17, 2022, the National Mediation Board notified the parties that all practical methods of ending the dispute had been exhausted without effecting a settlement and that its mediation services had been terminated. Shortly thereafter, President Biden created Presidential Emergency Board (PEB) No. 250, effective July 18, 2022, to investigate the facts of the dispute and make recommendations. The PEB issued its recommendations on August 16, 2022, and the parties engaged in further negotiations. By December 2022, agreements based on the PEB’s recommendations had either been ratified or enacted through legislative action for all twelve unions.

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The next roundWhile the parties are engaged in additional discussions to conclude the implementation of the recently finalized agreements, neither party can compel mandatory bargaining commenced onaround any new proposals until November 1, 20192024. That said, we understand the imperative to continue improving quality of life for our craft employees and are actively engaged in voluntary discussions (which carry no risk of a work stoppage) with both management and theall of our unions serving their formal proposals for changes to the collective bargaining agreements.on this important issue.

Market Risks
 
We manage overall exposure to fluctuations in interest rates by issuing both fixed- and floating- rate debt instruments. At December 31, 2019, we had no outstanding2022, debt subject to interest rate fluctuations.fluctuations totaled $100 million. A one-percentage point increase in interest rates would increase total annual interest expense related to all variable debt by approximately $1 million. Market risk for fixed-rate debt is estimated as the potential increase in fair value resulting from a one percentageone-percentage point decrease in interest rates as of December 31, 2019,2022 and amounts to an increase of approximately $2.1$1.3 billion to the fair value of our debt at December 31, 2019.2022. 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.

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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.”
 
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Item 8. Financial Statements and Supplementary Data
 
INDEX TO FINANCIAL STATEMENTS
 Page
  
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K3235
 
K3639
 
K3740
 
K3841
 
K3942
 
K4043
 
K4144
 
K7982

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Report of Management
 
February 6, 20203, 2023
 
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 Corporation’sSouthern’s internal control over financial reporting is effective, management regularly assesses such controls and did so most recently as of December 31, 2019.2022.  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 the Corporationwe maintained effective internal control over financial reporting as of December 31, 2019.2022.
 
KPMG LLP, independent registered public accounting firm, has audited the Corporation’sour financial statements and issued an attestation report on the Corporation’sour internal control over financial reporting as of December 31, 2019.2022.
/s/ James A. SquiresAlan H. Shaw/s/ Mark R. George/s/ Jason A. ZampiClaiborne L. Moore
James A. SquiresAlan H. ShawMark R. GeorgeJason A. ZampiClaiborne L. Moore
Chairman, President andExecutive Vice President – FinanceVice President and
Chief Executive Officerand Chief Financial OfficerController

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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, 2019,2022, based on criteria established inInternal 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, 2019,2022, 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, 20192022 and 2018,2021, 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, 2019,2022, 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 6, 20203, 2023 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 of Management.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.

K32K35


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 6, 2020
3, 2023
K33K36

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, 20192022 and 2018,2021, the related consolidated statements of income, comprehensive income, cash flows, and changes in stockholders’ equity for each of the years in the three-yearthree‑year period ended December 31, 2019,2022, 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, 20192022 and 2018,2021, and the results of its operations and its cash flows for each of the years in the three-yearthree‑year period ended December 31, 2019,2022, 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, 2019,2022, 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 6, 20203, 2023 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.

Change in Accounting Principle

As discussed in Note 1 to the consolidated financial statements, the Company has changed its method of accounting for leases as of January 1, 2019, due to the adoption of Accounting Standards Update 2016-02, Leases (Topic 842) and related amendments.

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.


K34K37

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 judgment.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.

AssessmentSufficiency 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 $31,614$32,156 million in net book value of properties at December 31, 20192022 and has recorded $2,019$1,948 million in property additions for the year ended December 31, 2019.2022. 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'sCompany’s annual capital spending relates to the replacement of self-constructed assets. Costs related to repair and maintenance activities, that in the Company'sCompany’s judgment, do not extend an asset’s useful life or increase its utility are expensed when such repairs are performed.

We identified the assessmentevaluation of the sufficiency of audit evidence related to capitalization of property expenditures as a critical audit matter. A higher degree ofSubjective auditor judgment was required in determining procedures and evaluating audit results related to the capitalization or expense treatment 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 includedmatter. We applied auditor judgment to determine the following.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 capitalization process to capitalize property expenditures, including controls that establishover the determination of whether a project is a capitalpurchased services and compensation expenditures extend an asset’s useful life or repair expenditure and the appropriateness of accumulated charges to capitalized projects. We selected a sample of capital projects and assessed the capital nature of the project. We obtained support forincrease its utility. For a sample of property addition expenditures, we inquired and testedinspected support to evaluate that the classificationexpenditure extended an asset’s useful life or increased its utility. We evaluated the sufficiency of audit evidence obtained by assessing the results of the related expenditure as capital, which included inquiry with Company personnel regardingprocedures performed, including the relevanceappropriateness of the sampled expenditure to the capital project.nature of such evidence.


/s/ KPMG LLP
KPMG LLP

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

Atlanta, Georgia
February 6, 2020
3, 2023
K35K38

Norfolk Southern Corporation and Subsidiaries
Consolidated Statements of Income
 Years ended December 31,
 201920182017
 ($ in millions, except per share amounts)
Railway operating revenues$11,296  $11,458  $10,551  
Railway operating expenses:   
Compensation and benefits2,751  2,925  2,979  
Purchased services and rents1,725  1,730  1,414  
Fuel953  1,087  840  
Depreciation1,138  1,102  1,055  
Materials and other740  655  741  
Total railway operating expenses7,307  7,499  7,029  
Income from railway operations3,989  3,959  3,522  
Other income – net106  67  156  
Interest expense on debt604  557  550  
Income before income taxes3,491  3,469  3,128  
Income taxes769  803  (2,276) 
Net income$2,722  $2,666  $5,404  
Earnings per share:   
Basic$10.32  $9.58  $18.76  
Diluted10.25  9.51  18.61  
 Years ended December 31,
 202220212020
 ($ in millions, except per share amounts)
Railway operating revenues$12,745 $11,142 $9,789 
Railway operating expenses   
Compensation and benefits2,621 2,442 2,373 
Purchased services and rents1,922 1,726 1,687 
Fuel1,459 799 535 
Depreciation1,221 1,181 1,154 
Materials and other713 547 653 
Loss on asset disposal— — 385 
Total railway operating expenses7,936 6,695 6,787 
Income from railway operations4,809 4,447 3,002 
Other income – net13 77 153 
Interest expense on debt692 646 625 
Income before income taxes4,130 3,878 2,530 
Income taxes860 873 517 
Net income$3,270 $3,005 $2,013 
Earnings per share   
Basic$13.92 $12.16 $7.88 
Diluted13.88 12.11 7.84 


See accompanying notes to consolidated financial statements.


K36

Norfolk Southern Corporation and Subsidiaries
Consolidated Statements of Comprehensive Income
 Years ended December 31,
 201920182017
 ($ in millions)
Net income$2,722  $2,666  $5,404  
Other comprehensive income (loss), before tax:   
Pension and other postretirement benefits101  (148) 155  
Other comprehensive income (loss) of equity investees(4) (9) 19  
Other comprehensive income (loss), before tax97  (157) 174  
Income tax benefit (expense) related to items of   
other comprehensive income (loss)(25) 38  (43) 
Other comprehensive income (loss), net of tax72  (119) 131  
Total comprehensive income$2,794  $2,547  $5,535  


See accompanying notes to consolidated financial statements.


K37

Norfolk Southern Corporation and Subsidiaries
Consolidated Balance Sheets
 At December 31,
 20192018
 ($ in millions)
Assets  
Current assets:  
Cash and cash equivalents$580  $358  
Accounts receivable – net920  1,009  
Materials and supplies244  207  
Other current assets337  288  
Total current assets2,081  1,862  
Investments3,428  3,109  
Properties less accumulated depreciation of $11,982 and  
$12,374, respectively31,614  31,091  
Other assets800  177  
Total assets$37,923  $36,239  
Liabilities and stockholders’ equity  
Current liabilities:  
Accounts payable$1,428  $1,505  
Income and other taxes229  255  
Other current liabilities327  246  
Current maturities of long-term debt316  585  
Total current liabilities2,300  2,591  
Long-term debt11,880  10,560  
Other liabilities1,744  1,266  
Deferred income taxes6,815  6,460  
Total liabilities22,739  20,877  
Stockholders’ equity:  
Common Stock $1.00 per share par value, 1,350,000,000 shares  
authorized; outstanding 257,904,956 and 268,098,472 shares,  
respectively, net of treasury shares259  269  
Additional paid-in capital2,209  2,216  
Accumulated other comprehensive loss(491) (563) 
Retained income13,207  13,440  
Total stockholders’ equity15,184  15,362  
Total liabilities and stockholders’ equity$37,923  $36,239  

See accompanying notes to consolidated financial statements.


K38

Norfolk Southern Corporation and Subsidiaries
Consolidated Statements of Cash Flows
 Years ended December 31,
 201920182017
 ($ in millions)
Cash flows from operating activities:   
Net income$2,722  $2,666  $5,404  
Reconciliation of net income to net cash   
provided by operating activities:   
Depreciation1,139  1,104  1,059  
Deferred income taxes330  173  (2,859) 
Gains and losses on properties(42) (171) (92) 
Changes in assets and liabilities affecting operations:   
Accounts receivable87  (70) (41) 
Materials and supplies(37) 15  35  
Other current assets(4) (46) (71) 
Current liabilities other than debt(185) 223  135  
Other – net(118) (168) (317) 
Net cash provided by operating activities3,892  3,726  3,253  
Cash flows from investing activities:   
Property additions(2,019) (1,951) (1,723) 
Property sales and other transactions377  204  202  
Investment purchases(18) (10) (7) 
Investment sales and other transactions(104) 99  47  
Net cash used in investing activities(1,764) (1,658) (1,481) 
Cash flows from financing activities:   
Dividends(949) (844) (703) 
Common Stock transactions27  40  89  
Purchase and retirement of Common Stock(2,099) (2,781) (1,012) 
Proceeds from borrowings – net of issuance costs2,192  2,023  290  
Debt repayments(1,188) (750) (702) 
Other23  —  —  
Net cash used in financing activities(1,994) (2,312) (2,038) 
Net increase (decrease) in cash, cash equivalents, and
      restricted cash
134  (244) (266) 
Cash, cash equivalents, and restricted cash:   
At beginning of year446  690  956  
At end of year$580  $446  $690  
Supplemental disclosures of cash flow information:   
Cash paid during the year for:   
Interest (net of amounts capitalized)$555  $496  $528  
Income taxes (net of refunds)543  519  705  

See accompanying notes to consolidated financial statements.


K39

Norfolk Southern Corporation and Subsidiaries
Consolidated Statements of Changes in Stockholders’ EquityComprehensive Income
Common
Stock		Additional
Paid-in
Capital		Accum. Other
Comprehensive
Loss		Retained
Income		Total
 ($ in millions, except per share amounts)
Balance at December 31, 2016$292  $2,179  $(487) $10,425  $12,409  
Comprehensive income:     
Net income   5,404  5,404  
Other comprehensive income  131   131  
Total comprehensive income    5,535  
Dividends on Common Stock,     
$2.44 per share   (703) (703) 
Share repurchases(8) (59)  (945) (1,012) 
Stock-based compensation1134 (5) 130  
Balance at December 31, 2017285  2,254  (356) 14,176  16,359  
Comprehensive income:     
Net income   2,666  2,666  
Other comprehensive loss  (119)  (119) 
Total comprehensive income    2,547  
Dividends on Common Stock,     
$3.04 per share   (844) (844) 
Share repurchases(17) (125)  (2,639) (2,781) 
Stock-based compensation1  87   (7) 81  
Reclassification of stranded
tax effects(88) 88  —  
Balance at December 31, 2018269  2,216  (563) 13,440  15,362  
Comprehensive income:     
Net income   2,722  2,722  
Other comprehensive income  72   72  
Total comprehensive income    2,794  
Dividends on Common Stock,     
$3.60 per share   (949) (949) 
Share repurchases(11) (88)  (2,000) (2,099) 
Stock-based compensation1  81   (6) 76  
Balance at December 31, 2019$259  $2,209  $(491) $13,207  $15,184  
 Years ended December 31,
 202220212020
 ($ in millions)
Net income$3,270 $3,005 $2,013 
Other comprehensive income (loss), before tax:   
Pension and other postretirement benefits51 226 (140)
Other comprehensive income of equity investees17 24 2 
Other comprehensive income (loss), before tax68 250 (138)
Income tax benefit (expense) related to items of   
other comprehensive income (loss)(17)(58)35 
Other comprehensive income (loss), net of tax51 192 (103)
Total comprehensive income$3,321 $3,197 $1,910 


See accompanying notes to consolidated financial statements.


K40

Norfolk Southern Corporation and Subsidiaries
Consolidated Balance Sheets
 At December 31,
 20222021
 ($ in millions)
Assets  
Current assets:  
Cash and cash equivalents$456 $839 
Accounts receivable – net1,148 976 
Materials and supplies253 218 
Other current assets150 134 
Total current assets2,007 2,167 
Investments3,694 3,707 
Properties less accumulated depreciation of $12,592 and  
$12,031, respectively32,156 31,653 
Other assets1,028 966 
Total assets$38,885 $38,493 
Liabilities and stockholders’ equity  
Current liabilities:  
Accounts payable$1,293 $1,351 
Short-term debt100 — 
Income and other taxes312 305 
Other current liabilities341 312 
Current maturities of long-term debt603 553 
Total current liabilities2,649 2,521 
Long-term debt14,479 13,287 
Other liabilities1,759 1,879 
Deferred income taxes7,265 7,165 
Total liabilities26,152 24,852 
Stockholders’ equity:  
Common Stock $1.00 per share par value, 1,350,000,000 shares  
authorized; outstanding 228,076,415 and 240,162,790 shares,  
respectively, net of treasury shares230 242 
Additional paid-in capital2,157 2,215 
Accumulated other comprehensive loss(351)(402)
Retained income10,697 11,586 
Total stockholders’ equity12,733 13,641 
Total liabilities and stockholders’ equity$38,885 $38,493 

See accompanying notes to consolidated financial statements.


K41

Norfolk Southern Corporation and Subsidiaries
Consolidated Statements of Cash Flows
Years ended December 31,
 202220212020
 ($ in millions)
Cash flows from operating activities   
Net income$3,270 $3,005 $2,013 
Reconciliation of net income to net cash provided by operating activities:   
Depreciation1,221 1,181 1,154 
Deferred income taxes83 184 142 
Gains and losses on properties(82)(86)(39)
Loss on asset disposal— — 385 
Impairment of investment— — 99 
Changes in assets and liabilities affecting operations:   
Accounts receivable(171)(133)71 
Materials and supplies(35)3 23 
Other current assets(18)(6)3 
Current liabilities other than debt23 283 34 
  Other – net(69)(176)(248)
Net cash provided by operating activities4,222 4,255 3,637 
Cash flows from investing activities   
Property additions(1,948)(1,470)(1,494)
Property sales and other transactions263 159 333 
Investment purchases(12)(10)(13)
Investment sales and other transactions94 99 (1)
Net cash used in investing activities(1,603)(1,222)(1,175)
Cash flows from financing activities   
Dividends(1,167)(1,028)(960)
Common Stock transactions(4)17 69 
Purchase and retirement of Common Stock(3,110)(3,390)(1,439)
Proceeds from borrowings1,832 1,676 784 
Debt repayments(553)(584)(381)
Net cash used in financing activities(3,002)(3,309)(1,927)
Net increase (decrease) in cash and cash equivalents(383)(276)535 
Cash and cash equivalents   
At beginning of year839 1,115 580 
At end of year$456 $839 $1,115 
Supplemental disclosures of cash flow information   
Cash paid during the year for:   
Interest (net of amounts capitalized)$619 $579 $577 
Income taxes (net of refunds)750 654 311 

See accompanying notes to consolidated financial statements.


K42

Norfolk Southern Corporation and Subsidiaries
Consolidated Statements of Changes in Stockholders’ Equity
Common
Stock		Additional
Paid-in
Capital		Accum. Other
Comprehensive
Loss		Retained
Income		Total
 ($ in millions, except per share amounts)
Balance at December 31, 2019$259 $2,209 $(491)$13,207 $15,184 
Comprehensive income:     
Net income   2,013 2,013 
Other comprehensive loss  (103) (103)
Total comprehensive income    1,910 
Dividends on Common Stock,     
$3.76 per share   (960)(960)
Share repurchases(7)(59) (1,373)(1,439)
Stock-based compensation2 98 (4)96 
Balance at December 31, 2020254 2,248 (594)12,883 14,791 
Comprehensive income:     
Net income   3,005 3,005 
Other comprehensive income  192  192 
Total comprehensive income    3,197 
Dividends on Common Stock,     
$4.16 per share   (1,028)(1,028)
Share repurchases(13)(106) (3,271)(3,390)
Stock-based compensation1 73  (3)71 
Balance at December 31, 2021242 2,215 (402)11,586 13,641 
Comprehensive income:     
Net income   3,270 3,270 
Other comprehensive income  51  51 
Total comprehensive income    3,321 
Dividends on Common Stock,     
$4.96 per share   (1,167)(1,167)
Share repurchases(13)(108) (2,989)(3,110)
Stock-based compensation1 50  (3)48 
Balance at December 31, 2022$230 $2,157 $(351)$10,697 $12,733 

See accompanying notes to consolidated financial statements.


K43

Norfolk Southern Corporation and Subsidiaries
Notes to Consolidated Financial Statements
 
The following Notes are an integral part of the Consolidated Financial Statements.
 
1.  Summary of Significant Accounting Policies
 
Description of Business
 
Norfolk Southern Corporation is a Virginia-basedGeorgia-based holding company engaged principally in the rail transportation business, operating approximately 19,50019,100 route miles primarily in the Southeast, East, and Midwest. These consolidated financial statements include Norfolk Southern and its majority-owned and controlled subsidiaries (collectively, NS, we, us, and our).  Norfolk Southern’s major subsidiary is NSR.  All significant intercompany balances and transactions have been eliminated in consolidation.
 
NSR and its railroad subsidiaries transport raw materials, intermediate products, and finished goods classified in the following commodity groups (percent of total railway operating revenues in 2019)2022): intermodal (25%(29%); agriculture, forest and consumer products (19%); chemicals (17%); coal (15%); agriculture products (14%); metals and construction (13%); and automotive (9%); and, forest and consumer (7%(8%). Although most of our customers are domestic, ultimate points of origination or destination for some of the products transported (particularly coal bound for export and some intermodal shipments) may be outside the U.S.  Approximately 80% of our railroad employees are covered by collective bargaining agreements with various labor unions.
 
Use of 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.  We periodically review our estimates, including those related to the recoverability and useful lives of assets, as well as liabilities for litigation, environmental remediation, casualty claims, income taxes and pension and other postretirement benefits.  Changes in facts and circumstances may result in revised estimates.
 
Revenue Recognition
 
Transportation revenue isrevenues are recognized proportionally as a shipment moves from origin to destination, and related expenses are recognized as incurred.  Certain of our contract refunds (which are primarily volume-based incentives) are recorded as a reduction to revenues on the basis of management’sour best estimate of projected liability, which is based on historical activity, current shipment counts and expectation of future activity. Certain accessorialancillary services, such as switching, demurrage and other incidental activities, may be provided to customers under their transportation contracts such as switching, demurrage and other incidental service revenues. These arecontracts. The revenues associated with these distinct performance obligations that are recognized at a point in time when the services are performed or as contractual obligations are met.
 
Cash Equivalents
 
“Cash equivalents” are highly liquid investments purchased three months or less from maturity.

Allowance for Doubtful Accounts
 
Our allowance for doubtful accounts was $9 million and $7$8 million at December 31, 20192022 and 2018,2021, respectively.  To determine our allowance for doubtful accounts, we evaluate historical loss experience (which has not been significant), the characteristics of current accounts, and general economic conditions and trends.

K41K44

Materials and Supplies
 
“Materials and supplies,” consisting mainly of items for maintenance of property and equipment, are stated at the lower of average cost or net realizable value.  The cost of materials and supplies expected to be used in property additions or improvements is included in “Properties.”
 
Investments
  
Investments in entities over which we have the ability to exercise significant influence but do not control the entity are accounted for using the equity method, whereby the investment is carried at the cost of the acquisition plus our equity in undistributed earnings or losses since acquisition.
 
Properties
 
“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.  This methodology treats each asset class as a pool of resources, not as singular items.  We use approximately 75 depreciable asset classes.  “Depreciation” in the Consolidated Statements of Cash Flows includes both depreciation and depletion on operating and nonoperating properties.

Depreciation expense is based on our assumptions concerning expected service lives of our properties as well as the expected net salvage that will be received upon their retirement.  In developing these assumptions, we utilize periodic depreciation studies that are performed by an independent outside firm of consulting engineers and approved by the STB.  Our depreciation studies are conducted about every three years for equipment and every six years for track assets and other roadway property.  The frequency of these studies is consistent with guidelines established by the STB.  We adjust our rates based on the results of these studies and implement the changes prospectively.  The studies may also indicate that the recorded amount of accumulated depreciation is deficient (or in excess) of the amount indicated by the study.  Any such deficiency (or excess) is amortized as a component of depreciation expense over the remaining service lives of the affected class of property, as determined by the study. 

Key factors that are considered in developing average service life and salvage estimates include:

•statistical analysis of historical retirement data and surviving asset records;records,
•review of historical salvage received and current market rates;rates,
•review of our operations including expected changes in technology, customer demand, maintenance practices and asset management strategies;strategies,
•review of accounting policies and assumptions;assumptions, and
•industry review and analysis.
 
The composite depreciation rate for rail in high density corridors is derived based on consideration of annual gross tons as compared to the total or ultimate capacity of rail in these corridors.  Our experience has shown that traffic density is a leading factor in the determination of the expected service life of rail in high density corridors.  In developing the respective depreciation rate, consideration is also given to several rail characteristics including age, weight, condition (new or second-hand) and type (curved or straight).  
 
We capitalize interest on major projects during the period of their construction.  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 the replacement of self-constructed assets. Removal activities occur in conjunction with replacement and are estimated based on the average percentage of time employees replacing assets spend on removal functions. 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.
 
K42K45

When depreciable operating road and equipment assets are sold or retired in the ordinary course of business, the cost of the assets, net of salesales proceeds or salvage, is charged to accumulated depreciation, and no gain or loss is recognized in earnings.  Actual historical cost values are retired when available, such as with most equipment assets.  The use of estimates in recording the retirement of certain roadway assets is necessary based on the impracticality of tracking individual asset costs.  When retiring rail, ties and ballast, we use statistical curves that indicate the relative distribution of the age of the assets retired.  The historical cost of other roadway assets is estimated using a combination of inflation indices specific to the rail industry and those published by the U.S. Bureau of Labor Statistics.  The indices are applied to the replacement value based on the age of the retired assets.  These indices are used because they closely correlate with the costs of roadway assets.  Gains and losses on disposal of operating land are included in “Materials and other” expenses. Gains and losses on disposal of nonoperatingnon-operating land and nonrailnon-rail assets are included in “Other income – net” since such income is not a product of our railroad operations.

A retirement is considered abnormal if it does not occur in the ordinary course of business, if it relates to disposition of a large segment of an asset class and if the retirement varies significantly from the retirement profile identified through our depreciation studies, which inherently consider the impact of normal retirements on expected service lives and depreciation rates.  Gains or losses from abnormal retirements would beare recognized in income from railway operations.
 
We review the carrying amount of properties whenever events or changes in circumstances indicate that such carrying amount may not be recoverable based on future undiscounted cash flows.  Assets that are deemed impaired as a result of such review are recorded at the lower of carrying amount or fair value.
 
New Accounting Pronouncements

TheIn December 2019, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2019-12, “Simplifying the Accounting for Income Taxes,” which added new guidance to simplify the accounting for income taxes, changed the accounting for certain income tax transactions, and made other minor changes. We adopted the standard on January 1, 2021 and there was no material impact to the financial statements upon adoption.

In November 2021, the FASB issued ASU 2014-09,2021-10, “Revenue from Contracts with CustomersGovernment Assistance (Topic 832): Disclosures by Business Entities about Government Assistance,” which requires annual disclosures when an entity has received government assistance. Entities are required to disclose the types of government assistance received, the accounting treatment for that government assistance, and related amendments, which are jointly referredthe effect of the government assistance on the financial statements. We adopted the new standard on January 1, 2022 and there was no material impact to as Accounting Standards Codification (ASC) Topic 606. This standard replaced most existing revenue recognition guidance in GAAP and requires entities tothe financial statements upon adoption.

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2. Railway Operating Revenues

The following table disaggregates our revenues by major commodity group:
202220212020
($ in millions)
Merchandise:
Agriculture, forest and consumer products$2,493 $2,251 $2,116 
Chemicals2,148 1,951 1,809 
Metals and construction1,652 1,562 1,333 
Automotive1,038 905 830 
Merchandise7,331 6,669 6,088 
Intermodal3,681 3,163 2,654 
Coal1,733 1,310 1,047 
Total$12,745 $11,142 $9,789 

We recognize the amount of revenuerevenues to which it expectswe expect to be entitled for the transfer of promised goods or services to customers. A performance obligation is defined as a promise in a contract to transfer a distinct good or service to the customer. A contract’s transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied. We adopted the provisions of this standard on January 1, 2018, using the modified retrospective method. There was no cumulative effect of initially applying the standard, nor was there any material difference in revenue for the year ended December 31, 2018, as compared with GAAP that was in effect prior to January 1, 2018. See Note 2 for additional information.

In March 2017, the FASB issued ASU 2017-07, “Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost.”  This update requires segregation of net benefit costs between operating and nonoperating expenses and requires retrospective application.  We adopted the standard on January 1, 2018.  Under the new standard, only the service cost component of defined benefit pension cost and postretirement benefit cost are reported within “Compensation and benefits” and all other components of net benefit cost are presented in “Other income – net” on the Consolidated Statements of Income, whereas under the previous standard all components were included in “Compensation and benefits.” The retrospective application resulted in an increase to “Compensation and benefits” expense and an offsetting increase to “Other income – net” on the Consolidated Statements of Income of $64 million for the year ended December 31, 2017, with no impact on “Net income.”

In February 2018, the FASB issued ASU 2018-02, “Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income.” This update is intended to reclassify the stranded tax effects resulting from tax reform from accumulated other comprehensive income (AOCI) to retained earnings. The amount of the reclassification is the difference between the amount initially charged or credited directly to other comprehensive income at the previously enacted U.S. federal corporate income tax rate that remains in AOCI and the amount that would have been charged or credited directly to other comprehensive income using the newly enacted U.S. federal corporate income tax rate. In the first quarter of 2018, we adopted the provisions of ASU 2018-02 resulting in an increase to
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“Accumulated other comprehensive loss” of $88 million and a corresponding increase to “Retained income,” with no impact on “Total stockholders’ equity.”

In February 2016, the FASB issued ASU 2016-02, “Leases (Topic 842),” and subsequent amendments, which replaced existing lease guidance in GAAP. We adopted the standard on January 1, 2019 using the modified retrospective method and used the effective date as our date of initial application. See Note 10 for additional information.

In June 2016, the FASB issued ASU 2016-13, “Credit Losses - Measurement of Credit Losses on Financial Instruments,” which replaces the current incurred loss impairment method with a method that reflects expected credit losses. We adopted the standard on January 1, 2020. Because credit losses associated from our trade receivables have historically been insignificant, we do not expect this standard to have a material effect on our financial statements.

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

2. Railway Operating Revenues

The following table disaggregates our revenues by major commodity group:
20192018
($ in millions)
Merchandise:
Chemicals$1,874  $1,858  
Agriculture products1,567  1,514  
Metals and construction1,522  1,539  
Automotive994  991  
Forest and consumer846  842  
Merchandise6,803  6,744  
Intermodal2,824  2,893  
Coal1,669  1,821  
Total$11,296  $11,458  

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

We recognize the amount of revenue we expect to be entitled to for the transfer of promised goods or services to
customers. A performance obligation is created when a customer under a transportation contract or public tariff submits a bill of lading to NSus for the transport of goods. These performance obligations are satisfied as the shipments move from origin to destination. As such, transportation revenue isrevenues are recognized proportionally as a shipment moves, and related expenses are recognized as incurred. These performance obligations are generally short-term in nature with transit days averaging approximately one week or less for each commodity group. The customer has an unconditional obligation to pay for the service once the service has been completed. Estimated revenuerevenues associated with in-process shipments at period-end isare recorded based on the estimated percentage of service
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completed to total transit days. completed. We had no material remaining performance obligations at December 31, 20192022 and 2018.2021.

RevenueWe may provide customers ancillary services, such as switching, demurrage and other incidental activities, under their transportation contracts. The revenues associated with these distinct performance obligations are recognized when the services are performed or as contractual obligations are met. These revenues are included within each of the commodity groups and represent approximately 7%, 7% and 5%, respectively, of total “Railway operating revenues” on the Consolidated Statements of Income for the years ended December 31, 2022, 2021, and 2020.

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

Under the typical payment terms of our freight contracts, payment for services is due within fifteen days of billing the customer, thus there are no significant financing components. “Accounts receivable – net” on the Consolidated Balance Sheets includes both customer and non-customer receivables as follows:
December 31,December 31,
2019201820222021
($ in millions)($ in millions)
Customer Customer $682  $740  Customer$895 $741 
Non-customerNon-customer238  269  Non-customer253 235 
Accounts receivable – net Accounts receivable – net$920  $1,009   Accounts receivable – net$1,148 $976 

Non-customer receivables include non-revenue-related amounts due from other railroads, governmental entities, and others.  There were no non-current customer receivables at December 31, 2022, while “Other assets” on the
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Consolidated Balance Sheets includes non-current customer receivables ofincluded $23 million and $55 million at December 31, 2019 and 2018, respectively.  In 2019, we wrote off a $32 million non-current customer receivable resulting from a legal dispute and this expense is included in “Materials and other” on the Consolidated Statements of Income.2021. We do not have any material contract assets or liabilities at December 31, 20192022 and 2018.

Certain accessorial services may be provided to customers under their transportation contracts such as switching, demurrage and other incidental service revenues. These are distinct performance obligations that are recognized at a point in time when the services are performed or as contractual obligations are met. This revenue is included within each of the commodity groups and represents approximately 5% and 4% of total “Railway operating revenues” on the Consolidated Statements of Income for the years ended December 31, 2019 and 2018, respectively.2021.

3.  Other Income – Net

 201920182017
 ($ in millions)
   
Corporate-owned life insurance – net$69  $(10) $33  
Net pension and other postretirement benefit cost (Note 12)63  61  64  
Rental income4  5  87  
Other(30) 11  (28) 
Total$106  $67  $156  
 202220212020
 ($ in millions)
   
Pension and other postretirement benefits (Note 12)$126 $102 $91 
COLI – net(77)17 85 
Other(36)(42)(23)
Total$13 $77 $153 
 
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4.  Income Taxes
 201920182017
 ($ in millions)
Current:   
Federal$356  $499  $500  
State83  131  83  
Total current taxes439  630  583  
Deferred:   
Federal280  156  (2,924) 
State50  17  65  
Total deferred taxes330  173  (2,859) 
Income taxes$769  $803  $(2,276) 
 202220212020
 ($ in millions)
Current:   
Federal$645 $553 $307 
State132 136 68 
Total current taxes777 689 375 
Deferred:   
Federal206 186 111 
State(123)(2)31 
Total deferred taxes83 184 142 
Income taxes$860 $873 $517 

Reconciliation of Statutory Rate to Effective Rate
 
“Income taxes” on the Consolidated Statements of Income differs from the amounts computed by applying the statutory federal corporate tax rate as follows:
 201920182017
 Amount%Amount%Amount%
 ($ in millions)
Federal income tax at statutory rate$733  21.0  $728  21.0  $1,095  35.0  
State income taxes, net of federal tax effect110  3.1  120  3.5  88  2.8  
Equity in earnings related to tax reform—  —  —  —  (38) (1.2) 
Tax reform—  —  —  —  (3,331) (106.5) 
Excess tax benefits on stock-based compensation(29) (0.8) (22) (0.7) (39) (1.2) 
Other, net(45) (1.3) (23) (0.7) (51) (1.7) 
Income Taxes$769  22.0  $803  23.1  $(2,276) (72.8) 
 202220212020
 Amount%Amount%Amount%
 ($ in millions)
Federal income tax at statutory rate$867 21.0 $814 21.0 $531 21.0 
State income taxes, net of federal tax effect146 3.5 143 3.6 85 3.3 
State law changes(136)(3.3)(34)(0.8)— — 
Excess tax benefits on stock-based compensation(18)(0.4)(25)(0.6)(39)(1.5)
Other, net1 — (25)(0.7)(60)(2.4)
Income taxes$860 20.8 $873 22.5 $517 20.4 

Tax reform, enactedOn July 8, 2022, House Bill 1342 was signed into law in 2017, lowered the FederalCommonwealth of Pennsylvania, which reduced its corporate income tax rate from 35%9.99% to 21% and made numerous other4.99%, through a series of phased reductions beginning each tax law changes.year from
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January 1, 2023 through January 1, 2031. GAAP requires companies to recognize the effect of tax law changes in the period of enactment. As a result, in 2017, “Purchased services and rents” included2022, we recognized a $151$136 million benefit for earnings generated from reductions to net deferred tax liabilities at certain equity investees andin “Income taxes” includedwith a $3,331 million benefit primarily due to the remeasurement of our net deferred tax liabilities to reflect the lower rate.corresponding reduction in “Deferred income taxes.”
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Deferred Tax Assets and Liabilities

Certain items are reported in different periods for financial reporting and income tax purposes.  Deferred tax assets and liabilities are recorded in recognition of these differences.  The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities are as follows:
December 31, December 31,
20192018 20222021
($ in millions) ($ in millions)
Deferred tax assets:Deferred tax assets:  Deferred tax assets:  
Accruals, including casualty and other claimsAccruals, including casualty and other claims$110 $92 
Compensation and benefits, including postretirement benefitsCompensation and benefits, including postretirement benefits$222  $284  Compensation and benefits, including postretirement benefits99 181 
Accruals, including casualty and other claims89  69  
OtherOther202  72  Other164 188 
Total gross deferred tax assetsTotal gross deferred tax assets513  425  Total gross deferred tax assets373 461 
Less valuation allowanceLess valuation allowance(54) (50) Less valuation allowance(41)(60)
Net deferred tax assetsNet deferred tax assets459  375  Net deferred tax assets332 401 
Deferred tax liabilities:Deferred tax liabilities:  Deferred tax liabilities:  
PropertyProperty(6,714) (6,422) Property(7,050)(7,016)
OtherOther(560) (413) Other(547)(550)
Total deferred tax liabilitiesTotal deferred tax liabilities(7,274) (6,835) Total deferred tax liabilities(7,597)(7,566)
Deferred income taxesDeferred income taxes$(6,815) $(6,460) Deferred income taxes$(7,265)$(7,165)

Except for amounts for which a valuation allowance has been provided, we believe that it is more likely than not that the results of future operations will generate sufficient taxable income to realize the deferred tax assets.  The valuation allowance at the end of each year primarily relates to subsidiary state income tax net operating losses and state investment tax credits that may not be utilized prior to their expiration.  The total valuation allowance increaseddecreased by $4$19 million in 2019, $62022 and increased $3 million in 2018,both 2021 and $5 million in 2017.2020.

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Uncertain Tax Positions
 
A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:
December 31, December 31,
20192018 20222021
($ in millions) ($ in millions)
Balance at beginning of yearBalance at beginning of year$21  $17  Balance at beginning of year$21 $22 
Additions based on tax positions related to the current yearAdditions based on tax positions related to the current year4  5  Additions based on tax positions related to the current year3 3 
Additions for tax positions of prior yearsAdditions for tax positions of prior years1 3 
Settlements with taxing authoritiesSettlements with taxing authorities(2)(5)
Lapse of statutes of limitationsLapse of statutes of limitations(1) (1) Lapse of statutes of limitations(1)(2)
Balance at end of yearBalance at end of year$24  $21  Balance at end of year$22 $21 
 
Included in the balance of unrecognized tax benefits at December 31, 20192022 are potential benefits of $19$18 million that would affect the effective tax rate if recognized.  Unrecognized tax benefits are adjusted in the period in which new information about a tax position becomes available or the final outcome differs from the amount recorded.
 
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The statute of limitations on Internal Revenue Service examinations has expired for all years prior to 2015. We have amended our 2012 income tax return to request a refund of $46 million, which is not included in the above balance of unrecognized tax benefits. We would recognize a tax benefit of around $18 million if the refund is allowed.2019.  State income tax returns are generally are subject to examination for a period of three to four years after filing of the return. In addition, we are generally obligated to report changes in taxable income arising from federal income tax examinations to the states within a period of up to two years from the date the federal examination is final.  We have various state income tax returns either under examination, administrative appeal, or litigation.   

5.  Fair Value Measurements
 
FASB ASCAccounting Standards Codification (ASC) 820-10, “Fair Value Measurements,” established a framework for measuring fair value and a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three broad levels, as follows:

Level 1Inputs to the valuation methodology are unadjusted quoted prices for identical assets or liabilities in active markets that we have the ability to access.
Level 2Inputs to the valuation methodology include:
 
•         quoted prices for similar assets or liabilities in active markets;markets,
•         quoted prices for identical or similar assets or liabilities in inactive markets;markets,
•         inputs other than quoted prices that are observable for the asset or liability;liability, and
•         inputs that are derived principally from or corroborated by observable market data by
          correlation or other means.
 If the asset or liability has a specified (contractual) term, the Level 2 input must be observable for substantially the full term of the asset or liability.
Level 3Inputs to the valuation methodology are unobservable and significant to the fair value measurement.

The asset or liability’s fair value measurement level within the hierarchy is based on the lowest level of any input that is significant to the fair value measurement.

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Fair Values of Financial Instruments

The fair values of “Cash and cash equivalents,” “Accounts receivable – net,” and “Accounts payable,” and “Short-term debt” approximate carrying values because of the short maturity of these financial instruments.  The carrying value of COLI is recorded at cash surrender value and, accordingly, approximates fair value. There are no other assets or liabilities measured at fair value on a recurring basis at December 31, 20192022 or 2018.2021. The carrying amounts and estimated fair values, based on Level 1 inputs, of long-term debt consistedconsist of the following at December 31:

 20192018
Carrying
Amount		Fair
Value		Carrying
Amount		Fair
Value
 ($ in millions)
Long-term debt, including current maturities$(12,196) $(14,806) $(11,145) $(12,203) 

 20222021
Carrying
Amount		Fair
Value		Carrying
Amount		Fair
Value
 ($ in millions)
Long-term debt, including current maturities$(15,082)$(13,846)$(13,840)$(17,033)

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6.  Investments
 December 31,
 20192018
 ($ in millions)
Long-term investments:  
Equity method investments:  
Conrail Inc.$1,387  $1,337  
TTX Company749  692  
Meridian Speedway LLC271  271  
Pan Am Southern LLC154  155  
Other85  77  
Total equity method investments2,646  2,532  
Corporate-owned life insurance at net cash surrender value767  556  
Other investments15  21  
Total long-term investments$3,428  $3,109  
 December 31,
 20222021
 ($ in millions)
Long-term investments:  
Equity method investments:  
Conrail$1,584 $1,526 
TTX Company918 851 
Other421 420 
Total equity method investments2,923 2,797 
COLI at net cash surrender value752 885 
Other investments19 25 
Total long-term investments$3,694 $3,707 

Investment in Conrail
 
Through a limited liability company, we and CSX jointly own Conrail, whose primary subsidiary is CRC.  We have a 58% economic and 50% voting interest in the jointly ownedjointly-owned entity, and CSX has the remainder of the economic and voting interests.  We are amortizing the excess of the purchase price over Conrail’s net equity using the principles of purchase accounting, based primarily on the estimated useful lives of Conrail’s depreciable property and equipment, including the related deferred tax effect of the differences in book and tax accounting bases for such assets, as all of the purchase price at acquisition was allocable to Conrail’s tangible assets and liabilities.
At December 31, 2019, based on the funded status of Conrail’s pension plans, we decreased our proportional investment in Conrail by $3 million.  This resulted in a loss of $3 million recorded to “Other comprehensive loss”.
At December 31, 2018, based on the funded status of Conrail’s pension plans, we decreased our proportional investment in Conrail by $11 million.  This resulted in a loss of $10 million recorded to “Other comprehensive loss” and a combined federal and state deferred tax liability of $1 million.
At December 31, 2019, the difference between2022, our investment in Conrail andexceeds our share of Conrail’s underlying net equity was $497by $480 million.  Our equity in the earnings of Conrail, net of amortization, included in “Purchased services and rents,” which offsets the costs of operating the Shared Assets Areas, was $53 million for 2019, $55 million for 2018, and $75 million for 2017 (including $33 million related to the enactment of tax reform – see Note 4). Equity in earnings are included in the “Other – net” line item within operating activities in the Consolidated Statements of Cash Flows.

CRC owns and operates certain properties (the Shared Assets Areas) for the joint and exclusive benefit of NSR and CSX Transportation, Inc. (CSXT).  The costs of operating the Shared Assets Areas are borne by NSR and CSXT based on usage.  In addition, NSR and CSXT pay CRC a fee for access to the Shared Assets Areas. “Purchased services and rents” and “Fuel” include expenses payable to CRC for operation of the Shared Assets Areas totaling $149$156 million in 2019, $1502022, $147 million in 2018,2021, and $141$129 million in 2017.2020. Future payments for access fees due to CRC under the Shared Assets Areas agreements are as follows: $40$42 million in each of 20202023 through 20232027 and $16$62 million
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thereafter. We provide certain general and administrative support functions to Conrail, the fees for which are billed in accordance with several service-provider arrangements and approximate $6 million annually.

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“AccountsIn 2020, we converted $254 million of accounts payable into long-term advances from Conrail included in “Other liabilities.” “Accounts payable” includes $264$173 million at December 31, 2019,2022, and $202$112 million at December 31, 2018,2021, due to Conrail for the operation of the Shared Assets Areas.  “Other liabilities” includes $280$534 million at both December 31, 20192022 and 20182021, respectively, for long-term advances from Conrail, maturing in 2044,2050 that bear interest at an average rate of 2.9%1.31%.

Our equity in Conrail’s earnings, net of amortization, was $58 million for 2022, $56 million for 2021, and $58 million for 2020. These amounts partially offset the costs of operating the Shared Assets Areas and are included in “Purchased services and rents.” Equity in Conrail’s earnings is included in the “Other – net” line item within operating activities in the Consolidated Statements of Cash Flows.

Investment in TTX

NSWe and eightseven other North American railroads jointlycollectively own TTX Company (TTX). NS has a 19.65% ownership interest in TTX,, a railcar pooling company that provides its owner-railroads with standardized fleets of intermodal,
automotive, and general use railcars at stated rates. We have a 19.78% ownership interest in TTX.

Amounts paid to TTXExpenses incurred for use of TTX equipment are included in “Purchased services and rents.” This amounted to $244$256 million, $262$246 million, and $237$250 million, of expense, respectively, for the years ended December 31, 2019, 20182022, 2021 and 2017.2020. Our equity in theTTX’s earnings of TTX, which offset thepartially offsets these costs and are alsototaled $53 million for 2022 and 2021, respectively, and $48 million for 2020. Equity in TTX’s earnings is included in the “Other – net” line item within operating activities in the Consolidated Statements of Cash Flows.

Impairment ofInvestment

In 2020, we recorded an other-than-temporary impairment of $99 million related to the carrying value of an equity method investment. This non-cash impairment charge is recorded in “Purchased services and rents,” totaled $58rents” on the Consolidated Statements of Income and had a $74 million for 2019, $61 million for 2018, and $158 million for 2017 (including $115 million related to the enactment of tax reform – see Note 4).impact on net income.

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7. Properties
 AccumulatedNet BookDepreciation  AccumulatedNet BookDepreciation
December 31, 2019CostDepreciationValue
Rate (1)
December 31, 2022December 31, 2022CostDepreciationValue
Rate (1)
($ in millions) ($ in millions)
LandLand$2,385  $—  $2,385  —  Land$2,405 $— $2,405                 —
Roadway:Roadway:      Roadway:    
Rail and other track materialRail and other track material7,024  (1,905) 5,119  2.30 %Rail and other track material7,589 (1,971)5,618 2.42 %
TiesTies5,536  (1,496) 4,040  3.37 %Ties5,981 (1,696)4,285 3.49 %
BallastBallast2,868  (723) 2,145  2.72 %Ballast3,126 (873)2,253 2.84 %
Construction in processConstruction in process360  —  360  —  Construction in process431 — 431                 —
Other roadwayOther roadway14,261  (3,786) 10,475  2.71 %Other roadway14,270 (3,948)10,322 2.69 %
Total roadwayTotal roadway30,049  (7,910) 22,139     Total roadway31,397 (8,488)22,909  
Equipment:Equipment:      Equipment:    
LocomotivesLocomotives5,973  (2,112) 3,861  3.66 %Locomotives5,878 (2,060)3,818 3.66 %
Freight carsFreight cars2,988  (1,148) 1,840  2.45 %Freight cars2,701 (1,033)1,668 2.51 %
Computers and softwareComputers and software732  (355) 377  9.68 %Computers and software926 (476)450 9.10 %
Construction in processConstruction in process291  —  291  —  Construction in process206 — 206                 —
Other equipmentOther equipment1,082  (388) 694  4.89 %Other equipment1,145 (463)682 4.51 %
Total equipmentTotal equipment11,066  (4,003) 7,063     Total equipment10,856 (4,032)6,824  
Other propertyOther property96  (69) 27  1.05 %Other property90 (72)18 2.26 %
Total propertiesTotal properties$43,596  $(11,982) $31,614   Total properties$44,748 $(12,592)$32,156  
 
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 AccumulatedNet BookDepreciation  AccumulatedNet BookDepreciation
December 31, 2018CostDepreciationValue
Rate (1)
December 31, 2021December 31, 2021CostDepreciationValue
Rate (1)
($ in millions) ($ in millions)
LandLand$2,337  $—  $2,337  —  Land$2,453 $— $2,453                 —
Roadway:Roadway:    Roadway:    
Rail and other track materialRail and other track material6,888  (1,951) 4,937  2.29 %Rail and other track material7,330 (1,907)5,423 2.40 %
TiesTies5,346  (1,448) 3,898  3.36 %Ties5,779 (1,642)4,137 3.44 %
BallastBallast2,759  (676) 2,083  2.70 %Ballast3,041 (818)2,223 2.79 %
Construction in processConstruction in process442  —  442  —  Construction in process339 — 339                 —
Other roadwayOther roadway14,072  (3,737) 10,335  2.64 %Other roadway14,111 (3,733)10,378 2.69 %
Total roadwayTotal roadway29,507  (7,812) 21,695   Total roadway30,600 (8,100)22,500  
Equipment:Equipment:    Equipment:    
LocomotivesLocomotives5,870  (2,262) 3,608  3.77 %Locomotives5,695 (1,994)3,701 3.87 %
Freight carsFreight cars3,183  (1,288) 1,895  2.47 %Freight cars2,701 (1,009)1,692 2.59 %
Computers and softwareComputers and software623  (365) 258  10.65 %Computers and software893 (438)455 10.34 %
Construction in processConstruction in process437  —  437  —  Construction in process164 — 164                 —
Other equipmentOther equipment1,071  (380) 691  4.94 %Other equipment1,088 (420)668 4.63 %
Total equipmentTotal equipment11,184  (4,295) 6,889   Total equipment10,541 (3,861)6,680  
Other propertyOther property437  (267) 170  0.78 %Other property90 (70)20 2.25 %
Total propertiesTotal properties$43,465  $(12,374) $31,091   Total properties$43,684 $(12,031)$31,653  

(1)Composite annual depreciation rate for the underlying assets, excluding the effects of the amortization of any deficiency (or excess) that resulted from our depreciation studies.
 
“Other current assets”Loss on the Consolidated Balance Sheets at December 31, 2019 includes natural resource assets of $88 million, reflecting their status as heldAsset Disposal

In 2020, we sold 703 locomotives deemed excess and no longer needed for sale. In 2019,railroad operations. We evaluated these locomotive retirements and concluded they were abnormal (see Note 1). Accordingly, we recorded a $49$385 million impairment loss related to our natural resource assets that we are actively marketingadjust their carrying amount to sell. The impairment loss is reflectedtheir estimated fair value, which resulted in “Gains and losses on properties” in the Consolidated Statements of Cash Flows for the year ended December 31, 2019. At December 31, 2018, these assets were reflected in other property within “Properties” on the Consolidated Balance Sheets, reflecting costs of obtaining rights to natural resources of $336a $97 million with associated accumulated depletion of $200 million.tax benefit.

Capitalized Interest
 
Total interest cost incurred on debt was $620$708 million, $574$657 million, and $570$639 million during 2019, 20182022, 2021 and 2017,2020, respectively, of which $16 million, $17$11 million, and $20$14 million werewas capitalized during 2019, 2018,2022, 2021 and 2017,2020, respectively.

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8.  Current Liabilities
 December 31,
 20192018
 ($ in millions)
Accounts payable:  
Accounts and wages payable$710  $828  
Due to Conrail (Note 6)264  202  
Casualty and other claims (Note 17)212  213  
Vacation liability136  140  
Other106  122  
Total$1,428  $1,505  
Other current liabilities:  
Interest payable$149  $139  
Current operating lease liability (Note 10)97  —  
Pension benefit obligations (Note 12)18  18  
Other63  89  
Total$327  $246  
 December 31,
 20222021
 ($ in millions)
Accounts payable:  
Accounts and wages payable$712 $850 
Due to Conrail (Note 6)173 112 
Casualty and other claims (Note 17)170 166 
Vacation liability136 119 
Other102 104 
Total$1,293 $1,351 
Other current liabilities:  
Interest payable$157 $150 
Current operating lease liability (Note 10)94 82 
Pension benefit obligations (Note 12)20 20 
Other70 60 
Total$341 $312 

9.  Debt
 
Debt with weighted average interest rates and maturities isare presented below:

 December 31,
 20192018
 ($ in millions)
Notes and debentures:  
4.22% maturing to 2024$2,497  $3,082  
4.35% maturing 2025 to 20313,265  2,665  
4.38% maturing 2037 to 20525,904  5,104  
5.79% maturing 2097 to 21181,331  1,131  
Financing leases8  2  
Discounts, premiums, and debt issuance costs(809) (839) 
Total debt12,196  11,145  
Less current maturities(316) (585) 
Long-term debt excluding current maturities$11,880  $10,560  

 December 31,
 20222021
 ($ in millions)
Notes and debentures, with weighted-average interest rates as of December 31, 2022:  
3.95% maturing to 2027$2,770 $3,318 
3.66% maturing 2028 to 20322,595 1,995 
4.05% maturing 2037 to 20559,247 8,097 
5.22% maturing 2097 to 21211,384 1,384 
Securitization borrowings and finance leases116 22 
Discounts, premiums, and debt issuance costs(930)(976)
Total debt15,182 13,840 
Less current maturities and short-term debt(703)(553)
Long-term debt excluding current maturities and short-term debt$14,479 $13,287 
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Long-term debt maturities subsequent to 2020 are as follows: 
2021$586  
2022603  
2023600  
2024400  
2025 and subsequent years9,691  
  
Total$11,880  
Long-term debt maturities subsequent to 2023 are as follows: 
2024$403 
2025554 
2026602 
2027621 
2028 and subsequent years12,299 
  
Total$14,479 

In June 2022, we issued $750 million of 4.55% senior notes due 2053.

In February 2022, we issued $600 million of 3.00% senior notes due 2032 and $400 million of 3.70% senior notes due 2053.

In May 2019,2022, we issued $200 million of 3.80% senior notes due 2028, $400 million of 4.10% senior notes due 2049, and $200 million of 5.10% senior notes due 2118. In November 2019, we issued $400 million of 2.55% senior notes due 2029 and $400 million of 3.40% senior notes due 2049.

In May 2019, we also renewed and amended our accounts receivable securitization program increasing the program’swith a maximum borrowing capacity fromof $400 million to $450 million with amillion. The term expiringexpires in May 2020.2023. Under this facility NSR sells substantially all of its eligible third-party receivables to a subsidiary, which in turn may transfer beneficial interests in the receivables to various commercial paper vehicles. UnderAmounts received under this facility we received $600 million in 2019 and $50 million in 2018, and paid $600 million and $150 million during 2019 and 2018, respectively.are accounted for as borrowings. We had 0$100 million (at an average variable interest rate of 5.05%) outstanding under this program at December 31, 2022, which is included within “Short-term debt”, and no amounts outstanding at both December 31, 2019 and 2018, and our2021. Our available borrowing capacity was $429$300 million and $400 million respectively.

The January 1, 2019at December 31, 2022 and December 31, 2018 “Cash, cash equivalents, and restricted cash” line item2021, respectively. Our accounts receivable securitization program was supported by $883 million in the Consolidated Statements of Cash Flows includes restricted cash of $88 million which reflects deposits held by a third-party bond agent as collateral for certain debt obligations, which matured on October 1, 2019. The restricted cash balance is included as part of “Other current assets” on the Consolidated Balance Sheetsreceivables at December 31, 2018.2022, which are included in “Accounts receivable – net”.

Credit Agreement and Debt Covenants

We also have in place and available a $750an $800 millionfive-year credit agreement which expiresexpiring in May 2021 andMarch 2025, which provides for borrowings at prevailing rates and includes covenants. We had 0no amounts outstanding under this facility at botheither December 31, 2019 and 2018,2022 or December 31, 2021, and we are in compliance with all of its covenants.

10.  Leases
In February 2016, the FASB issued ASU 2016-02, “Leases (Topic 842),” and subsequent amendments, which replaced existing lease guidance in GAAP and requires lessees to recognize ROU assets and lease liabilities on the balance sheet for leases greater than twelve months and disclose key information about leasing arrangements. We adopted the standard on January 1, 2019 using the modified retrospective method and used the effective date as our date of initial application. Financial information will not be updated and the disclosures required under the new standard will not be provided for dates and periods before January 1, 2019. Upon adoption of the standard, we recognized ROU assets and corresponding lease liabilities of $586 million on the Consolidated Balance Sheets as of January 1, 2019. There were no adjustments to “Retained income” on adoption.Subsequent Event

The new standard provides a numberOn February 2, 2023, we issued $500 million of optional practical expedients for transition. We elected the package of practical expedients under the transition guidance which permitted us not to reassess under the new standard our prior conclusions for lease identification and lease classification on expired or existing contracts and whether initial direct costs previously capitalized would qualify for capitalization under FASB ASC 842. We also elected the practical expedient related to land easements, which allowed us to not reassess our current accounting treatment for existing agreements on land easements, which are not accounted for as leases. We did not elect the hindsight practical expedient to determine the reasonably certain lease term for existing leases.4.45% senior notes due 2033.

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The new standard also provides practical expedients and recognition exemptions for an entity’s ongoing accounting policy elections. We elected the short-term lease recognition exemption for all leases that qualify. This means, for those leases that qualify, we do not recognize ROU assets or lease liabilities. We also elected the practical expedient not to separate lease and non-lease components for all of our leases.10.  Leases

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

Our equipment leases have remaining terms of less than 1 year to 97 years and our lines of road and land leases have remaining terms of less than 1 year to 138135 years. Some of these leases include options to extend the leases for up to 99 years and some include options to terminate the leases within 30 days. Because we are not reasonably certain to exercise these renewal options, the options are not considered in determining the lease term, and associated payments are excluded from future minimum lease payments.

Leases with an initial term of twelve months or less are not recorded on the balance sheet. We recognize lease expense for these leases on a straight-line basis over the lease term.
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Operating lease amounts included on the Consolidated Balance Sheet wereSheets are as follows:

December 31, 2019
($ in millions)
AssetsClassification
ROU assetsOther assets$539 
Liabilities
Current lease liabilitiesOther current liabilities$97 
Non-current lease liabilitiesOther liabilities441 
Total lease liabilities$538 
December 31,
20222021
($ in millions)
Classification
Assets
Right-of-use (ROU) assetsOther assets$407 $411 
Liabilities
Current lease liabilitiesOther current liabilities$94 $82 
Non-current lease liabilitiesOther liabilities316 331 
Total lease liabilities$410 $413 

The components of total lease expense, primarily included in “Purchased services and rents,” wereare as follows:
December 31, 2019
($ in millions)
Operating lease expense$114 
Variable lease expense57 
Short-term lease expense5 
Total lease expense$176 

202220212020
($ in millions)
Operating lease expense$101 $106 $109 
Variable lease expense55 44 42 
Short-term lease expense18 9 9 
Total lease expense$174 $159 $160 

At December 31, 2019, we do not have any material finance lease assets or liabilities, nor do we have any material subleases.

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In March 2019, we entered into a non-cancellable lease for an office building with an estimated construction cost of $550 million. The lease will commence upon completion ofbuilding. In 2021, the construction (for which we are a construction agent) of the office building which is expected to be in 2021.was completed and the lease commenced. The initial lease term of the lease is five years with options to renew, purchase, or sell the office building at the end of the lease term. Upon lease commencement, the ROU asset and lease liability will be determined and recorded. The lease also contains a residual value guarantee of up to 90eighty-three percent of the total construction cost.cost of $499 million.

Other information related to operating leases wasis as follows:
December 31, 2019
Weighted-average remaining lease term (years) on operating leases8.25
Weighted-average discount rates on operating leases3.52 %
December 31,
20222021
Weighted-average remaining lease term (years) on operating leases6.677.49
Weighted-average discount rates on operating leases3.16 %3.04 %

As the rates implicit in most of our leases are not readily determinable, we use a collateralized incremental borrowing rate based on the information available at the lease commencement date in determining the present value of future payments. We use the portfolio approach and group leases into short, medium,short-, medium-, and long-term categories, applying the corresponding incremental borrowing rates to these categories of leases.categories.

During 2019,2022 and 2021, respectively, ROU assets obtained in exchange for new operating lease liabilities were $49 million. During 2019, cash$57 million at both periods. Cash paid for amounts included in the measurement of lease liabilities was $114$100 million and $103 million in 2022 and 2021, respectively, and is included in operating cash flows. During 2019, cash proceeds from a sale and leaseback transaction were $82 million and the gain on the transaction was $15 million.
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Future minimum lease payments under non-cancellable operating leases wereare as follows:
December 31, 2019
($ in millions)
2020$110  
2021104  
202279  
202370  
202461  
2025 and subsequent years206  
Total lease payments630  
Less: Interest92  
Present value of lease liabilities$538  
December 31, 2022
($ in millions)
2023$103 
202495 
202587 
202669 
202727 
2028 and subsequent years81 
Total lease payments462 
Less: Interest52 
Present value of lease liabilities$410 

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Undiscounted future minimum lease payments under non-cancellable operating leases accounted for under ASC 840 “Leases” were as follows:
December 31, 2018
($ in millions)
2019  $101  
2020  95  
2021  88  
2022  75  
2023  69  
2024 and subsequent years267  
Total$695  

Operating lease expense accounted for under ASC 840 “Leases” was as follows:
 20182017
 ($ in millions)
Minimum rents$102  $96  
Contingent rents102  54  
Total$204  $150  
Contingent rents are primarily comprised of usage-based payments for equipment under service contracts.
December 31, 2021
($ in millions)
2022$92 
202383 
202473 
202569 
202655 
2027 and subsequent years98 
Total lease payments470 
Less: Interest57 
Present value of lease liabilities$413 

11.  Other Liabilities

December 31, December 31,
20192018 20222021
($ in millions) ($ in millions)
Long-term advances from Conrail (Note 6)Long-term advances from Conrail (Note 6)$534 $534 
Non-current operating lease liability (Note 10)Non-current operating lease liability (Note 10)$441  $—  Non-current operating lease liability (Note 10)316 331 
Net pension benefit obligations (Note 12)Net pension benefit obligations (Note 12)302  278  Net pension benefit obligations (Note 12)255 338 
Casualty and other claims (Note 17)Casualty and other claims (Note 17)218 170 
Net other postretirement benefit obligations (Note 12)Net other postretirement benefit obligations (Note 12)287  308  Net other postretirement benefit obligations (Note 12)204 244 
Long-term advances from Conrail (Note 6)280  280  
Casualty and other claims (Note 17)171  158  
Deferred compensationDeferred compensation104  106  Deferred compensation91 109 
OtherOther159  136  Other141 153 
TotalTotal$1,744  $1,266  Total$1,759 $1,879 

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

Pension and Other Postretirement Benefit Obligations and Plan Assets
Pension BenefitsOther Postretirement
Benefits
 2019201820192018
 ($ in millions)
Change in benefit obligations:    
Benefit obligation at beginning of year$2,371  $2,541  $466  $510  
Service cost35  39  6  7  
Interest cost93  83  17  15  
Actuarial losses (gains)235  (149) 28  (24) 
Plan amendment—  —  (18) —  
Benefits paid(146) (143) (42) (42) 
Benefit obligation at end of year2,588  2,371  457  466  
Change in plan assets:    
Fair value of plan assets at beginning of year2,105  2,373  158  201  
Actual return on plan assets485  (143) 34  (19) 
Employer contribution18  18  20  18  
Benefits paid(146) (143) (42) (42) 
Fair value of plan assets at end of year2,462  2,105  170  158  
Funded status at end of year$(126) $(266) $(287) $(308) 
Amounts recognized in the Consolidated    
Balance Sheets:    
Other assets$194  $30  $—  $—  
Other current liabilities(18) (18) —  —  
Other liabilities(302) (278) (287) (308) 
Net amount recognized$(126) $(266) $(287) $(308) 
Amounts included in accumulated other comprehensive    
loss (before tax):    
Net loss$781  $895  $29  $21  
Prior service cost (benefit)1  2  (253) (259) 

Pension BenefitsOther Postretirement
Benefits
 2022202120222021
 ($ in millions)
Change in benefit obligations:    
Benefit obligation at beginning of year$2,777 $2,845 $417 $471 
Service cost40 43 6 6 
Interest cost67 55 9 7 
Actuarial gains(677)(13)(70)(29)
Plan amendments(4)(2)— — 
Benefits paid(152)(151)(36)(38)
Benefit obligation at end of year2,051 2,777 326 417 
Change in plan assets:    
Fair value of plan assets at beginning of year2,861 2,675 173 165 
Actual return on plan assets(470)317 (28)29 
Employer contributions21 20 13 17 
Benefits paid(152)(151)(36)(38)
Fair value of plan assets at end of year2,260 2,861 122 173 
Funded status at end of year$209 $84 $(204)$(244)
Amounts recognized in the Consolidated Balance Sheets:    
Other assets$484 $442 $— $— 
Other current liabilities(20)(20)— — 
Other liabilities(255)(338)(204)(244)
Net amount recognized$209 $84 $(204)$(244)
Amounts included in accumulated other comprehensive    
loss (before tax):    
Net (gain) loss$623 $666 $(19)$10 
Prior service benefit(6)(2)(177)(202)

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Our accumulated benefit obligation for our defined benefit pension plans is $2.3$1.9 billion and $2.2$2.6 billion at December 31, 20192022 and 2018,2021, respectively.  Our unfunded pension plans, included above, which in all cases have no assets, had projected benefit obligations of $320$275 million and $296$358 million at December 31, 20192022 and 2018,2021, respectively, and had accumulated benefit obligations of $292$249 million and $263$332 million at December 31, 20192022 and 2018,2021, respectively.
 
Pension and Other Postretirement Benefit Cost Components

201920182017 202220212020
($ in millions) ($ in millions)
Pension benefits:Pension benefits:   Pension benefits:   
Service costService cost$35  $39  $38  Service cost$40 $43 $40 
Interest costInterest cost93  83  80  Interest cost67 55 74 
Expected return on plan assetsExpected return on plan assets(179) (177) (172) Expected return on plan assets(213)(193)(190)
Amortization of net lossesAmortization of net losses43  57  51  Amortization of net losses49 66 51 
Amortization of prior service costAmortization of prior service cost1  —  1  Amortization of prior service cost— — 1 
Net cost (benefit)$(7) $2  $(2) 
Net benefitNet benefit$(57)$(29)$(24)
Other postretirement benefits:Other postretirement benefits:   Other postretirement benefits:   
Service costService cost$6  $7  $7  Service cost$6 $6 $6 
Interest costInterest cost17  15  15  Interest cost9 7 12 
Expected return on plan assetsExpected return on plan assets(14) (15) (15) Expected return on plan assets(13)(12)(14)
Amortization of net lossesAmortization of net losses— 1 — 
Amortization of prior service benefitAmortization of prior service benefit(24) (24) (24) Amortization of prior service benefit(25)(26)(25)
Net benefitNet benefit$(15) $(17) $(17) Net benefit$(23)$(24)$(21)

Other Changes in Plan Assets and Benefit Obligations Recognized in Other Comprehensive Income

 2019
Pension
Benefits		Other
Postretirement 
Benefits
 ($ in millions)
Net loss (gain) arising during the year$(71) $8  
Prior service effect of plan amendment—  (18) 
Amortization of net losses(43) —  
Amortization of prior service (cost) benefit(1) 24  
Total recognized in other comprehensive income$(115) $14  
Total recognized in net periodic cost  
and other comprehensive income$(122) $(1) 
 2022
Pension
Benefits		Other
Postretirement 
Benefits
 ($ in millions)
Net (gains) losses arising during the year$6 $(29)
Prior service effect of plan amendment(4)— 
Amortization of net losses(49)— 
Amortization of prior service benefit— 25 
Total recognized in other comprehensive income$(47)$(4)
  
Total recognized in net periodic cost and other comprehensive income$(104)$(27)
 
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Net gainslosses arising during the year for pension benefits were due primarily to higherlower actual returns on plan assets partially offset by a decreasean increase in discount rates. Net lossesgains arising during the year for other postretirement benefits were due primarily to a decreasean increase in discount rates, partially offset by higherlower actual returns on plan assets.
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The estimated net losses and prior service credits for the pension plans that will be amortized from accumulated other comprehensive loss into net periodic cost over the next year are $52$4 million.  The estimated net gains and prior service benefit for the other postretirement benefit plans that will be amortized from accumulated other comprehensive loss into net periodic benefit over the next year is $25$26 million.

Pension and Other Postretirement Benefits Assumptions
 
Costs for pension and other postretirement benefits are determined based on actuarial valuations that reflect appropriate assumptions as of the measurement date, ordinarily the beginning of each year.  The funded status of the plans is determined using appropriate assumptions as of each year end.  A summary of the major assumptions follows:

201920182017 202220212020
Pension funded status:Pension funded status:   Pension funded status:   
Discount rateDiscount rate3.38 %4.33 %3.74 %Discount rate5.56 %2.97 %2.67 %
Future salary increasesFuture salary increases4.21 %4.21 %4.21 %Future salary increases4.44 %4.44 %4.21 %
Other postretirement benefits funded status:Other postretirement benefits funded status:         Other postretirement benefits funded status:   
Discount rateDiscount rate3.13 %4.18 %3.57 %Discount rate5.45 %2.72 %2.27 %
Pension cost:Pension cost:         Pension cost:   
Discount rate - service costDiscount rate - service cost4.55 %4.01 %4.31 %Discount rate - service cost3.25 %3.14 %3.71 %
Discount rate - interest costDiscount rate - interest cost3.99 %3.33 %3.43 %Discount rate - interest cost2.45 %1.95 %2.92 %
Return on assets in plansReturn on assets in plans8.25 %8.25 %8.25 %Return on assets in plans8.00 %8.00 %8.25 %
Future salary increasesFuture salary increases4.21 %4.21 %4.21 %Future salary increases4.44 %4.44 %4.21 %
Other postretirement benefits cost:Other postretirement benefits cost:         Other postretirement benefits cost:   
Discount rate - service cost
Discount rate - service cost
4.39 %3.83 %4.17 %
Discount rate - service cost
3.01 %2.71 %3.41 %
Discount rate - interest costDiscount rate - interest cost3.83 %3.13 %3.14 %Discount rate - interest cost2.13 %1.57 %2.69 %
Return on assets in plansReturn on assets in plans8.00 %8.00 %8.00 %Return on assets in plans7.75 %7.75 %8.00 %
Health care trend rateHealth care trend rate6.50 %6.30 %6.56 %Health care trend rate6.50 %6.00 %6.25 %

To determine the discount rates used to measure our benefit obligations, we utilize analyses in which the projected annual cash flows from the pension and other postretirement benefit plans were 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.

We use a spot rate approach to estimate the service cost and interest cost components of net periodic benefit cost for our pension and other postretirement benefit plans.
 
Health Care Cost Trend Assumptions
 
For measurement purposes at December 31, 2019,2022, increases in the per capita cost of pre-Medicare covered health care benefits were assumed to be 6.25%7.0% for 2020.  It is assumed2023.  We assume the rate will ratably decrease gradually to an ultimate rate of 5.0% for 20252030 and remain at that level thereafter.
 
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Assumed health care cost trend rates affect the amounts reported in the consolidated financial statements.  To illustrate, a one-percentage point change in the assumed health care cost trend would have the following effects:

One-percentage point One-percentage Point
IncreaseDecrease IncreaseDecrease
($ in millions) ($ in millions)
Increase (decrease) in:Increase (decrease) in:  Increase (decrease) in:  
Total service and interest cost componentsTotal service and interest cost components$1  $(1) Total service and interest cost components$1 $(1)
Postretirement benefit obligationPostretirement benefit obligation8  (7) Postretirement benefit obligation6 (5)

Asset Management
 
NaNThirteen investment firms manage our defined benefit pension plans’plan’s assets under investment guidelines approved by our Benefits Investment Committee that is composed of members of our management.  Investments are restricted to domestic and international equity securities, domestic and international fixed income securities, and unleveraged exchange-traded options and financial futures.  Limitations restrict investment concentration and use of certain derivative investments.  The target asset allocation for equity is 75% of the pension plans’plan’s assets.  Fixed income investments must consist predominantly of securities rated investment grade or higher. Equity investments must be in liquid securities listed on national exchanges.  No investment is permitted in our securities (except through commingled pension trust funds).
 
Our pension plans’ weighted averageplan’s weighted-average asset allocations, by asset category, were as follows:
Percentage of plan
assets at December 31,
 20192018
Domestic equity securities50 %49 %
International equity securities24 %23 %
Debt securities24 %25 %
Cash and cash equivalents2 %3 %
Total100 %100 %

Percentage of Plan
Assets at December 31,
 20222021
Domestic equity securities53 %52 %
Debt securities26 %24 %
International equity securities20 %23 %
Cash and cash equivalents1 %1 %
Total100 %100 %

The other postretirement benefit plan assets consist primarily of trust-owned variable life insurance policies with an asset allocation at December 31, 20192022 of 67% in equity securities and 33% in debt securities compared with 64% in equity securities and 36% in debt securities compared with 65% in equity securities and 35% in debt securities at December 31, 2018.2021.  The target asset allocation for equity is between 50% and 75% of the plan’s assets.
 
The plans’ assumed future returns are based principally on the asset allocations and historical returns for the plans’ asset classes determined from both actual plan returns and, over longer time periods, expected market returns for those asset classes.  For 2020,2023, we assume an 8.25%8.00% return on pension plan assets.

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Fair Value of Plan Assets
 
The following is a description of the valuation methodologies used for pension plan assets measured at fair value.
 
Common stock:  Shares held by the plan at year end are valued at the official closing price as defined by the exchange or at the most recent trade price of the security at the close of the active market.
 
Common collective trusts:  The readily determinable fair value is based on the published fair value per unit of the trusts.  The common collective trusts hold equity securities, fixed income securities and cash and cash equivalents.
 
Fixed income securities:  Valued based on quotes received from independent pricing services or at an estimated price at which a dealer would pay for the security at year end using observable market-based inputs.

Commingled funds:  The readily determinable fair value is based on the published fair value per unit of the funds.  The commingled funds hold equity securities.
 
Cash and cash equivalents:  Short-term Treasury bills or notes are valued at an estimated price at which a dealer would pay for the security at year end using observable market-based inputs; money market funds are valued at the closing price reported on the active market on which the funds are traded.
 
The following table sets forth the pension plans’plan’s assets by valuation technique level, within the fair value hierarchy. There were no level 3 valued assets at December 31, 20192022 or 2018.2021.

 December 31, 2019
 Level 1Level 2Total
 ($ in millions)
Common stock$1,329  $—  $1,329  
Common collective trusts:   
International equity securities—  377  377  
Debt securities—  303  303  
Fixed income securities:
Government and agencies securities—  172  172  
Corporate bonds—  84  84  
Mortgage and other asset-backed securities—  26  26  
Commingled funds—  121  121  
Cash and cash equivalents50  —  50  
Total investments$1,379  $1,083  $2,462  

 December 31, 2022
 Level 1Level 2Total
 ($ in millions)
Common stock$1,011 $— $1,011 
Common collective trusts:   
International equity securities— 336 336 
Debt securities— 291 291 
Domestic equity securities— 160 160 
Fixed income securities:
Government and agencies securities— 158 158 
Corporate bonds— 100 100 
Mortgage and other asset-backed securities— 28 28 
Commingled funds— 121 121 
Cash and cash equivalents55 — 55 
Total investments$1,066 $1,194 $2,260 
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December 31, 2018 December 31, 2021
Level 1Level 2Total Level 1Level 2Total
($ in millions) ($ in millions)
Common stockCommon stock$1,106  $—  $1,106  Common stock$1,383 $— $1,383 
Common collective trusts:Common collective trusts:   Common collective trusts:   
International equity securitiesInternational equity securities—  314  314  International equity securities— 397 397 
Debt securitiesDebt securities—  287  287  Debt securities— 367 367 
Domestic equity securitiesDomestic equity securities— 189 189 
Fixed income securities:Fixed income securities:Fixed income securities:
Government and agencies securitiesGovernment and agencies securities—  89  89  Government and agencies securities— 170 170 
Corporate bondsCorporate bonds—  83  83  Corporate bonds— 120 120 
Mortgage and other asset-backed securitiesMortgage and other asset-backed securities—  62  62  Mortgage and other asset-backed securities— 33 33 
Commingled fundsCommingled funds—  92  92  Commingled funds— 160 160 
Cash and cash equivalentsCash and cash equivalents72  —  72  Cash and cash equivalents42 — 42 
Total investmentsTotal investments$1,178  $927  $2,105  Total investments$1,425 $1,436 $2,861 
 
The following is a description of the valuation methodologies used for other postretirement benefit plan assets measured at fair value.
 
Trust-owned life insurance:  Valued at our share of the net assets ofinterest in trust-owned life insurance issued by a major insurance company.  The underlying investments of that trustowned by the insurance company consist of a U.S. stock account and a U.S. bond account but may retain cash at times as well. The U.S. stock account and U.S. bond account are valued based on readily determinable fair values.

The other postretirement benefit plan assets consisted of trust-owned life insurance with fair values of $170$122 million and $158$173 million at December 31, 20192022 and 2018,2021, respectively, and are valued under level 2 of the fair value hierarchy. There were no level 1 or level 3 valued assets.
 
Contributions and Estimated Future Benefit Payments
 
In 2020,2023, we expect to contribute approximately $18$20 million to our unfunded pension plans for payments to pensioners and approximately $37$33 million to our other postretirement benefit plans for retiree health and death benefits.  We do not expect to contribute to our funded pension plan in 2020.2023. 

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Benefit payments, which reflect expected future service, as appropriate, are expected to be paid as follows:
Pension
Benefits
Other
Postretirement 
Benefits
 ($ in millions)
2020$144  $37  
2021144  36  
2022144  34  
2023144  33  
2024144  32  
Years 2025 – 2029719  148  
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Pension
Benefits
Other
Postretirement 
Benefits
 ($ in millions)
2023$148 $33 
2024148 32 
2025147 31 
2026147 30 
2027147 29 
Years 2028 – 2032736 135 
Other Postretirement Coverage
 
Under collective bargaining agreements, Norfolk Southern and certain subsidiaries participate in a multi-employer benefit plan, which provides certain postretirement health care and life insurance benefits to eligible unioncraft employees.  Premiums under this plan are expensed as incurred and totaled $31$13 million in 2019, $352022, $21 million in 2018,2021, and $44$22 million in 2017.2020.
 
Section 401(k) Plans
 
Norfolk Southern and certain subsidiaries provide Section 401(k) savings plans for employees.  Under the plans, we match a portion of employee contributions, subject to applicable limitations.  Our matching contributions, recorded as an expense, under these plans weretotaled $22 million in 2019 and2022, $23 million in both 20182021, and 2017.$21 million in 2020.

13.  Stock-Based Compensation
 
Under the stockholder-approved Long-Term Incentive Plan (LTIP),LTIP, the Human Capital Management and Compensation Committee (Committee), which is made up of nonemployee members of the Board, of Directors, or the Chief Executive Officer (when delegated authority by such Committee), may grant stock options, stock appreciation rights (SARs), restricted stock units (RSUs), restricted shares, performance share units (PSUs), and performance shares, up to a maximum of 104,125,000 shares of our Common Stock, of which 9,294,7268,238,993 remain available for future grants as of December 31, 2019.2022.  
 
The number of shares remaining for issuance under the LTIP is reduced (i) by 1 for each award granted as a stock option or stock-settled SAR, or (ii) by 1.61 for an award made in the form other than a stock option or stock-settled SAR.  Under the Board-approved Thoroughbred Stock Option Plan (TSOP), the Committee may grant stock options up to a maximum of 6,000,000 shares of Common Stock. We use newly issued shares to satisfy any exercises and awards under the LTIP and the TSOP.

The LTIP also permits the payment, on a current or a deferred basis and in cash or in stock, of dividend equivalents on shares of Common Stock covered by stock options, RSUs, or PSUs in an amount commensurate with regular quarterly dividends paid on Common Stock.  With respect to stock options, if employment of the participant is terminated for any reason, including retirement, disability, or death, we have no further obligation to make any dividend equivalent payments.  Regarding RSUs, we have no further obligation to make any dividend equivalent payments unless employment of the participant is terminated as a result of qualifying retirement or disability. Should an employee terminate employment, they are not required to forfeit dividend equivalent payments already received.  Outstanding PSUs do not receive dividend equivalent payments.
 
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The Committee granted stock options, RSUs and PSUs pursuant to the LTIP and granted stock options pursuant to the TSOP for the last three years as follows:

201920182017
 GrantedWeighted Average Grant-Date Fair ValueGrantedWeighted Average Grant-Date Fair ValueGrantedWeighted Average Grant-Date Fair Value
Stock options:
LTIP47,360$45.74  40,960$41.70  341,120$37.73  
TSOP——  ——  144,44031.33  
Total47,36040,960485,560
RSUs219,710164.47  217,290148.37  83,330120.16  
PSUs102,250160.97  92,314147.47  300,33488.56  
202220212020
 GrantedWeighted- Average Grant-Date Fair ValueGrantedWeighted- Average Grant-Date Fair ValueGrantedWeighted- Average Grant-Date Fair Value
Stock options140,080$61.32 42,770$62.49 43,770$52.05 
RSUs180,306265.21 183,093240.09 178,190210.11 
PSUs58,945272.22 50,100240.72 78,830212.66 
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Beginning in 2018, recipientsRecipients of certain RSUs and PSUs pursuant to the LTIP who retire prior to October 1st will forfeit awards received in the current year. Receipt of certain LTIP awards is contingent on the recipient having executed a non-compete agreement with the company.

We account for our grants of stock options, RSUs, PSUs, and dividend equivalent payments in accordance with FASB ASC 718, “Compensation - Stock Compensation.” Accordingly, all awards result in charges to net income while dividend equivalent payments, which are all related to equity classified awards, are charged to retained income. Compensation cost for the awards is recognized on a straight-line basis over the requisite service period for the entire award. Related compensation costs and tax benefits during the yearyears were:

201920182017 202220212020
($ in millions) ($ in millions)
Stock-based compensation expenseStock-based compensation expense$53  $47  $45  Stock-based compensation expense$53 $54 $28 
Total tax benefitTotal tax benefit37  33  54  Total tax benefit27 34 44 

Stock Options
 
Option exercise prices will be at least the higher of (i) the average of the high and low prices at which Common Stock is traded on the grant date, or (ii) the closing price of Common Stock on the grant date.  All options are subject to a vesting period of at least one year, and the term of the option will not exceed ten years. Holders of the options granted under the LTIP who remain actively employed receive cash dividend equivalent payments for four years in an amount equal to the regular quarterly dividends paid on Common Stock. Dividend equivalent payments are not made on the TSOP options.

For all years, options granted under the LTIP and the TSOP may not be exercised prior to the fourth and third anniversaries of the date of grant, respectively, or if the optionee retires or dies before that anniversary date, may not be exercised before the later of one year after the grant date or the date of the optionee’s retirement or death.
 
The fair value of each option awarded in 2019 and 2018 was measured on the date of grant using the Black-Scholes valuation model. The fair value of each option awarded in 2017 was measured on the date of grant using a binomial lattice-based option valuation model. Expected volatility is based on implied volatility from traded options on, and historical volatility of, Common Stock.  Historical data is used to estimate option exercises and employee terminations within the valuation model. For the 2019 and 2018 grant years, historicalHistorical exercise data is used to estimate the average expected option term. For the 2017 grant year, the average expected option term is derived from the output of the valuation model and represents the period of time that all options granted are expected to be outstanding, including the branches of the model that result in options expiring unexercised. The average risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant.  A dividend yield of 0zero was used for the LTIP options during the vesting period.  For 2019, 2018,2022, 2021, and 2017,2020, a dividend yield of 2.06%1.85%, 1.94%1.64%, and 2.04%1.76%, respectively, was used for allthe vested period during the remaining expected option term for LTIP options and all TSOP options.

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The assumptions for the LTIP and TSOP grants for the last three years are shown in the following table:

201920182017 202220212020
Average expected volatilityAverage expected volatility23 %24 %26 %Average expected volatility27 %26 %22 %
Average risk-free interest rateAverage risk-free interest rate2.56 %2.55 %2.51 %Average risk-free interest rate1.80 %0.75 %1.47 %
Average expected option term LTIP7.2 years7.2 years8.6 years
Average expected option term TSOP—  —  8.3 years
Average expected option termAverage expected option term6.5 years7.5 years7.5 years

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A summary of changes in stock options is presented below:

Stock
Options
Weighted Avg. 
Exercise Price 
Stock
Options
Weighted- Average
Exercise Price 
Outstanding at December 31, 20183,419,644  $86.66  
Outstanding at December 31, 2021Outstanding at December 31, 20211,095,895 $106.58 
GrantedGranted47,360  168.36  Granted140,080 287.31 
ExercisedExercised(770,597) 74.39  Exercised(307,660)82.72 
ForfeitedForfeited(18,958) 105.28  Forfeited(48,313)270.92 
Outstanding at December 31, 20192,677,449  91.51  
Outstanding at December 31, 2022Outstanding at December 31, 2022880,002 134.66 
 
The aggregate intrinsic value of options outstanding at December 31, 20192022 was $275$103 million with a weighted averageweighted-average remaining contractual term of 54.1 years.  Of these options outstanding, 1,856,019742,810 were exercisable and had an aggregate intrinsic value of $196$101 million with a weighted averageweighted-average exercise price of $88.48$110.09 and a weighted averageweighted-average remaining contractual term of 2.92.1 years.

The following table provides information related to options exercised for the last three years:
 201920182017
 ($ in millions)
Options exercised770,597  840,175  1,789,939  
Total intrinsic value$86  $72  $114  
Cash received upon exercise53  58  104  
Related tax benefits realized18  16  35  
 202220212020
 ($ in millions)
Options exercised307,660 470,632 1,171,786 
Total intrinsic value$54 $83 $144 
Cash received upon exercise25 42 98 
Related tax benefits realized12 17 29 
 
At December 31, 2019,2022, total unrecognized compensation related to options granted under the LTIP and the TSOP was $2$3 million, and is expected to be recognized over a weighted-average period of approximately 1.63.0 years.

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Restricted Stock Units
 
Beginning in 2018, RSUs granted primarily have a four-yearfour-year ratable restriction period and will be settled through the issuance of shares of Common Stock. RSUs granted prior to 2018 have a five-year restriction period and will also be settled through the issuance of shares of Common Stock. Certain RSU grants include cash dividend equivalent payments during the restriction period in an amount equal to regular quarterly dividends paid on Common Stock. The fair value of each RSU was measured on the date of grant as the average of the high and low prices at which Common Stock is traded on the grant date, adjusted for the impact of dividend equivalent payments as applicable.

201920182017 202220212020
($ in millions) ($ in millions)
RSUs vestedRSUs vested166,197  160,200  137,200  RSUs vested249,138 260,307 204,665 
Common Stock issued net of tax withholdingCommon Stock issued net of tax withholding119,346  99,968  81,318  Common Stock issued net of tax withholding175,781 184,319 146,047 
Related tax benefit realized$2  $3  $3  
Related tax benefits realizedRelated tax benefits realized$5 $7 $4 

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A summary of changes in RSUs is presented below:

RSUsWeighted-
Average
Grant-Date
Fair Value		RSUsWeighted-
Average
Grant-Date
Fair Value
Nonvested at December 31, 2018637,035  $111.87  
Nonvested at December 31, 2021Nonvested at December 31, 2021501,103 $193.23 
GrantedGranted219,710  164.47  Granted180,306 265.21 
VestedVested(166,197) 111.79  Vested(249,138)168.66 
ForfeitedForfeited(24,376) 152.17  Forfeited(44,890)244.99 
Nonvested at December 31, 2019666,172  127.77  
Nonvested at December 31, 2022Nonvested at December 31, 2022387,381 236.53 
 
At December 31, 2019,2022, total unrecognized compensation related to RSUs was $25$37 million, and is expected to be recognized over a weighted-average period of approximately 2.6 years. 
 
Performance Share Units
 
PSUs provide for awards based on the achievement of certain predetermined corporate performance goals at the end of a three-yearthree-year cycle and are settled through the issuance of shares of Common Stock. All PSUs will earn out based on the achievement of performance conditions and some will also earn out based on a market condition. The market condition fair value was measured on the date of grant using a Monte Carlo simulation model.

201920182017 202220212020
($ in millions) ($ in millions)
PSUs earnedPSUs earned331,099  154,189  171,080  PSUs earned86,420 78,727 235,935 
Common Stock issued net of tax withholdingCommon Stock issued net of tax withholding221,241  94,399  99,805  Common Stock issued net of tax withholding54,651 49,967 156,477 
Related tax benefit realized$9  $3  $1  
Related tax benefits realizedRelated tax benefits realized$1 $1 $7 

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A summary of changes in PSUs is presented below:

PSUsWeighted-
Average
Grant-Date
Fair Value		PSUsWeighted-
Average
Grant-Date
Fair Value
Balance at December 31, 20181,426,826  $66.35  
Balance at December 31, 2021Balance at December 31, 2021202,930 $197.33 
GrantedGranted102,250  160.97  Granted58,945 272.22 
EarnedEarned(331,099) 42.70  Earned(86,420)161.14 
UnearnedUnearned(735,048) 60.02  Unearned(260)161.14 
ForfeitedForfeited(6,419) 126.92  Forfeited(32,758)254.83 
Balance at December 31, 2019456,510  114.04  
Balance at December 31, 2022Balance at December 31, 2022142,437 236.70 
 
At December 31, 2019,2022, total unrecognized compensation related to PSUs granted under the LTIP was $6$3 million, and is expected to be recognized over a weighted-average period of approximately 1.7 years.

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Shares Available and Issued
 
Shares of Common Stock available for future grants and issued in connection with all features of the LTIP and the TSOP at December 31, were as follows:
 201920182017
Available for future grants:   
LTIP9,294,726  8,644,108  8,774,768  
TSOP434,401  422,973  410,895  
Issued:   
LTIP852,869  820,746  1,679,547  
TSOP258,315  213,796  291,515  
 202220212020
Available for future grants:   
LTIP8,238,993 8,609,075 8,995,582 
TSOP436,402 435,867 435,699 
Issued:   
LTIP503,090 632,279 1,270,208 
TSOP35,002 72,639 204,102 
 
14. Stockholders’ Equity

Common Stock

Common Stock is reported net of shares held by our consolidated subsidiaries (Treasury Shares). Treasury Shares at December 31, 20192022 and 20182021 amounted to 20,320,777, with a cost of $19 million at both dates.   

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Accumulated Other Comprehensive Loss

The components of “Other comprehensive income (loss)” reported in the Consolidated Statements of Comprehensive Income and changes in the cumulative balances of “Accumulated other comprehensive loss” reported in the Consolidated Balance Sheets consisted of the following:

Balance
at Beginning
of Year		Net Income
(Loss)		Reclassification
of Stranded Tax Effects		Reclassification
Adjustments		Balance
at End
of Year
 ($ in millions)    
Year ended December 31, 2019    
Pensions and other postretirement
liabilities$(497) $61  $—  $15  $(421) 
Other comprehensive loss     
of equity investees(66) (4) —  —  (70) 
Accumulated other comprehensive
loss$(563) $57  $—  $15  $(491) 
Year ended December 31, 2018    
Pensions and other postretirement
liabilities$(300) $(136) $(86) $25  $(497) 
Other comprehensive loss
of equity investees(56) (8) (2) —  (66) 
Accumulated other comprehensive
loss$(356) $(144) $(88) $25  $(563) 
Balance
at Beginning
of Year		Net IncomeReclassification
Adjustments		Balance
at End
of Year
 ($ in millions)    
Year ended December 31, 2022    
Pensions and other postretirement liabilities$(356)$20 $17 $(319)
Other comprehensive income of equity investees(46)14 — (32)
Accumulated other comprehensive loss$(402)$34 $17 $(351)
Year ended December 31, 2021    
Pensions and other postretirement liabilities$(526)$139 $31 $(356)
Other comprehensive income of equity investees(68)22 — (46)
Accumulated other comprehensive loss$(594)$161 $31 $(402)

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The adoption of FASB ASU 2018-02 (see Note 1) resulted in an increase to “Accumulated other comprehensive loss” of $88 million and a corresponding increase to “Retained income,” with no impact on “Total stockholders’ equity.”

Other Comprehensive Income (Loss)
 
“Other comprehensive income (loss)” reported in the Consolidated Statements of Comprehensive Income consisted of the following:
Pretax
Amount		Tax
(Expense)
Benefit		Net-of-Tax
Amount
 ($ in millions)
Year ended December 31, 2019   
Net gain arising during the year:   
  Pensions and other postretirement benefits$81  $(20) $61  
  Reclassification adjustments for costs   
      included in net income20  (5) 15  
       Subtotal101  (25) 76  
Other comprehensive loss of equity investees(4) —  (4) 
Other comprehensive income$97  $(25) $72  
Year ended December 31, 2018   
Net gain (loss) arising during the year:   
  Pensions and other postretirement benefits$(181) $45  $(136) 
  Reclassification adjustments for costs   
      included in net income33  (8) 25  
       Subtotal(148) 37  (111) 
Other comprehensive loss of equity investees(9) 1  (8) 
Other comprehensive loss$(157) $38  $(119) 
Year ended December 31, 2017   
Net gain arising during the year:   
  Pensions and other postretirement benefits$127  $(32) $95  
  Reclassification adjustments for costs   
      included in net income28  (9) 19  
       Subtotal155  (41) 114  
Other comprehensive income of equity investees19  (2) 17  
Other comprehensive income$174  $(43) $131  

Pretax
Amount		Tax
(Expense)
Benefit		Net-of-Tax
Amount
 ($ in millions)
Year ended December 31, 2022   
Net gain arising during the year:   
  Pensions and other postretirement benefits$27 $(7)$20 
Reclassification adjustments for costs included in net income24 (7)17 
       Subtotal51 (14)37 
Other comprehensive income of equity investees17 (3)14 
Other comprehensive income$68 $(17)$51 
Year ended December 31, 2021   
Net gain arising during the year:   
  Pensions and other postretirement benefits$185 $(46)$139 
Reclassification adjustments for costs included in net income41 (10)31 
       Subtotal226 (56)170 
Other comprehensive income of equity investees24 (2)22 
Other comprehensive income$250 $(58)$192 
Year ended December 31, 2020   
Net loss arising during the year:   
  Pensions and other postretirement benefits$(167)$42 $(125)
Reclassification adjustments for costs included in net income27 (7)20 
       Subtotal(140)35 (105)
Other comprehensive income of equity investees2 — 2 
Other comprehensive loss$(138)$35 $(103)

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15.  Stock Repurchase Programs
 
We repurchased and retired 11.312.6 million, 17.112.7 million, (7.0 million shares under the ASR and 10.1 million shares under our ongoing open-market program), and 8.27.4 million shares of Common Stock under our stock repurchase programs in 2019, 2018,2022, 2021, and 2017,2020, respectively, at a cost of $2.1$3.1 billion, $2.8$3.4 billion, and $1.0$1.4 billion, respectively. 

On September 26, 2017,March 29, 2022, our Board of Directors authorized a new program for the repurchase of up to an additional 50 million shares$10.0 billion of
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Common Stock through December 31,beginning April 1, 2022. As of December 31, 2019, 28.0 million shares remain2022, $7.5 billion remains authorized for repurchase. Since the beginning of 2006, we have repurchased and retired 196.9 million shares at a total cost of $16.2 billion.Our previous share repurchase program terminated on March 31, 2022.

16.  Earnings Per Share
 
The following table sets forth the calculation of basic and diluted earnings per share:
 BasicDiluted
 201920182017201920182017
 ($ in millions except per share amounts, shares in millions)
Net income$2,722  $2,666  $5,404  $2,722  $2,666  $5,404  
Dividend equivalent payments(5) (6) (4) —  (1) (2) 
Income available to common stockholders$2,717  $2,660  $5,400  $2,722  $2,665  $5,402  
Weighted-average shares outstanding263.3  277.7  287.9  263.3  277.7  287.9  
Dilutive effect of outstanding options      
and share-settled awards   2.3  2.5  2.4  
Adjusted weighted-average shares outstanding   265.6  280.2  290.3  
Earnings per share$10.32  $9.58  $18.76  $10.25  $9.51  $18.61  
 BasicDiluted
 202220212020202220212020
 ($ in millions except per share amounts, shares in millions)
Net income$3,270 $3,005 $2,013 $3,270 $3,005 $2,013 
Dividend equivalent payments(2)(2)(3)(1)— (2)
Income available to common stockholders$3,268 $3,003 $2,010 $3,269 $3,005 $2,011 
Weighted-average shares outstanding234.8 246.9 255.1 234.8 246.9 255.1 
Dilutive effect of outstanding options      
and share-settled awards   0.8 1.2 1.5 
Adjusted weighted-average shares outstanding   235.6 248.1 256.6 
Earnings per share$13.92 $12.16 $7.88 $13.88 $12.11 $7.84 

In each year, dividend equivalent payments were made to certain holders of stock options and RSUs.  For purposes of computing basic earnings per share, dividend equivalent payments made to holders of stock options and RSUs were deducted from net income to determine income available to common stockholders.  For purposes of computing diluted earnings per share, we evaluate on a grant-by-grant basis those stock options and RSUs receiving dividend equivalent payments under the two-class and treasury stock methods to determine which method is more dilutive for each grant.  For those grants for which the two-class method was more dilutive, net income was reduced by dividend equivalent payments to determine income available to common stockholders. The dilution calculations exclude options having exercise prices exceeding the average market price of Common Stock of 0 foras follows: 0.1 million in the year ended December 31, 2022 and none in the years ended December 31, 20192021 and 2018, and 0.2 million for the year ended December 31, 2017.
2020.

17.  Commitments and Contingencies
 
Lawsuits
 
We and/or certain subsidiaries are defendants in numerous lawsuits and other claims relating principally to railroad operations.  When we conclude that it is probable that a liability has been incurred and the amount of the liability can be reasonably estimated, it is accrued through a charge to earnings.earnings and, if material, disclosed below. While the ultimate amount of liability incurred in any of these lawsuits and claims is dependent on future developments, in our opinion, the recorded liability is adequate to cover the future payment of such liability and claims. However, the final outcome of any of
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these lawsuits and claims cannot be predicted with certainty, and unfavorable or unexpected outcomes could result in additional accruals that could be significant to results of operations in a particular year or quarter. Any adjustments to the recorded liability will be reflected in earnings in the periods in which such adjustments become known. For lawsuits and other claims where a loss may be reasonably possible, but not probable, or is probable but not reasonably estimable, no accrual is established but the matter, if potentially material, is disclosed below. We routinely review relevant information with respect to our lawsuits and other claims and update our accruals, disclosures and estimates of reasonably possible loss based on such reviews.

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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.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. On January 3, 2023, the court granted summary judgment to us on all of the compensatory claims but denied summary judgment for all equitable relief claims. On January 18, 2023, the court dismissed the federal equitable relief claims, leaving the state equitable relief claims as the sole remaining issue under consideration. We expect the rulings will be appealed. A trial on the state equitable relief claims has not been scheduled. We continue to vigorously defend the lawsuit and, although it is reasonably possible we could incur a loss in the case, we believe that we will prevail. However, given that litigation is inherently unpredictable and subject to uncertainties, there can be no assurances that the final outcome of the litigation (including any related appeal) will not be material. Until such appeal is final, we cannot reasonably estimate the potential loss or range of loss associated with this matter.

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

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

Third-party claims – We record a liability for third-party claims including those for highway crossing accidents, trespasser and other injuries, property damage, and lading damage. The actuarial firm assists us with the calculation
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of potential liability for third-party claims, except lading damage, based upon our experience including the number and timing of incidents, amount of payments, settlement rates, number of open claims, and legal defenses. We adjust the liability quarterly based upon our assessment and the results of the study. Given the inherent uncertainty in regard to the ultimate outcome of third-party claims, it is possible that the actual loss may differ from the estimated liability recorded.
 
Environmental Matters
 
We are subject to various jurisdictions’ environmental laws and regulations. We record a liability where such liability or loss is probable and reasonably estimable. Environmental specialists regularly participate in ongoing evaluations of all known sites and in determining any necessary adjustments to liability estimates.  
 
Our Consolidated Balance Sheets include liabilities for environmental exposures of $56$66 million at December 31, 2019,2022, and $55$49 million at December 31, 2018,2021, of which $15 million is classified as a current liability at the end of both 20192022 and 2018.2021.  At December 31, 2019,2022, the liability represents our estimates of the probable cleanup, investigation, and remediation costs based on available information at 11085 known locations and projects compared with 11488 locations and projects at December 31, 2018.2021. At December 31, 2019, 162022, twenty-two sites accounted for $40$55 million of the liability, and no individual site was considered to be material. We anticipate that muchmost of this liability will be paid out over five years; however, some costs will be paid out over a longer period.
 
At 11eight locations, one or more of our subsidiaries in conjunction with a number of other parties have been identified as potentially responsible parties under the Comprehensive Environmental Response, Compensation and Liability Act of 1980 or comparable state statutes that impose joint and several liability for cleanup costs. We calculate our estimated liability for these sites based on facts and legal defenses applicable to each site and not solely on the basis of the potential for joint liability.
 
With respect to known environmental sites (whether identified by us or by the Environmental Protection Agency or comparable state authorities), estimates of our ultimate potential financial exposure for a given site or in the aggregate for all such sites can change over time because of the widely varying costs of currently available cleanup techniques, unpredictable contaminant recovery and reduction rates associated with available cleanup technologies, the likely development of new cleanup technologies, the difficulty of determining in advance the nature and full extent of contamination and each potential participant’s share of any estimated loss (and that participant’s ability to bear it), and evolving statutory and regulatory standards governing liability.
 
The risk of incurring environmental liability for acts and omissions, past, present, and future, is inherent in the railroad business. Some of the commodities we transport, particularly those classified as hazardous materials, pose special risks that we work diligently to reduce. In addition, several of our subsidiaries own, or have owned, land used as operating property, or which is leased and operated by others, or held for sale. Because environmental problems that are latent or undisclosed may exist on these properties, there can be no assurance that we will not incur environmental liabilities or costs with respect to one or more of them, the amount and materiality of which cannot be estimated reliably at this time. Moreover, lawsuits and claims involving these and potentially other unidentified environmental sites and matters are likely to arise from time to time. The resulting liabilities could have a significant effect on financial position, results of operations, or liquidity in a particular year or quarter.
 
Based on our assessment of the facts and circumstances now known, we believe we have recorded the probable and reasonably estimable costs for dealing with those environmental matters of which we are aware.  Further, we believe that it is unlikely that any known matters, either individually or in the aggregate, will have a material adverse effect on our financial position, results of operations, or liquidity.

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Labor Agreements

Approximately 80% of our railroad employees are covered by collective bargaining agreements with various labor unions. Pursuant to the RLA, these agreements remain in effect until new agreements are reached, or until the bargaining procedures mandated by the RLA are completed. Moratorium provisions in the labor agreements govern when the railroads and unions may propose changes to the agreements. We largely bargain nationally in concert with other major railroads, represented by the National Carriers’ Conference Committee.

After management and the unions served their formal proposals in November 2019 for changes to the collective bargaining agreements, negotiations began in 2020 following the expiration of the last moratorium. On June 17, 2022, the National Mediation Board notified the parties that all practical methods of ending the dispute had been exhausted without effecting a settlement and that its mediation services had been terminated. Shortly thereafter, President Biden created PEB No. 250, effective July 18, 2022, to investigate the facts of the dispute and make recommendations. The PEB issued its recommendations on August 16, 2022, and the parties engaged in further negotiations. By December 2022, agreements based on the PEB’s recommendations had either been ratified or enacted through legislative action for all twelve unions. For 2022, “Compensation and benefits” includes $54 million and “Purchased services and rents” includes $2 million of additional expenses pertaining to wages earned prior to January 1, 2022.

While the parties are engaged in additional discussions to conclude the implementation of the recently finalized agreements, neither party can compel mandatory bargaining around any new proposals until November 1, 2024. That said, we understand the imperative to continue improving quality of life for our craft employees and are actively engaged in voluntary discussions (which carry no risk of a work stoppage) with all of our unions on this important issue.

Insurance
 
We obtain on behalf of ourselfpurchase insurance covering legal liabilities for bodily injury and our subsidiariesproperty damage to third parties. This insurance for potential losses for third-party liability and first-party property damages.  With limited exceptions, we are currently insuredprovides coverage above $75 million and below $1.1 billion$800 million ($1.51.1 billion for specific perils) per occurrence and/or policy year for bodily injury and propertyyear. In addition, we purchase insurance covering damage to third parties and above $25 million and below $200 million per occurrence and/or policy year for property owned by us or in our care, custody, or control. This insurance covers approximately 82% of potential losses above $75 million and below $275 million per occurrence and/or policy year.

Purchase Commitments
 
At December 31, 2019,2022, we had outstanding purchase commitments totaling approximately $1.2$1.7 billion through 2030 for locomotives,locomotive modernizations, long-term technology support and development contracts, track material, long-term service contracts, track and yard expansion projectsintermodal equipment.

Asset Purchase and Sale Agreement

In November 2022, we entered into an asset purchase and sale agreement with the Board of Trustees of the Cincinnati Southern Railway to purchase approximately 337 miles of railway line that extends from Cincinnati, Ohio to Chattanooga, Tennessee which we currently operate under a lease agreement. The total purchase price for the line and other associated real and personal property included in connection with our capital programs as well as freight carsthe transaction is approximately $1.6 billion. The agreement is conditioned upon (i) certain changes to Ohio state law applicable to the use of the related sale proceeds, (ii) approval by the voters of the City of Cincinnati, and containers through 2024.(iii) the receipt of regulatory approval from the STB. The agreement includes various termination provisions including termination at any time prior to closing by the mutual written consent of the parties, termination at any time after December 31, 2024 by the mutual written consent of the parties, termination by us if the STB takes action that we deem unsatisfactory, and termination by either party if Cincinnati voter approval is not obtained on or before the later of June 30, 2025 and the calendar date on which the polls are open for the 2025 Cincinnati primary election.
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Change-In-Control Arrangements
 
We have compensation agreements with certain officers and key employees that become operative only upon a change in control of Norfolk Southern, as defined in those agreements. The agreements provide generally for payments based on compensation at the time of a covered individual’s involuntary or other specified termination and for certain other benefits.

Indemnifications

In a number of instances, we have agreed to indemnify lenders for additional costs they may bear as a result of certain changes in laws or regulations applicable to their loans. Such changes may include impositions or modifications with respect to taxes, duties, reserves, liquidity, capital adequacy, special deposits, and similar requirements relating to extensions of credit by, deposits with, or the assets or liabilities of such lenders. The nature and timing of changes in laws or regulations applicable to our financings are inherently unpredictable, and therefore our exposure in connection with the foregoing indemnifications cannot be quantified. No liability has been recorded related to these indemnifications.

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NORFOLK SOUTHERN CORPORATION AND SUBSIDIARIES
QUARTERLY FINANCIAL DATA
(Unaudited)
 Three Months Ended
 March 31June 30 September 30December 31
 ($ in millions, except per share amounts)
2019    
Railway operating revenues$2,840  $2,925  $2,841  $2,690  
Income from railway operations966  1,065  996  962  
Net income677  722  657  666  
Earnings per share:   
Basic2.53  2.72  2.50  2.56  
Diluted2.51  2.70  2.49  2.55  
2018    
Railway operating revenues$2,717  $2,898  $2,947  $2,896  
Income from railway operations835  1,026  1,020  1,078  
Net income552  710  702  702  
Earnings per share:    
Basic1.94  2.52  2.54  2.59  
Diluted1.93  2.50  2.52  2.57  

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Item 9.  Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
 
Not applicable.
 
Item 9A.  Controls and Procedures
 
Disclosure Controls and Procedures
 
Our Chief Executive Officer and Chief Financial Officer, with the assistance of management, evaluated the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (Exchange Act)) at December 31, 2019.2022.  Based on such evaluation, our officers have concluded that, at December 31, 2019,2022, our disclosure controls and procedures were effective to ensure that information required to be disclosed in our reports under the Exchange Act is recorded, processed, summarized, and reported, within the time period specified in the SEC’s rules and forms, and that such information is accumulated and communicated to management, including the Chief Executive Officer and the Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.
 
Management’s Annual Report on Internal Control Over Financial Reporting
 
We are responsible for establishing and maintaining adequate internal control over financial reporting. Our internal control over financial reporting includes those policies and procedures that pertain to our ability to record, process, summarize, and report reliable financial data.  We recognize that there are inherent limitations in the effectiveness of any internal control over financial reporting, including the possibility of human error and the circumvention or overriding of internal control.  Accordingly, even effective internal control over financial reporting can provide only reasonable assurance with respect to financial statement preparation.  Further, because of changes in conditions, the effectiveness of internal control over financial reporting may vary over time.
 
Our Board of Directors, acting through its Audit Committee, is responsible for the oversight of our accounting policies, financial reporting, and internal control.  The Audit Committee of our Board of Directors is comprised of outside directors who are independent of management.  The independent registered public accounting firm and our internal auditors have full and unlimited access to the Audit Committee, with or without management, to discuss the adequacy of internal control over financial reporting, and any other matters which they believe should be brought to the attention of the Audit Committee.
 
We have issued a report of our assessment of internal control over financial reporting, and our independent registered public accounting firm has issued an attestation report on our internal control over financial reporting at December 31, 2019.2022.  These reports appear in Item 8 of this report on Form 10-K.

Changes in Internal Control Over Financial Reporting

During the fourth quarter of 2019,2022, we have not identified any changes in internal control over financial reporting that have materially affected, or are reasonably likely to materially effect, our internal control over financial reporting.
 
Item 9B.  Other Information
 
None.

Item 9C.  Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
Not applicable.
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PART III
 
NORFOLK SOUTHERN CORPORATION AND SUBSIDIARIES
 
Item 10.  Directors, Executive Officers and Corporate Governance
 
In accordance with General Instruction G(3), information called for by Part III, Item 10, is incorporated herein by reference from the information appearing under the caption “Election of the 13 Directors Named in the Proxy Statement for a One-Year Term,” under the caption “Delinquent Section 16(a) Reports,” under the caption “Committees of the Board,” under the caption “Shareholder Recommendations and Nominations,” and under the caption “The Thoroughbred Code of Ethics” in our definitive Proxy Statement for our 20202023 Annual Meeting of Stockholders, which definitive Proxy Statement will be filed electronically with the SEC pursuant to Regulation 14A.  The information regarding executive officers called for by Item 401 of Regulation S-K is included in Part I hereof beginning under “Information about our Executive Officers.”
 
Item 11.  Executive Compensation
 
In accordance with General Instruction G(3), information called for by Part III, Item 11, is incorporated herein by reference from the information:
•under the caption “Compensation of Directors;”
•appearing under the caption “Compensation Discussion and Analysis,” the information appearing in the “Summary Compensation Table” and the “2019“2022 Grants of Plan-Based Awards” table, including the narrative to such tables, the “Outstanding Equity Awards at Fiscal Year-End 2019”2022” and “Option Exercises and Stock Vested in 2019”2022” tables, and the tabular and narrative information appearing under the subcaptions “Retirement Benefits,” “Deferred Compensation,” and “Potential Payments Upon a Change in Control or Other Termination of Employment;” and,
•appearing under the captions “Compensation Committee Interlocks and Insider Participation,” “Compensation Policy Risk Assessment,” and “Compensation Committee Report,”
 
in each case included in our definitive Proxy Statement for our 20202023 Annual Meeting of Stockholders, which definitive Proxy Statement will be filed electronically with the SEC pursuant to Regulation 14A.
 
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Item 12.  Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
 
In accordance with General Instruction G(3), information on security ownership of certain beneficial owners and management called for by Part III, Item 12, is incorporated herein by reference from the information appearing under the caption “Beneficial Ownership of Stock” in our definitive Proxy Statement for our 20202023 Annual Meeting of Stockholders, which definitive Proxy Statement will be filed electronically with the SEC pursuant to Regulation 14A.
 
Equity Compensation Plan Information (at December 31, 2019)2022)
Plan
Category		Number of
securities
to be issued upon
exercise of
outstanding options,
warrants and rights		Weighted-
average
exercise price
of outstanding
options, warrants
and rights
Number of securities
remaining available
for future issuance
under equity
compensation plans (1)
 (a)(b)(c)
Equity compensation plans   
approved by securities holders(2)
1,476,081 (3)$143.28 (5)8,238,993 
Equity compensation plans
not approved by securities holders150,015 (4)92.72 436,402 (6)
Total1,626,096  8,675,395 
 
Plan
Category		Number of
securities
to be issued upon
exercise of
outstanding options,
warrants and rights		Weighted-
average
exercise price
of outstanding
options, warrants
and rights
Number of securities
remaining available
for future issuance
under equity
compensation plans (1)
 (a)(b)(c)
Equity compensation plans   
approved by securities holders(2)
3,577,895  
(3)
$91.86  
(5)
9,294,726  
Equity compensation plans
not approved by securities holders463,759  
(4)
89.81  434,401  
(6)
Total4,041,654   9,729,127  
(1)Excludes securities reflected in column (a).
(2)LTIP.
(3)Includes options, RSUs and PSUs granted under LTIP that will be settled in shares of stock.Common Stock.
(4)TSOP.
(5)Calculated without regard to 1,364,205746,094 outstanding RSUs and PSUs at December 31, 2019.2022.
(6)Reflects shares remaining available for grant under TSOP.

Norfolk Southern Corporation Long-Term Incentive Plan
 
Established on June 28, 1983, and approved by our stockholders at their Annual Meeting held on May 10, 1984, LTIP was adopted to promote the success of our company by providing an opportunity for non-employee Directors, officers, and other key employees to acquire a proprietary interest in the Corporation.Norfolk Southern Corporation (the Corporation).  The Board of Directors amended LTIP on January 23, 2015, which amendment was approved by shareholders on May 14, 2015, to include the reservation for issuance of an additional 8,000,000 shares of authorized but unissued Common Stock.
 
The amended LTIP adopted a fungible share reserve ratio so that, for awards granted after May 13, 2010, the number of shares remaining for issuance under the amended LTIP will be reduced (i) by 1 for each award granted as an option or stock-settled SAR, or (ii) by 1.61 for an award made in the form other than an option or stock-settled SAR.  Any shares of Common Stock subject to options, PSUs, restricted shares, or RSUs which are not issued as Common Stock will again be available for award under LTIP after the expiration or forfeiture of an award.
 
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Non-employee Directors, officers, and other key employees residing in the United States of AmericaU.S. or Canada are eligible for selection to receive LTIP awards.  Under LTIP, the Committee, or the Corporation’s chief executive officer to the extent the Committee delegates award-making authority pursuant to LTIP, may grant incentive stock options, nonqualified stock options, SARs, RSUs, restricted shares, PSUs and performance shares.  In addition, dividend equivalent payments may be awarded for options, RSUs and PSUs.  Awards under LTIP may be made subject to forfeiture under certain circumstances and the Committee may establish such other terms and conditions for the awards as provided in LTIP.
 
For options granted after May 13, 2010, theThe option price will beis at least the higher of (i) the average of the high and low prices at which Common Stock is traded on the date of grant, or (ii) the closing price of Common Stock on the date of the grant.  All options are subject to a vesting period of at least one year, and the term of the option will not exceed ten years.  LTIP specifically prohibits option repricing without stockholder approval, except that adjustments may be made in the event of changes in our capital structure or Common Stock.
 
PSUs entitle a recipient to receive performance-based compensation at the end of a three-year cycle based on our performance during that period.  For the 20192022 PSU awards, corporate performance will be based directly on return on average capital invested, with total return to stockholders serving as a modifier, and will be settled in shares of Common Stock. In 2016, the Committee also granted an “accelerated turnaround incentive” award in the form of a PSU with a three-year performance that was based on equally weighted standards established by the Committee for operating ratio and earnings per share. We did not meet the performance criteria for operating ratio and therefore no payout for the accelerated turnaround incentive award was achieved.
 
RSUs are payable in cash or in shares of Common Stock at the end of a restriction period.  During the restriction period, the holder of the RSUs has no beneficial ownership interest in the Common Stock represented by the RSUs and has no right to vote the shares represented by the units or to receive dividends (except for dividend equivalent payment rights that may be awarded with respect to the RSUs).  The Committee at its discretion may waive the restriction period, but settlement of any RSUs will occur on the same settlement date as would have applied absent a waiver of restrictions, if no performance goals were imposed. RSUs will be settled in shares of Common Stock.
 
Norfolk Southern Corporation Thoroughbred Stock Option Plan
 
Our Board of Directors adopted TSOP on January 26, 1999, to promote the success of our company by providing an opportunity for nonagreementmanagement employees to acquire a proprietary interest in our company and thereby to provide an additional incentive to nonagreementmanagement employees to devote their maximum efforts and skills to the advancement, betterment, and prosperity of our company and our stockholders.  Under TSOP there were 6,000,000 shares of authorized but unissued Common Stock reserved for issuance.  TSOP has not been and is not required to have been approved by our stockholders.
 
Active full-time nonagreementmanagement employees residing in the United States of AmericaU.S. or Canada are eligible for selection to receive TSOP awards.  Under TSOP, the Committee, or the Corporation’s chief executive officer to the extent the Committee delegates award-making authority pursuant to TSOP, may grant nonqualified stock options subject to such terms and conditions as provided in TSOP.
 
The option price may not be less than the average of the high and low prices at which Common Stock is traded on the date of the grant.  All options are subject to a vesting period of at least one year, and the term of the option will not exceed ten years.  TSOP specifically prohibits repricing without stockholder approval, except for capital adjustments.
 
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Norfolk Southern Corporation Directors’ Restricted Stock Plan (Plan)
 
The Plan was adopted on January 1, 1994, and was designed to increase ownership of Common Stock by our non-employee Directors so as to further align their ownership interest in our company with that of our stockholders.  The Plan has not been and is not required to have been approved by our stockholders.  
 
Effective January 23, 2015, the Board amended the Plan to provide that no additional awards will be made under the Plan. Prior to that amendment, only non-employee Directors who are not and never have been employees of our company were eligible to participate in the Plan.  Upon becoming a Director, each eligible Director received a one-time grant of 3,000 restricted shares of Common Stock. No additional shares may be granted under the Plan.  No individual member of the Board exercised discretion concerning the eligibility of any Director or the number of shares granted.
 
The restriction period applicable to restricted shares granted under the Plan begins on the date of the grant and ends on the earlier of the recipient’s death or the day after the recipient ceases to be a Director by reason of disability or retirement.  During the restriction period, shares may not be sold, pledged, or otherwise encumbered.  Directors forfeit the restricted shares if they cease to serve as a Director of our company for reasons other than their disability, retirement, or death.
 
Item 13.  Certain Relationships and Related Transactions, and Director Independence
 
In accordance with General Instruction G(3), information called for by Part III, Item 13, is incorporated herein by reference from the information appearing under the caption “Related Persons Transactions” and under the caption “Director Independence” in our definitive Proxy Statement for our 20202023 Annual Meeting of Stockholders, which definitive Proxy Statement will be filed electronically with the SEC pursuant to Regulation 14A.

Item 14.  Principal AccountingAccountant Fees and Services
 
Our independent registered public accounting firm is KPMG LLP, Atlanta, GA, Auditor Firm ID: 185.

In accordance with General Instruction G(3), information called for by Part III, Item 14, is incorporated herein by reference from the information appearing under the caption “Ratification of Appointment of Independent Registered Public Accounting Firm” in our definitive Proxy Statement for our 20202023 Annual Meeting of Stockholders, which definitive Proxy Statement will be filed electronically with the SEC pursuant to Regulation 14A.

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PART IV
 
NORFOLK SOUTHERN CORPORATION AND SUBSIDIARIES

Item 15.  Exhibits and Financial Statement Schedules
Schedule
   Page
(A)The following documents are filed as part of this report: 
 1. 
 
 
 
 
 
 
 
 
 2.Financial Statement Schedule:
 The following consolidated financial statement schedule should be read in connection with the consolidated financial statements:
 Index to Consolidated Financial Statement Schedule
 Schedules other than the one listed above are omitted either because they are not required or are inapplicable, or because the information is included in the consolidated financial statements or related notes. 
 3.Exhibits 
Exhibit NumberDescription 
2.1
3
Articles of Incorporation and Bylaws –
 
(i)(a) 
(i)(b)
(i)(c)
(ii)

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4Instruments Defining the Rights of Security Holders, Including Indentures:
(a)Indenture, dated as of January 15, 1991, from Norfolk Southern Corporation to First Trust of New York, National Association, as Trustee, is incorporated by reference to Exhibit 4.1 to Norfolk Southern Corporation’s Registration Statement on Form S-3 (No. 33-38595).
(b)
(c)
(d)
(e)
(f)
(g)
(h)
(i)
(j)
(k)
(l)
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(m)(l)
(n)(m)
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(o)(n)
(p)(o)
(q)
(r)(p)
(s)(q)
(t)(r)
(u)(s)
(v)(t)
(w)(u)
(x)(v)
(y)(w)
(z)(x)
(aa)(y)
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(bb)
(cc)(z)
(dd)(aa)
(ee)(bb)
(ff)(cc)
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(gg)(dd)
(hh)**(ee)
(ff)
(gg)
(hh)
(ii)
(jj)
(kk)
In accordance with Item 601(b)(4)(iii) of Regulation S-K, copies of other instruments of Norfolk Southern Corporation and its subsidiaries with respect to the rights of holders of long-term debt are not filed herewith, or incorporated by reference, but will be furnished to the Commission upon request.
10Material Contracts -
(a)
(b)
(c)
(d)
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(e)
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(f)
(g)
(h)
(i)
(j)
(k)
(l)
(m)
(n)
(o)
(p)
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(q)
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(r)*
(s)*
(t)*
(u)(t)*
(v)*
(w)(u)*
(x)(v)
(y)(w)*
(z)*
(aa)*,*(x)*
(y)
(z)
(aa)
(bb)
(cc)
(dd)
(ee)
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(ff)
(gg)
(hh)
(ii)
(jj)
(kk)
(ll)
(mm)
(nn)
(oo)
(pp)
(qq)
(rr)
Amendment No. 12 to Transfer and Administration Agreement dated as of June 3, 2016 (Schedules III and IV omitted. The Registrant will furnish supplementary copies of such materials to the SEC upon request), is incorporated by reference to Exhibit 10.1 to Norfolk Southern Corporation’s Form 8-K filed on June 6, 2016. (SEC File No. 001-08339)
(ss)
Amendment No. 13 to Transfer and Administration Agreement dated as of June 1, 2018 is hereby incorporated by reference to Exhibit 10.1 to the Registrant’s Form 8-K filed on June 4, 2018 (SEC File No. 001-8339)
(tt)
(uu)
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(vv)
(ww)
(xx)*,**
(yy)(dd)*
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(zz)*
(aaa)*
(bbb)
(ccc)*
(ddd)*,*(ee)*
(eee)(ff)*,**
(gg)*,**
(hh)*,**
(fff)*
(ggg)*
(hhh)*
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(iii)*Performance Criteria for bonuses payable in 2021 for the 2020 incentive year. On January 27, 2020, the Compensation Committee of the Norfolk Southern Corporation Board of Directors adopted the following performance criteria for determining bonuses payable in 2021 for the 2020 incentive year under the Norfolk Southern Corporation Executive Management Incentive Plan: 40% based on operating income, and 60% based on operating ratio.
(jjj)
(kkk)*
(lll)(ii)*
(mmm)(jj)
(nnn)(kk)*,**
(ooo)(ll)*,**
(ppp)(mm)*,**
(qqq)(nn)*
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(uu)**
(vv)**
(ww)*
21**
23**
31-A**
31-B**
32**
101**The following financial information from Norfolk Southern Corporation’s Annual Report on Form 10-K for the year ended December 31, 2019,2022, formatted in Inline Extensible Business Reporting Language (iXBRL) includes:  (i) the Consolidated Statements of Income for each of the years ended December 31, 2019, 2018,2022, 2021, and 2017;2020; (ii) the Consolidated Statements of Comprehensive Income for each of the years ended December 31, 2019, 2018,2022, 2021, and 2017;2020; (iii) the Consolidated Balance Sheets at December 31, 20192022 and 2018;2021; (iv) the Consolidated Statements of Cash Flows for each of the years ended December 31, 2019, 2018,2022, 2021, and 2017;2020; (v) the Consolidated Statements of Changes in Stockholders’ Equity for each of the years ended December 31, 2019, 2018,2022, 2021, and 2017;2020; and (vi) the Notes to Consolidated Financial Statements.
* Management contract or compensatory arrangement.
** Filed herewith.

(B)Exhibits.
 The Exhibits required by Item 601 of Regulation S-K as listed in Item 15(A)3 are filed herewith or incorporated by reference.
(C)Financial Statement Schedules.
Financial statement schedules and separate financial statements specified by this Item are included in Item 15(A)2 or are otherwise not required or are not applicable.
Exhibits 23, 31, and 32 are included in copies assembled for public dissemination. All exhibits are included in the 20192022 Form 10-K posted on our website at www.norfolksouthern.com under “Invest in NS” and “SEC Filings” or you may request copies by writing to:
Office of Corporate Secretary
Norfolk Southern Corporation
Three Commercial Place650 West Peachtree Street NW
Norfolk, Virginia 23510-9219Atlanta, Georgia 30308-1925 

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Item 16.  Form 10-K Summary

Not applicable.

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POWER OF ATTORNEY
 
Each person whose signature appears on the next page under SIGNATURES hereby authorizes Vanessa Allen SutherlandNabanita C. Nag and Mark R. George, or any one of them, to execute in the name of each such person, and to file, any amendments to this report, and hereby appoints Vanessa Allen SutherlandNabanita C. Nag and Mark R. George, or any one of them, as attorneys-in-fact to sign on his or her behalf, individually and in each capacity stated below, and to file, any and all amendments to this report.
 
SIGNATURES
 
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, Norfolk Southern Corporation has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on this 6th3rd day of February, 2020.2023.

/s/ James A. SquiresAlan H. Shaw
By:James A. SquiresAlan H. Shaw
(Chairman, President and Chief Executive Officer)

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Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below on this 6th3rd day of February, 2020,2023, by the following persons on behalf of Norfolk Southern Corporation and in the capacities indicated.
SignatureTitle
  
/s/ James A. SquiresAlan H. Shaw
(James A. Squires)Alan H. Shaw)
Chairman, President and Chief Executive Officer and Director
(Principal Executive Officer)
  
 /s//s/ Mark R. George
(Mark R. George)
Executive Vice President – Finance and Chief Financial Officer
(Principal Financial Officer)
  
/s/ Jason A. ZampiClaiborne L. Moore
(Jason A. Zampi)Claiborne L. Moore)
Vice President and Controller
(Principal Accounting Officer)
  
/s/ Amy E. Miles
(Amy E. Miles)
Independent Chair and Director
/s/ Thomas D. Bell, Jr.
(Thomas D. Bell, Jr.)
Director
/s/ Daniel A. Carp
(Daniel A. Carp)
Director
  
/s/ Mitchell E. Daniels, Jr.
(Mitchell E. Daniels, Jr.)
Director
/s/ Marcela E. Donadio
(Marcela E. Donadio)
Director
  
/s/ John C. Huffard, Jr.
(John C. Huffard, Jr.)
Director
/s/ Christopher T. Jones
(Christopher T. Jones)
Director
/s/ Thomas C. Kelleher
(Thomas C. Kelleher)
Director
/s/ Steven F. Leer
(Steven F. Leer)
Director
  
/s/ Michael D. Lockhart
(Michael D. Lockhart)
Director
  
/s/ Amy E. Miles
(Amy E. Miles)
Director
/s/ Claude Mongeau
(Claude Mongeau)
Director
  
/s/ Jennifer F. Scanlon
(Jennifer F. Scanlon)
Director
/s/ James A. Squires
(James A. Squires)
Director
 
/s/ John R. Thompson
(John R. Thompson)
Director

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Schedule II
Norfolk Southern Corporation and Subsidiaries
Valuation and Qualifying Accounts
Years ended December 31, 2019, 2018,2022, 2021, and 20172020
($ in millions)
  Additions charged to:    
Beginning
Balance		Expenses
Other
Accounts 
DeductionsEnding
Balance
Year ended December 31, 2019
Current portion of casualty and
 
other claims included in
accounts payable$213  $22  $131  
(2)
$154  
(3)
$212  
Casualty and other claims
included in other liabilities158  89  
(1)
—  76  
(4)
171  
Year ended December 31, 2018
Current portion of casualty and
 
other claims included in
 
accounts payable$187  $32  $145  
(2)
$151  
(3)
$213  
Casualty and other claims
included in other liabilities179  85  
(1)
—  106  
(4)
158  
Year ended December 31, 2017
Current portion of casualty and
 
other claims included in
 
accounts payable$192  $17  $124  
(2)
$146  
(3)
$187  
Casualty and other claims
included in other liabilities178  83  
(1)
—  82  
(4)
179  
  Additions charged to:    
Beginning
Balance		Expenses
Other
Accounts 
DeductionsEnding
Balance
Year ended December 31, 2022
Current portion of casualty and 
other claims included in
accounts payable$166 $43 $88 (2)$127 (3)$170 
Casualty and other claims
included in other liabilities170 147 (1)— 99 (4)218 
Year ended December 31, 2021
Current portion of casualty and 
other claims included in 
accounts payable$182 $20 $80 (2)$116 (3)$166 
Casualty and other claims
included in other liabilities169 77 (1)— 76 (4)170 
Year ended December 31, 2020
Current portion of casualty and 
other claims included in 
accounts payable$212 $27 $81 (2)$138 (3)$182 
Casualty and other claims
included in other liabilities171 80 (1)— 82 (4)169 
 
(1)Includes adjustments for changes in estimates for prior years’ claims.
(2)Includes revenue refunds and overcharges provided through deductions from operating revenues and transfers  
from other accounts.
(3)Payments and reclassifications to/from other liabilities.
(4)Payments and reclassifications to/from accounts payable.
(4)Payments and reclassifications to/from other liabilities.

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