UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DCD.C. 20549

FORM 10-Q

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

For the quarterly period ended ~~SEPTEMBER 30, 2020~~MARCH 31, 2021

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

For the transition period from ___________ to___________

Commission File Number: 1-8339

NORFOLK SOUTHERN CORPORATION

(Exact name of registrant as specified in its charter)


Virginia		52-1188014
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)
Three Commercial Place		23510-2191
Norfolk,	Virginia
(Address of principal executive offices)		(Zip Code)
(757)		629-2680
(Registrant’s telephone number, including area code)
No Change
(Former name, former address and former fiscal year, if changed since last report)

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


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

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

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

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

Large accelerated filer ☒Accelerated filer ☐ Non-accelerated filer ☐ ☐

Smaller reporting company ☐Emerging growth company ☐

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

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

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.


Class	Outstanding at ~~September 30, 2020~~March 31, 2021
Common Stock ($1.00 par value per share)	~~253,985,338~~250,241,009	(excluding 20,320,777 shares held by the registrant’s
	consolidated subsidiaries)

TABLE OF CONTENTS

NORFOLK SOUTHERN CORPORATION AND SUBSIDIARIES


		Page
Part I.	Financial Information:
	Item 1.	Financial Statements:
		Consolidated Statements of Income ~~Third~~First Quarter of 2021 and ~~First Nine Months of~~ 2020 ~~and 2019~~	3
		Consolidated Statements of Comprehensive Income ~~Third~~First Quarter of 2021 and ~~First Nine Months of~~ 2020 ~~and 2019~~	4
		Consolidated Balance Sheets At ~~September 30, 2020~~March 31, 2021 and December 31, ~~2019~~2020	5
		Consolidated Statements of Cash Flows First ~~Nine~~Three Months of ~~2020~~2021 and ~~2019~~2020	6
		Consolidated Statements of Changes in Stockholders’ Equity ~~Third~~First Quarter of 2021 and ~~First Nine Months of~~ 2020 ~~and 2019~~	7
		Notes to Consolidated Financial Statements	98
	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	1917
	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	2925
	Item 4.	Controls and Procedures	2925

Part II.	Other Information:
	Item 1.	Legal Proceedings	3026
	Item 1A.	Risk Factors	3026
	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	3126
	Item 6.	Exhibits	3227

		Signatures	3328

PART I. FINANCIAL INFORMATION

Item 1. Financial ~~Statements.~~Statements

Norfolk Southern Corporation and Subsidiaries

Consolidated Statements of Income

(Unaudited)


		Third Quarter				First Nine Months					First Quarter
		2020		2019		2020		2019			2021		2020
		($ in millions, except per share amounts)									($ in millions, except per share amounts)

Railway operating revenues	Railway operating revenues	$	2,506	$	2,841	$	7,216	$	8,606	Railway operating revenues	$	2,639	$	2,625

Railway operating expenses:
Railway operating expenses										Railway operating expenses
Compensation and benefits	Compensation and benefits	578		682		1,786		2,121		Compensation and benefits	611		622
Purchased services and rents	Purchased services and rents	486		423		1,261		1,265		Purchased services and rents	393		403
Fuel	Fuel	126		226		399		730		Fuel	177		189
Depreciation	Depreciation	293		286		867		853		Depreciation	292		292
Materials and other	Materials and other	183		228		500		610		Materials and other	151		166
Loss on asset disposal	Loss on asset disposal	0		0		385		0		Loss on asset disposal	0		385

Total railway operating expenses	Total railway operating expenses	1,666		1,845		5,198		5,579		Total railway operating expenses	1,624		2,057

Income from railway operations	Income from railway operations	840		996		2,018		3,027		Income from railway operations	1,015		568

Other income – net	Other income – net	39		22		110		88		Other income – net	7		22
Interest expense on debt	Interest expense on debt	155		150		465		452		Interest expense on debt	156		154

Income before income taxes	Income before income taxes	724		868		1,663		2,663		Income before income taxes	866		436

Income taxes	Income taxes	155		211		321		607		Income taxes	193		55

Net income	Net income	$	569	$	657	$	1,342	$	2,056	Net income	$	673	$	381

Earnings per share:
Earnings per share										Earnings per share
Basic	Basic	$	2.23	$	2.50	$	5.24	$	7.76	Basic	$	2.67	$	1.48
Diluted	Diluted	2.22		2.49		5.21		7.70		Diluted	2.66		1.47

See accompanying notes to consolidated financial statements.

Norfolk Southern Corporation and Subsidiaries

Consolidated Statements of Comprehensive Income

(Unaudited)


		Third Quarter				First Nine Months					First Quarter
		2020		2019		2020		2019			2021		2020
		($ in millions)									($ in millions)

Net income	Net income	$	569	$	657	$	1,342	$	2,056	Net income	$	673	$	381
Other comprehensive income, before tax:	Other comprehensive income, before tax:									Other comprehensive income, before tax:
Pension and other postretirement benefits	Pension and other postretirement benefits	7		5		20		15		Pension and other postretirement benefits	11		7
Other comprehensive income (loss) of equity investees		0		0		6		(1)
Other comprehensive income of equity investees										Other comprehensive income of equity investees	0		5

Other comprehensive income, before tax	Other comprehensive income, before tax	7		5		26		14		Other comprehensive income, before tax	11		12

Income tax expense related to items of
other comprehensive income		(3)		(1)		(6)		(4)
Income tax expense related to items of other comprehensive income										Income tax expense related to items of other comprehensive income	(3)		(2)

Other comprehensive income, net of tax	Other comprehensive income, net of tax	4		4		20		10		Other comprehensive income, net of tax	8		10

Total comprehensive income	Total comprehensive income	$	573	$	661	$	1,362	$	2,066	Total comprehensive income	$	681	$	391

See accompanying notes to consolidated financial statements.

Norfolk Southern Corporation and Subsidiaries

Consolidated Balance Sheets

(Unaudited)


		September 30, 2020		December 31, 2019			March 31, 2021		December 31, 2020
		($ in millions)					($ in millions)
Assets	Assets					Assets
Current assets:	Current assets:					Current assets:
Cash and cash equivalents	Cash and cash equivalents	$	1,359	$	580	Cash and cash equivalents	$	998	$	1,115

Accounts receivable – net	Accounts receivable – net	883		920		Accounts receivable – net	944		848
Materials and supplies	Materials and supplies	247		244		Materials and supplies	241		221
Other current assets	Other current assets	90		337		Other current assets	120		134
Total current assets	Total current assets	2,579		2,081		Total current assets	2,303		2,318

Investments	Investments	3,566		3,428		Investments	3,604		3,590
Properties less accumulated depreciation of $11,873
and $11,982, respectively		31,239		31,614
Properties less accumulated depreciation of $11,672						Properties less accumulated depreciation of $11,672
and $11,985, respectively						and $11,985, respectively	31,312		31,345
Other assets	Other assets	795		800		Other assets	718		709

Total assets	Total assets	$	38,179	$	37,923	Total assets	$	37,937	$	37,962

Liabilities and stockholders’ equity	Liabilities and stockholders’ equity					Liabilities and stockholders’ equity
Current liabilities:	Current liabilities:					Current liabilities:
Accounts payable	Accounts payable	$	1,273	$	1,428	Accounts payable	$	1,043	$	1,016

Income and other taxes	Income and other taxes	257		229		Income and other taxes	361		263
Other current liabilities	Other current liabilities	386		327		Other current liabilities	344		302
Current maturities of long-term debt	Current maturities of long-term debt	89		316		Current maturities of long-term debt	501		579
Total current liabilities	Total current liabilities	2,005		2,300		Total current liabilities	2,249		2,160

Long-term debt	Long-term debt	12,634		11,880		Long-term debt	12,116		12,102
Other liabilities	Other liabilities	1,701		1,744		Other liabilities	1,952		1,987
Deferred income taxes	Deferred income taxes	6,898		6,815		Deferred income taxes	6,977		6,922

Total liabilities	Total liabilities	23,238		22,739		Total liabilities	23,294		23,171

Stockholders’ equity:	Stockholders’ equity:					Stockholders’ equity:
Common stock $1.00 per share par value, 1,350,000,000 shares	Common stock $1.00 per share par value, 1,350,000,000 shares					Common stock $1.00 per share par value, 1,350,000,000 shares
authorized; outstanding 253,985,338 and 257,904,956 shares,
authorized; outstanding 250,241,009 and 252,095,082 shares,						authorized; outstanding 250,241,009 and 252,095,082 shares,
respectively, net of treasury shares	respectively, net of treasury shares	255		259		respectively, net of treasury shares	251		254
Additional paid-in capital	Additional paid-in capital	2,246		2,209		Additional paid-in capital	2,241		2,248
Accumulated other comprehensive loss	Accumulated other comprehensive loss	(471)		(491)		Accumulated other comprehensive loss	(586)		(594)
Retained income	Retained income	12,911		13,207		Retained income	12,737		12,883

Total stockholders’ equity	Total stockholders’ equity	14,941		15,184		Total stockholders’ equity	14,643		14,791

Total liabilities and stockholders’ equity	Total liabilities and stockholders’ equity	$	38,179	$	37,923	Total liabilities and stockholders’ equity	$	37,937	$	37,962

See accompanying notes to consolidated financial statements.

Norfolk Southern Corporation and Subsidiaries

Consolidated Statements of Cash Flows

(Unaudited)

First Nine Months
2020 2019
($ in millions)
Cash flows from operating activities:
Net income $ 1,342 $ 2,056
Reconciliation of net income to net cash provided by operating activities:
Depreciation 867 854
Deferred income taxes 78 225
Gains and losses on properties (14) (4)
Loss on asset disposal 385 0
Impairment of investment 99 0
Changes in assets and liabilities affecting operations:
Accounts receivable 36 34
Materials and supplies (3) (59)
Other current assets 55 40
Current liabilities other than debt 104 (72)
Other – net (182) (77)
Net cash provided by operating activities 2,767 2,997
Cash flows from investing activities:
Property additions (1,053) (1,494)
Property sales and other transactions 291 282
Investment purchases (6) (12)
Investment sales and other transactions (50) (99)
Net cash used in investing activities (818) (1,323)
Cash flows from financing activities:
Dividends (722) (705)
Common stock transactions 53 21
Purchase and retirement of common stock (960) (1,550)
Proceeds from borrowings – net of issuance costs 784 1,404
Debt repayments (325) (750)
Net cash used in financing activities (1,170) (1,580)
Net increase in cash, cash equivalents,
and restricted cash
779 94
Cash, cash equivalents, and restricted cash:
At beginning of year 580 446
At end of period $ 1,359 $ 540
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest (net of amounts capitalized) $ 395 $ 392
Income taxes (net of refunds) 118 404


		First Three Months
		2021		2020
		($ in millions)
Cash flows from operating activities
	Net income	$	673	$	381
	Reconciliation of net income to net cash provided by operating activities:
	Depreciation	292		292
	Deferred income taxes	52		11
	Gains and losses on properties	(8)		(8)
	Loss on asset disposal	0		385

	Changes in assets and liabilities affecting operations:
	Accounts receivable	(95)		32
	Materials and supplies	(20)		(21)
	Other current assets	9		(33)
	Current liabilities other than debt	158		(40)
	Other – net	(46)		(44)

	Net cash provided by operating activities	1,015		955

Cash flows from investing activities
	Property additions	(265)		(366)
	Property sales and other transactions	37		158

	Investment sales and other transactions	26		(25)

	Net cash used in investing activities	(202)		(233)

Cash flows from financing activities
	Dividends	(249)		(242)
	Common stock transactions	(6)		14
	Purchase and retirement of common stock	(591)		(466)

	Debt repayments	(84)		0

	Net cash used in financing activities	(930)		(694)

	Net increase (decrease) in cash and cash equivalents	(117)		28

Cash and cash equivalents
	At beginning of year	1,115		580

	At end of period	$	998	$	608

Supplemental disclosures of cash flow information
	Cash paid during the period for:
	Interest (net of amounts capitalized)	$	110	$	121
	Income taxes (net of refunds)	27		16

See accompanying notes to consolidated financial statements.

Norfolk Southern Corporation and Subsidiaries

Consolidated Statements of Changes in Stockholders’ Equity

(Unaudited)


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

Balance at December 31, 2019		$	259	$	2,209	$	(491)	$	13,207	$	15,184
Balance at December 31, 2020												Balance at December 31, 2020	$	254	$	2,248	$	(594)	$	12,883	$	14,791

Comprehensive income:	Comprehensive income:											Comprehensive income:
Net income	Net income							381		381		Net income							673		673
Other comprehensive income	Other comprehensive income					10				10		Other comprehensive income					8				8
Total comprehensive income	Total comprehensive income									391		Total comprehensive income									681
Dividends on common stock,	Dividends on common stock,											Dividends on common stock,
$0.94 per share								(242)		(242)
$0.99 per share												$0.99 per share							(249)		(249)
Share repurchases	Share repurchases	(2)		(21)				(443)		(466)		Share repurchases	(3)		(19)				(569)		(591)
Stock-based compensation	Stock-based compensation	1		17				(1)		17		Stock-based compensation			12				(1)		11

Balance at March 31, 2020		258		2,205		(481)		12,902		14,884
Balance at March 31, 2021												Balance at March 31, 2021	$	251	$	2,241	$	(586)	$	12,737	$	14,643

Comprehensive income:
Net income								392		392
Other comprehensive income						6				6
Total comprehensive income										398
Dividends on common stock,
$0.94 per share								(240)		(240)
Share repurchases		(2)		(10)				(191)		(203)
Stock-based compensation				22						22

Balance at June 30, 2020		256		2,217		(475)		12,863		14,861

Comprehensive income:
Net income								569		569
Other comprehensive income						4				4
Total comprehensive income										573
Dividends on common stock,
$0.94 per share								(240)		(240)
Share repurchases		(1)		(11)				(279)		(291)
Stock-based compensation				40				(2)		38

Balance at September 30, 2020		$	255	$	2,246	$	(471)	$	12,911	$	14,941


	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							381		381
Other comprehensive income					10				10
Total comprehensive income									391
Dividends on common stock,
$0.94 per share							(242)		(242)
Share repurchases	(2)		(21)				(443)		(466)
Stock-based compensation	1		17				(1)		17

Balance at March 31, 2020	$	258	$	2,205	$	(481)	$	12,902	$	14,884

See accompanying notes to consolidated financial statements.

~~Norfolk Southern Corporation and Subsidiaries~~

~~Consolidated Statements of Changes in Stockholders’ Equity~~

~~(Unaudited)~~

Common
Stock Additional
Paid-in
Capital Accum. Other
Comprehensive
Loss Retained
Income Total
($ in millions, except per share amounts)
Balance at December 31, 2018 $ 269 $ 2,216 $ (563) $ 13,440 $ 15,362
Comprehensive income:
Net income 677 677
Other comprehensive income 3 3
Total comprehensive income 680
Dividends on common stock,
$0.86 per share (230) (230)
Share repurchases (3) (22) (475) (500)
Stock-based compensation 1 19 (1) 19
Balance at March 31, 2019 267 2,213 (560) 13,411 15,331
Comprehensive income:
Net income 722 722
Other comprehensive income 3 3
Total comprehensive income 725
Dividends on common stock,
$0.86 per share (228) (228)
Share repurchases (2) (22) (526) (550)
Stock-based compensation 35 (2) 33
Balance at June 30, 2019 265 2,226 (557) 13,377 15,311
Comprehensive income:
Net income 657 657
Other comprehensive income 4 4
Total comprehensive income 661
Dividends on common stock,
$0.94 per share (247) (247)
Share repurchases (3) (21) (476) (500)
Stock-based compensation 14 (1) 13
Balance at September 30, 2019 $ 262 $ 2,219 $ (553) $ 13,310 $ 15,238

~~See accompanying notes toconsolidatedfinancialstatements.~~

Norfolk Southern Corporation and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

In the opinion of management, the accompanying unaudited interim consolidated financial statements contain all adjustments (consisting of normal recurring accruals) necessary to present fairly Norfolk Southern Corporation (Norfolk Southern) and subsidiaries’ (collectively, NS, we, us, and our) financial position at ~~September 30, 2020,~~March 31, 2021, and December 31, ~~2019,~~2020, our results of operations, comprehensive income and changes in stockholders’ equity for the ~~third~~first quarters of 2021 and ~~first nine months of~~ 2020, ~~and 2019,~~ and our cash flows for the first ~~nine~~three months of ~~2020~~2021 and ~~2019~~2020 in conformity with U.S. generally accepted accounting principles (GAAP).

These consolidated financial statements should be read in conjunction with the consolidated financial statements and notes included in our latest Annual Report on Form 10-K.

1. Railway Operating Revenues

The following table disaggregates our revenues by major commodity group:

Third Quarter First Nine Months
2020 2019 2020 2019
($ in millions)
Merchandise:
Agriculture, forest and consumer products $ 521 $ 572 $ 1,570 $ 1,707
Chemicals 428 535 1,371 1,586
Metals and construction 337 377 997 1,131
Automotive 270 247 597 749
Merchandise 1,556 1,731 4,535 5,173
Intermodal 700 707 1,924 2,127
Coal 250 403 757 1,306
Total $ 2,506 $ 2,841 $ 7,216 $ 8,606

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


	First Quarter
	2021		2020
	($ in millions)
Merchandise:
Agriculture, forest and consumer products	$	539	$	551
Chemicals	459		520
Metals and construction	370		367
Automotive	240		234
Merchandise	1,608		1,672
Intermodal	719		655
Coal	312		298

Total	$	2,639	$	2,625

We recognize the amount of ~~revenue~~revenues to which 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 is~~revenues 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 ~~revenue~~revenues associated with in-process shipments at period-end isare recorded based on the estimated percentage of service completed. We had no material remaining performance obligations ~~as of September 30, 2020 or~~at March 31, 2021 and December 31, ~~2019.~~2020.

~~Revenue~~We may provide customers ancillary services, such as switching, demurrage and other incidental activities, under their transportation contracts. These are distinct performance obligations that are recognized at a point in time when the services are performed or as contractual obligations are met. These revenues are included within each of the commodity groups and represent approximately 6% and 5% of total “Railway operating revenues” on the Consolidated Statements of Income for the first quarters ended March 31, 2021 and March 31, 2020, respectively.

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:


		September 30, 2020		December 31, 2019			March 31, 2021		December 31, 2020
		($ in millions)					($ in millions)

Customer	Customer	$	664	$	682	Customer	$	722	$	629
Non-customer	Non-customer	219		238		Non-customer	222		219

Accounts receivable – net	Accounts receivable – net	$	883	$	920	Accounts receivable – net	$	944	$	848

Non-customer receivables include non-revenue-related amounts due from other railroads, governmental entities, and others. “Other assets” on the Consolidated Balance Sheets includes non-current customer receivables of $23 million at both ~~September 30, 2020~~March 31, 2021 and December 31, ~~2019.~~2020. We do 0t have any material contract assets or liabilities at ~~September 30, 2020 or~~March 31, 2021 and December 31, ~~2019.~~

We may provide customers ancillary services, such as switching, demurrage and other incidental services, under their transportation contracts. These are distinct performance obligations that are recognized at a point in time when the services are performed or as contractual obligations are met. This revenue is included within each of the commodity groups and represents 5% of total “Railway operating revenues” on the Consolidated Statements of Income for the third quarters and first nine months of 2020 and 2019.2020.

2. Stock-Based Compensation


		Third Quarter				First Nine Months					First Quarter
		2020		2019		2020		2019			2021		2020
		($ in millions)									($ in millions)

Stock-based compensation expense	Stock-based compensation expense	$	13	$	10	$	25	$	46	Stock-based compensation expense	$	16	$	2
Total tax benefit	Total tax benefit	10		3		39		34		Total tax benefit	17		26

During ~~2020, a committee~~the first quarter of ~~nonemployee members of our Board of Directors (and the Chief Executive Officer when delegated authority by such committee)~~2021, we granted stock options, restricted stock units (RSUs) and performance share units (PSUs) pursuant to the Long-Term Incentive Plan (LTIP), as follows:


		Third Quarter			First Nine Months				First Quarter
		Granted	Weighted-Average Grant-Date Fair Value		Granted	Weighted-Average Grant-Date Fair Value			Granted	Weighted-Average Grant-Date Fair Value

Stock options	Stock options	0	$	0	43,770	$	52.05	Stock options	42,770	$	62.49
RSUs	RSUs	10,230	211.90		177,770	210.13		RSUs	174,115	238.03
PSUs	PSUs	0	0		78,720	212.67		PSUs	49,940	240.61

109

Stock Options


		Third Quarter				First Nine Months					First Quarter
		2020		2019		2020		2019			2021		2020
		($ in millions)									($ in millions)

Stock options exercised		313,358		55,155		998,996		677,072
Options exercised										Options exercised	212,546		523,238
Cash received upon exercise	Cash received upon exercise	$	27	$	3	$	82	$	47	Cash received upon exercise	$	19	$	43
Related tax benefit realized	Related tax benefit realized	8		1		24		16		Related tax benefit realized	7		13

Restricted Stock Units

RSUs granted primarily have a four-year ratable restriction period and will be settled through the issuance of shares of Norfolk Southern common stock (Common Stock). Certain RSU grants include cash dividend equivalent payments during the restriction period in an amount equal to the regular quarterly dividends paid on Common Stock.


		Third Quarter				First Nine Months					First Quarter
		2020		2019		2020		2019			2021		2020
		($ in millions)									($ in millions)

RSUs vested	RSUs vested	1,635		142		203,934		166,197		RSUs vested	257,397		202,299
Common Stock issued net of tax withholding	Common Stock issued net of tax withholding	1,630		102		145,342		119,346		Common Stock issued net of tax withholding	182,289		143,712
Related tax benefit realized	Related tax benefit realized	$	0	$	0	$	4	$	2	Related tax benefit realized	$	7	$	5

Performance Share Units

PSUs provide for awards based on the achievement of certain predetermined corporate performance goals at the end of a three-year cycle and are settled through the issuance of shares of Common Stock. All PSUs will earn out based on the achievement of performance conditions and some will also earn out based on a market condition. The market condition fair value was measured on the date of grant using a Monte Carlo simulation model. ~~No PSUs were earned or paid out during the third quarters of 2020 or 2019.~~


		First Nine Months					First Quarter
		2020		2019			2021		2020
		($ in millions)					($ in millions)

PSUs earned	PSUs earned	235,935		331,099		PSUs earned	78,727		235,935
Common Stock issued net of tax withholding	Common Stock issued net of tax withholding	156,450		221,241		Common Stock issued net of tax withholding	49,967		156,450
Related tax benefit realized	Related tax benefit realized	$	7	$	9	Related tax benefit realized	$	1	$	7

3. Loss on Asset Disposal

In ~~the first quarter of~~ 2020, ~~in connection with our initiatives to increase operational fluidity and asset utilization and improve labor and fuel efficiency,~~ we ~~committed to a plan to dispose of certain~~sold 703 locomotives deemed excess and no longer needed for railroad operations. When depreciable operating road and equipment assets are sold or retired in the ordinary course of business, the cost of the assets, net of sale proceeds or salvage, is charged to accumulated depreciation, and no gain or loss is recognized in earnings. A retirement is considered abnormal if it does not occur in the ordinary course of business, if it relates to disposition of a large segment of an asset class and if the retirement varies significantly from the retirement profile identified through our depreciation studies, which inherently consider the impact of normal retirements on expected service lives and depreciation rates. We evaluated ~~the~~

~~planned~~these locomotive retirements and concluded they were abnormal. Accordingly, we recorded a $385 million loss ~~was recorded~~ to adjust their carrying amount to their estimated fair value, which resulted in a $97 million tax benefit. During the first nine months, we sold 574 of 703 locomotives under the plan. The carrying amount of the remaining assets held for sale of $20 million is classified as “Other current assets” in the Consolidated Balance Sheet at September 30, 2020.

4. Earnings Per Share

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


		Basic				Diluted					Basic				Diluted
		Third Quarter									First Quarter
		2020		2019		2020		2019			2021		2020		2021		2020
		($ in millions, except per share amounts, shares in millions)									($ in millions, except per share amounts, shares in millions)

Net income	Net income	$	569	$	657	$	569	$	657	Net income	$	673	$	381	$	673	$	381
Dividend equivalent payments	Dividend equivalent payments	(2)		(1)		(1)		0		Dividend equivalent payments	(1)		(1)		0		(1)

Income available to common stockholders	Income available to common stockholders	$	567	$	656	$	568	$	657	Income available to common stockholders	$	672	$	380	$	673	$	380

Weighted-average shares outstanding	Weighted-average shares outstanding	254.6		262.1		254.6		262.1		Weighted-average shares outstanding	251.4		257.3		251.4		257.3

Dilutive effect of outstanding options and share-settled awards	Dilutive effect of outstanding options and share-settled awards					1.5		2.2		Dilutive effect of outstanding options and share-settled awards					1.2		1.4

Adjusted weighted-average shares outstanding	Adjusted weighted-average shares outstanding					256.1		264.3		Adjusted weighted-average shares outstanding					252.6		258.7

Earnings per share	Earnings per share	$	2.23	$	2.50	$	2.22	$	2.49	Earnings per share	$	2.67	$	1.48	$	2.66	$	1.47

		Basic				Diluted
		First Nine Months
		2020		2019		2020		2019
		($ in millions, except per share amounts, shares in millions)

Net income		$	1,342	$	2,056	$	1,342	$	2,056
Dividend equivalent payments		(3)		(4)		(2)		0

Income available to common stockholders		$	1,339	$	2,052	$	1,340	$	2,056

Weighted-average shares outstanding		255.7		264.6		255.7		264.6

Dilutive effect of outstanding options and share-settled awards						1.5		2.3

Adjusted weighted-average shares outstanding						257.2		266.9

Earnings per share		$	5.24	$	7.76	$	5.21	$	7.70

During the ~~third~~first quarters of 2021 and ~~first nine months of~~ 2020, ~~and 2019, we made~~ dividend equivalent payments were made to ~~certain~~ holders of stock options and RSUs. For purposes of computing basic earnings per share, dividend equivalent payments made to holders of stock options and RSUs were deducted from net income to determine income available to common stockholders. For purposes of computing diluted earnings per share, we evaluate on a grant-by-grant basis those stock options and RSUs receiving dividend equivalent payments under the two-class and treasury stock methods to determine which method is more dilutive for each grant. For those grants for which the two-class method was more dilutive, net income was reduced by dividend equivalent payments to determine income available to common stockholders. There are 0 ~~awards outstanding that were antidilutive~~options excluded from the dilution calculations due to exercise prices exceeding the average market price of Common Stock for the ~~third~~first quarters ended March 31, 2021 and ~~first nine months ended September 30, 2020 and 2019.~~2020.

5. Accumulated Other Comprehensive Loss

The changes in the cumulative balances of “Accumulated other comprehensive loss” reported in the Consolidated Balance Sheets consisted of the following:

Balance at
Beginning
of Year Net Income
(Loss) Reclassification
Adjustments Balance at
End of Period
($ in millions)
Nine Months Ended September 30, 2020
Pensions and other postretirement liabilities $ (421) $ 0 $ 14 $ (407)
Other comprehensive income (loss) of equity
investees (70) 6 0 (64)
Accumulated other comprehensive loss $ (491) $ 6 $ 14 $ (471)
Nine Months Ended September 30, 2019
Pensions and other postretirement liabilities $ (497) $ 0 $ 11 $ (486)
Other comprehensive loss of equity investees (66) (1) 0 (67)
Accumulated other comprehensive loss $ (563) $ (1) $ 11 $ (553)


	Balance at Beginning of Year		Net Income		Reclassification Adjustments		Balance at End of Period
	($ in millions)
Three Months Ended March 31, 2021
Pensions and other postretirement liabilities	$	(526)	$	0	$	8	$	(518)
Other comprehensive income (loss) of equity investees	(68)		0		0		(68)

Accumulated other comprehensive loss	$	(594)	$	0	$	8	$	(586)

Three Months Ended March 31, 2020
Pensions and other postretirement liabilities	$	(421)	$	0	$	5	$	(416)
Other comprehensive income (loss) of equity investees	(70)		5		0		(65)

Accumulated other comprehensive loss	$	(491)	$	5	$	5	$	(481)

6. Stock Repurchase Program

We repurchased and retired ~~5.3~~2.3 million and ~~8.4~~2.6 million shares of Common Stock under our stock repurchase program during the first ~~nine~~three months of ~~2020~~2021 and ~~2019,~~2020, respectively, at a cost of ~~$960~~$591 million and ~~$1.6 billion,~~$466 million, respectively.

7. Investments

Investment in Conrail

Through a limited liability company, we and CSX Corporation (CSX) jointly own Conrail Inc. (Conrail), whose primary subsidiary is Consolidated Rail Corporation (CRC). We have a 58% economic and 50% voting interest in ~~Conrail,~~the jointly-owned entity, and CSX has the remainder of the economic and voting interests. Our investment in Conrail was $1.5 billion and $1.4 billion at ~~both September 30, 2020~~March 31, 2021 and December 31, ~~2019.~~2020, respectively.

CRC owns and operates certain properties (the Shared Assets Areas) for the joint and exclusive benefit of Norfolk Southern Railway Company (NSR) and CSX Transportation, Inc. (CSXT). The costs of operating the Shared Assets Areas are borne by NSR and CSXT based on usage. In addition, NSR and CSXT pay CRC a fee for access to the Shared Assets Areas. “Purchased services and rents” and “Fuel” include ~~amounts~~expenses payable to CRC for ~~the~~ operation of the Shared Assets Areas totaling ~~$32~~$34 million and ~~$37 million for the third quarters of 2020 and 2019,~~

~~respectively, and $97 million and $112~~$35 million for the first ~~nine months~~quarters of ~~2020~~2021 and ~~2019,~~2020, respectively. Our equity in ~~the~~Conrail’s earnings, ~~of Conrail,~~ net of amortization, ~~included in “Purchased services~~was $14 million and ~~rents,” which offsets~~$9 million for the first quarters of 2021 and 2020, respectively. These amounts offset the costs of operating the Shared Assets Areas ~~was $17 million~~ and ~~$13 million for the third quarters of 2020~~are included in “Purchased services and ~~2019, respectively, and $39 million and $36 million for the first nine months of 2020 and 2019, respectively.~~rents.”

“Other liabilities” includes ~~$280~~$534 million at both ~~September 30, 2020~~March 31, 2021, and December 31, ~~2019,~~2020 for long-term advances from Conrail, maturing ~~2044,~~in 2050 that bear interest at an average rate of ~~2.9%~~1.31%.

Investment in TTX

NSWe and 8 other North American railroads ~~jointly~~collectively 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 19.65% ownership interest in TTX.

~~Amounts paid to TTX~~Expenses incurred for use of TTX equipment are included in “Purchased services and ~~rents” and~~rents.” This amounted to ~~$67~~$63 million and ~~$61 million of expense for the third quarters of 2020 and 2019, respectively, and $185 million and $183~~$60 million for the first ~~nine months~~quarters of ~~2020~~2021 and ~~2019,~~2020, respectively. Our equity in ~~the~~TTX’s earnings ~~of TTX, which~~ offsets ~~the~~these costs and ~~are also included in “Purchased services and rents,”~~ totaled ~~$21~~$17 million and ~~$19 million for the third quarters of 2020 and 2019, respectively, and $35 million and $44~~$4 million for the first ~~nine months~~quarters of 2021 and 2020, ~~and 2019,~~ respectively.

~~Impairment of Investment~~

During the third quarter of 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” on the 2020 Consolidated Statements of Income and had a $74 million impact on net income for the third quarter and first nine months of 2020.

8. Debt

~~In May 2020, we issued $800 million of 3.05% senior notes due 2050, resulting~~We have in ~~$790 million in net proceeds.~~

In May 2020, we also issued $800 million of 3.155% senior notes due 2055 in exchange for $554 million of previously issued notes ($450 million at 5.1% due 2118, $42 million at 6% due 2111, $29 million at 7.9% due 2097, $26 million at 6% due 2105, and $7 million at 7.05% due 2037). As part of the debt exchange, a $4 million loss on extinguishment was recognized in “Other income – net.”

~~In May 2020, we renewed and amended our~~place an accounts receivable securitization program with a maximum borrowing capacity of $400 million and a term ~~expiring~~that expires in May 2021. We had 0no amounts outstanding ~~at both September 30, 2020, and December 31, 2019,~~under this program and our available borrowing capacity was $400 million at both March 31, 2021, and ~~$429 million, respectively.~~December 31, 2020.

In March 2020, we renewed and amended our five-year credit agreement. We increased the program’s borrowing authority from $750 million to $800 million. The amended agreement expires in 2025 and provides for borrowing at prevailing rates and includes covenants. We had 0 amounts outstanding under this facility at both September 30, 2020, and December 31, 2019.

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

9. Pensions and Other Postretirement Benefits

We have both funded and unfunded defined benefit pension plans covering ~~principally salaried~~eligible employees. We also provide specified health care ~~and life insurance~~ benefits to eligible retired employees; these plans can be amended or terminated at our option. Under our self-insured retiree health care plan, for those participants who are not Medicare-eligible, certain health care expenses are covered for retired employees and their dependents, reduced by any deductibles, coinsurance, and, in some cases, coverage provided under other group insurance policies. ~~Those~~Eligible 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 postretirement benefit cost components ~~for the third quarter and first nine months~~ were as follows:


						Other Postretirement									Other Postretirement
		Pension Benefits				Benefits					Pension Benefits				Benefits
		Third Quarter									First Quarter
		2020		2019		2020		2019			2021		2020		2021		2020
		($ in millions)									($ in millions)

Service cost	Service cost	$	10	$	9	$	2	$	2	Service cost	$	11	$	10	$	2	$	1
Interest cost	Interest cost	19		24		3		4		Interest cost	13		19		2		3
Expected return on plan assets	Expected return on plan assets	(48)		(45)		(4)		(4)		Expected return on plan assets	(48)		(48)		(3)		(3)
Amortization of net losses	Amortization of net losses	13		11		0		0		Amortization of net losses	17		13		0		0
Amortization of prior service benefit	Amortization of prior service benefit	0		0		(6)		(6)		Amortization of prior service benefit	0		0		(6)		(6)

Net benefit	Net benefit	$	(6)	$	(1)	$	(5)	$	(4)	Net benefit	$	(7)	$	(6)	$	(5)	$	(5)

Other Postretirement
Pension Benefits Benefits
First Nine Months
2020 2019 2020 2019
($ in millions)
Service cost $ 30 $ 26 $ 5 $ 5
Interest cost 56 70 9 13
Expected return on plan assets (143) (134) (10) (11)
Amortization of net losses 39 33 0 0
Amortization of prior service benefit 0 0 (19) (18)
Net benefit $ (18) $ (5) $ (15) $ (11)

The service cost ~~components~~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.

1513

10. Fair Values of Financial Instruments

The fair values of “Cash and cash equivalents,” “Accounts receivable – net,” and “Accounts payable,” approximate carrying values because of the short maturity of these financial instruments. The carrying value of corporate-owned life insurance is recorded at cash surrender value and, accordingly, approximates fair value. There are no other assets or liabilities measured at fair value on a recurring basis at ~~September 30, 2020~~March 31, 2021 or December 31, ~~2019.~~2020. The carrying amounts and estimated fair values, based on Level 1 inputs, of long-term debt ~~consisted~~consist of the following:

September 30, 2020 December 31, 2019
Carrying
Amount Fair
Value Carrying
Amount Fair
Value
($ in millions)
Long-term debt, including current maturities $ (12,723) $ (16,582) $ (12,196) $ (14,806)


	March 31, 2021				December 31, 2020
	Carrying Amount		Fair Value		Carrying Amount		Fair Value
	($ in millions)


Long-term debt, including current maturities	$	(12,617)	$	(15,249)	$	(12,681)	$	(16,664)

11. 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 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 losses based on such reviews.

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

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

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~~Job-

related personal injury and occupational claims are subject to the F~~ederal~~Federal Employer’s Liability Act (FELA), which is applicable only to railroads. FELA’s fault-based tort system produces results that are unpredictable and inconsistent as compared with a no-fault workers’ compensation system. The variability inherent in this system

could result in actual costs being different from the liability recorded. While the ultimate amount of claims incurred is dependent on future developments, in our opinion, the recorded liability is adequate to cover the future ~~claim~~ payments of claims and is supported by the most recent actuarial study. In all cases, we record a liability when the expected loss for the claim is both probable and reasonably estimable.

Employee personal injury claims – The largest component of claims expense is employee personal injury costs. The independent actuarial firm we 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. ~~Our~~The 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’s estimate of ultimate loss includes a provision for those claims that have been incurred but not reported. This provision is derived by analyzing industry data and projecting our experience. We adjust the liability quarterly based upon our assessment and the results of the study. However, it is possible that the recorded liability may not be adequate to cover the future ~~claim payments.~~payment of claims. Adjustments to the recorded liability are reflected in operating expenses in the periods in which such adjustments become known.

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

Environmental Matters

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

Our Consolidated Balance Sheets include liabilities for environmental exposures of ~~$55 million and $56~~$51 million at ~~September 30, 2020~~March 31, 2021, and $54 million at December 31, ~~2019, respectively,~~2020, of which $15 million is classified as a current liability at the end of both ~~dates.~~periods. At ~~September 30,~~both March 31, 2021 and December 31, 2020, the liability represents our estimates of the probable cleanup, investigation, and remediation costs based on available information at ~~105~~100 known locations and ~~projects compared with 110 locations and projects at December~~projects. At March 31, ~~2019. At September 30, 2020,~~2021, 17 sites accounted for ~~$41~~$38 million of the liability, and no individual site was considered to be material. We anticipate that ~~much~~most of this liability will be paid out over five years; however, some costs will be paid out over a longer period.

At 11 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.

Insurance

We purchase insurance covering legal liabilities for bodily injury and property damage to third parties. This insurance provides coverage above $75 million and below ~~$1.1 billion~~$800 million ($~~1.5~~1.1 billion for specific perils) per occurrence and/or policy year. In addition, we purchase insurance covering damage to property owned by us or in our care, custody, or control. This insurance covers approximately 85% of ~~damage~~potential losses above $75 million and below $275 million per occurrence and/or policy year.

12. New Accounting Pronouncements

On January 1, ~~2020,~~2021, we adopted ~~the~~ Financial Accounting Standards Board ~~(FASB)~~ Accounting Standards Update ~~(ASU) 2016-13, “Credit Losses - Measurement of Credit Losses on Financial Instruments~~,” which replaced the current incurred loss impairment method with a method that reflects expected credit losses. Historically, losses associated from the inability to collect on accounts receivable have been insignificant, with little divergence in collection trends through varying economic cycles. Short-term and long-term financial assets, as defined by the standard, are impacted by immediate recognition of estimated credit losses in the financial statements, reflecting the net amount expected to be collected. There was no material impact to the financial statements upon adoption.

~~In December 2019, the 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~~There was no material impact to the 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.~~upon adoption.

1816

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of ~~Operations.~~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. Our Norfolk Southern Railway Company subsidiary operates approximately ~~19,500~~19,300 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. We are a major transporter of industrial products, including agriculture, forest and consumer products, chemicals, ~~agriculture,~~ and metals and construction materials. In addition, we operate the most extensive intermodal network in the East and are a principal carrier of coal, automobiles, and automotive parts.

~~The ongoing COVID-19 pandemic has caused significant economic disruption~~Our first-quarter results reflect our sustained focus on margin improvement through initiatives to drive organizational and ~~continues~~operational efficiencies and grow our revenue base. Although challenging winter conditions adversely impacted our network, we were able to ~~influence the demand for our services, as evidenced by the volume declines compared to prior year experienced across most of our major commodity groups~~reduce expenses while absorbing an increase in the third quarter. However, we have seen improvement in underlying demand. Overall volumes in the third quarter were down 7% compared to last year, marking a significant improvement relative to the 26% year-over-year decline experienced in the second quarter. While substantial uncertainty remains with respect to customer demand astotal volume. As a result, we achieved a record quarterly railway operating ratio (a measure of the ~~pandemic, we continue to execute on operational initiatives to improve efficiencies~~amount of operating revenues consumed by operating expenses) of 61.5 percent and ~~lower our cost structure.~~increased net income and diluted earnings per share.

~~COVID-19 is generating significant uncertainty in the economy and our outlook as we conclude 2020.~~ We continue to monitor the ~~impact~~pace of the global economic recovery, particularly as it is influenced by the ongoing COVID-19 pandemic. The pandemic oncaused significant economic disruption during 2020 and continues to generate uncertainty, impacting the health and availability of our ~~employees’ availability, which has not been adversely affected in a significant manner this year.~~employees and customers’ demand for our services. We remain committed to protecting our employees and providing excellent transportation service products for our customers.

SUMMARIZED RESULTS OF OPERATIONS

($ in millions, except per share amounts)


		Third Quarter					First Nine Months						First Quarter
		2020		2019		% change	2020		2019		% change		2021		2020		% change

Income from railway operations	Income from railway operations	$	840	$	996	(16%)	$	2,018	$	3,027	(33%)	Income from railway operations	$	1,015	$	568	79%
Net income	Net income	$	569	$	657	(13%)	$	1,342	$	2,056	(35%)	Net income	$	673	$	381	77%
Diluted earnings per share	Diluted earnings per share	$	2.22	$	2.49	(11%)	$	5.21	$	7.70	(32%)	Diluted earnings per share	$	2.66	$	1.47	81%
Railway operating ratio (percent)	Railway operating ratio (percent)	66.5		64.9		2%	72.0		64.8		11%	Railway operating ratio (percent)	61.5		78.4		(22%)

~~Decreases~~Our first-quarter 2021 financial results reflect significant increases in ~~railway operating revenues exceeded operating expense declines, resulting in reduced~~ income from railway operations, net income and ~~increased operating ratios. Railway operating revenues declined in both periods~~diluted earnings per share, as lower customer demand resulted in volume declines. Additionally, negative mix led to lower revenue per unit. Notwithstanding the charges noted below, railway operating expenses decreased due to declines in fuel price and consumption, reduced employment levels, lower volumes and operational efficiency improvements.

~~Third-quarter 2020~~prior year results were adversely impacted by a ~~$99~~$385 million ~~impairment charge related to an equity method investment. Additionally, our results for the first nine months of 2020 were adversely impacted by a~~ loss on asset disposal ~~of $385 million~~ related to locomotives sold or designated as held-for-sale. For more information on the impact of ~~these charges,~~this charge, see ~~Notes 7~~Note 3. Notwithstanding the prior year loss on asset disposal, railway operating expenses decreased as operational efficiency improvements resulted in reduced employment levels, lower materials costs, and 3.improved fuel efficiency. Additionally, fuel prices were lower compared to 2020. Revenues were higher, a result of increased total volume that was partially offset by lower average revenue per unit as negative mix and lower fuel surcharge revenue more than offset pricing gains. Our railway operating ratio improved to 61.5 percent, a quarterly record.

The following tables adjust our first-quarter 2020 GAAP financial results ~~for the third quarter and first nine months~~ to exclude the ~~effects~~loss on asset disposal. The income tax effect of ~~these charges.~~this non-GAAP adjustment was calculated based on the applicable tax rates to which the non-GAAP adjustment related. We use these non-GAAP financial measures internally and believe this information

provides useful supplemental information to investors to facilitate making period-to-period comparisons by excluding the 2020 ~~charges.~~charge. While we believe that these non-GAAP financial measures are useful in evaluating our

business, this information should be considered as supplemental in nature and is not meant to be considered in isolation from, or as a substitute for, the related financial information prepared in accordance with GAAP. In addition, these non-GAAP financial measures may not be the same as similar measures presented by other companies.


		Non-GAAP Reconciliation for the Third Quarter							Non-GAAP Reconciliation for the First Quarter 2020
		Reported 2020 (GAAP)		2020 Investment Impairment		Adjusted 2020 (non-GAAP)			Reported		Loss on Asset Disposal		Adjusted (non-GAAP)
		($ in millions, except per share amounts)							($ in millions, except per share amounts)

Railway operating expenses	Railway operating expenses	$	1,666	$	(99)	$	1,567	Railway operating expenses	$	2,057	$	(385)	$	1,672
Income from railway operations	Income from railway operations	$	840	$	99	$	939	Income from railway operations	$	568	$	385	$	953
Income before income taxes								Income before income taxes	$	436	$	385	$	821
Income taxes								Income taxes	$	55	$	97	$	152
Net income	Net income	$	569	$	74	$	643	Net income	$	381	$	288	$	669
Diluted earnings per share	Diluted earnings per share	$	2.22	$	0.29	$	2.51	Diluted earnings per share	$	1.47	$	1.11	$	2.58
Railway operating ratio (percent)	Railway operating ratio (percent)	66.5		(4.0)		62.5		Railway operating ratio (percent)	78.4		(14.7)		63.7

In the table below, references and comparisons to ~~the third quarter of~~first-quarter 2020 results ~~and related comparisons~~ use the adjusted, non-GAAP results from the reconciliation in the table above.

Third Quarter
Adjusted 2020
(non-GAAP) 2019 Adjusted 2020 (non-GAAP)
vs. 2019
($ in millions, except per share amounts) % change
Railway operating expenses $ 1,567 $ 1,845 (15%)
Income from railway operations $ 939 $ 996 (6%)
Net income $ 643 $ 657 (2%)
Diluted earnings per share $ 2.51 $ 2.49 1%
Railway operating ratio (percent) 62.5 64.9 (4%)

Non-GAAP Reconciliation for First Nine Months
Reported 2020 (GAAP) First Quarter Loss on Asset Disposal Third Quarter Investment Impairment Adjusted 2020
(non-GAAP)
($ in millions, except per share amounts)
Railway operating expenses $ 5,198 $ (385) $ (99) $ 4,714
Income from railway operations $ 2,018 $ 385 $ 99 $ 2,502
Net income $ 1,342 $ 288 $ 74 $ 1,704
Diluted earnings per share $ 5.21 $ 1.12 $ 0.29 $ 6.62
Railway operating ratio (percent) 72.0 (5.3) (1.4) 65.3

~~In the table below, references to the first nine months of 2020 results and related comparisons use the adjusted, non-GAAP results from the reconciliation in the table above.~~

First Nine Months
Adjusted 2020
(non-GAAP) 2019 Adjusted 2020 (non-GAAP)
vs. 2019
($ in millions, except per share amounts) % change
Railway operating expenses $ 4,714 $ 5,579 (16%)
Income from railway operations $ 2,502 $ 3,027 (17%)
Net income $ 1,704 $ 2,056 (17%)
Diluted earnings per share $ 6.62 $ 7.70 (14%)
Railway operating ratio (percent) 65.3 64.8 1%


	First Quarter
	2021		Adjusted 2020 (non-GAAP)		2021 vs. Adjusted 2020 (non-GAAP)
	($ in millions, except per share amounts)				% change

Railway operating expenses	$	1,624	$	1,672	(3%)
Income from railway operations	$	1,015	$	953	7%
Income before income taxes	$	866	$	821	5%
Income taxes	$	193	$	152	27%
Net income	$	673	$	669	1%
Diluted earnings per share	$	2.66	$	2.58	3%
Railway operating ratio (percent)	61.5		63.7		(3%)

2118

DETAILED RESULTS OF OPERATIONS

Railway Operating Revenues

The following tables present a comparison of revenues ($ in millions), volumes (units in thousands), and average revenue per unit ($ per unit) by commodity group.


		Third Quarter					First Nine Months						First Quarter
Revenues	Revenues	2020		2019		% change	2020		2019		% change	Revenues	2021		2020		% change
Merchandise:	Merchandise:											Merchandise:
Agriculture, forest and consumer products	Agriculture, forest and consumer products	$	521	$	572	(9%)	$	1,570	$	1,707	(8%)	Agriculture, forest and consumer products	$	539	$	551	(2%)
Chemicals	Chemicals	428		535		(20%)	1,371		1,586		(14%)	Chemicals	459		520		(12%)
Metals and construction	Metals and construction	337		377		(11%)	997		1,131		(12%)	Metals and construction	370		367		1%
Automotive	Automotive	270		247		9%	597		749		(20%)	Automotive	240		234		3%
Merchandise	Merchandise	1,556		1,731		(10%)	4,535		5,173		(12%)	Merchandise	1,608		1,672		(4%)
Intermodal	Intermodal	700		707		(1%)	1,924		2,127		(10%)	Intermodal	719		655		10%
Coal	Coal	250		403		(38%)	757		1,306		(42%)	Coal	312		298		5%
Total	Total	$	2,506	$	2,841	(12%)	$	7,216	$	8,606	(16%)	Total	$	2,639	$	2,625	1%


Units	Units							Units
Merchandise:	Merchandise:							Merchandise:
Agriculture, forest and consumer products	Agriculture, forest and consumer products	176.4	191.7	(8%)	523.7	583.0	(10%)	Agriculture, forest and consumer products	178.3	181.5	(2%)
Chemicals	Chemicals	111.9	148.2	(24%)	366.3	446.9	(18%)	Chemicals	127.0	142.3	(11%)
Metals and construction	Metals and construction	157.2	182.5	(14%)	448.2	529.0	(15%)	Metals and construction	155.0	154.9	—%
Automotive	Automotive	105.7	99.5	6%	233.2	299.4	(22%)	Automotive	93.7	90.4	4%
Merchandise	Merchandise	551.2	621.9	(11%)	1,571.4	1,858.3	(15%)	Merchandise	554.0	569.1	(3%)
Intermodal	Intermodal	1,068.8	1,059.9	1%	2,908.3	3,179.4	(9%)	Intermodal	1,016.4	955.1	6%
Coal	Coal	147.7	218.7	(32%)	422.8	713.3	(41%)	Coal	166.5	163.5	2%
Total	Total	1,767.7	1,900.5	(7%)	4,902.5	5,751.0	(15%)	Total	1,736.9	1,687.7	3%


Revenue per Unit	Revenue per Unit											Revenue per Unit
Merchandise:	Merchandise:											Merchandise:
Agriculture, forest and consumer products	Agriculture, forest and consumer products	$	2,953	$	2,984	(1%)	$	2,998	$	2,928	2%	Agriculture, forest and consumer products	$	3,026	$	3,036	—%
Chemicals	Chemicals	3,827		3,609		6%	3,742		3,549		5%	Chemicals	3,615		3,653		(1%)
Metals and construction	Metals and construction	2,145		2,066		4%	2,226		2,138		4%	Metals and construction	2,386		2,370		1%
Automotive	Automotive	2,548		2,480		3%	2,558		2,502		2%	Automotive	2,557		2,593		(1%)
Merchandise	Merchandise	2,822		2,783		1%	2,886		2,784		4%	Merchandise	2,903		2,939		(1%)
Intermodal	Intermodal	655		668		(2%)	662		669		(1%)	Intermodal	708		685		3%
Coal	Coal	1,698		1,842		(8%)	1,791		1,831		(2%)	Coal	1,872		1,826		3%
Total	Total	1,418		1,495		(5%)	1,472		1,496		(2%)	Total	1,519		1,556		(2%)

2219

Specifically, certain commodities were shifted between: agriculture, forest, and consumer products; chemicals; and, metals and construction. These changes were made as a result of organizational initiatives to better align with how we manage these commodities. Prior period railway operating revenues, units, and revenue per unit have been reclassified to conform to the current presentation.

Railway operating revenues ~~decreased $335~~increased $14 million ~~in the third quarter and $1.4 billion for the first nine months~~ compared with the same ~~periods~~period last year. The table below reflects the components of the revenue change by major commodity group ($ in millions).


		Third Quarter						First Nine Months
		Increase (Decrease)						Increase (Decrease)							First Quarter
															Increase (Decrease)
		Merchandise		Intermodal		Coal		Merchandise		Intermodal		Coal			Merchandise		Intermodal		Coal

Volume	Volume	$	(197)	$	6	$	(131)	$	(799)	$	(181)	$	(532)	Volume	$	(44)	$	42	$	6
Fuel surcharge revenue	Fuel surcharge revenue	(34)		(35)		(2)		(64)		(93)		(11)		Fuel surcharge revenue	(25)		(6)		(3)
Rate, mix and other	Rate, mix and other	56		22		(20)		225		71		(6)		Rate, mix and other	5		28		11

Total	Total	$	(175)	$	(7)	$	(153)	$	(638)	$	(203)	$	(549)	Total	$	(64)	$	64	$	14

Approximately 90% of our revenue base is covered by contracts that include negotiated fuel surcharges. Revenues associated with these surcharges totaled ~~$75~~$97 million and ~~$146~~$131 million in ~~the third quarters of~~2021 and 2020, ~~and 2019, respectively, and $275 million and $443 million for the first nine months of 2020 and 2019,~~ respectively. The ~~decreases~~decrease in fuel surcharge revenues ~~for the third quarter and first nine months are~~is driven by lower fuel commodity ~~prices and volume declines.~~prices.

Merchandise

Merchandise ~~revenue~~revenues decreased ~~in both periods as~~due to volume declines and lower ~~volumes were partially offset by higher~~ average revenue per unit, ~~driven by pricing gains.~~a result of lower fuel surcharge revenue. Volumes fell as gains in ~~most merchandise commodity groups due to the impact~~automotive shipments were more than offset by declines in shipments of ~~the COVID-19 pandemic. The pandemic has continued to cause many industries to suspend production which persists in negatively impacting customers’ needs for materials~~chemicals and ~~shipping of finished~~agriculture, forest and ~~semi-finished goods.~~consumer products.

Agriculture, forest and consumer products volume decreased ~~in both periods~~ due to the continued impact of COVID-19 on ethanol demand and the food service industry. This was partially offset by gains in soybeans due to increased export opportunities and ~~building, industrial and commercial activities.~~gains in pulpboard due to increased e-commerce demand.

Chemicals volume ~~decreased in both periods~~declined due to the continued impact from COVID-19 and ongoing ~~disruptions~~challenges in the energy market. ~~Oil and petroleum shipments continued to be negatively~~Volumes were further impacted by disruptions resulting from winter storms. This was partially offset by volume growth in the waste market due to ~~reductions in gasoline/jet fuel demand~~increased business with new and ~~consumer travel. The pandemic created an overabundance of products in the market as companies reduced stockpiles before requiring more products.~~existing customers.

Metals and construction volume fell in both periods, largely the result of weakened demand due to reductions in metal and domestic vehicle production. Low coal power generation in the third quarter weakened scrubber stone demand, which negatively affected aggregates volumes. The pandemic caused industries to suspend production which heavily impacted customers’ needs for materials and shipping of finished and semi-finished goods.was flat.

Automotive volume was higher due to increased ~~in the third quarter, but decreased for the first nine months. The third-quarter volume strength was driven by increased~~retail demand ~~which~~and production of vehicles, partially offset ~~the first-half 2020 unplanned automotive~~by volume declines in vehicle parts due to plant shutdowns ~~primarily due to the COVID-19 pandemic.~~and disruptions associated with winter weather.

Merchandise revenues for the remainder of the year are expected to ~~decline as decreased~~be higher due to increased volumes ~~will be partially offset by increased~~and higher average revenue per ~~unit driven by pricing gains.~~unit.

Intermodal

Intermodal ~~revenue declined in both periods. The third-quarter decline is a~~revenues increased, the result of ~~lower~~volume growth and higher average revenue per unit driven by ~~decreased fuel surcharge revenue partially offset by positive mix~~pricing gains and ~~increased volumes. The decline for the first nine months resulted from decreased volumes and lower revenue per unit, a result of lower fuel surcharge revenue partially offset by improved price and~~favorable mix.

Intermodal units (in thousands) by market were as follows:


		Third Quarter			First Nine Months				First Quarter
		2020	2019	% change	2020	2019	% change		2021	2020	% change

Domestic	Domestic	699.9	643.2	9%	1,864.8	1,935.3	(4%)	Domestic	639.0	598.3	7%
International	International	368.9	416.7	(11%)	1,043.5	1,244.1	(16%)	International	377.4	356.8	6%

Total	Total	1,068.8	1,059.9	1%	2,908.3	3,179.4	(9%)	Total	1,016.4	955.1	6%

Domestic ~~volumes~~volume grew due to increased inshipments originating from the ~~third quarter but decreased in the first nine months, driven by a strong third-quarter recovery from supply chain disruptions related to COVID-19.~~West Coast and tightened truck capacity. International ~~volumes fell in both periods,~~volume rose, the result of ~~supply chain disruptions from COVID-19.~~strong import demand.

Intermodal revenues for the remainder of the year are expected to ~~increase primarily due to~~rise, driven by volume ~~gains partially offset by lower~~growth and higher average revenue per unit due to ~~decreased~~increased fuel surcharge revenue.

Coal

Coal revenues ~~decreased in both periods, primarily driven by significant~~increased due to higher average revenue per unit, inclusive of a $12 million settlement for tonnage commitment shortfalls, and volume ~~declines.~~increases.

Coal tonnage (in thousands) by market was as follows:


		Third Quarter			First Nine Months				First Quarter
		2020	2019	% change	2020	2019	% change		2021	2020	% change

Utility	Utility	9,867	14,124	(30%)	24,465	47,008	(48%)	Utility	8,546	8,898	(4%)
Export	Export	3,585	5,403	(34%)	13,323	18,417	(28%)	Export	6,693	6,069	10%
Domestic metallurgical	Domestic metallurgical	2,379	3,649	(35%)	6,993	10,431	(33%)	Domestic metallurgical	2,487	2,276	9%
Industrial	Industrial	864	1,125	(23%)	2,592	3,528	(27%)	Industrial	899	981	(8%)

Total	Total	16,695	24,301	(31%)	47,373	79,384	(40%)	Total	18,625	18,224	2%

~~In both periods, low natural gas prices and reduced demand in global~~Coal tonnage rose driven by increased export and domestic ~~manufacturing due to COVID-19 negatively impacted each market. Utility coal tonnage~~metallurgical volumes from continued global economic recovery. This was ~~challenged~~partially offset by a decline in both periods by low natural gas prices, high stockpiles, and diminished industrial and commercial electricity demand. Export coal tonnage declined in both periods as a result of continued COVID-19 related global disruptions, weak seaborne pricing, and import restrictions. Domestic metallurgical coal and coke tonnage fell in both periods due to continued reduced domestic steel demand which led to idled customer facilities and lower production. Industrial coal tonnage

~~decreased in both periods as a result of customer sourcing changes and continued pressure from natural gas conversions.~~utility tonnage.

Coal revenues ~~are expected to decline in each market~~ for the remainder of the year ~~being negatively impacted by decreased volumes resulting from COVID-19.~~are expected to decline, a result of lower average revenue per unit and reduced utility volume.

Railway Operating Expenses

Railway operating expenses summarized by major classifications ~~were as follows~~follow ($ in millions):


		Third Quarter					First Nine Months						First Quarter
		2020		2019		% change	2020		2019		% change		2021		2020		% change

Compensation and benefits	Compensation and benefits	$	578	$	682	(15%)	$	1,786	$	2,121	(16%)	Compensation and benefits	$	611	$	622	(2%)
Purchased services and rents	Purchased services and rents	486		423		15%	1,261		1,265		—%	Purchased services and rents	393		403		(2%)
Fuel	Fuel	126		226		(44%)	399		730		(45%)	Fuel	177		189		(6%)
Depreciation	Depreciation	293		286		2%	867		853		2%	Depreciation	292		292		—%
Materials and other	Materials and other	183		228		(20%)	500		610		(18%)	Materials and other	151		166		(9%)
Loss on asset disposal	Loss on asset disposal	—		—			385		—			Loss on asset disposal	—		385		(100%)

Total	Total	$	1,666	$	1,845	(10%)	$	5,198	$	5,579	(7%)	Total	$	1,624	$	2,057	(21%)

Compensation and benefits expense decreased ~~in both periods~~ as follows:

•employment levels (down ~~$76 million for the quarter and $250 million for the first nine months)~~$51 million),

•health and welfare benefits for ~~agreement~~craft employees (down ~~$22 million for the quarter and $61 million for the first nine months),~~

•~~stock-based and incentive compensation (down $15 million for the quarter and $48 million for the first nine months)~~$9 million),

•overtime and recrews ~~(down $11 million for the quarter and $48 million for the first nine months)~~(up $7 million),

•increased pay rates (up $10 ~~million for the quarter and $40 million for the first nine months)~~million),

•~~lower capitalized labor (additional expense of $18 million for the quarter~~incentive and ~~$41 million for the first nine months)~~stock-based compensation (up $22 million), and

•other ~~(down $8 million for the quarter and $9 million for the first nine months)~~(up $10 million).

Average rail headcount for the quarter ~~was down~~fell by approximately ~~4,400~~2,500 compared with the ~~third~~first quarter of ~~2019.~~2020.

Purchased services and rents ~~increased in the third quarter but~~ decreased ~~slightly for the first nine months~~ as follows ($ in millions):


		Third Quarter					First Nine Months						First Quarter
		2020		2019		% change	2020		2019		% change		2021		2020		% change

Purchased services	Purchased services	$	419	$	355	18%	$	1,042	$	1,048	(1%)	Purchased services	$	318	$	321	(1%)
Equipment rents	Equipment rents	67		68		(1%)	219		217		1%	Equipment rents	75		82		(9%)

Total	Total	$	486	$	423	15%	$	1,261	$	1,265	—%	Total	$	393	$	403	(2%)

The ~~increase~~decrease in purchased services ~~for the third quarter~~ was due to ~~a $99 million impairment related~~lower operational and transportation expenses and higher earnings of equity affiliates, which were partially offset by increased technology and volume-related intermodal expenses. Equipment rents decreased due to anhigher equity ~~method investment. Both periods reflect volume-related decreases.~~in TTX earnings, partially offset by increased intermodal equipment expenses.

Fuel expense, which includes the cost of locomotive fuel as well as other fuel used in railway operations, decreased due to reduced consumption (down 4%) and lower locomotive fuel prices (down ~~34% in the third quarter and 32% in the first nine months), and reduced consumption (down 17% in the third quarter and 21% in the first nine months)~~4%).

Materials and other expenses decreased ~~in both periods~~ as follows ($ in millions):


		Third Quarter					First Nine Months						First Quarter
		2020		2019		% change	2020		2019		% change		2021		2020		% change

Materials	Materials	$	72	$	85	(15%)	$	206	$	254	(19%)	Materials	$	61	$	72	(15%)
Claims	Claims	59		48		23%	141		147		(4%)	Claims	38		42		(10%)
Other	Other	52		95		(45%)	153		209		(27%)	Other	52		52		—%

Total	Total	$	183	$	228	(20%)	$	500	$	610	(18%)	Total	$	151	$	166	(9%)

Materials ~~costs~~expenses decreased ~~in both periods,~~ due ~~primarily~~ to lower maintenance requirements as a result of fewer locomotives and freight cars in service. Claims expenses ~~increased in the third quarter~~decreased as a result of ~~derailments. Claims~~lower costs associated with personal injuries. Other expense ~~declined in the first nine months, driven~~remained unchanged as reduced travel expenses and higher income generated from operating properties was offset by lower ~~costs related to environmental remediation matters partially offset by increased derailment costs. Other expense decreased in both periods, primarily due to a prior year write off~~gains from sales of ~~a $32 million receivable as a result of a legal dispute as well as reduced travel.~~operating property. Gains from operating property sales ~~included in Other,~~ totaled ~~$15~~$4 million and ~~$21~~$11 million in ~~the first nine months of~~2021 and 2020, ~~and 2019,~~ respectively.

Other income – net

Other income – net ~~increased $17~~decreased $15 million ~~in the third quarter and $22 million for the first nine months. Both periods experienced higher~~driven primarily by lower returns on corporate-owned life insurance and lower pension and postretirement benefit expenses. The first nine months reflect the impact of a prior year impairment loss on our natural resource assets and lower 2020 non-operating property sales. Coal royalties were lower in both periods due to the sale of our natural resource assets in the first quarter of 2020. Full-year 2019 coal royalties totaled $24 million.investments.

Income taxes

The ~~third-quarter~~first-quarter effective tax rate was ~~21.4%~~22.3% compared with ~~24.3%~~12.6% for the same period last year. ~~Both periods were aided by tax benefits on stock-based compensation while the current~~First quarter ~~reflects increased tax benefits from higher returns on corporate-owned life insurance. The effective tax rates were 19.3% and 22.8% for the first nine months of~~ 2020 ~~and 2019, respectively. Both periods reflect tax benefits on stock-based compensation, while the effective rate for the first nine months includes~~included a $19 million income tax reduction ~~of taxes~~ upon the resolution of our 2012 amended federal ~~return.~~return and higher tax benefits on stock-based compensation than those in 2021.

FINANCIAL CONDITION AND LIQUIDITY

Cash provided by operating activities, our principal source of liquidity, was ~~$2.8~~$1.0 billion for the first ~~nine~~three months of ~~2020,~~2021, compared with ~~$3.0 billion~~$955 million for the same period of ~~2019.~~2020. We had working capital of ~~$574~~$54 million and $158 million at ~~September 30, 2020,~~March 31, 2021 and ~~negative working capital of $219 million at~~ December 31, ~~2019.~~2020, respectively. Cash and cash equivalents totaled ~~$1.4 billion~~$998 million at ~~September 30, 2020.~~March 31, 2021.

Cash used in investing activities was ~~$818~~$202 million for the first ~~nine~~three months of ~~2020,~~2021, compared with ~~$1.3 billion~~$233 million for the same period last year. The decrease was primarily driven by lower property additions ~~in 2020.~~and increased corporate-owned life insurance activity, partially offset by lower property sales.

Cash used in financing activities was ~~$1.2 billion~~$930 million for the first ~~nine~~three months of ~~2020,~~2021, compared with ~~$1.6 billion~~$694 million in the same period last year, reflecting ~~lower~~higher repurchases of Common Stock and debt ~~repayments, partially offset by reduced borrowing proceeds.~~repayments. We repurchased ~~$960~~$591 million of Common Stock in the first ~~nine~~three months of ~~2020~~2021 compared to ~~$1.6 billion~~$466 million in the same period last year. The timing and volume of future share repurchases will be guided by our assessment of market conditions, cash flow and other pertinent factors. Any near-term purchases under the program are expected to be made with internally-generated cash, cash on hand, or proceeds from borrowings.

Our ~~total-debt-to-total~~debt-to-total capitalization ratio was ~~46.0%~~46.3% at ~~September 30, 2020,~~March 31, 2021, and ~~44.5%~~46.2% at December 31, ~~2019.~~

~~In May 2020, we issued~~2020. We have in place and available an $800 million ~~of 3.05% senior notes due 2050, resulting~~credit agreement expiring in ~~$790 million~~March 2025, which provides for borrowings at prevailing rates and includes covenants. We had no amounts outstanding under this facility at March 31, 2021 or December 31, 2020. We also have in ~~net proceeds.~~

In May 2020, we also issued $800 million of 3.155% senior notes due 2055 in exchange for $554 million of our previously-issued notes ($450 million at 5.1% due 2118, $42 million at 6% due 2111, $29 million at 7.9% due 2097, $26 million at 6% due 2105, and $7 million at 7.05% due 2037). As part of the debt exchange, a $4 million loss on extinguishment was recognized in “Other income – net.”

~~In May 2020, we renewed and amended our~~place an accounts receivable securitization program with a maximum borrowing capacity of $400 ~~million and a~~million. The term ~~expiring~~expires in May 2021. We had no amounts outstanding ~~at September 30, 2020, or December 31, 2019,~~under this program and our available borrowing capacity was $400 million at both March 31, 2021 and ~~$429 million, respectively.~~ December 31, 2020.

In addition, we have investments in general purpose corporate-owned life insurance policies and had the ability to borrow ~~up to $750 million~~ against these policies ~~at September 30, 2020.~~

~~In March 2020, we renewed~~up to $720 million and ~~amended our five-year credit agreement. We increased the program’s borrowing authority from~~ $750 million ~~to $800 million. The amended agreement expires in 2025~~at March 31, 2021 and ~~provides for borrowings at prevailing rates and includes covenants. We had no amounts outstanding under this facility at September 30, 2020, or~~ December 31, ~~2019, and we are in compliance with all of its covenants.~~2020, respectively.

We expect cash on hand combined with cash provided by operating activities will be sufficient to meet our ongoing obligations. In addition, we believe our currently-available borrowing capacity, access to additional financing, and ability to reduce or defer expenditures on property additions and decrease shareholder distributions, including share repurchases, provide additional flexibility to meet our ongoing obligations. Nonetheless, we are monitoring the ongoing impacts of the COVID-19 pandemic, which could lead to a ~~further~~ decline of cash inflows from operations. There have been no material changes to the information on future contractual obligations contained in our Form 10-K for the

year ended December 31, ~~2019, with the exception of additional senior notes (see Note 8) and $150 million of unconditional purchase obligations, which extend through 2021.~~2020.

APPLICATION OF CRITICAL ACCOUNTING POLICIES

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 revenue 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. There have been no significant changes to the application of the critical accounting policies contained in our Form 10-K at December 31, ~~2019.~~2020.

OTHER MATTERS

Labor Agreements

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

New Accounting Pronouncements

For a detailed discussion of new accounting pronouncements, see Note 12.

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 ~~the risks and uncertainties related to the COVID-19 pandemic and~~ those discussed under “Risk Factors” in our latest Form 10-K, as well as our subsequent filings with the Securities and Exchange Commission, 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.

Additional Information

Investors and others should note that we routinely use the Investor Relations and Sustainability sections of our website (www.norfolksouthern.com/content/nscorp/en/investor-relations.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 Quarterly Report on Form 10-Q.

Item 3. Quantitative and Qualitative Disclosures About Market ~~Risk.~~Risk

The information required by this item is included in Part I, Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” under the heading “Financial Condition and Liquidity.”

Item 4. Controls and ~~Procedures.~~Procedures

Evaluation of 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 ~~September 30, 2020.~~March 31, 2021. Based on such evaluation, our officers have concluded that, at ~~September 30, 2020,~~March 31, 2021, our disclosure controls and procedures were effective in alerting them on a timely basis to material information required to be included in our periodic filings under the Exchange Act.

Changes in Internal Control Over Financial Reporting

During the ~~third~~first quarter of ~~2020,~~2021, we have not identified any changes in internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

2925

PART II. OTHER INFORMATION

Item 1. Legal ~~Proceedings.~~Proceedings

Item 1A. Risk ~~Factors.~~Factors

The risks set forth in “Risk Factors” included in our ~~2019~~2020 Form 10-K could have a material 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. Those risks remain unchanged and are incorporated herein by ~~reference and are updated to include the following risk.~~reference.

The COVID-19 pandemic could impact us, our customers, our supply chain and our operations. The pandemic has negatively impacted the economy and continues to generate significant economic uncertainty. It has had a significant adverse impact on our results of operations, and may have material adverse impacts on our financial position, results of operations, or liquidity. The magnitude and duration of the pandemic, and its impact on our customers and general economic conditions will influence the demand for our services and affect our revenues. In addition, COVID-19 could affect our operations and business continuity if a significant number of our essential employees, overall or in a key location, are quarantined from contraction of or exposure to the disease or if governmental orders prevent our operating employees or critical suppliers from working. To the extent COVID-19 adversely affects our business and financial results, it may also have the effect of heightening many of the other risks described in the risk factors included in our 2019 Form 10-K.

Item 2. Unregistered Sales of Equity Securities and Use of ~~Proceeds.~~Proceeds

(a) Total
Number
of Shares
(or Units) (b) Average
Price Paid
per Share (c) Total
Number of
Shares
(or Units)
Purchased
as Part of
Publicly
Announced
Plans or (d) Maximum
Number (or
Approximate
Dollar Value)
of Shares (or Units)
that may yet be
purchased under
the Plans or
Period
Purchased (1)
(or Unit)
Programs (2)
Programs (2)
July 1-31, 2020 370,977 $ 181.20 370,532 23,814,662
August 1-31, 2020 463,900 207.56 459,832 23,354,830
September 1-30, 2020 602,751 214.44 601,940 22,752,890
Total 1,437,628 1,432,304


Period	(a) Total Number of Shares (or Units) Purchased (1)	(a) Total Number of Shares (or Units)		(c) Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans or Programs (2)	(d) Maximum Number (or Approximate Dollar Value) of Shares (or Units) that may yet be purchased under the Plans or Programs (2)

January 1-31, 2021	516,139	$	246.03	515,572	20,173,200
February 1-28, 2021	806,030	250.96		806,030	19,367,170
March 1-31, 2021	1,003,194	260.81		1,002,802	18,364,368

Total	2,325,363			2,324,404

(1)Of this amount, ~~5,324~~959 represent shares tendered by employees in connection with the exercise of options under the stockholder-approved Long-Term Incentive Plan.

(2)On September 26, 2017, our Board of Directors authorized the repurchase of up to an additional 50 million shares of Common Stock through December 31, 2022. As of ~~September 30, 2020, 22.8~~March 31, 2021, 18.4 million shares remain authorized for repurchase.

3126

Item 6. ~~Exhibits.~~Exhibits



31-A*			Rule 13a-14(a)/15d-014(a) CEO Certifications.

31-B*			Rule 13a-14(a)/15d-014(a) CFO Certifications.

32*			Section 1350 Certifications.

101*			The following financial information from Norfolk Southern Corporation’s Quarterly Report on Form 10-Q for the ~~third~~first quarter of ~~2020,~~2021, formatted in Inline Extensible Business Reporting Language (iXBRL) includes (i) the Consolidated Statements of Income for the ~~third~~first quarter of 2021 and ~~first nine months of 2020 and 2019;~~2020; (ii) the Consolidated Statements of Comprehensive Income for the ~~third~~first quarter of 2021 and ~~first nine months of 2020 and 2019;~~2020; (iii) the Consolidated Balance Sheets at ~~September 30, 2020~~March 31, 2021 and December 31, ~~2019;~~2020; (iv) the Consolidated Statements of Cash Flows for the first ~~nine~~three months of ~~2020~~2021 and ~~2019;~~2020; (v) the Consolidated Statements of Changes in Stockholders’ Equity for the ~~third~~first quarter of 2021 and ~~first nine months of 2020 and 2019;~~2020; and (vi) the Notes to Consolidated Financial Statements.

104*			Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).

* Filed herewith.

3227

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


		NORFOLK SOUTHERN CORPORATION Registrant



Date:	~~October~~April 28, ~~2020~~2021	/s/ Clyde H. Allison, Jr.
		Clyde H. Allison, Jr. Vice President and Controller (Principal Accounting Officer) (Signature)


Date:	~~October~~April 28, ~~2020~~2021	/s/ Denise W. Hutson
		Denise W. Hutson Corporate Secretary (Signature)

3328


	Balance at Beginning of Year		Net Income (Loss)		Reclassification Adjustments		Balance at End of Period
	($ in millions)
Nine Months Ended September 30, 2020
Pensions and other postretirement liabilities	$	(421)	$	0	$	14	$	(407)
Other comprehensive income (loss) of equity
investees	(70)		6		0		(64)

Accumulated other comprehensive loss	$	(491)	$	6	$	14	$	(471)

Nine Months Ended September 30, 2019
Pensions and other postretirement liabilities	$	(497)	$	0	$	11	$	(486)
Other comprehensive loss of equity investees	(66)		(1)		0		(67)

Accumulated other comprehensive loss	$	(563)	$	(1)	$	11	$	(553)


	September 30, 2020				December 31, 2019
	Carrying Amount		Fair Value		Carrying Amount		Fair Value
	($ in millions)


Long-term debt, including current maturities	$	(12,723)	$	(16,582)	$	(12,196)	$	(14,806)


	Non-GAAP Reconciliation for First Nine Months
	Reported 2020 (GAAP)		First Quarter Loss on Asset Disposal		Third Quarter Investment Impairment		Adjusted 2020 (non-GAAP)
	($ in millions, except per share amounts)

Railway operating expenses	$	5,198	$	(385)	$	(99)	$	4,714
Income from railway operations	$	2,018	$	385	$	99	$	2,502
Net income	$	1,342	$	288	$	74	$	1,704
Diluted earnings per share	$	5.21	$	1.12	$	0.29	$	6.62
Railway operating ratio (percent)	72.0		(5.3)		(1.4)		65.3


	(a) Total Number of Shares (or Units)	(b) Average Price Paid per Share		(c) Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans or	(d) Maximum Number (or Approximate Dollar Value) of Shares (or Units) that may yet be purchased under the Plans or
Period	Purchased (1)	(or Unit)		Programs (2)	Programs (2)

July 1-31, 2020	370,977	$	181.20	370,532	23,814,662
August 1-31, 2020	463,900	207.56		459,832	23,354,830
September 1-30, 2020	602,751	214.44		601,940	22,752,890

Total	1,437,628			1,432,304