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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended SEPTEMBER 30, 2020
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________ to___________
Commission File Number: 1-8339
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
Common Stock ($1.00 par value per share) |  | 253,985,338 | (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 Quarter and First Nine Months of 2020 and 2019 | 3
|  | Consolidated Statements of Comprehensive Income Third Quarter and First Nine Months of 2020 and 2019 | 4
|  | Consolidated Balance Sheets At September 30, 2020 and December 31, 2019 | 5
|  | Consolidated Statements of Cash Flows First Nine Months of 2020 and 2019 | 6
|  | Consolidated Statements of Changes in Stockholders’ Equity Third Quarter and First Nine Months of 2020 and 2019 | 7
|  | Notes to Consolidated Financial Statements | 9
| Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 19
| Item 3. | Quantitative and Qualitative Disclosures About Market Risk | 29
| Item 4. | Controls and Procedures | 29
Part II. | Other Information: |
| Item 1. | Legal Proceedings | 30
| Item 1A. | Risk Factors | 30
| Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 31
| Item 6. | Exhibits | 32
|  | Signatures | 33

2

PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
Norfolk Southern Corporation and Subsidiaries
Consolidated Statements of Income
(Unaudited)

| Third Quarter |  | First Nine Months
| 2020 |  | 2019 |  | 2020 |  | 2019
| ($ in millions, except per share amounts)
Railway operating revenues | $ | 2,506 |  |  | $ | 2,841 |  |  | $ | 7,216 |  |  | $ | 8,606 |
Railway operating expenses: |  |  |  |  |  |  |
Compensation and benefits | 578 |  |  | 682 |  |  | 1,786 |  |  | 2,121 |
Purchased services and rents | 486 |  |  | 423 |  |  | 1,261 |  |  | 1,265 |
Fuel | 126 |  |  | 226 |  |  | 399 |  |  | 730 |
Depreciation | 293 |  |  | 286 |  |  | 867 |  |  | 853 |
Materials and other | 183 |  |  | 228 |  |  | 500 |  |  | 610 |
Loss on asset disposal | — |  |  | — |  |  | 385 |  |  | — |
Total railway operating expenses | 1,666 |  |  | 1,845 |  |  | 5,198 |  |  | 5,579 |
Income from railway operations | 840 |  |  | 996 |  |  | 2,018 |  |  | 3,027 |
Other income – net | 39 |  |  | 22 |  |  | 110 |  |  | 88 |
Interest expense on debt | 155 |  |  | 150 |  |  | 465 |  |  | 452 |
Income before income taxes | 724 |  |  | 868 |  |  | 1,663 |  |  | 2,663 |
Income taxes | 155 |  |  | 211 |  |  | 321 |  |  | 607 |
Net income | $ | 569 |  |  | $ | 657 |  |  | $ | 1,342 |  |  | $ | 2,056 |
Earnings per share: |  |  |  |  |  |  |
Basic | $ | 2.23 |  |  | $ | 2.50 |  |  | $ | 5.24 |  |  | $ | 7.76 |
Diluted | 2.22 |  |  | 2.49 |  |  | 5.21 |  |  | 7.70 |

See accompanying notes to consolidated financial statements.
3

Norfolk Southern Corporation and Subsidiaries
Consolidated Statements of Comprehensive Income
(Unaudited)

| Third Quarter |  | First Nine Months
| 2020 |  | 2019 |  | 2020 |  | 2019
| ($ in millions)
Net income | $ | 569 |  |  | $ | 657 |  |  | $ | 1,342 |  |  | $ | 2,056 |
Other comprehensive income, before tax: |  |  |  |  |  |  |
Pension and other postretirement benefits | 7 |  |  | 5 |  |  | 20 |  |  | 15 |
Other comprehensive income (loss) of equity investees | — |  |  | — |  |  | 6 |  |  | (1) |
Other comprehensive income, before tax | 7 |  |  | 5 |  |  | 26 |  |  | 14 |
Income tax expense related to items of |  |  |  |  |  |  |
other comprehensive income | (3) |  |  | (1) |  |  | (6) |  |  | (4) |
Other comprehensive income, net of tax | 4 |  |  | 4 |  |  | 20 |  |  | 10 |
Total comprehensive income | $ | 573 |  |  | $ | 661 |  |  | $ | 1,362 |  |  | $ | 2,066 |

See accompanying notes to consolidated financial statements.
4

Norfolk Southern Corporation and Subsidiaries
Consolidated Balance Sheets
(Unaudited)

| September 30, 2020 |  | December 31, 2019
| ($ in millions)
Assets |  |  |
Current assets: |  |  |
Cash and cash equivalents | $ | 1,359 |  |  | $ | 580 |
Accounts receivable – net | 883 |  |  | 920 |
Materials and supplies | 247 |  |  | 244 |
Other current assets | 90 |  |  | 337 |
Total current assets | 2,579 |  |  | 2,081 |
Investments | 3,566 |  |  | 3,428 |
Properties less accumulated depreciation of $11,873 |  |  |
and $11,982, respectively | 31,239 |  |  | 31,614 |
Other assets | 795 |  |  | 800 |
Total assets | $ | 38,179 |  |  | $ | 37,923 |
Liabilities and stockholders’ equity |  |  |
Current liabilities: |  |  |
Accounts payable | $ | 1,273 |  |  | $ | 1,428 |
Income and other taxes | 257 |  |  | 229 |
Other current liabilities | 386 |  |  | 327 |
Current maturities of long-term debt | 89 |  |  | 316 |
Total current liabilities | 2,005 |  |  | 2,300 |
Long-term debt | 12,634 |  |  | 11,880 |
Other liabilities | 1,701 |  |  | 1,744 |
Deferred income taxes | 6,898 |  |  | 6,815 |
Total liabilities | 23,238 |  |  | 22,739 |
Stockholders’ equity: |  |  |
Common stock $1.00 per share par value, 1,350,000,000 shares |  |  |
authorized; outstanding 253,985,338 and 257,904,956 shares, |  |  |
respectively, net of treasury shares | 255 |  |  | 259 |
Additional paid-in capital | 2,246 |  |  | 2,209 |
Accumulated other comprehensive loss | (471) |  |  | (491) |
Retained income | 12,911 |  |  | 13,207 |
Total stockholders’ equity | 14,941 |  |  | 15,184 |
Total liabilities and stockholders’ equity | $ | 38,179 |  |  | $ | 37,923 |

See accompanying notes to consolidated financial statements.
5

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 |  |  | — |
| Impairment of investment | 99 |  |  | — |
| 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 |

See accompanying notes to consolidated financial statements.
6

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

| Common Stock |  | Additional Paid-in Capital |  | Accum. Other Comprehensive Loss |  | Retained Income |  | Total
| ($ in millions, except per share amounts)
Balance at December 31, 2019 | $ | 259 |  |  | $ | 2,209 |  |  | $ | (491) |  |  | $ | 13,207 |  |  | $ | 15,184 |
Comprehensive income: |  |  |  |  |  |  |  |  |
Net 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 |
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 |

See accompanying notes to consolidated financial statements.
7

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

| Common Stock |  | Additional Paid-in Capital |  | Accum. Other Comprehensive Loss |  | Retained Income |  | Total
| ($ in millions, except per share amounts)
Balance at December 31, 2018 | $ | 269 |  |  | $ | 2,216 |  |  | $ | (563) |  |  | $ | 13,440 |  |  | $ | 15,362 |
Comprehensive income: |  |  |  |  |  |  |  |  |
Net 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 to consolidated financial statements.
8

Norfolk Southern Corporation and Subsidiaries
Notes to Consolidated Financial Statements
(Unaudited)
In the opinion of management, the accompanying unaudited interim consolidated financial statements contain all adjustments (consisting of normal recurring accruals) necessary to present fairly Norfolk Southern Corporation (Norfolk Southern) and subsidiaries’ (collectively, NS, we, us, and our) financial position at September 30, 2020, and December 31, 2019, our results of operations, comprehensive income and changes in stockholders’ equity for the third quarters and first nine months of 2020 and 2019, and our cash flows for the first nine months of 2020 and 2019 in conformity with U.S. generally accepted accounting principles (GAAP).
These consolidated financial statements should be read in conjunction with the consolidated financial statements and notes included in our latest Annual Report on Form 10-K.
1. Railway Operating Revenues
The following table disaggregates our revenues by major commodity group:

|  | 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.
We recognize the amount of revenue we expect to be entitled to for the transfer of promised goods or services to customers. A performance obligation is created when a customer under a transportation contract or public tariff submits a bill of lading to NS for the transport of goods. These performance obligations are satisfied as the shipments move from origin to destination. As such, transportation revenue is recognized proportionally as a shipment moves, and related expenses are recognized as incurred. These performance obligations are generally short-term in nature with transit days averaging approximately one week or less for each commodity group. The customer has an unconditional obligation to pay for the service once the service has been completed. Estimated revenue associated with in-process shipments at period-end is recorded based on the estimated percentage of service completed. We had no material remaining performance obligations as of September 30, 2020 or December 31, 2019.
Revenue related to interline transportation services that involve another railroad is reported on a net basis. Therefore, the portion of the amount that relates to another party is not reflected in revenue.
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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
|  | ($ in millions)
Customer |  | $ | 664 |  |  | $ | 682 |
Non-customer |  | 219 |  |  | 238 |
Accounts receivable – net |  | $ | 883 |  |  | $ | 920 |

Non-customer receivables include non-revenue-related amounts due from other railroads, governmental entities, and others. “Other assets” on the Consolidated Balance Sheets includes non-current customer receivables of $23 million at both September 30, 2020 and December 31, 2019. We do not have any material contract assets or liabilities at September 30, 2020 or 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.
2. Stock-Based Compensation

|  | Third Quarter |  | First Nine Months
|  | 2020 |  | 2019 |  | 2020 |  | 2019
|  | ($ in millions)
Stock-based compensation expense |  | $ | 13 |  |  | $ | 10 |  |  | $ | 25 |  |  | $ | 46 |
Total tax benefit |  | 10 |  |  | 3 |  |  | 39 |  |  | 34 |

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

|  | Third Quarter |  | First Nine Months
|  | Granted |  | Weighted-Average Grant-Date Fair Value |  | Granted |  | Weighted-Average Grant-Date Fair Value
Stock options |  | — |  |  | $ | — |  |  | 43,770 |  |  | $ | 52.05 |
RSUs |  | 10,230 |  |  | 211.90 |  |  | 177,770 |  |  | 210.13 |
PSUs |  | — |  |  | — |  |  | 78,720 |  |  | 212.67 |

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Stock Options

|  | Third Quarter |  | First Nine Months
|  | 2020 |  | 2019 |  | 2020 |  | 2019
|  | ($ in millions)
Stock options exercised |  | 313,358 |  | 55,155 |  |  | 998,996 |  |  | 677,072 |
Cash received upon exercise |  | $ | 27 |  |  | $ | 3 |  |  | $ | 82 |  |  | $ | 47 |
Related tax benefit realized |  | 8 |  |  | 1 |  |  | 24 |  |  | 16 |

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
|  | 2020 |  | 2019 |  | 2020 |  | 2019
|  | ($ in millions)
RSUs vested |  | 1,635 |  |  | 142 |  |  | 203,934 |  |  | 166,197 |
Common Stock issued net of tax withholding |  | 1,630 |  |  | 102 |  |  | 145,342 |  |  | 119,346 |
Related tax benefit realized |  | $ | — |  |  | $ | — |  |  | $ | 4 |  |  | $ | 2 |

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

|  | First Nine Months
|  | 2020 |  | 2019
|  | ($ in millions)
PSUs earned |  | 235,935 |  |  | 331,099
Common Stock issued net of tax withholding |  | 156,450 |  |  | 221,241
Related tax benefit realized |  | $ | 7 |  |  | $ | 9 |

3. Loss on Asset Disposal
In the first quarter of 2020, in connection with our initiatives to increase operational fluidity and asset utilization and improve labor and fuel efficiency, we committed to a plan to dispose of certain locomotives deemed excess and no longer needed for railroad operations. When depreciable operating road and equipment assets are sold or retired in the ordinary course of business, the cost of the assets, net of sale proceeds or salvage, is charged to accumulated depreciation, and no gain or loss is recognized in earnings. A retirement is considered abnormal if it does not occur in the ordinary course of business, if it relates to disposition of a large segment of an asset class and if the retirement varies significantly from the retirement profile identified through our depreciation studies, which inherently consider the impact of normal retirements on expected service lives and depreciation rates. We evaluated the
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planned locomotive retirements and concluded they were abnormal. Accordingly, a $385 million loss was recorded to adjust their carrying amount to their estimated fair value, which resulted in a $97 million tax benefit. During the first 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
| Third Quarter
| 2020 |  | 2019 |  | 2020 |  | 2019
| ($ in millions, except per share amounts, shares in millions)
Net income | $ | 569 |  |  | $ | 657 |  |  | $ | 569 |  |  | $ | 657 |
Dividend equivalent payments | (2) |  |  | (1) |  |  | (1) |  |  | — |
Income available to common stockholders | $ | 567 |  |  | $ | 656 |  |  | $ | 568 |  |  | $ | 657 |
Weighted-average shares outstanding | 254.6 |  |  | 262.1 |  |  | 254.6 |  |  | 262.1 |
Dilutive effect of outstanding options and share-settled awards |  |  |  |  | 1.5 |  |  | 2.2 |
Adjusted weighted-average shares outstanding |  |  |  |  | 256.1 |  |  | 264.3 |
Earnings per share | $ | 2.23 |  |  | $ | 2.50 |  |  | $ | 2.22 |  |  | $ | 2.49 |
| 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) |  |  | — |
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 |

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During the third quarters and first nine months of 2020 and 2019, we made dividend equivalent payments to certain holders of stock options and RSUs. For purposes of computing basic earnings per share, dividend equivalent payments made to holders of stock options and RSUs were deducted from net income to determine income available to common stockholders. For purposes of computing diluted earnings per share, we evaluate on a grant-by-grant basis those stock options and RSUs receiving dividend equivalent payments under the two-class and treasury stock methods to determine which method is more dilutive for each grant. For those grants for which the two-class method was more dilutive, net income was reduced by dividend equivalent payments to determine income available to common stockholders. There are no awards outstanding that were antidilutive for the third quarters and first nine months ended September 30, 2020 and 2019.
5. Accumulated Other Comprehensive Loss
The changes in the cumulative balances of “Accumulated other comprehensive loss” reported in the Consolidated Balance Sheets consisted of the following:

| Balance at 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) |  |  | $ | — |  |  | $ | 14 |  |  | $ | (407) |
Other comprehensive income (loss) of equity |  |  |  |  |  |  |
investees | (70) |  |  | 6 |  |  | — |  |  | (64) |
Accumulated other comprehensive loss | $ | (491) |  |  | $ | 6 |  |  | $ | 14 |  |  | $ | (471) |
Nine Months Ended September 30, 2019 |  |  |  |  |  |  |
Pensions and other postretirement liabilities | $ | (497) |  |  | $ | — |  |  | $ | 11 |  |  | $ | (486) |
Other comprehensive loss of equity investees | (66) |  |  | (1) |  |  | — |  |  | (67) |
Accumulated other comprehensive loss | $ | (563) |  |  | $ | (1) |  |  | $ | 11 |  |  | $ | (553) |

6. Stock Repurchase Program
We repurchased and retired 5.3 million and 8.4 million shares of Common Stock under our stock repurchase program during the first nine months of 2020 and 2019, respectively, at a cost of $960 million and $1.6 billion, 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, and CSX has the remainder of the economic and voting interests. Our investment in Conrail was $1.4 billion at both September 30, 2020 and December 31, 2019.
CRC owns and operates certain properties (the Shared Assets Areas) for the joint and exclusive benefit of Norfolk Southern Railway Company (NSR) and CSX Transportation, Inc. (CSXT). The costs of operating the Shared Assets Areas are borne by NSR and CSXT based on usage. In addition, NSR and CSXT pay CRC a fee for access to the Shared Assets Areas. “Purchased services and rents” and “Fuel” include amounts payable to CRC for the operation of the Shared Assets Areas totaling $32 million and $37 million for the third quarters of 2020 and 2019,
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respectively, and $97 million and $112 million for the first nine months of 2020 and 2019, respectively. Our equity in the earnings of Conrail, net of amortization, included in “Purchased services and rents,” which offsets the costs of operating the Shared Assets Areas, was $17 million and $13 million for the third quarters of 2020 and 2019, respectively, and $39 million and $36 million for the first nine months of 2020 and 2019, respectively.
“Other liabilities” includes $280 million at both September 30, 2020 and December 31, 2019, for long-term advances from Conrail, maturing 2044, that bear interest at an average rate of 2.9%.
Investment in TTX
NS and eight other North American railroads jointly own TTX Company (TTX). NS has a 19.65% ownership interest in TTX, a railcar pooling company that provides its owner-railroads with standardized fleets of intermodal, automotive, and general use railcars at stated rates.
Amounts paid to TTX for use of equipment are included in “Purchased services and rents” and amounted to $67 million and $61 million of expense for the third quarters of 2020 and 2019, respectively, and $185 million and $183 million for the first nine months of 2020 and 2019, respectively. Our equity in the earnings of TTX, which offsets the costs and are also included in “Purchased services and rents,” totaled $21 million and $19 million for the third quarters of 2020 and 2019, respectively, and $35 million and $44 million for the first nine months of 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 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 accounts receivable securitization program with maximum borrowing capacity of $400 million and a term expiring in May 2021. We had no amounts outstanding at both September 30, 2020, and December 31, 2019, and our available borrowing capacity was $400 million and $429 million, respectively.
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 no 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.
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9. Pensions and Other Postretirement Benefits
We have both funded and unfunded defined benefit pension plans covering principally salaried employees. We also provide specified health care and life insurance benefits to eligible retired employees; these plans can be amended or terminated at our option. Under our self-insured retiree health care plan, for those participants who are not Medicare-eligible, certain health care expenses are covered for retired employees and their dependents, reduced by any deductibles, coinsurance, and, in some cases, coverage provided under other group insurance policies. Those participants who are Medicare-eligible are not covered under the self-insured retiree health care plan, but instead are provided with an employer-funded health reimbursement account which can be used for reimbursement of health insurance premiums or eligible out-of-pocket medical expenses.
Pension and postretirement benefit cost components for the third quarter and first nine months were as follows:

|  |  |  |  | Other Postretirement
| Pension Benefits |  | Benefits
| Third Quarter
| 2020 |  | 2019 |  | 2020 |  | 2019
| ($ in millions)
Service cost | $ | 10 |  |  | $ | 9 |  |  | $ | 2 |  |  | $ | 2 |
Interest cost | 19 |  |  | 24 |  |  | 3 |  |  | 4 |
Expected return on plan assets | (48) |  |  | (45) |  |  | (4) |  |  | (4) |
Amortization of net losses | 13 |  |  | 11 |  |  | — |  |  | — |
Amortization of prior service benefit | — |  |  | — |  |  | (6) |  |  | (6) |
Net benefit | $ | (6) |  |  | $ | (1) |  |  | $ | (5) |  |  | $ | (4) |

|  |  |  |  | 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 |  |  | — |  |  | — |
Amortization of prior service benefit | — |  |  | — |  |  | (19) |  |  | (18) |
Net benefit | $ | (18) |  |  | $ | (5) |  |  | $ | (15) |  |  | $ | (11) |

The service cost components 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.
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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 or December 31, 2019. The carrying amounts and estimated fair values, based on Level 1 inputs, of long-term debt consisted 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) |

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. While the ultimate amount of liability incurred in any of these lawsuits and claims is dependent on future developments, in our opinion, the recorded liability is adequate to cover the future payment of such liability and claims. However, the final outcome of any of these lawsuits and claims cannot be predicted with certainty, and unfavorable or unexpected outcomes could result in additional accruals that could be significant to results of operations in a particular year or quarter. Any adjustments to the recorded liability will be reflected in earnings in the periods in which such adjustments become known.
In 2007, various antitrust class actions filed against us and other Class I railroads in various Federal district courts regarding fuel surcharges were consolidated in the District of Columbia by the Judicial Panel on Multidistrict Litigation. In 2012, the court certified the case as a class action. The defendant railroads appealed this certification, and the Court of Appeals for the District of Columbia vacated the District Court’s decision and remanded the case for further consideration. On October 10, 2017, the District Court denied class certification. The decision was upheld by the Court of Appeals on August 16, 2019. Since that decision, various individual cases have been filed in multiple jurisdictions 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 personal injury and occupational claims are subject to the F ederal 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
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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 future claim payments 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 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 future claim payments. 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 determining any necessary adjustments to liability estimates.
Our Consolidated Balance Sheets include liabilities for environmental exposures of $55 million and $56 million at September 30, 2020 and December 31, 2019, respectively, of which $15 million is classified as a current liability at both dates. At September 30, 2020, the liability represents our estimates of the probable cleanup, investigation, and remediation costs based on available information at 105 known locations and projects compared with 110 locations and projects at December 31, 2019. At September 30, 2020, seventeen sites accounted for $41 million of the liability, and no individual site was considered to be material. We anticipate that much of this liability will be paid out over five years; however, some costs will be paid out over a longer period.
At eleven 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
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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 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 ($1.5 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 above $75 million and below $275 million per occurrence and/or policy year.
12. New Accounting Pronouncements
On January 1, 2020, 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 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.
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Norfolk Southern Corporation and Subsidiaries
The following discussion and analysis should be read in conjunction with the Consolidated Financial Statements and Notes.
OVERVIEW
We are one of the nation’s premier transportation companies. Our Norfolk Southern Railway Company subsidiary operates approximately 19,500 route miles in 22 states and the District of Columbia, serves every major container port in the eastern United States, and provides efficient connections to other rail carriers. We are a major transporter of industrial products, including chemicals, agriculture, and metals and construction materials. In addition, we operate the most extensive intermodal network in the East and are a principal carrier of coal, automobiles, and automotive parts.
The ongoing COVID-19 pandemic has caused significant economic disruption and continues 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 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 as a result of the pandemic, we continue to execute on operational initiatives to improve efficiencies and lower our cost structure.
COVID-19 is generating significant uncertainty in the economy and our outlook as we conclude 2020. We continue to monitor the impact of the pandemic on our employees’ availability, which has not been adversely affected in a significant manner this year. 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
| 2020 |  | 2019 |  | % change |  | 2020 |  | 2019 |  | % change
Income from railway operations | $ | 840 |  |  | $ | 996 |  |  | (16%) |  | $ | 2,018 |  |  | $ | 3,027 |  |  | (33%)
Net income | $ | 569 |  |  | $ | 657 |  |  | (13%) |  | $ | 1,342 |  |  | $ | 2,056 |  |  | (35%)
Diluted earnings per share | $ | 2.22 |  |  | $ | 2.49 |  |  | (11%) |  | $ | 5.21 |  |  | $ | 7.70 |  |  | (32%)
Railway operating ratio (percent) | 66.5 |  |  | 64.9 |  |  | 2% |  | 72.0 |  |  | 64.8 |  |  | 11%

Decreases in railway operating revenues exceeded operating expense declines, resulting in reduced income from railway operations and increased operating ratios. Railway operating revenues declined in both periods 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 results were adversely impacted by a $99 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, see Notes 7 and 3.
The following tables adjust our 2020 GAAP financial results for the third quarter and first nine months to exclude the effects of these charges. We use these non-GAAP financial measures internally and believe this information
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provides useful supplemental information to investors to facilitate making period-to-period comparisons by excluding the 2020 charges. While we believe that these non-GAAP financial measures are useful in evaluating our business, this information should be considered as supplemental in nature and is not meant to be considered in isolation, 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
| Reported 2020 (GAAP) |  | 2020 Investment Impairment |  | Adjusted 2020 (non-GAAP)
| ($ in millions, except per share amounts)
Railway operating expenses | $ | 1,666 |  |  | $ | (99) |  |  | $ | 1,567 |
Income from railway operations | $ | 840 |  |  | $ | 99 |  |  | $ | 939 |
Net income | $ | 569 |  |  | $ | 74 |  |  | $ | 643 |
Diluted earnings per share | $ | 2.22 |  |  | $ | 0.29 |  |  | $ | 2.51 |
Railway operating ratio (percent) | 66.5 |  |  | (4.0) |  |  | 62.5 |

In the table below, references to the third quarter of 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%)

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| 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%

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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
Revenues | 2020 |  | 2019 |  | % change |  | 2020 |  | 2019 |  | % change
Merchandise: |  |  |  |  |  |  |  |  |  |  |
Agriculture, forest and consumer products | $ | 521 |  |  | $ | 572 |  |  | (9%) |  | $ | 1,570 |  |  | $ | 1,707 |  |  | (8%)
Chemicals | 428 |  |  | 535 |  |  | (20%) |  | 1,371 |  |  | 1,586 |  |  | (14%)
Metals and construction | 337 |  |  | 377 |  |  | (11%) |  | 997 |  |  | 1,131 |  |  | (12%)
Automotive | 270 |  |  | 247 |  |  | 9% |  | 597 |  |  | 749 |  |  | (20%)
Merchandise | 1,556 |  |  | 1,731 |  |  | (10%) |  | 4,535 |  |  | 5,173 |  |  | (12%)
Intermodal | 700 |  |  | 707 |  |  | (1%) |  | 1,924 |  |  | 2,127 |  |  | (10%)
Coal | 250 |  |  | 403 |  |  | (38%) |  | 757 |  |  | 1,306 |  |  | (42%)
Total | $ | 2,506 |  |  | $ | 2,841 |  |  | (12%) |  | $ | 7,216 |  |  | $ | 8,606 |  |  | (16%)

Units |  |  |  |  |  |  |
Merchandise: |  |  |  |  |  |  |  |  |  |  |
Agriculture, forest and consumer products | 176.4 |  |  | 191.7 |  |  | (8%) |  | 523.7 |  |  | 583.0 |  |  | (10%)
Chemicals | 111.9 |  |  | 148.2 |  |  | (24%) |  | 366.3 |  |  | 446.9 |  |  | (18%)
Metals and construction | 157.2 |  |  | 182.5 |  |  | (14%) |  | 448.2 |  |  | 529.0 |  |  | (15%)
Automotive | 105.7 |  |  | 99.5 |  |  | 6% |  | 233.2 |  |  | 299.4 |  |  | (22%)
Merchandise | 551.2 |  |  | 621.9 |  |  | (11%) |  | 1,571.4 |  |  | 1,858.3 |  |  | (15%)
Intermodal | 1,068.8 |  |  | 1,059.9 |  |  | 1% |  | 2,908.3 |  |  | 3,179.4 |  |  | (9%)
Coal | 147.7 |  |  | 218.7 |  |  | (32%) |  | 422.8 |  |  | 713.3 |  |  | (41%)
Total | 1,767.7 |  |  | 1,900.5 |  |  | (7%) |  | 4,902.5 |  |  | 5,751.0 |  |  | (15%)

Revenue per Unit |  |  |  |  |  |  |
Merchandise: |  |  |  |  |  |  |  |  |  |  |
Agriculture, forest and consumer products | $ | 2,953 |  |  | $ | 2,984 |  |  | (1%) |  | $ | 2,998 |  |  | $ | 2,928 |  |  | 2%
Chemicals | 3,827 |  |  | 3,609 |  |  | 6% |  | 3,742 |  |  | 3,549 |  |  | 5%
Metals and construction | 2,145 |  |  | 2,066 |  |  | 4% |  | 2,226 |  |  | 2,138 |  |  | 4%
Automotive | 2,548 |  |  | 2,480 |  |  | 3% |  | 2,558 |  |  | 2,502 |  |  | 2%
Merchandise | 2,822 |  |  | 2,783 |  |  | 1% |  | 2,886 |  |  | 2,784 |  |  | 4%
Intermodal | 655 |  |  | 668 |  |  | (2%) |  | 662 |  |  | 669 |  |  | (1%)
Coal | 1,698 |  |  | 1,842 |  |  | (8%) |  | 1,791 |  |  | 1,831 |  |  | (2%)
Total | 1,418 |  |  | 1,495 |  |  | (5%) |  | 1,472 |  |  | 1,496 |  |  | (2%)

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.
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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 million in the third quarter and $1.4 billion for the first nine months compared with the same periods last year. The table below reflects the components of the revenue change by major commodity group ($ in millions).

|  | Third Quarter |  | First Nine Months
|  | Increase (Decrease) |  | Increase (Decrease)
|  | Merchandise |  | Intermodal |  | Coal |  | Merchandise |  | Intermodal |  | Coal
Volume |  | $ | (197) |  |  | $ | 6 |  |  | $ | (131) |  |  | $ | (799) |  |  | $ | (181) |  |  | $ | (532) |
Fuel surcharge revenue |  | (34) |  |  | (35) |  |  | (2) |  |  | (64) |  |  | (93) |  |  | (11) |
Rate, mix and other |  | 56 |  |  | 22 |  |  | (20) |  |  | 225 |  |  | 71 |  |  | (6) |
Total |  | $ | (175) |  |  | $ | (7) |  |  | $ | (153) |  |  | $ | (638) |  |  | $ | (203) |  |  | $ | (549) |

Approximately 90% of our revenue base is covered by contracts that include negotiated fuel surcharges. Revenues associated with these surcharges totaled $75 million and $146 million in the third quarters of 2020 and 2019, respectively, and $275 million and $443 million for the first nine months of 2020 and 2019, respectively. The decreases in fuel surcharge revenues for the third quarter and first nine months are driven by lower fuel commodity prices and volume declines.
Merchandise
Merchandise revenue decreased in both periods as lower volumes were partially offset by higher average revenue per unit driven by pricing gains. Volumes fell in most merchandise commodity groups due to the impact 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 and shipping of finished and semi-finished goods.
Agriculture, forest and consumer products volume decreased in both periods due to the continued impact of COVID-19 on ethanol demand, food service, and building, industrial and commercial activities.
Chemicals volume decreased in both periods due to the continued impact from COVID-19 and ongoing disruptions in the energy market. Oil and petroleum shipments continued to be negatively impacted due to reductions in gasoline/jet fuel demand and consumer travel. The pandemic created an overabundance of products in the market as companies reduced stockpiles before requiring more products.
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.
Automotive volume increased in the third quarter, but decreased for the first nine months. The third-quarter volume strength was driven by increased demand which partially offset the first-half 2020 unplanned automotive plant shutdowns, primarily due to the COVID-19 pandemic.
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Merchandise revenues for the remainder of the year are expected to decline as decreased volumes will be partially offset by increased revenue per unit driven by pricing gains.
Intermodal
Intermodal revenue declined in both periods. The third-quarter decline is a result of lower revenue per unit driven by decreased fuel surcharge revenue partially offset by positive mix 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 mix.
Intermodal units (in thousands) by market were as follows:

| Third Quarter |  | First Nine Months
| 2020 |  | 2019 |  | % change |  | 2020 |  | 2019 |  | % change
Domestic | 699.9 |  |  | 643.2 |  |  | 9% |  | 1,864.8 |  |  | 1,935.3 |  |  | (4%)
International | 368.9 |  |  | 416.7 |  |  | (11%) |  | 1,043.5 |  |  | 1,244.1 |  |  | (16%)
Total | 1,068.8 |  |  | 1,059.9 |  |  | 1% |  | 2,908.3 |  |  | 3,179.4 |  |  | (9%)

Domestic volumes increased in 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. International volumes fell in both periods, the result of supply chain disruptions from COVID-19.
Intermodal revenues for the remainder of the year are expected to increase primarily due to volume gains partially offset by lower revenue per unit due to decreased fuel surcharge revenue.
Coal
Coal revenues decreased in both periods, primarily driven by significant volume declines.
Coal tonnage (in thousands) by market was as follows:

| Third Quarter |  | First Nine Months
| 2020 |  | 2019 |  | % change |  | 2020 |  | 2019 |  | % change
Utility | 9,867 |  |  | 14,124 |  |  | (30%) |  | 24,465 |  |  | 47,008 |  |  | (48%)
Export | 3,585 |  |  | 5,403 |  |  | (34%) |  | 13,323 |  |  | 18,417 |  |  | (28%)
Domestic metallurgical | 2,379 |  |  | 3,649 |  |  | (35%) |  | 6,993 |  |  | 10,431 |  |  | (33%)
Industrial | 864 |  |  | 1,125 |  |  | (23%) |  | 2,592 |  |  | 3,528 |  |  | (27%)
Total | 16,695 |  |  | 24,301 |  |  | (31%) |  | 47,373 |  |  | 79,384 |  |  | (40%)

In both periods, low natural gas prices and reduced demand in global and domestic manufacturing due to COVID-19 negatively impacted each market. Utility coal tonnage was challenged 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
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decreased in both periods as a result of customer sourcing changes and continued pressure from natural gas conversions.
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.
Railway Operating Expenses
Railway operating expenses summarized by major classifications were as follows ($ in millions):

| Third Quarter |  | First Nine Months
| 2020 |  | 2019 |  | % change |  | 2020 |  | 2019 |  | % change
Compensation and benefits | $ | 578 |  |  | $ | 682 |  |  | (15%) |  | $ | 1,786 |  |  | $ | 2,121 |  |  | (16%)
Purchased services and rents | 486 |  |  | 423 |  |  | 15% |  | 1,261 |  |  | 1,265 |  |  | —%
Fuel | 126 |  |  | 226 |  |  | (44%) |  | 399 |  |  | 730 |  |  | (45%)
Depreciation | 293 |  |  | 286 |  |  | 2% |  | 867 |  |  | 853 |  |  | 2%
Materials and other | 183 |  |  | 228 |  |  | (20%) |  | 500 |  |  | 610 |  |  | (18%)
Loss on asset disposal | — |  |  | — |  |  |  |  | 385 |  |  | — |  |  |
Total | $ | 1,666 |  |  | $ | 1,845 |  |  | (10%) |  | $ | 5,198 |  |  | $ | 5,579 |  |  | (7%)

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),
•health and welfare benefits for agreement 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),
•overtime and recrews (down $11 million for the quarter and $48 million for the first nine months),
•increased pay rates (up $10 million for the quarter and $40 million for the first nine months),
•lower capitalized labor (additional expense of $18 million for the quarter and $41 million for the first nine months), and
•other (down $8 million for the quarter and $9 million for the first nine months).
Average rail headcount for the quarter was down by approximately 4,400 compared with the third quarter of 2019.
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Purchased services and rents increased in the third quarter but decreased slightly for the first nine months as follows ($ in millions):

| Third Quarter |  | First Nine Months
| 2020 |  | 2019 |  | % change |  | 2020 |  | 2019 |  | % change
Purchased services | $ | 419 |  |  | $ | 355 |  |  | 18% |  | $ | 1,042 |  |  | $ | 1,048 |  |  | (1%)
Equipment rents | 67 |  |  | 68 |  |  | (1%) |  | 219 |  |  | 217 |  |  | 1%
Total | $ | 486 |  |  | $ | 423 |  |  | 15% |  | $ | 1,261 |  |  | $ | 1,265 |  |  | —%

The increase in purchased services for the third quarter was due to a $99 million impairment related to an equity method investment. Both periods reflect volume-related decreases.
Fuel expense, which includes the cost of locomotive fuel as well as other fuel used in railway operations, decreased due to lower locomotive fuel prices (down 34% in the third quarter and 32% in the first nine months), and reduced consumption (down 17% in the third quarter and 21% in the first nine months).
Materials and other expenses decreased in both periods as follows ($ in millions):

| Third Quarter |  | First Nine Months
| 2020 |  | 2019 |  | % change |  | 2020 |  | 2019 |  | % change
Materials | $ | 72 |  |  | $ | 85 |  |  | (15%) |  | $ | 206 |  |  | $ | 254 |  |  | (19%)
Claims | 59 |  |  | 48 |  |  | 23% |  | 141 |  |  | 147 |  |  | (4%)
Other | 52 |  |  | 95 |  |  | (45%) |  | 153 |  |  | 209 |  |  | (27%)
Total | $ | 183 |  |  | $ | 228 |  |  | (20%) |  | $ | 500 |  |  | $ | 610 |  |  | (18%)

Materials costs 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 as a result of derailments. Claims expense declined in the first nine months, driven 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 of a $32 million receivable as a result of a legal dispute as well as reduced travel. Gains from operating property sales, included in Other, totaled $15 million and $21 million in the first nine months of 2020 and 2019, respectively.
Other income – net
Other income – net increased $17 million in the third quarter and $22 million for the first nine months. Both periods experienced higher 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.
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Income taxes
The third-quarter effective tax rate was 21.4% compared with 24.3% for the same period last year. Both periods were aided by tax benefits on stock-based compensation while the current 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 a $19 million reduction of taxes upon the resolution of our 2012 amended federal return.
FINANCIAL CONDITION AND LIQUIDITY
Cash provided by operating activities, our principal source of liquidity, was $2.8 billion for the first nine months of 2020, compared with $3.0 billion for the same period of 2019. We had working capital of $574 million at September 30, 2020, and negative working capital of $219 million at December 31, 2019. Cash and cash equivalents totaled $1.4 billion at September 30, 2020.
Cash used in investing activities was $818 million for the first nine months of 2020, compared with $1.3 billion for the same period last year. The decrease was primarily driven by lower property additions in 2020.
Cash used in financing activities was $1.2 billion for the first nine months of 2020, compared with $1.6 billion in the same period last year, reflecting lower repurchases of Common Stock and debt repayments, partially offset by reduced borrowing proceeds. We repurchased $960 million of Common Stock in the first nine months of 2020 compared to $1.6 billion 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 capitalization ratio was 46.0% at September 30, 2020, and 44.5% at December 31, 2019.
In May 2020, we issued $800 million of 3.05% senior notes due 2050, resulting 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 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 accounts receivable securitization program with maximum borrowing capacity of $400 million and a term expiring in May 2021. We had no amounts outstanding at September 30, 2020, or December 31, 2019, and our available borrowing capacity was $400 million and $429 million, respectively. 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 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 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.
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 expenditures on property additions and 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
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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.
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.
OTHER MATTERS
Labor Agreements
Approximately 80% of our railroad employees are covered by collective bargaining agreements with various labor unions. Pursuant to the Railway Labor Act, these agreements remain in effect until new agreements are reached, or until the bargaining procedures mandated by the Railway Labor Act are completed. We largely bargain nationally in concert with other major railroads, represented by the National Carriers Conference Committee. Moratorium provisions in the labor agreements govern when the railroads and unions may propose changes to the agreements. The current round of bargaining commenced on November 1, 2019, with both management and the unions serving their formal proposals for changes to the collective bargaining agreements.
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
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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.
Item 3. Quantitative and Qualitative Disclosures About Market 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.
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. Based on such evaluation, our officers have concluded that, at September 30, 2020, 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 quarter of 2020, 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.
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PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
In 2007, various antitrust class actions filed against us and other Class I railroads in various Federal district courts regarding fuel surcharges were consolidated in the District of Columbia by the Judicial Panel on Multidistrict Litigation. In 2012, the court certified the case as a class action. The defendant railroads appealed this certification, and the Court of Appeals for the District of Columbia vacated the District Court’s decision and remanded the case for further consideration. On October 10, 2017, the District Court denied class certification. The decision was upheld by the Court of Appeals on August 16, 2019. Since that decision, various individual cases have been filed in multiple jurisdictions and also consolidated in the District of Columbia. We believe the allegations in the complaints are without merit and intend to vigorously defend the cases. We do not believe the outcome of these proceedings will have a material effect on our financial position, results of operations, or liquidity.
Item 1A. Risk Factors.
The risks set forth in “Risk Factors” included in our 2019 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.
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.
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Item 2. Unregistered Sales of Equity Securities and Use of 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 |  |  |  |

(1)Of this amount, 5,324 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 million shares remain authorized for repurchase.
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Item 6. 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 quarter of 2020, formatted in Inline Extensible Business Reporting Language (iXBRL) includes (i) the Consolidated Statements of Income for the third quarter and first nine months of 2020 and 2019; (ii) the Consolidated Statements of Comprehensive Income for the third quarter and first nine months of 2020 and 2019; (iii) the Consolidated Balance Sheets at September 30, 2020 and December 31, 2019; (iv) the Consolidated Statements of Cash Flows for the first nine months of 2020 and 2019; (v) the Consolidated Statements of Changes in Stockholders’ Equity for the third quarter and first nine months of 2020 and 2019; 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.

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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 28, 2020 | /s/ Clyde H. Allison, Jr.
|  | Clyde H. Allison, Jr. Vice President and Controller (Principal Accounting Officer) (Signature)
Date: | October 28, 2020 | /s/ Denise W. Hutson
|  | Denise W. Hutson Corporate Secretary (Signature)

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