What changed in this filing

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Item 1. Financial Statements

2022-10-26 compared with 2022-07-27 · 74 added, 46 removed, 407 unchanged (23% of the section changed)

2 unchanged sentences

Consolidated Statements of Income

Second Quarter First Six Months

Third Quarter First Nine Months

2022 2021 2022 2021

20 unchanged sentences

Consolidated Statements of Comprehensive Income

Second Quarter First Six Months

Third Quarter First Nine Months

2022 2021 2022 2021

12 unchanged sentences

Consolidated Balance Sheets

September 30,

2022 December 31,

35 unchanged sentences

Consolidated Statements of Cash Flows

First Six Months

First Nine Months

($ in millions)

62 unchanged sentences

Balance at June 30, 2022 236 2,190 ( 388 ) 11,116 13,154

Comprehensive income:

Net income 958 958

Other comprehensive income 11 11

Total comprehensive income 969

Dividends on common stock,

$ 1.24 per share

( 290 ) ( 290 )

Share repurchases ( 3 ) ( 31 ) ( 796 ) ( 830 )

Stock-based compensation 22 ( 1 ) 21

Balance at September 30, 2022 $ 233 $ 2,181 $ ( 377 ) $ 10,987 $ 13,024

See accompanying notes to consolidated financial statements.

27 unchanged sentences

Balance at June 30, 2021 248 2,240 ( 578 ) 12,407 14,317

Comprehensive income:

Net income 753 753

Other comprehensive income 7 7

Total comprehensive income 760

Dividends on common stock,

$ 1.09 per share

( 268 ) ( 268 )

Share repurchases ( 4 ) ( 31 ) ( 900 ) ( 935 )

Stock-based compensation 15 ( 2 ) 13

Balance at September 30, 2021 $ 244 $ 2,224 $ ( 571 ) $ 11,990 $ 13,887

See accompanying notes to consolidated financial statements.

1 unchanged sentence

Notes to Consolidated Financial Statements

In the opinion of management, the accompanying unaudited interim consolidated financial statements contain all adjustments (consisting of normal recurring accruals) necessary to present fairly Norfolk Southern Corporation (Norfolk Southern) and subsidiaries’ (collectively, NS, we, us, and our) financial position at June 30, 2022 and December 31, 2021, our results of operations, comprehensive income and changes in stockholders’ equity for the second quarters and first six months of 2022 and 2021, and our cash flows for the first six months of 2022 and 2021 in conformity with U.S.

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, 2022 and December 31, 2021, our results of operations, comprehensive income and changes in stockholders’ equity for the third quarters and first nine months of 2022 and 2021, and our cash flows for the first nine months of 2022 and 2021 in conformity with U.S.

Generally Accepted Accounting Principles (GAAP).

2 unchanged sentences

The following table disaggregates our revenues by major commodity group:

Second Quarter First Six Months

Third Quarter First Nine Months

2022 2021 2022 2021

15 unchanged sentences

Estimated revenues associated with in-process shipments at period-end are recorded based on the estimated percentage of service completed.

We had no material remaining performance obligations at June 30, 2022 and December 31, 2021.

We had no material remaining performance obligations at September 30, 2022 and December 31, 2021.

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 % of total “Railway operating revenues” on the Consolidated Statements of Income for the second quarters of 2022 and 2021 and first six months of 2021 and 7 % for the first six months of 2022.

These revenues are included within each of the commodity groups and represent a percentage of total “Railway operating revenues” on the Consolidated Statements of Income as follows:

7 % for the third quarters of 2022 and 2021, and the first nine months of 2022, and 6 % for the first nine months of 2021.

Revenues related to interline transportation services that involve another railroad are reported on a net basis.

2 unchanged sentences

“Accounts receivable – net” on the Consolidated Balance Sheets includes both customer and non-customer receivables as follows:

September 30,

2022 December 31, 2021

4 unchanged sentences

Non-customer receivables include non-revenue related amounts due from other railroads, governmental entities, and others.

There were no non-current customer receivables at June 30, 2022, while “Other assets” on the Consolidated Balance Sheets included $ 23 million at December 31, 2021.

We do no t have any material contract assets or liabilities at June 30, 2022 and December 31, 2021.

There were no non-current customer receivables at September 30, 2022, while “Other assets” on the Consolidated Balance Sheets included $ 23 million at December 31, 2021.

We do no t have any material contract assets or liabilities at September 30, 2022 and December 31, 2021.

Stock-Based Compensation

Second Quarter First Six Months

Third Quarter First Nine Months

2022 2021 2022 2021

3 unchanged sentences

During 2022, we granted stock options, restricted stock units (RSUs) and performance share units (PSUs) pursuant to the Long-Term Incentive Plan (LTIP), as follows:

Second Quarter First Six Months

Third Quarter First Nine Months

Granted Weighted-Average Grant-Date Fair Value Granted Weighted-Average Grant-Date Fair Value

3 unchanged sentences

Stock Options

Second Quarter First Six Months

Third Quarter First Nine Months

2022 2021 2022 2021

6 unchanged sentences

Certain RSU grants include cash dividend equivalent payments during the restriction period in an amount equal to the regular quarterly dividends paid on Common Stock.

Second Quarter First Six Months

Third Quarter First Nine Months

2022 2021 2022 2021

7 unchanged sentences

The market condition fair value was measured on the date of grant using a Monte Carlo simulation model.

earned or paid out during the second quarters of 2022 or 2021.

First Six Months

earned or paid out during the third quarters of 2022 or 2021.

First Nine Months

($ in millions)

2 unchanged sentences

Related tax benefits realized $ 1 $ 1

On July 8, 2022, House Bill 1342 was signed into law in the Commonwealth of Pennsylvania, which reduced its corporate income tax rate from 9.99% to 4.99%, through a series of phased reductions beginning each tax year from January 1, 2023 through January 1, 2031.

GAAP requires companies to recognize the effect of tax law changes in the period of enactment.

As a result, in the third quarter we recognized a $ 136 million benefit in “Income taxes” with a corresponding reduction in “Deferred income taxes.”

Earnings Per Share

1 unchanged sentence

Basic Diluted

Second Quarter

Third Quarter

2022 2021 2022 2021

9 unchanged sentences

Basic Diluted

First Six Months

First Nine Months

2022 2021 2022 2021

8 unchanged sentences

Earnings per share $ 10.49 $ 9.03 $ 10.45 $ 8.99

During the second quarters and first six months of 2022 and 2021, dividend equivalent payments were made to certain holders of stock options and RSUs.

During the third quarters and first nine months of 2022 and 2021, 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.

2 unchanged sentences

The dilution calculations exclude options having exercise prices exceeding the average market price of Common Stock as follows:

0.1 million in the second quarter and first six months ended June 30, 2022 and none in the second quarter and first six months ended June 30, 2021.

0.1 million in the third quarter and first nine months ended September 30, 2022 and none in the third quarter and first nine months ended September 30, 2021.

Accumulated Other Comprehensive Loss

4 unchanged sentences

($ in millions)

Six months ended June 30, 2022

Nine months ended September 30, 2022

Pensions and other postretirement liabilities $ ( 356 ) $ — $ 14 $ ( 342 )

1 unchanged sentence

Accumulated other comprehensive loss $ ( 402 ) $ 11 $ 14 $ ( 377 )

Six months ended June 30, 2021

Nine months ended September 30, 2021

Pensions and other postretirement liabilities $ ( 526 ) $ — $ 23 $ ( 503 )

2 unchanged sentences

Stock Repurchase Program

We repurchased and retire d 5.7 million shares of Common Stock under our stock repurchase program at a cost of $ 1.5 billion during the first six months of both 2022 and 2021.

We repurchased and retire d 9.2 million and 9.4 million shares of Common Stock under our stock repurchase program at a cost of $ 2.3 billion and $ 2.5 billion during the first nine months of 2022 and 2021, respectively.

On March 29, 2022, our Board of Directors authorized a new program for the repurchase of up to $ 10.0 billion of Common Stock beginning April 1, 2022.

4 unchanged sentences

We have a 58 % economic and 50 % voting interest in the jointly-owned entity, and CSX has the remainder of the economic and voting interests.

Our investment in Conrail was $ 1.6 billion and $ 1.5 billion at June 30, 2022 and December 31, 2021, respectfully.

Our investment in Conrail was $ 1.6 billion and $ 1.5 billion at September 30, 2022 and December 31, 2021, respectfully.

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.

1 unchanged sentence

In addition, NSR and CSXT pay CRC a fee for access to the Shared Assets Areas.

“Purchased services and rents” and “Fuel” include expenses payable to CRC for operation of the Shared Assets Areas totaling $ 36 million and $ 37 million for the second quarters of 2022 and 2021, respectively, and $ 74 million and $ 71 million for the first six months of 2022 and 2021, respectively.

Our equity in Conrail’s earnings, net of amortization, was $ 11 million and $ 14 million for the second quarters of 2022 and 2021, respectively, and $ 25 million and $ 28 million for the first six months of 2022 and 2021, respectively.

“Purchased services and rents” and “Fuel” include expenses payable to CRC for operation of the Shared Assets Areas totaling $ 42 million and $ 37 million for the third quarters of 2022 and 2021, respectively, and $ 116 million and $ 108 million for the first nine months of 2022 and 2021, respectively.

Our equity in Conrail’s earnings, net of amortization, was $ 15 million and $ 14 million for the third quarters of 2022 and 2021, respectively, and $ 40 million and $ 42 million for the first nine months of 2022 and 2021, respectively.

These amounts partially offset the costs of operating the Shared Assets Areas and are included in “Purchased services and rents.”

“Other liabilities” includes $ 534 million at both June 30, 2022 and December 31, 2021 for long-term advances from Conrail, maturing in 2050 that bear interest at an average rate of 1.31 %.

“Other liabilities” includes $ 534 million at both September 30, 2022 and December 31, 2021 for long-term advances from Conrail, maturing in 2050 that bear interest at an average rate of 1.31 %.

Investment in TTX

1 unchanged sentence

We have a 19.65 % ownership interest in TTX.

Expenses incurred for use of TTX equipment are included in “Purchased services and rents.” These expenses amounted to $ 66 million and $ 61 million for the second quarters of 2022 and 2021, respectively, and $ 130 million and $ 124 million for the first six months of 2022 and 2021, respectively.

Our equity in TTX’s earnings partially offsets these costs and totaled $ 11 million and $ 14 million for the second quarters of 2022 and 2021, respectively, and $ 21 million and $ 31 million for the first six months of 2022 and 2021, respectively.

Expenses incurred for use of TTX equipment are included in “Purchased services and rents.” These expenses amounted to $ 63 million and $ 59 million for the third quarters of 2022 and 2021, respectively, and $ 193 million and $ 183 million for the first nine months of 2022 and 2021, respectively.

Our equity in TTX’s earnings partially offsets these costs and totaled $ 18 million and $ 12 million for the third quarters of 2022 and 2021, respectively, and $ 39 million and $ 43 million for the first nine months of 2022 and 2021, respectively.

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

1 unchanged sentence

The term expires in May 2023.

We had no amounts outstanding under this program and our available borrowing capacity was $ 400 million at both June 30, 2022, and December 31, 2021.

We had no amounts outstanding under this program and our available borrowing capacity was $ 400 million at both September 30, 2022 and December 31, 2021.

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

5 unchanged sentences

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 second quarter and first six months were as follows:

Pension and postretirement benefit cost components for the third quarter and first nine months were as follows:

Pension Benefits Other Postretirement Benefits

Second Quarter

Third Quarter

2022 2021 2022 2021

7 unchanged sentences

Pension Benefits Other Postretirement Benefits

First Six Months

First Nine Months

2022 2021 2022 2021

10 unchanged sentences

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 June 30, 2022 or December 31, 2021.

There are no other assets or liabilities measured at fair value on a recurring basis at September 30, 2022 or December 31, 2021.

The carrying amounts and estimated fair values, based on Level 1 inputs, of long-term debt consist of the following:

June 30, 2022 December 31, 2021

September 30, 2022 December 31, 2021

Value Carrying

21 unchanged sentences

We continue to vigorously defend the lawsuit and, although it is reasonably possible we could incur a loss in the case, we believe that we will prevail.

However, given that litigation is inherently unpredictable and subject to uncertainties, there can be no assurances that the final outcome of the litigation or a litigation settlement will not be material.

We cannot reasonably estimate the potential loss or range of loss associated with the litigation at this time.

31 unchanged sentences

Environmental specialists regularly participate in ongoing evaluations of all known sites and in determining any necessary adjustments to liability estimates.

Our Consolidated Balance Sheets include liabilities for environmental exposures of $ 56 million at June 30, 2022 and $ 49 million at December 31, 2021, of which $ 15 million is classified as a current liability at the end of both periods.

At June 30, 2022, the liability represents our estimates of the probable cleanup, investigation, and remediation costs based on available information at 91 known locations and projects compared with 88 locations and projects at December 31, 2021.

At June 30, 2022, nineteen sites accounted for $ 45 million of the liability, and no individual site was considered to be material.

Our Consolidated Balance Sheets include liabilities for environmental exposures of $ 57 million at September 30, 2022 and $ 49 million at December 31, 2021, of which $ 15 million is classified as a current liability at the end of both periods.

At September 30, 2022, the liability represents our estimates of the probable cleanup, investigation, and remediation costs based on available information at 86 known locations and projects compared with 88 locations and projects at December 31, 2021.

At September 30, 2022, twenty sites accounted for $ 46 million of the liability, and no individual site was considered to be material.

We anticipate that most of this liability will be paid out over five years ;

14 unchanged sentences

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.

Bargaining procedures, which began in November 2019, are ongoing, with the ultimate outcome unknown.

The ultimate changes in our labor agreements resulting from this process could significantly increase our costs for health care, wages, and other benefits.

In September 2022, management reached tentative agreements with all relevant unions.

These tentative agreements, which pertain to years 2020-2024, included retroactive pay increases and other benefits for our craft employees that are higher than our estimates previously recorded for such items.

For the third quarter of 2022, “Compensation and benefits” includes $ 85 million and “Purchased services and rents” includes $ 3 million of additional expenses pertaining to estimated wage increases recorded in periods prior to July 1, 2022.

For the first nine months of 2022, “Compensation and benefits” includes $ 54 million and “Purchased services and rents” includes $ 2 million of additional expenses pertaining to estimated wage increases recorded in periods prior to January 1, 2022.

Although some of these agreements have been finalized through ratification by union membership, others remain subject to ratification.

In addition, two labor unions did not initially ratify their tentative agreements (with one union putting out a second tentative agreement for a vote and the other agreeing to maintain the status quo as negotiations continue).

The outcome of the ratification process cannot be predicted with certainty at this time ;

however, if one or more of the tentative agreements fails ratification and is not subsequently ratified during a final “status quo” period where self-help (strike or lockout) is not permitted, self-help could occur in mid-November or early December (dates vary by tentative agreement).

A service disruption, depending on the duration, could have a material adverse effect on our financial position, results of operations, or liquidity.

In addition, the resulting changes in our finalized labor agreements (and our tentative agreements, if ratified) are expected to increase our labor costs.

We purchase insurance covering legal liabilities for bodily injury and property damage to third parties.

9 unchanged sentences

We did not adopt the standard early.

Subsequent Events

On July 8, 2022, House Bill 1342 was signed into law in the Commonwealth of Pennsylvania, making significant changes to its corporate income tax rate.

The bill reduces its corporate income tax rate from 9.99% to 4.99%, with reductions occurring in phases beginning each tax year from January 1, 2023 through January 1, 2031.

GAAP requires companies to recognize the effect of tax law changes in the period of enactment.

As a result, it is expected that there will be a decrease in “Deferred income taxes” on the Consolidated Balance Sheet and a corresponding decrease in “Income taxes” on the Income Statement in the third quarter of 2022.

We currently estimate that the impact will be approximately $ 135 million.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements