UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended ~~JUNE~~SEPTEMBER 30, 2022

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

For the transition period from ___________ to___________

Commission File Number: 1-8339

NORFOLK SOUTHERN CORPORATION

(Exact name of registrant as specified in its charter)


Virginia						52-1188014
(State or other jurisdiction of incorporation or organization)						(I.R.S. Employer Identification No.)


650 West Peachtree Street NW		30308-1925
Atlanta,	Georgia
(Address of principal executive offices)		(Zip Code)
(855)		667-3655
(Registrant’s telephone number, including area code)


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 ~~June~~September 30, 2022
Common Stock ($1.00 par value per share)	~~234,873,651~~231,514,213	(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 ~~Second~~Third Quarter and First ~~Six~~Nine Months of 2022 and 2021	3
		Consolidated Statements of Comprehensive Income ~~Second~~Third Quarter and First ~~Six~~Nine Months of 2022 and 2021	4
		Consolidated Balance Sheets At ~~June~~September 30, 2022 and December 31, 2021	5
		Consolidated Statements of Cash Flows First ~~Six~~Nine Months of 2022 and 2021	6
		Consolidated Statements of Changes in Stockholders’ Equity ~~Second~~Third Quarter and First ~~Six~~Nine Months of 2022 and 2021	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	27
	Item 4.	Controls and Procedures	27

Part II.	Other Information:
	Item 1.	Legal Proceedings	2829
	Item 1A.	Risk Factors	2829
	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	2829
	Item 3.	Defaults Upon Senior Securities	2829
	Item 4.	Mine Safety Disclosures	2829
	Item 5.	Other Information	2829
	Item 6.	Exhibits	2930

		Signatures	3031

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

Norfolk Southern Corporation and Subsidiaries

Consolidated Statements of Income

(Unaudited)


		Second Quarter				First Six Months					Third Quarter				First Nine Months
		2022		2021		2022		2021			2022		2021		2022		2021
		($ in millions, except per share amounts)									($ in millions, except per share amounts)

Railway operating revenues	Railway operating revenues	$	3,250	$	2,799	$	6,165	$	5,438	Railway operating revenues	$	3,343	$	2,852	$	9,508	$	8,290

Railway operating expenses	Railway operating expenses									Railway operating expenses
Compensation and benefits	Compensation and benefits	614		624		1,233		1,235		Compensation and benefits	735		609		1,968		1,844
Purchased services and rents	Purchased services and rents	481		429		918		822		Purchased services and rents	484		432		1,402		1,254
Fuel	Fuel	408		188		709		365		Fuel	383		208		1,092		573
Depreciation	Depreciation	304		294		606		586		Depreciation	306		297		912		883
Materials and other	Materials and other	172		97		343		248		Materials and other	163		170		506		418

Total railway operating expenses	Total railway operating expenses	1,979		1,632		3,809		3,256		Total railway operating expenses	2,071		1,716		5,880		4,972

Income from railway operations	Income from railway operations	1,271		1,167		2,356		2,182		Income from railway operations	1,272		1,136		3,628		3,318

Other income (expense) – net	Other income (expense) – net	(14)		35		(19)		42		Other income (expense) – net	(2)		14		(21)		56
Interest expense on debt	Interest expense on debt	170		161		338		317		Interest expense on debt	177		164		515		481

Income before income taxes	Income before income taxes	1,087		1,041		1,999		1,907		Income before income taxes	1,093		986		3,092		2,893

Income taxes	Income taxes	268		222		477		415		Income taxes	135		233		612		648

Net income	Net income	$	819	$	819	$	1,522	$	1,492	Net income	$	958	$	753	$	2,480	$	2,245

Earnings per share	Earnings per share									Earnings per share
Basic	Basic	$	3.46	$	3.29	$	6.39	$	5.96	Basic	$	4.11	$	3.07	$	10.49	$	9.03
Diluted	Diluted	3.45		3.28		6.37		5.94		Diluted	4.10		3.06		10.45		8.99

See accompanying notes to consolidated financial statements.

Norfolk Southern Corporation and Subsidiaries

Consolidated Statements of Comprehensive Income

(Unaudited)


		Second Quarter				First Six Months					Third Quarter				First Nine Months
		2022		2021		2022		2021			2022		2021		2022		2021
		($ in millions)									($ in millions)

Net income	Net income	$	819	$	819	$	1,522	$	1,492	Net income	$	958	$	753	$	2,480	$	2,245
Other comprehensive income, before tax:	Other comprehensive income, before tax:									Other comprehensive income, before tax:
Pension and other postretirement benefits	Pension and other postretirement benefits	5		10		11		21		Pension and other postretirement benefits	6		10		17		31
Other comprehensive income of equity investees	Other comprehensive income of equity investees	2		—		8		—		Other comprehensive income of equity investees	5		—		13		—

Other comprehensive income, before tax	Other comprehensive income, before tax	7		10		19		21		Other comprehensive income, before tax	11		10		30		31
Income tax expense related to items of other	Income tax expense related to items of other									Income tax expense related to items of other
comprehensive income	comprehensive income	(1)		(2)		(5)		(5)		comprehensive income	—		(3)		(5)		(8)

Other comprehensive income, net of tax	Other comprehensive income, net of tax	6		8		14		16		Other comprehensive income, net of tax	11		7		25		23

Total comprehensive income	Total comprehensive income	$	825	$	827	$	1,536	$	1,508	Total comprehensive income	$	969	$	760	$	2,505	$	2,268

See accompanying notes to consolidated financial statements.

Norfolk Southern Corporation and Subsidiaries

Consolidated Balance Sheets

(Unaudited)


		June 30, 2022		December 31, 2021			September 30, 2022		December 31, 2021
		($ in millions)					($ in millions)
Assets	Assets					Assets
Current assets:	Current assets:					Current assets:
Cash and cash equivalents	Cash and cash equivalents	$	1,259	$	839	Cash and cash equivalents	$	1,214	$	839

Accounts receivable – net	Accounts receivable – net	1,208		976		Accounts receivable – net	1,151		976
Materials and supplies	Materials and supplies	289		218		Materials and supplies	276		218
Other current assets	Other current assets	101		134		Other current assets	74		134
Total current assets	Total current assets	2,857		2,167		Total current assets	2,715		2,167

Investments	Investments	3,671		3,707		Investments	3,686		3,707
Properties less accumulated depreciation of $12,267
Properties less accumulated depreciation of $12,445						Properties less accumulated depreciation of $12,445
and $12,031, respectively	and $12,031, respectively	31,787		31,653		and $12,031, respectively	31,838		31,653
Other assets	Other assets	1,021		966		Other assets	1,067		966

Total assets	Total assets	$	39,336	$	38,493	Total assets	$	39,306	$	38,493

Liabilities and stockholders’ equity	Liabilities and stockholders’ equity					Liabilities and stockholders’ equity
Current liabilities:	Current liabilities:					Current liabilities:
Accounts payable	Accounts payable	$	1,308	$	1,351	Accounts payable	$	1,486	$	1,351

Income and other taxes	Income and other taxes	333		305		Income and other taxes	299		305
Other current liabilities	Other current liabilities	363		312		Other current liabilities	408		312
Current maturities of long-term debt	Current maturities of long-term debt	605		553		Current maturities of long-term debt	605		553
Total current liabilities	Total current liabilities	2,609		2,521		Total current liabilities	2,798		2,521

Long-term debt	Long-term debt	14,449		13,287		Long-term debt	14,463		13,287
Other liabilities	Other liabilities	1,843		1,879		Other liabilities	1,828		1,879
Deferred income taxes	Deferred income taxes	7,281		7,165		Deferred income taxes	7,193		7,165

Total liabilities	Total liabilities	26,182		24,852		Total liabilities	26,282		24,852

Stockholders’ equity:	Stockholders’ equity:					Stockholders’ equity:
Common stock $1.00 per share par value, 1,350,000,000 shares	Common stock $1.00 per share par value, 1,350,000,000 shares					Common stock $1.00 per share par value, 1,350,000,000 shares
authorized; outstanding 234,873,651 and 240,162,790 shares,
authorized; outstanding 231,514,213 and 240,162,790 shares,						authorized; outstanding 231,514,213 and 240,162,790 shares,
respectively, net of treasury shares	respectively, net of treasury shares	236		242		respectively, net of treasury shares	233		242
Additional paid-in capital	Additional paid-in capital	2,190		2,215		Additional paid-in capital	2,181		2,215
Accumulated other comprehensive loss	Accumulated other comprehensive loss	(388)		(402)		Accumulated other comprehensive loss	(377)		(402)
Retained income	Retained income	11,116		11,586		Retained income	10,987		11,586

Total stockholders’ equity	Total stockholders’ equity	13,154		13,641		Total stockholders’ equity	13,024		13,641

Total liabilities and stockholders’ equity	Total liabilities and stockholders’ equity	$	39,336	$	38,493	Total liabilities and stockholders’ equity	$	39,306	$	38,493

See accompanying notes to consolidated financial statements.

Norfolk Southern Corporation and Subsidiaries

Consolidated Statements of Cash Flows

(Unaudited)


			First Six Months						First Nine Months
			2022		2021				2022		2021
			($ in millions)						($ in millions)
Cash flows from operating activities	Cash flows from operating activities						Cash flows from operating activities
		Net income	$	1,522	$	1,492		Net income	$	2,480	$	2,245
		Reconciliation of net income to net cash provided by operating activities:						Reconciliation of net income to net cash provided by operating activities:
		Depreciation	606		586			Depreciation	912		883
		Deferred income taxes	111		107			Deferred income taxes	23		158
		Gains and losses on properties	(37)		(75)			Gains and losses on properties	(54)		(80)
		Changes in assets and liabilities affecting operations:						Changes in assets and liabilities affecting operations:
		Accounts receivable	(230)		(96)			Accounts receivable	(174)		(102)
		Materials and supplies	(71)		(25)			Materials and supplies	(58)		(14)
		Other current assets	30		30			Other current assets	57		57
		Current liabilities other than debt	75		170			Current liabilities other than debt	273		294
		Other – net	5		(92)			Other – net	(35)		(128)

		Net cash provided by operating activities	2,011		2,097			Net cash provided by operating activities	3,424		3,313

Cash flows from investing activities	Cash flows from investing activities						Cash flows from investing activities
		Property additions	(837)		(627)			Property additions	(1,282)		(1,025)
		Property sales and other transactions	100		66			Property sales and other transactions	193		135
		Investment purchases	(7)		(5)			Investment purchases	(8)		(5)
		Investment sales and other transactions	30		37			Investment sales and other transactions	37		48

		Net cash used in investing activities	(714)		(529)			Net cash used in investing activities	(1,060)		(847)

Cash flows from financing activities	Cash flows from financing activities						Cash flows from financing activities
		Dividends	(591)		(496)			Dividends	(881)		(764)
		Common stock transactions	(14)		6			Common stock transactions	(5)		8
		Purchase and retirement of common stock	(1,454)		(1,525)			Purchase and retirement of common stock	(2,284)		(2,460)
		Proceeds from borrowings	1,732		1,087			Proceeds from borrowings	1,732		1,676
		Debt repayments	(550)		(85)			Debt repayments	(551)		(576)

		Net cash used in financing activities	(877)		(1,013)			Net cash used in financing activities	(1,989)		(2,116)

		Net increase in cash and cash equivalents	420		555			Net increase in cash and cash equivalents	375		350

Cash and cash equivalents	Cash and cash equivalents						Cash and cash equivalents
		At beginning of year	839		1,115			At beginning of year	839		1,115

		At end of period	$	1,259	$	1,670		At end of period	$	1,214	$	1,465

Supplemental disclosures of cash flow information	Supplemental disclosures of cash flow information						Supplemental disclosures of cash flow information
		Cash paid during the period for:						Cash paid during the period for:
		Interest (net of amounts capitalized)	$	294	$	281		Interest (net of amounts capitalized)	$	425	$	391
		Income taxes (net of refunds)	321		249			Income taxes (net of refunds)	578		468

See accompanying notes to consolidated financial statements.

Norfolk Southern Corporation and Subsidiaries

Consolidated Statements of Changes in Stockholders’ Equity

(Unaudited)


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

Balance at December 31, 2021	Balance at December 31, 2021	$	242	$	2,215	$	(402)	$	11,586	$	13,641	Balance at December 31, 2021	$	242	$	2,215	$	(402)	$	11,586	$	13,641

Comprehensive income:	Comprehensive income:											Comprehensive income:
Net income	Net income							703		703		Net income							703		703
Other comprehensive income	Other comprehensive income					8				8		Other comprehensive income					8				8
Total comprehensive income	Total comprehensive income									711		Total comprehensive income									711
Dividends on common stock,	Dividends on common stock,											Dividends on common stock,
$1.24 per share	$1.24 per share							(297)		(297)		$1.24 per share							(297)		(297)
Share repurchases	Share repurchases	(2)		(19)				(579)		(600)		Share repurchases	(2)		(19)				(579)		(600)
Stock-based compensation	Stock-based compensation			7				(1)		6		Stock-based compensation			7				(1)		6

Balance at March 31, 2022	Balance at March 31, 2022	240		2,203		(394)		11,412		13,461		Balance at March 31, 2022	240		2,203		(394)		11,412		13,461

Comprehensive income:	Comprehensive income:											Comprehensive income:
Net income	Net income							819		819		Net income							819		819
Other comprehensive income	Other comprehensive income					6				6		Other comprehensive income					6				6
Total comprehensive income	Total comprehensive income									825		Total comprehensive income									825
Dividends on common stock,	Dividends on common stock,											Dividends on common stock,
$1.24 per share	$1.24 per share							(294)		(294)		$1.24 per share							(294)		(294)
Share repurchases	Share repurchases	(4)		(29)				(821)		(854)		Share repurchases	(4)		(29)				(821)		(854)
Stock-based compensation	Stock-based compensation			16						16		Stock-based compensation			16						16

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

Comprehensive income:												Comprehensive income:
Net income												Net income							958		958
Other comprehensive income												Other comprehensive income					11				11
Total comprehensive income												Total comprehensive income									969
Dividends on common stock,												Dividends on common stock,
$1.24 per share												$1.24 per share							(290)		(290)
Share repurchases												Share repurchases	(3)		(31)				(796)		(830)
Stock-based compensation												Stock-based compensation			22				(1)		21

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

See accompanying notes to consolidated financial statements.

Norfolk Southern Corporation and Subsidiaries

Consolidated Statements of Changes in Stockholders’ Equity

(Unaudited)


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

Balance at December 31, 2020	Balance at December 31, 2020	$	254	$	2,248	$	(594)	$	12,883	$	14,791	Balance at December 31, 2020	$	254	$	2,248	$	(594)	$	12,883	$	14,791

Comprehensive income:	Comprehensive income:											Comprehensive income:
Net income	Net income							673		673		Net income							673		673
Other comprehensive income	Other comprehensive income					8				8		Other comprehensive income					8				8
Total comprehensive income	Total comprehensive income									681		Total comprehensive income									681
Dividends on common stock,	Dividends on common stock,											Dividends on common stock,
$0.99 per share	$0.99 per share							(249)		(249)		$0.99 per share							(249)		(249)
Share repurchases	Share repurchases	(3)		(19)				(569)		(591)		Share repurchases	(3)		(19)				(569)		(591)
Stock-based compensation	Stock-based compensation			12				(1)		11		Stock-based compensation			12				(1)		11

Balance at March 31, 2021	Balance at March 31, 2021	251		2,241		(586)		12,737		14,643		Balance at March 31, 2021	251		2,241		(586)		12,737		14,643

Comprehensive income:	Comprehensive income:											Comprehensive income:
Net income	Net income							819		819		Net income							819		819
Other comprehensive income	Other comprehensive income					8				8		Other comprehensive income					8				8
Total comprehensive income	Total comprehensive income									827		Total comprehensive income									827
Dividends on common stock,	Dividends on common stock,											Dividends on common stock,
$0.99 per share	$0.99 per share							(247)		(247)		$0.99 per share							(247)		(247)
Share repurchases	Share repurchases	(3)		(28)				(903)		(934)		Share repurchases	(3)		(28)				(903)		(934)
Stock-based compensation	Stock-based compensation			27				1		28		Stock-based compensation			27				1		28

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

Comprehensive income:												Comprehensive income:
Net income												Net income							753		753
Other comprehensive income												Other comprehensive income					7				7
Total comprehensive income												Total comprehensive income									760
Dividends on common stock,												Dividends on common stock,
$1.09 per share												$1.09 per share							(268)		(268)
Share repurchases												Share repurchases	(4)		(31)				(900)		(935)
Stock-based compensation												Stock-based compensation			15				(2)		13

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

See accompanying notes to consolidated financial statements.

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 ~~June~~September 30, 2022 and December 31, 2021, our results of operations, comprehensive income and changes in stockholders’ equity for the ~~second~~third quarters and first ~~six~~nine months of 2022 and 2021, and our cash flows for the first ~~six~~nine months of 2022 and 2021 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:


		Second Quarter				First Six Months					Third Quarter				First Nine Months
		2022		2021		2022		2021			2022		2021		2022		2021
		($ in millions)									($ in millions)
Merchandise:	Merchandise:									Merchandise:
Agriculture, forest and consumer products	Agriculture, forest and consumer products	$	624	$	578	$	1,197	$	1,117	Agriculture, forest and consumer products	$	642	$	564	$	1,839	$	1,681
Chemicals	Chemicals	552		494		1,050		953		Chemicals	570		504		1,620		1,457
Metals and construction	Metals and construction	420		402		795		772		Metals and construction	442		424		1,237		1,196
Automotive	Automotive	257		206		483		446		Automotive	276		218		759		664
Merchandise	Merchandise	1,853		1,680		3,525		3,288		Merchandise	1,930		1,710		5,455		4,998
Intermodal	Intermodal	972		801		1,826		1,520		Intermodal	942		812		2,768		2,332
Coal	Coal	425		318		814		630		Coal	471		330		1,285		960

Total	Total	$	3,250	$	2,799	$	6,165	$	5,438	Total	$	3,343	$	2,852	$	9,508	$	8,290

We recognize the amount of revenues to which we expect to be entitled 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 us for the transport of goods. These performance obligations are satisfied as the shipments move from origin to destination. As such, transportation revenues are recognized proportionally as a shipment moves, and related expenses are recognized as incurred. These performance obligations are generally short-term in nature with transit days averaging approximately one week or less for each commodity group. The customer has an unconditional obligation to pay for the service once the service has been completed. Estimated 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~~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%~~a percentage of total “Railway operating revenues” on the Consolidated Statements of Income as follows: 7% for the ~~second~~third quarters of 2022 and 2021, and the first ~~six~~nine months of ~~2021~~2022, and 7%6% for the first ~~six~~nine months of ~~2022.~~2021.

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

Under the typical 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:


		June 30, 2022		December 31, 2021			September 30, 2022		December 31, 2021
		($ in millions)					($ in millions)

Customer	Customer	$	924	$	741	Customer	$	901	$	741
Non-customer	Non-customer	284		235		Non-customer	250		235

Accounts receivable – net	Accounts receivable – net	$	1,208	$	976	Accounts receivable – net	$	1,151	$	976

Non-customer receivables include non-revenue related amounts due from other railroads, governmental entities, and others. There were no non-current customer receivables at ~~June~~September 30, 2022, while “Other assets” on the Consolidated Balance Sheets included $23 million at December 31, 2021. We do not have any material contract assets or liabilities at ~~June~~September 30, 2022 and December 31, 2021.

2. Stock-Based Compensation


		Second Quarter				First Six Months					Third Quarter				First Nine Months
		2022		2021		2022		2021			2022		2021		2022		2021
		($ in millions)									($ in millions)

Stock-based compensation expense	Stock-based compensation expense	$	13	$	16	$	36	$	32	Stock-based compensation expense	$	13	$	14	$	49	$	46
Total tax benefit	Total tax benefit	4		8		17		25		Total tax benefit	7		3		24		28

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

Stock options	Stock options	1,640	$	84.01	133,810	$	60.69	Stock options	6,000	$	74.95	139,810	$	61.30
RSUs	RSUs	9,090	265.31		163,991	268.31		RSUs	9,993	240.63		173,984	266.72
PSUs	PSUs	2,430	271.83		51,455	274.70		PSUs	6,960	256.12		58,415	272.48

Stock Options


		Second Quarter				First Six Months					Third Quarter				First Nine Months
		2022		2021		2022		2021			2022		2021		2022		2021
		($ in millions)									($ in millions)

Options exercised	Options exercised	39,546		128,934		158,889		341,480		Options exercised	116,881		22,502		275,770		363,982
Cash received upon exercise	Cash received upon exercise	$	4	$	12	$	14	$	31	Cash received upon exercise	$	9	$	2	$	23	$	33
Related tax benefits realized	Related tax benefits realized	1		5		6		12		Related tax benefits realized	5		1		11		13

Restricted Stock Units

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


		Second Quarter				First Six Months					Third Quarter				First Nine Months
		2022		2021		2022		2021			2022		2021		2022		2021
		($ in millions)									($ in millions)

RSUs vested	RSUs vested	3,652		1,730		246,953		259,127		RSUs vested	557		1,100		247,510		260,227
Common Stock issued net of tax withholding	Common Stock issued net of tax withholding	2,612		1,222		174,976		183,511		Common Stock issued net of tax withholding	397		761		175,373		184,272
Related tax benefits realized	Related tax benefits realized	$	—	$	—	$	5	$	7	Related tax benefits realized	$	—	$	—	$	5	$	7

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 ~~second~~third quarters of 2022 or 2021.


		First Six Months					First Nine Months
		2022		2021			2022		2021
		($ in millions)					($ in millions)

PSUs earned	PSUs earned	86,420		78,727		PSUs earned	86,420		78,727
Common Stock issued net of tax withholding	Common Stock issued net of tax withholding	54,651		49,967		Common Stock issued net of tax withholding	54,651		49,967
Related tax benefits realized	Related tax benefits realized	$	1	$	1	Related tax benefits realized	$	1	$	1

3. Income Taxes

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.”

3.4. Earnings Per Share

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


		Basic				Diluted					Basic				Diluted
		Second Quarter									Third Quarter
		2022		2021		2022		2021			2022		2021		2022		2021
		($ in millions, except per share amounts, shares in millions)									($ in millions, except per share amounts, shares in millions)

Net income	Net income	$	819	$	819	$	819	$	819	Net income	$	958	$	753	$	958	$	753
Dividend equivalent payments	Dividend equivalent payments	(1)		—		(1)		—		Dividend equivalent payments	—		(1)		—		—

Income available to common stockholders	Income available to common stockholders	$	818	$	819	$	818	$	819	Income available to common stockholders	$	958	$	752	$	958	$	753

Weighted-average shares outstanding	Weighted-average shares outstanding	236.7		248.9		236.7		248.9		Weighted-average shares outstanding	233.2		245.3		233.2		245.3
Dilutive effect of outstanding options and share-settled awards	Dilutive effect of outstanding options and share-settled awards					0.8		1.1		Dilutive effect of outstanding options and share-settled awards					0.8		1.1
Adjusted weighted-average shares outstanding	Adjusted weighted-average shares outstanding					237.5		250.0		Adjusted weighted-average shares outstanding					234.0		246.4

Earnings per share	Earnings per share	$	3.46	$	3.29	$	3.45	$	3.28	Earnings per share	$	4.11	$	3.07	$	4.10	$	3.06

		Basic				Diluted					Basic				Diluted
		First Six Months									First Nine Months
		2022		2021		2022		2021			2022		2021		2022		2021
		($ in millions, except per share amounts, shares in millions)									($ in millions, except per share amounts, shares in millions)

Net income	Net income	$	1,522	$	1,492	$	1,522	$	1,492	Net income	$	2,480	$	2,245	$	2,480	$	2,245
Dividend equivalent payments	Dividend equivalent payments	(1)		(1)		(1)		—		Dividend equivalent payments	(1)		(2)		(1)		—

Income available to common stockholders	Income available to common stockholders	$	1,521	$	1,491	$	1,521	$	1,492	Income available to common stockholders	$	2,479	$	2,243	$	2,479	$	2,245

Weighted-average shares outstanding	Weighted-average shares outstanding	238.0		250.1		238.0		250.1		Weighted-average shares outstanding	236.4		248.5		236.4		248.5
Dilutive effect of outstanding options and share-settled awards	Dilutive effect of outstanding options and share-settled awards					0.9		1.2		Dilutive effect of outstanding options and share-settled awards					0.8		1.2
Adjusted weighted-average shares outstanding	Adjusted weighted-average shares outstanding					238.9		251.3		Adjusted weighted-average shares outstanding					237.2		249.7

Earnings per share	Earnings per share	$	6.39	$	5.96	$	6.37	$	5.94	Earnings per share	$	10.49	$	9.03	$	10.45	$	8.99

During the ~~second~~third quarters and first ~~six~~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. For purposes of computing diluted earnings per share, we evaluate on a grant-by-grant basis those stock options and RSUs receiving dividend equivalent payments under the two-class and treasury stock methods to determine which method is more dilutive for each grant. For those grants for which the two-class method was more dilutive, net income was reduced by dividend equivalent payments to determine income available to common stockholders. The dilution calculations exclude options having exercise prices exceeding the average market price of Common Stock as follows: 0.1 million in the ~~second~~third quarter and first ~~six~~nine months ended ~~June~~September 30, 2022 and none in the ~~second~~third quarter and first ~~six~~nine months ended ~~June~~September 30, 2021.

4.5. 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		Reclassification Adjustments		Balance at End of Period			Balance at Beginning of Year		Net Income		Reclassification Adjustments		Balance at End of Period
		($ in millions)									($ in millions)
Six months ended June 30, 2022
Nine months ended September 30, 2022										Nine months ended September 30, 2022
Pensions and other postretirement liabilities	Pensions and other postretirement liabilities	$	(356)	$	—	$	8	$	(348)	Pensions and other postretirement liabilities	$	(356)	$	—	$	14	$	(342)
Other comprehensive income (loss) of equity investees	Other comprehensive income (loss) of equity investees	(46)		6		—		(40)		Other comprehensive income (loss) of equity investees	(46)		11		—		(35)

Accumulated other comprehensive loss	Accumulated other comprehensive loss	$	(402)	$	6	$	8	$	(388)	Accumulated other comprehensive loss	$	(402)	$	11	$	14	$	(377)

Six months ended June 30, 2021
Nine months ended September 30, 2021										Nine months ended September 30, 2021
Pensions and other postretirement liabilities	Pensions and other postretirement liabilities	$	(526)	$	—	$	16	$	(510)	Pensions and other postretirement liabilities	$	(526)	$	—	$	23	$	(503)
Other comprehensive loss of equity investees	Other comprehensive loss of equity investees	(68)		—		—		(68)		Other comprehensive loss of equity investees	(68)		—		—		(68)

Accumulated other comprehensive loss	Accumulated other comprehensive loss	$	(594)	$	—	$	16	$	(578)	Accumulated other comprehensive loss	$	(594)	$	—	$	23	$	(571)

5.6. Stock Repurchase Program

We repurchased and retired ~~5.7~~9.2 million and 9.4 million shares of Common Stock under our stock repurchase program at a cost of ~~$1.5~~$2.3 billion and $2.5 billion during the first ~~six~~nine months of ~~both~~ 2022 and ~~2021.~~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. Our previous share repurchase program terminated on March 31, 2022.

6.7. 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 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~~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. (CSXT). The costs of operating the Shared Assets Areas are borne by NSR and CSXT based on usage. In addition, NSR and CSXT pay CRC a fee for access to the Shared Assets Areas. “Purchased services and rents” and “Fuel” include expenses payable to CRC for operation of the Shared Assets Areas totaling ~~$36~~$42 million and $37 million for the ~~second~~third quarters of 2022 and 2021, respectively, and ~~$74~~$116 million and ~~$71~~$108 million for the first ~~six~~nine months of 2022 and 2021, respectively. Our equity in Conrail’s earnings, net of amortization, was ~~$11~~$15 million and $14 million for the ~~second~~third quarters of 2022 and 2021, respectively, and ~~$25~~$40 million and ~~$28~~$42 million for the first ~~six~~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~~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

We and 8eight other North American railroads collectively own TTX Company (TTX), a railcar pooling company that provides its owner-railroads with standardized fleets of intermodal, automotive, and general use railcars at stated rates. We have a 19.65% ownership interest in TTX.

Expenses incurred for use of TTX equipment are included in “Purchased services and rents.” These expenses amounted to ~~$66~~$63 million and ~~$61~~$59 million for the ~~second~~third quarters of 2022 and 2021, respectively, and ~~$130~~$193 million and ~~$124~~$183 million for the first ~~six~~nine months of 2022 and 2021, respectively. Our equity in TTX’s earnings partially offsets these costs and totaled ~~$11~~$18 million and ~~$14~~$12 million for the ~~second~~third quarters of 2022 and 2021, respectively, and ~~$21~~$39 million and ~~$31~~$43 million for the first ~~six~~nine months of 2022 and 2021, respectively.

7.8. Debt

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

In May 2022, we renewed our accounts receivable securitization program with a maximum borrowing capacity of $400 million. The term expires in May 2023. We had 0no amounts outstanding under this program and our available borrowing capacity was $400 million at both ~~June~~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.

8.9. Pensions and Other Postretirement Benefits

We have both funded and unfunded defined benefit pension plans covering eligible employees. We also provide specified health care 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. 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~~third quarter and first ~~six~~nine months were as follows:


		Pension Benefits				Other Postretirement Benefits					Pension Benefits				Other Postretirement Benefits
		Second Quarter									Third Quarter
		2022		2021		2022		2021			2022		2021		2022		2021
		($ in millions)									($ in millions)
Service cost	Service cost	$	10	$	11	$	2	$	1	Service cost	$	10	$	10	$	1	$	1
Interest cost	Interest cost	17		14		2		2		Interest cost	17		14		3		1
Expected return on plan assets	Expected return on plan assets	(54)		(48)		(3)		(3)		Expected return on plan assets	(53)		(48)		(3)		(3)
Amortization of net losses	Amortization of net losses	12		16		—		1		Amortization of net losses	12		16		—		—
Amortization of prior service benefit	Amortization of prior service benefit	—		—		(7)		(7)		Amortization of prior service benefit	—		—		(6)		(6)

Net benefit	Net benefit	$	(15)	$	(7)	$	(6)	$	(6)	Net benefit	$	(14)	$	(8)	$	(5)	$	(7)


		Pension Benefits				Other Postretirement Benefits					Pension Benefits				Other Postretirement Benefits
		First Six Months									First Nine Months
		2022		2021		2022		2021			2022		2021		2022		2021
		($ in millions)									($ in millions)
Service cost	Service cost	$	20	$	22	$	3	$	3	Service cost	$	30	$	32	$	4	$	4
Interest cost	Interest cost	34		27		4		4		Interest cost	51		41		7		5
Expected return on plan assets	Expected return on plan assets	(107)		(96)		(6)		(6)		Expected return on plan assets	(160)		(144)		(9)		(9)
Amortization of net losses	Amortization of net losses	24		33		—		1		Amortization of net losses	36		49		—		1
Amortization of prior service benefit	Amortization of prior service benefit	—		—		(13)		(13)		Amortization of prior service benefit	—		—		(19)		(19)

Net benefit	Net benefit	$	(29)	$	(14)	$	(12)	$	(11)	Net benefit	$	(43)	$	(22)	$	(17)	$	(18)

The service cost component of defined benefit pension cost and postretirement benefit cost are reported within “Compensation and benefits” and all other components of net benefit cost are presented in “Other income (expense) – net” on the Consolidated Statements of Income.

9.10. 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 ~~June~~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
Carrying
Amount Fair
Value Carrying
Amount Fair
Value
($ in millions)
Long-term debt, including current maturities $ (15,054) $ (14,571) $ (13,840) $ (17,033)


	September 30, 2022				December 31, 2021
	Carrying Amount		Fair Value		Carrying Amount		Fair Value
	($ in millions)


Long-term debt, including current maturities	$	(15,068)	$	(13,481)	$	(13,840)	$	(17,033)

~~10.~~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 and, if material, disclosed below. While the ultimate amount of liability incurred in any of these lawsuits and claims is dependent on future developments, in our opinion, the recorded liability is adequate to cover the future payment of such liability and claims. However, the final outcome of any of these lawsuits and claims cannot be predicted with certainty, and unfavorable or unexpected outcomes could result in additional accruals that could be significant to results of operations in a particular year or quarter. Any adjustments to the recorded liability will be reflected in earnings in the periods in which such adjustments become known. For lawsuits and other claims where a loss may be reasonably possible, but not probable, or is probable but not reasonably estimable, no accrual is established but the matter, if potentially material, is disclosed below. We routinely review relevant information with respect to our lawsuits and other claims and update our accruals, disclosures and estimates of reasonably possible loss based on such reviews.

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

In 2018, a lawsuit was filed against one of our subsidiaries by the minority owner in a jointly-owned terminal railroad company in which our subsidiary has the majority ownership. The lawsuit alleged violations of various state laws and federal antitrust laws. Summary judgment has been briefed but not decided, and trial is likely to occur in the first quarter of 2023. 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.~~have a material adverse affect on our financial position or results of operations. We cannot reasonably estimate the potential loss or range of loss associated with the litigation 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 actuarial consulting firm. Job-related personal injury and occupational claims are subject to the Federal Employer’s Liability Act (FELA), which is applicable only to railroads. The variability inherent in FELA’s fault-based tort system could result in actual costs being different from the liability recorded. While the ultimate amount of claims incurred is dependent on future developments, in our opinion, the recorded liability is adequate to cover the future payments of claims and is supported by the most recent actuarial study. In all cases, we record a liability when the expected loss for the claim is both probable and reasonably estimable.

Employee personal injury claims – The largest component of 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. The accuracy of our estimate of the liability is subject to inherent limitation given the difficulty of predicting future events such as jury decisions, court interpretations, or legislative changes. As a result, actual claim settlements may vary from the estimated liability recorded.

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

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

Environmental Matters

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

Our Consolidated Balance Sheets include liabilities for environmental exposures of ~~$56~~$57 million at ~~June~~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 ~~June~~September 30, 2022, the liability represents our estimates of the probable cleanup, investigation, and remediation costs based on available information at 9186 known locations and projects compared with 88 locations and projects at December 31, 2021. At ~~June~~September 30, 2022, 19twenty sites accounted for ~~$45~~$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; however, some costs will be paid out over a longer period.

At 8eight locations, one or more of our subsidiaries in conjunction with a number of other parties have been identified as potentially responsible parties under the Comprehensive Environmental Response, Compensation and Liability Act of 1980 or comparable state statutes that impose joint and several liability for cleanup costs. We calculate our estimated liability for these sites based on facts and legal defenses applicable to each site and not solely on the basis of the potential for joint liability.

With respect to known environmental sites (whether identified by us or by the Environmental Protection Agency or comparable state authorities), estimates of our ultimate potential financial exposure for a given site or in the aggregate for all such sites can change over time because of the widely varying costs of currently available cleanup techniques, unpredictable contaminant recovery and reduction rates associated with available cleanup technologies, the likely development of new cleanup technologies, the difficulty of determining in advance the nature and full extent of contamination and each potential participant’s share of any estimated loss (and that participant’s ability to bear it), and evolving statutory and regulatory standards governing liability.

The risk of incurring environmental liability for acts and omissions, past, present, and future, is inherent in the railroad business. Some of the commodities we transport, particularly those classified as hazardous materials, pose special risks that we work diligently to reduce. In addition, several of our subsidiaries own, or have owned, land used as operating property, or which is leased and operated by others, or held for sale. Because environmental problems that are latent or undisclosed may exist on these properties, there can be no assurance that we will not incur environmental liabilities or costs with respect to one or more of them, the amount and materiality of which cannot be estimated reliably at this time. Moreover, lawsuits and claims involving these and potentially other unidentified environmental sites and matters are likely to arise from time to time. The resulting liabilities could have a significant effect on financial position, results of operations, or liquidity in a particular year or quarter.

Based on our assessment of the facts and circumstances now known, we believe we have recorded the probable and reasonably estimable costs for dealing with those environmental matters of which we are aware. Further, we believe that it is unlikely that any known matters, either individually or in the aggregate, will have a material adverse effect on our financial position, results of operations, or liquidity.

Labor Agreements

In September 2022, management reached tentative agreements with all relevant unions. These tentative agreements, which ~~began~~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 ~~November 2019, are ongoing,~~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 ~~ultimate outcome unknown. The ultimate~~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 ~~resulting from this process could significantly~~(and our tentative agreements, if ratified) are expected to increase our ~~costs for health care, wages, and other benefits.~~labor costs.

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 $800 million ($1.1 billion for specific perils) per occurrence and/or policy year. In addition, we purchase insurance covering damage to property owned by us or in our care, custody, or control. This insurance covers approximately 82% of potential losses above $75 million and below $275 million per occurrence and/or policy year.

~~11.~~12. New Accounting Pronouncements

In November 2021, the Financial Accounting Standards Board issued Accounting Standards Update 2021-10, “Government Assistance (Topic 832): Disclosures by Business Entities about Government Assistance,” which requires annual disclosures when an entity has received government assistance. Entities are required to disclose the types of government assistance received, the accounting treatment for that government assistance, and the effect of the government assistance on the financial statements. The new standard is effective for annual periods beginning after December 15, 2021, and early adoption is permitted. We do not expect this standard to have a material effect on our disclosures. We did not adopt the standard early.

~~12. 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.

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

~~Strong~~During the third quarter, strong revenue growth drove improved profitability despite higher inflation-related operating ~~income improvement in the second quarter.~~expenses. ~~Although lower network velocity contributed to volume declines compared to prior year,~~Higher fuel surcharge revenues, resulting from higher fuel ~~surcharge revenues~~commodity prices, and pricing gains led to revenue per unit growth that more than offset the impact of lower volume. The increase in fuel commodity prices also led to higher fuel expense. The net impact of fuel prices on revenues and expenses, coupled with lower current-year gains on operating property sales, contributed to the degradation of the railway operating ratio (a measure of the amount of operating revenues consumed by operating expenses). ~~While~~Additionally, tentative agreements, resulting as part of ongoing labor union negotiations, included retroactive pay increases and other benefits for our craft employees that resulted in increased compensation and benefits expenses.Finally, although we incurred incremental service-related costs, we continued to make progress on efforts to increase network fluidity ~~remained challenged, we are taking the steps necessary for service restoration.These efforts include recruiting, training,~~ and ~~retaining our transportation crews as well as evolving our operating plan, with the goal of improving~~improve service for our customers.

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

SUMMARIZED RESULTS OF OPERATIONS


		Second Quarter					First Six Months						Third Quarter					First Nine Months
		2022		2021		% change	2022		2021		% change		2022		2021		% change	2022		2021		% change
		($ in millions, except per share amounts)											($ in millions, except per share amounts)

Income from railway operations	Income from railway operations	$	1,271	$	1,167	9%	$	2,356	$	2,182	8%	Income from railway operations	$	1,272	$	1,136	12%	$	3,628	$	3,318	9%
Net income	Net income	$	819	$	819	—%	$	1,522	$	1,492	2%	Net income	$	958	$	753	27%	$	2,480	$	2,245	10%
Diluted earnings per share	Diluted earnings per share	$	3.45	$	3.28	5%	$	6.37	$	5.94	7%	Diluted earnings per share	$	4.10	$	3.06	34%	$	10.45	$	8.99	16%
Railway operating ratio (percent)	Railway operating ratio (percent)	60.9		58.3		4%	61.8		59.9		3%	Railway operating ratio (percent)	62.0		60.2		3%	61.8		60.0		3%

Income from railway operations increased in both periods, ~~due to~~driven by higher railway operating revenues. Revenue growth was ~~driven by~~the result of higher fuel surcharge revenues and pricing gains, which ~~exceeded~~more than offset the impact of ~~a 3% and 4%~~ volume ~~decline~~declines in both the ~~second~~third quarter and first ~~six months, respectively.~~nine months. The rise in revenues was partly offset ~~in part~~ by increased railway operating expenses, driven by higher fuel prices, increased labor-related costs resulting from ongoing labor union negotiations, other inflationary pressures, and service-related ~~costs,~~costs. The first nine months also include higher claims-related expenses and lower gains on the sale of operating ~~properties,~~properties. The increase in estimates for retroactive wage increases anticipated under our tentative labor agreements and ~~higher claims-related expenses. Offsetting~~that pertain to prior periods lowered diluted earnings per share by $0.28 and $0.18 in the ~~growth~~third quarter and first nine months, respectively. Additionally, net income in both periods includes a $136 million deferred tax benefit resulting from a corporate income ~~from railway operations were lower net returns on corporate-owned life insurance (COLI)~~tax rate change in the Commonwealth of Pennsylvania, which increased diluted earnings per share by $0.58 and ~~higher income taxes.~~$0.57 in the third quarter and first nine months, respectively. Our share repurchase activity resulted in the percentage increase in diluted earnings per share that exceeded that of net income.

DETAILED RESULTS OF OPERATIONS

Railway Operating Revenues

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


		Second Quarter					First Six Months						Third Quarter					First Nine Months
Revenues	Revenues	2022		2021		% change	2022		2021		% change	Revenues	2022		2021		% change	2022		2021		% change
Merchandise:	Merchandise:											Merchandise:
Agriculture, forest and consumer products	Agriculture, forest and consumer products	$	624	$	578	8%	$	1,197	$	1,117	7%	Agriculture, forest and consumer products	$	642	$	564	14%	$	1,839	$	1,681	9%
Chemicals	Chemicals	552		494		12%	1,050		953		10%	Chemicals	570		504		13%	1,620		1,457		11%
Metals and construction	Metals and construction	420		402		4%	795		772		3%	Metals and construction	442		424		4%	1,237		1,196		3%
Automotive	Automotive	257		206		25%	483		446		8%	Automotive	276		218		27%	759		664		14%
Merchandise	Merchandise	1,853		1,680		10%	3,525		3,288		7%	Merchandise	1,930		1,710		13%	5,455		4,998		9%
Intermodal	Intermodal	972		801		21%	1,826		1,520		20%	Intermodal	942		812		16%	2,768		2,332		19%
Coal	Coal	425		318		34%	814		630		29%	Coal	471		330		43%	1,285		960		34%
Total	Total	$	3,250	$	2,799	16%	$	6,165	$	5,438	13%	Total	$	3,343	$	2,852	17%	$	9,508	$	8,290	15%


Units	Units							Units
Merchandise:	Merchandise:							Merchandise:
Agriculture, forest and consumer products	Agriculture, forest and consumer products	183.6	187.7	(2%)	361.2	366.0	(1%)	Agriculture, forest and consumer products	178.0	181.3	(2%)	539.2	547.3	(1%)
Chemicals	Chemicals	140.0	133.7	5%	269.4	260.7	3%	Chemicals	137.9	138.3	—%	407.3	399.0	2%
Metals and construction	Metals and construction	163.9	176.3	(7%)	311.9	331.3	(6%)	Metals and construction	168.3	179.2	(6%)	480.2	510.5	(6%)
Automotive	Automotive	85.7	82.3	4%	166.9	176.0	(5%)	Automotive	85.4	81.5	5%	252.3	257.5	(2%)
Merchandise	Merchandise	573.2	580.0	(1%)	1,109.4	1,134.0	(2%)	Merchandise	569.6	580.3	(2%)	1,679.0	1,714.3	(2%)
Intermodal	Intermodal	1,016.5	1,062.6	(4%)	1,973.0	2,079.0	(5%)	Intermodal	972.7	1,021.0	(5%)	2,945.7	3,100.0	(5%)
Coal	Coal	166.1	173.2	(4%)	331.7	339.7	(2%)	Coal	183.0	160.5	14%	514.7	500.2	3%
Total	Total	1,755.8	1,815.8	(3%)	3,414.1	3,552.7	(4%)	Total	1,725.3	1,761.8	(2%)	5,139.4	5,314.5	(3%)


Revenue per Unit	Revenue per Unit											Revenue per Unit
Merchandise:	Merchandise:											Merchandise:
Agriculture, forest and consumer products	Agriculture, forest and consumer products	$	3,398	$	3,076	10%	$	3,314	$	3,051	9%	Agriculture, forest and consumer products	$	3,606	$	3,113	16%	$	3,411	$	3,072	11%
Chemicals	Chemicals	3,941		3,691		7%	3,897		3,654		7%	Chemicals	4,135		3,647		13%	3,978		3,651		9%
Metals and construction	Metals and construction	2,560		2,285		12%	2,548		2,332		9%	Metals and construction	2,625		2,360		11%	2,575		2,342		10%
Automotive	Automotive	3,007		2,507		20%	2,894		2,534		14%	Automotive	3,231		2,679		21%	3,008		2,579		17%
Merchandise	Merchandise	3,233		2,896		12%	3,177		2,899		10%	Merchandise	3,388		2,946		15%	3,249		2,915		11%
Intermodal	Intermodal	955		754		27%	925		731		27%	Intermodal	968		796		22%	940		752		25%
Coal	Coal	2,562		1,837		39%	2,455		1,854		32%	Coal	2,575		2,057		25%	2,498		1,919		30%
Total	Total	1,851		1,542		20%	1,806		1,531		18%	Total	1,938		1,619		20%	1,850		1,560		19%

Railway operating revenues increased ~~$451~~$491 million in the ~~second~~third quarter and ~~$727 million~~$1.2 billion for the first ~~six~~nine months compared with the same periods last year. The table below reflects the components of the revenue change by major commodity group ($ in millions).


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

Volume	Volume	$	(20)	$	(35)	$	(13)	$	(71)	$	(77)	$	(15)	Volume	$	(32)	$	(38)	$	46	$	(103)	$	(116)	$	28
Fuel surcharge revenue	Fuel surcharge revenue	121		136		16		188		209		23		Fuel surcharge revenue	168		124		35		356		333		58
Rate, mix and other	Rate, mix and other	72		70		104		120		174		176		Rate, mix and other	84		44		60		204		219		239

Total	Total	$	173	$	171	$	107	$	237	$	306	$	184	Total	$	220	$	130	$	141	$	457	$	436	$	325

Approximately 95% of our revenue base is covered by contracts that include negotiated fuel surcharges. Revenues associated with these surcharges totaled ~~$421~~$501 million and ~~$148~~$174 million in the ~~second~~third quarters of 2022 and 2021, respectively, and ~~$665 million~~$1.2 billion and ~~$245~~$419 million for the first ~~six~~nine months of 2022 and 2021, respectively. The increase in fuel surcharge revenues is driven by higher fuel commodity prices. Should the current fuel price environment persist for the remainder of 2022, we expect fuel surcharge revenue to continue to be higher than 2021.

Merchandise

Merchandise revenues increased in both periods due to higher average revenue per unit, driven by higher fuel surcharge revenue and increased pricing, partially offset by ~~decreased~~lower volume. Volumes fell in both periods as declines in metals and construction and agriculture, forest, and consumer products shipments more than offset higher ~~chemical shipments.~~automotive shipments in the third quarter and chemicals shipments in the first nine months.

Agriculture, forest and consumer products volume decreased in both ~~periods, as~~periods. During the third quarter, declines in ethanol, pulpboard, fertilizer, and pulp, more than offset gains in corn, ~~fertilizers,~~food oils, feed, and soybeans. During the first nine months, declines in fertilizer, corn, pulpboard, and pulp more than offset increases in feed, soybeans, and ~~feed.~~food oils. Decreased ~~corn and pulp~~ethanol shipments in the third quarter were due to ~~service disruptions.~~a decline in gasoline consumption. Pulpboard shipments declined in both periods due to decreased demand. Lower fertilizer shipments in both periods were ~~due to~~driven by high fertilizer prices causing customers to draw down on existing inventories or delay purchases. ~~Soybean~~Pulp shipments decreased in both periods due to equipment availability, service disruptions and over-the-road competition. Increased corn shipments in the third quarter were due to improved cycle times on grain trains. In both periods, feed and food oils shipments increased due to increased customer demand and soybean volumes were higher due to increased opportunity for ~~exports and feed shipments were up because of increased customer demand.~~ exports.

Chemicals volume ~~rose~~was flat in the third quarter but increased for the first nine months driven by growth in shipments of sand in both periods due to ~~growth in~~increased demand. Both periods were impacted by reduced shipments of ~~sand~~inorganic chemicals, plastics, and organic chemicals, due to decreased demand. The first nine months also saw an increase in solid waste ~~driven by~~shipments due to growth with existing customers.

Metals and construction volume fell in both periods, largely the result of decreased shipments of coil steel, iron and steel, ~~aggregates,~~and scrap metal ~~and cement~~ driven by ~~commodity pricing,~~ service disruptions and slower equipment cycle times.

Automotive volume increased in the ~~second~~third quarter but decreased for the first ~~six~~nine months. Higher shipments in the ~~second~~third quarter were primarily due to increased production ~~shutdowns in~~due to fewer parts supply issues when compared to the prior year, ~~caused~~partially offset by ~~parts supply issues. Volumes~~slower equipment cycle times. Volume declines for the first ~~six~~nine months were ~~impacted~~driven by ~~plant shutdowns, as a result of the global microchip shortage, and~~ slower equipment cycle ~~times.~~times partially offset by fewer parts supply issues when compared to the prior year.

Merchandise revenues for the remainder of the year are expected to be higher due to increased average revenue per unit, driven by higher fuel surcharge revenue and pricing ~~gains, and volume growth.~~gains.

Intermodal

Intermodal revenues increased in both periods, driven by higher average revenue per unit, a result of higher fuel surcharge revenues and pricing gains, ~~and storage service charges,~~ partially offset by lower volume. The first nine months also included higher storage services revenue.

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


		Second Quarter			First Six Months				Third Quarter			First Nine Months
		2022	2021	% change	2022	2021	% change		2022	2021	% change	2022	2021	% change

Domestic	Domestic	670.4	661.9	1%	1,323.8	1,300.9	2%	Domestic	630.6	656.6	(4%)	1,954.4	1,957.5	—%
International	International	346.1	400.7	(14%)	649.2	778.1	(17%)	International	342.1	364.4	(6%)	991.3	1,142.5	(13%)

Total	Total	1,016.5	1,062.6	(4%)	1,973.0	2,079.0	(5%)	Total	972.7	1,021.0	(5%)	2,945.7	3,100.0	(5%)

Domestic volume ~~rose slightly~~declined in both periods due to ~~strong demand, partially offset by~~ service disruptions and ~~limited chassis availability.~~terminal congestion. International volume decreased in both periods as supply chain constraints, ~~with terminals, ports, labor, and chassis availability,~~equipment shortages, as well as excess retail inventory ~~in the warehousing retail sector~~which more than offset strong consumer demand.

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

Coal

Coal revenues increased in both periods due to higher average revenue per unit, driven by pricing gains and higher fuel surcharge revenue, ~~partially offset by lower~~and higher volume.

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


		Second Quarter			First Six Months				Third Quarter			First Nine Months
		2022	2021	% change	2022	2021	% change		2022	2021	% change	2022	2021	% change

Utility	Utility	8,267	8,563	(3%)	17,228	17,109	1%	Utility	9,908	8,234	20%	27,136	25,343	7%
Export	Export	6,514	6,580	(1%)	12,928	13,273	(3%)	Export	6,391	5,650	13%	19,319	18,923	2%
Domestic metallurgical	Domestic metallurgical	2,782	3,325	(16%)	5,212	5,812	(10%)	Domestic metallurgical	3,232	3,074	5%	8,444	8,886	(5%)
Industrial	Industrial	1,083	871	24%	1,886	1,770	7%	Industrial	963	940	2%	2,849	2,710	5%

Total	Total	18,646	19,339	(4%)	37,254	37,964	(2%)	Total	20,494	17,898	15%	57,748	55,862	3%

Coal tonnage ~~declined~~increased in both periods primarily due to ~~decreased domestic metallurgical~~increased utility and export tonnage. ~~While utility~~Utility tonnage increased ~~slightly for the first six months, it experienced a decrease~~ in ~~the second quarter~~both periods due to ~~service disruptions and tight coal supply.~~stronger demand. Export tonnage ~~decreased~~increased due to ~~service disruptions and tight~~increased coal supply. Domestic metallurgical coal tonnage ~~fell~~increased for the third quarter due to increased coal supply, partially offset by reduced coke shipments related to customer sourcing changes. For the first nine months domestic metallurgical coal

tonnage decreased due to reduced coke shipments related to customer sourcing changes. Industrial coal tonnage increased in both periods due to increased demand.

Coal revenues for the remainder of the year are expected to rise due to increased ~~volumes.~~average revenue per unit, driven primarily by higher fuel surcharge revenue, and volume growth.

Railway Operating Expenses

Railway operating expenses summarized by major classifications follow ($ in millions):


		Second Quarter					First Six Months						Third Quarter					First Nine Months
		2022		2021		% change	2022		2021		% change		2022		2021		% change	2022		2021		% change

Compensation and benefits	Compensation and benefits	$	614	$	624	(2%)	$	1,233	$	1,235	—%	Compensation and benefits	$	735	$	609	21%	$	1,968	$	1,844	7%
Purchased services and rents	Purchased services and rents	481		429		12%	918		822		12%	Purchased services and rents	484		432		12%	1,402		1,254		12%
Fuel	Fuel	408		188		117%	709		365		94%	Fuel	383		208		84%	1,092		573		91%
Depreciation	Depreciation	304		294		3%	606		586		3%	Depreciation	306		297		3%	912		883		3%
Materials and other	Materials and other	172		97		77%	343		248		38%	Materials and other	163		170		(4%)	506		418		21%

Total	Total	$	1,979	$	1,632	21%	$	3,809	$	3,256	17%	Total	$	2,071	$	1,716	21%	$	5,880	$	4,972	18%

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

•~~incentive and stock-based compensation (down $32~~increased pay rates (up $130 million for the quarter and ~~$24~~$151 million for the first ~~six~~nine months),

•employee activity levels (up $2$28 million for the quarter ~~but down $15~~and $13 million for the first ~~six~~nine months),

•overtime (up $4 million for the quarter and ~~$13~~$17 million for the first ~~six~~nine months),

•~~increased pay rates (up $11~~incentive and stock-based compensation (down $38 million for the quarter and ~~$21~~$62 million for the first ~~six~~nine months), and

•other (up $5$2 million for the quarter and $3$5 million for the first ~~six~~nine months).

The increase in pay rates in 2022 includes higher estimates associated with previously recorded amounts for retroactive wage increases and other benefits anticipated under our labor agreements. For the third quarter of 2022, compensation and benefits includes $85 million and purchased services 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 includes $2 million of additional expenses pertaining to estimated wage increases recorded in periods prior to January 1, 2022.

Average rail headcount for the quarter was up by over ~~100~~800 compared with the ~~second~~third quarter of 2021 ~~and up over 600 compared with~~due to the ~~fourth quarter~~hiring of ~~2021.~~additional conductor trainees.

Purchased services and rents increased in both periods as follows ($ in millions):


		Second Quarter					First Six Months						Third Quarter					First Nine Months
		2022		2021		% change	2022		2021		% change		2022		2021		% change	2022		2021		% change

Purchased services	Purchased services	$	387	$	352	10%	$	736	$	670	10%	Purchased services	$	397	$	355	12%	$	1,133	$	1,025	11%
Equipment rents	Equipment rents	94		77		22%	182		152		20%	Equipment rents	87		77		13%	269		229		17%

Total	Total	$	481	$	429	12%	$	918	$	822	12%	Total	$	484	$	432	12%	$	1,402	$	1,254	12%

Purchased services increased in both periods due to inflationary pressures which resulted in higher intermodal-related expenses, increased operational and transportation expenses, as well as higher technology-related costs. Equipment rents increased in both periods as lower network fluidity led to greater time-and-mileage expenses, ~~and~~ increased automotive equipment ~~expenses. Additionally, both periods had lower equity in TTX earnings.~~expenses, and higher short-term locomotive resource costs.

Fuel expense, which includes the cost of locomotive fuel as well as other fuel used in railway operations, increased in both periods due to higher locomotive fuel prices (up ~~124%~~88% in the ~~second~~third quarter and ~~102%~~97% in the first ~~six~~nine months), partially offset by decreased consumption (down 2% in the third quarter and 3% in ~~both~~ the ~~second quarter and~~ first ~~six~~nine months). Should the current fuel price environment persist for the remainder of 2022, we expect fuel expenses to continue to be higher compared to 2021.

Materials and other expenses decreased in the third quarter but increased in ~~both periods~~the first nine months as follows ($ in millions):


		Second Quarter					First Six Months						Third Quarter					First Nine Months
		2022		2021		% change	2022		2021		% change		2022		2021		% change	2022		2021		% change

Materials	Materials	$	70	$	61	15%	$	132	$	122	8%	Materials	$	83	$	71	17%	$	215	$	193	11%
Claims	Claims	64		43		49%	113		81		40%	Claims	58		56		4%	171		137		25%
Other	Other	38		(7)		643%	98		45		118%	Other	22		43		(49%)	120		88		36%

Total	Total	$	172	$	97	77%	$	343	$	248	38%	Total	$	163	$	170	(4%)	$	506	$	418	21%

Materials expense increased in both periods due to increased ~~track and~~ freight car and track materials costs. ~~Locomotive maintenance costs were also higher in the second quarter.~~ Claims expense increased in both periods as a result of higher costs associated with ~~personal injuries,~~ environmental remediation matters and ~~derailments.~~personal injuries partially offset by lower derailment costs. Other expense decreased in the third quarter due to a favorable legal settlement and increased gains on operating property sales, partially offset by higher travel-related expenses. Other expense increased ~~in both periods~~the first nine months due to lower gains ~~from~~on operating property sales and ~~litigation-related~~higher travel-related expenses. Gains from operating property sales totaled ~~$28~~$17 million and ~~$67~~$5 million for the ~~second~~third quarters of 2022 and 2021, respectively, and ~~$34~~$51 million and ~~$71~~$76 million in the first ~~six~~nine months of 2022 and 2021, respectively.

Other income (expense) – net

Other income ~~(expense) – net~~ decreased ~~$49~~$16 million in the ~~second~~third quarter and ~~$61~~$77 million for the first ~~six~~nine months. Both periods experienced lower net returns on ~~COLI~~corporate-owned life insurance (COLI) partially offset by a higher net pension benefit.

Income taxes

The ~~second-quarter and six month~~ effective tax rates for the third quarter and first nine months of 2022 were ~~24.7%~~12.4% and ~~23.9%~~19.8%, ~~compared with 21.3%~~lower than the 23.6% and ~~21.8%~~22.4%, respectively, for the same periods last ~~year. The increases~~year primarily due to a change in the effective rates for 2022 reflect lower returns on COLI and lower tax benefits on stock-based compensation. Additionally, in 2021, we recognized a $23 million reduction in deferred taxes associated with a state corporate income tax ~~law change.~~

rate. 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~~which reduced its corporate income tax rate from 9.99% to 4.99%, ~~with~~through a series of phased 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~~we recognized a ~~decrease in “Deferred income taxes” on the Consolidated Balance Sheet and a corresponding decrease in “Income taxes” on the Income Statement~~benefit of $136 million in the third quarter of 2022. ~~We currently estimate that the impact will be approximately $135 million.~~

FINANCIAL CONDITION AND LIQUIDITY

Cash provided by operating activities, our principal source of liquidity, was ~~$2.0~~$3.4 billion for the first ~~six~~nine months of 2022, compared with ~~$2.1~~$3.3 billion for the same period of 2021. We had ~~working capital of $248 million and~~ negative working capital of $83 million and $354 million at ~~June~~September 30, 2022 and December 31, 2021, respectively. Cash and cash equivalents totaled ~~$1.3~~$1.2 billion at ~~June~~September 30, 2022.

Cash used in investing activities was ~~$714 million~~$1.1 billion for the first ~~six~~nine months of 2022, compared with ~~$529~~$847 million for the same period last year. The increase was primarily driven by higher property additions.

Cash used in financing activities was ~~$877 million~~$2.0 billion for the first ~~six~~nine months of 2022, ~~while $1.0~~compared with $2.1 billion ~~was used in financing activities~~ for the same period last year, reflecting lower repurchases of Common Stock, and increased proceeds from borrowing, partially offset by higher ~~debt repayments and~~ dividends. We repurchased ~~$1.5~~$2.3 billion of Common Stock in the first ~~six~~nine months of ~~both~~ 2022 ~~and 2021.~~compared to $2.5 billion in the same period last year. On March 29, 2022, our Board of Directors authorized a new program for the repurchase of

up to an additional $10.0 billion of Common Stock beginning April 1, 2022. Our previous share repurchase program terminated on March 31, 2022. The timing and volume of future share repurchases will be guided by our assessment of market conditions and other pertinent factors. Repurchases may be executed in the open market, through derivatives, accelerated repurchase and other negotiated transactions and through plans designed to comply with Rule 10b5-1(c) and Rule 10b-18 under the Securities and Exchange Act of ~~1934~~. 1934. Any near-term purchases under the program are expected to be made with internally-generated cash, cash on hand, or proceeds from borrowings.

Our debt-to-total capitalization ratio was ~~53.4%~~53.6% at ~~June~~September 30, 2022, and 50.4% at December 31, 2021.

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

In May 2022, we renewed our accounts receivable securitization program with a maximum borrowing capacity of $400 million. 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~~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.

We also have in place and available an $800 million credit agreement expiring in March 2025, which provides for borrowings at prevailing rates and includes covenants. We had no amounts outstanding under this facility at ~~June~~September 30, 2022 or December 31, 2021.

In addition, we have investments in general purpose ~~corporate-owned life insurance~~COLI policies and had the ability to borrow against these policies up to ~~$630~~$605 million and $715 million at ~~June~~September 30, 2022 and December 31, 2021, respectively.

We expect cash on hand combined with cash provided by operating activities will be sufficient to meet our ongoing obligations. In addition, we believe our currently-available borrowing capacity, access to additional financing, and ability to reduce or defer expenditures on property additions and decrease shareholder distributions, including share repurchases, provide additional flexibility to meet our ongoing obligations. Nonetheless, we are monitoring the ongoing impacts of the COVID-19 pandemic, which could lead to a decline of cash inflows from operations. There have been no material changes to the information on future contractual obligations, including those that may have material cash requirements, contained in our Form 10-K for the year ended December 31, 2021, with the exception of additional senior notes (see Note 7)8) and approximately $1.0 billion of additional unconditional purchase obligations, which extend through 2025.

CRITICAL ACCOUNTING ESTIMATES

The preparation of financial statements in accordance with GAAP requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of 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 critical accounting estimates contained in our Form 10-K at December 31, 2021.

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. Moratorium provisions in the labor agreements govern when the railroads and unions may propose changes to the agreements. We largely bargain nationally in concert with other major railroads, represented by the National Carriers’ Conference Committee.

After management and the unions served their formal proposals in November 2019 for changes to the collective bargaining agreements, negotiations began in 2020 following the expiration of the last moratorium. On June 17, 2022, the National Mediation Board notified the parties that all practical methods of ending the dispute had been exhausted without effecting a settlement and that its mediation services had been terminated. Although negotiations between the parties continue, this release allowed either party to engage in self-help (strike or lockout) after a 30-day cooling off period. However, because the dispute threatens to interrupt commerce and deprive certain segments of the domestic economy of essential transportation service,Shortly thereafter, President Biden created Presidential Emergency Board (PEB) No. 250, effective July 18, 2022, to investigate the facts of the dispute and make recommendations. The ~~creation of the~~ PEB ~~delays any potential self-help for 60 days while the PEB makes~~issued its recommendations ~~(expected 30 days from the date the PEB was created)~~on August 16, 2022, and the parties ~~engage~~engaged in further negotiations. By late September, management had reached tentative agreements with all relevant unions. Some of these agreements have since been finalized through ratification by union membership, but others are still 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 ~~(for a period of 30 days)~~continue).

The outcome of the ~~negotiations~~ratification process for the outstanding tentative agreements cannot be ~~determined~~predicted with certainty at this time; however, if one or more of the ~~dispute~~tentative agreements fails ratification and is not ~~resolved~~subsequently ratified during ~~this~~a final “status quo” period ~~of negotiations and either party rejects the recommendations of the PEB,~~where self-help (strike or lockout) is not permitted, self-help could occur in ~~mid-September. As has occurred during prior labor agreement negotiations,~~mid-November or early December (dates vary by tentative agreement). In this scenario, the parties could ~~potentially reach an agreement during post-PEB negotiations,~~voluntarily agree to further delay self-help and continue to pursue voluntary ratification, or Congress could take legislative action to preempt self-help and avert a service disruption. 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 ~~could significantly~~(and our tentative agreements, if ratified) are expected to increase ~~our costs for health care, wages, and other benefits.~~labor costs.

New Accounting Pronouncements

For a detailed discussion of new accounting pronouncements, see Note ~~11.~~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~~long-

lived assets. The replacement cost of these assets, as well as the related depreciation expense, would be substantially greater than the amounts reported on the basis of historical cost.

FORWARD-LOOKING STATEMENTS

Certain statements in Management’s Discussion and Analysis of Financial Condition and Results of Operations are “forward-looking statements” within the meaning of the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995, as amended. These statements relate to future events or our future financial performance and involve known and unknown risks, uncertainties, and other factors that may cause our actual results, levels of activity, performance, or our achievements or those of our industry to be materially different from those expressed or implied by any forward-looking statements. In some cases, forward-looking statements can be identified by terminology such as “may,” “will,” “could,” “would,” “should,” “expect,” “plan,” “anticipate,” “intend,” “believe,” “estimate,” “project,” “consider,” “predict,” “potential,” “feel,” or other comparable terminology. We have based these forward-looking statements on our current expectations, assumptions, estimates, beliefs, and projections. While we believe these expectations, assumptions, estimates, beliefs, and projections are reasonable, such forward-looking statements are only predictions and involve known and unknown risks and uncertainties, many of which involve factors or circumstances that are beyond our control. These and other important factors, including those discussed under “Risk Factors” in our latest Form 10-K, as well as our subsequent filings with the Securities and Exchange Commission, may cause actual results, performance, or achievements to differ materially from those

expressed or implied by these forward-looking statements. The forward-looking statements herein are made only as of the date they were first issued, and unless otherwise required by applicable securities laws, we disclaim any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise.

Additional Information

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

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 ~~June~~September 30, 2022. Based on such evaluation, our officers have concluded that, at ~~June~~September 30, 2022, 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 ~~second~~third quarter of 2022, 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

For information on our legal proceedings, see Note 1011 “Commitments and Contingencies” in the Consolidated Financial Statements.

Item 1A. Risk Factors

The risks set forth in “Risk Factors” included in our 2021 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.

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

Period
(a) Total Number of Shares (or Units) Purchased (1)
(b) Average Price Paid per Share (or Unit)
(c) Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans or Programs (2)
(d) Maximum Number (or Approximate Dollar Value) of Shares (or Units) that may yet be purchased under the Plans or Programs (2)
April 1-30, 2022 907,332 $ 262.17 907,332 $ 9,762,127,094
May 1-31, 2022 1,266,662 244.19 1,266,662 9,452,824,147
June 1-30, 2022 1,327,298 230.97 1,327,298 9,146,255,336
Total 3,501,292 3,501,292


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

July 1-31, 2022	1,129,867	$	231.31	1,129,867	$	8,884,909,445
August 1-31, 2022	1,166,795	254.47		1,166,795	8,587,999,396
September 1-30, 2022	1,179,619	230.72		1,179,619	8,315,840,542

Total	3,476,281			3,476,281

(1)Of this amount, no shares were tendered by employees in connection with the exercise of options under the stockholder-approved LTIP.

(2)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. As of ~~June~~September 30, 2022, ~~$9.1~~$8.3 billion remains authorized for repurchase. Our previous share repurchase program terminated on March 31, 2022.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

None.

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Item 6. Exhibits



~~4.1~~10.1*			Ninth Supplemental Indenture, dated June 13, 2022, between the Registrant and U.S. Bank Trust Company, National Association (as successor to U.S. Bank National Association), as trustee, is incorporated by reference to Exhibit 4.1 of the Registrant’s Current Report on Form 8-K filed on June 15, 2022.

10.1*			Amendment No. 1 dated as of May ~~29,~~27, 2022, to the Amended and Restated Transfer and Administration Agreement, dated as of May 28, ~~2021.~~2021 (the Registrant will furnish supplementally to the Securities and Exchange Commission upon request a copy of any omitted exhibit or schedule).

10.2*			Amendment No. 2 dated as of June 30, 2022, to the Amended and Restated Transfer and Administration Agreement, dated as of May 28, ~~2021.~~2021 (the Registrant will furnish supplementally to the Securities and Exchange Commission upon request a copy of any omitted exhibit or schedule).

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

31-B*			Rule 13a-14(a)/~~15d-014(a)~~15d-14(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 ~~second~~third quarter of 2022, formatted in Inline Extensible Business Reporting Language (iXBRL) includes (i) the Consolidated Statements of Income for the ~~second~~third quarter and first ~~six~~nine months of 2022 and 2021; (ii) the Consolidated Statements of Comprehensive Income for the ~~second~~third quarter and first ~~six~~nine months of 2022 and 2021; (iii) the Consolidated Balance Sheets at ~~June~~September 30, 2022 and December 31, 2021; (iv) the Consolidated Statements of Cash Flows for the first ~~six~~nine months of 2022 and 2021; (v) the Consolidated Statements of Changes in Stockholders’ Equity for the ~~second~~third quarter and first ~~six~~nine months of 2022 and 2021; 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:	~~July 27,~~October 26, 2022	/s/ Claiborne L. Moore
		Claiborne L. Moore Vice President and Controller (Principal Accounting Officer) (Signature)


Date:	~~July 27,~~October 26, 2022	/s/ Denise W. Hutson
		Denise W. Hutson Corporate Secretary (Signature)

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	June 30, 2022				December 31, 2021
	Carrying Amount		Fair Value		Carrying Amount		Fair Value
	($ in millions)


Long-term debt, including current maturities	$	(15,054)	$	(14,571)	$	(13,840)	$	(17,033)