nsc-20220331

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 MARCH 31, 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 March 31, 2022
Common Stock ($1.00 par value per share)	238,332,514	(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 First Quarter of 2022 and 2021	3
		Consolidated Statements of Comprehensive Income First Quarter of 2022 and 2021	4
		Consolidated Balance Sheets At March 31, 2022 and December 31, 2021	5
		Consolidated Statements of Cash Flows First Three Months of 2022 and 2021	6
		Consolidated Statements of Changes in Stockholders’ Equity First Quarter of 2022 and 2021	7
		Notes to Consolidated Financial Statements	8
	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	17
	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	24
	Item 4.	Controls and Procedures	24

Part II.	Other Information:
	Item 1.	Legal Proceedings	25
	Item 1A.	Risk Factors	25
	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	25
	Item 3.	Defaults Upon Senior Securities	25
	Item 4.	Mine Safety Disclosures	25
	Item 5.	Other Information	26
	Item 6.	Exhibits	27

		Signatures	28

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

Norfolk Southern Corporation and Subsidiaries

Consolidated Statements of Income

(Unaudited)


	First Quarter
	2022		2021
	($ in millions, except per share amounts)

Railway operating revenues	$	2,915	$	2,639

Railway operating expenses
Compensation and benefits	619		611
Purchased services and rents	437		393
Fuel	301		177
Depreciation	302		292
Materials and other	171		151

Total railway operating expenses	1,830		1,624

Income from railway operations	1,085		1,015

Other income (expense) – net	(5)		7
Interest expense on debt	168		156

Income before income taxes	912		866

Income taxes	209		193

Net income	$	703	$	673

Earnings per share
Basic	$	2.94	$	2.67
Diluted	2.93		2.66

See accompanying notes to consolidated financial statements.

Norfolk Southern Corporation and Subsidiaries

Consolidated Statements of Comprehensive Income

(Unaudited)


	First Quarter
	2022		2021
	($ in millions)

Net income	$	703	$	673
Other comprehensive income, before tax:
Pension and other postretirement benefits	6		11
Other comprehensive income of equity investees	6		—

Other comprehensive income, before tax	12		11
Income tax expense related to items of other comprehensive income	(4)		(3)

Other comprehensive income, net of tax	8		8

Total comprehensive income	$	711	$	681

See accompanying notes to consolidated financial statements.

Norfolk Southern Corporation and Subsidiaries

Consolidated Balance Sheets

(Unaudited)


	March 31, 2022		December 31, 2021
	($ in millions)
Assets
Current assets:
Cash and cash equivalents	$	1,571	$	839

Accounts receivable – net	1,070		976
Materials and supplies	264		218
Other current assets	110		134
Total current assets	3,015		2,167

Investments	3,697		3,707
Properties less accumulated depreciation of $12,123
and $12,031, respectively	31,657		31,653
Other assets	992		966

Total assets	$	39,361	$	38,493

Liabilities and stockholders’ equity
Current liabilities:
Accounts payable	$	1,181	$	1,351

Income and other taxes	443		305
Other current liabilities	370		312
Current maturities of long-term debt	1,153		553
Total current liabilities	3,147		2,521

Long-term debt	13,691		13,287
Other liabilities	1,845		1,879
Deferred income taxes	7,217		7,165

Total liabilities	25,900		24,852

Stockholders’ equity:
Common stock $1.00 per share par value, 1,350,000,000 shares
authorized; outstanding 238,332,514 and 240,162,790 shares,
respectively, net of treasury shares	240		242
Additional paid-in capital	2,203		2,215
Accumulated other comprehensive loss	(394)		(402)
Retained income	11,412		11,586

Total stockholders’ equity	13,461		13,641

Total liabilities and stockholders’ equity	$	39,361	$	38,493

See accompanying notes to consolidated financial statements.

Norfolk Southern Corporation and Subsidiaries

Consolidated Statements of Cash Flows

(Unaudited)


		First Three Months
		2022		2021
		($ in millions)
Cash flows from operating activities
	Net income	$	703	$	673
	Reconciliation of net income to net cash provided by operating activities:
	Depreciation	302		292
	Deferred income taxes	48		52
	Gains and losses on properties	(6)		(8)
	Changes in assets and liabilities affecting operations:
	Accounts receivable	(94)		(95)
	Materials and supplies	(46)		(20)
	Other current assets	21		9
	Current liabilities other than debt	83		158
	Other – net	(17)		(46)

	Net cash provided by operating activities	994		1,015

Cash flows from investing activities
	Property additions	(389)		(265)
	Property sales and other transactions	36		37
	Investment purchases	(1)		—
	Investment sales and other transactions	19		26

	Net cash used in investing activities	(335)		(202)

Cash flows from financing activities
	Dividends	(297)		(249)
	Common stock transactions	(18)		(6)
	Purchase and retirement of common stock	(600)		(591)
	Proceeds from borrowings	989		—
	Debt repayments	(1)		(84)

	Net cash provided by (used in) financing activities	73		(930)

	Net increase (decrease) in cash and cash equivalents	732		(117)

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

	At end of period	$	1,571	$	998

Supplemental disclosures of cash flow information
	Cash paid during the period for:
	Interest (net of amounts capitalized)	$	114	$	110
	Income taxes (net of refunds)	9		27

See accompanying notes to consolidated financial statements.

Norfolk Southern Corporation and Subsidiaries

Consolidated Statements of Changes in Stockholders’ Equity

(Unaudited)


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

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

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

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


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

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

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

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

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 March 31, 2022 and December 31, 2021, our results of operations, comprehensive income and changes in stockholders’ equity for the first quarters of 2022 and 2021, and our cash flows for the first three 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:


	First Quarter
	2022		2021
	($ in millions)
Merchandise:
Agriculture, forest and consumer products	$	573	$	539
Chemicals	498		459
Metals and construction	375		370
Automotive	226		240
Merchandise	1,672		1,608
Intermodal	854		719
Coal	389		312

Total	$	2,915	$	2,639

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 March 31, 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 7% and 6% of total “Railway operating revenues” on the Consolidated Statements of Income for the first quarters ended March 31, 2022 and 2021, respectively.

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:


	March 31, 2022		December 31, 2021
	($ in millions)

Customer	$	830	$	741
Non-customer	240		235

Accounts receivable – net	$	1,070	$	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 March 31, 2022, while “Other assets” on the Consolidated Balance Sheets includes $23 million at December 31, 2021. We do not have any material contract assets or liabilities at March 31, 2022 and December 31, 2021.

2. Stock-Based Compensation


	First Quarter
	2022		2021
	($ in millions)

Stock-based compensation expense	$	23	$	16
Total tax benefit	13		17

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


	First Quarter
	Granted	Weighted-Average Grant-Date Fair Value

Stock options	132,170	$	60.40
RSUs	154,901	268.48
PSUs	49,025	274.84

Stock Options


	First Quarter
	2022		2021
	($ in millions)

Options exercised	119,343		212,546
Cash received upon exercise	$	10	$	19
Related tax benefits realized	5		7

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.


	First Quarter
	2022		2021
	($ in millions)

RSUs vested	243,301		257,397
Common Stock issued net of tax withholding	172,364		182,289
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.


	First Quarter
	2022		2021
	($ in millions)

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

3. Earnings Per Share

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


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

Net income	$	703	$	673	$	703	$	673
Dividend equivalent payments	—		(1)		—		—

Income available to common stockholders	$	703	$	672	$	703	$	673

Weighted-average shares outstanding	239.3		251.4		239.3		251.4
Dilutive effect of outstanding options and share-settled awards					0.9		1.2
Adjusted weighted-average shares outstanding					240.2		252.6

Earnings per share	$	2.94	$	2.67	$	2.93	$	2.66

During the first quarters 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 and none in the first quarters ended March 31, 2022 and 2021, respectively.

4. 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
	($ in millions)
Three months ended March 31, 2022
Pensions and other postretirement liabilities	$	(356)	$	—	$	4	$	(352)
Other comprehensive income (loss) of equity investees	(46)		4		—		(42)

Accumulated other comprehensive loss	$	(402)	$	4	$	4	$	(394)

Three months ended March 31, 2021
Pensions and other postretirement liabilities	$	(526)	$	—	$	8	$	(518)
Other comprehensive loss of equity investees	(68)		—		—		(68)

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

5. Stock Repurchase Program

We repurchased and retired 2.2 million and 2.3 million shares of Common Stock under our stock repurchase program during the first three months of 2022 and 2021, respectively, at a cost of $600 million and $591 million, 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. 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 $1.5 billion at both March 31, 2022 and December 31, 2021.

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 $38 million and $34 million for the first quarters of 2022 and 2021, respectively. Our equity in Conrail’s earnings, net of amortization, was $14 million for both the first quarters of 2022 and 2021. 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 March 31, 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 eight 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.” This amounted to $64 million and $63 million for the first quarters of 2022 and 2021, respectively. Our equity in TTX’s earnings partially offsets these costs and totaled $10 million and $17 million for the first quarters of 2022 and 2021, respectively.

7. Debt

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 have in place an accounts receivable securitization program with a maximum borrowing capacity of $400 million and a term that expires in May 2022. We had no amounts outstanding under this program and our available borrowing capacity was $400 million at both March 31, 2022 and December 31, 2021.

8. 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 were as follows:



	Pension Benefits				Other Postretirement Benefits
	First Quarter
	2022		2021		2022		2021
	($ in millions)
Service cost	$	10	$	11	$	1	$	2
Interest cost	17		13		2		2
Expected return on plan assets	(53)		(48)		(3)		(3)
Amortization of net losses	12		17		—		—
Amortization of prior service benefit	—		—		(6)		(6)

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

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. 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 March 31, 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:


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


Long-term debt, including current maturities	$	(14,844)	$	(16,251)	$	(13,840)	$	(17,033)

10. 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. It is reasonably possible that we could incur a loss in the case; however, we intend to vigorously defend the case and believe that we will prevail. The potential range of loss cannot be estimated at this time.

Casualty Claims

Casualty claims include employee personal injury and occupational claims as well as third-party claims, all exclusive of legal costs. To aid in valuing our personal injury liability and determining the amount to accrue with respect to such claims during the year, we utilize studies prepared by an independent 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 $49 million at both March 31, 2022 and December 31, 2021, of which $15 million is classified as a current liability at the end of both periods. At March 31, 2022, the liability represents our estimates of the probable cleanup, investigation, and remediation costs based on available information at 89 known locations and projects compared with 88 locations and projects at December 31, 2021. At March 31, 2022, eighteen sites accounted for $37 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 eight 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.

SEC Form 10-Q filed by Norfolk Southern Corporation