nsc-20230331

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, 2023

☐ 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, 2023
Common Stock ($1.00 par value per share)	227,639,602	(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 202 3 and 202 2	3
		Consolidated Statements of Comprehensive Income First Quarter of 202 3 and 202 2	4
		Consolidated Balance Sheets At March 3 1 , 202 3 and December 31, 202 2	5
		Consolidated Statements of Cash Flows First Thre e Months of 202 3 and 202 2	6
		Consolidated Statements of Changes in Stockholders’ Equity First Quarter of 202 3 and 202 2	7
		Notes to Consolidated Financial Statements	8
	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	21
	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	31
	Item 4.	Controls and Procedures	31

Part II.	Other Information:
	Item 1.	Legal Proceedings	32
	Item 1A.	Risk Factors	32
	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	33
	Item 3.	Defaults Upon Senior Securities	33
	Item 4.	Mine Safety Disclosures	33
	Item 5.	Other Information	33
	Item 6.	Exhibits	34

		Signatures	35

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

Norfolk Southern Corporation and Subsidiaries

Consolidated Statements of Income

(Unaudited)


	First Quarter
	2023		2022
	($ in millions, except per share amounts)

Railway operating revenues	$	3,132	$	2,915

Railway operating expenses
Compensation and benefits	690		619
Purchased services and rents	496		437
Fuel	315		301
Depreciation	321		302
Materials and other	212		171
Eastern Ohio incident	387		—

Total railway operating expenses	2,421		1,830

Income from railway operations	711		1,085

Other income (expense) – net	56		(5)
Interest expense on debt	175		168

Income before income taxes	592		912

Income taxes	126		209

Net income	$	466	$	703

Earnings per share
Basic	$	2.04	$	2.94
Diluted	2.04		2.93

See accompanying notes to consolidated financial statements.

Norfolk Southern Corporation and Subsidiaries

Consolidated Statements of Comprehensive Income

(Unaudited)


	First Quarter
	2023		2022
	($ in millions)

Net income	$	466	$	703
Other comprehensive income (loss), before tax:
Pension and other postretirement benefit (expense)	(5)		6
Other comprehensive income (loss) of equity investees	(1)		6

Other comprehensive income (loss), before tax	(6)		12
Income tax benefit (expense) related to items of other
comprehensive income (loss)	2		(4)

Other comprehensive income (loss), net of tax	(4)		8

Total comprehensive income	$	462	$	711

See accompanying notes to consolidated financial statements.

Norfolk Southern Corporation and Subsidiaries

Consolidated Balance Sheets

(Unaudited)


	March 31, 2023		December 31, 2022
	($ in millions)
Assets
Current assets:
Cash and cash equivalents	$	552	$	456

Accounts receivable – net	1,170		1,148
Materials and supplies	262		253
Other current assets	138		150
Total current assets	2,122		2,007

Investments	3,738		3,694
Properties less accumulated depreciation of $12,810
and $12,592, respectively	32,240		32,156
Other assets	1,069		1,028

Total assets	$	39,169	$	38,885

Liabilities and stockholders’ equity
Current liabilities:
Accounts payable	$	1,315	$	1,293
Short-term debt	—		100
Income and other taxes	438		312
Other current liabilities	668		341
Current maturities of long-term debt	403		603
Total current liabilities	2,824		2,649

Long-term debt	14,585		14,479
Other liabilities	1,785		1,759
Deferred income taxes	7,248		7,265

Total liabilities	26,442		26,152

Stockholders’ equity:
Common stock $1.00 per share par value, 1,350,000,000 shares
authorized; outstanding 227,639,602 and 228,076,415 shares,
respectively, net of treasury shares	229		230
Additional paid-in capital	2,155		2,157
Accumulated other comprehensive loss	(355)		(351)
Retained income	10,698		10,697

Total stockholders’ equity	12,727		12,733

Total liabilities and stockholders’ equity	$	39,169	$	38,885

See accompanying notes to consolidated financial statements.

Norfolk Southern Corporation and Subsidiaries

Consolidated Statements of Cash Flows

(Unaudited)


		First Three Months
		2023		2022
		($ in millions)
Cash flows from operating activities
	Net income	$	466	$	703
	Reconciliation of net income to net cash provided by operating activities:
	Depreciation	321		302
	Deferred income taxes	(15)		48
	Gains and losses on properties	(4)		(6)
	Changes in assets and liabilities affecting operations:
	Accounts receivable	(22)		(94)
	Materials and supplies	(9)		(46)
	Other current assets	12		21
	Current liabilities other than debt	480		83
	Other – net	(56)		(17)

	Net cash provided by operating activities	1,173		994

Cash flows from investing activities
	Property additions	(428)		(389)
	Property sales and other transactions	20		36
	Investment purchases	—		(1)
	Investment sales and other transactions	17		19

	Net cash used in investing activities	(391)		(335)

Cash flows from financing activities
	Dividends	(307)		(297)
	Common stock transactions	(10)		(18)
	Purchase and retirement of common stock	(163)		(600)
	Proceeds from borrowings	594		989
	Debt repayments	(800)		(1)

	Net cash provided by (used in) financing activities	(686)		73

	Net increase in cash and cash equivalents	96		732

Cash and cash equivalents
	At beginning of year	456		839

	At end of period	$	552	$	1,571

Supplemental disclosures of cash flow information
	Cash paid during the period for:
	Interest (net of amounts capitalized)	$	129	$	114
	Income taxes (net of refunds)	(1)		9

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, 2022	$	230	$	2,157	$	(351)	$	10,697	$	12,733

Comprehensive income:
Net income							466		466
Other comprehensive loss					(4)				(4)
Total comprehensive income									462
Dividends on common stock,
$1.35 per share							(307)		(307)
Share repurchases	(1)		(6)				(156)		(163)
Stock-based compensation			4				(2)		2

Balance at March 31, 2023	$	229	$	2,155	$	(355)	$	10,698	$	12,727


	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

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, 2023 and December 31, 2022, our results of operations, comprehensive income and changes in stockholders’ equity for the first quarters of 2023 and 2022, and our cash flows for the first three months of 2023 and 2022 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
	2023		2022
	($ in millions)
Merchandise:
Agriculture, forest and consumer products	$	653	$	573
Chemicals	541		498
Metals and construction	400		375
Automotive	284		226
Merchandise	1,878		1,672
Intermodal	814		854
Coal	440		389

Total	$	3,132	$	2,915

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, 2023 and December 31, 2022.

We may provide customers ancillary services, such as switching, demurrage and other incidental activities, under their transportation contracts. The revenues associated with these distinct performance obligations are recognized when the services are performed or as contractual obligations are met. These revenues are included within each of the commodity groups and represent approximately 6% and 7% of total “Railway operating revenues” on the Consolidated Statements of Income for the first quarters of 2023 and 2022, 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, 2023		December 31, 2022
	($ in millions)

Customer	$	919	$	895
Non-customer	251		253

Accounts receivable – net	$	1,170	$	1,148

Non-customer receivables include non-revenue-related amounts due from other railroads, governmental entities, and others. We do not have any material contract assets or liabilities at March 31, 2023 and December 31, 2022.

2. Stock-Based Compensation


	First Quarter
	2023		2022
	($ in millions)

Stock-based compensation expense	$	11	$	23
Total tax benefit	6		13

During the first quarter of 2023, 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	69,580	$	77.60
RSUs	173,221	237.70
PSUs	58,040	236.68

Stock Options


	First Quarter
	2023		2022
	($ in millions)

Options exercised	66,811		119,343
Cash received upon exercise	$	5	$	10
Related tax benefits realized	3		5

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
	2023		2022
	($ in millions)

RSUs vested	149,122		243,301
Common Stock issued net of tax withholding	104,608		172,364
Related tax benefits realized	$	1	$	5

Performance Share Units

PSUs provide for awards based on the achievement of certain predetermined corporate performance goals at the end of a three-year cycle and are settled through the issuance of shares of Common Stock. All PSUs will earn out based on the achievement of performance conditions and some will also earn out based on a market condition. The market condition fair value was measured on the date of grant using a Monte Carlo simulation model.


	First Quarter
	2023		2022
	($ in millions)

PSUs earned	58,599		86,420
Common Stock issued net of tax withholding	40,255		54,651
Related tax benefits realized	$	—	$	1

3. Earnings Per Share

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


	Basic				Diluted
	First Quarter
	2023		2022		2023		2022
	($ in millions, except per share amounts, shares in millions)

Net income	$	466	$	703	$	466	$	703
Dividend equivalent payments	(1)		—		—		—

Income available to common stockholders	$	465	$	703	$	466	$	703

Weighted-average shares outstanding	227.7		239.3		227.7		239.3
Dilutive effect of outstanding options and share-settled awards					0.6		0.9
Adjusted weighted-average shares outstanding					228.3		240.2

Earnings per share	$	2.04	$	2.94	$	2.04	$	2.93

During the first quarters of 2023 and 2022, 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 both the first quarters ended March 31, 2023 and 2022.

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, 2023
Pensions and other postretirement liabilities	$	(319)	$	—	$	(4)	$	(323)
Other comprehensive loss of equity investees	(32)		—		—		(32)

Accumulated other comprehensive loss	$	(351)	$	—	$	(4)	$	(355)

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)

SEC Form 10-Q filed by Norfolk Southern Corporation