What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2023-02-03 compared with 2022-02-04 · 114 added, 76 removed, 994 unchanged (16% of the section changed)

24 unchanged sentences

KPMG LLP, independent registered public accounting firm, has audited our financial statements and issued an attestation report on our internal control over financial reporting as of December 31, 2022.

Squires /s/ Mark R.

George /s/ Clyde H.

Squires Mark R.

George Clyde H.

Chairman and Executive Vice President Finance Vice President and

Shaw /s/ Mark R.

George /s/ Claiborne L.

George Claiborne L.

President and Executive Vice President Vice President and

Chief Executive Officer and Chief Financial Officer Controller

96 unchanged sentences

Pension and other postretirement benefits 51 226 ( 140 )

Other comprehensive income (loss) of equity investees 24 2 ( 4 )

Other comprehensive income of equity investees 17 24 2

Other comprehensive income (loss), before tax 68 250 ( 138 )

23 unchanged sentences

Accounts payable $ 1,293 $ 1,351

Short-term debt 100 —

Income and other taxes 312 305

46 unchanged sentences

Purchase and retirement of Common Stock ( 3,110 ) ( 3,390 ) ( 1,439 )

Proceeds from borrowings – net of issuance costs 1,676 784 2,192

Proceeds from borrowings 1,832 1,676 784

Debt repayments ( 553 ) ( 584 ) ( 381 )

19 unchanged sentences

Net income 2,013 2,013

Other comprehensive income 72 72

Other comprehensive loss ( 103 ) ( 103 )

Total comprehensive income 1,910

7 unchanged sentences

Net income 3,005 3,005

Other comprehensive loss ( 103 ) ( 103 )

Other comprehensive income 192 192

Total comprehensive income 3,197

29 unchanged sentences

chemicals ( 17 %);

metals and construction ( 14 %);

coal ( 14 %);

metals and construction ( 13 %);

and automotive ( 8 %).

9 unchanged sentences

Certain ancillary services, such as switching, demurrage and other incidental activities, may be provided to customers 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.

The revenues associated with these distinct performance obligations are recognized when the services are performed or as contractual obligations are met.

Cash Equivalents

41 unchanged sentences

Gains and losses on disposal of operating land are included in “Materials and other” expenses.

Gains and losses on disposal of nonoperating land and nonrail assets are included in “Other income – net” since such income is not a product of our railroad operations.

Gains and losses on disposal of non-operating land and non-rail assets are included in “Other income – net” since such income is not a product of our railroad operations.

A retirement is considered abnormal if it does not occur in the ordinary course of business, if it relates to disposition of a large segment of an asset class and if the retirement varies significantly from the retirement profile identified through our depreciation studies, which inherently consider the impact of normal retirements on expected service lives and depreciation rates.

3 unchanged sentences

New Accounting Pronouncements

In June 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2016-13, “ Credit Losses - Measurement of Credit Losses on Financial Instruments, ” which replaced the current incurred loss impairment method with a method that reflects expected credit losses.

Short-term and long-term financial assets, as defined by the standard, are impacted by immediate recognition of estimated credit losses in the financial statements, reflecting the net amount expected to be collected.

Historically, losses associated from the inability to collect on accounts receivable have been insignificant, with little divergence in collection trends through varying economic cycles.

We adopted the standard on January 1, 2020 and there was no material impact to the financial statements upon adoption.

In December 2019, the FASB issued ASU 2019-12, “ Simplifying the Accounting for Income Taxes, ” which added new guidance to simplify the accounting for income taxes, changed the accounting for certain income tax transactions, and made other minor changes.

In December 2019, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2019-12, “ Simplifying the Accounting for Income Taxes ,” which added new guidance to simplify the accounting for income taxes, changed the accounting for certain income tax transactions, and made other minor changes.

We adopted the standard on January 1, 2021 and there was no material impact to the financial statements upon adoption.

In November 2021, the FASB issued ASU 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.

We adopted the new standard on January 1, 2022 and there was no material impact to the financial statements upon adoption.

Railway Operating Revenues

19 unchanged sentences

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.

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 7 %, 7 % and 5 %, respectively, of total “Railway operating revenues” on the Consolidated Statements of Income for the years ended December 31, 2022, 2021, and 2020.

8 unchanged sentences

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

“Other assets” on the Consolidated Balance Sheets includes non-current customer receivables of $ 23 million at both December 31, 2021 and 2020.

We do not have any material contract assets or liabilities at December 31, 2021 and 2020.

There were no non-current customer receivables at December 31, 2022, while “Other assets” on the

Consolidated Balance Sheets included $ 23 million at December 31, 2021.

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

Other Income – Net

21 unchanged sentences

State income taxes, net of federal tax effect 146 3.5 143 3.6 85 3.3

State law changes ( 136 ) ( 3.3 ) ( 34 ) ( 0.8 ) — —

Excess tax benefits on stock-based compensation ( 18 ) ( 0.4 ) ( 25 ) ( 0.6 ) ( 39 ) ( 1.5 )

1 unchanged sentence

Income taxes $ 860 20.8 $ 873 22.5 $ 517 20.4

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 2022, we recognized a $ 136 million benefit in “Income taxes” with a corresponding reduction in “Deferred income taxes.”

Deferred Tax Assets and Liabilities

4 unchanged sentences

Deferred tax assets:

Compensation and benefits, including postretirement benefits $ 181 $ 218

Accruals, including casualty and other claims $ 110 $ 92

Compensation and benefits, including postretirement benefits 99 181

Other 164 188

9 unchanged sentences

The valuation allowance at the end of each year primarily relates to subsidiary state income tax net operating losses and state investment tax credits that may not be utilized prior to their expiration.

The total valuation allowance increased by $ 3 million in both 2021 and 2020, and $ 4 million in 2019.

The total valuation allowance decreased by $ 19 million in 2022 and increased $ 3 million in both 2021 and 2020.

Uncertain Tax Positions

9 unchanged sentences

Unrecognized tax benefits are adjusted in the period in which new information about a tax position becomes available or the final outcome differs from the amount recorded.

The statute of limitations on Internal Revenue Service (IRS) examinations has expired for all years prior to 2018.

The IRS accepted our 2012 amended income tax return.

As a result, we received a refund of $ 46 million and recognized a tax benefit of $ 19 million in 2020.

State income tax returns generally are subject to examination for a period of three to four years after filing the return.

The statute of limitations on Internal Revenue Service examinations has expired for all years prior to 2019.

State income tax returns are generally subject to examination for a period of three to four years after the return.

In addition, we are generally obligated to report changes in taxable income arising from federal income tax examinations to the states within a period of up to two years from the date the federal examination is final.

13 unchanged sentences

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 fair values of “Cash and cash equivalents,” “Accounts receivable – net,” “Accounts payable,” and “Short-term debt” approximate carrying values because of the short maturity of these financial instruments.

The carrying value of COLI is recorded at cash surrender value and, accordingly, approximates fair value.

24 unchanged sentences

Future payments for access fees due to CRC under the Shared Assets Areas agreements are as follows:

$ 42 million in 2022, $ 43 million in 2023, and $ 18 million

$ 42 million in each of 2023 through 2027 and $ 62 million

We provide certain general and administrative support functions to Conrail, the fees for which are billed in accordance with several service-provider arrangements and approximate $ 6 million annually.

4 unchanged sentences

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 and seven 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 19.78 % ownership interest in TTX.

Expenses incurred for use of TTX equipment are included in “Purchased services and rents.” This amounted to $ 256 million, $ 246 million, and $ 250 million, respectively, for the years ended December 31, 2022, 2021 and 2020.

Our equity in TTX’s earnings partially offsets these costs and totaled $ 53 million for 2021, $ 48 million for 2020, and $ 58 million for 2019.

Our equity in TTX’s earnings partially offsets these costs and totaled $ 53 million for 2022 and 2021, respectively, and $ 48 million for 2020.

Equity in TTX’s earnings is included in the “Other – net” line item within operating activities in the Consolidated Statements of Cash Flows.

49 unchanged sentences

Accounts and wages payable $ 712 $ 850

Due to Conrail (Note 6) 173 112

Casualty and other claims (Note 17) 170 166

Vacation liability 136 119

Due to Conrail (Note 6) 112 56

Other 102 104

13 unchanged sentences

5.22 % maturing 2097 to 2121

Finance leases 22 25

Securitization borrowings and finance leases 116 22

Discounts, premiums, and debt issuance costs ( 930 ) ( 976 )

Total debt 15,182 13,840

Less current maturities ( 553 ) ( 579 )

Long-term debt excluding current maturities $ 13,287 $ 12,102

Less current maturities and short-term debt ( 703 ) ( 553 )

Long-term debt excluding current maturities and short-term debt $ 14,479 $ 13,287

Long-term debt maturities subsequent to 2023 are as follows:

1 unchanged sentence

Total $ 14,479

In August 2021, we issued $ 600 million of 2.90 % senior notes due 2051, resulting in $ 589 million in net proceeds.

In May 2021, we issued $ 500 million of 2.30 % senior notes due 2031, resulting in $ 495 million in net proceeds and $ 600 million of 4.10 % senior notes due 2121, resulting in $ 592 million in net proceeds.

The net proceeds of the 2.30 % senior notes due 2031 will be used to finance or refinance, in whole or in part, new or existing eligible projects with environmental benefits as outlined in our Green Financing Framework.

In May 2021, we renewed, amended and restated our accounts receivable securitization program with a maximum borrowing capacity of $ 400 million.

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

In February 2022, we issued $ 600 million of 3.00 % senior notes due 2032 and $ 400 million of 3.70 % 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 December 31, 2021 and December 31, 2020.

Under this facility NSR sells substantially all of its eligible third-party receivables to a subsidiary, which in turn may transfer beneficial interests in the receivables to various commercial paper vehicles.

Amounts received under this facility are accounted for as borrowings.

We had $ 100 million (at an average variable interest rate of 5.05 %) outstanding under this program at December 31, 2022, which is included within “Short-term debt”, and no amounts outstanding at December 31, 2021.

Our available borrowing capacity was $ 300 million and $ 400 million at December 31, 2022 and December 31, 2021, respectively.

Our accounts receivable securitization program was supported by $ 883 million in receivables at December 31, 2022, which are included in “Accounts receivable – net”.

Credit Agreement and Debt Covenants

1 unchanged sentence

We had no amounts outstanding under this facility at either December 31, 2022 or December 31, 2021, and we are in compliance with all of its covenants.

Subsequent Event

On February 2, 2023, we issued $ 500 million of 4.45 % senior notes due 2033.

We are committed under long-term lease agreements for equipment, lines of road, and other property.

11 unchanged sentences

Classification

ROU assets Other assets $ 411 $ 433

Right-of-use (ROU) assets Other assets $ 407 $ 411

Current lease liabilities Other current liabilities $ 94 $ 82

2 unchanged sentences

The components of total lease expense, primarily included in “Purchased services and rents,” are as follows:

2022 2021 2020

($ in millions)

12 unchanged sentences

We use the portfolio approach and group leases into short-, medium-, and long-term categories, applying the corresponding incremental borrowing rates to these categories.

During 2021 and 2020, respectively, ROU assets obtained in exchange for new operating lease liabilities were $ 57 million and $ 22 million.

During 2022 and 2021, respectively, ROU assets obtained in exchange for new operating lease liabilities were $ 57 million at both periods.

Cash paid for amounts included in the measurement of lease liabilities was $ 100 million and $ 103 million in 2022 and 2021, respectively, and is included in operating cash flows.

13 unchanged sentences

Long-term advances from Conrail (Note 6)

Net pension benefit obligations (Note 12) 338 340

Non-current operating lease liability (Note 10) 316 331

Net other postretirement benefit obligations (Note 12) 244 306

Net pension benefit obligations (Note 12) 255 338

Casualty and other claims (Note 17) 218 170

Net other postretirement benefit obligations (Note 12) 204 244

Deferred compensation 91 109

15 unchanged sentences

Interest cost 67 55 9 7

Actuarial (gains) losses ( 13 ) 294 ( 29 ) 35

Plan amendment ( 2 ) — — —

Actuarial gains ( 677 ) ( 13 ) ( 70 ) ( 29 )

Plan amendments ( 4 ) ( 2 ) — —

Benefits paid ( 152 ) ( 151 ) ( 36 ) ( 38 )

14 unchanged sentences

loss (before tax):

Net loss $ 666 $ 869 $ 10 $ 57

Net (gain) loss $ 623 $ 666 $ ( 19 ) $ 10

Prior service benefit ( 6 ) ( 2 ) ( 177 ) ( 202 )

Our accumulated benefit obligation for our defined benefit pension plans is $ 2.6 billion at both December 31, 2021 and 2020, respectively.

Our accumulated benefit obligation for our defined benefit pension plans is $ 1.9 billion and $ 2.6 billion at December 31, 2022 and 2021, respectively.

Our unfunded pension plans, included above, which in all cases have no assets, had projected benefit obligations of $ 275 million and $ 358 million at December 31, 2022 and 2021, respectively, and had accumulated benefit obligations of $ 249 million and $ 332 million at December 31, 2022 and 2021, respectively.

20 unchanged sentences

($ in millions)

Net gains arising during the year $ ( 137 ) $ ( 46 )

Net (gains) losses arising during the year $ 6 $ ( 29 )

Prior service effect of plan amendment ( 4 ) —

3 unchanged sentences

Total recognized in net periodic cost and other comprehensive income $ ( 104 ) $ ( 27 )

Net gains arising during the year for both pension benefits and other postretirement benefits were due primarily to higher actual returns on plan assets and increases in discount rates.

The estimated net losses for the pension plans that will be amortized from accumulated other comprehensive loss into net periodic cost over the next year are $ 48 million.

The estimated net losses and prior service benefit for the other postretirement benefit plans that will be amortized from accumulated other comprehensive loss into net periodic benefit over the next year is $ 25 million.

Net losses arising during the year for pension benefits were due primarily to lower actual returns on plan assets offset by an increase in discount rates.

Net gains arising during the year for other postretirement benefits were due primarily to an increase in discount rates, partially offset by lower actual returns on plan assets.

The estimated net losses and prior service credits for the pension plans that will be amortized from accumulated other comprehensive loss into net periodic cost over the next year are $ 4 million.

The estimated net gains and prior service benefit for the other postretirement benefit plans that will be amortized from accumulated other comprehensive loss into net periodic benefit over the next year is $ 26 million.

Pension and Other Postretirement Benefits Assumptions

34 unchanged sentences

Asset Management

Eleven investment firms manage our defined benefit pension plan’s assets under investment guidelines approved by our Benefits Investment Committee that is composed of members of our management.

Thirteen investment firms manage our defined benefit pension plan’s assets under investment guidelines approved by our Benefits Investment Committee that is composed of members of our management.

Investments are restricted to domestic and international equity securities, domestic and international fixed income securities, and unleveraged exchange-traded options and financial futures.

55 unchanged sentences

Debt securities — 367 367

Domestic equity securities — 189 189

Fixed income securities:

7 unchanged sentences

Trust-owned life insurance:

Valued at our share of the net assets of trust-owned life insurance issued by a major insurance company.

The underlying investments of that trust consist of a U.S.

Valued at our interest in trust-owned life insurance issued by a major insurance company.

The underlying investments owned by the insurance company consist of a U.S.

stock account and a U.S.

21 unchanged sentences

Stock-Based Compensation

Under the stockholder-approved LTIP, the Compensation Committee (Committee), which is made up of nonemployee members of the Board, or the Chief Executive Officer (when delegated authority by such Committee), may grant stock options, stock appreciation rights (SARs), restricted stock units (RSUs), restricted shares, performance share units (PSUs), and performance shares, up to a maximum of 104,125,000 shares of our Common Stock, of which 8,609,075 remain available for future grants as of December 31, 2021.

Under the stockholder-approved LTIP, the Human Capital Management and Compensation Committee (Committee), which is made up of nonemployee members of the Board, or the Chief Executive Officer (when delegated authority by such Committee), may grant stock options, stock appreciation rights (SARs), restricted stock units (RSUs), restricted shares, performance share units (PSUs), and performance shares, up to a maximum of 104,125,000 shares of our Common Stock, of which 8,238,993 remain available for future grants as of December 31, 2022.

The number of shares remaining for issuance under the LTIP is reduced (i) by 1 for each award granted as a stock option or stock-settled SAR, or (ii) by 1.61 for an award made in the form other than a stock option or stock-settled SAR.

33 unchanged sentences

A dividend yield of zero was used for the LTIP options during the vesting period.

For 2021, 2020, and 2019, a dividend yield of 1.64 %, 1.76 %, and 2.06 %, respectively, was used for all vested LTIP options.

For 2022, 2021, and 2020, a dividend yield of 1.85 %, 1.64 %, and 1.76 %, respectively, was used for the vested period during the remaining expected option term for LTIP options.

The assumptions for the LTIP grants for the last three years are shown in the following table:

24 unchanged sentences

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

The fair value of each RSU was measured on the date of grant as the average of the high and low prices at which Common Stock is traded on the grant date, adjusted for the impact of dividend equivalent payments as applicable.

2022 2021 2020

42 unchanged sentences

The components of “Other comprehensive income (loss)” reported in the Consolidated Statements of Comprehensive Income and changes in the cumulative balances of “Accumulated other comprehensive loss” reported in the Consolidated Balance Sheets consisted of the following:

of Year Net Income

(Loss) Reclassification

of Year Net Income Reclassification

Adjustments Balance

20 unchanged sentences

Year ended December 31, 2021

Net loss arising during the year:

Net gain arising during the year:

Pensions and other postretirement benefits $ 185 $ ( 46 ) $ 139

2 unchanged sentences

Other comprehensive income of equity investees 24 ( 2 ) 22

Other comprehensive loss $ ( 138 ) $ 35 $ ( 103 )

Other comprehensive income $ 250 $ ( 58 ) $ 192

Year ended December 31, 2020

Net gain arising during the year:

Net loss arising during the year:

Pensions and other postretirement benefits $ ( 167 ) $ 42 $ ( 125 )

1 unchanged sentence

Subtotal ( 140 ) 35 ( 105 )

Other comprehensive loss of equity investees ( 4 ) — ( 4 )

Other comprehensive income $ 97 $ ( 25 ) $ 72

Other comprehensive income of equity investees 2 — 2

Other comprehensive loss $ ( 138 ) $ 35 $ ( 103 )

Stock Repurchase Programs

We repurchased and retired 12.6 million, 12.7 million, and 7.4 million shares of Common Stock under our stock repurchase programs in 2022, 2021, and 2020, respectively, at a cost of $ 3.1 billion, $ 3.4 billion, and $ 1.4 billion, respectively.

On September 26, 2017, our Board of Directors authorized the repurchase of up to an additional 50 million shares of Common Stock through December 31, 2022.

As of December 31, 2021, 8.0 million shares remain authorized for repurchase.

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 December 31, 2022, $ 7.5 billion remains authorized for repurchase.

Our previous share repurchase program terminated on March 31, 2022.

Earnings Per Share

11 unchanged sentences

Earnings per share $ 13.92 $ 12.16 $ 7.88 $ 13.88 $ 12.11 $ 7.84

In each year, dividend equivalent payments were made to holders of stock options and RSUs.

In each year, 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.

1 unchanged sentence

For those grants for which the two-class method was more dilutive, net income was reduced by dividend equivalent payments to determine income available to common stockholders.

There are no options excluded from the dilution calculations due to exercise prices exceeding the average market price of Common Stock for each of the years ended December 31, 2021, 2020, and 2019.

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

0.1 million in the year ended December 31, 2022 and none in the years ended December 31, 2021 and 2020.

Commitments and Contingencies

16 unchanged sentences

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.

On January 3, 2023, the court granted summary judgment to us on all of the compensatory claims but denied summary judgment for all equitable relief claims.

On January 18, 2023, the court dismissed the federal equitable relief claims, leaving the state equitable relief claims as the sole remaining issue under consideration.

We expect the rulings will be appealed.

A trial on the state equitable relief claims has not been scheduled.

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 (including any related appeal) will not be material.

Until such appeal is final, we cannot reasonably estimate the potential loss or range of loss associated with this matter.

Casualty Claims

20 unchanged sentences

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.

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.

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.

6 unchanged sentences

At December 31, 2022, the liability represents our estimates of the probable cleanup, investigation, and remediation costs based on available information at 85 known locations and projects compared with 88 locations and projects at December 31, 2021.

At December 31, 2021, sixteen sites accounted for $ 36 million of the liability, and no individual site was considered to be material.

At December 31, 2022, twenty-two sites accounted for $ 55 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 ;

11 unchanged sentences

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

Approximately 80 % of our railroad employees are covered by collective bargaining agreements with various labor unions.

Pursuant to the RLA, these agreements remain in effect until new agreements are reached, or until the bargaining procedures mandated by the RLA 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.

Shortly thereafter, President Biden created PEB No.

250, effective July 18, 2022, to investigate the facts of the dispute and make recommendations.

The PEB issued its recommendations on August 16, 2022, and the parties engaged in further negotiations.

By December 2022, agreements based on the PEB’s recommendations had either been ratified or enacted through legislative action for all twelve unions.

For 2022, “Compensation and benefits” includes $ 54 million and “Purchased services and rents” includes $ 2 million of additional expenses pertaining to wages earned prior to January 1, 2022.

While the parties are engaged in additional discussions to conclude the implementation of the recently finalized agreements, neither party can compel mandatory bargaining around any new proposals until November 1, 2024.

That said, we understand the imperative to continue improving quality of life for our craft employees and are actively engaged in voluntary discussions (which carry no risk of a work stoppage) with all of our unions on this important issue.

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

1 unchanged sentence

In addition, we purchase insurance covering damage to property owned by us or in our care, custody, or control.

This insurance covers 87 % of potential losses above $ 75 million and below $ 275 million per occurrence and/or policy year.

This insurance covers approximately 82 % of potential losses above $ 75 million and below $ 275 million per occurrence and/or policy year.

Purchase Commitments

At December 31, 2021, we had outstanding purchase commitments totaling $ 916 million through 2030 for locomotives, track material, long-term service contracts, track and yard expansion projects in connection with our capital programs, freight cars and containers.

At December 31, 2022, we had outstanding purchase commitments totaling $ 1.7 billion through 2030 for locomotive modernizations, long-term technology support and development contracts, track material, and intermodal equipment.

Asset Purchase and Sale Agreement

In November 2022, we entered into an asset purchase and sale agreement with the Board of Trustees of the Cincinnati Southern Railway to purchase approximately 337 miles of railway line that extends from Cincinnati, Ohio to Chattanooga, Tennessee which we currently operate under a lease agreement.

The total purchase price for the line and other associated real and personal property included in the transaction is approximately $ 1.6 billion.

The agreement is conditioned upon (i) certain changes to Ohio state law applicable to the use of the related sale proceeds, (ii) approval by the voters of the City of Cincinnati, and (iii) the receipt of regulatory approval from the STB.

The agreement includes various termination provisions including termination at any time prior to closing by the mutual written consent of the parties, termination at any time after December 31, 2024 by the mutual written consent of the parties, termination by us if the STB takes action that we deem unsatisfactory, and termination by either party if Cincinnati voter approval is not obtained on or before the later of June 30, 2025 and the calendar date on which the polls are open for the 2025 Cincinnati primary election.

Change-In-Control Arrangements

9 unchanged sentences

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

What changed 10-K

Item 8. Financial Statements and Supplementary Data