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Item 1. Financial Statements

2023-07-27 compared with 2023-04-26 · 152 added, 84 removed, 390 unchanged (38% of the section changed)

2 unchanged sentences

Consolidated Statements of Income

First Quarter

Second Quarter First Six Months

2023 2022 2023 2022

($ in millions, except per share amounts)

3 unchanged sentences

Purchased services and rents 506 481 1,002 918

Fuel 263 408 578 709

Depreciation 321 304 642 606

14 unchanged sentences

Consolidated Statements of Comprehensive Income

First Quarter

Second Quarter First Six Months

2023 2022 2023 2022

($ in millions)

2 unchanged sentences

Pension and other postretirement benefit (expense) ( 6 ) 5 ( 11 ) 11

Other comprehensive income (loss) of equity investees ( 1 ) 6

Other comprehensive income of equity investees 1 2 — 8

Other comprehensive income (loss), before tax ( 5 ) 7 ( 11 ) 19

44 unchanged sentences

Consolidated Statements of Cash Flows

First Three Months

First Six Months

($ in millions)

24 unchanged sentences

Debt repayments ( 802 ) ( 550 )

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

Net cash used in financing activities ( 1,005 ) ( 877 )

Net increase in cash and cash equivalents 100 420

25 unchanged sentences

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

Comprehensive income:

Net income 356 356

Other comprehensive loss ( 4 ) ( 4 )

Total comprehensive income 352

Dividends on common stock,

$ 1.35 per share

( 308 ) ( 308 )

Share repurchases ( 1 ) ( 4 ) ( 135 ) ( 140 )

Stock-based compensation 9 9

Balance at June 30, 2023 $ 228 $ 2,160 $ ( 359 ) $ 10,611 $ 12,640

See accompanying notes to consolidated financial statements.

Norfolk Southern Corporation and Subsidiaries

Consolidated Statements of Changes in Stockholders’ Equity

Stock Additional

14 unchanged sentences

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

Comprehensive income:

Net income 819 819

Other comprehensive income 6 6

Total comprehensive income 825

Dividends on common stock,

$ 1.24 per share

( 294 ) ( 294 )

Share repurchases ( 4 ) ( 29 ) ( 821 ) ( 854 )

Stock-based compensation 16 16

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

See accompanying notes to consolidated financial statements.

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Notes to Consolidated Financial Statements

In the opinion of management, the accompanying unaudited interim consolidated financial statements contain all adjustments (consisting of normal recurring accruals) necessary to present fairly Norfolk Southern Corporation (Norfolk Southern) and subsidiaries’ (collectively, NS, we, us, and our) financial position at 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.

In the opinion of management, the accompanying unaudited interim consolidated financial statements contain all adjustments (consisting of normal recurring accruals) necessary to present fairly Norfolk Southern Corporation (Norfolk Southern) and subsidiaries’ (collectively, NS, we, us, and our) financial position at June 30, 2023 and December 31, 2022, our results of operations, comprehensive income and changes in stockholders’ equity for the second quarters and first six months of 2023 and 2022, and our cash flows for the first six months of 2023 and 2022 in conformity with U.S.

Generally Accepted Accounting Principles (GAAP).

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The following table disaggregates our revenues by major commodity group:

First Quarter

Second Quarter First Six Months

2023 2022 2023 2022

($ in millions)

5 unchanged sentences

Intermodal 745 972 1,559 1,826

Coal 409 425 849 814

Total $ 2,980 $ 3,250 $ 6,112 $ 6,165

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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 had no material remaining performance obligations at June 30, 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.

These revenues are included within each of the commodity groups and represent approximately 4 % and 6 % of total “Railway operating revenues” on the Consolidated Statements of Income for the second quarters of 2023 and 2022, respectively, and 5 % and 7 % for the first six months of 2023 and 2022, respectively.

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

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

We do no t have any material contract assets or liabilities at March 31, 2023 and December 31, 2022.

We do no t have any material contract assets or liabilities at June 30, 2023 and December 31, 2022.

Stock-Based Compensation

First Quarter

Second Quarter First Six Months

2023 2022 2023 2022

($ in millions)

1 unchanged sentence

Total tax benefit 3 4 9 17

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

During 2023, 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

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

Stock options — $ — 69,580 $ 77.60

2 unchanged sentences

Stock Options

First Quarter

Second Quarter First Six Months

2023 2022 2023 2022

($ in millions)

5 unchanged sentences

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

First Quarter

Second Quarter First Six Months

2023 2022 2023 2022

($ in millions)

6 unchanged sentences

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

First Quarter

No PSUs were earned or paid out during the second quarters of 2023 and 2022.

First Six Months

($ in millions)

5 unchanged sentences

Basic Diluted

First Quarter

Second Quarter

2023 2022 2023 2022

8 unchanged sentences

Earnings per share $ 1.56 $ 3.46 $ 1.56 $ 3.45

During the first quarters of 2023 and 2022, dividend equivalent payments were made to certain holders of stock options and RSUs.

Basic Diluted

First Six Months

2023 2022 2023 2022

($ in millions, except per share amounts,

shares in millions)

Net income $ 822 $ 1,522 $ 822 $ 1,522

Dividend equivalent payments ( 1 ) ( 1 ) ( 1 ) ( 1 )

Income available to common stockholders $ 821 $ 1,521 $ 821 $ 1,521

Weighted-average shares outstanding 227.6 238.0 227.6 238.0

Dilutive effect of outstanding options and share-settled awards 0.5 0.9

Adjusted weighted-average shares outstanding 228.1 238.9

Earnings per share $ 3.61 $ 6.39 $ 3.60 $ 6.37

During the second quarters and first six months 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.

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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.

0.1 million in both the second quarters and first six months ended June 30, 2023 and 2022.

Accumulated Other Comprehensive Loss

4 unchanged sentences

($ in millions)

Three months ended March 31, 2023

Six months ended June 30, 2023

Pensions and other postretirement liabilities $ ( 319 ) $ — $ ( 8 ) $ ( 327 )

1 unchanged sentence

Accumulated other comprehensive loss $ ( 351 ) $ — $ ( 8 ) $ ( 359 )

Three months ended March 31, 2022

Six months ended June 30, 2022

Pensions and other postretirement liabilities $ ( 356 ) $ — $ 8 $ ( 348 )

2 unchanged sentences

Stock Repurchase Program

We repurchased and retire d 0.6 million and 2.2 million shares of Common Stock under our stock repurchase programs in the first three months of 2023 and 2022, respectively, at a cost of $ 163 million and $ 600 million.

We repurchased and retire d 1.3 million and 5.7 million shares of Common Stock under our stock repurchase programs in the first six months of 2023 and 2022, respectively, at a cost of $ 303 million and $ 1.5 billion.

Investment in Conrail

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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 at March 31, 2023 and December 31, 2022.

Our investment in Conrail was $ 1.6 billion at June 30, 2023 and December 31, 2022.

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.

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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 $ 45 million and $ 38 million for the first quarters of 2023 and 2022, respectively.

Our equity in Conrail’s earnings, net of amortization, was $ 16 million and $ 14 million for the first quarters of 2023 and 2022, respectively.

“Purchased services and rents” and “Fuel” include expenses payable to CRC for operation of the Shared Assets Areas totaling $ 39 million and $ 36 million for the second quarters of 2023 and 2022, respectively, and $ 84 million and $ 74 million for the first six months of 2023 and 2022, respectively.

Our equity in Conrail’s earnings, net of amortization, was $ 19 million and $ 11 million for the second quarters of 2023 and 2022, respectively, and $ 35 million and $ 25 million for the first six months of 2023 and 2022, 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 March 31, 2023 and December 31, 2022 for long-term advances from Conrail, maturing in 2050 that bear interest at an average rate of 1.31 %.

“Other liabilities” includes $ 534 million at both June 30, 2023 and December 31, 2022 for long-term advances from Conrail, maturing in 2050 that bear interest at an average rate of 1.31 %.

Investment in TTX

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 and six 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.” These expenses amounted to $ 66 million and $ 64 million for the first quarters of 2023 and 2022, respectively.

Our equity in TTX’s earnings partially offsets these costs and totaled $ 9 million and $ 10 million for the first quarters of 2023 and 2022, respectively.

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

We have in place an accounts receivable securitization program with a maximum borrowing capacity of $ 400 million and a term that expires in May 2023.

Expenses incurred for use of TTX equipment are included in “Purchased services and rents.” These expenses amounted to $ 69 million and $ 66 million for the second quarters of 2023 and 2022, respectively, and $ 135 million and $ 130 million for the first six months of 2023 and 2022, respectively.

Our equity in TTX’s earnings partially offsets these costs and totaled $ 12 million and $ 11 million for the second quarters of 2023 and 2022, respectively, and $ 21 million in both the first six months of 2023 and 2022.

In May 2023, we renewed our accounts receivable securitization program with a maximum borrowing capacity of $ 400 million.

Amounts under our accounts receivable securitization program are borrowed and repaid from time to time in the ordinary course for general corporate and cash management purposes.

The term of our accounts receivable securitization program was extended in the second quarter and now expires in May 2024.

Amounts received under this facility are accounted for as borrowings.

We had no amounts outstanding under this program at March 31, 2023 and our available borrowing capacity was $ 400 million.

At December 31, 2022, we had $ 100 million (at an average variable interest rate of 5.05 %) outstanding, which is included within “Short-term debt” and our available borrowing capacity was $ 300 million.

Our accounts receivable securitization program was supported by $ 916 million and $ 883 million in receivables at March 31, 2023 and December 31, 2022, respectively, which are included in “Accounts receivable – net”.

At June 30, 2023, we had $ 130 million (at an average variable interest rate of 5.81 %) outstanding which is included within “Short-term debt” and our available borrowing capacity was $ 270 million.

At December 31, 2022, we had $ 100 million (at an average variable interest rate of 5.05 %) outstanding and our available borrowing capacity was $ 300 million.

Our accounts receivable securitization program was supported by $ 840 million and $ 883 million in receivables at June 30, 2023 and December 31, 2022, respectively, which are included in “Accounts receivable – net”.

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

Pensions and Other Postretirement Benefits

6 unchanged sentences

Pension Benefits Other Postretirement Benefits

First Quarter

Second Quarter

2023 2022 2023 2022

6 unchanged sentences

Net benefit $ ( 18 ) $ ( 15 ) $ ( 4 ) $ ( 6 )

Pension Benefits Other Postretirement Benefits

First Six Months

2023 2022 2023 2022

($ in millions)

Service cost $ 12 $ 20 $ 2 $ 3

Interest cost 54 34 9 4

Expected return on plan assets ( 104 ) ( 107 ) ( 6 ) ( 6 )

Amortization of net losses 2 24 — —

Amortization of prior service benefit — — ( 13 ) ( 13 )

Net benefit $ ( 36 ) $ ( 29 ) $ ( 8 ) $ ( 12 )

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.

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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, 2023 or December 31, 2022.

There are no other assets or liabilities measured at fair value on a recurring basis at June 30, 2023 or December 31, 2022.

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

March 31, 2023 December 31, 2022

June 30, 2023 December 31, 2022

Value Carrying

6 unchanged sentences

Fires associated with the derailment threatened certain of the tank cars.

There was concern about the risk that the content of five of the tank cars carrying vinyl chloride might polymerize, which would have posed the risk of a catastrophic explosion.

There was concern about the risk that the contents of five of the tank cars carrying vinyl chloride might polymerize, which would have posed the risk of a catastrophic explosion.

As a consequence, on February 6, 2023, the local incident commander—in consultation with the incident command that included, among others, federal, state and local officials and Norfolk Southern—opted to conduct a controlled vent and burn of five derailed tank cars, all of which contained vinyl chloride.

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The February 3rd derailment, the associated fire, and the resulting vent and burn of the tank cars containing vinyl chloride on February 6th is hereinafter referred to as the “Incident.”

In response to the Incident, we have worked to clean the site safely and thoroughly, including those activities described in the Environmental Matters section below with respect to potentially impacted air, soil and water and to monitor for any impact on public health and the environment.

We are working with federal, state, and local officials to mitigate impacts from the Incident, including, among other efforts, conducting environmental monitoring and clean-up activities (as more fully described below), and establishing a family assistance center to provide financial support to affected members of the East Palestine and surrounding communities .

In response to the Incident, we have been working to clean the site safely and thoroughly, including those activities described in the Environmental Matters section below with respect to potentially impacted air, soil and water and to monitor for any impact on public health and the environment.

We are working with federal, state, and local officials to mitigate impacts from the Incident, including, among other efforts, conducting environmental monitoring and clean-up activities (as more fully described below), and operating a family assistance center to provide financial support to affected members of the East Palestine and surrounding communities .

Financial Impact

Although we cannot predict the final outcome or estimate the reasonably possible range of loss with certainty, we have recognized $ 387 million of expense for costs directly attributable to the Incident, which is presented in “Eastern Ohio incident” on the Consolidated Statements of Income.

During the first quarter, our cash expenditures attributable to the Incident were $ 55 million, which are presented in “Net cash provided by operating activities” on the Consolidated Statement of Cash Flows.

The remainder, $ 332 million, is primarily comprised of our estimates of

probable and reasonably estimable liabilities principally associated with environmental matters and legal proceedings, which are discussed in further detail below.

While certain costs recorded in the first quarter may be recoverable under our insurance policies in effect at the date of the Incident, no estimate of potential recoveries has yet been recorded.

Any amounts recoverable under our insurance policies will be reflected in future periods in which recovery is considered probable.

Although we cannot predict the final outcome or estimate the reasonably possible range of loss with certainty, during the first six months of 2023, we have recognized $ 803 million of expense for costs directly attributable to the Incident ($ 416 million of which was recognized in the second quarter), which is presented in “Eastern Ohio incident” on the Consolidated Statements of Income.

During the first six months of 2023, our cash expenditures attributable to the Incident were $ 287 million, which are presented in “Net cash provided by operating activities” on the Consolidated Statements of Cash Flows.

The difference between the recognized expense and cash expenditures during the first six months of 2023, $ 516 million, is primarily comprised of our current estimates of probable and reasonably estimable liabilities principally associated with environmental matters and legal proceedings, which are discussed in further detail below.

While certain costs recorded during the first six months of 2023 may be recoverable from third parties or under our insurance policies in effect at the date of the Incident, no estimate of potential recoveries has yet been recorded.

Any amounts recoverable from third parties or under our insurance policies will be reflected in future periods in which recovery is considered probable.

For additional information about our insurance coverage, see “Insurance” below.

Environmental Matters – In response to the Incident, we have been working with federal, state, and local officials such as the U.S.

Environmental Protection Agency (EPA), the Ohio EPA, and the Pennsylvania Department of Environmental Protection, to conduct environmental response and remediation activities, including but not limited to, air monitoring, indoor air quality screenings, municipal water and private water well testing, residential, commercial, and agricultural soil sampling, surface water and groundwater sampling, re-routing a local waterway around the affected site, capturing and shipping stormwater that enters the impacted derailment site to proper disposal facilities, and excavating and disposing of potentially affected soil at hazardous waste landfills or incinerators.

EPA issued a Unilateral Administrative Order (UAO) on February 21, 2023, containing various requirements, including the submission of numerous work plans to assess and remediate various environmental media and performance of certain removal actions at the affected site.

Environmental Protection Agency (EPA), the Ohio EPA, and the Pennsylvania Department of Environmental Protection (DEP), to conduct environmental response and remediation activities, including but not limited to, air monitoring, indoor air quality screenings, municipal water and private water well testing, residential, commercial, and agricultural soil sampling, surface water and groundwater sampling, re-routing a local waterway around the affected site, capturing and shipping stormwater that enters the impacted derailment site to proper disposal facilities, and excavating and disposing of potentially affected soil at hazardous waste landfills or incinerators.

performance of certain removal actions at the affected site.

On February 24, 2023, we submitted to the U.S.

EPA our Notice of Intent to Comply with the UAO and are currently cooperating with U.S.

EPA as well as the Ohio EPA and Pennsylvania Department of Environmental Protection, pursuant to the UAO and the directives issued thereunder.

EPA as well as the Ohio EPA and Pennsylvania DEP, pursuant to the UAO and the directives issued thereunder.

We are also subject to the following legal proceedings that principally relate to the environmental impact of the Incident:

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EPA filed a civil complaint (the DOJ Complaint) in the Northern District of Ohio (Eastern Division) seeking injunctive relief, cost recovery and civil penalties for violations of the Clean Water Act and seeking cost recovery under the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA).

• The Ohio Attorney General filed a CERCLA lawsuit (the Ohio Complaint) in the Northern District of Ohio (Eastern Division) requesting statutory damages for a variety of tort and environmental claims under CERCLA.

In connection with the foregoing items, we recognized $ 317 million of expense during the first quarter, of which $ 31 million was paid, related to probable obligations that are reasonably estimable, in accordance with Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) 410-30, “Environmental Obligations.” Our current estimate includes ongoing and future environmental cleanup activities and remediation efforts, governmental oversight costs (including those incurred by the U.S.

The Ohio Attorney General (AG) also filed a CERCLA lawsuit (the Ohio Complaint) in the Northern District of Ohio (Eastern Division) seeking statutory damages for a variety of tort and environmental claims under CERCLA and various state laws.

The DOJ and Ohio AG cases have been consolidated for discovery purposes.

We have filed an answer, and on June 30, 2023, we filed a third-party complaint bringing in numerous parties involved in the Incident.

In connection with the foregoing items, we recognized $ 581 million of expense during the first six months of 2023 ($ 264 million of which was recognized in the second quarter), of which $ 208 million was paid during the first six months of 2023, related to probable obligations that are reasonably estimable, in accordance with Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) 410-30, “Environmental Obligations.” Our current estimate includes ongoing and future environmental cleanup activities and remediation efforts, governmental oversight costs (including those incurred by the U.S.

EPA and the Ohio EPA), and other related costs, including those in connection with the DOJ Complaint (including potential civil penalties related to violations of the Clean Water Act).

Our current estimates of future environmental cleanup and remediation liabilities related to the Incident may change over time due to various factors, including but not limited to, the success of current cleanup techniques, the nature and extent of required future cleanup activities, and the extent of governmental oversight, amongst other factors.

Our current estimates of future environmental cleanup and remediation liabilities related to the Incident may change over time due to various factors, including but not limited to, when activities at the site transition from extensive soil and water disposal and air monitoring activities to additional assessment and investigative efforts, the nature and extent of required future cleanup activities (including those resulting from additional assessment and investigative activities that will be conducted at the site), the extent and duration of governmental oversight, and the success of current cleanup techniques, amongst other factors.

As clean-up efforts progress and more information is available, including any federal and state requirements, we will review these estimates and revise as appropriate.

Legal Proceedings (Non-Environmental) – To date, numerous non-environmental legal actions have been filed with respect to the Incident, including those more specifically set forth below.

• There are currently numerous putative class action and individual lawsuits that have been filed, primarily consolidated in the Northern District of Ohio (Eastern Division).

The putative class

action complaints currently allege numerous claims, including negligence, nuisance, trespass, and medical monitoring, and seek as relief, among other things, compensatory and punitive damages.

The putative classes are currently defined by reference to class areas ranging from the evacuation zone up to 100 miles away.

Additional multi-plaintiff lawsuits are also pending in the same court and others, such as additional lawsuits pending in the Western District of Pennsylvania brought by local school districts including claims such as negligence, nuisance, trespass, and future health monitoring.

No responsive pleadings have yet been filed with respect to these matters (collectively referred to herein as the Incident Lawsuits).

In accordance with ASC 450, “Contingencies,” we have recognized a $ 12 million probable loss in the first quarter with respect to the Incident Lawsuits, which is in addition to $ 16 million in amounts paid during the first quarter with respect to these matters.

• Securities litigation, including a securities class action lawsuit filed in the Southern District of Ohio alleging multiple securities law violations for which no responsive pleading has yet been filed, as well as multiple shareholder demand letters that we have received (collectively, the Shareholder Lawsuits).

Legal Proceedings and Claims (Non-Environmental) – To date, numerous non-environmental legal actions have commenced with respect to the Incident, including those more specifically set forth below.

• There is a consolidated putative class action pending in the Northern District of Ohio (Eastern Division) alleging various claims, including negligence, gross negligence, strict liability, and nuisance, and seeking as relief compensatory and punitive damages, medical monitoring and business losses.

The putative classes are defined by reference to a class area covering a 30-mile radius.

The court in the putative class action has established a fact discovery deadline in January 2024.

Additional lawsuits are also pending in the same court and others, such as lawsuits pending in the Western District of Pennsylvania brought by three local school districts and including claims such as negligence, nuisance, trespass, and future health monitoring.

The putative class action and individual lawsuits are collectively referred to herein as the Incident Lawsuits.

In accordance with ASC 450, “ Contingencies ,” we have recognized a $ 105 million loss during the first six months of 2023 with respect to the Incident Lawsuits ($ 77 million of which was recognized during the second quarter based on updated information and related discussions, including currently estimated liabilities related to tailored property value and drinking water protection programs being negotiated with relevant stakeholders, including the Ohio AG, to assist affected residents and businesses).

We have made $ 25 million in payments during the first six months of 2023 with respect to these matters.

• Securities litigation and demands, including a securities class action lawsuit under the Securities Exchange Act of 1934 filed in the Southern District of Ohio alleging multiple securities law violations, a securities class action lawsuit under the Securities Act of 1933 filed in the Southern District of New York alleging misstatements in association with our debt offerings, and multiple shareholder document and litigation demand letters that we have received (collectively, the Shareholder Matters).

No responsive pleadings have been filed yet, although we are seeking to transfer the matter filed in the Southern District of Ohio to the Northern District of Georgia.

If and when we conclude that it is probable that a liability has been incurred and the amount of the liability can be reasonably estimated, it will be accrued through a charge to earnings and, if material, disclosed.

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For legal proceedings 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.

The reserves established by us during the first quarter do not include any estimate of loss for the following items, for which we believe a loss is either not probable or not reasonably estimable for the reasons noted:

(i) the overall cost to us for programs being developed in conjunction with the Ohio Attorney General for affected residents and businesses, which amounts will impact our loss contingency analysis with respect to the Incident Lawsuits described above, namely a healthcare fund, tailored protection for property owners, and programs to protect drinking water over the long term (given the preliminary nature of such discussions), or (ii) any fines or penalties (in excess of the reserves established for Clean Water Act-related civil penalties) that may be imposed as a result of the Incident Inquiries and Investigations, as more specifically set forth and defined below (the outcome of which are uncertain at this time).

Additionally, as noted above, amounts recognized during the first quarter do not include potential recoveries from third parties, including the impact of our insurance coverage, which may apply to various Incident-related expenses or liabilities, as more specifically set forth further below (given the preliminary nature of any related discussions with our insurers).

In addition to the costs associated with environmental matters and legal proceedings and claims, we incurred other expenses directly related to the Incident of $ 117 million during the first six months of 2023 ($ 75 million of which was recognized in the second quarter) pertaining to legal fees, community support, and other response-related activities.

The reserves established by us during the first six months of 2023 do not include any estimate of loss for the following additional items, for which we believe a loss is either not probable or not reasonably estimable for the reasons noted:

(i) the overall cost to us for the healthcare fund being developed in conjunction with relevant stakeholders, including the Ohio AG, for affected residents (given the preliminary nature of such discussions), which amount will impact our loss contingency analysis with respect to the Incident Lawsuits described above, or (ii) any fines or penalties (in excess of the reserves established for Clean Water Act-related civil penalties) that may be imposed as a result of the Incident Inquiries and Investigations, as more specifically set forth and defined below (the outcome of which are uncertain at this time).

Additionally, as noted above, amounts recognized during the first six months of 2023 do not include potential recoveries from third parties, including but not limited to the impact of our insurance coverage, which may apply to various Incident-related expenses or liabilities, as more specifically set forth further below (given the preliminary nature of any related discussions with our insurers).

Inquiries and Investigations

As set forth above, we are subject to inquiries and investigations by numerous federal, state, and local government authorities and regulatory agencies regarding the Incident, including but not limited to, the DOJ and the U.S.

EPA, the Ohio EPA, the National Transportation Safety Board (NTSB), the Federal Railroad Administration (FRA), the Occupational Safety and Health Administration, the Ohio Attorney General, and the Pennsylvania Attorney General.

EPA, the Ohio EPA, the National Transportation Safety Board (NTSB), the Federal Railroad Administration (FRA), the Occupational Safety and Health Administration, the Ohio AG, and the Pennsylvania AG.

Further details regarding the NTSB and FRA investigations are set forth below.

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The outcome of any current or future Incident Inquiries and Investigations is uncertain at this time, including any related fines, penalties or settlements.

Therefore, our first quarter expenses do not include estimates of the total amount that we may incur for any such fines, penalties or settlements.

Therefore, our expenses for the first six months of 2023 do not include estimates of the total amount that we may incur for any such fines, penalties or settlements.

Subsequent to the Incident, investigators from the NTSB examined railroad equipment and track conditions;

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and completed certain interviews (the NTSB Investigation).

The NTSB issued a preliminary report indicating that one of the cars involved in the derailment appeared to have a wheel bearing in the final stage of overheat failure moments before the derailment.

The NTSB issued a preliminary report indicating that one of the cars involved

in the derailment appeared to have a wheel bearing in the final stage of overheat failure moments before the derailment.

Their preliminary report also indicates that the rail crew was operating the train within our rules;

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and once the rail crew was alerted by the wayside detector, they immediately began to stop the train.

The NTSB conducted a subsequent investigative field hearing in East Palestine, Ohio on June 22 and 23, 2023.

The NTSB’s investigation remains ongoing.

We expect the NTSB to issue a final report, with a probable cause determination and safety recommendations, in 2024.

Concurrent with the NTSB Investigation, the FRA is also investigating the Incident.

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The FRA Incident Investigation may result in the assessment of civil penalties.

In addition to the FRA Incident Investigation, the FRA announced on March 7, 2023 that it would conduct a 60-day supplemental safety assessment (the FRA Safety Assessment).

The FRA Safety Assessment will review findings from a previously completed 2022 system audit and assess operational elements including, but not limited to:

In addition to the FRA Incident Investigation, the FRA recently completed a 60-day supplemental safety assessment (the FRA Safety Assessment).

The FRA Safety Assessment included a review of findings from a previously completed 2022 system audit and an assessment of operational elements including, but not limited to:

track, signal, and rolling stock maintenance, inspection and repair practices;

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operation control center procedures and dispatcher training.

The overall scope of the FRA Safety Assessment is to examine our safety culture.

At the conclusion of the FRA Safety Assessment, the FRA will issue a public report which will include its findings and recommended corrective actions.

The FRA Incident Investigation and the FRA Safety Assessment remain ongoing.

The overall scope of the FRA Safety Assessment was to examine our safety culture.

We expect the FRA to issue a public report in early August including its findings and recommended corrective actions.

The FRA Incident Investigation remains ongoing.

Other Commitments and Contingencies

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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.

The lawsuit alleged violations of various state laws and federal antitrust laws.

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.

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On April 19, 2023, the court disposed of all remaining state equitable relief claims.

These rulings may be appealed.

If appealed, we will 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.

of appeal was filed on May 16, 2023.

We will 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 the 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.

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

In addition to environmental claims associated with the Incident, our Consolidated Balance Sheets include liabilities for other environmental exposures of $ 61 million at March 31, 2023 and $ 66 million at December 31, 2022, of which $ 15 million is classified as a current liability at the end of both periods.

At March 31, 2023 and 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.

At March 31, 2023, twenty sites accounted for $ 49 million of the liability, and no individual site was considered to be material.

In addition to environmental claims associated with the Incident, our Consolidated Balance Sheets include liabilities for other environmental exposures of $ 60 million at June 30, 2023 and $ 66 million at December 31, 2022, of which $ 15 million is classified as a current liability at the end of both periods.

At June 30, 2023, the liability represents our estimates of the probable cleanup, investigation, and remediation costs based on available information at 82 known locations and projects compared with 85 locations and projects at December 31, 2022.

At June 30, 2023, nineteen sites accounted for $ 49 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 ;

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The latest round of national bargaining concluded in December 2022, when agreements were either ratified or enacted through legislative action for all twelve of our unions.

We are currently participating in additional

discussions (none of which carry the risk of a work stoppage) with several of our unions to conclude the implementation of these national agreements.

With the conclusion of national bargaining, neither party can compel mandatory bargaining around any new proposals until November 1, 2024.

In addition, we understand the imperative to continue improving quality of life for our craft employees and are actively engaged in voluntary local discussions with our unions on this important issue.

In addition, we understand the imperative to continue improving quality of life for our craft employees and remain actively engaged with our unions in voluntary local discussions (none of which carry the risk of a work stoppage) on this important issue.

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

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We are working with our insurers to confirm applicable coverage with respect to the Incident, but no estimate for potential insurance recovery has been accrued at this time.

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 agreement is conditioned upon the following, among other items:

(i) approval by the voters of the City of Cincinnati (Cincinnati Voter Approval), and (ii) the receipt of regulatory approval from the U.S.

Surface Transportation Board (STB).

On June 28, 2023, we entered into an amended and restated asset purchase and sale agreement which increased the purchase price by $ 500,000 and clarified the impact of Cincinnati Voter Approval on the closing timeline.

If Cincinnati Voter Approval is obtained in November 2023, the transaction will close on the later of the date that is five days after all conditions have been satisfied (including potential STB regulatory approval) or March 15, 2024.

Following the June 2023 amendment, the total purchase price for the line and other associated real and personal property included in the transaction is expected to be between $ 1.6 billion and $ 1.7 billion.

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

What changed 10-Q

Item 1. Financial Statements