What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2024-02-05 compared with 2023-02-03 · 253 added, 139 removed, 969 unchanged (29% of the section changed)

2 unchanged sentences

Report of Management

Reports of Independent Registered Public Accounting Firm

Report of Independent Registered Public Accounting Firm

Consolidated Statements of Income

9 unchanged sentences

Notes to Consolidated Financial Statements

Index to Financial Statement Schedule in Item 15

Index to Financial Statement Schedule s in Item 15

Report of Management

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Based on this assessment, management has concluded that we maintained effective internal control over financial reporting as of December 31, 2023.

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.

KPMG LLP, independent registered public accounting firm, has audited our financial statements and issued an opinion on our internal control over financial reporting as of December 31, 2023.

Shaw /s/ Mark R.

6 unchanged sentences

Norfolk Southern Corporation:

Opinion on Internal Control Over Financial Reporting

We have audited Norfolk Southern Corporation and subsidiaries’ (the Company) internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 2022 and 2021, the related consolidated statements of income, comprehensive income, cash flows, and changes in stockholders’ equity for each of the years in the three-year period ended December 31, 2022, and the related notes and financial statement schedule of valuation and qualifying accounts as listed in Item 15(A)2 (collectively, the consolidated financial statements), and our report dated February 3, 2023 expressed an unqualified opinion on those consolidated financial statements.

Basis for Opinion

The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management's Annual Report on Internal Control Over Financial Reporting.

Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.

We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S.

Opinions on the Consolidated Financial Statements and Internal Control Over Financial Reporting

We have audited the accompanying consolidated balance sheets of Norfolk Southern Corporation and subsidiaries (the Company) as of December 31, 2023 and 2022, the related consolidated statements of income, comprehensive income, cash flows, and changes in stockholders’ equity for each of the years in the three-year period ended December 31, 2023, and the related notes and financial statement schedule of valuation and qualifying accounts as listed in Item 15(A)2 (collectively, the consolidated financial statements).

We also have audited the Company’s internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2023 and 2022, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2023, in conformity with U.S.

generally accepted accounting principles.

Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2023 based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

Basis for Opinions

The Company’s management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management's Annual Report on Internal Control Over Financial Reporting.

Our responsibility is to express an opinion on the Company’s consolidated financial statements and an opinion on the Company’s internal control over financial reporting based on our audits.

We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S.

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.

We conducted our audits in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.

Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements.

Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.

Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk.

Our audit also included performing such other procedures as we considered necessary in the circumstances.

We believe that our audit provides a reasonable basis for our opinion.

Our audits also included performing such other procedures as we considered necessary in the circumstances.

We believe that our audits provide a reasonable basis for our opinions.

Definition and Limitations of Internal Control Over Financial Reporting

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Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Atlanta, Georgia

February 3, 2023

Report of Independent Registered Public Accounting Firm

To the Stockholders and Board of Directors

Norfolk Southern Corporation:

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated balance sheets of Norfolk Southern Corporation and subsidiaries (the Company) as of December 31, 2022 and 2021, the related consolidated statements of income, comprehensive income, cash flows, and changes in stockholders’ equity for each of the years in the three‑year period ended December 31, 2022, and the related notes and financial statement schedule of valuation and qualifying accounts as listed in Item 15(A)2 (collectively, the consolidated financial statements).

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2022 and 2021, and the results of its operations and its cash flows for each of the years in the three‑year period ended December 31, 2022, in conformity with U.S.

generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated February 3, 2023 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company’s management.

Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S.

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud.

Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements.

We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that:

(1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of a critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that:

(1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Sufficiency of audit evidence related to the capitalization of property expenditures

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Subjective auditor judgment was required in determining procedures and evaluating audit results related to the capitalization of purchased services and compensation due to their usage for both self-constructed assets and repairs and maintenance.

The following are the primary procedures we performed to address this critical audit matter.

The following are the primary procedures we performed to address the critical audit matter.

We applied auditor judgment to determine the nature and extent of procedures to be performed over capitalized property expenditures.

We evaluated the design and tested the operating effectiveness of certain internal controls over the Company’s process to capitalize property expenditures, including controls over the determination of whether purchased services and compensation expenditures extend an asset’s useful life or increase its utility.

For a sample of property addition expenditures, we inquired and inspected support to evaluate that the expenditure extended an asset’s useful life or increased its utility.

For a sample of property additions expenditures, we inquired and inspected support to evaluate that the expenditure extended an asset’s useful life or increased its utility.

We evaluated the sufficiency of audit evidence obtained by assessing the results of the procedures performed, including the appropriateness of the nature of such evidence.

Eastern Ohio Incident

As discussed in Note 17 to the consolidated financial statements, the Company has recognized $464 million of liabilities attributable to the Eastern Ohio Incident (the Incident) as of December 31, 2023.

For the year-ended December 31, 2023, the Company has recognized $1,116 million of expenses for costs directly attributable to the Incident, which is presented net of $101 million in insurance recoveries in the Consolidated Statements of Income.

As of December 31, 2023, the Company recognized probable and reasonably estimable liabilities for environmental matters and legal proceedings and claims (non-environmental).

The Company also disclosed certain legal proceedings and claims (non-environmental) where a loss is reasonably possible, but not probable, or is probable but not reasonably estimable, for which no accrual was established.

In addition, as a result of the Incident, the Company disclosed that it is subject to inquiries and investigations by various government authorities and regulatory agencies.

We identified the evaluation of the recognition and measurement of liabilities for environmental matters, legal proceedings and claims (non-environmental) and inquiries and investigations arising from the Incident and the sufficiency of the related disclosures as a critical audit matter.

A high degree of subjective auditor judgment was required to evaluate certain judgments and assumptions made by management when assessing the likelihood and magnitude of losses incurred and determining whether reasonable estimates of losses can be made.

Specifically, the key judgments and assumptions related to the following:

• the nature and extent of future cleanup and removal activities and the extent and duration of governmental oversight

• the final outcome of the legal proceedings and claims (non-environmental)

• the final outcome of any current or future inquiries and investigations arising from the Incident.

The following are the primary procedures that we performed to address this critical audit matter.

We evaluated the design and tested the operating effectiveness of certain internal controls over the Company’s processes to 1) recognize and measure liabilities associated with environmental matters, legal proceedings and claims (non-environmental), and inquiries and investigations and 2) prepare the related financial statement disclosures.

We evaluated the Company's assessment of the likelihood and magnitude of losses being incurred including whether the estimates of losses are reasonably estimable for liabilities associated with the Incident by:

• assessing the estimates of environmental cleanup and remediation liabilities by comparing them to incurred costs

• inquiring of management regarding the expected timeline for both probable and reasonably estimable costs for soil and water disposal and air monitoring activities as well as related governmental oversight

• obtaining a legal confirmation letter from external legal counsel, and inquiring of the Company’s internal and external legal counsel regarding the likelihood and magnitude of losses related to environmental matters, legal proceedings and claims (non-environmental) and inquiries and investigations

• obtaining and inspecting correspondence with government authorities and regulatory agencies for environmental matters, legal proceedings and claims (non-environmental) and inquiries and investigations.

We evaluated whether the Company’s disclosures were appropriate and consistent with the information obtained in our procedures.

We have served as the Company's auditor since 1982.

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Materials and other 832 713 547

Loss on asset disposal — — 385

Eastern Ohio incident 1,116 — —

Total railway operating expenses 9,305 7,936 6,695

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Net income $ 1,827 $ 3,270 $ 3,005

Other comprehensive income (loss), before tax:

Other comprehensive income, before tax:

Pension and other postretirement benefits 36 51 226

Other comprehensive income of equity investees 4 17 24

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

Income tax benefit (expense) related to items of

other comprehensive income (loss) ( 17 ) ( 58 ) 35

Other comprehensive income (loss), net of tax 51 192 ( 103 )

Other comprehensive income, before tax 40 68 250

Income tax expense related to items of

other comprehensive income ( 9 ) ( 17 ) ( 58 )

Other comprehensive income, net of tax 31 51 192

Total comprehensive income $ 1,858 $ 3,321 $ 3,197

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Gains and losses on properties ( 49 ) ( 82 ) ( 86 )

Loss on asset disposal — — 385

Impairment of investment — — 99

Changes in assets and liabilities affecting operations:

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Debt repayments ( 1,334 ) ( 553 ) ( 584 )

Net cash used in financing activities ( 3,002 ) ( 3,309 ) ( 1,927 )

Net cash provided by (used in) financing activities 115 ( 3,002 ) ( 3,309 )

Net increase (decrease) in cash and cash equivalents 1,112 ( 383 ) ( 276 )

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Net income 3,005 3,005

Other comprehensive loss ( 103 ) ( 103 )

Other comprehensive income 192 192

Total comprehensive income 3,197

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The following Notes are an integral part of the Consolidated Financial Statements.

Certain prior year information has been reclassified to conform to current year presentation.

Summary of Significant Accounting Policies

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New Accounting Pronouncements

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):

In November 2021, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (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.

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

In November 2023, the FASB issued ASU 2023-07, “ Segment Reporting (Topic 280):

Improvements to Reportable Segment Disclosures.

” This update requires additional reportable segment disclosures, primarily through enhanced disclosures about significant segment expenses and information used to assess performance.

The ASU is effective for fiscal years beginning after December 15, 2023 and interim periods within fiscal years beginning after December 15, 2024.

We will not early adopt the standard and are currently evaluating the effect on our financial statements.

In December 2023, the FASB issued ASU 2023-09, “ Income Taxes (Topic 740):

Improvements to Income Tax Disclosures.

” This update requires additional disclosures including greater disaggregation of information in the reconciliation of the statutory rate to the effective rate and income taxes paid disaggregated by jurisdiction.

The ASU is effective for fiscal years ending after December 15, 2024.

We will not early adopt the standard and are currently evaluating the effect on our financial statements.

Railway Operating Revenues

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

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.

We do not have any material contract assets or liabilities at December 31, 2023 and 2022.

Other Income – Net

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State income taxes, net of federal tax effect 65 2.9 143 3.5 139 3.6

Tax credits ( 27 ) ( 1.2 ) ( 10 ) ( 0.2 ) ( 10 ) ( 0.3 )

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 )

Other, net ( 32 ) ( 1.4 ) ( 4 ) ( 0.2 ) ( 36 ) ( 1.0 )

Income taxes $ 493 21.3 $ 860 20.8 $ 873 22.5

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.

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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 decreased by $ 19 million in 2022 and increased $ 3 million in both 2021 and 2020.

The total valuation allowance decreased by $ 10 million in 2023, decreased by $ 19 million in 2022, and increased by $ 3 million in 2021.

Uncertain Tax Positions

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Additions for tax positions of prior years 9 1

Reductions for tax positions of prior years ( 1 ) —

Settlements with taxing authorities — ( 2 )

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Conrail $ 1,656 $ 1,584

TTX Company 918 851

Other 428 421

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

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

$ 44 million in each of 2024 through 2028 and $ 17 million thereafter.

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.

In 2020, we converted $ 254 million of accounts payable into long-term advances from Conrail included in “Other liabilities.” “Accounts payable” includes $ 173 million at December 31, 2022, and $ 112 million at December 31, 2021, due to Conrail for the operation of the Shared Assets Areas.

“Accounts payable” includes $ 198 million at December 31, 2023, and $ 173 million at December 31, 2022, due to Conrail for the operation of the Shared Assets Areas.

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

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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, 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 $ 274 million, $ 256 million, and $ 246 million, respectively, for the years ended December 31, 2023, 2022 and 2021.

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

Our equity in TTX’s earnings partially offsets these costs and totaled $ 47 million for 2023 and $ 53 million for both 2022 and 2021.

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

Impairment of Investment

In 2020, we recorded an other-than-temporary impairment of $ 99 million related to the carrying value of an equity method investment.

This non-cash impairment charge is recorded in “Purchased services and rents” on the Consolidated Statements of Income and had a $ 74 million impact on net income.

Accumulated Net Book Depreciation

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(1) Composite annual depreciation rate for the underlying assets, excluding the effects of the amortization of any deficiency (or excess) that resulted from our depreciation studies.

Loss on Asset Disposal

In 2020, we sold 703 locomotives deemed excess and no longer needed for railroad operations.

We evaluated these locomotive retirements and concluded they were abnormal (see Note 1).

Accordingly, we recorded a $ 385 million loss to adjust their carrying amount to their estimated fair value, which resulted in a $ 97 million tax benefit.

Capitalized Interest

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Other current liabilities:

Current Eastern Ohio incident liability (Note 17) $ 346 $ —

Interest payable 193 157

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Total $ 17,175

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 November 2023, we issued $ 400 million of 5.55 % senior notes due 2034 and $ 600 million of 5.95 % senior notes due 2064.

In August 2023, we issued $ 600 million of 5.05 % senior notes due 2030 and $ 1.0 billion of 5.35 % senior notes due 2054.

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

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

The term expires in May 2023.

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 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 expires in May 2024.

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.

We had no amounts outstanding at December 31, 2023 and $ 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”.

Our available borrowing capacity was $ 400 million and $ 300 million at December 31, 2023 and December 31, 2022, respectively.

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

Our accounts receivable securitization program was supported by $ 903 million and $ 883 million in receivables at December 31, 2023 and December 31, 2022, respectively, which are included in “Accounts receivable – net”.

Credit Agreement and Debt Covenants

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We had no amounts outstanding under this facility at either December 31, 2023 or December 31, 2022, 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.

Subsequent Events

In January 2024, we renewed and amended our $ 800 million credit agreement.

The amended agreement expires in January 2029, and provides for borrowings at prevailing rates and includes covenants.

In January 2024, we also entered into a term loan credit agreement that established a 364-day , $ 1.0 billion, unsecured delayed draw term loan facility under which we can borrow for general corporate purposes.

The term loan credit agreement provides for borrowing at prevailing rates and includes covenants that align with the $ 800 million credit agreement.

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

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The lease contains a residual value guarantee of up to eighty-three percent of the total construction cost of $ 499 million.

We currently operate approximately 337 miles of railway that extends from Cincinnati, Ohio to Chattanooga, Tennessee under an operating lease agreement.

Lease expense associated with this agreement totaled $ 26 million, $ 25 million, and $ 24 million in 2023, 2022, and 2021, respectively.

In 2022, we entered into an asset purchase and sale agreement with the Board of Trustees of the Cincinnati Southern Railway to purchase this line (see further discussion in Note 17).

The total purchase price is expected to be approximately $ 1.7 billion and will close on March 15, 2024.

At close, the existing lease arrangement will terminate and the assets purchased will be reflected in “Properties.”

Other information related to operating leases is as follows:

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

During 2023 and 2022, respectively, ROU assets obtained in exchange for new operating lease liabilities were $ 65 million and $ 57 million, respectively.

Cash paid for amounts included in the measurement of lease liabilities was $ 117 million and $ 100 million in 2023 and 2022, respectively, and is included in operating cash flows.

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Net other postretirement benefit obligations (Note 12) 172 204

Non-current Eastern Ohio incident liability (Note 17) 118 —

Deferred compensation 80 91

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Interest cost 108 67 17 9

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

Actuarial losses (gains) 122 ( 677 ) 1 ( 70 )

Plan amendments — ( 4 ) ( 5 ) —

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Amortization of net losses 4 49 66

Amortization of prior service cost — — 1

Amortization of prior service benefit ( 1 ) — —

Net benefit $ ( 72 ) $ ( 57 ) $ ( 29 )

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($ in millions)

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

Net gains arising during the year $ ( 45 ) $ ( 9 )

Prior service effect of plan amendment — ( 5 )

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Total recognized in net periodic cost and other comprehensive income $ ( 120 ) $ ( 4 )

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.

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

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 $ 16 million.

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We assume the rate will ratably decrease to an ultimate rate of 5.0 % for 2030 and remain at that level thereafter.

Assumed health care cost trend rates affect the amounts reported in the financial statements.

To illustrate, a one-percentage point change in the assumed health care cost trend would have the following effects:

One-percentage Point

Increase Decrease

($ in millions)

Increase (decrease) in:

Total service and interest cost components $ 1 $ ( 1 )

Postretirement benefit obligation 6 ( 5 )

Asset Management

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Under collective bargaining agreements, Norfolk Southern and certain subsidiaries participate in a multi-employer benefit plan, which provides certain postretirement health care and life insurance benefits to eligible craft employees.

Premiums under this plan are expensed as incurred and totaled $ 13 million in 2022, $ 21 million in 2021, and $ 22 million in 2020.

Premiums under this plan are expensed as incurred and totaled $ 11 million, $ 13 million, and $ 21 million in 2023, 2022, 2021, respectively.

Section 401(k) Plans

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Under the plans, we match a portion of employee contributions, subject to applicable limitations.

Our matching contributions, recorded as an expense, totaled $ 22 million in 2022, $ 23 million in 2021, and $ 21 million in 2020.

Our matching contributions, recorded as an expense, totaled $ 25 million, $ 22 million, and $ 23 million in 2023, 2022, 2021, respectively.

Stock-Based Compensation

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Historical exercise data is used to estimate the average expected option term.

The average risk-free interest rate is based on the U.S.

The average risk-free interest rate is

based on the U.S.

Treasury yield curve in effect at the time of grant.

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Accumulated Other Comprehensive Loss

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:

The components of “Other comprehensive income” 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 Reclassification

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Accumulated other comprehensive loss $ ( 402 ) $ 34 $ 17 $ ( 351 )

Other Comprehensive Income (Loss)

“Other comprehensive income (loss)” reported in the Consolidated Statements of Comprehensive Income consisted of the following:

Other Comprehensive Income

“Other comprehensive income” reported in the Consolidated Statements of Comprehensive Income consisted of the following:

Benefit Net-of-Tax

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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

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.

We repurchased and retired 2.8 million, 12.6 million, and 12.7 million shares of Common Stock under our stock repurchase programs in 2023, 2022, and 2021, respectively, at a cost of $ 627 million, $ 3.1 billion, and $ 3.4 billion, respectively, inclusive of excise taxes in 2023.

On March 29, 2022, our Board of Directors authorized a new program for the repurchase of up to $ 10.0 billion of

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

0.1 million for the years ended December 31, 2023 and 2022, and none for the year ended December 31, 2021.

Commitments and Contingencies

Eastern Ohio Incident

On February 3, 2023, a train operated by us derailed in East Palestine, Ohio.

The derailed equipment included 38 railcars, 11 of which were non-Company-owned tank cars containing hazardous materials.

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

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.

consequence, on February 6, 2023, the local incident commander (the East Palestine Fire Chief)—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.

This procedure involved creating holes in the five tank cars to drain the vinyl chloride into adjacent trenches that had been dug into the ground where such vinyl chloride was then burned, with any material remaining after burning of the vinyl chloride being remediated.

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 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), operating a family assistance center to provide financial support to affected members of the East Palestine and surrounding communities, and committing additional financial support to the community .

Financial Impact

Although we cannot predict the final outcome or estimate the reasonably possible range of loss with certainty, we recognized $ 1.1 billion of expense in 2023 for costs directly attributable to the Incident (including amounts accrued for the probable and reasonably estimable liabilities for those environmental and non-environmental matters described below) which is presented in “ Eastern Ohio incident ” on the Consolidated Statements of Income.

The total expense recognized includes the impact of $ 101 million in insurance recoveries received in 2023 from claims made under our insurance policies.

We recorded a deferred tax asset (Note 4) of $ 249 million related to the Incident expecting that certain expenses will be deductible for tax purposes in future periods or offset with insurance recoveries.

During 2023, our cash expenditures attributable to the Incident, net of insurance proceeds received, were $ 652 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 2023 of $ 464 million comprises primarily 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.

Certain costs recorded in 2023 may be recoverable under our insurance policies in effect at the date of the Incident or from third parties.

To date, we have recognized $ 101 million in insurance recoveries.

Any additional amounts recoverable under our insurance policies or from third parties 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, the Pennsylvania Department of Environmental Protection (DEP), and the Columbiana County Health District 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.

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 DEP, pursuant to the UAO and the directives issued thereunder.

On October 18, 2023, the U.S.

EPA issued a second unilateral order under Section 311(c) of the Clean Water Act (CWA), requiring preparation of additional environmental work

We timely submitted our Notice of Intent to Comply with the CWA order and continue to cooperate with the U.S.

EPA, as well as state agencies, in compliance with the CWA order.

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

• The DOJ and the U.S.

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 (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 $ 836 million of expense during 2023, of which $ 517 million was paid during 2023, related to probable obligations that are reasonably estimable, in accordance with FASB 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 nature and extent of required future cleanup and removal activities (including those resulting from soil, water, sediment, and air assessment and investigative activities that are currently being, and will continue to be, conducted at the site), and the extent and duration of governmental oversight, amongst other factors.

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

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) in which plaintiffs allege 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 class is defined by reference to a class area covering a 30 -mile radius.

On July 12, 2023, we filed a third-party complaint bringing in multiple parties involved in the Incident.

The court in the putative class action has established a fact discovery deadline of February 5, 2024.

Another putative class action is pending in the Western District of Pennsylvania, brought by Pennsylvania school districts and students.

On August 22, 2023, three school districts voluntarily dismissed their actions, then individual lawsuits.

On the same day, six Pennsylvania school districts and students filed a putative class action lawsuit alleging negligence, strict liability, nuisance, and trespass, and seeking damages and health monitoring.

On December 8, 2023, the school districts amended their complaint to add additional companies as defendants in the action.

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

In accordance with FASB ASC 450, “ Contingencies ,” we have recognized a $ 116 million loss during 2023 with respect to the Incident Lawsuits and related contingencies, of which $ 34 million has been paid.

At this time, we are unable to estimate the possible loss or range of loss in excess of the amounts accrued regarding the Incident Lawsuits.

However, for the reasons set forth below, our estimated loss or range of loss with respect to the Incident Lawsuits may change from time to time, and it is reasonably possible that we will incur actual losses in excess of the amounts currently accrued and such additional amounts may be material.

While we continue to

work with parties with respect to potential resolution pathways, no assurance can be given that we will be successful in doing so and we cannot predict the outcome of these matters.

• We have received securities and derivative litigation and multiple shareholder document and litigation demand letters, including a securities class action lawsuit under the Securities Exchange Act of 1934 initially filed in the Southern District of Ohio alleging multiple securities law violations but since transferred to the Northern District of Georgia, 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 a shareholder derivative complaint in Virginia state court asserting claims for breach of fiduciary duties, waste of corporate assets, and unjust enrichment in connection with safety of the Company's operations (collectively, the Shareholder Matters).

On February 2, 2024, defendants filed a motion to dismiss the amended complaint in the Securities Act lawsuit.

No responsive pleadings have been filed yet with respect to the other Shareholder Matters.

With respect to the Incident-related litigation and regulatory matters, we record a liability for loss contingencies through a charge to earnings when we conclude that it is probable that a liability has been incurred and the amount of the liability can be reasonably estimated, and disclose such liability if we conclude it to be material.

Any adjustments to the recorded liability will be reflected in earnings in the periods in which such adjustments become known.

Because the final outcome of any of these legal proceedings cannot be predicted with certainty, developments related to the progress of such legal proceedings or other unfavorable or unexpected developments or outcomes could result in additional costs or new or additionally accrued amounts that could be material to our results of operations in a particular year or quarter.

In addition, if it is reasonably possible that we will incur Incident-related losses in excess of the amounts currently recorded as a loss contingency, we disclose the potential range of loss, if reasonably estimable, or we disclose that we cannot reasonably estimate such an amount at this time.

For Incident-related litigation and regulatory matters where a loss may be reasonably possible, but not probable, or probable but not reasonably estimable, no accrual is established but the matter, if potentially material, is disclosed.

Our estimates of probable losses and reasonably possible losses are based upon currently available information and involve significant judgement and a variety of assumptions, given that (1) these legal and regulatory proceedings are in early stages;

(2) discovery may not be completed;

(3) damages sought in these legal and regulatory proceedings can be unsubstantiated or indeterminate;

(4) there are often significant facts in dispute;

and/or (5) there is a wide range of possible outcomes.

Accordingly, our estimated range of loss with respect to these matters may change from time to time, and actual losses may exceed current estimates.

At this time, we are unable to estimate the possible loss or range of loss in excess of the amounts accrued with respect to the matters described above.

In addition to the costs associated with environmental matters and legal proceedings and claims, we incurred $ 265 million in other expenses directly related to the Incident in 2023 pertaining to legal fees, community support, and other response-related activities.

The amounts recorded by us in 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 liabilities 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, with the exception of amounts recognized during 2023, potential recoveries under our insurance coverage, which may apply to various Incident-related expenses or liabilities as more specifically set forth further below, have not yet been recorded (given the preliminary nature of discussions with our insurers).

No amounts have been recorded related to potential recoveries

from other third parties, which may reduce amounts payable by our insurers under our applicable insurance coverage.

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 NTSB, the 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.

We are cooperating with all inquiries and investigations, including responding to civil and criminal subpoenas and other requests for information (the aforementioned inquiries and investigations, as well as the civil and criminal subpoenas are collectively referred to herein as the Incident Inquiries and Investigations).

Aside from the FRA Safety Assessment (defined and described below), 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 expenses for 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;

reviewed data from the signal system, wayside defect detectors, local surveillance cameras, and the lead locomotive’s event recorder and forward-facing and inward-facing image recorders;

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.

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

the rail crew operated the train below the track speed limit, the wayside heat detectors were operating as designed;

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.

Similar in scope to the NTSB Investigation, the FRA is examining railroad equipment, track conditions, hazardous materials train placement and routing, and emergency response (the FRA Incident Investigation).

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

In addition to the FRA Incident Investigation, the FRA 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;

protection of employees;

communications between transportation departments and mechanical and engineering staff;

operation control center procedures and dispatcher training.

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

The FRA issued a public report in early August and included its findings and recommended corrective actions.

The FRA Incident Investigation remains ongoing.

Other Commitments and Contingencies

We and/or certain subsidiaries are defendants in numerous lawsuits and other claims relating principally to railroad operations.

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Any adjustments to the recorded liability will be reflected in earnings in the periods in which such adjustments become known.

For lawsuits and other claims where a loss may be reasonably possible, but not probable, or is probable but not reasonably estimable, no accrual is established but the matter, if potentially material, is disclosed below.

For lawsuits and other claims where a loss may be reasonably possible, but not

probable, or is probable but not reasonably estimable, no accrual is established but the matter, if potentially material, is disclosed below.

We routinely review relevant information with respect to our lawsuits and other claims and update our accruals, disclosures and estimates of reasonably possible loss based on such reviews.

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Since that decision, various individual cases have been filed in multiple jurisdictions and also consolidated in the District of Columbia.

We believe the allegations in the complaints are without merit and intend to vigorously defend the cases.

We intend to vigorously defend the cases.

We do not believe the outcome of these proceedings will have a material effect on our financial position, results of operations, or liquidity.

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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.

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

The court's dismissals were appealed and the case is currently before the United States Court of Appeals for the Fourth Circuit.

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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To aid in valuing our personal injury liability and determining the amount to accrue with respect to such claims during the year, we utilize studies prepared by an independent consulting actuarial firm.

Job-related personal injury and occupational claims are subject to FELA, which is applicable only to railroads.

Job-related personal injury and occupational claims are subject to the FELA, which is applicable only to railroads.

The variability inherent in FELA’s fault-based tort system could result in actual costs being different from the liability recorded.

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In all cases, we record a liability when the expected loss for the claim is both probable and reasonably estimable.

Employee personal injury claims – The largest component of claims expense is employee personal injury costs.

Employee personal injury claims – Other than Incident-related matters noted above, the largest component of claims expense is employee personal injury costs.

The independent actuarial firm we engage provides quarterly studies to aid in valuing our employee personal injury liability and estimating personal injury expense.

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Types of occupational claims commonly seen allege exposure to asbestos and other claimed toxic substances resulting in respiratory diseases or cancer.

Many such claims are being asserted by former or retired employees, some of whom have not been employed in the rail industry for decades.

Many such claims are being asserted by former or retired employees, some of whom have not

been employed in the rail industry for decades.

The independent actuarial firm provides an estimate of the occupational claims liability based upon our history of claim filings, severity, payments, and other pertinent facts.

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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.

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

Our Consolidated Balance Sheets include liabilities for environmental exposures of $ 66 million at December 31, 2022, and $ 49 million at December 31, 2021, of which $ 15 million is classified as a current liability at the end of both 2022 and 2021.

In addition to environmental claims associated with the Incident, our Consolidated Balance Sheets include liabilities for other environmental exposures of $ 60 million at December 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 December 31, 2023, the liability represents our estimates of the probable cleanup, investigation, and remediation costs based on available information at 81 known locations and projects compared with 85 locations and projects at December 31, 2022.

At December 31, 2022, twenty-two sites accounted for $ 55 million of the liability, and no individual site was considered to be material.

At December 31, 2023, twenty-one sites accounted for $ 48 million of the liability, and no individual site was considered to be material.

We anticipate that most of this liability will be paid out over five years ;

however, some costs will be paid out over a longer period.

At eight locations, one or more of our subsidiaries in conjunction with a number of other parties have been identified as potentially responsible parties under the Comprehensive Environmental Response, Compensation and Liability Act of 1980 or comparable state statutes that impose joint and several liability for cleanup costs.

At eight locations, one or more of our subsidiaries in conjunction with a number of other parties have been identified as potentially responsible parties under CERCLA or comparable state statutes that impose joint and several liability for cleanup costs.

We calculate our estimated liability for these sites based on facts and legal defenses applicable to each site and not solely on the basis of the potential for joint liability.

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

As set forth above, with respect to known environmental sites (whether identified by us or by the U.S.

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

The risk of incurring environmental liability for acts and omissions, past, present, and future, is inherent in the railroad business.

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Because environmental problems that are latent or undisclosed may exist on these properties, there can be no assurance that we will not incur environmental liabilities or costs with respect to one or more of them, the amount and materiality of which cannot be estimated reliably at this time.

Moreover, lawsuits and claims involving these and potentially other unidentified environmental sites and matters are likely to arise from time to time.

Moreover, lawsuits and claims involving these and potentially other

unidentified environmental sites and matters are likely to arise from time to time.

The resulting liabilities could have a significant effect on financial position, results of operations, or liquidity in a particular year or quarter.

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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.

Pursuant to the Railway Labor Act, these agreements remain in effect until new agreements are reached, or until the bargaining procedures mandated by the Railway Labor Act are completed.

Moratorium provisions in the labor agreements govern when the railroads and unions may propose changes to the agreements.

We largely bargain nationally in concert with other major railroads, represented by the National Carriers’ Conference Committee.

After management and the unions served their formal proposals in November 2019 for changes to the collective bargaining agreements, negotiations began in 2020 following the expiration of the last moratorium.

On June 17, 2022, the National Mediation Board notified the parties that all practical methods of ending the dispute had been exhausted without effecting a settlement and that its mediation services had been terminated.

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.

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.

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 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.

This insurance provides coverage above $ 75 million and below $ 800 million ($ 1.1 billion for specific perils) per occurrence and/or policy year.

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

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

Our current liability insurance provides limits for approximately 93 % of covered losses above $ 75 million and below $ 734 million per occurrence and/or policy year.

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

Our current property insurance provides limits for approximately 82 % of covered losses above $ 75 million and below $ 275 million per occurrence and/or policy year.

Insurance coverage with respect to the Incident is subject to certain conditions, including but not limited to our insurers’ reservation of rights to further investigate and contest coverage, the express restrictions and sub-limits of coverage, and various policy exclusions, including those for some governmental fines or penalties.

Some (re)insurers have disputed certain payments we have made, for example, as part of our effort to respond to, mitigate, and compensate for the impact to the community and affected residents and businesses.

We are pursuing coverage with respect to the Incident, and we have recognized $ 101 million in insurance recoveries in 2023, principally from excess liability (re)insurers.

Purchase Commitments

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.

At December 31, 2023, we had outstanding purchase commitments totaling $ 1.4 billion through 2053 for locomotive modernizations, long-term technology support and development contracts, track material, and vehicles.

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.

The agreement is conditioned upon the following, among other items:

(i) approval by the voters of the City of Cincinnati (Cincinnati Voter Approval), which was obtained in November 2023, and (ii) the receipt of regulatory approval from the U.S.

Transportation Board (STB), which occurred in September 2023.

In June 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.

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 approximately $ 1.7 billion.

The transaction is scheduled to close on March 15, 2024.

Change-In-Control Arrangements

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What changed 10-K

Item 8. Financial Statements and Supplementary Data