What changed in this filing

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Item 1. Financial Statements

2024-04-24 compared with 2023-10-25 · 174 added, 193 removed, 381 unchanged (49% of the section changed)

2 unchanged sentences

Consolidated Statements of Income

Third Quarter First Nine Months

2023 2022 2023 2022

First Quarter

($ in millions, except per share amounts)

3 unchanged sentences

Purchased services and rents 528 496

Fuel 289 383 867 1,092

Depreciation 337 321

Materials and other 215 212

Restructuring and other charges 99 —

Eastern Ohio incident 592 387

1 unchanged sentence

Income from railway operations 213 711

Other income (expense) – net 40 ( 2 ) 153 ( 21 )

Other income – net 18 56

Interest expense on debt 201 175

8 unchanged sentences

Consolidated Statements of Comprehensive Income

Third Quarter First Nine Months

2023 2022 2023 2022

First Quarter

($ in millions)

Net income $ 53 $ 466

Other comprehensive income (loss), before tax:

Pension and other postretirement benefit (expense) ( 6 ) 6 ( 17 ) 17

Other comprehensive income (loss) of equity investees ( 1 ) 5 ( 1 ) 13

Other comprehensive income (loss), before tax ( 7 ) 11 ( 18 ) 30

Income tax benefit (expense) related to items of other

comprehensive income (loss) 2 — 5 ( 5 )

Other comprehensive income (loss), net of tax ( 5 ) 11 ( 13 ) 25

Other comprehensive loss, before tax:

Pension and other postretirement expense ( 2 ) ( 5 )

Other comprehensive loss of equity investees — ( 1 )

Other comprehensive loss, before tax ( 2 ) ( 6 )

Income tax benefit related to items of other

comprehensive loss — 2

Other comprehensive loss, net of tax ( 2 ) ( 4 )

Total comprehensive income $ 51 $ 462

2 unchanged sentences

Consolidated Balance Sheets

September 30,

2024 December 31,

36 unchanged sentences

Consolidated Statements of Cash Flows

First Nine Months

First Three Months

($ in millions)

14 unchanged sentences

Property additions ( 557 ) ( 428 )

Acquisition of assets of CSR

Property sales and other transactions 32 20

8 unchanged sentences

Debt repayments — ( 800 )

Net cash used in financing activities ( 62 ) ( 1,989 )

Net increase in cash and cash equivalents 1,050 375

Net cash provided by (used in) financing activities 89 ( 686 )

Net increase (decrease) in cash and cash equivalents ( 916 ) 96

Cash and cash equivalents

21 unchanged sentences

( 305 ) ( 305 )

Share repurchases ( 1 ) ( 6 ) ( 156 ) ( 163 )

Stock-based compensation 9 9

Balance at March 31, 2024 $ 227 $ 2,188 $ ( 322 ) $ 10,443 $ 12,536

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

Comprehensive income:

Net income 478 478

Other comprehensive loss ( 5 ) ( 5 )

Total comprehensive income 473

Dividends on common stock,

$ 1.35 per share

( 305 ) ( 305 )

Share repurchases ( 1 ) ( 9 ) ( 195 ) ( 205 )

Stock-based compensation 12 12

Balance at September 30, 2023 $ 227 $ 2,163 $ ( 364 ) $ 10,589 $ 12,615

See accompanying notes to consolidated financial statements.

Norfolk Southern Corporation and Subsidiaries

Consolidated Statements of Changes in Stockholders’ Equity

Stock Additional

6 unchanged sentences

Net income 466 466

Other comprehensive income 8 8

Other comprehensive loss ( 4 ) ( 4 )

Total comprehensive income 462

5 unchanged sentences

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

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

Comprehensive income:

Net income 958 958

Other comprehensive income 11 11

Total comprehensive income 969

Dividends on common stock,

$ 1.24 per share

( 290 ) ( 290 )

Share repurchases ( 3 ) ( 31 ) ( 796 ) ( 830 )

Stock-based compensation 22 ( 1 ) 21

Balance at September 30, 2022 $ 233 $ 2,181 $ ( 377 ) $ 10,987 $ 13,024

See accompanying notes to consolidated financial statements.

1 unchanged sentence

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 September 30, 2023 and December 31, 2022, our results of operations, comprehensive income and changes in stockholders’ equity for the third quarters and first nine months of 2023 and 2022, and our cash flows for the first nine 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 March 31, 2024 and December 31, 2023, our results of operations, comprehensive income and changes in stockholders’ equity for the first quarters of 2024 and 2023, and our cash flows for the first three months of 2024 and 2023 in conformity with U.S.

Generally Accepted Accounting Principles (GAAP).

2 unchanged sentences

The following table disaggregates our revenues by major commodity group:

Third Quarter First Nine Months

2023 2022 2023 2022

First Quarter

($ in millions)

5 unchanged sentences

Intermodal 745 814

Coal 434 471 1,283 1,285

Total $ 3,004 $ 3,132

6 unchanged sentences

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 September 30, 2023 and December 31, 2022.

We had no material remaining performance obligations at March 31, 2024 and December 31, 2023.

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 5 % of total “Railway operating revenues” on the Consolidated Statements of Income for the third quarter and first nine months of 2023, and 7 % for the third quarter and first nine months of 2022.

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 first quarters of 2024 and 2023, respectively.

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

2 unchanged sentences

“Accounts receivable – net” on the Consolidated Balance Sheets includes both customer and non-customer receivables as follows:

September 30,

2024 December 31, 2023

4 unchanged sentences

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 September 30, 2023 and December 31, 2022.

We do no t have any material contract assets or liabilities at March 31, 2024 and December 31, 2023.

Stock-Based Compensation

Third Quarter First Nine Months

2023 2022 2023 2022

First Quarter

($ in millions)

1 unchanged sentence

Total tax benefit 5 6

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:

Third Quarter First Nine Months

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

During the first quarter of 2024, we granted stock options, restricted stock units (RSUs) and performance share units (PSUs) pursuant to the Long-Term Incentive Plan (LTIP), as follows:

First Quarter

Granted Weighted-Average Grant-Date Fair Value

Stock options 64,340 $ 79.65

2 unchanged sentences

Stock Options

Third Quarter First Nine Months

2023 2022 2023 2022

First Quarter

($ 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.

Third Quarter First Nine Months

2023 2022 2023 2022

First Quarter

($ in millions)

6 unchanged sentences

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

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

First Nine Months

First Quarter

($ in millions)

2 unchanged sentences

Related tax benefits realized $ — $ —

On July 8, 2022, House Bill 1342 was signed into law in the Commonwealth of Pennsylvania, which reduced its corporate income tax rate from 9.99% to 4.99%, through a series of phased reductions beginning each tax year from January 1, 2023 through January 1, 2031.

GAAP requires companies to recognize the effect of tax law changes in the period of enactment.

As a result, in the third quarter of 2022 we recognized a $ 136 million benefit in “Income taxes” with a corresponding reduction in “Deferred income taxes.”

Restructuring and Other Charges

During the first quarter of 2024, the Company executed a voluntary and an involuntary separation program that will result in a reduction to our nonagreement workforce.

Through these programs, approximately 350 nonagreement employees have already or will be separated from service by May 2024.

“Restructuring and other charges” in 2024 includes $ 64 million related to these programs, which primarily consists of separation payments to the impacted nonagreement employees.

Additionally, we have evaluated the impact on our pension and other postretirement benefit plans (see Note 11).

In March 2024, we appointed John Orr as Executive Vice President and Chief Operating Officer of the Company.

“Restructuring and other charges” also includes $ 35 million of costs related to this appointment, including an

agreement with his previous employer, Canadian Pacific Kansas City (CPKC), that resulted in a $ 25 million payment and certain commercial considerations to CPKC in exchange for a waiver of his noncompete provisions.

In the first quarter of 2024, our effective tax rate was ( 76.7 )%, compared with 21.3 % for the same period last year.

The negative effective rate for the first quarter of 2024 is driven by low pre-tax income coupled with a $ 27 million deferred income tax benefit, the result of a subsidiary restructuring that reduced our estimated deferred state income tax rate.

Earnings Per Share

1 unchanged sentence

Basic Diluted

Third Quarter

2023 2022 2023 2022

($ in millions, except per share amounts,

shares in millions)

Net income $ 478 $ 958 $ 478 $ 958

Dividend equivalent payments ( 1 ) — ( 1 ) —

Income available to common stockholders $ 477 $ 958 $ 477 $ 958

Weighted-average shares outstanding 226.4 233.2 226.4 233.2

Dilutive effect of outstanding options and share-settled awards 0.6 0.8

Adjusted weighted-average shares outstanding 227.0 234.0

Earnings per share $ 2.11 $ 4.11 $ 2.10 $ 4.10

Basic Diluted

First Nine Months

First Quarter

2024 2023 2024 2023

8 unchanged sentences

Earnings per share $ 0.23 $ 2.04 $ 0.23 $ 2.04

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

During the first quarters of 2024 and 2023, 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.

2 unchanged sentences

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

0.1 million in the third quarters and first nine months ended September 30, 2023 and 2022.

0.1 million in both the first quarters ended March 31, 2024 and 2023.

Accumulated Other Comprehensive Loss

4 unchanged sentences

($ in millions)

Nine months ended September 30, 2023

Three months ended March 31, 2024

Pensions and other postretirement liabilities $ ( 292 ) $ — $ ( 2 ) $ ( 294 )

1 unchanged sentence

Accumulated other comprehensive loss $ ( 320 ) $ — $ ( 2 ) $ ( 322 )

Nine months ended September 30, 2022

Three months ended March 31, 2023

Pensions and other postretirement liabilities $ ( 319 ) $ — $ ( 4 ) $ ( 323 )

Other comprehensive income (loss) of equity investees ( 46 ) 11 — ( 35 )

Other comprehensive loss of equity investees ( 32 ) — — ( 32 )

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

Stock Repurchase Program

We repurchased and retire d 2.2 million and 9.2 million shares of Common Stock under our stock repurchase programs in the first nine months of 2023 and 2022, respectively, at a cost of $ 508 million and $ 2.3 billion, inclusive of excise taxes.

We did not repurchase shares of Common Stock under our stock repurchase program in the first three months of 2024, while we repurchased and retire d 0.6 million shares of Common Stock at a cost of $ 163 million in the first three months of 2023, inclusive of excise taxes.

Investment in Conrail

2 unchanged sentences

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 both September 30, 2023 and December 31, 2022.

Our investment in Conrail was $ 1.7 billion at both March 31, 2024 and December 31, 2023.

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.

1 unchanged sentence

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 $ 39 million and $ 42 million for the third quarters of 2023 and 2022, respectively, and $ 123 million and $ 116 million for the first nine months of 2023 and 2022, respectively.

Our equity in Conrail’s earnings, net of amortization, was $ 15 million for both the third quarters of 2023 and 2022 and $ 50 million and $ 40 million for the first nine months of 2023 and 2022, respectively.

“Purchased services and rents” and “Fuel” include expenses payable to CRC for operation of the Shared Assets Areas totaling $ 52 million and $ 45 million for the first quarters of 2024 and 2023, respectively.

Our equity in Conrail’s earnings, net of amortization, was $ 21 million and $ 16 million for the first quarters of 2024 and 2023, 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 September 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 %.

“Other liabilities” includes $ 534 million at both March 31, 2024 and December 31, 2023 for long-term advances from Conrail, maturing in 2050 that bear interest at an average rate of 1.31 %.

Investment in TTX

1 unchanged sentence

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 $ 63 million for the third quarters of 2023 and 2022, respectively, and $ 201 million and $ 193 million for the first nine months of 2023 and 2022, respectively.

Our equity in TTX’s earnings partially offsets these costs and totaled $ 13 million and $ 18 million for the third quarters of 2023 and 2022, respectively, and $ 34 million and $ 39 million in the first nine months of 2023 and 2022, respectively.

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

Expenses incurred for use of TTX equipment are included in “Purchased services and rents.” These expenses amounted to $ 74 million and $ 66 million for the first quarters of 2024 and 2023, respectively.

Our equity in TTX’s earnings partially offsets these costs and totaled $ 13 million and $ 9 million for the first quarters of 2024 and 2023, respectively.

Acquisition of Assets of Cincinnati Southern Railway

On March 15, 2024, we completed the acquisition of a 337 mile railway line that extends from Cincinnati, Ohio to Chattanooga, Tennessee from the Cincinnati Southern Railway (CSR) for $ 1.7 billion (of which $ 0.1 billion was paid in 2023).

We previously operated this line subject to an operating lease agreement, which was terminated upon the close of the transaction.

The purchase price was allocated to the assets acquired in the transaction.

The asset purchase is reflected in “Properties less accumulated depreciation” on the Consolidated Balance Sheet and is distinctly identified in the “Cash flows from investing activities” section of the Consolidated Statement of Cash Flows.

Lease expense associated with the terminated agreement totaled $ 5 million and $ 6 million in the first quarters of 2024 and 2023, respectively.

We have in place an 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.

1 unchanged sentence

Amounts received under this facility are accounted for as borrowings.

We had no amounts outstanding under this program at September 30, 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 and our available borrowing capacity was $ 300 million.

Our accounts receivable securitization program was supported by $ 911 million and $ 883 million in receivables at September 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.

We had $ 400 million (at an average variable interest rate of 6.06 %) outstanding under this program at March 31, 2024, which is included within “Short-term debt”, and no amounts outstanding under this program at December 31, 2023.

We had fully utilized our borrowing capacity under the program at March 31, 2024, while we had $ 400 million of available borrowing capacity at December 31, 2023.

Our accounts receivable securitization program was supported by $ 867 million and $ 903 million in receivables at March 31, 2024 and December 31, 2023, respectively, which are included in “Accounts receivable – net”.

On April 15, 2024, we repaid $ 150 million of the amount outstanding at the end of the first quarter.

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.

We had no amounts outstanding under this facility at either March 31, 2024 or December 31, 2023, and we are in compliance with all of its covenants.

In January 2024, we 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 had no amounts outstanding under this facility at March 31, 2024 and if left undrawn, the term loan credit agreement is set to expire at the end of July 2024.

Pensions and Other Postretirement Benefits

2 unchanged sentences

these plans can be amended or terminated at our option.

Under our self-insured retiree health care plan, for those participants who are not Medicare-eligible, certain health care expenses are covered for retired employees and their dependents, reduced by any deductibles, coinsurance, and, in some cases, coverage provided under other group insurance policies.

in some cases, coverage provided under other group insurance policies.

Eligible retired participants and their spouses who are Medicare-eligible are not covered under the self-insured retiree health care plan, but instead are provided with an employer-funded health reimbursement account which can be used for reimbursement of health insurance premiums or eligible out-of-pocket medical expenses.

1 unchanged sentence

Pension Benefits Other Postretirement Benefits

Third Quarter

2023 2022 2023 2022

($ in millions)

Service cost $ 7 $ 10 $ 1 $ 1

Interest cost 27 17 4 3

Expected return on plan assets ( 53 ) ( 53 ) ( 2 ) ( 3 )

Amortization of net losses 1 12 ( 1 ) —

Amortization of prior service benefit — — ( 6 ) ( 6 )

Net benefit $ ( 18 ) $ ( 14 ) $ ( 4 ) $ ( 5 )

Pension Benefits Other Postretirement Benefits

First Nine Months

First Quarter

2024 2023 2024 2023

6 unchanged sentences

Net benefit $ ( 14 ) $ ( 18 ) $ ( 5 ) $ ( 4 )

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.

During the first quarter of 2024, we executed a voluntary and an involuntary separation program that will reduce our management workforce.

Through these programs, approximately 350 nonagreement employees have already or will be separated from service by May 2024.

We evaluated whether a plan curtailment had occurred for our pension and other postretirement benefit plans.

While the reduction in our workforce did not result in a curtailment to our pension benefit plans, we will recognize a curtailment gain related to our other postretirement benefit plan.

In accordance with Financial Accounting Standards Board (FASB) Accounting Standard Codification (ASC) Topic 715, “ Compensation-Retirement Benefits, ” the curtailment gain will be recognized during the second quarter of 2024, when the eligible employees have terminated.

Fair Values of Financial Instruments

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

The carrying value of 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 September 30, 2023 or December 31, 2022.

The carrying value of corporate-owned life insurance (COLI) 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, 2024 or December 31, 2023.

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

September 30, 2023 December 31, 2022

March 31, 2024 December 31, 2023

Value Carrying

3 unchanged sentences

Eastern Ohio Incident

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

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.

1 unchanged sentence

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.

As a 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.

1 unchanged sentence

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 .

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, during the first nine months of 2023 we have recognized $ 966 million of expense for costs directly attributable to the Incident ($ 163 million of which was recognized in the third quarter), which is presented in “Eastern Ohio incident” on the Consolidated Statements of Income.

These amounts are net of $ 25 million in insurance recoveries recorded during the third quarter related to the Incident.

During the first nine months of 2023, our cash expenditures attributable to the Incident were $ 511 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 nine months of 2023, $ 455 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.

While certain costs recorded during the first nine months of 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 $ 25 million in insurance recoveries.

Although we cannot predict the final outcome or estimate the reasonably possible range of loss related to the Incident with certainty, we have accrued amounts for probable and reasonably estimable liabilities for those environmental and non-environmental matters described below.

As of March 31, 2024 and December 31, 2023, we had accruals for probable and reasonably estimable liabilities principally associated with environmental matters and legal proceedings of $ 939 million and $ 464 million, respectively, which are discussed in further detail below.

These amounts represent the difference between the recognized expense and cash expenditures (net of insurance recoveries) related to the Incident as of each respective date.

From the inception of the Incident, we have recognized a total of $ 1.7 billion in expenses directly attributable to the Incident, which included $ 209 million in insurance recoveries made from claims on our insurance policies.

We have also recorded a deferred tax asset of $ 248 million and $ 249 million at March 31, 2024 and December 31, 2023, respectively, related to the Incident expecting that certain expenses will be deductible for tax purposes in future periods or offset with insurance recoveries.

Certain costs incurred thus far and related to the Incident may be recoverable under our insurance policies in effect at the date of the Incident or from third parties.

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

1 unchanged sentence

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.

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.

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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 plans.

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:

Department of Justice (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.

Department of Justice (DOJ) filed a civil complaint on behalf of the U.S.

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

The Ohio Attorney General (AG) also filed a lawsuit (the Ohio Complaint) in the Northern District of Ohio (Eastern Division) seeking damages for a variety of common law and environmental statutory 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 $ 699 million of expense during the first nine months of 2023 ($ 118 million of which was recognized in the third quarter), of which $ 372 million was paid during the first nine 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.

We have filed an answer, and discovery is ongoing.

On June 30, 2023, we filed third-party claims against certain railcar defendants and shippers involved in the Incident.

The Court dismissed the third party claims on March 6, 2024, and on March 26, 2024, we filed a motion requesting the Court to enter partial final judgment as to the third party claims.

In accordance with FASB ASC 410-30 “ Environmental Liabilities, ” as of March 31, 2024 and December 31, 2023, we had recognized probable and reasonably estimable liabilities in connection with the foregoing environmental matters of $ 292 million and $ 319 million, respectively, and which are primarily included in “Other current liabilities” on the Consolidated Balance Sheet.

We recognized $ 60 million and $ 286 million of expense during the first quarters of 2024 and 2023 respectively, and made $ 87 million and $ 31 million in payments during the first quarters of 2024 and 2023 respectively, related to these matters.

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, 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), and the extent and duration 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, 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.

Since the date of the Incident, we have recognized a total of $ 896 million in expenses related to environmental matters, of which $ 604 million has been paid.

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.

• There is a consolidated putative class action pending in the Northern District of Ohio (Eastern Division) (the Ohio Class Action) 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 numerous parties involved in the Incident.

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.

On August 22, 2023, the three school districts voluntarily dismissed their actions.

On the same day, those three Pennsylvania school districts along with four others filed a class action lawsuit on behalf of school students alleging negligence, nuisance, and trespass, and seeking damages and 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 nine months of 2023 with respect to the Incident

We have made $ 30 million in payments during the first nine months of 2023 with respect to these matters.

• We have received securities litigation and demands 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, and 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, (collectively, the Shareholder Matters).

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

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.

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

Fact discovery ended on February 5, 2024.

denied in part and granted in part all motions to dismiss, as to the plaintiffs’ case and as to our third-party complaint, on March 13, 2024.

On April 9, 2024, we announced that we have reached an agreement in principle to settle the Ohio Class Action for $ 600 million.

The agreement in principle does not resolve, and expressly preserves, our third-party claims in the third-party complaint.

Final settlement is subject to reducing the agreement to writing in a form acceptable to the parties and necessary court approval.

If approved by the court, the terms of the agreement will resolve all class action claims within a 20 -mile radius from the derailment and, for those residents who choose to participate, personal injury claims within a 10 -mile radius from the derailment.

Subject to final court approval, payments to class members under the settlement could begin by the end of this year.

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, that were 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.

On February 23, 2024, we and the other defendants filed motions to dismiss.

The school districts’ and students’ response is due by May 13, 2024.

Combined with the Ohio Class Action, these lawsuits are collectively referred to herein as the Incident Lawsuits.

In accordance with FASB ASC 450, “ Contingencies, ” as of March 31, 2024 and December 31, 2023, we had accruals for probable and reasonably estimable liabilities principally associated with the Incident Lawsuits and related contingencies of $ 676 million and $ 82 million, respectively.

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, 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 (Securities Act) filed in the Southern District of New York alleging misstatements in association with our debt offerings, and three shareholder derivative complaints 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 complaint in the Securities Act lawsuit;

plaintiffs’ opposition to the motion to dismiss was filed on April 2, 2024.

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.

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.

In addition to the costs associated with environmental matters and legal proceedings and claims, we incurred other expenses directly related to the Incident of $ 187 million during the first nine months of 2023 ($ 70 million of which was recognized in the third quarter) pertaining to legal fees, community support, and other response-related activities.

The reserves established by us during the first nine 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, with the exception of amounts recognized during the first nine months of 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.

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.

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.

The amounts recorded do not include any estimate of loss for which we believe a loss is either not probable or not reasonably estimable for 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).

Inquiries and Investigations

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

Therefore, our accruals for probable and reasonably estimable liabilities related to the Incident 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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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.

We expect the NTSB to issue a final report, with a probable cause determination and safety recommendations, in June 2024, with a follow on “safety culture” report expected for issuance later in 2024 or early 2025.

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 recently completed a 60-day supplemental safety assessment (the FRA Safety Assessment).

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:

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

While the ultimate amount of claims incurred is dependent on future developments, in our opinion, the recorded liability is adequate to cover the future payments of claims and is supported by the most recent actuarial study.

While the ultimate amount of claims incurred is dependent on

future developments, in our opinion, the recorded liability is adequate to cover the future payments of claims and is supported by the most recent actuarial study.

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

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The actuarial firm studies our historical patterns of reserving for claims and subsequent settlements, taking into account relevant outside influences.

The actuarial firm uses the results of these analyses to estimate the ultimate amount of liability.

The actuarial firm provides the results of these analyses to aid in our estimate of the ultimate amount of liability.

We adjust the liability quarterly based upon our assessment and the results of the study.

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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 $ 59 million at September 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 September 30, 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 September 30, 2023, twenty sites accounted for $ 47 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 $ 56 million at March 31, 2024 and $ 60 million at December 31, 2023, of which $ 15 million is classified as a current liability at the end of both periods.

At March 31, 2024, the liability represents our estimates of the probable cleanup, investigation, and remediation costs based on available information at 77 known locations and projects compared with 81 locations and projects at December 31, 2023.

At March 31, 2024, nineteen sites accounted for $ 46 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 CERCLA or comparable state statutes that impose joint and several liability for cleanup costs.

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.

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

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.

The latest round of national bargaining concluded in December 2022, when agreements were either ratified or enacted through legislative action for all 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 (or up to $ 1.1 billion for specified types of pollution releases) 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 ability to recoup any of the foregoing amounts under our insurance coverage, including any amounts that may be recoverable 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, as well as potential coverage disputes over payments we make as part of our effort to mitigate the impact to the community and affected residents.

We are working with our insurers to confirm applicable coverage with respect to the Incident, and we have recognized $ 25 million in insurance recoveries in the first nine months of 2023.

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.

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.

On September 20, 2023, the STB authorized the acquisition of the Cincinnati Southern Railway by Norfolk Southern Railway Company.

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 or March 15, 2024.

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 questioned 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 $ 209 million in insurance recoveries (including $ 108 million during the first quarter of 2024), principally from excess liability (re)insurers.

With the exception of amounts that have been previously recognized, potential recoveries under our insurance coverage have not yet been recorded (given the insurers ongoing evaluation of our claims).

In addition, 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.

New Accounting Pronouncements

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 did not early adopt the standard and are currently evaluating the effect on our financial statement disclosures.

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 beginning after December 15, 2024.

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

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