What changed in this filing

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Item 7. Management’s Discussion and Analysis

2026-02-09 compared with 2025-02-10 · 161 added, 161 removed, 285 unchanged (53% of the section changed)

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We have the most extensive intermodal network in the eastern U.S.

Our network serves a majority of the country's population and manufacturing base, with connections to every major container port on the Atlantic coast as well as major ports in the Gulf of Mexico and Great Lakes.

In 2024, we executed on various initiatives to operate our network more safely and efficiently, better serve our customers, and increase productivity in order to deliver improved financial performance.

We enhanced our executive leadership team and continued to execute on our strategy of providing high-quality service to our customers to enable smart, sustainable growth and delivering on productivity initiatives.

Additionally, we executed on several strategic initiatives, including the purchase of the Cincinnati Southern Railway, sales of certain railway lines, and completion of targeted rationalization and restructuring efforts, to further advance our organizational objectives.

Furthermore, we continued our efforts related to the Eastern Ohio Incident (as defined and further described in Note 18 in the Notes to the Consolidated Financial Statements), including the pursuit of recoveries under our insurance programs.

Our operational improvements during the year, while handling 5% higher volumes, helped drive improvements to income from railway operations, diluted earnings per share, and railway operating ratio (a measure of the amount of operating revenues consumed by operating expenses).

For the full year, we achieved an operating ratio of 66.4%, and an adjusted operating ratio of 65.8% (see our non-GAAP reconciliations beginning on page K26), both of which improved on a year-over-year basis.

Throughout 2025, we took deliberate actions to strengthen the Company and position it for long-term success.

On July 28, 2025, we entered into a Merger Agreement with Union Pacific, marking a transformational step toward creating America’s first transcontinental railroad—an outcome we believe will unlock new opportunities for our customers, employees, and the broader U.S.

By integrating two complementary networks, the merged company will be positioned to deliver more efficient, reliable, and sustainable freight service across the nation.

Details of the proposed transactions are further described in Note 2.

We also continued to make progress towards resolving environmental and legal matters resulting from the Incident (as defined further and described in Note 19) with insurance and other recoveries during 2025 exceeding incremental expenses.

Safety continued to be a core value, and our relentless focus and intentional actions drove improvements in numerous safety metrics.

Operational execution remained a key focus in 2025, with an emphasis on delivering high quality service while delivering notable improvements in labor productivity and fuel efficiency.

Despite periods of macroeconomic uncertainty, growth in automotive and chemicals traffic, reflecting improved service and customer demand, drove merchandise revenues higher and led to a modest increase in overall volumes.

The combination of operational productivity, modest volume growth and favorable merchandise pricing were pivotal in driving earnings growth as compared to 2024.

Although our financial results, as compared to the prior year, were significantly impacted by the absence of $433 million in gains on the sales of railway lines that occurred in 2024, we successfully monetized other properties that resulted in meaningful gains in the current year.

For the full year, we achieved an operating ratio (a measure of the amount of operating revenues consumed by operating expenses) of 64.2%, and an adjusted operating ratio of 65.0% (see our non-GAAP reconciliations beginning on page K28).

We remain committed to being a safe, productive, resilient, and efficient railroad with industry-competitive margins.

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Railway operating ratio (percent) 64.2 66.4 76.5 (3 %) (13 %)

Income from railway operations, net income and diluted earnings per share increased in 2024 compared to 2023, primarily as a result of lower railway operating expenses.

The reduction in our operating expenses includes lower net expenses related to the Eastern Ohio Incident and $433 million of gains on the sale of railway lines.

Income from railway operations, net income, and diluted earnings per share increased in 2025 compared to 2024, the result of lower railway operating expense and higher railway operating revenues.

The decrease in railway operating expense includes higher net recoveries related to the Incident in addition to lower expenses associated with restructuring activities.

Partially offsetting those items were lower gains from the sales of railway lines and properties and expenses incurred in 2025 related to the proposed merger.

The increase in railway operating revenues was driven by a combination of favorable traffic mix, which was partially offset by lower fuel surcharge revenue.

Our railway operating ratio improved to 64.2 percent.

Income from railway operations, net income, and diluted earnings per share increased in 2024 compared to 2023, primarily a result of lower railway operating expenses.

The reduction in our operating expenses included lower net expenses related to the Incident and $433 million of gains on the sale of railway lines.

Railway operating revenues were slightly lower as decreased fuel surcharge revenue, an adverse mix of traffic, and decreased pricing were nearly offset by increased volumes.

Our railway operating ratio improved to 66.4 percent.

Income from railway operations, net income and diluted earnings per share declined in 2023 compared to 2022, driven by expenses incurred with our response efforts to the Incident, lower railway operating revenues, and higher

non-Incident-related railway operating expenses.

Railway operating revenues declined 5% due to lower average revenue per unit, the result of lower fuel surcharge revenue and decreased intermodal storage service revenues partially offset by favorable pricing and mix.

Additionally, lower volumes contributed to the decline in revenues.

Net expenses associated with the Incident for the year 2023 were $1.1 billion.

In addition to costs resulting from the Incident, railway operating expenses increased due to inflationary pressures, investments in operational resiliency, and higher service-related costs, offset partially by lower fuel prices.

The decline in net income and diluted earnings per share also reflects the absence of a prior year $136 million deferred tax benefit, a result of an enactment of a change in the corporate income tax rate in the Commonwealth of Pennsylvania in 2022.

Railway operating ratio deteriorated to 76.5 percent.

The following tables adjust our 2024 and 2023 U.S.

Generally Accepted Accounting Principles (GAAP) financial results to exclude gains on railway line sales, restructuring and other charges (including the curtailment gain on our other postretirement benefit plan which is included in “Other income – net”), shareholder advisory costs, and a deferred income tax adjustment, all which occurred in 2024, as well as the effects of the Incident that were present in both years.

The following tables adjust our 2025, 2024, and 2023 financial results as reported under U.S.

Generally Accepted Accounting Principles (GAAP) financial results to exclude certain items.

Adjusted 2025 financial results exclude Merger-related expenses, restructuring and other charges, and the overall impact on operating expenses resulting from costs and recoveries associated with the Incident.

Adjusted 2024 financial results exclude gains on railway line sales, restructuring and other charges, costs and recoveries associated with the Incident, shareholder advisory costs, and a deferred tax adjustment.

Adjusted 2023 financial results exclude the effects of the Incident.

The income tax effects of these non-GAAP adjustments were calculated based on the applicable tax rates to which the non-GAAP adjustments related.

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Non-GAAP Reconciliation for 2025

(GAAP) Merger-Related Expenses Restructuring and Other Charges Eastern Ohio Incident Adjusted

($ in millions, except per share amounts)

Railway operating expenses $ 7,824 $ (80) $ (22) $ 190 $ 7,912

Income from railway operations $ 4,356 $ 80 $ 22 $ (190) $ 4,268

Net income $ 2,873 $ 69 $ 17 $ (143) $ 2,816

Diluted earnings per share $ 12.75 $ 0.31 $ 0.07 $ (0.64) $ 12.49

Railway operating ratio (percent) 64.2 (0.6) (0.2) 1.6 65.0

Non-GAAP Reconciliation for 2024

(GAAP) Gains on Railway Line Sales Restructuring and Other Charges Eastern Ohio Incident Shareholder Advisory Costs Deferred Income Tax Adjustment Adjusted

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Railway operating ratio (percent) 76.5 (9.1) 67.4

In the table below, references to 2024 and 2023 results and related comparisons use the adjusted, non-GAAP results from the reconciliations in the tables above.

Adjusted 2024 (Non-GAAP) Adjusted 2023 (Non-GAAP) 2022 Adjusted 2024 (Non-GAAP) vs.

Adjusted 2023 (Non-GAAP) Adjusted 2023 (Non-GAAP) vs.

In the table below, references to 2025, 2024, and 2023 results and related comparisons use the adjusted, non-GAAP results from the reconciliations in the preceding tables.

Adjusted (Non-GAAP)

2025 2024 2023 2025 vs.

2024 2024 vs.

($ in millions, except per share amounts) (% change)

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Railway operating ratio (percent) 65.0 65.8 67.4 (1 %) (2 %)

On an adjusted basis, income from railway operations in 2024 increased due to lower adjusted railway operating expenses, with lower fuel prices, decreased costs of purchased services, and lower other expenses contributing significantly to the overall decline, and more than offsetting the decline in revenue.

Lower other income-net and higher interest expense on debt contributed to net income and diluted earnings per share that were only up slightly compared to the prior year.

In 2023, on a non-GAAP basis excluding the impact of direct costs resulting from the Incident, income from railway operations decreased due to lower railway operating revenues and higher railway operating expenses.

Railway operating revenues declined due to decreased fuel surcharge revenue, decreased intermodal storage revenues, and lower volume, partially offset by increased pricing and favorable mix compared to the prior year.

Railway operating expenses increased due to inflationary pressures, investments in operational resiliency, and higher service-related costs, partially offset by lower fuel prices.

On an adjusted basis, income from railway operations in 2025 increased due to lower adjusted railway operating expenses and higher railway operating revenues, which drove improvements in net income, diluted earnings per share, and operating ratio.

Railway operating revenues were higher driven by a combination of favorable traffic mix, which was partially offset by lower fuel surcharge revenue.

Adjusted railway operating expenses were down over prior year as higher gains on operating property sales and lower fuel expense were partially offset by increased expenses associated with claims, materials, compensation and benefits, purchased services and equipment rents.

In 2024, on an adjusted basis, income from railway operations increased due to lower adjusted railway operating expenses, with lower fuel prices, decreased costs of purchased services, and lower other expenses contributing significantly to the overall decline, and more than offsetting the decline in revenue.

Net income and diluted earnings per share were only up slightly compared to the prior year as lower other income-net and higher interest expense on debt offset the increase in income from railway operations.

DETAILED RESULTS OF OPERATIONS

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Total 1,724 1,718 1,802 — % (5 %)

Revenues decreased $33 million in 2024 and $589 million in 2023 compared to the prior years.

Revenues increased $57 million in 2025 but decreased $33 million in 2024 compared to the prior year.

Revenues increased in 2025 as a result of improved average revenue per unit, driven by favorable traffic mix being partially offset by lower fuel surcharge revenues, and increased volume.

Revenues decreased in 2024 as a result of lower average revenue per unit, driven by lower fuel surcharge revenue, adverse mix, and decreased pricing, partially offset by higher volume.

Revenues declined in 2023 as a result of lower average revenue per unit, driven by decreases in fuel surcharge and intermodal storage revenues, and volume declines.

The table below reflects the components of the revenue change by major commodity group.

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Approximately 95% of our revenue base is covered by contracts that include negotiated fuel surcharges.

Fuel surcharge revenues totaled $962 million, $1.2 billion, and $1.6 billion in 2024, 2023, and 2022, respectively.

The decline in fuel surcharge revenues in each period was primarily driven by fluctuations in fuel commodity prices.

For 2025, we expect that revenue will increase driven by higher volumes.

Fuel surcharge revenues totaled $828 million, $962 million, and $1.2 billion in 2025, 2024, and 2023, respectively.

The decline in fuel surcharge revenues in each comparison was primarily driven by fluctuations in fuel commodity prices.

MERCHANDISE revenues increased in both 2025 and 2024 compared with the prior years.

In 2025, revenues increased as volume was higher and favorable pricing and mix more than offset lower fuel surcharge revenue.

In 2024, revenues rose as volume was higher for all commodity groups and pricing gains more than offset lower fuel surcharge revenue.

In 2023, revenues were slightly higher as pricing and volume gains were nearly offset by lower fuel surcharge revenue and unfavorable mix.

Increased volumes in automotive and agriculture, forest and consumer shipments were partially offset by decreased chemicals shipments.

Agriculture, forest and consumer products revenues decreased slightly in 2024 but increased in 2023 compared with the prior years.

Agriculture, forest and consumer products revenues increased in 2025 but decreased slightly in 2024 compared with the prior years.

In 2025, the increase in revenues was the result of higher average revenue per unit due to favorable pricing and mix, offset partially by lower fuel surcharge revenue.

Volume declined from the prior year, primarily related to corn and soybean shipments.

Decreased corn volumes were the result of decreased demand for shipments to the southeast.

Soybean volumes decreased due to lower export demand.

In 2024, the decrease was the result of lower average revenue per unit driven by lower fuel surcharge revenue, partially offset by increased price, and increased volume.

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Ethanol volume declined primarily as a result of decreased demand.

In 2023, higher revenues were the result of increased volume.

Average revenue per unit was flat, the result of lower fuel surcharge revenue offset by pricing gains.

Increases in ethanol and fertilizer shipments more than offset declines in shipments of wood chips and graphic paper.

Increased market demand led to volume gains in ethanol and fertilizer.

Volume declines in wood chips were due to customer mill closures, while lower market demand led to the decline in graphic paper.

Chemicals revenues increased in 2024 but decreased in 2023 compared with the prior years.

Chemicals revenues increased in both 2025 and 2024 compared with the prior years.

In 2025, the increase in revenues was driven by volume increases, partially offset by lower average revenue per unit due to adverse mix and lower fuel surcharge revenues.

Natural gas liquids volume rose due to an increased demand for product bound for export markets.

Sand volumes increased due to strong demand to support natural gas drilling.

In 2024, the increase in revenues was driven by higher average revenue per unit driven by increased price, partially offset by lower fuel surcharge revenue, and volume growth.

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Volume declines in crude oil were due to a market share shift, while declines in petroleum were related to the conclusion of a spot opportunity handled last year to support a customer during a refinery outage.

In 2023, the decrease was as a result

of volume declines.

Reduced shipments of crude oil, organic chemicals, and natural gas liquids, more than offset the increases in solid waste and other petroleum products.

Volume declines for crude oil were driven by soft demand in the energy markets.

Organic chemicals and natural gas liquids volume declined as a result of lower demand.

Volume gains in solid waste were due to growth with existing customers, while the gains in petroleum products were due to growth with existing customers and new business opportunities.

Metals and construction revenues were higher in 2024 but lower in 2023 compared with the prior years.

Metals and construction revenues were higher in both 2025 and 2024 compared with the prior years.

In 2025, the increase was driven by higher average revenue per unit due to favorable price and mix, partially offset by lower fuel surcharge revenue, with volumes down slightly.

Increases in iron, steel, and scrap volume due to stronger demand were offset by weather-related impacts that negatively impacted shipments of aggregates.

In 2024, the increase was driven by higher average revenue per unit due to favorable price, partially offset by lower fuel surcharge revenue, and higher volume.

Increased volume was due to higher demand in aggregates, kaolin, miscellaneous construction, and scrap metal, partially offset by lower demand for coil steel shipments.

In 2023, the decline in revenue was driven by lower average revenue per unit, the result of decreased fuel surcharge revenue partially offset by increased price.

Volumes were nearly unchanged as reduced shipments of kaolin and construction materials were offset by volume gains in coil steel and scrap metal.

The volume declines in kaolin were largely driven by lower demand, while the declines in construction materials were due to lower demand, extended cycle times and service challenges.

Gains in coil steel volume were due to increased equipment available to handle demand, while scrap metal volume increased due to higher demand.

Automotive revenues rose in both 2025 and 2024 compared with the prior years.

The increase in revenues in 2025 was driven by higher volume.

Volume increases were driven by shippers increasing volume in response to tariff changes, growth with existing customers, and the absence of customer production issues experienced in the prior year.

The increase in revenues in 2024 was driven by slightly higher average revenue per unit driven by increased price, partially offset by lower fuel surcharge revenue, and slightly higher volume.

Volume increases were due to improvements in equipment availability and their cycle time paired with higher demand, mostly offset by reduced production and quality holds at certain manufacturers, and extended plant shutdowns.

The increase in revenues in 2023 was driven by increased volume and higher average revenue per unit, driven by favorable price.

Volume increases were due to higher finished vehicle inventory levels available for rail transportation and improved equipment cycle times.

INTERMODAL revenues decreased in both 2025 and 2024 compared with the prior years.

The decrease in 2025 was the result of lower volumes, and, to a lesser extent, distribution network diversification by certain of our customers in connection with the Merger.

Average revenue per unit was up slightly compared to 2024 with increased pricing being offset by lower fuel surcharge revenue and adverse mix.

The decrease in 2024 was the result of lower average revenue per unit, driven by decreased pricing, lower fuel surcharge revenue, adverse mix, and declines in storage service revenues, partially offset by higher volume.

The decrease in 2023 was the result of lower average revenue per unit, driven by reduced storage service revenues and lower fuel surcharge revenue, and decreased volume.

Intermodal units by market were as follows:

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Total 4,055.0 4,107.7 3,822.4 (1 %) 7 %

Domestic volume increased in 2024 but decreased in 2023 compared with the prior years.

Domestic volume decreased in 2025 but increased in 2024 compared with the prior years.

In 2025, volume decreased due to reduced traffic originating on the West Coast, increased market competition, and reduced demand for premium shipments.

In 2024, volume increased due to growth in new and existing customers and improved service, partially offset by reduced demand for premium shipments.

In 2023, volume declined due to a decrease in freight demand as a result of reduced consumer consumption combined with high inventories, and increased truck competition.

International volume increased in both 2024 and 2023.

The increase in 2024 was driven by increased demand, growth in existing customers, and increased movements of empty containers.

The increase in 2023 was driven by ocean carriers favoring inland point intermodal traffic, partially offset by a decrease in imports.

COAL revenues decreased in 2024 and 2023 compared with the prior years.

International volume was flat in 2025 and increased in 2024.

Volume in 2025 was impacted by increased demand in the first half of the year in response to tariffs and growth with key customers, which was offset by lower imports and business losses in the second half of the year.

The increase in 2024 was driven by increased demand, growth with existing customers, and increased movements of empty containers.

COAL revenues decreased in both 2025 and 2024 compared with the prior years.

The decrease in 2025 was a result of lower average revenue per unit, driven by decreased pricing, adverse mix, and lower fuel surcharge revenue, partially offset by increased volume.

The decrease in 2024 was a result of lower average revenue per unit, driven by decreased pricing and lower fuel surcharge revenue, partially offset by positive mix and increased volume.

The decrease in 2023 was a result of decreased volumes.

Average revenue per unit was flat as lower fuel surcharge revenue and pricing declines were offset by positive mix.

As shown in the following table, total tonnage increased in 2024 but decreased in 2023 compared to prior years.

As shown in the following table, total tonnage increased in 2025 and 2024 compared to prior years.

2025 2024 2023 vs.

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Total 78,046 76,702 75,892 2 % 1 %

Utility coal tonnage decreased in both 2024 and 2023 compared with the prior years.

Utility coal tonnage increased in 2025 but decreased in 2024 compared with the prior years.

The increase in 2025 was due to higher electricity demand and higher natural gas prices.

The decline in 2024 was due to reduced demand from continued low natural gas prices and high stockpiles.

The decrease in 2023 was due to low natural gas prices, high stockpiles, and unplanned customer outages.

Export coal tonnage increased in both 2024 and 2023 compared with the prior years.

Export coal tonnage declined in 2025 but increased in 2024 compared with the prior years.

The decrease in 2025 was due to soft global demand and unfavorable seaborne coal pricing.

The increase in 2024 was due to growth with our customers and increased production.

The increase in 2023 was a result of increased demand and coal supply.

Domestic metallurgical coal tonnage decreased in both 2025 and 2024 compared with the prior years.

The decrease in 2025 was due to a soft domestic market that resulted in idled facilities due to reduced customer demand.

The decrease in 2024 was as a result of reduced customer demand.

The decrease in 2023 was due to reduced coke shipments resulting from idled customer facilities.

Industrial coal tonnage increased in 2024 but decreased in 2023 compared with the prior years.

The growth in 2024 was due to higher demand.

The decrease in 2023 was due to reduced coal shipments related to customer sourcing changes.

Industrial coal tonnage increased in both 2025 and 2024 compared with the prior years.

The growth in both years was due to higher demand.

Railway Operating Expenses

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Other (58) (273) 226 (79 %) (221 %)

Restructuring and other charges 183 — —

Merger-related expenses 80 — — n/m n/m

Restructuring and other charges 22 183 — (88 %) n/m

Eastern Ohio incident (254) 325 1,116 (178 %) (71 %)

Total $ 7,824 $ 8,052 $ 9,305 (3 %) (13 %)

In 2024, the decline in railway operating expenses reflects lower net expenses related to the Eastern Ohio incident (Note 18), higher gains on operating property sales, including certain gains on railway line sales (Note 8), and lower fuel prices, partially offset by restructuring and other charges (Note 3), and increased depreciation on our higher asset base.

In 2023, expenses increased as we incurred $1.1 billion of costs related to environmental matters and legal proceedings resulting from the Incident (Note 18).

Additionally, railway operating expenses reflected higher costs due to inflationary pressures, investments in operational resiliency, and higher service-related costs.

Partially offsetting these increases were the impacts of lower fuel prices and the absence of retroactive wage increases recorded in 2022.

n/m - not meaningful

In 2025, the decline in railway operating expenses reflects net recoveries related to the Incident (Note 19) and lower restructuring charges (Note 4), which were partially offset by lower gains from the sales of railway lines and properties (Note 9) and the incurrence of merger-related expenses (Note 2).

In 2024, the decline in railway operating expenses reflects lower net expenses related to the Incident (Note 19), higher gains on operating property sales, including certain gains on railway line sales (Note 9), and lower fuel prices, partially offset by restructuring and other charges (Note 4), and increased depreciation on our higher asset base.

Compensation and benefits increased in 2025, reflecting changes in:

• pay rates (up $91 million),

• incentive and stock-based compensation (up $154 million),

• overtime (down $37 million),

• pay rates (up $81 million),

• health and welfare benefits (down $41 million),

• employee activity levels (down $75 million), and

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In 2024, compensation and benefits increased, a result of changes in:

• employee activity levels (up $138 million),

• pay rates (up $91 million),

• overtime (up $9 million),

• incentive and stock-based compensation (down $30 million), and

• incentive and stock-based compensation (up $56 million),

• overtime (down $37 million),

• employee activity levels (down $68 million), and

• other (down $38 million).

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Purchased services includes the costs of services purchased from external vendors and contractors, including the net costs of operating joint facilities with other railroads.

Purchased services increased in 2025 primarily due to higher response costs associated with weather events, higher derailment-related expenses (unrelated to the Incident), and increased intermodal lift costs.

The decrease in purchased services in 2024 was due to lower lease costs and declines in technology-related and operational expenses, partially offset by higher volume-related expenses and Conrail-related activity.

The increase in purchased services in 2023 was due to higher technology-related costs, increased operational and transportation expenses, and higher engineering activity.

Equipment rents , which includes our cost of using equipment (mostly freight cars) owned by other railroads or private owners less the rent paid to us for the use of our equipment, increased in both periods.

In 2025, the increase was due to increased automotive equipment expense resulting from higher volumes.

In 2024, the increase was due to increased automotive and intermodal equipment expenses as a result of higher volumes.

In 2023, the increase was due to increased intermodal equipment expenses, higher freight car lease costs, and decreased equity in TTX Company's (TTX) earnings.

Fuel expense, which includes the cost of locomotive fuel as well as other fuel used in railway operations, decreased in both 2025 and 2024.

The decrease in both periods was due to lower locomotive fuel prices (down 4% in 2025 and 15% in 2024), which decreased fuel expense by $35 million and $159 million in 2025 and 2024, respectively.

Locomotive fuel consumption was down in 2024 and nearly flat in 2023 compared to prior periods.

Locomotive fuel consumption was down in 2025 and 2024 compared to prior periods.

We consumed 366 million gallons of diesel fuel in 2025, compared with 373 million gallons in 2024 and 377 million gallons in 2023.

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Materials expense increased in both 2025 and 2024.

The increase in 2025 was partly due to higher locomotive and freight car material consumption coupled with increased spend for other materials.

The increase in 2024 was due to higher freight car repairs expense, partially offset by lower locomotive materials spending.

The increase in 2023 was due to increased locomotive, freight car, and track materials costs.

Claims expense includes costs related to personal injury, property damage, and environmental matters.

Claims expense decreased in both 2024 and 2023 compared to the prior years.

Claims expense increased in 2025 but decreased in 2024 compared to the prior years.

The increase in 2025 is the result of higher personal injury case development, increased expenses associated with environmental matters unrelated to the Incident, and higher insurance premiums.

The decrease in 2024 is the result of lower personal injury case development and declines in lading and property damage expenses.

These were partially offset by the absence of a prior-year claims-related recovery and higher insurance costs.

The decrease in 2023 was primarily the result of lower personal injury case development, lower costs related to environmental remediation matters unrelated to the Incident, and a claims-related recovery.

Other expense decreased in 2024 primarily due to increased gains from operating property sales, lower non-income-based taxes, and lower relocation and travel-related expenses.

Gains from operating property sales includes $433 million of gains on the sale of railway lines in the states of Virginia and North Carolina.

These transactions are described further in Note 8 in the Notes to Consolidated Financial Statements.

The increase in 2023 was primarily due to lower gains from operating property sales and increased travel-related expenses.

Gains from operating property sales amounted to $490 million, $43 million, and $76 million in 2024, 2023, and 2022, respectively.

Restructuring and other charges

In 2024, we recorded $183 million in restructuring and other charges.

During the year, we completed voluntary and involuntary separation programs that reduced our management workforce.

Additionally, we ceased development of certain technology projects that had not been placed into service.

We also wrote down certain specialized equipment to its net realizable value, reflecting the planned disposition of that asset class.

Additionally, we incurred costs associated the appointment of our chief operating officer.

See Notes 3 and 13 in the Notes to Consolidated Financial Statements for additional information.

Eastern Ohio incident

During 2024, we incurred net expenses of $325 million associated with the Incident, including additional costs associated with environmental matters and legal proceedings.

Other expense increased in 2025, primarily due to the absence of $433 million in gains from the sale of railway lines in the states of Virginia and North Carolina in 2024, but partially offset by gains on the sales of other operating properties and insurance proceeds pertaining to damages resulting from Hurricane Helene.

Gains from operating property sales, inclusive of the railway line sales, amounted to $253 million, $490 million, and $43 million in 2025, 2024, and 2023, respectively.

Other expense decreased in 2024 due to the aforementioned $433 million gains on railway line sales, as further described in Note 9, but also from lower non-income-based taxes as well as relocation and travel-related expenses.

Merger-related expenses in 2025 were $80 million and primarily relate to costs associated with employee retention agreements, third-party advisor fees, and legal fees.

Restructuring and other charges in 2025 totaled $22 million and includes expenses associated with the restructuring of certain technology functions, including severance costs for impacted employees, and the rationalization of certain software development projects that had not been placed into service.

Restructuring and other charges totaled $183 million in 2024 and includes expenses associated with our voluntary and involuntary separation programs that reduced our management workforce, expenses associated with the rationalization of certain software development projects that had not been placed into service, costs associated with the appointment of our new chief operating officer, and the disposition of an asset class.

See Notes 4 and 14 for additional information.

Eastern Ohio incident activity during 2025 reflected insurance and other recoveries that exceeded additional Incident-related expenses by $254 million.

Insurance and other recoveries total $418 million in 2025.

we incurred net expenses of $325 million associated with the Incident, including additional costs associated with environmental matters and legal proceedings.

The total amount recorded in 2024 is net of $650 million of insurance recoveries, resulting from claims made under our insurance policies in effect at the time of the Incident.

During 2023, we recorded $1.1 billion for costs primarily associated with environmental matters and legal proceedings.

We recorded $101 million of recoveries from claims made under our insurance policies, which are included in the total amount recorded in 2023.

Our cash expenditures attributable to the Incident, net of insurance proceeds received, were $119 million and $652 million in 2024 and 2023, respectively, and which are presented in “Net cash provided by operating activities” on the Consolidated Statements of Cash Flows.

For further details regarding the Incident, see Note 18 in Notes to Consolidated Financial Statements.

In 2025, net cash inflows attributable to the Incident were $249 million driven by insurance and other recoveries, while 2024 resulted in cash expenditures, net of insurance proceeds, of $119 million.

The overall net cash impact attributable to the Incident is presented in “Net cash provided by operating activities” on the Consolidated Statements of Cash Flows.

For further details regarding the Incident, see Note 19.

Other Income – Net

Other income – net decreased in 2024 but increased in 2023.

The decrease in 2024 reflects costs associated with shareholder matters, lower returns on corporate-owned life insurance (COLI), and higher pension and other postretirement benefits expense, partially offset by a $20 million curtailment gain on our other postretirement benefit plan as a result of our voluntary and involuntary separation programs (Note 3).

The increase in 2023 was the result of higher net returns on COLI and increased interest income, partially offset by lower gains from non-operating property sales.

Other income – net increased in 2025 but decreased in 2024.

The increase in 2025 reflects the absence of prior year shareholder advisory costs partially offset by the absence of a prior year curtailment gain and lower net pension and other postretirement benefits in the current year.

The effective income tax rate was 21.6% in 2025, compared with 21.2% in 2024 and 21.3% in 2023.

The current year reflects a $15 million deferred income tax benefit due to a change in a state corporate income tax rate and a $27 million deferred income tax benefit from subsidiary restructuring.

These benefits were partially offset by the absence of certain business tax credits recognized in the prior year.

The rate for 2025 is higher than the previous year, mainly driven by state tax mix and other smaller items.

While we recorded a $50 million state-related discrete tax item in 2025, other discrete benefits in 2024 did not recur.

We recorded a $15 million deferred income tax benefit due to a change in a state corporate income tax rate and a $27 million deferred income tax benefit from subsidiary restructuring in 2024.

The 2023 effective rate benefited from tax credits and higher COLI returns offset by reduced benefits from stock-based compensation.

The effective income tax rate in 2022 reflects favorable benefits associated with stock-based compensation and various state law changes (Note 5).

On July 4, 2025, the One Big Beautiful Bill Act (OBBBA) was signed into law.

The OBBBA makes permanent or introduces certain changes to the Internal Revenue Code, including 100% bonus depreciation, the deductibility of business interest expense, and expensing of domestic research costs.

Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) 740 “ Income Taxes ” requires that the effect of changes in tax rates and laws be recognized in the period in which the legislation is enacted.

The impact of this change is primarily a reclassification from current to deferred taxes.

For 2026, we expect an effective income tax rate between 23% and 24%.

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Cash provided by operating activities, our principal source of liquidity, was $4.4 billion in 2025, $4.1 billion in 2024, and $3.2 billion in 2023.

The increase in 2024 reflects improved operating results.

The decrease in 2023 reflects lower operating results, offset in part by changes in working capital.

We had negative working capital of $357 million at December 31, 2024 and working capital of $639 million at December 31, 2023.

Cash and cash equivalents totaled $1.6 billion at both December 31, 2024, and December 31, 2023.

The increases in 2025 and 2024 reflect improved operating results.

We had negative working capital of $577 million at December 31, 2025 and $357 million at December 31, 2024.

Cash and cash equivalents totaled $1.5 billion and $1.6 billion at December 31, 2025, and 2024, respectively.

We expect that cash on hand combined with cash provided by operating activities will be sufficient to meet our ongoing obligations.

In addition, we believe our currently-available borrowing capacity, access to additional financing, ability to reduce shareholder distributions, and ability to moderate or defer property additions provide additional flexibility to meet our ongoing obligations in the short- and long-term.

Contractual obligations at December 31, 2025, including those that may have material cash requirements, include interest on fixed-rate long-term debt, long-term debt (Note 11), unconditional purchase obligations (Note 19), long-term advances from Conrail Inc.

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Off balance sheet arrangements consist primarily of unrecognized obligations, including future interest payments on fixed-rate long-term debt and unconditional purchase obligations, which are included in the table above.

Additionally, in connection with our ownership of an equity method investment, we have the option to acquire an intermodal terminal located in the southern U.S.

for an amount that will be determined subsequent to the potential exercise of that option.

Our option to purchase the terminal expires in the second quarter of 2025.

Cash used in investing activities was $2.6 billion in 2025, $2.8 billion in 2024, and $2.2 billion in 2023.

The increase in 2024 was driven by the acquisition of the assets of the CSR, partially offset by higher borrowings against our COLI policies and increased proceeds from property sales.

Please see Note 8 in the Notes to Consolidated Financial Statements for additional details on certain railway line sales and a discussion of the acquisition of the CSR assets.

In 2023, the increase was primarily driven by higher property additions and lower proceeds from property sales.

The decrease in 2025 was driven by the prior year acquisition of the assets of the Cincinnati Southern Railway (CSR) and lower property additions in the current year, which was partially offset by the current year repayment of borrowings against our COLI policies that occurred in the prior year and lower proceeds from property sales and other transactions.

In 2024, the increase was driven by the acquisition of the assets of the CSR, partially offset by higher borrowings against our COLI policies and increased proceeds from property sales.

Please see Note 9 for additional details on certain railway line sales and a discussion of the acquisition of the CSR assets.

Capital spending and track and equipment statistics can be found within the “Railway Property” section of Part I of this report on Form 10-K.

For 2026, we expect property additions to approximate $1.9 billion.

Cash used in financing activities was $1.2 billion in 2024, while cash provided by financing activities was $115 million in 2023, and cash used in financing activities was $3.0 billion in 2022.

The increase in cash used in financing activities in 2024 reflects lower proceeds from borrowing partially offset by the absence of repurchases of Common Stock.

In 2023, the increase in cash provided by financing activities reflects lower repurchases of Common Stock and increased proceeds from borrowings, partially offset by higher debt repayments.

We did not repurchase any Common Stock during 2024, while we repurchased $622 million in 2023 and $3.1 billion in 2022, which resulted in the retirement of 2.8 million and 12.6 million shares in 2023 and 2022, respectively.

Cash used in financing activities was $1.9 billion in 2025 and $1.2 billion in 2024, while cash provided by financing activities was $115 million in 2023.

The increase in cash used in financing activities in 2025 reflects increased repurchases of Common Stock and lower proceeds from borrowing, partially offset by lower debt repayments.

In 2024, the increase in cash used in financing activities reflects lower proceeds from borrowing partially offset by the absence of repurchases of Common Stock.

In 2025, we repurchased and retired $534 million of Common Stock, inclusive of paid excise taxes, which resulted in the retirement of 2.2 million shares.

While we did not repurchase any Common Stock in 2024, we repurchased and retired $622 million in 2023, which resulted in the retirement of 2.8 million shares.

As of December 31, 2025, $6.3 billion remains authorized by our Board of Directors for repurchase.

The timing and volume of future share repurchases will be guided by our assessment of market conditions and other pertinent factors.

Repurchases may be executed in the open market, through derivatives, accelerated repurchase and other negotiated transactions and through plans designed to comply with Rule 10b5-1(c) and Rule 10b-18 under the

Securities and Exchange Act of 1934.

Any near-term purchases under the program are expected to be made with internally-generated cash, cash on hand, or proceeds from borrowings.

In June 2024, we entered into an agreement that provides us the ability to issue up to $800 million of unsecured commercial paper and is backed by our credit agreement.

The unsecured short-term commercial paper program provides for borrowing at prevailing rates and includes covenants.

At December 31, 2024, we had no outstanding commercial paper.

With limited exceptions, the Merger Agreement prohibits the Company from repurchasing shares of its Common Stock without approval by Union Pacific.

As a result, the Company has suspended share repurchase activities.

In May 2025, we issued $400 million of 5.10% senior notes due 2035.

In May 2025, we renewed our accounts receivable securitization program with a maximum borrowing capacity of $400 million.

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The term of our accounts receivable securitization program expires in May 2026.

We had no amounts outstanding under this program and our available borrowing capacity was $400 million at both December 31, 2024 and December 31, 2023.

We had no amounts outstanding under this program and our available borrowing capacity was approximately $397 million and $400 million at December 31, 2025 and December 31, 2024, respectively.

In June 2024, we entered into an agreement that provides us the ability to issue up to $800 million of unsecured commercial paper and is backed by our credit agreement.

The unsecured short-term commercial paper program provides for borrowing at prevailing rates and includes covenants.

At both December 31, 2025 and December 31, 2024, we had no outstanding commercial paper.

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

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We had no amounts outstanding under this facility at either December 31, 2025 or December 31, 2024, and we are in compliance with all of its 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 could borrow for general corporate purposes.

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

The term loan expired undrawn in October 2024.

In addition, we have investments in general purpose COLI policies and had the ability to borrow against these policies.

We had borrowed $605 million against these policies at December 31, 2024 and no amounts borrowed at December 31, 2023.

We had no amounts borrowed against these policies at December 31, 2025 and $605 million borrowed against these policies on December 31, 2024.

Our remaining borrowing capacity was $595 million and $40 million at December 31, 2025 and December 31, 2024, respectively.

In January 2025, we repaid all amounts that were borrowed against these policies at December 31, 2024.

Our debt-to-total capitalization ratio was 52.4% at December 31, 2025, compared with 54.6% at December 31, 2024.

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Incident Contingencies

We are currently involved in certain environmental response and remediation activities and subject to numerous legal proceedings and regulatory inquiries and investigations relating to the Incident.

We are currently involved in certain ongoing environmental monitoring activities and subject to numerous legal proceedings and regulatory inquiries and investigations relating to the Incident.

We have accrued estimates of the probable and reasonably estimable costs for the resolution of these matters.

Our environmental estimates are based upon types of remediation efforts currently anticipated, the volume of contaminants in the impacted areas, and governmental oversight and other costs, amongst other factors.

Estimates associated with the legal proceedings to

which we are subject are based on information that is currently available, including but not limited to an assessment of the proceedings and the potential and likely results of such proceedings.

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 conducted at the site), and the extent and duration of governmental oversight, amongst other factors.

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

Furthermore, certain costs may be recoverable under our insurance policies in effect at the date of the Incident or from third parties.

Any amounts that are recoverable under our insurance policies or from third parties will be reflected in the period in which recovery is considered probable.

Our environmental estimates are based upon the long-term monitoring activities that are currently anticipated and governmental oversight and other costs, amongst other factors.

Estimates associated with the legal proceedings to which we are subject are based on information that is currently available, including but not limited to an assessment of the proceedings and the potential and likely results of such proceedings.

Our current estimates of the long-term monitoring liabilities related to the Incident may change over time due to various factors, including but not limited to, results from monitoring activities and the extent of governmental oversight, amongst other factors.

particular year.

We have now completed recoveries under our liability insurance policies.

Any additional amounts that are recoverable under other insurance policies or from third parties will be reflected in the period in which recovery is considered probable.

See Note 19 for more detailed information as it pertains to these contingencies.

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A significant portion of our annual capital spending relates to self-constructed assets.

Costs related to repairs and

maintenance activities that, in our judgment, do not extend an asset’s useful life or increase its utility are expensed when such repairs are performed.

Costs related to repairs and maintenance activities that, in our judgment, do not extend an asset’s useful life or increase its utility are expensed when such repairs are performed.

Depreciation expense for 2025 totaled $1.4 billion.

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

Under current moratorium provisions, neither party was permitted to serve notice to compel a new round of mandatory collective bargaining until November 1, 2024.

In the months prior to the opening of the current national bargaining round, we engaged in voluntary local discussions with our labor unions and, as a result, reached local tentative agreements with ten of our thirteen unions.

A majority of those tentative agreements were subsequently ratified by union membership and became effective January 1, 2025, foreclosing the parties from serving new notices to compel mandatory bargaining until November 1, 2029.

For those unions with whom we have not yet reached a ratified agreement, the NCCC, on behalf of Norfolk Southern, sent bargaining notices on November 1, 2024, to commence mandatory direct negotiations as prescribed under the RLA.

Even if the parties are unable to reach voluntary agreement during this first phase of RLA

bargaining, self-help (e.g., a strike or other work stoppage) related to this collective-bargaining process remains prohibited by law until a lengthy series of additional procedures mandated by the RLA, including federal mediation, are exhausted.

Under moratorium provisions from the last round of negotiations, neither party was permitted to serve notice to compel a new round of mandatory collective bargaining until November 1, 2024.

Since that date, Norfolk Southern, or the NCCC acting on behalf of Norfolk Southern, has engaged in discussions and reached ratified agreements with all of our labor unions.

Moratorium clauses in these new ratified agreements foreclose the parties from serving further notices to compel mandatory bargaining until November 1, 2029.

During this period, self-help against Norfolk Southern (e.g., a strike or other work stoppage) related to the mandatory collective-bargaining process is prohibited by law.

We manage overall exposure to fluctuations in interest rates by issuing both fixed- and floating- rate debt instruments.

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While we believe these expectations, assumptions, estimates, beliefs, and projections are reasonable, such forward-looking statements are only predictions and involve known and unknown risks and uncertainties, many of which involve factors or circumstances that are beyond our control.

The following important

factors, including those discussed in Item 1A “Risk Factors,” may cause actual results, performance, or achievements to differ materially from those expressed or implied by these forward-looking statements:

• our ability to successfully implement our operational, productivity, and strategic initiatives;

The following important factors, including those discussed in Item 1A “Risk Factors,” may cause actual results, performance, or achievements to differ materially from those expressed or implied by these forward-looking statements:

• changes in domestic or international economic, political or business conditions, including those impacting the transportation industry;

• our ability to successfully implement our operational, productivity, and strategic initiatives;

• a significant adverse event on our network, including but not limited to a mainline accident, discharge of hazardous material, or climate-related or other network outage;

• the outcome of claims, litigation, governmental proceedings, and investigations involving the Company, including but not limited to the Incident Proceedings;

• the nature and extent of the Company's environmental remediation obligations with respect to the Incident;

• new or additional governmental regulation and/or operational changes resulting from or related to the Incident or the Incident Proceedings;

• a significant cybersecurity incident or other disruption to our technology infrastructure;

• our ability to complete the Mergers with Union Pacific;

• the occurrence of any event, change or other circumstance that could give rise to the right of one or both of the Company or Union Pacific to terminate the Merger Agreement;

• the possibility that the Mergers do not close when expected or at all because required Surface Transportation Board review and approval, or other approvals and other conditions to close are not received or satisfied on a timely basis or at all (and the risk that such approvals may result in the imposition of conditions that could adversely affect the combined company or the expected benefits of the Mergers);

• the risk that the combined company will not realize expected benefits, cost savings, accretion, synergies and/or growth from the Mergers, or that such benefits may take longer to realize or be more costly to achieve than expected;

• disruption to the Company's business as a result of the announcement and pendency of the Mergers, including the restrictions contained in the Merger Agreement on the ability of the Company to operate its business outside the ordinary course during the pendency of the Mergers;

• the diversion of the Company's management's attention and time from ongoing business operations and opportunities on Merger-related items;

• the possibility that the Mergers may be more expensive to complete than anticipated, including as a result of unexpected factors or events;

• the reputational risk and adverse reactions of customers (certain of whom have and may continue to diversify their distribution networks, including in response to actions by our competitors), suppliers,

employees, labor unions or other business partners, including those resulting from the announcement or completion of the Mergers.

The forward-looking statements herein are made only as of the date they were first issued, and unless otherwise required by applicable securities laws, we disclaim any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise.

Additional Information

Investors and others should note that we routinely use the Investor Relations, Performance Metrics and Sustainability sections of our website (norfolksouthern.investorroom.com/key-investor-information, norfolksouthern.investorroom.com/weekly-performance-reports & www.norfolksouthern.com/sustainability) to post presentations to investors and other important information, including information that may be deemed material to investors.

Investors and others should note that we routinely use the Investor Relations, Performance Metrics and Sustainability sections of our website (norfolksouthern.investorroom.com/key-investor-information, norfolksouthern.investorroom.com/weekly-performance-reports & norfolksouthern.com/sustainability) to post presentations to investors and other important information, including information that may be deemed material to investors.

Information about us, including information that may be deemed material, may also be announced by posts on our social media channels, including X (formerly known as Twitter) (x.com/nscorp) and LinkedIn (www.linkedin.com/company/norfolk-southern).

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

What changed 10-K

Item 7. Management’s Discussion and Analysis