Item 8. Financial Statements and Supplementary Data

166K characters. Original on sec.gov · Markdown

Item 8. Financial Statements and Supplementary Data

INDEX TO FINANCIAL STATEMENTS


			Page

Report of Management			K 45

Report of Independent Registered Public Accounting Firm			K 46

Consolidated Statements of Income Years ended December 31, 202 5 , 202 4 , and 202 3			K 49

Consolidated Statements of Comprehensive Income Years ended December 31, 202 5 , 202 4 , and 202 3			K 50

Consolidated Balance Sheets At December 31, 202 5 and 202 4			K 51

Consolidated Statements of Cash Flows Years ended December 31, 202 5 , 202 4 , and 202 3			K 52

Consolidated Statements of Changes in Stockholders’ Equity Years ended December 31, 202 5 , 202 4 , and 202 3			K 53

Notes to Consolidated Financial Statements			K 54

Index to Financial Statement Schedules in Item 15			K 98

K44

Report of Management

February 9, 2026

To the Stockholders

Norfolk Southern Corporation:

Management is responsible for establishing and maintaining adequate internal control over financial reporting. In order to ensure that Norfolk Southern’s internal control over financial reporting is effective, management regularly assesses such controls and did so most recently as of December 31, 2025. This assessment was based on criteria for effective internal control over financial reporting described in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this assessment, management has concluded that we maintained effective internal control over financial reporting as of December 31, 2025.

KPMG LLP, independent registered public accounting firm, has audited our financial statements and issued an opinion on our internal control over financial reporting as of December 31, 2025.


/s/ Mark R. George	/s/ Jason A. Zampi	/s/ Claiborne L. Moore
Mark R. George	Jason A. Zampi	Claiborne L. Moore
President and	Executive Vice President and Chief	Vice President and
Chief Executive Officer	Financial Officer	Controller

K45

Report of Independent Registered Public Accounting Firm

To the Stockholders and Board of Directors

Norfolk Southern Corporation:

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

We have audited the accompanying consolidated balance sheets of Norfolk Southern Corporation and subsidiaries (the Company) as of December 31, 2025 and 2024, the related consolidated statements of income, comprehensive income, cash flows, and changes in stockholders’ equity for each of the years in the three-year period ended December 31, 2025, and the related notes and financial statement schedule of valuation and qualifying accounts as listed in Item 15(A)2 (collectively, the consolidated financial statements). We also have audited the Company’s internal control over financial reporting as of December 31, 2025, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2025 and 2024, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2025, in conformity with U.S. generally accepted accounting principles. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2025 based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

Basis for Opinions

The Company’s management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management's Annual Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s consolidated financial statements and an opinion on the Company’s internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

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

Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

K46

Definition and Limitations of Internal Control Over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of a critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Sufficiency of audit evidence related to the capitalization of property expenditures

As discussed in Note 1 to the consolidated financial statements, expenditures that extend an asset’s useful life or increase its utility are capitalized. The Company has recorded $36,479 million in net book value of properties at December 31, 2025 and has recorded $2,204 million in property additions for the year ended December 31, 2025. Expenditures capitalized include those that are directly related to a capital project and may include materials, labor and other direct costs, in addition to an allocable portion of indirect costs that relate to a capital project. A significant portion of the Company’s annual capital spending relates to self-constructed assets. Costs related to repair and maintenance activities, that in the Company’s judgment, do not extend an asset’s useful life or increase its utility are expensed when such repairs are performed.

We identified the evaluation of the sufficiency of audit evidence related to capitalization of property expenditures as a critical audit matter. Subjective auditor judgment was required in determining procedures and evaluating audit results related to the capitalization of purchased services and compensation due to their usage for both self-constructed assets and repairs and maintenance.

The following are the primary procedures we performed to address the critical audit matter. We applied auditor judgment to determine the nature and extent of procedures to be performed over capitalized property expenditures. We evaluated the design and tested the operating effectiveness of certain internal controls over the Company’s process to capitalize property expenditures, including controls over the determination of whether purchased services and compensation expenditures extend an asset’s useful life or increase its utility. For a sample of property additions expenditures, we inquired and inspected support to evaluate that the expenditure extended an asset’s useful life or increased its utility. We evaluated the sufficiency of audit evidence obtained by assessing the results of the procedures performed, including the appropriateness of the nature of such evidence.

K47

/s/ KPMG LLP

KPMG LLP

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

Atlanta, Georgia

February 9, 2026

K48

Norfolk Southern Corporation and Subsidiaries

Consolidated Statements of Income


	Years ended December 31,
	2025		2024		2023
	($ in millions, except per share amounts)

Railway operating revenues	$	12,180	$	12,123	$	12,156

Railway operating expenses
Compensation and benefits	2,922		2,823		2,819
Purchased services and rents	2,095		2,048		2,070
Fuel	932		987		1,170
Depreciation	1,393		1,353		1,298
Materials and other	634		333		832
Merger-related expenses	80		—		—
Restructuring and other charges	22		183		—
Eastern Ohio incident	(254)		325		1,116

Total railway operating expenses	7,824		8,052		9,305

Income from railway operations	4,356		4,071		2,851

Other income – net	101		65		191
Interest expense on debt	792		807		722

Income before income taxes	3,665		3,329		2,320

Income taxes	792		707		493

Net income	$	2,873	$	2,622	$	1,827

Earnings per share
Basic	$	12.76	$	11.58	$	8.04
Diluted	12.75		11.57		8.02

See accompanying notes to consolidated financial statements.

K49

Norfolk Southern Corporation and Subsidiaries

Consolidated Statements of Comprehensive Income


	Years ended December 31,
	2025		2024		2023
	($ in millions)

Net income	$	2,873	$	2,622	$	1,827
Other comprehensive income, before tax:
Pension and other postretirement benefits	62		70		36
Other comprehensive income of equity investees	4		7		4

Other comprehensive income, before tax	66		77		40
Income tax expense related to items of
other comprehensive income	(14)		(19)		(9)

Other comprehensive income, net of tax	52		58		31

Total comprehensive income	$	2,925	$	2,680	$	1,858

See accompanying notes to consolidated financial statements.

K50

Norfolk Southern Corporation and Subsidiaries

Consolidated Balance Sheets


	At December 31,
	2025		2024
	($ in millions)
Assets
Current assets:
Cash and cash equivalents	$	1,530	$	1,641

Accounts receivable – net	988		1,069
Materials and supplies	271		277
Other current assets	409		201
Total current assets	3,198		3,188

Investments	4,089		3,370
Properties less accumulated depreciation of $14,617 and
$13,957, respectively	36,479		35,831
Other assets	1,470		1,293

Total assets	$	45,236	$	43,682

Liabilities and stockholders’ equity
Current liabilities:
Accounts payable	$	1,863	$	1,704

Income and other taxes	340		337
Other current liabilities	965		949
Current maturities of long-term debt	607		555
Total current liabilities	3,775		3,545

Long-term debt	16,480		16,651
Other liabilities	1,723		1,760
Deferred income taxes	7,711		7,420

Total liabilities	29,689		29,376

Stockholders’ equity:
Common Stock $1.00 per share par value, 1,350,000,000 shares
authorized; outstanding 224,420,699 and 226,320,894 shares,
respectively, net of treasury shares	226		228
Additional paid-in capital	2,296		2,247
Accumulated other comprehensive loss	(210)		(262)
Retained income	13,235		12,093

Total stockholders’ equity	15,547		14,306

Total liabilities and stockholders’ equity	$	45,236	$	43,682

See accompanying notes to consolidated financial statements.

K51

Norfolk Southern Corporation and Subsidiaries

Consolidated Statements of Cash Flows


	Years ended December 31,
	2025		2024		2023
	($ in millions)
Cash flows from operating activities
Net income	$	2,873	$	2,622	$	1,827
Reconciliation of net income to net cash provided by operating activities:
Depreciation	1,393		1,353		1,298
Deferred income taxes	277		176		(49)
Gains and losses on properties	(253)		(490)		(49)



Changes in assets and liabilities affecting operations:
Accounts receivable	59		85		(2)
Materials and supplies	6		(13)		(11)
Other current assets	(23)		5		(54)
Current liabilities other than debt	259		548		435
Other – net	(230)		(234)		(216)

Net cash provided by operating activities	4,361		4,052		3,179

Cash flows from investing activities
Property additions	(2,204)		(2,381)		(2,327)
Acquisition of assets of CSR	—		(1,643)		(22)
Property sales and other transactions	164		558		86
Investment purchases	(621)		(319)		(124)
Investment sales and other transactions	99		1,005		205

Net cash used in investing activities	(2,562)		(2,780)		(2,182)

Cash flows from financing activities
Dividends	(1,215)		(1,221)		(1,225)
Common Stock transactions	2		26		3
Purchase and retirement of Common Stock	(534)		—		(622)
Proceeds from borrowings	396		1,051		3,293
Debt repayments	(559)		(1,055)		(1,334)

Net cash provided by (used in) financing activities	(1,910)		(1,199)		115

Net increase (decrease) in cash and cash equivalents	(111)		73		1,112

Cash and cash equivalents
At beginning of year	1,641		1,568		456

At end of year	$	1,530	$	1,641	$	1,568

Supplemental disclosures of cash flow information
Cash paid during the year for:
Interest (net of amounts capitalized)	$	765	$	764	$	653
Income taxes (net of refunds)	491		305		681

See accompanying notes to consolidated financial statements.

K52

Norfolk Southern Corporation and Subsidiaries

Consolidated Statements of Changes in Stockholders’ Equity


	Common Stock		Additional Paid-in Capital		Accum. Other Comprehensive Loss		Retained Income		Total
	($ in millions, except per share amounts)

Balance at December 31, 2022	$	230	$	2,157	$	(351)	$	10,697	$	12,733

Comprehensive income:
Net income							1,827		1,827
Other comprehensive income					31				31
Total comprehensive income									1,858
Dividends on Common Stock,
$5.40 per share							(1,225)		(1,225)
Share repurchases	(3)		(24)				(600)		(627)
Stock-based compensation			46				(4)		42



Balance at December 31, 2023	227		2,179		(320)		10,695		12,781

Comprehensive income:
Net income							2,622		2,622
Other comprehensive income					58				58
Total comprehensive income									2,680
Dividends on Common Stock,
$5.40 per share							(1,221)		(1,221)

Stock-based compensation	1		68				(3)		66

Balance at December 31, 2024	228		2,247		(262)		12,093		14,306

Comprehensive income:
Net income							2,873		2,873
Other comprehensive income					52				52
Total comprehensive income									2,925
Dividends on Common Stock,
$5.40 per share							(1,215)		(1,215)
Share repurchases	(2)		(20)				(511)		(533)
Stock-based compensation			69				(5)		64

Balance at December 31, 2025	$	226	$	2,296	$	(210)	$	13,235	$	15,547

See accompanying notes to consolidated financial statements.

K53

Norfolk Southern Corporation and Subsidiaries

Notes to Consolidated Financial Statements

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

1. Summary of Significant Accounting Policies

Description of Business and Operating Segments

Norfolk Southern Corporation is a Georgia-based holding company engaged principally in the rail transportation business, operating 19,100 route miles primarily in the Southeast, East, and Midwest. These consolidated financial statements include Norfolk Southern and its majority-owned and controlled subsidiaries (collectively, NS, we, us, and our). Norfolk Southern’s major subsidiary is NSR. All significant intercompany balances and transactions have been eliminated in consolidation.

On July 28, 2025, we entered into a Merger Agreement with Union Pacific, discussed further in Note 2.

NSR and its railroad subsidiaries transport raw materials, intermediate products, and finished goods classified in the following commodity groups (percent of total railway operating revenues in 2025): intermodal (25%); agriculture, forest and consumer products (21%); chemicals (18%); metals and construction (14%); coal (12%); and automotive (10%). Although most of our customers are domestic, ultimate points of origination or destination for some of the products transported (particularly coal bound for export and some intermodal shipments) may be outside the U.S. Approximately 80% of our railroad employees are covered by collective bargaining agreements with various labor unions.

We manage our company as one reportable operating segment, railway operations, providing rail transportation to customers. We define our operating segment based on the way in which internally reported financial information is regularly reviewed by the chief operating decision maker, our chief executive officer, to analyze financial performance and allocate resources. Although we provide and analyze revenues by commodity group, the overall financial and operational performance of the railroad is analyzed as one operating segment due to the nature of our integrated rail network. Financial information and annual operating budgets and forecasts are prepared and reviewed by the chief operating decision maker at a consolidated level, making operational decisions to maximize consolidated financial results. The accounting policies of our railway operations segment are the same as those described in the summary of significant accounting policies herein.

The chief operating decision maker assesses the performance of the railway operations segment and decides how to allocate resources based on “Net income” that is reported on the Consolidated Statements of Income. Net income is used to monitor budget versus actual results of the organization. Our consolidated financial results are used in assessing the performance of the segment and in establishing management’s compensation. The measure of segment assets is reported on the Consolidated Balance Sheets as “Total assets.” The chief operating decision maker uses net income generated from our railroad operations in determining capital allocations decisions, such as whether to reinvest profits into the rail network or into other parts of the entity or utilize them for other purposes, including paying dividends or repurchasing Common Stock.

K54

Railway operations segment revenue, expenses, and profit and loss are disclosed below as reviewed and used by the chief operating decision maker. There are no other significant segment items or reconciling items to segment profit.


	2025		2024		2023
	($ in millions)

Railway operating revenues (Note 3)	$	12,180	$	12,123	$	12,156

Railway operating expenses
Compensation and benefits	2,922		2,823		2,819
Purchased services	1,675		1,655		1,683
Equipment rents	420		393		387
Fuel	932		987		1,170
Depreciation	1,393		1,353		1,298
Materials	411		369		364
Claims	281		237		242
Other	(58)		(273)		226
Merger-related expenses	80		—		—
Restructuring and other charges	22		183		—
Eastern Ohio incident	(254)		325		1,116

Total railway operating expenses	7,824		8,052		9,305

Income from railway operations	4,356		4,071		2,851

Other income – net	101		65		191
Interest expense on debt	792		807		722

Income before income taxes	3,665		3,329		2,320

Income taxes	792		707		493

Net income	$	2,873	$	2,622	$	1,827

Total equity method investments are disclosed in Note 8 “Investments,” and total expenditures for long-lived assets are disclosed as “Property additions” on the Consolidated Statement of Cash Flows.

Use of Estimates

The preparation of financial statements in accordance with GAAP requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. We periodically review our estimates, including those related to the recoverability and useful lives of assets, as well as liabilities for litigation, environmental remediation, casualty claims, income taxes and pension and other postretirement benefits. Changes in facts and circumstances may result in revised estimates.

K55

Revenue Recognition

Transportation revenues are recognized proportionally as a shipment moves from origin to destination, and related expenses are recognized as incurred. Certain of our contract refunds (which are primarily volume-based incentives) are recorded as a reduction to revenues on the basis of our best estimate of projected liability, which is based on historical activity, current shipment counts and expectation of future activity. Certain ancillary services, such as switching, demurrage and other incidental activities, may be provided to customers 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.

Cash Equivalents

“Cash equivalents” are highly liquid investments purchased three months or less from maturity.

Allowance for Doubtful Accounts

Our allowance for doubtful accounts was $7 million and $8 million at December 31, 2025 and 2024, respectively. To determine our allowance for doubtful accounts, we evaluate historical loss experience (which has not been significant), the characteristics of current accounts, and general economic conditions and trends.

Materials and Supplies

“Materials and supplies,” consisting mainly of items for maintenance of property and equipment, are stated at the lower of average cost or net realizable value. The cost of materials and supplies expected to be used in property additions or improvements is included in “Properties.”

Investments

Investments in entities over which we have the ability to exercise significant influence but do not control the entity are accounted for using the equity method, whereby the investment is carried at the cost of the acquisition plus our equity in undistributed earnings or losses since acquisition.

Properties

“Properties” are stated principally at cost and are depreciated using the group method whereby assets with similar characteristics, use, and expected lives are grouped together in asset classes and depreciated using a composite depreciation rate. This methodology treats each asset class as a pool of resources, not as singular items. We use approximately 75 depreciable asset classes.

Depreciation expense is based on our assumptions concerning expected service lives of our properties as well as the expected net salvage that will be received upon their retirement. In developing these assumptions, we utilize periodic depreciation studies that are performed by an independent outside firm of consulting engineers and approved by the STB. Our depreciation studies are conducted about every three years for equipment and every six years for track assets and other roadway property. The frequency of these studies is consistent with guidelines established by the STB. We adjust our rates based on the results of these studies and implement the changes prospectively. The studies may also indicate that the recorded amount of accumulated depreciation is deficient (or in excess) of the amount indicated by the study. Any such deficiency (or excess) is amortized as a component of depreciation expense over the remaining service lives of the affected class of property, as determined by the study.

Key factors that are considered in developing average service life and salvage estimates include:

statistical analysis of historical retirement data and surviving asset records,
review of historical salvage received and current market rates,

K56

review of our operations including expected changes in technology, customer demand, maintenance practices and asset management strategies,
review of accounting policies and assumptions, and
industry review and analysis.

The composite depreciation rate for rail in high density corridors is derived based on consideration of annual gross tons as compared to the total or ultimate capacity of rail in these corridors. Our experience has shown that traffic density is a leading factor in the determination of the expected service life of rail in high density corridors. In developing the respective depreciation rate, consideration is also given to several rail characteristics including age, weight, condition (new or second-hand), and type (curved or straight).

We capitalize interest on major projects during the period of their construction. Expenditures, including those on leased assets, that extend an asset’s useful life or increase its utility are capitalized. Expenditures capitalized include those that are directly related to a capital project and may include materials, labor, and other direct costs, in addition to an allocable portion of indirect costs that relate to a capital project. A significant portion of our annual capital spending relates to self-constructed assets. Removal activities occur in conjunction with replacement and are estimated based on the average percentage of time employees replacing assets spend on removal functions. 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.

When depreciable operating road and equipment assets are sold or retired in the ordinary course of business, the cost of the assets, net of sales proceeds or salvage, is charged to accumulated depreciation, and no gain or loss is recognized in earnings. Actual historical cost values are retired when available, such as with most equipment assets. The use of estimates in recording the retirement of certain roadway assets is necessary based on the impracticality of tracking individual asset costs. When retiring rail, ties, and ballast, we use statistical curves that indicate the relative distribution of the age of the assets retired. The historical cost of other roadway assets is estimated using a combination of inflation indices specific to the rail industry and those published by the U.S. Bureau of Labor Statistics. The indices are applied to the replacement value based on the age of the retired assets. These indices are used because they closely correlate with the costs of roadway assets. Gains and losses on disposal of operating land are included in “Materials and other” expenses. Gains and losses on disposal of non-operating land and non-rail assets are included in “Other income – net” since such income is not a product of our railroad operations.

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

We review the carrying amount of properties whenever events or changes in circumstances indicate that such carrying amount may not be recoverable based on future undiscounted cash flows. Assets that are deemed impaired as a result of such review are recorded at the lower of carrying amount or fair value.

New Accounting Pronouncements

In December 2023, the FASB issued Accounting Standards Update (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 adopted the ASU on January 1, 2025 and incorporated the required disclosures in Note 6.

In November 2024, the FASB issued ASU 2024-03, “Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures (Subtopic 220-40).” This update requires an entity to disclose specific

K57

information about certain costs and expenses in the notes to its financial statements for interim and annual reporting periods. Entities are required to provide disaggregated information about expenses to help investors better understand performance, better assess prospects for future cash flows, and compare performance over time and with that of other entities. The ASU is effective for fiscal years beginning after December 15, 2026 and interim periods within fiscal years beginning after December 15, 2027. We will not early adopt the standard and are currently evaluating the impact of this amendment on our disclosures.

In September 2025, the FASB issued ASU 2025-06, “Intangibles-Goodwill and Other-Internal-Use Software (Subtopic 350-40): Targeted Improvements to the Accounting for Internal-Use Software.” This update revises the recognition guidance for internal-use software by eliminating the previous model based on software development stages and introducing a principles-based approach. Under the new guidance, capitalization begins when management has authorized and committed to funding the project, and it is probable that the software will be completed and used for its intended purpose. The ASU is effective for interim periods and fiscal years beginning after December 15, 2027. We will not early adopt the standard and are currently evaluating the impact.

2. Merger Agreement

On July 28, 2025, we entered into a Merger Agreement with Union Pacific Corporation, Merger Sub 1, and Merger Sub 2. The Merger Agreement provides that Union Pacific will acquire the Company in a stock-and-cash transaction whereby (a) Merger Sub 1 will be merged with and into the Company (the “First Merger”), with the Company surviving the First Merger as a direct wholly owned subsidiary of Union Pacific, and (b) immediately following the First Merger, the Company will be merged with and into Merger Sub 2 (the “Second Merger” and together with the First Merger, the “Mergers”), with Merger Sub 2 surviving the Second Merger as a direct, wholly owned subsidiary of Union Pacific.

At the effective time of the First Merger, each share of Common Stock, par value $1.00 per share, of the Company, issued and outstanding immediately prior to the effective time of the First Merger, subject to certain exclusions set forth in the Merger Agreement, will be converted into the right to receive one share of common stock, par value $2.50 per share, of Union Pacific, and $88.82 in cash without interest.

The consummation of the Mergers is subject to certain conditions, including approval by the STB. Approval from the shareholders of each company was obtained on November 14, 2025. Additionally, if the Merger Agreement is terminated under specific circumstances, either we or Union Pacific are required to pay a termination fee of $2.5 billion.

The full text of the Merger Agreement can be found as Exhibit 2.1 in our Current Report on Form 8-K filed with the SEC on July 29, 2025.

During 2025, we incurred $80 million in expenses related to or resulting from the proposed transaction. These costs, which include costs associated with employee retention agreements, fees to third-party advisors, and expenses for legal services, are recorded in “Merger-related expenses” on the Consolidated Statements of Income.

K58

3. Railway Operating Revenues

The following table disaggregates our revenues by major commodity group:


	2025		2024		2023
	($ in millions)
Merchandise:
Agriculture, forest and consumer products	$	2,538	$	2,521	$	2,530
Chemicals	2,206		2,123		2,054
Metals and construction	1,724		1,682		1,634
Automotive	1,216		1,144		1,135
Merchandise	7,684		7,470		7,353
Intermodal	3,009		3,042		3,090
Coal	1,487		1,611		1,713

Total	$	12,180	$	12,123	$	12,156

We recognize the amount of revenues to which we expect to be entitled for the transfer of promised goods or services to customers. A performance obligation is created when a customer under a transportation contract or public tariff submits a bill of lading to us for the transport of goods. These performance obligations are satisfied as the shipments move from origin to destination. As such, transportation revenues are recognized proportionally as a shipment moves, and related expenses are recognized as incurred. These performance obligations are generally short-term in nature with transit days averaging approximately one week or less for each commodity group. The customer has an unconditional obligation to pay for the service once the service has been completed. 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 December 31, 2025 and 2024.

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%, 4%, and 5%, respectively, of total “Railway operating revenues” on the Consolidated Statements of Income for the years ended December 31, 2025, 2024, and 2023.

Revenues related to interline transportation services that involve another railroad are reported on a net basis. Therefore, the portion of the amount that relates to another party is not reflected in revenues.

Under the typical terms of our freight contracts, payment for services is due within fifteen days of billing the customer, thus there are no significant financing components. “Accounts receivable – net” on the Consolidated Balance Sheets includes both customer and non-customer receivables as follows:


	December 31,
	2025		2024
	($ in millions)

Customer	$	715	$	787
Non-customer	273		282

Accounts receivable – net	$	988	$	1,069

Non-customer receivables include non-revenue-related amounts due from other railroads, governmental entities, insurers, and others. We do not have any material contract assets or liabilities at December 31, 2025 and 2024.

K59

4. Restructuring and Other Charges

Restructuring and other charges in 2025 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 in 2024 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. We incurred expenses of $22 million and $183 million in 2025 and 2024, respectively.

5. Other Income – Net


	2025		2024		2023
	($ in millions)

Pension and other postretirement benefits (Note 14)	$	86	$	120	$	117
COLI – net	20		17		65
Shareholder advisory costs	—		(59)		—
Other	(5)		(13)		9

Total	$	101	$	65	$	191

6. Income Taxes


	2025		2024		2023
	($ in millions)
Current:
Federal	$	410	$	445	$	437
State	105		86		105
Total current taxes	515		531		542

Deferred:
Federal	312		198		(27)
State	(35)		(22)		(22)
Total deferred taxes	277		176		(49)

Income taxes	$	792	$	707	$	493

We recorded a $50 million discrete benefit in 2025 resulting from the resolution of a state tax matter and recorded a $27 million deferred income tax benefit in 2024 as a result of a subsidiary restructuring. Both amounts are presented net of federal effects.

On July 4, 2025, the 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. FASB 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.

K60

Reconciliation of Statutory Rate to Effective Rate

“Income taxes” on the Consolidated Statements of Income differs from the amounts computed by applying the statutory federal corporate tax rate as follows:


	2025
	Amount		%
	($ in millions)
US federal statutory tax rate	$	770	21.0
State and local income taxes, net of federal income tax effect *	101		2.8


Nontaxable or nondeductible items	(9)		(0.2)

Tax credits	(25)		(0.7)

Changes in unrecognized tax benefits	(45)		(1.3)


Income taxes	$	792	21.6

*State taxes in Pennsylvania, Virginia, and Indiana made up the majority (greater than 50%) of the tax effect in this category.


	2024			2023
		Amount		%	Amount		%
		($ in millions)

Federal income tax at statutory rate		$	699	21.0	$	487	21.0
State income taxes, net of federal tax effect		51		1.6	65		2.9
Tax credits		(14)		(0.4)	(27)		(1.2)

Other, net		(29)		(1.0)	(32)		(1.4)

Income taxes		$	707	21.2	$	493	21.3

Income Taxes Paid


	2025
	($ in millions)

Federal	$	389

State	102



Total income taxes paid, net of refunds	$	491

Income taxes paid, net of refunds, for 2024 and 2023 were $305 million and $681 million, respectively.

K61

Deferred Tax Assets and Liabilities

Certain items are reported in different periods for financial reporting and income tax purposes. Deferred tax assets and liabilities are recorded in recognition of these differences. The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities are as follows:


	December 31,
	2025		2024
	($ in millions)
Deferred tax assets:
Accruals, including casualty and other claims	$	190	$	289
Compensation and benefits, including postretirement benefits	—		21
Other	222		157
Total gross deferred tax assets	412		467
Less valuation allowance	(45)		(42)
Net deferred tax assets	367		425

Deferred tax liabilities:
Property	(7,621)		(7,397)
Other	(457)		(448)
Total deferred tax liabilities	(8,078)		(7,845)

Deferred income taxes	$	(7,711)	$	(7,420)

Except for amounts for which a valuation allowance has been provided, we believe that it is more likely than not that the results of future operations will generate sufficient taxable income to realize the deferred tax assets. The valuation allowance at the end of each year primarily relates to subsidiary state income tax net operating losses and state investment tax credits that may not be utilized prior to their expiration. The total valuation allowance increased by $3 million in 2025, increased by $11 million in 2024, and decreased by $10 million in 2023.

Uncertain Tax Positions

A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:


	December 31,
	2025		2024
	($ in millions)

Balance at beginning of year	$	82	$	55

Additions based on tax positions related to the current year	4		26
Additions for tax positions of prior years	1		3
Reductions for tax positions of prior years	(49)		(1)

Lapse of statutes of limitations	(1)		(1)

Balance at end of year	$	37	$	82

Included in the balance of unrecognized tax benefits at December 31, 2025 are potential benefits of $30 million that would affect the effective tax rate if recognized. Unrecognized tax benefits are adjusted in the period in which new information about a tax position becomes available or the final outcome differs from the amount recorded.

K62

The statute of limitations on Internal Revenue Service (IRS) examinations has expired for all years prior to 2020. The IRS audits of our consolidated federal income tax returns for 2019 through 2021 are being finalized. State income tax returns are generally subject to examination for a period of three to four years after the return. In addition, we are generally obligated to report changes in taxable income arising from federal income tax examinations to the states within a period of up to two years from the date the federal examination is final. We have various state income tax returns either under examination, administrative appeal, or litigation.

7. Fair Value Measurements

FASB ASC 820-10, “Fair Value Measurements,” established a framework for measuring fair value and a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three broad levels, as follows:


Level 1			Inputs to the valuation methodology are unadjusted quoted prices for identical assets or liabilities in active markets that we have the ability to access.

Level 2			Inputs to the valuation methodology include:
			• quoted prices for similar assets or liabilities in active markets, • quoted prices for identical or similar assets or liabilities in inactive markets, • inputs other than quoted prices that are observable for the asset or liability, and • inputs that are derived principally from or corroborated by observable market data by correlation or other means.

			If the asset or liability has a specified (contractual) term, the Level 2 input must be observable for substantially the full term of the asset or liability.

Level 3			Inputs to the valuation methodology are unobservable and significant to the fair value measurement.

The asset or liability’s fair value measurement level within the hierarchy is based on the lowest level of any input that is significant to the fair value measurement.

Fair Values of Financial Instruments

The fair values of “Cash and cash equivalents,” “Accounts receivable – net,” and “Accounts payable,” approximate carrying values because of the short maturity of these financial instruments. The carrying value of 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 December 31, 2025 or 2024. The carrying amounts and estimated fair values, based on Level 1 inputs, of long-term debt consist of the following at December 31:


	2025				2024
	Carrying Amount		Fair Value		Carrying Amount		Fair Value
	($ in millions)

Long-term debt, including current maturities	$	(17,087)	$	(15,865)	$	(17,206)	$	(15,656)

K63

8. Investments


	December 31,
	2025		2024
	($ in millions)
Long-term investments:
Equity method investments:
Conrail	$	1,827	$	1,748
TTX	1,056		1,013
Other	433		423
Total equity method investments	3,316		3,184

COLI at net cash surrender value	751		161
Other investments	22		25

Total long-term investments	$	4,089	$	3,370

We had no borrowings against our COLI policies at December 31, 2025, while we had $605 million of borrowings outstanding at December 31, 2024. Repayments of borrowings in 2025 are included in “Investment purchases,” and borrowings in 2024 are included in “Investment sales and other transactions” within investing activities in the Consolidated Statements of Cash Flows.

Investment in Conrail

Through a limited liability company, we and CSX jointly own Conrail, whose primary subsidiary is CRC. 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. We are amortizing the excess of the purchase price over Conrail’s net equity using the principles of purchase accounting, based primarily on the estimated useful lives of Conrail’s depreciable property and equipment, including the related deferred tax effect of the differences in book and tax accounting bases for such assets, as all of the purchase price at acquisition was allocable to Conrail’s tangible assets and liabilities. At December 31, 2025, our investment in Conrail exceeds our share of Conrail’s underlying net equity by $463 million.

CRC owns and operates certain properties (the Shared Assets Areas) for the joint and exclusive benefit of NSR and CSX Transportation, Inc. (CSXT). The costs of operating the Shared Assets Areas are borne by NSR and CSXT based on usage. 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 $189 million in 2025, $198 million in 2024, and $164 million in 2023. Future payments for access fees due to CRC under the Shared Assets Areas agreements are as follows: $54 million in each of 2026 through 2028 and $23 million in 2029. We provide certain general and administrative support functions to Conrail, the fees for which are billed in accordance with several service-provider arrangements and approximate $7 million annually.

“Accounts payable” includes $297 million at December 31, 2025, and $243 million at December 31, 2024, due to Conrail for the operation of the Shared Assets Areas. “Other liabilities” includes $534 million at December 31, 2025 and 2024, respectively, for long-term advances from Conrail, maturing in 2050 that bear interest at an average rate of 1.31%.

Our equity in Conrail’s earnings, net of amortization, was $75 million for 2025, $89 million for 2024, and $70 million for 2023. These amounts partially offset the costs of operating the Shared Assets Areas and are included in “Purchased services and rents.” Equity in Conrail’s earnings is included in “Other – net” within operating activities in the Consolidated Statements of Cash Flows.

K64

Investment in TTX

We and six other North American railroads collectively own TTX Company (TTX), a railcar pooling company that provides its owner-railroads with standardized fleets of intermodal, automotive, and general use railcars at stated rates. We have a 19.78% ownership interest in TTX.

Expenses incurred for use of TTX equipment are included in “Purchased services and rents.” This amounted to $316 million, $295 million, and $274 million, respectively, for the years ended December 31, 2025, 2024 and 2023. Our equity in TTX’s earnings partially offsets these costs and totaled $43 million for 2025, $48 million for 2024, and $47 million for 2023. Equity in TTX’s earnings is included in “Other – net” within operating activities in the Consolidated Statements of Cash Flows.

9. Properties


			Accumulated		Net Book		Depreciation
December 31, 2025	Cost		Depreciation		Value		Rate (1)
	($ in millions)

Land	$	4,172	$	—	$	4,172	—

Roadway:
Rail and other track material	8,702		(2,169)		6,533		2.48	%
Ties	6,694		(1,956)		4,738		3.33	%
Ballast	3,452		(1,069)		2,383		2.70	%
Construction in process	823		—		823		—
Other roadway	15,526		(4,934)		10,592		2.72	%
Total roadway	35,197		(10,128)		25,069

Equipment:
Locomotives	6,408		(2,348)		4,060		3.67	%
Freight cars	2,724		(1,018)		1,706		2.31	%
Computers and software	1,085		(491)		594		9.89	%
Construction in process	158		—		158		—
Other equipment	1,262		(554)		708		4.70	%
Total equipment	11,637		(4,411)		7,226

Other property	90		(78)		12		2.53	%

Total properties	$	51,096	$	(14,617)	$	36,479

K65


			Accumulated		Net Book		Depreciation
December 31, 2024	Cost		Depreciation		Value		Rate (1)
	($ in millions)

Land	$	4,125	$	—	$	4,125	—

Roadway:
Rail and other track material	8,402		(2,098)		6,304		2.44	%
Ties	6,450		(1,860)		4,590		3.35	%
Ballast	3,339		(1,005)		2,334		2.73	%
Construction in process	680		—		680		—
Other roadway	15,038		(4,589)		10,449		2.73	%
Total roadway	33,909		(9,552)		24,357

Equipment:
Locomotives	6,242		(2,180)		4,062		3.66	%
Freight cars	2,733		(1,021)		1,712		2.45	%
Computers and software	1,149		(570)		579		9.88	%
Construction in process	236		—		236		—
Other equipment	1,304		(558)		746		4.60	%
Total equipment	11,664		(4,329)		7,335

Other property	90		(76)		14		2.48	%

Total properties	$	49,788	$	(13,957)	$	35,831

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

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 current assets” includes $185 million pertaining to sales of property in 2025 in which the cash proceeds will be received in 2026.

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 CSR for $1.7 billion. We previously operated this line subject to an operating lease agreement, which was terminated upon the close of the transaction. Lease expense associated with the prior operating lease agreement totaled $5 million and $26 million in 2024 and 2023, respectively. 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.

Sales of Railway Lines

On September 5, 2024, we consummated a transaction with the VPRA to sell a railway line (“Manassas Line”) to support the expansion of passenger rail service in the Commonwealth of Virginia. The total purchase price to be paid by the VPRA is $357 million and we received $315 million in cash proceeds at closing. The remainder of the proceeds are expected to be received by the end of 2027. The total gain recognized as a result of the transaction was $323 million. Additionally, the VPRA also agreed to exchange a railway line (“V-Line”) in consideration for the

K66

land and above ground assets described as the “Seminary Passage.” This transaction closed in November 2024 and the gain recognized as a result of the transaction was $53 million.

On September 6, 2024, we consummated an agreement with the City of Charlotte to sell a railway line between Charlotte and Mecklenburg County, NC in exchange for $74 million. The cash proceeds from the transaction were received at closing and the transaction resulted in a gain of $57 million.

The gains from these transactions are reflected in “Gains and losses on properties” and cash proceeds are included in “Property sales and other transactions” on the Consolidated Statement of Cash Flows.

Capitalized Interest

Total interest cost incurred on debt was $821 million, $833 million, and $743 million during 2025, 2024, and 2023, respectively, of which $29 million, $26 million, and $21 million was capitalized during 2025, 2024, and 2023, respectively.

10. Current Liabilities


	December 31,
	2025		2024
	($ in millions)
Accounts payable:
Accounts and wages payable	$	1,083	$	985
Due to Conrail (Note 8)	297		243
Casualty and other claims (Note 19)	214		216
Vacation liability	152		146
Other	117		114

Total	$	1,863	$	1,704

Other current liabilities:
Current Eastern Ohio incident liability (Note 19)	$	609	$	585
Interest payable	199		204
Current operating lease liability (Note 12)	70		81
Pension benefit obligations (Note 14)	22		21
Other	65		58

Total	$	965	$	949

K67

11. Debt

Debt maturities are presented below:


	December 31,
	2025		2024
	($ in millions)
Notes and debentures, with weighted-average interest rates as of December 31, 2025:
4.19% maturing to 2030	$	3,030	$	3,580
4.28% maturing 2031 to 2035	2,684		2,284
4.28% maturing 2037 to 2064	10,847		10,847
5.22% maturing 2097 to 2121	1,384		1,384
Finance leases	18		13
Discounts, premiums, and debt issuance costs	(876)		(902)
Total debt	17,087		17,206

Less current maturities	(607)		(555)

Long-term debt excluding current maturities	$	16,480	$	16,651


Long-term debt maturities subsequent to 2026 are as follows:
2027	$	625
2028	602
2029	611
2030	600
2031 and subsequent years	14,042

Total	$	16,480

Under the terms of the Merger Agreement, we are subject to certain restrictions on incurring additional indebtedness.

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. Amounts under our accounts receivable securitization program are borrowed and repaid from time to time in the ordinary course for general corporate and cash management purposes. The term of our accounts receivable securitization program expires in May 2026. Amounts received under this facility are accounted for as borrowings. 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. Our accounts receivable securitization program was supported by $735 million and $790 million in receivables at December 31, 2025 and December 31, 2024, respectively, which are included in “Accounts receivable – net.”

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

K68

Credit Agreement and Debt Covenants

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 December 31, 2025 or December 31, 2024, and we are in compliance with all of its covenants.

12. Leases

We are committed under long-term lease agreements for equipment, lines of road, and other property. We combine lease and non-lease components for new and reassessed leases. Some of these agreements are variable lease agreements that include usage-based payments. These agreements contain payment provisions that depend on an index or rate, initially measured using the index or rate at the lease commencement date. Our long-term lease agreements do not contain any material restrictive covenants.

Our equipment leases have remaining terms of less than 1 year to 7 years and our lines of road and land leases have remaining terms of less than 1 year to 132 years. Some of these leases include options to extend the leases for up to 99 years and some include options to terminate the leases within 30 days. In instances when we are not reasonably certain to exercise these renewal options, the options are not considered in determining the lease term, and associated payments are excluded from future minimum lease payments.

Leases with an initial term of twelve months or less are not recorded on the balance sheet. We recognize lease expense for these leases on a straight-line basis over the lease term.

Operating lease amounts included on the Consolidated Balance Sheets are as follows:


		December 31,
		2025		2024
		($ in millions)
	Classification
Assets
Right-of-use (ROU) assets	Other assets	$	218	$	271

Liabilities
Current lease liabilities	Other current liabilities	$	70	$	81
Non-current lease liabilities	Other liabilities	148		191

Total lease liabilities		$	218	$	272

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


	2025		2024		2023
	($ in millions)

Operating lease expense	$	92	$	102	$	115
Variable lease expense	65		84		84
Short-term lease expense	8		10		15

Total lease expense	$	165	$	196	$	214

K69

In March 2019, we entered into a non-cancellable lease for an office building. In 2021, the construction of the office building was completed, and the lease commenced. The initial lease term is five years with options to renew, purchase, or sell the office building at the end of the lease term. The lease contains a residual value guarantee of up to eighty-three percent of the total construction cost of $499 million.

Other information related to operating leases is as follows:


	December 31,
	2025		2024

Weighted-average remaining lease term (years) on operating leases	6.83		6.64

Weighted-average discount rates on operating leases	4.05	%	3.96	%

As the rates implicit in most of our leases are not readily determinable, we use a collateralized incremental borrowing rate based on the information available at the lease commencement date in determining the present value of future payments. We use the portfolio approach and group leases into short-, medium-, and long-term categories, applying the corresponding incremental borrowing rates to these categories.

During 2025 and 2024, respectively, ROU assets obtained in exchange for new operating lease liabilities were $22 million and $21 million, respectively. Cash paid for amounts included in the measurement of lease liabilities was $92 million and $102 million in 2025 and 2024, respectively, and is included in operating cash flows.

Future minimum lease payments under non-cancellable operating leases are as follows:


	December 31, 2025
	($ in millions)

2026	$	77
2027	55
2028	39
2029	30
2030	9
2031 and subsequent years	43
Total lease payments	253
Less: Interest	35

Present value of lease liabilities	$	218

K70


	December 31, 2024
	($ in millions)

2025	$	89
2026	69
2027	47
2028	35
2029	27
2030 and subsequent years	47
Total lease payments	314
Less: Interest	42

Present value of lease liabilities	$	272

13. Other Liabilities


	December 31,
	2025		2024
	($ in millions)

Long-term advances from Conrail (Note 8)	$	534	$	534
Net pension obligations (Note 14)	255		252
Casualty and other claims (Note 19)	241		229
Non-current operating lease liability (Note 12)	148		191
Net other postretirement benefit obligations (Note 14)	125		133
Deferred compensation	78		90
Non-current Eastern Ohio incident liability (Note 19)	56		103
Other	286		228

Total	$	1,723	$	1,760

14. Pensions and Other Postretirement Benefits

We have both funded and unfunded defined benefit pension plans covering eligible employees. We also provide specified health care benefits to eligible retired employees; 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. 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.

K71

Pension and Other Postretirement Benefit Obligations and Plan Assets


	Pension Benefits				Other Postretirement Benefits
	2025		2024		2025		2024
	($ in millions)
Change in benefit obligations:
Benefit obligation at beginning of year	$	2,038	$	2,151	$	278	$	310
Service cost	24		26		3		4
Interest cost	107		107		14		15
Actuarial (gains) losses	80		(91)		17		(21)

Benefits paid	(155)		(155)		(31)		(32)
Curtailment	—		—		—		2
Benefit obligation at end of year	2,094		2,038		281		278

Change in plan assets:
Fair value of plan assets at beginning of year	2,551		2,503		145		138
Actual return on plan assets	347		181		19		21
Employer contributions	23		22		23		18
Benefits paid	(155)		(155)		(31)		(32)
Fair value of plan assets at end of year	2,766		2,551		156		145

Funded status at end of year	$	672	$	513	$	(125)	$	(133)

Amounts recognized in the Consolidated Balance Sheets:
Other assets	$	949	$	786	$	—	$	—
Other current liabilities	(22)		(21)		—		—
Other liabilities	(255)		(252)		(125)		(133)

Net amount recognized	$	672	$	513	$	(125)	$	(133)

Amounts included in accumulated other comprehensive
loss (before tax):
Net (gain) loss	$	395	$	488	$	(47)	$	(56)
Prior service benefit	(4)		(4)		(91)		(113)

Our accumulated benefit obligation for our defined benefit pension plans is $1.9 billion at both December 31, 2025 and 2024. Our unfunded pension plans, included above, which in all cases have no assets, had projected benefit obligations of $277 million and $273 million at December 31, 2025 and 2024, respectively, and had accumulated benefit obligations of $265 million and $256 million at December 31, 2025 and 2024, respectively.

K72

Pension and Other Postretirement Benefit Cost Components


	2025		2024		2023
	($ in millions)

Pension benefits:
Service cost	$	24	$	26	$	25
Interest cost	107		107		108
Expected return on plan assets	(196)		(203)		(208)
Amortization of net losses	22		17		4
Amortization of prior service benefit	—		(1)		(1)

Net benefit	$	(43)	$	(54)	$	(72)

Other postretirement benefits:
Service cost	$	3	$	4	$	4
Interest cost	14		15		17
Expected return on plan assets	(9)		(11)		(11)
Amortization of net gains	(2)		(1)		—
Amortization of prior service benefit	(22)		(23)		(26)
Curtailment gain	—		(20)		—

Net benefit	$	(16)	$	(36)	$	(16)

The service cost component of defined benefit pension cost and other postretirement benefit cost are reported within “Compensation and benefits” and all other components are presented in “Other income – net” on the Consolidated Statements of Income.

During 2024, we commenced voluntary and involuntary separation programs to reduce our nonagreement workforce. Through these programs, approximately 350 employees were separated from service by May 2024. In accordance with FASB ASC Topic 715, “Compensation-Retirement Benefits,” we evaluated whether a curtailment of our pension and other postretirement benefit plans had occurred. While the reduction in our workforce did not result in a curtailment to our pension benefit plans, a curtailment to our other postretirement benefit plan did occur as the future years of service of plan participants were reduced in excess of 10%. As a result, we recognized a curtailment gain of $20 million in 2024 for the impacted portion of the prior service benefit previously recorded within “Accumulated other comprehensive loss.”

K73

Other Changes in Plan Assets and Benefit Obligations Recognized in Other Comprehensive Income


	2025
	Pension Benefits		Other Postretirement Benefits
	($ in millions)

Net (gains) losses arising during the year	$	(71)	$	7
Amortization of net gains (losses)	(22)		2

Amortization of prior service benefit	—		22



Total recognized in other comprehensive income	$	(93)	$	31

Total recognized in net periodic cost and other comprehensive income	$	(136)	$	15

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

The estimated net losses and prior service credits for the pension plans that will be amortized from accumulated other comprehensive loss into net periodic cost over the next year are $17 million. The estimated prior service benefit and net gains for the other postretirement benefit plans that will be amortized from accumulated other comprehensive loss into net periodic benefit over the next year is $23 million.

Pension and Other Postretirement Benefits Assumptions

Costs for pension and other postretirement benefits are determined based on actuarial valuations that reflect appropriate assumptions as of the measurement date, ordinarily the beginning of each year. The funded status of the plans is determined using appropriate assumptions as of each year end. A summary of the major assumptions follows:


	2025		2024		2023
Pension funded status:
Discount rate	5.51	%	5.73	%	5.23	%
Future salary increases	4.44	%	4.44	%	4.44	%
Other postretirement benefits funded status:
Discount rate	5.10	%	5.52	%	5.11	%
Pension cost:
Discount rate - service cost	5.99	%	5.41	%	5.75	%
Discount rate - interest cost	5.40	%	5.10	%	5.40	%
Return on assets in plans	8.00	%	8.00	%	8.00	%
Future salary increases	4.44	%	4.44	%	4.44	%
Other postretirement benefits cost:
Discount rate - service cost	5.69	%	5.81	%	5.56	%
Discount rate - interest cost	5.25	%	5.58	%	5.23	%
Return on assets in plans	7.75	%	7.75	%	7.75	%
Health care trend rate	6.50	%	6.50	%	7.00	%

K74

To determine the discount rates used to measure our benefit obligations, we utilize analyses in which the projected annual cash flows from the pension and other postretirement benefit plans were matched with yield curves based on an appropriate universe of high-quality corporate bonds. We use the results of the yield curve analyses to select the discount rates that match the payment streams of the benefits in these plans.

We use a spot rate approach to estimate the service cost and interest cost components of net periodic benefit cost for our pension and other postretirement benefit plans.

Health Care Cost Trend Assumptions

For measurement purposes at December 31, 2025, increases in the per capita cost of pre-Medicare covered health care benefits were assumed to be 6.5% for 2026. We assume the rate will ratably decrease to an ultimate rate of 5.0% for 2034 and remain at that level thereafter.

Asset Management

Eight investment firms manage our defined benefit pension plan’s assets under investment guidelines approved by our Benefits Investment Committee that is composed of members of our management. Investments are restricted to domestic and international equity securities, domestic and international fixed income securities, and unleveraged exchange-traded options and financial futures. Limitations restrict investment concentration and use of certain derivative investments. The target asset allocation for equity is 75% of the pension plan’s assets. Fixed income investments must consist predominantly of securities rated investment grade or higher. Equity investments must be in liquid securities listed on national exchanges. No investment is permitted in our securities (except through commingled pension trust funds).

Our pension plan’s weighted-average asset allocations, by asset category, were as follows:


	Percentage of Plan Assets at December 31,
	2025		2024

Domestic equity securities	51	%	52	%
Debt securities	25	%	25	%
International equity securities	23	%	22	%
Cash and cash equivalents	1	%	1	%

Total	100	%	100	%

The other postretirement benefit plan assets consist primarily of trust-owned variable life insurance policies with an asset allocation at December 31, 2025 and at December 31, 2024 of 65% in equity securities and 35% in debt securities. The target asset allocation for equity is between 50% and 65% of the plan’s assets.

The plans’ assumed future returns are based principally on the asset allocations and historical returns for the plans’ asset classes determined from both actual plan returns and, over longer time periods, expected market returns for those asset classes. For 2026, we assume an 8.00% return on pension plan assets.

K75

Fair Value of Plan Assets

The following is a description of the valuation methodologies used for pension plan assets measured at fair value.

Common stock: Shares held by the plan at year end are valued at the official closing price as defined by the exchange or at the most recent trade price of the security at the close of the active market.

Common collective trusts: The readily determinable fair value is based on the published fair value per unit of the trusts. The common collective trusts hold equity securities, fixed income securities and cash and cash equivalents.

Fixed income securities: Valued based on quotes received from independent pricing services or at an estimated price at which a dealer would pay for the security at year end using observable market-based inputs.

Commingled funds: The readily determinable fair value is based on the published fair value per unit of the funds. The commingled funds hold equity securities.

Cash and cash equivalents: Short-term Treasury bills or notes are valued at an estimated price at which a dealer would pay for the security at year end using observable market-based inputs; money market funds are valued at the closing price reported on the active market on which the funds are traded.

The following table sets forth the pension plan’s assets by valuation technique level, within the fair value hierarchy. There were no level 3 valued assets at December 31, 2025 or 2024.


	December 31, 2025
	Level 1		Level 2		Total
	($ in millions)

Common stock	$	1,107	$	—	$	1,107
Common collective trusts:
Debt securities	—		675		675
Domestic equity securities	—		380		380
International equity securities	—		294		294
Commingled funds	—		280		280
Fixed income securities:


Government and agencies securities	—		4		4
Cash and cash equivalents	26		—		26


Total investments	$	1,133	$	1,633	$	2,766

K76


	December 31, 2024
	Level 1		Level 2		Total
	($ in millions)

Common stock	$	1,054	$	—	$	1,054
Common collective trusts:
Debt securities	—		637		637
International equity securities	—		362		362
Domestic equity securities	—		346		346
Commingled funds	—		123		123
Fixed income securities:



Government and agencies securities	—		4		4
Cash and cash equivalents	25		—		25


Total investments	$	1,079	$	1,472	$	2,551

The following is a description of the valuation methodologies used for other postretirement benefit plan assets measured at fair value.

Trust-owned life insurance: Valued at our interest in trust-owned life insurance issued by a major insurance company. The underlying investments owned by the insurance company consist of a U.S. stock account and a U.S. bond account but may retain cash at times as well. The U.S. stock account and U.S. bond account are valued based on readily determinable fair values.

The other postretirement benefit plan assets consisted of trust-owned life insurance with fair values of $156 million and $145 million at December 31, 2025 and 2024, respectively, and are valued under level 2 of the fair value hierarchy. There were no level 1 or level 3 valued assets.

Contributions and Estimated Future Benefit Payments

In 2026, we expect to contribute approximately $23 million to our unfunded pension plans for payments to pensioners and approximately $34 million to our other postretirement benefit plans for retiree health and death benefits. We do not expect to contribute to our funded pension plan in 2026.

Benefit payments, which reflect expected future service, as appropriate, are expected to be paid as follows:


	Pension Benefits		Other Postretirement Benefits
	($ in millions)

2026	$	153	$	34
2027	150		28
2028	148		27
2029	147		26
2030	147		25
Years 2031 – 2035	737		118

K77

Other Postretirement Coverage

Under collective bargaining agreements, Norfolk Southern and certain subsidiaries participate in a multi-employer benefit plan, which provides certain postretirement health care and life insurance benefits to eligible craft employees. Premiums under this plan are expensed as incurred and totaled $6 million, $9 million, and $11 million in 2025, 2024, and 2023, respectively.

Section 401(k) Plans

Norfolk Southern and certain subsidiaries provide Section 401(k) savings plans for employees. Under the plans, we match a portion of employee contributions, subject to applicable limitations. Our matching contributions, recorded as an expense, totaled $26 million in 2025, and $25 million in both 2024 and 2023.

15. Stock-Based Compensation

Under the stockholder-approved LTIP, the Human Capital Management and Compensation Committee (Committee), which is made up of nonemployee members of the Board, or the Chief Executive Officer (when delegated authority by such Committee), may grant stock options, stock appreciation rights (SARs), restricted stock units (RSUs), restricted shares, performance share units (PSUs), and performance shares, up to a maximum of 104,125,000 shares of our Common Stock, of which 6,942,153 remain available for future grants as of December 31, 2025.

The number of shares remaining for issuance under the LTIP is reduced (i) by 1 for each award granted as a stock option or stock-settled SAR, or (ii) by 1.61 for an award made in the form other than a stock option or stock-settled SAR. Under the Board-approved Thoroughbred Stock Option Plan (TSOP), the Committee may grant stock options up to a maximum of 6,000,000 shares of Common Stock. We use newly issued shares to satisfy any exercises and awards under the LTIP and the TSOP.

The LTIP also permits the payment, on a current or a deferred basis and in cash or in stock, of dividend equivalents on shares of Common Stock covered by stock options, RSUs, or PSUs in an amount commensurate with regular quarterly dividends paid on Common Stock. With respect to stock options, if employment of the participant is terminated for any reason, including retirement, disability, or death, we have no further obligation to make any dividend equivalent payments. Regarding RSUs, we have no further obligation to make any dividend equivalent payments unless employment of the participant is terminated as a result of qualifying retirement or disability. Should an employee terminate employment, they are not required to forfeit dividend equivalent payments already received. Outstanding PSUs do not receive dividend equivalent payments.

The Committee granted stock options, RSUs, and PSUs pursuant to the LTIP for the last three years as follows:


	2025			2024			2023
	Granted	Weighted- Average Grant-Date Fair Value		Granted	Weighted- Average Grant-Date Fair Value		Granted	Weighted- Average Grant-Date Fair Value
Stock options	80,067	$	87.33	107,620	$	77.38	69,580	$	77.60
RSUs	205,871	256.22		280,111	238.28		214,936	230.12
PSUs	66,636	296.61		64,990	258.60		59,200	236.16

Recipients of certain RSUs and PSUs pursuant to the LTIP who retire prior to December 31st will forfeit a portion of awards received in the current year. Receipt of certain LTIP awards is contingent on the recipient having executed a non-compete agreement with the company. Forfeitures are recognized as they occur.

K78

We account for our grants of stock options, RSUs, PSUs, and dividend equivalent payments in accordance with FASB ASC 718, “Compensation - Stock Compensation.” Accordingly, all awards result in charges to net income while dividend equivalent payments, which are all related to equity classified awards, are charged to retained income. Compensation cost for the awards is recognized on a straight-line basis over the requisite service period for the entire award. Related compensation costs and tax benefits during the years were:


	2025		2024		2023
	($ in millions)

Stock-based compensation expense	$	63	$	40	$	40
Total tax benefit	16		11		15

Stock Options

Option exercise prices will be at least the higher of (i) the average of the high and low prices at which Common Stock is traded on the grant date, or (ii) the closing price of Common Stock on the grant date. All options are subject to a vesting period of at least one year, and the term of the option will not exceed ten years. Holders of the options granted under the LTIP who remain actively employed receive cash dividend equivalent payments for three or four years in an amount equal to the regular quarterly dividends paid on Common Stock.

For all years prior to 2024, options granted under the LTIP and the TSOP may not be exercised prior to the fourth and third anniversaries of the date of grant, respectively, or if the optionee retires or dies before that anniversary date, may not be exercised before the later of one year after the grant date or the date of the optionee’s retirement or death. Beginning in 2024, a prorated portion of the total LTIP award will vest on the first anniversary of the grant date continuing annually through the fourth anniversary of the grant date.

The fair value of each option awarded was measured on the date of grant using the Black-Scholes valuation model. Expected volatility is based on implied volatility from traded options on, and historical volatility of, Common Stock. Historical data is used to estimate option exercises and employee terminations within the valuation model. Historical exercise data is used to estimate the average expected option term. The average risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant. A dividend yield of zero was used for the LTIP options during the vesting period. For 2025, 2024, and 2023, a dividend yield of 2.10%, 2.25%, and 2.24%, respectively, was used for the vested period during the remaining expected option term for LTIP options.

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


	2025		2024		2023


Average expected volatility	29	%	28	%	27	%
Average risk-free interest rate	4.39	%	3.93	%	3.54	%
Average expected option term	6.5 years		6.7 years		7.0 years

K79

A summary of changes in stock options is presented below:


	Stock Options	Weighted- Average Exercise Price

Outstanding at December 31, 2024	372,664	$	179.14
Granted	80,067	257.26
Exercised	(140,819)	119.62
Forfeited	(40)	104.23

Outstanding at December 31, 2025	311,872	226.08

The aggregate intrinsic value of options outstanding at December 31, 2025 was $20 million with a weighted-average remaining contractual term of 6.1 years. Of these options outstanding, 152,877 were exercisable and had an aggregate intrinsic value of $15 million with a weighted-average exercise price of $194.51 and a weighted-average remaining contractual term of 3.8 years.

The following table provides information related to options exercised for the last three years:


	2025		2024		2023
	($ in millions)

Options exercised	140,819		348,533		206,016
Total intrinsic value	$	20	$	46	$	27
Cash received upon exercise	17		41		19
Related tax benefits realized	4		8		6

At December 31, 2025, total unrecognized compensation related to options granted under the LTIP was $4 million, and is expected to be recognized over a weighted-average period of approximately 2.1 years.

Restricted Stock Units

RSUs granted primarily have three- and four-year ratable restriction periods and will be settled through the issuance of shares of Common Stock. Certain RSU grants include cash dividend equivalent payments during the restriction period in an amount equal to regular quarterly dividends paid on Common Stock. The fair value of each RSU was measured on the date of grant as the average of the high and low prices at which Common Stock is traded on the grant date, adjusted for the impact of dividend equivalent payments as applicable.


	2025		2024		2023
	($ in millions)

RSUs vested	183,396		171,620		157,417
Common Stock issued net of tax withholding	127,310		118,365		110,069
Related tax benefits realized	$	1	$	1	$	1

K80

A summary of changes in RSUs is presented below:


	RSUs	Weighted- Average Grant-Date Fair Value

Nonvested at December 31, 2024	468,869	$	240.80
Granted	205,871	256.22
Vested	(183,396)	242.47
Forfeited	(7,863)	242.04

Nonvested at December 31, 2025	483,481	246.71

At December 31, 2025, total unrecognized compensation related to RSUs was $51 million and is expected to be recognized over a weighted-average period of approximately 1.9 years.

Performance Share Units

PSUs provide for awards based on the achievement of certain predetermined corporate performance goals at the end of a three-year cycle and are settled through the issuance of shares of Common Stock. All PSUs will earn out based on the achievement of performance conditions and some will also earn out based on a market condition. The market condition fair value was measured on the date of grant using a Monte Carlo simulation model.


	2025		2024		2023
	($ in millions)

PSUs earned	8,540		41,580		58,599
Common Stock issued net of tax withholding	5,633		26,056		40,255
Related tax benefits realized	$	—	$	—	$	—

A summary of changes in PSUs is presented below:


	PSUs	Weighted- Average Grant-Date Fair Value

Balance at December 31, 2024	75,024	$	256.08
Granted	66,636	296.61
Earned	(8,540)	274.26
Unearned	(14,232)	274.26


Balance at December 31, 2025	118,888	275.32

At December 31, 2025, total unrecognized compensation related to PSUs granted under the LTIP was $6 million and is expected to be recognized over a weighted-average period of approximately 1.9 years.

K81

Shares Available and Issued

Shares of Common Stock available for future grants and issued in connection with all features of the LTIP and the TSOP at December 31, were as follows:


	2025	2024	2023
Available for future grants:
LTIP	6,942,153	7,438,613	7,731,573
TSOP	437,746	437,746	436,571
Shares issued during the year:
LTIP	236,986	444,189	315,700
TSOP	36,776	48,765	40,640

K82

16. Stockholders’ Equity

Common Stock

Common Stock is reported net of shares held by our consolidated subsidiaries (Treasury Shares). Treasury Shares at December 31, 2025 and 2024 amounted to 20,320,777, with a cost of $19 million at both dates.

Accumulated Other Comprehensive Loss

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


	Balance at Beginning of Year		Net Income		Reclassification Adjustments		Balance at End of Year
	($ in millions)
Year ended December 31, 2025

Pensions and other postretirement liabilities	$	(240)	$	49	$	(1)	$	(192)
Other comprehensive income of equity investees	(22)		4		—		(18)

Accumulated other comprehensive loss	$	(262)	$	53	$	(1)	$	(210)

Year ended December 31, 2024

Pensions and other postretirement liabilities	$	(292)	$	74	$	(22)	$	(240)
Other comprehensive income of equity investees	(28)		6		—		(22)

Accumulated other comprehensive loss	$	(320)	$	80	$	(22)	$	(262)

K83

Other Comprehensive Income

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


	Pretax Amount		Tax (Expense) Benefit		Net-of-Tax Amount
	($ in millions)
Year ended December 31, 2025
Net gain arising during the year:
Pensions and other postretirement benefits	$	64	$	(15)	$	49
Reclassification adjustments for costs included in net income	(2)		1		(1)

Subtotal	62		(14)		48

Other comprehensive income of equity investees	4		—		4

Other comprehensive income	$	66	$	(14)	$	52

Year ended December 31, 2024
Net gain arising during the year:
Pensions and other postretirement benefits	$	98	$	(24)	$	74
Reclassification adjustments for costs included in net income	(28)		6		(22)

Subtotal	70		(18)		52

Other comprehensive income of equity investees	7		(1)		6

Other comprehensive income	$	77	$	(19)	$	58

Year ended December 31, 2023
Net gain arising during the year:
Pensions and other postretirement benefits	$	59	$	(15)	$	44
Reclassification adjustments for costs included in net income	(23)		6		(17)

Subtotal	36		(9)		27

Other comprehensive income of equity investees	4		—		4

Other comprehensive income	$	40	$	(9)	$	31

K84

17. Stock Repurchase Programs

We repurchased and retired 2.2 million shares and 2.8 million shares of Common Stock under our stock repurchase programs in 2025 and 2023, respectively, at a cost of $533 million and $627 million, respectively, inclusive of accrued excise taxes. We did not repurchase any shares of Common Stock under our stock repurchase programs in 2024.

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

Common Stock beginning April 1, 2022. As of December 31, 2025, $6.3 billion remains authorized for repurchase. With limited exceptions, the Merger Agreement prohibits repurchases of our Common Stock without Union Pacific’s consent. As a result, we suspended share repurchases upon entering into the Merger Agreement.

18. Earnings Per Share

The following table sets forth the calculation of basic and diluted earnings per share:


	Basic						Diluted
	2025		2024		2023		2025		2024		2023
	($ in millions except per share amounts, shares in millions)

Net income	$	2,873	$	2,622	$	1,827	$	2,873	$	2,622	$	1,827
Dividend equivalent payments	(3)		(3)		(3)		(1)		(2)		(3)

Income available to common stockholders	$	2,870	$	2,619	$	1,824	$	2,872	$	2,620	$	1,824

Weighted-average shares outstanding	225.0		226.1		226.9		225.0		226.1		226.9
Dilutive effect of outstanding options
and share-settled awards							0.3		0.3		0.5
Adjusted weighted-average shares outstanding							225.3		226.4		227.4

Earnings per share	$	12.76	$	11.58	$	8.04	$	12.75	$	11.57	$	8.02

In each year, dividend equivalent payments were made to certain holders of stock options and RSUs. For purposes of computing basic earnings per share, dividend equivalent payments made to holders of stock options and RSUs were deducted from net income to determine income available to common stockholders. For purposes of computing diluted earnings per share, we evaluate on a grant-by-grant basis those stock options and RSUs receiving dividend equivalent payments under the two-class and treasury stock methods to determine which method is more dilutive for each grant. For those grants for which the two-class method was more dilutive, net income was reduced by dividend equivalent payments to determine income available to common stockholders. The dilution calculations exclude options having exercise prices exceeding the average market price of Common Stock as follows: 0.1 million for the years ended December 31, 2025, 2024, and 2023.

K85

19. Commitments and Contingencies

We and/or certain subsidiaries are subject to numerous lawsuits, inquiries, investigations and other claims and proceedings relating principally to railroad operations. In accordance with FASB ASC 450, “Contingencies,” when we conclude that it is probable that a liability has been incurred and the amount of the liability can be reasonably estimated, it is accrued through a charge to earnings and, if material, disclosed below. While the ultimate amount of liability incurred in any of these matters is dependent on future developments, in our opinion, the recorded liability is adequate to cover the future payment of such liabilities and claims. However, the final outcome of any of these matters cannot be predicted with certainty, and developments related to the progress of such matters or other unfavorable or unexpected developments or outcomes could result in additional costs or new or additionally accrued amounts that could be significant to financial position, results of operations, or liquidity in a particular year or quarter. Any adjustments to the recorded liability will be reflected in earnings in the periods in which such adjustments become known. If it is reasonably possible that we will incur losses in excess of the amounts currently recorded as a loss contingency, we disclose the potential range of loss, if reasonably estimable, or we disclose that we cannot reasonably estimate such an amount at this time. For loss contingency matters where a loss may be reasonably possible, but not probable, or is probable but not reasonably estimable, no accrual is established but the matter, if potentially material, is disclosed below.

We routinely review relevant information with respect to our lawsuits, inquiries, investigations and other claims and proceedings and update our accruals, disclosures and estimates of reasonably possible loss based on such reviews. Our estimates of probable losses and reasonably possible losses are based upon currently available information and involve significant judgment and a variety of assumptions, given that (1) certain 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.

Litigation Related to the Mergers

Shareholders have and may continue to file lawsuits challenging the Mergers, which may name us, Union Pacific, members of our Board, members of the Union Pacific board, or others as defendants. No assurance can be made as to the outcome of such lawsuits, including the amount of costs associated with defending claims or any other liabilities that may be incurred in connection with the litigation of any claims. If plaintiffs are successful in obtaining an injunction prohibiting the parties from completing the Mergers on the agreed-upon terms, such an injunction may delay the completion of the Mergers or may prevent the Mergers from being completed altogether.

We and Union Pacific have each received demand letters from certain purported shareholders of Norfolk Southern and Union Pacific, as applicable, that allege deficiencies and/or omissions in the registration statement on Form S-4 filed by Union Pacific with the SEC relating to the Mergers. In response to shareholder demand letters alleging deficiencies in the registration statement on Form S-4, we provided additional disclosure via Form 8-K filed on November 6, 2025, which clarified financial projections, board deliberations, and risk factors related to the Mergers. We believe that the allegations in these letters are without merit. There can be no assurances that complaints or additional demands will not be filed or made with respect to the Mergers. If additional similar demands are made, absent new or different allegations that are material, neither we nor Union Pacific will necessarily announce them.

Eastern Ohio Incident

Numerous legal actions have commenced with respect to the February 3, 2023 derailment of a train operated by us in East Palestine, Ohio, the associated fire, and the resulting vent and burn of the tank cars containing vinyl chloride on February 6, 2023 (the Incident), including those more specifically set forth below:

A consolidated putative class action is pending in the Northern District of Ohio (Eastern Division) (the Ohio Class Action) in which plaintiffs allege various claims, including negligence, gross negligence, strict

K86

liability, and nuisance, and seeking as relief compensatory and punitive damages, medical monitoring and business losses. On April 26, 2024, we entered into a class action settlement with the plaintiffs to resolve the Ohio Class Action for $600 million, and we made a partial payment of the settlement in 2024, in the amount of $315 million. On November 5, 2025, the U.S. Court of Appeals for the Sixth Circuit dismissed objectors’ appeals of the class action settlement. Under the class action settlement terms, payment of the remaining balance, including timing, is dependent upon resolution of any further appeals to the settlement.

On August 22, 2023, six Pennsylvania school districts and students filed a putative class action lawsuit in the Western District of Pennsylvania (the Pennsylvania Class Action) 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. On February 23, 2024, we and the other defendants filed motions to dismiss and those motions are fully briefed and currently pending before the court.
We are also named as a defendant in various other Incident-related lawsuits involving other potentially affected third parties, a number of which were filed in early 2025. We are continuing to assess the claims and their potential impact on the Company.
We have received securities and derivative lawsuits and multiple shareholder document and litigation demand letters:

◦A securities class action lawsuit under the Securities Exchange Act of 1934 (Exchange Act) was initially filed in the Southern District of Ohio alleging multiple securities law violations, but has since been transferred to the Northern District of Georgia. The plaintiffs filed an amended complaint on April 25, 2024 and the defendants filed a motion to dismiss on June 24, 2024. On March 24, 2025, the district court presiding over the Exchange Act lawsuit denied defendants' motion to dismiss and the Exchange Act lawsuit is now in discovery.

◦A securities class action lawsuit under the Securities Act of 1933 (Securities Act) was filed in the Southern District of New York alleging misstatements in association with our debt offerings. On February 27, 2025, the district judge granted defendants' motion to dismiss the Securities Act lawsuit in its entirety, and close the case, which plaintiffs appealed on March 28, 2025 to the U.S. Court of Appeals for the Second Circuit. The appeal was fully briefed as of October 31, 2025 and oral argument is scheduled for February 12, 2026.

◦Six shareholder derivative complaints were filed 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, among other claims (collectively, the Shareholder Derivative Matters). The Shareholder Derivative Matters were consolidated on July 10, 2025, by agreement of the parties. No responsive pleadings have been filed yet in the Shareholder Derivative Matters.

Incident accruals principally related to ongoing legal proceedings totaled $474 million and $444 million at December 31, 2025 and 2024, respectively, which includes the remaining payment of $285 million related to the Ohio Class Action.

In regards to the Incident, the 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 for alleged violations of the Clean Water Act (CWA) and cost recovery under the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA). The Ohio 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 were consolidated for discovery purposes. On May 23, 2024, the DOJ and the Company reached a settlement to resolve all of the government’s civil claims against the Company. The DOJ filed a motion on October 10, 2024 seeking entry of the Consent Decree, which motion remains pending before the Court. If approved, the Consent Decree will require the Company to pay a civil penalty

K87

of $15 million for alleged violations of the CWA, plus $57 million for the federal government’s oversight costs through November 30, 2023 as well as additional oversight costs from December 1, 2023 until the remediation is complete. Other provisions of the proposed Consent Decree relate to injunctive relief for safety, community support including medical and mental health programs, and environmental support, which provisions, if approved by the court, will be in effect between five years to twenty years. The Ohio AG did not join this settlement; we have filed an answer, and the litigation remains ongoing, in the Ohio AG case. Total Incident-related environmental liabilities related to ongoing environmental monitoring activities and regulatory oversight are $191 million and $244 million at December 31, 2025 and 2024, respectively.

With respect to the Incident, we have recognized approximately $1.1 billion in insurance recoveries (including $338 million, $650 million, and $101 million in 2025, 2024, and 2023, respectively), principally from excess liability (re)insurers. At December 31, 2025, no amounts were outstanding, while $18 million was outstanding at December 31, 2024 and is included in “Accounts receivable – net” on the Consolidated Balance Sheets. In 2025, we exhausted coverage under our liability insurance policies with respect to the Incident. With the exception of amounts that have been recognized, potential future recoveries under our property and other insurance coverage have not yet been recorded (given the insurers ongoing evaluation of our claims).

We are also subject to inquiries and investigations by numerous federal, state, and local government authorities and regulatory agencies regarding the Incident, including but not limited to, the FRA, the Occupational Safety and Health Administration, the Ohio Attorney General (AG), and the Pennsylvania AG. We are cooperating with all pending inquiries and investigations, including responding to civil and criminal subpoenas and other requests for information (the aforementioned inquiries and investigations, as well as the civil and criminal subpoenas are collectively referred to herein as the Incident Inquiries and Investigations).

The FRA examined railroad equipment, track conditions, hazardous materials train placement and routing, and emergency response (the FRA Incident Investigation), similar in scope to an investigation by the NTSB. The FRA Incident Investigation will likely result in the assessment of civil penalties, though the amount and materiality of these penalties cannot be reasonably estimated at this time.

Lawsuits

In 2007, various antitrust class actions filed against us and other Class I railroads in various federal district courts regarding fuel surcharges were consolidated in the District of Columbia by the Judicial Panel on Multidistrict Litigation. In 2012, the court certified the case as a class action. The defendant railroads appealed this certification, and the Court of Appeals for the D.C. Circuit vacated the District Court’s decision and remanded the case for further consideration. On October 10, 2017, the District Court denied class certification. The decision was upheld by the Court of Appeals on August 16, 2019. Since that decision, various individual cases have been filed in multiple jurisdictions and also consolidated in the District of Columbia. On June 24, 2025, the District Court granted summary judgment dismissing the consolidated cases in full. On July 24, 2025, a majority of plaintiffs appealed this ruling to the Court of Appeals for the D.C. Circuit. We intend to vigorously defend the cases through appeal and believe that we will prevail. However, given that litigation is inherently unpredictable and subject to uncertainties, there can be no assurances that the final resolution of the litigation will not be material. At this time, we cannot reasonably estimate the potential loss or range of loss associated with this matter.

Casualty Claims

Casualty claims include employee personal injury and occupational claims as well as third-party claims, all exclusive of legal costs. To aid in valuing our personal injury liability and determining the amount to accrue with respect to such claims during the year, we utilize studies prepared by an independent consulting actuarial firm. Job-related personal injury and occupational claims are subject to FELA, which is applicable only to railroads. 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

K88

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

Employee personal injury claims – The largest component of casualty claims expense not pertaining to the Incident is employee personal injury costs. We engage an independent actuarial firm to provide quarterly studies to aid in valuing our employee personal injury liability and estimating personal injury expense. The actuarial firm studies our historical patterns of reserving for claims and subsequent settlements, taking into account relevant outside influences. 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. The accuracy of our estimate of the liability is subject to inherent limitation given the difficulty of predicting future events such as jury decisions, court interpretations, or legislative changes. As a result, actual claim settlements may vary from the estimated liability recorded.

Occupational claims – Occupational claims include injuries and illnesses alleged to be caused by exposures which occur over time as opposed to injuries or illnesses caused by a specific accident or event. Types of occupational claims commonly seen allege exposure to asbestos and other claimed toxic substances resulting in respiratory diseases or cancer. Many such claims are being asserted by former or retired employees, some of whom have not been employed in the rail industry for decades. The independent actuarial firm provides an estimate of the occupational claims liability based upon our history of claim filings, severity, payments, and other pertinent facts. The liability is dependent upon judgments we make as to the specific case reserves as well as judgments of the actuarial firm in the quarterly studies. Our estimate of ultimate loss includes a provision for those claims that have been incurred but not reported. This provision is derived by analyzing industry data and projecting our experience. We adjust the liability quarterly based upon our assessment and the results of the study. However, it is possible that the recorded liability may not be adequate to cover the future payment of claims. Adjustments to the recorded liability are reflected in operating expenses in the periods in which such adjustments become known.

Third-party claims – We record a liability for third-party claims including those for highway crossing accidents, trespasser and other injuries, property damage, and lading damage. The actuarial firm assists us with the calculation of potential liability for third-party claims, except lading damage, based upon our experience including the number and timing of incidents, amount of payments, settlement rates, number of open claims, and legal defenses. We adjust the liability quarterly based upon our assessment and the results of the study. Given the inherent uncertainty in regard to the ultimate outcome of third-party claims, it is possible that the actual loss may differ from the estimated liability recorded.

Environmental Matters

We are subject to various jurisdictions’ environmental laws and regulations. In accordance with FASB ASC 410-30 “Environmental Liabilities,” we record a liability for environmental matters where such liability or loss is probable and reasonably estimable. 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 $63 million at December 31, 2025 and $65 million at December 31, 2024, of which $15 million is classified as a current liability at the end of both periods. At December 31, 2025, the liability represents our estimates of the probable cleanup, investigation, and remediation costs based on available information at 69 known locations and projects compared with 74 locations and projects at December 31, 2024. At December 31, 2025, eighteen sites accounted for $55 million of the liability, and no individual site was considered to be material. We anticipate that most of this liability will be paid out over five years; 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

K89

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.

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

The risk of incurring environmental liability for acts and omissions, past, present, and future, is inherent in the railroad business. Some of the commodities we transport, particularly those classified as hazardous materials, pose special risks that we work diligently to reduce. In addition, several of our subsidiaries own, or have owned, land used as operating property, or which is leased and operated by others, or held for sale. Because environmental problems that are latent or undisclosed may exist on these properties, there can be no assurance that we will not incur environmental liabilities or costs with respect to one or more of them, the amount and materiality of which cannot be estimated reliably at this time. Moreover, lawsuits and claims involving these and potentially other unidentified environmental sites and matters are likely to arise from time to time. The resulting liabilities could have a significant effect on financial position, results of operations, or liquidity in a particular year or quarter.

Based on our assessment of the facts and circumstances now known, we believe we have recorded the probable and reasonably estimable costs for dealing with those environmental matters of which we are aware. Further, we believe that it is unlikely that any known matters, either individually or in the aggregate, will have a material adverse effect on our financial position, results of operations, or liquidity.

Labor Agreements

Approximately 80% of our railroad employees are covered by collective bargaining agreements with various labor unions. Pursuant to the RLA, these agreements remain in effect until new agreements are reached, or until the bargaining procedures mandated by the RLA are completed. Moratorium provisions in the labor agreements govern when the railroads and unions may propose changes to the agreements. We largely bargain nationally in concert with other major railroads, represented by the NCCC.

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.

K90

Insurance

We purchase insurance covering legal liabilities for bodily injury and property damage to third parties. Our current liability insurance provides limits for approximately 83% of covered losses above $75 million and below $734 million per occurrence and/or policy year. Above $800 million per occurrence and/or policy year, we maintain approximately $57 million additional liability insurance limits for certain types of pollution releases. We also purchase insurance for property damage to property owned by us or in our care, custody, or control. Our property insurance provides limits for approximately 77% of covered losses above $75 million and below $275 million per occurrence and/or policy year.

Purchase Commitments

At December 31, 2025, we had outstanding purchase commitments totaling $2.0 billion through 2053 for locomotive modernizations, long-term technology support and development contracts, track material, and vehicles.

Change-In-Control and Retention Arrangements

We have compensation agreements with certain officers and key employees that become operative only upon a change in control of Norfolk Southern, as defined in those agreements. The agreements provide generally for payments based on compensation at the time of a covered individual’s involuntary or other specified termination and for certain other benefits. We have also entered into retention agreements with certain key employees to promote stability, maintain continuity of leadership and incentivize individuals to remain focused on our business and the successful completion of the Merger with Union Pacific.

Indemnifications

In a number of instances, we have agreed to indemnify lenders for additional costs they may bear as a result of certain changes in laws or regulations applicable to their loans. Such changes may include impositions or modifications with respect to taxes, duties, reserves, liquidity, capital adequacy, special deposits, and similar requirements relating to extensions of credit by, deposits with, or the assets or liabilities of such lenders. The nature and timing of changes in laws or regulations applicable to our financings are inherently unpredictable, and therefore our exposure in connection with the foregoing indemnifications cannot be quantified. No liability has been recorded related to these indemnifications.

K91

Previous: Item 7A. Quantitative and Qualitative Disclosures About Market Risk · Next: Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure