Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis should be read in conjunction with the Consolidated Financial Statements and Notes. Refer to Item 8 “Notes to Consolidated Financial Statements” for all “Note” references.
OVERVIEW
Since 1827, Norfolk Southern Corporation and its predecessor companies have safely moved the goods and materials that drive the U.S. economy. Our dedicated team members deliver a wide variety of commodities annually for our customers, from agriculture products to consumer goods, and help them reduce carbon emissions by shipping via rail. We have the most extensive intermodal network in the eastern U.S. Our network serves a majority of the country's population and manufacturing base, with connections to every major container port on the Atlantic coast as well as major ports in the Gulf Coast and Great Lakes.
Throughout 2025, we took deliberate actions to strengthen the Company and position it for long-term success. On July 28, 2025, we entered into a Merger Agreement with Union Pacific, marking a transformational step toward creating America’s first transcontinental railroad—an outcome we believe will unlock new opportunities for our customers, employees, and the broader U.S. economy. By integrating two complementary networks, the merged company will be positioned to deliver more efficient, reliable, and sustainable freight service across the nation. Details of the proposed transactions are further described in Note 2.
We also continued to make progress towards resolving environmental and legal matters resulting from the Incident (as defined further and described in Note 19) with insurance and other recoveries during 2025 exceeding incremental expenses. Safety continued to be a core value, and our relentless focus and intentional actions drove improvements in numerous safety metrics. Operational execution remained a key focus in 2025, with an emphasis on delivering high quality service while delivering notable improvements in labor productivity and fuel efficiency. Despite periods of macroeconomic uncertainty, growth in automotive and chemicals traffic, reflecting improved service and customer demand, drove merchandise revenues higher and led to a modest increase in overall volumes.
The combination of operational productivity, modest volume growth and favorable merchandise pricing were pivotal in driving earnings growth as compared to 2024. Although our financial results, as compared to the prior year, were significantly impacted by the absence of $433 million in gains on the sales of railway lines that occurred in 2024, we successfully monetized other properties that resulted in meaningful gains in the current year. For the full year, we achieved an operating ratio (a measure of the amount of operating revenues consumed by operating expenses) of 64.2%, and an adjusted operating ratio of 65.0% (see our non-GAAP reconciliations beginning on page K28). We remain committed to being a safe, productive, resilient, and efficient railroad with industry-competitive margins.
SUMMARIZED RESULTS OF OPERATIONS
($ in millions, except per share amounts)
(% change)
Railway operating revenues
Railway operating expenses
Income from railway operations
Net income
Diluted earnings per share
Railway operating ratio (percent)
Income from railway operations, net income, and diluted earnings per share increased in 2025 compared to 2024, the result of lower railway operating expense and higher railway operating revenues. The decrease in railway operating expense includes higher net recoveries related to the Incident in addition to lower expenses associated with restructuring activities. Partially offsetting those items were lower gains from the sales of railway lines and properties and expenses incurred in 2025 related to the proposed merger. The increase in railway operating revenues was driven by a combination of favorable traffic mix, which was partially offset by lower fuel surcharge revenue. Our railway operating ratio improved to 64.2 percent.
Income from railway operations, net income, and diluted earnings per share increased in 2024 compared to 2023, primarily a result of lower railway operating expenses. The reduction in our operating expenses included lower net expenses related to the Incident and $433 million of gains on the sale of railway lines. Railway operating revenues were slightly lower as decreased fuel surcharge revenue, an adverse mix of traffic, and decreased pricing were nearly offset by increased volumes. Our railway operating ratio improved to 66.4 percent.
The following tables adjust our 2025, 2024, and 2023 financial results as reported under U.S. Generally Accepted Accounting Principles (GAAP) financial results to exclude certain items. Adjusted 2025 financial results exclude Merger-related expenses, restructuring and other charges, and the overall impact on operating expenses resulting from costs and recoveries associated with the Incident. Adjusted 2024 financial results exclude gains on railway line sales, restructuring and other charges, costs and recoveries associated with the Incident, shareholder advisory costs, and a deferred tax adjustment. Adjusted 2023 financial results exclude the effects of the Incident. The income tax effects of these non-GAAP adjustments were calculated based on the applicable tax rates to which the non-GAAP adjustments related. We use these non-GAAP financial measures internally and believe this information provides useful supplemental information to investors to facilitate making period-to-period comparisons by excluding these items. While we believe that these non-GAAP financial measures are useful in evaluating our business, this information should be considered as supplemental in nature and is not meant to be considered in isolation from, or as a substitute for, the related financial information prepared in accordance with GAAP. In addition, these non-GAAP financial measures may not be the same as similar measures presented by other companies.
Non-GAAP Reconciliation for 2025
Reported
(GAAP)
Merger-Related Expenses
Restructuring and Other Charges
Eastern Ohio Incident
Adjusted
(non-GAAP)
($ in millions, except per share amounts)
Railway operating expenses
Income from railway operations
Net income
Diluted earnings per share
Railway operating ratio (percent)
Non-GAAP Reconciliation for 2024
Reported
(GAAP)
Gains on Railway Line Sales
Restructuring and Other Charges
Eastern Ohio Incident
Shareholder Advisory Costs
Deferred Income Tax Adjustment
Adjusted
(non-GAAP)
($ in millions, except per share amounts)
Railway
operating
expenses
Income from
railway
operations
Net income
Diluted earnings
per share
Railway
operating ratio
(percent)
Non-GAAP Reconciliation for 2023
Reported
(GAAP)
Eastern Ohio Incident
Adjusted
(non-GAAP)
($ in millions, except per share amounts)
Railway operating expenses
Income from railway operations
Net income
Diluted earnings per share
Railway operating ratio (percent)
In the table below, references to 2025, 2024, and 2023 results and related comparisons use the adjusted, non-GAAP results from the reconciliations in the preceding tables.
Adjusted (Non-GAAP)
($ in millions, except per share amounts)
(% change)
Railway operating expenses
Income from railway operations
Net income
Diluted earnings per share
Railway operating ratio (percent)
On an adjusted basis, income from railway operations in 2025 increased due to lower adjusted railway operating expenses and higher railway operating revenues, which drove improvements in net income, diluted earnings per share, and operating ratio. Railway operating revenues were higher driven by a combination of favorable traffic mix, which was partially offset by lower fuel surcharge revenue. Adjusted railway operating expenses were down over prior year as higher gains on operating property sales and lower fuel expense were partially offset by increased expenses associated with claims, materials, compensation and benefits, purchased services and equipment rents.
In 2024, on an adjusted basis, income from railway operations increased due to lower adjusted railway operating expenses, with lower fuel prices, decreased costs of purchased services, and lower other expenses contributing significantly to the overall decline, and more than offsetting the decline in revenue. Net income and diluted earnings per share were only up slightly compared to the prior year as lower other income-net and higher interest expense on debt offset the increase in income from railway operations.
DETAILED RESULTS OF OPERATIONS
Railway Operating Revenues
The following tables present a three-year comparison of revenues, volumes (units), and average revenue per unit by commodity group.
Revenues
($ in millions)
(% change)
Merchandise:
Agriculture, forest and consumer
products
Chemicals
Metals and construction
Automotive
Merchandise
Intermodal
Coal
Total
Units
(in thousands)
(% change)
Merchandise:
Agriculture, forest and consumer
products
Chemicals
Metals and construction
Automotive
Merchandise
Intermodal
Coal
Total
Revenue per Unit
($ per unit)
(% change)
Merchandise:
Agriculture, forest and consumer
products
Chemicals
Metals and construction
Automotive
Merchandise
Intermodal
Coal
Total
Revenues increased $57 million in 2025 but decreased $33 million in 2024 compared to the prior year. Revenues increased in 2025 as a result of improved average revenue per unit, driven by favorable traffic mix being partially offset by lower fuel surcharge revenues, and increased volume. Revenues decreased in 2024 as a result of lower average revenue per unit, driven by lower fuel surcharge revenue, adverse mix, and decreased pricing, partially offset by higher volume.
The table below reflects the components of the revenue change by major commodity group.
Increase (Decrease)
Increase (Decrease)
($ in millions)
Merchandise
Intermodal
Coal
Merchandise
Intermodal
Coal
Volume
Fuel surcharge
revenue
Rate, mix and
other
Total
Approximately 95% of our revenue base is covered by contracts that include negotiated fuel surcharges. Fuel surcharge revenues totaled $828 million, $962 million, and $1.2 billion in 2025, 2024, and 2023, respectively. The decline in fuel surcharge revenues in each comparison was primarily driven by fluctuations in fuel commodity prices.
MERCHANDISE revenues increased in both 2025 and 2024 compared with the prior years. In 2025, revenues increased as volume was higher and favorable pricing and mix more than offset lower fuel surcharge revenue. In 2024, revenues rose as volume was higher for all commodity groups and pricing gains more than offset lower fuel surcharge revenue.
Agriculture, forest and consumer products revenues increased in 2025 but decreased slightly in 2024 compared with the prior years. In 2025, the increase in revenues was the result of higher average revenue per unit due to favorable pricing and mix, offset partially by lower fuel surcharge revenue. Volume declined from the prior year, primarily related to corn and soybean shipments. Decreased corn volumes were the result of decreased demand for shipments to the southeast. Soybean volumes decreased due to lower export demand. In 2024, the decrease was the result of lower average revenue per unit driven by lower fuel surcharge revenue, partially offset by increased price, and increased volume. Increased volume in soybeans, corn, and feed were partially offset by lower volume in fertilizers and ethanol. Soybean volume increased due to spot opportunities. Increased corn and feed volumes were the result of customers shifting from truck to rail service to meet market demands. The decrease in fertilizer volume was driven by lower potash shipments due to customer operational issues and cost pressures. Ethanol volume declined primarily as a result of decreased demand.
Chemicals revenues increased in both 2025 and 2024 compared with the prior years. In 2025, the increase in revenues was driven by volume increases, partially offset by lower average revenue per unit due to adverse mix and lower fuel surcharge revenues. Natural gas liquids volume rose due to an increased demand for product bound for export markets. Sand volumes increased due to strong demand to support natural gas drilling. In 2024, the increase in revenues was driven by higher average revenue per unit driven by increased price, partially offset by lower fuel surcharge revenue, and volume growth. Solid waste and organic chemicals volume increased due to stronger demand. These increases were slightly offset by declines in crude oil and petroleum products. Volume declines in crude oil were due to a market share shift, while declines in petroleum were related to the conclusion of a spot opportunity handled last year to support a customer during a refinery outage.
Metals and construction revenues were higher in both 2025 and 2024 compared with the prior years. In 2025, the increase was driven by higher average revenue per unit due to favorable price and mix, partially offset by lower fuel surcharge revenue, with volumes down slightly. Increases in iron, steel, and scrap volume due to stronger demand were offset by weather-related impacts that negatively impacted shipments of aggregates. In 2024, the increase was driven by higher average revenue per unit due to favorable price, partially offset by lower fuel surcharge revenue, and higher volume. Increased volume was due to higher demand in aggregates, kaolin, miscellaneous construction, and scrap metal, partially offset by lower demand for coil steel shipments.
Automotive revenues rose in both 2025 and 2024 compared with the prior years. The increase in revenues in 2025 was driven by higher volume. Volume increases were driven by shippers increasing volume in response to tariff changes, growth with existing customers, and the absence of customer production issues experienced in the prior year. The increase in revenues in 2024 was driven by slightly higher average revenue per unit driven by increased price, partially offset by lower fuel surcharge revenue, and slightly higher volume. Volume increases were due to improvements in equipment availability and their cycle time paired with higher demand, mostly offset by reduced production and quality holds at certain manufacturers, and extended plant shutdowns.
INTERMODAL revenues decreased in both 2025 and 2024 compared with the prior years. The decrease in 2025 was the result of lower volumes, and, to a lesser extent, distribution network diversification by certain of our customers in connection with the Merger. Average revenue per unit was up slightly compared to 2024 with increased pricing being offset by lower fuel surcharge revenue and adverse mix. The decrease in 2024 was the result of lower average revenue per unit, driven by decreased pricing, lower fuel surcharge revenue, adverse mix, and declines in storage service revenues, partially offset by higher volume.
Intermodal units by market were as follows:
(units in thousands)
(% change)
Domestic
International
Total
Domestic volume decreased in 2025 but increased in 2024 compared with the prior years. In 2025, volume decreased due to reduced traffic originating on the West Coast, increased market competition, and reduced demand for premium shipments. In 2024, volume increased due to growth in new and existing customers and improved service, partially offset by reduced demand for premium shipments.
International volume was flat in 2025 and increased in 2024. Volume in 2025 was impacted by increased demand in the first half of the year in response to tariffs and growth with key customers, which was offset by lower imports and business losses in the second half of the year. The increase in 2024 was driven by increased demand, growth with existing customers, and increased movements of empty containers.
COAL revenues decreased in both 2025 and 2024 compared with the prior years. The decrease in 2025 was a result of lower average revenue per unit, driven by decreased pricing, adverse mix, and lower fuel surcharge revenue, partially offset by increased volume. The decrease in 2024 was a result of lower average revenue per unit, driven by decreased pricing and lower fuel surcharge revenue, partially offset by positive mix and increased volume.
As shown in the following table, total tonnage increased in 2025 and 2024 compared to prior years.
(tons in thousands)
(% change)
Utility
Export
Domestic metallurgical
Industrial
Total
Utility coal tonnage increased in 2025 but decreased in 2024 compared with the prior years. The increase in 2025 was due to higher electricity demand and higher natural gas prices. The decline in 2024 was due to reduced demand from continued low natural gas prices and high stockpiles.
Export coal tonnage declined in 2025 but increased in 2024 compared with the prior years. The decrease in 2025 was due to soft global demand and unfavorable seaborne coal pricing. The increase in 2024 was due to growth with our customers and increased production.
Domestic metallurgical coal tonnage decreased in both 2025 and 2024 compared with the prior years. The decrease in 2025 was due to a soft domestic market that resulted in idled facilities due to reduced customer demand. The decrease in 2024 was as a result of reduced customer demand.
Industrial coal tonnage increased in both 2025 and 2024 compared with the prior years. The growth in both years was due to higher demand.
Railway Operating Expenses
Railway operating expenses summarized by major classifications were as follows:
($ in millions)
(% change)
Compensation and benefits
Purchased services
Equipment rents
Fuel
Depreciation
Materials
Claims
Other
Merger-related expenses
Restructuring and other charges
Eastern Ohio incident
Total
n/m - not meaningful
In 2025, the decline in railway operating expenses reflects net recoveries related to the Incident (Note 19) and lower restructuring charges (Note 4), which were partially offset by lower gains from the sales of railway lines and properties (Note 9) and the incurrence of merger-related expenses (Note 2). In 2024, the decline in railway operating expenses reflects lower net expenses related to the Incident (Note 19), higher gains on operating property sales, including certain gains on railway line sales (Note 9), and lower fuel prices, partially offset by restructuring and other charges (Note 4), and increased depreciation on our higher asset base.
Compensation and benefits increased in 2025, reflecting changes in:
• incentive and stock-based compensation (up $154 million),
• pay rates (up $81 million),
• health and welfare benefits (down $41 million),
• employee activity levels (down $75 million), and
• other (down $20 million).
In 2024, compensation and benefits increased, a result of changes in:
• pay rates (up $91 million),
• incentive and stock-based compensation (up $56 million),
• overtime (down $37 million),
• employee activity levels (down $68 million), and
• other (down $38 million).
Our employment averaged 19,400 in 2025, compared with 20,200 in 2024, and 20,300 in 2023.
Purchased services includes the costs of services purchased from external vendors and contractors, including the net costs of operating joint facilities with other railroads. Purchased services increased in 2025 primarily due to higher response costs associated with weather events, higher derailment-related expenses (unrelated to the Incident), and increased intermodal lift costs. The decrease in purchased services in 2024 was due to lower lease costs and declines in technology-related and operational expenses, partially offset by higher volume-related expenses and Conrail-related activity.
Equipment rents , which includes our cost of using equipment (mostly freight cars) owned by other railroads or private owners less the rent paid to us for the use of our equipment, increased in both periods. In 2025, the increase was due to increased automotive equipment expense resulting from higher volumes. In 2024, the increase was due to increased automotive and intermodal equipment expenses as a result of higher volumes.
Fuel expense, which includes the cost of locomotive fuel as well as other fuel used in railway operations, decreased in both 2025 and 2024. The decrease in both periods was due to lower locomotive fuel prices (down 4% in 2025 and 15% in 2024), which decreased fuel expense by $35 million and $159 million in 2025 and 2024, respectively. Locomotive fuel consumption was down in 2025 and 2024 compared to prior periods. We consumed 366 million gallons of diesel fuel in 2025, compared with 373 million gallons in 2024 and 377 million gallons in 2023.
Depreciation expense increased in both periods compared to the prior years, reflecting reinvestment in our infrastructure, rolling stock, and technology.
Materials expense increased in both 2025 and 2024. The increase in 2025 was partly due to higher locomotive and freight car material consumption coupled with increased spend for other materials. The increase in 2024 was due to higher freight car repairs expense, partially offset by lower locomotive materials spending.
Claims expense includes costs related to personal injury, property damage, and environmental matters. Claims expense increased in 2025 but decreased in 2024 compared to the prior years. The increase in 2025 is the result of higher personal injury case development, increased expenses associated with environmental matters unrelated to the Incident, and higher insurance premiums. The decrease in 2024 is the result of lower personal injury case development and declines in lading and property damage expenses. These were partially offset by the absence of a prior-year claims-related recovery and higher insurance costs.
Other expense increased in 2025, primarily due to the absence of $433 million in gains from the sale of railway lines in the states of Virginia and North Carolina in 2024, but partially offset by gains on the sales of other operating properties and insurance proceeds pertaining to damages resulting from Hurricane Helene. Gains from operating property sales, inclusive of the railway line sales, amounted to $253 million, $490 million, and $43 million in 2025, 2024, and 2023, respectively. Other expense decreased in 2024 due to the aforementioned $433 million gains on railway line sales, as further described in Note 9, but also from lower non-income-based taxes as well as relocation and travel-related expenses.
Merger-related expenses in 2025 were $80 million and primarily relate to costs associated with employee retention agreements, third-party advisor fees, and legal fees.
Restructuring and other charges in 2025 totaled $22 million and includes expenses associated with the restructuring of certain technology functions, including severance costs for impacted employees, and the rationalization of certain software development projects that had not been placed into service. Restructuring and other charges totaled $183 million in 2024 and includes expenses associated with our voluntary and involuntary separation programs that reduced our management workforce, expenses associated with the rationalization of certain software development projects that had not been placed into service, costs associated with the appointment of our new chief operating officer, and the disposition of an asset class. See Notes 4 and 14 for additional information.
Eastern Ohio incident activity during 2025 reflected insurance and other recoveries that exceeded additional Incident-related expenses by $254 million. Insurance and other recoveries total $418 million in 2025. During 2024,
we incurred net expenses of $325 million associated with the Incident, including additional costs associated with environmental matters and legal proceedings. The total amount recorded in 2024 is net of $650 million of insurance recoveries, resulting from claims made under our insurance policies in effect at the time of the Incident. In 2025, net cash inflows attributable to the Incident were $249 million driven by insurance and other recoveries, while 2024 resulted in cash expenditures, net of insurance proceeds, of $119 million. The overall net cash impact attributable to the Incident is presented in “Net cash provided by operating activities” on the Consolidated Statements of Cash Flows. For further details regarding the Incident, see Note 19.
Other Income – Net
Other income – net increased in 2025 but decreased in 2024. The increase in 2025 reflects the absence of prior year shareholder advisory costs partially offset by the absence of a prior year curtailment gain and lower net pension and other postretirement benefits in the current year. The decrease in 2024 reflects costs associated with shareholder matters, lower returns on corporate-owned life insurance (COLI), and higher pension and other postretirement benefits expense, partially offset by a $20 million curtailment gain on our other postretirement benefit plan as a result of our voluntary and involuntary separation programs (Notes 4 and 14).
Income Taxes
The effective income tax rate was 21.6% in 2025, compared with 21.2% in 2024 and 21.3% in 2023. The rate for 2025 is higher than the previous year, mainly driven by state tax mix and other smaller items. While we recorded a $50 million state-related discrete tax item in 2025, other discrete benefits in 2024 did not recur. We recorded a $15 million deferred income tax benefit due to a change in a state corporate income tax rate and a $27 million deferred income tax benefit from subsidiary restructuring in 2024. The 2023 effective rate benefited from tax credits and higher COLI returns offset by reduced benefits from stock-based compensation.
On July 4, 2025, the One Big Beautiful Bill Act (OBBBA) was signed into law. The OBBBA makes permanent or introduces certain changes to the Internal Revenue Code, including 100% bonus depreciation, the deductibility of business interest expense, and expensing of domestic research costs. Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) 740 “ Income Taxes ” requires that the effect of changes in tax rates and laws be recognized in the period in which the legislation is enacted. The impact of this change is primarily a reclassification from current to deferred taxes.
For 2026, we expect an effective income tax rate between 23% and 24%.
FINANCIAL CONDITION, LIQUIDITY, AND CAPITAL RESOURCES
Cash provided by operating activities, our principal source of liquidity, was $4.4 billion in 2025, $4.1 billion in 2024, and $3.2 billion in 2023. The increases in 2025 and 2024 reflect improved operating results. We had negative working capital of $577 million at December 31, 2025 and $357 million at December 31, 2024. Cash and cash equivalents totaled $1.5 billion and $1.6 billion at December 31, 2025, and 2024, respectively. We expect that cash on hand combined with cash provided by operating activities will be sufficient to meet our ongoing obligations. In addition, we believe our currently-available borrowing capacity, access to additional financing, ability to reduce shareholder distributions, and ability to moderate or defer property additions provide additional flexibility to meet our ongoing obligations in the short- and long-term, subject to certain restrictions on incurring additional indebtedness under the Merger Agreement.
Contractual obligations at December 31, 2025, including those that may have material cash requirements, include interest on fixed-rate long-term debt, long-term debt (Note 11), unconditional purchase obligations (Note 19), long-term advances from Conrail Inc. (Conrail) (Note 8), operating leases (Note 12), agreements with Consolidated Rail Corporation (CRC) (Note 8), and unrecognized tax benefits (Note 6).
Total
2031 and
Subsequent
($ in millions)
Interest on fixed-rate long-term debt
Long-term debt principal
Unconditional purchase obligations
Long-term advances from Conrail
Operating leases
Agreements with CRC
Unrecognized tax benefits*
Total
* This amount is shown in the 2031 and Subsequent column because the year of settlement cannot be reasonably estimated.
Off balance sheet arrangements consist primarily of unrecognized obligations, including future interest payments on fixed-rate long-term debt and unconditional purchase obligations, which are included in the table above.
Cash used in investing activities was $2.6 billion in 2025, $2.8 billion in 2024, and $2.2 billion in 2023. The decrease in 2025 was driven by the prior year acquisition of the assets of the Cincinnati Southern Railway (CSR) and lower property additions in the current year, which was partially offset by the current year repayment of borrowings against our COLI policies that occurred in the prior year and lower proceeds from property sales and other transactions. In 2024, the increase was driven by the acquisition of the assets of the CSR, partially offset by higher borrowings against our COLI policies and increased proceeds from property sales. Please see Note 9 for additional details on certain railway line sales and a discussion of the acquisition of the CSR assets.
Capital spending and track and equipment statistics can be found within the “Railway Property” section of Part I of this report on Form 10-K. For 2026, we expect property additions to approximate $1.9 billion.
Cash used in financing activities was $1.9 billion in 2025 and $1.2 billion in 2024, while cash provided by financing activities was $115 million in 2023. The increase in cash used in financing activities in 2025 reflects increased repurchases of Common Stock and lower proceeds from borrowing, partially offset by lower debt repayments. In 2024, the increase in cash used in financing activities reflects lower proceeds from borrowing partially offset by the absence of repurchases of Common Stock.
In 2025, we repurchased and retired $534 million of Common Stock, inclusive of paid excise taxes, which resulted in the retirement of 2.2 million shares. While we did not repurchase any Common Stock in 2024, we repurchased and retired $622 million in 2023, which resulted in the retirement of 2.8 million shares. As of December 31, 2025, $6.3 billion remains authorized by our Board of Directors for repurchase. With limited exceptions, the Merger Agreement prohibits the Company from repurchasing shares of its Common Stock without approval by Union Pacific. As a result, the Company has suspended share repurchase activities.
In May 2025, we issued $400 million of 5.10% senior notes due 2035.
In May 2025, we renewed our accounts receivable securitization program with a maximum borrowing capacity of $400 million. 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. We had no amounts outstanding under this program and our available borrowing capacity was approximately $397 million and $400 million at December 31, 2025 and December 31, 2024, respectively.
In June 2024, we entered into an agreement that provides us the ability to issue up to $800 million of unsecured commercial paper and is backed by our credit agreement. The unsecured short-term commercial paper program provides for borrowing at prevailing rates and includes covenants. At both December 31, 2025 and December 31, 2024, we had no outstanding commercial paper.
In January 2024, we renewed and amended our $800 million credit agreement. 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.
In addition, we have investments in general purpose COLI policies and had the ability to borrow against these policies. We had no amounts borrowed against these policies at December 31, 2025 and $605 million borrowed against these policies on December 31, 2024. Our remaining borrowing capacity was $595 million and $40 million at December 31, 2025 and December 31, 2024, respectively.
Our debt-to-total capitalization ratio was 52.4% at December 31, 2025, compared with 54.6% at December 31, 2024. We discuss our credit agreement and our accounts receivable securitization program in Note 11. Upcoming annual debt maturities are also disclosed in Note 11. Overall, our goal is to maintain a capital structure with appropriate leverage to support our business strategy and provide flexibility through business cycles.
CRITICAL ACCOUNTING 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. These estimates and assumptions may require judgment about matters that are inherently uncertain, and future events are likely to occur that may require us to make changes to these estimates and assumptions. Accordingly, we regularly review these estimates and assumptions based on historical experience, changes in the business environment, and other factors we believe to be reasonable under the circumstances.
Incident Contingencies
We are currently involved in certain ongoing environmental monitoring activities and subject to numerous legal proceedings and regulatory inquiries and investigations relating to the Incident. We have accrued estimates of the probable and reasonably estimable costs for the resolution of these matters. Our environmental estimates are based upon the long-term monitoring activities that are currently anticipated and governmental oversight and other costs, amongst other factors. Estimates associated with the legal proceedings to which we are subject are based on information that is currently available, including but not limited to an assessment of the proceedings and the potential and likely results of such proceedings.
Our current estimates of the long-term monitoring liabilities related to the Incident may change over time due to various factors, including but not limited to, results from monitoring activities and the extent of governmental oversight, amongst other factors. Additionally, the final outcome of any of the legal proceedings and regulatory inquiries and investigations cannot be predicted with certainty, and developments related to the progress of such legal proceedings, inquiries, or investigations or other unfavorable or unexpected outcomes could result in additional costs or new or additionally accrued amounts that could be material to our results of operations in any
particular year. We have now completed recoveries under our liability insurance policies. Any additional amounts that are recoverable under other insurance policies or from third parties will be reflected in the period in which recovery is considered probable.
See Note 19 for more detailed information as it pertains to these contingencies.
Pensions and Other Postretirement Benefits
Accounting for pensions and other postretirement benefit plans requires us to make several estimates and assumptions (Note 14). These include the expected rate of return from investment of the plans’ assets and the expected retirement age of employees as well as their projected earnings and mortality. In addition, the amounts recorded are affected by changes in the interest rate environment because the associated liabilities are discounted to their present value. We make these estimates based on our historical experience and other information we deem pertinent under the circumstances (for example, expectations of future stock market performance). We utilize an independent actuarial consulting firm’s studies to assist us in selecting appropriate actuarial assumptions and valuing related liabilities.
For 2025, we assumed a long-term investment rate of return of 8.0%, which was supported by our long-term total rate of return on pension plan assets since inception, as well as our expectation of future returns. A one-percentage point decrease to this rate of return assumption would result in a $26 million increase in annual pension expense. We review assumptions related to our defined benefit plans annually, and while changes are likely to occur in assumptions concerning retirement age, projected earnings, and mortality, they are not expected to have a material effect on our net pension expense or net pension liability in the future. The net pension liability is recorded at net present value using discount rates that are based on the current interest rate environment in light of the timing of expected benefit payments. We utilize analyses in which the projected annual cash flows from the pension and postretirement benefit plans are 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. A one-percentage point decrease to this discount rate assumption would result in a $15 million increase in annual pension expense.
Properties and Depreciation
Most of our assets are long-lived railway properties (Note 9). “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. See Note 1 for a more detailed discussion of assumptions and estimates.
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. Costs related to repairs and maintenance activities that, in our judgment, do not extend an asset’s useful life or increase its utility are expensed when such repairs are performed.
Depreciation expense for 2025 totaled $1.4 billion. Our composite depreciation rates for 2025 are disclosed in Note 9; a one-year increase (or decrease) in the estimated average useful lives of depreciable assets would have resulted in an approximate $49 million decrease (or increase) to annual depreciation expense.
Personal Injury
Claims expense, included in “Materials and other” in the Consolidated Statements of Income, includes our estimate of costs for personal injuries.
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 actuarial consulting firm. The actuarial firm studies our historical patterns of reserving for claims and subsequent settlements, taking into account relevant outside influences. 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 and, as such, the ultimate loss sustained may vary from the estimated liability recorded.
See Note 19 for a more detailed discussion of the assumptions and estimates we use for personal injury.
Income Taxes
Our net deferred tax liability totaled $7.7 billion at December 31, 2025 (Note 6). This liability is estimated based on the expected future tax consequences of items recognized in the financial statements. After application of the federal statutory tax rate to book income, judgment is required with respect to the timing and deductibility of expenses in our income tax returns. For state income and other taxes, judgment is also required with respect to the apportionment among the various jurisdictions. A valuation allowance is recorded if we expect that it is more likely than not that deferred tax assets will not be realized. We have a $45 million valuation allowance on $412 million of deferred tax assets as of December 31, 2025, reflecting the expectation that substantially all of these assets will be realized.
OTHER MATTERS
Labor Agreements
Approximately 80% of our railroad employees are covered by collective bargaining agreements with various labor unions. Pursuant to the Railway Labor Act (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 National Carriers’ Conference Committee (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.
Market Risks
We manage overall exposure to fluctuations in interest rates by issuing both fixed- and floating- rate debt instruments. At December 31, 2025, we have no outstanding debt subject to interest rate fluctuations. Market risk for fixed-rate debt is estimated as the potential increase in fair value resulting from a one-percentage point decrease in interest rates as of December 31, 2025 and amounts to an increase of approximately $1.5 billion to the fair value of our debt at December 31, 2025. We consider it unlikely that interest rate fluctuations applicable to these instruments will result in a material adverse effect on our financial position, results of operations, or liquidity.
New Accounting Pronouncements
For a detailed discussion of new accounting pronouncements, see Note 1.
Inflation
In preparing financial statements, GAAP requires the use of historical cost that disregards the effects of inflation on the replacement cost of property. As a capital-intensive company, we have most of our capital invested in long-lived assets. The replacement cost of these assets, as well as the related depreciation expense, would be substantially greater than the amounts reported on the basis of historical cost.
FORWARD-LOOKING STATEMENTS
Certain statements in this report, including in Management’s Discussion and Analysis of Financial Condition and Results of Operations, are “forward-looking statements” within the meaning of the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995, as amended. These statements relate to future events or our future financial performance and involve known and unknown risks, uncertainties, and other factors that may cause our actual results, levels of activity, performance, or our achievements or those of our industry to be materially different from those expressed or implied by any forward-looking statements. In some cases, forward-looking statements can be identified by terminology such as “may,” “will,” “could,” “would,” “should,” “expect,” “plan,” “anticipate,” “intend,” “believe,” “estimate,” “project,” “consider,” “predict,” “potential,” “feel,” or other comparable terminology. We have based these forward-looking statements on our current expectations, assumptions, estimates, beliefs, and projections. While we believe these expectations, assumptions, estimates, beliefs, and projections are reasonable, such forward-looking statements are only predictions and involve known and unknown risks and uncertainties, many of which involve factors or circumstances that are beyond our control. The following important factors, including those discussed in Item 1A “Risk Factors,” may cause actual results, performance, or achievements to differ materially from those expressed or implied by these forward-looking statements:
• changes in domestic or international economic, political or business conditions, including those impacting the transportation industry;
• our ability to successfully implement our operational, productivity, and strategic initiatives;
• a significant adverse event on our network, including but not limited to a mainline accident, discharge of hazardous material, or climate-related or other network outage;
• the outcome of claims, litigation, governmental proceedings, and investigations involving the Company, including but not limited to the Incident Proceedings;
• new or additional governmental regulation and/or operational changes resulting from or related to the Incident or the Incident Proceedings;
• a significant cybersecurity incident or other disruption to our technology infrastructure;
• our ability to complete the Mergers with Union Pacific;
• the occurrence of any event, change or other circumstance that could give rise to the right of one or both of the Company or Union Pacific to terminate the Merger Agreement;
• the possibility that the Mergers do not close when expected or at all because required Surface Transportation Board review and approval, or other approvals and other conditions to close are not received or satisfied on a timely basis or at all (and the risk that such approvals may result in the imposition of conditions that could adversely affect the combined company or the expected benefits of the Mergers);
• the risk that the combined company will not realize expected benefits, cost savings, accretion, synergies and/or growth from the Mergers, or that such benefits may take longer to realize or be more costly to achieve than expected;
• disruption to the Company's business as a result of the announcement and pendency of the Mergers, including the restrictions contained in the Merger Agreement on the ability of the Company to operate its business outside the ordinary course during the pendency of the Mergers;
• the diversion of the Company's management's attention and time from ongoing business operations and opportunities on Merger-related items;
• the possibility that the Mergers may be more expensive to complete than anticipated, including as a result of unexpected factors or events; and
• the reputational risk and adverse reactions of customers (certain of whom have and may continue to diversify their distribution networks, including in response to actions by our competitors), suppliers,
employees, labor unions or other business partners, including those resulting from the announcement or completion of the Mergers.
The forward-looking statements herein are made only as of the date they were first issued, and unless otherwise required by applicable securities laws, we disclaim any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise.
Additional Information
Investors and others should note that we routinely use the Investor Relations, Performance Metrics and Sustainability sections of our website (norfolksouthern.investorroom.com/key-investor-information, norfolksouthern.investorroom.com/weekly-performance-reports & norfolksouthern.com/sustainability) to post presentations to investors and other important information, including information that may be deemed material to investors. Information about us, including information that may be deemed material, may also be announced by posts on our social media channels, including X (formerly known as Twitter) (x.com/nscorp) and LinkedIn (www.linkedin.com/company/norfolk-southern). We may also use our website and social media channels for the purpose of complying with our disclosure obligations under Regulation FD. As a result, we encourage investors, the media, and others interested in Norfolk Southern to review the information posted on our website and social media channels. The information posted on our website and social media channels is not incorporated by reference in this Annual Report on Form 10-K.
