NORFOLK SOUTHERN CORP

Norfolk Southern Corporation is an Atlanta, Georgia-based holding company principally engaged in the rail transportation of raw materials, intermediate products, and finished goods primarily in the Southeast, East, and Midwest, and via interchange with rail carriers to and from the rest of the United States. The company also transports overseas freight through several Atlantic and Gulf Coast ports and offers the most extensive intermodal network in the eastern half of the U.S. The railroad industry is subject to regulation by the Surface Transportation Board (STB), which has jurisdiction over rates, routes, customer access provisions, fuel surcharges, conditions of service, and the extension or abandonment of rail lines, as well as over the consolidation, merger, or acquisition of control of and by rail common carriers. Approximately 90% of the company's revenues come from either exempt shipments or shipments moving under transportation contracts, with the remainder from shipments moving under public tariff rates.

Norfolk Southern's primary rail competitor is CSX Corporation, as both companies operate throughout much of the same territory. The company also competes with motor carriers, water carriers, and with shippers who have the additional options of handling their own goods in private carriage, sourcing products from different geographic areas, and using substitute products. The company's competitive advantages include its extensive intermodal network in the eastern U.S. and its system that reaches many manufacturing plants, electric generating facilities, mines, distribution centers, transload facilities, and other businesses located in its service area.

Norfolk Southern generates revenue primarily through the rail transportation of raw materials, intermediate products, and finished goods. Transportation revenues are recognized proportionally as a shipment moves from origin to destination, and related expenses are recognized as incurred. Certain ancillary services, such as switching, demurrage, and other incidental activities, may be provided to customers under their transportation contracts, with revenues recognized when the services are performed or as contractual obligations are met. The company's predominant pricing mechanisms are private contracts and exempt price quotes, which are not subject to regulation, and market forces are the primary determinant of rail service prices.

The company's merchandise commodity group is composed of four groupings: Agriculture, forest and consumer products (including soybeans, wheat, corn, fertilizer, livestock and poultry feed, food products, food oils, flour, sweeteners, ethanol, lumber and wood products, pulp board and paper products, wood fibers, wood pulp, beverages, and canned goods); Chemicals (including sulfur and related chemicals, petroleum products including crude oil, chlorine and bleaching compounds, plastics, rubber, industrial chemicals, chemical wastes, sand, and natural gas liquids); Metals and construction (including steel, aluminum products, machinery, scrap metals, cement, aggregates, minerals, clay, transportation equipment, and items for the U.S. military); and Automotive (including finished motor vehicles and automotive parts). In 2025, the company handled 2.3 million merchandise carloads, which accounted for 63% of total railway operating revenues ¹. The intermodal commodity group consists of shipments moving in domestic and international containers and trailers, handled on behalf of intermodal marketing companies, international steamship lines, premium customers, and asset-owning companies. In 2025, the company handled 4.1 million intermodal units, which accounted for 25% of total railway operating revenues ². Coal revenues accounted for 12% of total railway operating revenues in 2025, with the company handling 78.0 million tons, or 0.7 million carloads, most of which originated on its lines from major eastern coal basins with the balance from major western coal basins received via the Memphis and Chicago gateways ³.

The company's coal franchise supports the electric generation market, directly serving 18 coal-fired power plants, as well as the export, domestic metallurgical, and industrial markets, primarily through direct rail and river, lake, and coastal facilities, including various terminals on the Ohio River, at Lamberts Point in Norfolk, Virginia, at the Port of Baltimore, at McDuffie Coal Terminal in Mobile, AL, and on Lake Erie. The company's intermodal 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.

On July 28, 2025, Norfolk Southern entered into an Agreement and Plan of Merger with Union Pacific Corporation, whereby Union Pacific will acquire the Company in a stock-and-cash transaction. At the effective time of the First Merger, each share of Common Stock will be converted into the right to receive one share of common stock of Union Pacific and $88.82 in cash without interest ⁴. The consummation of the Mergers is subject to certain conditions, including approval by the STB, and if the Merger Agreement is terminated under specific circumstances, either party is required to pay a termination fee of $2.5 billion ⁵. During 2025, the company incurred $80 million in expenses related to the proposed transaction ⁶. The company also repurchased and retired $534 million of Common Stock, inclusive of paid excise taxes, which resulted in the retirement of 2.2 million shares ⁷. As of December 31, 2025, $6.3 billion remains authorized for repurchase, though the company has suspended share repurchase activities due to restrictions in the Merger Agreement ⁸.

Total railway operating revenues were $12.180 billion in 2025, compared to $12.123 billion in 2024 and $12.156 billion in 2023 ⁹. Net income was $2.873 billion in 2025, compared to $2.622 billion in 2024 and $1.827 billion in 2023 ¹⁰. Diluted earnings per share were $12.75 in 2025, compared to $11.57 in 2024 and $8.02 in 2023 ¹¹. The railway operating ratio improved to 64.2% in 2025, compared to 66.4% in 2024 and 76.5% in 2023 ¹². Cash provided by operating activities was $4.361 billion in 2025, compared to $4.052 billion in 2024 and $3.179 billion in 2023 ¹³.

For 2026, the company expects property additions to approximate $1.9 billion ¹⁴. The company also expects an effective income tax rate between 23% and 24% for 2026 ¹⁵.

The company's growth strategy includes increasing the volume of shipments moving through its railway networks, reliant on the success of strategic plans and initiatives including marketing, service, growth, and productivity initiatives. The proposed merger with Union Pacific is described as a transformational step toward creating America's first transcontinental railroad, which management believes will unlock new opportunities for customers, employees, and the broader U.S. economy by integrating two complementary networks to deliver more efficient, reliable, and sustainable freight service across the nation.

The company's growth is also supported by its merchandise commodity groups. In 2025, merchandise revenues increased 3% to $7.684 billion, driven by volume growth in automotive (up 7%) and chemicals (up 6%), reflecting improved service and customer demand ¹⁶. The company's intermodal 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, providing a platform for future growth.

On an adjusted basis, the company achieved an adjusted operating ratio of 65.0% in 2025, compared to 65.8% in 2024 and 67.4% in 2023 ¹⁷. The company remains committed to being a safe, productive, resilient, and efficient railroad with industry-competitive margins. Adjusted railway operating expenses were down 1% over the 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 ¹⁸.

The company expects to contribute approximately $23 million to its unfunded pension plans for payments to pensioners and approximately $34 million to its other postretirement benefit plans for retiree health and death benefits in 2026 ¹⁹. The company does not expect to contribute to its funded pension plan in 2026 ²⁰. For 2026, the company assumes an 8.00% return on pension plan assets ²¹.

Capital spending for 2026 is expected to approximate $1.9 billion ²². As of December 31, 2025, $6.3 billion remains authorized by the Board of Directors for share repurchase, though the company has suspended share repurchase activities due to restrictions in the Merger Agreement ²³. The company's goal is to maintain a capital structure with appropriate leverage to support its business strategy and provide flexibility through business cycles.

The company faces headwinds from macroeconomic uncertainty, which impacted periods of 2025, though growth in automotive and chemicals traffic drove merchandise revenues higher. The company also faces risks from changes in domestic and international economic conditions, including reduced import and export volumes, which could affect the producers and consumers of the freight it carries. Recessionary economic cycles and downturns in customers' business cycles, especially in market segments and industries where the company has a significant concentration of customers, may substantially reduce volumes and lead to excess capacity in the industry, resulting in pressure on rates.

The company faces constraints from the pending merger with Union Pacific, which is subject to conditions including receipt of the requisite regulatory approvals, making the completion and timing thereof uncertain. The company is subject to certain restrictions on the conduct of its business prior to completing the first Merger, which may adversely affect its ability to execute certain business strategies, including the ability in certain cases to enter into or amend contracts, acquire or dispose of assets, incur indebtedness, incur capital expenditures, settle litigation, amend organizational documents, declare dividends, enter new business lines, and invest in third parties. Additionally, some customers have or may delay or defer certain business decisions or terminate, change, or renegotiate their relationships with the company as a result of the Mergers or responsive actions taken by competitors.

The company faces significant risks related to the Eastern Ohio Incident, which occurred on February 3, 2023, and has resulted in numerous legal, regulatory, legislative, and other proceedings. The costs, liabilities, fines, and penalties related to the Incident have been significant, with the company recording net expenses of $325 million in 2024 and net recoveries of $254 million in 2025, and the company cannot predict the final outcome or estimate the reasonably possible range of loss with certainty ²⁴. The company is subject to extensive federal, state, and local environmental laws and regulations, and the risk of incurring environmental liability is inherent in the railroad business, with the company having accrued $609 million in current and $56 million in non-current liabilities for the Eastern Ohio Incident at December 31, 2025 ²⁵. The company faces risks from the pending merger with Union Pacific, including the possibility that the Mergers may not be completed due to failure to obtain requisite regulatory approvals, including STB approval, which could result in the company owing a termination fee of $2.5 billion ²⁶. The company is subject to competition from other transportation providers, including motor carriers, railroads, and to a lesser extent, ships, barges, and pipelines, and any future improvements or regulation changing the efficiency or cost of alternative modes could have a material adverse effect on the company's ability to compete. The company faces risks from a significant cybersecurity incident or other disruption to its technology infrastructure, as the company extensively relies on information and operational technology systems, and the threat landscape is vast with potential attacks from cybercriminals, nation-states, and state-sponsored actors.

Management's message emphasizes that throughout 2025, the company took deliberate actions to strengthen the Company and position it for long-term success, including entering into the Merger Agreement with Union Pacific on July 28, 2025, which management describes as a transformational step toward creating America's first transcontinental railroad. Management highlights that safety continued to be a core value, with relentless focus and intentional actions driving 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. Management notes that despite periods of macroeconomic uncertainty, growth in automotive and chemicals traffic 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. Management states that the company remains committed to being a safe, productive, resilient, and efficient railroad with industry-competitive margins. For 2026, management expects property additions to approximate $1.9 billion and an effective income tax rate between 23% and 24% ²⁷.