Norfolk Southern 10-Q 2024-06-30

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2024

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ___________ to___________

Commission File Number: 1-8339

NORFOLK SOUTHERN CORPORATION

(Exact name of registrant as specified in its charter)

Virginia						52-1188014
(State or other jurisdiction of incorporation or organization)						(I.R.S. Employer Identification No.)

650 West Peachtree Street NW						30308-1925
Atlanta,			Georgia
(Address of principal executive offices)						(Zip Code)
(855)						667-3655
(Registrant’s telephone number, including area code)

No change
(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class			Trading Symbol			Name of each exchange on which registered
Norfolk Southern Corporation Common Stock (Par Value $1.00)			NSC			New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ☒ Accelerated filer ☐ Non-accelerated filer ☐ Smaller reporting company ☐ Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Class						Outstanding at June 30, 2024
Common Stock ($1.00 par value per share)						226,096,433			(excluding 20,320,777 shares held by the registrant’s
						consolidated subsidiaries)

TABLE OF CONTENTS

NORFOLK SOUTHERN CORPORATION AND SUBSIDIARIES

						Page
Part I.			Financial Information:
			Item 1.			Financial Statements:
						Consolidated Statements of Income Second Quarter and First Six Months of 2024 and 2023			3
						Consolidated Statements of Comprehensive Income Second Quarter and First Six Months of 2024 and 2023			4
						Consolidated Balance Sheets At June 30, 2024 and December 31, 2023			5
						Consolidated Statements of Cash Flows First Six Months of 2024 and 2023			6
						Consolidated Statements of Changes in Stockholders’ Equity Second Quarter and First Six Months of 2024 and 2023			7
						Notes to Consolidated Financial Statements			9
			Item 2.			Management’s Discussion and Analysis of Financial Condition and Results of Operations			26
			Item 3.			Quantitative and Qualitative Disclosures About Market Risk			36
			Item 4.			Controls and Procedures			36
Part II.			Other Information:
			Item 1.			Legal Proceedings			38
			Item 1A.			Risk Factors			38
			Item 2.			Unregistered Sales of Equity Securities, Use of Proceeds, and Issuer Purchases of Equity Securities			38
			Item 3.			Defaults Upon Senior Securities			38
			Item 4.			Mine Safety Disclosures			38
			Item 5.			Other Information			38
			Item 6.			Exhibits			39
						Signatures			40

PART I. FINANCIAL INFORMATION

Norfolk Southern Corporation and Subsidiaries

Consolidated Statements of Income

(Unaudited)

			Second Quarter												First Six Months
			2024						2023						2024						2023
			($ in millions, except per share amounts)
Railway operating revenues			$	3,044					$	2,980					$	6,048					$	6,112
Railway operating expenses
Compensation and benefits			700						693						1,436						1,383
Purchased services and rents			516						506						1,044						1,002
Fuel			257						263						541						578
Depreciation			335						321						672						642
Materials and other			173						205						388						417
Restructuring and other charges			(3)						—						96						—
Eastern Ohio incident			(65)						416						527						803
Total railway operating expenses			1,913						2,404						4,704						4,825
Income from railway operations			1,131						576						1,344						1,287
Other income – net			17						57						35						113
Interest expense on debt			204						170						405						345
Income before income taxes			944						463						974						1,055
Income taxes			207						107						184						233
Net income			$	737					$	356					$	790					$	822
Earnings per share
Basic			$	3.26					$	1.56					$	3.49					$	3.61
Diluted			3.25						1.56						3.48						3.60

See accompanying notes to consolidated financial statements.

Norfolk Southern Corporation and Subsidiaries

Consolidated Statements of Comprehensive Income

(Unaudited)

			Second Quarter												First Six Months
			2024						2023						2024						2023
			($ in millions)
Net income			$	737					$	356					$	790					$	822
Other comprehensive loss, before tax:
Pension and other postretirement expense			(11)						(6)						(13)						(11)
Other comprehensive income of equity investees			1						1						1						—
Other comprehensive loss, before tax			(10)						(5)						(12)						(11)
Income tax benefit related to items of other
comprehensive loss			2						1						2						3
Other comprehensive loss, net of tax			(8)						(4)						(10)						(8)
Total comprehensive income			$	729					$	352					$	780					$	814

See accompanying notes to consolidated financial statements.

Norfolk Southern Corporation and Subsidiaries

Consolidated Balance Sheets

(Unaudited)

			June 30, 2024						December 31, 2023
			($ in millions)
Assets
Current assets:
Cash and cash equivalents			$	659					$	1,568
Accounts receivable – net			1,189						1,147
Materials and supplies			308						264
Other current assets			148						292
Total current assets			2,304						3,271
Investments			3,812						3,839
Properties less accumulated depreciation of $13,630
and $13,265, respectively			35,280						33,326
Other assets			1,162						1,216
Total assets			$	42,558					$	41,652
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable			$	1,535					$	1,638
Short-term debt			400						—
Income and other taxes			208						262
Other current liabilities			1,269						728
Current maturities of long-term debt			255						4
Total current liabilities			3,667						2,632
Long-term debt			16,937						17,175
Other liabilities			1,747						1,839
Deferred income taxes			7,228						7,225
Total liabilities			29,579						28,871
Stockholders’ equity:
Common stock $1.00 per share par value, 1,350,000,000

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Norfolk Southern Corporation and Subsidiaries

The following discussion and analysis should be read in conjunction with the Consolidated Financial Statements and Notes.

OVERVIEW

We are one of the nation’s premier transportation companies, moving goods and materials that help drive the U.S. economy. We connect customers to markets and communities to economic opportunity with safe, reliable, and cost-effective shipping solutions. Our Norfolk Southern Railway Company subsidiary operates in 22 states and the District of Columbia. We are a major transporter of industrial products, including agriculture, forest and consumer products, chemicals, and metals and construction materials. In addition, in the East we serve every major container port and operate the most extensive intermodal network. We are also a principal carrier of coal, automobiles, and automotive parts.

Throughout the first half of 2024, we have executed on initiatives aimed at delivering a high-quality service product for our customers, increasing productivity, and improving our operating margins. We have enhanced our leadership team to accelerate operational improvements and restructured our management workforce to become a more productive organization. We also continued to deliver on our commitments to respond to the Eastern Ohio Incident (as defined further and described in Note 13 in the Notes to Consolidated Financial Statements) and make it right for the affected communities. In the second quarter, we improved our operating ratio (a measure of the amount of operating revenues consumed by operating expenses), achieving an operating ratio of 62.8% and an adjusted operating ratio of 65.1% (see our non-GAAP reconciliations beginning on page 26). We remain committed to being a more productive, resilient, and efficient railroad while achieving industry-competitive margins.

SUMMARIZED RESULTS OF OPERATIONS

			Second Quarter																		First Six Months
			2024						2023						% change						2024						2023						% change
			($ in millions, except per share amounts)
Railway operating revenues			$	3,044					$	2,980					2%						$	6,048					$	6,112					(1%)
Railway operating expenses			$	1,913					$	2,404					(20%)						$	4,704					$	4,825					(3%)
Income from railway operations			$	1,131					$	576					96%						$	1,344					$	1,287					4%
Net income			$	737					$	356					107%						$	790					$	822					(4%)
Diluted earnings per share			$	3.25					$	1.56					108%						$	3.48					$	3.60					(3%)
Railway operating ratio (percent)			62.8						80.7						(22%)						77.8						78.9						(1%)

Income from railway operations increased in both periods, primarily as a result of lower railway operating expenses, including a decline in Incident-related costs. Second quarter 2024 financial results also reflect higher railway operating revenues, driven by increased volumes. As a result, net income and diluted earnings per share were up significantly in the second quarter. For the first six months of 2024, net income and diluted earnings per share declined, as lower other income-net, which includes costs associated with shareholder advisory matters, and higher interest expense more than offset the growth in income from railway operations.

The following tables adjust our GAAP financial results for the second quarter and first six months of 2024 and 2023 to exclude the effects of the Incident, restructuring and other charges (including the curtailment gain on our other postretirement benefit plan, which is included in “Other income – net”), shareholder advisory costs, and a deferred income tax adjustment. 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 Second Quarter 2024
			Reported 2024 (GAAP)						Eastern Ohio Incident						Restructuring and Other Charges						Shareholder Advisory Costs												Adjusted 2024 (non-GAAP)
			($ in millions, except per share amounts)
Railway operating expenses			$	1,913					$	65					$	3					$	—											$	1,981
Income from railway operations			$	1,131					$	(65)					$	(3)					$	—											$	1,063
Net income			$	737					$	(49)					$	(16)					$	22											$	694
Diluted earnings per share			$	3.25					$	(0.22)					$	(0.07)					$	0.10											$	3.06
Railway operating ratio (percent)			62.8						2.2						0.1						—												65.1

			Non-GAAP Reconciliation for Second Quarter 2023
			Reported 2023 (GAAP)						Eastern Ohio Incident						Adjusted 2023 (non-GAAP)
			($ in millions, except per share amounts)
Railway operating expenses			$	2,404					$	(416)					$	1,988
Income from railway operations			$	576					$	416					$	992
Net income			$	356					$	317					$	673
Diluted earnings per share			$	1.56					$	1.39					$	2.95
Railway operating ratio (percent)			80.7						(14.0)						66.7

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

			Second Quarter
			Adjusted 2024 (non-GAAP)						Adjusted 2023 (non-GAAP)						Adjusted 2024 vs. Adjusted 2023 (non-GAAP)
			($ in millions, except per share amounts)												% change
Railway operating expenses			$	1,981					$	1,988					—%
Income from railway operations			$	1,063					$	992					7%
Net income			$	694					$	673					3%
Diluted earnings per share			$	3.06					$	2.95					4%
Railway operating ratio (percent)			65.1						66.7						(2%)

			Non-GAAP Reconciliation for First Six Months 2024
			Reported 2024 (GAAP)						Eastern Ohio Incident						Restructuring and Other Charges						Shareholder Advisory Costs						Deferred Income Tax Adjustment						Adjusted 2024 (non-GAAP)
			($ in millions, except per share amounts)
Railway operating expenses			$	4,704					$	(527)					$	(96)					$	—					$	—					$	4,081
Income from railway operations			$	1,344					$	527					$	96					$	—					$	—					$	1,967
Net income			$	790					$	399					$	59					$	38					$	(27)					$	1,259
Diluted earnings per share			$	3.48					$	1.77					$	0.26					$	0.17					$	(0.12)					$	5.56
Railway operating ratio (percent)			77.8						(8.7)						(1.6)						—						—						67.5

			Non-GAAP Reconciliation for First Six Months 2023
			Reported 2023 (GAAP)						Eastern Ohio Incident						Adjusted 2023 (non-GAAP)
			($ in millions, except per share amounts)
Railway operating expenses			$	4,825					$	(803)					$	4,022
Income from railway operations			$	1,287					$	803					$	2,090
Net income			$	822					$	610					$	1,432
Diluted earnings per share			$	3.60					$	2.67					$	6.27
Railway operating ratio (percent)			78.9						(13.1)						65.8

In the table below, references to the results for the first six months of 2024 and 2023 and related comparisons use the adjusted, non-GAAP results from the reconciliation in the tables above.

			First Six Months
			Adjusted 2024 (non-GAAP)						Adjusted 2023 (non-GAAP)						Adjusted 2024 vs. Adjusted 2023 (non-GAAP)
			($ in millions, except per share amounts)												% change
Railway operating expenses			$	4,081					$	4,022					1%
Income from railway operations			$	1,967					$	2,090					(6%)
Net income			$	1,259					$	1,432					(12%)
Diluted earnings per share			$	5.56					$	6.27					(11%)
Railway operating ratio (percent)			67.5						65.8						3%

On an adjusted basis, income from railway operations increased in the second quarter but decreased for the first six months. The increase in the second quarter was primarily driven by higher railway operating revenues, due to an increase in volume. For the first six months, the decline in adjusted income from railway operations was due to lower revenues and higher adjusted railway operating expenses. Revenue declined for the first six months, despite higher volume, as a result of adverse mix of traffic, lower fuel surcharge revenues, and lower intermodal storage revenues. Adjusted railway operating expenses were higher as a result of increases in compensation and benefits, purchased services, and depreciation, partially offset by lower fuel, claims, and other expenses.

DETAILED RESULTS OF OPERATIONS

Railway Operating Revenues

The following tables present a comparison of revenues ($ in millions), units (in thousands), and average revenue per unit ($ per unit) by commodity group.

			Second Quarter																		First Six Months
Revenues			2024						2023						% change						2024						2023						% change
Merchandise:
Agriculture, forest and consumer products			$	622					$	627					(1%)						$	1,251					$	1,280					(2%)
Chemicals			532						503						6%						1,059						1,044						1%
Metals and construction			440						415						6%						870						815						7%
Automotive			310						281						10%						587						565						4%
Merchandise			1,904						1,826						4%						3,767						3,704						2%
Intermodal			742						745						—%						1,487						1,559						(5%)
Coal			398						409						(3%)						794						849						(6%)
Total			$	3,044					$	2,980					2%						$	6,048					$	6,112					(1%)

Units
Merchandise:
Agriculture, forest and consumer products			181.2						187.7						(3%)						365.3						375.4						(3%)
Chemicals			130.1						126.7						3%						260.6						262.8						(1%)
Metals and construction			167.9						161.7						4%						328.5						315.1						4%
Automotive			97.2						90.6						7%						185.5						178.7						4%
Merchandise			576.4						566.7						2%						1,139.9						1,132.0						1%
Intermodal			1,003.5						925.4						8%						1,992.3						1,842.2						8%
Coal			162.9						165.5						(2%)						330.0						339.3						(3%)
Total			1,742.8						1,657.6						5%						3,462.2						3,313.5						4%

Revenue per Unit
Merchandise:
Agriculture, forest and consumer products			$	3,433					$	3,342					3%						$	3,424					$	3,410					—%
Chemicals			4,090						3,966						3%						4,064						3,973						2%
Metals and construction			2,620						2,569						2%						2,649						2,587						2%
Automotive			3,196						3,102						3%						3,166						3,164						—%
Merchandise			3,304						3,222						3%						3,305						3,273						1%
Intermodal			739						805						(8%)						746						846						(12%)
Coal			2,445						2,470						(1%)						2,407						2,502						(4%)
Total			1,747						1,798						(3%)						1,747						1,845						(5%)

Railway operating revenues increased $64 million in the second quarter but decreased $64 million for the first six months compared with the same periods last year. The table below reflects the components of the revenue change by major commodity group ($ in millions).

			Second Quarter																		First Six Months
			Merchandise						Intermodal						Coal						Merchandise						Intermodal						Coal
			Increase (Decrease)
Volume			$	31					$	63					$	(6)					$	26					$	127					$	(23)
Fuel surcharge revenue			(17)						(6)						(5)						(78)						(47)						(18)
Rate, mix and other			64						(60)						—						115						(152)						(14)
Total			$	78					$	(3)					$	(11)					$	63					$	(72)					$	(55)

Approximately 95% of our revenue base is covered by contracts that include negotiated fuel surcharges. Revenues associated with these surcharges totaled $259 million and $287 million in the second quarters of 2024 and 2023, respectively, and $519 million and $662 million for the first six months of 2024 and 2023, respectively. The decrease in fuel surcharge revenues is driven by lower fuel commodity prices.

For the remainder of 2024, we expect that revenue will be higher compared to 2023 driven by increased volume, partially offset by the impacts of pricing and traffic mix.

Merchandise

Merchandise revenues increased in both periods due to higher average revenue per unit, driven by increased pricing, partially offset by lower fuel surcharge revenue, and increased volume.

Agriculture, forest and consumer products volume decreased in both periods, due to declines in corn, fertilizers, ethanol and food oils, partially offset by increased feed volume. Decreased corn volume was the result of customer sourcing changes due to increased southeast corn production. Volume in fertilizers and food oils were down due to reduced business opportunities, while the volume decline in ethanol was due to reduced production. Volume growth in feed was largely due to growth with existing customers.

Chemicals volume increased in the second quarter but decreased for the first six months. Shipments of organic chemicals and plastics increased in both periods due to stronger demand. Petroleum products and crude oil volume decreased in the first six months. Volume declines in petroleum were related to the conclusion of a spot opportunity handled last year to support a customer during a refinery outage, while declines in crude oil were due to a market share shift.

Metals and construction volume rose in both the second quarter and first six months, driven by increases in aggregates. Additionally, coil steel and iron and steel volume increased in the first six months. The volume increase in aggregates was the result of increased demand, while the increase in coil steel, and iron and steel was due to increased equipment availability.

Automotive volumes increased in both periods, due to increased demand, partially offset by plant shutdowns and quality holds at the manufacturers.

Intermodal

Intermodal revenues decreased in both periods as a result of lower average revenue per unit, driven by decreased pricing, adverse mix, lower fuel surcharge revenue, and declines in storage service charges, partially offset by higher volume.

Intermodal units (in thousands) by market were as follows:

			Second Quarter																		First Six Months
			2024						2023						% change						2024						2023						% change
Domestic			616.3						577.0						7%						1,206.7						1,164.7						4		%
International			387.2						348.4						11%						785.6						677.5						16		%
Total			1,003.5						925.4						8%						1,992.3						1,842.2						8		%

Domestic volume increased in both periods due to growth in existing customers and improved service, partially offset by reduced demand for premium and less-than-truckload shipments. International volume rose in both periods, driven by increased movements of empty containers and ocean carriers favoring inland point intermodal traffic.

Coal

Coal revenues declined in both periods. The second quarter decrease is the result of lower volume and lower average revenue per unit driven by adverse mix and decreased fuel surcharge revenue, partially offset by increased pricing. The decline for the first six months was the result of lower average revenue per unit, driven by decreased fuel surcharge revenue and pricing, in addition to lower volume.

Coal tonnage (in thousands) by market was as follows:

			Second Quarter																		First Six Months
			2024						2023						% change						2024						2023						% change
Utility			7,555						6,852						10%						14,574						15,062						(3%)
Export			7,247						7,697						(6%)						15,996						15,903						1%
Domestic metallurgical			2,573						3,059						(16%)						4,766						5,390						(12%)
Industrial			863						882						(2%)						1,649						1,571						5%
Total			18,238						18,490						(1%)						36,985						37,926						(2%)

Utility tonnage increased during the second quarter due to increased shipments associated with the impacts of warm weather on electricity demand, but decreased during the first six months due to higher stockpiles, low natural gas prices and a mild winter. Export tonnage decreased in the second quarter due to the temporary closure of the Baltimore port which limited export opportunities through that location. Export tonnage increased for the first six months due to increased demand. Domestic metallurgical tonnage declined in both periods as a result of reduced customer demand. Industrial coal tonnage decreased during the second quarter due to customer outages, and increased during the first six months due to higher demand.

Railway Operating Expenses

Railway operating expenses summarized by major classifications follow ($ in millions):

			Second Quarter																		First Six Months
			2024						2023						% change						2024						2023						% change
Compensation and benefits			$	700					$	693					1%						$	1,436					$	1,383					4%
Purchased services and rents			516						506						2%						1,044						1,002						4%
Fuel			257						263						(2%)						541						578						(6%)
Depreciation			335						321						4%						672						642						5%
Materials and other			173						205						(16%)						388						417						(7%)
Restructuring and other charges			(3)						—												96						—
Eastern Ohio incident			(65)						416												527						803						(34%)
Total			$	1,913					$	2,404					(20%)						$	4,704					$	4,825					(3%)

Compensation and benefits expense increased in both periods as follows:

• pay rates (up $17 million for the quarter and $41 million for the first six months),

• incentive compensation (up $17 million for the quarter and $20 million for the first six months),

• payroll taxes (down $10 million for the quarter and $18 million for the first six months),

• overtime (down $12 million for the quarter and $14 million for the first six months),

• employee activity levels (down $1 million for the quarter but up $25 million for the first six months), and

• other (down $4 million for the quarter and $1 million for the first six months).

Average rail headcount for the quarter was up by approximately 240 compared with the second quarter of 2023 due to the hiring of additional non-train and engine craft employees, partially offset by lower management and train and engine headcount.

Purchased services and rents increased in both periods as follows ($ in millions):

			Second Quarter																		First Six Months
			2024						2023						% change						2024						2023						% change
Purchased services			$	419					$	407					3%						$	839					$	806					4%
Equipment rents			97						99						(2%)						205						196						5%
Total			$	516					$	506					2%						$	1,044					$	1,002					4%

Purchased services rose in both periods primarily due to higher volume-related expenses, increased operational and transportation expenses, and higher technology-related costs. Equipment rents decreased in the second quarter due to decreased time-and-mileage expense, partially offset by increased leased freight car equipment. Equipment rents increased for the first six months due to higher short-term locomotive resource costs.

Fuel expense, which includes the cost of locomotive fuel as well as other fuel used in railway operations decreased in both periods. Locomotive fuel consumption was down 2% in the second quarter and flat for the first six months. Locomotive fuel price increased 1% in the second quarter but decreased 6% for the first six months.

Depreciation expense increased in both periods due to a higher asset base.

Materials and other expenses decreased in both periods as follows ($ in millions):

			Second Quarter																		First Six Months
			2024						2023						% change						2024						2023						% change
Materials			$	92					$	88					5%						$	190					$	179					6%
Claims			50						60						(17%)						98						114						(14%)
Other			31						57						(46%)						100						124						(19%)
Total			$	173					$	205					(16%)						$	388					$	417					(7%)

Materials expense increased in both periods due to higher freight car materials costs. Claims expense decreased in both periods as a result of lower costs associated with derailments and personal injury claims. Other expense decreased in both periods due to lower non-income based taxes, increased gains from operating property sales, and higher rental income. Gains from operating property sales, included in Other, totaled $25 million and $19 million for the second quarter in 2024 and 2023, respectively, and $25 million and $22 million in the first six months of 2024 and 2023, respectively.

Restructuring and other charges

During the first six months of 2024, we recognized $96 million in expense associated with our voluntary and involuntary separation programs that reduced our management workforce, as well as costs associated with the appointment of our new chief operating officer. We recognized favorability of $3 million in the second quarter of 2024 due to revised estimates of our costs associated with our voluntary separation programs.

Eastern Ohio incident

During the second quarter of 2024, our insurance recoveries exceeded additional Incident-related expenses by $65 million as compared to $416 million in expenses, net of insurance proceeds, for the same period last year. For the first six months of 2024 and 2023, we incurred expenses of $527 million and $803 million, respectively, for costs associated with the Incident, net of insurance recoveries. Our cash expenditures attributable to the Incident, net of insurance proceeds received, were $133 million and $287 million for the first six months of 2024 and 2023, respectively, which are presented in “Net cash provided by operating activities” on the Consolidated Statements of Cash Flows. For further details regarding the Incident, see Note 13 in the Notes to Consolidated Financial Statements.

Other income – net

Other income – net decreased $40 million in the second quarter and $78 million for the first six months reflecting costs associated with shareholder matters and lower returns on COLI, partially offset by a $20 million curtailment gain on our other postretirement benefit plan as a result of our voluntary and involuntary separation programs. In addition, the first six months benefited from higher interest income.

Income taxes

The effective tax rate for the second quarter and first six months of 2024 were 21.9% and 18.9%, compared with 23.1% and 22.1%, respectively, for the same periods last year. Both periods in 2024 reflect a $13 million deferred income tax benefit due to a change in a state corporate income tax rate, while the first six months rate also includes

a $27 million deferred income tax benefit from subsidiary restructuring. These benefits were partially offset by the absence of certain business tax credits recognized in the prior year.

FINANCIAL CONDITION AND LIQUIDITY

Cash provided by operating activities, our principal source of liquidity, was $1.9 billion for the first six months of 2024, compared with $1.8 billion for the same period of 2023. We had negative working capital of $1.4 billion at June 30, 2024 and working capital of $639 million at December 31, 2023. Cash and cash equivalents totaled $659 million at June 30, 2024.

Cash used in investing activities was $2.6 billion for the first six months of 2024, compared with $741 million for the same period last year. The increase was driven by the acquisition of the assets of the CSR as well as increased property additions. Please see Note 9 in the Notes to Consolidated Financial Statements for a detailed discussion of the acquisition of the CSR assets.

Cash used in financing activities was $217 million for the first six months of 2024, compared with $1.0 billion for the same period last year, reflecting lower debt repayments and repurchases of Common Stock, partially offset by lower proceeds from borrowing. We did not repurchase any Common Stock during the first six months of 2024, while we repurchased $303 million during the same period last year. The timing and volume of future share repurchases will be guided by our assessment of market conditions and other pertinent factors. Repurchases may be executed in the open market, through derivatives, accelerated repurchase and other negotiated transactions and through plans designed to comply with Rule 10b5-1(c) and Rule 10b-18 under the Securities and Exchange Act of 1934. Any near-term purchases under the program are expected to be made with internally-generated cash, cash on hand, or proceeds from borrowings.

In June 2024, we entered into an agreement that provides us the ability to issue up to $800 million of unsecured commercial paper and is backed by our credit agreement. The unsecured short-term commercial paper program provides for borrowing at prevailing rates and includes covenants. At June 30, 2024, we had no outstanding commercial paper. During July 2024, we issued $300 million of unsecured commercial paper.

In May 2024, 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 2025. We had $400 million (at an interest rate of 6.06%) outstanding under this program at June 30, 2024 and no amounts outstanding at December 31, 2023. We had fully utilized our borrowing capacity under the program at June 30, 2024, while we had $400 million available at December 31, 2023. During July 2024, we repaid $400 million that was outstanding under this program.

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 June 30, 2024 or December 31, 2023, and we are in compliance with all of its covenants.

In January 2024, we also entered into a term loan credit agreement that established a 364-day, $1.0 billion, unsecured delayed draw term loan facility under which we can borrow for general corporate purposes. The term loan credit agreement provides for borrowing at prevailing rates and includes covenants that align with our $800 million credit agreement. We had no amounts outstanding under this facility at June 30, 2024. During July 2024, we extended the availability period of the term loan agreement. If left undrawn, the term loan will be available until October 2024.

In addition, we have investments in general purpose COLI policies and have the ability to borrow against these policies. We had $108 million outstanding at June 30, 2024 and no amounts outstanding at December 31, 2023.

Our remaining borrowing capacity was $530 million and $640 million at June 30, 2024 and December 31, 2023, respectively.

Our debt-to-total capitalization ratio was 57.5% at June 30, 2024 and 57.3% at December 31, 2023. We expect 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, and ability to decrease shareholder distributions, provide additional flexibility to meet our ongoing obligations. There have been no material changes to the information on future contractual obligations, including those that may have material cash requirements, contained in our Form 10-K for the year ended December 31, 2023. On April 9, 2024, we announced that we have reached an agreement in principle to settle the Ohio Class Action for $600 million. Subject to final court approval and other conditions, payments to class members under the settlement could begin by the end of this year.

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 revenue 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. There have been no significant changes to the critical accounting estimates contained in our Form 10-K at December 31, 2023.

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, these agreements remain in effect until new agreements are reached, or until the bargaining procedures mandated by the Railway Labor Act 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.

Under current moratorium provisions, neither party can serve notice to compel a new round of mandatory collective bargaining until November 1, 2024, and any agreements reached would take effect no earlier than January 1, 2025. When the moratoriums expire, the parties will exchange bargaining notices and commence direct negotiations. Even if the parties are unable to reach voluntary agreement during this first phase of negotiations, self-help, e.g., a strike or other work stoppage, related to this collective bargaining process remains prohibited by law until a lengthy series of additional procedures mandated by the Railway Labor Act, including federal mediation, are exhausted.

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 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. These and other important factors, including those discussed under “Risk Factors” in our latest Form 10-K as well as our subsequent filings with the Securities and Exchange Commission, may cause actual results, performance, or achievements to differ materially from those expressed or implied by these forward-looking statements. 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) (www.twitter.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 Quarterly Report on Form 10-Q.