Norfolk Southern 10-Q 2024-09-30

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 September 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 September 30, 2024
Common Stock ($1.00 par value per share)						226,239,662			(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 Third Quarter and First Nine Months of 2024 and 2023			3
						Consolidated Statements of Comprehensive Income Third Quarter and First Nine Months of 2024 and 2023			4
						Consolidated Balance Sheets At September 30, 2024 and December 31, 2023			5
						Consolidated Statements of Cash Flows First Nine Months of 2024 and 2023			6
						Consolidated Statements of Changes in Stockholders’ Equity Third Quarter and First Nine 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			37
			Item 4.			Controls and Procedures			37
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)

			Third Quarter												First Nine Months
			2024						2023						2024						2023
			($ in millions, except per share amounts)
Railway operating revenues			$	3,051					$	2,971					$	9,099					$	9,083
Railway operating expenses
Compensation and benefits			690						715						2,126						2,098
Purchased services and rents			497						517						1,541						1,519
Fuel			216						289						757						867
Depreciation			339						326						1,011						968
Materials and other			(188)						205						200						622
Restructuring and other charges			60						—						156						—
Eastern Ohio incident			(159)						163						368						966
Total railway operating expenses			1,455						2,215						6,159						7,040
Income from railway operations			1,596						756						2,940						2,043
Other income – net			34						40						69						153
Interest expense on debt			203						182						608						527
Income before income taxes			1,427						614						2,401						1,669
Income taxes			328						136						512						369
Net income			$	1,099					$	478					$	1,889					$	1,300
Earnings per share
Basic			$	4.86					$	2.11					$	8.35					$	5.71
Diluted			4.85						2.10						8.34						5.70

See accompanying notes to consolidated financial statements.

Norfolk Southern Corporation and Subsidiaries

Consolidated Statements of Comprehensive Income

(Unaudited)

			Third Quarter												First Nine Months
			2024						2023						2024						2023
			($ in millions)
Net income			$	1,099					$	478					$	1,889					$	1,300
Other comprehensive loss, before tax:
Pension and other postretirement expense			(2)						(6)						(15)						(17)
Other comprehensive income (loss) of equity investees			—						(1)						1						(1)
Other comprehensive loss, before tax			(2)						(7)						(14)						(18)
Income tax benefit related to items of other
comprehensive loss			—						2						2						5
Other comprehensive loss, net of tax			(2)						(5)						(12)						(13)
Total comprehensive income			$	1,097					$	473					$	1,877					$	1,287

See accompanying notes to consolidated financial statements.

Norfolk Southern Corporation and Subsidiaries

Consolidated Balance Sheets

(Unaudited)

			September 30, 2024						December 31, 2023
			($ in millions)
Assets
Current assets:
Cash and cash equivalents			$	975					$	1,568
Accounts receivable – net			1,302						1,147
Materials and supplies			288						264
Other current assets			125						292
Total current assets			2,690						3,271
Investments			3,968						3,839
Properties less accumulated depreciation of $13,855
and $13,265, respectively			35,390						33,326
Other assets			1,207						1,216
Total assets			$	43,255					$	41,652
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable			$	1,614					$	1,638
Income and other taxes			179						262
Other current liabilities			1,329						728
Current maturities of long-term debt			555						4
Total current liabilities			3,677						2,632
Long-term debt			16,644						17,175
Other liabilities			1,786						1,839
Deferred income taxes			7,363						7,225
Total liabilities			29,470						28,871
Stockholders’ equity:
Common stock $1.00 per share pa

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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.

Our focus on providing high-quality service to our customers and delivering on productivity initiatives throughout the organization resulted in improved operating margins and financial results. We are driving improvements in our operational performance while handling additional volumes. We also completed the sale of two railway lines that resulted in significant gains and cash proceeds and executed on further strategic rationalization efforts, primarily aimed at technology projects. Additionally, insurance recoveries related to the Eastern Ohio Incident (as defined further and described in Note 14 in the Notes to Consolidated Financial Statements) outpaced incremental expenses further impacting our financial results. In the third quarter, we achieved an operating ratio (a measure of the amount of operating revenues consumed by operating expenses) of 47.7%, and an adjusted operating ratio of 63.4% (see our non-GAAP reconciliations beginning on page 27). Our margin improvement demonstrates our commitment to being a more productive, resilient, and efficient railroad with industry-competitive margins.

SUMMARIZED RESULTS OF OPERATIONS

			Third Quarter																		First Nine Months
			2024						2023						% change						2024						2023						% change
			($ in millions, except per share amounts)
Railway operating revenues			$	3,051					$	2,971					3%						$	9,099					$	9,083					—%
Railway operating expenses			$	1,455					$	2,215					(34%)						$	6,159					$	7,040					(13%)
Income from railway operations			$	1,596					$	756					111%						$	2,940					$	2,043					44%
Net income			$	1,099					$	478					130%						$	1,889					$	1,300					45%
Diluted earnings per share			$	4.85					$	2.10					131%						$	8.34					$	5.70					46%
Railway operating ratio (percent)			47.7						74.6						(36%)						67.7						77.5						(13%)

Income from railway operations increased in both periods, primarily as a result of lower railway operating expenses, including $380 million of gains on railway line sales and lower net costs related to the Eastern Ohio Incident, with insurance recoveries exceeding incremental Incident-related expenses in the third quarter. Our financial results in both periods also reflect higher railway operating revenues, driven by increased volumes that were partially offset by an adverse mix of traffic, lower fuel surcharge revenues, and decreased pricing. Our net income and diluted earnings per share were up significantly in the third quarter and first nine months.

The following tables adjust our GAAP financial results for the third quarter and first nine months of 2024 and 2023 to exclude gains on railway line sales, restructuring and other charges (including the curtailment gain on our other

postretirement benefit plan which is included in “Other income – net” in the first nine months), the effects of the Incident, 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 Third Quarter 2024
			Reported 2024 (GAAP)						Gains on Railway Line Sales						Restructuring and Other Charges						Eastern Ohio Incident																		Adjusted 2024 (non-GAAP)
			($ in millions, except per share amounts)
Railway operating expenses			$	1,455					$	380					$	(60)					$	159																	$	1,934
Income from railway operations			$	1,596					$	(380)					$	60					$	(159)																	$	1,117
Net income			$	1,099					$	(287)					$	45					$	(120)																	$	737
Diluted earnings per share			$	4.85					$	(1.27)					$	0.20					$	(0.53)																	$	3.25
Railway operating ratio (percent)			47.7						12.5						(2.0)						5.2																		63.4

			Non-GAAP Reconciliation for Third Quarter 2023
			Reported 2023 (GAAP)						Eastern Ohio Incident						Adjusted 2023 (non-GAAP)
			($ in millions, except per share amounts)
Railway operating expenses			$	2,215					$	(163)					$	2,052
Income from railway operations			$	756					$	163					$	919
Net income			$	478					$	123					$	601
Diluted earnings per share			$	2.10					$	0.55					$	2.65
Railway operating ratio (percent)			74.6						(5.5)						69.1

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

			Third 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			$	1,934					$	2,052					(6%)
Income from railway operations			$	1,117					$	919					22%
Net income			$	737					$	601					23%
Diluted earnings per share			$	3.25					$	2.65					23%
Railway operating ratio (percent)			63.4						69.1						(8%)

			Non-GAAP Reconciliation for First Nine Months 2024
			Reported 2024 (GAAP)						Gains on Railway Line Sales						Restructuring and Other Charges						Eastern Ohio Incident						Shareholder Advisory Costs						Deferred Income Tax Adjustment						Adjusted 2024 (non-GAAP)
			($ in millions, except per share amounts)
Railway operating expenses			$	6,159					$	380					$	(156)					$	(368)					$	—					$	—					$	6,015
Income from railway operations			$	2,940					$	(380)					$	156					$	368					$	—					$	—					$	3,084
Net income			$	1,889					$	(287)					$	104					$	279					$	38					$	(27)					$	1,996
Diluted earnings per share			$	8.34					$	(1.27)					$	0.46					$	1.23					$	0.17					$	(0.12)					$	8.81
Railway operating ratio (percent)			67.7						4.2						(1.7)						(4.1)						—						—						66.1

			Non-GAAP Reconciliation for First Nine Months 2023
			Reported 2023 (GAAP)						Eastern Ohio Incident						Adjusted 2023 (non-GAAP)
			($ in millions, except per share amounts)
Railway operating expenses			$	7,040					$	(966)					$	6,074
Income from railway operations			$	2,043					$	966					$	3,009
Net income			$	1,300					$	733					$	2,033
Diluted earnings per share			$	5.70					$	3.22					$	8.92
Railway operating ratio (percent)			77.5						(10.6)						66.9

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

			First Nine 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			$	6,015					$	6,074					(1%)
Income from railway operations			$	3,084					$	3,009					2%
Net income			$	1,996					$	2,033					(2%)
Diluted earnings per share			$	8.81					$	8.92					(1%)
Railway operating ratio (percent)			66.1						66.9						(1%)

On an adjusted basis, income from railway operations increased in both the third quarter and first nine months. The increase in both periods was primarily driven by lower adjusted railway operating expenses. The decline in adjusted railway operating expenses in both periods reflects lower fuel prices and higher gains on operating property sales, partly offset by increased depreciation on our higher asset base. Third quarter adjusted railway operating expenses also decreased due to lower employee activity levels and a decline in purchased services spend. Additionally,

adjusted income from railway operations increased in both periods as a result of higher railway operating revenues, driven by an increase in volume but partially offset by an adverse mix of traffic, lower fuel surcharge revenues, and decreased pricing.

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.

			Third Quarter																		First Nine Months
Revenues			2024						2023						% change						2024						2023						% change
Merchandise:
Agriculture, forest and consumer products			$	624					$	611					2%						$	1,875					$	1,891					(1%)
Chemicals			543						498						9%						1,602						1,542						4%
Metals and construction			420						417						1%						1,290						1,232						5%
Automotive			274						274						—%						861						839						3%
Merchandise			1,861						1,800						3%						5,628						5,504						2%
Intermodal			763						737						4%						2,250						2,296						(2%)
Coal			427						434						(2%)						1,221						1,283						(5%)
Total			$	3,051					$	2,971					3%						$	9,099					$	9,083					—%

Units
Merchandise:
Agriculture, forest and consumer products			186.3						175.6						6%						551.6						551.0						—%
Chemicals			128.9						124.0						4%						389.5						386.8						1%
Metals and construction			160.8						164.3						(2%)						489.3						479.4						2%
Automotive			87.9						91.2						(4%)						273.4						269.9						1%
Merchandise			563.9						555.1						2%						1,703.8						1,687.1						1%
Intermodal			1,052.2						965.4						9%						3,044.5						2,807.6						8%
Coal			185.3						166.7						11%						515.3						506.0						2%
Total			1,801.4						1,687.2						7%						5,263.6						5,000.7						5%

Revenue per Unit
Merchandise:
Agriculture, forest and consumer products			$	3,351					$	3,479					(4%)						$	3,399					$	3,432					(1%)
Chemicals			4,210						4,013						5%						4,112						3,986						3%
Metals and construction			2,611						2,535						3%						2,636						2,569						3%
Automotive			3,114						3,003						4%						3,149						3,109						1%
Merchandise			3,299						3,241						2%						3,303						3,262						1%
Intermodal			726						764						(5%)						739						818						(10%)
Coal			2,306						2,602						(11%)						2,370						2,535						(7%)
Total			1,694						1,760						(4%)						1,729						1,816						(5%)

Railway operating revenues increased $80 million in the third quarter and $16 million for the first nine months compared with the same periods last year. The table below reflects the components of the revenue change by major commodity group ($ in millions).

			Third Quarter																		First Nine Months
			Merchandise						Intermodal						Coal						Merchandise						Intermodal						Coal
			Increase (Decrease)
Volume			$	28					$	66					$	49					$	54					$	194					$	24
Fuel surcharge revenue			(1)						(9)						1						(79)						(56)						(17)
Rate, mix and other			34						(31)						(57)						149						(184)						(69)
Total			$	61					$	26					$	(7)					$	124					$	(46)					$	(62)

Approximately 95% of our revenue base is covered by contracts that include negotiated fuel surcharges. Revenues associated with these surcharges totaled $238 million and $247 million in the third quarters of 2024 and 2023, respectively, and $757 million and $909 million for the first nine 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 decline compared to 2023, as the impacts of lower fuel surcharge revenue, decreased pricing, and adverse traffic mix will offset increased volume.

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 increased in the third quarter and was flat for the first nine months. Both periods had higher volume in corn, soybeans, and feed. Increased corn and feed volumes were the result of customers shifting from truck to rail service to meet market demands. Soybean volume increased due to spot opportunities. The first nine months were offset by a decline in fertilizer volume due to lower potash shipments due to customer operational issues.

Chemicals volume increased in both the third quarter and first nine months. Both periods saw increased volume in organic chemicals, plastics, and solid waste due to stronger demand. Petroleum products and crude oil volume decreased in both periods. 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 decreased in the third quarter but increased for the first nine months. The third quarter decreased due to lower coil steel and aggregates shipments. Coil steel volume decreased due to lower demand and aggregates volume decreased due to inclement weather impacting paving operations and construction sites in the southeast market. The first nine months increased due to higher demand in aggregates, iron and steel, kaolin, and miscellaneous construction.

Automotive volumes decreased in the third quarter but increased in the first nine months. The third quarter decreased due to reduced production, quality holds at the manufacturers and extended plant shutdowns. The first nine months increased due to improvements in equipment availability and their cycle time paired with higher demand, partially offset by reduced production and quality holds at the manufacturers and extended plant shutdowns.

Intermodal

Intermodal revenues increased in the third quarter but decreased for the first nine months. The third quarter increased due to higher volumes partially offset by lower average revenue per unit, driven by decreased pricing, adverse mix, and lower fuel surcharge revenue. The decline in the first nine months was driven by lower average revenue per unit, driven by decreased pricing, lower fuel surcharge revenue, adverse mix, and declines in storage service charges, partially offset by higher volume.

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

			Third Quarter																		First Nine Months
			2024						2023						% change						2024						2023						% change
Domestic			637.7						583.1						9%						1,844.4						1,747.8						6		%
International			414.5						382.3						8%						1,200.1						1,059.8						13		%
Total			1,052.2						965.4						9%						3,044.5						2,807.6						8		%

Domestic volume increased in both periods due to growth in existing customers and improved service, partially offset by reduced demand for premium shipments. International volume rose in both periods, driven by increased demand, growth in existing customers, and increased movements of empty containers.

Coal

Coal revenues decreased in both periods. Both periods decreased due to lower average revenue per unit driven by pricing, and for the first nine months, lower fuel surcharge revenue. The decrease in average revenue per unit in both periods was partially offset by increased volume.

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

			Third Quarter																		First Nine Months
			2024						2023						% change						2024						2023						% change
Utility			8,272						7,342						13%						22,846						22,404						2%
Export			8,816						7,563						17%						24,812						23,466						6%
Domestic metallurgical			2,706						2,906						(7%)						7,472						8,296						(10%)
Industrial			991						913						9%						2,640						2,484						6%
Total			20,785						18,724						11%						57,770						56,650						2%

Utility tonnage increased in both periods primarily due to customer outages in the prior year. Export tonnage increased in both periods due to growth with our customers and increased production in the third quarter. These items, which more than offset the temporary closure of the Baltimore port which limited export opportunities through that location in the second quarter, impacted the first nine months volumes. Industrial coal tonnage increased in both periods due to higher demand. Domestic metallurgical tonnage decreased in both periods as a result of reduced customer demand.

Railway Operating Expenses

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

			Third Quarter																		First Nine Months
			2024						2023						% change						2024						2023						% change
Compensation and benefits			$	690					$	715					(3%)						$	2,126					$	2,098					1%
Purchased services and rents			497						517						(4%)						1,541						1,519						1%
Fuel			216						289						(25%)						757						867						(13%)
Depreciation			339						326						4%						1,011						968						4%
Materials and other			(188)						205						(192%)						200						622						(68%)
Restructuring and other charges			60						—												156						—
Eastern Ohio incident			(159)						163						(198%)						368						966						(62%)
Total			$	1,455					$	2,215					(34%)						$	6,159					$	7,040					(13%)

Compensation and benefits expense decreased in the third quarter but increased in the first nine months as follows:

• employee activity levels (down $35 million for the quarter and $10 million for the first nine months),

• overtime (down $12 million for the quarter and $26 million for the first nine months),

• incentive compensation (up $11 million for the quarter and $31 million for the first nine months),

• pay rates (up $25 million for the quarter and $66 million for the first nine months), and

• other (down $14 million for the quarter and $33 million for the first nine months).

Average rail headcount for the quarter was down by 560 compared with the third quarter of 2023 due to lower train and engine and management headcount, partially offset by hiring of additional non-train and engine craft employees.

Purchased services and rents decreased in the third quarter but increased in the first nine months as follows ($ in millions):

			Third Quarter																		First Nine Months
			2024						2023						% change						2024						2023						% change
Purchased services			$	405					$	426					(5%)						$	1,244					$	1,232					1%
Equipment rents			92						91						1%						297						287						3%
Total			$	497					$	517					(4%)						$	1,541					$	1,519					1%

Purchased services decreased in the third quarter but increased in the first nine months. The third quarter decreased due to lower operational and technology-related costs as well as lower lease costs, which were partially offset by higher volume-related expenses. The first nine months increased due to higher volume-related expenses, partially offset by lower lease costs and lower operational and technology-related expenses. Equipment rents increased in both periods due to higher intermodal equipment expense 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 periods. Locomotive fuel consumption was down 1% in the third quarter and flat for the first nine months. Locomotive fuel price decreased in both periods (down 25% in the third quarter and 12% for the first nine 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):

			Third Quarter																		First Nine Months
			2024						2023						% change						2024						2023						% change
Materials			$	96					$	94					2%						$	286					$	273					5%
Claims			66						57						16%						164						171						(4%)
Other			(350)						54						(748%)						(250)						178						(240%)
Total			$	(188)					$	205					(192%)						$	200					$	622					(68%)

Materials expense increased in both periods due to higher freight car repairs expense. Claims expense increased in the third quarter but decreased for the first nine months. The increase in the third quarter was a result of higher costs associated with derailments. Both periods include decreased costs associated with personal injury claims partially offset by a prior year claims-related recovery. Other expense decreased in both periods due to increased gains from operating property sales, lower travel and relocation-related expenses, and lower non-income-based taxes. Gains from operating property sales includes $380 million of gains on the sale of railway lines in the states of Virginia and North Carolina that occurred in the third quarter. These transactions are described further in Note 3 in the Notes to Consolidated Financial Statements. Total gains from operating property sales, included in Other, were $400 million and $8 million for the third quarter in 2024 and 2023, respectively, and $425 million and $30 million in the first nine months of 2024 and 2023, respectively.

Restructuring and other charges

Restructuring and other charges were $60 million in the third quarter of 2024 and relate to expenses associated with the rationalization of certain software development projects that had not been placed into service as well as expense associated with reflecting certain equipment at its net realizable value in advance of the planned disposition of that asset class. For the first nine months of 2024, these expenses totaled $156 million, as they also include $96 million of costs associated with our voluntary and involuntary separation programs that reduced our management workforce and costs incurred in connection with the appointment of our chief operating officer.

Eastern Ohio incident

During the third quarter of 2024, our insurance recoveries exceeded additional Incident-related expenses by $159 million as compared to $163 million in expenses, net of insurance proceeds, for the same period last year. For the first nine months of 2024 and 2023, we incurred expenses of $368 million and $966 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 $32 million and $511 million for the first nine 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 14 in the Notes to Consolidated Financial Statements.

Other income – net

Other income – net decreased $6 million in the third quarter and $84 million for the first nine months. The third quarter decrease is due to lower interest income. The decline in the first nine months reflects costs associated with shareholder matters, lower returns on COLI, and higher pension and 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.

Income taxes

The effective tax rate was 23.0% and 21.3% for the third quarter and first nine months of 2024, respectively, compared with 22.1% for those same periods last year. The rate for the first nine months of 2024 reflects a $13 million deferred income tax benefit due to a change in a state corporate income tax rate and a $27 million deferred income tax benefit from subsidiary restructuring. These benefits were partially offset by the absence of certain business tax credits recognized in the prior year.

FINANCIAL CONDITION AND LIQUIDITY

Cash provided by operating activities, our principal source of liquidity, was $3.1 billion for the first nine months of 2024, compared with $2.5 billion for the same period of 2023. We had negative working capital of $987 million at September 30, 2024 and working capital of $639 million at December 31, 2023. Cash and cash equivalents totaled $975 million at September 30, 2024.

Cash used in investing activities was $2.8 billion for the first nine months of 2024, compared with $1.4 billion 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, partially offset by increased proceeds from property sales. Please see Note 3 in the Notes to Consolidated Financial Statements for additional details on certain railway line sales and Note 10 for a detailed discussion of the acquisition of the CSR assets.

Cash used in financing activities was $903 million for the first nine months of 2024, compared with $62 million for the same period last year, reflecting lower proceeds from borrowing partially offset by lower repurchases of Common Stock. We did not repurchase any Common Stock during the first nine months of 2024, while we repurchased $503 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 September 30, 2024, we had no outstanding 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 no amounts outstanding under this program and our available borrowing capacity was $400 million at both September 30, 2024 and December 31, 2023.

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 September 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 September 30, 2024. During July 2024, we extended the availability period of the term loan agreement. The term loan expired undrawn on October 22, 2024.

In addition, we have investments in general purpose COLI policies and have the ability to borrow against these policies. We had no amounts outstanding at both September 30, 2024 and December 31, 2023. Our remaining borrowing capacity was $625 million and $640 million at September 30, 2024 and December 31, 2023, respectively.

Our debt-to-total capitalization ratio was 55.5% at September 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, except that on April 9, 2024, we announced that we reached an agreement in principle to settle the Ohio Class Action for $600 million. On September 27, 2024, the court granted final approval of the settlement. We made a partial payment of the settlement on October 11, 2024 in the amount of $310 million and the remaining balance could be paid as early as November 8, 2024; however, that payment, including timing, is dependent upon resolution of any appeals to the settlement.

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 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.

Under current moratorium provisions, neither party can serve notice to compel a new round of mandatory collective bargaining until November 1, 2024. That said, over the past several months, we engaged in voluntary local discussions with our labor unions and, as a result, reached local tentative agreements with a majority of our unions prior to the opening of the national bargaining round. These new tentative agreements are subject to ratification by

union membership. If ratified, they will take effect January 1, 2025, and will foreclose the parties from serving new notices to compel mandatory bargaining until November 1, 2029.

We will continue local discussions with the unions with whom we have not yet reached agreement. If no local agreement has been reached with one or more of these unions when the moratoriums in their contracts expire on November 1, 2024, the parties will exchange bargaining notices and commence mandatory direct negotiations as prescribed under the RLA. Even if the parties are unable to reach voluntary agreement during this first phase of RLA bargaining, self-help (e.g., a strike or other work stoppage) related to this collective bargaining process remains prohibited by law until a lengthy series of additional procedures mandated by the RLA, including federal mediation, are exhausted.

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.