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Item 2. Management’s Discussion and Analysis

2023-10-25 compared with 2023-07-27 · 107 added, 97 removed, 180 unchanged (53% of the section changed)

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We are also a principal carrier of coal, automobiles, and automotive parts.

Our second-quarter results reflect declines in income from railway operations, net income and diluted earnings per share as we continued our response efforts to a February 2023 derailment of 38 railcars in Eastern Ohio.

During the quarter, we recognized $ 416 million in additional expenses related to ongoing environmental cleanup and remediation efforts, legal proceedings resulting from the Incident, and other Incident-related costs.

Income from railway operations, net income and diluted earnings per share declined in the third quarter compared to 2022 driven by a combination of lower revenues and additional expenses associated with our continued response efforts to the Incident.

Additionally, the decline in net income and diluted earnings per share reflects the absence of a $136 million deferred tax benefit resulting from the enactment of a change in a state corporate income tax rate in 2022.

During the third quarter, we recognized $163 million in additional expenses related to the Incident including ongoing environmental cleanup and remediation efforts, legal proceedings, and other Incident-related costs.

We continue to work with federal, state, and local officials to mitigate impacts from the Incident and to provide support to affected members of the community.

Please see Note 11 in the Notes to Consolidated Financial Statements for a detailed discussion of the Incident.

Further impacting our second-quarter 2023 financial results was a decline in railway operating revenues.

The reduction in revenue was due to a decline in volumes, as service challenges and a weaker demand environment restricted our ability to grow, and a lower average revenue per unit, driven by lower fuel surcharge revenue.

In addition to the costs recognized from the Incident, our operating expenses were also slightly higher, driven by inflationary pressures, higher service-related costs and increased headcount, though mostly offset by the impact of lower fuel expense.

As we continue to make progress in response to the derailment and support the impacted community, we remain committed to our strategy — a balanced approach of delivering safe, reliable and resilient service, smart and sustainable growth, and continuous productivity improvement.

Railway operating revenues declined in the third quarter, a result of lower average revenue per unit and volume declines.

Decreases in fuel surcharge revenue and intermodal storage revenues drove the overall decline in average revenue per unit, while volume declines were driven by continued service challenges and a weaker demand environment.

Outside of the costs recognized from the Incident, our operating expenses declined as lower fuel expense and the impact of the absence of retroactive wage increases recorded in the third quarter of 2022 were mostly offset by broader expense increases driven by inflationary pressures, investments in operational resiliency, higher service-related costs, and increased headcount.

As we continue to make progress in response to the Incident and support the impacted community, we remain committed to our strategy — a balanced approach of delivering safe, reliable and resilient service, smart and sustainable growth, and continuous productivity improvement.

SUMMARIZED RESULTS OF OPERATIONS

Second Quarter First Six Months

Third Quarter First Nine Months

2023 2022 % change 2023 2022 % change

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Railway operating ratio (percent) 74.6 62.0 20% 77.5 61.8 25%

Results for the second quarter and first six months of 2023 included $416 million and $803 million, respectively, of expenses included in income from railway operations arising from the Incident, which reduced net income by $317 million and $610 million, respectively, and diluted earnings per share by $1.39 and $2.67, respectively.

Results for the third quarter and first nine months of 2023 included $163 million and $966 million, respectively, of expenses included in income from railway operations arising from the Incident, which reduced net income by $123 million and $733 million, respectively, and diluted earnings per share by $0.55 and $3.22, respectively.

For more information see Note 11 in the Notes to Consolidated Financial Statements.

Second quarter and the first six months income from railway operations, net income, and diluted earnings per share were further impacted by the factors set forth further below.

The following tables adjusts our 2023 GAAP financial results for the second quarter and the first six months to exclude the effects of the Incident.

Third quarter and the first nine months income from railway operations, net income, and diluted earnings per share were further impacted by the factors set forth further below.

The following tables adjust our 2023 GAAP financial results for the third quarter and the first nine months to exclude the effects of the Incident.

The income tax effects of this non-GAAP adjustment were calculated based on the applicable tax rates to which the non-GAAP adjustment related.

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In addition, these non-GAAP financial measures may not be the same as similar measures presented by other companies.

Non-GAAP Reconciliation for the Second Quarter

Non-GAAP Reconciliation for the Third Quarter

Reported 2023 (GAAP) Eastern Ohio Incident Adjusted 2023

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Railway operating ratio (percent) 74.6 (5.5) 69.1

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

Second Quarter

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

Third Quarter

Adjusted 2023

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Railway operating ratio (percent) 69.1 62.0 11%

Non-GAAP Reconciliation for First Six Months

Non-GAAP Reconciliation for First Nine Months

Reported 2023 (GAAP) Eastern Ohio Incident Adjusted 2023

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Railway operating ratio (percent) 77.5 (10.6) 66.9

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

First Six Months

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

First Nine Months

(non-GAAP) 2022 Adjusted 2023 (non-GAAP)

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Railway operating ratio (percent) 66.9 61.8 8%

On a non-GAAP basis excluding the impact of the Incident, income from railway operations decreased in both periods due to lower railway operating revenues and increased operating expenses.

Railway operating revenues declined in both periods due to decreased volumes and lower intermodal storage revenues compared to the same period last year, while the second quarter also experienced a larger decline in fuel surcharge revenue.

Increased railway operating expenses in both periods were primarily driven by inflationary pressures, higher service-related costs and increased headcounts which, during the second quarter, were mostly offset by lower fuel expense.

On a non-GAAP basis excluding the impact of the Incident, income from railway operations decreased in both periods due to lower railway operating revenues.

Railway operating revenues declined in both periods due to decreased fuel surcharge revenue, lower volume, and decreased intermodal storage revenues, partially offset by increased pricing compared to the same period last year.

Railway operating expenses in both periods reflected lower fuel prices and the absence of retroactive wage increases recorded in the third quarter of 2022, the impacts of which were countered by inflationary pressures, investments in operational resiliency, higher service-related costs, and increased headcounts.

DETAILED RESULTS OF OPERATIONS

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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

Third Quarter First Nine Months

Revenues 2023 2022 % change 2023 2022 % change

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Total 1,760 1,938 (9%) 1,816 1,850 (2%)

Railway operating revenues decreased $270 million in the second quarter and $53 million for the first six months compared with the same periods last year.

Railway operating revenues decreased $372 million in the third quarter and $425 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).

Second Quarter First Six Months

Third Quarter First Nine Months

Merchandise Intermodal Coal Merchandise Intermodal Coal

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Approximately 95% of our revenue base is covered by contracts that include negotiated fuel surcharges.

Revenues associated with these surcharges totaled $287 million and $421 million in the second quarters of 2023 and 2022, respectively, and $662 million and $665 million for the first six months of 2023 and 2022, respectively.

Revenues associated with these surcharges totaled $247 million and $501 million in the third quarters of 2023 and 2022, respectively, and $909 million and $1.2 billion for the first nine months of 2023 and 2022, respectively.

The decrease in fuel surcharge revenues is driven by lower fuel commodity prices.

For the remainder of 2023, we expect that revenue will decline compared to 2022 driven by lower fuel prices, declining storage service charges, and softening coal pricing.

Merchandise revenues decreased during the second quarter but increased during the first six months.

The decrease during the second quarter was due to lower volume and lower average revenue per unit, driven by lower fuel surcharge revenue partially offset by increased pricing.

The increase during the first six months was primarily due to higher average revenue per unit, driven by increased pricing and higher fuel surcharge revenue, and higher volume.

Agriculture, forest and consumer products volume increased in both periods as increases in corn, fertilizers, food oils, ethanol and wheat more than offset the declines in pulpboard, graphic paper and woodchips.

Volume gains in corn, fertilizers, food oils, ethanol and wheat were driven by increased market demand.

The decline in pulpboard and graphic paper were due to higher inventories which lowered the demand for shipments, while the decline in woodchips was due to a customer mill closing.

Chemicals volume declined in both periods as reduced shipments of crude oil, plastics, natural gas liquids, and organic and inorganic chemicals, more than the offset increases in sand and solid waste.

Volume declines for crude oil were driven by production outages and soft demand in the energy markets.

Plastics, natural gas liquids and organic chemicals volume declined as a result of lower demand, while the decline in inorganic chemicals was driven by reduced production.

Volume gains in sand were driven by current market demand, while the increase in solid waste was due to growth with existing customers.

Metals and construction volume decreased during the second quarter but increased during the first six months.

The decline in the second quarter was due to lower volumes of kaolin and construction materials.

The volume decline in kaolin was largely driven by higher inventories which lowered demand, while the decline in construction materials was due to extended cycle times and local service challenges.

The increase during first six months was largely driven by increased demand for aggregates, scrap metal and cement, which more than offset declines in kaolin and construction materials.

For the remainder of 2023, we expect that revenue will decline compared to 2022 driven by declining intermodal storage revenues and lower fuel surcharge revenues.

Merchandise revenues decreased during the third quarter but increased during the first nine months.

The decrease during the third quarter was due to lower average revenue per unit, driven by decreased fuel surcharge revenue partially offset by increased pricing, and lower volume.

The increase during the first nine months was primarily due to higher average revenue per unit, driven by increased pricing though partially offset by lower fuel surcharge revenue, and higher volume.

Agriculture, forest and consumer products volume decreased during the third quarter but increased during the first nine months.

During the third quarter declines in corn, wood chips, soybeans, lumber and wood, graphic paper and sweeteners more than offset increases in ethanol and fertilizers.

Volume declines in corn were due to reduced production in the Midwest, while the decline in wood chips was due to a customer mill closing.

Reduced export opportunities led to lower soybean shipments and lumber and wood volume was low due to decreased demand.

Graphic paper and sweeteners volume declined as a result of lower market demand.

The increase during the first nine months was due to higher volume of ethanol, corn and fertilizers, partially offset by decreased volume of wood chips, graphic paper, sweeteners and soybeans.

Increased market demand for both the third quarter and the first nine months led to volume gains in ethanol and fertilizers, as well as increased corn demand for the first nine months.

Chemicals volume declined in both periods as reduced shipments of crude oil, organic chemicals, natural gas liquids, and plastics, more than the offset increases in solid waste.

In addition, sand volume decreased in the third quarter but increased for the first nine months due to higher demand in the first six months offset by producers shutting down operations during the third quarter.

Volume declines for crude oil were driven by soft demand in the energy markets.

Organic chemicals and natural gas liquids volume declined as a result of lower demand, while the decline in plastics was driven by high inventory levels which lowered the demand for shipments.

Volume gains in solid waste was due to growth with existing customers.

Metals and construction volume declined in both periods as reduced shipments of kaolin, construction materials and military equipment more than offset the volume gains in scrap metal and coil steel.

The volume declines in kaolin and military equipment were largely driven by lower demand, while the declines in construction materials were due to lower demand, extended cycle times and service challenges.

Scrap metal volume increased due to higher demand, while volume gains in coil steel was due to increased equipment available to handle demand.

Automotive volume was higher in both periods due to higher finished vehicle inventory levels available for rail transportation.

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

Second Quarter First Six Months

Third Quarter First Nine Months

2023 2022 % change 2023 2022 % change

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International volume increased in both periods, driven by ocean carriers favoring inland point intermodal traffic, partially offset by a decrease in imports.

Coal revenues decreased for the second quarter but increased for the first six months.

The second quarter decline was the result of lower average revenue per unit, driven by lower pricing and decreased fuel surcharge revenue, partially offset by favorable traffic mix.

The increase in the first six months was due to increased volume and higher average revenue per unit, driven by traffic mix and higher fuel surcharge revenue partially offset by declining prices.

Coal revenues decreased in both periods due to a decline in volume.

Average revenue per unit increased in both periods, driven by a favorable traffic mix, partially offset by lower fuel surcharge revenue.

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

Second Quarter First Six Months

Third Quarter First Nine Months

2023 2022 % change 2023 2022 % change

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Total 18,724 20,494 (9%) 56,650 57,748 (2%)

Coal tonnage declined during the second quarter but rose for the first six months.

Both periods saw increases in export and domestic metallurgical tonnage with declines in utility and industrial tonnage.

Export and domestic metallurgical tonnage was higher due to increased demand and coal supply.

Utility tonnage decreased as a result of low natural gas prices, high stockpiles, and mild winter weather.

Coal tonnage declined in both periods due to decreases in utility, domestic metallurgical and industrial tonnage partially offset by increased export tonnage.

Utility tonnage decreased in both periods as a result of low natural gas prices and high stockpiles, while the first nine months were impacted by mild winter weather in the first quarter.

Domestic metallurgical tonnage decreased due to events at key origins impacting supply to specific receivers, in

addition to customer outages at high volume destinations impacting the ability to dump coal.

Industrial coal tonnage decreased due to reduced coal shipments related to sourcing changes.

Export tonnage was higher due to increased demand and coal supply.

Railway Operating Expenses

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

Second Quarter First Six Months

Third Quarter First Nine Months

2023 2022 % change 2023 2022 % change

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Total $ 2,215 $ 2,071 7% $ 7,040 $ 5,880 20%

Compensation and benefits expense increased in both periods as follows:

• increased pay rates (up $54 million for the quarter and $103 million for the first six months),

• employee activity levels (up $30 million for the quarter and $66 million for the first six months),

• incentive compensation (down $12 million for the quarter and $22 million for the first six months), and

• other (up $7 million for the quarter and $3 million for the first six months).

Average rail headcount for the quarter was up by 1,400 compared with the second quarter of 2022 primarily due to the hiring of additional train and engine craft employees.

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

• pay rates (down $54 million for the quarter and up $49 million for the first nine months),

• incentive compensation (down $4 million for the quarter and $26 million for the first nine months),

• overtime (up $4 million for the quarter and $6 million of the first nine months),

• employee activity levels (up $35 million for the quarter and $101 million for the first nine months), and

• other (down $1 million for the quarter).

Pay rates in 2022 were impacted by additional accruals for retroactive wage increases and other benefits resulting from labor negotiations, which increased compensation and benefits by $85 million in third quarter 2022.

Average rail headcount for the quarter was up by 1,500 compared with the third quarter of 2022 primarily due to the hiring of additional train and engine employees.

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

Second Quarter First Six Months

Third Quarter First Nine Months

2023 2022 % change 2023 2022 % change

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Purchased services rose in both periods due to increased operational and transportation expenses and higher technology-related expenses.

In addition, the first six months were impacted by higher intermodal-related expenses.

Equipment rents increased in both periods as lower network fluidity led to greater time-and-mileage expenses and increased intermodal equipment expenses.

We also incurred higher freight car lease costs.

Fuel expense, which includes the cost of locomotive fuel as well as other fuel used in railway operations, decreased in both periods due to lower locomotive fuel prices (down 36% in the second quarter and 19% in the first six months) partially offset by slightly higher locomotive fuel consumption (up 1% in both the second quarter and first six months).

In addition, the first nine months were impacted by higher intermodal-related expenses.

Equipment rents increased in both periods due to higher freight car lease costs and increased intermodal equipment expenses.

Fuel expense, which includes the cost of locomotive fuel as well as other fuel used in railway operations, decreased in both periods primarily due to lower locomotive fuel prices (down 23% in the third quarter and 20% in the first nine months).

Locomotive fuel consumption was down 1% in the third quarter and flat for the first nine months.

Depreciation expense increased in both periods due to our higher asset base and the impact of the results of our periodic roadway study.

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

Second Quarter First Six Months

Third Quarter First Nine Months

2023 2022 % change 2023 2022 % change

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Total $ 205 $ 163 26% $ 622 $ 506 23%

Materials expense increased in both periods due to increased locomotive and freight car materials costs.

Claims expense decreased in the second quarter, but slightly increased in the first six months of 2023.

Both periods experienced lower costs associated with personal injury claims and environmental matters unrelated to the Incident.

Claims expense for the first six months increased as a result of higher costs associated with derailments unrelated to the Incident.

Other expense increased in both periods due to higher travel-related expenses and lower gains from operating property sales.

Gains from operating property sales, included in Other, totaled $19 million and $28 million for the second quarter in 2023 and 2022, respectively, and $22 million and $34 million in the first six months of 2023 and 2022, respectively.

Materials expense increased in both periods due to increased locomotive materials costs.

The first nine months were also impacted by higher freight car and engineering materials costs.

Claims expense decreased in the third quarter, but was flat for the first nine months of 2023.

Higher personal injury claims and other expenses were offset by a claims-related recovery.

Other expense increased in both periods due to the absence of a prior year favorable legal settlement, lower gains from operating property sales, and higher travel-related expenses.

In addition, increases in other expense categories were offset by higher rental income.

Gains from operating property sales, included in Other, totaled $8 million and $17 million for the third quarter in 2023 and 2022, respectively, and $30 million and $51 million in the first nine months of 2023 and 2022, respectively.

Eastern Ohio incident

During the second quarter and the first six months of 2023, we recorded $416 million and $803 million, respectively, for costs primarily associated with environmental matters and legal proceedings.

The expense recorded in the first six months does not include any estimates for amounts that may be recovered from third parties or under our insurance policies.

During the third quarter and the first nine months of 2023, we recorded $163 million and $966 million, respectively, for costs primarily associated with environmental matters and legal proceedings.

Amounts recorded in the third quarter and first nine months include the benefit of $25 million of expected recoveries under our insurance policies.

For further details regarding the Incident, see Note 11 in the Notes to Consolidated Financial Statements.

Other income (expense) – net

Other income increased $71 million in the second quarter and $132 million for the first six months, as both periods reflect higher returns on corporate-owned life insurance (COLI).

The effective tax rates for the second quarter and first six months of 2023 were 23.1% and 22.1%, compared with 24.7% and 23.9%, respectively, for the same periods last year.

Both periods in 2023 reflect higher returns on COLI slightly offset by lower tax benefits on stock-based compensation, while the year-to-date rate also includes the benefit of certain business tax credits recognized in the first quarter.

Other income increased $42 million in the third quarter and $174 million for the first nine months, as both periods reflect higher returns on corporate-owned life insurance (COLI) and higher interest income.

The effective tax rates for the third quarter and first nine months of 2023 were both 22.1%, compared with 12.4% and 19.8%, respectively, for the same periods last year.

Both periods in 2023 reflect higher returns on COLI, while the year-to-date rate also includes the benefit of certain business tax credits recognized in the first quarter.

The effective rates for both periods in 2022 include a $136 million benefit resulting from a state law change (see Note 3 in the Notes to the Consolidated Financial Statements).

FINANCIAL CONDITION AND LIQUIDITY

Cash provided by operating activities, our principal source of liquidity, was $1.8 billion for the first six months of 2023, compared with $2.0 billion for the same period of 2022.

Cash provided by operating activities, our principal source of liquidity, was $2.5 billion for the first nine months of 2023, compared with $3.4 billion for the same period of 2022.

The decrease reflects lower operating results, offset in part by changes in working capital.

We had negative working capital of $955 million and $642 million at June 30, 2023 and December 31, 2022, respectively.

Cash and cash equivalents totaled $556 million at June 30, 2023.

Cash used in investing activities was $741 million for the first six months of 2023, compared with $714 million for the same period last year.

The increase was primarily driven by higher property additions and lower proceeds from

property sales, partially offset by COLI investment activity.

We had working capital of $228 million at September 30, 2023 and negative working capital of $642 million at December 31, 2022.

Cash and cash equivalents totaled $1.5 billion at September 30, 2023.

Cash used in investing activities was $1.4 billion for the first nine months of 2023, compared with $1.1 billion for the same period last year.

The increase was primarily driven by higher property additions and lower proceeds from property sales.

For 2023, we expect property additions will be approximately $2.2 billion.

Cash used in financing activities was $1.0 billion for the first six months of 2023, compared with $877 million for the same period last year.

The increase reflects lower proceeds from borrowing and higher debt repayments, partially offset by lower repurchases of Common Stock.

We repurchased $303 million of Common Stock in the first six months of 2023 compared to $1.5 billion in the same period last year.

Cash used in financing activities was $62 million for the first nine months of 2023, compared with $2.0 billion for the same period last year.

The decrease reflects lower repurchases of Common Stock and increased proceeds from borrowings, partially offset by higher debt repayments.

We paid $503 million for the repurchase of Common Stock in the first nine months of 2023 compared to $2.3 billion in 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.

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Any near-term purchases under the program are expected to be made with internally-generated cash, cash on hand, or proceeds from borrowings.

In August 2023, we issued $600 million of 5.05% senior notes due 2030 and $1.0 billion of 5.35% senior notes due 2054.

In May 2023, 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 was extended in the second quarter and now expires in May 2024.

We had $130 million outstanding under this program at June 30, 2023 and $100 million outstanding at December 31, 2022.

Our available borrowing capacity was $270 million and $300 million at June 30, 2023 and December 31, 2022, respectively.

The term of our accounts receivable securitization program expires in May 2024.

We had no amounts outstanding under this program at September 30, 2023 and $100 million outstanding at December 31, 2022.

Our available borrowing capacity was $400 million and $300 million at September 30, 2023 and December 31, 2022, respectively.

In February 2023, we issued $500 million of 4.45% senior notes due 2033.

Our debt-to-total capitalization ratio was 54.5% at June 30, 2023 and 54.4% at December 31, 2022.

Our debt-to-total capitalization ratio was 56.8% at September 30, 2023 and 54.4% at December 31, 2022.

We have in place and available an $800 million credit agreement expiring in March 2025, which provides for borrowings at prevailing rates and includes covenants.

We had no amounts outstanding under this facility at June 30, 2023 or December 31, 2022.

In addition, we have investments in general purpose COLI policies and had the ability to borrow against these policies up to $530 million and $610 million at June 30, 2023 and December 31, 2022, respectively.

We had no amounts outstanding under this facility at September 30, 2023 or December 31, 2022.

In addition, we have investments in general purpose COLI policies and had the ability to borrow against these policies up to $635 million and $610 million at September 30, 2023 and December 31, 2022, respectively.

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, including share repurchases, 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, 2022, with the exception of additional senior notes (see Note 7).

In June 2023, we amended and restated our asset purchase and sale agreement with the Board of Trustees of the Cincinnati Southern Railway to purchase approximately 337 miles of railway line that extends from Cincinnati, Ohio to Chattanooga, Tennessee which we currently operate under a lease agreement.

Following this amendment, the total purchase price for the line and other associated real and personal property included in the transaction is expected to be between $1.6 billion and $1.7 billion.

Following this amendment,

the total purchase price for the line and other associated real and personal property included in the transaction is expected to be between $1.6 billion and $1.7 billion.

The agreement is conditioned upon the following, among other items:

(i) Cincinnati Voter Approval, and (ii) the receipt of regulatory approval from the STB.

If Cincinnati Voter Approval is obtained in November 2023, the transaction will close on the later of the date that is five days after all remaining conditions have been satisfied (including potential STB regulatory approval) or March 15, 2024.

In September 2023, the STB authorized the acquisition of the Cincinnati Southern Railway by Norfolk Southern Railway Company.

If Cincinnati Voter Approval is obtained in November 2023, the transaction will close on the later of the date that is five days after all remaining conditions have been satisfied or March 15, 2024.

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.

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.

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Estimates associated with the legal proceedings to which we are subject are based on information that is currently available, including but not limited to an assessment of the proceedings and the potential and likely results of such proceedings.

Our current estimates of future environmental cleanup and remediation liabilities related to the Incident may change over time due to various factors, including but not limited to, when activities at the site transition from extensive soil and water disposal and air monitoring activities to additional assessment and investigative efforts, the nature and extent of required future cleanup activities (including those resulting from additional assessment and investigative activities that will be conducted at the site), the extent and duration of governmental oversight, and the success of current cleanup techniques, amongst other factors.

Additionally, the final outcome of any of the legal proceedings and regulatory inquiries and investigations cannot be predicted with certainty, and unfavorable or unexpected developments or outcomes could result in new or additional accruals that could be material.

Furthermore, certain of these costs may be recoverable from third parties or under our insurance policies in effect at the date of the Incident.

Any amounts that are recoverable from third parties or under our insurance policies will be reflected in periods in which we determine that such amounts are probable of recovery.

Our current estimates of future environmental cleanup and remediation liabilities related to the Incident are expected to change over time due to various factors, including but not limited to, when activities at the site transition from extensive soil and water disposal and air monitoring activities to additional assessment and investigative efforts, the nature and extent of required future cleanup activities (including those resulting from additional assessment and investigative activities that will be conducted at the site), and the extent and duration of governmental oversight, amongst other factors.

Additionally, the final outcome of any of the legal proceedings and regulatory inquiries and investigations cannot be predicted with certainty, and developments related to the progress of such legal proceedings, inquiries, or investigations or other unfavorable or unexpected outcomes could result in additional costs or new or additionally accrued amounts that could be material to our results of operations in any particular year.

Furthermore, certain of these costs may be recoverable under our insurance policies in effect at the date of the Incident or from third parties.

Any amounts that are recoverable under our insurance policies or from third parties will be reflected in future periods in which recovery is considered probable.

See Note 11 in the Notes to Consolidated Financial Statements for more detailed information as it pertains to these contingencies.

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Additional Information

Investors and others should note that we routinely use the Investor Relations, Performance Metrics, and Sustainability sections of our website (www.norfolksouthern.com/content/nscorp/en/investor-relations.html, http://www.nscorp.com/content/nscorp/en/investor-relations/performance-metrics.html & www.nscorp.com/content/nscorp/en/about-ns/sustainability.html) 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 Twitter (www.twitter.com/nscorp) and LinkedIn (www.linkedin.com/company/norfolk-southern).

Investors and others should note that we routinely use the Investor Relations, Performance Metrics, and Sustainability sections of our website (https://norfolksouthern.investorroom.com/key-investor-information, https://norfolksouthern.investorroom.com/weekly-performance-reports & https://www.norfolksouthern.com/en/commitments/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.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis