What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-07-26 compared with 2024-04-24 · 151 added, 101 removed, 156 unchanged (62% of the section changed)

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

During 2024, we 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, including reaching a $600 million agreement in principle to resolve a consolidated class action lawsuit related to the Incident.

Expenses associated with the Incident, which include the impacts of the settlement as well as costs related to environmental matters and other legal proceedings, contributed to the deterioration of our first quarter 2024 results, including significant declines in income from railway operations, net income, and diluted earnings per share as compared to the same period last year.

We are also taking actions to improve productivity in our organization.

During the first quarter, we commenced a program to reduce management headcount and appointed a new chief operating officer to enhance our leadership team and help accelerate the execution of our strategy.

We are continuing to become a more productive, resilient, and efficient railroad to drive long-term value creation.

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

First Quarter

2024 2023 % change

Second Quarter First Six Months

2024 2023 % change 2024 2023 % change

($ in millions, except per share amounts)

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Railway operating ratio (percent) 62.8 80.7 (22%) 77.8 78.9 (1%)

The significant decline in income from railway operations includes $691 million of expenses that resulted from our Incident-related costs and restructuring and other charges, while net income and diluted earnings per share were further impacted by costs associated with shareholder advisory matters but also the benefit of a deferred income tax adjustment.

Our financial results also reflect lower railway operating revenues and higher railway operating expenses as discussed further below.

The following tables adjust our first quarter 2024 and 2023 GAAP financial results to exclude the effects of the Incident, restructuring and other charges, 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.

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.

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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 First Quarter 2024

Non-GAAP Reconciliation for Second Quarter 2024

Reported 2024 (GAAP) Eastern Ohio Incident Restructuring and Other Charges Shareholder Advisory Costs Adjusted 2024

($ 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

($ 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

Adjusted 2023

($ 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

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Railway operating ratio (percent) 77.8 (8.7) (1.6) — — 67.5

Non-GAAP Reconciliation for First Quarter 2023

Non-GAAP Reconciliation for First Six Months 2023

Reported 2023 (GAAP) Eastern Ohio Incident Adjusted 2023

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Railway operating ratio (percent) 78.9 (13.1) 65.8

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

First Quarter

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

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Railway operating ratio (percent) 67.5 65.8 3%

On an adjusted basis, our income from railway operations decreased due to lower railway operating revenues and higher adjusted railway operating expenses.

Railway operating revenues declined due to a decrease in average revenue per unit, driven by lower fuel surcharge revenue, adverse mix of traffic, lower intermodal storage revenues, and decreased pricing, partially offset by higher volumes.

Adverse mix was driven by outsized growth in international intermodal volumes combined with declines in coal volumes.

Higher adjusted railway operating expenses reflect inflationary pressures, increased headcounts, and volume-related costs, partially offset by lower fuel prices.

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

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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.

First Quarter

Revenues 2024 2023 % change

Second Quarter First Six Months

Revenues 2024 2023 % change 2024 2023 % change

Agriculture, forest and consumer products $ 622 $ 627 (1%) $ 1,251 $ 1,280 (2%)

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Total 1,747 1,798 (3%) 1,747 1,845 (5%)

Railway operating revenues decreased $128 million compared with the same period last year.

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).

First Quarter

Merchandise Intermodal Coal

Second Quarter First Six Months

Merchandise Intermodal Coal Merchandise Intermodal Coal

Increase (Decrease)

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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 $260 million and $375 million in the first quarters of 2024 and 2023, respectively.

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.

Merchandise revenues decreased due to lower average revenue per unit, driven by lower fuel surcharge revenue, partially offset by increased pricing.

Overall volume was nearly flat compared to the same period last year.

Agriculture, forest and consumer products volume decreased due to declines in corn, sweeteners, and fertilizers, partially offset by increases in wheat.

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 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 decline in sweeteners was due to customer sourcing changes and an unfavorable crop season.

Volume in fertilizers was down due to reduced business opportunities.

Volume growth in wheat was largely due to growth with existing customers.

Chemicals volume decreased due to declines in crude oil and petroleum products.

Volume declines in crude oil are due to a market share shift, and volume declines in petroleum are related to the conclusion of a spot opportunity handled in the first quarter last year to support a customer during a refinery outage.

Metals and construction volume rose, driven by increased equipment availability for coil steel, and iron and steel.

Scrap metal growth was due to increased demand.

Automotive volume was flat due to steady demand and improved equipment cycle times, offset by quality holds at the manufacturers.

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

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 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:

First Quarter

2024 2023 % change

Second Quarter First Six Months

2024 2023 % change 2024 2023 % change

Domestic 616.3 577.0 7% 1,206.7 1,164.7 4 %

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Total 1,003.5 925.4 8% 1,992.3 1,842.2 8 %

Domestic volume increased due to growth in existing customers.

International volume rose, driven by higher empty container volume, increased import and export demand, and ocean carriers favoring inland point intermodal traffic.

Coal revenues declined, the result of lower average revenue per unit driven by decreased pricing and fuel surcharge revenue, and lower volume.

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 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:

First Quarter

2024 2023 % change

Second Quarter First Six Months

2024 2023 % change 2024 2023 % change

Utility 7,555 6,852 10% 14,574 15,062 (3%)

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Total 18,238 18,490 (1%) 36,985 37,926 (2%)

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

Domestic metallurgical tonnage decreased due to a decline in customer demand.

Export and industrial tonnage were both higher due to increased demand.

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):

First Quarter

2024 2023 % change

Second Quarter First Six Months

2024 2023 % change 2024 2023 % change

Compensation and benefits $ 700 $ 693 1% $ 1,436 $ 1,383 4%

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Total $ 1,913 $ 2,404 (20%) $ 4,704 $ 4,825 (3%)

Compensation and benefits expense increased as follows:

• employee activity levels (up $26 million),

• pay rates (up $24 million), and

• other (down $4 million).

Average rail headcount for the quarter was up by 1,100 compared with the first quarter of 2023 primarily due to the hiring of additional non-train and engine craft and nonagreement employees.

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

First Quarter

2024 2023 % change

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%

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Total $ 516 $ 506 2% $ 1,044 $ 1,002 4%

Purchased services primarily increased due to higher volume-related expenses, increased operational and transportation expenses, as well as higher technology-related costs.

Equipment rents increased 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 due to lower locomotive fuel prices (down 12%), partially offset by increased consumption (up 3%).

Depreciation expense increased due to a higher asset base.

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

First Quarter

2024 2023 % change

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%

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Total $ 173 $ 205 (16%) $ 388 $ 417 (7%)

Materials expense increased due to higher locomotive and freight car materials costs.

Claims expense decreased as a result of lower costs associated with derailments.

Other expense increased due to lower gains from operating property sales, higher travel-related expenses, and increased non-income based taxes, partially offset by higher rental income.

We had no gains from operating property sales in 2024, as compared to $3 million in 2023, which are recorded in “Other expense.”

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 quarter of 2024, we recorded $99 million in expense associated with our voluntary and involuntary separation programs that will reduce our management workforce, as well as costs associated with the appointment of our new chief operating officer.

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 first quarter of 2024, we recorded $592 million for costs associated with the Incident, as compared to $387 million in the first quarter of 2023.

Costs incurred in the first quarter of 2024 include the impact of an agreement in principle to resolve a consolidated class action lawsuit related to the Incident and costs for environmental matters and other legal proceedings, which were partially offset by $108 million of expected recoveries under our insurance policies.

In the first quarter of 2023, we recorded $387 million for costs primarily associated with environmental matters and legal proceedings and did not record any estimates of recoveries under our insurance policies.

Our cash expenditures attributable to the Incident, net of insurance proceeds received, were $117 million and $55 million for the first three months of 2024 and 2023, respectively, which are presented in “Net cash provided by operating activities” on the Consolidated Statements of Cash Flows.

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 $38 million reflecting costs associated with shareholder matters and lower returns on COLI, partially offset by higher interest income.

The effective tax rate for the first three months of 2024 was (76.7%), compared with 21.3% for the same period last year.

The negative effective rate for the first quarter of 2024 is driven by low pre-tax income coupled with a $27 million deferred income tax benefit recognized in the quarter, which is the result of a subsidiary restructuring that reduced our estimated deferred state income tax rate.

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.

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 $839 million for the first three months of 2024, compared with $1.2 billion for the same period of 2023.

The decrease reflects lower operating results.

We had negative working capital of $1.1 billion at March 31, 2024 and working capital of $639 million at December 31, 2023.

Cash and cash equivalents totaled $652 million at March 31, 2024.

Cash used in investing activities was $1.8 billion for the first three months of 2024, compared with $391 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, partially offset by increased borrowings from our COLI policies.

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 provided by financing activities was $89 million for the first three months of 2024, compared with cash used in financing activities of $686 million for the same period last year.

The change reflects 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 three months of 2024, while we repurchased $163 million during the same period last year.

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.

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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 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 March 31, 2024 or December 31, 2023, and we are in compliance with all of its 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 March 31, 2024, and if left undrawn, the term loan credit agreement is set to expire at the end of July 2024.

We also have in place an 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 2024.

We had $400 million (at an average variable interest rate of 6.06%) outstanding under this program at March 31, 2024 and no amounts outstanding at December 31, 2023.

We had fully utilized our borrowing capacity under the program at March 31, 2024, while we had $400 million available at December 31, 2023.

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 $308 million outstanding at March 31, 2024 and no amounts outstanding at December 31, 2023.

Our remaining borrowing capacity was $340 million and $640 million at March 31, 2024 and December 31, 2023, respectively.

Our debt-to-total capitalization ratio was 58.4% at March 31, 2024 and 57.3% at December 31, 2023.

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.

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We largely bargain nationally in concert with other major railroads, represented by the National Carriers’ Conference Committee.

The latest round of national bargaining concluded in December 2022, when agreements were either ratified or enacted through legislative action for all of our unions.

With the conclusion of national bargaining, neither party can compel mandatory bargaining around any new proposals until November 1, 2024.

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.

In preparing financial statements, GAAP requires the use of historical cost that disregards the effects of inflation on the replacement cost of property.

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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.

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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