What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-10-22 compared with 2024-07-26 · 129 added, 114 removed, 193 unchanged (56% of the section changed)

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

Throughout the first half of 2024, we have executed on initiatives aimed at delivering a high-quality service product for our customers, increasing productivity, and improving our operating margins.

We have enhanced our leadership team to accelerate operational improvements and restructured our management workforce to become a more productive organization.

We also continued to deliver on our commitments to respond to the Eastern Ohio Incident (as defined further and described in Note 13 in the Notes to Consolidated Financial Statements) and make it right for the affected communities.

In the second quarter, we improved our operating ratio (a measure of the amount of operating revenues consumed by operating expenses), achieving an operating ratio of 62.8% and an adjusted operating ratio of 65.1% (see our non-GAAP reconciliations beginning on page 26).

We remain committed to being a more productive, resilient, and efficient railroad while achieving industry-competitive margins.

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

Second Quarter First Six Months

Third Quarter First Nine Months

2024 2023 % change 2024 2023 % change

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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 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.

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.

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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 Second Quarter 2024

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

Non-GAAP Reconciliation for Third Quarter 2024

Reported 2024 (GAAP) Gains on Railway Line Sales Restructuring and Other Charges Eastern Ohio Incident Adjusted 2024

($ in millions, except per share amounts)

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Railway operating ratio (percent) 47.7 12.5 (2.0) 5.2 63.4

Non-GAAP Reconciliation for Second Quarter 2023

Non-GAAP Reconciliation for Third Quarter 2023

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 quarters of 2024 and 2023 and related comparisons use the adjusted, non-GAAP results from the reconciliations in the tables above.

Second Quarter

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

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Railway operating ratio (percent) 63.4 69.1 (8%)

Non-GAAP Reconciliation for First Six Months 2024

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

Non-GAAP 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

($ in millions, except per share amounts)

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Railway operating ratio (percent) 67.7 4.2 (1.7) (4.1) — — 66.1

Non-GAAP Reconciliation for First Six Months 2023

Non-GAAP Reconciliation for First Nine Months 2023

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 2024 and 2023 and related comparisons use the adjusted, non-GAAP results from the reconciliation in the tables above.

First Six Months

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

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Railway operating ratio (percent) 66.1 66.9 (1%)

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.

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

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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 2024 2023 % change 2024 2023 % change

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Total 1,694 1,760 (4%) 1,729 1,816 (5%)

Railway operating revenues increased $64 million in the second quarter but decreased $64 million for the first six months compared with the same periods last year.

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).

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 $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.

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 be higher compared to 2023 driven by increased volume, partially offset by the impacts of pricing and traffic mix.

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

Agriculture, forest and consumer products volume decreased in both periods, due to declines in corn, fertilizers, ethanol and food oils, partially offset by increased feed volume.

Decreased corn volume was the result of customer sourcing changes due to increased southeast corn production.

Volume in fertilizers and food oils were down due to reduced business opportunities, while the volume decline in ethanol was due to reduced production.

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

Chemicals volume increased in the second quarter but decreased for the first six months.

Shipments of organic chemicals and plastics increased in both periods due to stronger demand.

Petroleum products and crude oil volume decreased in the first six months.

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 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.

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 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:

Second Quarter First Six Months

Third Quarter First Nine Months

2024 2023 % change 2024 2023 % change

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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 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.

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 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:

Second Quarter First Six Months

Third Quarter First Nine Months

2024 2023 % change 2024 2023 % change

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Total 20,785 18,724 11% 57,770 56,650 2%

Utility tonnage increased during the second quarter due to increased shipments associated with the impacts of warm weather on electricity demand, but decreased during the first six months due to higher stockpiles, low natural gas prices and a mild winter.

Export tonnage decreased in the second quarter due to the temporary closure of the Baltimore port which limited export opportunities through that location.

Export tonnage increased for the first six months due to increased demand.

Domestic metallurgical tonnage declined in both periods as a result of reduced customer demand.

Industrial coal tonnage decreased during the second quarter due to customer outages, and increased during the first six months due to higher demand.

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):

Second Quarter First Six Months

Third Quarter First Nine Months

2024 2023 % change 2024 2023 % change

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Total $ 1,455 $ 2,215 (34%) $ 6,159 $ 7,040 (13%)

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

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

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Total $ 497 $ 517 (4%) $ 1,541 $ 1,519 1%

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.

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 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.

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):

Second Quarter First Six Months

Third Quarter First Nine Months

2024 2023 % change 2024 2023 % change

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Total $ (188) $ 205 (192%) $ 200 $ 622 (68%)

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.

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

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.

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 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.

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 $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.

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.

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 $1.9 billion for the first six months of 2024, compared with $1.8 billion for the same period of 2023.

We had negative working capital of $1.4 billion at June 30, 2024 and working capital of $639 million at December 31, 2023.

Cash and cash equivalents totaled $659 million at June 30, 2024.

Cash used in investing activities was $2.6 billion for the first six months of 2024, compared with $741 million for the same period last year.

The increase was driven by the acquisition of the assets of the CSR as well as increased property additions.

Please see Note 9 in the Notes to Consolidated Financial Statements for a detailed discussion of the acquisition of the CSR assets.

Cash used in financing activities was $217 million for the first six months of 2024, compared with $1.0 billion for the same period last year, reflecting lower debt repayments and repurchases of Common Stock, partially offset by lower proceeds from borrowing.

We did not repurchase any Common Stock during the first six months of 2024, while we repurchased $303 million during the same period last year.

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.

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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.

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.

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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.

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 June 30, 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 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 June 30, 2024.

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.

If left undrawn, the term loan will be available until October 2024.

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 $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 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.

On April 9, 2024, we announced that we have reached an agreement in principle to settle the Ohio Class Action for $600 million.

Subject to final court approval and other conditions, payments to class members under the settlement could begin by the end of this year.

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

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Approximately 80% of our railroad employees are covered by collective bargaining agreements with various labor unions.

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

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, 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.

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.

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

18 unchanged sentences

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What changed 10-Q

Item 2. Management’s Discussion and Analysis