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Item 7. Management’s Discussion and Analysis

2025-02-10 compared with 2024-02-05 · 187 added, 164 removed, 259 unchanged (58% of the section changed)

Management’s Discussion and Analysis of Financial Condition and Results of Operations

Norfolk Southern Corporation and Subsidiaries

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

Refer to Item 8 “Notes to Consolidated Financial Statements” for all “Note” references.

We are one of the nation’s premier transportation companies, moving goods and materials that help drive the U.S.

We connect customers to markets and communities to economic opportunity with safe, reliable, and cost-effective shipping solutions.

Our Norfolk Southern Railway Company subsidiary operates in 22 states and the District of Columbia.

We are a major transporter of industrial products, including agriculture, forest and consumer products, chemicals, and metals and construction materials.

In addition, in the East we serve every major container port and operate the most extensive intermodal network.

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

Our 2023 financial results were impacted by a February 2023 derailment in Eastern Ohio.

The derailment of 38 railcars resulted in the release of certain chemicals that were being transported for our customers.

Following the Incident (as defined and as further described in Note 17) and throughout the remainder of the year, we have worked to clean the derailment site safely and thoroughly and to monitor for any impact on public health and the environment.

As a result of the Incident, we incurred $1.1 billion of expenses primarily related to our environmental cleanup and remediation efforts at and around the site, related legal proceedings, and other Incident-related costs.

As a result, income from railway operations, net income, and diluted earnings per share declined compared to 2022, most significantly as a result of the direct costs from the Incident.

Our financial results were further impacted by lower revenues and higher non-Incident-related operating expenses.

Since 1827, Norfolk Southern Corporation and its predecessor companies have safely moved the goods and materials that drive the U.S.

Our dedicated team members deliver a wide variety of commodities annually for our customers, from agriculture products to consumer goods, and help them reduce carbon emissions by shipping via rail.

We have the most extensive intermodal network in the eastern U.S.

Our network serves a majority of the country's population and manufacturing base, with connections to every major container port on the Atlantic coast as well as major ports in the Gulf of Mexico and Great Lakes.

In 2024, we executed on various initiatives to operate our network more safely and efficiently, better serve our customers, and increase productivity in order to deliver improved financial performance.

We enhanced our executive leadership team and continued to execute on our strategy of providing high-quality service to our customers to enable smart, sustainable growth and delivering on productivity initiatives.

Additionally, we executed on several strategic initiatives, including the purchase of the Cincinnati Southern Railway, sales of certain railway lines, and completion of targeted rationalization and restructuring efforts, to further advance our organizational objectives.

Furthermore, we continued our efforts related to the Eastern Ohio Incident (as defined and further described in Note 18 in the Notes to the Consolidated Financial Statements), including the pursuit of recoveries under our insurance programs.

Our operational improvements during the year, while handling 5% higher volumes, helped drive improvements to income from railway operations, diluted earnings per share, and railway operating ratio (a measure of the amount of operating revenues consumed by operating expenses).

For the full year, we achieved an operating ratio of 66.4%, and an adjusted operating ratio of 65.8% (see our non-GAAP reconciliations beginning on page K26), both of which improved on a year-over-year basis.

We remain committed to being a safe, productive, resilient, and efficient railroad with industry-competitive margins.

SUMMARIZED RESULTS OF OPERATIONS

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($ in millions, except per share amounts) (% change)

Railway operating revenues $ 12,123 $ 12,156 $ 12,745 — % (5 %)

Railway operating expenses $ 8,052 $ 9,305 $ 7,936 (13 %) 17 %

Income from railway operations $ 4,071 $ 2,851 $ 4,809 43 % (41 %)

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Railway operating ratio (percent) 66.4 76.5 62.3 (13 %) 23 %

Income from railway operations, net income and diluted earnings per share declined in 2023 compared to 2022, driven by expenses incurred with our response efforts to the Incident (Note 17), lower railway operating revenues, and higher non-Incident-related railway operating expenses.

Income from railway operations, net income and diluted earnings per share increased in 2024 compared to 2023, primarily as a result of lower railway operating expenses.

The reduction in our operating expenses includes lower net expenses related to the Eastern Ohio Incident and $433 million of gains on the sale of railway lines.

Railway operating revenues were slightly lower as decreased fuel surcharge revenue, an adverse mix of traffic, and decreased pricing were nearly offset by increased volumes.

Our railway operating ratio improved to 66.4 percent.

non-Incident-related railway operating expenses.

Railway operating revenues declined 5% due to lower average revenue per unit, the result of lower fuel surcharge revenue and decreased intermodal storage service revenues partially offset by favorable pricing and mix.

Additionally, lower volumes contributed to the decline in revenues.

Expenses associated with the Incident for the year were $1.1 billion.

Net expenses associated with the Incident for the year 2023 were $1.1 billion.

In addition to costs resulting from the Incident, railway operating expenses increased due to inflationary pressures, investments in operational resiliency, and higher service-related costs, offset partially by lower fuel prices.

The decline in net income and diluted earnings per share also reflects the absence of a prior year $136 million deferred tax benefit, a result of an enactment of a change in the corporate income tax rate in the Commonwealth of Pennsylvania in 2022.

Railway operating ratio (a measure of the amount of operating revenues consumed by operating expenses) deteriorated to 76.5 percent.

Income from railway operations increased in 2022 compared to 2021, driven by higher railway operating revenues.

Revenue growth was the result of higher fuel surcharge revenues and pricing gains, which more than offset the impact of volume declines.

The rise in revenues was partly offset by increased railway operating expenses, driven by higher fuel prices, other inflationary pressures, service-related costs, increased labor-related costs primarily resulting from labor union negotiations, and higher claims-related expenses.

Incremental expenses incurred in 2022 that resulted from finalized labor agreements for wages earned in 2021 and prior periods lowered diluted earnings per share by $0.18.

Additionally, net income included a $136 million deferred tax benefit resulting from a state corporate income tax rate change, which increased diluted earnings per share by $0.58.

Our share repurchase activity resulted in the percentage increase in diluted earnings per share that exceeded that of net income.

Railway operating ratio deteriorated to 76.5 percent.

The following table adjusts our 2023 U.S.

Generally Accepted Accounting Principles (GAAP) financial results 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.

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 the 2023 costs arising from the Incident.

The following tables adjust our 2024 and 2023 U.S.

Generally Accepted Accounting Principles (GAAP) financial results 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”), shareholder advisory costs, and a deferred income tax adjustment, all which occurred in 2024, as well as the effects of the Incident that were present in both years.

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

While we believe that these non-GAAP financial measures are useful in evaluating our business, this information should be considered as supplemental in nature and is not meant to be considered in isolation from, or as a substitute for, the related financial information prepared in accordance with GAAP.

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Non-GAAP Reconciliation for 2024

(GAAP) Gains on Railway Line Sales Restructuring and Other Charges Eastern Ohio Incident Shareholder Advisory Costs Deferred Income Tax Adjustment Adjusted

($ in millions, except per share amounts)

operating $ 8,052 $ 433 $ (183) $ (325) $ — $ — $ 7,977

railway $ 4,071 $ (433) $ 183 $ 325 $ — $ — $ 4,146

Net income $ 2,622 $ (327) $ 125 $ 247 $ 44 $ (27) $ 2,684

Diluted earnings $ 11.57 $ (1.44) $ 0.55 $ 1.09 $ 0.20 $ (0.12) $ 11.85

operating ratio 66.4 3.6 (1.5) (2.7) — — 65.8

Non-GAAP Reconciliation for 2023

(GAAP) Eastern Ohio Incident Adjusted

($ in millions, except per share amounts)

Railway operating expenses $ 9,305 $ (1,116) $ 8,189

Income from railway operations $ 2,851 $ 1,116 $ 3,967

Income taxes $ 493 $ 270 $ 763

Net income $ 1,827 $ 846 $ 2,673

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Railway operating ratio (percent) 76.5 (9.1) 67.4

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

Adjusted (non-GAAP) 2022

(non-GAAP) 2022 2021 2022 2021

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

Adjusted 2024 (Non-GAAP) Adjusted 2023 (Non-GAAP) 2022 Adjusted 2024 (Non-GAAP) vs.

Adjusted 2023 (Non-GAAP) Adjusted 2023 (Non-GAAP) vs.

($ in millions, except per share amounts) (% change)

Railway operating expenses $ 7,977 $ 8,189 $ 7,936 (3 %) 3 %

Income from railway operations $ 4,146 $ 3,967 $ 4,809 5 % (18 %)

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Railway operating ratio (percent) 65.8 67.4 62.3 (2 %) 8 %

On a non-GAAP basis excluding the impact of direct costs resulting from the Incident, income from railway operations decreased in 2023 due to lower railway operating revenues and higher railway operating expenses.

On an adjusted basis, income from railway operations in 2024 increased due to lower adjusted railway operating expenses, with lower fuel prices, decreased costs of purchased services, and lower other expenses contributing significantly to the overall decline, and more than offsetting the decline in revenue.

Lower other income-net and higher interest expense on debt contributed to net income and diluted earnings per share that were only up slightly compared to the prior year.

In 2023, on a non-GAAP basis excluding the impact of direct costs resulting from the Incident, income from railway operations decreased due to lower railway operating revenues and higher railway operating expenses.

Railway operating revenues declined due to decreased fuel surcharge revenue, decreased intermodal storage revenues, and lower volume, partially offset by increased pricing and favorable mix compared to the prior year.

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Total 1,718 1,802 1,865 (5 %) (3 %)

Revenues decreased $589 million in 2023 but increased $1.6 billion in 2022 compared to the prior years.

Revenues declined in 2023 as a result of lower average revenue per unit, driven by decreases in fuel surcharge revenue and intermodal storage revenues, and volume declines.

Higher revenue for 2022 was the result of increased average revenue per unit, driven by higher fuel surcharge revenue, pricing gains, improved mix, and increased intermodal storage service charges, partially offset by volume declines.

Revenues decreased $33 million in 2024 and $589 million in 2023 compared to the prior years.

Revenues decreased in 2024 as a result of lower average revenue per unit, driven by lower fuel surcharge revenue, adverse mix, and decreased pricing, partially offset by higher volume.

Revenues declined in 2023 as a result of lower average revenue per unit, driven by decreases in fuel surcharge and intermodal storage revenues, and volume declines.

The table below reflects the components of the revenue change by major commodity group.

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

Fuel surcharge revenues totaled $1.2 billion, $1.6 billion, and $622 million in 2023, 2022, and 2021, respectively.

The change in fuel surcharge revenues in each period was primarily driven by fluctuations in fuel commodity prices.

For 2024, we expect that revenue will increase modestly driven by higher volumes.

Fuel surcharge revenues totaled $962 million, $1.2 billion, and $1.6 billion in 2024, 2023, and 2022, respectively.

The decline in fuel surcharge revenues in each period was primarily driven by fluctuations in fuel commodity prices.

For 2025, we expect that revenue will increase driven by higher volumes.

MERCHANDISE revenues increased in both 2024 and 2023 compared with the prior years.

In 2024, revenues rose as volume was higher for all commodity groups and pricing gains more than offset lower fuel surcharge revenue.

In 2023, revenues were slightly higher as pricing and volume gains were nearly offset by lower fuel surcharge revenue and unfavorable mix.

Increased volumes in automotive and agriculture, forest and consumer shipments were partially offset by decreased chemicals shipments.

In 2022, revenues rose due to higher average revenue per unit, driven by higher fuel surcharge revenue and increased pricing, partially offset by lower volume.

Decreased volumes in metal and construction and automotive shipments more than offset higher chemical shipments.

Agriculture, forest and consumer products revenues increased in both 2023 and 2022 compared with the prior years.

In 2023, the rise was the result of increased volume.

Agriculture, forest and consumer products revenues decreased slightly in 2024 but increased in 2023 compared with the prior years.

In 2024, the decrease was the result of lower average revenue per unit driven by lower fuel surcharge revenue, partially offset by increased price, and increased volume.

Increased volume in soybeans, corn, and feed were partially offset by lower volume in fertilizers and ethanol.

Soybean volume increased due to spot opportunities.

Increased corn and feed volumes were the result of customers shifting from truck to rail service to meet market demands.

The decrease in fertilizer volume was driven by lower potash shipments due to customer operational issues and cost pressures.

Ethanol volume declined primarily as a result of decreased demand.

In 2023, higher revenues were the result of increased volume.

Average revenue per unit was flat, the result of lower fuel surcharge revenue offset by pricing gains.

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Volume declines in wood chips were due to customer mill closures, while lower market demand led to the decline in graphic paper.

In 2022, the rise was the result of increased average revenue per unit, the result of higher fuel surcharge revenue and pricing gains, while volumes were nearly flat.

Declines in pulpboard, fertilizer, and pulp, were offset by increases in soybeans, feed, and corn.

Pulpboard and pulp shipments declined due to decreased demand, equipment availability, service disruptions, and production down time.

Lower fertilizer shipments were driven by high fertilizer prices causing customers to draw down on existing inventories or delay purchases as well as production disruptions.

Soybean volumes were higher due to increased opportunity for exports.

Feed shipments were higher due to increased customer demand.

Increased corn shipments were due to improved equipment cycle times.

Chemicals revenues decreased in 2023 but increased in 2022 compared with the prior years.

In 2023, the decrease was as a result of volume declines.

Chemicals revenues increased in 2024 but decreased in 2023 compared with the prior years.

In 2024, the increase in revenues was driven by higher average revenue per unit driven by increased price, partially offset by lower fuel surcharge revenue, and volume growth.

Solid waste and organic chemicals volume increased due to stronger demand.

These increases were slightly offset by declines in crude oil and petroleum products.

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

In 2023, the decrease was as a result

of volume declines.

Reduced shipments of crude oil, organic chemicals, and natural gas liquids, more than offset the increases in solid waste and other petroleum products.

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.

Organic chemicals and natural gas liquids volume declined as a result of lower demand.

Volume gains in solid waste were due to growth with existing customers, while the gains in petroleum products were due to growth with existing customers and new business opportunities.

In 2022, the increase was the result of higher average revenue per unit, driven by fuel surcharge revenue and pricing gains, and volume growth.

Increases in sand and solid waste shipments were partially offset by declines in plastics, inorganic chemicals, organic chemicals, and natural gas liquids.

The increase in sand was due to greater demand resulting from sustained high natural gas prices.

Solid waste shipments increased due to growth with existing customers.

Plastics shipments decreased due to softening of the housing market.

Declines in inorganic chemicals, organic chemicals, and natural gas liquids shipments were due to decreased demand and reduced production.

Metals and construction revenues were lower in 2023 but higher in 2022 compared with the prior years.

Metals and construction revenues were higher in 2024 but lower in 2023 compared with the prior years.

In 2024, the increase was driven by higher average revenue per unit due to favorable price, partially offset by lower fuel surcharge revenue, and higher volume.

Increased volume was due to higher demand in aggregates, kaolin, miscellaneous construction, and scrap metal, partially offset by lower demand for coil steel shipments.

In 2023, the decline in revenue was driven by lower average revenue per unit, the result of decreased fuel surcharge revenue partially offset by increased price.

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Gains in coil steel volume were due to increased equipment available to handle demand, while scrap metal volume increased due to higher demand.

In 2022, revenue growth was driven by higher average revenue per unit, the result of higher fuel surcharge revenue and pricing gains, partially offset by lower volume.

Volumes fell largely as a result of decreased shipments of coil steel, iron and steel, and scrap metal driven by service disruptions and slower equipment cycle times.

Automotive revenues rose in both 2024 and 2023 compared with the prior years.

The increase in revenues in 2024 was driven by slightly higher average revenue per unit driven by increased price, partially offset by lower fuel surcharge revenue, and slightly higher volume.

Volume increases were due to improvements in equipment availability and their cycle time paired with higher demand, mostly offset by reduced production and quality holds at certain manufacturers, and extended plant shutdowns.

The increase in revenues in 2023 was driven by increased volume and higher average revenue per unit, driven by favorable price.

Volume increases were due to higher finished vehicle inventory levels available for rail transportation and improved equipment cycle times.

The increase in revenues in 2022 was driven by higher average revenue per unit, due to higher fuel surcharge revenue and pricing gains, partially offset by volume declines.

Volume declines were the result of slower equipment cycle times partially offset by fewer parts supply issues due to easing supply chain congestion when compared to the prior year.

INTERMODAL revenues decreased in 2023 but increased in 2022 compared with the prior years.

The decrease in 2023 was the result of lower average revenue per unit, driven by reduced storage service charges and lower fuel surcharge revenue, and decreased volume.

The increase in 2022 was the result of higher average revenue per unit, due to higher fuel surcharge revenue, pricing gains, and increased storage service charges, partially offset by decreased volume.

INTERMODAL revenues decreased in both 2024 and 2023 compared with the prior years.

The decrease in 2024 was the result of lower average revenue per unit, driven by decreased pricing, lower fuel surcharge revenue, adverse mix, and declines in storage service revenues, partially offset by higher volume.

The decrease in 2023 was the result of lower average revenue per unit, driven by reduced storage service revenues and lower fuel surcharge revenue, and decreased volume.

Intermodal units by market were as follows:

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Total 4,107.7 3,822.4 3,913.1 7 % (2 %)

Domestic volume decreased in both 2023 and 2022 compared with the prior years.

Domestic volume increased in 2024 but decreased in 2023 compared with the prior years.

In 2024, volume increased due to growth in new and existing customers and improved service, partially offset by reduced demand for premium shipments.

In 2023, volume declined due to a decrease in freight demand as a result of reduced consumer consumption combined with high inventories, and increased truck competition.

In 2022, volume declined due to service disruptions, terminal congestion, strong over-the-road competition, and increased truck availability.

International volume increased in 2023 but decreased in 2022.

International volume increased in both 2024 and 2023.

The increase in 2024 was driven by increased demand, growth in existing customers, and increased movements of empty containers.

The increase in 2023 was driven by ocean carriers favoring inland point intermodal traffic, partially offset by a decrease in imports.

The decline in 2022 was the result of supply chain constraints, chassis shortages, and excess retail inventory.

COAL revenues decreased in 2023 but increased in 2022 compared with the prior years.

COAL revenues decreased in 2024 and 2023 compared with the prior years.

The decrease in 2024 was a result of lower average revenue per unit, driven by decreased pricing and lower fuel surcharge revenue, partially offset by positive mix and increased volume.

The decrease in 2023 was a result of decreased volumes.

Average revenue per unit was flat as lower fuel surcharge revenue and pricing declines were offset by positive mix.

The increase in 2022 was due to higher average revenue per unit, driven by pricing gains and higher fuel surcharge revenue, and increased volumes.

As shown in the following table, total tonnage decreased in 2023 but increased 2022.

As shown in the following table, total tonnage increased in 2024 but decreased in 2023 compared to prior years.

2024 2023 2022 vs.

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Total 76,702 75,892 76,664 1 % (1 %)

Utility coal tonnage decreased in 2023 but increased in 2022 compared with the prior years.

Utility coal tonnage decreased in both 2024 and 2023 compared with the prior years.

The decline in 2024 was due to reduced demand from continued low natural gas prices and high stockpiles.

The decrease in 2023 was due to low natural gas prices, high stockpiles, and unplanned customer outages.

The increase in 2022 was due to increased demand and service improvements.

Export coal tonnage increased in both periods compared with prior years.

The increases in both years were a result of increased demand and coal supply.

Export coal tonnage increased in both 2024 and 2023 compared with the prior years.

The increase in 2024 was due to growth with our customers and increased production.

The increase in 2023 was a result of increased demand and coal supply.

Domestic metallurgical coal tonnage decreased in both 2024 and 2023 compared with the prior years.

The decrease in 2024 was as a result of reduced customer demand.

The decrease in 2023 was due to reduced coke shipments resulting from idled customer facilities.

The decrease in 2022 was the result of reduced coke shipments related to customer sourcing changes and idled customer facilities.

Industrial coal tonnage decreased in 2023 but increased in 2022 compared with the prior years.

Industrial coal tonnage increased in 2024 but decreased in 2023 compared with the prior years.

The growth in 2024 was due to higher demand.

The decrease in 2023 was due to reduced coal shipments related to customer sourcing changes.

The increase in 2022 was the result of increased demand.

Railway Operating Expenses

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Compensation and benefits $ 2,823 $ 2,819 $ 2,621 — % 8 %

Purchased services and rents 2,070 1,922 1,726 8 % 11 %

Purchased services 1,655 1,683 1,565 (2 %) 8 %

Equipment rents 393 387 357 2 % 8 %

Fuel 987 1,170 1,459 (16 %) (20 %)

Depreciation 1,353 1,298 1,221 4 % 6 %

Materials and other 832 713 547 17 % 30 %

Materials 369 364 283 1 % 29 %

Claims 237 242 270 (2 %) (10 %)

Other (273) 226 160 (221 %) 41 %

Restructuring and other charges 183 — —

Eastern Ohio incident 325 1,116 — (71 %)

Total $ 8,052 $ 9,305 $ 7,936 (13 %) 17 %

In 2024, the decline in railway operating expenses reflects lower net expenses related to the Eastern Ohio incident (Note 18), higher gains on operating property sales, including certain gains on railway line sales (Note 8), and lower fuel prices, partially offset by restructuring and other charges (Note 3), and increased depreciation on our higher asset base.

In 2023, expenses increased as we incurred $1.1 billion of costs related to environmental matters and legal proceedings resulting from the Incident (Note 18).

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Partially offsetting these increases were the impacts of lower fuel prices and the absence of retroactive wage increases recorded in 2022.

In 2022, expenses increased primarily as a result of higher fuel prices, other inflationary pressures, service-related costs, increased labor-related costs resulting from labor union negotiations, and higher claims expense.

Compensation and benefits increased in 2024, reflecting changes in:

• employee activity levels (up $138 million),

• pay rates (up $91 million),

• overtime (up $9 million),

• incentive and stock-based compensation (down $30 million), and

• incentive and stock-based compensation (up $56 million),

• overtime (down $37 million),

• employee activity levels (down $68 million), and

• other (down $38 million).

In 2023, compensation and benefits increased, a result of changes in:

• pay rates (up $188 million),

• employee activity levels (up $138 million),

• pay rates (up $86 million),

• overtime (up $9 million),

• incentive and stock-based compensation (down $30 million), and

• other (up $1 million).

Pay rates in 2022 were impacted by the outcome of completed labor negotiations, which resulted in retroactive wage increases and other benefits pertaining to prior years.

These wage increases and benefits increased compensation and benefits by $54 million.

• other (down $5 million).

Our employment averaged 20,200 in 2024, compared with 20,300 in 2023, and 18,900 in 2022.

Purchased services and rents includes the costs of services purchased from external vendors and contractors, including the net costs of operating joint facilities with other railroads and the net cost of equipment rentals.

2023 2022 2021 vs.

($ in millions) (% change)

Purchased services $ 1,683 $ 1,565 $ 1,409 8 % 11 %

Equipment rents 387 357 317 8 % 13 %

Total $ 2,070 $ 1,922 $ 1,726 8 % 11 %

Purchased services includes the costs of services purchased from external vendors and contractors, including the net costs of operating joint facilities with other railroads.

The decrease in purchased services in 2024 was due to lower lease costs and declines in technology-related and operational expenses, partially offset by higher volume-related expenses and Conrail-related activity.

The increase in purchased services in 2023 was due to higher technology-related costs, increased operational and transportation expenses, and higher engineering activity.

The increase in purchased services in 2022 was due to inflationary pressures which resulted in higher intermodal-related expenses, and increased operational and transportation expenses, as well as higher technology-related costs.

Equipment rents , which includes our cost of using equipment (mostly freight cars) owned by other railroads or private owners less the rent paid to us for the use of our equipment, increased in both periods.

In 2024, the increase was due to increased automotive and intermodal equipment expenses as a result of higher volumes.

In 2023, the increase was due to increased intermodal equipment expenses, higher freight car lease costs, and decreased equity in TTX Company's (TTX) earnings.

In 2022, the increase was the result of lower network fluidity which led to greater time-and-mileage expenses, increased automotive and intermodal equipment expenses, and 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 2023 but increased in 2022.

The decrease in 2023 was due to lower locomotive fuel prices (down 20%), which decreased fuel expense by $275 million.

The increase in 2022 was due to higher locomotive fuel prices (up 87%) which increased expenses by $634 million.

Locomotive fuel consumption was nearly flat in 2023 and decreased 2% in 2022.

Fuel expense, which includes the cost of locomotive fuel as well as other fuel used in railway operations, decreased in both 2024 and 2023.

The decrease in both periods was due to lower locomotive fuel prices (down 15% in 2024 and 20% in 2023), which decreased fuel expense by $159 million and $275 million in 2024 and 2023, respectively.

Locomotive fuel consumption was down in 2024 and nearly flat in 2023 compared to prior periods.

We consumed 373 million gallons of diesel fuel in 2024, compared with 377 million gallons in 2023 and 376 million gallons in 2022.

Depreciation expense increased in both periods.

In both periods, the increase was a reflection of reinvestment in our infrastructure, rolling stock, and technology.

The increase in 2023 also reflects the impact of changes in group depreciable lives as a result of our periodic roadway study.

Materials and other expenses increased in both 2023 and 2022 as shown in the following table.

2023 2022 2021 vs.

($ in millions) (% change)

Materials $ 364 $ 283 $ 250 29 % 13 %

Claims 242 270 165 (10 %) 64 %

Other 226 160 132 41 % 21 %

Total $ 832 $ 713 $ 547 17 % 30 %

Depreciation expense increased in both periods compared to the prior years, reflecting reinvestment in our infrastructure, rolling stock, and technology.

Materials expense increased in both 2024 and 2023.

The increases in both years were due to increased locomotive, freight car, and track materials costs.

The increase in 2024 was due to higher freight car repairs expense, partially offset by lower locomotive materials spending.

The increase in 2023 was due to increased locomotive, freight car, and track materials costs.

Claims expense includes costs related to personal injury, property damage, and environmental matters.

Claims expense decreased in both 2024 and 2023 compared to the prior years.

The decrease in 2024 is the result of lower personal injury case development and declines in lading and property damage expenses.

These were partially offset by the absence of a prior-year claims-related recovery and higher insurance costs.

The decrease in 2023 was primarily the result of lower personal injury case development, lower costs related to environmental remediation matters unrelated to the Incident, and a claims-related recovery.

The increase in 2022 was primarily the result of higher costs associated with unfavorable personal injury case development, increased environmental remediation expenses, and higher lading and property damage costs.

Other expense increased in 2023 primarily due to lower gains from operating property sales and increased travel-related expenses.

In 2022, other expense increased primarily due to higher travel-related expenses, increased non-income-based taxes, and lower gains from sales of operating property, partially offset by lower relocation expenses.

Other expense decreased in 2024 primarily due to increased gains from operating property sales, lower non-income-based taxes, and lower relocation and travel-related expenses.

Gains from operating property sales includes $433 million of gains on the sale of railway lines in the states of Virginia and North Carolina.

These transactions are described further in Note 8 in the Notes to Consolidated Financial Statements.

The increase in 2023 was primarily due to lower gains from operating property sales and increased travel-related expenses.

Gains from operating property sales amounted to $490 million, $43 million, and $76 million in 2024, 2023, and 2022, respectively.

Restructuring and other charges

In 2024, we recorded $183 million in restructuring and other charges.

During the year, we completed voluntary and involuntary separation programs that reduced our management workforce.

Additionally, we ceased development of certain technology projects that had not been placed into service.

We also wrote down certain specialized equipment to its net realizable value, reflecting the planned disposition of that asset class.

Additionally, we incurred costs associated the appointment of our chief operating officer.

See Notes 3 and 13 in the Notes to Consolidated Financial Statements for additional information.

Eastern Ohio incident

During 2024, we incurred net expenses of $325 million associated with the Incident, including additional costs associated with environmental matters and legal proceedings.

The total amount recorded in 2024 is net of $650 million of insurance recoveries, resulting from claims made under our insurance policies in effect at the time of the Incident.

During 2023, we recorded $1.1 billion for costs primarily associated with environmental matters and legal proceedings.

We recorded $101 million of recoveries from claims made under our insurance policies, which are included in the total amount recorded in 2023.

For further details regarding the Incident, see Note 17 in Item 8 “Notes to Consolidated Financial Statements.”

Our cash expenditures attributable to the Incident, net of insurance proceeds received, were $119 million and $652 million in 2024 and 2023, respectively, and 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 18 in Notes to Consolidated Financial Statements.

Other Income – Net

Other income – net increased in 2023 but decreased in 2022.

The increase in 2023 was the result of higher net returns on corporate-owned life insurance (COLI) and increased interest income, partially offset by lower gains from non-operating property sales.

The decrease in 2022 was driven by lower net returns on COLI partially offset by a higher net pension benefit and increased interest income.

Other income – net decreased in 2024 but increased in 2023.

The decrease in 2024 reflects costs associated with shareholder matters, lower returns on corporate-owned life insurance (COLI), and higher pension and other 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 (Note 3).

The increase in 2023 was the result of higher net returns on COLI and increased interest income, partially offset by lower gains from non-operating property sales.

The effective income tax rate was 21.2% in 2024, compared with 21.3% in 2023 and 20.8% in 2022.

The current year benefited from tax credits and higher COLI returns offset by reduced benefits from stock-based compensation.

The effective income tax rate in 2022 and 2021 reflects favorable benefits associated with stock-based compensation and various state law changes (Note 4), while 2021 also benefited from higher COLI returns.

The current year reflects a $15 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.

The 2023 effective rate benefited from tax credits and higher COLI returns offset by reduced benefits from stock-based compensation.

The effective income tax rate in 2022 reflects favorable benefits associated with stock-based compensation and various state law changes (Note 5).

For 2025, we expect an effective income tax rate between 23% and 24%.

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Cash provided by operating activities, our principal source of liquidity, was $4.1 billion in 2024, $3.2 billion in 2023, and $4.2 billion in 2022.

The increase in 2024 reflects improved operating results.

The decrease in 2023 reflects lower operating results, offset in part by changes in working capital.

The decrease in 2022 reflected changes in working capital, offset in part by improved operating results.

We had working capital of $639 million at December 31, 2023 and negative working capital of $642 million at December 31, 2022.

Cash and cash equivalents totaled $1.6 billion and $456 million at December 31, 2023, and 2022, respectively.

We had negative working capital of $357 million at December 31, 2024 and working capital of $639 million at December 31, 2023.

Cash and cash equivalents totaled $1.6 billion at both December 31, 2024, and December 31, 2023.

We expect that 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, ability to reduce shareholder distributions, including share repurchases, and ability to moderate or defer property additions provide additional flexibility to meet our ongoing obligations in the short- and long-term.

Contractual obligations at December 31, 2023, including those that may have material cash requirements, include interest on fixed-rate long-term debt, long-term debt (Note 9), asset purchase of CSR (Note 17), unconditional purchase obligations (Note 17), long-term advances from Conrail Inc.

In addition, we believe our currently-available borrowing capacity, access to additional financing, ability to reduce shareholder distributions, and ability to moderate or defer property additions provide additional flexibility to meet our ongoing obligations in the short- and long-term.

Contractual obligations at December 31, 2024, including those that may have material cash requirements, include interest on fixed-rate long-term debt, long-term debt (Note 10), unconditional purchase obligations (Note 18), long-term advances from Conrail Inc.

(Conrail) (Note 7), operating leases (Note 11), agreements with Consolidated Rail Corporation (CRC) (Note 7), and unrecognized tax benefits (Note 5).

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Long-term debt principal 18,108 555 1,223 1,212 15,118

Asset purchase of CSR 1,662 1,662 — — —

Unconditional purchase obligations 1,225 519 455 95 156

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* This amount is shown in the 2030 and Subsequent column because the year of settlement cannot be reasonably estimated.

Off balance sheet arrangements consist primarily of unrecognized obligations, including future interest payments on fixed-rate long-term debt, the pending purchase of the assets of CSR, and unconditional purchase obligations which are included in the table above.

Off balance sheet arrangements consist primarily of unrecognized obligations, including future interest payments on fixed-rate long-term debt and unconditional purchase obligations, which are included in the table above.

Additionally, in connection with our ownership of an equity method investment, we have the option to acquire an intermodal terminal located in the southern U.S.

for an amount that will be determined subsequent to the potential exercise of that option.

Our option to purchase the terminal expires in the second quarter of 2025.

Cash used in investing activities was $2.8 billion in 2024, $2.2 billion in 2023, and $1.6 billion in 2022.

The increase in 2023 was primarily driven by higher property additions and lower proceeds from property sales.

In 2022, the increase is due to higher property additions partially offset by increased proceeds from property sales.

The increase in 2024 was driven by the acquisition of the assets of the CSR, partially offset by higher borrowings against our COLI policies and increased proceeds from property sales.

Please see Note 8 in the Notes to Consolidated Financial Statements for additional details on certain railway line sales and a discussion of the acquisition of the CSR assets.

In 2023, the increase was primarily driven by higher property additions and lower proceeds from property sales.

Capital spending and track and equipment statistics can be found within the “Railway Property” section of Part I of this report on Form 10-K.

For 2024, we expect property additions, excluding the purchase of the CSR, to approximate $2.3 billion.

In November 2022, we entered into an asset purchase and sale agreement with the Board of Trustees of the CSR, which was amended and restated in June 2023, to purchase approximately 337 miles of railway line that extends from Cincinnati, Ohio to Chattanooga, Tennessee.

We currently operate this railway line under a lease agreement.

Following the June 2023 amendment, the total purchase price for the line and other associated real and personal property included in the transaction is expected to be approximately $1.7 billion.

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

(i) Cincinnati Voter Approval, which was obtained in November 2023, and (ii) the receipt of regulatory approval from the STB, which occurred in September 2023.

The transaction is scheduled to close on March 15, 2024.

Cash provided by financing activities was $115 million in 2023, while cash used in financing activities was $3.0 billion in 2022 and $3.3 billion in 2021.

The increase in cash provided by financing activities in 2023 reflects lower repurchases of Common Stock and increased proceeds from borrowings, partially offset by higher debt repayments.

In 2022, the decrease in cash used in financing activities reflects lower repurchases of Common Stock and increased proceeds from borrowings, partially offset by higher dividends.

Share repurchases of $622 million in 2023, $3.1 billion in 2022, and $3.4 billion in 2021 resulted in the retirement of 2.8 million, 12.6 million, and 12.7 million shares, respectively.

For 2025, we expect property additions to approximate $2.2 billion.

Cash used in financing activities was $1.2 billion in 2024, while cash provided by financing activities was $115 million in 2023, and cash used in financing activities was $3.0 billion in 2022.

The increase in cash used in financing activities in 2024 reflects lower proceeds from borrowing partially offset by the absence of repurchases of Common Stock.

In 2023, the increase in cash provided by financing activities reflects lower repurchases of Common Stock and increased proceeds from borrowings, partially offset by higher debt repayments.

We did not repurchase any Common Stock during 2024, while we repurchased $622 million in 2023 and $3.1 billion in 2022, which resulted in the retirement of 2.8 million and 12.6 million shares in 2023 and 2022, respectively.

As of December 31, 2024, $6.9 billion remains authorized by our Board of Directors for repurchase.

The timing and volume of future share repurchases will be guided by our assessment of market conditions and other pertinent factors.

Repurchases may be executed in the open market, through derivatives, accelerated repurchase and other negotiated transactions and through plans designed to comply with Rule 10b5-1(c) and Rule 10b-18 under the Securities and Exchange Act of 1934.

Securities and Exchange Act of 1934.

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

In November 2023, we issued $400 million of 5.55% senior notes due 2034 and $600 million of 5.95% senior notes due 2064.

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

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

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

We had no amounts outstanding under this program and our available borrowing capacity was $400 million at both December 31, 2024 and December 31, 2023.

In January 2024, we renewed and amended our $800 million credit agreement.

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We had no amounts outstanding under this facility at either December 31, 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 the $800 million credit agreement.

In addition, we have investments in general purpose COLI policies and had the ability to borrow against these policies up to $640 million and $610 million at December 31, 2023 and December 31, 2022, respectively.

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 could borrow for general corporate purposes.

The term loan credit agreement provided for borrowing at prevailing rates and included covenants that align with the $800 million credit agreement.

The term loan expired undrawn in October 2024.

In addition, we have investments in general purpose COLI policies and had the ability to borrow against these policies.

We had borrowed $605 million against these policies at December 31, 2024 and no amounts borrowed at December 31, 2023.

Our remaining borrowing capacity was $40 million and $640 million at December 31, 2024 and December 31, 2023, respectively.

In January 2025, we repaid all amounts that were borrowed against these policies at December 31, 2024.

Our debt-to-total capitalization ratio was 54.6% at December 31, 2024, compared with 57.3% at December 31, 2023.

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Our environmental estimates are based upon types of remediation efforts currently anticipated, the volume of contaminants in the impacted areas, and governmental oversight and other costs, amongst other factors.

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, the nature and extent of required future cleanup and removal activities (including those resulting from soil, water, sediment, and air assessment and investigative activities that are and will continue to be conducted at the site), and the extent and duration of governmental oversight, amongst other factors.

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, the nature and extent of required future cleanup and removal activities (including those resulting from soil, water, sediment, and air assessment and investigative activities 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.

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Most of our assets are long-lived railway properties (Note 8).

“Properties” are stated principally at cost and are depreciated using the group method whereby assets with similar characteristics, use, and expected lives are grouped

together in asset classes and depreciated using a composite depreciation rate.

“Properties” are stated principally at cost and are depreciated using the group method whereby assets with similar characteristics, use, and expected lives are grouped together in asset classes and depreciated using a composite depreciation rate.

See Note 1 for a more detailed discussion of assumptions and estimates.

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A significant portion of our annual capital spending relates to self-constructed assets.

Costs related to repairs and maintenance activities that, in our judgment, do not extend an asset’s useful life or increase its utility are expensed when such repairs are performed.

Costs related to repairs and

maintenance activities that, in our judgment, do not extend an asset’s useful life or increase its utility are expensed when such repairs are performed.

Depreciation expense for 2024 totaled $1.4 billion.

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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 Railway Labor Act (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.

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

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

In addition, we understand the imperative to continue improving quality of life for our craft employees and remain actively engaged with our unions in voluntary local discussions (none of which carry the risk of a work stoppage) on this important issue.

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

Under current moratorium provisions, neither party was permitted to serve notice to compel a new round of mandatory collective bargaining until November 1, 2024.

In the months prior to the opening of the current national bargaining round, we engaged in voluntary local discussions with our labor unions and, as a result, reached local tentative agreements with ten of our thirteen unions.

A majority of those tentative agreements were subsequently ratified by union membership and became effective January 1, 2025, foreclosing the parties from serving new notices to compel mandatory bargaining until November 1, 2029.

For those unions with whom we have not yet reached a ratified agreement, the NCCC, on behalf of Norfolk Southern, sent bargaining notices on November 1, 2024, to 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.

We manage overall exposure to fluctuations in interest rates by issuing both fixed- and floating- rate debt instruments.

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FORWARD-LOOKING STATEMENTS

Certain statements in Management’s Discussion and Analysis of Financial Condition and Results of Operations are “forward-looking statements” within the meaning of the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995, as amended.

Certain statements in this report, including in Management’s Discussion and Analysis of Financial Condition and Results of Operations, are “forward-looking statements” within the meaning of the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995, as amended.

These statements relate to future events or our future financial performance and involve known and unknown risks, uncertainties, and other factors that may cause our actual results, levels of activity, performance, or our achievements or those of our industry to be materially different from those expressed or implied by any forward-looking statements.

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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 in Item 1A “Risk Factors,” may cause actual results, performance, or achievements to differ materially from those expressed or implied by these forward-looking statements.

The following important

factors, including those discussed in Item 1A “Risk Factors,” may cause actual results, performance, or achievements to differ materially from those expressed or implied by these forward-looking statements:

• our ability to successfully implement our operational, productivity, and strategic initiatives;

• changes in domestic or international economic, political or business conditions, including those impacting the transportation industry;

• a significant adverse event on our network, including but not limited to a mainline accident, discharge of hazardous material, or climate-related or other network outage;

• the outcome of claims, litigation, governmental proceedings, and investigations involving the Company, including but not limited to the Incident Proceedings;

• the nature and extent of the Company's environmental remediation obligations with respect to the Incident;

• new or additional governmental regulation and/or operational changes resulting from or related to the Incident or the Incident Proceedings;

• a significant cybersecurity incident or other disruption to our technology infrastructure.

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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Investors and others should note that we routinely use the Investor Relations, Performance Metrics and Sustainability sections of our website (norfolksouthern.investorroom.com/key-investor-information, norfolksouthern.investorroom.com/weekly-performance-reports & www.norfolksouthern.com/sustainability) to post presentations to investors and other important information, including information that may be deemed material to investors.

Information about us, including information that may be deemed material, may also be announced by posts on our social media channels, including X (formerly known as Twitter) (www.twitter.com/nscorp) and LinkedIn (www.linkedin.com/company/norfolk-southern).

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) (x.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-K

Item 7. Management’s Discussion and Analysis