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| Long-term debt, including current maturities | $ | () | | | $ | () | | | $ | () | | | $ | () | |
14.
railcars, of which were non-Company-owned tank cars containing hazardous materials. Fires associated with the derailment threatened certain tank cars. There was concern that the pressure inside of the tank cars carrying vinyl chloride was rising and that the pressure relief devices were no longer functioning properly, which would have posed the risk of a catastrophic explosion. As a consequence, on February 6, 2023, the local incident commander (the East Palestine Fire Chief)—in consultation with the incident command that included, among others, federal, state and local officials and Norfolk Southern—opted to conduct a controlled vent and burn of derailed tank cars, all of which contained vinyl chloride. This procedure involved creating holes in the tank cars to drain the vinyl chloride into adjacent trenches that had been dug into the ground where the vinyl chloride was ignited and burned. Any remaining materials released from the derailment or during the vent and burn have been or are being remediated. The February 3rd derailment, the associated fire, and the resulting vent and burn of the tank cars containing vinyl chloride on February 6th is hereinafter referred to as the “Incident.”
In response to the Incident, we have been working to clean the site safely and thoroughly, including those activities described in the Environmental Matters section below with respect to potentially impacted air, soil and water and to monitor for any impact on public health and the environment. We are working with federal, state, and local officials to mitigate impacts from the Incident, including, among other efforts, conducting environmental monitoring and clean-up activities (as more fully described below), operating a family assistance center to provide financial support to affected members of the East Palestine and surrounding communities, and committing additional financial support to the community.
million and $ million, respectively, which are discussed in further detail below. These amounts represent the difference between the recognized expense and cash expenditures (net of insurance recoveries) related to the Incident as of each respective date. From the inception of the Incident, we have recognized a total of $ billion in net expenses directly attributable to the Incident, which included $ million of insurance recoveries from claims made under our insurance policies. We have also recorded a deferred tax asset of $ million and $ million at September 30, 2024 and December 31, 2023, respectively, related to the Incident expecting that certain expenses will be deductible for tax purposes in future periods or offset with insurance recoveries.
Certain costs incurred thus far and related to the Incident may be recoverable under our insurance policies in effect at the date of the Incident or from third parties. Any additional amounts recoverable under our insurance policies or from third parties will be reflected in future periods in which recovery is considered probable. For additional information about our insurance coverage, see “Insurance” below.
Environmental Matters – In response to the Incident, we have been working with federal, state, and local officials such as the U.S. Environmental Protection Agency (EPA), the Ohio EPA, the Pennsylvania Department of Environmental Protection (DEP), and the Columbiana County Health District to conduct environmental response and remediation activities, some of which have concluded and some which are continuing, including but not limited to, excavating and disposing of potentially affected soil (based on sampling results), air monitoring, indoor air quality screenings, municipal water and private water well testing, residential, commercial, and agricultural soil sampling, surface water and groundwater sampling, re-routing a local waterway around the affected site, and capturing and shipping stormwater that enters the impacted derailment site to proper disposal facilities. The U.S. EPA issued a Unilateral Administrative Order (UAO) on February 21, 2023, containing various requirements, including the submission of numerous work plans to assess and remediate various environmental media and performance of certain removal actions at the affected site. On February 24, 2023, we submitted to the U.S. EPA our Notice of Intent to Comply with the UAO. We continue to conduct environmental assessment and remediation activities pursuant to the UAO and the directives issued thereunder, including sampling and excavating soil (if needed based on sampling results) at the affected site, including areas beneath our tracks. On October 18, 2023, the U.S. EPA issued a second unilateral order under Section 311(c) of the Clean Water Act (CWA), requiring preparation of additional environmental work plans to address local waterways. We timely submitted our Notice of Intent to Comply with the CWA order and continue to complete environmental assessment and remediation as required by the U.S. EPA, as well as state agencies, in compliance with the CWA order. Once approved by the court, the proposed Consent Decree (discussed below) will supersede the UAO and CWA Order.
We are also subject to the following legal proceedings that principally relate to the environmental impact of the Incident:
•The U.S. Department of Justice (DOJ) filed a civil complaint on behalf of the U.S. EPA (the DOJ Complaint) in the Northern District of Ohio (Eastern Division) seeking injunctive relief and civil penalties for alleged violations of the CWA and cost recovery under the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA). The Ohio Attorney General (AG) also filed a lawsuit (the Ohio Complaint) in the Northern District of Ohio (Eastern Division) seeking damages for a variety of common law and environmental statutory claims under CERCLA and various state laws. The DOJ and Ohio AG cases have been consolidated for discovery purposes. We have filed an answer, and discovery is ongoing in the Ohio AG case. On
million through November 30, 2023 as well as additional oversight costs from December 1, 2023 until the remediation is complete. The proposed Consent Decree also requires the Company to pay a civil penalty of $ million for alleged violations of the CWA. Other provisions of the proposed Consent Decree relate to injunctive relief for safety, community support, and environmental support, which provisions, if approved by the court, will be in effect between to . The proposed Consent Decree was subject to a mandatory public comment period, which ended on August 2, 2024, and DOJ filed a motion on October 10, 2024 seeking entry of the Consent Decree. The Ohio AG did not join this settlement and its claims remain outstanding and are proceeding.
In accordance with FASB ASC 410-30 “Environmental Liabilities,” as of September 30, 2024 and December 31, 2023, we had recognized probable and reasonably estimable liabilities in connection with the foregoing environmental matters of $ million and $ million, respectively, and which are primarily included in “Other current liabilities” on the Consolidated Balance Sheet. We recognized $ million and $ million of expense during the third quarters of 2024 and 2023, respectively, and $ million and $ million during the first nine months of 2024 and 2023, respectively. We made $ million and $ million in payments during the third quarters of 2024 and 2023, respectively, and $ million and $ million during the first nine months of 2024 and 2023, respectively, related to these matters. Our current estimate includes ongoing and future environmental cleanup activities and remediation efforts, governmental oversight costs (including those incurred by the U.S. EPA and the Ohio EPA), and other related costs, including those in connection with the proposed DOJ Consent Decree (including civil penalties related to alleged violations of the CWA). 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, and sediment remediation activities that are currently being, and will continue to be, conducted at the site), and the extent and duration of governmental oversight, amongst other factors. As clean-up efforts progress and more information is available, we will review these estimates and revise as appropriate. Since the date of the Incident, we have recognized a total of $ billion in expenses related to environmental matters, of which $ million has been paid.
Legal Proceedings and Claims (Non-Environmental) – To date, numerous non-environmental legal actions have commenced with respect to the Incident, including those more specifically set forth below.
•There is a consolidated putative class action pending in the Northern District of Ohio (Eastern Division) (the Ohio Class Action) in which plaintiffs allege various claims, including negligence, gross negligence, strict liability, and nuisance, and seeking as relief compensatory and punitive damages, medical monitoring and business losses. The putative class is defined by reference to a class area covering a -mile radius. On July 12, 2023, we filed a third-party complaint bringing in multiple parties involved in the Incident. Fact discovery ended on February 5, 2024. The Court denied in part and granted in part all motions to dismiss, as to the plaintiffs’ case and as to our third-party complaint, on March 13, 2024. On April 9, 2024, we announced that we reached an agreement in principle to settle the Ohio Class Action for $ million. The settlement agreement does not resolve, and expressly preserves, our third-party claims in the third-party complaint. The court granted final approval of the settlement on September 27, 2024, which was subsequently appealed to the Sixth Circuit. The settlement agreement will resolve all class action claims within a -mile radius from the derailment and, for those residents who choose to participate, personal injury claims within a -mile radius from the derailment. We made a partial payment of the
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.
Another putative class action is pending in the Western District of Pennsylvania, brought by Pennsylvania school districts and students. On August 22, 2023, Pennsylvania school districts and students filed a putative class action lawsuit alleging negligence, strict liability, nuisance, and trespass, and seeking damages and health monitoring. On December 8, 2023, the school districts amended their complaint to add additional companies as defendants in the action. On February 23, 2024, we and the other defendants filed motions to dismiss and those motions are fully briefed and currently pending before the court. Combined with the Ohio Class Action, these lawsuits are collectively referred to herein as the Incident Lawsuits.
In accordance with FASB ASC 450, “Contingencies,” as of September 30, 2024 and December 31, 2023, we had accruals for probable and reasonably estimable liabilities principally associated with the Incident Lawsuits and related contingencies of $ million and $ million, respectively. For the reasons set forth below, our estimated loss or range of loss with respect to the Incident Lawsuits may change from time to time, and it is reasonably possible that we will incur actual losses in excess of the amounts currently accrued and such additional amounts may be material. While we continue to work with parties with respect to potential resolution, no assurance can be given that we will be successful in doing so and we cannot predict the outcome of these matters.
•We have received securities and derivative litigation and multiple shareholder document and litigation demand letters, including a securities class action lawsuit under the Securities Exchange Act of 1934 (Exchange Act) initially filed in the Southern District of Ohio alleging multiple securities law violations but since transferred to the Northern District of Georgia, a securities class action lawsuit under the Securities Act of 1933 (Securities Act) filed in the Southern District of New York alleging misstatements in association with our debt offerings, and shareholder derivative complaints filed in Virginia state court asserting claims for breach of fiduciary duties, waste of corporate assets, and unjust enrichment in connection with safety of the Company’s operations, among other claims (collectively, the Shareholder Matters). On February 2, 2024, defendants filed a motion to dismiss the complaint in the Securities Act lawsuit, and on July 26, 2024, the magistrate judge issued a Report and Recommendation to the district judge, recommending that the defendants’ motion to dismiss be granted in part and denied in part. Defendants’ objections to the Report and Recommendation were filed on August 9, 2024, and plaintiffs’ response to defendants’ objections were filed on August 23, 2024. A decision on the motion to dismiss remains pending. The plaintiffs filed an amended complaint in the Exchange Act lawsuit on April 25, 2024, and the defendants filed a motion to dismiss on June 24, 2024. A decision on the motion to dismiss remains pending. No responsive pleadings have been filed yet with respect to the other Shareholder Matters.
•We are also named as a defendant in various other Incident-related litigation involving other potentially affected third parties. We do not currently believe the outcome of these proceedings will have a material effect on our financial position, results of operations, or liquidity.
With respect to the Incident-related litigation and regulatory matters, we record a liability for loss contingencies through a charge to earnings when we conclude that it is probable that a liability has been incurred and the amount of the liability can be reasonably estimated and disclose such liability if we conclude it to be material. Any adjustments to the recorded liability will be reflected in earnings in the periods in which such adjustments become known. Because the final outcome of any of these legal proceedings cannot be predicted with certainty, developments related to the progress of such legal proceedings or other unfavorable or unexpected developments or outcomes could result in additional costs or new or additionally accrued amounts that could be material to our results of operations in a particular
recommendations, of which were issued to Norfolk Southern. The NTSB continues to work on a safety culture investigation, and a report on this part of the investigation is expected to be issued by the spring of 2025.
Concurrent with the NTSB Investigation, the FRA also investigated the Incident. Similar in scope to the NTSB Investigation, the FRA examined railroad equipment, track conditions, hazardous materials train placement and routing, and emergency response (the FRA Incident Investigation). The FRA Incident Investigation will likely result in the assessment of civil penalties, though the amount and materiality of these penalties cannot be reasonably estimated at this time. In addition to the FRA Incident Investigation, the FRA completed a 60-day supplemental safety assessment (the FRA Safety Assessment). The FRA Safety Assessment included a review of findings from a previously completed 2022 system audit and an assessment of operational elements including, but not limited to: track, signal, and rolling stock maintenance, inspection and repair practices; protection of employees;
include liabilities for other environmental exposures of $ million at September 30, 2024 and $ million at December 31, 2023, of which $ million is classified as a current liability at the end of both periods. At September 30, 2024, the liability represents our estimates of the probable cleanup, investigation, and remediation costs based on available information at known locations and projects compared with locations and projects at December 31, 2023. At September 30, 2024, sites accounted for $ million of the liability, and no individual site was considered to be material. We anticipate that most of this liability will be paid out over ; however, some costs will be paid out over a longer period.
At locations, one or more of our subsidiaries in conjunction with a number of other parties have been identified as potentially responsible parties under CERCLA or comparable state statutes that impose joint and
% of our railroad employees are covered by collective bargaining agreements with various labor unions. 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.
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.
Insurance
We purchase insurance covering legal liabilities for bodily injury and property damage to third parties. Our current
% of covered losses above $ million and below $ million per occurrence and/or policy year. In addition, we purchase insurance for damage to property owned by us or in our care, custody, or control. Our current property insurance provides limits for approximately % of covered losses above $ million and below $ million per occurrence and/or policy year. With respect to the Incident, our insurance in effect at such time provided coverage above $ million and below $ million (or up to $ billion for specified types of pollution releases) per occurrence and/or policy year, and with respect to property owned by us or in our care, custody, or control, our insurance covered approximately % of potential losses above $ million and below $ million per occurrence and/or policy year.
Insurance coverage with respect to the Incident is subject to certain conditions, including but not limited to our insurers’ reservation of rights to further investigate and contest coverage, the express restrictions and sub-limits of coverage, and various policy exclusions, including those for some governmental fines or penalties. Some (re)insurers have questioned certain payments we have made, for example, as part of our effort to respond to, mitigate, and compensate for the impact to the community and affected residents and businesses. We are pursuing coverage with respect to the Incident, and we have recognized $ million in insurance recoveries (including $ million and $ million during the third quarter and first nine months of 2024, respectively, and $ million during the third quarter and first nine months of 2023), principally from excess liability (re)insurers. At September 30, 2024, $ million was outstanding and is included in “Accounts receivable – net” on the Consolidated Balance Sheets while amounts were outstanding at December 31, 2023.
15.
Item 2. 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.
OVERVIEW
We are one of the nation’s premier transportation companies, moving goods and materials that help drive the U.S. economy. We connect customers to markets and communities to economic opportunity with safe, reliable, and cost-effective shipping solutions. Our Norfolk Southern Railway Company subsidiary operates in 22 states and the District of Columbia. We are a major transporter of industrial products, including agriculture, forest and consumer products, chemicals, and metals and construction materials. In addition, in the East we serve every major container port and operate the most extensive intermodal network. We are also a principal carrier of coal, automobiles, and automotive parts.
Our focus on providing high-quality service to our customers and delivering on productivity initiatives throughout the organization resulted in improved operating margins and financial results. We are driving improvements in our operational performance while handling additional volumes. We also completed the sale of two railway lines that resulted in significant gains and cash proceeds and executed on further strategic rationalization efforts, primarily aimed at technology projects. Additionally, insurance recoveries related to the Eastern Ohio Incident (as defined further and described in Note 14 in the Notes to Consolidated Financial Statements) outpaced incremental expenses further impacting our financial results. In the third quarter, we achieved an operating ratio (a measure of the amount of operating revenues consumed by operating expenses) of 47.7%, and an adjusted operating ratio of 63.4% (see our non-GAAP reconciliations beginning on page 27). Our margin improvement demonstrates our commitment to being a more productive, resilient, and efficient railroad with industry-competitive margins.
SUMMARIZED RESULTS OF OPERATIONS
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| Third Quarter | | First Nine Months |
| 2024 | | 2023 | | % change | | 2024 | | 2023 | | % change |
| ($ in millions, except per share amounts) |
| | | | | | | | | | | |
| Railway operating revenues | $ | 3,051 | | | $ | 2,971 | | | 3% | | $ | 9,099 | | | $ | 9,083 | | | —% |
| Railway operating expenses | $ | 1,455 | | | $ | 2,215 | | | (34%) | | $ | 6,159 | | | $ | 7,040 | | | (13%) |
| Income from railway operations | $ | 1,596 | | | $ | 756 | | | 111% | | $ | 2,940 | | | $ | 2,043 | | | 44% |
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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).
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| Third Quarter | | First Nine Months |
| Merchandise | | Intermodal | | Coal | | Merchandise | | Intermodal | | Coal |
| Increase (Decrease) |
| | | | | | | | | | | |
| Volume | $ | 28 | | | $ | 66 | | | $ | 49 | | | $ | 54 | | | $ | 194 | | | $ | 24 | |
| Fuel surcharge revenue | (1) | | | (9) | | | 1 | | | (79) | | | (56) | | | (17) | |
| Rate, mix and other | 34 | | | (31) | | | (57) | | | 149 | | | (184) | | | (69) | |
| | | | | | | | | | | |
| Total | $ | 61 | | | $ | 26 | | | $ | (7) | | | $ | 124 | | | $ | (46) | | | $ | (62) | |
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