Table of Contents



UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 20222023

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from __________ to ____________

 

Commission File Number 1-6075

 

UNION PACIFIC CORPORATION

(Exact name of registrant as specified in its charter)

Utah

13-2626465

(State or other jurisdiction of

(I.R.S. Employer

incorporation or organization)

(I.R.S. Employer Identification No.)

 

1400 Douglas Street, Omaha, Nebraska

(Address of principal executive offices)

68179

(Zip Code)

1400 Douglas Street, Omaha, Nebraska68179
(Address of principal executive offices)(Zip Code)

 

(402) 544-5000

(Registrant’s telephone number, including area code)

 

Securities registered pursuant to Section 12(b) of the Act:

Title of each Class

Trading Symbol

Name of each exchange on which registered

Common Stock (Par Value $2.50 per share)

UNP

New York Stock Exchange

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

☒ Yes     ☐ No

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

☒ Yes     ☐ No

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large Accelerated Filer 

 

Accelerated Filer 

Non-Accelerated Filer

 

Smaller Reporting Company 

 

Emerging Growth Company

  

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

 ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

☐Yes     ☒ No

As of July 15, 2022,21, 2023, there were 624,478,594609,456,215 shares of the Registrant's Common Stock outstanding.



 

 

TABLE OF CONTENTS

UNION PACIFIC CORPORATION

AND SUBSIDIARY COMPANIES

 

PART I. FINANCIAL INFORMATION
   

Item 1.

Condensed Consolidated Financial Statements:

 
 

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited)

 
 

For the Three Months Ended June 30, 20222023 and 20212022

3
   
 

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)

 
 

For the Three Months Ended June 30, 20222023 and 20212022

3
   
 CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited) 
 For the Six Months Ended June 30, 20222023 and 202120224
   
 CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited) 
 For the Six Months Ended June 30, 20222023 and 202120224
   
 

CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION (Unaudited)

 
 

At June 30, 2022,2023, and December 31, 20212022

5
   
 

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

 
 

For the Six Months Ended June 30, 20222023 and 20212022

6
   
 

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN COMMON SHAREHOLDERS’ EQUITY (Unaudited)

 
 

For the Three and Six Months Ended June 30, 20222023 and 20212022

7
   
 

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

8
   

Item 2.

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

19
   

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

29
   

Item 4.

Controls and Procedures

30
   
PART II. OTHER INFORMATION
   

Item 1.

Legal Proceedings

30
   

Item 1A.

Risk Factors

3031
   

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

31
   

Item 3.

Defaults Upon Senior Securities

31
   

Item 4.

Mine Safety Disclosures

31
   

Item 5.

Other Information

31

   

Item 6.

Exhibits

32

  

Signatures

33

  

Certifications

34

 

2

 

PART I. FINANCIAL INFORMATION

 

Item 1. Condensed Consolidated Financial Statements

 

Condensed Consolidated Statements of Income (Unaudited)

Union Pacific Corporation and Subsidiary Companies

 

Millions, Except Per Share Amounts, for the Three Months Ended June 30,

 

2022

  

2021

  

2023

  

2022

 

Operating revenues:

            

Freight revenues

 $5,842  $5,132  $5,569  $5,842 

Other revenues

 427  372  394  427 

Total operating revenues

 6,269  5,504  5,963  6,269 

Operating expenses:

            

Compensation and benefits

 1,092  1,022  1,269  1,092 

Fuel

 940  497  664  940 

Purchased services and materials

 622  478  650  622 

Depreciation

 559  550  577  559 

Equipment and other rents

 230  200  248  230 

Other

 331  284  351  331 

Total operating expenses

 3,774  3,031  3,759  3,774 

Operating income

 2,495  2,473  2,204  2,495 

Other income, net (Note 6)

 163  125 

Other income, net (Note 5)

 93  163 

Interest expense

 (316) (282) (339) (316)

Income before income taxes

 2,342  2,316  1,958  2,342 

Income taxes (Note 7)

 (507) (518)

Income tax expense (Note 6)

 (389) (507)

Net income

 $1,835  $1,798  $1,569  $1,835 

Share and Per Share (Note 8):

      

Share and Per Share (Note 7):

      

Earnings per share - basic

 $2.93  $2.73  $2.58  $2.93 

Earnings per share - diluted

 $2.93  $2.72  $2.57  $2.93 

Weighted average number of shares - basic

 625.6  658.5  608.7  625.6 

Weighted average number of shares - diluted

 626.8  660.1  609.5  626.8 

Condensed Consolidated Statements of Comprehensive Income (Unaudited)

Union Pacific Corporation and Subsidiary Companies

 

Millions, for the Three Months Ended June 30,

 

2022

  

2021

  

2023

  

2022

 

Net income

 $1,835  $1,798  $1,569  $1,835 

Other comprehensive income/(loss):

            

Defined benefit plans

 14  24  6  14 

Foreign currency translation

 23  19  21  23 

Unrealized gain on derivative instruments

 16  - 

Total other comprehensive income/(loss) [a]

 37  43  43  37 

Comprehensive income

 $1,872  $1,841  $1,612  $1,872 

 

[a]

Net of deferred taxes of ($6)3) million and ($10)6) million during the three months ended June 30, 20222023 and 20212022, respectively.

 

The accompanying notes are an integral part of these unaudited Condensed Consolidated Financial Statements.

 

3

Condensed Consolidated Statements of Income (Unaudited)

Union Pacific Corporation and Subsidiary Companies

Millions, Except Per Share Amounts, for the Six Months Ended June 30,

 

2023

  

2022

 

Operating revenues:

        

Freight revenues

 $11,225  $11,282 

Other revenues

  794   847 

Total operating revenues

  12,019   12,129 

Operating expenses:

        

Compensation and benefits

  2,448   2,193 

Fuel

  1,430   1,654 

Purchased services and materials

  1,303   1,183 

Depreciation

  1,149   1,114 

Equipment and other rents

  483   445 

Other

  708   668 

Total operating expenses

  7,521   7,257 

Operating income

  4,498   4,872 

Other income, net (Note 5)

  277   210 

Interest expense

  (675)  (623)

Income before income taxes

  4,100   4,459 

Income tax expense (Note 6)

  (901)  (994)

Net income

 $3,199  $3,465 

Share and Per Share (Note 7):

        

Earnings per share - basic

 $5.25  $5.51 

Earnings per share - diluted

 $5.24  $5.50 

Weighted average number of shares - basic

  609.6   628.9 

Weighted average number of shares - diluted

  610.5   630.2 
 

Millions, Except Per Share Amounts, for the Six Months Ended June 30,

 

2022

  

2021

 

Operating revenues:

        

Freight revenues

 $11,282  $9,781 

Other revenues

  847   724 

Total operating revenues

  12,129   10,505 

Operating expenses:

        

Compensation and benefits

  2,193   2,048 

Fuel

  1,654   908 

Purchased services and materials

  1,183   968 

Depreciation

  1,114   1,099 

Equipment and other rents

  445   412 

Other

  668   604 

Total operating expenses

  7,257   6,039 

Operating income

  4,872   4,466 

Other income, net (Note 6)

  210   176 

Interest expense

  (623)  (572)

Income before income taxes

  4,459   4,070 

Income taxes (Note 7)

  (994)  (931)

Net income

 $3,465  $3,139 

Share and Per Share (Note 8):

        

Earnings per share - basic

 $5.51  $4.73 

Earnings per share - diluted

 $5.50  $4.72 

Weighted average number of shares - basic

  628.9   663.1 

Weighted average number of shares - diluted

  630.2   664.7 

Condensed Consolidated Statements of Comprehensive Income (Unaudited)

Union Pacific Corporation and Subsidiary Companies

 

Millions, for the Six Months Ended June 30,

 

2022

  

2021

  

2023

  

2022

 

Net income

 $3,465  $3,139  $3,199  $3,465 

Other comprehensive income/(loss):

            

Defined benefit plans

  29  49  5  29 

Foreign currency translation

  44  (7) 44  44 

Unrealized gain on derivative instruments

 16  - 

Total other comprehensive income/(loss) [a]

  73  42  65  73 

Comprehensive income

 $3,538  $3,181  $3,264  $3,538 

 

[a]
Net of deferred taxes of ($11)3) million and ($18)11) million during the six months ended June 30, 2023 and 2022, and 2021, respectively.

 

The accompanying notes are an integral part of these unaudited Condensed Consolidated Financial Statements.

 

4

Condensed Consolidated Statements of Financial Position (Unaudited)

Union Pacific Corporation and Subsidiary Companies

 

 

Jun. 30,

  

Dec. 31,

  

Jun. 30,

  

Dec. 31,

 

Millions, Except Share and Per Share Amounts

 

2022

  

2021

  

2023

  

2022

 

Assets

            

Current assets:

            

Cash and cash equivalents

 $788  $960  $830  $973 

Short-term investments (Note 13)

 46  46 

Accounts receivable, net (Note 10)

 2,052  1,722 

Short-term investments (Note 12)

 -  46 

Accounts receivable, net (Note 9)

 1,826  1,891 

Materials and supplies

 790  621  742  741 

Other current assets

 300  202  354  301 

Total current assets

 3,976  3,551  3,752  3,952 

Investments

 2,287  2,241  2,524  2,375 

Properties, net (Note 11)

 55,315  54,871 

Properties, net (Note 10)

 56,641  56,038 

Operating lease assets

 1,706  1,787  1,651  1,672 

Other assets

 1,156  1,075  1,465  1,412 

Total assets

 $64,440  $63,525  $66,033  $65,449 

Liabilities and Common Shareholders' Equity

            

Current liabilities:

            

Accounts payable and other current liabilities (Note 12)

 $3,668  $3,578 

Debt due within one year (Note 14)

 2,334  2,166 

Accounts payable and other current liabilities (Note 11)

 $3,504  $3,842 

Debt due within one year (Note 13)

 1,745  1,678 

Total current liabilities

 6,002  5,744  5,249  5,520 

Debt due after one year (Note 14)

 29,673  27,563 

Debt due after one year (Note 13)

 31,557  31,648 

Operating lease liabilities

 1,295  1,429  1,217  1,300 

Deferred income taxes

 12,777  12,675  13,069  13,033 

Other long-term liabilities

 1,983  1,953  1,747  1,785 

Commitments and contingencies (Note 15)

        

Commitments and contingencies (Note 14)

        

Total liabilities

 51,730  49,364  52,839  53,286 

Common shareholders' equity:

            

Common shares, $2.50 par value, 1,400,000,000 authorized; 1,112,629,114 and

      

1,112,440,400 issued; 625,168,003 and 638,841,656 outstanding, respectively

 2,781  2,781 

Common shares, $2.50 par value, 1,400,000,000 authorized; 1,112,878,694 and

      

1,112,623,886 issued; 609,398,738 and 612,393,321 outstanding, respectively

 2,782  2,782 

Paid-in-surplus

 5,030  4,979  5,128  5,080 

Retained earnings

 56,958  55,049  60,500  58,887 

Treasury stock

 (51,218) (47,734) (54,699) (54,004)

Accumulated other comprehensive loss (Note 9)

 (841) (914)

Accumulated other comprehensive loss (Note 8)

 (517) (582)

Total common shareholders' equity

 12,710  14,161  13,194  12,163 

Total liabilities and common shareholders' equity

 $64,440  $63,525  $66,033  $65,449 

 

The accompanying notes are an integral part of these unaudited Condensed Consolidated Financial Statements.

 

5

 

Condensed Consolidated Statements of Cash Flows (Unaudited)

Union Pacific Corporation and Subsidiary Companies

 

Millions, for the Six Months Ended June 30,

 

2022

  

2021

  

2023

  

2022

 

Operating Activities

            

Net income

 $3,465  $3,139  $3,199  $3,465 

Adjustments to reconcile net income to cash provided by operating activities:

            

Depreciation

 1,114  1,099  1,149  1,114 

Deferred and other income taxes

 93  128  36  93 

Other operating activities, net

 (52) (128) (126) (52)

Changes in current assets and liabilities:

            

Accounts receivable, net

 (330) (161) 70  (330)

Materials and supplies

 (169) (50) (1) (169)

Other current assets

 (39) (3) (86) (39)

Accounts payable and other current liabilities

 203  73  (340) 203 

Income and other taxes

 (118) 122  (43) (118)

Cash provided by operating activities

 4,167  4,219  3,858  4,167 

Investing Activities

            

Capital investments

 (1,645) (1,190) (1,607) (1,645)

Maturities of short-term investments (Note 12)

 46  - 

Proceeds from asset sales

 120  101  45  120 

Maturities of short-term investments (Note 13)

 0  48 

Purchases of short-term investments (Note 13)

 0  (24)

Other investing activities, net

 (15) (6) (158) (15)

Cash used in investing activities

 (1,540) (1,071) (1,674) (1,540)

Financing Activities

            

Debt issued (Note 14)

 4,090  2,896 

Share repurchase programs (Note 16)

 (3,473) (4,085)

Debt repaid

 (1,664) (691) (1,664) (1,664)

Debt issued (Note 13)

 1,599  4,090 

Dividends paid

 (1,556) (1,350) (1,588) (1,556)
Net issued/(paid) commercial paper (Note 14) (151) 125 

Accelerated share repurchase programs pending final settlement (Note 16)

 0  (400)

Debt exchange

 0  (268)

Share repurchase programs (Note 15)

 (705) (3,473)

Net issued/(paid) commercial paper (Note 13)

 19  (151)

Other financing activities, net

 (42) (34) 11  (42)

Cash used in financing activities

 (2,796) (3,807) (2,328) (2,796)

Net Change in Cash, Cash Equivalents, and Restricted Cash

 (169) (659)

Net change in cash, cash equivalents, and restricted cash

 (144) (169)

Cash, cash equivalents, and restricted cash at beginning of year

 983  1,818  987  983 

Cash, cash equivalents, and restricted cash at end of period

 $814  $1,159  $843  $814 

Supplemental Cash Flow Information

            

Non-cash investing and financing activities:

            

Capital investments accrued but not yet paid

 $241  $104  $207  $241 

Common shares repurchased but not yet paid

 2  32  6  2 

Cash (paid for)/received from:

            

Income taxes, net of refunds

 $(1,033) $(712) $(826) $(1,033)

Interest, net of amounts capitalized

 (565) (535) (628) (565)

Reconciliation of cash, cash equivalents, and restricted cash

Reconciliation of cash, cash equivalents, and restricted cash

      

to the Condensed Consolidated Statement of Financial Position:

to the Condensed Consolidated Statement of Financial Position:

      

Cash and cash equivalents

 $788  $1,115  $830  $788 

Restricted cash equivalents in other current assets

 22  32  4  22 

Restricted cash equivalents in other assets

 4  12  9  4 

Total cash, cash equivalents and restricted cash equivalents per above

 $814  $1,159  $843  $814 

 

The accompanying notes are an integral part of these unaudited Condensed Consolidated Financial Statements.

 

6

 

Condensed Consolidated Statements of Changes in Common Shareholders Equity (Unaudited)

Union Pacific Corporation and Subsidiary Companies

 

Millions

Common SharesTreasury Shares Common SharesPaid-in-SurplusRetained EarningsTreasury StockAOCI [a]

Total

  

Common Shares

Treasury Shares

 

Common Shares

Paid-in-Surplus

Retained Earnings

Treasury Stock

AOCI [a]

Total

 

Balance at April 1, 2021

  1,112.5  (447.4) $2,781  $4,874  $52,019  $(41,826) $(1,594) $16,254 

Net income

        0  0  1,798  0  0  1,798 

Other comprehensive income/(loss)

        0  0  0  0  43  43 

Conversion, stock option exercises, forfeitures, ESPP, and other [b]

  0  0.1   0  25  0  (1) 0  24 

Share repurchase programs

(Note 16)

  0  (12.2)  0  (400) 0  (2,715) 0  (3,115)

Dividends declared

($1.07 per share)

  -  -   0  0  (701) 0  0  (701)

Balance at June 30, 2021

  1,112.5  (459.5) $2,781  $4,499  $53,116  $(44,542) $(1,551) $14,303 
                    

Balance at April 1, 2022

  1,112.6  (484.4) $2,782  $4,571  $55,937  $(50,515) $(878) $11,897   1,112.6  (484.4) $2,782  $4,571  $55,937  $(50,515) $(878) $11,897 

Net income

        0  0  1,835  0  0  1,835          -  -  1,835  -  -  1,835 

Other comprehensive income/(loss)

        0  0  0  0  37  37          -  -  -  -  37  37 

Conversion, stock option exercises, forfeitures, ESPP, and other [b]

  0  0   (1) 31  0  7  0  37   -  -   (1) 31  -  7  -  37 

Share repurchase programs

(Note 16)

  0  (3.1)  0  428  0  (710) 0  (282)

Share repurchase programs (Note 15)

  -  (3.1)  -  428  -  (710) -  (282)

Dividends declared

($1.30 per share)

  -  -   0  0  (814) 0  0  (814)  -  -   -  -  (814) -  -  (814)

Balance at June 30, 2022

  1,112.6  (487.5) $2,781  $5,030  $56,958  $(51,218) $(841) $12,710   1,112.6  (487.5) $2,781  $5,030  $56,958  $(51,218) $(841) $12,710 
                    

Balance at April 1, 2023

  1,112.9  (503.0) $2,782  $5,099  $59,724  $(54,591) $(560) $12,454 

Net income

         -  -  1,569  -  -  1,569 

Other comprehensive income/(loss)

         -  -  -  -  43  43 

Conversion, stock option exercises, forfeitures, ESPP, and other [b]

  -  0.1   -  29  -  13  -  42 

Share repurchase programs (Note 15)

  -  (0.6)  -  -  -  (121) -  (121)

Dividends declared ($1.30 per share)

  -  -   -  -  (793) -  -  (793)

Balance at June 30, 2023

  1,112.9  (503.5) $2,782  $5,128  $60,500  $(54,699) $(517) $13,194 

 

Millions

Common Shares

Treasury Shares

 

Common Shares

Paid-in-Surplus

Retained Earnings

Treasury Stock

AOCI [a]

Total

 

Common Shares

Treasury Shares

 

Common Shares

Paid-in-Surplus

Retained Earnings

Treasury Stock

AOCI [a]

Total

 

Balance at January 1, 2021

  1,112.2  (440.9) $2,781  $4,864  $51,326  $(40,420) $(1,593) $16,958 

Net income

         0  0  3,139  0  0  3,139 

Other comprehensive income/(loss)

         0  0  0  0  42  42 

Conversion, stock option exercises, forfeitures, ESPP, and other [b]

  0.3  0.3   0  35  0  (5) 0  30 

Share repurchase programs

(Note 16)

  0  (18.9)  0  (400) 0  (4,117) 0  (4,517)

Dividends declared

($2.04 per share)

  -  -   0  0  (1,349) 0  0  (1,349)

Balance at June 30, 2021

  1,112.5  (459.5) $2,781  $4,499  $53,116  $(44,542) $(1,551) $14,303 
    

Balance at January 1, 2022

  1,112.4  (473.6) $2,781  $4,979  $55,049  $(47,734) $(914) $14,161   1,112.4  (473.6) $2,781  $4,979  $55,049  $(47,734) $(914) $14,161 

Net income

         0  0  3,465  0  0  3,465          -  -  3,465  -  -  3,465 

Other comprehensive income/(loss)

         0  0  0  0  73  73          -  -  -  -  73  73 

Conversion, stock option exercises, forfeitures, ESPP, and other [b]

  0.2  0.2   0  63  0  (21) 0  42   0.2  0.2   -  63  -  (21) -  42 

Share repurchase programs

(Note 16)

  0  (14.1)  0  (12) 0  (3,463) 0  (3,475)

Share repurchase programs (Note 15)

  -  (14.1)  -  (12) -  (3,463) -  (3,475)

Dividends declared

($2.48 per share)

  -  -   0  0  (1,556) 0  0  (1,556)  -  -   -  -  (1,556) -  -  (1,556)

Balance at June 30, 2022

  1,112.6  (487.5) $2,781  $5,030  $56,958  $(51,218) $(841) $12,710   1,112.6  (487.5) $2,781  $5,030  $56,958  $(51,218) $(841) $12,710 
                    

Balance at January 1, 2023

  1,112.6  (500.2) $2,782  $5,080  $58,887  $(54,004) $(582) $12,163 

Net income

         -  -  3,199  -  -  3,199 

Other comprehensive income/(loss)

         -  -  -  -  65  65 

Conversion, stock option exercises, forfeitures, ESPP, and other [b]

  0.3  0.2   -  48  -  17  -  65 

Share repurchase programs (Note 15)

  -  (3.5)  -  -  -  (712) -  (712)

Dividends declared ($2.60 per share)

  -  -   -  -  (1,586) -  -  (1,586)

Balance at June 30, 2023

  1,112.9  (503.5) $2,782  $5,128  $60,500  $(54,699) $(517) $13,194 

 

[a]

AOCI = Accumulated Other Comprehensive Income/Loss (Note 9)8)

[b]ESPP = employee stock purchase plan (Note 4)

 

The accompanying notes are an integral part of these unaudited Condensed Consolidated Financial Statements.

 

7

 

UNION PACIFIC CORPORATION AND SUBSIDIARY COMPANIES

 

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

(Unaudited)

 

For purposes of this report, unless the context otherwise requires, all references herein to the"Union Pacific", “Corporation”, “Company”, “UPC”, “we”, “us”, and “our” mean Union Pacific Corporation and its subsidiaries, including Union Pacific Railroad Company, which will be separately referred to herein as “UPRR” or the “Railroad”.

 

1. Basis of Presentation

 

Our Condensed Consolidated Financial Statements are unaudited and reflect all adjustments (consisting of normal and recurring adjustments) that are, in the opinion of management, necessary for their fair presentation in conformity with accounting principles generally accepted in the United States of America (GAAP). Pursuant to the rules and regulations of the Securities and Exchange Commission (SEC), certain information and note disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted. Accordingly, this Quarterly Report on Form 10-Q should be read in conjunction with our Consolidated Financial Statements and notes thereto contained in our 20212022 Annual Report on Form 10-K. Our Consolidated Statement of Financial Position at December 31, 20212022, is derived from audited financial statements. The results of operations for the six months ended June 30, 20222023, are not necessarily indicative of the results for the entire year ending December 31, 20222023.

 

The Condensed Consolidated Financial Statements are presented in accordance with GAAP as codified in the Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC).

 

2. Accounting Pronouncements

In November 2021, the FASB issued Accounting Standards Update No. (ASU) 2021-10,Government Assistance (Topic 832): Disclosures by Business Entities about Government Assistance, which requires business entities to provide certain disclosures when they have received government assistance and use a grant or contribution accounting model by analogy to other accounting guidance. The ASU was effective January 1, 2022, and had no material impact on our consolidated financial statements and related disclosures.

In March 2020, the FASB issued ASU 2020-04,Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, which provides optional expedients and exceptions for applying GAAP principles to contracts, hedging relationships, and other transactions that reference London Interbank Offered Rate (LIBOR) or another reference rate expected to be discontinued due to reference rate reform. This guidance was effective beginning on March 12, 2020, and can be adopted on a prospective basis no later than December 31, 2022, with early adoption permitted. The Company is currently evaluating the effect that the new guidance will have on our consolidated financial statements and related disclosures.

3. Operations and Segmentation

 

The Railroad, along with its subsidiaries and rail affiliates, is our one reportable operating segment. Although we provide and analyze revenues by commodity group, we treat the financial results of the Railroad as one segment due to the integrated nature of our rail network. Our operating revenues are primarily derived from contracts with customers for the transportation of freight from origin to destination.

 

8

The following table represents a disaggregation of our freight and other revenues:

 

 

Three Months Ended

  

Six Months Ended

  

Three Months Ended

 

Six Months Ended

 
 

June 30,

  

June 30,

  

June 30,

 

June 30,

 

Millions

 

2022

  

2021

  

2022

  

2021

  

2023

 

2022

 

2023

 

2022

 

Bulk

 $1,813  $1,648  $3,645  $3,160  $1,757  $1,813  $3,654  $3,645 

Industrial

 2,091  1,859  4,012  3,515  2,086  2,091  4,103  4,012 

Premium

 1,938  1,625  3,625  3,106  1,726  1,938  3,468  3,625 

Total freight revenues

 $5,842  $5,132  $11,282  $9,781  $5,569  $5,842  $11,225  $11,282 

Other subsidiary revenues

 233  180  438  357  220  233  455  438 

Accessorial revenues

 183  176  384  337  149  183  300  384 

Other

 11  16  25  30  25  11  39  25 

Total operating revenues

 $6,269  $5,504  $12,129  $10,505  $5,963  $6,269  $12,019  $12,129 

 

Although our revenues are principally derived from customers domiciled in the U.S., the ultimate points of originorigination or destination for some products we transport are outside the U.S. Each of our commodity groups includes revenues from shipments to and from Mexico. Included in the above table are revenues from our Mexico business, which amounted to $681$689 million and $618$681 million respectively, for the three months ended June 30, 20222023 and 20212022, respectively, and $1.4 billion and $1.3 billion and $1.2 billion, respectively, for the six months ended June 30, 20222023 and 20212022,. respectively.

 

4.3. Stock-Based Compensation

 

We have several stock-based compensation plans where employees receive nonvested stock options, nonvested retention shares, and nonvested stock units. We refer to the nonvested shares and stock units collectively as “retention awards”. Starting in July 2021, employeesEmployees also are also able to participate in our employee stock purchase plan (ESPP). 

 

8

Information regarding stock-based compensation appears in the table below:

 

 

Three Months Ended

  

Six Months Ended

  

Three Months Ended

 

Six Months Ended

 
 

June 30,

  

June 30,

  

June 30,

 

June 30,

 

Millions

 

2022

  

2021

  

2022

  

2021

  

2023

 

2022

 

2023

 

2022

 

Stock-based compensation, before tax:

             

Stock options

 $3  $4  $7  $8  $4  $3  $8  $7 

Retention awards

 19  18  41  34  15  19  33  41 

ESPP

 4  0  8  0  5  4  11  8 

Total stock-based compensation, before tax

 $26  $22  $56  $42  $24  $26  $52  $56 

Excess tax benefits from equity compensation plans

 $1  $2  $18  $17 

Excess income tax benefits from equity compensation plans

 $1  $1  $7  $18 

 

Stock Options – Stock options are granted at the closing price on the date of grant, have 10-year contractual terms, and vest no later than 3 years from the date of grant. None of the stock options outstanding at June 30, 20222023, are subject to performance or market-based vesting conditions.

 

The table below shows the annual weighted-average assumptions used for Black-Scholes valuation purposes:

 

Weighted-Average Assumptions

 

2022

  

2021

  

2023

  

2022

 

Risk-free interest rate

 1.6% 0.4% 3.9% 1.6%

Dividend yield

 1.9% 1.9% 2.6% 1.9%

Expected life (years)

 4.4  4.6  4.5  4.4 

Volatility

 28.7% 28.3% 29.3% 28.7%

Weighted-average grant-date fair value of options granted

 $51.92  $39.97  $48.31  $51.92 

 

The risk-free rate is based on the U.S. Treasury yield curve in effect at the time of grant; the expected dividend yield is calculated as the ratio of dividends paid per share of common stock to the stock price on the date of grant; the expected life is based on historical and expected exercise behavior; and expected volatility is based on the historical volatility of our stock price over the expected life of the stock option.

 

9

A summary of stock option activity during the six months ended June 30, 20222023, is presented below:

 

 

Options (thous.)

Weighted-Average Exercise PriceWeighted-Average Remaining Contractual Term (in years)Aggregate Intrinsic Value (millions) 

Outstanding at January 1, 2022

  2,106  $149.84   6.3  $215 

Granted

  328   244.35   N/A   N/A 

Exercised

  (339)  127.62   N/A   N/A 

Forfeited or expired

  (25)  211.39   N/A   N/A 

Outstanding at June 30, 2022

  2,070  $167.71   6.5  $104 

Vested or expected to vest at June 30, 2022

  2,049  $167.17   6.4  $104 

Options exercisable at June 30, 2022

  1,390  $142.20   5.3  $99 
 

Options (thous.)

Weighted-Average Exercise PriceWeighted-Average Remaining Contractual Term (in years)Aggregate Intrinsic Value (millions) 

Outstanding at January 1, 2023

  1,974  $169.64   6.0  $86 

Granted

  351   202.81   N/A   N/A 

Exercised

  (72)  107.65   N/A   N/A 

Forfeited or expired

  (5)  224.05   N/A   N/A 

Outstanding at June 30, 2023

  2,248  $176.68   6.3  $75 

Vested or expected to vest at June 30, 2023

  2,228  $176.31   6.3  $75 

Options exercisable at June 30, 2023

  1,580  $160.07   5.2  $75 

 

At June 30, 20222023, there was $23$25 million of unrecognized compensation expense related to nonvested stock options, which is expected to be recognized over a weighted-average period of 1.5 years. Additional information regarding stock option exercises appears in the following table:

 

 

Three Months Ended

  

Six Months Ended

  

Three Months Ended

 

Six Months Ended

 
 

June 30,

  

June 30,

  

June 30,

 

June 30,

 

Millions

 

2022

  

2021

  

2022

  

2021

  

2023

 

2022

 

2023

 

2022

 

Intrinsic value of stock options exercised

 $2  $9  $44  $32  $3  $2  $7  $44 

Cash received from option exercises

 2  4  17  34  4  2  8  17 

Treasury shares repurchased for employee payroll taxes

 0  (1) (5) (7) (1) -  (2) (5)

Tax benefit realized from option exercises

 1  2  6  6 

Income tax benefit realized from option exercises

 1  1  2  6 

Aggregate grant-date fair value of stock options vested

 0  0  13  14  -  -  14  13 

 

Retention Awards – Retention awards are granted at no cost to the employee, vest over periods lasting up to 4 years, and dividends and dividend equivalents are paid to participants during the vesting periods.

 

9

Changes in our retention awards during the six months ended June 30, 20222023, were as follows:

 

Shares (thous.)

Weighted-Average Grant-Date Fair Value 

Shares (thous.)

Weighted-Average Grant-Date Fair Value 

Nonvested at January 1, 2022

 1,287  $165.10 

Nonvested at January 1, 2023

 1,069  $196.47 

Granted

 234   244.27  295   202.72 

Vested

 (408)  125.98  (300)  162.65 

Forfeited

 (36)  190.72  (25)  205.20 

Nonvested at June 30, 2022

 1,077  $196.26 

Nonvested at June 30, 2023

 1,039  $207.80 

 

At June 30, 20222023, there was $113$114 million of total unrecognized compensation expense related to nonvested retention awards, which is expected to be recognized over a weighted-average period of 2.01.8 years.

 

Performance Retention Awards – In February 2022, 2023, our Board of Directors approved performance stock unit grants. This plan is based onThe basic terms of these performance targets forstock units are identical to those granted in February 2022, including the annual return on invested capital (ROIC) and operating income growth (OIG) comparedperformance targets. The OIG performance targets compare to companies in the S&P 100 Industrials Index plus the Class I railroads. We define ROIC as net operating profit adjusted for interest expense (including interest on average operating lease liabilities) and taxes on interest divided by average invested capital adjusted for average operating lease liabilities.

 

The February 2022 2023stock units awarded to selected employees are subject to continued employment for 37 months, the attainment of certain levels of ROIC, and the relative three-year OIG. We expense two-thirds of the fair value of the units that are probable of being earned based on our forecasted ROIC over the 3three-year performance period, and with respect to the third year of the plan, the remaining one-third of the fair value is subject to the relative three-year OIG. We measure the fair value of performance stock units based upon the closing price of the underlying common stock as of the date of grant. Dividend equivalents are accumulated during the service period and paid to participants only after the units are earned.
 

Changes in our performance retention awards during the six months ended June 30, 20222023, were as follows:

 

Shares (thous.)

Weighted-Average Grant-Date Fair Value

 

Shares (thous.)

Weighted-Average Grant-Date Fair Value

 

Nonvested at January 1, 2022

 641  $173.03 

Nonvested at January 1, 2023

 594  $199.82 

Granted

 209   244.35  251   202.81 

Vested

 (56)  162.64  (73)  186.67 

Unearned

 (163)  161.57  (127)  186.11 

Forfeited

 (21)  207.64  (4)  222.66 

Nonvested at June 30, 2022

 610  $200.29 

Nonvested at June 30, 2023

 641  $205.06 

 

At June 30, 20222023, there was $37$26 million of total unrecognized compensation expense related to nonvested performance retention awards, which is expected to be recognized over a weighted-average period of 1.71.6 years. This expense is subject to achievement of the performance measures established for the performance stock unit grants.

 

5.4. Retirement Plans

 

We provide defined benefit retirement income to eligible non-union employees through qualified and non-qualified (supplemental) pension plans. Qualified and non-qualified pension benefits are based on years of service and the highest compensation during the latest years of employment, with specific reductions made for early retirements. Non-union employees hired on or after January 1, 2018, are no longer eligible for pension benefits, but are eligible for an enhanced 401(k) plan.

 

Expense

 

Pension expense is determined based upon the annual service cost of benefits (the actuarial cost of benefits earned during a period) and the interest cost on those liabilities, less the expected return on plan assets. The expected long-term rate of return on plan assets is applied to a calculated value of plan assets that recognizes changes in fair value over a 5-year period. This practice is intended to reduce year-to-year volatility in pension expense, but it can have the effect of delaying the recognition of differences between actual returns on assets and expected returns based on long-term rate of return assumptions. Differences in actual experience in relation to assumptions are not recognized in net income immediately but are deferred in accumulated other comprehensive income/loss and, if necessary, amortized as pension expense.

 

10

The components of our net periodic pension benefit/cost were as follows:

 

 

Three Months Ended

  

Six Months Ended

  Three Months Ended Six Months Ended 
 

June 30,

  

June 30,

  June 30, June 30, 

Millions

 

2022

  

2021

  

2022

  

2021

  

2023

 

2022

 

2023

 

2022

 

Service cost

 $26  $30  $52  $60  $12  $26  $25  $52 

Interest cost

  31  27   62  53  46  31  92  62 

Expected return on plan assets

  (73) (68)  (146) (135) (62) (73) (124) (146)

Amortization of actuarial loss

  21  35   43  71  2  21  4  43 

Net periodic pension cost

 $5  $24  $11  $49 

Net periodic pension (benefit)/cost

 $(2) $5  $(3) $11 

 

Cash Contributions

 

For the six months ended June 30, 20222023, cash contributions totaled $0$0 to the qualified pension plans. Any contributions made during 20222023 will be based on cash generated from operations and financial market considerations. Our policy with respect to funding the qualified pension plans is to fund at least the minimum required by law and not more than the maximum amount deductible for tax purposes. At June 30, 20222023, we do not have minimum cash funding requirements for 20222023.

 

11

6.5. Other Income

 

Other income included the following:

 

  

Three Months Ended

  

Six Months Ended

 
  

June 30,

  

June 30,

 

Millions

 

2022

  

2021

  

2022

  

2021

 

Gain on non-operating asset dispositions [a]

 $98  $63  $114  $72 

Rental income

  39   34   75   67 

Net periodic pension costs

  21   6   41   11 

Environmental remediation and restoration

  (5)  (5)  (31)  (9)

Other

  10   27   11   35 

Total

 $163  $125  $210  $176 
  

Three Months Ended

  

Six Months Ended

 
  

June 30,

  

June 30,

 

Millions

 

2023

  

2022

  

2023

  

2022

 

Real estate income [a] [b]

 $69  $146  $245  $206 

Net periodic pension benefit/(costs)

  14   21   28   41 

Environmental remediation and restoration

  (3)  (5)  (22)  (31)

Other [a]

  13   1   26   (6)

Total

 $93  $163  $277  $210 

 

[a]Prior periods have been reclassified to conform to the current period disclosure.
[b]2023 includes a one-time $107 million transaction. 2022 includes a $79 million gain from a land sale to the Illinois State Toll Highway Authority.2021 includes a $50 million gain from a sale to the Colorado Department of Transportation.
 

7.6. Income Taxes

In the second quarter of 2023, the state of Nebraska enacted legislation to reduce its corporate income tax rate for future years resulting in a $73 million reduction of our deferred tax expense.

 

In the second quarter of 2022, the state of Nebraska enacted legislation to reduce its corporate income tax rate for future years resulting in a $55 million reduction of our deferred tax expense.

In the second quarter of 2021, the states of Nebraska, Oklahoma, and Idaho enacted legislation to reduce their corporate income tax rates for future years resulting in a $43 million reduction of our deferred tax expense.

 

8.7. Earnings Per Share

 

The following table provides a reconciliation between basic and diluted earnings per share:

 

 

Three Months Ended

  

Six Months Ended

  

Three Months Ended

 

Six Months Ended

 
 

June 30,

  

June 30,

  

June 30,

 

June 30,

 

Millions

 

2022

  

2021

  

2022

  

2021

 

Millions, Except Per Share Amounts

 

2023

 

2022

 

2023

 

2022

 

Net income

 $1,835  $1,798  $3,465  $3,139  $1,569  $1,835  $3,199  $3,465 

Weighted-average number of shares outstanding:

             

Basic

 625.6  658.5  628.9  663.1  608.7  625.6  609.6  628.9 

Dilutive effect of stock options

 0.6  0.8  0.7  0.8  0.3  0.6  0.4  0.7 

Dilutive effect of retention shares and units

 0.6  0.8  0.6  0.8  0.5  0.6  0.5  0.6 

Diluted

 626.8  660.1  630.2  664.7  609.5  626.8  610.5  630.2 

Earnings per share – basic

 $2.93  $2.73  $5.51  $4.73  $2.58  $2.93  $5.25  $5.51 

Earnings per share – diluted

 $2.93  $2.72  $5.50  $4.72  $2.57  $2.93  $5.24  $5.50 

Stock options excluded as their inclusion would be anti-dilutive

 0.3  0.4  0.3  0.3  1.0  0.3  0.9  0.3 
 

 

1211

 

9.8. Accumulated Other Comprehensive Income/Loss

 

Reclassifications out of accumulated other comprehensive income/loss were as follows (net of tax):

 

Millions

Defined benefit plans

Foreign currency translation

Total

 Defined benefit plans Foreign currency translation 

Unrealized gain on derivative instruments [a]

  

Total

 

Balance at April 1, 2023

 $(379) $(181) $-  $(560)

Other comprehensive income/(loss) before reclassifications

 6  21  16  43 

Amounts reclassified from accumulated other comprehensive income/(loss) [b]

 -  -  -  - 

Net quarter-to-date other comprehensive income/(loss), net of taxes of ($3) million

 6  21  16  43 

Balance at June 30, 2023

 $(373) $(160) $16  $(517)
         

Balance at April 1, 2022

 

$

(643

) 

$

(235

) 

$

(878

) $(643) $(235) $-  $(878)

Other comprehensive income/(loss) before reclassifications

 

-

  

23

  

23

  -  23  -  23 

Amounts reclassified from accumulated other comprehensive income/(loss) [a]

 

14

  

-

  

14

 

Net quarter-to-date other comprehensive income/(loss), net of taxes of ($6) million

 

14

  

23

  

37

 

Amounts reclassified from accumulated other comprehensive income/(loss) [b]

 14  -  -  14 

Net quarter-to-date other comprehensive income/(loss), net of taxes of ($6) million

 14  23  -  37 

Balance at June 30, 2022

 

$

(629

) 

$

(212

) 

$

(841

) $(629) $(212) $-  $(841)
         

Balance at April 1, 2021

 

$

(1,356

) 

$

(238

) 

$

(1,594

)

Other comprehensive income/(loss) before reclassifications

 

(1

) 

19

  

18

 

Amounts reclassified from accumulated other comprehensive income/(loss) [a]

 

25

  

-

  

25

 

Net quarter-to-date other comprehensive income/(loss), net of taxes of ($10) million

 

24

  

19

  

43

 

Balance at June 30, 2021

 

$

(1,332

) 

$

(219

) 

$

(1,551

)

 

Millions

Defined benefit plansForeign currency translation

Total

 Defined benefit plans Foreign currency translation 

Unrealized gain on derivative instruments [a]

 

Total

 

Balance at January 1, 2023

 $(378) $(204) $-  $(582)

Other comprehensive income/(loss) before reclassifications

 6  44  16  66 

Amounts reclassified from accumulated other comprehensive income/(loss) [b]

 (1) -  -  (1)

Net year-to-date other comprehensive income/(loss), net of taxes of ($3) million

 5  44  16  65 

Balance at June 30, 2023

 $(373) $(160) $16  $(517)
         

Balance at January 1, 2022

 $(658) $(256) $(914) $(658) $(256) $-  $(914)

Other comprehensive income/(loss) before reclassifications

 0  44  44  -  44  -  44 

Amounts reclassified from accumulated other comprehensive income/(loss) [a]

 29  0  29 

Net year-to-date other comprehensive income/(loss), net of taxes of ($11) million

 29  44  73 

Amounts reclassified from accumulated other comprehensive income/(loss) [b]

 29  -  -  29 

Net year-to-date other comprehensive income/(loss), net of taxes of ($11) million

 29  44  -  73 

Balance at June 30, 2022

 $(629) $(212) $(841) $(629) $(212) $-  $(841)
         

Balance at January 1, 2021

 $(1,381) $(212) $(1,593)

Other comprehensive income/(loss) before reclassifications

 (2) (7) (9)

Amounts reclassified from accumulated other comprehensive income/(loss) [a]

 51  0  51 

Net year-to-date other comprehensive income/(loss), net of taxes of ($18) million

 49  (7) 42 

Balance at June 30, 2021

 $(1,332) $(219) $(1,551)

 

[a]

Related to interest rate swaps from equity method investments.

[b]The accumulated other comprehensive income/loss reclassification components are 1) prior service cost/credit and 2) net actuarial loss, which are both included in the computation of net periodic pension benefit/cost. See Note 54 Retirement Plans for additional details.

 

12

10.9. Accounts Receivable

 

Accounts receivable includes freight and other receivables reduced by an allowance for doubtful accounts. At June 30, 20222023, and December 31, 20212022, our accounts receivablereceivables were reduced by $9$11 million and $10$10 million, respectively. Receivables not expected to be collected in one year and the associated allowances are classified as other assets in our Condensed Consolidated Statements of Financial Position. At June 30, 20222023, and December 31, 20212022, receivables classified as other assets were reduced by allowances of $47$67 million and $51$58 million, respectively.

 

Receivables Securitization Facility – The Railroad maintains an $800 million, 3-year3-year receivables securitization facility (the Receivables Facility) maturing in July 2022,2025. with the intent to renew under comparable terms and conditions. Under the Receivables Facility, the Railroad sells most of its eligible third-party receivables to Union Pacific Receivables, Inc. (UPRI), a consolidated, wholly-owned, bankruptcy-remote subsidiary that may subsequently transfer, without recourse, an undivided interest in accounts receivable to investors. The investors have no recourse to the Railroad’s other assets except for customary warranty and indemnity claims. Creditors of the Railroad do not have recourse to the assets of UPRI.

 

The amount recorded under the Receivables Facility was $600$400 million and $300$100 million at June 30, 20222023, and December 31, 20212022, respectively. The Receivables Facility was supported by $1.7$1.5 billion and $1.3$1.6 billion of accounts receivable as collateral at June 30, 20222023, and December 31, 20212022, respectively, which, as a retained interest, is included in accounts receivable, net in our Condensed Consolidated Statements of Financial Position.

 

13

The outstanding amount the Railroad maintains under the Receivables Facility may fluctuate based on current cash needs. The maximum allowed under the Receivables Facility is $800 million with availability directly impacted by eligible receivables, business volumes, and credit risks, including receivables payment quality measures such as default and dilution ratios. If default or dilution ratios increase one percent, the allowable outstanding amount under the Receivables Facility would not materially change.

 

The costs of the Receivables Facility include interest, which will vary based on prevailing benchmark and commercial paper rates, program fees paid to participating banks, commercial paper issuance costs, and fees of participating banks for unused commitment availability. The costs of the Receivables Facility are included in interest expense and were $3$1 million and $1$3 million for the three months ended June 30, 20222023 and 20212022 , respectively, and $ 4 million and $2$4 million for both of the six months ended June 30, 20222023 and 20212022 , respectively..
 

13

11.10. Properties

 

The following tables list the major categories of property and equipment, as well as the weighted-average estimated useful life for each category (in years):

 

Millions, Except Estimated Useful Life

    Accumulated

Net Book

Estimated

      

Accumulated

 

Net Book

 

Estimated

 

As of June 30, 2022

Cost

Depreciation

Value

Useful Life

 

As of June 30, 2023

 

Cost

 

Depreciation

 

Value

 

Useful Life

 

Land

 $5,333  $N/A  $5,333  N/A  $5,365  $N/A  $5,365  N/A 

Road:

                     

Rail and other track material

 18,217  6,977  11,240  43  18,633  7,222  11,411  42 

Ties

 11,538  3,605  7,933  34  11,845  3,799  8,046  34 

Ballast

 6,140  1,903  4,237  34  6,285  2,004  4,281  34 

Other roadway [a]

 21,945  4,811  17,134  47  22,721  5,173  17,548  47 

Total road

 57,840  17,296  40,544  N/A  59,484  18,198  41,286  N/A 

Equipment:

                     

Locomotives

 9,158  3,617  5,541  18  9,319  3,690  5,629  18 

Freight cars

 2,407  862  1,545  23  2,628  935  1,693  23 

Work equipment and other

 1,191  444  747  18  1,301  508  793  17 

Total equipment

 12,756  4,923  7,833  N/A  13,248  5,133  8,115  N/A 

Technology and other

 1,268  539  729  13  1,280  539  741  12 

Construction in progress

 876  0  876  N/A  1,134  -  1,134  N/A 

Total

 $78,073  $22,758  $55,315  N/A  $80,511  $23,870  $56,641  N/A 

 

Millions, Except Estimated Useful Life

    Accumulated

Net Book

Estimated

      

Accumulated

 

Net Book

 

Estimated

 

As of December 31, 2021

Cost

Depreciation

Value

Useful Life

 

As of December 31, 2022

 

Cost

 

Depreciation

 

Value

 

Useful Life

 

Land

 $5,339  $N/A  $5,339  N/A  $5,344  $N/A  $5,344  N/A 

Road:

             

Rail and other track material

 17,980  6,844  11,136  44  18,419  7,096  11,323  43 

Ties

 11,364  3,516  7,848  34  11,676  3,699  7,977  34 

Ballast

 6,070  1,852  4,218  34  6,222  1,950  4,272  34 

Other roadway [a]

 21,593  4,657  16,936  47  22,411  4,970  17,441  47 

Total road

 57,007  16,869  40,138  N/A  58,728  17,715  41,013  N/A 

Equipment:

             

Locomotives

 9,371  3,779  5,592  17  9,166  3,606  5,560  18 

Freight cars

 2,227  822  1,405  24  2,562  898  1,664  23 

Work equipment and other

 1,161  411  750  18  1,253  473  780  17 

Total equipment

 12,759  5,012  7,747  N/A  12,981  4,977  8,004  N/A 

Technology and other

 1,209  523  686  12  1,254  525  729  12 

Construction in progress

 961  0  961  N/A  948  -  948  N/A 

Total

 $77,275  $22,404  $54,871  N/A  $79,255  $23,217  $56,038  N/A 

 

[a]

Other roadway includes grading, bridges and tunnels, signals, buildings, and other road assets.

 

 

14

 

12.11. Accounts Payable and Other Current Liabilities

 

Jun. 30,

Dec. 31,

 

Jun. 30,

Dec. 31,

 

Millions

 

2022

  

2021

  

2023

  

2022

 

Accounts payable

 $896  $752  $894  $784 

Income and other taxes payable

  726   823  563  628 

Accrued wages and vacation

 354  352 

Compensation-related accruals

 

524

  

938

 

Interest payable

 350  330  394  379 

Current operating lease liabilities

 314  330  346  331 

Accrued casualty costs

 207  187  267  242 

Equipment rents payable

 104  98  101  109 

Other

 717  706  415  431 

Total accounts payable and other current liabilities

 $3,668  $3,578  $3,504  $3,842 
 

13.12. Financial Instruments

 

Short-Term InvestmentsAllAs of June 30, 2023, the Company’sCompany has no short-term investments. As of December 31, 2022, the Company had $46 million of short-term investments, consistwhich consisted of time deposits and government agency securities.deposits. These investments are considered Level 2 investments and are valued at amortized cost, which approximates fair value. As of June 30, 2022, the Company had $46 million of short-term investments. All short-term investments have a maturity of less than one year and are classified as held-to-maturity.

 

Fair Value of Financial Instruments – The fair value of our short- and long-term debt was estimated using a market value price model, which utilizes applicable U.S. Treasury rates along with current market quotes on comparable debt securities. All of the inputs used to determine the fair market value of the Corporation’s long-term debt are Level 2 inputs and obtained from an independent source. At June 30, 20222023, the fair value of total debt was $27.7$28.3 billion, approximately $4.3$5.0 billion less than the carrying value. At December 31, 20212022, the fair value of total debt was $32.9$28.1 billion, approximately $3.2$5.2 billion moreless than the carrying value. The fair value of the Corporation’s debt is a measure of its current value under present market conditions. The fair value of our cash equivalents approximates their carrying value due to the short-term maturities of these instruments.

 

14.13. Debt

 

Credit Facilities – During the second quarter 2022, we replaced our $2.0 billion revolving credit facility, which was scheduled to expire in June 8, 2023, with a new $2.0 billion facility that expires May 20, 2027 (the Facility). The Facility is based on substantially similar terms as those in the previous credit facility as described below. At June 30, 2022, 2023, we had $2.0 billion of credit available under our revolving credit facility (the Facility), which is designated for general corporate purposes and supports the issuance of commercial paper. Credit facility withdrawals totaled $0 during the six months ended June 30, 2022. 2023. Commitment fees and interest rates payable under the Facility are similar to fees and rates available to comparably rated, investment-grade borrowers. The Facility allows for borrowings at floating rates based on Term Secured Overnight Financing Rate (SOFR), plus a spread, depending upon credit ratings for our senior unsecured debt. The Facility, set to expire May 20, 2027, requires UPC to maintain a debt-to-EBITDA (earnings before interest, taxes, depreciation, and amortization) coverage ratio.

 

The definition of debt used for purposes of calculating the debt-to-EBITDA coverage ratio includes, among other things, certain credit arrangements, finance leases, guarantees, unfunded and vested pension benefits under Title IV of ERISA, and unamortized debt discount and deferred debt issuance costs. At June 30, 20222023 , the Company was in compliance with the debt-to-EBITDA coverage ratio, which allows us to carry up to $47.0$45.9 billion of debt (as defined in the Facility), and we had $33.8$35.1 billion of debt (as defined in the Facility) outstanding at that date. The Facility does not include any other financial restrictions, credit rating triggers (other than rating-dependent pricing), or any other provision that could require us to post collateral. The Facility also includes a $150  million cross-default provision and a change-of-control provision.
 

During the six months ended June 30, 20222023, we issued $2.0 billion$974 million and repaid $2.2 billion$950 million of commercial paper with maturities ranging from 711 to 8688 days, and at June 30, 20222023, we had $250$224 million of commercial paper with a weighted average interest rate of 1.5%5.3% outstanding. Our revolving credit facility supports our outstanding commercial paper balances, and, unless we change the terms of our commercial paper program, our aggregate issuance of commercial paper will not exceed the amount of borrowings available under the Facility.

 

15

Shelf Registration Statement and Significant New Borrowings – On February 3, 2022, the Board of Directors renewed its authorization for the Company to issue up to $12.0 billion of debt securities under the Company’s current three-year shelf registration filed on February 10, 2021. This reauthorization replaces the original Board authorization, which had $2.5 billion in remaining authority. Under our shelf registration, we may issue, from time to time any combination of debt securities, preferred stock, common stock, or warrants for debt securities or preferred stock in one or more offerings.

 

15

During the six months ended June 30, 20222023, we issued the following unsecured, fixed-rate debt securities under our shelf registration:

 

Date

Description of Securities

February 14, 202221, 2023

$1.250.50 billion of 2.800%4.750% Notes due February 14, 203221, 2026

 

$0.50 billion of 3.375%4.950% Notes due February 14, 2042

$1.25 billion of 3.500% Notes due February 14,May 15, 2053

$0.50 billion of 3.850% Notes due February 14, 2072

 

We used the net proceeds from the offerings for general corporate purposes, including the repurchase of common stock pursuant to our share repurchase programs. These debt securities include change-of-control provisions. At June 30, 20222023, we had remaining authority to issue up to $8.5$5.6 billion of debt securities under our shelf registration.

Debt Redemption – On April 15, 2022, we redeemed all $750 million of outstanding 4.163% notes due July 15, 2022, at a redemption price equal to 100% of the principal amount of the notes plus accrued and unpaid interest. 

 

Receivables Securitization Facility – As of June 30, 20222023, and December 31, 20212022, we recorded $600$400 million and $300$100 million, respectively, of borrowings under our Receivables Facility as secured debt. (See further discussion of our receivables securitization facility in Note 109).

 

15.14. Commitments and Contingencies

 

Asserted and Unasserted Claims – Various claims and lawsuits are pending against us and certain of our subsidiaries. We cannot fully determine the effect of all asserted and unasserted claims on our consolidated results of operations, financial condition, or liquidity. To the extent possible, we have recorded a liability where asserted and unasserted claims are considered probable and where such claims can be reasonably estimated. We currently do not expect that any known lawsuits, claims, environmental costs, commitments, contingent liabilities, or guarantees will have a material adverse effect on our consolidated results of operations, financial condition, or liquidity after taking into account liabilities and insurance recoveries previously recorded for these matters.

In December 2019, we received a putative class action complaint under the Illinois Biometric Information Privacy Act, alleging violation due to the use of a finger scan system developed and managed by third parties. Union Pacific and the plaintiff are currently in the discovery phase. While we believe that we have strong defenses to the claims made in the complaint and will vigorously defend ourselves, there is no assurance regarding the ultimate outcome. Therefore, the outcome of this litigation is inherently uncertain, and we cannot reasonably estimate any loss or range of loss that may arise from this matter.

 

Personal Injury – The Federal Employers’ Liability Act (FELA) governs compensation for work-related accidents. Under FELA, damages are assessed based on a finding of fault through litigation or out-of-court settlements. We offer a comprehensive variety of services and rehabilitation programs for employees who are injured at work.

 

Approximately 94%95% of the recorded liability is related to asserted claims and approximately 6%5% is related to unasserted claims at June 30, 20222023. Because of the uncertainty surrounding the ultimate outcome of personal injury claims, it is reasonably possible that future costs to settle these claims may range from approximately $347$367 million to $381$473 million. We record an accrual at the low end of the range as no amount of loss within the range is more probable than any other. Estimates can vary over time due to evolving trends in litigation.

 

Our personal injury liability activity was as follows:

 

Millions, for the Six Months Ended June 30,

 

2022

  

2021

  

2023

  

2022

 

Beginning balance

 $325  $270  $361  $325 

Current year accruals

 51  45  52  51 

Changes in estimates for prior years

 36  17  31  36 

Payments

 (65) (31) (77) (65)

Ending balance at June 30,

 $347  $301  $367  $347 

Current portion, ending balance at June 30,

 $70  $62  $98  $70 

 

16

Environmental Costs – We are subject to federal, state, and local environmental laws and regulations. We have identified 359347 sites where we are or may be liable for remediation costs associated with alleged contamination or for violations of environmental requirements. This includes 30 32 sites that are the subject of actions taken by the U.S. government, including 20 that are currently on the Superfund National Priorities List. Certain federal legislation imposes joint and several liability for the remediation of identified sites; consequently, our ultimate environmental liability may include costs relating to activities of other parties, in addition to costs relating to our own activities at each site.

 

16

Our environmental liability activity was as follows:

 

Millions, for the Six Months Ended June 30,

 

2022

  

2021

  

2023

  

2022

 

Beginning balance

 $243  $233  $253  $243 

Accruals

 52  43  62  52 

Payments

 (29) (26) (50) (29)

Ending balance at June 30,

 $266  $250  $265  $266 

Current portion, ending balance at June 30,

 $64  $63  $78  $64 

 

The environmental liability includes future costs for remediation and restoration of sites, as well as ongoing monitoring costs, but excludes any anticipated recoveries from third-parties. Cost estimates are based on information available for each site, financial viability of other potentially responsible parties, and existing technology, laws, and regulations. The ultimate liability for remediation is difficult to determine because of the number of potentially responsible parties, site-specific cost sharing arrangements with other potentially responsible parties, the degree of contamination by various wastes, the scarcity and quality of volumetric data related to many of the sites, and the speculative nature of remediation costs. Estimates of liability may vary over time due to changes in federal, state, and local laws governing environmental remediation. Current obligations are not expected to have a material adverse effect on our consolidated results of operations, financial condition, or liquidity.

 

Insurance – The Company has a consolidated, wholly-owned captive insurance subsidiary (the Captive), that provides insurance coverage for certain risks including workers compensation, general liability, auto liability,property, cyber, and FELA claims.claims that are subject to reinsurance. The Captive receives direct premiums, which are netted against the Company’s premium costs in other expenses in the Condensed Consolidated Statements of Income. We record both liabilities and reinsurance receivables using an actuarial analysis based on historical experience in our Condensed Consolidated Statements of Financial Position.

 

Indemnities – Our maximum potential exposure under indemnification arrangements, including certain tax indemnifications, can range from a specified dollar amount to an unlimited amount, depending on the nature of the transactions and the agreements. Due to uncertainty as to whether claims will be made or how they will be resolved, we cannot reasonably determine the probability of an adverse claim or reasonably estimate any adverse liability or the total maximum exposure under these indemnification arrangements. We do not have any reason to believe that we will be required to make any material payments under these indemnity provisions.

 

16.15. Share Repurchase Programs

 

Effective April 1, 2022, our Board of Directors authorized the repurchase of up to 100 million shares of our common stock by March 31, 2025. As of June 30, 2023, we repurchased a total of 19.6 million shares of our common stock under the 2022 authorization. These repurchases may be made on the open market or through other transactions. Our management has sole discretion with respect to determining the timing and amount of these transactions.

 

Our previous authorization, which was effective April 1, 2019, through March 31, 2022, was approved by our Board of Directors for up to 150 million shares of common stock. As of March 31, 2022, we repurchased a total of 83.3 million shares of our common stock under the 2019 authorization.

 

17

The table below represents shares repurchased under the repurchase programprograms in the six months ended June 30, 20222023 and 20212022:

 

Number of Shares Purchased

Average Price Paid [a]

 

Number of Shares Purchased

 

Average Price Paid [a]

 
 

2022

  

2021

  

2022

  

2021

  

2023

 

2022

 

2023

 

2022

 

First quarter [b]

 11,014,201  6,691,421  $249.95  $209.50  2,908,703  11,014,201  $203.19  $249.95 

Second quarter [c]

 3,100,683  12,204,409  232.87  222.46  606,581  3,100,683  199.81  232.87 

Total

 14,114,884  18,895,830  $246.20  $217.87  3,515,284  14,114,884  $202.61  $246.20 

Remaining number of shares that may be repurchased under current authority

Remaining number of shares that may be repurchased under current authority

96,899,317 

Remaining number of shares that may be repurchased under current authority

     80,392,027 

 

[a]In the period of the final settlement, the average price paid under the accelerated share repurchase programs is calculated based on the total program value less the value assigned to the initial delivery of shares. The average price of the completed 2022 accelerated share repurchase programs was $248.32. The average price of the initial settlement of the 2021 accelerated share repurchase programs was $221.94.
[b]Includes 7,012,232 shares repurchased in 2022 under accelerated share repurchase programs.
[c]Includes 1,847,185 and 7,209,156 shares repurchased in 2022 and 2021, respectively, under accelerated share repurchase programs.

 

17

Management's assessments of market conditions and other pertinent factors guide the timing, manner, and volume of all repurchases. We expect to fund any share repurchases under this program through cash generated from operations, the sale or lease of various operating and non-operating properties, debt issuances, and cash on hand. Open market repurchases are recorded in treasury stock at cost, which includes any applicable commissions, fees, and fees.excise taxes.

 

Accelerated Share Repurchase Programs The Company has established accelerated share repurchase programs (ASRs) with financial institutions to repurchase shares of our common stock. These ASRs have been structured so that at the time of commencement, we pay a specified amount to the financial institutions and receive an initial delivery of shares. Additional shares may be received at the time of settlement. The final number of shares to be received is based on the volume weighted average price of the Company’s common stock during the ASR term, less a discount and subject to potential adjustments pursuant to the terms of such ASR.

 

On February 18, 2022, the Company received 7,012,232 shares of its common stock repurchased under ASRs for an aggregate of $2.2 billion. Upon settlement of these ASRs in the second quarter of 2022, we received 1,847,185 additional shares.

 

On May 26, 2021, the Company received 7,209,156 shares of its common stock repurchased under ASRs for an aggregate of $2.0 billion. Upon settlement of these ASRs in the third quarter of 2021, we received 1,983,859 additional shares.

ASRs are accounted for as equity transactions, and at the time of receipt, shares are included in treasury stock at fair market value as of the corresponding initiation or settlement date. The Company reflects shares received as a repurchase of common stock in the weighted average common shares outstanding calculation for basic and diluted earnings per share.

 

17.16. Related Parties

 

UPRR and other North American railroad companies jointly own TTX Company (TTX). UPRR has a 36.79%37.03% economic and voting interest in TTX while the other North American railroads own the remaining interest. In accordance with ASC 323 Investments - Equity Method and Joint Venture, UPRR applies the equity method of accounting to our investment in TTX.

 

TTX is a rail car pooling company that owns rail cars and intermodal wells to serve North America’s railroads. TTX assists railroads in meeting the needs of their customers by providing rail cars in an efficient, pooled environment. All railroads have the ability to utilize TTX rail cars through car hire by renting rail cars at stated rates.

 

UPRR had $1.6$1.8 billion and $1.7 billion recognized as investments related to TTX in our Condensed Consolidated Statements of Financial Position as of both June 30, 20222023, and December 31, 20212022., respectively. TTX car hire expenses of $98$102 million and $95$98 million for the three months ended June 30, 20222023 and 20212022, respectively, and $192$205 million and $191$192 million for the six months ended June 30, 20222023 and 20212022, respectively, are included in equipment and other rents in our Condensed Consolidated Statements of Income. In addition, UPRR had accounts payable to TTX of $65 million and $57$68 million as of both June 30, 20222023, and December 31, 20212022, respectively. .

 

18

 

Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations

 

UNION PACIFIC CORPORATION AND SUBSIDIARY COMPANIES

RESULTS OF OPERATIONS

 

Three and Six Months Ended June 30, 20222023, Compared to

Three and Six Months Ended June 30, 20212022

 

For purposes of this report, unless the context otherwise requires, all references herein to "Union Pacific", “UPC”, “Corporation”, “Company”, “we”, “us”, and “our” shall mean Union Pacific Corporation and its subsidiaries, including Union Pacific Railroad Company, which we separately refer to as “UPRR” or the “Railroad”.

 

The following discussion should be read in conjunction with the Condensed Consolidated Financial Statements and applicable notes to the Condensed Consolidated Financial Statements, Item 1, and other information included in this report. Our Condensed Consolidated Financial Statements are unaudited and reflect all adjustments (consisting only of normal and recurring adjustments) that are, in the opinion of management, necessary for their fair presentation in conformity with accounting principles generally accepted in the United States of America (GAAP).

 

The Railroad, along with its subsidiaries and rail affiliates, is our one reportable business segment. Although we provide and analyze revenues are analyzed by commodity, group, we treatanalyze the net financial results of the Railroad as one segment due to the integrated nature of ourthe rail network.

 

Critical Accounting Estimates

 

The preparation of these financial statements requires estimation and judgment that affect the reported amounts of revenues, expenses, assets, and liabilities. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. If these estimates differ materially from actual results, the impact on the Condensed Consolidated Financial Statements may be material. Our critical accounting estimates are available in Item 7 of our 20212022 Annual Report on Form 10-K. During the first six months of 20222023, there have not been any significant changes with respect to the policies used to develop our critical accounting estimates.

 

RESULTS OF OPERATIONS

 

Quarterly Summary

 

The Company reported earnings of $2.57 per diluted share on net income of $1.6 billion and an operating ratio of 63.0% in the second quarter of 2023 compared to earnings of $2.93 per diluted share on net income of $1.8 billion and an operating ratio of 60.2% in the second quarter of 2022 compared to earnings of $2.72 per diluted share on net income of $1.8 billion and an operating ratio of 55.1% for the second quarter of 2021.2022. Freight revenues increased 14%decreased 5% in the quarter compared to the same period in 20212022 driven by a 16% increase3% decrease in average revenue per car (ARC), partially offset by and a 1%2% decline in volume. The ARC increasedecrease was due to higherdriven by lower fuel surcharge revenues core pricing gains, and positivenegative mix of traffic (for example, a relative decrease in intermodalforest product shipments, which have a lowerhigher ARC)., partially offset by core pricing gains. Volume decreases were primarily driven by weaker markets for intermodal and forest product shipments. These declines were partially offset by increased production and inventory replenishment in the automotive industry, continued strength in rock shipments, and a domestic intermodal contract win. 

 

AsOur overall network fluidity improved compared to the second quarter of 2022 as last year we entered the quarter, our service metrics were deteriorating caused byexperienced congestion across the system hindering our abilitynetwork related to handle all the market demand. To address this congestion,a lack of available crew resources. As a result, we accelerated hiring and training of new employees temporarily relocated train, engine,over the past year, graduated 2,263 employees between May 6, 2022, and yard employees to areas withJuly 7, 2023, and, as of July 7, 2023, have 769 individuals currently in the greatest need, added locomotives to the fleet in select locations, and reduced freight car inventory from our network, including asking customers to reduce their freight car inventory by adjusting their pipeline when their inventory exceeded set thresholds in our servicing yards. These actions had a negative impact on volumes across all three commodity groups. In addition, intermodal volumes declined with the on-going supply chain disruptions and the COVID shutdowns in China. Partially offsetting these declines were some recovery of the automotive market and strong demand for rock. training pipeline.

 

Crude oil prices remained above $100 a barrel throughout most of the quarter, as the global energy market was impacted by the Russia-Ukraine conflict, driving an 87% increase in our average fuel price for the quarter. Along with the higher cost of fuel, costs increased dueOperating expenses decreased slightly compared to the additional resources deployed to improve network fluidity, higher inflation, and higher personal injury costs. These increased costs mostly offset the higher revenues as operating income increased 1% in the second quarter comparedof 2022 due to lower fuel prices and volume related costs, offset by inflation, a one-time $67 million expense from ratification of a crew staffing agreement with the same period in 2021.International Association of Sheet Metal, Air, Rail and Transportation Workers (the ratification charge), and increased workforce levels. Operating income of $2.2 billion decreased 12% and our operating ratio of 63.0% deteriorated 2.8 points from the second quarter of 2022.

 

 

Operating Revenues

 

 

Three Months Ended

  

Six Months Ended

  

Three Months Ended

 

Six Months Ended

 
 

June 30,

  

June 30,

  

June 30,

 

June 30,

 

Millions

 

2022

 

2021

Change

 

2022

 

2021

Change

  

2023

 

2022

 

Change

 

2023

 

2022

 

Change

 

Freight revenues

 $5,842  $5,132  14

%

 $11,282  $9,781  15% $5,569  $5,842  (5)% $11,225  $11,282  (1)%

Other subsidiary revenues

 233  180  29  438  357  23  220  233  (6) 455  438  4 

Accessorial revenues

 183  176  4  384  337  14  149  183  (19) 300  384  (22)

Other

 11  16  (31) 25  30  (17) 25  11  F  39  25  56 

Total

 $6,269  $5,504  14

%

 $12,129  $10,505  15% $5,963  $6,269  (5)% $12,019  $12,129  (1)%

 

We generate freight revenues by transporting products from our three commodity groups. Freight revenues vary with volume (carloads) and ARC. Changes in price, traffic mix, and fuel surcharges drive ARC. Customer incentives, which are primarily provided for shipping to/from specific locations or based on cumulative volumes, are recorded as a reduction to operating revenues. Customer incentives that include variable consideration based on cumulative volumes are estimated using the expected value method, which is based on available historical, current, and forecasted volumes, and recognized as the related performance obligation is satisfied. We recognize freight revenues over time as shipments move from origin to destination. The allocation of revenues between reporting periods is based on the relative transit time in each reporting period with expenses recognized as incurred.

 

Other subsidiary revenues (primarily logistics and commuter rail operations) are generally recognized over time as shipments move from origin to destination. The allocation of revenues between reporting periods is based on the relative transit time in each reporting period with expenses recognized as incurred. Accessorial revenues are recognized at a point in time as performance obligations are satisfied.

 

Freight revenues increased 14% duringdecreased 5% in the second quarter of 20222023 compared to 2021, resulting from higherthe same period in 2022 driven by a 3% decrease in ARC and a 2% decline in volume. The ARC decrease was driven by lower fuel surcharges, core pricing gains,surcharge revenues and positivenegative mix of traffic (for example, a relative decrease in forest product shipments, which have a higher ARC), partially offset by a 1% volume decline. To improve servicecore pricing gains. Volume decreases were primarily driven by weaker markets for intermodal and network fluidity Union Pacific asked customers to reduce their freight car inventory by adjusting their pipeline when their inventory exceeded set thresholds in our servicing yards.forest product shipments. These actions had a negative impact on volumes across all three commodity groups. In addition, intermodal volumes declined with the on-going supply chain disruptions and the COVID shutdowns in China. Partially offsetting these declines were some recovery ofpartially offset by increased production and inventory replenishment in the automotive marketindustry, continued strength in rock shipments, and strong demand for rock.a domestic intermodal contract win.

 

Each of our commodity groups includes revenues from fuel surcharges. Freight revenues from fuel surcharge programs increaseddecreased to $976$707 million in the second quarter of 20222023 compared to $414$976 million in the same period of 20212022 due to higherlower fuel prices.prices and lower volume, partially offset by the lag impact on fuel surcharge (it can generally take up to two months for changing fuel prices to affect fuel surcharge recoveries). 

 

Other subsidiary revenues increaseddecreased in the second quarter and six-month period of 20222023 compared to 20212022 primarily driven by some recovery of automotive partsa weaker market for intermodal shipments and contract wins at our subsidiary that brokers intermodal and transload logistics services. Accessorial revenues increaseddecreased in the second quarter and six-month period of 20222023 compared to 20212022 driven by increaseddecreased intermodal accessorial charges resulting primarily from ongoingand container revenues due to lower volume and improvements in the global supply chain disruptions.as reflected by better equipment cycle times.

 

 

The following tables summarize the year-over-year changes in freight revenues, revenue carloads, and ARC by commodity type:

 

 

Three Months Ended

  

Six Months Ended

  

Three Months Ended

 

Six Months Ended

 

Freight Revenues

 

June 30,

  

June 30,

  

June 30,

 

June 30,

 

Millions

 

2022

 

2021

Change

 

2022

 

2021

Change

  

2023

 

2022

 

Change

 

2023

 

2022

 

Change

 

Grain & grain products

 $867  $795  9

%

 $1,744  $1,561  12% $890  $867  3

%

 $1,833  $1,744  5%

Fertilizer

 183  179  2  363  349  4  183  183  -  369  363  2 

Food & refrigerated

 271  251  8  538  486  11  255  271  (6) 518  538  (4)

Coal & renewables

 492  423  16  1,000  764  31  429  492  (13) 934  1,000  (7)

Bulk

 1,813  1,648  10  3,645  3,160  15  1,757  1,813  (3) 3,654  3,645  - 

Industrial chemicals & plastics

 557  498  12  1,077  933  15  545  557  (2) 1,081  1,077  - 

Metals & minerals

 562  467  20  1,047  842  24  562  562  -  1,098  1,047  5 

Forest products

 386  348  11  750  664  13  347  386  (10) 679  750  (9)

Energy & specialized markets

 586  546  7  1,138  1,076  6  632  586  8  1,245  1,138  9 

Industrial

 2,091  1,859  12  4,012  3,515  14  2,086  2,091  -  4,103  4,012  2 

Automotive

 561  428  31  1,062  875  21  625  561  11  1,212  1,062  14 

Intermodal

 1,377  1,197  15  2,563  2,231  15  1,101  1,377  (20) 2,256  2,563  (12)

Premium

 1,938  1,625  19  3,625  3,106  17  1,726  1,938  (11) 3,468  3,625  (4)

Total

 $5,842  $5,132  14

%

 $11,282  $9,781  15% $5,569  $5,842  (5)% $11,225  $11,282  (1)%

 

 

Three Months Ended

  

Six Months Ended

  

Three Months Ended

 

Six Months Ended

 

Revenue Carloads

 

June 30,

  

June 30,

  

June 30,

 

June 30,

 

Thousands,

 

2022

 

2021

Change 

2022

 

2021

 Change  

2023

 

2022

 

Change

 

2023

 

2022

 

Change

 

Grain & grain products

  195  204   (4)%  400  407   (2)% 197  195  1

%

 399  400  -%

Fertilizer

  53  54   (2)  98  98   -  48  53  (9) 93  98  (5)

Food & refrigerated

  48  48   -   95  93   2  44  48  (8) 88  95  (7)

Coal & renewables

  202  198   2   427  372   15  203  202  -  419  427  (2)

Bulk

  498  504   (1)  1,020  970   5  492  498  (1) 999  1,020  (2)

Industrial chemicals & plastics

  161  156   3   321  296   8  164  161  2  321  321  - 

Metals & minerals

  205  182   13   387  328   18  210  205  2  398  387  3 

Forest products

  63  64   (2)  127  124   2  55  63  (13) 107  127  (16)

Energy & specialized markets

  141  138   2   272  277   (2) 144  141  2  283  272  4 

Industrial

  570  540   6   1,107  1,025   8  573  570  1  1,109  1,107  - 

Automotive

  192  173   11   382  353   8  213  192  11  413  382  8 

Intermodal [a]

  805  878   (8)  1,562  1,674   (7) 749  805  (7) 1,483  1,562  (5)

Premium

  997  1,051   (5)  1,944  2,027   (4) 962  997  (4) 1,896  1,944  (2)

Total

  2,065  2,095   (1)%  4,071  4,022   1

%

 2,027  2,065  (2)% 4,004  4,071  (2)%

 

 

Three Months Ended

  

Six Months Ended

  

Three Months Ended

 

Six Months Ended

 
 

June 30,

  

June 30,

  

June 30,

 

June 30,

 

Average Revenue per Car

 

2022

 

2021

Change

 

2022

 

2021

Change

  

2023

 

2022

 

Change

 

2023

 

2022

 

Change

 

Grain & grain products

 $4,451  $3,894  14

%

 $4,357  $3,838  14% $4,527  $4,451  2

%

 $4,598  $4,357  6

%

Fertilizer

 3,437  3,304  4  3,701  3,550  4  3,830  3,437  11  3,978  3,701  7 

Food & refrigerated

 5,770  5,226  10  5,703  5,230  9  5,740  5,770  (1) 5,851  5,703  3 

Coal & renewables

 2,426  2,134  14  2,340  2,051  14  2,107  2,426  (13) 2,228  2,340  (5)

Bulk

 3,642  3,266  12  3,574  3,256  10  3,568  3,642  (2) 3,657  3,574  2 

Industrial chemicals & plastics

 3,455  3,189  8  3,351  3,153  6  3,336  3,455  (3) 3,368  3,351  1 

Metals & minerals

 2,755  2,569  7  2,710  2,567  6  2,677  2,755  (3) 2,760  2,710  2 

Forest products

 6,128  5,463  12  5,898  5,357  10  6,337  6,128  3  6,360  5,898  8 

Energy & specialized markets

 4,161  3,944  6  4,189  3,886  8  4,388  4,161  5  4,398  4,189  5 

Industrial

 3,674  3,442  7  3,626  3,430  6  3,646  3,674  (1) 3,701  3,626  2 

Automotive

 2,919  2,479  18  2,780  2,482  12  2,928  2,919  -  2,935  2,780  6 

Intermodal [a]

 1,711  1,363  26  1,641  1,332  23  1,471  1,711  (14) 1,521  1,641  (7)

Premium

 1,943  1,547  26  1,864  1,532  22  1,794  1,943  (8) 1,829  1,864  (2)

Average

 $2,830  $2,449  16

%

 $2,771  $2,432  14% $2,748  $2,830  (3

)%

 $2,804  $2,771  1

%

 

[a]

For intermodal shipments each container or trailer equals one carload.

 

 

Bulk – Bulk includes shipments of grain and grain products, fertilizer, food and refrigerated, goods, and coal and renewables. Freight revenues from bulk shipments increaseddecreased in the second quarter and six-month periods of 20222023 compared to 20212022 due to higherlower fuel surcharge revenues, volume declines, and negative mix of traffic from decreased food and refrigerated shipments, partially offset by core pricing gains. Volume declined 1% in the second quarter of 2023 compared to 2022 driven by network constraints increasing shuttle cycle times for ourdecreased export potash shipments due to a customer outage and fewer export grain traffic,shipments driven by higher prices making the grain less competitive in the world market, partially offset by 2% increasestrong markets in coaldomestic grain and renewable carloads. Conversely, volumediesel feedstocks. Year-to-date, freight revenues increased 5% in the year-to-date periodslightly compared to 2021the same period in 2022 due to a 15% increase incore pricing gains and higher fuel surcharge revenues, partially offset by volume declines and negative mix of traffic from decreased food and refrigerated shipments. Volumes for coal and renewable shipments and food and refrigerated were negatively impacted by outages and service challenges due to higher natural gas pricesrepeated snow events in Wyoming and contract wins. Negative mix of traffic from increased coal shipments partially offset some of the gainsflooding in California in the year-to-date period.first quarter of 2023. 

 

Industrial – Industrial includes shipments of industrial chemicals and plastics, metals and minerals, forest products, and energy and specialized markets. Freight revenues from industrial shipments increasedwere flat in the second quarter of 20222023 compared to 20212022 due to negative mix of traffic from decreased lumber shipments and increased short haul rock shipments and lower fuel surcharge revenues, partially offset by core pricing gains and volume increases. Volume increased 1% in the second quarter of 2023 compared to 2022. We saw growth in metals and minerals due to strong demand for rock and sand. That growth was partially offset by decreases in forest products due to the softening housing market and fewer shipments of brown paper as demand for non-durable goods declined. Year-to-date, freight revenues increased compared to the same period in 2022 due to core pricing gains and higher fuel surcharge revenues, higher volume, and core pricing gains, partially offset by negative mix of traffic from decreased lumber shipments and increased short haul rock shipments. Volume grew 6% in the second quarter of 2022 compared to 2021 despite the actions taken to reduce freight car inventory and slower cycle times. The growth was driven by metals and minerals due to strong demand for rock. Petroleum shipments declined in the second quarter compared to 2021 due to regulatory challenges in Mexico markets. Year-to-date, freight revenue increased compared to 2021 driven by an 8% volume increase, higher fuel surcharge, and core pricing gains, partially offset by negative mix of traffic. In addition to the second quarter drivers, many of our customers in the Gulf Coast experienced Winter Storm Uri interruptions for an extended period causing a significant impact on the industrial chemicals and plastics and metals and minerals industries in the first quarter of 2021. Last year’s weather event coupled with 2022 strong demand drove the year-over-year increase for the impacted commodities for the year-to-date period. 

 

Premium – Premium includes shipments of finished automobiles, automotive parts, and merchandise in intermodal containers, both domestic and international. Premium freight revenues increaseddecreased in the second quarter and six-month period of 20222023 compared to 20212022 due to higherlower fuel surcharge revenues core pricing gains, positive mix of traffic from lower international intermodal shipments,and volume declines, partially offset by volume declines.core pricing gains. Intermodal volumeshipments declined 8%7% and 7%5% in the second quarter and year-to-date periods, respectively, compared to 2021 driven by ongoing international supply chain disruptions2022 as high inventories and company actions to store equipment,inflationary pressures impacted consumer demand, partially offset by a domestic contract wins and tight truck capacity.win. Automotive shipments increased 11% and 8% in the second quarter and six-month periods of 2023, respectively, compared to the same periods in 20212022 driven by an increase in automotive parts and finished vehicle shipmentsincreased production as the automotive industry slowly recovers from the shortage of semiconductors and last year’s weather disruptions in the first quarter.dealers replenish inventories. 

 

Mexico Business Each of our commodity groups includes revenues from shipments to and from Mexico. Revenues from Mexico business increased 10%1% to $681$689 million in the second quarter of 20222023 compared to 20212022 driven by a 4% volume increase, partially offset by lower fuel surcharge revenues. Volume increases were driven by higher fuel surcharge revenues, positive business mix from lowerautomotive and intermodal shipments, and core pricing gains, partially offset by a 4% decline in volume. The volume decrease was driven by intermodal and petroleum shipments, partially offset by automotive parts.shipments. Year-to-date, revenues increased 13% to $1.3 billion because of higher fuel surcharge revenues, positive business mix from lower intermodal shipments,5% driven by a 2% increase in volume and core pricing gains, partially offset by 2% volume decline compared to 2021.3% increase in average revenue per car.

 

Operating Expenses

 

 

Three Months Ended

  

Six Months Ended

  

Three Months Ended

 

Six Months Ended

 
 

June 30,

  

June 30,

  

June 30,

 

June 30,

 

Millions

 

2022

 

2021

Change

 

2022

 

2021

Change

  

2023

 

2022

 

Change

 

2023

 

2022

 

Change

 

Compensation and benefits

 $1,092  $1,022  7

%

 $2,193  $2,048  7% $1,269  $1,092  16

%

 $2,448  $2,193  12%

Fuel

 940  497  89  1,654  908  82  664  940  (29) 1,430  1,654  (14)

Purchased services and materials

 622  478  30  1,183  968  22  650  622  5  1,303  1,183  10 

Depreciation

 559  550  2  1,114  1,099  1  577  559  3  1,149  1,114  3 

Equipment and other rents

 230  200  15  445  412  8  248  230  8  483  445  9 

Other

 331  284  17  668  604  11  351  331  6  708  668  6 

Total

 $3,774  $3,031  25

%

 $7,257  $6,039  20

%

 $3,759  $3,774  -

%

 $7,521  $7,257  4%

 

Operating expenses increased $743 million and $1.2 billiondecreased slightly in the second quarter and year-to-date periods, respectively,of 2023 compared to 20212022 driven by higherlower fuel prices and volume related costs, offset by inflation, the ratification charge, and increased workforce levels. Year-to-date, operating expenses increased $264 million driven by inflation; operational challenges, inflation,including additional costs related to weather; increased workforce levels; and higher casualty costs. In addition, the year-to-date period comparison was impacted positivelyratification charge, partially offset by lower weather-related expensesfuel prices and negatively by higher state and local taxes in 2022.lower volume related costs.

 

Compensation and Benefits – Compensation and benefits include wages, payroll taxes, health and welfare costs, pension costs, and incentive costs. For the second quarter and year-to-date periods,of 2023, expenses increased 7%16% compared to 20212022 due to a 2%the ratification charge, wage inflation, and increase in employee levels. For the year-to-date period of 2023 compared to 2022, expenses increased 12% driven by wage inflation, increased employee levels, and wage inflation.the ratification charge. The year-to-date period also was partially offset by last year's weather-related expenses. Employee levels increasedemployee level increase of 4% includes a 6% increase in the second quartertrain, engine, and year-to-date periodsyard employees to support our training pipeline and address congestion across the system, including hiring and training new employees. The year-to-date period also was affected by increased carload volumes.operational challenges. 

 

Fuel – Fuel includes locomotive fuel and gasoline for highway and non-highway vehicles and heavy equipment. Fuel expense increaseddecreased in the second quarter and six-month periods of 20222023 compared to the same periodperiods in 20212022 driven by an 87% increasea decrease in locomotive diesel fuel prices whichand a 1% decrease in gross ton-miles, partially offset by a 1% increase in the fuel consumption rate, computed as gallons of fuel consumed divided by gross ton-miles in thousands. Locomotive diesel fuel prices averaged $4.03$2.86 and $2.16$4.03 per gallon (including taxes and transportation costs) in the second quarter of 2023 and 2022, and 2021, respectively. A 1% increase in gross ton-miles also contributed to the higher expense. Fuel consumption rate, computed as gallons of fuel consumed divided by gross ton-mile in thousands, deteriorated slightly. For the six-month period,Year-to-date, locomotive diesel fuel prices averaged $3.04 compared to the $3.48 per gallon in 2022 compared to $2.01 per gallon in 2021, driving the 82% increase in expenses. In addition, gross ton-miles increased 5% and fuel consumption rate deteriorated slightly during the year-to-datesame period also driving higher fuel expense compared to 2021. of 2022.

 

Purchased Services and Materials – Expense for purchased services and materials includes the costs of services purchased from outside contractors and other service providers (including equipment maintenance and contract expenses incurred by our subsidiaries for external transportation services); materials used to maintain the Railroad’sRailroad's lines, structures, and equipment; costs of operating facilities jointly used by UPRR and other railroads; transportation and lodging for train crew employees; trucking and contracting costs for intermodal containers; leased automobile maintenance expenses; and tools and supplies. Purchased services and materials increased 30% and 22%5% in the second quarter and year-to-date periods, respectively,of 2023 compared to 20212022 primarily due to inflation, partially offset by decreased drayage cost incurred at one of our subsidiaries. In the year-to-date period of 2023, purchased services and materials increased 10% compared to 2022 primarily due to higher locomotive maintenance expenses due to inflation and a larger active fleet to assist in recovering the network, inflation, and increasedpartially offset by decreased drayage costscost incurred byat one of our subsidiaries. In addition, the year-to-date period comparison was positively impacted by last year’s weather-related expenses.

 

Depreciation – The majority of depreciation relates to road property, including rail, ties, ballast, and other track material. Depreciation expense was up 2% and 1%3% for the second quarter and six-monthyear-to-date periods respectively,of 2023 compared to 2021.the same periods in 2022.

 

Equipment and Other Rents – Equipment and other rents expense primarily includes rental expense that the Railroad pays for freight cars owned by other railroads or private companies; freight car, intermodal, and locomotive leases; and office and other rentals.rent expense, offset by equity income from certain equity method investments. Equipment and other rents expense increased 15%8% and 8%9% in the second quarter and year-to-date periods of 2023, respectively, compared to 20212022 driven by inflation, partially offset by lower equity income from our investmentvolume. With improved network fluidity in TTX Companythe second quarter of 2023, cycle times improved and increased freight carlowered rent expense, whereas, in the year-to-date period, cycle times were elongated due to network congestion.operational challenges. 

 

Other – Other expenses include state and local taxes; freight, equipment, and property damage; utilities; insurance; personal injury; environmental remediation; employee travel; telephone and cellular; computer software; bad debt; and other general expenses. Other costs increased 17% and 11%6% in both the second quarter and year-to-datesix-month periods respectively,of 2023 compared to 20212022 driven by casualty expenses, including higher personal injury expense, and increased business travel costs, partially offset by lower environmental remediation costs. In the year-to-date period, higher state and local taxes also contributed to the increase.

 

Non-Operating Items

 

 

Three Months Ended

  

Six Months Ended

  

Three Months Ended

 

Six Months Ended

 
 

June 30,

  

June 30,

  

June 30,

 

June 30,

 

Millions

 

2022

 

2021

Change

 

2022

 

2021

Change

  

2023

 

2022

 

Change

 

2023

 

2022

 

Change

 

Other income, net

 $163  $125  30% $210  $176  19

%

 $93  $163  (43

)%

 $277  $210  32%

Interest expense

 (316) (282) 12  (623) (572) 9  (339) (316) 7  (675) (623) 8 

Income taxes

 (507) (518) (2) (994) (931) 7 

Income tax expense

 (389) (507) (23) (901) (994) (9)

 

Other Income, net – Other income increaseddecreased in the second quarter and year-to-date periods of 20222023 compared to 20212022 driven by largerlower gains from real estate sales. Real estate sales in the second quarter of 2022 includesinclude a $79 million gain from a land sale to the Illinois State Toll Highway Authority, while the second quarter of 2021 includes a $50 million gain from a sale to the Colorado Department of Transportation. In addition, the year-to-date comparison was negatively impacted by higher environmental remediation expense at non-operating sites.

Interest Expense – Interest expense increased in the second quarter of 2022 compared to 2021 due to an increased weighted-average debt level of $32.1 billion in 2022 compared to $28.0 billion in 2021, while the effective interest rate was flat at 4.0% in both years.Authority. Year-to-date, interest expenseother income increased due to an increased weighted-average debt level of $31.5 billion in 2022 compared to $27.4 billion in 2021,a one-time $107 million real estate transaction which was partially offset by a lower effective interest rate of 4.0% in 2022 compared to 4.1% in 2021.

Income Taxes – Income tax expense decreased in the second quarter of 2022 compared to 2021, driven by deferred tax adjustmentsgains from states reducing their corporate income tax rates. Second quarter 2022 included a $55 million reduction of deferred tax expense related to Nebraska reducing its corporate income tax rate, while second quarter 2021 included $43 million in reductions to deferred tax expense related to Idaho, Nebraska, and Oklahoma reducing their corporate income tax rates. Year-to-date, income tax expense increased compared to the same period in 2021 due to higher pre-tax income, partially offset by the deferred tax adjustments described above. Our effective tax rates for year-to-date 2022 and 2021 were 22.3% and 22.9%, respectively.real estate sales.

 

Interest Expense – Interest expense increased in the second quarter and year-to-date periods of 2023 compared to the same periods of 2022 due to an increased weighted-average debt level. In both periods of 2023, the weighted-average debt level was $33.5 billion compared to $32.1 billion and $31.5 billion in the second quarter and year-to-date periods of 2022, respectively. The effective interest rate was 4.0% in all periods.

Income Tax Expense – Income tax expense decreased in both the second quarter and year-to-date periods of 2023 compared to 2022, driven by lower pre-tax income and deferred tax adjustments. In the second quarter of 2023 and 2022, the state of Nebraska enacted legislation to reduce its corporate income tax rate for future years resulting in a reduction of our deferred tax expense of $73 million and $55 million, respectively. Our effective tax rates for year-to-date 2023 and 2022 were 22.0% and 22.3%, respectively.

 

OTHER OPERATING/PERFORMANCE AND FINANCIAL STATISTICS

 

We report a number of key performance measures weekly to the Surface Transportation Board (STB). We provide this data on our website at www.up.com/investor/aar-stb_reports/index.htm.

 

Operating/Performance Statistics

 

Management continuously measuresmonitors these key operating metrics to evaluate our operational efficiency and asset utilization in striving to provide a consistent, reliable service product to our customers.

 

Railroad performance measures are included in the table below:

 

 

Three Months Ended

  

Six Months Ended

  

Three Months Ended

  

Six Months Ended

 
 

June 30,

  

June 30,

  

June 30,

  

June 30,

 
 

2022

  

2021

Change

 

2022

  

2021

Change

  

2023

 

2022

 

Change

  

2023

 

2022

 

Change

 

Gross ton-miles (GTMs) (billions)

  209.8   207.8   1%  419.5   400.9   5%

Gross ton-miles (GTMs) (billions)

207.6  209.8  (1)% 414.3  419.5  (1

)%

Revenue ton-miles (billions)

  103.4   104.8   (1)  210.6   202.1   4 

Revenue ton-miles (billions)

101.5  103.4  (2) 205.3  210.6  (2)

Freight car velocity (daily miles per car)

  187   213   (12)  192   211   (9)

Freight car velocity (daily miles per car) [a]

Freight car velocity (daily miles per car) [a]

202  187  8  199  192  4 

Average train speed (miles per hour) [a]

  23.6   25.0   (6)  23.9   25.1   (5)

Average train speed (miles per hour) [a]

24.1  23.6  2  24.1  23.9  1 

Average terminal dwell time (hours) [a]

  24.6   22.9   7   24.3   23.2   5 

Average terminal dwell time (hours) [a]

23.3  24.6  (5) 23.6  24.3  (3)

Locomotive productivity (GTMs per horsepower day)

Locomotive productivity (GTMs per horsepower day)

123   140   (12)  126   139   (9)

Locomotive productivity (GTMs per horsepower day)

126  123  2  125  126  (1)

Train length (feet)

  9,439   9,410   -   9,321   9,330   - 

Train length (feet)

9,316  9,439  (1) 9,238  9,321  (1)

Intermodal car trip plan compliance (%) [b]

  62   71  

(9

)pts  67   74  

(7

)pts

Intermodal car trip plan compliance (%) [b]

79  62  17

pts

 76  67  9

pts

Manifest/Automotive car trip plan compliance (%) [b]

Manifest/Automotive car trip plan compliance (%) [b]

56   67  

(11

)pts  59   68  

(9

)pts

Manifest/Automotive car trip plan compliance (%) [b]

64  56  8

pts

 63  59  4

pts

Workforce productivity (car miles per employee)

Workforce productivity (car miles per employee)

1,034   1,060   (2)  1,045   1,031   1 

Workforce productivity (car miles per employee)

983  1,034  (5) 987  1,045  (6)

Total employees (average)

  30,715   30,066   2   30,452   29,910   2 

Total employees (average)

32,060  30,715  4  31,766  30,452  4 

Operating ratio

  60.2   55.1  

5.1

pts  59.8   57.5  

2.3

pts

Operating ratio (%)

Operating ratio (%)

63.0  60.2  2.8

pts

 62.6  59.8  2.8

pts

 

[a]

As reported to the STB.

[b]Methodology used to report (described below) is not comparable with the reporting to the STB under docket number EP 770.

 

Gross and Revenue Ton-Miles – Gross ton-miles are calculated by multiplying the weight of loaded and empty freight cars by the number of miles hauled. Revenue ton-miles are calculated by multiplying the weight of freight by the number of tariff miles. Revenue ton-miles decreased 1% during the second quarter of 2022 compared to 2021, driven by a 1% decrease in carloadings, while gross ton-miles increased 1%. Year-to-date, grossGross ton-miles and revenue ton-miles increased 5%decreased 1% and 4%2%, respectively, during both the second quarter and year-to-date periods of 2023 compared to 2022, driven by a 1% increase2% decline in carloadings.carloadings in both periods. Changes in commodity mix drove the variances in both periodsyear-over-year decreases between gross ton-miles, revenue ton-miles, and carloads. carloads (higher decreases in bulk shipments, which are generally heavier).

 

Freight Car Velocity – Freight car velocity measures the average daily miles per car on our network. The two key drivers of this metric are the speed of the train between terminals (average train speed) and the time a rail car spends at the terminals (average terminal dwell time). As freight car velocity,Both average train speed and average terminal dwell deteriorated, operating car inventory levels increased and congestedtime improved in the networksecond quarter of 2023 compared to 2022 as last year we experienced congestion across our system. As network fluidity improved, freight car velocity increased. These metrics also improved year-to-date despite operational challenges caused by weather in the same periods in 2021.first quarter of 2023. 

 

Locomotive Productivity – Locomotive productivity is gross ton-miles per average daily locomotive horsepower available. Locomotive productivity decreasedincreased in the second quarter and six-month periods of 20222023 compared to the same periods in 20212022 driven by an increaseimproved network fluidity. We stored locomotives in the second quarter of 2023, reducing our active fleet size by 4% since the end of the first quarter of 2023. Year-to-date, locomotive productivity declined as improvement in the second quarter didn’t fully offset increased average active fleet size in the first quarter as resources were deployed to alleviate network congestion in both periods and handle increased volume in the six-month period of 2022.operational challenges caused by weather.

 

Train Length – Train length is the average maximum train length on a route measured in feet. Our train length was flatdecreased 1% in both the second quarter and six-month periods of 2023 compared to the same periods of 2022, due to a 2% decrease in carloadings in both periods driven by declines in intermodal shipments of 7% and 5% in the second quarter and six-month periods of 20222023, respectively, compared to the same periods in 2021 primarily driven by train length improvement initiatives, offset by lower international intermodal shipments.of 2022.

 

Car Trip Plan Compliance – Car trip plan compliance is the percentage of cars delivered on time in accordance with our original trip plan. Our network car trip plan compliance is broken into the intermodal and manifest/automotive products. Intermodal car trip plan compliance improved 17 points and 9 points, respectively, in the second quarter and year-to-date periods of 2023 compared to 2022. Manifest/automotive car trip plan compliance improved 8 points and intermodal car trip plan compliance deteriorated4 points, respectively, in the second quarter and six-monthyear-to-date periods of 20222023 compared to 2021 because of2022. Improved network congestion.fluidity, as evidenced by faster freight car velocity, faster train speed, and lower terminal dwell drove these improvements.

 

Workforce Productivity Workforce productivity is average daily car miles per employee. Workforce productivity declined 2%decreased 5% and 6%, respectively, in the second quarter and year-to-date period of 2022,2023 as average daily car miles were essentially flat whiledecreased and employees increased 2% compared to 2021.2022. The 2%4% increase in employee levels in both periods was driven by an increase in craft professionals. We aggressively hired train, engine, and yard employees to address congestion and market demands. Year-to-date, workforce productivity improved 1% as average daily car milessupport our training pipeline. In addition, mechanical craft professionals increased 3% and employees increased 2% comparedyear-over-year to the same period in 2021. maintain our larger active fleet.

 

Operating Ratio – Operating ratio is our operating expenses reflected as a percentage of operating revenues. Our second quarter of 2023 operating ratio of 60.2%63.0% deteriorated 5.12.8 points compared to 20212022 and our year-to-date operating ratio of 59.8%62.6% deteriorated 2.32.8 points compared to 20212022 mainly due to inflation, excess network costs, higher fuel prices, inflation,negative mix of traffic, the ratification charge, and other cost increases, partially offset by positive mix of traffic,lower fuel prices and core pricing gains. In addition, the year-to-date comparison was positively impacted by lower weather-related expenses.

Debt / Net Income

        

Millions, Except Ratios

 

Jun. 30,

  

Dec. 31,

 

for the Trailing Twelve Months Ended [a]

 

2023

  

2022

 

Debt

 $33,302  $33,326 

Net income

  6,732   6,998 

Debt / net income

  4.9   4.8 

 

Adjusted Debt / Adjusted EBITDA

Millions, Except Ratios

Jun. 30,

Dec. 31,

 

Jun. 30,

Dec. 31,

 

for the Trailing Twelve Months Ended [a]

 

2022

  

2021

  

2023

  

2022

 

Net income

 $6,849  $6,523  $6,732  $6,998 

Add:

            

Income tax expense

 2,018  1,955  1,981  2,074 

Depreciation

 2,223  2,208  2,281  2,246 

Interest expense

 1,208  1,157  1,323  1,271 

EBITDA

 $12,298  $11,843  $12,317  $12,589 

Adjustments:

Adjustments:

    

Adjustments:

    

Other income, net

 (331) (297) (493) (426)

Interest on operating lease liabilities [b]

 51  56  53  54 

Adjusted EBITDA

 $12,018  $11,602  $11,877  $12,217 

Debt

 $32,007  $29,729  $33,302  $33,326 

Operating lease liabilities

 1,609  1,759  1,563  1,631 

Unfunded/(funded) pension and OPEB, net of tax cost/(benefit) of ($33) and ($21) [c]

 (113) (72)

Unfunded pension and OPEB, net of tax cost of $0 and $0 [c]

 -  - 

Adjusted debt

 $33,503  $31,416  $34,865  $34,957 

Adjusted debt / Adjusted EBITDA

 2.8  2.7 

Adjusted debt / adjusted EBITDA

 2.9  2.9 

 

[a]The trailing twelve months income statement information ended June 30, 20222023, is recalculated by taking the twelve months ended December 31, 20212022, subtracting the six months ended June 30, 20212022, and adding the six months ended June 30, 20222023.
[b]Represents the hypothetical interest expense we would incur (using the incremental borrowing rate) if the property under our operating leases were owned or accounted for as finance leases.
[c]OPEB = other postretirementpost retirement benefits

 

Adjusted debt to adjusted EBITDA (earnings before interest, taxes, depreciation, amortization, and adjustments for other income and interest on present value of operating leases) is considered a non-GAAP financial measure by SEC Regulation G and Item 10 of SEC Regulation S-K and may not be defined and calculated by other companies in the same manner. We believe this measure is important to management and investors in evaluating the Company’s ability to sustain given debt levels (including leases) with the cash generated from operations. In addition, a comparable measure is used by rating agencies when reviewing the Company’s credit rating. Adjusted debt to adjusted EBITDA should be considered in addition to, rather than as a substitute for, other information provided in accordance with GAAP. The most comparable GAAP measure is debt to net income.income ratio. The tabletables above provides reconciliationsprovide a reconciliation from net income to adjusted EBITDA, debt to adjusted debt, and debt to net income to adjusted debt to adjusted EBITDA. At both June 30, 20222023, and December 31, 20212022, the incremental borrowing rate on operating leases was 3.2%.3.4% and 3.3%, respectively.

 

LIQUIDITY AND CAPITAL RESOURCES

 

Financial Condition

 

Cash Flows

            

Millions, for the Six Months Ended June 30,

 

2022

  

2021

  

2023

  

2022

 

Cash provided by operating activities

 $4,167  $4,219  $3,858  $4,167 

Cash used in investing activities

 (1,540) (1,071) (1,674) (1,540)

Cash used in financing activities

 (2,796) (3,807) (2,328) (2,796)

Net change in cash, cash equivalents and restricted cash

 $(169) $(659) $(144) $(169)

 

Operating Activities

 

Cash provided by operating activities decreased in the first six months of 20222023 compared to the same period of 20212022 due to higher income tax cash$445 million of payments and an increase inrelated to the settlement of our accounts receivable balances more than offsetting our higher net income.labor union agreements.

 

Investing Activities

 

Cash used in investing activities increased in the first six months of 20222023 compared to the same period of 20212022 driven by increased capital investment.lower proceeds from asset sales.

 

The table below details cash capital investments:

 

Millions, for the Six Months Ended June 30,

 

2022

  

2021

  

2023

  

2022

 

Rail and other track material

 $263  $233  $287  $263 

Ties

 236  213  239  236 

Ballast

 98  100  99  98 

Other [a]

 290  250  330  290 

Total road infrastructure replacements

 887  796  955  887 

Line expansion and other capacity projects

 159  110  57  159 

Commercial facilities

 89  62  162  89 

Total capacity and commercial facilities

 248  172  219  248 

Locomotives and freight cars [b]

 345  93  302  345 

Technology and other

 165  129  131  165 

Total cash capital investments [c]

 $1,645  $1,190  $1,607  $1,645 

 

[a]

Other includes bridges and tunnels, signals, other road assets, and road work equipment.

[b]

Locomotives and freight cars include early lease buyouts of $14 million in 2023 and $46 million in 2022 and $23 million in 2021.

[c]Weather-related damages for the six months ended June 30, 20222023 and 20212022, are immaterial.

 

Capital Plan

 

In 20222023, we expect our capital expendituresplan to be approximately $3.3$3.6 billion, up 106%from 20212022, as we make investments to support our growth strategy. We willplan to continue to harden our infrastructure, replace older assets, and improve the safety and resilienceresiliency of the network. In addition, the plan includes targeted freight car acquisitions, investments in growth-related projects to drive more carloads to the network, certain ramps to efficiently handle volumes from new and existing intermodal customers, continuedcontinuous modernization of our locomotive fleet, and projects intended to improve operational efficiency. The capital plan may be revised if business conditions warrant or if new laws or regulations affect our ability to generate sufficient returns on these investments.

 

Financing Activities

 

Cash used in financing activities decreased in the first six months of 20222023 compared to the same period of 20212022 driven by an increasea decrease in debt issued and less share repurchases, partially offset by moreless debt repaid and higher dividends.issued.

 

See Note 1413 of the Condensed Consolidated Financial Statements for a description of all our outstanding financing arrangements and significant new borrowings and Note 1615 of the Condensed Consolidated Financial Statements for a description of our share repurchase programs.

 

Free Cash Flow – Free cash flow is defined as cash provided by operating activities less cash used in investing activities and dividends paid. Cash flow conversion rate is cash provided by operating activities less cash used for capital investments as a ratio of net income.

 

Free cash flow and cash flow conversion rate are not considered financial measures under GAAP by SEC Regulation G and Item 10 of SEC Regulation S-K and may not be defined and calculated by other companies in the same manner. We believe free cash flow and cash flow conversion rate are important to management and investors in evaluating our financial performance and measures our ability to generate cash without additional external financing. Free cash flow and cash flow conversion rate should be considered in addition to, rather than as a substitute for, cash provided by operating activities.

 

The following table reconciles cash provided by operating activities (GAAP measure) to free cash flow (non-GAAP measure):
 

Millions, for the Six Months Ended June 30,

 

2022

  

2021

  

2023

 

2022

 

Cash provided by operating activities

 $4,167  $4,219  $3,858  $4,167 

Cash used in investing activities

 (1,540) (1,071) (1,674) (1,540)

Dividends paid

 (1,556) (1,350) (1,588) (1,556)

Free cash flow

 $1,071  $1,798  $596  $1,071 

 

The following table reconciles cash provided by operating activities (GAAP measure) to cash flow conversion rate (non-GAAP measure):

 

Millions, for the Six Months Ended June 30,

 

2022

  

2021

  

2023

 

2022

 

Cash provided by operating activities

 $4,167  $4,219  $3,858  $4,167 

Cash used in capital investments

 (1,645) (1,190) (1,607) (1,645)

Total (a)

 $2,522  $3,029  $2,251  $2,522 

Net income (b)

 $3,465  $3,139  $3,199  $3,465 

Cash flow conversion rate (a/b)

 73% 96% 70% 73%

 

Current Liquidity Status

 

We are continually evaluating our financial condition and liquidity. We analyze a wide range of economic scenarios and the impact on our ability to generate cash. These analyses inform our liquidity plans and activities outlined below and indicate we have sufficient borrowing capacity to sustain an extended period of lower volumes.

 

During the second quarter of 2023, we generated $1.9$2.0 billion of cash provided by operating activities, paid our quarterly dividend, and repurchased $0.7 billion$121 million worth of shares under our share repurchase program, includingprograms, and drew $400 million on the final settlement of the accelerated share repurchase program entered into on February 17, 2022.Receivables Facility. On June 30, 2022,2023, we had $788$830 million of cash and cash equivalents, $2.0 billion of credit available under our revolving credit facility, and up to $200$400 million undrawn on the Receivables Facility. In the second quarter, we drew $600 million on the Receivables Facility and redeemed all $750 million of outstanding 4.163% notes due July 15, 2022. We have been, and we expect to continue to be, in compliance with our debt covenants.

 

As described in the notes to the Condensed Consolidated Financial Statements and as referenced in the table below, we have contractual obligations that may affect our financial condition. However, basedBased on our assessment of the underlying provisions and circumstances of our contractual obligations, including material sourcesother than the risks that we and other similarly situated companies face with respect to the condition of off-balance sheet and structured finance arrangements,the capital markets, as of the date of this filing, there is no known trend, demand, commitment, event, or uncertainty that is reasonably likely to occur that would have a material adverse effect on our consolidated results of operations, financial condition, or liquidity. In addition, our commercial obligations, financings, and commitments are customary transactions that are like those of other comparable corporations, particularly within the transportation industry.

 

 

The following table identifies material obligations as of June 30, 20222023:

 

   Jul. 1  

Payments Due by Dec. 31,

    Jul. 1  

Payments Due by Dec. 31,

 
   through                        through                     

Contractual Obligations

   Dec. 31,                  

After

    Dec. 31,                  

After

 

Millions

Total

2022

  

2023

  

2024

  

2025

  

2026

  

2026

 

Total

2023

  

2024

  

2025

  

2026

  

2027

  

2027

 

Debt [a]

 $58,749  $1,530  $2,452  $2,471  $2,451  $1,990  $47,855  $61,888  $972  $2,610  $2,991  $2,617  $2,348  $50,350 

Purchase obligations [b]

  3,628   568   837   794   755   274   400   3,027   486   902   869   308   207   255 

Operating leases [c]

  1,794   110   307   293   296   227   561   1,729   125   343   346   273   216   426 

Other post retirement benefits [d]

  377   22   44   40   39   39   193   374   23   40   40   40   39   192 

Finance lease obligations [e]

  290   32   76   63   43   35   41   202   23   61   42   35   30   11 

Total contractual obligations

 $64,838  $2,262  $3,716  $3,661  $3,584  $2,565  $49,050  $67,220  $1,629  $3,956  $4,288  $3,273  $2,840  $51,234 

 

[a]

Excludes finance lease obligations of $260$182 million as well as unamortized discount and deferred issuance costs of ($1,771)1,759) million. Includes an interest component of $25,231$27,009 million.

[b]

Purchase obligations include locomotive maintenance contracts; purchase commitments for fuel purchases, ties, ballast, and rail; and agreements to purchase other goods and services.

[c]

Includes leases for locomotives, freight cars, other equipment, and real estate. Includes an interest component of $185$166 million.

[d]Includes estimated other post retirement, medical, and life insurance payments and payments made under the unfunded pension plansplan for the next ten years.
[e]Represents total obligations, including interest component of $30$20 million.

 

OTHER MATTERS

 

Accounting Pronouncements – See Note 2 to the Condensed Consolidated Financial Statements.

Asserted and Unasserted Claims – See Note 1514 to the Condensed Consolidated Financial Statements.

 

Indemnities – See Note 1514 to the Condensed Consolidated Financial Statements.

 

Labor Agreements Pursuant to the Railway Labor Act (RLA), our collective bargaining agreements are subject to modification every five years. Existing agreements remain in effect until new agreements are ratified or until the RLA procedures are exhausted. The RLA procedures include mediation, potential arbitration, cooling-off periods, and the possibility of Presidential Emergency Boards and Congressional intervention. The current round of negotiations began on January 1, 2020, related to years 2020-2024. In June 2022, the National Mediation Board released the parties from mediation, which initiated the first 30-day cooling-off period. Prior to the end of the first cooling-off period, the Biden administration appointed a Presidential Emergency Board (PEB) to resolve the parties' disputes. The PEB has 30 days to issue a report with its recommendations, which may be adopted or rejected by the parties. If the parties decline to adopt the PEB's recommendations, a second 30-day cooling-off period will begin. If the parties do not reach voluntary agreements by the end of the second cooling-off period, the parties may engage in self-help (i.e., lockouts or strike). Congress may act to stop self-help by extending the cool-off period or passing a law forcing a collective bargaining agreement on the parties. 

CAUTIONARY INFORMATION

Statements in this Form 10-Q/filing, including forward-looking statements, speak only as of and are based on information we have learned as of July 21, 2022. We assume no obligation to update any such information to reflect subsequent developments, changes in assumptions, or changes in other factors affecting forward-looking information. If we do update one or more of these statements, no inference should be drawn that we will make additional updates with respect thereto or with respect to other statements.

 

Certain statements in this report,Form 10-Q, and statements in other reports or information filed or to be filed with the SEC (as well as information included in oral statements or other written statements made or to be made by us), are, or will be, forward-looking statements within the meaning of Section 27A ofas defined by the Securities Act of 1933 and Section 21Ethe Securities Exchange Act of the Exchange Act.1934. Forward-looking statements may be identified by their use of forward-looking terminology, such as “believes,” “expects,” “may,” “should,” “would,” “will,” “intends,” “plans,” “estimates,” “anticipates,” “projects” and similar words, phrases, or expressions. Forward-looking statements and information also include any other statements or information in this report (including information incorporated herein by reference) regarding: potential impacts of the COVID-19 pandemicpublic health crises, including pandemics, epidemics, and the Russia-Ukraineoutbreak of other contagious diseases, such as the coronavirus and its variant strains (COVID); the Russia Ukraine conflict and its impact on our business operations, financial results, liquidity, and financial position, and on the world economy (including our customers, employees, and supply chains), including as a result of decreasedfluctuations in volume and carloadings;carloadings; expectations as to general macroeconomic conditions, including slowdowns and recessions, domestically or internationally, and future volatility in interest rates and fuel prices; closing of customer manufacturing, distribution or production facilities;facilities; expectations as to operational or service improvements;improvements; expectations as to hiring challenges; availability of employees; expectations regarding the effectiveness of steps taken or to be taken to improve operations, service, infrastructure improvements, and transportation plan modifications (including those in response to increased traffic);modifications; expectations as to cost savings, revenuesrevenue growth, and earnings;earnings; the time by which goals, targets, or objectives will be achieved;achieved; projections, predictions, expectations, estimates, or forecasts as to our business, financial, and operational results, future economic performance, and general economic conditions;planned capital investments; proposed new products and services;services; estimates of costs relating to environmental remediation and restoration;restoration; estimates and expectations regarding tax matters,matters; expectations that claims, litigation, environmental costs, commitments, contingent liabilities, labor negotiations or agreements, cyberattacks, or other matters will not have a material adverse effect on our consolidated results of operations, financial condition, or liquidityliquidity; and any other similar expressionsstatements concerning matters that are not historical facts.

 

Forward-looking statements should not be read as a guarantee of future performance, results, or outcomes, and will not necessarily be accurate indications of the times that, or by which, such performance, results, or outcomes will be achieved, if ever. Forward-looking statements and information are subject to risks and uncertainties that could cause actual performance or results to differ materially from those expressed in the statements and information. Forward-looking statements and information reflect the good faith consideration by management of currently available information, and may be based on underlying assumptions believed to be reasonable under the circumstances. However, such information and assumptions (and, therefore, such forward-looking statements and information) are or may be subject to risks and uncertaintiesvariables or unknown or unforeseeable events or circumstances over which management has little or no influence or control. control, and many of these risks and uncertainties are currently amplified by and may continue to be amplified by, or in the future may be amplified by, among other things, current macroeconomic and geopolitical conditions.

The Risk Factors in Item 1A of our 20212022 Annual Report on Form 10-K, filed February 4, 2022,10, 2023, could affect our future results and could cause those results or other outcomes to differ materially from those expressed or implied in the forward-looking statements or information. To the extent circumstances require or we deem it otherwise necessary, we will update or amend these risk factors in a Form 10-Q, Form 8-K, or subsequent Form 10-K. All forward-looking statements are qualified by, and this report, including this Item 2, should be read in conjunction with, these Risk Factors. Forward-looking statements should not be readspeak only as a guarantee of future performance or results, and will not necessarily be accurate indications of the timesdate the statement was made. We assume no obligation to update forward looking information to reflect actual results, changes in assumptions, or changes in other factors affecting forward-looking information. If we do update one or more forward-looking statements, no inference should be drawn that we will make additional updates with respect thereto or by which, such performance or results will be achieved. Forward-looking information is subjectwith respect to risks and uncertainties that could cause actual performance or results to differ materially from those expressed in theother forward-looking statements.

 

AVAILABLE INFORMATION

 

Our Internet website is www.up.com. We make available free of charge on our website (under the “Investors” caption link) our Annual Reports on Form 10-K; our Quarterly Reports on Form 10-Q; our current reports on Form 8-K; our proxy statements; Forms 3, 4, and 5, filed on behalf of directors and executive officers; and amendments to any such reports filed or furnished pursuant to the Securities Exchange Act of 1934, as amended (the Exchange Act),. We provide these reports and statements as  soon as reasonably practicable after such material is electronically filed with, or furnished to, the SEC. We also make available on our website previously filed SEC reports and exhibits via a link to EDGAR on the SEC’s Internet site at www.sec.gov. We provide these previously filed reports as a convenience and their contents reflect only information that was true and correct as of the date of the report. We assume no obligation to update this historical information. Additionally, our corporate governance materials, including By-Laws, Board Committee charters, governance guidelines and policies, and codes of conduct and ethics for directors, officers, and employees are available on our website. From time to time, the corporate governance materials on our website may be updated as necessary to comply with rules issued by the SEC and the New York Stock Exchange or as desirable to promote the effective and efficient governance of our company.Company. Any security holder wishing to receive, without charge, a copy of any of our SEC filings or corporate governance materials should send a written request to: Corporate Secretary, Union Pacific Corporation, 1400 Douglas Street, Omaha, NE 68179.

 

References to our website address in this report, including references in Management’s Discussion and Analysis of Financial Condition and Results of Operations, Item 2, are provided as a convenience and do not constitute, and should not be deemed, an incorporation by reference of the information contained on, or available through, the website. Therefore, such information should not be considered part of this report.

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk

 

There were no material changes to the Quantitative and Qualitative Disclosures About Market Risk previously disclosed in our 20212022 Annual Report on Form 10-K.

 

 

Item 4. Controls and Procedures

 

As of the end of the period covered by this report, the Corporation carried out an evaluation, under the supervision and with the participation of the Corporation’s management, including the Corporation’s Chief Executive Officer (CEO) and Executive Vice President and Chief Financial Officer (CFO), of the effectiveness of the design and operation of the Corporation’s disclosure controls and procedures pursuant to Exchange Act Rules 13a-15 and 15d-15. In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. Based upon that evaluation, the CEO and the CFO concluded that, as of the end of the period covered by this report, the Corporation’s disclosure controls and procedures were effective to provide reasonable assurance that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized, and reported within the time periods specified by the SEC, and that such information is accumulated and communicated to management, including the CEO and CFO, as appropriate, to allow timely decisions regarding required disclosure.

 

Additionally, the CEO and CFO determined that there were no changes to the Corporation’s internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) during the last fiscal quarter that materially affected, or are reasonably likely to materially affect, the Corporation’s internal control over financial reporting.

 

PART II. OTHER INFORMATION

 

Item 1. Legal Proceedings

 

From time to time, we are involved in legal proceedings, claims, and litigation that occur in connection with our business. We routinely assess our liabilities and contingencies in connection with these matters based upon the latest available information and, when necessary, we seek input from our third-party advisors when making these assessments. Consistent with SEC rules and requirements, we describe below material pending legal proceedings (other than ordinary routine litigation incidental to our business), material proceedings known to be contemplated by governmental authorities, other proceedings arising under federal, state, or local environmental laws and regulations (including governmental proceedings involving potential fines, penalties, or other monetary sanctions in excess of $1,000,000), and such other pending matters that we may determine to be appropriate.

 

Environmental Matters

 

We receive notices from the U.S. Environmental Protection Agency (EPA) and state environmental agencies alleging that we are or may be liable under federal or state environmental laws for remediation costs at various sites throughout the U.S., including sites on the Superfund National Priorities List or state superfund lists. We cannot predict the ultimate impact of these proceedings and suits because of the number of potentially responsible parties involved, the degree of contamination by various wastes, the scarcity and quality of volumetric data related to many of the sites, and the speculative nature of remediation costs.

 

Information concerning environmental claims and contingencies and estimated remediation costs is set forth in this report in Management’s Discussion and Analysis of Financial Condition and Results of Operations – Critical Accounting Estimates – Environmental, Costs, Item 7, and Note 17 of the Consolidated Financial Statements and Supplementary Data, Item 8, of our 20212022 Annual Report on Form 10-K.

 

Item 1A. Risk Factors

 

For a discussion of our potential risks and uncertainties, see the risk factors disclosed in our Form 10-K for the year ended December 31, 20212022. These risks could materially and adversely affect our business, financial condition, results of operations (including revenues and profitability), and/or stock price. Our business also could be affected by risks that we are not presently aware of or that we currently consider immaterial to our operations.

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

 

Purchases of Equity Securities – The following table presents common stock repurchases during each month for the second quarter of 20222023:

 

Period

Total Number of Shares Purchased [a]Average Price Paid Per Share [b]Total Number of Shares Purchased as Part of a Publicly Announced Plan or Program [c]Maximum Number of Shares That May Be Purchased Under Current Authority [d] Total Number of Shares Purchased [a]Average Price Paid Per ShareTotal Number of Shares Purchased as Part of a Publicly Announced Plan or ProgramMaximum Number of Shares That May Be Purchased Under Current Authority [b] 

Apr. 1 through Apr. 30

 1,321,166  $237.37  1,317,321  98,682,679  486,869  $199.77  479,977  80,518,631 

May. 1 through May. 31

 1,227,287   228.67  1,225,340  97,457,339  126,843   198.96  126,604  80,392,027 

Jun. 1 through Jun. 30

 559,745   209.97  558,022  96,899,317  132   198.26  -  80,392,027 

Total

 3,108,198  $229.00  3,100,683  N/A  613,844  $199.60  606,581  N/A 

 

[a]

Total number of shares purchased during the quarter includes 7,5157,263 shares delivered or attested to UPC by employees to pay stock option exercise prices and satisfy tax withholding obligations for stock option exercises or vesting of retention units or retention shares.

[b]

In the period of the final settlement, the average price paid under the accelerated share repurchase programs is calculated based on the total program value less the value assigned to the initial delivery of shares. The average price of the completed 2022 accelerated share repurchase programs was $248.32.

[c]

Total number of shares purchased as part of a publicly announced plan or program includes 907,644 shares and 939,541 shares repurchased in April and May, respectively, under ASRs. See Note 16 to the Condensed Consolidated Financial Statements for additional information.

[d]

Effective April 1, 2022, our Board of Directors authorized the repurchase of up to 100 million shares of our common stock by March 31, 2025. These repurchases may be made on the open market or through other transactions. Our management has sole discretion with respect to determining the timing, manner, and amount of these transactions.

 

Item 3. Defaults Upon Senior Securities

 

None.

 

Item 4. Mine Safety Disclosures

 

Not Applicable.

Item 5. Other Information

 

On May 22, 2023, None.Jennifer L. Hamann, Executive Vice President and Chief Financial Officer, adopted a trading plan intended to satisfy Rule 10b5-1(c) to sell up to 2,000 shares of Union Pacific Corporation common stock between August 23, 2023, and January 31, 2024, subject to certain conditions.

On May 22, 2023, Kenny G. Rocker, Executive Vice President – Marketing and Sales for Union Pacific Railroad Company, adopted a trading plan intended to satisfy Rule 10b5-1(c) to sell up to 9,919 shares of Union Pacific Corporation common stock, of which 4,180 are to be acquired upon the exercise of vested stock options, between August 23, 2023, and January 31, 2024, subject to certain conditions. 

 

 

Item 6. Exhibits

 

Exhibit No.

Description

  

Filed with this Statement

  

31(a)

Certifications Pursuant to Rule 13a-14(a), of the Exchange Act, as Adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 – Lance M. Fritz.

  

31(b)

Certifications Pursuant to Rule 13a-14(a), of the Exchange Act, as Adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 – Jennifer L. HamannHamann.

  

32

Certifications Pursuant to 18 U.S.C. Section 1350, as Adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 – Lance M. Fritz and Jennifer L. HamannHamann.

  

101

The following financial and related information from Union Pacific Corporation’s Quarterly Report on Form 10-Q for the period ended June 30, 20222023 (filed with the SEC on July 21, 202226, 2023), formatted in Inline Extensible Business Reporting Language (iXBRL) includes (i) Condensed Consolidated Statements of Income for the periods ended June 30, 20222023 and 20212022, (ii) Condensed Consolidated Statements of Comprehensive Income for the periods ended June 30, 20222023 and 20212022, (iii) Condensed Consolidated Statements of Financial Position at June 30, 20222023, and December 31, 20212022, (iv) Condensed Consolidated Statements of Cash Flows for the periods ended June 30, 20222023 and 20212022, (v) Condensed Consolidated Statements of Changes in Common Shareholders’ Equity for the periods ended June 30, 20222023 and 20212022, and (vi) the Notes to the Condensed Consolidated Financial Statements.

  

104

Cover Page Interactive Data File, formatted in Inline XBRL (contained in Exhibit 101).

 

Incorporated by Reference

  

3(a)

Restated Articles of Incorporation of UPC, as amended and restated through June 27, 2011, and as further amended May 15, 2014, are incorporated herein by reference to Exhibit 3(a) to the Corporation’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2014.

  

3(b)

By-Laws of UPC, as amended, effective November 19, 2015, are incorporated herein by reference to Exhibit 3.2 to the Corporation’s Current Report on Form 8-K dated November 19, 2015.

 

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

Dated: July 21, 202226, 2023

 

  UNION PACIFIC CORPORATION (Registrant)
   

By

/s/ Jennifer L. Hamann

 
 

Jennifer L. Hamann

 
 

Executive Vice President and

 
 

Chief Financial Officer

 
 

(Principal Financial Officer)

 
   

By

/s/ Todd M. Rynaski

 
 

Todd M. Rynaski

 
 

Senior Vice President and

 
 Chief Accounting, Risk, and Compliance Officer 
 

(Principal Accounting Officer)

 

 

33