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 SeptemberJune 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 incorporation or organization) | (I.R.S. Employer Identification No.) |
| 1400 Douglas Street, Omaha, Nebraska | 68179 |
| (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 October 14, 2022,July 21, 2023, there were 614,800,800609,456,215 shares of the Registrant's Common Stock outstanding.
UNION PACIFIC CORPORATION
AND SUBSIDIARY COMPANIES
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 September 30, | 2022 | 2021 | ||||||||||||||
Millions, Except Per Share Amounts, for the Three Months Ended June 30, | 2023 | 2022 | ||||||||||||||
Operating revenues: | ||||||||||||||||
Freight revenues | $ | 6,109 | $ | 5,166 | $ | 5,569 | $ | 5,842 | ||||||||
Other revenues | 457 | 400 | 394 | 427 | ||||||||||||
Total operating revenues | 6,566 | 5,566 | 5,963 | 6,269 | ||||||||||||
Operating expenses: | ||||||||||||||||
Compensation and benefits | 1,278 | 1,040 | 1,269 | 1,092 | ||||||||||||
Fuel | 932 | 544 | 664 | 940 | ||||||||||||
Purchased services and materials | 626 | 510 | 650 | 622 | ||||||||||||
Depreciation | 563 | 553 | 577 | 559 | ||||||||||||
Equipment and other rents | 215 | 217 | 248 | 230 | ||||||||||||
Other | 319 | 270 | 351 | 331 | ||||||||||||
Total operating expenses | 3,933 | 3,134 | 3,759 | 3,774 | ||||||||||||
Operating income | 2,633 | 2,432 | 2,204 | 2,495 | ||||||||||||
Other income, net (Note 6) | 124 | 38 | ||||||||||||||
Other income, net (Note 5) | 93 | 163 | ||||||||||||||
Interest expense | (315 | ) | (290 | ) | (339 | ) | (316 | ) | ||||||||
Income before income taxes | 2,442 | 2,180 | 1,958 | 2,342 | ||||||||||||
Income taxes (Note 7) | (547 | ) | (507 | ) | ||||||||||||
Income tax expense (Note 6) | (389 | ) | (507 | ) | ||||||||||||
Net income | $ | 1,895 | $ | 1,673 | $ | 1,569 | $ | 1,835 | ||||||||
Share and Per Share (Note 8): | ||||||||||||||||
Share and Per Share (Note 7): | ||||||||||||||||
Earnings per share - basic | $ | 3.05 | $ | 2.58 | $ | 2.58 | $ | 2.93 | ||||||||
Earnings per share - diluted | $ | 3.05 | $ | 2.57 | $ | 2.57 | $ | 2.93 | ||||||||
Weighted average number of shares - basic | 620.4 | 648.7 | 608.7 | 625.6 | ||||||||||||
Weighted average number of shares - diluted | 621.5 | 650.3 | 609.5 | 626.8 | ||||||||||||
Condensed Consolidated Statements of Comprehensive Income (Unaudited)
Union Pacific Corporation and Subsidiary Companies
Millions, for the Three Months Ended September 30, | 2022 | 2021 | ||||||||||||||
Millions, for the Three Months Ended June 30, | 2023 | 2022 | ||||||||||||||
Net income | $ | 1,895 | $ | 1,673 | $ | 1,569 | $ | 1,835 | ||||||||
Other comprehensive income/(loss): | ||||||||||||||||
Defined benefit plans | 15 | 24 | 6 | 14 | ||||||||||||
Foreign currency translation | (6 | ) | (6 | ) | 21 | 23 | ||||||||||
Unrealized gain on derivative instruments | 16 | - | ||||||||||||||
Total other comprehensive income/(loss) [a] | 9 | 18 | 43 | 37 | ||||||||||||
Comprehensive income | $ | 1,904 | $ | 1,691 | $ | 1,612 | $ | 1,872 | ||||||||
[a] | Net of deferred taxes of ($ |
The accompanying notes are an integral part of these unaudited Condensed Consolidated Financial Statements.
Condensed Consolidated Statements of Income (Unaudited)
Union Pacific Corporation and Subsidiary Companies
Millions, Except Per Share Amounts, for the Nine Months Ended September 30, | 2022 | 2021 | ||||||||||||||
Millions, Except Per Share Amounts, for the Six Months Ended June 30, | 2023 | 2022 | ||||||||||||||
Operating revenues: | ||||||||||||||||
Freight revenues | $ | 17,391 | $ | 14,947 | $ | 11,225 | $ | 11,282 | ||||||||
Other revenues | 1,304 | 1,124 | 794 | 847 | ||||||||||||
Total operating revenues | 18,695 | 16,071 | 12,019 | 12,129 | ||||||||||||
Operating expenses: | ||||||||||||||||
Compensation and benefits | 3,471 | 3,088 | 2,448 | 2,193 | ||||||||||||
Fuel | 2,586 | 1,452 | 1,430 | 1,654 | ||||||||||||
Purchased services and materials | 1,809 | 1,478 | 1,303 | 1,183 | ||||||||||||
Depreciation | 1,677 | 1,652 | 1,149 | 1,114 | ||||||||||||
Equipment and other rents | 660 | 629 | 483 | 445 | ||||||||||||
Other | 987 | 874 | 708 | 668 | ||||||||||||
Total operating expenses | 11,190 | 9,173 | 7,521 | 7,257 | ||||||||||||
Operating income | 7,505 | 6,898 | 4,498 | 4,872 | ||||||||||||
Other income, net (Note 6) | 334 | 214 | ||||||||||||||
Other income, net (Note 5) | 277 | 210 | ||||||||||||||
Interest expense | (938 | ) | (862 | ) | (675 | ) | (623 | ) | ||||||||
Income before income taxes | 6,901 | 6,250 | 4,100 | 4,459 | ||||||||||||
Income taxes (Note 7) | (1,541 | ) | (1,438 | ) | ||||||||||||
Income tax expense (Note 6) | (901 | ) | (994 | ) | ||||||||||||
Net income | $ | 5,360 | $ | 4,812 | $ | 3,199 | $ | 3,465 | ||||||||
Share and Per Share (Note 8): | ||||||||||||||||
Share and Per Share (Note 7): | ||||||||||||||||
Earnings per share - basic | $ | 8.56 | $ | 7.31 | $ | 5.25 | $ | 5.51 | ||||||||
Earnings per share - diluted | $ | 8.54 | $ | 7.29 | $ | 5.24 | $ | 5.50 | ||||||||
Weighted average number of shares - basic | 626.1 | 658.3 | 609.6 | 628.9 | ||||||||||||
Weighted average number of shares - diluted | 627.4 | 659.9 | 610.5 | 630.2 | ||||||||||||
Condensed Consolidated Statements of Comprehensive Income (Unaudited)
Union Pacific Corporation and Subsidiary Companies
Millions, for the Nine Months Ended September 30, | 2022 | 2021 | ||||||||||||||
Millions, for the Six Months Ended June 30, | 2023 | 2022 | ||||||||||||||
Net income | $ | 5,360 | $ | 4,812 | $ | 3,199 | $ | 3,465 | ||||||||
Other comprehensive income/(loss): | ||||||||||||||||
Defined benefit plans | 44 | 73 | 5 | 29 | ||||||||||||
Foreign currency translation | 38 | (13 | ) | 44 | 44 | |||||||||||
Unrealized gain on derivative instruments | 16 | - | ||||||||||||||
Total other comprehensive income/(loss) [a] | 82 | 60 | 65 | 73 | ||||||||||||
Comprehensive income | $ | 5,442 | $ | 4,872 | $ | 3,264 | $ | 3,538 | ||||||||
[a] | Net of deferred taxes of ($ |
The accompanying notes are an integral part of these unaudited Condensed Consolidated Financial Statements.
Condensed Consolidated Statements of Financial Position (Unaudited)
Union Pacific Corporation and Subsidiary Companies
Sep. 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 | $ | 1,267 | $ | 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 | 794 | 621 | 742 | 741 | ||||||||||||
Other current assets | 246 | 202 | 354 | 301 | ||||||||||||
Total current assets | 4,405 | 3,551 | 3,752 | 3,952 | ||||||||||||
Investments | 2,314 | 2,241 | 2,524 | 2,375 | ||||||||||||
Properties, net (Note 11) | 55,689 | 54,871 | ||||||||||||||
Properties, net (Note 10) | 56,641 | 56,038 | ||||||||||||||
Operating lease assets | 1,703 | 1,787 | 1,651 | 1,672 | ||||||||||||
Other assets | 1,232 | 1,075 | 1,465 | 1,412 | ||||||||||||
Total assets | $ | 65,343 | $ | 63,525 | $ | 66,033 | $ | 65,449 | ||||||||
Liabilities and Common Shareholders' Equity | ||||||||||||||||
Current liabilities: | ||||||||||||||||
Accounts payable and other current liabilities (Note 12) | $ | 4,034 | $ | 3,578 | ||||||||||||
Debt due within one year (Note 14) | 1,678 | 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 | 5,712 | 5,744 | 5,249 | 5,520 | ||||||||||||
Debt due after one year (Note 14) | 31,744 | 27,563 | ||||||||||||||
Debt due after one year (Note 13) | 31,557 | 31,648 | ||||||||||||||
Operating lease liabilities | 1,303 | 1,429 | 1,217 | 1,300 | ||||||||||||
Deferred income taxes | 12,868 | 12,675 | 13,069 | 13,033 | ||||||||||||
Other long-term liabilities | 1,973 | 1,953 | 1,747 | 1,785 | ||||||||||||
Commitments and contingencies (Note 15) | ||||||||||||||||
Commitments and contingencies (Note 14) | ||||||||||||||||
Total liabilities | 53,600 | 49,364 | 52,839 | 53,286 | ||||||||||||
Common shareholders' equity: | ||||||||||||||||
Common shares, $2.50 par value, 1,400,000,000 authorized; 1,112,618,814 and | ||||||||||||||||
1,112,440,400 issued; 615,789,169 and 638,841,656 outstanding, respectively | 2,782 | 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 | 5,055 | 4,979 | 5,128 | 5,080 | ||||||||||||
Retained earnings | 58,047 | 55,049 | 60,500 | 58,887 | ||||||||||||
Treasury stock | (53,309 | ) | (47,734 | ) | (54,699 | ) | (54,004 | ) | ||||||||
Accumulated other comprehensive loss (Note 9) | (832 | ) | (914 | ) | ||||||||||||
Accumulated other comprehensive loss (Note 8) | (517 | ) | (582 | ) | ||||||||||||
Total common shareholders' equity | 11,743 | 14,161 | 13,194 | 12,163 | ||||||||||||
Total liabilities and common shareholders' equity | $ | 65,343 | $ | 63,525 | $ | 66,033 | $ | 65,449 | ||||||||
The accompanying notes are an integral part of these unaudited Condensed Consolidated Financial Statements.
Condensed Consolidated Statements of Cash Flows (Unaudited)
Union Pacific Corporation and Subsidiary Companies
Millions, for the Nine Months Ended September 30, | 2022 | 2021 | ||||||||||||||
Millions, for the Six Months Ended June 30, | 2023 | 2022 | ||||||||||||||
Operating Activities | ||||||||||||||||
Net income | $ | 5,360 | $ | 4,812 | $ | 3,199 | $ | 3,465 | ||||||||
Adjustments to reconcile net income to cash provided by operating activities: | ||||||||||||||||
Depreciation | 1,677 | 1,652 | 1,149 | 1,114 | ||||||||||||
Deferred and other income taxes | 180 | 189 | 36 | 93 | ||||||||||||
Other operating activities, net | (93 | ) | (67 | ) | (126 | ) | (52 | ) | ||||||||
Changes in current assets and liabilities: | ||||||||||||||||
Accounts receivable, net | (330 | ) | (174 | ) | 70 | (330 | ) | |||||||||
Materials and supplies | (173 | ) | (26 | ) | (1 | ) | (169 | ) | ||||||||
Other current assets | (9 | ) | 19 | (86 | ) | (39 | ) | |||||||||
Accounts payable and other current liabilities | 433 | (4 | ) | (340 | ) | 203 | ||||||||||
Income and other taxes | 25 | 102 | (43 | ) | (118 | ) | ||||||||||
Cash provided by operating activities | 7,070 | 6,503 | 3,858 | 4,167 | ||||||||||||
Investing Activities | ||||||||||||||||
Capital investments | (2,690 | ) | (1,945 | ) | (1,607 | ) | (1,645 | ) | ||||||||
Maturities of short-term investments (Note 12) | 46 | - | ||||||||||||||
Proceeds from asset sales | 172 | 120 | 45 | 120 | ||||||||||||
Maturities of short-term investments (Note 13) | 46 | 64 | ||||||||||||||
Purchases of short-term investments (Note 13) | (46 | ) | (40 | ) | ||||||||||||
Other investing activities, net | (41 | ) | 9 | (158 | ) | (15 | ) | |||||||||
Cash used in investing activities | (2,559 | ) | (1,792 | ) | (1,674 | ) | (1,540 | ) | ||||||||
Financing Activities | ||||||||||||||||
Debt issued (Note 14) | 6,080 | 3,901 | ||||||||||||||
Share repurchase programs (Note 16) | (5,497 | ) | (5,846 | ) | ||||||||||||
Debt repaid | (1,664 | ) | (1,664 | ) | ||||||||||||
Debt issued (Note 13) | 1,599 | 4,090 | ||||||||||||||
Dividends paid | (2,362 | ) | (2,045 | ) | (1,588 | ) | (1,556 | ) | ||||||||
Debt repaid | (2,185 | ) | (1,120 | ) | ||||||||||||
Net issued/(paid) commercial paper (Note 14) | (203) | 125 | ||||||||||||||
Debt exchange | - | (270 | ) | |||||||||||||
Share repurchase programs (Note 15) | (705 | ) | (3,473 | ) | ||||||||||||
Net issued/(paid) commercial paper (Note 13) | 19 | (151 | ) | |||||||||||||
Other financing activities, net | (43 | ) | (36 | ) | 11 | (42 | ) | |||||||||
Cash used in financing activities | (4,210 | ) | (5,291 | ) | (2,328 | ) | (2,796 | ) | ||||||||
Net Change in Cash, Cash Equivalents, and Restricted Cash | 301 | (580 | ) | |||||||||||||
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 | $ | 1,284 | $ | 1,238 | $ | 843 | $ | 814 | ||||||||
Supplemental Cash Flow Information | ||||||||||||||||
Non-cash investing and financing activities: | ||||||||||||||||
Capital investments accrued but not yet paid | $ | 172 | $ | 151 | $ | 207 | $ | 241 | ||||||||
Common shares repurchased but not yet paid | 80 | 80 | 6 | 2 | ||||||||||||
Cash (paid for)/received from: | ||||||||||||||||
Income taxes, net of refunds | $ | (1,473 | ) | $ | (1,241 | ) | $ | (826 | ) | $ | (1,033 | ) | ||||
Interest, net of amounts capitalized | (980 | ) | (904 | ) | (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 | $ | 1,267 | $ | 1,194 | $ | 830 | $ | 788 | ||||||||
Restricted cash equivalents in other current assets | 13 | 32 | 4 | 22 | ||||||||||||
Restricted cash equivalents in other assets | 4 | 12 | 9 | 4 | ||||||||||||
Total cash, cash equivalents and restricted cash equivalents per above | $ | 1,284 | $ | 1,238 | $ | 843 | $ | 814 | ||||||||
The accompanying notes are an integral part of these unaudited Condensed Consolidated Financial Statements.
Condensed Consolidated Statements of Changes in Common Shareholders’ Equity (Unaudited)
Union Pacific Corporation and Subsidiary Companies
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 July 1, 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 | |||||||||||||||||||||||||||||||||||||||||||||||
Net income | - | - | 1,673 | - | - | 1,673 | - | - | 1,835 | - | - | 1,835 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Other comprehensive income/(loss) | - | - | - | - | 18 | 18 | - | - | - | - | 37 | 37 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Conversion, stock option exercises, forfeitures, ESPP, and other [b] | (0.1 | ) | 0.1 | - | 22 | - | 5 | - | 27 | - | - | (1 | ) | 31 | - | 7 | - | 37 | ||||||||||||||||||||||||||||||||||||||||||||||
Share repurchase programs (Note 16) | - | (8.6 | ) | - | 426 | - | (1,835 | ) | - | (1,409 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Dividends declared ($1.07 per share) | - | - | - | - | (695 | ) | - | - | (695 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Balance at September 30, 2021 | 1,112.4 | (468.0 | ) | $ | 2,781 | $ | 4,947 | $ | 54,094 | $ | (46,372 | ) | $ | (1,533 | ) | $ | 13,917 | |||||||||||||||||||||||||||||||||||||||||||||||
Share repurchase programs (Note 15) | - | (3.1 | ) | - | 428 | - | (710 | ) | - | (282 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Dividends declared ($1.30 per share) | - | - | - | - | (814 | ) | - | - | (814 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Balance at June 30, 2022 | 1,112.6 | (487.5 | ) | $ | 2,781 | $ | 5,030 | $ | 56,958 | $ | (51,218 | ) | $ | (841 | ) | $ | 12,710 | |||||||||||||||||||||||||||||||||||||||||||||||
Balance at July 1, 2022 | 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 | - | - | 1,895 | - | - | 1,895 | - | - | 1,569 | - | - | 1,569 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Other comprehensive income/(loss) | - | - | - | - | 9 | 9 | - | - | - | - | 43 | 43 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Conversion, stock option exercises, forfeitures, ESPP, and other [b] | - | 0.2 | 1 | 25 | - | 11 | - | 37 | - | 0.1 | - | 29 | - | 13 | - | 42 | ||||||||||||||||||||||||||||||||||||||||||||||||
Share repurchase programs (Note 16) | - | (9.5 | ) | - | - | - | (2,102 | ) | - | (2,102 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Share repurchase programs (Note 15) | - | (0.6 | ) | - | - | - | (121 | ) | - | (121 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Dividends declared ($1.30 per share) | - | - | - | - | (806 | ) | - | - | (806 | ) | - | - | - | - | (793 | ) | - | - | (793 | ) | ||||||||||||||||||||||||||||||||||||||||||||
Balance at September 30, 2022 | 1,112.6 | (496.8 | ) | $ | 2,782 | $ | 5,055 | $ | 58,047 | $ | (53,309 | ) | $ | (832 | ) | $ | 11,743 | |||||||||||||||||||||||||||||||||||||||||||||||
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 | - | - | 4,812 | - | - | 4,812 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Other comprehensive income/(loss) | - | - | - | - | 60 | 60 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Conversion, stock option exercises, forfeitures, ESPP, and other [b] | 0.2 | 0.4 | - | 57 | - | - | - | 57 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Share repurchase programs (Note 16) | - | (27.5 | ) | - | 26 | - | (5,952 | ) | - | (5,926 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Dividends declared ($3.11 per share) | - | - | - | - | (2,044 | ) | - | - | (2,044 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Balance at September 30, 2021 | 1,112.4 | (468.0 | ) | $ | 2,781 | $ | 4,947 | $ | 54,094 | $ | (46,372 | ) | $ | (1,533 | ) | $ | 13,917 | |||||||||||||||||||||||||||||||||||||||||||||||
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 | - | - | 5,360 | - | - | 5,360 | - | - | 3,465 | - | - | 3,465 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Other comprehensive income/(loss) | - | - | - | - | 82 | 82 | - | - | - | - | 73 | 73 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Conversion, stock option exercises, forfeitures, ESPP, and other [b] | 0.2 | 0.4 | 1 | 88 | - | (10 | ) | - | 79 | 0.2 | 0.2 | - | 63 | - | (21 | ) | - | 42 | ||||||||||||||||||||||||||||||||||||||||||||||
Share repurchase programs (Note 16) | - | (23.6 | ) | - | (12 | ) | - | (5,565 | ) | - | (5,577 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Dividends declared ($3.78 per share) | - | - | - | - | (2,362 | ) | - | - | (2,362 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Balance at September 30, 2022 | 1,112.6 | (496.8 | ) | $ | 2,782 | $ | 5,055 | $ | 58,047 | $ | (53,309 | ) | $ | (832 | ) | $ | 11,743 | |||||||||||||||||||||||||||||||||||||||||||||||
Share repurchase programs (Note 15) | - | (14.1 | ) | - | (12 | ) | - | (3,463 | ) | - | (3,475 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Dividends declared ($2.48 per share) | - | - | - | - | (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 | |||||||||||||||||||||||||||||||||||||||||||||||
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 |
| [b] | ESPP = employee stock purchase plan |
The accompanying notes are an integral part of these unaudited Condensed Consolidated Financial Statements.
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 ninesix months ended SeptemberJune 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 adopted the ASU, and it did not have an impact on our consolidated financial statements.
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.
The following table represents a disaggregation of our freight and other revenues:
Three Months Ended | Nine Months Ended | Three Months Ended | Six Months Ended | |||||||||||||||||||||||||||||
September 30, | September 30, | June 30, | June 30, | |||||||||||||||||||||||||||||
Millions | 2022 | 2021 | 2022 | 2021 | 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||||||
Bulk | $ | 1,959 | $ | 1,687 | $ | 5,604 | $ | 4,847 | $ | 1,757 | $ | 1,813 | $ | 3,654 | $ | 3,645 | ||||||||||||||||
Industrial | 2,194 | 1,911 | 6,206 | 5,426 | 2,086 | 2,091 | 4,103 | 4,012 | ||||||||||||||||||||||||
Premium | 1,956 | 1,568 | 5,581 | 4,674 | 1,726 | 1,938 | 3,468 | 3,625 | ||||||||||||||||||||||||
Total freight revenues | $ | 6,109 | $ | 5,166 | $ | 17,391 | $ | 14,947 | $ | 5,569 | $ | 5,842 | $ | 11,225 | $ | 11,282 | ||||||||||||||||
Other subsidiary revenues | 231 | 182 | 669 | 539 | 220 | 233 | 455 | 438 | ||||||||||||||||||||||||
Accessorial revenues | 212 | 198 | 596 | 535 | 149 | 183 | 300 | 384 | ||||||||||||||||||||||||
Other | 14 | 20 | 39 | 50 | 25 | 11 | 39 | 25 | ||||||||||||||||||||||||
Total operating revenues | $ | 6,566 | $ | 5,566 | $ | 18,695 | $ | 16,071 | $ | 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 $708$689 million and $592$681 million respectively, for the three months ended SeptemberJune 30, 20222023 and 20212022, respectively, and $2.0$1.4 billion and $1.8$1.3 billion respectively, for the ninesix months ended SeptemberJune 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).
Information regarding stock-based compensation appears in the table below:
Three Months Ended | Nine Months Ended | Three Months Ended | Six Months Ended | |||||||||||||||||||||||||||||
September 30, | September 30, | June 30, | June 30, | |||||||||||||||||||||||||||||
Millions | 2022 | 2021 | 2022 | 2021 | 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||||||
Stock-based compensation, before tax: | ||||||||||||||||||||||||||||||||
Stock options | $ | 4 | $ | 4 | $ | 11 | $ | 12 | $ | 4 | $ | 3 | $ | 8 | $ | 7 | ||||||||||||||||
Retention awards | 13 | 16 | 54 | 50 | 15 | 19 | 33 | 41 | ||||||||||||||||||||||||
ESPP | 4 | 4 | 12 | 4 | 5 | 4 | 11 | 8 | ||||||||||||||||||||||||
Total stock-based compensation, before tax | $ | 21 | $ | 24 | $ | 77 | $ | 66 | $ | 24 | $ | 26 | $ | 52 | $ | 56 | ||||||||||||||||
Excess tax benefits from equity compensation plans | $ | 2 | $ | 1 | $ | 20 | $ | 18 | ||||||||||||||||||||||||
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 SeptemberJune 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.
A summary of stock option activity during the ninesix months ended SeptemberJune 30, 20222023, is presented below:
Options (thous.) | Weighted-Average Exercise Price | Weighted-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 | (397 | ) | 125.28 | N/A | N/A | |||||||||||
Forfeited or expired | (29 | ) | 213.28 | N/A | N/A | |||||||||||
Outstanding at September 30, 2022 | 2,008 | $ | 169.22 | 6.3 | $ | 71 | ||||||||||
Vested or expected to vest at September 30, 2022 | 1,987 | $ | 168.69 | 6.2 | $ | 70 | ||||||||||
Options exercisable at September 30, 2022 | 1,331 | $ | 143.54 | 5.1 | $ | 69 | ||||||||||
Options (thous.) | Weighted-Average Exercise Price | Weighted-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 SeptemberJune 30, 20222023, there was $19$25 million of unrecognized compensation expense related to nonvested stock options, which is expected to be recognized over a weighted-average period of 1.21.5 years. Additional information regarding stock option exercises appears in the following table:
Three Months Ended | Nine Months Ended | Three Months Ended | Six Months Ended | |||||||||||||||||||||||||||||
September 30, | September 30, | June 30, | June 30, | |||||||||||||||||||||||||||||
Millions | 2022 | 2021 | 2022 | 2021 | 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||||||
Intrinsic value of stock options exercised | $ | 7 | $ | 1 | $ | 51 | $ | 33 | $ | 3 | $ | 2 | $ | 7 | $ | 44 | ||||||||||||||||
Cash received from option exercises | 7 | 1 | 24 | 35 | 4 | 2 | 8 | 17 | ||||||||||||||||||||||||
Treasury shares repurchased for employee payroll taxes | (2 | ) | - | (7 | ) | (7 | ) | (1 | ) | - | (2 | ) | (5 | ) | ||||||||||||||||||
Tax benefit realized from option exercises | 1 | - | 7 | 6 | ||||||||||||||||||||||||||||
Income tax benefit realized from option exercises | 1 | 1 | 2 | 6 | ||||||||||||||||||||||||||||
Aggregate grant-date fair value of stock options vested | - | - | 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.
Changes in our retention awards during the ninesix months ended SeptemberJune 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 | 238 | 243.92 | 295 | 202.72 | ||||||||||||
Vested | (408 | ) | 126.06 | (300 | ) | 162.65 | ||||||||||
Forfeited | (50 | ) | 191.59 | (25 | ) | 205.20 | ||||||||||
Nonvested at September 30, 2022 | 1,067 | $ | 196.37 | |||||||||||||
Nonvested at June 30, 2023 | 1,039 | $ | 207.80 | |||||||||||||
At SeptemberJune 30, 20222023, there was $99$114 million of total unrecognized compensation expense related to nonvested retention awards, which is expected to be recognized over a weighted-average period of 11.8.7 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.
Changes in our performance retention awards during the ninesix months ended SeptemberJune 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 | (26 | ) | 211.28 | (4 | ) | 222.66 | ||||||||||
Nonvested at September 30, 2022 | 605 | $ | 200.07 | |||||||||||||
Nonvested at June 30, 2023 | 641 | $ | 205.06 | |||||||||||||
At SeptemberJune 30, 20222023, there was $28$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 1.41.6 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.
The components of our net periodic pension benefit/cost were as follows:
Three Months Ended | Nine Months Ended | Three Months Ended | Six Months Ended | |||||||||||||||||||||||||||||
September 30, | September 30, | June 30, | June 30, | |||||||||||||||||||||||||||||
Millions | 2022 | 2021 | 2022 | 2021 | 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||||||
Service cost | $ | 21 | $ | 25 | $ | 73 | $ | 85 | $ | 12 | $ | 26 | $ | 25 | $ | 52 | ||||||||||||||||
Interest cost | 31 | 25 | 93 | 78 | 46 | 31 | 92 | 62 | ||||||||||||||||||||||||
Expected return on plan assets | (74 | ) | (67 | ) | (220 | ) | (202 | ) | (62 | ) | (73 | ) | (124 | ) | (146 | ) | ||||||||||||||||
Amortization of actuarial loss | 21 | 35 | 64 | 106 | 2 | 21 | 4 | 43 | ||||||||||||||||||||||||
Net periodic pension (benefit)/cost | $ | (1 | ) | $ | 18 | $ | 10 | $ | 67 | $ | (2 | ) | $ | 5 | $ | (3 | ) | $ | 11 | |||||||||||||
Cash Contributions
For the ninesix months ended SeptemberJune 30, 20222023, cash contributions totaled $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 SeptemberJune 30, 20222023, we do not have minimum cash funding requirements for 20222023.
6.5. Other Income
Other income included the following:
Three Months Ended | Nine Months Ended | Three Months Ended | Six Months Ended | |||||||||||||||||||||||||||||
September 30, | September 30, | June 30, | June 30, | |||||||||||||||||||||||||||||
Millions | 2022 | 2021 | 2022 | 2021 | 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||||||
Real estate income [a] [b] | $ | 103 | $ | 53 | $ | 309 | $ | 209 | $ | 69 | $ | 146 | $ | 245 | $ | 206 | ||||||||||||||||
Net periodic pension benefit/(cost) | 22 | 7 | 63 | 18 | ||||||||||||||||||||||||||||
Net periodic pension benefit/(costs) | 14 | 21 | 28 | 41 | ||||||||||||||||||||||||||||
Environmental remediation and restoration | (4 | ) | (4 | ) | (35 | ) | (13 | ) | (3 | ) | (5 | ) | (22 | ) | (31 | ) | ||||||||||||||||
Other [a] | 3 | (18 | ) | (3 | ) | - | 13 | 1 | 26 | (6 | ) | |||||||||||||||||||||
Total | $ | 124 | $ | 38 | $ | 334 | $ | 214 | $ | 93 | $ | 163 | $ | 277 | $ | 210 | ||||||||||||||||
| [a] | Prior periods have been reclassified to conform to the current period |
| [b] |
7.6. Income Taxes
In the thirdsecond quarter of 2022,2023, the statesstate of Iowa, Arkansas, and IdahoNebraska enacted legislation to reduce theirits corporate income tax ratesrate for future years resulting in a $40$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 | Nine Months Ended | Three Months Ended | Six Months Ended | |||||||||||||||||||||||||||||
September 30, | September 30, | June 30, | June 30, | |||||||||||||||||||||||||||||
Millions, Except Per Share Amounts | 2022 | 2021 | 2022 | 2021 | 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||||||
Net income | $ | 1,895 | $ | 1,673 | $ | 5,360 | $ | 4,812 | $ | 1,569 | $ | 1,835 | $ | 3,199 | $ | 3,465 | ||||||||||||||||
Weighted-average number of shares outstanding: | ||||||||||||||||||||||||||||||||
Basic | 620.4 | 648.7 | 626.1 | 658.3 | 608.7 | 625.6 | 609.6 | 628.9 | ||||||||||||||||||||||||
Dilutive effect of stock options | 0.5 | 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 | 621.5 | 650.3 | 627.4 | 659.9 | 609.5 | 626.8 | 610.5 | 630.2 | ||||||||||||||||||||||||
Earnings per share – basic | $ | 3.05 | $ | 2.58 | $ | 8.56 | $ | 7.31 | $ | 2.58 | $ | 2.93 | $ | 5.25 | $ | 5.51 | ||||||||||||||||
Earnings per share – diluted | $ | 3.05 | $ | 2.57 | $ | 8.54 | $ | 7.29 | $ | 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 | ||||||||||||||||||||||||
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 | |||||||||
Balance at July 1, 2022 | $ | (629) | $ | (212) | $ | (841) | ||||||
Other comprehensive income/(loss) before reclassifications | - | (6) | (6) | |||||||||
Amounts reclassified from accumulated other comprehensive income/(loss) [a] | 15 | - | 15 | |||||||||
Net quarter-to-date other comprehensive income/(loss), net of taxes of ($6) million | 15 | (6) | 9 | |||||||||
Balance at September 30, 2022 | $ | (614) | $ | (218) | $ | (832) | ||||||
Balance at July 1, 2021 | $ | (1,332) | $ | (219) | $ | (1,551) | ||||||
Other comprehensive income/(loss) before reclassifications | (1) | (6) | (7) | |||||||||
Amounts reclassified from accumulated other comprehensive income/(loss) [a] | 25 | - | 25 | |||||||||
Net quarter-to-date other comprehensive income/(loss), net of taxes of ($8) million | 24 | (6) | 18 | |||||||||
Balance at September 30, 2021 | $ | (1,308) | $ | (225) | $ | (1,533) | ||||||
Millions | 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 | ) | |||||
Other comprehensive income/(loss) before reclassifications | - | 23 | - | 23 | ||||||||||||
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 | ) | |||||
Millions | Defined benefit plans | Foreign currency translation | Total | |||||||||
Balance at January 1, 2022 | $ | (658 | ) | $ | (256 | ) | $ | (914 | ) | |||
Other comprehensive income/(loss) before reclassifications | - | 38 | 38 | |||||||||
Amounts reclassified from accumulated other comprehensive income/(loss) [a] | 44 | - | 44 | |||||||||
Net year-to-date other comprehensive income/(loss), net of taxes of ($17) million | 44 | 38 | 82 | |||||||||
Balance at September 30, 2022 | $ | (614 | ) | $ | (218 | ) | $ | (832 | ) | |||
Balance at January 1, 2021 | $ | (1,381 | ) | $ | (212 | ) | $ | (1,593 | ) | |||
Other comprehensive income/(loss) before reclassifications | (3 | ) | (13 | ) | (16 | ) | ||||||
Amounts reclassified from accumulated other comprehensive income/(loss) [a] | 76 | - | 76 | |||||||||
Net year-to-date other comprehensive income/(loss), net of taxes of ($26) million | 73 | (13 | ) | 60 | ||||||||
Balance at September 30, 2021 | $ | (1,308 | ) | $ | (225 | ) | $ | (1,533 | ) | |||
Millions | 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 | ) | |||||
Other comprehensive income/(loss) before reclassifications | - | 44 | - | 44 | ||||||||||||
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 | ) | |||||
[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 |
10.9. Accounts Receivable
Accounts receivable includes freight and other receivables reduced by an allowance for doubtful accounts. At SeptemberJune 30, 20222023, and December 31, 20212022, our accounts receivablereceivables were reduced by $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 both SeptemberJune 30, 20222023, and December 31, 20212022, receivables classified as other assets were reduced by an allowanceallowances of $51 million.$67 million and $58 million, respectively.
Receivables Securitization Facility – On July 29, 2022, the The Railroad completed the renewal of themaintains an $800 million, 3-year receivables securitization facility (the Receivables Facility). The new $800 million, 3-year facility replaces the prior $800 million facility and will mature maturing in July 2025. 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 $200$400 million and $300$100 million at SeptemberJune 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 SeptemberJune 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.
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.
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 September 30, 2022 | Cost | Depreciation | Value | Useful Life | ||||||||||||||||||||||||||||
As of June 30, 2023 | Cost | Depreciation | Value | Useful Life | ||||||||||||||||||||||||||||
Land | $ | 5,334 | $ | N/A | $ | 5,334 | N/A | $ | 5,365 | $ | N/A | $ | 5,365 | N/A | ||||||||||||||||||
Road: | ||||||||||||||||||||||||||||||||
Rail and other track material | 18,329 | 7,024 | 11,305 | 43 | 18,633 | 7,222 | 11,411 | 42 | ||||||||||||||||||||||||
Ties | 11,610 | 3,648 | 7,962 | 34 | 11,845 | 3,799 | 8,046 | 34 | ||||||||||||||||||||||||
Ballast | 6,182 | 1,925 | 4,257 | 34 | 6,285 | 2,004 | 4,281 | 34 | ||||||||||||||||||||||||
Other roadway [a] | 22,151 | 4,890 | 17,261 | 47 | 22,721 | 5,173 | 17,548 | 47 | ||||||||||||||||||||||||
Total road | 58,272 | 17,487 | 40,785 | N/A | 59,484 | 18,198 | 41,286 | N/A | ||||||||||||||||||||||||
Equipment: | ||||||||||||||||||||||||||||||||
Locomotives | 9,214 | 3,693 | 5,521 | 18 | 9,319 | 3,690 | 5,629 | 18 | ||||||||||||||||||||||||
Freight cars | 2,511 | 879 | 1,632 | 23 | 2,628 | 935 | 1,693 | 23 | ||||||||||||||||||||||||
Work equipment and other | 1,216 | 457 | 759 | 17 | 1,301 | 508 | 793 | 17 | ||||||||||||||||||||||||
Total equipment | 12,941 | 5,029 | 7,912 | N/A | 13,248 | 5,133 | 8,115 | N/A | ||||||||||||||||||||||||
Technology and other | 1,255 | 536 | 719 | 13 | 1,280 | 539 | 741 | 12 | ||||||||||||||||||||||||
Construction in progress | 939 | - | 939 | N/A | 1,134 | - | 1,134 | N/A | ||||||||||||||||||||||||
Total | $ | 78,741 | $ | 23,052 | $ | 55,689 | N/A | $ | 80,511 | $ | 23,870 | $ | 56,641 | N/A | ||||||||||||||||||
Millions, Except Estimated Useful Life | Accumulated | Net Book | Estimated | |||||||||||||
As of December 31, 2021 | Cost | Depreciation | Value | Useful Life | ||||||||||||
Land | $ | 5,339 | $ | N/A | $ | 5,339 | N/A | |||||||||
Road: | ||||||||||||||||
Rail and other track material | 17,980 | 6,844 | 11,136 | 44 | ||||||||||||
Ties | 11,364 | 3,516 | 7,848 | 34 | ||||||||||||
Ballast | 6,070 | 1,852 | 4,218 | 34 | ||||||||||||
Other roadway [a] | 21,593 | 4,657 | 16,936 | 47 | ||||||||||||
Total road | 57,007 | 16,869 | 40,138 | N/A | ||||||||||||
Equipment: | ||||||||||||||||
Locomotives | 9,371 | 3,779 | 5,592 | 17 | ||||||||||||
Freight cars | 2,227 | 822 | 1,405 | 24 | ||||||||||||
Work equipment and other | 1,161 | 411 | 750 | 18 | ||||||||||||
Total equipment | 12,759 | 5,012 | 7,747 | N/A | ||||||||||||
Technology and other | 1,209 | 523 | 686 | 12 | ||||||||||||
Construction in progress | 961 | - | 961 | N/A | ||||||||||||
Total | $ | 77,275 | $ | 22,404 | $ | 54,871 | N/A | |||||||||
Millions, Except Estimated Useful Life | Accumulated | Net Book | Estimated | |||||||||||||
As of December 31, 2022 | Cost | Depreciation | Value | Useful Life | ||||||||||||
Land | $ | 5,344 | $ | N/A | $ | 5,344 | N/A | |||||||||
Road: | ||||||||||||||||
Rail and other track material | 18,419 | 7,096 | 11,323 | 43 | ||||||||||||
Ties | 11,676 | 3,699 | 7,977 | 34 | ||||||||||||
Ballast | 6,222 | 1,950 | 4,272 | 34 | ||||||||||||
Other roadway [a] | 22,411 | 4,970 | 17,441 | 47 | ||||||||||||
Total road | 58,728 | 17,715 | 41,013 | N/A | ||||||||||||
Equipment: | ||||||||||||||||
Locomotives | 9,166 | 3,606 | 5,560 | 18 | ||||||||||||
Freight cars | 2,562 | 898 | 1,664 | 23 | ||||||||||||
Work equipment and other | 1,253 | 473 | 780 | 17 | ||||||||||||
Total equipment | 12,981 | 4,977 | 8,004 | N/A | ||||||||||||
Technology and other | 1,254 | 525 | 729 | 12 | ||||||||||||
Construction in progress | 948 | - | 948 | N/A | ||||||||||||
Total | $ | 79,255 | $ | 23,217 | $ | 56,038 | N/A | |||||||||
| [a] | Other roadway includes grading, bridges and tunnels, signals, buildings, and other road assets. |
12.11. Accounts Payable and Other Current Liabilities
Sep. 30, | Dec. 31, | |||||||
Millions | 2022 | 2021 | ||||||
Accounts payable | $ | 916 | 752 | |||||
| Compensation-related accruals [a] [b] | 889 | 654 | ||||||
Income and other taxes payable | 854 | 823 | ||||||
Current operating lease liabilities | 326 | 330 | ||||||
Interest payable | 237 | 330 | ||||||
Accrued casualty costs | 220 | 187 | ||||||
Equipment rents payable | 109 | 98 | ||||||
Other [a] | 483 | 404 | ||||||
Total accounts payable and other current liabilities | $ | 4,034 | $ | 3,578 | ||||
Jun. 30, | Dec. 31, | |||||||
Millions | 2023 | 2022 | ||||||
Accounts payable | $ | 894 | $ | 784 | ||||
Income and other taxes payable | 563 | 628 | ||||||
Compensation-related accruals | 524 | 938 | ||||||
Interest payable | 394 | 379 | ||||||
Current operating lease liabilities | 346 | 331 | ||||||
Accrued casualty costs | 267 | 242 | ||||||
Equipment rents payable | 101 | 109 | ||||||
Other | 415 | 431 | ||||||
Total accounts payable and other current liabilities | $ | 3,504 | $ | 3,842 | ||||
13.12. Financial Instruments
Short-Term Investments – AllAs 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 September 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 SeptemberJune 30, 2023, the fair value of total debt was $28.3 billion, approximately $5.0 billion less than the carrying value. At December 31, 2022, the fair value of total debt was $26.8$28.1 billion, approximately $6.6$5.2 billion less than the carrying value. At December 31, 2021, the fair value of total debt was $32.9 billion, approximately $3.2 billion more 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 – At During the second quarter 2022, we replaced our $2.0 billion revolving credit facility, which was scheduled to expire on June 8,30, 2023with 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 September 30,2022,, 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 ninesix months ended SeptemberJune 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.
During the ninesix months ended SeptemberJune 30, 20222023, we issued $2.8 billion$974 million and repaid $3.0 billion$950 million of commercial paper with maturities ranging from 711 to 8688 days, and at SeptemberJune 30, 20222023, we had $200$224 million of commercial paper with a weighted average interest rate of 2.9%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.
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.
During the ninesix months ended SeptemberJune 30, 20222023, we issued the following unsecured, fixed-rate debt securities under our shelf registration:
Date | Description of Securities |
February | $ |
$0.50 billion of | |
| |
| |
The net proceeds of the 4.950% Notes due September 9, 2052, will be used to finance or refinance, in whole or in part, new or existing eligible projects with environmental benefits as outlined in our Green Financing Framework (located at www.up.com/investor). We used the net proceeds from all otherthe offerings listed for general corporate purposes, including the repurchase of common stock pursuant to our share repurchase programs. AllThese debt securities listed include change-of-control provisions. At SeptemberJune 30, 20222023, we had remaining authority to issue up to $6.6$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 SeptemberJune 30, 20222023, and December 31, 20212022, we recorded $200$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 SeptemberJune 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 Nine Months Ended September 30, | 2022 | 2021 | ||||||||||||||
Millions, for the Six Months Ended June 30, | 2023 | 2022 | ||||||||||||||
Beginning balance | $ | 325 | $ | 270 | $ | 361 | $ | 325 | ||||||||
Current year accruals | 79 | 69 | 52 | 51 | ||||||||||||
Changes in estimates for prior years | 36 | 19 | 31 | 36 | ||||||||||||
Payments | (93 | ) | (55 | ) | (77 | ) | (65 | ) | ||||||||
Ending balance at September 30, | $ | 347 | $ | 303 | ||||||||||||
Current portion, ending balance at September 30, | $ | 77 | $ | 62 | ||||||||||||
Ending balance at June 30, | $ | 367 | $ | 347 | ||||||||||||
Current portion, ending balance at June 30, | $ | 98 | $ | 70 | ||||||||||||
Environmental Costs – We are subject to federal, state, and local environmental laws and regulations. We have identified 357347 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.
Our environmental liability activity was as follows:
Millions, for the Nine Months Ended September 30, | 2022 | 2021 | ||||||||||||||
Millions, for the Six Months Ended June 30, | 2023 | 2022 | ||||||||||||||
Beginning balance | $ | 243 | $ | 233 | $ | 253 | $ | 243 | ||||||||
Accruals | 65 | 56 | 62 | 52 | ||||||||||||
Payments | (45 | ) | (41 | ) | (50 | ) | (29 | ) | ||||||||
Ending balance at September 30, | $ | 263 | $ | 248 | ||||||||||||
Current portion, ending balance at September 30, | $ | 64 | $ | 60 | ||||||||||||
Ending balance at June 30, | $ | 265 | $ | 266 | ||||||||||||
Current portion, ending balance at June 30, | $ | 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 SeptemberJune 30, 2022, 2023, we repurchased a total of 12.619.6 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.
The table below represents shares repurchased under the repurchase programprograms in the sixnine months ended SeptemberJune 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 | ||||||||||||||||||||||||
Third quarter [d] | 9,490,339 | 8,604,239 | 221.52 | 210.31 | ||||||||||||||||||||||||||||
Total | 23,605,223 | 27,500,069 | $ | 236.28 | $ | 215.51 | 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 | 87,408,978 | 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 |
| [b] | Includes 7,012,232 shares repurchased in 2022 under accelerated share repurchase programs. |
| [c] | Includes |
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.
From October 1, 2022, through October 19, 2022, we repurchased 1.3 million shares at an aggregate cost of approximately $260 million.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 $1.7$1.8 billion and $1.6$1.7 billion recognized as investments related to TTX in our Condensed Consolidated Statements of Financial Position as of SeptemberJune 30, 20222023, and December 31, 20212022, respectively. TTX car hire expenses of $106$102 million and $92$98 million for the three months ended SeptemberJune 30, 20222023 and 20212022, respectively, and $298$205 million and $283$192 million for the ninesix months ended SeptemberJune 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 $71 million and $57$68 million as of both SeptemberJune 30, 20222023, and December 31, 20212022, respectively. .
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
UNION PACIFIC CORPORATION AND SUBSIDIARY COMPANIES
RESULTS OF OPERATIONS
Three and NineSix Months Ended SeptemberJune 30, 20222023, Compared to
Three and NineSix Months Ended SeptemberJune 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 shouldshould 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 presentationpresentation 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 ninesix 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 $3.05 per diluted share on net income of $1.9 billion and an operating ratio of 59.9%, which includes a $114 million one-time charge for tentative or ratified agreements with our labor unions (see Labor Agreements in Other Matters), in the third quarter of 2022 compared to earnings of $2.57 per diluted share on net income of $1.7$1.6 billion and an operating ratio of 56.3%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% for the thirdsecond quarter of 2021.2022. Freight revenues increased 18%decreased 5% in the quarter compared to the same period in 20212022 driven by a 15% increase3% decrease in average revenue per car (ARC) and a 3% increase2% decline in volume. The ARC increasedecrease was driven by higherlower fuel surcharge revenues and core pricing gains, partially offset by negative mix of traffic (for example, a relative decrease in petroleumforest product shipments, which have a higher ARC)., partially offset by core pricing gains. Volume increasesdecreases were primarily driven by strongweaker markets for intermodal and forest product shipments. These declines were partially offset by increased production and inventory replenishment in the automotive industry, increased demand for coal due to higher natural gas prices, and continued strength in the industrial markets driven by sand, rock plastics,shipments, and industrial chemicals. Along with the market improvements, our service improved sequentially allowing us to handle more of the available demand. These gains were partially offset by declines in parcel and petroleum shipments.a domestic intermodal contract win.
Our service metricsoverall network fluidity improved sequentiallycompared to the second quarter of 2022 as last year we experienced congestion across our network related to a lack of available crew resources. As a result, we accelerated hiring and training of new employees over the past year, graduated 2,263 employees between May 6, 2022, and July 7, 2023, and, as of July 7, 2023, have 769 individuals currently in the training pipeline.
Operating expenses decreased slightly compared to the second quarter of 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 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 but were still unfavorable to last year’s performance, which was negatively impacted by the wildfires in California. To improve service and increase efficiency, the Company has hired and trained new employees, temporarily relocated employees to areas with the greatest need, added locomotives to the fleet in select locations, and reduced freight car inventory, relative to carloads, from our network.
Crude oil prices declined slightly from the second quarter but our average fuel price for the quarter compared to the same period last year is up 67%. Along with the higher cost of fuel, costs increased due to the additional resources deployed to improve network fluidity, higher inflation, and higher casualty costs. In addition, Presidential Emergency Board 250 issued their report and recommendations on August 16, 2022, and tentative or ratified agreements were subsequently reached with all our labor unions resulting in a one-time charge of $114 million, largely due to the award of $1,000 per year bonuses to all unionized employees (see Labor Agreements in Other Matters). Despite the increases in operating expense, revenue growth drove an 8% increase in operating income compared to third quarter of 2021.2022.
Operating Revenues
Three Months Ended | Nine Months Ended | Three Months Ended | Six Months Ended | |||||||||||||||||||||||||||||||||||||||||||||
September 30, | September 30, | June 30, | June 30, | |||||||||||||||||||||||||||||||||||||||||||||
Millions | 2022 | 2021 | Change | 2022 | 2021 | Change | 2023 | 2022 | Change | 2023 | 2022 | Change | ||||||||||||||||||||||||||||||||||||
Freight revenues | $ | 6,109 | $ | 5,166 | 18 | % | $ | 17,391 | $ | 14,947 | 16 | % | $ | 5,569 | $ | 5,842 | (5 | )% | $ | 11,225 | $ | 11,282 | (1 | )% | ||||||||||||||||||||||||
Other subsidiary revenues | 231 | 182 | 27 | 669 | 539 | 24 | 220 | 233 | (6 | ) | 455 | 438 | 4 | |||||||||||||||||||||||||||||||||||
Accessorial revenues | 212 | 198 | 7 | 596 | 535 | 11 | 149 | 183 | (19 | ) | 300 | 384 | (22 | ) | ||||||||||||||||||||||||||||||||||
Other | 14 | 20 | (30 | ) | 39 | 50 | (22 | ) | 25 | 11 | F | 39 | 25 | 56 | ||||||||||||||||||||||||||||||||||
Total | $ | 6,566 | $ | 5,566 | 18 | % | $ | 18,695 | $ | 16,071 | 16 | % | $ | 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 18% duringdecreased 5% in the thirdsecond 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 surcharge revenues 3% volume increase, and core pricing gains,negative mix of traffic (for example, a relative decrease in forest product shipments, which have a higher ARC), partially offset by negative mix of traffic.core pricing gains. Volume increasesdecreases were primarily driven by strongweaker markets for intermodal and forest product shipments. These declines were partially offset by increased production and inventory replenishment in the automotive industry, increased demand for coal due to higher natural gas prices, and continued strength in the industrial markets driven by sand, rock plastics,shipments, and industrial chemicals. Along with the market improvements, our service improved sequentially allowing us to handle more of the available demand. These gains were partially offset by declines in parcel and petroleum shipments.a domestic intermodal contract win.
Each of our commodity groups includes revenues from fuel surcharges. Freight revenues from fuel surcharge programs increaseddecreased to $1.2 billion$707 million in the thirdsecond quarter of 20222023 compared to $464$976 million in the same period of 20212022 due to higherlower fuel prices 3% increase inand lower volume, andpartially offset by the lag impact on fuel surcharge (it can generally take up to two months for changing fuel prices to affect fuel surchargessurcharge recoveries).
Other subsidiary revenues increaseddecreased in the thirdsecond quarter and year-to-date periods of 20222023 compared to 20212022 primarily driven by higher fuel surcharge and an increase in automotive partsa weaker market for intermodal shipments due to market demand and contract wins at our subsidiary that brokers intermodal and transload logistics services. Accessorial revenues increaseddecreased in the thirdsecond quarter and year-to-date periods 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 | Nine Months Ended | Three Months Ended | Six Months Ended | |||||||||||||||||||||||||||||||||||||||||||||
Freight Revenues | September 30, | September 30, | June 30, | June 30, | ||||||||||||||||||||||||||||||||||||||||||||
Millions | 2022 | 2021 | Change | 2022 | 2021 | Change | 2023 | 2022 | Change | 2023 | 2022 | Change | ||||||||||||||||||||||||||||||||||||
Grain & grain products | $ | 880 | $ | 731 | 20 | % | $ | 2,624 | $ | 2,292 | 14 | % | $ | 890 | $ | 867 | 3 | % | $ | 1,833 | $ | 1,744 | 5 | % | ||||||||||||||||||||||||
Fertilizer | 178 | 172 | 3 | 541 | 521 | 4 | 183 | 183 | - | 369 | 363 | 2 | ||||||||||||||||||||||||||||||||||||
Food & refrigerated | 290 | 253 | 15 | 828 | 739 | 12 | 255 | 271 | (6 | ) | 518 | 538 | (4 | ) | ||||||||||||||||||||||||||||||||||
Coal & renewables | 611 | 531 | 15 | 1,611 | 1,295 | 24 | 429 | 492 | (13 | ) | 934 | 1,000 | (7 | ) | ||||||||||||||||||||||||||||||||||
Bulk | 1,959 | 1,687 | 16 | 5,604 | 4,847 | 16 | 1,757 | 1,813 | (3 | ) | 3,654 | 3,645 | - | |||||||||||||||||||||||||||||||||||
Industrial chemicals & plastics | 579 | 503 | 15 | 1,656 | 1,436 | 15 | 545 | 557 | (2 | ) | 1,081 | 1,077 | - | |||||||||||||||||||||||||||||||||||
Metals & minerals | 601 | 488 | 23 | 1,648 | 1,330 | 24 | 562 | 562 | - | 1,098 | 1,047 | 5 | ||||||||||||||||||||||||||||||||||||
Forest products | 390 | 342 | 14 | 1,140 | 1,006 | 13 | 347 | 386 | (10 | ) | 679 | 750 | (9 | ) | ||||||||||||||||||||||||||||||||||
Energy & specialized markets | 624 | 578 | 8 | 1,762 | 1,654 | 7 | 632 | 586 | 8 | 1,245 | 1,138 | 9 | ||||||||||||||||||||||||||||||||||||
Industrial | 2,194 | 1,911 | 15 | 6,206 | 5,426 | 14 | 2,086 | 2,091 | - | 4,103 | 4,012 | 2 | ||||||||||||||||||||||||||||||||||||
Automotive | 601 | 417 | 44 | 1,663 | 1,292 | 29 | 625 | 561 | 11 | 1,212 | 1,062 | 14 | ||||||||||||||||||||||||||||||||||||
Intermodal | 1,355 | 1,151 | 18 | 3,918 | 3,382 | 16 | 1,101 | 1,377 | (20 | ) | 2,256 | 2,563 | (12 | ) | ||||||||||||||||||||||||||||||||||
Premium | 1,956 | 1,568 | 25 | 5,581 | 4,674 | 19 | 1,726 | 1,938 | (11 | ) | 3,468 | 3,625 | (4 | ) | ||||||||||||||||||||||||||||||||||
Total | $ | 6,109 | $ | 5,166 | 18 | % | $ | 17,391 | $ | 14,947 | 16 | % | $ | 5,569 | $ | 5,842 | (5 | )% | $ | 11,225 | $ | 11,282 | (1 | )% | ||||||||||||||||||||||||
Three Months Ended | Nine Months Ended | Three Months Ended | Six Months Ended | |||||||||||||||||||||||||||||||||||||||||||||
Revenue Carloads | September 30, | September 30, | June 30, | June 30, | ||||||||||||||||||||||||||||||||||||||||||||
Thousands, | 2022 | 2021 | Change | 2022 | 2021 | Change | 2023 | 2022 | Change | 2023 | 2022 | Change | ||||||||||||||||||||||||||||||||||||
Grain & grain products | 190 | 185 | 3 | % | 590 | 592 | - | % | 197 | 195 | 1 | % | 399 | 400 | - | % | ||||||||||||||||||||||||||||||||
Fertilizer | 51 | 55 | (7 | ) | 149 | 153 | (3 | ) | 48 | 53 | (9 | ) | 93 | 98 | (5 | ) | ||||||||||||||||||||||||||||||||
Food & refrigerated | 48 | 48 | - | 143 | 141 | 1 | 44 | 48 | (8 | ) | 88 | 95 | (7 | ) | ||||||||||||||||||||||||||||||||||
Coal & renewables | 243 | 232 | 5 | 670 | 604 | 11 | 203 | 202 | - | 419 | 427 | (2 | ) | |||||||||||||||||||||||||||||||||||
Bulk | 532 | 520 | 2 | 1,552 | 1,490 | 4 | 492 | 498 | (1 | ) | 999 | 1,020 | (2 | ) | ||||||||||||||||||||||||||||||||||
Industrial chemicals & plastics | 165 | 153 | 8 | 486 | 449 | 8 | 164 | 161 | 2 | 321 | 321 | - | ||||||||||||||||||||||||||||||||||||
Metals & minerals | 202 | 188 | 7 | 589 | 516 | 14 | 210 | 205 | 2 | 398 | 387 | 3 | ||||||||||||||||||||||||||||||||||||
Forest products | 62 | 63 | (2 | ) | 189 | 187 | 1 | 55 | 63 | (13 | ) | 107 | 127 | (16 | ) | |||||||||||||||||||||||||||||||||
Energy & specialized markets | 140 | 145 | (3 | ) | 412 | 422 | (2 | ) | 144 | 141 | 2 | 283 | 272 | 4 | ||||||||||||||||||||||||||||||||||
Industrial | 569 | 549 | 4 | 1,676 | 1,574 | 6 | 573 | 570 | 1 | 1,109 | 1,107 | - | ||||||||||||||||||||||||||||||||||||
Automotive | 198 | 166 | 19 | 580 | 519 | 12 | 213 | 192 | 11 | 413 | 382 | 8 | ||||||||||||||||||||||||||||||||||||
Intermodal [a] | 811 | 809 | - | 2,373 | 2,483 | (4 | ) | 749 | 805 | (7 | ) | 1,483 | 1,562 | (5 | ) | |||||||||||||||||||||||||||||||||
Premium | 1,009 | 975 | 3 | 2,953 | 3,002 | (2 | ) | 962 | 997 | (4 | ) | 1,896 | 1,944 | (2 | ) | |||||||||||||||||||||||||||||||||
Total | 2,110 | 2,044 | 3 | % | 6,181 | 6,066 | 2 | % | 2,027 | 2,065 | (2 | )% | 4,004 | 4,071 | (2 | )% | ||||||||||||||||||||||||||||||||
Three Months Ended | Nine Months Ended | Three Months Ended | Six Months Ended | |||||||||||||||||||||||||||||||||||||||||||||
September 30, | September 30, | June 30, | June 30, | |||||||||||||||||||||||||||||||||||||||||||||
Average Revenue per Car | 2022 | 2021 | Change | 2022 | 2021 | Change | 2023 | 2022 | Change | 2023 | 2022 | Change | ||||||||||||||||||||||||||||||||||||
Grain & grain products | $ | 4,641 | $ | 3,937 | 18 | % | $ | 4,449 | $ | 3,869 | 15 | % | $ | 4,527 | $ | 4,451 | 2 | % | $ | 4,598 | $ | 4,357 | 6 | % | ||||||||||||||||||||||||
Fertilizer | 3,504 | 3,125 | 12 | 3,634 | 3,398 | 7 | 3,830 | 3,437 | 11 | 3,978 | 3,701 | 7 | ||||||||||||||||||||||||||||||||||||
Food & refrigerated | 6,017 | 5,246 | 15 | 5,809 | 5,235 | 11 | 5,740 | 5,770 | (1 | ) | 5,851 | 5,703 | 3 | |||||||||||||||||||||||||||||||||||
Coal & renewables | 2,514 | 2,298 | 9 | 2,403 | 2,146 | 12 | 2,107 | 2,426 | (13 | ) | 2,228 | 2,340 | (5 | ) | ||||||||||||||||||||||||||||||||||
Bulk | 3,685 | 3,244 | 14 | 3,612 | 3,252 | 11 | 3,568 | 3,642 | (2 | ) | 3,657 | 3,574 | 2 | |||||||||||||||||||||||||||||||||||
Industrial chemicals & plastics | 3,508 | 3,277 | 7 | 3,404 | 3,195 | 7 | 3,336 | 3,455 | (3 | ) | 3,368 | 3,351 | 1 | |||||||||||||||||||||||||||||||||||
Metals & minerals | 2,969 | 2,596 | 14 | 2,799 | 2,577 | 9 | 2,677 | 2,755 | (3 | ) | 2,760 | 2,710 | 2 | |||||||||||||||||||||||||||||||||||
Forest products | 6,347 | 5,457 | 16 | 6,044 | 5,390 | 12 | 6,337 | 6,128 | 3 | 6,360 | 5,898 | 8 | ||||||||||||||||||||||||||||||||||||
Energy & specialized markets | 4,434 | 3,996 | 11 | 4,273 | 3,924 | 9 | 4,388 | 4,161 | 5 | 4,398 | 4,189 | 5 | ||||||||||||||||||||||||||||||||||||
Industrial | 3,852 | 3,482 | 11 | 3,702 | 3,448 | 7 | 3,646 | 3,674 | (1 | ) | 3,701 | 3,626 | 2 | |||||||||||||||||||||||||||||||||||
Automotive | 3,030 | 2,500 | 21 | 2,866 | 2,488 | 15 | 2,928 | 2,919 | - | 2,935 | 2,780 | 6 | ||||||||||||||||||||||||||||||||||||
Intermodal [a] | 1,672 | 1,424 | 17 | 1,651 | 1,362 | 21 | 1,471 | 1,711 | (14 | ) | 1,521 | 1,641 | (7 | ) | ||||||||||||||||||||||||||||||||||
Premium | 1,939 | 1,608 | 21 | 1,890 | 1,557 | 21 | 1,794 | 1,943 | (8 | ) | 1,829 | 1,864 | (2 | ) | ||||||||||||||||||||||||||||||||||
Average | $ | 2,895 | $ | 2,528 | 15 | % | $ | 2,814 | $ | 2,464 | 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 thirdsecond quarter and year-to-date periods of 20222023 compared to 20212022 due to lower 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 decreased export potash shipments due to a customer outage and fewer export grain shipments driven by higher prices making the grain less competitive in the world market, partially offset by strong markets in domestic grain and renewable diesel feedstocks. Year-to-date, freight revenues increased slightly compared to the same period in 2022 due to core pricing gains and higher fuel surcharge revenues, volume increases, and core pricing gains, partially offset by volume declines and negative mix of traffic from increased coaldecreased food and refrigerated shipments. Volume grew 2% and 4% in the third quarter and year-to-date periods, respectively, compared to 2021 driven by increases inVolumes 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, partially offset by declinesflooding in fertilizer shipments. InCalifornia in the year-to-date period compared to 2021, grain and grain products shipments slightly declined as network constraints increased shuttle cycle times for our grain traffic.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 thirdsecond quarter and year-to-date periods 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 petroleumlumber shipments and increased short haul rock shipments. Volume grew 4% in the third quarter compared to 2021. The growth was driven by metals and minerals due to strong demand for sand and rock as well as new business wins, expansions, and market demand for industrial chemicals and plastics shipments. In addition to the third 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 strong demand this year drove the year-over-year increase for the impacted commodities for the year-to-date period. Petroleum shipments, within the energy and specialized markets commodity line, declined in the third quarter and year-to-date periods compared to 2021 primarily due to regulatory challenges in Mexico markets.
Premium – Premium includes shipments of finished automobiles, automotive parts, and merchandise in intermodal containers, both domestic and international. Premium freight revenues increaseddecreased in the thirdsecond quarter and six-month period of 2023 compared to 20212022 due to higherlower fuel surcharge revenues 3%and volume growth, anddeclines, partially offset by core pricing gains. AutomotiveIntermodal shipments increased 19%declined 7% and 12%5% in the thirdsecond quarter and year-to-date periods, respectively, compared to 2022 as high inventories and inflationary pressures impacted consumer demand, partially offset by a domestic contract 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 finished vehicle shipments and automotive partsincreased production as the automotive industry continued to recover from the shortage of semiconductors and last year’s weather disruptions in the first quarter. Year-to-date, freight revenues increased compared to 2021 driven by fuel surcharge revenues, core pricing gains, and positive mix of traffic, partially offset by a 2% volume decline. The volume increases from automotive shipments, domestic intermodal contract wins, and market strength due to tight truck capacity earlier in the year were more than offset by ongoing international supply chain disruptions and Company actions to store equipment to restore network fluidity.dealers replenish inventories.
Mexico Business – Each of our commodity groups includes revenues from shipments to and from Mexico. Revenues from Mexico business increased 20%1% to $708$689 million in the thirdsecond 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, 3% volume growth, positive business mix from lowerautomotive and intermodal shipments, and core pricing gains. The volume increase was driven by automotive parts, finished automobiles, and construction, partially offset by intermodal and petroleum shipments. Year-to-date, revenues increased 15% to $2.0 billion due to higher fuel surcharge revenues, positive business mix from lower intermodal shipments, and core pricing gains, partially offset5% driven by a slight2% increase in volume decline compared to 2021.and 3% increase in average revenue per car.
Operating Expenses
Three Months Ended | Nine Months Ended | Three Months Ended | Six Months Ended | |||||||||||||||||||||||||||||||||||||||||||||
September 30, | September 30, | June 30, | June 30, | |||||||||||||||||||||||||||||||||||||||||||||
Millions | 2022 | 2021 | Change | 2022 | 2021 | Change | 2023 | 2022 | Change | 2023 | 2022 | Change | ||||||||||||||||||||||||||||||||||||
Compensation and benefits | $ | 1,278 | $ | 1,040 | 23 | % | $ | 3,471 | $ | 3,088 | 12 | % | $ | 1,269 | $ | 1,092 | 16 | % | $ | 2,448 | $ | 2,193 | 12 | % | ||||||||||||||||||||||||
Fuel | 932 | 544 | 71 | 2,586 | 1,452 | 78 | 664 | 940 | (29 | ) | 1,430 | 1,654 | (14 | ) | ||||||||||||||||||||||||||||||||||
Purchased services and materials | 626 | 510 | 23 | 1,809 | 1,478 | 22 | 650 | 622 | 5 | 1,303 | 1,183 | 10 | ||||||||||||||||||||||||||||||||||||
Depreciation | 563 | 553 | 2 | 1,677 | 1,652 | 2 | 577 | 559 | 3 | 1,149 | 1,114 | 3 | ||||||||||||||||||||||||||||||||||||
Equipment and other rents | 215 | 217 | (1 | ) | 660 | 629 | 5 | 248 | 230 | 8 | 483 | 445 | 9 | |||||||||||||||||||||||||||||||||||
Other | 319 | 270 | 18 | 987 | 874 | 13 | 351 | 331 | 6 | 708 | 668 | 6 | ||||||||||||||||||||||||||||||||||||
Total | $ | 3,933 | $ | 3,134 | 25 | % | $ | 11,190 | $ | 9,173 | 22 | % | $ | 3,759 | $ | 3,774 | - | % | $ | 7,521 | $ | 7,257 | 4 | % | ||||||||||||||||||||||||
Operating expenses increased $799 million and $2.0 billiondecreased slightly in the thirdsecond quarter and year-to-date periods, respectively,of 2023 compared to 20212022 driven by higherlower fuel prices a one-time charge for the tentative or ratified agreements reached with our labor unions (see Labor Agreements in Other Matters), inflation, operational challenges,and volume related costs, higher casualtyoffset by inflation, the ratification charge, and increased workforce levels. Year-to-date, operating expenses increased $264 million driven by inflation; operational challenges, including additional costs related to weather; increased workforce levels; and state and local taxes. In addition, the year-to-date period comparison was impacted positivelyratification charge, partially offset by lower weather-related expenses in 2022.fuel prices and 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 thirdsecond quarter and year-to-date periods,of 2023, expenses increased 23% and 12%, respectively,16% compared to 20212022 due to a $114 million one-timethe ratification charge, for the tentative or ratified agreements reached with our labor unions (see Labor Agreements in Other Matters), wage inflation, and an increase in employee levels. EmployeeFor the year-to-date period of 2023 compared to 2022, expenses increased 12% driven by wage inflation, increased employee levels, increased inand the third quarter and year-to-date periods to address congestion across the system and increased carload volumes.ratification charge. The year-to-date comparison was also partially offset by last year's weather-related expenses.employee level increase of 4% includes a 6% increase in train, engine, and yard employees to support our training pipeline and address operational challenges.
Fuel – Fuel includes locomotive fuel and gasoline for highway and non-highway vehicles and heavy equipment. Fuel expense increaseddecreased in the thirdsecond quarter and six-month periods of 20222023 compared to the same periodperiods in 20212022 driven by a 67% increasedecrease in locomotive diesel fuel prices which averaged $3.96 and $2.37 per gallon (including taxes and transportation costs) in the third quarter of 2022 and 2021, respectively. A 4% increasea 1% decrease in gross ton-miles, also contributed to the higher expense, partially offset by a 1% improvementincrease in the fuel consumption rate, computed as gallons of fuel consumed divided by gross ton-miles in thousands. ForLocomotive diesel fuel prices averaged $2.86 and $4.03 per gallon (including taxes and transportation costs) in the year-to-date period,second quarter of 2023 and 2022, respectively. Year-to-date, locomotive diesel fuel prices averaged $3.64$3.04 compared to the $3.48 per gallon in 2022 compared to $2.13 per gallon in 2021, and gross ton-miles increased 4% driving the 78% increase in expense. Fuel consumption rate was essentially flat during the year-to-date period. same period 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 23% and 22%5% in the thirdsecond 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, increasedpartially offset by decreased drayage costscost incurred byat one of our subsidiaries, volume related costs, and inflation. In addition, the year-to-date period comparison was positively impacted by last year’s weather-related expenses.subsidiaries.
Depreciation – The majority of depreciation relates to road property, including rail, ties, ballast, and other track material. Depreciation expense was up 2%3% for both the thirdsecond quarter and year-to-date periods 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. Increased freight car rent expense, due to higher volume and network congestion drove increases in equipmentoffset by equity income from certain equity method investments. Equipment and other rents expense increased 8% and 9% in the thirdsecond quarter and year-to-date periods. Higher equity income more thanperiods of 2023, respectively, compared to 2022 driven by inflation, partially offset these increasesby lower volume. With improved network fluidity in the third quarter.second quarter of 2023, cycle times improved and lowered rent expense, whereas, in the year-to-date period, cycle times were elongated due to 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 18% and 13%6% in both the thirdsecond quarter and year-to-datesix-month periods respectively,of 2023 compared to 20212022 driven by casualty expenses, including higher personal injury expense and damaged freight; higher state and local taxes; and increased business travel costs. In the year-to-date period, lower environmental remediation costs partially offset the increases.costs.
Non-Operating Items
Three Months Ended | Nine Months Ended | Three Months Ended | Six Months Ended | |||||||||||||||||||||||||||||||||||||||||||||
September 30, | September 30, | June 30, | June 30, | |||||||||||||||||||||||||||||||||||||||||||||
Millions | 2022 | 2021 | Change | 2022 | 2021 | Change | 2023 | 2022 | Change | 2023 | 2022 | Change | ||||||||||||||||||||||||||||||||||||
Other income, net | $ | 124 | $ | 38 | F | % | $ | 334 | $ | 214 | 56 | % | $ | 93 | $ | 163 | (43 | )% | $ | 277 | $ | 210 | 32 | % | ||||||||||||||||||||||||
Interest expense | (315 | ) | (290 | ) | 9 | (938 | ) | (862 | ) | 9 | (339 | ) | (316 | ) | 7 | (675 | ) | (623 | ) | 8 | ||||||||||||||||||||||||||||
Income taxes | (547 | ) | (507 | ) | 8 | (1,541 | ) | (1,438 | ) | 7 | ||||||||||||||||||||||||||||||||||||||
Income tax expense | (389 | ) | (507 | ) | (23 | ) | (901 | ) | (994 | ) | (9 | ) | ||||||||||||||||||||||||||||||||||||
Other Income, net – Other income increaseddecreased in the thirdsecond quarter and year-to-date periods of 20222023 compared to 20212022 driven by higherlower gains from real estate income and net periodic pension benefit.sales. Real estate sales in the thirdsecond quarter of 2022 includes a $35 million gain from a land sale to the Colorado Department of Transportation. The year-to-date period for 2022 also includesinclude a $79 million gain from a land sale to the Illinois State Toll Highway Authority, while the 2021 year-to-date period includesAuthority. Year-to-date, other income increased due to a $50one-time $107 million gainreal estate transaction which was partially offset by lower gains 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.real estate sales.
Interest Expense – Interest expense increased in the thirdsecond quarter and year-to-date periods of 20222023 compared to 2021the same periods of 2022 due to an increased weighted-average debt level. In both periods of 2023, the weighted-average debt level of $32.2was $33.5 billion compared to $32.1 billion and $31.5 billion in the second quarter and year-to-date periods of 2022, compared to $29.0 billion in 2021, partially offset by a lowerrespectively. The effective interest rate of 3.9% in 2022 compared towas 4.0% in 2021. Year-to-date, interest expense increased due to an increased weighted-average debt level of $31.8 billion in 2022 compared to $27.9 billion in 2021, partially offset by a lower effective interest rate of 4.0% in 2022 compared to 4.1% in 2021.all periods.
Income Tax ExpenseTaxes – Income tax expense increaseddecreased in both the thirdsecond 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, comparedthe state of Nebraska enacted legislation to 2021, driven by higher pre-tax income, partially offset by reductions of $40 million in deferred tax expense from Iowa, Arkansas, and Idaho reducing their corporate income tax rates. Year-to-date, income tax expense increased compared to the same period in 2021, driven by higher pre-tax income, partially offset by the reductions in deferred tax expense described above and a $55 million reduction in deferred tax expense from Nebraska reducingreduce its corporate income tax rate. Year-to-date 2021 income tax expense included reductionsrate for future years resulting in a reduction of $43 million inour deferred tax expense from Nebraska, Oklahoma,of $73 million and Idaho reducing their corporate income tax rates.$55 million, respectively. Our effective tax rates for year-to-date 2023 and 2022 were 22.0% and 2021 were 22.3% and 23.0%, 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 | Nine Months Ended | Three Months Ended | Six Months Ended | |||||||||||||||||||||||||||||||||||||||||||||
September 30, | September 30, | June 30, | June 30, | |||||||||||||||||||||||||||||||||||||||||||||
2022 | 2021 | Change | 2022 | 2021 | Change | 2023 | 2022 | Change | 2023 | 2022 | Change | |||||||||||||||||||||||||||||||||||||
Gross ton-miles (GTMs) (billions) | Gross ton-miles (GTMs) (billions) | 215.0 | 207.1 | 4 | % | 634.5 | 607.9 | 4 | % | Gross ton-miles (GTMs) (billions) | 207.6 | 209.8 | (1 | )% | 414.3 | 419.5 | (1 | )% | ||||||||||||||||||||||||||||||
Revenue ton-miles (billions) | Revenue ton-miles (billions) | 107.2 | 104.3 | 3 | 317.8 | 306.4 | 4 | Revenue ton-miles (billions) | 101.5 | 103.4 | (2 | ) | 205.3 | 210.6 | (2 | ) | ||||||||||||||||||||||||||||||||
Freight car velocity (daily miles per car) | 191 | 195 | (2 | ) | 192 | 205 | (6 | ) | ||||||||||||||||||||||||||||||||||||||||
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] | Average train speed (miles per hour) [a] | 23.7 | 24.2 | (2 | ) | 23.8 | 24.8 | (4 | ) | Average train speed (miles per hour) [a] | 24.1 | 23.6 | 2 | 24.1 | 23.9 | 1 | ||||||||||||||||||||||||||||||||
Average terminal dwell time (hours) [a] | Average terminal dwell time (hours) [a] | 24.4 | 24.0 | 2 | 24.3 | 23.5 | 3 | 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) | 124 | 127 | (2 | ) | 126 | 135 | (7 | ) | Locomotive productivity (GTMs per horsepower day) | 126 | 123 | 2 | 125 | 126 | (1 | ) | |||||||||||||||||||||||||||||||
Train length (feet) | Train length (feet) | 9,483 | 9,359 | 1 | 9,376 | 9,340 | - | Train length (feet) | 9,316 | 9,439 | (1 | ) | 9,238 | 9,321 | (1 | ) | ||||||||||||||||||||||||||||||||
Intermodal car trip plan compliance (%) [b] | Intermodal car trip plan compliance (%) [b] | 62 | 66 | (4 | ) pts | 65 | 72 | (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] | 58 | 60 | (2 | ) pts | 59 | 65 | (6 | ) 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) | 1,045 | 1,044 | - | 1,045 | 1,036 | 1 | Workforce productivity (car miles per employee) | 983 | 1,034 | (5 | ) | 987 | 1,045 | (6 | ) | ||||||||||||||||||||||||||||||||
Total employees (average) | Total employees (average) | 30,841 | 29,810 | 3 | 30,582 | 29,877 | 2 | Total employees (average) | 32,060 | 30,715 | 4 | 31,766 | 30,452 | 4 | ||||||||||||||||||||||||||||||||||
Operating ratio | 59.9 | 56.3 | 3.6 | pts | 59.9 | 57.1 | 2.8 | 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. Gross ton-miles and revenue ton-miles increased 4%decreased 1% and 3%2%, respectively, during both the thirdsecond quarter and year-to-date periods of 20222023 compared to 2021, driven by a 3% increase in carloadings. Year-to-date, gross ton-miles and revenue ton-miles both increased 4%2022, driven by a 2% increasedecline 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 (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, operatingtime improved in the second quarter of 2023 compared to 2022 as last year we experienced congestion across our system. As network fluidity improved, freight car inventory levelsvelocity increased. These metrics also improved year-to-date despite operational challenges caused by weather in the first quarter of 2023.
Locomotive Productivity – Locomotive productivity is gross ton-miles per average daily locomotive horsepower available. Locomotive productivity increased and congestedin the networksecond quarter of 2023 compared to the same periods in 2021. While year-over-year comparisons deteriorated, the fluidity of the2022 driven by improved network has improved fromfluidity. 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 freight car velocity,improvement in the second quarter didn’t fully offset increased average train speed, and average terminal dwell improved sequentiallyactive fleet size in the first quarter as crew availability increased throughout the third quarter.resources were deployed to alleviate operational challenges caused by weather.
Locomotive Productivity – Locomotive productivity is gross ton-miles per average daily locomotive horsepower available. Locomotive productivity decreased in the third quarter and year-to-date periods of 2022 compared to the same periods in 2021 driven by an increase in our average active fleet size as resources were deployed to alleviate network congestion in both periods and handle increased volume compared to the same periods in 2021.
Train Length – Train length is the average maximum train length on a route measured in feet. Our train length increaseddecreased 1% in both the thirdsecond quarter and six-month periods of 2023 compared to the same periods of 2022, due to train length improvement initiatives, partially offseta 2% decrease in carloadings in both periods driven by efforts to recover the network. The year-to-date comparison was flat due to lower internationaldeclines in intermodal shipments of 7% and recovery efforts offsetting productivity initiatives.5% in the second quarter and six-month periods of 2023, respectively, compared to the same periods 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 thirdsecond quarter and year-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 was flatdecreased 5% and 6%, respectively, in the thirdsecond quarter and year-to-date period of 2022,2023 as average daily car miles increased 4%decreased and employees increased 3% compared to 2021.2022. The 3%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 volume increases and congestion. 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 thirdsecond quarter of 2023 operating ratio of 59.9%63.0% deteriorated 3.62.8 points compared to 20212022 and our year-to-date operating ratio of 59.9%62.6% deteriorated 2.8 points compared to 20212022 mainly due to the one-time charge for the tentative or ratified agreements reached with our labor unions (see Labor Agreements in Other Matters),inflation, excess network costs, inflation,negative mix of traffic, the ratification charge, and other cost increases, partially offset by lower fuel prices and core pricing gains. In addition, the year-to-date comparison was positively impacted by mix of traffic and lower weather-related expenses and negatively impacted by higher fuel prices.
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 | Sep. 30, | Dec. 31, | Jun. 30, | Dec. 31, | ||||||||||||
for the Trailing Twelve Months Ended [a] | 2022 | 2021 | 2023 | 2022 | ||||||||||||
Net income | $ | 7,071 | $ | 6,523 | $ | 6,732 | $ | 6,998 | ||||||||
Add: | ||||||||||||||||
Income tax expense | 2,058 | 1,955 | 1,981 | 2,074 | ||||||||||||
Depreciation | 2,233 | 2,208 | 2,281 | 2,246 | ||||||||||||
Interest expense | 1,233 | 1,157 | 1,323 | 1,271 | ||||||||||||
EBITDA | $ | 12,595 | $ | 11,843 | $ | 12,317 | $ | 12,589 | ||||||||
Adjustments: | Adjustments: | Adjustments: | ||||||||||||||
Other income, net | (417 | ) | (297 | ) | (493 | ) | (426 | ) | ||||||||
Interest on operating lease liabilities [b] | 52 | 56 | 53 | 54 | ||||||||||||
Adjusted EBITDA | $ | 12,230 | $ | 11,602 | $ | 11,877 | $ | 12,217 | ||||||||
Debt | $ | 33,422 | $ | 29,729 | $ | 33,302 | $ | 33,326 | ||||||||
Operating lease liabilities | 1,629 | 1,759 | 1,563 | 1,631 | ||||||||||||
Unfunded/(funded) pension and OPEB, net of tax cost/(benefit) of ($40) and ($21) [c] | (139 | ) | (72 | ) | ||||||||||||
Unfunded pension and OPEB, net of tax cost of $0 and $0 [c] | - | - | ||||||||||||||
Adjusted debt | $ | 34,912 | $ | 31,416 | $ | 34,865 | $ | 34,957 | ||||||||
Adjusted debt / adjusted EBITDA | 2.9 | 2.7 | 2.9 | 2.9 | ||||||||||||
| [a] | The trailing twelve months income statement information ended |
| [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 post 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 SeptemberJune 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 Nine Months Ended September 30, | 2022 | 2021 | ||||||||||||||
Millions, for the Six Months Ended June 30, | 2023 | 2022 | ||||||||||||||
Cash provided by operating activities | $ | 7,070 | $ | 6,503 | $ | 3,858 | $ | 4,167 | ||||||||
Cash used in investing activities | (2,559 | ) | (1,792 | ) | (1,674 | ) | (1,540 | ) | ||||||||
Cash used in financing activities | (4,210 | ) | (5,291 | ) | (2,328 | ) | (2,796 | ) | ||||||||
Net change in cash, cash equivalents and restricted cash | $ | 301 | $ | (580 | ) | $ | (144 | ) | $ | (169 | ) | |||||
Operating Activities
Cash provided by operating activities increaseddecreased in the first ninesix months of 20222023 compared to the same period of 20212022 due to higher net income.$445 million of payments related to the settlement of our labor union agreements.
Investing Activities
Cash used in investing activities increased in the first ninesix 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 Nine Months Ended September 30, | 2022 | 2021 | ||||||||||||||
Millions, for the Six Months Ended June 30, | 2023 | 2022 | ||||||||||||||
Rail and other track material | $ | 405 | $ | 367 | $ | 287 | $ | 263 | ||||||||
Ties | 346 | 334 | 239 | 236 | ||||||||||||
Ballast | 160 | 156 | 99 | 98 | ||||||||||||
Other [a] | 474 | 467 | 330 | 290 | ||||||||||||
Total road infrastructure replacements | 1,385 | 1,324 | 955 | 887 | ||||||||||||
Line expansion and other capacity projects | 228 | 173 | 57 | 159 | ||||||||||||
Commercial facilities | 175 | 104 | 162 | 89 | ||||||||||||
Total capacity and commercial facilities | 403 | 277 | 219 | 248 | ||||||||||||
Locomotives and freight cars [b] | 608 | 192 | 302 | 345 | ||||||||||||
Technology and other | 294 | 152 | 131 | 165 | ||||||||||||
Total cash capital investments [c] | $ | 2,690 | $ | 1,945 | $ | 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 |
| [c] | Weather-related damages for the |
Capital Plan
In 20222023, we expect our capital expendituresplan to be approximately $3.4$3.6 billion, up 136% 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 ninesix months of 20222023 compared to the same period of 20212022 driven by an increasea decrease in debt issued,share repurchases, partially offset by moreless debt repaid.issued.
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.
Millions, for the Nine Months Ended September 30, | 2022 | 2021 | ||||||||||||||
Millions, for the Six Months Ended June 30, | 2023 | 2022 | ||||||||||||||
Cash provided by operating activities | $ | 7,070 | $ | 6,503 | $ | 3,858 | $ | 4,167 | ||||||||
Cash used in investing activities | (2,559 | ) | (1,792 | ) | (1,674 | ) | (1,540 | ) | ||||||||
Dividends paid | (2,362 | ) | (2,045 | ) | (1,588 | ) | (1,556 | ) | ||||||||
Free cash flow | $ | 2,149 | $ | 2,666 | $ | 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 Nine Months Ended September 30, | 2022 | 2021 | ||||||||||||||
Millions, for the Six Months Ended June 30, | 2023 | 2022 | ||||||||||||||
Cash provided by operating activities | $ | 7,070 | $ | 6,503 | $ | 3,858 | $ | 4,167 | ||||||||
Cash used in capital investments | (2,690 | ) | (1,945 | ) | (1,607 | ) | (1,645 | ) | ||||||||
Total (a) | $ | 4,380 | $ | 4,558 | $ | 2,251 | $ | 2,522 | ||||||||
Net income (b) | $ | 5,360 | $ | 4,812 | $ | 3,199 | $ | 3,465 | ||||||||
Cash flow conversion rate (a/b) | 82 | % | 95 | % | 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 thirdsecond quarter of 2023, we generated $2.9$2.0 billion of cash provided by operating activities, paid our quarterly dividend, and repurchased $2.1 billion$121 million worth of shares under our share repurchase program.programs, and drew $400 million on the Receivables Facility. On SeptemberJune 30, 2022,2023, we had $1.3 billion$830 million of cash and cash equivalents, $2.0 billion of credit available under our revolving credit facility, and up to $600$400 million undrawn on the Receivables Facility. In the third quarter, we issued $1.9 billion in fixed-rate long-term debt, including a $600 million 30-year green bond. The net proceeds of the green bond will be used to finance eligible projects with environmental benefits. Additionally, we paid down $400 million on the Receivables Facility. 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 SeptemberJune 30, 20222023:
| Oct. 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] | $ | 61,936 | $ | 373 | $ | 2,637 | $ | 2,562 | $ | 2,742 | $ | 2,080 | $ | 51,542 | $ | 61,888 | $ | 972 | $ | 2,610 | $ | 2,991 | $ | 2,617 | $ | 2,348 | $ | 50,350 | ||||||||||||||||||||||||||||
Purchase obligations [b] | 3,435 | 277 | 855 | 823 | 815 | 273 | 392 | 3,027 | 486 | 902 | 869 | 308 | 207 | 255 | ||||||||||||||||||||||||||||||||||||||||||
Operating leases [c] | 1,808 | 52 | 326 | 309 | 312 | 241 | 568 | 1,729 | 125 | 343 | 346 | 273 | 216 | 426 | ||||||||||||||||||||||||||||||||||||||||||
Other post retirement benefits [d] | 366 | 11 | 44 | 40 | 39 | 39 | 193 | 374 | 23 | 40 | 40 | 40 | 39 | 192 | ||||||||||||||||||||||||||||||||||||||||||
Finance lease obligations [e] | 266 | 8 | 76 | 63 | 43 | 35 | 41 | 202 | 23 | 61 | 42 | 35 | 30 | 11 | ||||||||||||||||||||||||||||||||||||||||||
Total contractual obligations | $ | 67,811 | $ | 721 | $ | 3,938 | $ | 3,797 | $ | 3,951 | $ | 2,668 | $ | 52,736 | $ | 67,220 | $ | 1,629 | $ | 3,956 | $ | 4,288 | $ | 3,273 | $ | 2,840 | $ | 51,234 | ||||||||||||||||||||||||||||
| [a] | Excludes finance lease obligations of |
| [b] | Purchase obligations include locomotive maintenance contracts; purchase commitments for |
| [c] | Includes leases for locomotives, freight cars, other equipment, and real estate. Includes an interest component of |
| [d] | Includes estimated other post retirement, medical, and life insurance payments and payments made under the unfunded pension |
| [e] | Represents total obligations, including interest component of |
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 Presidential Emergency Board 250 (PEB) to resolve the parties' disputes. The PEB issued a report with its recommendations on August 16, 2022, initiating the second 30-day cooling-off period. Over the second cooling-off period, tentative agreements were reached with all the labor unions, averting a potential work stoppage. As of October 20, 2022, six labor unions ratified their respective tentative agreements. One labor union did not ratify its tentative agreement, and the parties have agreed to maintain the status quo as negotiations continue. Tentative agreements with the remaining labor unions are still in the ratification process. If a tentative agreement fails ratification, and the parties do not reach a voluntary agreement by the end of the agreed upon status quo period, the parties may engage in self-help (i.e., lockouts or strike). Congress may act to stop self-help by extending the status quo period or passing a law imposing a resolution 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 October 20, 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
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 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. 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 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, 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 Period Jul. 1 through Jul. 31 Aug. 1 through Aug. 31 Sep. 1 through Sep. 30 Total Period Apr. 1 through Apr. 30 May. 1 through May. 31 Jun. 1 through Jun. 30 Total Item 3. Defaults Upon Senior Securities None. Item 4. Mine Safety Disclosures Not Applicable. On May 22, 2023, 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. Exhibit No. Description Filed with this Statement 31(a) 31(b) 32 101 The following financial and related information from Union Pacific Corporation’s Quarterly Report on Form 10-Q for the period ended 104 Cover Page Interactive Data File, formatted in Inline XBRL (contained in Exhibit 101). Incorporated by Reference 3(a) 3(b) 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: 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 (Principal Accounting Officer) 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 68179.20212022 Annual Report on Form 10-K.Litigation MattersIn December 2019, truck driver David Fleury (Fleury) filed a putative class action complaint against Union Pacific Railroad Company in the United States District Court for the Northern District of Illinois (the District Court) raising claims under the Illinois Biometric Information Privacy Act, 740 ILCS 14/1, et seq. (the Act). Members of the putative class are third-party truck drivers who gained access to Union Pacific intermodal terminals in Illinois by verifying their identity using finger-scan technology. The complaint alleges Union Pacific’s use of the finger scan system violated the Act by capturing Fleury’s biometric information. After several motions by the parties and a District Court-approved stay of proceedings, the parties are currently engaged in the discovery process and no class has been certified.We believe that we have strong defenses to the Fleury complaint, and we will vigorously defend the case. We believe this matter will not have a materially adverse effect on any of our results of operations, financial condition, or liquidity.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.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.thirdsecond quarter of 20222023:Total Number of Shares Purchased [a] Average Price Paid Per Share Total Number of Shares Purchased as Part of a Publicly Announced Plan or Program Maximum Number of Shares That May Be Purchased Under Current Authority [b] 2,069,484 $ 214.94 2,069,419 94,829,898 3,283,424 232.64 3,277,667 91,552,231 4,143,330 216.02 4,143,253 87,408,978 9,496,238 $ 221.53 9,490,339 N/A Total Number of Shares Purchased [a] Average Price Paid Per Share Total Number of Shares Purchased as Part of a Publicly Announced Plan or Program Maximum Number of Shares That May Be Purchased Under Current Authority [b] 486,869 $ 199.77 479,977 80,518,631 126,843 198.96 126,604 80,392,027 132 198.26 - 80,392,027 613,844 $ 199.60 606,581 N/A [a] Total number of shares purchased during the quarter includes 5,8997,263 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] 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. 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. SeptemberJune 30, 20222023 (filed with the SEC on October 20, 2022July 26, 2023), formatted in Inline Extensible Business Reporting Language (iXBRL) includes (i) Condensed Consolidated Statements of Income for the periods ended SeptemberJune 30, 20222023 and 20212022, (ii) Condensed Consolidated Statements of Comprehensive Income for the periods ended SeptemberJune 30, 20222023 and 20212022, (iii) Condensed Consolidated Statements of Financial Position at SeptemberJune 30, 20222023, and December 31, 20212022, (iv) Condensed Consolidated Statements of Cash Flows for the periods ended SeptemberJune 30, 20222023 and 20212022, (v) Condensed Consolidated Statements of Changes in Common Shareholders’ Equity for the periods ended SeptemberJune 30, 20222023 and 20212022, and (vi) the Notes to the Condensed Consolidated Financial Statements. 4(a)Form of 4.500% Note due 2033 is incorporated herein by reference to Exhibit 4.1 to the Corporation’s Current Report on Form 8-K dated September 9, 2022.4(b)Form of 4.950% Note due 2052 is incorporated herein by reference to Exhibit 4.2 to the Corporation’s Current Report on Form 8-K dated September 9, 2022.4(c)Form of 5.150% Note due 2063 is incorporated herein by reference to Exhibit 4.3 to the Corporation’s Current Report on Form 8-K dated September 9, 2022.October 20, 2022July 26, 2023 UNION PACIFIC CORPORATION (Registrant) Chief Accounting, Risk, and Compliance Officer