# Union Pacific Corp: Form 10-Q for the period ended Sep 30, 2023

- Company: [Union Pacific Corp](/companies/unp.md) (CIK 100885)
- Form: 10-Q
- Filed: 2023-10-19
- Accepted by EDGAR: Oct 19, 2023, 19:28 ET
- Period: 2023-09-30
- Accession: 0001437749-23-028607
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/100885/000143774923028607/unp20230930_10q.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/100885/000143774923028607/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2023-09-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2023-07-01 to 2023-09-30 | $5.94bn | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Revenue | 9 months, 2023-01-01 to 2023-09-30 | $17.96bn | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Operating income | 3 months, 2023-07-01 to 2023-09-30 | $2.18bn | us-gaap:OperatingIncomeLoss |
| Operating income | 9 months, 2023-01-01 to 2023-09-30 | $6.67bn | us-gaap:OperatingIncomeLoss |
| Interest expense | 3 months, 2023-07-01 to 2023-09-30 | $334.0m | us-gaap:InterestExpense |
| Interest expense | 9 months, 2023-01-01 to 2023-09-30 | $1.01bn | us-gaap:InterestExpense |
| Income tax | 3 months, 2023-07-01 to 2023-09-30 | $421.0m | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 9 months, 2023-01-01 to 2023-09-30 | $1.32bn | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2023-07-01 to 2023-09-30 | $1.53bn | us-gaap:NetIncomeLoss |
| Net income | 9 months, 2023-01-01 to 2023-09-30 | $4.73bn | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2023-07-01 to 2023-09-30 | $2.51 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 9 months, 2023-01-01 to 2023-09-30 | $7.75 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2023-07-01 to 2023-09-30 | $2.51 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 9 months, 2023-01-01 to 2023-09-30 | $7.76 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2023-07-01 to 2023-09-30 | 609,800,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 9 months, 2023-01-01 to 2023-09-30 | 610,300,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 9 months, 2023-01-01 to 2023-09-30 | $5.98bn | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 9 months, 2023-01-01 to 2023-09-30 | $2.58bn | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Dividends paid | 9 months, 2023-01-01 to 2023-09-30 | $2.38bn | us-gaap:PaymentsOfDividends |
| Share repurchases | 9 months, 2023-01-01 to 2023-09-30 | $705.0m | us-gaap:PaymentsForRepurchaseOfCommonStock |
| Cash and equivalents | at 2023-09-30 | $750.0m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2023-09-30 | $3.81bn | us-gaap:AssetsCurrent |
| Total assets | at 2023-09-30 | $66.54bn | us-gaap:Assets |
| Current liabilities | at 2023-09-30 | $5.30bn | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2023-09-30 | $52.54bn | us-gaap:Liabilities |
| Short-term borrowings | at 2023-09-30 | $302.0m | us-gaap:CommercialPaper |
| Shareholders' equity | at 2023-09-30 | $14.00bn | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 48,519 characters.

### UNION PACIFIC CORPORATION AND SUBSIDIARY COMPANIES

### RESULTS OF OPERATIONS

### Three and Nine Months Ended September 30, 2023, Compared to

### Three and Nine Months Ended September 30, 2022

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

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

The Railroad, along with its subsidiaries and rail affiliates, is our one reportable business segment. Although revenues are analyzed by commodity, we analyze the net financial results of the Railroad as one segment due to the integrated nature of the 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 2022 Annual Report on Form 10-K. During the first nine months of 2023, there have not been any significant changes with respect to our critical accounting estimates.

### RESULTS OF OPERATIONS

### Quarterly Summary

The Company reported earnings of $2.51 per diluted share on net income of $1.5 billion and an operating ratio of 63.4% in the third quarter of 2023 compared to earnings of $3.05 per diluted share on net income of $1.9 billion and an operating ratio of 59.9% for the third quarter of 2022. Freight revenues decreased 9% in the third quarter of 2023 compared to the same period in 2022 driven by a 7% decrease in average revenue per car (ARC) and a 3% decline in volume. The ARC decrease was driven by lower fuel surcharge revenues and negative mix of traffic (for example, a relative increase in rock shipments, which have a lower ARC), partially offset by core pricing gains. Volume decreases were primarily driven by weaker demand for intermodal, coal, and export grain shipments. These declines were partially offset by increased production and inventory replenishment in the automotive industry, continued strength in rock shipments, and a domestic intermodal contract win.

Our overall network fluidity improved compared to the third quarter of 2022 as last year we experienced congestion across our network related to a shortage of train crew employees. As a result, we accelerated hiring and training of new employees over the past year and graduated 2,907 employees between May 6, 2022, and October 4, 2023. Our improved network fluidity and the volume declines enabled us to slow the pace of train crew hiring and store locomotives during the quarter.

Operating expenses decreased 4% compared to the third quarter of 2022 due to lower fuel prices, the 2022 one-time charge for agreements reached with our labor unions, and volume related costs. These decreases were partially offset by inflation, increased workforce levels, including the impact of increased sick leave benefits provided to our craft professionals, higher casualty costs, and one-time write-offs. Operating income of $2.2 billion decreased 17%, and our operating ratio of 63.4% deteriorated 3.5 points from the third quarter of 2022.

### Operating Revenues

| Millions | Three Months Ended September 30, 2023 | 2022 | Change | Nine Months Ended September 30, 2023 | 2022 | Change |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Freight revenues | **$5,545** | $6,109 | **(9)%** | **$16,770** | $17,391 | **(4)%** |
| Other subsidiary revenues | **226** | 231 | **(2)** | **681** | 669 | **2** |
| Accessorial revenues | **142** | 212 | **(33)** | **442** | 596 | **(26)** |
| Other | **28** | 14 | **100** | **67** | 39 | **72** |
| Total | **$5,941** | $6,566 | **(10)%** | **$17,960** | $18,695 | **(4)%** |

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 decreased 9% in the third quarter of 2023 compared to the same period in 2022 driven by a 7% decrease in ARC and a 3% decline in volume. The ARC decrease was driven by lower fuel surcharge revenues and negative mix of traffic (for example, a relative increase in rock shipments, which have a lower ARC), partially offset by core pricing gains. Volume decreases were primarily driven by weaker demand for intermodal, coal, and export grain shipments. These declines were partially offset by increased production and inventory replenishment in the automotive industry, continued strength in rock shipments, and a domestic intermodal contract win.

Each of our commodity groups includes revenues from fuel surcharges. Freight revenues from fuel surcharge programs decreased to $637 million in the third quarter of 2023 compared to $1.2 billion in the same period of 2022 due to lower fuel prices, the lag impact on fuel prices rising throughout the quarter (it can generally take up to two months for changing fuel prices to affect fuel surcharge recoveries), and lower volume.

Other subsidiary revenues decreased in the third quarter of 2023 compared to 2022 primarily driven by a weaker demand for intermodal shipments at our subsidiary that brokers intermodal and transload logistics services. Accessorial revenues decreased in the third quarter of 2023 compared to 2022 driven by decreased intermodal accessorial and container revenues due to lower volume and improvements in the global supply chain as reflected in better equipment cycle times.

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

| Freight Revenues Millions | Three Months Ended September 30, 2023 | 2022 | Change | Nine Months Ended September 30, 2023 | 2022 | Change |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Grain & grain products | **$825** | $880 | **(6)%** | **$2,658** | $2,624 | **1%** |
| Fertilizer | **194** | 178 | **9** | **563** | 541 | **4** |
| Food & refrigerated | **259** | 290 | **(11)** | **777** | 828 | **(6)** |
| Coal & renewables | **488** | 611 | **(20)** | **1,422** | 1,611 | **(12)** |
| Bulk | **1,766** | 1,959 | **(10)** | **5,420** | 5,604 | **(3)** |
| Industrial chemicals & plastics | **557** | 579 | **(4)** | **1,638** | 1,656 | **(1)** |
| Metals & minerals | **556** | 601 | **(7)** | **1,654** | 1,648 | **-** |
| Forest products | **333** | 390 | **(15)** | **1,012** | 1,140 | **(11)** |
| Energy & specialized markets | **611** | 624 | **(2)** | **1,856** | 1,762 | **5** |
| Industrial | **2,057** | 2,194 | **(6)** | **6,160** | 6,206 | **(1)** |
| Automotive | **609** | 601 | **1** | **1,821** | 1,663 | **10** |
| Intermodal | **1,113** | 1,355 | **(18)** | **3,369** | 3,918 | **(14)** |
| Premium | **1,722** | 1,956 | **(12)** | **5,190** | 5,581 | **(7)** |
| Total | **$5,545** | $6,109 | **(9)%** | **$16,770** | $17,391 | **(4)%** |

| Revenue Carloads Thousands | Three Months Ended September 30, 2023 | 2022 | Change | Nine Months Ended September 30, 2023 | 2022 | Change |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Grain & grain products | **183** | 190 | **(4)%** | **582** | 590 | **(1)%** |
| Fertilizer | **51** | 51 | **-** | **144** | 149 | **(3)** |
| Food & refrigerated | **45** | 48 | **(6)** | **133** | 143 | **(7)** |
| Coal & renewables | **231** | 243 | **(5)** | **650** | 670 | **(3)** |
| Bulk | **510** | 532 | **(4)** | **1,509** | 1,552 | **(3)** |
| Industrial chemicals & plastics | **163** | 165 | **(1)** | **484** | 486 | **-** |
| Metals & minerals | **206** | 202 | **2** | **604** | 589 | **3** |
| Forest products | **54** | 62 | **(13)** | **161** | 189 | **(15)** |
| Energy & specialized markets | **146** | 140 | **4** | **429** | 412 | **4** |
| Industrial | **569** | 569 | **-** | **1,678** | 1,676 | **-** |
| Automotive | **210** | 198 | **6** | **623** | 580 | **7** |
| Intermodal \[a\] | **763** | 811 | **(6)** | **2,246** | 2,373 | **(5)** |
| Premium | **973** | 1,009 | **(4)** | **2,869** | 2,953 | **(3)** |
| Total | **2,052** | 2,110 | **(3)%** | **6,056** | 6,181 | **(2)%** |

| Average Revenue per Car | Three Months Ended September 30, 2023 | 2022 | Change | Nine Months Ended September 30, 2023 | 2022 | Change |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Grain & grain products | **$4,486** | $4,641 | **(3)%** | **$4,563** | $4,449 | **3%** |
| Fertilizer | **3,818** | 3,504 | **9** | **3,921** | 3,634 | **8** |
| Food & refrigerated | **5,847** | 6,017 | **(3)** | **5,850** | 5,809 | **1** |
| Coal & renewables | **2,114** | 2,514 | **(16)** | **2,187** | 2,403 | **(9)** |
| Bulk | **3,465** | 3,685 | **(6)** | **3,592** | 3,612 | **(1)** |
| Industrial chemicals & plastics | **3,406** | 3,508 | **(3)** | **3,381** | 3,404 | **(1)** |
| Metals & minerals | **2,688** | 2,969 | **(9)** | **2,736** | 2,799 | **(2)** |
| Forest products | **6,197** | 6,347 | **(2)** | **6,305** | 6,044 | **4** |
| Energy & specialized markets | **4,201** | 4,434 | **(5)** | **4,331** | 4,273 | **1** |
| Industrial | **3,612** | 3,852 | **(6)** | **3,671** | 3,702 | **(1)** |
| Automotive | **2,894** | 3,030 | **(4)** | **2,921** | 2,866 | **2** |
| Intermodal \[a\] | **1,459** | 1,672 | **(13)** | **1,500** | 1,651 | **(9)** |
| Premium | **1,769** | 1,939 | **(9)** | **1,809** | 1,890 | **(4)** |
| Average | **$2,702** | $2,895 | **(7)%** | **$2,769** | $2,814 | **(2)%** |

#### \[a\] For intermodal shipments each container or trailer equals one carload.

*Bulk –* Bulk includes shipments of grain and grain products, fertilizer, food and refrigerated, and coal and renewables. Freight revenues from bulk shipments decreased in the third quarter of 2023 compared to 2022 due to lower fuel surcharge revenues and volume declines, partially offset by core pricing gains and positive mix of traffic from decreased coal shipments. Volume declined 4% in the third quarter of 2023 compared to 2022 driven by reduced use of coal in electricity generation because of low natural gas prices and decreased export grain shipments due to tight supplies. Year-to-date, freight revenues decreased compared to the same period in 2022 due to lower volume, lower fuel surcharge revenues, and negative mix of traffic from decreased food and refrigerated shipments, partially offset by core pricing gains. Volumes for coal and renewables and food and refrigerated shipments were negatively impacted by outages and service challenges due to repeated snow events in Wyoming and flooding in California in the 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 decreased in the third quarter of 2023 compared to 2022 due to lower fuel surcharge revenues and negative mix of traffic from decreased lumber shipments and increased short haul rock shipments, partially offset by core price increases. Volume was flat in the third quarter of 2023 compared to 2022. While we saw growth in metals and minerals due to strong demand for rock, that growth was 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 decreased compared to the same period in 2022 due to negative mix of traffic from increased short haul rock shipments and decreased lumber shipments, and lower fuel surcharge revenues, partially offset by core pricing gains.

*Premium –* Premium includes shipments of finished automobiles, automotive parts, and merchandise in intermodal containers, both domestic and international. Premium freight revenues decreased in the third quarter and nine-month period of 2023 compared to 2022 due to lower fuel surcharge revenues and volume declines, partially offset by core pricing gains. Intermodal shipments declined 6% and 5% in the third quarter and year-to-date periods of 2023, respectively, compared to the same periods in 2022 as high inventories and inflationary pressures impacted consumer demand, partially offset by a domestic contract win. Automotive shipments increased 6% and 7% in the third quarter and nine-month periods of 2023, respectively, compared to the same periods in 2022 driven by increased production as dealers replenish inventories.

*Mexico Business –* Each of our commodity groups includes revenues from shipments to and from Mexico. Revenues from Mexico business decreased 5% to $673 million in the third quarter of 2023 compared to 2022 driven by lower fuel surcharge revenues, partially offset by a 5% volume increase. Volume increases were driven by higher intermodal and automotive shipments, partially offset by fewer beer shipments. Year-to-date, revenues increased 2% driven by a 3% increase in volume, partially offset by a 1% decrease in average revenue per car.

### Operating Expenses

| Millions | Three Months Ended September 30, 2023 | 2022 | Change | Nine Months Ended September 30, 2023 | 2022 | Change |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Compensation and benefits | **$1,201** | $1,278 | **(6)%** | **$3,649** | $3,471 | **5%** |
| Fuel | **702** | 932 | **(25)** | **2,132** | 2,586 | **(18)** |
| Purchased services and materials | **668** | 626 | **7** | **1,971** | 1,809 | **9** |
| Depreciation | **580** | 563 | **3** | **1,729** | 1,677 | **3** |
| Equipment and other rents | **235** | 215 | **9** | **718** | 660 | **9** |
| Other | **378** | 319 | **18** | **1,086** | 987 | **10** |
| Total | **$3,764** | $3,933 | **(4)%** | **$11,285** | $11,190 | **1%** |

Operating expenses decreased 4% in the third quarter of 2023 compared to 2022 driven by lower fuel prices, a one-time charge in 2022 for agreements reached with our labor unions, and volume related costs. These decreases were partially offset by inflation, increased workforce levels, including the impact of increased sick leave benefits provided to our craft professionals, higher casualty costs, and one-time write-offs. Year-to-date, operating expenses increased $95 million driven by inflation; operational challenges in the first half of the year, including additional costs related to weather; increased workforce levels, including the impact of increased sick leave benefits provided to our craft professionals; and the ratification charge for a crew staffing agreement reached in the second quarter of 2023, partially offset by lower 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 third quarter of 2023, expenses decreased 6% compared to 2022 due to a one-time charge in 2022 for agreements reached with our labor unions and lower volume, partially offset by wage inflation and increased employee levels, including the impact of increased sick leave benefits provided to our craft professionals. The year-to-date employee level increase of 4% includes a 5% increase in train, engine, and yard employees to support our training pipeline, address operational challenges in the first half of the year, and cover additional sick leave from the increased sick leave benefits. The additional costs for training, the ratification charge for a crew staffing agreement reached in the second quarter of 2023, and wage inflation, partially offset by the 2022 one-time charge for agreements reached with our labor unions and lower volume drove a 5% increase in compensation and benefits for the year-to-date period of 2023 compared to 2022.

*Fuel –* Fuel includes locomotive fuel and gasoline for highway and non-highway vehicles and heavy equipment. Fuel expense decreased in the third quarter and nine-month periods of 2023 compared to the same periods in 2022 driven by a decrease in locomotive diesel fuel prices and lower gross ton-miles. Fuel consumption rate, computed as gallons of fuel consumed divided by gross ton-miles in thousands, was flat in both periods. Locomotive diesel fuel prices averaged $3.12 and $3.96 per gallon (including taxes and transportation costs) in the third quarter of 2023 and 2022, respectively. Year-to-date, locomotive diesel fuel prices averaged $3.07 compared to $3.64 per gallon in 2023 and 2022, respectively.

*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'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 7% in the third quarter of 2023 compared to 2022 primarily due to inflation and increased locomotive overhauls, partially offset by decreased volume-related drayage cost incurred at one of our subsidiaries. In the year-to-date period of 2023, purchased services and materials increased 9% compared to 2022 primarily due to higher locomotive maintenance expenses due to inflation and a larger active fleet to assist in recovering the network in the first quarter of 2023, partially offset by decreased volume-related drayage cost incurred at one of our subsidiaries.

*Depreciation –* The majority of depreciation relates to road property, including rail, ties, ballast, and other track material. Depreciation expense was up 3% for the third quarter and year-to-date periods of 2023 compared to 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 rent expense, offset by equity income from certain equity method investments. Equipment and other rents expense increased 9% in the third quarter and year-to-date periods of 2023 compared to 2022 driven by inflation and lower equity income, partially offset by lower volume and greater network fluidity.

*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 10% in the third quarter and year-to-date periods of 2023, respectively, compared to the same periods of 2022 driven by higher personal injury expense and one-time write-offs. Higher environmental remediation costs also drove increased costs in the year-to-date period.

### Non-Operating Items

| Millions | Three Months Ended September 30, 2023 | 2022 | Change | Nine Months Ended September 30, 2023 | 2022 | Change |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Other income, net | **$106** | $124 | **(15)%** | **$383** | $334 | **15%** |
| Interest expense | **(334)** | (315) | **6** | **(1,009)** | (938) | **8** |
| Income tax expense | **(421)** | (547) | **(23)** | **(1,322)** | (1,541) | **(14)** |

*Other Income, net –* Other income decreased in the third quarter of 2023 compared to 2022 driven by lower gains from real estate sales. Real estate sales in the third quarter of 2022 include a $35 million gain from a land sale to the Colorado Department of Transportation. Year-to-date, other income increased due to a one-time $107 million real estate transaction, which was partially offset by lower gains from real estate sales. The year-to-date period of 2022 also includes a $79 million gain from a land sale to the Illinois State Toll Highway Authority.

*Interest Expense –* Interest expense increased in the third quarter of 2023 compared to the same periods of 2022 due to an increased weighted-average debt level of $33.0 billion compared to $32.2 billion and a higher effective interest rate of 4.1% in 2023 compared to 3.9% in 2022. Year-to-date, interest expense increased due to an increased weighted-average debt level of $33.3 billion in 2023 compared to $31.8 billion in 2022. The effective interest rate was 4.0% in both periods.

*Income Tax Expense –* Income tax expense decreased in both the third quarter and year-to-date periods of 2023 compared to 2022 driven by lower pre-tax income and deferred tax adjustments. In the third quarter of 2023, the states of Iowa, Kansas, and Arkansas enacted legislation to reduce their corporate income tax rates for future years resulting in a $41 million reduction of our deferred tax expense. In the third quarter of 2022, the states of Iowa, Arkansas, and Idaho enacted legislation to reduce their corporate income tax rates for future years resulting in a $40 million reduction of our deferred tax expense. In both year-to-date periods, the state of Nebraska enacted legislation to reduce its corporate income tax rate for future years resulting in a reduction of our deferred tax expense of $73 million and $55 million, respectively. Our effective tax rates for year-to-date 2023 and 2022 were 21.9% and 22.3%, respectively.

### OTHER OPERATING/PERFORMANCE AND FINANCIAL STATISTICS

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

### Operating/Performance Statistics

Management continuously monitors these key operating metrics to evaluate our operational efficiency in striving to deliver the service product we sold to our customers.

Railroad performance measures are included in the table below:

| Three Months Ended September 30, 2023 |  | 2022 | Change | Nine Months Ended September 30, 2023 | 2022 | Change |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Gross ton-miles (GTMs) (billions) | **208.7** | 215.0 | **(3)%** | **622.9** | 634.5 | **(2)%** |
| Revenue ton-miles (billions) | **103.0** | 107.2 | **(4)** | **308.4** | 317.8 | **(3)** |
| Freight car velocity (daily miles per car) \[a\] | **200** | 191 | **5** | **199** | 192 | **4** |
| Average train speed (miles per hour) \[a\] | **23.6** | 23.7 | **-** | **23.9** | 23.8 | **-** |
| Average terminal dwell time (hours) \[a\] | **23.5** | 24.4 | **(4)** | **23.6** | 24.3 | **(3)** |
| Locomotive productivity (GTMs per horsepower day) | **129** | 124 | **4** | **126** | 126 | **-** |
| Train length (feet) | **9,537** | 9,483 | **1** | **9,337** | 9,376 | **-** |
| Intermodal car trip plan compliance (%) \[b\] | **75** | 62 | **13** **pts** | **75** | 65 | **10** **pts** |
| Manifest/Automotive car trip plan compliance (%) \[b\] | **64** | 58 | **6** **pts** | **63** | 59 | **4** **pts** |
| Workforce productivity (car miles per employee) | **985** | 1,045 | **(6)** | **984** | 1,045 | **(6)** |
| Total employees (average) | **31,624** | 30,841 | **3** | **31,800** | 30,582 | **4** |
| Operating ratio (%) | **63.4** | 59.9 | **3.5** **pts** | **62.8** | 59.9 | **2.9** **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 decreased 3% and 4%, respectively, in the third quarter of 2023 compared to 2022, driven by a 3% decline in carloadings. Year-to-date, gross ton-miles and revenue ton-miles decreased 2% and 3%, respectively, compared to 2022, driven by a 2% decline in carloadings. Changes in commodity mix drove the variances in year-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). Train speed was essentially flat and average terminal dwell time improved in the third quarter and year-to-date periods of 2023 compared to 2022 as last year we experienced congestion across our system. As network fluidity improved, freight car velocity increased. These metrics were negatively impacted by 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 in the third quarter of 2023 compared to the same periods in 2022 driven by improved network fluidity. We stored locomotives in the third quarter of 2023, reducing our active fleet size by 5% since the end of the second quarter of 2023. Year-to-date, locomotive productivity increased as third quarter improvements more than offset increased average active fleet size in the first quarter as resources were deployed to alleviate operational challenges caused by weather.

*Train Length –* Train length is the average maximum train length on a route measured in feet. Our train length increased 1% in the third quarter of 2023 compared to 2022 due to train length improvement initiatives more than offsetting the declines in intermodal shipments, which generally move on longer trains. Year-to-date, our train length declined slightly due to a 2% decrease in carloadings driven by declines in intermodal shipments of 5% in 2023 compared to 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 13 points and 10 points, respectively, in the third quarter and year-to-date periods of 2023 compared to 2022. Manifest/automotive car trip plan compliance improved 6 points and 4 points, respectively, in the third quarter and year-to-date periods of 2023 compared to 2022. Improved network fluidity, as evidenced by faster freight car velocity and lower terminal dwell drove these improvements.

*Workforce Productivity –* Workforce productivity is average daily car miles per employee. Workforce productivity decreased 6% in both the third quarter and year-to-date periods of 2023 as average daily car miles decreased and employees increased compared to 2022. The 3% and 4% increases in employee levels in the third quarter and year-to-date periods, respectively, were driven by an increase in craft professionals. We aggressively hired train, engine, and yard employees to support our training pipeline. In addition, mechanical craft professionals increased year-over-year to maintain our larger active fleet in the first quarter of 2023.

*Operating Ratio –* Operating ratio is our operating expenses reflected as a percentage of operating revenues. Our third quarter of 2023 operating ratio of 63.4% deteriorated 3.5 points compared to 2022 mainly due to the lag impact from fuel prices rising throughout the quarter, inflation, increased workforce levels, negative mix of traffic, higher casualty costs, and other cost increases, partially offset by core pricing gains and the 2022 one-time charge for agreements reached with our labor unions. The year-to-date operating ratio of 62.8% deteriorated 2.9 points compared to 2022 driven by inflation, excess network costs, the ratification charge for a crew staffing agreement reached in the second quarter of 2023, and other cost increases, partially offset by core pricing gains, the 2022 one-time charge for agreements reached with our labor unions, and the year-over-year lag impact from lower fuel prices.

| Debt / Net Income Millions, Except Ratios for the Trailing Twelve Months Ended \[a\] | Sep. 30, 2023 | Dec. 31, 2022 |
| --- | ---: | ---: |
| Debt | **$32,877** | $33,326 |
| Net income | **6,365** | 6,998 |
| Debt / net income | **5.2** | 4.8 |

### Adjusted Debt / Adjusted EBITDA

| Millions, Except Ratios for the Trailing Twelve Months Ended \[a\] | Sep. 30, Dec. 31, 2023 | 2022 |
| --- | ---: | ---: |
| Net income | **$6,365** | $6,998 |
| Add: |  |  |
| Income tax expense | **1,855** | 2,074 |
| Depreciation | **2,298** | 2,246 |
| Interest expense | **1,342** | 1,271 |
| EBITDA | **$11,860** | $12,589 |
| Adjustments: |  |  |
| Other income, net | **(475)** | (426) |
| Interest on operating lease liabilities \[b\] | **56** | 54 |
| Adjusted EBITDA | **$11,441** | $12,217 |
| Debt | **$32,877** | $33,326 |
| Operating lease liabilities | **1,606** | 1,631 |
| Unfunded pension and OPEB, net of tax cost of $0 and $0 \[c\] | **-** | - |
| Adjusted debt | **$34,483** | $34,957 |
| Adjusted debt / adjusted EBITDA | **3.0** | 2.9 |

|  |  |
| --- | --- |
| \[a\] | The trailing twelve months income statement information ended September 30, 2023, is recalculated by taking the twelve months ended December 31, 2022, subtracting the nine months ended September 30, 2022, and adding the nine months ended September 30, 2023. |
| \[b\] | 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 ratio. The tables above provide a reconciliation from net income to adjusted EBITDA, debt to adjusted debt, and debt to net income to adjusted debt to adjusted EBITDA. At September 30, 2023, and December 31, 2022, the incremental borrowing rate on operating leases was 3.5% and 3.3%, respectively.

### LIQUIDITY AND CAPITAL RESOURCES

### Financial Condition

| Cash Flows Millions, for the Nine Months Ended September 30, | 2023 | 2022 |
| --- | ---: | ---: |
| Cash provided by operating activities | **$5,984** | $7,070 |
| Cash used in investing activities | **(2,650)** | (2,559) |
| Cash used in financing activities | **(3,540)** | (4,210) |
| Net change in cash, cash equivalents and restricted cash | **$(206)** | $301 |

### Operating Activities

Cash provided by operating activities decreased in the first nine months of 2023 compared to the same period of 2022 due to lower net income and $449 million of payments related to the settlement of our labor union agreements.

### Investing Activities

Cash used in investing activities increased in the first nine months of 2023 compared to the same period of 2022 driven by lower proceeds from asset sales within other investing activities, net.

The table below details cash capital investments:

| Millions, for the Nine Months Ended September 30, | 2023 | 2022 |
| --- | ---: | ---: |
| Rail and other track material | **$448** | $405 |
| Ties | **367** | 346 |
| Ballast | **152** | 160 |
| Other \[a\] | **509** | 474 |
| Total road infrastructure replacements | **1,476** | 1,385 |
| Line expansion and other capacity projects | **141** | 228 |
| Commercial facilities | **255** | 175 |
| Total capacity and commercial facilities | **396** | 403 |
| Locomotives and freight cars \[b\] | **483** | 608 |
| Technology and other | **227** | 294 |
| Total cash capital investments \[c\] | **$2,582** | $2,690 |

|  |  |
| --- | --- |
| \[a\] | Other includes bridges and tunnels, signals, other road assets, and road work equipment. |
| \[b\] | Locomotives and freight cars include early lease buyouts of $14 million in 2023 and $55 million in 2022. |
| \[c\] | Weather-related damages for the nine months ended September 30, 2023 and 2022, are immaterial. |

### Capital Plan

In 2023, we expect our capital plan to be approximately $3.7 billion, up 9% from 2022, as we make investments to support our growth strategy. We plan to continue to harden our infrastructure, replace older assets, and improve the safety and resiliency of the network. In addition, the plan includes investments in growth-related projects to drive more carloads to the network, certain ramps to efficiently handle volumes from new and existing intermodal customers, continued 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 nine months of 2023 compared to the same period of 2022 driven by a decrease in share repurchases, partially offset by less debt issued.

See Note 13 of the Condensed Consolidated Financial Statements for a description of all our outstanding financing arrangements and significant new borrowings and Note 15 of the Condensed Consolidated Financial Statements for a description of our share repurchase programs.

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

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

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

| Millions, for the Nine Months Ended September 30, | 2023 | 2022 |
| --- | ---: | ---: |
| Cash provided by operating activities | **$5,984** | $7,070 |
| Cash used in investing activities | **(2,650)** | (2,559) |
| Dividends paid | **(2,380)** | (2,362) |
| Free cash flow | **$954** | $2,149 |

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, | 2023 | 2022 |
| --- | ---: | ---: |
| Cash provided by operating activities | **$5,984** | $7,070 |
| Cash used in capital investments | **(2,582)** | (2,690) |
| Total (a) | **$3,402** | $4,380 |
| Net income (b) | **$4,727** | $5,360 |
| Cash flow conversion rate (a/b) | **72%** | 82% |

### 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 third quarter of 2023, we generated $2.1 billion of cash provided by operating activities, paid our quarterly dividend, and repaid $400 million on the Receivables Facility. On September 30, 2023, we had $750 million of cash and cash equivalents, $2.0 billion of credit available under our revolving credit facility, and $800 million undrawn 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. Based on our assessment of the underlying provisions and circumstances of our contractual obligations, other than the risks that we and other similarly situated companies face with respect to the condition of 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 September 30, 2023:

| Contractual Obligations Millions | Total | Oct. 1 through Dec. 31, 2023 | Payments Due by Dec. 31, 2024 | 2025 | 2026 | 2027 | After 2027 |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| Debt \[a\] | $60,991 | $475 | $2,610 | $2,591 | $2,617 | $2,348 | $50,350 |
| Purchase obligations \[b\] | 3,093 | 302 | 1,114 | 889 | 313 | 214 | 261 |
| Operating leases \[c\] | 1,778 | 60 | 362 | 364 | 289 | 232 | 471 |
| Other post retirement benefits \[d\] | 363 | 12 | 40 | 40 | 40 | 39 | 192 |
| Finance lease obligations \[e\] | 185 | 7 | 60 | 42 | 35 | 30 | 11 |
| Total contractual obligations | $66,410 | $856 | $4,186 | $3,926 | $3,294 | $2,863 | $51,285 |

|  |  |
| --- | --- |
| \[a\] | Excludes finance lease obligations of $169 million as well as unamortized discount and deferred issuance costs of ($1,747) million. Includes an interest component of $26,536 million. |
| \[b\] | Purchase obligations include locomotive maintenance contracts; purchase commitments for ties, ballast, and rail; and agreements to purchase other goods and services. |
| \[c\] | Includes leases for locomotives, freight cars, other equipment, and real estate. Includes an interest component of $172 million. |
| \[d\] | Includes estimated other post retirement, medical, and life insurance payments and payments made under the unfunded pension plan for the next ten years. |
| \[e\] | Represents total obligations, including interest component of $16 million. |

### OTHER MATTERS

**Asserted and Unasserted Claims –** See Note 14 to the Condensed Consolidated Financial Statements.

**Indemnities –** See Note 14 to the Condensed Consolidated Financial Statements.

### CAUTIONARY INFORMATION

Certain statements in this 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 as defined by the Securities Act of 1933 and the Securities Exchange Act of 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 public health crises, including pandemics, epidemics, and the outbreak of other contagious diseases, such as the coronavirus and its variant strains (COVID); the Russia-Ukraine and Israeli wars and any impacts 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 fluctuations in volume and 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; expectations as to operational or service 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; expectations as to cost savings, revenue growth, and earnings; the time by which goals, targets, or objectives will be achieved; projections, predictions, expectations, estimates, or forecasts as to our business, financial, and operational results, future economic performance, and planned capital investments; proposed new products and services; estimates of costs relating to environmental remediation and restoration; estimates and expectations regarding tax 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 liquidity; and any other statements 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 variables or unknown or unforeseeable events or circumstances over which management has little or no influence or 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 2022 Annual Report on Form 10-K, filed February 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 should be read in conjunction with, these Risk Factors. Forward-looking statements speak only as of the date 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 with respect to other forward-looking statements.

### AVAILABLE INFORMATION

Our Internet website is www.up.com. We make available free of charge on our website (under the “Investors” caption link) our Annual Reports on Form 10-K; our Quarterly Reports on Form 10-Q; our current reports on Form 8-K; our proxy statements; Forms 3, 4, and 5, filed on behalf of directors and executive officers; and amendments to 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. 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: Secretary, Union Pacific Corporation, 1400 Douglas Street, Omaha, NE 68179.

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

## Market risk

As filed, 157 characters.

There were no material changes to the Quantitative and Qualitative Disclosures About Market Risk previously disclosed in our 2022 Annual Report on Form 10-K.

## Controls and procedures

As filed, 1,612 characters.

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.

## Risk factors

As filed, 451 characters.

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, 2022. 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.

Filed Oct 19, 2023.
Source: SEC EDGAR, the filing index for accession 0001437749-23-028607. Last ingested by Listed: Oct 24, 2026, 14:54 ET. No prices; not investment advice.