UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2020
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
(State or other jurisdiction of
incorporation or organization)
13-2626465
(I.R.S. Employer
Identification No.)
1400 Douglas Street, Omaha, Nebraska
(Address of principal executive offices)
68179
(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
Common Stock (Par Value $2.50 per share)
Trading Symbol
UNP
Name of each exchange on which registered
New York Stock Exchange
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the
Act.
Yes No
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 has filed a report on and attestation to its management’s assessment
of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act
(15 U.S.C. 7262(b)) by the registered accounting firm that prepared or issued its audit report.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).
Yes No
As of June 30, 2020, the aggregate market value of the registrant’s Common Stock held by non-affiliates (using
the New York Stock Exchange closing price) was $113.5 billion.
The number of shares outstanding of the registrant’s Common Stock as of January 29, 2021, was 669,829,363.
Documents Incorporated by Reference – Portions of the registrant’s definitive Proxy Statement for the
Annual Meeting of Shareholders to be held on May 13, 2021, are incorporated by reference into Part III of
this report. The registrant’s Proxy Statement will be filed with the Securities and Exchange Commission
pursuant to Regulation 14A.
UNION PACIFIC CORPORATION
TABLE OF CONTENTS
Chairman’s Letter
Directors and Senior Management
PART I
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
Business
Risk Factors
Unresolved Staff Comments
Properties
Legal Proceedings
Mine Safety Disclosures
Executive Officers of the Registrant and Principal Executive Officers of
Subsidiaries
PART II
Item 5.
Market for the Registrant’s Common Equity, Related Stockholder Matters, and
Issuer Purchases of Equity Securities
Item 6.
Item 7.
Selected Financial Data
Management’s Discussion and Analysis of Financial Condition and Results of
Item 7A.
Item 8.
Item 9.
Item 9A.
Item 9B.
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
Item 15.
Item 16.
Operations
Critical Accounting Policies
Cautionary Information
Quantitative and Qualitative Disclosures About Market Risk
Financial Statements and Supplementary Data
Report of Independent Registered Public Accounting Firm
Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure
Controls and Procedures
Management’s Annual Report on Internal Control Over Financial Reporting
Report of Independent Registered Public Accounting Firm
Other Information
PART III
Directors, Executive Officers, and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters
Certain Relationships and Related Transactions and Director Independence
Principal Accountant Fees and Services
PART IV
Exhibits, Financial Statement Schedules
Form 10-K Summary
Signatures
Certifications
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February 5, 2021
Fellow Shareholders:
2020 was a year that no one anticipated. The COVID-19 pandemic impacted our country, economy, and
Company in unimaginable ways. Our dedicated employees persevered throughout the year to deliver on
our commitments to our customers while maintaining focus on the health and safety of themselves and
their families. Despite this monumental challenge, we took another step on our journey to operational
excellence. In 2020, we are reporting earnings per share of $7.88, which is a 6% decrease versus 2019,
despite volume declines of 7%. Our operating ratio was a record 59.9%, 0.7 points better than last year’s
60.6%. These results were negatively impacted by a one-time $278 million non-cash impairment charge
that reduced earnings per share by $0.31 and increased operating ratio by 140 basis points.
Union Pacific’s goal remains to be the best freight railroad in North America. Our strategy to achieve this
goal is driven by a Proud and Engaged Workforce. Recognizing that a diverse workforce provides access
to the skills and character we need to foster innovation and drive growth, in 2020 we announced long term
goals to increase the representation of women and minorities in our workforce. Our employees are at the
core of everything we do and critical to our success.
To achieve operational excellence, we must provide the Safest and Most Reliable Freight Rail Products
and Services. Our 2020 safety results demonstrate substantial improvement on rail incidents, while we
held the line on personal injuries in a very
challenging environment. We want our
employees to return home safely every day and
to eliminate derailments; our performance in
2020 has us moving in the right direction toward
that goal.
We also made great strides in 2020 to improve
the reliability of our service product despite
the U.S.
tremendous volume swings as
economy first shut down, and then reopened.
Trip plan compliance for both Intermodal and
Manifest/Autos improved 6 points while we also
improved freight car velocity 6%, demonstrating
how we balanced asset utilization with meeting
customer commitments.
took significant steps
Maintaining our focus on Highly Efficient
Operations, we
to
manage our assets better
in 2020 as
Locomotive
and Workforce Productivity
improved 14% and 11% year-over-year,
respectively. Moving freight in a sustainable
manner is tied to efficiency and is a priority for all stakeholders. Every carload of freight we take off the
highway saves fuel, lowers emissions, and reduces highway congestion. In 2020, we announced our
intention to set science-based targets in accordance with the Paris Agreement to reduce our greenhouse
gas emissions. We took steps toward that target, reducing our fuel consumption rate by 2% versus 2019.
Combining an enhanced service product with advancing technology allows us to provide an Industry-
Leading Customer Experience that is enabling us to Secure Appropriate Business. We are the industry
leader in providing our customers with application programming interfaces (API), with over 30 services
launched and more to come. These innovative offerings are allowing customers to integrate their systems
with ours, creating a more seamless customer experience. We are winning in the marketplace with this
approach as we welcomed new customers to our railroad in the intermodal, agricultural, industrial, and
automotive industries, to name a few.
Together, our actions in 2020 position us to generate Best-in-Industry Cash Returns. We paid dividends
in 2020 of $2.6 billion, as we maintained our dividend through the economic downturn. In addition, we
repurchased 22 million Union Pacific shares, decreasing our full-year average share count by 4%.
Combining dividends and share repurchases, Union Pacific returned $6.3 billion to our shareholders in
2020.
3
In 2020, we remained focused on Optimal Investments as we invested $2.84 billion. We completed 36
siding extensions, focused primarily in our Southern region, to invest for growth and productivity.
Additionally, we continue to invest in energy management systems to reduce fuel consumption. Our new
operating model is opening up capacity across our asset base, allowing us to be a more capital efficient
business going forward.
While the economic outlook for 2021 remains uncertain, we are focused on building off our solid foundation
to drive our efficiency and service to new heights. We plan to leverage this enhanced service product to
drive growth and outpace what the markets naturally provide. We are committed to providing value to all of
our stakeholders, understanding that we have a great responsibility to be a positive force in sustainability
efforts. While the ride may have gotten a little bumpy in 2020, our confidence in our ability to drive growth
and excellent returns has never been greater. Thank you for taking this journey with us.
Chairman, President and Chief Executive Officer
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DIRECTORS AND SENIOR MANAGEMENT
Bhavesh V. Patel
Chief Executive Officer
LyondellBasell Industries N.V.
Board Committees: Finance,
Compensation and Benefits
Jose H. Villarreal
Retired Advisor
Akin, Gump, Strauss, Hauer, &
Feld, LLP
Board Committees: Compensation
and Benefits, Corporate Governance
and Nominating
Christopher J. Williams
Chairman
Siebert Williams Shank & Co.
Board Committees: Audit, Finance
BOARD OF DIRECTORS
Andrew H. Card, Jr.
Former White House
Chief of Staff
Board Committees: Compensation
and Benefits, Corporate Governance
and Nominating
Deborah C. Hopkins
Former Chief Executive Officer
Citi Ventures
Former Chief Innovation Officer
Citi
Board Committees: Audit, Finance
William J. DeLaney
Former Chief Executive Officer,
Sysco Corporation
Board Committees: Audit,
Compensation and Benefits (Chair)
Jane H. Lute
President and Chief Executive Officer
SICPA, North America
Board Committees: Audit, Corporate
Governance and Nominating
David B. Dillon
Former Chairman
The Kroger Company
Board Committees: Audit (Chair),
Compensation and Benefits
Lance M. Fritz
Chairman, President, and
Chief Executive Officer
Union Pacific Corporation and
Union Pacific Railroad Company
SENIOR MANAGEMENT*
Michael R. McCarthy
Chairman
McCarthy Group, LLC
Lead Independent Director
Board Committees: Corporate
Governance and Nominating (Chair),
Finance
Thomas F. McLarty III
President
McLarty Associates
Board Committees: Finance (Chair),
Corporate Governance and
Nominating
Lance M. Fritz
Chairman, President, and
Chief Executive Officer
Jennifer L. Hamann
Executive Vice President
and Chief Financial Officer
Craig V. Richardson
Executive Vice President, Chief Legal
Officer, and Corporate Secretary
Prentiss W. Bolin, Jr.
Vice President-External Relations
Bryan L. Clark
Vice President-Tax
Eric J. Gehringer
Executive Vice President-Operations
Gary W. Grosz
Vice President and Treasurer
Rahul Jalali
Senior Vice President-Information
Technologies and Chief Information
Officer
Scott D. Moore
Senior Vice President-Corporate
Relations and
Chief Administrative Officer
Kenny G. Rocker
Executive Vice President-Marketing
and Sales
Todd M. Rynaski
Vice President and Controller
V. James Vena
Senior Advisor
Jon T. Panzer
Senior Vice President-Strategic
Planning
Elizabeth F. Whited
Executive Vice President and
Chief Human Resource Officer
Clark J. Ponthier
Senior Vice President-Supply Chain
and Continuous Improvement
*Senior management are elected officers of both Union Pacific Corporation and Union Pacific Railroad Company,
except Messrs. Gehringer, Ponthier, and Rocker are elected officers for Union Pacific Railroad Company.
.
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Item 1. Business
GENERAL
PART I
Union Pacific Railroad Company is the principal operating company of Union Pacific Corporation. One of
America's most recognized companies, Union Pacific Railroad Company connects 23 states in the western
two-thirds of the country by rail, providing a critical link in the global supply chain. The Railroad’s diversified
business mix includes Bulk, Industrial, and Premium. Union Pacific serves many of the fastest-growing U.S.
population centers, operates from all major West Coast and Gulf Coast ports to eastern gateways, connects
with Canada's rail systems, and is the only railroad serving all six major Mexico gateways. Union Pacific
provides value to its roughly 10,000 customers by delivering products in a safe, reliable, fuel-efficient, and
environmentally responsible manner.
Union Pacific Corporation was incorporated in Utah in 1969 and maintains its principal executive offices at
1400 Douglas Street, Omaha, NE 68179. The telephone number at that address is (402) 544-5000. The
common stock of Union Pacific Corporation is listed on the New York Stock Exchange (NYSE) under the
symbol “UNP”.
For purposes of this report, unless the context otherwise requires, all references herein to “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”.
STRATEGY
Union Pacific’s strategy is predicated on being the best freight railroad in North America, which is
established through safety, service, reliability, and efficiency. That sets the foundation for growth, which,
combined with increasing margins, creates long term enterprise value. We expect to generate growth in
three ways – increasing profitable carloads that fit our network and transportation plan; providing more
products and services to our customers; and increasing the geographic reach of our franchise.
The “how” also is evident. Operational excellence and an engaged workforce with deep market knowledge
and strong customer relationships will result in best-in-class safety, a customer experience that drives
growth, and shareholder returns. The following individual strategic elements work together driving Union
Pacific forward:
Industry-Leading Customer Experience.
Safest and Most Reliable Freight Rail Products and Services.
Highly Efficient Operations.
Secure Appropriate Business.
Best-in-industry Cash Returns.
Optimal Investment.
Proud and Engaged Workforce.
As we transform our railroad into the safest, most reliable, and most efficient in North America, our values
will continue guiding us: Our passion for performance will help us win; our high ethical standards will ensure
we do not win at the expense of any one stakeholder; and our teamwork will make sure we win together.
To assist us in accomplishing our goal of being the best freight railroad in North America, we announced
our efficiency and business growth initiative of G55+0 (grow to an operating ratio of 55 with zero injuries),
which was launched in late 2015. Additionally, beginning in October 2018, we began conversion to precision
scheduled railroading (PSR) in an effort to streamline operations with four principles:
1. Shift the focus of operations from moving trains to moving cars.
2. Minimize car dwell, car classification events, and locomotive power requirements.
3. Utilize general-purpose trains by blending existing train service.
4. Balance train movements to improve the utilization of crews and rail assets.
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We want to move cars faster, reducing the number of times each is touched, resulting in terminal
consolidation opportunities, improved asset utilization, and fewer car classifications, allowing product to get
to the market quicker and more reliably. The end result is we are delivering a better customer experience,
which will enable us to grow our market share.
OPERATIONS
The Railroad, along with its subsidiaries and rail affiliates, is our one reportable operating segment.
Although we provide revenue by commodity group, we analyze the net financial results of the Railroad as
one segment due to the integrated nature of our rail network. Additional information regarding our business
and operations, including revenues, financial information and data, and other information regarding
environmental matters, is presented in Risk Factors, Item 1A; Legal Proceedings, Item 3; Selected Financial
Data, Item 6; Management’s Discussion and Analysis of Financial Condition and Results of Operations,
Item 7; and the Financial Statements and Supplementary Data, Item 8 (which include information regarding
revenues, statements of income, and total assets).
2020 Freight Revenue
Operations – UPRR is a Class I railroad
operating in the U.S. We have 32,313 route
miles, connecting Pacific Coast and Gulf
Coast ports with the Midwest and eastern
U.S. gateways and providing several
corridors to key Mexican gateways. We
serve the Western two-thirds of the country
and maintain coordinated schedules with
other rail carriers to move freight to and from
the Atlantic Coast, the Pacific Coast, the
Southeast, the Southwest, Canada, and
Mexico. Export and import traffic moves
through Gulf Coast and Pacific Coast ports
and across the Mexican and Canadian
borders. In 2020, we generated freight
revenues totaling $18.3 billion from the
following three commodity groups:
Bulk – The Company's Bulk shipments consist of grain and grain products, fertilizer, food and refrigerated,
and coal and renewables. In 2020, this group generated 33% of our freight revenue. We access most major
grain markets, connecting the Midwest and Western U.S. producing areas to export terminals in the Pacific
Northwest and Gulf Coast ports, as well as Mexico. We also serve significant domestic markets, including
grain processors, animal feeders, and ethanol producers in the Midwest and West. Fertilizer movements
originate in the Gulf Coast region, Midwest, western U.S., and Canada (through interline access) for delivery
to major agricultural users in those areas as well as abroad. The Railroad’s network supports the
transportation of coal shipments to independent and regulated power companies and industrial facilities
throughout the U.S. Through interchange gateways and ports, UPRR’s reach extends to eastern U.S.
utilities as well as to Mexico and other international destinations. Coal traffic originating in the Powder River
Basin (PRB) area of Wyoming is the largest segment of the Railroad’s coal business. Renewable shipments
for customers committed to sustainability consist primarily of biomass exports and wind turbine
components.
Industrial – Our extensive network facilitates the movement of numerous commodities between thousands
of origin and destination points throughout North America. The Industrial group consists of several
categories, including construction, industrial chemicals, plastics, forest products, specialized products
(primarily waste, salt, roofing, and government), metals and ores, petroleum, liquid petroleum gases (LPG),
and soda ash. Transportation of these products accounted for 36% of our freight revenue in 2020.
Commercial, residential, and governmental infrastructure investments drive shipments of steel, aggregates,
cement, and wood products. Industrial and light manufacturing plants receive steel, nonferrous materials,
minerals, and other raw materials.
The industrial chemicals market consists of a vast number of chemical compounds that support the
manufacturing of more complex chemicals. Plastics shipments support automotive, housing, and the
durable and disposable consumer goods markets. Forest product shipments include lumber and paper
commodities. Lumber shipments originate primarily in the Pacific Northwest or western Canada and move
7
throughout the U.S. for use in new home construction and repairs and remodeling. Paper shipments
primarily support packaging needs. Oil and gas drilling generates demand for raw steel, finished pipe, stone,
and drilling fluid commodities. The Company’s petroleum and LPG shipments are primarily impacted by
refinery utilization rates, regional crude pricing differentials, pipeline capacity, and the use of asphalt for
road programs. Soda ash originates in southwestern Wyoming and California, destined for chemical and
glass producing markets in North America and abroad.
Premium – In 2020, Premium shipments generated 31% of Union Pacific’s total freight revenue. Premium
includes finished automobiles, automotive parts, and merchandise in intermodal containers, both domestic
and international. International business consists of import and export traffic moving in 20 or 40-foot
shipping containers, that mainly pass through West Coast ports served by UP’s extensive terminal network.
Domestic business includes container and trailer traffic picked up and delivered within North America for
intermodal marketing companies (primarily shipper agents and logistics companies) as well as truckload
carriers.
We are the largest automotive carrier west of the Mississippi River and operate or access 38 vehicle
distribution centers. The Railroad’s extensive franchise serves five vehicle assembly plants and connects
to West Coast ports, all six major Mexico gateways, and the Port of Houston to accommodate both import
and export shipments. In addition to transporting finished vehicles, UPRR provides expedited handling of
automotive parts in both boxcars and intermodal containers destined for Mexico, the U.S., and Canada.
Seasonality – Some of the commodities we carry have peak shipping seasons, reflecting either or both the
nature of the commodity and the demand cycle for the commodity (such as certain agricultural and food
products that have specific growing and harvesting seasons). The peak shipping seasons for these
commodities can vary considerably each year depending upon various factors, including the strength of
domestic and international economies and currencies and the strength of harvests and market prices for
agricultural products.
Proud & Engaged Workforce – We recruit and develop talented individuals dedicated to our mission of
service and who are passionate about performing to the best of their abilities while working as one team.
We recognize and value that people come from all backgrounds and walks of life, and we value diversity.
Union Pacific wants employees from all groups to launch and grow their career within the Company.
Attracting, acquiring, and maintaining a diverse workforce provides access to the skills and character we
need to foster innovative ideas and drive optimal business growth. Drawing on different experiences and
expertise is critical for strategic decision-making, problem-solving, leadership development, and creativity.
Union Pacific’s commitment – today and for the long run, is to further improve and strengthen performance
through an inclusive workforce that reflects the diverse markets and communities we serve. Recognizing
we still have work to do, we continue to focus on building an inclusive culture and a talented workforce and
marketplace with a goal to reach 40% minority and 11% female representation in total for the Company by
2030. As of December 31, 2020, workforce representation of minorities and females was approximately
30% and 6%, respectively.
Safety is Union Pacific’s first priority. We continue to improve technology, enhance processes, and foster a
culture focused on operating safely as well as remaining focused on identifying and managing risks and
training our employees. Our success is measured by our personal injury rate (the number of reportable
injuries for every 200,000 employee-hours worked), and our equipment incident rate (the number of
reportable equipment incidents per million train miles). We provide both measures to the Federal Railroad
Administration (FRA). Personal injuries are defined as on duty incidents or occupational illnesses that
require employees to lose time away from work, modify their normal duties, or receive certain types of
medical treatment. Equipment incidents are defined as any occurrence that causes damage to assets
above the monetary reporting threshold regardless of ownership ($10,700 for 2020 and $11,200 for 2021).
Our goal is to have every employee return home safely every day. Unfortunately, our 2020 personal injury
rate of 0.90 and equipment incident rate of 3.54 illustrates that we have not met our ultimate goal of an
incident free environment. Our 2020 personal injury rate was flat and our equipment incident rate improved
17% versus 2019. (See further discussion in Management’s Discussion and Analysis of Financial Condition
and Results of Operations, Item 7, of this report.)
Providing employees with fulfilling, family-supporting careers is important to us. We offer competitive
compensation to our employees and leadership. Our Board of Directors evaluates our compensation plans
8
and reviews recommendations from the Compensation and Benefits Committee. The median annual
compensation for all our employees who were employed as of December 31, 2020, was $77,778 (excluding
the CEO).
Approximately 83% of our full-time employees are represented by 13 major rail unions. Pursuant to the
Railway Labor Act (RLA), our collective bargaining agreements are subject to modification every five years.
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. Contract negotiations historically continue for an extended
period of time, and work stoppages during negotiations are rare (see “Strikes or Work Stoppages Could
Adversely Affect Our Operations” in the Risk Factors in Item 1A of this report).
Railroad Security – Our security efforts consist of a wide variety of measures, including employee training,
engagement with our customers, training of emergency responders, and partnerships with numerous
federal, state, and local government agencies. While federal law requires us to protect the confidentiality of
our security plans designed to safeguard against terrorism and other security incidents, the following
provides a general overview of our security initiatives.
UPRR Security Measures – We maintain a comprehensive security plan designed to both deter and
respond to any potential or actual threats as they arise. The plan includes four levels of alert status, each
with its own set of countermeasures. We employ our own police force, consisting of commissioned and
highly-trained officers. The police are certified state law enforcement officers with investigative and arrest
powers. The Union Pacific Police Department has achieved accreditation under the Commission on
Accreditation for Law Enforcement Agencies, Inc. (CALEA) for complying with the highest law enforcement
standards. Our employees also undergo recurrent security and preparedness training as well as federally-
mandated hazardous materials and security training. We regularly review the sufficiency of our employee
training programs. We maintain the capability to move critical operations to back-up facilities in different
locations.
We operate an emergency response management center 24 hours a day. The center receives reports of
emergencies, dangerous or potentially dangerous conditions, and other safety and security issues from our
employees, the public, law enforcement, and other government officials. In cooperation with government
officials, we monitor both threats and public events, and, as necessary, we may alter rail traffic flow at times
of concern to minimize risk to communities and our operations. We comply with the hazardous materials
routing rules and other requirements imposed by federal law. We also design our operating plan to expedite
the movement of hazardous material shipments to minimize the time rail cars remain idle at yards and
terminals located in or near major population centers. Additionally, in compliance with Transportation
Security Agency regulations, we deployed information systems and instructed employees in tracking and
documenting the handoff of Rail Security Sensitive Materials with customers and interchange partners.
We also have established a number of our own innovative safety and security-oriented initiatives ranging
from various investments in technology to The Officer on Train program, which provides local law
enforcement officers with the opportunity to ride with train crews to enhance their understanding of railroad
operations and risks. Our staff of information security professionals continually assesses cyber security
risks and implements mitigation programs that evolve with the changing technology threat environment. To
date, we have not experienced any material disruption of our operations due to a cyber threat or attack
directed at us. We also evaluated details regarding the SolarWinds supply chain attack, and do not believe
our systems were affected.
Cooperation with Federal, State, and Local Government Agencies – We work closely on physical and cyber
security initiatives with government agencies, including the U.S. Department of Transportation (DOT), the
Department of Homeland Security (DHS), as well as local police departments, fire departments, and other
first responders. In conjunction with the Association of American Railroads (AAR), we sponsor Ask Rail, a
mobile application which provides first responders with secure links to electronic information, including
commodity and emergency response information required by emergency personnel to respond to accidents
and other situations. We also participate in the National Joint Terrorism Task Force, a multi-agency effort
established by the U.S. Department of Justice and the Federal Bureau of Investigation to combat and
prevent terrorism.
We work with the Coast Guard, U.S. Customs and Border Protection (CBP), and the Military Transport
Management Command, which monitor shipments entering the UPRR rail network at U.S. border crossings
and ports. We were the first railroad in the U.S. to be named a partner in CBP’s Customs-Trade Partnership
9
Against Terrorism, a partnership designed to develop, enhance, and maintain effective security processes
throughout the global supply chain.
Cooperation with Customers and Trade Associations – Through TransCAER (Transportation Community
Awareness and Emergency Response), we work with the AAR, the American Chemistry Council, the
American Petroleum Institute, and other chemical trade groups to provide communities with preparedness
tools, including the training of emergency responders. In cooperation with the FRA and other interested
groups, we are also working to develop additional improvements to tank car design that will further limit the
risk of releases of hazardous materials.
Competition – see “We Face Competition from Other Railroads and Other Transportation Providers” in the
Risk Factors in Item 1A of this report.
Key Suppliers – see “We Are Dependent on Certain Key Suppliers of Locomotives and Rail” in the Risk
Factors in Item 1A of this report.
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 our
directors and certain 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 Securities and Exchange Commission (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. 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 NYSE 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 7, 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.
GOVERNMENTAL AND ENVIRONMENTAL REGULATION
Governmental Regulation – Our operations are subject to a variety of federal, state, and local regulations,
generally applicable to all businesses. (See also the discussion of certain regulatory proceedings in Legal
Proceedings, Item 3.)
The operations of the Railroad are also subject to the regulatory jurisdiction of the Surface Transportation
Board (STB). The STB has jurisdiction over rates charged on certain regulated rail traffic; common carrier
service of regulated traffic; freight car compensation; transfer, extension, or abandonment of rail lines; and
acquisition of control of rail common carriers. The STB continues its efforts to explore expanding rail
regulation and is reviewing proposed rulemaking in various areas, including reciprocal switching,
commodity exemptions, and expanding and easing procedures for smaller rate complaints. The STB also
continues to develop a methodology for determining railroad revenue adequacy and the possible use of a
revenue adequacy constraint in regulating railroad rates. The STB posts quarterly reports on rate
reasonableness cases and maintains a database on service complaints, and has the authority to initiate
investigations, among other things.
The operations of the Railroad also are subject to the regulations of the FRA and other federal and state
agencies. In 2010, the FRA issued initial rules governing installation of Positive Train Control (PTC). PTC
is a safety technology intended to prevent certain accidents caused by human error, such as train-to-train
collisions, derailments caused by overspeed, movement of a train through a misaligned switch, and
unauthorized movement of trains into work zones. The Surface Transportation Extension Act of 2015
amended the Rail Safety Improvement Act to require implementation of PTC by the end of 2018, which was
extended to December 31, 2020. On December 10, 2018, we received FRA approval for an alternative
schedule to implement, test, and refine our PTC system during 2019-2020. As of December 31, 2020, PTC
10
has been implemented and installed on 100 percent of our required rail lines, including required passenger
train routes, and interoperability has been established with all other PTC host and tenant railroads. Through
2020, we have invested approximately $2.9 billion in the implementation and ongoing development of PTC.
We are now moving to further leverage the PTC system through development and implementation of new
operating technologies, such as fuel and in-train forces management systems.
DOT, the Occupational Safety and Health Administration, the Pipeline and Hazardous Materials Safety
Administration, and DHS, along with other federal agencies, have jurisdiction over certain aspects of safety,
movement of hazardous materials and hazardous waste, emissions requirements, and equipment
standards. Additionally, various state and local agencies have jurisdiction over disposal of hazardous waste
and seek to regulate movement of hazardous materials in ways not preempted by federal law.
Environmental Regulation – We are subject to extensive federal and state environmental statutes and
regulations pertaining to public health and the environment. The statutes and regulations are administered
and monitored by the Environmental Protection Agency (EPA) and by various state environmental
agencies. The primary laws affecting our operations are the Resource Conservation and Recovery Act,
regulating the management and disposal of solid and hazardous wastes; the Comprehensive
Environmental Response, Compensation, and Liability Act, regulating the cleanup of contaminated
properties; the Clean Air Act, regulating air emissions; and the Clean Water Act, regulating waste water
discharges.
Information concerning environmental claims and contingencies and estimated remediation costs is set
forth in Management’s Discussion and Analysis of Financial Condition and Results of Operations – Critical
Accounting Policies – Environmental, Item 7, and Note 17 to the Consolidated Financial Statements in Item
8, Financial Statements and Supplementary Data.
Item 1A. Risk Factors
The following discussion addresses significant factors, events, and uncertainties that make an investment
in our securities risky and provides important information for the understanding of our “forward-looking
statements,” which are discussed immediately preceding Item 7A of this Form 10-K and elsewhere. The
risk factors set forth in this Item 1A should be read in conjunction with the rest of the information included
in this report, including Management’s Discussion and Analysis of Financial Condition and Results of
Operations, Item 7, and Financial Statements and Supplementary Data, Item 8.
We urge you to consider carefully the factors described below and the risks that they present for our
operations as well as the risks addressed in other reports and materials that we file with the SEC and the
other information included or incorporated by reference in this Form 10-K. When the factors, events, and
contingencies described below or elsewhere in this Form 10-K materialize, our business, reputation,
financial condition, results of operations, cash flows, or prospects can be materially adversely affected. In
such case, the trading price of our common stock could decline and you could lose part or all of your
investment. Additional risks and uncertainties not currently known to us or that we currently deem
immaterial may also materially adversely affect our business, reputation, financial condition, results of
operations, cash flows, and prospects.
Strategic and Operational Risks
We Must Manage Fluctuating Demand for Our Services and Network Capacity – If there are significant
reductions in demand for rail services with respect to one or more commodities or changes in consumer
preferences that affect the businesses of our customers, we may experience increased costs associated
with resizing our operations, including higher unit operating costs and costs for the storage of locomotives,
rail cars, and other equipment; work-force adjustments; and other related activities, which could have a
material adverse effect on our results of operations, financial condition, and liquidity. If there is significant
demand for our services that exceeds the designed capacity of our network, we may experience network
difficulties, including congestion and reduced velocity, that could compromise the level of service we provide
to our customers. This level of demand may also compound the impact of weather and weather-related
events on our operations and velocity. Although we continue to improve our transportation plan, add
capacity, improve operations at our yards and other facilities, and improve our ability to address surges in
demand for any reason with adequate resources, we cannot be sure that these measures will fully or
adequately address any service shortcomings resulting from demand exceeding our planned capacity. We
may experience other operational or service difficulties related to network capacity, dramatic and unplanned
fluctuations in our customers’ demand for rail service with respect to one or more commodities or operating
11
regions, or other events that could negatively impact our operational efficiency, which could all have a
material adverse effect on our results of operations, financial condition, and liquidity.
We Transport Hazardous Materials – We transport certain hazardous materials and other materials,
including crude oil, ethanol, and toxic inhalation hazard (TIH) materials, such as chlorine, that pose certain
risks in the event of a release or combustion. Additionally, U.S. laws impose common carrier obligations on
railroads that require us to transport certain hazardous materials regardless of risk or potential exposure to
loss. A rail accident or other incident or accident on our network, at our facilities, or at the facilities of our
customers involving the release or combustion of hazardous materials could involve significant costs and
claims for personal injury, property damage, and environmental penalties and remediation in excess of our
insurance coverage for these risks, which could have a material adverse effect on our results of operations,
financial condition, and liquidity.
We Rely on Technology and Technology Improvements in Our Business Operations – We rely on
information technology in all aspects of our business, including technology systems operated by us or under
control of third parties. If we do not have sufficient capital to acquire, develop, or implement new technology
or maintain or upgrade current systems, such as PTC or the latest version of our transportation control
systems, we may suffer a competitive disadvantage within the rail industry and with companies providing
other modes of transportation service, which could have a material adverse effect on our results of
operations, financial condition, and liquidity.
We Are Subject to Cybersecurity Risks – We rely on information technology in all aspects of our business,
including technology systems operated by us or under control of third parties. Although we devote
significant resources to protect our technology systems and proprietary data, we have experienced and will
continue to experience varying degrees of cyber incidents in the normal course of business. While there
can be no assurance that the systems we have designed to prevent or limit the effects of cyber incidents
or attacks will be sufficient to prevent or detect such incidents or attacks, or to avoid a material adverse
impact on our systems after such incidents or attacks do occur, we are continually evaluating attackers’
techniques and tactics, and we are diligent in our monitoring, training, planning, and prevention. However,
due to the rising rates and increasing sophistication of cyber-attacks, an increasingly complex IT supply
chain, and the nature of zero-day exploits, we may be unable to anticipate or implement adequate
preventative measures to prevent a security breach, including by ransomware, human error, or other cyber-
attack methods, from disrupting our systems or the systems of third parties. A successful cyber-attack may
result in significant service interruption; safety failure; other operational difficulties; unauthorized access to
(or the loss of access to) competitively sensitive, confidential, or other critical data or systems; loss of
customers; financial losses; regulatory fines; and misuse or corruption of critical data and proprietary
information, which could all have a material adverse impact on our results of operations, financial condition,
and liquidity. We also may experience security breaches that could remain undetected for an extended
period and, therefore, have a greater impact on the services we offer.
Severe Weather Could Result in Significant Business Interruptions and Expenditures – As a railroad with a
vast network, we are exposed to severe weather conditions and other natural phenomena, including
earthquakes, hurricanes, fires, floods, mudslides or landslides, extreme temperatures, avalanches, and
significant precipitation. Line outages and other interruptions caused by these conditions can adversely
affect our entire rail network, potentially negatively affecting revenue, costs, and liabilities, despite efforts
we undertake to plan for these events. Our revenues can also be adversely affected by severe weather that
causes damage and disruptions to our customers. These impacts caused by severe weather could have a
material adverse effect on our results of operations, financial condition, and liquidity.
A Significant Portion of Our Revenue Involves Transportation of Commodities to and from International
Markets – Although revenues from our operations are attributable to transportation services provided in the
U.S., a significant portion of our revenues involves the transportation of commodities to and from
international markets, including Mexico, Canada, and Southeast Asia, by various carriers and, at times,
various modes of transportation. Significant and sustained interruptions of trade with Mexico, Canada, or
countries in Southeast Asia, including China, could adversely affect customers and other entities that,
directly or indirectly, purchase or rely on rail transportation services in the U.S. as part of their operations,
and any such interruptions could have a material adverse effect on our results of operations, financial
condition, and liquidity. Any one or more of the following could cause a significant and sustained interruption
of trade with Mexico, Canada, or countries in Southeast Asia: (a) a deterioration of security for international
trade and businesses; (b) the adverse impact of new laws, rules, and regulations or the interpretation of
laws, rules, and regulations by government entities, courts, or regulatory bodies, including the United
States-Mexico-Canada Agreement (USMCA) and a “Phase One” trade agreement with China; (c) actions
12
of taxing authorities that affect our customers doing business in foreign countries; (d) any significant
adverse economic developments, such as extended periods of high inflation, material disruptions in the
banking sector or in the capital markets of these foreign countries, and significant changes in the valuation
of the currencies of these foreign countries that could materially affect the cost or value of imports or
exports; (e) shifts in patterns of international trade that adversely affect import and export markets; (f) a
material reduction in foreign direct investment in these countries; and (g) public health crises, including the
outbreak of pandemic or contagious disease, such as the novel coronavirus and its variant strains.
We Are Dependent on Certain Key Suppliers of Locomotives and Rail – Due to the capital intensive nature
and sophistication of locomotive equipment, parts, and maintenance, potential new suppliers face high
barriers to entry. Therefore, if one of the domestic suppliers of high horsepower locomotives discontinues
manufacturing locomotives, supplying parts or providing maintenance for any reason, including bankruptcy
or insolvency, we could experience significant cost increases and reduced availability of the locomotives
that are necessary for our operations. Additionally, for a high percentage of our rail purchases, we utilize
two steel producers (one domestic and one international) that meet our specifications. Rail is critical to our
operations for rail replacement programs, maintenance, and for adding additional network capacity, new
rail and storage yards, and expansions of existing facilities. This industry similarly has high barriers to entry,
and if one of these suppliers discontinues operations for any reason, including bankruptcy or insolvency,
we could experience both significant cost increases for rail purchases and difficulty obtaining sufficient rail
for maintenance and other projects. Changes to trade agreements or policies that result in increased tariffs
on goods imported into the United States could also result in significant cost increases for rail purchases
and difficulty obtaining sufficient rail.
Human Capital Risks
Strikes or Work Stoppages Could Adversely Affect Our Operations – The U.S. Class I railroads are party
to collective bargaining agreements with various labor unions. The majority of our employees belong to
labor unions and are subject to these agreements. Disputes with regard to the terms of these agreements
or our potential inability to negotiate acceptable contracts with these unions could result in, among other
things, strikes, work stoppages, slowdowns, or lockouts, which could cause a significant disruption of our
operations and have a material adverse effect on our results of operations, financial condition, and liquidity.
Additionally, future national labor agreements, or renegotiation of labor agreements or provisions of labor
agreements, could compromise our service reliability or significantly increase our costs for health care,
wages, and other benefits, which could have a material adverse impact on our results of operations,
lockouts at
financial condition, and
loading/unloading facilities, ports, or other transport access points could compromise our service reliability
and have a material adverse impact on our results of operations, financial condition, and liquidity. Labor
disputes, work stoppages, slowdowns or lockouts by employees of our customers or our suppliers could
compromise our service reliability and have a material adverse impact on our results of operations, financial
condition, and liquidity.
liquidity. Labor disputes, work stoppages, slowdowns or
The Availability of Qualified Personnel Could Adversely Affect Our Operations – Changes in demographics,
training requirements, and the availability of qualified personnel, including the effects on availability from
pandemic illnesses or restrictions, could negatively affect our ability to meet demand for rail service.
Unpredictable increases in demand for rail services and a lack of network fluidity may exacerbate such
risks, which could have a negative impact on our operational efficiency and otherwise have a material
adverse effect on our results of operations, financial condition, and liquidity.
Legal and Regulatory Risks
We Are Subject to Significant Governmental Regulation – We are subject to governmental regulation by a
significant number of federal, state, and local authorities covering a variety of health, safety, labor,
environmental, economic (as discussed below), tax, and other matters. Many laws and regulations require
us to obtain and maintain various licenses, permits, and other authorizations, and we cannot guarantee that
we will continue to be able to do so. Our failure to comply with applicable laws and regulations could have
a material adverse effect on us. Governments or regulators may change the legislative or regulatory
frameworks within which we operate without providing us any recourse to address any adverse effects on
our business, including, without limitation, regulatory determinations or rules regarding dispute resolution,
increasing the amount of our traffic subject to common carrier regulation, business relationships with other
railroads, calculation of our cost of capital or other inputs relevant to computing our revenue adequacy, the
prices we charge, changes in tax rates, enactment of new tax laws, and revision in tax regulations.
Significant legislative activity in Congress or regulatory activity by the STB could expand regulation of
13
railroad operations and prices for rail services, which could reduce capital spending on our rail network,
facilities, and equipment, and have a material adverse effect on our results of operations, financial condition,
and liquidity. For example, enacted federal legislation mandated the implementation of PTC technology by
December 31, 2020, which we invested approximately $2.9 billion to develop. Additionally, one or more
consolidations of Class I railroads also could lead to increased regulation of the rail industry.
We May Be Subject to Various Claims and Lawsuits That Could Result in Significant Expenditures – As a
railroad with operations in densely populated urban areas and a vast rail network, we are exposed to the
potential for various claims and litigation related to labor and employment, personal injury, property
damage, environmental liability, and other matters. Any material changes to litigation trends or a
catastrophic rail accident or series of accidents involving any or all of property damage, personal injury, and
environmental liability that exceed our insurance coverage for such risks could have a material adverse
effect on our results of operations, financial condition, and liquidity.
We Are Subject to Significant Environmental Laws and Regulations – Due to the nature of the railroad
business, our operations are subject to extensive federal, state, and local environmental laws and
regulations concerning, among other things, emissions to the air; discharges to waters; handling, storage,
transportation, and disposal of waste and other materials; and hazardous material or petroleum releases.
We generate and transport hazardous and non-hazardous waste in our operations. Environmental liability
can extend to previously owned or operated properties, leased properties, properties owned by third parties,
as well as properties we currently own. Environmental liabilities have arisen and may also arise from claims
asserted by adjacent landowners or other third parties in toxic tort litigation. We have been and may be
subject to allegations or findings that we have violated, or are strictly liable under, these laws or regulations.
We currently have certain obligations at existing sites for investigation, remediation, and monitoring, and
we likely will have obligations at other sites in the future. Liabilities for these obligations affect our estimate
based on our experience and, as necessary, the advice and assistance of our consultants. However, actual
costs may vary from our estimates due to any or all of several factors, including changes to environmental
laws or interpretations of such laws, technological changes affecting investigations and remediation, the
participation and financial viability of other parties responsible for any such liability, and the corrective action
or change to corrective actions required to remediate any existing or future sites. We could incur significant
costs as a result of any of the foregoing, and we may be required to incur significant expenses to investigate
and remediate known, unknown, or future environmental contamination, which could have a material
adverse effect on our results of operations, financial condition, and liquidity.
Macroeconomic and Industry Risks
We Face Competition from Other Railroads and Other Transportation Providers – We face competition from
other railroads, motor carriers, ships, barges, and pipelines. Our main railroad competitor is Burlington
Northern Santa Fe LLC. Its primary subsidiary, BNSF Railway Company (BNSF), operates parallel routes
in many of our main traffic corridors. In addition, we operate in corridors served by other railroads and motor
carriers. Motor carrier competition exists for all three of our commodity groups (excluding most coal
shipments). Because of the proximity of our routes to major inland and Gulf Coast waterways, barges can
be particularly competitive, especially for grain and bulk commodities in certain areas where we operate. In
addition to price competition, we face competition with respect to transit times, quality, and reliability of
service from motor carriers and other railroads. Motor carriers in particular can have an advantage over
railroads with respect to transit times and timeliness of service. However, railroads are much more fuel-
efficient than trucks, which reduces the impact of transporting goods on the environment and public
infrastructure, and we have been making efforts to convert truck traffic to rail. Additionally, we must build or
acquire and maintain our rail system, while trucks, barges, and maritime operators are able to use public
rights-of-way maintained by public entities. Any of the following could also affect the competitiveness of our
transportation services for some or all of our commodities, which could have a material adverse effect on
our results of operations, financial condition, and liquidity: (i) improvements or expenditures materially
increasing the quality or reducing the costs of these alternative modes of transportation, such as
autonomous or more fuel efficient trucks, (ii) legislation that eliminates or significantly increases the size or
weight limitations applied to motor carriers, or (iii) legislation or regulatory changes that impose operating
restrictions on railroads or that adversely affect the profitability of some or all railroad traffic. Many
movements face product or geographic competition where our customers can use different products (e.g.
natural gas instead of coal, sorghum instead of corn) or commodities from different locations (e.g. grain
from states or countries that we do not serve, crude oil from different regions). Sourcing different
commodities or different locations allows shippers to substitute different carriers and such competition may
reduce our volume or constrain prices. Additionally, any future consolidation of the rail industry could
materially affect our competitive environment.
14
We May Be Affected by Climate Change and Market or Regulatory Responses to Climate Change – Climate
change, including the impact of global warming, could have a material adverse effect on our results of
operations, financial condition, and liquidity. Restrictions, caps, taxes, or other controls on emissions of
greenhouse gasses, including diesel exhaust, could significantly increase our operating costs. Restrictions
on emissions could also affect our customers that (a) use commodities that we carry to produce energy, (b)
use significant amounts of energy in producing or delivering the commodities we carry, or (c) manufacture
or produce goods that consume significant amounts of energy or burn fossil fuels, including chemical
producers, farmers and food producers, and automakers and other manufacturers. Significant cost
increases, government regulation, or changes of consumer preferences for goods or services relating to
alternative sources of energy or emissions reductions could materially affect the markets for the
commodities we carry, which in turn could have a material adverse effect on our results of operations,
financial condition, and liquidity. Government incentives encouraging the use of alternative sources of
energy also could affect certain of our customers and the markets for certain of the commodities we carry
in an unpredictable manner that could alter our traffic patterns, including, for example, increasing royalties
charged to producers of PRB coal by the U.S. Department of Interior and the impacts of ethanol incentives
on farming and ethanol producers. We could face increased costs related to defending and resolving legal
claims and other litigation related to climate change and the alleged impact of our operations on climate
change. Violent weather caused by climate change, including earthquakes, hurricanes, fires, floods,
extreme temperatures, avalanches, and significant precipitation could cause line outages and other
interruptions to our infrastructure. Any of these factors, individually or in operation with one or more of the
other factors, or other unforeseen impacts of climate change could reduce the amount of traffic we handle
and have a material adverse effect on our results of operations, financial condition, and liquidity.
Our business, financial condition, and results of operations have been adversely affected and in the future
could be materially adversely affected by pandemics – Our business, financial condition, and results of
operations have been adversely affected by the coronavirus (COVID-19) pandemic and may be affected
by other pandemics. COVID-19 has caused, and is expected to continue to cause, a global slowdown of
economic activity (including the decrease in demand for a broad variety of goods), disruptions in global
supply chains, and significant volatility and disruption of financial markets and that also has adversely
affected workforces, customers, and regional and local economies. Other future pandemics may cause
these same or similar consequences. Because the severity, magnitude, and duration of the COVID-19
pandemic and its economic consequences are uncertain, rapidly changing, and difficult to predict, the
impact on our business and financial condition remains uncertain and difficult to predict. The ultimate impact
of the COVID-19 pandemic on our results of operations and financial condition remains uncertain and
depends on numerous evolving factors, which we may not be able to effectively respond to and are not
entirely within our control. These factors also may be of importance for other pandemics, including, but not
limited to: governmental, business, and individuals’ actions that have been and continue to be taken in
response to a global pandemic (including restrictions on travel and transport, workforce pressures, and
social distancing, and shelter-in-place orders); the effect of a pandemic on economic activity and actions
taken in response; the effect on our customers and their demand for our services; the effect of a pandemic
on the credit-worthiness of our customers; national or global supply chain challenges or disruption; facility
closures; commodity cost volatility; general economic uncertainty in key global markets and financial market
volatility; global economic conditions and levels of economic growth; and the pace of recovery as the
pandemic subsides as well as response to a potential reoccurrence. Further, a pandemic, and the volatile
regional and global economic conditions stemming from a pandemic, could also precipitate and aggravate
the other risk factors that we identify, which could materially adversely affect our business, financial
condition, results of operations (including revenues and profitability), and/or stock price. Additionally, a
pandemic also may affect our operating and financial results in a manner that is not presently known to us
or that we currently do not consider to present significant risks to our operations.
Financial Risks
We Are Affected By Fluctuating Fuel Prices – Fuel costs constitute a significant portion of our transportation
expenses. Diesel fuel prices can be subject to dramatic fluctuations, and significant price increases could
have a material adverse effect on our operating results. Although we currently are able to recover a
significant amount of our fuel expenses from our customers through revenue from fuel surcharges, we
cannot be certain that we will always be able to mitigate rising or elevated fuel costs through our fuel
surcharges. Additionally, future market conditions or legislative or regulatory activities could adversely
affect our ability to apply fuel surcharges or adequately recover increased fuel costs through fuel
surcharges. As fuel prices fluctuate, our fuel surcharge programs trail such fluctuations in fuel price by
approximately two months, and may be a significant source of quarter-over-quarter and year-over-year
15
volatility, particularly in periods of rapidly changing prices. International, political, and economic factors,
events and conditions affect the volatility of fuel prices and supplies. Weather can also affect fuel supplies
and limit domestic refining capacity. A severe shortage of, or disruption to, domestic fuel supplies could
have a material adverse effect on our results of operations, financial condition, and liquidity. Alternatively,
lower fuel prices could have a positive impact on the economy by increasing consumer discretionary
spending that potentially could increase demand for various consumer products we transport. However,
lower fuel prices could have a negative impact on other commodities we transport, such as coal and
domestic drilling-related shipments, which could have a material adverse effect on our results of operations,
financial condition, and liquidity.
We Rely on Capital Markets – Due to the significant capital expenditures required to operate and maintain
a safe and efficient railroad, we rely on the capital markets to provide some of our capital requirements. We
utilize long-term debt instruments, bank financing, and commercial paper from time-to-time, and we pledge
certain of our receivables. Significant instability or disruptions of the capital markets, including the credit
markets, or deterioration of our financial condition due to internal or external factors could restrict or prohibit
our access to, and significantly increase the cost of, commercial paper and other financing sources,
including bank credit facilities and the issuance of long-term debt, including corporate bonds. A significant
deterioration of our financial condition could result in a reduction of our credit rating to below investment
grade, which could restrict or, at certain credit levels below investment grade, may prohibit us from utilizing
our current receivables securitization facility. This may also limit our access to external sources of capital
and significantly increase the costs of short and long-term debt financing.
General Risk Factors
We Are Affected by General Economic Conditions – Prolonged, severe adverse domestic and global
economic conditions or disruptions of financial and credit markets may affect the producers and consumers
of the commodities we carry and may have a material adverse effect on our access to liquidity, results of
operations, and financial condition.
We May Be Affected by Acts of Terrorism, War, or Risk of War – Our rail lines, facilities, and equipment,
including rail cars carrying hazardous materials, could be direct targets or indirect casualties of terrorist
attacks. Terrorist attacks, or other similar events, any government response thereto, and war or risk of war
may adversely affect our results of operations, financial condition, and liquidity. In addition, insurance
premiums for some or all of our current coverages could increase dramatically, or certain coverages may
not be available to us in the future.
Item 1B. Unresolved Staff Comments
None.
16
Item 2. Properties
We employ a variety of assets in the management and operation of our rail business. Our rail network
covers 23 states in the western two-thirds of the U.S.
TRACK
Our rail network includes 32,313 route miles. We own 26,069 miles and operate on the remainder pursuant
to trackage rights or leases. The following table describes track miles at December 31, 2020 and 2019:
Route
Other main line
Passing lines and turnouts
Switching and classification yard lines
Total miles
HEADQUARTERS BUILDING
2020
32,313
7,097
3,382
9,001
51,793
2019
32,340
7,095
3,301
9,007
51,743
We own our headquarters building in Omaha, Nebraska. The facility has 1.2 million square feet of space
that can accommodate approximately 4,000 employees.
HARRIMAN DISPATCHING CENTER
The Harriman Dispatching Center (HDC), located in Omaha, Nebraska, is our primary dispatching facility.
It is linked to regional dispatching and locomotive management facilities at various locations along our
network. HDC employees coordinate moves of locomotives and trains, manage traffic and train crews on
17
our network, and coordinate interchanges with other railroads. Approximately 700 employees currently work
on-site in the facility. In the event of a disruption of operations at HDC due to a cyber-attack, flooding or
severe weather, pandemic outbreak, or other event, we maintain the capability to conduct critical operations
at back-up facilities in different locations.
RAIL FACILITIES
In addition to our track structure, we operate numerous facilities, including terminals for intermodal and
other freight; rail yards for building trains (classification yards), switching, storage-in-transit (the temporary
storage of customer goods in rail cars prior to shipment), and other activities; offices to administer and
manage our operations; dispatching centers to direct traffic on our rail network; crew on duty locations for
train crews along our network; and shops and other facilities for fueling, maintenance, and repair of
locomotives and repair and maintenance of rail cars and other equipment. The following table includes the
major yards and terminals on our system:
Major Classification Yards
North Platte, Nebraska
North Little Rock, Arkansas
Englewood (Houston), Texas
Livonia, Louisiana
West Colton, California
Houston, Texas
Proviso (Chicago), Illinois
Roseville, California
RAIL EQUIPMENT
Major Intermodal Terminals
Joliet (Global 4), Illinois
East Los Angeles, California
ICTF (Los Angeles), California
Global II (Chicago), Illinois
City of Industry, California
Lathrop, California
LATC (Los Angeles), California
Salt Lake City, Utah
Our equipment includes owned and leased locomotives and rail cars; heavy maintenance equipment and
machinery; other equipment and tools in our shops, offices, and facilities; and vehicles for maintenance,
transportation of crews, and other activities. As of December 31, 2020, we owned or leased the following
units of equipment:
Locomotives
Multiple purpose
Switching
Other
Total locomotives
Freight cars
Covered hoppers
Open hoppers
Gondolas
Boxcars
Refrigerated cars
Flat cars
Other
Total freight cars
Highway revenue equipment
Containers
Chassis
Total highway revenue equipment
18
Owned
6,255
174
24
6,453
Owned
13,328
5,202
5,431
2,306
2,279
2,027
2
30,575
Owned
49,409
30,099
79,508
Leased
1,055
-
61
1,116
Leased
8,298
1,762
2,001
6,620
2,464
945
268
22,358
Leased
3,547
14,270
17,817
Total
7,310
174
85
7,569
Total
21,626
6,964
7,432
8,926
4,743
2,972
270
52,933
Total
52,956
44,369
97,325
Average
Age (yrs.)
21.7
40.5
40.4
N/A
Average
Age (yrs.)
21.6
32.2
29.3
41.1
26.4
35.3
32.4
N/A
Average
Age (yrs.)
9.8
11.6
N/A
We continuously assess our need for equipment to run an efficient and reliable network. Many factors cause
us to adjust the size of our active fleets, including changes in carload volume, weather events, seasonality,
customer preferences, and productivity initiatives. As some of these factors are difficult to assess or can
change rapidly, we maintain a surge fleet to remain agile. Without the surge fleet, our ability to react quickly
is hindered as equipment suppliers are limited and lead times to acquire equipment are long and may be
in excess of a year. We believe our locomotive and freight car fleets are appropriately sized to meet our
current and future business requirements. These fleets serve as the most reliable and efficient equipment
to facilitate growth without additional acquisitions. Locomotive and freight car in service utilization
percentages for the year ended December 31, 2020, were 58% and 71%, respectively.
CAPITAL EXPENDITURES
Our rail network requires significant annual capital investments for replacement, improvement, and
expansion. These investments enhance safety, support the transportation needs of our customers, and
improve our operational efficiency. Additionally, we add new locomotives and freight cars to our fleet to
replace older equipment and to support growth and customer demand.
2020 Capital Program – During 2020, our capital program totaled approximately $2.84 billion. (See the
cash capital investments table in Management’s Discussion and Analysis of Financial Condition and
Results of Operations – Liquidity and Capital Resources, Item 7, of this report)
2021 Capital Plan – In 2021, we expect our capital plan to be approximately $2.9 billion, essentially flat
with 2020. (See further discussion of our 2021 capital plan in Management’s Discussion and Analysis of
Financial Condition and Results of Operations – Liquidity and Capital Resources, Item 7, of this report)
OTHER
Equipment Encumbrances – Equipment with a carrying value of approximately $1.3 billion and $1.6 billion
at December 31, 2020 and 2019, respectively, served as collateral for finance leases and other types of
equipment obligations in accordance with the secured financing arrangements utilized to acquire or
refinance such railroad equipment.
Environmental Matters – Certain of our properties are subject to federal, state, and local laws and
regulations governing the protection of the environment. (See discussion within this report of environmental
issues in Business – Governmental and Environmental Regulation, Item 1; Management’s Discussion and
Analysis of Financial Condition and Results of Operations – Critical Accounting Policies – Environmental,
Item 7; and Note 17 of the Consolidated Financial Statements.)
Item 3. Legal Proceedings
From time to time, we are involved in legal proceedings, claims, and litigation that occur in connection with
our business. We routinely assess our liabilities and contingencies in connection with these matters based
upon the latest available information, and, when necessary, we seek input from our third-party advisors
when making these assessments. Consistent with SEC rules and requirements, we describe below material
pending legal proceedings (other than ordinary routine litigation incidental to our business), material
proceedings known to be contemplated by governmental authorities, other proceedings arising under
federal, state, or local environmental laws and regulations (including governmental proceedings involving
potential fines, penalties, or other monetary sanctions in excess of $1,000,000), and such other pending
matters that we may determine to be appropriate.
ENVIRONMENTAL MATTERS
We receive notices from the EPA and state environmental agencies alleging that we are or may be liable
under federal or state environmental laws for remediation costs at various sites throughout the U.S.,
including sites on the Superfund National Priorities List or state superfund lists. We cannot predict the
ultimate impact of these proceedings and suits because of the number of potentially responsible parties
involved, the degree of contamination by various wastes, the scarcity and quality of volumetric data related
to many of the sites, and the speculative nature of remediation costs.
Information concerning environmental claims and contingencies and estimated remediation costs is set
forth in this report in Management’s Discussion and Analysis of Financial Condition and Results of
Operations – Critical Accounting Policies – Environmental, Item 7, and Note 17 of the Consolidated
Financial Statements.
19
OTHER MATTERS
Antitrust Litigation – As we reported in our Quarterly Report on Form 10-Q for the quarter ended June
30, 2007, 20 rail shippers (many of whom are represented by the same law firms) filed virtually identical
antitrust lawsuits in various federal district courts against us and four other Class I railroads in the U.S.
Currently, UPRR and three other Class I railroads are the named defendants in the lawsuit. The original
plaintiff filed the first of these claims in the U.S. District Court in New Jersey on May 14, 2007. These suits
alleged that the named railroads engaged in price-fixing by establishing common fuel surcharges for certain
rail traffic.
As previously reported in our Quarterly Report on Form 10-Q for the quarter ended September 30, 2019,
an appellate hearing related to the U.S. District Court for the District of Columbia’s denial of class
certification for the rail shippers was held on September 28, 2018. On August 16, 2019, the U.S. Court of
Appeals for the District of Columbia Circuit affirmed the decision of U.S. District Court denying class
certification (the Certification Denial). Only five plaintiffs remain in this multidistrict litigation (MDL) originally
filed in 2007, which remains pending. They are proceeding on a consolidated basis in the U.S. District of
Columbia Court before the Honorable Paul L. Friedman (MDL I). Since the Certification Denial,
approximately 96 lawsuits have been filed in federal court based on claims identical to those alleged in the
class certification case. The Judicial Panel on Multidistrict Litigation consolidated these suits for pretrial
proceedings in the U.S. District of Columbia District Court before the Honorable Beryl A. Howell (MDL II).
As we reported in our Current Report on Form 8-K, filed on June 10, 2011, the Railroad received a complaint
filed in the U.S. District Court for the District of Columbia on June 7, 2011, by Oxbow Carbon & Minerals
LLC and related entities (Oxbow). The fuel surcharge antitrust claim remains and was stayed pending the
decision on class certification discussed above. As a result of the Certification Denial, the parties continued
to discovery and discovery is complete in this matter. The parties do not anticipate dates for summary
judgment or trial will be set in the Oxbow matter until Judge Friedman rules on certain matters in the MDL
I mentioned above.
We continue to deny the allegations that our fuel surcharge programs violate the antitrust laws or any other
laws. We believe that these lawsuits are without merit, and we will vigorously defend our actions. Therefore,
we currently believe that these matters will not have a material adverse effect on any of our results of
operations, financial condition, and liquidity.
Americans with Disabilities Act (ADA) Litigation- As reported in our Annual Report on Form 10-K for
the fiscal year ended December 31, 2019, a lawsuit was filed in U.S. District Court for the Western District
of Washington (the District Court-Washington), in 2016, alleging violations of the ADA and Genetic
Information Nondiscrimination Act relating to Fitness for Duty requirements for safety sensitive positions.
On August 8, 2016, the District Court-Washington granted plaintiffs' motion to transfer their claim to the
U.S. District Court of Nebraska (the District Court-Nebraska). On February 5, 2019, the District Court-
Nebraska granted plaintiffs’ motion to certify the ADA allegations as a class action. We were granted the
right to appeal this class certification to the U.S. Court of Appeals for the Eighth Circuit (the Eighth Circuit)
on March 13, 2019, and the matter was argued before the Eighth Circuit in November 2019. As reported in
our Quarterly Report on Form 10-Q for the quarter ended March 31, 2020, a panel of Eighth Circuit judges
issued a decision overturning the District Court-Nebraska and decertified the class action on March 24,
2020.
Plaintiff’s counsel did not pursue an appeal of the Eighth Circuit’s decision and is instead pursuing over 160
former class members’ individual ADA lawsuits against the Company in the District Court-Nebraska. The
Company has filed a motion to sever the class representatives’ individual claims and that motion is currently
pending. Additionally, purported members of the class have filed approximately 220 individual charges of
discrimination with various offices of the Equal Employment Opportunity Commission (EEOC).
We intend to vigorously defend the lawsuits currently pending in the United States District Courts and
charges of discrimination currently being investigated by the EEOC. We believe that these lawsuits are
without merit, and that these matters will not have a material adverse effect on our results of operations,
financial condition, and liquidity.
Item 4. Mine Safety Disclosures
Not applicable.
20
Information About Our Executive Officers and Principal Executive Officers of Our Subsidiaries
The Board of Directors typically elects and designates our executive officers on an annual basis at the
board meeting held in conjunction with the Annual Meeting of Shareholders, and they hold office until their
successors are elected. Executive officers also may be elected and designated throughout the year, as the
Board of Directors considers appropriate. There are no family relationships among the officers, nor is there
any arrangement or understanding between any officer and any other person pursuant to which the officer
was selected. The following table sets forth certain information current as of February 5, 2021, relating to
the executive officers.
Name
Lance M. Fritz
Jennifer L. Hamann
Craig V. Richardson
Kenny G. Rocker
Todd M. Rynaski
Position
Chairman, President, and Chief Executive Officer of
UPC and the Railroad
Executive Vice President and Chief Financial Officer
of UPC and the Railroad
Executive Vice President, Chief Legal Officer, and
Corporate Secretary of UPC and the Railroad
Executive Vice President – Marketing and Sales of
the Railroad
Vice President and Controller of UPC and the Railroad
Business
Experience During
Age Past Five Years
58 Current Position
53
59
49
[1]
[2]
[3]
50 Current Position
Eric J. Gehringer
Executive Vice President – Operations of the Railroad 41
Elizabeth F. Whited
Executive Vice President and Chief Human Resources
Officer of UPC and the Railroad
55
[4]
[5]
[1] Ms. Hamann was elected Executive Vice President and Chief Financial Officer of UPC and the Railroad effective January 1,
2020. She previously served as Senior Vice President – Finance (April 2019 – December 2019), Vice President – Planning &
Analysis (October 2017 – March 2019), and Vice President & General Manager – Marketing and Sales – Autos team (February
2016 – September 2017).
[2] Mr. Richardson was elected Executive Vice President, Chief Legal Officer, and Corporate Secretary of UPC and the Railroad
effective December 8, 2020. He most recently served as Vice President – Commercial and Regulatory Law since 2015.
[3] Mr. Rocker was elected Executive Vice President – Marketing and Sales of the Railroad effective August 15, 2018. Mr. Rocker
previously served at the Railroad as Vice President – Marketing and Sales – Industrial team (October 2016 – August 2018). Prior
to this election, Mr. Rocker served as Assistant Vice President – Marketing and Sales – Chemicals team (April 2014 – September
2016).
[4] Mr. Gehringer was elected Executive Vice President – Operations of the Railroad effective January 1, 2021. Mr. Gehringer
previously served as Senior Vice President – Transportation (July 2020 – December 2020), Vice President – Mechanical and
Engineering (January 2020 – July 2020), Vice President – Engineering (March 2018 – January 2020), Assistant Vice President
– Engineering (September 2016 – March 2018), and General Director – Maintenance of Way (May 2015 – September 2016).
[5] Ms. Whited was elected Executive Vice President and Chief Human Resources Officer of UPC and the Railroad effective August
15, 2018. She previously served as Executive Vice President and Chief Marketing Officer (December 2016 – August 2018) and
Vice President and General Manager – Marketing and Sales – Chemicals team (October 2012 – December 2016).
21
PART II
Item 5. Market for the Registrant’s Common Equity, Related Stockholder Matters, and Issuer
Purchases of Equity Securities
Our common stock is traded on the New York Stock Exchange (NYSE) under the symbol “UNP”.
At January 29, 2021, there were 669,829,363 shares of common stock outstanding and 29,745 common
shareholders of record. On that date, the closing price of the common stock on the NYSE was $197.47. We
paid dividends to our common shareholders during each of the past 121 years.
Comparison Over One- and Three-Year Periods – The following table presents the cumulative total
shareholder returns, assuming reinvestment of dividends, over one- and three-year periods for the
Corporation (UNP), a peer group index (comprised of CSX Corporation and Norfolk Southern Corporation),
the Dow Jones Transportation Index (DJ Trans), and the Standard & Poor’s 500 Stock Index (S&P 500).
Period
1 Year (2020)
3 Year (2018 - 2020)
UNP
17.7 %
65.6
Peer Group
DJ Trans
S&P 500
26.0 %
72.7
16.5 %
23.4
18.4 %
48.8
Five-Year Performance Comparison – The following graph provides an indicator of cumulative total
shareholder returns for the Corporation as compared to the peer group index (described above), the DJ
Trans, and the S&P 500. The graph assumes that $100 was invested in the common stock of Union Pacific
Corporation and each index on December 31, 2015, and that all dividends were reinvested. The information
below is historical in nature and is not necessarily indicative of future performance.
22
Purchases of Equity Securities – During 2020, we repurchased 22,826,071 shares of our common stock
at an average price of $167.92. The following table presents common stock repurchases during each month
for the fourth quarter of 2020:
Period
Oct. 1 through Oct. 31
Nov. 1 through Nov. 30
Dec. 1 through Dec. 31
Total Number
of Shares
Purchased [a]
1,030,821 $
1,235,113
1,525,273
Average
Price Paid
Per Share
189.84
198.87
203.03
Total Number of Shares
Purchased as Part of a
Publicly Announced
Plan or Program
1,022,254
1,233,689
1,524,800
Maximum Number of
Shares Remaining Under
the Plan or Program [b]
113,781,459
112,547,770
111,022,970
Total
3,791,207 $
198.09
3,780,743
N/A
[a] Total number of shares purchased during the quarter includes approximately 10,464 shares delivered or attested to UPC by
employees to pay stock option exercise prices, satisfy excess tax withholding obligations for stock option exercises or vesting of
retention units, and pay withholding obligations for vesting of retention shares.
[b] Effective April 1, 2019, our Board of Directors authorized the repurchase of up to 150 million shares of our common stock by
March 31, 2022, replacing our previous repurchase program. 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.
23
Item 6. Selected Financial Data
The following table presents as of, and for the years ended, December 31, our selected financial data for
each of the last five years. The selected financial data should be read in conjunction with Management’s
Discussion and Analysis of Financial Condition and Results of Operations, Item 7, and with the Financial
Statements and Supplementary Data, Item 8. The information below is historical in nature and is not
necessarily indicative of future financial condition or results of operations.
Millions, Except per Share Amounts,
Carloads, Employee Statistics, and Ratios
For the Year Ended December 31
Operating revenues [c]
Operating income
Net income
Earnings per share - basic
Earnings per share - diluted
Dividends declared per share
Cash provided by operating activities
Cash used in investing activities
Cash used in financing activities
Cash used for share repurchase programs
At December 31
Total assets
Long-term obligations [d]
Debt due after one year
Common shareholders' equity
Additional Data
Freight revenues [c]
Revenue carloads (units) (000)
Operating ratio (%) [e]
Average employees (000)
Financial Ratios (%)
Return on average common
shareholders' equity [f]
2020[a]
2019
2018
2017[b]
2016
$ 19,533 $ 21,708 $ 22,832
7,834
5,349
7.90
7.88
3.88
8,540
(2,676)
(4,902)
(3,705)
8,554
5,919
8.41
8.38
3.70
8,609
(3,435)
(5,646)
(5,804)
8,517
5,966
7.95
7.91
3.06
8,686
(3,411)
(5,222)
(8,225)
$ 21,240 $ 19,941
7,243
4,233
5.09
5.07
2.255
7,525
(3,393)
(4,246)
(3,105)
8,106
10,712
13.42
13.36
2.48
7,230
(3,086)
(4,146)
(4,013)
$ 62,398 $ 61,673 $ 59,147
41,267
25,660
16,958
39,194
23,943
18,128
34,098
20,925
20,423
$ 57,806 $ 55,718
32,146
14,249
19,932
29,011
16,144
24,856
$ 18,251 $ 20,243 $ 21,384
7,753
59.9
31.0
8,346
60.6
37.5
8,908
62.7
42.0
$ 19,837 $ 18,601
8,442
63.7
42.9
8,588
61.8
42.0
30.5
30.7
26.4
47.8
20.8
[a] 2020 includes a $278 million non-cash impairment charge related to Brazos yard.
[b] 2017 includes a $5.9 billion non-cash reduction to income tax expense and $212 million non-cash reduction to operating
[c]
expenses related to the Tax Cuts and Jobs Act enacted on December 22, 2017.
Includes fuel surcharge revenue of $967 million, $1.6 billion, $1.7 billion, $966 million, and $560 million for 2020, 2019, 2018,
2017, and 2016, respectively, which partially offsets increased operating expenses for fuel. (See further discussion in
Management’s Discussion and Analysis of Financial Condition and Results of Operations, Item 7, of this report.)
[d] Long-term obligations is determined as follows: total liabilities less current liabilities.
[e] Operating ratio is defined as operating expenses divided by operating revenues.
[f] Return on average common shareholders' equity is determined as follows: Net income divided by average common shareholders'
equity.
24
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion should be read in conjunction with the Consolidated Financial Statements and
applicable notes to the Financial Statements and Supplementary Data, Item 8, and other information in this
report, including Risk Factors set forth in Item 1A and Critical Accounting Policies and Cautionary
Information at the end of this Item 7. The following section generally discusses 2020 and 2019 items and
year-to-year comparisons between 2020 and 2019. Discussions of 2018 items and year-to-year
comparisons between 2019 and 2018 that are not included in this Form 10-K can be found in
“Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item
7, of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2019.
The Railroad, along with its subsidiaries and rail affiliates, is our one reportable business segment. Although
revenue is analyzed by commodity, we analyze the net financial results of the Railroad as one segment
due to the integrated nature of the rail network.
EXECUTIVE SUMMARY
2020 Results
Coronavirus Pandemic (COVID-19) – 2020 was a year of great uncertainty as COVID-19 spread
across the globe. The pandemic caused a dramatic slowdown of the economy as government
intervention forced closures and changed individual behaviors, and businesses transformed their
operations to protect the health and safety of their employees, customers, and communities. The
varying levels of mitigation across different industries had a significant impact on the demand to ship
freight in certain market segments. The most notable impact on our revenue was the temporary
suspension of automotive production and the corollary effect it had on products used for auto
manufacturing. Other reductions in production drove volume declines in a number of other markets as
well. The pandemic also disrupted supply chains between Asia and the United States driving declines
in intermodal shipments. While second quarter was the hardest hit and volumes have improved
sequentially from that quarter, some market segments are still lagging as year-over-year volumes are
down.
Safety – The health and wellbeing of our employees was top of mind in 2020 as we navigated the
continually changing environment due to COVID-19. We have and are continuing to adapt to protect
the safety of our employees, our customers, and the communities we serve. Enhanced safety
procedures were implemented across the system, including new procedures and policies based on
Centers for Disease Control and Prevention (CDC) guidelines.
We continued our focus on safety to reduce risk and eliminate incidents for our employees, our
customers, and the public. While we have implemented new practices, which drove a 17% improvement
in our reportable equipment incident rate per million train miles, we have significant opportunity for
improvement remaining. Our reportable personal injury incidents per 200,000 employee-hours of 0.90
was flat with last year. We continued to use Total Safety Culture, Courage to Care, and COMMIT
(Coaching, Observing, Mentoring and Motivating with Integrity and Trust) throughout our operations.
We remained focused on identifying and managing risks and training our employees as their work
environment changes.
Network Operations – While the pandemic resulted in significant swings in volume, we were able to
adjust our demand-driven resources to reflect these fluctuations with minimal disruptions to our
customers. Both our Intermodal and Manifest/Automotive car trip plan compliance improved 6 points in
2020, showing our dedication to providing the customer with a service product that delivers value.
Although the environment we operated in changed due to COVID-19, we continued our operational
transformation. This was evident as our key performance indicators have improved substantially year-
over-year. Transportation plan changes to eliminate switches and improved terminal processes drove
an 8% improvement in freight car terminal dwell. Improved dwell coupled with 3% faster average train
speed led to a 6% improvement in freight car velocity. We also saw 14% improvement in locomotive
productivity and 11% improvement in work force productivity. Additional detail on these metrics are
discussed in Other Operating / Performance and Financial Statistics of this Item 7.
Freight Revenues – Our freight revenues decreased 10% year-over-year to $18.3 billion driven by a
volume decline of 7%, lower fuel surcharge revenue, and negative mix of traffic (for example, a relative
25
increase in intermodal shipments, which have a lower average revenue per car (ARC)), partially offset
by core pricing gains. Volume declined in almost every market segment due to the deteriorating
economic conditions brought on by the COVID-19 pandemic. While some markets rebounded in the
last half of the year, particularly grain and intermodal, others still lagged 2019 levels. Shipments of coal,
sand, and petroleum products continue to be negatively impacted by the low crude oil and natural gas
prices.
Financial Results – In 2020, we generated operating income of $7.8 billion, 8% below 2019, driven by
the impacts of COVID-19 and a non-cash impairment charge of $278 million related to our Brazos yard
investment. Productivity initiatives, lower volumes, and lower fuel prices drove operating expenses
down 11% from 2019. These factors coupled with improved pricing were not enough to offset the impact
of the revenue decline. Net income of $5.3 billion translated into earnings of $7.88 per diluted share,
down 6% from last year. Despite the adversity from COVID-19, our operational transformation produced
an all-time record 59.9% operating ratio, improving 0.7 points from 2019.
Fuel Prices – Our average price of diesel fuel in 2020 was $1.50 per gallon, a decrease of 30% from
2019. The lower price resulted in lower operating expenses of $539 million (excluding any impact from
year-over-year volume declines). Gross ton-miles decreased 9% and our fuel consumption rate,
computed as gallons of fuel consumed divided by gross ton-miles, improved 2%, both driving lower fuel
expense.
Liquidity – We are continually evaluating the impact of COVID-19 on our financial condition and
liquidity. On December 31, 2020, we had $1.8 billion of cash and cash equivalents. Despite the
pandemic, we generated $8.5 billion of cash from operating activities, yielding free cash flow of $3.2
billion after reductions of $2.7 billion for cash used in investing activities and $2.6 billion in dividends.
Even though our share repurchase program was temporarily paused for six months starting in March
2020, we repurchased $3.7 billion of our shares. We have been, and we expect to continue to be, in
compliance with our debt covenants. We have $2.0 billion of credit available under our revolving credit
facility, up to $800 million undrawn on our Receivables Facility, and three bilateral revolving credit lines,
which mature in May 2021, with up to $600 million of available credit. As of December 31, 2020, none
of the revolving credit facility, Receivables Facility, or bilateral revolving credit lines was drawn.
Free cash flow is defined as cash provided by operating activities less cash used in investing activities and
dividends paid. Free cash flow is not considered a financial measure 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 is important to management and investors in evaluating our financial
performance and measures our ability to generate cash without additional external financing. Free cash
flow 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
Cash provided by operating activities
Cash used in investing activities
Dividends paid
Free cash flow
2021 Outlook
2020
8,540
(2,676)
(2,626)
3,238
$
$
2019
8,609 $
(3,435)
(2,598)
2,576 $
2018
8,686
(3,411)
(2,299)
2,976
$
$
Safety – Operating a safe railroad benefits all our constituents: our employees, customers,
shareholders, and the communities we serve. We will continue using a multi-faceted approach to safety
utilizing technology, risk assessments, training, employee engagement, quality control, and targeted
capital investments. We will continue using and expanding the deployment of Total Safety Culture,
Courage to Care, COMMIT, and Peer to Peer throughout our operations, which allows us to identify
and implement best practices for employee and operational safety. We formed an Operating Practices
Command Center to identify causes of mainline service interruptions and develop solutions, in addition
to, assisting employees with understanding policies, procedures, and best practices for handling trains.
We will continue our efforts to utilize data to identify and mitigate risk, detect rail defects, improve or
close crossings, and educate the public and law enforcement agencies about crossing safety through
26
a combination of our own programs (including risk assessment strategies), industry programs, and local
community activities across the network.
Network Operations – In 2021, we will continue to transform our railroad to further increase reliability
of our service product, reduce variability in network operations, and improve resource utilization.
Continued implementation of train length initiatives will allow us to add incremental volume growth to
our existing train network. We will continue to make structural changes to improve operational
performance and efficiency. A more efficient network requires fewer locomotives, freight cars, and other
resources.
Market Conditions – We expect uncertainties with COVID-19 and the economy to continue in 2021.
How governments and consumers react to the resurgence, mutation of the virus, and distribution of the
vaccine could result in or contribute to customer disruptions, an elongated recovery period, or a
downturn from our current business levels. Disruptions in our customers’ supply chains caused by the
pandemic or other factors may have an impact on our shipments. In addition, other factors such as
natural gas prices, weather conditions, and demand for other energy sources may impact the coal
market; crude oil price spreads may drive demand for petroleum products and drilling materials;
available truck capacity could impact our intermodal business; and international trade agreements
could promote or hinder trade.
Fuel Prices – Projections for crude oil and natural gas continue to fluctuate in the current environment.
We again could see volatile fuel prices during the year, as they are sensitive to global and U.S. domestic
demand, refining capacity, geopolitical events, weather conditions, and other factors. As prices
fluctuate, there will be a timing impact on earnings, as our fuel surcharge programs trail increases or
decreases in fuel price by approximately two months.
Significant changes in fuel prices could have an impact on the amount of consumer discretionary
spending, impacting demand for various consumer products we transport. Alternatively, those changes
could have an inverse impact on commodities such as coal, petroleum products, and domestic drilling-
related shipments.
Capital Plan – In 2021, we expect our capital plan to be approximately $2.9 billion, essentially flat with
2020. Implementation of our new transportation plan has generated capacity. We will continue to
harden our infrastructure, replace older assets, and improve the safety and resilience of the network.
In addition, the plan includes investments intended to support growth and improve productivity and
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. (See further discussion
in this Item 7 under Liquidity and Capital Resources – Capital Plan).
Financial Expectations – We expect volume to be up four to as high as six percent in 2021 compared
to 2020, provided the second half of the year’s industrial production strengthens as predicted by
economists. In the current environment, we expect continued margin improvement driven by pricing
opportunities in excess of inflation and ongoing productivity initiatives, resulting in approximately $500
million of productivity savings, while better leveraging our resources and strengthening our franchise.
We expect to generate strong cash from operating activities along with maintaining our dividend and
share repurchase program. As the continued effect of COVID-19 is still uncertain, it could have a
material impact on our 2021 financial and operating results, but our focus will be on what we can
manage, such as increasing productivity; seeking new business opportunities; protecting our
employees, customers, and communities; and providing excellent service to our customers.
27
RESULTS OF OPERATIONS
Operating Revenues
Millions
Freight revenues
Other subsidiary revenues
Accessorial revenues
Other
$
2020
18,251
743
473
66
$
2019
20,243
880
514
71
$
% Change % Change
2018 2020 v 2019 2019 v 2018
(5)%
-
2
9
(10)%
(16)
(8)
(7)
21,384
881
502
65
Total
$
19,533
$
21,708
$
22,832
(10)%
(5)%
We generate freight revenues by transporting freight or other materials from our three commodity groups.
Prior to 2020, we reported on four commodity groups, thus prior years’ freight revenue, average revenue
per car (ARC), and carloadings have been realigned to the new reporting format. 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 revenue between reporting periods is based on the relative transit time in
each reporting period with expenses recognized as incurred.
Other revenues consist primarily of revenues earned by our other subsidiaries (primarily logistics and
commuter rail operations) and accessorial revenues. Other subsidiary revenues are generally recognized
over time as shipments move from origin to destination. The allocation of revenue 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 10% year-over-year to $18.3 billion driven by a 7% volume decline, lower fuel
surcharge, and negative mix of traffic, partially offset by core pricing gains. Volume declined in almost every
market segment due to the deteriorating economic conditions brought on by the COVID-19 pandemic. While
some markets rebounded in the fourth quarter, particularly grain and intermodal, others still lagged 2019
levels. Shipments of coal, sand, and petroleum products continue to be negatively impacted by low crude
oil and natural gas prices.
Our fuel surcharge programs generated freight revenues of almost $1.0 billion and $1.6 billion in 2020 and
2019, respectively. Fuel surcharge revenue in 2020 decreased $586 million as a result of a 30% decrease
in fuel price and a 7% reduction in carloadings, partially offset by the lag impact on fuel surcharge (it can
generally take up to two months for changing fuel prices to affect fuel surcharges recoveries).
In 2020, other subsidiary revenues decreased from 2019 driven by the disruption of the automotive supply
chain, which drove lower intermodal shipments and revenue at our subsidiaries that broker intermodal and
transload logistics services. Accessorial revenue and other revenue declined driven by lower industrial
products traffic.
28
The following tables summarize the year-over-year changes in freight revenues, revenue carloads, and
ARC by commodity type:
Freight Revenues
Millions
Grain & grain products
Fertilizer
Food & refrigerated
Coal & renewables
Bulk
Industrial chemicals & plastics
Metals & minerals
Forest products
Energy & specialized markets
Industrial
Automotive
Intermodal
Premium
Total
Revenue Carloads
Thousands
Grain & grain products
Fertilizer
Food & refrigerated
Coal & renewables
Bulk
Industrial chemicals & plastics
Metals & minerals
Forest products
Energy & specialized markets
Industrial
Automotive
Intermodal [a]
Premium
Total
Average Revenue per Car
Grain & grain products
Fertilizer
Food & refrigerated
Coal & renewables
Bulk
Industrial chemicals & plastics
Metals & minerals
Forest products
Energy & specialized markets
Industrial
Automotive
Intermodal [a]
Premium
$
2020
2,829 $
660
937
1,534
2019
2,776 $
653
1,008
2,092
5,960
1,845
1,580
1,160
2,037
6,622
1,680
3,989
5,669
6,529
1,885
2,042
1,160
2,385
7,472
2,123
4,119
6,242
2018
2,756
641
1,065
2,607
7,069
1,828
2,521
1,209
2,131
7,689
2,172
4,454
6,626
% Change % Change
2020 v 2019 2019 v 2018
1 %
2
(5)
(20)
2 %
1
(7)
(27)
(9)
(2)
(23)
-
(15)
(11)
(21)
(3)
(9)
(8)
3
(19)
(4)
12
(3)
(2)
(8)
(6)
$
18,251 $
20,243 $
21,384
(10)%
(5)%
2020
745
193
185
797
1,920
587
646
220
539
1,992
692
3,149
3,841
7,753
2019
708
190
192
997
2,087
611
744
220
624
2,199
858
3,202
4,060
8,346
$
2020
3,797 $
3,427
5,047
1,926
3,104
3,144
2,445
5,269
3,780
3,324
2,427
1,267
1,476
2019
3,919 $
3,448
5,241
2,098
3,128
3,087
2,745
5,264
3,821
3,398
2,474
1,286
1,538
2018
723
194
206
1,176
2,299
599
822
241
565
2,227
891
3,491
4,382
8,908
2018
3,811
3,303
5,171
2,216
3,074
3,049
3,067
5,025
3,772
3,452
2,438
1,276
1,512
% Change % Change
2020 v 2019 2019 v 2018
(2)%
(2)
(7)
(15)
(9)
2
(9)
(9)
10
(1)
(4)
(8)
(7)
5 %
2
(4)
(20)
(8)
(4)
(13)
-
(14)
(9)
(19)
(2)
(5)
(7)%
(6)%
% Change % Change
2020 v 2019 2019 v 2018
3 %
4
1
(5)
2
1
(10)
5
1
(2)
1
1
2
(3)%
(1)
(4)
(8)
(1)
2
(11)
-
(1)
(2)
(2)
(1)
(4)
Average
$
2,354 $
2,425 $
2,400
(3)%
1 %
[a] For intermodal shipments, each container or trailer equals one carload.
29
2020 Bulk Carloads
2020 Industrial Carloads
2020 Premium Carloads
Bulk – Bulk includes shipments of grain and
grain products, fertilizer, food and refrigerated
goods, and coal and renewables. Freight
revenue from bulk shipments decreased in
2020 compared to 2019 due to an 8% volume
decline and lower fuel surcharge revenue,
partially offset by positive business mix and
core pricing gains. Continued softness in
market conditions due to low natural gas prices
and weak export demand drove the 21%
decline in coal shipments. The COVID-19
pandemic negatively impacted production of
imported beer, food products, and the demand
for ethanol and related products contributing to
additional declines in volume. Strong demand
for export grain, particularly in the fourth
quarter, partially offset the losses.
Industrial – Industrial includes shipments of
industrial chemicals and plastics, metals and
minerals, forest products, and energy and
from
specialized markets. Freight revenue
industrial shipments decreased in 2020 versus
2019 due a 9% decline in volume, negative mix
of traffic, and lower fuel surcharge, partially
offset by pricing gains. Although volume from
industrial shipments were up in the first quarter,
it was not enough to overcome the weak
demand throughout the rest of the year as the
pandemic impacted a wide range of industries
driving year-over-year declines in many of our
market segments including industrial chemicals,
rock, soda ash, and steel. In addition, low oil
prices, resulting in lower drilling, coupled with
local sand impacts were the primary drivers
behind the 57% decline in sand shipments and
26% decline in petroleum product shipments
compared to 2019.
Premium – Premium includes shipments of
finished automobiles, automotive parts, and
merchandise in intermodal containers, both
domestic and international. Freight revenue
from premium shipments decreased in 2020
compared to 2019 due to a 5% volume decline,
lower fuel surcharges, and negative mix of
traffic, partially offset by core pricing gains.
Volume declines in international intermodal due
to trade uncertainty and the COVID-19 impact
on supply chains between Asia and the U.S.,
along with the temporary automotive production
halt, drove the decline in premium shipments
compared
to 2019. These declines were
partially offset by contract wins and strength in
e-commerce parcel shipments.
Mexico Business – Each of our commodity groups includes revenue from shipments to and from Mexico.
Revenue from Mexico business was $2.1 billion in 2020, down 10% compared to 2019, driven by a 12%
decline in volume and lower fuel surcharge revenue, partially offset by core pricing gains. The volume
decline was driven by the COVID-19 pandemic with declines in automotive and intermodal shipments,
partially offset by increases in LPG, beer, and grain.
30
Operating Expenses
Millions
Compensation and benefits
Depreciation
Purchased services and materials
Fuel
Equipment and other rents
Other
$
2020
3,993 $
2,210
1,962
1,314
875
1,345
2019
4,533 $
2,216
2,254
2,107
984
1,060
% Change
% Change
2018 2020 v 2019 2019 v 2018
(10)%
1
(8)
(17)
(8)
4
(12) %
-
(13)
(38)
(11)
27
5,056
2,191
2,443
2,531
1,072
1,022
Total
$
11,699 $
13,154 $
14,315
(11) %
(8)%
2020 Operating Expenses
lower volume, and
Operating expenses decreased $1.5 billion in
2020 compared to 2019 driven by productivity
improvements, lower fuel prices, cost savings
from
lower destroyed
equipment and freight costs. Partially offsetting
these decreases compared to 2019 are a $278
million impairment charge, inflation, increased
bad debt expense, and higher state and local
taxes. In addition, expenses were positively
impacted by lower year-over-year weather-
related costs, partially offset by an employment
tax refund recognized in 2019. Full year results
for 2020 and 2019 both include a $25 million
reduction of expense for 2019 weather-related
insurance reimbursements.
Compensation and Benefits – Compensation and benefits include wages, payroll taxes, health and welfare
costs, pension costs, other postretirement benefits, and incentive costs. In 2020, expenses decreased 12%
compared to 2019, due to productivity initiatives; declines in carload volumes; lower weather-related costs;
management’s actions responding to the sharp decline in volume, including three months of temporary
unpaid leave and salary reductions, and almost 6 months of large shop closures (a locomotive shop, a
freight car shop, and a maintenance-of-way shop); partially offset by wage inflation, an employment tax
refund recognized in 2019, and a one-time bonus payment for agreement employees who worked during
the pandemic. Severance costs were relatively flat year-over-year.
Depreciation – The majority of depreciation relates to road property, including rail, ties, ballast, and other
track material. Depreciation expense was essentially flat in 2020 compared to 2019.
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 decreased 13% in 2020 compared to 2019 driven by reductions in all of the following:
locomotive maintenance expenses due to a smaller active fleet, volume-related costs for intermodal and
transload services incurred by our subsidiaries, costs for transportation for the train crews, professional
services expense, costs associated with derailments, and year-over-year weather-related costs.
Fuel – Fuel includes locomotive fuel and gasoline for highway and non-highway vehicles and heavy
equipment. Locomotive diesel fuel prices, which averaged $1.50 per gallon (including taxes and
transportation costs) in 2020, compared to $2.13 per gallon in 2019, decreased expenses $539 million
(excluding any impact from year-over-year volume declines). Gross ton-miles decreased 9% and our fuel
consumption rate, computed as gallons of fuel consumed divided by gross ton-miles, improved 2%, which
both drove lower fuel expense.
31
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 expenses, offset by equity income from certain equity
method investments. Equipment and other rents expense decreased 11% compared to 2019 driven by
improved freight car velocity, volume declines, and lease returns, partially offset by lower equity income.
Other – Other expenses include state and local taxes, freight, equipment and property damage, utilities,
insurance, personal injury, environmental, employee travel, telephone and cellular, computer software, bad
debt, and other general expenses. Other expenses increased 27% in 2020 compared to 2019 as a result
of a $278 million non-cash impairment charge related to our Brazos yard investment. Increased bad debt
expense, state and local taxes, lower equity income from our investment in Grupo Ferroviaro Mexicano,
and write offs of certain in-progress capital projects and lease impairments, were almost completely offset
by lower costs associated with freight loss and damage, employee travel, and destroyed equipment.
Non-Operating Items
Millions
Other income
Interest expense
Income tax expense
2020
287 $
2019
243 $
$
(1,141)
(1,631)
(1,050)
(1,828)
% Change
% Change
2018 2020 v 2019 2019 v 2018
F%
94
(870)
(1,775)
18 %
9
(11)
21
3
Other Income – Other income increased in 2020 compared to 2019 due to larger gains from real estate
sales, including a $69 million gain from a land and permanent easement sale to the Illinois State Toll
Highway Authority, partially offset by $31 million in interest income associated with an employment tax
refund in 2019 and lower interest income.
Interest Expense – Interest expense increased in 2020 compared to 2019 due to an increased weighted-
average debt level of $27.9 billion in 2020 from $24.8 billion in 2019, partially offset by the impact of a lower
effective interest rate of 4.1% in 2020 compared to 4.3 % in 2019.
Income Taxes – Income tax expense decreased in 2020 compared to 2019 due to lower pre-tax income.
Our effective tax rates for 2020 and 2019 were 23.4% and 23.6%, respectively.
32
OTHER OPERATING/PERFORMANCE AND FINANCIAL STATISTICS
We report a number of key performance measures weekly to the STB. We provide this data on our website
at www.up.com/investor/aar-stb_reports/index.htm.
Operating/Performance Statistics
Management continuously measures these key operating metrics to evaluate our productivity, asset
utilization, and network efficiency in striving to provide a consistent, reliable service product to our
customers.
Railroad performance measures are included in the table below:
Gross ton-miles (GTMs) (billions)
Revenue ton-miles (billions)
Freight car velocity (daily miles per car) [a]
Average train speed (miles per hour) [b]
Average terminal dwell time (hours) [b]
Locomotive productivity (GTMs per horsepower day)
Train length (feet)
Intermodal car trip plan compliance (%)
Manifest/Automotive car trip plan compliance (%)
Workforce productivity (car miles per employee)
Total employees (average)
Operating ratio
2020
771.8
385.0
221
25.9
22.7
137
8,798
81
71
947
30,960
59.9
2019
846.6
423.4
209
25.1
24.8
120
7,747
75
65
857
37,483
60.6
928.6
474.0
198
26.1
29.8
106
7,036
71
57
839
41,967
62.7
% Change % Change
2018 2020 v 2019 2019 v 2018
(9)%
(9)%
(9)
6
3
(8)
14
14
(11)
6
(4)
(17)
13
10
6 pts
6 pts
11
(17)
(0.7)pts
4 pts
8 pts
2
(11)
(2.1)pts
[a] Prior years have been recast to conform to the current year presentation which reflects minor refinements.
[b] As reported to the STB.
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 both decreased 9%
in 2020 compared to 2019, driven by a 7% decline in carloadings. Changes in commodity mix drove the
variance in year-over-year decreases between gross ton-miles, revenue ton-miles, and carloads.
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). Continued implementation of our new
operating plan was the primary driver of the improvement from 2019 as both average terminal dwell and
average train speed improved compared to 2020. Average terminal dwell time decreased compared to
2019 largely due to improved terminal processes, transportation plan changes to eliminate switches, and
reduced carload volumes due to COVID-19. Average train speed in 2020 improved as weather-related
challenges slowed trains in the first half of 2019. Train speed remained relatively flat year-over-year in the
second half of the year.
Locomotive Productivity – Locomotive productivity is gross ton-miles per average daily locomotive
horsepower. Locomotive productivity increased 14% in 2020 compared to 2019 driven by a 24% reduction
in our average active fleet size due to transportation plan changes and lower locomotive dwell times.
Train Length – Train length is the average maximum train length on a route measured in feet. Our train
length increased 14% compared to 2019 as a result of blending service products, transportation plan
changes, and completing 36 siding extension projects.
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 trip plan compliance is broken into the intermodal and
manifest products. Intermodal trip plan compliance improved versus 2019, due to improved train speed and
reduced dwell at our origin and destination ramps. Manifest car trip plan compliance improved compared
to 2019 due to improved car dwell in our yards, increased train velocity across the network, and more
33
reliable first and last mile service. Both metrics were aided by reduced carload volumes due to COVID-19
and milder weather.
Workforce Productivity – Workforce productivity is average daily car miles per employee. Workforce
productivity improved 11%, reaching an all-time record as average daily car miles decreased 9% while
employees decreased 17% compared to 2019. Lower volumes drove the decline in average daily car miles.
The 17% decline in employee levels was driven by productivity initiatives, a 7% decline in carload volumes,
and a smaller capital workforce. At the end of the year, approximately 4,100 employees across all crafts
were furloughed.
Operating Ratio – Operating ratio is our operating expenses reflected as a percentage of operating revenue.
Our operating ratio of 59.9% was an all-time record and improved 0.7 points compared to 2019 mainly
driven by productivity initiatives, lower fuel prices, and core pricing gains; which were partially offset by a
negative mix of traffic, a one-time impairment charge, inflation, and other cost increases.
Return on Average Common Shareholders’ Equity
Millions, Except Percentages
Net income
Average equity
Return on average common shareholders' equity
Return on Invested Capital as Adjusted (ROIC)
Millions, Except Percentages
Net income
Interest expense
Interest on average operating lease liabilities
Taxes on interest
Net operating profit after taxes as adjusted
Average equity
Average debt
Average operating lease liabilities
$
$
$
$
$
2020
5,349 $
17,543 $
2019
5,919 $
19,276 $
30.5%
30.7%
2018
5,966
22,640
26.4%
2020
5,349 $
1,141
64
(282)
2019
5,919 $
1,050
76
(266)
2018
5,966
870
82
(218)
6,272 $
6,779 $
6,700
17,543 $
25,965
1,719
19,276 $
23,796
2,052
22,640
19,668
2,206
Average invested capital as adjusted
$
45,227 $
45,124 $
44,514
Return on Invested Capital as Adjusted
13.9%
15.0%
15.1%
ROIC 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 efficiency and effectiveness of our
long-term capital investments. In addition, we currently use ROIC as a performance criteria in determining
certain elements of equity compensation for our executives. ROIC 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 Return on Average Common Shareholders’ Equity. The tables above provide
reconciliations from return on average common shareholders’ equity to ROIC. At December 31, 2020, 2019,
and 2018, the incremental borrowing rate on operating leases was 3.7%.
34
Adjusted Debt / Adjusted EBITDA
Millions, Except Ratios
for the Twelve Months Ended
Net income
Add:
Income tax expense
Depreciation
Interest expense
EBITDA
Adjustments:
Other income
Interest on operating lease liabilities
Adjusted EBITDA
Debt
Operating lease liabilities
Unfunded pension and OPEB,
net of taxes of $195, $124 and $135
Adjusted debt
Adjusted debt / Adjusted EBITDA
Dec. 31,
2020
Dec. 31,
2019
Dec. 31,
2018
$
5,349
$
5,919
$
5,966
1,631
2,210
1,141
1,828
2,216
1,050
1,775
2,191
870
$
10,331
$
11,013
$
10,802
(287)
59
10,103
26,729
1,604
637
28,970
2.9
$
$
$
(243)
68
10,838
25,200
1,833
400
27,433
2.5
$
$
$
(94)
84
10,792
22,391
2,271
456
25,118
2.3
$
$
$
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, net income. The table above provides reconciliations from net income to
adjusted debt to adjusted EBITDA. At December 31, 2020, 2019, and 2018, the incremental borrowing rate
on operating leases was 3.7%.
LIQUIDITY AND CAPITAL RESOURCES
We are continually evaluating the impact of COVID-19 on our financial condition and liquidity. Although the
situation is fluid and highly uncertain, we continue to analyze a wide range of economic scenarios and the
impact on our ability to generate cash. These analyses inform our liquidity plans and activity outlined below
and indicate we have sufficient capacity to sustain an extended period of lower volumes.
At December 31, 2020, we had a working capital surplus due to an increased cash balance held due to the
uncertainty related to COVID-19 compared to December 31, 2019, where we had a working capital deficit
due to upcoming debt maturities. As past years indicate, it is not unusual for us to have a working capital
deficit; however, we believe it is not an indication of a lack of liquidity. We also maintain adequate resources,
including our credit facility and, when necessary, access the capital markets to meet any foreseeable cash
requirements.
We generated $8.5 billion of cash from operating activities in 2020. Based on the strength of our cash
position, we completed a $1.0 billion debt exchange; redeemed the $500 million principal outstanding of
4.0% notes due February 1, 2021, on November 1, 2020; repaid the $300 million outstanding bilateral
revolving credit lines that we assumed earlier in the year; repaid the $400 million outstanding on the
Receivables Facility; and reduced our commercial paper outstanding from $200 million to $75 million. We
have been, and we expect to continue to be, in compliance with our debt covenants. Our bad debt provision
was adjusted to reflect deteriorations of customers’ creditworthiness. We maintained the dividend during
2020 paying out $2.6 billion and repurchased shares totaling $3.7 billion. In the third quarter, we completed
our $2 billion accelerated share repurchase program entered into on February 18, 2020, and resumed share
repurchases in the fourth quarter after suspending share repurchases in March 2020.
Our principal sources of liquidity include cash, cash equivalents, our receivables securitization facility, our
revolving credit facility, as well as the availability of commercial paper and other sources of financing
35
through the capital markets. On December 31, 2020, we had $1.8 billion of cash and cash equivalents, $2.0
billion of committed credit available under our credit facility, up to $800 million undrawn on the Receivables
Facility, and three bilateral revolving credit lines, which mature in May 2021, with up to $600 million of
available credit. As of December 31, 2020, none of the revolving credit facility, Receivables Facility, or
bilateral revolving credit lines was drawn. We did not draw on our revolving credit facility at any time during
2020. Our access to the receivables securitization facility may be reduced or restricted if our bond ratings
fall to certain levels below investment grade. If our bond rating were to deteriorate, it could have an adverse
impact on our liquidity. Access to commercial paper as well as other capital market financing is dependent
on market conditions. Deterioration of our operating results or financial condition due to internal or external
factors could negatively impact our ability to access capital markets as a source of liquidity. Access to
liquidity through the capital markets is also dependent on our financial stability. We expect that we will
continue to have access to liquidity through any or all of the following sources or activities: (i) increasing
the utilization of our receivables securitization, (ii) issuing commercial paper, (iii) entering into bank loans,
outside of our revolving credit facility, or (iv) issuing bonds or other debt securities to public or private
investors based on our assessment of the current condition of the credit markets. The Company’s $2.0
billion revolving credit facility is intended to support the issuance of commercial paper by UPC and also
serves as an additional source of liquidity to fund short term needs. The Company currently does not intend
to make any borrowings under this facility.
LIBOR Transition – Each of our $2.0 billion revolving credit facility, three bilateral revolving credit lines,
two term loans, and Receivables Securitization Facility currently use LIBOR as the benchmark for its
floating interest rates. Authorities that regulate LIBOR have announced plans to phase out LIBOR so that
it will, at some point, cease to exist as a benchmark for floating interest rates. To address the phase out of
LIBOR, the agreements for substantially all of these facilities include a mechanism to replace LIBOR with
an alternative rate or benchmark under specified circumstances through an amendment to the agreements.
As part of this process, we will need to renegotiate our agreements to reference that alternative rate or
benchmark, and may need to modify our existing benchmark replacement language, or obtain replacement
facilities, and the use of an alternative rate or benchmark may negatively impact the terms of our facilities,
including in the form of an adverse effect on interest rates and higher borrowing costs and interest expense.
Cash Flows
Millions
Cash provided by operating activities
Cash used in investing activities
Cash used in financing activities
Net change in cash, cash equivalents, and restricted cash
Operating Activities
2020
8,540 $
(2,676)
(4,902)
2019
8,609 $
(3,435)
(5,646)
2018
8,686
(3,411)
(5,222)
962 $
(472) $
53
$
$
Cash provided by operating activities decreased in 2020 compared to 2019 due primarily to lower net
income, partially offset by a deferral of employment tax payments allowed by a provision in the Coronavirus
Aid, Relief, and Economic Security Act (CARES Act).
Cash Flow Conversion – Cash flow conversion is defined as cash provided by operating activities less
cash used in capital investments as a ratio of net income.
Cash flow conversion rate is not considered a financial measure 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 cash flow conversion rate is important to management and investors in evaluating our
financial performance and measures our ability to generate cash without additional external financing. Cash
flow conversion rate should be considered in addition to, rather than as a substitute for, cash provided by
operating activities.
36
The following table reconciles cash provided by operating activities (GAAP measure) to cash flow
conversion rate (non-GAAP measure):
Millions,
For the Year Ended December 31, 2020
Cash provided by operating activities
Cash used in capital investments
Total (a)
Net income (b)
Cash flow conversion rate (a/b)
Investing Activities
2020
2019
2018
$ 8,540 $ 8,609 $ 8,686
(3,437)
(2,927)
(3,453)
5,613
5,349
5,156
5,919
5,249
5,966
105 %
87 %
88 %
Cash used in investing activities in 2020 decreased compared to 2019 primarily driven by reduced capital
investment in locomotives and freight cars and increased real estate sales.
The following tables detail cash capital investments and track statistics for the years ended December 31,
2020, 2019, and 2018:
Millions
Ties
Rail and other track material
Ballast
Other [a]
Total road infrastructure replacements
Line expansion and other capacity projects
Commercial facilities
Total capacity and commercial facilities
Locomotives and freight cars [b]
Positive train control
Technology and other
Total cash capital investments
$
2020
507 $
471
225
584
2019
427 $
561
271
694
2018
444
608
216
576
1,787
1,953
1,844
332
171
503
269
79
289
357
183
540
610
95
255
286
234
520
716
158
199
$
2,927 $
3,453 $
3,437
[a] Other includes bridges and tunnels, signals, other road assets, and road work equipment.
[b] Locomotives and freight cars include early lease buyouts of $38 million in 2020, $290 million in 2019, and $290 million in 2018.
Track miles of rail replaced
Track miles of rail capacity expansion
New ties installed (thousands)
Miles of track surfaced
2020
468
83
4,671
10,414
2019
534
55
3,475
7,741
2018
700
39
4,285
9,466
Capital Plan – In 2021, we expect our capital plan to be approximately $2.9 billion, essentially flat with
2020. While implementation of our new transportation plan has generated capacity, we will continue to
harden our infrastructure, replace older assets, and improve the safety and resiliency of the network. In
addition, the plan includes investments intended to support growth and improve productivity and 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 2020 compared to 2019 driven by lower share repurchases,
which were paused in March of 2020 due to the uncertainty of COVID-19 and resumed in the fourth quarter
of 2020, with the exception of the final settlement in July 2020 of our $2 billion accelerated share repurchase
program entered into on February 18, 2020. This decrease was partially offset by an increase in debt repaid.
See Note 14 of the Consolidated Financial Statements for a description of all our outstanding financing
arrangements and significant new borrowings.
37
Share Repurchase Programs
Effective April 1, 2019, our Board of Directors authorized the repurchase of up to 150 million shares of our
common stock by March 31, 2022, replacing our previous repurchase program. 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. As of December 31, 2020, we
repurchased a total of $40.9 billion of our common stock since commencement of our repurchase programs
in 2007. The table below represents shares repurchased under repurchase programs during 2020 and
2019:
First quarter [b]
Second quarter
Third quarter [c]
Fourth quarter
Total
Number of Shares Purchased
2019
2020
14,305,793
-
4,045,575
3,780,743
18,149,450 $
3,732,974
9,529,733
3,582,212
2020
178.66 $
Average Price Paid [a]
2019
165.79
171.24
163.30
167.32
-
98.87
198.07
22,132,111
34,994,369 $
167.39 $
165.85
Remaining number of shares that may be repurchased under current authority
111,022,970
[a]
[b]
[c]
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 2020 and
2019 accelerated share repurchase programs was $155.86 and $167.01, respectively.
Includes 8,786,380 and 11,795,930 shares repurchased in February 2020 and 2019, respectively, under accelerated share
repurchase programs.
Includes an incremental 4,045,575 and 3,172,900 shares received upon final settlement in July 2020 and August 2019,
respectively, under accelerated share repurchase programs.
Management's assessments of market conditions and other pertinent factors guide the timing 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 and fees.
From January 1, 2021, through February 4, 2021, we repurchased 2.1 million shares at an aggregate cost
of approximately $442 million.
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 19, 2020, the Company received 8,786,380 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 2020, we
received 4,045,575 additional shares.
On February 26, 2019, the Company received 11,795,930 shares of its common stock repurchased under
ASRs for an aggregate of $2.5 billion. Upon settlement of these ASRs in the third quarter of 2019, we
received 3,172,900 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.
38
Contractual Obligations and Commercial Commitments
As described in the notes to the Consolidated Financial Statements and as referenced in the tables below,
we have contractual obligations and commercial commitments that may affect our financial condition. Based
on our assessment of the underlying provisions and circumstances of our contractual obligations and
commercial commitments, including material sources of off-balance sheet and structured finance
arrangements, other than the risks that we and other similarly situated companies face with respect to the
condition of the capital markets (as described in Item 1A of Part II of this report), 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 similar to those
of other comparable corporations, particularly within the transportation industry.
The following tables identify material obligations and commitments as of December 31, 2020:
Payments Due by December 31,
Contractual Obligations
Millions
Debt [a]
Purchase obligations [b]
Operating leases [c]
Finance lease obligations [d]
Other post retirement benefits [e]
Income tax contingencies [f]
2024
2022
2021
Total
2023
$ 48,525 $ 1,975 $ 2,280 $ 2,246 $ 2,265 $ 2,245 $ 37,514 $
246
229
81
44
-
2,790
1,830
517
410
74
1,174
325
135
49
1
547
273
111
45
-
457
567
77
194
-
162
216
45
39
-
204
220
68
39
-
2025
After
2025
Other
-
-
-
-
-
73
Total contractual obligations
$ 54,146 $ 3,659 $ 3,256 $ 2,846 $ 2,796 $ 2,707 $ 38,809 $
73
[a] Excludes finance lease obligations of $449 million as well as unamortized discount and deferred issuance costs of ($1,538)
million. Includes an interest component of $20,707 million.
[b] Purchase obligations include locomotive maintenance contracts; purchase commitments for fuel purchases, ties, ballast, and
rail; and agreements to purchase other goods and services.
Includes leases for locomotives, freight cars, other equipment, and real estate.
[c]
[d] Represents total obligations, including interest component of $68 million.
[e]
Includes estimated other post retirement, medical, and life insurance payments, and payments made under the unfunded pension
plan for the next ten years.
[f] Future cash flows for income tax contingencies reflect the recorded liabilities and assets for unrecognized tax benefits, including
interest and penalties, as of December 31, 2020. For amounts where the year of settlement is uncertain, they are reflected in the
Other column.
Amount of Commitment Expiration per Period
Other Commercial Commitments
Millions
Credit facilities [a]
Receivables securitization facility [b]
Bilateral revolving credit lines [c]
Standby letters of credit [d]
Guarantees [e]
$
Total
$ 2,000
800
600
19
10
2021
- $
-
600
16
5
2022
2023
- $ 2,000
-
-
-
-
800
-
3
5
$
$
-
-
-
-
2024
2025
Total commercial commitments
$ 3,429
$
621 $
808 $ 2,000
$
- $
After
2025
-
-
-
-
-
-
- $
-
-
-
-
- $
[a] None of the credit facility was used as of December 31, 2020.
[b] None of the receivables securitization facility was utilized as of December 31, 2020. The full program matures in July 2022.
[c] None of the bilateral revolving credit lines were utilized as of December 31, 2020. The programs mature in May 2021.
[d] None of the letters of credit were drawn upon as of December 31, 2020.
Includes guaranteed obligations related to our affiliated operations.
[e]
Off-Balance Sheet Arrangements
Guarantees – At December 31, 2020 and 2019, we were contingently liable for $10 million and $15 million,
respectively, in guarantees. The fair value of these obligations as of both December 31, 2020 and 2019,
was $0. We entered into these contingent guarantees in the normal course of business, and they include
guaranteed obligations related to our affiliated operations. The final guarantee expires in 2022. We are not
aware of any existing event of default that would require us to satisfy these guarantees. We do not expect
39
that these guarantees will have a material adverse effect on our consolidated financial condition, results of
operations, or liquidity.
OTHER MATTERS
Labor Agreements – Approximately 83% of our full-time employees are represented by 13 major rail
unions. 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. Contract negotiations
historically continue for an extended period of time, and work stoppages during negotiations are rare (see
“Strikes or Work Stoppages Could Adversely Affect Our Operations” in the Risk Factors in Item 1A of this
report).
Inflation – Long periods of inflation significantly increase asset replacement costs for capital-intensive
companies. As a result, assuming that we replace all operating assets at current price levels, depreciation
charges (on an inflation-adjusted basis) would be substantially greater than historically reported amounts.
Sensitivity Analyses – The sensitivity analyses that follow illustrate the economic effect that hypothetical
changes in interest rates could have on our results of operations and financial condition. These hypothetical
changes do not consider other factors that could impact actual results.
At December 31, 2020, we had variable-rate debt representing approximately 1.2% of our total debt. If
variable interest rates average one percentage point higher in 2021 than our December 31, 2020, variable
rate, which was approximately 1.3%, our interest expense would increase by approximately $3.3 million.
This amount was determined by considering the impact of the hypothetical interest rate on the balances of
our variable-rate debt at December 31, 2020.
Market risk for fixed-rate debt is estimated as the potential increase in fair value resulting from a hypothetical
one percentage point decrease in interest rates as of December 31, 2020, and amounts to an increase of
approximately $4.7 billion to the fair value of our debt at December 31, 2020. We estimated the fair values
of our fixed-rate debt by considering the impact of the hypothetical interest rates on quoted market prices
and current borrowing rates.
Accounting Pronouncements – See Note 3 to the Consolidated Financial Statements.
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 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.
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.
Climate Change – Although climate change could have an adverse impact on our operations and financial
performance in the future (see Risk Factors under Item 1A of this report), we are currently unable to predict
the manner or severity of such impact. However, we continue to take steps and explore opportunities to
reduce the impact of our operations on the environment, including investments in new technologies, using
training programs and technology to reduce fuel consumption, and changing our operations to increase fuel
efficiency.
40
CRITICAL ACCOUNTING POLICIES
Our Consolidated Financial Statements have been prepared in accordance with GAAP. 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 we believe are 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. The following critical accounting policies are a subset of our significant accounting policies
described in Note 2 to the Financial Statements and Supplementary Data, Item 8. These critical accounting
policies affect significant areas of our financial statements and involve judgment and estimates. If these
estimates differ significantly from actual results, the impact on our Consolidated Financial Statements may
be material.
Personal Injury – The cost of personal injuries to employees and others related to our activities is charged
to expense based on estimates of the ultimate cost and number of incidents each year. We use an actuarial
analysis to measure the expense and liability, including unasserted claims. 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.
Our personal injury liability is not discounted to present value due to the uncertainty surrounding the timing
of future payments. Approximately 94% of the recorded liability is related to asserted claims and
approximately 6% is related to unasserted claims at December 31, 2020. 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 $270 million to $295 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
Beginning balance
Current year accruals
Changes in estimates for prior years
Payments
Ending balance at December 31
Current portion, ending balance at December 31
Our personal injury claims activity was as follows:
Open claims, beginning balance
New claims
Settled or dismissed claims
Open claims, ending balance at December 31
2020
265 $
72
(3)
(64)
270 $
2019
271 $
78
(11)
(73)
265 $
60 $
63 $
2018
285
74
(16)
(72)
271
72
$
$
$
2020
1,985
2,577
(2,665)
1,897
2019
2,025
3,025
(3,065)
1,985
2018
2,090
3,188
(3,253)
2,025
We reassess our estimated insurance recoveries annually and have recognized an asset for estimated
insurance recoveries at December 31, 2020 and 2019. Any changes to recorded insurance recoveries are
included in the above table in the Changes in estimates for prior years category.
Environmental Costs – We are subject to federal, state, and local environmental laws and regulations.
We have identified 373 sites where we are or may be liable for remediation costs associated with alleged
contamination or for violations of environmental requirements. This includes 29 sites that are the subject of
actions taken by the U.S. government, 18 of which 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.
41
When we identify an environmental issue with respect to property owned, leased, or otherwise used in our
business, we perform, with assistance of our consultants, environmental assessments on the property. We
expense the cost of the assessments as incurred. We accrue the cost of remediation where our obligation
is probable and such costs can be reasonably estimated. Our environmental liability is not discounted to
present value due to the uncertainty surrounding the timing of future payments.
Our environmental liability activity was as follows:
Millions
Beginning balance
Accruals
Payments
Ending balance at December 31
Current portion, ending balance at December 31
Our environmental site activity was as follows:
Open sites, beginning balance
New sites
Closed sites
Open sites, ending balance at December 31
2020
227 $
76
(70)
233 $
2019
223 $
67
(63)
227 $
65 $
62 $
$
$
$
2020
360
96
(83)
373
2019
334
114
(88)
360
2018
196
84
(57)
223
59
2018
315
91
(72)
334
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.
Property and Depreciation – Our railroad operations are highly capital intensive, and our large base of
homogeneous, network-type assets turns over on a continuous basis. Each year we develop a capital
program for the replacement of assets and for the acquisition or construction of assets that enables us to
enhance our operations or provide new service offerings to customers. Assets purchased or constructed
throughout the year are capitalized if they meet applicable minimum units of property criteria. Properties
and equipment are carried at cost and are depreciated on a straight-line basis over their estimated service
lives, which are measured in years, except for rail in high-density traffic corridors (i.e., all rail lines except
for those subject to abandonment, and yard and switching tracks) for which lives are measured in millions
of gross tons per mile of track. We use the group method of depreciation in which all items with similar
characteristics, use, and expected lives are grouped together in asset classes and are depreciated using
composite depreciation rates. The group method of depreciation treats each asset class as a pool of
resources, not as singular items. We currently have more than 60 depreciable asset classes, and we may
increase or decrease the number of asset classes due to changes in technology, asset strategies, or other
factors.
We determine the estimated service lives of depreciable railroad property by means of depreciation studies.
We perform depreciation studies at least every three years for equipment and every six years for track
assets (i.e., rail and other track material, ties, and ballast) and other road property. Our depreciation studies
take into account the following factors:
Statistical analysis of historical patterns of use and retirements of each of our asset classes;
Evaluation of any expected changes in current operations and the outlook for continued use of the
assets;
Evaluation of technological advances and changes to maintenance practices; and
Expected salvage to be received upon retirement.
42
For rail in high-density traffic corridors, we measure estimated service lives in millions of gross tons per
mile of track. It has been our experience that the lives of rail in high-density traffic corridors are closely
correlated to usage (i.e., the amount of weight carried over the rail). The service lives also vary based on
rail weight, rail condition (e.g., new or secondhand), and rail type (e.g., straight or curve). Our depreciation
studies for rail in high-density traffic corridors consider each of these factors in determining the estimated
service lives. For rail in high-density traffic corridors, we calculate depreciation rates annually by dividing
the number of gross ton-miles carried over the rail (i.e., the weight of loaded and empty freight cars,
locomotives, and maintenance of way equipment transported over the rail) by the estimated service lives
of the rail measured in millions of gross tons per mile. Rail in high-density traffic corridors accounts for
approximately 70 percent of the historical cost of rail and other track material. Based on the number of
gross ton-miles carried over our rail in high density traffic corridors during 2020, the estimated service lives
of the majority of this rail ranged from approximately 24 years to approximately 48 years. For all other
depreciable assets, we compute depreciation based on the estimated service lives of our assets as
determined from the analysis of our depreciation studies. Changes in the estimated service lives of our
assets and their related depreciation rates are implemented prospectively.
Estimated service lives of depreciable railroad property may vary over time due to changes in physical use,
technology, asset strategies, and other factors that will have an impact on the retirement profiles of our
assets. We are not aware of any specific factors that are reasonably likely to significantly change the
estimated service lives of our assets. Actual use and retirement of our assets may vary from our current
estimates, which would impact the amount of depreciation expense recognized in future periods.
Changes in estimated useful lives of our assets due to the results of our depreciation studies could
significantly impact future periods’ depreciation expense and have a material impact on our Consolidated
Financial Statements. If the estimated useful lives of all depreciable assets were increased by one year,
annual depreciation expense would decrease by approximately $68 million. If the estimated useful lives of
all depreciable assets were decreased by one year, annual depreciation expense would increase by
approximately $72 million. Our 2020 depreciation studies have resulted in lower depreciation rates for some
asset classes. These lower rates offset the impact of a projected higher depreciable asset base, resulting
in a flat year-over-year total depreciation expense in 2021 versus 2020.
Under group depreciation, the historical cost (net of salvage) of depreciable property that is retired or
replaced in the ordinary course of business is charged to accumulated depreciation and no gain or loss is
recognized. The historical cost of certain track assets is estimated by multiplying the current replacement
cost of track assets by a historical index factor derived from (i) inflation indices published by the Bureau of
Labor Statistics and (ii) the estimated useful lives of the assets as determined by our depreciation studies.
The indices were selected because they closely correlate with the major costs of the properties comprising
the applicable track asset classes. Because of the number of estimates inherent in the depreciation and
retirement processes and because it is impossible to precisely estimate each of these variables until a
group of property is completely retired, we continually monitor the estimated service lives of our assets and
the accumulated depreciation associated with each asset class to ensure our depreciation rates are
appropriate. In addition, we determine if the recorded amount of accumulated depreciation is deficient (or
in excess) of the amount indicated by our depreciation studies. Any deficiency (or excess) is amortized as
a component of depreciation expense over the remaining service lives of the applicable classes of assets.
For retirements of depreciable railroad properties that do not occur in the normal course of business, a gain
or loss may be recognized if the retirement meets each of the following three conditions: (i) it is unusual,
(ii) it is material in amount, and (iii) it varies significantly from the retirement profile identified through our
depreciation studies. During the last three fiscal years, no gains or losses were recognized due to the
retirement of depreciable railroad properties. A gain or loss is recognized in other income when we sell land
or dispose of assets that are not part of our railroad operations.
We review construction in progress assets that have not yet been placed into service, for impairment when
events or changes in circumstances indicate that the carrying amount of a long-lived asset or assets may
not be recoverable. If impairment indicators are present and the estimated future undiscounted cash flows
are less than the carrying value of construction in progress assets when grouped with other assets and
liabilities at the lowest level for which identifiable cash flows are largely independent, the carrying value is
reduced to the estimated fair value.
Income Taxes – We account for income taxes by recording taxes payable or refundable for the current
year and deferred tax assets and liabilities for the expected future tax consequences of events that have
43
been recognized in our financial statements or tax returns. These expected future tax consequences are
measured based on current tax law; the effects of future tax legislation are not anticipated. Future tax
legislation, such as a change in the corporate tax rate, could have a material impact on our financial
condition, results of operations, or liquidity. For example, a permanent 1% increase in future income tax
rates would increase our deferred tax liability by approximately $521 million. Similarly, a permanent 1%
decrease in future income tax rates would decrease our deferred tax liability by approximately $521 million.
When appropriate, we record a valuation allowance against deferred tax assets to reflect that these tax
assets may not be realized. In determining whether a valuation allowance is appropriate, we consider
whether it is more likely than not that all or some portion of our deferred tax assets will not be realized,
based on management’s judgments using available evidence for purposes of estimating whether future
taxable income will be sufficient to realize a deferred tax asset. In 2020 and 2019, there were no valuation
allowances.
We recognize tax benefits that are more likely than not to be sustained upon examination by tax authorities.
The amount recognized is measured as the largest amount of benefit that is greater than 50 percent likely
to be realized upon settlement. A liability for “unrecognized tax benefits” is recorded for any tax benefits
claimed in our tax returns that do not meet these recognition and measurement standards.
Pension and Other Postretirement Benefits – We use an actuarial analysis to measure the liabilities and
expenses associated with providing pension and medical and life insurance benefits (OPEB) to eligible
employees. In order to use actuarial methods to value the liabilities and expenses, we must make several
assumptions. The critical assumptions used to measure pension obligations and expenses are the discount
rates and expected rate of return on pension assets. For OPEB, the critical assumptions are the discount
rates and health care cost trend rate.
We evaluate our critical assumptions at least annually, and selected assumptions are based on the
following factors:
We measure the service cost and interest cost components of our net periodic benefit cost by using
individual spot rates matched with separate cash flows for each future year. Discount rates are based
on a Mercer yield curve of high quality corporate bonds (rated AA by a recognized rating agency).
Expected return on plan assets is based on our asset allocation mix and our historical return, taking
into consideration current and expected market conditions.
Health care cost trend rate is based on our historical rates of inflation and expected market conditions.
The following tables present the key assumptions used to measure net periodic pension and OPEB
cost/(benefit) for 2021 and the estimated impact on 2021 net periodic pension and OPEB cost/(benefit)
relative to a change in those assumptions:
Assumptions
Discount rate for benefit obligations
Discount rate for interest on benefit obligations
Discount rate for service cost
Discount rate for interest on service cost
Expected return on plan assets
Compensation increase
Health care cost trend rate:
Pre-65 current
Pre-65 level in 2038
Sensitivities
Millions
0.25% decrease in discount rates
0.25% increase in compensation scale
0.25% decrease in expected return on plan assets
$
$
$
44
Pension
2.42%
1.91%
2.62%
2.54%
6.25%
4.40%
N/A
N/A
OPEB
2.22%
1.57%
2.36%
2.23%
N/A
N/A
5.42%
4.50%
Pension
Increase in Expense
OPEB
(5)
N/A
N/A
13 $
9
10
The following table presents the net periodic pension and OPEB cost for the years ended December 31:
Millions
Net periodic pension cost
Net periodic OPEB cost
CAUTIONARY INFORMATION
Est.
2021
98 $
(3)
$
2020
50 $
(1)
2019
34 $
10
2018
71
23
Certain statements in this report, 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. These forward-looking statements and information include, without limitation,
statements in the Chairman’s letter preceding Part I; statements regarding planned capital expenditures
under the caption “2021 Capital Plan” in Item 2 of Part I; and statements and information set forth under
the captions “2021 Outlook”; “Liquidity and Capital Resources” in Item 7 of Part II regarding our capital plan,
“Share Repurchase Programs”, “Off-Balance Sheet Arrangements, Contractual Obligations, and
Commercial Commitments”, “Pension and Other Postretirement Benefits”, and “Other Matters” in this Item
7 of Part II. 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 pandemic on our business operations, financial results, liquidity, and financial position, and on
the world economy (including our customers and supply chains), including as a result of decreased volume
and carloadings; closing of customer manufacturing, distribution, or production facilities; expectations as to
operational or service improvements; 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 general economic
conditions; expectations as to operational or service performance or improvements; expectations as to the
effectiveness of steps taken or to be taken to improve operations and/or service, including capital
expenditures for infrastructure improvements and equipment acquisitions, any strategic business
acquisitions, and modifications to our transportation plans, including leveraging PTC; expectations as to
existing or proposed new products and services; expectations as to the impact of any new regulatory
activities or legislation on our operations or financial results; 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, or
other matters will not have a material adverse effect on our consolidated results of operations, financial
condition, or liquidity and any other similar expressions concerning matters that are not historical facts.
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 should not be read as a guarantee of future performance or results, and will
not necessarily be accurate indications of the times that, or by which, such performance or results will be
achieved. Forward-looking statements and information are subject to risks and uncertainties, including the
impact of the COVID-19 pandemic and responses by governments, businesses, and individuals, 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, the COVID-19 pandemic. The Risk Factors in Item 1A of this report could
affect our future results and could cause those results or other outcomes to differ materially from those
expressed or implied in any 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.
45
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.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
Information concerning market risk sensitive instruments is set forth under Management’s Discussion and
Analysis of Financial Condition and Results of Operations – Other Matters, Item 7.
Item 8. Financial Statements and Supplementary Data
****************************************
Index to Consolidated Financial Statements
Page
Report of Independent Registered Public Accounting Firm
Consolidated Statements of Income
For the Years Ended December 31, 2020, 2019, and 2018
Consolidated Statements of Comprehensive Income
For the Years Ended December 31, 2020, 2019, and 2018
Consolidated Statements of Financial Position
At December 31, 2020 and 2019
Consolidated Statements of Cash Flows
For the Years Ended December 31, 2020, 2019, and 2018
Consolidated Statements of Changes in Common Shareholders’ Equity
For the Years Ended December 31, 2020, 2019, and 2018
Notes to the Consolidated Financial Statements
47
49
49
50
51
52
53
46
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of Union Pacific Corporation
Opinion on the Financial Statements
We have audited the accompanying consolidated statements of financial position of Union Pacific
Corporation and Subsidiary Companies (the "Corporation") as of December 31, 2020 and 2019, the related
consolidated statements of income, comprehensive income, changes in common shareholders’ equity, and
cash flows for each of the three years in the period ended December 31, 2020, and the related notes and
the schedule listed in the Table of Contents at Part IV, Item 15 (collectively referred to as the "financial
statements"). In our opinion, the financial statements present fairly, in all material respects, the financial
position of the Corporation as of December 31, 2020 and 2019, and the results of its operations and its
cash flows for each of the three years in the period ended December 31, 2020, in conformity with accounting
principles generally accepted in the United States of America.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight
Board (United States) (PCAOB), the Corporation's internal control over financial reporting as of December
31, 2020, based on criteria established in Internal Control — Integrated Framework (2013) issued by the
Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 5,
2021, expressed an unqualified opinion on the Corporation's internal control over financial reporting.
Change in Accounting Principle
As discussed in Note 3 to the financial statements, effective January 1, 2019, the Corporation adopted
Financial Accounting Standards Board Accounting Standards Update No. 2016-02, Leases (Topic 842).
Basis for Opinion
These financial statements are the responsibility of the Corporation's management. Our responsibility is to
express an opinion on the Corporation's financial statements based on our audits. We are a public
accounting firm registered with the PCAOB and are required to be independent with respect to the
Corporation in accordance with the U.S. federal securities laws and the applicable rules and regulations of
the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that
we plan and perform the audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement, whether due to error or fraud. Our audits included performing procedures to
assess the risks of material misstatement of the financial statements, whether due to error or fraud, and
performing procedures that respond to those risks. Such procedures included examining, on a test basis,
evidence regarding the amounts and disclosures in the financial statements. Our audits also included
evaluating the accounting principles used and significant estimates made by management, as well as
evaluating the overall presentation of the financial statements. We believe that our audits provide a
reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current-period audit of the financial
statements that was communicated or required to be communicated to the audit committee and that (1)
relates to accounts or disclosures that are material to the financial statements and (2) involved our
especially challenging, subjective, or complex judgments. The communication of critical audit matters does
not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by
communicating the critical audit matter below, providing a separate opinion on the critical audit matter or
on the accounts or disclosures to which it relates.
47
Capitalization of Properties — Refer to Notes 2 and 11 to the financial statements
Critical Audit Matter Description
The Corporation’s operations are highly capital intensive and their large network of assets turns over on a
continuous basis. Each year, the Corporation develops a capital program for both the replacement of assets
and for the acquisition or construction of new assets. In determining whether costs should be capitalized,
the Corporation exercises significant judgment in determining whether expenditures meet the applicable
minimum units of property criteria and extend the useful life, improve the safety of operations, or improve
the operating efficiency of existing assets. The Corporation capitalizes all costs of capital projects necessary
to make assets ready for their intended use and because a portion of the Corporation’s assets are self-
constructed, management also exercises significant judgment in determining the amount of material, labor,
work equipment, and indirect costs that qualify for capitalization. Net properties were $54,161 million as of
December 31, 2020 and, during 2020, the Corporation’s capital investments were $2.9 billion.
We identified the capitalization of property as a critical audit matter because of the significant judgment
exercised by management in determining whether costs meet the criteria for capitalization. This, in turn,
required a high degree of auditor judgment when performing audit procedures to evaluate whether the
criteria to capitalize costs were met and to evaluate sufficiency of audit evidence to support management’s
conclusions.
How the Critical Audit Matter Was Addressed in the Audit
Our procedures related to capitalization of property included the following, among others:
We tested the effectiveness of controls over the Corporation’s determination of whether costs related
to the Corporation’s capital program should be capitalized or expensed.
We evaluated the Corporation’s capitalization policy in accordance with accounting principles generally
accepted in the United States of America.
For a selection of capital projects, we performed the following:
− Obtained the Corporation’s evaluation of each project and determined whether the amount of costs
to be capitalized met the criteria for capitalization as outlined within the Corporation’s policy by unit
of property.
− Obtained supporting documentation that the project met the applicable minimum units of property
criteria and was approved, and evaluated whether the project extended the useful life of an existing
asset, improved the safety of operations, or improved the operating efficiency of existing assets.
For a selection of capitalized costs during the year, we performed the following:
− Evaluated whether the individual cost selected met the criteria for capitalization.
− Evaluated whether the selection was accurately recorded at the appropriate amount based on the
evidence obtained.
Omaha, Nebraska
February 5, 2021
We have served as the Corporation’s auditor since 1967.
48
CONSOLIDATED STATEMENTS OF INCOME
Union Pacific Corporation and Subsidiary Companies
Millions, Except Per Share Amounts,
for the Years Ended December 31,
Operating revenues:
Freight revenues
Other revenues
Total operating revenues
Operating expenses:
Compensation and benefits
Depreciation
Purchased services and materials
Fuel
Equipment and other rents
Other
Total operating expenses
Operating income
Other income (Note 6)
Interest expense
Income before income taxes
Income tax expense (Note 7)
Net income
Share and Per Share (Note 8):
Earnings per share - basic
Earnings per share - diluted
Weighted average number of shares - basic
Weighted average number of shares - diluted
2020
2019
2018
$
18,251 $
1,282
20,243 $
1,465
19,533
21,708
3,993
2,210
1,962
1,314
875
1,345
4,533
2,216
2,254
2,107
984
1,060
21,384
1,448
22,832
5,056
2,191
2,443
2,531
1,072
1,022
11,699
13,154
14,315
7,834
287
(1,141)
6,980
(1,631)
8,554
243
(1,050)
7,747
(1,828)
8,517
94
(870)
7,741
(1,775)
5,349 $
5,919 $
5,966
7.90 $
7.88 $
677.3
679.1
8.41 $
8.38 $
703.5
706.1
7.95
7.91
750.9
754.3
$
$
$
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Union Pacific Corporation and Subsidiary Companies
Millions,
for the Years Ended December 31,
Net income
Other comprehensive income/(loss)
Defined benefit plans
Foreign currency translation
Total other comprehensive income/(loss) [a]
2020
2019
2018
$
5,349
$
5,919 $
5,966
(231)
(6)
(237)
42
17
59
62
(36)
26
Comprehensive income
$
5,112
$
5,978 $
5,992
[a] Net of deferred taxes of $75 million, ($15) million, and ($22) million during 2020, 2019, and 2018, respectively.
The accompanying notes are an integral part of these Consolidated Financial Statements.
49
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
Union Pacific Corporation and Subsidiary Companies
Millions, Except Share and Per Share Amounts
as of December 31,
Assets
Current assets:
Cash and cash equivalents
Short-term investments (Note 13)
Accounts receivable, net (Note 10)
Materials and supplies
Other current assets
Total current assets
Investments
Net properties (Note 11)
Operating lease assets (Note 16)
Other assets
Total assets
Liabilities and Common Shareholders' Equity
Current liabilities:
Accounts payable and other current liabilities (Note 12)
Debt due within one year (Note 14)
Total current liabilities
Debt due after one year (Note 14)
Operating lease liabilities (Note 16)
Deferred income taxes (Note 7)
Other long-term liabilities
Commitments and contingencies (Note 17)
Total liabilities
Common shareholders' equity:
Common shares, $2.50 par value, 1,400,000,000 authorized;
1,112,227,784 and 1,112,014,480 issued; 671,351,360 and 692,100,651
outstanding, respectively
Paid-in-surplus
Retained earnings
Treasury stock
Accumulated other comprehensive loss (Note 9)
Total common shareholders' equity
Total liabilities and common shareholders' equity
The accompanying notes are an integral part of these Consolidated Financial Statements.
2020
2019
$
1,799 $
60
1,505
638
212
4,214
2,164
54,161
1,610
249
831
60
1,595
751
222
3,459
2,050
53,916
1,812
436
$
62,398 $
61,673
$
3,104 $
1,069
4,173
25,660
1,283
12,247
2,077
3,094
1,257
4,351
23,943
1,471
11,992
1,788
45,440
43,545
2,781
4,864
51,326
(40,420)
(1,593)
2,780
4,523
48,605
(36,424)
(1,356)
16,958
18,128
$
62,398 $
61,673
50
CONSOLIDATED STATEMENTS OF CASH FLOWS
Union Pacific Corporation and Subsidiary Companies
Millions, for the Years Ended December 31,
Operating Activities
Net income
Adjustments to reconcile net income to cash provided
by operating activities:
Depreciation
Deferred and other income taxes
Net gain on non-operating asset dispositions
Other operating activities, net
Changes in current assets and liabilities:
Accounts receivable, net
Materials and supplies
Other current assets
Accounts payable and other current liabilities
Income and other taxes
Cash provided by operating activities
Investing Activities
Capital investments
Proceeds from asset sales
Maturities of short-term investments (Note 13)
Purchases of short-term investments (Note 13)
Other investing activities, net
Cash used in investing activities
Financing Activities
Debt issued (Note 14)
Share repurchase programs (Note 18)
Dividends paid
Debt repaid
Debt exchange
Net issuance of commercial paper (Note 14)
Other financing activities, net
Cash used in financing activities
Net change in cash, cash equivalents, and restricted cash
Cash, cash equivalents, and restricted cash at beginning of year
Cash, cash equivalents, and restricted cash at end of year
Supplemental Cash Flow Information
Non-cash investing and financing activities:
Term loan renewals
Capital investments accrued but not yet paid
Locomotives sold for material credits
Finance lease financings
Cash paid during the year for:
Income taxes, net of refunds
Interest, net of amounts capitalized
2020
2019
2018
$
5,349 $
5,919 $
5,966
2,210
340
(115)
490
90
113
(34)
(73)
170
8,540
(2,927)
149
141
(136)
97
(2,676)
4,004
(3,705)
(2,626)
(2,053)
(328)
(127)
(67)
(4,902)
962
856
1,818 $
250 $
166
-
-
2,216
566
(20)
98
160
(9)
87
(179)
(229)
8,609
(3,453)
74
130
(115)
(71)
(3,435)
3,986
(5,804)
(2,598)
(817)
(387)
(6)
(20)
(5,646)
(472)
1,328
856 $
250 $
224
18
-
2,191
338
(30)
347
(262)
7
(24)
(125)
278
8,686
(3,437)
63
90
(90)
(37)
(3,411)
6,892
(8,225)
(2,299)
(1,736)
-
194
(48)
(5,222)
53
1,275
1,328
250
205
-
12
(1,214) $
(1,050)
(1,382) $
(1,033)
(1,205)
(728)
$
$
$
The accompanying notes are an integral part of these Consolidated Financial Statements.
51
CONSOLIDATED STATEMENTS OF CHANGES IN COMMON SHAREHOLDERS' EQUITY
Union Pacific Corporation and Subsidiary Companies
Millions
Balance at January 1, 2018
Net income
Other comprehensive income
Conversion, stock option
exercises, forfeitures, and other
Share repurchase programs
(Note 18)
Cash dividends declared
($3.06 per share)
Reclassification due to ASU
2018-02 adoption [b]
Balance at December 31, 2018
Net income
Other comprehensive income
Conversion, stock option
exercises, forfeitures, and other
Share repurchase programs
(Note 18)
Cash dividends declared
($3.70 per share)
Balance at December 31, 2019
Net income
Other comprehensive loss
Conversion, stock option
exercises, forfeitures, and other
Share repurchase programs
(Note 18)
Cash dividends declared
($3.88 per share)
Common
Shares
Treasury
Shares
Common
Shares
Paid-in-
Surplus
Retained
Earnings
Total
1,111.4 (330.5)$ 2,778 $ 4,476 $ 41,317 $ (22,574) $ (1,141) $ 24,856
5,966
26
5,966
-
-
26
-
-
-
-
-
-
Treasury
Stock
AOCI
[a]
0.3
1.1
1
65
-
-
(57.2)
-
-
-
-
-
-
33
(8,133)
(92)
-
(2,299)
-
300
-
-
-
-
-
99
(8,225)
(2,299)
(300)
-
1,111.7 (386.6)$ 2,779 $ 4,449 $ 45,284 $ (30,674) $ (1,415) $ 20,423
5,919
59
5,919
-
-
59
-
-
-
-
-
-
0.3
1.7
1
46
-
-
(35.0)
-
-
-
28
-
(2,598)
-
-
-
82
(5,832)
1,112.0 (419.9)$ 2,780 $ 4,523 $ 48,605 $ (36,424) $ (1,356) $ 18,128
5,349
(237)
5,349
-
-
(237)
-
-
-
-
-
-
0.2
1.1
1
31
(22.1)
-
310
-
-
19
(4,015)
-
-
-
(2,628)
-
-
-
-
-
-
129
(5,804)
(2,598)
-
-
-
51
(3,705)
(2,628)
Balance at December 31, 2020
1,112.2 (440.9)$ 2,781 $ 4,864 $ 51,326 $ (40,420) $ (1,593) $ 16,958
[a] AOCI = Accumulated Other Comprehensive Income/Loss (Note 9)
[b] ASU 2018-02 is the Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income, which allows entities
the option to reclassify from accumulated other comprehensive income to retained earnings the income tax effects that remain
stranded in AOCI resulting from the application of the Tax Cuts and Jobs Act.
The accompanying notes are an integral part of these Consolidated Financial Statements.
52
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Union Pacific Corporation and Subsidiary Companies
For purposes of this report, unless the context otherwise requires, all references herein to the “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. Nature of Operations
Operations and Segmentation – We are a Class I railroad operating in the U.S. Our network includes
32,313 route miles, connecting Pacific Coast and Gulf Coast ports with the Midwest and Eastern U.S.
gateways and providing several corridors to key Mexican and Canadian gateways. We own 26,069 miles
and operate on the remainder pursuant to trackage rights or leases. We serve the western two-thirds of the
country and maintain coordinated schedules with other rail carriers for the handling of freight to and from
the Atlantic Coast, the Pacific Coast, the Southeast, the Southwest, Canada, and Mexico. Export and import
traffic is moved through Gulf Coast and Pacific Coast ports and across the Mexican and Canadian borders.
The Railroad, along with its subsidiaries and rail affiliates, is our one reportable operating segment.
Although we provide and analyze revenue 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:
Millions
Bulk
Industrial
Premium
Total freight revenues
Other subsidiary revenues
Accessorial revenues
Other
Total operating revenues
$
$
2020
5,960 $
6,622
5,669
18,251 $
743
473
66
2019
6,529 $
7,472
6,242
20,243 $
880
514
71
2018
7,069
7,689
6,626
21,384
881
502
65
$
19,533 $
21,708 $
22,832
Although our revenues are principally derived from customers domiciled in the U.S., the ultimate points of
origination or destination for some products we transport are outside the U.S. Each of our commodity
groups includes revenue from shipments to and from Mexico. Included in the above table are freight
revenues from our Mexico business which amounted to $2.1 billion in 2020, $2.3 billion in 2019, and $2.5
billion in 2018.
Basis of Presentation – The Consolidated Financial Statements are presented in accordance with
accounting principles generally accepted in the U.S. (GAAP) as codified in the Financial Accounting
Standards Board (FASB) Accounting Standards Codification (ASC).
2. Significant Accounting Policies
Principles of Consolidation – The Consolidated Financial Statements include the accounts of Union
Pacific Corporation and all of its subsidiaries. Investments in affiliated companies (20% to 50% owned) are
accounted for using the equity method of accounting. All intercompany transactions are eliminated. We
currently have no less than majority-owned investments that require consolidation under variable interest
entity requirements.
Cash, Cash Equivalents, and Restricted Cash – Cash equivalents consist of investments with original
maturities of three months or less. Amounts included in restricted cash represent those required to be set
aside by contractual agreement.
53
The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported within
the Consolidated Statements of Financial Position that sum to the total of the same such amounts shown
on the Consolidated Statements of Cash Flows:
Millions
Cash and cash equivalents
Restricted cash equivalents in other current assets
Restricted cash equivalents in other assets
Total cash, cash equivalents, and restricted cash
equivalents shown on the Statement of Cash Flows:
$
$
2020
1,799 $
7
12
1,818 $
2019
831 $
13
12
856 $
2018
1,273
42
13
1,328
Accounts Receivable – Accounts receivable includes receivables reduced by an allowance for doubtful
accounts. The allowance is based upon historical losses, credit worthiness of customers, and current
economic conditions. Receivables not expected to be collected in one year and the associated allowances
are classified as other assets in our Consolidated Statements of Financial Position.
Investments – Investments represent our investments in affiliated companies (20% to 50% owned) that
are accounted for under the equity method of accounting and investments in companies (less than 20%
owned) accounted for at cost as there are not readily determinable fair values for such investments. Our
portion of income/loss on equity method investments that are integral to our operations are recorded in
operating expenses.
Materials and Supplies – Materials and supplies are carried at the lower of average cost or net realizable
value.
Property and Depreciation – Properties and equipment are carried at cost and are depreciated on a
straight-line basis over their estimated service lives, which are measured in years, except for rail in high-
density traffic corridors (i.e., all rail lines except for those subject to abandonment, and yard and switching
tracks), for which lives are measured in millions of gross tons per mile of track. We use the group method
of depreciation in which all items with similar characteristics, use, and expected lives are grouped together
in asset classes and are depreciated using composite depreciation rates. The group method of depreciation
treats each asset class as a pool of resources, not as singular items. We determine the estimated service
lives of depreciable railroad assets by means of depreciation studies. Under the group method of
depreciation, no gain or loss is recognized when depreciable property is retired or replaced in the ordinary
course of business.
Impairment of Long-lived Assets – We review long-lived assets, including identifiable intangibles, for
impairment when events or changes in circumstances indicate that the carrying amount of an asset may
not be recoverable. If impairment indicators are present and the estimated future undiscounted cash flows
are less than the carrying value of the long-lived assets, the carrying value is reduced to the estimated fair
value.
Revenue Recognition – Freight revenues are derived from contracts with customers. We account for a
contract when it has approval and commitment from both parties, the rights of the parties are identified,
payment terms are identified, the contract has commercial substance, and collectability of consideration is
probable. Our contracts include private agreements, private rate/letter quotes, public circulars/tariffs, and
interline/foreign agreements. The performance obligation in our contracts is typically delivering a specific
commodity from a place of origin to a place of destination and our commitment begins with the tendering
and acceptance of a freight bill of lading and is satisfied upon delivery at destination. We consider each
freight shipment to be a distinct performance obligation.
We recognize freight revenues over time as freight moves from origin to destination. The allocation of
revenue between reporting periods is based on the relative transit time in each reporting period with
expenses recognized as incurred. Outstanding performance obligations related to freight moves in transit
totaled $151 million at December 31, 2020, and $127 million at December 31, 2019, and are expected to
be recognized in the following quarter as we satisfy our remaining performance obligations and deliver
freight to destination. The transaction price is generally specified in a contract and may be dependent on
the commodity, origin/destination, and route. 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
54
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.
Under typical payment terms, our customers pay us after each performance obligation is satisfied and there
are no material contract assets or liabilities associated with our freight revenues. Outstanding freight
receivables are presented in our Consolidated Statements of Financial Position as Accounts Receivables,
net.
Freight revenue related to interline transportation services that involve other railroads are reported on a net
basis. The portion of the gross amount billed to customers that is remitted by the Company to another party
is not reflected as freight revenue.
Other revenues consist primarily of revenues earned by our other subsidiaries (primarily logistics and
commuter rail operations) and accessorial revenues. Other subsidiary revenues are generally recognized
over time as shipments move from origin to destination. The allocation of revenue 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.
Translation of Foreign Currency – Our portion of the assets and liabilities related to foreign investments
are translated into U.S. dollars at the exchange rates in effect at the balance sheet date. Revenue and
expenses are translated at the average rates of exchange prevailing during the year. Unrealized gains or
losses are reflected within common shareholders’ equity as accumulated other comprehensive income or
loss.
Fair Value Measurements – We use a fair value hierarchy that prioritizes the inputs to valuation techniques
used to measure fair value into three broad levels. The level in the fair value hierarchy within which the fair
value measurement in its entirety falls is determined based on the lowest level input that is significant to
the fair value measurement in its entirety. These levels include:
Level 1: Quoted market prices in active markets for identical assets or liabilities.
Level 2: Observable market-based inputs or unobservable inputs that are corroborated by market data.
Level 3: Unobservable inputs that are not corroborated by market data.
We have applied fair value measurements to our short term investments, pension plan assets, impairment
of long-lived assets, and short- and long-term debt.
Stock-Based Compensation – We have several stock-based compensation plans under which 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”. We issue treasury shares to cover
option exercises and stock unit vestings, while new shares are issued when retention shares are granted.
We measure and recognize compensation expense for all stock-based awards made to employees,
including stock options. Compensation expense is based on the fair value of the awards as measured at
the grant date and is expensed ratably over the service period of the awards (generally the vesting period).
The fair value of retention awards is the closing stock price on the date of grant, while the fair value of stock
options is determined by using the Black-Scholes option pricing model.
Earnings Per Share – Basic earnings per share are calculated on the weighted-average number of
common shares outstanding during each period. Diluted earnings per share include shares issuable upon
exercise of outstanding stock options and stock-based awards where the conversion of such instruments
would be dilutive.
Income Taxes – We account for income taxes by recording taxes payable or refundable for the current
year and deferred tax assets and liabilities for the expected future tax consequences of events that have
been recognized in our financial statements or tax returns. These expected future tax consequences are
measured based on current tax law; the effects of future tax legislation are not anticipated. Future tax
legislation, such as a change in the corporate tax rate, could have a material impact on our financial
condition, results of operations, or liquidity.
When appropriate, we record a valuation allowance against deferred tax assets to reflect that these tax
assets may not be realized. In determining whether a valuation allowance is appropriate, we consider
whether it is more likely than not that all or some portion of our deferred tax assets will not be realized,
55
based on management’s judgments using available evidence for purposes of estimating whether future
taxable income will be sufficient to realize a deferred tax asset.
We recognize tax benefits that are more likely than not to be sustained upon examination by tax authorities.
The amount recognized is measured as the largest amount of benefit that is greater than 50 percent likely
to be realized upon settlement. A liability for “unrecognized tax benefits” is recorded for any tax benefits
claimed in our tax returns that do not meet these recognition and measurement standards.
Leases – We lease certain locomotives, freight cars, and other property for use in our rail operations. We
determine if an arrangement is or contains a lease at inception. Operating lease assets and operating lease
liabilities are recognized based on the present value of the future minimum lease payments, discounted
using our collateralized incremental borrowing rate, over the lease term at commencement date. Our lease
terms may include options to extend or terminate the lease when it is reasonably certain that the option will
be exercised. Operating leases are included in operating lease assets, accounts payable and other current
liabilities, and operating lease liabilities on our Consolidated Statements of Financial Position. Finance
leases are included in net properties, debt due within one year, and debt due after one year on our
Consolidated Statements of Financial Position. Operating lease expense is recognized on a straight-line
basis over the lease term and reported in equipment and other rents and financing lease expense is
recorded as depreciation and interest expense in our Consolidated Statements of Income.
We have lease agreements with lease and non-lease components and we have elected to not separate
lease and non-lease components for all classes of underlying assets. Leases with an initial term of 12
months or less are not recorded on our Consolidated Statements of Financial Position. Leases with initial
terms in excess of 12 months are recorded as operating or financing leases in our Consolidated Statements
of Financial Position.
Pension and Postretirement Benefits – We incur certain employment-related expenses associated with
pensions and postretirement health benefits. In order to measure the expense associated with these
benefits, we must make various assumptions including discount rates used to value certain liabilities,
expected return on plan assets used to fund these expenses, compensation increases, employee turnover
rates, anticipated mortality rates, and expected future health care costs. The assumptions used by us are
based on our historical experience as well as current facts and circumstances. We use an actuarial analysis
to measure the expense and liability associated with these benefits.
Personal Injury – The cost of injuries to employees and others on our property is charged to expense
based on estimates of the ultimate cost and number of incidents each year. We use an actuarial analysis
to measure the expense and liability. Our personal injury liability is not discounted to present value. Legal
fees and incidental costs are expensed as incurred.
Environmental – When environmental issues have been identified with respect to property currently or
formerly owned, leased, or otherwise used in the conduct of our business, we perform, with the assistance
of our consultants, environmental assessments on such property. We expense the cost of the assessments
as incurred. We accrue the cost of remediation where our obligation is probable and such costs can be
reasonably estimated. We do not discount our environmental liabilities when the timing of the anticipated
cash payments is not fixed or readily determinable. Legal fees and incidental costs are expensed as
incurred.
Use of Estimates – The preparation of our Consolidated Financial Statements in conformity with GAAP
requires management to make estimates and assumptions that affect certain reported assets and liabilities,
the disclosure of certain contingent assets and liabilities as of the date of the Consolidated Financial
Statements, as well as the reported amounts of revenue and expenses during the reporting period. Actual
future results may differ from such estimates.
3. Accounting Pronouncements
In February 2016, the FASB issued Accounting Standards Update No. 2016-02 (ASU 2016-02), Leases
(Topic 842). ASU 2016-02 requires companies to recognize lease assets and lease liabilities on the balance
sheet and disclose key information about leasing arrangements. We implemented an enterprise-wide lease
management system to support the new reporting requirements, and effective January 1, 2019, we adopted
ASU 2016-02, Leases (Topic 842). We elected an initial application date of January 1, 2019, and did not
recast comparative periods in transition to the new standard. In addition, at the date of adoption, we elected
certain practical expedients, which permit us to not reassess whether existing contracts are or contain
56
leases, to not reassess the lease classification of any existing leases, to not reassess initial direct costs for
any existing leases, and to not separate lease and nonlease components for all classes of underlying
assets. Also, at the date of adoption, we elected to keep leases with an initial term of 12 months or less off
of the balance sheet for all classes of underlying assets. Adoption of the new standard resulted in an
increase in the Company’s assets and liabilities of approximately $2 billion. The ASU did not have an impact
on our consolidated results of operations or cash flows.
In June 2016, the FASB issued Accounting Standards Update No. 2016-13 (ASU 2016-13), Measurement
of Credit Losses on Financial Instruments, which replaces the existing incurred credit loss model for an
expected credit loss model. Effective January 1, 2020, the Company adopted ASU 2016-13, and it did not
have a material impact on our consolidated financial position, results of operations, or cash flows.
In August 2018, the FASB issued Accounting Standards Update No. 2018-14 (ASU 2018-14), Changes to
the Disclosure Requirements for Defined Benefit Plans, which modifies the disclosure requirements for
employers that sponsor defined benefit pension and other postretirement plans. Effective January 1, 2020,
the Company adopted ASU 2018-14, and it did not have a material impact on the Company’s consolidated
financial statement disclosure requirements.
In December 2019, the FASB issued Accounting Standards Update No. 2019-12 (ASU 2019-12), Income
Taxes (Topic 740): Simplifying the Accounting for Income Taxes, which simplifies the accounting and
disclosure requirements for income taxes by clarifying existing guidance to improve consistency in
application of Accounting Standards Codification (ASC) 740. The company adopted the ASU on January
1, 2021 (the effective date). Adoption of the standard is not expected to have a material impact on the
Company’s Consolidated Statements of Income, Financial Position, and Cash Flows.
In March 2020, the FASB issued Accounting Standards Update No. 2020-04 (ASU 2020-04), Reference
Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting,
which provides optional expedients and exceptions for applying GAAP principles to contracts, hedging
relationships, and other transactions that reference London Interbank Offered Rate (LIBOR) or another
reference rate expected to be discontinued due to reference rate reform. This guidance was effective
beginning on March 12, 2020, and can be adopted on a prospective basis no later than December 31, 2022,
with early adoption permitted. The Company is currently evaluating the effect that the new guidance will
have on our consolidated financial statements and related disclosures.
4. Stock Options and Other Stock Plans
In April 2000, the shareholders approved the Union Pacific Corporation 2000 Directors Plan (Directors Plan)
whereby 2,200,000 shares of our common stock were reserved for issuance to our non-employee directors.
Under the Directors Plan, each non-employee director, upon his or her initial election to the Board of
Directors, received a grant of 4,000 retention shares or retention stock units. In July 2018, the Board of
Directors eliminated the retention grant for directors newly elected in 2018 and all future years. As of
December 31, 2020, 32,000 restricted shares were outstanding under the Directors Plan.
The Union Pacific Corporation 2004 Stock Incentive Plan (2004 Plan) was approved by shareholders in
April 2004. The 2004 Plan reserved 84,000,000 shares of our common stock for issuance, plus any shares
subject to awards made under previous plans that were outstanding on April 16, 2004, and became
available for regrant pursuant to the terms of the 2004 Plan. Under the 2004 Plan, non-qualified options,
stock appreciation rights, retention shares, stock units, and incentive bonus awards may be granted to
eligible employees of the Corporation and its subsidiaries. Non-employee directors are not eligible for
awards under the 2004 Plan. As of December 31, 2020, 81,784 options were outstanding under the 2004
Plan. We no longer grant any stock options or other stock or unit awards under this plan.
The Union Pacific Corporation 2013 Stock Incentive Plan (2013 Plan) was approved by shareholders in
May 2013. The 2013 Plan reserved 78,000,000 shares of our common stock for issuance, plus any shares
subject to awards made under previous plans as of February 28, 2013, that are subsequently cancelled,
expired, forfeited, or otherwise not issued under previous plans. Under the 2013 Plan, non-qualified options,
incentive stock options, retention shares, stock units, and incentive bonus awards may be granted to eligible
employees of the Corporation and its subsidiaries. Non-employee directors are not eligible for awards under
the 2013 Plan. As of December 31, 2020, 2,486,758 options and 1,989,208 retention shares and stock
units were outstanding under the 2013 Plan.
57
Pursuant to the above plans 69,867,405; 70,318,887; and 70,730,692; shares of our common stock were
authorized and available for grant at December 31, 2020, 2019, and 2018, respectively.
Stock-Based Compensation – We have several stock-based compensation plans under which 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”. We issue treasury shares to cover
option exercises and stock unit vestings, while new shares are issued when retention shares are granted.
Information regarding stock-based compensation appears in the table below:
Millions
Stock-based compensation, before tax:
Stock options
Retention awards
Total stock-based compensation, before tax
Excess tax benefits from equity compensation plans
2020
2019
2018
$
$
$
15 $
58
73 $
55 $
16 $
77
93 $
52 $
17
79
96
28
Stock Options – We estimate the fair value of our stock option awards using the Black-Scholes option
pricing model. The table below shows the annual weighted-average assumptions used for valuation
purposes:
Weighted-Average Assumptions
Risk-free interest rate
Dividend yield
Expected life (years)
Volatility
2020
1.5%
2.1%
4.9
23.4%
2019
2.5%
2.2%
5.2
22.7%
2018
2.6%
2.3%
5.3
21.1%
Weighted-average grant-date fair value of options granted
$
32.20 $
30.37 $
21.70
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 option.
A summary of stock option activity during 2020 is presented below:
Outstanding at January 1, 2020
Granted
Exercised
Forfeited or expired
Options
(thous.)
3,502
558
(1,402)
(89)
Weighted-
Average
Exercise Price
$ 113.38
176.63
100.41
162.52
Weighted-Average
Remaining
Contractual Term
6.1 yrs.
N/A
N/A
N/A
Aggregate
Intrinsic Value
(millions)
236
N/A
N/A
N/A
$
Outstanding at December 31, 2020
2,569
$ 132.49
6.4 yrs.
Vested or expected to vest
at December 31, 2020
2,538
$ 132.11
6.4 yrs.
Options exercisable at December 31, 2020
1,547
$ 112.98
5.3 yrs.
$
$
$
195
193
147
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 December 31,
2020, are subject to performance or market-based vesting conditions.
58
At December 31, 2020, there was $15 million of unrecognized compensation expense related to nonvested
stock options, which is expected to be recognized over a weighted-average period of 0.9 years. Additional
information regarding stock option exercises appears in the following table:
Millions
Intrinsic value of stock options exercised
Cash received from option exercises
Treasury shares repurchased for employee payroll taxes
Tax benefit realized from option exercises
Aggregate grant-date fair value of stock options vested
$
2020
120 $
95
(24)
28
15
2019
193 $
130
(37)
48
15
2018
83
76
(20)
21
19
Retention Awards – The fair value of retention awards is based on the closing price of the stock on the
grant date. Dividends and dividend equivalents are paid to participants during the vesting periods.
Changes in our retention awards during 2020 were as follows:
Nonvested at January 1, 2020
Granted
Vested
Forfeited
Nonvested at December 31, 2020
Shares
(thous.)
1,898
315
(645)
(92)
1,476
$
Weighted-Average
Grant-Date Fair Value
112.12
185.99
77.74
141.83
$
141.06
Retention awards are granted at no cost to the employee and vest over periods lasting up to 4 years. At
December 31, 2020, there was $88 million of total unrecognized compensation expense related to
nonvested retention awards, which is expected to be recognized over a weighted-average period of 1.5
years.
Performance Retention Awards – In February 2020, our Board of Directors approved performance stock
unit grants. The basic terms of these performance stock units are identical to those granted in February
2019, except for different annual return on invested capital (ROIC) performance targets. The plan also
includes relative operating income growth (OIG) as a modifier compared to the companies included in the
S&P 500 Industrials Index. We define ROIC as net operating profit adjusted for interest expense (including
interest on average operating lease liabilities) and taxes on interest divided by average invested capital
adjusted for average operating lease liabilities. The modifier can be up to +/- 25% of the award earned
based on the ROIC achieved.
Stock units awarded to selected employees under these grants are subject to continued employment for
37 months and the attainment of certain levels of ROIC, modified for the relative OIG. We expense the fair
value of the units that are probable of being earned based on our forecasted ROIC over the 3-year
performance period, and with respect to the third year of the plan, the relative OIG modifier. We measure
the fair value of these performance stock units based upon the closing price of the underlying common
stock as of the date of grant. Dividend equivalents are accumulated during the service period and paid to
participants only after the units are earned.
Changes in our performance retention awards during 2020 were as follows:
Nonvested at January 1, 2020
Granted
Vested
Unearned
Forfeited
Nonvested at December 31, 2020
59
Shares
(thous.)
929
287
(339)
(8)
(96)
773
$
Weighted-Average
Grant-Date Fair Value
123.32
177.23
102.97
153.89
153.74
$
148.17
At December 31, 2020, there was $16 million of total unrecognized compensation expense related to
nonvested performance retention awards, which is expected to be recognized over a weighted-average
period of 0.9 years. This expense is subject to achievement of the performance measures established for
the performance stock unit grants.
5. Retirement Plans
Pension and Other Postretirement Benefits
Pension 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) benefit as described below
in other retirement programs.
Other Postretirement Benefits (OPEB) – We provide medical and life insurance benefits for eligible retirees
hired before January 1, 2004. These benefits are funded as medical claims and life insurance premiums
are paid.
Funded Status
We are required by GAAP to separately recognize the overfunded or underfunded status of our pension
and OPEB plans as an asset or liability. The funded status represents the difference between the projected
benefit obligation (PBO) and the fair value of the plan assets. Our non-qualified (supplemental) pension
plan is unfunded by design. The PBO of the pension plans is the present value of benefits earned to date
by plan participants, including the effect of assumed future compensation increases. The PBO of the OPEB
plan is equal to the accumulated benefit obligation, as the present value of the OPEB liabilities is not
affected by compensation increases. Plan assets are measured at fair value. We use a December 31
measurement date for plan assets and obligations for all our retirement plans.
Changes in our PBO and plan assets were as follows for the years ended December 31:
Funded Status
Millions
Projected Benefit Obligation
Projected benefit obligation at beginning of year
Service cost
Interest cost
Plan amendment
Actuarial (gain)/loss
Gross benefits paid
Projected benefit obligation at end of year
Plan Assets
Fair value of plan assets at beginning of year
Actual (loss)/return on plan assets
Non-qualified plan benefit contributions
Gross benefits paid
Fair value of plan assets at end of year
Funded status at end of year
Pension
2020
2019
4,847 $
91
137
-
812
(229)
4,181 $
80
160
-
656
(230)
OPEB
2020
205 $
1
5
(2)
-
(19)
5,658 $
4,847 $
190 $
4,528 $
686
31
(229)
3,887 $
841
30
(230)
5,016 $
4,528 $
- $
-
19
(19)
- $
2019
298
1
9
(92)
11
(22)
205
-
-
22
(22)
-
(642) $
(319) $
(190) $
(205)
$
$
$
$
$
Actuarial gains and losses that increased the PBO were driven by a decrease in 2020 discount rates from
3.26% to 2.42%.
60
Amounts recognized in the statement of financial position as of December 31, 2020 and 2019 consist of:
Millions
Noncurrent assets
Current liabilities
Noncurrent liabilities
Net amounts recognized at end of year
Pension
2020
8 $
(30)
(620)
2019
203 $
(29)
(493)
OPEB
2020
- $
(18)
(172)
(642) $
(319) $
(190) $
$
$
2019
-
(20)
(185)
(205)
Pre-tax amounts recognized in accumulated other comprehensive income/loss as of December 31, 2020
and 2019 consist of:
Millions
Prior service cost
Net actuarial loss
Total
2020
2019
Pension
OPEB
Total
Pension
OPEB
$
- $
(1,805)
84 $
(98)
84 $
- $
95 $
(1,903)
(1,501)
(104)
Total
95
(1,605)
$ (1,805) $
(14) $ (1,819) $ (1,501) $
(9) $ (1,510)
Pre-tax changes recognized in other comprehensive income/loss during 2020, 2019, and 2018 were as
follows:
Millions
Prior service credit
Net actuarial (loss)/gain
Amortization of:
Prior service cost/(credit)
Actuarial loss
Pension
2020
2019
2018
2020
$
- $
- $
- $
(408)
(88)
(40)
2 $
-
OPEB
2019
92 $
(11)
-
104
-
67
-
93
(14)
7
(7)
7
Total
$
(304) $
(21) $
53 $
(5) $
81 $
2018
-
20
1
10
31
Underfunded Accumulated Benefit Obligation – The accumulated benefit obligation (ABO) is the present
value of benefits earned to date, assuming no future compensation growth. The underfunded accumulated
benefit obligation represents the difference between the ABO and the fair value of plan assets.
The following table discloses only the PBO, ABO, and fair value of plan assets for pension plans where the
accumulated benefit obligation is in excess of the fair value of the plan assets as of December 31:
Underfunded Accumulated Benefit Obligation
Millions
Projected benefit obligation
Accumulated benefit obligation
Fair value of plan assets
Underfunded accumulated benefit obligation
2020
605 $
560 $
-
2019
522
498
-
(560) $
(498)
$
$
$
The ABO for all defined benefit pension plans was $5.2 billion and $4.5 billion at December 31, 2020 and
2019, respectively.
61
Assumptions – The weighted-average actuarial assumptions used to determine benefit obligations at
December 31:
Percentages
Discount rate
Compensation increase
Health care cost trend rate (employees under 65)
Ultimate health care cost trend rate
Year ultimate trend rate reached
Expense
Pension
2020
2.42%
4.40%
N/A
N/A
N/A
2019
3.26%
4.10%
N/A
N/A
N/A
OPEB
2020
2.22%
N/A
5.42%
4.50%
2038
2019
3.13%
N/A
5.64%
4.50%
2038
Both pension and OPEB expense are 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
or OPEB expense.
On June 30, 2019, the OPEB plan was remeasured to reflect an announced plan amendment effective
January 1, 2020, that reduced and eliminated certain medical benefits for Medicare-eligible retirees. This
negative plan amendment resulted in a reduction in the accumulated postretirement benefit obligation of
approximately $92 million with a corresponding adjustment of $69 million in other comprehensive income,
net of $23 million in deferred taxes. This amount is being amortized as a reduction of future net periodic
OPEB cost over approximately 8 years, which represents the future remaining service period of eligible
employees.
The components of our net periodic pension and OPEB cost were as follows for the years ended December
31:
Millions
Net Periodic Benefit Cost:
Service cost
Interest cost
Expected return on plan assets
Amortization of:
Prior service cost/(credit)
Actuarial loss
Pension
OPEB
2020
2019
2018
2020
2019
2018
$
91 $
80 $
137
(282)
-
104
160
(273)
-
67
105 $
145
(272)
1 $
5
1 $
9
-
93
(14)
7
(7)
7
2
10
1
10
23
Net periodic benefit cost
$
50 $
34 $
71 $
(1) $
10 $
62
Assumptions – The weighted-average actuarial assumptions used to determine expense were as follows:
Percentages
Discount rate for benefit obligations
Discount rate for interest on benefit obligations
Discount rate for service cost
Discount rate for interest on service cost
Expected return on plan assets
Compensation increase
Health care cost trend rate (employees under 65)
Ultimate health care cost trend rate
Year ultimate trend reached
Pension
OPEB
2020
3.26%
2.89%
3.42%
3.36%
7.00%
4.10%
N/A
N/A
N/A
2019
4.23%
3.94%
4.33%
4.30%
7.00%
4.10%
N/A
N/A
N/A
2018
3.62%
3.27%
3.77%
3.72%
7.00%
4.19%
N/A
N/A
N/A
2020
3.14%
2.68%
3.21%
3.14%
N/A
N/A
5.64%
4.50%
2038
2019
3.79%
3.40%
3.92%
3.85%
N/A
N/A
5.87%
4.50%
2038
2018
3.54%
3.14%
3.71%
3.64%
N/A
N/A
6.09%
4.50%
2038
We measure the service cost and interest cost components of our net periodic benefit cost by using
individual spot discount rates matched with separate cash flows for each future year. The discount rates
were based on a yield curve of high quality corporate bonds. The expected return on plan assets is based
on our asset allocation mix and our historical return, taking into account current and expected market
conditions. The actual return/loss on pension plan assets, net of fees, was approximately 16% in 2020,
20% in 2019, and (2%) in 2018.
Assumed health care cost trend rates have an effect on the expense and liabilities reported for health care
plans. The assumed health care cost trend rate is based on historical rates and expected market conditions.
The 2021 assumed health care cost trend rate for employees under 65 is 5.42%. It is assumed the rate will
decrease gradually to an ultimate rate of 4.5% in 2038 and will remain at that level.
Cash Contributions
The following table details cash contributions, if any, for the qualified pension plans and the benefit
payments for the non-qualified (supplemental) pension and OPEB plans:
Millions
2020
2019
Pension
Qualified Non-qualified
$
- $
-
31 $
30
OPEB
19
22
Our policy with respect to funding the qualified plans is to fund at least the minimum required by law and
not more than the maximum amount deductible for tax purposes.
The non-qualified pension and OPEB plans are not funded and are not subject to any minimum regulatory
funding requirements. Benefit payments for each year represent supplemental pension payments and
claims paid for medical and life insurance. We anticipate our 2021 supplemental pension and OPEB
payments will be made from cash generated from operations.
Benefit Payments
The following table details expected benefit payments for the years 2021 through 2030:
Millions
2021
2022
2023
2024
2025
Years 2026 - 2030
$
Pension
228 $
226
226
225
226
1,158
OPEB
18
14
14
10
9
42
63
Asset Allocation Strategy
Our pension plan asset allocation at December 31, 2020 and 2019, and target allocation for 2021, are as
follows:
Equity securities
Debt securities
Real estate
Total
Target
Allocation 2021
50% to 60%
40% to 50%
0% to 2%
Percentage of Plan Assets
December 31,
2019
63%
31
6
2020
63%
34
3
100%
100%
The investment strategy for pension plan assets is to maintain a broadly diversified portfolio designed to
achieve our target average long-term rate of return. We decreased the expected rate of return for 2021
from 7% to 6.25% due to a shift of certain assets from equity to debt in alignment with our 2021 target asset
allocation. While we believe we can achieve a long-term average rate of return of 6.25%, we cannot be
certain that the portfolio will perform to our expectations. Assets are strategically allocated among equity,
debt, and other investments in order to achieve a diversification level that reduces fluctuations in investment
returns. Asset allocation target ranges for equity, debt, and other portfolios are evaluated at least every
three years with the assistance of an independent consulting firm. Actual asset allocations are monitored
monthly, and rebalancing actions are executed at least quarterly, as needed.
The pension plan investments are held in a Master Trust. The majority of pension plan assets are invested
in equity securities because equity portfolios have historically provided higher returns than debt and other
asset classes over extended time horizons and are expected to do so in the future. Correspondingly, equity
investments also entail greater risks than other investments. Equity risks are balanced by investing a
significant portion of the plans’ assets in high quality debt securities. The average credit rating of the debt
portfolio was A and A+ at December 31, 2020 and 2019, respectively. The debt portfolio is also broadly
diversified and invested primarily in U.S. Treasury, mortgage, and corporate securities. The weighted-
average maturity of the debt portfolio was 17 years and 14 years, respectively at December 31, 2020 and
2019.
The investment of pension plan assets in securities issued by UPC is explicitly prohibited by the plan for
both the equity and debt portfolios, other than through index fund holdings.
Fair Value Measurements
The pension plan assets are valued at fair value. The following is a description of the valuation
methodologies used for the investments measured at fair value, including the general classification of such
instruments pursuant to the valuation hierarchy.
Temporary Cash Investments – These investments consist of U.S. dollars, foreign currencies, and
commercial paper held in master trust accounts at The Northern Trust Company (the Trustee). Foreign
currencies held are reported in terms of U.S. dollars based on currency exchange rates readily available in
active markets. U.S. dollars and foreign currencies are classified as Level 1 investments. Commercial paper
assets are valued using a bid evaluation process with bid data provided by independent pricing sources.
Commercial paper is classified as Level 2 investments.
Registered Investment Companies – Registered Investment Companies are entities primarily engaged
in the business of investing in securities and are registered with the Securities and Exchange Commission.
The Plan’s holdings of Registered Investment Companies include both public and private fund vehicles.
The public vehicles are exchange-traded funds (stocks), which are classified as Level 1 investments. The
private vehicles (bonds) do not have published pricing and are valued using Net Asset Value (NAV).
Federal Government Securities – Federal Government Securities consist of bills, notes, bonds, and other
fixed income securities issued directly by the U.S. Treasury or by government-sponsored enterprises.
These assets are valued using a bid evaluation process with bid data provided by independent pricing
sources. Federal Government Securities are classified as Level 2 investments.
64
Bonds and Debentures – Bonds and debentures consist of debt securities issued by U.S. and non-U.S.
corporations as well as state and local governments. These assets are valued using a bid evaluation
process with bid data provided by independent pricing sources. Corporate, state, and municipal bonds and
debentures are classified as Level 2 investments.
Corporate Stock – This investment category consists of common and preferred stock issued by U.S. and
non-U.S. corporations. Most common shares are traded actively on exchanges and price quotes for these
shares are readily available. Common stock is classified as a Level 1 investment. Preferred shares included
in this category are valued using a bid evaluation process with bid data provided by independent pricing
sources. Preferred stock is classified as a Level 2 investment.
Venture Capital and Buyout Partnerships – This investment category is comprised of interests in limited
partnerships that invest primarily in privately-held companies. Due to the private nature of the partnership
investments, pricing inputs are not readily observable. Asset valuations are developed by the general
partners that manage the partnerships. These valuations are based on the application of public market
multiples to private company cash flows, market transactions that provide valuation information for
comparable companies, and other methods. The fair value recorded by the Plan is calculated using each
partnership’s NAV.
Real Estate Funds – Most of the Plan’s real estate investments are primarily interests in private real estate
investment trusts, partnerships, limited liability companies, and similar structures. Valuations for the
holdings in this category are not based on readily observable inputs and are primarily derived from property
appraisals. The fair value recorded by the Plan is calculated using the NAV for each investment.
Collective Trust and Other Funds – Collective trust and other funds are comprised of shares or units in
commingled funds and limited liability companies that are not publicly traded. The underlying assets in
these entities (U.S. stock funds, non-U.S. stock funds, commodity funds, hedge funds, and short term
investment funds) are publicly traded on exchanges and price quotes for the assets held by these funds
are readily available. The fair value recorded by the Plan is calculated using NAV for each investment.
As of December 31, 2020, the pension plan assets measured at fair value on a recurring basis were as
follows:
Millions
Plan assets at fair value:
Temporary cash investments
Registered investment companies [a]
Federal government securities
Bonds and debentures
Corporate stock
Quoted Prices
in Active
Markets for
Identical Inputs
(Level 1)
$
9
252
-
-
2,209
Significant
Other
Observable
Inputs
(Level 2)
$
-
-
150
831
8
Total plan assets at fair value
$ 2,470
$
989
Plan assets at NAV:
Registered investment companies [b]
Venture capital and buyout partnerships
Real estate funds
Collective trust and other funds
Total plan assets at NAV
Other assets/(liabilities) [c]
Total plan assets
Significant
Unobservable
Inputs
(Level 3)
Total
$
$
-
-
-
-
-
-
$
9
252
150
831
2,217
$ 3,459
312
585
161
498
$ 1,556
1
$ 5,016
[a] Registered investment companies measured at fair value are stock investments.
[b] Registered investment companies measured at NAV include bond investments.
[c] Other assets include accrued receivables, net payables, and pending broker settlements.
65
As of December 31, 2019, the pension plan assets measured at fair value on a recurring basis were as
follows:
Millions
Plan assets at fair value:
Temporary cash investments
Registered investment companies [a]
Federal government securities
Bonds and debentures
Corporate stock
Quoted Prices
in Active
Markets for
Identical Inputs
(Level 1)
$
6
9
-
-
1,932
Significant
Other
Observable
Inputs
(Level 2)
$
1
-
202
575
7
Total plan assets at fair value
$ 1,947
$
785
Plan assets at NAV:
Registered investment companies [b]
Venture capital and buyout partnerships
Real estate funds
Collective trust and other funds
Total plan assets at NAV
Other assets/(liabilities) [c]
Total plan assets
Significant
Unobservable
Inputs
(Level 3)
Total
$
$
-
-
-
-
-
-
$
7
9
202
575
1,939
$ 2,732
285
531
261
707
$ 1,784
12
$ 4,528
[a] Registered investment companies measured at fair value are stock investments.
[b] Registered investment companies measured at NAV include bond investments.
[c] Other assets include accrued receivables, net payables, and pending broker settlements.
The Master Trust’s investments in limited partnerships and similar structures (used to invest in private equity
and real estate) are valued at fair value based on their proportionate share of the partnerships’ fair value
as recorded in the limited partnerships’ audited financial statements. The limited partnerships allocate
gains, losses, and expenses to the partners based on the ownership percentage as described in the
partnership agreements. At December 31, 2020 and 2019, the Master Trust had future commitments for
additional contributions to private equity partnerships totaling $147 million and $189 million, respectively,
and to real estate partnerships and funds totaling $7 million and $8 million, respectively.
Other Retirement Programs
401(k)/Thrift Plan – For non-union employees hired prior to January 1, 2018, and eligible union employees
for whom we make matching contributions, we provide a defined contribution plan (401(k)/thrift plan). We
match 50% for each dollar contributed by employees up to the first 6% of compensation contributed. For
non-union employees hired on or after January 1, 2018, we match 100% for each dollar, up to the first 6%
of compensation contributed, in addition to contributing an annual amount of 3% of the employee’s annual
base salary. Our plan contributions were $19 million in 2020, $20 million in 2019, and $18 million in 2018.
Railroad Retirement System – All Railroad employees are covered by the Railroad Retirement System
(the System). Contributions made to the System are expensed as incurred and amounted to approximately
$569 million in 2020, $654 million in 2019, and $710 million in 2018.
Collective Bargaining Agreements – Under collective bargaining agreements, we participate in multi-
employer benefit plans that provide certain postretirement health care and life insurance benefits for eligible
union employees. Premiums paid under these plans are expensed as incurred and amounted to $30 million
in 2020, $42 million in 2019, and $50 million in 2018.
66
6. Other Income
Other income included the following for the years ended December 31:
Millions
Rental income
Net gain on non-operating asset dispositions [a]
Net periodic pension and OPEB costs
Interest income
Interest income on employment tax refund
Early extinguishment of debt
Non-operating environmental costs and other
$
2020
123
115
44
12
-
-
(7)
2019
124 $
$
20
37
32
31
(2)
1
Total
$
287
$
243 $
[a] 2020 includes a $69 million gain from a land and permanent easement sale to the Illinois State Toll Highway Authority.
7. Income Taxes
Components of income tax expense were as follows for the years ended December 31:
2018
122
30
13
30
-
(85)
(16)
94
Millions
Current tax expense:
Federal
State
Foreign
Total current tax expense
Deferred and other tax expense:
Federal
State
Foreign
Total deferred and other tax expense
2020
2019
2018
$
1,026 $
259
6
1,000 $
254
8
1,291
1,262
295
45
-
340
417
128
21
566
1,144
287
5
1,436
344
5
(10)
339
Total income tax expense
$
1,631 $
1,828 $
1,775
For the years ended December 31, reconciliations between statutory and effective tax rates are as follows:
Tax Rate Percentages
Federal statutory tax rate
State statutory rates, net of federal benefits
Excess tax benefits from equity compensation plans
Dividends received deduction
Deferred tax adjustments
Other
Effective tax rate
2020
21.0 %
3.7
(0.8)
(0.5)
(0.1)
0.1
23.4 %
2019
21.0 %
3.7
(0.7)
(0.6)
(0.1)
0.3
23.6 %
2018
21.0 %
3.9
(0.4)
(0.6)
(0.6)
(0.4)
22.9 %
Deferred tax assets and liabilities are recorded for the expected future tax consequences of events that are
reported in different periods for financial reporting and income tax purposes. The majority of our deferred
tax assets relate to deductions that already have been claimed for financial reporting purposes but not for
tax purposes. The majority of our deferred tax liabilities relate to differences between the tax bases and
financial reporting amounts of our land and depreciable property, due to accelerated tax depreciation
(including bonus depreciation), revaluation of assets in purchase accounting transactions, and differences
in capitalization methods.
In 2019, Arkansas enacted legislation to reduce their corporate income tax rate for future years resulting
in a $21 million reduction of our deferred tax expense.
In 2018, Iowa and Missouri enacted legislation to reduce their corporate tax rates for future years resulting
in a $31 million reduction of our deferred tax expense.
67
Deferred income tax (liabilities)/assets were comprised of the following at December 31:
Millions
Deferred income tax liabilities:
Property
Operating lease assets
Other
Total deferred income tax liabilities
Deferred income tax assets:
Accrued wages
Accrued casualty costs
Stock compensation
Retiree benefits
Operating lease liabilities
Other
Total deferred income tax assets
Net deferred income tax liability
2020
2019
$
(12,474) $
(397)
(444)
(12,184)
(447)
(341)
(13,315)
(12,972)
40
143
26
255
396
208
1,068
45
146
37
171
453
128
980
$
(12,247) $
(11,992)
When appropriate, we record a valuation allowance against deferred tax assets to reflect that these tax
assets may not be realized. In determining whether a valuation allowance is appropriate, we consider
whether it is more likely than not that all or some portion of our deferred tax assets will not be realized
based on management’s judgments using available evidence for purposes of estimating whether future
taxable income will be sufficient to realize a deferred tax asset. In 2020 and 2019, there were no valuation
allowances.
Tax benefits are recognized only for tax positions that are more likely than not to be sustained upon
examination by tax authorities. The amount recognized is measured as the largest amount of benefit that
is greater than 50 percent likely to be realized upon settlement. Unrecognized tax benefits are tax benefits
claimed in our tax returns that do not meet these recognition and measurement standards.
A reconciliation of changes in unrecognized tax benefits liabilities/(assets) from the beginning to the end of
the reporting period is as follows:
Millions
Unrecognized tax benefits at January 1
Increases for positions taken in current year
Increases for positions taken in prior years
Decreases for positions taken in prior years
Refunds from/(payments to) and settlements with taxing authorities
Increases/(decreases) for interest and penalties
Lapse of statutes of limitations
Unrecognized tax benefits at December 31
$
$
2020
64 $
18
7
(19)
-
5
(1)
74 $
2019
174 $
20
44
(96)
(11)
(5)
(62)
64 $
2018
179
30
9
(30)
21
4
(39)
174
We recognize interest and penalties as part of income tax expense. Total accrued liabilities for interest and
penalties were $8 million and $3 million at December 31, 2020 and 2019, respectively. Total interest and
penalties recognized as part of income tax expense (benefit) were $5 million for 2020, ($4) million for 2019,
and ($1) million for 2018.
In the second quarter of 2019, UPC signed final Revenue Agent Reports (RARs) from the Internal Revenue
Service (IRS) for the limited scope audits of UPC’s 2016 and 2017 tax returns. As a result of the signed
RARs, UPC paid the IRS $11 million in the third quarter of 2019, consisting of $10 million of tax and $1
million of interest. The statute of limitations has run for all years prior to 2017.
In 2017, UPC amended its 2013 income tax return, primarily to claim deductions resulting from the
resolution of prior year IRS examinations. The IRS and Joint Committee on Taxation reviewed our 2013
amended return, and in the second quarter of 2018 we received a refund of $19 million.
68
Several state tax authorities are examining our state income tax returns for years 2015 through 2018.
We do not expect our unrecognized tax benefits to change significantly in the next 12 months.
The portion of our unrecognized tax benefits that relates to permanent changes in tax and interest would
reduce our effective tax rate, if recognized. The remaining unrecognized tax benefits relate to tax positions
for which only the timing of the benefit is uncertain. Recognition of the tax benefits with uncertain timing
would reduce our effective tax rate only through a reduction of accrued interest and penalties. The
unrecognized tax benefits that would reduce our effective tax rate are as follows:
Millions
Unrecognized tax benefits that would reduce the effective tax rate
Unrecognized tax benefits that would not reduce the effective tax rate
Total unrecognized tax benefits
8. Earnings Per Share
2020
2019
52 $
22
74 $
39 $
25
64 $
2018
63
111
174
$
$
The following table provides a reconciliation between basic and diluted earnings per share for the years
ended December 31:
Millions, Except Per Share Amounts
Net income
Weighted-average number of shares outstanding:
Basic
Dilutive effect of stock options
Dilutive effect of retention shares and units
Diluted
Earnings per share – basic
Earnings per share – diluted
2020
2019
2018
$
5,349 $
5,919 $
5,966
677.3
0.8
1.0
679.1
703.5
1.2
1.4
706.1
$
$
7.90 $
7.88 $
8.41 $
8.38 $
750.9
1.9
1.5
754.3
7.95
7.91
Common stock options totaling 0.3 million, 0.5 million, and 0.3 million for 2020, 2019, and 2018,
respectively, were excluded from the computation of diluted earnings per share because the exercise prices
of these options exceeded the average market price of our common stock for the respective periods, and
the effect of their inclusion would be anti-dilutive.
69
9. Accumulated Other Comprehensive Income/Loss
Reclassifications out of accumulated other comprehensive income/loss were as follows (net of tax):
Millions
Balance at January 1, 2020
Other comprehensive income/(loss) before reclassifications
Amounts reclassified from accumulated other comprehensive
income/(loss) [a]
Net year-to-date other comprehensive income/(loss),
net of taxes of $75 million
Balance at December 31, 2020
Balance at January 1, 2019
Other comprehensive income/(loss) before reclassifications
Amounts reclassified from accumulated other comprehensive
income/(loss) [a]
OPEB Plan amendment (Note 5)
Net year-to-date other comprehensive income/(loss),
net of taxes of ($15) million
Balance at December 31, 2019
$
$
$
$
$
$
$
$
$
Defined
benefit
plans
(1,150)
2
(233)
(231)
(1,381)
(1,192)
(86)
36
92
42
Foreign
currency
translation
(206)
(6)
-
(6)
(212)
(223)
17
-
-
17
Total
(1,356)
(4)
(233)
(237)
(1,593)
(1,415)
(69)
36
92
59
$
(1,150)
$
(206)
$
(1,356)
[a] 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 cost. See Note 5 Retirement Plans for additional
details.
10. Accounts Receivable
Accounts receivable includes freight and other receivables reduced by an allowance for doubtful accounts.
The allowance is based upon historical losses, creditworthiness of customers, and current economic
conditions. At December 31, 2020 and 2019, our accounts receivable were reduced by $17 million and $4
million, respectively. Receivables not expected to be collected in one year and the associated allowances
are classified as other assets in our Consolidated Statements of Financial Position. At December 31, 2020
and 2019, receivables classified as other assets were reduced by allowances of $51 million and $35 million,
respectively.
Receivables Securitization Facility – The Railroad maintains an $800 million, 3-year receivables
securitization facility (the Receivables Facility) maturing in July 2022. 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 $0 and $400 million at December 31, 2020 and
2019, respectively. The Receivables Facility was supported by $1.2 billion and $1.3 billion of accounts
receivable as collateral at December 31, 2020 and 2019, respectively, which, as a retained interest, is
included in accounts receivable, net in our Consolidated Statements of Financial Position.
The outstanding amount the Railroad is allowed to maintain under the Receivables Facility, with a maximum
of $800 million, may fluctuate based on the availability of eligible receivables and is directly affected by
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.
70
The costs of the Receivables Facility include interest, which will vary based on prevailing benchmark and
commercial paper rates, program fees paid to participating banks, commercial paper issuance costs, and
fees of participating banks for unused commitment availability. The costs of the Receivables Facility are
included in interest expense and were $7 million, $14 million, and $15 million for 2020, 2019, and 2018,
respectively.
11. 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
As of December 31, 2020
Cost
Accumulated
Depreciation
Net Book
Value
Estimated
Useful Life
Land
$
5,246
$
N/A
$
5,246
Road:
Rail and other track material
Ties
Ballast
Other roadway [a]
Total road
Equipment:
Locomotives
Freight cars
Work equipment and other
Total equipment
Technology and other
Construction in progress
Total
17,620
11,051
5,926
21,030
55,627
9,375
2,118
1,107
12,600
1,199
748
6,631
3,331
1,753
4,329
16,044
3,555
789
351
4,695
520
-
10,989
7,720
4,173
16,701
39,583
5,820
1,329
756
7,905
679
748
$ 75,420
$
21,259
$ 54,161
N/A
42
34
34
48
N/A
17
25
18
N/A
13
N/A
N/A
Millions, Except Estimated Useful Life
As of December 31, 2019
Cost
Accumulated
Depreciation
Net Book
Value
Estimated
Useful Life
Land
$
5,276
$
N/A
$
5,276
Road:
Rail and other track material
Ties
Ballast
Other roadway [a]
Total road
Equipment:
Locomotives
Freight cars
Work equipment and other
Total equipment
Technology and other
Construction in progress
Total
17,178
10,693
5,752
20,331
53,954
9,467
2,083
1,081
12,631
1,136
1,249
6,381
3,186
1,669
4,056
15,292
3,434
779
322
4,535
503
-
10,797
7,507
4,083
16,275
38,662
6,033
1,304
759
8,096
633
1,249
$ 74,246
$
20,330
$ 53,916
N/A
42
34
34
48
N/A
18
25
18
N/A
12
N/A
N/A
[a] Other roadway includes grading, bridges and tunnels, signals, buildings, and other road assets.
Property and Depreciation – Our railroad operations are highly capital intensive, and our large base of
homogeneous, network-type assets turns over on a continuous basis. Each year we develop a capital
program for the replacement of assets and for the acquisition or construction of assets that enable us to
enhance our operations or provide new service offerings to customers. Assets purchased or constructed
throughout the year are capitalized if they meet applicable minimum units of property criteria. Properties
and equipment are carried at cost and are depreciated on a straight-line basis over their estimated service
71
lives, which are measured in years, except for rail in high-density traffic corridors (i.e., all rail lines except
for those subject to abandonment, and yard and switching tracks) for which lives are measured in millions
of gross tons per mile of track. We use the group method of depreciation in which all items with similar
characteristics, use, and expected lives are grouped together in asset classes and are depreciated using
composite depreciation rates. The group method of depreciation treats each asset class as a pool of
resources, not as singular items. We currently have more than 60 depreciable asset classes, and we may
increase or decrease the number of asset classes due to changes in technology, asset strategies, or other
factors.
We determine the estimated service lives of depreciable railroad assets by means of depreciation studies.
We perform depreciation studies at least every 3 years for equipment and every 6 years for track assets
(i.e., rail and other track material, ties, and ballast) and other road property. Our depreciation studies take
into account the following factors:
Statistical analysis of historical patterns of use and retirements of each of our asset classes;
Evaluation of any expected changes in current operations and the outlook for continued use of the
assets;
Evaluation of technological advances and changes to maintenance practices; and
Expected salvage to be received upon retirement.
For rail in high-density traffic corridors, we measure estimated service lives in millions of gross tons per
mile of track. It has been our experience that the lives of rail in high-density traffic corridors are closely
correlated to usage (i.e., the amount of weight carried over the rail). The service lives also vary based on
rail weight, rail condition (e.g., new or secondhand), and rail type (e.g., straight or curve). Our depreciation
studies for rail in high-density traffic corridors consider each of these factors in determining the estimated
service lives. For rail in high-density traffic corridors, we calculate depreciation rates annually by dividing
the number of gross ton-miles carried over the rail (i.e., the weight of loaded and empty freight cars,
locomotives and maintenance of way equipment transported over the rail) by the estimated service lives of
the rail measured in millions of gross tons per mile. For all other depreciable assets, we compute
depreciation based on the estimated service lives of our assets as determined from the analysis of our
depreciation studies. Changes in the estimated service lives of our assets and their related depreciation
rates are implemented prospectively.
Under group depreciation, the historical cost (net of salvage) of depreciable property that is retired or
replaced in the ordinary course of business is charged to accumulated depreciation and no gain or loss is
recognized. The historical cost of certain track assets is estimated by multiplying the current replacement
cost of track assets by a historical index factor derived from (i) inflation indices published by the Bureau of
Labor Statistics and (ii) the estimated useful lives of the assets as determined by our depreciation studies.
The indices were selected because they closely correlate with the major costs of the properties comprising
the applicable track asset classes. Because of the number of estimates inherent in the depreciation and
retirement processes and because it is impossible to precisely estimate each of these variables until a
group of property is completely retired, we continually monitor the estimated service lives of our assets and
the accumulated depreciation associated with each asset class to ensure our depreciation rates are
appropriate. In addition, we determine if the recorded amount of accumulated depreciation is deficient (or
in excess) of the amount indicated by our depreciation studies. Any deficiency (or excess) is amortized as
a component of depreciation expense over the remaining service lives of the applicable classes of assets.
For retirements of depreciable railroad properties that do not occur in the normal course of business, a gain
or loss may be recognized if the retirement meets each of the following three conditions: (i) is unusual, (ii)
is material in amount, and (iii) varies significantly from the retirement profile identified through our
depreciation studies. A gain or loss is recognized in other income when we sell land or dispose of assets
that are not part of our railroad operations.
We review construction in progress assets that have not yet been placed into service, for impairment when
events or changes in circumstances indicate that the carrying amount of a long-lived asset or assets may
not be recoverable. If impairment indicators are present and the estimated future undiscounted cash flows
are less than the carrying value of construction in progress assets when grouped with other assets and
liabilities at the lowest level for which identifiable cash flows are largely independent, the carrying value is
reduced to the estimated fair value.
72
When we purchase an asset, we capitalize all costs necessary to make the asset ready for its intended
use. However, many of our assets are self-constructed. A large portion of our capital expenditures is for
replacement of existing track assets and other road properties, which is typically performed by our
employees, and for track line expansion and other capacity projects. Costs that are directly attributable to
capital projects (including overhead costs) are capitalized. Direct costs that are capitalized as part of self-
constructed assets include material, labor, and work equipment. Indirect costs are capitalized if they clearly
relate to the construction of the asset.
Costs incurred that extend the useful life of an asset, improve the safety of our operations, or improve
operating efficiency are capitalized, while normal repairs and maintenance are expensed as incurred. These
costs are allocated using appropriate statistical bases. Total expense for repairs and maintenance incurred
was $2.0 billion for 2020, $2.3 billion for 2019, and $2.5 billion for 2018.
Assets held under finance leases are recorded at the lower of the net present value of the minimum lease
payments or the fair value of the leased asset at the inception of the lease. Amortization expense is
computed using the straight-line method over the shorter of the estimated useful lives of the assets or the
period of the related lease.
Brazos Yard Impairment – In the fourth quarter of 2020, we made the strategic decision that our Brazos
yard investments made to date will be used for freight car block swapping activities, rather than proceeding
with additional investments required to complete the freight car classification yard. As a result, we recorded
a non-cash impairment charge of $278 million, recognized in other expense in our Consolidated Statements
of Income. The Brazos yard investment was recorded as construction in progress as it had not yet been
placed into service. We estimated the fair value of the remaining Brazos investments not used for freight
car block swapping activities based on market values of similar assets, which are Level 2 inputs.
12. Accounts Payable and Other Current Liabilities
Millions
Income and other taxes payable
Accounts payable
Accrued wages and vacation
Interest payable
Current operating lease liabilities (Note 16)
Accrued casualty costs
Equipment rents payable
Other
$
Dec. 31,
2020
635
612
340
326
321
177
101
592
$
Dec. 31,
2019
496
749
370
289
362
190
100
538
Total accounts payable and other current liabilities
$
3,104
$
3,094
13. Financial Instruments
Short-Term Investments – All of the Company’s short-term investments consist of time deposits and
government agency securities. These investments are considered Level 2 investments and are valued at
amortized cost, which approximates fair value. As of December 31, 2020, the Company had $70 million of
short-term investments, of which $10 million are in a trust for the purpose of providing collateral for payment
of certain other long-term liabilities, and as such are reclassified as other assets. All short-term investments
have a maturity of less than one year and are classified as held-to-maturity. There were no transfers out of
Level 2 during the year ended December 31, 2020.
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 December 31, 2020, the
fair value of total debt was $31.9 billion, approximately $5.1 billion more than the carrying value. At
December 31, 2019, the fair value of total debt was $27.2 billion, approximately $2.0 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. It does not impact the financial statements under current accounting rules. The fair value
of our cash equivalents approximates their carrying value due to the short-term maturities of these
instruments.
73
14. Debt
Total debt as of December 31, 2020 and 2019, is summarized below:
Millions
Notes and debentures, 2.2% to 7.1% due through February 5, 2070
Equipment obligations, 2.6% to 6.2% due through January 2, 2031
Finance leases, 3.1% to 8.0% due through December 10, 2028
Term loans - floating rate, due October 28, 2021
Commercial paper, 0.2% to 0.3% due through January 21, 2021
Receivables securitization (Note 10)
Medium-term notes
Unamortized discount and deferred issuance costs
Total debt
Less: current portion
Total long-term debt
$
2020
26,608 $
885
449
250
75
-
-
(1,538)
26,729
(1,069)
2019
24,008
923
605
250
200
400
8
(1,194)
25,200
(1,257)
$
25,660 $
23,943
Debt Maturities – The following table presents aggregate debt maturities as of December 31, 2020,
excluding market value adjustments:
Millions
2021
2022
2023
2024
2025
Thereafter
Total principal
Unamortized discount and deferred issuance costs
Total debt
$
1,072
1,384
1,384
1,439
1,429
21,559
28,267
(1,538)
$
26,729
Equipment Encumbrances – Equipment with a carrying value of approximately $1.3 billion and $1.6 billion
at December 31, 2020 and 2019, respectively, served as collateral for finance leases and other types of
equipment obligations in accordance with the secured financing arrangements utilized to acquire or
refinance such railroad equipment.
Debt Redemptions – On November 1, 2020, we redeemed all $500 million of outstanding 4.0% notes due
February 1, 2021, at a redemption price equal to 100% of the principal amount of the notes plus accrued
and unpaid interest.
Effective October 15, 2019, we redeemed all $163 million of our outstanding 6.125% notes due February
15, 2020. The redemption resulted in an early extinguishment charge of $2 million in the fourth quarter of
2019.
Debt Exchange - On September 16, 2020, we exchanged $1,047 million of various outstanding notes and
debentures due between May 1, 2037, and March 1, 2049 (the Existing Notes), for $1,047 million of 2.973%
notes (the New Notes) due September 16, 2062, plus cash consideration of approximately $319 million in
addition to $4 million for accrued and unpaid interest on the Existing Notes. In accordance with ASC 470-
50-40, Debt-Modifications and Extinguishments-Derecognition, this transaction was accounted for as a debt
exchange, as the exchanged debt instruments are not considered to be substantially different. The cash
consideration was recorded as an adjustment to the carrying value of debt, and the balance of the
unamortized discount and issue costs from the Existing Notes is being amortized as an adjustment of
interest expense over the terms of the New Notes. No gain or loss was recognized as a result of the
exchange. Costs related to the debt exchange that were payable to parties other than the debt holders
totaled approximately $9 million and were included in interest expense during the quarter ended September
30, 2020.
74
On November 20, 2019, we exchanged $1,839 million of various outstanding notes and debentures due
between June 1, 2033, and September 10, 2058 (the Existing Notes), for $1,842 million of 3.839% notes
(the New Notes) due March 20, 2060, plus cash consideration of approximately $373 million in addition to
$19 million for accrued and unpaid interest on the Existing Notes. In accordance with ASC 470-50-40, Debt-
Modifications and Extinguishments-Derecognition, this transaction was accounted for as a debt exchange,
as the exchanged debt instruments are not considered to be substantially different. The cash consideration
was recorded as an adjustment to the carrying value of debt, and the balance of the unamortized discount
and issue costs from the Existing Notes is being amortized as an adjustment of interest expense over the
terms of the New Notes. No gain or loss was recognized as a result of the exchange. Costs related to the
debt exchange that were payable to parties other than the debt holders totaled approximately $15 million
and were included in interest expense in the fourth quarter of 2019.
Credit Facilities – At December 31, 2020, we had $2.0 billion of credit available under our revolving credit
facility, which is designated for general corporate purposes and supports the issuance of commercial paper.
Credit facility withdrawals totaled $0 during 2020. 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 LIBOR, plus a spread, depending upon credit ratings for
our senior unsecured debt. The 5 year facility requires UPC to maintain a debt-to-EBITDA (earnings before
interest, taxes, depreciation, and amortization) coverage ratio.
The definition of debt used for purposes of calculating the debt-to-EBITDA coverage ratio includes, among
other things, certain credit arrangements, finance leases, guarantees, unfunded and vested pension
benefits under Title IV of ERISA, and unamortized debt discount and deferred debt issuance costs. At
December 31, 2020, the Company was in compliance with the debt-to-EBITDA coverage ratio, which allows
us to carry up to $36.8 billion of debt (as defined in the Facility), and we had $28.3 billion of debt (as defined
in the Facility) outstanding at that date. The Facility does not include any other financial restrictions, credit
rating triggers (other than rating-dependent pricing), or any other provision that could require us to post
collateral. The Facility also includes a $150 million cross-default provision and a change-of-control
provision.
During 2020, we issued $2.3 billion and repaid $2.5 billion of commercial paper with maturities ranging from
14 to 74 days. As of December 31, 2020 and 2019, we had $75 million and $200 million of commercial
paper outstanding, respectively. 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.
In May 2020, we entered into three bilateral revolving credit lines which mature by May 18, 2021, totaling
$600 million of available credit. Since entering into the three bilateral revolving credit lines, we drew $300
million and repaid $300 million, and at December 31, 2020, we had $0 outstanding.
Shelf Registration Statement and Significant New Borrowings – In 2019, our Board of Directors
reauthorized the issuance of up to $6 billion of debt securities. 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 2020, we issued the following unsecured, fixed-rate debt securities under our shelf registration:
Date
January 31, 2020
April 7, 2020
Description of Securities
$500 million of 2.150% Notes due February 5, 2027
$750 million of 2.400% Notes due February 5, 2030
$1.0 billion of 3.250% Notes due February 5, 2050
$750 million of 3.750% Notes due February 5, 2070
$750 million of 3.250% Notes due February 5, 2050
We used the net proceeds from the offerings for general corporate purposes, including the repurchase of
common stock pursuant to our share repurchase programs. These debt securities include change-of-control
provisions. At December 31, 2020, we had remaining authority to issue up to $2.25 billion of debt securities
under our shelf registration.
75
Receivables Securitization Facility – As of December 31, 2020 and 2019, we recorded $0 and $400
million, respectively, of borrowings under our Receivables Facility, as secured debt. (See further discussion
of our receivables securitization facility in Note 10).
LIBOR Transition – Each of our $2.0 billion revolving credit facility, three bilateral revolving credit lines,
two term loans, and Receivables Securitization Facility currently use LIBOR as the benchmark for its
floating interest rates. Authorities that regulate LIBOR have announced plans to phase out LIBOR so that
it will, at some point, cease to exist as a benchmark for floating interest rates. To address the phase out of
LIBOR, the agreements for substantially all of these facilities include a mechanism to replace LIBOR with
an alternative rate or benchmark under specified circumstances through an amendment to the agreements.
As part of this process, we will need to renegotiate our agreements to reference that alternative rate or
benchmark, and may need to modify our existing benchmark replacement language, or obtain replacement
facilities.
15. Variable Interest Entities
We have entered into various lease transactions in which the structure of the leases contain variable interest
entities (VIEs). These VIEs were created solely for the purpose of doing lease transactions (principally
involving railroad equipment and facilities) and have no other activities, assets, or liabilities outside of the
lease transactions. Within these lease arrangements, we have the right to purchase some or all of the
assets at fixed prices. Depending on market conditions, fixed-price purchase options available in the leases
could potentially provide benefits to us; however, these benefits are not expected to be significant.
We maintain and operate the assets based on contractual obligations within the lease arrangements, which
set specific guidelines consistent within the railroad industry. As such, we have no control over activities
that could materially impact the fair value of the leased assets. We do not hold the power to direct the
activities of the VIEs and, therefore, do not control the ongoing activities that have a significant impact on
the economic performance of the VIEs. Additionally, we do not have the obligation to absorb losses of the
VIEs or the right to receive benefits of the VIEs that could potentially be significant to the VIEs.
We are not considered to be the primary beneficiary and do not consolidate these VIEs because our actions
and decisions do not have the most significant effect on the VIE’s performance and our fixed-price purchase
options are not considered to be potentially significant to the VIEs. The future minimum lease payments
associated with the VIE leases totaled $1.3 billion as of December 31, 2020, and are recorded as operating
lease liabilities at present value in our Consolidated Statements of Financial Position.
16. Leases
We lease certain locomotives, freight cars, and other property for use in our rail operations. We determine
if an arrangement is or contains a lease at inception. We have lease agreements with lease and non-lease
components and we have elected to not separate lease and non-lease components for all classes of
underlying assets. Leases with an initial term of 12 months or less are not recorded on our Consolidated
Statements of Financial Position; we recognize lease expense for these leases on a straight-line basis over
the lease term. Leases with initial terms in excess of 12 months are recorded as operating or financing
leases in our Consolidated Statements of Financial Position. Operating leases are included in operating
lease assets, accounts payable and other current liabilities, and operating lease liabilities on our
Consolidated Statements of Financial Position. Finance leases are included in net properties, debt due
within one year, and debt due after one year on our Consolidated Statements of Financial Position.
Operating lease assets and operating lease liabilities are recognized based on the present value of the
future minimum lease payments over the lease term at commencement date. As most of our leases do not
provide an implicit rate, we use a collateralized incremental borrowing rate for all operating leases based
on the information available at commencement date, including lease term, in determining the present value
of future payments. The operating lease asset also includes any lease payments made and excludes lease
incentives and initial direct costs incurred. Our lease terms may include options to extend or terminate the
lease when it is reasonably certain that the option will be exercised. Operating lease expense is recognized
on a straight-line basis over the lease term and reported in equipment and other rents, and financing lease
expense is recorded as depreciation and interest expense in our Consolidated Statements of Income.
76
The following are additional details related to our lease portfolio:
Millions
Assets
Operating leases
Finance leases
Total leased assets
Liabilities
Current
Operating
Finance
Noncurrent
Operating
Finance
Total lease liabilities
Classification
Operating lease assets
Net properties [a]
Accounts payable and other current liabilities
Debt due within one year
Operating lease liabilities
Debt due after one year
Dec. 31, Dec. 31,
2019
2020
$ 1,610 $ 1,812
468
$ 1,980 $ 2,280
370
$
321 $
109
362
114
1,283
340
1,471
491
$ 2,053 $ 2,438
[a] Finance lease assets are recorded net of accumulated amortization of $737 million and $797 million as of December 31, 2020
and 2019, respectively.
The lease cost components are classified as follows:
Millions
Operating lease cost [a]
Operating lease cost [a]
Operating lease cost [a]
Finance lease cost
Classification
Equipment and other rents
Purchased services and materials
Capitalized in net properties
Amortization of leased assets
Interest on lease liabilities
Depreciation
Interest expense
Net lease cost
Dec. 31,
2020
247 $
40
30
Dec. 31,
2019
305
40
21
66
27
410 $
72
34
472
$
$
[a] In addition to the lease cost components referenced above, we had short-term lease costs of $26 million and $27 million as of
December 31, 2020 and 2019, respectively, and variable lease costs of $10 million and $12 million as of December 31, 2020
and 2019, respectively.
The following table presents aggregate lease maturities as of December 31, 2020:
Millions
2021
2022
2023
2024
2025
After 2025
Total lease payments
Less: Interest
Present value of lease liabilities
Operating
Leases
325
273
229
220
216
567
1,830
226
1,604
$
$
$
$
$
$
Finance
Leases
135 $
111
81
68
45
77
517 $
68
449 $
Total
460
384
310
288
261
644
2,347
294
2,053
77
The following table presents the weighted average remaining lease term and discount rate:
Weighted-average remaining lease term (years)
Operating leases
Finance leases
Weighted-average discount rate (%)
Operating leases
Finance leases
Dec. 31,
2020
7.9
5.2
3.7
5.1
The following table presents other information related to our operating and finance leases for the year
ended December 31:
Millions
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows from operating leases
Investing cash flows from operating leases
Operating cash flows from finance leases
Financing cash flows from finance leases
Leased assets obtained in exchange for finance lease liabilities
Leased assets obtained in exchange for operating lease liabilities
17. Commitments and Contingencies
$
2020
323 $
30
29
113
-
93
2019
387
21
35
112
-
118
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 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.
Personal Injury – The cost of personal injuries to employees and others related to our activities is charged
to expense based on estimates of the ultimate cost and number of incidents each year. We use an actuarial
analysis to measure the expense and liability, including unasserted claims. 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.
Our personal injury liability is not discounted to present value due to the uncertainty surrounding the timing
of future payments. Approximately 94% of the recorded liability is related to asserted claims and
approximately 6% is related to unasserted claims at December 31, 2020. 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 $270 million to $295 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.
78
Our personal injury liability activity was as follows:
Millions
Beginning balance
Current year accruals
Changes in estimates for prior years
Payments
Ending balance at December 31
Current portion, ending balance at December 31
2020
265 $
72
(3)
(64)
270 $
2019
271 $
78
(11)
(73)
265 $
60 $
63 $
2018
285
74
(16)
(72)
271
72
$
$
$
We reassess our estimated insurance recoveries annually and have recognized an asset for estimated
insurance recoveries at December 31, 2020 and 2019. Any changes to recorded insurance recoveries are
included in the above table in the Changes in estimates for prior years category.
Environmental Costs – We are subject to federal, state, and local environmental laws and regulations.
We have identified 373 sites at which we are or may be liable for remediation costs associated with alleged
contamination or for violations of environmental requirements. This includes 29 sites that are the subject of
actions taken by the U.S. government, 18 of which 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.
When we identify an environmental issue with respect to property owned, leased, or otherwise used in our
business, we perform, with assistance of our consultants, environmental assessments on the property. We
expense the cost of the assessments as incurred. We accrue the cost of remediation where our obligation
is probable and such costs can be reasonably estimated. Our environmental liability is not discounted to
present value due to the uncertainty surrounding the timing of future payments.
Our environmental liability activity was as follows:
Millions
Beginning balance
Accruals
Payments
Ending balance at December 31
Current portion, ending balance at December 31
2020
227 $
76
(70)
233 $
2019
223 $
67
(63)
227 $
65 $
62 $
2018
196
84
(57)
223
59
$
$
$
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 FELA claims and property coverage that are
subject to reinsurance. The captive entered into annual reinsurance treaty agreements that insure workers
compensation, general liability, auto liability, and FELA risk. The captive cedes a portion of its FELA
exposure through the treaty and assumes a proportionate share of the entire risk. The captive receives
direct premiums, which are netted against the Company’s premium costs in other expenses in the
Consolidated Statements of Income. The treaty agreements provide for certain protections against the risk
of treaty participants’ non-performance, and we do not believe our exposure to treaty participants’ non-
performance is material at this time. We record both liabilities and reinsurance receivables using an
actuarial analysis based on historical experience in our Consolidated Statements of Financial Position.
79
Effective January 2019, the captive insurance subsidiary no longer participates in the reinsurance treaty
agreement. The Company established a trust in the fourth quarter of 2018 for the purpose of providing
collateral as required under the reinsurance treaty agreement for prior years’ participation.
Guarantees – At December 31, 2020 and 2019, we were contingently liable for $10 million and $15 million,
respectively, in guarantees. The fair value of these obligations as of both December 31, 2020 and 2019
was $0. We entered into these contingent guarantees in the normal course of business, and they include
guaranteed obligations related to our affiliated operations. The final guarantee expires in 2022. We are not
aware of any existing event of default that would require us to satisfy these guarantees. We do not expect
that these guarantees will have a material adverse effect on our consolidated financial condition, results of
operations, or liquidity.
Indemnities – We are contingently obligated under a variety of indemnification arrangements, although in
some cases the extent of our potential liability is limited, 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.
18. Share Repurchase Programs
Effective April 1, 2019, our Board of Directors authorized the repurchase of up to 150 million shares of our
common stock by March 31, 2022, replacing our previous repurchase program. 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. As of December 31, 2020, we
repurchased a total of $40.9 billion of our common stock since commencement of our repurchase programs
in 2007. The table below represents shares repurchased under repurchase programs during 2019 and
2020:
First quarter [b]
Second quarter
Third quarter [c]
Fourth quarter
Total
Number of Shares Purchased
2019
2020
14,305,793
-
4,045,575
3,780,743
18,149,450 $
3,732,974
9,529,733
3,582,212
2020
178.66 $
Average Price Paid [a]
2019
165.79
171.24
163.30
167.32
-
98.87
198.07
22,132,111
34,994,369 $
167.39 $
165.85
Remaining number of shares that may be repurchased under current authority
111,022,970
[a]
[b]
[c]
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 2020 and
2019 accelerated share repurchase programs was $155.86 and $167.01, respectively.
Includes 8,786,380 and 11,795,930 shares repurchased in February 2020 and 2019, respectively, under accelerated share
repurchase programs.
Includes an incremental 4,045,575 and 3,172,900 shares received upon final settlement in July 2020 and August 2019,
respectively, under accelerated share repurchase programs.
Management's assessments of market conditions and other pertinent factors guide the timing 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 and fees.
From January 1, 2021, through February 4, 2021, we repurchased 2.1 million shares at an aggregate cost
of approximately $442 million.
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
80
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 19, 2020, the Company received 8,786,380 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 2020, we
received 4,045,575 additional shares.
On February 26, 2019, the Company received 11,795,930 shares of its common stock repurchased under
ASRs for an aggregate of $2.5 billion. Upon settlement of these ASRs in the third quarter of 2019, we
received 3,172,900 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.
19. Related Parties
UPRR and other North American railroad companies jointly own TTX Company (TTX). UPRR has a 36.79%
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 $1.5 billion and $1.4 billion recognized as investments related to TTX in our Consolidated
Statements of Financial Position as of December 31, 2020 and 2019, respectively. TTX car hire expenses
of $375 million in 2020, $407 million in 2019, and $429 million in 2018 are included in equipment and other
rents in our Consolidated Statements of Income. In addition, UPRR had accounts payable to TTX of $59
million and $62 million at December 31, 2020 and 2019, respectively.
20. Selected Quarterly Data (Unaudited)
Millions, Except Per Share Amounts
2020
Operating revenues
Operating income
Net income
Net income per share:
Basic
Diluted
Millions, Except Per Share Amounts
2019
Operating revenues
Operating income
Net income
Net income per share:
Basic
Diluted
$
$
Mar. 31
5,229 $
2,143
1,474
Jun. 30
4,244 $
1,654
1,132
Sep. 30
4,919 $
2,031
1,363
2.15
2.15
1.67
1.67
2.02
2.01
Mar. 31
5,384 $
1,960
1,391
Jun. 30
5,596 $
2,260
1,570
Sep. 30
5,516 $
2,234
1,555
1.94
1.93
2.23
2.22
2.22
2.22
Dec. 31
5,141
2,006
1,380
2.05
2.05
Dec. 31
5,212
2,100
1,403
2.03
2.02
Per share net income for the four quarters combined may not equal the per share net income for the year
due to rounding.
81
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A. 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.
82
MANAGEMENT’S ANNUAL REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
The management of Union Pacific Corporation and Subsidiary Companies (the Corporation) is responsible
for establishing and maintaining adequate internal control over financial reporting (as defined in Exchange
Act Rules 13a-15(f) and 15d-15(f)). The Corporation’s internal control system was designed to provide
reasonable assurance to the Corporation’s management and Board of Directors regarding the preparation
and fair presentation of published financial statements.
All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those
systems determined to be effective can provide only reasonable assurance with respect to financial
statement preparation and presentation.
The Corporation’s management assessed the effectiveness of the Corporation’s internal control over
financial reporting as of December 31, 2020. In making this assessment, it used the criteria set forth by the
Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control –
Integrated Framework (2013). Based on our assessment, management believes that, as of December 31,
2020, the Corporation’s internal control over financial reporting is effective based on those criteria.
The Corporation’s independent registered public accounting firm has issued an attestation report on the
effectiveness of the Corporation’s internal control over financial reporting. This report appears on the next
page.
February 4, 2021
83
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of Union Pacific Corporation
Opinion on Internal Control over Financial Reporting
We have audited the internal control over financial reporting of Union Pacific Corporation and Subsidiary
Companies (the "Corporation") as of December 31, 2020, based on criteria established in Internal Control
— Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO). In our opinion, the Corporation maintained, in all material respects, effective internal
control over financial reporting as of December 31, 2020, based on criteria established in Internal Control
— Integrated Framework (2013) issued by COSO.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight
Board (United States) (PCAOB), the consolidated financial statements as of and for the year ended
December 31, 2020, of the Corporation and our report dated February 5, 2021 expressed an unqualified
opinion on those financial statements.
Basis for Opinion
The Corporation’s management is responsible for maintaining effective internal control over financial
reporting and for its assessment of the effectiveness of internal control over financial reporting, included in
the accompanying Management's Annual Report on Internal Control over Financial Reporting. Our
responsibility is to express an opinion on the Corporation’s internal control over financial reporting based
on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent
with respect to the Corporation in accordance with the U.S. federal securities laws and the applicable rules
and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether effective internal control over
financial reporting was maintained in all material respects. Our audit included obtaining an understanding
of internal control over financial reporting, assessing the risk that a material weakness exists, testing and
evaluating the design and operating effectiveness of internal control based on the assessed risk, and
performing such other procedures as we considered necessary in the circumstances. We believe that our
audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles. A company’s internal control over
financial reporting includes those policies and procedures that (1) pertain to the maintenance of records
that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted accounting principles, and that
receipts and expenditures of the company are being made only in accordance with authorizations of
management and directors of the company; and (3) provide reasonable assurance regarding prevention or
timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a
material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect
misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk
that controls may become inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.
Omaha, Nebraska
February 5, 2021
84
Item 9B. Other Information
None.
Item 10. Directors, Executive Officers, and Corporate Governance
(a) Directors of Registrant.
PART III
Information as to the names, ages, positions, and offices with UPC, terms of office, periods of service,
business experience during the past five years, and certain other directorships held by each director or
person nominated to become a director of UPC is set forth in the Election of Directors segment of the
Proxy Statement and is incorporated herein by reference.
Information concerning our Audit Committee and the independence of its members, along with
information about the audit committee financial expert(s) serving on the Audit Committee, is set forth in
the Audit Committee segment of the Proxy Statement and is incorporated herein by reference.
(b) Executive Officers of Registrant.
Information concerning the executive officers of UPC and its subsidiaries is presented in Part I of this
report under Information About Our Executive Officers and Principal Executive Officers of Our
Subsidiaries.
(c) Delinquent Section 16(a) Reports.
Information concerning compliance with Section 16(a) of the Securities Exchange Act of 1934 is set
forth in the Section 16(a) Beneficial Ownership Reporting Compliance segment of the Proxy Statement
and is incorporated herein by reference.
(d) Code of Ethics for Chief Executive Officer and Senior Financial Officers of Registrant.
The Board of Directors of UPC has adopted the UPC Code of Ethics for the Chief Executive Officer
and Senior Financial Officers (the Code). A copy of the Code may be found on the Internet at our
website www.up.com/investor/governance. We intend to disclose any amendments to the Code or any
waiver from a provision of the Code on our website.
Item 11. Executive Compensation
Information concerning compensation received by our directors and our named executive officers is
presented in the Compensation Discussion and Analysis, Summary Compensation Table, Grants of Plan-
Based Awards in Fiscal Year 2020, Outstanding Equity Awards at 2020 Fiscal Year-End, Option Exercises
and Stock Vested in Fiscal Year 2020, Pension Benefits at 2020 Fiscal Year-End, Nonqualified Deferred
Compensation at 2020 Fiscal Year-End, Potential Payments Upon Termination or Change in Control and
Director Compensation in Fiscal Year 2020 segments of the Proxy Statement and is incorporated herein
by reference. Additional information regarding compensation of directors, including Board committee
members, is set forth in the By-Laws of UPC and the Stock Unit Grant and Deferred Compensation Plan
for the Board of Directors, both of which are included as exhibits to this report. Information regarding the
Compensation and Benefits Committee is set forth in the Compensation Committee Interlocks and Insider
Participation and Compensation Committee Report segments of the Proxy Statement and is incorporated
herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
Information as to the number of shares of our equity securities beneficially owned by each of our directors
and nominees for director, our named executive officers, our directors and executive officers as a group,
and certain beneficial owners is set forth in the Security Ownership of Certain Beneficial Owners and
Management segment of the Proxy Statement and is incorporated herein by reference.
85
Item 13. Certain Relationships and Related Transactions and Director Independence
Information on related transactions is set forth in the Certain Relationships and Related Transactions and
Compensation Committee Interlocks and Insider Participation segments of the Proxy Statement and is
incorporated herein by reference. We do not have any relationship with any outside third party that would
enable such a party to negotiate terms of a material transaction that may not be available to, or available
from, other parties on an arm’s-length basis.
Information regarding the independence of our directors is set forth in the Director Independence segment
of the Proxy Statement and is incorporated herein by reference.
Item 14. Principal Accountant Fees and Services
Information concerning the fees billed by our independent registered public accounting firm and the nature
of services comprising the fees for each of the two most recent fiscal years in each of the following
categories: (i) audit fees, (ii) audit-related fees, (iii) tax fees, and (iv) all other fees, is set forth in the
Independent Registered Public Accounting Firm’s Fees and Services segment of the Proxy Statement and
is incorporated herein by reference.
Information concerning our Audit Committee’s policies and procedures pertaining to pre-approval of audit
and non-audit services rendered by our independent registered public accounting firm is set forth in the
Audit Committee segment of the Proxy Statement and is incorporated herein by reference.
86
PART IV
Item 15. Exhibits, Financial Statement Schedules
(a) Financial Statements, Financial Statement Schedules, and Exhibits:
(1) Financial Statements
The financial statements filed as part of this filing are listed on the index to the Financial Statements
and Supplementary Data, Item 8, on page 46.
(2) Financial Statement Schedules
Schedule II - Valuation and Qualifying Accounts
Schedules not listed above have been omitted because they are not applicable or not required or the
information required to be set forth therein is included in the Financial Statements and Supplementary
Data, Item 8, or notes thereto.
(3) Exhibits
Exhibits are listed in the exhibit index beginning on page 89. The exhibits include management
contracts, compensatory plans and arrangements required to be filed as exhibits to the Form 10-K by
Item 601 (10) (iii) of Regulation S-K.
87
2019
2018
2020
657
231
(244)
$
709 $
215
(267)
644
$
657 $
177
467
644
$
$
190 $
467
657 $
684
202
(177)
709
211
498
709
SCHEDULE II – VALUATION AND QUALIFYING ACCOUNTS
Union Pacific Corporation and Subsidiary Companies
Millions, for the Years Ended December 31,
Accrued casualty costs:
Balance, beginning of period
Charges to expense
Cash payments and other reductions
Balance, end of period
Accrued casualty costs are presented in the
Consolidated Statements of Financial Position as follows:
Current
Long-term
Balance, end of period
$
$
$
$
88
UNION PACIFIC CORPORATION
Exhibit Index
Exhibit No.
Description
Filed with this Statement
10(a)†
10(b)†
10(c)†
10(d)†
21
23
24
31(a)
31(b)
32
101
Form of Performance Stock Unit Agreement dated February 4, 2021.
Form of Non-Qualified Stock Option Agreement for Executives dated February 4,
2021.
Deferred Compensation Plan (409A Non-Grandfathered Component) of Union
Pacific Corporation, as amended December 9, 2020.
Supplemental Pension Plan for Officers and Managers (409A Non-Grandfathered
Component) of Union Pacific Corporation and Affiliates, as amended December 9,
2020.
List of the Corporation’s significant subsidiaries and their respective states of
incorporation.
Independent Registered Public Accounting Firm’s Consent.
Powers of attorney executed by the directors of UPC.
Certifications Pursuant to Rule 13a-14(a), of the Exchange Act, as Adopted
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 - Lance M. Fritz.
Certifications Pursuant to Rule 13a-14(a), of the Exchange Act, as Adopted
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 –Jennifer L. Hamann.
Certifications Pursuant to 18 U.S.C. Section 1350, as Adopted pursuant to Section
906 of the Sarbanes-Oxley Act of 2002 - Lance M. Fritz and Jennifer L. Hamann.
The following financial and related information from Union Pacific Corporation’s
Annual Report on Form 10-K for the year ended December 31, 2020 (filed with the
SEC on February 5, 2021), formatted in Inline Extensible Business Reporting
Language (iXBRL) includes (i) Consolidated Statements of Income for the years
ended December 31, 2020, 2019 and 2018, (ii) Consolidated Statements of
Comprehensive Income for the years ended December 31, 2020, 2019, and 2018,
(iii) Consolidated Statements of Financial Position at December 31, 2020 and
2019, (iv) Consolidated Statements of Cash Flows for the years ended December
31, 2020, 2019 and 2018, (v) Consolidated Statements of Changes in Common
Shareholders’ Equity for the years ended December 31, 2020, 2019 and 2018, and
(vi) the Notes to the Consolidated Financial Statements.
104
Cover Page Interactive Data File, formatted in Inline XBRL (contained in Exhibit
101).
Incorporated by Reference
3(a)
3(b)
Restated Articles of Incorporation of UPC, as amended and restated through June
27, 2011, and as further amended May 15, 2014, are incorporated herein by
reference to Exhibit 3(a) to the Corporation’s Quarterly Report on Form 10-Q for
the quarter ended June 30, 2014.
By-Laws of UPC, as amended, effective November 19, 2015, are incorporated
herein by reference to Exhibit 3.2 to the Corporation’s Current Report on Form 8-
K dated November 19, 2015.
89
4(a)
4(b)
4(c)
4(d)
4(e)
4(f)
4(g)
4(h)
10(e)†
10(f)†
10(g)†
10(h)†
10(i)†
10(j)†
Description of securities registered under Section 12 of the Exchange Act is
incorporated herein by reference to Exhibit 4(a) to the Corporation’s Annual
Report on Form 10-K for the year ended December 31, 2019.
Indenture, dated as of December 20, 1996, between UPC and Wells Fargo Bank,
National Association, as successor to Citibank, N.A., as Trustee, is incorporated
herein by reference to Exhibit 4.1 to UPC’s Registration Statement on Form S-3
(No. 333-18345).
Indenture, dated as of April 1, 1999, between UPC and The Bank of New York, as
successor to JP Morgan Chase Bank, formerly The Chase Manhattan Bank, as
Trustee, is incorporated herein by reference to Exhibit 4.2 to UPC’s Registration
Statement on Form S-3 (No. 333-75989).
Form of 2.150% Note due 2027 is incorporated by reference to Exhibit 4.1 to the
Corporation’s Current Report on Form 8-K dated January 31, 2020.
Form of 2.400% Note due 2030 is incorporated by reference to Exhibit 4.2 to the
Corporation’s Current Report on Form 8-K dated January 31, 2020.
Form of 3.250% Note due 2050 is incorporated by reference to Exhibit 4.3 to the
Corporation’s Current Report on Form 8-K dated January 31, 2020.
Form of 3.750% Note due 2070 is incorporated by reference to Exhibit 4.4 to the
Corporation’s Current Report on Form 8-K dated January 31, 2020.
Form of 3.250% Note due 2050 is incorporated by reference to Exhibit 4.1 to the
Corporation’s Current Report on Form 8-K dated April 7, 2020.
Certain instruments evidencing long-term indebtedness of UPC are not filed as
exhibits because the total amount of securities authorized under any single such
instrument does not exceed 10% of the Corporation’s total consolidated assets.
UPC agrees to furnish the Commission with a copy of any such instrument upon
request by the Commission.
Supplemental Thrift Plan (409A Grandfathered Component) of Union Pacific
Corporation, as amended March 1, 2013, is incorporated herein by reference to
Exhibit 10(d) to the Corporation’s Quarterly Report on Form 10-Q for the quarter
ended March 31, 2013.
Supplemental Thrift Plan (409A Non-Grandfathered Component) of Union Pacific
Corporation, as amended January 1, 2018, is incorporated herein by reference to
Exhibit 10(d) to the Corporation’s Annual Report on Form 10-K for the year ended
December 31, 2017.
Supplemental Pension Plan for Officers and Managers (409A Grandfathered
Component) of Union Pacific Corporation and Affiliates, as amended February 1,
2013, and March 1, 2013 is incorporated herein by reference to Exhibit 10(f) to
the Corporation’s Quarterly Report on Form 10-Q for the quarter ended March 31,
2013.
Union Pacific Corporation Key Employee Continuity Plan, as amended February
6, 2014, is incorporated herein by reference to Exhibit 10(d) to the Corporation’s
Annual Report on Form 10-K for the year ended December 31, 2013.
Deferred Compensation Plan (409A Grandfathered Component) of Union Pacific
Corporation, as amended March 1, 2013, is incorporated herein by reference to
Exhibit 10(b) to the Corporation’s Quarterly Report on Form 10-Q for the quarter
ended March 31, 2013.
Union Pacific Corporation 2000 Directors Plan, effective as of April 21, 2000, as
amended November 16, 2006, January 30, 2007 and January 1, 2009 is
90
10(k)†
10(l)†
10(m)†
10(n)†
10(o)†
incorporated herein by reference to Exhibit 10(j) to the Corporation’s Annual
Report on Form 10-K for the year ended December 31, 2008.
Union Pacific Corporation Stock Unit Grant and Deferred Compensation Plan for
the Board of Directors (409A Non-Grandfathered Component), effective as of
January 1, 2009 is incorporated herein by reference to Exhibit 10(k) to the
Corporation’s Annual Report on Form 10-K for the year ended December 31,
2008.
Union Pacific Corporation Stock Unit Grant and Deferred Compensation Plan for
the Board of Directors (409A Grandfathered Component), as amended and
restated in its entirety, effective as of January 1, 2009 is incorporated herein by
reference to Exhibit 10(l) to the Corporation’s Annual Report on Form 10-K for the
year ended December 31, 2008.
UPC 2004 Stock Incentive Plan amended March 1, 2013, is incorporated herein
by reference to Exhibit 10(g) to the Corporation’s Quarterly Report on Form 10-Q
for the quarter ended March 31, 2013.
Union Pacific Corporation Policy for Recoupment of Incentive Compensation,
effective January 1, 2020 is incorporated herein by reference to Exhibit 10(c) to
the Corporation’s Annual Report on Form 10-K for the year ended December 31,
2019.
Union Pacific Corporation 2013 Stock Incentive Plan, effective May 16, 2013, as
amended effective as of January 1, 2020 is incorporated herein by reference to
Exhibit 10(d) to the Corporation’s Annual Report on Form 10-K for the year ended
December 31, 2019.
10(p)†
Union Pacific Corporation Executive Incentive Plan, effective May 5, 2005,
amended and restated effective January 1, 2020 is incorporated herein by
reference to Exhibit 10(e) to the Corporation’s Annual Report on Form 10-K for
the year ended December 31, 2019.
10(q)
10(r)
10(s)
10(t)†
10(u)†
Amended and Restated Registration Rights Agreement, dated as of July 12, 1996,
among UPC, UP Holding Company, Inc., Union Pacific Merger Co. and Southern
Pacific Rail Corporation (SP) is incorporated herein by reference to Annex J to the
Joint Proxy Statement/Prospectus included in Post-Effective Amendment No. 2 to
UPC’s Registration Statement on Form S-4 (No. 33-64707).
Agreement, dated September 25, 1995, among UPC, UPRR, Missouri Pacific
Railroad Company (MPRR), SP, Southern Pacific Transportation Company
(SPT), The Denver & Rio Grande Western Railroad Company (D&RGW), St.
Louis Southwestern Railway Company (SLSRC) and SPCSL Corp. (SPCSL), on
the one hand, and Burlington Northern Railroad Company (BN) and The Atchison,
Topeka and Santa Fe Railway Company (Santa Fe), on the other hand, is
incorporated by reference to Exhibit 10.11 to UPC’s Registration Statement on
Form S-4 (No. 33-64707).
Supplemental Agreement, dated November 18, 1995, between UPC, UPRR,
MPRR, SP, SPT, D&RGW, SLSRC and SPCSL, on the one hand, and BN and
Santa Fe, on the other hand, is incorporated herein by reference to Exhibit 10.12
to UPC’s Registration Statement on Form S-4 (No. 33-64707).
Form of Non-Qualified Stock Option Agreement for Executives is incorporated
herein by reference to Exhibit 10(c) to the Corporation’s Annual Report on Form
10-K for the year ended December 31, 2012.
Form of Stock Unit Agreement for Executives is incorporated herein by reference
to Exhibit 10(b) to the Corporation’s Annual Report on Form 10-K for the year
ended December 31, 2012.
91
10(v)†
10(w)†
10(x)†
10(y)†
10(z)†
10(aa)†
Form of Non-Qualified Stock Option Agreement for Executives is incorporated
herein by reference to Exhibit 10(c) to the Corporation’s Annual Report on Form
10-K for the year ended December 31, 2013.
Form of Stock Unit Agreement for Executives is incorporated herein by reference
to Exhibit 10(b) to the Corporation’s Annual Report on Form 10-K for the year
ended December 31, 2013.
Form of 2018 Long Term Plan Stock Unit Agreement is incorporated herein by
reference to Exhibit 10(a) to the Corporation’s Annual Report on Form 10-K for
the year ended December 31, 2017.
Form of 2019 Long Term Plan Stock Unit Agreement is incorporated herein by
reference to Exhibit 10(a) to the Corporation’s Annual Report on Form 10-K for
the year ended December 31, 2018.
Form of 2020 Long Term Plan Stock Unit Agreement is incorporated herein by
reference to Exhibit 10(a) to the Corporation’s Annual Report on Form 10-K for
the year ended December 31, 2019.
Executive Incentive Plan (2005) – Deferred Compensation Program, dated
December 21, 2005 is incorporated herein by reference to Exhibit 10(g) to the
Corporation’s Annual Report on Form 10-K for the year ended December 31,
2005.
† Indicates a management contract or compensatory plan or arrangement.
Item 16. Form 10-K Summary
None.
92
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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, on
this 5th day of February, 2021.
UNION PACIFIC CORPORATION
By
/s/ Lance M. Fritz
Lance M. Fritz,
Chairman, President and
Chief Executive Officer
Union Pacific Corporation
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below,
on this 5th day of February, 2021, by the following persons on behalf of the registrant and in the capacities
indicated.
PRINCIPAL EXECUTIVE OFFICER
AND DIRECTOR:
PRINCIPAL FINANCIAL OFFICER:
PRINCIPAL ACCOUNTING OFFICER:
DIRECTORS:
Andrew H. Card, Jr.*
William J. DeLaney*
David B. Dillon*
Deborah C. Hopkins*
Jane H. Lute*
* By
/s/ Craig V. Richardson
Craig V. Richardson, Attorney-in-fact
By
/s/ Lance M. Fritz
Lance M. Fritz,
Chairman, President and
Chief Executive Officer
Union Pacific Corporation
By
/s/ Jennifer L. Hamann
Jennifer L. Hamann
Executive Vice President and
Chief Financial Officer
By
/s/ Todd M. Rynaski
Todd M. Rynaski,
Vice President and Controller
Michael R. McCarthy*
Thomas F. McLarty III*
Bhavesh V. Patel*
Jose H. Villarreal*
Christopher J. Williams*
93
SIGNIFICANT SUBSIDIARIES OF UNION PACIFIC CORPORATION
Name of Corporation
Union Pacific Railroad Company
Exhibit 21
State of
Incorporation
Delaware
94
Exhibit 23
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the incorporation by reference in Post-Effective Amendment No. 1 to Registration Statement
No. 33-12513, Registration Statement No. 33-53968, Registration Statement No. 33-49785, Registration
Statement No. 33-49849, Registration Statement No. 333-10797, Registration Statement No. 333-88709,
Registration Statement No. 333-42768, Registration Statement No. 333-106707, Registration Statement
No. 333-106708, Registration Statement No. 333-105714, Registration Statement No. 333-105715,
Registration Statement No. 333-116003, Registration Statement No. 333- 132324, Registration Statement
No. 333-155708, Registration Statement No. 333-170209, Registration Statement No. 333-170208, and
Registration No. 333-188671 on Form S-8, Registration Statement No. 333-214407 on Form S-4, and
Registration Statement No. 333-201958 and Registration No. 333-222979 on Form S-3 of our reports dated
February 5, 2021, relating to the consolidated financial statements of Union Pacific Corporation and
Subsidiary Companies (the Corporation), and the effectiveness of the Corporation's internal control over
financial reporting, appearing in this Annual Report on Form 10-K of Union Pacific Corporation for the year
ended December 31, 2020.
Omaha, Nebraska
February 5, 2021
95
Exhibit 24
UNION PACIFIC CORPORATION
Powers of Attorney
Each of the undersigned directors of Union Pacific Corporation, a Utah corporation (the Company), do
hereby appoint each of Lance M. Fritz and Craig V. Richardson his or her true and lawful attorney-in-fact
and agent, to sign on his or her behalf the Company’s Annual Report on Form 10-K, for the year ended
December 31, 2020, and any and all amendments thereto, and to file the same, with all exhibits thereto,
with the Securities and Exchange Commission.
IN WITNESS WHEREOF, the undersigned have executed this Power of Attorney as of February 4, 2021.
/s/ Andrew H. Card, Jr.
Andrew H. Card, Jr.
/s/ William J. DeLaney
William J. DeLaney
/s/ David B. Dillon
David B. Dillon
/s/ Deborah C. Hopkins
Deborah C. Hopkins
/s/ Jane H. Lute
Jane H. Lute
/s/ Michael R. McCarthy
Michael R. McCarthy
/s/ Thomas F. McLarty III
Thomas F. McLarty III
/s/ Bhavesh V. Patel
Bhavesh V. Patel
/s/ Jose H. Villarreal
Jose H. Villarreal
/s/ Christopher J. Williams
Christopher J. Williams
96
Exhibit 31(a)
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER
I, Lance M. Fritz, certify that:
1. I have reviewed this annual report on Form 10-K of Union Pacific Corporation;
2. Based on my knowledge, this report does not contain any untrue statement of material fact or omit to
state a material fact necessary to make the statements made, in light of the circumstances under which
such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report,
fairly present in all material respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control
over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and
have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and
procedures to be designed under our supervision, to ensure that material information relating to
the registrant, including its consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over
financial reporting to be designed under our supervision, to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented
in this report our conclusions about the effectiveness of the disclosure controls and procedures, as
of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that
occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in
the case of an annual report) that has materially affected, or is reasonably likely to materially affect,
the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of
internal control over financial reporting, to the registrant’s auditors and the audit committee of the
registrant’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control
over financial reporting which are reasonably likely to adversely affect the registrant’s ability to
record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a
significant role in the registrant’s internal control over financial reporting.
Date: February 5, 2021
/s/ Lance M. Fritz
Lance M. Fritz
Chairman, President and
Chief Executive Officer
97
Exhibit 31(b)
CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER
I, Jennifer L. Hamann, certify that:
1. I have reviewed this annual report on Form 10-K of Union Pacific Corporation;
2. Based on my knowledge, this report does not contain any untrue statement of material fact or omit to
state a material fact necessary to make the statements made, in light of the circumstances under which
such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report,
fairly present in all material respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control
over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and
have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and
procedures to be designed under our supervision, to ensure that material information relating to
the registrant, including its consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over
financial reporting to be designed under our supervision, to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented
in this report our conclusions about the effectiveness of the disclosure controls and procedures, as
of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that
occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in
the case of an annual report) that has materially affected, or is reasonably likely to materially affect,
the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of
internal control over financial reporting, to the registrant’s auditors and the audit committee of the
registrant’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control
over financial reporting which are reasonably likely to adversely affect the registrant’s ability to
record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a
significant role in the registrant’s internal control over financial reporting.
Date: February 5, 2021
/s/ Jennifer L. Hamann
Jennifer L. Hamann
Executive Vice President and
Chief Financial Officer
98
CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 32
In connection with the accompanying Annual Report of Union Pacific Corporation (the Corporation) on Form
10-K for the period ending December 31, 2020, as filed with the Securities and Exchange Commission on
the date hereof (the Report), I, Lance M. Fritz, Chairman, President and Chief Executive Officer of the
Corporation, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 that:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities
Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial
condition and results of operations of the Corporation.
By: /s/ Lance M. Fritz
Lance M. Fritz
Chairman, President and
Chief Executive Officer
Union Pacific Corporation
February 5, 2021
A signed original of this written statement required by Section 906 has been provided to the Corporation
and will be retained by the Corporation and furnished to the Securities and Exchange Commission or its
staff upon request.
CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the accompanying Annual Report of Union Pacific Corporation (the Corporation) on Form
10-K for the period ending December 31, 2020, as filed with the Securities and Exchange Commission on
the date hereof (the Report), I, Jennifer L. Hamann, Executive Vice President and Chief Financial Officer
of the Corporation, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 that:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities
Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial
condition and results of operations of the Corporation.
By: /s/ Jennifer L. Hamann
Jennifer L. Hamann
Executive Vice President and
Chief Financial Officer
Union Pacific Corporation
February 5, 2021
A signed original of this written statement required by Section 906 has been provided to the Corporation
and will be retained by the Corporation and furnished to the Securities and Exchange Commission or its
staff upon request.
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