UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
(Mark One)
| | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
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
UNION PACIFIC CORPORATION
(Exact name of registrant as specified in its charter)
| | |
| (State or other jurisdiction of | (I.R.S. Employer |
| incorporation or organization) | Identification No.) |
(Address of principal executive offices)
(Zip Code)
(
(Registrant’s telephone number, including area code)
| Securities registered pursuant to Section 12(b) of the Act: | ||
| Title of each Class | Trading Symbol | Name of each exchange on which registered |
| | | |
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.
☒
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).
☒
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.
| | ☑ | Accelerated Filer | ☐ | Non-Accelerated Filer | ☐ | ||
| Smaller Reporting Company | | Emerging Growth Company | |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).
As of April 15, 2022, there were
UNION PACIFIC CORPORATION
AND SUBSIDIARY COMPANIES
| PART I. FINANCIAL INFORMATION | ||
| Item 1. |
||
| 3 | ||
| CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited) |
||
| 3 | ||
| CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION (Unaudited) |
||
| 4 | ||
| 5 | ||
| CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN COMMON SHAREHOLDERS’ EQUITY (Unaudited) |
||
| 6 | ||
| NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) |
7 | |
| Item 2. |
Management's Discussion and Analysis of Financial Condition and Results of Operations |
18 |
| Item 3. |
28 | |
| Item 4. |
28 | |
| PART II. OTHER INFORMATION | ||
| Item 1. |
29 | |
| Item 1A. |
29 | |
| Item 2. |
29 | |
| Item 3. |
30 | |
| Item 4. |
30 | |
| Item 5. |
||
| Item 6. |
||
| Certifications |
32 |
|
Item 1. Condensed Consolidated Financial Statements
Condensed Consolidated Statements of Income (Unaudited)
Union Pacific Corporation and Subsidiary Companies
| Millions, Except Per Share Amounts, for the Three Months Ended March 31, |
2022 |
2021 |
||||||
| Operating revenues: |
||||||||
| Freight revenues |
$ | $ | ||||||
| Other revenues |
||||||||
| Total operating revenues |
||||||||
| Operating expenses: |
||||||||
| Compensation and benefits |
||||||||
| Fuel |
||||||||
| Purchased services and materials |
||||||||
| Depreciation |
||||||||
| Equipment and other rents |
||||||||
| Other |
||||||||
| Total operating expenses |
||||||||
| Operating income |
||||||||
| Other income, net (Note 6) |
||||||||
| Interest expense |
( |
) | ( |
) | ||||
| Income before income taxes |
||||||||
| Income taxes |
( |
) | ( |
) | ||||
| Net income |
$ | $ | ||||||
| Share and Per Share (Note 7): |
||||||||
| Earnings per share - basic |
$ | $ | ||||||
| Earnings per share - diluted |
$ | $ | ||||||
| Weighted average number of shares - basic |
||||||||
| Weighted average number of shares - diluted |
||||||||
Condensed Consolidated Statements of Comprehensive Income (Unaudited)
Union Pacific Corporation and Subsidiary Companies
| Millions, for the Three Months Ended March 31, | 2022 | 2021 | ||||||
| Net income | $ | $ | ||||||
| Other comprehensive income/(loss): | ||||||||
| Defined benefit plans | ||||||||
| Foreign currency translation | ( | ) | ||||||
| Total other comprehensive income/(loss) [a] | ( | ) | ||||||
| Comprehensive income | $ | $ | ||||||
| [a] |
Net of deferred taxes of ($5) million and ($8) million during the three months ended March 31, 2022 and 2021, respectively. |
The accompanying notes are an integral part of these unaudited Condensed Consolidated Financial Statements.
Condensed Consolidated Statements of Financial Position (Unaudited)
Union Pacific Corporation and Subsidiary Companies
| Mar. 31, | Dec. 31, | |||||||
| Millions, Except Share and Per Share Amounts | 2022 | 2021 | ||||||
| Assets | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Short-term investments (Note 12) | ||||||||
| Accounts receivable, net (Note 9) | ||||||||
| Materials and supplies | ||||||||
| Other current assets | ||||||||
| Total current assets | ||||||||
| Investments | ||||||||
| Properties, net (Note 10) | ||||||||
| Operating lease assets | ||||||||
| Other assets | ||||||||
| Total assets | $ | $ | ||||||
| Liabilities and Common Shareholders' Equity | ||||||||
| Current liabilities: | ||||||||
| Accounts payable and other current liabilities (Note 11) | $ | $ | ||||||
| Debt due within one year (Note 13) | ||||||||
| Total current liabilities | ||||||||
| Debt due after one year (Note 13) | ||||||||
| Operating lease liabilities | ||||||||
| Deferred income taxes | ||||||||
| Other long-term liabilities | ||||||||
| Commitments and contingencies (Note 14) | ||||||||
| Total liabilities | ||||||||
| Common shareholders' equity: | ||||||||
| Common shares, $ par value, authorized; and | ||||||||
| issued; and outstanding, respectively | ||||||||
| Paid-in-surplus | ||||||||
| Retained earnings | ||||||||
| Treasury stock | ( | ) | ( | ) | ||||
| Accumulated other comprehensive loss (Note 8) | ( | ) | ( | ) | ||||
| Total common shareholders' equity | ||||||||
| Total liabilities and common shareholders' equity | $ | $ | ||||||
The accompanying notes are an integral part of these unaudited Condensed Consolidated Financial Statements.
Condensed Consolidated Statements of Cash Flows (Unaudited)
Union Pacific Corporation and Subsidiary Companies
| Millions, for the Three Months Ended March 31, |
2022 |
2021 |
||||||
| Operating Activities |
||||||||
| Net income |
$ | $ | ||||||
| Adjustments to reconcile net income to cash provided by operating activities: |
||||||||
| Depreciation |
||||||||
| Deferred and other income taxes |
||||||||
| 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 12) |
||||||||
| Purchases of short-term investments (Note 12) |
( |
) | ||||||
| Other investing activities, net |
( |
) | ||||||
| Cash used in investing activities |
( |
) | ( |
) | ||||
| Financing Activities |
||||||||
| Debt issued (Note 13) |
||||||||
| Share repurchase programs (Note 15) |
( |
) | ( |
) | ||||
| Debt repaid |
( |
) | ( |
) | ||||
| Dividends paid |
( |
) | ( |
) | ||||
| Accelerated share repurchase programs pending final settlement (Note 15) |
( |
) | ||||||
| Net issued/(paid) commercial paper (Note 13) |
( |
) | ( |
) | ||||
| 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 period |
$ | $ | ||||||
| Supplemental Cash Flow Information |
||||||||
| Non-cash investing and financing activities: |
||||||||
| Capital investments accrued but not yet paid |
$ | $ | ||||||
| Common shares repurchased but not yet paid |
||||||||
| Cash (paid for)/received from: |
||||||||
| Income taxes, net of refunds |
$ | ( |
) | $ | ( |
) | ||
| Interest, net of amounts capitalized |
( |
) | ( |
) | ||||
| Reconciliation of cash, cash equivalents, and restricted cash |
||||||||
| to the Condensed Consolidated Statement of Financial Position: |
||||||||
| 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 per above |
$ | $ | ||||||
The accompanying notes are an integral part of these unaudited Condensed Consolidated Financial Statements.
Condensed Consolidated Statements of Changes in Common Shareholders’ Equity (Unaudited)
Union Pacific Corporation and Subsidiary Companies
| Millions | Common Shares | Treasury Shares | Common Shares | Paid-in-Surplus | Retained Earnings | Treasury Stock | AOCI [a] | Total | ||||||||||||||||||||||||
| Balance at January 1, 2021 | ( | ) | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ||||||||||||||||||||
| Net income | ||||||||||||||||||||||||||||||||
| Other comprehensive income/(loss) | ( | ) | ( | ) | ||||||||||||||||||||||||||||
| Conversion, stock option exercises, forfeitures, ESPP, and other [b] | ( | ) | ||||||||||||||||||||||||||||||
| Share repurchase programs (Note 15) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Dividends declared ($ per share) | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Balance at March 31, 2021 | ( | ) | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ||||||||||||||||||||
| Balance at January 1, 2022 | ( | ) | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ||||||||||||||||||||
| Net income | ||||||||||||||||||||||||||||||||
| Other comprehensive income/(loss) | ||||||||||||||||||||||||||||||||
| Conversion, stock option exercises, forfeitures, ESPP, and other [b] | ( | ) | ||||||||||||||||||||||||||||||
| Share repurchase programs (Note 15) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||
| Dividends declared ($ per share) | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Balance at March 31, 2022 | ( | ) | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ||||||||||||||||||||
| [a] |
AOCI = Accumulated Other Comprehensive Income/Loss (Note 8) |
| [b] | ESPP = employee stock purchase plan (Note 4) |
The accompanying notes are an integral part of these unaudited Condensed Consolidated Financial Statements.
UNION PACIFIC CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
For purposes of this report, unless the context otherwise requires, all references herein to the “Corporation”, “Company”, “UPC”, “we”, “us”, and “our” mean Union Pacific Corporation and its subsidiaries, including Union Pacific Railroad Company, which will be separately referred to herein as “UPRR” or the “Railroad”.
1. Basis of Presentation
Our Condensed Consolidated Financial Statements are unaudited and reflect all adjustments (consisting of normal and recurring adjustments) that are, in the opinion of management, necessary for their fair presentation in conformity with accounting principles generally accepted in the United States of America (GAAP). Pursuant to the rules and regulations of the Securities and Exchange Commission (SEC), certain information and note disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted. Accordingly, this Quarterly Report on Form 10-Q should be read in conjunction with our Consolidated Financial Statements and notes thereto contained in our 2021 Annual Report on Form 10-K. Our Consolidated Statement of Financial Position at December 31, 2021, is derived from audited financial statements. The results of operations for the three months ended March 31, 2022, are not necessarily indicative of the results for the entire year ending December 31, 2022.
The Condensed Consolidated Financial Statements are presented in accordance with GAAP as codified in the Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC).
2. Accounting Pronouncements
In November 2021, the FASB issued Accounting Standards Update No. (ASU) 2021-10, Government Assistance (Topic 832): Disclosures by Business Entities about Government Assistance, which requires business entities to provide certain disclosures when they have received government assistance and use a grant or contribution accounting model by analogy to other accounting guidance. The ASU was effective January 1, 2022, and had no material impact on our consolidated financial statements and related disclosures.
In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, which provides optional expedients and exceptions for applying GAAP principles to contracts, hedging relationships, and other transactions that reference London Interbank Offered Rate (LIBOR) or another reference rate expected to be discontinued due to reference rate reform. This guidance was effective beginning on March 12, 2020, and can be adopted on a prospective basis no later than December 31, 2022, with early adoption permitted. The Company is currently evaluating the effect that the new guidance will have on our consolidated financial statements and related disclosures.
3. Operations and Segmentation
The Railroad, along with its subsidiaries and rail affiliates, is our
The following table represents a disaggregation of our freight and other revenues:
| Millions, for the Three Months Ended March 31, | 2022 | 2021 | ||||||
| Bulk | $ | $ | ||||||
| Industrial | ||||||||
| Premium | ||||||||
| Total freight revenues | $ | $ | ||||||
| Other subsidiary revenues | ||||||||
| Accessorial revenues | ||||||||
| Other | ||||||||
| Total operating revenues | $ | $ | ||||||
Although our revenues are principally derived from customers domiciled in the U.S., the ultimate points of origin 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 $
4. 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”. Starting in July 2021, employees are also able to participate in our employee stock purchase plan (ESPP).
Information regarding stock-based compensation appears in the table below:
| Millions, for the Three Months Ended March 31, |
2022 |
2021 |
||||||
| Stock-based compensation, before tax: |
||||||||
| Stock options |
$ | $ | ||||||
| Retention awards |
||||||||
| ESPP |
||||||||
| Total stock-based compensation, before tax |
$ | $ | ||||||
| Excess tax benefits from equity compensation plans |
$ | $ | ||||||
Stock Options – Stock options are granted at the closing price on the date of grant, have
The table below shows the annual weighted-average assumptions used for Black-Scholes valuation purposes:
| Weighted-Average Assumptions |
2022 |
2021 |
||||||
| Risk-free interest rate |
% | % | ||||||
| Dividend yield |
% | % | ||||||
| Expected life (years) |
||||||||
| Volatility |
% | % | ||||||
| Weighted-average grant-date fair value of options granted |
$ | $ | ||||||
The risk-free rate is based on the U.S. Treasury yield curve in effect at the time of grant; the expected dividend yield is calculated as the ratio of dividends paid per share of common stock to the stock price on the date of grant; the expected life is based on historical and expected exercise behavior; and expected volatility is based on the historical volatility of our stock price over the expected life of the stock option.
A summary of stock option activity during the three months ended March 31, 2022, is presented below:
| Options (thous.) |
Weighted-Average Exercise Price | Weighted-Average Remaining Contractual Term (in years) | Aggregate Intrinsic Value (millions) | |||||||||||||
| Outstanding at January 1, 2022 |
$ | $ | ||||||||||||||
| Granted |
N/A | N/A | ||||||||||||||
| Exercised |
( |
) | N/A | N/A | ||||||||||||
| Forfeited or expired |
( |
) | N/A | N/A | ||||||||||||
| Outstanding at March 31, 2022 |
$ | $ | ||||||||||||||
| Vested or expected to vest at March 31, 2022 |
$ | $ | ||||||||||||||
| Options exercisable at March 31, 2022 |
$ | $ | ||||||||||||||
At March 31, 2022, there was $
| Millions, for the Three Months Ended March 31, |
2022 |
2021 |
||||||
| 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 |
||||||||
Retention Awards – Retention awards are granted at no cost to the employee, vest over periods lasting up to
Changes in our retention awards during the three months ended March 31, 2022, were as follows:
| Shares (thous.) |
Weighted-Average Grant-Date Fair Value | |||||||
| Nonvested at January 1, 2022 |
$ | |||||||
| Granted |
||||||||
| Vested |
( |
) | ||||||
| Forfeited |
( |
) | ||||||
| Nonvested at March 31, 2022 |
$ | |||||||
At March 31, 2022, there was $
Performance Retention Awards – In February 2022, our Board of Directors approved performance stock unit grants. This plan is based on performance targets for annual return on invested capital (ROIC) and operating income growth (OIG) compared to companies in the S&P 100 Industrials Index plus the Class I railroads. We define ROIC as net operating profit adjusted for interest expense (including interest on average operating lease liabilities) and taxes on interest divided by average invested capital adjusted for average operating lease liabilities.
Changes in our performance retention awards during the three months ended March 31, 2022, were as follows:
| Shares (thous.) |
Weighted-Average Grant-Date Fair Value |
|||||||
| Nonvested at January 1, 2022 |
$ | |||||||
| Granted |
||||||||
| Vested |
( |
) | ||||||
| Unearned |
( |
) | ||||||
| Forfeited |
( |
) | ||||||
| Nonvested at March 31, 2022 |
$ | |||||||
At March 31, 2022, there was $
5. Retirement Plans
We provide defined benefit retirement income to eligible non-union employees through qualified and non-qualified (supplemental) pension plans. Qualified and non-qualified pension benefits are based on years of service and the highest compensation during the latest years of employment, with specific reductions made for early retirements. Non-union employees hired on or after January 1, 2018, are no longer eligible for pension benefits, but are eligible for an enhanced 401(k) plan.
Expense
Pension expense is determined based upon the annual service cost of benefits (the actuarial cost of benefits earned during a period) and the interest cost on those liabilities, less the expected return on plan assets. The expected long-term rate of return on plan assets is applied to a calculated value of plan assets that recognizes changes in fair value over a
The components of our net periodic pension cost were as follows:
| Millions, for the Three Months Ended March 31, |
2022 |
2021 |
||||||
| Service cost |
$ | $ | ||||||
| Interest cost |
||||||||
| Expected return on plan assets |
( |
) | ( |
) | ||||
| Amortization of actuarial loss |
||||||||
| Net periodic pension cost |
$ | $ | ||||||
Cash Contributions
For the three months ended March 31, 2022, cash contributions totaled $0 to the qualified pension plans. Any contributions made during 2022 will be based on cash generated from operations and financial market considerations. Our policy with respect to funding the qualified pension plans is to fund at least the minimum required by law and not more than the maximum amount deductible for tax purposes. At March 31, 2022, we do not have minimum cash funding requirements for 2022.
6. Other Income
Other income included the following:
| Millions, for the Three Months Ended March 31, |
2022 |
2021 |
||||||
| Rental income |
$ | $ | ||||||
| Environmental remediation and restoration | ( |
) | ( |
) | ||||
| Net periodic pension costs |
||||||||
| Other |
||||||||
| Total |
$ | $ | ||||||
7. Earnings Per Share
The following table provides a reconciliation between basic and diluted earnings per share:
| Millions, Except Per Share Amounts, for the Three Months Ended March 31, |
2022 |
2021 |
||||||
| 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 |
$ | $ | ||||||
| Stock options excluded as their inclusion would be anti-dilutive |
||||||||
8. Accumulated Other Comprehensive Income/Loss
Reclassifications out of accumulated other comprehensive income/loss were as follows (net of tax):
| Millions | Defined benefit plans | Foreign currency translation | Total | |||||||||
| Balance at January 1, 2022 | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||
| 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 ($) million | ||||||||||||
| Balance at March 31, 2022 | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||
| Balance at January 1, 2021 | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||
| 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 ($) million | ( | ) | ( | ) | ||||||||
| Balance at March 31, 2021 | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||
| [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. |
9. Accounts Receivable
Accounts receivable includes freight and other receivables reduced by an allowance for doubtful accounts. At March 31, 2022, and December 31, 2021, our accounts receivable were reduced by $
Receivables Securitization Facility – The Railroad maintains an $
The amount recorded under the Receivables Facility was $
The outstanding amount the Railroad maintains under the Receivables Facility may fluctuate based on current cash needs. The maximum allowed under the facility is $
Subsequent Event – On April 14, 2022, the Railroad drew $
10. Properties
The following tables list the major categories of property and equipment, as well as the weighted-average estimated useful life for each category (in years):
| Millions, Except Estimated Useful Life |
Accumulated |
Net Book |
Estimated |
|||||||||||||
| As of March 31, 2022 |
Cost |
Depreciation |
Value |
Useful Life |
||||||||||||
| Land |
$ | $ | N/A | $ | N/A | |||||||||||
| Road: |
||||||||||||||||
| Rail and other track material |
||||||||||||||||
| Ties |
||||||||||||||||
| Ballast |
||||||||||||||||
| Other roadway [a] |
||||||||||||||||
| Total road |
N/A | |||||||||||||||
| Equipment: |
||||||||||||||||
| Locomotives |
||||||||||||||||
| Freight cars |
||||||||||||||||
| Work equipment and other |
||||||||||||||||
| Total equipment |
N/A | |||||||||||||||
| Technology and other |
||||||||||||||||
| Construction in progress |
N/A | |||||||||||||||
| Total |
$ | $ | $ | N/A | ||||||||||||
| [a] |
Other roadway includes grading, bridges and tunnels, signals, buildings, and other road assets. |
| Millions, Except Estimated Useful Life |
Accumulated |
Net Book |
Estimated |
|||||||||||||
| As of December 31, 2021 |
Cost |
Depreciation |
Value |
Useful Life |
||||||||||||
| Land |
$ | $ | N/A | $ | N/A | |||||||||||
| Road: |
||||||||||||||||
| Rail and other track material |
||||||||||||||||
| Ties |
||||||||||||||||
| Ballast |
||||||||||||||||
| Other roadway [a] |
||||||||||||||||
| Total road |
N/A | |||||||||||||||
| Equipment: |
||||||||||||||||
| Locomotives |
||||||||||||||||
| Freight cars |
||||||||||||||||
| Work equipment and other |
||||||||||||||||
| Total equipment |
N/A | |||||||||||||||
| Technology and other |
||||||||||||||||
| Construction in progress |
N/A | |||||||||||||||
| Total |
$ | $ | $ | N/A | ||||||||||||
| [a] |
Other roadway includes grading, bridges and tunnels, signals, buildings, and other road assets. |
11. Accounts Payable and Other Current Liabilities
| Mar. 31, |
Dec. 31, |
|||||||
| Millions |
2022 |
2021 |
||||||
| Income and other taxes payable |
$ | $ | ||||||
| Accounts payable |
||||||||
| Accrued wages and vacation |
||||||||
| Current operating lease liabilities |
||||||||
| Interest payable |
||||||||
| Accrued casualty costs |
||||||||
| Equipment rents payable |
||||||||
| Other |
||||||||
| Total accounts payable and other current liabilities |
$ | $ | ||||||
12. 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 March 31, 2022, the Company had $
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 March 31, 2022, the fair value of total debt was $
13. Debt
Credit Facilities – At March 31, 2022, we had $
During the three months ended March 31, 2022, we issued $
Shelf Registration Statement and Significant New Borrowings – On February 3, 2022, the Board of Directors renewed its authorization for the Company to issue up to $
During the three months ended March 31, 2022, we issued the following unsecured, fixed-rate debt securities under our shelf registration:
| Date | Description of Securities |
| February 14, 2022 |
|
|
| |
|
| |
|
|
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 March 31, 2022, we had remaining authority to issue up to $
Receivables Securitization Facility – As of March 31, 2022, and December 31, 2021, we recorded $
Subsequent Event – On , we redeemed all $
14. Commitments and Contingencies
Asserted and Unasserted Claims – Various claims and lawsuits are pending against us and certain of our subsidiaries. We cannot fully determine the effect of all asserted and unasserted claims on our consolidated results of operations, financial condition, or liquidity. To the extent possible, we have recorded a liability where asserted and unasserted claims are considered probable and where such claims can be reasonably estimated. We 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 Federal Employers’ Liability Act (FELA) governs compensation for work-related accidents. Under FELA, damages are assessed based on a finding of fault through litigation or out-of-court settlements. We offer a comprehensive variety of services and rehabilitation programs for employees who are injured at work.
Approximately
Our personal injury liability activity was as follows:
| Millions, for the Three Months Ended March 31, |
2022 |
2021 |
||||||
| Beginning balance |
$ | $ | ||||||
| Current year accruals |
||||||||
| Changes in estimates for prior years |
||||||||
| Payments |
( |
) | ( |
) | ||||
| Ending balance at March 31, |
$ | $ | ||||||
| Current portion, ending balance at March 31, |
$ | $ | ||||||
Environmental Costs – We are subject to federal, state, and local environmental laws and regulations. We have identified
| Millions, for the Three Months Ended March 31, |
2022 |
2021 |
||||||
| Beginning balance |
$ | $ | ||||||
| Accruals |
||||||||
| Payments |
( |
) | ( |
) | ||||
| Ending balance at March 31, |
$ | $ | ||||||
| Current portion, ending balance at March 31, |
$ | $ | ||||||
The environmental liability includes future costs for remediation and restoration of sites, as well as ongoing monitoring costs, but excludes any anticipated recoveries from third parties. Cost estimates are based on information available for each site, financial viability of other potentially responsible parties, and existing technology, laws, and regulations. The ultimate liability for remediation is difficult to determine because of the number of potentially responsible parties, site-specific cost sharing arrangements with other potentially responsible parties, the degree of contamination by various wastes, the scarcity and quality of volumetric data related to many of the sites, and the speculative nature of remediation costs. Estimates of liability may vary over time due to changes in federal, state, and local laws governing environmental remediation. Current obligations are not expected to have a material adverse effect on our consolidated results of operations, financial condition, or liquidity.
Insurance – The Company has a consolidated, wholly-owned captive insurance subsidiary (the captive), that provides insurance coverage for certain risks including workers compensation, general liability, auto liability, and FELA claims. The captive receives direct premiums, which are netted against the Company’s premium costs in other expenses in the Condensed Consolidated Statements of Income. We record both liabilities and reinsurance receivables using an actuarial analysis based on historical experience in our Condensed Consolidated Statements of Financial Position.
Indemnities – Our maximum potential exposure under indemnification arrangements, including certain tax indemnifications, can range from a specified dollar amount to an unlimited amount, depending on the nature of the transactions and the agreements. Due to uncertainty as to whether claims will be made or how they will be resolved, we cannot reasonably determine the probability of an adverse claim or reasonably estimate any adverse liability or the total maximum exposure under these indemnification arrangements. We do not have any reason to believe that we will be required to make any material payments under these indemnity provisions.
15. Share Repurchase Programs
Effective April 1, 2022, our Board of Directors authorized the repurchase of up to
Our previous authorization, which was effective April 1, 2019, through March 31, 2022, was approved by our Board of Directors for up to
The table below represents shares repurchased under the repurchase program in the first quarter of 2022 and 2021:
| Number of Shares Purchased | Average Price Paid [a] | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| First quarter [b] | $ | $ | ||||||||||||||
| [a] | In the period of the final settlement, the average price paid under the accelerated share repurchase programs is calculated based on the total program value less the value assigned to the initial delivery of shares. The average price of the initial settlement of the 2022 accelerated share repurchase programs was $ |
| [b] | Includes |
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.
Accelerated Share Repurchase Programs – The Company has established accelerated share repurchase programs (ASRs) with financial institutions to repurchase shares of our common stock. These ASRs have been structured so that at the time of commencement, we pay a specified amount to the financial institutions and receive an initial delivery of shares. Additional shares may be received at the time of settlement. The final number of shares to be received is based on the volume weighted average price of the Company’s common stock during the ASR term, less a discount and subject to potential adjustments pursuant to the terms of such ASR.
On February 18, 2022, the Company received
On May 26, 2021, the Company received
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.
16. Related Parties
UPRR and other North American railroad companies jointly own TTX Company (TTX). UPRR has a
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 $
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
UNION PACIFIC CORPORATION AND SUBSIDIARY COMPANIES
RESULTS OF OPERATIONS
Three Months Ended March 31, 2022, Compared to
Three Months Ended March 31, 2021
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”.
The following discussion should be read in conjunction with the Condensed Consolidated Financial Statements and applicable notes to the Condensed Consolidated Financial Statements, Item 1, and other information included in this report. Our Condensed Consolidated Financial Statements are unaudited and reflect all adjustments (consisting only of normal and recurring adjustments) that are, in the opinion of management, necessary for their fair presentation in conformity with accounting principles generally accepted in the United States of America (GAAP).
The Railroad, along with its subsidiaries and rail affiliates, is our one reportable business segment. Although we provide and analyze revenues by commodity group, we treat the financial results of the Railroad as one segment due to the integrated nature of our rail network.
Critical Accounting Estimates
We base our discussion and analysis of our financial condition and results of operations upon our Condensed Consolidated Financial Statements. The preparation of these financial statements requires estimation and judgment that affect the reported amounts of revenues, expenses, assets, and liabilities. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. If these estimates differ materially from actual results, the impact on the Condensed Consolidated Financial Statements may be material. Our critical accounting estimates are available in Item 7 of our 2021 Annual Report on Form 10-K. There have not been any significant changes with respect to these policies during the first three months of 2022.
RESULTS OF OPERATIONS
Quarterly Summary
The Company reported earnings of $2.57 per diluted share on net income of $1.6 billion and an operating ratio of 59.4% in the first quarter of 2022 compared to earnings of $2.00 per diluted share on net income of $1.3 billion and an operating ratio of 60.1% for the first quarter of 2021. Freight revenues increased 17% in the quarter compared to the same period in 2021 driven by increases in average revenue per car (ARC) and volume of 12% and 4%, respectively. The ARC increase was due to higher fuel surcharge revenue, core pricing gains, and positive mix of traffic (for example, a relative increase in industrial shipments, which have a higher ARC). As the economy strengthened in the first quarter of 2022, volume growth was seen in all commodity groups except the energy and specialized markets, driven by lower petroleum shipments, and intermodal, due to the on-going supply chain disruptions. Weather events did not have a significant impact on our operations in the first quarter 2022. Revenues and costs improved year-over-year due to the impact of Winter Storm Uri on first quarter 2021, which reduced carloads and increased operating costs.
With the onset of the Russia-Ukraine conflict (the conflict) in late February 2022, crude oil prices rose to over $100 a barrel driving a 59% increase in our average fuel price for the quarter. In addition, in response to the conflict and ensuing Office of Foreign Assets Controls (OFAC) sanctions we evaluated our customer and supplier relationships to safeguard the Company against violations of these sanctions. If any of our business partners with known Russian ties become sanctioned or if we take proactive steps in light of the ongoing conflict, we do not expect such actions to have a material adverse effect on our results of operations, financial condition, and liquidity. Along with the higher cost of fuel, costs increased due to inflation, volume, and the reduced fluidity of our network. These increased costs only partially offset the higher revenue, resulting in a 19% increase in operating income in the first quarter compared to the same period in 2021.
Operating Revenues
| Millions, for the Three Months Ended March 31, |
2022 |
2021 |
Change |
% | ||||||||
| Freight revenues |
$ | 5,440 | $ | 4,649 | 17 | % |
||||||
| Other subsidiary revenues |
205 | 177 | 16 | |||||||||
| Accessorial revenues |
201 | 161 | 25 | |||||||||
| Other |
14 | 14 | - | |||||||||
| Total |
$ | 5,860 | $ | 5,001 | 17 | % |
||||||
We generate freight revenues by transporting products from our three commodity groups. Freight revenues vary with volume (carloads) and ARC. Changes in price, traffic mix, and fuel surcharges drive ARC. Customer incentives, which are primarily provided for shipping to/from specific locations or based on cumulative volumes, are recorded as a reduction to operating revenues. Customer incentives that include variable consideration based on cumulative volumes are estimated using the expected value method, which is based on available historical, current, and forecasted volumes, and recognized as the related performance obligation is satisfied. We recognize freight revenues over time as shipments move from origin to destination. The allocation of revenues between reporting periods is based on the relative transit time in each reporting period with expenses recognized as incurred.
Other subsidiary revenues (primarily logistics and commuter rail operations) are generally recognized over time as shipments move from origin to destination. The allocation of revenues between reporting periods is based on the relative transit time in each reporting period with expenses recognized as incurred. Accessorial revenues are recognized at a point in time as performance obligations are satisfied.
Freight revenues increased 17% during the first quarter of 2022 compared to 2021, resulting from higher fuel surcharges, a 4% volume increase, core pricing gains, and positive mix of traffic. Volume growth in coal, metals and minerals, industrial chemicals and plastics, and automotive parts were partially offset by declines in international intermodal and petroleum shipments.
Other subsidiary revenues increased in the first quarter compared to 2021 primarily driven by revenues at our subsidiary that brokers intermodal and transload logistics services as a result of the recovery of automotive parts shipments and contract wins. Accessorial revenue increased in the first quarter compared to 2021 driven by increased intermodal accessorial charges resulting from the ongoing global supply chain disruptions.
| Freight Revenues |
|
|||||||||||
| Millions, for the Three Months Ended March 31, |
2022 |
2021 |
Change |
% | ||||||||
| Grain & grain products |
$ | 877 | $ | 766 | 14 | % |
||||||
| Fertilizer |
180 | 170 | 6 | |||||||||
| Food & refrigerated |
267 | 235 | 14 | |||||||||
| Coal & renewables |
508 | 341 | 49 | |||||||||
| Bulk |
1,832 | 1,512 | 21 | |||||||||
| Industrial chemicals & plastics |
520 | 435 | 20 | |||||||||
| Metals & minerals |
485 | 375 | 29 | |||||||||
| Forest products |
364 | 316 | 15 | |||||||||
| Energy & specialized markets |
552 | 530 | 4 | |||||||||
| Industrial |
1,921 | 1,656 | 16 | |||||||||
| Automotive |
501 | 447 | 12 | |||||||||
| Intermodal |
1,186 | 1,034 | 15 | |||||||||
| Premium |
1,687 | 1,481 | 14 | |||||||||
| Total |
$ | 5,440 | $ | 4,649 | 17 | % |
||||||
| Revenue Carloads |
|
|||||||||||
| Thousands, for the Three Months Ended March 31, |
2022 |
2021 |
Change |
% | ||||||||
| Grain & grain products |
205 | 203 | 1 | % |
||||||||
| Fertilizer |
45 | 44 | 2 | |||||||||
| Food & refrigerated |
47 | 45 | 4 | |||||||||
| Coal & renewables |
225 | 174 | ||||||||||