false--12-31Q120200000100885YesYes00001008852007-01-012020-03-310000100885unp:AcceleratedShareRepurchaseAgreementMember2020-02-192020-03-310000100885unp:AcceleratedShareRepurchaseAgreementMember2019-07-012019-09-300000100885unp:AcceleratedShareRepurchaseAgreementMember2019-02-262019-03-3100001008852019-04-010000100885us-gaap:AdditionalPaidInCapitalMember2020-01-012020-03-310000100885us-gaap:AdditionalPaidInCapitalMember2019-01-012019-03-310000100885us-gaap:TreasuryStockMember2020-01-012020-03-310000100885us-gaap:CommonStockMember2020-01-012020-03-310000100885us-gaap:TreasuryStockMember2019-01-012019-03-310000100885us-gaap:CommonStockMember2019-01-012019-03-310000100885us-gaap:RetainedEarningsMember2020-03-310000100885us-gaap:AdditionalPaidInCapitalMember2020-03-310000100885us-gaap:AccumulatedOtherComprehensiveIncomeMember2020-03-310000100885us-gaap:RetainedEarningsMember2019-12-310000100885us-gaap:AdditionalPaidInCapitalMember2019-12-310000100885us-gaap:AccumulatedOtherComprehensiveIncomeMember2019-12-310000100885us-gaap:RetainedEarningsMember2019-03-310000100885us-gaap:AdditionalPaidInCapitalMember2019-03-310000100885us-gaap:AccumulatedOtherComprehensiveIncomeMember2019-03-310000100885us-gaap:RetainedEarningsMember2018-12-310000100885us-gaap:AdditionalPaidInCapitalMember2018-12-310000100885us-gaap:AccumulatedOtherComprehensiveIncomeMember2018-12-310000100885us-gaap:StockOptionMember2019-01-012019-12-310000100885us-gaap:StockOptionMember2019-12-310000100885us-gaap:StockOptionMember2019-01-012019-03-310000100885unp:RetentionAwardsMember2019-12-310000100885unp:PerformanceRetentionAwardsMember2019-12-310000100885us-gaap:ProductAndServiceOtherMember2020-01-012020-03-310000100885us-gaap:CargoAndFreightMember2020-01-012020-03-310000100885unp:PremiumMember2020-01-012020-03-310000100885unp:IndustrialMember2020-01-012020-03-310000100885unp:BulkMember2020-01-012020-03-310000100885country:MX2020-01-012020-03-310000100885us-gaap:ProductAndServiceOtherMember2019-01-012019-03-310000100885us-gaap:CargoAndFreightMember2019-01-012019-03-310000100885unp:PremiumMember2019-01-012019-03-310000100885unp:IndustrialMember2019-01-012019-03-310000100885unp:BulkMember2019-01-012019-03-310000100885country:MX2019-01-012019-03-310000100885us-gaap:OtherNoncurrentAssetsMember2020-03-310000100885us-gaap:OtherCurrentAssetsMember2020-03-310000100885us-gaap:OtherNoncurrentAssetsMember2019-03-310000100885us-gaap:OtherCurrentAssetsMember2019-03-310000100885unp:TtxCompanyMember2020-01-012020-03-310000100885unp:TtxCompanyMember2019-01-012019-03-310000100885us-gaap:TechnologyEquipmentMember2020-01-012020-03-310000100885unp:RoadTiesMember2020-01-012020-03-310000100885unp:RoadrailAndOtherTrackMaterialMemberMember2020-01-012020-03-310000100885unp:RoadOtherMember2020-01-012020-03-310000100885unp:RoadBallastMember2020-01-012020-03-310000100885unp:EquipmentWorkEquipmentAndOtherMember2020-01-012020-03-310000100885unp:EquipmentLocomotivesMember2020-01-012020-03-310000100885unp:EquipmentFreightCarsMember2020-01-012020-03-310000100885us-gaap:TechnologyEquipmentMember2019-01-012019-12-310000100885unp:RoadTiesMember2019-01-012019-12-310000100885unp:RoadrailAndOtherTrackMaterialMemberMember2019-01-012019-12-310000100885unp:RoadOtherMember2019-01-012019-12-310000100885unp:RoadBallastMember2019-01-012019-12-310000100885unp:EquipmentWorkEquipmentAndOtherMember2019-01-012019-12-310000100885unp:EquipmentLocomotivesMember2019-01-012019-12-310000100885unp:EquipmentFreightCarsMember2019-01-012019-12-310000100885us-gaap:LandMember2020-03-310000100885us-gaap:ConstructionInProgressMember2020-03-310000100885us-gaap:LandMember2019-12-310000100885us-gaap:ConstructionInProgressMember2019-12-310000100885unp:AcceleratedShareRepurchaseAgreementMember2020-01-012020-03-310000100885unp:AcceleratedShareRepurchaseAgreementMember2019-01-012019-03-310000100885us-gaap:AccumulatedOtherComprehensiveIncomeMember2020-01-012020-03-310000100885us-gaap:AccumulatedOtherComprehensiveIncomeMember2019-01-012019-03-310000100885us-gaap:AccumulatedForeignCurrencyAdjustmentIncludingPortionAttributableToNoncontrollingInterestMember2020-01-012020-03-310000100885us-gaap:AccumulatedDefinedBenefitPlansAdjustmentIncludingPortionAttributableToNoncontrollingInterestMember2020-01-012020-03-310000100885us-gaap:AccumulatedForeignCurrencyAdjustmentIncludingPortionAttributableToNoncontrollingInterestMember2019-01-012019-03-310000100885us-gaap:AccumulatedDefinedBenefitPlansAdjustmentIncludingPortionAttributableToNoncontrollingInterestMember2019-01-012019-03-310000100885srt:MinimumMemberunp:PersonalInjuryMember2020-03-310000100885srt:MaximumMemberunp:PersonalInjuryMember2020-03-310000100885unp:PersonalInjuryMember2019-12-310000100885unp:PersonalInjuryMember2019-03-310000100885unp:PersonalInjuryMember2018-12-310000100885srt:MinimumMember2020-03-310000100885us-gaap:FairValueInputsLevel2Memberus-gaap:BankTimeDepositsMember2020-03-310000100885us-gaap:GuaranteeObligationsMember2020-01-012020-03-310000100885us-gaap:GuaranteeObligationsMember2020-03-310000100885us-gaap:GuaranteeObligationsMember2019-12-310000100885unp:RetentionAwardsMember2020-01-012020-03-310000100885us-gaap:StockOptionMember2020-03-310000100885unp:RetentionAwardsMember2020-03-310000100885unp:PerformanceRetentionAwardsMember2020-03-310000100885us-gaap:RetainedEarningsMember2020-01-012020-03-310000100885us-gaap:RetainedEarningsMember2019-01-012019-03-310000100885us-gaap:PensionPlansDefinedBenefitMember2020-01-012020-03-310000100885us-gaap:OtherPostretirementBenefitPlansDefinedBenefitMember2020-01-012020-03-310000100885us-gaap:PensionPlansDefinedBenefitMember2019-01-012019-03-310000100885us-gaap:OtherPostretirementBenefitPlansDefinedBenefitMember2019-01-012019-03-3100001008852019-06-300000100885unp:NotesDue20503250PercentMemberus-gaap:SubsequentEventMember2020-04-072020-04-070000100885unp:NotesDue20703750PercentMemberus-gaap:UnsecuredDebtMember2020-01-012020-03-310000100885unp:NotesDue20503250PercentMemberus-gaap:UnsecuredDebtMember2020-01-012020-03-310000100885unp:NotesDue20302400PercentMemberus-gaap:UnsecuredDebtMember2020-01-012020-03-310000100885unp:NotesDue20272150PercentMemberus-gaap:UnsecuredDebtMember2020-01-012020-03-310000100885unp:NotesDue20503250PercentMemberus-gaap:SubsequentEventMember2020-04-070000100885unp:NotesDue20703750PercentMemberus-gaap:UnsecuredDebtMember2020-01-310000100885unp:NotesDue20503250PercentMemberus-gaap:UnsecuredDebtMember2020-01-310000100885unp:NotesDue20302400PercentMemberus-gaap:UnsecuredDebtMember2020-01-310000100885unp:NotesDue20272150PercentMemberus-gaap:UnsecuredDebtMember2020-01-310000100885us-gaap:TreasuryStockMember2020-03-310000100885us-gaap:CommonStockMember2020-03-310000100885us-gaap:TreasuryStockMember2019-12-310000100885us-gaap:CommonStockMember2019-12-310000100885us-gaap:TreasuryStockMember2019-03-310000100885us-gaap:CommonStockMember2019-03-310000100885us-gaap:TreasuryStockMember2018-12-310000100885us-gaap:CommonStockMember2018-12-310000100885unp:AcceleratedShareRepurchaseAgreementMember2020-03-310000100885us-gaap:AccumulatedForeignCurrencyAdjustmentIncludingPortionAttributableToNoncontrollingInterestMember2020-03-310000100885us-gaap:AccumulatedDefinedBenefitPlansAdjustmentIncludingPortionAttributableToNoncontrollingInterestMember2020-03-310000100885us-gaap:AccumulatedForeignCurrencyAdjustmentIncludingPortionAttributableToNoncontrollingInterestMember2019-12-310000100885us-gaap:AccumulatedDefinedBenefitPlansAdjustmentIncludingPortionAttributableToNoncontrollingInterestMember2019-12-310000100885us-gaap:AccumulatedForeignCurrencyAdjustmentIncludingPortionAttributableToNoncontrollingInterestMember2019-03-310000100885us-gaap:AccumulatedDefinedBenefitPlansAdjustmentIncludingPortionAttributableToNoncontrollingInterestMember2019-03-310000100885us-gaap:AccumulatedForeignCurrencyAdjustmentIncludingPortionAttributableToNoncontrollingInterestMember2018-12-310000100885us-gaap:AccumulatedDefinedBenefitPlansAdjustmentIncludingPortionAttributableToNoncontrollingInterestMember2018-12-310000100885us-gaap:TechnologyEquipmentMember2020-03-310000100885us-gaap:EquipmentMember2020-03-310000100885unp:RoadTiesMember2020-03-310000100885unp:RoadrailAndOtherTrackMaterialMemberMember2020-03-310000100885unp:RoadOtherMember2020-03-310000100885unp:RoadMember2020-03-310000100885unp:RoadBallastMember2020-03-310000100885unp:FinanceLeaseAssetsMember2020-03-310000100885unp:EquipmentWorkEquipmentAndOtherMember2020-03-310000100885unp:EquipmentLocomotivesMember2020-03-310000100885unp:EquipmentFreightCarsMember2020-03-310000100885us-gaap:TechnologyEquipmentMember2019-12-310000100885us-gaap:EquipmentMember2019-12-310000100885unp:RoadTiesMember2019-12-310000100885unp:RoadrailAndOtherTrackMaterialMemberMember2019-12-310000100885unp:RoadOtherMember2019-12-310000100885unp:RoadMember2019-12-310000100885unp:RoadBallastMember2019-12-310000100885unp:FinanceLeaseAssetsMember2019-12-310000100885unp:EquipmentWorkEquipmentAndOtherMember2019-12-310000100885unp:EquipmentLocomotivesMember2019-12-310000100885unp:EquipmentFreightCarsMember2019-12-3100001008852018-12-310000100885unp:TtxCompanyMember2020-03-310000100885unp:TtxCompanyMember2019-12-310000100885us-gaap:StockOptionMember2020-01-012020-03-3100001008852019-03-310000100885unp:PersonalInjuryMember2020-03-310000100885unp:PerformanceRetentionAwardsMember2020-01-012020-03-310000100885unp:PersonalInjuryMember2020-01-012020-03-310000100885unp:PersonalInjuryMember2019-01-012019-03-3100001008852019-06-302019-06-300000100885us-gaap:LineOfCreditMember2020-03-310000100885us-gaap:SubsequentEventMember2020-04-070000100885us-gaap:LineOfCreditMember2020-01-012020-03-3100001008852020-03-3100001008852019-12-3100001008852019-01-012019-03-3100001008852020-04-1700001008852020-01-012020-03-31unp:itemiso4217:USDxbrli:sharesxbrli:pureiso4217:USDxbrli:shares

Table of Contents

a

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

x

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

For the quarterly period ended March 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

13-2626465

(State or other jurisdiction of

(I.R.S. Employer

incorporation or organization)

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

Trading Symbol

Name of each exchange on which registered

Common Stock (Par Value $2.50 per share)

UNP

New York Stock Exchange

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

x 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).

x 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 

þ

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).

¨ Yes     x No

As of April 17, 2020, there were 678,568,053 shares of the Registrant's Common Stock outstanding.

 


Table of Contents

TABLE OF CONTENTS

UNION PACIFIC CORPORATION

AND SUBSIDIARY COMPANIES

PART I. FINANCIAL INFORMATION

Item 1.

Condensed Consolidated Financial Statements:

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited)

For the Three Months Ended March 31, 2020 and 2019

3

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)

For the Three Months Ended March 31, 2020 and 2019

3

CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION (Unaudited)

At March 31, 2020 and December 31, 2019

4

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

For the Three Months Ended March 31, 2020 and 2019

5

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

For the Three and Three Months Ended March 31, 2020 and 2019

6

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

7

Item 2.

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

22

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

35

Item 4.

Controls and Procedures

35

PART II. OTHER INFORMATION

Item 1.

Legal Proceedings

36

Item 1A.

Risk Factors

36

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

38

Item 3.

Defaults Upon Senior Securities

38

Item 4.

Mine Safety Disclosures

38

Item 5.

Other Information

38

Item 6.

Exhibits

39

Signatures

40

Certifications

41

 

2


Table of Contents

PART I. FINANCIAL INFORMATION

Item 1. Condensed Consolidated Financial Statements

Condensed Consolidated Statements of Income (Unaudited)

Union Pacific Corporation and Subsidiary Companies

Millions, Except Per Share Amounts,

for the Three Months Ended March 31,

2020

2019

Operating revenues:

Freight revenues

$

4,880 

$

5,010 

Other revenues

349 

374 

Total operating revenues

5,229 

5,384 

Operating expenses:

Compensation and benefits

1,059 

1,205 

Depreciation

547 

549 

Purchased services and materials

521 

576 

Fuel

434 

531 

Equipment and other rents

227 

258 

Other

298 

305 

Total operating expenses

3,086 

3,424 

Operating income

2,143 

1,960 

Other income (Note 6)

53 

77 

Interest expense

(278)

(247)

Income before income taxes

1,918 

1,790 

Income taxes

(444)

(399)

Net income

$

1,474 

$

1,391 

Share and Per Share (Note 8):

Earnings per share - basic

$

2.15 

$

1.94 

Earnings per share - diluted

$

2.15 

$

1.93 

Weighted average number of shares - basic

684.3 

716.8 

Weighted average number of shares - diluted

686.2 

719.5 

Condensed Consolidated Statements of Comprehensive Income (Unaudited)

Union Pacific Corporation and Subsidiary Companies

Millions,

for the Three Months Ended March 31,

2020

2019

Net income

$

1,474 

$

1,391 

Other comprehensive income/(loss):

Defined benefit plans

22 

10 

Foreign currency translation

5 

27 

Total other comprehensive income/(loss) [a]

27 

37 

Comprehensive income

$

1,501 

$

1,428 

[a]Net of deferred taxes of ($7) million and ($4) million during the three months ended March 31, 2020, and 2019, respectively.

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

3


Table of Contents

Condensed Consolidated Statements of Financial Position (Unaudited)

Union Pacific Corporation and Subsidiary Companies

March 31,

December 31,

Millions, Except Share and Per Share Amounts

2020

2019

Assets

Current assets:

Cash and cash equivalents

$

1,130 

$

831 

Short-term investments (Note 13)

60 

60 

Accounts receivable, net (Note 10)

1,669 

1,595 

Materials and supplies

692 

751 

Other current assets

253 

222 

Total current assets

3,804 

3,459 

Investments

2,078 

2,050 

Net properties (Note 11)

54,121 

53,916 

Operating lease assets (Note 16)

1,773 

1,812 

Other assets

440 

436 

Total assets

$

62,216 

$

61,673 

Liabilities and Common Shareholders' Equity

Current liabilities:

Accounts payable and other current liabilities (Note 12)

$

3,130 

$

3,094 

Debt due within one year (Note 14)

1,511 

1,257 

Total current liabilities

4,641 

4,351 

Debt due after one year (Note 14)

26,365 

23,943 

Operating lease liabilities (Note 16)

1,339 

1,471 

Deferred income taxes

12,088 

11,992 

Other long-term liabilities

1,792 

1,788 

Commitments and contingencies (Note 17)

 

 

Total liabilities

46,225 

43,545 

Common shareholders' equity:

Common shares, $2.50 par value, 1,400,000,000 authorized;

1,112,277,525 and 1,112,014,480 issued; 678,558,571 and 692,100,651

outstanding, respectively

2,781 

2,780 

Paid-in-surplus

4,112 

4,523 

Retained earnings

49,419 

48,605 

Treasury stock

(38,992)

(36,424)

Accumulated other comprehensive loss (Note 9)

(1,329)

(1,356)

Total common shareholders' equity

15,991 

18,128 

Total liabilities and common shareholders' equity

$

62,216 

$

61,673 

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

 

4


Table of Contents

Condensed Consolidated Statements of Cash Flows (Unaudited)

Union Pacific Corporation and Subsidiary Companies

Millions,

for the Three Months Ended March 31,

2020

2019

Operating Activities

Net income

$

1,474 

$

1,391 

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

Depreciation

547 

549 

Deferred and other income taxes

91 

103 

Other operating activities, net

(64)

(53)

Changes in current assets and liabilities:

Accounts receivable, net

(74)

83 

Materials and supplies

59 

(38)

Other current assets

1 

(57)

Accounts payable and other current liabilities

(168)

(259)

Income and other taxes

289 

240 

Cash provided by operating activities

2,155 

1,959 

Investing Activities

Capital investments

(807)

(752)

Maturities of short-term investments (Note 13)

70 

90 

Purchases of short-term investments (Note 13)

(70)

(90)

Proceeds from asset sales

8 

14 

Other investing activities, net

(8)

(46)

Cash used in investing activities

(807)

(784)

Financing Activities

Debt issued (Note 14)

2,996 

2,992 

Share repurchase programs (Note 18)

(2,556)

(2,987)

Dividends paid

(660)

(626)

Accelerated share repurchase programs pending final settlement

(400)

(500)

Debt repaid

(305)

(560)

Net issuance of commercial paper (Note 14)

(1)

299 

Other financing activities, net

(71)

(23)

Cash used in financing activities

(997)

(1,405)

Net change in cash, cash equivalents and restricted cash

351 

(230)

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

856 

1,328 

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

$

1,207 

$

1,098 

Supplemental Cash Flow Information

Non-cash investing and financing activities:

Capital investments accrued but not yet paid

$

169 

$

149 

Common shares repurchased but not yet paid

-

22 

Cash (paid for)/received from:

Income taxes, net of refunds

$

(11)

$

(1)

Interest, net of amounts capitalized

(349)

(356)

Reconciliation of cash, cash equivalents, and restricted cash

to the Condensed Consolidated Statement of Financial Position:

Cash and cash equivalents

$

1,130 

$

1,059 

Restricted cash equivalents in other current assets

65 

27 

Restricted cash equivalents in other assets

12 

12 

Total cash, cash equivalents and restricted cash equivalents per above

$

1,207 

$

1,098 

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

 

5


Table of Contents

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, 2019

1,111.7 

(386.6)

$   2,779 

$   4,449 

$   45,284 

$   (30,674)

$   (1,415)

$    20,423 

Net income

-

-

1,391 

-

-

1,391 

Other comprehensive income

-

-

-

-

37 

37 

Conversion, stock option
exercises, forfeitures, and other

0.3 

1.1 

1 

(20)

-

45 

-

26 

Share repurchase programs
   (Note 18)

-

(18.1)

-

(500)

-

(3,009)

-

(3,509)

Cash dividends declared
($0.88 per share)

-

-

-

-

(626)

-

-

(626)

Balance at March 31, 2019

1,112.0 

(403.6)

$   2,780 

$   3,929 

$   46,049 

$   (33,638)

$   (1,378)

$    17,742 

Balance at January 1, 2020

1,112.0 

(419.9)

$   2,780 

$   4,523 

$   48,605 

$   (36,424)

$   (1,356)

$    18,128 

Net income

-

-

1,474 

-

-

1,474 

Other comprehensive income

-

-

-

-

27 

27 

Conversion, stock option
exercises, forfeitures, and other

0.3 

0.5 

1 

(11)

-

(12)

-

(22)

Share repurchase programs
   (Note 18)

-

(14.3)

-

(400)

-

(2,556)

-

(2,956)

Cash dividends declared
($0.97 per share)

-

-

-

-

(660)

-

-

(660)

Balance at March 31, 2020

1,112.3 

(433.7)

$   2,781 

$   4,112 

$   49,419 

$   (38,992)

$   (1,329)

$    15,991 

[a]AOCI = Accumulated Other Comprehensive Income/(Loss) (Note 9)

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

 


6


Table of Contents

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 2019 Annual Report on Form 10-K. Our Consolidated Statement of Financial Position at December 31, 2019, is derived from audited financial statements. The results of operations for the three months ended March 31, 2020, are not necessarily indicative of the results for the entire year ending December 31, 2020.

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 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. The ASU is effective for the Company beginning January 1, 2021, and early adoption is permitted. Adoption of the standard is not expected to have a material impact on the Company’s consolidated financial statement disclosure requirements.

 

3. Operations and Segmentation

The Railroad, along with its subsidiaries and rail affiliates, is our one reportable operating segment. Although we provide and analyze revenue by three commodity groups, 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. Prior to 2020, we reported on four commodity groups, thus 2020 freight revenues have been realigned to the new reporting format.


7


Table of Contents

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

Millions,

for the Three Months Ended March 31,

2020

2019

Bulk

$

1,534 

$

1,620 

Industrial

1,894 

1,839 

Premium

1,452 

1,551 

Total freight revenues

$

4,880 

$

5,010 

Other subsidiary revenues

214 

223 

Accessorial revenues

117 

133 

Other

18 

18 

Total operating revenues

$

5,229 

$

5,384 

 

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 $583 million and $576 million, respectively, for the three months ended March 31, 2020, and March 31, 2019

4. Stock-Based Compensation

We have several stock-based compensation plans under which employees and non-employee directors receive stock options, nonvested retention shares, and nonvested stock units. We refer to the nonvested shares and stock units collectively as “retention awards”. We have elected to 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,

for the Three Months Ended March 31,

2020

2019

Stock-based compensation, before tax:

Stock options

$

4 

$

5 

Retention awards

18 

22 

Total stock-based compensation, before tax

$

22 

$

27 

Excess tax benefits from equity compensation plans

$

33 

$

39 

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

2020

2019

Risk-free interest rate

1.5%

2.5%

Dividend yield

2.1%

2.2%

Expected life (years)

4.9 

5.2 

Volatility

23.4%

22.7%

Weighted-average grant-date fair value of options granted

$

32.20 

$

30.37 

 

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.

8


Table of Contents

A summary of stock option activity during the three months ended March 31, 2020, is presented below:

Options (thous.)

Weighted-Average
Exercise Price

Weighted-Average Remaining Contractual Term

Aggregate Intrinsic Value (millions)

Outstanding at January 1, 2020

3,502 

$

113.38 

6.1