UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

(Mark One)

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

For the fiscal year ended December 31, 2021

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 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, 2021, the aggregate market value of the registrant’s Common Stock held by non-affiliates (using the New York Stock Exchange closing price) was $142.0 billion.

The number of shares outstanding of the registrant’s Common Stock as of January 28, 2022, was 636,898,957.

Documents Incorporated by Reference – Portions of the registrant’s definitive Proxy Statement for the Annual Meeting of Shareholders to be held on May 12, 2022, are incorporated by reference into Part III of this report. The registrant’s Proxy Statement will be filed with the Securities and Exchange Commission (SEC) within 120 days after the end of the fiscal year that this report relates pursuant to Regulation 14A.

UNION PACIFIC CORPORATION

TABLE OF CONTENTS

	Chairman’s Letter	3
	Directors and Senior Management	4
PART I
Item 1.	Business	5
Item 1A.	Risk Factors	9
Item 1B.	Unresolved Staff Comments	12
Item 2.	Properties	13
Item 3.	Legal Proceedings	15
Item 4.	Mine Safety Disclosures	16
	Executive Officers of the Registrant and Principal Executive Officers of Subsidiaries	17
PART II
Item 5.	Market for the Registrant’s Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities	18
Item 6.	[Reserved]	19
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	19
	Critical Accounting Estimates	19
	Cautionary Information	32
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	32
Item 8.	Financial Statements and Supplementary Data	33
	Report of Independent Registered Public Accounting Firm	34
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	61
Item 9A.	Controls and Procedures	61
	Management’s Annual Report on Internal Control Over Financial Reporting	61
	Report of Independent Registered Public Accounting Firm	62
Item 9B.	Other Information	63
Item 9C.	Disclosure Regarding Foreign Jurisdictions that Prevent Inspections	63
PART III
Item 10.	Directors, Executive Officers, and Corporate Governance	63
Item 11.	Executive Compensation	63
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	63
Item 13.	Certain Relationships and Related Transactions and Director Independence	63
Item 14.	Principal Accountant Fees and Services	64
PART IV
Item 15.	Exhibit and Financial Statement Schedules	64
Item 16.	Form 10-K Summary	67
	Signatures	68
	Certifications	72

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February 4, 2022

Fellow Shareholders:

Union Pacific demonstrated again in 2021 that our team is “best in class” as we navigated challenges from the pandemic and numerous operational disruptions. The pandemic continued to impact our daily lives and disrupt supply chains in significant ways. Despite these wide-ranging impacts, the Union Pacific team achieved record financial results. In 2021, we are reporting earnings per share of $9.95, which is a 26% increase versus 2020. Total volumes increased 4% versus 2020, as our economy continued to recover from the pandemic impacts. Operating ratio was a record 57.2%, 270 basis points better than 2020’s 59.9% demonstrating continued focus on efficient operations. 2020 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.

Safety is foundational to everything we do at Union Pacific. 2021 safety results did not meet our expectations. In 2022, we are continuing to engage external experts to help us get back on track to world class industrial safety performance. We are implementing more effective ways to coach, train, and root-cause analyze, all while building a stronger, deeper safety culture. Nothing is more important than making sure every employee returns home safely.

During 2021, we rolled out a new strategic plan we call, “Serve, Grow, Win, Together.” The essence of our strategy is unchanged; however, as our culture evolves, it’s imperative that we have a strategic plan that clearly defines our path to long-term sustainable growth.   Everything we do starts with Serve and the transportation products we provide our customers. Precision Scheduled Railroading (PSR) is the foundation for delivering customer-centered operational excellence and creating a more resilient and agile service product. In 2021, weather, wildfires, supply chain disruptions, and pandemic impacts to crew availability all impeded our ability to further improve our service product. Freight car velocity was down 8% versus 2020, lowering Trip Plan Compliance for both Intermodal and Manifest/Autos 8 points. Beyond reliable service, our customers want “greener” transportation options. Every carload of freight we take off the highway saves fuel, lowers emissions, and reduces highway congestion. We took steps toward our long-term emission reduction goals by achieving a best-ever fuel consumption rate, improving 1% versus 2020, helping our customers eliminate roughly 23 million metric tons of greenhouse gas emissions by choosing rail versus truck.   To support our service product, we continue to make significant investments in our infrastructure. In 2021, we invested approximately $3.0 billion, completing 15 siding extensions, opening pop-up intermodal terminals in the Twin Cities, MN, and West Colton, CA, modernizing 100 locomotives, and hardening our infrastructure. We also invested in energy management systems to reduce fuel consumption and the resulting carbon emissions.

These investments also underpin the next tenet of our strategy – Grow. We believe we have the best rail franchise in North America. By providing a quality service product, along with the lowest cost structure in the industry, we are well positioned to handle more business for new and existing customers. We see many opportunities to grow, whether by providing more services for our customers or by expanding our reach through new transload facilities or pop-up intermodal terminals. Improving the customer experience is critical and technology plays a key role. Our industry leading practices provide our customers with application programming interfaces (API), with over 50 services launched, we are integrating deeper into our customers’ systems and supply chains. And our team is winning in the marketplace! We welcomed new customers in 2021, are onboarding more in 2022, and already setting the stage for a great 2023 with a significant domestic intermodal win.

Successful execution of our plans to “Serve” and “Grow” leads to Win. For our shareholders, winning means generating best-in-industry cash returns. In 2021, we paid dividends of $2.8 billion, which included two 10% dividend increases during the year. In addition, we repurchased 33 million Union Pacific shares, decreasing our full-year average share count 3%. Combining dividends and share repurchases, Union Pacific returned $10.1 billion to our shareholders in 2021.

Our definition of “winning” extends to all UP’s stakeholders, which is the final piece of our strategy – Together. Our comprehensive approach to Environmental Social Governance (ESG) issues, “Building a Sustainable Future 2030”, is designed to address the evolving needs of our stakeholders. In 2021, we took major steps on our ESG journey, beginning with the July release of our 2018, 2019, and 2020 EEO-1 reports, providing increased transparency to our workforce demographics. And we continue to report quarterly progress towards our long-term diversity representation goals. Further, in December, we released our initial Climate Action Plan, laying out our plan to achieve our 2030 carbon emission reduction goals, approved in February by the Science Based Targets initiative (SBTi), and our commitment to Net Zero by 2050, the only U.S. rail to do so.

Every year can bring real challenges to our “outdoor factory”, although the last two years were unique. In response, the resiliency of the Union Pacific team has been on full display, and our employees have positioned our Company for even greater success in 2022. As we prepare to celebrate our 160^th anniversary in 2022, we are focused on customer-centered operational excellence, growing with our customers, and winning together with all our stakeholders. The future is very bright for Union Pacific.

Chairman, President, and Chief Executive Officer

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DIRECTORS AND SENIOR MANAGEMENT

BOARD OF DIRECTORS
Andrew H. Card, Jr.	Lance M. Fritz	Thomas F. McLarty III
Former White House	Chairman, President, and	Chairman
Chief of Staff	Chief Executive Officer	McLarty Associates
Board Committees: Compensation and Benefits, Corporate Governance	Union Pacific Corporation and Union Pacific Railroad Company	Board Committees: Finance (Chair), Corporate Governance and
and Nominating		Nominating
	Deborah C. Hopkins
William J. DeLaney	Former Chief Executive Officer	Jose H. Villarreal
Former Chief Executive Officer	Citi Ventures and Former	Retired Advisor
Sysco Corporation	Chief Innovation Officer Citi	Akin, Gump, Strauss, Hauer, &
Board Committees: Audit,	Board Committees: Audit, Finance	Feld, LLP
Compensation and Benefits (Chair)		Board Committees: Compensation
	Jane H. Lute	and Benefits, Corporate Governance
David B. Dillon	Strategic Advisor	and Nominating
Former Chairman and CEO	SICPA, North America
The Kroger Company	Board Committees: Audit, Corporate	Christopher J. Williams
Board Committees: Audit (Chair),	Governance and Nominating	Chairman
Compensation and Benefits		Siebert Williams Shank & Co.
	Michael R. McCarthy	Board Committees: Audit, Finance
Sheri H. Edison	Chairman – McCarthy Group, LLC
Former Executive Vice President and	Co-Chairman – Bridges Trust Company
General Counsel Amcor plc	Lead Independent Director
Board Committees: Pending Assignment	Board Committees: Corporate
	Governance and Nominating (Chair),
	Finance

SENIOR MANAGEMENT*

Lance M. Fritz	Rahul Jalali	Craig V. Richardson
Chairman, President, and	Senior Vice President – Information	Executive Vice President, Chief Legal
Chief Executive Officer	Technologies and Chief Information	Officer, and Corporate Secretary
	Officer
Prentiss W. Bolin, Jr.		Kenny G. Rocker
Vice President – External Relations	Michael V. Miller	Executive Vice President – Marketing
	Vice President and Treasurer	and Sales
Bryan L. Clark
Vice President – Tax	Scott D. Moore	Todd M. Rynaski
	Senior Vice President – Corporate	Vice President and Controller
Eric J. Gehringer	Relations and
Executive Vice President – Operations	Chief Administrative Officer	Elizabeth F. Whited
		Executive Vice President –
Jennifer L. Hamann	Clark J. Ponthier	Sustainability and Strategy
Executive Vice President	Senior Vice President – Supply Chain
and Chief Financial Officer	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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PART I

Item 1. Business

GENERAL

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

The Company’s growth strategy focuses on growing customer value through innovative supply chain solutions and aspiring to Serve, Grow, Win – Together.

Serve:  Driving operational excellence to create a safer, more reliable and efficient service product. Precision scheduled railroading (PSR) is the foundation for delivering customer-centered operational excellence by:

1.	Shifting the focus of operations from moving trains to moving cars.
2.	Minimizing car dwell, car classification events, and locomotive power requirements.
3.	Utilizing general-purpose trains by blending existing train service.
4.	Balancing train movements to improve the utilization of crews and rail assets.

We aim to move cars faster and reduce the number of times each car is touched, resulting in terminal consolidation opportunities, improved asset utilization, and fewer car classifications, which in turn leads to products getting to the market quicker and more reliably. The result is a better customer experience, which enables us to grow our market share.

Grow:  By harnessing the potential of the best rail franchise in the industry, we expect to generate growth in three ways – increasing profitable carloads that fit our network and transportation plan; providing more products and services to create value for our customers; and increasing the geographic reach of our franchise through innovative supply chain solutions.

Win:  Driving strong financial performance resulting in significant shareholder returns. Execution of our plans to both serve and grow, leads to higher revenues with improved margins and greater cash generation, creating long term enterprise value.

Together:  Engaging our four stakeholder groups – Communities, Customers, Employees, and Shareholders. Our comprehensive approach to Environmental Social Governance (ESG) issues, “Building a Sustainable Future 2030,” is designed to address the evolving needs of our stakeholders and is built on four areas of concentration – Investing in our Workforce, Driving Sustainable Solutions, Championing Environmental Stewardship, and Strengthening our Communities – to align with our stakeholder groups. 

We believe that operational excellence and an engaged workforce with deep market knowledge and strong customer relationships will support best-in-class safety, a customer experience that drives growth, and shareholder returns. 

As we work to 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 lead us to win in a way that supports all of our stakeholders; and our teamwork will make sure we win together.

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; 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). 

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Operations – UPRR is a Class I railroad operating in the U.S. We have 32,452 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 2021, we generated freight revenues totaling $20.2 billion from the following three commodity groups:

2021 Freight Revenues

Bulk – The Company's Bulk shipments consist of grain and grain products, fertilizer, food and refrigerated, and coal and renewables. In 2021, this group generated 33% of our freight revenues. 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 portion 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, and roofing), metals and ores, petroleum, liquid petroleum gases (LPG), soda ash, and sand. Transportation of these products accounted for 36% of our freight revenues in 2021. 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 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 2021, Premium shipments generated 31% of Union Pacific’s total freight revenues. 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, destined for one of the Company's many inland intermodal terminals. 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, the Company 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 (such as certain agricultural and food products that have specific growing and harvesting seasons) and the demand cycle for the commodity (such as intermodal traffic that generally peaks during the third quarter to meet back-to-school and holiday-related demand for consumer goods during the fourth quarter). 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; consumer demand; the strength of harvests, which can be adversely affected by severe weather; and market prices for agricultural products.

Proud & Engaged Workforce – Safety is a top priority at Union Pacific. We continue to improve technology, enhance processes, and foster a culture focused on operating safely, 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 ($11,200 for 2021 and $11,300 for 2022).

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Our goal is to have every employee return home safely every day. Our 2021 personal injury rate of 0.98 and equipment incident rate of 3.80 did not meet expectations and illustrates that we have work to do to achieve an incident-free environment. Our 2021 personal injury rate increased 9% and our equipment incident rate increased 7% versus 2020. (See further discussion in Management’s Discussion and Analysis of Financial Condition and Results of Operations, Item 7, of this report.)

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 value people from all backgrounds and walks of life, and we empower employees to launch and grow their career within the Company. As of December 31, 2021, the Company employed 32,124 employees.

We believe 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 future, is to further improve and strengthen performance through an inclusive workforce that reflects the diverse markets and communities we serve, where everyone is treated fairly, and differences are valued. To that end, Union Pacific established a goal to reach 40% people of color and 11% female representation in our workforce by 2030. As of December 31, 2021, workforce representation of people of color and females was approximately 31.3% and 5.3%, respectively.

Providing employees with meaningful work and fulfilling careers is important to us. We offer competitive compensation to our employees. We believe employees are more productive when their financial success is aligned with the Company's success. In May 2021, our shareholders approved our employee stock purchase plan (ESPP), allowing participants to receive a 40% Company match of up to 5% of their base compensation (limited to $15,000 annually) to purchase shares in the Company stock. Our Board of Directors evaluates our non-union compensation plans and reviews recommendations from the Compensation and Benefits Committee, while collective bargaining agreements govern compensation for our union employees. The median annual compensation for all employees employed as of December 31, 2021, was $81,179 (excluding the CEO).

Labor Agreements – Approximately 84% 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, and all collective bargaining groups are currently in the mediation phase. 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 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 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 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 assess cybersecurity risks and implement mitigation programs that evolve with the changing technology threat environment. For example, we released critical patches to address the vulnerability in Log4J, a component widely used in our applications and found in commercial software. To date, we have not experienced any material disruption of our operations due to a cyber threat or attack directed at us.

Cooperation with Federal, State, and Local Government Agencies – We work closely on physical and cybersecurity initiatives with government agencies, including the U.S. Department of Transportation (DOT); the Department of Homeland Security (DHS), along with its Cybersecurity & Infrastructure Security Agency (CISA) and Transportation Security Administration (TSA); as well as local police departments, fire departments, and other first responders. In connection with new guidance from the TSA, effective January 1, 2022, we are required to report cyber incidents to CISA, perform a cyber vulnerability self-assessment and submit results to the TSA (by March 31, 2022), assemble and adopt a cyber incident response plan (by June 29, 2022), and appoint cybersecurity coordinators. In conjunction with the Association of American Railroads (AAR), we sponsor Ask Rail, a mobile application that 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.

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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 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.

Sustainable Future – Union Pacific believes it is important that we act as environmental stewards, reducing emissions and supporting the transition to a more sustainable future. While we work to further reduce our environmental footprint, it is important to note that railroads already are one of the most fuel-efficient means of transportation. According to the Association of American Railroads (AAR), moving freight by rail instead of truck reduces greenhouse gas (GHG) emissions by up to 75%. Building on rail’s relative emissions benefits over other modes of transportation, we are taking additional actions to reduce our emissions. These actions are described in our initial Climate Action Plan, which we released in December 2021.

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 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 subject to the regulations of the FRA and other federal and state agencies as well as 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 explore changes to the methodology for determining railroad revenue adequacy and the possible uses of revenue adequacy in regulating railroad rates. The STB posts quarterly reports on rate reasonableness cases, maintains a database on service complaints, and has the authority to initiate investigations, among other things.

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 wastewater 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 Estimates– Environmental, Item 7, and Note 17 to the Financial Statements and Supplementary Data, Item 8.

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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 – 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 can lead to 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 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 or do not deploy sufficient capital in a timely manner to acquire, develop, or implement new technology or maintain or upgrade current systems, such as Positive Train Control (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 (whether created by us or purchased), under control of third-parties, or open-source software. Although we devote significant resources to protect our technology systems and proprietary data, we have experienced and will likely continue to experience varying degrees of cyber incidents in the normal course of business. 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. Furthermore, due to the rising numbers and increasing sophistication of cyber-attacks, an increasingly complex information technology 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 materially 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 may experience security breaches that could remain undetected for an extended period and, therefore, have a greater impact on the services we offer. Additionally, we may be exposed to increased cybersecurity risk because we are a component of the critical U.S. infrastructure.

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.

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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 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 coronavirus and its variant strains (COVID).

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 or the inability to manufacture locomotives that meet efficiency or regulatory emissions standards, we could experience significant cost increases and reduced availability of the locomotives that are necessary for our operations. Additionally, we utilize a limited number of steel producers 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 over 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, financial condition, and liquidity. Labor disputes, work stoppages, slowdowns, or lockouts at 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.

The Availability of Qualified Personnel Could Adversely Affect Our Operations – Changes in demographics, training requirements, and the availability of qualified personnel for us, our customers, and throughout the supply chain, including the effects on availability from pandemic illnesses or restrictions (including, for example, any potential effects from the coronavirus vaccine mandates), 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 that we operate in 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 railroad operations and pricing 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. 

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.

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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.

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 GHGs, 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, emissions reductions, and GHG emissions could materially affect the markets for the commodities we carry and demand for our services, 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. While we work to implement our Climate Action Plan, our efforts to achieve emission reduction targets could significantly increase our operational costs and capital expenditures.

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Our business, financial condition, and results of operations have been adversely affected, and in the future, could be materially adversely affected by pandemics or other public health crises – Our business, financial condition, and results of operations have been adversely affected by COVID. COVID 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, resulting further in adverse effects on workforces, customers, and regional and local economies. Other future pandemics or public health crises may cause these same or similar consequences. Because the severity, magnitude, and duration of the COVID pandemic and its economic consequences are rapidly changing, and difficult to predict, the impact on our business and financial condition remains uncertain. The ultimate impact of the COVID 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 or public health crises, including, but not limited to: governmental, business, and individuals’ actions that have been and continue to be taken in response to a global pandemic or other public health crises (including restrictions on travel and transport, workforce pressures, social distancing, and shelter-in-place orders); the effect of a pandemic or other public health crises on economic activity and actions taken in response; the effect on our customers and their demand for our services; the effect of a pandemic or other public health crises 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 or other public health crises, and the volatile regional and global economic conditions stemming from such an event, 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 or other public health crises 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 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, and we pledge certain amount of our receivables as collateral for credit. 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 (Receivables 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, including inflation, 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.

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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 32,452 route miles. We own 26,124 miles and operate on the remainder pursuant to trackage rights or leases. The following table describes track miles at December 31, 2021 and 2020:

	2021		2020
Route		32,452		32,313
Other main line		7,093		7,097
Passing lines and turnouts		3,412		3,382
Switching and classification yard lines		8,887		9,001
Total miles		51,844		51,793

HEADQUARTERS BUILDING

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 our network, and coordinate interchanges with other railroads. More than 500 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.

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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	Major Intermodal Terminals
North Platte, Nebraska	Joliet (Global 4), Illinois
North Little Rock, Arkansas	Global II (Chicago), Illinois
Englewood (Houston), Texas	East Los Angeles, California
Livonia, Louisiana	Lathrop, California
West Colton, California	LATC (Los Angeles), California
Fort Worth, Texas	Mesquite, Texas
Houston, Texas	City of Industry, California
Roseville, California	ICTF (Los Angeles), California

RAIL EQUIPMENT

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, 2021, we owned or leased the following units of equipment:

							Average
Locomotives	Owned		Leased		Total		Age (yrs.)
Multiple purpose		6,204		1,038		7,242		22.5
Switching		158		-		158		41.4
Other		15		61		76		41.3
Total locomotives		6,377		1,099		7,476		N/A

							Average
Freight cars	Owned		Leased		Total		Age (yrs.)
Covered hoppers		12,992		7,996		20,988		22.4
Open hoppers		5,108		817		5,925		34.8
Gondolas		5,468		2,671		8,139		28.8
Boxcars		2,210		6,604		8,814		40.6
Refrigerated cars		1,974		2,081		4,055		22.6
Flat cars		2,260		1,139		3,399		32.3
Other		-		263		263		33.2
Total freight cars		30,012		21,571		51,583		N/A

							Average
Highway revenue equipment	Owned		Leased		Total		Age (yrs.)
Containers		48,962		1,856		50,818		10.5
Chassis		29,875		14,148		44,023		12.6
Total highway revenue equipment		78,837		16,004		94,841		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 operational efficiency 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, 2021, were 62% and 80%, respectively.

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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, improve our operational efficiency, and support emission reduction initiatives outlined in our Climate Action Plan. Additionally, we add new equipment to our fleet to replace older equipment and to support growth and customer demand.

2021 Capital Program – During 2021, our capital program totaled approximately $3.0 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.)

2022 Capital Plan – In 2022, we expect our capital plan to be approximately $3.3 billion, up 10% from 2021. (See further discussion of our 2022 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 $1.2 billion and $1.3 billion at December 31, 2021 and 2020, 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 Estimates – Environmental, Item 7; and Note 17 to the Financial Statements and Supplementary Data, Item 8.)

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 Estimates – Environmental, Item 7, and Note 17 to the Financial Statements and Supplementary Data, Item 8.

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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 were 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 lawsuits. 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.

On August 16, 2019, the U.S. Court of Appeals for the District of Columbia Circuit (D.C. Circuit) affirmed the decision of U.S. District Court for the District of Columbia (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 Court before the Honorable Paul L. Friedman (MDL I). Since the Certification Denial, approximately 111 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 Court before the Honorable Beryl A. Howell (MDL II).

On February 19, 2021, the court denied our motion to exclude plaintiffs' alleged evidence of conspiracy under a federal statute designed to incent and protect railroad communications made to further interline service (i.e., where two railroads are in the route). In August 2021, the D.C. Circuit agreed to hear Defendants' appeal. Oral argument is scheduled for March 7, 2022. The appeal will address whether the interline evidence the plaintiffs intend to utilize to prove the alleged conspiracy is admissible either for purposes of summary judgment or at trial.

We also filed a motion for summary judgment on May 14, 2021, in the MDL I proceedings, and the briefing was completed in September 2021. On October 20, 2021, Judge Friedman issued an order stating that he will not consider the motions for summary judgment until after the D.C. Circuit appeal mentioned above is decided. 

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). Just as it did in the MDL proceedings, Union Pacific filed a motion for summary judgment on May 14, 2021, and the briefing was completed in September 2021. As stated above, the court issued an order that will not consider the motions for summary judgment until after the D.C. Circuit appeal mentioned above is decided.

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.

Item 4. Mine Safety Disclosures

Not applicable. 

16

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 4, 2022, relating to the executive officers.

			Business
			Experience During
Name	Position	Age	Past Five Years
Lance M. Fritz	Chairman, President, and Chief Executive Officer of UPC and the Railroad	59	Current Position
Jennifer L. Hamann	Executive Vice President and Chief Financial Officer of UPC and the Railroad	54	[1]
Craig V. Richardson	Executive Vice President, Chief Legal Officer, and Corporate Secretary of UPC and the Railroad	60	[2]
Kenny G. Rocker	Executive Vice President – Marketing and Sales of the Railroad	50	[3]
Todd M. Rynaski	Vice President and Controller of UPC and the Railroad	51	Current Position
Eric J. Gehringer	Executive Vice President – Operations of the Railroad	42	[4]
Elizabeth F. Whited	Executive Vice President – Sustainability and Strategy of UPC and the Railroad	56	[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).
[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), and Assistant Vice President – Engineering (September 2016 – March 2018).
[5]	Ms. Whited was elected Executive Vice President – Sustainability and Strategy of UPC and the Railroad effective February 3, 2022. She previously served as Executive Vice President and Chief Human Resources Officer (August 2018 – February 2022) and Executive Vice President and Chief Marketing Officer (December 2016 – August 2018).

17

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 28, 2022, there were 636,898,957 shares of common stock outstanding and 29,397 common shareholders of record. On that date, the closing price of the common stock on the NYSE was $245.93. We paid dividends to our common shareholders during each of the past 122 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	UNP			Peer Group			DJ Trans			S&P 500
1 Year (2021)		23.3	%		26.4	%		33.2	%		28.7	%
3 Year (2019 - 2021)		94.0			98.7			87.6			100.3

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, 2016, and that all dividends were reinvested. The information below is historical in nature and is not necessarily indicative of future performance.

18

Purchases of Equity Securities – During 2021, we repurchased 33,760,492 shares of our common stock at an average price of $218.36. The following table presents common stock repurchases during each month for the fourth quarter of 2021:

Period	Total Number of Shares Purchased [a]		Average Price Paid Per Share		Total Number of Shares Purchased as Part of a Publicly Announced Plan or Program		Maximum Number of Shares Remaining Under the Plan or Program [b]
Oct. 1 through Oct. 31		2,418,989	$	220.04		2,344,253		81,178,648
Nov. 1 through Nov. 30		1,479,605		240.95		1,432,039		79,746,609
Dec. 1 through Dec. 31		2,064,394		245.00		2,061,259		77,685,350
Total		5,962,988	$	233.87		5,837,551		N/A

[a] Total number of shares purchased during the quarter includes approximately 125,437 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.

Item 6. [Reserved]

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 Estimates and Cautionary Information at the end of this Item 7. The following section generally discusses 2021 and 2020 items and year-to-year comparisons between 2021 and 2020. Discussions of 2019 items and year-to-year comparisons between 2020 and 2019 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, 2020.

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

2021 Results

● Coronavirus Pandemic – Our results during 2021 continued to be impacted by the effects of COVID. Most notably were supply chain issues in the automotive industry due to semiconductor chip shortages and congestion in several parts of the intermodal supply chain. The impact of the semiconductor chip shortage is masked in our year-over-year financial comparison for 2021 and 2020 as the second quarter of 2020 saw a temporary suspension of automotive production due to the pandemic. Excluding the second quarter, automotive shipments were down 14% year-over-year. The pandemic also upended the intermodal supply chain as demand for consumer goods remained high. The elevated demand adversely affected the ports, chassis availability, truck driver supply, and warehouse receiving capacity. These disruptions limited our revenue growth by slowing asset turns and increasing costs through lower freight car velocity and multiple container handlings that impeded our operating efficiency. Rail carloadings also were impacted as adjustments made to compensate for constrained inland drayage and warehouse capacity shifted traffic patterns, driving declines in international intermodal shipments. Demand in other markets increased as the economy recovered.   On October 11, 2021, the Company announced that it is complying with the Presidential Executive Order 14042 (EO) that mandates employees of federal contractors and subcontractors be fully vaccinated against COVID, unless employees are legally entitled to an accommodation. A federal district court issued a nationwide injunction against the vaccine mandate in the EO. The company is complying with the injunction while continuing to encourage employees to get their vaccinations.   Full implementation and enforcement of the COVID vaccine mandate may affect workforce availability ranging from, among other things, absences to obtain vaccination, recovery from any side-effects, resignations from unwillingness to comply with the mandate, and/or organized work stoppages from any of our organized union labor workforce. After receiving communications from three of our unions objecting to the vaccination requirement, we filed lawsuits on October 15, 2021, to prevent any disruption to the national rail network. We seek to resolve any vaccination dispute through the various dispute resolution procedures outlined in the Railway Labor Act. These lawsuits have been stayed pending a final disposition of the enforceability of the EO by the court.

19

● Safety – The health and wellbeing of our employees was a focal point in 2021 as we navigated the continuously changing environment due to COVID. We have and are continuing to adapt to protect the safety of our employees, our customers, and the communities we serve. Safety procedures and policies continue to be refined based on Centers for Disease Control and Prevention (CDC) guidelines.   In this ever-changing environment, we remain intently focused on reducing risk and eliminating incidents for our employees, our customers, and the public. We continued to use Total Safety Culture, Courage to Care, COMMIT (Coaching, Observing, Mentoring, and Motivating with Integrity and Trust), and Peer to Peer throughout our operations to enhance employee safety and engagement. Throughout the year, we worked to implement a physics engine and proprietary software to evaluate train and route characteristics to enable proactive intervention to prevent derailments. Despite these efforts, our safety results deteriorated year-over-year. Our reportable personal injury incidents rate per 200,000 employee-hours of 0.98 increased 9% from 2020 and our reportable equipment incident rate per million train miles increased 7%. In the second half of 2021, we engaged a third-party expert to evaluate the effectiveness of our safety programs and received recommendations for improvement, which we will implement in 2022. 

● Network Operations – We faced many operational challenges throughout 2021, including Winter Storm Uri, global supply chain disruptions, wildfires, bridge outages, mudslides, and hurricanes. These challenges required adjustments to our transportation plans and impacted overall fluidity of the network. As a result, many of our operating metrics deteriorated year-over-year. Freight car velocity decreased due to increased terminal dwell and higher operating car inventory levels, which drove lower trip plan compliance. To assist with improving network fluidity we are maintaining higher crew and locomotive resources in the short-term. Once the network is balanced and service is restored, we will adjust our resources to the current volume levels. Additional details on these metrics are discussed in Other Operating/Performance and Financial Statistics of this Item 7.

● Freight Revenues – Our freight revenues increased 11% year-over-year to $20.2 billion driven by a 4% increase in volume, higher fuel surcharge revenue, core pricing gains, and positive mix of traffic (for example, a relative increase in industrial shipments, which have a higher average revenue per car (ARC)). Volume increased in every key market segment compared to 2020 due to the recovery from the depressed economy brought on by the COVID pandemic in 2020. While the markets rebounded from 2020, our 2021 volume levels were 4% below 2019 pre-pandemic levels.

● Financial Results – In 2021, we generated operating income of $9.3 billion, 19% above 2020, as we recovered from the impacts of COVID. In addition, 2020 included a non-cash impairment charge of $278 million related to our Brazos yard investment. Higher fuel prices, increased volume-related costs, inflation, and costs associated with Winter Storm Uri and the wildfires in California drove operating expenses up 7% from 2020. Revenue from the additional volume and traffic mix, higher fuel surcharge revenue, improved pricing, productivity initiatives, and intermodal accessorial charges more than offset the increased expenses, producing an all-time record 57.2% operating ratio, improving 2.7 points from 2020. Net income of $6.5 billion translated into earnings of $9.95 per diluted share, up 26% from 2020.

● Fuel Prices – Our average price of diesel fuel in 2021 was $2.23 per gallon, an increase of 49% from 2020. The higher price resulted in higher operating expenses of $668 million (excluding any impact from year-over-year volume increases). Gross ton-miles increased 6% driving higher fuel expense. Partially offsetting this increase was a 1% improvement to a record low fuel consumption rate, computed as gallons of fuel consumed divided by gross ton-miles.

● Liquidity – We are continually evaluating our financial condition and liquidity. On December 31, 2021, we had $960 million of cash and cash equivalents. Despite the challenging year, we generated $9.0 billion of cash from operating activities, yielding free cash flow of $3.5 billion after reductions of $2.7 billion for cash used in investing activities and $2.8 billion in dividends. We repurchased $7.3 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 and up to $500 million undrawn on our Receivables Facility. As of December 31, 2021, none of the revolving credit facility was drawn. Additional details are discussed in Liquidity and Capital Resources of this Item 7.

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	2021			2020			2019
Cash provided by operating activities	$	9,032		$	8,540		$	8,609
Cash used in investing activities		(2,709	)		(2,676	)		(3,435	)
Dividends paid		(2,800	)		(2,626	)		(2,598	)
Free cash flow	$	3,523		$	3,238		$	2,576

20

2022 Outlook

● 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. As mentioned previously, our initiatives will be informed by recommendations identified in the third-party assessment of the effectiveness of our safety program. Consistent with these recommendations, we will continually evaluate and adjust 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. In addition, our Operating Practices Command Center will continue the implementation of our predictive technology and reduce variability by identifying 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 a combination of our own programs (including risk assessment strategies), industry programs, and local community activities across the network. We also are dedicated to maintaining a healthy workplace and continue monitoring the COVID case levels, modifying our policies as needed to protect employees and minimize the risk of workplace transmission.

● Network Operations – In 2022, we will continue transforming our railroad to increase reliability of our service product, reduce variability in network operations, and improve resource utilization. Further train length initiatives allow us to efficiently add incremental volume growth to our existing train network. We will continue to make capital investments to improve operational performance and efficiency. A more efficient network requires fewer locomotives, freight cars, and other resources.

● Financial Expectations – We expect volume to outpace industrial production in 2022 as the results of our business development efforts are bringing new customers to our railroad. In the current environment, we expect continued margin improvement driven by pricing in excess of inflation and ongoing efficiency initiatives, better leveraging our resources and improving our service product. We expect to generate strong cash flow from operating activities allowing us to continue our industry leading dividend payout ratio and strong share repurchase programs. Economic uncertainties remain in 2022 as COVID impacts linger and could have a material impact on our 2022 financial and operating results. Regardless of external factors, we will focus on efficiently managing operations; seeking new business opportunities; protecting our employees, customers, and communities; and providing excellent service to our customers.

● Market Conditions – While current forecasts for industrial production indicate continued economic growth, we expect uncertainties with COVID and the economy to continue in 2022. How governments and consumers react to the resurgence, mutation of the virus, and vaccine mandates could result in or contribute to customer disruptions, an elongated recovery period, constrained workforce availability, or a general economic downturn from current levels. Disruptions in our customers’ supply chains caused by the pandemic or other factors may continue to impact our shipments. In addition, other factors such as changes in monetary policy may affect economic activity and demand for rail transportation; 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 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 2022, we expect our capital plan to be approximately $3.3 billion, up 10% from 2021 as we make investments to support our growth strategy. We will continue to harden our infrastructure, replace older assets, and improve the safety and resilience of the network. In addition, the plan includes targeted freight car acquisitions, investments in growth-related projects to drive more carloads to the network, certain ramps to efficiently handle volumes from new and existing intermodal customers, continuous modernization of our locomotive fleet, and projects intended to improve operational efficiency. The capital plan may be revised if business conditions warrant or if new laws or regulations affect our ability to generate sufficient returns on these investments. (See further discussion in this Item 7 under Liquidity and Capital Resources – Capital Plan.)

21

RESULTS OF OPERATIONS

Operating Revenues

							% Change			% Change
Millions	2021		2020		2019		2021 v 2020			2020 v 2019
Freight revenues	$	20,244	$	18,251	$	20,243		11	%		(10	)%
Other subsidiary revenues		741		743		880		-			(16	)
Accessorial revenues		752		473		514		59			(8	)
Other		67		66		71		2			(7	)
Total	$	21,804	$	19,533	$	21,708		12	%		(10	)%

We generate freight revenues by transporting freight or other materials 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 revenue 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 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.

Our freight revenues increased 11% year-over-year to $20.2 billion driven by a 4% increase in volume, 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). Volume increased in every key market segment compared to 2020 due to the recovery from the depressed economy brought on by the COVID pandemic in 2020. While the markets have rebounded from 2020, our 2021 volume levels are 4% below 2019 pre-pandemic levels. 

Our fuel surcharge programs generated freight revenues of $1.7 billion and $1.0 billion in 2021 and 2020, respectively. Fuel surcharge revenue in 2021 increased $0.7 billion as a result of a 49% increase in fuel price and a 4% increase 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 2021, other subsidiary revenues were flat with 2020 as the semiconductor shortage negatively impacting 2021 automotive production offset the recovery from other COVID related declines in 2020. Accessorial revenue increased in 2021 compared to 2020 driven by increased intermodal accessorial charges tied to global supply chain disruptions. Other revenue was essentially flat year-over-year.

22

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

Freight Revenues							% Change			% Change
Millions	2021		2020		2019		2021 v 2020			2020 v 2019
Grain & grain products	$	3,181	$	2,829	$	2,776		12	%		2	%
Fertilizer		697		660		653		6			1
Food & refrigerated		998		937		1,008		7			(7	)
Coal & renewables		1,780		1,534		2,092		16			(27	)
Bulk		6,656		5,960		6,529		12			(9	)
Industrial chemicals & plastics		1,943		1,845		1,885		5			(2	)
Metals & minerals		1,811		1,580		2,042		15			(23	)
Forest products		1,357		1,160		1,160		17			-
Energy & specialized markets		2,212		2,037		2,385		9			(15	)
Industrial		7,323		6,622		7,472		11			(11	)
Automotive		1,761		1,680		2,123		5			(21	)
Intermodal		4,504		3,989		4,119		13			(3	)
Premium		6,265		5,669		6,242		11			(9	)
Total	$	20,244	$	18,251	$	20,243		11	%		(10	)%

Revenue Carloads							% Change			% Change
Thousands	2021		2020		2019		2021 v 2020			2020 v 2019
Grain & grain products		805		745		708		8	%		5	%
Fertilizer		201		193		190		4			2
Food & refrigerated		189		185		192		2			(4	)
Coal & renewables		819		797		997		3			(20	)
Bulk		2,014		1,920		2,087		5			(8	)
Industrial chemicals & plastics		606		587		611		3			(4	)
Metals & minerals		697		646		744		8			(13	)
Forest products		250		220		220		14			-
Energy & specialized markets		559		539		624		4			(14	)
Industrial		2,112		1,992		2,199		6			(9	)
Automotive		701		692		858		1			(19	)
Intermodal [a]		3,211		3,149		3,202		2			(2	)
Premium		3,912		3,841		4,060		2			(5	)
Total		8,038		7,753		8,346		4	%		(7	)%

							% Change			% Change
Average Revenue per Car	2021		2020		2019		2021 v 2020			2020 v 2019
Grain & grain products	$	3,953	$	3,797	$	3,919		4	%		(3	)%
Fertilizer		3,470		3,427		3,448		1			(1	)
Food & refrigerated		5,279		5,047		5,241		5			(4	)
Coal & renewables		2,173		1,926		2,098		13			(8	)
Bulk		3,305		3,104		3,128		6			(1	)
Industrial chemicals & plastics		3,207		3,144		3,087		2			2
Metals & minerals		2,598		2,445		2,745		6			(11	)
Forest products		5,424		5,269		5,264		3			-
Energy & specialized markets		3,956		3,780		3,821		5			(1	)
Industrial		3,467		3,324		3,398		4			(2	)
Automotive		2,511		2,427		2,474		3			(2	)
Intermodal [a]		1,403		1,267		1,286		11			(1	)
Premium		1,601		1,476		1,538		8			(4	)
Average	$	2,519	$	2,354	$	2,425		7	%		(3	)%

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

23

Bulk – Bulk includes shipments of grain and grain products, fertilizer, food and refrigerated goods, and coal and renewables. Freight revenues from bulk shipments increased in 2021 compared to 2020 due to a 5% volume increase, core pricing gains, higher fuel surcharge revenue, and positive business mix. Despite weather disruptions in the first quarter of 2021, volume increased with strong demand for grain in the first half of the year and coal in the second half, due to higher natural gas prices. In addition, strength in the export potash market and recovery from the COVID pandemic that negatively impacted production of imported beer, food products, and the demand for ethanol and related products in 2020 contributed to additional increases in volume.

2021 Bulk Carloads

Industrial – Industrial includes shipments of industrial chemicals and plastics, metals and minerals, forest products, and energy and specialized markets. Freight revenues from industrial shipments increased in 2021 versus 2020 due a 6% increase in volume, core pricing gains, higher fuel surcharge, and positive mix of traffic. Strength from the pandemic recovery overcame the first quarter 2021 losses caused by Winter Storm Uri disruptions in the Gulf Coast, which impacted the industrial chemicals and plastics and metals and minerals industries. Additionally, forest product shipments increased due to higher demand for cardboard boxes and lumber.

2021 Industrial Carloads

Premium – Premium includes shipments of finished automobiles, automotive parts, and merchandise in intermodal containers, both domestic and international. Freight revenues from premium shipments increased 11% in 2021 compared to 2020, despite the weather disruptions in the first quarter of 2021, driven by higher fuel surcharges, core pricing gains, and a 2% volume increase. Automotive shipments of 173 thousand carloads in the second quarter of 2021 were more than double the 79 thousand carloads in the same period in 2020 as North American manufacturing plants suspended production due to the pandemic in that year. This recovery masked the impact to automotive shipments in 2021 due to the on-going shortage of semiconductors. Excluding the second quarter, automotive shipments are down 14% year-over-year. The pandemic also upended the intermodal supply chain as demand for consumer goods remained high. This high demand strained port capacity, chassis availability, truck driver supply, and warehouse receiving capacity. Despite the global supply chain disruptions, intermodal shipments increased 2% in 2021 due to improving economic conditions, inventory restocking, contract wins, and continued strength of e-commerce and parcel shipments.

2021 Premium Carloads

Mexico Business – Each of our commodity groups includes revenue from shipments to and from Mexico. Revenue from Mexico business was $2.4 billion in 2021, up 13% compared to 2020, driven by a 3% increase in volume and higher fuel surcharge revenue, core pricing gains, and positive mix of traffic. The volume increase was driven by the recovery from the 2020 pandemic and an increase in petroleum and grain shipments, partially offset by the impact of the global supply chain disruptions on intermodal shipments and the semiconductor shortage in the automotive industry.

Operating Expenses

							% Change			% Change
Millions	2021		2020		2019		2021 v 2020			2020 v 2019
Compensation and benefits	$	4,158	$	3,993	$	4,533		4	%		(12	)%
Depreciation		2,208		2,210		2,216		-			-
Fuel		2,049		1,314		2,107		56			(38	)
Purchased services and materials		2,016		1,962		2,254		3			(13	)
Equipment and other rents		859		875		984		(2	)		(11	)
Other		1,176		1,345		1,060		(13	)		27
Total	$	12,466	$	11,699	$	13,154		7	%		(11	)%

24

Operating expenses increased $767 million in 2021 compared to 2020 driven by higher fuel prices, volume-related costs, inflation, higher casualty costs, 2020 management actions, weather and wildfire-related expenses, incentive compensation, and higher state and local taxes. Partially offsetting these increases compared to 2020 include a $278 million impairment charge in 2020, productivity initiatives, a one-time bonus payment for agreement employees in 2020, and lower severance costs. Full year results of 2021 and 2020 both include a reduction of expense for weather and wildfire-related insurance reimbursements, $6 million and $25 million, respectively.

2021 Operating Expenses

Compensation and Benefits – Compensation and benefits include wages, payroll taxes, health and welfare costs, pension costs, and incentive costs. In 2021, expenses increased 4% compared to 2020, due to volume related costs, inflation, 2020 management actions responding to the sharp decline in volume (temporary unpaid leave, salary reductions, and shop closures), incentive compensation, and higher costs due to weather and wildfire-related events. Partially offsetting these increases were productivity initiatives resulting in employee levels that declined 3% compared to 2020 despite a 4% volume increase, a 2020 one-time bonus payment for agreement employees who worked during the pandemic, and lower severance costs.

Depreciation – The majority of depreciation relates to road property, including rail, ties, ballast, and other track material. Depreciation expense was flat in 2021 compared to 2020.

Fuel – Fuel includes locomotive fuel and gasoline for highway and non-highway vehicles and heavy equipment. Locomotive diesel fuel prices, which averaged $2.23 per gallon (including taxes and transportation costs) in 2021, compared to $1.50 per gallon in 2020, increased expenses $668 million (excluding any impact from increased volume year-over-year). Gross ton-miles increased 6% driving higher fuel expense. Partially offsetting this increase was a 1% improvement to a record low fuel consumption rate, computed as gallons of fuel consumed divided by gross ton-miles.

Purchased Services and Materials – Expense for purchased services and materials includes the costs of services purchased from outside contractors and other service providers (including equipment maintenance and contract expenses incurred by our subsidiaries for external transportation services); materials used to maintain the Railroad’s lines, structures, and equipment; costs of operating facilities jointly used by UPRR and other railroads; transportation and lodging for train crew employees; trucking and contracting costs for intermodal containers; leased automobile maintenance expenses; and tools and supplies. Purchased services and materials increased 3% in 2021 compared to 2020 driven by inflation, higher professional services expense, volume-related costs associated with our intermodal business, higher costs due to weather and wildfire-related events, increased locomotive and freight car maintenance expense as we added resources to the network, and higher costs for transportation of train crews.

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 2% compared to 2020 driven by lower rent on equipment in storage and higher equity income from our investment in TTX Company, partially offset by increased freight car rent expense due to volume increases and slower freight car velocity.

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 decreased 13% in 2021 compared to 2020 as a result of a $278 million non-cash impairment charge related to our Brazos yard investment in 2020, lower write-offs of cancelled in-progress capital projects, 2020 lease impairments, and higher equity income. Partially offsetting these decreases were increased casualty expenses, including personal injury, damaged freight, and environmental, and higher state and local taxes. Both periods in 2021 and 2020 included a reduction of expense for weather and wildfire-related insurance reimbursements, $6 million and $25 million, respectively.

Non-Operating Items

										% Change			% Change
Millions	2021			2020			2019			2021 v 2020			2020 v 2019
Other income, net	$	297		$	287		$	243			3	%		18	%
Interest expense		(1,157	)		(1,141	)		(1,050	)		1			9
Income tax expense		(1,955	)		(1,631	)		(1,828	)		20			(11	)

Other Income, net – Other income increased in 2021 compared to 2020 due to a $36 million gain from the sale of an investment in a technology company, partially offset by lower real estate sale gains. Real estate sales in 2021 included a $50 million gain from a property sale to the Colorado Department of Transportation, while 2020 included a $69 million gain from a land and permanent easement sale to the Illinois State Toll Highway Authority.

Interest Expense – Interest expense increased in 2021 compared to 2020 due to an increased weighted-average debt level of $28.3 billion in 2021 from $27.9 billion in 2020. The effective interest rate was 4.1% for both periods. 

Income Taxes – Income tax expense increased in 2021 compared to 2020 due to higher pre-tax income. Our effective tax rates for 2021 and 2020 were 23.1% and 23.4%, respectively.

25

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 operational efficiency and asset utilization in striving to provide a consistent, reliable service product to our customers.

Railroad performance measures are included in the table below:

				% Change	% Change
	2021	2020	2019	2021 v 2020	2020 v 2019
Gross ton-miles (GTMs) (billions)	817.9	771.8	846.6	6	%	(9)	%
Revenue ton-miles (billions)	411.3	385.0	423.4	7		(9)
Freight car velocity (daily miles per car) [a]	203	221	209	(8)		6
Average train speed (miles per hour) [b]	24.6	25.9	25.1	(5)		3
Average terminal dwell time (hours) [b]	23.7	22.7	24.8	4		(8)
Locomotive productivity (GTMs per horsepower day)	133	137	120	(3)		14
Train length (feet)	9,334	8,798	7,747	6		14
Intermodal car trip plan compliance (%)	73	81	75	(8)	pts	6	pts
Manifest/Automotive car trip plan compliance (%)	63	71	65	(8)	pts	6	pts
Workforce productivity (car miles per employee)	1,038	947	857	10		11
Total employees (average)	29,905	30,960	37,483	(3)		(17)
Operating ratio	57.2	59.9	60.6	(2.7)	pts	(0.7)	pts

[a]	2019 has 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. In 2021, gross ton-miles and revenue ton-miles increased 6% and 7%, respectively, compared to 2020, driven by a 4% increase in carloadings. Changes in commodity mix drove the variance in year-over-year increases between gross ton-miles, revenue ton-miles, and carloads (smaller increases in our intermodal and automotive shipments, which are generally lighter, coupled with higher increases in grain and industrial shipments, which are generally heavier).

Freight Car Velocity – Freight car velocity measures the average daily miles per car on our network. The two key drivers of this metric are the speed of the train between terminals (average train speed) and the time a rail car spends at the terminals (average terminal dwell time). Train speed slowed and terminal dwell increased in 2021 compared to the same periods in 2020 as the network handled additional volume and was impacted by weather and wildfire-related challenges, bridge outages caused by the California wildfires, other incidents causing delays on the network, and global supply chain disruptions. Continued implementation of our operating plan helped to partially offset these impacts.

Locomotive Productivity – Locomotive productivity is gross ton-miles per average daily locomotive horsepower. Locomotive productivity decreased 3% in 2021 compared to 2020 driven by the increased active fleet needed to handle the 4% volume increase as well as manage network disruptions, partially offset by transportation plan changes.

Train Length – Train length is the average maximum train length on a route measured in feet. Our train length increased 6% compared to 2020 as a result of blending service products and transportation plan changes designed to improve overall operational efficiency. However, in the second half of the year, train length declined slightly from the first half of 2021 due to California wildfire bridge outage reroutes in the third quarter and operational challenges in the fourth quarter.

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/automotive products. Intermodal trip plan compliance deteriorated in 2021 compared to 2020 primarily due to global supply chain disruptions. Manifest/automotive trip plan compliance deteriorated in 2021 compared to 2020 as our network slowed because of the outages and incidents described above that required increased resource allocation and rebalancing. 

Workforce Productivity – Workforce productivity is average daily car miles per employee. Workforce productivity improved 10%, reaching an all-time record as employee counts were down 3% compared to 2020, while average daily car miles increased 6%. Productivity initiatives and a smaller capital workforce offset higher train and engine employee levels due to weather and wildfire-related challenges, network disruptions, and reduced crew utilization keeping total employee levels lower than 2020.

Operating Ratio – Operating ratio is our operating expenses reflected as a percentage of operating revenue. Our operating ratio of 57.2% was an all-time record and improved 2.7 points compared to 2020 mainly driven by a 2020 one-time impairment, core pricing gains, productivity initiatives, and positive mix of traffic, which were partially offset by higher fuel prices, inflation, and other cost increases.

26

Return on Average Common Shareholders’ Equity

Millions, Except Percentages	2021			2020			2019
Net income	$	6,523		$	5,349		$	5,919
Average equity	$	15,560		$	17,543		$	19,276
Return on average common shareholders' equity		41.9	%		30.5	%		30.7	%

Return on Invested Capital as Adjusted (ROIC)

Millions, Except Percentages	2021			2020			2019
Net income	$	6,523		$	5,349		$	5,919
Interest expense		1,157			1,141			1,050
Interest on average operating lease liabilities		54			64			76
Taxes on interest		(280	)		(282	)		(266	)
Net operating profit after taxes as adjusted	$	7,454		$	6,272		$	6,779
Average equity	$	15,560		$	17,543		$	19,276
Average debt		28,229			25,965			23,796
Average operating lease liabilities		1,682			1,719			2,052
Average invested capital as adjusted	$	45,471		$	45,227		$	45,124
Return on Invested Capital as Adjusted		16.4	%		13.9	%		15.0	%

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 criterion 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, 2021, 2020, and 2019, the incremental borrowing rate on operating leases was 3.2%, 3.7%, and 3.7%, respectively.

Adjusted Debt / Adjusted EBITDA

Millions, Except Ratios	Dec. 31,		Dec. 31,		Dec. 31,
for the Twelve Months Ended	2021		2020		2019
Net income	$	6,523	$	5,349	$	5,919
Add:
Income tax expense/(benefit)		1,955		1,631		1,828
Depreciation		2,208		2,210		2,216
Interest expense		1,157		1,141		1,050
EBITDA	$	11,843	$	10,331	$	11,013
Adjustments:
Other income, net		(297)		(287)		(243)
Interest on operating lease liabilities		56		59		68
Adjusted EBITDA	$	11,602	$	10,103	$	10,838
Debt	$	29,729	$	26,729	$	25,200
Operating lease liabilities		1,759		1,604		1,833
Unfunded/(funded) pension and other postretirement benefits,
net of tax cost/(benefit) of ($21), $195, and $124		(72)		637		400
Adjusted debt	$	31,416	$	28,970	$	27,433
Adjusted debt / Adjusted EBITDA		2.7		2.9		2.5

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, 2021, 2020, and 2019, the incremental borrowing rate on operating leases was 3.2%, 3.7% and 3.7%, respectively.

27

LIQUIDITY AND CAPITAL RESOURCES

We are continually evaluating our financial condition and liquidity. We analyze a wide range of economic scenarios and the impact on our ability to generate cash. These analyses inform our liquidity plans and activities outlined below and indicate we have sufficient borrowing capacity to sustain an extended period of lower volumes.

At December 31, 2021, we had a working capital deficit due to upcoming debt maturities. At December 31, 2020, we had a surplus due to an increased cash balance held due to the uncertainty related to COVID. It is not unusual for us to have a working capital deficit, and 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.

During the year, we generated $9.0 billion of cash from operating activities, completed a $1.7 billion debt exchange, and issued $3.5 billion of long-term debt. We have been, and we expect to continue to be, in compliance with our debt covenants. We increased the dividend twice during 2021 paying out $2.8 billion and repurchased shares totaling $7.3 billion, including the completion of our $2 billion accelerated share repurchase programs entered into on May 25, 2021.

Our principal sources of liquidity include cash, cash equivalents, our Receivables Facility, our revolving credit facility, as well as the availability of commercial paper and other sources of financing through the capital markets. On December 31, 2021, we had $960 million of cash and cash equivalents, $2.0 billion of committed credit available under our revolving credit facility, and up to $500 million undrawn on the Receivables Facility. As of December 31, 2021, none of the revolving credit facility was drawn, and we did not draw on our revolving credit facility at any time during 2021. At December 31, 2021, we had $300 million of the Receivables Facility drawn, $400 million of commercial paper, and a $100 million term loan outstanding. Our access to the Receivables 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 the following sources or activities: (i) increasing the utilization of our Receivables Facility, (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.

As described in the notes to the Consolidated Financial Statements and as referenced in the table below, we have contractual obligations that may affect our financial condition. Based on our assessment of the underlying provisions and circumstances of our contractual obligations, other than the risks that we and other similarly situated companies face with respect to the condition of the capital markets (as 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 like those of other comparable corporations, particularly within the transportation industry.

The following table identifies material obligations as of December 31, 2021:

			Payments Due by December 31,
Contractual Obligations													After
Millions	Total		2022		2023		2024		2025		2026		2026
Debt [a]	$	53,942	$	3,172	$	2,337	$	2,356	$	2,336	$	1,875	$	41,866
Purchase obligations [b]		2,555		753		446		368		335		256		397
Operating leases [c]		1,966		333		293		285		285		215		555
Other post retirement benefits [d]		400		45		44		40		39		39		193
Finance lease obligations [e]		378		107		81		68		45		36		41
Total contractual obligations	$	59,241	$	4,410	$	3,201	$	3,117	$	3,040	$	2,421	$	43,052

[a]	Excludes finance lease obligations of $336 million as well as unamortized discount and deferred issuance costs of ($1,763) million. Includes an interest component of $22,786 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.
[c]	Includes leases for locomotives, freight cars, other equipment, and real estate. Includes an interest component of $207 million.
[d]	Includes estimated other post retirement, medical, and life insurance payments, and payments made under the unfunded pension plan for the next ten years.
[e]	Represents total obligations, including interest component of $42 million.

LIBOR Transition – See Note 14 to the Financial Statements and Supplementary Data, Item 8. 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.

28

Cash Flows
Millions	2021			2020			2019
Cash provided by operating activities	$	9,032		$	8,540		$	8,609
Cash used in investing activities		(2,709	)		(2,676	)		(3,435	)
Cash used in financing activities		(7,158	)		(4,902	)		(5,646	)
Net change in cash, cash equivalents, and restricted cash	$	(835	)	$	962		$	(472	)

Operating Activities

Cash provided by operating activities increased in 2021 compared to 2020 due primarily to an increase in net income, partially offset by higher receivables and the partial payment of the deferred 2020 employment tax that was 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.

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,	2021			2020			2019
Cash provided by operating activities	$	9,032		$	8,540		$	8,609
Cash used in capital investments		(2,936	)		(2,927	)		(3,453	)
Total (a)		6,096			5,613			5,156
Net income (b)		6,523			5,349			5,919
Cash flow conversion rate (a/b)		93	%		105	%		87	%

Investing Activities

Cash used in investing activities in 2021 increased compared to 2020 primarily driven by increased capital investment in road infrastructure replacements.

The following tables detail cash capital investments and track statistics for the years ended December 31:

Millions	2021		2020		2019
Ties	$	443	$	507	$	427
Rail and other track material		507		471		561
Ballast		215		225		271
Other [a]		700		584		694
Total road infrastructure replacements [b]		1,865		1,787		1,953
Line expansion and other capacity projects		284		332		357
Commercial facilities		243		171		183
Total capacity and commercial facilities		527		503		540
Locomotives and freight cars [c]		322