UNION PACIFIC CORP

Previous wording

Three Months Ended March 31, 2024, Compared to

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Three and Six Months Ended June 30, 2024, Compared to

Previous wording

The preparation of these financial statements requires estimation and judgment that affect the reported amounts of revenues, expenses, assets, and liabilities. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. If these estimates differ materially from actual results, the impact on the Condensed Consolidated Financial Statements may be material. Our critical accounting estimates are available in Item 7 of our 2023 Annual Report on Form 10-K. During the first three months of 2024, there have not been any significant changes with respect to our critical accounting estimates.

Current wording

The preparation of these financial statements requires estimation and judgment that affect the reported amounts of revenues, expenses, assets, and liabilities. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. If these estimates differ materially from actual results, the impact on the Condensed Consolidated Financial Statements may be material. Our critical accounting estimates are available in Item 7 of our 2023 Annual Report on Form 10-K. During the first six months of 2024, there have not been any significant changes with respect to our critical accounting estimates.

Previous wording

The Company reported earnings of $2.69 per diluted share on net income of $1.6 billion and an operating ratio of 60.7% in the first quarter of 2024 compared to earnings of $2.67 per diluted share on net income of $1.6 billion and an operating ratio of 62.1% for the first quarter of 2023. Freight revenues decreased 1% in the first quarter of 2024 compared to the same period in 2023 driven by a 1% decline in volume. ARC was flat as lower fuel surcharge revenues were offset by core pricing gains and positive mix of traffic (for example, a relative decrease in coal shipments, which have a lower ARC). Volume decreases were primarily driven by weaker demand for coal, domestic intermodal, and rock shipments. These declines were partially offset by international intermodal and petroleum product shipments.

Current wording

The Company reported earnings of $2.74 per diluted share on net income of $1.7 billion and an operating ratio of 60.0% in the second quarter of 2024 compared to earnings of $2.57 per diluted share on net income of $1.6 billion and an operating ratio of 63.0% for the second quarter of 2023. Freight revenues increased 1% in the second quarter of 2024 compared to the same period in 2023 driven by core pricing gains and a slight increase in volume, partially offset by negative mix (for example, a relative increase in international intermodal shipments, which have a lower average revenue per car (ARC)) and lower fuel surcharge revenues. Volume increases were primarily driven by international intermodal and fertilizer, mostly offset by weaker demand for coal and rock shipments.

Previous wording

Our overall network fluidity improved compared to the first quarter of 2023 driven by our focus on service improvements and operational excellence, which was supported by ample train crew and locomotive resources. Network fluidity enables us to effectively utilize all our resources as reflected in our performance metrics. Locomotive productivity improved 10% compared to the first quarter of 2023. We reduced our active locomotive fleet by approximately 500 compared to 2023, but we are keeping a buffer to flex the fleet size with volume or to recover from network disruptions. Workforce productivity improved 1% despite a 4% increase in our train, engine, and yard employees to support increased crew needs associated with less available workdays because of new sick leave and work/rest agreements. In addition, we are maintaining an adequate training pipeline to provide a capacity buffer to enable responsiveness in an ever-changing demand and operating environment. Both intermodal and manifest/autos service performance index and train length improved from the first quarter last year. This on-going transformation of our network improves our service product, improves resource utilization, and lowers our overall cost structure.

Current wording

During the second quarter of 2024 our network was challenged by multiple weather events. While no individual event was catastrophic, the frequency and cumulative effect did impact our overall network fluidity. Our focus on operational excellence and resiliency was supported by ample train crew and locomotive resources, which enabled us to recover from each of these events quickly. As a result, freight car velocity was flat despite repeated interruptions. Locomotive productivity improved 6% compared to the second quarter of 2023 as we reduced our active locomotive fleet by approximately 300 units compared to the end of the second quarter of 2023, while utilizing our capacity buffer throughout the quarter to flex the fleet size and recover from the weather events. Workforce productivity improved 5% as our active train, engine, and yard (TE&Y) employees increased 1% year over year while the remainder of our workforce declined 9%. Although we have fewer TE&Y employees in training versus the second quarter of 2023, we are still maintaining an adequate training pipeline to provide a buffer to enable responsiveness in an ever-changing demand and operating environment. We also have additional TE&Y employees to cover increased needs associated with less available workdays because of new sick leave benefits and work/rest agreements (new labor agreements). Both intermodal service performance index and train length improved from the second quarter of 2023 while manifest/automotive service performance index remained flat with that portion of the network more impacted by the weather events.

Previous wording

Operating expenses decreased 3% compared to the first quarter of 2023 due to productivity and lower fuel prices. These decreases were partially offset by inflation, increased train, engine, and yard workforce levels, and higher depreciation. Operating income of $2.4 billion increased 3%, and our operating ratio of 60.7% improved 1.4 points from the first quarter of 2023.

Current wording

Operating expenses decreased 4% compared to the second quarter of 2023 due to productivity, a one-time $67 million expense in 2023 from ratification of a crew staffing agreement with the International Association of Sheet Metal, Air, Rail and Transportation Workers (2023 ratification charge), a $46 million gain on the sale of intermodal equipment in 2024, and lower fuel prices. These decreases were partially offset by inflation, derailment costs, higher environmental remediation costs at a legacy site, and higher depreciation. Operating income of $2.4 billion increased 9%, and our operating ratio of 60.0% improved 3.0 points from the second quarter of 2023.

Previous wording

Each of our commodity groups includes revenues from fuel surcharges. Freight revenues from fuel surcharge programs decreased to $665 million in the first quarter of 2024 compared to $883 million in the same period of 2023 due to lower fuel prices, the lag impact on fuel prices rising throughout the quarter (it can generally take up to two months for changing fuel prices to affect fuel surcharge recoveries), and lower volume.

Current wording

Each of our commodity groups includes revenues from fuel surcharges. Freight revenues from fuel surcharge programs decreased to $669 million in the second quarter of 2024 compared to $707 million in the same period of 2023 due to lower fuel prices and the lag impact on fuel prices (it can generally take up to two months for changing fuel prices to affect fuel surcharge recoveries), partially offset by higher volume.

Previous wording

Other subsidiary revenues decreased in the first quarter of 2024 compared to 2023 primarily driven by a weaker demand for domestic intermodal shipments at our subsidiary that brokers intermodal and transload logistics services. Accessorial revenues increased in the first quarter of 2024 compared to 2023 driven by a one-time contract settlement.

Current wording

Other subsidiary revenues decreased in the second quarter and six-month periods of 2024 compared to 2023 primarily driven by a weaker demand for intermodal shipments at our subsidiary that brokers intermodal and transload logistics services. Accessorial revenues decreased in the second quarter of 2024 compared to 2023 driven by lower intermodal accessorial revenues. Year-to-date, accessorial revenues increased in 2024 compared to the same period in 2023 driven by a one-time contract settlement in the first quarter of 2024, partially offset by lower intermodal accessorial revenues in the first half of 2024.

Previous wording

Bulk – Bulk includes shipments of grain and grain products, fertilizer, food and refrigerated, and coal and renewables. Freight revenues from bulk shipments decreased in the first quarter of 2024 compared to 2023 due to a 5% decline in volume and lower fuel surcharge revenues, partially offset by a positive mix of traffic from decreased coal shipments and core pricing gains. Volume declines were driven by reduced use of coal in electricity generation because of low natural gas prices and mild winter weather, partially offset by first quarter 2023 outages and service challenges due to repeated snow events in Wyoming that negatively impacted coal volumes.

Current wording

Bulk – Bulk includes shipments of grain and grain products, fertilizer, food and refrigerated, and coal and renewables. Freight revenues from bulk shipments decreased in the second quarter and six-month periods of 2024 compared to 2023 due to a 5% decline in volume and lower fuel surcharge revenues, partially offset by a positive mix of traffic from decreased coal shipments and core pricing gains. Volume declines in both periods were driven by reduced use of coal in electricity generation because of low natural gas prices. In addition, year-to-date coal volumes were negatively impacted by mild winter weather, partially offset by first quarter of 2023 outages and service challenges due to repeated snow events in Wyoming that negatively impacted coal volumes. Additionally, the volume declines in both periods were partially offset by increased fertilizer shipments in the second quarter of 2024 due to strong demand and a 2023 customer outage.

Previous wording

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 the first quarter of 2024 compared to 2023 due to core pricing gains, positive mix of traffic from decreased short haul rock shipments and higher soda ash shipments, and volume increases, partially offset by lower fuel surcharge revenues. Volume increased 1% in the first quarter of 2024 compared to 2023 driven by strength in petroleum and export soda ash, partially offset by lower demand for rock due to weather, high inventories, and softness in Southern markets.

Current wording

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 the second quarter and six-month periods of 2024 compared to 2023 due to core pricing gains and positive mix of traffic from decreased short haul rock shipments and higher soda ash shipments, partially offset by lower fuel surcharge revenues and volume declines. Volume decreased in both periods were driven by lower demand for rock, due to weather, high inventories, and softness in Southern markets, partially offset by strength in petroleum.

Previous wording

Premium – Premium includes shipments of finished automobiles, automotive parts, and merchandise in intermodal containers, both domestic and international. Premium freight revenues decreased in the first quarter of 2024 compared to 2023 due to lower fuel surcharge revenues, partially offset by core pricing gains and 1% volume growth. While international intermodal increased due to strong demand coming from West Coast imports, that growth was partially offset by declines in domestic intermodal shipments due to soft market conditions. Automotive shipments increased 4% in the first quarter of 2024 compared to 2023 driven by business wins and continued strength from dealer inventory replenishment.

Current wording

Premium – Premium includes shipments of finished automobiles, automotive parts, and merchandise in intermodal containers, both domestic and international. Premium freight revenues increased in the second quarter and six-month periods of 2024 compared to 2023 due to increased volume and core pricing gains, partially offset by lower fuel surcharge revenues and negative mix. While international intermodal increased in both periods due to strong demand coming through West Coast imports, that growth was partially offset in the six-month period of 2024 by declines in domestic intermodal shipments due to soft market conditions in the first quarter of 2024. Finished automotive shipments increased in both periods of 2024 compared to 2023 driven by business wins and continued strength from dealer inventory replenishment, while automotive parts decreased in both periods.

Previous wording

Mexico Business– Each of our commodity groups includes revenues from shipments to and from Mexico. Revenues from Mexico business increased 11% to $790 million in the first quarter of 2024 compared to 2023 driven by a 7% volume increase and a 4% increase in average revenue per car. Volume increases were driven by higher grain and automotive shipments.

Current wording

Mexico Business– Each of our commodity groups includes revenues from shipments to and from Mexico. Revenues from Mexico business increased 8% to $744 million in the second quarter of 2024 compared to 2023 driven by a 3% volume increase and a 5% increase in ARC. Year-to-date, revenues from Mexico business increased 10% compared to the same period in 2023 driven by 5% volume increase and 4% increase in ARC. Volume increases in both periods were driven by higher grain and finished automotive shipments, partially offset by automotive parts shipments.

Previous wording

Operating expenses decreased 3% in the first quarter of 2024 compared to 2023 driven by productivity and lower fuel prices. These decreases were partially offset by inflation, increased train, engine, and yard workforce levels, and higher depreciation. Additionally, weather-related costs declined in the first quarter 2024 compared to 2023.

Current wording

Operating expenses decreased in the second quarter and six-month period of 2024 compared to 2023 driven by productivity, the 2023 ratification charge, a gain on the sale of intermodal equipment in 2024, and lower fuel prices. These decreases were partially offset by inflation, derailment costs, higher environmental remediation costs at a legacy site, and higher depreciation. Additionally, year-to-date weather-related costs declined as the winter weather was not as impactful in the first quarter of 2024 compared to 2023.

Previous wording

Compensation and Benefits – Compensation and benefits include wages, payroll taxes, health and welfare costs, pension costs, and incentive costs. For the first quarter of 2024, expenses increased 4% compared to 2023 due to wage inflation and a 4% increase in train, engine, and yard employees to support increased crew needs associated with less available workdays because of new sick leave benefits and work/rest agreements. In addition, we are maintaining an adequate training pipeline to provide a capacity buffer to enable responsiveness in an ever-changing demand and operating environment. Partially offsetting these increases was productivity associated with improved network fluidity and lower employee levels excluding train, engine, and yard employees.

Current wording

Compensation and Benefits – Compensation and benefits include wages, payroll taxes, health and welfare costs, pension costs, and incentive costs. For the second quarter and six-month periods of 2024, expenses decreased 6% and 2%, respectively, compared to 2023 due to the 2023 ratification charge and lower employee levels in 2024, partially offset by wage inflation. Despite the overall reduction in employee levels, there was a slight increase in active TE&Y employees to support increased crew needs associated with the new labor agreements. In addition, we are maintaining an adequate training pipeline to provide a capacity buffer to enable responsiveness in an ever-changing demand and operating environment including weather events.

Previous wording

Fuel – Fuel includes locomotive fuel and gasoline for highway and non-highway vehicles and heavy equipment. Fuel expense decreased in the first quarter of 2024 compared to 2023 driven by a decrease in locomotive diesel fuel prices; improved fuel consumption rate, computed as gallons of fuel consumed divided by gross ton-miles in thousands; and slightly lower gross ton-miles. Locomotive diesel fuel prices averaged $2.81 and $3.22 per gallon (including taxes and transportation costs) in the first quarter of 2024 and 2023, respectively.

Current wording

Fuel – Fuel includes locomotive fuel and gasoline for highway and non-highway vehicles and heavy equipment. Fuel expense decreased in the second quarter and six-month periods of 2024 compared to the same periods in 2023 driven by a decrease in locomotive diesel fuel prices, a 1% improvement in the fuel consumption rate (computed as gallons of fuel consumed divided by gross ton-miles in thousands), and a slight decline in gross ton-miles. Locomotive diesel fuel prices averaged $2.73 and $2.86 per gallon (including taxes and transportation costs) in the second quarter of 2024 and 2023, respectively. Year-to-date, locomotive diesel fuel prices averaged $2.77 compared to $3.04 per gallon in the same period of 2023.

Previous wording

Purchased Services and Materials – Expense for purchased services and materials includes the costs of services purchased from outside contractors and other service providers (including equipment maintenance and contract expenses incurred by our subsidiaries for external transportation services); materials used to maintain the Railroad’s lines, structures, and equipment; costs of operating facilities jointly used by UPRR and other railroads; transportation and lodging for train crew employees; trucking and contracting costs for intermodal containers; leased automobile maintenance expenses; and tools and supplies. Purchased services and materials decreased 6% in the first quarter of 2024 compared to 2023 primarily due to a contract settlement, decline in our active locomotive fleet as productivity improved 10%, and decreased volume-related drayage cost incurred at one of our subsidiaries, partially offset by inflation.

Current wording

Purchased Services and Materials – Expense for purchased services and materials includes the costs of services purchased from outside contractors and other service providers (including equipment maintenance and contract expenses incurred by our subsidiaries for external transportation services); materials used to maintain the Railroad’s lines, structures, and equipment; costs of operating facilities jointly used by UPRR and other railroads; transportation and lodging for train crew employees; trucking and contracting costs for intermodal containers; leased automobile maintenance expenses; and tools and supplies. Purchased services and materials decreased 1% and 4% in the second quarter and six-month periods of 2024 compared to 2023, respectively, primarily due to declines in our active locomotive fleet as productivity improved in both periods and decreased volume-related drayage cost incurred at one of our subsidiaries, partially offset by inflation. In addition, the year-to-date period was positively impacted by a contract settlement.

Previous wording

Depreciation – The majority of depreciation relates to road property, including rail, ties, ballast, and other track material. Depreciation expense was up 4% for the first quarter of 2024 compared to 2023 driven by a higher depreciable asset base.

Current wording

Depreciation – The majority of depreciation relates to road property, including rail, ties, ballast, and other track material. Depreciation expense was up 3% and 4% for the second quarter and six-month period of 2024 compared to 2023, respectively, driven by a higher depreciable asset base.

Previous wording

Equipment and Other Rents – Equipment and other rents expense primarily includes rental expense that the Railroad pays for freight cars owned by other railroads or private companies; freight car, intermodal, and locomotive leases; and office and other rent expense, offset by equity income from certain equity method investments. Equipment and other rents expenses decreased 8% in the first quarter of 2024 compared to 2023 driven by improved cycle times and lower lease expense, partially offset by inflation and increased demand in commodities utilizing freight cars owned by others.

Current wording

Equipment and Other Rents – Equipment and other rents expense primarily includes rental expense that the Railroad pays for freight cars owned by other railroads or private companies; freight car, intermodal, and locomotive leases; and office and other rent expense, offset by equity income from certain equity method investments. Equipment and other rents expense decreased 12% and 10% in the second quarter and six-month periods of 2024 compared to 2023, respectively, driven by improved cycle times and lower lease expense, partially offset by increased demand in commodities utilizing freight cars owned by others and inflation.

Previous wording

Other – Other expenses include state and local taxes; freight, equipment, and property damage; utilities; insurance; personal injury; environmental remediation; employee travel; telephone and cellular; computer software; bad debt; and other general expenses. Other costs decreased 1% in the first quarter of 2024 compared to 2023 driven by lower personal injury and environmental remediation costs, partially offset by higher bad debt expense and higher freight loss and damage costs.

Current wording

Other – Other expenses include state and local taxes; freight, equipment, and property damage; utilities; insurance; personal injury; environmental remediation; employee travel; telephone and cellular; computer software; bad debt; and other general expenses. Other costs decreased 4% and 2% in the second quarter and six-month period of 2024 compared to 2023, respectively, driven by a gain on the sale of intermodal equipment and lower personal injury costs, partially offset by higher environmental remediation costs at a legacy site, freight loss and damage, and destroyed equipment costs.

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Other Income, net– Other income decreased in the first quarter of 2024 compared to 2023 driven by a one-time $107 million real estate transaction in 2023.

Current wording

Other Income, net– Other income increased in the second quarter of 2024 compared to 2023 driven by interest received from the IRS on refund claims, partially offset by lower real estate income. Year-to-date, other income decreased due to a one-time $107 million real estate transaction in 2023, partially offset by the interest received from the IRS on refund claims.

Previous wording

Interest Expense – Interest expense decreased in the first quarter of 2024 compared to 2023 due to a decreased weighted-average debt level of $32.3 billion in 2024 compared to $33.5 billion in 2023. The effective interest rate was 4.0% in both periods.

Current wording

Interest Expense – Interest expense decreased in the second quarter and year-to-date periods of 2024 compared to 2023 due to a decreased weighted-average debt level. The weighted-average debt levels were $31.7 billion and $32.0 billion in the second quarter and year-to-date periods of 2024, respectively, compared to $33.5 billion in both periods of 2023. The effective interest rate was 4.0% in all periods.

Previous wording

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

Current wording

We report a number of key performance measures weekly to the Surface Transportation Board (STB). We provide this data on our website athttps://investor.unionpacific.com/key-performance-metrics.

Previous wording

Gross and Revenue Ton-Miles – Gross ton-miles are calculated by multiplying the weight of loaded and empty freight cars by the number of miles hauled. Revenue ton-miles are calculated by multiplying the weight of freight by the number of tariff miles. Gross ton-miles and revenue ton-miles decreased slightly and 2%, respectively, in the first quarter of 2024 compared to 2023, driven by a 1% decline in carloadings. Changes in commodity mix drove the variances in year-over-year decreases between gross ton-miles, revenue ton-miles, and carloads (lower coal shipments, which are generally heavier).

Current wording

Gross and Revenue Ton-Miles – Gross ton-miles are calculated by multiplying the weight of loaded and empty freight cars by the number of miles hauled. Revenue ton-miles are calculated by multiplying the weight of freight by the number of tariff miles. Gross ton-miles and revenue ton-miles decreased slightly and 1%, respectively, in the second quarter of 2024 compared to 2023, while carloadings increased slightly in the second quarter of 2024 compared to 2023. For the year-to-date periods, gross ton-miles and revenue ton-miles decreased slightly and 2%, respectively, while carloadings were flat year-over-year. Changes in commodity mix drove the year-over-year variances between gross ton-miles, revenue ton-miles, and carloads (lower coal shipments, which are generally heavier).

Previous wording

Freight Car Velocity – Freight car velocity measures the average daily miles per car on our network. The two key drivers of this metric are the speed of the train between terminals (average train speed) and the time a rail car spends at the terminals (average terminal dwell time). Train speed was flat and average terminal dwell time improved in the first quarter of 2024 compared to 2023 as network fluidity improved. While we experienced winter weather challenges in both years, the impact in 2024 was less severe and our recovery period was shorter. The improvement in network fluidity drove a 4% improvement in freight car velocity.

Current wording

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). Freight car velocity was flat in the second quarter of 2024 compared to 2023 as improvements in terminal dwell time were offset by lower train speeds due to weather events that impacted our network in 2024. In the year-to-date periods, we experienced winter weather challenges in both years; however, 2024 was less impactful and our recovery period was shorter. The improvement in terminal fluidity drove a 2% improvement in freight car velocity.

Previous wording

Locomotive Productivity – Locomotive productivity is gross ton-miles per average daily locomotive horsepower available. Locomotive productivity increased 10% in the first quarter of 2024 compared to 2023 driven by improved network fluidity and asset utilization. We reduced our active locomotive fleet by approximately 500 compared to 2023.

Current wording

Locomotive Productivity – Locomotive productivity is gross ton-miles per average daily locomotive horsepower available. Locomotive productivity increased 6% and 7% in the second quarter and six-month periods of 2024, respectively, compared to 2023 driven by improved network fluidity and asset utilization despite the impact of the weather events. Throughout the year, we maintained a buffer to flex the fleet size as we experienced and subsequently recovered from the weather events and varying volume levels.

Previous wording

Train Length – Train length is the average maximum train length on a route measured in feet. Our train length increased 1% in the first quarter of 2024 compared to 2023 due to train length improvement initiatives and increases in international intermodal shipments, which generally move on longer trains.

Current wording

Train Length – Train length is the average maximum train length on a route measured in feet. Our train length increased 2% in both the second quarter and six-month periods of 2024 compared to 2023 due to train length improvement initiatives and increases in international intermodal shipments, which generally move on longer trains.

Previous wording

Service Performance Index (SPI) – SPI is a ratio of the service customers are currently receiving relative to the best monthly performance over the last three years. Measuring our performance relative to a historical benchmark demonstrates our focus on continuously improving service for our customers, and we believe it is a better indicator of service performance than the previously disclosed Trip Plan Compliance. SPI does not replace the service commitments we have contractually agreed to with a small number of customers. Our SPI is calculated for intermodal and manifest/automotive products. Intermodal SPI improved 14 points in the first quarter of 2024 compared to 2023. Manifest/automotive SPI improved 7 points in the first quarter of 2024 compared to 2023. Improved network fluidity, as evidenced by faster freight car velocity and lower terminal dwell, drove these improvements.

Current wording

Service Performance Index (SPI) – SPI is a ratio of the service customers are currently receiving relative to the best monthly performance over the last three years. Measuring our performance relative to a historical benchmark demonstrates our focus on continuously improving service for our customers, and we believe it is a better indicator of service performance than the previously disclosed Trip Plan Compliance. SPI does not replace the service commitments we have contractually agreed to with a small number of customers. Our SPI is calculated for intermodal and manifest/automotive products. Intermodal SPI improved 4 and 8 points in the second quarter and six-month periods of 2024 compared to 2023, respectively. Manifest/automotive SPI was flat and improved 3 points in the second quarter and six-month periods of 2024 compared to 2023, respectively. Weather events impacted our service performance in the second quarter of 2024.

Previous wording

Workforce Productivity–* *Workforce productivity is average daily car miles per employee. Workforce productivity improved 1% in the first quarter of 2024 as average daily car miles decreased slightly and employees decreased 2% compared to 2023. While the overall employee levels decreased 2% in the first quarter of 2024 compared to 2023, our train, engine, and yard employees increased 4% to support increased crew needs associated with less available workdays because of new sick leave and work/rest agreements. In addition, we are maintaining an adequate training pipeline to provide a capacity buffer to enable responsiveness in an ever-changing demand and operating environment.

Current wording

Workforce Productivity–* *Workforce productivity is average daily car miles per employee. Workforce productivity improved 5% and 3% in the second quarter and six-month periods of 2024, respectively, as average daily car miles remained relatively flat and employees decreased 5% and 3%, respectively, compared to 2023. While the overall employee levels decreased in both periods compared to 2023, our active TE&Y employees increased to support increased crew needs associated with the new labor agreements. In addition, we are maintaining an adequate training pipeline to provide a capacity buffer to enable responsiveness in an ever-changing demand and operating environment.

Previous wording

Operating Ratio – Operating ratio is our operating expenses reflected as a percentage of operating revenues. Our first quarter 2024 operating ratio of 60.7% improved 1.4 points compared to 2023 mainly due to productivity initiatives and core pricing gains, partially offset by inflation, the year-over-year impact from lower fuel prices, and other cost increases.

Current wording

Operating Ratio – Operating ratio is our operating expenses reflected as a percentage of operating revenues. Our operating ratio of 60.0% improved 3.0 points in the second quarter of 2024 compared to 2023 and our year-to-date operating ratio of 60.4% improved 2.2 points compared to 2023 mainly due to one-time items (the 2023 ratification agreement and the 2024 gain on the sale of intermodal equipment), core pricing gains, and productivity initiatives, partially offset by inflation, the year-over-year impact from lower fuel prices, as well as higher derailment, environmental remediation at a legacy site, and other costs. In addition, the year-to-date period was positively impacted by contract settlements in the first quarter of 2024.

Previous wording

Adjusted debt (total debt plus operating lease liabilities plus after-tax unfunded pension and OPEB (other post retirement benefit) obligations) to adjusted EBITDA (earnings before interest, taxes, depreciation, amortization, and adjustments for other income and interest on present value of operating leases) is considered a non-GAAP financial measure by SEC Regulation G and Item 10 of SEC Regulation S-K and may not be defined and calculated by other companies in the same manner. We believe this measure is important to management and investors in evaluating the Company’s ability to sustain given debt levels (including leases) with the cash generated from operations. In addition, a comparable measure is used by rating agencies when reviewing the Company’s credit rating. Adjusted debt to adjusted EBITDA should be considered in addition to, rather than as a substitute for, other information provided in accordance with GAAP. The most comparable GAAP measure is debt to net income ratio. The tables above provide reconciliations from net income to adjusted EBITDA, debt to adjusted debt, and debt to net income to adjusted debt to adjusted EBITDA. At both March 31, 2024, and December 31, 2023, the incremental borrowing rate on operating leases was 3.6%. Pension and OPEB were funded at March 31, 2024, and December 31, 2023.

Current wording

Adjusted debt (total debt plus operating lease liabilities plus after-tax unfunded pension and OPEB (other post retirement benefit) obligations) to adjusted EBITDA (earnings before interest, taxes, depreciation, amortization, and adjustments for other income and interest on present value of operating leases) is considered a non-GAAP financial measure by SEC Regulation G and Item 10 of SEC Regulation S-K and may not be defined and calculated by other companies in the same manner. We believe this measure is important to management and investors in evaluating the Company’s ability to sustain given debt levels (including leases) with the cash generated from operations. In addition, a comparable measure is used by rating agencies when reviewing the Company’s credit rating. Adjusted debt to adjusted EBITDA should be considered in addition to, rather than as a substitute for, other information provided in accordance with GAAP. The most comparable GAAP measure is debt to net income ratio. The tables above provide reconciliations from net income to adjusted EBITDA, debt to adjusted debt, and debt to net income to adjusted debt to adjusted EBITDA. At June 30, 2024, and December 31, 2023, the incremental borrowing rate on operating leases was 3.7% and 3.6%, respectively. Pension and OPEB were funded at June 30, 2024, and December 31, 2023.

Previous wording

Cash provided by operating activities increased in the first three months of 2024 compared to the same period of 2023 due primarily to 2023 payments of $383 million for agreements reached with our labor unions and higher net income.

Current wording

Cash provided by operating activities increased in the first six months of 2024 compared to the same period of 2023 due primarily to 2023 payments of $445 million for agreements reached with our labor unions and higher net income, partially offset by higher income tax payments.

Previous wording

Cash used in investing activities slightly decreased in the first three months of 2024 compared to the same period of 2023.

Current wording

Cash used in investing activities decreased in the first six months of 2024 compared to the same period of 2023 driven by higher proceeds from asset sales, including a sale of intermodal equipment.

Previous wording

Cash used in financing activities increased in the first three months of 2024 compared to the same period of 2023 driven by an increase in debt repaid and decrease in debt issued, partially offset by a decrease in share repurchases.

Current wording

Cash used in financing activities increased in the firstsix months of 2024 compared to the same period of 2023 driven by a decrease in debt issued and an increase in debt repaid, partially offset by a decrease in share repurchases.

Previous wording

During the first quarter of 2024, we generated $2.1 billion of cash provided by operating activities, drew $400 million on the Receivables Facility, and paid our quarterly dividend. On March 31, 2024, we had $925 million of cash and cash equivalents, $2.0 billion of credit available under our revolving credit facility, and $400 million undrawn on the Receivables Facility. We have been, and we expect to continue to be, in compliance with our debt covenants.

Current wording

During the second quarter of 2024, we generated $1.9 billion of cash provided by operating activities, repurchased $111 million worth of shares under our share repurchase programs, and paid our quarterly dividend. On June 30, 2024, we had $1.1 billion of cash and cash equivalents, $2.0 billion of credit available under our revolving credit facility, and $400 million undrawn on the Receivables Facility. We have been, and we expect to continue to be, in compliance with our debt covenants.