UNION PACIFIC CORP

UNION PACIFIC CORPORATION AND SUBSIDIARY COMPANIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

For purposes of this report, unless the context otherwise requires, all references herein to "Union Pacific", “Corporation”, “Company”, “UPC”, “we”, “us”, and “our” mean Union Pacific Corporation and its subsidiaries, including Union Pacific Railroad Company, which will be separately referred to herein as “UPRR” or the “Railroad”.

1. Basis of Presentation

Our Condensed Consolidated Financial Statements are unaudited and reflect all adjustments (consisting of normal and recurring adjustments) that are, in the opinion of management, necessary for their fair presentation in conformity with accounting principles generally accepted in the United States of America (GAAP). Pursuant to the rules and regulations of the Securities and Exchange Commission (SEC), certain information and note disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted. Accordingly, this Quarterly Report on Form10-Q should be read in conjunction with our Consolidated Financial Statements and notes thereto contained in our2023 Annual Report on Form10-K. Our Consolidated Statement of Financial Position at* December 31, 2023*, is derived from audited financial statements. The results of operations for thesix months ended* June 30, 2024*, arenot necessarily indicative of the results for the entire year ending* December 31, 2024*.

The Condensed Consolidated Financial Statements are presented in accordance with GAAP as codified in the Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC). Certain prior period amounts have been reclassified to conform to the current period financial statement presentation.

2. Accounting Pronouncements

In* December 2023,the FASB issued Accounting Standards UpdateNo.* (ASU)2023-09, Income Taxes (Topic740*): Improvements to Income Tax Disclosures*, which requires business entities to expand their annual disclosures of the effective rate reconciliation and income taxes paid. The ASU is effective for fiscal years beginning after* December 15, 2024,** may*be adopted on a prospective or retrospective basis, and early adoption is permitted. The Company is currently evaluating the effect that the new guidance will have on our related disclosures.

In* November 2023,the FASB issued ASU2023*-07, Segment Reporting (Topic280*): Improvements to Reportable Segment Disclosures*, which requires business entities to enhance disclosures about significant segment expenses. The ASU is effective for fiscal years beginning after* December 15, 2023,and interim periods within fiscal years beginning after December 15, 2024,*on a retrospective basis, and early adoption is permitted. The Company is currently evaluating the effect that the new guidance will have on our related disclosures.

3. Operations and Segmentation

The Railroad, along with its subsidiaries and rail affiliates, is ourone reportable operating segment. Although we provide and analyze revenues by commodity group, we treat the financial results of the Railroad asone segment due to the integrated nature of our rail network. Our operating revenues are primarily derived from contracts with customers for the transportation of freight from origin to destination.

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

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Although our revenues are principally derived from customers domiciled in the U.S., the ultimate points of origination or destination for some products we transport are outside the U.S. Each of our commodity groups includes revenues from shipments to and from Mexico. Included in the above table are revenues from our Mexico business, which amounted to $744 million and $689 million for thethree months ended* June 30, 2024and2023*, respectively, and $1.5 billion and $1.4 billion for thesix months ended* June 30, 2024and2023*, respectively.

4. Stock-Based Compensation

We have several stock-based compensation plans where employees receive nonvested stock options, nonvested retention shares, and nonvested stock units. We refer to the nonvested shares and stock units collectively as “retention awards”. Employees also are able to participate in our employee stock purchase plan (ESPP).

Information regarding stock-based compensation expense appears in the table below:

Stock Options – Stock options are granted at the closing price on the date of grant, have 10-year contractual terms, and vestno later than 3 years from the date of grant. None of the stock options outstanding at* June 30, 2024*, are subject to performance or market-based vesting conditions.

The table below shows the annual weighted-average assumptions used for Black-Scholes valuation purposes:

The risk-free rate is based on the U.S. Treasury yield curve in effect at the time of grant; the expected dividend yield is calculated as the ratio of dividends paid per share of common stock to the stock price on the date of grant; the expected life is based on historical and expected exercise behavior; and expected volatility is based on the historical volatility of our stock price over the expected life of the stock option.

A summary of stock option activity during thesix months ended* June 30, 2024*, is presented below:

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At* June 30, 2024*, there was $24 million of unrecognized compensation expense related to nonvested stock options, which is expected to be recognized over a weighted-average period of 1.4 years. Additional information regarding stock option exercises appears in the following table:

Retention Awards – Retention awards are granted atno cost to the employee, vest over periods lasting up to 4 years, and dividends and dividend equivalents are paid to participants during the vesting periods.

Changes in our retention awards during thesix months ended* June 30, 2024*, were as follows:

At* June 30, 2024*, there was $101 millionof total unrecognized compensation expense related to nonvested retention awards, which is expected to be recognized over a weighted-average period of 1.6 years.

Performance Stock Unit Awards – In* February**2024*, our Board of Directors approved performance stock unit grants. This plan is based on performance targets for annual return on invested capital (ROIC) and operating income growth (OIG) compared to companies in the S&P100 Industrials Index plus the Class I railroads. We define ROIC as net operating profit adjusted for interest expense (including interest on average operating lease liabilities) and taxes on interest divided by average invested capital adjusted for average operating lease liabilities.

The* February**2024* stock units awarded to executives are subject to continued employment for 37 months, the attainment of certain levels of ROIC, and the relative three-year OIG. We expensetwo-thirds of the fair value of the units that are probable of being earned based on our forecasted ROIC over thethree-year performance period, and with respect to thethird year of the plan, we expense the remainingone-third of the fair value subject to the relativethree-year OIG. We measure the fair value of performance stock units based upon the closing price of the underlying common stock as of the date of grant. Dividend equivalents are accumulated during the service period and paid to participants only after the units are earned.

Changes in our performance stock unit awards during thesix months ended* June 30, 2024*, were as follows:

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At* June 30, 2024*, there was $23 million of total unrecognized compensation expense related to nonvested performance stock unit awards, which is expected to be recognized over a weighted-average period of 1.7 years. This expense is subject to achievement of the performance measures established for the performance stock unit grants.

5. Retirement Plans

We provide defined benefit retirement income to eligible non-union employees through qualified and non-qualified (supplemental) pension plans. Qualified and non-qualified pension benefits are based on years of service and the highest compensation during the latest years of employment, with specific reductions made for early retirements. Non-union employees hired on or after* January 1, 2018,areno* longer eligible for pension benefits, but are eligible for an enhanced401(k) plan.

Expense

Pension expense is determined based upon the annual service cost of benefits (the actuarial cost of benefits earned during a period) and the interest cost on those liabilities, less the expected return on plan assets. The expected long-term rate of return on plan assets is applied to a calculated value of plan assets that recognizes changes in fair value over a 5-year period. This practice is intended to reduce year-to-year volatility in pension expense, but it can have the effect of delaying the recognition of differences between actual returns on assets and expected returns based on long-term rate of return assumptions. Differences in actual experience in relation to assumptions arenot recognized in net income immediately but are deferred in accumulated other comprehensive income/loss and, if necessary, amortized as pension expense.

The components of our net periodic pension benefit/cost were as follows:

Cash Contributions

For thesix months ended* June 30, 2024*, cash contributions totaled $0 to the qualified pension plans. Any contributions made during2024 will be based on cash generated from operations and financial market considerations. Our policy with respect to funding the qualified pension plans is to fund at least the minimum required by law andnot more than the maximum amount deductible for tax purposes. At* June 30, 2024*, we donot have minimum cash funding requirements for2024.

6. Other Income

Other income included the following:

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7. Income Taxes

In thesecond quarter of2024, the state of Arkansas enacted legislation to reduce its corporate income tax rate for future years resulting in an $8 million reduction of our deferred tax expense.

In thesecond quarter of2023, the state of Nebraska enacted legislation to reduce its corporate income tax rate for future years resulting in a $73 million reduction of our deferred tax expense.

8. Earnings Per Share

The following table provides a reconciliation between basic and diluted earnings per share:

9. Accumulated Other Comprehensive Income/Loss

Reclassifications out of accumulated other comprehensive income/loss were as follows (net of tax):

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10. Accounts Receivable

Accounts receivable includes freight and other receivables reduced by an allowance for doubtful accounts. At* June 30, 2024*, and* December 31, 2023*, our accounts receivable were reduced by $12 million and $9 million, respectively. Receivablesnot expected to be collected inone year and the associated allowances are classified as other assets in our Condensed Consolidated Statements of Financial Position. At* June 30, 2024*, and* December 31, 2023*, receivables classified as other assets were reduced by allowances of $79 million and $71 million, respectively.

Receivables Securitization Facility– The Railroad maintains an $800 million,3-year receivables securitization facility (the Receivables Facility) maturing in* July 2025.Under the Receivables Facility, the Railroad sells most of its eligiblethird*-party receivables to Union Pacific Receivables, Inc. (UPRI), a consolidated, wholly-owned, bankruptcy-remote subsidiary that* maysubsequently transfer, without recourse, an undivided interest in accounts receivable to investors. The investors haveno* recourse to the Railroad’s other assets except for customary warranty and indemnity claims. Creditors of the Railroad donot have recourse to the assets of UPRI.

The amount recorded under the Receivables Facility was $400 million and $0 at* June 30, 2024*, and* December 31, 2023*, respectively. During thesix months ended* June 30, 2024,we issued $800 million and repaid $400 million under the Receivables Facility. The Receivables Facility was supported by $1.8 billion and $1.7 billion of accounts receivable as collateral at June 30, 2024*, and* December 31, 2023*, respectively, which, as a retained interest, is included in accounts receivable, net in our Condensed Consolidated Statements of Financial Position.

The outstanding amount the Railroad maintains under the Receivables Facility* mayfluctuate based on current cash needs. The maximum allowed under the Receivables Facility is $800 million with availability directly impacted by eligible receivables, business volumes, and credit risks, including receivables payment quality measures such as default and dilution ratios. If default or dilution ratios increaseone percent, the allowable outstanding amount under the Receivables Facility wouldnot* materially change.

The costs of the Receivables Facility include interest, which will vary based on prevailing benchmark and commercial paper rates, program fees paid to participating banks, commercial paper issuance costs, and fees of participating banks for unused commitment availability. The costs of the Receivables Facility are included in interest expense and were $4 million and $1 million for thethree months ended * June 30, 2024and2023* , respectively, and $5 million and $4 million for the six months ended * June 30, 2024and2023* , respectively.

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11. Properties

The following tables list the major categories of property and equipment, as well as the weighted-average estimated useful life for each category (in years):

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12. Accounts Payable and Other Current Liabilities

13. Financial Instruments

Short-Term Investments – All of the Company's short-term investments consist of time deposits and government agency securities. These investments are considered Level2 investments and are valued at amortized cost, which approximates fair value. As of* June 30, 2024*, and * December 31, 2023*, the Company had $20 million and $16 million of short-term investments, respectively. All short-term investments have a maturity of less thanone year and are classified as held-to-maturity.

Fair Value of Financial Instruments – The fair value of our short- and long-term debt was estimated using a market value price model, which utilizes applicable U.S. Treasury rates along with current market quotes on comparable debt securities. All of the inputs used to determine the fair market value of the Corporation’s long-term debt are Level2 inputs and obtained from an independent source. At* June 30, 2024*, the fair value of total debt was $25.9 billion, approximately $6.0 billion less than the carrying value. At* December 31, 2023*, the fair value of total debt was $28.5 billion, approximately $4.1 billion less than the carrying value. The fair value of the Corporation’s debt is a measure of its current value under present market conditions. The fair value of our cash equivalents approximates their carrying value due to the short-term maturities of these instruments.

14. Debt

Credit Facilities– At* June 30, 2024*, we had $2.0 billion of credit available under our revolving credit facility (the Facility), which is designated for general corporate purposes and supports the issuance of commercial paper. Credit facility withdrawals totaled $0 during thesix months ended* June 30, 2024*. Commitment fees and interest rates payable under the Facility are similar to fees and rates available to comparably rated, investment-grade borrowers. The Facility allows for borrowings at floating rates based on Term Secured Overnight Financing Rate (SOFR), plus a spread, depending upon credit ratings for our senior unsecured debt. The Facility, set to expire* May 20, 2027,*requires UPC to maintain an adjusted debt-to-EBITDA (earnings before interest, taxes, depreciation, and amortization) coverage ratio.

The definition of debt used for purposes of calculating the adjusted debt-to-EBITDA coverage ratio includes, among other things, certain credit arrangements, finance leases, guarantees, unfunded and vested pension benefits under Title IV of ERISA, and unamortized debt discount and deferred debt issuance costs. At * June 30, 2024* , the Company was in compliance with the adjusted debt-to-EBITDA coverage ratio, which allows us to carry up to $45.3 billion of debt (as defined in the Facility), and we had $33.6 billion of debt (as defined in the Facility) outstanding at that date. The Facility doesnot include any other financial restrictions, credit rating triggers (other than rating-dependent pricing), or any other provision that could require us to post collateral. The Facility also includes a $150 million cross-default provision and a change-of-control provision.

During thesix months ended* June 30, 2024*, we issued $598 million and repaid $298 million of commercial paper with maturities ranging from 27 to 57 days, and at* June 30, 2024*, we had $300 million of commercial paper with a weighted average interest rate of 5.4% outstanding. Our revolving credit facility supports our outstanding commercial paper balances, and, unless we change the terms of our commercial paper program, our aggregate issuance of commercial paper willnot exceed the amount of borrowings available under the Facility.

Shelf Registration Statement and Significant New Borrowings – We filed an automatic shelf registration statement with the SEC that became effective on* February 13, 2024.The Board of Directors authorized the issuance of up to $9.0 billion of debt securities, replacing the prior Board authorization in February 2022,which had $5.6 billion of authority remaining. Under our shelf registration, we mayissue, from time to time, any combination of debt securities, preferred stock, common stock, or warrants for debt securities or preferred stock inone* or more offerings.

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During thesix months ended* June 30, 2024*, wedidnot issue any debt securities under this registration statement. At* June 30, 2024*, we had remaining authority from the Board of Directors to issue up to $9.0 billion of debt securities under our shelf registration.

Receivables Securitization Facility – As of* June 30, 2024*, and* December 31, 2023*, we recorded $400 million and $0, respectively, of borrowings under our Receivables Facility as secured debt. (See further discussion in the "Receivables Securitization Facility" section of Note10).

15. Commitments and Contingencies

Asserted and Unasserted Claims – Various claims and lawsuits are pending against us and certain of our subsidiaries. We cannot fully determine the effect of all asserted and unasserted claims on our consolidated results of operations, financial condition, or liquidity. We have recorded a liability where asserted and unasserted claims are considered probable and where such claims can be reasonably estimated. We currently donot expect that any known lawsuits, claims, environmental costs, commitments, contingent liabilities, or guarantees will have a material adverse effect on our consolidated results of operations, financial condition, or liquidity after taking into account liabilities and insurance recoveries previously recorded for these matters.

In* December 2019,we received a putative class action complaint under the Illinois Biometric Information Privacy Act, alleging violation due to the use of a finger scan system developed and managed bythird* parties. Union Pacific and the plaintiff are currently in the discovery phase. While we believe that we have strong defenses to the claims made in the complaint and will vigorously defend ourselves, there isno assurance regarding the ultimate outcome. Therefore, the outcome of this litigation is inherently uncertain, and we cannot reasonably estimate any loss or range of loss that* may*arise from this matter.

Personal Injury– The Federal Employers’ Liability Act (FELA) governs compensation for work-related accidents. Under FELA, damages are assessed based on a finding of fault through litigation or out-of-court settlements. We offer a comprehensive variety of services and rehabilitation programs for employees who are injured at work.

Approximately 92% of the recorded liability is related to asserted claims and approximately 8% is related to unasserted claims at* June 30, 2024*. Because of the uncertainty surrounding the ultimate outcome of personal injury claims, it is reasonably possible that future costs to settle these claims* mayrange from approximately $387 million to $502 million. We record an accrual at the low end of the range asno* amount of loss within the range is more probable than any other. Estimates can vary over time due to evolving trends in litigation.

Our personal injury liability activity was as follows:

Environmental Costs – We are subject to federal, state, and local environmental laws and regulations. We have identified 350 sites where we are or* maybe liable for remediation costs associated with alleged contamination or for violations of environmental requirements. This includes 31 sites that are the subject of actions taken by the U.S. government, including 19 that are currently on the Superfund National Priorities List. Certain federal legislation imposes joint and several liability for the remediation of identified sites; consequently, our ultimate environmental liability may*include costs relating to activities of other parties, in addition to costs relating to our own activities at each site.

Our environmental liability activity was as follows:

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The environmental liability includes future costs for remediation and restoration of sites, as well as ongoing monitoring costs, but excludes any anticipated recoveries fromthird-parties. Cost estimates are based on information available for each site, financial viability of other potentially responsible parties, and existing technology, laws, and regulations. The ultimate liability for remediation is difficult to determine because of the number of potentially responsible parties, site-specific cost sharing arrangements with other potentially responsible parties, the degree of contamination by various wastes, the scarcity and quality of volumetric data related to many of the sites, and the speculative nature of remediation costs. Estimates of liability* mayvary over time due to changes in federal, state, and local laws governing environmental remediation. Current obligations arenot* expected to have a material adverse effect on our consolidated results of operations, financial condition, or liquidity.

Indemnities– Our maximum potential exposure under indemnification arrangements, including certain tax indemnifications, can range from a specified dollar amount to an unlimited amount, depending on the nature of the transactions and the agreements. Due to uncertainty as to whether claims will be made or how they will be resolved, we cannot reasonably determine the probability of an adverse claim or reasonably estimate any adverse liability or the total maximum exposure under these indemnification arrangements. We donot have any reason to believe that we will be required to make any material payments under these indemnity provisions.

16. Share Repurchase Programs

Effective* April 1, 2022,our Board of Directors authorized the repurchase of up to 100 million shares of our common stock by March 31, 2025.As of June 30, 2024*, we repurchased a total of 20.1 million shares of our common stock under the2022 authorization. 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.

The table below represents shares repurchased under repurchase programs in thesix months ended* June 30, 2024and2023*:

Management's assessments of market conditions and other pertinent factors guide the timing, manner, and volume of all repurchases. We expect to fund any share repurchases under this program through cash generated from operations, the sale or lease of various operating and non-operating properties, debt issuances, and cash on hand. Open market repurchases are recorded in treasury stock at cost, which includes any applicable commissions, fees, and excise taxes.

17. Related Parties

UPRR and other North American railroad companies jointly own TTX Company (TTX). UPRR has a 37.03% economic interest in TTX while the other North American railroads own the remaining interest. In accordance with ASC323 Investments - Equity Method and Joint Venture, UPRR applies the equity method of accounting to our investment in TTX.

TTX is a rail car pooling company that owns rail cars and intermodal wells to serve North America’s railroads. TTX assists railroads in meeting the needs of their customers by providing rail cars in an efficient, pooled environment. All railroads have the ability to utilize TTX rail cars through car hire by renting rail cars at stated rates.

UPRR had $1.9 billion and $1.8 billion recognized as investments related to TTX in our Condensed Consolidated Statements of Financial Position as of* June 30, 2024*, and* December 31, 2023*, respectively. TTX car hire expenses of $107 million and $102 million for thethree months ended* June 30, 2024and2023*, respectively, and $209 million and $205 million for thesix months ended* June 30, 2024and2023*, respectively, are included in equipment and other rents in our Condensed Consolidated Statements of Income. In addition, UPRR had accounts payable to TTX of $72 million and $60 million at* June 30, 2024*, and* December 31, 2023*, respectively.

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