|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Millions
|
Defined
benefit
plans
|
Foreign
currency
translation
|
Total
|
|
Balance at January 1, 2021
|
$
|
(1,381)
|
$
|
(212)
|
$
|
(1,593)
|
|
Other comprehensive income/(loss) before reclassifications
|
|
(3)
|
|
(13)
|
|
(16)
|
|
Amounts reclassified from accumulated other comprehensive income/(loss) [a]
|
|
76
|
|
-
|
|
76
|
|
Net year-to-date other comprehensive income/(loss),
net of taxes of ($26) million
|
|
73
|
|
(13)
|
|
60
|
|
Balance at September 30, 2021
|
$
|
(1,308)
|
$
|
(225)
|
$
|
(1,533)
|
|
|
|
|
|
|
|
|
|
Balance at January 1, 2020
|
$
|
(1,150)
|
$
|
(206)
|
$
|
(1,356)
|
|
Other comprehensive income/(loss) before reclassifications
|
|
3
|
|
(53)
|
|
(50)
|
|
Amounts reclassified from accumulated other comprehensive income/(loss) [a]
|
|
55
|
|
-
|
|
55
|
|
Net year-to-date other comprehensive income/(loss),
net of taxes of ($18) million
|
|
58
|
|
(53)
|
|
5
|
|
Balance at September 30, 2020
|
$
|
(1,092)
|
$
|
(259)
|
$
|
(1,351)
|
[a]The accumulated other comprehensive income/loss reclassification components are 1) prior service cost/credit and 2) net actuarial loss which are both included in the computation of net periodic pension cost. See Note 5 Retirement Plans for additional details.
10. Accounts Receivable
Accounts receivable includes freight and other receivables reduced by an allowance for doubtful accounts. The allowance is based upon historical losses, creditworthiness of customers, and current economic conditions. At September 30, 2021, and December 31, 2020, our accounts receivable were reduced by $12 million and $17 million, respectively. Receivables not expected to be collected in one year and the associated allowances are classified as other assets in our Condensed Consolidated Statements of Financial Position. At September 30, 2021, and December 31, 2020, receivables classified as other assets were reduced by allowances of $47 million and $51 million, respectively.
Receivables Securitization Facility – The Railroad maintains an $800 million, 3-year receivables securitization facility (the Receivables Facility) maturing in July 2022. Under the Receivables Facility, the Railroad sells most of its eligible third-party receivables to Union Pacific Receivables, Inc. (UPRI), a consolidated, wholly-owned, bankruptcy-remote subsidiary that may subsequently transfer, without recourse, an undivided interest in accounts receivable to investors. The investors have no recourse to the Railroad’s other assets except for customary warranty and indemnity claims. Creditors of the Railroad do not have recourse to the assets of UPRI.
The amount recorded under the Receivables Facility was $0 at both September 30, 2021, and December 31, 2020. The Receivables Facility was supported by $1.3 billion and $1.2 billion of accounts receivable as collateral at September 30, 2021, and December 31, 2020, 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 may fluctuate based on current cash needs. The maximum allowed under the 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 increase one percent, the allowable outstanding amount under the Receivables Facility would not 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 $1 million and $2 million for the three months ended September 30, 2021 and 2020, respectively, and $3 million and $6 million for the nine months ended September 30, 2021 and 2020, respectively.
The 5 year facility, set to expire on June 8, 2023, requires UPC to maintain a debt-to-EBITDA (earnings before interest, taxes, depreciation, and amortization) coverage ratio.
The definition of debt used for purposes of calculating the 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 September 30, 2021, the Company was in compliance with the debt-to-EBITDA coverage ratio, which allows us to carry up to $40.4 billion of debt (as defined in the Facility), and we had $31.2 billion of debt (as defined in the Facility) outstanding at that date. The Facility does not 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 the nine months ended September 30, 2021, we issued $1,545 million and repaid $1,420 million of commercial paper with maturities ranging from 7 to 48 days, and at September 30, 2021, we had $200 million of commercial paper outstanding. Our revolving credit facility can be used to support our outstanding commercial paper balances, and, unless we change the terms of our commercial paper program, our aggregate outstanding issuance of commercial paper will not exceed the amount of borrowings available under the Facility.
In May 2020, we entered into three bilateral revolving credit lines, totaling $600 million of available credit. During the nine months ended September 30, 2021, we drew $0 and repaid $0. All three bilateral revolving credit lines matured by May 18, 2021.
Shelf Registration Statement and Significant New Borrowings – We filed an automatic shelf registration statement with the SEC that became effective on February 10, 2021. The Board of Directors authorized the issuance of up to $6 billion of debt securities, replacing the prior Board authorization in November 2019, which had $2.25 billion of authority remaining. Under our shelf registration, we may issue, from time to time, any combination of debt securities, preferred stock, common stock, or warrants for debt securities or preferred stock in one or more offerings.
During the nine months ended September 30, 2021, we issued the following unsecured, fixed-rate debt securities under our current shelf registration.
|
|
|
|
|
|
|
Date
|
Description of Securities
|
|
May 20, 2021
|
$850 million of 2.375% Notes due May 20, 2031
|
|
|
$1.0 billion of 3.200% Notes due May 20, 2041
|
|
|
$650 million of 3.550% Notes due May 20, 2061
|
|
September 10, 2021
|
$150 million of 2.375% Notes due May 20, 2031
|
|
|
$850 million of 2.950% Notes due March 10, 2052
|
We used the net proceeds from these offerings for general corporate purposes, including the repurchase of common stock pursuant to our share repurchase programs. These debt securities include change-of- control provisions. At September 30, 2021, we had remaining authority from the Board of Directors to issue up to $2.5 billion of debt securities under our shelf registration.
Receivables Securitization Facility – As of both September 30, 2021, and December 31, 2020, we recorded $0 of borrowings under our Receivables Facility as secured debt. During the nine months ended September 30, 2021, we drew $400 million and repaid $400 million. (See further discussion of our receivables securitization facility in Note 10).
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. To the extent possible, we have recorded a liability where asserted and unasserted claims are considered probable and where such claims can be reasonably estimated. We do not expect that any known lawsuits, claims, environmental costs, commitments, contingent liabilities, or guarantees will have a material adverse effect on our consolidated
the number of potentially responsible parties, site-specific cost sharing arrangements with other potentially responsible parties, the degree of contamination by various wastes, the scarcity and quality of volumetric data related to many of the sites, and the speculative nature of remediation costs. Estimates of liability may vary over time due to changes in federal, state, and local laws governing environmental remediation. Current obligations are not expected to have a material adverse effect on our consolidated results of operations, financial condition, or liquidity.
Insurance – The Company has a consolidated, wholly-owned captive insurance subsidiary (the captive), that provides insurance coverage for certain risks including FELA claims and property coverage which are subject to reinsurance. The captive entered into annual reinsurance treaty agreements that insure workers compensation, general liability, auto liability, and FELA risk. The captive cedes a portion of its FELA exposure through the treaty and assumes a proportionate share of the entire risk. The captive receives direct premiums, which are netted against the Company’s premium costs in other expenses in the Condensed Consolidated Statements of Income. The treaty agreements provide for certain protections against the risk of treaty participants’ non-performance, and we do not believe our exposure to treaty participants’ non-performance is material at this time. We record both liabilities and reinsurance receivables using an actuarial analysis based on historical experience in our Condensed Consolidated Statements of Financial Position. Effective January 2019, the captive insurance subsidiary no longer participates in the reinsurance treaty agreement. The Company established a trust in the fourth quarter of 2018 for the purpose of providing collateral as required under the reinsurance treaty agreement for prior years’ participation.
Indemnities – We are contingently obligated under a variety of indemnification arrangements, although in some cases the extent of our potential liability is limited, depending on the nature of the transactions and the agreements. Due to uncertainty as to whether claims will be made or how they will be resolved, we cannot reasonably determine the probability of an adverse claim or reasonably estimate any adverse liability or the total maximum exposure under these indemnification arrangements. We do not have any reason to believe that we will be required to make any material payments under these indemnity provisions.
16. Share Repurchase Programs
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. 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. As of September 30, 2021, we repurchased a total of $46.8 billion of our common stock since commencement of our repurchase programs in 2007. The table below represents shares repurchased under repurchase programs in the first, second, and third quarters of 2021 and 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Shares Purchased
|
Average Price Paid [a]
|
|
|
2021
|
2020
|
2021
|
2020
|
|
First quarter [b]
|
6,691,421
|
14,305,793
|
$
|
209.50
|
$
|
178.66
|
|
Second quarter [c]
|
12,204,409
|
-
|
|
222.46
|
|
-
|
|
Third quarter [d]
|
8,604,239
|
4,045,575
|
|
210.31
|
|
98.87
|
|
Total
|
27,500,069
|
18,351,368
|
$
|
215.51
|
$
|
161.07
|
|
Remaining number of shares that may be repurchased under current authority
|
|
83,522,901
|
[a]In the period of the final settlement, the average price paid under the accelerated share repurchase programs is calculated based on the total program value less the value assigned to the initial delivery of shares. The average price of the completed 2021 and 2020 accelerated share repurchase programs was $217.56 and $155.86, respectively.
[b]Includes 8,786,380 shares repurchased in February 2020 under accelerated share repurchase programs.
[c]Includes 7,209,156 shares repurchased in May 2021 under accelerated share repurchase programs.
[d]Includes an incremental 1,983,859 and 4,045,575 shares received upon final settlement in September 2021 and July 2020, respectively, under accelerated share repurchase programs.
Management's assessments of market conditions and other pertinent factors guide the timing and volume of all repurchases. We expect to fund any share repurchases under this program through cash generated from operations, the sale or lease of various operating and non-operating properties, debt issuances, and cash on hand. Open market repurchases are recorded in treasury stock at cost, which includes any applicable commissions and fees.
From October 1, 2021, through October 20, 2021, we repurchased 1.9 million shares at an aggregate cost of approximately $405 million.
Accelerated Share Repurchase Programs – The Company has established accelerated share repurchase programs (ASRs) with financial institutions to repurchase shares of our common stock. These ASRs have been structured so that at the time of commencement, we pay a specified amount to the financial institutions and receive an initial delivery of shares. Additional shares may be received at the time of settlement. The final number of shares to be received is based on the volume weighted average price of the Company’s common stock during the ASR term, less a discount and subject to potential adjustments pursuant to the terms of such ASR.
On May 26, 2021, the Company received 7,209,156 shares of its common stock repurchased under ASRs for an aggregate of $2.0 billion. Upon settlement of these ASRs in the third quarter of 2021, we received 1,983,859 additional shares.
On February 19, 2020, the Company received 8,786,380 shares of its common stock repurchased under ASRs for an aggregate of $2.0 billion. Upon settlement of these ASRs in the third quarter of 2020, we received 4,045,575 additional shares.
ASRs are accounted for as equity transactions, and at the time of receipt, shares are included in treasury stock at fair market value as of the corresponding initiation or settlement date. The Company reflects shares received as a repurchase of common stock in the weighted average common shares outstanding calculation for basic and diluted earnings per share.
17. Related Parties
UPRR and other North American railroad companies jointly own TTX Company (TTX). UPRR has a 36.79% economic and voting interest in TTX while the other North American railroads own the remaining interest. In accordance with ASC 323 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 $1.6 billion and $1.5 billion recognized as investments related to TTX in our Condensed Consolidated Statements of Financial Position as of September 30, 2021, and December 31, 2020, respectively. TTX car hire expenses of $92 million and $98 million for the three months ended September 30, 2021 and 2020, respectively, and $283 and $282 million for the nine months ended September 30, 2021 and 2020, respectively, are included in equipment and other rents in our Condensed Consolidated Statements of Income. In addition, UPRR had accounts payable to TTX of $57 million and $59 million as of September 30, 2021, and December 31, 2020, respectively.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
UNION PACIFIC CORPORATION AND SUBSIDIARY COMPANIES
RESULTS OF OPERATIONS
Three and Nine Months Ended September 30, 2021, Compared to
Three and Nine Months Ended September 30, 2020
For purposes of this report, unless the context otherwise requires, all references herein to “UPC”, “Corporation”, “Company”, “we”, “us”, and “our” shall mean Union Pacific Corporation and its subsidiaries, including Union Pacific Railroad Company, which we separately refer to as “UPRR” or the “Railroad”.
The following discussion should be read in conjunction with the Condensed Consolidated Financial Statements and applicable notes to the Condensed Consolidated Financial Statements, Item 1, and other information included in this report. Our Condensed Consolidated Financial Statements are unaudited and reflect all adjustments (consisting only of normal and recurring adjustments) that are, in the opinion of management, necessary for their fair presentation in conformity with accounting principles generally accepted in the United States of America (GAAP).
The Railroad, along with its subsidiaries and rail affiliates, is our one reportable business segment. Although we provide and analyze revenue by commodity group, we treat the financial results of the Railroad as one segment due to the integrated nature of our rail network.
Cautionary Information
Statements in this filing on Form 10-Q, including forward-looking statements, speak only as of and are based on information we have learned as of October 21, 2021. We assume no obligation to update any such information to reflect subsequent developments, changes in assumptions, or changes in other factors affecting forward-looking information. If we do update one or more of these statements, no inference should be drawn that we will make additional updates with respect thereto or with respect to other statements.
Certain statements in this report, and statements in other reports or information filed or to be filed with the SEC (as well as information included in oral statements or other written statements made or to be made by us), are forward-looking statements within the meaning of Section 27A Securities Act of 1933 and the Section 21E of the Exchange Act. These forward-looking statements and information include, without limitation, the statements and information set forth under the caption “Effects from COVID-19” in Item 2. Forward-looking statements and information also include any other statements or information in this report regarding: potential impacts of the coronavirus (COVID-19) pandemic on our business operations, financial results, liquidity, and financial position, and on the world economy (including our customers and supply chains), including as a result of decreased volume and carloadings; closing of customer manufacturing, distribution or production facilities; expectations as to operational or service improvements; expectations regarding the effectiveness of steps taken or to be taken to improve operations, service, infrastructure improvements, and transportation plan modifications; expectations as to cost savings, revenue growth, and earnings; the time by which goals, targets, or objectives will be achieved; projections, predictions, expectations, estimates, or forecasts as to our business, financial, and operational results, future economic performance, and general economic conditions; proposed new products and services; estimates of costs relating to environmental remediation and restoration; estimates and expectations regarding tax matters, expectations that claims, litigation, environmental costs, commitments, contingent liabilities, labor negotiations or agreements, cyber-attacks or other matters will not have a material adverse effect on our consolidated results of operations, financial condition, or liquidity and any other similar expressions concerning matters that are not historical facts.
Forward-looking statements and information reflect the good faith consideration by management of currently available information, and may be based on underlying assumptions believed to be reasonable under the circumstances. However, such information and assumptions (and, therefore, such forward-looking statements and information) are or may be subject to risks and uncertainties over which management has little or no influence or control. The Risk Factors in Item 1A of our 2020 Annual Report on Form 10-K, filed February 5, 2021, could affect our future results and could cause those results or other outcomes to differ materially from those expressed or implied in the forward-looking statements, and this report, including this Item 2, should be read in conjunction with these Risk Factors. Forward-looking
statements should not be read as a guarantee of future performance or results, and will not necessarily be accurate indications of the times that, or by which, such performance or results will be achieved. Forward-looking information is subject to risks and uncertainties that could cause actual performance or results to differ materially from those expressed in the statements.
Effects from COVID-19
COVID-19 vaccine mandates may affect workforce availability ranging from absences to get vaccinated and cope with any side-effects, resignations from unwillingness to comply with the mandate, and/or organized work stoppages from any of our unions. Significant workforce availability challenges could have a material effect on our business operations, financial results, liquidity, and financial position.
On October 11, 2021, the Company announced that it is complying with the Presidential Executive Order 14042 that mandates employees of federal contractors and subcontractors be fully vaccinated against COVID-19 by December 8, 2021, unless employees are legally entitled to an accommodation. 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.
Critical Accounting Policies and Estimates
We base our discussion and analysis of our financial condition and results of operations upon our Condensed Consolidated Financial Statements. The preparation of these financial statements requires estimation and judgment that affect the reported amounts of revenues, expenses, assets, and liabilities. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. If these estimates differ materially from actual results, the impact on the Condensed Consolidated Financial Statements may be material. Our critical accounting policies are available in Item 7 of our 2020 Annual Report on Form 10-K. There have not been any significant changes with respect to these policies during the first nine months of 2021.
RESULTS OF OPERATIONS
Quarterly Summary
The Company reported earnings of $2.57 per diluted share on net income of $1.7 billion and an operating ratio of 56.3% in the third quarter of 2021 compared to earnings of $2.01 per diluted share on net income of $1.4 billion and an operating ratio of 58.7% for the third quarter of 2020. Freight revenues increased 12% in the quarter compared to the same period in 2020 driven by a 12% higher average revenue per car (ARC) due to higher fuel surcharge revenue, core pricing gains, and positive mix of traffic (decrease in our intermodal shipments coupled with increase in industrial shipments). Volume was flat compared to the third quarter 2020 as strength in the industrial sector and coal were offset by lower intermodal and automotive shipments. Lower intermodal shipments were driven by persistent global supply chain challenges, while lower automotive shipments were due to continued semiconductor chip shortages. The quarter also was negatively impacted by wildfires in California, which damaged multiple bridges and shut down a vital route for over a month causing traffic to be rerouted. The reroutes elongated transit times, requiring additional crews and locomotives, and impacted the overall fluidity of the network. As a result, many of our operating metrics deteriorated sequentially and year-over-year. While operating expense increased due to fire-related costs, the most significant driver of the increase was higher fuel prices – up 74% to $2.37 average price per gallon in the third quarter 2021 compared to the third quarter 2020. Despite the increase in operating expense, our increase in revenue drove third quarter records for operating ratio and operating income - improving 2.4 points and 20%, respectively, compared to third quarter of 2020.
Operating Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
Nine Months Ended
|
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
Millions
|
2021
|
2020
|
Change
|
|
2021
|
2020
|
Change
|
|
Freight revenues
|
$
|
5,166
|
$
|
4,596
|
12
|
%
|
|
$
|
14,947
|
$
|
13,448
|
11
|
%
|
|
Other subsidiary revenues
|
|
182
|
|
193
|
(6)
|
|
|
|
539
|
|
557
|
(3)
|
|
|
Accessorial revenues
|
|
198
|
|
114
|
74
|
|
|
|
535
|
|
334
|
60
|
|
|
Other
|
|
20
|
|
16
|
25
|
|
|
|
50
|
|
53
|
(6)
|
|
|
Total
|
$
|
5,566
|
$
|
4,919
|
13
|
%
|
|
$
|
16,071
|
$
|
14,392
|
12
|
%
|
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 revenues consist primarily of revenues earned by our other subsidiaries (primarily logistics and commuter rail operations) and accessorial revenues. Other subsidiary revenues 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.
Freight revenue increased 12% during the third quarter of 2021 compared to 2020, resulting from a 12% increase in ARC driven by higher fuel surcharge revenue, core pricing gains, and positive mix of traffic. Volume was flat compared to the third quarter 2020 as strength in the industrial sector and coal were offset by lower shipments of intermodal, as global supply chain challenges persist, and automotive shipments, due to semiconductor chip shortages.
Each of our commodity groups includes revenue from fuel surcharges. Freight revenues from fuel surcharge programs were $464 million and $1,138 million in the third quarter and year-to-date periods of 2021, respectively, compared to $203 million and $760 million in the same periods of 2020, respectively. The increase was driven by higher fuel prices.
Accessorial revenue increased in the third quarter and the year-to-date period compared to 2020 driven by increased intermodal accessorial charges as a result of the global supply chain disruptions. Other subsidiary revenues decreased in the third quarter and the year-to-date period compared to 2020 driven by the semiconductor shortage negatively impacting 2021 automotive production which outweighed the recovery from COVID-19 declines in 2020.
The following tables summarize the year-over-year changes in freight revenues, revenue carloads, and ARC by commodity type:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
Nine Months Ended
|
|
|
|
Freight Revenues
|
September 30,
|
|
|
September 30,
|
|
|
Millions
|
2021
|
2020
|
Change
|
|
2021
|
2020
|
Change
|
|
Grain & grain products
|
$
|
731
|
$
|
695
|
5
|
%
|
|
$
|
2,292
|
$
|
2,028
|
13
|
%
|
|
Fertilizer
|
|
172
|
|
157
|
10
|
|
|
|
521
|
|
499
|
4
|
|
|
Food & refrigerated
|
|
253
|
|
239
|
6
|
|
|
|
739
|
|
694
|
6
|
|
|
Coal & renewables
|
|
531
|
|
387
|
37
|
|
|
|
1,295
|
|
1,177
|
10
|
|
|
Bulk
|
|
1,687
|
|
1,478
|
14
|
|
|
|
4,847
|
|
4,398
|
10
|
|
|
Industrial chemicals & plastics
|
|
503
|
|
454
|
11
|
|
|
|
1,436
|
|
1,384
|
4
|
|
|
Metals & minerals
|
|
488
|
|
365
|
34
|
|
|
|
1,330
|
|
1,202
|
11
|
|
|
Forest products
|
|
342
|
|
284
|
20
|
|
|
|
1,006
|
|
853
|
18
|
|
|
Energy & specialized markets
|
|
578
|
|
464
|
25
|
|
|
|
1,654
|
|
1,522
|
9
|
|
|
Industrial
|
|
1,911
|
|
1,567
|
22
|
|
|
|
5,426
|
|
4,961
|
9
|
|
|
Automotive
|
|
417
|
|
481
|
(13)
|
|
|
|
1,292
|
|
1,194
|
8
|
|
|
Intermodal
|
|
1,151
|
|
1,070
|
8
|
|
|
|
3,382
|
|
2,895
|
17
|
|
|
Premium
|
|
1,568
|
|
1,551
|
1
|
|
|
|
4,674
|
|
4,089
|
14
|
|
|
Total
|
$
|
5,166
|
$
|
4,596
|
12
|
%
|
|
$
|
14,947
|
$
|
13,448
|
11
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
Nine Months Ended
|
|
|
|
Revenue Carloads
|
September 30,
|
|
|
September 30,
|
|
|
Thousands
|
2021
|
2020
|
Change
|
|
2021
|
2020
|
Change
|
|
Grain & grain products
|
185
|
187
|
(1)
|
%
|
|
592
|
529
|
12
|
%
|
|
Fertilizer
|
55
|
50
|
10
|
|
|
153
|
149
|
3
|
|
|
Food & refrigerated
|
48
|
48
|
-
|
|
|
141
|
137
|
3
|
|
|
Coal & renewables
|
232
|
213
|
9
|
|
|
604
|
607
|
-
|
|
|
Bulk
|
520
|
498
|
4
|
|
|
1,490
|
1,422
|
5
|
|
|
Industrial chemicals & plastics
|
153
|
144
|
6
|
|
|
449
|
439
|
2
|
|
|
Metals & minerals
|
188
|
156
|
21
|
|
|
516
|
492
|
5
|
|
|
Forest products
|
63
|
55
|
15
|
|
|
187
|
161
|
16
|
|
|
Energy & specialized markets
|
145
|
125
|
16
|
|
|
422
|
402
|
5
|
|
|
Industrial
|
549
|
480
|
14
|
|
|
1,574
|
1,494
|
5
|
|
|
Automotive
|
166
|
203
|
(18)
|
|
|
519
|
490
|
6
|
|
|
Intermodal [a]
|
809
|
863
|
(6)
|
|
|
2,483
|
2,296
|
8
|
|
|
Premium
|
975
|
1,066
|
(9)
|
|
|
3,002
|
2,786
|
8
|
|
|
Total
|
2,044
|
2,044
|
-
|
%
|
|
6,066
|
5,702
|
6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
Nine Months Ended
|
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
Average Revenue per Car
|
2021
|
2020
|
Change
|
|
2021
|
2020
|
Change
|
|
Grain & grain products
|
$
|
3,937
|
$
|
3,705
|
6
|
%
|
|
$
|
3,869
|
$
|
3,832
|
1
|
%
|
|
Fertilizer
|
|
3,125
|
|
3,172
|
(1)
|
|
|
|
3,398
|
|
3,361
|
1
|
|
|
Food & refrigerated
|
|
5,246
|
|
4,891
|
7
|
|
|
|
5,235
|
|
5,053
|
4
|
|
|
Coal & renewables
|
|
2,298
|
|
1,820
|
26
|
|
|
|
2,146
|
|
1,938
|
11
|
|
|
Bulk
|
|
3,244
|
|
2,964
|
9
|
|
|
|
3,252
|
|
3,092
|
5
|
|
|
Industrial chemicals & plastics
|
|
3,277
|
|
3,154
|
4
|
|
|
|
3,195
|
|
3,150
|
1
|
|
|
Metals & minerals
|
|
2,596
|
|
2,337
|
11
|
|
|
|
2,577
|
|
2,444
|
5
|
|
|
Forest products
|
|
5,457
|
|
5,181
|
5
|
|
|
|
5,390
|
|
5,300
|
2
|
|
|
Energy & specialized markets
|
|
3,996
|
|
3,742
|
7
|
|
|
|
3,924
|
|
3,791
|
4
|
|
|
Industrial
|
|
3,482
|
|
3,271
|
6
|
|
|
|
3,448
|
|
3,321
|
4
|
|
|
Automotive
|
|
2,500
|
|
2,368
|
6
|
|
|
|
2,488
|
|
2,438
|
2
|
|
|
Intermodal [a]
|
|
1,424
|
|
1,238
|
15
|
|
|
|
1,362
|
|
1,261
|
8
|
|
|
Premium
|
|
1,608
|
|
1,454
|
11
|
|
|
|
1,557
|
|
1,468
|
6
|
|
|
Average
|
$
|
2,528
|
$
|
2,248
|
12
|
%
|
|
$
|
2,464
|
$
|
2,359
|
4
|
%
|
[a] For intermodal shipments each container or trailer equals one carload.
Bulk – Bulk includes shipments of grain and grain products, fertilizer, food and refrigerated goods, and coal and renewables. Freight revenue from bulk shipments increased in the third quarter of 2021 compared to 2020 due to core pricing gains, higher fuel surcharge revenue, and a 4% increase in carloadings. Coal and renewables shipments increased 9% compared to the third quarter of 2020 due to increased market demand as some electricity generation shifted to coal due to higher natural gas prices. Strength in the export potash market drove fertilizer shipments up 10% in the third quarter. Year-to-date, freight revenue from bulk shipments increased compared to the same period in 2020 driven by 5% higher volume, core pricing gains, higher fuel surcharge revenue, and positive mix of traffic. Despite weather disruptions in the first quarter of 2021, strong demand for export grain drove a 12% increase in shipments of grain and grain products year-to-date.
Industrial – Industrial includes shipments of industrial chemicals and plastics, metals and minerals, forest products, and energy and specialized markets. Freight revenue from industrial shipments increased in the third quarter compared to the same period in 2020 due to higher volume, higher fuel surcharge revenue, core pricing gains, and positive mix of traffic. Volume increases in the third quarter of 2021 were primarily driven by continued recovery from the pandemic slowdown that impacted production across a wide array of industries in 2020. Volumes also were positively impacted by new business secured in the year. Year-to-date, freight revenue from industrial shipments increased compared to the same period in 2020 driven by 5% volume increase, core pricing gains, positive mix of traffic, and higher fuel surcharge revenue. Year-over-year strength from the pandemic recovery in the second and third quarters overcame the first quarter 2021 losses caused by weather disruptions in the Gulf Coast impacting the industrial chemicals and plastics and metals and mineral industries. Additionally, forest product shipments increased due to higher demand for cardboard boxes and lumber. These increases were partially offset by unfavorable regional crude oil pricing spreads negatively impacting petroleum shipments.
Premium – Premium includes shipments of finished automobiles, automotive parts, and merchandise in intermodal containers, both domestic and international. Premium freight revenue increased in the third quarter 2021 compared to the third quarter 2020 driven by higher fuel surcharge revenue and core pricing gains, partially offset by a 9% decline in volume and negative mix of traffic. The semiconductor shortage continues to impact the automotive industry as shipments are down 18% in the third quarter compared to 2020. Intermodal volume declined 6% due to global supply chain disruptions in the same period. These disruptions include port congestion due to both high demand for consumer goods and labor availability challenges, railroad equipment and chassis availability, truck driver supply, and warehouse receiving capacity. Year-to-date, premium freight revenue increased compared to the same period in 2020, despite weather disruptions in the first quarter of 2021, driven by an 8% increase in volume, higher fuel surcharge revenue, and core pricing gains. Automotive shipments of 173 thousand carloads in the second quarter of 2021 were more than double the 79 thousand carloads in the same period last year as North American manufacturing plants suspended production due to the pandemic in 2020. This recovery is masking the impact to automotive shipments in the year-to-date period of 2021 due to the on-going shortage of semiconductors. Despite the global supply chain disruptions, intermodal shipments increased 8% in the nine-month period of 2021 due to improving economic conditions, inventory restocking, contract wins, and continued strength of e-commerce and parcel shipments.
Mexico Business – Each of our commodity groups includes revenue from shipments to and from Mexico. Revenue from Mexico business increased 7% to $592 million in the third quarter of 2021 compared to 2020 driven by higher fuel surcharge revenue, positive traffic mix, and core pricing gains, partially offset by a 10% decline in shipments. Volume decreases in the third quarter of 2021 were driven by the semiconductor shortage in the automotive industry and global supply chain disruptions impact on intermodal shipments, partially offset by strength in petroleum products, steel, and biofuels. Year-to-date, freight revenue increased 16% to $1.8 billion as a result of increased volume, higher fuel surcharges, and core pricing gains.
Operating Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
Nine Months Ended
|
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
Millions
|
2021
|
2020
|
Change
|
|
2021
|
2020
|
Change
|
|
Compensation and benefits
|
$
|
1,040
|
$
|
1,008
|
3
|
%
|
|
$
|
3,088
|
$
|
2,972
|
4
|
%
|
|
Depreciation
|
|
553
|
|
555
|
-
|
|
|
|
1,652
|
|
1,653
|
-
|
|
|
Purchased services and materials
|
|
510
|
|
508
|
-
|
|
|
|
1,478
|
|
1,470
|
1
|
|
|
Fuel
|
|
544
|
|
301
|
81
|
|
|
|
1,452
|
|
982
|
48
|
|
|
Equipment and other rents
|
|
217
|
|
217
|
-
|
|
|
|
629
|
|
655
|
(4)
|
|
|
Other
|
|
270
|
|
299
|
(10)
|
|
|
|
874
|
|
832
|
5
|
|
|
Total
|
$
|
3,134
|
$
|
2,888
|
9
|
%
|
|
$
|
9,173
|
$
|
8,564
|
7
|
%
|
Operating expenses increased $246 million in the third quarter compared to 2020 driven by higher fuel prices, inflation, and 2020 management actions responding to the sharp decline in volume (temporary unpaid leave, salary reductions, and shop closures). Partially offsetting these increases compared to 2020 are productivity initiatives, lower severance costs, and fewer write-offs of certain in-progress capital projects and lease impairments. Year-to-date, operating expenses increased $609 million compared to the same period in 2020 driven by higher fuel prices, volume-related costs, inflation, 2020 management actions, higher casualty costs, weather-related expenses, incentive compensation, higher state and local taxes, and an insurance reimbursement recognized in 2020, partially offset by productivity initiatives, lower severance costs, and fewer write-offs of certain in-progress capital projects and lease impairments.
Compensation and Benefits – Compensation and benefits include wages, payroll taxes, health and welfare costs, pension costs, other postretirement benefits, and incentive costs. For the third quarter and year-to-date periods, expenses increased 3% and 4%, respectively, compared to 2020 due to wage inflation, 2020 management actions responding to the sharp decline in volume (temporary unpaid leave, salary reductions, and shop closures), and higher costs due to weather-related events. Partially offsetting these increases are productivity initiatives resulting in employee levels that were down 1% and 5% in the third quarter and year-to-date periods, respectively, compared to 2020 despite flat and 6% volume increases, and lower severance costs. In addition, the year-to-date period comparison was impacted by increased incentive compensation.
Depreciation – The majority of depreciation relates to road property, including rail, ties, ballast, and other track material. Depreciation expense was essentially flat for the third quarter and nine-month periods of 2021 compared to 2020.
Purchased Services and Materials – Expense for purchased services and materials includes the costs of services purchased (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 were essentially flat in the third quarter compared to 2020 driven by higher locomotive and freight car maintenance expense due to a larger active fleet, offset by lower contractor expense for derailment clean up. Year-to-date, expenses increased 1% due to higher volume-related costs associated with our intermodal business and higher cost due to weather-related events, partially offset by lower locomotive and freight car maintenance expenses due to a smaller active fleet in the first quarter.
Fuel – Fuel includes locomotive fuel and fuel for highway and non-highway vehicles and heavy equipment. Fuel expense increased in the third quarter of 2021 compared to the same period in 2020 driven by a 74% increase in locomotive diesel fuel prices, which averaged $2.37 and $1.36 per gallon (including taxes and transportation costs) in the third quarter of 2021 and 2020, respectively, and a 5% increase in gross ton-miles. The fuel consumption rate, computed as gallons of fuel consumed divided by gross ton-mile in thousands, improved 1% versus the third quarter in 2020, offsetting some of the increased costs due to the higher price. For the nine-month period, locomotive diesel fuel prices averaged $2.13 per gallon in 2021 compared to $1.51 in 2020 driving the increase in expenses by 48%. In addition, gross ton-miles increased 7% during the year-to-date period also driving higher fuel expense compared to 2020. The higher costs were partially offset by fuel consumption rate improvement of 2%.
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 rentals. Equipment and other rents expense were flat in the third quarter compared to 2020 consistent with our volume. Year-to-date, expense decreased by 4% driven by lower rent on stored equipment and higher equity income from our investment in TTX Company, partially offset by increased freight car rent expense due to volume increases.
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 costs decreased 10% in the third quarter compared to 2020 driven by lower in-progress write-offs of certain capital projects, 2020 lease impairments, and lower costs associated with destroyed equipment, partially offset by higher personal injury expense and higher state and local taxes. Year-to-date expenses increased 5% driven by casualty expenses including personal injury, environmental, and damaged freight; an insurance reimbursement recognized in 2020; and higher state and local taxes, partially offset by lower in-progress write-offs of certain in-progress capital projects and 2020 lease impairments.
Non-Operating Items
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
Nine Months Ended
|
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
Millions
|
2021
|
2020
|
Change
|
|
2021
|
2020
|
Change
|
|
Other income, net
|
$
|
38
|
$
|
37
|
3
|
%
|
|
$
|
214
|
$
|
221
|
(3)
|
%
|
|
Interest expense
|
|
(290)
|
|
(295)
|
(2)
|
|
|
|
(862)
|
|
(862)
|
-
|
|
|
Income taxes
|
|
(507)
|
|
(410)
|
24
|
|
|
|
(1,438)
|
|
(1,218)
|
18
|
|
Other Income, net – Other income slightly increased in the third quarter of 2021 compared to the same period in 2020. Year-to-date, other income decreased driven by lower real estate sale gains. Real estate sales in the second quarter of 2021 included a $50 million gain from a property sale to the Colorado Department of Transportation, while the second quarter of 2020 included a $69 million gain from a land and permanent easement sale to the Illinois State Toll Highway Authority.
Interest Expense – Interest expense decreased in the third quarter of 2021 compared to 2020 due to a lower effective interest rate of 4.0% in 2021 compared to 4.1% in 2020, partially offset by an increase in the weighted-average debt level of $29.0 billion in 2021 compared to $28.3 billion in 2020. Year-to-date, interest expense was flat as a result of higher debt exchange fees incurred in the first quarter, partially offset by a decrease in the weighted-average debt levels of $27.9 billion in 2021 compared to $28.0 billion in 2020. The effective interest rate was 4.1% for both year-to-date periods.
Income Taxes – Income taxes increased in the third quarter and nine-month periods of 2021 compared to 2020 due to higher pre-tax income. Our effective tax rates year-to-date 2021 and 2020 were 23.0% and 23.5%, respectively. In the second quarter of 2021, Nebraska, Oklahoma, and Idaho enacted legislation to reduce their corporate income tax rates for future years resulting in a reduction of our deferred tax expense, which reduced our 2021 effective tax rate.
OTHER OPERATING/PERFORMANCE AND FINANCIAL STATISTICS
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.
Operating/Performance Statistics
Management continuously monitors these key operating metrics to evaluate our productivity, asset utilization, and network efficiency in striving to provide a consistent, reliable service product to our customers.
Railroad performance measures are included in the table below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
Nine Months Ended
|
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2021
|
2020
|
Change
|
|
2021
|
2020
|
Change
|
|
Gross ton-miles (GTMs) (billions)
|
207.1
|
197.0
|
5
|
%
|
|
607.9
|
568.9
|
7
|
%
|
|
Revenue ton-miles (billions)
|
104.3
|
97.9
|
7
|
|
|
306.4
|
283.5
|
8
|
|
|
Freight car velocity (daily miles per car) [a]
|
195
|
223
|
(13)
|
|
|
205
|
220
|
(7)
|
|
|
Average train speed (miles per hour) [b]
|
24.2
|
25.3
|
(4)
|
|
|
24.8
|
25.8
|
(4)
|
|
|
Average terminal dwell time (hours) [b]
|
24.0
|
22.8
|
5
|
|
|
23.5
|
22.8
|
3
|
|
|
Locomotive productivity (GTMs per horsepower day)
|
127
|
138
|
(8)
|
|
|
135
|
135
|
-
|
|
|
Train length (feet)
|
9,359
|
8,984
|
4
|
|
|
9,340
|
8,676
|
8
|
|
|
Intermodal car trip plan compliance (%)
|
66
|
77
|
(11)
|
pts
|
|
72
|
81
|
(9)
|
pts
|
|
Manifest/Automotive car trip plan compliance (%)
|
60
|
72
|
(12)
|
pts
|
|
65
|
70
|
(5)
|
pts
|
|
Workforce productivity (car miles per employee)
|
1,044
|
998
|
5
|
|
|
1,036
|
920
|
13
|
|
|
Total employees (average)
|
29,810
|
30,155
|
(1)
|
|
|
29,877
|
31,362
|
(5)
|
|
|
Operating ratio
|
56.3
|
58.7
|
(2.4)
|
pts
|
|
57.1
|
59.5
|
(2.4)
|
pts
|
[a]Prior years have 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. Gross ton-miles and revenue ton-miles increased 5% and 7%, respectively, during the third quarter of 2021 compared to 2020, despite overall flat volume, due to commodity mix (decreases in our intermodal and automotive shipments, which are generally lower weight, coupled with increases in coal and industrial shipments, which are generally higher weight). Year-to-date, gross ton-miles and revenue ton-miles increased 7% and 8%, respectively, driven by a 6% increase in carloadings.
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 the third quarter and nine-month periods of 2021 compared to the same periods in 2020 as the network was impacted by bridge outages caused by the California wildfires and the global supply chain disruptions. Continued implementation of our operating plan helped to partially offset these impacts. Weather-related challenges in the first quarter of 2021 and other incidents in the second quarter affecting the network also contributed to the declines in the year-to-date period.
Locomotive Productivity – Locomotive productivity is gross ton-miles per average daily locomotive horsepower. Locomotive productivity decreased in the third quarter compared to the third quarter in 2020 as we increased the active fleet size to combat the slowdown in the network caused by the California wildfire bridge outages and global supply chain disruptions. The year-to-date period was flat compared to the same period in 2020 as transportation plan changes and lower locomotive dwell times offset the increased active fleet required by increased volume and network disruptions.
Train Length – Train length is the average maximum train length on a route measured in feet. Our train length increased in the third quarter and nine-month periods compared to same periods in 2020 as a result of blending service products and transportation plan changes designed to improve overall operational
efficiency. However, sequentially, train length declined slightly from the second quarter of 2021 as we rerouted trains due to the California wildfire bridge outages over terrain not as conducive to running longer trains.
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 the third quarter and year-to-date periods of 2021 compared to 2020 because of global supply chain issues. Manifest trip plan compliance deteriorated in the third quarter and year-to-date periods of 2021 compared to 2020 as the network slowed because of the California wildfire bridge outages that required increased resource allocation and rebalancing. Both metrics also were negatively impacted by weather-related and incident challenges in the year-to-date period.
Workforce Productivity – Workforce productivity is average daily car miles per employee. Workforce productivity improved 5%, as employee counts were down 1% compared to 2020, while average daily car miles increased 3%. Productivity initiatives and a smaller capital workforce offset higher train and engine employee counts due to weather-related challenges and the network disruptions, keeping total employee levels down 1% versus the third quarter of 2020. Year-to-date, workforce productivity improved 13% as average daily car miles increased 7%, while employees decreased 5% compared to 2020.
Operating Ratio – Operating ratio is our operating expenses reflected as a percentage of operating revenue. Our third quarter operating ratio of 56.3% improved 2.4 points compared to 2020 and our year-to-date operating ratio of 57.1% improved 2.4 points compared to 2020 mainly due to core pricing gains, mix of traffic, and productivity initiatives, partially offset by higher fuel prices, inflation, and other cost increases.
Adjusted Debt / Adjusted EBITDA
|
|
|
|
|
|
|
|
|
|
|
|
|
Millions, Except Ratios
|
Sep. 30,
|
Dec. 31,
|
|
for the Trailing Twelve Months Ended [a]
|
2021
|
2020
|
|
Net income
|
$
|
6,192
|
$
|
5,349
|
|
Add:
|
|
|
|
|
|
Income tax expense
|
|
1,851
|
|
1,631
|
|
Depreciation
|
|
2,209
|
|
2,210
|
|
Interest expense
|
|
1,141
|
|
1,141
|
|
EBITDA
|
$
|
11,393
|
$
|
10,331
|
|
Adjustments:
|
|
|
|
|
Other income, net
|
|
(280)
|
|
(287)
|
|
Interest on operating lease liabilities [b]
|
|
53
|
|
59
|
|
Adjusted EBITDA
|
$
|
11,166
|
$
|
10,103
|
|
Debt
|
$
|
29,395
|
$
|
26,729
|
|
Operating lease liabilities
|
|
1,568
|
|
1,604
|
|
Unfunded pension and OPEB, net of taxes of $175 and $195
|
|
585
|
|
637
|
|
Adjusted debt
|
$
|
31,548
|
$
|
28,970
|
|
Adjusted debt / Adjusted EBITDA
|
|
2.8
|
|
2.9
|
[a]The trailing twelve month income statement information ended September 30, 2021, is recalculated by taking the twelve months ended December 31, 2020, subtracting the nine months ended September 30, 2020, and adding the nine months ended September 30, 2021.
[b]Represents the hypothetical interest expense we would incur (using the incremental borrowing rate) if the property under our operating leases were owned or accounted for as finance leases.
Adjusted debt to adjusted EBITDA (earnings before interest, taxes, depreciation, amortization, and adjustments for other income, net and interest on operating lease liabilities) 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 September 30, 2021, and December 31, 2020, the incremental borrowing rate on operating leases was 3.4% and 3.7%, respectively.
LIQUIDITY AND CAPITAL RESOURCES
Financial Condition
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flows
|
|
|
|
|
|
Millions,
|
|
|
|
|
|
for the Nine Months Ended September 30,
|
2021
|
2020
|
|
Cash provided by operating activities
|
$
|
6,503
|
$
|
5,993
|
|
Cash used in investing activities
|
|
(1,792)
|
|
(2,081)
|
|
Cash used in financing activities
|
|
(5,291)
|
|
(2,150)
|
|
Net change in cash, cash equivalents and restricted cash
|
$
|
(580)
|
$
|
1,762
|
Operating Activities
Cash provided by operating activities increased in the first nine months of 2021 compared to the same period of 2020 driven by higher net income, partially offset by higher receivables and material inventory.
Investing Activities
Cash used in investing activities decreased in the first nine months of 2021 compared to the same period of 2020 primarily driven by reduced capital investment in all asset categories.
The table below details cash capital investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
Millions,
|
|
|
for the Nine Months Ended September 30,
|
2021
|
2020
|
|
Rail and other track material
|
$
|
367
|
$
|
393
|
|
Ties
|
|
334
|
|
415
|
|
Ballast
|
|
156
|
|
188
|
|
Other [a]
|
|
435
|
|
456
|
|
Total road infrastructure replacements
|
|
1,292
|
|
1,452
|
|
Line expansion and other capacity projects
|
|
173
|
|
234
|
|
Commercial facilities
|
|
104
|
|
125
|
|
Total capacity and commercial facilities
|
|
277
|
|
359
|
|
Locomotives and freight cars [b]
|
|
192
|
|
210
|
|
Positive train control
|
|
50
|
|
52
|
|
Technology and other
|
|
134
|
|
221
|
|
Total cash capital investments
|
$
|
1,945
|
$
|
2,294
|
[a]Other includes bridges and tunnels, signals, other road assets, and road work equipment.
[b]Locomotives and freight cars include lease buyouts of $34 million in 2021 and $32 million in 2020.
Capital Plan
In 2021, we expect our capital expenditures to be approximately $2.9 billion, essentially flat with 2020. We will continue to harden our infrastructure, replace older assets, and improve the safety and resilience of the network. Although implementation of our new transportation plan has generated capacity, the 2021 plan includes additional investments intended to support growth and improve productivity and operational efficiency. Further revisions may occur if business conditions or the regulatory environment affect our ability to generate sufficient returns on these investments.
Financing Activities
Cash used in financing activities increased in the first nine months of 2021 compared to the same period of 2020 driven by an increase in shares repurchased.
See Note 14 of the Condensed Consolidated Financial Statements for a description of all our outstanding financing arrangements and significant new borrowings and Note 16 of the Condensed Consolidated Financial Statements for a description of our share repurchase programs.
Free Cash Flow – Free cash flow is defined as cash provided by operating activities less cash used in investing activities and dividends paid. Cash flow conversion rate is cash from operating activities less cash used for capital investments as a ratio of net income.
Free cash flow and cash flow conversion rate are not considered financial measures 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 and cash flow conversion rate are important to management and investors in evaluating our financial performance and measures our ability to generate cash without additional external financing. Free cash flow and 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 free cash flow (non-GAAP measure):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Millions,
|
|
|
|
for the Nine Months Ended September 30,
|
2021
|
2020
|
|
|
Cash provided by operating activities
|
$
|
6,503
|
$
|
5,993
|
|
|
Cash used in investing activities
|
|
(1,792)
|
|
(2,081)
|
|
|
Dividends paid
|
|
(2,045)
|
|
(1,974)
|
|
|
Free cash flow
|
$
|
2,666
|
$
|
1,938
|
|
The following table reconciles cash provided by operating activities (GAAP measure) to cash flow conversion rate (non-GAAP measure):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Millions,
|
|
|
|
for the Nine Months Ended September 30,
|
2021
|
2020
|
|
|
Cash provided by operating activities
|
$
|
6,503
|
$
|
5,993
|
|
|
Cash used in capital investments
|
|
(1,945)
|
|
(2,294)
|
|
|
Total (a)
|
$
|
4,558
|
$
|
3,699
|
|
|
Net income (b)
|
$
|
4,812
|
$
|
3,969
|
|
|
Cash flow conversion rate (a/b)
|
|
95
|
%
|
93
|
%
|
Current Liquidity Status
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 capacity to sustain an extended period of lower volumes.
During the third quarter, we generated $2.3 billion of cash from operating activities, and issued $1.0 billion of long-term debt. On September 30, 2021, we had $1.2 billion of cash and cash equivalents, $2.0 billion of credit available under our revolving credit facility, and up to $800 million undrawn on the Receivables Facility. We have $380 million of debt maturing before the end of the year, including $150 million in term loans and $200 million of commercial paper. Depending upon market conditions, we plan to continue to maintain the commercial paper program. We renewed one term loan in the third quarter for $100 million. We do not currently intend to renew the $150 million term loan maturing in the fourth quarter. We have been, and we expect to continue to be, in compliance with our debt covenants. We paid our quarterly dividend on September 30, 2021. In the third quarter, we repurchased $1.8 billion under our share
repurchase program, including the final settlement of the accelerated share repurchase program entered into on May 25, 2021.
As described in the notes to the Condensed Consolidated Financial Statements and as referenced in the table below, we have contractual obligations that may affect our financial condition. However, based on our assessment of the underlying provisions and circumstances of our contractual obligations, including material sources of off-balance sheet and structured finance arrangements, 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 similar to those of other comparable corporations, particularly within the transportation industry.
The following table identifies material obligations as of September 30, 2021.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Oct. 1
|
Payments Due by Dec. 31,
|
|
|
|
|
through
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contractual Obligations
|
|
|
Dec. 31,
|
|
|
|
|
|
|
|
|
|
After
|
|
|
|
Millions
|
Total
|
2021
|
2022
|
2023
|
2024
|
2025
|
2025
|
Other
|
|
Debt [a]
|
$
|
53,764
|
$
|
523
|
$
|
2,472
|
$
|
2,337
|
$
|
2,356
|
$
|
2,336
|
$
|
43,740
|
$
|
-
|
|
Purchase obligations [b]
|
|
2,303
|
|
254
|
|
576
|
|
305
|
|
290
|
|
266
|
|
612
|
|
-
|
|
Operating leases [c]
|
|
1,770
|
|
41
|
|
306
|
|
263
|
|
247
|
|
247
|
|
666
|
|
-
|
|
Finance lease obligations [d]
|
|
419
|
|
40
|
|
108
|
|
81
|
|
68
|
|
45
|
|
77
|
|
-
|
|
Other postretirement benefits [e]
|
374
|
|
13
|
|
45
|
|
44
|
|
39
|
|
39
|
|
194
|
|
-
|
|
Income tax contingencies [f]
|
|
36
|
|
1
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
35
|
|
Total contractual obligations
|
$
|
58,666
|
$
|
872
|
$
|
3,507
|
$
|
3,030
|
$
|
3,000
|
$
|
2,933
|
$
|
45,289
|
$
|
35
|
[a]Excludes finance lease obligations of $368 million, as well as unamortized discount and deferred issuance costs of ($1,778) million. Includes an interest component of $22,959 million.
[b] Purchase obligations include locomotive maintenance contracts; purchase commitments for fuel purchases, locomotives, ties, ballast, and rail; and agreements to purchase other goods and services. For amounts where we cannot reasonably estimate the year of settlement, they are included in the Other column.
[c]Includes leases for locomotives, freight cars, other equipment, and real estate. Includes an interest component of $202 million.
[d]Represents total obligations, including interest component of $51 million.
[e]Includes estimated other postretirement, medical, and life insurance payments and payments made under the unfunded pension plan for the next ten years.
[f]Future cash flows for income tax contingencies reflect the recorded liabilities and assets for unrecognized tax benefits, including any interest or penalties, as of September 30, 2021. For amounts where the year of settlement is uncertain, they are included in the Other column.
OTHER MATTERS
Asserted and Unasserted Claims – Various claims and lawsuits are pending against us and certain of our subsidiaries. We cannot fully determine the effect of all asserted and unasserted claims on our consolidated results of operations, financial condition, or liquidity. To the extent possible, we have recorded a liability where asserted and unasserted claims are considered probable and where such claims can be reasonably estimated. We do not expect that any known lawsuits, claims, environmental costs, commitments, contingent liabilities, or guarantees will have a material adverse effect on our consolidated results of operations, financial condition, or liquidity after taking into account liabilities and insurance recoveries previously recorded for these matters.
Indemnities – We are contingently obligated under a variety of indemnification arrangements, although in some cases the extent of our potential liability is limited, depending on the nature of the transactions and the agreements. Due to uncertainty as to whether claims will be made or how they will be resolved, we cannot reasonably determine the probability of an adverse claim or reasonably estimate any adverse liability or the total maximum exposure under these indemnification arrangements. We do not have any reason to believe that we will be required to make any material payments under these indemnity provisions.
Accounting Pronouncements – See Note 2 to the Condensed Consolidated Financial Statements.
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 directors and executive officers; and amendments to any such reports filed or furnished pursuant to the Securities Exchange Act of 1934, as amended (the Exchange Act), as soon as reasonably practicable after such material is electronically filed with, or furnished to, the Securities and Exchange Commission (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. We provide these previously filed reports as a convenience and their contents reflect only information that was true and correct as of the date of the report. We assume no obligation to update this historical information. 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 New York Stock Exchange 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: Corporate 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 2, 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.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
There were no material changes to the Quantitative and Qualitative Disclosures About Market Risk previously disclosed in our 2020 Annual Report on Form 10-K.
Item 4. Controls and Procedures
As of the end of the period covered by this report, the Corporation carried out an evaluation, under the supervision and with the participation of the Corporation’s management, including the Corporation’s Chief Executive Officer (CEO) and Executive Vice President and Chief Financial Officer (CFO), of the effectiveness of the design and operation of the Corporation’s disclosure controls and procedures pursuant to Exchange Act Rules 13a-15 and 15d-15. In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. Based upon that evaluation, the CEO and the CFO concluded that, as of the end of the period covered by this report, the Corporation’s disclosure controls and procedures were effective to provide reasonable assurance that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized, and reported within the time periods specified by the SEC, and that such information is accumulated and communicated to management, including the CEO and CFO, as appropriate, to allow timely decisions regarding required disclosure.
Additionally, the CEO and CFO determined that there were no changes to the Corporation’s internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) during the last fiscal quarter that materially affected, or are reasonably likely to materially affect, the Corporation’s internal control over financial reporting.
PART II. OTHER INFORMATION
Item 1. 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 Management’s Discussion and Analysis of Financial Condition and Results of Operations – Critical Accounting Policies – Environmental, Item 7, and Note 17 of the Consolidated Financial Statements of our 2020 Annual Report on Form 10-K.
Item 1A. Risk Factors
For a discussion of our potential risks and uncertainties, see the risk factors disclosed in our Form 10-K for the year ended December 31, 2020. These risks could materially and adversely affect our business, financial condition, results of operations (including revenues and profitability), and/or stock price. Our business also could be affected by risks that we are not presently aware of or that we currently consider immaterial to our operations.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Purchases of Equity Securities – The following table presents common stock repurchases during each month for the third quarter of 2021:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period
|
Total Number of
Shares
Purchased [a]
|
Average
Price Paid
Per Share [b]
|
Total Number of Shares
Purchased as Part of a
Publicly Announced Plan
or Program [c]
|
Maximum Number of
Shares That May Be
Purchased Under Current
Authority [d]
|
|
Jul. 1 through Jul. 31
|
1,715,275
|
$
|
219.92
|
1,715,217
|
90,411,923
|
|
Aug 1 through Aug 31
|
1,774,137
|
|
222.31
|
1,770,133
|
88,641,790
|
|
Sep. 1 through Sep. 30
|
5,118,889
|
|
202.94
|
5,118,889
|
83,522,901
|
|
Total
|
8,608,301
|
$
|
210.32
|
8,604,239
|
N/A
|
[a]Total number of shares purchased during the quarter includes 4,062 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]In the period of the final settlement, the average price paid under the accelerated share repurchase programs is calculated based on the total program value less the value assigned to the initial delivery of shares. The average price of the completed 2021 accelerated share repurchase programs was $217.56.
[c]Total number of shares purchased as part of a publicly announced plan or program includes 1,983,859 shares repurchases in September under ASRs. See Note 16 to the Condensed Consolidated Financial Statements for additional information.
[d]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. 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 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not Applicable.
Item 5. Other Information
None.
Item 6. Exhibits
|
|
|
|
|
|
|
Exhibit No.
|
Description
|
|
|
|
|
Filed with this Statement
|
|
|
31(a)
|
Certifications Pursuant to Rule 13a-14(a), of the Exchange Act, as Adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 – Lance M. Fritz.
|
|
31(b)
|
Certifications Pursuant to Rule 13a-14(a), of the Exchange Act, as Adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 – Jennifer L. Hamann
|
|
32
|
Certifications Pursuant to 18 U.S.C. Section 1350, as Adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 – Lance M. Fritz and Jennifer L. Hamann
|
|
101
|
The following financial and related information from Union Pacific Corporation’s Quarterly Report on Form 10-Q for the period ended September 30, 2021 (filed with the SEC on October 21, 2021), formatted in Inline Extensible Business Reporting Language (iXBRL) includes (i) Condensed Consolidated Statements of Income for the periods ended September 30, 2021 and 2020, (ii) Condensed Consolidated Statements of Comprehensive Income for the periods ended September 30, 2021 and 2020, (iii) Condensed Consolidated Statements of Financial Position at September 30, 2021, and December 31, 2020, (iv) Condensed Consolidated Statements of Cash Flows for the periods ended September 30, 2021 and 2020, (v) Condensed Consolidated Statements of Changes in Common Shareholders’ Equity for the periods ended September 30, 2021 and 2020, and (vi) the Notes to the Condensed Consolidated Financial Statements.
|
|
104
|
Cover Page Interactive Data File, formatted in Inline XBRL (contained in Exhibit 101).
|
|
Incorporated by Reference
|
|
3(a)
|
Restated Articles of Incorporation of UPC, as amended and restated through June 27, 2011, and as further amended May 15, 2014, are incorporated herein by reference to Exhibit 3(a) to the Corporation’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2014.
|
|
3(b)
|
By-Laws of UPC, as amended, effective November 19, 2015, are incorporated herein by reference to Exhibit 3.2 to the Corporation’s Current Report on Form 8-K dated November 19, 2015.
|
|
4(a)
|
Form of 2.375% Note due 2031 is incorporated by reference to Exhibit 4.1 to the Corporation’s Current Report on Form 8-K dated September 10, 2021.
|
|
4(b)
|
Form of 2.950% Note due 2052 is incorporated by reference to Exhibit 4.2 to the Corporation’s Current Report on Form 8-K dated September 10, 2021.
|
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Dated: October 21, 2021
UNION PACIFIC CORPORATION (Registrant)
|
|
|
|
|
By
|
/s/ Jennifer L. Hamann
|
|
|
|
Jennifer L. Hamann
|
|
|
|
Executive Vice President and
|
|
|
|
Chief Financial Officer
|
|
|
|
(Principal Financial Officer)
|
|
|
|
|
|
|
By
|
/s/ Todd M. Rynaski
|
|
|
|
Todd M. Rynaski
|
|
|
|
Vice President and Controller
|
|
|
|
(Principal Accounting Officer)
|
|
|
|
|
|
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