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Todd M. Rynaski
Senior Vice President and Chief Accounting, Risk, and Compliance Officer
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August 28, 2024
Craig V. Richardson
Executive Vice President, Chief Legal Officer, and Corporate Secretary
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Elizabeth F. Whited
President
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Other roadway includes grading, bridges and tunnels, signals, buildings, and other road assets.
Net of deferred taxes of $1 million and ($4) million during the nine months ended September 30, 2024 and 2023, respectively
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 benefit/cost. See Note 5 Retirement Plans for additional details.
Net of deferred taxes of $1 million and ($1) million during the three months ended September 30, 2024 and 2023, respectively.
ESPP = employee stock purchase plan
AOCI = accumulated other comprehensive income/loss (Note 9)
The nine months ended September 30, 2023, includes a one-time $107 million transaction.
Related to interest rate swaps from equity method investments.
For retirements of depreciable railroad properties that do not occur in the normal course of business, a gain or loss may be recognized if the retirement meets each of the following three conditions: (a) is unusual, (b) is material in amount, and (c) varies significantly from the retirement profile identified through our depreciation studies. In the second quarter of 2024, we sold a large portion of an intermodal equipment asset class resulting in a $46 million gain recognized in other expense in our Condensed Consolidated Statements of Income.
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Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
| ☑ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 2024
OR
| ☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from __________ to ____________
Commission File Number 1-6075
UNION PACIFIC CORPORATION
(Exact name of registrant as specified in its charter)
| Utah | 13-2626465 |
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
| 1400 Douglas Street, Omaha, Nebraska | 68179 |
| (Address of principal executive offices) | (Zip Code) |
(402) 544-5000
(Registrant’s telephone number, including area code)
| Securities registered pursuant to Section 12(b) of the Act: |
| Title of each Class | Trading Symbol | Name of each exchange on which registered |
| Common Stock (Par Value $2.50 per share) | UNP | New York Stock Exchange |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
☑ Yes ☐ No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
☑ Yes ☐ No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| | Large Accelerated Filer | ☑ | | Accelerated Filer | ☐ | Non-Accelerated Filer | ☐ |
| | Smaller Reporting Company | ☐ | | Emerging Growth Company | ☐ | | |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
☐ Yes ☑ No
As of October 18, 2024, there were 606,256,627 shares of the Registrant's Common Stock outstanding.
TABLE OF CONTENTS
UNION PACIFIC CORPORATION
AND SUBSIDIARY COMPANIES
PART I. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements
Condensed Consolidated Statements of Income (Unaudited)
Union Pacific Corporation and Subsidiary Companies
| Millions, Except Per Share Amounts, for the Three Months Ended September 30, |
|
2024 |
|
|
2023 |
|
| Operating revenues: |
|
|
|
|
|
|
|
|
| Freight revenues |
|
$ |
5,768 |
|
|
$ |
5,545 |
|
| Other revenues |
|
|
323 |
|
|
|
396 |
|
| Total operating revenues |
|
|
6,091 |
|
|
|
5,941 |
|
| Operating expenses: |
|
|
|
|
|
|
|
|
| Compensation and benefits |
|
|
1,228 |
|
|
|
1,201 |
|
| Purchased services and materials |
|
|
644 |
|
|
|
668 |
|
| Fuel |
|
|
610 |
|
|
|
702 |
|
| Depreciation |
|
|
602 |
|
|
|
580 |
|
| Equipment and other rents |
|
|
237 |
|
|
|
235 |
|
| Other |
|
|
354 |
|
|
|
378 |
|
| Total operating expenses |
|
|
3,675 |
|
|
|
3,764 |
|
| Operating income |
|
|
2,416 |
|
|
|
2,177 |
|
| Other income, net (Note 6) |
|
|
87 |
|
|
|
106 |
|
| Interest expense |
|
|
(314 |
) |
|
|
(334 |
) |
| Income before income taxes |
|
|
2,189 |
|
|
|
1,949 |
|
| Income tax expense (Note 7) |
|
|
(518 |
) |
|
|
(421 |
) |
| Net income |
|
$ |
1,671 |
|
|
$ |
1,528 |
|
| Share and per share (Note 8): |
|
|
|
|
|
|
|
|
| Earnings per share - basic |
|
$ |
2.75 |
|
|
$ |
2.51 |
|
| Earnings per share - diluted |
|
$ |
2.75 |
|
|
$ |
2.51 |
|
| Weighted average number of shares - basic |
|
|
607.6 |
|
|
|
608.7 |
|
| Weighted average number of shares - diluted |
|
|
608.6 |
|
|
|
609.8 |
|
Condensed Consolidated Statements of Comprehensive Income (Unaudited)
Union Pacific Corporation and Subsidiary Companies
| Millions, for the Three Months Ended September 30, |
|
2024 |
|
|
2023 |
|
| Net income |
|
$ |
1,671 |
|
|
$ |
1,528 |
|
| Other comprehensive income/(loss): |
|
|
|
|
|
|
|
|
| Defined benefit plans |
|
|
- |
|
|
|
(2 |
) |
| Foreign currency translation |
|
|
(86 |
) |
|
|
22 |
|
| Unrealized gain on derivative instruments |
|
|
- |
|
|
|
- |
|
| Total other comprehensive income/(loss) [a] |
|
|
(86 |
) |
|
|
20 |
|
| Comprehensive income |
|
$ |
1,585 |
|
|
$ |
1,548 |
|
| [a] |
Net of deferred taxes of $1 million and ($1) million during the three months ended September 30, 2024 and 2023, respectively. |
The accompanying notes are an integral part of these unaudited Condensed Consolidated Financial Statements.
Condensed Consolidated Statements of Income (Unaudited)
Union Pacific Corporation and Subsidiary Companies
| Millions, Except Per Share Amounts, for the Nine Months Ended September 30, |
|
2024 |
|
|
2023 |
|
| Operating revenues: |
|
|
|
|
|
|
|
|
| Freight revenues |
|
$ |
17,022 |
|
|
$ |
16,770 |
|
| Other revenues |
|
|
1,107 |
|
|
|
1,190 |
|
| Total operating revenues |
|
|
18,129 |
|
|
|
17,960 |
|
| Operating expenses: |
|
|
|
|
|
|
|
|
| Compensation and benefits |
|
|
3,638 |
|
|
|
3,649 |
|
| Purchased services and materials |
|
|
1,901 |
|
|
|
1,971 |
|
| Fuel |
|
|
1,893 |
|
|
|
2,132 |
|
| Depreciation |
|
|
1,792 |
|
|
|
1,729 |
|
| Equipment and other rents |
|
|
672 |
|
|
|
718 |
|
| Other |
|
|
1,045 |
|
|
|
1,086 |
|
| Total operating expenses |
|
|
10,941 |
|
|
|
11,285 |
|
| Operating income |
|
|
7,188 |
|
|
|
6,675 |
|
| Other income, net (Note 6) |
|
|
282 |
|
|
|
383 |
|
| Interest expense |
|
|
(957 |
) |
|
|
(1,009 |
) |
| Income before income taxes |
|
|
6,513 |
|
|
|
6,049 |
|
| Income tax expense (Note 7) |
|
|
(1,528 |
) |
|
|
(1,322 |
) |
| Net income |
|
$ |
4,985 |
|
|
$ |
4,727 |
|
| Share and per share (Note 8): |
|
|
|
|
|
|
|
|
| Earnings per share - basic |
|
$ |
8.19 |
|
|
$ |
7.76 |
|
| Earnings per share - diluted |
|
$ |
8.18 |
|
|
$ |
7.75 |
|
| Weighted average number of shares - basic |
|
|
608.7 |
|
|
|
609.3 |
|
| Weighted average number of shares - diluted |
|
|
609.7 |
|
|
|
610.3 |
|
Condensed Consolidated Statements of Comprehensive Income (Unaudited)
Union Pacific Corporation and Subsidiary Companies
| Millions, for the Nine Months Ended September 30, |
|
2024 |
|
|
2023 |
|
| Net income |
|
$ |
4,985 |
|
|
$ |
4,727 |
|
| Other comprehensive income/(loss): |
|
|
|
|
|
|
|
|
| Defined benefit plans |
|
|
1 |
|
|
|
3 |
|
| Foreign currency translation |
|
|
(79 |
) |
|
|
66 |
|
| Unrealized gain on derivative instruments |
|
|
- |
|
|
|
16 |
|
| Total other comprehensive income/(loss) [a] |
|
|
(78 |
) |
|
|
85 |
|
| Comprehensive income |
|
$ |
4,907 |
|
|
$ |
4,812 |
|
| [a] |
Net of deferred taxes of $1 million and ($4) million during the nine months ended September 30, 2024 and 2023, respectively |
The accompanying notes are an integral part of these unaudited Condensed Consolidated Financial Statements.
Condensed Consolidated Statements of Financial Position (Unaudited)
Union Pacific Corporation and Subsidiary Companies
| | | Sep. 30, | | | Dec. 31, | |
| Millions, Except Share and Per Share Amounts | | 2024 | | | 2023 | |
| Assets | | | | | | | | |
| Current assets: | | | | | | | | |
| Cash and cash equivalents | | $ | 947 | | | $ | 1,055 | |
| Short-term investments (Note 13) | | | 20 | | | | 16 | |
| Accounts receivable, net (Note 10) | | | 2,036 | | | | 2,073 | |
| Materials and supplies | | | 775 | | | | 743 | |
| Other current assets | | | 371 | | | | 261 | |
| Total current assets | | | 4,149 | | | | 4,148 | |
| Investments | | | 2,649 | | | | 2,605 | |
| Properties, net (Note 11) | | | 58,036 | | | | 57,398 | |
| Operating lease assets | | | 1,345 | | | | 1,643 | |
| Other assets | | | 1,391 | | | | 1,338 | |
| Total assets | | $ | 67,570 | | | $ | 67,132 | |
| Liabilities and Common Shareholders' Equity | | | | | | | | |
| Current liabilities: | | | | | | | | |
| Accounts payable and other current liabilities (Note 12) | | $ | 3,714 | | | $ | 3,683 | |
| Debt due within one year (Note 14) | | | 1,652 | | | | 1,423 | |
| Total current liabilities | | | 5,366 | | | | 5,106 | |
| Debt due after one year (Note 14) | | | 29,761 | | | | 31,156 | |
| Operating lease liabilities | | | 934 | | | | 1,245 | |
| Deferred income taxes | | | 13,199 | | | | 13,123 | |
| Other long-term liabilities | | | 1,726 | | | | 1,714 | |
| Commitments and contingencies (Note 15) | | | | | | | | |
| Total liabilities | | | 50,986 | | | | 52,344 | |
| Common shareholders' equity: | | | | | | | | |
| Common shares, $2.50 par value, 1,400,000,000 authorized; 1,113,023,704 and | | | | | | | | |
| 1,112,854,806 issued; 606,908,876 and 609,703,814 outstanding, respectively | | | 2,783 | | | | 2,782 | |
| Paid-in-surplus | | | 5,297 | | | | 5,193 | |
| Retained earnings | | | 64,677 | | | | 62,093 | |
| Treasury stock | | | (55,481 | ) | | | (54,666 | ) |
| Accumulated other comprehensive loss (Note 9) | | | (692 | ) | | | (614 | ) |
| Total common shareholders' equity | | | 16,584 | | | | 14,788 | |
| Total liabilities and common shareholders' equity | | $ | 67,570 | | | $ | 67,132 | |
The accompanying notes are an integral part of these unaudited Condensed Consolidated Financial Statements.
Condensed Consolidated Statements of Cash Flows (Unaudited)
Union Pacific Corporation and Subsidiary Companies
| Millions, for the Nine Months Ended September 30, |
|
2024 |
|
|
2023 |
|
| Operating Activities |
|
|
|
|
|
|
|
|
| Net income |
|
$ |
4,985 |
|
|
$ |
4,727 |
|
| Adjustments to reconcile net income to cash provided by operating activities: |
|
|
|
|
|
|
|
|
| Depreciation |
|
|
1,792 |
|
|
|
1,729 |
|
| Deferred and other income taxes |
|
|
77 |
|
|
|
59 |
|
| Other operating activities, net |
|
|
(52 |
) |
|
|
(121 |
) |
| Changes in current assets and liabilities: |
|
|
|
|
|
|
|
|
| Accounts receivable, net |
|
|
37 |
|
|
|
(38 |
) |
| Materials and supplies |
|
|
(32 |
) |
|
|
(29 |
) |
| Other current assets |
|
|
(92 |
) |
|
|
(73 |
) |
| Accounts payable and other current liabilities |
|
|
(82 |
) |
|
|
(381 |
) |
| Income and other taxes |
|
|
51 |
|
|
|
111 |
|
| Cash provided by operating activities |
|
|
6,684 |
|
|
|
5,984 |
|
| Investing Activities |
|
|
|
|
|
|
|
|
| Capital investments |
|
|
(2,530 |
) |
|
|
(2,582 |
) |
| Other investing activities, net |
|
|
104 |
|
|
|
(68 |
) |
| Cash used in investing activities |
|
|
(2,426 |
) |
|
|
(2,650 |
) |
| Financing Activities |
|
|
|
|
|
|
|
|
| Dividends paid |
|
|
(2,403 |
) |
|
|
(2,380 |
) |
| Debt repaid |
|
|
(2,220 |
) |
|
|
(2,179 |
) |
| Share repurchase programs (Note 16) |
|
|
(831 |
) |
|
|
(705 |
) |
| Debt issued (Note 14) |
|
|
800 |
|
|
|
1,599 |
|
| Other financing activities, net |
|
|
279 |
|
|
|
125 |
|
| Cash used in financing activities |
|
|
(4,375 |
) |
|
|
(3,540 |
) |
| Net change in cash, cash equivalents, and restricted cash |
|
|
(117 |
) |
|
|
(206 |
) |
| Cash, cash equivalents, and restricted cash at beginning of year |
|
|
1,074 |
|
|
|
987 |
|
| Cash, cash equivalents, and restricted cash at end of period |
|
$ |
957 |
|
|
$ |
781 |
|
| Supplemental Cash Flow Information |
|
|
|
|
|
|
|
|
| Non-cash investing and financing activities: |
|
|
|
|
|
|
|
|
| Capital investments accrued but not yet paid |
|
$ |
153 |
|
|
$ |
187 |
|
| Cash paid during the period for: |
|
|
|
|
|
|
|
|
| Income taxes, net of refunds |
|
$ |
(1,219 |
) |
|
$ |
(1,155 |
) |
| Interest, net of amounts capitalized |
|
|
(1,074 |
) |
|
|
(1,113 |
) |
| Reconciliation of cash, cash equivalents, and restricted cash |
|
|
|
|
|
|
|
|
| to the Condensed Consolidated Statement of Financial Position: |
|
|
|
|
|
|
|
|
| Cash and cash equivalents |
|
$ |
947 |
|
|
$ |
750 |
|
| Restricted cash equivalents in other current assets |
|
|
2 |
|
|
|
22 |
|
| Restricted cash equivalents in other assets |
|
|
8 |
|
|
|
9 |
|
| Total cash, cash equivalents, and restricted cash equivalents per above |
|
$ |
957 |
|
|
$ |
781 |
|
The accompanying notes are an integral part of these unaudited Condensed Consolidated Financial Statements.
Condensed Consolidated Statements of Changes in Common Shareholders’ Equity (Unaudited)
Union Pacific Corporation and Subsidiary Companies
| Millions | | Common Shares | | | Treasury Shares | | | Common Shares | | | Paid-in-Surplus | | | Retained Earnings | | | Treasury Stock | | | AOCI [a] | | | Total | |
| Balance at July 1, 2023 | | | 1,112.9 | | | | (503.5 | ) | | $ | 2,782 | | | $ | 5,128 | | | $ | 60,500 | | | $ | (54,699 | ) | | $ | (517 | ) | | $ | 13,194 | |
| Net income | | | | | | | | | | | - | | | | - | | | | 1,528 | | | | - | | | | - | | | | 1,528 | |
| Other comprehensive income/(loss) | | | | | | | | | | | - | | | | - | | | | - | | | | - | | | | 20 | | | | 20 | |
| Conversion, stock option exercises, forfeitures, ESPP, and other [b] | | | - | | | | 0.2 | | | | - | | | | 38 | | | | - | | | | 17 | | | | - | | | | 55 | |
| Share repurchase programs (Note 16) | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | |
| Dividends declared ($1.30 per share) | | - | | | | - | | | | - | | | | - | | | | (793 | ) | | | - | | | | - | | | | (793 | ) |
| Balance at September 30, 2023 | | | 1,112.9 | | | | (503.3 | ) | | $ | 2,782 | | | $ | 5,166 | | | $ | 61,235 | | | $ | (54,682 | ) | | $ | (497 | ) | | $ | 14,004 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Balance at July 1, 2024 | | | 1,113.0 | | | | (503.3 | ) | | $ | 2,783 | | | $ | 5,249 | | | $ | 63,820 | | | $ | (54,757 | ) | | $ | (606 | ) | | $ | 16,489 | |
| Net income | | | | | | | | | | | - | | | | - | | | | 1,671 | | | | - | | | | - | | | | 1,671 | |
| Other comprehensive income/(loss) | | | | | | | | | | | - | | | | - | | | | - | | | | - | | | | (86 | ) | | | (86 | ) |
| Conversion, stock option exercises, forfeitures, ESPP, and other [b] | | | - | | | | 0.2 | | | | - | | | | 48 | | | | - | | | | 14 | | | | - | | | | 62 | |
| Share repurchase programs (Note 16) | | - | | | | (3.0 | ) | | | - | | | | - | | | | - | | | | (738 | ) | | | - | | | | (738 | ) |
| Dividends declared ($1.34 per share) | | - | | | | - | | | | - | | | | - | | | | (814 | ) | | | - | | | | - | | | | (814 | ) |
| Balance at September 30, 2024 | | | 1,113.0 | | | | (506.1 | ) | | $ | 2,783 | | | $ | 5,297 | | | $ | 64,677 | | | $ | (55,481 | ) | | $ | (692 | ) | | $ | 16,584 | |
| Millions | | Common Shares | | | Treasury Shares | | | Common Shares | | | Paid-in-Surplus | | | Retained Earnings | | | Treasury Stock | | | AOCI [a] | | | Total | |
| Balance at January 1, 2023 | | | 1,112.6 | | | | (500.2 | ) | | $ | 2,782 | | | $ | 5,080 | | | $ | 58,887 | | | $ | (54,004 | ) | | $ | (582 | ) | | $ | 12,163 | |
| Net income | | | | | | | | | | | - | | | | - | | | | 4,727 | | | | - | | | | - | | | | 4,727 | |
| Other comprehensive income/(loss) | | | | | | | | | | | - | | | | - | | | | - | | | | - | | | | 85 | | | | 85 | |
| Conversion, stock option exercises, forfeitures, ESPP, and other [b] | | | 0.3 | | | | 0.4 | | | | - | | | | 86 | | | | - | | | | 34 | | | | - | | | | 120 | |
| Share repurchase programs (Note 16) | | - | | | | (3.5 | ) | | | - | | | | - | | | | - | | | | (712 | ) | | | - | | | | (712 | ) |
| Dividends declared ($3.90 per share) | | - | | | | - | | | | - | | | | - | | | | (2,379 | ) | | | - | | | | - | | | | (2,379 | ) |
| Balance at September 30, 2023 | | | 1,112.9 | | | | (503.3 | ) | | $ | 2,782 | | | $ | 5,166 | | | $ | 61,235 | | | $ | (54,682 | ) | | $ | (497 | ) | | $ | 14,004 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Balance at January 1, 2024 | | | 1,112.9 | | | | (503.2 | ) | | $ | 2,782 | | | $ | 5,193 | | | $ | 62,093 | | | $ | (54,666 | ) | | $ | (614 | ) | | $ | 14,788 | |
| Net income | | | | | | | | | | | - | | | | - | | | | 4,985 | | | | - | | | | - | | | | 4,985 | |
| Other comprehensive income/(loss) | | | | | | | | | | | - | | | | - | | | | - | | | | - | | | | (78 | ) | | | (78 | ) |
| Conversion, stock option exercises, forfeitures, ESPP, and other [b] | | | 0.1 | | | | 0.6 | | | | 1 | | | | 104 | | | | - | | | | 34 | | | | - | | | | 139 | |
| Share repurchase programs (Note 16) | | - | | | | (3.5 | ) | | | - | | | | - | | | | - | | | | (849 | ) | | | - | | | | (849 | ) |
| Dividends declared ($3.94 per share) | | - | | | | - | | | | - | | | | - | | | | (2,401 | ) | | | - | | | | - | | | | (2,401 | ) |
| Balance at September 30, 2024 | | | 1,113.0 | | | | (506.1 | ) | | $ | 2,783 | | | $ | 5,297 | | | $ | 64,677 | | | $ | (55,481 | ) | | $ | (692 | ) | | $ | 16,584 | |
| [a] |
AOCI = accumulated other comprehensive income/loss (Note 9) |
| [b] |
ESPP = employee stock purchase plan |
The accompanying notes are an integral part of these unaudited Condensed Consolidated Financial Statements.
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 Form 10-Q should be read in conjunction with our Consolidated Financial Statements and notes thereto contained in our 2023 Annual Report on Form 10-K. Our Consolidated Statement of Financial Position at December 31, 2023, is derived from audited financial statements. The results of operations for the nine months ended September 30, 2024, are not 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).
2. Accounting Pronouncements
In December 2023, the FASB issued Accounting Standards Update No. (ASU) 2023-09, Income Taxes (Topic 740): 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 ASU 2023-07, Segment Reporting (Topic 280): 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 our one reportable operating segment. Although we provide and analyze revenues by commodity group, we treat the financial results of the Railroad as one segment due to the integrated nature of our rail network. Our operating revenues are primarily derived from contracts with customers for the transportation of freight from origin to destination.
The following table represents a disaggregation of our freight and other revenues:
| |
|
Three Months Ended |
|
|
Nine Months Ended |
|
| |
|
September 30, |
|
|
September 30, |
|
| Millions |
|
2024 |
|
|
2023 |
|
|
2024 |
|
|
2023 |
|
| Bulk |
|
$ |
1,805 |
|
|
$ |
1,766 |
|
|
$ |
5,343 |
|
|
$ |
5,420 |
|
| Industrial |
|
|
2,121 |
|
|
|
2,057 |
|
|
|
6,348 |
|
|
|
6,160 |
|
| Premium |
|
|
1,842 |
|
|
|
1,722 |
|
|
|
5,331 |
|
|
|
5,190 |
|
| Total freight revenues |
|
$ |
5,768 |
|
|
$ |
5,545 |
|
|
$ |
17,022 |
|
|
$ |
16,770 |
|
| Other subsidiary revenues |
|
|
179 |
|
|
|
226 |
|
|
|
608 |
|
|
|
681 |
|
| Accessorial revenues |
|
|
122 |
|
|
|
142 |
|
|
|
427 |
|
|
|
442 |
|
| Other |
|
|
22 |
|
|
|
28 |
|
|
|
72 |
|
|
|
67 |
|
| Total operating revenues |
|
$ |
6,091 |
|
|
$ |
5,941 |
|
|
$ |
18,129 |
|
|
$ |
17,960 |
|
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 $724 million and $673 million for the three months ended September 30, 2024 and 2023, respectively, and $2.3 billion and $2.1 billion for the nine months ended September 30, 2024 and 2023, 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”. In addition, employees may participate in our employee stock purchase plan (ESPP).
Information regarding stock-based compensation expense appears in the table below:
| |
|
Three Months Ended |
|
|
Nine Months Ended |
|
| |
|
September 30, |
|
|
September 30, |
|
| Millions |
|
2024 |
|
|
2023 |
|
|
2024 |
|
|
2023 |
|
| Stock-based compensation, before tax: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Stock options |
|
$ |
4 |
|
|
$ |
4 |
|
|
$ |
13 |
|
|
$ |
12 |
|
| Retention awards |
|
|
23 |
|
|
|
24 |
|
|
|
58 |
|
|
|
57 |
|
| ESPP |
|
|
6 |
|
|
|
4 |
|
|
|
16 |
|
|
|
15 |
|
| Total stock-based compensation, before tax |
|
$ |
33 |
|
|
$ |
32 |
|
|
$ |
87 |
|
|
$ |
84 |
|
| Excess income tax benefits from equity compensation plans |
|
$ |
3 |
|
|
$ |
2 |
|
|
$ |
13 |
|
|
$ |
9 |
|
Stock Options – Stock options are granted at the closing price on the date of grant, have 10-year contractual terms, and vest no later than 3 years from the date of grant. None of the stock options outstanding at September 30, 2024, is subject to performance or market-based vesting conditions.
The table below shows the annual weighted-average assumptions used for Black-Scholes valuation purposes:
| Weighted-Average Assumptions |
|
2024 |
|
|
2023 |
|
| Risk-free interest rate |
|
|
4.2 |
% |
|
|
3.9 |
% |
| Dividend yield |
|
|
2.1 |
% |
|
|
2.6 |
% |
| Expected life (years) |
|
|
4.4 |
|
|
|
4.5 |
|
| Volatility |
|
|
28.7 |
% |
|
|
29.3 |
% |
| Weighted-average grant-date fair value of options granted |
|
$ |
61.75 |
|
|
$ |
48.31 |
|
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 the nine months ended September 30, 2024, is presented below:
| |
|
Options (thous.) |
|
|
Weighted-Average
Exercise Price |
|
|
Weighted-Average Remaining Contractual Term (in yrs.) |
|
|
Aggregate Intrinsic Value (millions) |
|
| Outstanding at January 1, 2024 |
|
|
2,072 |
|
|
$ |
180.56 |
|
|
|
5.9 |
|
|
$ |
135 |
|
| Granted |
|
|
305 |
|
|
|
248.82 |
|
|
|
N/A |
|
|
|
N/A |
|
| Exercised |
|
|
(306 |
) |
|
|
147.67 |
|
|
|
N/A |
|
|
|
N/A |
|
| Forfeited or expired |
|
|
(45 |
) |
|
|
230.75 |
|
|
|
N/A |
|
|
|
N/A |
|
| Outstanding at September 30, 2024 |
|
|
2,026 |
|
|
$ |
194.69 |
|
|
|
6.0 |
|
|
$ |
106 |
|
| Vested or expected to vest at September 30, 2024 |
2,008 |
|
|
$ |
194.38 |
|
|
|
6.0 |
|
|
$ |
105 |
|
| Options exercisable at September 30, 2024 |
|
|
1,434 |
|
|
$ |
179.46 |
|
|
|
4.9 |
|
|
$ |
96 |
|
At September 30, 2024, there was $20 million of unrecognized compensation expense related to nonvested stock options, which is expected to be recognized over a weighted-average period of 1.1 years. Additional information regarding stock option exercises appears in the following table:
| |
|
Three Months Ended |
|
|
Nine Months Ended |
|
| |
|
September 30, |
|
|
September 30, |
|
| Millions |
|
2024 |
|
|
2023 |
|
|
2024 |
|
|
2023 |
|
| Intrinsic value of stock options exercised |
|
$ |
15 |
|
|
$ |
10 |
|
|
$ |
31 |
|
|
$ |
17 |
|
| Cash received from option exercises |
|
|
16 |
|
|
|
9 |
|
|
|
40 |
|
|
|
17 |
|
| Treasury shares repurchased for employee payroll taxes |
|
|
(2 |
) |
|
|
(1 |
) |
|
|
(7 |
) |
|
|
(3 |
) |
| Income tax benefit realized from option exercises |
|
|
2 |
|
|
|
2 |
|
|
|
6 |
|
|
|
4 |
|
| Aggregate grant-date fair value of stock options vested |
|
|
- |
|
|
|
- |
|
|
|
15 |
|
|
|
14 |
|
Retention Awards – Retention awards are granted at no cost to the employee, vest over periods lasting up to 4 years, and have dividends and dividend equivalents paid to participants during the vesting periods.
Changes in our retention awards during the nine months ended September 30, 2024, were as follows:
| |
|
Shares
(thous.) |
|
|
Weighted-Average
Grant-Date Fair Value |
|
| Nonvested at January 1, 2024 |
|
|
996 |
|
|
$ |
207.76 |
|
| Granted |
|
|
211 |
|
|
|
248.75 |
|
| Vested |
|
|
(245 |
) |
|
|
186.67 |
|
| Forfeited |
|
|
(34 |
) |
|
|
220.17 |
|
| Nonvested at September 30, 2024 |
|
|
928 |
|
|
$ |
222.19 |
|
At September 30, 2024, there was $85 million of total unrecognized compensation expense related to nonvested retention awards, which is expected to be recognized over a weighted-average period of 1.3 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&P 100 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 expense two-thirds of the fair value of the units that are probable of being earned based on our forecasted ROIC over the three-year performance period, and with respect to the third year of the plan, we expense the remaining one-third of the fair value subject to the relative three-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 the nine months ended September 30, 2024, were as follows:
| |
|
Shares
(thous.) |
|
|
Weighted-Average
Grant-Date Fair Value |
|
| Nonvested at January 1, 2024 |
|
|
617 |
|
|
$ |
204.50 |
|
| Granted |
|
|
227 |
|
|
|
248.82 |
|
| Vested |
|
|
(119 |
) |
|
|
204.67 |
|
| Unearned |
|
|
(70 |
) |
|
|
204.45 |
|
| Forfeited |
|
|
(46 |
) |
|
|
228.59 |
|
| Nonvested at September 30, 2024 |
|
|
609 |
|
|
$ |
219.17 |
|
At September 30, 2024, there was $19 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 1.3 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, are no longer eligible for pension benefits, but are eligible for an enhanced 401(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 are not 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:
| |
|
Three Months Ended |
|
|
Nine Months Ended |
|
| |
|
September 30, |
|
|
September 30, |
|
| Millions |
|
2024 |
|
|
2023 |
|
|
2024 |
|
|
2023 |
|
| Service cost |
|
$ |
12 |
|
|
$ |
13 |
|
|
$ |
39 |
|
|
$ |
38 |
|
| Interest cost |
|
|
47 |
|
|
|
48 |
|
|
|
139 |
|
|
|
140 |
|
| Expected return on plan assets |
|
|
(63 |
) |
|
|
(62 |
) |
|
|
(189 |
) |
|
|
(186 |
) |
| Amortization of actuarial loss |
|
|
4 |
|
|
|
2 |
|
|
|
8 |
|
|
|
6 |
|
| Net periodic pension (benefit)/cost |
|
$ |
- |
|
|
$ |
1 |
|
|
$ |
(3 |
) |
|
$ |
(2 |
) |
Cash Contributions
For the nine months ended September 30, 2024, cash contributions totaled $0 to the qualified pension plans. Any contributions made during 2024 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 and not more than the maximum amount deductible for tax purposes. At September 30, 2024, we do not have minimum cash funding requirements for 2024.
6. Other Income
Other income included the following:
| |
|
Three Months Ended |
|
|
Nine Months Ended |
|
| |
|
September 30, |
|
|
September 30, |
|
| Millions |
|
2024 |
|
|
2023 |
|
|
2024 |
|
|
2023 |
|
| Real estate income [a] |
|
$ |
70 |
|
|
$ |
90 |
|
|
$ |
192 |
|
|
$ |
335 |
|
| Net periodic pension benefit/(costs) |
|
|
12 |
|
|
|
12 |
|
|
|
42 |
|
|
|
40 |
|
| Interest from IRS refund claims |
|
|
- |
|
|
|
- |
|
|
|
24 |
|
|
|
- |
|
| Non-operating property environmental remediation and restoration |
|
|
(7 |
) |
|
|
(9 |
) |
|
|
(21 |
) |
|
|
(31 |
) |
| Other |
|
|
12 |
|
|
|
13 |
|
|
|
45 |
|
|
|
39 |
|
| Total |
|
$ |
87 |
|
|
$ |
106 |
|
|
$ |
282 |
|
|
$ |
383 |
|
| [a] |
The nine months ended September 30, 2023, includes a one-time $107 million transaction. |
7. Income Taxes
In the third quarter of 2023, the states of Iowa, Kansas, and Arkansas enacted legislation to reduce their corporate income tax rate for future years resulting in a $41 million reduction of our deferred tax expense.
In the second quarter of 2024, 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 the second quarter of 2023, 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:
| |
|
Three Months Ended |
|
|
Nine Months Ended |
|
| |
|
September 30, |
|
|
September 30, |
|
| Millions, Except Per Share Amounts |
|
2024 |
|
|
2023 |
|
|
2024 |
|
|
2023 |
|
| Net income |
|
$ |
1,671 |
|
|
$ |
1,528 |
|
|
$ |
4,985 |
|
|
$ |
4,727 |
|
| Weighted-average number of shares outstanding: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Basic |
|
|
607.6 |
|
|
|
608.7 |
|
|
|
608.7 |
|
|
|
609.3 |
|
| Dilutive effect of stock options |
|
|
0.4 |
|
|
|
0.4 |
|
|
|
0.4 |
|
|
|
0.4 |
|
| Dilutive effect of retention shares and units |
|
|
0.6 |
|
|
|
0.7 |
|
|
|
0.6 |
|
|
|
0.6 |
|
| Diluted |
|
|
608.6 |
|
|
|
609.8 |
|
|
|
609.7 |
|
|
|
610.3 |
|
| Earnings per share - basic |
|
$ |
2.75 |
|
|
$ |
2.51 |
|
|
$ |
8.19 |
|
|
$ |
7.76 |
|
| Earnings per share - diluted |
|
$ |
2.75 |
|
|
$ |
2.51 |
|
|
$ |
8.18 |
|
|
$ |
7.75 |
|
| Stock options excluded as their inclusion would be anti-dilutive |
|
|
0.6 |
|
|
|
1.0 |
|
|
|
0.6 |
|
|
|
0.9 |
|
9. Accumulated Other Comprehensive Income/Loss
Reclassifications out of accumulated other comprehensive income/loss were as follows (net of tax):
| Millions | | Defined benefit plans | | | Foreign currency translation | | | Unrealized gain on derivative instruments [a] | | | Total | |
| Balance at July 1, 2024 | | $ | (483 | ) | | $ | (139 | ) | | $ | 16 | | | $ | (606 | ) |
| Other comprehensive income/(loss) before reclassifications | | | - | | | | (86 | ) | | | - | | | | (86 | ) |
| Amounts reclassified from accumulated other comprehensive income/(loss) [b] | | | - | | | | - | | | | - | | | | - | |
| Net quarter-to-date other comprehensive income/(loss), net of taxes of $1 million | | | - | | | | (86 | ) | | | - | | | | (86 | ) |
| Balance at September 30, 2024 | | $ | (483 | ) | | $ | (225 | ) | | $ | 16 | | | $ | (692 | ) |
| | | | | | | | | | | | | | | | | |
| Balance at July 1, 2023 | | $ | (373 | ) | | $ | (160 | ) | | $ | 16 | | | $ | (517 | ) |
| Other comprehensive income/(loss) before reclassifications | | | (1 | ) | | | 22 | | | | - | | | | 21 | |
| Amounts reclassified from accumulated other comprehensive income/(loss) [b] | | | (1 | ) | | | - | | | | - | | | | (1 | ) |
| Net quarter-to-date other comprehensive income/(loss), net of taxes of ($1) million | | | (2 | ) | | | 22 | | | | - | | | | 20 | |
| Balance at September 30, 2023 | | $ | (375 | ) |