UNION PACIFIC CORP

Union Pacific Corporation operates as a Class I railroad in the United States, with its principal operating company, Union Pacific Railroad Company, connecting 23 states in the western two-thirds of the country by rail and providing a critical link in the global supply chain. The Railroad serves many of the fastest-growing U.S. population centers, operates from all major West Coast and Gulf Coast ports to Eastern gateways, connects with Canada's rail systems, and is the only railroad serving all six major Mexico gateways. The Company's diversified business mix includes Bulk, Industrial, and Premium commodity groups.

The Company's main railroad competitor is Burlington Northern Santa Fe LLC, whose primary subsidiary, BNSF Railway Company, operates parallel routes in many of Union Pacific's main traffic corridors. Motor carrier competition exists in all three commodity groups, and barges are particularly competitive for grain and bulk commodities in certain areas. The Company's stated strategy is Safety, Service, and Operational Excellence leading to Growth, with the expected outcome of an industry leading operating ratio and return on invested capital.

The Railroad, along with its subsidiaries and rail affiliates, is the Company's one reportable operating segment. The Company generates freight revenues by transporting products from three commodity groups: Bulk, Industrial, and Premium. Freight revenues vary with volumes (carloads) and average revenue per car (ARC), with changes in price, traffic mix, and fuel surcharges driving ARC. Customer incentives are recorded as a reduction to operating revenues, and freight revenues are recognized over time as shipments move from origin to destination.

The Bulk commodity group consists of grain and grain products, fertilizer, food and refrigerated, and coal and renewables. In 2025, this group generated 33% of the Company's freight revenues. The Industrial group consists of construction, industrial chemicals, plastics, forest products, specialized products (primarily waste, salt, and roofing), metals and ores, petroleum, liquid petroleum gases (LPG), soda ash, and sand, accounting for 37% of freight revenues in 2025 ¹. The Premium group includes finished automobiles, automotive parts, and merchandise in intermodal containers, both domestic and international, generating 30% of total freight revenues in 2025 ².

The Premium group includes finished automobiles, automotive parts, and merchandise in intermodal containers, both domestic and international. The Company is the largest automotive carrier west of the Mississippi River and operates or accesses more than 40 vehicle distribution centers. The Railroad's extensive franchise accesses six vehicle assembly plants and connects to West Coast ports, all six major Mexico gateways, and the Port of Houston to accommodate both import and export shipments. In addition to transporting finished vehicles, the Company provides expedited handling of automotive parts in both boxcars and intermodal containers destined for Mexico, the U.S., and Canada.

On July 28, 2025, the Company, Norfolk Southern, Ruby Merger Sub 1 Corporation, and Ruby Merger Sub 2 LLC entered into an agreement and plan of merger. During 2025, the Company repurchased 11,951,818 shares of its common stock at an average price of $234.15 ³. Effective April 1, 2025, the Board of Directors authorized the repurchase of up to 100 million shares of the Company's common stock by March 31, 2028 ⁴. The Company also invested $3.5 billion in capital to harden infrastructure, modernize older locomotives, grow the business, improve service, and embed new technologies into processes ⁵. On July 28, 2025, the Railroad completed the renewal of the receivables securitization facility, a new $600 million, 3-year facility replacing the prior $800 million facility ⁶.

For the fiscal year ended December 31, 2025, total operating revenues were $24.510 billion ⁷, compared to $24.250 billion ⁸ in 2024. Net income was $7.138 billion ⁹, and diluted earnings per share were $11.98 ¹⁰, improving 8% from the prior year. Operating income was $9.846 billion ¹¹, increasing 1% from 2024, and the operating ratio improved 10 basis points to 59.8% ¹². The Company generated $9.290 billion of cash provided by operating activities ¹³ and yielded free cash flow of $2.292 billion ¹⁴ after reductions of $3.762 billion for cash used in investing activities ¹⁵ and $3.236 billion in dividends paid ¹⁶.

In 2026, the Company expects its capital plan to be approximately $3.3 billion ¹⁷. The Company plans to continue to make investments to support its growth strategy, improve the safety, resiliency, and operational efficiency of the network, harden its infrastructure, and replace older assets, including modernization of the locomotive fleet and acquiring freight cars to support replacement and growth opportunities. The plan also includes investments in growth-related projects to drive more carloads to the network and enhance productivity, including terminal investments supporting the manifest network and intermodal ramps, along with siding investments (extensions and new) and second mainline track projects.

The Company expects macroeconomic uncertainties to persist in 2026, with 2026 industrial production forecasted to be essentially flat with 2025, coupled with reduced expectations for housing starts and light vehicle sales. Lower international intermodal business, largely due to the resumption of historical trade patterns, is expected to negatively impact volumes. However, higher coal demand, from elevated natural gas prices and increased coal-fired electricity production, is expected to positively impact volumes. Other factors such as geopolitical instability or changes in trade policies, natural gas prices, weather conditions, crude oil prices and spreads, available truck capacity, and international trade agreements could also impact business volumes.

The Company expects to continue to transform its railroad using technology and automation to further improve its service product, improve resource utilization, and lower its overall cost structure. The Company is projecting an increase in its depreciation expense of approximately 4% in 2026 versus 2025, driven by an increase in its projected depreciable asset base ¹⁸. The Company expects to continue to focus on operating a safe, fluid, and efficient rail network while delivering the service it sold to customers and capitalizing on new business opportunities.

The Company expects to continue to maintain a buffer of resources to remain agile and position itself to respond quickly to demand and win with customers. The Company's focus remains on its four pillars of safety: Injury Prevention, Leverage Technology, Situational Awareness Testing, and Peer-to-Peer Engagement. The Company will continue using a comprehensive safety management approach utilizing technology, hazard identification and risk assessments, employee engagement, training, quality control, and targeted capital investments. The Company will also continue to collect and utilize data with the goal of identifying and mitigating exposure to risk, detect rail defects, improve or close grade crossings, and educate the public and law enforcement agencies about crossing safety.

In 2026, the Company expects its capital plan to be approximately $3.3 billion ¹⁹. The Company expects to continue to make investments to support its growth strategy, improve the safety, resiliency, and operational efficiency of the network, harden its infrastructure, and replace older assets. The capital plan may be revised if business conditions warrant or if laws or regulations affect the Company's ability to generate sufficient returns on these investments. The Company paused its share repurchase program as part of the pending acquisition of Norfolk Southern.

The Company expects macroeconomic uncertainties to persist in 2026, and those uncertainties could have a material impact on the Company's 2026 financial and operating results. Fuel prices may continue to fluctuate in the current economic environment, and as prices fluctuate, there will be a timing impact on earnings, as the Company's fuel surcharge programs trail increases or decreases in fuel prices by approximately two months. Incremental import tariffs adversely affected demand for the Company's services and increased its costs for purchased goods and services during fiscal year 2025 and may continue to do so in 2026. Retaliatory tariffs by regions outside the U.S., currently in effect or adopted in the future, may impact demand for the Company's services and its costs for purchased goods and services.

The Company faces significant risks from fluctuating demand for rail services and network capacity, as significant reductions in demand can lead to increased costs associated with resizing operations, while demand exceeding designed capacity can cause congestion and reduced service levels. The Company transports hazardous materials, including crude oil, ethanol, and toxic inhalation hazard materials such as chlorine, and an accident involving the release or combustion of such materials can involve significant costs and claims in excess of insurance coverage. The Company is subject to significant governmental regulation by the Surface Transportation Board, which has jurisdiction over rates charged on certain regulated rail traffic, and significant legislative or regulatory activity could expand regulation of railroad operations and pricing, reducing the viability of capital spending. The pending acquisition of Norfolk Southern is subject to conditions including receipt of requisite regulatory approvals from the STB, and failure to complete the mergers could result in a decline in the market price of common stock, substantial termination fees of $2.5 billion ²⁰ payable to Norfolk Southern under certain circumstances, and negative reactions from financial markets, customers, suppliers, employees, labor unions, or other business partners. The Company is also affected by fluctuating fuel prices, as diesel fuel costs constitute a significant portion of transportation expenses, and although the Company recovers a significant amount of fuel expenses through fuel surcharges, the surcharge programs trail fluctuations in fuel prices by approximately two months.

Management's message to shareholders emphasizes that the Union Pacific team continued to build on 'what's possible' in 2025, delivering best-ever full year results across safety, service, and operating performance while growing volumes. The CEO stated that the Company reported an 8% increase in earnings per share versus 2024 ²¹, total volume increased 1% versus 2024 ²², and the Company achieved an operating ratio of 59.8% ²³, a 10-basis point improvement versus 2024. Management highlighted that the Company's priority is to continue to improve and run a great railroad, and that there is a historic opportunity with Norfolk Southern to create America's first transcontinental railroad. The strategic priorities emphasized for the period ahead are Safety, Service, and Operational Excellence leading to Growth, with a focus on achieving the best safety record in the industry, being known for superior service, and operating efficiently and productively.