Union Pacific Reports Fourth Quarter and Full Year 2023 Results

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Jan 25, 2024, 07:45 ET

Fourth quarter earnings per diluted share of $2.71, up 1%
Fourth quarter net income up 1%
Full year earnings per diluted share of $10.45, down 7%
Full year net income down 9%

OMAHA, Neb., Jan. 25, 2024 /PRNewswire/ -- Union Pacific Corporation (NYSE: UNP) today reported 2023 fourth quarter net income of $1.7 billion, or $2.71 per diluted share. This compares to 2022 fourth quarter net income of $1.6 billion, or $2.67 per diluted share.

Reported net income for full year 2023 was $6.4 billion, or $10.45 per diluted share. These full year results compare to full year 2022 net income of $7.0 billion, or $11.21 per diluted share.

"The team continues to execute our multi-year strategy to be the industry's best in safety, service, and operational excellence," said Jim Vena, Union Pacific Chief Executive Officer. "Our fourth quarter results show much of what's possible at Union Pacific and that we're on the right path to reaching our goals. Service and operational metrics showed great improvement in the quarter. Those improvements propel us toward a service product that supports growth with our customers. We enter 2024 with strong momentum, recognizing we have plenty of opportunity to improve. We're excited to show our stakeholders what our great team can accomplish."

Fourth Quarter Summary: 2023 vs. 2022

Financial Results: Increased Volume and Core Pricing Gains Offset by Lower Fuel Surcharge Revenue Led to Flat Operating Revenue

Operating revenue of $6.2 billion was flat driven by increased volume and core pricing gains offset by reduced fuel surcharge revenue and business mix.
Revenue carloads were up 3%.
Operating ratio was 60.9%, an improvement of 10 basis points.
Operating income of $2.4 billion was flat.

Operating Performance: Improved Resource Utilization Drives Strong Service Metrics and Fluid Network; Fourth Quarter Record for Workforce Productivity

Quarterly freight car velocity was 217 daily miles per car, a 14% improvement.
Quarterly locomotive productivity was 140 gross ton-miles (GTMs) per horsepower day, a 14% improvement.
Average maximum train length was 9,413 feet, a 2% increase.
Quarterly workforce productivity improved 4% to 1,051 car miles per employee.
Fuel consumption rate of 1.091, measured in gallons of fuel per thousand GTMs, deteriorated 3%.

Full Year Summary: 2023 vs. 2022

Financial Results: Lower Fuel Surcharge Revenue and Volume Drive Reduced Operating Revenue

Operating revenue of $24.1 billion was down 3% driven by lower fuel surcharge revenue, business mix, and volume declines partially offset by core pricing gains.
Revenue carloads declined 1%.
Union Pacific's 62.3% reported operating ratio deteriorated 220 basis points. Lower fuel prices positively impacted the operating ratio by 50 basis points.
Operating Income of $9.1 billion was down 8%.
Union Pacific's 2023 capital program totaled $3.7 billion.
The company repurchased 3.5 million shares in 2023 at an aggregate cost of $712 million.

Operating Performance: Improving Resource Availability and Utilization Through the Year Results in Fluid Operations to End 2023

Union Pacific's reportable derailment rates improved, while reportable personal injury rates did not improve.
Freight car velocity was 204 daily miles per car, a 7% improvement.
Locomotive productivity was 129 GTMs per horsepower day, a 3% increase.
Average maximum train length of 9,356 feet was flat.
Workforce productivity of 1,000 car miles per employee declined 3%.
Fuel consumption rate of 1.088, measured in gallons of fuel per thousand GTMs, deteriorated 1%.

2024 Outlook

Volume outlook muted by international intermodal business loss, lower coal demand, and soft economic conditions
Pricing dollars in excess of inflation dollars
No change to long-term capital allocation strategy
- Capital plan of $3.4 billion
- No first quarter share repurchases

Fourth Quarter 2023 Earnings Conference Call

Union Pacific will webcast its fourth quarter 2023 earnings release presentation live at www.up.com/investor and via teleconference on Thursday, January 25, 2024, at 8:45 a.m. Eastern Time. Participants may join the conference call by dialing 877-407-8293 (or for international participants, 201-689-8349).

ABOUT UNION PACIFIC

Union Pacific (NYSE: UNP) delivers the goods families and businesses use every day with safe, reliable, and efficient service. Operating in 23 western states, the company connects its customers and communities to the global economy. Trains are the most environmentally responsible way to move freight, helping Union Pacific protect future generations. More information about Union Pacific is available at www.up.com.

Supplemental financial information is attached.

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This news release and related materials contain statements about the Company's future that are not statements of historical fact, including specifically the statements regarding the potential impacts of public health crises, including pandemics, epidemics and the outbreak of other contagious diseases, such as the coronavirus and its variant strains (COVID); the Russia-Ukraine and Israeli wars and any impacts on our business operations, financial results, liquidity, and financial position, and on the world economy (including customers, employees, and supply chains), including as a result of fluctuations in volume and carloadings; expectations as to general macroeconomic conditions, including slowdowns and recessions, domestically or internationally, and future volatility in interest rates and fuel prices; closing of customer manufacturing, distribution, or production facilities; expectations as to operational or service improvements; expectations as to hiring challenges; availability of employees; 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 business, financial, and operational results, future economic performance, and planned capital investments ; 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, cyberattacks or other matters. These statements are, or will be, forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Forward-looking statements also generally include, without limitation, information, or statements regarding: projections, predictions, expectations, estimates, or forecasts as to the Company's and its subsidiaries' business, financial, and operational results, and future economic performance; and management's beliefs, expectations, goals, and objectives and other similar expressions concerning matters that are not historical facts.

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, including expectations regarding operational and financial improvements and the Company's future performance or results are subject to risks and uncertainties that could cause actual performance or results to differ materially from those expressed in the statement. Important factors, including risk factors, could affect the Company's and its subsidiaries' future results and could cause those results or other outcomes to differ materially from those expressed or implied in the forward-looking statements. Information regarding risk factors and other cautionary information are available in the Company's Annual Report on Form 10-K for 2022, which was filed with the SEC on February 10, 2023. The Company updates information regarding risk factors if circumstances require such updates in its periodic reports on Form 10-Q and its subsequent Annual Reports on Form 10-K (or such other reports that may be filed with the SEC).

Forward-looking statements speak only as of, and are based only upon information available on, the date the statements were made. The Company assumes no obligation to update forward-looking information to reflect actual results, changes in assumptions, or changes in other factors affecting forward-looking information. If the Company does update one or more forward-looking statements, no inference should be drawn that the Company will make additional updates with respect thereto or with respect to other forward-looking statements. References to the Company's website are provided for convenience and, therefore, information on or available through the website is not, and should not be deemed to be, incorporated by reference herein.

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UNION PACIFIC CORPORATION AND SUBSIDIARY COMPANIES
Condensed Consolidated Statements of Income (unaudited)

Millions, Except Per Share Amounts and	*4th Quarter*									*Full Year*
Percentages, For the Periods Ended December 31,	2023			2022			%			2023			2022			%
Operating Revenues
Freight revenues	$	5,801		$	5,768			1	%	$	22,571		$	23,159			(3)	%
Other revenues		358			412			(13)			1,548			1,716			(10)
Total operating revenues		6,159			6,180			-			24,119			24,875			(3)
Operating Expenses
Compensation and benefits		1,169			1,174			-			4,818			4,645			4
Fuel		759			853			(11)			2,891			3,439			(16)
Purchased services and materials		645			633			2			2,616			2,442			7
Depreciation		589			569			4			2,318			2,246			3
Equipment and other rents		229			238			(4)			947			898			5
Other		361			301			20			1,447			1,288			12
Total operating expenses		3,752			3,768			-			15,037			14,958			1
Operating Income		2,407			2,412			-			9,082			9,917			(8)
Other income, net		108			92			17			491			426			15
Interest expense		(331)			(333)			(1)			(1,340)			(1,271)			5
Income before income taxes		2,184			2,171			1			8,233			9,072			(9)
Income tax expense		(532)			(533)			-			(1,854)			(2,074)			(11)
Net Income	$	1,652		$	1,638			1		$	6,379		$	6,998			(9)

Share and Per Share
Earnings per share - basic	$	2.71		$	2.67			1	%	$	10.47		$	11.24			(7)	%
Earnings per share - diluted	$	2.71		$	2.67			1		$	10.45		$	11.21			(7)
Weighted average number of shares - basic		608.9			612.7			(1)			609.2			622.7			(2)
Weighted average number of shares - diluted		609.9			613.7			(1)			610.2			624.0			(2)
Dividends declared per share	$	1.30		$	1.30			-		$	5.20		$	5.08			2

Operating Ratio		60.9	%		61.0	%		(0.1)	pts		62.3	%		60.1	%		2.2	pts
Effective Tax Rate		24.4	%		24.6	%		(0.2)			22.5	%		22.9	%		(0.4)

UNION PACIFIC CORPORATION AND SUBSIDIARY COMPANIES
Freight Revenues Statistics (unaudited)

	*4th Quarter*							*Full Year*
For the Periods Ended December 31,	2023		2022		%			2023		2022		%
*Freight Revenues (Millions)*
Grain & grain products	$	986	$	974		1	%	$	3,644	$	3,598		1	%
Fertilizer		194		171		13			757		712		6
Food & refrigerated		264		265		-			1,041		1,093		(5)
Coal & renewables		494		523		(6)			1,916		2,134		(10)
Bulk		1,938		1,933		-			7,358		7,537		(2)
Industrial chemicals & plastics		538		502		7			2,176		2,158		1
Metals & minerals		540		548		(1)			2,194		2,196		-
Forest products		335		325		3			1,347		1,465		(8)
Energy & specialized markets		665		624		7			2,521		2,386		6
Industrial		2,078		1,999		4			8,238		8,205		-
Automotive		600		594		1			2,421		2,257		7
Intermodal		1,185		1,242		(5)			4,554		5,160		(12)
Premium		1,785		1,836		(3)			6,975		7,417		(6)
Total	$	5,801	$	5,768		1	%	$	22,571	$	23,159		(3)	%
*Revenue Carloads (Thousands)*
Grain & grain products		216		208		4	%		798		798		-	%
Fertilizer		47		41		15			191		190		1
Food & refrigerated		42		44		(5)			175		187		(6)
Coal & renewables		217		215		1			867		885		(2)
Bulk		522		508		3			2,031		2,060		(1)
Industrial chemicals & plastics		161		151		7			645		637		1
Metals & minerals		189		196		(4)			793		785		1
Forest products		52		52		-			213		241		(12)
Energy & specialized markets		153		140		9			582		552		5
Industrial		555		539		3			2,233		2,215		1
Automotive		197		198		(1)			820		778		5
Intermodal [a]		782		743		5			3,028		3,116		(3)
Premium		979		941		4			3,848		3,894		(1)
Total		2,056		1,988		3	%		8,112		8,169		(1)	%
*Average Revenue per Car*
Grain & grain products	$	4,580	$	4,681		(2)	%	$	4,567	$	4,509		1	%
Fertilizer		4,085		4,167		(2)			3,962		3,749		6
Food & refrigerated		6,174		5,957		4			5,929		5,844		1
Coal & renewables		2,281		2,431		(6)			2,211		2,410		(8)
Bulk		3,712		3,799		(2)			3,623		3,658		(1)
Industrial chemicals & plastics		3,353		3,335		1			3,374		3,388		-
Metals & minerals		2,860		2,790		3			2,765		2,797		(1)
Forest products		6,326		6,264		1			6,310		6,092		4
Energy & specialized markets		4,347		4,459		(3)			4,335		4,320		-
Industrial		3,742		3,711		1			3,689		3,704		-
Automotive		3,061		3,007		2			2,955		2,902		2
Intermodal [a]		1,515		1,672		(9)			1,504		1,656		(9)
Premium		1,824		1,953		(7)			1,813		1,905		(5)
Average	$	2,822	$	2,902		(3)	%	$	2,782	$	2,835		(2)	%


[a]	For intermodal shipments each container or trailer equals one carload.

UNION PACIFIC CORPORATION AND SUBSIDIARY COMPANIES
Condensed Consolidated Statements of Financial Position (unaudited)

	*Dec. 31,*				Dec. 31,
Millions, Except Percentages		2023				2022
Assets
Cash and cash equivalents		$	1,055			$	973
Short-term investments			16				46
Other current assets			3,077				2,933
Investments			2,605				2,375
Properties, net			57,398				56,038
Operating lease assets			1,643				1,672
Other assets			1,338				1,412
Total assets		$	67,132			$	65,449

Liabilities and Common Shareholders' Equity
Debt due within one year		$	1,423			$	1,678
Other current liabilities			3,683				3,842
Debt due after one year			31,156				31,648
Operating lease liabilities			1,245				1,300
Deferred income taxes			13,123				13,033
Other long-term liabilities			1,714				1,785
Total liabilities			52,344				53,286
Total common shareholders' equity			14,788				12,163
Total liabilities and common shareholders' equity		$	67,132			$	65,449

Return on Average Common Shareholders' Equity			47.3	%			53.2	%
Return on Invested Capital as Adjusted (ROIC)*			15.5	%			17.3	%


*	ROIC is a non-GAAP measure; however, management believes that it is an important measure in evaluating the efficiency and effectiveness of our long-term capital investments. See page 9 for a reconciliation to GAAP.

UNION PACIFIC CORPORATION AND SUBSIDIARY COMPANIES
Condensed Consolidated Statements of Cash Flows (unaudited)

Millions,	*Full Year*
For the Periods Ended December 31,	2023		2022
Operating Activities
Net income	$	6,379	$	6,998
Depreciation		2,318		2,246
Deferred and other income taxes		117		262
Other - net		(435)		(144)
Cash provided by operating activities		8,379		9,362
Investing Activities
Capital investments*		(3,606)		(3,620)
Other - net		(61)		149
Cash used in investing activities		(3,667)		(3,471)
Financing Activities
Dividends paid		(3,173)		(3,159)
Debt repaid		(2,190)		(2,291)
Debt issued		1,599		6,080
Share repurchase programs		(705)		(6,282)
Other - net		(156)		(235)
Cash used in financing activities		(4,625)		(5,887)
Net change in cash, cash equivalents, and restricted cash		87		4
Cash, cash equivalents, and restricted cash at beginning of year		987		983
Cash, cash equivalents, and restricted cash at end of year	$	1,074	$	987
Free Cash Flow**
Cash provided by operating activities	$	8,379	$	9,362
Cash used in investing activities		(3,667)		(3,471)
Dividends paid		(3,173)		(3,159)
Free cash flow	$	1,539	$	2,732


*	Capital investments include locomotive and freight car early lease buyouts of $57 million in 2023 and $70 million in 2022.
**	Free cash flow is a non-GAAP measure; however, we believe this measure is important to management and investors in evaluating our financial performance and measures our ability to generate cash without additional external financing.

UNION PACIFIC CORPORATION AND SUBSIDIARY COMPANIES
Operating and Performance Statistics (unaudited)

	*4th Quarter*							*Full Year*
For the Periods Ended December 31,	2023		2022		%			2023		2022		%
Operating/Performance Statistics
Freight car velocity (daily miles per car)*		217		191		14	%		204		191		7	%
Average train speed (miles per hour)*		24.9		23.8		5			24.2		23.8		2
Average terminal dwell time (hours)*		22.7		24.5		(7)			23.4		24.4		(4)
Locomotive productivity (GTMs per horsepower day)		140		123		14			129		125		3
Gross ton-miles (GTMs) (millions)		214,570		208,949		3			837,502		843,443		(1)
Train length (feet)		9,413		9,191		2			9,356		9,329		-
Intermodal car trip plan compliance (%)**		85		73		12	pts		78		67		11	pts
Manifest/Automotive car trip plan compliance (%)**		70		58		12	pts		65		59		6	pts
Workforce productivity (car miles per employee)		1,051		1,010		4			1,000		1,036		(3)
Total employees (average)		30,559		31,120		(2)			31,490		30,717		3

Locomotive Fuel Statistics
Average fuel price per gallon consumed	$	3.16	$	3.70		(15)	%	$	3.09	$	3.65		(15)	%
Fuel consumed in gallons (millions)		234		222		5			911		909		-
Fuel consumption rate***		1.091		1.064		3			1.088		1.078		1

Revenue Ton-Miles (Millions)
Grain & grain products		21,166		20,683		2	%		77,717		79,725		(3)	%
Fertilizer		2,960		2,701		10			12,031		11,769		2
Food & refrigerated		4,586		4,576		-			18,286		17,965		2
Coal & renewables		21,876		21,847		-			88,604		91,824		(4)
Bulk		50,588		49,807		2			196,638		201,283		(2)
Industrial chemicals & plastics		7,040		6,626		6			28,837		29,572		(2)
Metals & minerals		8,712		9,367		(7)			36,121		37,827		(5)
Forest products		5,447		5,546		(2)			22,447		25,438		(12)
Energy & specialized markets		10,349		9,575		8			39,286		37,068		6
Industrial		31,548		31,114		1			126,691		129,905		(2)
Automotive		4,369		4,384		-			18,080		17,018		6
Intermodal		18,438		17,622		5			71,890		72,546		(1)
Premium		22,807		22,006		4			89,970		89,564		-
Total		104,943		102,927		2	%		413,299		420,752		(2)	%


*	Surface Transportation Board (STB) reported performance measures.
**	Methodology used to report is not comparable with the reporting to the STB under docket number EP 770.
***	Fuel consumption is computed as follows: gallons of fuel consumed divided by gross ton-miles in thousands.

UNION PACIFIC CORPORATION AND SUBSIDIARY COMPANIES
Condensed Consolidated Statements of Income (unaudited)

Millions,	2023
Except Per Share Amounts and Percentages,	*1st Qtr*			*2nd Qtr*			*3rd Qtr*			*4th Qtr*			*Full Year*
Operating Revenues
Freight revenues		$	5,656		$	5,569		$	5,545		$	5,801		$	22,571
Other revenues			400			394			396			358			1,548
Total operating revenues			6,056			5,963			5,941			6,159			24,119
Operating Expenses
Compensation and benefits			1,179			1,269			1,201			1,169			4,818
Fuel			766			664			702			759			2,891
Purchased services and materials			653			650			668			645			2,616
Depreciation			572			577			580			589			2,318
Equipment and other rents			235			248			235			229			947
Other			357			351			378			361			1,447
Total operating expenses			3,762			3,759			3,764			3,752			15,037
Operating Income			2,294			2,204			2,177			2,407			9,082
Other income, net			184			93			106			108			491
Interest expense			(336)			(339)			(334)			(331)			(1,340)
Income before income taxes			2,142			1,958			1,949			2,184			8,233
Income tax expense			(512)			(389)			(421)			(532)			(1,854)
Net Income		$	1,630		$	1,569		$	1,528		$	1,652		$	6,379

Share and Per Share
Earnings per share - basic		$	2.67		$	2.58		$	2.51		$	2.71		$	10.47
Earnings per share - diluted		$	2.67		$	2.57		$	2.51		$	2.71		$	10.45
Weighted average number of shares - basic			610.6			608.7			608.7			608.9			609.2
Weighted average number of shares - diluted			611.5			609.5			609.8			609.9			610.2
Dividends declared per share		$	1.30		$	1.30		$	1.30		$	1.30		$	5.20

Operating Ratio			62.1	%		63.0	%		63.4	%		60.9	%		62.3	%
Effective Tax Rate			23.9	%		19.9	%		21.6	%		24.4	%		22.5	%

UNION PACIFIC CORPORATION AND SUBSIDIARY COMPANIES
Freight Revenues Statistics (unaudited)

		2023
	*1st Qtr*			*2nd Qtr*			*3rd Qtr*			*4th Qtr*			*Full Year*
*Freight Revenues (Millions)*
Grain & grain products		$	943		$	890		$	825		$	986		$	3,644
Fertilizer			186			183			194			194			757
Food & refrigerated			263			255			259			264			1,041
Coal & renewables			505			429			488			494			1,916
Bulk			1,897			1,757			1,766			1,938			7,358
Industrial chemicals & plastics			536			545			557			538			2,176
Metals & minerals			536			562			556			540			2,194
Forest products			332			347			333			335			1,347
Energy & specialized markets			613			632			611			665			2,521
Industrial			2,017			2,086			2,057			2,078			8,238
Automotive			587			625			609			600			2,421
Intermodal			1,155			1,101			1,113			1,185			4,554
Premium			1,742			1,726			1,722			1,785			6,975
Total		$	5,656		$	5,569		$	5,545			5,801			22,571
*Revenue Carloads (Thousands)*
Grain & grain products			202			197			183			216			798
Fertilizer			45			48			51			47			191
Food & refrigerated			44			44			45			42			175
Coal & renewables			216			203			231			217			867
Bulk			507			492			510			522			2,031
Industrial chemicals & plastics			157			164			163			161			645
Metals & minerals			188			210			206			189			793
Forest products			52			55			54			52			213
Energy & specialized markets			139			144			146			153			582
Industrial			536			573			569			555			2,233
Automotive			200			213			210			197			820
Intermodal [a]			734			749			763			782			3,028
Premium			934			962			973			979			3,848
Total			1,977			2,027			2,052			2,056			8,112
*Average Revenue per Car*
Grain & grain products		$	4,668		$	4,527		$	4,486		$	4,580		$	4,567
Fertilizer			4,135			3,830			3,818			4,085			3,962
Food & refrigerated			5,963			5,740			5,847			6,174			5,929
Coal & renewables			2,341			2,107			2,114			2,281			2,211
Bulk			3,743			3,568			3,465			3,712			3,623
Industrial chemicals & plastics			3,402			3,336			3,406			3,353			3,374
Metals & minerals			2,853			2,677			2,688			2,860			2,765
Forest products			6,384			6,337			6,197			6,326			6,310
Energy & specialized markets			4,408			4,388			4,201			4,347			4,335
Industrial			3,760			3,646			3,612			3,742			3,689
Automotive			2,944			2,928			2,894			3,061			2,955
Intermodal [a]			1,573			1,471			1,459			1,515			1,504
Premium			1,866			1,794			1,769			1,824			1,813
Average		$	2,861		$	2,748		$	2,702		$	2,822		$	2,782


[a]	For intermodal shipments each container or trailer equals one carload.

UNION PACIFIC CORPORATION AND SUBSIDIARY COMPANIES
Non-GAAP Measures Reconciliation to GAAP (unaudited)

*Debt / Net Income*
Millions, Except Ratios	2023		2022
Debt	$	32,579	$	33,326
Net income	$	6,379	$	6,998
Debt / net income		5.1		4.8

Adjusted Debt / Adjusted EBITDA*
Millions, Except Ratios	2023		2022
Net income	$	6,379	$	6,998
Add:
Income tax expense		1,854		2,074
Depreciation		2,318		2,246
Interest expense		1,340		1,271
EBITDA	$	11,891	$	12,589
Adjustments:
Other income, net		(491)		(426)
Interest on operating lease liabilities**		58		54
Adjusted EBITDA	$	11,458	$	12,217
Debt	$	32,579	$	33,326
Operating lease liabilities		1,600		1,631
Adjusted debt	$	34,179	$	34,957
Adjusted debt / adjusted EBITDA		3.0		2.9

Comparable Adjusted Debt / Adjusted EBITDA*
	2023		2022
Adjusted debt / Adjusted EBITDA		3.0		2.9
Factors Affecting Comparability:
Labor accrual adjustment [a]		-		(0.1)
Comparable adjusted debt / adjusted EBITDA		3.0		2.8


[a]	Adjustments remove the impact of $69 million from net income and $23 million from income tax expense for the year ended December 31, 2022. See page 10 for a reconciliation to GAAP.

*	Total debt plus operating lease liabilities plus after-tax unfunded pension and OPEB (other post retirement benefit) obligations divided by net income plus income tax expense, depreciation, amortization, interest expense, and adjustments for other income and interest on operating lease liabilities. Adjusted debt to adjusted EBITDA (earnings before interest, taxes, depreciation, amortization, and adjustments for other income and interest on operating lease liabilities) and comparable adjusted debt to adjusted EBITDA are considered non-GAAP financial measures 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 these measures are 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 and comparable adjusted debt to adjusted EBITDA should be considered in addition to, rather than as a substitute for, other information provided in accordance with GAAP. The most comparable GAAP measure is debt to net income ratio. The tables above provide reconciliations from net income to adjusted EBITDA, debt to adjusted debt, debt to net income to adjusted debt to adjusted EBITDA, and adjusted debt to adjusted EBITDA to comparable adjusted debt to adjusted EBITDA. At December 31, 2023 and 2022, the incremental borrowing rate on operating lease liabilities was 3.6% and 3.3%, respectively. Pension and OPEB were funded at December 31, 2023 and 2022.

**	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.

UNION PACIFIC CORPORATION AND SUBSIDIARY COMPANIES
Non-GAAP Measures Reconciliation to GAAP (unaudited)

*Return on Average Common Shareholders' Equity*
Millions, Except Percentages	2023			2022
Net income	$	6,379		$	6,998
Average equity	$	13,476		$	13,162
Return on average common shareholders' equity		47.3	%		53.2	%

Return on Invested Capital as Adjusted (ROIC)*
Millions, Except Percentages	2023			2022
Net income	$	6,379		$	6,998
Interest expense		1,340			1,271
Interest on average operating lease liabilities		58			56
Taxes on interest		(315)			(304)
Net operating profit after taxes as adjusted	$	7,462		$	8,021
Average equity	$	13,476		$	13,162
Average debt		32,953			31,528
Average operating lease liabilities		1,616			1,695
Average invested capital as adjusted	$	48,045		$	46,385
Return on invested capital as adjusted		15.5	%		17.3	%

Comparable Return on Invested Capital as Adjusted (Comparable ROIC)*
	2023			2022
Return on invested capital as adjusted		15.5	%		17.3	%
Factors Affecting Comparability:
Labor accrual adjustment [a]		-			0.1
Comparable return on invested capital as adjusted		15.5	%		17.4	%


[a]	Adjustments remove the impact of $69 million from both net income for the year ended and shareholders' equity as of December 31, 2022. See page 10 for a reconciliation to GAAP.

*	ROIC and comparable ROIC are considered non-GAAP financial measures 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 these measures are important to management and investors in evaluating the efficiency and effectiveness of our long-term capital investments. In addition, we currently use ROIC as a performance criterion in determining certain elements of equity compensation for our executives. ROIC and comparable ROIC should be considered in addition to, rather than as a substitute for, other information provided in accordance with GAAP. The most comparable GAAP measure is return on average common shareholders' equity. The tables above provide reconciliations from return on average common shareholders' equity to ROIC and comparable ROIC. At December 31, 2023 and 2022, the incremental borrowing rate on operating lease liabilities was 3.6% and 3.3%, respectively.

UNION PACIFIC CORPORATION AND SUBSIDIARY COMPANIES
Non-GAAP Measures Reconciliation to GAAP (unaudited)

Financial Performance*
	Reported results			Labor accrual			Adjusted results
Millions, Except Per Share Amounts and Percentages			(GAAP)			adjustment				(non-GAAP)
For the Twelve Months Ended December 31, 2022
Compensation and benefits expense		$	4,645		$	(92)			$	4,553
Operating expense			14,958			(92)				14,866
Operating income			9,917			92				10,009
Income taxes			(2,074)			(23)				(2,097)
Net income			6,998			69				7,067
Diluted EPS			11.21			0.12				11.33
Operating ratio			60.1	%		(0.3)		pts		59.8	%
As of December 31, 2022
Shareholders' equity		$	12,163		$	69			$	12,232

The above table reconciles our results for the twelve months ended and as of December 31, 2022, to adjust results that exclude the impact of certain items identified as affecting comparability. We use adjusted compensation and benefits expense, adjusted operating expense, adjusted operating income, adjusted income taxes, adjusted net income, adjusted diluted EPS (earnings per share), adjusted operating ratio, and adjusted shareholders' equity, as applicable, among other measures, to evaluate our actual operating performance. We believe these non-GAAP financial measures provide valuable information regarding earnings and business trends by excluding specific items that we believe are not indicative of our ongoing operating results of our business, providing a useful way for investors to make a comparison of our performance over time and against other companies in our industry. Since these are not measures of performance calculated in accordance with GAAP, they should be considered in addition to, rather than as a substitute for, compensation and benefits expense, operating expense, operating income, income taxes, net income, diluted EPS, operating ratio, and shareholders' equity as indicators of operating performance.

SOURCE Union Pacific Corporation