Union Pacific · 10-Q · Item 2 MD&A

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 six months ended June 30, 2026, compared to

three and six months ended June 30, 2025

For purposes of this report, unless the context otherwise requires, all references herein to "Union Pacific", “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 revenues are analyzed by commodity, we analyze the net financial results of the Railroad as one segment due to the integrated nature of the rail network.

Critical accounting estimates

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 estimates are available in Item 7 of our 2025 Annual Report on Form 10-K. During the first six months of 2026, there have not been any significant changes with respect to our critical accounting estimates.

RESULTS OF OPERATIONS

Quarterly summary

The Company reported earnings of $3.36 per diluted share on net income of $2.0 billion and an operating ratio of 59.7% in the second quarter of 2026 compared to earnings of $3.15 per diluted share on net income of $1.9 billion and an operating ratio of 59.0% in the second quarter of 2025. Freight revenues increased 12% in the second quarter of 2026 compared to the same period in 2025 as higher fuel surcharge revenues, 2% volume growth, and core pricing gains more than offset the impact of T1unfavorable business mix (from higher domestic intermodal carloads). T2Second quarter of 2026 volume growth was attributable to a 19% increase in domestic intermodal combined with higher grain and grain products and plastics carloads, offsetting the impact of lower international intermodal carloads and coal carloads, which declined 14% and 17%, respectively, compared to the second quarter of 2025.

Our second quarter of 2026 key operating metrics reflect the continuation of solid operational performance and network fluidity, improving many key measures from 2025. Freight car velocity increased 5% and terminal dwell improved 7%. We realigned operational resources to meet changing customer demands within the bulk business group as demand for export grain remained high while coal demand decreased. We leveraged capacity improvements to handle increased intermodal shipments, improving our system train length 2%. T3Workforce productivity improved 5% and locomotive productivity improved 1%, demonstrating efficient asset utilization in a strengthening demand environment. Both service performance index measures were 95% as we measured ourselves relative to our highest performance levels from the last three years.

Operating expenses increased 13% compared to the second quarter of 2025 primarily due to higher fuel prices, as we experienced a 60% increase in the average price per gallon compared to last year as a result of supply chain pressures. Inflation, volume-related costs, acquisition-related expenses (see Note 18 to the Condensed Consolidated Financial Statements, Item 1), and higher depreciation also drove increased operating expenses, which were partially offset by a favorable comparison for a $55 million 2025 crew staffing agreement ratification charge and productivity. Operating income increased 9% to $2.8 billion reflecting top-line growth, while the T4operating ratio of 59.7% deteriorated 0.7 points primarily resulting from the impact of higher fuel prices compared to the second quarter of 2025.

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Operating revenues

Three months ended

Six months ended

Millions

Change

Change

Freight revenues

$

$

$

$

8 %

Other subsidiary revenues

7

(2)

Accessorial revenues

Other

-

(2)

Total

$

$

$

$

7 %

We generate freight revenues by transporting products from our three commodity groups. Freight revenues vary with volume (carloads) and average revenue per car (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 volume, are recorded as a reduction to operating revenues. Customer incentives that include variable consideration based on cumulative volume are estimated using the expected value method, which is based on available historical, current, and forecasted volume, 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 revenues between reporting periods is based on the relative transit time in each reporting period with expenses recognized as incurred.

Other subsidiary revenues (primarily logistics operations) are generally recognized over time as shipments move from origin to destination. The allocation of revenues 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 revenues increased 12% in the second quarter of 2026 compared to the same period in 2025 driven by higher fuel surcharge revenues, 2% carload growth, and core pricing gains, which offset a slightly unfavorable business mix (from an increase in shipments with lower ARC, such as domestic intermodal). Increased domestic intermodal, grain and grain products, and plastics shipments were partially reduced by lower international intermodal and coal carloads. Year-to-date 2026 freight revenues increased 8% compared to 2025 due to higher fuel surcharge revenues, core pricing gains, 1% volume growth, and slightly favorable business mix. Higher domestic intermodal, grain and grain products, and industrial chemicals and plastics shipments more than offset lower international intermodal and automotive shipments.

Each of our commodity groups includes revenues from fuel surcharges. Freight revenues from fuel surcharge programs increased to $1.0 billion in the second quarter of 2026 compared to $569 million in the same period of 2025 due to higher fuel prices and higher volume, partially offset by the fuel price lag impact.

Other subsidiary revenues increased in the second quarter of 2026 compared to 2025 due to higher demand for shipments at our subsidiary that brokers intermodal and transload logistics services, partially offset by lower revenues from the sale of a portion of revenue-generating assets in late 2025 from our technology subsidiary. Additionally, other subsidiary revenues were negatively impacted in the year-to-date period from the transfer of commuter operations to Metra. Accessorial revenues increased in the second quarter and year-to-date 2026 compared to 2025 driven by higher container, intermodal accessorial, and demurrage revenues.

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The following tables summarize the year-over-year changes in freight revenues, revenue carloads, and ARC by commodity type:

Freight revenues

Three months ended

Six months ended

Millions

Change

Change

Grain & grain products

$

$

$

$

Fertilizer

8

Food & refrigerated

2

(2)

Coal & renewables

(4)

6

Bulk

7

9

Industrial chemicals & plastics

6

7

Metals & minerals

9

Forest products

5

2

Energy & specialized markets

9

7

Industrial

8

7

Automotive

4

Intermodal

9

Premium

7

Total

$

$

$

$

8 %

Revenue carloads

Three months ended

Six months ended

Thousands

Change

Change

Grain & grain products

Fertilizer

(2)

2

Food & refrigerated

(2)

(6)

Coal & renewables

-

Bulk

(1)

5

Industrial chemicals & plastics

3

5

Metals & minerals

3

4

Forest products

2

(1)

Energy & specialized markets

3

3

Industrial

3

4

Automotive

-

(3)

Intermodal [a]

4

(3)

Premium

4

(3)

Total

2 %

1 %

Average revenue per car

Three months ended

Six months ended

Change

Change

Grain & grain products

$

$

2 %

$

$

- %

Fertilizer

8

Food & refrigerated

4

5

Coal & renewables

6

Bulk

9

4

Industrial chemicals & plastics

3

2

Metals & minerals

8

5

Forest products

3

3

Energy & specialized markets

6

4

Industrial

5

3

Automotive

7

Intermodal [a]

Premium

Average

$

$

9 %

$

$

7 %

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

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Bulk – Bulk includes shipments of grain and grain products, fertilizer, food and refrigerated, and coal and renewables. Freight revenues from bulk shipments increased 7% in the second quarter on 1% fewer carloads as higher fuel surcharge revenues, core pricing gains, and business mix (from lower coal shipments) more than offset the volume decline. Decreased coal shipments from lower natural gas prices, milder weather, and mine maintenance and outages in the second quarter of 2026, more than offset increased export grain and continued growth in renewable fuels and associated feedstock shipments. For the year-to-date periods of 2026 compared to 2025, freight revenues from bulk shipments increased 9% due to volume growth of 5% from increased export grain shipments, higher fuel surcharge revenues, and core pricing gains, partially offset by business mix (from lower food and refrigerated shipments).

Industrial – Industrial includes shipments of industrial chemicals and plastics, metals and minerals, forest products, and energy and specialized markets. Freight revenues from industrial shipments increased 8% in the second quarter of 2026 compared to 2025, respectively, due to higher fuel surcharge revenues, core pricing gains, and higher volume, partially offset by business mix (from higher plastics and lower soda ash shipments). Higher volume, core pricing gains, and higher fuel surcharge revenues, partially offset by business mix, contributed to the 7% increase in industrial freight revenues year-to-date 2026. Industrial carloads improved 3% and 4% in the second quarter and year-to-date periods of 2026 compared to 2025, respectively, driven by increased demand for industrial chemicals and plastics and construction project-related materials coupled with business development efforts, which was partially offset by reduced soda ash export shipments.

Premium – Premium includes shipments of finished automobiles, automotive parts, and merchandise in intermodal containers, both domestic and international. Premium freight revenues increased 21% in the second quarter of 2026 compared to 2025 driven by higher fuel surcharge revenues, 4% higher volume, core pricing gains, and business mix (from lower international intermodal shipments). Second quarter of 2026 intermodal volume increased 4% driven by strong domestic intermodal growth, which was up 19% in the quarter due to business development and reduced truck market capacity, offsetting lower international intermodal carloads. In addition, automotive shipments were essentially unchanged in the second quarter of 2026 as higher shipments of finished vehicles from business development efforts were offset by lower auto parts shipments.

For the year-to-date period of 2026 compared to 2025, premium freight revenues increased 7% on 3% lower volume as higher fuel surcharge revenues, core pricing gains, and business mix (from lower international intermodal shipments) more than offset the volume decline. Year-to-date 2026 intermodal volume decreased 3% compared to 2025 driven by a 21% reduction in international intermodal carloads as a result of elevated U.S. West Coast imports in the first half of 2025, which more than offset domestic intermodal growth. Automotive shipments decreased 3% in the year-to-date periods of 2026 compared to 2025 due to lower production as a result of weaker finished vehicle demand.

Mexico business – Freight revenues from each of our commodity groups includes revenues from shipments to and from Mexico, which increased 10% to $828 million in the second quarter of 2026 and 6% to $1.6 billion year-to-date compared to 2025 driven by volume growth of 5% and 4%, respectively, higher fuel surcharge revenues, and core pricing gains. For the second quarter, volume growth was attributable to increased intermodal, finished vehicles, and grain products shipments, partially offset by lower petroleum and grain shipments. Lower auto parts and beverage shipments also impacted the year-to-date 2026 period.

Operating expenses

Three months ended

Six months ended

Millions

Change

Change

Compensation and benefits

$

(1)%

$

$

- %

Fuel

Purchased services and materials

9

Depreciation

4

4

Equipment and other rents

(7)

(8)

Other

7

Total

$

$

$

$

8 %

Operating expenses increased 13% and 8%, respectively, compared to the second quarter and year-to-date periods of 2025 due to higher fuel prices, inflation, volume-related costs, acquisition-related expenses (see Note 18 to the Condensed Consolidated Financial Statements, Item 1), and higher depreciation expense. These increases were partially offset by productivity and positively impacted by a $55 million crew staffing agreement ratification charge in 2025.

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Compensation and benefits – Compensation and benefits include wages, payroll taxes, health and welfare costs, pension costs, and incentive costs. Compensation and benefits expense decreased 1% for the second quarter and was essentially unchanged in the first six months of 2026 compared to 2025 as wage inflation and higher incentive compensation costs were offset by lower expense from a $55 million 2025 crew staffing agreement ratification charge and 3% and 4%, respectively, lower employee levels.

Fuel – Fuel includes locomotive fuel and gasoline for highway and non-highway vehicles and heavy equipment. T5Fuel expense increased in both the second quarter and year-to-date periods of 2026 compared to the same periods in 2025 driven by higher locomotive diesel fuel prices and increased gross ton-miles, partially offset by improvement in the fuel consumption rate (computed as gallons of fuel consumed divided by gross ton-miles in thousands), which improved 1% and 2%, respectively. Locomotive diesel fuel prices averaged $3.86 and $3.27 per gallon (including taxes and transportation costs) in the second quarter and year-to-date periods of 2026 compared to $2.42 and $2.46 per gallon in the corresponding periods of 2025.

Purchased services and materials – Expense for purchased services and materials includes the costs of services purchased from outside contractors and other service providers (including equipment maintenance and contract expense 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 expense; and tools and supplies. Purchased services and materials increased 10% and 9%, respectively, in the second quarter and year-to-date periods of 2026 compared to 2025 driven by acquisition-related expenses, inflation, and increased intermodal and subsidiary volume-related costs.

Depreciation – The majority of depreciation expense relates to road property, including rail, ties, ballast, and other track material. Depreciation expense increased 4% for both the second quarter and year-to-date periods of 2026 compared to 2025 driven by a higher depreciable asset base.

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 rent expense, offset by equity income from certain equity method investments. Equipment and other rents expense decreased 7% and 8%, respectively, in the second quarter and year-to-date periods of 2026 compared to 2025 driven by lower operating equipment lease expense and lower car hire expense as improved cycle times more than offset lower equity income. Additionally, increased demand in business (primarily intermodal and construction project-related materials) utilizing freight cars owned by others offset a portion of the second quarter 2026 car hire expense decline.

Other – Other expense includes state and local taxes; freight, equipment, and property damage; utilities; insurance; personal injury; environmental remediation; employee travel; telephone and cellular; computer software; bad debt; and other general expenses. Other expense increased 13% and 7%, respectively, in the second quarter and year-to-date periods of 2026 compared to 2025 driven by higher casualty costs from damaged freight and equipment in addition to increased environmental costs, other general expenses, and property taxes. The year-to-date 2026 period was also impacted by lower personal injury costs, which were partially offset by higher bad debt expense.

Non-operating items

Three months ended

Six months ended

Millions

Change

Change

Other income, net

$

$

$

$

(2)%

Interest expense

(7)

(4)

Income tax expense

Other income, net – Other income decreased in both the second quarter and year-to-date periods of 2026 compared to 2025 driven by lower real estate income. See Note 6 to the Condensed Consolidated Financial Statements, Item 1, for additional detail.

Interest expense – Interest expense decreased in both the second quarter and year-to-date periods of 2026 compared to 2025 as a result of lower weighted-average debt levels, partially offset by higher effective interest rates. The effective interest rate was 4.2% for both periods in 2026 compared to 4.1% for the same periods in 2025. The weighted-average debt levels were $30.5 billion and $32.8 billion for the second quarter of 2026 and 2025, respectively, and $31.0 billion and $32.3 billion for the six month period of 2026 and 2025, respectively.

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Income tax expense – Income tax expense increased 29% and 16%, respectively, in the second quarter and year-to-date periods of 2026 compared to 2025. The increase in income tax expense in both periods is driven by the impact of $115 million in lower deferred tax expense in the second quarter of 2025 from legislation enacted in the state of Kansas to modify the corporate income tax apportionment and higher pre-tax income, partially offset by the second quarter of 2026 changes in state tax laws and other state tax matters resulting in a $27 million reduction of our deferred tax expense. Our effective tax rates were 22.0% and 18.9% for the second quarter of 2026 and 2025, respectively, and 22.8% and 21.1% for the six month period of 2026 and 2025, respectively.

OTHER OPERATING/PERFORMANCE AND FINANCIAL STATISTICS

We report a number of key performance measures weekly to the STB. We provide these on our website at https://investor.unionpacific.com/key-performance-metrics.

Operating/performance statistics

Management continuously monitors these key operating metrics to evaluate our operational efficiency in striving to deliver the service product we sold to our customers.

Railroad performance measures are included in the table below:

Three months ended

Six months ended

Change

Change

Gross ton-miles (GTMs) (billions)

2%

3%

Revenue ton-miles (billions)

2

5

Freight car velocity (daily miles per car)

5

7

Average train speed (miles per hour) [a]

3

5

Average terminal dwell time (hours) [a]

(7)

(9)

Locomotive productivity (GTMs per horsepower day)

1

4

Train length (feet)

2

2

Intermodal service performance index (%)

(4) pts

- pts

Manifest service performance index (%)

(2) pts

1 pts

Workforce productivity (car miles per employee)

5

6

Total employees (average)

(3)

(4)

Operating ratio (%)

[a]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 rate miles. Gross ton-miles and revenue ton-miles both increased 2% in the second quarter of 2026 compared to 2025, consistent with the increase in carloads over the same time period. For the year-to-date period of 2026 compared to 2025, gross ton-miles increased 3% and revenue ton-miles increased 5% while corresponding carloads increased 1%. The variances in gross ton-miles, revenue ton-miles, and carloads was driven by changes in business mix due to higher grain shipments that are generally heavier and decreased intermodal shipments that are generally lighter.

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). Freight car velocity increased 5% and 7%, respectively, in the second quarter and year-to-date periods of 2026 compared to 2025 driven by a decrease in terminal dwell combined with train speed improvement in both periods.

Locomotive productivity – Locomotive productivity is gross ton-miles per average daily locomotive horsepower available. Locomotive productivity increased 1% and 4%, respectively, in the second quarter and year-to-date periods of 2026, driven by continued network fluidity and asset utilization as the average active fleet decreased 1% and 3%, respectively, even as gross ton-miles increased during both periods.

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Train length – Train length is the average maximum train length on a route measured in feet. Train length increased 2% in the second quarter and year-to-date periods of 2026 compared to 2025 due to train length improvement initiatives, specifically driven by mainline capacity investments and optimization of the transportation plan, which enabled us to handle more carloads.

Service performance index (SPI) – SPI is a ratio of the service customers are currently receiving relative to the best monthly performance over the last three years. Measuring our performance relative to a historical benchmark demonstrates our focus on continuously improving service for our customers. Our SPI is calculated for intermodal and manifest products. Intermodal SPI declined 4 points and was unchanged, respectively, in the second quarter and year-to-date periods of 2026 compared to 2025. Manifest SPI declined 2 points while improving 1 point, respectively, in the second quarter and year-to-date periods of 2026 compared to 2025. The lower SPI results were driven by comparison against a higher benchmark standard.

Workforce productivity – Workforce productivity is average daily car miles per employee. Workforce productivity improved 5% and 6%, respectively, in the second quarter and year-to-date periods of 2026 compared to 2025. Increased average daily car miles, which grew 1% in each period, combined with 3% and 4% lower employee levels in the second quarter and year-to-date periods, respectively, drove the improvement. Demonstrating our commitment to meet customer demands while maintaining operational fluidity, we continually align our active train, engine, and yard (TE&Y) workforce.

Operating ratio – Operating ratio is our operating expenses reflected as a percentage of operating revenues. For the second quarter and year-to-date periods of 2026, our operating ratio of 59.7% and 60.1% deteriorated 0.7 and 0.3 points, respectively, as the impact of higher fuel prices, inflation, and acquisition-related expenses more than offset core pricing gains, productivity initiatives, and the positive comparison from the $55 million crew staffing agreement ratification charge in 2025.

Debt / net income

Millions, except ratios

for the trailing twelve months ended [1]

Debt

$

$

Net income

Debt / net income

Adjusted debt / adjusted EBITDA

Millions, except ratios

for the trailing twelve months ended [1]

Net income

$

$

Add:

Income tax expense

Depreciation

Interest expense

EBITDA

$

$

Adjustments:

Other income, net

Interest on operating lease liabilities [2]

Adjusted EBITDA (a)

$

$

Debt

$

$

Operating lease liabilities

Adjusted debt (b)

$

$

Adjusted debt / adjusted EBITDA (b/a)

[1]The trailing twelve months income statement information ended June 30, 2026, is recalculated by taking the twelve months ended December 31, 2025, subtracting the six months ended June 30, 2025, and adding the six months ended June 30, 2026.

[2]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.

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Adjusted debt (total debt plus operating lease liabilities plus after-tax unfunded pension and OPEB (other post-retirement benefit) obligations) to adjusted EBITDA (earnings before interest, taxes, depreciation, amortization, and adjustments for other income and interest on present value of operating leases) is considered a non-GAAP financial measure by SEC Regulation G and Item 10(e) 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, 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, and debt to net income to adjusted debt to adjusted EBITDA. At June 30, 2026, and December 31, 2025, the incremental borrowing rate on operating leases was 4.1% and 4.0%, respectively. Pension and OPEB were funded at June 30, 2026, and December 31, 2025.

LIQUIDITY AND CAPITAL RESOURCES

Financial condition

Cash flows

Millions, for the six months ended June 30,

Cash provided by operating activities

$

$

Cash used in investing activities

Cash used in financing activities

Net change in cash, cash equivalents, and restricted cash

$

$

Operating activities

Cash provided by operating activities increased 21% in the first six months of 2026 compared to the same period of 2025 driven by lower income taxes paid and higher net income.

Investing activities

Cash used in investing activities increased 12% in the first six months of 2026 compared to the same period of 2025 driven by the net purchases and maturities of short-term investments.

The table below details cash capital investments:

Millions, for the six months ended June 30,

Rail and other track material

$

$

Ties

Ballast

Other [a]

Total road infrastructure replacements

Line expansion and other capacity projects

Commercial facilities

Total capacity and commercial facilities

Locomotives and freight cars [b]

Technology and other

Total cash capital investments [c]

$

$

[a]Other includes bridges and tunnels, signals, other road assets, and road work equipment.

[b]Locomotives and freight cars include early lease buyouts of $241 million in 2026 and $178 million in 2025.

[c]Weather-related damages for the six months ended June 30, 2026 and 2025, are immaterial.

See Note 18 of the Condensed Consolidated Financial Statements, Item 1, for the pending acquisition of Norfolk Southern.

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Capital plan

T6In 2026, we expect our capital plan to be approximately $3.3 billion. We plan to continue to make investments to support our growth strategy, improve the safety, resiliency, and operational efficiency of the network, harden our infrastructure, and replace older assets, including modernization of our locomotive fleet and acquiring freight cars to support replacement and growth opportunities. In addition, the plan includes investments in growth-related projects to drive more carloads to the network and enhance productivity through technology. This includes terminal investments supporting our manifest network and intermodal ramps to efficiently handle new and existing customers, along with siding investments (extensions and new), and second mainline track projects. The capital plan may be revised if business conditions warrant or if laws or regulations affect our ability to generate sufficient returns on these investments.

Financing activities

T7Cash used in financing activities increased 17% in the first six months of 2026 compared to the same period of 2025 driven by a decrease in debt issued and increase in debt repaid, partially offset by the pause of our share repurchases as part of the pending acquisition of Norfolk Southern.

See Note 14 of the Condensed Consolidated Financial Statements, Item 1, for a description of all our outstanding financing arrangements and significant new borrowings, Note 16 of the Condensed Consolidated Financial Statements, Item 1, for a description of our share repurchase programs, and Note 18 of the Condensed Consolidated Financial Statements, Item 1, for the pending acquisition of Norfolk Southern.

Free cash flow and cash flow conversion rate – 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 defined as cash provided by operating activities less cash used for capital investments as a ratio of net income.

Free cash flow and cash flow conversion rate are considered non-GAAP financial measures by SEC Regulation G and Item 10(e) 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 six months ended June 30,

Cash provided by operating activities

$

$

Cash used in investing activities

Dividends paid

Free cash flow

$

$

The following table reconciles cash provided by operating activities (GAAP measure) to cash flow conversion rate (non-GAAP measure):

Millions, except percentages, for the six months ended June 30,

Cash provided by operating activities

$

$

Cash used in capital investments

Total (a)

$

$

Net income (b)

$

$

Cash flow conversion rate (a/b)

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 borrowing capacity to sustain an extended period of lower volume.

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During the six months ended June 30, 2026, we generated $5.5 billion of cash provided by operating activities and paid our quarterly dividends. In the third quarter of 2025, we announced the pending acquisition of Norfolk Southern described in Note 18 of the Condensed Consolidated Financial Statements, Item 1, and paused our share repurchases. On June 30, 2026, we had $1.6 billion of cash and cash equivalents, $500 million of short-term investments, $2.0 billion of credit available under our revolving credit facility, and $600 million undrawn on the Receivables Facility. We have been, and we expect to continue to be, in compliance with our debt covenants.

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, including commitments related to the pending acquisition of Norfolk Southern described in Note 18 of the Condensed Consolidated Financial Statements, Item 1. Based on our assessment of the underlying provisions and circumstances of our contractual obligations, other than the risks that we and other similarly situated companies face with respect to the condition of the capital markets, as of the date of this filing, 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 described below are customary transactions that are like those of other comparable corporations, particularly within the transportation industry.

The following table identifies material contractual obligations as of June 30, 2026:

Payments Due by Dec. 31,

Millions

Total

Debt [a]

$

$

$

$

$

$

$

Purchase obligations [b]

Operating leases [c]

Other post-retirement benefits [d]

Finance lease obligations [e]

-

-

Total contractual obligations

$

$

$

$

$

$

$

[a]Excludes finance lease obligations of $80 million as well as unamortized discount and deferred issuance costs of ($1,659) million. Includes an interest component of $25,403 million.

[b]Purchase obligations include locomotive maintenance contracts; purchase commitments for ties, ballast, and rail; and agreements to purchase other goods and services.

[c]Includes leases for locomotives, freight cars, other equipment, and real estate. Includes an interest component of $100 million.

[d]Includes estimated other post-retirement, medical, and life insurance payments and payments made under the unfunded pension plan for the next ten years.

[e]Represents total obligations, including interest component of $7 million.

OTHER MATTERS

Asserted and unasserted claims – See Note 15 to the Condensed Consolidated Financial Statements, Item 1.

Indemnities – See Note 15 to the Condensed Consolidated Financial Statements, Item 1.

Pending Acquisition – See Note 18 to the Condensed Consolidated Financial Statements, Item 1, and the Agreement and Plan of Merger dated as of July 28, 2025, by and among UPC, Ruby Merger Sub 1 Corporation, Ruby Merger Sub 2 LLC, and Norfolk Southern, which is incorporated herein by reference to Exhibit 2.1 to the Corporation’s Current Report on Form 8-K dated July 29, 2025.

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CAUTIONARY INFORMATION

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, or will be, forward-looking statements as defined by the Securities Act of 1933 and the Securities Exchange Act of 1934. These forward-looking statements and information include, without limitation, statements and information set forth under the captions “Liquidity and Capital Resources” regarding our capital plan, share repurchase programs, contractual obligations, and "Other Matters" in this Item 2 of Part I. Forward-looking statements and information also include any other statements or information in this report (including information incorporated herein by reference) regarding: the merger agreement and the transactions contemplated therein (described in Note 18 to the Condensed Consolidated Financial Statements, Item 1), potential impacts of public health crises, including pandemics, epidemics, and the outbreak of other contagious disease, such as the coronavirus and its variant strains (COVID); T8wars, conflicts, and other geopolitical tensions in Ukraine, the Middle East, and elsewhere, 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; 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 (including those discussed in response to increased traffic); expectations as to cost savings, revenue growth, and earnings; the time by which goals, targets, aspirations, 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; estimates and expectations regarding current or potential tariffs; 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 may be identified by their use of forward-looking terminology, such as “believes,” “expects,” “may,” “could,” “should,” “would,” “will,” “intends,” “plans,” “estimates,” “anticipates,” “projects,” “pro forma,” and similar words, phrases, expressions, or other comparable terminology.

Forward-looking statements should not be read as a guarantee of future performance, results, or outcomes, and will not necessarily be accurate indications of the times that, or by which, such performance, results, or outcomes will be achieved, if ever. Forward-looking statements and information are subject to risks and uncertainties that could cause actual performance or results to differ materially from those expressed in the statements and information. 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 variables or unknown or unforeseeable events or circumstances over which management has little or no influence or control, and many of these risks and uncertainties are currently amplified by and may continue to be amplified by, or in the future may be amplified by, among other things, macroeconomic and geopolitical conditions.

The Risk Factors in Item 1A of our 2025 Annual Report on Form 10-K, filed February 6, 2026, could affect our future results and could cause those results or other outcomes to differ materially from those expressed or implied in any forward-looking statements or information. To the extent circumstances require or we deem it otherwise necessary, we will update or amend these risk factors in a Form 10-Q, Form 8-K, or subsequent Form 10-K. All forward-looking statements are qualified by, and should be read in conjunction with, these Risk Factors.

Forward-looking statements speak only as of the date the statement was made. We assume no obligation to update forward looking information to reflect actual results, changes in assumptions, or changes in other factors affecting forward-looking information. If we do update one or more forward-looking statements, no inference should be drawn that we will make additional updates with respect thereto or with respect to other forward-looking statements.

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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 certain executive officers; and amendments to such reports filed or furnished pursuant to the Securities Exchange Act of 1934, as amended (the Exchange Act). We provide these reports and statements as soon as reasonably practicable after such material is electronically filed with, or furnished to, the 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: 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.