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Union Pacific Reports Fourth Quarter and Full Year 2020 Results

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OMAHA, Neb., Jan. 21, 2021 /PRNewswire/ -- Union Pacific Corporation (NYSE: UNP) today reported 2020 fourth quarter net income of $1.4 billion, or $2.05 per diluted share. These results include a previously announced $278 million pre-tax, non-cash impairment charge. Excluding the effects of that charge, adjusted fourth quarter net income was $1.6 billion, or $2.36 per diluted share. This compares to $1.4 billion, or $2.02 per diluted share, in the fourth quarter 2019.

Union Pacific. (PRNewsFoto/Union Pacific) (PRNewsfoto/Union Pacific)
Union Pacific. (PRNewsFoto/Union Pacific) (PRNewsfoto/Union Pacific)

"These outstanding results demonstrate the true potential of our franchise as we leveraged all three profitability drivers simultaneously – volume growth, productivity, and pricing – to produce record fourth quarter results," said Lance Fritz, Union Pacific chairman, president, and chief executive officer. "The women and men of Union Pacific persevered throughout the pandemic to provide our customers with a safe, reliable, and consistent service product."

Fourth Quarter Summary
Operating revenue of $5.1 billion was down 1% in fourth quarter 2020 compared to fourth quarter 2019. Fourth quarter business volumes, as measured by total revenue carloads, increased 3% compared to 2019. Premium volumes increased compared to 2019, while bulk was flat and industrial declined. In addition:

  • Quarterly freight revenue declined 1% compared to fourth quarter 2019, as volume growth and core pricing gains were more than offset by decreased fuel surcharge revenue and a less favorable business mix.

  • Union Pacific's 61.0% reported operating ratio when adjusted for the impairment charge is an all-time quarterly record of 55.6%, 410 basis points lower than fourth quarter 2019. Lower fuel prices positively impacted the operating ratio by 90 basis points.

  • Quarterly freight car velocity was 223 daily miles per car, a 1% improvement compared to fourth quarter 2019.

  • Quarterly locomotive productivity was 142 gross ton-miles per horsepower day, a 13% improvement compared to fourth quarter 2019.

  • Quarterly workforce productivity was 1,032 car miles per employee, an 18% improvement compared to fourth quarter 2019.

  • Average maximum train length was 9,154 feet, a 12% increase compared to fourth quarter 2019.

  • The Company repurchased 3.8 million shares in fourth quarter 2020 at an aggregate cost of $749 million.

Summary of Fourth Quarter Freight Revenues

  • Bulk up 1%

  • Industrial down 7%

  • Premium up 5%

2020 Full Year Summary
For the full year 2020, Union Pacific reported net income of $5.3 billion or $7.88 per diluted share. Excluding the effects of the $278 million pre-tax, non-cash impairment charge, adjusted full year net income was $5.6 billion, or $8.19 per diluted share. This compares to $5.9 billion, or $8.38 per diluted share, in 2019.

Operating revenue totaled $19.5 billion compared to $21.7 billion in 2019. Operating income totaled $7.8 billion, which decreased compared to 2019. In addition:

  • Freight revenue totaled $18.3 billion, a 10% decrease compared to 2019. Carloadings were down 7% versus 2019, as all three business teams – bulk, industrial, and premium – declined due to the economic conditions brought on by the COVID-19 pandemic.

  • Union Pacific's full year 59.9% reported operating ratio when adjusted for the impairment charge is a best ever 58.5%, 210 basis points lower than 2019. Lower fuel prices positively impacted the operating ratio by 130 basis points.

  • Union Pacific's reportable personal injury rate of 0.90 incidents per 200,000 employee hours was flat compared to full year 2019. The Company's FRA reportable rail equipment incident rate of 3.54 per million train miles improved 17% compared to full year 2019.

  • Through continued implementation of precision scheduled railroading principles, Union Pacific made year-over-year improvements in its key operating performance indicators:

  • Fuel consumption rate, measured in gallons of fuel per thousand gross ton miles, improved 2% in 2020 compared to 2019.

  • Union Pacific's capital program in 2020 totaled $2.8 billion.

  • Union Pacific repurchased 22 million shares in 2020 at an aggregate cost of $3.7 billion.

2021 Outlook
"While the economic outlook for 2021 remains uncertain, we will build off our solid 2020 performance to produce continued strong productivity through operational excellence. We expect our enhanced service product will support both solid core pricing gains while also increasing our share of the freight transportation market," Fritz said. "Our confidence in our ability to drive value for all of our stakeholders has never been greater."

Fourth Quarter 2020 Earnings Conference Call
Union Pacific will webcast its fourth quarter 2020 earnings release presentation live at www.up.com/investor and via teleconference on Thursday, January 21, 2021, 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.

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 Company's expectations with respect to economic conditions and demand levels, its ability to improve network performance, its results of operations, and potential impacts of the COVID-19 pandemic. 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 2019, which was filed with the SEC on February 7, 2020, and the Company's Quarterly Report on Form 10-Q, which was filed with the SEC on July 23, 2020. 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 our 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.

UNION PACIFIC CORPORATION AND SUBSIDIARY COMPANIES

Condensed Consolidated Statements of Income (unaudited)





























Millions, Except Per Share Amounts and Percentages,

4th Quarter


Full Year

For the Periods Ended December 31,

2020

2019

%



2020

2019

%


Operating Revenues














Freight revenues

$

4,803

$

4,851

(1)

%


$

18,251

$

20,243

(10)

%

Other


338


361

(6)




1,282


1,465

(12)


Total operating revenues


5,141


5,212

(1)




19,533


21,708

(10)


Operating Expenses














Compensation and benefits


1,021


1,049

(3)




3,993


4,533

(12)


Depreciation


557


559

-




2,210


2,216

-


Purchased services and materials


492


531

(7)




1,962


2,254

(13)


Fuel


332


512

(35)




1,314


2,107

(38)


Equipment and other rents


220


230

(4)




875


984

(11)


Other


513


231

U




1,345


1,060

27


Total operating expenses


3,135


3,112

1




11,699


13,154

(11)


Operating Income


2,006


2,100

(4)




7,834


8,554

(8)


Other income


66


56

18




287


243

18


Interest expense


(279)


(278)

-




(1,141)


(1,050)

9


Income before income taxes


1,793


1,878

(5)




6,980


7,747

(10)


Income taxes


(413)


(475)

(13)




(1,631)


(1,828)

(11)


Net Income

$

1,380

$

1,403

(2)



$

5,349

$

5,919

(10)
















Share and Per Share














Earnings per share - basic

$

2.05

$

2.03

1

%


$

7.90

$

8.41

(6)

%

Earnings per share - diluted

$

2.05

$

2.02

1



$

7.88

$

8.38

(6)


Weighted average number of shares - basic


672.2


692.2

(3)




677.3


703.5

(4)


Weighted average number of shares - diluted


674.1


694.9

(3)




679.1


706.1

(4)


Dividends declared per share

$

0.97

$

0.97

-



$

3.88

$

3.70

5
















Operating Ratio


61.0%


59.7%

1.3

pts



59.9%


60.6%

(0.7)

pts

Effective Tax Rate


23.0%


25.3%

(2.3)




23.4%


23.6%

(0.2)


UNION PACIFIC CORPORATION AND SUBSIDIARY COMPANIES

Freight Revenues Statistics (unaudited)






























4th Quarter


Full Year

For the Periods Ended December 31,

2020

2019

%



2020

2019

%


Freight Revenues (Millions)














Grain & grain products

$

801

$

696

15

%


$

2,829

$

2,776

2

%

Fertilizer


161


161

-




660


653

1


Food & refrigerated


243


241

1




937


1,008

(7)


Coal & renewables


357


451

(21)




1,534


2,092

(27)


Bulk


1,562


1,549

1




5,960


6,529

(9)


Industrial chemicals & plastics


461


457

1




1,845


1,885

(2)


Metals & minerals


378


429

(12)




1,580


2,042

(23)


Forest products


307


282

9




1,160


1,160

-


Energy & specialized markets


515


626

(18)




2,037


2,385

(15)


Industrial


1,661


1,794

(7)




6,622


7,472

(11)


Automotive


486


507

(4)




1,680


2,123

(21)


Intermodal


1,094


1,001

9




3,989


4,119

(3)


Premium


1,580


1,508

5




5,669


6,242

(9)


Total

$

4,803

$

4,851

(1)

%


$

18,251

$

20,243

(10)

%

Revenue Carloads (Thousands)














Grain & grain products


216


180

20

%



745


708

5

%

Fertilizer


44


45

(2)




193


190

2


Food & refrigerated


48


45

7




185


192

(4)


Coal & renewables


190


226

(16)




797


997

(20)


Bulk


498


496

-




1,920


2,087

(8)


Industrial chemicals & plastics


148


148

-




587


611

(4)


Metals & minerals


154


165

(7)




646


744

(13)


Forest products


59


53

11




220


220

-


Energy & specialized markets


137


164

(16)




539


624

(14)


Industrial


498


530

(6)




1,992


2,199

(9)


Automotive


202


208

(3)




692


858

(19)


Intermodal [a]


853


759

12




3,149


3,202

(2)


Premium


1,055


967

9




3,841


4,060

(5)


Total


2,051


1,993

3

%



7,753


8,346

(7)

%

Average Revenue per Car














Grain & grain products

$

3,710

$

3,860

(4)

%


$

3,797

$

3,919

(3)

%

Fertilizer


3,647


3,636

-




3,427


3,448

(1)


Food & refrigerated


5,030


5,340

(6)

...


5,047


5,241

(4)


Coal & renewables


1,887


1,991

(5)




1,926


2,098

(8)


Bulk


3,139


3,121

1




3,104


3,128

(1)


Industrial chemicals & plastics


3,125


3,086

1




3,144


3,087

2


Metals & minerals


2,448


2,606

(6)




2,445


2,745

(11)


Forest products


5,184


5,313

(2)




5,269


5,264

-


Energy & specialized markets


3,747


3,818

(2)




3,780


3,821

(1)


Industrial


3,331


3,386

(2)




3,324


3,398

(2)


Automotive


2,399


2,441

(2)




2,427


2,474

(2)


Intermodal [a]


1,284


1,319

(3)




1,267


1,286

(1)


Premium


1,497


1,560

(4)




1,476


1,538

(4)


Average

$

2,341

$

2,435

(4)

%


$

2,354

$

2,425

(3)

%



[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

2020

2019

Assets





Cash and cash equivalents

$

1,799

$

831

Short-term investments


60


60

Other current assets


2,355


2,568

Investments


2,164


2,050

Net properties


54,161


53,916

Operating lease assets


1,610


1,812

Other assets


249


436

Total assets

$

62,398

$

61,673






Liabilities and Common Shareholders' Equity





Debt due within one year

$

1,069

$

1,257

Other current liabilities


3,104


3,094

Debt due after one year


25,660


23,943

Operating lease liabilities


1,283


1,471

Deferred income taxes


12,247


11,992

Other long-term liabilities


2,077


1,788

Total liabilities


45,440


43,545

Total common shareholders' equity


16,958


18,128

Total liabilities and common shareholders' equity

$

62,398

$

61,673






Return on Average Common Shareholders' Equity


30.5%


30.7%

Return on Invested Capital as Adjusted (ROIC)*


13.9%


15.0%



*

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,

2020

2019

Operating Activities





Net income

$

5,349

$

5,919

Depreciation


2,210


2,216

Deferred income taxes


340


566

Other - net


641


(92)

Cash provided by operating activities


8,540


8,609






Investing Activities





Capital investments*


(2,927)


(3,453)

Maturities of short-term investments


141


130

Purchases of short-term investments


(136)


(115)

Other - net


246


3

Cash used in investing activities


(2,676)


(3,435)






Financing Activities





Debt issued


4,004


3,986

Share repurchase programs


(3,705)


(5,804)

Dividends paid


(2,626)


(2,598)

Debt repaid


(2,053)


(817)

Debt exchange


(328)


(387)

Net issuance of commercial paper


(127)


(6)

Other - net


(67)


(20)

Cash used in financing activities


(4,902)


(5,646)






Net Change in Cash, Cash Equivalents, and Restricted Cash


962


(472)

Cash, cash equivalents, and restricted cash at beginning of year


856


1,328

Cash, Cash Equivalents, and Restricted Cash at End of Year

$

1,818

$

856






Free Cash Flow**





Cash provided by operating activities

$

8,540

$

8,609

Cash used in investing activities


(2,676)


(3,435)

Dividends paid


(2,626)


(2,598)

Free cash flow

$

3,238

$

2,576



*

Capital investments include locomotive and freight car early lease buyouts of $38 million in 2020 and $290 million in 2019.



**

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,

2020


2019

%



2020


2019

%


Operating/Performance Statistics












Freight car velocity (daily miles per car) [a]

223


220

1

%


221


209

6

%

Average train speed (miles per hour) [a] *

26.1


26.2

-



25.9


25.1

3


Average terminal dwell time (hours) [a] *

22.4


23.3

(4)



22.7


24.8

(8)


Locomotive productivity (GTMs per horsepower day)

142


126

13



137


120

14


Gross ton-miles (GTMs) (millions)

202,844


200,801

1



771,765


846,616

(9)


Train length (feet)

9,154


8,185

12



8,798


7,747

14


Intermodal car trip plan compliance (%)

83


84

(1)

pts


81


75

6

pts

Manifest/Automotive car trip plan compliance (%)

74


71

3

pts


71


65

6

pts

Workforce productivity (car miles per employee)

1,032


874

18



947


857

11


Total employees (average)

29,753


34,563

(14)



30,960


37,483

(17)














Locomotive Fuel Statistics












Average fuel price per gallon consumed

$1.45


$ 2.16

(33)

%


$ 1.50


$ 2.13

(30)

%

Fuel consumed in gallons (millions)

222


228

(3)



849


953

(11)


Fuel consumption rate**

1.092


1.140

(4)



1.100


1.126

(2)














Revenue Ton-Miles (Millions)












Grain & grain products

21,591


16,298

32

%


71,979


66,264

9

%

Fertilizer

2,932


2,809

4



12,024


11,531

4


Food & refrigerated

4,662


4,433

5



17,534


18,470

(5)


Coal & renewables

18,128


21,335

(15)



76,695


100,035

(23)


Bulk

47,313


44,875

5



178,232


196,300

(9)


Industrial chemicals & plastics

7,465


6,705

11



28,095


28,000

-


Metals & minerals

7,091


7,772

(9)



28,562


37,175

(23)


Forest products

6,206


5,734

8



23,527


23,445

-


Energy & specialized markets

9,200


12,194

(25)



36,527


45,367

(19)


Industrial

29,962


32,405

(8)



116,711


133,987

(13)


Automotive

4,337


4,395

(1)



14,835


18,349

(19)


Intermodal

19,854


18,257

9



75,198


74,797

1


Premium

24,191


22,652

7



90,033


93,146

(3)


Total

101,466


99,932

2

%


384,976


423,433

(9)

%



[a]

Prior years have been recast to conform to the current year presentation.



*

Surface Transportation Board reported performance measures.



**

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)
























2020

Millions, Except Per Share Amounts and Percentages,

1st Qtr

2nd Qtr

3rd Qtr

4th Qtr

Full Year

Operating Revenues











Freight revenues

$

4,880

$

3,972

$

4,596

$

4,803

$

18,251

Other


349


272


323


338


1,282

Total operating revenues


5,229


4,244


4,919


5,141


19,533

Operating Expenses











Compensation and benefits


1,059


905


1,008


1,021


3,993

Depreciation


547


551


555


557


2,210

Purchased services and materials


521


441


508


492


1,962

Fuel


434


247


301


332


1,314

Equipment and other rents


227


211


217


220


875

Other


298


235


299


513


1,345

Total operating expenses


3,086


2,590


2,888


3,135


11,699

Operating Income


2,143


1,654


2,031


2,006


7,834

Other income


53


131


37


66


287

Interest expense


(278)


(289)


(295)


(279)


(1,141)

Income before income taxes


1,918


1,496


1,773


1,793


6,980

Income taxes


(444)


(364)


(410)


(413)


(1,631)

Net Income

$

1,474

$

1,132

$

1,363

$

1,380

$

5,349












Share and Per Share











Earnings per share - basic

$

2.15

$

1.67

$

2.02

$

2.05

$

7.90

Earnings per share - diluted

$

2.15

$

1.67

$

2.01

$

2.05

$

7.88

Weighted average number of shares - basic


684.3


677.7


675.0


672.2


677.3

Weighted average number of shares - diluted


686.2


679.2


676.8


674.1


679.1

Dividends declared per share

$

0.97

$

0.97

$

0.97

$

0.97

$

3.88












Operating Ratio


59.0%


61.0%


58.7%


61.0%


59.9%

Effective Tax Rate


23.1%


24.3%


23.1%


23.0%


23.4%

UNION PACIFIC CORPORATION AND SUBSIDIARY COMPANIES

Freight Revenues Statistics (unaudited)
























2020


1st Qtr

2nd Qtr

3rd Qtr

4th Qtr

Full Year

Freight Revenues (Millions)











Grain & grain products

$

689

$

644

$

695

$

801

$

2,829

Fertilizer


174


168


157


161


660

Food & refrigerated


250


205


239


243


937

Coal & renewables


421


369


387


357


1,534

Bulk


1,534


1,386


1,478


1,562


5,960

Industrial chemicals & plastics


495


435


454


461


1,845

Metals & minerals


469


368


365


378


1,580

Forest products


303


266


284


307


1,160

Energy & specialized markets


627


431


464


515


2,037

Industrial


1,894


1,500


1,567


1,661


6,622

Automotive


524


189


481


486


1,680

Intermodal


928


897


1,070


1,094


3,989

Premium


1,452


1,086


1,551


1,580


5,669

Total

$

4,880

$

3,972

$

4,596

$

4,803

$

18,251

Revenue Carloads (Thousands)











Grain & grain products


175


167


187


216


745

Fertilizer


46


53


50


44


193

Food & refrigerated


48


41


48


48


185

Coal & renewables


208


186


213


190


797

Bulk


477


447


498


498


1,920

Industrial chemicals & plastics


154


141


144


148


587

Metals & minerals


174


162


156


154


646

Forest products


56


50


55


59


220

Energy & specialized markets


162


115


125


137


539

Industrial


546


468


480


498


1,992

Automotive


208


79


203


202


692

Intermodal [a]


709


724


863


853


3,149

Premium


917


803


1,066


1,055


3,841

Total


1,940


1,718


2,044


2,051


7,753

Average Revenue per Car











Grain & grain products

$

3,940

$

3,861

$

3,705

$

3,710

$

3,797

Fertilizer


3,768


3,181


3,172


3,647


3,427

Food & refrigerated


5,277


4,986


4,891


5,030


5,047

Coal & renewables


2,022


1,979


1,820


1,887


1,926

Bulk


3,219


3,099


2,964


3,139


3,104

Industrial chemicals & plastics


3,205


3,086


3,154


3,125


3,144

Metals & minerals


2,697


2,276


2,337


2,448


2,445

Forest products


5,457


5,256


5,181


5,184


5,269

Energy & specialized markets


3,866


3,739


3,742


3,747


3,780

Industrial


3,469


3,201


3,271


3,331


3,324

Automotive


2,525


2,388


2,368


2,399


2,427

Intermodal [a]


1,307


1,241


1,238


1,284


1,267

Premium


1,583


1,354


1,454


1,497


1,476

Average

$

2,516

$

2,312

$

2,248

$

2,341

$

2,354



[a]

For intermodal shipments, each container or trailer equals one carload.

UNION PACIFIC CORPORATION AND SUBSIDIARY COMPANIES

Reconciliation of Non-GAAP Financial Measures









Adjusted Debt / Adjusted EBITDA*







Millions, Except Ratios

Dec. 31,

Dec. 31,

Dec. 31,

for the Twelve Months Ended

2020

2019

2018

Net income

$

5,349

$

5,919

$

5,966

Add:







Income tax expense/(benefit)


1,631


1,828


1,775

Depreciation


2,210


2,216


2,191

Interest expense


1,141


1,050


870

EBITDA

$

10,331

$

11,013

$

10,802

Adjustments:







Other income


(287)


(243)


(94)

Interest on operating lease liabilities**


59


68


84

Adjusted EBITDA

$

10,103

$

10,838

$

10,792

Debt

$

26,729

$

25,200

$

22,391

Operating lease liabilities***


1,604


1,833


2,271

Unfunded pension and OPEB,







net of taxes of $195, $124, and $135


637


400


456

Adjusted debt

$

28,970

$

27,433

$

25,118

Adjusted debt / Adjusted EBITDA


2.9


2.5


2.3








Comparable Adjusted Debt / Adjusted EBITDA*








Dec. 31,

Dec. 31,

Dec. 31,


2020

2019

2018

Adjusted debt / Adjusted EBITDA


2.9


2.5


2.3

Factors Affecting Comparability:







Brazos yard impairment [a]


(0.1)


N/A


N/A

Comparable Adjusted Debt / Adjusted EBITDA*

2.8

2.5

2.3



[a]

Adjustments remove the impact of $209 million from net income and $69 million from income tax expense for the year ended December 31, 2020. See page 10 for a reconciliation to GAAP.



*

Total debt plus operating lease liabilities plus after-tax unfunded pension and OPEB obligation 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, 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, net income. The tables above provide reconciliations from net income to adjusted debt to adjusted EBITDA and comparable adjusted debt to adjusted EBITDA. At December 31, 2020, 2019, and 2018, the incremental borrowing rate on operating leases was 3.7%.



**

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.



***

Effective January 1, 2019, the Company adopted Accounting Standards Update No. 2016-02 (ASU 2016-02), Leases. ASU 2016-02 requires companies to recognize lease assets and lease liabilities on the balance sheet. Prior to adoption, the present value of operating leases was used in this calculation.

UNION PACIFIC CORPORATION AND SUBSIDIARY COMPANIES

Reconciliation of Non-GAAP Financial Measures















Return on Average Common Shareholders' Equity














Millions, Except Percentages

2020

2019

2018

Net income

$

5,349

$

5,919

$

5,966

Average equity

$

17,543

$

19,276

$

22,640

Return on average common shareholders' equity


30.5%


30.7%


26.4%








Return on Invested Capital as Adjusted (ROIC)*











Millions, Except Percentages

2020

2019

2018

Net income

$

5,349

$

5,919

$

5,966

Interest expense


1,141


1,050


870

Interest on average operating lease liabilities


64


76


82

Taxes on interest


(282)


(266)


(218)

Net operating profit after taxes as adjusted

$

6,272

$

6,779

$

6,700

Average equity

$

17,543

$

19,276

$

22,640

Average debt


25,965


23,796


19,668

Average operating lease liabilities


1,719


2,052


2,206

Average invested capital as adjusted

$

45,227

$

45,124

$

44,514

Return on invested capital as adjusted


13.9%


15.0%


15.1%








Comparable Return on Invested Capital as Adjusted (Comparable ROIC)*






2020

2019

2018

Return on invested capital as adjusted


13.9%


15.0%


15.1%

Factors Affecting Comparability:







Brazos yard impairment [a]


0.4


N/A


N/A

Comparable return on invested capital as adjusted

14.3%

15.0%

15.1%



[a]

Adjustments remove the impact of $209 million from both net income for the year ended and shareholders' equity as of December 31, 2020. 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 criteria 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, 2020, 2019, and 2018, the incremental borrowing rate on operating leases was 3.7%.


UNION PACIFIC CORPORATION AND SUBSIDIARY COMPANIES

Reconciliation of Non-GAAP Financial Measures












Financial Performance*










Millions, Except Per Share Amounts and Percentages


Reported results


Brazos Yard


Adjusted results

For the Three Months Ended December 31, 2020

(GAAP)

Impairment

(non-GAAP)

Operating expense

$

3,135


$

(278)


$

2,857


Operating income


2,006



278



2,284


Income taxes


413



69



482


Net income

$

1,380


$

209


$

1,589


Diluted EPS

$

2.05


$

0.31


$

2.36


Operating ratio


61.0

%


(5.4)

pts


55.6

%











Millions, Except Per Share Amounts and Percentages


Reported results


Brazos Yard


Adjusted results


(GAAP)

Impairment

(non-GAAP)

For the Year Ended December 31, 2020










Operating expense

$

11,699


$

(278)


$

11,421


Operating income


7,834



278



8,112


Income taxes


1,631



69



1,700


Net income

$

5,349


$

209


$

5,558


Diluted EPS

$

7.88


$

0.31


$

8.19


Operating ratio


59.9

%


(1.4)

pts


58.5

%

As of December 31, 2020










Shareholders' equity

$

16,958


$

209


$

17,167




*

The above tables reconcile our results for the three-months and year ended December 31, 2020, and as of December 31, 2020, to adjust results that exclude the impact of certain items identified as affecting comparability. We use adjusted operating expense, adjusted operating income, adjusted income taxes, adjusted net income, adjusted diluted earnings per share (EPS), 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, operating expense, operating income, income taxes, net income, diluted EPS, operating ratio, and shareholders' equity as indicators of operating performance.

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SOURCE Union Pacific Corporation