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Published: 2022-01-20 00:00:00 ET

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Exhibit 99.1

Union Pacific Reports Fourth Quarter and Full Year 2021 Results

Omaha, Neb., January 20, 2022 – Union Pacific Corporation (NYSE: UNP) today reported 2021 fourth quarter net income of $1.7 billion, or $2.66 per diluted share. This compares to adjusted 2020 fourth quarter net income of $1.6 billion, or $2.36 per diluted share. The 2020 adjusted results exclude a $278 million pre-tax, non-cash impairment charge.

Reported net income for the full year 2021 was $6.5 billion, or $9.95 per diluted share. These full year results compare to adjusted full year 2020 net income of $5.6 billion, or $8.19 per diluted share, which excludes the impairment charge.

“The Union Pacific team concluded its most profitable year ever in 2021. We produced double digit fourth quarter revenue growth by leveraging our great rail franchise to generate positive business mix and core pricing gains, despite ongoing global supply chain challenges that impacted volumes,” said Lance Fritz, Union Pacific chairman, president and chief executive officer. “For the third consecutive year we improved our fuel consumption rate, taking steps to reduce our carbon footprint and meet the goals of our 2021 Climate Action Plan. While our safety and operational performance in 2021 did not meet expectations, we look to convert recent progress into sustained improvement in 2022. Although uncertainty remains around COVID variants and supply chain disruptions, we see a positive demand environment in 2022 and continued traction from business development efforts driving growth as we deliver value to all our stakeholders.”

Fourth Quarter Summary

Financial Results: Strong Revenue Growth Drives Fourth Quarter Records for Operating Income, Net Income, and Earnings Per Share

Fourth Quarter 2021 Compared to Adjusted Fourth Quarter 2020*

●

Operating revenue of $5.7 billion was up 12% driven by higher fuel surcharge revenue, a positive business mix, and core pricing gains, partially offset by lower volumes.

●

Business volumes, as measured by total revenue carloads, were down 4%.

●

Union Pacific’s 57.4% operating ratio deteriorated 180 basis points. Higher fuel prices negatively impacted the operating ratio by 100 basis points.

●

Operating Income of $2.4 billion was up 7%.

●

The company repurchased 5.8 million shares in fourth quarter 2021 at an aggregate cost of $1.4 billion.

* 2020 results exclude the Brazos non-cash impairment charge. Please reference page 10 of the supplemental financial information for the reconciliation to GAAP.

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-2-

Operating Performance: Network Recovery Efforts Slowed by COVID Impacts to Crew Availability

Fourth Quarter 2021 Compared to Fourth Quarter 2020

●

Quarterly freight car velocity of 197 daily miles per car, a 12% decline.

●

Quarterly locomotive productivity was 129 gross ton-miles (GTMs) per horsepower day, an 9% decline.

●

Average maximum train length was 9,319 feet, a 2% increase.

●

Quarterly workforce productivity was 1,046 car miles per employee, a 1% improvement

●

Fuel consumption rate, measured in gallons of fuel per thousand GTMs, was flat.

2021 Full Year Summary

Financial Results: Revenue Growth and Margin Improvement Drives Records for Operating Income, Operating Ratio, Net Income, and Earnings Per Share

Full Year 2021 Compared to Adjusted Full Year 2020*

●

Operating revenue of $21.8 billion was up 12% driven by volume growth, higher fuel surcharge revenue, core pricing gains, and a positive business mix.

●

Business volumes, as measured by total revenue carloads, were up 4%.

●

Union Pacific’s 57.2% operating ratio deteriorated 130 basis points. Higher fuel prices negatively impacted the operating ratio by 140 basis points.

	●	Operating Income of $9.3 billion was up 15%.
	●	Union Pacific's capital program in 2021 totaled $3.0 billion.

●

The company repurchased 33.3 million shares in 2021 at an aggregate cost of $7.3 billion.

* 2020 results exclude the Brazos non-cash impairment charge. Please reference page 10 of the supplemental financial information for the reconciliation to GAAP.

Operating Performance: Network Operations Challenged by Weather Events, Wildfires, COVID Impacted Crew Availability, and Supply Chain Disruptions

Full Year 2021 Compared to Full Year 2020

	●	Union Pacific’s reportable personal injury rate deteriorated to 0.98 per 200,000 employee-hours compared to 0.90 for full year 2020
	●	Freight car velocity of 203 daily miles per car, an 8% decline.

●

Locomotive productivity was 133 GTMs per horsepower day, a 3% decline.

●

Average maximum train length was 9,334 feet, a 6% increase.

●

Workforce productivity was 1,038 car miles per employee, a 10% improvement

●

Fuel consumption rate, measured in gallons of fuel per thousand GTMs, improved 1%.

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Fourth Quarter 2021 Earnings Conference Call

Union Pacific will webcast its fourth quarter 2021 earnings release presentation live at www.up.com/investor and via teleconference on Thursday, January 20, 2022, 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.

Union Pacific Investor contact: Brad Stock at 402-544-4227 or bkstock@up.com

Union Pacific Media contact: Clarissa Beyah at 402-957-4793 or cbeyah@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 2020, which was filed with the SEC on February 5, 2021. 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,	*2021*			2020			%			*2021*			2020			%
Operating Revenues
Freight revenues	$	5,297		$	4,803			10	%	$	20,244		$	18,251			11	%
Other		436			338			29			1,560			1,282			22
Total operating revenues		5,733			5,141			12			21,804			19,533			12
Operating Expenses
Compensation and benefits		1,070			1,021			5			4,158			3,993			4
Depreciation		556			557			-			2,208			2,210			-
Fuel		597			332			80			2,049			1,314			56
Purchased services and materials		538			492			9			2,016			1,962			3
Equipment and other rents		230			220			5			859			875			(2	)
Other		302			513			(41	)		1,176			1,345			(13	)
Total operating expenses		3,293			3,135			5			12,466			11,699			7
Operating Income		2,440			2,006			22			9,338			7,834			19
Other income		83			66			26			297			287			3
Interest expense		(295	)		(279	)		6			(1,157	)		(1,141	)		1
Income before income taxes		2,228			1,793			24			8,478			6,980			21
Income taxes		(517	)		(413	)		25			(1,955	)		(1,631	)		20
Net Income	$	1,711		$	1,380			24		$	6,523		$	5,349			22

Share and Per Share
Earnings per share - basic	$	2.67		$	2.05			30	%	$	9.98		$	7.90			26	%
Earnings per share - diluted	$	2.66		$	2.05			30		$	9.95		$	7.88			26
Weighted average number of shares - basic		640.4			672.2			(5	)		653.8			677.3			(3	)
Weighted average number of shares - diluted		642.1			674.1			(5	)		655.4			679.1			(3	)
Dividends declared per share	$	1.18		$	0.97			22		$	4.29		$	3.88			11

Operating Ratio		57.4	%		61.0	%		(3.6	)pts		57.2	%		59.9	%		(2.7	)pts
Effective Tax Rate		23.2	%		23.0	%		0.2			23.1	%		23.4	%		(0.3	)

UNION PACIFIC CORPORATION AND SUBSIDIARY COMPANIES

Freight Revenues Statistics (unaudited)

	*4th Quarter*							*Full Year*
For the Periods Ended December 31,	*2021*		2020		%			*2021*		2020		%
*Freight Revenues (Millions)*
Grain & grain products	$	889	$	801		11	%	$	3,181	$	2,829		12	%
Fertilizer		176		161		9			697		660		6
Food & refrigerated		259		243		7			998		937		7
Coal & renewables		485		357		36			1,780		1,534		16
Bulk		1,809		1,562		16			6,656		5,960		12
Industrial chemicals & plastics		507		461		10			1,943		1,845		5
Metals & minerals		481		378		27			1,811		1,580		15
Forest products		351		307		14			1,357		1,160		17
Energy & specialized markets		558		515		8			2,212		2,037		9
Industrial		1,897		1,661		14			7,323		6,622		11
Automotive		469		486		(3	)		1,761		1,680		5
Intermodal		1,122		1,094		3			4,504		3,989		13
Premium		1,591		1,580		1			6,265		5,669		11
Total	$	5,297	$	4,803		10	%	$	20,244	$	18,251		11	%
*Revenue Carloads (Thousands)*
Grain & grain products		213		216		(1	)%		805		745		8	%
Fertilizer		48		44		9			201		193		4
Food & refrigerated		48		48		-			189		185		2
Coal & renewables		215		190		13			819		797		3
Bulk		524		498		5			2,014		1,920		5
Industrial chemicals & plastics		157		148		6			606		587		3
Metals & minerals		181		154		18			697		646		8
Forest products		63		59		7			250		220		14
Energy & specialized markets		137		137		-			559		539		4
Industrial		538		498		8			2,112		1,992		6
Automotive		182		202		(10	)		701		692		1
Intermodal [a]		728		853		(15	)		3,211		3,149		2
Premium		910		1,055		(14	)		3,912		3,841		2
Total		1,972		2,051		(4	)%		8,038		7,753		4	%
*Average Revenue per Car*
Grain & grain products	$	4,187	$	3,710		13	%	$	3,953	$	3,797		4	%
Fertilizer		3,705		3,647		2			3,470		3,427		1
Food & refrigerated		5,409		5,030		8			5,279		5,047		5
Coal & renewables		2,251		1,887		19			2,173		1,926		13
Bulk		3,457		3,139		10			3,305		3,104		6
Industrial chemicals & plastics		3,242		3,125		4			3,207		3,144		2
Metals & minerals		2,659		2,448		9			2,598		2,445		6
Forest products		5,521		5,184		7			5,424		5,269		3
Energy & specialized markets		4,054		3,747		8			3,956		3,780		5
Industrial		3,522		3,331		6			3,467		3,324		4
Automotive		2,576		2,399		7			2,511		2,427		3
Intermodal [a]		1,541		1,284		20			1,403		1,267		11
Premium		1,748		1,497		17			1,601		1,476		8
Average	$	2,686	$	2,341		15	%	$	2,519	$	2,354		7	%

[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		*2021*				2020
Assets
Cash and cash equivalents		$	960			$	1,799
Short-term investments			46				60
Other current assets			2,545				2,355
Investments			2,241				2,164
Properties, net			54,871				54,161
Operating lease assets			1,787				1,610
Other assets			1,075				249
Total assets		$	63,525			$	62,398

Liabilities and Common Shareholders' Equity
Debt due within one year		$	2,166			$	1,069
Other current liabilities			3,578				3,104
Debt due after one year			27,563				25,660
Operating lease liabilities			1,429				1,283
Deferred income taxes			12,675				12,247
Other long-term liabilities			1,953				2,077
Total liabilities			49,364				45,440
Total common shareholders' equity			14,161				16,958
Total liabilities and common shareholders' equity		$	63,525			$	62,398

Return on Average Common Shareholders' Equity			41.9	%			30.5	%
Return on Invested Capital as Adjusted (ROIC)*			16.4	%			13.9	%

*	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,	*2021*			2020
Operating Activities
Net income	$	6,523		$	5,349
Depreciation		2,208			2,210
Deferred and other income taxes		154			340
Other - net		147			641
Cash provided by operating activities		9,032			8,540

Investing Activities
Capital investments*		(2,936	)		(2,927	)
Maturities of short-term investments		94			141
Purchases of short-term investments		(70	)		(136	)
Other - net		203			246
Cash used in investing activities		(2,709	)		(2,676	)

Financing Activities
Share repurchase programs		(7,291	)		(3,705	)
Debt issued		4,201			4,004
Dividends paid		(2,800	)		(2,626	)
Debt repaid		(1,299	)		(2,053	)
Net issuance of commercial paper		325			(127	)
Debt exchange		(270	)		(328	)
Other - net		(24	)		(67	)
Cash used in financing activities		(7,158	)		(4,902	)

Net Change in Cash, Cash Equivalents, and Restricted Cash		(835	)		962
Cash, cash equivalents, and restricted cash at beginning of year		1,818			856
Cash, Cash Equivalents, and Restricted Cash at End of Year	$	983		$	1,818

Free Cash Flow**
Cash provided by operating activities	$	9,032		$	8,540
Cash used in investing activities		(2,709	)		(2,676	)
Dividends paid		(2,800	)		(2,626	)
Free cash flow	$	3,523		$	3,238

*	Capital investments include locomotive and freight car early lease buyouts of $34 million in 2021 and $38 million in 2020.

**	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,	*2021*		2020		%			*2021*		2020		%
Operating/Performance Statistics
Freight car velocity (daily miles per car)		197		223		(12	)%		203		221		(8	)%
Average train speed (miles per hour) *		24.2		26.1		(7	)		24.6		25.9		(5	)
Average terminal dwell time (hours) *		24.4		22.4		9			23.7		22.7		4
Locomotive productivity (GTMs per horsepower day)		129		142		(9	)		133		137		(3	)
Gross ton-miles (GTMs) (millions)		209,970		202,844		4			817,919		771,765		6
Train length (feet)		9,319		9,154		2			9,334		8,798		6
Intermodal car trip plan compliance (%)		78		83		(5	)pts		73		81		(8	)pts
Manifest/Automotive car trip plan compliance (%)		58		74		(16	)pts		63		71		(8	)pts
Workforce productivity (car miles per employee)		1,046		1,032		1			1,038		947		10
Total employees (average)		29,989		29,753		1			29,905		30,960		(3	)

Locomotive Fuel Statistics
Average fuel price per gallon consumed	$	2.53	$	1.45		74	%	$	2.23	$	1.50		49	%
Fuel consumed in gallons (millions)		228		222		3			888		849		5
Fuel consumption rate**		1.088		1.092		-			1.086		1.100		(1	)

Revenue Ton-Miles (Millions)
Grain & grain products		21,656		21,591		-	%		79,520		71,979		10	%
Fertilizer		3,185		2,932		9			12,387		12,024		3
Food & refrigerated		4,651		4,662		-			18,475		17,534		5
Coal & renewables		22,795		18,128		26			85,586		76,695		12
Bulk		52,287		47,313		11			195,968		178,232		10
Industrial chemicals & plastics		7,257		7,465		(3	)		30,048		28,095		7
Metals & minerals		8,611		7,091		21			32,993		28,562		16
Forest products		6,458		6,206		4			25,863		23,527		10
Energy & specialized markets		9,420		9,200		2			37,902		36,527		4
Industrial		31,746		29,962		6			126,806		116,711		9
Automotive		3,830		4,337		(12	)		14,879		14,835		-
Intermodal		16,977		19,854		(14	)		73,620		75,198		(2	)
Premium		20,807		24,191		(14	)		88,499		90,033		(2	)
Total		104,840		101,466		3	%		411,273		384,976		7	%

*	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)

		*2021*
Millions, Except Per Share Amounts and Percentages,	*1st Qtr*			*2nd Qtr*			*3rd Qtr*			*4th Qtr*			*Full Year*
Operating Revenues
Freight revenues		$	4,649		$	5,132		$	5,166		$	5,297		$	20,244
Other			352			372			400			436			1,560
Total operating revenues			5,001			5,504			5,566			5,733			21,804
Operating Expenses
Compensation and benefits			1,026			1,022			1,040			1,070			4,158
Depreciation			549			550			553			556			2,208
Fuel			411			497			544			597			2,049
Purchased services and materials			490			478			510			538			2,016
Equipment and other rents			212			200			217			230			859
Other			320			284			270			302			1,176
Total operating expenses			3,008			3,031			3,134			3,293			12,466
Operating Income			1,993			2,473			2,432			2,440			9,338
Other income			51			125			38			83			297
Interest expense			(290	)		(282	)		(290	)		(295	)		(1,157	)
Income before income taxes			1,754			2,316			2,180			2,228			8,478
Income taxes			(413	)		(518	)		(507	)		(517	)		(1,955	)
Net Income		$	1,341		$	1,798		$	1,673		$	1,711		$	6,523

Share and Per Share
Earnings per share - basic		$	2.01		$	2.73		$	2.58		$	2.67		$	9.98
Earnings per share - diluted		$	2.00		$	2.72		$	2.57		$	2.66		$	9.95
Weighted average number of shares - basic			667.6			658.5			648.7			640.4			653.8
Weighted average number of shares - diluted			669.2			660.1			650.3			642.1			655.4
Dividends declared per share		$	0.97		$	1.07		$	1.07		$	1.18		$	4.29

Operating Ratio			60.1	%		55.1	%		56.3	%		57.4	%		57.2	%
Effective Tax Rate			23.5	%		22.4	%		23.3	%		23.2	%		23.1	%

UNION PACIFIC CORPORATION AND SUBSIDIARY COMPANIES

Freight Revenues Statistics (unaudited)

		*2021*
	*1st Qtr*			*2nd Qtr*			*3rd Qtr*			*4th Qtr*			*Full Year*
*Freight Revenues (Millions)*
Grain & grain products		$	766		$	795		$	731		$	889		$	3,181
Fertilizer			170			179			172			176			697
Food & refrigerated			235			251			253			259			998
Coal & renewables			341			423			531			485			1,780
Bulk			1,512			1,648			1,687			1,809			6,656
Industrial chemicals & plastics			435			498			503			507			1,943
Metals & minerals			375			467			488			481			1,811
Forest products			316			348			342			351			1,357
Energy & specialized markets			530			546			578			558			2,212
Industrial			1,656			1,859			1,911			1,897			7,323
Automotive			447			428			417			469			1,761
Intermodal			1,034			1,197			1,151			1,122			4,504
Premium			1,481			1,625			1,568			1,591			6,265
Total		$	4,649		$	5,132		$	5,166			5,297			20,244
*Revenue Carloads (Thousands)*
Grain & grain products			203			204			185			213			805
Fertilizer			44			54			55			48			201
Food & refrigerated			45			48			48			48			189
Coal & renewables			174			198			232			215			819
Bulk			466			504			520			524			2,014
Industrial chemicals & plastics			140			156			153			157			606
Metals & minerals			146			182			188			181			697
Forest products			60			64			63			63			250
Energy & specialized markets			139			138			145			137			559
Industrial			485			540			549			538			2,112
Automotive			180			173			166			182			701
Intermodal [a]			796			878			809			728			3,211
Premium			976			1,051			975			910			3,912
Total			1,927			2,095			2,044			1,972			8,038
*Average Revenue per Car*
Grain & grain products		$	3,782		$	3,894		$	3,937		$	4,187		$	3,953
Fertilizer			3,852			3,304			3,125			3,705			3,470
Food & refrigerated			5,234			5,226			5,246			5,409			5,279
Coal & renewables			1,958			2,134			2,298			2,251			2,173
Bulk			3,246			3,266			3,244			3,457			3,305
Industrial chemicals & plastics			3,113			3,189			3,277			3,242			3,207
Metals & minerals			2,563			2,569			2,596			2,659			2,598
Forest products			5,244			5,463			5,457			5,521			5,424
Energy & specialized markets			3,828			3,944			3,996			4,054			3,956
Industrial			3,417			3,442			3,482			3,522			3,467
Automotive			2,485			2,479			2,500			2,576			2,511
Intermodal [a]			1,299			1,363			1,424			1,541			1,403
Premium			1,517			1,547			1,608			1,748			1,601
Average		$	2,413		$	2,449		$	2,528		$	2,686		$	2,519

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

UNION PACIFIC CORPORATION AND SUBSIDIARY COMPANIES

Non-GAAP Measures Reconciliation to GAAP

Adjusted Debt / Adjusted EBITDA*
Millions, Except Ratios	*Dec. 31,*			Dec. 31,			Dec. 31,
for the Twelve Months Ended		*2021*			2020			2019
Net income		$	6,523		$	5,349		$	5,919
Add:
Income tax expense/(benefit)			1,955			1,631			1,828
Depreciation			2,208			2,210			2,216
Interest expense			1,157			1,141			1,050
EBITDA		$	11,843		$	10,331		$	11,013
Adjustments:
Other income, net			(297	)		(287	)		(243	)
Interest on operating lease liabilities**			56			59			68
Adjusted EBITDA		$	11,602		$	10,103		$	10,838
Debt		$	29,729		$	26,729		$	25,200
Operating lease liabilities			1,759			1,604			1,833
Unfunded/(funded) pension and other postretirement benefits,
net of tax cost/(benefit) of ($21), $195, and $124			(72	)		637			400
Adjusted debt		$	31,416		$	28,970		$	27,433
Adjusted debt / Adjusted EBITDA			2.7			2.9			2.5

Comparable Adjusted Debt / Adjusted EBITDA*

Dec. 31,

Dec. 31,

2021

2020

2019

Adjusted debt / Adjusted EBITDA

2.7

2.9

2.5

Factors Affecting Comparability:

Brazos yard impairment [a]

N/A

(0.1

)

N/A

Comparable Adjusted Debt / Adjusted EBITDA*

2.7

2.8

2.5

[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 other postretirement 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 a non-GAAP financial measure 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 table above provides reconciliations from net income to adjusted debt to adjusted EBITDA and comparable adjusted debt to adjusted EBITDA. At December 31, 2021, 2020, and 2019, the incremental borrowing rate on operating lease liabilities was 3.2%, 3.7% and 3.7%, respectively.

**	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

*Return on Average Common Shareholders' Equity*
Millions, Except Percentages	*2021*		2020		2019
Net income	$	6,523	$	5,349	$	5,919
Average equity	$	15,560	$	17,543	$	19,276
Return on average common shareholders' equity		41.9%		30.5%		30.7%

Return on Invested Capital as Adjusted (ROIC)*
Millions, Except Percentages	*2021*		2020		2019
Net income	$	6,523	$	5,349	$	5,919
Interest expense		1,157		1,141		1,050
Interest on average operating lease liabilities		54		64		76
Taxes on interest		(280)		(282)		(266)
Net operating profit after taxes as adjusted	$	7,454	$	6,272	$	6,779
Average equity	$	15,560	$	17,543	$	19,276
Average debt		28,229		25,965		23,796
Average operating lease liabilities		1,682		1,719		2,052
Average invested capital as adjusted	$	45,471	$	45,227	$	45,124
Return on invested capital as adjusted		16.4%		13.9%		15.0%

Comparable Return on Invested Capital as Adjusted (Comparable ROIC)*
	*2021*		2020		2019
Return on invested capital as adjusted		16.4%		13.9%		15.0%
Factors Affecting Comparability:
Brazos yard impairment [a]		N/A		0.4		N/A
Comparable return on invested capital as adjusted	16.4%		14.3%		15.0%

[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 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, 2021, 2020, and 2019, the incremental borrowing rate on operating leases was 3.2%, 3.7% and 3.7%, respectively.

UNION PACIFIC CORPORATION AND SUBSIDIARY COMPANIES

Non-GAAP Measures Reconciliation to GAAP

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	%

	Reported results				Brazos Yard					Adjusted results
Millions, Except Per Share Amounts and Percentages	(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.