Union Pacific Corporation — 2021 Form 10-K
Reporting period: Fiscal year ended December 31, 2021. This is an annual report, not a standalone fourth-quarter filing. Union Pacific operates a single integrated Class I railroad segment, serving 23 states across the western two-thirds of the United States, with connections to Canada and Mexico.
Financial and operating performance
| Metric | 2021 | 2020 | Change |
|---|---|---|---|
| Total operating revenue | $21.804 billion | $19.533 billion | +12% |
| Freight revenue | $20.244 billion | $18.251 billion | +11% |
| Operating expenses | $12.466 billion | $11.699 billion | +7% |
| Operating income | $9.338 billion | $7.834 billion | +19% |
| Net income | $6.523 billion | $5.349 billion | +22% |
| Diluted EPS | $9.95 | $7.88 | +26% |
| Operating ratio | 57.2% | 59.9% | Improved 2.7 points |
| Cash from operating activities | $9.032 billion | $8.540 billion | +$492 million |
| Cash capital investments | $2.936 billion | $2.927 billion | +$9 million |
Freight volume, measured in carloads, increased 4% year over year, but remained 4% below 2019 levels. Revenue growth reflected higher volumes, fuel surcharges, core pricing and favorable traffic mix. Fuel surcharge revenue rose to $1.7 billion from $1.0 billion. Average diesel fuel cost increased 49% to $2.23 per gallon; a 1% improvement in fuel consumption helped offset the increase.
Operating expenses rose amid higher fuel prices, volume-related costs, inflation, weather-related disruption and casualty costs. The 2020 comparison included a $278 million non-cash impairment charge related to the Brazos yard. Management reported record operating ratio and a record-low fuel consumption rate. Freight car velocity fell 8%; intermodal and manifest/automotive trip-plan compliance each declined 8 percentage points.
Cash, liquidity and capital structure
- Year-end cash and cash equivalents were $960 million, down from $1.799 billion. The company reported $9.032 billion in operating cash flow and $3.523 billion in free cash flow, a non-GAAP measure defined as operating cash flow less investing cash flow and dividends.
- Cash used in investing activities was $2.709 billion; cash used in financing activities was $7.158 billion. The company paid $2.8 billion in dividends and repurchased $7.3 billion of shares during 2021.
- Total debt was $29.729 billion, compared with $26.729 billion at year-end 2020. Adjusted debt to adjusted EBITDA, a non-GAAP measure, was 2.7x versus 2.9x. Interest expense was $1.157 billion; the effective interest rate was 4.1%.
- Available liquidity included $2.0 billion under an undrawn revolving credit facility and up to $500 million of additional Receivables Facility capacity. The company had $300 million drawn under that facility, $400 million of commercial paper and a $100 million term loan outstanding.
- Current liabilities exceeded current assets at year-end, primarily because of upcoming debt maturities. Management said working-capital deficits are not unusual for the company and did not indicate insufficient liquidity; it reported compliance with debt covenants.
Outlook, commentary and risks
For 2022, management expected volume to outpace industrial production, continued margin improvement from pricing above inflation and efficiency initiatives, and strong operating cash flow. It forecast a capital plan of approximately $3.3 billion, up 10% from 2021. The filing does not provide specific numerical guidance for revenue, EPS or operating ratio. Management cautioned that COVID-related uncertainty, supply-chain disruptions, fuel-price volatility and economic conditions could materially affect results.
Management identified safety as an area needing improvement: the personal injury rate increased 9% and the equipment incident rate increased 7% year over year. A third-party review of safety programs produced recommendations for implementation in 2022. Other material risks include severe weather and network disruptions, capacity and service constraints, hazardous-material incidents, cyberattacks, labor negotiations and potential work stoppages, regulatory changes, environmental obligations, fuel-price movements, competition and international trade exposure.
The company reported a pending antitrust multidistrict litigation alleging that railroads agreed on fuel surcharges; Union Pacific denied the allegations and said it believed the claims were without merit. It stated that known claims, environmental matters and contingencies were not expected to have a material adverse effect, while noting that actual costs and outcomes remain uncertain. Recorded environmental liabilities were $243 million across 376 identified sites; the personal-injury liability was $325 million, with reasonably possible settlement costs estimated at $325 million to $358 million.
Union Pacific released an initial Climate Action Plan in December 2021, with 2030 emissions-reduction goals and a commitment to net-zero emissions by 2050. The company noted that climate impacts and the costs of reaching targets are uncertain. The independent auditor issued unqualified opinions on the financial statements and internal control over financial reporting; capitalization of property was identified as a critical audit matter.
Important facts for investors to verify
- Whether service reliability and safety improve, given weaker 2021 velocity, trip-plan compliance and safety measures.
- How much of 2021 revenue and earnings growth came from sustainable pricing, volume and productivity versus fuel surcharges, accessorial charges and recovery from 2020 conditions.
- Debt maturities, refinancing needs, access to commercial paper and receivables financing, and continued covenant compliance.
- The pace and cost of the $3.3 billion 2022 capital plan, and whether expected growth and efficiency benefits are realized.
- Developments in fuel-surcharge recovery, supply-chain and labor constraints, the antitrust litigation, and environmental and personal-injury exposures.