UNP 10-K diff: FY 2023-12-31 → FY 2025-12-31

Paragraph-level diff of Risk Factors (Item 1A) and Management's Discussion & Analysis (Item 7).

Item 1A · Risk Factors

+77 paragraphs −26 paragraphs ~26 changed

FY 2023-12-31 (earlier)

FY 2025-12-31 (later)

Item 1A. Risk Factors The following discussion addresses significant factors, events, and uncertainties that make an investment in our securities risky and provides important information for the understanding of our “forward-looking statements,” which are discussed immediately preceding Item 7A of this Form 10-K and elsewhere. The risk factors set forth in this Item 1A should be read in conjunction with the rest of the information included in this report, including Management’s Discussion and Analysis of Financial Condition and Results of Operations, Item 7, and Financial Statements and Supplementary Data, Item 8.We urge you to consider carefully the factors described below and the risks that they present for our operations as well as the risks addressed in other reports and materials that we file with the SEC and the other information included or incorporated by reference in this Form 10-K. When the factors, events, and contingencies described below or elsewhere in this Form 10-K materialize, our business, reputation, financial condition, results of operations, cash flows, or prospects can be materially adversely affected. In such case, the trading price of our common stock could decline, and you could lose part or all of your investment. The disclosures in this section reflect our beliefs and opinions as to factors that could materially and adversely affect us in the future. References to past events are provided by way of example only and are not intended to be a complete listing or a representation as to whether or not such factors have occurred in the past or their likelihood of occurring in the future. Additional risks and uncertainties not currently known to us or that we currently deem immaterial may also materially adversely affect our business, reputation, financial condition, results of operations, cash flows, and prospects. Strategic and operational risks We must manage fluctuating demand for our services and network capacity – Significant reductions in demand for rail services with respect to one or more commodities or changes in consumer preferences that affect the businesses of our customers can lead to increased costs associated with resizing our operations, including higher unit operating costs and costs for the storage of locomotives, rail cars, and other equipment; workforce adjustments; and other related activities, which could have a material adverse effect on our results of operations, financial condition, and liquidity. If there is significant demand for our services that exceeds the designed capacity of our network or shifts in traffic flow that are contrary to the designed capacity of our network, we can experience challenges, including congestion and reduced velocity, that could compromise the level of service we provide to our customers. This level of demand also can compound the impact of weather and weather-related events on our operations and velocity. We cannot be sure that our efforts to improve our transportation plan, add capacity, improve operations at our yards and other facilities, and improve our ability to address surges in demand for any reason by carrying a resource buffer will fully or adequately address any service shortcomings resulting from demand exceeding our planned capacity. From time to time we also experience other operational or service challenges related to network capacity, dramatic and unplanned fluctuations in our customers’ demand for rail service with respect to one or more commodities or operating regions, or other events that could negatively impact our operational efficiency, any or all of which could have a material adverse effect on our results of operations, financial condition, and liquidity. We transport hazardous materials – We transport certain hazardous materials and other materials, including crude oil, ethanol, and toxic inhalation hazard (TIH) materials, such as chlorine, that pose certain risks in the event of a release or combustion. Additionally, U.S. laws impose common carrier obligations on railroads that require us to transport certain hazardous materials regardless of risk or potential exposure to loss. An accident or other incident on our network, at our facilities, or at the facilities of our customers involving the release or combustion of hazardous materials can involve significant costs and claims for personal injury, property damage, and environmental penalties and remediation in excess of our insurance coverage for these risks, which could harm our reputation or have a material adverse effect on our results of operations, financial condition, and liquidity.10 Table of ContentsThe ability to update or maintain technology could adversely affect our operations – We rely on information technology in all aspects of our business, including technology systems operated by us (whether created by us or purchased), under control of third parties, and open-source software. If we do not have sufficient capital or do not deploy sufficient capital in a timely manner to acquire, develop, or implement new technology or maintain or upgrade current systems, such as Positive Train Control (PTC), NetControl, or the latest version of our transportation control systems, we may suffer a rail service outage or competitive disadvantage within the rail industry and with companies providing other modes of transportation service, which could have a material adverse effect on our results of operations, financial condition, and liquidity. We are subject to cybersecurity risks – We rely on information technology in all aspects of our business, including technology systems operated by us (whether created by us or purchased), under control of third parties, and open-source software. We have experienced and will likely continue to experience varying degrees of cyber incidents in the normal course of business. There can be no assurance that the resources we devote to protect our technology systems and proprietary data or the systems we have designed to identify, prevent, or limit the effects of cyber incidents will be sufficient to prevent or detect such incidents, or to avoid a material adverse impact on our systems after such incidents do occur. Furthermore, due to the rising numbers and increasing sophistication of cyber-attacks, an increasingly complex information technology supply chain, and the nature of zero-day exploits, we may be unable to anticipate or implement adequate measures to prevent a security breach, including by ransomware or as a result of human error or other cyber-attack methods, from materially affecting our systems or the systems of third-parties upon which we rely. The rapid evolution and increased availability of artificial intelligence may intensify cybersecurity risks by making cyber-attacks more sophisticated and cybersecurity incidents more difficult to detect, contain, and mitigate. A cyber incident that results in significant service interruption; safety failure; other operational difficulties; unauthorized access to (or the loss of access to) competitively sensitive, confidential, or other critical data or systems; loss of customers; financial losses; regulatory fines; reputational harm; or misuse or corruption of critical data and proprietary information, could have a material adverse impact on our results of operations, financial condition, and liquidity. We may experience security breaches that could remain undetected for an extended period and, therefore, have a greater impact on us. Additionally, we may be exposed to increased cybersecurity risk because we are a component of the critical U.S. infrastructure. Severe weather and natural events could result in significant business interruptions and expenditures – As a railroad with a vast network, we are exposed to severe weather conditions and other natural phenomena, including earthquakes, hurricanes, fires, floods, mudslides or landslides, extreme temperatures, avalanches, and significant precipitation, and climate change may cause or contribute to the severity or frequency of such weather conditions. Line outages and other interruptions caused by these conditions have in the past and could in the future adversely affect parts or all of our rail network, potentially negatively affecting revenues, costs, and liabilities, despite efforts we undertake to plan for these events. Our revenues can also be adversely affected by severe weather that causes damage and disruptions to our customers. These impacts caused by severe weather or other natural phenomena could have a material adverse effect on our results of operations, financial condition, and liquidity. A significant portion of our revenues involves transportation of commodities to and from international markets – Although revenues from our operations are attributable to transportation services provided in the U.S., a significant portion of our revenues involves the transportation of commodities to and from international markets, including Mexico, Canada, and Southeast Asia, by various carriers and, at times, various modes of transportation. Significant and sustained interruptions of trade with Mexico, Canada, or countries in Southeast Asia, including China, could adversely affect customers and other entities that, directly or indirectly, purchase or rely on rail transportation services in the U.S. as part of their operations, and any such interruptions, including international armed conflicts, such as the Russia-Ukraine and Israel-Hamas wars, could have a material adverse effect on our results of operations, financial condition, and liquidity. Any one or more of the following could cause a significant and sustained interruption of trade with Mexico, Canada, or countries in Southeast Asia: (a) a deterioration of security for international trade and businesses; (b) the adverse impact of new laws, rules, and regulations or the interpretation or enforcement of laws, rules, and regulations by government entities, courts, or regulatory bodies, including the United States-Mexico-Canada Agreement (USMCA) or other international trade agreements; (c) actions of taxing authorities that affect our customers doing business in or with foreign countries; (d) any significant adverse economic developments, such as extended periods of high inflation, material disruptions in the banking sector or in the capital markets of these foreign countries, and significant changes in the valuation of the currencies of these foreign countries that could materially affect the cost or value of imports or exports; (e) shifts in patterns of international trade, including as a result of changes to international trade agreements or policies, that adversely affect import and export markets; (f) a material reduction in foreign direct investment in these countries; and (g) public health crises, including the outbreak of pandemic or contagious disease, such as the coronavirus and its variant strains (COVID). Changes to trade policy both U.S. and foreign, including imposition of tariffs on imports, could cause demand for shipping from international markets to decrease, and if the declines are significant enough, it could have a material adverse effect on our results of operations, financial condition, and liquidity.11 Table of ContentsWe are dependent on certain key suppliers of locomotives and rail – Due to the capital-intensive nature and sophistication of locomotive equipment, parts, and maintenance, potential new suppliers face high barriers to entry. Therefore, if any of our two domestic suppliers of locomotives discontinues manufacturing locomotives, supplying parts, or providing maintenance for any reason, including bankruptcy or insolvency or the inability to manufacture locomotives that meet efficiency or regulatory emissions standards, we could experience significant cost increases and reduced availability of the locomotives that are necessary for our operations. Additionally, we utilize a limited number of steel producers that meet our rail specifications. Rail is critical to our operations for rail replacement programs, maintenance, and for adding additional network capacity, new rail and storage yards, and expansions of existing facilities. This industry similarly has high barriers to entry, and if there is any significant consolidations or mergers in this industry, or one of these suppliers discontinues operations for any reason, including bankruptcy or insolvency, we could experience both significant cost increases for rail purchases and difficulty obtaining sufficient rail for maintenance and other projects. Changes to trade agreements or policies that result in increased tariffs on goods imported into the United States could also result in significant cost increases for rail purchases and difficulty obtaining sufficient rail. Workforce risks Strikes or work stoppages could adversely affect our operations – The U.S. Class I railroads are party to collective bargaining agreements with various labor unions. The majority of our employees belong to labor unions and are subject to these agreements. Disputes over the terms of these or future agreements or the terms of such agreements, or our potential inability to negotiate acceptable contracts with these unions or the renegotiation of them or their term can lead to, among other things, strikes, work stoppages, slowdowns, or lockouts, any or all of which could compromise our service reliability or cause a significant disruption of our operations, and could increase our costs for wages, health care, and other benefits, which could have a material adverse effect on our results of operations, financial condition, and liquidity. Labor disputes, work stoppages, slowdowns, or lockouts at loading/unloading facilities, ports, or other transport access points, or by employees of our customers or our suppliers, could compromise our service reliability and have a material adverse impact on our results of operations, financial condition, and liquidity. The availability of qualified personnel could adversely affect our operations – Changes in demographics, training requirements, and pandemic illnesses or restrictions could negatively affect the availability of qualified personnel for us, our customers, and throughout the supply chain. Our ability to quickly react to other factors that affect our ability to attract and retain employees may be restricted due to limited flexibility to make unilateral changes to collective bargaining agreements, which cover the majority of our workforce. Unpredictable increases in demand for rail services and a lack of network fluidity may exacerbate our risks related to having insufficient qualified personnel, which could have a negative impact on our operational efficiency and otherwise have a material adverse effect on our results of operations, financial condition, and liquidity. Legal and regulatory risks We are subject to significant governmental regulation – We are subject to governmental regulation by a significant number of federal, state, and local authorities covering a variety of health, safety, labor, employment, environmental, economic (as discussed below), tax, social, and other matters. Many laws and regulations require us to obtain and maintain various licenses, permits, and other authorizations, and we cannot guarantee that we will continue to be able to do so. Our failure to comply with applicable laws and regulations could have a material adverse effect on us as a result of litigation or proceedings by private parties, governments, or regulators, including and in addition to those described in Note 17 to the Consolidated Financial Statements entitled "Commitments and Contingencies." Governments or regulators may change the legislative or regulatory frameworks that we operate in without providing us any recourse to address any adverse effects on our business, including, without limitation, regulatory determinations or rules regarding dispute resolution, increasing the amount of our traffic subject to common carrier regulation, business relationships with other railroads, use of embargoes, calculation of our cost of capital or other inputs relevant to computing our revenue adequacy, the prices we charge, changes in tax rates, enactment of new tax laws or tariffs, and revision in tax regulations. Significant legislative activity in Congress or regulatory activity by other government branches or agencies, such as the STB, could expand regulation of railroad operations and pricing for rail services, which could reduce the viability of capital spending on our rail network, facilities, and equipment, and increase our costs for purchased goods and services. Such legislative or regulatory activity, or recent tariff activity imposed in the U.S. and retaliatory tariffs implemented in other countries, could have a material adverse effect on our results of operations, financial condition, and liquidity. During fiscal year 2025, new tariffs were imposed in the U.S. for imports from a broad range of countries and materials. Several countries also implemented or proposed retaliatory tariffs on imports from the U.S., as well as other barriers to trade. Incremental import tariffs adversely affected demand for our services and increased our costs for purchased goods and services during fiscal year 2025 and may continue to do so in 2026. In addition, retaliatory tariffs by regions outside the U.S., currently in effect or adopted in the future, may impact demand for our services and our costs for purchased goods and services.12 Table of ContentsWe may be subject to various claims and lawsuits that could result in significant expenditures – As a railroad with operations in densely populated urban areas and a vast rail network, we are exposed to the potential for various claims and litigation related to labor and employment, personal injury, property damage, environmental liability, and other matters. Any material changes to litigation trends or a catastrophic rail accident or series of accidents involving any or all of property damage, personal injury, and environmental liability that exceed our insurance coverage for such risks could have a material adverse effect on our results of operations, financial condition, and liquidity. In addition, some of these matters could impact the cost of obtaining, or availability in general, of insurance coverage meant to cover these types of risks. We are subject to significant environmental laws and regulations – Due to the nature of the railroad business, our operations are subject to extensive federal, state, and local environmental laws and regulations concerning, among other things, emissions to the air; discharges to waters; handling, storage, transportation, and disposal of waste and other materials; and hazardous material or petroleum releases. We generate and transport hazardous and non-hazardous waste in our operations. Environmental liability can extend to previously owned or operated properties, leased properties, properties owned by third parties, as well as properties we currently own. Environmental liabilities also have arisen and may arise from claims asserted by adjacent landowners or other third parties in toxic tort litigation. We have been and may be subject to allegations or findings that we have violated, or are strictly liable under, these laws or regulations. We currently have certain obligations at existing sites for investigation, remediation, and monitoring, and we likely will have obligations at other sites in the future. We believe we maintain adequate estimated liabilities for these obligations, but fluctuations of potential costs affect our estimates based on our experience and, as necessary, the advice and assistance of our consultants. However, actual costs may vary from our estimates due to a variety of factors, including changes to environmental laws or interpretations of such laws, technological changes affecting investigations and remediation, the participation and financial viability of other parties responsible for any such liability, and the corrective action or change to corrective actions required to remediate any existing or future sites. We could incur significant costs as a result of any of the foregoing, and we may be required to incur significant expenses to investigate and remediate known, unknown, or future environmental contamination, which could have a material adverse effect on our results of operations, financial condition, and liquidity. Macroeconomic and industry risks We face competition from other railroads and other transportation providers – We face competition from other railroads, motor carriers, ships, barges, and pipelines. Our main railroad competitor is Burlington Northern Santa Fe LLC. Its primary subsidiary, BNSF Railway Company (BNSF), operates parallel routes in many of our main traffic corridors. In addition, we operate in corridors served by other railroads and motor carriers. Motor carrier competition exists in all three of our commodity groups. Because of the proximity of our routes to major inland and Gulf Coast waterways, barges can be particularly competitive, especially for grain and bulk commodities in certain areas where we operate. In addition to price competition, we face competition with respect to transit times, quality, and reliability of service from motor carriers and other railroads. Motor carriers in particular generally have an advantage over railroads with respect to transit times and timeliness of service. Additionally, we must build or acquire and maintain our rail system, while trucks, barges, and maritime operators are able to use public rights-of-way maintained by public entities. Any of the following could also affect the competitiveness of our transportation services for some or all of our commodities, which could have a material adverse effect on our results of operations, financial condition, and liquidity: (a) improvements or expenditures materially increasing the quality or reducing the costs of these alternative modes of transportation, such as autonomous or more fuel efficient trucks, (b) legislation that eliminates or significantly increases the existing size or weight limitations applied to motor carriers, or (c) legislation or regulatory changes that impose operating restrictions or requirements on railroads or that adversely affect the profitability of some or all railroad traffic. Many movements face product or geographic competition where our customers can use different products (e.g., natural gas instead of coal, sorghum instead of corn) or commodities from different locations (e.g., grain from states or countries that we do not serve, crude oil from different regions). Sourcing different commodities or different locations allows shippers to substitute different carriers, and such competition may reduce our volumes or constrain prices. Additionally, any future consolidation of the rail industry could result in increased competition among industry participants.13 Table of ContentsWe may be affected by climate change and market or regulatory responses to climate change – Climate change, including the impact of global warming and transition risks involving policy, legal risks, and market risks, could have a material adverse effect on our results of operations, financial condition, and liquidity on both a long-term and near-term basis. Restrictions, caps, taxes, or other controls on emissions of greenhouse gases (GHGs), including diesel exhaust, could significantly increase our operating costs. Restrictions on emissions could also affect our customers that (a) use commodities that we carry to produce energy, (b) use significant amounts of energy in producing or delivering the commodities we carry, or (c) manufacture or produce goods that consume significant amounts of energy or burn fossil fuels, including chemical producers, farmers and food producers, and automakers and other manufacturers. Significant cost increases, government regulation, or changes of consumer preferences for goods or services relating to alternative sources of energy, emissions reductions, and GHG emissions can materially affect the markets for the commodities we carry and demand for our services, which in turn could have a material adverse effect on our results of operations, financial condition, and liquidity. Government incentives encouraging the use of alternative sources of energy, including modifications or elimination of such incentives, also can affect certain of our customers and the markets for certain of the commodities we carry in a manner that could unpredictably alter our traffic patterns or reduce demand. Compliance with laws or regulations related to climate change, along with defending and resolving legal claims and other litigation, could have a material adverse effect on our results of operations, financial condition, and liquidity. Climate change may cause severe weather conditions and other natural phenomena, including earthquakes, hurricanes, fires, floods, mudslides or landslides, extreme temperatures, avalanches, and significant precipitation. Severe weather conditions and other natural phenomena has in the past and could in the future cause line outages and other interruptions to our infrastructure. Any of these factors, individually or in operation with one or more of the other factors, or other unpredictable impacts of climate change could reduce the amount of traffic we handle and have a material adverse effect on our results of operations, financial condition, and liquidity. Our efforts to achieve emission reduction targets or aspirations could significantly increase our operational costs and capital expenditures. In addition, stakeholder expectations regarding some of these matters may be evolving and there may be differing views among stakeholders, which could harm our reputation or increase our costs. Our ability to meet such targets or aspirations can depend on significant technological advancements, including, for example, suitable alternative fuels and zero-emissions locomotives, and when such technological advancements will take place, if at all, and whether they will be readily available on commercially reasonable terms is currently unknown. There can be no assurances we will achieve our emission reduction targets or aspirations, or that the associated costs will not be higher than expected, or that the regulatory landscape will not have a negative impact on our results of operations, financial condition, and liquidity. Government mandates may lead to the premature adoption of unproven and unreliable technology, which could negatively affect operational reliability, customer service, and supply chain continuity. Our business, financial condition, and results of operations have been adversely affected, and in the future, could be materially adversely affected by pandemics or other public health crises – Pandemics, epidemics, and other outbreaks of disease can have significant and widespread impacts. As we saw during the peaks of the COVID pandemic, outbreaks of disease can cause a global slowdown of economic activity (including the decrease in demand for a broad variety of goods), disruptions in global supply chains, and significant volatility and disruption of financial markets, resulting further in adverse effects on workforces, customers, and regional and local economies. The impact of pandemics or public health crises on our results of operations and financial condition will depend on numerous evolving factors, including, but not limited to: governmental, business, and individuals’ actions taken in response to a global pandemic or other public health crises (including restrictions on travel and transport, workforce pressures, social distancing, and shelter-in-place orders); the effect of a pandemic or other public health crises on economic activity and actions taken in response; the effect on our customers and their demand for our services; the effect of a pandemic or other public health crises on the credit-worthiness of our customers; national or global supply chain challenges or disruptions; facility closures; commodity cost volatility; general macroeconomic uncertainty in key global markets and financial market volatility; global economic conditions and levels of economic growth; and the pace of recovery as the pandemic subsides as well as response to a potential reoccurrence. Further, a pandemic or other public health crises, and the volatile regional and global economic conditions stemming from such an event, could also precipitate and aggravate the other risk factors that we identify, which could materially adversely affect our business, financial condition, results of operations (including revenues and profitability), and/or stock price. Additionally, a pandemic or other public health crises also may affect our operating and financial results in a manner that is not presently known to us or that we currently do not consider to present significant risks to our operations.14 Table of ContentsFinancial risks We are affected by fluctuating fuel prices – Fuel costs constitute a significant portion of our transportation expenses. Diesel fuel prices can be subject to dramatic fluctuations, and significant price increases could have a material adverse effect on our operating results. Although we currently are able to recover a significant amount of our fuel expenses from our customers through revenues from fuel surcharges, we cannot be certain that we will always be able to mitigate rising or elevated fuel costs through our fuel surcharges. Additionally, future market conditions or legislative or regulatory activities could adversely affect our ability to apply fuel surcharges or adequately recover increased fuel costs through fuel surcharges. As fuel prices fluctuate, our fuel surcharge programs trail such fluctuations in fuel prices by approximately two months and are from time-to-time a significant source of quarter-over-quarter and year-over-year volatility, particularly in periods of rapidly changing prices. International, political, and economic factors, events and conditions, including international armed conflicts such as the Russia-Ukraine and Israel-Hamas wars, and other geopolitical tensions in the Middle East and elsewhere, affect the volatility of fuel prices and supplies. Weather can also affect fuel supplies and limit domestic refining capacity. A severe shortage of, or disruption to, domestic fuel supplies could have a material adverse effect on our results of operations, financial condition, and liquidity. Alternatively, lower fuel prices could have a negative impact on certain commodities we transport, such as coal and domestic drilling-related shipments, which could have a material adverse effect on our results of operations, financial condition, and liquidity. We rely on capital markets – Due to the significant capital expenditures required to operate and maintain a safe and efficient railroad, we rely on the capital markets to provide some of our capital requirements. We utilize long-term debt instruments, bank financing, and commercial paper, and we pledge certain amount of our receivables as collateral for credit. Significant instability or disruptions of the capital markets, including, among other things, elevated interest rates in the credit markets and/or changes in interest rates, or deterioration of our financial condition due to internal or external factors could restrict or prohibit our access to, and significantly increase the cost of, commercial paper and other financing sources, including bank credit facilities and the issuance of long-term debt, including corporate bonds, and could also have a material adverse effect on our results of operations, financial condition, and liquidity. A significant deterioration of our financial condition could result in a reduction of our credit rating to below investment grade, which could restrict us from utilizing our current receivables securitization facility (Receivables Facility). These developments also could limit our access to external sources of capital and significantly increase the costs of short and long-term debt financing, which could have a material adverse effect on our results of operations, financial condition, and liquidity. Pending acquisition risks The mergers are subject to conditions, some or all of which may not be satisfied or completed on a timely basis, if at all. Failure to complete the mergers could have material adverse effects on our business — On July 28, 2025, the Company, Norfolk Southern, Ruby Merger Sub 1 Corporation, and Ruby Merger Sub 2 LLC, entered into an agreement and plan of merger (the merger agreement). The completion of the mergers (as defined in the merger agreement) is subject to a number of conditions, including, among others, the receipt of the requisite regulatory approvals, which make the completion of the mergers and timing thereof uncertain. Also, either the Company or Norfolk Southern may terminate the merger agreement if the mergers have not been consummated by January 28, 2028, which is referred to as the end date (subject to an automatic extension in certain circumstances), except that this right to terminate the merger agreement will not be available to any party whose failure to perform any obligation under the merger agreement has been the primary cause of the failure of the mergers to be consummated on or before that date. If the mergers are not completed, our ongoing business may be materially adversely affected and, without realizing any of the benefits of having completed the mergers, we will be subject to a number of risks, including the following: • the market price of our common stock could decline; • we could owe substantial termination fees to Norfolk Southern under certain circumstances; • time, resources, and costs committed by our management team to matters relating to the mergers could otherwise have been devoted to pursuing other beneficial opportunities; • we may experience negative reactions from the financial markets or from customers, suppliers, employees, labor unions, or other business partners; and • we will be required to pay our respective costs relating to the mergers, such as legal, accounting, and printing fees, whether or not the mergers are completed. In addition, if the mergers are not completed, we could be subject to litigation related to any failure to complete the mergers or related to any enforcement proceeding commenced against us to perform our obligations under the merger agreement, and whether or not any such litigation has any merit, the cost of defending such litigation may be significant. The materialization of any of these risks could adversely impact our ongoing business.15 Table of ContentsSimilarly, delays in the completion of the mergers could, among other things, result in additional transaction costs, loss of revenues, or other negative effects associated with uncertainty about completion of the mergers. The merger agreement contains provisions that limit our ability to pursue alternatives to the mergers, and, in specified circumstances, could require us to pay substantial termination fees to Norfolk Southern — The merger agreement contains certain provisions that restrict our ability to initiate, solicit, knowingly encourage, or, subject to certain exceptions, engage in discussions or negotiations with respect to, or approve or recommend, any alternative proposal. In some circumstances, upon termination of the merger agreement in connection with an alternative proposal, we may be required to pay a termination fee of $2.5 billion to Norfolk Southern. These provisions could discourage a potential acquiror of us or alternative merger partner that might have an interest in acquiring all or a significant portion of the Company or pursuing an alternative acquisition transaction with us from considering or proposing such a transaction, even if it were prepared to pay consideration with a higher per-share value than the per-share value proposed to be realized in the mergers. In particular, a termination fee, if applicable, could result in a potential acquiror of us or alternative merger partner proposing to pay a lower price to our shareholders than it might otherwise have proposed to pay absent such a fee. If the merger agreement is terminated in accordance with its terms, and we or Norfolk Southern seek another business combination, we may not be able to negotiate a transaction with another party on terms comparable to, or better than, the terms of the merger agreement. The mergers are subject to the receipt of the requisite regulatory approvals, which requisite regulatory approvals may never be obtained, therefore preventing completion of the mergers. In addition, in granting such approvals, regulatory authorities may impose conditions that could have a significant adverse effect on the Company, Norfolk Southern, or the combined company and the expected benefits of the mergers therefore preventing completion of the mergers — Before the mergers may be completed, the requisite regulatory approvals must have been obtained, including the approval, authorization, or exemption by the U.S. Surface Transportation Board (STB) of the mergers and other transactions contemplated by the merger agreement within the jurisdiction of the STB. The terms and conditions of the approvals that are granted may impose requirements, concessions, limitations, or costs or place restrictions on the conduct of the combined company’s business. Subject to the terms and conditions of the merger agreement, the Company and Norfolk Southern have each agreed to use their reasonable best efforts to take, or cause to be taken, all actions, and to do, or cause to be done, and to assist and cooperate with each other in doing, all things necessary, proper, or advisable to cause the conditions to closing set forth in the merger agreement to be satisfied and to consummate and make effective the mergers and the other transactions contemplated by the merger agreement prior to the end date, except that we are not required to take, or commit to take, or agree to or accept any “materially burdensome regulatory condition” (as defined in the merger agreement). For purposes of the foregoing, “reasonable best efforts” includes, among others, (i) proposing, negotiating, committing to, and effecting, by consent decree, hold separate order, or otherwise, the sale, divestiture, license, hold separate, or disposition of any and all of the share capital or other equity interest, assets, products, or businesses of the Company or of Norfolk Southern and its subsidiaries and (ii) otherwise taking or committing to take any actions that after the first effective time (as defined in the merger agreement) would limit our freedom of action with respect to, or our ability to retain, or otherwise agreeing to any restriction, requirement, or limitation with respect to our assets, products, or businesses, in each case as may be required in order to avoid the entry of, or to effect the dissolution of, any injunction, temporary restraining order, or other order that would otherwise have the effect of preventing or delaying the closing. The STB and other regulatory and governmental authorities may impose requirements, concessions, and other conditions on the granting of such approvals. If such regulatory and governmental authorities seek to impose such requirements, concessions, or conditions, lengthy negotiations may ensue among such authorities, the Company and Norfolk Southern. Such requirements, concessions, and conditions and the process of obtaining regulatory approvals could have the effect of delaying completion of the mergers and such requirements, concessions, and conditions may not be identified or satisfied for an extended period of time. Such requirements, concessions and conditions may also impose additional costs or limitations on the combined company following the completion of the mergers and the parties have agreed to accept such requirements, concessions, and conditions, even if significant, subject to the agreed-upon materially burdensome regulatory condition limitation in favor of us. These requirements, concessions, and conditions may therefore reduce the anticipated benefits of the mergers, including synergies, which could also have a significant adverse effect on the combined company’s business and cash flows and results of operations, and we cannot predict what, if any, requirements, concessions, and conditions may be required by regulatory or governmental authorities whose approvals are required. The requisite regulatory approvals may not be obtained at all, may not be obtained in a timely fashion, and may contain conditions on the completion of the mergers. In January 2026, the STB announced its finding that the major merger application filed by the Company and Norfolk Southern was incomplete, as a result of which the STB rejected the application without prejudice. The decision does not result in the dismissal of the mergers, and the Company is permitted to file a revised application, which will commence a new review by the STB for completeness. If we experience further delays as a result of the STB’s review process or we are unable to obtain other 16 Table of Contents regulatory approvals on a timely basis, any such delays may increase our costs and reduce the anticipated benefits of the mergers, which could also have a significant adverse effect on the combined company’s business. In addition, under existing law, our railroad competitors and customers, Norfolk Southern’s railroad competitors and customers, and other interested parties may intervene to oppose the STB application or seek protective conditions in the event approval by the STB is granted, which might affect the decision of the STB, delay the approval process, or reduce the anticipated benefits of the mergers. Furthermore, if the STB does not provide final approval or imposes conditions on its approval in a final order, and the Company and Norfolk Southern decide to appeal such final order from the STB, any such appeal might not be resolved for a substantial period of time after the entry of such order by the STB. The Company and Norfolk Southern are each subject to business uncertainties and contractual restrictions while the mergers are pending, which could adversely affect both our business and operations and the combined company’s business and operations — In connection with the pendency of the mergers, some customers, suppliers, and other persons with whom the Company or Norfolk Southern has a business relationship have or may delay or defer certain business decisions or terminate, change, or renegotiate their relationships with us or Norfolk Southern, as the case may be, as a result of the mergers, which could negatively affect our or Norfolk Southern’s respective revenues, earnings, and cash flows, as well as the market price of our common stock, regardless of whether the mergers are completed. Under the terms of the merger agreement, each of the Company and Norfolk Southern is subject to certain restrictions on the conduct of its business prior to completing the first merger (as defined in the merger agreement), which may adversely affect its ability to execute certain of its business strategies, including, in the case of Norfolk Southern, the ability in certain cases to enter into or amend contracts, acquire or dispose of assets, incur indebtedness, incur capital expenditures, settle litigation, amend organizational documents, declare dividends, enter new business lines, and invest in third parties. Such limitations could adversely affect each party’s businesses and operations prior to the completion of the mergers. Each of the risks described above may be exacerbated by delays or other adverse developments with respect to the completion of the mergers. Uncertainties associated with the mergers may cause a loss of management personnel and other key employees, and the Company and Norfolk Southern may have difficulty attracting and motivating management personnel and other key employees, and combining cultures between the two companies could be challenging, which could adversely affect the future business and operations of the combined company — The Company and Norfolk Southern are dependent on the experience and industry knowledge of their respective management personnel and other key employees to execute their business plans. The combined company’s success after the completion of the mergers will depend in part upon our ability, and Norfolk Southern’s ability, to attract, motivate, and retain key management personnel and other key employees as well as develop a singular culture framed in the strategy of Safety, Service, and Operational Excellence. Prior to completion of the mergers, our current and prospective employees, and Norfolk Southern’s current and prospective employees, may experience uncertainty about their roles within the combined company following the completion of the mergers, which may have an adverse effect on our ability, and Norfolk Southern’s ability, to attract, motivate, or retain management personnel and other key employees. In addition, no assurance can be given that the combined company will be able to attract, motivate, or retain management personnel and other key employees of the Company and Norfolk Southern to the same extent that the Company and Norfolk Southern have previously been able to attract or retain employees. We may and have been a target of securities class action and derivative lawsuits that could result in substantial costs and may delay or prevent the mergers from being completed, whether or not such lawsuits have any merit — Securities class action lawsuits and derivative lawsuits are often brought against public companies that have entered into merger agreements. Even if the lawsuits are without merit, defending against or otherwise resolving these claims can result in substantial costs and divert management time and resources. An adverse judgment could result in monetary damages, which could have a negative impact on our liquidity and financial condition. Additionally, if a plaintiff is successful in obtaining an injunction prohibiting completion of the mergers, then that injunction may delay or prevent the mergers from being completed, or from being completed within the expected timeframe, which may adversely affect our business, financial position, and results of operation. Completion of the mergers may trigger change in control or other provisions in certain agreements to which Norfolk Southern or its subsidiaries are a party, which may have an adverse impact on the combined company’s business and results of operations — The completion of the mergers may trigger change in control and other provisions in certain agreements to which Norfolk Southern or its subsidiaries are a party. If the Company and Norfolk Southern are unable to negotiate waivers of those provisions, the counterparties may exercise their rights and remedies under the agreements, potentially terminating the agreements or seeking monetary damages. Even if the Company and Norfolk Southern are able to negotiate waivers, the counterparties may require a fee for such waivers or seek to renegotiate the agreements on terms less favorable to Norfolk Southern or the combined company. Any of the foregoing or similar developments may have an adverse impact on the combined company’s business and results of operations. 17 Table of Contents The combined company may be unable to successfully integrate the businesses of the Company and Norfolk Southern and realize the anticipated benefits of the mergers — The success of the mergers will depend, in part, on the combined company’s ability to successfully combine the businesses of the Company and Norfolk Southern, which currently operate as independent public companies, and realize the anticipated benefits, including synergies, cost savings, innovation, and operational efficiencies, from the combination. If the combined company is unable to achieve these objectives within the anticipated time frame, or at all, the anticipated benefits may not be realized fully, or at all, or may take longer to realize than expected and the value of its common stock may be harmed. Additionally, as a result of the mergers, rating agencies may take negative actions against the combined company’s credit ratings, which may increase the combined company’s financing costs, including in connection with any financing of the mergers. The mergers involve the integration of Norfolk Southern’s business with our existing business, which is a complex, costly, and time-consuming process. Neither the Company nor Norfolk Southern have previously completed a transaction comparable in size or scope to the mergers. The integration of the two (2) companies may result in material challenges, including, without limitation: • the diversion of management’s attention from ongoing business concerns and performance shortfalls at one or both of the companies as a result of the devotion of management’s attention to the mergers; • managing a larger combined company; • creating, implementing, and executing a unified business strategy, and operational, financial, and managerial control with respect to the combined entity; • the inherent risk and complexity of integrating railroad operations, including operating, information technology, safety, and managerial systems and processes, particularly on a large scale, in the context of ongoing business operations and customer commitments; • maintaining employee morale and attracting, motivating, and retaining management personnel and other key employees; • the possibility of faulty assumptions underlying expectations regarding the integration process; • retaining existing business and operational relationships and attracting new business and operational relationships; • consolidating corporate and administrative infrastructures and eliminating duplicative operations and inconsistencies in standards, controls, procedures, and policies; • coordinating geographically separate organizations; • unanticipated changes in federal or state laws or regulations or international trade agreements, including additional regulatory scrutiny or additional regulatory requirements as a result of the transaction or the size, scope, and complexity of the combined company’s business operations; and • unforeseen expenses or delays associated with the mergers. Many of these factors will be outside of the combined company’s control and any one of them could result in delays, increased costs, decreases in the amount of expected revenues, and diversion of management’s time and energy, which could materially affect the combined company’s financial position, results of operations, and cash flows. The Company and Norfolk Southern have operated, and until completion of the mergers will continue to operate, independently. The Company and Norfolk Southern are currently permitted to conduct only limited planning for the integration of the two (2) companies following the mergers and have not yet determined the exact nature of how the businesses and operations of the two (2) companies will be combined after the mergers. The actual integration may result in additional and unforeseen expenses, and the anticipated benefits of the integration plan may not be realized. The future results of the combined company may be adversely impacted if the combined company does not effectively manage its expanded operations following the completion of the mergers — Following the completion of the mergers, the size of the combined company’s business will be significantly larger than the current size of our business. The combined company’s ability to successfully manage this expanded business will depend, in part, upon management’s ability to design and implement operational, managerial, financial, and strategic initiatives that address not only the integration of two (2) independent stand-alone companies, but also the increased scale and scope of the combined business with its associated increased costs and complexity. There can be no assurances that the combined company will be successful or that it will realize the expected operating efficiencies, cost savings, and other benefits currently anticipated from the mergers. 18 Table of Contents The combined company is expected to incur substantial expenses related to the completion of the mergers and the integration of the Company and Norfolk Southern — The combined company is expected to incur substantial expenses in connection with the completion of the mergers and the integration of the Company and Norfolk Southern. There are a large number of processes, policies, procedures, operations, technologies, and systems that must be integrated, including purchasing, accounting and finance, sales, payroll, pricing, revenue management, marketing, and benefits. In addition, our business and Norfolk Southern’s business will continue to maintain a presence in Omaha, Nebraska and Atlanta, Georgia, respectively. The substantial majority of these costs will be non-recurring expenses related to the mergers (including any financing of the mergers), facilities, and systems consolidation costs. The combined company may incur additional costs to retain employees and/or maintain employee morale and to attract, motivate, or retain management personnel and other key employees. We will also incur transaction fees and costs related to formulating integration plans for the combined business, and the execution of these plans may lead to additional unanticipated costs. Additionally, as a result of the mergers, rating agencies may take negative actions with regard to the combined company’s credit ratings, which may increase the combined company’s financing costs, including in connection with any financing of the mergers. These incremental transaction and merger-related costs may exceed the savings the combined company expects to achieve from the elimination of duplicative costs and the realization of other efficiencies related to the integration of the businesses, particularly in the near term, and in the event there are material unanticipated costs. The combined company’s indebtedness may limit its flexibility and increase its borrowing costs — The combined company’s consolidated indebtedness may have the effect of, among other things, increasing borrowing costs. In addition, the amount of cash required to service the indebtedness levels will be greater than the amount of cash flows required to service the indebtedness of the Company or Norfolk Southern individually prior to completion of the mergers. The level of indebtedness could also reduce dividend payments, share repurchases, and other activities and may create competitive disadvantages relative to other companies with lower debt levels. The combined company may be required to raise additional financing for working capital, capital expenditures, acquisitions, or other general corporate purposes. The combined company’s ability to arrange additional financing or refinancing will depend on, among other factors, its financial condition and performance, as well as prevailing market conditions, the terms of third party debt financing incurred in connection with the consummation of the mergers (if any), and other factors beyond its control. There can be no assurance that the combined company will be able to obtain additional financing or arrange refinancing on terms acceptable to it or at all, and any such failure could materially adversely affect its operations and financial condition. The financing arrangements that the combined company will enter into in connection with the mergers may, under certain circumstances, contain restrictions and limitations that could significantly impact the combined company’s ability to operate its business — We expect to incur significant new indebtedness in connection with the mergers. We also expect that the agreements governing the indebtedness that the combined company will incur in connection with the mergers will contain covenants that, among other things, may, under certain circumstances, place limitations on the dollar amounts paid or other actions we or the combined company can or will be able to take. In addition, the combined company will likely be required to comply with a leverage covenant as set forth in these agreements. The combined company’s ability to comply with the leverage covenant in future periods will depend on its ongoing financial and operating performance, which in turn will be subject to economic conditions and to financial, market, and competitive factors, many of which are beyond the combined company’s control. The ability to comply with this covenant in future periods will also depend on the combined company’s ability to successfully implement its overall business strategy and realize the anticipated benefits of the mergers, including synergies, cost savings, innovation, and operational efficiencies. Various risks, uncertainties, and events beyond the combined company’s control could affect its ability to comply with the covenants contained in its financing agreements. Failure to comply with any of the covenants in its existing or future financing agreements could result in a default under those agreements and under other agreements containing cross-default provisions. A default would permit lenders to accelerate the maturity of the debt under these agreements and to foreclose upon any collateral securing the debt. Under these circumstances, the combined company might not have sufficient funds or other resources to satisfy all of its obligations. In addition, the limitations imposed by financing agreements on the combined company’s ability to incur additional debt and to take other actions might significantly impair its ability to obtain other financing. General risk factors We are affected by general economic conditions – Prolonged, severe adverse domestic and global macroeconomic conditions or disruptions of financial and credit markets, including, for example, the cycles of recessionary fears, inflationary pressures, changes in interest rates, and/or related monetary policy actions by governments in response to inflation, may affect the producers and consumers of the commodities we carry and may have a material adverse effect on our access to liquidity, results of operations, and financial condition. 19 Table of Contents We may be affected by acts of terrorism, war, or risk of war – Our rail lines, facilities, and equipment, including rail cars carrying hazardous materials, could be direct targets or indirect casualties of terrorist attacks. Terrorist attacks, or other similar events, any government response thereto, and war or risk of war may adversely affect our results of operations, financial condition, and liquidity. In addition, insurance premiums for some or all of our current coverages could increase dramatically, or certain coverages may not be available to us in the future. Also, in the event of a national crisis or emergency, one or more government entities could take actions (such as via the U.S. Defense Production Act or the International Emergency Economic Powers Act) that could diminish our rights or economic opportunities with respect to the transportation services we offer.

Item 7 · Management's Discussion & Analysis

+256 paragraphs −379 paragraphs ~256 changed

FY 2023-12-31 (earlier)

Item 7. Management ’ s Discussion and Analysis of Financial Condition and Results of Operations The following discussion should be read in conjunction with the Consolidated Financial Statements and applicable notes to the Financial Statements and Supplementary Data, Item 8, and other information in this report, including Risk Factors set forth in Item 1A and Critical Accounting Estimates and Cautionary Information at the end of this Item 7. The following section generally discusses 2023 and 2022 items and year-to-year comparisons between 2023 and 2022. Discussions of 2021 items and year-to-year comparisons between 2022 and 2021 that are not included in this Form 10-K can be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7, of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2022.The Railroad, along with its subsidiaries and rail affiliates, is our one reportable operating segment. Although we provide and analyze revenues by commodity group, we treat the financial results of the Railroad as one segment due to the integrated nature of our rail network. EXECUTIVE SUMMARY2023 Results ● Safety – We initiated changes to our safety program that focused on training, culture, and refreshing how teams communicate and look out for each other. An analysis of historical injury data identified a large portion of our reportable injuries involve a failure to comply with a small number of critical operating rules. These critical rules are the foundation of our new program that is being implemented. While our reportable personal injury incidents rate per 200,000 employee-hours deteriorated 4% from 2022, we improved in the latter part of the year. We continued to refine our proprietary software called Precision Train Builder to evaluate train and route characteristics to enable proactive intervention by our Operating Practices Command Center to prevent derailments. In addition, the software allows the team to simulate in-train forces to avoid train handling that would generate forces greater than tolerance limits. These efforts helped to drive our reportable derailment incident rate per million train miles down 6% year-over-year. Further supporting our efforts, in March, the AAR announced a set of key safety actions. These include the installation of additional hot wheel bearing wayside detectors and enhanced standards for how we proactively use and share critical data. In addition, the industry is expanding efforts in first responder training and deploying technology to provide real-time railcar condition monitoring. ● Service – Car trip plan compliance for both intermodal and manifest/automotive products improved compared to 2022. Throughout the year we improved network fluidity as reflected in faster freight car velocity and lower terminal dwell. We graduated over 1,900 train, engine, and yard employees to backfill attrition, cover absences resulting from recently negotiated sick leave benefits, and added employees in areas of critical need to address operational challenges and support our service product. 24Table of Contents● Operational Excellence – The year began with weather disruptions across the network that impacted our operations. We deployed additional locomotives and aggressively hired train, engine, and yard employees to alleviate these operational challenges. Despite the challenges, we continued to focus on using our resources effectively and productively, which resulted in sequential improvement in many of our operating metrics. ● Financial Results – Soft consumer markets, inflationary pressures, new labor agreements, fluctuating fuel prices, operational issues, and first quarter weather disruptions negatively impacted our financial results. Operating income of $9.1 billion declined 8% from 2022, and operating ratio was 62.3%, deteriorating 2.2 points from 2022. Net income of $6.4 billion translated into earnings of $10.45 per diluted share, down 7% from 2022. Despite the challenging year, we generated $8.4 billion of cash provided by operating activities, yielded free cash flow of $1.5 billion after reductions of $3.7 billion for cash used in investing activities and $3.2 billion in dividends. Both cash provided by operating activities and free cash flow were lowered by $454 million of payments related to the 2022 one-time charge for agreements reached with our labor unions and the ratification charge for a crew staffing agreement reached in the second quarter of 2023.Free cash flow is defined as cash provided by operating activities less cash used in investing activities and dividends paid. Free cash flow is not considered a financial measure under GAAP 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 free cash flow is important to management and investors in evaluating our financial performance and measures our ability to generate cash without additional external financing. Free cash flow 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 2023 2022 2021 Cash provided by operating activities $ 8,379 $ 9,362 $ 9,032 Cash used in investing activities (3,667 ) (3,471 ) (2,709 ) Dividends paid (3,173 ) (3,159 ) (2,800 ) Free cash flow $ 1,539 $ 2,732 $ 3,523 2024 Outlook ● Safety – Our goal is to be an industry leader in safety. We plan to improve the safety culture through our Courage to Care program. Courage to Care is reflected in actions such as giving and receiving feedback on unsafe behavior, finding and eliminating risk, and improving the safety of the work environment, so that everyone returns home safely. An enhanced safety management program focused on the critical rules that most impact safety will be rolled out to all employees in 2024. In addition, train, engine, and yard employees will be expected to attend a full day safety training class to reinforce these critical rules. We will continue using a comprehensive safety management approach utilizing technology, hazard identification and risk assessments, employee engagement, training, quality control, and targeted capital investments. In addition, our Operating Practices Command Center will help position us to implement predictive technology to reduce variability by seeking to identify causes of mainline service interruptions and develop solutions in addition to assisting employees with understanding best practices for handling trains. We plan to utilize data to identify and mitigate exposure to risk, detect rail defects, improve or close crossings, and educate the public and law enforcement agencies about crossing safety through a combination of our own programs (including risk assessment strategies), industry programs, and local community activities across the network. Operating a safe railroad benefits all our stakeholders: employees, customers, shareholders, and the communities we serve, while protecting the environment for future generations. ● Service – We are committed to delivering the service we sold to our customers. As we meet with customers to agree on their specific needs and outcomes, we will measure ourselves against the best service we provided them over the past three years and use that as a guide for meeting their expectations. We will engage with customers to understand how we win together. ● Operational Excellence – To provide our customers with the service we sold, we must run a fluid network. Network fluidity enables us to effectively utilize all our resources and provides the capacity to respond in an ever-changing environment. We will continue to transform our railroad to further improve our service product, improve resource utilization, and lower our overall cost structure. 25Table of Contents● Business Volumes – Macroeconomic uncertainties remain in 2024 that could have a material impact on our 2024 financial and operating results. Current forecasts for 2024 industrial production are flat versus 2023. In addition, other factors, such as changes in domestic and foreign monetary policy (including rising interest rates), may affect economic activity and demand for rail transportation; natural gas prices, weather conditions, and demand for other energy sources may impact the coal market; crude oil prices and spreads may drive demand for petroleum products and drilling materials; available truck capacity could impact our intermodal business; and international trade agreements could promote or hinder trade. Lower coal demand and some lost international intermodal business are expected to negatively impact volume. Fuel prices may continue to fluctuate in the current economic environment. As prices fluctuate, there will be a timing impact on earnings, as our fuel surcharge programs trail increases or decreases in fuel prices by approximately two months. Regardless of external factors, we will focus on operating a safe railroad and delivering the service we sold to our customers as well as effective asset utilization, cost control, and seeking new business opportunities.RESULTS OF OPERATIONSOperating Revenues % Change % Change Millions 2023 2022 2021 2023 v 2022 2022 v 2021 Freight revenues $ 22,571 $ 23,159 $ 20,244 (3 )% 14 % Other subsidiary revenues 872 884 741 (1 ) 19 Accessorial revenues 584 779 752 (25 ) 4 Other 92 53 67 74 (21 ) Total $ 24,119 $ 24,875 $ 21,804 (3 )% 14 % 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 volumes, are recorded as a reduction to operating revenues. Customer incentives that include variable consideration based on cumulative volumes are estimated using the expected value method, which is based on available historical, current, and forecasted volumes, 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 and commuter rail 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 decreased 3% year-over-year to $22.6 billion driven by lower fuel surcharge revenues, negative mix of traffic (decreased lumber shipments and increased short haul rock shipments), and a 1% decrease in volume, partially offset by core pricing gains. Volume decreases were primarily driven by weaker demand for intermodal and coal shipments. These declines were partially offset by a domestic intermodal contract win, increased production and inventory replenishment in the automotive industry, growth in petroleum and LPG shipments, and strength in rock shipments. Our fuel surcharge programs generated freight revenues of $3.0 billion and $3.7 billion in 2023 and 2022, respectively. Fuel surcharge revenues in 2023 decreased $0.7 billion due to a 15% decrease in fuel prices and lower volume, partially offset by the impact of fluctuating fuel prices (it can generally take up to two months for changing fuel prices to affect fuel surcharge recoveries). In 2023, other subsidiary revenues decreased compared to 2022 primarily driven by weaker demand for intermodal shipments at our Loup subsidiary. Accessorial revenues decreased in 2023 compared to 2022 driven by decreased intermodal accessorial and container revenues due to lower volume and improvements in the global supply chain as reflected in better equipment cycle times. Other revenues increased year-over-year. 26Table of Contents The following tables summarize the year-over-year changes in freight revenues, revenue carloads, and ARC by commodity type:~~Freight Revenues % Change % Change~~Millions2023 2022 2021 2023 v 2022 2022 v 2021 Grain & grain products $ 3,644 $ 3,598 $ 3,181 1 % 13 % Fertilizer 757 712 697 6 2 Food & refrigerated 1,041 1,093 998 (5 ) 10 Coal & renewables 1,916 2,134 1,780 (10 ) 20 Bulk 7,358 7,537 6,656 (2 ) 13 Industrial chemicals & plastics 2,176 2,158 1,943 1 11 Metals & minerals 2,194 2,196 1,811 - 21 Forest products 1,347 1,465 1,357 (8 ) 8 Energy & specialized markets 2,521 2,386 2,212 6 8 Industrial 8,238 8,205 7,323 - 12 Automotive 2,421 2,257 1,761 7 28 Intermodal 4,554 5,160 4,504 (12 ) 15 Premium 6,975 7,417 6,265 (6 ) 18 Total $ 22,571 $ 23,159 $ 20,244 (3 )% 14 % Revenue Carloads % Change % ChangeThousands2023 2022 2021 2023 v 2022 2022 v 2021 Grain & grain products 798 798 805 - % (1 )% Fertilizer 191 190 201 1 (5 ) Food & refrigerated 175 187 189 (6 ) (1 ) Coal & renewables 867 885 819 (2 ) 8 Bulk 2,031 2,060 2,014 (1 ) 2 Industrial chemicals & plastics 645 637 606 1 5 Metals & minerals 793 785 697 1 13 Forest products 213 241 250 (12 ) (4 ) Energy & specialized markets 582 552 559 5 (1 ) Industrial 2,233 2,215 2,112 1 5 Automotive 820 778 701 5 11 Intermodal [a] 3,028 3,116 3,211 (3 ) (3 ) Premium 3,848 3,894 3,912 (1 ) - Total 8,112 8,169 8,038 (1 )% 2 % % Change % Change Average Revenue per Car 2023 2022 2021 2023 v 2022 2022 v 2021 Grain & grain products $ 4,567 $ 4,509 $ 3,953 1 % 14 % Fertilizer 3,962 3,749 3,470 6 8 Food & refrigerated 5,929 5,844 5,279 1 11 Coal & renewables 2,211 2,410 2,173 (8 ) 11 Bulk 3,623 3,658 3,305 (1 ) 11 Industrial chemicals & plastics 3,374 3,388 3,207 - 6 Metals & minerals 2,765 2,797 2,598 (1 ) 8 Forest products 6,310 6,092 5,424 4 12 Energy & specialized markets 4,335 4,320 3,956 - 9 Industrial 3,689 3,704 3,467 - 7 Automotive 2,955 2,902 2,511 2 16 Intermodal [a] 1,504 1,656 1,403 (9 ) 18 Premium 1,813 1,905 1,601 (5 ) 19 Average $ 2,782 $ 2,835 $ 2,519 (2 )% 13 % [a] For intermodal shipments, each container or trailer equals one carload. 27Table of ContentsBulk – Bulk includes shipments of grain and grain products, fertilizer, food and refrigerated, and coal and renewables. Freight revenues from bulk shipments decreased in 2023 compared to 2022 due to lower fuel surcharge revenues, lower volume, and negative mix from fewer food and refrigerated shipments, partially offset by core pricing gains. Volume declined 1% compared to 2022 driven by reduced use of coal in electricity generation because of low natural gas prices and mild winter weather in the second half of the year. Volume for coal and renewables and food and refrigerated shipments were negatively impacted by outages and service challenges due to repeated snow events in Wyoming and flooding in California in the first quarter of 2023. 2023 Bulk Carloads 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 slightly in 2023 versus 2022 due to core pricing gains and volume increases, offset by negative mix of traffic, driven by increased short haul rock shipments and decreased lumber shipments, and lower fuel surcharge revenues. Volume increased 1% compared to 2022. The growth was driven by petroleum and LPG shipments and metals and minerals due to strong demand for rock. Partially offsetting that growth were decreases in forest products due to the softening housing market and fewer shipments of brown paper as demand for non-durable goods declined. 2023 Industrial Carloads Premium – Premium includes shipments of finished automobiles, automotive parts, and merchandise in intermodal containers, both domestic and international. Freight revenues from premium shipments decreased driven by lower fuel surcharges and volume declines, partially offset by core pricing gains. Intermodal shipments declined 3% compared to 2022 as high inventories and inflationary pressures impacted consumer demand, partially offset by a domestic contract win. Despite the negative effects of the United Auto Workers strike, automotive shipments increased 5% compared to 2022 driven by increased production as dealers replenished inventories. 2023 Premium Carloads Mexico Business – Each of our commodity groups includes revenues from shipments to and from Mexico. Revenues from Mexico shipments were $2.8 billion in 2023, up 2% compared to 2022, driven by a 4% volume increase, partially offset by a 2% decrease in average revenue per car due to lower fuel surcharge revenues. The volume increase was driven by higher intermodal and automotive shipments, partially offset by fewer beer shipments. The closure of the Eagle Pass and El Paso border crossings in the fourth quarter had a slightly negative impact on the overall results. 28Table of ContentsOperating Expenses % Change % Change Millions 2023 2022 2021 2023 v 2022 2022 v 2021 Compensation and benefits $ 4,818 $ 4,645 $ 4,158 4 % 12 % Fuel 2,891 3,439 2,049 (16 ) 68 Purchased services and materials 2,616 2,442 2,016 7 21 Depreciation 2,318 2,246 2,208 3 2 Equipment and other rents 947 898 859 5 5 Other 1,447 1,288 1,176 12 10 Total $ 15,037 $ 14,958 $ 12,466 1 % 20 % Operating expenses increased $79 million, or 1%, in 2023 compared to 2022 driven by inflation; operational challenges in the first half of the year, including additional costs related to weather; increased workforce levels, including the impact of increased sick leave benefits provided to our craft professionals; higher casualty costs; and the ratification charge for a crew staffing agreement reached in the second quarter of 2023, partially offset by lower fuel prices, a one-time charge in 2022 for agreements reached with our labor unions, and volume related costs. 2023 Operating Expenses Compensation and Benefits – Compensation and benefits include wages, payroll taxes, health and welfare costs, pension costs, and incentive costs. In 2023, expenses increased 4% compared to 2022. The employee level increase of 3% includes a 4% increase in train, engine, and yard employees to backfill attrition, cover absences resulting from recent negotiated sick leave benefits, and add employees in areas of critical need to address operational challenges and support our service product. The wage growth, costs for training, and the ratification charge for a crew staffing agreement reached in the second quarter of 2023, partially offset by the 2022 one-time charge for agreements reached with our labor unions, lower incentive compensation, and lower volume drove the increase in compensation and benefits for 2023 compared to 2022. Fuel – Fuel includes locomotive fuel and gasoline for highway and non-highway vehicles and heavy equipment. Fuel expense decreased compared to 2022 due to a decrease in locomotive diesel fuel prices, which averaged $3.09 per gallon (including taxes and transportation costs) in 2023 compared to $3.65 per gallon in 2022, resulting in a $0.5 billion decrease in expense (excluding any impact from decreased volume year-over-year), and a 1% decrease in gross ton-miles, partially offset by a 1% deterioration to the fuel consumption rate in 2023 (computed as gallons of fuel consumed divided by gross ton-miles). 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 expenses 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 expenses; and tools and supplies. Purchased services and materials increased 7% in 2023 compared to 2022 driven by higher locomotive maintenance expenses due to inflation, increased locomotive overhauls, and a larger active fleet in the first half of 2023 to assist in recovering the network, partially offset by decreased volume-related drayage costs incurred at one of our subsidiaries. Depreciation – The majority of depreciation relates to road property, including rail, ties, ballast, and other track material. Depreciation expense was up 3% in 2023 compared to 2022 due to a higher depreciable asset base. 29Table of ContentsEquipment 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 expenses, offset by equity income from certain equity method investments. Equipment and other rents expense increased 5% compared to 2022 due to lower equity income and inflation, partially offset by greater network fluidity and lower volume. Other – Other expenses include state and local taxes; freight, equipment, and property damage; utilities; insurance; personal injury; environmental; employee travel; telephone and cellular; computer software; bad debt; and other general expenses. Other expenses increased 12% in 2023 compared to 2022 driven by casualty expenses, including higher personal injury expense, environmental remediation, and damaged freight, and one-time write-offs. Non-Operating Items % Change % Change Millions 2023 2022 2021 2023 v 2022 2022 v 2021 Other income, net $ 491 $ 426 $ 297 15 % 43 % Interest expense (1,340 ) (1,271 ) (1,157 ) 5 10 Income tax expense $ (1,854 ) $ (2,074 ) $ (1,955 ) (11 )% 6 % Other Income, net – Other income increased in 2023 compared to 2022 driven by a one-time $107 million real estate transaction, partially offset by lower gains from real estate sales. Real estate sales in 2022 included a $79 million gain from a land sale to the Illinois State Toll Highway Authority and a $35 million gain from a land sale to the Colorado Department of Transportation. See Note 6 to the Financial Statements and Supplementary Data, Item 8, for additional detail. Interest Expense – Interest expense increased in 2023 compared to 2022 due to an increased weighted-average debt level of $33.2 billion in 2023 from $32.1 billion in 2022. The effective interest rate was 4.0% in both periods. Income Tax Expense – Income tax expense decreased in 2023 compared to 2022 due to lower pre-tax income and deferred tax expense reductions. In 2023, the states of Nebraska, Iowa, Kansas, and Arkansas enacted legislation to reduce their corporate income tax rates for future years resulting in a $114 million reduction of our deferred tax expense. 2022 income tax expense included reductions of $95 million in deferred tax expense from Nebraska, Iowa, Arkansas, and Idaho reducing their corporate income tax rates. Our effective tax rates for 2023 and 2022 were 22.5% and 22.9%, respectively.OTHER OPERATING/PERFORMANCE AND FINANCIAL STATISTICSWe report a number of key performance measures weekly to the STB. We provide this data on our website at www.up.com/investor/aar-stb_reports/index.htm. Operating/Performance Statistics Management continuously monitors these key operating metrics to evaluate our operational efficiency and help us deliver the service product we sold to our customers. 30 Table of ContentsRailroad performance measures are included in the table below:% Change % Change 2023 2022 2021 2023 v 2022 2022 v 2021 Gross ton-miles (GTMs) (billions) 837.5 843.4 817.9 (1 ) 3 % Revenue ton-miles (billions) 413.3 420.8 411.3 (2 ) 2 Freight car velocity (daily miles per car) [a] 204 191 203 7 (6 ) Average train speed (miles per hour) [a] 24.2 23.8 24.6 2 (3 ) Average terminal dwell time (hours) [a] 23.4 24.4 23.7 (4 ) 3 Locomotive productivity (GTMs per horsepower day) 129 125 133 3 (6 ) Train length (feet) 9,356 9,329 9,334 - - Intermodal car trip plan compliance (%) [b] 78 67 73 11 pts (6 ) pts Manifest/Automotive car trip plan compliance (%) [b] 65 59 63 6 pts (4 ) pts Workforce productivity (car miles per employee) 1,000 1,036 1,038 (3 ) - Total employees (average) 31,490 30,717 29,905 3 3 Operating ratio (%) 62.3 60.1 57.2 2.2 pts 2.9 pts [a] As reported to the STB. [b] Methodology used to report (described below) is not comparable with the reporting to the STB under docket number EP 770. 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 tariff miles. In 2023, gross ton-miles and revenue ton-miles decreased 1% and 2%, respectively, compared to 2022, driven by a 1% decrease in carloadings. Changes in commodity mix drove the variance in year-over-year decreases between gross ton-miles, revenue ton-miles, and carloads. 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, average train speed, and average terminal dwell improved compared to 2022 as last year we experienced congestion across our system. These metrics were negatively impacted by operational challenges caused by weather in the first quarter of 2023 and train crew shortages in some locations in the first half of the year, but as network fluidity improved throughout 2023, freight car velocity increased sequentially. Locomotive Productivity – Locomotive productivity is gross ton-miles per average daily locomotive horsepower. Locomotive productivity improved 3% in 2023 compared to 2022 driven by improved network fluidity in the second half of 2023. As a result of the improved fluidity, we stored locomotives in the second half of the year, reducing our active fleet size 11% since the end of the second quarter of 2023. These improvements more than offset increased average active fleet size in the first half of 2023 as resources were deployed to alleviate operational challenges and weather disruptions. Train Length – Train length is the average maximum train length on a route measured in feet. Our train length increased slightly compared to 2022 as initiative to drive train length improvements in the second half of the year more than offset the declines in intermodal shipments, which generally move on longer trains. Car Trip Plan Compliance – Car trip plan compliance is the percentage of cars delivered on time in accordance with our original trip plan. Our network trip plan compliance is broken into the intermodal and manifest/automotive products. Intermodal car trip plan compliance and manifest/automotive car trip plan compliance improved in 2023 compared to 2022 driven by improved network fluidity, as evidenced by faster freight car velocity. Workforce Productivity – Workforce productivity is average daily car miles per employee. Workforce productivity declined 3% in 2023 as average daily car miles decreased slightly and employees increased compared to 2022. The 3% increase in employee levels was driven by an increase in craft professionals as we aggressively hired train, engine, and yard employees to backfill attrition, cover absences resulting from recently negotiated sick leave benefits, and add employees in areas of critical need to address operational challenges and support our service product. Operating Ratio – Operating ratio is our operating expenses reflected as a percentage of operating revenues. Our operating ratio of 62.3% deteriorated 2.2 points compared to 2022 driven by inflation, excess network costs, the ratification charge for a crew staffing agreement reached in the second quarter of 2023, increased casualty costs, and other cost increases, partially offset by core pricing gains, the 2022 one-time charge for the labor agreements reached with our labor unions, and the year-over-year lag impact from lower fuel prices. 31Table of ContentsReturn on Average Common Shareholders ’ Equity Millions, Except Percentages 2023 2022 2021 Net income $ 6,379 $ 6,998 $ 6,523 Average equity $ 13,476 $ 13,162 $ 15,560 Return on average common shareholders' equity 47.3 % 53.2 % 41.9 % Return on Invested Capital as Adjusted (ROIC) Millions, Except Percentages 2023 2022 2021 Net income $ 6,379 $ 6,998 $ 6,523 Interest expense 1,340 1,271 1,157 Interest on average operating lease liabilities 58 56 54 Taxes on interest (315 ) (304 ) (280 ) Net operating profit after taxes as adjusted $ 7,462 $ 8,021 $ 7,454 Average equity $ 13,476 $ 13,162 $ 15,560 Average debt 32,953 31,528 28,229 Average operating lease liabilities 1,616 1,695 1,682 Average invested capital as adjusted $ 48,045 $ 46,385 $ 45,471 Return on invested capital as adjusted 15.5 % 17.3 % 16.4 % ROIC is 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 this measure is 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 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 a reconciliation from return on average common shareholders’ equity to ROIC. At December 31, 2023, 2022, and 2021, the incremental borrowing rate on operating leases was 3.6%, 3.3%, and 3.2%, respectively. Debt / Net Income Millions, Except Ratios 2023 2022 2021 Debt $ 32,579 $ 33,326 $ 29,729 Net income $ 6,379 $ 6,998 $ 6,523Debt / net income~~5.1 4.8 4.6 Adjusted Debt / Adjusted EBITDA Millions, Except Ratios 2023 2022 2021 Net income $ 6,379 $ 6,998 $ 6,523~~Add:~~Income tax expense 1,854 2,074 1,955 Depreciation 2,318 2,246 2,208 Interest expense 1,340 1,271 1,157 EBITDA $ 11,891 $ 12,589 $ 11,843~~Adjustments:Other income, net (491 ) (426 ) (297 ) Interest on operating lease liabilities 58 54 56 Adjusted EBITDA $ 11,458 $ 12,217 $ 11,602 Debt $ 32,579 $ 33,326 $ 29,729 Operating lease liabilities 1,600 1,631 1,759 Adjusted debt $ 34,179 $ 34,957 $ 31,488 Adjusted debt / adjusted EBITDA 3.0 2.9 2.7 32 Table of Contents 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 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 December 31, 2023, 2022, and 2021, the incremental borrowing rate on operating leases was 3.6%, 3.3%, and 3.2%, respectively. Pension and OPEB were funded at December 31, 2023, 2022, and 2021.LIQUIDITY AND CAPITAL RESOURCESWe 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 o utline d below and indicate we have sufficient borrowing capacity to sustain an extended period of lower volumes. At both December 31, 2023 and 2022, we had a working capital deficit due to upcoming debt maturities. It is not unusual for us to have a working capital deficit, and we believe it is not an indication of a lack of liquidity. We generate strong cash from operations and also maintain adequate resources, including our credit facility and, when necessary, access the capital markets to meet foreseeable cash requirements. During 2023, we generated $8.4 billion of cash provided by operating activities, issued $1.0 billion of long-term debt, paid $3.2 billion in dividends, and repurchased shares totaling $0.7 billion. We have been, and we expect to continue to be, in compliance with our debt covenants. Our principal sources of liquidity include cash and cash equivalents, our Receivables Facility, our revolving credit facility, as well as the availability of commercial paper and other sources of financing through the capital markets. On December 31, 2023, we had $1.1 billion of cash and cash equivalents, $2.0 billion of committed credit available under our revolving credit facility, and up to $800 million undrawn on the Receivables Facility. As of December 31, 2023, none of the revolving credit facility was drawn, and we did not draw on our revolving credit facility at any time during 2023. Our access to the Receivables Facility may be reduced or restricted if our bond ratings fall to certain levels below investment grade. If our bond rating were to deteriorate, it could have an adverse impact on our liquidity. Access to commercial paper as well as other capital market financing is dependent on market conditions. Deterioration of our operating results or financial condition due to internal or external factors could negatively impact our ability to access capital markets as a source of liquidity. Access to liquidity through the capital markets is also dependent on our financial stability. We expect that we will continue to have access to liquidity through any or all the following sources or activities: (a) increasing the utilization of our Receivables Facility, (b) issuing commercial paper, (c) entering into bank loans, outside of our revolving credit facility, or (iv) issuing bonds or other debt securities to public or private investors based on our assessment of the current condition of the credit markets. The Company’s $2.0 billion revolving credit facility is intended to support the issuance of commercial paper by UPC and also serves as an additional source of liquidity to fund short-term needs. The Company currently does not intend to make any borrowings under this facility. As described in the notes to the Consolidated Financial Statements and as referenced in the table below, we have contractual obligations that may affect our financial condition. 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 described in Item 1A of Part II of this report), 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 are customary transactions that are like those of other comparable corporations, particularly within the transportation industry. 33Table of Contents~~The following table identifies material obligations as of December 31, 2023: Payments Due by December 31, Contractual Obligations After~~MillionsTotal 2024 2025 2026 2027 2028 2028 Debt [a] $ 60,516 $ 2,610 $ 2,591 $ 2,617 $ 2,348 2,294 $ 48,056 Purchase obligations [b] 2,985 1,150 744 600 222 158 111 Operating leases [c] 1,768 361 375 296 237 199 300 Other post retirement benefits [d] 393 44 40 40 39 39 191 Finance lease obligations [e] 173 55 42 35 30 11 - Total contractual obligations $ 65,835 $ 4,220 $ 3,792 $ 3,588 $ 2,876 $ 2,701 $ 48,658 [a] Excludes finance lease obligations of $158 million as well as unamortized discount and deferred issuance costs of ($1,732) million. Includes an interest component of $26,363 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 $168 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 $15 million. Cash Flows Millions 2023 2022 2021 Cash provided by operating activities $ 8,379 $ 9,362 $ 9,032 Cash used in investing activities (3,667 ) (3,471 ) (2,709 ) Cash used in financing activities (4,625 ) (5,887 ) (7,158 ) Net change in cash, cash equivalents, and restricted cash $ 87 $ 4 $ (835 ) Operating Activities Cash provided by operating activities decreased in 2023 compared to 2022 due primarily to a decrease in net income and $454 million of payments related to the 2022 one-time charge for agreements reached with our labor unions and the ratification charge for a crew staffing agreement reached in the second quarter of 2023.Cash flow conversion is defined as cash provided by operating activities less cash used in capital investments as a ratio of net income. Cash flow conversion rate is not considered a financial measure under GAAP 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 cash flow conversion rate is important to management and investors in evaluating our financial performance and measures our ability to generate cash without additional external financing. 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 cash flow conversion rate (non-GAAP measure):Millions, For the Year Ended December 31, 2023 2022 2021 Cash provided by operating activities $ 8,379 $ 9,362 $ 9,032 Cash used in capital investments (3,606 ) (3,620 ) (2,936 ) Total (a) 4,773 5,742 6,096 Net income (b) $ 6,379 $ 6,998 $ 6,523 Cash flow conversion rate (a/b) 75 % 82 % 93 % Investing Activities Cash used in investing activities in 2023 increased compared to 2022 primarily driven by lower proceeds from asset sales within other investing activities net. 34Table of ContentsThe following tables detail cash capital investments and track statistics for the years ended December 31: Millions 2023 2022 2021 Ties $ 565 $ 544 $ 443 Rail and other track material 454 437 507 Ballast 194 216 215 Other [a] 691 693 760 Total road infrastructure replacements 1,904 1,890 1,925 Line expansion and other capacity projects 239 276 284 Commercial facilities 425 308 243 Total capacity and commercial facilities 664 584 527 Locomotives and freight cars [b] 728 800 322 Technology and other 310 346 162 Total cash capital investments [c] $ 3,606 $ 3,620 $ 2,936 [a] Other includes bridges and tunnels, signals, other road assets, and road work equipment. [b] Locomotives and freight cars include early lease buyouts of $57 million, $70 million, and $34 million in 2023, 2022, and 2021, respectively. [c] Weather-related damages for 2023, 2022, and 2021 are immaterial. Capital Plan – In 2024 , we expect our capital plan to be approximately $3.4 billion, down 8% from 2023 . We plan to continue to make investments to support our growth strategy, harden our infrastructure, replace older assets, and improve the safety and resiliency of the network. In addition, the plan includes investments in growth-related projects to drive more carloads to the network, certain ramps to efficiently handle volumes from new and existing intermodal customers, continued modernization of our locomotive fleet, and projects intended to improve operational efficiency. The capital plan may be revised if business conditions warrant or if new laws or regulations affect our ability to generate sufficient returns on these investments. Financing Activities Cash used in financing activities decreased in 2023 compared to 2022 driven by a decrease in share repurchases, partially offset by less debt issued. See Note 14 to the Financial Statements and Supplementary Data, Item 8, for a description of all our outstanding financing arrangements and significant new borrowings, and Note 18 to the Financial Statements and Supplementary Data, Item 8, for a description of our share repurchase programs. 35 Table of ContentsOTHER MATTERS Inflation – For capital-intensive companies, inflation significantly increases asset replacement costs for long-lived assets. As a result, assuming that we replace all operating assets at current price levels, depreciation charges (on an inflation-adjusted basis) would be substantially greater than historically reported amounts.Sensitivity Analyses – The sensitivity analyses that follow illustrate the economic effect that hypothetical changes in interest and tax rates could have on our results of operations and financial condition. These hypothetical changes do not consider other factors that could impact actual results. Interest Rates – At December 31, 2023, we did not have variable-rate debt. Market risk for fixed-rate debt is estimated as the potential increase in fair value resulting from a hypothetical one percentage point decrease in interest rates as of December 31, 2023 , and totals an increase of approximately $3.6 billion to the fair value of our debt at December 31, 2023 . We estimated the fair values of our fixed-rate debt by considering the impact of the hypotheti cal interest rates on quoted market prices and current borrowing rates. Tax Rates – Our deferred tax assets and liabilities are measured based on current tax law. Future tax legislation, such as a change in the federal corporate tax rate, could have a material impact on our financial condition, results of operations, or liquidity. For example, a future, permanent 1% increase in our federal income tax rate would increase our deferred tax liability by approximately $525 million. Similarly, a future, permanent 1% decrease in our federal income tax rate would decrease our deferred tax liability by approximately $525 million. Accounting Pronouncements – See Note 3 to the Financial Statements and Supplementary Data, Item 8. Asserted and Unasserted Claims – See Note 17 to the Financial Statements and Supplementary Data, Item 8.Indemnities – See Note 17 to the Financial Statements and Supplementary Data, Item 8.Climate Change – Climate change could have an adverse impact on our operations and financial performance (see Risk Factors under Item 1A of this report). We utilize climate scenario analyses to better understand climate-related risks and opportunities the Company may face in the future under a range of potential scenarios. We continue to refine our approach to understand climate-related risks and are taking an iterative approach in our business planning processes as risk factors, solutions, and technology develop. However, we are unable to predict the likelihood, manner, severity, or ultimate financial impact of actual future incidents as climate scenario analysis considers a range of potential outcomes. We continue to take steps and explore opportunities to reduce our operational impact on the environment, including improving our operational fluidity to increase fuel efficiency, modernizing locomotives for improved reliability and fuel consumption, using renewable fuels, and exploring and testing low- and zero-emissions propulsion technologies. These initiatives are aligned with our Safety + Service & Operational Excellence = Growth strategy. (See further discussion in "Sustainable Future" in the Operations section in Item 1 of this report.)CRITICAL ACCOUNTING ESTIMATES Our Consolidated Financial Statements have been prepared in accordance with GAAP. 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 we believe are reasonable under the circumstances. The results form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. The following critical accounting estimates are a subset of our significant accounting policies described in Note 2 to the Financial Statements and Supplementary Data, Item 8. These critical accounting estimates affect significant areas of our financial statements and involve judgment and estimates. If these estimates differ significantly from actual results, the impact on our Consolidated Financial Statements may be material.36 Table of Contents Personal Injury – See Note 17 to the Financial Statements and Supplementary Data, Item 8, and " We May Be Subject to Various Claims and Lawsuits That Could Result in Significant Expenditures" in the Risk Factors, Item 1A.Our personal injury liability is subject to uncertainty due to unasserted claims, timing and outcome of claims, and evolving trends in litigation. There were no material changes to the assumptions used in the latest actuarial analysis. Our personal injury liability balance and claims activity was as follows:2023 2022 2021 Ending liability balance at December 31 (millions) $ 383 $ 361 $ 325 Open claims, beginning balance 2,036 2,027 1,897 New claims 3,008 2,747 2,719 Settled or dismissed claims (3,173 ) (2,738 ) (2,589 ) Open claims, ending balance at December 31 1,871 2,036 2,027 Environmental Costs – See Note 17 to the Financial Statements and Supplementary Data, Item 8; " We Are Subject to Significant Environmental Laws and Regulations" in the Risk Factors, Item 1A; and Environmental Matters in the Legal Proceedings, Item 3.Our environmental liability is subject to several factors such as type of remediation, nature and volume of contaminate, number and financial viability of other potentially responsible parties, as well as uncertainty due to unknown alleged contamination, evolving trends in remediation techniques and final remedies, and changes in laws and regulations. Our environmental liability balance and site activity was as follows:2023 2022 2021 Ending liability balance at December 31 (millions) $ 245 $ 253 $ 243 Open sites, beginning balance 353 376 373 New sites 74 69 105 Closed sites (94 ) (92 ) (102 ) Open sites, ending balance at December 31 333 353 376 Property and Depreciation – See Note 11 to the Financial Statements and Supplementary Data, Item 8.Assets purchased or constructed throughout the year are capitalized if they meet applicable minimum units of property. Estimated service lives of depreciable railroad property may vary over time due to changes in physical use, technology, asset strategies, and other factors that will have an impact on the retirement profiles of our assets. We are not aware of any specific factors that are reasonably likely to significantly change the estimated service lives of our assets. Actual use and retirement of our assets may vary from our current estimates, which would impact the amount of depreciation expense recognized in future periods.Changes in estimated useful lives of our assets due to the results of our depreciation studies could significantly impact future periods’ depreciation expense and have a material impact on our Consolidated Financial Statements. If the estimated useful lives of all depreciable assets were increased by one year, annual depreciation expense would decrease by approximately $71 million. If the estimated useful lives of all depreciable assets were decreased by one year, annual depreciation expense would increase by approximately $76 million. We are projecting an increase in our depreciation expense of approximately 3% to 4% in 2024 versus 2023. This is driven by an increase in our projected depreciable asset base . During the last three fiscal years, no gains or losses were recognized due to the retirement of depreciable railroad properties. Pension Plans – See Note 5 to the Financial Statements and Supplementary Data, Item 8. The critical assumptions used to measure pension obligations and expenses are the discount rates and expected rate of return on pension assets. 37Table of ContentsWe evaluate our critical assumptions at least annually, and selected assumptions are based on the following factors:● We measure the service cost and interest cost components of our net periodic pension benefit/cost by using individual spot rates matched with separate cash flows for each future year. Discount rates are based on a Mercer yield curve of high-quality corporate bonds (rated AA by a recognized rating agency). ● Expected return on plan assets is based on our asset allocation mix and our historical return, taking into consideration current and expected market conditions. The following tables present the key assumptions used to measure net periodic pension benefit/cost for 2024 and the estimated impact on 2024 net periodic pension benefit/cost relative to a change in those assumptions:AssumptionsDiscount rate for benefit obligations 5.00 % Discount rate for interest on benefit obligations 4.90 % Discount rate for service cost 5.05 % Discount rate for interest on service cost 5.02 % Expected return on plan assets 5.25 %Sensitivities~~Increase in Expense~~Millions~~Pension 0.25% decrease in discount rates $ 1 0.25% decrease in expected return on plan assets $ 12~~The following table presents the net periodic pension benefit/cost for the years ended December 31:Est. Millions 2024 2023 2022 2021 Net periodic pension (benefit)/cost $ (7 ) $ - $ 9 $ 85 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 in the CEO’s letter preceding Part I; statements regarding planned capital expenditures under the caption “2024 Capital Plan” in Item 2 of Part I; and statements and information set forth under the captions “2024 Outlook”; “Liquidity and Capital Resources” in Item 7 of Part II regarding our capital plan, share repurchase programs, contractual obligations, "Pension Benefits", and "Other Matters" in this Item 7 of Part II. Forward-looking statements and information also include any other statements or information in this report (including information incorporated herein by reference) regarding: potential impacts of public health crises, including pandemics, epidemics, and the outbreak of other contagious disease, such as COVID; the Russia-Ukraine and Israel-Hamas wars and any impacts on our business operations, financial results, liquidity, and financial position, and on the world economy (including customers, employees, and supply chains), including as a result of fluctuations in volume and carloadings; 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, 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; 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,” “should,” “would,” “will,” “intends,” “plans,” “estimates,” “anticipates,” “projects” and similar words, phrases, or expressions. 38Table of ContentsForward-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. 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 that 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 conditions. The Risk Factors in Item 1A of this report 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.

FY 2025-12-31 (later)

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations The following discussion should be read in conjunction with the Consolidated Financial Statements and applicable notes to the Financial Statements and Supplementary Data, Item 8, and other information in this report, including Risk Factors set forth in Item 1A and Critical Accounting Estimates and Cautionary Information at the end of this Item 7. The following section generally discusses 2025 and 2024 items and year-to-year comparisons between 2025 and 2024. Discussions of 2023 items and year-to-year comparisons between 2024 and 2023 that are not included in this Form 10-K can be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7, of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2024.The Railroad, along with its subsidiaries and rail affiliates, is our one reportable operating segment. Although we provide and analyze revenues by commodity group, we treat the financial results of the Railroad as one segment due to the integrated nature of our rail network. EXECUTIVE SUMMARY2025 Results • Safety – Building on the foundation and commitment to our safety culture, 2025 furthered our progress towards world-class safety. With a focus on four central pillars – Injury Prevention, Leverage Technology, Situational Awareness Testing, and Peer-to-Peer Engagement, we are cultivating a safety-focused mindset so all of our employees return home safely each day. Injury Prevention efforts focus on specific, critical tasks where any form of non-compliance can result in a serious injury. Training is vital to teach our employees how to safely execute those critical tasks in order to reduce the risk of injury or derailment. By Leveraging Technology, we seek to eliminate or automate activities with the most risk. Over 7,000 wayside detectors monitor freight cars and locomotives in real time, generating 72 million data points daily to proactively identify and mitigate risks. We are building safer trains with our proprietary Physics Train Builder technology, which allows us to evaluate train and route characteristics to enable proactive intervention by our Operating Practices Command Center to prevent derailments. We utilize our autonomous geometry car fleet to inspect 500,000 miles of track annually. This technology and the data it provides enable us to direct investments and resources in the right place, helping to significantly reduce track-caused derailments over the last 10 years. Situational Awareness Testing (a program we call COMMIT) is our program that observes, tests, and coaches our employees to promote understanding and compliance with our work rules. COMMIT goes beyond traditional classroom learning, with an emphasis on in-the-field training with employees actively running the railroad. 28Table of ContentsPeer-to-Peer Engagement drives employee ownership through engagement with our safety programs. Our culture embodies a personal commitment to do our jobs with a passion for safety so everyone goes home safe. Employees are encouraged to speak up if they see unsafe behaviors. The focus on these four pillars continues to drive improvement, resulting in our best-ever personal injury and derailment incident rate annual safety results. Compared to 2024, our personal injury rate (the number of reportable injuries for every 200,000 employee-hours worked) of 0.68 decreased 24% and our derailment incident rate (the number of reportable derailment incidents per million train miles) of 1.75 improved 19%. • Service – Bolstered by sequentially improving freight car velocity and terminal dwell, our network remained fluid throughout 2025 as we achieved best-ever results for many of our operating metrics. For the year ended December 31, 2025, freight car velocity increased to 225 daily miles per car, an improvement of 8%, while terminal dwell declined 8% during the same period compared to 2024. Both service performance index measures improved to essentially three-year performance bests as we achieved intermodal service performance of 99% and manifest service performance of 100% for the full year 2025. • Operational Excellence – We effectively adapted to shifts in business traffic mix throughout 2025 as we handled elevated international intermodal shipments in the first half of the year coupled with strong bulk shipments throughout the year. As customer demand changed, we efficiently modified our resources to match demand while improving our service performance. • Financial results – Core pricing gains, strong productivity, and 1% volume growth positively impacted our financial results and offset the impact of inflation, negative business mix, and acquisition-related costs. Operating income of $9.8 billion increased 1% from 2024, and our operating ratio improved 10 basis points to 59.8% in 2025. Net income of $7.1 billion translated into earnings of $11.98 per diluted share, improving 8% from the prior year. We generated $9.3 billion of cash provided by operating activities, yielded free cash flow of $2.3 billion after reductions of $3.8 billion for cash used in investing activities and $3.2 billion in dividends paid. Cash provided by operating activities was positively impacted by $0.3 billion due to the enactment of H.R.1 and the reinstatement of 100% bonus depreciation.Free cash flow is defined as cash provided by operating activities less cash used in investing activities and dividends paid. Free cash flow is not considered a financial measure under GAAP 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 free cash flow is important to management and investors in evaluating our financial performance and measures our ability to generate cash without additional external financing. Free cash flow 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 2025 2024 2023 Cash provided by operating activities $ 9,290 $ 9,346 $ 8,379 Cash used in investing activities (3,762) (3,325) (3,667) Dividends paid (3,236) (3,213) (3,173) Free cash flow $ 2,292 $ 2,808 $ 1,539 2026 Outlook • Safety – We are committed to our goal of world-class safety and are continuously identifying areas in which we can enhance safety. In 2026, our focus remains on our four pillars of safety. Critical safety tasks will be reinforced. Training to engage both new and experienced employees is fundamental to our success. We will continue using a comprehensive safety management approach utilizing technology, hazard identification and risk assessments, employee engagement, training, quality control, and targeted capital investments. In addition, we will continue to collect and utilize data with the goal of identifying and mitigating exposure to risk, detect rail defects, improve or close grade crossings, and educate the public and law enforcement agencies about crossing safety through a combination of our own programs (including risk assessment strategies), industry programs, and local community activities across the network. Our culture is ingrained with a safety-first mindset, critical to our success, both operationally and financially, and our focus will not deviate in 2026. • Service – We are committed to delivering the service we sold to our customers. As we meet with customers to agree on their specific needs and outcomes, we will continue to measure ourselves against the best service we provided them over the last three years and use that as a guide for meeting their expectations. We will engage with customers by being the first to act on new opportunities, investing to grow, and finding innovative solutions to win together. 29Table of Contents• Operational Excellence – To provide our customers with the service we sold, we must run a fluid network. Network fluidity enables us to effectively utilize all our resources and provides the capacity to respond in an ever-changing environment. Terminal dwell and freight car velocity are key indicators of that fluidity. We will continue to transform our railroad using technology and automation to further improve our service product, improve resource utilization, and lower our overall cost structure. • Business volumes – We expect macroeconomic uncertainties to persist in 2026, and those uncertainties could have a material impact on our 2026 financial and operating results. 2026 industrial production is forecasted to be essentially flat with 2025, coupled with reduced expectations for housing starts and light vehicle sales. Lower international intermodal business, largely due to the resumption of historical trade patterns, is expected to negatively impact volumes. However, higher coal demand, from elevated natural gas prices and increased coal-fired electricity production, is expected to positively impact volumes. In addition, other factors, such as geopolitical instability or changes in trade policies that may affect economic activity and demand for rail transportation; natural gas prices, weather conditions, and demand for other energy sources may impact the coal market; crude oil prices and spreads may drive demand for petroleum products and drilling materials; available truck capacity could impact our intermodal business; and international trade agreements could promote or hinder trade. Fuel prices may continue to fluctuate in the current economic environment. As prices fluctuate, there will be a timing impact on earnings, as our fuel surcharge programs trail increases or decreases in fuel prices by approximately two months. Regardless of macroeconomic or other external factors, we remain focused on operating a safe, fluid, and efficient rail network while delivering the service we sold our customers and capitalizing on new business opportunities.RESULTS OF OPERATIONSOperating revenues Millions 2025 2024 2023 % Change 2025 v 2024 % Change 2024 v 2023 Freight revenues $ 23,220 $ 22,811 $ 22,571 2 % 1 % Other subsidiary revenues 718 788 872 (9) (10) Accessorial revenues 475 554 584 (14) (5) Other 97 97 92 - 5 Total $ 24,510 $ 24,250 $ 24,119 1 % 1 % We generate freight revenues by transporting products from our three commodity groups. Freight revenues vary with volumes (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 volumes, are recorded as a reduction to operating revenues. Customer incentives that include variable consideration based on cumulative volumes are estimated using the expected value method, which is based on available historical, current, and forecasted volumes, 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 and commuter rail 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 of $23.2 billion increased 2% from 2024 driven by core pricing gains and a 1% increase in volumes, partially offset by traffic mix (for example, a relative increase in coal and rock shipments, which have a lower ARC, combined with a decline in lumber shipments, which have a higher ARC) and lower fuel surcharge revenues. Volume increases were primarily driven by coal, grain and grain products, industrial chemicals and plastics, and rock shipments, partially offset by weaker demand for automotive and energy and specialized markets shipments. Our fuel surcharge programs generated freight revenues of $2.3 billion and $2.6 billion in 2025 and 2024, respectively. Fuel surcharge revenues in 2025 decreased $218 million due to lower fuel prices and the lag impact of fluctuating fuel prices (it can generally take up to two months for changing fuel prices to affect fuel surcharge recoveries), partially offset by higher volumes. In 2025, other subsidiary revenues decreased compared to 2024 due to the transfer of our commuter operations to Metra. Accessorial revenues decreased in 2025 compared to 2024 as a result of lower intermodal container revenues due to an intermodal equipment sale and a one-time contract settlement, both of which occurred in 2024, partially offset by higher intermodal accessorial revenues. 30Table of Contents The following tables summarize the year-over-year changes in freight revenues, revenue carloads, and ARC by commodity type:Freight revenuesMillions2025 2024 2023 % Change 2025 v 2024 % Change 2024 v 2023 Grain & grain products $ 3,926 $ 3,828 $ 3,644 3 % 5 % Fertilizer 856 811 757 6 7 Food & refrigerated 1,018 1,085 1,041 (6) 4 Coal & renewables 1,786 1,483 1,916 20 (23) Bulk 7,586 7,207 7,358 5 (2) Industrial chemicals & plastics 2,512 2,345 2,176 7 8 Metals & minerals 2,193 2,081 2,194 5 (5) Forest products 1,290 1,326 1,347 (3) (2) Energy & specialized markets 2,609 2,688 2,521 (3) 7 Industrial 8,604 8,440 8,238 2 2 Automotive 2,398 2,452 2,421 (2) 1 Intermodal 4,632 4,712 4,554 (2) 3 Premium 7,030 7,164 6,975 (2) 3 Total $ 23,220 $ 22,811 $ 22,571 2 % 1 % Revenue carloadsThousands2025 2024 2023 % Change 2025 v 2024 % Change 2024 v 2023 Grain & grain products 880 850 798 4 % 7 % Fertilizer 216 213 191 1 12 Food & refrigerated 163 177 175 (8) 1 Coal & renewables 797 702 867 14 (19) Bulk 2,056 1,942 2,031 6 (4) Industrial chemicals & plastics 704 672 645 5 4 Metals & minerals 747 719 793 4 (9) Forest products 203 213 213 (5) - Energy & specialized markets 587 607 582 (3) 4 Industrial 2,241 2,211 2,233 1 (1) Automotive 793 824 820 (4) - Intermodal [a] 3,357 3,357 3,028 - 11 Premium 4,150 4,181 3,848 (1) 9 Total 8,447 8,334 8,112 1 % 3 % Average revenue per car 2025 2024 2023 % Change 2025 v 2024 % Change 2024 v 2023 Grain & grain products $ 4,461 $ 4,505 $ 4,567 (1) % (1) % Fertilizer 3,970 3,809 3,962 4 (4) Food & refrigerated 6,233 6,104 5,929 2 3 Coal & renewables 2,241 2,113 2,211 6 (4) Bulk 3,690 3,710 3,623 (1) 2 Industrial chemicals & plastics 3,568 3,493 3,374 2 4 Metals & minerals 2,935 2,893 2,765 1 5 Forest products 6,369 6,229 6,310 2 (1) Energy & specialized markets 4,446 4,426 4,335 - 2 Industrial 3,840 3,818 3,689 1 3 Automotive 3,024 2,976 2,955 2 1 Intermodal [a] 1,380 1,404 1,504 (2) (7) Premium 1,694 1,714 1,813 (1) (5) Average $ 2,749 $ 2,737 $ 2,782 - % (2) % [a] For intermodal shipments, each container or trailer equals one carload. 31Table of ContentsBulk – Bulk includes shipments of grain and grain products, fertilizer, food and refrigerated, and coal and renewables. Freight revenues from bulk shipments increased in 2025 compared to 2024 due to 6% higher volumes and core pricing gains, partially offset by negative mix, from increased coal shipments, and lower fuel surcharge revenues. Bulk volume growth compared to 2024 was driven by increased use of coal in electricity generation due to higher natural gas prices coupled with business wins, in addition to, strength in export grain to Mexico and soybean crush production. These volume gains were partially offset by reduced food and beverage 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 in 2025 versus 2024 due to core pricing gains and higher volumes, partially offset by a negative mix of traffic, from increased rock and lower lumber shipments, and lower fuel surcharge revenues. Volumes increased 1% compared to 2024 due to stronger demand for rock, plastics, and industrial chemicals shipments partially offset by lower iron ore (as a result of tariff uncertainties), petroleum, and lumber carloads. Premium – Premium includes shipments of finished automobiles, automotive parts, and merchandise in intermodal containers, both domestic and international. Freight revenues from premium shipments decreased in 2025 driven by lower fuel surcharge revenues, negative business mix from reduced automotive shipments, and lower volumes, partially offset by core pricing gains. The heavy demand from increased U.S. West Coast imports continued into the first half of 2025 due to uncertainty related to trade policies, resulting in first half international intermodal volumes up 17%. Traffic shifted back to historical trade patterns in the second half of 2025 and international intermodal volumes decreased 24% compared to the second half of 2024, resulting in 6% lower international intermodal volumes for 2025. Strong domestic intermodal volumes helped to offset the decline in international shipments as a result of business development wins. Automotive shipments were down 4% year-over-year due to tariff uncertainties in the first half of 2025 and reduced manufacturer production from softer consumer demand. 2025 Bulk Carloads 2025 Industrial Carloads 2025 Premium Carloads Mexico business – Freight revenues from each of our commodity groups includes revenues from shipments to and from Mexico, which equated to $2.9 billion in 2025, down 1% compared to 2024, driven by a 2% reduction in ARC partially offset by 2% higher volumes. Compared to 2024, intermodal and grain and grain products volumes increased and were partially offset by lower auto parts and finished vehicle shipments. Operating expenses Millions 2025 2024 2023 % Change 2025 v 2024 % Change 2024 v 2023 Compensation and benefits $ 4,897 $ 4,899 $ 4,818 - % 2 % Purchased services and materials 2,626 2,520 2,616 4 (4) Depreciation 2,465 2,398 2,318 3 3 Fuel 2,390 2,474 2,891 (3) (14) Equipment and other rents 912 920 947 (1) (3) Other 1,374 1,326 1,447 4 (8) Total $ 14,664 $ 14,537 $ 15,037 1 % (3) % 32Table of ContentsOperating expenses increased $127 million, or 1%, in 2025 compared to 2024 driven by inflation, volume-related costs, acquisition-related expenses, and higher depreciation, partially offset by productivity and lower fuel prices. In addition, the year-over-year comparison was negatively impacted by a gain on the sale of intermodal equipment in 2024 and higher crew staffing agreement ratification charges in 2025 as we reached agreements in both years. 2025 Operating Expenses Compensation and benefits – Compensation and benefits include wages, payroll taxes, health and welfare costs, pension costs, and incentive costs. In 2025, expenses were essentially flat compared to 2024 due to wage inflation, increased volumes, higher incentive compensation, and increased crew needs associated with labor agreements, partially offset by 3% lower employee levels. Active train, engine, and yard (TE&Y) force levels decreased 3% in 2025 on 1% increased carloads due to improved network fluidity. 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 expenses 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 expenses; and tools and supplies. Purchased services and materials increased 4% in 2025 compared to 2024 driven by inflation (including tariff-related material expenses), acquisition-related expenses, and higher locomotive maintenance expense was partially offset by productivity and lower expenses incurred by our subsidiaries. The comparison was also negatively impacted by a favorable contract settlement in 2024. Fuel – Fuel includes locomotive fuel and gasoline for highway and non-highway vehicles and heavy equipment. Fuel expense decreased compared to 2024 due to a 6% decrease in locomotive diesel fuel prices, declining from an average of $2.64 per gallon (including taxes and transportation costs) in 2024 to $2.49 per gallon in 2025, resulting in a $138 million decrease in expense (excluding any impact from increased volumes year-over-year) and a 1% improvement to the fuel consumption rate in 2024 (computed as gallons of fuel consumed divided by gross ton-miles). Gross-ton miles increased 3% in 2025 and partially offset the impact of lower fuel prices and improved fuel consumption rate. Depreciation – The majority of depreciation relates to road property, including rail, ties, ballast, and other track material. Depreciation expense was up 3% in 2025 compared to 2024 due to 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 expenses, offset by equity income from certain equity method investments. Equipment and other rents expense decreased 1% compared to 2024 due to lower operating equipment lease expense, which included favorable contract settlements in 2025, and reduced car hire expense as favorable haul length and improved cycle times partially offset inflation and costs associated with increased demand in commodities utilizing freight cars owned by others. Higher other rental expense and lower equity income partially offset the favorable expense drivers. Other – Other expenses include property taxes; freight, equipment, and property damage; utilities; insurance; personal injury; environmental; employee travel; telephone and cellular; computer software; bad debt; and other general expenses. Other expenses increased 4% in 2025 compared to 2024 driven by the negative comparison from a 2024 gain on the sale of intermodal equipment, in addition to, higher personal injury costs, and property taxes, partially offset by lower environmental and freight loss and damage casualty costs. 33Table of ContentsNon-operating items Millions 2025 2024 2023 % Change 2025 v 2024 % Change 2024 v 2023 Other income, net $ 629 $ 350 $ 491 80 % (29) % Interest expense (1,309) (1,269) (1,340) 3 (5) Income tax expense $ (2,028) $ (2,047) $ (1,854) (1) % 10 % Other income, net – Other income increased $279 million in 2025 compared to 2024 driven by $295 million in higher real estate income, including $250 million in industrial park land sales. The higher real estate income was partially offset by interest received in 2024 from the IRS on refund claims. See Note 6 to the Financial Statements and Supplementary Data, Item 8, for additional detail. Interest expense – Interest expense increased 3% in 2025 compared to 2024 due to an increased weighted-average debt level of $32.1 billion in 2025 from $31.6 billion in 2024. In addition, the effective interest rate of 4.1% in 2025 increased from 4.0% in 2024. Income tax expense – Income tax expense decreased in 2025 compared to 2024. While pre-tax income was higher in 2025, the increase was more than offset by a $115 million reduction in deferred tax expense resulting from newly enacted Kansas legislation, along with the favorable impact of purchased tax credits during the year. In 2024, the states of Louisiana and Arkansas enacted legislation to reduce their corporate income tax rates for future years resulting in a $34 million reduction of our deferred tax expense. Our effective tax rates for 2025 and 2024 were 22.1% and 23.3%, respectively.OTHER OPERATING/PERFORMANCE AND FINANCIAL STATISTICSWe 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:2025 2024 2023 % Change 2025 v 2024 % Change 2024 v 2023 Gross ton-miles (GTMs) (billions) 873.6 847.4 837.5 3 % 1 % Revenue ton-miles (billions) 426.9 409.7 413.3 4 (1) Freight car velocity (daily miles per car) 225 208 204 8 2 Average train speed (miles per hour) [a] 24.3 23.6 24.2 3 (2) Average terminal dwell time (hours) [a] 20.9 22.6 23.4 (8) (3) Locomotive productivity (GTMs per horsepower day) 139 135 129 3 5 Train length (feet) 9,678 9,469 9,356 2 1 Intermodal service performance index (%) 99 90 88 9 pts 2 pts Manifest service performance index (%) 100 89 85 11 pts 4 pts Workforce productivity (car miles per employee) 1,132 1,062 1,000 7 6 Total employees (average) 29,287 30,336 31,490 (3) (4) Operating ratio (%) 59.8 59.9 62.3 (0.1) pts (2.4) pts [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 tariff miles. In 2025, gross ton-miles increased 3% and revenue ton-miles increased 4% on 1% higher carloadings year-over-year. Changes in commodity mix drove the year-over-year variances between gross ton-miles, revenue ton-miles, and carloads due to higher coal shipments, which are heavier. 34Table of ContentsFreight 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). Compared to 2024, freight car velocity increased 8% driven by record terminal dwell, which also improved 8%, and 3% higher average train speeds. Locomotive productivity – Locomotive productivity is gross ton-miles per average daily locomotive horsepower. Locomotive productivity improved 3% in 2025 compared to 2024 driven by improved network fluidity and asset utilization. Train length – Train length is the average maximum train length on a route measured in feet. Our train length increased 2% compared to 2024 due to train length improvement initiatives and increases in coal train length, coinciding with increased shipments. 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, and we believe it is a better indicator of service performance than the previously disclosed trip plan compliance. SPI does not replace the service commitments we have contractually agreed to with a small number of customers. SPI is calculated for intermodal and manifest products. Intermodal SPI improved 9 points as we adjusted to shifting international intermodal customer demand during 2025. Manifest SPI improved 11 points in 2025 compared to 2024 while handling more volume. Workforce productivity – Workforce productivity is average daily car miles per employee. Workforce productivity improved 7% in 2025 as average daily car miles increased 3% while employees decreased 3% compared to 2024. We adequately aligned our active TE&Y workforce to support carload demand while maintaining an adequate training pipeline to provide a capacity buffer to enable responsiveness in an ever-changing demand and operating environment. Operating ratio – Operating ratio is our operating expenses reflected as a percentage of operating revenues. Our operating ratio of 59.8% improved 0.1 points compared to 2024 driven by core pricing gains and productivity initiatives, partially offset by the impact of negative business mix, inflation, and acquisition-related expenses. In addition, operating ratio year-over-year comparison was negatively impacted by 2024 contract settlements, a 2024 gain on the sale of intermodal equipment, and higher labor agreement ratification charges in 2025. Return on average common shareholders’ equity Millions, except percentages 2025 2024 2023 Net income $ 7,138 $ 6,747 $ 6,379 Average equity $ 17,679 $ 15,839 $ 13,476 Return on average common shareholders' equity 40.4 % 42.6 % 47.3 % Return on invested capital as adjusted (ROIC) Millions, except percentages 2025 2024 2023 Net income $ 7,138 $ 6,747 $ 6,379 Interest expense 1,309 1,269 1,340 Interest on average operating lease liabilities 46 55 58 Taxes on interest (299) (308) (315) Net operating profit after taxes as adjusted $ 8,194 $ 7,763 $ 7,462 Average equity $ 17,679 $ 15,839 $ 13,476 Average debt 31,503 31,886 32,953 Average operating lease liabilities 1,140 1,436 1,616 Average invested capital as adjusted $ 50,322 $ 49,161 $ 48,045 Return on invested capital as adjusted 16.3 % 15.8 % 15.5 % ROIC is 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 this measure is 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 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 a reconciliation from return on average common shareholders’ equity to ROIC. At December 31, 2025, 2024, and 2023, the incremental borrowing rate on operating leases was 4.0%, 3.8%, and 3.6%, respectively. 35 Table of ContentsDebt / net incomeMillions, except ratios 2025 2024 2023 Debt $ 31,814 $ 31,192 $ 32,579 Net income $ 7,138 $ 6,747 $ 6,379 Debt / net income 4.5 4.6 5.1 Adjusted debt / adjusted EBITDA Millions, except ratios 2025 2024 2023 Net income $ 7,138 $ 6,747 $ 6,379Add:Income tax expense 2,028 2,047 1,854 Depreciation 2,465 2,398 2,318 Interest expense 1,309 1,269 1,340 EBITDA $ 12,940 $ 12,461 $ 11,891Adjustments:Other income, net (629) (350) (491) Interest on operating lease liabilities [1] 40 48 58 Adjusted EBITDA (a) $ 12,351 $ 12,159 $ 11,458 Debt $ 31,814 $ 31,192 $ 32,579 Operating lease liabilities 1,008 1,271 1,600 Adjusted debt (b) $ 32,822 $ 32,463 $ 34,179 Adjusted debt / adjusted EBITDA (b/a) 2.7 2.7 3.0 [1] 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. 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 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 December 31, 2025, 2024, and 2023, the incremental borrowing rate on operating leases was 4.0%, 3.8%, and 3.6%, respectively. Pension and OPEB were funded at December 31, 2025, 2024, and 2023.LIQUIDITY AND CAPITAL RESOURCESWe 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 volumes. At both December 31, 2025 and 2024, we had a working capital deficit due to upcoming debt maturities. It is not unusual for us to have a working capital deficit, and we believe it is not an indication of a lack of liquidity. We generate strong cash from operations and also maintain adequate resources, including our credit facility and, when necessary, access the capital markets to meet foreseeable cash requirements. During 2025, we generated $9.3 billion of cash provided by operating activities, paid down $1.4 billion of long-term debt, paid $3.2 billion in dividends, and repurchased shares totaling $2.7 billion. We also announced the pending acquisition of Norfolk Southern described in Note 20 to the Financial Statements and Supplementary Data, Item 8, and paused our share repurchase program. We have been, and we expect to continue to be, in compliance with our debt covenants. 36Table of ContentsOur principal sources of liquidity include cash and cash equivalents, our Receivables Facility, our revolving credit facility, as well as, the availability of commercial paper and other sources of financing through the capital markets. On December 31, 2025, we had $1.3 billion of cash and cash equivalents, $250 million of short-term investments, $2.0 billion of committed credit available under our revolving credit facility, and up to $600 million undrawn on the Receivables Facility. As of December 31, 2025, none of the revolving credit facility was drawn, and we did not draw on our revolving credit facility at any time during 2025. Our access to the Receivables Facility may be reduced or restricted if our bond ratings fall to certain levels below investment grade. If our bond rating were to deteriorate, it could have an adverse impact on our liquidity. Access to commercial paper, as well as, other capital market financing is dependent on market conditions. Deterioration of our operating results or financial condition due to internal or external factors could negatively impact our ability to access capital markets as a source of liquidity. Access to liquidity through the capital markets is also dependent on our financial stability. We expect that we will continue to have access to liquidity through any or all of the following sources or activities: (a) increasing the utilization of our Receivables Facility, (b) issuing commercial paper, (c) entering into bank loans, outside of our revolving credit facility, or (iv) issuing bonds or other debt securities to public or private investors based on our assessment of the current condition of the credit markets. The Company’s $2.0 billion revolving credit facility is intended to support the issuance of commercial paper by UPC and also serves as an additional source of liquidity to fund short-term needs. The Company currently does not intend to borrow from this facility. As described in the notes to the Consolidated Financial Statements and as referenced in the table below, we have contractual obligations that may affect our financial condition. 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 described in Item 1A of Part II of this report), 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 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 December 31, 2025: Payments due by December 31,MillionsTotal 2026 2027 2028 2029 2030 After 2030 Debt [a] $ 59,424 $ 2,724 $ 2,455 $ 2,402 $ 2,360 $ 1,816 $ 47,667 Purchase obligations [b] 2,537 817 579 434 389 302 16 Operating leases [c] 1,125 276 238 191 123 121 176 Other post-retirement benefits [d] 355 36 36 36 36 36 175 Finance lease obligations [e] 114 42 37 14 21 - - Total contractual obligations $ 63,555 $ 3,895 $ 3,345 $ 3,077 $ 2,929 $ 2,275 $ 48,034 [a] Excludes finance lease obligations of $105 million as well as unamortized discount and deferred issuance costs of ($1,678) million. Includes an interest component of $26,037 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 $117 million. [d] Includes estimated other post-retirement medical payments and payments made under the unfunded pension plan for the next ten years. [e] Represents total obligations, including an interest component of $9 million. Cash flows Millions 2025 2024 2023 Cash provided by operating activities $ 9,290 $ 9,346 $ 8,379 Cash used in investing activities (3,762) (3,325) (3,667) Cash used in financing activities (5,276) (6,067) (4,625) Net change in cash, cash equivalents, and restricted cash $ 252 $ (46) $ 87 Operating activities Cash provided by operating activities decreased in 2025 compared to 2024 due to timing of payments to taxing authorities and purchased tax credits. 37 Table of Contents On July 4, 2025, H.R.1 was enacted that makes key elements of the 2017 Tax Cuts and Jobs Act permanent, including provisions for 100% bonus depreciation on qualified property and fully expensing internally developed software, which has and will continue to favorably impact our cash provided by operating activities.Cash flow conversion is defined as cash provided by operating activities less cash used in capital investments as a ratio of net income. Cash flow conversion rate is not considered a financial measure under GAAP 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 cash flow conversion rate is important to management and investors in evaluating our financial performance and measures our ability to generate cash without additional external financing. 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 cash flow conversion rate (non-GAAP measure):Millions, except percentages 2025 2024 2023 Cash provided by operating activities $ 9,290 $ 9,346 $ 8,379 Cash used in capital investments (3,791) (3,452) (3,606) Total (a) 5,499 5,894 4,773 Net income (b) $ 7,138 $ 6,747 $ 6,379 Cash flow conversion rate (a/b) 77 % 87 % 75 % Investing activities Cash used in investing activities in 2025 increased compared to 2024 primarily driven by higher capital investments and the purchase of short term investments, partially offset by higher proceeds from real estate sales. The following table details cash capital investments for the years ended December 31: Millions 2025 2024 2023 Ties $ 523 $ 503 $ 565 Rail and other track material 562 493 454 Ballast 197 197 194 Other [a] 705 740 691 Total road infrastructure replacements 1,987 1,933 1,904 Line expansion and other capacity projects 258 183 239 Commercial facilities 359 317 425 Total capacity and commercial facilities 617 500 664 Locomotives and freight cars [b] 810 788 728 Technology and other 377 231 310 Total cash capital investments [c] $ 3,791 $ 3,452 $ 3,606 [a] Other includes bridges and tunnels, signals, other road assets, and road work equipment. [b] Locomotives and freight cars include lease buyouts of $311 million, $143 million, and $57 million in 2025, 2024, and 2023, respectively. [c] Weather-related damages for 2025, 2024, and 2023 are immaterial. See Note 20 to the Financial Statements and Supplementary Data, Item 8, for information regarding the pending acquisition of Norfolk Southern. Capital plan In 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. 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. 38Table of ContentsFinancing activities Cash used in financing activities decreased in 2025 compared to 2024 driven by an increase of debt issued and a decrease in debt repaid, partially offset by an increase in share repurchases. See Note 14 to the Financial Statements and Supplementary Data, Item 8, for a description of all our outstanding financing arrangements and significant new borrowings, Note 18 to the Financial Statements and Supplementary Data, Item 8, for a description of our share repurchase programs, and Note 20 to the Financial Statements and Supplementary Data, Item 8, for the pending acquisition of Norfolk Southern.OTHER MATTERS Inflation – For capital-intensive companies, inflation significantly increases asset replacement costs for long-lived assets. As a result, assuming that we replace all operating assets at current price levels, depreciation charges (on an inflation-adjusted basis) would be substantially greater than historically reported amounts.Sensitivity analyses – The sensitivity analyses that follow illustrate the economic effect that hypothetical changes in interest and tax rates could have on our results of operations and financial condition. These hypothetical changes do not consider other factors that could impact actual results. Interest rates – At both December 31, 2025, and 2024, we did not have variable-rate debt. Market risk for fixed-rate debt is estimated as the potential increase in fair value resulting from a hypothetical 1% decrease in interest rates as of December 31, 2025, and 2024, and totals an increase of approximately $3.2 billion and $3.0 billion to the fair value of our debt at December 31, 2025, and 2024, respectively. We estimated the fair values of our fixed-rate debt by considering the impact of the hypothetical interest rates on quoted market prices and current borrowing rates. Tax rates – Our deferred tax assets and liabilities are measured based on current tax law. Future tax legislation, such as a change in the federal corporate tax rate, could have a material impact on our financial condition, results of operations, or liquidity. For example, as of December 31, 2025, a future, permanent 1% increase in our federal income tax rate would increase our deferred tax liability by approximately $550 million. Similarly, a future, permanent 1% decrease in our federal income tax rate would decrease our deferred tax liability by approximately $550 million. As of December 31, 2024, a permanent 1% increase or decrease in our federal income tax rate would have correspondingly increased or decreased our deferred tax liability by approximately $525 million, respectively. Accounting pronouncements – See Note 3 to the Financial Statements and Supplementary Data, Item 8. Asserted and unasserted claims – See Note 17 to the Financial Statements and Supplementary Data, Item 8.Indemnities – See Note 17 to the Financial Statements and Supplementary Data, Item 8.Pending Acquisition – See Note 20 to the Financial Statements and Supplementary Data, Item 8, and the Agreement and Plan of Merger dated as of July 28, 2025, by and among the Company, 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. Climate change – Climate change could have an adverse impact on our operations and financial performance (see Risk Factors under Item 1A of this report). We utilize climate scenario analyses to better understand climate-related risks and opportunities the Company may face in the future under a range of potential scenarios. We continue to refine our approach to understand climate-related risks and are taking an iterative approach in our business planning processes as risk factors, solutions, and technology develop. However, we are unable to predict the likelihood, manner, severity, or ultimate financial impact of actual future incidents as climate scenario analysis considers a range of potential outcomes. We continue to take steps and explore opportunities to reduce our operational impact on the environment, including improving our operational fluidity to increase fuel efficiency, modernizing locomotives for improved reliability and fuel consumption, using renewable fuels, and exploring and testing low- and zero-emissions propulsion technologies. These initiatives are aligned with our strategy of Safety, Service, and Operational Excellence leading to Growth. (See further discussion in "Sustainable Future" in the Operations section in Item 1 of this report.) 39 Table of ContentsCRITICAL ACCOUNTING ESTIMATES Our Consolidated Financial Statements have been prepared in accordance with GAAP. 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 we believe are reasonable under the circumstances. The results form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. The following critical accounting estimates are a subset of our significant accounting policies described in Note 2 to the Financial Statements and Supplementary Data, Item 8. These critical accounting estimates affect significant areas of our financial statements and involve judgment and estimates. If these estimates differ significantly from actual results, the impact on our Consolidated Financial Statements may be material.Personal injury – See Note 17 to the Financial Statements and Supplementary Data, Item 8, and " We may be subject to various claims and lawsuits that could result in significant expenditures " in the Risk Factors, Item 1A.Our personal injury liability is subject to uncertainty due to unasserted claims, timing and outcome of claims, and evolving trends in litigation. There were no material changes to the assumptions used in the latest actuarial analysis. Our personal injury liability balance and claims activity was as follows:2025 2024 2023 Ending liability balance at December 31 (millions) $ 413 $ 379 $ 383 Open claims, beginning balance 1,567 1,871 2,036 New claims 2,602 2,842 3,008 Settled or dismissed claims (2,829) (3,146) (3,173) Open claims, ending balance at December 31 1,340 1,567 1,871 Environmental costs – See Note 17 to the Financial Statements and Supplementary Data, Item 8; " We are subject to significant environmental laws and regulations " in the Risk Factors, Item 1A; and Environmental Matters in the Legal Proceedings, Item 3.Our environmental liability is subject to several factors such as type of remediation, nature and volume of contaminate, number and financial viability of other potentially responsible parties, as well as uncertainty due to unknown alleged contamination, evolving trends in remediation techniques and final remedies, and changes in laws and regulations. Our environmental liability balance and site activity was as follows:2025 2024 2023 Ending liability balance at December 31 (millions) $ 259 $ 268 $ 245 Open sites, beginning balance 352 333 353 New sites 73 84 74 Closed sites (82) (65) (94) Open sites, ending balance at December 31 343 352 333 Property and depreciation – See Note 11 to the Financial Statements and Supplementary Data, Item 8.Assets purchased or constructed throughout the year are capitalized if they meet applicable minimum units of property. Estimated service lives of depreciable railroad property may vary over time due to changes in physical use, technology, asset strategies, and other factors that will have an impact on the retirement profiles of our assets. We are not aware of any specific factors that are reasonably likely to significantly change the estimated service lives of our assets. Actual use and retirement of our assets may vary from our current estimates, which would impact the amount of depreciation expense recognized in future periods.Changes in estimated useful lives of our assets due to the results of our depreciation studies could significantly impact future periods’ depreciation expense and have a material impact on our Consolidated Financial Statements. If the estimated useful lives of all depreciable assets were increased by one year, annual depreciation expense would decrease by approximately $81 million. If the estimated useful lives of all depreciable assets were decreased by one year, annual depreciation expense would increase by approximately $76 million. We are projecting an increase in our depreciation expense of approximately 4% in 2026 versus 2025. This is driven by an increase in our projected depreciable asset base. 40Table of ContentsPension plans – See Note 5 to the Financial Statements and Supplementary Data, Item 8. The critical assumptions used to measure pension obligations and expenses are the discount rates and expected rate of return on pension assets.We evaluate our critical assumptions at least annually, and selected assumptions are based on the following factors:• We measure the service cost and interest cost components of our net periodic pension benefit/cost by using individual spot rates matched with separate cash flows for each future year. Discount rates are based on a Mercer yield curve of high-quality corporate bonds (rated AA by a recognized rating agency). • Expected return on plan assets is based on our asset allocation mix and our historical return, taking into consideration current and expected market conditions. The following tables present the key assumptions used to measure net periodic pension benefit/cost for 2026 and the estimated impact on 2026 net periodic pension benefit/cost relative to a change in those assumptions:AssumptionsDiscount rate for interest on benefit obligations 4.94 % Discount rate for service cost 5.88 % Discount rate for interest on service cost 5.64 % Expected return on plan assets 5.25 %SensitivitiesMillionsIncrease in pension cost 0.25% decrease in discount rates $ - 0.25% decrease in expected return on plan assets $ 12The following table presents the net periodic pension benefit/cost for the years ended December 31:Millions Est. 2026 2025 2024 2023 Net periodic pension (benefit)/cost $ (23) $ (14) $ (3) $ - 41Table of ContentsCAUTIONARY 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 in the CEO’s letter preceding Part I; statements regarding planned capital expenditures under the caption “2026 Capital Plan” in Item 2 of Part I; and statements and information set forth under the captions “2026 Outlook”; “Liquidity and Capital Resources” in Item 7 of Part II regarding our capital plan, share repurchase programs, contractual obligations, "Pension Benefits", and "Other Matters" in this Item 7 of Part II. 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 20 to the Financial Statements and Supplementary Data, Item 8), potential impacts of public health crises, including pandemics, epidemics, and the outbreak of other contagious disease, such as such as the coronavirus and its variant strains (COVID); the Russia-Ukraine and Israel-Hamas wars and other geopolitical tensions in 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 potential tariffs; potential impacts of H.R. 1, which was enacted on July 4, 2025; 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,” “should,” “would,” “will,” “intends,” “plans,” “estimates,” “anticipates,” “projects,” and similar words, phrases, or expressions. 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 this report 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.