Item 8. Financial Statements and Supplementary Data

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Item 8. Financial Statements and Supplementary Data

Index to Consolidated Financial StatementsPage
Report of Independent Registered Public Accounting Firm (PCAOB ID No. 34)44
Consolidated Statements of Income For the Years Ended December 31, 2025, 2024, and 202346
Consolidated Statements of Comprehensive Income For the Years Ended December 31, 2025, 2024, and 202346
Consolidated Statements of Financial Position At December 31, 2025 and 202447
Consolidated Statements of Cash Flows For the Years Ended December 31, 2025, 2024, and 202348
Consolidated Statements of Changes in Common Shareholders’ Equity For the Years Ended December 31, 2025, 2024, and 202349
Notes to the Consolidated Financial Statements50

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Shareholders and the Board of Directors of Union Pacific Corporation

Opinion on the Financial Statements

We have audited the accompanying consolidated statements of financial position of Union Pacific Corporation and Subsidiary Companies (the "Corporation") as of December 31, 2025 and December 31, 2024, the related consolidated statements of income, comprehensive income, changes in common stockholders' equity, and cash flows, for each of the three years in the period ended December 31, 2025, and the related notes (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Corporation as of December 31, 2025 and December 31, 2024, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2025, in conformity with accounting principles generally accepted in the United States of America.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Corporation's internal control over financial reporting as of December 31, 2025, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 6, 2026, expressed an unqualified opinion on the Corporation's internal control over financial reporting.

Basis for Opinion

These financial statements are the responsibility of the Corporation's management. Our responsibility is to express an opinion on the Corporation's financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Corporation in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Capitalization of Properties — Refer to Notes 2 and 11 to the financial statements

Critical Audit Matter Description

The Corporation’s operations are highly capital intensive and their large network of assets turns over on a continuous basis. Each year, the Corporation develops a capital program for both the replacement of assets and for the acquisition or construction of new assets. In determining whether costs should be capitalized, the Corporation exercises significant judgment in determining whether expenditures meet the applicable minimum units of property criteria and extend the useful life, improve the safety of operations, or improve the operating efficiency of existing assets. The Corporation capitalizes all costs of capital projects necessary to make assets ready for their intended use and because a portion of the Corporation’s assets are self-constructed, management also exercises significant judgment in determining the amount of material, labor, work equipment, and indirect costs that qualify for capitalization. Capitalized costs to Properties, net during 2025 were $3.9 billion.

We identified the capitalization of property during 2025 as a critical audit matter because of the significant judgment exercised by management in determining whether costs meet the criteria for capitalization. This, in turn, required a high degree of auditor judgment when performing audit procedures to evaluate whether the criteria to capitalize costs were met and to evaluate sufficiency of audit evidence to support management’s conclusions.

How the Critical Audit Matter Was Addressed in the Audit

Our procedures related to capitalization of property included the following, among others:

· We tested the effectiveness of controls over the Corporation’s determination of whether costs related to the Corporation’s capital investments should be capitalized or expensed.

· We evaluated the Corporation’s capitalization policy in accordance with accounting principles generally accepted in the United States of America.

· For a selection of capital projects, we performed the following:

− Obtained the Corporation’s evaluation of each project and determined whether the amount of costs to be capitalized met the criteria for capitalization as outlined within the Corporation’s policy by unit of property.

− Obtained supporting documentation that the project met the applicable minimum units of property criteria and was approved, and evaluated whether the project extended the useful life of an existing asset, improved the safety of operations, or improved the operating efficiency of existing assets.

· For a selection of capitalized costs during the year, we performed the following:

− Evaluated whether the individual cost selected met the criteria for capitalization.

− Evaluated whether the selection was accurately recorded at the appropriate amount based on the evidence obtained.

/s/ Deloitte & Touche LLP

Omaha, Nebraska

February 6, 2026

We have served as the Corporation's auditor since 1967.

CONSOLIDATED STATEMENTS OF INCOME

Union Pacific Corporation and Subsidiary Companies

Millions, except per share amounts, for the years ended December 31,202520242023
Operating revenues:
Freight revenues$23,220$22,811$22,571
Other revenues1,2901,4391,548
Total operating revenues24,51024,25024,119
Operating expenses:
Compensation and benefits4,8974,8994,818
Purchased services and materials2,6262,5202,616
Depreciation2,4652,3982,318
Fuel2,3902,4742,891
Equipment and other rents912920947
Other1,3741,3261,447
Total operating expenses14,66414,53715,037
Operating income9,8469,7139,082
Other income, net (Note 6)629350491
Interest expense(1,309)(1,269)(1,340)
Income before income taxes9,1668,7948,233
Income tax expense (Note 7)(2,028)(2,047)(1,854)
Net income$7,138$6,747$6,379
Share and Per Share (Note 8):
Earnings per share - basic$12.00$11.10$10.47
Earnings per share - diluted$11.98$11.09$10.45
Weighted average number of shares - basic595.0607.6609.2
Weighted average number of shares - diluted595.9608.6610.2

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

Union Pacific Corporation and Subsidiary Companies

Millions, for the years ended December 31,202520242023
Net income$7,138$6,747$6,379
Other comprehensive income/(loss):
Defined benefit plans71(14)(106)
Foreign currency translation62(95)58
Derivative instruments(1)-16
Total other comprehensive income/(loss) [a]132(109)(32)
Comprehensive income$7,270$6,638$6,347

*[a]*Net of deferred taxes of ($24) million, $6 million, and $31 million during 2025, 2024, and 2023, respectively.

The accompanying notes are an integral part of these Consolidated Financial Statements.

CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

Union Pacific Corporation and Subsidiary Companies

Millions, except share and per share amounts as of December 31,20252024
Assets
Current assets:
Cash and cash equivalents$1,266$1,016
Short-term investments (Note 13)25020
Accounts receivable, net (Note 10)1,8601,894
Materials and supplies787769
Other current assets392322
Total current assets4,5554,021
Investments2,8852,664
Properties, net (Note 11)59,64558,343
Operating lease assets (Note 16)1,0361,297
Other assets1,5771,390
Total assets$69,698$67,715
Liabilities and common shareholders' equity
Current liabilities:
Accounts payable and other current liabilities (Note 12)$3,494$3,829
Debt due within one year (Note 14)1,5201,425
Total current liabilities5,0145,254
Debt due after one year (Note 14)30,29429,767
Operating lease liabilities (Note 16)738925
Deferred income taxes (Note 7)13,42113,151
Other long-term liabilities1,7641,728
Commitments and contingencies (Note 17)
Total liabilities51,23150,825
Common shareholders' equity:
Common shares, $2.50 par value, 1,400,000,000 authorized; 1,113,161,191 and 1,113,018,733 issued; 593,245,884 and 604,241,260 outstanding, respectively2,7832,783
Paid-in-surplus5,5895,334
Retained earnings69,52965,628
Treasury stock(58,843)(56,132)
Accumulated other comprehensive income/(loss) (Note 9)(591)(723)
Total common shareholders' equity18,46716,890
Total liabilities and common shareholders' equity$69,698$67,715

The accompanying notes are an integral part of these Consolidated Financial Statements.

CONSOLIDATED STATEMENTS OF CASH FLOWS

Union Pacific Corporation and Subsidiary Companies

Millions, for the years ended December 31,202520242023
Operating activities
Net income$7,138$6,747$6,379
Adjustments to reconcile net income to cash provided by operating activities:
Depreciation2,4652,3982,318
Deferred and other income taxes24128117
Other operating activities, net(193)(13)(132)
Changes in current assets and liabilities:
Accounts receivable, net34179(177)
Materials and supplies(18)(26)(2)
Other current assets25(69)(38)
Accounts payable and other current liabilities(196)189(215)
Income and other taxes(206)(87)129
Cash provided by operating activities9,2909,3468,379
Investing activities
Capital investments(3,791)(3,452)(3,606)
Other investing activities, net29127(61)
Cash used in investing activities(3,762)(3,325)(3,667)
Financing activities
Dividends paid(3,236)(3,213)(3,173)
Share repurchase programs (Note 18)(2,679)(1,505)(705)
Debt issued (Note 14)1,9958001,599
Debt repaid(1,428)(2,226)(2,190)
Other financing activities, net7277(156)
Cash used in financing activities(5,276)(6,067)(4,625)
Net change in cash, cash equivalents, and restricted cash252(46)87
Cash, cash equivalents, and restricted cash at beginning of year1,0281,074987
Cash, cash equivalents, and restricted cash at end of year$1,280$1,028$1,074
Supplemental cash flow information
Non-cash investing and financing activities:
Capital investments accrued but not yet paid$131$165$137
Cash paid during the year for:
Federal income taxes, net of refunds$(543)$(986)$(1,185)
State income taxes, net of refunds:
California(64)**
Other(257)(350)(295)
Total state income taxes, net of refunds(321)(350)(295)
Foreign income taxes, net of refunds(13)(4)(6)
Interest, net of amounts capitalized$(1,311)$(1,260)$(1,268)

*◦*Does not meet the 5% threshold for the applicable year.

The accompanying notes are an integral part of these Consolidated Financial Statements.

CONSOLIDATED STATEMENTS OF CHANGES IN COMMON SHAREHOLDERS' EQUITY

Union Pacific Corporation and Subsidiary Companies

MillionsCommon sharesTreasury sharesCommon sharesPaid-in- surplusRetained earningsTreasury stockAOCI [a]Total
Balance at January 1, 20231,112.6(500.2)$2,782$5,080$58,887$(54,004)$(582)$12,163
Net income--6,379--6,379
Other comprehensive income/(loss)----(32)(32)
Conversion, stock option exercises, forfeitures, ESPP, and other0.30.5-113-50-163
Share repurchase programs (Note 18)-(3.5)---(712)-(712)
Cash dividends declared ($5.20 per share)----(3,173)--(3,173)
Balance at December 31, 20231,112.9(503.2)$2,782$5,193$62,093$(54,666)$(614)$14,788
Net income--6,747--6,747
Other comprehensive income/(loss)----(109)(109)
Conversion, stock option exercises, forfeitures, ESPP, and other0.10.71141-49-191
Share repurchase programs (Note 18)-(6.3)---(1,515)-(1,515)
Cash dividends declared ($5.28 per share)----(3,212)--(3,212)
Balance at December 31, 20241,113.0(508.8)$2,783$5,334$65,628$(56,132)$(723)$16,890
Net income--7,138--7,138
Other comprehensive income/(loss)----132132
Conversion, stock option exercises, forfeitures, ESPP, and other0.20.8-172-66-238
Share repurchase programs (Note 18)-(11.9)-83-(2,777)-(2,694)
Cash dividends declared ($5.44 per share)----(3,237)--(3,237)
Balance at December 31, 20251,113.2(519.9)$2,783$5,589$69,529$(58,843)$(591)$18,467

*[a]*AOCI = Accumulated Other Comprehensive Income/Loss (Note 9)

The accompanying notes are an integral part of these Consolidated Financial Statements.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Union Pacific Corporation and Subsidiary Companies

For purposes of this report, unless the context otherwise requires, all references herein to "Union Pacific", “Corporation”, “Company”, “UPC”, “we”, “us”, and “our” mean Union Pacific Corporation and its subsidiaries, including Union Pacific Railroad Company, which will be separately referred to herein as “UPRR” or the “Railroad”.

1. Nature of Operations

Operations and segmentation – We are a Class I railroad operating in the U.S. Our network includes 32,889 route miles, connecting Pacific Coast and Gulf Coast ports with the Midwest and Eastern U.S. gateways and providing several corridors to key Mexican and Canadian gateways. We own 26,294 miles and operate on the remainder pursuant to trackage rights or leases. We serve the western two-thirds of the country and maintain coordinated schedules with other rail carriers for the handling of freight to and from the Atlantic Coast, the Pacific Coast, the Southeast, the Southwest, Canada, and Mexico. Export and import traffic is moved through Gulf Coast, Pacific Coast, and East Coast ports and across the Mexican and Canadian borders.

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. The accounting policies of the Railroad segment are the same as those described in Note 2 Significant Accounting Policies.

The Company’s Chief Operating Decision Maker (CODM) is our Chief Executive Officer. The CODM assesses performance for our rail network and decides how to allocate resources based on net income as reported on our Consolidated Statements of Income. The measure of segment assets is reported on our Consolidated Statements of Financial Position as total assets.

Our operating revenues are primarily derived from contracts with customers for the transportation of freight from origin to destination. Although our revenues are principally derived from customers domiciled in the U.S., the ultimate points of origination or destination for some products we transport are outside the U.S. Freight revenues from each of our commodity groups, as described in the table below, includes revenues from shipments to and from Mexico, which amounted to $2.9 billion in 2025, $3.0 billion in 2024, and $2.8 billion in 2023. Our significant segment expenses as monitored by the CODM are shown in the table below. This breakout of revenues and expenses is used by the CODM to monitor and assess the financial performance of our rail network by comparing actual results to prior years and plans.

Millions202520242023
Bulk$7,586$7,207$7,358
Industrial8,6048,4408,238
Premium7,0307,1646,975
Total freight revenues$23,220$22,811$22,571
Other subsidiary revenues718788872
Accessorial revenues475554584
Other979792
Total operating revenues$24,510$24,250$24,119
Operating [a] [c]6,8166,7936,727
Administrative [a] [c]735760763
Locomotive fuel2,3352,4182,815
Acquisition-related (Note 20)72--
Other segment items [b] [c]2,2412,1682,414
Depreciation2,4652,3982,318
Other income, net(629)(350)(491)
Interest expense1,3091,2691,340
Income tax expense2,0282,0471,854
Net income$7,138$6,747$6,379

[a] Operating and Administrative includes compensation and benefits, purchased services and materials, equipment and other rents, non-locomotive fuel, and other expenses.

[b] Other segment items includes car hire and leases, casualty costs, property taxes, subsidiary expense, and other overhead expense.

[c] Prior periods have been recast to reflect the presentation of the CODM's review in the current year.

Basis of presentation – The Consolidated Financial Statements are presented in accordance with accounting principles generally accepted in the U.S. (GAAP) as codified in the Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC).

2. Significant Accounting Policies

Principles of consolidation – The Consolidated Financial Statements include the accounts of Union Pacific Corporation and all of its subsidiaries. Investments in affiliated companies (20% to 50% owned) are accounted for using the equity method of accounting. All intercompany transactions are eliminated. We currently have no less than majority-owned investments that require consolidation under variable interest entity requirements.

Cash, cash equivalents, and restricted cash – Cash equivalents consist of investments with original maturities of three months or less. Amounts included in restricted cash represent those required to be set aside by contractual agreement.

The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported within the Consolidated Statements of Financial Position that sum to the total of the same such amounts shown on the Consolidated Statements of Cash Flows:

Millions202520242023
Cash and cash equivalents$1,266$1,016$1,055
Restricted cash equivalents in other current assets9410
Restricted cash equivalents in other assets589
Total cash, cash equivalents, and restricted cash equivalents$1,280$1,028$1,074

Accounts receivable – Accounts receivable includes receivables reduced by an allowance for doubtful accounts. The allowance is based upon historical losses, credit worthiness of customers, and current economic conditions. Receivables not expected to be collected in one year and the associated allowances are classified as other assets in our Consolidated Statements of Financial Position.

Investments – Investments represent our investments in affiliated companies (20% to 50% owned) that are accounted for under the equity method of accounting, and investments in companies (less than 20% owned) accounted for at fair value when there is a readily determined fair value or at cost minus impairment when there are not readily determinable fair values. Our portion of income/loss on equity method investments that are integral to our operations are recorded in operating expenses. Realized and unrealized gains and losses on investments that are not integral to our operations are recorded in other income.

Materials and supplies – Materials and supplies are carried at the lower of average cost or net realizable value.

Property and depreciation – Properties and equipment are carried at cost and are depreciated on a straight-line basis over their estimated service lives, which are measured in years, except for rail in high-density traffic corridors (i.e., all rail lines except for those lines subject to abandonment, yard tracks, and switching tracks), where lives are measured in millions of gross tons per mile of track. We use the group method of depreciation where all items with similar characteristics, use, and expected lives are grouped together in asset classes and are depreciated using composite depreciation rates. The group method of depreciation treats each asset class as a pool of resources, not as singular items. We determine the estimated service lives of depreciable railroad assets by means of depreciation studies. Under the group method of depreciation, no gain or loss is recognized when depreciable property is retired or replaced in the ordinary course of business.

Impairment of long-lived assets – We review long-lived assets, including identifiable intangibles, for impairment when events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If impairment indicators are present and the estimated future undiscounted cash flows are less than the carrying value of the long-lived assets, the carrying value is reduced to the estimated fair value.

Revenue recognition – Freight revenues are derived from contracts with customers. We account for a contract when it has approval and commitment from both parties, the rights of the parties are identified, payment terms are identified, the contract has commercial substance, and collectability of consideration is probable. Our contracts include private agreements, private rate/letter quotes, public circulars/tariffs, and interline/foreign agreements. The performance obligation in our contracts is typically delivering a specific commodity from a place of origin to a place of destination and our commitment begins with the tendering and acceptance of a freight bill of lading and is satisfied upon delivery at destination. We consider each freight shipment to be a distinct performance obligation.

We recognize freight revenues over time as freight moves 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. Outstanding performance obligations related to freight moves in transit totaled $157 million at December 31, 2025, and $159 million at December 31, 2024, and are expected to be recognized in the following quarter as we satisfy our remaining performance obligations and deliver freight to destination. The transaction price is generally specified in a contract and may be dependent on the commodity, origin/destination, and route. 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.

Under typical payment terms, our customers pay us after each performance obligation is satisfied and there are no material contract assets or liabilities associated with our freight revenues. Outstanding freight receivables are presented in our Consolidated Statements of Financial Position as accounts receivable, net.

Freight revenues related to interline transportation services that involve other railroads are reported on a net basis. The portion of the gross amount billed to customers that is remitted by the Company to another party is not reflected as freight revenues.

Other revenues consist primarily of revenues earned by our other subsidiaries (primarily logistics and commuter rail operations) and accessorial revenues. Other subsidiary revenues 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.

Translation of foreign currency – Our portion of the assets and liabilities related to foreign investments are translated into U.S. dollars at the exchange rates in effect at the balance sheet date. Revenues and expenses are translated at the average rates of exchange prevailing during the year. Unrealized gains or losses are reflected within common shareholders’ equity as accumulated other comprehensive income or loss.

Fair value measurements – We use a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three broad levels. The level in the fair value hierarchy within which the fair value measurement in its entirety falls is determined based on the lowest level input that is significant to the fair value measurement in its entirety. These levels include:

Level 1: Quoted market prices in active markets for identical assets or liabilities.

Level 2: Observable market-based inputs or unobservable inputs that are corroborated by market data.

Level 3: Unobservable inputs that are not corroborated by market data.

We have applied fair value measurements to our short-term investments, certain equity investments, pension plan assets, and short- and long-term debt.

Stock-based compensation – We issue treasury shares to cover stock option exercises, stock unit vestings, and ESPP shares, while new shares are issued when retention shares are granted.

We measure and recognize compensation expense for all stock-based awards made to employees, including stock options and ESPP awards. Compensation expense is based on the fair value of the awards as measured at the grant date and is expensed ratably over the service period of the awards (generally the vesting period). The fair value of retention awards is the closing stock price on the date of grant, the fair value of stock options is determined by using the Black-Scholes option pricing model, and the fair value of ESPP awards is based on the Company contribution match.

Earnings per share – Basic earnings per share are calculated on the weighted-average number of common shares outstanding during each period. Diluted earnings per share include shares issuable upon exercise of outstanding stock options and stock-based awards where the conversion of such instruments would be dilutive.

Income taxes – We account for income taxes by recording taxes payable or refundable for the current year and deferred tax assets and liabilities for the expected future tax consequences of events that are reported in different periods for financial reporting and income tax purposes. The majority of our deferred tax assets relate to expenses that already have been recorded for financial reporting purposes but not deducted for tax purposes. The majority of our deferred tax liabilities relate to differences between the tax bases and financial reporting amounts of our land and depreciable property, due to accelerated tax depreciation (including bonus depreciation), revaluation of assets in purchase accounting transactions, and differences in capitalization methods. These expected future tax consequences are measured based on current tax law; the effects of future tax legislation are not anticipated.

When appropriate, we record a valuation allowance against deferred tax assets to reflect that these tax assets may not be realized. In determining whether a valuation allowance is appropriate, we consider whether it is more likely than not that all or some portion of our deferred tax assets will not be realized, based on management’s judgments using available evidence for purposes of estimating whether future taxable income will be sufficient to realize a deferred tax asset.

We recognize tax benefits that are more likely than not to be sustained upon examination by tax authorities. The amount recognized is measured as the largest amount of benefit that is greater than 50 percent likely to be realized upon settlement. A liability for “unrecognized tax benefits” is recorded for any tax benefits claimed in our tax returns that do not meet these recognition and measurement standards.

Leases – We determine if an arrangement is or contains a lease at inception. Operating lease assets and operating lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at commencement date. When an implicit rate is not available, we use a collateralized incremental borrowing rate for operating leases based on the information available at commencement date, including lease term, in determining the present value of future payments. The operating lease asset also includes any lease payments made and excludes lease incentives and initial direct costs incurred. Our lease terms may include options to extend or terminate the lease when it is reasonably certain that the option will be exercised. Operating leases are included in operating lease assets, accounts payable and other current liabilities, and operating lease liabilities on our Consolidated Statements of Financial Position. Finance leases are included in properties, net, debt due within one year, and debt due after one year on our Consolidated Statements of Financial Position. Operating lease expense is recognized on a straight-line basis over the lease term and primarily reported in equipment and other rents and financing lease expense is recorded as depreciation and interest expense in our Consolidated Statements of Income.

We have lease agreements with lease and non-lease components, and we have elected to not separate lease and non-lease components for all classes of underlying assets. Leases with an initial term of 12 months or less are not recorded on our Consolidated Statements of Financial Position. Leases with initial terms in excess of 12 months are recorded as operating or financing leases in our Consolidated Statements of Financial Position.

Pension benefits – In order to measure the expense associated with pension benefits, we must make various assumptions including discount rates used to value certain liabilities, expected return on plan assets used to fund these expenses, compensation increases, employee turnover rates, and anticipated mortality rates. The assumptions used by us are based on our historical experience as well as current facts and circumstances. We use an actuarial analysis to measure the expense and liability associated with these benefits.

Personal injury – The cost of injuries to employees and others on our property is charged to expense based on estimates of the ultimate cost and number of incidents each year. We use an actuarial analysis to measure the expense and liability, including unasserted claims. Our personal injury liability is not discounted to present value due to the uncertainty surrounding the timing of future payments. Legal fees and incidental costs are expensed as incurred.

Environmental – When environmental issues have been identified with respect to property currently or formerly owned, leased, or otherwise used in the conduct of our business, we perform, with the assistance of our consultants, environmental assessments on such property. We expense the cost of the assessments as incurred. We accrue the cost of remediation where our obligation is probable and such costs can be reasonably estimated. We do not discount our environmental liabilities when the timing of the anticipated cash payments is not fixed or readily determinable. Legal fees and incidental costs are expensed as incurred.

Use of estimates – The preparation of our Consolidated Financial Statements in conformity with GAAP requires management to make estimates and assumptions that affect certain reported assets and liabilities, the disclosure of certain contingent assets and liabilities as of the date of the Consolidated Financial Statements, as well as the reported amounts of revenues and expenses during the reporting period. Actual future results may differ from such estimates.

3. Accounting Pronouncements

In December 2023, the FASB issued Accounting Standards Update No. (ASU) 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, which requires business entities to expand their annual disclosures of the effective rate reconciliation and income taxes paid. The ASU is effective for fiscal years beginning after December 15, 2024, may be adopted on a prospective or retrospective basis, and early adoption is permitted. The Company adopted this ASU on December 31, 2025, on a retrospective basis. See the Supplemental Cash Flow Information of the Consolidated Statements of Cash Flows and Note 7 Income Taxes.

In November 2024, the FASB issued ASU 2024-03, Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses, which requires disclosure of additional information about specific expense categories in the notes to the financial statements. The ASU is effective for fiscal years beginning after December 15, 2026, and interim periods within fiscal years beginning after December 15, 2027, may be adopted on a prospective or retrospective basis, and early adoption is permitted. The Company is currently evaluating the effect that the new guidance will have on our related disclosures.

In July 2025, the FASB issued ASU 2025-05, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses for Accounts Receivable and Contract Assets, which allows a practical expedient that assumes current conditions as of the balance sheet date do not change for the remaining life of the asset. The ASU is effective for fiscal years beginning after December 15, 2025, and interim periods within those fiscal years, must be adopted on a prospective basis, and early adoption is permitted. We elected to early adopt ASU 2025-05 on December 31, 2025, which did not have a material impact on our consolidated financial statements.

In September 2025, the FASB issued ASU 2025-06, Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40): Targeted Improvements to the Accounting for Internal-Use Software, which details the criteria for capitalization of internal-use software costs. The ASU is effective for fiscal years beginning after December 15, 2027, and interim periods within those fiscal years, may be adopted on a prospective, modified, or retrospective transition approach, and early adoption is permitted. The Company is currently evaluating the effect that the new guidance will have on our consolidated financial statements and related disclosures.

In December 2025, the FASB issued ASU 2025-10, Government Grants (Topic 832): Accounting for Government Grants Received by Business Entities, which provides recognition, measurement, and presentation authoritative guidance for grants received by a business entity from a government. The ASU is effective for fiscal years beginning after December 15, 2028, and interim reporting periods within those fiscal years, may be adopted on a modified prospective, modified retrospective, or retrospective approach, and early adoption is permitted. The Company is currently evaluating the effect that the new guidance will have on our consolidated financial statements and related disclosures.

4. Stock Options and Other Stock Plans

In April 2000, the shareholders approved the Union Pacific Corporation 2000 Directors Plan (Directors Plan) whereby 2,200,000 shares of our common stock were reserved for issuance to our non-employee directors. Under the Directors Plan, each non-employee director, upon his or her initial election to the Board of Directors, received a grant of 4,000 retention shares or retention stock units. In July 2018, the Board of Directors eliminated the retention grant for directors newly elected in 2018 and all future years. As of December 31, 2025, 16,000 restricted shares were outstanding under the Directors Plan.

The Union Pacific Corporation 2013 Stock Incentive Plan (2013 Plan) was approved by shareholders in May 2013. The 2013 Plan reserved 78,000,000 shares of our common stock for issuance, plus any shares subject to awards made under previous plans as of February 28, 2013, that are subsequently cancelled, expired, forfeited, or otherwise not issued under previous plans. Under the 2013 Plan, non-qualified stock options, incentive stock options, retention shares, stock units, and incentive bonus awards may be granted to eligible employees of the Corporation and its subsidiaries. Non-employee directors are not eligible for awards under the 2013 Plan. As of December 31, 2025, 501,049 stock options and no retention shares and stock units were outstanding under the 2013 Plan. We no longer grant any stock options or other stock or unit awards under this plan.

The Union Pacific Corporation 2021 Stock Incentive Plan (2021 Plan) was approved by shareholders in May 2021. The 2021 Plan reserved 23,000,000 shares of our common stock for issuance, plus any shares subject to awards made under previous plans as of December 31, 2022, that are subsequently cancelled, expired, forfeited, or otherwise not issued under previous plans. Under the 2021 Plan, non-qualified stock options, incentive stock options, retention shares, stock units, and incentive bonus awards may be granted to eligible employees of the Corporation and its subsidiaries. Non-employee directors are not eligible for awards under the 2021 Plan. As of December 31, 2025, 1,593,585 stock options and 1,187,093 retention shares were outstanding under the 2021 Plan.

The Union Pacific Corporation 2021 Employee Stock Purchase Plan (2021 ESPP) was approved by shareholders in May 2021. The 2021 ESPP reserved 10,000,000 shares of our common stock for issuance. Under the 2021 ESPP, eligible employees of the Corporation and its subsidiaries may elect to purchase shares with a Company match award. Non-employee directors are not eligible for awards under the 2021 ESPP. As of December 31, 2025, 1,537,960 shares were issued under the 2021 ESPP.

Pursuant to the above plans 29,874,539; 31,063,392; and 31,979,909 shares of our common stock were authorized and available for grant at December 31, 2025, 2024, and 2023, respectively.

Stock-based compensation – We have several stock-based compensation plans where employees receive nonvested stock options, nonvested retention shares, and nonvested stock units. We refer to the nonvested shares and stock units collectively as “retention awards”. Employees may also participate in our ESPP.

Information regarding stock-based compensation expense appears in the table below:

Millions202520242023
Stock-based compensation, before tax:
Stock options$24$18$16
Retention awards1027771
ESPP162320
Total stock-based compensation, before tax$142$118$107
Excess income tax benefits from equity compensation plans$12$15$11

Stock options – Stock options are granted at the closing price on the date of grant, have 10-year contractual terms, and vest no later than 3 years from the date of grant. At December 31, 2025, outstanding stock options are not subject to performance or market-based vesting conditions.

The table below shows the annual weighted-average assumptions used for Black-Scholes valuation purposes:

Weighted-average assumptions202520242023
Risk-free interest rate4.3%4.2%3.9%
Dividend yield2.2%2.1%2.6%
Expected life (years)4.34.44.5
Volatility22.4%28.7%29.3%
Weighted-average grant-date fair value of options granted$48.70$61.75$48.31

The risk-free rate is based on the U.S. Treasury yield curve in effect at the time of grant; the expected dividend yield is calculated as the ratio of dividends paid per share of common stock to the stock price on the date of grant; the expected life is based on historical and expected exercise behavior; and expected volatility is based on the historical volatility of our stock price over the expected life of the stock option.

A summary of stock option activity during 2025 is presented below:

Options (thous.)Weighted-average exercise priceWeighted-average remaining contractual term (yrs.)Aggregate intrinsic value (millions)
Outstanding at January 1, 20251,981$195.815.8$74
Granted423243.51N/AN/A
Exercised(288)157.41N/AN/A
Forfeited or expired(21)238.93N/AN/A
Outstanding at December 31, 20252,095$210.295.6$58
Vested or expected to vest at December 31, 20252,074$210.035.6$58
Options exercisable at December 31, 20251,400$196.124.2$55

At December 31, 2025, there was $10 million of unrecognized compensation expense related to nonvested stock options, which is expected to be recognized over a weighted-average period of 0.7 years. Additional information regarding stock option exercises appears in the following table:

Millions202520242023
Intrinsic value of stock options exercised$26$35$23
Cash received from option exercises514627
Treasury shares repurchased for employee payroll taxes(8)(8)(5)
Income tax benefit realized from option exercises475
Aggregate grant-date fair value of stock options vested$16$15$14

Retention awards – Retention awards are granted at no cost to the employee, vest over periods lasting up to 4 years, and have dividends and dividend equivalents paid to participants during the vesting periods.

Changes in our retention awards during 2025 were as follows:

Shares (thous.)Weighted-Average Grant-Date Fair Value
Nonvested at January 1, 2025915$222.50
Granted229243.48
Vested(231)205.32
Forfeited(35)230.34
Nonvested at December 31, 2025878$232.18

At December 31, 2025, there was $50 million of total unrecognized compensation expense related to nonvested retention awards, which is expected to be recognized over a weighted-average period of 0.8 years.

Performance stock unit awards – In February 2025, our Board of Directors approved performance stock unit grants. This plan is based on performance targets for annual return on invested capital (ROIC) and operating income growth (OIG) compared to companies in the S&P 100 Industrials Index plus the Class I railroads. We define ROIC as net operating profit adjusted for interest expense (including interest on average operating lease liabilities) and taxes on interest divided by average invested capital adjusted for average operating lease liabilities.

The February 2025 stock units awarded to executives are subject to continued employment for 37 months, the attainment of certain levels of ROIC, and the relative three-year OIG. We expense two-thirds of the fair value of the units that are probable of being earned based on our forecasted ROIC over the three-year performance period, and with respect to the third year of the plan, we expense the remaining one-third of the fair value subject to the relative three-year OIG. We measure the fair value of performance stock units based upon the closing price of the underlying common stock as of the date of grant. Dividend equivalents are accumulated during the service period and paid to participants only after the units are earned.

Changes in our performance stock unit awards during 2025 were as follows:

Shares (thous.)Weighted-Average Grant-Date Fair Value
Nonvested at January 1, 2025607$219.08
Granted254243.51
Vested(72)244.95
Unearned(83)244.35
Forfeited(87)219.28
Nonvested at December 31, 2025619$222.68

At December 31, 2025, there was $11 million of total unrecognized compensation expense related to nonvested performance stock unit awards, which is expected to be recognized over a weighted-average period of 1.0 year. This expense is subject to achievement of the performance measures established for the performance stock unit grants.

Employee stock purchase plan – Employee and Company contributions are used to issue treasury shares the month after employee contributions are withheld based on the settlement date closing price. Effective with the June 10, 2025, purchase (for employee services rendered in May 2025), the Company match was changed from 40% to 20% of the amount contributed by the employee up to a maximum employee contribution of 5% of monthly salary (limited to $15,000 annually). We expense the Company contributions in the month the employee services were rendered (i.e., the month the employee contributions were withheld).

5. Retirement Plans

Pension benefits

We provide defined benefit retirement income to eligible non-union employees through qualified and non-qualified (supplemental) pension plans. Qualified and non-qualified pension benefits are based on years of service and the highest compensation during the latest years of employment, with specific reductions made for early retirements. Non-union employees hired on or after January 1, 2018, are no longer eligible for pension benefits, but are eligible for an enhanced 401(k) benefit as described below in other retirement programs.

Funded status

We are required by GAAP to separately recognize the overfunded or underfunded status of our pension plans as an asset or liability. The funded status represents the difference between the projected benefit obligation (PBO) and the fair value of the plan assets. Our non-qualified (supplemental) pension plan is unfunded by design. The PBO of the pension plans is the present value of benefits earned to date by plan participants, including the effect of assumed future compensation increases. Plan assets are measured at fair value. We use a December 31 measurement date for plan assets and obligations for all our retirement plans.

Changes in our PBO and plan assets were as follows for the years ended December 31:

Funded status
Millions20252024
Projected benefit obligation
Projected benefit obligation at beginning of year$3,513$3,880
Service cost4152
Interest cost179186
Actuarial loss/(gain)(41)(269)
Gross benefits paid(417)(336)
Projected benefit obligation at end of year$3,275$3,513
Plan assets
Fair value of plan assets at beginning of year$4,068$4,400
Actual return/(loss) on plan assets294(28)
Non-qualified plan benefit contributions3332
Gross benefits paid(417)(336)
Fair value of plan assets at end of year$3,978$4,068
Funded status at end of year$703$555

The 2025 actuarial gains were insignificant. Actuarial gains that decrease the 2024 PBO were driven by an increase in discount rates from 5.00% to 5.61%.

Amounts recognized in the statement of financial position as of December 31, 2025 and 2024, consist of:

Millions20252024
Noncurrent assets$1,083$950
Current liabilities(32)(32)
Noncurrent liabilities(348)(363)
Net amounts recognized at end of year$703$555

Pre-tax amounts recognized in accumulated other comprehensive income/loss consist of $542 million and $644 million net actuarial loss as of December 31, 2025 and 2024, respectively.

Pre-tax changes recognized in other comprehensive income/loss as of December 31, 2025, 2024, and 2023, were as follows:

Millions202520242023
Net actuarial (loss)/gain$93$(11)$(159)
Amortization of:
Actuarial loss8119
Total$101$-$(150)

Underfunded accumulated benefit obligation – The accumulated benefit obligation (ABO) is the present value of benefits earned to date, assuming no future compensation growth. The underfunded accumulated benefit obligation represents the difference between the ABO and the fair value of plan assets.

The following table discloses only the PBO, ABO, and fair value of plan assets for pension plans where the accumulated benefit obligation is in excess of the fair value of the plan assets as of December 31:

Underfunded accumulated benefit obligation
Millions20252024
Projected benefit obligation$380$395
Accumulated benefit obligation$376$389
Fair value of plan assets--
Underfunded accumulated benefit obligation$(376)$(389)

The ABO for all defined benefit pension plans was $3.2 billion and $3.3 billion at December 31, 2025 and 2024, respectively.

Assumptions – The weighted-average actuarial assumptions used to determine benefit obligations at December 31:

Percentages20252024
Discount rate5.53%5.61%
Compensation increase3.60%4.00%

Expense

Pension expense is determined based upon the annual service cost of benefits (the actuarial cost of benefits earned during a period) and the interest cost on those liabilities, less the expected return on plan assets. The expected long-term rate of return on plan assets is applied to a calculated value of plan assets that recognizes changes in fair value over a 5-year period. This practice is intended to reduce year-to-year volatility in pension expense, but it can have the effect of delaying the recognition of differences between actual returns on assets and expected returns based on long-term rate of return assumptions. Differences in actual experience in relation to assumptions are not recognized in net income immediately but are deferred in accumulated other comprehensive income/loss and, if necessary, amortized as pension expense.

The components of our net periodic pension benefit/cost were as follows for the years ended December 31:

Millions202520242023
Service cost$41$52$52
Interest cost179186187
Expected return on plan assets(242)(252)(248)
Amortization of actuarial loss8119
Net periodic pension (benefit)/cost$(14)$(3)$-

Assumptions – The weighted-average actuarial assumptions used to determine expense were as follows:

Percentages202520242023
Discount rate for interest on benefit obligations5.32%4.91%5.14%
Discount rate for service cost5.75%5.05%5.19%
Discount rate for interest on service cost5.68%5.02%5.21%
Expected return on plan assets5.25%5.25%5.25%
Compensation increase3.90%4.00%4.10%

We measure the service cost and interest cost components of our net periodic pension benefit/cost by using individual spot discount rates matched with separate cash flows for each future year. The discount rates were based on a yield curve of high-quality corporate bonds. The expected return on plan assets is based on our asset allocation mix and our historical return, taking into account current and expected market conditions.

Cash contributions

The following table details cash contributions, if any, for the qualified and non-qualified (supplemental) pension plans:

MillionsQualifiedNon-qualified
2025$-$33
2024$-$32

Our policy with respect to funding the qualified pension plans is to fund at least the minimum required by law and not more than the maximum amount deductible for tax purposes.

The non-qualified pension plan is not funded and is not subject to any minimum regulatory funding requirements. Benefit payments for each year represent supplemental pension payments. We anticipate our 2026 supplemental pension payments will be made from cash generated from operations.

Benefit payments

The following table details expected benefit payments for the years 2026 through 2035:

Millions
2026$213
2027213
2028214
2029215
2030216
Years 2031 - 2035$1,104

Asset allocation strategy

Our pension plan asset allocation at December 31, 2025 and 2024, and target allocation for 2026, are as follows:

Target allocation 2026Percentage of plan assets December 31,
20252024
Equity securities20% to 30%23%24%
Debt securities70% to 80%7675
Real estate0% to 2%11
Total100%100%

The pension plan investments are held in a master trust. The investment strategy for pension plan assets is to maintain a broadly diversified portfolio designed to achieve our target average long-term rate of return of 5.25%. While we believe we can achieve a long-term average rate of return of 5.25%, we cannot be certain that the portfolio will perform to our expectations. Assets are strategically allocated among equity, debt, and other investments in order to achieve a diversification level that reduces fluctuations in investment returns. Asset allocation target ranges for equity, debt, and other portfolios are evaluated at least every three years with the assistance of an independent consulting firm. Actual asset allocations are monitored monthly, and rebalancing actions are executed at least quarterly, as needed.

The weighted average credit rating of the debt portfolio was AA- at both December 31, 2025 and 2024. The debt portfolio is also broadly diversified and invested primarily in U.S. Treasury, mortgage, and corporate securities. The weighted-average maturity of the debt portfolio was 21 years and 22 years at December 31, 2025 and 2024.

The investment of pension plan assets in securities issued by UPC is explicitly prohibited by the plan for both the equity and debt portfolios, other than through index fund holdings.

Fair value measurements

The pension plan assets are valued at fair value. The following is a description of the valuation methodologies used for the investments measured at fair value, including the general classification of such instruments pursuant to the valuation hierarchy.

Federal government securities – Federal Government Securities consist of bills, notes, bonds, and other fixed income securities issued directly by the U.S. Treasury or by government-sponsored enterprises. These assets are valued using a bid evaluation process with bid data provided by independent pricing sources. Federal Government Securities are classified as Level 2 investments.

Bonds and debentures – Bonds and debentures consist of debt securities issued by U.S. and non-U.S. corporations as well as state and local governments. These assets are valued using a bid evaluation process with bid data provided by independent pricing sources. Corporate, state, and municipal bonds and debentures are classified as Level 2 investments.

Corporate stock – This investment category consists of common and preferred stock issued by U.S. and non-U.S. corporations. Most common shares are traded actively on exchanges and price quotes for these shares are readily available. Common stock is classified as a Level 1 investment. Preferred shares included in this category are valued using a bid evaluation process with bid data provided by independent pricing sources. Preferred stock is classified as a Level 2 investment.

Venture capital and buyout partnerships – This investment category is comprised of interests in limited partnerships that invest primarily in privately-held companies. Due to the private nature of the partnership investments, pricing inputs are not readily observable. Asset valuations are developed by the general partners that manage the partnerships. These valuations are based on the application of public market multiples to private company cash flows, market transactions that provide valuation information for comparable companies, and other methods. The fair value recorded by the master trust is calculated using each partnership’s net asset value (NAV).

Real estate funds – The plan’s real estate investments are primarily interests in private real estate investment trusts, partnerships, limited liability companies, and similar structures. Valuations for the holdings in this category are not based on readily observable inputs and are primarily derived from property appraisals. The fair value recorded by the master trust is calculated using the NAV for each investment.

Collective trust and other funds – Collective trust and other funds are comprised of shares or units in commingled funds and limited liability companies that are not publicly traded. The underlying assets in these entities (global stock funds and short-term investment funds) are publicly traded on exchanges and price quotes for the assets held by these funds are readily available. The fair value recorded by the master trust is calculated using NAV for each investment.

As of December 31, 2025, the pension plan assets measured at fair value on a recurring basis were as follows:

MillionsQuoted prices in active markets for identical inputs (Level 1)Significant other inputs (Level 2)Significant unobservable inputs (Level 3)Total
Plan assets at fair value:
Federal government securities$-$1,471$-$1,471
Bonds and debentures-1,492-1,492
Corporate stock2352-237
Total plan assets at fair value$235$2,965$-$3,200
Plan assets at NAV:
Venture capital and buyout partnerships413
Real estate funds20
Collective trust and other funds306
Total plan assets at NAV$739
Other assets/(liabilities) [a]39
Total plan assets$3,978

As of December 31, 2024, the pension plan assets measured at fair value on a recurring basis were as follows:

MillionsQuoted prices in active markets for identical inputs (Level 1)Significant other inputs (Level 2)Significant unobservable inputs (Level 3)Total
Plan assets at fair value:
Federal government securities$-$1,448$-$1,448
Bonds and debentures-1,512-1,512
Corporate stock2206-226
Total plan assets at fair value$220$2,966$-$3,186
Plan assets at NAV:
Venture capital and buyout partnerships446
Real estate funds26
Collective trust and other funds370
Total plan assets at NAV$842
Other assets/(liabilities) [a]40
Total plan assets$4,068

*[a]*Includes accrued receivables, net payables, and pending broker settlements.

The master trust’s investments in limited partnerships and similar structures (used to invest in private equity and real estate) are valued at fair value based on their proportionate share of the partnerships’ fair value as recorded in the limited partnerships’ audited financial statements. The limited partnerships allocate gains, losses, and expenses to the partners based on the ownership percentage as described in the partnership agreements.

Other retirement programs

Other post-retirement benefits – We provide medical benefits for eligible retirees hired before January 1, 2004. These benefits are funded as medical claims are paid. In 2025, we completed a buyout of life insurance benefits for eligible retirees hired before January 1, 2004. OPEB expense is determined based upon the annual service cost of benefits and the interest cost on those liabilities plus amortization of net (gain)/loss amounts offset by amortization of prior service credits recorded in AOCI. Our OPEB liability was $84 million and $104 million at December 31, 2025 and 2024, respectively. The liability is based on discount rate assumptions of 5.42% and 5.53% at December 31, 2025 and 2024, respectively. OPEB net periodic (benefit)/cost was ($2) million in 2025, ($5) million in 2024, and ($7) million in 2023.

401(k)/Thrift plan – For non-union employees hired prior to January 1, 2018, and eligible union employees for whom we make matching contributions, we provide a defined contribution plan (401(k)/thrift plan). We match 50% for each dollar contributed by employees up to the first 6% of compensation contributed. For non-union employees hired on or after January 1, 2018, we match 100% for each dollar, up to the first 6% of compensation contributed, in addition to contributing an annual amount of 3% of the employee’s annual base salary. Our plan contributions were $29 million in 2025, $28 million in 2024, and $27 million in 2023.

Railroad retirement system – All Railroad employees are covered by the Railroad Retirement System (the System). Contributions made to the System are expensed as incurred and amounted to approximately $681 million in 2025, $671 million in 2024, and $711 million in 2023.

Collective bargaining agreements – Under collective bargaining agreements, we participate in multi-employer benefit plans that provide certain post retirement health care and life insurance benefits for eligible union employees. Premiums paid under these plans are expensed as incurred and amounted to $9 million in 2025, $12 million in 2024, and $16 million in 2023.

6. Other Income

Other income included the following for the years ended December 31:

Millions202520242023
Real estate income [a]$558$263$414
Interest income565252
Net periodic pension benefit/(costs)555552
Non-operating property environmental remediation and restoration(32)(37)(37)
Interest from IRS refund claims-24-
Other(8)(7)10
Total$629$350$491

*[a]*2025 includes $250 million in industrial park land sales. 2023 includes a one-time $107 million transaction.

7. Income Taxes

Components of income tax expense were as follows for the years ended December 31:

Millions202520242023
Current tax expense:
Federal1,4601,6491,417
State321359314
Foreign6116
Total current tax expense1,7872,0191,737
Deferred and other tax expense/(benefit):
Federal35147219
State [a](114)(24)(104)
Foreign452
Total deferred and other tax expense24128117
Total income tax expense$2,028$2,047$1,854

*[a]*In 2025, Kansas enacted corporate income tax legislation that resulted in a $115 million reduction of our deferred tax expense. In 2024, Louisiana and Arkansas enacted corporate income tax legislation that resulted in a $34 million reduction of our deferred tax expense. In 2023, Nebraska, Iowa, Kansas, and Arkansas enacted corporate income tax legislation that resulted in a $114 million reduction of our deferred tax expense.

For the years ended December 31, reconciliations between statutory and effective tax rates are as follows:

Millions, except percentages202520242023
Federal Taxes$1,92521.0%$1,84721.0%$1,72921.0%
State and local income tax, net of federal benefit1631.82643.01662.0
Foreign tax effects100.1160.280.1
Effect of cross-border tax laws(2)-1-(2)-
Tax credits(50)(0.6)(45)(0.5)(21)(0.3)
Nontaxable or nondeductible items(16)(0.2)(36)(0.4)(37)(0.4)
Changes in unrecognized tax benefits(2)---(1)-
Other adjustments----120.1
Effective tax rate$2,02822.1%$2,04723.3%$1,85422.5%

The state statutory rate, net of federal benefits, was 3.1%, 3.2%, and 3.4% for years ended December 31, 2025, 2024, and 2023, respectively.

UPRR operates in the western two-thirds of the country. The majority of our state taxes are paid in the states where we actively operate. The following states represent over 50% of our state income tax liability, listed in order of magnitude:

202520242023
CaliforniaCaliforniaCalifornia
IllinoisNebraskaNebraska
NebraskaIllinoisIllinois
KansasKansasKansas
IowaIowa

Deferred income tax assets/(liabilities) were comprised of the following at December 31:

Millions20252024
Deferred income tax liabilities:
Property$(13,260)$(13,020)
Operating lease assets(248)(314)
Other(639)(581)
Total deferred income tax liabilities(14,147)(13,915)
Deferred income tax assets:
Operating lease liabilities241308
Accrued casualty costs184172
Accrued wages5251
Stock compensation3428
Other215205
Total deferred income tax assets726764
Net deferred income tax liability$(13,421)$(13,151)

In 2025 and 2024, there were no valuation allowances against deferred tax assets.

A reconciliation of changes in unrecognized tax benefits liabilities/(assets) from the beginning to the end of the reporting period is as follows:

Millions202520242023
Unrecognized tax benefits at January 1$32$30$34
Refunds from/(payments to) and settlements with taxing authorities-7-
Decreases for positions taken in prior years(1)(6)(1)
Increases/(decreases) for interest and penalties11-
Lapse of statutes of limitations(5)-(4)
Increases for positions taken in current year--1
Unrecognized tax benefits at December 31$27$32$30

We recognize interest and penalties as part of income tax expense. Total accrued liabilities for interest and penalties were $4 million at both December 31, 2025 and 2024, respectively. Total interest and penalties recognized as part of income tax expense/(benefit) were $1 million for both 2025 and 2024 and ($1) million for 2023.

Several state tax authorities are examining our state income tax returns for years 2020 through 2024. With few exceptions, we are no longer subject to state income tax examinations by tax authorities for years before 2020. Additionally, we are no longer subject to U.S. federal income tax examinations by tax authorities for years before 2022.

The portion of our unrecognized tax benefits that relates to permanent changes in tax and interest would reduce our effective tax rate, if recognized. The remaining unrecognized tax benefits relate to tax positions for which only the timing of the benefit is uncertain. The unrecognized tax benefits that would reduce our effective tax rate are $27 million for 2025, $32 million for 2024, and $30 million for 2023.

8. Earnings Per Share

The following table provides a reconciliation between basic and diluted earnings per share for the years ended December 31:

Millions, except per share amounts202520242023
Net income$7,138$6,747$6,379
Weighted-average number of shares outstanding:
Basic595.0607.6609.2
Dilutive effect of stock options0.30.40.4
Dilutive effect of retention awards0.60.60.6
Diluted595.9608.6610.2
Earnings per share - basic$12.00$11.10$10.47
Earnings per share - diluted$11.98$11.09$10.45

Diluted earnings per share was computed using the treasury stock method for both stock options and retention awards. Common stock options totaling 1.0 million, 0.6 million, and 0.9 million for 2025, 2024, and 2023, respectively, were excluded from the computation of diluted earnings per share because the exercise prices of these stock options exceeded the average market price of our common stock for the respective periods, and the effect of their inclusion would be anti-dilutive.

9. Accumulated Other Comprehensive Income/Loss

Reclassifications out of accumulated other comprehensive income/loss were as follows (net of tax):

MillionsDefined benefit plansForeign currency translationDerivative instruments [a]Total
Balance at January 1, 2025$(498)$(241)$16$(723)
Other comprehensive income/(loss) before reclassifications262-64
Amounts reclassified from accumulated other comprehensive income/(loss) [b]69-(1)68
Net year-to-date other comprehensive income/(loss), net of taxes of ($24) million7162(1)132
Balance at December 31, 2025$(427)$(179)$15$(591)
Balance at January 1, 2024$(484)$(146)$16$(614)
Other comprehensive income/(loss) before reclassifications2(95)-(93)
Amounts reclassified from accumulated other comprehensive income/(loss) [b](16)--(16)
Net year-to-date other comprehensive income/(loss), net of taxes of $6 million(14)(95)-(109)
Balance at December 31, 2024$(498)$(241)$16$(723)

*[a]*Related to interest rate swaps from equity method investments.

*[b]*The defined benefit plans accumulated other comprehensive income/loss reclassification components are 1) prior service cost/credit and 2) net actuarial loss, which are both included in the computation of net periodic pension benefit/cost. See Note 5 Retirement Plans for additional details.

10. Accounts Receivable

Accounts receivable include freight and other receivables reduced by an allowance for doubtful accounts. At December 31, 2025 and 2024, our accounts receivable were reduced by $4 million and $6 million, respectively. Receivables not expected to be collected in one year and the associated allowances are classified as other assets in our Consolidated Statements of Financial Position. At December 31, 2025 and 2024, receivables classified as other assets were reduced by allowances of $64 million and $69 million, respectively.

Receivables securitization facility – On July 28, 2025, the Railroad completed the renewal of the receivables securitization facility (the Receivables Facility). The new $600 million, 3-year facility replaces the prior $800 million facility and will mature in July 2028. Under the Receivables Facility, the Railroad sells most of its eligible third-party receivables to Union Pacific Receivables, Inc. (UPRI), a consolidated, wholly-owned, bankruptcy-remote subsidiary that may subsequently transfer, without recourse, an undivided interest in accounts receivable to investors. The investors have no recourse to the Railroad’s other assets except for customary warranty and indemnity claims. Creditors of the Railroad do not have recourse to the assets of UPRI.

The amount recorded under the Receivables Facility was $0 at both December 31, 2025 and 2024. During the year ended December 31, 2025, we issued $0 and repaid $0 under the Receivables Facility. The Receivables Facility was supported by $1.5 billion and $1.6 billion of accounts receivable as collateral at December 31, 2025 and 2024, respectively, which, as a retained interest, is included in accounts receivable, net in our Consolidated Statements of Financial Position.

The outstanding amount the Railroad maintains under the Receivables Facility may fluctuate based on current cash needs. The maximum allowed under the Receivables Facility is $600 million with availability directly impacted by eligible receivables, business volumes, and credit risks, including receivables payment quality measures such as default and dilution ratios. If default or dilution ratios increase one percent, the allowable outstanding amount under the Receivables Facility would not materially change.

The costs of the Receivables Facility include interest, which will vary based on prevailing benchmark and commercial paper rates, program fees paid to participating banks, commercial paper issuance costs, and fees of participating banks for unused commitment availability. The costs of the Receivables Facility are included in interest expense and were $3 million, $8 million, and $9 million for 2025, 2024, and 2023, respectively.

11. Properties

The following tables list the major categories of property and equipment as well as the weighted-average estimated useful life for each category (in years):

Millions, except estimated useful lifeCostAccumulated depreciationNet book valueEstimated useful life
As of December 31, 2025
Land$5,471N/A$5,471N/A
Road:
Rail and other track material19,747$7,93611,81145
Ties12,7794,3058,47434
Ballast6,6462,3094,33734
Other roadway [a]24,6106,08018,53047
Total road63,78220,63043,152N/A
Equipment:
Locomotives9,9263,8136,11318
Freight cars3,0801,1071,97323
Work equipment and other1,31854077817
Total equipment14,3245,4608,864N/A
Technology and other1,41466974512
Construction in progress1,413-1,413N/A
Total$86,404$26,759$59,645N/A

*[a]*Other roadway includes grading, bridges and tunnels, signals, buildings, and other road assets.

Millions, except estimated useful lifeCostAccumulated depreciationNet book valueEstimated useful life
As of December 31, 2024
Land$5,441N/A$5,441N/A
Road:
Rail and other track material19,283$7,64211,64146
Ties12,3584,1098,24934
Ballast6,4952,1824,31334
Other roadway [a]23,9135,68118,23247
Total road62,04919,61442,435N/A
Equipment:
Locomotives9,5173,7245,79318
Freight cars3,0111,0371,97422
Work equipment and other [b]1,22248274017
Total equipment13,7505,2438,507N/A
Technology and other1,43164079112
Construction in progress1,169-1,169N/A
Total$83,840$25,497$58,343N/A

*[a]*Other roadway includes grading, bridges and tunnels, signals, buildings, and other road assets.

*[b]*For retirements of depreciable railroad properties that do not occur in the normal course of business, a gain or loss may be recognized if the retirement meets each of the following three conditions: (a) is unusual, (b) is material in amount to the asset class, and (c) varies significantly from the retirement profile identified through our depreciation studies. In the second quarter of 2024, we sold a large portion of an intermodal equipment asset class resulting in a $46 million gain recognized in other expense in our Consolidated Statements of Income.

Property and depreciation – Our railroad operations are highly capital-intensive, and our large base of homogeneous, network-type assets turns over on a continuous basis. Each year we develop a capital program for the replacement of assets and for the acquisition or construction of assets that enable us to enhance our operations or provide new service offerings to customers. We currently have more than 60 depreciable asset classes, and we may increase or decrease the number of asset classes due to changes in technology, asset strategies, or other factors.

We determine the estimated service lives of depreciable railroad assets by means of depreciation studies. We perform depreciation studies at least every 3 years for equipment and every 6 years for track assets (i.e., rail and other track material, ties, and ballast) and other road property. Our depreciation studies take into account the following factors:

  • Statistical analysis of historical patterns of use and retirements of each of our asset classes,

  • Evaluation of any expected changes in current operations and the outlook for continued use of the assets,

  • Evaluation of technological advances and changes to maintenance practices, and

  • Expected salvage to be received upon retirement.

For rail in high-density traffic corridors, we measure estimated service lives in millions of gross tons per mile of track. It has been our experience that the lives of rail in high-density traffic corridors are closely correlated to usage (i.e., the amount of weight carried over the rail). The service lives also vary based on rail weight, rail condition (e.g., new or secondhand), and rail type (e.g., straight or curve). Our depreciation studies for rail in high-density traffic corridors consider each of these factors in determining the estimated service lives. For rail in high-density traffic corridors, we calculate depreciation rates annually by dividing the number of gross ton-miles carried over the rail (i.e., the weight of loaded and empty freight cars, locomotives, and maintenance of way equipment transported over the rail) by the estimated service lives of the rail measured in millions of gross tons per mile. For all other depreciable assets, we compute depreciation based on the estimated service lives of our assets as determined from the analysis of our depreciation studies. Changes in the estimated service lives of our assets and their related depreciation rates are implemented prospectively.

Under the group method of depreciation, the historical cost (net of salvage) of depreciable property that is retired or replaced in the ordinary course of business is charged to accumulated depreciation and no gain or loss is recognized. The historical cost of certain track assets is estimated by multiplying the current replacement cost of track assets by a historical index factor derived from (a) inflation indices published by the Bureau of Labor Statistics and (b) the estimated useful lives of the assets as determined by our depreciation studies. The indices were selected because they closely correlate with the major costs of the properties comprising the applicable track asset classes. Because of the number of estimates inherent in the depreciation and retirement processes and because it is impossible to precisely estimate each of these variables until a group of property is completely retired, we continually monitor the estimated service lives of our assets and the accumulated depreciation associated with each asset class to ensure our depreciation rates are appropriate. In addition, we determine if the recorded amount of accumulated depreciation is deficient (or in excess) of the amount indicated by our depreciation studies. Any deficiency (or excess) is amortized as a component of depreciation expense over the remaining service lives of the applicable classes of assets.

For retirements of depreciable railroad properties that do not occur in the normal course of business, a gain or loss may be recognized if the retirement meets each of the following three conditions: (a) is unusual, (b) is material in amount to the asset class, and (c) varies significantly from the retirement profile identified through our depreciation studies. A gain or loss is recognized in other income when we sell land or dispose of assets that are not part of our railroad operations.

No gains or losses were recognized due to the retirement of depreciable railroad properties in 2025 or 2023. In 2024, we sold a large portion of an intermodal equipment asset class resulting in a gain recognized in other expense in our Consolidated Statements of Income.

We review construction in progress assets that have not yet been placed into service, for impairment when events or changes in circumstances indicate that the carrying amount of a long-lived asset or assets may not be recoverable. If impairment indicators are present and the estimated future undiscounted cash flows are less than the carrying value of construction in progress assets when grouped with other assets and liabilities at the lowest level where identifiable cash flows are largely independent, the carrying value is reduced to the estimated fair value.

When we purchase an asset, we capitalize all costs necessary to make the asset ready for its intended use. However, many of our assets are self-constructed. A large portion of our capital expenditures is for replacement of existing track assets and other road properties, which is typically performed by our employees, and for track line expansion and other capacity projects. Costs that are directly attributable to capital projects (including overhead costs) are capitalized. Direct costs that are capitalized as part of self-constructed assets include material, labor, and work equipment. Indirect costs are capitalized if they clearly relate to the construction of the asset.

Costs incurred that extend the useful life of an asset, improve the safety of our operations, or improve operating efficiency are capitalized, while normal repairs and maintenance are expensed as incurred. Total expense for repairs and maintenance incurred was approximately $2.3 billion for 2025, $2.3 billion for 2024, and $2.5 billion for 2023.

Assets held under finance leases are recorded at the lower of the net present value of the minimum lease payments or the fair value of the leased asset at the inception of the lease. Amortization expense is computed using the straight-line method over the shorter of the estimated useful lives of the assets or the period of the related lease.

12. Accounts Payable and Other Current Liabilities

MillionsDec. 31, 2025Dec. 31, 2024
Accounts payable$804$847
Compensation-related accruals642618
Income and other taxes payable491605
Interest payable375372
Accrued casualty costs278319
Current operating lease liabilities (Note 16)270346
Equipment rents payable102109
Other532613
Total accounts payable and other current liabilities$3,494$3,829

13. Financial Instruments

Short-term investments – All of the Company’s short-term investments consist of time deposits and government agency securities. These investments are considered Level 2 investments and are valued at amortized cost, which approximates fair value. As of December 31, 2025 and 2024, the Company had $250 million and $20 million of short-term investments, respectively. All short-term investments have a maturity of three to twelve months from the date of purchase and are classified as held-to-maturity.

Fair value of financial instruments – The fair value of our short- and long-term debt was estimated using a market value price model, which utilizes applicable U.S. Treasury rates along with current market quotes on comparable debt securities. All of the inputs used to determine the fair market value of the Corporation’s long-term debt are Level 2 inputs and obtained from an independent source. At December 31, 2025, the fair value of total debt was $26.5 billion, approximately $5.3 billion less than the carrying value. At December 31, 2024, the fair value of total debt was $25.3 billion, approximately $5.9 billion less than the carrying value. The fair value of the Corporation’s debt is a measure of its current value under present market conditions. The fair value of our cash equivalents approximates their carrying value due to the short-term maturities of these instruments.

14. Debt

Total debt as of December 31, 2025 and 2024, is summarized below:

Millions20252024
Notes and debentures, 2.3% to 7.2% due through February 14, 2072$32,694$32,044
Equipment obligations, 2.6% to 6.2% due through January 2, 2031 [a]693732
Finance leases, 3.1% to 6.8% due through August 21, 2029105109
Unamortized discount and deferred issuance costs(1,678)(1,693)
Total debt31,81431,192
Less: current portion(1,520)(1,425)
Total long-term debt$30,294$29,767

*[a]*Equipment obligations are secured by an interest in certain railroad equipment with a carrying value of approximately $0.8 billion at both December 31, 2025 and 2024.

Debt maturities – The following table presents aggregate debt maturities as of December 31, 2025, excluding market value adjustments:

Millions
2026$1,521
20271,291
20281,239
20291,276
2030753
Thereafter27,412
Total principal33,492
Unamortized discount and deferred issuance costs(1,678)
Total debt$31,814

Credit facilities – At December 31, 2025, we had $2.0 billion of credit available under our revolving credit facility (the Facility), which is designated for general corporate purposes and supports the issuance of commercial paper. During 2025, we issued $0 and repaid $0 through the Facility. As of both December 31, 2025 and 2024, we had $0 outstanding with the Facility. Commitment fees and interest rates payable under the Facility are similar to fees and rates available to comparably rated, investment-grade borrowers. The Facility allows for borrowings at floating rates based on Term Secured Overnight Financing Rate (SOFR), plus a spread, depending upon credit ratings for our senior unsecured debt. The Facility, set to expire May 20, 2027, requires UPC to maintain an adjusted debt-to-EBITDA (earnings before interest, taxes, depreciation, and amortization) coverage ratio.

The definition of debt used for purposes of calculating the adjusted debt-to-EBITDA coverage ratio includes, among other things, certain credit arrangements, finance leases, guarantees, unfunded and vested pension benefits under Title IV of Employee Retirement Income Security Act of 1974 (ERISA), and unamortized debt discount and deferred debt issuance costs. At December 31, 2025, the Company was in compliance with the adjusted debt-to-EBITDA coverage ratio, which allows us to carry up to $47.7 billion of debt (as defined in the Facility), and we had $33.5 billion of debt (as defined in the Facility) outstanding at that date. The Facility does not include any other financial restrictions, credit rating triggers (other than rating-dependent pricing), or any other provision that could require us to post collateral. The Facility also includes a $150 million cross-default provision and a change-of-control provision.

During 2025, we issued $0 and repaid $0 of commercial paper. As of both December 31, 2025 and 2024, we had $0 of commercial paper outstanding. Our revolving credit facility supports our outstanding commercial paper balances, and, unless we change the terms of our commercial paper program, our aggregate issuance of commercial paper will not exceed the amount of borrowings available under the Facility.

Shelf registration statement and significant new borrowings – We filed an automatic shelf registration statement with the SEC that became effective on February 13, 2024. On July 28, 2025, the Board of Directors authorized the issuance of up to $20.0 billion of debt securities, replacing the prior authorization from 2024, which had $7.0 billion of authority remaining. Under our shelf registration, we may issue, from time to time, any combination of debt securities, preferred stock, common stock, or warrants for debt securities or preferred stock in one or more offerings.

During the year ended December 31, 2025, we issued the following unsecured, fixed-rate debt securities under our shelf registration:

DateDescription of securities
February 13, 2025$1.00 billion of 5.100% Notes due February 20, 2035
$1.00 billion of 5.600% Notes due December 1, 2054

We used the net proceeds from the offerings for general corporate purposes, including the repurchase of common stock pursuant to our share repurchase programs. These debt securities include change-of-control provisions. At December 31, 2025, we had remaining authority from the Board of Directors to issue up to $20.0 billion of debt securities under our shelf registration.

Receivables securitization facility – As of both December 31, 2025 and 2024, we recorded $0 of borrowings under our Receivables Facility as secured debt. (See further discussion in the "Receivables Securitization Facility" section of Note 10.)

15. Variable Interest Entities

We have entered into various lease transactions in which the structure of the leases contain variable interest entities (VIEs). These VIEs were created solely for the purpose of doing lease transactions (principally involving railroad equipment and facilities) and have no other activities, assets, or liabilities outside of the lease transactions. Within these lease arrangements, we have the right to purchase some or all of the assets at fixed prices. Depending on market conditions, fixed-price purchase options available in the leases could potentially provide benefits to us; however, these benefits are not expected to be significant.

We maintain and operate the assets based on contractual obligations within the lease arrangements, which set specific guidelines consistent within the railroad industry. As such, we have no control over activities that could materially impact the fair value of the leased assets. We do not hold the power to direct the activities of the VIEs and, therefore, do not control the ongoing activities that have a significant impact on the economic performance of the VIEs. Additionally, we do not have the obligation to absorb losses of the VIEs or the right to receive benefits of the VIEs that could potentially be significant to the VIEs.

We are not considered to be the primary beneficiary and do not consolidate these VIEs because our actions and decisions do not have the most significant effect on the VIE’s performance and our fixed-price purchase options are not considered to be potentially significant to the VIEs. The future minimum lease payments associated with the VIE leases totaled $331 million as of December 31, 2025, and are recorded as operating lease liabilities at present value in our Consolidated Statements of Financial Position.

16. Leases

We lease certain locomotives, freight cars, and other property for use in our rail operations.

The following are details related to our lease portfolio as of December 31:

MillionsClassification20252024
Assets
Operating leasesOperating lease assets$1,036$1,297
Finance leasesProperties, net [a]185172
Total leased assets$1,221$1,469
Liabilities
Current
OperatingAccounts payable and other current liabilities$270$346
FinanceDebt due within one year3937
Noncurrent
OperatingOperating lease liabilities738925
FinanceDebt due after one year6672
Total lease liabilities$1,113$1,380

*[a]*Finance lease assets are recorded net of accumulated amortization of $456 million and $472 million as of December 31, 2025 and 2024, respectively.

The following table presents the classification of lease cost components for the year-ended December 31:

Millions20252024
Operating lease cost [a]$305$340
Short-term lease cost2324
Variable lease cost3937
Finance lease cost
Amortization of leased assets [b]2831
Interest on lease liabilities [c]55
Net lease cost$400$437

*[a]*Operating lease cost is primarily reported in equipment and other rents in our Consolidated Statements of Income.

*[b]*Amortization of leased assets is reported in depreciation in our Consolidated Statements of Income.

*[c]*Interest on lease liabilities is reported in interest expense in our Consolidated Statements of Income.

The following table presents aggregate lease maturities as of December 31, 2025:

MillionsOperating leasesFinance leasesTotal
2026$276$42$318
202723837275
202819114205
202912321144
2030121-121
After 2030176-176
Total lease payments$1,125$114$1,239
Less: Interest1179126
Present value of lease liabilities$1,008$105$1,113

The following table presents the weighted average remaining lease term and discount rate as of December 31:

2025
Weighted-average remaining lease term (years)
Operating leases5.4
Finance leases2.6
Weighted-average discount rate (%)
Operating leases4.0
Finance leases4.5

The following table presents other information related to our operating and finance leases for the years ended December 31:

Millions20252024
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows from operating leases$310$319
Investing cash flows from operating leases3232
Operating cash flows from finance leases46
Financing cash flows from finance leases3647
Leased assets obtained in exchange for operating lease liabilities$198$119

17. Commitments and Contingencies

See Note 20 for a discussion on the pending acquisition of Norfolk Southern.

Asserted and unasserted claims – Various claims and lawsuits are pending against us and certain of our subsidiaries. We cannot fully determine the effect of all asserted and unasserted claims on our consolidated results of operations, financial condition, or liquidity. We have recorded a liability where asserted and unasserted claims are considered probable and where such claims can be reasonably estimated. We currently do not expect that any known lawsuits, claims, environmental costs, commitments, contingent liabilities, or guarantees will have a material adverse effect on our consolidated results of operations, financial condition, or liquidity after taking into account liabilities and insurance recoveries previously recorded for these matters.

In December 2019, we received a putative class action complaint under the Illinois Biometric Information Privacy Act, alleging violation due to the use of a finger scan system developed and managed by third parties. While we believe that we have strong defenses to the claims made in the complaint and will vigorously defend ourselves, there is no assurance regarding the ultimate outcome. The outcome of this litigation is inherently uncertain, and we cannot reasonably estimate any loss or range of loss that may arise from this matter.

Personal injury – The Federal Employers’ Liability Act (FELA) governs compensation for work-related accidents. Under FELA, damages are assessed based on a finding of fault through litigation or out-of-court settlements. We offer a comprehensive variety of services and rehabilitation programs for employees who are injured at work.

Because of the uncertainty surrounding the ultimate outcome of personal injury claims, it is reasonably possible that future costs to settle these claims may range from approximately $413 million to $530 million. We record an accrual at the low end of the range as no amount of loss within the range is more probable than any other. Estimates can vary over time due to evolving trends in litigation.

Our personal injury liability activity was as follows:

Millions202520242023
Beginning balance$379$383$361
Current year accruals123121112
Changes in estimates for prior years17(14)89
Payments(106)(111)(179)
Ending balance at December 31$413$379$383
Current portion, ending balance at December 31$93$106$113

Environmental costs – We are subject to federal, state, and local environmental laws and regulations. We have identified 343 sites where we are or may be liable for remediation costs associated with alleged contamination or for violations of environmental requirements. This includes 29 sites that are the subject of actions taken by the U.S. government, including 17 that are currently on the Superfund National Priorities List. Certain federal legislation imposes joint and several liability for the remediation of identified sites; consequently, our ultimate environmental liability may include costs relating to activities of other parties, in addition to costs relating to our own activities at each site.

Our environmental liability activity was as follows:

Millions202520242023
Beginning balance$268$245$253
Accruals7012999
Payments(79)(106)(107)
Ending balance at December 31$259$268$245
Current portion, ending balance at December 31$62$83$91

The environmental liability includes future costs for remediation and restoration of sites, as well as ongoing monitoring costs, but excludes any anticipated recoveries from third parties. Cost estimates are based on information available for each site, financial viability of other potentially responsible parties, and existing technology, laws, and regulations. The ultimate liability for remediation is difficult to determine because of the number of potentially responsible parties, site-specific cost sharing arrangements with other potentially responsible parties, the degree of contamination by various wastes, the scarcity and quality of volumetric data related to many of the sites, and the speculative nature of remediation costs. Estimates of liability may vary over time due to changes in federal, state, and local laws governing environmental remediation. Current obligations are not expected to have a material adverse effect on our consolidated results of operations, financial condition, or liquidity.

Indemnities – Our maximum potential exposure under indemnification arrangements, including certain tax indemnifications, can range from a specified dollar amount to an unlimited amount, depending on the nature of the transactions and the agreements. Due to uncertainty as to whether claims will be made or how they will be resolved, we cannot reasonably determine the probability of an adverse claim or reasonably estimate any adverse liability or the total maximum exposure under these indemnification arrangements. We do not have any reason to believe that we will be required to make any material payments under these indemnity provisions.

18. Share Repurchase Programs

Effective April 1, 2025, our Board of Directors authorized the repurchase of up to 100 million shares of our common stock by March 31, 2028. As of December 31, 2025, we repurchased a total of 6.1 million shares of our common stock under the 2025 authorization. As part of the pending acquisition of Norfolk Southern described in Note 20, we paused our share repurchase program.

Our previous authorization, which was effective April 1, 2022, through March 31, 2025, was approved by our Board of Directors for up to 100 million shares of common stock. We repurchased a total of 31.7 million shares of our common stock under the 2022 authorization.

The table below represents shares repurchased under repurchase programs during 2025 and 2024:

Number of shares purchasedAverage price paid [a]
2025202420252024
First quarter [b]5,745,601-$250.74$-
Second quarter [c]6,111,558492,320205.06225.96
Third quarter-3,006,061-245.44
Fourth quarter-2,804,785-237.43
Total11,857,1596,303,166$227.20$240.35
Remaining number of shares that may be repurchased under current authority93,888,442

*[a]*In the period of the final settlement, the average price under the accelerated share repurchase programs (ASRs) is calculated based on the total program value less the value assigned to the initial delivery of shares. The average price of the completed 2025 ASRs was $229.32.

*[b]*Includes 4,815,022 shares repurchased in 2025 under the ASRs at the average price of $251.73

*[c]*Includes an incremental 1,795,904 shares received upon the final settlement in 2025 under the ASRs at the average price of $169.22

Accelerated share repurchase programs – The Company has established ASRs with financial institutions to repurchase shares of our common stock. These ASRs have been structured so that at the time of commencement, we pay a specified amount to the financial institutions and receive an initial delivery of shares. Additional shares may be received at the time of settlement. The final number of shares to be received is based on the volume weighted average price of the Company's common stock during the ASR term, less a discount and subject to potential adjustments pursuant to the terms of such ASR.

On February 18, 2025, the Company received 4,815,022 shares of its common stock repurchased under ASRs for an aggregate of $1.5 billion. Upon settlement of these ASRs in the second quarter of 2025, we received 1,795,904 additional shares.

ASRs are accounted for as equity transactions, and at the time of receipt, shares are included in treasury stock at fair market value as of the corresponding initiation or settlement date. The Company reflects shares received as a repurchase of common stock in the weighted average common shares outstanding calculation for basic and diluted earnings per share.

19. Related Parties

UPRR and other North American railroad companies jointly own TTX Company (TTX). UPRR has a 37.03% economic interest in TTX while the other North American railroads own the remaining interest. In accordance with ASC 323 Investments - Equity Method and Joint Venture, UPRR applies the equity method of accounting to our investment in TTX.

TTX is a rail car pooling company that owns rail cars and intermodal wells to serve North America’s railroads. TTX assists railroads in meeting the needs of their customers by providing rail cars in an efficient, pooled environment. All railroads may utilize TTX rail cars through car hire by renting rail cars at stated rates.

UPRR had $2.0 billion and $1.9 billion recognized as investments related to TTX in our Consolidated Statements of Financial Position as of December 31, 2025 and 2024, respectively. TTX car hire expense of $447 million in 2025, $432 million in 2024, and $399 million in 2023 are included in equipment and other rents in our Consolidated Statements of Income. In addition, UPRR had accounts payable to TTX of $72 million and $70 million at December 31, 2025 and 2024, respectively.

20. Pending Acquisition

Norfolk Southern Corporation (Norfolk Southern), a Virginia corporation, is one of the nation’s premier transportation companies, moving goods and materials that help drive the U.S. economy. Norfolk Southern connects customers to markets and communities to economic opportunity with safe, reliable, and cost-effective shipping solutions. Its Norfolk Southern Railway Company subsidiary operates in 22 states and the District of Columbia. Norfolk Southern is a major transporter of industrial products, including agriculture, forest, and consumer products, chemicals, and metals and construction materials. In addition, in the East, it serves every major container port and operates the most extensive intermodal network. Norfolk Southern is also a principal carrier of coal, automobiles, and automotive parts. Norfolk Southern’s stock is publicly traded on the NYSE under the ticker symbol NSC.

On July 28, 2025, Union Pacific, 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 merger agreement provides, among other things, for the acquisition of Norfolk Southern by Union Pacific, subject to the satisfaction or waiver of the conditions specified therein, through two mergers: (i) first, Ruby Merger Sub 1 Corporation will merge with and into Norfolk Southern with Norfolk Southern surviving as a direct, wholly owned subsidiary of Union Pacific (the first merger); and (ii) second, immediately after the first merger, Norfolk Southern will merge with and into Ruby Merger Sub 2 LLC with Ruby Merger Sub 2 LLC surviving as a direct, wholly owned subsidiary of Union Pacific (second merger). The first merger and the second merger are collectively referred to as the mergers.

At the effective time of the first merger (first effective time), each share of Norfolk Southern common stock issued and outstanding immediately prior to the first effective time, except for shares held by Union Pacific or Norfolk Southern, or their direct or indirect subsidiaries (other than, with respect to shares held by Union Pacific, Norfolk Southern, Ruby Merger Sub 1 Corporation, or Ruby Merger Sub 2 LLC, shares held on behalf of third parties), will be converted automatically into the right to receive one validly issued, fully paid, and nonassessable share of Union Pacific common stock and $88.82 in cash, without interest. Assuming completion of the mergers, we expect approximately 224.8 million shares of common stock to be issued and approximately $20 billion of cash consideration to be paid. The cash consideration is expected to be funded through a combination of new debt and cash accumulated through cash provided by operating activities. The actual value of the transaction may fluctuate based upon changes in the price of Union Pacific common stock and the number of Norfolk Southern common stock outstanding at the first effective time.

The combination of Norfolk Southern and Union Pacific would create America’s first transcontinental railroad that spans over 50,000 miles across 43 states with access to 10 international interchanges and approximately 100 ports.

Union Pacific filed a registration statement on Form S-4 (File No. 333-290282), which the SEC declared effective on September 30, 2025. Union Pacific and Norfolk Southern each also filed definitive proxy statements on October 1, 2025. Both Union Pacific's and Norfolk Southern's special meetings of shareholders was held on November 14, 2025. Union Pacific shareholders approved the share issuance proposal, and Norfolk Southern shareholders approved the merger agreement proposal (each as described in the companies' definitive proxy statements).

Completion of the mergers is conditioned on the receipt of Surface Transportation Board (STB) approval and a number of other conditions before the mergers can be consummated, as described in the merger agreement. On December 19, 2025, Union Pacific and Norfolk Southern (applicants) submitted a joint application to the STB seeking approval of the mergers. On December 19, 2025, the STB issued a decision inviting public comment on the application's completeness. Comments were due December 29, 2025. The applicants replied to comments on January 2, 2026. On January 16, 2026, the STB issued a decision that the joint application was not accepted as complete. The decision does not result in the dismissal of the merger proceeding nor should it be read as an indication of how the STB might ultimately assess any future revised application. The applicants are permitted to file a revised application, which would commence a new review by the STB for completeness. The STB decision directs the applicants to file a letter by February 17, 2026, indicating if and when the applicants anticipate filing a revised application.

Norfolk Southern's management and Board of Directors will continue to manage Norfolk Southern until the first effective time, pursuing its independent business plans and growth strategies. Subject to completion of the mergers, the acquisition is expected to be accounted for as a business combination using the acquisition method of accounting and currently expected to be completed in 2027.

Union Pacific incurred the following acquisition-related expense associated with the merger agreement for the year ended December 31:

Millions2025
Acquisition-related expense
Purchased services and materials$68
Other4
Total acquisition-related expense [a]$72

*[a]*Certain acquisition-related costs are non-deductible for income tax purposes.

At December 31, 2025, deferred share issuance costs of $13 million was recorded and will be recognized in paid-in-surplus upon completion of the mergers.

Both Union Pacific and Norfolk Southern may be required to pay the other a termination fee of $2.5 billion if the merger agreement is terminated under certain circumstances described in the merger agreement.

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