filings.toolsItem 1. Condensed Consolidated Financial Statements
65K characters. Original on sec.gov ·
Item 1. Condensed Consolidated Financial Statements
C****ondensed Consolidated Statements of Income (Unaudited)
Union Pacific Corporation and Subsidiary Companies
| Millions, Except Per Share Amounts, | ||||
| for the Three Months Ended September 30, | 2021 | 2020 | ||
| Operating revenues: | ||||
| Freight revenues | $ | 5,166 | $ | 4,596 |
| Other revenues | 400 | 323 | ||
| Total operating revenues | 5,566 | 4,919 | ||
| Operating expenses: | ||||
| Compensation and benefits | 1,040 | 1,008 | ||
| Depreciation | 553 | 555 | ||
| Purchased services and materials | 510 | 508 | ||
| Fuel | 544 | 301 | ||
| Equipment and other rents | 217 | 217 | ||
| Other | 270 | 299 | ||
| Total operating expenses | 3,134 | 2,888 | ||
| Operating income | 2,432 | 2,031 | ||
| Other income, net (Note 6) | 38 | 37 | ||
| Interest expense | (290) | (295) | ||
| Income before income taxes | 2,180 | 1,773 | ||
| Income taxes (Note 7) | (507) | (410) | ||
| Net income | $ | 1,673 | $ | 1,363 |
| Share and Per Share (Note 8): | ||||
| Earnings per share - basic | $ | 2.58 | $ | 2.02 |
| Earnings per share - diluted | $ | 2.57 | $ | 2.01 |
| Weighted average number of shares - basic | 648.7 | 675.0 | ||
| Weighted average number of shares - diluted | 650.3 | 676.8 |
C****ondensed Consolidated Statements of Comprehensive Income (Unaudited)
Union Pacific Corporation and Subsidiary Companies
| Millions, | ||||
| for the Three Months Ended September 30, | 2021 | 2020 | ||
| Net income | $ | 1,673 | $ | 1,363 |
| Other comprehensive income/(loss): | ||||
| Defined benefit plans | 24 | 18 | ||
| Foreign currency translation | (6) | 3 | ||
| Total other comprehensive income/(loss) [a] | 18 | 21 | ||
| Comprehensive income | $ | 1,691 | $ | 1,384 |
*[a]*Net of deferred taxes of ($8) million and ($6) million during the three months ended September 30, 2021 and 2020, respectively.
The accompanying notes are an integral part of these unaudited Condensed Consolidated Financial Statements.
Condensed Consolidated Statements of Income (Unaudited)
Union Pacific Corporation and Subsidiary Companies
| Millions, Except Per Share Amounts, | ||||
| for the Nine Months Ended September 30, | 2021 | 2020 | ||
| Operating revenues: | ||||
| Freight revenues | $ | 14,947 | $ | 13,448 |
| Other revenues | 1,124 | 944 | ||
| Total operating revenues | 16,071 | 14,392 | ||
| Operating expenses: | ||||
| Compensation and benefits | 3,088 | 2,972 | ||
| Depreciation | 1,652 | 1,653 | ||
| Purchased services and materials | 1,478 | 1,470 | ||
| Fuel | 1,452 | 982 | ||
| Equipment and other rents | 629 | 655 | ||
| Other | 874 | 832 | ||
| Total operating expenses | 9,173 | 8,564 | ||
| Operating income | 6,898 | 5,828 | ||
| Other income, net (Note 6) | 214 | 221 | ||
| Interest expense | (862) | (862) | ||
| Income before income taxes | 6,250 | 5,187 | ||
| Income taxes (Note 7) | (1,438) | (1,218) | ||
| Net income | $ | 4,812 | $ | 3,969 |
| Share and Per Share (Note 8): | ||||
| Earnings per share - basic | $ | 7.31 | $ | 5.85 |
| Earnings per share - diluted | $ | 7.29 | $ | 5.83 |
| Weighted average number of shares - basic | 658.3 | 679.0 | ||
| Weighted average number of shares - diluted | 659.9 | 680.7 |
Condensed Consolidated Statements of Comprehensive Income (Unaudited)
Union Pacific Corporation and Subsidiary Companies
| Millions, | ||||
| for the Nine Months Ended September 30, | 2021 | 2020 | ||
| Net income | $ | 4,812 | $ | 3,969 |
| Other comprehensive income/(loss): | ||||
| Defined benefit plans | 73 | 58 | ||
| Foreign currency translation | (13) | (53) | ||
| Total other comprehensive income/(loss) [a] | 60 | 5 | ||
| Comprehensive income | $ | 4,872 | $ | 3,974 |
*[a]*Net of deferred taxes of ($26) million and ($18) million during the nine months ended September 30, 2021 and 2020, respectively.
The accompanying notes are an integral part of these unaudited Condensed Consolidated Financial Statements.
C****ondensed Consolidated Statements of Financial Position (Unaudited)
Union Pacific Corporation and Subsidiary Companies
| September 30, | December 31, | |||
| Millions, Except Share and Per Share Amounts | 2021 | 2020 | ||
| Assets | ||||
| Current assets: | ||||
| Cash and cash equivalents | $ | 1,194 | $ | 1,799 |
| Short-term investments (Note 13) | 46 | 60 | ||
| Accounts receivable, net (Note 10) | 1,679 | 1,505 | ||
| Materials and supplies | 664 | 638 | ||
| Other current assets | 227 | 212 | ||
| Total current assets | 3,810 | 4,214 | ||
| Investments | 2,273 | 2,164 | ||
| Properties, net (Note 11) | 54,362 | 54,161 | ||
| Operating lease assets | 1,630 | 1,610 | ||
| Other assets | 285 | 249 | ||
| Total assets | $ | 62,360 | $ | 62,398 |
| Liabilities and Common Shareholders' Equity | ||||
| Current liabilities: | ||||
| Accounts payable and other current liabilities (Note 12) | $ | 3,276 | $ | 3,104 |
| Debt due within one year (Note 14) | 1,835 | 1,069 | ||
| Total current liabilities | 5,111 | 4,173 | ||
| Debt due after one year (Note 14) | 27,560 | 25,660 | ||
| Operating lease liabilities | 1,262 | 1,283 | ||
| Deferred income taxes | 12,500 | 12,247 | ||
| Other long-term liabilities | 2,010 | 2,077 | ||
| Commitments and contingencies (Note 15) | ||||
| Total liabilities | 48,443 | 45,440 | ||
| Common shareholders' equity: | ||||
| Common shares, $2.50 par value, 1,400,000,000 authorized; | ||||
| 1,112,447,476 and 1,112,227,784 issued; 644,407,285 and 671,351,360 | ||||
| outstanding, respectively | 2,781 | 2,781 | ||
| Paid-in-surplus | 4,947 | 4,864 | ||
| Retained earnings | 54,094 | 51,326 | ||
| Treasury stock | (46,372) | (40,420) | ||
| Accumulated other comprehensive loss (Note 9) | (1,533) | (1,593) | ||
| Total common shareholders' equity | 13,917 | 16,958 | ||
| Total liabilities and common shareholders' equity | $ | 62,360 | $ | 62,398 |
The accompanying notes are an integral part of these unaudited Condensed Consolidated Financial Statements.
C****ondensed Consolidated Statements of Cash Flows (Unaudited)
Union Pacific Corporation and Subsidiary Companies
| Millions, | ||||
| for the Nine Months Ended September 30, | 2021 | 2020 | ||
| Operating Activities | ||||
| Net income | $ | 4,812 | $ | 3,969 |
| Adjustments to reconcile net income to cash provided by operating activities: | ||||
| Depreciation | 1,652 | 1,653 | ||
| Deferred and other income taxes | 189 | 327 | ||
| Other operating activities, net | (67) | 119 | ||
| Changes in current assets and liabilities: | ||||
| Accounts receivable, net | (174) | 30 | ||
| Materials and supplies | (26) | 102 | ||
| Other current assets | 19 | (7) | ||
| Accounts payable and other current liabilities | (4) | (215) | ||
| Income and other taxes | 102 | 15 | ||
| Cash provided by operating activities | 6,503 | 5,993 | ||
| Investing Activities | ||||
| Capital investments | (1,945) | (2,294) | ||
| Proceeds from asset sales | 120 | 119 | ||
| Maturities of short-term investments (Note 13) | 64 | 106 | ||
| Purchases of short-term investments (Note 13) | (40) | (106) | ||
| Other investing activities, net | 9 | 94 | ||
| Cash used in investing activities | (1,792) | (2,081) | ||
| Financing Activities | ||||
| Share repurchase programs (Note 16) | (5,846) | (2,956) | ||
| Debt issued (Note 14) | 3,901 | 4,004 | ||
| Dividends paid | (2,045) | (1,974) | ||
| Debt repaid | (1,120) | (832) | ||
| Debt exchange | (270) | (327) | ||
| Net issued/(repaid) commercial paper (Note 14) | 125 | (2) | ||
| Other financing activities, net | (36) | (63) | ||
| Cash used in financing activities | (5,291) | (2,150) | ||
| Net change in cash, cash equivalents and restricted cash | (580) | 1,762 | ||
| Cash, cash equivalents, and restricted cash at beginning of year | 1,818 | 856 | ||
| Cash, cash equivalents, and restricted cash at end of period | $ | 1,238 | $ | 2,618 |
| Supplemental Cash Flow Information | ||||
| Non-cash investing and financing activities: | ||||
| Capital investments accrued but not yet paid | $ | 151 | $ | 152 |
| Common shares repurchased but not yet paid | 80 | - | ||
| Cash (paid for)/received from: | ||||
| Income taxes, net of refunds | $ | (1,241) | $ | (925) |
| Interest, net of amounts capitalized | (904) | (911) | ||
| Reconciliation of cash, cash equivalents, and restricted cash | ||||
| to the Condensed Consolidated Statement of Financial Position: | ||||
| Cash and cash equivalents | $ | 1,194 | $ | 2,601 |
| Restricted cash equivalents in other current assets | 32 | 5 | ||
| Restricted cash equivalents in other assets | 12 | 12 | ||
| Total cash, cash equivalents and restricted cash equivalents per above | $ | 1,238 | $ | 2,618 |
The accompanying notes are an integral part of these unaudited Condensed Consolidated Financial Statements.
Co****ndensed Consolidated Statements of Changes in Common Shareholders’ Equity (Unaudited)
Union Pacific Corporation and Subsidiary Companies
| **Millions | Common **Shares | Treasury **Shares | Common Shares | Paid-in-Surplus | Retained Earnings | Treasury Stock | AOCI *[a]* | Total | |||||||
| Balance at July 1, 2020 | 1,112.3 | (433.6) | $ 2,781 | $ 4,135 | $ 49,892 | $ (38,984) | $ (1,372) | $ 16,452 | |||||||
| Net income | - | - | 1,363 | - | - | 1,363 | |||||||||
| Other comprehensive income/(loss) | - | - | - | - | 21 | 21 | |||||||||
| Conversion, stock option exercises, forfeitures, and other | (0.1) | 0.4 | - | 4 | - | 14 | - | 18 | |||||||
| Share repurchase programs (Note 16) | - | (4.0) | - | 710 | - | (710) | - | - | |||||||
| Cash dividends declared ($0.97 per share) | - | - | - | - | (655) | - | - | (655) | |||||||
| Balance at September 30, 2020 | 1,112.2 | (437.2) | $ 2,781 | $ 4,849 | $ 50,600 | $ (39,680) | $ (1,351) | $ 17,199 | |||||||
| Balance at July 1, 2021 | 1,112.5 | (459.5) | $ 2,781 | $ 4,499 | $ 53,116 | $ (44,542) | $ (1,551) | $ 14,303 | |||||||
| Net income | - | - | 1,673 | - | - | 1,673 | |||||||||
| Other comprehensive income/(loss) | - | - | - | - | 18 | 18 | |||||||||
| Conversion, stock option exercises, forfeitures, and other | (0.1) | 0.1 | - | 22 | - | 5 | - | 27 | |||||||
| Share repurchase programs (Note 16) | - | (8.6) | - | 426 | - | (1,835) | - | (1,409) | |||||||
| Cash dividends declared ($1.07 per share) | - | - | - | - | (695) | - | - | (695) | |||||||
| Balance at September 30, 2021 | 1,112.4 | (468.0) | $ 2,781 | $ 4,947 | $ 54,094 | $ (46,372) | $ (1,533) | $ 13,917 | |||||||
| **Millions | Common **Shares | Treasury **Shares | Common Shares | Paid-in-Surplus | Retained Earnings | Treasury Stock | AOCI *[a]* | Total | |||||||
| Balance at January 1, 2020 | 1,112.0 | (419.9) | $ 2,780 | $ 4,523 | $ 48,605 | $ (36,424) | $ (1,356) | $ 18,128 | |||||||
| Net income | - | - | 3,969 | - | - | 3,969 | |||||||||
| Other comprehensive income/(loss) | - | - | - | - | 5 | 5 | |||||||||
| Conversion, stock option exercises, forfeitures, and other | 0.2 | 1.0 | 1 | 16 | - | 10 | - | 27 | |||||||
| Share repurchase programs (Note 16) | - | (18.3) | - | 310 | - | (3,266) | - | (2,956) | |||||||
| Cash dividends declared ($2.91 per share) | - | - | - | - | (1,974) | - | - | (1,974) | |||||||
| Balance at September 30, 2020 | 1,112.2 | (437.2) | $ 2,781 | $ 4,849 | $ 50,600 | $ (39,680) | $ (1,351) | $ 17,199 | |||||||
| Balance at January 1, 2021 | 1,112.2 | (440.9) | $ 2,781 | $ 4,864 | $ 51,326 | $ (40,420) | $ (1,593) | $ 16,958 | |||||||
| Net income | - | - | 4,812 | - | - | 4,812 | |||||||||
| Other comprehensive income/(loss) | - | - | - | - | 60 | 60 | |||||||||
| Conversion, stock option exercises, forfeitures, and other | 0.2 | 0.4 | - | 57 | - | - | - | 57 | |||||||
| Share repurchase programs (Note 16) | - | (27.5) | - | 26 | - | (5,952) | - | (5,926) | |||||||
| Cash dividends declared ($3.11 per share) | - | - | - | - | (2,044) | - | - | (2,044) | |||||||
| Balance at September 30, 2021 | 1,112.4 | (468.0) | $ 2,781 | $ 4,947 | $ 54,094 | $ (46,372) | $ (1,533) | $ 13,917 |
*[a]*AOCI = Accumulated Other Comprehensive Income/Loss (Note 9)
The accompanying notes are an integral part of these unaudited Condensed Consolidated Financial Statements.
UN****ION PACIFIC CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
For purposes of this report, unless the context otherwise requires, all references herein to the “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. Basis of Presentation
Our Condensed Consolidated Financial Statements are unaudited and reflect all adjustments (consisting of normal and recurring adjustments) that are, in the opinion of management, necessary for their fair presentation in conformity with accounting principles generally accepted in the United States of America (GAAP). Pursuant to the rules and regulations of the Securities and Exchange Commission (SEC), certain information and note disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted. Accordingly, this Quarterly Report on Form 10-Q should be read in conjunction with our Consolidated Financial Statements and notes thereto contained in our 2020 Annual Report on Form 10-K. Our Consolidated Statement of Financial Position at December 31, 2020, is derived from audited financial statements. The results of operations for the nine months ended September 30, 2021, are not necessarily indicative of the results for the entire year ending December 31, 2021.
The Condensed Consolidated Financial Statements are presented in accordance with GAAP as codified in the Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC).
2. Accounting Pronouncements
In December 2019, the FASB issued Accounting Standards Update No. 2019-12 (ASU 2019-12), Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, which simplifies the accounting and disclosure requirements for income taxes by clarifying existing guidance to improve consistency in application of Accounting Standards Codification (ASC) 740. The Company adopted the ASU on January 1, 2021 (the effective date), and it did not have a material impact on the Company’s consolidated financial statements and related disclosures.
In March 2020, the FASB issued Accounting Standards Update No. 2020-04 (ASU 2020-04), Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, which provides optional expedients and exceptions for applying GAAP principles to contracts, hedging relationships, and other transactions that reference London Interbank Offered Rate (LIBOR) or another reference rate expected to be discontinued due to reference rate reform. This guidance was effective beginning on March 12, 2020, and can be adopted on a prospective basis no later than December 31, 2022, with early adoption permitted. The Company is currently evaluating the effect that the new guidance will have on our consolidated financial statements and related disclosures.
3. Operations and Segmentation
The Railroad, along with its subsidiaries and rail affiliates, is our one reportable operating segment. Although we provide and analyze revenue by three commodity groups, we treat the financial results of the Railroad as one segment due to the integrated nature of our rail network. Our operating revenues are primarily derived from contracts with customers for the transportation of freight from origin to destination.
The following table represents a disaggregation of our freight and other revenues:
| Three Months Ended | Nine Months Ended | ||||||||
| September 30, | September 30, | ||||||||
| Millions | 2021 | 2020 | 2021 | 2020 | |||||
| Bulk | $ | 1,687 | $ | 1,478 | $ | 4,847 | $ | 4,398 | |
| Industrial | 1,911 | 1,567 | 5,426 | 4,961 | |||||
| Premium | 1,568 | 1,551 | 4,674 | 4,089 | |||||
| Total freight revenues | $ | 5,166 | $ | 4,596 | $ | 14,947 | $ | 13,448 | |
| Other subsidiary revenues | 182 | 193 | 539 | 557 | |||||
| Accessorial revenues | 198 | 114 | 535 | 334 | |||||
| Other | 20 | 16 | 50 | 53 | |||||
| Total operating revenues | $ | 5,566 | $ | 4,919 | $ | 16,071 | $ | 14,392 |
Although our revenues are principally derived from customers domiciled in the U.S., the ultimate points of origin or destination for some products we transport are outside the U.S. Each of our commodity groups includes revenue from shipments to and from Mexico. Included in the above table are freight revenues from our Mexico business which amounted to $592 million and $556 million, respectively, for the three months ended September 30, 2021 and 2020, and $1.8 billion and $1.5 billion, respectively, for the nine months ended September 30, 2021 and 2020.
4. 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 are also able to participate in our employee stock purchase plan (ESPP). We issue treasury shares to cover option exercises, stock unit vestings, and ESPP shares, while new shares are issued when retention shares are granted.
Information regarding stock-based compensation appears in the table below:
| Three Months Ended | Nine Months Ended | ||||||||
| September 30, | September 30, | ||||||||
| Millions | 2021 | 2020 | 2021 | 2020 | |||||
| Stock-based compensation, before tax: | |||||||||
| Stock options | $ | 4 | $ | 4 | $ | 12 | $ | 12 | |
| Retention awards | 16 | 13 | 50 | 45 | |||||
| ESPP | 4 | - | 4 | - | |||||
| Total stock-based compensation, before tax | $ | 24 | $ | 17 | $ | 66 | $ | 57 | |
| Excess tax benefits from equity compensation plans | $ | 1 | $ | 16 | $ | 18 | $ | 51 |
Stock Options – We estimate the fair value of our stock option awards using the Black-Scholes option pricing model. The table below shows the annual weighted-average assumptions used for valuation purposes:
| Weighted-Average Assumptions | 2021 | 2020 | ||
| Risk-free interest rate | 0.4**%** | 1.5% | ||
| Dividend yield | 1.9**%** | 2.1% | ||
| Expected life (years) | 4.6 | 4.9 | ||
| Volatility | 28.3**%** | 23.4% | ||
| Weighted-average grant-date fair value of options granted | $ | 39.97 | $ | 32.20 |
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 option.
A summary of stock option activity during the nine months ended September 30, 2021, is presented below:
| Options (thous.) | Weighted-Average **Exercise Price | Weighted-Average Remaining Contractual Term | Aggregate Intrinsic Value (millions) | ||||
| Outstanding at January 1, 2021 | 2,569 | $ | 132.49 | 6.4 | yrs. | $ | 195 |
| Granted | 387 | 204.45 | N/A | N/A | |||
| Exercised | (356) | 121.82 | N/A | N/A | |||
| Forfeited or expired | (90) | 159.45 | N/A | N/A | |||
| Outstanding at September 30, 2021 | 2,510 | $ | 144.13 | 6.2 | yrs. | $ | 133 |
| Vested or expected to vest at September 30, 2021 | 2,486 | $ | 143.82 | 6.2 | yrs. | $ | 133 |
| Options exercisable at September 30, 2021 | 1,731 | $ | 123.54 | 5.1 | yrs. | $ | 125 |
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. None of the stock options outstanding at September 30, 2021, are subject to performance or market-based vesting conditions.
At September 30, 2021, there was $18 million of unrecognized compensation expense related to nonvested stock options, which is expected to be recognized over a weighted-average period of 1.3 years. Additional information regarding stock option exercises appears in the following table:
| Three Months Ended | Nine Months Ended | ||||||||
| September 30, | September 30, | ||||||||
| Millions | 2021 | 2020 | 2021 | 2020 | |||||
| Intrinsic value of stock options exercised | $ | 1 | $ | 40 | $ | 33 | $ | 105 | |
| Cash received from option exercises | 1 | 29 | 35 | 80 | |||||
| Treasury shares repurchased for employee taxes | - | (8) | (7) | (20) | |||||
| Tax benefit realized from option exercises | - | 11 | 6 | 25 | |||||
| Aggregate grant-date fair value of stock options vested | - | - | 14 | 14 |
Retention Awards – The fair value of retention awards is based on the closing price of the stock on the grant date. Dividends and dividend equivalents are paid to participants during the vesting periods.
Changes in our retention awards during the nine months ended September 30, 2021, were as follows:
| Shares *(thous.)* | Weighted-Average **Grant-Date Fair Value | ||
| Nonvested at January 1, 2021 | 1,476 | $ | 141.06 |
| Granted | 289 | 205.10 | |
| Vested | (414) | 108.32 | |
| Forfeited | (53) | 162.23 | |
| Nonvested at September 30, 2021 | 1,298 | $ | 164.90 |
Retention awards are granted at no cost to the employee and vest over periods lasting up to 4 years. At September 30, 2021, there was $99 million of total unrecognized compensation expense related to nonvested retention awards, which is expected to be recognized over a weighted-average period of 1.7 years.
Performance Retention Awards – In February 2021, 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 Industries 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 2021 stock units awarded to selected employees 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 3-year performance period, and with respect to the third year of the plan, the remaining one-third of the fair value is subject to the relative three-year OIG. We measure the fair value of these 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 retention awards during the nine months ended September 30, 2021, were as follows:
| Shares *(thous.)* | Weighted-Average **Grant-Date Fair Value | ||
| Nonvested at January 1, 2021 | 773 | $ | 148.17 |
| Granted | 227 | 204.45 | |
| Vested | (147) | 132.66 | |
| Unearned | (165) | 135.57 | |
| Forfeited | (41) | 183.55 | |
| Nonvested at September 30, 2021 | 647 | $ | 172.41 |
At September 30, 2021, there was $25 million of total unrecognized compensation expense related to nonvested performance retention awards, which is expected to be recognized over a weighted-average period of 1.6 years. This expense is subject to achievement of the performance measures established for the performance stock unit grants.
Employee Share Purchase Plan – In May 2021, our shareholders approved our ESPP, to begin in July 2021, whereby employee and Company contributions are used to issue treasury shares the month after employee contributions are withheld based on the settlement date closing price. The Company matches 40% 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 and Other Postretirement Benefits
Pension Plans – 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) plan.
Other Postretirement Benefits (OPEB) – We provide medical and life insurance benefits for eligible retirees hired before January 1, 2004. These benefits are funded as medical claims and life insurance premiums are paid.
Expense
Both pension and OPEB expense are 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 or OPEB expense.
The components of our net periodic pension cost were as follows:
| Three Months Ended | Nine Months Ended | ||||||||
| September 30, | September 30, | ||||||||
| Millions | 2021 | 2020 | 2021 | 2020 | |||||
| Service cost | $ | 25 | $ | 19 | $ | 85 | $ | 72 | |
| Interest cost | 25 | 33 | 78 | 102 | |||||
| Expected return on plan assets | (67) | (71) | (202) | (211) | |||||
| Amortization of actuarial loss | 35 | 27 | 106 | 79 | |||||
| Net periodic pension cost | $ | 18 | $ | 8 | $ | 67 | $ | 42 |
The components of our net periodic OPEB costs were as follows:
| Three Months Ended | Nine Months Ended | ||||||||
| September 30, | September 30, | ||||||||
| Millions | 2021 | 2020 | 2021 | 2020 | |||||
| Service cost | $ | - | $ | - | $ | 1 | $ | 1 | |
| Interest cost | - | 1 | 2 | 4 | |||||
| Amortization of: | |||||||||
| Prior service cost/(credit) | (3) | (3) | (10) | (10) | |||||
| Actuarial loss | 2 | 1 | 5 | 5 | |||||
| Net periodic OPEB cost | $ | (1) | $ | (1) | $ | (2) | $ | - |
Cash Contributions
For the nine months ended September 30, 2021, cash contributions totaled $0 to the qualified pension plan. Any contributions made during 2021 will be based on cash generated from operations and financial market considerations. Our policy with respect to funding the qualified plans is to fund at least the minimum required by law and not more than the maximum amount deductible for tax purposes. At September 30, 2021, we do not have minimum cash funding requirements for 2021.
6. Other Income
Other income included the following:
| Three Months Ended | Nine Months Ended | ||||||||
| September 30, | September 30, | ||||||||
| Millions | 2021 | 2020 | 2021 | 2020 | |||||
| Rental income | $ | 36 | $ | 29 | $ | 103 | $ | 90 | |
| Gain on non-operating asset dispositions [a] | 12 | 3 | 84 | 97 | |||||
| Net periodic pension and OPEB costs | 8 | 12 | 21 | 31 | |||||
| Unrealized gain/(loss) on fair value of investments (Note 13) | (12) | - | 8 | - | |||||
| Interest income | 2 | 2 | 4 | 11 | |||||
| Non-operating environmental costs and other | (8) | (9) | (6) | (8) | |||||
| Total | $ | 38 | $ | 37 | $ | 214 | $ | 221 |
*[a]**2021 includes a $*50 *million gain from a sale to the Colorado Department of Transportation. 2020 includes a $*69 million gain from a land and permanent easement sale to the Illinois State Toll Highway Authority.
7. Income Taxes
In 2021, Nebraska, Oklahoma, and Idaho enacted legislation to reduce their corporate income tax rates for future years resulting in a $43 million reduction of our deferred tax expense.
8. Earnings Per Share
The following table provides a reconciliation between basic and diluted earnings per share:
| Three Months Ended | Nine Months Ended | ||||||||
| September 30, | September 30, | ||||||||
| Millions, Except Per Share Amounts | 2021 | 2020 | 2021 | 2020 | |||||
| Net income | $ | 1,673 | $ | 1,363 | $ | 4,812 | $ | 3,969 | |
| Weighted-average number of shares outstanding: | |||||||||
| Basic | 648.7 | 675.0 | 658.3 | 679.0 | |||||
| Dilutive effect of stock options | 0.8 | 0.9 | 0.8 | 0.8 | |||||
| Dilutive effect of retention shares and units | 0.8 | 0.9 | 0.8 | 0.9 | |||||
| Diluted | 650.3 | 676.8 | 659.9 | 680.7 | |||||
| Earnings per share – basic | $ | 2.58 | $ | 2.02 | $ | 7.31 | $ | 5.85 | |
| Earnings per share – diluted | $ | 2.57 | $ | 2.01 | $ | 7.29 | $ | 5.83 | |
| Stock options excluded as their inclusion would be anti-dilutive | 0.4 | 0.5 | 0.3 | 0.7 |
9. Accumulated Other Comprehensive Income/Loss
Reclassifications out of accumulated other comprehensive income/loss for the three and nine months ended September 30, 2021 and 2020, were as follows (net of tax):
| Millions | Defined **benefit **plans | Foreign **currency **translation | Total | |||
| Balance at July 1, 2021 | $ | (1,332) | $ | (219) | $ | (1,551) |
| Other comprehensive income/(loss) before reclassifications | (1) | (6) | (7) | |||
| Amounts reclassified from accumulated other comprehensive income/(loss) [a] | 25 | - | 25 | |||
| Net quarter-to-date other comprehensive income/(loss), net of taxes of ($8) million | 24 | (6) | 18 | |||
| Balance at September 30, 2021 | $ | (1,308) | $ | (225) | $ | (1,533) |
| Balance at July 1, 2020 | $ | (1,110) | $ | (262) | $ | (1,372) |
| Other comprehensive income/(loss) before reclassifications | - | 3 | 3 | |||
| Amounts reclassified from accumulated other comprehensive income/(loss) [a] | 18 | - | 18 | |||
| Net quarter-to-date other comprehensive income/(loss), net of taxes of ($6) million | 18 | 3 | 21 | |||
| Balance at September 30, 2020 | $ | (1,092) | $ | (259) | $ | (1,351) |
*[a]*The 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 cost. See Note 5 Retirement Plans for additional details.
| Millions | Defined **benefit **plans | Foreign **currency **translation | Total | |||
| Balance at January 1, 2021 | $ | (1,381) | $ | (212) | $ | (1,593) |
| Other comprehensive income/(loss) before reclassifications | (3) | (13) | (16) | |||
| Amounts reclassified from accumulated other comprehensive income/(loss) [a] | 76 | - | 76 | |||
| Net year-to-date other comprehensive income/(loss), net of taxes of ($26) million | 73 | (13) | 60 | |||
| Balance at September 30, 2021 | $ | (1,308) | $ | (225) | $ | (1,533) |
| Balance at January 1, 2020 | $ | (1,150) | $ | (206) | $ | (1,356) |
| Other comprehensive income/(loss) before reclassifications | 3 | (53) | (50) | |||
| Amounts reclassified from accumulated other comprehensive income/(loss) [a] | 55 | - | 55 | |||
| Net year-to-date other comprehensive income/(loss), net of taxes of ($18) million | 58 | (53) | 5 | |||
| Balance at September 30, 2020 | $ | (1,092) | $ | (259) | $ | (1,351) |
*[a]*The 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 cost. See Note 5 Retirement Plans for additional details.
10. Accounts Receivable
Accounts receivable includes freight and other receivables reduced by an allowance for doubtful accounts. The allowance is based upon historical losses, creditworthiness of customers, and current economic conditions. At September 30, 2021, and December 31, 2020, our accounts receivable were reduced by $12 million and $17 million, respectively. Receivables not expected to be collected in one year and the associated allowances are classified as other assets in our Condensed Consolidated Statements of Financial Position. At September 30, 2021, and December 31, 2020, receivables classified as other assets were reduced by allowances of $47 million and $51 million, respectively.
Receivables Securitization Facility – The Railroad maintains an $800 million, 3-year receivables securitization facility (the Receivables Facility) maturing in July 2022. 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 September 30, 2021, and December 31, 2020. The Receivables Facility was supported by $1.3 billion and $1.2 billion of accounts receivable as collateral at September 30, 2021, and December 31, 2020, respectively, which, as a retained interest, is included in accounts receivable, net in our Condensed 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 facility is $800 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 $1 million and $2 million for the three months ended September 30, 2021 and 2020, respectively, and $3 million and $6 million for the nine months ended September 30, 2021 and 2020, 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 Life | Accumulated | Net Book | Estimated | ||||
| As of September 30, 2021 | Cost | Depreciation | Value | Useful Life | |||
| Land | $ | 5,283 | $ | N/A | $ | 5,283 | N/A |
| Road: | |||||||
| Rail and other track material | 17,882 | 6,790 | 11,092 | 43 | |||
| Ties | 11,292 | 3,469 | 7,823 | 34 | |||
| Ballast | 6,032 | 1,828 | 4,204 | 34 | |||
| Other roadway [a] | 21,294 | 4,538 | 16,756 | 49 | |||
| Total road | 56,500 | 16,625 | 39,875 | N/A | |||
| Equipment: | |||||||
| Locomotives | 9,362 | 3,760 | 5,602 | 17 | |||
| Freight cars | 2,143 | 815 | 1,328 | 25 | |||
| Work equipment and other | 1,126 | 392 | 734 | 18 | |||
| Total equipment | 12,631 | 4,967 | 7,664 | N/A | |||
| Technology and other | 1,205 | 534 | 671 | 13 | |||
| Construction in progress | 869 | - | 869 | N/A | |||
| Total | $ | 76,488 | $ | 22,126 | $ | 54,362 | N/A |
| Millions, Except Estimated Useful Life | Accumulated | Net Book | Estimated | ||||
| As of December 31, 2020 | Cost | Depreciation | Value | Useful Life | |||
| Land | $ | 5,246 | $ | N/A | $ | 5,246 | N/A |
| Road: | |||||||
| Rail and other track material | 17,620 | 6,631 | 10,989 | 42 | |||
| Ties | 11,051 | 3,331 | 7,720 | 34 | |||
| Ballast | 5,926 | 1,753 | 4,173 | 34 | |||
| Other roadway [a] | 21,030 | 4,329 | 16,701 | 48 | |||
| Total road | 55,627 | 16,044 | 39,583 | N/A | |||
| Equipment: | |||||||
| Locomotives | 9,375 | 3,555 | 5,820 | 17 | |||
| Freight cars | 2,118 | 789 | 1,329 | 25 | |||
| Work equipment and other | 1,107 | 351 | 756 | 18 | |||
| Total equipment | 12,600 | 4,695 | 7,905 | N/A | |||
| Technology and other | 1,199 | 520 | 679 | 13 | |||
| Construction in progress | 748 | - | 748 | N/A | |||
| Total | $ | 75,420 | $ | 21,259 | $ | 54,161 | N/A |
*[a]*Other roadway includes grading, bridges and tunnels, signals, buildings, and other road assets.
12. Accounts Payable and Other Current Liabilities
| Sep. 30, | Dec. 31, | |||
| Millions | 2021 | 2020 | ||
| Income and other taxes payable | $ | 744 | $ | 635 |
| Accounts payable | 683 | 612 | ||
| Accrued wages and vacation | 342 | 340 | ||
| Current operating lease liabilities | 306 | 321 | ||
| Interest payable | 234 | 326 | ||
| Accrued casualty costs | 182 | 177 | ||
| Equipment rents payable | 96 | 101 | ||
| Other | 689 | 592 | ||
| Total accounts payable and other current liabilities | $ | 3,276 | $ | 3,104 |
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 September 30, 2021, the Company had $46 million of short-term investments. All short-term investments have a maturity of less than one year 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 September 30, 2021, the fair value of total debt was $32.8 billion, approximately $3.4 billion more than the carrying value. At December 31, 2020, the fair value of total debt was $31.9 billion, approximately $5.1 billion more 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.
We have equity investments that are carried at fair value with changes in unrealized gains and losses recognized in other income on our Condensed Consolidated Statements of Income. These investments are valued based on quoted prices in active markets for publicly traded securities and are classified in Level 1 of the fair value hierarchy. We recorded an unrealized loss of $12 million and a gain of $8 million during the three and nine months ended September 30, 2021, respectively.
14. Debt
Debt Exchange - On April 6, 2021, we exchanged approximately $1.7 billion of various outstanding notes and debentures due between 2028 and 2065 (Existing Notes) for $701 million of 2.891% notes due April 6, 2036 (New 2036 Notes) and $1.0 billion of 3.799% notes due April 6, 2071 (New 2071 Notes), plus cash consideration of approximately $257 million in addition to $14 million for accrued and unpaid interest on the Existing Notes. In accordance with ASC 470-50-40, Debt-Modifications and Extinguishments-Derecognition, this transaction was accounted for as a debt exchange, as the exchanged debt instruments are not considered to be substantially different. The cash consideration was recorded as an adjustment to the carrying value of debt, and the balance of the unamortized discount and issue costs from the Existing Notes is being amortized as an adjustment of interest expense over the terms of the new notes. No gain or loss was recognized as a result of the exchange. Costs related to the debt exchange that were payable to parties other than the debt holders totaled approximately $12 million and were included in interest expense during the quarter ended March 31, 2021.
Credit Facilities – At September 30, 2021, we had $2.0 billion of credit available under our revolving credit facility (the Facility), which is designated for general corporate purposes and can be used to support the issuance of commercial paper. Credit facility withdrawals totaled $0 during the nine months ended September 30, 2021. 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 LIBOR, plus a spread, depending upon credit ratings for our senior unsecured debt.
The 5 year facility, set to expire on June 8, 2023, requires UPC to maintain a debt-to-EBITDA (earnings before interest, taxes, depreciation, and amortization) coverage ratio.
The definition of debt used for purposes of calculating the debt-to-EBITDA coverage ratio includes, among other things, certain credit arrangements, finance leases, guarantees, unfunded and vested pension benefits under Title IV of ERISA, and unamortized debt discount and deferred debt issuance costs. At September 30, 2021, the Company was in compliance with the debt-to-EBITDA coverage ratio, which allows us to carry up to $40.4 billion of debt (as defined in the Facility), and we had $31.2 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 the nine months ended September 30, 2021, we issued $1,545 million and repaid $1,420 million of commercial paper with maturities ranging from 7 to 48 days, and at September 30, 2021, we had $200 million of commercial paper outstanding. Our revolving credit facility can be used to support our outstanding commercial paper balances, and, unless we change the terms of our commercial paper program, our aggregate outstanding issuance of commercial paper will not exceed the amount of borrowings available under the Facility.
In May 2020, we entered into three bilateral revolving credit lines, totaling $600 million of available credit. During the nine months ended September 30, 2021, we drew $0 and repaid $0. All three bilateral revolving credit lines matured by May 18, 2021.
Shelf Registration Statement and Significant New Borrowings – We filed an automatic shelf registration statement with the SEC that became effective on February 10, 2021. The Board of Directors authorized the issuance of up to $6 billion of debt securities, replacing the prior Board authorization in November 2019, which had $2.25 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 nine months ended September 30, 2021, we issued the following unsecured, fixed-rate debt securities under our current shelf registration.
| Date | Description of Securities |
| May 20, 2021 | $850 million of 2.375% Notes due May 20, 2031 |
| $1.0 billion of 3.200% Notes due May 20, 2041 | |
| $650 million of 3.550% Notes due May 20, 2061 | |
| September 10, 2021 | $150 million of 2.375% Notes due May 20, 2031 |
| $850 million of 2.950% Notes due March 10, 2052 |
We used the net proceeds from these 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 September 30, 2021, we had remaining authority from the Board of Directors to issue up to $2.5 billion of debt securities under our shelf registration.
Receivables Securitization Facility – As of both September 30, 2021, and December 31, 2020, we recorded $0 of borrowings under our Receivables Facility as secured debt. During the nine months ended September 30, 2021, we drew $400 million and repaid $400 million. (See further discussion of our receivables securitization facility in Note 10).
15. Commitments and Contingencies
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. To the extent possible, we have recorded a liability where asserted and unasserted claims are considered probable and where such claims can be reasonably estimated. We 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.
Personal Injury – The cost of personal injuries to employees and others related to our activities 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. 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.
Our personal injury liability is not discounted to present value due to the uncertainty surrounding the timing of future payments. Approximately 95% of the recorded liability is related to asserted claims and approximately 5% is related to unasserted claims at September 30, 2021. 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 $303 million to $333 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:
| Millions, | ||||
| for the Nine Months Ended September 30, | 2021 | 2020 | ||
| Beginning balance | $ | 270 | $ | 265 |
| Current year accruals | 69 | 52 | ||
| Changes in estimates for prior years | 19 | (4) | ||
| Payments | (55) | (47) | ||
| Ending balance at September 30 | $ | 303 | $ | 266 |
| Current portion, ending balance at September 30 | $ | 62 | $ | 62 |
Environmental Costs – We are subject to federal, state, and local environmental laws and regulations. We have identified 383 sites where we are or may be liable for remediation costs associated with alleged contamination or for violations of environmental requirements. This includes 28 sites that are the subject of actions taken by the U.S. government, 18 of which 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.
When we identify an environmental issue with respect to property owned, leased, or otherwise used in our business, we perform, with assistance of our consultants, environmental assessments on the 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. Our environmental liability is not discounted to present value due to the uncertainty surrounding the timing of future payments.
Our environmental liability activity was as follows:
| Millions, | ||||
| for the Nine Months Ended September 30, | 2021 | 2020 | ||
| Beginning balance | $ | 233 | $ | 227 |
| Accruals | 56 | 55 | ||
| Payments | (41) | (47) | ||
| Ending balance at September 30 | $ | 248 | $ | 235 |
| Current portion, ending balance at September 30 | $ | 60 | $ | 65 |
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.
Insurance – The Company has a consolidated, wholly-owned captive insurance subsidiary (the captive), that provides insurance coverage for certain risks including FELA claims and property coverage which are subject to reinsurance. The captive entered into annual reinsurance treaty agreements that insure workers compensation, general liability, auto liability, and FELA risk. The captive cedes a portion of its FELA exposure through the treaty and assumes a proportionate share of the entire risk. The captive receives direct premiums, which are netted against the Company’s premium costs in other expenses in the Condensed Consolidated Statements of Income. The treaty agreements provide for certain protections against the risk of treaty participants’ non-performance, and we do not believe our exposure to treaty participants’ non-performance is material at this time. We record both liabilities and reinsurance receivables using an actuarial analysis based on historical experience in our Condensed Consolidated Statements of Financial Position. Effective January 2019, the captive insurance subsidiary no longer participates in the reinsurance treaty agreement. The Company established a trust in the fourth quarter of 2018 for the purpose of providing collateral as required under the reinsurance treaty agreement for prior years’ participation.
Indemnities – We are contingently obligated under a variety of indemnification arrangements, although in some cases the extent of our potential liability is limited, 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.
16. Share Repurchase Programs
Effective April 1, 2019, our Board of Directors authorized the repurchase of up to 150 million shares of our common stock by March 31, 2022. These repurchases may be made on the open market or through other transactions. Our management has sole discretion with respect to determining the timing and amount of these transactions. As of September 30, 2021, we repurchased a total of $46.8 billion of our common stock since commencement of our repurchase programs in 2007. The table below represents shares repurchased under repurchase programs in the first, second, and third quarters of 2021 and 2020:
| Number of Shares Purchased | Average Price Paid [a] | |||||
| 2021 | 2020 | 2021 | 2020 | |||
| First quarter [b] | 6,691,421 | 14,305,793 | $ | 209.50 | $ | 178.66 |
| Second quarter [c] | 12,204,409 | - | 222.46 | - | ||
| Third quarter [d] | 8,604,239 | 4,045,575 | 210.31 | 98.87 | ||
| Total | 27,500,069 | 18,351,368 | $ | 215.51 | $ | 161.07 |
| Remaining number of shares that may be repurchased under current authority | 83,522,901 |
*[a]**In the period of the final settlement, the average price paid under the accelerated share repurchase programs is calculated based on the total program value less the value assigned to the initial delivery of shares. The average price of the completed 2021 and 2020 accelerated share repurchase programs was $*217.56 and $155.86, respectively.
*[b]*Includes 8,786,380 shares repurchased in February 2020 under accelerated share repurchase programs.
*[c]*Includes 7,209,156 shares repurchased in May 2021 under accelerated share repurchase programs.
*[d]*Includes an incremental 1,983,859 and 4,045,575 shares received upon final settlement in September 2021 and July 2020, respectively, under accelerated share repurchase programs.
Management's assessments of market conditions and other pertinent factors guide the timing and volume of all repurchases. We expect to fund any share repurchases under this program through cash generated from operations, the sale or lease of various operating and non-operating properties, debt issuances, and cash on hand. Open market repurchases are recorded in treasury stock at cost, which includes any applicable commissions and fees.
From October 1, 2021, through October 20, 2021, we repurchased 1.9 million shares at an aggregate cost of approximately $405 million.
Accelerated Share Repurchase Programs – The Company has established accelerated share repurchase programs (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 May 26, 2021, the Company received 7,209,156 shares of its common stock repurchased under ASRs for an aggregate of $2.0 billion. Upon settlement of these ASRs in the third quarter of 2021, we received 1,983,859 additional shares.
On February 19, 2020, the Company received 8,786,380 shares of its common stock repurchased under ASRs for an aggregate of $2.0 billion. Upon settlement of these ASRs in the third quarter of 2020, we received 4,045,575 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.
17. Related Parties
UPRR and other North American railroad companies jointly own TTX Company (TTX). UPRR has a 36.79% economic and voting 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 have the ability to utilize TTX rail cars through car hire by renting rail cars at stated rates.
UPRR had $1.6 billion and $1.5 billion recognized as investments related to TTX in our Condensed Consolidated Statements of Financial Position as of September 30, 2021, and December 31, 2020, respectively. TTX car hire expenses of $92 million and $98 million for the three months ended September 30, 2021 and 2020, respectively, and $283 and $282 million for the nine months ended September 30, 2021 and 2020, respectively, are included in equipment and other rents in our Condensed Consolidated Statements of Income. In addition, UPRR had accounts payable to TTX of $57 million and $59 million as of September 30, 2021, and December 31, 2020, respectively.
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