(Mark	One)

# UNITED	STATES

# SECURITIES	AND	EXCHANGE	COMMISSION

# SECURITIES	EXCHANGE	ACT	OF	1934

For	the	fiscal	year	ended	December	31,	2018

Commission	File	Number	1-6075

# UNION	PACIFIC	CORPORATION

(Exact	name	of	registrant	as	specified	in	its	charter)

UTAH (State	or	other	jurisdiction	of incorporation	or	organization)

1400	DOUGLAS	STREET,	OMAHA,	NEBRASKA (Address	of	principal	executive	offices)

Securities	registered	pursuant	to	Section	12(b)	of	the	Act:

# Title	of	each	Class

# Common	Stock	(Par	Value	$2.50	per	share)

# Name	of	each	exchange	on	which	registered

# New	York	Stock	Exchange,	Inc.

§ Indicate	by	check	mark	if	the	registrant	is	a	well-known	seasoned	issuer,	as	defined	in	Rule	405	of	the	Securities	Act.

§ Indicate	by	check	mark	if	the	registrant	is	not	required	to	file	reports	pursuant	to	Section	13	or	Section	15(d)	of	the	Act.

§ Indicate	by	check	mark	whether	the	registrant	(1)	has	filed	all	reports	required	to	be	filed	by	Section	13	or	15(d)	of	the Securities	Exchange	Act	of	1934	during	the	preceding	12	months	(or	for	such	shorter	period	that	the	registrant	was	required to	file	such	reports),	and	(2)	has	been	subject	to	such	filing	requirements	for	the	past	90	days.

§ Indicate	 by	 check	 mark	 whether	 the	 registrant	 has	 submitted	 electronically	every	 Interactive	 Data	 File	 required	 to	 be submitted	pursuant	to	Rule	405	of	Regulation	S-T	(§232.405	of	this	chapter)	during	the	preceding	12	months	(or	for	such shorter	period	that	the	registrant	was	required	to	submit	such	files).

§ Indicate	by	check	mark	if	disclosure	of	delinquent	filers	pursuant	to	Item	405	of	Regulation	S-K	(§229.405	of	this	chapter)	is not	contained	herein,	and	will	not	be	contained,	to	the	best	of	the	registrant's	knowledge,	in	definitive	proxy	or	information statements	incorporated	by	reference	in	Part	III	of	this	Form	10-K	or	any	amendment	to	this	Form	10-K.

§ Indicate	by	check	mark	whether	the	registrant	is	a	large	accelerated	filer,	an	accelerated	filer,	a	non-accelerated	filer,	or	a smaller	reporting	company.		See	the	definitions	of	"large	accelerated	filer,"	"accelerated	filer"	and	"smaller	reporting	company" in	Rule	12b-2	of	the	Exchange	Act.

Large	accelerated	filer	☑ Accelerated	filer	☐ Non-accelerated	filer	☐ Smaller	reporting	company	☐

§ Indicate	by	check	mark	whether	the	registrant	is	a	shell	company	(as	defined	in	Rule	12b-2	of	the	Act).

§ If	an	emerging	growth	company,	indicate	by	check	mark	if	the	registrant	has	elected	not	to	use	the	extended	transition	period for	complying	with	any	new	or	revised	financial	accounting	standards	provided	pursuant	to	Section	13(a)	of	the	Exchange	Act.

§ As	of	June	29,	2018,	the	aggregate	market	value	of	the	registrant's	Common	Stock	held	by	non-affiliates	(using	the	New	York Stock	Exchange	closing	price)	was	$104.6	billion.

The	number	of	shares	outstanding	of	the	registrant's	Common	Stock	as	of	February	1,	2019	was	722,877,817.

Documents Incorporated	 by	 Reference	–	 Portions	 of the	 registrant's	 definitive	 Proxy	 Statement	 for	 the	Annual Meeting	of	Shareholders	to	be	held	on	May	16,	2019,	are	incorporated	by	reference	into	Part	III	of	this	report.	The registrant's	Proxy	Statement	will	be	filed	with	the	Securities	and	Exchange	Commission	pursuant	to	Regulation	14A.

# TABLE	OF	CONTENTS

# PART	I

# PART	II

# PART	III

# PART	IV

# Fellow	Shareholders:

I	am	pleased	to	report	that	Union	Pacific	produced	record	2018	financial	results	and	finished	the	year	with	significant improvements	 in	 service	 reliability	 and	 efficiency,	 after	 overcoming	 network	 congestion	 and	 excess	 operating costs.		The	year	was	also	one	of	change,	as	we	embarked	on	a	fundamental	shift	in	our	operating	philosophy	by adopting	 precision	 scheduled	 railroading	 (PSR)	 principles	 with	 the	 launch	 of	 Unified	 Plan	 2020.	 	 An	 increase	 in customer	shipments	of	4	percent	in	2018,	coupled	with	core	pricing	and	productivity	gains,	generated	earnings	of	$7.91 per	share.		This	represents	a	37	percent	improvement	compared	to	2017	adjusted	results	of	$5.79	per	share*.		Our operating	ratio	was	62.7	percent,	0.1	point	better	than	last	year's	adjusted	62.8	percent*.

Premium	 carloadings	 were	 up	 6	 percent,	 driven	 primarily	 by	 increases	 in	 international	 and	 domestic	 intermodal shipments.	 	 Our	 Industrial	 business	 unit	 also	 experienced	 a	 6	 percent	 increase	 in	 shipments	 across	 a	 number	 of segments	due	to	strong	industrial	production,	while	Agricultural	Products	carloadings	were	down	1	percent	reflecting lower	export	grain	movements.		Energy	volume	declined	2	percent	due	to	lower	coal	and	frac	sand	carloadings,	partially offset	by	an	increase	in	petroleum	products	shipments.

As	we	entered	2018,	the	railroad	was	experiencing	unusual	network	congestion	on	key	routes	and	in	terminals	that negatively	impacted	our	operational	performance.		These	inefficiencies	also	drove	excess	costs	and	impacted	our	ability to	reliably	serve	our	customers.		In	response,	we	initiated	Unified	Plan	2020	and	began	implementing	PSR	October 1. 	 Fundamentally,	 PSR	 is	 an	 operating	 principle	 that	 emphasizes	 on-time	 service	 performance	 for	 every	 rail	 car, execution	accountability,	and	lean	resource	utilization,	while	at	the	same	time	improving	total	safety	performance.

Unified	Plan	2020	implementation	is	progressing	ahead	of	our	original	schedule,	with	the	initial	roll	out	expected	to	be complete	by	mid-2019.		Results	are	encouraging	as	railroad	operations	improved	steadily	throughout	the	fourth	quarter, driving	out	excess	costs.		We	removed	over	1,200	locomotives	and	approximately	30,000	freight	cars	from	our	network since	August	1,	which	increases	operational	fluidity	and	provides	a	source	of	future	growth	capacity.

Despite	our	best	efforts,	we	lost	a	little	ground	with	our	safety	results	in	2018.		Our	0.82	reportable	personal	injury	rate increased	4	percent	compared	to	2017,	although	preliminary	results	show	this	was	the	best	safety	performance	for	all Class	1	railroads	 for	 the	 fourth	year	 in	a	row.	 	Our	reportable	derailment	 incident	rate	and	crossing	 incidents	rate increased	12	and	5	percent,	respectively,	compared	to	2017.		The	entire	Union	Pacific	team	is	not	satisfied	with	these results	 and	 will	 not	 be	 satisfied	 until	 every	 employee	 returns	 home	 safely	 every	 day	 and	 we	 eliminate	 all derailments.		We	are	committed	to	making	progress	toward	these	goals	in	2019.

As	part	of	our	robust	capital	program,	we	invested	about	$3.2	billion	in	2018	including	$1.8	billion	in	replacement	capital to	harden	our	infrastructure,	replace	older	assets,	and	to	improve	the	safety	and	resiliency	of	our	network.		We	also invested	 $520	 million	 toward	 new	 rail	 capacity	 and	 commercial	 facilities	 projects	 to	 support	 future	 growth	 and productivity	initiatives.

Total	shareholder	return,	including	price	appreciation	and	dividends,	increased	5.3	percent	in	2018,	compared	to	a negative	4.4	percent	for	the	S&P	500.		Our	return	on	invested	capital*	of	15.1	percent	increased	1.4	points	over	2017's adjusted	13.7	percent.		We	raised	our	quarterly	dividend	with	two	10	percent	increases,	resulting	in	dividends	paid	in 2018	totaling	$2.3	billion.		In	addition,	we	repurchased	57.2	million	Union	Pacific	shares,	decreasing	our	total	share count	 by	 6	 percent.	 	 Combining	 dividends	 and	 share	 repurchases,	 Union	 Pacific	 returned	 $10.5	 billion	 to	 our shareholders	in	2018.

Looking	to	2019,	we	are	optimistic	that	continued	economic	growth,	our	improving	service	performance,	increasingly- efficient	use	of	our	assets,	and	the	strength	of	our	diverse	franchise	will	drive	positive	volume	and	top-line	revenue growth.		We	expect	to	generate	significant	productivity	benefits	and	enhance	customer	experience	through	our	G55	+	0 initiatives	and	the	continued	roll	out	of	Unified	Plan	2020.		Every	Union	Pacific	employee	is	committed	to	achieving industry-leading	safety,	service	reliability,	and	financial	performance	in	the	coming	year.

# Picture	3

# Chairman,	President	and	Chief	Executive	Officer

*See	Item	7	of	this	report	for	reconciliations	to	U.S.	GAAP.

# DIRECTORS	AND	SENIOR	MANAGEMENT

# BOARD	OF	DIRECTORS

Andrew	H.	Card,	Jr. Lance	M.	Fritz Former	White	House Chairman,	President	and Chief	of	Staff Chief	Executive	Officer Board	Committees:	Audit, Union	Pacific	Corporation	and Compensation	and	Benefits Union	Pacific	Railroad	Company

Thomas	F.	McLarty	III President McLarty	Associates Board	Committees:	Finance	(Chair), Corporate	Governance	and Nominating

William	J.	DeLaney Former	Chief	Executive	Officer, Sysco	Corporation Board	Committees:	Audit, Compensation	and	Benefits

David	B.	Dillon Former	Chairman The	Kroger	Company Board	Committees:	Audit	(Chair), Compensation	and	Benefits

# SENIOR	MANAGEMENT*

Lance	M.	Fritz Chairman,	President	and Chief	Executive	Officer

Prentiss	W.	Bolin,	Jr. Vice	President-External	Relations

Bryan	L.	Clark Vice	President-Tax

Rhonda	S.	Ferguson Executive	Vice	President,	Chief	Legal Officer	and	Corporate	Secretary

Robert	M.	Knight,	Jr.

Jane	H.	Lute President	and	Chief	Executive	Officer SICPA	North	America Board	Committees:	Audit,	Corporate Governance	and	Nominating

Michael	R.	McCarthy Chairman McCarthy	Group,	LLC Lead	Independent	Director Board	Committees:	Corporate Governance	and	Nominating	(Chair), Finance

Thomas	A.	Lischer Executive	Vice	President-Operations

Scott	D.	Moore Senior	Vice	President-Corporate Relations	and Chief	Administrative	Officer

Jon	T.	Panzer Vice	President	and	Treasurer

Jose	H.	Villarreal Advisor Akin,	Gump,	Strauss,	Hauer	& Feld,	LLP Board	Committees:	Audit, Compensation	and	Benefits

Todd	M.	Rynaski Vice	President	and	Controller

Lynden	L.	Tennison Executive	Vice	President	and Chief	Strategy	Officer

V.	James	Vena Chief	Operating	Officer

Elizabeth	F.	Whited Clark	J.	Ponthier Executive	Vice	President	and Senior	Vice	President-Supply	Chain Chief	Human	Resource	Officer And	Continuous	Improvement

# Kenny	G.	Rocker

*Senior	management	are	elected	officers	of	both	Union	Pacific	Corporation	and	Union	Pacific	Railroad	Company,	except	Messrs.

Lischer,	Ponthier	and	Rocker	are	elected	officers	for	Union	Pacific	Railroad	Company.

# Item	1.	Business

# GENERAL

Union	Pacific	Railroad	Company	is	the	principal	operating	company	of	Union	Pacific	Corporation.	One	of	America's most	recognized	companies,	Union	Pacific	Railroad	Company	links	23	states	in	the	western	two-thirds	of	the	country	by rail,	providing	a	critical	link	in	the	global	supply	chain.		The	Railroad's	diversified	business	mix	includes	Agricultural Products,	Energy,	Industrial	and	Premium.	Union	Pacific	serves	many	of	the	fastest-growing	U.S.	population	centers, operates	from	all	major	West	Coast	and	Gulf	Coast	ports	to	eastern	gateways,	connects	with	Canada's	rail	systems	and is	the	only	railroad	serving	all	six	major	Mexico	gateways.	Union	Pacific	provides	value	to	its	roughly	10,000	customers by	delivering	products	in	a	safe,	reliable,	fuel-efficient	and	environmentally	responsible	manner.

Union	 Pacific	 Corporation	 was	 incorporated	 in	 Utah	 in	 1969	 and	 maintains	 its	 principal	 executive	 offices	 at	 1400 Douglas	Street,	Omaha,	NE	68179.	The	telephone	number	at	that	address	is	(402)	544-5000.	The	common	stock	of Union	Pacific	Corporation	is	listed	on	the	New	York	Stock	Exchange	(NYSE)	under	the	symbol	"UNP".

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

Available	Information	–	Our	Internet	website	is	www.up.com.	We	make	available	free	of	charge	on	our	website	(under the	 "Investors"	 caption	 link)	 our	Annual	 Reports	 on	 Form	 10-K;	 our	 Quarterly	 Reports	 on	 Form	 10-Q;	 eXtensible Business	Reporting	Language	(XBRL)	documents;	our	current	reports	on	Form	8-K;	our	proxy	statements;	Forms	3,	4, and	5,	filed	on	behalf	of	our	directors	and	certain	executive	officers;	and	amendments	to	such	reports	filed	or	furnished pursuant	 to	 the	Securities	Exchange	Act	of	1934,	as	amended	(the	Exchange	Act).	We	provide	 these	reports	and statements	 as	 soon	 as	 reasonably	 practicable	 after	 such	 material	 is	 electronically	 filed	 with,	 or	 furnished	 to,	 the Securities	and	Exchange	Commission	(SEC).	We	also	make	available	on	our	website	previously	filed	SEC	reports	and exhibits	 via	 a	 link	 to	 EDGAR	 on	 the	 SEC's	 Internet	 site	 at	 www.sec.gov.	Additionally,	 our	 corporate	 governance materials,	including	By-Laws,	Board	Committee	charters,	governance	guidelines	and	policies,	and	codes	of	conduct	and ethics	for	directors,	officers,	and	employees	are	available	on	our	website.	From	time	to	time,	the	corporate	governance materials	on	our	website	may	be	updated	as	necessary	to	comply	with	rules	issued	by	the	SEC	and	the	NYSE	or	as desirable	to	promote	the	effective	and	efficient	governance	of	our	Company.	Any	security	holder	wishing	to	receive, without	charge,	a	copy	of	any	of	our	SEC	filings	or	corporate	governance	materials	should	send	a	written	request	to: Secretary,	Union	Pacific	Corporation,	1400	Douglas	Street,	Omaha,	NE	68179.

We	have	included	the	Chief	Executive	Officer	(CEO)	and	Chief	Financial	Officer	(CFO)	certifications	regarding	our public	disclosure	required	by	Section	302	of	the	Sarbanes-Oxley	Act	of	2002	as	Exhibits	31(a)	and	(b)	to	this	report.

References	to	our	website	address	in	this	report,	including	references	in	Management's	Discussion	and	Analysis	of Financial	Condition	and	Results	of	Operations,	Item	7,	are	provided	as	a	convenience	and	do	not	constitute,	and	should not	 be	 deemed,	 an	 incorporation	 by	 reference	 of	 the	 information	 contained	 on,	 or	 available through, the	 website. Therefore,	such	information	should	not	be	considered	part	of	this	report.

# OPERATIONS

The	Railroad,	along	with	its	subsidiaries	and	rail	affiliates,	is	our	one	reportable	operating	segment.	Although	we	provide revenue	by	commodity	group,	we	analyze	the	net	financial	results	of	the	Railroad	as	one	segment	due	to	the	integrated nature	of	our	rail	network.	Additional	information	regarding	our	business	and	operations,	including	revenue	and	financial information	and	data	and	other	information	regarding	environmental	matters,	is	presented	in	Risk	Factors,	Item	1A; Legal	 Proceedings,	 Item	 3;	 Selected	 Financial	 Data,	 Item	 6;	 Management's	 Discussion	 and	Analysis	 of	 Financial Condition	and	Results	of	Operations,	Item	7;	and	the	Financial	Statements	and	Supplementary	Data,	Item	8	(which include	information	regarding	revenues,	statements	of	income,	and	total	assets).

# 2018	Freight	Revenue

manifest,	and	premium	business.	Bulk	traffic	primarily	consists	of	coal,	grain,	soda	ash,	ethanol,	rock	and	crude	oil shipped	 in	 unit	 trains	 –	 trains	 transporting	 a	 single	 commodity	 from	 one	 origin	 to	 one	 destination.	 Manifest	 traffic includes	individual	carload	or	less	than	train-load	business	involving	commodities	such	as	lumber,	steel,	paper,	food and	chemicals.	The	transportation	of	finished	vehicles,	auto	parts,	intermodal	containers	and	truck	trailers	are	included as	part	of	our	premium	business.	In	2018,	we	generated	freight	revenues	totaling	$21.4	billion	from	the	following	four commodity	groups:

Agricultural	Products	 –	 Transportation	 of	 grains,	 commodities	 produced	 from	 these	 grains,	 fertilizer,	 and	 food	 and beverage	products	generated	21%	of	the	Railroad's	2018	freight	revenue.	We	access	most	major	grain	markets,	linking the	Midwest	and	Western	U.S.	producing	areas	to	export	terminals	in	the	Pacific	Northwest	and	Gulf	Coast	ports,	as well	as	Mexico.	We	also	serve	significant	domestic	markets,	including	grain	processors,	animal	feeders	and	ethanol producers	in	the	Midwest,	West,	South	and	Rocky	Mountain	states.	Fertilizer	movements	originate	in	the	Gulf	Coast region,	the	western	U.S.	and	Canada	(through	interline	access)	for	delivery	to	major	agricultural	users	in	the	Midwest, western	U.S.,	as	well	as	abroad.

Energy	–	The	Company's	Energy	shipments	are	grouped	into	the	following	three	categories:	(i)	coal,	(ii)		sand	and	(iii) petroleum,	liquid	petroleum	gases	(LPG)	and	renewables.	In	2018,	this	group	generated	21%	of	our	freight	revenue. The	Railroad's	network	supports	the	transportation	of	coal	shipments	to	independent	and	regulated	power	companies and	industrial	facilities	throughout	the	U.S.	Through	interchange	gateways	and	ports,	UPRR's	reach	extends	to	eastern U.S.	utilities,	as	well	as	to	Mexico	and	other	international	destinations.	Coal	traffic	originating	in	the	Powder	River	Basin (PRB)	area	of	Wyoming	is	the	largest	segment	of	the	Railroad's	coal	business.	Demand	for	hydraulic	fracturing	sand,	or frac-sand,	is	generated	by	oil	and	gas	drilling,	whereas,	the	Company's	petroleum	and	LPG	shipments	are	primarily impacted	by	refinery	utilization	rates,	regional	crude	pricing	differentials,	pipeline	capacity, 	and	the	use	of	asphalt	for road	programs.	Renewable	shipments	consist	primarily	of	biomass	exports	and	wind	turbine	components.

Industrial	–	Our	extensive	network	facilitates	the	movement	of	numerous	commodities	between	thousands	of	origin	and destination	points	throughout	North	America.	The	Industrial	group	consists	of	several	categories,	including	construction, industrial	chemicals,	plastics,	forest	products,	specialized	products	(primarily	waste,	lime,	salt	and	government),	metals and	 ores,	 and	 soda	 ash.	 Transportation	 of	 these	 products	 accounted	 for	 27%	 of	 our	 freight	 revenue	 in	 2018. Commercial,	 residential	 and	 governmental	 infrastructure	 investments	 drive	 shipments	 of	 steel,	 aggregates	 (cement components),	cement	and	wood	products.	Industrial	and	light	manufacturing	plants	receive	steel,	nonferrous	materials, minerals	and	other	raw	materials.

The	industrial	chemicals	market	consists	of	a	vast	number	of	chemical	compounds	that	support	the	manufacturing	of more	complex	chemicals.	Plastics	shipments	support	automotive,	housing,	and	the	durable	and	disposable	consumer goods	 markets.	 Paper	 and	 packaging	 commodities,	 as	 well	 as	 appliances,	 move	 to	 major	 metropolitan	 areas	 for consumers.	 Forest	 product	 shipments	 originate	 primarily	 in	 the	 Pacific	 Northwest	 or	 western	 Canada	 and	 move throughout	the	U.S.	for	use	in	new	home	construction	and	repair	and	remodeling.	Oil	and	gas	drilling	generates	demand for	raw	steel,	finished	pipe,	stone	and	drilling	fluid	commodities.	Soda	ash	originates	in	southwestern	Wyoming	and California,	destined	for	chemical	and	glass	producing	markets	in	North	America	and	abroad.

Premium –	In	 2018, the	 Premium franchise	 generated	 31%	 of	 Union	 Pacific's total freight	 revenue.	 Our	 Premium franchise	includes	three	segments:	international	intermodal,	domestic	intermodal,	and	finished	vehicles.	International business	consists	of	import	and	export	traffic	moving	in	20	or	40-foot	shipping

containers, that	 mainly	 passes through	 West	 Coast	 ports	 served	 by	 UP's	 extensive terminal	 network. 	 Domestic business	 includes	 container	 and	 trailer	 traffic	 picked	 up	 and	 delivered	 within	 North	 America for intermodal marketing	companies	(primarily	shipper	agents	and	logistics	companies), 	as	well	as	truckload	carriers.

We	 are the largest	 automotive	 carrier	 west	 of the	 Mississippi	 River	and	operate	or	access	38	vehicle	distribution centers.	The	Railroad's	extensive	franchise	serves	five	vehicle	assembly	plants	and	connects	to	West	Coast	ports,	all six	major	Mexico	gateways,	and	the	Port	of	Houston	to	accommodate	both	import	and	export	shipments.	In	addition	to transporting	finished	vehicles,	UPRR	provides	expedited	handling	of	automotive	parts	in	both	boxcars	and	intermodal containers	destined	for	Mexico,	the	U.S.	and	Canada.

Seasonality	–	Some	of	the	commodities	we	carry	have	peak	shipping	seasons,	reflecting	either	or	both	the	nature	of the	commodity	and	the	demand	cycle	 for	 the	commodity	(such	as	certain	agricultural	and	 food	products	 that	have specific	growing	and	harvesting	seasons).	The	peak	shipping	seasons	for	these	commodities	can	vary	considerably each	 year	 depending	 upon	 various	 factors,	 including	 the	 strength	 of	 domestic	 and	 international	 economies	 and currencies	and	the	strength	of	harvests	and	market	prices	for	agricultural	products.

Working	Capital	–	At	December	31,	2018,	we	had	a	working	capital	deficit.	At	December	31,	2017,	we	had	a	working capital	 surplus.	The	deficit	at	2018	year-end	was	primarily	due	to	an	increase	in	upcoming	debt	maturities. 	As	past years	indicate,	it	is	not	unusual	for	us	to	have	a	working	capital	deficit;	however,	we	believe	it	is	not	an	indication	of	a lack	 of	 liquidity.		We	also	maintain	adequate	resources,	including	our	credit	facility,	and	when	necessary,	access	to capital	markets	to	meet	any	foreseeable	cash	requirements.

Competition	 –	 We	 are	 subject to	 competition from	 other	 railroads,	 motor	 carriers,	 ship	 and	 barge	 operators,	 and pipelines.	Our	main	railroad	competitor	is	Burlington	Northern	Santa	Fe	LLC.	Its	primary	subsidiary,	BNSF	Railway Company	(BNSF),	operates	parallel	routes	in	many	of	our	main	traffic	corridors.	In	addition,	we	operate	in	corridors served	by	other	railroads	and	motor	carriers.	Motor	carrier	competition	exists	 for	all	 four	of	our	commodity	groups (excluding	most	coal	shipments).	Because	of	the	proximity	of	our	routes	to	major	inland	and	Gulf	Coast	waterways, barges	can	be	particularly	competitive,	especially	for	grain	and	bulk	commodities	in	certain	areas	where	we	operate.	In addition	to	price	competition,	we	face	competition	with	respect	to	transit	times,	quality	and	reliability	of	service	from motor	carriers	and	other	railroads.	Motor	carriers	in	particular	can	have	an	advantage	over	railroads	with	respect	to transit	times	and	timeliness	of	service.		However,	railroads	are	much	more	fuel-efficient	than	trucks,	which	reduces	the impact	of	transporting	goods	on	the	environment	and	public	infrastructure,	and	we	have	been	making	efforts	to	convert certain	truck	traffic	to	rail.		Additionally,	we	must	build	or	acquire	and	maintain	our	rail	system;	trucks	and	barges	are able	to	use	public	rights-of-way	maintained	by	public	entities.	Any	of	the	following	could	also	affect	the	competitiveness of	our	transportation	services	for	some	or	all	of	our	commodities:	(i)	improvements	or	expenditures	materially	increasing the	 quality	 or	 reducing	 the	 costs	 of	 these	 alternative	 modes	 of	 transportation,	 (ii)	 legislation	 that	 eliminates	 or significantly	increases	the	size	or	weight	limitations	applied	to	motor	carriers,	or	(iii)	legislation	or	regulatory	changes that	impose	operating	restrictions	on	railroads	or	that	adversely	affect	the	profitability	of	some	or	all	railroad	traffic. Finally,	many	movements	face	product	or	geographic	competition	where	our	customers	can	use	different	products	(e.g. natural	gas	instead	of	coal,	sorghum	instead	of	corn)	or	commodities	from	different	locations	(e.g.	grain	from	states	or countries	that	we	do	not	serve,	crude	oil	from	different	regions).	Sourcing	different	commodities	or	different	locations allows	shippers	to	substitute	different	carriers	and	such	competition	may	reduce	our	volume	or	constrain	prices.	For more	information	regarding	risks	we	face	from	competition,	see	the	Risk	Factors	in	Item	1A	of	this	report.

Key	Suppliers	 –	 We	 depend	on two	 key	 domestic	 suppliers	 of	 high	 horsepower locomotives. 	 Due to the	 capital intensive	nature	of	the	locomotive	manufacturing	business	and	sophistication	of	this	equipment,	potential	new	suppliers face	high	barriers	of	entry	into	this	industry.	Therefore,	if	one	of	these	domestic	suppliers	discontinues	manufacturing locomotives,	supplying	parts	or	providing	maintenance	for	any	reason,	including	insolvency	or	bankruptcy,	we	could experience	 a	 significant	 cost	 increase	 and	 risk	 reduced	 availability	 of	 the	 locomotives	 that	 are	 necessary	 to	 our operations.	Additionally,	for	a	high	percentage	of	our	rail	purchases,	we	utilize	two	steel	producers	(one	domestic	and one	 international)	 that	 meet	 our	 specifications.	 Rail	 is	 critical	 for	 maintenance,	 replacement,	 improvement,	 and expansion	of	our	network	and	facilities.	Rail	manufacturing	also	has	high	barriers	of	entry,	and,	if	one	of	those	suppliers discontinues	operations	for	any	reason,	including	insolvency	or	bankruptcy,	we	could	experience	cost	increases	and difficulty	obtaining	rail.

Employees	–		Approximately	85%	of	our	full-time	employees	are	represented	by	14	major	rail	unions.		Pursuant	to	the Railway	Labor	Act	(RLA),	our	collective	bargaining	agreements	are	subject	to	modification	every	five	years.		The	most recent	round	of	negotiations	started	on	January	1,	2015,	and	throughout	2017	and	2018,	we	concluded	new	agreements with	all	14	major	rail	unions.	Existing	agreements	remain	in	effect	until	new	agreements	are	ratified	or	until	the	RLA procedures	are	exhausted.		The	RLA	procedures	include	mediation,	potential	arbitration,	cooling-off	periods,	and	the possibility	of	Presidential	Emergency	Boards	and	Congressional	intervention.		The	next	round	of	negotiations	begins with	 the	 service	 of	 RLA	 Section	 6	 notices	 on	 or	 about	 November	 1,	 2019	 related	 to	 years	 2019-2023.	 	 Contract negotiations	historically	continue	for	an	extended	period	of	time,	and	work	stoppages	during	negotiations	are	rare.

Railroad	Security	–	Our	security	efforts	consist	of	a	wide	variety	of	measures	including	employee	training,	engagement with	 our	 customers, training	 of	 emergency responders,	 and	 partnerships	 with	 numerous federal,	 state,	 and local government	agencies.		While	federal	law	requires	us	to	protect	the	confidentiality	of	our	security	plans	designed	to safeguard	against	 terrorism	and	other	security	 incidents,	 the	 following	provides	a	general	overview	of	our	security initiatives.

UPRR	Security	Measures	–	We	maintain	a	comprehensive	security	plan	designed	to	both	deter	and	respond	to	any potential	 or	 actual	 threats	 as	 they	 arise.	 	 The	 plan	 includes	 four	 levels	 of	 alert	 status,	 each	 with	 its	 own	 set	 of countermeasures.	 	 We	 employ	 our	 own	 police	 force,	 consisting	 of	 commissioned	 and	 highly-trained	 officers.	 Our employees	 also	 undergo	 recurrent	 security	 and	 preparedness	 training,	 as	 well	 as	 federally-mandated	 hazardous materials	and	security	training.	We	regularly	review	the	sufficiency	of	our	employee	training	programs.	We	maintain	the capability	to	move	critical	operations	to	back-up	facilities	in	different	locations.

We	operate	an	emergency	response	management	center	24	hours	a	day.		The	center	receives	reports	of	emergencies, dangerous	or	potentially	dangerous	conditions,	and	other	safety	and	security	issues	from	our	employees,	the	public,	law enforcement	and	other	government	officials.		In	cooperation	with	government	officials,	we	monitor	both	threats	and public	events,	and,	as	necessary,	we	may	alter	rail	traffic	flow	at	times	of	concern	to	minimize	risk	to	communities	and our	operations.		We	comply	with	the	hazardous	materials	routing	rules	and	other	requirements	imposed	by	federal law.		We	also	design	our	operating	plan	to	expedite	the	movement	of	hazardous	material	shipments	to	minimize	the time	rail	cars	remain	idle	at	yards	and	terminals	located	in	or	near	major	population	centers.		Additionally,	in	compliance with	Transportation	Security	Agency	regulations,	we	deployed	information	systems	and	instructed	employees	in	tracking and	documenting	the	handoff	of	Rail	Security	Sensitive	Materials	with	customers	and	interchange	partners.

We	also	have	established	a	number	of	our	own	innovative	safety	and	security-oriented	initiatives	ranging	from	various investments	 in	 technology	 to	The	Officer	on	Train	program,	which	provides	 local	 law	enforcement	officers	with	 the opportunity	 to	 ride	 with	 train	 crews	 to	 enhance	 their	 understanding	 of	 railroad	 operations	 and	 risks.	 Our	 staff	 of information	security	professionals	continually	assesses	cyber	security	risks	and	implements	mitigation	programs	that evolve	with	the	changing	technology	threat	environment.	To	date,	we	have	not	experienced	any	material	disruption	of our	operations	due	to	a	cyber	threat	or	attack	directed	at	us.

Cooperation	with	Federal,	State,	and	Local	Government	Agencies	 –	We	work	closely	on	physical	and	cyber	security initiatives	with	government	agencies,	including	the	U.S.	Department	of	Transportation	(DOT)	and	the	Department	of Homeland	 Security	 (DHS)	 as	 well	 as	 local	 police	 departments,	 fire	 departments,	 and	 other	 first	 responders.	 In conjunction	 with	 the	 Association	 of	 American	 Railroads	 (AAR),	 we	 sponsor	 Ask	 Rail,	 a	 mobile	 application	 which provides	 first	responders	with	secure	 links	 to	electronic	 information,	 including	commodity	and	emergency	response information	required	by	emergency	personnel	to	respond	to	accidents	and	other	situations.		We	also	participate	in	the National	 Joint	Terrorism	Task	 Force,	 a	 multi-agency	 effort	 established	 by the	 U.S.	 Department	 of	 Justice	 and the Federal	Bureau	of	Investigation	to	combat	and	prevent	terrorism.

We	work	with	the	Coast	Guard,	U.S.	Customs	and	Border	Protection	(CBP),	and	the	Military	Transport	Management Command,	which	monitor	shipments	entering	the	UPRR	rail	network	at	U.S.	border	crossings	and	ports.		We	were	the first	railroad	in	the	U.S.	to	be	named	a	partner	in	CBP's	Customs-Trade	Partnership	Against	Terrorism,	a	partnership designed	to	develop,	enhance,	and	maintain	effective	security	processes	throughout	the	global	supply	chain.

Cooperation	with	Customers	and	Trade	Associations –	Through	TransCAER	(Transportation	Community	Awareness and	Emergency	Response)	we	work	with	the	AAR,	the	American	Chemistry	Council,	the	American	Petroleum	Institute, and	other	chemical	trade	groups	to	provide	communities	with	preparedness

tools,	including	the	training	of	emergency	responders.		In	cooperation	with	the	Federal	Railroad	Administration	(FRA) and	other	interested	groups,	we	are	also	working	to	develop	additional	improvements	to	tank	car	design	that	will	further limit	the	risk	of	releases	of	hazardous	materials.

# GOVERNMENTAL	AND	ENVIRONMENTAL	REGULATION

Governmental	Regulation	–	Our	operations	are	subject	to	a	variety	of	federal,	state,	and	local	regulations,	generally applicable	to	all	businesses.		(See	also	the	discussion	of	certain	regulatory	proceedings	in	Legal	Proceedings,	Item	3.)

The	 operations	 of the	 Railroad	 are	 also	 subject to the regulatory jurisdiction	 of the	 Surface	 Transportation	 Board (STB).		The	STB	has	jurisdiction	over	rates	charged	on	certain	regulated	rail	traffic;	common	carrier	service	of	regulated traffic;	 freight	car	compensation;	 transfer,	extension,	or	abandonment	of	rail	 lines;	and	acquisition	of	control	of	rail common	 carriers.	 The	 STB	 continues	 its	 efforts	 to	 explore	 expanding	 rail	 regulation	 and	 is	 reviewing	 proposed rulemaking	 in	 various	 areas,	 including	 reciprocal	 switching,	 commodity	 exemptions,	 and	 expanding	 and	 easing procedures	for	smaller	rate	complaints.	The	STB	also	continues	to	develop	a	methodology	for	determining	railroad revenue	adequacy	and	the	possible	use	of	a	revenue	adequacy	constraint	in	regulating	railroad	rates.		The	STB	posts quarterly	reports	on	rate	reasonableness	cases	and	maintains	a	database	on	service	complaints,	and	has	the	authority to	initiate	investigations,	among	other	things.

The	operations	of	the	Railroad	also	are	subject	to	the	regulations	of	the	FRA	and	other	federal	and	state	agencies.	In 2010,	the	FRA	issued	initial	rules	governing	installation	of	Positive	Train	Control	(PTC).	PTC	is	a	collision	avoidance technology	 intended	 to	 override	 engineer	 controlled	 locomotives	 and	 stop	 train-to-train	 and	 overspeed	 accidents, misaligned	switch	derailments,	and	unauthorized	entry	to	work	zones.	The	Surface	Transportation	Extension	Act	of 2015	amended	the	Rail	Safety	Improvement	Act	to	require	implementation	of	PTC	by	the	end	of	2018,	which	deadline may	be	extended	to	December	31,	2020,	provided	certain	other	criteria	are	satisfied.		On	December	10,	2018,	we received	FRA	approval	for	an	alternative	schedule	to	implement,	test	and	refine	our	PTC	during	2019-2020. 				Through 2018,	we	have	invested	approximately	$2.8	billion	in	the	ongoing	development	of	PTC. 	Final	implementation	of	PTC	will require	us	to	adapt	and	integrate	our	system	with	other	railroads	whose	implementation	plan	may	be	different	than ours.

DOT,	the	Occupational	Safety	and	Health	Administration,	the	Pipeline	and	Hazardous	Materials	Safety	Administration, and	DHS,	along	with	other	federal	agencies,	have	jurisdiction	over	certain	aspects	of	safety,	movement	of	hazardous materials	and	hazardous	waste,	emissions	requirements,	and	equipment	standards.	Additionally,	various	state	and	local agencies	have	jurisdiction	over	disposal	of	hazardous	waste	and	seek	to	regulate	movement	of	hazardous	materials	in ways	not	preempted	by	federal	law.

Environmental	 Regulation	–	We	are	subject	to	extensive	federal	and	state	environmental	statutes	and	regulations pertaining	to	public	health	and	the	environment.	The	statutes	and	regulations	are	administered	and	monitored	by	the Environmental	Protection	Agency	(EPA)	and	by	various	state	environmental	agencies.	The	primary	laws	affecting	our operations	are	the	Resource	Conservation	and	Recovery	Act,	regulating	the	management	and	disposal	of	solid	and hazardous	 wastes;	 the	 Comprehensive	 Environmental	 Response,	 Compensation,	 and	 Liability	 Act,	 regulating	 the cleanup	of	contaminated	properties;	the	Clean	Air	Act,	regulating	air	emissions;	and	the	Clean	Water	Act,	regulating waste	water	discharges.

Information	 concerning	 environmental	 claims	 and	 contingencies	 and	 estimated remediation	 costs is	 set forth in Management's	Discussion	and	Analysis	of	Financial	Condition	and	Results	of	Operations	–	Critical	Accounting	Policies –	Environmental,	Item	7	and	Note	18	to	the	Consolidated	Financial	Statements	in	Item	8,	Financial	Statements	and Supplementary	Data.

# Item	1A.	Risk	Factors

The	information	set	forth	in	this	Item	1A	should	be	read	in	conjunction	with	the	rest	of	the	information	included	in	this report,	including	Management's	Discussion	and	Analysis	of	Financial	Condition	and	Results	of	Operations,	Item	7,	and Financial	Statements	and	Supplementary	Data,	Item	8.

We	Must	Manage	Fluctuating	Demand	for	Our	Services	and	Network	Capacity –	If	there	are	significant	reductions	in demand	for	rail	services	with	respect	to	one	or	more	commodities	or	changes	in	consumer	preferences	that	affect	the businesses	of	our	customers,	we	may	experience	increased	costs	associated

with	resizing	our	operations,	including	higher	unit	operating	costs	and	costs	for	the	storage	of	locomotives,	rail	cars,	and other	equipment;	work-force	adjustments;	and	other	related	activities,	which	could	have	a	material	adverse	effect	on	our results	of	operations,	financial	condition,	and	liquidity.	If	there	is	significant	demand	for	our	services	that	exceeds	the designed	capacity	of	our	network,	we	may	experience	network	difficulties,	including	congestion	and	reduced	velocity, that	could	compromise	the	level	of	service	we	provide	to	our	customers.	This	level	of	demand	may	also	compound	the impact	of	weather	and	weather-related	events	on	our	operations	and	velocity.	Although	we	continue	to	improve	our transportation	plan,	add	capacity,	improve	operations	at	our	yards	and	other	facilities,	and	improve	our	ability	to	address surges	 in	 demand	 for	 any	 reason	 with	 adequate	 resources,	 we	 cannot	 be	 sure	 that	 these	 measures	 will	 fully	 or adequately	 address	 any	 service	 shortcomings resulting from	 demand	 exceeding	 our	 planned	 capacity. 	 We	 may experience	other	operational	or	service	difficulties	related	to	network	capacity,	dramatic	and	unplanned	fluctuations	in our	customers'	demand	for	rail	service	with	respect	to	one	or	more	commodities	or	operating	regions,	or	other	events that	could	negatively	impact	our	operational	efficiency,	any	of	which	could	have	a	material	adverse	effect	on	our	results of	operations,	financial	condition,	and	liquidity.

We	Transport	Hazardous	Materials	–	We	transport	certain	hazardous	materials	and	other	materials,	including	crude	oil, ethanol,	and	toxic	inhalation	hazard	(TIH)	materials,	such	as	chlorine,	that	pose	certain	risks	in	the	event	of	a	release	or combustion.	Additionally,	U.S.	laws	impose	common	carrier	obligations	on	railroads	that	require	us	to	transport	certain hazardous	materials	regardless	of	risk	or	potential	exposure	to	loss.	A	rail	accident	or	other	incident	or	accident	on	our network,	at	our	facilities,	or	at	the	facilities	of	our	customers	involving	the	release	or	combustion	of	hazardous	materials could	 involve	 significant	 costs	 and	 claims	 for	 personal	 injury,	 property	 damage,	 and	 environmental	 penalties	 and remediation	in	excess	of	our	insurance	coverage	for	these	risks,	which	could	have	a	material	adverse	effect	on	our results	of	operations,	financial	condition,	and	liquidity.

We	Are	Subject	to	Significant	Governmental	Regulation	 –	We	are	subject	to	governmental	regulation	by	a	significant number	of	federal,	state,	and	local	authorities	covering	a	variety	of	health,	safety,	labor,	environmental,	economic	(as discussed	below),	and	other	matters.		Many	laws	and	regulations	require	us	to	obtain	and	maintain	various	licenses, permits,	and	other	authorizations,	and	we	cannot	guarantee	that	we	will	continue	to	be	able	to	do	so.	Our	failure	to comply	with	applicable	laws	and	regulations	could	have	a	material	adverse	effect	on	us.	Governments	or	regulators may	change	the	legislative	or	regulatory	frameworks	within	which	we	operate	without	providing	us	any	recourse	to address	any	adverse	effects	on	our	business,	including,	without	limitation,	regulatory	determinations	or	rules	regarding dispute	resolution,	increasing	the	amount	of	our	traffic	subject	to	common	carrier	regulation,	business	relationships	with other	railroads,	calculation	of	our	cost	of	capital	or	other	inputs	relevant	to	computing	our	revenue	adequacy,	the	prices we	charge,	and	costs	and	expenses.	Significant	legislative	activity	in	Congress	or	regulatory	activity	by	the	STB	could expand	regulation	of	railroad	operations	and	prices	for	rail	services,	which	could	reduce	capital	spending	on	our	rail network,	facilities	and	equipment	and	have	a	material	adverse	effect	on	our	results	of	operations,	financial	condition, and	liquidity.	As	part	of	the	Rail	Safety	Improvement	Act	of	2008,	rail	carriers	were	to	implement	PTC	by	the	end	of	2015 (the	 Rail	 Safety	 Improvement	Act).	 	 The	 Surface	 Transportation	 Extension	Act	 of	 2015	 amended	 the	 Rail	 Safety Improvement	Act	to	require	implementation	of	PTC	by	the	end	of	2018,	which	deadline	may	be	extended	to	December 31,	2020,	provided	certain	other	criteria	are	satisfied.		On	December	10,	2018,	we	received	approval	from	the	FRA	for an	alternative	schedule	to	implement,	test	and	refine	our	PTC	during	2019-2020.		Final	implementation	of	PTC	will require	us	to	adapt	and	integrate	our	system	with	other	railroads	whose	implementation	plan	may	be	different	than ours.		This	implementation	could	have	a	material	adverse	effect	on	our	results	of	operations	and	financial	condition. Additionally,	one	or	more	consolidations	of	Class	I	railroads	could	also	lead	to	increased	regulation	of	the	rail	industry.

We	May	Be	Affected	by	General	Economic	Conditions	 –	Prolonged	severe	adverse	domestic	and	global	economic conditions	or	disruptions	of	financial	and	credit	markets	may	affect	the	producers	and	consumers	of	the	commodities	we carry	and	may	have	a	material	adverse	effect	on	our	access	to	liquidity	and	our	results	of	operations	and	financial condition.

We	Face	Competition	from	Other	Railroads	and	Other	Transportation	Providers 	–	We face	competition	 from	other railroads,	motor	carriers,	ships,	barges,	and	pipelines.	In	addition	to	price	competition,	we	face	competition	with	respect to	transit	times	and	quality	and	reliability	of	service.	We	must	build	or	acquire	and	maintain	our	rail	system,	while	trucks, barges	 and	 maritime	 operators	 are	 able	 to	 use	 public	 rights-of-way	 maintained	 by	 public	 entities.	 Any	 future improvements or expenditures	 materially increasing the quality or reducing the cost of alternative	 modes of transportation,	or	legislation	that	eliminates	or	significantly	increases	the	size	or	weight	limitations	currently	applicable	to motor	carriers,	could	have	a	material	adverse

effect	on	our	results	of	operations,	financial	condition,	and	liquidity.	Additionally,	any	future	consolidation	of	the	rail industry	could	materially	affect	the	competitive	environment	in	which	we	operate.

We	 Rely	 on	 Technology	 and	 Technology Improvements in	 Our	 Business	 Operations 	 –	 We	 rely	 on	 information technology	in	all	aspects	of	our	business.	If	we	do	not	have	sufficient	capital	to	acquire	new	technology	or	if	we	are unable	to	develop	or	implement	new	technology	such	as	PTC	or	the	latest	version	of	our	transportation	control	systems, we	 may	 suffer	 a	 competitive	 disadvantage	 within	 the	 rail	 industry	 and	 with	 companies	 providing	 other	 modes	 of transportation	service,	which	could	have	a	material	adverse	effect	on	our	results	of	operations,	financial	condition,	and liquidity.	Additionally,	 if	a	cyber	attack	or	other	event	causes	significant	disruption	or	 failure	of	one	or	more	of	our information technology	systems, including	computer	hardware,	software,	and	communications	equipment,	we	could suffer	a	significant	service	interruption,	safety	failure,	security	breach,	or	other	operational	difficulties,	which	could	have a	material	adverse	impact	on	our	results	of	operations,	financial	condition,	and	liquidity.

We	May	Be	Subject	to	Various	Claims	and	Lawsuits	That	Could	Result	in	Significant	Expenditures –	As	a	railroad	with operations	in	densely	populated	urban	areas	and	other	cities	and	a	vast	rail	network,	we	are	exposed	to	the	potential	for various	claims	and	litigation	related	to	labor	and	employment,	personal	injury,	property	damage,	environmental	liability, and	 other	 matters.	Any	 material	 changes	 to	 litigation	 trends	 or	 a	 catastrophic	 rail	 accident	 or	 series	 of	 accidents involving	any	or	all	of	property	damage,	personal	injury,	and	environmental	liability	that	exceed	our	insurance	coverage for	such	risks	could	have	a	material	adverse	effect	on	our	results	of	operations,	financial	condition,	and	liquidity.

We	Are	Subject	to	Significant	Environmental	Laws	and	Regulations 	–	Due	to	the	nature	of	the	railroad	business,	our operations	are	subject	to	extensive	federal,	state,	and	local	environmental	laws	and	regulations	concerning,	among other	things,	emissions	to	the	air;	discharges	to	waters;	handling,	storage,	transportation,	disposal	of	waste	and	other materials;	and	hazardous	material	or	petroleum	releases.	We	generate	and	transport	hazardous	and	non-hazardous waste	in	our	operations,	and	we	did	so	in	our	former	operations.	Environmental	liability	can	extend	to	previously	owned or	operated	properties,	leased	properties,	and	properties	owned	by	third	parties,	as	well	as	to	properties	we	currently own.	Environmental	liabilities	have	arisen	and	may	also	arise	from	claims	asserted	by	adjacent	landowners	or	other third	parties	in	toxic	tort	litigation.	We	have	been	and	may	be	subject	to	allegations	or	findings	that	we	have	violated,	or are	 strictly	 liable	 under,	 these	 laws	 or	 regulations.	 We	 currently	 have	 certain	 obligations	 at	 existing	 sites	 for investigation,	remediation	and	monitoring,	and	we	likely	will	have	obligations	at	other	sites	in	the	future.		Liabilities	for these	obligations	affect	our	estimate	based	on	our	experience	and,	as	necessary,	the	advice	and	assistance	of	our consultants.		However,	actual	costs	may	vary	from	our	estimates	due	to	any	or	all	of	several	factors,	including	changes to	environmental	laws	or	interpretations	of	such	laws,	technological	changes	affecting	investigations	and	remediation, the	participation	and	financial	viability	of	other	parties	responsible	for	any	such	liability	and	the	corrective	action	or change	to	corrective	actions	required	to	remediate	any	existing	or	future	sites.	We	could	incur	significant	costs	as	a result	of	any	of	the	foregoing,	and	we	may	be	required	to	incur	significant	expenses	to	investigate	and	remediate	known, unknown,	 or	 future	 environmental	 contamination,	 which	 could	 have	 a	 material	 adverse	 effect	 on	 our	 results	 of operations,	financial	condition,	and	liquidity.

We	May	Be	Affected	by	Climate	Change	and	Market	or	Regulatory	Responses	to	Climate	Change 	–	Climate	change, including	the	impact	of	global	warming,	could	have	a	material	adverse	effect	on	our	results	of	operations,	financial condition,	and	liquidity.		Restrictions,	caps,	taxes,	or	other	controls	on	emissions	of	greenhouse	gasses,	including	diesel exhaust,	could	significantly	increase	our	operating	costs.		Restrictions	on	emissions	could	also	affect	our	customers	that (a)	use	commodities	that	we	carry	to	produce	energy,	(b)	use	significant	amounts	of	energy	in	producing	or	delivering the	commodities	we	carry,	or	(c)	manufacture	or	produce	goods	that	consume	significant	amounts	of	energy	or	burn fossil	 fuels,	 including	 chemical	 producers,	 farmers	 and	 food	 producers,	 and	 automakers	 and	 other manufacturers.		Significant	cost	increases,	government	regulation,	or	changes	of	consumer	preferences	for	goods	or services	relating	to	alternative	sources	of	energy	or	emissions	reductions	could	materially	affect	the	markets	for	the commodities	 we	 carry,	 which	 in	 turn	 could	 have	 a	 material	 adverse	 effect	 on	 our	 results	 of	 operations,	 financial condition,	and	liquidity.		Government	incentives	encouraging	the	use	of	alternative	sources	of	energy	could	also	affect certain	of	our	customers	and	the	markets	for	certain	of	the	commodities	we	carry	in	an	unpredictable	manner	that	could alter	our	 traffic	patterns,	 including,	 for	example,	increasing	royalties	charged	to	producers	of	PRB	coal	by	the	U.S. Department	of	Interior	and	the	impacts	of	ethanol	incentives	on	farming	and	ethanol	producers.	Finally,	we	could	face increased	costs	related	to	defending	and	resolving	legal	claims	and	other	litigation	related	to	climate	change	and	the alleged	impact	of	our	operations	on	climate	change.		Any	of	these	factors,	individually	or	in	operation	with	one	or	more of	the	other	factors,	or

other	unforeseen	impacts	of	climate	change	could	reduce	the	amount	of	traffic	we	handle	and	have	a	material	adverse effect	on	our	results	of	operations,	financial	condition,	and	liquidity.

Severe	 Weather	 Could	 Result in	 Significant	 Business Interruptions	 and	 Expenditures –	As	 a	 railroad	 with	 a	 vast network,	 we	 are	 exposed	 to	 severe	 weather	 conditions	 and	 other	 natural	 phenomena,	 including	 earthquakes, hurricanes,	fires,	floods,	mudslides	or	landslides,	extreme	temperatures,	and	significant	precipitation.	Line	outages	and other	interruptions	caused	by	these	conditions	can	adversely	affect	our	entire	rail	network	and	can	adversely	affect revenue,	 costs,	 and liabilities,	 which	 could	 have	 a	 material	 adverse	 effect	 on	 our results	 of	 operations, financial condition,	and	liquidity.

Strikes	or	Work	Stoppages	Could	Adversely	Affect	Our	Operations 	–	The	U.S.	Class	I	railroads	are	party	to	collective bargaining	agreements	with	various	labor	unions.	The	majority	of	our	employees	belong	to	labor	unions	and	are	subject to	 these	agreements.	Disputes	with	regard	 to	 the	 terms	of	 these	agreements	or	our	potential	 inability	 to	negotiate acceptable	contracts	with	these	unions	could	result	in,	among	other	things,	strikes,	work	stoppages,	slowdowns,	or lockouts,	which	could	cause	a	significant	disruption	of	our	operations	and	have	a	material	adverse	effect	on	our	results of	operations,	financial	condition,	and	liquidity.	Additionally,	future	national	labor	agreements,	or	renegotiation	of	labor agreements	or	provisions	of	labor	agreements,	could	compromise	our	service	reliability	or	significantly	increase	our costs	 for	 health	 care,	 wages,	 and	 other	 benefits,	 which	 could	 have	 a	 material	 adverse	 impact	 on	 our	 results	 of operations,	 financial	 condition,	 and	 liquidity. Labor	 disputes,	 work	 stoppages,	 slowdowns	 or	 lockouts	 at loading/unloading	facilities,	ports	or	other	transport	access	points	could	compromise	our	service	reliability	and	have	a material	adverse	impact	on	our	results	of	operations,	financial	condition,	and	liquidity.		Labor	disputes,	work	stoppages, slowdowns	or	lockouts	by	employees	of	our	customers	or	our	suppliers	could	compromise	our	service	reliability	and have	a	material	adverse	impact	on	our	results	of	operations,	financial	condition,	and	liquidity.

The	Availability	of	Qualified	Personnel	Could	Adversely	Affect	Our	Operations 	–	Changes	in	demographics,	training requirements,	 and	 the	 availability	 of	 qualified	 personnel	 could	 negatively	 affect	 our	 ability	 to	 meet	 demand	 for	 rail service.	Unpredictable	increases	in	demand	for	rail	services	and	a	lack	of	network	fluidity	may	exacerbate	such	risks, which	could	have	a	negative	impact	on	our	operational	efficiency	and	otherwise	have	a	material	adverse	effect	on	our results	of	operations,	financial	condition,	and	liquidity.

We	May	Be	Affected	 By	 Fluctuating	 Fuel	 Prices 	 –	 Fuel	 costs	 constitute	 a	 significant	 portion	 of	 our	 transportation expenses.	 Diesel	 fuel	 prices	 can	 be	 subject	 to	 dramatic	 fluctuations,	 and	 significant	 price	 increases	 could	 have	 a material	adverse	effect	on	our	operating	results.	Although	we	currently	are	able	to	recover	a	significant	amount	of	our fuel	expenses	from	our	customers	through	revenue	from	fuel	surcharges,	we	cannot	be	certain	that	we	will	always	be able	 to	 mitigate	 rising	 or	 elevated	 fuel	 costs	 through	 our	 fuel	 surcharges.	Additionally,	 future	 market	 conditions	 or legislative	 or	 regulatory	 activities	 could	 adversely	 affect	 our	 ability	 to	 apply	 fuel	 surcharges	 or	 adequately	 recover increased	fuel	costs	through	fuel	surcharges.	As	fuel	prices	fluctuate,	our	fuel	surcharge	programs	trail	such	fluctuations in	fuel	price	by	approximately	two	months,	and	may	be	a	significant	source	of	quarter-over-quarter	and	year-over-year volatility,	particularly	in	periods	of	rapidly	changing	prices.	International,	political,	and	economic	factors,	events	and conditions	affect	 the	volatility	of	 fuel	prices	and	supplies.	Weather	can	also	affect	 fuel	supplies	and	 limit	domestic refining	capacity.	A	severe	shortage	of,	or	disruption	to,	domestic	fuel	supplies	could	have	a	material	adverse	effect	on our	results	of	operations,	financial	condition,	and	liquidity.		Alternatively,	lower	fuel	prices	could	have	a	positive	impact on	the	economy	by	increasing	consumer	discretionary	spending	that	potentially	could	 increase	demand	 for	various consumer	products	we	transport.	However,	lower	fuel	prices	could	have	a	negative	impact	on	other	commodities	we transport,	such	as	coal	and	domestic	drilling-related	shipments,	which	could	have	a	material	adverse	effect	on	our results	of	operations,	financial	condition,	and	liquidity.

We	Utilize	Capital	Markets	–	Due	to	the	significant	capital	expenditures	required	to	operate	and	maintain	a	safe	and efficient	railroad,	we	rely	on	the	capital	markets	to	provide	some	of	our	capital	requirements.		We	utilize	long-term	debt instruments,	 bank	 financing	 and	 commercial	 paper	 from	 time-to-time,	 and	 we	 pledge	 certain	 of	 our receivables.		Significant	instability	or	disruptions	of	the	capital	markets,	including	the	credit	markets,	or	deterioration	of our	 financial	 condition	 due	 to	 internal	 or	 external	 factors	 could	 restrict	 or	 prohibit	 our	 access	 to,	 and	 significantly increase	the	cost	of,	commercial	paper	and	other	financing	sources,	including	bank	credit	facilities	and	the	issuance	of long-term	debt,	including	corporate	bonds.	A	significant	deterioration	of	our	financial	condition	could	result	in	a	reduction of	our	credit	rating	to	below	investment	grade,	which	could	restrict,	or	at	certain	credit	levels	below	investment	grade may	prohibit	us,	from	utilizing	our	current	receivables	securitization	facility.	This	may	also	limit	our	access	to	external sources	of	capital	and	significantly	increase	the	costs	of	short	and	long-term	debt	financing.

A	Significant	Portion	of	Our	Revenue	Involves	Transportation	of	Commodities	to	and	from	International	Markets 	 – Although	revenues	from	our	operations	are	attributable	to	transportation	services	provided	in	the	U.S.,	a	significant portion	of	our	revenues	involves	the	transportation	of	commodities	to	and	from	international	markets,	including	Mexico and	 Southeast	Asia,	 by	 various	 carriers	 and,	 at	 times,	 various	 modes	 of	 transportation.	 Significant	 and	 sustained interruptions	of	trade	with	Mexico	or	countries	in	Southeast	Asia,	including	China,	could	adversely	affect	customers	and other	entities	 that,	directly	or	 indirectly,	purchase	or	rely	on	rail	 transportation	services	 in	 the	U.S.	as	part	of	 their operations,	and	any	such	 interruptions	could	have	a	material	adverse	effect	on	our	results	of	operations,	 financial condition	and	liquidity.	Any	one	or	more	of	the	following	could	cause	a	significant	and	sustained	interruption	of	trade	with Mexico	or	countries	in	Southeast	Asia:	(a)	a	deterioration	of	security	for	international	trade	and	businesses;	(b)	the adverse	impact	of	new	laws,	rules	and	regulations	or	the	interpretation	of	laws,	rules	and	regulations	by	government entities,	courts	or	regulatory	bodies,	including	modifications	to	the	North	American	Free	Trade	Agreement	(NAFTA)	or its	proposed	successor	called	the	U.S.-Mexico-Canada	Agreement	(USMCA)	and	actions	of	taxing	authorities	that	affect our	 customers	 doing	 business	 in	 foreign	 countries;	 (c)	 any	 significant	 adverse	 economic	 developments,	 such	 as extended	periods	of	high	inflation,	material	disruptions	in	the	banking	sector	or	in	the	capital	markets	of	these	foreign countries,	and	significant	changes	in	the	valuation	of	the	currencies	of	these	foreign	countries	that	could	materially affect	the	cost	or	value	of	imports	or	exports;	(d)	shifts	in	patterns	of	international	trade	that	adversely	affect	import	and export	markets;	and	(e)	a	material	reduction	in	foreign	direct	investment	in	these	countries.

We	Are	Subject	to	Legislative,	Regulatory,	and	Legal	Developments	Involving	Taxes –	Taxes	are	a	significant	part	of our	expenses.		We	are	subject	to	U.S.	federal,	state,	and	foreign	income,	payroll,	property,	sales	and	use,	fuel,	and other	types	of	taxes.	Changes	in	tax	rates,	such	as	those	included	in	the	U.S.	Tax	Cuts	and	Jobs	Act,	enactment	of	new tax	laws,	revisions	of	tax	regulations,	and	claims	or	litigation	with	taxing	authorities	could	result	in	a	material	effect	to	our results	of	operations,	financial	condition,	and	liquidity.		Higher	tax	rates	could	have	a	material	adverse	effect	on	our results	of	operations,	financial	condition,	and	liquidity.

We	Are	 Dependent	 on	 Certain	 Key	 Suppliers	 of	 Locomotives	 and	 Rail	 –	 Due to the	 capital intensive	 nature	 and sophistication	 of	 locomotive	 equipment,	 parts	 and	 maintenance,	 potential	 new	 suppliers	 face	 high	 barriers	 to entry.	 	 Therefore,	 if	 one	 of	 the	 domestic	 suppliers	 of	 high	 horsepower	 locomotives	 discontinues	 manufacturing locomotives,	supplying	parts	or	providing	maintenance	for	any	reason,	including	bankruptcy	or	insolvency,	we	could experience	 significant	 cost	 increases	 and	 reduced	 availability	 of	 the	 locomotives	 that	 are	 necessary	 for	 our operations.		Additionally,	for	a	high	percentage	of	our	rail	purchases,	we	utilize	two	steel	producers	(one	domestic	and one	 international)	 that	 meet	 our	 specifications.	 	 Rail	 is	 critical	 to	 our	 operations	 for	 rail	 replacement	 programs, maintenance,	 and	 for	 adding	 additional	 network	 capacity,	 new	 rail	 and	 storage	 yards,	 and	 expansions	 of	 existing facilities.		This	industry	similarly	has	high	barriers	to	entry,	and	if	one	of	these	suppliers	discontinues	operations	for	any reason,	including	bankruptcy	or	insolvency,	we	could	experience	both	significant	cost	increases	for	rail	purchases	and difficulty	obtaining	sufficient	rail	for	maintenance	and	other	projects.

We	May	Be	Affected	by	Acts	of	Terrorism,	War,	or	Risk	of	War –	Our	rail	lines,	facilities,	and	equipment,	including	rail cars	carrying	hazardous	materials,	could	be	direct	targets	or	indirect	casualties	of	terrorist	attacks.	Terrorist	attacks,	or other	similar	events,	any	government	response	thereto,	and	war	or	risk	of	war	may	adversely	affect	our	results	of operations,	financial	condition,	and	liquidity.	In	addition,	insurance	premiums	for	some	or	all	of	our	current	coverages could	increase	dramatically,	or	certain	coverages	may	not	be	available	to	us	in	the	future.

# Item	1B.	Unresolved	Staff	Comments

None.

# Item	2.	Properties

We	employ	a	variety	of	assets	in	the	management	and	operation	of	our	rail	business.	Our	rail	network	covers	23	states in	the	western	two-thirds	of	the	U.S.

# TRACK

Our	rail	network	includes	32,236	route	miles.		We	own	26,039	miles	and	operate	on	the	remainder	pursuant	to	trackage rights	or	leases.	The	following	table	describes	track	miles	at	December	31,	2018,	and	2017:

|  | 2018 | 2017 |
| :--- | :--- | :--- |
| Route | 32,236 | 32,122 |
| Other\tmain\tline | 7,074 | 7,107 |
| Passing\tlines\tand\tturnouts | 3,274 | 3,255 |
| Switching\tand\tclassification\tyard\tlines | 8,970 | 9,199 |
| Total\tmiles | 51,554 | 51,683 |

# HEADQUARTERS	BUILDING

We	own	our	headquarters	building	in	Omaha,	Nebraska.	The	facility	has	1.2	million	square	feet	of	space	that	can accommodate	approximately	4,000	employees.

# HARRIMAN	DISPATCHING	CENTER

The	Harriman	Dispatching	Center	(HDC),	located	in	Omaha,	Nebraska,	is	our	primary	dispatching	facility.	It	is	linked	to regional	dispatching	and	locomotive	management	facilities	at	various	locations	along	our	network.	HDC	employees coordinate	 moves	 of	 locomotives	 and	 trains,	 manage	 traffic	 and	 train	 crews	 on	 our	 network,	 and	 coordinate interchanges	with	other	railroads.	Approximately	900	employees	currently	work	on-site	in	the	facility.	In	the	event	of	a disruption	of	operations	at	HDC	due	to	a	cyber	attack,	flooding	or	severe	weather	or	other	event,	we	maintain	the capability	to	conduct	critical	operations	at	back-up	facilities	in	different	locations.

# RAIL	FACILITIES

In	addition	to	our	track	structure,	we	operate	numerous	facilities,	including	terminals	for	intermodal	and	other	freight;	rail yards	for	building	trains	(classification	yards),	switching,	storage-in-transit	(the	temporary	storage	of	customer	goods	in rail	cars	prior	to	shipment)	and	other	activities;	offices	to	administer	and	manage	our	operations;	dispatching	centers	to direct	traffic	on	our	rail	network;	crew	quarters	to	house	train	crews	along	our	network;	and	shops	and	other	facilities	for fueling,	maintenance,	and	repair	of	locomotives	and	repair	and	maintenance	of	rail	cars	and	other	equipment.		The following	table	includes	the	major	yards	and	terminals	on	our	system:

# Major	Classification	Yards

North	Platte,	Nebraska

# Major	Intermodal	Terminals

Joliet	(Global	4),	Illinois

# RAIL	EQUIPMENT

Our	equipment	includes	owned	and	leased	locomotives	and	rail	cars;	heavy	maintenance	equipment	and	machinery; other	equipment	and	tools	in	our	shops,	offices,	and	facilities;	and	vehicles	for	maintenance,	transportation	of	crews, and	other	activities.	As	of	December	31,	2018,	we	owned	or	leased	the	following	units	of	equipment:

|  |  |  |  | Average |
| :--- | :--- | :--- | :--- | :--- |
| Locomotives | Owned | Leased | Total | Age\t(yrs.) |
| Multiple\tpurpose | 6,387 | 1,582 | 7,969 | 20.5 |
| Switching | 201 | 12 | 213 | 38.3 |
| Other | 35 | 57 | 92 | 39.6 |
| Total\tlocomotives | 6,623 | 1,651 | 8,274 | N/A |

|  |  |  |  | Average |
| :--- | :--- | :--- | :--- | :--- |
| Freight\tcars | Owned | Leased | Total | Age\t(yrs.) |
| Covered\thoppers | 14,001 | 11,784 | 25,785 | 19.7 |
| Open\thoppers | 6,485 | 2,389 | 8,874 | 30.6 |
| Gondolas | 6,105 | 2,133 | 8,238 | 27.6 |
| Boxcars | 2,776 | 7,045 | 9,821 | 37.1 |
| Refrigerated\tcars | 2,372 | 3,269 | 5,641 | 25.4 |
| Flat\tcars | 2,404 | 1,057 | 3,461 | 33.6 |
| Other | 8 | 332 | 340 | 30.8 |
| Total\tfreight\tcars | 34,151 | 28,009 | 62,160 | N/A |

|  |  |  |  | Average |
| :--- | :--- | :--- | :--- | :--- |
| Highway\trevenue\tequipment | Owned | Leased | Total | Age\t(yrs.) |
| Containers | 47,752 | 9,005 | 56,757 | 8.2 |
| Chassis | 26,242 | 21,964 | 48,206 | 10.2 |
| Total\thighway\trevenue\tequipment | 73,994 | 30,969 | 104,963 | N/A |

# CAPITAL	EXPENDITURES

Our	rail	network	requires	significant	annual	capital	investments	for	replacement,	improvement,	and	expansion.	These investments	enhance	safety,	support	the	transportation	needs	of	our	customers,	and	improve	our	operational	efficiency. Additionally,	we	add	new	locomotives	and	freight	cars	to	our	fleet	to	replace	older,	less	efficient	equipment,	to	support growth	and	customer	demand,	and	 to	reduce	our	 impact	on	 the	environment	 through	 the	acquisition	of	more	 fuel- efficient	and	low-emission	locomotives.

2018	Capital	Program	–	During	2018,	our	capital	program	totaled	 approximately	$3.2	billion.	(See	the	cash	capital investments	 table	 in	 Management's	 Discussion	 and	 Analysis	 of	 Financial	 Condition	 and	 Results	 of	 Operations	 – Liquidity	and	Capital	Resources,	Item	7.)

2019	Capital	Plan	–	In	2019,	we	expect	our	capital	plan	to	be	approximately	$3.2	billion,	flat	compared	to	2018.		The plan	 includes	 expenditures	 to	 renew	 and	 improve	 our	 existing	 infrastructure	 as	 well	 as	 new	 capacity	 investments designed	 to	support	 future	business	growth	and	operational	efficiency.	 In	addition,	 expenditures	 will	 be	 made	 for locomotive	modernization	and	freight	cars.		The	capital	plan	may	be	revised	if	business	conditions	warrant	or	if	new laws	or	regulations	affect	our	ability	to	generate	sufficient	returns	on	these	investments.		(See	further	discussion	of	our 2019	capital	plan	in	Management's	Discussion	and	Analysis	of	Financial	Condition	and	Results	of	Operations	–	Liquidity and	Capital	Resources,	Item	7.)

# OTHER

Equipment	 Encumbrances	 –	 Equipment	 with	 a	 carrying	 value	 of	 approximately	 $1.8	 billion	 and	 $2.0	 billion	 at December	 31,	 2018,	 and	 2017,	 respectively	 served	 as	 collateral	 for	 capital	 leases	 and	 other	 types	 of	 equipment obligations	 in	 accordance	 with	 the	 secured	 financing	 arrangements	 utilized	 to	 acquire	 or	 refinance	 such	 railroad equipment.

Environmental	 Matters	 –	 Certain	 of	 our	 properties	 are	 subject	 to	 federal,	 state,	 and	 local	 laws	 and	 regulations governing	the	protection	of	the	environment.		(See	discussion	of	environmental	issues	in	Business	–	Governmental	and Environmental	 Regulation,	 Item	 1,	 Management's	 Discussion	 and	 Analysis	 of	 Financial	 Condition	 and	 Results	 of Operations	 –	 Critical	 Accounting	 Policies	 –	 Environmental,	 Item	 7,	 and	 Note	 18	 of	 the	 Consolidated	 Financial Statements.)

# Item	3.	Legal	Proceedings

From	time	to	time,	we	are	involved	in	legal	proceedings,	claims,	and	litigation	that	occur	in	connection	with	our	business. We	routinely	assess	our	liabilities	and	contingencies	in	connection	with	these	matters	based	upon	the	latest	available information	 and,	 when	 necessary,	 we	 seek	 input	 from	 our	 third-party	 advisors	 when	 making	 these	 assessments. Consistent	 with	 SEC	 rules	 and	 requirements,	 we	 describe	 below	 material	 pending	 legal	 proceedings	 (other	 than ordinary	routine	litigation	incidental	to	our	business),	material	proceedings	known	to	be	contemplated	by	governmental authorities,	 other	 proceedings	 arising	 under	 federal,	 state,	 or	 local	 environmental	 laws	 and	 regulations	 (including governmental	proceedings	involving	potential	fines,	penalties,	or	other	monetary	sanctions	in	excess	of	$100,000),	and such	other	pending	matters	that	we	may	determine	to	be	appropriate.

# ENVIRONMENTAL	MATTERS

District	Attorneys	from	Placer,	San	Joaquin,	San	Bernardino	and	Nevada	counties	in	California	have	asserted	claims against	Union	Pacific	in	connection	with	more	than	150	alleged	violations	of	environmental	laws	that	occurred	in	their counties,	largely	between	2011	and	2014.		The	alleged	violations	consist	of	violation	of	(1)	various	hazardous	waste requirements,	(2)	Hazardous	Materials	Business	Plan	requirements,	(3)	above	ground	petroleum	storage	requirements, and	(4)	various	spill	requirements.			The	Company	has	entered	into	a	Stipulation	for	Entry	of	Final	Judgment	with	the District	Attorneys	to	resolve	their	claims	in	connection	with	these	matters	for	payment	of	a	$2	million	civil	penalty, $313,000	in	attorneys'

fees	and	 investigative	costs,	and	a	3	 year	 environmental	 compliance	 monitoring	 and	 reporting	 program	 performed under	 the	 supervision	 of	 an	 agreed	 upon	 outside	 consultant.	 	The	 Stipulation,	 together	 with	 the	 District	Attorneys Complaint	and	a	Final	Judgment	(reflecting	 the	 terms	of	 the	Stipulation)	were	 lodged	with	 the	Court	 in	December 2018.		The	Judgment	was	signed	on	December	19,	2018.

The	United	States	Department	of	Justice	has	asserted	claims	against	Union	Pacific	in	con nection	with	a	September	12, 2014	release	of	diesel	from	a	locomotive	fuel	tank	arising	out	of	a	derailment	that	occurred	in	Salem,	OR.		Some	portion of	that	fuel	entered	Pringle	Creek,	which	the	United	States	asserts	is	a	Water	of	the	United	States.		The	Company	has agreed	to	resolve	those	claims	through	a	Stipulation	of	Settlement	and	Judgment,	pursuant	to	which	the	Company	will pay	$47,500	to	the	United	States	and	$47,500	to	the	State	of	Oregon.

We	receive	notices	from	the	EPA	and	state	environmental	agencies	alleging	that	we	are	or	may	be	liable	under	federal or	state	environmental	laws	for	remediation	costs	at	various	sites	throughout	the	U.S.,	including	sites	on	the	Superfund National	Priorities	List	or	state	superfund	lists.	We	cannot	predict	the	ultimate	impact	of	these	proceedings	and	suits because	of	the	number	of	potentially	responsible	parties	involved,	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.

Information	 concerning	 environmental	 claims	 and	 contingencies	 and	 estimated remediation	 costs is	 set forth in Management's	Discussion	and	Analysis	of	Financial	Condition	and	Results	of	Operations	–	Critical	Accounting	Policies –	Environmental,	Item	7.		See	also	Note	18	of	the	Consolidated	Financial	Statements.

# OTHER	MATTERS

Antitrust	Litigation	–	As	we	reported	in	our	Quarterly	Report	on	Form	10-Q	for	the	quarter	ended	June	30,	2007,	20 rail	shippers	(many	of	whom	are	represented	by	the	same	law	firms)	filed	virtually	identical	antitrust	lawsuits	in	various federal	district	courts	against	us	and	four	other	Class	I	railroads	in	the	U.S.	Currently,	UPRR	and	three	other	Class	I railroads	are	the	named	defendants	in	the	lawsuit.	The	original	plaintiff	filed	the	first	of	these	claims	in	the	U.S.	District Court	in	New	Jersey	on	May	14,	2007.	The	number	of	complaints	reached	a	total	of	30.	These	suits	allege	that	the named	railroads	engaged	in	price-fixing	by	establishing	common	fuel	surcharges	for	certain	rail	traffic.

On	 June	 21,	 2012,	 Judge	 Friedman	 issued	 a	 decision	 that	 certified	 a	 class	 of	 plaintiffs	 with	 eight	 named	 plaintiff representatives.	The	decision	included	in	the	class	all	shippers	that	paid	a	rate-based	fuel	surcharge	to	any	one	of	the defendant	railroads	for	rate-unregulated	rail	transportation	from	July	1,	2003,	through	December	31,	2008.	On	July	5, 2012,	the	defendant	railroads	filed	a	petition	with	the	U.S.	Court	of	Appeals	for	the	District	of	Columbia	requesting	that the	 court	 review	 the	 class	 certification	 ruling.	 On	August	 9,	 2013,	 the	 Circuit	 Court	 vacated	 the	 class	 certification decision	and	remanded	the	case	to	the	district	court	to	reconsider	the	class	certification	decision	in	light	of	a	recent Supreme	Court	case	and	incomplete	consideration	of	errors	in	the	expert	report	of	the	plaintiffs.	After	reviewing	an intervening	case,	supplemental	expert	materials	and	related	briefing	from	the	parties,	Judge	Friedman	scheduled	and completed	a	new	class	certification	hearing	during	the	week	of	September	26,	2016.		On	October	10,	2017,	the	parties received	a	ruling	from	Judge	Friedman	denying	class	certification.	Plaintiffs	have	sought	appellate	review	of	that	ruling and	on	December	20,	2017,	were	granted	the	right	of	an	interlocutory	appeal	by	the	U.S.	Court	of	Appeals	for	the District	of	Columbia	Circuit.	 	A	hearing	of	 the	appeal	was	conducted	on	September	28,	2018.	 	We	are	awaiting	a decision	on	that	hearing.

As	we	reported	in	our	Current	Report	on	Form	8-K,	filed	on	June	10,	2011,	the	Railroad	received	a	complaint	filed	in	the U.S.	District	Court	for	the	District	of	Columbia	on	June	7,	2011,	by	Oxbow	Carbon	&	Minerals	LLC	and	related	entities (Oxbow).		The	parties	are	currently	conducting	discovery	in	this	matter.		 For	additional	information	on	Oxbow,	please refer	to	Item	3.	Legal	Proceedings,	under	Other	Matters,	Antitrust	Litigation	in	our	Annual	Report	on	Form	10-K	for	the year	ended	December	31,	2016.

We	continue	to	deny	the	allegations	that	our	fuel	surcharge	programs	violate	the	antitrust	laws	or	any	other	laws.	We believe	that	these	lawsuits	are	without	merit,	and	we	will	vigorously	defend	our	actions.	Therefore,	we	currently	believe that	these	matters	will	not	have	a	material	adverse	effect	on	any	of	our	results	of	operations,	financial	condition,	and liquidity.

In	2016,	a lawsuit	was filed in	U.S.	District	Court for the	Western	District	of	Washington	alleging	violations	of the Americans	 with	 Disabilities	 Act	 (ADA)	 and	 Genetic Information	 Nondiscrimination	 Act relating to	 Fitness for	 Duty requirements	for	safety	sensitive	positions.

On	August	8,	2016,	the	U.S.	District	Court	for	the	Western	District	of	Washington	granted	plaintiffs'	motion	to	transfer their	claim	to	the	U.S.	District	Court	of	Nebraska.	On	February	5,	2019,	the	U.S.	District	Court	of	Nebraska	granted plaintiffs'	motion	to	certify	the	ADA	allegations	as	a	class	action.	We	intend	to	appeal	this	class	certification	to	the	U.S. Court	of	Appeals	for	the	8th	Circuit.	We	continue	to	deny	these	allegations,	believe	this	lawsuit	is	without	merit	and	will defend	our	actions.		We	believe	this	lawsuit	will	not	have	a	material	adverse	effect	on	any	of	our	results	of	operations, financial	condition,	and	liquidity.

# Item	4.	Mine	Safety	Disclosures

Not	applicable.

# Executive	Officers	of	the	Registrant	and	Principal	Executive	Officers	of	Subsidiaries

The	Board	of	Directors	typically	elects	and	designates	our	executive	officers	on	an	annual	basis	at	the	board	meeting held	in	conjunction	with	the	Annual	Meeting	of	Shareholders,	and	they	hold	office	until	their	successors	are	elected. Executive	 officers	 also	 may	 be	 elected	 and	 designated	 throughout	 the	 year,	 as	 the	 Board	 of	 Directors	 considers appropriate.	There	 are	 no	 family	 relationships	 among	 the	 officers,	 nor	 is	 there	 any	 arrangement	 or	 understanding between	any	officer	and	any	other	person	pursuant	to	which	the	officer	was	selected.	The	following	table	sets	forth certain	information	current	as	of	February	8,	2019,	relating	to	the	executive	officers.

|  |  |  | Business<br>Experience	During |
| :--- | :--- | :--- | :--- |
| Name | Position | Age | Past\tFive\tYears |
| Lance\tM.\tFritz | Chairman,\tPresident\tand\tChief\tExecutive\tOfficer\tof\tUPC\tand | 56 | [1] |
|  | the\tRailroad |  |  |
| Robert\tM.\tKnight,\tJr. | Executive\tVice\tPresident\tand\tChief\tFinancial\tOfficer\tof\tUPC | 61 | Current\tPosition |
|  | and\tthe\tRailroad |  |  |
| Rhonda\tS.\tFerguson | Executive\tVice\tPresident\tand\tChief\tLegal\tOfficer\tand | 49 | [2] |
|  | Corporate\tSecretary\tof\tUPC\tand\tthe\tRailroad |  |  |
| Thomas\tA.\tLischer | Executive\tVice\tPresident\t-\tOperations\tof\tthe\tRailroad | 46 | [3] |
| Kenny\tG.\tRocker | Executive\tVice\tPresident\t-\tMarketing\tand\tSales\tof\tthe | 47 | [4] |
|  | Railroad |  |  |
| Todd\tM.\tRynaski | Vice\tPresident\tand\tController\tof\tUPC\tand\tthe\tRailroad | 48 | [5] |
| Lynden\tL.\tTennison | Executive\tVice\tPresident\tand\tChief\tStrategy\tOfficer\tof\tUPC | 59 | [6] |
|  | and\tthe\tRailroad |  |  |
| V.\tJames\tVena | Chief\tOperating\tOfficer\tof\tUPC\tand\tthe\tRailroad | 60 | [7] |
| Elizabeth\tF.\tWhited | Executive\tVice\tPresident\tand\tChief\tHuman\tResources\tOfficer | 53 | [8] |

[1] On	July	30,	2015,	Mr.	Fritz	was	named	Chairman	of	the	Board	of	UPC	and	the	Railroad	effective	October	1,	2015.	Mr.	Fritz	was	elected President	and	Chief	Executive	Officer	of	UPC	and	the	Railroad	effective	February	5,	2015.	Previously,	Mr.	Fritz	was	President	and	Chief Operating	Officer	of	the	Railroad	effective	February	6,	2014,	Executive	Vice	President	–	Operations	of	the	Railroad	effective	September 1,	2010,	and	Vice	President	–	Operations	of	the	Railroad	effective	January	1,	2010.

[2] Ms.	Ferguson	was	elected	Corporate	Secretary	of	UPC	and	the	Railroad	effective	December	1,	2017,	and	Executive	Vice	President	and Chief	Legal	Officer	of	UPC	and	the	Railroad	effective	July	11,	2016.	She	previously	was	Vice	President,	Corporate	Secretary	and	Chief Ethics	Officer	of	FirstEnergy	Corp.	since	2007.

[3] Mr.	Lischer	was	elected	Executive	Vice	President	–	Operations	of	the	Railroad	effective	August	15,	2018.	Previously,	Mr.	Lischer	served as	Vice	President	of	the	Harriman	Dispatching	Center	and	Network	Operations	for	the	Railroad.	Prior	to	this	election,	Mr.	Lischer	served as	Assistant	Vice	President	of	Operations	for	the	North	Region	(September	2016	–	April	2017),	Assistant	Vice	President	of	Locomotive Distribution	and	Network	Operations	(April	2014	–	September	2016),	and	General	Superintendent	of	Transportation	Services	(February 2011	–	April	2014).

[4] Mr.	Rocker	was	elected	Executive	Vice	President	–	Marketing	and	Sales	of	the	Railroad	effective	August	15,	2018.	Mr.	Rocker	previously served	at	the	Railroad	as	Vice	President	–	Marketing	and	Sales	–	Industrial	team.	Prior	to	this	election,	Mr.	Rocker	served	as	Assistant Vice	President	–	Chemicals	(April	2014	–	September	2016)	and	Assistant	Vice	President	–	Industrial	Products	-	Marketing	(March	2012	– April	2014).

[5] Mr.	 Rynaski	 was	 elected	 Vice	 President	 and	 Controller	 of	 UPC	 and the	 Railroad	 effective	 September	 1,	 2015.	 He	 previously	 was Assistant	Vice	President	–	Accounting	of	the	Railroad	effective	January	1,	2014,	and	Assistant	Vice	President	–	Financial	Reporting	and Analysis	effective	April	1,	2011.

[6] Mr.	Tennison	was	elected	Executive	Vice	President	and	Chief	Strategy	Officer	of	UPC	and	the	Railroad	effective	August	1,	2018.	He previously	 was	 Senior	 Vice	 President	 and	 Chief	 Information	 Officer	 since	 February	 2005.	 	 On	 January	 29,	 2019,	 Mr.	 Tennison announced	he	will	retire	from	the	Company	effective	March	31,	2019.

[7] Mr.	Vena	was	elected	Chief	Operating	Officer	of	UPC	and	the	Railroad	effective	January	14,	2019.	Mr.	Vena	previously	served	as Executive	 Vice	 President	 and	 Chief	 Operating	 Officer	 of	 Canadian	 National	 Railway	 Company (CN) from	 February	 2013	 until	 his retirement	in	June	2016.

[8] Ms.	Whited	was	elected	Executive	Vice	President	and	Chief	Human	Resources	Officer	of	UPC	and	the	Railroad	effective	August	15, 2018.	 She	 previously	 served	 as	 Executive	 Vice	 President	 and	 Chief	 Marketing	 Officer	 (December	 2016	 –	August	 2018)	 and	 Vice President	and	General	Manager	–	Chemicals	(October	2012	–	December	2016).

# Item	 5.	Market	for	the	Registrant's	Common	Equity,	Related	Stockholder	Matters,	and Issuer	Purchases	of

# Equity	Securities

Our	common	stock	is	traded	on	the	New	York	Stock	Exchange	(NYSE)	under	the	symbol	"UNP".

At	February	1,	2019,	there	were	722,877,817	shares	of	common	stock	outstanding	and	30,902	common	shareholders	of record.	On	that	date,	the	closing	price	of	the	common	stock	on	the	NYSE	was	$159.67.	We	paid	dividends	to	our common	shareholders	during	each	of	the	past	119	years.

Comparison	Over	One-	and	Three-Year	Periods 	–	The	following	table	presents	the	cumulative	total	shareholder returns,	assuming	reinvestment	of	dividends,	over	one-	and	three-year	periods	for	the	Corporation	(UNP),	a	peer	group index	(comprised	of	CSX	Corporation	and	Norfolk	Southern	Corporation),	the	Dow	Jones	Transportation	Index	(DJ Trans),	and	the	Standard	&	Poor's	500	Stock	Index	(S&P	500).

| Period | UNP | Peer	Group | DJ	Trans | S&amp;P	500 |
| :--- | :--- | :--- | :--- | :--- |
| 1\tYear\t(2018) | 5.3\t% | 10.3\t% | (12.3)% | (4.4)% |
| 3\tYear\t(2016\t-\t2018) | 89.3 | 121.0 | 27.6 | 30.4 |

Five-Year	Performance	Comparison	 –	The following	 graph	 provides	 an	 indicator	 of	 cumulative	 total	 shareholder returns	for	the	Corporation	as	compared	to	the	peer	group	index	(described	above),	the	DJ	Trans,	and	the	S&P	500. The	graph	assumes	that	$100	was	invested	in	the	common	stock	of	Union	Pacific	Corporation	and	each	index	on December	31,	2013	and	that	all	dividends	were	reinvested.	The	information	below	is	historical	in	nature	and	is	not necessarily	indicative	of	future	performance.

Purchases	 of	 Equity	 Securities	–	 During	 2018,	 we	repurchased	57,669,746	shares	 of	 our	 common	 stock	 at	 an average	price	of	$143.70.	The	following	table	presents	common	stock	repurchases	during	each	month	for	the	fourth quarter	of	2018:

| Period | Total	Number	of<br>Shares<br>Purchased	[a] | Average<br>Price	Paid<br>Per	Share | Total	Number	of	Shares<br>Purchased	as	Part	of	a<br>Publicly	Announced<br>Plan	or	Program	[b] | Maximum	Number	of		Shares<br>Remaining	Under	the	Plan	or<br>Program	[b] |
| :--- | :--- | :--- | :--- | :--- |
| Oct.\t1\tthrough\tOct.\t31 | 6,091,605 | $158.20 | 6,087,727 | 32,831,024 |
| Nov.\t1\tthrough\tNov.\t30 | 3,408,467 | 147.91 | 3,402,190 | 29,428,834 |
| Dec.\t1\tthrough\tDec.\t31 | 3,007,951 | 148.40 | 3,000,715 | 26,428,119 |
| Total | 12,508,023 | $153.04 | 12,490,632 | N/A |

[a] Total	number	of	shares	purchased	during	the	quarter	includes	approximately	17,391	shares	delivered	or	attested	to	UPC	by	employees to	pay	stock	option	exercise	prices,	satisfy	excess	tax	withholding	obligations	for	stock	option	exercises	or	vesting	of	retention	units,	and pay	withholding	obligations	for	vesting	of	retention	shares.

[b] Effective	 January	 1,	 2017,	 our	 Board	 of	 Directors	 authorized	 the	 repurchase	 of	 up	 to	 120	 million	 shares	 of	 our	 common	 stock	 by December	31,	2020.	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.

# Item	6.	Selected	Financial	Data

The	following	table	presents	as	of,	and	for	the	years	ended,	December	31,	our	selected	financial	data	for	each	of	the last	five	years.	The	selected	financial	data	should	be	read	in	conjunction	with	Management's	Discussion	and	Analysis	of Financial	Condition	and	Results	of	Operations,	Item	7,	and	with	the	Financial	Statements	and	Supplementary	Data, Item	8.	The	information	below	is	historical	in	nature	and	is	not	necessarily	indicative	of	future	financial	condition	or results	of	operations.

| Carloads,	Employee	Statistics,	and	Ratios | 2018 | 2017[a] | 2016 | 2015 | 2014 |
| :--- | :--- | :--- | :--- | :--- | :--- |
| For\tthe\tYear\tEnded\tDecember\t31 |  |  |  |  |  |
| Operating\trevenues\t[b] | $22,832 | $21,240 | $19,941 | $21,813 | $23,988 |
| Operating\tincome | 8,517 | 8,106 | 7,243 | 8,082 | 8,765 |
| Net\tincome | 5,966 | 10,712 | 4,233 | 4,772 | 5,180 |
| Earnings\tper\tshare\t-\tbasic\t[c] | 7.95 | 13.42 | 5.09 | 5.51 | 5.77 |
| Earnings\tper\tshare\t-\tdiluted\t[c] | 7.91 | 13.36 | 5.07 | 5.49 | 5.75 |
| Dividends\tdeclared\tper\tshare\t[c] | 3.06 | 2.48 | 2.255 | 2.20 | 1.91 |
| Cash\tprovided\tby\toperating\tactivities | 8,686 | 7,230 | 7,525 | 7,344 | 7,385 |
| Cash\tused\tin\tinvesting\tactivities | (3,411) | (3,086) | (3,393) | (4,476) | (4,249) |
| Cash\tused\tin\tfinancing\tactivities | (5,222) | (4,146) | (4,246) | (3,063) | (2,982) |
| Cash\tused\tfor\tcommon\tshare\trepurchases | (8,225) | (4,013) | (3,105) | (3,465) | (3,225) |
| At\tDecember\t31 |  |  |  |  |  |
| Total\tassets | $59,147 | $57,806 | $55,718 | $54,600 | $52,372 |
| Long-term\tobligations\t[d] | 34,098 | 29,011 | 32,146 | 30,692 | 27,419 |
| Debt\tdue\tafter\tone\tyear | 20,925 | 16,144 | 14,249 | 13,607 | 10,952 |
| Common\tshareholders'\tequity | 20,423 | 24,856 | 19,932 | 20,702 | 21,189 |
| Additional\tData |  |  |  |  |  |
| Freight\trevenues\t[b] | $21,384 | $19,837 | $18,601 | $20,397 | $22,560 |
| Revenue\tcarloads\t(units)\t(000) | 8,908 | 8,588 | 8,442 | 9,062 | 9,625 |
| Operating\tratio\t(%)\t[e] | 62.7 | 61.8 | 63.7 | 62.9 | 63.5 |
| Average\temployees\t(000) | 42.0 | 42.0 | 42.9 | 47.5 | 47.2 |
| Financial\tRatios\t(%) |  |  |  |  |  |
| Return\ton\taverage\tcommon\n\t\t\t\t\tshareholders'\tequity\t[f] | 26.4 | 47.8 | 20.8 | 22.8 | 24.4 |

[a] 2017	includes	a	$5.9	billion	non-cash	reduction	to	income	tax	expense	and	$212	million	non-cash	reduction	to	operating	expenses related	to	the	Tax	Cuts	and	Jobs	Act	enacted	on	December	22,	2017.

[b] Includes	fuel	surcharge	revenue	of	$1.7	billion,	$966	million,	$560	million,	$1.3	billion,	and	$2.8	billion,	for	2018,	2017,	2016,	2015,	and 2014,	respectively,	which	partially	offsets	increased	operating	expenses	for	fuel.	(See	further	discussion	in	Management's	Discussion and	Analysis	of	Financial	Condition	and	Results	of	Operations	–	Item	7.)

[c] Earnings	per	share	and	dividends	declared	per	share	are	retroactively	adjusted	to	reflect	the	June	6,	2014	stock	split.

[d] Long-term	obligations	is	determined	as	follows:	total	liabilities	less	current	liabilities.

[e] Operating	ratio	is	defined	as	operating	expenses	divided	by	operating	revenues.

[f] Return	on	average	common	shareholders'	equity	is	determined	as	follows:	Net	income	divided	by	average	common	shareholders'	equity.

# Item	7.	Management's	Discussion	and	Analysis	of	Financial	Condition	and	Results	of	Operations

The	following	discussion	should	be	read	in	conjunction	with	the	Consolidated	Financial	Statements	and	applicable	notes to	the	Financial	Statements	and	Supplementary	Data,	Item	8,	and	other	information	in	this	report,	including	Risk	Factors set	forth	in	Item	1A	and	Critical	Accounting	Policies	and	Cautionary	Information	at	the	end	of	this	Item	7.

The	Railroad,	along	with	its	subsidiaries	and	rail	affiliates,	is	our	one	reportable	business	segment.	Although	revenue	is analyzed	by	commodity,	we	analyze	the	net	financial	results	of	the	Railroad	as	one	segment	due	to	the	integrated nature	of	the	rail	network.

# EXECUTIVE	SUMMARY

· Safety	–	During	2018,	we	continued	our	focus	on	safety	to	reduce	risk	and	eliminate	incidents	for	our	employees, our	customers	and	the	public.	Despite	our	efforts,	our	reportable	personal	injury	incidents	per	200,000	employee- hours	of	0.82	increased	4%	from	2017,	which	was	our	second	best	year	on	record .		2016	was	our	all-time	annual record	of	0.75	personal	injury	incidents	per	200,000	employee-hours.		Our	reportable	derailment	incident	rate	per million	train	miles	of	 3.28	and	crossing	incidents	rate	of	 2.69	increased	12%	and	5%,	respectively,	compared	to 2017.		We	remain	intently	focused	on	improving	employee	and	public	safety	with	programs	 such	as	Courage	to Care,	Total	Safety	Culture,	and	UP	Way	(our	continuous	improvement	culture).

· Network	Operations:	Unified	Plan	2020	–	We	entered	2018	with	network	congestion	on	key	routes	and	terminals, compounded	by	high	freight	car	inventory	levels	 that	negatively	impacted	operational	performance	during	the	first half	of	the	year.		On	October	1,	2018,	we	began	implementation	of	the	first	phase	of	our	Unified	Plan	2020,	which included	several	initiatives	focused	on	increasing	reliability	of	our	service	product,	reducing	variability	in	network operations,	and	improving	resource	utilization	costs.

As	a	result,	network	operations	improved	significantly	as	we	progressed	throughout	the	fourth	quarter .		We	reduced our	active	locomotive	fleet	by	625	locomotives	and	reduced	operating	car	inventory	by	more	than	10%	compared	to September	30,	2018,	while	handling	relatively	similar	volume	levels. As	reference,	average	terminal	dwell,	as reported	to	the	AAR	improved	14%		to	26.7	hours	in	the	fourth	quarter	compared	to	the	first	half	of	 2018.		On	a	full year	 basis,	 average	 terminal	 dwell	 improved 2%	 while average	 train	 speed	 decreased 4% compared	 to 2017.		Additional	details	on	our	Unified	Plan	2020	goals	and	implementation	schedule	are	included	in	the	"2019 Outlook"	section	of	Item	7.

· Freight	Revenues	–	Our	freight	revenues	increased	8%	year-over-year	to	$21.4	billion	driven	by	volume	growth	of 4%,	higher	fuel	surcharge	revenue,	and	core	pricing	gains,	partially	offset	by	negative	mix	of	traffic.		 Growth	in international	 and	 domestic	 intermodal,	 petroleum	 products,	 metals,	 rock,	 plastics,	 and	 industrial	 chemical shipments	more	than	offset	declines	in	coal,	grain,	and	frac	sand	shipments.

· Financial	Results	–	In	2018,	we	generated	operating	income	of	more	than	$8.5	billion,	an	8%	 increase	compared to	 2017	 adjusted	 results	 (non-GAAP)[1].	 	 Volume	 growth,	 combined	 with	 core	 pricing	 and	 productivity	 gains, generated	 solid	 financial	 performance	improvement	 and	 more	 than	 offset	 the	 impact	 of	 excess	 network	 costs, higher	 fuel	prices,	and	other	cost	hurdles ,	 including	state	and	 local	 taxes,	depreciation,	and	 inflation.	 	Excess network	costs	include	additional	expenses	associated	with	operational	efficiencies	resulting	in	higher	Train,	Engine and	Yard	(TE&Y)	labor	expenses,	fuel	consumption	inefficiencies,	maintenance	costs	on	a	larger,	active	locomotive fleet,	and	higher	freight	car	rent	expense	due	to	slower	asset	turns.		Our	2018	operating	ratio	was	an	all-time	record 62.7%,	improving	0.1	point	from	2017	adjusted	results	(non-GAAP)[1].		Net	income	of	nearly	$6.0	billion	translated into	earnings	of	$7.91	per	diluted	share.

[1]	For	comparability	purposes,	the	following	table	reconciles	our	full	year	2017	reported	results	under	accounting	principles	generally accepted	in	the	U.S.	(GAAP)	to	our	2017	adjusted	results	(non-GAAP)	for	tax	related	items	recognized	in	2017.		We	believe	the	adjusted results	provide	relevant	information	to	our	investors	as	they	more	accurately	reflect	on-going	financial	performance.		In	addition,	these measures	should	be	considered	 in	addition	 to,	and	not	a	substitute	 for	operating	 income,	 income	 taxes,	net	 income,	diluted	EPS, operating	ratio,	and	effective	tax	rate.

| Millions,	Except	Per	Share	Amounts	and<br>Percentages | Operating<br>Income | Income<br>Taxes | Net<br>Income | Diluted<br>EPS | Operating<br>Ratio | Effective<br>Tax	Rate |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- |
| 2017\tReported\tresults*\t(GAAP) | $8,106 | $(3,080) | $10,712 | $13.36 | 61.8\t% | (40.4)% |
| Factors\tAffecting\tComparability: |  |  |  |  |  |  |
| Adjustments\tfor\tTax\tCuts\tand\tJobs\tAct |  |  |  |  |  |  |
| \t\t\t\t\tEquity-method\taffiliates | (212) | (73) | (139) | (0.17) | 1.0\tpts | - |
| \t\t\t\t\tDeferred\ttaxes | - | 5,935 | (5,935) | (7.40) | - | 77.9 |
| 2017\tAdjusted\tresults\t(non-GAAP) | $7,894 | $2,782 | $4,638 | $5.79 | 62.8\t% | 37.5\t% |

*Adjusted	for	the	retrospective	adoption	of	ASU	2017-07	which	was	effective	January	1,	2018.

· Fuel	Prices	–	Our	average	price	of	diesel	fuel	in	2018	was	 $2.29	per	gallon,	an	increase	of	27%	from	2017,	as both	crude	oil	and	conversion	spreads	between	crude	oil	and	diesel	increased	in	2018.	The	higher	price	resulted	in increased	operating	expenses	of	$507	million	(excluding	any	impact	from	year-over-year	volume	growth).	Gross-ton miles	 and	 our	 fuel	 consumption	 rate,	 computed	 as	 gallons	 of	 fuel	 consumed	 divided	 by	 gross	 ton-miles,	 both increased	3%,	which	also	drove	higher	fuel	expense.

· Free	Cash	Flow	–	Cash	generated	by	operating	activities	totaled	nearly	$8.7	billion,	yielding	free	cash	flow	of	$3.0 billion	 after	reductions	 of	$3.4	 billion	 for	 cash	 used	 in	 investing	 activities	 and	 $2.3	 billion	 in	 dividends,	 which included	a	20%	increase	in	our	quarterly	dividend	per	share	from	$0.665	in	the	fourth	quarter	of	2017	to	$0.80	in the	fourth	quarter	of	2018.	Free	cash	flow	is	defined	as	cash	provided	by	operating	activities	less	cash	used	in investing	activities	and	dividends	paid.

Free	cash	flow	is	not	considered	a	financial	measure	under	GAAP	by	SEC	Regulation	G	and	Item	10	of	SEC Regulation	S-K	and	may	not	be	defined	and	calculated	by	other	companies	in	the	same	manner.	We	believe	free cash	flow	is	important	to	management	and	investors	in	evaluating	our	financial	performance	and	measures	our ability	to	generate	cash	without	additional	external	financings.	Free	cash	flow	should	be	considered	in	addition	to, rather	than	as	a	substitute	for,	cash	provided	by	operating	activities.	The	following	table	reconciles	cash	provided	by operating	activities	(GAAP	measure)	to	free	cash	flow	(non-GAAP	measure):

| Millions | 2018 | 2017 | 2016 |
| :--- | :--- | :--- | :--- |
| Cash\tprovided\tby\toperating\tactivities | $8,686 | $7,230 | $7,525 |
| Cash\tused\tin\tinvesting\tactivities | (3,411) | (3,086) | (3,393) |
| Dividends\tpaid | (2,299) | (1,982) | (1,879) |
| Free\tcash\tflow | $2,976 | $2,162 | $2,253 |

· Safety	–	Operating	a	safe	railroad	benefits	all	our	constituents:	our	employees,	customers,	shareholders	and	the communities	 we	 serve.	 	 We	 will	 continue	 using	 a	 multi-faceted	 approach	 to	 safety,	 utilizing	 technology,	 risk assessment,	 training	 and	 employee	 engagement,	 quality	 control,	 and	 targeted	 capital	 investments.	 	 We	 will continue	 using	 and	 expanding	 the	 deployment	 of	 Total	 Safety	 Culture	 and	 Courage	 to	 Care	 throughout	 our operations,	which	allows	us	to	identify	and	implement	best	practices	for	employee	and	operational	safety.		We	will continue	our	efforts	to	increase	detection	of	rail	defects;	improve	or	close	crossings;	and	educate	the	public	and	law enforcement	agencies	about	crossing	safety	through	a	combination	of	our	own	programs	(including	risk	assessment strategies),	industry	programs	and	local	community	activities	across	our	network.

· Network	Operations	–	In	2019,	we	will	continue	to	implement	our	G55+0	and	Unified	Plan	2020	initiatives	to further	increase	reliability	of	our	service	product,	reduce	variability	in	network	operations,	and	improve	resource utilization.	 	We	began	 implementation	of	Phase	1	on	October	1,	2018	which	 included	our	north	 to	south	Mid- America	corridor,	and	was	substantially	completed	in	late	2018.		Phase	1	included	approximately	160	changes	to our	transportation	plan	in	that	territory.		In	November	of	2018,	we	began	the	planning	phase	of	implementation	on the	Sunset	Route	and	on	the	two	rail	corridors	between	Los	Angeles	and	Chicago.		Planning	for	the	third	phase, which	 includes	 the	Pacific	Northwest	and	Northern	California,	began	 in	 late	 January	 of	 2019.	 	 We	 expect	 full implementation	of	all	phases	of	the	Unified	Plan	2020	by	mid-2019.		Beyond	the	initial	implementation	of	Unified Plan	2020,	we	will	continue	to	evaluate	the	entire	network	and	make	further	changes	as	warranted.

In	addition,	we	are	working	through	a	terminal	rationalization	process	to	more	fully	optimize	our	train	operations	and crew	resources.		These	potential	changes,	combined	with	other	G55+0	initiatives,	are	designed	to	better	align	our management	structure	and	decision	making	processes	in	conjunction	with	our	Unified	Plan	2020	operating	model.

· Fuel	 Prices –	 Fuel	 price	 projections	 for	 crude	 oil	 and	 natural	 gas	 continue	 to	 fluctuate	 in	 the	 current environment.		We	again	could	see	volatile	fuel	prices	during	the	year,	as	they	are	sensitive	to	global	and	U.S. domestic	demand,	refining	capacity,	geopolitical	events,	weather	conditions	and	other	factors.		As	prices	fluctuate, there	will	be	a	timing	impact	on	earnings,	as	our	fuel	surcharge	programs	trail	increases	or	decreases	in	fuel	price by	approximately	two	months.

Lower	fuel	prices	could	have	a	positive	impact	on	the	economy	by	increasing	consumer	discretionary	spending	that potentially	could	increase	demand	for	various	consumer	products	that	we	transport.	Alternatively,	lower	fuel	prices could	likely	have	a	negative	impact	on	other	commodities	such	as	coal	and	domestic	drilling-related	shipments.

· Capital	Plan	–	In	2019,	we	expect	our	capital	plan	to	be	approximately	$3.2	billion,	flat	compared	to	2018.	The	plan includes	 expenditures	 to	 renew	 and	 improve	 our	 existing	 infrastructure	as	 well	 as	 new	 capacity	 investment s designed	to	support	future	business	growth	and	operational	efficiency.	In	addition,	expenditures	will	be	made	for locomotive	modernization	and	freight	cars.	The	capital	plan	may	be	revised	if	business	conditions	warrant	or	if	new laws	or	regulations	affect	our	ability	to	generate	sufficient	returns	on	these	investments.	(See	further	discussion	in this	Item	7	under	Liquidity	and	Capital	Resources	–	Capital	Plan).

· Financial	Expectations	–	Economic	conditions	in	many	of	our	market	sectors	continue	to	drive	uncertainty	with respect	to	our	volume	levels.		Although	we	expect	volume	to	grow	in	the	low	single	digit 	range	in	2019	compared	to 2018,	 uncertainties	 i n	energy	 markets	 and	 prices,	 consumer	 purchases,	 inflation,	 and	 both	 domestic	 and international	economies	will	have	an	impact.		In	the	current	environment,	we	expect	continued	margin	improvement driven	by	continued	pricing	opportunities,	ongoing	 G55+0	productivity	initiatives,	 and	 full	 implementation	 of	 our Unified	Plan	2020	to	better	leverage	our	resources	and	strengthen	our	franchise.

# RESULTS	OF	OPERATIONS

# Operating	Revenues

|  |  |  |  | %	Change | %	Change |
| :--- | :--- | :--- | :--- | :--- | :--- |
| Millions | 2018 | 2017 | 2016 | 2018\tv\t2017 | 2017\tv\t2016 |
| Freight\trevenues | $21,384 | $19,837 | $18,601 | 8\t% | 7\t% |
| Other\tsubsidiary\trevenues | 881 | 885 | 814 | - | 9 |
| Accessorial\trevenues | 502 | 458 | 455 | 10 | 1 |
| Other | 65 | 60 | 71 | 8 | (15) |
| Total | $22,832 | $21,240 | $19,941 | 7\t% | 7\t% |

We	 generate freight revenues	 by transporting freight	 or	 other	 materials from	 our four	 commodity	 groups.	 Freight revenues	 vary	 with	 volume	 (carloads)	 and	 average	 revenue	 per	 car	 (ARC).	 Changes	 in	 price,	 traffic	 mix	 and	 fuel surcharges	 drive	 ARC.	 We	 provide	 some	 of	 our	 customers	 with	 contractual	 incentives	 for	 meeting	 or	 exceeding specified	 cumulative	 volumes	 or	 shipping	 to	 and	 from	 specific	 locations,	 which	 we	 record	 as	 reductions	 to	 freight revenues	based	on	the	actual	or	projected	future	shipments.	We	recognize	freight	revenues	as	shipments	move	from origin	to	destination.	We	allocate	freight	revenues	between	reporting	periods	based	on	the	relative	transit	time	in	each reporting	period	and	recognize	expenses	as	we	incur	them.

Other	revenues	include	revenues	earned	by	our	subsidiaries,	revenues	from	commuter	rail	operations	that	we	manage, accessorial	revenues,	which	we	earn	when	customers	retain	equipment	owned	or	controlled	by	us	or	when	we	perform additional	services	such	as	switching	or	storage,	and	miscellaneous	contract	revenue.	We	recognize	other	revenues	as we	perform	services	or	meet	contractual	obligations.

Freight	revenues	 increased	8%	year-over-year	 to	$21.4	billion	driven	by	4%	volume	growth,	higher fuel	surcharge revenue,	and	core	pricing	gains,	partially	offset	by	negative	mix	of	traffic.	Growth	in	international

and	domestic	intermodal,	petroleum	products,	metals,	rock,	plastics,	and	industrial	chemical	shipments	more	than	offset declines	in	coal,	grain,	and	frac	sand	shipments.

Freight	revenues	increased	7%	in	2017	to	$19.8	billion	driven	by	volume	growth	of	2%,	higher	fuel	surcharge	revenue, and	core	pricing	gains.	Growth	in	frac	sand,	coal,	and	intermodal	shipments	more	than	offset	declines	in	grain,	crude	oil, finished	vehicles,	and	rock	shipments.

Our	fuel	surcharge	programs	generated	freight	revenues	of	$1.7	billion,	$966	million,	and	$560	million	in	2018,	2017, and	2016,	respectively.	Fuel	surcharge	revenue	in	2018	increased	$769	million	as	a	result	of	a	27%	increase	in	fuel price	and	4%	growth	in	carloadings.		Fuel	surcharge	revenue	in	2017	increased	$406	million	as	a	result	of	a	22% increase	in	fuel	price,	a	2%	growth	in	carloadings,	and	the	lag	impact	on	fuel	surcharge	(it	can	generally	take	up	to	two months	for	changing	fuel	prices	to	affect	fuel	surcharge	recoveries).

In	 2018,	 other	 revenues increased from	 2017	 driven	 by	 higher	 accessorial revenues	 associated	 with	 carload	 and container	volume	growth.

In	2017,	other	revenues	increased	from	2016	due	to	higher	revenues	at	our	subsidiaries,	primarily	those	that	broker intermodal,	transload,	and	refrigerated	warehousing	logistics	services.

The	 following tables	 summarize the	 year-over-year	 changes in freight revenues, revenue	 carloads,	 and	 ARC	 by commodity	type:

|  |  |  |  | %	Change | %	Change |
| :--- | :--- | :--- | :--- | :--- | :--- |
| Average\tRevenue\tper\tCar | 2018 | 2017 | 2016 | 2018\tv\t2017 | 2017\tv\t2016 |
| Agricultural\tProducts | $3,973 | $3,770 | $3,657 | 5\t% | 3\t% |
| Energy | 2,793 | 2,685 | 2,461 | 4 | 9 |
| Industrial | 3,241 | 3,145 | 2,996 | 3 | 5 |
| Premium | 1,513 | 1,417 | 1,385 | 7 | 2 |
| Average | $2,400 | $2,310 | $2,203 | 4\t% | 5\t% |

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

Agricultural Products –	Freight	 revenue	 from agricultural	products	increased	in	2018	compared	to 2017	 driven	 by	 core	 pricing	 gains	 and	 higher	 fuel surcharge	revenue,	partially	offset	by	a	1%	decrease in	 volume.	 Grain	 shipments	 decreased	 8%	 in	 2018 compared	to	2017	largely	due	to	lower	export	wheat shipments	reflecting	weaker	U.S.	competitiveness	in the	 global	 market	 throughout	 2018.	 Conversely, fertilizer	shipments	increased	7%	and	grain	products shipments	 increased 4% versus	 2017	 driven	 by continued	 strength	 in potash exports and higher export	ethanol	shipments.

# 2018	Agricultural	Products	Carloads

Freight	revenue	from	agricultural	products	increased	in	2017	compared	to	2016	driven	by	core	pricing	gains	and	higher fuel	surcharge	revenue,	partially	offset	by	a	1%	decrease	in	volume.		Grain	and	grain	product	shipments	decreased	3% in	2017	compared	to	2016.		Strong	export	demand	for	wheat	drove	volume	growth	in	the	first	half	of	the	year,	which was	more	than	offset	by	declines	of	grain	shipments	in	the	second	half	of	the	year	due	to	an	abundance	of	global	supply reducing	U.S.	grain	competitiveness.	Conversely,	fertilizer	shipments	increased	7%	as	a	result	of	continued	strength	in potash	exports.

Volume	growth	of	11%	and	higher	fuel	surcharge	revenue	drove	an	increase	in	freight	revenue	from	energy	shipments in	2017	compared	to	2016.	Shipments	out	of	the	Powder	River	Basin	(PRB)	grew	5%	driven	by	strong	growth	in	the	first half	of	the	year	due	to	higher	year-over-year	natural	gas	prices	and	lower	inventory	levels	at	utilities.	Shipments	out	of Colorado	and	Utah	increased	7%	compared	to	2016	due	to	the	same	drivers,	combined	with	stronger	export	demand.	In addition,	increased	shale	drilling	activity	and	proppant	intensity	per	drilling	well	drove	substantial	volume	growth	in	frac sand	shipments	versus	2016.

# 2018	Industrial	Carloads

Volumes	were	flat	as	growth	in	shipments	of	metals,	waste,	and	government	shipments	were	offset	by	declines	in construction	materials	due	to	inclement	weather	in	the	West	in	the	first	half	of	the	year,	combined	with	decreased construction	activity	in	Texas	and	lower	industrial	chemical	shipments.

# 2018	Premium	Carloads

Higher	fuel	surcharge	revenue	and	core	pricing	gains	drove	an	increase	in	freight	revenue	from	premium	shipments	in 2017	compared	to	2016.	Volumes	were	flat	as	a	1%	growth	in	international	shipments	was	muted	by	flat	domestic shipments	(including	containerized	automotive	parts)	due	to	available	truck	capacity	during	most	of	2017,	which	offset	a strong	holiday	shipping	season	in	the	fourth	quarter.	In	addition,	shipments	of	finished	vehicles	fell	7%	in	2017	resulting from	lower	domestic	sales	and	reduced	production	for	certain	manufactures.

Mexico	 Business	–	Each	of	our	commodity	groups	 includes	revenue	 from	shipments	 to	and	 from	Mexico.	 Freight revenue	from	Mexico	business	was	$2.5	billion	in	2018,	up	10%	compared	to	2017,	driven	by	1%	volume	growth,	fuel surcharge	revenue,	and	core	pricing	gains.	The	increase	in	volume	was	driven	by	higher	shipments	of	corn	and	feed grains,	coal,	and	finished	vehicles,	partially	offset	by	declines	in	automotive	parts	and	intermodal	shipments.

Freight	revenue	from	Mexico	business	was	$2.3	billion	in	2017,	up	2%	compared	to	2016.		Core	pricing	gains	and higher	fuel	surcharge	revenue	more	than	offset	the	1%	volume	decline.	The	decrease	in	volume	was	driven	by	lower shipments	of	automotive	parts,	partially	offset	by	growth	in	coal	and	refined	petroleum	products	shipments.

# Operating	Expenses

|  |  |  |  | %	Change | %	Change |
| :--- | :--- | :--- | :--- | :--- | :--- |
| Millions | 2018 | 2017 | 2016 | 2018\tv\t2017 | 2017\tv\t2016 |
| Compensation\tand\tbenefits | $5,056 | $4,939 | $4,779 | 2\t% | 3\t% |
| Fuel | 2,531 | 1,891 | 1,489 | 34 | 27 |
| Purchased\tservices\tand\tmaterials | 2,443 | 2,363 | 2,258 | 3 | 5 |
| Depreciation | 2,191 | 2,105 | 2,038 | 4 | 3 |
| Equipment\tand\tother\trents | 1,072 | 888 | 1,137 | 21 | (22) |
| Other | 1,022 | 948 | 997 | 8 | (5) |
| Total | $14,315 | $13,134 | $12,698 | 9\t% | 3\t% |

# 2018	Operating	Expenses

Operating	expenses increased	$436	million in	2017 compared	 to	 2016	 driven	 by	 higher fuel prices, inflation,	$86	million	of	expenses	related

to	 the	 third	 quarter	 workforce	 reduction	 plan,	 depreciation,	 contract	 services,	 and	 volume-related	 costs.	 	 Partially offsetting	these	increases	was	a	$212	million	reduction	to	operating	expense	related	to	income	tax	adjustments	at certain	equity-method	affiliates,	continued	productivity	gains,	lower	locomotive	and	freight	car	lease	expense,	and	lower environmental,	personal	injury,	and	joint	facility	costs.

Compensation	and	Benefits	 –	 Compensation	 and	 benefits	 include	 wages,	 payroll	 taxes,	 health	 and	 welfare	 costs, pension	costs,	other	postretirement	benefits,	and	incentive	costs.	In	2018,	expenses	increased	2%	compared	to	2017, due	to	volume-related	costs,		excess	network	costs,	higher	training	expenses	for	trainmen ,	and	wage	inflation.		Lower management	and	administrative	wage	and	benefit	costs	partially	offset	these	increases.

In	 2017,	 expenses	 increased	 3%	compared	 to	 2016,	 driven	 by	 general	 wage	 and	 benefit	 inflation,	 $86	 million	 of expenses	 associated	 with	 the	 workforce	 reduction	 plan,	 volume-related	 costs,	 and	 higher	 training	 expenses	 for trainmen,	which	were	partially	offset	by	resource	productivity	gains.

Fuel	 –	 Fuel	 includes	 locomotive	 fuel	 and	 gasoline	 for	 highway	 and	 non-highway	 vehicles	 and	 heavy	 equipment. Locomotive	 diesel	 fuel	 prices,	 which	 averaged	$2.29	per	gallon	(including	 taxes	and	 transportation	costs)	 in	2018, compared	to	$1.81	 per	 gallon	 in	 2017,	 increased	 expenses	 $507	 million.	 In	 addition,	gross-ton	miles	and	 the	 fuel consumption	rate	(c-rate)	both	increased	3%	in	2018,	also	driving	higher	fuel	expense	compared	to	2017 .	The	c-rate	is computed	as	gallons	of	fuel	consumed	divided	by	gross	ton-miles	in	thousands.

Locomotive	 diesel	 fuel	 prices,	 which	 averaged	$1.81	per	gallon	(including	 taxes	and	 transportation	costs)	 in	2017, compared	to	$1.48	per	gallon	in	2016,	increased	expenses	$334	million.	In	addition,	fuel	costs	were	higher	as	gross-ton miles	increased	5%	compared	to	2016.		The	c-rate	improved	2%	compared	to	2016.

Purchased	Services	and	Materials	–	Expense for	purchased	services	and	materials	 includes	 the	costs	of	services purchased	 from	 outside	 contractors	 and	 other	 service	 providers	 (including	 equipment	 maintenance	 and	 contract expenses	incurred	by	our	subsidiaries	for	external	transportation	services);	materials	used	to	maintain	the	Railroad's lines,	structures,	and	equipment;	costs	of	operating	facilities	jointly	used	by	UPRR	and	other	railroads;	transportation and	lodging	for	train	crew	employees;	trucking	and	contracting	costs	for

intermodal	 containers;	 leased	 automobile	 maintenance	 expenses;	 and	 tools	 and	 supplies.	 Purchased	 services	 and materials	increased		3%	in	2018	compared	to	2017	 primarily	due	to	volume-related	costs,	inflationary	cost	pressures	on transportation-related	contract	services	incurred	at	our	subsidiaries	that	broker	intermodal	and	transload	services,	and higher	locomotive	repair	costs	due	to	the	larger	active	fleet	in	service .		Lower	joint	facility	expenses	partially	offset	these increases.

Purchased	services	and	materials	 increased	5%	 in	2017 	compared	 to	2016	primarily	due	 to	volume-related	costs (including	higher	subsidiary	contract	services)	and	Hurricane	Harvey-related	contract	service	costs,	which	were	partially offset	by	lower	joint	facility	expenses.

Depreciation	–	The	majority	of	depreciation	relates	to	road	property,	including	rail,	ties,	ballast,	and	other	track	material. A	higher	depreciable	asset	base	increased	depreciation	expense	in	2018	compared	to	2017.

A	higher	depreciable	asset	base	increased	depreciation	expense	in	2017	compared	to	2016.	This	increase	was	partially offset	by	our	recent	depreciation	studies	that	resulted	in	lower	depreciation	rates	for	some	asset	classes.

Equipment	and	Other	Rents	–	Equipment	and	other	rents	expense	primarily	includes	rental	expense	that	the	Railroad pays	for	freight	cars	owned	by	other	railroads	or	private	companies;	freight	car,	intermodal,	and	locomotive	leases;	and office	and	other	rent	expenses.	Equity	income	from	certain	equity	method	investments	is	also	included.		Equipment	and other	rents	expense	increased	$184	million	compared	to	2017	largely	driven	by	a	$212	million	reduction	to	2017	rent expense	related	to	income	tax	adjustments	at	certain	equity-method	affiliates	as	a	result	of	the	lower	federal	tax	rate implemented	January	1,	2018.		Increased	car	rent	expense	due	to	volume	growth	and	slower	network	velocity	also contributed	to	the	increase.		Lower	locomotive	and	freight	car	lease	expenses	in	2018	partially	offset	these	increases.

Equipment	and	other	rents	expense	decreased	$249	million	compared	to	2016.		$212	million	of	the	reduction	was	due	to income	 tax	 adjustments	 at	 certain	 equity-method	 affiliates.	 Lower	 locomotive	 and	 freight	 car	 lease	 expense	 also contributed	to	the	year-over-year	decrease.		Conversely,	increased	car	rent	expense	due	to	volume	growth	in	certain markets	partially	offset	these	decreases.

Other	–	Other	expenses	include	state	and	local	taxes,	freight,	equipment	and	property	damage,	utilities,	insurance, personal	injury,	environmental,	employee	travel,	telephone	and	cellular,	computer	software,	bad	debt,	and	other	general expenses.		Other	expenses	increased	8%	in	2018	compared	to	2017	as	a	result	of	higher	state	and	local	taxes	and environmental	 expenses	 related	 to	 our	 operating	 properties.		Lower	 personal	 injury	 expense,	an	 insurance reimbursement	 for	 lost	 revenue	 and	 expenses	 incurred	 during	 Hurricane	 Harvey	 in	 2017,	 and	 reduced	 costs	 for destroyed	equipment	owned	by	third	parties	and	lower	freight	damage	expense	partially	offset	these	increases.

Other	expenses	decreased	5%	 in	2017	compared	 to	2016	as	a	result	of	 lower	environmental	and	personal	 injury expenses,	and	higher	bad	debt	expense	in	2016	resulting	from	a	customer	bankruptcy.		Conversely,	increased	costs associated	with	destroyed	equipment	owned	by	third	parties,	and	higher	property	and	damaged	freight	costs	partially offset	these	decreases.

# Non-Operating	Items

|  |  |  |  | %	Change | %	Change |
| :--- | :--- | :--- | :--- | :--- | :--- |
| Millions | 2018 | 2017 | 2016 | 2018\tv\t2017 | 2017\tv\t2016 |
| Other\tincome | $94 | $245 | $221 | (62)% | 11\t% |
| Interest\texpense | (870) | (719) | (698) | 21 | 3 |
| Income\ttax\tbenefit/(expense) | (1,775) | 3,080 | (2,533) | U | F |

Other	Income	–	Other	income	decreased	in	2018	compared	to	2017	largely	as	a	result	of	a	$65	million	gain	on	a litigation	settlement	for	back	rent	and	a	$57	million	real	estate	gain,	both	recognized	in	the	third	quarter	of	2017.		In addition,	an	$85	million	expense	associated	with	early-extinguishment	of	outstanding	debentures	and	mortgage	bonds recognized	in	the	first	quarter	of	2018	also	contributed	to	the	decrease.		Higher	interest	income	earned	in	2018	partially offset	these	decreases.

Other	income	increased	in	2017	compared	to	2016	primarily	as	a	result	of	a	$65	million	gain	on	a	litigation	settlement	for back	rent	and	a	$57	million	real	estate	sale	gain,	both	recognized	in	the	third	quarter	of	2017.		Rental	income	also increased	in	2017	compared	to	2016.

Interest	Expense	–	Interest	expense	increased	in	2018	compared	to	2017	due	 to	an	increased	weighted-average	debt level	of	$20.1	billion	in	2018	from	$15.9	billion	in	2017,	partially	offset	by	the	impact	of	a	lower	effective	interest	rate	 of 4.4%	in	2018	compared	to	4.6	%	in	2017.

Income	Taxes	–	Income	tax	expense	was	$1.8	billion	in	2018	compared	to	a	benefit	of	$3.1	billion	in	2017.		The	Tax Cuts	and	Jobs	Act	was	enacted	on	December	22,	2017	and	reduced	the	federal	income	tax	rate	from	35%	to	21% effective	January	1,	2018.		Consequently,	we	remeasured	our	deferred	tax	assets	and	liabilities,	resulting	in	a	$5.9 billion	non-cash	reduction	in	our	income	tax	expense	in	2017.

Our	effective	tax	rate	for	2018	was	22.9%	compared	to	(40.4 )%	in	2017.		The	2018	effective	tax	rate	declined	due	to decreases	in	the	corporate	state	income	tax	rates	in	Iowa	and	Missouri.		The	2017	rate	was	substantially	reduced	by the	impact	of	the	Tax	Act,	which	resulted	in	a	$5.9	billion	non-cash	reduction	in	our	2017	tax	expense.

# OTHER	OPERATING/PERFORMANCE	AND	FINANCIAL	STATISTICS

We	 report	 a	 number	 of	 key	 performance	 measures	 weekly to the	AAR. 	 We	 provide this	 data	 on	 our	 website	 at www.up.com/investor/aar-stb_reports/index.htm.

# Operating/Performance	Statistics

Railroad	performance	measures	are	included	in	the	table	below:

|  |  |  |  | %	Change | %	Change |
| :--- | :--- | :--- | :--- | :--- | :--- |
|  | 2018 | 2017 | 2016 | 2018\tv\t2017 | 2017\tv\t2016 |
| Average\ttrain\tspeed\t(miles\tper\thour) | 24.5 | 25.4 | 26.6 | (4)% | (5)% |
| Average\tterminal\tdwell\ttime\t(hours) | 29.6 | 30.3 | 28.1 | (2)% | 8\t% |
| Gross\tton-miles\t(billions) | 928.6 | 898.7 | 856.9 | 3\t% | 5\t% |
| Revenue\tton-miles\t(billions) | 474.0 | 466.7 | 440.1 | 2\t% | 6\t% |
| Operating\tratio | 62.7 | 61.8 | 63.7 | 0.9\tpts | (1.9)pts |
| Employees\t(average) | 41,967 | 41,992 | 42,919 | \t-% | (2)% |

Average	Train	Speed	 –	Average	train	speed	is	calculated	by	dividing	train	miles	by	hours	operated	on	our	main	lines between	terminals.		Average	train	speed,	as	reported	to	the	AAR,	declined	4%	in	2018	compared	to	2017	largely	driven by	network	congestion	on	key	routes	and	terminals	combined	with	high	freight	car	inventory	levels	during	the	first	half of	the	year,	somewhat	offset	by	implementation	of	the	first	phase	of	our	Unified	Plan	2020	in	late	third	quarter	2018. Continued	implementation	and	testing	of	PTC	across	a	larger	portion	of	our	network	also	negatively	impacted	overall average	train	speed	throughout	the	year.

Average	train	speed	declined	5%	in	2017	compared	to	2016	as	disruptions	across	our	network,	including	the	impact	of Hurricane	Harvey,	negatively	impacted	network	fluidity.		Continued	implementation	and	testing	of	Positive	Train	Control across	a	growing	number	of	routes in	our	network	combined	with	operational	challenges	also	negatively impacted overall	average	train	speed.

Average	Terminal	Dwell	Time 	–	Average	terminal	dwell	time	is	the	average	time	that	a	rail	car	spends	at	our	terminals. Lower	average	terminal	dwell	time	improves	asset	utilization	and	service.	Average	terminal	dwell	time	decreased	2%	in 2018	 compared	 to	 2017	 driven	 by	 an	 18%	 improvement	 in	 the	 fourth	 quarter	 compared	 to	 the	 same	 period	 in 2017.		Implementation	of	the	first	phase	of	our	Unified	Plan	2020	in	late-third	quarter	2018	drove	the	improvement,	more than	offsetting	the	impact	of	network	congestion	and	high	inventory	levels	experienced	in	the	first	half	of	the	year.

Average	terminal	dwell	time	increased	8%	in 	2017	compared	to	2016	resulting	from	network	disruptions	and	operational challenges	which	negatively	impacted	network	fluidity.

Gross	and	Revenue	Ton-Miles 	–	Gross	ton-miles	are	calculated	by	multiplying	the	weight	of	loaded	and	empty	freight cars	by	the	number	of	miles	hauled.	Revenue	ton-miles	are	calculated	by	multiplying	the	weight	of	freight	by	the	number of	tariff	miles.		Gross	ton-miles	and	revenue	ton-miles	increased	3%	and

2%,	respectively	in	2018	compared	to	2017,	resulting	from	a	 4%	increase	in	carloads.	Changes	in	commodity	mix	drove the	variances	in	year-over-year	increases	between	gross	ton-miles,	revenue	ton-miles,	and	carloads.

Gross	ton-miles	and	revenue	ton-miles	increased	5%	and	6%,	respectively	in	2017	compared	to	2016,	resulting	from	a 2%	increase	in	carloads.	Changes	in	commodity	mix	drove	the	variances	in	year-over-year	increases	between	gross ton-miles,	revenue	ton-miles,	and	carloads.

Operating	Ratio	–	Operating	ratio	 is	our	operating	expenses	reflected	as	a	percentage	of	operating	revenue.	 	Our operating	ratio	increased	0.9	points	to	62.7%	in	2018	compared	to	2017.		Income	tax	adjustments	recognized	in	2017	at our	equity-method	affiliates	resulted	in	one	point	of	the	increase.		Core	pricing	gains	and	volume	growth,	 mostly	offset by	excess	network	costs,	higher	fuel	prices,	and	inflation,	drove	0.1	point	of	operating	ratio	improvement.

Our	operating	ratio	improved	1.9	points	to	61.8%	in	2017 	compared	to	2016.		Income	tax	adjustments	recognized	in 2017	at	our	equity-method	affiliates	drove	one	point	of	 the	 improvement.	 	Core	 pricing	 gains,	 volume	 growth,	 and productivity	savings	more	 than	offset	higher	 inflation,	higher	 fuel	prices,	and	other	expenses	 to	drive	0.9	points	of operating	ratio	improvement.

Employees	 –	 Employee	 levels	 were	 flat	 in	 2018	 compared	 to	 2017	 as	a	 smaller	 capital	 workforce	 and	 fewer management	and	administrative	personnel	offset	the	impact	of	4%	volume	growth,	which	contributed	to	a n	increase	in TE&Y	employees.

Employee	levels	decreased	2%	in	2017	compared	to	2016,	 driven	by	productivity	gains,	a	smaller	capital	workforce,	and fewer	management	and	administrative	personnel,	which	more	than	offset	the	impact	of	2%	volume	growth.

# Return	on	Average	Common	Shareholders'	Equity

| Millions,	Except	Percentages | 2018 | 2017 | 2016 |
| :--- | :--- | :--- | :--- |
| Net\tincome | $5,966 | $10,712 | $4,233 |
| Average\tequity | $22,640 | $22,394 | $20,317 |
| Return\ton\taverage\tcommon\tshareholders'\tequity | 26.4% | 47.8% | 20.8% |

# Return	on	Invested	Capital	as	Adjusted	(ROIC)

| Millions,	Except	Percentages | 2018 | 2017 | 2016 |
| :--- | :--- | :--- | :--- |
| Net\tincome | $5,966 | $10,712 | $4,233 |
| Interest\texpense | 870 | 719 | 698 |
| Interest\ton\taverage\tpresent\tvalue\tof\toperating\tleases | 82 | 105 | 121 |
| Taxes\ton\tinterest | (218) | (309) | (306) |
| Net\toperating\tprofit\tafter\ttaxes\tas\tadjusted\t(a) | $6,700 | $11,227 | $4,746 |
| Average\tequity | $22,640 | $22,394 | $20,317 |
| Average\tdebt | 19,668 | 15,976 | 14,604 |
| Average\tpresent\tvalue\tof\toperating\tleases | 2,206 | 2,288 | 2,581 |
| Average\tinvested\tcapital\tas\tadjusted\t(b) | $44,514 | $40,658 | $37,502 |
| Return\ton\tinvested\tcapital\tas\tadjusted\t(a/b) | 15.1% | 27.6% | 12.7% |

ROIC	is	considered	a	non-GAAP	financial	measure	by	SEC	Regulation	G	and	Item	10	of	SEC	Regulation	S-K,	and	may not	 be	 defined	 and	 calculated	 by	 other	 companies	 in	 the	 same	 manner.	 We	 believe	 this	 measure	 is	 important	 to management	 and	 investors	 in	 evaluating	 the	 efficiency	 and	 effectiveness	 of	 our	 long-term	 capital	 investments.	 In addition,	we	currently	use	ROIC	as	a	performance	criteria	in	determining	certain	elements	of	equity	compensation	for our	executives.	ROIC	should	be	considered	in	addition	to,	rather	than	as	a	substitute	for,	other	information	provided	in accordance	with	GAAP.	The	most	comparable	GAAP	measure	is	Return	on	Average	Common	Shareholders'	Equity. The	tables	above	provide	reconciliations	from	return	on	average	common	shareholders'	equity	to	ROIC.		 At	December 31,	2018,	 in	 transition	 to	 the	adoption	of	 the	new	 lease	accounting	standard	on	January	1,	2019,	 the	 incremental borrowing	rate	on	operating	leases	was	3.7%.		At	December	31,	2017	and	December	31,	2016,	operating

leases	were	discounted	using	our	effective	interest	rate	on	debt	of	4.6%	and	4.7%,	respectively.		Our	2018	ROIC	of 15.1%	decreased	compared	to	2017,	largely	as	a	result	of	the	income	tax	benefit	recognized	in	2017	related	to	the	$5.9 billion	 reduction	 in	 our	 deferred	 tax	 liability	 (See	 Note	 8	 of	 the	 Consolidated	 Financial	 Statements	 for	 additional information).

# Net	Return	on	Invested	Capital	as	Adjusted	(Net	ROIC)

The	table	below	reconciles	ROIC	as	previously	calculated	to	Net	ROIC	for	items	affecting	comparability.

|  | 2018 | 2017 | 2016 |
| :--- | :--- | :--- | :--- |
| Return\ton\tinvested\tcapital\tas\tadjusted | 15.1% | 27.6% | 12.7% |
| Factors\tAffecting\tComparability:\nAdjustments\tfor\tTax\tCuts\tand\tJobs\tAct\t[a] | N/A | (13.9) | N/A |
| Net\tReturn\ton\tInvested\tCapital\tas\tAdjusted | 15.1% | 13.7% | 12.7% |

Net	ROIC	is	considered	a	non-GAAP	financial	measure	by	SEC	Regulation	G	and	Item	10	of	SEC	Regulation	S-K,	and may	not	be	defined	and	calculated	by	other	companies	in	the	same	manner.	We	believe	this	measure	is	important	to management	and	investors	in	evaluating	the	efficiency	and	effectiveness	of	our	long-term	capital	investments.	We	use Net	ROIC	to	demonstrate	year	over	year	comparability	for	significant	items.	Net	ROIC	should	be	considered	in	addition to,	rather	than	as	a	substitute	for,	other	information	provided	in	accordance	with	GAAP.	The	most	comparable	GAAP measure	is	Return	on	Average	Common	Shareholders'	Equity.

# Adjusted	Debt	/	Adjusted	EBITDA

| Millions,	Except	Ratios | Dec.	31, | Dec.	31, | Dec.	31, |
| :--- | :--- | :--- | :--- |
| for\tthe\tTwelve\tMonths\tEnded | 2018 | 2017 | 2016 |
| Net\tincome | $5,966 | $10,712 | $4,233 |
| Less: |  |  |  |
| Other\tincome | 94 | 245 | 221 |
| Add: |  |  |  |
| Income\ttax\texpense/(benefit) | 1,775 | (3,080) | 2,533 |
| Depreciation | 2,191 | 2,105 | 2,038 |
| Interest\texpense | 870 | 719 | 698 |
| EBITDA | $10,708 | $10,211 | $9,281 |
| Interest\ton\tpresent\tvalue\tof\toperating\tleases | 84 | 98 | 114 |
| Adjusted\tEBITDA\t(a) | $10,792 | $10,309 | $9,395 |
| Debt | $22,391 | $16,944 | $15,007 |
| Net\tpresent\tvalue\tof\toperating\tleases | 2,271 | 2,140 | 2,435 |
| Unfunded\tpension\tand\tOPEB, |  |  |  |
| net\tof\ttaxes\tof\t$135,\t$238,\tand\t$261 | 456 | 396 | 436 |
| Adjusted\tdebt\t(b) | $25,118 | $19,480 | $17,878 |
| Adjusted\tdebt\t/\tAdjusted\tEBITDA\t(b/a) | 2.3 | 1.9 | 1.9 |

Adjusted	debt	to	Adjusted	EBITDA	(earnings	before	interest,	taxes,	depreciation,	amortization	and	interest	on	present value	of	operating	leases)	is	considered	a	non-GAAP	financial	measure	by	SEC	Regulation	G	and	Item	10	of	SEC Regulation	S-K	and	may	not	be	defined	and	calculated	by	other	companies	 in	 the	same	manner.	We	believe	 this measure	is	important	to	management	and	investors	in	evaluating	the	Company's	ability	to	sustain	given	debt	levels (including	 leases)	 with	 the	 cash	 generated	 from	 operations.	 In	 addition,	 a	 comparable	 measure	 is	 used	 by	 rating agencies	when	reviewing	 the	Company's	credit	rating.	Adjusted	debt	 to	Adjusted	EBITDA	should	be	considered	 in addition	to,	rather	than	as	a	substitute	for,	net	income.	The	table	above	provides	reconciliations	from	net	income	to adjusted	debt	to	adjusted	EBITDA.	At	December	31,	2018,	in	transition	to	the	adoption	of	the	new	lease	accounting standard	on	January	1,	2019,	the	incremental	borrowing	rate	on	operating	leases	was	3.7%.		At	December	31,	2017 and	December	31,	2016,	operating	leases	were	discounted	using	our	effective	interest	rate	on	debt	of	4.6%	and	4.7%, respectively.

# LIQUIDITY	AND	CAPITAL	RESOURCES

At	December	31,	2018,	we	had	a	working	capital	deficit.	At	December	31,	2017,	we	had	a	working	capital	surplus.	 The deficit	at	2018	year-end	was	primarily	due	to	an	increase	in	upcoming	debt	maturities. 	As	past	years	indicate,	it	is	not unusual	for	us	to	have	a	working	capital	deficit;	however,	we	believe	it	is	not	an	indication	of	a	lack	of	liquidity.		We	also maintain	adequate	resources,	including	our	credit	facility,	and	when	necessary,	access	to	capital	markets	to	meet	any foreseeable	cash	requirements.

As	 of	December	 31,	 2018,	 our	 principal	 sources	 of	 liquidity	 included	 cash,	 cash	 equivalents,	 our	 receivables securitization	facility,	and	our	revolving	credit	facility,	as	well	as	the	availability	of	commercial	paper	and	other	sources	of financing	through	the	capital	markets.	We	had	$2.0	billion	of	committed	credit	available	under	our	credit	facility,	 with	no borrowings	outstanding	as	of	December	31,	2018.	We	did	not	draw	on	our	current	facility	or	previous	facility	at	any	time during	 2018.	 The	 value	 of	 the	 outstanding	 undivided	 interest	 held	 by	 investors	 under	 the	 $650	 million	 capacity receivables	 securitization	 facility	 was $400	 million as	 of	 December 31, 2018.	 Our	 access	 to	 this	 receivables securitization	facility	may	be	reduced	or	restricted	if	our	bond	ratings	fall	to	certain	levels	below	investment	grade.	If	our bond	rating	were	to	deteriorate,	it	could	have	an	adverse	impact	on	our	liquidity.	Access	to	commercial	paper	as	well	as other	capital	market	financings	is	dependent	on	market	conditions.	Deterioration	of	our	operating	results	or	financial condition	due	to	internal	or	external	factors	could	negatively	impact	our	ability	to	access	capital	markets	as	a	source	of liquidity.	Access	to	liquidity	through	the	capital	markets	is	also	dependent	on	our	financial	stability.	We	expect	that	we will	continue	to	have	access	to	liquidity	through	any	or	all	of	the	following	sources	or	activities:	(i)	increasing	the	size	or utilization	of	our	receivables	securitization,	(ii)	issuing	commercial	paper,	(iii)	entering	into	bank	loans,	outside	of	our revolving	 credit	 facility,	 or	 (iv)	 issuing	 bonds	 or	 other	 debt	 securities	 to	 public	 or	 private	 investors	 based	 on	 our assessment	of	the	current	condition	of	the	credit	markets.	The	Company's	$2.0	billion	revolving	credit	facility	is	intended to	support	the	issuance	of	commercial	paper	by	UPC	and	also	serves	as	an	additional 	source	of	liquidity	to	fund	short term	needs.	The	Company	currently	does	not	intend	to	make	any	borrowings	under	this	facility.

| Millions | 2018 | 2017 | 2016 |
| :--- | :--- | :--- | :--- |
| Cash\tprovided\tby\toperating\tactivities | $8,686 | $7,230 | $7,525 |
| Cash\tused\tin\tinvesting\tactivities | (3,411) | (3,086) | (3,393) |
| Cash\tused\tin\tfinancing\tactivities | (5,222) | (4,146) | (4,246) |
| Net\tchange\tin\tcash,\tcash\tequivalents\tand\trestricted\tcash | $53 | $(2) | $(114) |

# Operating	Activities

Cash	provided	by	operating	activities	increased	in	2018	compared	to	2017	due	primarily	to	lower	federal	income	tax payments.

Cash	provided	by	operating	activities	decreased	in	2017	compared	to	2016	due	to	the	timing	of	tax	 payments	in	2016 related	to	bonus	depreciation	on	capital	spending.		The	decrease	was	mostly	offset	by	higher	income	in	2017	compared to	2016.

The	Tax	Act	was	enacted	on	December	22,	2017.	The	Tax	Act	extended	100%	bonus	depreciation	effective	September 27,	2017	through	2022,	and	phases	out	bonus	deprecation	by	2027.

# Investing	Activities

Higher	capital	investments	increased	cash	used	in	investing	activities	in	2018	compared	to	2017.

Lower	capital	investments	and	short-term	investment	purchases	decreased	cash	used	in	investing	activities	in	2017 compared	to	2016.

The	following	tables	detail	cash	capital	investments	and	track	statistics	for	the	years	ended	December	31,	2018,	2017, and	2016:

| Millions | 2018 | 2017 | 2016 |
| :--- | :--- | :--- | :--- |
| Rail\tand\tother\ttrack\tmaterial | $608 | $619 | $628 |
| Ties | 444 | 480 | 494 |
| Ballast | 216 | 231 | 235 |
| Other\t[a] | 576 | 503 | 480 |
| Total\troad\tinfrastructure\treplacements | 1,844 | 1,833 | 1,837 |
| Line\texpansion\tand\tother\tcapacity\tprojects | 286 | 124 | 153 |
| Commercial\tfacilities | 234 | 189 | 152 |
| Total\tcapacity\tand\tcommercial\tfacilities | 520 | 313 | 305 |
| Locomotives\tand\tfreight\tcars\t[b] | 716 | 607 | 854 |
| Positive\ttrain\tcontrol | 158 | 336 | 371 |
| Technology\tand\tother | 199 | 149 | 138 |
| Total\tcash\tcapital\tinvestments | $3,437 | $3,238 | $3,505 |

[a] Other	includes	bridges	and	tunnels,	signals,	other	road	assets,	and	road	work	equipment.

|  | 2018 | 2017 | 2016 |
| :--- | :--- | :--- | :--- |
| Track\tmiles\tof\trail\treplaced | 700 | 731 | 791 |
| Track\tmiles\tof\trail\tcapacity\texpansion | 39 | 11 | 52 |
| New\tties\tinstalled\t(thousands) | 4,285 | 4,026 | 4,482 |
| Miles\tof\ttrack\tsurfaced | 9,466 | 11,071 | 11,764 |

Capital	Plan	–		In	2019,	we	expect	our	capital	plan	to	be	 approximately	$3.2	billion,	which	may	be	revised	if	business conditions	or	the	regulatory	environment	affect	our	ability	to	generate	sufficient	returns	on	these	investments.	While asset	 replacements	 will	 fluctuate	 as	 part	 of	 our	 renewal	 strategy,	 we	 expect	 to	 use	 75%	 to	 80%	 of	 our	 capital investments	 to	 renew	 and	 improve	 existing	 capital	 assets.	We	 will	 continue	 to	 balance	 investment	 in	 our	 network infrastructure	 and	 terminal	 capacity	 as	 appropriate,	 including	 new	capacity	investments	designed	 to	support	 future business	growth	and	operational	efficiency.	Significant investments	will	be	made for locomotive	modernization	and freight	cars.

We	expect	to	fund	our	2019	cash	capital	plan	by	using	some	or	all	of	the	following:	cash	generated	from	operations, proceeds	from	the	sale	or	lease	of	various	operating	and	non-operating	properties,	proceeds	from	the	issuance	of	long- term	debt,	and	cash	on	hand.	Our	annual	capital	plan	is	a	critical	component	of	our	long-term	strategic	plan.	We	expect our	plan	will	enhance	the	long-term	value	of	the	Company	for	our	shareholders	by	providing	sufficient	resources	to	(i) replace	and	improve	our	existing	track	infrastructure	to	provide	safe	and	fluid	operations,	(ii)	increase	network	efficiency by	adding	or	improving	facilities	and	track,	and	(iii)	make	investments	that	meet	customer	demand	and	take	advantage of	opportunities	for	long-term	growth.

# Financing	Activities

Cash	used	in	financing	activities	increased	in	2018	compared	to	2017.	Increases	of	$4,212	million	in	share	repurchase programs,	$317	million	in	dividends	paid	and	$896	million	in	debt	repaid	more	than	offset	increases	of	$4,157	million	in debt	issued	and	$194	million	in	net	issuances	of	commercial	paper.

Cash	used	in	financing	activities	decreased	in	2017	compared	to	2016.	 An	increase	of	$908	million	in	common	shares purchased	and	an	increase	of	$103	million	in	dividends	paid	was	more	than	offset	by	an	increase	of	$752	million	in	debt issued,	a	decrease	of	$173	million	in	debt	repaid,	and	a	decrease	of	$191	million	in	debt	exchange	costs.

See	Note	15	of	the	Consolidated	Financial	Statements	for	a	description	of	all	our	outstanding	financing	arrangements and	significant	new	borrowings.

# Share	Repurchase	Programs

Effective	January	1,	2017,	our	Board	of	Directors	authorized	the	repurchase	of	up	to	120	million	shares	of	our	common stock	by	December	31,	2020,	replacing	our	previous	repurchase	program.	As	of	December	31,	2018,	we	repurchased	a total	of	$31.4	billion	of	our	common	stock	since	the	commencement	of	our	 repurchase	programs	in	2007.	The	table below	represents	shares	repurchased	in	2018	under	this	repurchase	program.

|  | Number	of	Shares	Purchased | Number	of	Shares	Purchased | Average	Price	Paid | Average	Price	Paid |
| :--- | :--- | :--- | :--- | :--- |
|  | 2018 | 2017 | 2018 | 2017 |
| First\tquarter | 9,259,004 | 7,531,300 | $132.84 | $106.55 |
| Second\tquarter\t[a] | 33,229,992 | 7,788,283 | 142.74 | 109.10 |
| Third\tquarter | 2,239,405 | 11,801,755 | 151.94 | 106.69 |
| Fourth\tquarter\t[b] | 12,490,632 | 9,231,510 | 153.04 | 119.37 |
| Total | 57,219,033 | 36,352,848 | $143.75 | $110.40 |
| Remaining\tnumber\tof\tshares\tthat\tmay\tbe\trepurchased\tunder\tcurrent\tauthority | Remaining\tnumber\tof\tshares\tthat\tmay\tbe\trepurchased\tunder\tcurrent\tauthority | Remaining\tnumber\tof\tshares\tthat\tmay\tbe\trepurchased\tunder\tcurrent\tauthority | 26,428,119 | 26,428,119 |

[a] Includes	initial	delivery	of	19,870,292	shares	repurchased	under	accelerated	share	repurchase	programs.

[b] Includes	4,457,356	shares	received	upon	settlement	of	accelerated	share	repurchase	programs.

Management's	 assessments	 of	 market	 conditions	 and	 other	 pertinent	 facts	 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.

On	February	7,	2019,	the	Board	of	Directors	 approved	a	new	share	repurchase	authorization,	enabling	the	Company	to buy	up	to	150	million	of	its	common	shares	by	March	31,	2022.	The	new	authorization	is	effective	April	1,	2019,	and replaces	the	current	authorization,	which	will	now	expire	on	March	31,	2019.

Accelerated	 Share	 Repurchase	 Programs	 –	 On	 June	 14,	 2018, the	 Company	 established	 accelerated	 share repurchase	programs	(ASRs)	with	two	financial	institutions	to	repurchase	shares	of	our	common	stock.	Under	these ASRs,	we	paid	a	pre-specified	amount	of	$3.6	billion	and	received	an	initial	delivery	of	19,870,292	shares	on	June	15, 2018.	Upon	settlement	of	the	ASRs,	we	received	4,457,356	additional	shares	in	the	fourth	quarter	of	2018.	The	final number	 of	 shares	 repurchased	 under	 the	 ASRs	 was	 based	 on	 the	 volume	 weighted	 average	 stock	 price	 of	 the Company's	common	stock	during	the	ASR	term,	less	a	negotiated	discount.

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.

# Contractual	Obligations	and	Commercial	Commitments

As	described	in	the	notes	to	the	Consolidated	Financial	Statements	and	as	referenced	in	the	tables	below,	we	have contractual	obligations	and	commercial	commitments	that	may	affect	our	financial	condition.	Based	on	our	assessment of	the	underlying	provisions	and	circumstances	of	our	contractual	obligations	and	commercial	commitments,	including material	sources	of	off-balance	sheet	and	structured	 finance	arrangements,	other	 than	 the	risks	 that	we	and	other similarly	situated	companies	face	with	respect	to	the	condition	of	the	capital	markets	(as	described	in	Item	1A	of	Part	II of	this	report),		there	is	no	known	trend,	demand,	commitment,	event,	or	uncertainty	that	is	reasonably	likely	to	occur that	would	have	a	material	adverse	effect	on	our	consolidated	results	of	operations,	financial	condition,	or	liquidity.	In addition,	our	commercial	obligations,	financings,	and	commitments	are	customary	transactions	that	are	similar	to	those of	other	comparable	corporations,	particularly	within	the	transportation	industry.

# The	following	tables	identify	material	obligations	and	commitments	as	of	 December	31,	2018:

| Contractual	Obligations |  |  |  |  |  |  | After |  |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- |
| Millions | Total | 2019 | 2020 | 2021 | 2022 | 2023 | 2023 | Other |
| Debt\t[a] | $38,253 | $2,256 | $1,679 | $1,926 | $1,556 | $2,028 | $28,808 | $\t- |
| Operating\tleases\t[b] | 2,646 | 419 | 378 | 303 | 272 | 234 | 1,040 | \t- |
| Capital\tlease\tobligations\t[c] | 898 | 148 | 155 | 159 | 142 | 94 | 200 | \t- |
| Purchase\tobligations\t[d] | 3,311 | 1,915 | 967 | 265 | 49 | 30 | 49 | 36 |
| Other\tpost\tretirement\tbenefits\t[e] | 477 | 50 | 49 | 49 | 48 | 48 | 233 | \t- |
| Income\ttax\tcontingencies\t[f] | 174 | 99 | \t- | \t- | \t- | \t- | \t- | 75 |
| Total\tcontractual\tobligations | $45,759 | $4,887 | $3,228 | $2,702 | $2,067 | $2,434 | $30,330 | $111 |

[a] Excludes	 capital	 lease	 obligations	 of	 $754	 million,	 as	 well	 as	 unamortized	 discount	 and	 deferred issuance	 costs	 of	$(817)	 million. Includes	an	interest	component	of	$15,799	million.

[b] Includes	leases	for	locomotives,	freight	cars,	other	equipment,	and	real	estate.

[c] Represents	total	obligations,	including	interest	component	of	$144	million.

[d] Purchase	obligations	include	locomotive	maintenance	contracts;	purchase	commitments	for	fuel	purchases,	locomotives,	ties,	ballast, and	 rail;	 and	 agreements	 to	 purchase	 other	 goods	 and	 services.	 	 For	 amounts	 where	 we	 cannot	 reasonably	 estimate	 the	 year	 of settlement,	they	are	reflected	in	the	Other	column.

[e] Includes	estimated	other	post	retirement,	medical,	and	life	insurance	payments,	payments	made	under	the	unfunded	pension	plan	for the	next	ten	years.

[f] Future	cash	flows	for	income	tax	contingencies	reflect	the	recorded	liabilities	and	assets	for	unrecognized	tax	benefits,	including	interest and	penalties,	as	of	December	31,	2018.		For	amounts	where	the	year	of	settlement	is	uncertain,	they	are	reflected	in	the	Other	column.

| Other	Commercial	Commitments |  |  |  |  |  |  | After |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- |
| Millions | Total | 2019 | 2020 | 2021 | 2022 | 2023 | 2023 |
| Credit\tfacilities\t[a] | $2,000 | $\t- | $\t- | $\t- | $\t- | $2,000 | $\t- |
| Receivables\tsecuritization\tfacility\t[b] | 650 | 650 | \t- | \t- | \t- | \t- | \t- |
| Guarantees\t[c] | 22 | 7 | 5 | 5 | 5 | \t- | \t- |
| Standby\tletters\tof\tcredit\t[d] | 18 | 16 | 2 | \t- | \t- | \t- | \t- |
| Total\tcommercial\tcommitments | $2,690 | $673 | $7 | $5 | $5 | $2,000 | $\t- |

[a] None	of	the	credit	facility	was	used	as	of	December	31,	2018.

[b] $400	million	of	the	receivables	securitization	facility	was	utilized	as	of	December	31,	2018,	which	is	accounted	for	as	debt.	The	full program	matures	in	July	2019.

[c] Includes	guaranteed	obligations	related	to	our	affiliated	operations.

[d] None	of	the	letters	of	credit	were	drawn	upon	as	of	December	31,	2018.

# Off-Balance	Sheet	Arrangements

Guarantees	–	 At	December	 31,	 2018,	 and	 2017,	 we	were	 contingently liable for	 $22	 million	 and	 $33	 million in guarantees.	The	fair	value	of	these	obligations	as	of	both	December	31,	2018,	and	2017,	was	$0.	We	entered	into these	contingent	guarantees	in	the	normal	course	of	business,	and	they	include	guaranteed	obligations	related	to	our affiliated	operations.	The	final	guarantee	expires	in	2022.	We	are	not	aware	of	any	existing	event	of	default	that	would require	us	to	satisfy	these	guarantees.	We	do	not	expect	that	these	guarantees	will	have	a	material	adverse	effect	on our	consolidated	financial	condition,	results	of	operations,	or	liquidity.

Labor	Agreements	–		Approximately	85%	of	our	full-time	employees	are	represented	 by	14	major	rail	unions.	Pursuant to	the	Railway	Labor	Act	(RLA),	our	collective	bargaining	agreements	are	subject	to	modification	every	five	years.	The most	recent	round	of	negotiations	started	on	January	1,	2015,	and	throughout	2017	and	2018,	we	concluded	new agreements	with	all	14	major	rail	unions.	Existing	agreements	remain	in	effect	until	new	agreements	are	ratified	or	until the	RLA	procedures	are	exhausted.		The	RLA	procedures	include	mediation,	potential	arbitration,	cooling-off	periods, and	the	possibility	of	Presidential	Emergency	Boards	and	Congressional	intervention.	The	next	round	of	negotiations begins	with	the	service	of	RLA	Section	6	notices	on	or	about	November	1,	2019	related	to	years	2019-2023. 	Contract

negotiations	historically	continue	for	an	extended	period	of	time,	and	work	stoppages	during	negotiations	are	rare.

Inflation	–	Long	periods	of	inflation	significantly	increase	asset 	replacement	costs	for	capital-intensive	companies.	As	a result,	assuming	 that	we	replace	all	operating	assets	at	current	price	 levels,	depreciation	charges	(on	an	 inflation- adjusted	basis)	would	be	substantially	greater	than	historically	reported	amounts.

Sensitivity	Analyses	–	The	sensitivity	analyses	that	follow	illustrate	the	economic	effect	that	hypothetical	changes	in interest	 rates	 could	 have	 on	 our	 results	 of	 operations	 and	 financial	 condition.	 These	 hypothetical	 changes	 do	 not consider	other	factors	that	could	impact	actual	results.

At	December	31,	2018,	we	had	variable-rate	debt	representing	 approximately	3.8%	of	our	total	debt.	If	variable	interest rates	 average	 one	 percentage	 point	 higher	 in	 2019	 than	 our	December 31, 2018	 variable	 rate,	 which	 was approximately	3.3%,	our	interest	expense	would	increase	by	approximately	$8.5	million .	This	amount	was	determined by	considering	the	impact	of	the	hypothetical	interest	rate	on	the	balances	of	our	variable-rate	debt	at	December	31, 2018.

Market	risk	for	fixed-rate	debt	is	estimated	as	the	potential	increase	in	fair	value	resulting	from	a	hypothetical	one percentage	point	decrease	in	interest	rates	as	of	December	31,	2018,	and	amounts	to	an	increase	of	approximately $2.4	billion	to	the	fair	value	of	our	debt	at	 December	31,	2018.	We	estimated	the	fair	values	of	our	fixed-rate	debt	by considering	the	impact	of	the	hypothetical	interest	rates	on	quoted	market	prices	and	current	borrowing	rates.

Accounting	Pronouncements	–	See	Note	3	to	the	Consolidated	Financial	Statements.

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.

Gain	 Contingency	 –	 UPRR filed	 multiple	 claims	 with	 the	 IRS	 for	 refunds	 of	 railroad	 retirement	 taxes	 (Railroad Retirement	Taxes)	paid	on	(i)	certain	stock	awards	to	its	employees	and	(ii)	certain	bonus	payments	it	made	to	labor agreement	employees	during	the	years	1991	–	2017.	In	2016,	the	U.S.	District	Court	for	the	District	of	Nebraska	(the District	Court)	denied	UPRR	recovery	of	these	Railroad	Retirement	Taxes.	UPRR	appealed	this	denial	to	the	U.S.	Court of	Appeals	for	the	8th	Circuit	(8th	Circuit)	and	the	8th	Circuit	ruled	in	favor	of	UPRR	and	remanded	the	case	to	the District	Court.	The	IRS	appealed	the	8th	Circuit	ruling	to	the	U.S.	Supreme	Court.	In	June	2018,	a	similar	case	for another	railroad	was	decided	by	the	U.S.	Supreme	Court	against	the	IRS	and	in	favor	of	that	railroad	(Wisconsin	Central LTD.,	Et.	Al.	v.	U.S. ).	As	a	result,	the	U.S.	Supreme	Court	denied	the	IRS	request	to	appeal	the	8th	Circuit	ruling.	On November	28,	2018	the	District	Court	issued	an	order	granting	summary	judgment	to	UPRR	pursuant	to	the	mandate	of the	8th	Circuit.	UPRR,	the	Department	of	Justice	(DOJ),	and	the	IRS	have	since	agreed	upon	the	tax	refund	amounts owed	 UPRR	 and	 its	 employees.	 UPRR's	 employer	 refund	 of	 $78	 million	 will	 be	 recognized	 as	 a	 reduction	 of compensation	and	benefit	expenses	and	approximately	$30	million	of	interest	will	be	recognized	in	other	income.	UPRR expects	to	receive	the	refunds	in	2019,	but	the	refunds	may	be	received	in	multiple	portions	at	different	times.	UPRR	is in	the	process	of	seeking	consent	from	approximately	75,000	current	and	former	employees	to	obtain	their	employee share	of	the	refunds.		UPRR	anticipates	having	this	consent	process	completed	in	the	first	half	of	2019,	but	further actions	by	the	IRS	and	Railroad	Retirement	Board	may	delay	completion	until	later	in	2019.

These	refund	claims	are	considered	gain	contingencies	and	no	refund	amounts	have	been	recorded	in	the	Consolidated Financial	Statements	as	of	December	31,	2018.	The	claims	will	be	recorded	when	a	final	judgment	from	the	District Court	has	been	issued	and	all	IRS	requirements	for	UPRR's	refunds	have	been	fulfilled.

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.

Climate	 Change –	 Although	 climate	 change	 could	 have	 an	 adverse	 impact	 on	 our	 operations	 and	 financial performance	in	the	future	(see	Risk	Factors	under	Item	1A	of	this	report),	we	are	currently	unable	to	predict	the	manner or	severity	of	such	impact.	However,	we	continue	to	take	steps	and	explore	opportunities	to	reduce	the	impact	of	our operations	 on	 the	 environment,	 including	 investments	 in	 new	 technologies,	 using	 training	 programs	 to	 reduce	 fuel consumption,	and	changing	our	operations	to	increase	fuel	efficiency.

# CRITICAL	ACCOUNTING	POLICIES

Our	 Consolidated	 Financial	 Statements	 have	 been	 prepared	 in	 accordance	 with	 GAAP.	 The	 preparation	 of	 these financial	statements	requires	estimation	and	judgment	that	affect	the	reported	amounts	of	revenues,	expenses,	assets, and	liabilities.	We	base	our	estimates	on	historical	experience	and	on	various	other	assumptions	that	we	believe	are reasonable	under	 the	circumstances,	 the	results	of	which	 form	 the	basis	 for	making	 judgments	about	 the	carrying values	of	assets	and	liabilities	that	are	not	readily	apparent	from	other	sources.	The	following	critical	accounting	policies are	a	subset	of	our	significant	accounting	policies	described	in	Note	2	to	the	Financial	Statements	and	Supplementary Data,	Item	8.	These	critical	accounting	policies	affect	significant	areas	of	our	financial	statements	and	involve	judgment and	 estimates.	 If	 these	 estimates	 differ	 significantly	 from	 actual	 results,	 the	 impact	 on	 our	 Consolidated	 Financial Statements	may	be	material.

Personal	Injury	–	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	94%	of	the	recorded	liability	is	related	to	asserted	claims	and	approximately	6%	is	related	to unasserted	claims	at	December	31,	2018.	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	$271	million to	$297	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 | 2018 | 2017 | 2016 |
| :--- | :--- | :--- | :--- |
| Beginning\tbalance | $285 | $290 | $318 |
| Current\tyear\taccruals | 74 | 77 | 75 |
| Changes\tin\testimates\tfor\tprior\tyears | (16) | (7) | (29) |
| Payments | (72) | (75) | (74) |
| Ending\tbalance\tat\tDecember\t31 | $271 | $285 | $290 |
| Current\tportion,\tending\tbalance\tat\tDecember\t31 | $72 | $66 | $62 |

Our	personal	injury	claims	activity	was	as	follows:

|  | 2018 | 2017 | 2016 |
| :--- | :--- | :--- | :--- |
| Open\tclaims,\tbeginning\tbalance | 2,090 | 2,157 | 2,404 |
| New\tclaims | 3,188 | 3,024 | 2,453 |
| Settled\tor\tdismissed\tclaims | (3,253) | (3,091) | (2,700) |
| Open\tclaims,\tending\tbalance\tat\tDecember\t31 | 2,025 | 2,090 | 2,157 |

We	 reassess	 our	 estimated	 insurance	 recoveries	 annually	 and	 have	 recognized	 an	 asset	 for	 estimated	 insurance recoveries	at	December	31,	2018,	and	2017.		Any	changes	to	recorded	insurance	recoveries	are	included	in	the	above table	in	the	Changes	in	estimates	for	prior	years	category.

Environmental	 Costs	–	We	are	subject to	 federal,	state,	and	 local	environmental	 laws	and	regulations.	We	have identified	334	sites	at	which	we	are	or	may	be	liable	for	remediation	costs	associated	with	alleged	contamination	or	for violations	 of	 environmental	requirements.	This	 includes	 33	 sites	 that	 are	 the	 subject	 of	 actions	 taken	 by	 the	 U.S. government,	21	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 | 2018 | 2017 | 2016 |
| :--- | :--- | :--- | :--- |
| Beginning\tbalance | $196 | $212 | $190 |
| Accruals | 84 | 45 | 84 |
| Payments | (57) | (61) | (62) |
| Ending\tbalance\tat\tDecember\t31 | $223 | $196 | $212 |
| Current\tportion,\tending\tbalance\tat\tDecember\t31 | $59 | $57 | $55 |

Our	environmental	site	activity	was	as	follows:

|  | 2018 | 2017 | 2016 |
| :--- | :--- | :--- | :--- |
| Open\tsites,\tbeginning\tbalance | 315 | 292 | 290 |
| New\tsites | 91 | 77 | 85 |
| Closed\tsites | (72) | (54) | (83) |
| Open\tsites,\tending\tbalance\tat\tDecember\t31 | 334 | 315 | 292 |

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.

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.		Assets	purchased	or	constructed	throughout	the	year	are	capitalized	if	they	meet	applicable minimum	units	of	property	criteria.		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	subject	to	abandonment,	and	yard	and	switching	tracks)	for	which	lives	are	measured	in millions	of	gross	 tons	per	mile	of	 track.	 	We	use	 the	group	method	of	depreciation	 in	which	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	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	 property	 by	 means	 of	 depreciation	 studies. 	 We perform	depreciation	studies	at	least	every	three	years	for	equipment	and	every	six	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.		Rail	in	high-density	traffic	corridors accounts	for	approximately	70	percent	of	the	historical	cost	of	rail	and	other	track	material.		Based	on	the	number	of gross	ton-miles	carried	over	our	rail	in	high	density	traffic	corridors	during	2018,	the	estimated	service	 lives	of	 the majority	of	this	rail	ranged	from	approximately	19	years	to	approximately	41	years.		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.

Estimated	service	lives	of	depreciable	railroad	property	may	vary	over	time	due	to	changes	in	physical	use,	technology, asset	strategies,	and	other	factors	that	will	have	an	impact	on	the	retirement	profiles	of	our	assets.		We	are	not	aware	of any	specific	factors	that	are	reasonably	likely	to	significantly	change	the	estimated	service	lives	of	our	assets.		Actual use	and	retirement	of	our	assets	may	vary	from	our	current	estimates,	which	would	impact	the	amount	of	depreciation expense	recognized	in	future	periods.

Changes	in	estimated	useful	lives	of	our	assets	due	to	the	results	of	our	depreciation	studies	could	significantly	impact future	periods'	depreciation	expense	and	have	a	material	impact	on	our	Consolidated	Financial	Statements.		If	the estimated	 useful	 lives	 of	 all	 depreciable	 assets	 were	 increased	 by	 one	 year,	 annual	 depreciation	 expense	 would decrease	by	approximately	$70	million.		If	the	estimated	useful	lives	of	all	depreciable	asset s	were	decreased	by	one year,	annual	depreciation	expense	would	increase	by	approximately	$75	million.		Our	2018	depreciation	studies	have resulted	 in	 lower	depreciation	rates	 for	some	asset	classes.	These	 lower	rates	will	partially	offset	 the	 impact	of	a projected	higher	depreciable	asset	base,	resulting	in	an	increase	in	total	depreciation	expense	by	approximately	3%	in 2019	versus	2018.

Under	group	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	(i)	inflation	indices	published	by	the	Bureau	of	Labor	Statistics	and	(ii)	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:	(i)	it	is	unusual,	(ii)	it	is	material	in	amount, and	(iii)	it	varies	significantly	from	the	retirement	profile	identified	through	our	depreciation	studies.		During	the	last	three fiscal	years,	no	gains	or	losses	were	recognized	due	to	the	retirement	of	depreciable	railroad	properties.		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.

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	have	been	recognized	in	our financial	statements	or	tax	returns.	These	expected	future	tax	consequences	are	measured	based	on	current	tax	law; the	effects	of	future	tax	legislation	are	not	anticipated.		Future	tax	legislation,	such	as	a	change	in	the	corporate	tax	rate, could	have	a	material	impact	on	our	financial	condition,	results	of	operations,	or	liquidity.		For	example,	a	permanent	1% increase	in	future	income	tax	rates	would	increase	our	deferred	tax	liability	by	approximately	$450	million.		Similarly,	a permanent	1%	decrease	in	future	income	tax	rates	would	decrease	our	deferred	tax	liability	by	approximately	$450 million.

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.	In	2018	and	2017,	there	were	no	valuation	allowances.

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.

Pension	and	Other	Postretirement	Benefits	–	We	use	an	actuarial	analysis	to	measure	the	liabilities	and	expenses associated	with	providing	pension	and	medical	and	life	insurance	benefits	(OPEB)	to	eligible	employees.	In	order	to	use actuarial	methods	to	value	the	liabilities	and	expenses,	we	must	make	several	assumptions.	The	critical	assumptions used	to	measure	pension	obligations	and	expenses	are	the	discount	rates	and	expected	rate	of	return	on	pension assets.	For	OPEB,	the	critical	assumptions	are	the	discount	rates	and	health	care	cost	trend	rate.

We	evaluate	our	critical	assumptions	at	least	annually,	and	selected	assumptions	are	based	on	the	following	factors:

· We	measure	the	service	cost	and	interest	cost	components	of	our	net	periodic	benefit	cost	by	using	individual	spot rates	matched	with	separate	cash	flows	for	each	future	year.	Discount	rates	are	based	on	a	Mercer	yield	curve	of high	quality	corporate	bonds	(rated	AA	by	a	recognized	rating	agency).

· Expected	 return	 on	 plan	 assets	 is	 based	 on	 our	 asset	 allocation	 mix	 and	 our	 historical return, taking into consideration	current	and	expected	market	conditions. · Health	care	cost	trend	rate	is	based	on	our	historical	rates	of	inflation	and	expected	market	conditions.

The	following	tables	present	the	key	assumptions	used	to	measure	net	periodic	pension	and	OPEB	cost/(benefit)	for 2019	and	the	estimated	impact	on	2019	net	periodic	pension	and	OPEB	cost/(benefit)	relative	to	a	change	in	those assumptions:

| Assumptions | Pension | OPEB |
| :--- | :--- | :--- |
| Discount\trate\tfor\tbenefit\tobligations | 4.23% | 4.17% |
| Discount\trate\tfor\tinterest\ton\tbenefit\tobligations | 3.94% | 3.84% |
| Discount\trate\tfor\tservice\tcost | 4.33% | 4.32% |
| Discount\trate\tfor\tinterest\ton\tservice\tcost | 4.30% | 4.27% |
| Expected\treturn\ton\tplan\tassets | 7.00% | N/A |
| Compensation\tincrease | 4.19% | N/A |
| Health\tcare\tcost\ttrend\trate: |  |  |
| \t\t\t\t\tPre-65\tcurrent | N/A | 6.09% |
| \t\t\t\t\tPre-65\tlevel\tin\t2038 | N/A | 4.50% |

| Sensitivities |  | Increase	in	Expense |
| :--- | :--- | :--- |
| Millions | Pension | OPEB |
| 0.25%\tdecrease\tin\tdiscount\trates | $13 | $\t- |
| 0.25%\tincrease\tin\tcompensation\tscale | $10 | N/A |
| 0.25%\tdecrease\tin\texpected\treturn\ton\tplan\tassets | $10 | N/A |
| 1%\tincrease\tin\thealth\tcare\tcost\ttrend\trate | N/A | $3 |

The	following	table	presents	the	net	periodic	pension	and	OPEB	cost	for	the	years	ended	December	31:

|  | Est. |  |  |  |
| :--- | :--- | :--- | :--- | :--- |
| Millions | 2019 | 2018 | 2017 | 2016 |
| Net\tperiodic\tpension\tcost | $39 | $71 | $115 | $43 |
| Net\tperiodic\tOPEB\tcost | 19 | 23 | 22 | 13 |

# CAUTIONARY	INFORMATION

Certain	statements	in	this	report,	and	statements	in	other	reports	or	information	filed	or	to	be	filed	with	the	SEC	(as	well as	information	included	in	oral	statements	or	other	written	statements	made	or	to	be	made	by	us),	are,	or	will	be, forward-looking	statements	as	defined	by	the	Securities	Act	of	1933	and	the	Securities	Exchange	Act	of	1934.	These forward-looking	statements	and	information	include,	without	limitation,	(A)	statements	in	the	Chairman's	letter	preceding Part	I;	statements	regarding	planned	capital	expenditures	under	the	caption	"2019	Capital	Plan"	in	Item	2	of	Part	I; statements	regarding	dividends	in	Item	5	of	Part	II;	and	statements	and	information	set	forth	under	the	captions	"2019 Outlook";	"Liquidity	and	Capital	Resources";	and	"Pension	and	Other	Postretirement	Benefits"	in	this	Item	7	of	Part	II, and	 (B)	 any	 other	 statements	 or	 information	 in	 this	 report	 (including	 information	 incorporated	 herein	 by	 reference) regarding:	expectations	as	to	financial	performance,	revenue	growth	and	cost	savings;		the	time	by	which	goals,	targets, or	 objectives	 will	 be	 achieved;	 	 projections,	 predictions,	 expectations,	 estimates,	 or	 forecasts	 as	 to	 our	 business, financial	and	operational	results,	future	economic	performance,	and	general	economic	conditions;		expectations	as	to operational	or	service	performance	or	improvements;		expectations	as	to	the	effectiveness	of	steps	taken	or	to	be	taken to	 improve	operations	and/or	service,	 including	capital	expenditures	 for	 infrastructure	 improvements	and	equipment acquisitions,	any	strategic	business	acquisitions,	and	modifications	to	our	transportation	plans,	including	implementation of	PTC;		expectations	as	to	existing	or	proposed	new	products	and	services;	expectations	as	to	the	impact	of	any	new regulatory	activities	or	legislation	on	our	operations	or	financial	results;		estimates	of	costs	relating	to	environmental remediation	 and	 restoration;	 estimates	 and	 expectations	 regarding	 tax	 matters;	 expectations	 that	 claims,	 litigation, environmental	costs,	commitments,	contingent	liabilities,	labor	negotiations	or	agreements,	or	other	matters	will	not have	a	material	adverse	effect	on	our	consolidated	results	of	operations,	financial	condition,	or	liquidity	and	any	other similar	expressions	concerning	matters	that	are	not	historical	facts.		Forward-looking	statements	may	be	identified	by their	use	of	forward-looking	terminology,	such	as	"believes,"	"expects,"	"may,"	"should,"	"would,"	"will,"	"intends,"	"plans," "estimates,"	"anticipates,"	"projects"	and	similar	words,	phrases	or	expressions.

Forward-looking	statements	should	not	be	read	as	a	guarantee	of	future	performance	or	results,	and	will	not	necessarily be	accurate	indications	of	the	times	that,	or	by	which,	such	performance	or	results	will	be	achieved.	Forward-looking statements	and	information	are	subject	to	risks	and	uncertainties	that	could	cause	actual	performance	or	results	to	differ materially	from	those	expressed	in	the	statements	and	information.		Forward-looking	statements	and	information	reflect the	 good	 faith	 consideration	 by	 management	 of	 currently	 available	 information,	 and	 may	 be	 based	 on	 underlying assumptions	believed	to	be	reasonable	under	the	circumstances.	However,	such	information	and	assumptions	(and, therefore,	 such	 forward-looking	 statements	 and	 information)	 are	 or	 may	 be	 subject	 to	 variables	 or	 unknown	 or unforeseeable	events	or	circumstances	over	which	management	has	little	or	no	influence	or	control.		The	Risk	Factors in	 Item	 1A	 of	 this	 report	 could	 affect	 our	 future	 results	 and	 could	 cause	 those	 results	 or	 other	 outcomes	 to	 differ materially	 from	 those	 expressed	 or	 implied	 in	 any	 forward-looking	 statements	 or	 information.	 To	 the	 extent circumstances	require	or	we	deem	it	otherwise	necessary,	we	will	update	or	amend	these	risk	factors	in	a	Form	10-Q, Form	8-K	or	subsequent	Form	10-K.		All	forward-looking	statements	are	qualified	by,	and	should	be	read	in	conjunction with,	these	Risk	Factors.

Forward-looking	statements	speak	only	as	of	the	date	the	statement	was	made.	We	assume	no	obligation	to	update forward-looking	 information	 to	 reflect	 actual	 results,	 changes	 in	 assumptions	 or	 changes	 in	 other	 factors	 affecting forward-looking	information.	If	we	do	update	one	or	more	forward-looking	statements,	no	inference	should	be	drawn	that we	will	make	additional	updates	with	respect	thereto	or	with	respect	to	other	forward-looking	statements.

# Item	7A.	Quantitative	and	Qualitative	Disclosures	about	Market	Risk

Information	concerning	market	risk	sensitive	instruments	is	set	forth	under	Management's	Discussion	and	Analysis	of Financial	Condition	and	Results	of	Operations	–	Other	Matters,	Item	7.

# Item	8.	Financial	Statements	and	Supplementary	Data

| Index	to	Consolidated	Financial	Statements | Page |
| :--- | :--- |
| ​Report\tof\tIndependent\tRegistered\tPublic\tAccounting\tFirm | 45 |
| ​Consolidated\tStatements\tof\tIncome\n​For\tthe\tYears\tEnded\tDecember\t31,\t2018,\t2017,\tand\t2016 | 46 |
| ​Consolidated\tStatements\tof\tComprehensive\tIncome\n​For\tthe\tYears\tEnded\tDecember\t31,\t2018,\t2017,\tand\t2016 | 46 |
| ​Consolidated\tStatements\tof\tFinancial\tPosition\n​At\tDecember\t31,\t2018\tand\t2017 | 47 |
| ​Consolidated\tStatements\tof\tCash\tFlows\n​For\tthe\tYears\tEnded\tDecember\t31,\t2018,\t2017,\tand\t2016 | 48 |
| ​Consolidated\tStatements\tof\tChanges\tin\tCommon\tShareholders'\tEquity\n​For\tthe\tYears\tEnded\tDecember\t31,\t2018,\t2017,\tand\t2016 | 49 |
| ​Notes\tto\tthe\tConsolidated\tFinancial\tStatements | 50 |

# REPORT	OF	INDEPENDENT	REGISTERED	PUBLIC	ACCOUNTING	FIRM

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

# Omaha,	Nebraska

# 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,	2018	and	2017,	the	related	consolidated	statements	of income,	comprehensive	income,	changes	in	common	shareholders'	equity,	and	cash	flows	for	each	of	the	three	years	in the	period	ended	December	31,	2018,	and	the	related	notes	and	the	schedule	listed	in	the	Table	of	Contents	at	Part	IV, Item	15	(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,	2018	and	2017,	and	the	results	of	its operations	and	its	cash	flows	for	each	of	the	three	years	in	the	period	ended	December	31,	2018,	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,	2018,	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 8, 2019,	 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.

/s/	Deloitte	&	Touche	LLP

Omaha,	Nebraska February	8,	2019

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

# CONSOLIDATED	STATEMENTS	OF	INCOME

# Union	Pacific	Corporation	and	Subsidiary	Companies

| for	the	Years	Ended	December	31, | 2018 | 2017 | 2016 |
| :--- | :--- | :--- | :--- |
| Operating\trevenues: |  |  |  |
| \t\t\t\t\tFreight\trevenues | $21,384 | $19,837 | $18,601 |
| \t\t\t\t\tOther\trevenues | 1,448 | 1,403 | 1,340 |
| Total\toperating\trevenues | 22,832 | 21,240 | 19,941 |
| Operating\texpenses: |  |  |  |
| \t\t\t\t\tCompensation\tand\tbenefits | 5,056 | 4,939 | 4,779 |
| \t\t\t\t\tFuel | 2,531 | 1,891 | 1,489 |
| \t\t\t\t\tPurchased\tservices\tand\tmaterials | 2,443 | 2,363 | 2,258 |
| \t\t\t\t\tDepreciation | 2,191 | 2,105 | 2,038 |
| \t\t\t\t\tEquipment\tand\tother\trents | 1,072 | 888 | 1,137 |
| \t\t\t\t\tOther | 1,022 | 948 | 997 |
| Total\toperating\texpenses | 14,315 | 13,134 | 12,698 |
| Operating\tincome | 8,517 | 8,106 | 7,243 |
| Other\tincome\t(Note\t7) | 94 | 245 | 221 |
| Interest\texpense | (870) | (719) | (698) |
| Income\tbefore\tincome\ttaxes | 7,741 | 7,632 | 6,766 |
| Income\ttax\tbenefit/(expense)\t(Note\t8) | (1,775) | 3,080 | (2,533) |
| Net\tincome | $5,966 | $10,712 | $4,233 |
| Share\tand\tPer\tShare\t(Note\t9): |  |  |  |
| \t\t\t\t\tEarnings\tper\tshare\t-\tbasic | $7.95 | $13.42 | $5.09 |
| \t\t\t\t\tEarnings\tper\tshare\t-\tdiluted | $7.91 | $13.36 | $5.07 |
| \t\t\t\t\tWeighted\taverage\tnumber\tof\tshares\t-\tbasic | 750.9 | 798.4 | 832.4 |
| \t\t\t\t\tWeighted\taverage\tnumber\tof\tshares\t-\tdiluted | 754.3 | 801.7 | 835.4 |
| Dividends\tdeclared\tper\tshare | $3.06 | $2.48 | $2.255 |

# CONSOLIDATED	STATEMENTS	OF	COMPREHENSIVE	INCOME

| for	the	Years	Ended	December	31, | 2018 | 2017 | 2016 |
| :--- | :--- | :--- | :--- |
| Net\tincome | $5,966 | $10,712 | $4,233 |
| Other\tcomprehensive\tincome/(loss): |  |  |  |
| \t\t\t\t\tDefined\tbenefit\tplans | 62 | 103 | (29) |
| \t\t\t\t\tForeign\tcurrency\ttranslation | (36) | 28 | (48) |
| Total\tother\tcomprehensive\tincome/(loss)\t[a] | 26 | 131 | (77) |
| Comprehensive\tincome | $5,992 | $10,843 | $4,156 |

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

# CONSOLIDATED	STATEMENTS	OF	FINANCIAL	POSITION

| as	of	December	31, | 2018 | 2017 |
| :--- | :--- | :--- |
| Assets |  |  |
| Current\tassets: |  |  |
| \t\t\t\t\tCash\tand\tcash\tequivalents | $1,273 | $1,275 |
| \t\t\t\t\tShort-term\tinvestments\t(Note\t14) | 60 | 90 |
| \t\t\t\t\tAccounts\treceivable,\tnet\t(Note\t11) | 1,755 | 1,493 |
| \t\t\t\t\tMaterials\tand\tsupplies | 742 | 749 |
| \t\t\t\t\tOther\tcurrent\tassets | 333 | 399 |
| Total\tcurrent\tassets | 4,163 | 4,006 |
| Investments | 1,912 | 1,809 |
| Net\tproperties\t(Note\t12) | 52,679 | 51,605 |
| Other\tassets | 393 | 386 |
| Total\tassets | $59,147 | $57,806 |
| Liabilities\tand\tCommon\tShareholders'\tEquity |  |  |
| Current\tliabilities: |  |  |
| \t\t\t\t\tAccounts\tpayable\tand\tother\tcurrent\tliabilities\t(Note\t13) | $3,160 | $3,139 |
| \t\t\t\t\tDebt\tdue\twithin\tone\tyear\t(Note\t15) | 1,466 | 800 |
| Total\tcurrent\tliabilities | 4,626 | 3,939 |
| Debt\tdue\tafter\tone\tyear\t(Note\t15) | 20,925 | 16,144 |
| Deferred\tincome\ttaxes\t(Note\t8) | 11,302 | 10,936 |
| Other\tlong-term\tliabilities | 1,871 | 1,931 |
| Commitments\tand\tcontingencies\t(Notes\t17\tand\t18) |  |  |
| Total\tliabilities | 38,724 | 32,950 |
| Common\tshareholders'\tequity: |  |  |
| \t\t\t\t\tCommon\tshares,\t$2.50\tpar\tvalue,\t1,400,000,000\tauthorized; |  |  |
| \t\t\t\t\t1,111,739,781\tand\t1,111,371,304\tissued;\t725,056,690\tand\t780,917,756 |  |  |
| \t\t\t\t\toutstanding,\trespectively | 2,779 | 2,778 |
| \t\t\t\t\tPaid-in-surplus | 4,449 | 4,476 |
| \t\t\t\t\tRetained\tearnings | 45,284 | 41,317 |
| \t\t\t\t\tTreasury\tstock | (30,674) | (22,574) |
| \t\t\t\t\tAccumulated\tother\tcomprehensive\tloss\t(Note\t10) | (1,415) | (1,141) |
| Total\tcommon\tshareholders'\tequity | 20,423 | 24,856 |
| Total\tliabilities\tand\tcommon\tshareholders'\tequity | $59,147 | $57,806 |

# CONSOLIDATED	STATEMENTS	OF	CASH	FLOWS

| Millions,	for	the	Years	Ended	December	31, | 2018 | 2017 | 2016 |
| :--- | :--- | :--- | :--- |
| Operating\tActivities |  |  |  |
| Net\tincome | $5,966 | $10,712 | $4,233 |
| Adjustments\tto\treconcile\tnet\tincome\tto\tcash\tprovided\nby\toperating\tactivities: |  |  |  |
| \t\tDepreciation | 2,191 | 2,105 | 2,038 |
| \t\tDeferred\tand\tother\tincome\ttaxes | 338 | (5,067) | 831 |
| \t\tNet\tgain\ton\tnon-operating\tasset\tdispositions | (30) | (111) | (94) |
| \t\tOther\toperating\tactivities,\tnet | 347 | (282) | (228) |
| \t\tChanges\tin\tcurrent\tassets\tand\tliabilities: |  |  |  |
| \t\t\t\t\tAccounts\treceivable,\tnet | (262) | (235) | 98 |
| \t\t\t\t\tMaterials\tand\tsupplies | 7 | (32) | 19 |
| \t\t\t\t\tOther\tcurrent\tassets | (24) | 9 | 22 |
| \t\t\t\t\tAccounts\tpayable\tand\tother\tcurrent\tliabilities | (125) | 182 | 232 |
| \t\t\t\t\tIncome\tand\tother\ttaxes | 278 | (51) | 374 |
| Cash\tprovided\tby\toperating\tactivities | 8,686 | 7,230 | 7,525 |
| Investing\tActivities |  |  |  |
| Capital\tinvestments | (3,437) | (3,238) | (3,505) |
| Purchases\tof\tshort-term\tinvestments\t(Note\t14) | (90) | (120) | (580) |
| Maturities\tof\tshort-term\tinvestments\t(Note\t14) | 90 | 90 | 520 |
| Proceeds\tfrom\tasset\tsales | 63 | 168 | 129 |
| Other\tinvesting\tactivities,\tnet | (37) | 14 | 43 |
| Cash\tused\tin\tinvesting\tactivities | (3,411) | (3,086) | (3,393) |
| Financing\tActivities |  |  |  |
| Share\trepurchase\tprograms\t(Note\t19) | (8,225) | (4,013) | (3,105) |
| Debt\tissued\t(Note\t15) | 6,892 | 2,735 | 1,983 |
| Dividends\tpaid | (2,299) | (1,982) | (1,879) |
| Debt\trepaid | (1,736) | (840) | (1,013) |
| Net\tissuance\tof\tcommercial\tpaper | 194 | \t- | \t- |
| Debt\texchange | \t- | \t- | (191) |
| Other\tfinancing\tactivities,\tnet | (48) | (46) | (41) |
| Cash\tused\tin\tfinancing\tactivities | (5,222) | (4,146) | (4,246) |
| Net\tchange\tin\tcash,\tcash\tequivalents\tand\trestricted\tcash | 53 | (2) | (114) |
| Cash,\tcash\tequivalents,\tand\trestricted\tcash\tat\tbeginning\tof\tyear | 1,275 | 1,277 | 1,391 |
| Cash,\tcash\tequivalents,\tand\trestricted\tcash\tat\tend\tof\tyear | $1,328 | $1,275 | $1,277 |
| Supplemental\tCash\tFlow\tInformation |  |  |  |
| \t\tNon-cash\tinvesting\tand\tfinancing\tactivities: |  |  |  |
| \t\t\t\t\tTerm\tloan\trenewals | $250 | $\t- | $\t- |
| \t\t\t\t\tCapital\tinvestments\taccrued\tbut\tnot\tyet\tpaid | 205 | 366 | 223 |
| \t\t\t\t\tCapital\tlease\tfinancings | 12 | 19 | \t- |
| \t\tCash\tpaid\tduring\tthe\tyear\tfor: |  |  |  |
| \t\t\t\t\tIncome\ttaxes,\tnet\tof\trefunds | $(1,205) | $(2,112) | $(1,347) |
| \t\t\t\t\tInterest,\tnet\tof\tamounts\tcapitalized | (728) | (666) | (652) |

# CONSOLIDATED	STATEMENTS	OF	CHANGES	IN	COMMON	SHAREHOLDERS'	EQUITY

| Millions | Common<br>Shares | Treasury<br>Shares | Common<br>Shares | Paid-in-<br>Surplus | Retained<br>Earnings | Treasury<br>Stock | AOCI<br>[a] | Total |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- |
| Balance\tat\tJanuary\t1,\t2016 | 1,110.4 | (261.2) | $\t\t\t2,776 | $\t\t\t4,417 | $\t\t\t30,233 | $\t\t\t(15,529) | $\t\t\t(1,195) | $\t\t\t\t20,702 |
| Net\tincome |  |  | \t- | \t- | 4,233 | - | - | 4,233 |
| Other\tcomprehensive\tloss |  |  | \t- | \t- | \t- | - | (77) | (77) |
| Conversion,\tstock\toption\n\t\t\texercises,\tforfeitures,\tand\tother | 0.6 | 1.1 | 1 | 4 | \t- | 53 | - | 58 |
| Share\trepurchase\tprograms\n\t\t\t(Note\t19) | \t- | (35.1) | \t- | \t- | \t- | (3,105) | - | (3,105) |
| Cash\tdividends\tdeclared\n\t\t\t($2.255\tper\tshare) | \t- | \t- | \t- | \t- | (1,879) | - | - | (1,879) |
| Balance\tat\tDecember\t31,\t2016 | 1,111.0 | (295.2) | $\t\t\t2,777 | $\t\t\t4,421 | $\t\t\t32,587 | $\t\t\t(18,581) | $\t\t\t(1,272) | $\t\t\t\t19,932 |
| Net\tincome |  |  | \t- | \t- | 10,712 | - | - | 10,712 |
| Other\tcomprehensive\tincome |  |  | \t- | \t- | \t- | - | 131 | 131 |
| Conversion,\tstock\toption\n\t\t\texercises,\tforfeitures,\tand\tother | 0.4 | 1.1 | 1 | 55 | \t- | 20 | - | 76 |
| Share\trepurchase\tprograms\n\t\t\t(Note\t19) | \t- | (36.4) | \t- | \t- | \t- | (4,013) | - | (4,013) |
| Cash\tdividends\tdeclared\n\t\t\t($2.48\tper\tshare) | \t- | \t- | \t- | \t- | (1,982) | - | - | (1,982) |
| Balance\tat\tDecember\t31,\t2017 | 1,111.4 | (330.5) | $\t\t\t2,778 | $\t\t\t4,476 | $\t\t\t41,317 | $\t\t\t(22,574) | $\t\t\t(1,141) | $\t\t\t\t24,856 |
| Net\tincome |  |  | \t- | \t- | 5,966 | - | - | 5,966 |
| Other\tcomprehensive\tincome |  |  | \t- | \t- | \t- | - | 26 | 26 |
| Conversion,\tstock\toption\n\t\t\texercises,\tforfeitures,\tand\tother | 0.3 | 1.1 | 1 | 65 | \t- | 33 | - | 99 |
| Share\trepurchase\tprograms\n\t\t\t(Note\t19) | \t- | (57.2) | \t- | (92) | \t- | (8,133) | - | (8,225) |
| Cash\tdividends\tdeclared\n\t\t\t($3.06\tper\tshare) | \t- | \t- | \t- | \t- | (2,299) | - | - | (2,299) |
| Reclassification\tdue\tto\tASU\n\t\t\t2018-02\tadoption\t(Note\t3) |  |  | \t- | \t- | 300 | - | (300) | \t- |
| Balance\tat\tDecember\t31,\t2018 | 1,111.7 | (386.6) | $\t\t\t2,779 | $\t\t\t4,449 | $\t\t\t45,284 | $\t\t\t(30,674) | $\t\t\t(1,415) | $\t\t\t\t20,423 |

[a] AOCI	=	Accumulated	Other	Comprehensive	Income/(Loss)	(Note	10)

# NOTES	TO	THE	CONSOLIDATED	FINANCIAL	STATEMENTS

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.	Nature	of	Operations

Operations	and	Segmentation	–	We	are	a	Class	I	railroad	operating	in	the	U.S.	Our	network	includes 32,236	route miles,	linking	Pacific	Coast	and	Gulf	Coast	ports	with	the	Midwest	and	Eastern	U.S.	gateways	and	providing	several corridors	to	key	Mexican	gateways.	We	own	26,039	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	and	Pacific	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	revenue	by	commodity	group,	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.	 	Effective	January	1,	2018,	 the	Company	reclassified	 its	six commodity	groups	into	four:	Agricultural	Products,	Energy,	Industrial,	and	Premium.		The	following	table	represents	a disaggregation	of	our	freight	and	other	revenues:

| Millions | 2018 | 2017 | 2016 |
| :--- | :--- | :--- | :--- |
| Agricultural\tProducts | $4,469 | $4,303 | $4,209 |
| Energy | 4,608 | 4,498 | 3,715 |
| Industrial | 5,679 | 5,204 | 4,964 |
| Premium | 6,628 | 5,832 | 5,713 |
| Total\tfreight\trevenues | $21,384 | $19,837 | $18,601 |
| Other\tsubsidiary\trevenues | 881 | 885 | 814 |
| Accessorial\trevenues | 502 | 458 | 455 |
| Other | 65 | 60 | 71 |
| Total\toperating\trevenues | $22,832 | $21,240 | $19,941 |

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.	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	$2.5	billion	in	2018,	$2.3	billion	in	2017,	and	$2.2	billion	in	2016.

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:

| Millions | 2018 | 2017 | 2016 |
| :--- | :--- | :--- | :--- |
| Cash\tand\tcash\tequivalents | $1,273 | $1,275 | $1,277 |
| Restricted\tcash\tequivalents\tin\tother\tcurrent\tassets | 42 | \t- | \t- |
| Restricted\tcash\tequivalents\tin\tother\tassets | 13 | \t- | \t- |
| Total\tcash,\tcash\tequivalents\tand\trestricted\tcash\nequivalents\tshown\ton\tthe\tStatement\tof\tCash\tFlows: | $1,328 | $1,275 | $1,277 |

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	under the	cost	method	of	accounting.		The	results	of	operations	for	our	equity	method	investments	that	are	integral	to	our operations	are	recorded	in	operating	expenses.

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	subject	to	abandonment,	and	yard	and	switching	tracks),	for	which	lives	are	measured	in millions	of	gross	 tons	per	mile	of	 track.	 	We	use	 the	group	method	of	depreciation	 in	which	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	as	measured	by	the	discounted	cash flows.

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	revenue	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	$123	million	at	December	31,	2018	and $154	million	at	December	31,	2017	and	are	expected	to	be	recognized	in	the	next	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	 a	 specified	 cumulative	 volume	 or	 shipping	 to/from	 specific	 locations,	 are	 recorded	 as	 a	 reduction	 to operating	revenues	based	on	actual	or	projected	future	customer	shipments.

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	Statement	of	Financial	Position	as	Accounts	Receivables,	net.

Freight	revenue	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	revenue.

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	revenue	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.	Revenue	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,	pension	plan	assets	and	short-	and	long-term debt.

Stock-Based	Compensation	–	We	have	several	stock-based	compensation	plans	under	which	employees	and	non- employee	 directors	 receive	 stock	 options,	 nonvested	 retention	 shares,	 and	 nonvested	 stock	 units.	 We	 refer	 to	 the nonvested	shares	and	stock	units	collectively	as	"retention	awards".	We	have	elected	to	issue	treasury	shares	to	cover option	exercises	and	stock	unit	vestings,	while	new	shares	are	issued	when	retention	shares	are	granted.

We	 measure	 and	 recognize	 compensation	 expense	 for	 all	 stock-based	 awards	 made	 to	 employees	 and	 directors, including	stock	options.	Compensation	expense	is	based	on	the	calculated	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,	while	the	fair	value	of	stock	options	is	determined	by using	the	Black-Scholes	option	pricing	model.

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	have	been	recognized	in	our financial	statements	or	tax	returns.	These	expected	future	tax	consequences	are	measured	based	on	current	tax	law; the	effects	of	future	tax	legislation	are	not	anticipated.		Future	tax	legislation,	such	as	a	change	in	the	corporate	tax	rate, could	have	a	material	impact	on	our	financial	condition,	results	of	operations,	or	liquidity.

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.

Pension	 and	 Postretirement	 Benefits	–	We	incur	certain	employment-related	expenses	associated	with	pensions and	postretirement	health	benefits.	In	order	to	measure	the	expense	associated	with	these	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,	 anticipated	 mortality	 rates,	 and	 expected future	health	care	costs.	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.	Our	personal	injury	liability	is	not	discounted	to	present	value.	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,	and	the	disclosure	of certain	contingent	assets	and	liabilities	as	of	the	date	of	the	consolidated	financial	statements,	as	well	as	the	reported amounts	of	revenue	and	expenses	during	the	reporting	period.	Actual	future	results	may	differ	from	such	estimates.

# 3.	Accounting	Pronouncements

In	May	2014,	the	FASB	issued	Accounting	Standards	Update	No.	2014-09	(ASU	2014-09),	 Revenue	from	Contracts with	 Customers	 (Topic	 606). 	ASU	 2014-09	 supersedes	 the	 revenue	 recognition	 guidance	 in	Topic	 605,	 Revenue Recognition.		The	core	principle	of	the	guidance	is	that	an	entity	should	recognize	revenue	to	depict	the	transfer	of promised	goods	and	services	to	customers	in	an	amount	that	reflects	the	consideration	to	which	the	entity	expects	to	be entitled	in	the	exchange	for	those	goods	or	services.	This	may	require	the	use	of	 more	judgment	and	estimates	in	order to	correctly	recognize	the	revenue	expected	as	an	outcome	of	each	specific	performance	obligation.	Additionally,	this guidance	requires	the	disclosure	of	the	nature,	amount,	and	timing	of	revenue	arising	from	contracts	so	as	to	aid	in	the understanding	of	the	users	of	financial	statements.

Effective	January	1,	2018,	the	Company	adopted	ASU	2014-09	using	the	modified	retrospective	transition	method.	The Company	analyzed	 its	 freight	and	other	revenues	and	recognizes	 freight	revenues	as	 freight	moves	 from	origin	 to destination	and	recognizes	other	revenues	as	identified	performance	obligations	are	satisfied.	We	also	analyzed	freight and	other	revenues	in	the	context	of	the	new	guidance	on	principal	versus	agent	considerations	and	evaluated	the required	new	disclosures.	The	ASU	did	not	have	an	impact	on	our	consolidated	financial	position,	results	of	operations, or	cash	flows.

In	 January	 2016, the	 FASB issued	Accounting 	 Standards	 Update	 No.	 2016-01 (ASU	 2016-01),	Recognition	 and Measurement	of	Financial	Assets	and	Financial	Liabilities	(Subtopic	825-10).	ASU	2016-01	provides	guidance	for	the recognition,	 measurement,	 presentation,	 and	 disclosure	 of	 financial	 instruments.	Effective	 January	 1,	 2018,	 the Company	adopted	the	ASU	and	it	did	not	have	an	impact	on	our	consolidated	financial	position,	results	of	operations,	or cash	flows.

In	 March 2017, the FASB issued	 Accounting	 Standards	 Update	 No. 2017-07 (ASU 2017-07), Improving the Presentation	of	Net	Periodic	Pension	Cost	and	Net	Periodic	Postretirement	Benefit	Cost	(Topic	715).	ASU	2017-07 requires	the	service	cost	component	be	reported	separately	 from	 the	other	components	of	net	benefit	costs	 in	 the income	 statement,	 provides	 explicit	 guidance	 on	 the	 presentation	 of	 the	 service	 cost	 component	 and	 the	 other components	of	net	benefit	cost	in	the	income	statement,	and	allows	only	the

service	cost	component	of	net	benefit	cost	to	be	eligible	for	capitalization.	 Effective	January	1,	2018,	we	adopted	the standard	on	a	retrospective	basis.	As	a	result	of	the	adoption,	only	service	costs	are	recorded	within	compensation	and benefits	expense,	and	the	other	components	of	net	benefit	costs	are	now	recorded	within	other	income.

The	impact	of	ASU	2017-07	adoption	is	shown	in	the	following	table:

| Millions | 2018 | 2017 | 2016 |
| :--- | :--- | :--- | :--- |
| Increase/(decrease)\tin\toperating\tincome | $(13) | $45 | $(29) |
| Increase/(decrease)\tin\tother\tincome | 13 | (45) | 29 |

On	February	14,	2018,	the	FASB	issued	Accounting	Standards	Update	2018-02,	(ASU	2018-02),	 Reclassification	of Certain	Tax	Effects	from	Accumulated	Other	Comprehensive	Income,	which	allows	entities	the	option	to	reclassify	from accumulated	other	comprehensive	income	(AOCI)	to	retained	earnings	the	income	tax	effects	that	remain	stranded	in AOCI	resulting	from	the	application	of	the	Tax	Act.	ASU	2018-02	is	effective	for	fiscal	years	beginning	after	December 15,	2018.	Early	adoption	of	the	ASU	is	permitted.	We	adopted	ASU	2018-02	during	the	first	quarter	of	2018.	As	a	result of	this	adoption,	we	elected	to	reclassify	$300	million	from	AOCI	to	retained	earnings.	We	adopted	the	policy	that	future income	 tax	effects	 that	are	stranded	 in	AOCI	will	be	released	only	when	 the	entire	portfolio	of	 the	 type	of	 item	 is liquidated.

In	February	2016,	the	FASB	issued	Accounting	Standards	Update	No.	2016-02	(ASU	2016-02),	 Leases	(Subtopic	842). ASU	2016-02	will	require	companies	to	recognize	lease	assets	and	lease	liabilities	on	the	balance	sheet	and	disclose key	 information	 about	 leasing	arrangements.	 For	 public	 companies,	 this	 standard	 is	 effective	 for	 annual	 reporting periods	beginning	after	December	15,	2018,	and	early	adoption	is	permitted.	We	have	implemented	an	enterprise-wide lease	management	system	to	support	the	new	reporting	requirements,	and	effective	January	1,	2019,	the	Company adopted	ASU	2016-02.	We	elected	an	initial	application	date	of	January	1,	2019	and	will	not	recast	comparative	periods in	transition	to	the	new	standard.		In	addition,	we	elected	certain	practical	expedients	which	permit	us	not	to	reassess whether	existing	contracts	are	or	contain	leases,	to	not	reassess	the	lease	classification	of	any	existing	leases,	to	not reassess	initial	direct	costs	for	any	existing	leases,	and	to	not	separate	lease	components	for	all	classes	of	underlying assets.		We	also	made	an	accounting	policy	election	to	keep	leases	with	an	initial	term	of	12	months	or	less	off	of	the balance	 sheet	 for	 all	 classes	 of	 underlying	 assets.	Adoption	 of	 the	 new	 standard	 resulted	 in	 an	 increase	 in	 the Company's	assets	and	liabilities	of	approximately	$2	billion.				 The	ASU	did	not	have	an	impact	on	our	consolidated results	of	operations	or	cash	flows.

# 4.	Workforce	Reduction	Plans

On	October	23,	2018,	we	announced	the	elimination	of	one	operating	region	and	five	service	units	as	part	of	a	broader effort	to	more	closely	align	operating	resources	with	the	Company's	long	term	strategic	initiatives.	This	resulted	in	the reduction	of	approximately	330	management	employees	in	the	fourth	quarter	of	2018.		In	addition,	approximately	140 agreement	positions	were	reduced	as	part	of	ongoing	initiatives.

On	 August 16, 2017,	 the	 Company	 approved	 and	 commenced	 a	 management	 and	 administrative	 personnel reorganization	plan	(the	"Plan")	furthering	its	on-going	efforts	to	increase	efficiency	and	more	effectively	align	Company resources.	The	Plan	implemented	productivity	initiatives	identified	during	a	Company-wide	organizational	review	that included	the	reduction	of	approximately	460	management	positions	and	250	agreement	positions	during	the	third	and fourth	quarters	of	2017.

These	workforce	reductions	resulted	in	pretax	charges	recognized	within	compensation	and	benefits	expense	and	other income	 in	 our	 Consolidated	 Statements	 of	 Income.	 The	 charges	 consisted	 of	 management	 employee	 termination benefits,	including	pension	expenses,	severance	costs,	and	acceleration	of	equity	compensation	expense	as	shown	in the	following	table:

| for	the	Years	Ended	December	31, | 2018 | 2017 |
| :--- | :--- | :--- |
| Compensation\tand\tbenefits\texpense |  |  |
| \t\t\t\t\t\t\t\tSeverance | $23 | $12 |
| \t\t\t\t\t\t\t\tEquity\tcompensation | 2 | 5 |
| Other\tincome |  |  |
| \t\t\t\t\t\t\t\tPension | \t- | 69 |
| Total\texpense | $25 | $86 |

The	2017	workforce	reduction	plan	included	an	enhanced	pension	benefit	which	resulted	in	a	curtailment	loss	of	$20 million	and	a	special	termination	benefit	of	$49	million	as	a	result	of	a	remeasurement	as	of	September	30,	2017.	In accordance	with	ASU	2017-07,	both	of	these	charges	were	recorded	within	other	income.

The	actions	associated	with	 the	above	workforce	 reductions	 are	 substantially	 complete,	 however	 we	 expect	 future workforce	reductions	may	result	in	additional	charges	(that	we	cannot	currently,	reasonably	estimate)	as	management continues	to	analyze	the	Company's	cost	structure	and	evaluate	other	restructuring	and	cost	reduction	opportunities that	will	further	align	with	the	Company's	long-term	strategic	priorities.

# 5.	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,	2018,		36,000	restricted	shares	were	outstanding	under the	Directors	Plan.

The	Union	Pacific	Corporation	2004	Stock	Incentive	Plan	(2004	Plan)	was	approved	by	shareholders	in	April	2004.	The 2004	Plan	reserved	84,000,000	shares	of	our	common	stock	for	issuance,	plus	any	shares	subject	to	awards	made under	previous	plans	that	were	outstanding	on	April	16,	2004,	and	became	available	for	regrant	pursuant	to	the	terms of	the	2004	Plan.	Under	the	2004	Plan,	non-qualified	options,	stock	appreciation	rights,	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	2004	Plan.	As	of	December	31,	2018,		1,088,670	options	and	0 retention	shares	and	stock	units	were	outstanding	under	the	2004	Plan.		We	no	longer	grant	any	stock	options	or	other stock	or	unit	awards	under	this	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	options,	incentive	stock	options,	retention	shares, stock	units,	and	incentive	bonus	awards	may	be	granted	to	eligible	employees	of	the	Corporation	and	its	subsidiaries.

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

| Millions | 2018 | 2017 | 2016 |
| :--- | :--- | :--- | :--- |
| Stock-based\tcompensation,\tbefore\ttax: |  |  |  |
| \t\t\t\t\tStock\toptions | $17 | $19 | $16 |
| \t\t\t\t\tRetention\tawards | 79 | 84 | 66 |
| Total\tstock-based\tcompensation,\tbefore\ttax | $96 | $103 | $82 |
| Excess\ttax\tbenefits\tfrom\tequity\tcompensation\tplans | $28 | $44 | $28 |

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 | 2018 | 2017 | 2016 |
| :--- | :--- | :--- | :--- |
| Risk-free\tinterest\trate | 2.6% | 2.0% | 1.3% |
| Dividend\tyield | 2.3% | 2.3% | 2.9% |
| Expected\tlife\t(years) | 5.3 | 5.3 | 5.1 |
| Volatility | 21.1% | 21.7% | 23.2% |
| Weighted-average\tgrant-date\tfair\tvalue\tof\toptions\tgranted | $21.70 | $18.19 | $11.36 |

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	2018	is	presented	below:

|  | Options<br>(thous.) | Weighted-<br>Average	Exercise<br>Price | Weighted-Average<br>Remaining	Contractual<br>Term | Aggregate<br>Intrinsic	Value<br>(millions) |
| :--- | :--- | :--- | :--- | :--- |
| Outstanding\tat\tJanuary\t1,\t2018 | 5,630 | $83.37 | 5.8\nyrs. | $286 |
| Granted | 800 | 124.86 | N/A | N/A |
| Exercised | (1,128) | 70.88 | N/A | N/A |
| Forfeited\tor\texpired | (132) | 101.01 | N/A | N/A |
| Outstanding\tat\tDecember\t31,\t2018 | 5,170 | $92.06 | 5.4\nyrs. | $239 |
| Vested\tor\texpected\tto\tvest\n\t\t\t\t\tat\tDecember\t31,\t2018 | 5,118 | $91.89 | 5.4\nyrs. | $237 |
| Options\texercisable\tat\tDecember\t31,\t2018 | 3,429 | $84.27 | 4.1\nyrs. | $185 |

Stock	options	are	granted	at	the	closing	price	on	the	date	of	grant,	have	 ten-year	contractual	terms,	and	vest	no	later than	three	years	from	the	date	of	grant.	 None	of	the	stock	options	outstanding	at	December	31,	2018,	are	subject	to performance	or	market-based	vesting	conditions.

At	December	31,	2018,	 there	 was	$17	million	of	unrecognized	compensation	expense	related	 to	nonvested	stock options,	 which	 is	 expected	 to	 be	 recognized	 over	 a	 weighted-average	 period	 of	0.9	 years.	 Additional	 information regarding	stock	option	exercises	appears	in	the	following	table:

| Millions | 2018 | 2017 | 2016 |
| :--- | :--- | :--- | :--- |
| Intrinsic\tvalue\tof\tstock\toptions\texercised | $83 | $88 | $52 |
| Cash\treceived\tfrom\toption\texercises | 76 | 59 | 39 |
| Treasury\tshares\trepurchased\tfor\temployee\tpayroll\ttaxes | (20) | (18) | (15) |
| Tax\tbenefit\trealized\tfrom\toption\texercises | 21 | 34 | 20 |
| Aggregate\tgrant-date\tfair\tvalue\tof\tstock\toptions\tvested | 19 | 20 | 19 |

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	2018	were	as	follows:

|  | Shares	(thous.) | Weighted-Average<br>Grant-Date	Fair	Value |
| :--- | :--- | :--- |
| Nonvested\tat\tJanuary\t1,\t2018 | 2,313 | $95.04 |
| Granted | 542 | 125.51 |
| Vested | (664) | 88.79 |
| Forfeited | (121) | 103.07 |
| Nonvested\tat\tDecember\t31,\t2018 | 2,070 | $104.55 |

Retention	awards	are	granted	at	no	cost	to	the	employee	or	non-employee	director	and	vest	over	periods	lasting	up	to four	 years.	 At	December	31,	2018,	 there	 was	$91	 million	 of	 total	 unrecognized	 compensation	 expense	 related	 to nonvested	retention	awards,	which	is	expected	to	be	recognized	over	a	weighted-average	period	of	1.6	years.

Performance	Retention	Awards	–	In	February	2018,	our	Board	of	Directors	approved	performance	stock	unit	grants. The	basic	terms	of	these	performance	stock	units	are	identical	to	those	granted	in	February	2017,	except	for	different annual	return	on	invested	capital	(ROIC)	performance	targets.		The	plan	also	includes	relative	operating	income	growth (OIG)	as	a	modifier	compared	to	the	companies	included	in	the	S&P	500	Industrials	Index.	We	define	ROIC	as	net operating	profit	adjusted	for	interest	expense	(including	interest	on	the	present	value	of	operating	leases)	and	taxes	on interest	divided	by	average	invested	capital	adjusted	for	the	present	value	of	operating	leases.	The	modifier	can	be	up to	+/-	25%	of	 the	award	earned	based	on	 the	ROIC	achieved,	but	not	 to	exceed	 the	maximum	number	of	shares granted.

Stock	units	awarded	to	selected	employees	under	these	grants	are	subject	to	continued	employment	for	37	months	and the	attainment	of	certain	levels	of	ROIC,	modified	for	the	relative	OIG.	We	expense	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	relative	OIG	modifier.	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,	reduced	by	the	present	value	of	estimated future	dividends.	Dividend	equivalents	are	paid	to	participants	only	after	the	units	are	earned.

The	assumptions	used	to	calculate	the	present	value	of	estimated	future	dividends	related	to	the	February	2018	grant were	as	follows:

Changes	in	our	performance	retention	awards	during	2018	were	as	follows:

|  | Shares	(thous.) | Weighted-Average<br>Grant-Date	Fair	Value |
| :--- | :--- | :--- |
| Nonvested\tat\tJanuary\t1,\t2018 | 1,138 | $92.92 |
| Granted | 348 | 117.80 |
| Vested | (95) | 111.96 |
| Unearned | (201) | 114.97 |
| Forfeited | (98) | 93.06 |
| Nonvested\tat\tDecember\t31,\t2018 | 1,092 | $95.12 |

At	December	31,	2018,	 there	 was	$42	 million	 of	 total	 unrecognized	 compensation	 expense	 related	 to	 nonvested performance	retention	awards,	which	is	expected	to	be	recognized	over	a	weighted-average	period	of	1.2	years.	This expense	is	subject	to	achievement	of	the	performance	measures	established	for	the	performance	stock	unit	grants.

# 6.	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	as	described	below	in	other	retirement	programs.

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.

# Funded	Status

We	are	required	by	GAAP	to	separately	recognize	the	overfunded	or	underfunded	status	of	our	pension	and	OPEB 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.	The	PBO	of	the	OPEB	plan	is	equal	to	the	accumulated	benefit	obligation,	as the	present	value	of	the	OPEB	liabilities	is	not	affected	by	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 | Pension |  | OPEB |  |
| :--- | :--- | :--- | :--- | :--- |
| Millions | 2018 | 2017 | 2018 | 2017 |
| Projected\tBenefit\tObligation |  |  |  |  |
| Projected\tbenefit\tobligation\tat\tbeginning\tof\tyear | $4,529 | $4,110 | $330 | $334 |
| Service\tcost | 105 | 90 | 2 | 2 |
| Interest\tcost | 145 | 142 | 10 | 10 |
| Plan\tcurtailment\tcost | \t- | 20 | \t- | (1) |
| Special\ttermination\tcost | \t- | 49 | \t- | \t- |
| Actuarial\t(gain)/loss | (371) | 382 | (20) | 7 |
| Gross\tbenefits\tpaid | (227) | (264) | (24) | (22) |
| Projected\tbenefit\tobligation\tat\tend\tof\tyear | $4,181 | $4,529 | $298 | $330 |
| Plan\tAssets |  |  |  |  |
| Fair\tvalue\tof\tplan\tassets\tat\tbeginning\tof\tyear | $4,224 | $3,748 | $\t- | $\t- |
| Actual\t(loss)/return\ton\tplan\tassets | (139) | 716 | \t- | \t- |
| Voluntary\tfunded\tpension\tplan\tcontributions | \t- | \t- | \t- | \t- |
| Non-qualified\tplan\tbenefit\tcontributions | 29 | 24 | 24 | 22 |
| Gross\tbenefits\tpaid | (227) | (264) | (24) | (22) |
| Fair\tvalue\tof\tplan\tassets\tat\tend\tof\tyear | $3,887 | $4,224 | $\t- | $\t- |
| Funded\tstatus\tat\tend\tof\tyear | $(294) | $(305) | $(298) | $(330) |

Amounts	recognized	in	the	statement	of	financial	position	as	of	December	31,	2018,	and	2017	consist	of:

|  | Pension |  | OPEB |  |
| :--- | :--- | :--- | :--- | :--- |
| Millions | 2018 | 2017 | 2018 | 2017 |
| Noncurrent\tassets | $172 | $196 | $\t- | $\t- |
| Current\tliabilities | (28) | (27) | (22) | (23) |
| Noncurrent\tliabilities | (438) | (474) | (276) | (307) |
| Net\tamounts\trecognized\tat\tend\tof\tyear | $(294) | $(305) | $(298) | $(330) |

Pre-tax	amounts	recognized	in	accumulated	other	comprehensive	income/(loss)	as	of	December	31,	2018,	and	2017 consist	of:

|  |  | 2018 |  |  | 2017 |  |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- |
| Millions | Pension | OPEB | Total | Pension | OPEB | Total |
| Prior\tservice\tcost | $\t- | $\t- | $\t- | $\t- | $(1) | $(1) |
| Net\tactuarial\tloss | (1,480) | (90) | (1,570) | (1,533) | (120) | (1,653) |
| Total | $(1,480) | $(90) | $(1,570) | $(1,533) | $(121) | $(1,654) |

Pre-tax	changes	recognized	in	other	comprehensive	income/(loss)	during	2018,	2017,	and	2016	were	as	follows:

|  |  | Pension |  |  | OPEB |  |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- |
| Millions | 2018 | 2017 | 2016 | 2018 | 2017 | 2016 |
| Net\tactuarial\t(loss)/gain | $(40) | $67 | $(112) | $20 | $(6) | $(16) |
| Amortization\tof: |  |  |  |  |  |  |
| \t\t\t\t\tPrior\tservice\tcost/(credit) | \t- | \t- | \t- | 1 | 1 | (9) |
| \t\t\t\t\tActuarial\tloss | 93 | 81 | 83 | 10 | 9 | 10 |
| Total | $53 | $148 | $(29) | $31 | $4 | $(15) |

Amounts	included	in	accumulated	other	comprehensive	income/(loss)	expected	to	be	amortized	into	net	periodic	cost during	2019:

| Millions | Pension | OPEB | Total |
| :--- | :--- | :--- | :--- |
| Prior\tservice\tcredit | $\t- | $\t- | $\t- |
| Net\tactuarial\tloss | (63) | (7) | (70) |
| Total | $(63) | $(7) | $(70) |

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.	At	December	31,	2018,	and	2017,	the non-qualified	(supplemental)	plan	ABO	was	$446	million	and	$481	million,	respectively.

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:

| Millions | 2018 | 2017 |
| :--- | :--- | :--- |
| Projected\tbenefit\tobligation | $465 | $501 |
| Accumulated\tbenefit\tobligation | $446 | $481 |
| Fair\tvalue\tof\tplan\tassets | \t- | \t- |
| Underfunded\taccumulated\tbenefit\tobligation | $(446) | $(481) |

The	ABO for	all	defined	benefit	pension	plans	was	$3.9	billion	and	$4.2	billion	at	December	31,	2018,	and	2017, respectively.

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

|  | Pension |  | OPEB | OPEB |
| :--- | :--- | :--- | :--- | :--- |
| Percentages | 2018 | 2017 | 2018 | 2017 |
| Discount\trate | 4.23% | 3.62% | 4.17% | 3.53% |
| Compensation\tincrease | 4.19% | 4.20% | N/A | N/A |
| Health\tcare\tcost\ttrend\trate\t(employees\tunder\t65) | N/A | N/A | 5.87% | 6.09% |
| Ultimate\thealth\tcare\tcost\ttrend\trate | N/A | N/A | 4.50% | 4.50% |
| Year\tultimate\ttrend\trate\treached | N/A | N/A | 2038 | 2038 |

# 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	five-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	and,	if	necessary, amortized	as	pension	or	OPEB	expense.

The	workforce	reduction	plan	initiated	in	the	third	quarter	of	2017	included	a	curtailment	loss	of	 $20	million	and	a special	 termination	 benefit	 of	$49	million	as	a	result	of	a	remeasurement	as	of	September	30,	2017,	due	 to	 the eliminated	future	service	for	approximately	460	management	employees.

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

|  |  | Pension |  |  | OPEB |  |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- |
| Millions | 2018 | 2017 | 2016 | 2018 | 2017 | 2016 |
| Net\tPeriodic\tBenefit\tCost: |  |  |  |  |  |  |
| \t\t\t\t\tService\tcost | $105 | $90 | $84 | $2 | $2 | $1 |
| \t\t\t\t\tInterest\tcost | 145 | 142 | 143 | 10 | 10 | 11 |
| \t\t\t\t\tExpected\treturn\ton\tplan\tassets | (272) | (267) | (267) | \t- | \t- | \t- |
| \t\t\t\t\tPlan\tcurtailment\tcost | \t- | 20 | \t- | \t- | \t- | \t- |
| \t\t\t\t\tSpecial\ttermination\tcost | \t- | 49 | \t- | \t- | \t- | \t- |
| Amortization\tof: |  |  |  |  |  |  |
| \t\t\t\t\tPrior\tservice\tcost/(credit) | \t- | \t- | \t- | 1 | 1 | (9) |
| \t\t\t\t\tActuarial\tloss | 93 | 81 | 83 | 10 | 9 | 10 |
| Net\tperiodic\tbenefit\tcost | $71 | $115 | $43 | $23 | $22 | $13 |

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

|  |  | Pension |  |  | OPEB |  |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- |
| Percentages | 2018 | 2017 | 2016 | 2018 | 2017 | 2016 |
| Discount\trate\tfor\tbenefit\tobligations | 3.62% | 4.09% | 4.37% | 3.54% | 3.89% | 4.13% |
| Discount\trate\tfor\tinterest\ton\tbenefit\tobligations | 3.27% | 3.47% | 3.65% | 3.14% | 3.25% | 3.34% |
| Discount\trate\tfor\tservice\tcost | 3.77% | 4.41% | 4.69% | 3.71% | 4.25% | 4.59% |
| Discount\trate\tfor\tinterest\ton\tservice\tcost | 3.72% | 4.27% | 4.55% | 3.64% | 4.11% | 4.44% |
| Expected\treturn\ton\tplan\tassets | 7.00% | 7.00% | 7.50% | N/A | N/A | N/A |
| Compensation\tincrease | 4.19% | 4.13% | 4.20% | N/A | N/A | N/A |
| Health\tcare\tcost\ttrend\trate\t(employees\tunder\t65) | N/A | N/A | N/A | 6.09% | 6.31% | 6.52% |
| Ultimate\thealth\tcare\tcost\ttrend\trate | N/A | N/A | N/A | 4.50% | 4.50% | 4.50% |
| Year\tultimate\ttrend\treached | N/A | N/A | N/A | 2038 | 2038 | 2038 |

Beginning	in	2016,	we	measure	the	service	cost	and	interest	cost	components	of	our	net	periodic	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.	 The	 actual	 return/(loss)	 on pension	plan	assets,	net	of	fees,	was	approximately	(2)%	in	2018,	19%	in	2017,	and	8%	in	2016.

Assumed	health	care	cost	trend	rates	have	an	effect	on	the	expense	and	liabilities	reported	for	health	care	plans.	The assumed	health	care	cost	trend	rate	is	based	on	historical	rates	and	expected	market	conditions.	The	2019	assumed health	care	cost	trend	rate	for	employees	under	65	is	5.87%.		It	is	assumed	the	rate	will	decrease	gradually	to	an ultimate	rate	of	4.5%	in	2038	and	will	remain	at	that	level.		A	one-percentage	point	change	in	the	assumed	health	care cost	trend	rates	would	have	the	following	effects	on	OPEB:

# Cash	Contributions

The	following	table	details	our	cash	contributions	for	the	qualified	pension	plans	and	the	benefit	payments	for	the	non- qualified	(supplemental)	pension	and	OPEB	plans:

|  | Pension |  |  |
| :--- | :--- | :--- | :--- |
| Millions | Qualified | Non-qualified | OPEB |
| 2018 | $\t- | $29 | $24 |
| 2017 | \t- | 24 | 22 |

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.	All	contributions	made	to	the	qualified	pension	plans	were	voluntary and	were	made	with	cash	generated	from	operations.

The	non-qualified	pension	and	OPEB	plans	are	not	funded	and	are	not	subject	to	any	minimum	regulatory	funding requirements.	Benefit	payments	for	each	year	represent	supplemental	pension	payments	and	claims	paid	for	medical and	 life	 insurance.	 We	 anticipate	 our	 2019	 supplemental	 pension	 and	 OPEB	 payments	 will	 be	 made	 from	 cash generated	from	operations.

# Benefit	Payments

The	following	table	details	expected	benefit	payments	for	the	years	2019	through	2028:

| Millions | Pension | OPEB |
| :--- | :--- | :--- |
| 2019 | $223 | $22 |
| 2020 | 220 | 21 |
| 2021 | 218 | 20 |
| 2022 | 217 | 20 |
| 2023 | 217 | 19 |
| Years\t2024\t-\t2028 | 1,113 | 86 |

# Asset	Allocation	Strategy

Our	pension	plan	asset	allocation	at	December	31,	2018,	and	2017,	and	target	allocation	for	2019,	are	as	follows:

|  |  | Percentage	of	Plan	Assets | Percentage	of	Plan	Assets |
| :--- | :--- | :--- | :--- |
|  | Target |  | December\t31, |
|  | Allocation\t2019 | 2018 | 2017 |
| Equity\tsecurities | 60%\tto\t70% | 56% | 69% |
| Debt\tsecurities | 25%\tto\t35% | 36 | 22 |
| Real\testate | 2%\tto\t8% | 6 | 5 |
| Commodities | N/A | 2 | 4 |
| Total |  | 100% | 100% |

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	7.0%.	While	we	believe	we	can	achieve	a	long-term	average	rate	of	return	of 7.0%,	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	pension	plan	investments	are	held	in	a	Master	Trust.	The	majority	of	pension	plan	assets	are	invested	in	equity securities	because	equity	portfolios	have	historically	provided	higher	returns	than	debt	and	other	asset	classes	over extended	time	horizons	and	are	expected	to	do	so	in	the	future.	Correspondingly,	equity	investments	also	entail	greater risks	than	other	investments.		Equity	risks	are	balanced	by	investing	a	significant	portion	of	the	plans'	assets	in	high quality	debt	securities.	The	average	credit	rating	of	the	debt	portfolio	exceeded	A	at	both	December	31,	2018	and	2017. 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	13	years	at	both	December	31,	2018	and	2017.

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.

Temporary	Cash	Investments	–	These	investments	consist	of	U.S.	dollars	and	foreign	currencies	held	in	master	trust accounts	at	The	Northern	Trust	Company	(the	Trustee).		Foreign	currencies	held	are	reported	in	terms	of	U.S.	dollars based	on	currency	exchange	rates	readily	available	in	active	markets.	These	temporary	cash	investments	are	classified as	Level	1	investments.

Registered Investment	 Companies	 –	 Registered Investment	 Companies	 are	 entities	 primarily	 engaged	 in	 the business	 of investing in	 securities	 and	 are registered	 with the	 Securities	 and	 Exchange	 Commission.	 The	 Plan's holdings	of	Registered	Investment	Companies	include	both	public	and	private	fund	vehicles.	The	public	vehicles	are exchange-traded	funds	(stocks),	which	are	classified	as	Level	1	investments.	The	private	vehicles	(bonds)	do	not	have published	pricing	and	are	valued	using	Net	Asset	Value	(NAV).

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	Plan	is	calculated	using	each	partnership's	NAV.

Real	Estate	Funds	–	Most	of	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	Plan	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	(U.S.	stock funds,	non-U.S.	stock	funds,	commodity	funds,	hedge	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 Plan	is	calculated	using	NAV	for	each	investment.

As	of	December	31,	2018,	the	pension	plan	assets	measured	at	fair	value	on	a	recurring	basis	were	as	follows:

|  | Quoted	Prices | Significant |  |  |
| :--- | :--- | :--- | :--- | :--- |
|  | in\tActive | Other | Significant |  |
|  | Markets\tfor | Observable | Unobservable |  |
|  | Identical\tInputs | Inputs | Inputs |  |
| Millions | (Level\t1) | (Level\t2) | (Level\t3) | Total |
| Plan\tassets\tat\tfair\tvalue: |  |  |  |  |
| \t\t\t\t\tTemporary\tcash\tinvestments | $21 | $\t- | $\t- | $21 |
| \t\t\t\t\tRegistered\tinvestment\tcompanies\t[a] | 1 | \t- | \t- | 1 |
| \t\t\t\t\tFederal\tgovernment\tsecurities | \t- | 191 | \t- | 191 |
| \t\t\t\t\tBonds\tand\tdebentures | \t- | 538 | \t- | 538 |
| \t\t\t\t\tCorporate\tstock | 1,355 | 12 | \t- | 1,367 |
| Total\tplan\tassets\tat\tfair\tvalue | $1,377 | $741 | $\t- | $2,118 |
| Plan\tassets\tat\tNAV: |  |  |  |  |
| \t\t\t\t\tRegistered\tinvestment\tcompanies\t[b] |  |  |  | 378 |
| \t\t\t\t\tVenture\tcapital\tand\tbuyout\tpartnerships |  |  |  | 443 |
| \t\t\t\t\tReal\testate\tfunds |  |  |  | 222 |
| \t\t\t\t\tCollective\ttrust\tand\tother\tfunds |  |  |  | 745 |
| Total\tplan\tassets\tat\tNAV |  |  |  | $1,788 |
| Other\tassets/(liabilities)\t[c] |  |  |  | (19) |
| Total\tplan\tassets |  |  |  | $3,887 |

[a] Registered	investment	companies	measured	at	fair	value	are	stock	investments.

[b] Registered	investment	companies	measured	at	NAV	include	bond	investments.

[c] Other	assets	include	accrued	receivables,	net	payables,	and	pending	broker	settlements.

|  | Quoted	Prices | Significant |  |  |
| :--- | :--- | :--- | :--- | :--- |
|  | in\tActive | Other | Significant |  |
|  | Markets\tfor | Observable | Unobservable |  |
|  | Identical\tInputs | Inputs | Inputs |  |
| Millions | (Level\t1) | (Level\t2) | (Level\t3) | Total |
| Plan\tassets\tat\tfair\tvalue: |  |  |  |  |
| \t\t\t\t\tTemporary\tcash\tinvestments | $27 | $\t- | $\t- | $27 |
| \t\t\t\t\tRegistered\tinvestment\tcompanies\t[a] | 4 | \t- | \t- | 4 |
| \t\t\t\t\tFederal\tgovernment\tsecurities | \t- | 182 | \t- | 182 |
| \t\t\t\t\tBonds\tand\tdebentures | \t- | 389 | \t- | 389 |
| \t\t\t\t\tCorporate\tstock | 1,171 | 8 | \t- | 1,179 |
| Total\tplan\tassets\tat\tfair\tvalue | $1,202 | $579 | $\t- | $1,781 |
| Plan\tassets\tat\tNAV: |  |  |  |  |
| \t\t\t\t\tRegistered\tinvestment\tcompanies\t[b] |  |  |  | 329 |
| \t\t\t\t\tVenture\tcapital\tand\tbuyout\tpartnerships |  |  |  | 358 |
| \t\t\t\t\tReal\testate\tfunds |  |  |  | 226 |
| \t\t\t\t\tCollective\ttrust\tand\tother\tfunds |  |  |  | 1,552 |
| Total\tplan\tassets\tat\tNAV |  |  |  | $2,465 |
| Other\tassets/(liabilities)\t[c] |  |  |  | (22) |
| Total\tplan\tassets |  |  |  | $4,224 |

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.	At	December	31,	2018	and 2017,	 the	 Master	 Trust	 had	 future	 commitments	 for	 additional	 contributions	 to	 private	 equity	 partnerships	 totaling $248	million	and	$359	million,	respectively,	and	to	real	estate	partnerships	and	funds	totaling	 $54	million	 and	$67 million,	respectively.

# Other	Retirement	Programs

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	cents	for	each dollar	contributed	by	employees	up	to	the	first	6%	of	compensation	contributed.	Our	plan	contributions	were $18	million in	2018,	$19	million	in	2017,	and	$19	million	in	2016.		For	non-union	employees	hired	on	or	after	 January	1,	2018,	we match	dollar-for-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.

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	$710	million	in	2018,	$672 million	in	2017,	and	$671	million	in	2016.

Collective	 Bargaining	 Agreements	– Under	 collective	 bargaining	 agreements,	 we	 participate in	 multi-employer benefit	plans	that	provide	certain	postretirement	health	care	and	life	insurance	benefits	for	eligible	union	employees. 	Premiums	paid	under	these	plans	are	expensed	as	incurred	and	amounted	to	$50	million	in	2018,	$60	million	in	2017, and	$50	million	in	2016.

# 7.	Other	Income

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

| Millions | 2018 | 2017 | 2016 |
| :--- | :--- | :--- | :--- |
| Rental\tincome\t[a] | $122 | $178 | $96 |
| Early\textinguishment\tof\tdebt\t[b] | (85) | \t- | \t- |
| Net\tgain\ton\tnon-operating\tasset\tdispositions\t[c]\t[d] | 30 | 111 | 94 |
| Interest\tincome | 30 | 16 | 11 |
| Net\tperiodic\tpension\tand\tOPEB | 13 | (45) | 29 |
| Non-operating\tenvironmental\tcosts\tand\tother | (16) | (15) | (9) |
| Total | $94 | $245 | $221 |

[a] 2017	includes	$65	million	related	to	a	favorable	litigation	settlement	in	the	third	quarter.

[b] 2018	includes	an	$85	million	debt	extinguishment	charge	for	the	early	redemption	of	certain	bonds	and	debentures	in	the	first	quarter (Note	15).

[c] 2017	includes	$26	million	and	$57	million	related	to	a	real	estate	sale	in	the	first	quarter	and	in	the	third	quarter,	respectively.

[d] 2016	includes	$17	million	and	$50	million	related	to	a	real	estate	sale	in	the	first	quarter	and	second	quarter,	respectively.

# 8.	Income	Taxes

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

| Millions | 2018 | 2017 | 2016 |
| :--- | :--- | :--- | :--- |
| Current\ttax\texpense: |  |  |  |
| \t\t\t\t\tFederal | $1,144 | $1,750 | $1,518 |
| \t\t\t\t\tState | 287 | 235 | 176 |
| \t\t\t\t\tForeign | 5 | 2 | 8 |
| Total\tcurrent\ttax\texpense | 1,436 | 1,987 | 1,702 |
| Deferred\tand\tother\ttax\texpense: |  |  |  |
| \t\t\t\t\tFederal | 344 | (5,260) | 692 |
| \t\t\t\t\tState | 5 | 183 | 139 |
| \t\t\t\t\tForeign | (10) | 10 | \t- |
| Total\tdeferred\tand\tother\ttax\texpense/(benefit)\t[a] | 339 | (5,067) | 831 |
| Total\tincome\ttax\texpense/(benefit) | $1,775 | $(3,080) | $2,533 |

[a] 2017	includes	a	$(5,935)	million	adjustment	to	income	tax	expense	resulting	from	the	Tax	Cuts	and	Jobs	Act.	Of	this	amount,	$(5,965) million	is	a	federal	income	tax	benefit	and	$30	million	is	a	state	income	tax	expense.

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

| Tax	Rate	Percentages | 2018 | 2017 | 2016 |
| :--- | :--- | :--- | :--- |
| Federal\tstatutory\ttax\trate | 21.0\t% | 35.0\t% | 35.0\t% |
| State\tstatutory\trates,\tnet\tof\tfederal\tbenefits | 3.9 | 3.1 | 3.1 |
| Adjustment\tfor\tTax\tCuts\tand\tJobs\tAct | \t- | (77.8) | \t- |
| Excess\ttax\tbenefits\tfrom\tequity\tcompensation\tplans | (0.4) | (0.6) | (0.4) |
| Other\tdeferred\ttax\tadjustments | (0.6) | 0.4 | \t- |
| Tax\tcredits | (0.1) | 0.1 | (0.5) |
| Other | (0.9) | (0.6) | 0.2 |
| Effective\ttax\trate | 22.9\t% | (40.4)% | 37.4\t% |

Deferred	tax	assets	and	liabilities	are	recorded	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 deductions	that	already	have	been	claimed	for	financial	reporting	purposes	but	not	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.

On	December	22,	2017,	The	Tax	Cuts	and	Jobs	Act	(the	Tax	Act)	was	enacted.	The	Tax	Act	made	significant	changes to	federal	tax	law,	including	a	reduction	in	the	federal	income	tax	rate	from	35%	 to	21%	effective	January	1,	2018, 100%	bonus	depreciation	for	certain	capital	expenditures,	stricter	limits	on	deductions	for	interest	and	certain	executive compensation,	and	a	one-time	transition	tax	on	previously	deferred	earnings	of	certain	foreign	subsidiaries.	As	a	result of	our	initial	analysis	of	the	Tax	Act	and	existing	implementation	guidance,	we	remeasured	our	deferred	tax	assets	and liabilities	and	computed	our	 transition	 tax	 liability	net	of	offsetting	 foreign	 tax	credits.	This	resulted	 in	a	$5.9	 billion reduction	in	our	income	tax	expense	in	the	fourth	quarter	of	2017.	We	also	recorded	a	$212	million	reduction	to	our operating	expense	related	to	income	tax	adjustments	at	equity-method	affiliates	in	the	fourth	quarter	of	2017.

The	SEC	provided	guidance	in	SAB	118	on	accounting	for	the	tax	effects	of	the	Tax	Act.	In	accordance	with	that guidance,	some	of	the	income	tax	effects	recorded	in	2017	were	provisional,	including	those	related	to	our	analysis	of 100% bonus	 depreciation	 for	 certain	 capital	 expenditures,	 stricter	 limits	 on	 deductions	 for	 certain	 executive compensation,	 the	 one-time	 transition	 tax,	 and	 the	 reduction	 to	 our	 operating	 expense	 related	 to	 income	 tax adjustments	at	equity-method	affiliates.	The	accounting	for	the	income	tax	effects	could	have	been	adjusted	during 2018	as	a	result	of	continuing	analysis	of	the	Tax	Act;	additional	implementation	guidance	from	the	Internal	Revenue Service	(IRS),	state	tax	authorities,	the	SEC,	the	FASB,	or	the	Joint	Committee	on	Taxation;	and	new	information	from domestic	or	foreign	equity	affiliates.	We	had	no	material	adjustments	to	our	accounting	for	the	Tax	Act	during	2018.

In	the	second	quarter	of	2018,	Iowa	and	Missouri	enacted	legislation	to	reduce	their	corporate	tax	rates	for	future	years resulting	in	a	$31	million	reduction	of	our	deferred	tax	expense.

In	July	of	2017,	Illinois	enacted	legislation	to	increase	its	corporate	income	tax	rate	effective	July	1,	2017.		In	the	third quarter	of	2017,	we	increased	our	deferred	tax	expense	by	$33	million	to	reflect	the	increased	tax	rate.

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

| Millions | 2018 | 2017 |
| :--- | :--- | :--- |
| Deferred\tincome\ttax\tliabilities: |  |  |
| \t\t\tProperty | $(11,590) | $(11,262) |
| \t\t\tOther | (213) | (197) |
| Total\tdeferred\tincome\ttax\tliabilities | (11,803) | (11,459) |
| Deferred\tincome\ttax\tassets: |  |  |
| \t\t\tAccrued\twages | 46 | 46 |
| \t\t\tAccrued\tcasualty\tcosts | 148 | 147 |
| \t\t\tStock\tcompensation | 44 | 46 |
| \t\t\tRetiree\tbenefits | 138 | 141 |
| \t\t\tCredits | \t- | 1 |
| \t\t\tOther | 125 | 142 |
| Total\tdeferred\tincome\ttax\tassets | $501 | $523 |
| Net\tdeferred\tincome\ttax\tliability | $(11,302) | $(10,936) |

Tax	benefits	are	recognized	only	for	tax	positions	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.	Unrecognized	tax	benefits	are	tax	benefits	claimed	in	our	tax	returns	that	do	not	meet these	recognition	and	measurement	standards.

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

| Millions | 2018 | 2017 | 2016 |
| :--- | :--- | :--- | :--- |
| Unrecognized\ttax\tbenefits\tat\tJanuary\t1 | $179 | $125 | $94 |
| Increases\tfor\tpositions\ttaken\tin\tcurrent\tyear | 30 | 38 | 31 |
| Increases\tfor\tpositions\ttaken\tin\tprior\tyears | 9 | 51 | 10 |
| Decreases\tfor\tpositions\ttaken\tin\tprior\tyears | (30) | (56) | (20) |
| Refunds\tfrom/(payments\tto)\tand\tsettlements\twith\ttaxing\tauthorities | 21 | 64 | 4 |
| Increases/(decreases)\tfor\tinterest\tand\tpenalties | 4 | \t- | 6 |
| Lapse\tof\tstatutes\tof\tlimitations | (39) | (43) | \t- |
| Unrecognized\ttax\tbenefits\tat\tDecember\t31 | $174 | $179 | $125 |

We	recognize	interest	and	penalties	as	part	of	income	tax	expense.	Total	accrued	liabilities	for	interest	and	penalties were	$8	million	at	both	December	31,	2018,	and	2017.	Total	interest	and	penalties	recognized	as	part	of	income	tax expense	(benefit)	were	($1)	million	for	2018,	($3)	million	for	2017,	and	$5	million	for	2016.

The	IRS	is	examining	UPC's	2016	tax	return.	The	statute	of	limitations	has	run	for	all	years	prior	to	2015.	In	2017,	UPC amended	 its	 2013	 income	 tax	 return,	 primarily	 to	 claim	 deductions	 resulting	 from	 the	 resolution	 of	 prior	 year	 IRS examinations.	The	IRS	and	Joint	Committee	on	Taxation	have	completed	their	review	of	the	2013	return,	and	in	the second	quarter	of	2018	we	received	a	refund	of	$19	million.

In	2016,	UPC	amended	its	2011	and	2012	income	tax	returns	to	claim	deductions	resulting	from	the	resolution	of	IRS examinations	for	years	prior	to	2011.	The	IRS	and	Joint	Committee	on	Taxation	reviewed	these	 amended	returns.		In the	third	quarter	of	2017,	we	received	a	refund	of	$62	million,	consisting	of	$60	million	of	tax	and	$2	million	of	interest.

Several	state	tax	authorities	are	examining	our	state	income	tax	returns	for	years	2015	through	2016.

We	do	not	expect	our	unrecognized	tax	benefits	to	change	significantly	in	the	next	12	months.

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.	Recognition	of	the	tax	benefits	with	uncertain	timing	would	reduce	our	effective	tax	rate	only through	a	reduction	of	accrued	interest	and	penalties.		The	unrecognized	tax	benefits	that	would	reduce	our	effective tax	rate	are	as	follows:

| Millions | 2018 | 2017 | 2016 |
| :--- | :--- | :--- | :--- |
| Unrecognized\ttax\tbenefits\tthat\twould\treduce\tthe\teffective\ttax\trate | $63 | $83 | $31 |
| Unrecognized\ttax\tbenefits\tthat\twould\tnot\treduce\tthe\teffective\ttax\trate | 111 | 96 | 94 |
| Total\tunrecognized\ttax\tbenefits | $174 | $179 | $125 |

# 9.	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	Amounts | 2018 | 2017 | 2016 |
| :--- | :--- | :--- | :--- |
| Net\tincome | $5,966 | $10,712 | $4,233 |
| Weighted-average\tnumber\tof\tshares\toutstanding: |  |  |  |
| \t\t\t\tBasic | 750.9 | 798.4 | 832.4 |
| \t\t\t\tDilutive\teffect\tof\tstock\toptions | 1.9 | 1.8 | 1.5 |
| \t\t\t\tDilutive\teffect\tof\tretention\tshares\tand\tunits | 1.5 | 1.5 | 1.5 |
| Diluted | 754.3 | 801.7 | 835.4 |
| Earnings\tper\tshare\t–\tbasic | $7.95 | $13.42 | $5.09 |
| Earnings\tper\tshare\t–\tdiluted | $7.91 | $13.36 | $5.07 |

Common	stock	options	totaling	0.3	 million,	1.6	million,	and	2.0	million	for	2018,	2017,	and	2016,	respectively,	were excluded	from	the	computation	of	diluted	earnings	per	share	because	the	exercise	prices	of	these	options	exceeded	the average	market	price	of	our	common	stock	for	the	respective	periods,	and	the	effect	of	their	inclusion	would	be	anti- dilutive.

# 10.	Accumulated	Other	Comprehensive	Income/(Loss)

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

| Millions | Defined<br>benefit<br>plans | Foreign	currency<br>translation | Total |
| :--- | :--- | :--- | :--- |
| Balance\tat\tJanuary\t1,\t2018 | $(1,029) | $(112) | $(1,141) |
| Other\tcomprehensive\tincome/(loss)\tbefore\treclassifications | (1) | (36) | (37) |
| Amounts\treclassified\tfrom\taccumulated\tother\tcomprehensive\nincome/(loss)\t[a] | 63 | \t- | 63 |
| Net\tyear-to-date\tother\tcomprehensive\tincome/(loss),\nnet\tof\ttaxes\tof\t$(22)\tmillion | 62 | (36) | 26 |
| Reclassification\tdue\tto\tASU\t2018-02\tadoption\t(Note\t3) | (225) | (75) | (300) |
| Balance\tat\tDecember\t31,\t2018 | $(1,192) | $(223) | $(1,415) |
| Balance\tat\tJanuary\t1,\t2017 | $(1,132) | $(140) | $(1,272) |
| Other\tcomprehensive\tincome/(loss)\tbefore\treclassifications | 2 | 28 | 30 |
| Amounts\treclassified\tfrom\taccumulated\tother\tcomprehensive\nincome/(loss)\t[a] | 101 | \t- | 101 |
| Net\tyear-to-date\tother\tcomprehensive\tincome/(loss),\nnet\tof\ttaxes\tof\t$(61)\tmillion | 103 | 28 | 131 |
| Balance\tat\tDecember\t31,\t2017 | $(1,029) | $(112) | $(1,141) |

[a] The	accumulated	other	comprehensive	income/(loss)	reclassification	components	are	1)	prior	service	cost/(benefit)	and	2)	net	actuarial loss	which	are	both	included	in	the	computation	of	net	periodic	pension	cost.		See	Note	6	Retirement	Plans	for	additional	details.

# 11.	Accounts	Receivable

Accounts	 receivable	 includes	 freight	 and	 other	 receivables	 reduced	 by	 an	 allowance	 for	 doubtful	 accounts.	 The allowance	is	based	upon	historical	losses,	credit	worthiness	of	customers,	and	current	economic	conditions.	At	both December	31,	2018,	and	2017,	our	accounts	receivable	were	reduced	by	 $3	million.	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,	2018,	and	2017,	receivables	classified	as other	assets	were	reduced	by	allowances	of	$27	million	and	$17	million,	respectively.

Receivables	Securitization	Facility	–	The	Railroad	maintains	a	$650	million,	3-year	receivables	securitization	facility (the	Receivables	Facility),	maturing	in	July	2019.	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	outstanding	under	the	Receivables	Facility	was	$400	million	and	$500	million	at	December	31,	2018,	and December	31,	2017,	respectively.	The	Receivables	Facility	was	 supported	by	$1.4	billion	and	$1.1	billion	of	accounts receivable	as	collateral	at	December	31,	2018,	and	December	31,	2017,	respectively,	which,	as	a	retained	interest,	is included	in	accounts	receivable,	net	in	our	Consolidated	Statements	of	Financial	Position.

The	outstanding	amount	the	Railroad	is	allowed	to	maintain	under	the	Receivables	Facility,	with	a	maximum	of	$650 million,	may	fluctuate	based	on	the	availability	of	eligible	receivables	and	is	directly	affected	by	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 $15	million,		$6	million,	and	$7	million	for	2018,	2017,	and	2016,	respectively.

# 12.	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<br>As	of	December	31,	2018 | Cost | Accumulated<br>Depreciation | Net	Book<br>Value | Estimated<br>Useful	Life |
| :--- | :--- | :--- | :--- | :--- |
| Land | $5,264 | $\t\t\t\t\t\tN/A | $5,264 | N/A |
| Road: |  |  |  |  |
| \t\t\t\t\tRail\tand\tother\ttrack\tmaterial | 16,785 | 6,156 | 10,629 | 43 |
| \t\t\t\t\tTies | 10,409 | 3,025 | 7,384 | 34 |
| \t\t\t\t\tBallast | 5,561 | 1,595 | 3,966 | 34 |
| \t\t\t\t\tOther\troadway\t[a] | 19,584 | 3,766 | 15,818 | 48 |
| Total\troad | 52,339 | 14,542 | 37,797 | N/A |
| Equipment: |  |  |  |  |
| \t\t\t\t\tLocomotives | 9,792 | 3,861 | 5,931 | 19 |
| \t\t\t\t\tFreight\tcars | 2,229 | 929 | 1,300 | 24 |
| \t\t\t\t\tWork\tequipment\tand\tother | 1,040 | 301 | 739 | 19 |
| Total\tequipment | 13,061 | 5,091 | 7,970 | N/A |
| Technology\tand\tother | 1,117 | 493 | 624 | 12 |
| Construction\tin\tprogress | 1,024 | \t- | 1,024 | N/A |
| Total | $72,805 | $20,126 | $52,679 | N/A |

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

| Millions,	Except	Estimated	Useful	Life<br>As	of	December	31,	2017 | Cost | Accumulated<br>Depreciation | Net	Book<br>Value | Estimated<br>Useful	Life |
| :--- | :--- | :--- | :--- | :--- |
| Land | $5,258 | $\t\t\t\t\t\tN/A | $5,258 | N/A |
| Road: |  |  |  |  |
| \t\t\t\t\tRail\tand\tother\ttrack\tmaterial | 16,327 | 5,929 | 10,398 | 43 |
| \t\t\t\t\tTies | 10,132 | 2,881 | 7,251 | 33 |
| \t\t\t\t\tBallast | 5,406 | 1,509 | 3,897 | 34 |
| \t\t\t\t\tOther\troadway\t[a] | 18,972 | 3,482 | 15,490 | 47 |
| Total\troad | 50,837 | 13,801 | 37,036 | N/A |
| Equipment: |  |  |  |  |
| \t\t\t\t\tLocomotives | 9,686 | 3,697 | 5,989 | 19 |
| \t\t\t\t\tFreight\tcars | 2,255 | 983 | 1,272 | 24 |
| \t\t\t\t\tWork\tequipment\tand\tother | 936 | 267 | 669 | 19 |
| Total\tequipment | 12,877 | 4,947 | 7,930 | N/A |
| Technology\tand\tother | 1,105 | 460 | 645 | 11 |
| Construction\tin\tprogress | 736 | \t- | 736 | N/A |
| Total | $70,813 | $19,208 | $51,605 | N/A |

We	determine	the	estimated	service	lives	of	depreciable	railroad	assets	by	means	of	depreciation	studies.		We	perform depreciation	studies	at	least	every	three	years	for	equipment	and	every	 six	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:

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.

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:	(i)	is	unusual,	(ii)	is	material	in	amount,	and (iii)	 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.

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.

Normal	repairs	and	maintenance	are	expensed	as	incurred,	while	costs	incurred	that	extend	the	useful	life	of	an	asset, improve	the	safety	of	our	operations	or	improve	operating	efficiency	are	capitalized.	These	costs	are	allocated	using appropriate	statistical	bases.	Total	expense	for	repairs	and	maintenance	incurred	was	$2.5	billion	for	2018,	$2.5	billion for	2017,	and	$2.3	billion	for	2016.

Assets	held	under	capital	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.

# 13.	Accounts	Payable	and	Other	Current	Liabilities

|  | Dec.	31, | Dec.	31, |
| :--- | :--- | :--- |
| Millions | 2018 | 2017 |
| Accounts\tpayable | $872 | $1,013 |
| Income\tand\tother\ttaxes\tpayable | 694 | 547 |
| Accrued\twages\tand\tvacation | 384 | 384 |
| Interest\tpayable | 317 | 220 |
| Accrued\tcasualty\tcosts | 211 | 194 |
| Equipment\trents\tpayable | 107 | 110 |
| Other | 575 | 671 |
| Total\taccounts\tpayable\tand\tother\tcurrent\tliabilities | $3,160 | $3,139 |

# 14.	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.	On	November	1,	2018,	$30	million	of	the	Company's	 $90	million	in	short-term	investments were	placed	into	a	trust	for	the	purpose	of	providing	collateral	for	payment	of	certain	other	long-term	liabilities,	and	as such	 were	 reclassified	 as	 other	 assets.	All	 short-term	 investments	 have	 a	 maturity	 of	 less	 than	 one	 year	 and	 are classified	as	held-to-maturity.		There	were	no	transfers	out	of	Level	2	during	the	year	ended	December	31,	2018.

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,	2018,	the	fair	value	of	total	debt	was	$21.9	billion, approximately	$0.5	billion	less	than	the	carrying	value.		At	December	31,	2017,	the	fair	value	of	total	debt	was $18.2 billion,	approximately	$1.3	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.	It	does	not	impact	the	financial	statements	under	current	accounting rules.	At	December	31,	2018,	and	2017,	approximately	$0	and	$155	million,	respectively	of	debt	securities	contained call	provisions	that	allow	us	to	retire	the	debt	instruments	prior	to	final	maturity	at	par,	without	the	payment	of	fixed	call premiums.		The	fair	value	of	our	cash	equivalents	approximates	their	carrying	value	due	to	the	short-term	maturities	of these	instruments.

| Millions | 2018 | 2017 |
| :--- | :--- | :--- |
| Notes\tand\tdebentures,\t1.8%\tto\t7.9%\tdue\tthrough\t2067 | $20,627 | $15,096 |
| Equipment\tobligations,\t2.6%\tto\t6.7%\tdue\tthrough\t2031 | 969 | 1,018 |
| Capitalized\tleases,\t3.1%\tto\t8.0%\tdue\tthrough\t2028 | 754 | 892 |
| Receivables\tSecuritization\t(Note\t11) | 400 | 500 |
| Term\tloans\t-\tfloating\trate,\tdue\tin\t2019 | 250 | 250 |
| Commercial\tpaper,\t2.6%\tto\t2.8%\tdue\tin\t2019 | 200 | \t- |
| Medium-term\tnotes,\t9.3%\tto\t10.0%\tdue\tthrough\t2020 | 8 | 18 |
| Mortgage\tbonds,\tredeemed\tMarch\t15,\t2018 | \t- | 57 |
| Unamortized\tdiscount\tand\tdeferred\tissuance\tcosts | (817) | (887) |
| Total\tdebt | 22,391 | 16,944 |
| Less:\tcurrent\tportion | (1,466) | (800) |
| Total\tlong-term\tdebt | $20,925 | $16,144 |

Debt	Maturities	–	The	following	table	presents	aggregate	debt	maturities	as	of	 December	31,	2018,	excluding	market value	adjustments:

| Millions |  |
| :--- | :--- |
| 2019 | $1,467 |
| 2020 | 981 |
| 2021 | 1,267 |
| 2022 | 913 |
| 2023 | 1,396 |
| Thereafter | 17,184 |
| Total\tprincipal | 23,208 |
| Unamortized\tdiscount\tand\tdeferred\tissuance\tcosts | (817) |
| Total\tdebt | $22,391 |

Debt	 Redemption	 –	 Effective	 as	 of	 March	 15,	 2018,	 we	 redeemed,	 in	 entirety,	 the	 Missouri	 Pacific	 5%	 Income Debentures	due	2045,	the	Chicago	and	Eastern	Illinois	5%	Income	Debentures	due	2054,	and	the	Missouri	Pacific 4.75%	General	Mortgage	Income	Bonds	Series	A	due	2020	and	Series	B	due	2030.	The	debentures	had	principal outstanding	of	$96	million	and	$2	million,	respectively,	and	the	bonds	had	principal	outstanding	of	$30	million	and	$27 million,	respectively.	The	bonds	and	debentures	were	assumed	by	the	Railroad	in	the	1982	acquisition	of	the	Missouri Pacific	Railroad	Company,	with	a	weighted	average	interest	rate	of	4.9%.	The	carrying	value	of	all	four	bonds	and debentures	at	the	time	of	redemption	was	$70	million,

due	 to	 fair	 value	 purchase	 accounting	 adjustments	 related	 to the	 acquisition.	The	 redemption	 resulted in	 an	 early extinguishment	charge	of	$85	million	in	the	first	quarter	of	2018.

Credit	Facilities	–	During	the	second	quarter	of	2018,	we	replaced	our	 $1.7	billion	revolving	credit	facility,	which	was scheduled	to	expire	in	May	2019,	with	a	new	$2.0	billion	facility	that	expires	in	June	2023	(the	Facility).	The	Facility	is based	on	substantially	similar	terms	as	those	in	the	previous	credit	facility.	At	December	31,	2018,	we	had	$2.0	billion	of credit	available	under	our	revolving	credit	facility,	which	is	designated	for	general	corporate	purposes	and	supports	the issuance	of	commercial	paper.	We	did	not	draw	on	either	facility	at	any	time	during	2018.	Commitment	fees	and	in terest 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	London	Interbank	Offered	Rates,	plus	a	spread, depending	upon	credit	ratings	for	our	senior	unsecured	debt.	The	prior	facility	required	UPC	to	maintain	a	debt-to-net- worth	coverage	ratio.	The	new	five-year	facility	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,	capital	leases,	guarantees,	unfunded	and	vested	pension	benefits	under	Title	IV	of	ERISA, and	 unamortized	 debt	 discount	 and	 deferred	 debt	 issuance	 costs.	 At	December	 31,	 2018,	 the	 Company	 was	 in compliance	with	the	debt-to-EBITDA	coverage	ratio,	which	allows	us	to	carry	up	to	$37.9	billion	of	debt	(as	defined	in the	Facility),	and	we	had	$23.2	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	2018,	we	issued	$8.5	billion	and	repaid	$8.3	billion	of 	commercial	paper	with	maturities	ranging	from	1	to	34 days,	and	at	December	31,	2018,	and	2017,	we	had	$200	million	and	$0	commercial	paper 	outstanding,	respectively. 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.

In	May	2018,	we	entered	into	a	short-term	bilateral	line	of	credit	agreement	with	$1.0	billion	of	credit	available.	During the	three	months	ended	June	30,	2018,	we	drew	and	repaid	$750	million.	The	line	of	credit	matured	in	August	2018.	We used	the	proceeds	for	general	corporate	purposes,	including	the	repurchase	of	common	stock	pursuant	to	our	share repurchase	programs.

Shelf	Registration	Statement	and	Significant	New	Borrowings	 –	We	filed	an	automatic	shelf	registration	statement with	the	SEC	that	became	effective	on	February	12,	2018	(the	Shelf).	The	Board	of	Directors	authorized	the	issuance	of up	 to	 $6	 billion	 of	 debt	 securities,	 replacing	 the	 prior	 Board	 authorization	 in	 July	 2016,	 which	 had	 $1.55	 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	2018,	we	issued	the	following	unsecured,	fixed-rate	debt	securities	under	our	current	shelf	registration:

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.

On	July	26,	2018,	the	Board	of	Directors	renewed	its	authorization	for	the	Company	to	issue	up	to	$6.0	billion	of	debt securities	under	the	Shelf.	This	authorization	replaces	the	original	Board	authorization	in

February	2018	which	had	no	remaining	authority.	At	December	31,	2018,	we	had	remaining	authority	to	issue up	to	$6.0 billion	of	debt	securities	under	our	shelf	registration.

Receivables	 Securitization	 Facility	–	As	of	December	31,	2018,	and	2017,	 we	recorded	$400	million	 and	$500 million,	respectively,	of	borrowings	under	our	Receivables	Facility,	as	secured	debt.	(See	 further	discussion	of	our receivables	securitization	facility	in	Note	11).

# 16.	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	$1.7	billion	as	of	December	31,	2018.

We	lease	certain	locomotives,	freight	cars,	and	other	property.	The	Consolidated	Statements	of	Financial	Position	as	of December	31,	2018,	and	2017	included	$1,454	million,	net	of	$912	million	of	accumulated	depreciation,	and	 $1,635 million,	net	of	$953	million	of	accumulated	depreciation,	respectively,	for	properties	held	under	capital	leases.	A	charge to	income	resulting	from	the	depreciation	for	assets	held	under	capital	leases	is	included	within	depreciation	expense	in our	Consolidated	Statements	of	Income.	Future	minimum	lease	payments	for	operating	and	capital	leases	with	initial	or remaining	non-cancelable	lease	terms	in	excess	of	one	year	as	of	December	31,	2018,	were	as	follows:

| Millions | Operating<br>Leases | Capital<br>Leases |
| :--- | :--- | :--- |
| 2019 | $419 | $148 |
| 2020 | 378 | 155 |
| 2021 | 303 | 159 |
| 2022 | 272 | 142 |
| 2023 | 234 | 94 |
| Later\tyears | 1,040 | 200 |
| Total\tminimum\tlease\tpayments | $2,646 | $898 |
| Amount\trepresenting\tinterest | N/A | (144) |
| Present\tvalue\tof\tminimum\tlease\tpayments | N/A | $754 |

Approximately	97%	of	capital	 lease	payments	relate	 to	 locomotives.	Rent	expense	 for	operating	 leases	with	 terms exceeding	one	month	was	$397	million	 in	2018,	$480	million	 in	2017,	and	$535	million	in	2016.	When	cash	rental payments	are	not	made	on	a	straight-line	basis,	we	recognize	variable	rental	expense	on	a	straight-line	basis	over	the lease	term.	Contingent	rentals	and	sub-rentals	are	not	significant.

# 18.	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.

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	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	Consolidated	Statements	of	Financial	Position.	Effective January	2019,	the	captive	insurance	subsidiary	will	no	longer	participate	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.

Guarantees –	 At	December	 31,	 2018,	 and	 2017,	 we	 were	contingently	 liable	 for	$22	 million	 and	$33	 million, respectively,	in	guarantees.	The	fair	value	of	these	obligations	as	of	both	December	31,	2018,	and	2017	was	$0.	We entered	into	these	contingent	guarantees	in	the	normal	course	of	business,	and	they	include	guaranteed	obligations related	 to	our	affiliated	operations.	The	final	guarantee	expires	in	2022.	We	are	not	aware	of	any	existing	event	of default	that	would	require	us	to	satisfy	these	guarantees.	We	do	not	expect	that	these	guarantees	will	have	a	material adverse	effect	on	our	consolidated	financial	condition,	results	of	operations,	or	liquidity.

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.

These	refund	claims	are	considered	gain	contingencies	and	no	refund	amounts	have	been	recorded	in	the	Consolidated Financial	Statements	as	of	December	31,	2018.	The	claims	will	be	recorded	when	a	final

judgment	from	the	District	Court	has	been	issued	and	all	IRS	requirements	for	UPRR's	refunds	have	been	fulfilled.

Effective	January	1,	2017,	our	Board	of	Directors	authorized	the	repurchase	of	up	to	 120	million	shares	of	our	common stock	by	December	31,	2020,	replacing	our	previous	repurchase	program.	As	of	 December	31,	2018,	we	repurchased	a total	 of	$31.4	billion	of	our	common	stock	since	the	commencement	of	our	repurchase	programs	in	2007.	The	table below	represents	shares	repurchased	under	this	repurchase	program.

|  | Number	of	Shares	Purchased | Number	of	Shares	Purchased | Average	Price	Paid | Average	Price	Paid |
| :--- | :--- | :--- | :--- | :--- |
|  | 2018 | 2017 | 2018 | 2017 |
| First\tquarter | 9,259,004 | 7,531,300 | $132.84 | $106.55 |
| Second\tquarter\t[a] | 33,229,992 | 7,788,283 | 142.74 | 109.10 |
| Third\tquarter | 2,239,405 | 11,801,755 | 151.94 | 106.69 |
| Fourth\tquarter\t[b] | 12,490,632 | 9,231,510 | 153.04 | 119.37 |
| Total | 57,219,033 | 36,352,848 | $143.75 | $110.40 |
| Remaining\tnumber\tof\tshares\tthat\tmay\tbe\trepurchased\tunder\tcurrent\tauthority | Remaining\tnumber\tof\tshares\tthat\tmay\tbe\trepurchased\tunder\tcurrent\tauthority | Remaining\tnumber\tof\tshares\tthat\tmay\tbe\trepurchased\tunder\tcurrent\tauthority | 26,428,119 | 26,428,119 |

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.

# 20.	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	railcar	pooling	company	that	owns	railcars	and	intermodal	wells	to	serve	North	America's	railroads.		TTX assists	railroads	in	meeting	the	needs	of	their	customers	by	providing	railcars	in	an	efficient,	pooled	environment.		All railroads	have	the	ability	to	utilize	TTX	railcars	through	car	hire	by	renting	railcars	at	stated	rates.

UPRR	had	$1.3	billion	 and	$1.2	billion	recognized	as	investments	related	to	TTX	in	our	Consolidated	Statements	of Financial	Position	as	of	December	31,	2018,	and	2017,	respectively.	TTX	car	hire	expenses	 of	$429	million	in	2018, $388	 million in	 2017,	 and	$368	 million	 in	 2016	 are	 included	 in	 equipment	 and	 other	 rents	 in	 our	 Consolidated Statements	of	Income.		In	addition,	UPRR	had	accounts	payable	to	TTX	of	$66	million	and	$69	million	at	December	31, 2018,	and	2017,	respectively.

# 21.	Selected	Quarterly	Data	(Unaudited)

| 2018 | Mar.	31 | Jun.	30 | Sep.	30 | Dec.	31 |
| :--- | :--- | :--- | :--- | :--- |
| Operating\trevenues | $5,475 | $5,672 | $5,928 | $5,757 |
| Operating\tincome | 1,939 | 2,099 | 2,269 | 2,210 |
| Net\tincome | 1,310 | 1,509 | 1,593 | 1,554 |
| Net\tincome\tper\tshare: |  |  |  |  |
| \t\t\t\t\tBasic | 1.69 | 1.98 | 2.16 | 2.13 |
| \t\t\t\t\tDiluted | 1.68 | 1.98 | 2.15 | 2.12 |

| 2017 | Mar.	31 | Jun.	30 | Sep.	30 | Dec.	31 |
| :--- | :--- | :--- | :--- | :--- |
| Operating\trevenues | $5,132 | $5,250 | $5,408 | $5,450 |
| Operating\tincome | 1,788 | 1,998 | 2,073 | 2,247 |
| Net\tincome | 1,072 | 1,168 | 1,194 | 7,278 |
| Net\tincome\tper\tshare: |  |  |  |  |
| \t\t\t\t\tBasic | 1.32 | 1.45 | 1.50 | 9.29 |
| \t\t\t\t\tDiluted | 1.32 | 1.45 | 1.50 | 9.25 |

Per	share	net	income	for	the	four	quarters	combined	may	not	equal	the	per	share	net	income	for	the	year	due	to rounding.

# Item	9.	Changes	in	and	Disagreements	with	Accountants	on	Accounting	and	Financial	Disclosure

# Item	9A.	Controls	and	Procedures

As	of	the	end	of	the	period	covered	by	this	report,	the	Corporation	carried	out	an	evaluation,	under	the	supervision	and with	the	participation	of	the	Corporation's	management,	including	the	Corporation's	Chief	Executive	Officer	(CEO)	and Executive	Vice	President	and	Chief	Financial	Officer	(CFO),	of	the	effectiveness	of	the	design	and	operation	of	the Corporation's	disclosure	controls	and	procedures	pursuant	to	Exchange	Act	Rules	13a-15	and	15d-15.	In	designing	and evaluating	 the	 disclosure	 controls	 and	 procedures,	 management	 recognized	 that	 any	 controls	 and	 procedures,	 no matter	 how	 well	 designed	 and	 operated,	 can	 provide	 only	 reasonable	 assurance	 of	 achieving	 the	 desired	 control objectives.	Based	upon	that	evaluation,	the	CEO	and	the	CFO	concluded	that,	as	of	the	end	of	the	period	covered	by this	report,	the	Corporation's	disclosure	controls	and	procedures	were	effective	to	provide	reasonable	assurance	that information	required	to	be	disclosed	in	our	Exchange	Act	reports	is	recorded,	processed,	summarized	and	reported within	 the	 time	 periods	 specified	 by	 the	 SEC,	 and	 that	 such	 information	 is	 accumulated	 and	 communicated	 to management,	including	the	CEO	and	CFO,	as	appropriate,	to	allow	timely	decisions	regarding	required	disclosure.

Additionally,	 the	 CEO	 and	 CFO	 determined	 that	 there	 were	 no	 changes	 to	 the	 Corporation's	 internal	 control	 over financial	 reporting	 (as	 defined	 in	 Exchange	 Act	 Rules	 13a-15(f)	 and	 15d-15(f))	 during	 the	 last	 fiscal	 quarter	 that materially	affected,	or	are	reasonably	likely	to	materially	affect,	the	Corporation's	internal	control	over	financial	reporting.

# MANAGEMENT'S	ANNUAL	REPORT	ON	INTERNAL	CONTROL	OVER	FINANCIAL	REPORTING

The	 management	 of	 Union	 Pacific	 Corporation	 and	 Subsidiary	 Companies	 (the	 Corporation)	 is	 responsible	 for establishing	and	maintaining	adequate	internal	control	over	financial	reporting	(as	defined	in	Exchange	Act	Rules	13a- 15(f)	and	15d-15(f)).	The	Corporation's	internal	control	system	was	designed	to	provide	reasonable	assurance	to	the Corporation's	management	and	Board	of	Directors	regarding	the	preparation	and	fair	presentation	of	published	financial statements.

All	internal	control	systems,	no	matter	how	well	designed,	have	inherent	limitations.	Therefore,	even	those	systems determined	to	be	effective	can	provide	only	reasonable	assurance	with	respect	to	financial	statement	preparation	and presentation.

The	Corporation's	management	assessed	the	effectiveness	of	the	Corporation's	internal	control	over	financial	reporting as	of	December	31,	2018.	In	making	this	assessment,	it	used	the	criteria	set	forth	by	the	Committee	of	Sponsoring Organizations	of	the	Treadway	Commission	(COSO)	in	Internal	Control	–	Integrated	Framework	(2013).	Based	on	our assessment,	management	believes	that,	as	of	December	31,	2018,	the	Corporation's	internal	control	over	financial reporting	is	effective	based	on	those	criteria.

The	Corporation's	independent	registered	public	accounting	firm	has	issued	an	attestation	report	on	the	effectiveness	of the	Corporation's	internal	control	over	financial	reporting.	This	report	appears	on	the	next	page.

# Opinion	on	Internal	Control	over	Financial	Reporting

We	have	audited	the	internal	control	over	financial	reporting	of	Union	Pacific	Corporation	and	Subsidiary	Companies (the	"Corporation")	as	of	December	31,	2018,	based	on	criteria	established	in	Internal	Control	—	Integrated	Framework (2013)	issued	by	the	Committee	of	Sponsoring	Organizations	of	the	Treadway	Commission	(COSO).	In	our	opinion,	the Corporation	maintained,	in	all	material	respects,	effective	internal	control	over	financial	reporting	as	of	December	31, 2018,	based	on	criteria	established	in	Internal	Control	—	Integrated	Framework	(2013)	issued	by	COSO.

We	have	also	audited,	in	accordance	with	the	standards	of	the	Public	Company	Accounting	Oversight	Board	(United States)	(PCAOB),	the	consolidated	statements	of	financial	position	of	the	Corporation	as	of	December	31,	2018	and 2017,	 the	 related	 consolidated	 statements	 of	 income,	 comprehensive	 income,	 changes	 in	 common	 shareholders' equity,	and	cash	flows	for	each	of	the	three	years	in	the	period	ended	December	31,	2018,	and	the	related	notes	and the	schedule	listed	in	the	Table	of	Contents	at	Part	IV,	Item	15	(collectively	referred	to	as	the	"financial	statements")	and our	report	dated	February	8,	2019	expressed	an	unqualified	opinion	on	those	financial	statements.

The	Corporation's	management	is	responsible	for	maintaining	effective	internal	control	over	financial	reporting	and	for its	 assessment	 of	 the	 effectiveness	 of	 internal	 control	 over	 financial	 reporting,	 included	 in	 the	 accompanying Management's	Annual	Report	on	Internal	Control	over	Financial	Reporting.	Our	responsibility	is	to	express	an	opinion on	 the	 Corporation's	 internal	 control	 over	 financial	 reporting	 based	 on	 our	 audit.	 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	audit	in	accordance	with	the	standards	of	the	PCAOB.	Those	standards	require	that	we	plan	and perform	the	audit	to	obtain	reasonable	assurance	about	whether	effective	internal	control	over	financial	reporting	was maintained	 in	all	material	respects.	Our	audit	 included	obtaining	an	understanding	of	 internal	control	over	 financial reporting,	 assessing	 the	 risk	 that	 a	 material	 weakness	 exists,	 testing	 and	 evaluating	 the	 design	 and	 operating effectiveness	of	internal	control	based	on	the	assessed	risk,	and	performing	such	other	procedures	as	we	considered necessary	in	the	circumstances.	We	believe	that	our	audit	provides	a	reasonable	basis	for	our	opinion.

# Definition	and	Limitations	of	Internal	Control	over	Financial	Reporting

A	company's	internal	control	over	financial	reporting	is	a	process	designed	to	provide	reasonable	assurance	regarding the	reliability	of	financial	reporting	and	the	preparation	of	financial	statements	for	external	purposes	in	accordance	with generally	accepted	accounting	principles.	A	company's	internal	control	over	financial	reporting	includes	those	policies and	procedures	that	(1)	pertain	to	the	maintenance	of	records	that,	in	reasonable	detail,	accurately	and	fairly	reflect	the transactions	and	dispositions	of	the	assets	of	the	company;	(2)	provide	reasonable	assurance	that	transactions	are recorded	as	necessary	to	permit	preparation	of	financial	statements	in	accordance	with	generally	accepted	accounting principles,	and	that	receipts	and	expenditures	of	the	company	are	being	made	only	in	accordance	with	authorizations	of management	 and	 directors	 of	 the	 company;	 and	 (3)	 provide	 reasonable	 assurance	 regarding	 prevention	 or	 timely detection	of	unauthorized	acquisition,	use,	or	disposition	of	the	company's	assets	that	could	have	a	material	effect	on the	financial	statements.

Because	of	its	inherent	limitations,	internal	control	over	financial	reporting	may	not	prevent	or	detect	misstatements. Also,	projections	of	any	evaluation	of	effectiveness	to	future	periods	are	subject	to	the	risk	that	controls	may	become inadequate	because	of	changes	in	conditions,	or	that	the	degree	of	compliance	with	the	policies	or	procedures	may deteriorate.

# Item	9B.	Other	Information

# Item	10.	Directors,	Executive	Officers,	and	Corporate	Governance

# (a) Directors	of	Registrant.

Information	as	to	the	names,	ages,	positions	and	offices	with	UPC,	terms	of	office,	periods	of	service,	business experience	during	the	past	five	years	and	certain	other	directorships	held	by	each	director	or	person	nominated	to become	 a	 director	 of	 UPC	 is	 set	 forth	 in	 the	 Election	 of	 Directors	 segment	 of	 the	 Proxy	 Statement	 and	 is incorporated	herein	by	reference.

Information	concerning	our	Audit	Committee	and	the	independence	of	its	members,	along	with	information	about the	audit	committee	financial	expert(s)	serving	on	the	Audit	Committee,	is	set	forth	in	the	Audit	Committee	segment of	the	Proxy	Statement	and	is	incorporated	herein	by	reference.

# (b) Executive	Officers	of	Registrant.

Information	concerning	the	executive	officers	of	UPC	and	its	subsidiaries	is	presented	in	Part	I	of	this	report	under Executive	Officers	of	the	Registrant	and	Principal	Executive	Officers	of	Subsidiaries.

# (c) Section	16(a)	Compliance.

Information	concerning	compliance	with	Section	16(a)	of	the	Securities	Exchange	Act	of	1934	is	set	forth	in	the Section	16(a)	Beneficial	Ownership	Reporting	Compliance	segment	of	the	Proxy	Statement	and	is	incorporated herein	by	reference.

(d) Code	of	Ethics	for	Chief	Executive	Officer	and	Senior	Financial	Officers	of	Registrant.

The	Board	of	Directors	of	UPC	has	adopted	the	UPC	Code	of	Ethics	for	the	Chief	Executive	Officer	and	Senior Financial	 Officers	 (the	 Code).	 A	 copy	 of	 the	 Code	 may	 be	 found	 on	 the	 Internet	 at	 our	 website www.up.com/investor/governance.	 We	 intend	 to	 disclose	 any	 amendments	 to	 the	 Code	 or	 any	 waiver	 from	 a provision	of	the	Code	on	our	website.

# Item	11.	Executive	Compensation

Information	concerning	compensation	received	by	our	directors	and	our	named	executive	officers	is	presented	in	the Compensation	Discussion	and	Analysis,	Summary	Compensation	Table,	Grants	of	Plan-Based	Awards	in	Fiscal	Year 2018,	Outstanding	Equity	Awards	at	2018	Fiscal	Year-End,	Option	Exercises	and	Stock	Vested	in	Fiscal	Year	2018, Pension	Benefits	at	2018	Fiscal	Year-End,	Nonqualified	Deferred	Compensation	at	2018	Fiscal	Year-End,	Potential Payments	Upon	Termination	or	Change	in	Control	and	Director	Compensation	in	Fiscal	Year	2018	segments	of	the Proxy	Statement	and	is	incorporated	herein	by	reference.	Additional	information	regarding	compensation	of	directors, including	 Board	 committee	 members,	 is	 set	 forth	 in	 the	 By-Laws	 of	 UPC	 and	 the	 Stock	 Unit	 Grant	 and	 Deferred Compensation	 Plan	 for	 the	 Board	 of	 Directors,	 both	 of	 which	 are	 included	 as	 exhibits	 to	 this	 report.	 Information regarding	the	Compensation	and	Benefits	Committee	is	set	forth	in	the	Compensation	Committee	Interlocks	and	Insider Participation	and	Compensation	Committee	Report	segments	of	the	Proxy	Statement	and	is	incorporated	herein	by reference.

# Item	12.	Security	Ownership	of	Certain	Beneficial	Owners	and	Management	and	Related	Stockholder	Matters

Information	as	to	the	number	of	shares	of	our	equity	securities	beneficially	owned	by	each	of	our	directors	and	nominees for	director,	our	named	executive	officers,	our	directors	and	executive	officers	as	a	group,	and	certain	beneficial	owners is	set	forth	in	the	Security	Ownership	of	Certain	Beneficial	Owners	and	Management	segment	of	the	Proxy	Statement and	is	incorporated	herein	by	reference.

# Item	13.	Certain	Relationships	and	Related	Transactions	and	Director	Independence

Information	 on	 related	 transactions	 is	 set	 forth	 in	 the	 Certain	 Relationships	 and	 Related	 Transactions	 and Compensation	Committee	Interlocks	and	Insider	Participation	segments	of	the	Proxy	Statement	and	is	incorporated herein	by	reference.	We	do	not	have	any	relationship	with	any	outside	third	party	that	would	enable	such	a	party	to negotiate	terms	of	a	material	transaction	that	may	not	be	available	to,	or	available	from,	other	parties	on	an	arm's-length basis.

Information	regarding	the	independence	of	our	directors	is	set	forth	in	the	Director	Independence	segment	of	the	Proxy Statement	and	is	incorporated	herein	by	reference.

# Item	14.	Principal	Accountant	Fees	and	Services

Information	concerning	the	fees	billed	by	our	independent	registered	public	accounting	firm	and	the	nature	of	services comprising	the	fees	for	each	of	the	two	most	recent	fiscal	years	in	each	of	the	following	categories:	(i)	audit	fees,	(ii) audit-related	fees,	(iii)	tax	fees,	and	(iv)	all	other	fees,	is	set	forth	in	the	Independent	Registered	Public	Accounting Firm's	Fees	and	Services	segment	of	the	Proxy	Statement	and	is	incorporated	herein	by	reference.

Information	concerning	our	Audit	Committee's	policies	and	procedures	pertaining	to	pre-approval	of	audit	and	non-audit services	rendered	by	our	independent	registered	public	accounting	firm	is	set	forth	in	the	Audit	Committee	segment	of the	Proxy	Statement	and	is	incorporated	herein	by	reference.

# Item	15.	Exhibits,	Financial	Statement	Schedules

(a)				Financial	Statements,	Financial	Statement	Schedules,	and	Exhibits:

# (1)				Financial	Statements

The financial	 statements filed	 as	 part	 of this filing	 are listed	 on the index to the	 Financial	 Statements	 and Supplementary	Data,	Item	8,	on	page	44.

# (2)				Financial	Statement	Schedules

# Schedule	II	-	Valuation	and	Qualifying	Accounts

Schedules	not	listed	above	have	been	omitted	because	they	are	not	applicable	or	not	required	or	the	information required	to	be	set	forth	therein	is	included	in	the	Financial	Statements	and	Supplementary	Data,	Item	8,	or	notes thereto.

Exhibits	 are listed in the	 exhibit index	 beginning	 on	 page	87.	 The	 exhibits include	 management	 contracts, compensatory	plans	and	arrangements	required	to	be	filed	as	exhibits	to	the	Form	10-K	by	Item	601	(10)	(iii)	of Regulation	S-K.

# SIGNATURES

Pursuant	to	the	requirements	of	Section	13	or	15(d)	of	the	Securities	Exchange	Act	of	1934,	the	registrant	has	duly caused	this	report	to	be	signed	on	its	behalf	by	the	undersigned,	thereunto	duly	authorized,	on	this	8th	day	of	February, 2019.

By /s/	Lance	M.	Fritz

Lance	M.	Fritz,

# Chairman,	President	and

# Chief	Executive	Officer

# Pursuant	to	the	requirements	of	the	Securities	Exchange	Act	of	1934,	this	report	has	been	signed	below,	on	this	8th	day

of	February,	2019,	by	the	following	persons	on	behalf	of	the	registrant	and	in	the	capacities	indicated.

DIRECTORS:

Rhonda	S.	Ferguson,	Attorney-in-fact

| Millions,	for	the	Years	Ended	December	31, | 2018 | 2017 | 2016 |
| :--- | :--- | :--- | :--- |
| Accrued\tcasualty\tcosts: |  |  |  |
| \t\t\t\t\tBalance,\tbeginning\tof\tperiod | $684 | $716 | $736 |
| \t\t\t\t\tCharges\tto\texpense | 202 | 167 | 202 |
| \t\t\t\t\tCash\tpayments\tand\tother\treductions | (177) | (199) | (222) |
| Balance,\tend\tof\tperiod | $709 | $684 | $716 |
| Accrued\tcasualty\tcosts\tare\tpresented\tin\tthe\nConsolidated\tStatements\tof\tFinancial\tPosition\tas\tfollows: |  |  |  |
| \t\t\t\t\tCurrent | $211 | $194 | $185 |
| \t\t\t\t\tLong-term | 498 | 490 | 531 |
| Balance,\tend\tof\tperiod | $709 | $684 | $716 |

# Exhibit	Index

# Incorporated	by	Reference

Indenture,	dated	as	of	December	20,	1996,	between	UPC	and	Wells	Fargo	Bank,	National Association,	as	successor	to	Citibank,	N.A.,	as	Trustee,	is	incorporated	herein	by	reference to	Exhibit	4.1	to	UPC's	Registration	Statement	on	Form	S-3	(No.	333-18345).

4(b) Indenture,	 dated	 as	 of	 April	 1,	 1999,	 between	 UPC	 and	 The	 Bank	 of	 New	 York,	 as successor	to	JP	Morgan	Chase	Bank,	formerly	The	Chase	Manhattan	Bank,	as	Trustee,	is incorporated	herein	by	reference	to	Exhibit	4.2	to	UPC's	Registration	Statement	on	Form	S- 3	(No.	333-75989).

4(c) Form	of	3.200%	Note	due	2021	is	incorporated	herein	by	reference	to	Exhibit	4.1	to	the Corporation's	Current	Report	on	Form	8-K	dated	June	8,	2018.

4(d) Form	of	3.500%	Note	due	2023	is	incorporated	herein	by	reference	to	Exhibit	4.2	to	the Corporation's	Current	Report	on	Form	8-K	dated	June	8,	2018.

4(e) Form	of	3.750%	Note	due	2025	is	incorporated	herein	by	reference	to	Exhibit	4.3	to	the Corporation's	Current	Report	on	Form	8-K	dated	June	8,	2018.

4(f) Form	of	3.950%	Note	due	2028	is	incorporated	herein	by	reference	to	Exhibit	4.4	to	the Corporation's	Current	Report	on	Form	8-K	dated	June	8,	2018.

4(g) Form	of	4.375%	Note	due	2038	is	incorporated	herein	by	reference	to	Exhibit	4.5	to	the Corporation's	Current	Report	on	Form	8-K	dated	June	8,	2018.

4(h) Form	of	4.500%	Note	due	2048	is	incorporated	herein	by	reference	to	Exhibit	4.6	to	the Corporation's	Current	Report	on	Form	8-K	dated	June	8,	2018.

4(i) Form	of	4.800%	Note	due	2058	is	incorporated	herein	by	reference	to	Exhibit	4.7	to	the Corporation's	Current	Report	on	Form	8-K	dated	June	8,	2018.

Certain	 instruments	evidencing	 long-term	 indebtedness	of	UPC	are	not	 filed	as	exhibits because	the	total	amount	of	securities	authorized	under	any	single	such	instrument	does not	exceed	10%	of	the	Corporation's	total	consolidated	assets.	UPC	agrees	to	furnish	the Commission	with	a	copy	of	any	such	instrument	upon	request	by	the	Commission.

10(d) Supplemental	Thrift	Plan	(409A	Grandfathered	Component)	of	Union	Pacific	Corporation, as	amended	March	1,	2013,	is	incorporated	herein	by	reference	to	Exhibit	10(d)	 to	 the Corporation's	Quarterly	Report	on	Form	10-Q	for	the	quarter	ended	March	31,	2013.

10(v) Form	of	2016	Long	Term	Plan	Stock	Unit	Agreement	is	incorporated	herein	by	reference	to Exhibit	 10(a) to the	 Corporation's	 Annual	 Report	 on	 Form	 10-K for the year	 ended December	31,	2015.

10(w) Form	of	2017	Long	Term	Plan	Stock	Unit	Agreement	is	incorporated	herein	by	reference	to Exhibit	 10(a) to the	 Corporation's	 Annual	 Report	 on	 Form	 10-K for the year	 ended December	31,	2016.

10(x) Form	of	2018	Long	Term	Plan	Stock	Unit	Agreement	is	incorporated	herein	by	reference	to Exhibit	 10(a) to the	 Corporation's	 Annual	 Report	 on	 Form	 10-K for the year	 ended December	31,	2017.

10(y) Executive	Incentive	Plan	(2005)	–	Deferred	Compensation	Program,	dated	December	21, 2005 is incorporated	 herein	 by reference to	 Exhibit	 10(g) to the	 Corporation's	 Annual Report	on	Form	10-K	for	the	year	ended	December	31,	2005.



Question: what is the 2019 to 2020 projected growth rate for capital lease payments?
Answer: 4.8%