Union Pacific Corporation — 2012 Form 10-K
Reporting period: Fiscal year ended December 31, 2012. The filing also reports unaudited fourth-quarter results. Unless noted otherwise, financial amounts below are in millions of dollars. Union Pacific’s principal operating business is its integrated Class I railroad, serving 23 states across the western two-thirds of the United States and connecting with Canada, Mexico, and major ports.
Financial performance
| Metric | 2012 | 2011 | Change |
|---|---|---|---|
| Operating revenue | $20,926 | $19,557 | +7% |
| Freight revenue | $19,686 | $18,508 | +6% |
| Operating income | $6,745 | $5,724 | +18% |
| Net income | $3,943 | $3,292 | +20% |
| Diluted EPS | $8.27 | $6.72 | +23% |
| Operating ratio | 67.8% | 70.7% | Improved 2.9 points |
| Cash from operations | $6,161 | $5,873 | +$288 |
| Cash used in investing | $(3,633) | $(3,119) | Higher investment |
| Free cash flow, company-defined | $1,382 | $1,917 | Down $535 |
| Total debt at year-end | $8,997 | $8,906 | +$91 |
| Debt to capital | 31.2% | 32.4% | Improved 1.2 points |
Free cash flow is a non-GAAP measure defined as operating cash flow, adjusted for the receivables facility, less investing cash flow and dividends paid. Cash and cash equivalents were $1,063 at year-end, versus $1,217 in 2011. The company reported a working-capital surplus but did not give its amount in the provided text. It had $1.8 billion available under its revolving credit facility, with no borrowings outstanding.
Capital expenditures were $3.738 billion, up from $3.176 billion. The company declared $2.49 per share in dividends, compared with $1.93 in 2011, and spent $1.474 billion on common-share repurchases. Return on invested capital, as adjusted and company-defined, rose to 14.0% from 12.4%.
Fourth-quarter snapshot
In Q4 2012, revenue was $5,250, operating income $1,725, and net income $1,036; diluted EPS was $2.19. Q4 2011 figures were $5,108, $1,617, $964, and $1.99, respectively.
Material changes and operating drivers
- Revenue growth came from core pricing gains, higher fuel-surcharge recovery, and strength in automotive, chemicals, industrial products, and intermodal. Total carloads were essentially flat at 9.048 million.
- Coal carloads fell 14% and agricultural carloads fell 4%. Coal freight revenue declined 4%; agricultural freight revenue declined 1%.
- Automotive carloads rose 13%, chemicals 13%, industrial products 3%, and intermodal 2%. Crude-oil shipments from shale regions grew more than threefold, supporting chemicals growth.
- Operating expenses rose 3% to $14.181 billion. Higher depreciation, wages and benefits, fuel prices, and purchased transportation were partly offset by productivity gains and lower fuel consumption.
- Fuel expense was nearly flat year over year: higher diesel prices increased expense by $105 million, partly offset by 2% lower gross ton-miles. Fuel consumption rate was unchanged.
- Operating performance improved: average train speed increased 4% to 26.5 mph; terminal dwell time was unchanged at 26.2 hours; average rail-car inventory declined 1%. The customer satisfaction index increased to 93 from 92.
Outlook, risks, and notable items
- Management expected 2013 volume to exceed 2012 if industrial production grew approximately 2%. Even with no volume growth, it expected earnings to exceed 2012, supported by pricing, network improvements, and productivity initiatives. These are forward-looking expectations, not guarantees.
- The 2013 capital plan was approximately $3.6 billion, including about $450 million for Positive Train Control (PTC). The company estimated total PTC costs of approximately $2 billion by project completion and noted implementation challenges and the statutory deadline at the end of 2015.
- Management expected federal bonus depreciation to benefit 2013 cash flow. It also flagged uncertainty in fuel prices and intended to use surcharges and fuel-conservation efforts to mitigate fuel-cost exposure.
- Principal risks include economic and freight-demand shifts, network capacity and service disruption, severe weather, fuel-price volatility, competition, labor disputes, hazardous-material incidents, environmental liabilities, cybersecurity and technology, regulation, and dependence on a limited number of locomotive and rail suppliers.
- Pending matters include a fuel-surcharge antitrust class action, which the company said it would vigorously defend and did not expect to materially affect results, and an environmental penalty matter in Illinois. The company also disclosed a favorable pipeline-easement rent judgment under appeal; no gain was recorded because the recovery remained uncertain.
- Recorded liabilities included $334 million for personal-injury claims, $139 million for asbestos claims, and $170 million for environmental matters. Management stated known claims and contingencies were not expected to have a material adverse effect, while acknowledging estimation uncertainty.
- The independent auditor issued an unqualified opinion on the financial statements and internal control over financial reporting.
Important facts for investors to verify
- Whether pricing and productivity can sustain earnings growth if volumes remain flat or coal demand weakens further.
- Coal-market exposure and the durability of growth in shale-related crude oil, frac sand, automotive, chemicals, and intermodal traffic.
- Free-cash-flow conversion after record capital investment, dividends, and share repurchases; confirm the company’s non-GAAP free-cash-flow definition.
- PTC spending, implementation timetable, and potential effects on other capital priorities.
- Debt and lease obligations, pension funding assumptions, and sensitivity of liquidity to credit ratings and capital-market access.
- Developments in the antitrust litigation, environmental matters, and other claims, including any changes in estimated liabilities or recoveries.