Union Pacific Reports Fourth Quarter and Full Year 2019 Results

UNION PACIFIC CORPORATION AND SUBSIDIARY COMPANIES

Condensed Consolidated Statements of Income (unaudited)

 Millions, Except Per Share Amounts and Percentages,

4th Quarter

Full Year

 For the Periods Ended December 31,

2019

2018

%

2019

2018

%

 Operating Revenues

      Freight revenues

$

4,851

$

5,387

%

$

20,243

$

21,384

(5)

%

      Other

361

370

(2)

1,465

1,448

1

 Total operating revenues

5,212

5,757

(9)

21,708

22,832

(5)

 Operating Expenses

      Compensation and benefits

1,049

1,280

(18)

4,533

5,056

(10)

      Purchased services and materials

531

582

(9)

2,254

2,443

(8)

      Depreciation

559

555

1

2,216

2,191

1

      Fuel

512

640

(20)

2,107

2,531

(17)

      Equipment and other rents

230

269

(14)

984

1,072

(8)

      Other

231

221

5

1,060

1,022

4

 Total operating expenses

3,112

3,547

(12)

13,154

14,315

(8)

 Operating Income

2,100

2,210

(5)

8,554

8,517

-

      Other income

56

46

22

243

94

F

      Interest expense

(278)

(240)

16

(1,050)

(870)

21

 Income before income taxes

1,878

2,016

(7)

7,747

7,741

-

 Income taxes

(475)

(462)

3

(1,828)

(1,775)

3

 Net Income

$

1,403

$

1,554

(10)

$

5,919

$

5,966

(1)

 Share and Per Share

      Earnings per share - basic

$

2.03

$

2.13

(5)

%

$

8.41

$

7.95

6

%

      Earnings per share - diluted

$

2.02

$

2.12

(5)

$

8.38

$

7.91

6

      Weighted average number of shares - basic

692.2

729.4

(5)

703.5

750.9

(6)

      Weighted average number of shares - diluted

694.9

732.9

(5)

706.1

754.3

(6)

      Dividends declared per share

$

0.97

$

0.80

21

$

3.70

$

3.06

21

 Operating Ratio

59.7%

61.6%

(1.9)

pts

60.6%

62.7%

(2.1)

pts

 Effective Tax Rate

25.3%

22.9%

2.4

23.6%

22.9%

0.7

UNION PACIFIC CORPORATION AND SUBSIDIARY COMPANIES

Freight Revenues Statistics (unaudited)

4th Quarter

Full Year

 For the Periods Ended December 31,

2019

2018

%

2019

2018

%

 Freight Revenues (Millions)

 Agricultural Products

$

1,099

$

1,124

(2)

%

$

4,444

$

4,469

(1)

%

 Energy

838

1,110

(25)

3,761

4,608

(18)

 Industrial

1,407

1,405

-

5,796

5,679

2

 Premium

1,507

1,748

(14)

6,242

6,628

(6)

 Total

$

4,851

$

5,387

(10)

%

$

20,243

$

21,384

(5)

%

 Revenue Carloads (Thousands)

 Agricultural Products

270

275

(2)

%

1,091

1,124

(3)

%

 Energy

325

404

(20)

1,408

1,650

(15)

 Industrial

431

431

-

1,787

1,752

2

 Premium [a]

967

1,132

(15)

4,060

4,382

(7)

 Total

1,993

2,242

(11)

%

8,346

8,908

(6)

%

 Average Revenue per Car

 Agricultural Products

$

4,070

$

4,079

-

%

$

4,072

$

3,973

2

%

 Energy

2,573

2,748

(6)

2,671

2,793

(4)

 Industrial

3,268

3,258

-

3,244

3,241

-

 Premium

1,560

1,546

1

1,538

1,513

2

 Average 

$

2,435

$

2,403

1

%

$

2,425

$

2,400

1

%

[a]

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

UNION PACIFIC CORPORATION AND SUBSIDIARY COMPANIES

Condensed Consolidated Statements of Financial Position (unaudited)

Dec. 31,

Dec. 31,

 Millions, Except Percentages

2019

2018

 Assets

      Cash and cash equivalents

$

831

$

1,273

      Short-term investments

60

60

      Other current assets

2,568

2,830

      Investments

2,050

1,912

      Net properties

53,916

52,679

      Operating lease assets

1,812

-

      Other assets

436

393

 Total assets

$

61,673

$

59,147

 Liabilities and Common Shareholders' Equity

      Debt due within one year

$

1,257

$

1,466

      Other current liabilities

3,094

3,160

      Debt due after one year

23,943

20,925

      Operating lease liabilities

1,471

-

      Deferred income taxes

11,992

11,302

      Other long-term liabilities

1,788

1,871

 Total liabilities

43,545

38,724

 Total common shareholders' equity

18,128

20,423

 Total liabilities and common shareholders' equity

$

61,673

$

59,147

 Return on Average Common Shareholders' Equity

30.7%

26.4%

 Return on Invested Capital as Adjusted (ROIC)*

15.0%

15.1%

*

ROIC is a non-GAAP measure; however, management believes that it is an important measure in evaluating the efficiency and effectiveness of our long-term capital investments. See page 9 for a reconciliation to GAAP.

UNION PACIFIC CORPORATION AND SUBSIDIARY COMPANIES

Condensed Consolidated Statements of Cash Flows (unaudited)

 Millions,

Full Year

 For the Periods Ended December 31,

2019

2018

 Operating Activities

      Net income

$

5,919

$

5,966

      Depreciation

2,216

2,191

      Deferred income taxes

566

338

      Other - net

(92)

191

 Cash provided by operating activities

8,609

8,686

 Investing Activities

      Capital investments*

(3,453)

(3,437)

      Maturities of short-term investments

130

90

      Purchases of short-term investments

(115)

(90)

      Other - net

3

26

 Cash used in investing activities

(3,435)

(3,411)

 Financing Activities

      Share repurchase programs

(5,804)

(8,225)

      Debt issued

3,986

6,892

      Dividends paid

(2,598)

(2,299)

      Debt repaid

(817)

(1,736)

      Debt exchange

(387)

-

      Net issuance of commercial paper

(6)

194

      Other - net

(20)

(48)

 Cash used in financing activities

(5,646)

(5,222)

 Net Change in Cash, Cash Equivalents and Restricted Cash

(472)

53

 Cash, cash equivalents and restricted cash at beginning of year

1,328

1,275

 Cash, Cash Equivalents and Restricted Cash at End of Year

$

856

$

1,328

 Free Cash Flow**

      Cash provided by operating activities

$

8,609

$

8,686

      Cash used in investing activities

(3,435)

(3,411)

      Dividends paid

(2,598)

(2,299)

 Free cash flow

$

2,576

$

2,976

*

Capital investments include locomotive and freight car early lease buyouts of $290 million in both 2019 and 2018.

**

Free cash flow is a non-GAAP measure; however, we believe this measure is important to management and investors in evaluating our financial performance and measures our ability to generate cash without additional external financing.

UNION PACIFIC CORPORATION AND SUBSIDIARY COMPANIES

Operating and Performance Statistics (unaudited)

4th Quarter

Full Year

 For the Periods Ended December 31,

2019

2018

%

2019

2018

%

 Operating/Performance Statistics 

      Freight car velocity (daily miles per car) [a]

220

209

5

%

208

196

6

%

      Average train speed (miles per hour) [a] *

26.2

26.0

1

25.1

26.1

(4)

      Average terminal dwell time (hours) [a] *

23.3

26.9

(13)

24.8

29.8

(17)

      Locomotive productivity (GTMs per horsepower day)

126

111

14

120

106

13

      Gross ton-miles (GTMs) (millions)

200,801

230,537

(13)

846,616

928,587

(9)

      Workforce productivity (car miles per employee)

874

840

4

857

839

2

      Employees (average)

34,563

41,696

(17)

37,483

41,967

(11)

 Locomotive Fuel Statistics

      Average fuel price per gallon consumed

$ 2.16

$ 2.33

(7)

%

$ 2.13

$ 2.29

(7)

%

      Fuel consumed in gallons (millions)

228

265

(14)

953

1,068

(11)

      Fuel consumption rate**

1.140

1.148

(1)

1.126

1.150

(2)

 Revenue Ton-Miles (Millions)

      Agricultural Products

23,560

24,767

(5)

%

96,365

101,759

(5)

%

      Energy

29,483

40,891

(28)

134,751

170,045

(21)

      Industrial

24,237

24,530

(1)

99,171

100,469

(1)

      Premium

22,652

25,420

(11)

93,146

101,684

(8)

 Total

99,932

115,608

(14)

%

423,433

473,957

(11)

%

[a]

Prior years have been recast to conform to the current year presentation.

*

Surface Transportation Board reported performance measures. 

**

Fuel consumption is computed as follows: gallons of fuel consumed divided by gross ton-miles in thousands. 

UNION PACIFIC CORPORATION AND SUBSIDIARY COMPANIES

Condensed Consolidated Statements of Income (unaudited)

 Millions, Except Per Share Amounts and Percentages,

1st Qtr 

2nd Qtr 

3rd Qtr 

4th Qtr 

Full Year 

 Operating Revenues

      Freight revenues

$

5,010

$

5,236

$

5,146

$

4,851

$

20,243

      Other

374

360

370

361

1,465

 Total operating revenues

5,384

5,596

5,516

5,212

21,708

 Operating Expenses

      Compensation and benefits

1,205

1,145

1,134

1,049

4,533

      Purchased services and materials

576

573

574

531

2,254

      Depreciation

549

551

557

559

2,216

      Fuel

531

560

504

512

2,107

      Equipment and other rents

258

260

236

230

984

      Other

305

247

277

231

1,060

 Total operating expenses

3,424

3,336

3,282

3,112

13,154

 Operating Income

1,960

2,260

2,234

2,100

8,554

      Other income

77

57

53

56

243

      Interest expense

(247)

(259)

(266)

(278)

(1,050)

 Income before income taxes

1,790

2,058

2,021

1,878

7,747

 Income taxes

(399)

(488)

(466)

(475)

(1,828)

 Net Income

$

1,391

$

1,570

$

1,555

$

1,403

$

5,919

 Share and Per Share

      Earnings per share - basic

$

1.94

$

2.23

$

2.22

$

2.03

$

8.41

      Earnings per share - diluted

$

1.93

$

2.22

$

2.22

$

2.02

$

8.38

      Weighted average number of shares - basic

716.8

705.5

699.3

692.2

703.5

      Weighted average number of shares - diluted

719.5

708.0

701.9

694.9

706.1

      Dividends declared per share

$

0.88

$

0.88

$

0.97

$

0.97

$

3.70

 Operating Ratio

63.6%

59.6%

59.5%

59.7%

60.6%

 Effective Tax Rate

22.3%

23.7%

23.1%

25.3%

23.6%

UNION PACIFIC CORPORATION AND SUBSIDIARY COMPANIES

Freight Revenues Statistics (unaudited)

2019

1st Qtr 

2nd Qtr 

3rd Qtr 

4th Qtr 

Full Year 

 Freight Revenues (Millions)

 Agricultural Products

$

1,067

$

1,155

$

1,123

$

1,099

$

4,444

 Energy

982

966

975

838

3,761

 Industrial

1,410

1,494

1,485

1,407

5,796

 Premium

1,551

1,621

1,563

1,507

6,242

 Total

$

5,010

$

5,236

$

5,146

$

4,851

$

20,243

 Revenue Carloads (Thousands)

 Agricultural Products

259

284

278

270

1,091

 Energy

358

351

374

325

1,408

 Industrial

429

460

467

431

1,787

 Premium [a]

1,041

1,042

1,010

967

4,060

 Total

2,087

2,137

2,129

1,993

8,346

 Average Revenue per Car

 Agricultural Products

$

4,123

$

4,057

$

4,042

$

4,070

$

4,072

 Energy

2,740

2,753

2,613

2,573

2,671

 Industrial

3,292

3,242

3,178

3,268

3,244

 Premium

1,489

1,557

1,546

1,560

1,538

 Average 

$

2,401

$

2,450

$

2,417

$

2,435

$

2,425

[a]

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

UNION PACIFIC CORPORATION AND SUBSIDIARY COMPANIES

Non-GAAP Measures Reconciliation to GAAP

 Adjusted Debt / Adjusted EBITDA*

Millions, Except Ratios

Dec. 31,

Dec. 31,

Dec. 31,

for the Twelve Months Ended

2019

2018

2017

 Net income

$

5,919

$

5,966

$

10,712

 Add:

 Income tax expense/(benefit)

1,828

1,775

(3,080)

 Depreciation

2,216

2,191

2,105

 Interest expense

1,050

870

719

 EBITDA

$

11,013

$

10,802

$

10,456

 Adjustments:

 Other income

(243)

(94)

(245)

 Interest on operating lease liabilities**

68

84

98

 Adjusted EBITDA

$

10,838

$

10,792

$

10,309

 Debt

$

25,200

$

22,391

$

16,944

 Operating lease liabilities***

1,833

2,271

2,140

 Unfunded pension and OPEB, net of taxes of $124, $135, and $238

400

456

396

 Adjusted debt

$

27,433

$

25,118

$

19,480

 Adjusted debt / Adjusted EBITDA

2.5

2.3

1.9

*

Total debt plus operating lease liabilities plus after-tax unfunded pension and OPEB obligation divided by net income plus income tax expense, depreciation, amortization, interest expense and adjustments for other income and interest on operating lease liabilities. Adjusted debt to adjusted EBITDA (earnings before interest, taxes, depreciation, amortization, other income and interest on operating lease liabilities) 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, 2019 and December 31, 2018, the incremental borrowing rate on operating leases was 3.7%. At December 31, 2017, operating leases were discounted using our effective interest rate on debt of 4.6%.

**

Represents the hypothetical interest expense we would incur (using the incremental borrowing rate) if the property under our operating leases were owned or accounted for as finance leases.

***

Effective January 1, 2019, the Company adopted Accounting Standards Update No. 2016-02 (ASU 2016-02), Leases.  ASU 2016-02 requires companies to recognize lease assets and lease liabilities on the balance sheet.  Prior to adoption, the present value of operating leases was used in this calculation.

UNION PACIFIC CORPORATION AND SUBSIDIARY COMPANIES

Non-GAAP Measures Reconciliation to GAAP

 Return on Average Common Shareholders' Equity

 Millions, Except Percentages

2019

2018

2017

 Net income

$

5,919

$

5,966

$

10,712

 Average equity

$

19,276

$

22,640

$

22,394

 Return on average common shareholders' equity

30.7%

26.4%

47.8%

 Return on Invested Capital as Adjusted (ROIC)*

 Millions, Except Percentages

2019

2018

2017

 Net income

$

5,919

$

5,966

$

10,712

 Interest expense

1,050

870

719

 Interest on average operating lease liabilities

76

82

105

 Taxes on interest

(266)

(218)

(309)

 Net operating profit after taxes as adjusted

$

6,779

$

6,700

$

11,227

 Average equity

$

19,276

$

22,640

$

22,394

 Average debt

23,796

19,668

15,976

 Average operating lease liabilities

2,052

2,206

2,288

 Average invested capital as adjusted

$

45,124

$

44,514

$

40,658

 Return on invested capital as adjusted

15.0%

15.1%

27.6%

*

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, 2019 and December 31, 2018, the incremental borrowing rate on operating leases was 3.7%. At December 31, 2017, operating leases were discounted using our effective interest rate on debt of 4.6%.