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Union PacificCorporation
Union PacificCorporation
Dick DavidsonChairman
Union Pacific Corporation
Dick DavidsonChairman
Union Pacific Corporation
Union PacificCorporation
Union PacificCorporation
Jim YoungPresident &
Chief Executive Officer
Union Pacific Corporation
Jim YoungPresident &
Chief Executive Officer
Union Pacific Corporation
Fourth Quarter ResultsUnion Pacific Corporation
2004 2005
$0.88
$1.10
* See Union Pacific web site under Investor Relations for a reconciliation to GAAP.
$0.30
Adjusted2004*
• Kansas Washouts
• 42% Higher Fuel Prices
• Record Carloads & Revenue
• 18% Operating Income Growth*
+25%
2005 RecapUnion Pacific Corporation
$2.89
$3.41
Adjusted2004*
• Record Revenue
• Yield Improvement
• Operating Gains
– Recoverability
– Productivity
• Increased Profitability
+18%
Adjusted2005*
* See Union Pacific web site under Investor Relations for a reconciliation to GAAP.
Union PacificCorporation
Union PacificCorporation
Fourth Quarter 2005Fourth Quarter 2005
Union PacificCorporation
Union PacificCorporation
Rob KnightChief Financial Officer
Union Pacific Corporation
Rob KnightChief Financial Officer
Union Pacific Corporation
Commodity Revenue GrowthFourth Quarter - In Millions
Q42004
Q42005
$3,070 -0.4%
$3,455
+5.9%
Volume& Mix
Yield FuelRecovery
+7.1%
+12.6%
Operating Revenues $3,621 $3,217 + 13 %
Operating ExpensesSalaries and Benefits 1,108 1,051 + 5Equipment & Other Rents 353 331 + 7Depreciation 300 282 + 6Fuel and Utilities 753 533 + 41Materials and Supplies 143 129 + 11Purchased Services & Other 431 440 - 2
Total Operating Expenses 3,088 2,766 + 12
Operating Income $ 533 $ 451 +18
Income Statement SummaryFourth Quarter - In Millions
2005 2004* Pct Chg
* See Union Pacific web site under Investor Relations for a reconciliation to GAAP.
Adjusted
Operating ExpensesFourth Quarter – In Millions
Salaries & Benefits
Total Operating Expenses: $3,088 +$322 or 12%*
$1,108 36%
Fuel & Utilities
$753 24%
$353 11%
Equipment & Other Rents
Depreciation$300 10%
$143 5%
Materials & Supplies$431 14%
Purchased Services& Other*
* See Union Pacific web site under Investor Relations for a reconciliation to GAAP.
Salaries & BenefitsFourth Quarter – In Millions
Salaries & Benefits: +$57 or 5%
Fourth Quarter Recap
• Better Crew Productivity
• Lower Training Expense
• Labor Inflation
• Incentive Compensation
• Workforce up 1%
$1,108 36%
Workforce LevelsAverage Annual Employees
2006 Outlook
• Workforce Levels Linkedto Volume & Productivity
• 3% Labor Inflation
• Options Expense
* See Union Pacific web site under Investor Relations for recalculation ofprior period employee counts
2004 2005
48,32949,747 2005 Recap
• +2.9% Full-Year Workforce
Equipment & Other RentsFourth Quarter – In Millions
Equipment & Other Rents: +$22 or 7%
Fourth Quarter Recap
• Increased Leasing ofLocomotives & OtherEquipment
• Improved Car Cycle Times
2006 Outlook
• Additional EquipmentLeases
• Improved Productivity
$353 11%
DepreciationFourth Quarter – In Millions
Depreciation: +$18 or 6%
2006 Outlook
• Growth Tied toCapital Program
$300 10%
Fuel & UtilitiesFourth Quarter – In Millions
Fuel & Utilities: +$220 or 41%
Fourth Quarter Recap
• $2.08 Average Diesel FuelPrice
• Improved ConsumptionRate
2006 Outlook
• Crude Oil Price $60/Barrel
• Current Diesel Price =$1.80 per Gallon
$753 24%
Materials & SuppliesFourth Quarter – In Millions
Materials & Supplies: +$14 or 11%
Fourth Quarter Recap
• Larger Locomotive Fleet
• Inflation
2006 Outlook
• Continued Inflation
• Larger MaintenancePrograms
$143 5%
Purchased Services & OtherFourth Quarter – In Millions
Purchased Services & Other: -$9 or (2%)*
Fourth Quarter Recap
• Partial Insurance Recovery
• Increased Joint FacilityCosts
2006 Outlook
• Productivity Drives Cost$431 14%
* See Union Pacific web site under Investor Relations for a reconciliation to GAAP.
80
82
84
86
88
90
1Q 2Q 3Q 4Q
80
82
84
86
88
90
1Q 2Q 3Q 4Q
Operating Ratio (%) Adjusted Ratio (%)*(w/ Fuel @ 75¢)
2004
20052005
2004
90.1
89.1
86.0
88.1
87.3
85.2
82.381.9*
86.4
86.1
86.0*87.1
83.3
81.4
Operating Ratio
20052004
85.3
80.7
* See Union Pacific web site under Investor Relations for a reconciliation to GAAP.
($ Millions Except EPS)
Income Statement – Fourth QuarterUnion Pacific Corporation
$ 0.88 $ 0.88 $ 1.10 $ 1.10Diluted EPSDiluted EPS
$ 233 $ 233 $ 296 $ 296Net IncomeNet Income
(110) (110) (171) (171)Income Tax ExpenseIncome Tax Expense
343 343 467 467Income Before Income TaxesIncome Before Income Taxes
(130) (130) (120) (120)Interest ExpenseInterest Expense
22 22 54 54Other Income - NetOther Income - Net
451 451 533 533Operating IncomeOperating Income
2,766 2,766 3,088 3,088Operating ExpensesOperating Expenses
$3,217 $3,217 $3,621 $3,621Operating RevenuesOperating Revenues
2004* 2004* 2005 2005
Adjusted Adjusted
* See Union Pacific web site under Investor Relations for a reconciliation to GAAP.
($ Millions Except EPS)
Income Statement – Full YearUnion Pacific Corporation
$ 2.89 $ 2.89 $ 3.41 $ 3.41Diluted EPSDiluted EPS
$ 758 $ 758 $ 908 $ 908Net IncomeNet Income
(345) (345) (528) (528)Income Tax ExpenseIncome Tax Expense
1,103 1,103 1,436 1,436Income Before Income TaxesIncome Before Income Taxes
(527) (527) (504) (504)Interest ExpenseInterest Expense
88 88 145 145Other Income - NetOther Income - Net
1,542 1,542 1,795 1,795Operating IncomeOperating Income
10,673 10,673 11,783 11,783Operating ExpensesOperating Expenses
$12,215 $12,215 $13,578 $13,578Operating RevenuesOperating Revenues
2004 2004 2005 2005
Adjusted* Adjusted*
* See Union Pacific web site under Investor Relations for a reconciliation to GAAP.
Long-Term & Flexible Operating Leases
Capital SpendingIn Millions
20052004
$2,860
$1,876
$2,402
$2,169
Cash Capital & Capital Leases
$2,700+
2006E
$215
20052004
$234
Free Cash Flow*After Dividends After Dividends –– In Millions In Millions
* See Union Pacific web site under Investor Relations for a reconciliation to GAAP.
2005 Recap
• Cash from Operations up $338
• Higher Cash Capital
• Increased Cash Taxes
2006 Outlook
• Higher Cash Tax Rate
• Growing Cash from Operations
2006E
$300+
2002 2003 2004
45.1%43.6%
51.7%
44.8%
2005
Debt-to-CapitalLease Adjusted – As of December 31
2001
55.0%
Lease adjusted debt to capital is computed as follows:Total debt plus net present value of operating leases divided by total debt plus equity plus netpresent value of operating leases.
Union PacificCorporation
Union PacificCorporation
Jack KoraleskiExecutive Vice President
Marketing & Sales
Union Pacific Railroad
Jack KoraleskiExecutive Vice President
Marketing & Sales
Union Pacific Railroad
Fourth Quarter Highlights
• All-Time Record Revenue:
– Agricultural Products,Automotive, Chemicals,Industrial Products andIntermodal
• All-Time Record ARC:
– Agricultural Products,Chemicals, IndustrialProducts and Intermodal
• Energy: Record FourthQuarter Revenue & ARC
• Improving CustomerSatisfaction
Agricultural ProductsFourth Quarter
• $558 MM Revenue: +18%
• Volume: (1%)
• Average Revenue Per Car: +19%
Quarterly Highlights
• Continued Strong Demand for DryFeed Ingredients, Meals andEthanol
• Strength in Mexico Market:Northbound Beer and SouthboundGrain and Grain Products
GrainProducts
39%
WholeGrains
39%
Food/Refrig.
22%
Revenue Mix
AutomotiveFourth Quarter
• $352 MM Revenue: +8%
• Volume: (1%)
• Average Revenue Per Car: +9%
Quarterly Highlights
• Strong Demand for Quarter-EndFinished Vehicles Shipments
• New Model Production atHermosillo, Mexico Facility
AutoParts18%
FinishedVehicles
82%
Revenue Mix
ChemicalsFourth Quarter
• $476 MM Revenue: +6%
• Volume: (6%)
• Average Revenue Per Car: +13%
Quarterly Highlights
• Softer Demand for Export Potash
• Plastics Volume Down Due to WeakExport Market & Hurricane Impact
Revenue Mix
Plastics21%
Liquid & DryChemicals
26% Soda Ash18%
Petro &Other21%
Fertilizer14%
EnergyFourth Quarter
• $629 MM Revenue: +6%
• Volume: +1%
• Average Revenue Per Car: +6%
Quarterly Highlights
• SPRB Volume Growth RestrictedDue to Joint Line Repair
• CO/UT Volumes Hindered by MineShutdowns
Revenue Mix
CO/UT25%
SPRB67%
Other8%
Industrial ProductsFourth Quarter
• $746 MM Revenue: +19%
• Volume: Flat
• Average Revenue Per Car: +19%
Quarterly Highlights
• Strong Demand for LumberDriven by Housing Market
• Heavy Demand for Stone inSouthern States
Revenue Mix
Paper15%
Lumber27%
Steel16%
ConstructionProducts
18%
Consumer/Gov’t/
Waste 11%
Non-Ferrous
13%
Fourth Quarter
• $694 MM Revenue: +14%
• Volume: +5%
• Average Revenue Per Unit: +9%
Quarterly Highlights
• Continued Strength inInternational Volume
• Improved Balance of East/WestTraffic
• Increased Domestic Revenue,Despite Volume Decline
Intermodal
Revenue Mix
International52%
Domestic41%
Premium7%
Customer Satisfaction Index2005 CSI & Average 7-Day Carloadings
Q1
60
63
6667
Q2 Q3 Q4
Customer Service Index
Average 7-Day Carloadings (000s)
180
185
188190
2006 Commodity Revenue Outlook
Key Drivers
• Volume: 3%
• Revenue Growth in AllGroups
• Volume Growth in IndustrialProducts and Intermodal
• Significant Coal Volume andRevenue Growth
• Yield Gains
• Fuel Cost Recovery
Total Revenue Growth of 10%+
2006
13%
2007+
32% Repriced
55%
Pricing Opportunity% of Commodity Revenue
Union PacificCorporation
Union PacificCorporation
Dennis DuffyExecutive Vice President
Operations
Union Pacific Railroad
Dennis DuffyExecutive Vice President
Operations
Union Pacific Railroad
Hurricanes
Kansas FloodsKansas Floods
Blizzards
PRB IssuesPRB Issues
Network Operations2005 AAR Velocity - MPH
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan ‘06MTD
23
21
19
Good
West Coast Storm
30.1
33.132.3
35.2
Oct Nov Dec Jan
MTD
Coal OperationsAverage Trains Per Day – Southern Powder River Basin
December Performance
• 1st Half: 29.3 TPD
• 2nd Half: 35.0 TPD
Critical ResourcesImproved Recoverability
Crews 2004 2005 2006*
Trainmen Grads 4,979 2,072 2,500
Engineer Grads 680 1,700 1,100
Locomotives 2004 2005 2006*
New Freight 393 317 200
Freight Cars 2004 2005 2006*
New or Leased Cars 5,000 4,200 2,700
* Estimates
• Design for Achievability
•Maintain for Reliability
• Drive Asset Utilization
• Leverage the Network
• Transfer Knowledge Effectively
Productivity2004 vs. 2005
1.301.33
20052004
10.911.2
20052004
Freight Car UtilizationDays
Fuel Consumption RateGallons per Thousand GTMs
Principles
29.3
27.3
25.8
24.7
Q1 Q2 Q3 Q4
155
140
134137
Q1 Q2 Q3 Q4
324
322
2004 2005
30.5
28.7
2004 2005
Unified Plan2005 Performance
-6% -1%
Switches Per 1,000 CarloadsExcludes Coal
Work Events Per 1,000 CarloadsExcludes Coal
Inventory (000s)UP Measurement
Dwell (AAR)
-12% -16%
Implemented
In Process
Future
CIMS Rollout
CIMSCustomer Inventory Management System
El Paso
LosAngeles
Las Vegas
Phoenix
TucsonTucson
San Antonio AddisAddis
Houston
Ft. Worth
Portland
Kansas CityRoseville
Salt Lake City
• Pro-Active Inventory Control
– Production Performance
– Customer Behavior
• Asset Productivity
• Capacity Creation
• Improvements:
– Inventory: 25-40%
– Dwell: 20-25%
– To/From Industry: 35-50%
Laredo
El Paso
KansasCityKansasCity
St. LouisSt. Louis
Yuma
Laredo
Houston
ChicagoChicago
North PlatteNorth Platte
Phoenix
Las VegasLas Vegas
2006 Capital PlanMajor Projects
Los Angeles
TerminalImprovements
MasonCity
CorridorImprovements
Seattle
Portland
Oakland
Salt LakeCitySalt LakeCity
DenverDenver
DallasFort WorthDallasFort Worth
Tucson
2006 Performance Outlook
• CustomerService
• AssetUtilization
• FinancialPerformance
• Safety – Employee, Customer, & Public
• Network Simplification – Plan Compliance
– Unified Plan
– CIMS
• Productivity Initiatives
– Process Improvement
– Technology
– Failure Cost Reduction
• Strategic Capital Investments
• Safety – Employee, Customer, & Public
• Network Simplification – Plan Compliance
– Unified Plan
– CIMS
• Productivity Initiatives
– Process Improvement
– Technology
– Failure Cost Reduction
• Strategic Capital Investments
Union PacificCorporation
Union PacificCorporation
Jim YoungPresident &
Chief Executive Officer
Union Pacific Corporation
Jim YoungPresident &
Chief Executive Officer
Union Pacific Corporation
2006 Outlook
* See Union Pacific web site under Investor Relations for a reconciliation to GAAP.
$300+Free Cash Flow (after Dividends, in Millions)*
$2.7+Total Capital (in Billions)
$4.60 to $4.80$0.80 to $0.90Earnings Per Share
2.5 to 3 pts3+ ptsOperating Ratio Improvement
10%+15%+Commodity Revenue Growth
Full YearFirstQuarter
Union Pacific Is Committed To Be ACompany Where
Employees AreProud To Work
Customers Want ToDo Business
Safety of the Publicand Our Employees is
Our Top Priority
Shareholder ValueIs Created
Safety
CustomersShareholders
Employees
Cautionary InformationThis presentation and related materials may contain statements about the Corporation’s future that are not statements of historical fact.
These statements are, or will be, forward-looking statements as defined by the Securities Act of 1933 and the Securities Exchange Act of 1934.Forward-looking statements include, without limitation, statements regarding: expectations as to continued or increasing demand for railtransportation in excess of supply; expectations regarding operational improvements, including the effectiveness of network managementinitiatives that have been or will be implemented to improve system velocity, customer service and shareholder returns; expectations as toincreased returns, cost savings, revenue growth and earnings; expectations regarding fuel price; the time by which certain objectives will beachieved, including expected improvements in velocity and implementation of network management initiatives; estimates of costs relating toenvironmental remediation and restoration; proposed new products and services; expectations that claims, lawsuits, environmental costs,commitments, contingent liabilities, labor negotiations or agreements, or other matters will not have a material adverse effect on ourconsolidated financial position, results of operations or liquidity; and statements concerning projections, predictions, expectations, estimatesor forecasts as to the Corporation’s and its subsidiaries’ business, financial and operational results, and future economic performance; andstatements of management’s beliefs, expectations, goals and objectives and other similar expressions concerning matters that are nothistorical facts.
Forward-looking statements should not be read as a guarantee of future performance or results, and will not necessarily be accurateindications of the times that, or by which, such performance or results will be achieved. Forward-looking information, including expectations asto operational, service and network fluidity improvements are subject to risks and uncertainties that could cause actual performance or resultsto differ materially from those expressed in the statements.
Important factors that could affect the Corporation’s and its subsidiaries’ future results and could cause those results or other outcomesto differ materially from those expressed or implied in the forward-looking statements include, but are not limited to: whether the Corporationand its subsidiaries are fully successful in implementing their financial and operational initiatives, including those plans and managementinitiatives to improve system velocity and network performance or otherwise improve operations; the impact of ongoing track maintenance andrestoration work being performed in the Southern Powder River Basin of Wyoming; industry competition, conditions, performance andconsolidation; general legislative and regulatory developments, including possible enactment of initiatives to re-regulate the rail industry;legislative, regulatory and legal developments involving taxation, including enactment of new federal or state income tax rates, revisions ofcontrolling authority and the outcome of tax claims and litigation; changes in securities and capital markets; natural events such as severeweather, fire, floods, hurricanes and earthquakes; the effects of adverse general economic conditions, both within the United States andglobally; any adverse economic or operational repercussions from terrorist activities and any governmental response thereto; war or risk ofwar; changes in fuel prices; changes in labor costs; labor stoppages; and the outcome of claims and litigation, including those related toenvironmental contamination, personal injuries, and occupational illnesses arising from hearing loss, repetitive motion and exposure toasbestos and diesel fumes.
Forward-looking statements speak only as of the date the statements were made. The Corporation assumes no obligation to updateforward-looking information to reflect actual results, changes in assumptions or changes in other factors affecting forward-looking information.If the Corporation does update one or more forward-looking statements, no inference should be drawn that the Corporation will make additionalupdates with respect thereto or with respect to other forward-looking statements. References to our website are provided for convenience and,therefore, information on the website is not, and should not be construed to be, incorporated by reference herein.
Union PacificCorporation
Union PacificCorporation
Fourth Quarter 2005Fourth Quarter 2005