Union Pacific(UNP) - 2023 Q3 - Quarterly Report

PART I. FINANCIAL INFORMATION This section provides the unaudited condensed consolidated financial statements and management's discussion and analysis for Union Pacific Corporation Condensed Consolidated Financial Statements This section presents Union Pacific Corporation's unaudited condensed consolidated financial statements for the three and nine months ended September 30, 2023 and 2022, including income, financial position, cash flows, and equity statements with detailed notes Condensed Consolidated Statements of Income Q3 2023 operating revenues decreased to $5.94 billion from $6.57 billion, with net income falling to $1.53 billion from $1.90 billion, and diluted EPS to $2.51 from $3.05 Q3 2023 vs Q3 2022 Income Statement Highlights (Millions, except EPS) | Metric | Q3 2023 | Q3 2022 | | :--- | :--- | :--- | | Total Operating Revenues | $5,941 | $6,566 | | Operating Income | $2,177 | $2,633 | | Net Income | $1,528 | $1,895 | | Diluted EPS | $2.51 | $3.05 | Nine Months Ended Sep 30, 2023 vs 2022 Income Statement Highlights (Millions, except EPS) | Metric | YTD 2023 | YTD 2022 | | :--- | :--- | :--- | | Total Operating Revenues | $17,960 | $18,695 | | Operating Income | $6,675 | $7,505 | | Net Income | $4,727 | $5,360 | | Diluted EPS | $7.75 | $8.54 | Condensed Consolidated Statements of Financial Position As of September 30, 2023, total assets increased to $66.54 billion, total liabilities decreased to $52.54 billion, and common shareholders' equity rose to $14.00 billion Financial Position Highlights (Millions) | Metric | Sep 30, 2023 | Dec 31, 2022 | | :--- | :--- | :--- | | Total Current Assets | $3,813 | $3,952 | | Total Assets | $66,540 | $65,449 | | Total Current Liabilities | $5,304 | $5,520 | | Total Liabilities | $52,536 | $53,286 | | Total Common Shareholders' Equity | $14,004 | $12,163 | Condensed Consolidated Statements of Cash Flows Nine-month operating cash flow decreased to $5.98 billion from $7.07 billion, with $2.65 billion used in investing and $3.54 billion in financing, reflecting reduced share repurchases Cash Flow Summary for Nine Months Ended Sep 30 (Millions) | Activity | 2023 | 2022 | | :--- | :--- | :--- | | Cash from Operating Activities | $5,984 | $7,070 | | Cash used in Investing Activities | $(2,650) | $(2,559) | | Cash used in Financing Activities | $(3,540) | $(4,210) | | Net Change in Cash | $(206) | $301 | - Share repurchases significantly decreased to $705 million in the first nine months of 2023, compared to $5.50 billion in the same period of 2022[20] Notes to the Condensed Consolidated Financial Statements Notes detail freight revenues by commodity, stock-based compensation, retirement plans, debt facilities, commitments, contingencies, and share repurchase program status Freight Revenues by Commodity (Millions) | Commodity Group | Q3 2023 | Q3 2022 | YTD 2023 | YTD 2022 | | :--- | :--- | :--- | :--- | :--- | | Bulk | $1,766 | $1,959 | $5,420 | $5,604 | | Industrial | $2,057 | $2,194 | $6,160 | $6,206 | | Premium | $1,722 | $1,956 | $5,190 | $5,581 | | Total Freight Revenues | $5,545 | $6,109 | $16,770 | $17,391 | - The company has a $2.0 billion revolving credit facility expiring in May 2027 and was in compliance with its debt-to-EBITDA covenant as of September 30, 2023[60][61] - Under the current share repurchase authorization (effective April 2022 to March 2025), the company has repurchased 19.6 million shares as of September 30, 2023, with authority remaining for 80.4 million shares[75][76] - The company's personal injury liability was estimated to be between $393 million and $503 million, with an accrual recorded at the low end of the range. The environmental liability ending balance was $263 million[69][71] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses Q3 2023 financial results, noting a 9% decrease in freight revenues due to lower volumes and average revenue per car, a 4% decrease in operating expenses, and a deteriorated operating ratio of 63.4% Results of Operations Q3 2023 net income was $1.5 billion with a 63.4% operating ratio, down from $1.9 billion and 59.9% in Q3 2022, driven by a 9% freight revenue drop and 4% operating expense decrease - Q3 2023 earnings were $2.51 per diluted share on net income of $1.5 billion, down from $3.05 per share and $1.9 billion in Q3 2022[91] - Freight revenues decreased 9% in Q3 2023, driven by a 7% decrease in average revenue per car (ARC) and a 3% decline in volume. The ARC decrease was caused by lower fuel surcharge revenues and a negative traffic mix[91][96] - Operating expenses decreased 4% in Q3 2023, primarily due to lower fuel prices and a one-time charge in 2022 for labor agreements. This was partially offset by inflation, increased workforce levels, and higher casualty costs[93][107] Key Railroad Performance Measures | Metric | Q3 2023 | Q3 2022 | Change | | :--- | :--- | :--- | :--- | | Freight car velocity (daily miles per car) | 200 | 191 | 5% | | Average terminal dwell time (hours) | 23.5 | 24.4 | (4)% | | Intermodal car trip plan compliance (%) | 75 | 62 | 13pts | | Manifest/Automotive car trip plan compliance (%) | 64 | 58 | 6pts | | Operating ratio (%) | 63.4 | 59.9 | 3.5pts | Liquidity and Capital Resources Nine-month operating cash flow decreased to $6.0 billion, free cash flow to $0.95 billion, with a $3.7 billion capital plan and strong liquidity including $750 million cash and $2.8 billion available credit Cash Flow Summary (Nine Months Ended Sep 30, Millions) | Metric | 2023 | 2022 | | :--- | :--- | :--- | | Cash provided by operating activities | $5,984 | $7,070 | | Cash used in investing activities | $(2,650) | $(2,559) | | Cash used in financing activities | $(3,540) | $(4,210) | Free Cash Flow Reconciliation (Nine Months Ended Sep 30, Millions) | Metric | 2023 | 2022 | | :--- | :--- | :--- | | Cash provided by operating activities | $5,984 | $7,070 | | Cash used in investing activities | $(2,650) | $(2,559) | | Dividends paid | $(2,380) | $(2,362) | | Free cash flow | $954 | $2,149 | - The company's 2023 capital plan is expected to be approximately $3.7 billion, an increase of 9% from 2022, to support infrastructure, safety, and growth projects[137] - As of September 30, 2023, the company had $750 million in cash and cash equivalents, plus $2.8 billion in available credit from its revolving credit and receivables facilities[144] Quantitative and Qualitative Disclosures About Market Risk No material changes occurred in Quantitative and Qualitative Disclosures About Market Risk from the 2022 Annual Report on Form 10-K - There were no material changes to market risk disclosures from the 2022 Annual Report on Form 10-K[156] Controls and Procedures CEO and CFO concluded disclosure controls were effective, with no material changes to internal control over financial reporting during the quarter - The CEO and CFO concluded that the Corporation's disclosure controls and procedures were effective to provide reasonable assurance as of the end of the period[158] - No changes were identified during the last fiscal quarter that materially affected, or are reasonably likely to materially affect, the Corporation's internal control over financial reporting[159] PART II. OTHER INFORMATION This section covers legal proceedings, risk factors, equity security sales, other information, and exhibits Legal Proceedings The company is involved in various legal proceedings, including environmental matters with potential remediation liabilities, whose ultimate impact is difficult to predict - The company is involved in ongoing legal proceedings, claims, and litigation incidental to its business[161] - Union Pacific has received notices from the EPA and state agencies regarding potential liability for remediation costs at various sites across the U.S., including Superfund sites[162] Risk Factors This section refers to the risk factors detailed in the company's 2022 Form 10-K for a comprehensive discussion of potential risks - The report directs readers to the risk factors section of the 2022 Form 10-K for a discussion of potential risks and uncertainties[165] Unregistered Sales of Equity Securities and Use of Proceeds In Q3 2023, no shares were repurchased under the public plan; 17,156 shares were acquired from employees for stock option and tax obligations, with 80.4 million shares remaining under authorization Q3 2023 Common Stock Repurchases | Period | Total Shares Purchased | Avg Price Paid Per Share | Purchased as Part of Plan | Remaining Authority | | :--- | :--- | :--- | :--- | :--- | | Jul. 2023 | 12,013 | $236.05 | - | 80,392,027 | | Aug. 2023 | 125 | $231.50 | - | 80,392,027 | | Sep. 2023 | 5,018 | $214.25 | - | 80,392,027 | | Total | 17,156 | $229.64 | - | N/A | - The shares purchased during the quarter were delivered by employees to pay for stock option exercises and satisfy tax withholding obligations, not as part of the publicly announced repurchase program[166] Other Information EVP Eric J. Gehringer and CEO V. James Vena adopted Rule 10b5-1(c) trading plans in July and August 2023 for future common stock transactions - On July 28, 2023, EVP Eric J. Gehringer adopted a Rule 10b5-1 trading plan to sell up to 1,274 shares[169] - On August 22, 2023, CEO V. James Vena adopted a Rule 10b5-1 trading plan to purchase up to 4,500 shares[170] Exhibits Exhibits filed with Form 10-Q include CEO and CFO certifications and financial statements in iXBRL format - Key exhibits filed include CEO and CFO certifications pursuant to Sarbanes-Oxley Act Sections 302 and 906[175] - The financial statements and notes are provided in Inline Extensible Business Reporting Language (iXBRL) format[175]