Union Pacific 2009 Annual Report Download - page 24

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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 operating segment.
Although we analyze 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.
EXECUTIVE SUMMARY
2009 Results
• Safety – During 2009, we continued our positive, multi-year trend in safety performance by setting
records in many of our safety metrics. The employee injury incident rate per 200,000 man-hours
declined 12% from 2008 to its lowest level ever. Our continued focus on derailment prevention
resulted in a 10% reduction in our incident rate in 2009, with associated costs declining 3%. With
respect to public safety, we closed 353 grade crossings to reduce our exposure to incidents. We also
continued installing video cameras on our road locomotives, which assist us in reviewing grade
crossing incidents, and we now have camera-equipped locomotives in the lead position of over 95%
of our road trains. During 2009, we had the lowest number of crossing incidents on record, and the
rate of grade crossing incidents per million train miles decreased 11%. Also, we have implemented
extensive trespass reduction programs, and trespasser incidents declined 28% during the year. These
improvements reflect comprehensive efforts to enhance employee training, increase public education,
make targeted capital investments, and eliminate or reduce safety risks.
• Financial Performance – In 2009, we generated operating income of $3.4 billion despite economic
conditions that significantly reduced demand for our services across almost all market sectors. While
a 16% reduction in volume drove the 17% decrease in operating income, core pricing gains, improved
productivity, and cost savings from demand-driven resource adjustments translated into an all-time
record operating ratio of 76.0% for 2009, outpacing our previous record of 77.3% set in 2008. Net
income of $1.9 billion declined from $2.3 billion in 2008, but resulted in earnings of $3.75 per diluted
share for 2009, surpassed only by financial results in 2008.
• Freight Revenues – Our freight revenues declined 22% year-over-year to $13.4 billion. Freight
revenues and volumes for all six commodity groups decreased, reflecting adverse economic
conditions. Overall, volume decreased 16% in 2009, with the largest declines in automotive and
industrial products shipments. Lower fuel surcharges due to lower fuel prices also reduced freight
revenues for the year, partially offset by core pricing gains. We continued to focus on improving the
reinvestibility of our business and we have repriced approximately 85% of our business since 2004.
• Network Operations – In 2009, we built upon operational improvements achieved during 2008 by
significantly improving the fluidity and efficiency of our transportation network, setting records in
numerous operational metrics, including velocity, average terminal dwell, freight car utilization and
service delivery. Lower volume levels, network management initiatives, and efforts to improve asset
utilization were key drivers of our operational improvement. We increased average train speed by
16% and improved car utilization by 8% with ongoing enhancements to our transportation plan and
continued efforts to improve train processing at our terminals. In 2009, customer satisfaction
improved to record levels, surpassing records established in 2008, an indication that our ongoing
efforts to improve operations again translated into better customer service.