Union Pacific 2012 Annual Report Download - page 32

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cycle times, productivity improvements reduced average rail car inventory by 1% in 2012 compared to
2011. Average rail car inventory decreased slightly in 2011 compared to 2010, as we continued to adjust
the size of our freight car fleet.
Gross and Revenue Ton-Miles – Gross ton-miles are calculated by multiplying the weight of loaded and
empty freight cars by the number of miles hauled. Revenue ton-miles are calculated by multiplying the
weight of freight by the number of tariff miles. Gross ton-miles declined 2% in 2012 compared to 2011,
while revenue ton-miles decreased 4% and carloads remained relatively flat. Changes in commodity mix
drove the year-over-year variances between gross ton-miles, revenue ton-miles and carloads. Gross and
revenue-ton-miles increased 5% in 2011 compared to 2010, driven by a 3% increase in carloads and mix
changes to heavier commodity groups, notably a 5% increase in coal shipments.
Operating Ratio – Operating ratio is our operating expenses reflected as a percentage of operating
revenue. Our operating ratio improved 2.9 points to a record low of 67.8% in 2012 versus 2011. Core
pricing gains, improved fuel recovery provisions, efficient operations and cost reductions more than offset
the impact of inflationary pressures. Our operating ratio increased 0.1 points to 70.7% in 2011 versus
2010. Higher fuel prices, inflation and weather related costs, partially offset by core pricing gains and
productivity initiatives, drove the increase.
Employees – Employee levels increased 2% in 2012 versus 2011. Work related to the increase in capital
investment, including positive train control, accounted for over half of the increase. Additionally, the shift
in our traffic mix required more resources in the Southern region to support the growth in shale-related
shipments. Employee levels were up 5% in 2011 versus 2010, driven by a 3% increase in volume levels,
a higher number of trainmen, engineers, and yard employees receiving training during the year, and
increased work on capital projects.
Customer Satisfaction Index – Our customer satisfaction survey asks customers to rate how satisfied they
are with our performance over the last 12 months on a variety of attributes. A higher score indicates
higher customer satisfaction. We believe that improvement in survey results in 2012 generally reflects
customer recognition of our service quality supported by our capital investment program.
Return on Average Common Shareholders’ Equity
Millions, Except Percentages 2012 2011 2010
Net income $ 3,943 $ 3,292 $ 2,780
Average equity $ 19,228 $ 18,171 $ 17,282
Return on average common shareholders' equity 20.5% 18.1% 16.1%
Return on Invested Capital as Adjusted (ROIC)
Millions, Except Percentages 2012 2011 2010
Net income $ 3,943 $ 3,292 $ 2,780
Add: Interest expense 535 572 602
Add: Interest on present value of operating leases 190 208 222
Less: Taxes on interest (273) (293) (307)
Net operating profit after taxes as adjusted (a) $ 4,395 $ 3,779 $ 3,297
Average equity $ 19,228 $ 18,171 $ 17,282
Add: Average debt 8,952 9,074 9,545
Add: Average value of sold receivables - - 200
Add: Average present value of operating leases 3,160 3,350 3,574
Average invested capital as adjusted (b) $ 31,340 $ 30,595 $ 30,601
Return on invested capital as adjusted (a/b) 14.0% 12.4% 10.8%
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 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