Union Pacific 2001 Annual Report Download - page 40

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Operating Expenses – Operating expenses decreased $74 million (1%) to $9.9 billion in 2001 from $10.0 billion in 2000.
Excluding the effect of the work force reduction charge in 2000, operating expenses increased $41 million compared to
2000 reflecting wage and benefit inflation and higher equipment rents and depreciation expenses. These increases were
partially offset by a 4% reduction in employment levels at the Railroad, lower fuel prices and cost control efforts. Lower
fuel prices in 2001 versus 2000 reduced fuel expense by $35 million in 2001.
Salaries, wages and employee benefits decreased $35 million compared to 2000. Excluding the work force reduction
charge, salaries, wages and employee benefits increased $80 million (2%), as wage and benefit inflation and volume costs
exceeded savings from lower employment levels and improved productivity. Equipment and other rents expense
increased $26 million (2%) as a result of additional locomotive lease expense and longer car cycle times, which indicates
that cars spent more time on the rail system between shipments. Partially offsetting these increases were lower costs due
to declines in rail traffic requiring rental of freight cars. In addition, the Railroad experienced lower rental rates, and
Overnite experienced lower contract transportation costs. Depreciation expense increased $34 million (3%) as a result
of the Railroad’s capital spending in recent years which increased the total value of the Corporation's assets subject to
depreciation (see note 1 to the Consolidated Financial Statements, Item 8). Fuel and utilities costs were down $34 million
(3%) compared to 2000 due to lower fuel prices and a lower fuel consumption rate, partially offset by higher gross ton
miles at the Railroad and losses on fuel hedging activity (see note 4 to the Consolidated Financial Statements, Item 8).
Materials and supplies expense decreased $56 million (9%) primarily due to reduced locomotive repairs and cost control
actions. Casualty costs increased $16 million (4%) over 2000 due to higher insurance, bad debts and environmental
expenses. Other costs decreased $25 million (3%) as productivity and cost control efforts more than offset higher state
and local taxes.
Operating Income – Operating income increased $169 million (9%) to $2.1 billion in 2001. Excluding the effect of the
$115 million work force reduction charge in 2000, 2001 operating income increased $54 million (3%) as revenue growth,
productivity gains and lower fuel prices more than offset inflation, increased depreciation expense and higher rail costs
due to increased rail volume.
Non-Operating Items – Interest expense decreased $22 million (3%) compared to 2000 due to lower weighted-average
debt levels and weighted-average interest rates in 2001. In 2001, the Corporation's weighted-average debt level decreased
from $10,044 million in 2000 to $9,980 million in 2001. The Corporation's weighted-average interest rate was 7.0% in
2001 as compared to 7.2% in 2000. Other income increased $32 million (25%) in 2001 compared to 2000 due primarily
to higher real estate sales. Income tax expense increased $99 million (21%) in 2001 over 2000. Excluding the effect of
the $115 million work force reduction charge on income tax expense in 2000, income taxes for 2001 increased $56 million
(11%) over 2000. The increase was a result of higher pre-tax income levels in 2001 and an increase in the effective tax
rate from 35.7% in 2000 to 37.0% in 2001.
Key Measures – Net income as a percentage of operating revenues increased to 8.1% in 2001 from 7.1% in 2000. Net
income as a percentage of operating revenues in 2000, excluding the work force reduction charge, was 7.7%. Return on
average common shareholders’ equity was 10.6% in 2001, up from 10.1% in 2000. Excluding the charge in 2000, return
on average common shareholders' equity was 10.9% in 2000. The Corporation’s operating ratio was 82.7% in 2001
compared to 84.0% in 2000 and 83.0% in 2000, excluding the work force reduction charge.
Rail Segment
Net Income – Rail operations reported record net income of $1.1 billion in 2001 compared to net income of $926 million
in 2000, up 14%. Excluding the work force reduction charge in 2000, net income was $998 million. The increase in
earnings resulted from higher commodity revenue and real estate sales combined with lower fuel expense, interest expense
and materials and supplies expense. These improvements were partially offset by inflation, lower other revenue and
higher equipment rent and depreciation expenses.
Operating Revenues – Rail operating revenues increased $69 million (1%) over 2000 to a record $10.8 billion. Revenue
carloads were flat with an increase in the energy and agricultural commodity groups offset by decreases in the other four
commodity groups. The decrease in other revenue was the result of lower switching, subsidiary and accessorial revenues.