Union Pacific 2001 Annual Report Download - page 44

18
2000 COMPARED TO 1999 RESULTS OF OPERATIONS
Consolidated
Net Income – The Corporation reported net income of $842 million ($3.42 per basic share and $3.34 per diluted share)
in 2000. Excluding the effect of the $115 million pre-tax ($72 million after-tax) charge related to a work force reduction
plan at the Railroad, net income grew to $914 million ($3.71 per basic share and $3.61 per diluted share) in 2000
compared to $810 million ($3.28 per basic share and $3.22 per diluted share) in 1999. The increase in net income was
due primarily to revenue growth, improved service levels and productivity improvements at the Railroad, partially offset
by significantly higher fuel prices. Net income for 1999 included a one-time after-tax gain of $27 million ($0.11 per basic
share and $0.10 per diluted share) from the adjustment of a liability established in connection with the discontinued
operations of a former subsidiary (see note 3 to the Consolidated Financial Statements, Item 8).
Operating Revenues – Operating revenues increased $641 million (6%) to $11.9 billion in 2000, reflecting higher volumes
in five of the six commodity groups at the Railroad, higher other revenue at the Railroad and a 5% increase in revenue
at Overnite.
Operating Expenses – Operating expenses increased to $10.0 billion (6%) in 2000 from $9.4 billion in 1999, reflecting
the work force reduction charge, higher fuel prices, inflation, volume-related costs from a 4% increase in carloads at the
Railroad and increased depreciation expense. The increase in fuel prices added $464 million to operating expenses in
2000 compared to 1999. Productivity improvements and other cost control measures partially offset the increase in
operating expenses. Excluding the $115 million pre-tax work force reduction charge, operating expenses increased $427
million (5%) to $9.9 billion.
Salaries, wages and employee benefits increased $26 million (1%) compared to 1999. Salaries, wages and employee
benefits declined $89 million (2%), excluding the work force reduction charge, as lower employment levels and improved
productivity at the Railroad more than offset higher rail volume and inflation. Equipment and other rents expense
decreased $16 million (1%) as improved car cycle times and lower rental rates more than offset increased Railroad volume
and higher contract transportation costs at Overnite. Depreciation expense increased $57 million (5%) as a result of the
Railroad’s capital spending in recent years. Fuel and utilities costs were $518 million (62%) higher than 1999 resulting
from significantly higher fuel prices and increased carloads, partially offset by favorable fuel hedging (see note 4 to the
Consolidated Financial Statements, Item 8). Materials and supplies expense increased $3 million (1%) primarily due to
volume-related increases in car and locomotive repairs, partially offset by productivity and cost control actions. Casualty
costs decreased $18 million (5%) over 1999 as a result of lower settlement costs at the Railroad. Other costs decreased
$28 million (3%) as productivity and cost control efforts more than offset volume-related costs and higher state and local
taxes.
Operating Income – Operating income increased to $1.9 billion in 2000 from $1.8 billion in 1999, as revenue growth and
productivity gains at the Railroad more than offset higher fuel prices, rail volume costs and increased depreciation
expense. Excluding the $115 million pre-tax work force reduction charge, operating income increased $214 million
(12%) to $2.0 billion.
Non-Operating Items – Interest expense decreased $10 million (1%) compared to 1999 primarily due to lower average
debt levels in 2000. Excluding the income tax expense associated with the work force reduction charge, income taxes for
2000 increased $92 million (22%) over 1999 as a result of higher income levels in 2000 and settlements in 1999 related
to prior tax years.
Key Measures – Net income as a percentage of operating revenues declined to 7.1% in 2000 from 7.2% in 1999. Net
income as a percentage of operating revenues excluding the work force reduction charge improved to 7.7% in 2000. In
2000, return on average common shareholders’ equity was 10.1%. Excluding the work force reduction charge, in 2000,
return on average common shareholders' equity was 10.9%, up from 10.5% in 1999, reflecting strong revenue growth
and improved operations at the Railroad and Overnite. The Corporation’s operating ratio was 84.0% in 2000. Excluding
the work force reduction charge in 2000, it was 83.0% compared to 83.9% in 1999.