Union Pacific 2001 Annual Report Download - page 54

Download and view the complete annual report

Please find page 54 of the 2001 Union Pacific annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 96

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96

28
effective for the Corporation's fiscal year beginning January 1, 2002. Management believes that FAS 144 will not have
a material impact on the Corporation's Consolidated Financial Statements.
Commitments and Contingencies – There are various claims and lawsuits pending against the Corporation and certain
of its subsidiaries. The Corporation is also subject to various federal, state and local environmental laws and regulations,
pursuant to which it is currently participating in the investigation and remediation of various sites. A discussion of
certain claims, lawsuits, contingent liabilities and guarantees is set forth in note 12 to the Consolidated Financial
Statements, Item 8.
A LOOK FORWARD
2002 Business Outlook
Rail – The Railroad expects to build on the positive momentum generated in the past several years and continue to grow
revenue, earnings and free cash flow. Free cash flow is defined as cash provided by operating activities less cash used in
investing activities and dividends paid. The impact in 2001 of economic recession and declining industrial production
is expected to subside in the latter half of 2002. Year-over-year revenue growth is projected in the economically sensitive
intermodal, chemical and industrial products commodity segments. Agricultural products, notably wheat, is also
expected to improve. Energy revenue is expected to decline slightly from the record setting pace of 2001. Automotive
revenue is also expected to decrease; however, new contracts in the automotive sector are expected to help mitigate this
decline, and, therefore, the automotive sector should continue to be a strong revenue provider. The Railroad will continue
to focus on improving service performance and developing new, innovative rail service offerings to meet the changing
needs of its customers. Cost control and continuing improvements in productivity should help drive the operating ratio
lower. Fuel prices are expected to be substantially below the levels of the past two years, but will still be susceptible to
volatile price swings. To help reduce the impact of fuel price volatility on earnings, the Railroad will continue to look
for opportunities to use hedge contracts.
On December 21, 2001, The Railroad Retirement and Survivors' Improvement Act of 2001 (the Act) was signed into
law. The Act was a result of historic cooperation between rail management and labor, and provides improved railroad
retirement benefits for employees and reduced payroll taxes for employers. Although the exact impact is not yet known,
the Railroad anticipates that the phased-in tax reductions will have a beneficial impact on its financial results in the future.
Trucking – Overnite expects financial performance to improve in the second half of 2002 following difficult economic
conditions during the first half of the year. Operating expenses are projected to be positively impacted by lower fuel
prices, cost control and productivity improvements, which will mitigate the impact of inflationary pressures. Overnite
will continue to offer reliable on-time performance and quality service, which should enable Overnite to maintain
profitable margins. The addition of Motor Cargo will enable the trucking segment to provide expanded regional coverage
in the western United States.
2002 Capital Investments
The Corporation’s 2002 capital expenditures and debt service requirements are expected to be funded through cash
generated from operations, additional debt financings and the sale or lease of various operating and non-operating
properties. The Corporation expects that these sources will continue to provide sufficient funds to meet cash
requirements in the foreseeable future. In 2002, the Railroad expects to spend approximately $1.7 billion on capital
expenditures. These capital expenditures will be used to maintain track and structures, continue capacity expansions on
its main lines, upgrade and augment equipment to better meet customer needs, build infrastructure and develop and
implement new technologies. Overnite and Motor Cargo will continue to maintain their truck fleet, expand service
centers and enhance technology.