Union Pacific 2002 Annual Report Download - page 43

17
in a $22 million increase to 2002 pension expense. While the interest rate and asset return environment have significantly
impacted the funded status of the Corporation’s plans, the Corporation does not have any minimum pension funding
requirements, as set forth in employee benefit and tax laws.
Personal Injury and Occupational Illness – The cost of injuries to employees and others related to Railroad activities or in
accidents involving the trucking segment is charged to expense based on actuarial estimates of the ultimate cost and number
of incidents each year. Compensation for Railroad work-related accidents is governed by the Federal Employers’ Liability
Act (FELA). Under FELA, damages are assessed based on a finding of fault through litigation or out-of-court settlements.
The Railroad offers a comprehensive variety of services and rehabilitation programs for employees who are injured at work.
Changes in estimates can vary due to evolving trends in litigation related to personal injury and occupational illness cases
based on large jury awards and public pressures associated with certain occupational related injuries.
2002 COMPARED TO 2001 RESULTS OF OPERATIONS
Consolidated
Net Income – The Corporation reported net income of $1.34 billion ($5.32 per basic share and $5.05 per diluted share) in
2002 compared to $966 million ($3.90 per basic share and $3.77 per diluted share) in 2001. The increase in net income
resulted from double digit operating income growth, lower interest costs, two large asset sale transactions (one with the Utah
Transit Authority (UTA) for $141 million pre-tax and one with the Santa Clara Valley Transportation Authority (VTA) for
$73 million pre-tax) and tax adjustments of $67 million for prior years’ income tax examinations. Operating income
improved as revenue growth, lower fuel prices and productivity gains offset the effects of wage and benefit inflation and
higher volume-related costs. Productivity is measured by both gross ton miles per inflation-adjusted expense dollar and
gross ton miles per employee.
Operating Revenues – Operating revenues increased $518 million (4%) to a record $12.5 billion in 2002, reflecting 3%
growth at the Railroad and 17% growth in the trucking segment including the impact of the Motor Cargo acquisition.
Excluding Motor Cargo, revenue growth was 5% in the trucking segment. The Corporation recognizes transportation
revenues on a percentage-of-completion basis as freight moves from origin to destination. Other revenue is recognized as
service is performed or contractual obligations are met.
Operating Expenses – Operating expenses increased $266 million (3%) to $10.2 billion in 2002 from $9.9 billion in 2001.
Excluding Motor Cargo in 2002 and 2001, operating expenses increased $144 million (1%). The increase in expenses reflects
wage and benefit inflation, higher equipment rents and depreciation expenses and increased purchased services and other
costs. These increases were partially offset by a 3% reduction in employment levels at the Railroad, lower fuel prices and cost
control efforts. Lower fuel prices for the Railroad of 73 cents per gallon in 2002 versus 88 cents per gallon in 2001, reduced
fuel expense by $198 million in 2002.
Salaries, wages and employee benefits increased $225 million (5%) compared to 2001. Excluding Motor Cargo, expenses
increased $156 million (4%) compared to 2001 as wage and benefit inflation and volume costs exceeded savings from lower
employment levels and improved productivity. Equipment and other rents expense increased $59 million (5%) as a result
of a 2% increase in carloads, additional locomotive lease expense and higher contract maintenance costs recognized at
Overnite. Depreciation expense increased $32 million (3%) as a result of the Railroad’s capital spending in recent years
which has increased the total value of the Corporation’s assets subject to depreciation. Fuel and utilities costs were down
$183 million (14%) compared to 2001 due to lower fuel prices and a lower fuel consumption rate, partially offset by higher
gross ton miles at the Railroad. Materials and supplies expense decreased $7 million (1%) primarily due to reduced
locomotive repairs partly offset by increased freight car repairs. Casualty costs increased $38 million (10%) over 2001 due
to higher personal injury and increased insurance costs. Purchased services and other costs increased $102 million (11%)
primarily due to an increase in outsourcing of locomotive contract maintenance services, as well as an increase in jointly
owned facility expenses and state and local taxes.
Operating Income – Operating income increased $252 million (12%) to a record $2.3 billion in 2002, 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.