Union Pacific 2002 Annual Report Download - page 51

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Materials and Supplies – Expenses decreased $71 million (13%), reflecting locomotive overhaul reductions and productivity
improvements and cost control measures. Locomotive overhauls decreased due to acquisition of new, more-reliable
locomotives during the year and the sale of older units, which required higher maintenance. Materials and supplies expenses
related to car maintenance also declined due to lower business levels in the industrial products and automotive commodity
groups. The cars utilized in these commodity groups normally require more maintenance than the cars utilized within the
other commodity groups.
Casualty Costs – Costs increased $9 million (3%) compared to 2000, as higher insurance, bad debt and environmental
expenses were partially offset by lower personal injury costs and lower costs for damaged freight cars.
Other Costs – Expenses increased $3 million (flat) compared to 2000 primarily due to higher state and local taxes.
Operating Income – Operating income increased $178 million (9%) to $2.1 billion. Excluding the $115 million work force
reduction charge in 2000, operating income increased $63 million (3%) in 2001. The operating margin for 2001 was 19.3%,
compared to 17.7% in 2000. Excluding the work force reduction charge, the operating margin for 2000 was 18.8%.
Non-Operating Items – Non-operating expense decreased $56 million (12%) compared to 2000. Real estate sales and net
other income increased $48 million (38%). Interest expense decreased $8 million (1%) as a result of lower weighted-average
debt levels in 2001. Income taxes increased $102 million (20%) in 2001 compared to 2000. Excluding the work force
reduction charge in 2000, income tax expense increased $59 million (11%). The increase was a result of higher pre-tax
income levels in 2001 and an increase in the effective tax rate from 35.6% in 2000 to 36.7% in 2001.
Trucking Segment
Operating Revenues – In 2001, trucking revenues rose $30 million (3%) to $1,143 million. The growth resulted from rate
increases, new services and $10 million in incremental revenue due to the acquisition of Motor Cargo. Tonnage for the year
was flat compared to 2000.
Operating Expenses – Trucking operating expenses rose $29 million (3%) to $1,089 million in 2001. Salaries, wages and
employee benefits increased $40 million (6%) due to a 4% increase in employees as well as wage and benefit inflation and
enhancements. Fuel and utilities costs decreased $5 million (7%), as a result of lower fuel prices during the year (82 cents
per gallon average in 2001 compared to 90 cents per gallon average in 2000, including transportation costs and regional
pricing spreads, and excluding taxes), partially offset by a 1% increase in gallons consumed. Overnite did not hedge any fuel
volume for the year ended December 31, 2001. However, as of December 31, 2001, Overnite had hedged approximately 16%
of its expected fuel consumption for 2002 at an average of 58 cents per gallon, excluding taxes, transportation costs and
regional pricing spreads and had hedged approximately 5% of its expected fuel consumption for 2003 at an average of 58
cents per gallon excluding taxes, transportation costs and regional pricing spreads. Equipment and other rents decreased $4
million (4%) due to decreased use of contract transportation during the year. High utilization of contract transportation in
2000 was necessary due to the Teamsters related work stoppage. Casualty costs increased $7 million (18%) due to higher
bad debt, insurance and cargo loss and damage expenses. Other costs decreased $11 million (10%) due to lower expenses
related to decreased security (related to Teamsters’ matters), legal and employee travel expenses in 2001.
Operating Income – Trucking operations generated operating income of $54 million in 2001, compared to $53 million for
2000. The operating ratio increased to 95.3%, compared to 95.2% in 2000.
Other Product Lines
Other – Operating losses increased $10 million in 2001 compared to 2000. Operating revenues declined $4 million year over
year. Operating expenses increased $6 million due to increased spending at the technology companies to develop new
products and services.
LIQUIDITY AND CAPITAL RESOURCES
As of December 31, 2002, the Corporation’s principal sources of liquidity included cash, cash equivalents, the sale of
receivables, and revolving credit facilities, as well as issuance of commercial paper and other sources of financing through
the capital markets. The Corporation had $1.875 billion of credit facilities available, of which there were no borrowings