Union Pacific 2002 Annual Report Download - page 68

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Year Ended December 31,
Millions of Dollars, Except Per Share Amounts 2002 2001 2000
Net income, as reported.................................................................................. $ 1,341 $ 966 $ 842
Stock-based employee compensation expense included in reported net
income, net of tax ...................................................................................... 31 11 11
Total stock-based employee compensation expense determined under
fair value based method for all awards, net of tax ................................... (52) (33) (40)
Pro forma net income..................................................................................... $ 1,320 $ 944 $ 813
EPS – basic, as reported .................................................................................. $ 5.32 $3.90 $3.42
EPS – basic, pro forma.................................................................................... $ 5.24 $3.81 $3.30
EPS – diluted, as reported............................................................................... $ 5.05 $3.77 $3.34
EPS – diluted, pro forma ................................................................................ $ 4.98 $3.69 $3.23
Earnings Per Share – Basic earnings per share (EPS) is calculated on the weighted-average number of common shares
outstanding during each period. Diluted earnings per share include shares issuable upon exercise of outstanding stock
options, stock-based awards and the potential conversion of the preferred securities where the conversion of such
instruments would be dilutive.
Use of Estimates – The Consolidated Financial Statements of the Corporation include estimates and assumptions regarding
certain assets, liabilities, revenues and expenses and the disclosure of certain contingent assets and liabilities. Actual future
results may differ from such estimates.
Income Taxes – The Corporation accounts for income taxes in accordance with Statement of Financial Accounting
Standards No. 109, “Accounting for Income Taxes” (FAS 109). The objectives of accounting for income taxes are to recognize
the amount of taxes payable or refundable for the current year and deferred tax liabilities and assets for the future tax
consequences of events that have been recognized in an entity’s financial statements or tax returns. These expected future
tax consequences are measured based on provisions of tax law as currently enacted; the effects of future changes in tax laws
are not anticipated. Future tax law changes, such as a change in the corporate tax rate, could have a material impact on the
Corporation’s financial position or its results of operations.
Pension and Postretirement Benefits – The Corporation incurs certain employment-related expenses associated with
pensions and postretirement health benefits. In order to measure the expense associated with these benefits, management
must make various estimates including discount rates used to value certain liabilities, assumed rates of return on plan assets
used to fund these expenses, compensation increases, employee turnover rates, anticipated mortality rates and expected
future healthcare costs. The estimates used by management are based on the Corporation’s historical experience as well as
current facts and circumstances. The Corporation uses third-party actuaries to assist management in properly measuring
the expense associated with these benefits. Actual results that vary from the previously mentioned assumptions could have
a material impact on the Corporation’s results of operations, financial position or liquidity.
Personal Injury – The cost of injuries to employees and others on Union Pacific Railroad Company (UPRR) property 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.
Environmental – When environmental issues have been identified with respect to the property owned, leased or otherwise
used in the conduct of the Corporation’s business, the Corporation and its consultants perform environmental assessments
on such property. The Corporation expenses the cost of the assessments as incurred. The Corporation accrues the cost of
remediation where its obligation is probable and such costs can be reasonably estimated.
Change in Presentation – Certain prior year amounts have been reclassified to conform to the 2002 Consolidated Financial
Statement presentation. These reclassifications had no effect on previously reported operating income or net income.
1. Operations and Segmentation
Union Pacific Corporation consists of two reportable segments, rail and trucking, as well as UPC’s other product lines
(Other). The rail segment includes the operations of the Corporation’s indirect wholly owned subsidiary, UPRR and UPRR’s
subsidiaries and rail affiliates (collectively, the Railroad). The trucking segment includes Overnite Transportation Company