Union Pacific 2002 Annual Report Download - page 73

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47
Fuel Strategy – As a result of the significance of the Corporation’s fuel costs and the historical volatility of fuel prices, the
Corporation’s transportation subsidiaries periodically use swaps, futures and/or forward contracts to mitigate adverse fuel
price changes. In addition, the Corporation at times may use fuel swaptions to secure more favorable swap prices. The
following is a summary of the Corporation’s derivative financial instruments at December 31, 2002 and 2001:
Millions, Except Percentages and Average Commodity Prices 2002 2001
Interest rate hedging:
Amount of debt hedged ..................................................................................................... $898 $598
Percentage of total debt portfolio ...................................................................................... 12% 7%
Rail fuel hedging/swaptions:
Number of gallons hedged for 2002[a] ............................................................................. 552 567
Average price of 2002 hedges (per gallon) [b] .................................................................. $0.56 $0.56
Number of gallons hedged for 2003[c] ............................................................................. 88 63
Average price of 2003 hedges outstanding (per gallon)[b] .............................................. $0.58 $0.56
Trucking fuel hedging:
Number of gallons hedged for 2002[a] ............................................................................. 9 9
Average price of 2002 hedges outstanding (per gallon)[b] .............................................. $0.58 $0.58
Number of gallons hedged for 2003[c] ............................................................................. 3 3
Average price of 2003 hedges outstanding (per gallon)[b] .............................................. $0.58 $0.58
[a] Fuel hedges which were in effect during 2002.
[b] Excluded taxes, transportation costs and regional pricing spreads.
[c] Fuel hedges which are in effect during 2003. These hedges expire December 31, 2003.
The fair value asset and liability positions of the Corporation’s outstanding derivative financial instruments at December
31, 2002 and 2001 were as follows:
Millions of Dollars 2002 2001
Interest rate hedging:
Gross fair value asset position............................................................................................ $ 52 $(13
Gross fair value (liability) position .................................................................................... - -
Rail fuel hedging:
Gross fair value asset position............................................................................................ 12 -
Gross fair value (liability) position .................................................................................... - (11)
Rail fuel swaptions:
Gross fair value asset position............................................................................................ - -
Gross fair value (liability) position .................................................................................... - (24)
Trucking fuel hedging:
Gross fair value asset position............................................................................................ 1 -
Gross fair value (liability) position .................................................................................... - -
Total net fair value asset (liability) position, net.................................................................... $ 65 $(22)
Fuel hedging positions will be reclassified from accumulated other comprehensive income (loss) to fuel expense over the
life of the hedge as fuel is consumed. During 2003, the Corporation expects fuel expense to decrease $13 million from this
reclassification.