Union Pacific 2010 Annual Report Download - page 32

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Inc. and lower expenses for freight and property damages partially offset these increases in comparing
2009 with 2010. In addition, personal injury expense was lower in 2010 compared to 2009, reflecting
continued improvement in our personal injury incident rate and lower settlement costs per claim. The
change in asbestos-related claim expenses in 2010 versus 2009 offset the lower personal injury costs.
As a result of our 2009 annual review of asbestos-related costs, we reduced expenses by $25 million,
thus driving the unfavorable variance in 2010.
Other costs were lower in 2009 compared to 2008, driven by a reduction in personal injury expense and
asbestos-related claims expense. We completed actuarial studies of personal injury expenses in both the
second and fourth quarters of 2009 and 2008 and annual reviews of asbestos-related claims in both
years, which resulted in a net reduction of $55 million in casualty expense in 2009 versus 2008. The
reduction reflects improvements in our safety experience and lower estimated costs to resolve claims. In
addition, the year-over-year comparison was favorably impacted by $28 million due to an adverse
development with respect to one personal injury claim in 2008 and favorable developments in three cases
in 2009. Other costs were also lower in 2009 compared to 2008, driven by a decrease in expenses for
freight and property damages, employee travel, and utilities. In addition, higher bad debt expense in 2008
due to the uncertain impact of the recessionary economy drove a favorable year-over-year comparison.
Conversely, an additional expense of $30 million related to a transaction with Pacer International, Inc. and
higher property taxes partially offset lower costs in 2009.
Non-Operating Items
Millions 2010 2009 2008
% Change
2010 v 2009
% Change
2009 v 2008
Other income $ 54 $ 195 $ 92 (72)% 112 %
Interest expense (602) (600) (511) - 17
Income taxes (1,653) (1,084) (1,316) 52 % (18)%
Other Income – Other income decreased in 2010 versus 2009 due to lower gains from real estate sales
(the second quarter of 2009 included a $116 million pre-tax gain from a land sale to the Regional
Transportation District in Colorado) and premiums paid for early debt redemption.
Other income increased $103 million in 2009 compared to 2008 primarily due to higher gains from real
estate sales, which included the $116 million pre-tax gain from a land sale in Colorado, and lower interest
expense on our receivables securitization facility, resulting from lower interest rates and a lower
outstanding balance. Reduced rental and licensing income and lower returns on cash investments,
reflecting lower interest rates, partially offset these increases.
Interest Expense – Interest expense was flat in 2010 compared to 2009 due to a modestly higher
weighted-average debt level of $9.7 billion, compared to $9.6 billion in 2009, offset by a lower effective
interest rate of 6.2% in 2010, compared to 6.3% in 2009.
Interest expense increased in 2009 versus 2008 due primarily to higher weighted-average debt levels. In
2009, the weighted-average debt level was $9.6 billion (including the restructuring of locomotive leases in
May of 2009), compared to $8.3 billion in 2008. Our effective interest rate was 6.3% in 2009, compared
to 6.1% in 2008.
Income Taxes – Income taxes were higher in 2010 compared to 2009, primarily driven by higher pre-tax
income. Our effective tax rate for the year was 37.3% compared to 36.4% in 2009. Income taxes were
lower in 2009 compared to 2008, driven by lower pre-tax income. Our effective tax rate for 2009 was
36.4% compared to 36.0% in 2008.
OTHER OPERATING/PERFORMANCE AND FINANCIAL STATISTICS
We report key Railroad performance measures weekly to the Association of American Railroads (AAR),
including carloads, average daily inventory of rail cars on our system, average train speed, and average
terminal dwell time. We provide this data on our website at www.up.com/investors/reports/index.shtml.