10-QPeriod: Q3 FY2002

UNION PACIFIC CORP Quarterly Report for Q3 Ended Sep 30, 2002

Filed November 14, 2002For Securities:UNP

Summary

Union Pacific Corporation (UNP) reported a strong third quarter and year-to-date performance for 2002, demonstrating significant year-over-year growth in both revenue and net income. The company's operating income saw a substantial increase, driven by higher revenues, particularly in the rail segment, and improved operational efficiencies. A notable contributor to the net income surge was the gain realized from the sale of land, track, operating rights, and facilities to the Utah Transit Authority, alongside benefits from lower interest expenses and a tax settlement. Looking ahead, UNP appears well-positioned with solid operational execution and strategic financial management. The company is managing its debt effectively, reducing interest expenses, and has ample liquidity through its credit facilities. While facing some headwinds like potential port disruptions and ongoing environmental liabilities, the overall financial health and operational performance showcased in this report suggest a positive outlook for investors.

Key Highlights

  • 1Net income for the third quarter of 2002 was $437 million ($1.73 per basic share), a significant increase from $267 million ($1.08 per basic share) in the same period of 2001.
  • 2Year-to-date net income reached $963 million ($3.83 per basic share), up from $691 million ($2.79 per basic share) in the first nine months of 2001.
  • 3Operating revenues increased by 6% in the third quarter to $3.2 billion and by 4% year-to-date to $9.3 billion.
  • 4Operating income improved substantially, rising 12% to $644 million in the third quarter and 16% year-to-date to $1.7 billion.
  • 5The company realized a significant pre-tax gain of $141 million from the sale of land, track, operating rights, and facilities to the Utah Transit Authority.
  • 6Interest expense decreased due to lower interest rates and a lower average debt level, contributing to improved net income.
  • 7Union Pacific maintained strong liquidity, with $1.875 billion in available revolving credit facilities, none of which were drawn as of September 30, 2002.

Frequently Asked Questions

The increase in net income was driven by several factors including higher operating revenues, particularly in the rail segment, a significant pre-tax gain from the sale of assets to the Utah Transit Authority, improved operational efficiencies leading to higher operating income, and lower interest expenses due to reduced debt levels and lower interest rates. Additionally, a tax settlement recognized at OTC contributed to the net income improvement.

Union Pacific is actively managing its debt, evidenced by a decrease in average debt levels and a reduction in interest expense. The company has a substantial amount of available liquidity through its credit facilities totaling $1.875 billion, none of which were utilized as of the reporting date, indicating strong financial flexibility.

The company faces potential headwinds including the impact of the West Coast port labor dispute which is expected to affect fourth-quarter earnings, ongoing environmental remediation liabilities, and personal injury costs within its operations. While the company has accrued liabilities for these items, they represent areas of potential financial impact.

The acquisition of Motor Cargo, completed in November 2001, significantly boosted the trucking segment's revenue and expenses. Excluding Motor Cargo's contribution, the trucking segment still showed revenue growth, indicating underlying operational improvements and benefits from market conditions like the Consolidated Freightways bankruptcy, though overall expense increases were also influenced by wage inflation and higher contract transportation costs.